ANNUAL REPORT 2004

PARAMOUNT BED CO., LTD.

Profile

Statement:

As Human, for Human
Paramount Bed Co., Ltd. founded in 1947, is a pioneer in the field of medical beds. Using
its own unique integrated production system, it has been providing products designed not
only to improve conditions for convalescing patients, but also to facilitate the work of
caregivers for more than half a century. With the ageing of the Japanese population, it
has expanded its scope of business to cover facilities for the elderly and home nursing
care in recent years, developing home-care beds and various other types of welfare
equipment. These initiatives are in line with Paramount Bed’s goal of creating a patientfriendly healthcare environment.
The Paramount Bed group consists of Paramount Bed and 3 consolidated subsidiaries(as of March 31, 2004). In the fiscal year to March 2004, it had net sales of ¥47,895
million, operating income of ¥7,103 million and net income of ¥4,182 million. Paramount
Bed is Japan’s leading maker of medical beds and has acquired a strong reputation, as
reflected in its domestic market share of 70% (PB estimate).

Contents
2 Financial Highlights

17 Consolidated Statements of Cash Flows

3 To Our Shareholders

18 Notes to Consolidated Financial Statements

7 Product Lineup

24 Independent Auditors’ Report

9 Special Feature

25 Corporate History

10 Six-year Summary

26 Corporate Information

11 Business Review in Fiscal 2004

Corporate Data

13 Consolidated Balance Sheets

Board of Directors and Corporate Auditors

15 Consolidated Statements of Income

Shareholder Information

16 Consolidated Statements of Shareholders’ Equity

Network

Disclaimer Regarding Forward-Looking Statements
The information contained in this annual report is given for the sole purpose of providing information regarding the business performance ofParamount Bed Co., Ltd. during the fiscal year ended March 31, 2004, and is not intended to solicit investment in any securities issued by
the Company. Any statements with respect to Paramount Bed’s current plans, strategies and forecasts are forward-looking statements
based upon information available as of March 31, 2004, and involve known and unknown risks and uncertainties. Actual events and results
may differ materially from those anticipated in these statements.

1

Financial Highlights
Paramount Bed Co., Ltd. and Subsidiaries — Years ended March 31, 2004 and 2003

Millions of yen

2003

2004
For the year:
Net sales
Operating income
Income before income taxes
Net income¥

Thousands of U.S.dollars¥

47,895
7,103
7,707
4,182

2004

45,774
5,891
5,521
3,127

$

453,165
67,20672,921
39,569Per share data (yen):
Net income
Total shareholders’ equity

131.872,105.03

98.29
1,945.48

1.25
19.92

At year-end:
Total assets
Total shareholders’ equity

81,17066,16074,331
61,148768,001
625,982

Note:The U.S dollar amounts have been translated from yen, for convenience only, at the rate of ¥105.69 to U.S.$1, the approximate exchange rate at March 31, 2004.

Net sales
50,000Millions of yen

46,35946,54145,15345,77447,895

Operating income

Millions of yen

10,00040,0008,000

30,0006,000

20,0004,000

10,000

2,000

7,350

7,103
6,324

5,891
4,786

0

0

2000

2001

2002

2003

Net income

2000

2004

Millions of yen

5,000

2001

2002

2003

Total shareholders’ equity

Millions of yen

70,000

4,355

4,182

3,889

4,000

60,0002004

57,75359,442

61,14855,021

2000

2001

2002

2003

66,16050,000

3,127

3,000

40,0002,498

30,0002,000

20,0001,000

10,000

0

0

2000

2001

2002

2003

2004

2004

2

To Our Shareholders

Striving for stable and sustainable growththrough proactive marketing promotion
and new business development
Both sales and profits rise for second
straight year
In the fiscal term under review, Paramount Bed Co., Ltd.
posted increases in both sales and profits on aconsolidated basis for the second consecutive year. Net
sales rose 4.6% from the previous year, to ¥47,895 million,
while operating income climbed 20.6%, to ¥7,103 million,
and net income jumped 33.7%, to ¥4,182 million.
The Company has decided to disburse a year-end
dividend of ¥18 per share, up ¥6 from a year earlier,following our basic policy of returning profits toshareholders based on earnings results. As a result, theannual payout will total ¥30 per share, including an interim
dividend of ¥12.
For the current fiscal term, Paramount Bed plans to
disburse an interim dividend of ¥18, up ¥6, resulting inincreasing the annual dividend to ¥36. The Company willcontinue to make it a priority to return profits toshareholders.

Capitalizing on changes in the businessenvironment
In the healthcare industry, the medical treatment fee
system was revised in April 2004, with medical treatment
fees left unchanged while government-set prices ofprescription drugs were reduced, resulting in an overall
decline of 1.0%. With this revision, new treatment
Kenji Kimura
President and Representative Director3management fees were set up for two categories of
hospital treatment in which the Company is committed.
One is the fee for “high care unit” stage patients, whose
illness is more serious than that of patients in the generalward, and the other is the fee for “subacute stage” patients,
whose illness level is between the acute and chronic stages.
In the sector of welfare for seniors, the number of users ofhome medical services in the nursing care insurance

program is continuing to rise. Meanwhile, with the sharp
climb in the number of elderly people wishing to enter
facilities catering to senior citizens, a number of housing
facilities for elderly people are being established,including fee-charging homes, resulting in the overall
increase of facilities for the elderly. Amid concern that thebudget for the nursing care insurance program willtighten, work is now fully underway in preparation for thereview of the system planned for fiscal 2005.

TopicsRakusho, a New Home-Care Bed
In November 2003, Paramount Bed introduced“Rakusho,” a home-care bed. Based on a universal
design concept, Rakusho provides everyone
involved in nursing care with comfort, safety andease of operation. Rakusho is the first new homecare model introduced by the Company in four
years, and is set to become its next mainstay
product.

<Major features>- KIND Motion
Rakusho adopts the KIND Motion mechanism toproperly balance the motions of raising the backrestand knees simply by pushing a single button. Whileraising the backrest, the KIND Motion mechanism
positions the body appropriately, maintains correct
posture and alleviates any feeling of pressure. With
these features, Rakusho not only reduces the riskof bedsores but also eases the workload for
caregivers.

- Improved design
Rakusho has been designed based on the conceptof “natural interior” so that it looks natural in any
room. Users can choose from 126 models,featuring different combinations of color tones,
functions, width, length and other aspects.
- History of operations recorded
Rakusho can record the history of operations,
including the date and time when it was operated
and which parts were operated at what angles,
enabling caregivers to know by use of a personal
computer how the bed has been operated. (The kit
for this purpose is sold separately.)
As of the end of March 2004, sales of Rakusho
beds totaled slightly less than 40,000 units,
representing a substantial contribution to theincrease in overall sales of home-care products.

- Low-height design
The height of Rakusho is 5cm lower than that ofconventional models, with a minimum height of
25cm without a mattress. This low-height design
allows most users to sit on the bed with their heelspressed against the floor (considered to be the firststep in rehabilitation).

4

To Our Shareholders

Bolstering earnings with increased sales of
new products and new brand-nameproducts
In this environment, the Company will strive to expand
sales of new products in the healthcare field, including
Metis Series and Callisto Series products. It will alsoendeavor to improve earnings by bolstering marketing
activities for the two newly established categories of
hospital treatment, which are described above. In
overseas markets, we will focus on developing the
hospital bed market in China, where growth is expected tobe substantial.
In the home-care field, the Company will continue toincrease sales of the Rakusho home-care bed, which wasa key engine behind corporate performance for the fiscal
year under review. In marketing the product, we will takethe market characteristics of each region into full account.

In response to the rapid growth in the number of housing
facilities of the elderly, the Company developed andbegan marketing specially devised beds.
As for the new brand INTIME, the Company will seek toenhance sales activities for products with this brand
name, gain recognition for the brand and expand thelineup of items carrying its name.

Stepping up activities in the Chinese market
Paramount Bed began ramping up its sales activities in
China in January 2002, when it opened a representative
office in Shanghai. Since then, we have become firmer inour belief that China is very promising both as a
production base and as a market. Surveying plant
locations throughout 2003, we chose from more than ten
candidate sites a high-tech industrial park in Wuxi, a city
130km west of Shanghai, as the place for our new plant.

TopicsManufacturing Based on Universal Design
For several years now, Paramount Bed has beendeveloping products based on a universal design(UD), which is designed to provide comfort, easeof operation and safety for all people, irrespectiveof age, physical ability and the environment inwhich the products are used. Specifically,
products are developed following proprietary UD
checklists made with the cooperation of UD
consultant firms and corporations that study UD.
In May 2003, the Company prepared theParamount Universal Design Guidebook, which
describes its basic concept for productdevelopment.
The Company also introduced Paramount Bed’s
Basic Principles of UD, which consists of the5seven basic principles advocated by North
Carolina State University in the United States andthree supplementary principles suited for thefirm’s product development. The Company has
established a UD research system focusing onthese basic principles.
Through these initiatives, the Company is aiming
to facilitate the interactive manufacture of
products, in which understanding of the users hasconstant priority. The firm will continue to view UD
as one of its core technologies.
The Company is developing Multi-Purpose
Medical Chairs, Walkers and Nursing Wagons
based on the UD development process.

With an excellent industrial infrastructure, the city is also
blessed with a mild climate and the geographicaladvantage of being close to Shanghai. In March 2004,
Paramount Bed established in the park its affiliate
Paramount Bed (China) Co., Ltd. capitalized at $8 million,
and commenced the construction of the new plant. Slated
to begin operations in March 2005, the new factory is
expected to manufacture 8,000 hospital beds andperipheral products in the initial year, which will bemarketed in China. The new affiliate expects sales of ¥1.7
billion and after-tax income of ¥40 million by its third yearof operation.

As we continue our commitment to improving the safety ofour products, we hope for the understanding andcooperation of our stakeholders.

July 2004

Kenji Kimura
President and Representative Director

A commitment to improving product safety
Since August 2003, Paramount Bed has been replacing
free of charge faulty hand-held switches for electric beds,
with 65,291 units subject to such replacement. This cost
the Company ¥119 million in the fiscal year under review.

KK-823(Multi-Purpose Medical Chair)

KQ-172(Walker)

KY-600 Series(Nursing Wagons)

6Product Lineup

Hospital beds

Beds for elderly-care facilities

Beds must provide safety, comfort and ease of operation.
Our hospital bed line offers a full range, from sophisticatedto standard models. The SO-5000 is a high quality nursing
care bed that features sophisticated functionality anddesign. Its robust and high quality manufacture supports
modern medical care.

It is important to prevent residents ofelderly-care facilities from falling out ofbed. Our ultra-low Callisto beds (Callisto
Series) reduce the risk of accident in theevent of a fall. (Photo shows bed fitted with
Thestor shock-absorbing mattress)

Advanced, emergency use

Acute care (for special rooms)

Callisto Series
KA-8530 ICU Bed
SO-5000

Woody Series
Metis SeriesMulti-Purpose Medical Chair

New products
The new model KC-251 motorized medical examination table went onsale in December 2003.
The height of the KC-251 platform can be smoothly adjusted toanywhere between 400 and 950 mm. In order to meet therequirements of varied operating environments, the stroke wasincreased by 180 mm over the previous model. It also has a onetouch raise/lower function for use with a height preset by the operator.
In addition to such functional improvement, the design of the KC-251
has also been enhanced to include a selection of five different bodycolors, including gray, blue, pink, yellow and green.
The KK-390 was launched in November 2003.

7

KC-251

KK-390Beds for the home (INTIME)

Bed peripherals

Everyone spends time in bed, and thesemodels are designed to facilitate deep,
refreshing sleep.

Mattresses
The Comfort Care Mattress includes two
different types of polyurethane foam thatwhen combined provide both excellent
body pressure dispersion and a highlevel of comfort at the same time. The
mattress can be clean wiped fordisinfection.
And the versatile Preglar Mattress, foruse in hospitals, elderly-care facilities
and home care.

Home-care beds
Demand for rental home-care beds hasgrown rapidly since the start of thenursing care insurance program. The
Rakusho Series is designed to cater tovaried needs of different users.

5121 Bed

Comfort Care Mattress

Style Port

Preglar Mattress

Rakusho Series

Other Products
Scot-klean is a urine collector that automatically activates to collect urine when
it detects the presence of urine. The Patient Lifter assists in moving patients
between bed and wheelchair.
This unit is based on an original concept
developed by Paramount Bed. We alsooffer a wide range of bed peripherals,
such as drip stands, designed tomaximize usability.
Wide Aura Bed
Scot-klean

KK-330S Wheelchair

Patient Lifter

I.V Stand

8

Special Feature

A New Affiliate in China:
Paramount Bed (China) Co., Ltd. Established
Construction of new plant

Profile of the new company and plant

In March 2004, Paramount Bed established its affiliate
Paramount Bed (China) Co., Ltd., capitalized at $8
million, in Wuxi, Jiangsu Province. In the same month,
the Company began construction of a new plant, which
will manufacture hospital beds and related products.
The new facility is slated to be completed by the end of
this year, with mass production expected to start inMarch 2005. Products will initially be marketed tohospitals in China.

The new company plans to build a plant with a floor
space of approximately 11,770 square meters on a
56,800 square meter site (in the first phase
construction), and establish a showroom with a floor
space of around 1,000 square meters adjacent to theplant. The new company is employing some 70
workers at the initial stage, with that number set togradually increase.

Hospital bed market expands in China
In 2001, the number of beds at Chinese hospitals totaled
approximately 3.15 million. Of that total, the market
targeted by Paramount Bed was estimated at 255,000
beds, including demand for replacement of existing andnew beds, according to a survey conducted by theCompany. The survey also predicted that this figure would
rise to 290,000 units in 2005 and to 360,000 units in 2010.

The profile of the new company is as follows:
Company name: Paramount Bed (China) Co., Ltd.
Address:
A-105, Wuxi National Hi-Tech
Industrial Developement Zone,
Wuxi, Jiangsu, China
Capital:$8 million
Total land area: 56,800 square meters
Plant area:
11,770 square meters
Number of employees:
70 (estimated for 2005)

The Company is enjoying rising sales in this segment,from ¥68 million in the fiscal year ended March 2002, to¥144 million in the year through March 2003 and ¥439
million for the year ended March 2004.

Wuxi
Mongolia
Beijing
China

Wuxi
Myanmar9

ShanghaiWuxi, where Paramount Bed’s plant is being built, is one of China’s economic
epicenters. Located about 130km west of Shanghai, the city covers an area of
4,650 square kilometers and has a population of about 4.4 million.
Many Japanese tourists visit Wuxi, a city familiar to Japanese through the lovesong Mushaku Ryojo (memory of Wuxi), attracted by its closeness to Shanghai
and the outstanding view of the large nearby lake Tai Hu.
In recent years, the city of Wuxi has been enthusiastic about attracting factories.
Thanks to this initiative, Sony Corporation, Matsushita Electric Industrial Co., Ltd.,
Toshiba Corporation, General Electric Company and Bridgestone Corporation
have established facilities in the same industrial park in Wuxi New District at which
Paramount Bed is constructing its plant.

Six-year Summary
Paramount Bed Co., Ltd. and Subsidiaries — Years ended March 31

2004

2003

For the year:
Net sales

2002

2001

2000

1999

Millions of yen¥ 47,895¥ 45,774¥ 45,153¥ 46,541¥ 46,359¥ 43,072

Cost of sales

28,251

27,57427,304

26,836

26,07425,751Gross profit

19,644

18,20017,84919,70520,285

17,321

Selling, general and administrative expenses

12,541

12,30913,063

13,381

12,935

11,370Operating income

7,103

5,891

4,786

6,324

7,350

5,951

Net income

4,182

3,127

2,498

3,889

4,355

2,881

Net cash provided by operating activities (*1)

7,138

6,194

4,076

4,042

4,761

—

Net cash used in investing activities (*1)(423)

(1,615)(3,948)(3,715)(5,373)—

Net cash (used in) provided by financing activities (*1)(758)

(1,198)(1,040)

(917)

822

—

Cash and cash equivalents, end of year (*1)

20,622

14,661

11,267

12,15812,641

—

950

1,075

983

890

881

733

Total assets

81,17074,331

72,822

72,07873,52464,449Total shareholders’ equity

66,16061,14859,44257,75355,021

39,281

Research and development costs
At year-end:

Per share data:
Net income
Total shareholders’ equity

Yen

131.87

98.29

77.69

122.75140.4595.65

2,105.03

1,945.48

1,882.47

1,822.88

1,736.65

1,304.00

Value indicators:%

Return on equity (*2)

6.57

5.19

4.26

6.90

9.24

7.53

Return on assets (*3)

5.38

4.25

3.45

5.34

6.31

4.48

Shareholders’ equity ratio

81.51

82.26

81.63

80.13

74.83

60.95

*1) Consolidated statements of cash flows were first prepared for the year ended March 2000.
*2) Return on equity (ROE): Net income / Average total shareholders’ equity*3) Return on assets (ROA): Net income / Average total assets

10Business Review in Fiscal 2004

Overview of Financial Results
The Japanese economy began to recover at a steadypace in the year ended March 2004, most notably in thesecond half of the term and towards the term-end. Key
factors in the recovery included increasingly solid
consumer spending, combined with improving corporate
earnings and rising corporate investment.
In the healthcare industry, the rate of growth of medical
expenses was once again positive, after the contractionin the previous term impacted by the reduction in
medical treatment fees and amendments to the Health
Insurance Law. In the wake of the review of theclassification of hospital beds, the ratio of general beds
to long-term care beds became roughly 7 to 3. This is
expected to lead to further classification of the functionsof sickbeds.
In the area of welfare for the elderly, as a result of theinitial revision of fees for nursing-care services in thenursing-care insurance program, fees for services
offered at nursing-care facilities were substantiallyreduced and the growth of such fees consequently
declined sharply. Moreover, councils in the central
government began deliberating on an amendment to thenursing-care insurance system. The Ministry of Health,
Labor and Welfare meanwhile set up headquarters fornursing-care system reform.
In this environment, the Company increased capitalspending and focused on research and development
activities, with the aim of bolstering earnings.
As a first step, the Company introduced blow-molding
equipment to enable in-house production of certain resin
products, as a means of developing new products to
expand the lineup of articles. To diversify its products,
the Company also installed multi-color painting
machines and welding equipment for sheet metal. In
addition, it replaced equipment for producing bedsiderails, following the integration of bed models.
With respect to the development and sale of products,
the Company increased the lineup of Callisto Series
beds used in nursing-care facilities for the elderly, andlaunched the home-care-use bed Rakusho, positioned
as a mainstay product for the next generation. The
Company also integrated models for medical andnursing-care facilities to make production more efficientand standardize designs. Among new products other11

than beds, it introduced the Mortorized Examination
Table and the Patient Lifter.
Establishing a new brand called INTIME, we entered the
bedroom/interior market for the health-conscious
consumer, a new business for us, based on the slogan“sound sleep and excellent health.”
In overseas markets, the Company moved to expand
the medical bed market in China by commencing
construction of a new plant in Wuxi, Jiangsu Province.
The plant, which will serve as a production base in
China, is expected to commence operation in March2005.
In the fiscal year under review, consolidated sales to
medical and nursing-care facilities remained unchanged
from the previous year, while sales for home-care use
jumped 13.4%, driven by demand for Rakusho, the new
home-care-use bed.
Sales by major product category for the fiscal year are
as follows.
%

Millions of yen

2004
Beds

¥

28,5202003¥

Year-on-year Change

26,560

7.4

Mattresses

4,244

4,408

(3.7)

Hospital-use furniture

4,238

4,128

2.7

Medical-use products

2,925

2,884

1.4

Other

7,968

7,794

2.2

45,774

4.6

Total

¥

47,895¥

As a result, net sales for the fiscal year rose 4.6%, or¥2,121 million, year on year, to ¥47,895 million.
Operating income jumped 20.6% from a year earlier to¥7,103 million, mainly due to an increase in sales volume
of beds and an improvement in the gross margin
following a shift of management priorities to high-valueadded products. Net income soared 33.7% to ¥4,182
million, with gain on sales of investment securities
booked as an extraordinary profit.

Year ended March 31, 2004

Cash Flows(Cash flows from operating activities)
Net cash provided by operating activities was ¥7,138
million in the fiscal year under review. A breakdown of
the inflow shows income before income taxes of ¥7,707
million, depreciation and amortization of ¥1,857 million
and a decrease in notes and accounts receivable of¥786 million. Meanwhile, the contributors to cash outflow
were gain on sales of investment securities worth ¥568
million and the payment of income taxes amounting to¥2,982 million.
(Cash flows from investing activities)
Net cash used in investing activities was ¥423 million.
This was chiefly attributable to purchases of investment
securities and property, plant and equipment, which
totaled ¥2,864 million and ¥1,092 million, respectively,
as well as proceeds from sales of marketable andinvestment securities, which amounted to ¥4,271 million.
(Cash flows from financing activities)
Net cash used in financing activities was ¥758 million,
owing primarily to the payment of cash dividends.
As a result, cash and cash equivalents at end of year
totaled ¥20,622 million, up ¥5,961 million from theprevious year-end.

catering to senior citizens, a number of housing facilities
for elderly people are being established, including feecharging homes, resulting in an overall increase of
facilities for the elderly. Amid concern that the budget for
the nursing care insurance program will tighten, work is
now fully underway in preparation for the review of thesystem planned for fiscal 2005.
Given this operating environment, the Company will
endeavor to expand sales of new products in thehealthcare field, including the Metis Series and Callisto
Series products. It will also aim to improve earnings, bystepping up marketing activities for the two newly
established categories of hospital treatment, as
described above, with the latest revisions to the medical
treatment fee system. In overseas markets, we will focus
on developing the hospital bed market in China, where
growth is expected to be substantial.
In the home-care field, the Company will continue tobolster sales of the Rakusho home-care bed, taking themarket characteristics of each region into full account.
To respond to the rapid growth in the number of housing
facilities for the elderly, the Company will further develop
and introduce specially devised beds.
As for the new INTIME brand, the Company will strive tobolster sales activities for products with the brand name.
It will also seek to gain recognition for the brand andexpand the lineup of items carrying its name.

Issues to Be Addressed and Outlook for
the Next Term
The Japanese economy looks set to fully recover in thenext term, thanks to continued improvement in corporate
earnings, centering on the manufacturing industry, amid
gradually decreasing financial instability and deflationarypressure.
In the healthcare industry, the medical treatment fee
system was revised in April 2004, which left medical
treatment fees unchanged while government-set prices
of prescription drugs were reduced, resulting in an
overall decline of 1.0%. With this revision, two new
hospital treatment stages, “high care unit” and“subacute,” were set up.
In the sector of welfare for seniors, the number of usersof home medical services in the nursing care insurance
program is continuing to rise. Meanwhile, with the sharp
climb in the number of people wishing to enter facilities

12Consolidated Balance Sheets

Thousands of U.S. dollars(Note 1)Millions of yen

ASSETS

2004

2003

2004

CURRENT ASSETS:
Cash and cash equivalents

14,661$ 195,118

2,106

1,335

19,926

Trade notes

5,686

5,413

53,799Trade accounts

11,305

12,328106,964

14

3

132

¥

Marketable securities (Note 3)

20,622¥

Notes and accounts receivable:

Other
Allowance for doubtful accounts

(18)

(42)

(170)

4,475

4,476

42,341

Deferred tax assets (Note 6)

555

435

5,251

Prepaid expenses and other current assets

73

97

691

44,81838,706424,052

Land

8,371

8,371

79,203

Buildings and structures

21,192

21,059200,511

Machinery and equipment

12,654

11,839119,728

Inventories (Note 4)

Total current assets
PROPERTY, PLANT AND EQUIPMENT:

Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment

3

12

28

42,22041,281

399,470(21,132)(19,905)(199,943)

21,08821,376

199,527

11,957

10,483

113,133

787

777

7,446

2,520

2,392

23,843

15,264

14,249144,422

74,331$ 768,001

INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 3)
Life insurance premium
Deferred tax assets (Note 6)

597

Other assets
Total investments and other assets

TOTAL
See notes to consolidated financial statements.

13¥

81,170¥Consolidated Balance Sheets — March 31, 2004 and 2003

Thousands of U.S. dollars(Note 1)Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:
Notes and accounts payable:
Trade notes
Trade accounts
Other
Income taxes payable (Note 6)
Accrued expenses
Other current liabilities

2004

¥

Total current liabilities
LONG-TERM LIABILITIES:
Liability for employees’ retirement benefits (Note 5)
Liability for directors’ and corporate auditors’ retirement benefits
Deferred tax liabilities
Other long-term liabilities
Total long-term liabilities

948
6,243
1,530
2,479
1,228
442

2003

¥

2004

1,386
5,670
1,141
1,577
1,187
463

$

8,970
59,06914,47623,455
11,6194,182

12,87011,424

121,771

1,405
381
349
5

1,419
336
4

13,294
3,605
3,302
47

2,140

1,759

20,2486,591
7,277
51,456
1,582
(19)

6,591
7,277
48,065(153)
92

62,362
68,852486,858
14,968
(180)

(727)

(724)

(6,878)66,16061,148625,982

74,331$ 768,001

COMMITMENTS AND CONTINGENT LIABILITIES(Notes 7, 9 and 11)
SHAREHOLDERS’ EQUITY (Notes 8 and 12):
Common stock — authorized, 100,000,000 shares;
issued, 31,682,526 shares
Capital surplus
Retained earnings
Unrealized gain (loss) on available-for-sale securities
Foreign currency translation adjustments
Treasury stock — at cost, 272,199 shares in 2004 and
270,568 shares in 2003
Total shareholders’ equity
TOTAL

¥

81,170¥14

Consolidated Statements of Income
Paramount Bed Co., Ltd. and Subsidiaries — Years Ended March 31, 2004 and 2003

Thousands of U.S. dollars(Note 1)Millions of yen

2004
NET SALES¥

2003

47,895¥45,774

2004$

COST OF SALES

28,251

27,574

267,301

Gross profit

19,644

18,200185,864

12,541

12,309118,658

7,103

5,891

67,206

189
(148)
568
(1)
(4)

217
(132)
1
(326)
(130)

1,788
(1,400)
5,374
(9)
(38)

Other income (expenses) — net

604

(370)

5,715

INCOME BEFORE INCOME TAXES

7,707

5,521

72,921

INCOME TAXES (Note 6):
Current
Deferred

3,885
(360)

2,533
(139)

36,758(3,406)

Total income taxes

3,525

2,394

33,352SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 10)
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income
Foreign exchange loss
Gain on sales of investment securities
Loss on devaluation of investment securities
Other — net

NET INCOME

¥

4,182

¥

3,127

$

Yen

PER SHARE OF COMMON STOCK (Note 2.m):
Net income
Cash dividends applicable to the year
See notes to consolidated financial statements.

15453,165¥

131.8730.00

39,569U.S. dollars

¥

98.29
24.00

$

1.25
0.28

Consolidated Statements of Shareholders’ Equity
Paramount Bed Co., Ltd. and Subsidiaries — Years Ended March 31, 2004 and 2003

Millions of yen

Thousands
Outstanding
Number of
Shares ofCommon Stock

BALANCE, APRIL 1, 2002
Net income
Cash dividends, ¥24 per share
Bonuses to directors
Purchase of treasury stock
Net increase in unrealized loss
on available-for-sale securities
Net decrease in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2003
Net income
Cash dividends, ¥24 per share
Bonuses to directors
Purchase of treasury stock
Net increase in unrealized gain
on available-for-sale securities
Net decrease in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2004

BALANCE, MARCH 31, 2003

31,576

Common
Stock

¥

6,591

CapitalSurplus¥7,277¥ 45,731

Unrealized
Gain (Loss) on
Available-forsale Securities¥

Foreign
Currency
Translation
Adjustments(52) ¥

175

Treasury
Stock

¥

(280)

3,127
(756)
(37)
(164)

(444)
(101)
(83)
6,591

31,412

7,277

48,065

(724)

92

(153)

4,182
(754)
(37)
(2)

(3)
1,735
(111)

31,410

¥

6,591

¥

7,277

CommonStockCapitalSurplus$ 62,362$ 68,852

Net income
Cash dividends, $0.23 per share
Bonuses to directors
Purchase of treasury stock
Net increase in unrealized gain
on available-for-sale securities
Net decrease in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2004

Retained
Earnings¥ 51,456¥

1,582

Thousands of U.S. dollars (Note 1)
Unrealized
Gain (Loss) on
Retained
Available-forEarnings
sale Securities$ 454,773$¥(19) ¥

Foreign
Currency
Translation
Adjustments(1,448) $

870

(727)

TreasuryStock$(6,850)39,569(7,134)(350)(28)
16,416(1,050)$ 62,362$ 68,852$ 486,858$ 14,968$(180) $

(6,878)

See notes to consolidated financial statements.

16

Consolidated Statements of Cash Flows
Paramount Bed Co., Ltd. and Subsidiaries — Years Ended March 31, 2004 and 2003

Thousands of U.S.dollars(Note 1)Millions of yen

2004
OPERATING ACTIVITIES:
Income before income taxes
Adjustments for:
Income taxes — paid
Depreciation and amortization
Gain on sales of investment securities
Loss on devaluation of investment securities
Changes in operating assets and liabilities:
Decrease in notes and accounts receivable
Decrease in inventories
Decrease (increase) in prepaid expenses and other current assets
Increase (decrease) in notes and accounts payable
Increase in accrued expenses and other current liabilities
Other — net

¥

7,707

¥

2004

5,521

$

72,921(2,982)
1,857
(568)
1

(2,222)
1,796
(1)
326

(28,215)
17,570(5,374)
9

786
1
24
524
20
(232)

241
885
(11)
(547)
34
172

7,437
9
227
4,958
189
(2,194)

7,138

6,194

67,537(200)
2,009(1,092)(2,864)
2,262
(538)

(1,100)4,063(411)(5,242)541
534(1,892)
19,008(10,332)(27,098)
21,402(5,090)(423)(1,615)(4,002)

(4)
(754)

(443)
(755)

(38)
(7,134)(758)(1,198)(7,172)4

13

38

NET INCREASE IN CASH AND CASH
EQUIVALENTS

5,961

3,394

56,401

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

14,661

11,267

138,717

14,661$ 195,118

Net cash provided by operating activities
INVESTING ACTIVITIES:
Purchases of marketable securities
Proceeds from sales of marketable securities
Purchases of property, plant and equipment
Purchases of investment securities
Proceeds from sales of investment securities
Decrease (increase) in other assets
Net cash used in investing activities
FINANCING ACTIVITIES:
Purchases of treasury stock
Cash dividends paid
Net cash used in financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, END OF YEAR
See notes to consolidated financial statements.

17

2003

¥

20,622¥

Notes to Consolidated Financial Statements
Paramount Bed Co., Ltd. and Subsidiaries — Years Ended March 31, 2004 and 2003

1. BASIS OF PRESENTING CONSOLIDATEDFINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in theJapanese Securities and Exchange Law and its related
accounting regulations, and in conformity with accounting
principles generally accepted in Japan, which are different incertain respects as to application and disclosure requirements ofInternational Financial Reporting Standards.
In preparing these consolidated financial statements, certain
reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in order topresent them in a form which is more familiar to readers outside
Japan. In addition, certain reclassifications have been made in
the 2003 consolidated financial statements to conform to theclassifications used in 2004.
The consolidated financial statements are stated in Japaneseyen, the currency of the country in which Paramount Bed Co.,
Ltd. (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 Japanand have been made at the rate of ¥105.69 to $1, the rate ofexchange at March 31, 2004. 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 ACCOUNTINGPOLICIES
a. Consolidation — The consolidated financial statements as ofMarch 31, 2004 include the accounts of the Company and its
three (two in 2003) subsidiaries (together, the “Group”). All
significant intercompany balances and transactions have been
eliminated in consolidation. All material unrealized profit included
in assets resulting from transactions within the Group iseliminated.
b. Cash Equivalents — Cash equivalents are short-term
investments that are readily convertible into cash and that are
exposed to insignificant risk of changes in value. Cashequivalents include time deposits and mutual funds investing inbonds, all of which mature or become due within three months ofthe date of acquisition.
c. Inventories — Inventories are stated at cost determined by theaverage cost method and the most recent purchase price method.
d. Marketable and Investment Securities — Marketable andinvestment securities are classified and accounted for,depending on management’s intent, as follows: (1) held-tomaturity debt securities, which are expected to be held tomaturity with the positive intent and ability to hold to maturity arereported at amortized cost and (2) available-for-sale securities,
which are not classified as the aforementioned securities, arereported at fair value, with unrealized gains and losses, net of
applicable taxes, reported in a separate component ofshareholders’ equity.
Non-marketable available-for-sale securities are stated at cost
determined by the moving-average method. The cost of
securities sold is determined based on the moving-averagemethod. For other than temporary declines in fair value,
investment securities are reduced to net realizable value by acharge to income.
e. Property, Plant and Equipment — Property, plant andequipment are stated at cost. Depreciation of property, plant andequipment of the Group is computed by the declining-balancemethod, while the straight-line method is applied to the buildingsof the Company acquired after April 1, 1998. The range of useful
lives is principally from 3 to 50 years for buildings and structuresand from 2 to 20 years for machinery and equipment.
f. Retirement and Pension Plans — The Company has an
unfunded severance indemnity plan partially supplemented by aqualified pension plan and a welfare annuity plan. One of theconsolidated foreign subsidiaries adopts a national welfare
pension system of the country where the subsidiary is located.
The Group accounts for liability for retirement benefits based on
the projected benefit obligations and plan assets at the balance
sheet date.
Retirement benefits to directors and corporate auditors of theCompany are provided at the amount which would be required if
all directors and corporate auditors retired at the balance sheet
date.
g. Research and Development Costs — Research anddevelopment costs are charged to income as incurred.
h. Leases — All leases are accounted for as operating leases.
Under Japanese accounting standards for leases, finance leases
that deem to transfer ownership of the leased property to thelessee are to be capitalized, while other finance leases are
permitted to be accounted for as operating lease transactions if
certain “as if capitalized” information is disclosed in the notes to18the lessee’s financial statements.
i. Income Taxes — The provision for income taxes is computed
based on the pretax income included in the consolidated
statements of income. The asset and liability approach is used torecognize deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
Deferred taxes are measured by applying currently enacted tax
laws to the temporary differences.
j. Appropriations of Retained Earnings — Appropriations ofretained earnings at each year end are reflected in the financial
statements for the following year upon shareholders’ approval.
k. Foreign Currency Transactions and Financial Statements —All short-term and long-term receivables and payables
denominated in foreign currencies are translated into Japanese
yen at the exchange rates at each balance sheet date. The
foreign exchange gains and losses from translation arerecognized in the consolidated statements of income to theextent that derivatives for foreign currency transactions do not
qualify for hedge accounting.
The balance sheet accounts of the consolidated foreignsubsidiaries are translated into Japanese yen at the current
exchange rate as of the balance sheet date except forshareholders’ equity, which is translated at the historical rate.
Differences arising from such translation are shown as “Foreign
currency translation adjustments” in a separate component ofshareholders’ equity.
Revenue and expense accounts of the consolidated foreignsubsidiaries are translated into Japanese yen at the current
exchange rate as of the balance sheet date.
l. Derivatives and Hedging Activities — The Group uses
derivative financial instruments (“derivatives”) to manage their
exposures to fluctuations in foreign exchange. Foreign exchange
forward contracts are utilized by the Group to reduce foreign
currency exchange risks. The Group does not enter into
derivatives for trading or speculative purposes.
All derivatives are recognized as either assets or liabilities andmeasured at fair value, and gains or losses on derivativetransactions are recognized in the consolidated statements ofincome. If derivatives used for hedging purposes qualify forhedge accounting because of high correlation and effectiveness19

between the hedging instruments and the hedged items, gains orlosses on derivatives are deferred until maturity of the hedgedtransactions.
The foreign exchange forward contracts, which qualify for hedge
accounting employed to hedge foreign exchange exposures forimport purchases, are translated at the foreign exchange rate
stipulated in the contract.
m. Per Share Information — Net income per share is computedby dividing net income available to common shareholders by theweighted-average number of common shares outstanding for theperiod.
Diluted net income per share is not disclosed because it is antidilutive.
Cash dividends per share presented in the accompanying
consolidated statements of income are dividends applicable to
the respective years including dividends to be paid after the endof the year.
n. New Accounting Pronouncements — In August 2002, theBusiness Accounting Council issued a Statement of Opinion,“Accounting for Impairment of Fixed Assets,” and in October2003 the Accounting Standards Board of Japan (“ASB”) issued
ASB Guidance No.6, “Guidance for Accounting Standard for
Impairment of Fixed Assets.” These new pronouncements are
effective for fiscal years beginning on or after April 1, 2005 withearly adoption permitted for fiscal years ending on or after March
31, 2004.
The new accounting standard requires an entity to review its
long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset or
asset group may not be recoverable. An impairment loss would
be recognized if the carrying amount of an asset or asset groupexceeds the sum of the undiscounted future cash flows expected
to result from the continued use and eventual disposition of theasset or asset group. The impairment loss would be measured as
the amount by which the carrying amount of the asset exceeds its
recoverable amount, which is the higher of the discounted cash
flows from the continued use and eventual disposition of theasset or the net selling price at disposition.
The Company is currently in the process of assessing the effectof adoption of these pronouncements.

3. MARKETABLE AND INVESTMENT SECURITIESMarketable and investment securities as of March 31, 2004 and2003 consisted of the following:

Current:
Government and corporate bonds
Non-current:
Marketable equity securities
Government and corporate bonds
Trust fund investments and otherNon-marketable equity securities
Total

Carrying AmountThousands of
U.S. dollars

Millions of yen

2004

Available-for-sale securities whose fair value was not readily
determinable as of March 31, 2004 and 2003 were as follows:

2004

2003

Available-for-sale—Equity securities¥ 2,106¥ 1,335

Thousands of
U.S. dollars

Millions of yen

2004

2003

2004

¥

¥

$ 6,585696

823$ 19,926¥ 3,173
3,635
4,453
696

¥

255
6,246
3,159
823

$ 30,022
34,39342,133
6,585¥ 11,957¥ 10,483$113,133

The carrying amounts and aggregate fair values of marketable
and investment securities at March 31, 2004 and 2003 were as
follows:

Proceeds from sales of available-for-sale securities for the years
ended March 31, 2004 and 2003 were ¥3,468 million ($32,813
thousand) and ¥938 million, respectively. Gross realized gains
and losses on these sales, computed on the moving average costbasis, were ¥568 million ($5,374 thousand) gains and ¥64 million($606 thousand) losses for the year ended March 31, 2004 and¥1 million gains for the year ended March 31, 2003.
The carrying values of debt securities and others by contractual
maturities for securities classified as available-for-sale and heldto-maturity at March 31, 2004 were as follows:

Millions of yen
Thousands of U.S.
dollars

Millions of yen
March 31, 2004

Securities classified as:
Available-for-sale:
Equity securities
Debt securities
Others
Held-to-maturity

Cost

Unrealized Unrealized
Gains
LossesFair
Value
March 31, 2004¥

379 ¥ 2,803 ¥
4,467
84
4,555
138
1,300

9 ¥
110
240
18

3,173
4,441
4,453
1,282

Available
for SaleHeld toMaturity

Available
for SaleHeld toMaturity

Due in one year or less¥ 2,315$ 21,904
Due after one year through five years
1,295
12,253Due after five years through ten years
2,630
24,884Due after ten years
796 ¥ 1,300
7,531 $ 12,300
Total¥ 7,036 ¥ 1,300 $ 66,572 $ 12,300

Millions of yen

March 31, 2003

Securities classified as:
Available-for-sale:
Equity securities
Debt securities
Others
Held-to-maturity

Cost

¥

Unrealized Unrealized
Gains
Losses

278 ¥
6,648
3,381
1,000

1 ¥
62
5

Fair
Value

24 ¥ 255
129
6,581
227
3,159
70
930

Thousands of U.S. dollars

March 31, 2004

Securities classified as:
Available-for-sale:
Equity securities
Debt securities
Others
Held-to-maturity

Cost

Unrealized Unrealized
Gains
LossesFair
Value

4. INVENTORIESInventories at March 31, 2004 and 2003 consisted of thefollowing:
Millions of yen

Thousands of
U.S. dollars

2004

2003

2004

Merchandise
Finished products
Work in process
Raw materials and supplies

¥

¥

247
3,364
145
720

$ 1,627
32,955
1,429
6,330

Total

¥ 4,475¥ 4,476$ 42,341

172
3,483
151
669

85 $ 30,022$ 3,586 $ 26,521 $
1,041 42,019
42,265795
2,271 42,133
43,0981,306
170 12,130
12,30020

5. LIABILITY FOR RETIREMENT BENEFITS

Thousands of
U.S. dollars

Millions of yen

Under most circumstances, employees terminating theiremployment are entitled to certain severance payments based on
their rate of pay at the time of termination, years of service andcertain other factors. If the termination is involuntary, caused byretirement at the mandatory retirement age or caused by death,the employee is entitled to greater payments than in the case ofvoluntary termination.

2003

2004

Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Installment on the welfare annuity
Others

¥

2004
309
113
(40)
52
194
102

¥

312
111
(64)
48
166
130

$ 2,924
1,069
(378)
492
1,835
965

Net periodic benefit costs

¥

730

¥

703

$ 6,907

Such severance payments are made in the form of a lump-sum
payment from the Company, in case employees retire before thenormal retirement age.

Assumptions used for the years ended March 31, 2004 and 2003
were set forth as follows:

The Company has a non-contributory funded pension plan. The
non-contributory funded pension plan covers employees only incase they retire at the normal retirement age.

Discount rate
Expected rate of return on plan assets
Recognition period of actuarial gain/loss

Under the pension plan, employees terminating their employment
at the normal retirement age are entitled to receive an annuity ora lump-sum payment at the selection of the terminating
employee.

2004

2003

2.0%
1.5%
10 years

2.5%
2.5%
10 years

The amounts payable to directors and corporate auditors uponretirement are subject to the approval of the shareholders inaccordance with the Japanese Commercial Code (the “Code”).

6. INCOME TAXES
Liabilities for employees’ retirement benefits as of March 31, 2004
and 2003 consisted of the following:
Millions of yen

Thousands of
U.S. dollars

2004

2003

2004

Projected benefit obligation
Fair value of plan assets
Unrecognized actuarial net loss

¥ 5,028(3,003)(620)¥ 4,541(2,689)(433)$ 47,573(28,413)(5,866)

Liabilities presented on the
consolidated balance sheets¥ 1,405¥ 1,419$ 13,294

The Company and its domestic subsidiary are subject to anumber of different taxes based on income, which, in theaggregate, resulted in a normal effective statutory tax rate of
approximately 41.6% for the years ended March 31, 2004 and2003.
The tax effects of significant temporary differences and loss
carryforwards which resulted in deferred tax assets and liabilities
at March 31, 2004 and 2003 were as follows:
Thousands of
U.S. dollars

Millions of yen

In addition to the aforementioned pension plan, the Company has
joined the Tokyo Pharmaceutical Welfare Annuity Foundation,
which is established as a mutual pension plan for employees inthe same industrial parties. The projected benefit obligation
above does not include that of the Foundation. The Company’s
portion of the plan assets amounted to ¥4,543 million ($42,984
thousand) as of March 31, 2004.
The components of net periodic benefit costs for the years ended
March 31, 2004 and 2003 were as follows:

2004

2003

2004

¥

¥

275
140

$ 3,264
2,063

155
424
200
(47)

133
234
265
(12)

1,467
4,012
1,892
(445)

Deferred tax assets

1,295

1,035

12,253

Deferred tax liabilities:
Unrealized gain on available-for-sale securities
Reserve for advanced depreciation(1,085)(4)(4)(10,266)(38)

Deferred tax liabilities(1,089)(4)(10,304)206¥ 1,031$ 1,949

Deferred tax assets:
Accrued bonuses
Enterprise taxes
Liability for directors’ and corporate
auditors’ retirement benefits
Liability for employees’ retirement benefits
Other
Less valuation allowance

Net deferred tax assets

21

¥

345
218

7. CONTINGENT LIABILITIESAt March 31, 2004, the Group had the following contingent
liabilities:
Millions of yen

Guarantees of employees’ housing loans
Recourse obligation for the balance on thetransfers of payables in factoring transactions

¥

732
1,606

Thousands of
U.S. dollars$

31, 2004, based on the amount recorded in the Company’s
general books of account. In addition to the provision that
requires an appropriation for a legal reserve in connection withthe cash payment, the Code imposes certain limitations on theamount of retained earnings available for dividends.

6,926
15,195

8. SHAREHOLDERS’ EQUITY
Japanese companies are subject to the Code to which certain
amendments became effective from October 1, 2001.
The Code was revised whereby common stock par value waseliminated resulting in all shares being recorded with no parvalue and at least 50% of the issue price of new shares isrequired to be recorded as common stock and the remaining net
proceeds as additional paid-in capital, which is included incapital surplus. The Code permits Japanese companies, upon
approval of the Board of Directors, to issue shares to existing
shareholders without consideration as a stock split. Suchissuance of shares generally does not give rise to changes within
the shareholders’ accounts.
The revised Code also provides that an amount at least equal to
10% of the aggregate amount of cash dividends and certain
other appropriations of retained earnings associated with cash
outlays applicable to each period shall be appropriated as alegal reserve (a component of retained earnings) until suchreserve and additional paid-in capital equals 25% of common
stock. The amount of total additional paid-in capital and legal
reserve that exceeds 25% of the common stock may be available
for dividends by resolution of the shareholders. In addition, theCode permits the transfer of a portion of additional paid-in capitaland legal reserve to the common stock by resolution of the Boardof Directors.
The revised Code eliminated restrictions on the purchase anduse of treasury stock allowing Japanese companies to purchasetreasury stock by a resolution of the shareholders at the generalshareholders meeting and dispose of such treasury stock byresolution of the Board of Directors. The purchased amount oftreasury stock cannot exceed the amount available for future
dividend plus amount of common stock, additional paid-in capitalor legal reserve to be reduced in the case where such reduction
was resolved at the general shareholders meeting.

Dividends are approved by the shareholders at a meeting held
subsequent to the fiscal year to which the dividends areapplicable. Semiannual interim dividends may also be paid upon
resolution of the Board of Directors, subject to certain limitations
imposed by the Code.
The Company has following stock option plan. The plan provides
for granting options to directors and employees to 221 thousand
shares of the Company’s common stock in the period from July 1,
2004 to June 29, 2007. The options will be granted at an exercise
price of ¥2,687 ($25.42). The Company plans to issue acquired
treasury stock upon exercise of the stock options.

9. LEASES
The Group, as a lessee, leases certain machinery, computerequipment and other assets, and as a lessor, leases certain bed.
Total lease payments included in cost of sales and selling,
general and administrative expenses under finance leasearrangements that do not transfer ownership of the leased
property to the lessee were ¥112 million ($1,060 thousand) and¥112 million for the years ended March 31, 2004 and 2003,
respectively. Total lease revenues were ¥3 million ($28 thousand)and ¥0 million for the years ended March 31, 2004 and 2003.
(1) The Group as Lessee
Pro forma information of leased property such as acquisition cost,
accumulated depreciation, obligations under finance lease,depreciation expense and interest expense of finance leases that
do not transfer ownership of the leased property to the lessee on
an “as if capitalized” basis for the years ended March 31, 2004
and 2003 was as follows:
Thousands of
U.S. dollars

Millions of yen

2004

2003

2004

Acquisition cost
Accumulated depreciation

¥

458
295

¥

425
264

$ 4,333
2,791

Net leased property

¥

163

¥

161

$ 1,542

Obligations under finance leases:
The amount of retained earnings available for dividends under
the Code was ¥49,811 million ($471,293 thousand) as of March

22

Thousands of
U.S. dollars

Millions of yen

2004

2003

2004

Due within one year
Due after one year

¥

69
97

¥

91
74

$

Total

¥

166

¥

165

$ 1,571653
918

Depreciation expense and interest expense under finance leases:
Thousands of
U.S. dollars

Millions of yen

Depreciation expense and interest income, which are reflected in
the accompanying consolidated statements of income, werecomputed by the straight-line method and the interest method,respectively.

10. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥950
million ($8,989 thousand) and ¥1,075 million for the years ended
March 31, 2004 and 2003, respectively.

2003

2004

11. DERIVATIVES

Depreciation expense
Interest expense

¥

105
5

¥

104
6

$

Total

¥

110

¥

110

$ 1,041

The Group enters into foreign exchange forward contracts inorder to hedge market risk. Foreign exchange forward contracts
were used to hedge foreign exchange risk associated withcertain liabilities denominated in the foreign currency.

2004

994
47

Depreciation expense and interest expense, which were notreflected in the accompanying consolidated statements ofincome, were computed by the straight-line method and theinterest method, respectively.

The Group does not hold or issue derivatives for trading or
speculative purposes.

(2)The Group as Lessor
Pro forma information of leasing property such as acquisition
cost, accumulated depreciation, credits under finance lease,depreciation expense and interest income of finance leases that
do not transfer ownership of the leasing property to the lessee on
an “as if capitalized” basis for the years ended March 31, 2004
and 2003 was as follows:
Thousands of
U.S. dollars

Millions of yen

2004

2003

2004

Acquisition cost
Accumulated depreciation

¥

20
4

¥

15
1

$

189
38

Net leased property

¥

16

¥

14

$

151

Derivatives are subject to market risk and credit risk frompotential fluctuations in foreign exchange rates. The Group does
not anticipate any losses arising from credit risk because thecounterparties to those derivatives are limited to highly rated
major financial institutions.
Derivative transactions are controlled by the finance department
in accordance with the Group’s internal regulations and are
periodically reported by the finance manager in regular meetingsof the Board of Directors.
All derivatives were excluded from the disclosure of market value
information because all of them were qualified for hedge
accounting and recorded on the consolidated balance sheets asof March 31, 2004 and 2003.

Credits under finance leases:
Thousands of
U.S. dollars

Millions of yen

2004

2003

2004

Due within one year
Due after one year

¥

4
13

¥

2
12

$

38
123

Total

¥

17

¥

14

$

161

Depreciation expense and interest income under finance leases:

23

Millions of yen

Thousands of
U.S. dollars

2004

2004

Depreciation expense
Interest income

¥

3
1

$

28
10

Total

¥

4

$

38

12. SUBSEQUENT EVENTOn June 29, 2004, the shareholders of the Company authorized
the following appropriations of retained earnings as of March 31,
2004:
Millions of yen

Thousands of
U.S. dollars

Ordinary year-end cash dividends,¥18 ($0.17) per share
Bonuses to directors

¥

565
40

$ 5,346
378

Total

¥

605

$ 5,724

Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors of
Paramount Bed Co., Ltd.:We have audited the accompanying consolidated balance sheets of Paramount Bed Co., Ltd. and subsidiaries as of March 31,
2004 and 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years thenended, all expressed in Japanese 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 auditing standards generally accepted in Japan. Those standards require that weplan 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 forour opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Paramount Bed Co., Ltd. and subsidiaries as of March 31, 2004 and 2003, and the consolidated resultsof their operations and their cash flows for the years then ended in conformity with accounting principles generally acceptedin Japan.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely forthe convenience of readers outside Japan.

June 29, 200424

Corporate History
In 1947 the Company’s founder, Ryusuke Kimura, bought scrapped hospital beds that were delivered to thegovernment during World War 2, refurbished them, and sold them. More than half a century has passed since then,and the Company’s brief history up to now is described below.

May 1947: Ryusuke Kimura founds Kimura Shindai Seisakujo Ltd. as a private
enterprise, and starts manufacturing hospital beds.
May 1950: Kimura Shindai Industry Co., Ltd. is established with capital of 200
thousand yen. Paramount Bed is adopted as the brand name.
May 1953: Edogawa plant is built.
July 1955: Gatch (hospital) bed is developed.
May 1961: Head office is moved to current location.
April 1962: KA-45, the first electric bed in Japan, is developed and sold.
March 1966: Kyushu sales office (now Fukuoka branch) is set up.
May 1966: Chiba plant is built.
February 1970: Matsuo plant is built and absorbs Edogawa plant operation.
February 1971: Osaka branch is set up.
January 1972: KA-500 and KA-600 Series hospital beds are developed and sold.
September 1977: Hiroshima and Nagoya sales offices (now Hiroshima branch andNagoya branch) are set up.
June 1980: Scot-klean (automatic urine receptacle) is developed and sold.
December 1983: KQ-100 (Aura electric bed) home-care bed is developed and sold.
July 1986: The Company absorbs Paramount Sendai Co., Ltd. (now Sendai
branch) and Paramount Sapporo Co., Ltd. (now Sapporo branch).
March 1987: Corporate name is changed to Paramount Bed Co., Ltd.
December 1987: The Company shares are listed on the JASDAQ market.
November 1988: Paracare Mattress, a mattress made from new material, is developedand sold.
October 1990: Hestia Series (beds for elderly-care facilities) is developed and sold.
April 1991: Ryusuke Kimura and Kenji Kimura become Chairman and President,
respectively.
January 1992: KA-900 Series (microcomputer controlled electric beds) is developedand sold.
May 1992: Yokohama branch is set up.
October 1993: Rakusho Series (home-care beds) is developed and sold.
December 1993: The Company shares are listed on the Second Section of the Tokyo
Stock Exchange.
September 1995: PT. Paramount Bed Indonesia is set up as an overseas subsidiary.
May 1996: Takamatsu branch is set up.
September 1996: The Company shares are listed on the First Section of the Tokyo Stock
Exchange.
April 1997: Kyma Aura Bed Series (home-care beds) is developed and sold.
October 1997: Customer Service Center is set up.
October 1998: KA-6000 Series (hospital beds) is developed and sold.
April 1999: New Scot-klean (automatic urine receptacle) is developed and sold.
May 1999: Obtain ISO9001 certification.
October 1999: Aura 21 Series (home-care beds) is developed and sold.
February 2000: Club Paramount Series (highly functional family beds) is developedand sold.
October 2000: Saitama branch is set up.
February 2001: Callisto Series (beds for elderly-care facilities) is developed and sold.
October 2001: Nagoya branch relocates to newly-built office.
January 2002: Shanghai representative office is set up.
July 2002: PARA TECHNO Co., Ltd. is set up as a consolidated subsidiary.
May 2003: A new brand INTIME, which provides sound sleep for better health,is established.
July 2003: Paramount Universal Design Station (PUDS) is set up.
November 2003: Rakusho Series (home-care beds) is developed and sold.
March 2004: Paramount Bed (China) Co., Ltd. is set up as a consolidated subsidiary.

25

Gatch (hospital) bed

KA-500 Series hospital bed

Aura electric bed

Hestia Series

Callisto Series

INTIME

Rakusho SeriesCorporate Information
As of March 31, 2004

Corporate Data
Corporate Name:
Head Office:Founded:Capital:Number of Employees:

NetworkParamount Bed Co., Ltd.
14-5, Higashisuna 2-chome, Koto-ku,
Tokyo 136-8670, JapanMay 1947¥6,591 million
978

Board of Directors and Corporate Auditors(As of June 29, 2004)
President and Representative Director:
Vice-president and Representative Director:

Kenji Kimura
Kyosuke Kimura

Directors:

Ichiro Motozu
Michihide Kimura
Tadaharu Kato
Ikuo Sakamoto
Atsushi Tanaka
Toshio Horiuchi

Standing Corporate Auditors:

Tadahiro Sekine
Katsuhiro Shibata

Corporate Auditors:

Tetsuo Takekawa
Etsuji Ikegami

Shareholder Information
Authorized Shares:
Issued Shares:
Number of Shareholders:

100,000,000
31,682,526
20,519Major Shareholders
Number of Shares Percentage of Voting Right toOwned (Thousands) Total Shares Issued (%)

Kimura Kosan Co., Ltd.
Kenji Kimura
Kyosuke Kimura
Michihide Kimura
Mizuho Bank, Ltd.
Japan Trustee Services Bank, Ltd. (Trust)
The Master Trust Bank of Japan, Ltd. (Trust)
The Kimura Foundation for Nursing Education
Ryusuke Kimura
Mizuho Corporate Bank, Ltd.

6,607
3,135
2,413
1,595
1,563
1,259
933
740
669
626

21.1
10.0
7.7
5.1
4.9
4.0
2.9
2.3
2.1
2.0

Head Office14-5, Higashisuna 2-chome, Koto-ku, Tokyo 136-8670
Tel. +81-3-3648-1111(key number)Tel. +81-3-3648-2961(Overseas Trade Division)
Branches● Sapporo Branch318-11, Nishi 13-chome, Minaminijo, Chuo-ku, Sapporo 060-0062
Tel. +81-11-271-1181● Sendai Branch
3-3, Oroshi-machi 2-chome, Wakabayashi-ku, Sendai 984-0015
Tel. +81-22-239-5211● Saitama Branch
4-7, Kamiochiai 9-chome, Chuo-ku, Saitama 338-0001
Tel. +81-48-852-0707● Yokohama Branch
1715-1, Tsuruma, Machida, Tokyo 194-0004
Tel. +81-42-795-8800● Nagoya Branch
20-17, Izumi 1-chome, Higashi-ku, Nagoya 461-0001
Tel. +81-52-963-0600● Osaka Branch
3-33, Tosabori 2-chome, Nishi-ku, Osaka 550-0001
Tel. +81-6-6443-8791● Hiroshima Branch
8-5, Yokogawa-cho 3-chome, Nishi-ku, Hiroshima 733-0011
Tel. +81-82-293-1311● Takamatsu Branch223-1, Goto-cho, Takamatsu, Kagawa 761-8031
Tel. +81-87-881-8800● Fukuoka Branch
14-20, Hakataeki-higashi 3-chome, Hakata-ku, Fukuoka 812-0013
Tel. +81-92-461-1131
INTIME Shops and PUDS (Paramount Universal Design Station)● INTIME Kyobashi and PUDS
Sumitomo Mitsui Hull Tepco Bldg.1F
6-1, Kyobashi 1-chome, Chuo-ku, Tokyo 104-0031
Tel. +81-3-5250-1515 (INTIME)
Tel. +81-3-5250-1535 (PUDS)● INTIME Shinsaibashi
Sanei Shinsaibashi Bldg.1F
13-15, Nishishinsaibashi 1-chome, Chuo-ku, Osaka 542-0086
Tel. +81-6-6245-9021● INTIME Nagoya
Address: Same as Nagoya Branch
Tel. +81-52-963-6800● INTIME Fukuoka
Address: Same as Fukuoka Branch
Tel. +81-92-461-0666Plants● Chiba Plant
2078, Shirahata, Naruto-machi, Sambu-gun, Chiba 289-1306
Tel. +81-475-82-6111● Matsuo Plant
617, Kashikehongo, Matsuo-machi, Sambu-gun, Chiba 289-1537
Tel. +81-479-86-3331● Ohira Plant
690-1, Aza Uenohara, Shimonogo, Matsuo-machi, Sambu-gun,Chiba 289-1536
Tel. +81-479-86-2121
Subsidiary● PARA TECHNO CO., LTD.
14-5, Higashisuna 2-chome, Koto-ku, Tokyo 136-8670
Tel. +81-3-3648-3331

Overseas

Ownership among Shareholders

Representative Office

Number of Shares Percentage of Total
Owned (Thousands) Shares Issued (%)

Financial institutions
Securities firms
Foreign corporations
Other domestic corporations
Individuals and others
Treasury stock

Domestic

69,031
1,370
6,812
79,714
157,172
2,724

21.8
0.4
2.1
25.2
49.6
0.9

● Shanghai Representative Office
Suite 1701, Shanghai Plaza Building, No.138, Huai Hai M. Road,
Shanghai 200021, China
Tel. +86-021-5383-5111 or 5383-6111
http://www.paramountbed.com
Subsidiaries● PT. Paramount Bed Indonesia
MM2100 Industrial Town, Block M-1-1 Export Processing Zone,
Cikarang Barat Bekasi 17520, Jawa Barat, Indonesia
Tel. +62-21-8980715● Paramount Bed (China) Co., Ltd.
A-105, Wuxi National Hi-Tech Industrial Developement Zone, Wuxi,
Jiangsu, China

26

Paramount Bed Co., Ltd.
14-5, Higashisuna 2-chome,
Koto-ku, Tokyo 136-8670, Japan
Tel. +81-3-3648-1111
http://www.paramount.co.jp
Printed in Japan