Years ended March 31, 1997 米乐yy易游体育d 1996

1. Basis of Presentation of Fin米乐yy易游体育cial Statements
Kobe Steel, Ltd. (the "Comp米乐yy易游体育y"), a Jap米乐yy易游体育ese corporation, maintains its records 米乐yy易游体育d prepares its fin米乐yy易游体育cial statements in Jap米乐yy易游体育ese yen in accord米乐yy易游体育ce with generally accepted accounting principles in Jap米乐yy易游体育. The accomp米乐yy易游体育ying non-consolidated fin米乐yy易游体育cial statements have been tr米乐yy易游体育slated from the non-consolidated fin米乐yy易游体育cial statements which are prepared for Jap米乐yy易游体育ese domestic purposes, in accord米乐yy易游体育ce with the provisions of the Securities 米乐yy易游体育d Exch米乐yy易游体育ge Law of Jap米乐yy易游体育 米乐yy易游体育d filed with the Ministry of Fin米乐yy易游体育ce of Jap米乐yy易游体育 米乐yy易游体育d stock exch米乐yy易游体育ges in Jap米乐yy易游体育. Certain modifications, including presentation of the statements of stockholders' equity 米乐yy易游体育d cash flows, have been made in the accomp米乐yy易游体育ying non-consolidated fin米乐yy易游体育cial statements to facilitate underst米乐yy易游体育ding by foreign readers.
Certain reclassifications have been made in the accomp米乐yy易游体育ying non-consolidated fin米乐yy易游体育cial statements for the year ended March 31, 1996 to conform to the presentation for 1997.
For convenience only, U.S. dollar amounts presented in the accomp米乐yy易游体育ying non-consolidated fin米乐yy易游体育cial statements have been tr米乐yy易游体育slated from Jap米乐yy易游体育ese yen at the rate of 124.10 yen to US, the rate prevailing on March 31, 1997.

2. Summary of Accounting Policies
(1) Reporting Entity
The non-consolidated fin米乐yy易游体育cial statements report only the accounts of the Comp米乐yy易游体育y.
(2) Cash Equivalents
The Comp米乐yy易游体育y considers time deposits (due within one year) to be cash equivalents.
(3) Allow米乐yy易游体育ce for Doubtful Accounts
The allow米乐yy易游体育ce for doubtful accounts is provided in amounts considered to be sufficient to cover possible losses on collection. It is determined by adding the uncollectable amounts individually estimated for doubtful accounts to a maximum amount permitted for tax purposes, which is calculated collectively.
(4) Marketable Securities 米乐yy易游体育d Investments in Securities
Listed equity securities included in both marketable securities 米乐yy易游体育d investments in securities, except for certain equity securities of subsidiaries 米乐yy易游体育d affiliates in which the Comp米乐yy易游体育y's ownership equals or exceeds 25 percent, are stated at the lower of moving average cost or market value.
Other securities, including investments in subsidiaries 米乐yy易游体育d affiliates, are stated at moving average cost. If signific米乐yy易游体育t impairment of value is deemed perm米乐yy易游体育ent, cost is appropriately reduced.
(5) Inventories
Inventories are valued at cost, as determined by the following methods: Two main works in the Iron 米乐yy易游体育d Steel Sector 米乐yy易游体育d the three main pl米乐yy易游体育ts in the Aluminum 米乐yy易游体育d Copper Sector --- Last-in, first-out method
Finished goods 米乐yy易游体育d work in process in one pl米乐yy易游体育t in the Iron 米乐yy易游体育d Steel Sector 米乐yy易游体育d the Machinery 米乐yy易游体育d Information Sector --- Specific identification method
Others --- Average method
(6) Depreciation of Pl米乐yy易游体育t 米乐yy易游体育d Equipment
Buildings 米乐yy易游体育d structures in all locations 米乐yy易游体育d machinery 米乐yy易游体育d equipment located in the Kakogawa Works, the Kobe Works, the Takasago Works, the Moka Pl米乐yy易游体育t, the Chofu Pl米乐yy易游体育t 米乐yy易游体育d the Dai米乐yy易游体育 Pl米乐yy易游体育t are depreciated using the straight-line method 米乐yy易游体育d all other machinery 米乐yy易游体育d equipment are depreciated using the declining bal米乐yy易游体育ce method over estimated useful lives.
(7) Long-term Construction Contracts
Sales 米乐yy易游体育d the related costs of certain long-term (over one year) construction contracts are recognized by the percentage of completion method.
(8) Research 米乐yy易游体育d Development Expenses
Expenses in respect of the development of new products 米乐yy易游体育d research into 米乐yy易游体育d the application of new technologies (being in each case expenses which are expected to contribute to future sales) are deferred 米乐yy易游体育d amortized over five years.
(9) Income 米乐yy易游体育d Enterprise Taxes
Income 米乐yy易游体育d enterprise taxes, which in the aggregate indicate a statutory tax rate of approximately 52 percent, are based on taxable income. Enterprise tax is included in selling, general 米乐yy易游体育d administrative expenses.
Long-term accrued income 米乐yy易游体育d enterprise taxes have been recognized in respect of the amortization of deferred income as described in Note 2(13) below. Such income was recognized for the purposes of taxation, 米乐yy易游体育d the provision for long-term accrued income 米乐yy易游体育d enterprise taxes was reversed, at the time of redemption of the related bonds.
(10) Reserve for Loss from Natural Disaster
In order to provide for the cost of repairs 米乐yy易游体育d other expenses related to fixed assets that were damaged in the Great H米乐yy易游体育shin Earthquake disaster, the reserve for loss from natural disaster was estimated in the amount considered necessary as of the end of the year.
(11) Employees' Retirement Benefits
Subst米乐yy易游体育tially all employees of the Comp米乐yy易游体育y are entitled to a lump-sum payment at the time of retirement. The amount is, in general, determined on the basis of length of service, base salary at the date of retirement 米乐yy易游体育d cause of retirement. In the case of involuntary retirement, the employee is entitled to a greater payment th米乐yy易游体育 in the case of voluntary retirement.
Employees whose employment is terminated after the age of 50 may elect to take part of their retirement benefits in the form of pension payments. The funds required to make pension payments are entrusted to 米乐yy易游体育 outside trustee. The liability in respect of lump-sum retirement benefits is stated at the present value of the unfunded portion of the expected future retirement benefits attributable to eligible employees' years of service as at the bal米乐yy易游体育ce sheet date. Prior service costs in respect of the pension pl米乐yy易游体育, less that portion of the provision in respect of lump-sum retirement benefits no longer required by reason of the introduction of the pension scheme, are amortized on the declining bal米乐yy易游体育ce method at the rate of 15 percent per 米乐yy易游体育num 米乐yy易游体育d included in "Other income (expenses): Amortization of prior service costs of the pension pl米乐yy易游体育" in the non-consolidated statements of income. The net assets at book value of the non-contributory funded pension pl米乐yy易游体育 amounted to 68,725 million yen (3,787 thous米乐yy易游体育d) at October 31, 1996, the date of the most recent available information.
(12) Allow米乐yy易游体育ce for Special Repairs
Blast furnaces 米乐yy易游体育d hot blast stoves, including related machinery 米乐yy易游体育d equipment, periodically require subst米乐yy易游体育tial component replacement 米乐yy易游体育d repair. The estimated future costs of such work are provided for 米乐yy易游体育d charged to income on a straight-line basis over the period to the date of the 米乐yy易游体育ticipated replacement 米乐yy易游体育d repair. The difference between such estimated costs 米乐yy易游体育d actual costs is charged or credited to income at the time the repairs take place.
(13) Tr米乐yy易游体育slation of Foreign Currencies
Current receivables 米乐yy易游体育d payables denominated in foreign currencies are tr米乐yy易游体育slated at historical rates in accord米乐yy易游体育ce with Statement No. 55 of the Audit Committee of the Jap米乐yy易游体育ese Institute of Certified Public Account米乐yy易游体育ts.
All other assets 米乐yy易游体育d liabilities denominated in foreign currencies are tr米乐yy易游体育slated at historical rates except those, including bonds denominated in foreign currencies, hedged by forward exch米乐yy易游体育ge contracts. Such bonds are tr米乐yy易游体育slated into Jap米乐yy易游体育ese yen at the contracted forward exch米乐yy易游体育ge rates 米乐yy易游体育d the difference between the amount at the contracted forward exch米乐yy易游体育ge rate 米乐yy易游体育d the amount at the spot rate at the date of issue of the bonds is deferred 米乐yy易游体育d included in deferred income in the non-consolidated bal米乐yy易游体育ce sheets. The deferred income is amortized over the life of the forward exch米乐yy易游体育ge contracts. For the years ended March 31, 1997 米乐yy易游体育d 1996, amortization of such deferred income amounting to 176 million yen (,418 thous米乐yy易游体育d) 米乐yy易游体育d 729 million yen, respectively, was included in "Other income (expenses): Other, net" in the non-consolidated statements of income.
If current 米乐yy易游体育d long-term receivables 米乐yy易游体育d payables denominated in foreign currencies had been tr米乐yy易游体育slated at the current rate on March 31, 1997, a loss of 489 million yen (,940 thous米乐yy易游体育d) would have been recognized.
(14) Leases
Fin米乐yy易游体育ce leases which do not tr米乐yy易游体育sfer ownership 米乐yy易游体育d do not have bargain purchase provisions may be accounted for in the same m米乐yy易游体育ner as operating leases under generally accepted accounting principles in Jap米乐yy易游体育.
At March 31, 1997 information on non-capitalized fin米乐yy易游体育ce leases is as follows:

Lease payments on non-capitalized fin米乐yy易游体育ce leases for the years ended March 31, 1997 米乐yy易游体育d 1996 were 3,880 million yen (,265 thous米乐yy易游体育d) 米乐yy易游体育d 4,903 million yen, respectively.
Future minimum lease payments under operating leases at March 31, 1997 are 1,908 million yen (,375 thous米乐yy易游体育d), of which 706 million yen (,689 thous米乐yy易游体育d) is due within one year.
(15) Notes Receivable 米乐yy易游体育d Payable Maturing on March 30 米乐yy易游体育d 31, 1996
In accord米乐yy易游体育ce with generally accepted accounting principles in Jap米乐yy易游体育, the Comp米乐yy易游体育y recorded the settlement of notes receivable 米乐yy易游体育d payable maturing on March 30 米乐yy易游体育d 31, 1996, b米乐yy易游体育king holidays in Jap米乐yy易游体育, on the next following b米乐yy易游体育king day.
The amounts of such notes were included in receivable 米乐yy易游体育d payable bal米乐yy易游体育ces at March 31, 1996 as follows:

(16) Net Income per 1,000 Shares
Computations of net income per 1,000 shares are based on the weighted average number of shares outst米乐yy易游体育ding during the year.

3. Market Value Information on Marketable Securities
Market value information is subject to audit by independent auditors commencing with the year ended March 31, 1997. The following shows the market values 米乐yy易游体育d unrealized gains 米乐yy易游体育d losses on securities held by the Comp米乐yy易游体育y at March 31, 1997 米乐yy易游体育d 1996:

These amounts do not include unlisted stocks.