Read Sankyo Seiki Mfg. Co., Ltd. text version

MANAGEMENT PRINCIPLES & BUSINESS PERFORMANCE

Management Principles 1. Management Policy Based on its management principles of considering the creation of employment as the greatest social contribution, supplying products that are indispensable to the world and aiming at being a top global provider, the Nidec Sankyo Group aims to strengthen its competitiveness through complete penetration of its customer-first principle, accumulation and development of core technologies, to maintain high profitability, and to realize a company that can achieve continuous development. In addition, while pursing globalization of management and greater efficiencies throughout the Group, Nidec Sankyo strives to implement environmental measures, company ethics and other compliance initiatives throughout the Group. Nidec Sankyo also works to maximize shareholder value by achieving strong growth, greater earnings and a rising share price over the long term and seeks to fulfill its responsibilities to all shareholders. 2. Target Management Index

To solidify and enhance its profit structure, the Company as a whole is working to reduce costs by reforming its cost structure through a basic review of product designs and promoting in-house manufacturing, as well as by implementing an in-depth assessment of expenditures. (3) Implement strategies to improve speed In order to improve speed in all aspects of the business, we are working to greatly enhance the speed of our market response by establishing a synchronized development, production, and sales structure, and working to respond to the demands of our customers. (4) Innovation in manufacturing In order to address the trend toward a sharp increase in the prices of raw materials on a global scale and a decline in product prices in markets, we will make efforts to improve our productivity by proactively promoting innovative manufacturing and labor savings, including overseas facilities. We will also focus our efforts on human resources development based on recognition that the development of human resources forms the foundation of manufacturing. 5. Profit-Sharing Policy

The Nidec Sankyo Group aims to achieve a more than 10% operating income margin to strengthen its profitability structure so that it can address changes in its management environment. 3. Mid- and Long-Term Management Strategies In the future, the Nidec Sankyo Group will develop its business, giving first priority to expanding earnings in line with the expansion of sales, while proactively investing its management resources in the development of new products, new markets and new customers. Nidec Sankyo also aims to gain a competitive advantage in productivity through the development of thorough cost-saving measures such as reducing the purchase costs of parts and components as well as the promotion of innovation in manufacturing, returning to the starting line as a manufacturer, to establish a firm profitability structure. 4. Priority Issues (1) Implement strategies to increase sales We will work aggressively to increase sales through reinforcement of existing products and thoroughly developing new products, markets and customers. (2) Implement strategies to improve earnings

The Nidec Sankyo Group intends to build good relationships with stakeholders and expand its business, while contributing to the emergence of a better society. Stable dividends are important to our shareholders. At the same time, it is our responsibility to declare dividends in proportion to the Company's business performance. Profit sharing with shareholders, therefore, is based on comprehensive consideration of the Company's long-term welfare. Nidec Sankyo makes it a basic policy to declare dividends from its surplus fund twice a year, that is, an interim dividend and a year-end dividend, and stipulates in its Articles of Incorporation that the Company may declare dividends from its surplus fund upon resolution of the Board of Directors in accordance with the provision set out in Clause 1 of Article 459 of the Corporation Law and that the Company may declare an interim dividend, setting out September 30th of each year as a record date, upon resolution of the Board of Directors. Concerning dividends for the current fiscal year, based on the above policy, Nidec Sankyo will declare a dividend of ¥10.00 per share, including an interim dividend (¥5.00 per share). As a result, the dividend payout ratio in the current term is 37.9% (on a consolidated basis).

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As for retained earnings, we will appropriate it to research and development as well as capital investment to promote further growth of our Group in the future. 6. Corporate Governance Nidec Sankyo considers an active corporate governance program indispensable to increasing corporate value, retaining the trust of all stakeholders, including shareholders, and ensuring support for the Company. Nidec Sankyo has adopted an auditing system. The Board of Directors as of June 17, 2008, consists of 6 members, including one outside director. From the standpoint of pursuing company-wide management responsibility, the Board of Directors has reduced its members and placed itself in a position where business policies and management strategies are discussed more actively than before and business challenges that arise from day to day market changes are resolved and decided in order to build a management system to outpace the competition. The term of office of each director is set out as one year in the Articles of Incorporation in order to ensure a timely response to the needs of shareholders, while maintaining a flexible stance toward changes in its management environment. In addition, the Company has introduced a system of executive officers as of June 16, 2008, to ensure a system where each executive officer can make a judgment in quick response to the status of sites under the supervision of the Board of Directors. The Company terminated the directors' retirement benefit system on March 31, 2005. A yearly contract system has also been introduced to the directors' compensation system. As our internal control system, we hold general meetings of shareholders in addition to the Board of Directors and the Board of Auditors, improving and maintaining a system to ensure efficient functioning of each organization and to perform constant supervision. In regard to our compliance system, compliance and risk management committees have been established with the head of each committee being appointed by the Board of Directors. Concerning basic policy and other important matters, the Nidec Sankyo Group is promoting compliance activities with the approval of the Board of Directors. In addition, the Company encourages ongoing education for all employees and conducts training activities. At the same time, a business management auditors' office has been established, fully functioning as a framework for internal controls. As a system to assist in our compliance system, we have established an internal reporting system, and an internal reporting reception counter will submit records on the progress of solutions to problems

reported to the compliance committee. The Group makes its management principles consistent with those of its parent company Nidec Corporation to address this issue cooperatively within the Group toward the establishment of internal controls called for by Article 404 of the U. S. Sarbanes-Oxley Act and the Japanese SOX Law. 7. Environmental Activities Nidec Sankyo believes that as we enter the 21st century, the social mission of corporations is to protect the earth's irreplaceable resources. As we have made environmental conservation a management priority, our goal is to achieve coexistence with an environmentally friendly society that supports the global environment. Nidec Sankyo has acquired ISO 14001 certification, which acts as a tool for environmental conservation, for all of our business locations and is working to expand that coverage to our overseas subsidiaries as a means to becoming more conscious of the environmental impact of our own business activities as well contributing to the reduction of such impact. We are determined to reduce the materials and energy used in our development processes, and we are also pursuing product design that gives ample consideration to recyclability. Additionally, in order to comply with regulations in every country regarding toxic substances, such as the EU-RoHS Directive, we have introduced "X-ray fluorescence spectrometers" at all production bases in order to guarantee thorough analysis and testing to detect the presence of toxic substances in our products, thereby providing customers with peace of mind when using our products. We are actively establishing systems to ensure environmental quality such as the installation of an atomic absorption spectrometer and as evidenced by Nidec Sankyo's certification as a "Certified Environmental Measurement Workplace" in February 2008. For details of our environmental preservation activities, please see our web site at http://www.nidec-sankyo.co.jp/e/envi/envi_01.htm

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8. Issues Concerning the Parent Company (1) Corporate name of parent company (As of March 31, 2008)

Company name Type Percentage of voting shares Stock exchange listings

(Interlocking Directorate as of June 17, 2008)

Post Name Post at the Parent Company Reason for Appointment

Chairman & CEO

Shigenobu Nagamori

President & CEO Parent Company Nidec Corporation Member of the Board, Vice President Administrative Department of Affiliated Companies Parent Company Nidec Corporation Corporate Executive Auditor Parent Company Nidec Corporation

Guidance of the Group's management Guidance of the Group's management

Nidec Corporation

Parent company

65.6% (2.1%)

Tokyo Stock Exchange, No. 1 Market Osaka Stock Exchange, No. 1 Market New York Stock Exchange (USA)

Senior Executive Director

Tetsuo Inoue

Note: Listed in the percentage of voting shares column, in parentheses, is the parent company's percentage of indirectly owned shares in Nidec Sankyo.

Corporate Executive Auditor

Hideo Asahina

Enhancement of the Group's auditing system

(2) Relationship and position of Nidec Sankyo to the parent company and other listed companies within the Group Nidec Corporation is the parent company of Nidec Sankyo and owns 65.6% (124,960,000 shares) of the Company's voting shares. The Company maintains close relationships with Nidec Corporation, the parent company, and the Nidec Group companies in order to maximize group synergy as a member of the Nidec Group, while basically remaining independent with respect to business operations and transactions with them. The Nidec Group is engaged in the manufacture and sales of products with a focus on motors in the domain identity of "For Everything That Spins and Moves." Business identities are segregated in the Group, and the Company is developing its own business utilizing its unique technologies without constraints on business on account of belonging to a business group. Interlocking directors and loaned employees from the parent company do not interfere with the Company's own management decisions, and the Company believes that its corporate identity is assured.

Enhancement Corporate Executive of the Group's Auditor auditing Parent Company system Nidec Corporation Note: Four of the Company's six directors and five auditors hold concurrent positions as directors of the parent company. Corporate Executive Auditor Ryoji Takahashi

(Employees Loaned to the Company)

Division Number of Loaned Employees Place of Loan Reason for Loan

One Parent Company Strengthening Internal Audit Nidec internal and Corporation controls Management Advisory Note: The number of the Company's employees as of March 31, 2008 is 1,269.

(3) Issues relating to parent company transactions Important transactions with the parent company are described in the note regarding "related-party transactions."

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Business Performance 1. Review of the Fiscal Year Ended March 31, 2008 The Japanese economy in the current consolidated fiscal year continues along a gradual recovery path on the back of improvement in corporate earnings and also sees an increase in capital investment and improvement in employment conditions. However, a risk of an economic downturn is growing due to a slowdown in the U. S. economy and fluctuations in stock and exchange markets on the back of the subprime loan problem as well as a sharp increase in raw material prices such as crude oil. Under these circumstances, our group was active in the electronic components business with a focus on stepping motors. On the other hand, however, net sales decreased to ¥108,987 million, a decline of ¥3,641 million (3.2%) over the previous fiscal year as a result of investment constraints with regard to the business of LCD glass-panel-handling robots in the first half of the current consolidated fiscal year. Operating income increased to ¥9,544 million, an increase of ¥104 million over the previous fiscal year as a result of active promotion of our activities toward cost-saving measures and productivity improvements, although these activities were affected by the increase in cost price such as the sharp increase in the cost of raw materials and appreciation of the yen in addition to the influence from a fall in revenues. Net profit for the current fiscal year increased to ¥5,041 million, a decline of ¥5,245 million over the previous fiscal year, as exchange losses amounted to ¥3,320 million (we reported an exchange profit of ¥412 million in the previous fiscal year) due to a sharp rise in the yen in the 4th quarter.

2. Results by Business Segment Electronic Components Net sales in the electronic components business posted ¥80,035 million, an increase of ¥4,344 million (5.7%) from the previous fiscal year. As a result of our review of product strategy of optical pickup units having been made from the previous year for improvement of profits, sales of existing products decreased. On the other hand, in the business of stepping motors, products for PCs, DVD recorders, game machines and digital cameras are progressing well and reached record high sales, up 19.0% from the previous fiscal year. Control device units recorded an increase of 3.3% in revenues from the previous year, as a result of active sales promotion of products for new applications to meet changes in consumer trends in the market. Unit products and lens actuators for the amusement industry have steadily expanded their sales results in the market since the startup of production in the previous year, contributing to an increase in revenues. Operating income posted ¥4,685 million, an increase of ¥3,461 million over the previous fiscal year due to increased revenues of optical pickup units in addition to continued promotion of our activities for cost-saving measures and productivity improvements as well as an increase in revenues of products with a focus on stepping motors. Systems Machinery Net sales in the systems machinery business posted ¥26,669 million, a decline of ¥8,049 million yen (23.2%) from the previous fiscal year. Sales did not reach results equivalent to those in the previous year as a result of a decline in sales due to market adjustments for LCD glass-panel-handling robots, although we have carried out active sales promotion activities for new products such as robots for vacuums, semiconductors and solar batteries in addition to active sales promotion of card readers in new markets having potential for growth. Operating income posted ¥5,262 million, a decline of ¥3,327 million yen from the previous fiscal year as a result of a severe effect from a decline in revenues of robots. Others Net sales for all other products posted ¥2,281 million, which is nearly equivalent to results in the previous fiscal year, while in a similar manner operating income posted ¥221 million.

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3. Cash Flows Balance of CMS deposits at the end of the current consolidated fiscal year was ¥12,255 million and balance of cash and cash equivalents including this was ¥31,409 million (¥35,907 million in the previous fiscal year), a decline of ¥4,498 million compared to results at the end of the previous consolidated fiscal year. Net cash provided by operating activities was ¥11,498 million (¥11,720 million in the previous fiscal year). The main components for this were net profit before taxes and other adjustments (¥6,207 million) and depreciation (¥5,346 million). Net cash used in investing activities was ¥5,687 million (use of ¥6,055 million in the previous fiscal year). The main reason for this was expenditures due to capital investment amounting to ¥4,395 million and additional acquisition of shares of consolidated subsidiaries amounting to ¥1,719 million. Net cash used in financial activities was ¥8,517 million (use of ¥2,365 in the previous fiscal year). The principal reason for this was expenditures due to repayment of short-term loans amounting to ¥6,342 million and cash dividends amounting to ¥1,945 million (including cash dividends for minority shareholders).

4. Outlook In fiscal year 2008, the Nidec Sankyo Group will continue to promote revenue-increasing activities by aggressively cultivating new products, new markets and new customers and will dynamically take on challenges involving our basic principles of addressing cost structure and profit enhancement in pursuit of company-wide cost-saving measures and productivity improvements, despite concerns about risks such as an increase in production costs in China in connection with a rise in the minimum wage and escalated appreciation of RMB and the steep rise in the cost of raw materials in addition to the appreciation of the yen against the dollar. Our approach to each product's development is as follows: For stepping motors, we will work on aggressive sales activities with the aim of attaining double-digit growth. For lens actuators for mobile phones, which enjoy continued expansion in the market, we will proactively expand sales to meet market needs for compact and thin-model products. For DC motors, we will promote a business shift from use in audio-visual units to use in IT devices and industrial equipment from quantity to quality. More specifically, we will promote the cultivation of new products and expand business, aiming at mid-scale markets, such as AC servo motors for industrial and business use, energysaving and environment-related motor units for home appliances and household equipment. For Control device units, we will actively develop proposal-based marketing by combining proprietary technologies in order to cultivate new demand and increase profits. For card readers, we will vigorously implement business expansion in promising new markets, leveraging our dominant superiority in this market. The large-screen LCD TV market is steadily expanding, and the world's top makers are setting up new factories that adopt th th large glass panels for the 7 and 8 generations and beyond. A production scale expansion is anticipated in view of new entries from China and other countries, and continued active investments can be expected. Under these circumstances, our LCD glass-panelhandling robots are widely recognized for their superiority in stability in handling, high rigidity, high reliability and energy savings and have established the top share in the industry. In addition, we will strive for further business expansion by adding glass-panelhandling robots for solar batteries and semiconductor robots to our lineup in order to respond to various handling needs with our high quality products. We anticipate that the market for optical pickup units will continue its upward trend and will develop our production of optical pickup units for DVD media based on our technologies accumulated in the combo (half height) business for better profitability.

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FIVE-YEAR SUMMARY

NIDEC SANKYO CORPORATION and Consolidated Subsidiaries

At our IR site, more detailed business performance and financial data are disclosed. Please visit our web site at http://www.nidec-sankyo.co.jp/e/ir/invest_01.htm

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CONSOLIDATED BALANCE SHEETS

NIDEC SANKYO CORPORATION and Consolidated Subsidiaries

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

Millions of Yen Years Ended March 31, 2008 and 2007 2008 2007

ASSETS CURRENT ASSETS: Cash and cash equivalents Short-term investments (Note 3) Securities (Note 2.s and 3) Notes and accounts receivable: Trade notes Trade accounts Unconsolidated subsidiaries and associated companies Other Allowance for doubtful receivables Inventories CMS money deposited Deferred tax assets Prepaid expenses and other current assets Total current assets

¥ 14,154 159 5,000 3,022 27,919 0 849 (46) 9,266 12,256 1,177 310 74,066

¥ 26,321 699 ­ 3,114 28,196 1 1,142 (88) 8,473 9,586 1,488 602 79,534

$

141,271 1,587 49,905 30,158 278,656 4 8,477 (458) 92,482 122,322 11,746 3,097 739,247

PROPERTY, PLANT AND EQUIPMENT: Land Buildings and structures (Note 2.r) Machinery and equipment (Note 2.r) Construction in progress Total Accumulated depreciation (Note 2.r) Net property, plant and equipment

7,068 15,023 47,561 1,351 71,003 (44,221) 26,782

7,135 15,195 48,552 650 71,532 (42,967) 28,565

70,549 149,943 474,711 13,482 708,685 (441,372) 267,313

INVESTMENTS AND OTHER ASSETS: Investment securities (Note 3) Investments in unconsolidated subsidiaries and associated companies Software Deferred tax assets Other assets Total investments and other assets TOTAL

See notes to consolidated financial statements.

2,481 54 93 545 526 3,699 ¥ 104,547

3,217 58 80 227 552 4,134 ¥ 112,233

24,761 541 930 5,443 5,254 36,929 $ 1,043,489

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Millions of Yen 2008 2007

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

LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term bank loans Current portion of long-term debt Notes and accounts payable: Trade notes Trade accounts Unconsolidated subsidiaries and associated companies Other Income taxes payable Accrued expenses Deferred tax liabilities Directors' bonuses (Note 2.q) Other current liabilities Total current liabilities LONG-TERM LIABILITIES: Long-term debt, less current portion Liability for retirement benefits Deferred tax liabilities Goodwill (Note 2.t and 15) Other Total long-term liabilities

¥

­ 13 1,282 13,930 13 4,366 866 2,626 2 ­ 713 23,811

¥

6,559 52 2,250 12,018 25 3,932 382 2,662 4 13 910 28,807

$

­ 134 12,796 139,036 132 43,574 8,641 26,210 22 ­ 7,117 237,662

36 196 424 1,276 3,016 4,948

50 236 1,262 ­ 4,229 5,777

360 1,958 4,234 12,734 30,105 49,391

COMMITMENTS AND CONTINGENT LIABILITIES

NET ASSETS Common stock--authorized, 400,000,000 shares; issued, 191,107,628 shares in 2008 and 191,107,628 shares in 2007 Accumulated earnings Treasury stock--at cost, 1,728 shares in 2008 and 256,081 shares in 2007 Total shareholders' equity REVALUATION AND TRANSLATION ADJUSTMENT Unrealized gain on available-for-sale securities Foreign currency translation adjustments Total revaluation and translation adjustment MINORITY INTERESTS Total net assets TOTAL

See notes to consolidated financial statements.

35,270 41,729 (2) 76,997

35,270 38,625 (230) 73,665

352,032 416,488 (15) 768,505

316 (1,680) (1,364) 155 75,788 ¥ 104,547

814 (454) 360 3,624 77,649 ¥ 112,233

3,152 (16,772) (13,620) 1,551 756,436 $ 1,043,489

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CONSOLIDATED STATEMENTS OF OPERATIONS

NIDEC SANKYO CORPORATION and Consolidated Subsidiaries

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

Millions of Yen Years Ended March 31, 2008 and 2007 2008 2007

NET SALES COST OF SALES (Note 2.r) Gross profit SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 2.r) Operating income OTHER INCOME (EXPENSES): Interest expense Interest and dividend income Foreign exchange gain or loss Gain on sales of marketable and investment securities Gain on sales of investment in associated companies Gain on sales of property, plant and equipment Loss on disposals of property, plant and equipment Equity in earnings of unconsolidated subsidiaries and associated companies Amortization of goodwill Loss on liquidation of consignment production Other--net Other expenses--net INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS INCOME TAXES Current Deferred Total income taxes MINORITY INTERESTS IN NET INCOME (LOSS) NET INCOME

¥ 108,987 ¥ 112,629 88,835 20,152 92,051 20,578

$ 1,087,806 886,663 201,143

10,608 9,544

11,144 9,434

105,881 95,262

(202) 538 (3,320) 9 ­ 22 (69) ­ 110 (334) (90) (3,336)

(382) 415 413 37 97 64 (41) 7 ­ ­ 49 659

(2,016) 5,368 (33,138) 89 ­ 216 (687) ­ 1,099 (3,338) (897) (33,304)

¥

6,208 ¥

10,093

$

61,958

1,516 (499) 1,017 (149) ¥ 5,042

1,061 (1,379) (318) (124) ¥ 10,287 $

15,132 (4,979) 10,153 (1,485) 50,320

Yen

U.S. Dollars

PER SHARE INFORMATION COMMON STOCK--Net income CASH DIVIDENDS

See notes to consolidated financial statements.

¥ ¥

26.42 10.00

¥ ¥

53.90 10.00

$ $

0.26 0.10

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CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

NIDEC SANKYO CORPORATION and Consolidated Subsidiaries

Years Ended March 31, 2008 and 2007

Thousands Millions of Yen Revaluation and Translation Adjustments Total Unrealized Revaluation Gains (Loss) Foreign and on AvailableCurrency Translation for-sale Translation Adjustments Adjustments Securities

Shareholders' Equity Outstanding Number of Shares of Common Stock

Common Stock

Retained Earnings

Treasury Stock

Total Shareholders' Equity

Minority Interest in Consolidated Subsidiaries

Total Net Assets

Balance, March 31, 2006 Cash dividends, ¥10.00 per share Bonuses paid to directors Decrease by sales of stocks Newly consolidated surplus Net income Acquisition of treasury stock Net increase in unrealized Gain on available-forsale securities Net increase in foreign currency translation Net decrease in minority interest Balance, March 31, 2007 Cash dividends, ¥10.00 per share Net income Acquisition of treasury stock Share exchange Net increase in unrealized Gain on available-forsale securities Net increase in foreign currency translation Net decrease in minority interest Balance, March 31, 2008

190,878 ¥ 35,270

¥ 30,702

¥ (194)

¥ 65,778

¥

464

¥

(580)

¥

(116)

¥

3,624 ¥ 69,286

(1,908) (76) (348)

(1,908 ) (76 ) (348 )

(1,908) (76) (348)

(32) 10,287 (26) (36)

(32 ) 10,287 (36 )

(32) 10,287 (36)

350

350

350

126

126 (0 )

126 (0)

190,852 ¥ 35,270

¥ 38,625

¥ (230)

¥ 73,665

¥

814

¥

(454)

¥

360

¥

3,624 ¥ 77,649

(1,908) 5,042 254 (30) (180) 408

(1,908 ) 5,042 (180 ) 378

(1,908) 5,042 (180) 378

(498)

(498)

(498)

(1,226)

(1,226) (3,469 )

(1,226) (3,469)

191,106 ¥ 35,270

¥ 41,729

¥

(2)

¥ 76,997

¥

316

¥ (1,680)

¥ (1,364)

¥

155 ¥ 75,788

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

NIDEC SANKYO CORPORATION and Consolidated Subsidiaries

Years Ended March 31, 2008 and 2007

Thousands of U.S. Dollars (Note 1) Revaluation and Translation Adjustments Unrealized Total Gains Revaluation (Loss) on Foreign and AvailableCurrency Total Translation for-sale Translation Shareholders' Adjustments Adjustments Securities Equity

Shareholders' Equity

Common Stock

Retained Earnings

Treasury Stock

Minority Interest in Consolidated Subsidiaries

Total Net Assets

Balance, March 31, 2007 Cash dividends $0.10 per share Net income Acquisition of treasury stock Share exchange Net increase in unrealized gain on available-for-sale securities Net increase in foreign currency translation Net decrease in minority interest Balance, March 31, 2008

$ 352,032

$ 385,514

$ (2,291)

$ 735,255

$ 8,120

$

(4,531)

$

3,589

$

36,169 $ 775,013

(19,048) 50,320 (1,795) (298) 4,071

(19,048) 50,320 (1,795) 3,773

(19,048) 50,320 (1,795) 3,773

(4,968) (12,241)

(4,968) (12,241) (34,618)

(4,968) (12,241) (34,618)

$ 352,032

$ 416,488

$

(15)

$ 768,505

$ 3,152

$ (16,772)

$ (13,620)

$

1,551 $ 756,436

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

NIDEC SANKYO CORPORATION and Consolidated Subsidiaries

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

Millions of Yen Years Ended March 31, 2008 and 2007 2008 2007

OPERATING ACTIVITIES: Income before income taxes and minority interests Adjustments for: Income taxes--paid Depreciation and amortization Amortization of goodwill Reversal (transfer) of allowance for doubtful receivables Provision for retirement benefits--net Increase (decrease) in directors' bonuses Gain on sales of marketable and investment securities Gain on sales of investment in associated companies Gain on sales of property, plant and equipment Loss on disposals of property, plant and equipment Equity in earnings of unconsolidated subsidiaries and associated companies Loss on liquidation of consignment production Changes in assets and liabilities: Decrease (increase) in trade receivables Decrease (increase) in inventories Increase (decrease) in trade payables Other--income Other--expenses Total adjustments Net cash provided by operating activities INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment Purchases of property, plant and equipment Proceeds from sales of marketable and investment securities Purchases of marketable and investment securities Proceeds from sales of consolidated subsidiaries Purchases of consolidated subsidiaries Maturity of time deposits Decrease (increase) in other assets Net cash used in investing activities FINANCING ACTIVITIES: Decrease (Increase) in short-term bank loans--net Repayments of long-term debt Payment of cash dividends Payment of cash dividends to minority interests Other--net Net cash provided by (used in) financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS OF NEWLY CONSOLIDATED SUBSIDIARIES, BEGINNING OF YEAR

¥

6,208 (1,012 ) 5,347 (110 ) (42 ) (38 ) (13 ) (9 ) ­ (22 ) 69 ­ 334 (409 ) (1,355 ) 1,313 2,825 (1,588 ) 5,290 11,498 59 (4,456 ) 14 (100 ) ­ (1,719 ) 512 3 (5,687 ) (6,342 ) (49 ) (1,909 ) (37 ) (180 ) (8,517 ) (1,791 ) (4,497 ) ­ 35,907

¥ 10,093 (1,634 ) 5,271 ­ 4 (27 ) 13 (37 ) (97 ) (64 ) 41 (7 ) ­ 2,715 2,542 (5,317 ) 967 (2,743 ) 1,627 11,720 102 (6,769 ) 54 (27 ) 767 ­ (354 ) 172 (6,055 ) (234 ) (120 ) (1,909 ) (68 ) (35 ) (2,366 ) 85 3,384 217 32,306 ¥ 35,907 382 455

$

61,958 (10,098) 53,366 (1,099) (414) (377) (133) (89) ­ (216) 687 ­ 3,338 (4,086) (13,524) 13,107 28,197 (15,854) 52,805 114,763 591 (44,481) 142 (1,001) ­ (17,160) 5,112 27 (56,770) (63,305) (491) (19,048) (373) (1,795) (85,012) (17,876) (44,895) ­ 358,393

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR (Note 4) ADDITIONAL CASH FLOW INFORMATION: Interest paid Interest and dividends received

See notes to consolidated financial statements.

¥ 31,410 202 538

$

313,498 2,016 5,368

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NIDEC SANKYO CORPORATION and Consolidated Subsidiaries 1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan, which differ in certain respects with regard to application and disclosure requirements of International Financial Reporting Standards. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form that is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2007 financial statements to conform to the classifications used in 2008. The consolidated financial statements are stated in Japanese yen, the currency of the country in which NIDEC SANKYO CORPORATION (the "Company") is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥100 to $1, the approximate rate of exchange as of March 31, 2008. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Consolidation--The accompanying consolidated financial statements as of March 31, 2008 include the accounts of the Company and its 23 (23 in 2007) significant subsidiaries (together, the "Group"). Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for by the equity method. There were no investments in associated companies that should be accounted for by the equity method for the year ended March 31, 2008. Investments in one associated company were accounted for by the equity method for the year ended March 31, 2007. Investments in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material. The excess of the cost of the Company's investments in consolidated subsidiaries and associated companies accounted for by the equity method, over its equity in the net assets at the respective dates of acquisition, is charged to income when incurred. All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group has been eliminated. b. Cash and Cash Equivalents in Consolidated Statements of Cash Flows--Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits, certificates of deposit, commercial paper and mutual funds invested in bonds that represent short-term investments, all of which mature or become due within three months of the date of acquisition and CMS money deposited through the utilization of the CashManagementSystem introduced by NIDEC, the parent company, for efficient fund management and financing within the NIDEC Group, April 1, 2006. c. Marketable and Investment Securities-- Marketable and Investment Securities--Marketable and investment securities are classified and accounted for, depending on management's intent, as follows: (1) held-to-maturity debt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity are reported at amortized cost and (2) available-for-sale securities, which are not classified as the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of shareholders' equity. The cost of securities sold is determined based on the weighted-average method. Non-marketable available-for-sale securities are stated at cost determined by the weighted-average method. For other than temporary declines in fair value, non-marketable available-for-sale securities are reduced to net realizable value by a charge to income. d. Inventories--Inventories held by the Company, all of its domestic consolidated subsidiaries and most of its foreign consolidated subsidiaries are valued at lower of cost or market. All cost of inventories is determined by the first-in, first-out method. e. Property, Plant and Equipment--Property, plant and equipment are stated at cost. Significant renewals and additions are capitalized; maintenance and repairs, and minor renewals and improvements, are charged to income as incurred. Interest costs relating to construction of property, plant and equipment are not capitalized.

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Depreciation of property, plant and equipment of the Company and its consolidated domestic subsidiaries is computed by the declining-balance method, while the straight-line method is applied to buildings acquired by the Company and its domestic consolidated subsidiaries on or after April 1, 1998. Those of foreign subsidiaries are principally computed by the straight-line method. The range of the estimated useful lives of the assets is principally as follows: Buildings and structures Machinery and equipment 15 ­ 60 years 2 ­ 20 years

computed based on the pretax income included in the consolidated statements of operations. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences. k. Foreign Currency Transactions--All short-term and long-term monetary receivables and payables of the Company and its consolidated domestic subsidiaries denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the statements of operations to the extent that they are not hedged by forward exchange contracts. l. Foreign Currency Financial Statements--The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date except for shareholders' equity, which is translated at the historical rate. Differences arising from such translation were shown as "Foreign currency translation adjustments" in a separate component of shareholders' equity. Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rate. m. Derivative Financial Instruments--The Group uses derivative financial instruments to manage their exposures to fluctuations in foreign exchange and interest rates. Foreign exchange forward contracts, currency options, interest rate caps, collars, floors and swaps are utilized by the Group to reduce foreign currency exchange and interest rate risks. The Group does not enter into derivatives for trading or speculative purposes. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: (a) all derivatives are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the statements of operations; and (b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions. The foreign currency forward contracts and currency options are utilized to hedge foreign currency exposures for export sales. Trade receivables

f. Software--Costs for development of software that have a bright prospect of future economic benefit or expense reduction in utilization, are deferred and stated at cost less accumulated amortization, which is calculated by the straight-line method principally over the estimated useful life (5 years). g. Allowance for Doubtful Receivables--The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the Company's past credit loss experience and an evaluation of potential losses in the receivables outstanding. h. Retirement and Pension Plans--Effective April 1, 2000, the Group adopted a new accounting standard for employees' retirement benefits and accounting for the liability for retirement benefits based on the projected benefit obligations and plan assets at the balance sheet date. In accordance with the Defined Benefit Pension Plan Law, the Company and its domestic affiliated companies received authorization to dissolve the Sankyo Seiki Pension Fund from the Ministry of Health, Labor and Welfare on April 27, 2004, and dissolved the fund on that same date. Because a defined contribution pension plan system was implemented at the Company as of January 1, 2005, and at affiliated companies as of May 1, 2004, the Company is applying the guidelines "Accounting for Transfers between Retirement Benefit Plans," as laid out in the Financial Accounting Standards Implementation Guidance No. 1, issued by the Accounting Standards Board of Japan (ASBJ). i. Leases--All leases are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized; while other finance leases are to be accounted for as operating lease transactions if certain "as if capitalized" information is disclosed in the notes to the lessee's financial statements. j. Income Taxes--The provision for income taxes is

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denominated in foreign currencies are translated at the contracted rates if the forward contracts qualify for hedge accounting. Currency options applied for forecasted (or committed) transactions are also measured at the fair value, but the unrealized gains/losses are deferred until the underlying transactions are completed. Interest rate swaps that qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differential paid or received under the swap agreements is recognized and included in interest expense or income. n. Per Share Information--Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, retroactively adjusted for stock splits. The average number of common shares used in the computation was 190,843 thousand shares for 2008 and 190,865 thousand shares for 2007. Cash dividends per share presented in the accompanying consolidated statements of operations are calculated by dividends applicable to the respective years and those dividends are paid during the year and are to be paid after the end of the respective fiscal year. In 2008 and 2007, the Company did not disclose the diluted net income per share since potential dilutive securities are not issued. o. Impairment of Fixed AssetsIn August 2002, the Business Accounting Council issued a Statement of Opinion, "Accounting for Impairment of Fixed Assets," and in October 2003 the Accounting Standards Board of Japan (ASBJ) issued ASB Guidance No. 6, "Guidance for Accounting Standards for Impairment of Fixed Assets." The standard shall be effective for fiscal years beginning April 1, 2005. Fixed assets are grouped at the lowest level for which there are identifiable cash flows that are independent from cash flows of other groups of assets. A loss of ¥308 million ($3,077 thousand) for the year ended March 31, 2008 ¥124 million for the year ended March 31, 2007 was recognized. p. New Accounting Standard-- [For the year ended March 31, 2007] Effective from the year ended March 31, 2007, the Company has applied "Accounting Standards for Presentation of Net Assets in the Balance Sheet (Accounting Standards Board of Japan Statement No.5)" and "Implementation Guidance for Accounting Standards for Presentation of Net Assets in the Balance Sheet (Accounting Standards of Japan Guidance No.8)" both issued by the Accounting Standards Board of Japan on December 9, 2005.

The amounts corresponding to the conventional "Shareholders' equity" in the balance sheet are ¥74,025 million ($627,064 thousand). "Net assets" in the balance sheets for this year is presented according to the revision of "Regulations Concerning the Terminology, Form and Presentation Methods of Consolidated Financial Statements" dated on April 25, 2006. [For the year ended March 31, 2008] NIL q. Accounting Standards for Directors' Bonuses-- Effective from the year ended March 31, 2007, the Company applied "Accounting Standards for Directors' bonuses" (Accounting Standards Board of Japan Statement No.4 issued on November 29, 2005 by the Accounting Standards Board of Japan). As a result of the application of this standard, operating profit, ordinary income and income before income taxes for the year ended March 31, 2007 decreased by ¥13 million ($113 thousand), respectively. Additional Information--From the year ended March 31, 2008, the Company no longer books allowance for Directors' bonuses with the introduction of an annual salary system for reviewing the director reward system. r. Change of Accounting Policy--In accordance with the revision of the Corporation Tax Law, the Company and its domestic consolidated subsidiaries have changed the depreciation method for tangible assets acquired on and after April 1, 2007 to the method based on the revised Corporation Tax Law. As a result, for the year ended March 31, 2008, "operating income" and "income before income taxes and minority interests" decreased by ¥101 million ($1,010 thousand), compared with the amounts calculated by the former method, respectively. The impact of this change on segment information is disclosed in "segment information." Additional Information--For tangible assets acquired by the Company and its domestic subsidiaries, on or before March 31, 2007, the difference between the memorandum cost and the amount equivalent to 5% of the acquisition cost is allocated using the straight-line method over 5 years from the consolidated fiscal year that follows the fiscal year in which the book value reached at 5% of the acquisition cost by the depreciation method based on the Corporation Tax Law before the revision, and the amount is included in the depreciation expenses. As a result, for the year ended March 31, 2008, "operating income" and "income before income taxes and minority interests" decreased by ¥130 million

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($1,294 thousand), compared with the amounts calculated by the former method, respectively. The impact of this change on segment information is disclosed in "segment information." s. Change in Method of Presentation--Certificates of deposit were included in cash and cash equivalents for the previous fiscal year. However, from this fiscal year, certificates of deposit are now treated as securities in accordance with amendments to "Practical Guidelines on Accounting Standards for Financial Instruments" (JICPA Accounting Practice Committee Statement No. 14), "Q&A on Accounting for Financial Instruments" (JICPA Accounting Practice Committee) and other related regulations. The balance of certificates of deposit was ¥5,000 million ($49,905 thousand) as of March 31, 2008, and ¥8,000 million as of March 31, 2007. t. Amortization of Goodwill--Goodwill is amortized by the straight-line method over five years or, in the case of immaterial amount, expensed as incurred. 3. SHORT-TERM INVESTMENTS AND INVESTMENT SECURITIES Short-term investments and investment securities as of March 31, 2008 and 2007, consisted of the following:

Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008

Information regarding the category of the securities and marketable bonds classified as available-for-sale and held-to-maturity as of March 31, 2008 and 2007, was as follows:

Millions of Yen Unrealized Unrealized Gains Losses Fair Value

March 31, 2008

Cost

Securities classified as: Available-for-sale Marketable equity securities Held-to-maturity Marketable bonds ¥ 1,713 100 ¥ 1,264 2 ¥ (730 ) ­ ¥ 2,247 102

March 31, 2007 Securities classified as: Available-for-sale Marketable equity ¥ 1,716 securities Held-to-maturity Marketable bonds ­

¥ 1,365 ­

­ ­

¥ 3,081 ­

March 31, 2008

Cost

Thousands of U.S. Dollars Unrealized Unrealized Gains Losses

Fair Value

Securities classified as: Available-for-sale Marketable equity securities $ 17,096 Held-to-maturity Marketable bonds 1,000

$ 6,699 17

$ (1,365) $ 22,430 ­ 1,017

Available-for-sale securities whose fair value is not readily determinable as of March 31, 2008 and 2007, were as follows:

Carrying Amount Thousands of U.S. Dollars 2008

Current: Time deposits Total

¥ ¥

159 159

¥ ¥

699 699

$ $

1,587 1,587 Available-for-sale: Certificates of deposit Non-marketable securities Total

Millions of Yen 2008 2007

Millions of Yen 2008 2007

Thousands of U.S. Dollars 2008

¥ 5,000 134 ¥ 5,134 ¥

­ 136 136

$ 49,905 1,331 $ 51,236

Non-current: Marketable equity securities Trust fund investments and other Total

¥ 2,247 234

¥ 3,081 136

$ 22,430 2,331

¥ 2,481

¥ 3,217

$ 24,761

Proceeds from sales of available-for-sale securities for the years ended March 31, 2008 and 2007, were ¥14 million ($142 thousand) and ¥54 million, respectively. Gross realized gains on these sales, computed on the weighted-average cost basis, were ¥9 million ($89 thousand), and ¥37 million for the year ended March 31, 2008 and 2007 respectively.

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4. CASH AND CASH EQUIVALENTS (CONSOLIDATED STATEMENT OF CASH FLOWS) Reconciliation between "Cash and cash equivalents (Consolidated Balance Sheets)" and "Cash and cash equivalents (Consolidated Statements of Cash Flows)" is as follows:

Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008

6. RETIREMENT AND PENSION PLANS The Company and certain domestic consolidated subsidiaries have severance payment plans for employees, directors and corporate auditors. Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits are made in the form of a lump-sum severance payment from the Company or from certain consolidated subsidiaries and annuity payments from a trustee. Employees are entitled to larger payments if the termination is involuntary, by retirement at the mandatory retirement age, by death, or by voluntary retirement at certain specific ages prior to the mandatory retirement age. The liability for employees' retirement benefits as of March 31, 2008 and 2007, consisted of the following:

Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008

Cash and cash equivalents (Balance Sheets) Securities CMS money deposited Cash and cash equivalents (Cash Flows)

¥ 14,154 5,000 12,256

¥ 26,321 ­ 9,586

$ 141,271 49,905 122,322

¥ 31,410

¥ 35,907

$ 313,498

5. SHORT-TERM BORROWINGS AND LONG-TERM DEBT Short-term borrowings represent bank loans. The annual interest rates applicable to the short-term bank loans ranged 5.41% as of March 31, 2007. Long-term debt as of March 31, 2008 and 2007 was comprised of the following:

Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008

Projected benefit obligation Net liability

¥ 196 ¥ 196

¥ 236 ¥ 236

$ 1,958 $ 1,958

1.82% to 2.80% (1.82% to 2.80% in 2007) loans from banks and insurance companies, due serially to 2009 ¥ 11 3.15% to 6.40% (3.15% to 6.40% in 2007) loans from government financing institutions, due serially to 2026 38 Total 49 Less current portion (13 ) Long-term debt, less current portion ¥ 36

¥

60

$

111

42 102 (52) ¥ 50 $

383 494 (134) 360

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

Year Ending March 31 Millions of Yen Thousands of U.S. Dollars

The Company and certain domestic consolidated subsidiaries have defined contribution pension plan systems and severance payment plans. In accordance with the Defined Benefit Pension Plan Law, the Company and its domestic affiliated companies received authorization to dissolve the Sankyo Seiki Pension Fund from the Ministry of Health, Labor and Welfare on April 27, 2004, and dissolved the fund on that same date. Because a defined contribution pension plan system was implemented at the Company as of January 1, 2005, and at affiliated companies as of May 1, 2004, we are applying the guidelines "Accounting for Transfers between Retirement Benefit Plans," as laid out in Financial Accounting Standards Implementation Guidance No. 1, issued by the ASBJ. The components of net periodic benefit costs for the years ended March 31, 2008 and 2007 are as follows:

Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008

2009 2010 2011 2012 2013 and thereafter Total

¥ 13 2 2 3 29 ¥ 49

$ 134 24 24 25 287 $ 494

Service cost Others Net periodic benefit costs

¥

21 254

¥

20 293

$

207 2,538

¥ 275

¥ 313

$ 2,745

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7. SHAREHOLDERS' EQUITY Japanese companies are subject to the Japanese Commercial Code (the "Code") to which certain amendments became effective from October 1, 2001. The Code was revised whereby common stock par value was eliminated resulting in all shares being recorded with no par value and at least 50% of the issue price of new shares being recorded, as required, as common stock and the remaining net proceeds as additional paid-in capital. The Code permits Japanese companies, upon approval of the Board of Directors, to issue shares to existing shareholders without consideration as a stock split. Such issuance of shares generally does not give rise to changes within the shareholders' accounts. The revised Code also provides that an amount at least equal to 10% of the aggregate amount of cash dividends and certain other appropriations of retained earnings associated with cash outlays applicable to each period shall be appropriated as a legal reserve (a component of retained earnings) until such reserve and additional paid-in capital equals 25% of common stock. The amount of total additional paid-in capital and legal reserve that exceeds 25% of the common stock may be available for dividends by resolution of the shareholders. In addition, the Code permits the transfer of additional paid-in capital and legal reserve to the common stock by resolution of the Board of Directors. The revised Code eliminated restrictions on the repurchase and use of treasury stock allowing Japanese companies to repurchase treasury stock by a resolution of the shareholders at the general shareholders' meeting and dispose of such treasury stock by resolution of the Board of Directors beginning April 1, 2002. The repurchased amount of treasury stock cannot exceed the amount available for future dividends plus amounts of common stock, additional paid-in capital or legal reserve to be reduced in the case where such reduction was resolved at the general shareholders' meeting. The amount of retained earnings available for dividends under the Code was ¥1,908 million ($19,048 thousand) and ¥1,908 million as of March 31, 2008 and 2007, based on the amount recorded in the Company's general books of account. In addition to the provision that requires an appropriation for a legal reserve in connection with the cash payment, the Code imposes certain limitations on the amount of retained earnings available for dividends. Dividends are approved by the shareholders at the

shareholder's meeting held subsequent to the fiscal year to which the dividends are applicable. Interim dividends may also be paid upon resolution of the Board of Directors, subject to the limitations imposed by the Code. 8. INCOME TAXES The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 40% and 40% for the years ended March 31, 2008 and 2007. Foreign subsidiaries are subject to income taxes of the jurisdiction in which they operate. The tax effects of significant temporary differences and loss carryforwards that resulted in deferred tax assets and liabilities as of March 31, 2008 and 2007, are as follows:

Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008

Current: Deferred tax assets: Accrued bonuses ¥ Accrued business tax Advance received Loss on devaluation of inventories Tax loss carryforwards Other Offsetting of balances within the same tax jurisdiction Less valuation allowance Total

394 51 80 110 ­ 591 (7 ) (42 )

¥

352 36 ­ 916 485 456 (26 ) (731 )

$

3,932 509 798 1,098 ­ 5,901 (69) (423)

¥ 1,177

¥ 1,488

$ 11,746

Deferred tax liabilities: Other ¥ Offsetting of balances within the same tax jurisdiction Total ¥

9 (7 ) 2

¥

30 (26 )

$

91 (69)

¥

4

$

22

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Millions of Yen 2008 2007

Thousands of U.S. Dollars 2008

Non-current: Deferred tax assets: Tax loss carryforwards ¥ 505 ¥ 407 $ 5,037 Pension and severance costs 58 26 579 Directors' retirement benefits ­ 20 ­ Investment securities 21 25 207 Allowance for doubtful receivables 1 2 13 Property, plant and equipment 1,535 949 15,324 Long-term payables 1,243 1,705 12,403 Other 956 935 9,540 Offsetting of balances within (843 ) (135) (8,409) the same tax jurisdiction Less valuation allowance (2,931 ) (3,707) (29,251) Total ¥ 545 ¥ 227 $ 5,443

totaling approximately ¥3,224 million ($32,179 thousand), which can be offset against taxable income, if any, of the Company and such consolidated subsidiaries in the future. 9. RELATED PARTY/EMPLOYEE TRANSACTIONS CMS money deposited through utilization of the Cash Management System within the Nidec Group based on a signed contract with Nidec, the parent company, as of April , 2006. The interest of CMS money is determined rationally in view of money market interest rates. Transactions of the Company with Nidec, the parent company, for the year ended March 31, 2008 and 2007, were as follows:

Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008

Deferred tax liabilities: Property and equipment ¥ Unrealized gain on availablefor-sale securities Undistributed earnings of foreign subsidiaries Special depreciation reserve Other Offsetting of balances within the same tax jurisdiction Total ¥

157 212 858 ­ 40 (843 ) 424

¥

208 $ 544 591 14 40 (135)

1,562 2,117 8,562 ­ 402 (8,409) 4,234

CMS money deposited CMS money deposited interest Acquisition of investment securities

¥ 2,991 58 1,632

¥ 8,659 17 ­

$ 29,854 577 16,286

¥

1,262 $

A reconciliation between the normal effective statutory tax rate for the years ended March 31, 2008 and 2007, and the actual effective tax rates reflected in the accompanying consolidated statements of operations is as follows:

2008 Normal effective statutory tax rate Expenses not deductible for income tax purposes Income not taxable for income tax purposes Per capita portion of inhabitants' taxes Foreign tax credit Valuation allowance Prior-period income taxes Tax on undistributed earnings of particular foreign subsidiaries Effect of applied tax rates at foreign subsidiaries Undistributed earnings of foreign subsidiaries Reduction and exemption of taxes by privilege Experimental and research expenses tax credit Change of deferred income tax by tax rate change Other--net Actual effective tax rate 40.0% 1.2 (1.1) 0.4 (5.8) (14.8) ­ 6.7 (13.9) 9.0 (4.5) (1.7) (1.0) 1.9 16.4% 2007 40.0% 0.7 (0.9) 0.2 (2.1) (43.5) 0.1 3.5 (0.1) (2.2) ­ ­ ­ 1.1 (3.2)%

CMS money deposited for the years ended March 31, 2008 and 2007 was ¥11,725 million ($117,026 thousand) and ¥8,676 million. 10. RESEARCH AND DEVELOPMENT COSTS

Research and development costs relating to new products and technologies, except development costs incurred and deferred at certain foreign subsidiaries, were ¥4,293 million ($42,851 thousand) and ¥4,540 million for the years ended March 31, 2008 and 2007, respectively. 11. LEASES

At March 31 2008, the Company and certain consolidated subsidiaries have tax loss carryforwards,

The Group leases certain machinery, computer equipment and office space. Total rental expenses for the years ended March 31, 2008 and 2007, were ¥1,291 million ($12,884 thousand) and ¥1,373 million, respectively, including ¥599 million ($5,978 thousand) and ¥614 million of lease payments under finance leases. On an "as if capitalized" basis, pro forma information of leased property such as acquisition cost, accumulated depreciation, lease payment obligations under finance lease, depreciation expense, interest expense of finance leases that do not transfer ownership of the leased property to the lessee for the

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years ended March 31, 2008 and 2007, was as follows:

Millions of Yen 2008 Equipment

12. a.

DERIVATIVES Utilization

Machinery

Total

Acquisition cost Accumulated depreciation Net leased property

¥

2,127 1,161 966

¥ 520 263 ¥ 257

Millions of Yen 2007 Equipment

¥ 2,647 1,424 ¥ 1,223

¥

Machinery

Total

Acquisition cost Accumulated depreciation Net leased property

¥

2,201 1,038 1,163

¥ 562 315 ¥ 247

¥ 2,763 1,353 ¥ 1,410

¥

Thousands of U.S. Dollars 2008 Machinery Equipment Total

Acquisition cost Accumulated depreciation Net leased property

$ 21,232 11,590 $ 9,642

$

5,193 2,629 2,564

$ 26,425 14,219 $ 12,206

$

Obligations under finance leases:

Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008

The Group utilizes various derivative financial instruments ("derivatives") to mitigate the risk of fluctuating foreign currency exchange rates and interest rates. The derivatives utilized by the Group include foreign exchange forward contracts, currency option contracts, interest rate caps and swaps. The Group enters into contracts with major financial institutions in order to avoid credit loss in the event of nonperformance by counterparties to the contracts. Exposure to market risk is managed through position limits, approvals and monitoring procedures. The operational reports prepared by the executive section, with transaction reports sent directly from financial institutions to the administrative section, are regularly submitted to the Board of Directors for their analysis and monitoring of the current status of derivative activities. For derivatives to hedge interest risk exposure, preapproval from the Board of Directors is required, and basic policy and credit limits are established and approved by the Board of Directors. b. Market Value of Contracts The Group had the following derivatives contracts outstanding on March 31, 2008 and 2007:

Millions of Yen 2008 Contract or Notional Amount Unrealized Loss

Due within one year Due after one year Total

¥

490 757

¥ 532 953 ¥1,485

$ 4,891 7,558 $ 12,449

¥ 1,247

Depreciation expense and interest expense under finance leases:

Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008

Fair Value

Depreciation expense Interest expense Total

¥

570 29 599

¥ 593 32 ¥ 625

$ 5,688 288 $ 5,976

Non-listed: Interest rate swaps trading (fixed rate payment, floating rate receipt)

¥

1,200

¥

(7 )

¥

(7 )

¥

Depreciation expense and interest expense, which were not reflected in the accompanying consolidated statements of operations, were computed by the straight-line method over the lease period.

Thousands of U.S. Dollars 2008 Contract or Notional Unrealized Loss Amount Fair Value

Non-listed: Interest rate swaps trading (fixed rate payment, floating rate receipt)

$ 11,977

$

(70 )

$

(70 )

Millions of Yen 2007 Contract or Notional Amount Unrealized Loss

Fair Value

Non-listed: Interest rate swaps trading (fixed rate payment, floating rate receipt)

¥

1,200

¥

(12 )

¥

(12 )

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Forward exchange contracts which are assigned to certain assets or liabilities denominated in foreign currency, shown by using that forward exchange rate in the consolidated balance sheets, are excluded from the above. The contract or notional amounts of derivatives shown above do not represent the amounts of which those contracts could be exchanged to the counterparties and do not prescribe the index to credit or market risk sustained by the Group. 13. CONTINGENT LIABILITIES

On March 31, 2008 and 2007, the Group had the following contingent liabilities:

Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008

Guarantees and items of a similar nature: Employees' housing loans Total

¥ ¥

228 228

¥ ¥

277 277

$ $

2,279 2,279

14.

SEGMENT INFORMATION

Information on operations in different industry segments, foreign operations and sales to foreign customers of the Company and its consolidated subsidiaries for the years ended March 31, 2008 and 2007, was as follows:

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(1) Operations in Different Industries

Millions of Yen Electronic Components ¥ 80,035 114 80,149 75,464 ¥ ¥ 4,685 56,557 4,707 193 4,177 ¥ ¥ Systems Machinery ¥ 26,670 331 27,001 21,739 5,262 19,825 500 1 659 ¥ ¥ Eliminations and Corporate ­ (610) (610) 15 ¥ ¥ (625) 27,512 127 114 18 ¥ ¥

Year Ended March 31, 2008 Sales to customers Intersegment sales Total sales Operating expenses Operating income Assets Depreciation Impairment losses Capital expenditures

Others ¥ 2,282 165 2,447 2,225 222 653 13 0 10

Consolidated ¥ 108,987 ­ 108,987 99,443 9,544 104,547 5,347 308 4,864

¥

Year Ended March 31, 2008 Sales to customers Intersegment sales Total sales Operating expenses Operating income Assets Depreciation Impairment losses Capital expenditures

Electronic Components $ 798,838 1,131 799,969 753,205 $ 46,764

Thousands of U.S. Dollars Eliminations Systems and Others Corporate Machinery $ 266,192 3,308 269,500 216,976 $ 52,524 $ 22,776 1,646 24,422 22,207 $ 2,215 $ 6,518 130 1 98 $ ­ (6,085) (6,085) 156 (6,241)

Consolidated $ 1,087,806 ­ 1,087,806 992,544 $ 95,262

$

$ 564,497 46,978 1,932 41,694

$ 197,872 4,990 10 6,574

$ 274,602 1,268 1,134 180

$ 1,043,489 53,366 3,077 48,546

Notes: The electronic components segment consists of micromotors, lens actuators, timers, stepping motors and motor units, optical pick-up units, office equipment and mechanisms unit etc. The systems machinery segment consists of magnetic card readers and machinery units. The others segment contains musical movements and other items. The unallocated operating expenses are principally composed of general corporate expenses incurred by the Administration Headquarters of the Company. In accordance with the revision of the Corporation Tax Law, the Company and its domestic consolidated subsidiaries have changed the depreciation method for tangible assets acquired on and after April 1, 2007 to the method based on the revised Corporation Tax Law. As a result, operating expenses in the electronic components and systems machinery and others segments for the year ended March 31, 2008 increased by ¥71 million ($712 thousand) and ¥29 million ($294 thousand) and ¥0 million ($0 thousand) compared with the former method, respectively, while operation income in each segment decreased by the same respective amount. For tangible assets acquired by the Company and its domestic subsidiaries, on or before March 31, 2007, the difference between the memorandum cost and the amount equivalent to 5% of the acquisition cost is allocated using the straight-line method over 5 years from the consolidated fiscal year that follows the fiscal year in which the book value reached at 5% of the acquisition cost by the depreciation method based on the Corporation Tax Law before the revision, and the amount is included in the depreciation expenses. As a result, operating expenses in the electronic components and system machinery and others segments for the year ended March 31, 2008 increased by ¥75 million ($751 thousand) and ¥27 million ($269 thousand) and ¥27 million ($274 thousand) compared with the former method, respectively, while operating income in each segment decreased by the same respective amount.

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Millions of Yen Electronic Components ¥ 75,691 87 75,778 74,559 ¥ 1,219 Systems Machinery ¥ 34,719 76 34,795 26,205 ¥ 8,590 ¥ 19,164 313 0 1,509 ¥ ¥ Eliminations and Corporate ­ ¥ (316) (316) 273 ¥ (589) ¥

Year Ended March 31, 2007 Sales to customers Intersegment sales Total sales Operating expenses Operating income Assets Depreciation Impairment losses Capital expenditures

Others ¥ 2,219 153 2,372 2,158 214 912 13 23 14

Consolidated ¥ 112,629 ­ 112,629 103,195 9,434

¥ 59,767 4,817 101 4,530

¥ 32,390 128 ­ 52

¥ 112,233 5,271 124 6,105

Notes: The electronic components segment consists of micromotors, lens actuators, timers, stepping motors and motor units, optical pick-up units, office equipment and tape recorder mechanisms. The systems machinery segment consists of magnetic card readers and machinery units. The others segment contains musical movements and other items. The unallocated operating expenses are principally composed of general corporate expenses incurred by the Administration Headquarters of the Company. Effective from the year ended March 31, 2007, the Company applied "Accounting Standards for Directors' Bonuses" (Accounting Standards Board of Japan Statement No.4 issued on November 29, 2005 by the Accounting Standards Board of Japan). As a result of the application of this standard, in the electronic components segment, operating expenses increased ¥13 million ($113 thousand), operating profit decreased by ¥13 million ($113 thousand) compared to the previous methods respectively for the year ended March 31, 2007.

(2)

Foreign Operations

The foreign operations of the Group for the years ended March 31, 2008 and 2007 are summarized as follows:

Millions of Yen Eliminations and Corporate

Year Ended March 31, 2008 Sales: Outside customers Inter-area Total sales Operating expenses Operating income Assets ¥

Japan

Asia

North America

Europe

Consolidated

¥ 75,593 13,977 89,570 82,853 6,717

¥ 27,585 37,247 64,832 62,192 ¥ 2,640

¥

3,885 16 3,901 3,306

¥ 1,924 14 1,938 1,637 ¥ 301

­ ¥ (51,254) (51,254 ) (50,545 ) ¥ ¥ (709 ) 6,186

¥ 108,987 ­ 108,987 99,443 ¥ 9,544

¥ ¥

595 2,129

¥ 62,012

¥ 33,021

¥ 1,199

¥ 104,547

Sankyo-23

Thousands of U.S. Dollars Eliminations and Corporate

Year Ended March 31, 2008 Sales: Outside customers Inter-area Total sales Operating expenses Operating income Assets $

Japan

Asia

North America

Europe

Consolidated

$ 754,497 139,505 894,002 826,958 67,044

$ 275,328 371,762 647,090 620,744 $ 26,346

$ 38,773 164 38,937 32,997 $ 5,940

$ 19,208 142 19,350 16,336 $ 3,014

­ $ (511,573) (511,573) (504,491) $ $ (7,082) 61,745

$ 1,087,806 ­ 1,087,806 992,544 $ 95,262

$ 618,942

$ 329,585

$ 21,249

$ 11,968

$ 1,043,489

Notes: The Asia area is composed of China, Hong Kong, Singapore, Chinese Taipei, etc. The North America area represents the United States of America. The Europe area represents Germany. In accordance with the revision of the Corporation Tax Law, the Company and its domestic consolidated subsidiaries have changed the depreciation method for tangible assets acquired on and after April 1, 2007 to the method based on the revised Corporation Tax Law. As a result, operating expenses in Japan segment for the year ended March 31, 2008 increased by ¥101 million ($1,010 thousand) compared with the former method, while operating income in each segment decreased by the same respective amount. For tangible assets acquired by the Company and its domestic subsidiaries, on or before March 31, 2007, the difference between the memorandum cost and the amount equivalent to 5% of the acquisition cost is allocated using the straight-line method over 5 years from the consolidated fiscal year that follows the fiscal year in which the book value reached at 5% of the acquisition cost using the depreciation method based on the Corporation Tax Law before the revision, and the amount is included in the depreciation expenses. As a result, operating expenses in Japan segment for the year ended March 31, 2008 increased by ¥130 million ($1,294 thousand) compared with the former method, while operating income in each segment decreased by the same amount. Millions of Yen Eliminations and Corporate

Year Ended March 31, 2007 Sales: Outside customers Inter-area Total sales Operating expenses Operating income Assets ¥

Japan

Asia

North America

Europe

Consolidated

¥ 79,116 13,573 92,689 84,172 8,517

¥ 27,889 34,833 62,722 62,230 ¥ 492

¥

4,219 9 4,228 3,493

¥ 1,405 10 1,415 1,183 ¥ 232

­ ¥ (48,425) (48,425) (47,883) ¥ ¥ (542) 9,688

¥ 112,629 ­ 112,629 103,195 ¥ 9,434

¥ ¥

735 2,553

¥ 63,709

¥ 35,242

¥ 1,041

¥ 112,233

Notes: The Asia area is composed of China, Hong Kong, Singapore, Chinese Taipei, etc. The North America area represents the United States of America. The Europe area represents Germany. Effective from the year ended March 31, 2007, the Company applied "Accounting Standards for Directors' Bonuses" (Accounting Standards Board of Japan Statement No.4 issued on November 29, 2005 by the Accounting Standards Board of Japan). As a result of the application of this standard, in the Japan segment operating expenses increased by ¥13 million ($113 thousand), operating profit decreased by ¥13 million ($113 thousand) compared to the previous methods respectively for the year ended March 31, 2007.

Sankyo-24

(3) Sales to Foreign Customers Sales to foreign customers for the years ended March 31, 2008 and 2007, were as follows:

Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008

Accounting Standard for Business Combinations." (3) Matters related to additional acquisition of shares of subsidiaries 1. Acquisition cost and breakdown Consideration for acquisition

Millions of Yen Thousands of U.S. Dollars

North America Europe Asia Others Total

¥

4,526 4,768 54,245 1,684

¥

5,579 4,019 55,532 1,356

$

45,174 47,587 541,416 16,811

Treasury stock Acquisition cost

¥ ¥

378 378

$ 3,773 $ 3,773

¥ 65,223

¥ 66,486

$ 650,988

15.

BUSINESS COMBINATIONS

2. Share exchange ratio, its basis for determination, number of shares delivered and its values i. Type of shares and share exchange ratio Common shares

NIDEC SANKYO CORPORATION. 4.425: NIDEC NISSIN CORPORATION. 1

[For the year ended March 31, 2007] Not applicable [For the year ended March 31, 2008] Transactions under common control (1) Corporate name and business of the entity combined, legal form of business combinations corporate name after business combinations and overview of the transaction including its purpose 1. Corporate name and nature of business of the entity combined Name: NIDEC NISSIN CORPORATION Nature of business: Engineering plastic metal mold and molding technique, plastic lens, manufacturing and sales of optical apparatus. 2. Legal form of business combinations Share exchange 3. Corporate name after business combinations No change 4. Overview of the transaction including its purpose NIDEC NISSIN CORPORATION has been growing up through developing products that meet customers' needs by using "Engineering plastic metal mold and molding technique" and "Superprecision technologies of optical apparatus", accumulated for 45 years since its establishment. The Company and NIDEC NISSIN CORPORATION entered into a share exchange agreement to make NIDEC NISSIN CORPORATION a wholly-owned subsidiary of the Company on February 14, 2008 because the Company considered to further strengthen relationships with plastic components and optical components businesses of NIDEC NISSIN CORPORATION for the Company group's unitization of parts business and development of optical business. (2) Overview of the accounting treatment The Company accounted for the transaction under Accounting treatment in "Accounting treatment for transactions under common control, etc., Transactions with minority shareholders of the

ii. Basis for determination of share exchange ratio The Company engaged Shimodaira certified tax accountant's office as an independent third-party evaluator to calculate the share exchange ratio, while NIDEC NISSIN CORPORATION engaged Ueno licensed tax accountant's office as an independent thirdparty evaluator to calculate the share exchange ratio. As a result, the Company and NIDEC NISSIN CORPORATION comprehensively determined the share exchange ratio after several discussions. Shimodaira certified tax accountant's office and Ueno licensed tax accountant's office, independent third-party evaluators, are not related parties of the Company or NIDEC NISSIN CORPORATION. iii. Number of shares delivered and values 477,900 shares ¥ 378 millions of Yen ($ 3,773 thousands of U.S. Dollars) 3. Goodwill, reason for recognizing goodwill, amortization method and term i. Amount of goodwill ¥ 282 millions of Yen ($ 2,823 thousands of U.S. Dollars) ii. Reason for recognizing The Company has recognized the difference as goodwill because net assets of fair value exceeded the acquisition cost at business combination. iii. Method and period to amortize goodwill Straight-line method over 5 years iv. Amount of acquisition cost, amount allocated as research and development expenses, etc., and the names of any such items None

Sankyo-25

Sankyo-26

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