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ANNUAL REPORT 1998

Year ended March 31, 1998 1998

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CONTENTS HIGHLIGHTS OF THE YEAR 1 MESSAGE FROM THE CHAIRMAN AND THE PRESIDENT 2 SEGMENT INFORMATION 6 REVIEW OF OPERATIONS 9 Information Systems 10 Information Media Systems 12 Electronics Components 14 Power & Industrial Systems 16 Consumer Products 18 Materials / Services & Other 20 Research and Development 22 For a Better World 23 BOARD OF DIRECTORS AND CORPORATE AUDITORS 24 FINANCIAL SECTION 25 FIVE-YEAR SUMMARY 48 MAJOR CONSOLIDATED SUBSIDIARIES 49 INTERNATIONAL NETWORK 50 CORPORATE DATA 53

Statements in this document contain forward-looking statements which reflect yen and other currencies in which Hitachi makes significant sales or in which management’s current views with respect to certain future events and financial Hitachi’s assets and liabilities are denominated, particularly between the yen and performance. Words such as “anticipate,” “believe,” “expect,” “estimate,” the U.S. dollar; uncertainty as to Hitachi’s access to liquidity or long-term financ- “intend,” “plan,” “project,” and similar expressions which indicate future events ing, particularly in the context of restrictions or availability of credit prevailing in and trends identify forward-looking statements. Actual results may differ material- Japan; uncertainty as to Hitachi’s ability to implement measures to reduce the ly from those projected or implied in the forward-looking statements and from potential negative impact of fluctuations in product demand and/or exchange historical trends. Further, certain forward-looking statements are based upon rates; general economic conditions and the regulatory and trade environment of assumptions of future events which may not prove to be accurate. Hitachi’s major markets, particularly the United States, Japan, and elsewhere in Factors that could cause actual results to differ materially from those projected Asia, including, without limitation, continued stagnation or deterioration of the or implied in any forward-looking statements include, but are not limited to, rapid Japanese or other East Asian economies, or direct or indirect restriction by other technological change, particularly in the Information Systems & Electronics seg- nations of imports; uncertainty as to Hitachi’s access to, or protection for, certain ment; uncertainty as to Hitachi’s ability to continue to develop products and to intellectual property rights, particularly rights to electronics and data processing market products that incorporate new technology on a timely and cost-effective technologies; Hitachi’s dependence on alliances with other corporations in design- basis and achieve market acceptance; fluctuations in product demand and indus- ing or developing certain products; and the potential impact of Hitachi’s effort to try capacity, particularly in the Information Systems & Electronics segment and the deal with the Year 2000 information systems issue. Consumer Products segment; exchange rates and their fluctuations between the

Printed on paper treated with chlorine-free bleach

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HIGHLIGHTS OF THE YEAR

Hitachi, Ltd. and Subsidiaries Years ended March 31, 1998 and 1997

Millions of Millions of yen U.S. dollars 1998 1997 1998 For the year: Net sales ...... ¥ 8,416,834 ¥8,523,100 $63,764 Operating income ...... 209,007 297,166 1,583 Net income ...... 3,477 88,331 26 Cash dividends declared...... 36,715 36,625 278 Capital investment (Property, plant and equipment) ...... 712,672 740,135 5,399 Depreciation (Property, plant and equipment) ...... 550,393 543,560 4,170 Research and development expenditures...... 510,878 503,508 3,870

At year-end: Total assets...... 10,113,012 9,964,709 76,614 Net property, plant and equipment...... 2,646,132 2,559,497 20,046 Stockholders’ equity ...... 3,240,770 3,283,890 24,551

Yen U.S. dollars Per share data: Net income: Basic...... ¥ 1.04 ¥ 26.51 $0.01 Diluted ...... 1.00 25.55 0.01 Net income per ADS (representing 10 shares): Basic...... 10 265 0.08 Diluted ...... 10 256 0.08 Cash dividends declared ...... 11 11 0.08 Cash dividends declared per ADS (representing 10 shares) ...... 110 110 0.83 Stockholders’ equity ...... 970.90 983.85 7.36

Number of employees...... 331,494 330,152

Notes: 1. The consolidated figures in this annual report are expressed in yen and, solely for the convenience of the reader, have been translated into United States dollars at the rate of ¥132=U.S.$1, the approximate exchange rate prevailing on the Tokyo Foreign Exchange Market as of March 31, 1998. See note 2 of the accompanying notes to consolidated financial statements. 2. The Company has not implemented Statement of Financial Accounting Standards No. 115 in accounting for certain investments in debt and equity securities. See note 3 of the accompanying notes to consolidated financial statements. If implemented, the balance of stockholders’ equity as of March 31, 1998 and 1997 would have been ¥3,384,381 million ($25,639 million) and ¥3,513,437 million, respectively, and stockholders’ equity per share would have been ¥1,013.93 ($7.68) and ¥1,052.62, respectively. 3. In accordance with Statement of Financial Accounting Standards No. 109, the Company recognized the effect on deferred tax assets and liabilities of a change in income tax rates in Japan, which resulted in a decrease in net income by ¥27,053 million ($205 million) for the year ended March 31, 1998.

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MESSAGE FROM THE CHAIRMAN AND THE PRESIDENT

Tsutomu Kanai, President, and Katsushige Mita, Chairman.

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The following is our report to our share- for PCs also performed well. However, holders on the financial results and busi- sales of semiconductors declined, owing ness activities of Hitachi for fiscal 1997, to plummeting DRAM prices, and sales ended March 31, 1998. of telecommunications equipment also dropped because of a downturn in in- > Overview vestment by carriers in Japan. Sector Fiscal 1997 was an extremely harsh year sales increased 3%, to ¥3,373,532 mil- for the Japanese economy. Cutbacks in lion ($25,557 million), although operat- public-sector investment, sluggish private- ing income declined 39%, to ¥63,375 sector investment in new plant and equip- million ($480 million). ment, a greater-than-expected decline in In Power & Industrial Systems, slack consumer spending in response to the Japanese demand and the economic national consumption tax rate increase, the slowdown in Southeast Asia adversely discontinuation of the special tax reduction, affected industrial systems sales. Poorer and falling confidence in the financial results were also posted by power sys- system triggered by the failure of major tems, mainly because the last part of a financial institutions combined to produce large nuclear power equipment ship- a precipitous deterioration of the business ment was delivered in the preceding climate in the latter half of the year. Full- period. Sector sales were down 6%, to year economic growth was negative for the ¥2,543,181 million ($19,266 million), first time in 23 years. Although the U.S. and operating income declined 19%, economy remained vibrant, countries to ¥93,554 million ($708 million). throughout Southeast Asia saw their In Consumer Products, the fall in rapidly expanding economies decelerate consumer spending in Japan pushed sharply as a currency crisis swept down sales in Japan of all lines, while across the region. room air conditioners were further de- Under these conditions, Hitachi’s sales pressed by unseasonable weather. Sales dropped 1% from the preceding year, outside Japan were hit by the economic to ¥8,416,834 million ($63,764 million). setback in Southeast Asia. Sector sales Operating income was ¥209,007 million came to ¥928,447 million ($7,034 mil- ($1,583 million), down 30%, and net lion), down 6%, and the operating loss income ¥3,477 million ($26 million), was ¥16,061 million ($121 million). down 96%. The declines in operating In Materials, a good performance income and net income were caused by electronics-related products and by the falling prices of semiconductor components boosted sector sales 4%, memories, slow consumer product sales, to ¥1,473,461 million ($11,163 million), and exchange losses in Southeast Asia. and operating income 4%, to ¥66,119 million ($501 million). > Segment Information In Services & Other, PC peripherals and In Information Systems & Electronics, related products boosted general trading high-end mainframe computer systems companies’ sales. Financial services also continued to be strong, especially in performed well. Sector sales amounted markets abroad. Color display tubes to ¥2,414,879 million ($18,294 million),

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the same as in the previous year, and formulating a plan to provide the required operating income was up 29%, to structure by increasing the authority of ¥52,918 million ($401 million). the individual business groups and streamlining the administration. > Staying Ahead In the midst of the ongoing reform > Managing Leadership in of Japan’s economic and social systems Information Electronics Systems and at a time of unprecedented need for In Japan, deregulation and techno- international competitive strength, we logical progress are catalyzing a major believe that management’s first respon- overhaul of the industrial structure. sibility to the Company’s shareholders is Globally, the move toward lower tariff to move aggressively forward with a re- barriers and freer trade is encouraging forming of Hitachi’s business structure. the low-growth free economies to cross We are committed to restoring sales national borders. The result is increas- and income by implementing measures ingly a single, intensely competitive world to minimize material costs and operat- market. Such sweeping technology- ing expenses, optimize personnel de- powered change provides an out- ployment, and otherwise upgrade standing opportunity for the creation management efficiency. of new markets, and the key to their Hitachi is streamlining unprofitable development is electronics technologies, product sectors. During the year, we particularly information and telecommu- discontinued our semiconductor pro- nications technologies. These are the duction joint venture with Texas Instru- areas in which Hitachi excels and has ments Incorporated and reassessed prepared itself to exploit to the full. One semiconductor production bases in Japan aspect of this preparation was a product and abroad in response to the rapid shift regrouping implemented in February 1998. to 64-megabit DRAMs from 16-megabit Hitachi strengthened its multimedia- DRAMs. In the Consumer Products sec- related business by combining its PC- tor, we temporarily ceased operations at related operations and its digital products room air conditioner production lines to operations into a single business group. optimize inventory levels and realigned In another move, we consolidated and consumer product marketing channels reinforced the development of system in the United States. Efficiency is also LSIs, which play an indispensable role being promoted through tighter inte- in the pioneering of new markets. gration between production and In developing new businesses to marketing operations. drive future corporate growth, Hitachi Today’s megacompetition means that to is focusing its technological and other stay at the top of its industrial sectors in resources primarily on the information competitive strength, Hitachi must have the electronics systems area. In particular, speedy decision-making capability that only electronic commerce support services an organization with a flat management are an example of social infrastructure structure can achieve. Hitachi is currently systems that apply information

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electronics, a forte of Hitachi. Also, still involves many causes for concern. Hitachi is targeting multimedia content The search for the road to recovery is services and a digital infrastructure system far from over. While the U.S. economy using a satellite for information providers. remains vigorous, the economies of During the year, Hitachi also endeav- Southeast Asia are not likely to recover ored to strengthen the foundation of quickly. In addition, the European econ- its international business operations by, omy will remain firm in advance of cur- for example, establishing an automotive rency unification in the region. Overall, equipment production company in the the severity of the business environment United Kingdom, nuclear power equip- is unlikely to diminish appreciably. ment and air-conditioning equipment No matter how difficult the economic joint ventures in China, and an automat- climate, Hitachi must never lose sight of ic medical analyzer production company, its purpose. Driven by technology, dedi- also in China. cated to uncompromising reliability, and determined to make the whole world its > Investment for the Future arena, Hitachi’s mission is, above all, to Since its founding, Hitachi has always show the way to the future. This is epit- viewed R&D as the source of future busi- omized by the Company’s motto, “Look ness and technology and the power at Hitachi and See the Future.” To ensure behind corporate progress. During the that this is the way people around the year, Hitachi again optimized the effect globe continue to view the Company, of its R&D investment by focusing funds we intend to shift more resources to mainly on the high-growth electronics the information electronics area. area. R&D expenditures during the year In our endeavors, please continue to amounted to ¥510,878 million ($3,870 provide your support. million), an increase of 1% from the preceding year. June 26, 1998 Capital investment during the year amounted to ¥712,672 million ($5,399 million), down 4% from the preceding year, and was directed mainly toward leading-edge product areas, such as next-generation semiconductors and Katsushige Mita information systems. Chairman and Representative Director

> Look at Hitachi and See the Future Although the Japanese government’s massive economic stimulation package is expected to save the economy from Tsutomu Kanai a second consecutive year of negative President and Representative Director growth, the economic outlook for 1998

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SEGMENT INFORMATION

Hitachi, Ltd. and Subsidiaries Years ended March 31, 1998, 1997 and 1996

1 Industry Segments Millions of Millions of yen U.S. dollars (A)/(B) 1998 (A) 1997 (B) 1996 1998 x 100 Sales Information Systems & Electronics ¥ 3,373,532 ¥ 3,289,337 ¥ 3,025,063 $25,557 103 31% 30% 29% Power & Industrial Systems 2,543,181 2,719,775 2,523,508 19,266 94 24% 25% 25% Consumer Products 928,447 990,895 952,751 7,034 94 9% 9% 9% Materials 1,473,461 1,413,174 1,372,263 11,163 104 14% 13% 13% Services & Other 2,414,879 2,424,410 2,472,154 18,294 100 22% 23% 24% Subtotal 10,733,500 10,837,591 10,345,739 81,314 99 100% 100% 100% Eliminations (2,316,666) (2,314,491) (2,221,929) (17,550) — Total 8,416,834 8,523,100 8,123,810 63,764 99

Operating Income (Loss) Information Systems & Electronics 63,375 103,682 184,849 480 61 24% 31% 47% Power & Industrial Systems 93,554 116,067 114,080 708 81 36% 35% 29% Consumer Products (16,061) 7,372 (14,786) (121) — (6%) 2% (4%) Materials 66,119 63,532 75,193 501 104 26% 19% 19% Services & Other 52,918 41,100 36,974 401 129 20% 13% 9% Subtotal 259,905 331,753 396,310 1,969 78 100% 100% 100% Eliminations & Corporate items (50,898) (34,587) (63,728) (386) — Total 209,007 297,166 332,582 1,583 70

Notes: 1. Net sales by industry segment include intersegment transactions. 2. This information is disclosed in accordance with a ministerial ordinance under the Securities and Exchange Law of Japan.

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> Information Systems & Electronics Mainframe Computers, Software, Computer Terminals and Peripherals, Workstations, Sales Operating Income PCs, Magnetic Disks, Telephone Exchanges, (billions of yen) (billions of yen) Broadcasting Equipment, Semiconductors,

’96 3,025 ’96 185 Picture Tubes, Display Tubes, LCDs, Semicon- ’97 3,289 ’97 104 ductor Manufacturing Equipment, Test and ’98 3,374 ’98 63 Measurement Equipment, Medical Electronics Equipment

> Power & Industrial Systems Nuclear Power Plants, Hydroelectric Power Plants, Thermal Power Plants, Control Sales Operating Income Equipment, Compressors, Rolling Mill (billions of yen) (billions of yen) Equipment, Chemical Plants, Elevators,

’96 2,524 ’96 114 Escalators, Air-Conditioning Equipment, ’97 2,720 ’97 116 Industrial Robots, Rolling Stock, Automotive ’98 2,543 ’98 94 Equipment, Construction Machinery

> Consumer Products Room Air Conditioners, Refrigerators, Washing Machines, Microwave Ovens, Vacuum Cleaners, Sales Operating Income (Loss) Heating Appliances, Kitchen Appliances, (billions of yen) (billions of yen) Lighting Fixtures, TVs, VCRs, Video Cameras,

’96 953 ’96 -15 Hi-Fi Audio Equipment, Audiotapes, ’97 991 ’97 7 Videotapes, Batteries ’98 928 ’98 -16

> Materials Synthetic Resin Materials and Products, Printed Circuit Boards, Ceramic Materials, Sales Operating Income Special Steels, Rolls for Rolling Mills, Malleable (billions of yen) (billions of yen) Cast-Iron Products, Forged and Cast-Steel

’96 1,372 ’96 75 Products, Pipe Fittings, Electric Wire and ’97 1,413 ’97 64 Cable, Copper Products, Rubber Products ’98 1,473 ’98 66

> Services & Other General Trading, Transportation, Property Management, Printing, Financial Services Sales Operating Income (billions of yen) (billions of yen)

’96 2,472 ’96 37 ’97 2,424 ’97 41

’98 2,415 ’98 53

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2 Geographic Segments Millions of Millions of yen U.S. dollars (A)/(B) 1998 (A) 1997 (B) 1996 1998 x 100 Sales Japan Outside customer sales ¥6,636,772 ¥6,948,021 ¥6,656,251 $50,278 96 68% 72% 73% Intersegment transactions 1,053,839 893,496 841,413 7,984 118 11% 9% 9% Total 7,690,611 7,841,517 7,497,664 58,262 98 79% 81% 82% Other Areas Outside customer sales 1,780,062 1,575,079 1,467,559 13,485 113 18% 16% 16% Intersegment transactions 275,592 255,751 212,974 2,088 108 3% 3% 2% Total 2,055,654 1,830,830 1,680,533 15,573 112 21% 19% 18% Subtotal 9,746,265 9,672,347 9,178,197 73,835 101 100% 100% 100% Eliminations (1,329,431) (1,149,247) (1,054,387) (10,071) — Total 8,416,834 8,523,100 8,123,810 63,764 99

Operating Income Japan 232,839 318,998 369,848 1,764 73 88% 94% 90% Other Areas 32,093 21,597 41,615 243 149 12% 6% 10% Subtotal 264,932 340,595 411,463 2,007 78 100% 100% 100% Eliminations & Corporate items (55,925) (43,429) (78,881) (424) — Total 209,007 297,166 332,582 1,583 70

3 Sales by Market Millions of Millions of yen U.S. dollars (A)/(B) 1998 (A) 1997 (B) 1996 1998 x 100 Japan ¥5,805,111 ¥6,070,552 ¥6,020,922 $43,978 96 69% 71% 74% Outside Japan

North America 881,847 765,280 595,342 6,681 115 10% 9% 7% Asia 1,051,035 1,056,976 907,005 7,962 99 13% 12% 11% Europe 531,453 500,503 458,728 4,026 106 6% 6% 6% Other Areas 147,388 129,789 141,813 1,117 114 2% 2% 2% Subtotal 2,611,723 2,452,548 2,102,888 19,786 106 31% 29% 26% Total 8,416,834 8,523,100 8,123,810 63,764 99 100% 100% 100%

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REVIEW OF OPERATIONS

CONTENTS Information Systems 10 Information Media Systems 12 Electronics Components 14 Power & Industrial Systems 16 Consumer Products 18 Materials / Services & Other 20 Research and Development 22 For a Better World 23

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Hitachi developed the world’s fastest disk drive with a drive speed of 12,030 revolutions per minute. This drive is used in the new series of RAID subsystems.

The spread of network computing typified by the Internet and intranets as well as new applications, such as electronic commerce (EC) and data warehousing, are generating increased demand for information systems and a growing need to be able to seamlessly integrate different systems. During the period under review, Hitachi’s mainframes continued to show a strong performance, with increasing demand from abroad for higher pro- cessing performance. Disk array subsys- tems and other storage products also recorded growth. EC is one of the key areas Hitachi expanded its lineup of high- on which Hitachi focuses its end mainframes offering up to a 25% leading-edge software and improvement in processing performance hardware technologies. At a compared with existing models. In stor- age products, a new series of disk array Hitachi outsourcing center, subsystems using redundant array of Internet banking trial projects independent disks (RAID) technology are being carried out with was introduced that are capable of more than 20 banks. being used with both mainframes and open systems. Hitachi will be helping the In software and services, Hitachi banks to build and operate strengthened its EC-related business. commercial systems. A new, comprehensive business media service was started for intercorporate EC transactions based on business platforms featuring high scalability and the ability to integrate business applica- tions required for various transactions. Hitachi also launched IC card solution

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10 Paper Size=A4letter(50p10x66p2) rvosya,slso softwareand previous year,salesof services showedlittlechangefromthe although salesfromdataprocessing ing systemsshowedsteadysales. conferencing systemsandDNA tutions. Incomputersystems,electronic mental organizationsandfinancialinsti- and applicationssoftwareforgovern- solutions fortheYear2000problem Ltd. recordedbrisksalesofsoftware International Limited. System ConsortiumheadedbyMondex joined theMulti-ApplicationOperating requirements usingICcards,Hitachi system foremergingmulti-application and textformat. of informationrecordedinvideo,audio, CD-ROMthatcontainsawiderange on published amultimediaencyclopedia Digital HeibonshaLimited,Publishers digitized images.Inaddition,Hitachi pository andmanagementservicefor Toppan PrintingCo.,Ltd.startedade- systemsofdifferentplatforms. formation released forsmoothly ware productsandsolution A rangeofnewdistributedobjectmiddle- er withanultrathin,contactlessICcard. card systemsforECapplicationstogeth- services fortheimplementationofIC provided fortheserviceisjust0.25mmthick. creditcardsystems.ThecontactlessIC and for suchapplicationsasprepaidcardsystems Hitachi launchedanewICcardsolutionservice At HitachiInformationSystems,Ltd., Hitachi SoftwareEngineeringCo., To introduceacommonoperating In theareaofcontent,Hitachiand linking corporatein- services was sequenc- Co TV. or PC a canberecordedforreplay on that ting ofvideo,audio,andotherdata capable ofthesimultaneoustransmit- ment, andsocialbenefits.Theserviceis such areasaseducation,medicaltreat- satelliteforinformationproviders in a business ofdigitalinfrastructureusing telecommunications traffic. solution tohandlingincreasinglyheavy system, whichisexpectedtobeakey field trialofanopticalcrossconnect cessfully implementedtheworld’s States. Inaddition,HitachiandMCI suc- munications Corporation,ofthe United transmission systemtoMCITelecom- synchronous opticalnetwork(SONET) advanced multiservicenodeOC-192 shipment ofa10-gigabit-per-second Also duringtheyear,Hitachibegan with KokusaiDenshinDenwaCo.,Ltd. Multiple Access(W-CDMA)technologies opment ofWidebandCodeDivision telephones, Hitachibeganjointdevel- In theareaofnext-generationmobile systems andtransmissiondeclined. major carriersinJapan.Salesofexchange due primarilytoweakinvestmentby vices andsoftwarepackagebusiness. such asoutsourcingandnetworkser- pany strengtheneditssolutionbusiness, systems equipmentincreased.Thecom- the TokugawaArtMuseum. 12th century technology. Shownaboveisascenefromthe for digitizedimagesusingitslatestcomputer providingdepositoryandmanagementservices is Together withToppanPrintingCo.,Ltd.,Hitachi Hitachi alsodecidedtoenterthenew In telecommunications,salesdeclined Illustrated TaleofGenji owned by first InformationInformation Systems 11 Systems 11 Paper Size=A4 letter (50p10x66p2)

In February 1998, Hitachi strength- addition, Hitachi launched a 25-inch ened its multimedia-related business plasma display with a slim form factor by combining its PC-related operations and multiscan capabilities that offer high- and its digital products operations into resolution viewing of both video and a single business group. By converging computer data. key technologies in this field, Hitachi DVD is the image and information aims to accelerate the delivery of highly storage medium of choice for next- competitive products and to enhance its generation multimedia systems for global marketing strategies to capture video and audio equipment as well opportunities in rapidly expanding mar- as PCs. During the fiscal year, Hitachi kets. The new group is responsible for began mass production of DVD-ROM PCs as well as optical storage products, drives. In March 1998, Hitachi introduced display products, and mobile products. an external DVD-RAM drive unit for PCs. Sales of PCs and PC servers increased, Hitachi also succeeded in developing supported by steady sales of desktop the basic technologies for DVD-RAM PCs equipped with LCD monitors. In discs with a capacity of 4.7 gigabytes September 1997, Hitachi signed an (GB) per side that is compatible with agreement with Legend Group Co., the existing 2.6GB DVD-RAM and 4.7GB leading PC vendor in China, to jointly DVD-ROM formats. The Hitachi DVD develop PCs and to supply each other Format Verifications Lab was established with PCs and related products. As a first in December 1997 to provide verifica- step, in February 1998 Legend Group tion services to the manufacturers of introduced a Legend-brand LCD desk- DVD-RAM drives and discs. top PC. Since its release in early 1997, Sales of display monitors recorded a Hitachi’s MPEG camera has been significant increase. Hitachi released 19- winning numerous awards around inch (18.0-inch viewable image size) the world as the industry’s most innova- multiscan color display monitors to meet tive digital camera for its ability to allow the demand for larger and clearer CRT users to easily manipulate video data on monitors for PCs and workstations. In a PC. During the year, a new model of

IInformationnformation Media Systems Media Systems

Space-saving LCD desktop PCs, which are selling Versatile digital editing of full-motion video is well, are showcases for Hitachi’s innovative elec- made easy by this MPEG camera. The latest model tronic components and assembly skills. has added capabilities for making business pre- sentations.

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the camera was released that features enhanced business presentation capabil- ities that enable users to store Microsoft® PowerPoint® presentation files on the camera and display them on a monitor. Other new features include a video- capture function that converts standard- format analog video data to MPEG-1 data. In Japan and the United States, Hitachi introduced new models of a handheld PC, based on the Microsoft® Windows® CE Version 2.0 operating sys- tem, with wider keyboards and color screens as well as built-in connectivity with mobile phones to meet the demand for instant and frequent remote access to information. Also, Hitachi, together with Intel Corporation and other leading PC and consumer elec- As a leading manufacturer tronics companies, made a joint propos- of DVD drives, Hitachi released al to the Copy Protection Technical the world’s first double-speed Working Group, of the United States, DVD-ROM drive. Hitachi is now on protecting digital video and audio content while providing a robust, fast, mass-producing DVD-ROM and transparent method of transmitting drives for PC manufacturers. and receiving digital content among a variety of products, such as PCs, high- definition TVs, set-top boxes, digital VCRs, and DVD players.

As a mobile communication tool, the new model of Hitachi handheld PC has a color screen, quick start-up keys, and a wide keyboard and can be easily connected to mobile phones.

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Hitachi released a new system-on-a-chip design ASIC for image processing devices and data stor- age systems. Integrating a high-speed logic and high-density DRAM on the same chip provides higher performance and lower power consump- tion in a smaller size.

In semiconductors, despite continued demand for PCs excess supply depressed prices of 16-megabit and 64-megabit DRAMs. Semiconductor sales were down compared to those of the previous fiscal year, reflecting lower sales of memory products, while microprocessors and microcontrollers were firm. In this severe environment, Hitachi is focusing on non- DRAM products, for which future growth is expected. During the year, Hitachi es- tablished a new organization to speed up the commercial implementation of strategically important system LSIs, which function as systems on a single chip. Hitachi is developing a new In memory products, production of direct-write electron-beam 16-megabit DRAMs was scaled back, (EB) lithography system for while wafer fabrication of 64-megabit the volume fabrication DRAMs was concentrated in two bases, in Japan and Singapore. During the year, of advanced semiconductor Hitachi and Texas Instruments Incorpo- devices. Enhanced cell- rated discontinued operations at their projection capacity allows the joint venture, TwinStar Semiconductor new system to offer a major Incorporated, which was primarily en- gaged in the manufacture of 16-megabit boost in throughput. This DRAMs. Also, Hitachi continued to system is being developed streamline its U.S. and European man- under the management of the ufacturing subsidiaries by shifting its Association of Super-Advanced product focus from memories to non- DRAM products. In addition, Hitachi Electronics Technologies in the enhanced the market responsiveness Ministry of International Trade of its semiconductor operations in the and Industry’s R&D Program, United States by merging its sales and which is supported by the New Energy and Industrial Technology Development Organization.

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14 Paper Size=A4letter(50p10x66p2) Hitachi begantheproductionofTFT 19-inch CDTsinJapan.IntheLCDarea, startedproducing 17-inch CDTs,and of production Malaysia andincreased duction fromJapanto Singapore and volumepro- review, Hitachishiftedits yearunder ous year’slevel.Duringthe pushed salesofLCDsupovertheprevi- book PCsanddesktopPCmonitors twisted nematic(STN)LCDsfornote- LCDs andfastresponsecolorsuper- demand forthin-filmtransistor(TFT) introduced 19-inchCDTs.Increased PCs wereboosted,helpedbynewly sales ofcolordisplaytubes(CDTs)for color picturetubesforTVswereflat, technologies. capable ofsuperfinewaferprocessing construction ofleading-edgefacilities under reviewwasdirectedtowardthe Corporation, andSonyCorporation. STMicroelectronics, numberofcompanies,including a or joint-developmentagreementswith processors, Hitachiconcludedlicensing To promoteitsSuperHRISCmicro- processor formultimediaapplications. Hitachi introducedtheSH-4RISCmicro- ing subsidiary. marketing divisionsintoamanufactur- h Microsoft the (MIPS) performanceat200MHzandsupports features a360million-instructions-per-second for multimediaproducts.Thismicroprocessor family byintroducingtheSH-4microprocessor Hitachi strengtheneditsSuperHRISCengine In displayproducts,whilesalesof Capital investmentduringtheyear In non-DRAMproductoperations, ® Windows Seiko Epson ® CE operatingsystem. > device operations. products tostrengthenelectronics manufacturing operationsofdisplay consolidate salesandmarketing UnitedStates,Hitachidecidedto the substrates toenhanceproductivity. that usestheindustry’slargestglass Japan LCDs atanewproductionlinein Perkin-Elmer Corporation, of of Perkin-Elmer Corporation, China. Alsoduringthe vicing automaticmedicalanalyzersin for manufacturing,marketing,andser- lished HitachiInstrument(Suzhou)Ltd. systems. Duringtheyear,Hitachiestab- strong salesofimmunoassayanalyzer medical equipmentwerefirm,thanksto ing equipmentweresluggish.Salesof all salesofsemiconductormanufactur- of X-rayequipment. competition resultedinadeclinesales phy (CT)equipment.However,intense systems andX-raycomputedtomogra- type magneticresonanceimaging(MRI) increased salesofpermanentmagnet genetic analysisinstrumentation. and manufactureelectrophoresis-based States, formedapartnershiptodevelop projection TVsintheU.S.market. addressincreaseddemandforlarge-screen to tubes atHitachiElectronicDevices(USA),Inc. Hitachi isexpandingproductionofprojection Among reorganizationalmovesin EB systemsperformedwell,butover- Hitachi MedicalCorporationposted Others year, Hitachiand the United Electronics Components Electronics 15 Components 15 Paper Size=A4 letter (50p10x66p2)

> Power Systems respond to that growing market. Bases Demand for electric power grew only abroad also serve as important procure- slightly during fiscal 1997 due to the ment sites for Hitachi in Japan. Other sluggish Japanese economy. Capital key initiatives for the power business in- investment of Japanese electric power clude winning new customers among companies declined considerably. In the independent power producers both Hitachi’s nuclear power operations, the in Japan and other countries. Hitachi is advanced boiling water reactor (ABWR) supporting power companies in their No. 7 unit of the Kashiwazaki Kariwa efforts to make their plants leaner and Nuclear Power Station of the Tokyo more efficient. Electric Power Company, Incorporated (TEPCO) was completed in July 1997. > Industrial Systems Notwithstanding this important delivery, Cutbacks in public-sector investment major shipments were completed in the and sluggish private-sector investment previous year, causing a sharp fall in sales in plant and equipment during fiscal of nuclear power systems. In its thermal 1997 led to a deterioration in demand power operations, Hitachi delivered a for industrial systems. Furthermore, coal-fired plant for Tohoku Electric Power Hitachi experienced the impact of a sud- Company, Incorporated’s Haramachi den retreat in infrastructure investment Thermal Power Plant and a combined- in Southeast Asia. These factors com- cycle plant to Kyushu Electric Power bined to create a harsh operating envi- Company, Incorporated’s Shin-Oita ronment for Hitachi’s industrial systems facility. business. During the fiscal year, Hitachi Regarding operations abroad, shipped a tunnel ventilation system for Hitachi’s major shipments included the Trans-Tokyo Bay Highway Corpora- gas-insulated switchgear for P.T. Paiton tion and a new-model Shinkansen bullet Energy Company in Indonesia and six train for West Japan Railway Company. pump turbines for the Andra Pradesh Hitachi is striving to expand its busi- State Electricity Board in India. Hitachi is ness in the fields of environmental prod- focusing its efforts on developing highly ucts, intelligent transport systems, and efficient power supply systems that welfare-related equipment. Key devel- reduce greenhouse gases and otherwise opments in Hitachi’s environmental minimize environmental impact. In addi- products during fiscal 1997 included a tion, Hitachi is expanding its operations power generation system that runs on with the establishment of a nuclear oil reclaimed from plastic refuse and the power equipment joint venture, start of pilot plant construction of a kiln- Dalian Hitachi Baoyuan Machinery & type waste thermolysis system. Among Equipment Co., Ltd., in China to operations abroad, in December 1997

Power & Industrial Systems

Hitachi delivered the revolutionary No. 7 ABWR Hitachi built the tunnel ventilation system for the unit of TEPCO’s Kashiwazaki Kariwa Nuclear Tokyo Wan Aqua-Line. Opened in December 1997, Power Station. the 15-kilometer expressway is one-third bridge ower and two-thirds& tunnel. P16

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Hitachi established Hitachi Airconditioning & Refrigerating Products (Guangzhou) Co., Ltd., a joint venture for the manu- facture and sale of chiller units in China. Also, Hitachi decided to establish ZAO Hitachi-Svetlana Power Electronics in ndustrial Russia for the manufacture and market- I ing of insulated gate bipolar transistors for use in rolling stock.

> Others Although automobile demand in the United States was firm, sales of automo- Systems tive products did not expand because of the downturn in automobile demand in Hitachi is expanding its Japan. In line with tighter environmental environment-related business. regulations on automobiles worldwide, Designed by Hitachi, this fully Hitachi is focusing its product develop- ment on car electronics that improve integrated processing and fuel efficiency and clean exhaust emis- recycling system for refrigera- sions and launched its direct gasoline tors, air conditioners, washing injection systems. machines, and TVs is operated Hitachi Construction Machinery Co., Ltd. experienced the impact of reduc- by Japan’s Association for tions in public works investments in Electric Home Appliances. Japan. Abroad, construction demand in North America was robust, and Hitachi expanded local production to meet ris- ing demand. Meanwhile, in Asia busi- ness deteriorated, due to the economic crisis in Southeast Asia. Hitachi Plant Engineering & Construc- tion Co., Ltd. suffered a declining per- formance, due to major reductions in capital investment, which precipitated a significant drop in sales for construction of electric power plants in Japan.

Hitachi Automotive Products (USA), Inc. produces airflow sensors that help realize highly efficient & automotive engines for the U.S. market. 17

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Hitachi’s new series of home vacuum cleaners has a nozzle that rotates clockwise and counterclock- wise to accommodate the user’s hand grip motion, permitting the user to easily clean even room corners and narrow openings.

During the period under review, the Japanese market for consumer products continued to be sluggish. A national consumption tax rate increase imple- mented in April 1997, the halting of tax reduction measures, and uncertainty regarding Japan’s financial markets combined to dampen consumer spend- ing in Japan. This situation was com- pounded by a sharp drop in sales of room air conditioners due to unseason- able weather in Japan. Conditions were tight in markets abroad as well, reflect- ing a deceleration in the Southeast Asian economies prompted by the currency The Hitachi All-Format Decoder crisis in that region. (AFD) algorithm was devel- Regarding operations abroad during oped by Hitachi’s Digital the year, in the United States Hitachi Media Systems Laboratory in entered into a distribution agreement with Appliance Corporation of America Princeton, New Jersey. The for food steamers, rice cookers, and laboratory’s mission is to other small appliances. Moreover, develop digital signal process- Hitachi realigned channels and stream- ing technology for the U.S. lined operations in its conventional consumer products business and advanced TV market. Hitachi multimedia-related business in North anticipates that the AFD America. In Southeast Asia, Hitachi is algorithm will also be used in raising exports to other regions to coun- future microprocessors to teract slow local demand in Thailand, Malaysia, and Indonesia and to take allow for the viewing of advantage of weak currencies in those digital TV broadcasts on PCs. countries. Hitachi is also raising local procurement in Southeast Asia to improve its cost-competitiveness.

> Home Appliances In Japan, a higher national consump- tion tax rate and other factors adversely

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This wide-screen TV for the Japanese market is Hitachi Maxell developed a lithium ion recharge- equipped with a Progressive LSI device that pro- able battery as thin as a credit card by applying vides double the resolution of conventional TVs its proprietary gel polymer electrolyte technology. and creates a high quality picture.

Consumer Products

affected consumer confidence, which Committee Standard at a complexity and lowered sales of refrigerators and other cost comparable to standard-definition products. Also, the unseasonable TV-format-only decoders. Hitachi decid- weather in Japan caused sales of room ed to license this technology to Intel air conditioners to slump. In markets Corporation. Products abroad, turmoil in Southeast Asian In Japan, Hitachi has been launching economies and the combination of an a succession of sets equipped with unseasonably cool summer and intensi- receivers for digital satellite broadcasts. fying competition in China precipitated During the year, Hitachi launched in weak sales of room air conditioners. Japan wide-screen TVs equipped with Effective October 1997, Hitachi and its proprietary Progressive LSI device to General Electric Company consolidated respond to customers’ needs for higher

marketing and sales of lighting products picture quality. onsumer into their joint venture in Japan, Hitachi Furthermore, Hitachi began commer- GE Lighting, Ltd. In spring 1998, Hitachi, cial production of DVD players at Hitachi along with its long-standing Indian Technology (Taiwan) Ltd. DVD players partner Amtrex Appliances Limited, provide extremely clear pictures to go decided to enter the room air condi- with the format’s outstanding sound tioner market in India. quality.

> Consumer Electronics > Other TVs, VCRs, and other consumer elec- Hitachi Maxell, Ltd. enjoyed growing tronics products were negatively affect- sales of mini discs in Europe as well as in C ed by economic sluggishness in Japan Japan. However, sales of videotapes and and Southeast Asia and tough competi- audiotapes were weak during the year. tion. A key trend in TVs in the United Sales of computer tapes for large-capacity States, Europe, and Japan has been backups of computer systems were favor- the advent of digital broadcasting. In able. Sales of lithium ion rechargeable December 1997, Hitachi and Thomson batteries also were healthy, reflecting Consumer Electronics, Inc. agreed to the rising demand from manufacturers of jointly develop high-definition television mobile phones and portable information (HDTV) sets for the introduction of systems. During the year, Hitachi Maxell HDTV digital terrestrial broadcasting established its first overseas R&D base in the United States in fall 1998. in the United States. The new facility Meanwhile, Hitachi developed an AFD will also conduct research to develop algorithm that provides the means to recording media jointly with U.S. enter- decode and display all 18 digital formats prises, which are advanced in the field. of the U.S. Advanced Television Systems

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> Materials well, buoyed by strong demand for At Hitachi Chemical Co., Ltd., sales dies from automobile and electronic of epoxy molding compounds for semi- equipment manufacturers. Hitachi conductors rose during the year under Metals’s business abroad was adversely review. In addition, copper clad lami- affected by the currency crisis in South- nates for multilayer boards for mobile east Asian markets. The company is equipment and photosensitive dry films focusing its activities on new business for printed wiring boards generated and products related with information strong sales. Meanwhile, a downturn technologies as well as expanding pro- in private-home construction in Japan duction of giant magneto-resistive (GMR) adversely affected sales of housing equip- heads for hard disk drives. ment and environmental facilities. Sales At Hitachi Cable, Ltd., sales of wires of resin molded products were down, and cables were brisk, reflecting growth due to the downturn of automobile in power cables, optical fiber cables, and and room air conditioner production. In aluminum wire. In electronic compo- August 1997, Hitachi Chemical formed nents operations, strong sales of com- a joint venture in the United States with pound semiconductors compensated E. I. du Pont de Nemours and Company, for a decline in IC leadframe prices. of the United States. The joint venture In cable operations, Hitachi was company markets polyimide materials active in market development abroad. in global markets. In September 1997, Hitachi established Hitachi Metals, Ltd. posted healthy Hitachi Cable Philippines, Inc. to pro- results in rare-earth magnets for hard disk duce automotive wire and electronic drives and CD pickups, semiconductor wire and cable as well as leadframes sealants, information-related compo- for power ICs. Hitachi Cable has enjoyed nents for mobile telephones, and shad- positive results and continues to capture owmask materials used in PC monitors opportunities in such new business and TVs. Among automotive materials, areas as microball grid array tape, which sales of ductile cast-iron parts declined is a semiconductor packaging material in tandem with a downturn in truck suitable for mobile equipment. sales in Japan and elsewhere in Asia. Aluminum parts also slipped, due to > Services & Other sluggishness in the Japanese automobile At Nissei Sangyo Co., Ltd., sales market. Turning to high quality specialty of semiconductor manufacturing steel, die steels and cutting tools sold equipment dropped, due to the slump MMaterials / Servicesaterials & Other /

This bathroom unit manufactured by Hitachi Manufactured by Hitachi Cable, these epitaxial Chemical has an entrance that is designed for wafers are designed for such high frequency better convenience, with no steps up or down. devices as mobile phones, which are expected to enjoy further growth.

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20 s / Paper Size=A4letter(50p10x66p2) reached anall-timehigh. Hitachi Credit’sbusinesstransactions grew steadily.Asaresult,thevolumeof agriculture andaquacultureequipment but loansforautomobilesaswell was unchangedfromthepreviousterm, lease contractsforinformationsystems its mainstaybusiness,thevolumeof from financialderegulationinJapan.In address thenewcorporateneedsarising wide rangeofnovelfinancialservicesto with favorableresults. structure. Sucheffortswererewarded Kingdom tobolsteritsdistributioninfra- established asubsidiaryintheUnited three distributioncentersinJapanand pany alsocompletedconstructionof systems forcustomerneeds.Thecom- deavored todeliveroptimaldistribution DVD-ROMs, andCDTs,soldwell. related products,suchasCD-ROMs, results fortheyear.PCperipheralsand and HitachiEuropeLtd.returnedmixed Hitachi America,Ltd.,Asia companies formarketsoutsideJapan, able resultsforNisseiSangyo. these salessupportedgenerallyfavor- immunoassay analyzerswerebrisk,and tubes (CDTs),monitors,andautomatic Korea. in semiconductorindustry,especially the in saving energyandenhancingservice. monorail andthusimproveditscapacity,while by HitachiTransportSystem,introducedanew In August1997,TokyoMonorailCo.,Ltd.,owned Hitachi CreditCorporationlauncheda Hitachi TransportSystem,Ltd.en- Hitachi’s majorgeneraltrading However, salesofcolordisplay

ervices ikdrives. disk for next-generationhard mounting andaredesigned heads permithigh-density GMR headproduction. Hitachi Metalsplanstoexpand (billions ofyen) Expenditures Three-Year R&D ’98 ’97 ’96 S & Other 400 494 504 21 21 Paper Size=A4 letter (50p10x66p2)

Research and Development

Expenditures on R&D during fiscal images of cardiac ischemia with a non- 1997 amounted to ¥510,878 million invasive procedure that does not use ($3,870 million), an increase of 1% injections or drugs. The team used compared with the preceding year’s superconducting quantum interference total and representing 6.1% of total devices (SQUIDs) to measure the mag- sales. Over 60% of this expenditure netic fields generated by the heart to was allocated to the Information produce images of the heart’s electrical Systems & Electronics sector. current distribution. The SQUID technol- Hitachi’s R&D has been focusing on ogy used in this system was developed improving the productivity of research by the Superconducting Sensor and strategically prioritizing develop- Laboratory, one of the founders of ment projects while at the same time the Japan Key Technology Center. aggressively uncovering promising new business areas. As part of such activities, > First LSI with Single-Electron business units set project themes and Memory have autonomy to drive them from R&D Hitachi has achieved the successful to manufacturing and marketing under operation of a prototype for the first LSI the Strategic Business Projects system. with a single-electron memory. Hitachi’s Hitachi is also fortifying its R&D capabili- new 128-megabit single-electron mem- ties outside Japan in line with the glob- ory has two million times the integration alization of its business. In the United of its 64-bit predecessor developed in States, for example, R&D of multimedia, 1996, equaling the memory capacity automotive parts, and semiconductors is of the latest memories. linked directly to their respective manu- facturing and marketing operations. In > Light-Based Procedure Europe, Hitachi is cooperating with for Detecting Epilepsy industry, academia, and government for Working in collaboration with the research in microelectronics, information Tokyo Metropolitan Police Hospital, science, and industrial design as well as Hitachi has developed the first light- Images of the electrical current distribution in the heart can be obtained quickly and easily beginning research in the United based procedure for identifying the with this diagnosis system, which has an ultra- high sensitivity magneto-sensor. Kingdom on telecommunications tech- epileptic focus in the brain. This method nologies. In another move, in February uses optical topography, in which a sub- 1998 the System LSI Development ject’s head is irradiated with very weak Center was established in Japan near-infrared light to generate two- to strengthen the development of dimensional images that are used to system LSIs. detect abnormal brain activity during seizures. > Noninvasive Cardiac Examination Procedure Hitachi and the University of Tsukuba

Hitachi’s new 128-megabit single-electron succeeded in capturing the world’s first memory allows for radically higher integration than existing technologies and opens the door to terabit-class memories.

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For a Better World

Hitachi is involved in a wide range of > Welfare Equipment philanthropic work around the globe. Hitachi is active in increasing the Seven Hitachi-endowed foundations are participation in society for all people. In supporting education, research in sci- October 1997, Hitachi introduced equip- ence and technology, environmental ment that helps amyotrophic lateral protection, international exchange, and sclerosis (ALS) patients to communicate. other worthy causes. Moreover, a cor- ALS is a difficult-to-treat disease that porate-wide goal has been to operate causes muscles to deteriorate without in harmony with the environment and any effect on sensory functions. Hitachi’s local communities worldwide. equipment allows ALS sufferers to oper- ate PCs and thus communicate with a > The Environment minimum of physical strength. The In July 1992, Hitachi implemented system was developed in cooperation its Environment Action Plan and has with the Kitasato University East Hospital been aggressively reducing the volume and has been supported by a grant from of industrial waste it generates and recy- The Association For Technical Aids, an cling resources. In fiscal 1997, industrial organization affiliated with Japan’s waste produced was 33% of the 1991 Ministry of Health and Welfare. level. In January 1998, Hitachi formulat- ed a new Action Plan that aims to fur- > Hitachi Fellowship Program ther reduce industrial waste. Furthermore, Since 1997, administrated in partner- Hitachi remains on course to meet its ship with the U.S. Council on Foreign goals of reducing energy consumption Relations, Hitachi has been sponsoring 30% per unit sale from 1990 levels by the International Affairs Fellowship in 2000. Japan. The program enables a select Hitachi has adopted lead-free solder group of outstanding young Americans in its consumer electronics and indus- to expand their intellectual and profes- trial machinery as part of its dedication sional horizons through an extended to eliminating the use of environmental- period of research or related profes- The Volunteer Center of United Way’s Human Race is a fund-raising event. The event is a ly hazardous materials. Hitachi is also sional activities in Japan. walkathon and run. Hitachi helps sponsor the event, and employees and their families partic- channeling its R&D resources toward ipate to raise money for the nonprofit organiza- environmental issues, including by develop- > Second Hitachi Young Leaders tion or school of their choice. ing high-speed systems to remove algae Initiative from lakes and reservoirs using super- At the second Hitachi Young Leaders conductivity and a diesel engine genera- Initiative held in Manila in November tor system which uses fuel oil recovered 1997, 24 university students selected from refuse plastic materials. from six Asian countries met with leaders of government, academia, and business to exchange ideas and discuss Asia’s growing role in the global community.

The Hitachi Symphony Orchestra, which compris- es Hitachi employees and their families in Japan, performed in Singapore with a Singaporean pianist and donated all the proceeds to the Singapore School for the Visually Handicapped.

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BOARD OF DIRECTORS AND CORPORATE AUDITORS

(As of June 26, 1998)

Chairman and Representative Katsushige Mita Director President and Representative Tsutomu Kanai Director Executive Vice-Presidents and Hiroshi Kuwahara Representative Directors Shiro Kawate Tadahiko Shinohara Kunio Hamada Katsushige Mita Tsutomu Kanai Etsuhiko Shoyama Senior Executive Managing Yasutsugu Takeda Directors Yoshiki Yagi Shigemichi Matsuka Yoshiro Kuwata Executive Managing Tetsuo Kobayashi Directors Yuushi Samuro Kazuo Kumagai Takashi Kawamura Kenichi Furumaya Hiroshi Kuwahara Shiro Kawate Tadahiko Shinohara Tadashi Ishibashi Board Directors Tsugio Makimoto Kyohei Kasaba Kazuo Sato Kaichi Murata Jushi Ide Katsukuni Hisano Hiroshi Inomata Kotaro Muneoka Takao Kato Kunio Hamada Etsuhiko Shoyama Kosei Nomiya Takao Matsui Masaaki Hayashi Toshihiko Odaka Corporate Auditors Nobuji Kamachi Iwao Matsuoka Takashi Kashiwagi Kazuo Morita Yoshio Okawara Shinji Tamagawa Yasutsugu Takeda Yoshiki Yagi Shigemichi Matsuka

Yoshiro Kuwata

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FINANCIAL SECTION

CONTENTS CONSOLIDATED BALANCE SHEETS 26 CONSOLIDATED STATEMENTS OF INCOME 28 CONSOLIDATED STATEMENTS OF SURPLUS 29 CONSOLIDATED STATEMENTS OF CASH FLOWS 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 31 INDEPENDENT AUDITORS’ REPORT 47

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CONSOLIDATED BALANCE SHEETS

Hitachi, Ltd. and Subsidiaries March 31, 1998 and 1997

Thousands of Millions of yen U.S. dollars (note 2) Assets 1998 1997 1998 Current assets: Cash and cash equivalents ...... ¥ 1,199,540 ¥1,309,949 $ 9,087,424 Short-term investments (note 3) ...... 713,672 763,320 5,406,606 Trade receivables, net of allowance for doubtful receivables and unearned income—1998 ¥23,806 million ($180,348 thousand); 1997 ¥23,303 million: Notes ...... 369,838 411,459 2,801,803 Accounts...... 1,897,410 1,876,678 14,374,318 Inventories (note 4) ...... 1,626,684 1,576,751 12,323,364 Prepaid expenses and other current assets (note 8)...... 428,912 409,750 3,249,333 Total current assets ...... 6,236,056 6,347,907 47,242,848

Noncurrent receivables and restricted funds (note 5) ...... 195,546 188,473 1,481,409

Investments and advances, including affiliated companies (note 3) ...... 653,786 529,369 4,952,924

Property, plant and equipment (note 9): Land ...... 363,771 345,322 2,755,841 Buildings ...... 1,703,708 1,635,937 12,906,879 Machinery and equipment ...... 5,074,698 4,817,314 38,444,682 Construction in progress ...... 99,755 117,290 755,720 7,241,932 6,915,863 54,863,122 Less accumulated depreciation ...... 4,595,800 4,356,366 34,816,667 Net property, plant and equipment ...... 2,646,132 2,559,497 20,046,455

Other assets (note 8) ...... 381,492 339,463 2,890,091 ¥10,113,012 ¥9,964,709 $76,613,727

See accompanying notes to consolidated financial statements.

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Thousands of Millions of yen U.S. dollars (note 2) Liabilities and Stockholders’ Equity 1998 1997 1998 Current liabilities: Short-term debt (note 9) ...... ¥ 1,103,217 ¥ 994,469 $ 8,357,705 Current installments of long-term debt (note 9)...... 214,064 187,022 1,621,697 Trade payables: Notes ...... 132,159 140,067 1,001,205 Accounts...... 944,112 945,450 7,152,364 Accrued expenses ...... 728,741 732,070 5,520,765 Income taxes (note 8)...... 89,715 118,685 679,659 Advances received...... 395,674 411,752 2,997,530 Employees’ deposits ...... 20,750 41,297 157,197 Other current liabilities (note 8) ...... 411,745 365,164 3,119,280 Total current liabilities ...... 4,040,177 3,935,976 30,607,402 Long-term debt (note 9)...... 1,287,532 1,244,612 9,754,030 Retirement and severance benefits (note 10) ...... 682,871 671,794 5,173,265 Other liabilities (notes 8 and 11)...... 92,494 84,699 700,712 Total liabilities ...... 6,103,074 5,937,081 46,235,409

Minority interests ...... 769,168 743,738 5,827,030

Stockholders’ equity (note 3): Common stock, ¥50 ($0.38) par value. Authorized 10,000,000,000 shares; issued 3,337,894,780 shares in 1998 and 3,337,796,005 shares in 1997 (notes 9 and 12) ...... 281,735 281,684 2,134,356 Capital surplus (note 12) ...... 492,272 486,695 3,729,333 Legal reserve (note 14) ...... 104,370 101,146 790,682 Retained earnings (notes 9 and 14) ...... 2,406,253 2,447,391 18,229,190 Foreign currency translation adjustments...... (43,860) (33,026) (332,273) Total stockholders’ equity...... 3,240,770 3,283,890 24,551,288

Commitments and contingencies (note 15) ¥10,113,012 ¥9,964,709 $76,613,727

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CONSOLIDATED STATEMENTS OF INCOME

Hitachi, Ltd. and Subsidiaries Years ended March 31, 1998, 1997 and 1996

Thousands of Millions of yen U.S. dollars (note 2) 1998 1997 1996 1998 Net sales (note 5)...... ¥8,416,834 ¥8,523,100 ¥8,123,810 $63,763,894 Cost of sales ...... 6,230,044 6,250,895 5,828,887 47,197,303 Gross profit ...... 2,186,790 2,272,205 2,294,923 16,566,591

Selling, general and administrative expenses (note 16) ...... 1,977,783 1,975,039 1,962,341 14,983,205 Operating income...... 209,007 297,166 332,582 1,583,386

Other income (note 17): Interest ...... 41,084 37,632 51,126 311,242 Dividends...... 9,469 8,638 8,010 71,735 Other...... 111,176 41,561 51,827 842,243 161,729 87,831 110,963 1,225,220

Other deductions (note 17): Interest and discount charges ...... 59,635 60,669 63,375 451,780 Other...... 139,375 61,004 31,543 1,055,871 199,010 121,673 94,918 1,507,651 Income before income taxes and minority interests ...... 171,726 263,324 348,627 1,300,955

Income taxes (note 8): Current...... 149,076 199,594 195,918 1,129,364 Deferred ...... (6,383) (61,099) (30,154) (48,356) 142,693 138,495 165,764 1,081,008 Income before minority interests...... 29,033 124,829 182,863 219,947

Minority interests...... 25,556 36,498 41,093 193,606 Net income...... ¥ 3,477 ¥ 88,331 ¥ 141,770 $ 26,341

U.S. dollars Yen (note 2) Net income per share of common stock–basic (note 13)...... ¥1.04 ¥26.51 ¥42.59 $0.01 Net income per share of common stock—diluted (note 13)...... ¥1.00 ¥25.55 ¥40.09 $0.01

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF SURPLUS

Hitachi, Ltd. and Subsidiaries Years ended March 31, 1998, 1997 and 1996

Thousands of Millions of yen U.S. dollars (note 2) 1998 1997 1996 1998 Capital surplus (note 12): Balance at beginning of year...... ¥ 486,695 ¥ 480,718 ¥ 445,260 $ 3,687,083 Conversion of convertible debentures ...... 2,723 5,931 77 20,629 Increase arising from: Merger of HSC (note 7) ...... — — 35,353 — Sale of subsidiaries’ common stock and other ...... 2,854 46 28 21,621 Balance at end of year ...... ¥ 492,272 ¥ 486,695 ¥ 480,718 $ 3,729,333

Legal reserve (note 14): Balance at beginning of year...... ¥ 101,146 ¥ 95,377 ¥ 89,955 $ 766,258 Transfers from retained earnings...... 3,310 5,944 5,361 25,076 Transfers to minority interests arising from conversion of subsidiaries’ convertible debentures...... (45) (51) — (341) Transfers from (to) minority interests arising from sale of subsidiaries’ common stock and other ...... (41) (124) 61 (311) Balance at end of year ...... ¥ 104,370 ¥ 101,146 ¥ 95,377 $ 790,682

Retained earnings (notes 9 and 14): Balance at beginning of year...... ¥2,447,391 ¥2,404,388 ¥2,303,612 $18,540,841 Net income...... 3,477 88,331 141,770 26,341 Cash dividends ...... (36,715) (36,625) (36,388) (278,144) Transfers to legal reserve ...... (3,310) (5,944) (5,361) (25,076) Transfers to minority interests arising from conversion of subsidiaries’ convertible debentures...... (1,668) (2,435) — (12,636) Transfers from (to) minority interests arising from sale of subsidiaries’ common stock and other ...... (2,922) (324) 755 (22,136) Balance at end of year ...... ¥2,406,253 ¥2,447,391 ¥2,404,388 $18,229,190

Foreign currency translation adjustments: Balance at beginning of year...... ¥ (33,026) ¥ (58,589) ¥ (81,491) $ (250,197) Adjustments during the year...... (10,834) 25,563 22,902 (82,076) Balance at end of year ...... ¥ (43,860) ¥ (33,026) ¥ (58,589) $ (332,273)

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Hitachi, Ltd. and Subsidiaries Years ended March 31, 1998, 1997 and 1996

Thousands of Millions of yen U.S. dollars (note 2) 1998 1997 1996 1998 Cash flows from operating activities (note 19): Net income...... ¥ 3,477 ¥ 88,331 ¥ 141,770 $ 26,341 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ...... 550,393 543,560 556,671 4,169,644 Impairment loss for long-lived assets...... 35,504 44,289 — 268,970 Deferred income taxes ...... (6,383) (61,099) (30,154) (48,356) Gain on sale of investments and subsidiaries’ common stock...... (117,998) (24,262) (40,746) (893,924) Income applicable to minority interests ...... 25,556 36,498 41,093 193,606 (Increase) decrease in receivables ...... 13,175 (197,337) (295,990) 99,811 (Increase) decrease in inventories ...... (53,703) 162,473 (102,694) (406,841) (Increase) decrease in prepaid expenses and other current assets ...... (12,847) 4,335 (15,145) (97,326) Increase (decrease) in payables...... (7,254) 994 104,944 (54,955) Increase (decrease) in accrued expenses and retirement and severance benefits ...... 5,132 (3,428) 57,730 38,879 Increase (decrease) in accrued income taxes...... (28,880) (14,461) 21,141 (218,788) Increase (decrease) in other liabilities...... 6,892 (98,271) 25,620 52,212 Other...... 7,677 5,102 9,193 58,159 Net cash provided by operating activities...... 420,741 486,724 473,433 3,187,432

Cash flows from investing activities (note 19): (Increase) decrease in short-term investments...... 49,462 (169,644) (8,216) 374,712 Capital expenditures ...... (690,419) (750,066) (717,085) (5,230,447) Proceeds from disposition of rental assets and other property ...... 32,334 49,075 61,925 244,955 Proceeds from sale of investments and subsidiaries’ common stock ...... 144,127 34,760 33,665 1,091,871 Purchase of investments and subsidiaries’ common stock...... (165,898) (43,751) (38,914) (1,256,803) Other...... (7,932) 9,123 (4,201) (60,091) Net cash used in investing activities...... (638,326) (870,503) (672,826) (4,835,803)

Cash flows from financing activities (note 19): Increase in short-term debt ...... 97,057 60,490 17,964 735,280 Proceeds from long-term debt ...... 279,866 201,985 332,559 2,120,197 Payments on long-term debt...... (223,517) (168,597) (118,716) (1,693,310) Proceeds from sale of common stock by subsidiaries...... 7,423 5,305 3,460 56,235 Dividends paid to stockholders...... (36,600) (36,520) (36,337) (277,273) Dividends paid to minority stockholders of subsidiaries...... (11,838) (10,599) (9,805) (89,682) Net cash provided by financing activities ...... 112,391 52,064 189,125 851,447

Effect of exchange rate changes on cash and cash equivalents...... (5,215) 13,948 17,048 (39,508) Net increase (decrease) in cash and cash equivalents...... (110,409) (317,767) 6,780 (836,432) Cash and cash equivalents at beginning of year ...... 1,309,949 1,627,716 1,620,936 9,923,856 Cash and cash equivalents at end of year...... ¥1,199,540 ¥1,309,949 ¥1,627,716 $9,087,424

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Hitachi, Ltd. and Subsidiaries

1. Basis of Presentation and Summary of Significant Accounting Policies

(a) Basis of Presentation Hitachi, Ltd. (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 United States generally accepted accounting principles. 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 finan- cial statements. Actual results could differ from those estimates.

(b) Principles of Consolidation The consolidated financial statements include the accounts of the Company and those of its majority-owned subsidiaries, whether directly or indirectly controlled. Intercompany accounts and significant intercompany transactions have been eliminated in consolidation. The investments in affiliated companies are stated at their underlying equity value, and the appropriate portion of the earnings of such companies is included in consolidated income.

(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 maturities of generally three months or less when purchased to be cash equivalents.

(d) 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 translat- ed 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 (deduc- tions), and those resulting from translation of financial statements are excluded from the consolidated statements of income and are accumu- lated in “Foreign currency translation adjustments.”

(e) Short-term Investments and Investments and Advances Investments in debt and equity securities classified as available-for-sale securities, which are included in short-term investments and investments and advances, are carried at the lower of cost or fair value. Investments in unlisted common stock owned less than 20% are carried at cost. Realized gains or losses are determined by the average method.

(f) 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 method for raw materials and other inventories.

Inventories include items associated with major contracts which, because of long-term processing requirements, have been or are expected to be performed over a period of more than 12 months. Those items as of March 31, 1998 and 1997 aggregated ¥310,831 million ($2,354,780 thousand) and ¥346,997 million, respectively. In general, income from such items is recognized at the time final shipments are made.

(g) 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, over the following estimated useful lives: Buildings...... 3 to 65 years Machinery and equipment...... 2 to 20 years

(h) 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 expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. 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.

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(i) Sales of Stock by Subsidiaries The change in the Company’s proportionate share of subsidiary equity resulting from issuance of stock by the subsidiaries is accounted for as an equity transaction.

(j) Derivative Financial Instruments Gains or losses on valuation of foreign exchange contracts, forward exchange contracts and cross currency swap agreements, to hedge existing assets and liabilities denominated in foreign currencies, are recognized currently as “Other income–other“ or “Other deductions–other.” The resulting valuation assets or liabilities are included in “Other current assets“ or “Other current liabilities.“

(k) Net Income Per Share Net income per share amounts are computed in accordance with SFAS No. 128, “Earnings per Share.” This standard requires a dual presenta- tion of basic and diluted net income per share amounts on the face of the statement 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.

(l) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of Effective April 1, 1996, the Company adopted SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,“ which prescribes the method for asset impairment evaluation for long-lived assets and certain identifiable intangibles that are either held and used or to be disposed of. This standard requires that the assets held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be gen- erated by such assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

(m) Transfers and Servicing of Financial Assets and Extinguishments of Liabilities Effective January 1, 1997, the Company implemented SFAS No. 125, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” This standard provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. The implementation of this standard did not have a material effect on the financial position and results of operations of the Company and subsidiaries.

(n) New Accounting Standards SFAS No. 130, “Reporting Comprehensive Income,” was issued in June 1997. This standard requires that all items that are required to be rec- ognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This standard requires that an enterprise (i) classify items of other comprehensive income by their nature in a financial statement and (ii) display the accumulated balance of other comprehensive income separately from retained earnings and capital surplus in the equity section of a balance sheet. This standard is effective for the Company’s fiscal year ending March 31, 1999. The Company is considering the use of a separate statement of comprehensive income that begins with net income to report other comprehensive and total comprehensive income.

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” was issued in June 1997. This standard 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

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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. This standard is effective for the Company’s fiscal year ending March 31, 1999.

Foreign issuers are presently exempted from the segment disclosure requirements of SFAS No. 14, “Financial Reporting for Segments of a Business Enterprise,” in Securities Exchange Act filings with the United States Securities and Exchange Commission (SEC), and the Company has not pre- sented the segment information required to be disclosed in the footnotes to the consolidated financial statements under SFAS No. 14.

2. Basis of Financial Statement Translation

The accompanying consolidated financial statements are expressed in yen and, solely for the convenience of the reader, have been translated into United States dollars at the rate of ¥132=U.S.$1, the approximate exchange rate prevailing on the Tokyo Foreign Exchange Market as of March 31, 1998. This translation should not be construed as a representation that all amounts shown could be converted into U.S. dollars.

3. Investment in Securities

SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” was issued in May 1993. SFAS No. 115 was effective for fis- cal years beginning after December 15, 1993. Under this standard, investments in equity securities that have readily determinable fair values and all investments in debt securities are to be classified in three categories and accounted for as follows: •Debt securities that the company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. •Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securi- ties and reported at fair value, with unrealized gains and losses included in earnings.

•Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders’ equity.

Regarding the method of implementation of SFAS No. 115, the Company requested the SEC for special treatment, which allows the Company to provide the required SFAS No. 115 disclosure in a footnote to the consolidated financial statements, instead of implementing it in the body of the consolidated financial statements. The Company’s request was based upon the following considerations:

(a) Most marketable equity securities in Hitachi’s portfolio are semi-permanent investments for maintaining business relationships with investee companies and management generally has no current plans to sell such securities. (b) The Company files its consolidated financial statements with both the SEC and the Ministry of Finance in Japan utilizing accounting principles generally accepted in the United States. If SFAS No. 115 were implemented, the comparability among Japanese companies’ financial statements would be considerably reduced. Many Japanese com- panies prepare their consolidated financial statements utilizing accounting practices generally accepted in Japan which generally reflect histori- cal cost accounting.

The SEC Division of Corporation Finance approved the Company’s request in a letter dated August 16, 1993, with disclosures of the effect of its departure from SFAS No. 115 in a footnote to the consolidated financial statements, instead of implementing SFAS No. 115 in the body of the consolidated financial statements.

Consequently, the Company has decided not to implement SFAS No. 115 in the body of the consolidated financial statements, but disclose the effect of its departure from SFAS No. 115.

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The Company and its subsidiaries classify their debt and equity securities as available-for-sale securities and such securities are carried at the lower of cost or fair value as discussed in note 1 (e). The amounts of variation on available-for-sale securities between the amounts appearing in the consolidated balance sheets and the amounts determined by reporting such securities at fair value as required by SFAS No. 115 as of March 31, 1998 and 1997 are as follows: Thousands of Millions of yen U.S. dollars 1998 1997 1998 Stockholders’ equity as shown in the consolidated balance sheets ...... ¥3,240,770 ¥3,283,890 $24,551,288

Gross unrealized holding gains on available-for-sale securities having the effect of increasing the following reported items: Short-term investments ...... 142,768 154,439 1,081,576 Investments and advances ...... 161,359 355,560 1,222,417

Tax effect of gross unrealized holding gains having the effect of increasing or decreasing the following reported items: Prepaid expenses and other current assets (decrease)...... (11,639) (13,018) (88,174) Other assets (decrease)...... (75,765) (97,848) (573,978) Other current liabilities (increase) ...... (55,855) (65,730) (423,144) Other liabilities (increase) ...... (556) (83,372) (4,212)

Net unrealized holding gain on available-for-sale securities held by affiliated companies...... 2,370 4,614 17,954

Transfer to minority interests ...... (19,071) (25,098) (144,477) Net unrealized holding gain on available-for-sale securities ...... 143,611 229,547 1,087,962 Stockholders’ equity in accordance with U.S. generally accepted accounting principles ...... ¥3,384,381 ¥3,513,437 $25,639,250

The changes in the net unrealized holding gain on available-for-sale securities that would have been included in the separate component of stockholders’ equity for the years ended March 31, 1998 and 1997 were decreases of ¥96,007 million ($727,326 thousand) and ¥120,327 mil- lion, respectively. The effect of the adjustment for an enacted change in tax rates in Japan that was in effect as of April 1, 1998 that would have been recorded to deferred tax liabilities and assets related to the gross unrealized holding gains on available-for-sale securities was an increase of net income amounting to ¥10,071 million ($76,295 thousand) for the year ended March 31, 1998.

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The following is a summary of the carrying amounts, gross unrealized holding gains and fair values of available-for-sale securities by the consol- idated balance sheet classification at March 31, 1998 and 1997.

Millions of yen Carrying Gross Fair Carrying Gross Fair amounts unrealized values amounts unrealized values gains gains 1998 1997 Short-term investments: Equity securities...... ¥ 47,703 ¥141,756 ¥ 189,459 ¥ 44,720 ¥152,474 ¥ 197,194 Bonds and debentures...... 195,411 640 196,051 140,595 1,010 141,605 Other securities ...... 224,792 372 225,164 337,963 955 338,918 467,906 142,768 610,674 523,278 154,439 677,717 Investments and advances: Equity securities...... 216,786 159,148 375,934 109,906 353,429 463,335 Bonds and debentures...... 90,787 1,955 92,742 83,075 1,861 84,936 Other securities ...... 23,436 256 23,692 17,388 270 17,658 331,009 161,359 492,368 210,369 355,560 565,929 ¥798,915 ¥304,127 ¥1,103,042 ¥733,647 ¥509,999 ¥1,243,646

Thousands of U.S. dollars Carrying Gross Fair amounts unrealized values gains 1998 Short-term investments: Equity securities...... $ 361,386 $1,073,909 $1,435,295 Bonds and debentures...... 1,480,386 4,849 1,485,235 Other securities ...... 1,702,970 2,818 1,705,788 3,544,742 1,081,576 4,626,318 Investments and advances: Equity securities...... 1,642,318 1,205,667 2,847,985 Bonds and debentures...... 687,780 14,811 702,591 Other securities ...... 177,546 1,939 179,485 2,507,644 1,222,417 3,730,061 $6,052,386 $2,303,993 $8,356,379

Bonds and debentures consist mainly of national, local and foreign governmental bonds, debentures issued by banks and corporate bonds. Other securities consist mainly of trust funds.

The contractual maturities of bonds and debentures and other securities classified as available-for-sale as of March 31, 1998 regardless of the consolidated balance sheet classification are as follows: Millions Thousands of of yen U.S. dollars Carrying Carrying amounts amounts 1998 1998 Due within one year ...... ¥293,896 $2,226,485 Due after one year through five years ...... 146,434 1,109,349 Due after five years...... 94,096 712,848 ¥534,426 $4,048,682

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

The proceeds from the sale of securities classified as available-for-sale for the years ended March 31, 1998, 1997 and 1996 are ¥249,241 mil- lion ($1,888,189 thousand), ¥98,172 million and ¥77,847 million, respectively, and gross realized gains included in income are ¥124,698 mil- lion ($944,682 thousand), ¥30,640 million and ¥31,172 million, respectively. For the purpose of determining gross realized gains, the cost of securities sold is determined by the average method.

The aggregate fair values of investments in affiliated companies based on the quoted market price as of March 31, 1998 and 1997 are ¥78,568 million ($595,212 thousand) and ¥116,492 million, respectively. The aggregate carrying values of such investments as of March 31, 1998 and 1997 are ¥115,525 million ($875,189 thousand) and ¥110,526 million, respectively.

4. Inventories

Inventories as of March 31, 1998 and 1997 are summarized as follows: Thousands of Millions of yen U.S. dollars 1998 1997 1998 Finished goods ...... ¥ 389,591 ¥ 363,168 $ 2,951,447 Work in process ...... 1,050,116 1,050,525 7,955,424 Raw materials...... 186,977 163,058 1,416,493 ¥1,626,684 ¥1,576,751 $12,323,364

5. Noncurrent Receivables and Restricted Funds

Noncurrent receivables and restricted funds as of March 31, 1998 and 1997 are summarized as follows: Thousands of Millions of yen U.S. dollars 1998 1997 1998 Housing loans to employees...... ¥ 28,825 ¥ 28,213 $ 218,371 Trade receivables not due within one year, interest-bearing ...... 56,876 48,503 430,879 Other receivables and restricted funds...... 109,845 111,757 832,159 ¥195,546 ¥188,473 $1,481,409

Housing loans to employees are made with repayment terms ranging from 10 to 25 years.

The aggregated annual maturities of the noncurrent trade receivables after March 31, 1999 are as follows: Millions Thousands of Years ending March 31 of yen U.S. dollars 2000 ...... ¥34,507 $261,417 2001 ...... 15,920 120,606 2002 ...... 4,883 36,993 2003 ...... 1,345 10,189 Thereafter ...... 221 1,674 ¥56,876 $430,879

Sales on an installment contract basis for the years ended March 31, 1998, 1997 and 1996 totaled ¥19,796 million ($149,970 thousand), ¥27,786 million and ¥24,399 million, respectively.

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6. Majority-owned Subsidiaries

The following financial information is required to be disclosed under SFAS No. 94, “Consolidation of All Majority-owned Subsidiaries,” in respect of the majority-owned subsidiaries that are now being consolidated to comply with the requirements of SFAS No. 94 from the year ended March 31, 1989. Thousands of Millions of yen U.S. dollars 1998 1997 1998 Current assets ...... ¥2,102,756 ¥2,059,405 $15,929,970 Other assets, principally property, plant and equipment...... 903,012 877,162 6,841,000 Total assets ...... 3,005,768 2,936,567 22,770,970 Current liabilities ...... 1,907,781 1,888,906 14,452,887 Long-term debt and retirement and severance benefits ...... 528,961 486,394 4,007,280 Net assets...... ¥ 569,026 ¥ 561,267 $ 4,310,803

Thousands of Millions of yen U.S. dollars 1998 1997 1996 1998 Net sales ...... ¥5,789,805 ¥6,197,186 ¥5,298,460 $43,862,159 Net income...... 13,816 16,424 22,013 104,667

7. Acquisition

On April 1, 1995, Hitachi Sales Corporation (HSC), a 61.89%-owned subsidiary, was merged into the Company by exchanging 41,590,791 shares of the common stock of the Company for the 38.11% of the common stock of HSC owned by the minority interests having a fair value of ¥37,432 million.

The merger has been accounted for as a purchase. If such a merger had taken place on April 1, 1994, the consolidated pro forma net income and net income per share amounts would not have been materially different from the reported amounts for the year ended March 31, 1995.

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8. Income Taxes

The companies are subject to a number of taxes based on income. The aggregated normal tax rate for domestic companies was 51.1% in 1998, 1997 and 1996.

On March 31, 1998, a reduction of income tax rates was enacted in Japan, and is effective from April 1, 1998. In accordance with SFAS No. 109, the effect of ¥29,761 million ($225,462 thousand) on deferred tax assets, liabilities and related valuation allowance of a change in the normal tax rate for domestic companies is charged to income for the year ended March 31, 1998.

Reconciliations between the normal income tax rate and the effective income tax rate as a percentage of income before income taxes and minority interests are as follows: 1998 1997 1996 Normal income tax rate ...... 51.1% 51.1% 51.1% Equity in earnings of associated companies...... 0.3 (1.3) (1.2) Expenses not deductible for tax purposes ...... 7.0 5.3 4.7 Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates in Japan...... 19.0 —— Change in valuation allowance...... 1.0 (1.9) (0.5) Difference in statutory tax rates of foreign subsidiaries ...... 4.2 (1.5) (1.8) Other ...... 0.5 0.9 (4.8) Effective income tax rate ...... 83.1% 52.6% 47.5%

The significant components of deferred income tax benefit attributable to income from operations for the years ended March 31, 1998, 1997 and 1996 are as follows: Thousands of Millions of yen U.S. dollars 1998 1997 1996 1998 Deferred tax benefit (exclusive of the effects of other components listed below)...... ¥(40,800) ¥(56,161) ¥(28,453) $(309,091) Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates in Japan ...... 32,584 ——246,849 Change in valuation allowance ...... 1,833 (4,938) (1,701) 13,886 ¥ (6,383) ¥(61,099) ¥(30,154) $ (48,356)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of March 31, 1998 and 1997 are presented below: Thousands of Millions of yen U.S. dollars 1998 1997 1998 Total gross deferred tax assets: Provision for retirement and severance benefits...... ¥221,827 ¥226,960 $1,680,507 Accrued expenses ...... 105,376 135,510 798,303 Depreciation ...... 42,660 38,231 323,182 Net operating loss carryforwards...... 57,980 36,827 439,242 Other...... 211,519 190,925 1,602,417 639,362 628,453 4,843,651 Valuation allowance...... (43,121) (42,394) (326,674) 596,241 586,059 4,516,977 Total gross deferred tax liabilities: Deferred profit on sale of properties ...... (43,826) (47,150) (332,015) Tax purpose reserves regulated Japanese tax law ...... (42,737) (47,705) (323,765) Other...... (30,190) (19,380) (228,712) (116,753) (114,235) (884,492) Net deferred tax assets...... ¥479,488 ¥471,824 $3,632,485

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Net deferred tax assets and liabilities as of March 31, 1998 and 1997 are reflected in the accompanying consolidated balance sheets under the following captions: Thousands of Millions of yen U.S. dollars 1998 1997 1998 Prepaid expenses and other current assets ...... ¥251,857 ¥262,773 $1,908,007 Other assets ...... 251,682 226,557 1,906,682 Other current liabilities ...... (8,216) (5,134) (62,242) Other liabilities ...... (15,835) (12,372) (119,962) Net deferred tax assets ...... ¥479,488 ¥471,824 $3,632,485

The net change in the total valuation allowance for the years ended March 31, 1998 and 1997 was an increase of ¥727 million ($5,508 thou- sand) and a decrease of ¥4,245 million, respectively.

As of March 31, 1998, various subsidiaries have net operating loss carryforwards for income tax purposes of ¥146,004 million ($1,106,091 thousand) which are available to offset future taxable income, if any. Most of these net operating loss carryforwards expire by 2003.

Under the tax laws of various jurisdictions in which the Company and its subsidiaries operate, the valuation allowance was recorded against deferred tax assets for deductible temporary differences, net operating loss carryforwards and tax credit carryforwards.

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 entirely dependent upon the generation of future taxable income in specific tax jurisdictions during the periods in which these deductible differences become deductible. Although realiza- tion is not assured, management considered the scheduled reversals of deferred tax liabilities and projected future taxable income 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, 1998.

The Company has not provided for deferred income tax liabilities on undistributed earnings of foreign subsidiaries and affiliated companies that are considered to be reinvested indefinitely. Such undistributed earnings, if remitted, generally would not result in material additional Japanese income taxes because of available foreign tax credits.

9. Short-term and Long-term Debt

Short-term debt as of March 31, 1998 and 1997 is summarized as follows: Thousands of Millions of yen U.S. dollars 1998 1997 1998 Borrowings mainly from banks ...... ¥ 843,095 ¥777,291 $6,387,084 Commercial paper...... 260,122 217,178 1,970,621 ¥1,103,217 ¥994,469 $8,357,705

The weighted average interest rates on short-term debt outstanding as of March 31, 1998 and 1997 are 1.0% and 0.8%, respectively.

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Long-term debt as of March 31, 1998 and 1997 is summarized as follows: Thousands of Millions of yen U.S. dollars 1998 1997 1998 Mortgage debentures: Due 2000—2004, interest 2.1—4.9%, issued by subsidiaries...... ¥ 600 ¥ 2,500 $ 4,545 Unsecured notes and debentures: Due 2006, interest 3.45% debenture...... 200,000 200,000 1,515,152 Due 1998—2008, interest 0.2—7.4%, issued by subsidiaries...... 536,660 444,146 4,065,606 Unsecured convertible debentures: 5th series, due 2002, interest 1.7% ...... 28,827 28,927 218,386 6th series, due 2003, interest 1.3% ...... 92,829 93,473 703,250 7th series, due 2004, interest 1.4% ...... 218,471 220,368 1,655,083 Due 1999—2004, interest 0.5—4.4%, issued by subsidiaries...... 159,280 172,740 1,206,667 Loans, principally from banks and insurance companies: Secured by various assets and mortgages on property, plant and equipment, maturing 1998—2014, interest 1.47—6.37% ...... 36,711 30,832 278,114 Unsecured, maturing 1998—2017, interest 1.02—7.69% ...... 228,218 238,648 1,728,924 1,501,596 1,431,634 11,375,727 Less current installments ...... 214,064 187,022 1,621,697 ¥1,287,532 ¥1,244,612 $ 9,754,030

The aggregate annual maturities of long-term debt after March 31, 1999 are as follows: Millions Thousands of Years ending March 31 of yen U.S. dollars 2000 ...... ¥ 80,291 $ 608,265 2001 ...... 186,700 1,414,394 2002 ...... 212,331 1,608,568 2003 ...... 133,831 1,013,871 Thereafter ...... 674,379 5,108,932 ¥1,287,532 $9,754,030

As is customary in Japan, both short-term and long-term bank loans are made under general agreements which provide that security and guar- antees 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 due the bank.

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 addi- tional capital stock, submitted to them for prior approval and also grant them the right to request additional security or mortgages on proper- ty, plant and equipment.

The unsecured convertible debentures due in 2002 are redeemable in whole or in part, at the option of the Company, from April 1, 1995 to March 31, 2001 at premiums ranging from 6% to 1%, and at par thereafter. The debentures are currently convertible into approximately 28,474,000 shares of common stock.

The unsecured convertible debentures due in 2003 are redeemable in whole or in part, at the option of the Company, from October 1, 1996 to September 30, 2002 at premiums ranging from 6% to 1%, and at par thereafter. The debentures are currently convertible into approximately 49,504,000 shares of common stock. Commencing September 30, 1999, the Company is required to make annual pay- ments to the Trustee of ¥10 billion ($76 million) less the aggregate amounts of the debentures converted, repurchased or redeemed which have not been deducted before.

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The unsecured convertible debentures due in 2004 are redeemable in whole or in part, at the option of the Company, from October 1, 1997 to September 30, 2003 at premiums ranging from 6% to 1%, and at par thereafter. The debentures are currently convertible into approximately 128,945,000 shares of common stock. Commencing September 30, 1999, the Company is required to make annual payments to the Trustee of ¥20 billion ($152 million) less the aggregate amounts of the debentures converted, repurchased or redeemed which have not been deducted before.

Pursuant to the terms of the indentures under which the unsecured convertible debentures due in 2004 were issued, accumulated cash divi- dends (including interim dividends) paid by the Company for the fiscal years beginning after March 31, 1989 may not exceed accumulated net income in the audited consolidated statements of income for the fiscal years beginning after March 31, 1989 plus ¥65,000 million ($492,424 thousand) as long as these debentures are outstanding. In determining the accumulated cash dividends, interim cash dividends to be paid on and after April 1, 1990 are considered to be a part of the cash dividends of the previous fiscal year.

10. Retirement and Severance Benefits

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

Principal pension plans are unfunded defined benefit pension plans. Under the plans, employees are entitled to lump-sum payments based on the current rate of pay and the length of service upon retirement or termination of employment for reasons other than dismissal for cause. For the purpose of applying SFAS No. 87, “Employers’ Accounting for Pensions,“ the projected benefit obligation which is made equal to the larg- er vested benefit obligation is recognized as the retirement and severance benefits on the accompanying balance sheets. The pension cost for the year is computed as the retirement and severance benefits paid plus or minus the change in the vested benefit obligation. For the years ended March 31, 1998, 1997 and 1996, the net periodic pension cost consists of service costs of ¥87,504 million ($662,909 thousand), ¥100,782 million and ¥83,966 million, respectively.

Directors and certain employees are not covered by the programs described above. Benefits paid to such persons and meritorious service awards paid to employees in excess of the prescribed formula are charged to income as paid as it is not practicable to compute the liability for future payments since amounts vary with circumstances.

In addition to unfunded defined benefit pension plans, the Company and certain of its subsidiaries contribute to each Employees Pension Fund (EPF) as is stipulated by the Japanese Welfare Pension Insurance Law. The pension plans under the EPF are composed of the substitutional por- tion of Japanese Welfare Pension Insurance and the corporate portion which is the contributory defined benefit pension plan covering substan- tially all of their employees and provides benefits in addition to the substitutional portion. The Company, certain of its subsidiaries and their employees contribute 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.

The benefits for the substitutional portion are based on standard remuneration scheduled by the Welfare Pension Insurance Law and the length of participation. The benefits of the corporate portion are based on the current rate of pay and the length of service. Under EPF pension plans, the participants are eligible for these benefits after a one-month period of participation in the plan. EPF contributions and cost for the substitutional portion are determined in accordance with the open aggregate cost method (actuarial funding method) as stipulated by the Welfare Pension Insurance Law. Contributions and cost for the corporate portion are determined in accordance with the entry age normal cost method (actuarial funding method). The pension cost of the corporate portion for the years ended March 31, 1998, 1997 and 1996 totaled ¥71,431 million ($541,144 thousand), ¥51,491 million and ¥47,123 million, respectively.

The Company decided not to apply accounting for single-employer defined benefit pension plans under SFAS No. 87 for those plans as the effects on the consolidated financial statements of the implementation of SFAS No. 87 are not significant. However, the following table sum- marizes the funded status for the EPF of the companies at March 31, 1997 and 1996 according to the actuarial funding method, based on the latest information available.

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Funding status of the Company’s plan is as follows: Thousands of Millions of yen U.S. dollars 1997 1996 1997 The liability reserve calculated using: Aggregate cost method—discount rate at 5.5% and assumed rates of compensation increase at 1.9—5.6% ...... ¥(333,897) ¥(313,082) $(2,529,523) Entry age normal cost method—discount rate at 5.5% and assumed rate of compensation increase at 3.7% ...... (420,943) (388,193) (3,188,962) Fair value of plan assets, primarily fixed income securities and contract receivables from insurance companies...... 767,440 694,654 5,813,940 ¥ 12,600 ¥ (6,621) $ 95,455

The fair value of plan assets and liability reserve of certain domestic subsidiaries’ plans are as follows: Thousands of Millions of yen U.S. dollars 1997 1996 1997 Liability reserve ...... ¥(423,114) ¥(383,699) $(3,205,409) Fair value of plan assets ...... 422,453 379,877 3,200,401 ¥ (661) ¥ (3,822) $ (5,008)

Prior service liabilities as of March 31, 1997 and 1996 amounted to ¥276,320 million ($2,093,333 thousand) and ¥269,238 million, respectively. It is the policy of the companies to amortize prior service costs over periods not exceeding 20 years by the interest or declining-balance method.

Contributions for the amortized portions of the prior service costs for the years ended March 31, 1998, 1997 and 1996 totaled ¥48,097 million ($364,371 thousand), ¥28,099 million and ¥25,807 million, respectively.

The companies are not required to report by regulation the actuarial present value of either vested or nonvested accumulated plan benefits, and such information, therefore, is not available.

11. Other Liabilities

Other liabilities as of March 31, 1998 and 1997 consist of the following: Thousands of Millions of yen U.S. dollars 1998 1997 1998 Deferred tax liabilities...... ¥15,835 ¥12,372 $119,962 Long-term payables for property ...... 75,821 69,513 574,402 Other...... 838 2,814 6,348 ¥92,494 ¥84,699 $700,712

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12. Common Stock

The changes in shares and amount of common stock for the years ended March 31, 1998, 1997 and 1996 are summarized as follows: Millions Thousands of of yen U.S. dollars Issued and outstanding shares Amount Amount Balance as of March 31, 1995 ...... 3,287,404,335 ¥276,041 Issued upon: Conversion of convertible debentures...... 143,382 58 Merger of HSC (note 7) ...... 41,590,791 2,079 Balance as of March 31, 1996 ...... 3,329,138,508 278,178 Issued upon conversion of convertible debentures ...... 8,657,497 3,506 Balance as of March 31, 1997 ...... 3,337,796,005 281,684 $2,133,970 Issued upon conversion of convertible debentures ...... 98,775 51 386 Balance as of March 31, 1998 ...... 3,337,894,780 ¥281,735 $2,134,356

Conversions of convertible debt issued subsequent to October 1, 1982 into common stock were accounted for in accordance with the provi- sions of the Japanese Commercial Code by crediting one-half of the conversion price to each of the common stock account and the capital sur- plus account.

13. Net Income Per Share Information

The reconciliation of the numbers and the amounts used in the basic and diluted net income per share computations is as follows: Number of shares 1998 1997 1996 Weighted average number of shares on which basic net income per share is calculated ...... 3,337,886,549 3,331,566,990 3,329,044,568 Effect of dilutive securities: 5th series convertible debentures...... 28,482,154 28,572,698 28,572,698 7th series convertible debentures...... — 130,064,333 141,951,183 6th series convertible debentures...... — 51,067,203 60,086,907 4th series convertible debentures...... — 6,319,809 8,843,014 Number of shares on which diluted net income per share is calculated...... 3,366,368,703 3,547,591,033 3,568,498,370

Thousands of Millions of yen U.S. dollars 1998 1997 1996 1998 Net income applicable to common stockholders ...... ¥3,477 ¥88,331 ¥141,770 $26,341 Effect of dilutive securities: 5th series convertible debentures...... 264 240 240 2,000 7th series convertible debentures...... — 1,508 913 — 6th series convertible debentures...... — 525 59 — 4th series convertible debentures...... — 42 94 — Other...... (378) ——(2,864) Net income on which diluted net income per share is calculated...... ¥3,363 ¥90,646 ¥143,076 $25,477

Yen U.S. dollars Net income per share: Basic...... ¥1.04 ¥26.51 ¥42.59 $0.01 Diluted ...... 1.00 25.55 40.09 0.01

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14. Legal Reserve and Cash Dividends The Japanese Commercial Code provides that earnings in an amount equal to at least 10% of appropriations of retained earnings to be paid in cash be appropriated as a legal reserve until such reserve equals 25% of stated common stock. This legal reserve is not available for dividends but may be used to reduce a deficit or may be transferred to stated common stock. Cash dividends and appropriations to the legal reserve charged to retained earnings during the years ended March 31, 1998, 1997 and 1996 represent dividends paid out during those years and the related appropriations to the legal reserve. The accompanying financial statements do not include any provision for the semi-annual dividend of ¥5.5 ($0.04) per share totaling ¥18,358 million ($139,076 thousand) subsequently proposed by the Board of Directors in respect of the year ended March 31, 1998.

15. Commitments and Contingencies As of March 31, 1998, outstanding commitments for the purchase of property, plant and equipment were approximately ¥150,539 million ($1,140,447 thousand). The Company and its operating subsidiaries are contingently liable for loan guarantees in the amount of approximately ¥19,024 million ($144,121 thousand) as of March 31, 1998. In addition, Hitachi Credit Corporation and its subsidiaries, financing subsidiaries, are the guaran- tors of consumer loans totaling ¥546,068 million ($4,136,879 thousand) as of March 31, 1998. It is 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, 1998 and 1997, the companies are contingently liable for trade notes discounted and endorsed in the following amounts: Thousands of Millions of yen U.S. dollars 1998 1997 1998 Notes discounted ...... ¥12,347 ¥ 7,490 $ 93,538 Notes endorsed...... 65,573 78,685 496,765 ¥77,920 ¥86,175 $590,303

Notes discounted are accounted for as sales. The aggregate proceeds from notes discounted for the years ended March 31, 1998, 1997 and 1996 are not available. 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 financial position and results of operations of the Company and certain subsidiaries.

16. Advertising The Company expenses advertising costs as incurred. Advertising expense for the years ended March 31, 1998, 1997 and 1996 is charged to income amounting to ¥52,161 million ($395,159 thousand), ¥50,912 million and ¥50,969 million, respectively.

17. Other Income and Other Deductions As discussed in note 1 (l), the Company adopted the provisions of SFAS No. 121 in 1997. The prices of semiconductors, mainly 64-megabit DRAMs, which are the products of the Company’s semiconductor business, have significantly decreased during the year ended March 31, 1998 due to a highly competitive market situation. As a result of these developments, the Company projected that the future business of those products would result in a net operating loss. Based on a comparison of the future net cash flows expected to be generated by the machinery and equipment to manufacture those products and their carrying amounts, the Company recognized an impairment of those assets. The pre- sent value of estimated future cash flows using a discount rate inherent to the Company was used as the fair value of those assets. Under simi- lar conditions in 1997, the Company recognized an impairment loss of the machinery and equipment to manufacture 4-megabit and 16-megabit DRAMs in the year ended March 31, 1997. The impairment losses are charged to income amounting to ¥35,504 million ($268,970 thousand) and ¥44, 289 million, which are included in “Other deductions–other” for the years ended March 31, 1998 and 1997, respectively.

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In addition, the Company and subsidiaries recognized future lease payments which were not covered by the future net cash flows expected to be generated by the leased machinery and equipment to manufacture mainly 64-megabit DRAMs. Included in “Other deductions–other” for the year ended March 31, 1998 is a special charge of ¥14,287 million ($108,235 thousand) in relation to a one-time recognition of unrecover- able future lease payments under the noncancelable agreements. Further, “Other deductions–other” for the year ended March 31, 1998 includes the liquidation loss of ¥31,828 million ($241,121 thousand) in connection with the Company’s discontinuance of its DRAM manufacturing joint venture with Texas Instruments Inc. in the United States. “Other income–other” for the years ended March 31, 1998, 1997 and 1996 include the net gain on sale of securities in the amount of ¥111,111 million ($841,750 thousand), ¥27,624 million and ¥41,307 million, respectively. In the year ended March 31, 1996, the Company reorganized its domestic and overseas production and sales network for consumer products. In connection with the streamlining activity, the loss amounting to ¥13,456 million was included in “Other deductions–other” for the year ended March 31, 1996.

18. Supplementary Income Information Thousands of Millions of yen U.S. dollars 1998 1997 1996 1998 Research and development expense ...... ¥510,878 ¥503,508 ¥493,788 $3,870,288 Provision for retirement and severance benefits and pension expense...... 189,225 178,462 189,071 1,433,523 Rent ...... 188,836 194,394 206,718 1,430,576 Exchange gain (loss) ...... (35,562) 7,152 (6,620) (269,409)

19. Supplementary Cash Flows Information Thousands of Millions of yen U.S. dollars 1998 1997 1996 1998 Cash paid during the year for: Interest...... ¥ 56,742 ¥ 60,400 ¥ 63,750 $ 429,864 Income taxes ...... 178,136 205,711 173,561 1,349,515 Convertible debentures issued by the Company of ¥100 million ($758 thousand) in 1998, ¥7,004 million in 1997 and ¥116 million in 1996 were converted into common stock. Convertible debentures issued by subsidiaries of ¥7,050 million ($53,409 thousand) in 1998, ¥6,151 mil- lion in 1997 and ¥31 million in 1996 were converted into subsidiaries’ common stock. The proceeds from sale of securities classified as available-for-sale discussed in note 3 are included in both “Increase (decrease) in short-term investments” and “Proceeds from sale of investments and subsidiaries’ common stock” on Statements of Cash Flows.

20. Financial Instruments, Derivative Financial Instruments and Risk Management The Company and its subsidiaries operate globally, are exposed to market risk from changes in foreign currency exchange rates and interest rates and enter into financial instruments and derivative financial instruments for the purpose of reducing such risk. The Company and its sub- sidiaries do not hold or issue derivative financial instruments for the purpose of trading. The Company and its subsidiaries are exposed to credit-related losses in the event of non-performance by counterparties to financial instru- ments and derivative financial instruments, but it is not expected that any counterparties will fail to meet their obligations, because most of the counterparties are authentic financial institutions. The contract or notional amounts of derivative financial instruments held as of March 31, 1998 and 1997 are summarized as follows: Thousands of Millions of yen U.S. dollars 1998 1997 1998 Forward exchange contracts: To sell foreign currencies ...... ¥281,191 ¥282,803 $2,130,235 To buy foreign currencies ...... 13,689 5,650 103,705 Cross currency swap agreements: To sell foreign currencies ...... 47,180 29,768 357,424 To buy foreign currencies ...... 247,301 210,707 1,873,492 As discussed in note 15, as of March 31, 1998, the Company and its subsidiaries are liable for trade notes discounted and endorsed, which are ¥12,347 million ($93,538 thousand) and ¥65,573 million ($496,765 thousand), respectively, and for loan guarantees in the amount of 45

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approximately ¥19,024 million ($144,121 thousand). In addition, Hitachi Credit Corporation and its subsidiaries, financing subsidiaries, are the guarantors of consumer loans totaling ¥546,068 million ($4,136,879 thousand) as of March 31, 1998. In relation to these, credit-related losses in the event of non-performance are not expected to be material. The Company and its subsidiaries sometimes require collateral of the counter- parties for the purpose of reducing credit risk in appropriate cases.

21. 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 those are diversified and spread globally. In the year ended March 31, 1998, the affects of the economic deterioration in certain countries in the Asia Pacific Region included a reduction in availability of credit, significant depreciation in the value of their currencies, an increase in the number of bankruptcies of entities in those countries, and an increase in interest rates. Such conditions in those countries could have a partial adverse effect on the operations of the Company and subsidiaries. The accompanying consolidated financial statements reflect management’s current accounting assessment of the possible impact of that economic situation on the financial position and results of operations of the Company and subsidiaries.

22. 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 investment 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 companies’ 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 and cross currency swap agreements are estimated on the basis of the market prices of deriva- tive financial instruments with similar contract conditions. The estimated fair values of the companies’ financial instruments are as follows: Thousands of Millions of yen U.S. dollars 1998 1997 1998 Carrying Estimated Carrying Estimated Carrying Estimated amounts fair values amounts fair values amounts fair values Investments in securities: Short-term investments ...... ¥ 713,672 ¥ 856,440 ¥ 763,320 ¥ 917,759 $ 5,406,606 $ 6,488,182 Investments and advances...... 331,009 492,368 210,369 565,929 2,507,644 3,730,061 Derivatives (Assets): Forward exchange contracts...... 727 583 250 346 5,508 4,417 Cross currency swap agreements...... 23,758 3,281 17,180 10,313 179,985 24,856 Long-term debt...... (1,501,596) (1,539,098) (1,431,634) (1,455,701) (11,375,727) (11,659,833) Derivatives (Liabilities): Forward exchange contracts...... (7,197) (7,664) (5,238) (5,205) (54,523) (58,061) Cross currency swap agreements...... (41,277) (21,220) (18,166) (5,744) (312,705) (160,758) Short-term investments as of March 31, 1998 and 1997 include investment in trust accounts totaling ¥245,766 million ($1,861,864 thousand) and ¥240,042 million, respectively, which approximate fair value. 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 amount of these investments at March 31, 1998 and 1997 totaled ¥53,157 million ($402,705 thousand) and ¥58,225 million, respectively. These disclosures disregard management intentions regarding the sale or settlement of its financial instruments and realizability of estimated fair values. Management does not intend to sell or settle most of its noncurrent financial instruments. Further, the fair value estimates are made as of March 31, 1998 and 1997, based on various assumptions. Therefore, the Company believes that the estimated fair values may be of limited usefulness.

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INDEPENDENT AUDITORS’ REPORT

To the Shareholders and Board of Directors of Hitachi, Ltd.:

We have audited the accompanying consolidated balance sheets of Hitachi, Ltd. and subsidiaries as of March 31, 1998 and 1997, and the related consolidated statements of income, surplus, and cash flows for each of the years in the three-year period ended March 31, 1998, all expressed in yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As more fully described in Note 3 to the consolidated financial statements, the Company has stated investments in certain debt and equity securities at the lower of cost or fair value as of March 31, 1998 and 1997. Such securities, in our opinion, should be stated at fair value and the resulting net unrealized holding gain be reported in a separate component of stockholders’ equity in order to conform with United States generally accepted accounting principles.

The segment information required to be disclosed in financial statements under United States generally accepted accounting principles is not presented in the accompanying consolidated financial statements. Foreign issuers are presently exempted from such disclosure requirement in Securities Exchange Act filings with the United States Securities and Exchange Commission.

In our opinion, except for the effects of not stating investments in certain debt and equity securities at fair value and reporting the resulting net unrealized holding gain in a separate component of stockholders’ equity as of March 31, 1998 and 1997, as discussed in the third para- graph of this report, and except for the omission of segment information, as discussed in the preceding paragraph, the consolidated financial statements referred to in the first paragraph above present fairly, in all material respects, the financial position of Hitachi, Ltd. and subsidiaries as of March 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1998 in conformity with United States generally accepted accounting principles.

As discussed in Notes 1 (l) and 17 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” effective April 1, 1996.

The accompanying consolidated financial statements as of and for the year ended March 31, 1998 have been translated into United States dol- lars solely for the convenience of the reader. We have recomputed the translation and, in our opinion, the consolidated financial statements expressed in yen have been translated into United States dollars on the basis set forth in Note 2 to the consolidated financial statements.

KPMG Peat Marwick Tokyo, Japan May 20, 1998

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FIVE-YEAR SUMMARY

Hitachi, Ltd. and Subsidiaries

Millions of yen 1998 1997 1996 1995 1994 For the year: Net sales ...... ¥ 8,416,834 ¥8,523,100 ¥8,123,810 ¥7,592,266 ¥7,400,205 Operating income ...... 209,007 297,166 332,582 304,590 213,389 Net income ...... 3,477 88,331 141,770 113,912 65,279 Cash dividends declared ...... 36,715 36,625 36,388 36,128 36,038 Capital investment (Property, plant and equipment) ...... 712,672 740,135 723,477 655,410 662,248 Depreciation (Property, plant and equipment)...... 550,393 543,560 556,671 521,435 496,132 Research and development expenditures ...... 510,878 503,508 493,788 491,481 484,237

At year-end: Total assets ...... 10,113,012 9,964,709 9,803,438 9,141,618 8,931,091 Net property, plant and equipment ...... 2,646,132 2,559,497 2,421,785 2,310,981 2,292,869 Stockholders’ equity ...... 3,240,770 3,283,890 3,200,072 3,033,377 2,959,165

Per share data: Yen Net income: Basic...... ¥ 1.04 ¥ 26.51 ¥ 42.59 ¥ 34.66 ¥ 19.92 Diluted ...... 1.00 25.55 40.09 33.02 19.27 Net income per ADS (representing 10 shares): Basic...... 10 265 426 347 199 Diluted ...... 10 256 401 330 193 Cash dividends declared ...... 11 11 11 11 11 Cash dividends declared per ADS (representing 10 shares)...... 110 110 110 110 110 Stockholders’ equity ...... 970.90 983.85 961.23 922.73 901.71

Number of employees...... 331,494 330,152 331,852 331,673 330,637

Note: The Company has not implemented Statement of Financial Accounting Standards No. 115 in accounting for certain investments in debt and equity securities. See note 3 of the accompanying notes to consolidated financial statements. If implemented, the balance of stockholders’ equity and stockholders’ equity per share would have been as follows:

Millions of yen 1998 1997 1996 1995 1994 Stockholders’ equity...... ¥3,384,381 ¥3,513,437 ¥3,549,946 ¥3,317,155 ¥—

Yen Stockholders’ equity per share ...... ¥1,013.93 ¥1,052.62 ¥1,066.33 ¥1,009.05 ¥—

Net Sales Net Income Capital Investment (billions of yen) (billions of yen) (billions of yen)

’94 7,400 ’94 65 ’94 662 ’95 7,592 ’95 114 ’95 655

’96 8,124 ’96 142 ’96 723 ’97 8,523 ’97 88 ’97 740

’98 8,417 ’98 3 ’98 713

Total Assets Net Income per Share–Diluted Stockholders’ Equity per Share (billions of yen) (yen) (yen)

’94 8,931 ’94 19 ’94 902 ’95 9,142 ’95 33 ’95 923

’96 9,803 ’96 40 ’96 961 ’97 9,965 ’97 26 ’97 984

’98 10,113 ’98 1 ’98 971

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MAJOR CONSOLIDATED SUBSIDIARIES

(As of March 31, 1998)

JAPAN Hitachi Life Corporation Hitachi Plant Engineering & Construction Co., Ltd. MANUFACTURING Hitachi Printing Co., Ltd. Babcock-Hitachi K.K. Hitachi Semiconductor and Devices Sales Co., Ltd. Hitachi Cable, Ltd. Hitachi Service & Engineering (East), Ltd. Hitachi Chemical Co., Ltd. Hitachi Service & Engineering (West), Ltd. Hitachi Construction Machinery Co., Ltd. Hitachi Software Engineering Co., Ltd. Hitachi Denshi, Ltd. Hitachi Techno Engineering Co., Ltd. Hitachi Electronics Engineering Co., Ltd. Hitachi Transport System, Ltd. Hitachi Hokkai Semiconductor, Ltd. Nissei Sangyo Co., Ltd. Hitachi Hometec, Ltd. Hitachi Kiden Kogyo, Ltd. Hitachi Lighting, Ltd. ABROAD Hitachi Maxell, Ltd. Hitachi Media Electronics Co., Ltd. MANUFACTURING Hitachi Medical Corporation Hitachi Automotive Products (USA), Inc. Hitachi Metals, Ltd. Hitachi Computer Products (America), Inc. Hitachi Seiko, Ltd. Hitachi Computer Products (Asia) Corp. Hitachi Setsubi Engineering Co., Ltd. Hitachi Computer Products (Europe) S.A. Hitachi Telecom Technologies, Ltd. Hitachi Consumer Products (S) Pte. Ltd. Hitachi Tohbu Semiconductor, Ltd. Hitachi Electronic Devices (Singapore) Pte. Ltd. Hitachi Tokyo Electronics Co., Ltd. Hitachi Electronic Devices (USA), Inc. Japan Servo Co., Ltd. Hitachi Electronic Products (Malaysia) Sdn. Bhd. Hitachi Home Electronics (America), Inc. ENGINEERING, SALES, AND SERVICE Hitachi Home Electronics (Europe) Ltd. Chuo Shoji, Ltd. Hitachi Semiconductor (America) Inc. Hitachi Air Conditioning & Refrigeration Co., Ltd. Hitachi Semiconductor (Europe) GmbH Hitachi Auto Systems Co., Ltd. Hitachi Semiconductor (Malaysia) Sdn. Bhd. Hitachi Building Systems Co., Ltd. Shanghai Hitachi Household Appliances Co., Ltd. Hitachi Credit Corporation Taiwan Hitachi Co., Ltd. Hitachi Electronics Services Co., Ltd. Hitachi Engineering & Services Co., Ltd. ENGINEERING, SALES, AND SERVICE Hitachi Engineering Co., Ltd. Hitachi America, Ltd. Hitachi Information Systems, Ltd. Hitachi Asia Pte. Ltd. Hitachi Keisho, Ltd. Hitachi Australia Ltd. Hitachi (China), Ltd. Hitachi Data Systems Holding Corp. Hitachi Europe Ltd.

Note: Hitachi Asia Pte. Ltd. was renamed Hitachi Asia Ltd. as of April 1, 1998.

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INTERNATIONAL NETWORK

(As of March 31, 1998)

OFFICES ABROAD Hitachi Telecom (USA), Inc. Hitachi Elevator (Guangzhou) Co., Ltd. OF HITACHI, LTD. Mast Immunosystems, Inc. Hitachi Escalator (Guangzhou) Co., Ltd. Maxcess Technologies Inc. (USA) Hitachi Instrument (Suzhou) Ltd. NORTH AMERICA Maxell Corporation of America Hitachi Semiconductor (Suzhou) Co., Ltd. Los Angeles, Washington, D.C. Newport Precision, Inc. Hitachi Technology (Taiwan) Ltd. Sintering Technologies, Inc. Kaohsiung Hitachi Electronics Co., Ltd. LATIN AMERICA Tri-continent Scientific, Inc. Shanghai Hitachi Cable Co., Ltd. Buenos Aires, Caracas, Mexico City, Ward Manufacturing Inc. Shanghai Hitachi Household Appliances São Paulo Co., Ltd. LATIN AMERICA Shanghai Hitachi Metals Techno Ltd. Shanghai Hitachi Shangling Appliances EUROPE Brazil Brussels, Moscow Co., Ltd. Industrias Hitachi S.A. Taiwan Hitachi Co., Ltd. MIDDLE EAST AND AFRICA Costa Rica Wuxi Hitachi Maxell Co., Ltd. Cairo, Dubai Hitachi Electronica Centroamericana S.A. Xinyi Rihong Plastic Chemical, Ltd. Mexico India ASIA Hitachi Consumer Products de Mexico S.A. Hitachi CG Motor Engineering Ltd. Seoul de C.V. Indonesia Maxell de Mexico S.A. de C.V. Bukaka Forging Industries P.T. Hitachi Chemical Electronic Products MANUFACTURING COMPANIES EUROPE Indonesia NORTH AMERICA France P.T. Hitachi Construction Machinery Hitachi Computer Products (Europe) S.A. Indonesia Canada P.T. Hitachi Consumer Products Indonesia Hitachi Canadian Industries Ltd. Germany P.T. Hitachi Power Systems Indonesia Maxcess Technologies Inc. (Canada) Hitachi Semiconductor (Europe) GmbH P.T. Japan Servo Batam U.S.A. Netherlands P.T. Sliontec Ekadharma Indonesia Hitachi Construction Machinery AAP St. Marys Corporation Korea Advanced Gene Computing Technologies, (Europe) B.V. Hitachi Chemical Electronic Materials (Korea) Inc. Spain Co., Ltd. Boston AIC Inc. Hitachi Air Conditioning Products Central Coating & Assembly Inc. (Europe) S.A. Malaysia Conex Cable, Inc. HED (Johor) Sdn. Bhd. EMI Company U.K. Hitachi Air Conditioning Products (M) GE-HITACHI HVB, Inc. Hitachi Automotive Products Europe, Ltd. Sdn. Bhd. Hitachi Automotive Products (USA), Inc. Hitachi Home Electronics (Europe) Ltd. Hitachi Cable (Johor) Sdn. Bhd. Hitachi Cable Indiana Inc. Maxell Europe Ltd. Hitachi Chemical (Johor) Sdn. Bhd. Hitachi Cable Manchester Inc. Hitachi Chemical (Malaysia) Sdn. Bhd. Hitachi Chemical Co., America, Ltd. ASIA Hitachi Consumer Products (Malaysia) Hitachi Computer Products (America), Inc. China Sdn. Bhd. Hitachi Digital Graphics (USA), Inc. Changsha Hitachi Automotive Products, Ltd. Hitachi Electronic Devices (Malaysia) Sdn. Bhd. Hitachi Electronic Devices (USA), Inc. Changzhou Servo Motor Co., Ltd. Hitachi Electronic Display Devices (M) Sdn. Bhd. Hitachi Home Electronics (America), Inc. Dalian Hitachi Baoyuan Machinery Hitachi Electronic Products (Malaysia) Sdn. Bhd. Hitachi Instruments, Inc. & Equipment Co., Ltd. Hitachi Electronics Engineering (Malaysia) Hitachi Magnetics Corporation Hefei Hitachi Excavators Co., Ltd. Sdn. Bhd. Hitachi Metals America, Ltd. Hitachi Airconditioning & Refrigerating Hitachi Metals Electronics (Malaysia) Sdn. Bhd. Hitachi Metals North Carolina, Ltd. Products (Guangzhou) Co., Ltd. Hitachi Semiconductor (Kedah) Sdn. Bhd. Hitachi PC Corporation (USA) Hitachi Chemical Co. (Taiwan) Ltd. Hitachi Semiconductor (Malaysia) Sdn. Bhd. Hitachi Semiconductor (America) Inc. Hitachi Chemical (Shanghai) Co., Ltd. Hitachi Semiconductor (Penang) Sdn. Bhd.

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Hitachi Semiconductor Technology (Malaysia) Hitachi Credit America Corp. Denmark Sdn. Bhd. Hitachi Data Systems Corp. Hitachi Data Systems A/S Maxell Electronics (Malaysia) Sdn. Bhd. Hitachi Data Systems Credit Corp. Hitachi Data Systems Holding A/S Tohshin Precision (Malaysia) Sdn. Bhd. Hitachi Data Systems Holding Corp. France Hitachi Denshi America, Ltd. Philippines HDS Distribution S.A. Hitachi Electronics Engineering (America) Inc. Babcock-Hitachi (Philippines) Inc. Hitachi Data Systems S.A. Hitachi Maxco, Ltd. Hitachi Computer Products (Asia) Corp. Hitachi Europe (France) S.A. Hitachi Medical Corporation of America Hitachi Industrial Machinery Philippines Corp. Hitachi France (Radio-TV Electro-Menager) S.A. Hitachi Medical Systems America Inc. Luzon Electronics Technology, Inc. Hitachi Software Engineering Europe, S.A. Hitachi Micro Systems Inc. Luzon Magnetics, Inc. Hitachi Systeme de Transport (France) S.A.R.L. Hitachi Sales Corp. of Hawaii, Inc. Taiwan Hitachi Air Conditioning Products Maxell (France) S.A. Hitachi Software Engineering America, Ltd. (Philippines) Corp. Nissei Sangyo France S.A.R.L. Hitachi Transport System (America), Ltd. Singapore Neuron Electronics, Inc. Germany Hitachi Cable (Singapore) Pte. Ltd. Nissei Sangyo America, Ltd. Hitachi Chemical Europe GmbH Hitachi Chemical Asia-Pacific Pte. Ltd. Sunrise Air Service, Inc. Hitachi Data Systems GmbH Hitachi Consumer Products (S) Pte. Ltd. Hitachi Data Systems Leasing GmbH Hitachi Electronic Devices (Singapore) Pte. Ltd. LATIN AMERICA Hitachi Denshi (Europa) GmbH Hitachi Elevator Engineering (Singapore) Pte. Ltd. Hitachi Europe GmbH Argentina Hitachi Powdered Metals (Singapore) Pte. Ltd. Hitachi “KADEN” Service (Europe) GmbH HDS Systems S.A. Japan Servo Motors (S) Pte. Ltd. Hitachi Medical Systems Europe GmbH Hitachi Data Systems S.A. Maxell Asia (Singapore) Pte. Ltd. Hitachi Metals Europe GmbH Singapore Foundry & Machinery Co. Pte. Ltd. Brazil Hitachi Sales Europa GmbH Hitachi Data Systems Computadores Thailand Hitachi Tool Engineering Europe GmbH de Brazil, Ltda. Hitachi Transport System (Europe) GmbH Hitachi Compressor (Thailand), Ltd. Nissei Sangyo do Brasil, Ltda. Maxell Europe GmbH Hitachi Ferrite (Thailand), Ltd. Nissei Sangyo GmbH (Deutschland) Hitachi Industrial Technology (Thailand), Ltd. Chile Hitachi Data Systems (Chile) Limitada Greece Costa Rica Hitachi Home Electronics Hellas S.A. ENGINEERING, SALES, AND Hitachi Sales Centroamericana, S.A. Ireland SERVICE COMPANIES Mexico Hitachi Credit Insurance Co., Ltd. NORTH AMERICA Hitachi Data Systems S.A. de C.V. Italy Hitachi Home Electronics de Mexico S.A. Hitachi Data Systems S.P.A. Bermuda de C.V. Hitachi Sales Italiana S.P.A. Concord Enterprise Insurance Co., Ltd. Hitachi Systema De Transporte (Mexico) Maxell Italia S.P.A. Canada S.A. De C.V. Luxembourg Hitachi (Canadian) Ltd. Panama Hitachi Data Systems S.A. Hitachi Credit Canada Inc. Hitachi Sales Corp. de Panama, S.A. Hitachi Data Systems Inc. Netherlands Productos Hitachi, S.A. Hitachi Denshi, Ltd. (Canada) Hitachi Data Systems B.V. Hitachi (HSC) Canada Inc. Venezuela Hitachi Data Systems Europe B.V. Nissei Sangyo Canada Inc. HDS Sistemas C.A. Hitachi Data Systems Europe Holdings B.V. Hitachi Sales De Venezuela, C.A. Hitachi International (Holland) B.V. U.S.A. HPC Venezuela C.A. Hitachi Transport Systeem (Nederland) B.V. Battery Engineering Inc. Maxell (Netherlands) B.V. HDS Corp. EUROPE Hitachi America, Ltd. Hitachi Cable America Inc. Belgium Hitachi Chemical Research Center Inc. Hitachi Data Systems S.A.

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Norway China Maxell Asia, Ltd. Hitachi Data Systems A/S Beijing Hitachi Guangri Elevator Nikko Development Co., Ltd. Selung Service Co., Ltd. Nissei Sangyo Hong Kong Ltd. Spain Beijing Hitachi Huasun Information Hitachi Data Systems S.A. India Systems Co., Ltd. Hitachi Sales Iberica, S.A. Hitachi India Pvt. Ltd. Chengdu Hitachi Elevator Sales Hitachi India Trading Pvt. Ltd. Sweden and Engineering Co., Ltd. Hitachi Data Systems A.B. Hainan Hitachi Elevator Co., Ltd. Indonesia Hitachi Home Electronics (Nordic) A.B. Hitachi Asia (Shanghai) Trading Co., Ltd. P.T. Modern Hitachi Sales Indonesia Maxell (Sweden) A.B. Hitachi Asia (Taiwan) Co., Ltd. Korea Switzerland Hitachi (China), Ltd. Korea Hisco Ltd. Hitachi Data Systems AG Hitachi Construction Machinery (Shanghai) Co., Ltd. Malaysia U.K. Hitachi Elevator Engineering (Shenzhen) Co., Ltd. Hitachi Asia (Malaysia) Sdn. Bhd. Fleet Lease (U.K.) Ltd. Hitachi Sales Corp. of Taiwan Kituda (M) Sdn. Bhd. Hitachi Credit (U.K.) Plc. Maxell (Shanghai) Trading Co., Ltd. MEM Trading & Consultancy Sdn. Bhd. Hitachi Data Systems (Europe) Corp. Nissei Sangyo (Shanghai) Co., Ltd. Nissei Sangyo IPC (Malaysia) Sdn. Bhd. Hitachi Data Systems Ltd. Shanghai Hitachi Elevator Sales Nissei Sangyo (Malaysia) Sdn. Bhd. Hitachi Denshi (U.K.) Ltd. and Engineering Co., Ltd. Sunrise Integrated Services (Malaysia) Hitachi Europe Ltd. Shanghai Lesterian Hitachi Consulting Ltd. Sdn. Bhd. Hitachi Finance (UK) Plc. Shengyang Northeast Electrical- New Zealand Hitachi Micro Systems Europe Ltd. Hitachi Power Systems Ltd. Cable Price (NZ) Ltd. Hitachi Sales (MEA) Ltd. Sousin Sales Corp. H.D.S. Ltd. Hitachi Transport System (UK) Ltd. Wuxi Hitachi Keisho Food Service Co., Ltd. Hitachi Data Systems New Zealand Ltd. Micon U.K. Ltd. Xian Hitachi Northwest Power Generation Techsure (U.K.) Ltd. Advanced Technology Development Co., Ltd. Singapore Hitachi Asia Pte. Ltd. AFRICA Hong Kong Hitachi Automobile Appliances Sales HI-IMPEX (Hong Kong) Ltd. (South-East) Singapore Pte. Ltd. Morocco Hitachi Asia (Hong Kong) Ltd. Hitachi Construction Machinery Hitachi Productions Maroc Electroniques Hitachi Automobile Appliances Sales Co. (Singapore) Pte. Ltd. Domestiques, S.A. (South-East) Ltd. Hitachi Credit Singapore Pte. Ltd. Hitachi Chemical Co. (Hong Kong) Ltd. Hitachi Data Systems Pte. Ltd. ASIA AND OCEANIA Hitachi Construction Machinery (Hong Kong) Hitachi Home Electronics Asia (S) Pte. Ltd. Australia Co., Ltd. Hitachi Medical Systems (Singapore) Pte. Ltd. Bioclone Australia Pty. Ltd. Hitachi Credit (Hong Kong) Ltd. Hitachi Metals Singapore Pte. Ltd. Clyde Babcock-Hitachi (Australia) Pty. Ltd. Hitachi Data Systems Ltd. Hitachi Micro Systems Asia Pte. Ltd. HDS Asia Pacific Professional Services Pty. Ltd. Hitachi Electric Service Co. (Hong Kong) Ltd. Hitachi Seiko Asia Pte. Ltd. HDS Australia R&D Pty. Ltd. Hitachi Elevator Engineering Co., Hitachi Semiconductor & Devices Asia Pte. Ltd. Hitachi Australia Ltd. (Hong Kong) Ltd. Hitachi (Singapore) Pte. Ltd. Hitachi Data Systems Australia Pty. Ltd. Hitachi Elevator Engineering Co., (Macau) Hitachi Transport System (Asia) Pte. Ltd. Hitachi Data Systems Credit Corp. Ltd. Nissei Sangyo (Singapore) Pte. Ltd. Australia Pty. Ltd. Hitachi Ferrite (Hong Kong) Ltd. Singapore AIC Pte. Ltd. Hitachi (Hong Kong) Ltd. Hitachi Data Systems Custodians Pty. Ltd. Thailand Hitachi Data Systems Pty. Ltd. Hitachi Insurance Service (Hong Kong) Ltd. Hitachi Sales (Thailand), Ltd. Hitachi Metals Australia Pty. Ltd. Hitachi Metals Hong Kong Ltd. Microelectronic Technologies Pty. Ltd. Hitachi Sales (Macau) Ltd. Hiyoshi Hong Kong Ltd. Hong Kong AIC Ltd.

Note: Hitachi Asia Pte. Ltd. was renamed Hitachi Asia Ltd. as of April 1, 1998.

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CORPORATE DATA

(As of March 31, 1998)

Hitachi, Ltd. (Kabushiki Kaisha Hitachi Seisakusho) Principal Office 6, Kanda-Surugadai 4-chome, Chiyoda-ku, Tokyo 101-8010, Japan Founded 1910 (Incorporated in 1920) Common Stock Par Value: ¥50 Authorized: 10,000,000,000 shares Issued: 3,337,894,780 shares Shareholders 357,040 Overseas Stock Exchange Listings Luxembourg, Frankfurt, Amsterdam, Paris and New York stock exchanges Japanese Stock Exchange Listings Tokyo, Osaka, Nagoya, Fukuoka, Kyoto, Hiroshima, Niigata, and Sapporo stock exchanges Independent Auditors KPMG Peat Marwick Internet Address www.hitachi.co.jp

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Printed in Japan c4