6-K 1 k00312e6vk.txt HITACHI, LTD. 6-K FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934 For the month of December 2002 Commission File Number 1-8320 ------ Hitachi, Ltd. ------------- (Translation of registrant's name into English) 6, Kanda-Surugadai 4-chome, Chiyoda-ku, Tokyo 101-8010, Japan ------------------------------------------------------------- (Address of principal executive offices) Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F X Form 40-F ------- --------- Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ------- Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ------- Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes No X ------- ------- If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ------- This report on Form 6-K contains the following: 1. Press release dated December 2, 2002 regarding U.S. Federal Trade Commission's approval of Hitachi-IBM hard disk drive venture. 2. Consolidated financial statements for the first half of the fiscal year ending March 31, 2003. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Hitachi, Ltd. --------------------------------------- (Registrant) Date January 8, 2003 By /s/ Kazuo Kumagai ------------------------------ ------------------------------------ Kazuo Kumagai Executive Vice President and Director FOR IMMEDIATE RELEASE Contacts: Yasuo Hirano Hitachi, Ltd. +81-3-3258-2057 yasuo_hirano@hdq.hitachi.co.jp Matt Takahashi Hitachi America, Ltd. 650-244-7902 masahiro.takahashi@hal.hitachi.com Kim Nguyen IBM Storage Technology Division 408-256-7589 ktnguyen@us.ibm.com U.S. Federal Trade Commission Approves Hitachi-IBM Hard Disk Drive Venture TOKYO, Japan and SAN JOSE, Calif. -- December 2, 2002 - Hitachi, Ltd. (NYSE: HIT, TSE: 6501) and IBM Corporation (NYSE: IBM) today announced that on November 27 the U.S. Federal Trade Commission (FTC) approved plans by Hitachi and IBM to combine their hard disk drive operations, forming a new company to be called Hitachi Global Storage Technologies. Hitachi and IBM previously received antitrust approval for the proposed transaction from the European Commission, the Japan Fair Trade Commission, Brazil's Conselho Administrativo de Defesa Economica (CADE) and Taiwan's Fair Trade Commission. Hitachi and IBM are waiting to receive approval from one jurisdiction. - # # # - HITACHI, LTD. AND SUBSIDIARIES Consolidated Financial Statements and Segment Information Six months ended September 30, 2002 CONSOLIDATED BALANCE SHEETS Hitachi, Ltd. and Subsidiaries September 30, 2002 and March 31, 2002

Thousands of Millions of yen U.S. dollars (note 2) ------------------------------- -------------------- September 30, March 31, September 30, Assets 2002 2002 2002 -------------- ------------- -------------- Cash and cash equivalents 875,212 1,029,374 7,115,545 Short-term investments (note 3) 160,862 178,933 1,307,821 Trade receivables, net of allowance for doubtful receivables and unearned income- September 30, 2002 JPY 44,517 million ($361,927 thousand); March 31, 2002 JPY 35,891 million: Notes (note 6) 184,194 204,855 1,497,512 Accounts (note 6) 1,666,468 1,895,150 13,548,520 Inventories (note 4) 1,193,242 1,214,399 9,701,155 Prepaid expenses and other current assets 451,804 457,392 3,673,203 Investment in leases (note 6) 459,526 527,432 3,735,984 Investments and advances, including affiliated companies (note 3) 773,211 834,907 6,286,268 Property, plant and equipment (note 5): Land 380,504 383,781 3,093,529 Buildings 1,738,666 1,748,509 14,135,496 Machinery and equipment 5,462,178 5,510,651 44,407,951 Construction in progress 101,880 97,790 828,293 ------------ ------------ ------------ 7,683,228 7,740,731 62,465,269 Less accumulated depreciation 5,234,418 5,226,307 42,556,244 ------------ ------------ ------------ Net property, plant and equipment 2,448,810 2,514,424 19,909,025 ------------ ------------ ------------ Other assets (note 7) 1,146,983 1,058,788 9,325,065 ------------ ------------ ------------ 9,360,312 9,915,654 76,100,098 ============ ============ ============

See accompanying notes to consolidated financial statements.

Thousands of Millions of yen U.S. dollars (note 2) --------------------------------- ---------------------- September 30, March 31, September 30, Liabilities and Stockholders' Equity 2002 2002 2002 ------------- ------------- ------------- Short-term debt 737,693 833,838 5,997,504 Current installments of long-term debt 497,398 366,083 4,043,886 Trade payables: Notes 77,979 92,799 633,976 Accounts 970,253 991,037 7,888,236 Accrued expenses 707,560 882,148 5,752,520 Income taxes 59,670 60,518 485,122 Advances received 293,623 334,172 2,387,179 Other current liabilities 305,460 324,670 2,483,415 Long-term debt 1,541,809 1,798,303 12,535,032 Retirement and severance benefits 1,000,985 1,049,054 8,138,089 Other liabilities 74,443 80,064 605,228 ------------- ------------- -------------- Total liabilities 6,266,873 6,812,686 50,950,187 ------------- ------------- -------------- Minority interests 802,071 798,744 6,520,903 Stockholders' equity: Common stock 282,032 282,032 2,292,943 Capital surplus 530,460 527,010 4,312,683 Legal reserve 110,960 110,751 902,114 Retained earnings 1,650,947 1,643,248 13,422,333 Accumulated other comprehensive loss: Foreign currency translation adjustments (56,624) (38,012) (460,358) Minimum pension liability adjustments (243,059) (260,100) (1,976,089) Net unrealized holding gain on available-for-sale securities 17,621 39,997 143,260 Net unrealized loss on derivative financial instruments (260) (369) (2,114) Treasury stock (709) (333) (5,764) ------------- ------------- -------------- Total stockholders' equity 2,291,368 2,304,224 18,629,008 Commitments and contingencies (note 10) ------------- ------------- -------------- 9,360,312 9,915,654 76,100,098 ============= ============= ==============

See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF INCOME Hitachi, Ltd. and Subsidiaries Six months ended September 30, 2002 and 2001

Thousands of Millions of yen U.S. dollars (note 2) ------------------------------- ---------------------- 2002 2001 2002 ----------- ---------- ------------ Revenues: Net sales 3,916,491 3,938,121 31,841,390 Interest income 6,589 13,304 53,569 Dividends received 4,392 3,942 35,708 Other income (note 11) 15,731 - 127,894 ----------- ---------- ------------ Total revenues 3,943,203 3,955,367 32,058,561 Costs and expenses: Cost of sales 2,969,558 3,016,343 24,142,748 Selling, general and administrative expenses 885,245 963,888 7,197,114 Interest charges 17,803 25,900 144,740 Other deductions (note 11) 24,720 47,777 200,976 ----------- ---------- ------------ Total costs and expenses 3,897,326 4,053,908 31,685,578 ----------- ---------- ------------ Income (loss) before income taxes and minority interests 45,877 (98,541) 372,983 Income taxes: Current 57,559 57,170 467,959 Deferred (36,292) (39,015) (295,057) ----------- ---------- ------------ Total Income taxes 21,267 18,155 172,902 ----------- ---------- ------------ Income (loss) before minority interests 24,610 (116,696) 200,081 Minority interests 11,758 (6,153) 95,593 ----------- ------------ ------------- Net income (loss) 12,852 (110,543) 104,488 =========== ============ =============

Net income (loss) per share (note 12): Yen (U.S. dollars (note 2) -------------------------------------- ------------------------- --------------------- Basic 3.85 (33.12) 0.03 Diluted 3.77 (33.12) 0.03

See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Hitachi, Ltd. and Subsidiaries Six months ended September 30, 2002 and 2001

Thousands of Millions of yen U.S. dollars (note 2) ------------------------------ --------------------- 2002 2001 2002 ------------ ------------ ----------- Common stock: Balance at beginning of period 282,032 281,754 2,292,943 Conversion of convertible debentures - 1 - ------------ ------------ ----------- Balance at end of period 282,032 281,755 2,292,943 ============ ============ =========== Capital surplus: Balance at beginning of period 527,010 501,243 4,284,634 Conversion of convertible debentures 652 67 5,301 Increase arising from issuance of subsidiaries' common stock and other 2,798 15,997 22,748 ------------ ------------ ------------ Balance at end of period 530,460 517,307 4,312,683 ============ ============ ============ Legal reserve : Balance at beginning of period 110,751 109,815 900,415 Transfers from retained earnings 203 567 1,650 Transfers to minority interests arising from conversion of subsidiaries' convertible debentures (18) (4) (146) Transfers from (to) minority interests arising from issuance of subsidiaries' common stock and other 24 (5) 195 ------------ ------------ ------------ Balance at end of period 110,960 110,373 902,114 ============ ============ ============ Retained earnings: Balance at beginning of period 1,643,248 2,157,136 13,359,740 Net income (loss) 12,852 (110,543) 104,488 Cash dividends - (18,359) - Transfers to legal reserve (203) (567) (1,651) Net transfer to minority interests arising from conversion of subsidiaries' convertible debentures (263) (50) (2,138) Net transfer to minority interests arising from issuance of subsidiaries' common stock and other (4,687) (38) (38,106) ------------ ------------ ------------ Balance at end of period 1,650,947 2,027,579 13,422,333 ============ ============ ============ Accumulated other comprehensive income (loss): Foreign currency translation adjustments Balance at beginning of period (38,012) (57,647) (309,041) Other comprehensive loss, net of reclassification adjustments (18,133) (4,072) (147,423) Net transfer to minority interests arising from issuance of subsidiaries' common stock and other (479) (294) (3,894) ------------ ------------ ----------- Balance at end of period (56,624) (62,013) (460,358) ============ ============ =========== Minimum pension liability adjustments Balance at beginning of period (260,100) (182,936) (2,114,634) Other comprehensive income (loss) 17,026 (76) 138,423 Net transfer from minority interests arising from issuance of subsidiaries' common stock and other 15 195 122 ------------ ------------ ------------ Balance at end of period (243,059) (182,817) (1,976,089) ============ ============ ============ Net unrealized holding gain on available-for-sale securities Balance at beginning of period 39,997 51,041 325,179 Other comprehensive loss, net of reclassification adjustments (22,369) (30,894) (181,862) Net transfer from minority interests arising from conversion of subsidiaries' convertible debentures 1 1 8 Net transfer to minority interests arising from issuance of subsidiaries' common stock and other (8) (113) (65) ------------ ------------ ------------ Balance at end of period 17,621 20,035 143,260 ============ ============ ============ Net unrealized gain on derivative financial instruments Balance at beginning of period (369) 1,096 (3,000) Other comprehensive income, net of reclassification adjustments 113 0 919 Net transfer to minority interests arising from issuance of subsidiaries' common stock and other (4) - (33) ------------ ------------ ------------ Balance at end of period (260) 1,096 (2,114) ============ ============ ============ Total accumulated other comprehensive loss (282,322) (223,699) (2,295,301) ============ ============ ============ Treasury stock: Balance at beginning of period (333) - (2,707) Acquisition for treasury (376) - (3,057) ------------ ----------- ------------ Balance at end of period (709) - (5,764) ============ =========== ============ Total stockholders' equity 2,291,368 2,713,315 18,629,008 ============ =========== ============ Total comprehensive loss (10,511) (145,585) (85,455)

See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Hitachi, Ltd. and Subsidiaries Six months ended September 30, 2002 and 2001

Thousands of Millions of yen U.S. dollars (note 2) ------------------------ --------------------- 2002 2001 2002 ---------- ---------- ---------- Cash flows from operating activities: Net income (loss) 12,852 (110,543) 104,488 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 226,280 258,714 1,839,675 Deferred income taxes (36,292) (39,015) (295,057) Equity in earnings of affiliated companies 8,425 13,556 68,496 Gain on sale of investments and subsidiaries' common stock (40,333) (1,805) (327,911) Impairment of investment in securities 19,636 1,767 159,642 Loss on sale of rental assets and other property 4,306 11,451 35,008 Income (loss) applicable to minority interests 11,758 (6,153) 95,594 Decrease in receivables 183,658 397,185 1,493,155 (Increase) decrease in inventories (8,394) 54,629 (68,244) Increase in prepaid expenses and other current assets (17,594) (3,206) (143,041) Decrease in payables (25,911) (273,874) (210,658) Decrease in accrued expenses and retirement and severance benefits (176,471) (51,774) (1,434,724) Increase (decrease) in accrued income taxes 95 (40,695) 772 Decrease in other liabilities (18,555) (47,625) (150,854) Other 48,043 33,711 390,594 ---------- ---------- ---------- Net cash provided by operating activities 191,503 196,323 1,556,935 Cash flows from investing activities: Decrease in short-term investments 17,591 53,128 143,016 Capital expenditures (155,148) (226,980) (1,261,366) Purchase of assets to be leased (213,742) (225,939) (1,737,740) Collection of investment in leases 209,869 232,447 1,706,252 Proceeds from disposal of rental assets and other property 63,382 43,235 515,301 Proceeds from sale of investments and subsidiaries' common stock 98,169 30,140 798,122 Purchase of investments and subsidiaries' common stock (42,180) (76,493) (342,927) Purchase of software (63,245) (49,594) (514,187) Other (43,655) 3,482 (354,918) ---------- ---------- ---------- Net cash used in investing activities (128,959) (216,574) (1,048,447) Cash flows from financing activities: Decrease in short-term debt (79,236) (26,921) (644,195) Proceeds from long-term debt 163,608 374,343 1,330,146 Payments on long-term debt (276,279) (288,722) (2,246,171) Proceeds from sale of common stock by subsidiaries 1,464 41,076 11,903 Dividends paid to stockholders (82) (18,289) (666) Dividends paid to minority stockholders of subsidiaries (6,956) (7,358) (56,553) Acquisition of common stock for treasury (376) - (3,057) ---------- ---------- ---------- Net cash provided by (used in) financing activities (197,857) 74,129 (1,608,593) Effect of exchange rate changes on cash and cash equivalents (18,849) (3,883) (153,244) ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents (154,162) 49,995 (1,253,349) Cash and cash equivalents at beginning of period 1,029,374 1,381,603 8,368,894 ---------- ---------- ---------- Cash and cash equivalents at end of period 875,212 1,431,598 7,115,545 ========== ========== ==========

See accompanying notes to consolidated financial statements. HITACHI, LTD. AND SUBSIDIARIES Notes to Consolidated Financial Statements Six months ended September 30, 2002 (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 accounting principles generally accepted in the United States of America. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements. Actual results could differ from those estimates. (b) Principles of Consolidation The consolidated financial statements include the accounts of the Company 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) Investment in Securities The Company classifies investments in securities that have readily determinable fair values and all investments in debt securities in three categories, such as held-to-maturity securities, trading securities and available-for-sale securities. Held-to-maturity securities are debt securities that the Company has the positive intent and ability to hold to maturity. Trading securities are debt and equity securities that are bought and held principally for the purpose selling them in the near term. Available-for-sale securities are debt and equity securities not classified as either held-to-maturity securities or trading securities. Held-to-maturity securities are reported at amortized cost. Trading securities are reported at fair value, with unrealized gains and losses included in earnings. Available-for-sale securities are reported at fair value, with unrealized gains and losses reported in other comprehensive income. A decline in fair value of any available-for-sale or held-to-maturity security below the amortized cost basis that is deemed to be other than temporary results in a write-down of the cost basis to fair value as a new cost basis and the amount of the write-down is included in earnings. The cost of a security sold or the amount reclassified out of accumulated other comprehensive income into earnings was determined by the average method. (d) Securitization The Company and certain subsidiaries have securitized certain financial assets such as lease receivables, trade receivables and others. In the securitization process, securitized assets are sold to Special Purpose Entities (SPE) which are funded through the issuance of asset-backed securities to the investors. When the Company and its subsidiaries sell the financial assets to the SPE in a securitization transaction, the carrying amount of the financial assets is allocated based on relative fair values to the portions to be retained and sold. The Company and its subsidiaries recognize a gain or loss for the difference between the net proceeds received and the allocated carrying amount of the assets sold when the transaction is consummated. Fair values are based on the present value of estimated future cash flows which takes into consideration various factors such as expected credit loss and others. (e) Goodwill and Other Intangible Assets Effective April 1, 2002, the Company accounts for its goodwill and other intangible assets in accordance with Statement of Financial Accounting Standards (SFAS) No.142, "Goodwill and Other Intangible Assets." Goodwill and intangible assets with indefinite useful lives are no longer amortized, but instead tested for impairment at least annually in accordance with the provisions of this statement. Intangible assets with finite useful lives are amortized over their respective estimated useful lives. The Company reviews these assets for impairment in accordance with SFAS No.144 "Accounting for the Impairment or Disposal of Long-Lived Assets." (f) Capitalized Software Costs Capitalized software costs are amortized on an individual basis, and the amortization is based on the ratio of the amortization computed based on the software's expected future revenue to current year's revenue. (g) Retirement and Severance Benefits The Company accounts for retirement and severance benefits in accordance with SFAS No. 87, "Employers' Accounting for Pensions." Unrecognized gains and losses are amortized using the straight-line method over the average remaining service period of active employees. (h) Derivative Financial Instruments The Company accounts for derivative financial instruments in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. SFAS No.133 requires that all derivative financial instruments, such as forward exchange and interest rate swap contracts, be recognized in the financial statements as either assets or liabilities and measured at fair value regardless of the purpose or intent for holding them. The Company designates and accounts for derivatives as follows: o "Fair value" hedge: a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment. The changes in fair value of the recognized assets or liabilities or unrecognized firm commitment and the derivatives are recorded in earnings if the hedge is considered highly effective. o "Cash flow" hedge: a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability. The changes in the fair value of the derivatives designated as cash flow hedges are recorded as other comprehensive income if the hedge is considered highly effective. This treatment is continued until earnings are affected by the variability in cash flows or the unrecognized firm commitment of the designated hedged item. o "Foreign currency" hedge: a hedge of foreign-currency fair value or cash flow. The changes in fair value of the recognized assets or liabilities or unrecognized firm commitment and the derivatives are recorded as either earnings or other comprehensive income if the hedge is considered highly effective. Recognition as earnings or other comprehensive income is dependent on the treatment of foreign currency hedges as fair value or cash flow hedges. The Company follows the documentation requirements as prescribed by the standard, which includes the risk management objective and strategy for undertaking various hedge transactions. In addition, a formal assessment is made at the hedge's inception and periodically on an ongoing basis, as to whether the derivative used in hedging activities is highly effective in offsetting changes in fair values or cash flows of hedged items. Hedge accounting is discontinued for ineffective hedges, if any. Subsequent changes in the fair value of derivatives related to discontinued hedges are recognized in earnings immediately. (i) Revenue Recognition Staff Accounting Bulletin No.101 (SAB 101) expresses certain views of the United States Securities and Exchange Commission (SEC) in applying generally accepted accounting principles to revenue recognition in the financial statements. Under SAB101, revenue is recognized when persuasive evidence of an arrangement exits, delivery has occurred or services are rendered, the sales price is fixed and determinable and collectibility is probable. These criteria are met for the Company's sales and related cost of sales and revenue is generally recognized when products are shipped, delivered and services are rendered. Sales and related cost of sales under certain long-term construction contracts are recognized under the percentage of completion method. Income on financing leases is recognized by a method which produces a constant periodic rate of return on the outstanding investment in the lease. The Company's products are generally subject to warranty and the Company provides for the estimated future costs of repair and replacement in cost of sales when sales are recognized. (j) Business Combination The Company uses the purchase method of accounting for business combinations in accordance with SFAS No.141, "Business Combination". (k) Treasury Stock Treasury stock is accounted for by the cost method. (l) Stock-based Compensation The Company accounts for its stock option plan in accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees." Under APB No. 25, the Company recognizes no compensation expense related to employee stock options, as no options are granted at a price below the market price on the day of grant. SFAS No. 123, "Accounting for Stock-based Compensation," prescribes the recognition of compensation expense based on the fair value of options on the grant date. Continuous application of APB No. 25 is allowed under this standard if certain pro forma disclosures are made assuming hypothetical fair value method application. The Company elected to continue applying APB No. 25 and provide pro forma disclosure in accordance with SFAS No. 123. (m) Disclosures about Segments of an Enterprise and Related Information 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 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 ended March 31, 1999. However, foreign issuers are presently exempted from the segment disclosure requirements of SFAS No. 131 in Securities Exchange Act filings with the SEC, and the Company has not presented the segment information required to be disclosed in the footnotes to the consolidated financial statements under SFAS No. 131. (n) New Accounting Standards In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The Company is required and plans to adopt the provisions of SFAS No. 143 for the fiscal year beginning April 1, 2003. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies the FASB's Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 applies to costs associated with an exit activity that does not involve an entity newly acquired in a business combination covered by EITF Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination," or with a disposal activity covered by SFAS No. 144. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and measured at fair value. The provisions of the statement are effective for exit or disposal activities that are initiated after December 31, 2002. Management does not anticipate the adoption of this statement to have a material effect on the Company's financial position or results of operations on the date of adoption. (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 JPY 123=U.S.$1, the approximate exchange rate prevailing on the Tokyo Foreign Exchange Market as of September 30, 2002. This translation should not be construed as a representation that all amounts shown could be converted into U.S. dollars. (3) Investment in Securities The following is a summary of the amortized cost basis, gross unrealized holding gains, gross unrealized holding losses and aggregate fair value of available-for-sale securities by the consolidated balance sheets classification as of September 30, 2002 and March 31, 2002.

Millions of yen --------------------------------------------------- September 30, 2002 --------------------------------------------------- Amortized Gross Gross Aggregate cost basis gains losses fair value ---------- ------- ------- ---------- Short-term investments: Debt securities 58,332 118 65 58,385 Other securities 18,156 180 65 18,271 ------- ------ ------ ------ 76,488 298 130 76,656 Investments and advances: Equity securities 146,569 73,937 8,516 211,990 Debt securities 126,045 394 3,203 123,236 Other securities 27,431 57 813 26,675 ------- ------ ------ ------- 300,045 74,388 12,532 361,901 ------- ------ ------ ------- 376,533 74,686 12,662 438,557 ======= ====== ====== =======

Thousands of U.S. dollars --------------------------------------------------- September 30, 2002 --------------------------------------------------- Amortized Gross Gross Aggregate cost basis gains losses fair value ---------- -------- ------- ---------- Short-term investments: Debt securities 474,244 959 528 474,675 Other securities 147,610 1,463 529 148,544 --------- ------- ------- --------- 621,854 2,422 1,057 623,219 Investments and advances: Equity securities 1,191,618 601,114 69,236 1,723,496 Debt securities 1,024,756 3,203 26,040 1,001,919 Other securities 223,016 464 6,610 216,870 --------- ------- ------- --------- 2,439,390 604,781 101,886 2,942,285 --------- ------- ------- --------- 3,061,244 607,203 102,943 3,565,504 ========= ======= ======= =========

Millions of yen --------------------------------------------------- March 31, 2002 --------------------------------------------------- Amortized Gross Gross Aggregate cost basis gains losses fair value ---------- -------- ------- ---------- Short-term investments: Debt securities 62,114 48 51 62,111 Other securities 31,717 4 172 31,549 ------- ------- ------ ------- 93,831 52 223 93,660 Investments and advances: Equity securities 173,204 116,411 7,093 282,522 Debt securities 125,059 589 4,276 121,372 Other securities 36,741 234 872 36,103 ------- ------- ------ ------- 335,004 117,234 12,241 439,997 ------- ------- ------ ------- 428,835 117,286 12,464 533,657 ======= ======= ====== =======

Debt securities consist mainly of national, local and foreign governmental bonds, debentures issued by banks and corporate bonds. Other securities consist mainly of investment trusts. The proceeds from sale of available-for-sale securities for the six months ended September 30, 2002 and 2001 are JPY 68,057 million ($553,309 thousand) and JPY 35,381 million, respectively. The gross realized gains on the sale of those securities for the six months ended September 30, 2002 and 2001 are JPY 25,905 million ($210,610 thousand) and JPY 3,989 million, respectively, while gross realized losses on the sale of those securities for the six months ended September 30, 2002 and 2001 are JPY 1,099 million ($8,935 thousand) and JPY 303 million, respectively. The changes in net unrealized holding gain on available-for-sale securities which has been included in accumulated other comprehensive income for the six months ended September 30, 2002 and 2001 are a decrease of JPY 22,376 million ($181,919 thousand) and a decrease of JPY 31,006 million, respectively. Various held-to-maturity securities are held by certain subsidiaries. Securities classified as Short-term investments in the consolidated balance sheet amounted to JPY 3,950 million ($32,114 thousand) and JPY 4,866 million as of September 30, 2002 and March 31, 2002, respectively. Securities classified as Investments and advances amounted to JPY 2,062 million ($16,764 thousand) and JPY 6,151 million as of September 30, 2002 and March 31, 2002, respectively. Gross unrealized holding gains and losses of these securities were not material. Trading securities classified as Short-term investments as of September 30, 2002 and March 31, 2002, which consist mainly of investments in trust accounts, are JPY 80,256 million ($652,488 thousand) and JPY 80,407 million, respectively. The portions of trading losses for the six months ended September 30, 2002 and 2001 that relate to trading securities still held at the balance sheet date are JPY 1,090 million ($8,862 thousand) and JPY 17,553 million, respectively. The contractual maturities of debt securities and other securities classified as Investment and advances in the consolidated balance sheet as of September 30, 2002 are as follows:

Millions of yen ---------------------------------------------- September 30, 2002 ---------------------------------------------- Held-to- Available- Maturity for-sale Total -------- ---------- ------- Due within five years 1,542 45,731 47,273 Due after five years 520 104,180 104,700 ----- ------- ------- 2,062 149,911 151,973 ===== ======= =======

Thousands of U.S. dollars ---------------------------------------------- September 30, 2002 ---------------------------------------------- Held-to- Available- Maturity for-sale Total -------- ---------- ------- Due within five years 12,536 371,797 384,333 Due after five years 4,228 846,992 851,220 ------ --------- --------- 16,764 1,218,789 1,235,553 ====== ========= =========

Expected redemptions may differ from contractual maturities because these securities are redeemable at the option of the issuers. The aggregate fair values of investments in affiliated companies based on the quoted market price as of September 30, 2002 and March 31, 2002 are JPY 208,463 million ($1,694,821 thousand) and JPY 241,589 million, respectively. The aggregate carrying amount of such investments as of September 30, 2002 and March 31, 2002 are JPY 157,802 million ($1,282,943 thousand) and JPY 167,805 million, respectively. (4) Inventories Inventories as of September 30, 2002 and March 31, 2002 are summarized as follows:

Thousands of Millions of yen U.S. dollars --------------------------- ------------- September 30, March 31, September 30, 2002 2002 2002 ------------- --------- ------------- Finished goods 385,374 347,391 3,133,122 Work in process 649,555 711,226 5,280,935 Raw materials 158,313 155,782 1,287,097 --------- --------- --------- 1,193,242 1,214,399 9,701,154 ========= ========= =========

(5) Leases Certain subsidiaries are the lessor of manufacturing machinery and equipment under operating leasing arrangements with terms ranging from 3 to 6 years. Machinery and equipment at cost under operating leases and accumulated depreciation as of September 30, 2002 amounted to JPY 1,135,959 million ($9,235,439 thousand) and JPY 824,445 million ($6,702,805 thousand), respectively. The leased assets are recorded at cost and depreciated using the straight-line method over their estimated useful lives. The following table shows the future minimum lease receivables of non-cancelable operating leases as of September 30, 2002:

Millions of Thousands of Years ending September 30 yen U.S. dollars ------------------------- ----------- ------------ 2003 48,574 394,911 2004 38,993 317,016 2005 26,457 215,097 2006 13,107 106,561 2007 4,705 38,252 Thereafter 3,419 27,797 ------- --------- Total minimum payments to be received 135,255 1,099,634 ======= =========

The Company and certain subsidiaries lease certain manufacturing machinery and equipment under operating leasing arrangements. The following table shows the future minimum lease payments of non-cancelable operating leases as of September 30, 2002:

Millions of Thousands of Years ending September 30 yen U.S. dollars ------------------------- ----------- ------------ 2003 6,198 50,390 2004 5,733 46,610 2005 5,032 40,911 2006 2,624 21,333 2007 1,915 15,569 Thereafter 8,365 68,008 ------ ------- Total minimum lease payments 29,867 242,821 ====== =======

(6) Securitization For the six months ended September 30, 2002, Hitachi Capital Corporation (HCC), a financing subsidiary, transferred lease receivables. In this transaction, HCC sold mainly lease receivables to Special Purpose Entities (SPE), and the SPE issued asset-backed commercial papers to investors. The investors and the SPE have no recourse to HCC's other assets for failure of debtors to pay when due. HCC retained servicing responsibilities and subordinated interests, but has not recorded a servicing asset or liability since the cost to service the receivables approximates the servicing income. The retained interests are not material and subordinate to investor's interests. For the six months ended September 30, 2002, gains recognized on the transfer of lease receivables amounted to JPY 4,064 million ($33,041 thousand). The table below summarizes certain cash flows received from and paid to the SPE during the six months ended September 30, 2002:

Thousands of Millions of yen U.S. dollars --------------- ------------- September 30, September 30, 2002 2002 --------------- ------------- Proceeds from transfer of lease receivables 124,010 1,008,211 Servicing fees received 14 114 Purchases of delinquent or ineligible assets (3,936) (32,000)

Quantitative information about delinquencies, net credit losses, and components of lease receivables subject to transfer and other assets managed together as of and for the six months ended September 30, 2002 are as follows:

Millions of yen ------------------------------------------------------- September 30, 2002 ------------------------------------------------------- Principal amount of Total principal receivables 90 amount of days or more Net credit receivables past due losses --------------- --------------- ---------- Total assets managed or transferred: Lease receivables 772,936 935 836 Assets transferred (313,410) -------- Assets held in portfolio 459,526 ========

Thousands of U.S. dollars ------------------------------------------------------- September 30, 2002 ------------------------------------------------------- Principal amount of Total principal receivables 90 amount of days or more Net credit receivables past due losses --------------- --------------- ---------- Total assets managed or transferred: Lease receivables 6,284,033 7,602 6,797 Assets transferred (2,548,049) ---------- Assets held in portfolio 3,735,984 ==========

For the six months ended September 30, 2002, the Company and certain subsidiaries sold trade receivables mainly through the SPE which securitized these receivables. In these securitizations, the Company and certain subsidiaries retained servicing responsibility. No servicing asset or liability has been recorded because the fees for servicing the receivable approximate the related costs. In addition, the Company and certain subsidiaries retained subordinated interests which are not material. The investors and the SPE have no recourse to the Company and its subsidiaries for delinquent trade receivables. During the six months ended September 30, 2002, proceeds from transfer of trade receivables are JPY 531,191 million ($4,318,626 thousand) and costs recognized on those transfers are JPY 1,267 million ($10,301 thousand). (7) Goodwill and Other Intangible Assets In accordance with SFAS 142, "Goodwill and Other Intangible Assets," on April 1, 2002, the Company reassessed the useful lives of previously recognized intangible assets, reassigned the goodwill and completed an impairment test. No impairment loss was recognized. Intangible assets excluding goodwill acquired during the six months ended September 30, 2002 and related amortization expense amounted to JPY 82,889 million ($673,894 thousand), and JPY 40,061 million ($325,699 thousand), respectively. The main component of intangible assets subject to amortization was capitalized software. Intangible assets excluding goodwill as of April 1, 2002 and September 30, 2002 are presented below:

Millions of yen -------------------------------------------------------------------------------- September 30, 2002 April 1, 2002 --------------------------------------- -------------------------------------- Gross Accumulated Net Gross Accumulated Net carrying amortization carrying carrying amortization carrying amount amount amount amount ------------ ------------ ------------- ------------- ------------ ----------- Amortized intangible assets Software 240,210 149,199 91,011 216,200 128,228 87,972 Software for internal use 212,955 117,799 95,156 191,539 107,100 84,439 Other 77,150 43,423 33,727 71,652 39,113 32,539 ------- ------- ------- ------- ------- ------- 530,315 310,421 219,894 479,391 274,441 204,950 ======= ======= ======= ======= ======= ======= Unamortized intangible assets 10,695 - 10,695 8,165 - 8,165

Thousands of U.S. dollars -------------------------------------------------------------------------------- September 30, 2002 April 1, 2002 --------------------------------------- -------------------------------------- Gross Accumulated Net Gross Accumulated Net carrying amortization carrying carrying amortization carrying amount amount amount amount ------------ ------------ ------------- ------------- ------------ ----------- Amortized intangible assets Software 1,952,927 1,213,000 739,927 1,757,723 1,042,504 715,219 Software for internal use 1,731,341 957,715 773,626 1,557,228 870,732 686,496 Other 627,236 353,033 274,203 582,537 317,992 264,545 --------- --------- --------- --------- --------- --------- 4,311,504 2,523,748 1,787,756 3,897,488 2,231,228 1,666,260 ========= ========= ========= ========= ========= ========= Unamortized intangible assets 86,951 - 86,951 66,382 - 66,382

The changes in the carrying amount of goodwill for the six months ended September 30, 2002 are as follows:

Millions of yen --------------------------------------------------------------------------------------- Balance at Translation Balance at beginning of Acquired during adjustment end of the period the period Impairment loss and other the period ------------ --------------- --------------- ----------- ----------- Goodwill 27,299 8,232 - (2,183) 33,348

Thousands of U.S. dollars --------------------------------------------------------------------------------------- Balance at Translation Balance at beginning of Acquired during adjustment end of the period the period Impairment loss and other the period ------------ --------------- --------------- ------------ ----------- Goodwill 221,943 66,927 - (17,748) 271,122

The following tables show reconciliation of reported net income (loss), basic net income (loss) per share and diluted net income (loss) per share to the amounts adjusted to exclude the amortization expense of goodwill for the six months ended September 30, 2002 and 2001:

Thousands of U.S. Millions of yen dollars -------------------------------- ----------------- September 30, September 30, September 30, 2002 2001 2002 ------------- ------------- ------------- Reported net income (loss) 12,852 (110,543) 104,488 Goodwill amortization - 312 - ------ -------- ------- Adjusted net income (loss) 12,852 (110,231) 104,488 ====== ======== =======

Yen U.S. dollar -------------------------------- ------------- September 30, September 30, September 30, 2002 2001 2002 ------------- ------------- ------------- Reported basic net income (loss) per share 3.85 (33.12) 0.03 Goodwill amortization - 0.10 - ---- ------ ---- Adjusted basic net income (loss) per share 3.85 (33.02) 0.03 ==== ====== ====

Yen U.S. dollar -------------------------------- ------------- September 30, September 30, September 30, 2002 2001 2002 ------------- ------------- ------------- Reported diluted net income (loss) per share 3.77 (33.12) 0.03 Goodwill amortization - 0.10 - ---- ------ ---- Adjusted diluted net income (loss) per share 3.77 (33.02) 0.03 ==== ====== ====

(8) Restricted Assets The Company and its subsidiaries provide their investment in certain subsidiaries as collateral for bank loans of JPY 20,977 million ($170,545 thousand). The collateralized number of shares and their fair values as of September 30, 2002 are as follows:

Fair value Number of Collateralized as of September 30, 2002 shares number of ------------------------ owned Percent of shares Millions Thousands of Subsidiary name in thousand ownership in thousand of yen U.S. dollars --------------- ----------- ---------- -------------- -------- ------------ Hitachi Capital Corporation 71,273 53.7% 16,800 25,670 208,699 Hitachi Maxell, Ltd. 51,811 52.2 1,200 1,774 14,423 Hitachi Powdered Metals Co., Ltd. 17,072 53.3 5,900 3,021 24,561

In accordance with Trustee agreements for the unsecured convertible debentures series 6th and 7th, the 16,977,000 shares of investments in Hitachi Software Engineering Co., Ltd. and the 48,401,000 shares of investments in Hitachi High-Technologies Co., Ltd. are held in trust. As of September 30, 2002, the fair values of the shares held in trust are JPY 51,440 million ($418,211 thousand) and JPY 82,330 million ($669,350 thousand), respectively. In accordance with Trustee agreement for a subsidiary's unsecured convertible debentures series 4th, the 4,000,000 shares of investment in Hitachi Powdered Metals Co., Ltd. are held in trust. The fair value of the shares held in trust is JPY 2,048 million ($16,650 thousand) as of September 30, 2002. (9) Dividend Restriction Pursuant to the terms of the indentures under which the unsecured convertible debentures due in 2004 were issued, accumulated cash dividends (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 JPY 65,000 million ($528,455 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. As of March 31, 2002, the accumulated cash dividends and the accumulated net income including JPY 65,000 million ($528,455 thousand), which are defined by the above terms, amounted to JPY 409,059 million ($3,325,683 thousand) and JPY 424,366 million ($3,450,130 thousand), respectively. (10) Commitments and Contingencies The Company and its operating subsidiaries are contingently liable for loan guarantees in the amount of approximately JPY 33,919 million ($275,764 thousand) as of September 30, 2002. In addition, Hitachi Capital Corporation, a financing subsidiary, is the guarantor of consumer loans totaling JPY 508,855 million ($4,137,033 thousand) as of September 30, 2002. Credit-related losses in the event of non-performance are not expected to be material. The Company and its subsidiaries sometimes require collateral from the counterparties for the purpose of reducing credit risk in appropriate cases. Hitachi Capital Corporation provides certain revolving lines of credit to its credit card holders in accordance with the terms of the credit card business customer service contracts. Furthermore, Hitachi Capital Corporation provides credit facilities to parties in accordance with the service agency business contracts from which temporary payments on behalf of such parties are made. In addition, the Company provides a loan commitment to an affiliated company. The outstanding balance of the revolving lines of credits, credit facilities and loan commitments as of September 30, 2002 and March 31, 2002 is as follows:

Thousands of Millions of yen U.S. dollars ------------------------------- ------------- September 30, March 31, September 30, 2002 2002 2002 ------------- --------- ------------- Total commitment available 667,395 678,861 5,425,976 Amount utilized 1,260 1,125 10,244 ------- ------- --------- Balance available 666,135 677,736 5,415,732 ======= ======= =========

A portion of the revolving lines of credit which are pending credit approval cannot be utilized. As of September 30, 2002, the Company had unused committed lines of credit from short-term financing arrangements aggregating JPY 120,000 million ($975,610 thousand). 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 September 30, 2002 and March 31, 2002, the companies are contingently liable for trade notes discounted and endorsed in the following amounts:

Thousands of Millions of yen U.S. dollars ------------------------------- ------------- September 30, March 31, September 30, 2002 2002 2002 ------------- --------- ------------- Notes discounted 3,359 3,452 27,309 Notes endorsed 26,078 33,062 212,016 ------ ------ ------- 29,437 36,514 239,325 ====== ====== =======

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 the management, have a material adverse effect on the financial position and results of operations of the Company and certain subsidiaries. (11) Other Income and Other Deductions For the six months ended September 30, 2001, the Company recorded a restructuring charge of JPY 15,484 million as other deductions, primarily associated with reorganization and streamlining of business in Digital Media & Consumer Products division, Electronic Devices division and High Functional Materials & Components division. Included in this total are special termination benefits of JPY 8,949 million and losses of JPY 5,197 million on the sale or disposal of assets. "Other Income" for the six months ended September 30, 2002 includes net gain on securities in the amount of JPY 14,027 million ($114,041 thousand). "Other deductions" for the six months ended September 30, 2002 includes foreign currency transaction loss of JPY 15,712 million ($127,740 thousand) and a loss of JPY 8,425 million ($68,496 thousand) of equity in earnings of affiliated companies. "Other deductions" for the six months ended September 30, 2001 includes a loss of JPY 13,556 million of equity in earnings of affiliated companies and foreign currency transaction loss of JPY 9,508 million. (12) Net Income (Loss) Per Share Information The reconciliations of the numbers and the amounts used in the basic and diluted net income (loss) per share computations for the six months ended September 30, 2002 and 2001 are as follows:

Number of shares ------------------------------ September 30, September 30, 2002 2001 ------------- ------------- Weighted average number of shares on which basic net income (loss) per share is calculated 3,337,869,526 3,337,933,173 Effect of dilutive securities: 5th series convertible debentures - - 6th series convertible debentures - - 7th series convertible debentures - - ------------- ------------- Number of shares on which diluted net income (loss) per share is calculated 3,337,869,526 3,337,933,173 ============= =============

Thousands of Millions of yen U.S. dollars ------------------------------- ------------- September 30, September 30, September 30, 2002 2001 2002 ------------- ------------- ------------- Net income (loss) applicable to common stockholders 12,852 (110,543) 104,488 Effect of dilutive securities: 5th series convertible debentures - - - 6th series convertible debentures - - - 7th series convertible debentures - - - Other (260) - (2,114) ------ -------- ------- Net income (loss) on which diluted net income (loss) per share is calculated 12,592 (110,543) 102,374 ====== ======== =======

Yen U.S. dollar ------------------------ ----------- Net income (loss) per share: Basic 3.85 (33.12) 0.03 Diluted 3.77 (33.12) 0.03

The net income (loss) per share computation for the six months ended September 30, 2002 and 2001 excludes 6th and 7th series convertible debentures because their effect would have been antidilutive. In addition, 5th series convertible debentures were redeemed in March 2002. (13) Derivative Instruments and Hedging Activities Overall risk profile The major manufacturing bases of the Company and its subsidiaries are located in Japan and Asia. The selling bases are located globally, and the Company and its subsidiaries generate approximate 30% of their sales from overseas. These sales are mainly denominated in U.S. dollar or Euro. As a result, the Company and its subsidiaries are exposed to market risks from changes in foreign currency exchange rate. The financing subsidiaries in London, New York and Singapore issue U.S. dollar denominated, variable rate, medium-term notes mainly through the Euro markets to finance its overseas long-term operating capital. As a result, the Company and its subsidiaries are exposed to market risks from changes in foreign currency exchange rate and interest rate. The Company and its subsidiaries are also exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments, but it is not expected that any counterparties will fail to meet their obligations, because most of the counterparties are internationally recognized financial institutions and contracts are diversified into a number of major financial institutions. Risk management policy The Company and its subsidiaries assess foreign currency exchange rate risk and interest rate risk by continually monitoring changes in these exposures and by evaluating hedging opportunities. It is the Company's policy that the Company and its subsidiaries do not enter into derivative financial instruments for any purpose other than hedging purposes. Foreign currency exchange rate risk management The Company and its subsidiaries have assets and liabilities which are exposed to foreign currency exchange rate risk and, as a result, they enter into forward exchange contracts and cross currency swap agreements for the purpose of hedging these risk exposures. In order to fix the future net cash flows principally from trade receivables and payables recognized, which are denominated in foreign currencies, the Company and its subsidiaries on a monthly basis measure the volume and due date of future net cash flows by currencies. In accordance with their policy, a certain portion of measured net cash flows is covered using forward exchange contracts, which principally mature within one year. The Company and its subsidiaries enter into cross currency swap agreements with the same maturities as underlying debts to fix cash flows from long-term debts denominated in foreign currencies. The hedging relationship between the derivative financial instrument and its hedged item is highly effective in achieving offsetting changes in foreign currency exchange rates. Interest rate risk management The Company's and its subsidiaries' exposure to interest rate risk is related principally to long-term debt obligations. These debt obligations expose the Company and its subsidiaries to variability in the future cash outflow of interest payments due to changes in interest rates. Management believes it is prudent to minimize the variability caused by interest rate risk. To meet this objective, the Company and its subsidiaries principally enter into interest rate swaps to manage fluctuations in cash flows resulting from interest rate risk. The interest rate swaps principally change the variable-rate cash flows on debt obligations to fixed-rate cash flows principally associated with medium-term notes by entering into receive-variable, pay-fixed interest rate swaps. Under the interest rate swaps, the Company and its subsidiaries receive variable interest rate payments and make fixed interest rate payments, thereby creating fixed-rate long-term debt. The hedging relationship between the interest rate swaps and its hedged item is highly effective in achieving offsetting changes in cash flows resulting from interest rate risk. Fair value hedge Changes in fair value of both recognized assets and liabilities, and derivative financial instruments designated as fair value hedges of these assets and liabilities are recognized in other income (deductions). Derivative financial instruments designated as fair value hedges include forward exchange contracts associated with operating transactions and cross currency swap agreements associated with financing transactions. The sum of the amount of the hedging ineffectiveness and net gain or loss excluded from the assessment of hedge effectiveness is not material for the six months ended September 30, 2002 and 2001, respectively. Cash flow hedge Foreign Currency Exposure Changes in fair value of forward exchange contracts designated and qualifying as cash flow hedges of forecasted transactions and recognized assets and liabilities are reported in accumulated other comprehensive income (AOCI). These amounts are reclassified into earnings in the same period as the hedged items affect earnings. The sum of the amount of the hedging ineffectiveness and net gain or loss excluded from the assessment of hedge effectiveness is not material for the six months ended September 30, 2002 and 2001. As of September 30, 2002, the maximum length of time over which the Company and its subsidiaries are hedging their exposure to the variability in future cash flows associated with foreign currency forecasted transactions is approximately 20 months. Interest Rate Exposure Changes in fair values of interest rate swaps designated as hedging instruments for the variability of cash flows associated with long-term debt obligations are reported in AOCI. These amounts subsequently are reclassified into interest charges as a yield adjustment in the same period in which the hedged debt obligations affect earnings. Interest charges for the six months ended September 30, 2002 and 2001 includes losses of JPY 87 million ($707 thousand) and gains of JPY 356 million, respectively, which represents the component excluded from the assessment of hedge effectiveness. The contract or notional amounts of derivative financial instruments held as of September 30, 2002 and March 31, 2002 are summarized as follows:

Thousands of Millions of yen U.S. dollars --------------------------- ------------- September 30, March 31, September 30, 2002 2002 2002 ------------- --------- ------------- Forward exchange contracts: To sell foreign currencies 100,499 105,054 817,065 To buy foreign currencies 46,798 15,489 380,472 Cross currency swap agreements: To sell foreign currencies 51,651 71,798 419,927 To buy foreign currencies 131,885 170,802 1,072,236 Interest rate swaps 503,669 606,847 4,094,870

(14) Fair Value of Financial Instruments The following methods and assumptions are used to estimate the fair values of financial instruments: Investment in securities The fair value of investment in securities is estimated based on quoted market prices for these or similar securities. Long-term debt The fair value of long-term debt is estimated based on quoted market prices or the present value of future cash flows using the 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. The carrying amounts and estimated fair values of the financial instruments as of September 30, 2002 and March 31, 2002 are as follows:

Millions of yen --------------------------------------------------------------------- September 30, 2002 March 31, 2002 ------------------------------- ----------------------------- Carrying Estimated Carrying Estimated amounts fair values amounts fair values ----------- ----------- ----------- ----------- Investment in securities: Short-term investments 160,862 160,863 178,933 178,933 Investments and advances 363,963 363,908 446,148 446,139 Long-term debt (2,039,207) (2,093,068) (2,164,386) (2,222,585)

Thousands of U.S. dollar --------------------------------- September 30, 2002 --------------------------------- Carrying Estimated amounts fair values ----------- ------------- Investment in securities: Short-term investments 1,307,821 1,307,829 Investments and advances 2,959,049 2,958,602 Long-term debt (16,578,919) (17,016,813)

It is not practicable to estimate the fair value of investments in unlisted common stock because of the lack of a market price and difficulty in estimating fair value without incurring excessive cost. The carrying amounts of these investments at September 30, 2002 and March 31, 2002 totaled JPY 75,206 million ($611,431 thousand) and JPY 73,639 million, respectively. (15) Subsequent Events On June 3, 2002, the Company signed a definitive agreement with International Business Machines Corp. (IBM) to transfer IBM's hard disk drive operations and related intellectual property portfolio to a new stand-alone company. Hitachi will purchase the majority ownership in this new company for a total cash purchase price of JPY 252,150 million ($2,050,000 thousand). The purchase price, which will be subject to a purchase price adjustment, will be paid over a three-year period in the amounts of JPY 176,505 million ($1,435,000 thousand), JPY 25,215 million ($205,000 thousand) and JPY 50,430 million ($410,000 thousand) for a cumulative ownership interest by the Company of 70%, 80% and 100% in each of the three years, respectively. The Company will have full voting rights to the new company upon closing and the new company will be required to have JPY 21,525 million ($175,000 thousand) in cash and cash equivalents prior to closing. The Company's board of directors meeting held on December 26, 2002 resolved that the purchase be completed on December 31, 2002. On October 1, 2002, the Company issued 25,143,245 shares of common stock and exchanged 0.197 shares of the Company's common stock for each share of common stock outstanding of Hitachi Unisia Automotive, Ltd. (former UNISIA JECS Corporation) with the former UNISIA JECS Corporation registered shareholders as of September 30, 2002. On October 3, 2002, the Company and Mitsubishi Electric Corporation reached a basic agreement to establish a new semiconductor company, Renesas Technology Corp. with a focus on system LSI operation. The new company will be incorporated on April 1, 2002 through a corporate split procedure, where a portion of the Company and Mitsubishi Electric Corporation will be spun-off. The Company signed the plan of corporate split on December 26, 2002 and has scheduled a General Shareholders Meeting on February 6, 2003 to approve the intended plan of the corporate split. Renesas Technology Corp. will have a capitalization of JPY 50,000 million ($406,504 thousand) through the issuance of common stock totaling 5,000,000 ordinary shares. The Company and Mitsubishi Electric Corporation are scheduled to receive 2,750,000 shares and 2,250,000 shares, respectively. Renesas Technology Corp. will be accounted for under the equity method by the Company as major decisions will require consensus between the Company and Mitsubishi Electric Corporation in accordance with the joint venture agreement. SEGMENT INFORMATION Industry Segments Hitachi, Ltd. and Subsidiaries Six months ended September 30, 2002 and 2001

Millions of Millions of yen U.S. dollars ------------------------- ------------ (A)/(B) 2002 (A) 2001 (B) 2002 x 100 ---------- ---------- ------------ ---------- Sales: Information & Telecommunication Systems 878,230 873,312 7,140 101% (18%) (18%) ---------- ---------- ---------- ---------- Electronic Devices 766,417 765,090 6,231 100 (16%) (15%) ---------- ---------- ---------- ---------- Power & Industrial Systems 1,068,101 1,117,375 8,684 96 (22%) (22%) ---------- ---------- ---------- ---------- Digital Media & Consumer Products 597,689 582,493 4,859 103 (12%) (12%) ---------- ---------- ---------- ---------- High Functional Materials & Components 613,061 628,175 4,984 98 (12%) (13%) ---------- ---------- ---------- ---------- Logistics, Services & Others 700,613 707,766 5,696 99 (14%) (14%) ---------- ---------- ---------- ---------- Financial Services 293,321 281,102 2,385 104 (6%) (6%) ---------- ---------- ---------- ---------- Subtotal 4,917,432 4,955,313 39,979 99 (100%) (100%) ---------- ---------- ---------- ---------- Eliminations & Corporate items (1,000,941) (1,017,192) (8,138) - ---------- ---------- ---------- ---------- Total 3,916,491 3,938,121 31,841 99% ========== ========== ========== ========== Operating Income (Loss): Information & Telecommunication Systems 42,167 14,558 343 290% ---------- ---------- ---------- ---------- Electronic Devices (7,918) (72,918) (64) - ---------- ---------- ---------- ---------- Power & Industrial Systems 11,111 26,736 90 42 ---------- ---------- ---------- ---------- Digital Media & Consumer Products 5,747 (6,022) 47 - ---------- ---------- ---------- ---------- High Functional Materials & Components 9,042 (1,475) 73 - ---------- ---------- ---------- ---------- Logistics, Services & Others 1,457 7,372 12 20 ---------- ---------- ---------- ---------- Financial Services 18,653 20,403 152 91 ---------- ---------- ---------- ---------- Subtotal 80,259 (11,346) 653 - ---------- ---------- ---------- ---------- Eliminations & Corporate items (18,571) (30,764) (151) - ---------- ---------- ---------- ---------- Total 61,688 (42,110) 502 -% ========== ========== ========== ==========

Notes: 1. Net sales by industry segment include intersegment transactions. 2. SEGMENT INFORMATION is disclosed in accordance with a ministerial ordinance under the Securities and Exchange Law of Japan. 3. In order to be consistent with financial reporting principles and practices generally accepted in Japan, operating income (loss) is presented as net sales less cost of sales and selling, general and administrative expenses. Under accounting principles generally accepted in the United States of America, restructuring charges, impairment losses and special termination benefits are included as part of operating income (loss). 4. The figures in this information are expressed in yen and, solely for the convenience of the reader, have been translated into United States dollars at the rate of JPY 123=U.S.$1, the approximate exchange rate prevailing on the Tokyo Foreign Exchange Market as of September 30, 2002. Geographic Segments Hitachi, Ltd. and Subsidiaries Six months ended September 30, 2002 and 2001

Millions of Millions of yen U.S. dollars -------------------------------- ------------ (A)/(B) 2002 (A) 2001 (B) 2002 x 100 ------------ ------------ ------------ ------- Sales: Japan Outside customer sales 3,003,621 3,050,225 24,420 98% (65%) (66%) Intersegment transactions 501,040 444,492 4,073 113 (11%) (10%) Total 3,504,661 3,494,717 28,493 100 (76%) (76%) ------------ ------------ ---------- ------- Asia Outside customer sales 312,220 292,640 2,538 107 (7%) (6%) Intersegment transactions 168,355 184,263 1,369 91 (3%) (4%) Total 480,575 476,903 3,907 101 (10%) (10%) ------------ ------------ ---------- ------- North America Outside customer sales 394,660 392,181 3,209 101 (9%) (8%) Intersegment transactions 19,434 23,714 158 82 (0%) (1%) Total 414,094 415,895 3,367 100 (9%) (9%) ------------ ------------ ---------- ------- Europe Outside customer sales 177,056 176,216 1,439 100 (4%) (4%) Intersegment transactions 12,281 17,191 100 71 (0%) (0%) Total 189,337 193,407 1,539 98 (4%) (4%) ------------ ------------ ---------- ------- Other Areas Outside customer sales 28,934 26,859 235 108 (1%) (1%) Intersegment transactions 1,323 1,033 11 128 (0%) (0%) Total 30,257 27,892 246 108 (1%) (1%) ------------ ------------ ---------- ------- Subtotal 4,618,924 4,608,814 37,552 100 (100%) (100%) ------------ ------------ ---------- ------- Eliminations (702,433) (670,693) (5,711) - ------------ ------------ ---------- ------- Total 3,916,491 3,938,121 31,841 99% ============ ============ ========== =======

Millions of Millions of yen U.S. dollars --------------------- ------------ (A)/(B) 2002 (A) 2001 (B) 2002 x 100 -------- -------- ---- ------- Operating Income (Loss): Japan 65,775 (12,100) 535 -% (78%) - ------- ------- ---- ---- Asia 7,740 (2,389) 63 - (9%) - ------- ------- ---- ---- North America 3,037 (15,096) 25 - (4%) - ------- ------- ---- ---- Europe 6,442 2,101 52 307 (8%) - ------- ------- ---- ---- Other Areas 748 831 6 90 (1%) - ------- ------- ---- ---- Subtotal 83,742 (26,653) 681 - (100%) - ------- ------- ---- ---- Eliminations & Corporate items (22,054) (15,457) (179) - ------- ------- ---- ---- Total 61,688 (42,110) 502 -% ======= ======= ==== =====

Sales by Market Hitachi, Ltd. and Subsidiaries Six months ended September 30, 2002 and 2001

Millions of Millions of yen U.S. dollars ----------------------- ------------ (A)/(B) 2002 (A) 2001 (B) 2002 x 100 ---------- --------- ------ ------- Japan 2,633,108 2,700,418 21,407 98% (67%) (69%) --------- --------- ------ ---- Outside Japan Asia 498,594 431,526 4,054 116 (13%) (11%) --------- --------- ------ ---- North America 426,980 450,872 3,471 95 (11%) (11%) --------- --------- ------ ---- Europe 262,185 256,943 2,132 102 (7%) (7%) --------- --------- ------ ---- Other Areas 95,624 98,362 777 97 (2%) (2%) --------- --------- ------ ---- Subtotal 1,283,383 1,237,703 10,434 104 (33%) (31%) --------- --------- ------ ---- Total 3,916,491 3,938,121 31,841 99% (100%) (100%) ========= ========= ====== ====