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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 20-F



(Mark One)

| |  ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------------



OR



| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------



For the fiscal year ended March 31, 2006



OR



| |  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------



For the transition period from
 to



OR



| |  ̈ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | -------------------------------------------------------------------------------------------



Date of event requiring this shell company report



Commission file number: 1-8320



KABUSHIKI KAISHA HITACHI SEISAKUSHO

(Exact name of Registrant as specified in its charter)



Hitachi, Ltd.

(Translation of
Registrants name into English)



Japan

(Jurisdiction of incorporation or organization)



6-6, Marunouchi 1-chome, Chiyoda-ku,

Tokyo 100-8280, Japan

(Address of principal executive offices)



Securities registered or to be registered pursuant to Section 12(b) of the Act:



|                                                                                         |  |                                          
|---------------------------------------------------------------------------------------- |  | -----------------------------------------
|Title of each class                                                                      |  | Name of each exchange on which registered
|American depositary shares, or ADSs, each of which represents ten shares of common stock |  | New York Stock Exchange                  
|Common stock without par value                                                           |  | New York Stock Exchange*                 



Securities registered
or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)



Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)



Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.



As of March 31, 2006, 3,368,126,056 shares of common stock were
outstanding.



---



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.



|      |  |    
|----- |  | ---
|x Yes |  |  ̈No



If this report is an
annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.



|     |  |     
|---- |  | ----
| ̈Yes |  | x No



Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.



|      |  |    
|----- |  | ---
|x Yes |  |  ̈No



Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):



|                          |  |                    |  |                       
|------------------------- |  | ------------------ |  | ----------------------
|Large accelerated filer x |  | Accelerated filer ̈ |  | Non-accelerated filer ̈



Indicate by check mark
which financial statement item the registrant has elected to follow.



|          |  |         
|--------- |  | --------
|x Item 17 |  |  ̈Item
18



If this is an annual
report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



|     |  |     
|---- |  | ----
| ̈Yes |  | x No



* Not for trading, but
only for technical purposes in connection with the listing of the ADSs.



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CAUTIONARY STATEMENT



Certain statements found in this annual report may constitute forward-looking statements as defined in the U.S.
Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect managements current views with respect to certain future events and financial performance and include any statement that does not directly
relate to any historical or current fact. Words such as anticipate, believe, expect, estimate, forecast, intend, plan, project and similar expressions
which indicate future events and trends may identify forward-looking statements. Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ
materially from those projected or implied in the forward-looking statements and from historical trends. Certain forward-looking statements are based upon current assumptions of future events which may not prove to be
accurate. Undue reliance should not be placed on forward-looking statements, as such statements speak only as of the date of this annual report.



Factors that could cause actual results to differ materially from those projected or implied in any forward-looking statement and from
historical trends include, but are not limited to:



| |  | fluctuations in product demand and industry capacity, particularly in the Information & Telecommunication Systems segment, Electronic Devices segment and Digital
Media & Consumer Products segment;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | uncertainty as to Hitachis ability to continue to develop and market products that incorporate new technology on a timely and cost-effective basis and to achieve market
acceptance for such products;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | rapid technological change, particularly in the Information & Telecommunication Systems segment, Electronic Devices segment and Digital Media & Consumer Products
segment;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | increasing commoditization of information technology products, and intensifying price competition in the markets for such products, particularly in the Information &
Telecommunication Systems segment, Electronic Devices segment and Digital Media & Consumer Products segment;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | fluctuations in rates of exchange for the yen and other currencies in which Hitachi makes significant sales or in which Hitachis assets and liabilities are denominated,
particularly between the yen and the U.S. dollar;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | uncertainty as to Hitachis ability to implement measures to reduce the potential negative impact of fluctuations in product demand and/or exchange rates;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | general socio-economic and political conditions and the regulatory and trade environment of Hitachis major markets, particularly, the United States, Japan and elsewhere in
Asia, including, without limitation, a return to stagnation or deterioration of the Japanese economy, or direct or indirect restriction by other nations on imports;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | uncertainty as to Hitachis access to, or ability to protect, certain intellectual property rights, particularly those related to electronics and data processing technologies;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | uncertainty as to the results of litigation and legal proceedings of which the Company, its subsidiaries or its equity method affiliates have become or may become parties;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | possibility of incurring expenses resulting from any defects in products or services of Hitachi;
|- |  | ------------------------------------------------------------------------------------------------



| |  | uncertainty as to the success of restructuring efforts to improve management efficiency and to strengthen competitiveness;
|- |  | --------------------------------------------------------------------------------------------------------------------------



| |  | uncertainty as to the success of alliances upon which Hitachi depends, some of which Hitachi may not control, with other corporations in the design and development of certain key
products;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | uncertainty as to Hitachis ability to access, or access on favorable terms, liquidity or long-term financing; and
|- |  | ------------------------------------------------------------------------------------------------------------------



| |  | uncertainty as to general market price levels for equity securities in Japan, declines in which may require Hitachi to write down equity securities it holds.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



The factors listed above are not all-inclusive
and are in addition to other factors contained elsewhere in this annual report and in other materials published by Hitachi.



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TABLE OF CONTENTS

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|                                                                                      |  |     
|------------------------------------------------------------------------------------- |  | ----
|                                                                                      |  | Page
|CERTAIN DEFINED TERMS, CONVENTIONS AND PRESENTATION OF FINANCIAL INFORMATION          |  | ii  
|PART I                                                                                |  | 1   
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                         |  | 1   
|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                       |  | 1   
|ITEM 3. KEY INFORMATION                                                               |  | 1   
|ITEM 4. INFORMATION ON THE COMPANY                                                    |  | 7   
|ITEM 4A. UNRESOLVED STAFF COMMENTS                                                    |  | 19  
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  |  | 19  
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    |  | 32  
|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             |  | 43  
|ITEM 8. FINANCIAL INFORMATION                                                         |  | 45  
|ITEM 9. THE OFFER AND LISTING                                                         |  | 46  
|ITEM 10. ADDITIONAL INFORMATION                                                       |  | 47  
|ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | 56  
|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 62  
|PART II                                                                               |  | 63  
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 63  
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 63  
|ITEM 15. CONTROLS AND PROCEDURES                                                      |  | 63  
|ITEM 16. [RESERVED]                                                                   |  | 63  
|ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                            |  | 63  
|ITEM 16B. CODE OF ETHICS                                                              |  | 63  
|ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      |  | 64  
|ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  |  | 64  
|ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      |  | 65  
|PART III                                                                              |  | 66  
|ITEM 17. FINANCIAL STATEMENTS                                                         |  | 66  
|ITEM 18. FINANCIAL STATEMENTS                                                         |  | 123 
|ITEM 19. EXHIBITS                                                                     |  | 123 
|SIGNATURES                                                                            |  | 124 
|EXHIBIT INDEX                                                                         |  | 125 



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CERTAIN DEFINED TERMS, CONVENTIONS AND

PRESENTATION OF FINANCIAL INFORMATION



Unless the context indicates otherwise, the term Company refers
to Hitachi, Ltd. and the term Hitachi refers to the Company and its consolidated subsidiaries.



The Companys fiscal year ends on March 31. The fiscal year ended March 31, 2006 is sometimes referred to in this annual report as
fiscal 2005, and other fiscal years may be referred to in a corresponding manner. References to years not specified as fiscal years are to calendar years.



The consolidated financial statements of Hitachi, except for segment information, have been prepared in accordance with
accounting principles generally accepted in the United States of America, or U.S. GAAP. Unless otherwise stated or the context otherwise requires, all amounts in such financial statements are expressed in Japanese yen.



References in this annual report to yen or ¥ are
to Japanese yen, references to US$, $ or U.S. dollars are to United States dollars and references to ST£ are to United Kingdom sterling pounds.



References in this annual report to the Company Law or the Japanese Company Law are to the Japanese
Company Law which became effective as of May 1, 2006 and other laws and regulations amending and/or supplementing the Japanese Company Law.



References in this annual report to the Commercial Code or the Japanese Commercial Code are to the former Japanese Commercial Code
and other laws and regulations amending and/or supplementing the former Japanese Commercial Code which were revised or abolished in accordance with the enactment of the Company Law.



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##### Table of Contents

PART I



|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|------- | -----------------------------------------------------



Not applicable.



|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------



Not applicable.



|ITEM 3. | KEY INFORMATION
|------- | ---------------



A. Selected Financial Data



The following selected consolidated financial information has been derived from Hitachis consolidated financial statements as of each of the dates and for each of the periods indicated below. This information should be read in
conjunction with and is qualified in its entirety by reference to Hitachis consolidated financial statements, including the notes thereto, included in this annual report. Translation of dividend amounts into U.S. dollars is based on the noon
buying rates for Japanese yen in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York at each respective payment date.



|                                                           |  |                                                                         |   |  |            |   |  |           |   |  |           |   |  |            |  
|---------------------------------------------------------- |  | ----------------------------------------------------------------------- | - |  | ---------- | - |  | --------- | - |  | --------- | - |  | ---------- | -
|                                                           |  | Year ended March 31,                                                    |  
|                                                           |  | 2002                                                                    |   |  | 2003       |   |  | 2004      |   |  | 2005      |   |  | 2006       |  
|                                                           |  | (Millions of yen, except per share amounts and number of shares issued) |  
|Total revenues                                             |  | 7,993,784                                                               |   |  | 8,191,752  |   |  | 8,632,450 |   |  | 9,027,043 |   |  | 9,464,801  |  
|Income (loss) before income taxes and minority interests   |  | (586,072                                                                | ) |  | 96,828     |   |  | 237,149   |   |  | 264,506   |   |  | 274,864    |  
|Net income (loss)                                          |  | (483,837                                                                | ) |  | 27,867     |   |  | 15,876    |   |  | 51,496    |   |  | 37,320     |  
|Per common share:                                          |  |                                                                         |   |  |            |   |  |           |   |  |           |   |  |            |  
|Net income (loss)                                          |  |                                                                         |   |  |            |   |  |           |   |  |           |   |  |            |  
|Basic                                                      |  | (144.95                                                                 | ) |  | 8.31       |   |  | 4.81      |   |  | 15.53     |   |  | 11.20      |  
|Diluted                                                    |  | (144.95                                                                 | ) |  | 8.19       |   |  | 4.75      |   |  | 15.15     |   |  | 10.84      |  
|Cash dividends declared                                    |  | 3.00                                                                    |   |  | 6.00       |   |  | 8.00      |   |  | 11.00     |   |  | 11.00      |  
|                                                           |  | ($0.024                                                                 | ) |  | ($0.049    | ) |  | ($0.074   | ) |  | ($0.105   | ) |  | ($0.094    | )
|Cash and cash equivalents                                  |  | 1,029,374                                                               |   |  | 828,171    |   |  | 764,396   |   |  | 708,715   |   |  | 658,255    |  
|Short-term investments                                     |  | 178,933                                                                 |   |  | 186,972    |   |  | 177,949   |   |  | 146,568   |   |  | 162,756    |  
|Total assets                                               |  | 9,915,654                                                               |   |  | 10,179,389 |   |  | 9,590,322 |   |  | 9,736,247 |   |  | 10,021,195 |  
|Short-term debt and current installments of long-term debt |  | 1,199,921                                                               |   |  | 1,328,446  |   |  | 1,183,463 |   |  | 1,183,474 |   |  | 1,000,555  |  
|Long-term debt                                             |  | 1,798,303                                                               |   |  | 1,512,152  |   |  | 1,314,102 |   |  | 1,319,032 |   |  | 1,418,489  |  
|Minority interests                                         |  | 798,744                                                                 |   |  | 751,578    |   |  | 798,816   |   |  | 921,052   |   |  | 1,036,807  |  
|Stockholders equity                                       |  | 2,304,224                                                               |   |  | 1,853,212  |   |  | 2,168,131 |   |  | 2,307,831 |   |  | 2,507,773  |  
|Common stock                                               |  | 282,032                                                                 |   |  | 282,032    |   |  | 282,032   |   |  | 282,033   |   |  | 282,033    |  
|Number of shares issued (thousand shares)                  |  | 3,338,481                                                               |   |  | 3,368,124  |   |  | 3,368,125 |   |  | 3,368,126 |   |  | 3,368,126  |  



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The following table provides the noon buying rates for Japanese yen in New York City for cable transfers
as certified for customs purposes by the Federal Reserve Bank of New York. The average rate means the average of the exchange rates on the last day of each month during a fiscal year.



|                                       |  |                                   |  |        |  |       
|-------------------------------------- |  | --------------------------------- |  | ------ |  | ------
|                                       |  | Yen exchange rates per U.S.dollar
|Year ended March 31, except month data |  | Average                           |  | High   |  | Low   
|2002                                   |  | 125.64                            |  |        |  |       
|2003                                   |  | 121.10                            |  |        |  |       
|2004                                   |  | 112.75                            |  |        |  |       
|2005                                   |  | 107.35                            |  |        |  |       
|2006                                   |  | 113.67                            |  |        |  |       
|February 2006                          |  |                                   |  | 118.95 |  | 115.82
|March 2006                             |  |                                   |  | 119.07 |  | 114.89
|April 2006                             |  |                                   |  | 118.66 |  | 113.79
|May 2006                               |  |                                   |  | 113.46 |  | 110.07
|June 2006                              |  |                                   |  | 116.42 |  | 111.06
|July 2006                              |  |                                   |  | 117.44 |  | 113.97



On August 1, 2006, the yen
exchange rate per U.S. dollar was 114.96 yen per $1.



B. Capitalization and
Indebtedness



Not applicable.



C. Reasons for the Offer and Use of Proceeds



Not applicable.



D. Risk Factors



Hitachi operates in a broad range of business fields, conducts business on a global scale, and utilizes sophisticated
specialized technologies to carry on its operations. It is therefore exposed to risks attributable to the economic environment, risks inherent in individual industrial sectors and business lines, and risks related to operations. Investments in
Hitachis securities also involve risks.



Although certain
risks that may affect Hitachis businesses are listed in this section, the list is not exhaustive. Hitachis businesses may in the future also be affected by other risks that are currently unknown or that are not currently considered
significant. The items set forth in this section contain forward-looking statements as described in the Cautionary Statement in this annual report.



Certain of the risk factors that may affect Hitachi are set out below.



Risks Related to Economic Environment



Economic trends



Decreases in consumer spending and private-sector plant and equipment investment due to economic downturns in Japan, North America, Asia and other major
markets where Hitachi does business, or direct or indirect restrictions on imports by other nations, may negatively impact Hitachis business results by reducing demand and increasing price competition for the products and services Hitachi
offers. In addition, the adverse economic environment may result in increased risks of excess inventories and overcapacities, and further restructuring measures by Hitachi, which could involve associated expenses.



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Currency exchange rate fluctuations



Since Hitachi conducts business in many foreign countries, a portion of its
assets and liabilities that are denominated in various currencies is exposed to risks from fluctuations in foreign currency exchange rates. In addition, Hitachi exports products and imports raw materials in local currencies, principally the U.S.
dollar. Therefore, fluctuations in foreign currency exchange rates may affect Hitachis financial results, which are reported in Japanese yen. A strong yen, for example, reduces the price competitiveness of products exported to foreign markets
and diminishes profit by decreasing revenues. While Hitachi takes measures to reduce the risks from fluctuations in foreign currency exchange rates, there can be no assurance that such measures will succeed.



Risks Related to Industrial Sectors and Business Lines



Rapid technological innovation



New technologies are rapidly emerging in the segments in which Hitachi does
business, with the pace of technological innovation being especially notable in the fields of information systems, electronics and digital media. The development of new and advanced technologies, the continuous, timely and cost-effective
incorporation of such technologies into products and services, and the effective marketing of such products and services are indispensable to remaining competitive. While introducing such products and services requires a significant commitment to
research and development, there can be no assurance that Hitachis research and development will result in success. Should Hitachi fail in its endeavors to develop and incorporate into products and services such advanced technologies, and
achieve market acceptance for such products and services, the results of operations of related Hitachi businesses may be negatively impacted.



Intense competition



The industrial sectors and business lines in which Hitachi is engaged are experiencing increasingly intense competition. Hitachi competes with diverse
competitors ranging from huge global corporations to specialized companies. Competitors are increasingly manufacturing products, including sophisticated electronic products, in low-cost jurisdictions. Globalization of markets and commoditization of
such products are making price competition in the business sectors in which Hitachi is engaged increasingly intense. Products which are facing intense price competition or decreases in prices include computer-related products, such as hard disk
drives, disk array subsystems and optical disk drives, semiconductors, liquid crystal displays, digital media products and home appliances. To succeed in this competitive environment, Hitachi believes its products and services must be competitive in
terms of price, engineering expertise, quality and brand value. Hitachi cannot be certain that the products or services that it offers will be competitive, and should such products or services fail to be competitive, Hitachis business results
may be negatively affected.



Supply and demand balance



Supply in excess of demand leads to a decline in
selling prices and, thus, such oversupply in the markets in which Hitachi is involved may adversely affect Hitachis performance. In addition, Hitachi may be forced to dispose of overcapacity and obsolete equipment to adjust to demand, which
can cause Hitachi losses. The semiconductor industry and the liquid crystal display industry, in particular, are highly cyclical, and cyclical downturns are characterized by sharp falls in prices and overcapacity. The liquid crystal display business
and the semiconductor business conducted primarily by subsidiaries and affiliates of the Company may be negatively impacted by a periodic oversupply in the global markets in the future.



Material and component procurement



Hitachis manufacturing operations rely on third parties for supplies of parts, components and services of adequate
quality and quantity and in a timely manner. External suppliers may have other customers and may not have sufficient capacity to meet all of the needs of such customers during periods of excess demand. Although, in general, Hitachi maintains
multiple sources of supply and works closely with its suppliers to avoid supply-related problems, such problems including shortages and delays may occur, which could materially harm Hitachis business. In addition, reliance on outside sources
increases the risk that Hitachi will not be able to control or avoid the introduction under the Hitachi name of products incorporating defective or inferior components, which could impose expenses for product recalls and lawsuits on Hitachi and
adversely affect Hitachis business results or its reputation for quality products. In addition, an increase in Hitachis production costs due to a sharp rise in prices of materials and components that Hitachi purchases could negatively
affect Hitachis business results.



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Risks Related to Operations



Dependence on specially skilled personnel



Hitachi believes it can continue to remain competitive only if it can maintain and secure additional people who are highly
skilled in the fields of management and technology. However, the number of skilled personnel is limited and the competition for attracting and maintaining such personnel is intense, particularly in the information technology industry. Hitachi cannot
assure that it will be able to successfully maintain and secure additional skilled personnel.



Acquisitions, joint ventures and strategic alliances



In every operating sector, Hitachi depends to some degree on acquisitions of other companies, joint ventures and strategic alliances with outside partners
to design and develop key new technologies and products, and to strengthen competitiveness. Such transactions are inherently risky, including because of the difficulties in integrating operations, technologies, products and personnel. Integration
issues are complex, time-consuming and expensive and, without proper planning and implementation, could adversely affect Hitachis business. The success of alliances may also be adversely affected by decisions or performance of alliance
partners that Hitachi cannot control or by adverse business trends. Hitachi may incur significant acquisition, administrative and other costs in connection with these transactions, including costs related to integration or restructuring of acquired
businesses. There can be no assurance that these transactions will be beneficial to Hitachis business or financial condition. Even assuming these transactions are beneficial, there can be no assurance that Hitachi will be able to successfully
integrate acquired businesses or achieve all or any of the initial objectives of these transactions.



Restructuring of business



Hitachi is continuing to restructure its business to improve management efficiency and strengthen competitiveness by closing unprofitable operations,
divesting its subsidiaries and affiliated companies, reorganizing production bases and sales network and reducing its workforce. In connection with these actions, Hitachi is incurring costs that adversely affect Hitachis financial results and
condition. Restructuring measures may be constrained or plans may not be implemented in a timely manner due to governmental regulations, employment issues and a lack of demand in the M&A market for businesses Hitachi may seek to sell. Moreover,
Hitachi may not achieve all of the objectives of these actions.



Business activities in overseas markets



Hitachi seeks to expand its business in overseas markets as part of its business strategy. Through such overseas expansion, Hitachi aims to increase its revenues, reduce its costs and improve its profitability. Hitachis overseas
business activities may be adversely affected by various factors in foreign countries where it operates, including changes in regulations relating to investments, export, tariffs, antitrust, consumer and business taxation and exchange controls,
differences in commercial and business customs, labor relations, public sentiment against Japan and other political and social factors as well as economic trends and currency exchange rate fluctuations. There can be no assurance that Hitachi will be
able to achieve all or any of the initial aims of its strategy.



Intellectual property



Hitachi depends
in part on intellectual property rights covering its products, product design and manufacturing processes. Hitachi owns or licenses a large number of intellectual property rights and, when Hitachi believes it is necessary or desirable, obtains
additional licenses for the use of other parties intellectual property rights. If Hitachi fails to protect, maintain or obtain such rights, its performance and ability to compete may be adversely affected. In addition, since intellectual
property litigation is costly and unpredictable, Hitachis efforts to protect its intellectual property rights or to defend itself against claims relating to intellectual property rights made by others could impose considerable expenses on
Hitachi.



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Litigation and regulatory investigations



Hitachi faces risks of litigation and regulatory investigation and actions
in connection with its operations. Lawsuits, including regulatory actions, may seek recovery of very large, indeterminate amounts or limit Hitachis operations, and their existence and magnitude may remain unknown for substantial periods of
time. A substantial legal liability or regulatory action could have a material adverse effect on Hitachis business, results of operations, financial condition, reputation and credibility.



Product quality and liability



Hitachi increasingly provides products and services utilizing sophisticated
and complicated technologies, including but not limited to components of nuclear power stations. Reliance on external suppliers reduces Hitachis control over quality assurance. There is a risk that defects may occur in Hitachis products
and services. The occurrence of such defects could negatively impact Hitachis reputation for quality products, expose Hitachi to liability for damages caused by such defects and negatively impact Hitachis ability to sell certain
products. Even a single significant product defect, could materially and adversely affect Hitachis business results and future business prospects. See Item 8. Financial Information  B. Significant Changes for additional
information.



Risks of natural disasters and similar
events



Portions of Hitachis facilities,
including its research and development facilities, manufacturing facilities and the Companys headquarters, are located in Japan, where seismic activity is frequent. Large earthquakes or other significant natural disasters could have a negative
impact on Hitachis operating activities, results of operations and financial condition. In addition, with the increased importance of information systems in Hitachis operating activities, disruptions in such information systems due to
computer viruses and other factors could have a negative impact on Hitachis operating activities, results of operations and financial condition.



Governmental regulations



Hitachis business activities are subject to various governmental regulations in countries where it operates, which include investment approvals,
export regulations, tariffs, antitrust, intellectual property, consumer and business taxation, exchange controls, and environmental and recycling requirements. Significant changes in such regulations may limit Hitachis business activities or
increase operating costs.









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Marketable securities risks



Hitachi owns marketable securities that are exposed to stock market risks. Declines in stock market prices may require
Hitachi to write down equity securities that it holds, which may have an adverse effect on Hitachis financial condition and results of operations.



Access to liquidity and long-term financing



Hitachis primary sources of funds are cash flows from operations, borrowings from banks and other institutional lenders, and funding from the
capital markets, such as offerings of commercial paper and other debt securities. A downgrade in Hitachis credit ratings could result in increases in Hitachis interest expenses and could have an adverse impact on Hitachis ability
to access the commercial paper market or the public and private debt markets, which could have an adverse effect on Hitachis financial position and liquidity. Although Hitachi has access to other sources of liquidity, including bank
borrowings, cash flows from its operations and sales of its assets, Hitachi cannot be sure that these other sources will be adequate or on terms acceptable to it if any adverse conditions arise. A failure of one or more of Hitachis major
lenders, a decision by one or more of them to stop lending to Hitachi or instability in the capital markets could have an adverse impact on Hitachis access to funding.



Retirement benefits



Hitachi has a significant amount of employee retirement benefit costs which are derived from actuarial valuations based on a number of assumptions.
Inherent in these valuations are key assumptions used in estimating pension costs including mortality, withdrawal, retirement, changes in compensation, discount rate and expected return on plan assets. Hitachi is required to make judgments regarding
the key assumptions by taking into account various factors including personnel demographics, market conditions and expected trends in interest rates. Although management believes that its key assumptions are reasonable in light of the various
underlying factors, there can be no assurance that the key assumptions will correspond to actual results. If the Companys key assumptions differ from actual results, the consequent deviation of actual pension costs from estimated costs may
have a material adverse effect on Hitachis financial condition and results of operations. In addition, the Company may change these key assumptions, such as the discount rate or the expected return on plan assets. Changes in key assumptions
may also have a material adverse effect on Hitachis financial condition and results of operations.



Risks Related to Hitachis Securities



Unit shares



The
Japanese Company Law allows companies to set one unit of shares for the purpose of exercising voting rights at the general meetings of shareholders. Under the articles of incorporation of the Company, one unit of the Companys
shares is comprised of 1,000 shares or 100 ADSs. Each unit of the Companys shares has one vote. A holder who owns shares or American depositary receipts, or ADRs, in other than multiples of 1,000 or 100, respectively, will own less than a
whole unit (i.e., for the portion constituting fewer than 1,000 shares, or ADRs evidencing fewer than 100 ADSs). The articles of incorporation of the Company, in accordance with the Japanese Company Law, imposes significant restrictions on the
rights of holders of shares constituting less than a whole unit, which include restrictions on the right to vote, to attend the shareholders meeting and to bring derivative actions. In addition, less than whole unit shares cannot be traded publicly
on the Japanese stock market. Under the unit share system, holders of the Companys shares constituting less than a unit have the right to require the Company to purchase their shares and the right to require the Company to sell them additional
shares to create a whole unit of 1,000 shares. However, holders of the Companys ADRs are unable to withdraw underlying shares representing less than one unit and, as a practical matter, are unable to require the Company to purchase those
underlying shares. The unit share system, however, does not affect the transferability of ADSs, which may be transferred in lots of any size.



Foreign exchange fluctuations



Market prices for the ADSs may fall if the value of the yen declines against the dollar. In addition, the amount of cash dividends or other cash payments
made to holders of ADSs will decline if the value of the yen declines against the dollar.



6



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##### Table of Contents

Rights of ADS holders



The rights of shareholders under Japanese law to take actions, including voting their shares, receiving dividends and
distributions, bringing derivative actions, examining the Companys accounting books and records and exercising appraisal rights are available only to shareholders of record. Because the depositary, through its custodian agents, is the record
holder of the shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares underlying ADSs in accordance with the instructions of ADS holders
and will pay the dividends and distributions collected from the Company. However, ADS holders will not be able to bring derivative actions, examine the Companys accounting books and records, or exercise appraisal rights through the depositary.



The Company is incorporated in Japan with limited liability. A
significant portion of the assets of the Company are located outside the United States. As a result, it may be more difficult for investors to enforce against the Company judgments obtained in U.S. courts predicated upon the civil liability
provisions of the Federal securities laws of the United States or judgments obtained in other courts outside Japan. There is doubt as to the enforceability in Japanese courts, in original actions or in actions for enforcement of judgments of U.S.
courts, of civil liabilities predicated solely upon the Federal securities laws of the United States.



|ITEM 4. | INFORMATION ON THE COMPANY
|------- | --------------------------



A. History and Development of the Company



The Company was founded in 1910 as a small electric repair shop and was incorporated as Hitachi, Ltd. (Kabushiki Kaisha Hitachi Seisakusho), a joint stock
corporation, in 1920 under the laws of Japan. Its registered office is located at 6-6, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8280, Japan. The telephone number of the Companys principal executive office is +81-3-3258-1111.



Over the years, Hitachi has broadened the horizon of its research as well as
its business activities to develop a highly diversified product mix ranging from electricity generation systems to consumer products and electronic devices. Hitachi has grown into one of Japans largest diversified manufacturers of electronic
and electrical products. With its diverse product lines, Hitachi maintains a significant presence in each of the major markets it serves, which together make Hitachi one of the worlds largest manufacturers of electronic products. With its
emphasis on research and development and its ability to combine a wide range of technologies, Hitachi continues to strive to provide the world with products that meet the changing needs of its customers.



Hitachi is taking various measures to improve its business, including a
realignment of Hitachis business portfolio which may be implemented by exiting certain businesses, increasing focus on targeted businesses and creating new businesses in an effort to achieve increased profitability and alteration of its
corporate governance structure in an effort to improve the efficiency and transparency of management. Hitachi expects to pursue further growth in the global markets by identifying competitive businesses and channeling management resources into those
businesses. The businesses on which Hitachi plans to increase focus include its storage solutions business, hard disk drive business and automotive products business. Hitachi also expects to continue to improve cash-flow management by increasing the
efficiency of working capital use while making selective investments, and further to reduce procurement costs. See Item 5. Operating and Financial Review and Prospects  A. Operating Results and Item 6. Directors, Senior
Management and Employees.



In recent years, Hitachi has
accelerated its business reorganization, including to facilitate Hitachis goal of maximizing growth by combining and utilizing the diverse management resources within Hitachi in the most effective and efficient ways.



On April 1, 2003, the Company transferred its semiconductor operations
centered in system large scale integrations, or system LSIs, to a new company, Renesas Technology Corp., or Renesas, jointly owned by the Company and Mitsubishi Electric Corporation, or Mitsubishi Electric. The Company believes this transfer will
improve the competitiveness of its semiconductor operations through more flexible management and realizing synergies between the technologies of the Company and Mitsubishi Electric. Renesas is accounted for under the equity method by the Company.



7



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##### Table of Contents

On October 1, 2004, the Company merged its equity-method affiliate, TOKICO LTD., and its
wholly-owned subsidiary, Hitachi Unisia Automotive, Ltd. into itself. The Company believes that this transaction will strengthen its automotive products business due to synergies it expects to realize through the integration of operations, including
the sales and R&D functions of the three companies.



On
April 1, 2005, the Company acquired 30.1% shares of its equity-method affiliate, Fujitsu Hitachi Plasma Display Limited (FHP), from Fujitsu Limited, and made it a consolidated subsidiary. The Company believes that this transaction
will strengthen both its plasma display panel business and its plasma television business by integrating business strategies of the Company and FHP and by developing high value-added products utilizing the Companys know-how.



In April 2006, the Company transferred a part of its social and industrial
systems operation to Hitachi Plant Engineering & Construction Co., Ltd., which was then merged with Hitachi Kiden Kogyo, Ltd. and Hitachi Industries Co., Ltd. to form Hitachi Plant Technologies, Ltd. The Company expects this consolidation
of capabilities to accelerate the growth of businesses in the social and industrial infrastructure sectors by improving product development, design and manufacturing technologies; engineering capabilities; and construction techniques and project
management abilities and enhancing the efficiency of business operations.



Hitachis capital expenditures for fixed assets on a completion basis were ¥954,706 million, ¥959,593 million, and ¥816,547 million in fiscal 2005, 2004 and 2003. While Hitachi has maintained a
selective attitude toward investment decisions, it has placed an emphasis on capital expenditures for strategically important products. Excluding the purchase of assets to be leased, a significant portion of capital expenditures have been directed
toward information-related products, including large capital investments in manufacturing facilities to maintain or enhance competitiveness in those product sectors. The decrease in fiscal 2005 was primarily due to a decrease in capital expenditures
in the electronic devices sectors in response to reductions in large-sized LCDs production. The increase in capital expenditures in fiscal 2004 was primarily due to an increase in purchases of assets to be leased, an increase of manufacturing
equipment for hard disk drives, automotive products and construction machinery in response to an increased demand for these products. In fiscal 2006, Hitachi expects to increase its capital expenditures in the areas of hard disk drives, plasma
display panels and high-functional materials. Hitachi expects capital expenditure investments in fiscal 2006 to be funded primarily through internal sources of financing and to be made primarily in Japan.



B. Business Overview



Main Categories of Products and Services



Hitachis business is highly diversified. Hitachi classifies its operations into seven industry segments based
primarily along related assets and operations management lines, as well as on the similarity of products and services by type, use, production method and marketing method, as required by a ministerial ordinance under the Securities and Exchange Law
of Japan. The industry segments and major categories of products and services offered in each segment as of March 31, 2006 are as follows:



| |  |  | Information & Telecommunication Systems. Systems integration, outsourcing services, software, hard disk drives, disk array subsystems, servers, mainframes, personal
computers, telecommunications equipment and ATMs;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Electronic Devices. Liquid crystal displays, semiconductor manufacturing equipment, test and measurement equipment, medical electronics equipment and semiconductors;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Power & Industrial Systems. Nuclear power plants, thermal power plants, hydroelectric power plants, plant engineering and construction, industrial machinery and
plants, automotive products, construction machinery, elevators, escalators, railway vehicles and air-conditioning equipment;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Digital Media & Consumer Products. Optical disk drives, televisions, plasma display panels, LCD projectors, mobile phones, room air conditioners, refrigerators,
washing machines, information storage media and batteries;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | High Functional Materials & Components. Wires and cables, copper products, semiconductor materials, circuit boards and materials, organic and inorganic chemical
products, synthetic resin products, LCD materials, specialty steels, magnetic materials, malleable cast-iron products and forged and cast-steel products;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8



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##### Table of Contents

| |  |  | Logistics, Services & Others. General trading, logistics and property management; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Financial Services. Leasing, loan guarantees and insurance services.
| | - |  | --------------------------------------------------------------------



Sales and Distribution



Hitachi distributes its products in Japan primarily through its own sales network. Hitachi also distributes some of its products through independent
dealers. In most field sales offices, Hitachis sales personnel specialize in the marketing of particular types of products.



International marketing is conducted through overseas sales subsidiaries, joint-venture companies and unaffiliated distributors. Also, certain types of
equipment are sold to industrial companies in foreign markets on an original equipment manufacturing, or OEM, basis and marketed under the brand names of such industrial companies.



Overseas revenues amounted to ¥3,639,645 million in fiscal 2005, accounting for 38% of total revenues. Foreign currency
exchange rate fluctuations influence Hitachis operating environment. A strong yen reduces the price competitiveness of products exported to foreign markets and diminishes profit by decreasing revenue when foreign currency income from overseas
product sales is converted to yen. See Item 5. Operating and Financial Review and Prospects  A. Operating Results.



Hitachis widespread customer base in domestic and overseas markets encompasses leading industrial companies, financial institutions, utilities,
governments and individual customers. No material part of its business is dependent upon one or a few customers.



Segment Information



Hitachi does not present segment information in accordance with the requirements of Statement of Financial Accounting Standards No.131, Disclosures
about Segments of an Enterprise and Related Information. Foreign issuers are presently exempted from these disclosure requirements for filings with the U.S. Securities and Exchange Commission, or the SEC, under the U.S. Securities Exchange Act
of 1934, or the Exchange Act. However, Hitachi is required to disclose the segment information presented below in accordance with a ministerial ordinance under the Securities and Exchange Law of Japan. Hitachi believes that this presentation may be
useful in understanding Hitachis results of operations.



Industry segment



|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|--------------------------------------- |  | ----------------------------------------- | - |  | ---- | - |  | ---------- | - |  | --- | - |  | ---------- | - |  | --- | -
|                                        |  | Year ended March 31,                      |  
|                                        |  | 2004                                      |   |  | 2005 |   |  | 2006       |  
|                                        |  | (Millions of yen, except percentage data) |  
|Revenues                                |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Information & Telecommunication Systems |  | 2,314,552                                 |   |  | 23   | % |  | 2,268,386  |   |  | 21  | % |  | 2,360,956  |   |  | 21  | %
|Electronic Devices                      |  | 1,312,380                                 |   |  | 13   |   |  | 1,320,177  |   |  | 12  |   |  | 1,204,407  |   |  | 11  |  
|Power & Industrial Systems              |  | 2,297,913                                 |   |  | 22   |   |  | 2,515,366  |   |  | 24  |   |  | 2,805,169  |   |  | 25  |  
|Digital Media & Consumer Products       |  | 1,226,955                                 |   |  | 12   |   |  | 1,280,302  |   |  | 12  |   |  | 1,305,658  |   |  | 12  |  
|High Functional Materials & Components  |  | 1,297,085                                 |   |  | 13   |   |  | 1,504,312  |   |  | 14  |   |  | 1,600,246  |   |  | 15  |  
|Logistics, Services & Others            |  | 1,256,266                                 |   |  | 12   |   |  | 1,248,296  |   |  | 12  |   |  | 1,214,784  |   |  | 11  |  
|Financial Services                      |  | 550,982                                   |   |  | 5    |   |  | 529,695    |   |  | 5   |   |  | 517,975    |   |  | 5   |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Subtotal                                |  | 10,256,133                                |   |  | 100  | % |  | 10,666,534 |   |  | 100 | % |  | 11,009,195 |   |  | 100 | %
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Eliminations and Corporate Items        |  | (1,623,683                                | ) |  |      |   |  | (1,639,491 | ) |  |     |   |  | (1,544,394 | ) |  |     |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Total                                   |  | 8,632,450                                 |   |  |      |   |  | 9,027,043  |   |  |     |   |  | 9,464,801  |   |  |     |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  



9



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##### Table of Contents

|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|--------------------------------------- |  | ----------------------------------------- | - |  | ---- | - |  | ---------- | - |  | --- | - |  | ---------- | - |  | ---- | -
|                                        |  | Year ended March 31,                      |  
|                                        |  | 2004                                      |   |  | 2005 |   |  | 2006       |  
|                                        |  | (Millions of yen, except percentage data) |  
|Operating Income (Loss) (note 4)        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Information & Telecommunication Systems |  | 69,932                                    |   |  | 33   | % |  | 67,761     |   |  | 21  | % |  | 84,687     |   |  |     | %
|Electronic Devices                      |  | 30,424                                    |   |  | 15   |   |  | 37,017     |   |  | 12  |   |  | 20,439     |   |  |     |  
|Power & Industrial Systems              |  | 33,933                                    |   |  | 16   |   |  | 73,661     |   |  | 23  |   |  | 92,552     |   |  |     |  
|Digital Media & Consumer Products       |  | 6,951                                     |   |  | 3    |   |  | 8,694      |   |  | 3   |   |  | (35,771    | ) |  |     |  
|High Functional Materials & Components  |  | 46,767                                    |   |  | 22   |   |  | 87,514     |   |  | 28  |   |  | 110,069    |   |  |     |  
|Logistics, Services & Others            |  | 533                                       |   |  | 0    |   |  | 9,808      |   |  | 3   |   |  | 19,511     |   |  |     |  
|Financial Services                      |  | 22,388                                    |   |  | 11   |   |  | 31,073     |   |  | 10  |   |  | 35,001     |   |  |     |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Subtotal                                |  | 210,928                                   |   |  | 100  | % |  | 315,528    |   |  | 100 | % |  | 326,488    |   |  |   % |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Eliminations and Corporate Items        |  | (26,065                                   | ) |  |      |   |  | (36,473    | ) |  |     |   |  | (70,476    | ) |  |      |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Total                                   |  | 184,863                                   |   |  |      |   |  | 279,055    |   |  |     |   |  | 256,012    |   |  |      |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Segment Assets                          |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Information & Telecommunication Systems |  | 1,759,163                                 |   |  | 18   | % |  | 1,767,074  |   |  | 18  | % |  | 1,844,979  |   |  | 17   | %
|Electronic Devices                      |  | 899,821                                   |   |  | 9    |   |  | 838,605    |   |  | 8   |   |  | 856,147    |   |  | 8    |  
|Power & Industrial Systems              |  | 2,191,091                                 |   |  | 22   |   |  | 2,357,504  |   |  | 23  |   |  | 2,474,327  |   |  | 23   |  
|Digital Media & Consumer Products       |  | 781,386                                   |   |  | 8    |   |  | 719,168    |   |  | 7   |   |  | 841,935    |   |  | 8    |  
|High Functional Materials & Components  |  | 1,185,662                                 |   |  | 12   |   |  | 1,301,039  |   |  | 13  |   |  | 1,363,833  |   |  | 13   |  
|Logistics, Services & Others            |  | 1,027,699                                 |   |  | 10   |   |  | 932,354    |   |  | 9   |   |  | 958,337    |   |  | 9    |  
|Financial Services                      |  | 2,062,921                                 |   |  | 21   |   |  | 2,157,409  |   |  | 22  |   |  | 2,280,880  |   |  | 22   |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Subtotal                                |  | 9,907,743                                 |   |  | 100  | % |  | 10,073,153 |   |  | 100 | % |  | 10,620,438 |   |  | 100  | %
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Eliminations and Corporate Items        |  | (317,421                                  | ) |  |      |   |  | (336,906   | ) |  |     |   |  | (599,243   | ) |  |      |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Total                                   |  | 9,590,322                                 |   |  |      |   |  | 9,736,247  |   |  |     |   |  | 10,021,195 |   |  |      |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Depreciation & Amortization             |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Information & Telecommunication Systems |  | 150,406                                   |   |  | 28   | % |  | 158,184    |   |  | 29  | % |  | 164,245    |   |  | 28   | %
|Electronic Devices                      |  | 55,773                                    |   |  | 10   |   |  | 48,240     |   |  | 9   |   |  | 50,504     |   |  | 9    |  
|Power & Industrial Systems              |  | 83,608                                    |   |  | 15   |   |  | 83,947     |   |  | 15  |   |  | 89,846     |   |  | 15   |  
|Digital Media & Consumer Products       |  | 40,037                                    |   |  | 7    |   |  | 40,275     |   |  | 7   |   |  | 49,517     |   |  | 9    |  
|High Functional Materials & Components  |  | 69,806                                    |   |  | 13   |   |  | 69,425     |   |  | 13  |   |  | 68,531     |   |  | 12   |  
|Logistics, Services & Others            |  | 30,545                                    |   |  | 6    |   |  | 28,887     |   |  | 5   |   |  | 28,584     |   |  | 5    |  
|Financial Services                      |  | 113,268                                   |   |  | 21   |   |  | 118,251    |   |  | 22  |   |  | 129,129    |   |  | 22   |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Subtotal                                |  | 543,443                                   |   |  | 100  | % |  | 547,209    |   |  | 100 | % |  | 580,356    |   |  | 100  | %
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Eliminations and Corporate Items        |  | 10,171                                    |   |  |      |   |  | 10,241     |   |  |     |   |  | 9,541      |   |  |      |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Total                                   |  | 553,614                                   |   |  |      |   |  | 557,450    |   |  |     |   |  | 589,897    |   |  |      |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Tangible & Intangible Asset Increase    |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Information & Telecommunication Systems |  | 167,928                                   |   |  | 16   | % |  | 176,885    |   |  | 15  | % |  | 198,811    |   |  | 16   | %
|Electronic Devices                      |  | 42,292                                    |   |  | 4    |   |  | 50,834     |   |  | 4   |   |  | 39,271     |   |  | 3    |  
|Power & Industrial Systems              |  | 83,170                                    |   |  | 8    |   |  | 110,234    |   |  | 10  |   |  | 118,132    |   |  | 10   |  
|Digital Media & Consumer Products       |  | 34,276                                    |   |  | 3    |   |  | 45,063     |   |  | 4   |   |  | 46,169     |   |  | 4    |  
|High Functional Materials & Components  |  | 65,636                                    |   |  | 6    |   |  | 81,326     |   |  | 7   |   |  | 91,645     |   |  | 8    |  
|Logistics, Services & Others            |  | 35,599                                    |   |  | 4    |   |  | 35,830     |   |  | 3   |   |  | 29,136     |   |  | 2    |  
|Financial Services                      |  | 606,650                                   |   |  | 59   |   |  | 667,667    |   |  | 57  |   |  | 684,109    |   |  | 57   |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Subtotal                                |  | 1,035,551                                 |   |  | 100  | % |  | 1,167,839  |   |  | 100 | % |  | 1,207,273  |   |  | 100  | %
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Eliminations and Corporate Items        |  | (20,302                                   | ) |  |      |   |  | 23,052     |   |  |     |   |  | (55,257    | ) |  |      |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  
|Total                                   |  | 1,015,249                                 |   |  |      |   |  | 1,190,891  |   |  |     |   |  | 1,152,016  |   |  |      |  
|                                        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |      |  



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##### Table of Contents

Geographic segment



|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|-------------------------------- |  | ----------------------------------------- | - |  | ---- | - |  | ---------- | - |  | --- | - |  | ---------- | - |  | --- | -
|                                 |  | Year ended March 31,                      |  
|                                 |  | 2004                                      |   |  | 2005 |   |  | 2006       |  
|                                 |  | (Millions of yen, except percentage data) |  
|Revenues                         |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Japan                            |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Outside customer sales           |  | 6,364,411                                 |   |  | 64   | % |  | 6,598,002  |   |  | 63  | % |  | 6,747,222  |   |  | 61  | %
|Intersegment transactions        |  | 854,532                                   |   |  | 9    |   |  | 937,814    |   |  | 9   |   |  | 1,033,180  |   |  | 9   |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Total                            |  | 7,218,943                                 |   |  | 73   |   |  | 7,535,816  |   |  | 72  |   |  | 7,780,402  |   |  | 70  |  
|Asia                             |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Outside customer sales           |  | 993,471                                   |   |  | 10   |   |  | 1,059,197  |   |  | 10  |   |  | 1,178,568  |   |  | 11  |  
|Intersegment transactions        |  | 312,153                                   |   |  | 3    |   |  | 388,249    |   |  | 4   |   |  | 453,823    |   |  | 4   |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Total                            |  | 1,305,624                                 |   |  | 13   |   |  | 1,447,446  |   |  | 14  |   |  | 1,632,391  |   |  | 15  |  
|North America                    |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Outside customer sales           |  | 784,782                                   |   |  | 8    |   |  | 798,266    |   |  | 8   |   |  | 899,608    |   |  | 8   |  
|Intersegment transactions        |  | 25,894                                    |   |  | 0    |   |  | 34,224     |   |  | 0   |   |  | 64,486     |   |  | 1   |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Total                            |  | 810,676                                   |   |  | 8    |   |  | 832,490    |   |  | 8   |   |  | 964,094    |   |  | 9   |  
|Europe                           |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Outside customer sales           |  | 404,278                                   |   |  | 4    |   |  | 470,792    |   |  | 5   |   |  | 519,042    |   |  | 5   |  
|Intersegment transactions        |  | 32,949                                    |   |  | 1    |   |  | 20,015     |   |  | 0   |   |  | 27,390     |   |  | 0   |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Total                            |  | 437,227                                   |   |  | 5    |   |  | 490,807    |   |  | 5   |   |  | 546,432    |   |  | 5   |  
|Other Areas                      |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Outside customer sales           |  | 85,508                                    |   |  | 1    |   |  | 100,786    |   |  | 1   |   |  | 120,361    |   |  | 1   |  
|Intersegment transactions        |  | 2,655                                     |   |  | 0    |   |  | 3,545      |   |  | 0   |   |  | 11,182     |   |  | 0   |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Total                            |  | 88,163                                    |   |  | 1    |   |  | 104,331    |   |  | 1   |   |  | 131,543    |   |  | 1   |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Subtotal                         |  | 9,860,633                                 |   |  | 100  | % |  | 10,410,890 |   |  | 100 | % |  | 11,054,862 |   |  | 100 | %
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Eliminations and Corporate Items |  | (1,228,183                                | ) |  |      |   |  | (1,383,847 | ) |  |     |   |  | (1,590,061 | ) |  |     |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Total                            |  | 8,632,450                                 |   |  |      |   |  | 9,027,043  |   |  |     |   |  | 9,464,801  |   |  |     |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Operating Income (note 4)        |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Japan                            |  | 177,102                                   |   |  | 77   | % |  | 274,389    |   |  | 83  | % |  | 275,715    |   |  | 83  | %
|Asia                             |  | 33,363                                    |   |  | 15   |   |  | 27,538     |   |  | 8   |   |  | 6,727      |   |  | 2   |  
|North America                    |  | 4,733                                     |   |  | 2    |   |  | 10,188     |   |  | 3   |   |  | 23,428     |   |  | 7   |  
|Europe                           |  | 10,512                                    |   |  | 5    |   |  | 16,382     |   |  | 5   |   |  | 18,702     |   |  | 6   |  
|Other Areas                      |  | 3,245                                     |   |  | 1    |   |  | 3,260      |   |  | 1   |   |  | 6,555      |   |  | 2   |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Subtotal                         |  | 228,955                                   |   |  | 100  | % |  | 331,757    |   |  | 100 | % |  | 331,127    |   |  | 100 | %
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Eliminations and Corporate Items |  | (44,092                                   | ) |  |      |   |  | (52,702    | ) |  |     |   |  | (75,115    | ) |  |     |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Total                            |  | 184,863                                   |   |  |      |   |  | 279,055    |   |  |     |   |  | 256,012    |   |  |     |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Segment Assets                   |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Japan                            |  | 7,706,490                                 |   |  | 82   | % |  | 7,680,748  |   |  | 79  | % |  | 7,894,858  |   |  | 75  | %
|Asia                             |  | 669,146                                   |   |  | 7    |   |  | 857,825    |   |  | 9   |   |  | 1,060,394  |   |  | 10  |  
|North America                    |  | 496,116                                   |   |  | 5    |   |  | 611,098    |   |  | 6   |   |  | 616,631    |   |  | 6   |  
|Europe                           |  | 516,818                                   |   |  | 5    |   |  | 520,391    |   |  | 5   |   |  | 840,866    |   |  | 8   |  
|Other Areas                      |  | 63,238                                    |   |  | 1    |   |  | 75,590     |   |  | 1   |   |  | 98,752     |   |  | 1   |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Subtotal                         |  | 9,451,808                                 |   |  | 100  | % |  | 9,745,652  |   |  | 100 | % |  | 10,511,501 |   |  | 100 | %
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Eliminations and Corporate Items |  | 138,514                                   |   |  |      |   |  | (9,405     | ) |  |     |   |  | (490,306   | ) |  |     |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  
|Total                            |  | 9,590,322                                 |   |  |      |   |  | 9,736,247  |   |  |     |   |  | 10,021,195 |   |  |     |  
|                                 |  |                                           |   |  |      |   |  |            |   |  |     |   |  |            |   |  |     |  



11



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##### Table of Contents

Revenues by market



|                  |  |                                           |  |     |      |  |           |      |     |   |  |           |  |     |  
|----------------- |  | ----------------------------------------- |  | --- | ---- |  | --------- | ---- | --- | - |  | --------- |  | --- | -
|                  |  | Year ended March 31,                      | 
|                  |  | 2004                                      |  |     | 2005 |  |           | 2006 |    
|                  |  | (Millions of yen, except percentage data) | 
|Domestic revenues |  | 5,654,856                                 |  | 66  | %    |  | 5,749,603 |      | 64  | % |  | 5,825,156 |  | 62  | %
|Overseas revenues |  |                                           |  |     |      |  |           |      |     |   |  |           |  |     |  
|Asia              |  | 1,212,844                                 |  | 14  |      |  | 1,406,883 |      | 15  |   |  | 1,619,235 |  | 17  |  
|North America     |  | 873,243                                   |  | 10  |      |  | 901,855   |      | 10  |   |  | 968,957   |  | 10  |  
|Europe            |  | 655,824                                   |  | 7   |      |  | 709,770   |      | 8   |   |  | 748,480   |  | 8   |  
|Other Areas       |  | 235,683                                   |  | 3   |      |  | 258,932   |      | 3   |   |  | 302,973   |  | 3   |  
|Subtotal          |  | 2,977,594                                 |  | 34  |      |  | 3,277,440 |      | 36  |   |  | 3,639,645 |  | 38  |  
|                  |  |                                           |  |     |      |  |           |      |     |   |  |           |  |     |  
|Total             |  | 8,632,450                                 |  | 100 | %    |  | 9,027,043 |      | 100 | % |  | 9,464,801 |  | 100 | %
|                  |  |                                           |  |     |      |  |           |      |     |   |  |           |  |     |  

---

Notes:



|1. | Revenues by industry and geographic segments include intersegment transactions.
|-- | -------------------------------------------------------------------------------



|2. | Geographic segments are based on the location of Hitachis facilities where products or services are produced.
|-- | --------------------------------------------------------------------------------------------------------------



|3. | Figures for revenues by market are based on the locations of the customer to whom Hitachis products or services are sold.
|-- | --------------------------------------------------------------------------------------------------------------------------



|4. | In order to be consistent with financial reporting principles and practices generally accepted in Japan, operating income (loss) is presented as total revenues less cost of sales
and selling, general and administrative expenses. Under U.S. GAAP, restructuring charges, net gain or loss on sale and disposal of rental assets and other property, impairment losses and special termination benefits are included as part of operating
income (loss). See notes 18, 19 and 20 to the consolidated financial statements.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Description of Industry Segments



Hitachi classifies its operations into seven industry segments based primarily along related assets and operations management lines, as well as on the similarity of products and services by type, use, production
method and marketing method.



Information &
Telecommunication Systems



Products and services
provided by Hitachi in this segment include systems integration, outsourcing services, computer hardware, software and telecommunications equipment and components. This segment groups products with many common technological aspects, facilitating
operations management.



Hitachis computer business
consists of hardware products, software and services business. Customers are business entities in various industries, national and local governments, and, to a lesser extent, individuals. Among the hardware products Hitachi offers, hard disk drives,
disk array subsystems, servers and mainframes are more significant than other products. In order to meet market requirements, these products need to be built to achieve high performance while meeting cost parameters of customers. Hitachi also
develops and offers various software packages designed to enhance the productivity of customers. Systems integration, consulting and outsourcing form the core of the services business in which customized solutions are developed and offered to
customers with Hitachis hardware and software products, as well as other venders products, to deliver systems that help customers achieve their business objectives. This segment also provides telecommunications equipment and components
such as switches and fiber optic components, which are delivered to customers in data and telecommunication industries.



The computer industry is extremely competitive. The speed of technology development in both hardware and software is very fast, and failure or delay to
introduce the products or services that incorporate the latest technology would materially diminish Hitachis market presence. Customers are highly sensitive to the cost effectiveness of their investments in information technology, which leads
to intense price competition particularly in hardware products.



Hitachi has designated the consulting services, outsourcing, storage solutions and hard disk drive businesses as target businesses within the Information & Telecommunication Systems segment.



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##### Table of Contents

Hitachi seeks to strengthen its consulting services business by bolstering the operating structure
through measures such as increasing the number of consultants; consolidating the consulting resources of the Company and its subsidiaries in Japan and Asia into Hitachi Consulting Co., Ltd., a Japanese subsidiary of the Company; and establishing
Hitachi Consulting Europe Limited in the U.K. to oversee consulting operations in Europe as a wholly owned subsidiary of Hitachi Consulting Corporation in the U.S., a subsidiary of the Company. By sharing strategies and business resources among
consulting subsidiaries in Japan, Asia, the U.S. and Europe, Hitachi will provide its customers with strategic solutions on a global basis and strengthen its competitiveness.



Hitachi is expanding its outsourcing business in response to demands from companies that want to outsource their information
systems to concentrate resources on core competences. The outsourcing business includes data center outsourcing and strategic outsourcing. Data center outsourcing entails the monitoring, operation and maintenance of information systems on behalf of
clients, and the hosting of servers and networks under tightly controlled security environments. Strategic outsourcing provides comprehensive support for customers information systems, ranging from consulting to systems design, construction,
operation and maintenance. As necessary, Hitachi establishes joint venture companies with clients to conduct strategic outsourcing.



In the storage solutions business, Hitachi is seeking to expand its business by enhancing the high-performance functions of disk array subsystems and
storage management software and deepening strategic alliances with overseas partners. In fiscal 2003, the Company and Hewlett-Packard Company extended their joint technology agreement and original equipment manufacturer relationship for high-end
disk arrays through 2008. In addition, Hitachi Data Systems Corporation, a wholly owned subsidiary of the Company, entered into a global distribution agreement with Ingram Micro, Inc. in the area of storage solutions for small and medium sized
enterprises.



In December 2002, the Company acquired the hard
disk drive operations of IBM Corporation and integrated them with its operations, to strengthen hard disk drive operations in a highly competitive market. The hard disk drive business is now operated as part of Hitachi Global Storage Technologies,
Inc., a wholly owned subsidiary of the Company. Hitachi is seeking to strengthen its hard disk drive operations in a highly competitive market by strengthening R&D capabilities, expanding its product line-up, increasing production capacity,
reducing costs, enhancing its global sales and support network and improving operating efficiency.



In fiscal 2005, this segment accounted for 21% of total revenues before eliminations and recorded operating income of ¥84,687 million.



Electronic Devices



The Electronic Devices segment provides liquid crystal displays, or LCDs,
semiconductor manufacturing equipment, test and measurement equipment and medical electronics equipment. A significant portion of Hitachis semiconductor business was transferred to Renesas in fiscal 2003, and that portion has not been included
in this segment since fiscal 2003.



The display business is
highly competitive and characterized by significant price fluctuations with changes in the supply-demand balance. In an effort to improve profitability, Hitachi has changed its product mix, shifting its focus from LCDs for notebook PCs to small and
medium-sized LCDs, particularly for mobile phones. In October 2004, the Company and Hitachi Displays, Ltd., a wholly-owned subsidiary of the Company, together with Toshiba Corporation and Matsushita Electric Industrial Co., Ltd., entered into an
agreement to establish a joint-venture company called IPS Alpha Technology, Ltd., which is accounted for under the equity method, to manufacture and sell LCD panels for flat panel televisions. Hitachi is also trying to strengthen its competitiveness
by reducing raw material costs and fixed costs, and improving productivity by expanding its product line-up.



Hitachi designated the medical electronics equipment and semiconductor/LCD manufacturing and inspection equipment businesses as target businesses within
the Electronic Devices segment. Hitachi seeks to strengthen these businesses by allocating resources to them.



Due to the unfavorable business environment, Hitachi realigned its semiconductor operations in recent years. On April 1, 2003, the Company
transferred its semiconductor operations centered in system LSIs to a new company, Renesas, jointly owned by the Company and Mitsubishi Electric. Renesas is accounted for under the equity method. In September 2005, the Company sold a portion of its
shares of Elpida Memory, Inc., or Elpida Memory. The Company established Elpida Memory together with NEC Corporation to operate the DRAM business. The Company previously accounted for Elpida Memory under the equity method, however, as a result of
this share sale, Elpida Memory is no longer an equity-method affiliate.



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##### Table of Contents

In fiscal 2005, this segment accounted for 11% of total revenues before eliminations and recorded
operating income of ¥20,439 million.



Power & Industrial Systems



In
this segment, Hitachi offers power plants, industrial machinery, automotive products, construction machinery, transportation equipment and other products and related services for power utilities and industry.



Power companies are the main customers of the power sector. In this sector,
Hitachi must respond to customer demand for low-priced products with high added value. In addition, in recent years Hitachi has given high priority to environmental protection in its product design. The entry of independent power producers into the
domestic electric power industry brought about by deregulation has put pressure on power companies to lower electricity prices. This causes more intense price competition among vendors to match lower electricity prices. Since the orders the sector
receives are generally for large items with long delivery periods, a portion of the purchase price from those orders is generally paid in advance to finance the production of the items.



The industrial systems sector covers products used in numerous industries and is strongly influenced by trends in public
works spending and private-sector plant and equipment investment. Market demands focus primarily on low price, high added value and the capability of products to be integrated into systems. The number of product types is vast and production is
frequently done in small lots or on order. The industry includes many small-to-medium-sized specialty manufacturers and competition for orders is fierce. In April 2006, the Company transferred a part of its social and industrial systems operation to
Hitachi Plant Engineering & Construction Co., Ltd., which was then merged with Hitachi Kiden Kogyo, Ltd. and Hitachi Industries Co., Ltd. to form Hitachi Plant Technologies, Ltd. The Company expects this consolidation of capabilities to
accelerate the growth of businesses in the social and industrial infrastructure sectors by improving product development, design and manufacturing technologies; engineering capabilities; and construction techniques and project management abilities
and enhancing the efficiency of business operations.



Hitachi
designated the automotive products business as a target business in this segment. In connection with this focus on the automotive products business, on October 1, 2004, the Company merged its equity-method affiliate, TOKICO LTD., and its
wholly-owned subsidiary, Hitachi Unisia Automotive, Ltd. into itself. The Company is making efforts to strengthen its automotive products business due to synergies it expects to realize through the integration of operations, including the sales and
R&D functions of the three companies.



Hitachi optimizes
its response to the needs and priorities of segment customers by strategically combining technologies from Hitachis diverse fields of operation, especially from technologies in the information systems and electronics field.



In fiscal 2005, this segment accounted for 25% of total revenues before
eliminations and recorded operating income of ¥92,552 million.



Digital Media & Consumer Products



In this segment, Hitachi manufactures and sells products in two main categories: digital media products and consumer products. The former includes optical disk drives, televisions, LCD projectors and mobile phones, while the latter
comprises room air conditioners, refrigerators, washing machines and other appliances. All products have a broad range of customers dominated by general consumers.



Home electrical equipment manufacturers are responding to customer demand for low price and high added value by cutting
costs and developing differentiated product lines. Success in this segment will also depend considerably on the development of products geared to advances in new multimedia-related markets.



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##### Table of Contents

In this segment, Hitachi is facing intense price competition caused by increasing commoditization and
oversupply both in the digital media products business and consumer products business. Especially in digital media products such as plasma televisions and LCD televisions, price reductions have been significant because of domestic and overseas
competitors. Hitachi is trying to keep its competitiveness in these business fields by: developing high value-added products; introducing new products quickly; reducing production costs by rationalizing circuit structures and centralized purchasing
of core components; expanding production capacity of plasma display panels and flat panel televisions; strengthening sales channels with major retailers in the U.S. and Europe; increasing the number of sales locations in China; and strengthening the
Hitachi brand by increasing investment in marketing and conducting a worldwide brand promotional campaign.



Hitachi designated the plasma display panel business as a target business in this segment. In March 2005, the Company acquired, in an agreement with
Fujitsu Limited, a joint-owner of FHP, patents on plasma display panel technology. The Company then acquired shares of FHP from Fujitsu Limited, which resulted in FHP becoming a consolidated subsidiary of the Company as of April 1, 2005. The
Company is making efforts to strengthen both its plasma display panel business and its plasma television business by integrating business strategies of the Company and FHP and by developing high value-added products utilizing the Companys
know-how.



In fiscal 2005, this segment accounted for 12% of
total revenues before eliminations and recorded an operating loss of ¥35,771 million. The operating loss is primarily due to a decline in the price of DVD-related products, projection televisions and plasma display televisions, and an increase
in investment in sales and marketing.



High Functional
Materials & Components



This segment includes
fabricated chemical and metal products supplied as parts or materials to downstream manufacturers of mainly electric and electronic products. For example, Hitachi Chemical Co., Ltd. manufactures products based on its resin technology and serves
industrial markets such as semiconductors, liquid crystal displays and automobiles. Hitachi Metals, Ltd. manufactures and sells magnetic and electronic materials and parts. They include specialty steels such as materials for mobile phones and
automobile engine parts. Hitachi Cable, Ltd. manufactures and sells electronic materials and components for semiconductors and mobile phones as well as cable and wire products used for transmission of power and telephone signals.



As more products in this segment become more closely dependent upon and
driven by capabilities in electronics technology, Hitachis strength in electronics technology is expected to provide Hitachi with an advantage in introducing new products with such technology. Since the portion of materials and components used
for semiconductors, liquid crystal displays, mobile phones and other IT-related products has increased in recent years, business results in this segment have been significantly affected by the business climate of the IT industry.



In April 2004, the magnetic materials business of Hitachi Metals, Ltd., a
subsidiary of the Company, was combined with Sumitomo Special Metals Co., Ltd. to form a new company, NEOMAX Co., Ltd. The new company became a consolidated subsidiary of the Company as a result of the transaction.



In fiscal 2005, this segment accounted for 15% of total revenues before
eliminations and recorded operating income of ¥110,069 million.



Logistics, Services & Others



This segment includes various businesses not covered by other segments, primarily consisting of sales from general trading, logistics and property management services conducted by consolidated subsidiaries of the Company. Hitachi has set up
sales subsidiaries by region and by product. Hitachi also has many subsidiaries that were established to offer various services related to Hitachis business operations internally, such as printing and food services.



In fiscal 2005, this segment accounted for 11% of total revenues before
eliminations and recorded operating income of ¥19,511 million.



15



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##### Table of Contents

Financial Services



Financial services originated to extend credit to purchasers of Hitachi products. This segment currently provides leases,
loan guarantees and insurance services and conducts business in the area of securitization.



In fiscal 2005, this segment accounted for 5% of total revenues before eliminations and recorded operating income of ¥35,001 million.



Competition



Hitachi is subject to intense competition in each of its businesses. Among its major competitors are some of the top-ranking industrial companies in
Japan, U.S., Europe and Asia. Depending on the nature of the business, the competition is marked by rapid progress in technology or the need to reduce costs to meet customer requirements. In addition, Hitachi is facing more competition against
companies that focus exclusively on specific market segments. See Description of Industry Segments in this Item for details of competition in each segment.



Seasonality



Hitachis revenues in the fourth quarter ending March 31 tend to be higher than those in other quarters due in part to the purchase customs of
governmental agencies in Japan.



Sources of Supply



Hitachi purchases a wide variety of raw materials,
parts and components from many suppliers in Japan and abroad. In general, Hitachi is not dependent on any single source of supply for its raw materials, parts and components. In light of the fact that Japan produces very few of the raw materials
Hitachi uses in its manufacturing processes, Hitachi monitors the availability of raw materials on a regular basis. There are currently no particular shortages of energy, raw material, parts or components that are likely to materially affect
Hitachis business. Prices of certain raw materials, parts and components, such as petroleum products, copper, aluminum and semiconductor memories, that Hitachi purchases are volatile. Recent increases in prices of petroleum and other
materials, such as steel and synthetic resins, are increasing Hitachis production costs, and may adversely affect its results of operations.



Intellectual Property and Licenses



Hitachi holds numerous intellectual property rights, including patents, trademarks and copyrights. Although Hitachi considers them to be valuable assets
and important for its operations, it believes that its business is not materially dependent on any single patent, trademark, copyright or other intellectual property right that it holds.



Hitachi has many license and technical assistance agreements covering a wide variety of products. Some of these agreements
grant Hitachi the rights to use certain Japanese and foreign patents or to receive certain technical information. Under certain other agreements, Hitachi has also granted licenses and technical assistance to various companies located in Japan or
overseas. Additionally, in certain instances, Hitachi has entered into cross-license agreements with major international electronics and electrical equipment manufacturers. Hitachi believes that it is not materially dependent on any single such
license or technical assistance agreement.



Government
Regulations



Hitachis business activities are
subject to various governmental regulations in countries where it operates, which include investment approvals, export regulations, tariffs, antitrust, intellectual property, consumer and business taxation, exchange controls, and environmental and
recycling requirements.



16



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##### Table of Contents

C. Organizational Structure



The table below shows major subsidiaries of the Company as of March 31, 2006. Ownership percentage of voting rights
indicates voting rights owned by the Company and its subsidiaries.



|                                                     |  |                         |  |                                     |  
|---------------------------------------------------- |  | ----------------------- |  | ----------------------------------- | -
|Name of company                                      |  | Country ofincorporation |  | Ownershippercentage ofvoting rights |  
|Information & Telecommunication Systems              |  |                         |  |                                     |  
|Hitachi Communication Technologies, Ltd.             |  | Japan                   |  | 100.0                               | %
|Hitachi Electronics Services Co., Ltd.               |  | Japan                   |  | 100.0                               |  
|Hitachi Information Systems, Ltd.                    |  | Japan                   |  | 51.9                                |  
|Hitachi-Omron Terminal Solutions, Corp.              |  | Japan                   |  | 55.0                                |  
|Hitachi Software Engineering Co., Ltd.               |  | Japan                   |  | 51.9                                |  
|Hitachi Systems & Services, Ltd.                     |  | Japan                   |  | 51.2                                |  
|Hitachi Computer Products (America), Inc.            |  | U.S.A.                  |  | 100.0                               |  
|Hitachi Computer Products (Europe) S.A.S.            |  | France                  |  | 100.0                               |  
|Hitachi Data Systems Holding Corp.                   |  | U.S.A.                  |  | 100.0                               |  
|Hitachi Global Storage Technologies Netherlands B.V. |  | Netherlands             |  | 100.0                               |  
|                                                     |  |                        
|Electronic Devices                                   |  |                         |  |                                     |  
|Hitachi Displays, Ltd.                               |  | Japan                   |  | 100.0                               | %
|Hitachi High-Technologies Corporation                |  | Japan                   |  | 51.7                                |  
|Hitachi Medical Corporation                          |  | Japan                   |  | 63.2                                |  
|Hitachi Electronic Devices (USA), Inc.               |  | U.S.A.                  |  | 100.0                               |  
|Hitachi Semiconductor Singapore Pte. Ltd.            |  | Singapore               |  | 100.0                               |  
|                                                     |  |                        
|Power & Industrial Systems                           |  |                         |  |                                     |  
|Babcock-Hitachi Kabushiki Kaisha                     |  | Japan                   |  | 100.0                               | %
|Hitachi Air Conditioning Systems Co., Ltd.           |  | Japan                   |  | 100.0                               |  
|Hitachi Building Systems Co., Ltd.                   |  | Japan                   |  | 100.0                               |  
|Hitachi Construction Machinery Co., Ltd.             |  | Japan                   |  | 51.3                                |  
|Hitachi Engineering Co., Ltd.                        |  | Japan                   |  | 100.0                               |  
|Hitachi Engineering & Services Co., Ltd.             |  | Japan                   |  | 100.0                               |  
|Hitachi Industrial Equipment Systems Co., Ltd.       |  | Japan                   |  | 100.0                               |  
|Hitachi Industries Co., Ltd.                         |  | Japan                   |  | 100.0                               |  
|Hitachi Kiden Kogyo, Ltd.                            |  | Japan                   |  | 54.8                                |  
|Hitachi Plant Engineering & Construction Co., Ltd.   |  | Japan                   |  | 56.8                                |  
|Hitachi Via Mechanics, Ltd.                          |  | Japan                   |  | 100.0                               |  
|Japan Servo Co., Ltd.                                |  | Japan                   |  | 57.6                                |  
|Guangzhou Hitachi Elevator Co., Ltd.                 |  | China                   |  | 70.0                                |  
|Hitachi Automotive Products (USA), Inc.              |  | U.S.A.                  |  | 100.0                               |  
|                                                     |  |                        
|Digital Media & Consumer Products                    |  |                         |  |                                     |  
|Fujitsu Hitachi Plasma Display Limited               |  | Japan                   |  | 80.1                                | %
|Hitachi Home & Life Solutions, Inc.                  |  | Japan                   |  | 100.0                               |  
|Hitachi Maxell, Ltd.                                 |  | Japan                   |  | 53.6                                |  
|Hitachi Media Electronics Co., Ltd.                  |  | Japan                   |  | 100.0                               |  
|Hitachi Home Electronics (America), Inc.             |  | U.S.A.                  |  | 100.0                               |  
|Shanghai Hitachi Household Appliances Co., Ltd.      |  | China                   |  | 60.0                                |  
|                                                     |  |                        
|High Functional Materials & Components               |  |                         |  |                                     |  
|Hitachi Cable, Ltd.                                  |  | Japan                   |  | 53.3                                | %
|Hitachi Chemical Co., Ltd.                           |  | Japan                   |  | 51.6                                |  
|Hitachi Metals, Ltd.                                 |  | Japan                   |  | 56.7                                |  



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|                                 |  |                         |  |                                     |  
|-------------------------------- |  | ----------------------- |  | ----------------------------------- | -
|Name of company                  |  | Country ofincorporation |  | Ownershippercentage ofvoting rights |  
|Logistics, Services & Others     |  |                         |  |                                     |  
|Chuo Shoji, Ltd.                 |  | Japan                   |  | 100.0                               | %
|Hitachi Life Corporation         |  | Japan                   |  | 100.0                               |  
|Hitachi Mobile Co., Ltd.         |  | Japan                   |  | 64.8                                |  
|Hitachi Transport System, Ltd.   |  | Japan                   |  | 59.0                                |  
|Nikkyo Create, Ltd.              |  | Japan                   |  | 100.0                               |  
|Hitachi America, Ltd.            |  | U.S.A.                  |  | 100.0                               |  
|Hitachi Asia Ltd.                |  | Singapore               |  | 100.0                               |  
|Hitachi (China), Ltd.            |  | China                   |  | 100.0                               |  
|Hitachi Europe Ltd.              |  | U.K.                    |  | 100.0                               |  
|                                 |  |                        
|Financial Services               |  |                         |  |                                     |  
|Hitachi Capital Corporation      |  | Japan                   |  | 60.6                                | %
|Hitachi Insurance Services, Ltd. |  | Japan                   |  | 100.0                               |  



|       |  |    |  |                                                                                                                                                                                                                                                                                                               
|------ |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Notes: |  | 1. |  | Hitachi Plant Engineering & Construction Co., Ltd. acquired a part of Industrial Systems Group of the Company through a corporate split, merged with Hitachi Kiden Kogyo, Ltd. and
Hitachi Industries Co., Ltd. and changed its name to Hitachi Plant Technologies, Ltd. on April 1, 2006.                    
|       |  |   
|       |  | 2. |  | Hitachi Air Conditioning Systems Co., Ltd. merged with Hitachi Home & Life Solutions, Inc. and changed its name to Hitachi Appliances, Inc. on April 1, 2006.                                                                                                                                                 
|       |  |   
|       |  | 3. |  | Hitachi Engineering & Services Co., Ltd. acquired Power Systems Division of Hitachi Engineering Co., Ltd. through a corporate split and changed its name to Hitachi
Engineering & Services Co., Ltd. on April 1, 2006. Hitachi Engineering Co., Ltd. merged with Hitachi Information & Control Solutions, Ltd.



D. Property, Plants and Equipment



Hitachi owns a significant portion of the land, plants,
offices and other fixed assets necessary to conduct its business and a significant portion of Hitachis land, plants, offices and other fixed assets are located in Japan. Hitachi considers its properties to be well maintained and believes its
plant capacity is adequate for its current needs. Certain of Hitachis properties such as land and buildings are subject to mortgages in respect of bonds and loans. The total outstanding balance of the secured loans and bonds as of
March 31, 2006 was ¥43,244 million.



The following
table describes the name of the Company office, division, group, center or subsidiary that is using the property, the location and area of the property, and in the case of plant property, the principal products produced there as of March 31,
2006. Hitachi believes the following offices, divisions, groups, centers and subsidiaries comprise its major lines of business.



|                                               |  |                |  |                             |  |                                     
|---------------------------------------------- |  | -------------- |  | --------------------------- |  | ------------------------------------
|Name of user of plants and offices             |  | Location       |  | Land area                   |  | Principal products                  
|                                               |  |                |  | (Thousands ofsquare meters) |  |                                     
|In Japan                                       |  |                |  |                             |  |                                     
|The Company:                                   |  |                |  |                             |  |                                     
|Automotive Systems                             |  | Kanagawa, etc. |  | 2,633                       |  | Automotive products                 
|Thermal & Hydroelectric Systems Division, etc. |  | Ibaraki        |  | 3,572                       |  | Power generating equipment, turbines
|Information & Telecommunication Systems        |  | Kanagawa, etc. |  | 791                         |  | Software, mainframes                
|Research & Development Group                   |  | Tokyo, etc.    |  | 836                         |  |                                    
|Head Office                                    |  | Tokyo          |  | 937                         |  |                                    
|Sales Offices                                  |  | Osaka, etc.    |  | 140                         |  |                                    
|Ubiquitous Platform Systems                    |  | Kanagawa, etc. |  | 947                         |  | Digital media related products      
|Transportation Systems Division, etc.          |  | Yamaguchi      |  | 704                         |  | Railway vehicles                    
|Urban Planning and Development Systems         |  | Ibaraki        |  | 551                         |  | Elevators, escalators               



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|                                                          |  |                         |  |                             |  |                                    
|--------------------------------------------------------- |  | ----------------------- |  | --------------------------- |  | -----------------------------------
|Name of user of plants and offices                        |  | Location                |  | Land area                   |  | Principal products                 
|                                                          |  |                         |  | (Thousands ofsquare meters) |  |                                    
|Subsidiaries:                                             |  |                         |  |                             |  |                                    
|Hitachi Displays, Ltd.                                    |  | Chiba                   |  | 512                         |  | Liquid crystal displays            
|Hitaka Works, Hitachi Cable, Ltd.                         |  | Ibaraki, etc.           |  | 1,058                       |  | Electronic materials and components
|Yasugi Works, Hitachi Metals, Ltd.                        |  | Shimane                 |  | 1,096                       |  | Special steels                     
|Tsuchiura Plant, Hitachi Construction Machinery Co., Ltd. |  | Ibaraki, etc.           |  | 5,534                       |  | Hydraulic excavators               
|Kyoto Works, Hitachi Maxell, Ltd.                         |  | Kyoto                   |  | 313                         |  | Magnetic recording media           
|Head Office, Hitachi Software Engineering Co., Ltd.       |  | Tokyo                   |  | 17                          |  |                                   
|Head Office, Hitachi Building Systems Co., Ltd.           |  | Tokyo                   |  | 136                         |  |                                   
|Yamasaki Works, Hitachi Chemical Co., Ltd.                |  | Ibaraki                 |  | 674                         |  | Electronic materials and components
|Densen Works, Hitachi Cable, Ltd.                         |  | Ibaraki                 |  | 103                         |  | Electronic materials and components
|Tsuchiura Works, Hitachi Cable, Ltd.                      |  | Ibaraki                 |  | 551                         |  | Electronic materials and components
|                                                          |  |                         | 
|Outside of Japan                                          |  |                         |  |                             |  |                                    
|Overseas subsidiaries:                                    |  |                         |  |                             |  |                                    
|Hitachi Global Storage Technologies Netherlands B.V.      |  | California,U.S.A., etc. |  | 1,851                       |  | Hard disk drives                   
|Hitachi Metals America, Ltd.                              |  | New York,U.S.A., etc.   |  | 2,594                       |  | Automotive components              



For information on
Hitachis plan for capital investment for fiscal 2006, see A. History and Development of the Company in this Item.



|ITEM 4A. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------



None.



|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|------- | --------------------------------------------



A. Operating Results



Overview



Hitachi provides highly diversified products and services and conducts business throughout the world. Hitachis results of operations therefore are
affected by various aspects of the economic environment, particularly capital investment in the private sector and consumer spending in Hitachis main market sectors.



In fiscal 2005, the Japanese economy led by domestic demand expanded due primarily to the increase of private-sector plant
and equipment investment and consumer spending. Japans GDP grew 2.3% in fiscal 2003, 1.7% in fiscal 2004 and 3.0% in fiscal 2005.



Outside Japan, in fiscal 2005, the economic environment was marked by the firm economic growth in the United States, the gradual pace of the economic
recovery in Europe, and the solid growth in Asia.



Overseas
revenues, a significant part of which are denominated in U.S. dollars, were 34% of total revenues in fiscal 2003, 36% of total revenues in fiscal 2004 and 38% of total revenues in fiscal 2005. Hitachi conducts business in many foreign countries, and
a portion of its assets and liabilities that are denominated in various currencies is exposed to risks from fluctuations in foreign currency exchange rates. In addition, Hitachi exports products and imports components and raw materials in local
currencies, principally the U.S. dollar and the euro. Therefore, fluctuations in foreign currency exchange rates may affect Hitachis financial results, which are reported in Japanese yen. The Japanese yen on average strengthened against the
U.S. dollar during fiscal 2003 and 2004, while during fiscal 2005, the Japanese yen weakened each as compared with the preceding fiscal year. Hitachi employs forward exchange contracts and cross currency swap agreements to reduce the impact of
foreign currency exchange rate fluctuations. In addition, to alleviate the adverse effects of foreign currency exchange rate fluctuations, when Hitachi believes it is appropriate, it seeks to manufacture outside Japan and procure materials and parts
locally. Hitachi expects to finance foreign currency investments by foreign currency it has on hand. When the amount on hand is insufficient, Hitachi may enter into forward exchange contracts to reduce the impact of foreign currency exchange rate
fluctuations. For additional information regarding foreign currency exchange rate fluctuations, see Item 4. Information on the Company  B. Business Overview  Sales and Distribution.



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The business circumstances surrounding Hitachi have become increasingly challenging. Some of its
businesses are in stagnant industries. In addition, globalization of markets and commoditization of electronic products is continuing to intensify price competition in the business sectors in which Hitachi competes. However, Hitachis ability
to close or sell unprofitable businesses may be limited, including due to a lack of demand in the M&A market for such businesses and the importance of preserving customer goodwill. A large portion of Hitachis manufacturing is done
domestically, which means that a strengthening of the yen reduces Hitachis cost competitiveness. Hitachi is responding to these circumstances by closing or downsizing unprofitable operations where feasible, seeking joint ventures with
competitors, reallocating employees from overstaffed businesses to growth businesses, and reorganizing the geographic allocation of its manufacturing facilities.



Hitachi has been implementing a variety of projects to enhance efficiency and restructure unprofitable operations, including
a project aimed at reducing materials purchasing costs and a project aimed at improving turnover of assets. For a description of the charges associated with the restructuring measures, see Restructuring.



Hitachi is making an effort to realign its business portfolio, which may be
implemented by exiting certain businesses that share fewer synergies with targeted businesses or have poor prospects for higher efficiency, increasing focus on targeted businesses and creating new businesses to achieve increased profitability.
Hitachi uses an economic value-added evaluation index based on the cost of capital to make decisions with respect to exiting businesses, strengthening focus on targeted businesses, creating or incubating new businesses and making capital
investments. Hitachi also aims to alter its corporate governance structure to improve the efficiency and transparency of management. Hitachi expects to pursue further growth in the global markets by identifying competitive businesses and channeling
management resources into those businesses. Hitachi also expects to continue to improve cash-flow management by increasing the efficiency of working capital use, making selective investments and further reducing procurement costs. In addition,
Hitachi is implementing measures such as expanding fundamental research to create future core businesses and strengthening basic technologies for the group in order to pursue further growth throughout the group as a whole. See Item 4.
Information on the Company  A. History and Development of the Company and Item 6. Directors, Senior Management and Employees.



In April 2003, the Company transferred its semiconductor operations centered in system LSIs to a new company incorporated jointly by the Company and
Mitsubishi Electric to improve semiconductor competitiveness by permitting more flexible management and realizing synergies between the advanced technologies of the Company and Mitsubishi Electric. The new company, Renesas, is accounted for under
the equity method by the Company. In July and August 2003, Hitachi sold most of its shares of Nitto Denko Corporation, or Nitto Denko, which was accounted for under the equity method by the Company, for approximately ¥140 billion. As a result,
Nitto Denko is no longer an equity-method affiliate. In October 2004, the Company merged its equity-method affiliate, TOKICO LTD., and its wholly-owned subsidiary, Hitachi Unisia Automotive, Ltd., into itself, to strengthen its automotive products
business due to synergies it seeks to realize through the integration of operations, including the sales and R&D functions of the three companies. In September 2005, the Company sold a portion of its shares of Elpida Memory. The Company
previously had accounted for Elpida Memory under the equity method, however, as a result of this share sale, Elpida Memory is no longer an equity-method affiliate.



Hitachis total revenues increased 5% in fiscal 2003, 5% in fiscal 2004 and 5% in fiscal 2005 on a year-on-year basis,
respectively. Hitachi posted net income of ¥15,876 million in fiscal 2003, ¥51,496 million in fiscal 2004 and ¥37,320 million in fiscal 2005.



The analysis of revenues by industry and geographic segment and description of restructuring measures by industry segment mentioned below are based on the
segmentation presented in Item 4. Information on the Company  B. Business Overview  Segment Information. Hitachi believes that this presentation may be useful in understanding Hitachis results of operations.
Revenues by segment include intersegment transactions which Hitachi adjusts for in calculating total revenues.



20



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##### Table of Contents

Restructuring



The table below shows restructuring charges by major industry segment for fiscal 2003 and 2004. Restructuring charges in fiscal 2005 amounted to
¥4,429 million, of which the breakdown by industry segment is not shown because the amount charged to each segment is not material.



|                                        |  |                   |  |            
|--------------------------------------- |  | ----------------- |  | -----------
|                                        |  | Fiscal 2003       |  | Fiscal 2004
|                                        |  | (Millions of yen)
|Information & Telecommunication Systems |  |                  |  | 16,708     
|Electronic Devices                      |  |                  |  | 533        
|Power & Industrial Systems              |  | 1,414             |  | 2,428      
|Digital Media & Consumer Products       |  | 17,760            |  | 9,685      
|High Functional Materials & Components  |  | 9,439             |  | 3,945      
|Others                                  |  |                  |  | 8          
|                                        |  |                   |  |            
|Total restructuring charges             |  | 28,613            |  | 33,307     
|                                        |  |                   |  |            



Fiscal 2005
restructuring



For fiscal 2005, Hitachi recorded
restructuring charges of ¥4,429 million. The restructuring charges included special termination benefits of ¥2,786 million for 691 employees. Payments of ¥16,158 million were made in fiscal 2005 and special termination benefits of
¥1,106 million were accrued as of March 31, 2006. The accrued amount is expected to be paid in the fiscal year ending March 31, 2007.



Restructuring charges mainly consist of special termination benefits for certain former employees of subsidiaries in Electronic Devices who accepted early
termination and losses on the disposal of fixed assets in High Functional Materials & Components.



Fiscal 2004 restructuring



For fiscal 2004, Hitachi recorded restructuring charges of ¥33,307 million, associated with restructuring measures primarily in Information &
Telecommunication Systems, Digital Media & Consumer Products and High Functional Materials & Components. The restructuring charges included special termination benefits of ¥29,426 million for 3,714 employees. Payments of
¥15,939 million were made in fiscal 2004 and special termination benefits of ¥14,389 million were accrued as of March 31, 2005. The accrued amount was paid in the fiscal year ended March 31, 2006.



Information & Telecommunication Systems recorded restructuring
charges of ¥16,708 million, consisting of special termination benefits in the amount of ¥16,666 million and a loss primarily on disposal of fixed assets in the amount of ¥42 million. The restructuring measures in this segment were
implemented primarily by the Company and its domestic subsidiaries, in an effort to increase profitability by reducing fixed costs. Digital Media & Consumer Products recorded restructuring charges of ¥9,685 million, consisting of
special termination benefits in the amount of ¥8,080 million and a loss primarily on disposal of fixed assets in the amount of ¥1,605 million. The restructuring measures in this segment were implemented primarily by the Companys
digital media operations to reorganize business operations. These measures included introduction of an early retirement benefits program and reorganization of production bases for digital media products. High Functional Materials &
Components recorded restructuring charges of ¥3,945 million, consisting of special termination benefits in the amount of ¥1,711 million and a loss primarily on disposal of fixed assets in the amount of ¥2,234 million. The restructuring
measures in this segment were associated primarily with cables operations and magnetic materials operations, including introduction of an early retirement benefits program and reorganization of production bases for these products.



Fiscal 2003 restructuring



For fiscal 2003, Hitachi recorded restructuring charges of ¥28,613
million, associated with restructuring measures in Power & Industrial Systems, Digital Media & Consumer Products and High Functional Materials & Components. The restructuring charges included special termination benefits
of ¥18,155 million for 2,143 employees. Payments of ¥17,247 million were made in fiscal 2003 and special termination benefits of ¥908 million were accrued as of March 31, 2004. The accrued amount was paid in the fiscal year ended
March 31, 2005.



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##### Table of Contents

In Power & Industrial Systems, restructuring charges of ¥1,414 million were incurred for
special termination benefits for employees of the domestic subsidiaries conducting plant engineering and construction businesses in an effort to increase profitability by reducing fixed costs. Digital Media & Consumer Products recorded
restructuring charges of ¥17,760 million, consisting of special termination benefits in the amount of ¥14,394 million and a loss primarily on disposal of fixed assets in the amount of ¥3,366 million. The restructuring measures in this
segment were implemented primarily by domestic subsidiaries conducting home appliances business in response to the severe business environment due to intensified competition and declines in prices. These measures included introduction of an early
retirement benefits program and reorganization of production bases for home appliances. High Functional Materials & Components recorded restructuring charges of ¥9,439 million, consisting of a loss on disposal of fixed assets in the
amount of ¥7,092 million and special termination benefits in the amount of ¥2,347 million. The restructuring measures in this segment were associated primarily with semiconductor packaging materials operations, including introduction of an
early retirement benefits program and termination of certain operations.



Fiscal 2005 Compared with Fiscal 2004



Summarized results of operations for fiscal 2005 and fiscal 2004 are shown below.



|                                                  |  |                                           |  |             |  |               |  
|------------------------------------------------- |  | ----------------------------------------- |  | ----------- |  | ------------- | -
|                                                  |  | Fiscal 2004                               |  | Fiscal 2005 |  | Percentchange |  
|                                                  |  | (Millions of yen, except percentage data) | 
|Total revenues                                    |  | 9,027,043                                 |  | 9,464,801   |  | +5            | %
|Income before income taxes and minority interests |  | 264,506                                   |  | 274,864     |  | +4            | %
|Income before minority interests                  |  | 114,516                                   |  | 120,516     |  | +5            | %
|Net income                                        |  | 51,496                                    |  | 37,320      |  | -28           | %



Hitachis total
revenues in fiscal 2005 were ¥9,464,801 million, an increase of 5% from the preceding fiscal year. Overseas revenues increased 11% over the same period, to ¥3,639,645 million.



Revenues in Information & Telecommunication Systems increased 4%, to ¥2,360,956 million, in fiscal 2005
compared to the preceding fiscal year. This increase was due primarily to an increase in sales of the outsourcing business, the SAN/NAS storage solutions business in overseas markets and hard disk drives.



Revenues in Electronic Devices decreased 9%, to ¥1,204,407 million, in
fiscal 2005 compared to the preceding fiscal year. This decrease was due primarily to a decrease in sales of large-sized LCDs due primarily to reductions in their production, partially offset by an increase in sales of small- and medium-sized LCDs.



Revenues in Power & Industrial Systems increased 12%,
to ¥2,805,169 million, in fiscal 2005 compared to the preceding fiscal year. The primary drivers of this increase were increase in sales of construction machinery due primarily to strong demand in overseas markets, mainly in China and North
America; elevators and escalators in China due primarily to increasing demand; and automotive products due primarily to the merger with TOKICO LTD. in October 2004.



Revenues in Digital Media & Consumer Products increased 2%, to ¥1,305,658 million, in fiscal 2005 compared to
the preceding fiscal year. This increase was due primarily to an increase in sales of flat panel TVs due to increased demand, and an increase in sales of DVD-related products in domestic and overseas markets, partially offset by a decrease in sales
of projection televisions and room air conditioners.



Revenues
in High Functional Materials & Components increased 6%, to ¥1,600,246 million, in fiscal 2005 compared to the preceding fiscal year due primarily to an increase in sales of materials for semiconductors and LCDs and of automotive related
products, due to increased demand.



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Revenues in Logistics, Services & Others decreased 3%, to ¥1,214,784 million, in fiscal 2005
compared to the preceding fiscal year. Although sales of logistics services increased due primarily to strong demand, sales by overseas subsidiaries decreased.



Revenues in Financial Services decreased 2%, to ¥517,975 million, in fiscal 2005 compared to the preceding fiscal year due primarily to a
downsizing in automotive loans business, while the volumes of business in leases of information related equipment and home loans showed solid performance.



An analysis by geographic segment shows that revenues of the Company and its consolidated subsidiaries located in Japan increased 3%, to ¥7,780,402
million, in fiscal 2005 compared to the preceding fiscal year. This was primarily due to an increase in sales by the service businesses in Information & Telecommunication Systems, and materials for semiconductors and LCDs, partially offset
by a decline in sales of LCDs.



Revenues of consolidated
subsidiaries of the Company located in Asia (other than Japan) increased 13%, to ¥1,632,391 million, in fiscal 2005 compared to the preceding fiscal year due primarily to an increase in sales of hard disk drives, construction machinery and
elevators and escalators due to strong demand.



Revenues of
consolidated subsidiaries of the Company located in North America increased 16%, to ¥964,094 million, in fiscal 2005 compared to the preceding fiscal year due primarily to an increase in sales of construction machinery and hard disk drives, and
solid performance in sales of automotive products, partially offset by a decrease in sales of projection televisions due to declining demand.



Revenues of consolidated subsidiaries of the Company located in Europe increased 11%, to ¥546,432 million, in fiscal 2005 compared to the preceding
fiscal year due primarily to an increase in sales of the SAN/NAS storage solutions business and construction machinery sales.



Revenues of consolidated subsidiaries of the Company located in Other Areas increased 26%, to ¥131,543 million, in fiscal 2005 compared to the
preceding fiscal year.



Hitachis cost of sales increased
6%, to ¥7,387,744 million, in fiscal 2005 compared to the preceding fiscal year, and the ratio of cost of sales to total revenues increased 1% in fiscal 2005 compared to the preceding fiscal year, to 78%. Selling, general and administrative
expenses increased 2%, to ¥1,821,045 million, in fiscal 2005 compared to the preceding fiscal year, while the ratio of selling, general and administrative expenses to total revenues decreased 1% in fiscal 2005 compared to the preceding fiscal
year, to 19%.



In fiscal 2005, Hitachi recorded impairment
losses for long-lived assets in the amount of ¥27,408 million. The majority of the impairment losses were recorded on long-lived property, plant and equipment in Japan and the United States. ¥11,631 million of the amount of impairment loss
was recorded in Information & Telecommunication Systems, ¥7,265 million was recorded in Electronic Devices and ¥4,120 million was recorded in High Functional Materials & Components. The impairment loss was due primarily to
a change in the extent or manner in which the assets were used.



In fiscal 2005, Hitachi recorded restructuring charges of ¥4,429 million, associated primarily with the restructuring measures in Electronic Devices and High Functional Materials & Components. See Restructuring in
this Item.



Interest income increased 35% in fiscal 2005
compared to the preceding fiscal year, to ¥18,170 million due primarily to the rise of interest rate. Dividend income increased 8% in fiscal 2005 compared to the preceding fiscal year, to ¥6,421 million. Other income decreased to ¥63,002
million in fiscal 2005 compared to ¥67,024 million in the preceding fiscal year.



Interest charges increased 14% in fiscal 2005 compared to the preceding fiscal year, to ¥33,265 million due primarily to an increase of issuance of commercial paper in financial subsidiaries. Other deductions
decreased 69%, to ¥3,639 million, in fiscal 2005 compared to the preceding fiscal year.



Income before income taxes and minority interests increased 4%, to ¥274,864 million, in fiscal 2005 compared to the preceding fiscal year.



Income taxes in fiscal 2005 increased to ¥154,348 million, from ¥149,990 million in the preceding fiscal year.



23



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##### Table of Contents

Income before minority interests in fiscal 2005 increased 5%, to ¥120,516 million, from the preceding
fiscal year.



Minority interests in fiscal 2005 increased 32%,
to ¥83,196 million, from the preceding fiscal year due primarily to improvement as a whole in the business results of publicly-held subsidiaries such as Hitachi Construction Machinery, Co., Ltd., Hitachi Chemical Co., Ltd. and Hitachi Metals,
Ltd.



As a result of the foregoing, net income in fiscal 2005
decreased 28% from the preceding fiscal year, to ¥37,320 million.



Fiscal 2004 Compared with Fiscal 2003



Summarized results of operations for fiscal 2004 and fiscal 2003 are shown below.



|                                                  |  |                                           |  |             |  |               |  
|------------------------------------------------- |  | ----------------------------------------- |  | ----------- |  | ------------- | -
|                                                  |  | Fiscal 2003                               |  | Fiscal 2004 |  | Percentchange |  
|                                                  |  | (Millions of yen, except percentage data) | 
|Total revenues                                    |  | 8,632,450                                 |  | 9,027,043   |  | +5            | %
|Income before income taxes and minority interests |  | 237,149                                   |  | 264,506     |  | +12           | %
|Income before minority interests                  |  | 38,494                                    |  | 114,516     |  | +197          | %
|Net income                                        |  | 15,876                                    |  | 51,496      |  | +224          | %



Hitachis total
revenues in fiscal 2004 were ¥9,027,043 million, an increase of 5% from the preceding fiscal year. Overseas revenues increased 10% over the same period, to ¥3,277,440 million.



Revenues in Information & Telecommunication Systems decreased 2%, to ¥2,268,386 million, in fiscal 2004
compared to the preceding fiscal year. Although sales by the outsourcing business related to information systems increased, sales of servers, personal computers and hard disk drives decreased due primarily to price declines. Sales of software also
decreased due primarily to declines in prices for platform software.



Revenues in Electronic Devices increased 1%, to ¥1,320,177 million, in fiscal 2004 compared to the preceding fiscal year. Sales of semiconductor manufacturing equipment and LCDs manufacturing equipment increased due primarily to
increased demand. Sales of large-sized LCDs for personal computers and televisions decreased due primarily to price declines, and sales of small and medium-sized LCDs declined due to a decline in demand in the domestic market in the latter half of
fiscal 2004.



Revenues in Power & Industrial Systems
increased 9%, to ¥2,515,366 million, in fiscal 2004 compared to the preceding fiscal year. Sales of automotive products increased due primarily to the merger with TOKICO LTD., formerly an equity-method affiliate of the Company. Sales of
construction machinery increased due primarily to strong demand in Europe and North America. Sales of railway vehicles increased in overseas market, and air-conditioning equipment and industrial machinery increased due primarily to increased demand.
Sales of elevators and escalators increased due primarily to acquisition of shares of the Companys equity-method affiliate in China, Guangzhou Hitachi Elevator Co., Ltd., making it a consolidated subsidiary of the Company. However, sales of
power systems declined due primarily to curbs on capital expenditures at electric power companies.



Revenues in Digital Media & Consumer Products increased 4%, to ¥1,280,302 million, in fiscal 2004 compared to the preceding fiscal year due
primarily to increases in sales of plasma televisions, LCD projectors and recordable DVDs due primarily to increased demand. These increases were partially offset by a decrease in sales of projection televisions in North America, and by a decrease
in sales of information storage media due primarily to price declines. Sales of washing machines and room air conditioners in overseas market increased, while sales of refrigerators in the domestic market declined.



Revenues in High Functional Materials & Components increased 16%, to
¥1,504,312 million, in fiscal 2004 compared to the preceding fiscal year due in part to an increase in sales of materials and components for LCDs, and semiconductors, reflecting increased demand for LCD televisions and other digital media
products. Sales of materials and components for automotive products also increased due to firm demand. The consolidation of NEOMAX, Co., Ltd., which became a subsidiary of Hitachi Metals, Ltd., also contributed to an increase in sales in this
segment.



24



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##### Table of Contents

Revenues in Logistics, Services & Others decreased 1%, to ¥1,248,296 million, in fiscal 2004
compared to the preceding fiscal year. Although sales of logistics services increased, sales by overseas subsidiaries decreased as a result of the transfer of their semiconductor operation to Renesas, an equity-method affiliate.



Revenues in Financial Services decreased 4%, to ¥529,695 million, in
fiscal 2004 compared to the preceding fiscal year due primarily to a decrease in automotive loans to individuals as a result of the shift in focus from automotive loans to leasing.



An analysis by geographic segment shows that revenues of the Company and its consolidated subsidiaries located in Japan
increased 4%, to ¥7,535,816 million, in fiscal 2004 compared to the preceding fiscal year due primarily to an increase in sales by the outsourcing business in Information & Telecommunication Systems, and increased sales of materials and
components for LCDs, semiconductors and automotive products and construction machinery.



Revenues of consolidated subsidiaries of the Company located in Asia (other than Japan) rose 11%, to ¥1,447,446 million, in fiscal 2004 compared to the preceding fiscal year due primarily to an increase in sales
of digital media related products, air-conditioning equipment and industrial equipment. The consolidation of Guangzhou Hitachi Elevator Co., Ltd., formerly an equity-method affiliate of the Company, also contributed to an increase in sales of this
segment.



Revenues of consolidated subsidiaries of the Company
located in North America increased 3%, to ¥832,490 million, in fiscal 2004 compared to the preceding fiscal year due primarily to an increase in sales of plasma televisions and LCD projectors due to increased demand, and an increase in sales of
power generation equipment, partially offset by a decrease in sales of servers and projection televisions due to declines in prices.



Revenues of consolidated subsidiaries of the Company located in Europe increased 12%, to ¥490,807 million, in fiscal 2004 compared to the preceding
fiscal year due primarily to an increase in sales of plasma televisions, room air conditioners and construction machinery.



Revenues of consolidated subsidiaries of the Company located in Other Areas increased 18%, to ¥104,331 million, in fiscal 2004 compared to the
preceding fiscal year.



Hitachis cost of sales increased
4%, to ¥6,961,270 million, in fiscal 2004 compared to the preceding fiscal year, while the ratio of cost of sales to total revenues decreased 1% in fiscal 2004 compared to the preceding fiscal year, to 77%. Selling, general and administrative
expenses increased 3%, to ¥1,786,718 million, in fiscal 2004 compared to the preceding fiscal year, while the ratio of selling, general and administrative expenses to total revenues was 20%, approximately the same the preceding fiscal year.



In fiscal 2004, Hitachi recorded impairment losses for
long-lived assets in the amount of ¥26,797 million. The majority of the impairment losses were recorded on long-lived property, plant and equipment in Japan, ¥8,517 million of which was recorded in Electronic Devices Division, ¥4,954
million of which was recorded in High Functional Materials & Components Division and ¥4,453 million of which was recorded in the Corporate Division, due primarily to the result of a change in the extent or manner the assets were used.



In fiscal 2004, Hitachi recorded restructuring charges of
¥33,307 million, associated primarily with the restructuring measures in Information & Telecommunication Systems, Digital Media & Consumer Products and High Functional Materials & Components. For further details, see
Restructuring in this Item.



Interest income
increased 5% in fiscal 2004 compared to the preceding fiscal year, to ¥13,413 million. Dividend income decreased 6% in fiscal 2004 compared to the preceding fiscal year, to ¥5,971 million. Other income decreased to ¥67,024 million in
fiscal 2004 compared to ¥142,010 million in the preceding fiscal year, as net gain on securities in fiscal 2004 decreased ¥83,712 million, to ¥46,463 million, compared to ¥130,175 million in the preceding fiscal year. This decrease
was partially offset by a net gain of ¥14,422 million from issuance of stock by certain subsidiaries and affiliated companies which resulted in changes of the Companys ownership interest.



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Interest charges decreased 6% in fiscal 2004 compared to the preceding fiscal year, to ¥29,057
million. Other deductions decreased 49%, to ¥11,796 million, in fiscal 2004 compared to the preceding fiscal year primarily because foreign exchange loss recorded in fiscal 2003 became a gain in fiscal 2004.



Income before income taxes and minority interests increased 12%, to
¥264,506 million, in fiscal 2004 compared to the preceding fiscal year.



Income taxes in fiscal 2004 decreased to ¥149,990 million, from ¥198,655 million in the preceding fiscal year.



Income before minority interests in fiscal 2004 increased 197%, to ¥114,516 million, from the preceding fiscal year due to the increase in income
before income taxes and minority interests and a decrease in income taxes.



Minority interests in fiscal 2004 increased 179%, to ¥63,020 million, from the preceding fiscal year due primarily to improvement as a whole in the business results of publicly-held subsidiaries.



As a result of the foregoing, net income in fiscal 2004 increased 224% from
the preceding fiscal year, to ¥51,496 million.



B. Liquidity and Capital
Resources



The analysis made in this Item covers the
three-year period from fiscal 2003 to fiscal 2005. Management considers maintaining an appropriate level of liquidity and securing adequate funds for current and future business operations to be important financial objectives. Through efficient
management of working capital and selective investment in new plant and equipment, Hitachi is working to optimize the efficiency of capital utilization throughout its business operations. Hitachi endeavors to improve Hitachi group cash management by
centralizing such management among the Company and its overseas financial subsidiaries. Hitachis internal sources of funds include cash flows generated by operating activities and cash on hand. Management also considers short-term investments
as an immediately available source of funds. In addition, Hitachi raises funds both from the capital markets and from Japanese and international commercial banks in response to its capital requirements. Managements policy is to finance capital
expenditures primarily by internally generated funds and to a lesser extent by funds raised by the issuance of debt and equity securities in domestic and foreign capital markets.



In fiscal 2004, the Company raised a total of ¥170,000 million by means of syndicated loan agreements from domestic
banks as funds for, among other purposes, redeeming the Companys 7th issue of unsecured convertible bonds that were due for redemption in September 2004. Further, the Company issued two series of convertible bonds (bonds with stock acquisition
rights) in the aggregate amount of ¥100,000 million in October 2004. The bonds mature in five years with zero coupon rate. The procured funds were used primarily for raising funds for upfront investment, including investment in facilities and
R&D for maintaining the medium-to-long term growth of Hitachi.



In fiscal 2005, the Company issued two series of unsecured straight bonds: (i) five-year bonds with a 0.7% coupon rate in an aggregate principal amount of ¥50,000 million, and (ii) ten-year bonds with a 1.56% coupon rate in an
aggregate principal amount of ¥50,000 million. The Company issued these bonds for the purpose of redeeming the Companys 11th issue of unsecured straight bonds that was due for redemption in February 2006.



Hitachi relies for its liquidity principally on cash and other working
capital as well as the issue of debentures, medium term notes and commercial paper, bank loans and other uncommitted sources of financing. While Hitachi maintains backup lines of credit to cover maturing commercial paper in the U.S. market, the
aggregate amount of credit available under these credit lines is limited. At the end of fiscal 2005, the Company maintained commitment line agreements with a number of domestic banks under which the Company may borrow any amount it requires up to a
total of ¥170,000 million in order to ensure efficient access to operating funds. These commitment line agreements generally provide for a one-year term, renewable upon mutual agreement between the Company and each of the lending banks. Certain
of the Companys subsidiaries also maintain commitment line arrangements. Unused commitment lines for the Company and its subsidiaries totaled to ¥220,438 million as of March 31, 2006. The committed credit arrangements of the Company
and its subsidiaries are, in general, subject to financial and other covenants and conditions prior to and after drawdown and require the borrower to represent, in connection with any borrowing under the agreement, that no material adverse change
has occurred since certain dates.



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At the end of fiscal 2005, the total of Hitachis short-term debt and long-term debt amounted to
¥2,419,044 million, a decrease of ¥83,462 million from at the end of fiscal 2004. The decrease was due primarily to the redemption of the Companys 11th issue of unsecured straight bonds in February 2006, partially offset by the
Companys 13th issue and 14th issue of unsecured straight bonds in August 2005. At the end of fiscal 2005, short-term debt totaled ¥752,527 million, consisting mainly of borrowings from banks and commercial paper, while long-term debt was
¥1,418,489 million, consisting mainly of debentures, debentures with stock acquisition rights, medium term notes and loans principally from banks and insurance companies. At the end of fiscal 2005, current portion of long-term debt totaled
¥248,028 million. A significant portion of Hitachis long-term debt bears a fixed rate of interest. Hitachis debt is not significantly affected by seasonal factors. In general, there are no material restrictions on Hitachis use
of borrowings. For further details including the maturity and interest rates, see note 10 to the consolidated financial statements.



The Companys current debt ratings (long-term/short-term) are: A1/P-1 by Moodys; A-/A-1 by S&P and AA-/a-1+ by R&I. With its current
ratings, the Company believes that its access to the global capital markets will remain sufficient for its financing needs. However, a downgrade of its debt ratings would likely increase the cost of debt finance by the Company. Hitachi seeks to
maintain a stable credit rating in order to ensure financial flexibility for liquidity and capital management, and to continue to maintain access to sufficient funding resources through the capital markets.



Transfers of funds from a subsidiary to a parent company in the form of a
cash dividend are restricted under the Company Law and under regulatory requirements of certain foreign countries in which a subsidiary may be located. Although the Companys subsidiaries are subject to such restrictions, Hitachi does not
expect such restrictions to have a significant impact on the ability of Hitachi to meet its cash obligations.



Management believes that Hitachis sources of liquidity and capital resources, including working capital, are adequate for its present requirements
and business operations and will be adequate to satisfy its presently anticipated requirements during at least the next twelve months for working capital, capital expenditures and other corporate needs. Hitachi is seeking to ensure that its level of
liquidity and access to capital resources continue to be maintained in order for Hitachi to successfully conduct its future operations in highly competitive markets.



Cash Flows



Summarized cash flows from operating, investing and financing activities for fiscal 2003, 2004 and 2005 are shown below.



|                                                             |  |                   |   |  |             |   |  |             |  
|------------------------------------------------------------ |  | ----------------- | - |  | ----------- | - |  | ----------- | -
|                                                             |  | Fiscal 2003       |   |  | Fiscal 2004 |   |  | Fiscal 2005 |  
|                                                             |  | (Millions of yen) |  
|Net cash provided by operating activities                    |  | 603,403           |   |  | 565,356     |   |  | 690,875     |  
|Net cash used in investing activities                        |  | (267,413          | ) |  | (526,988    | ) |  | (501,362    | )
|Net cash used in financing activities                        |  | (374,435          | ) |  | (99,429     | ) |  | (261,638    | )
|Effect of exchange rate changes on cash and cash equivalents |  | (25,330           | ) |  | 5,380       |   |  | 21,665      |  
|                                                             |  |                   |   |  |             |   |  |             |  
|Net decrease in cash and cash equivalents                    |  | (63,775           | ) |  | (55,681     | ) |  | (50,460     | )



Net cash provided by
operating activities was ¥690,875 million, ¥565,356 million and ¥603,403 million in fiscal 2005, 2004 and 2003, respectively. The increase in fiscal 2005 was due primarily to an increase in payables, partially offset by an increase in
inventories of raw materials and construction machinery. The decrease in fiscal 2004 was due primarily to an increase in inventories in part as a result of an increase in price of raw materials and an increase in inventories of construction
machinery, and income tax payments, partially offset by a decrease in receivables in part as a result of improved cash collections from customers and cash receipts from securitized receivables.



Net cash used in investing activities was ¥501,362 million, ¥526,988
million and ¥267,413 million in fiscal 2005, 2004 and 2003, respectively. The decrease in fiscal 2005 was due primarily to an increase of cash inflows in collection of investments in leases as a result of improved cash collections by
securitizing lease receivables, partially offset by an increase of cash outflows in the purchase of investments and subsidiaries common stock as a result of the payment to IBM Corporation for the acquisition of its hard disk drive business and
a decrease of cash inflows in proceeds from the sale of investments and subsidiaries common stock. The increase in fiscal 2004 was due primarily to following three factors: an increase in investments in manufacturing equipment for hard disk
drives to enhance production capacity; an increase in purchase of assets to be leased, in response to strong demand; and a decrease in proceeds from sale of investments and subsidiaries common stock, partially offset by a decrease in purchase
of investments and subsidiaries common stock. As of March 31, 2006, Hitachis capital commitments for the purchase of property, plant and equipment amounted to ¥60,381 million, which is expected to be funded primarily through
internal sources of financing.



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Net cash used in financing activities was ¥261,638 million, ¥99,429 million and ¥374,435
million in fiscal 2005, 2004 and 2003, respectively. These outflows in financing activities were chiefly due to Hitachis efforts to reduce interest-bearing debt by improving cash management within the Company and its subsidiaries. The increase
in fiscal 2005 was due primarily to a decrease of proceeds from long-term debt, partially offset by a decrease of payments on long-term debt due primarily to the redemption of the Companys 11th issue of unsecured straight bonds.



In fiscal 2005, the above activities decreased cash and cash equivalents by
¥50,460 million from fiscal 2004. Cash and cash equivalents at the end of fiscal 2005 amounted to ¥658,255 million, primarily held in Japanese yen and a substantial part in U.S. dollars.



Short-term investments, the change of which is classified as investing
activities, are considered as an immediately available source of funds. Short-term investments at the end of fiscal 2005 amounted to ¥162,756 million, an increase of ¥16,188 million from at the end of fiscal 2004. As a result of the
foregoing, the total of cash and cash equivalents and short-term investments at the end of fiscal 2005 was ¥821,011 million, a decrease of ¥34,272 million from at the end of fiscal 2004.



Assets, Liabilities and Stockholders Equity



At the end of fiscal 2005, total assets amounted to ¥10,021,195 million,
an increase of ¥284,948 million from the end of fiscal 2004 due primarily to an increase in receivables and the effect of FHP becoming a consolidated subsidiary during fiscal 2005.



At the end of fiscal 2005, the total of Hitachis short-term debt and long-term debt amounted to ¥2,419,044
million, a decrease of ¥83,462 million from at the end of fiscal 2004, due primarily to the redemption of the Companys 11th issue of unsecured straight bonds in February 2006, partially offset by the Companys 13th issue and 14th
issue of unsecured straight bonds in August 2005. At the end of fiscal 2005, retirement and severance benefits amounted to ¥827,669 million, a decrease of ¥205,336 million from at the end of fiscal 2004 due primarily to an improvement of
yield of pension funds. At the end of fiscal 2005, minority interests amounted to ¥1,036,807 million, an increase of ¥115,755 million from the end of fiscal 2004, due primarily to the improvement as a whole in the business results of
publicly-held subsidiaries.



At the end of fiscal 2005,
stockholders equity amounted to ¥2,507,773 million, an increase of ¥199,942 million from the end of fiscal 2004 due primarily to an improvement in foreign currency translation adjustments as a result of depreciation of Japanese yen, a
decrease in minimum pension liability adjustments as a result of the improvement of yield of pension funds and an improvement in net unrealized holding gain on available-for-sale securities as a result of the improvement in capital market. As a
result, the ratio of stockholders equity to total assets increased 1% from the preceding fiscal year, to 25%. The ratio of the total of short-term debt and long-term debt against the total of stockholders equity and minority interests
became 0.68, an improvement of 0.1 points from the preceding fiscal year.



The Company and its subsidiaries assess foreign currency exchange rate risk and interest rate risk by continually monitoring changes in these exposures and by evaluating hedging opportunities. Hitachi uses certain
derivative financial instruments in order to reduce such risks. In principle, Hitachi does not enter into derivative financial instruments for speculation purposes. For additional information on financial instruments and derivative financial
instruments, see notes 25 and 27 to the consolidated financial statements.



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C. Research and Development, Patents and Licenses, etc.



Viewing research and development, or R&D, activity as a key investment
for the future, Hitachi conducts its R&D in a number of areas from materials to production technology. Hitachi focuses on basic R&D with a long-term vision but also strives to achieve more immediate benefits by introducing new products.



Hitachis R&D expenditures amounted to ¥371,825
million in fiscal 2003, ¥388,634 million in fiscal 2004 and ¥405,079 million in fiscal 2005. The ratio of R&D expenditures to total revenues ranged from approximately 4% to 5% over these three years.



Hitachi recognizes the importance of the Information &
Telecommunication Systems segment and the Electronic Devices segment as sources of new technologies that can be applied to other segments. Therefore, Hitachi places emphasis on these segments in allocating R&D resources. In fiscal 2005, total
expenditures in the Information & Telecommunication Systems segment and the Electronic Devices segment accounted for 52% of total R&D expenditures.



To achieve higher efficiency, Hitachi has reinforced the link between R&D activities and marketing activities under the control of each business
operation while maintaining its focus on long-term research at independent corporate laboratories. Hitachis global R&D activities include cooperation with universities and companies in the U.S. and Europe. Hitachi will reinforce R&D in
the area of both frontier and platform research. The former aims to cultivate future mainstay businesses, while the latter has a more immediate focus of increasing productivity and quickening the pace of product development throughout Hitachi.
Hitachi also focuses on leading-edge R&D for creating its future core businesses to reinforce fundamental technologies for improving productivity and quality and lowering costs.



For information on Hitachis patents and licenses, see Item 4. Information on the Company  B. Business
Overview  Intellectual Property and Licenses.



D. Trend
Information



In December 2002, the Company purchased a
majority ownership in a newly-established company to which IBM Corporations hard disk drive operations were transferred. The new company, a subsidiary of the Company, commenced operations on January 1, 2003. As a result, the revenues of
the new company have been included in Hitachis consolidated statement of income since the beginning of fiscal 2003. In April 2003, the Company transferred its semiconductor operations centered in system LSIs to a new company, Renesas,
incorporated jointly by the Company and Mitsubishi Electric. Since the new company is accounted for under the equity method by the Company, the revenues of such operations, included in Hitachis consolidated statement of income through fiscal
2002, have been excluded since the beginning of fiscal 2003. In October 2004, the Company merged its equity-method affiliate, TOKICO LTD., into itself. As a result, the revenues of TOKICO LTD. have been included in Hitachis consolidated
statement of income for fiscal 2004.



Factors that could cause
actual results to differ materially from those expected or implied in any forward-looking statements in this section include, but are not limited to, rapid and significant declines in product prices and uncertainty as to Hitachis ability to
implement restructuring measures. In addition, see the Cautionary Statement at the beginning of this annual report and Item 3. Key Information  D. Risk Factors for other examples of factors that could cause actual
results to differ materially from those anticipated.



E. Off-balance Sheet
Arrangements



Hitachis off-balance sheet
arrangements consist primarily of off-balance sheet Special Purpose Entities, or SPEs, used to securitize and sell certain trade and lease receivables. The purpose of such securitization transactions is to enable Hitachi to access the capital
markets for liquidity.



In these securitizations, trade and
lease receivables are sold to the SPEs which are in turn packaged mainly into asset-backed commercial paper by the SPEs for sale to third party investors. In certain securitizations, the SPEs may require Hitachi to retain residual interests
subordinated to the investors. The SPEs and the investors have no recourse against Hitachi when debtors fail to pay trade and lease receivables when due. Accordingly, Hitachis contingent liability exposure is limited to the retained
subordinated residual interests.



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No officers, directors or employees of Hitachi have any investments in the SPEs. The SPEs meet the
accounting criteria for off-balance sheet treatment and are not consolidated under generally accepted accounting principles in the United States.



The amount of off-balance sheet arrangements as of March 31, 2006 is as follows:



|                              |  |                  
|----------------------------- |  | -----------------
|                              |  | March 31, 2006   
|                              |  | (Millions of yen)
|Securitized lease receivables |  | 707,537          
|Securitized trade receivables |  | 300,692          
|                              |  |                  
|Total                         |  | 1,008,229        
|                              |  |                  



See notes 2(g) and 7 to the
consolidated financial statements.



F. Tabular Disclosure of Contractual
Obligations



The following tables show Hitachis
contractual obligations and other commercial commitments, including guarantees, as of March 31, 2006.



|                                          |  |                        |  |                  |  |           |  |           |  |              
|----------------------------------------- |  | ---------------------- |  | ---------------- |  | --------- |  | --------- |  | -------------
|                                          |  | Payments due by period
|Contractual obligations                   |  | Total                  |  | Less than 1 year |  | 1-3 years |  | 3-5 years |  | After 5 years
|                                          |  | (Millions of yen)     
|Long-term debt obligations                |  | 1,655,511              |  | 243,750          |  | 572,708   |  | 490,416   |  | 348,637      
|Capital lease obligations                 |  | 11,006                 |  | 4,278            |  | 4,460     |  | 1,467     |  | 801          
|Operating lease obligations               |  | 46,225                 |  | 12,702           |  | 16,818    |  | 6,685     |  | 10,020       
|Purchase of property, plant and equipment |  | 60,381                 |  | 58,721           |  | 1,660     |  |          |  |             
|                                          |  |                        |  |                  |  |           |  |           |  |              
|Total                                     |  | 1,773,123              |  | 319,451          |  | 595,646   |  | 498,568   |  | 359,458      
|                                          |  |                        |  |                  |  |           |  |           |  |              



|                                    |  |                     
|----------------------------------- |  | --------------------
|Other commercial commitments        |  | As of March 31, 2006
|                                    |  | (Millions of yen)   
|Lines of credit                     |  | 634,272             
|Trade notes discounted and endorsed |  | 10,911              
|Guarantees                          |  | 527,723             



See note 17 to the consolidated
financial statements.



G. Critical Accounting Policies



The preparation of the consolidated financial statements of Hitachi in
conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the
possibility that future events affecting the estimate may differ significantly from managements current judgments. Management considers the accounting estimates discussed in this section to be critical accounting estimates for two reasons.
First, the estimates require Hitachi to make assumptions about matters that are highly uncertain at the time the accounting estimate is made. Second, different estimates that Hitachi reasonably could have used for the accounting estimate in the
current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the presentation of Hitachis financial condition, changes in financial condition or results of
operations. Management believes the following represent Hitachis critical accounting policies.



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Revenue Recognition for Sales under Long-term Construction Arrangements



Hitachi uses the percentage-of-completion method to recognize revenue from
sales of tangible products under long-term construction type arrangements, principally in connection with the construction of nuclear, thermal and hydroelectric power plants. Under the percentage-of-completion method, revenue from a sale is
recognized in an amount equal to estimated total revenue from the sale multiplied by the percentage that costs incurred to date bear to estimated total completion costs based upon most recently available information. The use of
percentage-of-completion method requires Hitachi to make significant assumptions about estimates of total contract costs, remaining costs to completion, total contract revenues, contract risks and other factors. Hitachi continually reviews these
estimates and adjusts them as it deems necessary. Any anticipated losses on fixed price contracts are charged to operations when Hitachi is able to estimate such losses. Hitachi makes provisions for contingencies (e.g. performance penalty and
benchmarking) in the period in which they become known to Hitachi under the specific terms and conditions of the relevant contract and are estimable by Hitachi.



Impairment of Long-Lived Assets



Hitachi reviews the carrying value of its long-lived assets held and used, whenever events or changes in circumstances indicate that the carrying value of
the assets may not be recoverable. Hitachi performs the initial impairment review using estimates of undiscounted future cash flows. If the carrying value of the asset is considered impaired based upon the review, an impairment charge is recorded
for the amount by which the carrying value of the asset exceeds its estimated fair value. In estimating, Hitachi uses available quoted market prices and present value techniques, if appropriate, based on the estimated future cash flow expected to
result from the use of the assets and their eventual disposition. Although management believes that the estimates of future cash flows and fair value are reasonable, changes in estimates resulting in lower future cash flows and fair value due to
unforeseen changes in business assumptions could negatively affect the valuations of the long-lived assets.



Goodwill and Other Intangible Assets



All goodwill and other intangible assets with indefinite useful lives are not amortized but are tested for impairment in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, during the fourth quarter after the annual forecasting process is completed or between annual tests if an event occurs or circumstances change in a manner that would more likely than not reduce the fair value of these
assets below their carrying value. Fair value for these assets is determined using a discounted cash flow analysis, which is based on various assumptions, including forecasted operational results set forth in Hitachis authorized business plan.
Although management believes that the estimates of future cash flows and fair value are reasonable, changes in estimates resulting in lower future cash flows and fair value due to unforeseen changes in the business environment could negatively
affect the valuations and the amount of the impairment charge.



Deferred
Tax Assets



In assessing the realizability of the
deferred tax assets, management considers whether it is more likely than not that a portion or all of the deferred tax assets will not be realized. The ultimate realization of Hitachis deferred tax assets is dependent on whether Hitachi is
able to generate future taxable income in specific tax jurisdictions during the periods in which temporary differences become deductible. Management has scheduled the expected future reversals of the temporary differences and projected future
taxable income, including the execution of certain available tax strategies if needed, in making this assessment. Based on these factors, management believes that it is more likely than not that Hitachi will realize the benefits of these temporary
differences, net of the existing valuation allowance as of March 31, 2006. However, the amount of deferred tax assets may be different if Hitachi does not realize estimated future taxable income during the carry forward periods as originally
expected.



Retirement Benefits



Hitachi has a significant amount of employee retirement benefit costs which
are developed from actuarial valuations. Inherent in these valuations are key assumptions in estimating pension costs including mortality, withdrawal, retirement, changes in compensation, discount rate and expected return on plan assets. Hitachi is
required to estimate the key assumptions by taking into account various factors including personnel demographics, current market conditions and expected trends in interest rates. Hitachi determines the discount rate by looking to available
information about rates implicit in return on high-quality fixed-income governmental and corporate bonds. Accordingly, the discount rate is likely to change from period to period based on these ratings. A decrease in the discount rate results in an
increase in actuarial pension benefit obligations. Increases and decreases in the pension benefit obligation affect the amount of the actuarial gain or loss which is amortized into income over the service lives of employees. Changes in the key
assumptions may have a material effect on Hitachis financial position and results of operations. Management believes that estimation of the key assumptions is reasonable under the various underlying factors.



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Allowance for Doubtful Accounts



Hitachi is required to estimate the collectibility of its trade receivable and investments in leases. A considerable amount
of judgment is required in assessing the ultimate realization of these receivables, including the current creditworthiness of each customer. Such assessment includes an examination of factors such as business conditions, turnover of receivables and
financial positions for significant customers. Significant changes in required reserves have been recorded in recent periods and may occur in the future due to the current market environment. Any deterioration in customer credit rating may adversely
affect net income.



Investments in Securities



Hitachi holds various investments in securities and equity-method
investments. A decline in fair value of securities and equity-method investments below carrying value that is deemed other than temporary results in a write-down of the carrying value to the fair value as a new cost basis. The amount of the
write-down is included in earnings. Fair value is determined based on quoted market prices, projected discounted cash flows or other valuation techniques as appropriate. Management regularly reviews each investment in securities and each
equity-method investment for possible impairment based on criteria such as the extent to which the carrying value exceeds fair value, the duration the fair value has been below the carrying value and the financial condition of and specific prospects
of the issuer. A decline in market prices or a change in the financial condition of an issuer could negatively affect the fair value of an investment in securities.



|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- | ------------------------------------------



A. Directors and Senior Management



The Company adopts the Committee System permitted as a form of corporate organization pursuant to the Company Law. Each company adopting the Committee
System, including the Company, is required to (i) establish within its board of directors nominating, audit and compensation committees, a majority of the members of each of which must be outside directors, and (ii) appoint executive
officers responsible for executing the business of such company. The Company Law defines an outside director as a director who is not and has not been an executive director (a representative director or a director who executes such companys
business), executive officer, manager or any other employee of such company or its subsidiaries. Under the Committee System, a company is not allowed to have corporate auditors but is instead required to delegate auditing function responsibilities
to its audit committee. For information regarding the Companys implementation of the Committee System, see C. Board Practices below.



Set forth below are the names of the Companys directors, or Directors, and executive officers, or Executive Officers, as of June 27, 2006. All
Directors were elected at the Companys general meeting of shareholders held on June 27, 2006. While Board Director (Chair), Mr. Yoshiki Yagi, does not concurrently serve as an Executive Officer, three Directors, Mr. Etsuhiko
Shoyama, Mr. Kazuo Furukawa and Mr. Takashi Miyoshi, do concurrently serve as Executive Officers. Four Directors, Ms. Ginko Sato, Mr. Hiromichi Seya, Mr. Akira Chihaya and Mr. Tohru Motobayashi, are outside Directors
who fulfill the qualification requirements as provided for in the Company Law. All Executive Officers were subsequently appointed at the meeting of the board of Directors, or Board of Directors, held on June 27, 2006.



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Directors



|                     |  |                                                                   |        |        |                                                                                  |                                                                                                    
|-------------------- |  | ----------------------------------------------------------------- | ------ | ------ | -------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------
|Name (Date of birth) |  | Current position (Principal position outside the Company, if any) |        | Date   |                                                                                  | Business experience, including experience inthe Company, and functions                             
|Yoshiki Yagi         |  |                                                                   |        |        |                                                                                  |                                                                                                    
|(Feb. 27, 1938)      |  | Board Director (Chair)                                            |        | 6/2005 |                                                                                  | Board Director (Chair)                                                                             
|                     |  |                                                                   |        | 4/2004 |                                                                                  | Director                                                                                           
|                     |  |                                                                   | 6/2003 |        | Executive Vice President, Executive Officer and Director                        
|                     |  |                                                                   | 4/1999 |        | Executive Vice President and Representative Director                            
|                     |  |                                                                   | 6/1997 |        | Senior Executive Managing Director                                              
|                     |  |                                                                   | 6/1993 |        | Executive Managing Director                                                     
|                     |  |                                                                   | 6/1991 |        | Director                                                                        
|                     |  |                                                                   | 6/1988 |        | General Manager, Accounting Controls Dept.                                      
|                     |  |                                                                   | 4/1960 |        | Joined Hitachi, Ltd.                                                            
|                     |  |                                                                   |       
|Etsuhiko Shoyama     |  |                                                                   |        |        |                                                                                  |                                                                                                    
|(Mar. 9, 1936)       |  | Director*                                                         |        | 4/2006 |                                                                                  | Chairman and Director                                                                              
|                     |  |                                                                   |        | 6/2003 |                                                                                  | President, Chief Executive Officer and Director                                                    
|                     |  |                                                                   |        | 4/1999 |                                                                                  | President and Representative Director                                                              
|                     |  |                                                                   | 6/1997 |        | Executive Vice-President and Representative Director                            
|                     |  |                                                                   | 6/1995 |        | Senior Executive Managing Director                                              
|                     |  |                                                                   | 6/1993 |        | Executive Managing Director                                                     
|                     |  |                                                                   | 6/1991 |        | Director                                                                        
|                     |  |                                                                   |        |        | General Manager, Consumer Electronics Division                                  
|                     |  |                                                                   | 4/1959 |        | Joined Hitachi, Ltd.                                                            
|                     |  |                                                                   |       
|Kazuo Furukawa       |  |                                                                   |        |        |                                                                                  |                                                                                                    
|(Nov. 3, 1946)       |  | Director*                                                         |        | 6/2006 |                                                                                  | President and Director                                                                             
|                     |  |                                                                   |        | 4/2006 |                                                                                  | President                                                                                          
|                     |  |                                                                   |        | 4/2005 |                                                                                  | Executive Vice President and Executive Officer                                                     
|                     |  |                                                                   | 4/2004 |        | Senior Vice President and Executive Officer                                     
|                     |  |                                                                   | 6/2003 |        | Vice President and Executive Officer                                            
|                     |  |                                                                   | 4/2003 |        | President & CEO, Information & Telecommunication Systems                        
|                     |  |                                                                   | 4/1971 |        | Joined Hitachi, Ltd.                                                            
|Tadamichi Sakiyama   |  |                                                                   |        |        |                                                                                 
|(Jun. 13, 1941)      |  | Director                                                          |        | 6/2006 |                                                                                  | Director, Hitachi, Ltd.                                                                            
|                     |  |                                                                   |        | 4/2006 |                                                                                  | Director, Hitachi Construction Machinery, Co., Ltd.                                                
|                     |  |                                                                   |        | 6/2003 |                                                                                  | Executive Vice President, Executive Officer and Director, Hitachi Construction Machinery, Co., Ltd.
|                     |  |                                                                   |        | 4/2003 |                                                                                  | Executive Vice President and Representative Director, Hitachi Construction Machinery, Co., Ltd.    
|                     |  |                                                                   | 6/2001 |        | Board Director, Senior Vice President, Hitachi Construction Machinery, Co., Ltd.
|                     |  |                                                                   | 4/1999 |        | Vice President, General Manager of Internal Auditing Office                     
|                     |  |                                                                   | 6/1994 |        | General Manager of Accounting Department                                        
|                     |  |                                                                   | 4/1964 |        | Joined Hitachi, Ltd.                                                            



33



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|                     |  |                                                                                        |        |         |                                                                              |                                                                              
|-------------------- |  | -------------------------------------------------------------------------------------- | ------ | ------- | ---------------------------------------------------------------------------- | -----------------------------------------------------------------------------
|Name (Date of birth) |  | Current position (Principal position outside the Company, if any)                      |        | Date    |                                                                              | Business experience, including experience in the Company, and functions      
|Takashi Miyoshi      |  |                                                                                        |        |         |                                                                              |                                                                              
|(Sep. 25, 1947)      |  | Director*                                                                              |        | 4/2006  |                                                                              | Executive Vice President, Executive Officer and Director                     
|                     |  |                                                                                        |        | 6/2004  |                                                                              | Senior Vice President, Executive Officer and Director                        
|                     |  |                                                                                        | 4/2004 |         | Senior Vice President and Executive Officer                                 
|                     |  |                                                                                        | 6/2003 |         | Executive Officer                                                           
|                     |  |                                                                                        | 4/2003 |         | General Manager, Finance                                                    
|                     |  |                                                                                        | 4/1970 |         | Joined Hitachi, Ltd.                                                        
|Ginko Sato           |  |                                                                                        |        |         |                                                                              |                                                                              
|(Jul. 6, 1934)       |  | Director (Honorary President, Japan Association for the
Advancement of                 |        | 4/2005  |                                                                              | Honorary President, Japan Association for the Advancement of Working Women   
|                     |  | Working Women)                                                                         |        | 6/2003  |                                                                              | Director, Hitachi, Ltd.                                                      
|                     |  |                                                                                        |        | 8/2001  |                                                                              | President, Japan Association for the Advancement of Working Women            
|                     |  |                                                                                        |        | 7/1998  |                                                                              | Chairperson, Securities and Exchange Surveillance Commission                 
|                     |  |                                                                                        |        | 7/1995  |                                                                              | Commissioner, Securities and Exchange Surveillance Commission                
|                     |  |                                                                                        |        | 10/1991 |                                                                              | Ambassador Extraordinary and Plenipotentiary of Japan to Kenya               
|                     |  |                                                                                        |        | 7/1990  |                                                                              | Assistant Minister of Labour                                                 
|Hiromichi Seya       |  |                                                                                        |        |         |                                                                              |                                                                              
|(Oct. 7, 1930)       |  | Director (Senior Corporate Advisor,
Asahi Glass Company, Limited)                      |        | 3/2004  |                                                                              | Senior Corporate Advisor, Asahi Glass Company, Limited                       
|                     |  |                                                                                        | 6/2003 |         | Director, Hitachi, Ltd.                                                     
|                     |  |                                                                                        |        | 6/2002  |                                                                              | Chairman of the Board, Asahi Glass Company, Limited                          
|                     |  |                                                                                        | 6/1998 |         | Chairman & CEO, Asahi Glass Company, Limited                                
|                     |  |                                                                                        | 3/1992 |         | President, Asahi Glass Company, Limited                                     
|Akira Chihaya        |  |                                                                                        |        |         |                                                                              |                                                                              
|(Mar. 6, 1935)       |  | Director (Representative Director
and Chairman of the Board, NIPPON STEEL
CORPORATION) |        | 6/2003  |                                                                              | Director, Hitachi, Ltd.                                                      
|                     |  |                                                                                        | 4/2003 |         | Representative Director and Chairman of the Board, NIPPON STEEL CORPORATION 
|                     |  |                                                                                        | 4/1998 |         | Representative Director and President, NIPPON STEEL CORPORATION             
|                     |  |                                                                                        |       
|Tohru Motobayashi    |  |                                                                                        |        |         |                                                                              |                                                                              
|(Jan. 5, 1938)       |  | Director (Attorney at law)                                                             |        | 6/2006  |                                                                              | Director, Hitachi, Ltd.                                                      
|                     |  |                                                                                        | 4/2002 |         | President of the Japan Federationof Bar Associations (Retired in March 2004)
|                     |  |                                                                                        | 6/1970 |         | Partner, Mori Sogo Law Offices (currently, Mori Hamada & Matsumoto)         
|                     |  |                                                                                        |        | 4/1963  |                                                                              | Member of the Tokyo BarAssociation                                           
|                     |  |                                                                                        |       
|Isao Uchigasaki      |  |                                                                                        |        |         |                                                                              |                                                                              
|(Jan. 2, 1939)       |  | Director (Chairman of the Board, Hitachi
Chemical Co., Ltd.)                           |        | 4/2006  |                                                                              | Director, Hitachi, Ltd.                                                      
|                     |  |                                                                                        | 6/2004 |         | Hitachi Group Executive Officer and Director, Hitachi, Ltd.                 
|                     |  |                                                                                        | 4/2004 |         | Hitachi Group Executive Officer, Hitachi, Ltd.                              
|                     |  |                                                                                        | 6/2003 |         | Chairman of the Board, Hitachi Chemical Co., Ltd.                           
|                     |  |                                                                                        |        | 4/2003  |                                                                              | Chairman of the Board and Representative Director, Hitachi Chemical Co., Ltd.
|                     |  |                                                                                        |        | 6/1997  |                                                                              | President and Representative Director, Hitachi Chemical Co., Ltd.            



34



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|                   |  |                                                                                                              |        |        |                                                                                                                                                                           |                                                                                                         
|------------------ |  | ------------------------------------------------------------------------------------------------------------ | ------ | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------
|Takashi Kawamura   |  |                                                                                                              |        |        |                                                                                                                                                                           |                                                                                                         
|(Dec. 19, 1939)    |  | Director (Chairman of the Board, Hitachi                                                                     |        | 6/2006 |                                                                                                                                                                           | Chairman of the Board, Hitachi Software Engineering Co., Ltd.                                           
|                   |  | Software Engineering Co., Ltd.)                                                                              |        | 6/2003 |                                                                                                                                                                           | Chairman of the Board and Representative Executive Officer, Hitachi Software Engineering Co., Ltd.      
|                   |  |                                                                                                              |        | 4/2003 |                                                                                                                                                                           | Director                                                                                                
|                   |  |                                                                                                              |        | 4/1999 |                                                                                                                                                                           | Executive Vice President and Representative Director                                                    
|                   |  |                                                                                                              |        | 6/1997 |                                                                                                                                                                           | Executive Managing Director                                                                             
|                   |  |                                                                                                              |        | 6/1995 |                                                                                                                                                                           | Director                                                                                                
|                   |  |                                                                                                              |        | 6/1992 |                                                                                                                                                                           | General Manager, Hitachi Works                                                                          
|                   |  |                                                                                                              |        | 4/1962 |                                                                                                                                                                           | Joined Hitachi, Ltd.                                                                                    
|                   |  |                                                                                                              |       
|Yoshiro Kuwata     |  |                                                                                                              |        |        |                                                                                                                                                                           |                                                                                                         
|(Sep. 1, 1936)     |  | Director (Chairman of the Board and
Representative Executive Officer, Hitachi High-Technologies Corporation) |        | 4/2004 |                                                                                                                                                                           | Director, Hitachi, Ltd.                                                                                 
|                   |  |                                                                                                              | 6/2003 |        | Executive Vice President, Executive Officer and Director, Hitachi. Ltd. Chairman of the Board and Representative Executive Officer, Hitachi High-Technologies Corporation
|                   |  |                                                                                                              | 4/1999 |        | Executive Vice President and Representative Director                                                                                                                     
|                   |  |                                                                                                              | 6/1997 |        | Senior Executive Managing Director                                                                                                                                       
|                   |  |                                                                                                              | 6/1995 |        | Executive Managing Director                                                                                                                                              
|                   |  |                                                                                                              | 6/1993 |        | Director                                                                                                                                                                 
|                   |  |                                                                                                              | 7/1992 |        | General Manager, Overseas Operations Promotion Office                                                                                                                    
|                   |  |                                                                                                              | 6/1961 |        | Joined Hitachi, Ltd.                                                                                                                                                     
|                   |  |                                                                                                              |       
|Masayoshi Hanabusa |  |                                                                                                              |        |        |                                                                                                                                                                           |                                                                                                         
|(Oct. 10, 1934)    |  | Director(Chairman of the Board, Hitachi Capital Corporation)                                                 |        | 6/2003 |                                                                                                                                                                           | Director, Hitachi, Ltd. Chairman of the Board, Hitachi Capital Corporation                              
|                   |  |                                                                                                              | 6/2001 |        | Chairman of the Board and Representative Director, Hitachi Capital Corporation                                                                                           
|                   |  |                                                                                                              | 6/1991 |        | President and Representative Director, Hitachi Credit Corporation (currently Hitachi Capital Corporation)                                                                
|                   |  |                                                                                                              |       
|Ryuichi Seguchi    |  |                                                                                                              |        |        |                                                                                                                                                                           |                                                                                                         
|(Nov. 19, 1933)    |  | Director (Counselor, Hitachi
Construction                                                                    |        | 6/2006 |                                                                                                                                                                           | Counselor, Hitachi Construction Machinery Co., Ltd.                                                     
|                   |  | Machinery Co., Ltd.)                                                                                         |        | 4/2006 |                                                                                                                                                                           | Director, Hitachi Construction Machinery Co., Ltd.                                                      
|                   |  |                                                                                                              |        | 6/2005 |                                                                                                                                                                           | Director, Hitachi, Ltd.                                                                                 
|                   |  |                                                                                                              |        | 4/2005 |                                                                                                                                                                           | Chairman of the Board, Hitachi Construction Machinery Co., Ltd.                                         
|                   |  |                                                                                                              |        | 6/2003 |                                                                                                                                                                           | Chairman of the Board and Representative Executive Officer, Hitachi Construction Machinery Co., Ltd.    
|                   |  |                                                                                                              |        | 4/2003 |                                                                                                                                                                           | Chairman of the Board and Representative Director, Hitachi Construction Machinery Co., Ltd.             
|                   |  |                                                                                                              |        | 6/1997 |                                                                                                                                                                           | President, Chief Executive Officer and Representative Director, Hitachi Construction Machinery Co., Ltd.



35



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Note: The Directors marked with * concurrently serve as Executive Officers. See
Executive Officers below.



The members of each of
the Companys committees are as follows:



| |  |  | Nominating Committee. Etsuhiko Shoyama, Ginko Sato, Hiromichi Seya, Tohru Motobayashi, Masayoshi Hanabusa (Chair);
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | Audit Committee. Yoshiki Yagi (Chair), Tadamichi Sakiyama, Ginko Sato, Hiromichi Seya, Akira Chihaya; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Compensation Committee.Kazuo Furukawa, Hiromichi Seya, Akira Chihaya, Tohru Motobayashi, Masayoshi Hanabusa (Chair).
| | - |  | --------------------------------------------------------------------------------------------------------------------



Executive Officers



|                     |  |                                                                                                                                                                              |  |                                                                                             |  |                                                                        
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------
|Name (Date of birth) |  | Current position (Responsibility of Executive Officer as authorized by the Board of Directors)                                                                               |  | Date                                                                                        |  | Business experience, including experience in the Company, and functions
|Etsuhiko Shoyama     |  |                                                                                                                                                                              |  |                                                                                            
|(Mar. 9, 1936)       |  | Representative Executive Officer Chairman (Management in general)                                                                                                            |  | See Directors above.                                                                     
|                     |  |                                                                                                                                                                             
|Kazuo Furukawa       |  |                                                                                                                                                                              |  |                                                                                            
|(Nov. 3, 1946)       |  | Representative Executive Officer President (Overall management)                                                                                                              |  | See Directors above.                                                                     
|                     |  |                                                                                                                                                                             
|Michiharu Nakamura   |  |                                                                                                                                                                              |  |                                                                                            
|(Sep. 9, 1942)       |  | Representative Executive Officer Executive Vice President and Executive Officer (Research & development and business incubation)                                             |  | 4/2004                                                                                      |  | Executive Vice President and Executive Officer                         
|                     |  | 6/2003                                                                                                                                                                       |  | Senior Vice President and Executive Officer                                                
|                     |  | 4/2001                                                                                                                                                                       |  | General Manager, Research & Development Group                                              
|                     |  | 4/1967                                                                                                                                                                       |  | Joined Hitachi, Ltd.                                                                       
|                     |  |                                                                                                                                                                              | 
|Hiroaki Nakanishi    |  |                                                                                                                                                                              |  |                                                                                             |  |                                                                        
|(Mar. 14, 1946)      |  | Executive Vice President and Executive Officer (Hitachi group global business (North America))                                                                               |  | 4/2006                                                                                      |  | Executive Vice President and Executive Officer                         
|                     |  | 4/2004                                                                                                                                                                       |  | Senior Vice President and Executive Officer                                                
|                     |  | 6/2003                                                                                                                                                                       |  | Vice President and Executive Officer                                                       
|                     |  | 4/2003                                                                                                                                                                       |  | General Manager, Global Business                                                           
|                     |  | 4/1970                                                                                                                                                                       |  | Joined Hitachi, Ltd.                                                                       
|                     |  |                                                                                                                                                                              | 
|Takashi Hatchoji     |  |                                                                                                                                                                              |  |                                                                                             |  |                                                                        
|(Jan. 27, 1947)      |  | Representative Executive Officer Executive Vice President and Executive Officer (Corporate planning, legal and corporate communications, corporate auditing and
procurement) |  | 4/2006                                                                                      |  | Executive Vice President and Executive Officer                         
|                     |  | 4/2004                                                                                                                                                                       |  | Senior Vice President and Executive Officer                                                
|                     |  | 6/2003                                                                                                                                                                       |  | Vice President and Executive Officer                                                       
|                     |  | 4/2003                                                                                                                                                                       |  | General Manager, Legal and Corporate Communications and General Manager, Corporate Auditing
|                     |  | 4/1970                                                                                                                                                                       |  | Joined Hitachi, Ltd.                                                                       



36



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|                     |  |                                                                                                                                                                                        |         |                        |                                                                                                |                                                                        
|-------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | ---------------------- | ---------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------
|Name (Date of birth) |  | Current position (Responsibility of Executive Officer as authorized by the Board of Directors)                                                                                         |         | Date                   |                                                                                                | Business experience, including experience in the Company, and functions
|Takashi Miyoshi      |  |                                                                                                                                                                                        |         |                        |                                                                                                |                                                                        
|(Sep. 25, 1947)      |  | Representative Executive Officer Executive Vice President and Executive Officer (Hitachi group management, business development, finance and corporate pension system)                 |         | See Directors above.
|                     |  |                                                                                                                                                                                       
|Tadahiko Ishigaki    |  |                                                                                                                                                                                        |         |                       
|(Jan. 14, 1946)      |  | Representative Executive Officer Senior Vice President and Executive Officer (Sales operations, digital media business, Hitachi group global business and corporate export
regulation) |         | 4/2006                 |                                                                                                | Senior Vice President and Executive Officer, Hitachi, Ltd.             
|                     |  |                                                                                                                                                                                        | 2/2004  |                        | President & Director, Hitachi Home & Life Solutions, Inc. (currently Hitachi Appliances, Inc.)
|                     |  |                                                                                                                                                                                        | 6/2003  |                        | Vice President and Executive Officer                                                          
|                     |  |                                                                                                                                                                                        | 4/2003  |                        | General Manager, Corporate Marketing                                                          
|                     |  |                                                                                                                                                                                        | 4/1968  |                        | Joined Hitachi, Ltd.                                                                          
|                     |  |                                                                                                                                                                                        |        
|Kunihiko Ohnuma      |  |                                                                                                                                                                                        |         |                        |                                                                                                |                                                                        
|(Dec. 4, 1946)       |  | Senior Vice President and Executive Officer (Industrial systems business and urban planning and development systems business)                                                          |         | 4/2006                 |                                                                                                | Senior Vice President and Executive Officer                            
|                     |  |                                                                                                                                                                                        | 4/2005  |                        | Vice President and Executive Officer                                                          
|                     |  |                                                                                                                                                                                        | 6/2001  |                        | President and Representative Director, Hitachi Building Systems Co., Ltd.                     
|                     |  |                                                                                                                                                                                        | 4/1971  |                        | Joined Hitachi, Ltd.                                                                          
|                     |  |                                                                                                                                                                                        |        
|Manabu Shinomoto     |  |                                                                                                                                                                                        |         |                        |                                                                                                |                                                                        
|(Mar. 30, 1948)      |  | Senior Vice President and Executive Officer (Information & telecommunication systems business)                                                                                         |         | 4/2006                 |                                                                                                | Senior Vice President and Executive Officer                            
|                     |  |                                                                                                                                                                                        | 6/2003  |                        | Vice President and Executive Officer                                                          
|                     |  |                                                                                                                                                                                        | 4/2003  |                        | CEO, platform and network systems operation, Information & Telecommunication Systems          
|                     |  |                                                                                                                                                                                        | 7/1971  |                        | Joined Hitachi, Ltd.                                                                          
|                     |  |                                                                                                                                                                                        |        
|Taiji Hasegawa       |  |                                                                                                                                                                                        |         |                        |                                                                                                |                                                                        
|(Feb. 18, 1947)      |  | Senior Vice President and Executive Officer (Automotive systems business)                                                                                                              |         | 4/2006                 |                                                                                                | Senior Vice President and Executive Officer                            
|                     |  |                                                                                                                                                                                        | 4/2004  |                        | Vice President and Executive Officer                                                          
|                     |  |                                                                                                                                                                                        | 6/2003  |                        | Executive Officer                                                                             
|                     |  |                                                                                                                                                                                        | 4/2003  |                        | President & CEO, Automotive Systems                                                           
|                     |  |                                                                                                                                                                                        | 4/1969  |                        | Joined Hitachi, Ltd.                                                                          
|                     |  |                                                                                                                                                                                        |        
|Kazuhiro Mori        |  |                                                                                                                                                                                        |         |                        |                                                                                                |                                                                        
|(Oct. 7, 1946)       |  | Senior Vice President and Executive Officer (Hitachi group companies management assistance)                                                                                            |         | 4/2006                 |                                                                                                | Senior Vice President and Executive Officer                            
|                     |  |                                                                                                                                                                                        | 4/2004  |                        | Vice President and Executive Officer                                                          
|                     |  |                                                                                                                                                                                        | 6/2003  |                        | Executive Officer                                                                             
|                     |  |                                                                                                                                                                                        | 2/1999  |                        | General Manager, Chubu Area Operation                                                         
|                     |  |                                                                                                                                                                                        | 4/1969  |                        | Joined Hitachi, Ltd.                                                                          
|                     |  |                                                                                                                                                                                        |        
|Shozo Saito          |  |                                                                                                                                                                                        |         |                        |                                                                                                |                                                                        
|(Nov. 5, 1945)       |  | Senior Vice President and Executive Officer (Power systems business, production engineering and power systems engineering)                                                             |         | 4/2006                 |                                                                                                | Senior Vice President and Executive Officer                            
|                     |  |                                                                                                                                                                                        | 10/2004 |                        | Vice President and Executive Officer                                                          
|                     |  |                                                                                                                                                                                        | 2/2004  |                        | Executive Officer                                                                             
|                     |  |                                                                                                                                                                                        | 6/2003  |                        | Vice President and Executive Officer                                                          
|                     |  |                                                                                                                                                                                        | 4/2003  |                        | President & CEO, Power & Industrial Systems                                                   
|                     |  |                                                                                                                                                                                        | 4/1970  |                        | Joined Hitachi, Ltd.                                                                          
|                     |  |                                                                                                                                                                                        |        
|Junzo Kawakami       |  |                                                                                                                                                                                        |         |                        |                                                                                                |                                                                        
|(Jul. 29, 1944)      |  | Senior Vice President and Executive Officer (Research & development)                                                                                                                   |         | 4/2006                 |                                                                                                | Senior Vice President and Executive Officer                            
|                     |  |                                                                                                                                                                                        |         | 10/2004                |                                                                                                | Vice President and Executive Officer                                   
|                     |  |                                                                                                                                                                                        |         | 6/2003                 |                                                                                                | President and Representative Director, TOKICO LTD.                     
|                     |  |                                                                                                                                                                                        |         | 11/1982                |                                                                                                | Joined Hitachi, Ltd.                                                   



37



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|                     |  |                                                                                                           |        |        |                                                                            |                                                                        
|-------------------- |  | --------------------------------------------------------------------------------------------------------- | ------ | ------ | -------------------------------------------------------------------------- | -----------------------------------------------------------------------
|Name (Date of birth) |  | Current position (Responsibility of Executive Officer as authorized by the Board of Directors)            |        | Date   |                                                                            | Business experience, including experience in the Company, and functions
|Minoru Tsukada       |  |                                                                                                           |        |        |                                                                            |                                                                        
|(Jan. 1, 1947)       |  | Senior Vice President and Executive Officer (Hitachi group global business (China))                       |        | 4/2006 |                                                                            | Senior Vice President and Executive Officer                            
|                     |  |                                                                                                           | 6/2003 |        | Vice President and Executive Officer                                      
|                     |  |                                                                                                           | 4/2003 |        | General Manager, Kansai Area Operation                                    
|                     |  |                                                                                                           | 4/1969 |        | Joined Hitachi, Ltd.                                                      
|                     |  |                                                                                                           |       
|Akira Maru           |  |                                                                                                           |        |        |                                                                            |                                                                        
|(Nov. 8, 1948)       |  | Vice President and Executive Officer (Power systems business)                                             |        | 5/2006 |                                                                            | Vice President and Executive Officer                                   
|                     |  |                                                                                                           | 4/2005 |        | General manager, Hitachi Works and Executive Vice President, Power Systems
|                     |  |                                                                                                           | 4/1971 |        | Joined Hitachi, Ltd.                                                      
|                     |  |                                                                                                           |       
|Gaku Suzuki          |  |                                                                                                           |        |        |                                                                            |                                                                        
|(May 12, 1947)       |  | Vice President and Executive Officer (Industrial systems business)                                        |        | 8/2005 |                                                                            | Vice President and Executive Officer                                   
|                     |  |                                                                                                           | 4/2004 |        | General Manager, Transportation Systems Division, Industrial Systems      
|                     |  |                                                                                                           | 4/1972 |        | Joined Hitachi, Ltd.                                                      
|                     |  |                                                                                                           |       
|Naoya Takahashi      |  |                                                                                                           |        |        |                                                                            |                                                                        
|(Oct. 17, 1948)      |  | Vice President and Executive Officer (Storage systems business and platform and network systems business) |        | 4/2006 |                                                                            | Vice President and Executive Officer                                   
|                     |  |                                                                                                           | 4/2003 |        | COO, Information & Telecommunication Systems                              
|                     |  |                                                                                                           | 4/1973 |        | Joined Hitachi, Ltd.                                                      
|                     |  |                                                                                                           |       
|Junzo Nakajima       |  |                                                                                                           |        |        |                                                                            |                                                                        
|(Feb. 8, 1949)       |  | Vice President and Executive Officer (System solutions business)                                          |        | 4/2006 |                                                                            | Vice President and Executive Officer                                   
|                     |  |                                                                                                           | 4/2005 |        | COO, Information & Telecommunication Systems                              
|                     |  |                                                                                                           | 5/1972 |        | Joined Hitachi, Ltd.                                                      
|                     |  |                                                                                                           |       
|Kazuhiro Tachibana   |  |                                                                                                           |        |        |                                                                            |                                                                        
|(Nov. 6, 1946)       |  | Vice President and Executive Officer (Consumer business)                                                  |        | 4/2004 |                                                                            | Vice President and Executive Officer                                   
|                     |  |                                                                                                           | 4/2002 |        | CSO, Ubiquitous Platform Systems                                          
|                     |  |                                                                                                           | 4/1970 |        | Joined Hitachi, Ltd.                                                      
|                     |  |                                                                                                           |       
|Makoto Ebata         |  |                                                                                                           |        |        |                                                                            |                                                                        
|(Feb. 23, 1947)      |  | Vice President and Executive Officer (Digital media business)                                             |        | 4/2004 |                                                                            | Vice President and Executive Officer                                   
|                     |  |                                                                                                           | 6/2003 |        | Executive Officer                                                         
|                     |  |                                                                                                           | 2/2002 |        | General Manager, Group Management Office                                  
|                     |  |                                                                                                           | 4/1970 |        | Joined Hitachi, Ltd.                                                      
|                     |  |                                                                                                           |       
|Masahiro Hayashi     |  |                                                                                                           |        |        |                                                                            |                                                                        
|(Apr. 11, 1946)      |  | Vice President and Executive Officer (Sales operations (Kansai area))                                     |        | 4/2005 |                                                                            | Vice President and Executive Officer                                   
|                     |  |                                                                                                           | 6/2003 |        | Executive Officer                                                         
|                     |  |                                                                                                           | 4/2003 |        | CEO, system solutions operation, Information & Telecommunication Systems  
|                     |  |                                                                                                           | 4/1969 |        | Joined Hitachi, Ltd.                                                      
|                     |  |                                                                                                           |       
|Koichiro Nishikawa   |  |                                                                                                           |        |        |                                                                            |                                                                        
|(Jul. 12, 1947)      |  | Vice President and Executive Officer (Business development)                                               |        | 1/2006 |                                                                            | Vice President and Executive Officer                                   
|                     |  |                                                                                                           | 6/2003 |        | Executive Officer                                                         
|                     |  |                                                                                                           | 4/2003 |        | General Manager, Business Development                                     
|                     |  |                                                                                                           | 4/1970 |        | Joined Hitachi, Ltd.                                                      



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|                     |  |                                                                                                |        |        |                                                                                                                                       |                                                                        
|-------------------- |  | ---------------------------------------------------------------------------------------------- | ------ | ------ | ------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------
|Name (Date of birth) |  | Current position (Responsibility of Executive Officer as authorized by the Board of Directors) |        | Date   |                                                                                                                                       | Business experience, including experience in the Company, and functions
|Shinjiro Kasai       |  |                                                                                                |        |        |                                                                                                                                       |                                                                        
|(Nov. 29, 1946)      |  | Vice President and Executive Officer (Human resources)                                         |        | 1/2006 |                                                                                                                                       | Vice President and Executive Officer                                   
|                     |  |                                                                                                | 4/2003 |        | General Manager, Head Office Business Support Division                                                                               
|                     |  |                                                                                                | 6/1974 |        | Joined Hitachi, Ltd.                                                                                                                 
|                     |  |                                                                                                |       
|Hiroyuki Fukuyama    |  |                                                                                                |        |        |                                                                                                                                       |                                                                        
|(Dec. 15, 1942)      |  | Vice President and Executive Officer (Production engineering)                                  |        | 1/2006 |                                                                                                                                       | Vice President and Executive Officer                                   
|                     |  |                                                                                                | 1/2005 |        | General Manager, MONOZUKURI and General Manager, Investment Planning Office and General Manager, Corporate Quality Assurance
Division
|                     |  |                                                                                                | 4/1965 |        | Joined Hitachi, Ltd.                                                                                                                 



There are no family
relationships between any Director or Executive Officer and any other Director or Executive Officer of the Company. There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any person
referred to above was selected as a Director or Executive Officer.



B.
Compensation



The aggregate amount of compensation,
including retirement allowances, by Hitachi during the fiscal year ended March 31, 2006 to all Directors and Executive Officers of the Company who served during that year was ¥2,364 million.



Compensation is commensurate with the ability required of, and the
responsibilities to be borne by, the Companys Directors and Executive Officers, taking into consideration compensation packages at other companies.



Compensation for Directors consists of a monthly salary, a year-end allowance and a retirement allowance. Monthly salary is decided by making adjustments
to basic salary that reflect full-time or part-time status, committee membership and position. Year-end allowance is a pre-determined amount equivalent to about twenty percent of the Directors annual income based on monthly salary, although
this amount may be reduced depending on Company performance. Retirement allowance is an amount payable on retirement that is determined based on monthly salary and years of service (total years of service in the case of a Director who has served
multiple terms as a Director) (the Directors Basic Retirement Amount). A Director concurrently serving as an Executive Officer is not paid compensation as a Director.



Compensation for Executive Officers consists of a monthly salary, a performance-linked bonus and a retirement allowance.
Monthly salary is decided by adjusting a basic amount set in accordance with the relevant position to reflect the results of an assessment. The performance-linked bonus is payable in an amount of up to approximately thirty percent of the Executive
Officers annual income, adjusted based on the Company and individual performance. Retirement allowance is an amount payable on retirement, which is determined by the position held at retirement, the monthly salary of previous positions held
and total years of service in such positions (the Executive Officers Basic Retirement Amount).



In accordance with a resolution of the June 2003 ordinary general meeting of shareholders of the Company, the amount of retirement allowance for a
Director or Executive Officer who was a Director or corporate auditor prior to the close of the meeting will include an allowance corresponding to the persons period of service as a Director or corporate auditor before the adoption of the
Committee System. Retirement allowance may, through an assessment, be supplemented for distinguished service by an amount equivalent to up to thirty percent of the Directors Basic Retirement Amount or Executive Officers Basic Retirement
Amount. Depending on the circumstances, each such Basic Retirement Amount may also be reduced. The Company does not set aside reserves for such retirement allowance.



39



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At the June 2003 ordinary general meeting of shareholders, the shareholders of the Company approved a
stock option plan. Pursuant to such approval, the Board of Directors set and approved the details of the plan under which rights to subscribe for 1,305,000 shares of common stock of the Company were granted to a total of 85 persons, including
Directors, Executive Officers, corporate officers and fellows of the Company. The exercise price of the rights is ¥561 per share and the rights are exercisable from August 1, 2004 through July 31, 2007.



At the June 2004 ordinary general meeting of shareholders, the shareholders
of the Company approved a stock option plan. Pursuant to such approval, the Board of Directors set and approved the details of the plan. Under the plan, at the meeting of Board of Directors held in July 2004, the Company granted rights to subscribe
for 1,237,000 shares of common stock of the Company to a total of 78 persons, including Directors, Executive Officers, corporate officers and fellows of the Company. At a subsequent meeting of Board of Directors held in September 2004, the Company
granted rights to subscribe for 41,000 shares of common stock of the Company to a total of 7 persons, including an Executive Officer and corporate officers of the Company. The exercise prices of the rights are ¥782 per share and ¥705 per
share, applicable to 1,237,000 shares and 41,000 shares, respectively, and the rights are exercisable from July 30, 2005 through July 29, 2008, and from October 2, 2005 through October 1, 2008, respectively.



At the June 2005 ordinary general meeting of shareholders, the shareholders
of the Company approved a stock option plan. Pursuant to such approval, the Board of Directors set and approved the details of the plan under which rights to subscribe for 1,201,000 shares of common stock of the Company were granted to a total of 73
persons, including Directors, Executive Officers, corporate officers and fellows of the Company. The exercise price of the rights is ¥719 per share and the rights are exercisable from July 29, 2006 through July 28, 2009. See note 29 to
the consolidated financial statements.



At the Compensation
Committee held on March 30, 2006, it was determined that stock options would not be granted in the future.



C. Board Practices



The Company adopts the Committee System permitted as a form of corporate organization pursuant to the Company Law. Each company adopting the Committee
System, including the Company, is required to (i) establish within its board of directors nominating, audit and compensation committees, a majority of the members of each of which must be outside directors, and (ii) appoint executive
officers responsible for executing the business of such company. The Company Law defines an outside director as a director who is not and has not been an executive director (a representative director or a director who executes such companys
business), executive officer, manager or any other employee of such company or its subsidiaries. Under the Committee System, a company is not allowed to have corporate auditors, but is instead required to delegate auditing function responsibilities
to its audit committee. Through the adoption of the Committee System and the resulting separation of business execution and supervision thereof, the Company hopes to improve the efficiency of its management and foster a thorough and transparent
management system.



The Companys amended articles of
incorporation provide for a Board of Directors of not more than 20 members. All Directors are elected at a general meeting of shareholders and the current Directors were elected at the Companys June 27, 2006 general meeting of
shareholders. The Companys articles of incorporation provide that, by resolution of the Board of Directors, a Director who convenes and presides over meetings of the Board of Directors shall be selected. The Directors are reelected each year,
and not on a staggered basis. The term of office of Directors expires at the close of the ordinary general meeting of shareholders for the last business year that will end within one year after their election. A Director may serve any number of
consecutive terms. The term of office of the Directors currently in office will expire at the close of the ordinary general meeting of shareholders to be held within three months from March 31, 2007.



Under the Committee System, the Board of Directors focuses on the functions
of decision-making with respect to fundamental management policies and certain important matters prescribed by law, as well as supervision of execution by the Directors and Executive Officers of their respective duties. The Board of Directors has,
by resolution, delegated to the Executive Officers most of its authority to make decisions with regard to the Companys business affairs.



40



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##### Table of Contents

The Nominating Committee is authorized to determine the particulars of proposals concerning the election
and dismissal of Directors to be submitted to a general meeting of shareholders. As stated above, a majority of the members of the Nominating Committee must be outside Directors.



The Compensation Committee is authorized to establish a policy on the determination of the particulars of compensation for
each Director and Executive Officer and to determine the particulars of compensation for each Director and Executive Officer in accordance with such policy. As stated above, a majority of the members of the Compensation Committee must be outside
Directors.



The Audit Committee is authorized to audit the
execution by the Directors and Executive Officers of their respective duties, to prepare its audit report and determine the particulars of proposals concerning the election, dismissal and non-retention of the Companys outside auditor to be
submitted to the general meeting of shareholders. The Audit Committee has the statutory duty to examine the financial statements and business reports prepared by Executive Officers designated by the Board of Directors and to prepare its audit
report. Pursuant to the Board of Directors regulations of the Company, the Audit Committee has the authority to pre-approve audit and non-audit services provided by an independent auditor. As stated above, a majority of the members of the Audit
Committee must be outside Directors. In addition, a member of the Audit Committee may not concurrently be an Executive Officer or a Director who is engaged in the business affairs of the Company or its subsidiaries, or any other employee of the
Companys subsidiaries.



For a list of the members of each
committee, see A. Directors and Senior Management above.



The Companys articles of incorporation provide for a maximum of 40 Executive Officers. All Executive Officers are appointed by the Board of Directors. Pursuant to the Companys articles of incorporation, the term of office of
Executive Officers expires on the last day of the business year that ends within one year from their election. An Executive Officer may serve any number of consecutive terms. The term of office of the Executive Officers currently in office will
expire on March 31, 2007.



Under the Committee System,
Executive Officers have the power to make decisions on matters delegated to them by the Board of Directors. An Executive Officer executes the business affairs of the Company within the scope of assignment determined by the Board of Directors. From
among the Executive Officers, the Board of Directors must appoint one or more representative Executive Officers. Each of the representative Executive Officers has the statutory authority to represent the Company generally in the conduct of its
affairs. Pursuant to the Companys articles of incorporation, the Board of Directors must appoint a President who must also be a representative Executive Officer.



No Directors have service contracts with Hitachi providing for benefits upon termination of employment.



Pursuant to the Company Law and the Companys articles of incorporation,
the Company may, by resolution of the Board of Directors, exempt any Director and Executive Officer from liabilities to the Company arising in respect of his/her failure to execute duties to the extent provided in laws or regulations. In addition,
the Company has entered into an agreement with each outside Director to limit such Directors liabilities to the Company arising in connection with a failure by such Director to execute his/her duties to the Company. The maximum aggregate
amount of liability coverage under these agreements is in accordance with the Company Law.



41



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##### Table of Contents

D. Employees



The following table shows the number of full-time employees of Hitachi by industry segment as of March 31, 2004, 2005 and 2006.



|                                        |  |                       |  |         |  |        
|--------------------------------------- |  | --------------------- |  | ------- |  | -------
|                                        |  | As of March 31,      
|                                        |  | 2004                  |  | 2005    |  | 2006   
|                                        |  | (Number of employees)
|Information & Telecommunication Systems |  | 89,707                |  | 90,173  |  | 90,382 
|Electronic Devices                      |  | 25,137                |  | 25,943  |  | 27,173 
|Power & Industrial Systems              |  | 76,424                |  | 84,602  |  | 88,019 
|Digital Media & Consumer Products       |  | 31,421                |  | 31,302  |  | 31,334 
|High Functional Materials & Components  |  | 48,525                |  | 55,032  |  | 54,687 
|Logistics, Services & Others            |  | 28,284                |  | 28,706  |  | 28,481 
|Financial Services                      |  | 4,156                 |  | 4,084   |  | 4,166  
|Corporate                               |  | 3,222                 |  | 3,230   |  | 3,082  
|                                        |  |                       |  |         |  |        
|Total                                   |  | 306,876               |  | 323,072 |  | 327,324
|                                        |  |                       |  |         |  |        



The activities of the
Hitachi Workers Union and those unions representing the employees of certain domestic subsidiaries are organized under the Federation of Hitachi Group Workers Unions. Each company in the Hitachi group has a collective bargaining agreement with its
workers union. Under the agreements, all employees of the Company and its domestic subsidiaries that have labor unions, except management and a limited number of other employees, must become union members. The collective bargaining agreements are
customarily for two-year terms and the present provisions, other than those relating to wages, extend to March 31, 2008. Hitachi considers its relations with the labor unions to be excellent and there have been no significant strikes or labor
disputes in recent years.



E. Share Ownership



The following table shows the number of shares of common stock of the
Company owned by the Directors and Executive Officers as of June 27, 2006. The total amount is 0.03% of total shares issued.



|                   |  |                                                          |  |                   
|------------------ |  | -------------------------------------------------------- |  | ------------------
|Name               |  | Position                                                 |  | Share ownership   
|                   |  |                                                          |  | (Number of shares)
|Yoshiki Yagi       |  | Board Director (Chair)                                   |  | 105,000           
|Etsuhiko Shoyama   |  | Chairman and Director                                    |  | 117,000           
|Kazuo Furukawa     |  | President and Director                                   |  | 58,000            
|Tadamichi Sakiyama |  | Director                                                 |  | 20,000            
|Takashi Miyoshi    |  | Executive Vice President, Executive Officer and Director |  | 33,000            
|Ginko Sato         |  | Director                                                 |  | 26,000            
|Hiromichi Seya     |  | Director                                                 |  | 15,000            
|Akira Chihaya      |  | Director                                                 |  | 6,000             
|Tohru Motobayashi  |  | Director                                                 |  | 15,750            
|Isao Uchigasaki    |  | Director                                                 |  | 13,000            
|Takashi Kawamura   |  | Director                                                 |  | 67,000            
|Yoshiro Kuwata     |  | Director                                                 |  | 64,700            
|Masayoshi Hanabusa |  | Director                                                 |  | 15,050            
|Ryuichi Seguchi    |  | Director                                                 |  | 10,000            
|Michiharu Nakamura |  | Executive Vice President and Executive Officer           |  | 50,000            
|Hiroaki Nakanishi  |  | Executive Vice President and Executive Officer           |  | 30,000            
|Takashi Hatchoji   |  | Executive Vice President and Executive Officer           |  | 37,000            
|Tadahiko Ishigaki  |  | Senior Vice President and Executive Officer              |  | 37,250            
|Kunihiko Ohnuma    |  | Senior Vice President and Executive Officer              |  | 24,100            
|Manabu Shinomoto   |  | Senior Vice President and Executive Officer              |  | 29,000            
|Taiji Hasegawa     |  | Senior Vice President and Executive Officer              |  | 19,000            
|Kazuhiro Mori      |  | Senior Vice President and Executive Officer              |  | 15,000            
|Shozo Saito        |  | Senior Vice President and Executive Officer              |  | 24,050            
|Junzo Kawakami     |  | Senior Vice President and Executive Officer              |  | 29,840            



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##### Table of Contents

|                   |  |                                             |  |                   
|------------------ |  | ------------------------------------------- |  | ------------------
|Name               |  | Position                                    |  | Share ownership   
|                   |  |                                             |  | (Number of Shares)
|Minoru Tsukada     |  | Senior Vice President and Executive Officer |  | 20,000            
|Akira Maru         |  | Vice President and Executive Officer        |  | 6,000             
|Gaku Suzuki        |  | Vice President and Executive Officer        |  | 15,000            
|Naoya Takahashi    |  | Vice President and Executive Officer        |  | 20,000            
|Junzo Nakajima     |  | Vice President and Executive Officer        |  | 14,050            
|Kazuhiro Tachibana |  | Vice President and Executive Officer        |  | 18,000            
|Makoto Ebata       |  | Vice President and Executive Officer        |  | 16,000            
|Masahiro Hayashi   |  | Vice President and Executive Officer        |  | 28,050            
|Koichiro Nishikawa |  | Vice President and Executive Officer        |  | 43,150            
|Shinjiro Kasai     |  | Vice President and Executive Officer        |  | 22,150            
|Hiroyuki Fukuyama  |  | Vice President and Executive Officer        |  | 30,150            
|                   |  |                                             |  |                   
|Total              |  |                                             |  | 1,093,290         
|                   |  |                                             |  |                   



The aggregate number
of shares that may be subscribed for under rights granted to the Directors and Executive Officers, listed above, pursuant to stock option plans approved in June 2003, 2004 and 2005 is 221,000, 539,000 and 642,000 shares, respectively, and
constitutes 0.04% of total shares issued. For additional information on the Companys stock option plan, see B. Compensation of this Item.



No Director or Executive Officer has different voting rights from any other shareholder of the Companys common stock.



Hitachi Employees Shareholding Association owned approximately
91,732 thousand shares as of March 31, 2006, which amounted to 2.7% of total shares issued. The association consists of employees of the Company and certain of its subsidiaries. Membership in the association is voluntary.



|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- | -------------------------------------------------



A. Major Shareholders



The following table provides information concerning shareholders holding more than five percent of the outstanding common stock of the Company as of
March 31, 2006 based on the Companys share register. There has been no significant change in the percentage ownership of the Companys common stock by any major shareholder during the past three years.



|               |  |                                      |  |                   |  |                                 |  
|-------------- |  | ------------------------------------ |  | ----------------- |  | ------------------------------- | -
|Title of class |  | Name                                 |  | Share ownership   |  | Percentage oftotal sharesissued |  
|               |  |                                      |  | (Thousand shares) |  |                                 |  
|Common stock   |  | NATS CUMCO (note)                    |  | 292,793           |  | 8.7                             | %
|Common stock   |  | State Street Bank and Trust Company  |  | 202,063           |  | 6.0                             | %
|Common stock   |  | The Master Trust Bank of Japan, Ltd. |  | 189,443           |  | 5.6                             | %

---

Note: NATS CUMCO is the nominee name for the ADR
depositary.



In February 2006, the Company received from
Brandes Investment Partners, L.P. a notice included on Schedule 13G filed on February 14, 2006 pursuant to Rule 13d-1(b) under the Securities and Exchange Act of 1934. The notice indicated that neither Brandes Investment Partners, L.P. nor any
of its affiliates owned shares for its own account and that the shares were held solely for investment purposes in the ordinary course of business and not with the purpose or effect of changing or influencing control. However, by virtue of Rule
13d-3 under the Act, Brandes Investment Partners, L.P. may be deemed to beneficially own 11,736,617 ADRs and 158,261,802 ordinary shares as of December 31, 2005, representing 8.2% of the Companys outstanding shares at that
time.



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##### Table of Contents

In June 2006, the Company received a copy of a filing made to the Kanto Local Finance Bureau on
June 15, 2006 indicating that Nomura Securities Co., Ltd. held 183,614,337 shares, representing an estimated 5.3% of the Companys outstanding shares, represented by 62,051,837 shares of common stock and share purchase warrants of
121,654,500 shares deducting 92,000 shares as credit trading, as of May 31, 2006. In addition, in July 2006, the Company received a copy of a filing made to the Kanto Local Finance Bureau on July 13, 2006 indicating that Barclays Global
Investors Japan Trust & Banking Co., Ltd. held 169,684,626 shares, representing an estimated 5.0% of the Companys outstanding shares as of June 30, 2006. These filings represent reports on beneficial ownership of more than 5% of total
issued voting shares under the Securities and Exchange Law of Japan (See Item 10. Additional Information  Memorandum and Articles of Association  Reporting of Substantial Shareholdings).



In February 2005, the Company received from Brandes Investment Partners, L.P.
a notice included on Schedule 13G filed on February 14, 2005 pursuant to Rule 13d-1(b) under the Securities and Exchange Act of 1934. The notice indicated that neither Brandes Investment Partners, L.P. nor any of its affiliates owned shares for
its own account and that the shares were held solely for investment purposes in the ordinary course of business and not with the purpose or effect of changing or influencing control. However, by virtue of Rule 13d-3 under the Act, Brandes Investment
Partners, L.P. may be deemed to beneficially own 10,734,160 ADRs and 147,415,102 ordinary shares as of December 31, 2004, representing 7.6% of the Companys outstanding shares at that time.



In July 2005, the Company received a copy of a filing made to the Kanto Local
Finance Bureau on July 14, 2005 indicating that Templeton Asset Management Ltd. acquired 171,483,070 shares, representing an estimated 5.1% of the Companys outstanding shares as of June 30, 2005. This filing represents a report on
beneficial ownership of more than 5% of total issued voting shares under the Securities and Exchange Law of Japan (See Item 10. Additional Information  Memorandum and Articles of Association  Reporting of Substantial
Shareholdings).



Major shareholders of the Company do not
have different voting rights from any other shareholder of the Companys common stock.



As of March 31, 2006, approximately 20.7% of the Companys common stock was owned by 230 U.S. shareholders of record, in the aggregate, including the depositarys nominee as one shareholder of record.



The Company is not directly or indirectly owned or controlled
by any other corporation, by any foreign country or by any other natural or legal person severally or jointly. To the knowledge of the Company, there are no arrangements, the operation of which may at a subsequent date result in a change in control
of the Company.



B. Related Party Transactions



To the knowledge of the Company, as of March 31, 2006, no person was
the beneficial owner of more than 10% of any class of the Companys shares which might give that person significant influence over the Company. In addition, the Company is not directly or indirectly owned or controlled by, or under common
control with, any enterprise.



Hitachi may enter into
transactions with shareholders or potential large investors in the ordinary course of its business. Hitachi may also enter into transactions in the ordinary course of its business with certain companies over which Hitachi or its key management
personnel may have a significant influence. Hitachi believes it conducts its business with these companies in the normal course and on terms equivalent to those that would exist if they did not have equity holdings in Hitachi, or if Hitachi or its
key management personnel did not have significant influence over them, as the case may be. None of these transactions is or was material to Hitachi or, to its knowledge, to the other party.



There are no outstanding loans (including guarantees of any kind) made by the
Company or any of its subsidiaries to or for the benefit of Directors or Executive Officers of the Company except home loans, loan guarantees and automotive loans extended to certain Executive Officers by a subsidiary of the Company engaged in the
business of financial services. The aggregate outstanding balance of such loans to Executive Officers as of March 31, 2006 was ¥121 million, and the largest aggregate outstanding balance during fiscal 2005 was ¥127 million. Hitachi
believes these loans were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more
than the normal risk of collectability or present other unfavorable features.



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##### Table of Contents

C. Interests of Experts and Counsel



Not applicable.



|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------



A. Consolidated Statements and Other Financial Information



Consolidated Financial Statements



See Item 17. Financial Statements.



Legal Proceedings



The Company and
certain of its subsidiaries are subject to several legal and arbitration proceedings and claims which have arisen in the ordinary course of business. However, based upon the information currently available to Hitachi, management of the Company does
not expect those legal and arbitration proceedings and claims to have a material effect on Hitachis financial condition or results of operations.



Dividend Policy



The Company views enhancement of the long-term and overall interests of shareholders as an important management objective. The industrial sector
encompassing energy, information systems, social infrastructure and other primary businesses of the Company is undergoing rapid technological innovation and changes in market structure. This makes vigorous upfront investment in R&D and plant and
equipment essential for securing and maintaining market competitiveness and improving profitability. Dividends are therefore decided based on medium-to-long term business plans with an eye to ensuring the availability of internal funds for
reinvestment and the stable growth of dividends, with appropriate consideration of the Companys financial condition and results of operations. The Company believes that the repurchase of its shares should be undertaken, when necessary, as part
of its policy on distribution to shareholders to complement the dividend payout. In addition, the Company will repurchase its own shares on an ongoing basis in order to implement a flexible capital strategy, including business restructuring, to
maximize shareholder value. Such action will be taken by the Company based on a consideration of market conditions, its future capital requirement and other relevant factors.



The Company declared a dividend of ¥11 per share in fiscal 2005. In addition, the Company purchased its own shares from
the market during the period from May 11, 2006 to May 17, 2006, in an aggregate number of 6,210,000 shares, for an aggregate amount of approximately ¥4.9 billion.



B. Significant Changes



Several vanes of the low-pressure turbine, a component of nuclear power stations, manufactured and sold by Hitachi were broken at Hamaoka Nuclear Power
Station No. 5 of Chubu Electric Power Co., Inc. Based on this discovery, this Hamaoka power station has been shut down since June 15, 2006 and the shutdown is expected to continue for a considerable period of time. In addition, damages
have been found in the vanes of another low-pressure turbine, manufactured and sold by Hitachi, at Shika Nuclear Power Station No. 2 of Hokuriku Electric Power Company. This Shika power station has been shut down under government order for the
inspection of this damage. These power stations shutdowns have caused the power companies involved to announce significant revisions to revenue and profit forecasts for fiscal 2006. Hitachi and these electric power companies are investigating the
cause of these incidents and it is uncertain whether Hitachi will be liable for the cause of such incidents. These incidents may incur a considerable amount of expense on Hitachi, including expense for repairing the damaged turbines. There can be no
assurance that these incidents will not have a materially adverse effect on Hitachis business results for fiscal 2006 or future periods.



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##### Table of Contents

|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------



A. Offer and Listing Details



The primary market for the Companys common stock is the Tokyo Stock Exchange, or the TSE. The common stock is traded on the First Section of the TSE
and is also listed on four other Japanese stock exchanges: Osaka, Nagoya, Fukuoka and Sapporo. In the United States, the Companys ADSs are listed and traded on the New York Stock Exchange, or the NYSE, in the form of ADRs. There may from time
to time be a differential between the common stocks price on exchanges in Japan and the market price of the ADSs in the United States. The Company delisted its common stock from the Luxembourg Stock Exchange, Euronext Amsterdam and Euronext
Paris in June 2006 and the Frankfurt Stock Exchange in July 2006.



ADRs are issuable pursuant to the Deposit Agreement dated July 9, 1963, as amended and restated on March 6, 1981 and as further amended on February 17, 1982, or the Deposit Agreement, among the Company, Citibank, N.A. as
depositary, or the Depositary, and the holders of ADRs. Each ADR evidences ADSs, each representing ten shares of common stock of the Company deposited under the Deposit Agreement with The Fuji Bank, Limited, Tokyo, or The Industrial Bank of Japan,
Limited, Tokyo, as agents of the depositary, or any successor or successors to such agent or agents. On April 1, 2002, all the rights, liabilities and obligations of The Fuji Bank, Limited and The Industrial Bank of Japan, Limited under the
Deposit Agreement were succeeded by Mizuho Corporate Bank, Ltd.



The following table sets forth for the periods indicated the reported high and low sales prices of the Companys common stock on the TSE and the reported high and low sales prices of the Companys ADSs on the NYSE.



|                                  |  |                                    |  |                    |  |         |  |       
|--------------------------------- |  | ---------------------------------- |  | ------------------ |  | ------- |  | ------
|                                  |  | TSE price per shareof common stock |  | NYSE price per ADS
|                                  |  | (Yen)                              |  | (U.S. Dollars)    
|                                  |  | High                               |  | Low                |  | High    |  | Low   
|Fiscal year ended March 31,       |  |                                    |  |                    |  |         |  |       
|2002                              |  | 1,380                              |  | 745                |  | 113.000 |  | 57.000
|2003                              |  | 997                                |  | 398                |  | 77.950  |  | 33.330
|2004                              |  | 835                                |  | 366                |  | 79.170  |  | 31.300
|2005                              |  | 850                                |  | 627                |  | 81.350  |  | 57.450
|2006                              |  | 874                                |  | 604                |  | 75.400  |  | 57.400
|                                  |  |                                    |  |                   
|Fiscal year ended March 31, 2005  |  |                                    |  |                    |  |         |  |       
|1st quarter                       |  | 850                                |  | 682                |  | 81.350  |  | 59.990
|2nd quarter                       |  | 757                                |  | 627                |  | 69.700  |  | 57.450
|3rd quarter                       |  | 712                                |  | 635                |  | 69.440  |  | 59.730
|4th quarter                       |  | 720                                |  | 654                |  | 69.450  |  | 61.230
|                                  |  |                                    |  |                   
|Fiscal year ended March 31, 2006  |  |                                    |  |                    |  |         |  |       
|1st quarter                       |  | 682                                |  | 604                |  | 63.190  |  | 57.400
|2nd quarter                       |  | 728                                |  | 664                |  | 64.520  |  | 59.680
|3rd quarter                       |  | 848                                |  | 702                |  | 70.100  |  | 61.200
|4th quarter                       |  | 874                                |  | 782                |  | 75.400  |  | 66.320
|                                  |  |                                    |  |                   
|Fiscal year ending March 31, 2007 |  |                                    |  |                    |  |         |  |       
|1st quarter                       |  | 888                                |  | 709                |  | 76.570  |  | 61.750
|                                  |  |                                    |  |                   
|February 2006                     |  | 833                                |  | 785                |  | 70.630  |  | 66.500
|March 2006                        |  | 838                                |  | 782                |  | 71.050  |  | 66.320
|April 2006                        |  | 888                                |  | 823                |  | 75.600  |  | 71.020
|May 2006                          |  | 863                                |  | 746                |  | 76.570  |  | 67.600
|June 2006                         |  | 785                                |  | 709                |  | 69.620  |  | 61.750



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|          |  |                                    |  |                    |  |        |  |       
|--------- |  | ---------------------------------- |  | ------------------ |  | ------ |  | ------
|          |  | TSE price per shareof common stock |  | NYSE price per ADS
|          |  | (Yen)                              |  | (U.S. Dollars)    
|          |  | High                               |  | Low                |  | High   |  | Low   
|July 2006 |  | 773                                |  | 686                |  | 67.280 |  | 59.000

---

Notes:



|1. | Prices per share of common stock are as reported by the TSE.
|-- | ------------------------------------------------------------



|2. | Prices per ADS are based upon one ADS representing ten shares of common stock and are as reported by the NYSE via the NYSEnet system.
|-- | -------------------------------------------------------------------------------------------------------------------------------------



B. Plan of Distribution



Not applicable.



C. Markets



See A. Offer and Listing Details in this Item.



D. Selling Shareholders



Not applicable.



E. Dilution



Not
applicable.



F. Expenses of the Issue



Not applicable.



|ITEM 10. | ADDITIONAL INFORMATION
|-------- | ----------------------



A. Share Capital



Not applicable.



B. Memorandum and Articles of Association



Organization



The Company was
incorporated in Japan under the former Commercial Code and is existing under the Company Law. It is registered in the commercial register (shogyo tokibo) maintained by the Tokyo Legal Affairs Bureau of the Ministry of Justice.



Objects and Purposes



Article 2 of the articles of incorporation of the Company provides that its
purpose is to carry on the following businesses: manufacture and sale of electrical machinery and appliances; manufacture and sale of industrial machinery and appliances; manufacture and sale of rolling stock; manufacture and sale of
telecommunication and electronic machinery and appliances; manufacture and sale of lighting and household machinery and appliances; manufacture and sale of optical and medical machinery and instruments; manufacture and sale of measuring and other
general machinery and appliances; manufacture and sale of materials related to the products mentioned in any of the foregoing items; preparation and sale of software; preparation and sale of images, software and data related to multimedia; leasing
and maintenance services of the products mentioned in any of the foregoing items; supply of electricity; telecommunication, information processing and information supply services, as well as broadcasting; undertaking of commercial transactions and
payment transactions by utilizing the Internet; provision of results of research and development related to biotechnology; consulting on any of the foregoing items; licensing of industrial property rights and know-how; undertaking of engineering
related to any of the foregoing items; design, supervision and undertaking of construction work; money lending, factoring, debt guarantee and investment advisory business; home health care service business, home health care support business and the
operation of health care and nursing facilities under the Health Care Insurance Law; any and all businesses related to the foregoing items.



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Directors



Under the Committee System, the Board of Directors focuses on the functions of decision-making with respect to fundamental management policies and certain
important matters prescribed by law, as well as supervision of execution by the Directors and Executive Officers of their respective duties. The Board of Directors may, by resolution, delegate to the Executive Officers its authority to make
decisions with regard to the Companys business affairs.



Under the Company Law, the adoption of a resolution of the Board of Directors requires a majority vote of the Directors present who must in turn constitute a majority of the Directors who are entitled to vote for the resolution. Any
Director who has a conflict of interest or a vested interest with respect to any given resolution cannot participate in voting for the resolution. Under the Company Law, each Director must refrain from engaging in any business competing with the
Company unless approved by the Board of Directors.



The Company
Law provides that, under the Committee System, the Compensation Committee established within the Board of Directors determines matters relating to compensation for each Director and Executive Officer. A member of the Compensation Committee cannot
participate in voting for any resolution relating to his/her own compensation.



There is no mandatory retirement age for the Directors required by the Company Law or the Companys articles of incorporation. No shares are required for a Directors qualification under the Company Law or
the Companys articles of incorporation.



As a company
that has adopted the Committee System, the Company has delegated to Executive Officers, by resolution of the Board of Directors, powers regarding the incurrence by the Company of a significant amount of debt.



Common Stock



Distribution of surplus



Under the Companys articles of incorporation, distribution of surplus, if any, will be made to shareholders of record
as of March 31 and September 30 of each year and as of another record date for the purpose of distributing surplus.



Under the Companys articles of incorporation, the Company is not obligated to make distribution of surplus left unclaimed for a period of three
years after the date on which it first became payable.



Voting rights



A shareholder is
generally entitled to one vote per one unit of shares with respect to whole units of shares, as described in this paragraph and under Unit share system below. In general, under the Company Law, a resolution can be adopted at a general
meeting of shareholders by a majority of the number of voting rights represented and entitled to vote at the meeting. The Company Law and the Companys articles of incorporation require for the election of Directors a quorum of not less than
one-third of the total number of voting rights of all the shareholders who are entitled to vote. The Companys shareholders are not entitled to cumulative voting in the election of Directors. A corporate shareholder whose voting rights are in
turn more than one-quarter directly or indirectly owned by the Company does not have voting rights. The Company does not have voting rights with respect to its own shares. Shareholders may cast their votes in writing and may also exercise their
voting rights through proxies, provided that those proxies are also shareholders who have voting rights. Shareholders may also cast their votes by electronic means in accordance with the Companys regulations on handling shares, etc.



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The Company Law and the Companys articles of incorporation provide that a quorum of not less than
one-third of the voting rights of the shareholders who are entitled to vote must be present at a shareholders meeting to approve any material corporate actions such as: a reduction of the stated capital (with certain exceptions); amendment of
the articles of incorporation; establishment of a 100% parent-subsidiary relationship by way of share exchange or share transfer; a dissolution, merger or consolidation; a company split; the transfer of the whole or an important part of the
business; the taking over of the whole of the business of any other corporation; entering into an agreement for the leasing of entire business, entrustment of the management of the entire business or sharing the entire profit and loss with third
parties; and any issuance of new shares at a specially favorable price (or any issuance of rights to subscribe for or acquire shares, or stock acquisition rights, with specially favorable conditions or of bonds or debentures
with stock acquisition rights with specially favorable conditions) to persons other than shareholders. At least two-thirds of the voting rights represented at the meeting must approve these actions. Certain matters relating to rights of
shareholders, such as those relating to voting rights and rights on distribution of surplus, are provided for in the Companys articles of incorporation, any amendment to which is generally subject to approval by a shareholders meeting in
the manner described above.



Issue of additional shares
and pre-emptive rights



Holders of the Companys
shares of common stock have no pre-emptive rights under its articles of incorporation. Authorized but unissued shares may be issued at such times and upon such terms as Executive Officers determine, subject to the limitations as to the issuance of
new shares at a specially favorable price mentioned above. Executive Officers may determine that shareholders be given subscription rights to new shares, in which case they must be given on uniform terms to all shareholders as of a
record date of which not less than two weeks prior public notice must be given. Each of the shareholders to whom such subscription rights are given must also be given at least two weeks prior notice of the date on which such rights
expire.



Rights to subscribe for shares of common stock given
to the shareholders are not transferable by Executive Officers.



Pursuant to the Company Law, the Company may issue stock acquisition rights. Except where the issuance of stock acquisition rights would be on specially favorable terms, Executive Officers may determine the issuance of stock
acquisition rights other than those for stock option purposes, which in contrast, must be approved by the Board of Directors. Holders of stock acquisition rights may exercise their rights to acquire a certain number of shares within the exercise
period as prescribed in the terms of their stock acquisition rights. Upon exercise of stock acquisition rights, the Company will be obliged to issue the relevant number of new shares, or alternatively, to transfer the necessary number of existing
shares held by it.



Liquidation rights



In the event of a liquidation of the Company, the
assets remaining after payment of all debts and liquidation expenses and taxes will be distributed among the holders of shares of common stock in proportion to the respective numbers of shares of common stock held by each of them.



Stock splits and allotment of shares without consideration



The Company, by determination of an authorized
Executive Officer, may at any time split shares of common stock in issue or allot shares of common stock to its shareholders without consideration.



When Executive Officers determine to effect a stock split, the Company may amend its articles of incorporation without shareholder approval to increase
the number of authorized shares in proportion to the stock split if the Company has only one class of outstanding shares; however, in case of share allotment without consideration, such an amendment of its articles of incorporation is not permitted
without shareholder approval.



Generally, shareholders do not
need to exchange share certificates for new ones following a stock split or allotment of shares without consideration; however, certificates representing the additional shares resulting from the stock split or allotment of shares without
consideration will be issued to shareholders.



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Before a stock split and an allotment of shares without consideration, the Company must give public
notice of the stock split or the allotment of shares without consideration specifying the record date and the effective date for the stock split or the allotment of shares without consideration, not less than two weeks prior to the record date.



Promptly after the allotment of shares without consideration
takes effect, the Company must send notice to each shareholder specifying the number of shares to which each such shareholder is entitled.



Unit share system



Pursuant to the Company Law, the Company has designated 1,000 shares as one unit of shares. Under the unit share system, a shareholder is generally
entitled to one voting right for each unit of shares. The Company may not issue share certificates for a number of shares not constituting a whole number of units unless the Company deems the issuance of such share certificates to be necessary for
shareholders. Since transfers of less than one unit of the underlying shares of common stock are normally prohibited under the unit share system, under the Deposit Agreement currently in force, the right of ADR holders to surrender their ADRs and
withdraw the underlying shares of common stock may only be exercised as to whole units of common stock.



Although the number of shares which constitute one unit is stipulated in the articles of incorporation, an authorized Executive Officer has the power to
amend the articles of incorporation to reduce the number of shares which constitute one unit or abolish the unit share system. Pursuant to the Company Law, the number of shares constituting one unit, however, may not exceed 1,000.



A holder of shares representing less than one unit may at any time require
the Company to purchase his/her shares. These shares will be purchased at (a) the closing price of the shares reported by the TSE on the day when the request to purchase is made or (b) if no sale takes place on the TSE on that day, the
price at which sale of shares is effected on such stock exchange immediately thereafter. However, because holders of ADSs representing less than one unit are not able to withdraw the underlying shares from deposit, these holders will not be able to
exercise this right as a practical matter.



The Companys
articles of incorporation also provide that a holder of shares representing less than one unit may require the Company to sell any fractional shares it may have to such holder so that the holder can raise his/her fractional ownership up to a whole
unit. These shares will be sold at (a) the closing price of the shares reported by the TSE on the day when the request to sell becomes effective or (b) if no sale takes place on the TSE on that day, the closing price at which sale of
shares is effected on such stock exchange immediately preceding that day. However, because holders of ADSs representing less than one unit are not able to withdraw the underlying shares from deposit, these holders will not be able to exercise this
right as a practical matter.



Repurchase by the Company
of its shares



The Company may repurchase shares of
its common stock (i) by way of purchase on any Japanese stock exchange on which shares are listed or by way of tender offer (in either case pursuant to a resolution of a general meeting of shareholders), (ii) by way of purchase from a
specific shareholder other than the Companys subsidiaries (pursuant to a special resolution of a general meeting of shareholders), or (iii) by way of purchase from the Companys subsidiary (pursuant to a resolution of the Board of
Directors). In the case of (ii) above, any other shareholder may make a request directly to an Executive Officer, five days prior to the relevant general meeting of shareholders, to include such shareholder as a seller in the proposed purchase.



The authorization to purchase shares of its common stock
pursuant to (i) above may also be granted by a resolution of the Board of Directors pursuant to the articles of incorporation of the Company.



Any such repurchase of shares of its common stock must satisfy certain requirements, including that, in the case of a repurchase described in (i) and
(ii) above, the total amount of the purchase price may not exceed the distributable amount as of the date of repurchase available for distribution of surplus. The Company may hold the shares acquired in compliance with the provisions of the
Company Law, and Executive Officers may generally dispose of or cancel such shares in accordance with the Company Law.



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General Meeting of Shareholders



The Company normally holds its ordinary general meeting of shareholders within three months following the date of the end of
the fiscal year in Tokyo. In addition, the Company may hold an extraordinary general meeting of shareholders whenever necessary by giving at least two weeks advance notice. Under the Company Law, notice of any shareholders meeting must
be mailed to each shareholder having voting rights or, in the case of a non-resident shareholder, to his resident proxy or mailing address in Japan in accordance with the Companys regulations on handling shares, etc., at least two weeks prior
to the date of the meeting. Under the Company Law, such notice may be given to shareholders by electronic means, with the consent by the relevant shareholders.



Generally, those shareholders of the Company registered as having rights on the register of shareholders and the register of beneficial shareholders as
of the end of a given fiscal year are permitted to exercise their rights at the ordinary general meeting of shareholders concerning that fiscal year and those shareholders of the Company registered as having voting rights on the register of
shareholders as of a record date properly fixed by the Company are permitted to exercise their rights at the extraordinary general meeting of shareholders.



Reporting of Substantial Shareholdings



The Securities and Exchange Law of Japan, as amended, requires any person who has become, beneficially and solely or jointly, a holder of more than 5% of
the total issued voting shares of capital stock of a company listed on any Japanese stock exchange or whose shares are traded on the over-the-counter market in Japan to file with the Prime Minister of Japan within five business days a report
concerning such share holdings. A similar report must also be made in respect of any subsequent change of one percentage point or more in any such holding. For this purpose, shares issuable to such person upon exercise of any rights to subscribe for
or acquire shares are taken into account in determining both the number of shares held by such holder and the issuers total issued share capital. Copies of each such report must also be furnished to the issuer of such shares and all Japanese
stock exchanges on which the shares are listed or (in the case of shares traded over-the-counter) the Japan Securities Dealers Association.



There is no provision in the Companys articles of incorporation that would have an effect of delaying, deferring or preventing a change in control
of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company.



Corporate Governance Practices



The Companys ADSs are listed on the New York Stock Exchange (the NYSE). The Company is therefore required to comply with certain of the
NYSEs corporate governance listing standards (the NYSE Standards), which were approved by the SEC in November 2003. As a foreign private issuer, the Company may follow its home countrys corporate governance practices in lieu
of most of the NYSE Standards. The Companys corporate governance practices differ in certain significant respects from those that U.S. companies must adopt in order to maintain NYSE listing and, in accordance with Section 303A.11 of
NYSEs Listed Company Manual, a brief, general summary of those differences is provided as follows.



Director independence



The NYSE Standards require a majority of the membership of NYSE-listed company boards to be composed of independent directors. The Companys Board of
Directors consists of 14 members, four of whom are outside directors, as defined under the Company Law. The Company Law defines an outside director as a director who is not and has not been an executive director (a representative
director or a director who executes such companys business), executive officer, manager or any other employee of such company or its subsidiaries.



Non-management directors executive sessions



The NYSE Standards require non-management directors of NYSE-listed companies to meet at regularly scheduled executive sessions without management.
Neither the Company Law nor the Companys articles of incorporation require the Companys non-management directors to hold such meetings.



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Committee member composition



The NYSE Standards require NYSE-listed companies to have a nominating/corporate governance committee, audit committee and
compensation committee that are composed entirely of independent directors. The Companys nominating committee, audit committee and compensation committee are composed of a majority of outside directors in accordance with the Company Law, while
the Companys audit committee complies with the NYSE Standards.



Miscellaneous



In addition to the above
differences, the Company is not required: to make its nominating, audit and compensation committees prepare a written charter that addresses either purposes and responsibilities or performance evaluations in a manner that would satisfy the
NYSEs requirements; to acquire shareholder approval of equity compensation plans in certain cases, such as issuing stock acquisition rights as stock options without specially favorable conditions; to make publicly available one or
more documents which purport to summarize all aspects of its corporate governance guidelines; or to adopt a code of business conduct and ethics for its directors, officers and employees that would comply fully with the NYSEs requirements.



C. Material Contracts



None.



D. Exchange Controls



The Foreign Exchange and Foreign Trade Law of Japan (the Foreign Exchange Law), as amended, and the cabinet orders and ministerial ordinances
thereunder, or the Foreign Exchange Law, govern certain matters relating to the issuance of equity-related securities by the Company and the acquisition and holding of shares of common stock or ADSs representing such shares by exchange
non-residents and by foreign investors as hereinafter defined. The Foreign Exchange Law currently in effect does not affect the right of an exchange non-resident to purchase or sell an ADS outside Japan.



Exchange non-residents are defined under the Foreign Exchange Law
as individuals who are not resident in Japan and corporations whose principal offices are located outside Japan. Generally branches and other offices of Japanese corporations located outside Japan are regarded as exchange non-residents, but branches
and other offices located within Japan of non-resident corporations are regarded as residents of Japan. Foreign investors are defined to be (i) individuals not resident in Japan, (ii) corporations which are organized under the
laws of foreign countries or whose principal offices are located outside Japan and (iii) corporations of which (a) 50% or more of the shares are held by (i) and/or (ii) above, (b) a majority of officers consists of
non-resident individuals or (c) a majority of the officers having the power of representation consists of non-resident individuals.



Dividends and Proceeds of Sales



Under the Foreign Exchange Law, dividends paid on, and the proceeds of sales in Japan of, shares of common stock held by exchange non-residents in general
may be converted into any foreign currency and repatriated abroad. The acquisition of shares of common stock by exchange non-resident shareholders by way of stock splits is not subject to any requirements under the Foreign Exchange Law.



Acquisition of Shares



Under the Foreign Exchange Law, acquisition of shares of a Japanese company
listed on any Japanese stock exchange or traded on the over-the-counter market in Japan, or listed shares, by an exchange non-resident from a resident of Japan is generally not subject to a prior filing requirement.



In case a foreign investor acquires listed shares (whether from a resident of
Japan or an exchange non-resident, from another foreign investor or from or through a designated securities company) and as a result of such acquisition the number of shares held directly or indirectly by such foreign investor would become 10% or
more of the total outstanding shares of the company, the foreign investor is required to make a subsequent report on such acquisition to the Minister of Finance and other Ministers having jurisdiction over the business of the subject company, or the
Competent Ministers. In certain exceptional cases, a prior filing is required and the Competent Ministers may recommend the modification or abandonment of the proposed acquisition and, if the foreign investor does not accept the recommendation,
order its modification or prohibition.



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The deposit of shares of common stock by an exchange non-resident of Japan, the issuance of ADRs in
exchange therefor and the withdrawal of the underlying shares of common stock by an exchange non-resident upon surrender of ADRs are not subject to any requirements under the Foreign Exchange Law, except where as a result of such deposit or
withdrawal the aggregate number of shares of common stock held by the depositary (or its nominee) or the holder surrendering ADRs, as the case may be, would be 10% or more of the total outstanding shares of common stock, in which event a subsequent
reporting may be required as described above.



E. Taxation



Japanese Taxation



The discussion of Japanese taxation set forth below is intended only as a
summary and does not purport to be a complete analysis or discussion of all the potential Japanese tax consequences that may be relevant to the ownership of the Companys shares or ADSs by a person who is not a resident of Japan.



A non-resident of Japan or a non-Japanese corporation is generally subject to
a Japanese withholding tax on cash dividends. Stock splits and allotment of shares without consideration, in general, are not subject to Japanese withholding tax since they are characterized merely as an increase in the number of shares (as opposed
to an increase in the value of the shares) from a Japanese tax perspective. Due to the 2001 Japanese tax legislation effective April 1, 2001, a conversion of retained earnings or legal earned reserve into stated capital is not deemed a dividend
payment to shareholders for Japanese tax purposes and therefore such a conversion does not trigger Japanese withholding taxation.



In the absence of any applicable treaty or agreement reducing the maximum rate of withholding tax, the standard rate of Japanese withholding tax
applicable to dividends paid by Japanese corporations to non-residents of Japan or non-Japanese corporations is generally 20%. However, with respect to dividends paid on listed shares issued by a Japanese corporation (such as the shares of common
stock of the Company) to any corporate or individual shareholders (including those shareholders who are non-Japanese corporations or Japanese non-resident individuals), except for any individual shareholder who holds 5% or more of the outstanding
total of the shares issued by the relevant Japanese corporation, the aforementioned standard 20% withholding tax rate is reduced to (i) 7% for dividends due and payable on or after January 1, 2004 but on or before March 31, 2008
and (ii) 15% for dividends due and payable on or after April 1, 2008.



Pursuant to the Convention Between the Government of the United States of America and the Government of Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income,
or the Treaty, (i) the withholding tax rate on dividends is generally 10% for portfolio investors who are qualified U.S. residents eligible to enjoy treaty benefits and (ii) the dividends are exempt from Japanese taxation by way of
withholding or otherwise for pension funds which are qualified U.S. residents eligible to enjoy treaty benefits, unless the dividends are derived from the carrying on of a business, directly or indirectly, by such pension funds. For Japanese tax
purposes, a treaty rate generally supersedes the tax rate under domestic tax law. However, due to the so-called preservation doctrine under the Treaty, and/or due to the Special Measurement Law for the Income Tax Law, Corporation Tax Law
and Local Taxes Law with respect to the Implementation of Tax Treaties, if the tax rate under domestic tax law is lower than the treaty rate (which is currently the case with respect to the treaty), the domestic tax rate applies (which, as discussed
above, is currently 7% with respect to dividends paid on the Companys shares).



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The amount of withholding tax imposed on dividends payable to the holders of the Companys shares or
ADSs who reside in a country other than the United States is dependent upon the provisions of such treaties or agreements as may exist between such country and Japan.



Gains derived from the sale outside Japan of shares of common stock or ADSs by a non-resident of Japan or a non-Japanese
corporation, or from the sale of the shares within Japan by a non-resident of Japan as an occasional transaction or by a non-Japanese corporation not having a permanent establishment in Japan, are in general not subject to Japanese income or
corporation taxes. Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired shares of common stock or ADSs as a distributee, legatee or donee.



United States Taxation



The following is a discussion of material U.S. federal income tax
consequences of owning and disposing of the Companys shares of common stock or ADSs by U.S. holders (as defined below). The discussion applies only if a U.S. holder holds shares of common stock or ADSs as capital assets for U.S. federal income
tax purposes and it does not describe all of the tax consequences that may be relevant to holders subject to special rules, such as:



| |  |  | certain financial institutions;
| | - |  | -------------------------------



| |  |  | insurance companies;
| | - |  | --------------------



| |  |  | dealers and traders in securities or foreign currencies;
| | - |  | --------------------------------------------------------



| |  |  | persons holding shares of common stock or ADSs as part of a hedge, straddle, conversion or other integrated transaction;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | persons liable for the alternative minimum tax;
| | - |  | -----------------------------------------------



| |  |  | tax-exempt organizations;
| | - |  | -------------------------



| |  |  | persons holding shares of common stock or ADSs that own or are deemed to own ten percent or more of the Companys voting stock; or
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | persons who acquired shares of common stock or ADSs pursuant to the exercise of any employee stock option or otherwise as compensation.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



This discussion is based on the Internal Revenue Code of 1986, as amended, or
the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations and the Treaty, all as of the date hereof. These laws are subject to change, possibly on a retroactive basis. It is also based in part on
representations by the Depositary and assumes that each obligation under the Deposit Agreement and any related agreement will be performed in accordance with its terms. U.S. holders should consult their own tax advisors concerning the U.S. federal,
state, local and foreign tax consequences of owning and disposing of shares of common stock or ADSs in their particular circumstances.



A U.S. holder is a beneficial owner of shares of common stock or ADSs that is, for U.S. federal income tax purposes, (i) a citizen or
resident of the United States; (ii) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any political subdivision thereof; or (iii) an estate or trust the income of
which is subject to U.S. federal income taxation regardless of its source.



In general, a U.S. holder of ADSs will be treated as the holder of the underlying shares of common stock represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized
if a U.S. holder exchanges ADSs for the underlying shares of common stock represented by those ADSs.



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The U.S. Treasury has expressed concerns that parties to whom ADSs are pre-released may be taking actions
that are inconsistent with the claiming of foreign tax credits for U.S. holders of ADSs. Such actions would also be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain noncorporate U.S. holders.
Accordingly, the analysis of the creditability of Japanese taxes and the availability of the reduced tax rate for dividends received by certain noncorporate U.S. holders, each described below, could be affected by actions taken by parties to whom
ADSs are pre-released.



This discussion assumes that the
Company is not, and will not become, a passive foreign investment company (as discussed below).



Taxation of distributions



Distributions paid on shares of common stock or ADSs, other than certain pro rata distributions of common stock, will be treated as dividends to the
extent paid out of the Companys current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Subject to applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury,
dividends paid to noncorporate U.S. holders in taxable years beginning before January 1, 2011 will be taxable at a maximum rate of 15%. Noncorporate U.S. holders should consult their own tax advisors to determine whether they are subject to any
special rules that limit their ability to be taxed at this favorable rate. The amount of a dividend will include any amounts withheld by the Company or its paying agent in respect of Japanese taxes. The amount of the dividend will be treated as
foreign source dividend income to a U.S. holder and will not be eligible for the dividends received deduction generally allowed to U.S. corporations under the Code.



Dividends paid in yen will be included in a U.S. holders income in a U.S. dollar amount calculated by reference to the
exchange rate in effect on the date the dividends are received by such U.S. holder in the case of a U.S. holder of shares of common stock or by the Depositary in the case of a U.S. holder of ADSs, regardless of whether the payment is in fact
converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. holder may have
foreign currency gain or loss if the dividend is not converted into U.S. dollars on the date of its receipt.



Japanese taxes withheld from cash dividends on shares of common stock or ADSs at a rate not exceeding the rate provided in the Treaty will be creditable
against a U.S. holders U.S. federal income tax liability, subject to applicable restrictions and limitations that may vary depending upon such holders circumstances and the discussion above regarding concerns expressed by the U.S.
Treasury. Japanese taxes withheld in excess of the Treaty rate for which a refund is available are not eligible for credit against a U.S. holders U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is
calculated separately with respect to specific classes of income. Instead of claiming a credit, a U.S. holder may elect to deduct such otherwise creditable Japanese taxes in computing such holders taxable income, subject to generally
applicable limitations under U.S. law. U.S. holders should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to make effective use of foreign tax credits.



Sale and other disposition of shares or ADSs



For U.S. federal income tax purposes, gain or loss a U.S. holder realizes on
the sale or other disposition of shares of common stock or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the holder held the shares of common stock or ADSs for more than one year. The amount of the U.S.
holders gain or loss will be equal to the difference between the holders tax basis in the shares of common stock or ADSs disposed of and the amount realized on the sale or other disposition, determined in U.S. dollars. Such gain or loss
will generally be U.S. source gain or loss for foreign tax credit purposes.



Passive foreign investment company rules



The Company does not believe that it was a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for its tax year ending March 31, 2006 and does not expect to be a PFIC in the foreseeable
future. However, since PFIC status depends upon the composition of the Companys income and assets and the market value of its assets from time to time, there can be no assurance that the Company will not be considered a PFIC for any taxable
year. If the Company were treated as a PFIC for any taxable year during which a U.S. holder held a share of common stock or an ADS, certain adverse tax consequences could apply to such holder.



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Information reporting and backup withholding



Payments of dividends and sales proceeds that are made within the United
States or through certain U.S.-related financial intermediaries generally are subject to information reporting and to backup withholding unless (i) the holder is a corporation or other exempt recipient or (ii) in the case of backup
withholding, the holder provides a correct taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred.



The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against its U.S. federal income tax liability and may
entitle it to a refund, provided that the required information is furnished to the Internal Revenue Service.



F. Dividends and Paying Agents



Not applicable.



G. Statement by Experts



Not applicable.



H. Documents on Display



The documents filed by the Company with the SEC can be inspected at its public reference room located at 100 F Street, N.W.,
Washington D.C. 20549. The documents filed via the Electronic Data Gathering, Analysis, and Retrieval system can be also available for inspection on the SECs website (http://www.sec.gov).



I. Subsidiary Information



Not applicable.



|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------



Primary Market Risk Exposure



Hitachi is exposed to market risks from changes in foreign currency exchange rates, interest rates and market prices for equity securities. Hitachi seeks
to manage these market risks by using derivative financial instruments. Hitachi does not employ derivative financial instruments for speculation purpose.



Hitachi is exposed to credit-related risks arising from the potential non-performance by counterparties to derivative and other financial instruments
Hitachi uses to hedge its market risks. Most of the counterparties are internationally recognized financial institutions and contracts are diversified among a number of major financial institutions.



Equity Price Risk



Hitachi holds marketable securities which are subject to price risks arising
from changes in market prices for such securities. Hitachi considers marketable securities classified as short-term investments to be highly liquid and present a relatively low equity price risk. Hitachi holds marketable securities classified as
investments and advances as long-term investments.



The tables
below provide information about the contractual maturities of available-for-sale securities and held-to-maturity securities and fair values of these market risk sensitive securities as of March 31, 2006 and 2005, regardless of the consolidated
balance sheet classification as follows.



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|                              |  |                                      |  |                                     |  |                     |  |         |  |           
|----------------------------- |  | ------------------------------------ |  | ----------------------------------- |  | ------------------- |  | ------- |  | ----------
|                              |  | Carrying amount as of March 31, 2006 |  |                                    
|                              |  | Contractual maturity date            |  |                                    
|                              |  | Due withinone year                   |  | Due after oneyear throughfive years |  | Due afterfive years |  | Total   |  | Fair value
|                              |  | (Millions of yen)                   
|Available-for-sale securities |  |                                      |  |                                     |  |                     |  |         |  |           
|Equity securities             |  |                                      |  |                                     |  |                     |  | 344,329 |  | 344,329   
|Debt securities               |  | 26,950                               |  | 31,208                              |  | 44,235              |  | 102,393 |  | 102,393   
|Other securities              |  | 49,025                               |  | 13,363                              |  | 14,163              |  | 76,551  |  | 76,551    
|Held-to-maturity securities   |  | 57                                   |  | 1,118                               |  | 198                 |  | 1,373   |  | 1,390     



|                              |  |                                      |  |                                     |  |                     |  |         |  |           
|----------------------------- |  | ------------------------------------ |  | ----------------------------------- |  | ------------------- |  | ------- |  | ----------
|                              |  | Carrying amount as of March 31, 2005 |  |                                    
|                              |  | Contractual maturity date            |  |                                    
|                              |  | Due withinone year                   |  | Due after oneyear throughfive years |  | Due afterfive years |  | Total   |  | Fair value
|                              |  | (Millions of yen)                   
|Available-for-sale securities |  |                                      |  |                                     |  |                     |  |         |  |           
|Equity securities             |  |                                      |  |                                     |  |                     |  | 197,298 |  | 197,298   
|Debt securities               |  | 37,209                               |  | 36,427                              |  | 55,461              |  | 129,097 |  | 129,097   
|Other securities              |  | 44,374                               |  | 8,454                               |  | 16,831              |  | 69,659  |  | 69,659    
|Held-to-maturity securities   |  | 392                                  |  | 558                                 |  | 100                 |  | 1,050   |  | 1,064     



Foreign Currency Exchange Rate
Risk and Interest Rate Risk



Hitachi has assets and
liabilities which are exposed to foreign currency exchange rate risks and interest rate risks. Hitachi enters into forward exchange contracts, cross currency swap agreements and interest rate swaps for the purpose of hedging these risk exposures.



Foreign currency exchange rate risk



Hitachi mainly uses forward exchange contracts to manage foreign currency
exchange exposures, primarily in the exchange of U.S. dollars and Euros into Japanese yen. These contracts, which typically mature within one year, are used primarily to hedge foreign currency denominated future net cash flows from trade receivables
and payables recognized, and from forecasted transactions. In accordance with its internal policy, Hitachi measures by currency each month the amount and due date of future net cash flows. In accordance with the policy, a portion of net cash flows
measured is covered using forward exchange contracts.



Hitachi
enters into cross currency swap agreements to manage currency exchange rate risk relating to long-term debt denominated in foreign currencies. These cross currency swap agreements typically have maturities that mirror the underlying debt, which
allows Hitachi to predict cash flows from such long-term debt. Hitachi believes these derivative financial instruments can be highly effective in hedging foreign currency denominated long-term debt against changes in foreign exchange rates.



The tables below provide information on Hitachis
financial instruments that are sensitive to foreign currency exchange rates, including primary forward exchange contracts to sell U.S. dollars and Euros as of March 31, 2006 and 2005. The tables present the contract amounts in Japanese yen
equivalents and weighted average contractual exchange rates by expected maturity dates. Cross currency swap agreements and the corresponding foreign currency denominated debt instruments are not included in the table below because all of
Hitachis foreign currency exposure in its cash flows are eliminated.



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|                                           |  |                                                 |  |      |  |         |  |                     |  
|------------------------------------------ |  | ----------------------------------------------- |  | ---- |  | ------- |  | ------------------- | -
|                                           |  | Forward exchange contracts as of March 31, 2006 | 
|                                           |  | Expected maturity date                          |  |      | 
|                                           |  | 2007                                            |  | 2008 |  | Total   |  | Estimatedfair value |  
|                                           |  | (Millions of yen)                               | 
|Forward exchange contracts                 |  |                                                 |  |      |  |         |  |                     |  
|(Pay US$/receive ¥) contract amount        |  | 185,589                                         |  |     |  | 185,589 |  | (1,297              | )
|Average contractual exchange rate (¥/US$)  |  | 114.99                                          |  |     |  | 114.99  |  |                     |  
|                                           |  |                                                 |  |     
|Forward exchange contracts                 |  |                                                 |  |      |  |         |  |                     |  
|(Pay Euro/receive ¥) contract amount       |  | 98,231                                          |  |     |  | 98,231  |  | (2,022              | )
|Average contractual exchange rate (¥/Euro) |  | 138.77                                          |  |     |  | 138.77  |  |                     |  
|                                           | 
|                                           |  | Forward exchange contracts as of March 31, 2005 | 
|                                           |  | Expected maturity date                          |  |      | 
|                                           |  | 2006                                            |  | 2007 |  | Total   |  | Estimatedfair value |  
|                                           |  | (Millions of yen)                               | 
|Forward exchange contracts                 |  |                                                 |  |      |  |         |  |                     |  
|(Pay US$/receive ¥) contract amount        |  | 157,416                                         |  |     |  | 157,416 |  | (3,438              | )
|Average contractual exchange rate (¥/US$)  |  | 104.15                                          |  |     |  | 104.15  |  |                     |  
|                                           |  |                                                 |  |     
|Forward exchange contracts                 |  |                                                 |  |      |  |         |  |                     |  
|(Pay Euro/receive ¥) contract amount       |  | 87,594                                          |  |     |  | 87,594  |  | (1,585              | )
|Average contractual exchange rate (¥/Euro) |  | 135.40                                          |  |     |  | 135.40  |  |                     |  



Interest rate
risk



Hitachis exposure to interest rate risk is
related principally to its debt obligations, and the risk of increases in market interest rates that increase future cash outflow of interest payments due on such debt. To manage this risk, Hitachi typically enters into interest rate swaps. Hitachi
mainly uses interest rate swaps in connection with long-term debt and medium-term notes. These interest rate swaps typically have the effect of converting variable interest rates on debt obligations to fixed-interest rates. Under these commonly
referred to as receive-variable, pay-fixed interest rate swaps, Hitachi receives variable interest rate payments and makes fixed interest rate payments, thereby creating, from Hitachis perspective, fixed-rate long-term debt.



Hitachi has long-term debt, including amounts due within one
year, with fixed and floating interest rates. The tables below provide information on Hitachis financial instruments that are sensitive to changes in interest rates, including debt obligations. For debt obligations, the tables below present
principal cash flows in Japanese yen equivalents and related weighted average interest rates by expected maturity dates. The tables do not include information on short-term borrowings because the Company believes that its risk exposure to changes in
interest rates on short-term borrowings is not significant. For interest rate swaps, the table below presents primary notional amounts by currency and weighted average pay/receive interest rate by expected maturity date. Notional amounts are used to
calculate payments to be made and received under the contract. The tables present contract amounts in Japanese yen equivalents and weighted average contractual pay/receive rates by expected maturity dates.



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|                                      |  |                                     |   |  |         |   |  |         |   |  |         |   |  |        |   |  |            |   |  |         |   |  |                    
|------------------------------------- |  | ----------------------------------- | - |  | ------- | - |  | ------- | - |  | ------- | - |  | ------ | - |  | ---------- | - |  | ------- | - |  | -------------------
|                                      |  | Long-term debt as of March 31, 2006
|                                      |  | Expected maturity date              |   |  |        
|                                      |  | 2007                                |   |  | 2008    |   |  | 2009    |   |  | 2010    |   |  | 2011   |   |  | Thereafter |   |  | Total   |   |  | Estimatedfair value
|                                      |  | (Millions of yen, except rates)    
|Fixed rate (notes and debentures):    |  |                                     |   |  |         |   |  |         |   |  |         |   |  |        |   |  |            |   |  |         |   |  |                    
|Yen debentures                        |  | 65,600                              |   |  | 78,845  |   |  | 89,114  |   |  | 65,000  |   |  | 94,882 |   |  | 139,977    |   |  | 533,418 |   |  | 527,289            
|Average interest rate                 |  | 1.31                                | % |  | 1.26    | % |  | 1.27    | % |  | 1.33    | % |  | 1.14   | % |  | 1.08       | % |  | 1.26    | % |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|Yen convertible debentures            |  |                                    |   |  |        |   |  |        |   |  | 100,000 |   |  |       |   |  |           |   |  | 100,000 |   |  | 92,823             
|Average interest rate                 |  |                                    |   |  |        |   |  |        |   |  |        |   |  |       |   |  |           |   |  |        |   |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|Yen medium term notes                 |  | 54,297                              |   |  | 32,304  |   |  | 25,823  |   |  | 44,522  |   |  | 25,223 |   |  | 10,159     |   |  | 192,328 |   |  | 188,050            
|Average interest rate                 |  | 0.84                                | % |  | 1.07    | % |  | 1.11    | % |  | 1.16    | % |  | 1.44   | % |  | 1.39       | % |  | 1.04    | % |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|US$ medium term notes                 |  | 4,714                               |   |  |        |   |  |        |   |  |        |   |  | 1,753  |   |  |           |   |  | 6,467   |   |  | 6,770              
|Average interest rate                 |  | 3.85                                | % |  |        |   |  |        |   |  |        |   |  | 5.57   | % |  |           |   |  | 4.74    | % |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|Floating rate (notes and debentures): |  |                                     |   |  |         |   |  |         |   |  |         |   |  |        |   |  |            |   |  |         |   |  |                    
|Yen debenture                         |  |                                    |   |  |        |   |  | 3,000   |   |  |        |   |  |       |   |  |           |   |  | 3,000   |   |  | 3,000              
|Average interest rate                 |  |                                    |   |  |        |   |  | 2.14    | % |  |        |   |  |       |   |  |           |   |  | 2.14    | % |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|Yen medium term notes                 |  | 3,028                               |   |  | 14,550  |   |  | 3,075   |   |  | 2,138   |   |  | 4,767  |   |  | 22,349     |   |  | 49,907  |   |  | 49,907             
|Average interest rate                 |  | 0.80                                | % |  | 0.80    | % |  | 1.00    | % |  | 1.08    | % |  | 1.14   | % |  | 1.28       | % |  | 0.97    | % |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|US$ medium term notes                 |  | 1,424                               |   |  | 1,175   |   |  | 1,175   |   |  | 591     |   |  |       |   |  |           |   |  | 4,365   |   |  | 4,365              
|Average interest rate                 |  | 5.34                                | % |  | 5.17    | % |  | 5.18    | % |  | 5.32    | % |  |       |   |  |           |   |  | 5.26    | % |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|Fixed and floating rate (loans):      |  |                                     |   |  |         |   |  |         |   |  |         |   |  |        |   |  |            |   |  |         |   |  |                    
|Loans, principally from Banks         |  | 114,687                             |   |  | 177,075 |   |  | 146,572 |   |  | 133,036 |   |  | 18,504 |   |  | 176,152    |   |  | 766,026 |   |  | 756,569            
|Average interest rate                 |  | 2.03                                | % |  | 1.43    | % |  | 1.08    | % |  | 1.06    | % |  | 1.38   | % |  | 1.37       | % |  | 1.32    | % |  |                    



Weighted average
floating rates are based on contractual interest rates as of March 31, 2006



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|                                      |  |                                     |   |  |         |   |  |         |   |  |        |   |  |         |   |  |            |   |  |         |   |  |                    
|------------------------------------- |  | ----------------------------------- | - |  | ------- | - |  | ------- | - |  | ------ | - |  | ------- | - |  | ---------- | - |  | ------- | - |  | -------------------
|                                      |  | Long-term debt as of March 31, 2005
|                                      |  | Expected maturity date              |   |  |        
|                                      |  | 2006                                |   |  | 2007    |   |  | 2008    |   |  | 2009   |   |  | 2010    |   |  | Thereafter |   |  | Total   |   |  | Estimatedfair value
|                                      |  | (Millions of yen, except rates)    
|Fixed rate (notes and debentures):    |  |                                     |   |  |         |   |  |         |   |  |        |   |  |         |   |  |            |   |  |         |   |  |                    
|Yen debentures                        |  | 292,090                             |   |  | 63,410  |   |  | 79,964  |   |  | 88,953 |   |  | 65,000  |   |  | 135,135    |   |  | 724,552 |   |  | 737,350            
|Average interest rate                 |  | 1.97                                | % |  | 1.35    | % |  | 1.29    | % |  | 1.33   | % |  | 1.42    | % |  | 1.14       | % |  | 1.54    | % |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|Yen convertible debentures            |  |                                    |   |  |        |   |  |        |   |  |       |   |  | 100,000 |   |  |           |   |  | 100,000 |   |  | 92,773             
|Average interest rate                 |  |                                    |   |  |        |   |  |        |   |  |       |   |  |        |   |  |           |   |  |        |   |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|Yen medium term notes                 |  | 57,532                              |   |  | 30,935  |   |  | 29,925  |   |  | 19,763 |   |  | 43,976  |   |  | 25,004     |   |  | 207,135 |   |  | 204,816            
|Average interest rate                 |  | 0.76                                | % |  | 0.97    | % |  | 1.13    | % |  | 1.17   | % |  | 1.18    | % |  | 1.61       | % |  | 1.01    | % |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|US$ medium term notes                 |  |                                    |   |  | 4,286   |   |  |        |   |  |       |   |  |        |   |  |           |   |  | 4,286   |   |  | 4,369              
|Average interest rate                 |  |                                    |   |  | 3.21    | % |  |        |   |  |       |   |  |        |   |  |           |   |  | 3.21    | % |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|Floating rate (notes and debentures): |  |                                     |   |  |         |   |  |         |   |  |        |   |  |         |   |  |            |   |  |         |   |  |                    
|Yen debenture                         |  |                                    |   |  |        |   |  |        |   |  | 3,000  |   |  |        |   |  |           |   |  | 3,000   |   |  | 3,000              
|Average interest rate                 |  |                                    |   |  |        |   |  |        |   |  | 1.99   | % |  |        |   |  |           |   |  | 1.99    | % |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|Yen medium term notes                 |  | 12,599                              |   |  | 3,003   |   |  | 4,516   |   |  |       |   |  | 2,004   |   |  | 25,300     |   |  | 47,422  |   |  | 47,422             
|Average interest rate                 |  | 0.63                                | % |  | 0.81    | % |  | 0.82    | % |  |       |   |  | 0.85    | % |  | 0.90       | % |  | 0.79    | % |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|US$ medium term notes                 |  |                                    |   |  | 1,282   |   |  | 2,677   |   |  | 537    |   |  | 3,206   |   |  |           |   |  | 7,702   |   |  | 7,702              
|Average interest rate                 |  |                                    |   |  | 3.63    | % |  | 3.59    | % |  | 3.90   | % |  | 3.94    | % |  |           |   |  | 3.69    | % |  |                    
|                                      |  |                                     |   |  |         |   |  |        
|Fixed and floating rate (loans):      |  |                                     |   |  |         |   |  |         |   |  |        |   |  |         |   |  |            |   |  |         |   |  |                    
|Loans, principally from Banks         |  | 141,073                             |   |  | 107,823 |   |  | 122,584 |   |  | 84,550 |   |  | 122,147 |   |  | 140,470    |   |  | 718,647 |   |  | 715,979            
|Average interest rate                 |  | 2.15                                | % |  | 1.32    | % |  | 1.22    | % |  | 1.11   | % |  | 1.01    | % |  | 1.37       | % |  | 1.26    | % |  |                    



Weighted average
floating rates are based on contractual interest rates as of March 31, 2005.



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|                        |  |                                          |   |  |        |   |  |        |   |  |         |   |  |       |   |  |            |   |  |         |   |  |                     |  
|----------------------- |  | ---------------------------------------- | - |  | ------ | - |  | ------ | - |  | ------- | - |  | ----- | - |  | ---------- | - |  | ------- | - |  | ------------------- | -
|                        |  | Interest rate swaps as of March 31, 2006 |  
|                        |  | Expected maturity date                   |   |  |        |  
|                        |  | 2007                                     |   |  | 2008   |   |  | 2009   |   |  | 2010    |   |  | 2011  |   |  | Thereafter |   |  | Total   |   |  | Estimatedfair value |  
|                        |  | (Millions of yen, except rates)          |  
|Notional amounts (Yen): |  |                                          |   |  |        |   |  |        |   |  |         |   |  |       |   |  |            |   |  |         |   |  |                     |  
|Variable to fixed       |  | 18,474                                   |   |  | 15,060 |   |  | 20,174 |   |  | 102,007 |   |  |      |   |  |           |   |  | 155,715 |   |  | 1,379               |  
|Average pay rate        |  | 1.05                                     | % |  | 1.01   | % |  | 1.01   | % |  | 0.88    | % |  |      |   |  |           |   |  | 1.00    | % |  |                     |  
|Average receive rate    |  | 0.40                                     | % |  | 0.37   | % |  | 0.35   | % |  | 0.21    | % |  |      |   |  |           |   |  | 0.34    | % |  |                     |  
|                        |  |                                          |   |  |        |   |  |       
|Fixed to variable       |  | 41,000                                   |   |  | 8,004  |   |  | 4,000  |   |  | 15,000  |   |  | 7,000 |   |  | 21,000     |   |  | 96,004  |   |  | (1,486              | )
|Average pay rate        |  | 1.81                                     | % |  | 1.03   | % |  | 1.01   | % |  | 0.86    | % |  | 0.10  | % |  | 0.10       | % |  | 1.11    | % |  |                     |  
|Average receive rate    |  | 1.70                                     | % |  | 1.62   | % |  | 1.69   | % |  | 1.65    | % |  | 1.42  | % |  | 1.46       | % |  | 1.63    | % |  |                     |  
|                        |  |                                          |   |  |        |   |  |       
|Variable to variable    |  | 4,000                                    |   |  | 1,000  |   |  |       |   |  |        |   |  | 2,000 |   |  | 23,500     |   |  | 30,500  |   |  | (1,364              | )
|Average pay rate        |  | 0.48                                     | % |  | 0.05   | % |  |       |   |  |        |   |  | 0.03  | % |  | 0.03       | % |  | 0.12    | % |  |                     |  
|Average receive rate    |  | 0.90                                     | % |  | 0.83   | % |  |       |   |  |        |   |  | 0.90  | % |  | 0.94       | % |  | 0.89    | % |  |                     |  
|                        |  |                                          |   |  |        |   |  |       
|Notional amounts (US$): |  |                                          |   |  |        |   |  |        |   |  |         |   |  |       |   |  |            |   |  |         |   |  |                     |  
|Variable to fixed       |  | 2,472                                    |   |  | 1,409  |   |  | 1,175  |   |  | 587     |   |  |      |   |  |           |   |  | 5,643   |   |  | 102                 |  
|Average pay rate        |  | 4.14                                     | % |  | 4.34   | % |  | 4.55   | % |  | 4.17    | % |  |      |   |  |           |   |  | 4.26    | % |  |                     |  
|Average receive rate    |  | 4.65                                     | % |  | 4.76   | % |  | 4.72   | % |  | 4.66    | % |  |      |   |  |           |   |  | 4.69    | % |  |                     |  
|                        |  |                                          |   |  |        |   |  |       
|Fixed to variable       |  |                                         |   |  |       |   |  |       |   |  |        |   |  | 1,762 |   |  |           |   |  | 1,762   |   |  | (8                  | )
|Average pay rate        |  |                                         |   |  |       |   |  |       |   |  |        |   |  | 4.87  | % |  |           |   |  | 4.87    | % |  |                     |  
|Average receive rate    |  |                                         |   |  |       |   |  |       |   |  |        |   |  | 5.56  | % |  |           |   |  | 5.56    | % |  |                     |  
|                        |  |                                          |   |  |        |   |  |       
|Notional amounts (ST£): |  |                                          |   |  |        |   |  |        |   |  |         |   |  |       |   |  |            |   |  |         |   |  |                     |  
|Variable to fixed       |  | 67,309                                   |   |  | 59,378 |   |  | 9,202  |   |  | 1,015   |   |  |      |   |  |           |   |  | 136,904 |   |  | (103                | )
|Average pay rate        |  | 4.84                                     | % |  | 4.77   | % |  | 4.74   | % |  | 4.61    | % |  |      |   |  |           |   |  | 4.81    | % |  |                     |  
|Average receive rate    |  | 4.59                                     | % |  | 4.59   | % |  | 4.59   | % |  | 4.57    | % |  |      |   |  |           |   |  | 4.59    | % |  |                     |  



Weighted average
pay/receive rates are based on contractual interest rates as of March 31, 2006.



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|                        |  |                                          |   |  |        |   |  |        |   |  |        |   |  |         |   |  |            |   |  |         |   |  |                     |  
|----------------------- |  | ---------------------------------------- | - |  | ------ | - |  | ------ | - |  | ------ | - |  | ------- | - |  | ---------- | - |  | ------- | - |  | ------------------- | -
|                        |  | Interest rate swaps as of March 31, 2005 |  
|                        |  | Expected maturity date                   |   |  |        |  
|                        |  | 2006                                     |   |  | 2007   |   |  | 2008   |   |  | 2009   |   |  | 2010    |   |  | Thereafter |   |  | Total   |   |  | Estimatedfair value |  
|                        |  | (Millions of yen, except rates)          |  
|Notional amounts (Yen): |  |                                          |   |  |        |   |  |        |   |  |        |   |  |         |   |  |            |   |  |         |   |  |                     |  
|Variable to fixed       |  | 12,800                                   |   |  | 33,606 |   |  | 15,420 |   |  | 21,200 |   |  | 102,448 |   |  |           |   |  | 185,474 |   |  | (2,121              | )
|Average pay rate        |  | 1.21                                     | % |  | 1.19   | % |  | 1.03   | % |  | 1.03   | % |  | 0.89    | % |  |           |   |  | 1.09    | % |  |                     |  
|Average receive rate    |  | 0.39                                     | % |  | 0.39   | % |  | 0.32   | % |  | 0.29   | % |  | 0.13    | % |  |           |   |  | 0.32    | % |  |                     |  
|                        |  |                                          |   |  |        |   |  |       
|Fixed to variable       |  | 76,000                                   |   |  | 38,000 |   |  | 9,000  |   |  | 64,000 |   |  | 15,000  |   |  | 23,600     |   |  | 225,600 |   |  | (1,946              | )
|Average pay rate        |  | 1.95                                     | % |  | 0.72   | % |  | 0.35   | % |  | 0.33   | % |  | 0.68    | % |  | 0.03       | % |  | 1.00    | % |  |                     |  
|Average receive rate    |  | 2.00                                     | % |  | 1.34   | % |  | 1.16   | % |  | 1.16   | % |  | 1.53    | % |  | 1.19       | % |  | 1.51    | % |  |                     |  
|                        |  |                                          |   |  |        |   |  |       
|Variable to variable    |  | 4,500                                    |   |  | 5,000  |   |  |       |   |  |       |   |  |        |   |  | 19,000     |   |  | 28,500  |   |  | (248                | )
|Average pay rate        |  | 0.47                                     | % |  | 0.42   | % |  |       |   |  |       |   |  |        |   |  | 0.00       | % |  | 0.18    | % |  |                     |  
|Average receive rate    |  | 1.33                                     | % |  | 1.00   | % |  |       |   |  |       |   |  |        |   |  | 0.91       | % |  | 1.02    | % |  |                     |  
|                        |  |                                          |   |  |        |   |  |       
|Notional amounts (US$): |  |                                          |   |  |        |   |  |        |   |  |        |   |  |         |   |  |            |   |  |         |   |  |                     |  
|Variable to fixed       |  | 8,377                                    |   |  | 644    |   |  | 752    |   |  |       |   |  | 537     |   |  |           |   |  | 10,310  |   |  | 20                  |  
|Average pay rate        |  | 3.21                                     | % |  | 3.48   | % |  | 3.80   | % |  |       |   |  | 4.12    | % |  |           |   |  | 3.37    | % |  |                     |  
|Average receive rate    |  | 2.89                                     | % |  | 2.80   | % |  | 2.82   | % |  |       |   |  | 2.71    | % |  |           |   |  | 2.86    | % |  |                     |  
|                        |  |                                          |   |  |        |   |  |       
|Fixed to variable       |  | 2,573                                    |   |  |       |   |  |       |   |  |       |   |  |        |   |  |           |   |  | 2,573   |   |  | 18                  |  
|Average pay rate        |  | 2.66                                     | % |  |       |   |  |       |   |  |       |   |  |        |   |  |           |   |  | 2.66    | % |  |                     |  
|Average receive rate    |  | 1.41                                     | % |  |       |   |  |       |   |  |       |   |  |        |   |  |           |   |  | 1.41    | % |  |                     |  
|                        |  |                                          |   |  |        |   |  |       
|Variable to variable    |  |                                         |   |  |       |   |  |       |   |  | 537    |   |  |        |   |  |           |   |  | 537     |   |  | 4                   |  
|Average pay rate        |  |                                         |   |  |       |   |  |       |   |  | 2.79   | % |  |        |   |  |           |   |  | 2.79    | % |  |                     |  
|Average receive rate    |  |                                         |   |  |       |   |  |       |   |  | 2.91   | % |  |        |   |  |           |   |  | 2.91    | % |  |                     |  
|                        |  |                                          |   |  |        |   |  |       
|Notional amounts (ST£): |  |                                          |   |  |        |   |  |        |   |  |        |   |  |         |   |  |            |   |  |         |   |  |                     |  
|Variable to fixed       |  | 34,925                                   |   |  | 44,284 |   |  | 28,358 |   |  |       |   |  |        |   |  |           |   |  | 107,567 |   |  | (66                 | )
|Average pay rate        |  | 5.05                                     | % |  | 5.07   | % |  | 5.08   | % |  |       |   |  |        |   |  |           |   |  | 5.06    | % |  |                     |  
|Average receive rate    |  | 4.90                                     | % |  | 4.88   | % |  | 4.90   | % |  |       |   |  |        |   |  |           |   |  | 4.89    | % |  |                     |  



Weighted average
pay/receive rates are based on contractual interest rates as of March 31, 2005.



Factors that could cause actual results to differ materially from those projected or implied in any forward-looking statements in this section include, but are not limited to, ability of counterparties to the
financial instruments to perform contractual obligations; the general economic condition in the markets where financial assets Hitachi holds are traded; and the volatility of the market prices of securities, interest rates and foreign currency
exchange rates. In addition, see Item 3. Key Information  Risk Factors for other examples of factors that could cause actual results to differ materially from those projected or implied.



|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- | ------------------------------------------------------



Not applicable.



62



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##### Table of Contents

PART II



|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------



None.



|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|-------- | ----------------------------------------------------------------------------



None.



|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------



As of March 31, 2006, the Company, under the supervision and with the participation of the Companys management, including its President and
principal financial officer performed an evaluation of the effectiveness of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). The Companys management necessarily applied its judgment in
assessing the costs and benefits of such controls and procedures, which by their nature can provide only reasonable assurance regarding managements control objectives. Based on this evaluation, the Companys President and principal
financial officer concluded that the Companys disclosure controls and procedures as of such date were effective at the reasonable assurance level for gathering, analyzing and disclosing the information the Company is required to disclose in
the reports it files under the Exchange Act, within the time periods specified in the SECs rules and forms.



Hitachis independent registered public accounting firm, Ernst & Young ShinNihon, informed the Companys Audit Committee that in the
course of the auditing Hitachis consolidated financial statements, Ernst & Young ShinNihon believes that it identified certain material weakness in Hitachis internal control over financial reporting. The material weakness
identified by Ernst & Young ShinNihon primarily relates to the process for preparing consolidated financial statements such as insufficient internal regulations and manuals in relation to U.S. GAAP.



The material weakness in Hitachis internal control over financial
reporting has not affected Ernst & Young ShinNihons audit report on Hitachis consolidated financial statements for fiscal 2003, 2004 and 2005. Hitachi is responding to resolve the issue as part of its preparation for internal
control over financial reporting under Section 404 of Sarbanes-Oxley Act of 2002 which is applied to Hitachi since fiscal 2006. In such preparation, Hitachi intends to diligently and vigorously establish and review its internal control over
financial reporting in order to ensure compliance with Section 404 of Sarbanes-Oxley Act of 2002. Hitachi expects to implement appropriate changes to its internal control structure by preparing internal regulations and manuals in relation to
U.S. GAAP.



|ITEM 16. | [RESERVED]
|-------- | ----------



|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT
|--------- | --------------------------------



The Board of Directors of the Company has determined that Mr. Yoshiki Yagi and Mr. Tadamichi Sakiyama qualify as audit committee financial
experts within the meaning of the rules of the SEC. Both persons fulfill the independence requirements of Rule 10A-3 under the Securities Exchange Act of 1934, which are applicable to members of a non-U.S. listed companys audit committee
pursuant to Section 303A.06 of the NYSE Listed Company Manual.



|ITEM 16B. | CODE OF ETHICS
|--------- | --------------



The Company has a code of ethics which applies to its Directors, Executive Officers, corporate officers and other executives which include its principal
executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, or the Covered Individuals, although not within the strict meaning of the current rules of the SEC. The Company
believes that its code of ethics is reasonably designed to deter wrongdoing and to promote, among other things, (i) honest and ethical conduct of the Covered Individuals, including the ethical handling of conflicts of interest between personal
and professional relationships, (ii) full compliance by the Covered Individuals with applicable laws and regulations, including securities-related laws, (iii) the taking of remedial and preventative actions by the Covered Individuals with
respect to occurrences or likely occurrences of violations of laws or regulations of which the Covered Individuals become aware, and (iv) accountability for violations of such laws and regulations, including for violations by the Covered
Individuals. The Company believes that this code of ethics, in conjunction with its other bylaws and customary practice, performs a function similar to that of a code of ethics within the meaning of the rules of the SEC. The Company continues to
seek ways in which it can further promote ethical conduct by its Covered Individuals, including by considering ways in which to improve its code of ethics for such individuals.



63



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##### Table of Contents

|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- | --------------------------------------



Principal Accounting Fees and Services



The following table shows fees for audit and other services rendered by Hitachis principal accountant for fiscal 2004 and 2005.



|                   |  |                   |  |           
|------------------ |  | ----------------- |  | ----------
|                   |  | Fiscal2004        |  | Fiscal2005
|                   |  | (Millions of yen)
|Audit Fees         |  | 1,516             |  | 2,322     
|Audit-Related Fees |  | 196               |  | 221       
|Tax Fees           |  | 82                |  | 102       
|All Other Fees     |  | 16                |  | 4         
|                   |  |                   |  |           
|Total              |  | 1,810             |  | 2,649     
|                   |  |                   |  |           

---

Notes:



|1. | Audit Fees are fees for professional services for the audit of the annual financial statements or services that are normally provided by the principal accountant in connection with
statutory and regulatory filings or engagements for those fiscal years. Audit-Related Fees are fees for assurance and related services that are reasonably related to the performance of the audit or review of the financial statements and are not
reported as Audit Fees. Tax Fees are fees for professional services rendered for tax compliance, tax advice and tax planning. All Other Fees are fees for products and services not included in any of the other categories.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. | Ernst & Young ShinNihon served as Hitachis principal accountant for fiscal 2004 and fiscal 2005.
|-- | -------------------------------------------------------------------------------------------------





Audit
Committee Pre-approval Policies and Procedures



In
compliance with applicable U.S. law and regulations, the Companys Audit Committee has established a policy and procedures regarding pre-approval of audit and permissible non-audit services provided by the independent auditors to ensure that
the auditors will be independent of management.



Under the
policy and procedures, audit and permissible non-audit services to be provided to the Company, its subsidiaries and affiliates by the independent auditors are required to be pre-approved by either the Audit Committee or an Audit Committee member to
whom it has delegated authority. Audit services provided to the Company are required to pre-approved by the Audit Committee. The designated Audit Committee member must report the pre-approval decisions to the Audit Committee meeting held after the
decisions.



|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|--------- | ----------------------------------------------------------



Not applicable.



64



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##### Table of Contents

|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|--------- | ----------------------------------------------------------------------



The following table sets forth, for each of the months indicated, the total number of shares purchased by the Company, the average price paid per
share, the number of shares purchased as part of a publicly announced repurchase plan or program, the maximum number of shares or approximate Japanese Yen value that may yet be purchased under the plans or programs.



The Company currently does not have any publicly announced repurchase plans
or programs. The purchases shown below represent the purchase of less-than-one-unit shares from less-than-one-unit shareholders in accordance with the former Japanese Commercial Code.



Issuer Purchases of Equity Securities



|                                       |  |                                               |  |                                        |  |                                                                                      |  |                                                                                   
|-------------------------------------- |  | --------------------------------------------- |  | -------------------------------------- |  | ------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------
|Period                                 |  | (a) Total Number of Shares Purchased (Shares) |  | (b) Average Price Paid per Share (Yen) |  | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |  | (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans
or Programs
|April 1, 2005 - April 30, 2005         |  | 79,306                                        |  | 659                                    |  |                                                                                     |  |                                                                                  
|May 1, 2005 - May 31, 2005             |  | 47,787                                        |  | 627                                    |  |                                                                                     |  |                                                                                  
|June 1, 2005 - June 30, 2005           |  | 125,488                                       |  | 651                                    |  |                                                                                     |  |                                                                                  
|July 1, 2005 - July 31, 2005           |  | 228,419                                       |  | 680                                    |  |                                                                                     |  |                                                                                  
|August 1, 2005 - August 31, 2005       |  | 126,943                                       |  | 685                                    |  |                                                                                     |  |                                                                                  
|September 1, 2005 - September 30, 2005 |  | 86,787                                        |  | 691                                    |  |                                                                                     |  |                                                                                  
|October 1, 2005 - October 31, 2005     |  | 96,795                                        |  | 723                                    |  |                                                                                     |  |                                                                                  
|November 1, 2005 - November 30, 2005   |  | 82,144                                        |  | 759                                    |  |                                                                                     |  |                                                                                  
|December 1, 2005 - December 31, 2005   |  | 288,014                                       |  | 805                                    |  |                                                                                     |  |                                                                                  
|January 1, 2006 - January 31, 2006     |  | 105,466                                       |  | 825                                    |  |                                                                                     |  |                                                                                  
|February 1, 2006 - February 28, 2006   |  | 97,788                                        |  | 813                                    |  |                                                                                     |  |                                                                                  
|March 1, 2006 - March 31, 2006         |  | 75,739                                        |  | 809                                    |  |                                                                                     |  |                                                                                  
|                                       |  |                                               |  |                                        |  |                                                                                      |  |                                                                                   
|Total                                  |  | 1,440,676                                     |  | 734                                    |  |                                                                                     |  |                                                                                  
|                                       |  |                                               |  |                                        |  |                                                                                      |  |                                                                                   



In addition to the
above, the Company announced on April 27, 2006, by resolution of the Board of Directors held on the day, that it would repurchase its own shares of common stock from the market, up to 6.5 million shares or up to ¥5 billion during May
2006. Under the plan, the Company purchased its own shares of common stock from the market during the period from May 11, 2006 to May 17, 2006, in an aggregate number of 6,210,000 shares, for an aggregate amount of approximately ¥4.9
billion, for an average price paid of ¥804 per share.



65



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##### Table of Contents

PART III



|ITEM 17. | FINANCIAL STATEMENTS
|-------- | --------------------



|                                                                                                  |  |                                                            |  |           
|------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------- |  | ----------
|                                                                                                  |  |                                                            |  | PageNumber
|                                                                                                  | 
|Report of Independent Registered Public Accounting Firm                                           |  | 67                                                        
|                                                                                                  | 
|Consolidated Financial Statements of Hitachi, Ltd. and Subsidiaries:                              |  |                                                           
|                                                                                                  | 
|Consolidated Balance Sheets as of March 31, 2006 and 2005                                         |  | 68                                                        
|                                                                                                  | 
|Consolidated Statements of Income for the years ended March 31, 2006, 2005 and 2004               |  | 70                                                        
|                                                                                                  | 
|Consolidated Statements of Stockholders Equity for the years ended March 31, 2006, 2005 and 2004 |  | 71                                                        
|                                                                                                  | 
|Consolidated Statements of Cash Flows for the years ended March 31, 2006, 2005 and 2004           |  | 72                                                        
|                                                                                                  | 
|Notes to Consolidated Financial Statements                                                        |  | 73                                                        
|                                                                                                  | 
|Schedule:                                                                                         |  |                                                           
|                                                                                                  |  |                                                           
|Schedule II                                                                                       |  | Reserves for the years ended March 31, 2006, 2005 and 2004 |  | 122       



All other schedules
are omitted as permitted by the rules and regulations of the SEC, as the required information is presented in the notes to consolidated financial statements, or the schedules are not applicable.



Financial statements of affiliates are omitted because none of these meets
the 20% level tests.



66



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##### Table of Contents

Report of Independent Registered Public Accounting Firm



The Board of Directors and Stockholders

Hitachi, Ltd.



We have audited the
accompanying consolidated balance sheets of Hitachi, Ltd. and subsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of income, stockholders equity, and cash flows for each of the three years in the period
ended March 31, 2006. Our audits also included the financial statement schedule listed in the index at Item 17. These financial statements and schedule are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedule based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.



The Companys consolidated financial statements do not disclose certain information required by Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information. Disclosure of this information is required by U.S. generally accepted accounting principles.



In our opinion, except for the omission of the information discussed in the preceding paragraph, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Hitachi, Ltd. and subsidiaries at March 31, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended
March 31, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.



/s/ Ernst &
Young ShinNihon



Tokyo, Japan

May 17, 2006



67



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Consolidated Balance Sheets



March 31, 2006 and 2005



|                                                                  |  |                |   |  |           |  
|----------------------------------------------------------------- |  | -------------- | - |  | --------- | -
|                                                                  |  | Yen (millions) |  
|                                                                  |  | 2006           |   |  | 2005      |  
|Assets                                                            |  |                |   |  |           |  
|Cash and cash equivalents                                         |  | 658,255        |   |  | 708,715   |  
|Short-term investments (note 3)                                   |  | 162,756        |   |  | 146,568   |  
|Trade receivables:                                                |  |                |   |  |           |  
|Notes (note 7 and 17)                                             |  | 128,234        |   |  | 134,068   |  
|Accounts (notes 4 and 7)                                          |  | 2,344,057      |   |  | 2,104,028 |  
|Allowance for doubtful receivables                                |  | (41,610        | ) |  | (40,330   | )
|                                                                  |  |                |   |  |           |  
|Net trade receivables                                             |  | 2,430,681      |   |  | 2,197,766 |  
|                                                                  |  |                |   |  |           |  
|                                                                  |  |               
|Inventories (note 5)                                              |  | 1,262,308      |   |  | 1,198,955 |  
|Prepaid expenses and other current assets (note 9)                |  | 547,048        |   |  | 560,072   |  
|Investments in leases (notes 6 and 7)                             |  | 451,757        |   |  | 526,759   |  
|Investments and advances, including affiliated companies (note 3) |  | 1,029,673      |   |  | 894,851   |  
|Property, plant and equipment (notes 6):                          |  |                |   |  |           |  
|Land                                                              |  | 435,961        |   |  | 436,308   |  
|Buildings                                                         |  | 1,748,318      |   |  | 1,740,057 |  
|Machinery and equipment                                           |  | 5,522,253      |   |  | 5,222,157 |  
|Construction in progress                                          |  | 74,114         |   |  | 57,291    |  
|                                                                  |  |                |   |  |           |  
|                                                                  |  | 7,780,646      |   |  | 7,455,813 |  
|Less accumulated depreciation                                     |  | 5,320,460      |   |  | 5,097,882 |  
|                                                                  |  |                |   |  |           |  
|Net property, plant and equipment                                 |  | 2,460,186      |   |  | 2,357,931 |  
|                                                                  |  |                |   |  |           |  
|                                                                  |  |               
|Other assets (notes 8 and 9)                                      |  | 1,018,531      |   |  | 1,144,630 |  
|                                                                  |  |                |   |  |           |  
|                                                                  |  | 10,021,195     |   |  | 9,736,247 |  
|                                                                  |  |                |   |  |           |  



See accompanying notes to consolidated
financial statements.



68



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Consolidated Balance Sheets



March 31,
2006 and 2005



|                                                   |  |                |   |  |           |  
|-------------------------------------------------- |  | -------------- | - |  | --------- | -
|                                                   |  | Yen (millions) |  
|                                                   |  | 2006           |   |  | 2005      |  
|Liabilities and Stockholders Equity               |  |                |   |  |           |  
|Short-term debt (note 10)                          |  | 752,527        |   |  | 676,611   |  
|Current portion of long-term debt (notes 6 and 10) |  | 248,028        |   |  | 506,863   |  
|                                                   |  |               
|Trade payables:                                    |  |                |   |  |           |  
|Notes                                              |  | 68,599         |   |  | 62,855    |  
|Accounts                                           |  | 1,416,367      |   |  | 1,246,401 |  
|Accrued expenses                                   |  | 863,683        |   |  | 843,022   |  
|Income taxes (note 9)                              |  | 66,101         |   |  | 61,789    |  
|Advances received                                  |  | 277,887        |   |  | 247,586   |  
|Other current liabilities (note 9)                 |  | 428,259        |   |  | 419,419   |  
|Long-term debt (notes 6 and 10)                    |  | 1,418,489      |   |  | 1,319,032 |  
|Retirement and severance benefits (note 11)        |  | 827,669        |   |  | 1,033,005 |  
|Other liabilities (note 9)                         |  | 109,006        |   |  | 90,781    |  
|                                                   |  |                |   |  |           |  
|Total liabilities                                  |  | 6,476,615      |   |  | 6,507,364 |  
|                                                   |  |                |   |  |           |  
|                                                   |  |               
|Minority interests                                 |  | 1,036,807      |   |  | 921,052   |  
|                                                   |  |               
|Stockholders equity:                              |  |                |   |  |           |  
|Common stock (notes 10 and 12)                     |  | 282,033        |   |  | 282,033   |  
|Capital surplus (note 12)                          |  | 561,484        |   |  | 565,360   |  
|Legal reserve (note 13)                            |  | 111,005        |   |  | 110,214   |  
|Retained earnings (note 13)                        |  | 1,667,198      |   |  | 1,668,984 |  
|Accumulated other comprehensive loss (note 15)     |  | (95,997        | ) |  | (301,524  | )
|Treasury stock, at cost (note 14)                  |  | (17,950        | ) |  | (17,236   | )
|                                                   |  |                |   |  |           |  
|Total stockholders equity                         |  | 2,507,773      |   |  | 2,307,831 |  
|                                                   |  |               
|Commitments and contingencies (note 17)            |  |                |   |  |           |  
|                                                   |  | 10,021,195     |   |  | 9,736,247 |  
|                                                   |  |                |   |  |           |  



See accompanying notes to consolidated
financial statements.



69



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Consolidated Statements of Income



Years ended March 31, 2006, 2005 and 2004



|                                                  |  |                |   |  |            |   |  |            |  
|------------------------------------------------- |  | -------------- | - |  | ---------- | - |  | ---------- | -
|                                                  |  | Yen (millions) |  
|                                                  |  | 2006           |   |  | 2005       |   |  | 2004       |  
|Revenues:                                         |  |                |   |  |            |   |  |            |  
|Product sales (note 4)                            |  | 8,486,190      |   |  | 8,055,179  |   |  | 7,652,205  |  
|Financial and other services                      |  | 978,611        |   |  | 971,864    |   |  | 980,245    |  
|                                                  |  |                |   |  |            |   |  |            |  
|Total revenues                                    |  | 9,464,801      |   |  | 9,027,043  |   |  | 8,632,450  |  
|Cost of sales:                                    |  |                |   |  |            |   |  |            |  
|Product sales                                     |  | (6,683,759     | ) |  | (6,258,922 | ) |  | (5,966,578 | )
|Financial and other services                      |  | (703,985       | ) |  | (702,348   | ) |  | (743,576   | )
|                                                  |  |                |   |  |            |   |  |            |  
|Total cost of sales                               |  | (7,387,744     | ) |  | (6,961,270 | ) |  | (6,710,154 | )
|Selling, general and administrative expenses      |  | (1,821,045     | ) |  | (1,786,718 | ) |  | (1,737,433 | )
|                                                  |  |                |  
|Impairment losses for long-lived assets (note 18) |  | (27,408        | ) |  | (26,797    | ) |  | (26,085    | )
|Restructuring charges (note 19)                   |  | (4,429         | ) |  | (33,307    | ) |  | (28,613    | )
|Interest income                                   |  | 18,170         |   |  | 13,413     |   |  | 12,808     |  
|Dividends income                                  |  | 6,421          |   |  | 5,971      |   |  | 6,352      |  
|Other income (notes 20 and 21)                    |  | 63,002         |   |  | 67,024     |   |  | 142,010    |  
|Interest charges                                  |  | (33,265        | ) |  | (29,057    | ) |  | (30,855    | )
|Other deductions (note 20)                        |  | (3,639         | ) |  | (11,796    | ) |  | (23,331    | )
|                                                  |  |                |   |  |            |   |  |            |  
|Income before income taxes and minority interests |  | 274,864        |   |  | 264,506    |   |  | 237,149    |  
|                                                  |  |                |  
|Income taxes (note 9)                             |  | (154,348       | ) |  | (149,990   | ) |  | (198,655   | )
|                                                  |  |                |   |  |            |   |  |            |  
|Income before minority interests                  |  | 120,516        |   |  | 114,516    |   |  | 38,494     |  
|                                                  |  |                |  
|Minority interests                                |  | (83,196        | ) |  | (63,020    | ) |  | (22,618    | )
|                                                  |  |                |   |  |            |   |  |            |  
|Net income                                        |  | 37,320         |   |  | 51,496     |   |  | 15,876     |  
|                                                  |  |                |   |  |            |   |  |            |  
|                                                  | 
|                                                  |  | Yen            |  
|Net income per share (note 22):                   |  |                |  
|Basic                                             |  | 11.20          |   |  | 15.53      |   |  | 4.81       |  
|                                                  |  |                |   |  |            |   |  |            |  
|Diluted                                           |  | 10.84          |   |  | 15.15      |   |  | 4.75       |  
|                                                  |  |                |   |  |            |   |  |            |  



See accompanying notes to consolidated
financial statements.



70



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Consolidated Statements of Stockholders Equity



Years ended March 31, 2006, 2005 and 2004



|                                                                 |  |                |   |  |           |   |  |           |  
|---------------------------------------------------------------- |  | -------------- | - |  | --------- | - |  | --------- | -
|                                                                 |  | Yen (millions) |  
|                                                                 |  | 2006           |   |  | 2005      |   |  | 2004      |  
|Common stock (notes 10 and 12):                                  |  |                |   |  |           |   |  |           |  
|Balance at beginning of year                                     |  | 282,033        |   |  | 282,032   |   |  | 282,032   |  
|Conversion of convertible debentures                             |  |               |   |  | 1         |   |  | 0         |  
|                                                                 |  |                |   |  |           |   |  |           |  
|Balance at end of year                                           |  | 282,033        |   |  | 282,033   |   |  | 282,032   |  
|                                                                 |  |                |   |  |           |   |  |           |  
|Capital surplus (note 12):                                       |  |                |   |  |           |   |  |           |  
|Balance at beginning of year                                     |  | 565,360        |   |  | 551,690   |   |  | 562,214   |  
|Gains on sales of treasury stock                                 |  | 150            |   |  | 353       |   |  | 48        |  
|Gains on stock exchange upon a merger                            |  |               |   |  | 12,509    |   |  |          |  
|Increase (decrease) arising from divestiture and other           |  | (4,026         | ) |  | 808       |   |  | (10,572   | )
|                                                                 |  |                |   |  |           |   |  |           |  
|Balance at end of year                                           |  | 561,484        |   |  | 565,360   |   |  | 551,690   |  
|                                                                 |  |                |   |  |           |   |  |           |  
|Legal reserve (note 13):                                         |  |                |   |  |           |   |  |           |  
|Balance at beginning of year                                     |  | 110,214        |   |  | 109,163   |   |  | 111,309   |  
|Net transfer from (to) retained earnings                         |  | 601            |   |  | 921       |   |  | (1,849    | )
|Net transfer from (to) minority interests                        |  | 190            |   |  | 130       |   |  | (297      | )
|                                                                 |  |                |   |  |           |   |  |           |  
|Balance at end of year                                           |  | 111,005        |   |  | 110,214   |   |  | 109,163   |  
|                                                                 |  |                |   |  |           |   |  |           |  
|Retained earnings (note 13):                                     |  |                |   |  |           |   |  |           |  
|Balance at beginning of year                                     |  | 1,668,984      |   |  | 1,651,272 |   |  | 1,655,029 |  
|Net income                                                       |  | 37,320         |   |  | 51,496    |   |  | 15,876    |  
|Cash dividends                                                   |  | (36,644        | ) |  | (34,628   | ) |  | (19,990   | )
|Net transfer from (to) legal reserve                             |  | (601           | ) |  | (921      | ) |  | 1,849     |  
|Net transfer from (to) minority interests                        |  | (1,861         | ) |  | 1,765     |   |  | (1,492    | )
|                                                                 |  |                |   |  |           |   |  |           |  
|Balance at end of year                                           |  | 1,667,198      |   |  | 1,668,984 |   |  | 1,651,272 |  
|                                                                 |  |                |   |  |           |   |  |           |  
|Accumulated other comprehensive loss (note 15):                  |  |                |   |  |           |   |  |           |  
|Balance at beginning of year                                     |  | (301,524       | ) |  | (393,864  | ) |  | (755,525  | )
|Other comprehensive income, net of reclassification adjustments  |  | 206,519        |   |  | 92,666    |   |  | 359,116   |  
|Net transfer from (to) minority interests                        |  | (992           | ) |  | (326      | ) |  | 2,545     |  
|                                                                 |  |                |   |  |           |   |  |           |  
|Balance at end of year                                           |  | (95,997        | ) |  | (301,524  | ) |  | (393,864  | )
|                                                                 |  |                |   |  |           |   |  |           |  
|Treasury stock, at cost (note 14):                               |  |                |   |  |           |   |  |           |  
|Balance at beginning of year                                     |  | (17,236        | ) |  | (32,162   | ) |  | (1,847    | )
|Acquisition for treasury                                         |  | (1,058         | ) |  | (1,177    | ) |  | (30,464   | )
|Sales of treasury stock                                          |  | 344            |   |  | 478       |   |  | 149       |  
|Stock exchange upon a merger                                     |  |               |   |  | 15,625    |   |  |          |  
|                                                                 |  |                |   |  |           |   |  |           |  
|Balance at end of year                                           |  | (17,950        | ) |  | (17,236   | ) |  | (32,162   | )
|                                                                 |  |                |   |  |           |   |  |           |  
|Total stockholders equity                                       |  | 2,507,773      |   |  | 2,307,831 |   |  | 2,168,131 |  
|                                                                 |  |                |   |  |           |   |  |           |  
|Comprehensive income (note 15):                                  |  |                |   |  |           |   |  |           |  
|Net income                                                       |  | 37,320         |   |  | 51,496    |   |  | 15,876    |  
|Other comprehensive income arising during the year               |  | 221,157        |   |  | 97,878    |   |  | 362,893   |  
|Reclassification adjustments for net gain included in net income |  | (14,638        | ) |  | (5,212    | ) |  | (3,777    | )
|                                                                 |  |                |   |  |           |   |  |           |  
|Comprehensive income                                             |  | 243,839        |   |  | 144,162   |   |  | 374,992   |  
|                                                                 |  |                |   |  |           |   |  |           |  



See accompanying notes to consolidated
financial statements.



71



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Consolidated Statements of Cash Flows



Years ended March 31, 2006, 2005 and 2004



|                                                                                  |  |                |   |  |          |   |  |          |  
|--------------------------------------------------------------------------------- |  | -------------- | - |  | -------- | - |  | -------- | -
|                                                                                  |  | Yen (millions) |  
|                                                                                  |  | 2006           |   |  | 2005     |   |  | 2004     |  
|Cash flows from operating activities (note 24):                                   |  |                |   |  |          |   |  |          |  
|Net income                                                                        |  | 37,320         |   |  | 51,496   |   |  | 15,876   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                |   |  |          |   |  |          |  
|Depreciation                                                                      |  | 451,170        |   |  | 425,080  |   |  | 436,053  |  
|Amortization                                                                      |  | 138,727        |   |  | 132,370  |   |  | 117,561  |  
|Impairment losses for long-lived assets                                           |  | 27,408         |   |  | 26,797   |   |  | 26,085   |  
|Deferred income taxes                                                             |  | 33,815         |   |  | 45,310   |   |  | 77,056   |  
|Equity in (earnings) losses of affiliated companies, net                          |  | (8,688         | ) |  | 162      |   |  | (10,120  | )
|Gain on sale of investments and subsidiaries common stock                        |  | (46,468        | ) |  | (54,741  | ) |  | (137,925 | )
|Impairment of investments in securities                                           |  | 4,858          |   |  | 9,665    |   |  | 12,893   |  
|Loss on disposal of rental assets and other property                              |  | 8,983          |   |  | 15,202   |   |  | 13,274   |  
|Income applicable to minority interests                                           |  | 83,196         |   |  | 63,020   |   |  | 22,618   |  
|(Increase) decrease in receivables                                                |  | (94,078        | ) |  | 103,246  |   |  | (187,545 | )
|Increase in inventories                                                           |  | (107,069       | ) |  | (95,191  | ) |  | (67,026  | )
|(Increase) decrease in prepaid expenses and other current assets                  |  | 35,947         |   |  | (29,973  | ) |  | (3,075   | )
|Increase (decrease) in payables                                                   |  | 107,271        |   |  | (53,785  | ) |  | 145,234  |  
|Increase (decrease) in accrued expenses and retirement and severance benefits     |  | (30,505        | ) |  | (26,823  | ) |  | 109,152  |  
|Increase (decrease) in accrued income taxes                                       |  | 2,047          |   |  | (18,861  | ) |  | 27,741   |  
|Increase (decrease) in other liabilities                                          |  | 44,060         |   |  | (408     | ) |  | 5,276    |  
|Net change in inventory-related receivables from financial services               |  | 14,328         |   |  | (22,036  | ) |  | (3,140   | )
|Other                                                                             |  | (11,447        | ) |  | (5,174   | ) |  | 3,415    |  
|                                                                                  |  |                |   |  |          |   |  |          |  
|Net cash provided by operating activities                                         |  | 690,875        |   |  | 565,356  |   |  | 603,403  |  
|                                                                                  |  |                |  
|Cash flows from investing activities (note 24):                                   |  |                |   |  |          |   |  |          |  
|Decrease in short-term investments                                                |  | 1,104          |   |  | 47,179   |   |  | 10,035   |  
|Capital expenditures                                                              |  | (382,386       | ) |  | (368,896 | ) |  | (289,753 | )
|Purchase of assets to be leased                                                   |  | (466,681       | ) |  | (483,192 | ) |  | (439,047 | )
|Collection of investments in leases                                               |  | 419,956        |   |  | 301,614  |   |  | 340,376  |  
|Proceeds from disposal of rental assets and other property                        |  | 80,718         |   |  | 90,726   |   |  | 122,258  |  
|Proceeds from sale of investments and subsidiaries common stock                  |  | 99,717         |   |  | 112,932  |   |  | 301,553  |  
|Purchase of investments and subsidiaries common stock                            |  | (67,643        | ) |  | (61,711  | ) |  | (110,837 | )
|Purchase of software                                                              |  | (121,983       | ) |  | (121,415 | ) |  | (117,896 | )
|Other                                                                             |  | (64,164        | ) |  | (44,225  | ) |  | (84,102  | )
|                                                                                  |  |                |   |  |          |   |  |          |  
|Net cash used in investing activities                                             |  | (501,362       | ) |  | (526,988 | ) |  | (267,413 | )
|                                                                                  |  |                |  
|Cash flows from financing activities (note 24):                                   |  |                |   |  |          |   |  |          |  
|Increase (decrease) in short-term debt, net                                       |  | 5,121          |   |  | 27,029   |   |  | (193,286 | )
|Proceeds from long-term debt                                                      |  | 342,309        |   |  | 533,442  |   |  | 460,144  |  
|Payments on long-term debt                                                        |  | (551,265       | ) |  | (599,637 | ) |  | (587,335 | )
|Proceeds (payments) on subsidiaries common stock, net                            |  | (3,139         | ) |  | (8,431   | ) |  | 9,984    |  
|Dividends paid to stockholders                                                    |  | (36,509        | ) |  | (34,815  | ) |  | (19,961  | )
|Dividends paid to minority stockholders of subsidiaries                           |  | (17,591        | ) |  | (16,671  | ) |  | (13,714  | )
|Acquisition of common stock for treasury                                          |  | (1,058         | ) |  | (1,177   | ) |  | (30,464  | )
|Proceeds from sales of treasury stock                                             |  | 494            |   |  | 831      |   |  | 197      |  
|                                                                                  |  |                |   |  |          |   |  |          |  
|Net cash used in financing activities                                             |  | (261,638       | ) |  | (99,429  | ) |  | (374,435 | )
|                                                                                  |  |                |   |  |          |   |  |          |  
|Effect of exchange rate changes on cash and cash equivalents                      |  | 21,665         |   |  | 5,380    |   |  | (25,330  | )
|                                                                                  |  |                |   |  |          |   |  |          |  
|Net decrease in cash and cash equivalents                                         |  | (50,460        | ) |  | (55,681  | ) |  | (63,775  | )
|Cash and cash equivalents at beginning of year                                    |  | 708,715        |   |  | 764,396  |   |  | 828,171  |  
|                                                                                  |  |                |   |  |          |   |  |          |  
|Cash and cash equivalents at end of year                                          |  | 658,255        |   |  | 708,715  |   |  | 764,396  |  
|                                                                                  |  |                |   |  |          |   |  |          |  



See accompanying notes to consolidated
financial statements.



72



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(1) | Nature of Operations
|--- | --------------------



Hitachi, Ltd. (the Company) is a Japanese corporation, whose principal office is located in Japan. The Companys and its subsidiaries
businesses are diverse, and include information and telecommunication systems, electronic devices, power and industrial systems, digital media and consumer products, high functional materials and components, and other services including financial
services and logistics services.



|(2) | Basis of Presentation and Summary of Significant Accounting Policies
|--- | --------------------------------------------------------------------



| | (a) | Basis of Presentation
| | --- | ---------------------



The Company and its domestic subsidiaries maintain their books of account in conformity with the financial accounting standards of Japan, and its foreign
subsidiaries in conformity with those of the countries of their domicile.



The consolidated financial statements presented herein have been prepared in a manner and reflect the adjustments which are necessary to conform them with accounting principles generally accepted in the United States
of America. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements. Actual results
could differ from those estimates.



| | (b) | Principles of Consolidation
| | --- | ---------------------------



The consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and all variable interest entities (VIEs) for
which any of the Company and its consolidated entities are the primary beneficiary. The consolidated financial statements include accounts of certain subsidiaries, of which fiscal years differ from March 31 by 93 days or less, to either comply
with local statutory requirements or facilitate timely reporting. There have been no significant transactions, which would materially affect the Companys financial position and results of operations, with such subsidiaries during the period
from their fiscal year-end to March 31. Intercompany accounts and significant intercompany transactions have been eliminated in consolidation.



A VIE is defined in Financial Accounting Standards Board (FASB) Interpretation No. 46 (revised December 2003), Consolidation of Variable
Interest Entities, an interpretation of Accounting Research Bulletin No. 51. This interpretation addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than
voting rights and accordingly should consolidate the entity. The application of this interpretation did not have a material effect on the Companys consolidated financial statements for the year ended March 31, 2004.



Investments in corporate joint ventures and affiliated companies that are
accounted for using the equity method primarily relate to 20% to 50% owned companies to which the Company has the ability to exercise significant influence over operational and financial policies of the investee company. Investments where the
Company does not have significant influence are accounted for using the cost method.



| |  |    |  |            
| |  | -- |  | -----------
| |  | 73 |  | (Continued)



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



| | (c) | Cash Equivalents
| | --- | ----------------



For the purpose of the statement of cash flows, the Company considers all highly liquid investments with insignificant risk of changes in value which have
initial maturities of generally three months or less when purchased to be cash equivalents.



| | (d) | Allowance for Doubtful Receivables
| | --- | ----------------------------------



Allowance for doubtful receivables, including both trade receivables and investments in leases, is the Companys and subsidiaries best estimate
of the amount of probable credit losses in their existing receivables. The allowance is determined based on, but are not limited to, historical collection experience adjusted for the effects of current economic environment, assessment of inherent
risks, aging and financial performance of debtors. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.



| | (e) | Foreign Currency Translation
| | --- | ----------------------------



Foreign currency financial statements have been translated in accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
Foreign Currency Translation. Under this standard, the assets and liabilities of the Companys subsidiaries located outside Japan are translated into Japanese yen at the rates of exchange in effect at the balance sheet date. Income
and expense items are translated at the average exchange rates prevailing during the year. Gains and losses resulting from foreign currency transactions are included in other income (deductions), and those resulting from translation of financial
statements are excluded from the consolidated statements of income and are accumulated and included in accumulated other comprehensive loss as part of stockholders equity.



| | (f) | Investments in Securities and Affiliated Companies
| | --- | --------------------------------------------------



Equity securities that do not have readily determinable fair values, except for equity-method investments, are accounted for under the cost method. The
Company classifies investments in equity securities that have readily determinable fair values and all investments in debt securities in three categories: held-to-maturity securities, trading securities and available-for-sale securities.



Held-to-maturity securities are debt securities that the Company has the
positive intent and ability to hold to maturity. Trading securities are debt and equity securities that are bought and held principally for the purpose of selling them in the near term. Available-for-sale securities are debt and equity securities
not classified as either held-to-maturity securities or trading securities.



Held-to-maturity securities are reported at amortized cost. Trading securities are reported at fair value, with unrealized gains and losses included in earnings. Available-for-sale securities are reported at fair
value, with unrealized gains and losses reported in other comprehensive income.



| |  |    |  |            
| |  | -- |  | -----------
| |  | 74 |  | (Continued)



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



A decline in fair value of any available-for-sale, held-to-maturity security or cost-method
investments below the cost basis or the amortized cost basis that is deemed to be other-than-temporary results in a write-down of the cost basis or the amortized cost basis to fair value as a new cost basis and the amount of the write-down is
included in earnings. On a continuous basis, but no less frequently than at the end of each semi-annual period, the Company evaluates an available-for-sale security, a held-to-maturity security and a cost-method investment for possible impairment.
Fair value is determined based on quoted market prices, projected discounted cash flows or other valuation techniques as appropriate. For certain cost-method investments that it is not practicable to estimate the fair value, if an event or change in
circumstances has occurred that may have a significant adverse effect on the fair value of the investment, the Company estimates the fair value of the investment. Factors considered in determining whether an impairment of available-for-sale security
or cost-method investment is other-than-temporary include: the length of time and extent to which the fair value of the investment has been less than cost, the financial condition and near-term prospect of the issuer, and the intent and ability to
retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Factors considered in assessing whether an impairment of held-to-maturity security is other-than-temporary include the financial
condition, business prospects and credit worthiness of the issuer.



On a continuous basis, but no less frequently than at the end of each semi-annual period, the Company evaluates the carrying amount of its ownership interests in equity-method investees for possible impairment. Factors considered in
assessing whether an indication of other-than-temporary impairment exists include the achievement of business plan objectives and milestones including cash flow projections and the results of planned financing activities, the financial condition and
prospects of each investee company, the fair value of the ownership interest relative to the carrying amount of the investment, the period of time during which the fair value of the ownership interest has been below the carrying amount of the
investment and other relevant factors. Impairment to be recognized is measured based on the amount by which the carrying amount of the investment exceeds the fair value of the investment. Fair value is determined based on quoted market prices,
projected discounted cash flows or other valuation techniques as appropriate.



The cost of a security sold or the amount reclassified out of accumulated other comprehensive income into earnings is determined by the average cost method.



| | (g) | Securitizations
| | --- | ---------------



The Company and certain subsidiaries have a number of securitization programs. Under those programs, certain financial assets such as lease receivables,
trade receivables and others are sold to Special Purpose Entities (SPEs) which are funded through the issuance of asset-backed securities to investors. When a transfer of financial assets is eligible to be accounted for as a sale under SFAS
No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, the carrying amount of the financial assets is allocated based on relative fair values to the portions to be retained and sold.
The Company and its subsidiaries recognize a gain or loss for the difference between the net proceeds received and the allocated carrying amount of the assets sold when the transaction is consummated.



Fair values are based on the present value of estimated future cash flows
which take into consideration various factors such as expected credit loss and others.



| |  |    |  |            
| |  | -- |  | -----------
| |  | 75 |  | (Continued)



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



| | (h) | Inventories
| | --- | -----------



Inventories are stated at the lower of cost or market. Cost is determined by the specific identification method for job order inventories and generally by
the average cost method for raw materials and other inventories.



| | (i) | Property, Plant and Equipment
| | --- | -----------------------------



Property, plant and equipment are stated at cost. Property, plant and equipment are principally depreciated by the declining-balance method, except for
some assets which are depreciated by the straight-line method, mainly over the following estimated useful lives:



|                                 |  |              
|-------------------------------- |  | -------------
|Buildings                        |  |              
|Buildings and building equipment |  | 3 to 50 years
|Structures                       |  | 7 to 60 years
|Machinery and equipment          |  |              
|Machinery                        |  | 4 to 13 years
|Vehicles                         |  | 4 to 7 years 
|Tools, furniture and fixtures    |  | 2 to 20 years



| | (j) | Goodwill and Other Intangible Assets
| | --- | ------------------------------------



The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually. The Company performs its annual impairment test during
the fourth quarter after the annual forecasting process is completed. Furthermore, goodwill is reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Fair value is estimated using
the expected present value of future cash flows. Intangible assets with finite useful lives are amortized over their respective estimated useful lives on either a straight-line basis or the method that reflects the pattern in which the economic
benefits of the intangible assets are consumed or otherwise used up. The estimated useful lives are mainly follows:



|                          |  |              
|------------------------- |  | -------------
|Software                  |  | 1 to 8 years 
|Software for internal use |  | 2 to 10 years
|Patents                   |  | 4 to 8 years 
|Other                     |  | 5 to 20 years



| | (k) | Capitalized Software Costs
| | --- | --------------------------



Costs incurred for computer software developed or obtained for internal use are capitalized and amortized on a straight-line basis over their estimated
useful lives in accordance with Statement of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. In addition, the Company and its subsidiaries develop certain computer software to be
sold where related costs are capitalized after establishment of technological feasibility in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. The annual
amortization of such capitalized costs is the greater of the amount computed using the ratio of each softwares expected future revenue to current years revenue or the straight-line method over the remaining estimated economic life of
each software.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



| | (l) | Impairment of Long-lived Assets
| | --- | -------------------------------



The Company reviews the carrying value of long-lived assets or related group of assets to be held and used, including intangible assets with finite useful
lives, for impairment whenever events or circumstances occur that indicate that the carrying value of the assets may not be recoverable. The assets are considered to be impaired when estimated undiscounted cash flows expected to result from the use
of the assets and their eventual disposition is less than their carrying values. The impairment losses are measured as the amount by which the carrying value of the asset exceeds the fair value. In determining the fair value, the Company uses
available quoted market prices and present value techniques, if appropriate, based on the estimated future cash flow expected to result from the use of the assets and their eventual disposition.



| | (m) | Retirement and Severance Benefits
| | --- | ---------------------------------



The Company accounts for retirement and severance benefits in accordance with SFAS No. 87, Employers Accounting for Pensions.
Unrecognized gains and losses are amortized using the straight-line method over the average remaining service period of active employees.



| | (n) | Derivative Financial Instruments
| | --- | --------------------------------



The Company accounts for derivative financial instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended. SFAS No. 133 requires that all derivative financial instruments, such as forward exchange and interest rate swap contracts, be recognized in the financial statements as either assets or liabilities and measured at
fair value regardless of the purpose or intent for holding them.



The Company designates and accounts for hedging derivatives as follows:



| |  |  | Fair value hedge: a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment. The changes in fair value of the recognized assets
or liabilities or unrecognized firm commitment and the derivatives are recorded in earnings if the hedge is considered highly effective.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cash flow hedge: a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability. The changes
in the fair value of the derivatives designated as cash flow hedges are recorded as other comprehensive income if the hedge is considered highly effective. This treatment is continued until earnings are affected by the variability in cash flows or
the unrecognized firm commitment of the designated hedged item, at which point changes in fair value of the derivative is recognized in income.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Foreign currency hedge: a hedge of foreign-currency fair value or cash flow. The changes in fair value of the recognized assets or liabilities or unrecognized firm
commitment and the derivatives are recorded as either earnings or other comprehensive income if the hedge is considered highly effective. Recognition as earnings or other comprehensive income is dependent on the treatment of foreign currency hedges
as fair value or cash flow hedges.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



The Company follows the documentation requirements as prescribed by the standard, which includes risk
management objective and strategy for undertaking various hedge transactions. In addition, a formal assessment is made at the hedges inception and periodically on an ongoing basis, as to whether the derivative used in hedging activities is
highly effective in offsetting changes in fair values or cash flows of hedged items. Hedge accounting is discontinued for ineffective hedges, if any. Subsequent changes in the fair value of derivatives related to discontinued hedges are recognized
in earnings immediately.



| | (o) | Revenue Recognition
| | --- | -------------------



The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services are rendered, the sales price is fixed
and determinable and collectibility is reasonably assured. The Company adopted the consensus of the FASB Emerging Issue Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, during the year ended
March 31, 2004. The impact of adopting the consensus was not material to the Companys results of operations.



The Company offers multiple solutions to its customers needs. Those solutions may involve the delivery or performance of multiple elements, such as
products, services, or rights to use assets, and performance may occur at different points in time or over different periods of time. When one element is delivered prior to the other in an arrangement, revenue is deferred until the delivery of the
last element, unless transactions are such that the delivered item has value to the customer on a standalone basis, there is objective and reliable evidence of the fair value of the undelivered item, and delivery or performance of the undelivered
item is considered probable and substantially in the control of the Company if the arrangement includes a general right of return relative to the delivered item. If all conditions described above are met, each element in an arrangement is considered
a separate unit of accounting, and the arrangement consideration is allocated to the separate units of accounting based on the relative fair values provided that there is objective and reliable evidence of the fair values of all units of accounting
in the arrangement. The Company allocates revenue on software arrangements involving multiple elements to each element based on its relative fair value, as evidenced by vendor specific objective evidence (VSOE), or in the absence of VSOE, the
residual method. VSOE is the price charged by the Company to an external customer for the same element when such an element is sold separately.



Product Sales:



Revenue from sales of these products is recognized when title and risk of loss have been transferred to the customer. Depending upon the terms of the
contract or arrangement with the customer, this may occur at the time of shipment, when installation is completed or upon the attainment of customer acceptance. The Companys policy is not to accept product returns unless the products are
defective. The conditions of acceptance are governed by the terms of the contract or customer arrangement and those not meeting the predetermined specification are not recorded as revenue. Product warranties are offered on the Companys and
certain subsidiaries products (in certain cases separately priced) and a warranty accrual is established when sales are recognized and is based on estimated future costs of repair and replacement principally using our historical experience of
warranty claims.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Price protection is provided to retailers of the Companys consumer products business and others
to compensate the customer retailers for a decline in the products value due mainly to competition. Price protection granted to the customers is classified as a reduction of revenue on the consolidated statements of income. In addition, it is
our policy to accrue reasonably and reliably estimated price adjustment at the later of the date at which the related sales are recognized, or the date at which price protection is offered. The estimate is made based primarily upon historical
experience or agreement on the adjustment rate and the number of units that are subject to such adjustment (e.g., units in distribution channels).



Product revenues which are recognized upon shipment are information technology system products, construction equipment, displays, disk drives,
televisions, air conditioners, batteries, magnetic tapes, high functional materials, cable products and automotive equipment. Revenues for railway vehicles are recognized upon acceptance or shipment, depending on contract terms. Product revenues
that are recognized upon acceptance are medical electronic devices, industrial machinery and equipment, elevators and escalators.



Revenue from sales of tangible products under long-term construction type arrangements, principally in connection with the construction of nuclear,
thermal and hydroelectric power plants, are recognized under the percentage-of-completion method. Under the percentage-of-completion method, revenue is recognized as a percentage of estimated total revenue that incurred costs to date bear to
estimated total costs after giving effect to estimates of costs to complete based upon most recent information. Any anticipated losses on fixed price contracts are charged to operations when such losses can be estimated. Provisions are made for
contingencies (i.e. performance penalty, benchmarking, etc.) in the period in which they become known pursuant to specific contract terms and conditions and are estimable.



The Company recognizes software revenue in accordance with the provisions of SOP 97-2, Software Revenue
Recognition, as amended. Revenue from software consists of software licensing, customized software development and post contract customer support. Revenues from software license arrangements are recognized upon shipment of the software if
evidence of the arrangement exists, pricing is fixed and determinable and collectibility is probable. Customized software revenue is recognized upon customer acceptance. Revenue from post contract customer support is amortized over the period of the
post contract customer support. Consulting and training services are recognized when the services are rendered.



Service Revenues:



Service revenues from maintenance and distribution services are recognized upon completion of service delivery. Revenue from time service contracts is
recognized as services are rendered. Revenue from long-term fixed price service contracts such as support or maintenance contracts is recognized ratably over the contractual period. Finance lease income is recognized at level rates of return over
the term of the leases. Operating lease income is recognized on a straight-line basis over the term of the lease.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



| | (p) | Advertising
| | --- | -----------



Advertising costs are expensed as incurred.



| | (q) | Research and Development Costs
| | --- | ------------------------------



Research and development costs are expensed as incurred. Costs incurred in connection with the development of software products for sale are accounted for
in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed. Development costs incurred in the research and development of new software products and enhancements to existing
products are expensed as incurred until technological feasibility has been established.



| | (r) | Income Taxes
| | --- | ------------



Deferred income taxes are accounted for under the asset and liability method in accordance with SFAS No. 109, Accounting for Income
Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating losses and tax credit carryforwards. Under this method, deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established to reduce deferred
tax assets to their net realizable value if it is more likely than not that some portion or all of the deferred tax asset will not be realized.



| | (s) | Sales of Stock by Subsidiaries
| | --- | ------------------------------



The change in the Companys proportionate share of a subsidiarys equity resulting from issuance of stock by the subsidiary is recognized as
other income in the accompanying consolidated statements of income.



| | (t) | Net Income Per Share
| | --- | --------------------



Net income per share is computed in accordance with SFAS No. 128, Earnings per Share. This standard requires a dual presentation of basic
and diluted net income per share amounts on the face of the statements of income. Under this standard, basic net income per share is computed based upon the weighted average number of shares of common stock outstanding during each year. Diluted net
income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of
the Company.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



| | (u) | Stock-Based Compensation
| | --- | ------------------------



The Company and certain subsidiaries have stock-based compensation plans. The Company accounts for those plans under the recognition and measurement
principles of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related interpretations. For the years ended March 31, 2006, 2005 and 2004, the Company recognized no material
stock-based compensation expense.



SFAS No. 123,
Accounting for Stock-Based Compensation, prescribes the recognition of compensation expense based on the fair value of options on the grant date and allows continuous application of APB No. 25 if certain pro forma disclosures are
made assuming hypothetical fair value method application. The Company elects to continue applying APB No. 25, however, the pro forma effects of applying SFAS No. 123 on net income and the per share information for the years ended
March 31, 2006, 2005 and 2004 are as follows:



|                                                                 |  |                |   |  |        |   |  |        |  
|---------------------------------------------------------------- |  | -------------- | - |  | ------ | - |  | ------ | -
|                                                                 |  | Yen (millions) |  
|                                                                 |  | 2006           |   |  | 2005   |   |  | 2004   |  
|Net income  as reported                                         |  | 37,320         |   |  | 51,496 |   |  | 15,876 |  
|Stock-based compensation expense included in reported net income |  | 214            |   |  | 215    |   |  |       |  
|Stock-based compensation expense determined under SFAS No. 123   |  | (440           | ) |  | (459   | ) |  | (3,034 | )
|                                                                 |  |                |   |  |        |   |  |        |  
|Net income  pro forma                                           |  | 37,094         |   |  | 51,252 |   |  | 12,842 |  
|                                                                 |  |                |   |  |        |   |  |        |  
|                                                                 | 
|                                                                 |  | Yen            |  
|Net income per share:                                            |  |                |  
|Basic  as reported                                              |  | 11.20          |   |  | 15.53  |   |  | 4.81   |  
|Basic  pro forma                                                |  | 11.14          |   |  | 15.45  |   |  | 3.89   |  
|                                                                 |  |                |  
|Diluted  as reported                                            |  | 10.84          |   |  | 15.15  |   |  | 4.75   |  
|Diluted  pro forma                                              |  | 10.78          |   |  | 15.08  |   |  | 3.83   |  



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



| | (v) | Disclosures about Segments of an Enterprise and Related Information
| | --- | -------------------------------------------------------------------



SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards
for the manner in which a public business enterprise is required to report financial and descriptive information about its operating segments. This standard defines operating segments as components of an enterprise for which separate financial
information is available and evaluated regularly as a means for assessing segment performance and allocating resources to segments. A measure of profit or loss, total assets and other related information is required to be disclosed for each
operating segment. Further, this standard requires the disclosure of information concerning revenues derived from the enterprises products or services, countries in which it earns revenue or holds assets and major customers. However, certain
foreign issuers are presently exempted from the segment disclosure requirements of SFAS No. 131 in filings with the United States Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934, and the Company has not
presented the segment information required to be disclosed in the footnotes to the consolidated financial statements under SFAS No. 131.



| | (w) | Guarantees
| | --- | ----------



The Company recognizes, at the inception of the guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee for
guarantees issued or modified after December 31, 2002, in accordance with the FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, an interpretation of SFAS No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.



| | (x) | New Accounting Standards
| | --- | ------------------------



In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. The amendments made by SFAS
No. 151 clarify that abnormal amounts of costs should be recognized as current-period charges rather than as a portion of the inventory cost. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. The provisions of SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. SFAS No. 151 is not expected to have
a material effect on the consolidated financial position or results of operations of the Company and subsidiaries.



In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. The amendments
made by SFAS No. 153 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged and adopted a broader exception for exchanges of nonmonetary assets that do not have
commercial substance and should be measured based on the recorded amount of the asset relinquished. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. SFAS No. 153 is
not expected to have a material effect on the consolidated financial position or results of operations of the Company and subsidiaries.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment,
which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 (R) supersedes APB No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement
of Cash Flows. SFAS No. 123 (R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an
alternative. Also, the SEC issued Staff Accounting Bulletin No. 107, in which interpretations expressed views of the staff regarding the interaction between SFAS No. 123 (R) and certain SEC rules and regulations, and provided the
staffs views regarding the valuation of share-based payment arrangements for public companies. The provisions of SFAS No. 123 (R) is effective no later than the beginning of the first fiscal year beginning after June 15, 2005,
as deferred by the SEC. SFAS No. 123 (R) is not expected to have a material effect on the consolidated financial position or results of operations of the Company and subsidiaries.



In May 2005, the FASB issued SFAS No. 154, Accounting Changes and
Error Corrections, a replacement of APB Opinion No. 20 and SFAS No. 3. This statement provides the guidance for the accounting for and reporting of a change in accounting principle and the correction of an error, and requires
retrospective application to prior periods financial statements of a voluntary change in accounting principle unless it is impracticable. SFAS No. 154 is effective for accounting changes and corrections made in fiscal years beginning
after December 15, 2005. SFAS No. 154 is not expected to have a material effect on the consolidated financial position or results of operations of the Company and subsidiaries.



In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instrument, an amendment
of SFAS No. 133 and No. 140. The amendments made by SFAS No. 155 resolve issues addressed in SFAS No. 133 Implementation Issue No. D1, and require to evaluate interests in securitized financial assets to identify interests
that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of the first
fiscal year that begins after September 15, 2006. The Company is currently evaluating the effect of adopting this statement on the consolidated financial position or result of operations.



In March 2006, the FASB issued SFAS No. 156, Accounting for
Servicing of Financial Assets, an amendment of SFAS No. 140. This statement provides the guidance for the measurement methods for servicing assets and servicing liabilities. SFAS No. 156 shall be effective as of the beginning of the
first fiscal year that begins after September 15, 2006. The Company is currently evaluating the effect of adopting this statement on the consolidated financial position or result of operations.



| | (y) | Reclassifications
| | --- | -----------------



Certain reclassifications have been made to prior year balances in order to conform to the current year presentations.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(3) | Investments in Securities and Affiliated Companies
|--- | --------------------------------------------------



Short-term investments as of March 31, 2006 and 2005 are as follows:



|                              |  |                |  |        
|----------------------------- |  | -------------- |  | -------
|                              |  | Yen (millions)
|                              |  | 2006           |  | 2005   
|Investments in securities:    |  |                |  |        
|Available-for-sale securities |  | 75,975         |  | 81,583 
|Held-to-maturity securities   |  | 57             |  | 392    
|Trading securities            |  | 86,724         |  | 64,593 
|                              |  |                |  |        
|                              |  | 162,756        |  | 146,568
|                              |  |                |  |        



Investments and
advances, including affiliated companies as of March 31, 2006 and 2005 are as follows:



|                                                    |  |                |  |        
|--------------------------------------------------- |  | -------------- |  | -------
|                                                    |  | Yen (millions)
|                                                    |  | 2006           |  | 2005   
|Investments in securities:                          |  |                |  |        
|Available-for-sale securities                       |  | 447,298        |  | 314,471
|Held-to-maturity securities                         |  | 1,316          |  | 658    
|Securities without readily determinable fair values |  | 79,321         |  | 77,755 
|Investments in affiliated companies                 |  | 368,989        |  | 388,076
|Advances and other                                  |  | 132,749        |  | 113,891
|                                                    |  |                |  |        
|                                                    |  | 1,029,673      |  | 894,851
|                                                    |  |                |  |        



The following is a
summary of the amortized cost basis, gross unrealized holding gains, gross unrealized holding losses and aggregate fair value of available-for-sale securities by the consolidated balance sheets classification as of March 31, 2006 and 2005.



|                          |  |                      |  |             |  |              |  |                      |  |                      |  |             |  |              |  |                     
|------------------------- |  | -------------------- |  | ----------- |  | ------------ |  | -------------------- |  | -------------------- |  | ----------- |  | ------------ |  | --------------------
|                          |  | Yen (millions)      
|                          |  | 2006                 |  | 2005       
|                          |  | Amortized cost basis |  | Gross gains |  | Gross losses |  | Aggregate fair value |  | Amortized cost basis |  | Gross gains |  | Gross losses |  | Aggregate fair value
|Short-term investments:   |  |                      |  |             |  |              |  |                      |  |                      |  |             |  |              |  |                     
|Debt securities           |  | 26,956               |  | 10          |  | 16           |  | 26,950               |  | 37,195               |  | 34          |  | 20           |  | 37,209              
|Other securities          |  | 49,045               |  | 29          |  | 49           |  | 49,025               |  | 44,355               |  | 19          |  |             |  | 44,374              
|                          |  |                      |  |             |  |              |  |                      |  |                      |  |             |  |              |  |                     
|                          |  | 76,001               |  | 39          |  | 65           |  | 75,975               |  | 81,550               |  | 53          |  | 20           |  | 81,583              
|Investments and advances: |  |                      |  |             |  |              |  |                      |  |                      |  |             |  |              |  |                     
|Equity securities         |  | 138,449              |  | 208,048     |  | 2,168        |  | 344,329              |  | 98,751               |  | 102,170     |  | 3,623        |  | 197,298             
|Debt securities           |  | 76,838               |  | 1,323       |  | 2,718        |  | 75,443               |  | 91,412               |  | 1,383       |  | 907          |  | 91,888              
|Other securities          |  | 26,972               |  | 768         |  | 214          |  | 27,526               |  | 24,928               |  | 450         |  | 93           |  | 25,285              
|                          |  |                      |  |             |  |              |  |                      |  |                      |  |             |  |              |  |                     
|                          |  | 242,259              |  | 210,139     |  | 5,100        |  | 447,298              |  | 215,091              |  | 104,003     |  | 4,623        |  | 314,471             
|                          |  |                      |  |             |  |              |  |                      |  |                      |  |             |  |              |  |                     
|                          |  | 318,260              |  | 210,178     |  | 5,165        |  | 523,273              |  | 296,641              |  | 104,056     |  | 4,643        |  | 396,054             
|                          |  |                      |  |             |  |              |  |                      |  |                      |  |             |  |              |  |                     



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



The following is a summary of gross unrealized holding losses on available-for-sale securities and
the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2006 and 2005.



|                          |  |                      |  |                     |  |                      |  |                     |  |                      |  |              |  |                      |  |             
|------------------------- |  | -------------------- |  | ------------------- |  | -------------------- |  | ------------------- |  | -------------------- |  | ------------ |  | -------------------- |  | ------------
|                          |  | Yen (millions)      
|                          |  | 2006                 |  | 2005               
|                          |  | Less than 12 months  |  | 12 months or longer |  | Less than 12 months  |  | 12 months or longer
|                          |  | Aggregate fair value |  | Gross losses        |  | Aggregate fair value |  | Gross losses        |  | Aggregate fair value |  | Gross losses |  | Aggregate fair value |  | Gross losses
|Short-term investments:   |  |                      |  |                     |  |                      |  |                     |  |                      |  |              |  |                      |  |             
|Debt securities           |  | 8,279                |  | 7                   |  | 991                  |  | 9                   |  | 3,842                |  | 20           |  |                     |  |            
|Other securities          |  | 1,152                |  | 49                  |  |                     |  |                    |  |                     |  |             |  |                     |  |            
|                          |  |                      |  |                     |  |                      |  |                     |  |                      |  |              |  |                      |  |             
|                          |  | 9,431                |  | 56                  |  | 991                  |  | 9                   |  | 3,842                |  | 20           |  |                     |  |            
|Investments and advances: |  |                      |  |                     |  |                      |  |                     |  |                      |  |              |  |                      |  |             
|Equity securities         |  | 1,105                |  | 111                 |  | 14,035               |  | 2,057               |  | 10,112               |  | 2,694        |  | 5,025                |  | 929         
|Debt securities           |  | 28,152               |  | 1,410               |  | 13,110               |  | 1,308               |  | 14,559               |  | 669          |  | 10,937               |  | 238         
|Other securities          |  | 5,007                |  | 86                  |  | 4,717                |  | 128                 |  | 5,317                |  | 59           |  | 905                  |  | 34          
|                          |  |                      |  |                     |  |                      |  |                     |  |                      |  |              |  |                      |  |             
|                          |  | 34,264               |  | 1,607               |  | 31,862               |  | 3,493               |  | 29,988               |  | 3,422        |  | 16,867               |  | 1,201       
|                          |  |                      |  |                     |  |                      |  |                     |  |                      |  |              |  |                      |  |             
|                          |  | 43,695               |  | 1,663               |  | 32,853               |  | 3,502               |  | 33,830               |  | 3,442        |  | 16,867               |  | 1,201       
|                          |  |                      |  |                     |  |                      |  |                     |  |                      |  |              |  |                      |  |             



Debt securities
consist primarily of national, local and foreign governmental bonds, debentures issued by banks and corporate bonds. Other securities consist primarily of investment trusts.



The proceeds from sale of available-for-sale securities for the years ended March 31, 2006, 2005 and 2004 were
¥60,969 million, ¥60,653 million and ¥83,886 million, respectively. The gross realized gains on the sale of those securities for the years ended March 31, 2006, 2005 and 2004 were ¥22,480 million, ¥15,889 million and
¥33,887 million, respectively, while gross realized losses on the sale of those securities for the years ended March 31, 2006, 2005 and 2004 were ¥482 million, ¥64 million and ¥2,160 million, respectively.



Trading securities consist mainly of investments in trust accounts. Net
unrealized holding gains on trading securities as of March 31, 2006, 2005 and 2004 were ¥7,556 million, ¥2,223 million and ¥2,214 million, respectively, and were classified as other income in the consolidated statements of income.



The contractual maturities of debt securities and other
securities classified as investments and advances in the consolidated balance sheets as of March 31, 2006 are as follows:



|                      |  |                   |  |                     |  |        
|--------------------- |  | ----------------- |  | ------------------- |  | -------
|                      |  | Yen (millions)   
|                      |  | Held-to- maturity |  | Available- for-sale |  | Total  
|Due within five years |  | 1,118             |  | 44,571              |  | 45,689 
|Due after five years  |  | 198               |  | 58,398              |  | 58,596 
|                      |  |                   |  |                     |  |        
|                      |  | 1,316             |  | 102,969             |  | 104,285
|                      |  |                   |  |                     |  |        



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Expected redemptions may differ from contractual maturities because some of these securities are
redeemable at the option of the issuers.



The aggregate
carrying amounts of cost-method investments which were not evaluated for impairment as of March 31, 2006 and 2005 were ¥75,764 million and ¥75,838 million, respectively, mainly because the Company did not identify any events or changes
in circumstances that might have had a significant adverse effect on their fair value.



The aggregate fair values of investments in affiliated companies, for which a quoted market price was available, as of March 31, 2006 and 2005, were ¥184,504 million and ¥206,942 million, respectively.
The aggregate carrying amounts of such investments as of March 31, 2006 and 2005 were ¥91,191 million and ¥130,850 million, respectively.



As of March 31, 2006 and 2005, cumulative recognition of other-than-temporary declines in values of investments in certain affiliated companies
resulted in the difference of ¥13,576 million and ¥14,673 million, respectively, between the carrying amount of the investment and the amount of underlying equity in net assets. In addition, as of March 31, 2006 and 2005, equity-method
goodwill included in investments in certain affiliated companies were ¥11,848 million and ¥8,669 million, respectively.



Summarized combined financial information relating to affiliated companies accounted for by the equity method is as follows:



|                        |  |                |  |          
|----------------------- |  | -------------- |  | ---------
|                        |  | Yen (millions)
|                        |  | 2006           |  | 2005     
|Current assets          |  | 1,293,236      |  | 1,516,004
|Non-current assets      |  | 965,574        |  | 1,096,151
|Current liabilities     |  | 1,106,243      |  | 1,094,051
|Non-current liabilities |  | 319,149        |  | 540,773  



|             |  |                |  |           |  |          
|------------ |  | -------------- |  | --------- |  | ---------
|             |  | Yen (millions)
|             |  | 2006           |  | 2005      |  | 2004     
|Revenues     |  | 2,302,913      |  | 2,588,526 |  | 2,457,443
|Gross profit |  | 370,979        |  | 432,615   |  | 374,535  
|Net income   |  | 22,177         |  | 1,850     |  | 14,581   



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



The balances and transactions with affiliated companies accounted for by the equity method are as
follows:



|                  |  |                |  |                |  |        
|----------------- |  | -------------- |  | -------------- |  | -------
|                  |  |                |  | Yen (millions)
|                  |  |                |  | 2006           |  | 2005   
|Trade receivables |  |                |  | 166,484        |  | 163,152
|Trade payables    |  |                |  | 64,654         |  | 63,029 
|                  | 
|                  |  | Yen (millions)
|                  |  | 2006           |  | 2005           |  | 2004   
|Revenues          |  | 535,084        |  | 559,954        |  | 498,564
|Purchases         |  | 315,356        |  | 362,771        |  | 299,331



|(4) | Receivables
|--- | -----------



The aggregate annual maturities of the long-term trade receivables after March 31, 2007 included in trade receivables- accounts are as follows:



|                      |  |               
|--------------------- |  | --------------
|Years ending March 31 |  | Yen (millions)
|2008                  |  | 31,361        
|2009                  |  | 2,251         
|2010                  |  | 1,236         
|2011                  |  | 1,206         
|Thereafter            |  | 1,246         
|                      |  |               
|                      |  | 37,300        
|                      |  |               



Sales on an
installment payment basis for the years ended March 31, 2006, 2005 and 2004 totaled ¥8,440 million, ¥8,275 million and ¥9,021 million, respectively.



|(5) | Inventories
|--- | -----------



Inventories as of March 31, 2006 and 2005 are summarized as follows:



|                |  |                |  |          
|--------------- |  | -------------- |  | ---------
|                |  | Yen (millions)
|                |  | 2006           |  | 2005     
|Finished goods  |  | 420,943        |  | 371,331  
|Work in process |  | 654,943        |  | 651,227  
|Raw materials   |  | 186,422        |  | 176,397  
|                |  |                |  |          
|                |  | 1,262,308      |  | 1,198,955
|                |  |                |  |          



Inventories include
items associated with major contracts which require long-term processing performed for more than twelve months. These items as of March 31, 2006 and 2005 aggregated ¥38,061 million and ¥39,474 million, respectively.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(6) | Leases
|--- | ------



The Company and certain subsidiaries are lessors of certain assets such as manufacturing machinery and equipment under financing and operating lease
arrangements with terms ranging from 3 to 6 years.



The amount
of leased assets at cost under operating leases and accumulated depreciation as of March 31, 2006 amounted to ¥1,719,894 million and ¥1,316,286 million, respectively. The leased assets are depreciated using the straight-line method over
their estimated useful lives.



The following table shows the
future minimum lease receivables of financing and non-cancelable operating leases as of March 31, 2006 and the future minimum lease receivables of financing leases as of March 31, 2005:



|                                      |  |                  |   |  |                 
|------------------------------------- |  | ---------------- | - |  | ----------------
|                                      |  | Yen (millions)  
|                                      |  | 2006            
|Years ending March 31                 |  | Financing leases |   |  | Operating leases
|2007                                  |  | 163,124          |   |  | 72,617          
|2008                                  |  | 127,185          |   |  | 55,187          
|2009                                  |  | 95,882           |   |  | 37,865          
|2010                                  |  | 59,541           |   |  | 19,516          
|2011                                  |  | 25,107           |   |  | 9,497           
|Thereafter                            |  | 41,483           |   |  | 12,345          
|                                      |  |                  |   |  |                 
|Total minimum payments to be received |  | 512,322          |   |  | 207,027         
|                                      |  |                  |   |  |                 
|Amount representing executory costs   |  | (20,449          | ) |  |                 
|Unearned income                       |  | (33,934          | ) |  |                 
|Allowance for doubtful receivables    |  | (6,182           | ) |  |                 
|                                      |  |                  |   |  |                 
|Net investment in financing leases    |  | 451,757          |   |  |                 
|                                      |  |                  |   |  |                 



|                                      |  |                 |  
|------------------------------------- |  | --------------- | -
|                                      |  | Yen (millions)  |  
|                                      |  | 2005            |  
|                                      |  | Financingleases |  
|Total minimum payments to be received |  | 603,442         |  
|Amount representing executory costs   |  | (32,029         | )
|Unearned income                       |  | (39,650         | )
|Allowance for doubtful receivables    |  | (5,004          | )
|                                      |  |                 |  
|Net investment in financing leases    |  | 526,759         |  
|                                      |  |                 |  



The Company and
certain subsidiaries lease certain manufacturing machinery and equipment. The amount of leased assets at cost under capital leases as of March 31, 2006 and 2005 amounted to ¥33,516 million and ¥33,239 million, respectively, and
accumulated depreciation as of March 31, 2006 and 2005 amounted to ¥19,307 million and ¥17,803 million, respectively.



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HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



In March 2006, a certain subsidiary sold its land for proceeds of ¥10,560 million, and entered
into a lease back agreement for a portion of the land. The lease back is classified as an operating lease with a term of 25 years. The gain of the leased back portion in the amount of ¥2,736 million has been deferred and is being recognized over
the lease term.



The following table shows the future minimum
lease payments of capital and non-cancelable operating leases as of March 31, 2006:



|                                                  |  |                |   |  |                 
|------------------------------------------------- |  | -------------- | - |  | ----------------
|                                                  |  | Yen (millions)
|Years ending March 31                             |  | Capital leases |   |  | Operating leases
|2007                                              |  | 4,602          |   |  | 12,702          
|2008                                              |  | 3,196          |   |  | 9,355           
|2009                                              |  | 1,677          |   |  | 7,463           
|2010                                              |  | 995            |   |  | 4,710           
|2011                                              |  | 712            |   |  | 1,975           
|Thereafter                                        |  | 981            |   |  | 10,020          
|                                                  |  |                |   |  |                 
|Total minimum lease payments                      |  | 12,163         |   |  | 46,225          
|                                                  |  |                |   |  |                 
|Amount representing executory costs               |  | (459           | ) |  |                 
|Amount representing interest                      |  | (698           | ) |  |                 
|                                                  |  |                |   |  |                 
|Present value of net minimum lease payments       |  | 11,006         |   |  |                 
|Less current portion of capital lease obligations |  | 4,278          |   |  |                 
|                                                  |  |                |   |  |                 
|Long-term capital lease obligations               |  | 6,728          |   |  |                 
|                                                  |  |                |   |  |                 



|(7) | Securitizations
|--- | ---------------



For the years ended March 31, 2006, 2005 and 2004, Hitachi Capital Corporation and certain other financing subsidiaries sold primarily lease
receivables to Special Purpose Entities (SPE) and the SPEs issued asset-backed commercial paper to investors. The investors and the SPEs have no recourse to the subsidiaries other assets for failure of debtors to pay when due. The subsidiaries
retained servicing responsibilities and subordinated interests, but have not recorded a servicing asset or liability because the cost to service the receivables approximates the servicing income. The retained interests are subordinate to
investors interests. For the years ended March 31, 2006, 2005 and 2004, gains recognized on the sale of lease receivables amounted to ¥21,619 million, ¥12,985 million and ¥12,394 million, respectively.



The table below summarizes certain cash flows received from and paid to the
SPEs during the years ended March 31, 2006, 2005 and 2004:



|                                             |  |                |   |  |         |   |  |         |  
|-------------------------------------------- |  | -------------- | - |  | ------- | - |  | ------- | -
|                                             |  | Yen (millions) |  
|                                             |  | 2006           |   |  | 2005    |   |  | 2004    |  
|Proceeds from transfer of lease receivables  |  | 436,919        |   |  | 310,668 |   |  | 271,281 |  
|Servicing fees received                      |  | 43             |   |  | 22      |   |  | 23      |  
|Purchases of delinquent or ineligible assets |  | (28,074        | ) |  | (25,717 | ) |  | (14,775 | )



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Quantitative information about delinquencies, net credit losses, and components of lease receivables
subject to transfer and other assets managed together as of and for the year ended March 31, 2006 is as follows:



|                                     |  |                                       |   |  |                                                          |  |                 
|------------------------------------ |  | ------------------------------------- | - |  | -------------------------------------------------------- |  | ----------------
|                                     |  | Yen (millions)                       
|                                     |  | Total principal amount of receivables |   |  | Principal amount of receivables 90 days or more past due |  | Net creditlosses
|Total assets managed or transferred: |  |                                       |   |  |                                                          |  |                 
|Lease receivables                    |  | 1,159,294                             |   |  | 651                                                      |  | 1,676           
|Assets transferred                   |  | (707,537                              | ) |  |                                                          |  |                 
|                                     |  |                                       |   |  |                                                          |  |                 
|Assets held in portfolio             |  | 451,757                               |   |  |                                                          |  |                 
|                                     |  |                                       |   |  |                                                          |  |                 



For the years ended
March 31, 2006, 2005 and 2004, the Company and certain subsidiaries sold trade receivables mainly to SPEs which securitized these receivables. In these securitizations, the Company and certain subsidiaries retained servicing responsibility. No
servicing asset or liability has been recorded because the fees for servicing the receivables approximate the related costs. In addition, the Company and certain subsidiaries retained subordinated interests which were not material.



During the years ended March 31, 2006, 2005 and 2004, proceeds from the
transfer of trade receivables were ¥1,361,784 million, ¥1,252,656 million and ¥1,006,164 million, respectively, and losses recognized on those transfers were ¥2,445 million, ¥3,388 million and ¥2,973 million, respectively.



|(8) | Goodwill and Other Intangible Assets
|--- | ------------------------------------



Intangible assets other than goodwill acquired during the years ended March 31, 2006, 2005 and 2004 amounted to ¥190,207 million, ¥228,085
million and ¥190,059 million, respectively, and related amortization expense during the years ended March 31, 2006, 2005 and 2004 amounted to ¥138,727 million, ¥132,370 million and ¥117,561 million, respectively.



The main component of intangible assets subject to amortization was
capitalized software. Amortization of capitalized costs for software to be sold, leased or otherwise marketed is charged to cost of sales. The amounts charged during the year ended March 31, 2006, 2005 and 2004 were to ¥52,705 million,
¥57,293 million and ¥52,863 million, respectively.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Intangible assets other than goodwill as of March 31, 2006 and 2005 are as follows:



|                                   |  |                      |  |                         |  |                    |  |                      |  |                         |  |                   
|---------------------------------- |  | -------------------- |  | ----------------------- |  | ------------------ |  | -------------------- |  | ----------------------- |  | ------------------
|                                   |  | Yen (millions)      
|                                   |  | 2006                 |  | 2005                   
|                                   |  | Gross carryingamount |  | Accumulatedamortization |  | Net carryingamount |  | Gross carryingamount |  | Accumulatedamortization |  | Net carryingamount
|Amortized intangible assets        |  |                      |  |                         |  |                    |  |                      |  |                         |  |                   
|Software                           |  | 431,208              |  | 318,794                 |  | 112,414            |  | 402,523              |  | 279,139                 |  | 123,384           
|Software for internal use          |  | 432,952              |  | 242,182                 |  | 190,770            |  | 362,426              |  | 189,024                 |  | 173,402           
|Patents                            |  | 127,130              |  | 40,103                  |  | 87,027             |  | 123,445              |  | 24,375                  |  | 99,070            
|Other                              |  | 104,523              |  | 71,502                  |  | 33,021             |  | 96,371               |  | 61,769                  |  | 34,602            
|                                   |  |                      |  |                         |  |                    |  |                      |  |                         |  |                   
|                                   |  | 1,095,813            |  | 672,581                 |  | 423,232            |  | 984,765              |  | 554,307                 |  | 430,458           
|                                   |  |                      |  |                         |  |                    |  |                      |  |                         |  |                   
|Indefinite-lived intangible assets |  | 7,753                |  |                        |  | 7,753              |  | 9,382                |  |                        |  | 9,382             



The following table
shows the estimated aggregate amortization expense of intangible assets for the next five years.



|                      |  |               
|--------------------- |  | --------------
|Years ending March 31 |  | Yen (millions)
|2007                  |  | 115,457       
|2008                  |  | 93,302        
|2009                  |  | 67,881        
|2010                  |  | 37,756        
|2011                  |  | 23,651        



The changes in the
carrying amount of goodwill for the years ended March 31, 2006 and 2005 are as follows:



|                                                     |  |                |   |  |         |  
|---------------------------------------------------- |  | -------------- | - |  | ------- | -
|                                                     |  | Yen (millions) |  
|                                                     |  | 2006           |   |  | 2005    |  
|Balance at beginning of the year                     |  | 45,898         |   |  | 53,478  |  
|Acquired during the year                             |  | 15,271         |   |  | 6,424   |  
|Impairment loss                                      |  | (1,452         | ) |  | (13,646 | )
|Translation adjustment and other                     |  | 4,493          |   |  | (358    | )
|                                                     |  |                |   |  |         |  
|Balance at end of the year, included in other assets |  | 64,210         |   |  | 45,898  |  
|                                                     |  |                |   |  |         |  



Mainly due to severe
demands for price reduction in the Automotive industry reporting units in the Power and Industrial Systems, operating profits and cash flows were lower than expected. Based on that trend, the earnings forecast for the next three years was revised.
The Companys determination of fair values of the reporting units incorporate the earnings forecast into its valuation assumptions resulting in a fair market value that was less than its carrying value. The Company recorded a pretax impairment
loss of ¥11,526 million, which was reported in selling, general and administrative expenses for the year ended March 31, 2005.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(9) | Income Taxes
|--- | ------------



Components, as either domestic or foreign, of income before income taxes and minority interests, and income taxes attributable to continuing operations
are as follows:



|                                                  |  |                |  |         |   |  |        
|------------------------------------------------- |  | -------------- |  | ------- | - |  | -------
|                                                  |  | Yen (millions)
|                                                  |  | 2006          
|                                                  |  | Domestic       |  | Foreign |   |  | Total  
|Income before income taxes and minority interests |  | 242,786        |  | 32,078  |   |  | 274,864
|Income taxes:                                     |  |                |  |         |   |  |        
|Current tax expense                               |  | 99,753         |  | 20,780  |   |  | 120,533
|Deferred tax expense                              |  | 21,915         |  | 11,900  |   |  | 33,815 
|                                                  |  |                |  |         |   |  |        
|                                                  |  | 121,668        |  | 32,680  |   |  | 154,348
|                                                  |  |                |  |         |   |  |        
|                                                  | 
|                                                  |  | Yen (millions)
|                                                  |  | 2005          
|                                                  |  | Domestic       |  | Foreign |   |  | Total  
|Income before income taxes and minority interests |  | 212,424        |  | 52,082  |   |  | 264,506
|Income taxes:                                     |  |                |  |         |   |  |        
|Current tax expense                               |  | 85,263         |  | 19,417  |   |  | 104,680
|Deferred tax expense                              |  | 41,847         |  | 3,463   |   |  | 45,310 
|                                                  |  |                |  |         |   |  |        
|                                                  |  | 127,110        |  | 22,880  |   |  | 149,990
|                                                  |  |                |  |         |   |  |        
|                                                  | 
|                                                  |  | Yen (millions)
|                                                  |  | 2004          
|                                                  |  | Domestic       |  | Foreign |   |  | Total  
|Income before income taxes and minority interests |  | 211,000        |  | 26,149  |   |  | 237,149
|Income taxes:                                     |  |                |  |         |   |  |        
|Current tax expense                               |  | 93,264         |  | 28,335  |   |  | 121,599
|Deferred tax expense (benefit)                    |  | 89,293         |  | (12,237 | ) |  | 77,056 
|                                                  |  |                |  |         |   |  |        
|                                                  |  | 182,557        |  | 16,098  |   |  | 198,655
|                                                  |  |                |  |         |   |  |        







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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Significant components of income tax expense (benefit) attributable to continuing operations and
other comprehensive income (loss), net of reclassification adjustments, for the years ended March 31, 2006, 2005 and 2004 are as follows:



|                                                                                                      |  |                |   |  |         |   |  |        
|----------------------------------------------------------------------------------------------------- |  | -------------- | - |  | ------- | - |  | -------
|                                                                                                      |  | Yen (millions)
|                                                                                                      |  | 2006           |   |  | 2005    |   |  | 2004   
|Continuing operations:                                                                                |  |                |   |  |         |   |  |        
|Current tax expense                                                                                   |  | 120,533        |   |  | 104,680 |   |  | 121,599
|Deferred tax expense (benefit) (exclusive of the effects of other components listed below)            |  | (5,716         | ) |  | 23,672  |   |  | 35,714 
|Adjustments of deferred tax assets and liabilities for enacted changes in tax laws and rates in Japan |  |               |   |  |        |   |  | 2,318  
|Change in valuation allowance                                                                         |  | 39,531         |   |  | 21,638  |   |  | 39,024 
|                                                                                                      |  |                |   |  |         |   |  |        
|                                                                                                      |  | 154,348        |   |  | 149,990 |   |  | 198,655
|Other comprehensive income (loss), net of reclassification adjustments:                               |  |                |   |  |         |   |  |        
|Minimum pension liability adjustments                                                                 |  | 75,306         |   |  | 77,535  |   |  | 259,788
|Net unrealized holding gain on available-for-sale securities                                          |  | 39,562         |   |  | 3,115   |   |  | 19,154 
|Cash flow hedges                                                                                      |  | 985            |   |  | (523    | ) |  | 162    
|                                                                                                      |  |                |   |  |         |   |  |        
|                                                                                                      |  | 115,853        |   |  | 80,127  |   |  | 279,104
|                                                                                                      |  |                |   |  |         |   |  |        
|                                                                                                      |  | 270,201        |   |  | 230,117 |   |  | 477,759
|                                                                                                      |  |                |   |  |         |   |  |        



The Company adopted
the consolidated taxation system in Japan effective from the year ended March 31, 2003. Under the consolidated taxation system, the Company had consolidated, for Japanese tax purposes, all wholly-owned domestic subsidiaries. A temporary 2%
surtax for the period between April 1, 2002 through March 31, 2004 was assessed for adopting the consolidated taxation system. The aggregated statutory income tax rate for the consolidated group for tax purposes was approximately 43.6% for
the year ended March 31, 2004.



On March 31, 2003,
amendments to local business tax law in Japan were enacted, resulting in the lower business tax rates. During the year ended March 31, 2004, additional minor changes in tax rates for business taxes were enacted in certain local administrative
divisions of Japan. Those changes became effective on April 1, 2004. As a result, the aggregated statutory income tax rate for domestic companies was approximately 40.6% for the years ended March 31, 2006 and 2005.



In accordance with EITF Issue No. 93-13, Effect of a Retroactive
Change in Enacted Tax Rates That Is Included in Income from Continuing Operations, the Company determined the tax effect of retroactive changes or changes in enacted tax rates on current and deferred tax assets and liabilities. The effect of
these changes on the Companys deferred tax balances amounted to ¥2,318 million in income from continuing operations for the year ended March 31, 2004.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Reconciliations between the combined statutory income tax rate and the effective income tax rate as a
percentage of income before income taxes and minority interests are as follows:



|                                                                                                    |  |      |   |  |      |   |  |      |  
|--------------------------------------------------------------------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                                                                                                    |  | 2006 |   |  | 2005 |   |  | 2004 |  
|Combined statutory income tax rate                                                                  |  | 40.6 | % |  | 40.6 | % |  | 43.6 | %
|Equity in (earnings) losses of affiliated companies                                                 |  | (1.3 | ) |  | 0.0  |   |  | (1.9 | )
|Impairment of investments in affiliated companies                                                   |  | 0.3  |   |  |     |   |  | 1.4  |  
|Change in excess amounts over the tax basis of investments in subsidiaries and affiliated companies |  | 0.2  |   |  | 2.6  |   |  | 3.0  |  
|Adjustment of net gain on sale of investments in subsidiaries and affiliated companies              |  | 1.1  |   |  | 1.6  |   |  | 12.6 |  
|Expenses not deductible for tax purposes                                                            |  | 5.4  |   |  | 4.6  |   |  | 7.2  |  
|Enacted changes in tax laws and rates in Japan                                                      |  |     |   |  |     |   |  | 1.0  |  
|Change in valuation allowance                                                                       |  | 14.4 |   |  | 8.2  |   |  | 16.5 |  
|Difference in statutory tax rates of foreign subsidiaries                                           |  | (4.0 | ) |  | (2.1 | ) |  | (1.5 | )
|Other                                                                                               |  | (0.5 | ) |  | 1.2  |   |  | 1.9  |  
|                                                                                                    |  |      |   |  |      |   |  |      |  
|Effective income tax rate                                                                           |  | 56.2 | % |  | 56.7 | % |  | 83.8 | %
|                                                                                                    |  |      |   |  |      |   |  |      |  



The tax effects of
temporary differences and carryforwards that give rise to significant portions of the deferred tax assets and liabilities as of March 31, 2006 and 2005 are presented below:



|                                                                  |  |                |   |  |           |  
|----------------------------------------------------------------- |  | -------------- | - |  | --------- | -
|                                                                  |  | Yen (millions) |  
|                                                                  |  | 2006           |   |  | 2005      |  
|Total gross deferred tax assets:                                  |  |                |   |  |           |  
|Retirement and severance benefits                                 |  | 300,732        |   |  | 380,254   |  
|Accrued expenses                                                  |  | 221,107        |   |  | 216,139   |  
|Property, plant and equipment, due to differences in depreciation |  | 33,356         |   |  | 34,769    |  
|Net operating loss carryforwards                                  |  | 136,399        |   |  | 119,930   |  
|Other                                                             |  | 323,299        |   |  | 293,735   |  
|                                                                  |  |                |   |  |           |  
|                                                                  |  | 1,014,893      |   |  | 1,044,827 |  
|Valuation allowance                                               |  | (282,295       | ) |  | (196,811  | )
|                                                                  |  |                |   |  |           |  
|                                                                  |  | 732,598        |   |  | 848,016   |  
|Total gross deferred tax liabilities:                             |  |                |   |  |           |  
|Deferred profit on sale of properties                             |  | (32,548        | ) |  | (33,077   | )
|Tax purpose reserves regulated by Japanese tax laws               |  | (20,944        | ) |  | (24,268   | )
|Net unrealized gain on securities                                 |  | (78,337        | ) |  | (35,477   | )
|Other                                                             |  | (34,175        | ) |  | (27,706   | )
|                                                                  |  |                |   |  |           |  
|                                                                  |  | (166,004       | ) |  | (120,528  | )
|                                                                  |  |                |   |  |           |  
|Net deferred tax asset                                            |  | 566,594        |   |  | 727,488   |  
|                                                                  |  |                |   |  |           |  



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| |  | -- |  | -----------
| |  | 94 |  | (Continued)



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



In addition to the above, income taxes paid on net intercompany profit on assets remaining within the
group, which had been deferred in accordance with Accounting Research Bulletin No. 51, Consolidated Financial Statements, as of March 31, 2006 and 2005 are reflected in the accompanying consolidated balance sheets under the
following captions:



|                                          |  |                |  |       
|----------------------------------------- |  | -------------- |  | ------
|                                          |  | Yen (millions)
|                                          |  | 2006           |  | 2005  
|Prepaid expenses and other current assets |  | 16,187         |  | 11,781
|Other assets                              |  | 58,325         |  | 51,610
|                                          |  |                |  |       
|                                          |  | 74,512         |  | 63,391
|                                          |  |                |  |       



Net deferred tax
assets as of March 31, 2006 and 2005 are reflected in the accompanying consolidated balance sheets under the following captions:



|                                          |  |                |   |  |         |  
|----------------------------------------- |  | -------------- | - |  | ------- | -
|                                          |  | Yen (millions) |  
|                                          |  | 2006           |   |  | 2005    |  
|Prepaid expenses and other current assets |  | 281,347        |   |  | 295,532 |  
|Other assets                              |  | 325,526        |   |  | 460,721 |  
|Other current liabilities                 |  | (2,390         | ) |  | (3,011  | )
|Other liabilities                         |  | (37,889        | ) |  | (25,754 | )
|                                          |  |                |   |  |         |  
|Net deferred tax asset                    |  | 566,594        |   |  | 727,488 |  
|                                          |  |                |   |  |         |  



A valuation allowance
was recorded against deferred tax assets for deductible temporary differences, net operating loss carryforwards and tax credit carryforwards, taking into account the tax laws of various jurisdictions in which the Company and its subsidiaries
operate. The net changes in the total valuation allowance for the years ended March 31, 2006 and 2005 were an increase of ¥85,484 million and ¥5,615 million, respectively.



In assessing the realizability of deferred tax assets, management of the Company considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in specific tax jurisdictions during the periods in which these
deductible differences become deductible. Although realization is not assured, management considered the scheduled reversals of deferred tax liabilities and projected future taxable income, including the execution of certain available tax strategies
if needed, in making this assessment. Based on these factors, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance as of March 31, 2006.



As of March 31, 2006, the Company and various
subsidiaries have operating loss carryforwards of ¥373,151 million which are available to offset future taxable income, if any. Operating loss carryforwards of ¥238,025 million expire by March 31, 2011, and ¥135,126 million expire
in various years thereafter or do not expire.



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| |  | 95 |  | (Continued)



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Deferred tax liabilities have not been recognized for excess amounts over the tax basis of
investments in foreign subsidiaries that are considered to be reinvested indefinitely, because such differences will not reverse in the foreseeable future and those undistributed earnings, if remitted, generally would not result in material
additional Japanese income taxes because of available foreign tax credits.



|(10) | Short-term and Long-term Debt
|---- | -----------------------------



The components of short-term debt as of March 31, 2006 and 2005 are summarized as follows:



|                              |  |                |  |        
|----------------------------- |  | -------------- |  | -------
|                              |  | Yen (millions)
|                              |  | 2006           |  | 2005   
|Borrowings, mainly from banks |  | 305,139        |  | 333,183
|Commercial paper              |  | 394,396        |  | 295,821
|Borrowings from affiliates    |  | 52,992         |  | 47,607 
|                              |  |                |  |        
|                              |  | 752,527        |  | 676,611
|                              |  |                |  |        



The weighted average
interest rate on short-term debt outstanding as of March 31, 2006 and 2005 was 0.1%.



The components of long-term debt as of March 31, 2006 and 2005 are summarized as follows:



|                                                                                                                  |  |                |  |          
|----------------------------------------------------------------------------------------------------------------- |  | -------------- |  | ---------
|                                                                                                                  |  | Yen (millions)
|                                                                                                                  |  | 2006           |  | 2005     
|Unsecured notes and debentures:                                                                                   |  |                |  |          
|Due 2006, interest 3.45% debenture                                                                                |  |               |  | 200,000  
|Due 2013, interest 0.72% debenture                                                                                |  | 80,000         |  | 80,000   
|Due 2010, interest 0.7% debenture                                                                                 |  | 49,882         |  |         
|Due 2015, interest 1.56% debenture                                                                                |  | 49,977         |  |         
|Due 2008, interest 0.52% debenture                                                                                |  | 5,000          |  | 5,000    
|Due 2010, interest 0.74% debenture                                                                                |  | 5,000          |  | 5,000    
|Due 20062018, interest 0.045.92%, issued by subsidiaries                                                        |  | 599,626        |  | 704,097  
|Unsecured convertible debentures:                                                                                 |  |                |  |          
|Series A, due 2009, zero coupon                                                                                   |  | 50,000         |  | 50,000   
|Series B, due 2009, zero coupon                                                                                   |  | 50,000         |  | 50,000   
|Loans, principally from banks and insurance companies:                                                            |  |                |  |          
|Secured by various assets and mortgages on property, plant and equipment, maturing 20062015, interest 0.854.65% |  | 43,244         |  | 12,140   
|Unsecured, maturing 20062020, interest 0.45.7%                                                                  |  | 722,782        |  | 706,507  
|Capital lease obligations                                                                                         |  | 11,006         |  | 13,151   
|                                                                                                                  |  |                |  |          
|                                                                                                                  |  | 1,666,517      |  | 1,825,895
|Less current portion                                                                                              |  | 248,028        |  | 506,863  
|                                                                                                                  |  |                |  |          
|                                                                                                                  |  | 1,418,489      |  | 1,319,032
|                                                                                                                  |  |                |  |          



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| |  | -- |  | -----------
| |  | 96 |  | (Continued)



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



The aggregate annual maturities of long-term debt after March 31, 2007 are as follows:



|                      |  |               
|--------------------- |  | --------------
|Years ending March 31 |  | Yen (millions)
|2008                  |  | 306,904       
|2009                  |  | 270,264       
|2010                  |  | 346,155       
|2011                  |  | 145,728       
|Thereafter            |  | 349,438       
|                      |  |               
|                      |  | 1,418,489     
|                      |  |               



As is customary in
Japan, both short-term and long-term bank loans are made under general agreements that provide that securities and guarantees for present and future indebtedness will be given upon request of the bank, and that the bank shall have the right, as the
obligations become due, or in the event of their default, to offset cash deposits against such obligations.



Generally, the mortgage debenture trust agreements and certain secured and unsecured loan agreements provide, among other things, that the lenders or
trustees shall have the right to have any distribution of earnings, including the payment of dividends and the issuance of additional capital stock, submitted to them for prior approval and also grant them the right to request additional securities
or mortgages on property, plant and equipment.



In October,
2004, the Company issued Euro yen zero coupon convertible bonds. The bonds consist of ¥50,000 million series A zero coupon convertible bonds due 2009 and ¥50,000 million series B zero coupon convertible bonds due 2009. The bondholders are
entitled to stock acquisition rights effective from November 2, 2004 to October 5, 2009. The initial conversion price was ¥1,009 per share for both bonds at which time the fair value of the Companys common stock was ¥686. In
accordance with the terms of the debenture, the conversion price was adjusted to ¥822 on on October 19, 2005 for series A zero coupon convertible bonds and on April 19, 2006 for series B zero coupon convertible bonds. The conversion
prices will be adjusted on October 19, 2007 for series A zero coupon convertible bonds and on April 19, 2008 for series B zero coupon convertible bonds. The prices will be 95% (rounded upwards to the nearest one yen) of the average closing
prices of the Companys shares on the Tokyo Stock Exchange for 30 consecutive trading days up to each conversion dates, no less than ¥822. During the conversion period, the bondholders may exercise the stock acquisition rights anytime after
the closing price of the Companys shares at the Tokyo Stock Exchange on at least one trading day is 115 percent or more of the then applicable conversion price rounded down to the nearest yen. In addition, the bondholders are entitled, at its
option, to require the Company to redeem the bonds at a redemption price of 100 percent of the principal amount on October 17, 2008.



|(11) | Retirement and Severance Benefits
|---- | ---------------------------------



| | (a) | Defined benefit plans
| | --- | ---------------------



The Company and its subsidiaries have a number of contributory and noncontributory pension plans to provide retirement and severance benefits to
substantially all employees.



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| |  | 97 |  | (Continued)



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Under unfunded defined benefit pension plans, employees are entitled to lump-sum payments based on
their earnings and the length of service by retirement or termination of employment for reasons other than dismissal for cause.



Directors, Executive Officers and certain employees are not covered by the programs described above. Certain benefits paid to such persons are charged to
income as paid as it is not practicable to compute the liability for future payments because amounts vary with circumstances.



In addition to unfunded defined benefit pension plans, the Company and certain subsidiaries make contributions to a number of defined benefits pension
plans. During the years ended March 31, 2006, 2005 and 2004, the Company and certain subsidiaries amended certain of their defined benefit plans to cash balance plans.



Under the cash balance plans, each employee has a notional account which represents pension benefits. The balance in the
notional account is based on principal credits, which are accumulated as employees render services, and interest credits, which are determined based on the market interest rates.



Net periodic benefit cost for the funded benefit pension plans and the unfunded lump-sum payment plans for the years ended
March 31, 2006, 2005 and 2004 consists of the following components:



|                                                                                                                |  |                |   |  |          |   |  |          |  
|--------------------------------------------------------------------------------------------------------------- |  | -------------- | - |  | -------- | - |  | -------- | -
|                                                                                                                |  | Yen (millions) |  
|                                                                                                                |  | 2006           |   |  | 2005     |   |  | 2004     |  
|Service cost                                                                                                    |  | 74,131         |   |  | 85,500   |   |  | 107,002  |  
|Interest cost                                                                                                   |  | 56,166         |   |  | 63,637   |   |  | 78,493   |  
|Expected return on plan assets for the period                                                                   |  | (34,045        | ) |  | (33,749  | ) |  | (32,863  | )
|Amortization of transition asset                                                                                |  |               |   |  | (208     | ) |  | (368     | )
|Amortization of prior service benefit                                                                           |  | (17,381        | ) |  | (13,842  | ) |  | (13,423  | )
|Recognized actuarial loss                                                                                       |  | 67,678         |   |  | 100,274  |   |  | 151,567  |  
|Transfer to defined contribution pension plan                                                                   |  | (87            | ) |  | 3,223    |   |  | 1,557    |  
|Derecognition of previously accrued salary progression due to transfer of substitutional portion                |  | (5,956         | ) |  | (16,235  | ) |  | (17,215  | )
|Recognition of deferred actuarial losses due to transfer of substitutional portion                              |  | 26,193         |   |  | 105,758  |   |  | 375,049  |  
|Curtailment and settlement loss                                                                                 |  |               |   |  | 173      |   |  | 1,072    |  
|Employees contributions                                                                                        |  | (731           | ) |  | (3,187   | ) |  | (9,735   | )
|                                                                                                                |  |                |   |  |          |   |  |          |  
|Net periodic benefit cost                                                                                       |  | 165,968        |   |  | 291,344  |   |  | 641,136  |  
|Difference between the obligations settled and the assets transferred due to transfer of substitutional portion |  | (30,593        | ) |  | (165,247 | ) |  | (411,621 | )
|                                                                                                                |  |                |   |  |          |   |  |          |  
|                                                                                                                |  | 135,375        |   |  | 126,097  |   |  | 229,515  |  
|                                                                                                                |  |                |   |  |          |   |  |          |  



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| |  | -- |  | -----------
| |  | 98 |  | (Continued)



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Unrecognized transition asset, unrecognized prior service benefit and cost and unrecognized actuarial
gain and loss are amortized using the straight-line method over the average remaining service period of active employees.



The Employees Pension Fund (EPF) stipulated by the Japanese Pension Insurance Law is one of the defined benefit pension plans to which the Company and
certain domestic subsidiaries had contributed. The pension plans under the EPF are composed of the substitutional portion of Japanese Welfare Pension Insurance and the corporate portion which is the contributory defined benefit pension plan covering
substantially all of their employees and provides benefits in addition to the substitutional portion. The Company, certain subsidiaries and their employees had contributed the pension premiums for the substitutional portion and the corporate portion
to each EPF. The plan assets of each EPF cannot be specifically allocated to the individual participants nor to the substitutional and corporate portions.



On June 15, 2001, the Japanese government issued a new law concerning defined benefit plans. This law allows a company, at its own discretion, to
apply for an exemption from the future benefit obligation and return the past benefit obligation of the substitutional portion of the EPF to the government. In accordance with the new law, the Company and all the subsidiaries obtained approvals from
the government for the exemption from the future benefit obligation and for the return of the past benefit obligation through March 31, 2006. Consequently, the Company and all the subsidiaries transferred the substitutional portion of each of
their benefit obligations related to past service and the related portion of the plan assets of the EPF to the government during the years ended March 31, 2006, 2005 and 2004.



The Company and certain subsidiaries accounted for the entire separation process as a single settlement transaction upon the
completion of the transfer to the government in accordance with EITF Issue No. 03-2, Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities.



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| |  | 99 |  | (Continued)



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Reconciliations of beginning and ending balances of the benefit obligation of the funded defined
benefit pension plans and the unfunded defined benefit pension plans and the fair value of the plan assets are as follows:



|                                                                 |  |                |   |  |            |  
|---------------------------------------------------------------- |  | -------------- | - |  | ---------- | -
|                                                                 |  | Yen (millions) |  
|                                                                 |  | 2006           |   |  | 2005       |  
|Change in benefit obligation:                                    |  |                |   |  |            |  
|Benefit obligation at beginning of year                          |  | 2,307,266      |   |  | 2,717,784  |  
|Service cost                                                     |  | 74,131         |   |  | 85,500     |  
|Interest cost                                                    |  | 56,166         |   |  | 63,637     |  
|Plan amendments                                                  |  | (7,844         | ) |  | (57,625    | )
|Actuarial loss                                                   |  | 5,105          |   |  | 18,377     |  
|Benefits paid                                                    |  | (139,896       | ) |  | (138,245   | )
|Acquisitions and divestitures                                    |  | 2,339          |   |  | 13,559     |  
|Transfer to defined contribution pension plan                    |  | (1,644         | ) |  | (18,308    | )
|Transfer of substitutional portion                               |  | (70,823        | ) |  | (368,132   | )
|Curtailment and settlement                                       |  |               |   |  | (10,956    | )
|Foreign currency exchange rate changes                           |  | 5,500          |   |  | 1,675      |  
|                                                                 |  |                |   |  |            |  
|Benefit obligation at end of year                                |  | 2,230,300      |   |  | 2,307,266  |  
|                                                                 |  |                |   |  |            |  
|                                                                 |  |               
|Change in plan assets:                                           |  |                |   |  |            |  
|Fair value of plan assets at beginning of year                   |  | 1,159,007      |   |  | 1,257,195  |  
|Actual return on plan assets                                     |  | 200,792        |   |  | 59,117     |  
|Employers contributions                                         |  | 124,577        |   |  | 130,247    |  
|Employees contributions                                         |  | 731            |   |  | 3,187      |  
|Benefits paid                                                    |  | (100,157       | ) |  | (98,183    | )
|Acquisitions and divestitures                                    |  | 1,122          |   |  | 2,441      |  
|Transfer to defined contribution pension plan                    |  | (660           | ) |  | (1,209     | )
|Transfer of substitutional portion                               |  | (34,274        | ) |  | (186,650   | )
|Settlement                                                       |  |               |   |  | (8,234     | )
|Foreign currency exchange rate changes                           |  | 3,585          |   |  | 1,096      |  
|                                                                 |  |                |   |  |            |  
|Fair value of plan assets at end of year                         |  | 1,354,723      |   |  | 1,159,007  |  
|                                                                 |  |                |   |  |            |  
|                                                                 |  |               
|Funded status                                                    |  | (875,577       | ) |  | (1,148,259 | )
|Unrecognized prior service benefit                               |  | (227,851       | ) |  | (235,757   | )
|Unrecognized actuarial loss                                      |  | 548,019        |   |  | 803,104    |  
|                                                                 |  |                |   |  |            |  
|Net amount recognized in the consolidated balance sheet          |  | (555,409       | ) |  | (580,912   | )
|                                                                 |  |                |   |  |            |  
|                                                                 |  |               
|Amounts recognized in the consolidated balance sheet consist of: |  |                |   |  |            |  
|Prepaid benefit cost                                             |  | 9,870          |   |  | 2,212      |  
|Accrued benefit cost                                             |  | (827,669       | ) |  | (1,033,005 | )
|Intangible asset                                                 |  | 915            |   |  | 1,416      |  
|Accumulated other comprehensive loss                             |  | 261,475        |   |  | 448,465    |  
|                                                                 |  |                |   |  |            |  
|Net amount recognized                                            |  | (555,409       | ) |  | (580,912   | )
|                                                                 |  |                |   |  |            |  



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| |  | 100 |  | (Continued)



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



The Company and substantially all subsidiaries use their year-end as a measurement date.
Weighted-average assumptions used to determine the year-end benefit obligations are as follows:



|                              |  |  |  |      |   |  |      |  
|----------------------------- |  |  |  | ---- | - |  | ---- | -
|                              |  |  |  | 2006 |   |  | 2005 |  
|Discount rate                 |  |  |  | 2.5  | % |  | 2.5  | %
|Rate of compensation increase |  |  |  | 2.5  | % |  | 2.9  | %



Weighted-average
assumptions used to determine the net periodic pension cost for the years ended March 31, 2006, 2005 and 2004 are as follows:



|                                         |  |      |   |  |      |   |  |      |  
|---------------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                                         |  | 2006 |   |  | 2005 |   |  | 2004 |  
|Discount rate                            |  | 2.5  | % |  | 2.5  | % |  | 2.5  | %
|Expected long-term return on plan assets |  | 3.0  | % |  | 3.0  | % |  | 3.7  | %
|Rate of compensation increase            |  | 2.9  | % |  | 3.1  | % |  | 3.3  | %



The expected
long-term rate of return on plan assets is developed for each asset class, and is determined primarily on historical returns on the plan assets and other factors.



The accumulated benefit obligation was ¥2,112,216 million as of March 31, 2006 and ¥2,167,152 million as of
March 31, 2005.



Information for pension plans with
accumulated benefit obligations in excess of plan assets and pension plans with projected benefit obligations in excess of plan assets is as follows:



|                                                                     |  |                |  |          
|-------------------------------------------------------------------- |  | -------------- |  | ---------
|                                                                     |  | Yen (millions)
|                                                                     |  | 2006           |  | 2005     
|Plans with accumulated benefit obligations in excess of plan assets: |  |                |  |          
|Accumulated benefit obligations                                      |  | 1,988,054      |  | 2,128,876
|Plan assets                                                          |  | 1,217,060      |  | 1,118,739
|Plans with projected benefit obligations in excess of plan assets:   |  |                |  |          
|Projected benefit obligations                                        |  | 2,144,176      |  | 2,306,142
|Plan assets                                                          |  | 1,261,697      |  | 1,157,541



Asset allocations for
the pension plans as of March 31, 2006 and 2005 are as follows:



|                                        |  |       |   |  |       |  
|--------------------------------------- |  | ----- | - |  | ----- | -
|                                        |  | 2006  |   |  | 2005  |  
|Equity securities                       |  | 44.7  | % |  | 40.9  | %
|Debt securities                         |  | 31.3  |   |  | 33.2  |  
|Cash                                    |  | 3.7   |   |  | 7.0   |  
|Life insurance company general accounts |  | 6.1   |   |  | 6.3   |  
|Investment trusts                       |  | 11.3  |   |  | 10.2  |  
|Other                                   |  | 2.9   |   |  | 2.4   |  
|                                        |  |       |   |  |       |  
|                                        |  | 100.0 | % |  | 100.0 | %
|                                        |  |       |   |  |       |  



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| |  | --- |  | -----------
| |  | 101 |  | (Continued)



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



The objective of the Companys investment policy is to ensure a stable return from the
plans investments over the long term, which allows the Companys and certain subsidiaries pension funds to meet their future obligations. In order to achieve the above objective, a target rate of return is established, taking into
consideration composition of participants, level of funded status, the Companys and certain subsidiaries capacity to absorb risks and the current economic environment. Also, a target asset allocation is established to achieve the target
rate of return, based on expected rate of return by each asset class, standard deviation of rate of return and correlation coefficient among the assets. The investments are diversified primarily into domestic and foreign equity and debt securities
according to the target asset allocation. Rebalancing will occur if market fluctuates in excess of certain levels. The Company and certain subsidiaries periodically review actual returns on assets, economic environments and their capacity to absorb
risk and realign the target asset allocation if necessary.



The Company and its subsidiaries expect to contribute ¥126,633 million to their defined benefit plans for the year ending March 31, 2007.



The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid.



|                      |  |               
|--------------------- |  | --------------
|Years ending March 31 |  | Yen (millions)
|2007                  |  | 115,138       
|2008                  |  | 118,640       
|2009                  |  | 127,948       
|2010                  |  | 135,010       
|2011                  |  | 136,409       
|2012-2016             |  | 656,315       



| | (b) | Defined contribution plans
| | --- | --------------------------



The Company and certain subsidiaries have a number of defined contribution plans. The amount of cost recognized for the Companys and certain
subsidiaries contributions to the plans for the years ended March 31, 2006, 2005 and 2004 were ¥11,776 million, ¥10,749 million and ¥7,718 million, respectively.



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| |  | --- |  | -----------
| |  | 102 |  | (Continued)



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(12) | Common Stock
|---- | ------------



The Company has authorized for issuance 10 billion shares of common stock.



Issued shares, changes in shares and the amount of common stock for the years ended March 31, 2006, 2005 and 2004 are
summarized as follows:



|                                                 |  |               |  |               
|------------------------------------------------ |  | ------------- |  | --------------
|                                                 |  |               |  | Yen (millions)
|                                                 |  | Issued shares |  | Amount        
|Balance as of March 31, 2003                     |  | 3,368,124,286 |  | 282,032       
|Issued upon conversion of convertible debentures |  | 590           |  | 0             
|                                                 |  |               |  |               
|                                                 |  |              
|Balance as of March 31, 2004                     |  | 3,368,124,876 |  | 282,032       
|Issued upon conversion of convertible debentures |  | 1,180         |  | 1             
|                                                 |  |               |  |               
|                                                 |  |              
|Balance as of March 31, 2005, and 2006           |  | 3,368,126,056 |  | 282,033       
|                                                 |  |               |  |               



Conversions of
convertible debt issued subsequent to October 1, 1982 into common stock were accounted for in accordance with the provisions of the Japanese Commercial Code, the former Japanese corporate law, by crediting one-half of the conversion price to
each of the common stock accounts and the capital surplus accounts.



|(13) | Legal Reserve and Cash Dividends
|---- | --------------------------------



The Japanese Company Law provides that earnings in an amount equal to at least 10 percent of appropriations of retained earnings to be paid in cash should
be appropriated as a capital surplus or a legal reserve until the total of capital surplus and legal reserve equals 25 percent of stated common stock. In addition to reduction of a deficit and transfer to stated common stock, either capital surplus
or legal reserve may be available for dividends by resolution of the shareholders meeting.



Cash dividends and appropriations to the legal reserve charged to retained earnings during the years ended March 31, 2006, 2005 and 2004 represent
dividends declared during those years and the related appropriations to the legal reserve. A provision has not been made in the accompanying consolidated financial statements for the dividend for the second half year ended March 31, 2006 of
¥5.5 per share, aggregating ¥18,319 million. This dividend will be reported by the Board of Directors at the ordinary general shareholders meeting in respect to the year ended March 31, 2006.



Cash dividends per share for the years ended March 31, 2006, 2005 and
2004 were ¥11.0, ¥11.0 and ¥8.0, respectively, based on dividends declared with respect to earnings for the periods.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(14) | Treasury Stock
|---- | --------------



The Japanese Company Law (JCL) allows a company to acquire treasury stock upon shareholders approval to the extent that sufficient distributable
funds are available. Effective September 25, 2003, the Japanese Commercial Code (JCC), the former Japanese corporate law, was amended to no longer require shareholders approval but Board of Directors approval to the extent that the
Board of Directors authority was stated in the articles of incorporation. In this connection, the related amendment of the articles of incorporation was approved at the ordinary general shareholders meeting on June 24, 2004.



Pursuant to the provisions of the JCL, shareholders may
request the Company to acquire their shares below a minimum trading lot (1,000 shares) as shares below a minimum trading lot cannot be publicly traded and do not carry a voting right. The JCL also states that a shareholder holding shares less than a
minimum trading lot is entitled to request the company to sell its treasury stock, if any, to the shareholder up to a minimum trading lot, provided that sale of treasury stock is allowed under the articles of incorporation. In this connection, the
related amendment of the articles of incorporation was approved at the ordinary general shareholders meeting on June 25, 2003.



The changes in treasury stock for the years ended March 31, 2006, 2005 and 2004 are summarized as follows:



|                                       |  |             |   |  |                |  
|-------------------------------------- |  | ----------- | - |  | -------------- | -
|                                       |  |             |   |  | Yen (millions) |  
|                                       |  | Shares      |   |  | Amount         |  
|Balance as of March 31, 2003           |  | 3,235,291   |   |  | 1,847          |  
|Acquisition for treasury               |  | 67,199,843  |   |  | 30,464         |  
|Sales of treasury stock                |  | (325,161    | ) |  | (149           | )
|                                       |  |             |   |  |                |  
|Balance as of March 31, 2004           |  | 70,109,973  |   |  | 32,162         |  
|Acquisition for treasury               |  | 1,697,685   |   |  | 1,177          |  
|Sales of treasury stock                |  | (1,321,295  | ) |  | (478           | )
|Stock exchange upon a merger (note 28) |  | (33,937,141 | ) |  | (15,625        | )
|                                       |  |             |   |  |                |  
|Balance as of March 31, 2005           |  | 36,549,222  |   |  | 17,236         |  
|Acquisition for treasury               |  | 1,440,676   |   |  | 1,058          |  
|Sales of treasury stock                |  | (708,603    | ) |  | (344           | )
|                                       |  |             |   |  |                |  
|                                       |  |            
|Balance as of March 31, 2006           |  | 37,281,295  |   |  | 17,950         |  
|                                       |  |             |   |  |                |  



At the ordinary
general shareholders meetings on June 25, 2003, the Company was authorized to acquire for treasury up to 300,000,000 shares of its common stock for an aggregate acquisition amount not exceeding ¥150,000 million during the period from
the close of the ordinary general shareholders meeting to the close of the next ordinary general shareholders meeting, pursuant to the provisions of the JCC.



In April 2006, the Board of Directors approved to acquire for treasury up to 6,500,000 shares of its common stock for an
aggregate acquisition amount not exceeding ¥5,000 million during May 2006. In this connection, the Company acquired a total of 6,210,000 shares for ¥4,996 million during the period.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(15) | Accumulated Other Comprehensive Loss
|---- | ------------------------------------



Accumulated other comprehensive loss, net of related tax effects, displayed in the consolidated statements of stockholders equity is classified as
follows:



|                                                                       |  |                |   |  |          |   |  |          |  
|---------------------------------------------------------------------- |  | -------------- | - |  | -------- | - |  | -------- | -
|                                                                       |  | Yen (millions) |  
|                                                                       |  | 2006           |   |  | 2005     |   |  | 2004     |  
|Foreign currency translation adjustments:                              |  |                |   |  |          |   |  |          |  
|Balance at beginning of year                                           |  | (90,904        | ) |  | (95,786  | ) |  | (60,948  | )
|Other comprehensive income (loss), net of reclassification adjustments |  | 48,435         |   |  | 5,320    |   |  | (34,275  | )
|Net transfer to minority interests                                     |  | (957           | ) |  | (438     | ) |  | (563     | )
|                                                                       |  |                |   |  |          |   |  |          |  
|Balance at end of year                                                 |  | (43,426        | ) |  | (90,904  | ) |  | (95,786  | )
|                                                                       |  |                |   |  |          |   |  |          |  
|Minimum pension liability adjustments:                                 |  |                |   |  |          |   |  |          |  
|Balance at beginning of year                                           |  | (242,672       | ) |  | (329,536 | ) |  | (698,916 | )
|Other comprehensive income                                             |  | 96,808         |   |  | 86,541   |   |  | 366,707  |  
|Net transfer from (to) minority interests                              |  | (39            | ) |  | 323      |   |  | 2,673    |  
|                                                                       |  |                |   |  |          |   |  |          |  
|Balance at end of year                                                 |  | (145,903       | ) |  | (242,672 | ) |  | (329,536 | )
|                                                                       |  |                |   |  |          |   |  |          |  
|Net unrealized holding gain on available-for-sale securities:          |  |                |   |  |          |   |  |          |  
|Balance at beginning of year                                           |  | 32,996         |   |  | 31,499   |   |  | 4,874    |  
|Other comprehensive income, net of reclassification adjustments        |  | 59,624         |   |  | 1,458    |   |  | 26,635   |  
|Net transfer from (to) minority interests                              |  | 6              |   |  | 39       |   |  | (10      | )
|                                                                       |  |                |   |  |          |   |  |          |  
|Balance at end of year                                                 |  | 92,626         |   |  | 32,996   |   |  | 31,499   |  
|                                                                       |  |                |   |  |          |   |  |          |  
|Cash flow hedges:                                                      |  |                |   |  |          |   |  |          |  
|Balance at beginning of year                                           |  | (944           | ) |  | (41      | ) |  | (535     | )
|Other comprehensive income (loss), net of reclassification adjustments |  | 1,652          |   |  | (653     | ) |  | 49       |  
|Net transfer from (to) minority interests                              |  | (2             | ) |  | (250     | ) |  | 445      |  
|                                                                       |  |                |   |  |          |   |  |          |  
|Balance at end of year                                                 |  | 706            |   |  | (944     | ) |  | (41      | )
|                                                                       |  |                |   |  |          |   |  |          |  
|Total accumulated other comprehensive loss:                            |  |                |   |  |          |   |  |          |  
|Balance at beginning of year                                           |  | (301,524       | ) |  | (393,864 | ) |  | (755,525 | )
|Other comprehensive income, net of reclassification adjustments        |  | 206,519        |   |  | 92,666   |   |  | 359,116  |  
|Net transfer from (to) minority interests                              |  | (992           | ) |  | (326     | ) |  | 2,545    |  
|                                                                       |  |                |   |  |          |   |  |          |  
|Balance at end of year                                                 |  | (95,997        | ) |  | (301,524 | ) |  | (393,864 | )
|                                                                       |  |                |   |  |          |   |  |          |  



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HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



The following is a summary of reclassification adjustments by each classification of other
comprehensive income (loss) arising during the years ended March 31, 2006, 2005 and 2004 and the amounts of income tax expense or benefit allocated to each component of other comprehensive income (loss), including reclassification adjustments.



|                                                                  |  |                   |   |  |                       |   |  |                   |  
|----------------------------------------------------------------- |  | ----------------- | - |  | --------------------- | - |  | ----------------- | -
|                                                                  |  | Yen (millions)    |  
|                                                                  |  | 2006              |  
|                                                                  |  | Before-tax amount |   |  | Tax benefit (expense) |   |  | Net-of-tax amount |  
|Other comprehensive income arising during the year:               |  |                   |   |  |                       |   |  |                   |  
|Foreign currency translation adjustments                          |  | 51,492            |   |  |                      |   |  | 51,492            |  
|Minimum pension liability adjustments                             |  | 160,654           |   |  | (63,846               | ) |  | 96,808            |  
|Net unrealized holding gain on available-for-sale securities      |  | 120,305           |   |  | (48,742               | ) |  | 71,563            |  
|Cash flow hedges                                                  |  | 2,385             |   |  | (1,091                | ) |  | 1,294             |  
|                                                                  |  |                   |   |  |                       |   |  |                   |  
|                                                                  |  | 334,836           |   |  | (113,679              | ) |  | 221,157           |  
|Reclassification adjustments for net gain included in net income: |  |                   |   |  |                       |   |  |                   |  
|Foreign currency translation adjustments                          |  | (3,057            | ) |  |                      |   |  | (3,057            | )
|Net unrealized holding gain on available-for-sale securities      |  | (20,096           | ) |  | 8,157                 |   |  | (11,939           | )
|Cash flow hedges                                                  |  | 239               |   |  | 119                   |   |  | 358               |  
|                                                                  |  |                   |   |  |                       |   |  |                   |  
|                                                                  |  | (22,914           | ) |  | 8,276                 |   |  | (14,638           | )
|Other comprehensive income, net of reclassification adjustments:  |  |                   |   |  |                       |   |  |                   |  
|Foreign currency translation adjustments                          |  | 48,435            |   |  |                      |   |  | 48,435            |  
|Minimum pension liability adjustments                             |  | 160,654           |   |  | (63,846               | ) |  | 96,808            |  
|Net unrealized holding gain on available-for-sale securities      |  | 100,209           |   |  | (40,585               | ) |  | 59,624            |  
|Cash flow hedges                                                  |  | 2,624             |   |  | (972                  | ) |  | 1,652             |  
|                                                                  |  |                   |   |  |                       |   |  |                   |  
|                                                                  |  | 311,922           |   |  | (105,403              | ) |  | 206,519           |  
|                                                                  |  |                   |   |  |                       |   |  |                   |  



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HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|                                                                  |  |                   |   |  |                       |   |  |                   |  
|----------------------------------------------------------------- |  | ----------------- | - |  | --------------------- | - |  | ----------------- | -
|                                                                  |  | Yen (millions)    |  
|                                                                  |  | 2005              |  
|                                                                  |  | Before-tax amount |   |  | Tax benefit (expense) |   |  | Net-of-tax amount |  
|Other comprehensive income arising during the year:               |  |                   |   |  |                       |   |  |                   |  
|Foreign currency translation adjustments                          |  | 4,650             |   |  |                      |   |  | 4,650             |  
|Minimum pension liability adjustments                             |  | 147,163           |   |  | (60,622               | ) |  | 86,541            |  
|Net unrealized holding gain on available-for-sale securities      |  | 13,174            |   |  | (5,627                | ) |  | 7,547             |  
|Cash flow hedges                                                  |  | (1,233            | ) |  | 373                   |   |  | (860              | )
|                                                                  |  |                   |   |  |                       |   |  |                   |  
|                                                                  |  | 163,754           |   |  | (65,876               | ) |  | 97,878            |  
|Reclassification adjustments for net gain included in net income: |  |                   |   |  |                       |   |  |                   |  
|Foreign currency translation adjustments                          |  | 670               |   |  |                      |   |  | 670               |  
|Net unrealized holding gain on available-for-sale securities      |  | (10,566           | ) |  | 4,477                 |   |  | (6,089            | )
|Cash flow hedges                                                  |  | 259               |   |  | (52                   | ) |  | 207               |  
|                                                                  |  |                   |   |  |                       |   |  |                   |  
|                                                                  |  | (9,637            | ) |  | 4,425                 |   |  | (5,212            | )
|Other comprehensive income, net of reclassification adjustments:  |  |                   |   |  |                       |   |  |                   |  
|Foreign currency translation adjustments                          |  | 5,320             |   |  |                      |   |  | 5,320             |  
|Minimum pension liability adjustments                             |  | 147,163           |   |  | (60,622               | ) |  | 86,541            |  
|Net unrealized holding gain on available-for-sale securities      |  | 2,608             |   |  | (1,150                | ) |  | 1,458             |  
|Cash flow hedges                                                  |  | (974              | ) |  | 321                   |   |  | (653              | )
|                                                                  |  |                   |   |  |                       |   |  |                   |  
|                                                                  |  | 154,117           |   |  | (61,451               | ) |  | 92,666            |  
|                                                                  |  |                   |   |  |                       |   |  |                   |  



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HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|                                                                  |  |                   |   |  |                       |   |  |                   |  
|----------------------------------------------------------------- |  | ----------------- | - |  | --------------------- | - |  | ----------------- | -
|                                                                  |  | Yen (millions)    |  
|                                                                  |  | 2004              |  
|                                                                  |  | Before-tax amount |   |  | Tax benefit (expense) |   |  | Net-of-tax amount |  
|Other comprehensive income arising during the year:               |  |                   |   |  |                       |   |  |                   |  
|Foreign currency translation adjustments                          |  | (42,535           | ) |  |                      |   |  | (42,535           | )
|Minimum pension liability adjustments                             |  | 619,719           |   |  | (253,012              | ) |  | 366,707           |  
|Net unrealized holding gain on available-for-sale securities      |  | 66,059            |   |  | (26,678               | ) |  | 39,381            |  
|Cash flow hedges                                                  |  | (722              | ) |  | 62                    |   |  | (660              | )
|                                                                  |  |                   |   |  |                       |   |  |                   |  
|                                                                  |  | 642,521           |   |  | (279,628              | ) |  | 362,893           |  
|Reclassification adjustments for net gain included in net income: |  |                   |   |  |                       |   |  |                   |  
|Foreign currency translation adjustments                          |  | 8,260             |   |  |                      |   |  | 8,260             |  
|Net unrealized holding gain on available-for-sale securities      |  | (21,599           | ) |  | 8,853                 |   |  | (12,746           | )
|Cash flow hedges                                                  |  | 722               |   |  | (13                   | ) |  | 709               |  
|                                                                  |  |                   |   |  |                       |   |  |                   |  
|                                                                  |  | (12,617           | ) |  | 8,840                 |   |  | (3,777            | )
|Other comprehensive income, net of reclassification adjustments:  |  |                   |   |  |                       |   |  |                   |  
|Foreign currency translation adjustments                          |  | (34,275           | ) |  |                      |   |  | (34,275           | )
|Minimum pension liability adjustments                             |  | 619,719           |   |  | (253,012              | ) |  | 366,707           |  
|Net unrealized holding gain on available-for-sale securities      |  | 44,460            |   |  | (17,825               | ) |  | 26,635            |  
|Cash flow hedges                                                  |  | 0                 |   |  | 49                    |   |  | 49                |  
|                                                                  |  |                   |   |  |                       |   |  |                   |  
|                                                                  |  | 629,904           |   |  | (270,788              | ) |  | 359,116           |  
|                                                                  |  |                   |   |  |                       |   |  |                   |  



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HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(16) | Pledged Assets
|---- | --------------



As of March 31, 2006, the Company and certain subsidiaries pledge a portion of their assets as collateral for bank loans, trade payables and other
liabilities as follows:



|                          |  |               
|------------------------- |  | --------------
|                          |  | Yen (millions)
|Cash and cash equivalents |  | 102           
|Other current assets      |  | 68            
|Investments and advances  |  | 186           
|Land                      |  | 6,134         
|Buildings                 |  | 6,405         
|Machinery and equipment   |  | 7,849         
|                          |  |               
|                          |  | 20,744        
|                          |  |               



|(17) | Commitments and Contingencies
|---- | -----------------------------



The Company and its operating subsidiaries are contingently liable for loan guarantees to its affiliates in the amount of approximately ¥31,154
million as of March 31, 2006.



Hitachi Capital
Corporation (HCC) and certain other financial subsidiaries provide guarantees to financial institutions for extending loans to customers of the subsidiaries. As of March 31, 2006, the undiscounted maximum potential future payments under such
guarantees amounted to ¥496,569 million. The Company has accrued ¥6,564 million as an obligation to stand ready to perform over the term of the guarantees in the event the customer can not make its scheduled payments.



The subsidiaries provide certain revolving lines of credit to its credit
card holders in accordance with the terms of the credit card business customer service contracts. Furthermore, the subsidiaries provide credit facilities to parties in accordance with the service agency business contracts from which temporary
payments on behalf of such parties are made. In addition, the Company and HCC provide loan commitments to its affiliates.



The outstanding balance of these revolving lines of credit, credit facilities and loan commitments as of March 31, 2006 is as follows:



|                           |  |               
|-------------------------- |  | --------------
|                           |  | Yen (millions)
|Total commitment available |  | 660,828       
|Less amount utilized       |  | 26,556        
|                           |  |               
|Balance available          |  | 634,272       
|                           |  |               



A portion of these
revolving lines of credit is pending credit approval and cannot be utilized.



The Company and certain subsidiaries have line of credit arrangements with banks in order to secure a source of working capital. The unused line of credit as of March 31, 2006 amounted to ¥220,438 million.



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HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



As of March 31, 2006, outstanding commitments for the purchase of property, plant and equipment
were approximately ¥60,381 million.



The Company and its
subsidiaries provide warranties for certain of their products. The accrued product warranty costs are based primarily on historical experience of actual warranty claims. The changes in accrued product warranty costs for the years ended
March 31, 2006 and 2005 are summarized as follows:



|                                                        |  |                |   |  |         |  
|------------------------------------------------------- |  | -------------- | - |  | ------- | -
|                                                        |  | Yen (millions) |  
|                                                        |  | 2006           |   |  | 2005    |  
|Balance at beginning of year                            |  | 74,046         |   |  | 61,417  |  
|Expense recognized upon issuance of warranties          |  | 59,550         |   |  | 61,696  |  
|Usage                                                   |  | (56,177        | ) |  | (48,996 | )
|Other, including effect of foreign currency translation |  | 4,031          |   |  | (71     | )
|                                                        |  |                |   |  |         |  
|Balance at end of year                                  |  | 81,450         |   |  | 74,046  |  
|                                                        |  |                |   |  |         |  



It is a common
practice in Japan for companies, in the ordinary course of business, to receive promissory notes in the settlement of trade accounts receivable and to subsequently discount such notes to banks or to transfer them by endorsement to suppliers in the
settlement of accounts payable.



As of March 31, 2006 and
2005, the Company and subsidiaries were contingently liable for trade notes discounted and endorsed in the following amounts:



|                 |  |                |  |       
|---------------- |  | -------------- |  | ------
|                 |  | Yen (millions)
|                 |  | 2006           |  | 2005  
|Notes discounted |  | 4,478          |  | 4,853 
|Notes endorsed   |  | 6,433          |  | 6,644 
|                 |  |                |  |       
|                 |  | 10,911         |  | 11,497
|                 |  |                |  |       



The Company and
certain subsidiaries are subject to several legal proceedings and claims which have arisen in the ordinary course of business and have not been finally adjudicated. These actions when ultimately concluded and determined will not, in the opinion of
management, have a material adverse effect on the consolidated financial position or results of operations of the Company and subsidiaries.



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HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(18) | Impairment Losses for Long-Lived Assets
|---- | ---------------------------------------



For the year ended March 31, 2006, the majority of the impairment losses were recorded on long-lived property, plant and equipment located in the
U.S. and Japan, which primarily consisted of ¥11,631 million in the Information & Telecommunication Systems division, ¥7,265 million in the Electronic Devices division and ¥4,120 million in the High Functional
Materials & Components division. These losses were mainly the result of change in the extent or manner the assets were used and were determined based primarily on discounted future cash flows.



For the year ended March 31, 2005, the majority of the impairment
losses were recorded on long-lived property, plant and equipment located in Japan, which primarily consisted of ¥8,517 million in the Electronic Devices division, ¥4,954 million in the High Functional Materials & Components division
and ¥4,453 million in the Corporate division. These losses were mainly the results of change in the extent or manner the assets were used and were determined based primarily on discounted future cash flows.



For the year ended March 31, 2004, the majority of the impairment
losses were recorded on long-lived property, plant and equipment located in Japan, which primarily consisted of ¥13,391 million in the Corporate division and ¥8,175 million in the Information & Telecommunication Systems division.
These losses, in part, were the result of change in the manner the assets were used.



|(19) | Restructuring Charges
|---- | ---------------------



Certain losses incurred in the reorganization of the Companys operations are considered restructuring charges. Components and related amounts of the
restructuring charges, before the related tax effects, for the years ended March 31, 2006, 2005 and 2004 are as follows:



|                             |  |                |  |        |  |       
|---------------------------- |  | -------------- |  | ------ |  | ------
|                             |  | Yen (millions)
|                             |  | 2006           |  | 2005   |  | 2004  
|Special termination benefits |  | 2,786          |  | 29,426 |  | 18,155
|Loss on fixed assets         |  | 1,643          |  | 3,881  |  | 10,458
|                             |  |                |  |        |  |       
|                             |  | 4,429          |  | 33,307 |  | 28,613
|                             |  |                |  |        |  |       



The Company and
certain subsidiaries provided special termination benefits to those employees voluntarily leaving the companies. The accrued special termination benefits were recognized at the time voluntary termination was offered and benefits accepted by the
employees. An analysis of the accrued special termination benefits for the years ended March 31, 2006, 2005 and 2004 is as follows:



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HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|                                       |  |                |   |  |         |   |  |         |  
|-------------------------------------- |  | -------------- | - |  | ------- | - |  | ------- | -
|                                       |  | Yen (millions) |  
|                                       |  | 2006           |   |  | 2005    |   |  | 2004    |  
|Balance at beginning of the year       |  | 14,389         |   |  | 908     |   |  |        |  
|New charges                            |  | 2,786          |   |  | 29,426  |   |  | 18,155  |  
|(employees to be terminated)           |  | 691            |   |  | 3,714   |   |  | 2,143   |  
|Cash payments                          |  | (16,158        | ) |  | (15,939 | ) |  | (17,247 | )
|(employees actually terminated)        |  | 1,861          |   |  | 2,334   |   |  | 2,037   |  
|Foreign currency exchange rate changes |  | 89             |   |  | (6      | ) |  |        |  
|                                       |  |                |   |  |         |   |  |         |  
|Balance at end of the year             |  | 1,106          |   |  | 14,389  |   |  | 908     |  
|                                       |  |                |   |  |         |   |  |         |  



The restructuring
charges for the year ended March 31, 2006 mainly consist of special termination benefits for the early terminated employees of subsidiaries in the Electronic Devices division and loss on fixed assets in the High Functional Materials &
Components division.



The following represent significant
restructuring activities for the year ended March 31, 2005 by business line:



| | 1. | Information & Telecommunication Systems division restructured in order to strengthen its business structure primarily in Japan. The accrued special termination benefits
expensed during the year ended March 31, 2005 amounted to ¥16,666 million. The liabilities for special termination benefits amounting to ¥9,599 million at March 31, 2005 were paid by March 2006. Total restructuring charges during
the year ended March 31, 2005 amounted to ¥16,708 million.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Digital Media & Consumer Products division restructured mainly its digital media plants in order to reorganize digital media operations primarily in Japan. The accrued
special termination benefits expensed during the year ended March 31, 2005 amounted to ¥8,080 million. The liabilities for special termination benefits amounting to ¥2,696 million were paid by March 2006. Total restructuring charges
during the year ended March 31, 2005 amounted to ¥9,685 million.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | High Functional Materials & Components division restructured its magnetic materials operations and cable operations in order to strengthen its management structure. The
accrued special termination benefits expensed during the year ended March 31, 2005 amounted to ¥1,711 million and were paid by March 2005. Total restructuring charges during the year ended March 31, 2005 amounted to ¥3,945 million.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following represent significant
restructuring activities for the year ended March 31, 2004 by business line:



| | 1. | Power & Industrial Systems division restructured in order to address the general weakness in demand primarily in Japan. The accrued special termination benefits expensed
during the year ended March 31, 2004 amounted to ¥1,414 million. The liabilities for special termination benefits amounting to ¥715 million were paid by March 2005. Total restructuring charges during the year ended March 31, 2004
consisted only of special termination benefits.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



| | 2. | Digital Media & Consumer Products division restructured its consumer products plants and related distribution network in order to address the general weakness in consumer
demand primarily, in Japan. The accrued special termination benefits expensed during the year ended March 31, 2004 amounted to ¥14,394 million. The liabilities for special termination benefits amounting to ¥26 million were paid by March
2005. Total restructuring charges during the year ended March 31, 2004 amounted to ¥17,760 million.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | High Functional Materials & Components division restructured its semiconductor packaging materials operations because the business environment took a dramatic downturn in
Japan. The accrued special termination benefits expensed during the year ended March 31, 2004 amounted to ¥2,347 million. The liabilities for special termination benefits amounting to ¥167 million were paid by March 2005. Total
restructuring charges during the year ended March 31, 2004 amounted to ¥9,439 million.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(20) | Other Income and Other Deductions
|---- | ---------------------------------



The following items are included in other income or other deductions for the years ended March 31, 2006, 2005 and 2004.



|                                                                         |  |                |   |  |        |   |  |         |  
|------------------------------------------------------------------------ |  | -------------- | - |  | ------ | - |  | ------- | -
|                                                                         |  | Yen (millions) |  
|                                                                         |  | 2006           |   |  | 2005   |   |  | 2004    |  
|Net gain on securities                                                   |  | 46,402         |   |  | 46,463 |   |  | 130,175 |  
|Equity in earnings (losses) of affiliated companies                      |  | 8,688          |   |  | (162   | ) |  | 10,120  |  
|Net gain (loss) on sale and disposal of rental assets and other property |  | (3,107         | ) |  | (9,545 | ) |  | 1,715   |  
|Exchange gain (loss)                                                     |  | 4,000          |   |  | 4,389  |   |  | (17,484 | )



Other income for the
year ended March 31, 2005 includes a net gain of ¥14,422 million from issuance of stock by certain subsidiaries and affiliated companies which resulted in changes of the Companys ownership interest.



|(21) | Sales of Stock by Subsidiaries or Affiliated Companies
|---- | ------------------------------------------------------



In November 2004, Elpida Memory, Inc., an affiliated company which is a Japanese manufacturer of Dynamic Random Access Memory silicon chips, issued
29,150,000 shares of common stock at ¥3,325 per share to third parties with the initial public offering. In December 2004, Elpida Memory, Inc. issued 2,700,000 shares of common stock at ¥3,325 per share to a third party. As a result of the
issuance of new shares, the Companys ownership interest of common stock decreased from 50.0% to 25.0% at March 31, 2005.



The Company provided deferred tax liability on this gain.



During the year ended March 31, 2006, the Company sold a portion of the investment in Elpida Memory, Inc. As a result, the Company discontinued the
use of equity method accounting for the remaining investment.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(22) | Net Income Per Share Information
|---- | --------------------------------



The reconciliations of the numbers and the amounts used in the basic and diluted net income per share computations are as follows:



|                                                                                    |  |                  |   |  |               |   |  |               |  
|----------------------------------------------------------------------------------- |  | ---------------- | - |  | ------------- | - |  | ------------- | -
|                                                                                    |  | Number of shares |  
|                                                                                    |  | 2006             |   |  | 2005          |   |  | 2004          |  
|Weighted average number of shares on which basic net income per share is calculated |  | 3,331,116,787    |   |  | 3,316,354,127 |   |  | 3,303,624,737 |  
|Effect of dilutive securities:                                                      |  |                  |   |  |               |   |  |               |  
|Series A zero coupon convertible bonds                                              |  | 54,619,248       |   |  | 22,265,365    |   |  |              |  
|Series B zero coupon convertible bonds                                              |  | 49,554,013       |   |  | 22,265,365    |   |  |              |  
|Stock options                                                                       |  | 143,341          |   |  | 215,813       |   |  | 134,551       |  
|                                                                                    |  |                  |   |  |               |   |  |               |  
|Number of shares on which diluted net income per share is calculated                |  | 3,435,433,389    |   |  | 3,361,100,670 |   |  | 3,303,759,288 |  
|                                                                                    |  |                  |   |  |               |   |  |               |  
|                                                                                    | 
|                                                                                    |  | Yen (millions)   |  
|                                                                                    |  | 2006             |   |  | 2005          |   |  | 2004          |  
|Net income applicable to common stockholders                                        |  | 37,320           |   |  | 51,496        |   |  | 15,876        |  
|Effect of dilutive securities:                                                      |  |                  |   |  |               |   |  |               |  
|Series A zero coupon convertible bonds                                              |  | 2                |   |  | 1             |   |  |              |  
|Series B zero coupon convertible bonds                                              |  | 2                |   |  | 1             |   |  |              |  
|Other                                                                               |  | (77              | ) |  | (579          | ) |  | (192          | )
|                                                                                    |  |                  |   |  |               |   |  |               |  
|Net income on which diluted net income per share is calculated                      |  | 37,247           |   |  | 50,919        |   |  | 15,684        |  
|                                                                                    |  |                  |   |  |               |   |  |               |  
|                                                                                    | 
|                                                                                    |  | Yen              |  
|Net income per share:                                                               |  |                  |   |  |               |   |  |               |  
|Basic                                                                               |  | 11.20            |   |  | 15.53         |   |  | 4.81          |  
|Diluted                                                                             |  | 10.84            |   |  | 15.15         |   |  | 4.75          |  



The net income per
share computation for the year ended March 31, 2004 excludes 6th and 7th series convertible debentures because their effect would have been antidilutive. The net income per share computation for the year ended March 31, 2005 excludes 7th
series convertible debentures because their effect would have been antidilutive. 6th and 7th series convertible debentures were redeemed in September 2003 and September 2004, respectively.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements





|     |  |                                                             |  |                |  |         |  |        
|---- |  | ----------------------------------------------------------- |  | -------------- |  | ------- |  | -------
|(23) |  | Supplementary Income Information                            |  |                |  |         |  |        
|     |  |                                                            
|     |  |                                                             |  | Yen (millions)
|     |  |                                                             |  | 2006           |  | 2005    |  | 2004   
|     |  | Taxes other than income taxes consist of the following:     |  |                |  |         |  |        
|     |  | Property                                                    |  | 39,975         |  | 39,597  |  | 40,001 
|     |  | Welfare                                                     |  | 204,124        |  | 192,763 |  | 199,630
|     |  | Other                                                       |  | 25,551         |  | 22,890  |  | 12,969 
|     |  |                                                             |  |                |  |         |  |        
|     |  |                                                             |  | 269,650        |  | 255,250 |  | 252,600
|     |  |                                                             |  |                |  |         |  |        
|     |  | Maintenance and repairs                                     |  | 82,786         |  | 73,952  |  | 69,084 
|     |  | Research and development expense                            |  | 405,079        |  | 388,634 |  | 371,825
|     |  | Advertising expense                                         |  | 52,175         |  | 53,405  |  | 48,512 
|     |  | Rent                                                        |  | 149,241        |  | 137,179 |  | 142,649
|     |  |                                                             |  |               
|(24) |  | Supplementary Cash Flow Information                         |  |                |  |         |  |        
|     |  |                                                            
|     |  |                                                             |  | Yen (millions)
|     |  |                                                             |  | 2006           |  | 2005    |  | 2004   
|     |  | Cash paid during the year for:                              |  |                |  |         |  |        
|     |  | Interest                                                    |  | 31,584         |  | 30,706  |  | 32,128 
|     |  | Income taxes                                                |  | 118,486        |  | 123,541 |  | 93,858 
|     |  |                                                             |  |               
|     |  | Noncash investing and financial activities:                 |  |                |  |         |  |        
|     |  | Capitalized lease assets                                    |  | 5,206          |  | 2,109   |  | 3,998  
|     |  | Conversion of convertible debentures Issued by the Company  |  |               |  | 2       |  | 1      
|     |  | Conversion of convertible debentures Issued by subsidiaries |  |               |  | 11,054  |  | 6,769  







During the year ended March 31, 2005, the Company acquired and merged an
affiliated company through exchange of equity securities procedure as shown in note 28.



The proceeds from sale of securities classified as available-for-sale discussed in note 3 are included in both decrease in short-term investments and proceeds from sale of investments and subsidiaries common
stock on the consolidated statements of cash flows.



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HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(25) | Derivative Instruments and Hedging Activities
|---- | ---------------------------------------------



Overall risk profile



The major manufacturing bases of the Company and its subsidiaries are located in Japan and Asia. The selling bases are located globally, and the Company
and its subsidiaries generate approximately 40% of their sales from overseas. These overseas sales are mainly denominated in the U.S. dollar or Euro. As a result, the Company and its subsidiaries are exposed to market risks from changes in foreign
currency exchange rates.



The Companys financing
subsidiaries in the U.K, the U.S. and Singapore issue variable rate medium-term notes mainly through the Euro markets to finance its overseas long-term operating capital. As a result, the Company and its subsidiaries are exposed to market risks from
changes in foreign currency exchange rates and interest rates.



The Company and its subsidiaries are also exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments, but it is not expected that any counterparties will fail to meet their
obligations because most of the counterparties are internationally recognized financial institutions and contracts are diversified into a number of major financial institutions.



Risk management policy



The Company and its subsidiaries assess foreign currency exchange rate risk and interest rate risk by continually monitoring
changes in these exposures and by evaluating hedging opportunities. It is the Companys principal policy that the Company and its subsidiaries do not enter into derivative financial instruments for speculation purposes.



Foreign currency exchange rate risk management



The Company and its subsidiaries have assets and liabilities which are
exposed to foreign currency exchange rate risk and, as a result, they enter into forward exchange contracts and cross currency swap agreements for the purpose of hedging these risk exposures.



In order to fix the future net cash flows principally from trade receivables
and payables recognized, which are denominated in foreign currencies, the Company and its subsidiaries on a monthly basis measure the volume and due date of future net cash flows by currencies. In accordance with the Companys policy, a certain
portion of measured net cash flows is covered using forward exchange contracts, which principally mature within one year.



The Company and its subsidiaries enter into cross currency swap agreements with the same maturities as underlying debt to fix cash flows from long-term
debt denominated in foreign currencies. The hedging relationship between the derivative financial instrument and its hedged item is highly effective in achieving offsetting changes in foreign currency exchange rates.



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HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Interest rate risk management



The Companys and certain subsidiaries exposure to interest rate
risk is related principally to long-term debt obligations. Management believes it is prudent to minimize the variability caused by interest rate risk.



To meet this objective, the Company and certain subsidiaries principally enter into interest rate swaps to manage fluctuations in cash flows. The interest
rate swaps entered into are receive-variable, pay-fixed interest rate swaps. Under the interest rate swaps, the Company and certain subsidiaries receive variable interest rate payments on long-term debt associated with medium-term notes and make
fixed interest rate payments, thereby creating fixed interest rate long-term debt.



The Company and certain financing subsidiaries mainly finance a portion of their operations by long-term debt with a fixed interest rate and lend funds at variable interest rates. Therefore, such companies are exposed
to interest rate risk. Management believes it is prudent to minimize the variability caused by interest rate risk. To meet this objective, the Company and certain financing subsidiaries principally enter into interest rate swaps converting the fixed
rate to the variable rate to manage fluctuations in fair value resulting from interest rate risk. Under the interest rate swaps, the Company and certain financing subsidiaries receive fixed interest rate payments associated with medium-term notes
and make variable interest rate payments, thereby creating variable-rate long-term debt.



The hedging relationship between the interest rate swaps and its hedged item is highly effective in achieving offsetting changes in cash flows and fair value resulting from interest rate risk.



Fair value hedge



Changes in fair value of both recognized assets and liabilities, and
derivative financial instruments designated as fair value hedges of these assets and liabilities are recognized in other income (deductions). Derivative financial instruments designated as fair value hedges include forward exchange contracts
associated with operating transactions, cross currency swap agreements and interest rate swaps associated with financing transactions.



Exchange gain for the year ended March 31, 2006 includes a net loss of ¥2,373 million which represents the component excluded from the assessment
of hedge effetiveness. The sum of the amount of hedge ineffectiveness is not material for the years ended March 31, 2006, 2005 and 2004.



Interest charges for the years ended March 31, 2006, 2005 and 2004 include a net gain of ¥1,192 million, net losses of ¥716 million and
¥1,098 million, respectively, which represent the component excluded from the assessment of hedge effectiveness. The sum of the amount of hedge ineffectiveness is not material for the years ended March 31, 2006, 2005 and 2004.



Cash flow hedge



Foreign currency exposure



Changes in fair value of forward exchange contracts designated and
qualifying as cash flow hedges of forecasted transactions are reported in accumulated other comprehensive income (AOCI). These amounts are reclassified into earnings in the same period as the hedged items affect earnings.



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HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Exchange gain for the year ended March 31, 2006 and 2005 includes a net gain of ¥165 million
and a net loss of ¥351 million, respectively, which represent the component excluded from the assessment of hedge effectiveness. Exchange gain for the year ended March 31, 2006 includes a net loss of ¥119 million which represents the
component of the hedge ineffectiveness. The sum of the amount of the hedge ineffectiveness is not material for the years ended March 31, 2005 and 2004.



It is expected that a net loss of approximately ¥10 million recorded in AOCI relating to existing forward exchange contracts will be reclassified into
other income or other deductions during the year ending March 31, 2007.



As of March 31, 2006, the maximum length of time over which the Company and its subsidiaries are hedging their exposure to the variability in future cash flows associated with foreign currency forecasted
transactions is approximately 33 months.



Interest rate
exposure



Changes in fair values of interest rate swaps
designated as hedging instruments for the variability of cash flows associated with long-term debt obligations are reported in AOCI. These amounts subsequently are reclassified into interest charges as a yield adjustment in the same period in which
the hedged debt obligations affect earnings.



Interest charges
for the years ended March 31, 2006 and 2004 include a net gain of ¥143 million and a net loss of ¥356 million, respectively, which represent the component excluded from the assessment of hedge effectiveness. Net gain or loss excluded
from the assessment of hedge effectiveness is not material for the year ended March 31, 2005. Interest charges for the years ended March 31, 2005 and 2004 include net losses of ¥202 million and ¥257 million, respectively, which
represent the component of the hedge ineffectiveness. The sum of the amount of hedge ineffectiveness is not material for the years ended March 31, 2006.



It is expected that a net gain of approximately ¥81 million recorded in AOCI related to the interest rate swaps will be reclassified into interest
charges as a yield adjustment of the hedged debt obligations during the year ending March 31, 2007.



The contract or notional amounts of derivative financial instruments held as of March 31, 2006 and 2005 are summarized as follows:



|                                |  |                |  |        
|------------------------------- |  | -------------- |  | -------
|                                |  | Yen (millions)
|                                |  | 2006           |  | 2005   
|Forward exchange contracts:     |  |                |  |        
|To sell foreign currencies      |  | 310,941        |  | 282,333
|To buy foreign currencies       |  | 65,091         |  | 62,104 
|Cross currency swap agreements: |  |                |  |        
|To sell foreign currencies      |  | 101,456        |  | 91,732 
|To buy foreign currencies       |  | 147,237        |  | 148,007
|Interest rate swaps             |  | 446,823        |  | 571,395
|Option contracts                |  | 13,852         |  | 19,152 



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(26) | Concentrations of Credit Risk
|---- | -----------------------------



The Company and its subsidiaries generally do not have significant concentrations of credit risk to any counterparties nor any regions because they are
diversified and spread globally.



|(27) | Fair Value of Financial Instruments
|---- | -----------------------------------



The following methods and assumptions are used to estimate the fair values of financial instruments:



Investments in securities



The fair value of investments in securities is estimated based on quoted
market prices for these or similar securities.



Long-term
debt



The fair value of long-term debt is estimated
based on quoted market prices or the present value of future cash flows using the Companys and its subsidiaries incremental borrowing rates for similar borrowing arrangements.



Cash and cash equivalents, Trade receivables, Short-term debt and Trade payables



The carrying amount approximates the fair value because of the short
maturity of these instruments.



Derivative financial
instruments



The fair values of forward exchange
contracts, cross currency swap agreements, interest rate swaps and option contracts are estimated on the basis of the market prices of derivative financial instruments with similar contract conditions.



The carrying amounts and estimated fair values of the financial instruments
as of March 31, 2006 and 2005 are as follows:



|                               |  |                  |   |  |                       |   |  |                  |   |  |                       |  
|------------------------------ |  | ---------------- | - |  | --------------------- | - |  | ---------------- | - |  | --------------------- | -
|                               |  | Yen (millions)   |  
|                               |  | 2006             |   |  | 2005                  |  
|                               |  | Carrying amounts |   |  | Estimated fair values |   |  | Carrying amounts |   |  | Estimated fair values |  
|Investments in securities:     |  |                  |   |  |                       |   |  |                  |   |  |                       |  
|Short-term investments         |  | 162,756          |   |  | 162,756               |   |  | 146,568          |   |  | 146,568               |  
|Investments and advances       |  | 448,614          |   |  | 448,631               |   |  | 315,129          |   |  | 315,143               |  
|Derivatives (Assets):          |  |                  |   |  |                       |   |  |                  |   |  |                       |  
|Forward exchange contracts     |  | 1,429            |   |  | 1,429                 |   |  | 683              |   |  | 683                   |  
|Cross currency swap agreements |  | 354              |   |  | 354                   |   |  | 1,109            |   |  | 1,109                 |  
|Interest rate swaps            |  | 1,960            |   |  | 1,960                 |   |  | 1,407            |   |  | 1,407                 |  
|Option contracts               |  | 11               |   |  | 11                    |   |  |                 |   |  |                      |  
|Long-term debt                 |  | (1,666,517       | ) |  | (1,639,779            | ) |  | (1,825,895       | ) |  | (1,826,562            | )
|Derivatives (Liabilities):     |  |                  |   |  |                       |   |  |                  |   |  |                       |  
|Forward exchange contracts     |  | (3,423           | ) |  | (3,423                | ) |  | (5,211           | ) |  | (5,211                | )
|Cross currency swap agreements |  | (8,764           | ) |  | (8,764                | ) |  | (6,478           | ) |  | (6,478                | )
|Interest rate swaps            |  | (3,067           | ) |  | (3,067                | ) |  | (5,603           | ) |  | (5,603                | )
|Option contracts               |  | (824             | ) |  | (824                  | ) |  | (237             | ) |  | (237                  | )



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HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



It is not practicable to estimate the fair value of investments in unlisted common stock because of
the lack of a market price and difficulty in estimating fair value without incurring excessive cost. The carrying amounts of these investments at March 31, 2006 and 2005 totaled ¥79,321 million and ¥77,755 million, respectively.



|(28) | Merger and Acquisition
|---- | ----------------------



On May 25, 2004, the Company signed a merger agreement with TOKICO LTD. (TOKICO) and Hitachi Unisia Automotive, Ltd. and, on October 1, 2004,
acquired full ownership of TOKICO by exchanging 0.521 of the Companys treasury stock for each of TOKICOs common stocks outstanding. Before the transaction, the Company and certain subsidiaries had owned approximately 42% of TOKICO, which
had been accounted for under the equity method. The Company and TOKICO obtained third party appraisals of the respective share prices which were used as a basis of negotiation over the share exchange ratio. On October 1, 2004, the Company
issued 33,937,141 shares of treasury stock, in the amount of ¥28,134 million calculated by using the quoted market price of ¥829 per share as of the announcement date, March 26, 2004, for the exchange with the TOKICOs shareholders
registered as of September 30, 2004. As a result, ¥12,509 million of gains on stock exchange upon the merger was credited to capital surplus.



TOKICO manufactures automotive components and pneumatic equipment. The Company has strategically targeted the automotive products business and the purpose
of the merger with TOKICO is to further expand this business.



The effects of the merger to the Companys consolidated financial position as of October 1, 2004 were not material. On a pro forma basis, revenue, net income and the per share information of the Company with an assumed merger date
for TOKICO of April 1, 2004 and 2003 would not differ materially from the amount reported in the accompanying consolidated financial statements as of and for the years ended March 31, 2005 and 2004.



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##### Table of Contents

HITACHI, LTD.

AND SUBSIDIARIES



Notes to Consolidated Financial Statements



|(29) | Stock Option Plans
|---- | ------------------



The Company and certain subsidiaries have stock option plans. Under the Companys stock option plans, non-employee directors, executive officers and
certain employees have been granted stock options to purchase the Companys common stock. Under these stock option plans, options were granted at prices not less than market value at the date of grant and are exercisable from one year after the
date of grant and expire four or five years after the date of grant. The Company and certain subsidiaries recognized no material stock-based compensation expense for the years ended March 31, 2006, 2005 and 2004.



A summary of the Companys stock option plans activity for the years
ended March 31, 2006, 2005 and 2004 is as follows:



|                                            |  |                        |   |                  |                                     |                |                      |   |  |                                     |  |                      |   |  |                                    
|------------------------------------------- |  | ---------------------- | - | ---------------- | ----------------------------------- | -------------- | -------------------- | - |  | ----------------------------------- |  | -------------------- | - |  | -----------------------------------
|                                            |  | 2006                   |   | 2005             |                                     | 2004          
|                                            |  | Stock options (shares) |   |                  | Weighted-averageexercisedprice(yen) |                | Stockoptions(shares) |   |  | Weighted-averageexercisedprice(yen) |  | Stockoptions(shares) |   |  | Weighted-averageexercisedprice(yen)
|Outstanding at beginning of year            |  | 2,691,000              |   |                  | 869                                 |                | 2,194,000            |   |  | 866                                 |  | 1,165,000            |   |  | 1,314                              
|Granted                                     |  | 1,201,000              |   |                  | 719                                 |                | 1,278,000            |   |  | 780                                 |  | 1,305,000            |   |  | 561                                
|Exercised                                   |  | (220,000               | ) |                  | 589                                 |                | (585,000             | ) |  | 561                                 |  |                     |   |  |                                   
|Forfeited                                   |  | (322,000               | ) |                  | 953                                 |                | (196,000             | ) |  | 1,174                               |  | (276,000             | ) |  | 1,315                              
|Expired                                     |  | (184,000               | ) |                  | 1,451                               |                |                     |   |  |                                    |  |                     |   |  |                                   
|                                            |  |                        |   |                  |                                     |                |                      |   |  |                                     |  |                      |   |  |                                    
|Outstanding at end of year                  |  | 3,166,000              |   |                  | 789                                 |                | 2,691,000            |   |  | 869                                 |  | 2,194,000            |   |  | 866                                
|                                            |  |                        |   |                  |                                     |                |                      |   |  |                                     |  |                      |   |  |                                    
|                                            |  |                        |  
|Weighted-average remaining contractual life |  | 2.3 years              |   | 2.5years         |                                     | 2.8 years     
|Options exercisable at end of year          |  | 1,965,000 shares       |   | 1,413,000 shares |                                     | 889,000 shares



The exercise prices of
the stock options outstanding as of March 31, 2006 are ¥1,270, ¥561, ¥782, ¥705 and ¥719.



The Compensation Committee decided to cease garnting stock options as part of the Companys compensation policy at the meeting held on March 30,
2006.



| |  |     |  |            
| |  | --- |  | -----------
| |  | 121 |  | (Continued)



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##### Table of Contents

Schedule II



HITACHI, LTD.

AND SUBSIDIARIES



Reserves



Years ended March 31, 2006, 2005 and 2004



(In millions of yen)



|                                   |  |                                |  |                   |  |                       |   |  |                         
|---------------------------------- |  | ------------------------------ |  | ----------------- |  | --------------------- | - |  | ------------------------
|                                   |  | Balance at beginning of period |  | Charged to income |  | Bad debts written off |   |  | Balance at end of period
|Year ended March 31, 2006:         |  |                                |  |                   |  |                       |   |  |                         
|Allowance for doubtful receivables |  | 40,330                         |  | 5,480             |  | (4,200                | ) |  | 41,610                  
|                                   |  |                                |  |                  
|Year ended March 31, 2005:         |  |                                |  |                   |  |                       |   |  |                         
|Allowance for doubtful receivables |  | 42,760                         |  | 4,287             |  | (6,717                | ) |  | 40,330                  
|                                   |  |                                |  |                  
|Year ended March 31, 2004:         |  |                                |  |                   |  |                       |   |  |                         
|Allowance for doubtful receivables |  | 39,768                         |  | 7,423             |  | (4,431                | ) |  | 42,760                  



122



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##### Table of Contents

|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------



Not applicable.



|ITEM 19. | EXHIBITS
|-------- | --------



Hitachi has filed the following documents as exhibits to this annual report.



|     |  |                                                                                                                                                                                                           
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1  |  | Articles of Incorporation of Hitachi, Ltd., as amended on June 27, 2006 (English Translation)                                                                                                             
|     | 
|1.2  |  | Regulations on Handling Shares, etc. of Hitachi, Ltd., as amended on June 27, 2006 (English Translation)                                                                                                  
|     | 
|1.3  |  | Board of Directors Regulations of Hitachi, Ltd., as amended on June 27, 2006 (English Translation)                                                                                                        
|     | 
|8.1  |  | List of subsidiaries                                                                                                                                                                                      
|     | 
|     |  | See Item 4. Information on the Company  C. Organizational Structure.                                                                                                                                   
|     | 
|11.1 |  | Code of Ethics for Directors and Executive Officers of Hitachi, Ltd. (English Translation)                                                                                                                
|     | 
|     |  | (incorporated by reference to Exhibit 11.1 of Hitachi, Ltd.s annual report on Form 20-F filed with the SEC on August 26, 2005 (file no. 001-08320)).                                                     
|     | 
|12.1 |  | Certification of Chief Executive Officer or equivalent pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934                                                                     
|     | 
|12.2 |  | Certification of Chief Financial Officer or equivalent pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934                                                                     
|     | 
|13.1 |  | Certification of Chief Executive Officer or equivalent pursuant to Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United
States Code
|     | 
|13.2 |  | Certification of Chief Financial Officer or equivalent pursuant to Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United
States Code



Hitachi has not
included as exhibits certain instruments with respect to its long-term debt. The total amount of long-term debt securities of the Company or its subsidiaries, authorized under any instrument does not exceed 10% of Hitachis total assets.
Hitachi hereby agrees to furnish to the SEC, upon its request, a copy of any instrument defining the rights of holders of long-term debt of the Company or of its subsidiaries for which consolidated or unconsolidated financial statements are required
to be filed.



123



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SIGNATURES



The registrant hereby
certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.



|                     |  |               |  |                                                         
|-------------------- |  | ------------- |  | --------------------------------------------------------
|                     |  | Hitachi, Ltd.
|                     |  | (Registrant) 
|                     |  |              
|Date: August 7, 2006 |  | By:           |  | /s/ Takashi Hatchoji                                    
|                     |  |               |  | Name: Takashi Hatchoji                                  
|                     |  |               |  | Title:    Executive Vice President and Executive Officer



124



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##### Table of Contents

EXHIBIT INDEX



|     |  |                                                                                                                                                                                                           
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1  |  | Articles of Incorporation of Hitachi, Ltd., as amended on June 27, 2006 (English Translation)                                                                                                             
|     | 
|1.2  |  | Regulations on Handling Shares, etc. of Hitachi, Ltd., as amended on June 27, 2006 (English Translation)                                                                                                  
|     | 
|1.3  |  | Board of Directors Regulations of Hitachi, Ltd., as amended on June 27, 2006 (English Translation)                                                                                                        
|     | 
|8.1  |  | List of subsidiaries                                                                                                                                                                                      
|     | 
|     |  | See Item 4. Information on the Company  C. Organizational Structure.                                                                                                                                   
|     | 
|11.1 |  | Code of Ethics for Directors and Executive Officers of Hitachi, Ltd. (English Translation)                                                                                                                
|     | 
|     |  | (incorporated by reference to Exhibit 11.1 of Hitachi, Ltd.s annual report on Form 20-F filed with the SEC on August 26, 2005 (file no. 001-08320)).                                                     
|     | 
|12.1 |  | Certification of Chief Executive Officer or equivalent pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934                                                                     
|     | 
|12.2 |  | Certification of Chief Financial Officer or equivalent pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934                                                                     
|     | 
|13.1 |  | Certification of Chief Executive Officer or equivalent pursuant to Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United
States Code
|     | 
|13.2 |  | Certification of Chief Financial Officer or equivalent pursuant to Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United
States Code



125