## Notes to Consolidated Financial Statements 

JS Group Corporation and Consolidated Subsidiaries Years Ended March 31, 2010 and 2009 

## 1. Basis of Presenting Consolidated Financial Statements 

The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the  Japanese Financial Instruments and Exchange Act and its related accounting regulations and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. 

In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the con- solidated financial statements issued domestically in order to pres- ent them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2009 financial statements to conform to the classifications used in 2010. 

The consolidated financial statements are stated in Japanese yen, the currency of the country in which JS Group Corporation (the “Company”) is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥93.04 to $1, the approximate rate of exchange at March 31, 2010. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate. 

## 2. Summary of Significant Accounting Policies 

a. Consolidation —The consolidated financial statements as of March 31, 2010 include the accounts of the Company, its 70 sig- nificant (45 in 2009) subsidiaries and a subsidiary to which the equity method is applied (together, the “Group”). 

Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over their operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for by the equity method. 

Investment in an associated company is accounted for by the equity method. Investments in the remaining unconsolidated sub- sidiaries and associated companies are stated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material. 

The difference between the cost of an acquisition and the fair value of the net assets of the acquired subsidiary at the date of acquisition is being amortized over a period of 5 years. However, when the excess of cost over net assets of subsidiaries acquired is insignificant, the amount is charged to income when incurred. 

All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is eliminated. 

b. Unification of Accounting Policies Applied to Foreign Sub- sidiaries for the Consolidated Financial Statements —In May 2006, the Accounting Standards Board of Japan (the “ASBJ”) issued ASBJ Practical Issues Task Force (“PITF”) No. 18, “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements.” PITF No. 18 prescribes (1) the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified for 

the preparation of the consolidated financial statements, (2) finan- cial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or the generally accepted accounting principles in the United States of America tentatively may be used for the consolidation process, (3) however, the following items should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in the equity; (c) expensing capitalized development costs of R&D; (d) cancellation of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting; (e) recording the prior years’ effects of changes in accounting policies in the income statement where retrospective adjustments to finan- cial statements have been incorporated; and (f) exclusion of minor- ity interests from net income, if included. PITF No. 18 was effective for fiscal years beginning on or after April 1, 2008 with early adop- tion permitted. The Group applied this accounting standard effec- tive April 1, 2008. In addition, the Group adjusted the beginning balance of retained earnings at April 1, 2008 as if this accounting standard had been retrospectively applied. 

c. Business Combination —In October 2003, the Business Accounting Council issued a Statement of Opinion, “Accounting for Business Combinations,” and in December 2005, the ASBJ issued ASBJ Statement No. 7, “Accounting Standard for Business Divesti- tures,” and ASBJ Guidance No. 10, “Guidance for Accounting Standard for Business Combinations and Business Divestitures.” The accounting standard for business combinations allows  companies to apply the pooling of interests method of accounting only when certain specific criteria are met such that the business combination is essentially regarded as a uniting-of-interests. For business combinations that do not meet the uniting-of-interests criteria, the business combination is considered to be an acquisi- tion and the purchase method of accounting is required. This stan- dard also prescribes the accounting for combinations of entities under common control and for joint ventures. 

The Group acquired A-S CHINA PLUMBING PRODUCTS Ltd. and 14 other companies in July 2009. The related goodwill and negative goodwill are systematically amortized over 5 years. 

d. Cash Equivalents —Cash equivalents are short-term invest- ments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. 

e. Allowance for Doubtful Accounts —The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the companies’ past credit loss experience and an evaluation of potential losses in the receivables outstanding. 

f. Inventories —Inventories are stated at the lower of cost, deter- mined by the average cost method, or net selling value. 

g. Investment Securities —Investment securities are classified and accounted for, depending on management’s intent, as follows: (i) held-to-maturity debt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity are reported at amortized cost, and (ii) available-for-sale securities, which are not classified as the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of 

