R

Annual Report

2004
Year Ended March 31, 2004

Our quest is for wholesome life:
medical supplies for the world population

Profile

Our quest is
for wholesome life:

medical supplies for the world population
In 1954, we started business as a glass and instruments distributor dealing in glass tubes
for ampoules and tablet bottles under the name of Nippon Glass Shoji Co., Ltd. Since
then, we have become a world leader in successfully developing an automatedprocessing machine of ampoules and thermos bulbs, and we have begun
the manufacturing of ampoules, small light bulbs, among other products. In 1963, weentered the supermarket business, which was rapidly growing at the time in Japan.
A stable earning capacity served as the driving force behind the creation of our next new
business.

MedicalPharmaceutical

The quest to become the world’s leading dialyzer manufacturer
with the medical equipment brand “NIPRO”
In 1965, we entered into the medical equipment business, backed by our technicalcapabilities, product development abilities and sales expertise, which were augmented throughthe manufacture and sale of glass and instruments. Under our proprietary brand, “NIPRO,” wereleased safe, sophisticated and user-friendly medical equipment into the market, including
dialysis-related products and infusion lines. Among them, our dialyzers (a medical device usedin dialysis treatment) earned a strong reputation both domestically and abroad. Currently,
dialyzers are the pillars of our growth, serving as our flagship product with a large share in
the global market.

Glass &
Materials

To become the world leader in two areas:
Development of artificial organs and manufacturing of injection drugs

Supermarket

In April 2001, we absorbed a domestic sales subsidiary and renamed ourselves as Nipro
Corporation, which features our globally recognized brand name, “NIPRO.” In June 2001,
Nipro spun off the supermarket division into a separate company and took otherrestructuring measures. From there, we launched the integrated administration of R&D,
production and sales with medical and pharmaceuticals businesses at its core. Currently,
Nipro Group is actively engaged in R&D in leading-edge technologies such as regenerative
medicine. We aim to become the world’s leading company in two areas: in artificial organs,including artificial kidney (dialyzers), and in injection drugs.

Contents
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2
3
6
15
25

1

Annual Report 2004

ProfileConsolidated Financial Highlights
To Our Shareholders and Friends
Special Issues: Strategy for Future Growth
Review of Operations
Board of Directors and Auditors

26
27
47

48

Business and Other Risks
Financial Section
Report of Independent Certified
Public Accountants on The Consolidated
Financial Statements
Corporate Information

Consolidated Financial Highlights

Nipro Corporation and its consolidated subsidiaries
Years ended March 31, 2004 and 2003
Thousands of
U.S. dollars

Millions of yen

2004

2003

2004

For the year:
Net sales ..............................................................................................
Operating income ..................................................................................
Net income ...........................................................................................
Capital expenditures ..............................................................................
Depreciation and amortization ................................................................
R&D expenses ........................................................................ . . . . . . . . . . . . . .

¥ 188,700
12,557
4,216
14,5009,819
3,074¥ 180,370
14,8995,078
20,7758,767
2,328$ 1,786,255
118,866
39,909137,259
92,94829,099At year-end:
Total assets ...........................................................................................
Total shareholders’ equity .......................................................................

¥ 279,701
94,711¥ 252,848
83,533$ 2,647,681
896,545¥¥

Per share data (in yen and U.S. dollars):
Net income:Basic ..................................................................................... ............
Diluted ................................................................................. .............
Cash dividends .....................................................................................
Shareholders’ equity ..............................................................................

64.9
-

30.5
1,487.5

$

84.3
78.5
32.0
1,310.7

0.61
-

0.29
14.08

The U.S. dollar amounts in this report represent translations of Japanese yen,for convenience only, at the rate of ¥105.64=US$1, the approximate exchange rate on March 31, 2004.

Net Sales (Millions of yen)

Net Income (Millions of yen)
143,700

2000

2002

180,370

2003

2004

188,700

2004

50,000100,000

150,000

200,000

5,842

2,000

3,000

4,000

6.4

2004

4,216
1,000

8.0

2002
2003

5,078

0

5.1

2001

2002

171,217

4.0

2000
3,401

2001

2003

0

2,621

2000

152,072

2001

Return on Equity (%)

5,000

6,000

4.7
0

2

4

6

8

10

Disclaimer Regarding Forward-Looking Statements
This report contains forward-looking statements regarding business performance and environment, in addition to current and historical facts of
the Company, its subsidiaries and affiliates (“the Nipro Group”). These forward-looking statements represent the expectations and judgments ofthe management, based on the information available to the Company at the time they were prepared. When reading this report, please consider thatforward-looking statements involve known and unknown risks and uncertainties; therefore, the actual future business performance and environment may
differ materially, from what is forecasted in these statements. The Nipro Group assumes no responsibility or liability for potential problems.

Annual Report 2004 2

To Our Shareholders and Friends

FY2003-05:

A Time to Gather Strength
During fiscal year 2003 (the year ended
March 31, 2004), the Japanese economy
recovered rapidly in the second half asa result of strong exports and capital
investments. However, due tothe effects of yen appreciation anda severe personal income environment,
the economic recovery had a weak
dynamic as a whole. The medical-related
market overall was unable to extract itself
from a tone of stagnation as a result offactors such as the governmental policy
to suppress healthcare costs.
In this environment for the Nipro Group,
fiscal 2003 was a year of making
adjustments in order to advance our futurebusiness activities.
Domestically, we adjusted distributor
inventories of medical equipment. Since wehave adopted a “Sliding wage scale
system” for each division, when inventory
acquired by a sales distributor inaccordance with industry custom iscredited to sales for the division, it can leadto unfair results when evaluating theperformance of the division. Also, a part ofsuch distribution inventories had been
considered to be excessive, so we decided
to clear them. As a result of thisadjustment, our results for the fiscal year
ended March 31, 2004 showed a transient
slow of growth.
In our overseas operations, sales
increased year on year as OEM shipmentsof dialyzers, which had fallen temporarily,
showed signs of recovering. At the sametime, however, fiscal 2003 saw a further
increase in the yen’s value.

3

Annual Report 2004

We achieved increased revenues in
the Supermarket Division by opening up
several new drugstores during the fiscal
year. But the increase in initial expenses for
opening stores reduced profits, and as
a result, we are re-examining our current
new-store strategy.
Meanwhile, in the Pharmaceutical
Division, infusion kit products increased
greatly. Also, in our Glass and Materials
Division, the digital home-electronics boom
led to significant growth in shipments ofglass materials for LCD backlight bulbs.
In this environment, consolidated net
sales for the year ended March 31, 2004
were ¥188,700 million, a 4.6% increaseover the previous year. Consolidated
operating income decreased 15.7% to¥12,557 million, and consolidated net
income declined 17.0% to ¥4,216 million.
The fiscal year ended March 31, 2004 wasa transitional phase for us, but we will bestrengthening our efforts, as described
below, to ensure the future expansion of
the Nipro Group.

Revitalizing our businesswith “Sliding wage scale system”
The Nipro Group utilizes a performancebased, “Sliding wage scale system” asa management principle. This is a system
whereby profit-sharing such as stock
dividends, manager’s compensation andemployee bonuses is directly linked tomeasures of financial results such as net
income. If net income is zero, there are nostock dividends for shareholders, nobonuses for employees, and all managers’
pay is reduced. It is precisely because wehave adopted a system in which dividends
and wages are tied to performance that wemust accurately measure our businessperformance.
As stated above, because of an
adjustment on domestic distribution
inventory, our fiscal 2003 results were
temporarily depressed. However, thiswas a necessary step in order topromote a transparent performancebased pay system for our employees.
As the governmental policies to cut
healthcare expenditures such as revisionof the National Health Insurance (NHI)
price are implemented, and as pricecompetition intensifies both in Japan andoverseas, this new system will revitalize
our businesses. We plan to consolidate
and strengthen our “Sliding wage scale
system” as a means of achieving
expanded revenues and profits.

Building greater
cost-competitivenessAs price competition intensifies, we arepromoting a shift to overseas production
in medical products and other areas toensure we can maintain strong costcompetitiveness, increase market share andsecure revenue and income. In the next
four to five years, we plan to increase
our overseas production ratio fromthe current approximately 15% to 50%.

Minoru Sano
President

While aggressively transferring production of
products that can be produced overseas,
we will produce high-function, high valueadded products in Japan, so that our
production system is one that is appropriate
for each location.
As a future candidate site for expanding
production, China has the most potential.
This is not only because of its low wages
and plentiful labor force, but also because it
represents a large future market. In fiscal
2004, at the medical equipment plantalready operating in China, we plan to
introduce new equipment for a process of
product sterilization that is currently
outsourced. By doing this, we aim toenhance quality and strengthen
competitiveness.
Even for our mainstay product,
dialyzers, we are studying expansion ofoverseas production in response to declines

in market prices. We are now conductingsite selection for construction of a plant in
the Shanghai area. At the same time, weare pursuing investment and rationalization
to expand production and further enhance
the cost-competitiveness of ourmanufacturing facilities in Japan.

Restructuring ouroverseas operations
Until now, the Nipro Group has supplied
medical products to overseas markets
essentially as an original equipment
manufacturer (OEM), but we have now
reviewed our OEM contracts. Over the past
several years, we have made efforts tointroduce our own brand products inoverseas markets, and we have achieved
good business results. Recently, we havereadjusted our contracts with OEM
customers, clarifying product areas andsales regions. From now on, we will tackle
overseas markets with a two-pronged
approach, selling as an OEM and also
selling our own brand.
As one step in this strategy, we haverecently established a business partnershipwith a leading American healthcarecompany to jointly develop artificial kidneyand dialysis technologies and products. As
in the past, this partnership will develop ouroverseas business as an OEM in dialyzers
and related products. By combining our
product development and production
technology capabilities with the distribution
and service-providing capabilities of ourpartner company, we will strengthen ourbusiness presence in the North American
market. The transition from multiple tosingle use of dialyzers has been particularly

Annual Report 2004 4

To Our Shareholders and Friends

5

rapid in recent years in North America, andthe total number used is on the rise. We
cannot avoid declines in unit prices, but incooperation with our partner, we plan togreatly expand total volume.
Another corporate issue that we must
deal with is the appreciation of the yen. We
are building a tough corporate structurethat can withstand fluctuations in exchange
rates through measures such as shifting
production overseas, as explained above.

Furthermore, we are going to build a newfactory for generic oral drugs, and plan toincrease its line-up to about 500 items in
the next four to five years. As the Nipro
Group develops generic drugs, we intend
to enhance our market reputation andshare by integrating our unique
technologies.
By continuing these efforts, we aim
to achieve annual net pharmaceuticalsales of ¥100 billion in the near future.

Expanding ourpharmaceutical business

Rounding out ourline-up of medical products

In anticipation of a rise in contract
manufacturing of pharmaceuticals assisted
by other pharmaceutical companies inconnection with the April 2005 amendmentof Pharmaceutical Affairs Law in Japan, ourcorporate group has continued to expand
its production facilities, mainly at ourconsolidated subsidiary Nipro Pharma
Corporation. In the field of injection kit
products, we have the mostcomprehensive product line-up, andthus possess a major advantage overthe competitors. To continue in our position
as the leading manufacturer of injection kit
products, which we expect will take offaround fiscal 2006, we are currently
expanding Nipro Pharma’s Odate Factory.
In addition, we are investing between
five and six billion yen to construct apharmaceutical research facility with pilot
plant functions within the Odate Factory.
The plan is to have it serve not only an R&D
center but also as a production facility
capable of manufacturing a variety ofcontract manufacturing in small lots.
Meanwhile, in anticipation of an
expansion in Japan’s generic drug market,
our policy is to strengthen bothmanufacturing and sales of oral drugs.
While the market share of generic drugs isaround 50% in Europe and North America,
in Japan it is around 10%, leaving muchroom for expansion. Nipro has invested in
Takeshima Pharmaceutical Co., Ltd.,a manufacturer of generic drugs.

Not only have we already secured a topclass world market share in artificial
dialyzers, but we are also working on
providing total solutions with devices anddialysis machines spanning the entire
field of dialysis. We are also solidifying ourline-up of diabetes-related products.
Our cardiosurgery products, which we havebeen concentrating on in recent years, havestarted to take off. Sales of the PTCA
balloon catheter launched in fiscal 2002 arebrisk. We have also launched new productsin the field of thrombus vacuum aspiration
catheter, and recognition of the Nipro
Group has been climbing.
In addition, we expect to obtainapproval soon from the Ministry of Health,Labour and Welfare for the implantable left
ventricular assist devices that we have beendeveloping. Along with our non-implantable
left ventricular assist device, which is alreadybeing sold, this is an example of how ourcompany is developing a substantial
presence in the field of artificial organs.

Annual Report 2004

kit products. We have reflected on the fiscal
2003 decline in profits in our Supermarket
Division due to expenses from new-store
openings, especially drugstores. From now
on, we plan to slow the pace of new store
openings somewhat, and make efforts tostrengthen profitability. After taking thesesteps, we aim to open some 200 new
stores in the near future, adding to the 88
stores open as of March 31, 2004.
I see the three years starting in fiscal
2003 as a period for fortifying theoperational base of the Nipro Group. As
long-term goals, our Group is targeting
consolidated net sales of ¥300 billion andconsolidated recurring income of ¥20
billion in 2010. I believe this will be
an important period for us to prepare forthe achievement of those goals.
With this in mind, we expect net sales
in fiscal 2004 to grow just a few percent, asin the past year, and for major increases tocome in fiscal 2005 and thereafter. While
we have always planned for our company
to secure stable growth in earnings, wehave moved boldly in fields where growth
was expected or where we could display
leadership in technologies we developed.
We will continue to pursue this policy inthe future. Besides our determination toachieve our long-term goals for 2010, we
intend to conduct activities to enable us totake off in the following decade. Based on
our “Sliding wage scale system”, we will
strengthen the structural responsibility ofeach division. We will work to secure
earnings year by year, focusing ourenergies on securing stable profits for you,our shareholders.
It is my honor to request the further
support of our shareholders andstakeholders, now and into the future.

Looking to the future
In the next fiscal year ending March 2005,
we anticipate increasingly severe pricecompetition due to the coming NHI pricerevision in Japan. On the other hand, ourGroup plans to conduct a major expansionof manufacturing facilities for medical
equipment such as dialyzers and infusion

Minoru Sano
President

Special Issues:

Strategy for Future Growth
Research & Development
Laboratory

From Pioneering Medical Devices,
We’re Progressing to the Frontiersof Research
Pharmaceutical
Research Center

Creating a Base for Expansion of
the Pharmaceutical Division

Annual Report 2004 6

Research & Development
Laboratory
Nipro’s Research & Development Laboratory is solely responsible for
R&D in medical devices, and handles a wide range of topics, fromresearch in materials to development of production technologies
and manufacturing equipment. With industrial designers on
staff, the Laboratory is pursuing research and developmentof safety devices and containers for kit products thatreflect the needs of healthcare professionals,
as well as in-vitro diagnostic (IVD) and circulatoryorgan-related medical devices. In addition, Nipro
scientists and R&D staff are performing researchand development work in areas ofregenerative medicine such as pericardial
regeneration membraneand nerve-regeneration tubes.

Artificial Organ
Field

Heart

Kidneys

Lungs

Pancreas

Regenerative
Medicine Field

7

Nerves

Blood

Skin

Blood
Vessels

Annual Report 2004

Special Issues: Strategy for Future Growth I

From Pioneering Medical Devices,
We’re Progressing to the Frontiers of Research

Concentrating R&D efforts on
circulatory organs andregenerative medicine
When we re-launched our company as
the new Nipro Corporation in April 2001,
we reorganized part of the Research &Development Laboratory into two newdivisions in order to handle R&D in“Circulatory-organ-related Medical
Devices” and “Medical Devices forRegenerative Medicine.” These twodivisions began to take off in fiscal 2003,
and are now achieving numerous
notable results in the fields of both
circulatory organs and regenerative
medicine.
In the field of circulatory organs,which we are pursuing as a companywide effort, we are advancing
development of Interventional Radiology(IVR) products, to be used for heart
treatment and diagnosis. Specifically, we
are now either developing or awaiting
approval of new products used in PTCA,
PTA, and stenting.
In the field of regenerative medicine,during fiscal 2004 we plan to undertake
clinical trials of artificial heart membraneand nerve-regeneration devices. For
these two topics, we hope to exert ourstrengths and move quickly to productcommercialization.

Research into applied technologies
as a technological base

Links to the sales divisionand the odate plant

Within the Research & Development
Laboratory, our Applied Technical
Section has grown remarkably overthe past two years. Organized to refine
fundamental technologies shared acrossthe R&D Laboratory, it is made up ofa group for polymer materials, analysis,
prototyping, and design. The Applied
Research Division has demonstrated
a high degree of specialized expertiseand is involved in virtually every topic
being studied at the laboratory. For
example, the Division has developed
vinyl chloride materials that do not use
DEHP Di (2-ethylhexyl) phthalate
plasticizer, which was shown to cause
generative toxicity in mice and rats andhas also succeeded in developing a vinyl
chloride-free infusion tube. As a result of
the strengthening of the Applied
Technical Section, the laboratory can
now move in a systematic way in theprocesses leading up to productization,and this can be considered a major
accomplishment.

The Research & Development Laboratoryis also providing strong support to
the Sales Division by helping to recruit
customers for our cardiovascularsystem-related medical devices and ourblood-glucose monitoring system.
The Laboratory has also accepted
personnel from the Odate Factory toprovide programs from half a year toa whole year in “getting to know the R&D
shop floor,” providing a valuable
opportunity to learn the productdevelopment process centering on
the cardiovascular area.
Also, to ensure improvements to ourmajor products in fiscal 2003, we hired
additional staff. We are starting to haveresearchers go out into the real-world
market and survey how their products arebeing used. Our goal is to enhance
the quality and user-friendriness of medical
equipment.

Research & Development
Laboratory

Annual Report 2004 8

Special Issues: Strategy for Future Growth I

From the Development ofMedical Devices to the Frontiers of Research

Artificial Organs

Regenerative Medicine

Left Ventricular Assist Devices

Nerve-regeneration Tube

Pericardial Regeneration Membrane

We have been introducing an
implantable left ventricular assist device
in Japan. This device is a pump that
supports the heart function of patientswith the end-stage heart failure such as
dilated cardiomyophathy, while they wait
for an available donor heart fortransplantation. The effectiveness of thedevice has been demonstrated in morethan 3,000 cases world-wide, and iscapable of being used long-term. In
some cases, the device has been used
continuously for over 3 years. We’re
currently conducting the clinical trial at
six institutes in Japan.

These are proprietary biodegradable
materials shaped in the form of pipes.
When embedded between nerves thathave been severed in accidents, among
other incidents, the nerve cells grow byusing the nerve-regeneration tube asa platform, which enables nerves toreconnect again. In joint research witha university, we have already succeededin repairing damaged nerves measuring
35 mm in animal experiments.

Pericardial membrane refers to themembrane covering the exteriorof organs in the thoracic cavity, forexample, the heart, and abdominal cavity.
The Pericardial Regeneration Membrane
supplements the original membrane when
it is damaged during surgery. It prevents
the adhesion with other organs and tissue,
and it gradually decomposes while helping
cells regenerate, and is eventuallyabsorbed into the body. We will releaseclinical trials at a university hospital in
Japan.

Nerve-regeneration Tube

Artificial Blood Vessels(Vascular Prosthesis)
These are biodegradable materials
that promote the growth of vascular
cells, which are shaped in the formof vessels. These materials haveantithrombotic functions until thevascular endothelial cells cover theartificial blood vessels. They do notlead to thrombotic occlusion, unlike
conventional artificial blood vessels
made of synthetic materials, and they
are absorbed into the body after
the regeneration of blood vessels.
We successfully developed productswith a smaller diameter than we haveever developed before, and we are
currently conducting experiments.

Artificial Blood Vessels

9

Annual Report 2004

Nipro Technology Contributes
to the Future ofRegenerative Medicine“Tailor-made” medicine:
Diagnostics for Drug-resistant
M. tuberculosis
Conventionally, to secure a diagnosis
for drug-resistant M. tuberculosis,
two cultures were required: the first
culture for isolation of M. tuberculosis,
and the second culture to test forsusceptibility to various antibiotics.
We have already commercialized
the diagnostics for drug-resistant
M. tuberculosis without second culture,and newly arranged a new diagnostic todetect it directly from the specimen(sputa) without both cultures. It has
already been applied, and is expected
to be approved by 2005.

Diagnostics for Drug-response
to Osteoporosis
Osteoporosis often develops amongpost-menopausal women. It is caused
by a deterioration of the secreted level ofthe female hormone estrogen.
Current treatment regimes include
administering vitamin D, estrogen orothers. However, some medicines haveno effect on particular patients. If thiswas able to be tested in the earlystages of treatment, it would prescribe
the medicine, which may take effects forthe patient and the patient could
undergo a more suitable treatment.
We have developed new diagnostics totest the prognosis to the disease and to
aid the selection of therapeutic drugs
base upon the individuals. It has alreadybeen applied, and is expected to beapproved by the end of 2004.

In the field of regenerative medicine,research is advancing towards
regeneration of a variety of tissues
that comprise the human body,
including bones, skin, and internalorgans. A very important topic inregenerative tissue research anddevelopment is tissue-derived protein
engineering technology. Nipro
possesses a high level of technicalcapability in this area, and we arecapitalizing on that by jointly
developing nerve-regeneration tubes.
Currently, as the final stage ofcommercialization, we are performing
animal experiments andsimultaneously preparing for clinical
trials. Nipro’s products, which utilize
tissue-derived proteins, have superior
biocompatibility and are likely to bevery competitive.
The ultimate goal of regenerative
medicine that I am researching is tobe able to synthesize all of thetissues and organs of the humanbody. To that end, we need a “cellbank” - for instance, a system inwhich hematopoeitic stem cells are
harvested from umbilical-cord bloodby Dr.

at birth, cultured, and cryopreserved
to be used when needed. If we canmake cell banks a reality, we willneed cryopreservation bags topreserve the cells. Nipro also hasa high technological capability todevelop cryopreservation bags,so I expect they will also be strong
in this field.
I believe that henceforth,regenerative medicine will betransformed from just treatment toheal sickness into one that can makepatients healthier. In this way, I am
sure regenerative medicine will
provide the impetus for us to makehealthcare a positive process ofenhancing quality-of-life. I expect
Nipro technology to contribute
greatly to this, and look forward tocontinuing our ambitious work withthis excellent partner.

Minoru Ueda

Professor, Graduate School of Medicine,
Nagoya University
Professor, Institute of Medical Science,
University of Tokyo
Chairman, Japanese Society for
Tissue Engineering

Annual Report 2004 10

Pharmaceutical
Research Center
The Pharmaceutical Research Center is in charge of all of
the Nipro Group’s research and development for pharmaceuticalproducts. It is actively developing injection drugs aimed at
expanding our contract manufacturing business, developing
kit products, half-dose tablets and other products
responding to current demands, and pouring efforts into thedevelopment of pharmaceutical products for kidneydiseases. Furthermore, it is pushing forward with
development of recombinant pharmaceuticals including
recombinant human serum albumin applications beingcommercialized by Bipha Corporation, in which wehave an equity stake.
We have won recognition for both its
pharmaceutical development and its capabilities
regarding formulations, and in recent years has
seen a rapid rise in contract manufacturing orders
from big pharmaceutical companies.

11 Annual Report 2004

Special Issues: Strategy for Future Growth II

Creating a Base for Expansion of
the Pharmaceutical Division

Developing Kit Products
Other Companies Can’t

Aiming to Be the Leading
Manufacturer of Injection Drugs

With the April 2005 implementation of
the amendment of the Pharmaceutical
Affairs Law, the contract manufacturingof pharmaceuticals will become possible
in all respects in Japan. As of the fiscal
year ended March 31, 2004, Nipro
Pharma Corporation was alreadyJapan’s No. 1 company in contract
manufacturing business. However,seizing on the opportunity presented by
the amendment of the Pharmaceutical
Affairs Law, the Pharmaceutical
Research Center is devoting significant
effort to the development of kit products
to rapidly expand the contract
manufacturing business.
Since most injection drugs are
already being sold as kit products,
there are few for which kits can beeasily developed and it is impossible
to create kit products without
improving preparation formulations
and developing materials. The
Pharmaceutical Research Center,
therefore, focuses on developing kit
products for which the difficulty
involved precludes development byother companies. For example, it is
now pursuing the development of anticancer drug kits for which significant
bioactivity requires the use of acontainment facility. Bringing to bear allof the capabilities of the Nipro Group,
the Pharmaceutical Research Center
examines the compatibility of drugs
and materials and is pushing forwardwith kit product development raised toa new level and focusing on pre-filled
syringe products.

One of the Nipro Group’s goals has
been to become the leading
manufacturer of injection drugs, andwe are about to achieve that goal in
Japan. We now have our sights set
on becoming the world’s leading
manufacturer of injection drugs, and
the Pharmaceutical Research Centeris preparing kit products for overseas
markets. In Japan, we already leadthe industry in terms of the number of
injection drug products approved for
production and challenge in theEurope and US markets based on our
results and technologies.

We are already working to develop a tablet
that dissolves in the mouth and can be
manufactured on a normal production line,
a type of drug that does not yet exist.
In the area of half-dose tablets, wehave developed such a product for a newpharmaceuticals company’s anti-diabetic
drug and have sold the formulation data
to that company. Nipro Pharma
Corporation has won an agreement forthe contract manufacturing of this drug
and will make it at its Shirokita Factory.
The Pharmaceutical Research Center has
in some sense come to function like acontract research organization (CRO) andaims to continue developing promising
drugs for new pharmaceutical companies
who are seeking a business partner.

Full-scale Development of Oral Drugs
Over the past several years, we havebeen aggressively developing ourbusiness to achieve our aim of becoming
the leading manufacturer of injection
drugs. As its next big theme, thePharmaceutical Research Center will
embark on a full-scale effort to develop
oral drugs. The initial focus will be on
increasing product numbers, and webelieve that if we can gain production
approval for an additional 150 products,
we will be the leading manufacturer ofboth injection drugs and oral drugs inJapan. Ultimately, we aim to add 300
products to our line of oral drugs. The
next topic to address is differentiation.
This could include the development of
uniquely shaped tablets, multi-layered
tablets (dry-coated tablets), and tabletsthat dissolve in the mouth (without water).

Pharmaceutical Research Center

Annual Report 2004 12

Special Issues: Strategy for Future Growth II

Creating a Base for Expansion of
the Pharmaceutical Division

Recombinant Human Serum Albumin Field
Application in Continuous
Ambulatory Peritoneal Dialysis (CAPD)
Continuous Ambulatory Peritoneal
Dialysis (CAPD) is an excellent method oftreatment in terms of quality of life in thatit enables patients to be treated at home.
However, after several years of continual
treatment, the dialysis effects deteriorate
and peritoneal sclerosis occurs.
Furthermore, patients lose approximately
70% of the albumin that is generated
daily in the body during treatment. CAPD
fluid, which contains albumin, has a dual
effect: it prevents both the occurrence of
peritoneal sclerosis and the loss ofalbumin from the living body. We havealready completed basic research in thisfield, and have acquired patent rights in
the U.S.

Development of Preparations Using
Recombinant Human Serum Albumin
Albumin preparations include 5%
albumin preparations administered forbleeding and 25% albumin preparations
used for liver and kidney disease.
Presently, nearly all of the 5% albumin
preparation used in Japan is imported. In
Europe and America only blood
preparations produced domestically areapproved, and among industrializedcountries only Japan imports blood
preparations in large quantities. Froma safety perspective, it is necessary forJapan, as well, to shift from imported todomestically manufactured products and

13 Annual Report 2004

from blood preparations to non-blood
preparations. Regarding 250ml vials of
5% albumin preparations, which areused for bleeding and other emergency
situations, it is desirable that these bepacked in soft bags, which are easy tohandle in settings where medical care isactually administered. This hasn’t been
done yet because albumin is vulnerable
to factors, such as heat and oxygen.
The Pharmaceutical Research Center,however, is working to create 5% albumin
preparations packed in soft bags, which
are in great demand particularly by those
providing medical care.

Application in Artificial Oxygen Carrier
Artificial oxygen carriers are generally
called “artificial blood.” The hemoglobin
within red blood cells consists of heme,
which binds with oxygen, and globin,a protein. Heme binds with oxygen anddistributes it. Nipro’s completely
synthetic artificial oxygen carrier isAlbumin Heme, which binds heme withrecombinant human serum albumin.
Artificial oxygen carriers that have been
the subject of research to date employ
hemoglobin from human blood.
Introduction of these artificial oxygen
carriers into the body raises bloodpressure and presents the possibility of
infection. Albumin Heme, however,presents none of these concerns.
The Pharmaceutical Research Center,working in cooperation with venturefirms and universities, is pursuingthe development of hemoglobin that
employs recombinant technology andis not derived from human blood andthe development of hemoglobin
packets encapsulating that
hemoglobin. Working in these ways,
Nipro aims to commercialize a safe
artificial oxygen carrier that presents norisks of elevated blood pressure or
infection.

Application in Drug Delivery System(DDS)
Nearly all drugs introduced into thehuman body bind with albumin. Nipro
has developed a drug delivery systemthat applies this function to send drugs
directly to the targeted organ. We are
currently working with universities andresearch institutions to use
recombinant technology to develop
an albumin with the ability to selectively
combine with and distribute drugs.
PEG-grafted liposomes are known as
one way to increase retention of drugs
in the blood, but through this research
we have discovered that the addition ofan albumin modification to liposomes
results in a greatly improved retentionof drugs in the blood. A patentapplication has been submitted for this
discovery. This technology has thepotential to boost the tumor-localizing
properties of anti-cancer drugs and,
thereby, greatly increase therapeutic
effects while minimizing possible side
effects.

Kit Products*

refers to an injection drug product in which a drug
*A(withkit productspecial container) is combined with the injection device.

Half-type Kit

Pre-filled SyringeThis is a kit product that enables
the user to dissolve various powdereddrugs easily and safely. It is easier tohandle and requires shorter
processing time than conventional
dissolving methods.

This is a syringe product pre-filled withthe required injectable. The Niprogroup can manufacture the syringe ineither glass or plastic depending on
the type of drug to be used. Pre-filled
syringes are available in a range ofcapacities and forms.

Double-bag Kit

Full-type Kit

This is a bag-type kit product, which
combines powdered drugs witha dissolving solution. Drugs can be
dissolved quickly in completely sterile
conditions by pressing the bag justonce.

This is a kit product that combines
a vial containing powdered drugs suchas antibiotics with dissolving solutionin perfectly sterile conditions. It is
designed to adapt to a range of drug
vial sizes, and it can be disposed of
separately after use.

Other Injection Drugs
The Nipro group also undertakes
the complete manufacturing of non-kit
products, including conventional injection
drugs in containers as well as empty
containers. We manufacture injection
drugs in glass ampoules-whose use havebeen on the decline in recent years-in
a range of colors, forms and capacities
according to demand. This manufacturingexpertise is based on our rich experience
dating back to the company’s foundation.
In recent years, because of the benefits interms of safety and emergency care,
plastic ampoules have gradually replaced
injection drugs in glass ampoules. We
manufacture injection drugs in plastic
ampoules with varying capacities based on
an integrated system from thedevelopment of resin materials. We also
manufacture numerous injection drugs invials, utilizing our technologies for
manufacturing injection drugs, as well as
glass containers and rubber plugs.

Annual Report 2004 14

Review of Operations

Medical Division
FY2003 Overview
Progress in a challenging
business environment
In the fiscal year ending March 31, 2004,
the market environment became more
severe as the Japanese government
proceeded with policies to restrict medical
costs and price competition intensified.
Despite this difficult situation, we increased
sales of injection and infusion products aswell as circulatory-organ-related products
through our efforts to increase andstrengthen sales outlets, develop
new products and markets, and offera systematized product package for each
medical treatment. In addition, we worked
hard to expand sales of our dialyzer (artificial
kidney) products. However, due to theimpact of adjustments on distributors’
inventories and intensified sales competition,
we had a severe result as a whole.

Medical Division net sales ratio(% of total net sales)

41.7%
Net Sales (Millions of yen)
2000

65,718

2001

66,413

2002

77,572

2003

76,0092004

78,7270

20,00015 Annual Report 2004

40,00060,00080,000

New products sustain growth
in international operations
In our international operations for fiscal
2003, all of our core businesses,

including dialysis products, bloodcollection products, and diabetes-related
products, grew firmly. Sales of dialyzers,
which decreased last year, haverecovered substantially. Especially, withthe establishment of our cooperative
sales relationship with OEM clients, wewere able to turn favorable results.
The single-use dialyzer is becoming
increasingly prevalent in the market. By
introducing a new product that responds
to this trend, we expanded our dialyzer
business significantly. We also
successfully launched a new dialysis
machine, the DIAMAXTM. In addition,
the even higher quality of our AVF
needles with safety features and bloodlines for dialysis has been well accepted
and they are steadily being distributed.
Because of these efforts, wewere able to sustain good growth ininternational operations despite
the effects of sudden fluctuations
in foreign exchange rates.
As a result, net sales combining both
domestic and overseas business were¥78,727 million, an increase of 3.6% overthe previous year.

New Dialysis Machine (DIAMAXTM)
In an effort to adapt to the advanced
dialysis treatment required in overseas
markets, we are developing a new dialysis
machine (DIAMAX TM) with various new
functions and high expandability.
DIAMAX TM meets the safety specification
standards in Europe and the UnitedStates. It has new functions to provide
better treatment, as well as functions to
support medical staff engaged in dialysis
treatment.
DIAMAX TM has already beenmarketed in Asian markets and will
be applied to CE marking by
the end of 2004.

Annual Report 2004 16

Review of Operations

Medical Division
Outlook
Realizing our potential in
the domestic medical products market
In the fiscal year ending March 2005, we
intend to strengthen our sales capability
in the domestic Medical Division byincreasing our sales force. By region, in
addition to the Tokyo and Osaka metro
districts, in which we have traditionally
had high market shares, we will be
putting effort into developing our businessin other regions, where we have been
stretched thin until now.
In our product line-ups, we willconcentrate further on boosting ourstrength in dialysis-related products, forwhich we have already established a solid
reputation in Japan. With the National
Health Insurance (NHI) price revision,
the price of dialyzers will fall. In order toovercome this, we will need to increase insales volume and secure market share.
In order to do that, we aim to deepen our
total range of dialysis-related products,
such as blood line for dialysis and dialysis
machines. This will enhance our ability toprovide total dialysis treatment solutions
to our customers.

In the field of clinical testingproducts, we have noted an increase incomprehensive contracting of lab workwith hospitals, and will pursue thisbusiness by making the most of our
total, comprehensive product line. Also,
concerning in-vitro diagnostics for drugresistant M. tuberculosis and forsensitivity to medicine for osteoporosis,
we are now applying for and expect toreceive government approval by the endof 2004.
We are continuing to apply ourstrength to development of the
FREESTYLE,R blood glucose monitoring
system, which has earned kudos inthe market, and with this product wewill also attempt to enter the expanding
diabetes market. In addition, in the fieldof circulatory-organ-related products,
we will concentrate on boosting sales of
the PTCA Balloon Catheter launchedthis fiscal year. Concerning implantable
left ventricular assist devices, at present
we have completed clinical trials inJapan and we are applying for importapprovals.

Expansion of overseas
operations in fiscal 2004
As for international operations in the fiscal
year ending March 2005, we will bestrengthening our local subsidiaries inNorth America, Europe and Asia, andboosting their sales capabilities bybuilding up their staffs. We are also
keeping an eye on China as a newmarket, and have already establisheda sales subsidiary that will take the leadin responding to the needs of this rapidly
growing market.
The quality of medical equipment is
improved, but at the same time pricecompetition is also intensified. It isnecessary to cut down the cost of
production. We have a leading world sharein dialyzers and a high brand strength inrelated products. The world dialyzer
market is now becoming fragmented, andwe have formed a cooperative partnershipwith a leading American company inaddition to our own sales network tofurther increase market share. Currently,
we are preparing to sell high-performance
dialyzers in fiscal 2005. We have alreadyDialyzer
Nipro has been well-known as one of
the leading dialyzer manufacturers for many
years. The main functions of the dialyzers areto maintain body fluid balance and remove
from blood not only low molecular
substances, but also low molecular proteinssuch as beta 2 microglobulin and balance tothe level of molecular weight of albumin.
The recent progress of the dialyzers reduces
patient mortality and improves quality of life
by relieving complications of renal patients.
The wide range of dialyzers Nipro carries
helps treat a variety of patients with renal
diseases and their complications.
In the latter half of 2004, a new synthetic
dialyzer PES-DS series will be launched insome of the world markets and will be CEmarked within 2004. This new series featurehigh performance removal of middle
molecules and low molecular proteins, andminimized albumin leakage.
With such abundant selections of Nipro
dialyzers, we shall penetrate even further into
the world market.

17 Annual Report 2004

R

SAFETOUCH AVF Needle
Needlestick accidents are one of the major
causes of nosocomial infection. Doctors, nurses
and medical staffs who have accidentally
pricked their finger, hand or other parts of the
body with a bloodstained needle may be
infected with HIV, hepatitis C or other diseases.
Nipro has developed the SAFETOUCH R AVF
Needle to prevent needlestick accidents. This
product is used in artificial dialysis. The needle
can be accommodated and locked inside thewing-hub after the completion of dialysis so theneedle will not come out again. It is smaller thanthe AVF needles made by competitors and it isan extremely user-friendly safety device.

started sales of the Diamax dialysis
machine, and will soon obtain a safety
standard mark “CE mark” in the European
Union (EU), and widely promote in themarket.
As well as dialysis-related products,
we have a dominant share of diabetesrelated products including those
supplied to OEMs. Our new products
include the Amigo™ insulin pumpdeveloped by Nipro Diabetes Systems,
Inc., for continuous insulin infusion
treatment. Amigo™ is awaiting sales
approval, and as soon as it is granted
we plan to start marketing Amigo™ asa main diabetes-related product.

Boosting international production
and improving quality to stay ahead
Price competition in the medical-related
products field is becoming more severeboth in Japan and overseas. Nowadays,
overseas production is an essential meansof ensuring the continued expansion of
the competitiveness of our own products.
We have therefore established a policy toraise our overseas production ratio fromSUREFUSER

the current 15% to about 50% in the near
future. As we move toward this goal, alongwith increasing our price-competitiveness,
we will be developing a specialized quality
assurance that staff will work on
improvements in our quality. Starting withthe establishment of a new division at
the HQ office in April 2004 that administers
quality and safety of products, we areenhancing our company-wide quality
assurance system. We believe that it is ourR

The SUREFUSER R is a small, lightweightcontinuous drug injection pump that uses
the contractile pressure of a balloon. It is widelyused to control post-operative pain and to inject
drug into terminal cancer patients. The new
SUREFUSER R with Variable Flow Regulator
employs a switch handle that can be turned to
set the rate of infusion, making it possible toproportionally control pain according to the
manifestation and symptoms. It also comeswith a Patient-Controlled Analgesia (PCA)
system that allows the patient to injecta predetermined amount of painkiller by
him/herself when feeling pain. Demand fora home-use pain control system is expected
to grow in the future.

duty to propel cost reduction based onan established quality system.
Meanwhile, in our research anddevelopment areas, we have alreadycompleted trials of an implantable left
ventricular assist device, and are currently
awaiting sales approval. This rounds out our
product line-up in the field of artificial heart.
We will continue to work on the developmentof a variety of artificial organs including
artificial kidney and pancreas.

AmigoTM1.6”(or 4.064cm)
3.0”(or 7.62cm)

Freestyle R Blood Glucose
Monitoring System
The FreeStyle R SMBG (Self-Monitoring Blood
Glucose) system, which offers virtually painlesstesting as a result of requiring the world’s
smallest blood sample, has been marketed inJapan by Nipro Corporation jointly with Kissei
Pharmaceutical for over 2 years. Nipro
Corporation has the exclusive distributorship of
FreeStyle R systems in Japan that is granted by
the manufacturer of the system, TheraSense,
Inc. - a wholly-owned subsidiary of Abbott
Laboratories. In early fall of 2004, the new
FreeStyle R Flash (See the photo above) was
introduced into the Japanese market. It is theworld’s smallest meter with a new 7-second
average test time. All FreeStyle R systems enablea blood sampling from most sites on the body(forearm, upper arm, thigh, calf, hand, as well as
fingers) with just a tiny 0.3 microliter blood
sample (the world’s smallest sample size).

The market for insulin infusion pumps forpeople with insulin dependent diabetes
continues to grow worldwide. In responseto this serious need, the AmigoTM Insulin
Pump offers healthcare professionals andtheir patients a powerful and easy-to-use
tool in managing diabetes. This small andlightweight device features simple icons andtext driven menus. The AmigoTM also uses
a stepper motor that ensures accurate andsafe delivery of insulin. Since the AmigoTM
performs much like a healthy pancreas,
users can benefit from tighter control overblood glucose levels,
which greatly
reduces the riskof serious
complications
resulting fromdiabetes.

Annual Report 2004 18

Review of Operations

Pharmaceutical Division
FY2003 Overview

Pharmaceutical Division net sales ratio(% of total net sales)

13.4%
Net Sales (Millions of yen)
2000

13,478

2001

14,1202002

15,946

2003

21,9792004
025,3395,000

10,00019 Annual Report 2004

15,00020,00025,000 30,000

Successful marketingstrategies maintain growth

Investing for continued
expansion in pharmaceuticals

Nipro’s Pharmaceutical Divisionexperienced another very challenging
year in fiscal 2003 as price competition
intensified due to various factors,
including the governmental policy tosuppress healthcare costs in Japan.
In this difficult operating environment,
we worked to expand sales by supplying
products in combination with our
dialyzers, such as powdered dialysate
solution and substitution fluids for HF andHDF (filled in dual chamber bag), thus
providing total solutions for dialysis
treatment. In addition, our Ise Factory
expanded its annual production capacity
to 25 million pre-filled syringes. During
fiscal 2003, we also expanded sales ofdouble-bag kits combining powdereddrugs and a reconstitution solution. As aresult of these marketing innovations andstrategies, sales in the division were¥25,339 million, a 15.3% increase overthe previous year.

For the past several years, we haveaggressively invested to expand
the pharmaceutical manufacturing capacityof our consolidated subsidiary, Nipro Pharma
Corporation. In anticipation of the April 2005
implementation of Japan’s amended
Pharmaceutical Affairs Law, this year we arepreparing to start up four new production lines
for pre-filled syringes at the Odate Factory,
our primary facility for contract manufacturingof pharmaceuticals. Of these, one line will go
into operation by the end of fiscal 2004.
We have also acquired capital ina maker of generic* oral drugs, Takeshima
Pharmaceutical Co., Ltd., making it
a subsidiary. With demand for genericdrugs expected to expand significantly inthe future, we are counting on Takeshima
Pharmaceutical to expand the generic oral
drug business for the Nipro Group.
to be sold with the approval of the Ministry of*DrugsHealth, Labour and Welfare after the expiration ofpatents for new drugs whose effectiveness andsafety have been fully demonstrated. While having
the same active ingredients and effect as new drugs,
the price of generic drugs is more economical
because the cost of development is lower.

Active R&D program yields
new and improved products
In fiscal 2003, our Pharmaceutical Division
received approval to manufacture morethan ten different kinds of pre-filled syringe
kits for the delivery of heparin, physiologicalsaline solution, 10%-Nacl solution, calcium
chloride, xylitol, and glucose. We also
completed the market-launch of two
Prednisolone drug products in low-dosetablets. Current items under development
include kit products for the delivery ofcancer drugs and a variety of pre-filled
syringe and double-bag (liquid-andpowder) kit products.
We recently began developing lowdose tablets of Lasix, Lendormin, andGlimicron. Nipro researchers are also
working on a nutrition infusion for peripheral
veins and improved versions of products
already on the market. In addition, we arefocusing our development efforts on
improving and expanding our line-up of
dialysis-related drugs, drugs that apply
recombinant human serum albumin, andgeneric oral drugs.

Annual Report 2004 20

Review of Operations

Pharmaceutical Division
OutlookTargeting future growth inthe oral generic drug market
While we are still concentrating our efforts
on manufacturing injection drugs, we arealso especially keen to apply ourstrengths to the manufacture and salesof generic oral drugs. From now on,
the generic drug market is expected to
expand rapidly, and it is possible thatthe generic drugs will account for about
half of the entire drug market in the future.
In generic drugs, our goal is to become
the No. 1 maker in the domestic market.
To do that we will need to strengthen
our production capacity of oral drugs. We
are now selecting the site for new
manufacturing facility. We are
aggressively advancing our research anddevelopment activity, and hope to expand
this line-up to 500 items.

Double-bag Kit (Liquid-and-Powder)This is a kit product based on a double-bag
design, in which the powdered drug and thereconstitution agent are in two separate bags
which are then combined together. The layer
between the bags is made of different
material and is completely sealed by applying
Nipro’s unique adhesion techniques. To
dissolve the drug, the bag is pressed topenetrate the wall. As the dissolving task
involves nothing more than just pressing thebag, it reduces the medical staff’s workload.
An aluminum cover is pasted onto the bag
containing the powdered drug to ensurestability.

21 Annual Report 2004

Japan’s university hospitals aremaking a transition to independentadministrative institutions, and as
a result we expect competition in
the pharmaceutical market to heat up.
We hope to make our mark in the medical
field with our unique development
approach emphasizing ease of use, as
exemplified by our half-dose products,
innovations in tablet shapes, andoptimizations of drug-effective duration.
We plan to start up production ofpre-filled syringes at Nipro Pharma
Odate Factory soon, and to constructa pharmaceutical research facility within
the plant that will have new-drugprototyping and small-lot production
functions. As a result of expanding
the capacity of the Nipro Pharma Odate
Factory, we expect to expand contract
manufacturing business.

R&D to develop products with appeal
It is our policy to continue strengthening
research and development to provide
appealing drug products to the market.
In the dialysis treatment field, in which we
maintain a high level of competitiveness,
we have succeeded in developing andcommercializing the Japan’s first
double-bag kit that combines substitution
fluids for HF and HDF. Also, we expect toapply soon for manufacturing approval ofa TPN (total parenteral nutrition) formulation
designed with home treatment in mind.
Meanwhile, in joint research with
universities and university-nurtured venturecompanies, we have already succeeded indeveloping artificial red blood cells that canbe preserved long-term and transfused
regardless of the recipient’s blood type.
We plan to start clinical trials in 2006.

The vital importance of investment
to leadership in pharmaceuticals
In Japan, pharmaceuticals require at least
10 months of testing for medical safety
before equipment for their manufacture is
installed and we can apply for production
approval from the Ministry of Health,Labour and Welfare. From investment inequipment to actual production start-up,
it typically takes two years. As a result,
we must budget for capital investment
two years in advance, which definitely
constitutes a burden to management.
However, without appropriate investment,
future growth would be impossible. Byskillfully balancing sales and production
capacity with investment, we aim for our
Pharmaceutical Division to eventuallyachieve ¥100 billion in annual net sales.

Pre-filled Syringe
A pre-filled syringe consists of a syringe(a cylindrical vessel designed for injection)that is pre-filled with various injection
solutions. The demand for these products
has expanded rapidly in recent years basedon their safety and practicality. Medical staff
can administer drugs safely by taking

the syringe out of the blister pack, removing
the rubber plug on the end and attaching
the injection needle. As the syringe is alreadyfilled with an injection solution, there is noneed to fill the syringe with injection drugs
from vials or ampoules.

Half-type Kit
The Half-type Kit is a reconstitution kit
product with a double-ended needle, whichenables powdered injection drugs in a vial to
be dissolved safely and easily. As the inlet for
dissolving purposes (positioned at the top) is
designed separately to the outlet thatconnects to infusion set (positioned at
the bottom), the Half-type Kit is less prone tothe leakages and coring associated with IV
infusion. Safety is ensured byaccommodating the double-ended needle
for dissolving purposes on the inside of the
sticker on the upper part of the product.

Annual Report 2004 22

Review of Operations

Glass&Materials Division

Glass & Materials Division net sales ratio(% of total net sales)

6.3%
Net Sales (Millions of yen)
2000

12,021

2001

11,784

2002

11,2342003

11,064

2004
0

23 Annual Report 2004

11,891
5,000

10,00015,000FY2003 Overview

OutlookLCD TVs and good productquality spur growth

Steady growth expected

In the fiscal year ended March 31,
2004, the Glass & Materials Division
was characterized most of all by strong
sales in the field of glass for lighting
purposes. In particular, demand forglass materials for liquid crystal display(LCD) backlight bulbs grew significantly
along with the expansion of the market
for LCD televisions. The sales of glass
for pharmaceutical purposes wasadversely affected by changes in typesof medical containers, such as the shift
to ampoules made of plastic, pre-filled
syringes, and the use of plastic bags to
replace vials. However, supported byhigh quality, we increased sales ofglass tubes for the overseas market,
i.e. Malaysia and South Korea, andexperienced increased demand forlarge-sized bottles such as nursing
bottles, so overall sales were firm.
As a result, sales in the divisionwere ¥11,891 million, a 7.5% increaseover the previous year.

In fiscal 2004, we forecast continued
growth in glass materials for LCD
backlight bulbs. We intend to strive toenhanced product quality further andwork on the development of new
products.
For ampoules, due to the impact
of shifting to pre-filled syringes andother factors, we believe a decline indomestic sales is unavoidable.
However, with high regard for our
product quality, European
pharmaceutical companies areapproaching us for business deals andin the future we would like to expand
our product lines for Europe and theChinese market. Meanwhile, although
plastic containers are becoming
standard for pre-filled products, wewill continue manufacturing glass
products in which we have a hightechnology.

Supermarket Division
FY2003 Overview
Store sales hurt by sluggish
spending and unseasonable weather
Although a moderate economic recovery
was seen in the second half of fiscal
2003, the overall trend in employment
and personal income was severe, andpersonal consumption continued to besluggish. Moreover, a cooler-thanaverage summer and a warmer-thanaverage winter depressed seasonal
demand. Along with this, because of
the impact of bird influenza, a BSE issue
in America and intensification ofcompetition, the operating environment
for our supermarket business was very
difficult. Under such circumstances, we
endeavored to improve profitability byincreasing the number of stores witha liquor sales license, giving moreprivileged offers to the point card
members, and other measures toincrease sales. However, the results weregenerally low-toned, due to a decrease in
number of customers coming to stores.
The drugstore business also sufferedfrom weak sales of seasonal items,
including a decline in movement ofallergy-season products due todecreases in airborne pollen. However,by opening new stores, we achieved

an increase in drugstore revenues.
As a result of these factors, fiscal 2003
sales for the Supermarket Division were¥71,357 million, an increase of 2.6%
over the previous year.

Outlook
Cultivating retail customer
loyalty and drugstore expansion
In our food supermarket business, we areutilizing a point-card system to send sales
promotion information to the PCs and cell
phones of customers in the E-mailMembership Program. We will further
advance efforts in fiscal 2004 to capture
a stable customer base. In order to help
customers feel more comfortable aboutpurchasing from our stores, we are
increasingly divulging the production historyof food products. We will continue todevelop DirectShop, which conducts mailorder sales of superior Japanese andimported products.
As for our drugstore business, we
continue to work toward the target we haveset of opening a total of 100 stores during
fiscal 2004.

Supermarket Division net sales ratio(% of total net sales)

37.8%
Net Sales (Millions of yen)
51,034

2000

56,882

2001
2002

64,764

2003

69,5602004

71,3570

20,00040,00060,00080,000

Annual Report 2004 24

Board of Directors and Auditors (As of June 29, 2004)

President

Minoru Sano *Senior Managing Director

Shigeki Tanaka

Managing Director

Managing Director

Seiya Ishida

Shuichi Tsuzuki

Director

Director

Masato Naganami

Noriaki Watanabe

Director

Director

Akihiko Yamabe

Kazuo Wakatsuki

Director

Director

Hiroshi Ikeuchi

Hiroyuki Hattori

DirectorStanding Statutory Auditor

Makoto Sato

Hiroshi Kobayashi

Director

Statutory Auditor

Yoshihiko Sano

Shigeru Kobayashi

Director

Statutory Auditor

Masataka Yanai

Masamichi Wada

* Representative Director

25 Annual Report 2004

Business and Other Risks

Risks that have the possibility of
impacting the Nipro Group’s results ofoperations and financial condition are
discussed below.

Risks Related to Product Safety
The Nipro Group brings all of ourcapabilities to bear in securing productsafety in the design, development, andmanufacturing stages of medical andpharmaceutical products. However,there is still the risk that accidental
defects or side effects could result indamages to a third party, and the riskof being sued for liability.
To cover these risks, we maintaingeneral liability and product liability
insurance. However, a successful claim
in excess of the insurance coverage
could have a material adverse effect on
our results of operations and financial
condition.

Risks Related toSupplier Concentration
The Nipro Group procures materials
and parts for its operations from many
suppliers. Some key materials andparts may be obtained only froma single supplier or a limited group of
suppliers. If circumstances at any ofthese suppliers make it impossible for
us to acquire a sufficient quantity ofmaterials and parts, in a timely andcost-effective manner, to meet its
production, there could be a material
adverse effect on our results ofoperations and financial condition.

Risks Related to Intellectual Property
The Nipro Group owns numerous
patents and trademarks and maintains
various proprietary rights for the
products it manufactures. Additionally,
we make double assurances to avoid
infringing the patents and proprietary

rights of any third party. We also avoid
breaching any licenses that we haveentered into with regard to ourtechnologies or those of othercompanies. Nevertheless, if
an unanticipated damage claim is
made by a third party and the defenseof the Nipro Group is unsuccessful,there could be a material adverse
effect on our results of operations
and financial condition.

Risks Related toEnvironmental Regulations
The Nipro Group believes that it has
taken adequate precautions to comply
with applicable regulations in the courseof its business activities. However, if ouractivities cause an unforeseen
environmental problem and damage
claims are made against us, there could
be a material adverse effect on our
results of operations and financial
condition.

Risks Related to Investment Value
The Nipro Group’s assets include
investments in stocks and othersecurities. These investments have been
made for purposes such as building
good business relationships with theissuers of these securities and gathering
useful information for development of
new products or for new business
opportunities. However, the value ofthese investments could significantly
decline due to factors such as
fluctuations in the stock markets,
circumstances at an issuer, or a change inaccounting treatment covering suchinvestments. A significant decline in
the value of these investments could havea material adverse effect on our resultsof operations and financial condition.

Risks Related to Lawsuits
For a detailed discussion of this topic,
please refer to the “Subsequent Event”
section of the Notes to Consolidated
Financial Statements (page 46).

Risks Related to
Exchange Rate Fluctuations
Other Risks
The Nipro Group derives a considerable
proportion of its net sales from exports
to overseas markets including the UnitedStates, Europe and Asia. Additionally,
the Nipro Group produces a significant
proportion of its products overseas andpurchases significant quantities of its
supplies from overseas vendors.
Consequently, it faces risks posed byfluctuations in foreign exchange rates
and hedges these risks by, in principle,
performing all intra-Group import/exporttransactions in US dollars.
However, when US-dollardenominated exports exceed US-dollardenominated imports and as some ofour products are sold denominated inEuro or South American currencies,
a rapid and significant increase in
the value of the yen could have amaterial adverse effect on our results ofoperations and financial condition.

A fire, earthquake, terrorism act, war,
epidemic, or other unforeseen manmade or natural disaster affecting an
area or facility where the Nipro Group
conducts its business activities has
the possibility of causing a delay orinterruption in production, sales,
distribution, or service provision. Sucha delay or interruption, if it becomes
extended, could have a material adverse
effect on our results of operations andfinancial condition.

Annual Report 2004 26

Financial Section

2004
Nipro Corporation and its Consolidated Subsidiaries
Year ended March 31,2004 (fiscal 2003)

Financial Review

28

Five-Year Summary

32

Consolidated Balance Sheets

33

Consolidated Statements of Income

35

Consolidated Statements of Shareholders’ Equity

36

Consolidated Statements of Cash Flows37

Notes to Consolidated Financial Statements

38

Report of Independent Certified Public Accountants on
The Consolidated Financial Statements

47

27
Annual Report
Report 2004
2004
29 Annual
AnnualReport2004
29

Financial Review

The following sections are a review of Nipro Corporation’s
financial position and operating performance for the year ended

Overview
In fiscal 2003, the Japanese economy entered a recovery trend on
the strength of exports and capital expenditures, but with a strong yen
and ongoing difficult conditions as regards personal incomes,
the recovery lacked broad strength.
In the medical equipment and pharmaceuticals industries, as
the governmental policy to suppress healthcare costs pushed pricecompetition to a new level of intensity, and in the retailing industry,
new store openings by other companies made competitive conditions
even more difficult.
With these conditions serving as a background, the Nipro Group(“Nipro”) maintained its focus on research and development; expanded
and enhanced some production facilities, while rationalizing others, andpushed forward with aggressive sales activities.

March 31, 2004. All figures are on a consolidated basis andinclude the accounts of Nipro Corporation,
Nipro Medical Industries, Ltd.,
Nipro (Thailand) Corporation Ltd.,
Fuzhou Nipro Co., Ltd.,
Nipro (Shanghai) Co., Ltd.,
Nipro Medical LTDA.,
Nipro Europe N.V.,
Nipro Medical Corporation,
Nipro Medical Panama S.A.,
Nipro Medica de Mexico S.A. DE C.V.,
Nipro Pharma Corporation,
Shinwa Shoji Co., Ltd.,Net Sales

Shanghai Nissho Vacuum Flask Refill Co., Ltd,In fiscal 2003, consolidated net sales rose 4.6% to ¥188,700 million(US$1,786,255 thousand) compared to the previous year. This was
the result of several factors. We worked to adjust our domestic
distributors’ inventories of medical products, but we also saw asignificant increase in orders for OEM products, which had fallen off in
the previous year, and greater sales of pharmaceuticals, primarily
dialysis-related products and kit products. Sales of glass materials forliquid crystal display (LCD) backlight bulbs were strong, and openingsof new drugstores also helped to boost sales.
By market, net sales for the year ended March 31, 2004 for
the Company’s primary markets of Japan, the Americas, Europe andAsia were, respectively, ¥143,277 million (US$1,356,275 thousand and75.9% of total net sales), a 3.4% increase compared to the previous
year; ¥21,136 million (US$200,076 thousand and 11.2% of total net
sales), a 11.1% increase; ¥18,862 million (US$178,550 thousand and10.0% of total net sales), a 8.6% increase; ¥5,425 million (US$51,354
thousand and 2.9% of total net sales).

Nissho Corporation,
Nissho Drug Co., Ltd., and Bipha Corporation.** Affiliate accounted for by the equity method.

Net Sales (Millions of yen)

Operating Income (Millions of yen)
143,700

2000

2002

180,370

2003

2004

188,700

2004

50,000100,000

150,000

200,000

0

14,435

2002

14,8992003

10,00011,617
8,781

2004

12,557
5,000

6,641

2001

2002

171,217

5,930

2000

9,729

2001

2003

0

8,622

2000

152,072

2001

Income before income taxas (Millions of yen)

15,000

0

8,044
3,000

6,000

9,000

12,000

Annual Report 2004 28

Financial Review

By operating segment, net sales reflected the following trends:

bottles, sales displayed steady growth. Sales of glass for LCD backlightbulbs also showed strong growth due to the expansion of the LCD
television market. As a result, the division’s net sales, therefore, rose
7.5% to ¥11,891 million (US$112,561 thousand).

Medical Division
In Japan, the governmental policy to suppress healthcare costs was
further strengthened, and the intensifying price competition overallmarket conditions more difficult. Nipro also adjusted domestic
distributors’ inventories. In this environment, Nipro strengthened its
sales force; developed and introduced new products in the field of
dialysis, injection-related products, circulatory-organ treatment, andexamination reagent; Nipro also worked to sell our products in thesystematized package. In international business, positive results wereachieved through efforts to introduce Nipro-branded products andbring about a recovery in OEM product orders. Additionally, sales ofblood collection products and diabetes products showed steady
growth. As a result, net sales rose 3.6% to ¥78,727 million(US$745,239 thousand).

Pharmaceutical Division
For the Pharmaceutical Division, the market has been awfully harsh, due
to the intensified price competition driven by the governmental controls on
drug prices. Under these circumstances, the division worked to expand
sales of dialysis-related products. In addition, as we have continuously
focused on strengthening the production facilities, contract manufacturingof kit products have greatly expanded. As a result, net sales grew 15.3%
to ¥25,339 million (US$239,862).

Glass & Materials Division
In the Glass & Materials Division, sales of glass for pharmaceutical
purposes were affected by the switch from glass to plastic forpharmaceutical containers, but with greater sales of glass tubes tooverseas customers and of large-sized glass bottles such as nursing

Net Income (Millions of yen)

2000
3,401

2001
2002

5,842

0

2,000

3,000

29 Annual Report 2004

4,000

With higher net sales, the cost of sales rose 6.5% to ¥137,153
million (US$1,298,306 thousand). The ratio of cost of sales to net
sales rose 1.3 percentage point year-on-year to 72.7% due togreater price competition faced by the Medical Division, foreign
currency translation effects, and the adjustment on domestic
distributors’ inventories the Medical Division. As a result, grossprofit declined 0.1% to ¥51,547 million (US$1,298,306 thousand).
Selling, general and administrative expenses rose 6.3% to¥38,990 million (US$369,083 thousand) due to increase in costs
associated with increase in net sales, such as shipping, storage

5,000

6,000

2002

0

Total Assets (Millions of yen)
2000

14,295

2001

17,166
20,775

2004

4,216
1,000

Cost of Sales

2003

5,078

2004

The sales of “Other” include the sales of machinery for manufacture of
medical equipment and real estate rental income. This portion of net
sales declined 21.2% to ¥1,386 million (US$13,120 thousand).

8,463

2001

2003

Affected by ongoing weakness in personal consumption andthe additional problems posed by bird influenza and BSE issue in the
U.S., unusually bad weather conditions, and intensified competition
among stores, the food supermarket business was faced with extremely
difficult business conditions. In response, the division worked to securesales by gaining new liquor sales licenses, enhancing benefits for point
card members, and taking other measures to improve customer service.
In the drugstore business, factors such as a cool summer, warm winter,and lower pollen levels led to weak sales of seasonal items, but
the openings of 20 new stores resulted in higher sales. As a result, net
sales grew 2.6% to ¥71,357 million (US$675,473 thousand).

Capital Expenditures (Millions of yen)

2,621

2000

Supermarket Division

5,000

10,00015,00020,00025,000228,918

2002

245,4032003

252,848

2004

14,500217,455

0279,701
50,000 100,000 150,000 200,000 250,000 300,000

and other cost and increase in the initial costs for opening
new drugstores.

Operating Income
Operating income decreased by 15.7% during the year ended March
31, 2004, compared to the year ended March 31, 2003, to ¥12,557
million (US$118,866 thousand). Despite the increase in net sales,
operating income decreased compared to the previous year due toan increase in the ratio of cost of sales to net sales in the medical division
and an increase in selling, general and administrative (SG&A) expenses inthe supermarket division, the latter of which was related to the openingof new drugstores.
On an overall basis (including intra-segment transactions), operating
income of Nipro’s four primary operating segments were ¥12,117 million(US$114,701 thousand) for the medical division (a decrease of 14.5%),
reflecting intense price competition and adjustments on domestic
distributors’ inventories; ¥2,471 million (US$23,391 thousand) forthe pharmaceutical division (an increase of 24.7%), reflecting
an increase in net sales and higher productivity due to the increase incontract manufacturing of pharmaceuticals; ¥1,819 million (US$17,219
thousand) for the glass and materials division (an increase of 2.4%),
reflecting an increase in sales of glass for (LCD) backlights and relatedmaterials; ¥420 million (US$3,976 thousand) for the supermarket division(a decrease of 62.1%), reflecting bad weather conditions, intensifiedcompetition arising from competitors opening new stores andan increase in expenses for the opening of new drugstores.
The operating income ratio decreased from 18.6% to 15.4% in
the medical division, increased from 9.0% to 9.8% in the pharmaceuticaldivision, decreased from 16.1% to 15.3% in the glass and materials
division, decreased from 1.6% to 0.6% in the supermarket division.

Other Income (Expenses)
Other expenses decreased by 26.2% to ¥4,513 million (US$42,721

Working Capital (Millions of yen)

2002

2003

27,542

2003

2004

28,5702004

010,00020,00030,00040,00050,00060,0000

2002

94,71160,00080,000

104.4

2003

83,53340,00060.8

2001

76,09920,00046.9

2000

69,196

2001

9,792

Basic Earnings Per Share (Yen)65,368

2000

35,7702001
2002

Shareholders’ Equity (Millions of yen)

52,0652000

thousand) in the year ended March 31, 2004, compared to ¥6,118
million in the previous year. The two primary reasons for the decrease inother expenses were that Nipro had expenses of ¥1,178 million related
to compensation for breaching a contract with an overseas OEM
customer in the previous year and that losses on devaluation ofmarketable securities for investment were ¥103 million (US$975
thousand) compared to losses of ¥629 million in the previous year.
The higher amount for the previous year relates primarily tothe devaluation of certain bank stocks and interests in investment trusts.
Interest and dividend income was ¥345 million (US$3,266 thousand)compared to ¥398 million in the previous year. Interest expenses were
¥1,636 million (US$15,487 thousand) compared to ¥1,671 million in
the previous year. Losses on sales and disposals of property, plant andequipment, net were ¥415 million (US$3,928 thousand) compared to¥337 million in the previous year. Exchange losses were ¥1,429 million(US$13,527 thousand) compared to ¥1,750 million in the previous year,
reflecting primarily the effects of a stronger yen. Equity in loss ofan affiliate company was ¥772 million (US$7,308 thousand) compared
to a loss of ¥658 million in the previous year. Gains on sales ofmarketable securities for investment were ¥140 million (US$1,325
thousand). Bond issue expenses were ¥78 million (US$738 thousand)compared to ¥34 million in the previous year. Bad debt loss was ¥291
million (US$2,755 thousand). This loss was related to a lease deposit fora building. Other expenses, net, was ¥274 million (US$2,594 thousand)compared to ¥259 million in the previous year. Other expenses, net,
included ¥272 million (US$2,575 thousand) relating to a settlement byreconciliation regarding sales rights dispute with one of the foreign OEM
customers. As a result of the foregoing, income before income taxes
decreased by 8.4% from the year ended March 31, 2003 to ¥8,044
million (US$76,145 thousand).
Net income for the year ended March 31, 2004 decreased 17.0%
year-on-year to ¥4,216 million (US$39,909 thousand), primarily asa result of the foregoing factors.
Basic earnings per common share were ¥64.9 (US$0.61) on
a consolidated net income basis and ¥62.46 (US$0.59) on a nonconsolidated net income basis. Cash dividends per share for fiscal 2003
were ¥30.5 (US$0.29) based on our policy of distributing 50% of nonconsolidated net income.

100,000

84.3

2004

64.9
0

20

40

60

80

100

120

Annual Report 2004 30

Financial Review

Financial Position
Assets¥1,363 million to ¥74,184 million (US$702,234 thousand) relating toissuance of ¥14,000 million in zero coupon convertible bonds, which
offset a decrease due to transfer to current portion of long-term debt.

Total assets as at March 31, 2004, were ¥279,701 million(US$2,647,681 thousand), an increase of 10.6% compared to theprevious year. Current assets increased by 7.3% to ¥124,934 million(US$1,182,640 thousand), primarily as a result of an increase in cash
and cash equivalents of ¥12,836 million to ¥42,229 million (US$399,744
thousand) relating to issuance of zero coupon convertible bonds andan increase in inventories of ¥1,327 million to ¥32,541 million(US$308,037 thousand) relating to an increase in the number of drug
stores. These factors more than offset a decrease in other current
assets of ¥3,772 million relating to the reimbursement of funds to theCompany in the year ended March 31, 2004, due to conversion of
convertible bonds after the Company advanced the repayment money
to a bank on March 26, 2003. Other current assets were ¥4,101 million(US$38,820 thousand).
Investments and other assets increased by 34.2% to ¥60,762 million(US$575,179 thousand), largely because of an increase of ¥15,931
million in marketable securities for investments to ¥31,992 million(US$302,840 thousand). This increase was mainly due to the rise instock price.
Property, plant and equipment, net of accumulated depreciation,
increased by 3.1% to ¥94,005 million (US$889,862 thousand),comprising an increase in buildings of ¥4,743 million to ¥81,747 million(US$773,826 thousand), and an increase in machinery and equipmentof¥4,841 million to ¥73,581 million (US$696,526 thousand). The primaryreasons for the increase of the former were expansion and improvementof the production facilities in the Company and its subsidiaries.

Shareholders’ equity
Shareholders’ equity was ¥94,711 million (US$869,545 thousand),an increase of 13.4% compared to the previous year. This wasprimarily due to an increase in unrealized gains on marketablesecurities for investments of ¥9,611 million to ¥12,462 million(US$117,967 thousand) and an increase in retained earnings of ¥2,705
million to ¥30,610 million (US$289,758 thousand). As a result, the ratioof shareholders’ equity to total assets increased from 33.0% to 33.9%.

Cash FlowsNet cash provided by operating activities was ¥15,543 million(US$147,132 thousand) compared to ¥5,622 million for the previous
year, primarily as a result of the decrease in trade receivables andthe range of increase in inventories being lower than the previous year.
Net cash utilized in investment activities was ¥12,786 million(US$121,034 thousand) compared to ¥30,108 million for the previous
year, primarily because of decreased capital expenditures andpurchase of marketable securities during the year under review. Net
cash provided by financial activities was ¥10,290 million (US$97,406
thousand) compared to ¥11,301 million for the previous year.
Proceeds from long-term debt were ¥6,127 million (US$57,999
thousand) compared to ¥23,598 million for the previous year andproceeds from issuance of bonds were ¥13,922 million (US$131,787
thousand) compared to ¥5,967 million for the previous year.
Repayment bonds were ¥2,000 million (US$18,932 thousand)compared to ¥13,122 million for the previous year.
As a result, cash and cash equivalents increased to ¥42,229 million(US$399,744 thousand) at the end of the year from ¥29,393 million at
the beginning of the year.

Liabilities
Current liabilities increased by 8.4% to ¥96,364 million (US$912,192
thousand) due to there being more current portion of long-term debt at
March 31, 2004 compared to the previous year. Long-term liabilities
increased by 10.5% to ¥86,932 million (US$822,908 thousand), primarilyreflecting an increase in deferred income taxes due to an increase inunrealized gains on marketable securities. Long-term debt increased by

Shareholders’ Equity Ratio (%)

Return on Assets (%)

2000

30.1

2000

2001

30.2

2001

2002

31.0

2002

2003

33.0

2003

2004

33.9

2004

0

10

31 Annual Report 2004

20

30

40

Return on Equity (%)
4.1

2.0

4.0

5.1

2001
6.1

2002

6.0

2003

8.0
6.4

2004

4.7
0

4.0

2000

4.4

6.0

8.0

4.7
0

2.0

4.0

6.0

8.0

10.0

Five-Year Summary

Nipro Corporation and Consolidated Subsidiaries
Years ended March 31,

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

2004

2003

2002

2001

2000

2004

Income Statement Data:
Net Sales ............................................ ¥Medical ............................................
Pharmaceutical ................................
Glass and Materials ..........................
Supermarket ....................................
Cost of sales .......................................
Selling, general and administrative expenses ....
Operating income ................................
Medical (1) .......................................
Pharmaceutical (1) ............................
Glass and Materials (1)......................
Supermarket (1) ...............................
Income before income taxes .................
Net income ..........................................
Capital expenditures .............................
Depreciation and amortization ...............
R&D expenses .....................................

188,700 ¥78,72725,33911,891
71,357137,153
38,99012,557
12,117
2,471
1,819
420
8,044
4,216
14,5009,819
3,074

180,370 ¥
76,00921,97911,06469,560128,776
36,695
14,89914,175
1,981
1,777
1,109
8,781
5,078
20,7758,767
2,328

171,217 ¥
77,572
15,946
11,23464,764122,092
34,69014,43515,016
1,104
1,806
1,037
11,617
5,842
17,1667,215
2,553

152,072 ¥
66,413
14,12011,78456,882
110,608
31,735
9,729
11,913
844
1,773
20
6,641
3,401
14,295
6,898
3,048

143,700
65,71813,47812,021
51,034
104,734
30,344
8,622
10,422
516
1,758
637
5,930
2,621
8,463
7,124
2,278

$ 1,786,255
745,239
239,862
112,561
675,473
1,298,306
369,083
118,866
114,701
23,391
17,2193,976
76,14539,909137,259
92,94829,099Balance Sheet Data:
Total assets ......................................... ¥Property, plant and equipment-net ........
Working capital ....................................
Current liabilities ..................................
Long-term liabilities ..............................
Common stock ....................................
Additional paid-in capital .......................
Shareholders’ equity.............................

279,701 ¥94,00528,57096,36486,932
28,66329,972
94,711

252,848 ¥91,14727,542
88,88978,65728,66329,972
83,533

245,403 ¥81,029
9,792
105,764
61,952
23,11324,43576,099228,918 ¥
72,06135,77074,99583,26022,56323,886
69,196

217,455
64,49752,06575,00875,58522,56323,88665,368$ 2,647,681
889,862
270,448
912,192
822,908
271,327
283,718
896,545
U.S. dollars (Note 1)

Yen

Per share data:
Basic earnings (2) ................................. ¥Diluted earnings (2) ...............................
Cash dividends ....................................
Shareholders’ equity.............................

64.9 ¥—
30.5
1,487.5

84.3 ¥
78.5
32.0
1,310.7

104.4 ¥
92.4
47.0
1,343.7

60.8 ¥
54.3
31.0
1,236.6

46.9
42.1
34.5
1,168.2

Number of common shares issued .......
Number of employees ..........................

63,878,505
8,132

63,878,505
8,029

56,670,149
7,835

55,956,987
6,818

55,956,987
6,636

Selected Data and Ratios:
Shareholders’ equity ratio (3) (%) ..........
Return on assets (3) (%) .......................
Return on equity (3) (%) .......................
Price earnings ratio (times) ...................

33.9
4.7
4.7
24.1

33.0
6.0
6.4
21.5

31.0
6.1
8.0
17.4

30.2
4.4
5.1
16.5

30.1
4.1
4.0
18.6

$

0.61
—
0.29
14.08

Note:
(1) Operating income at the operating segment level is not adjusted for intra-segment transactions. See note 13 to the consolidated financial statements.
(2) Effective April 1, 2002, the Company adopted a new accounting standard for earnings per share of common stock issued by the Accounting Standards
Board of Japan. Basic earnings and diluted earnings per share for the year ended March 31, 2003 and thereafter are computed in accordancewith the new standard. Basic earnings and diluted earnings per share for the prior years are not restated to reflect the new standard’s provision.
(3) Shareholders’ equity ratio is the ratio as of the period end of shareholders’ equity to total assets. Return on assets is the ratio of operating income for the period
to average total assets during the period. Return on equity is the ratio of net income for the period to average shareholders’ equity during the period.

Annual Report 2004 32

Consolidated Balance Sheets

Nipro Corporation and Consolidated Subsidiaries
As of March 31, 2004 and 2003

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

2004

2003

2004

Cash and cash equivalents (Note 2) .....................................................

¥ 42,229¥ 29,393

Time deposits ......................................................................................

3,013

3,147

28,522

Trade notes and accounts receivable ..................................................

41,52442,761

393,071

Allowance for doubtful receivables .......................................................

(209)

(201)

(1,978)Inventories (Note 3) . . . . . ........................................................... . . . . . . . . . . . . .

32,541

31,214

308,037

Deferred income taxes (Note 10) ............................................ . . . . . . . . . . . . .

1,735

2,244

16,424

Other current assets .................................................. . . . . . . . . . . . . . . . . . . . . . . . . .

4,101

7,873

38,820Total current assets .....................................................................

124,934

116,4311,182,640

and affiliate accounted for by the equity method (Note 2) ................

6,113

6,383

57,866

Marketable securities for investments (Notes 2 and 6) .........................

31,992

16,061

302,840

Other investments (Notes 2 and 6) ......................................................

4,418

4,574

41,821

Lease deposits .................... ................................................................

11,774

12,235

111,454

Deferred income taxes (Note 10) .........................................................

194

175

1,836

Other ..................................................................................................

6,271

5,842

59,362

Total investments and other assets .............................................

60,76245,270575,179

Land ...................................................................................................

22,45622,459212,571

Buildings ..................... ........................................................................

81,74777,004

773,826

Machinery and equipment ...................................................................

73,581

68,740696,526

Construction in progress .....................................................................

6,144

6,852

58,160AssetsCurrent assets :$399,744

Investments and other assets:
Investment in unconsolidated subsidiaries

Property, plant and equipment (Note 7) :183,928

175,055

1,741,083

Accumulated depreciation ...................................................................

(89,923)(83,908)(851,221)

Property, plant and equipment-net ..............................................

94,005

91,147889,862

Total assets .................................................................................

¥ 279,701¥ 252,848$ 2,647,681

The accompanying notes are an integral part of these statements.

33 Annual Report 2004

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

2004

2003

2004

¥ 27,246
18,25729,048
1,581
6,214
6,500
7,518
96,364¥ 29,010
9,248
27,085
2,620
5,372
7,000
8,554
88,88974,184
2,528
6,689
3,531
86,932

72,821
1,977
541
3,318
78,657702,234
23,93063,31933,425
822,908

1,694

1,769

16,036

28,663

28,663271,327

29,972
12,462(6,490)29,972
2,851(5,407)283,718
117,967(61,435)

30,61095,217(506)

27,90583,984(451)

289,758
901,335(4,790)94,711¥ 279,701

83,533¥ 252,848

896,545$ 2,647,681

Liabilities and shareholders’ equity
Current liabilities:
Short-term bank loans (Note 4) ............................................................
Current portion of long-term debt (Note 4) ...........................................
Trade notes and accounts payable ......................................................
Accrued income taxes . . . . . ....................................................... . . . . . . . . . . . . .
Accrued expenses................................................................. . . . . . . . . . . . . . .
Commercial paper (Note 4) ........................................ . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities .........................................................................
Total current liabilities....................................................................

Long-term liabilities:
Long-term debt (Note 4) .................................. ....................................
Accrued pension and severance liabilities (Note 8) ...............................
Deferred income taxes (Note 10) .........................................................
Other long-term liabilities .....................................................................
Total long-term liabilities...............................................................

Minority interests .................................................................................
Commitments and contingent liabilities (Note 12)
Shareholders’ equity (Note 9):
Common stock ....................................................................................
Authorized: 200,000,000 shares
Issued :At March 31, 2003-63,878,505 shares
At March 31, 2004-63,878,505 shares
Additional paid-in capital ................................................... ..................
Unrealized gains on marketable securities for investments (Notes 2 and 6) ...
Foreign currency translation adjustments.............................................
Retained earnings ................................................................................
Less cost of common shares of treasury stock ....................................
Total shareholders’ equity ................................................................
Total liabilities, minority interests and shareholders’ equity ...........

$

257,914
172,823
274,972
14,96658,822
61,53071,165912,192

Annual Report 2004 34

Consolidated Statements of Income

Nipro Corporation and Consolidated Subsidiaries
For the years ended March 31, 2004 and 2003

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

2004

2003

2004

Net sales ............................................................................ ...................

¥ 188,700¥ 180,370$ 1,786,255

Cost of sales ........................................................................................

137,153

128,776

1,298,306

Gross profit ........................................................................ ................

51,54751,594

487,949

38,99036,695369,083

12,557

14,899118,866

Interest and dividend income ..............................................................
Interest expenses (Note 4) ..................................................... . . . . . . . . . . . . .

345(1,636)398(1,671)

3,266(15,487)

Losses on sales and disposals of property, plant and equipment-net . . . . . .

(415)

(337)

Exchange losses .................................................................................

(1,429)(1,750)(3,928)(13,527)

Equity in loss of an affiliated company ...............................................
Gains on sales of marketable securities for investments (Note 6) ........

(772)

(658)

(7,308)

140
(103)

—

1,325
(975)

Selling, general and administrative expenses
Operating income ...............................................................................
Other income (expenses) :Losses on devaluation of marketable securities for investments ..........
Bond issue expenses ..........................................................................

—
(78)

(629)
(1,178)(34)

Bad debt loss .....................................................................................

(291)

—

Compensation for breach of contract .................................................

—
(738)

.........................................................................................

(274)

(259)

(2,755)(2,594)

Income before income taxes...............................................................

8,044

8,781

76,145Current ...............................................................................................

3,766
85

4,958
(1,341)35,649Deferred .............................................................................................

Other, net

Income taxes (Note 10):

Minority interests in income (loss) of consolidated subsidiaries ...
Net income .........................................................................................

(23)
¥

805
(218)

86

4,216

¥

5,078

$

39,909U.S. dollars(Note 1)

Yen

Amounts per common share (Note 2):
Basic earnings ....................................................................................

¥

64.9

¥

84.3

$

0.61

Diluted earnings ..................................................................................

—

78.5

—

Cash dividends ...................................................................................

30.5

32.0

0.29

The accompanying notes are an integral part of these statements.

35 Annual Report 2004

Consolidated Statements of Shareholders’ Equity

Nipro Corporation and Consolidated Subsidiaries
For the years ended March 31, 2004 and 2003

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

2004

2003

2004

Common stock: (Note 9)
Opening balance(2003-56,670,149 shares; 2004-63,878,505 shares) .........................

¥ 28,663¥ 23,113$ 271,327

Add;
Conversion of convertible bonds (2003-7,208,356 shares) . . . . . . . . . . . . . . . . .

—

5,550

—

Closing balance(2003-63,878,505 shares; 2004-63,878,505 shares) .........................

¥ 28,663¥ 28,663$ 271,327

Additional paid-in capital: (Note 9)
Opening balance .................................................................................

¥ 29,972¥ 24,435$ 283,718

Add;
Conversion of convertible bonds .........................................................

—

5,537

—

Closing balance....................................................................................

¥ 29,972¥ 29,972$ 283,718

Retained earnings: (Note 9)
Opening balance .................................................................................
Net income ..........................................................................................
Cash dividends paid ............................................................................
Bonuses to directors and statutory auditors ........................................
Closing balance....................................................................................

¥ 27,905
4,216(1,400)(111)¥ 25,810
5,078(2,815)(168)$ 264,152
39,909(13,253)(1,050)¥ 30,610¥ 27,905$ 289,758

Unrealized gains on marketable securities for investments: (Notes 2 and 6)
Opening balance .................................................................................
Net change..........................................................................................
Closing balance....................................................................................

¥ 2,851
9,611¥ 12,462¥ 6,502(3,651)¥ 2,851$ 26,988
90,979$ 117,967

Foreign currency translation adjustments:
Opening balance .................................................................................
Net change ..........................................................................................
Closing balance ...................................................................................

¥ (5,407)(1,083)¥ (6,490)¥ (3,706)(1,701)¥ (5,407)$ (51,183)(10,252)$ (61,435)

Treasury stock:
Opening balance .................................................................................
Net change ..........................................................................................
Closing balance ...................................................................................

¥
¥

(451)
(55)
(506)

¥
¥

(55)
(396)
(451)

$
$

(4,269)(521)(4,790)

The accompanying notes are an integral part of these statements.

Annual Report 2004 36

Consolidated Statements of Cash Flows

Nipro Corporation and Consolidated Subsidiaries
For the years ended March 31, 2004 and 2003

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

2004
Operating activities:
Net income .........................................................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ..........................................................
Equity in loss of an affiliated company ..............................................
Allowance for doubtful receivables ...................................................
Losses on devaluation of marketable securities ................................
Provision for deferred taxes ..............................................................
Exchange losses ..............................................................................
Losses on sales and disposals of property, plant and equipment-net ...
Other, net .........................................................................................

¥

4,216

2003
¥

5,078

2004
$

39,909

9,819
772
(14)
103
85
502
415
461

8,767
658
(16)
629
(1,341)
1,039
337
383

92,948
7,308
(133)
975
805
4,752
3,928
4,364

Changes in operating assets and liabilities:
Trade receivables .............................................................................
Inventories ........................................... ............................................
Other current assets ........................................................................
Trade payables ................................................................................
Accrued income taxes .....................................................................
Other, net ........................................................................................
Total adjustments.........................................................................
Net cash provided by operating activities .....................................

1,094(1,515)(982)
2,172(1,039)(546)
11,327
15,543(3,884)(4,517)(676)(1,004)
(903)
1,072
544
5,622

10,356(14,341)(9,296)
20,560(9,835)(5,168)107,223
147,132

Investing activities:
Purchases of property, plant and equipment ...................................
Proceeds from sales of property, plant and equipment ....................
Purchases of marketable securities ..................................................
Proceeds from sales of marketable securities ..................................
Increase in investments in unconsolidated subsidiaries ........................
Deposits (Over three months) ...........................................................
Other, net ........................................................................................
Net cash used in investing activities .............................................

(13,146)
579
(15)
449
(526)
53
(180)
(12,786)(23,853)
143(4,061)
5—(2,120)(222)(30,108)(124,442)
5,481
(142)
4,250
(4,979)502(1,704)(121,034)

Financing activities:
Net increase (decrease) in short-term loans .....................................
Proceeds from long-term debt .........................................................
Repayment of long-term debt ..........................................................
Proceeds from issuance of bonds ....................................................
Repayment of bonds .......................................................................
Reimbursement (deposit) of the repayment money for convertible bonds*...
Net increase (decrease) in commercial paper ...................................
Cash dividends paid .........................................................................
Bonuses to directors and statutory auditors .....................................
Other, net ........................................................................................
Net cash provided by financing activities ......................................

(1,764)
6,127(7,734)
13,922(2,000)4,108(500)(1,400)(111)(358)
10,2903,719
23,598(8,181)
5,967(13,122)(4,108)7,000(2,810)(168)(594)
11,301(16,699)
57,999(73,211)
131,787(18,932)
38,887(4,733)(13,253)(1,050)(3,389)97,406

Effect of exchange rate changes on cash and cash equivalents ....
Net increase (decrease) in cash and cash equivalents ....................
Cash and cash equivalents, beginning of period (Note 2) ...............
Cash and cash equivalents, end of the period (Note 2) ...................

(211)
12,83629,393¥ 42,229(207)(13,392)
42,785¥ 29,393(1,997)
121,507278,237$ 399,744

The accompanying notes are an integral part of these statements.
Company had advanced the fund for repayment of convertible bonds to a bank on March 26, 2003. But the fund was reimbursed to the Company*onTheApril
15, 2003, because of conversion of convertible bonds.

37 Annual Report 2004

Notes to Consolidated Financial Statements

Nipro Corporation and its Consolidated Subsidiaries

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements are prepared fromthe consolidated financial statements issued for domestic reporting
purposes. Nipro Corporation (the “Company”) and its domestic
consolidated subsidiaries maintain their accounts and records inaccordance with the provisions set forth in the Japanese Commercial
Code and in conformity with generally accepted accounting principles andpractices in Japan. Its foreign subsidiaries maintain their accounts inconformity with those of each country of their domicile.
In preparing the accompanying consolidated financial statements,
certain reclassifications have been made to the consolidated financial
statements issued domestically in order to present them in a form which ismore familiar to readers outside Japan.

The presentation of consolidated statements of shareholders’ equity is not
required for domestic reporting purposes. It is, however, presented herein
for the readers’ convenience.
In addition, the notes to consolidated financial statements include
additional information which is not required under generally accepted
accounting principles and practices in Japan.Certain reclassifications havebeen made to the 2003 amounts to conform with the 2004 presentation.
The financial statements presented herein are expressed in Japanese
yen and, solely for the convenience of the readers, have been translated
into United States dollars at the rate of ¥105.64=US$1, the approximate
exchange rate on March 31, 2004. These translations should not be
construed as representations that the Japanese yen amounts actually are,have been or could be converted into U.S. dollar amounts.

2. Summary of Significant Accounting Policies(a ) Basis of Consolidation
The consolidated financial statements include the accounts of
the Company and the following significant subsidiaries and an affiliatedcompany accounted for by the equity method;
Nipro Medical Industries, Ltd.
Nipro (Thailand) Corporation Ltd.
Fuzhou Nipro Co., Ltd.
Nipro (Shanghai) Co., Ltd.
Nipro Medical LTDA.
Nipro Europe N.V.
Nipro Medical Corporation
Nipro Medical Panama S.A.
Nipro Medica de Mexico S.A. DE C.V.
Nipro Pharma Corporation
Shinwa Shoji Co., Ltd.
Shanghai Nissho Vacuum Flask Refill Co., Ltd.
Nissho Corporation
Nissho Drug Co., Ltd.
Bipha Corporation*

Affiliate applied equity method*Investment
in unconsolidated subsidiaries and affiliates (20% to 50%

owned) are stated at cost and the equity method is not applied forthe valuation of such investments since they are considered immaterial in
the aggregate. The difference between the cost of investments inconsolidated subsidiaries and affiliates accounted for by the equity
methood and the equity in their net assets at the dates of acquisition is
being amortized over five years.
All significant intercompany balances and transactions have been
eliminated in consolidation. All material unrealized profits included in
assets resulting from transactions within the Company and its
consolidated subsidiaries are eliminated.
( b ) Translation of Foreign Currencies
Balance sheets of consolidated overseas subsidiaries are translated
into Japanese yen at the current exchange rate as of the balance sheet
date except for shareholders’ equity, which is translated at
the historical rate. Income statements of consolidated overseas
subsidiaries are translated into Japanese yen at the average exchange
rate for the period. Resulting translation adjustments are shown as“Foreign currency translation adjustments” in a separate component ofshareholders’ equity.

(c) Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments, generallywith original maturities of three months or less, that are readily convertible
to cash.
(d) Marketable Securities
Marketable securities for investments and other investments are classified
and accounted for, depending on management’s intent, as follows:i ) held-to-maturity debt securities, which are expected to be held tomaturity with the positive intent and ability to hold to maturity are reported
at amortized cost; andii ) available-for-sale securities, which are not classified as the aforementioned
securities, are reported at fair value, with unrealized gains and losses, net of
applicable taxes, reported in a separate component of shareholders’ equity.
Non-marketable available-for-sale securities are stated at cost
determined by the average method.
For other than temporary declines in fair value, investment securities
are reduced to net realizable value by a charge to income.
( e) Inventories
Inventories are stated principally at cost. Cost is determinedprincipally by the average method for the medical, pharmaceutical andglass and materials segment, except for certain inventories determinedby the first-in, first-out method. Cost of inventories held by
the supermarket segment is determined principally by the retail method.
( f) Depreciation
Depreciation of property, plant and equipment of the Company and its
domestic subsidiaries is computed principally by the declining-balancemethod. The straight-line method is applied to buildings acquired by
the domestic companies after April 1, 1998, and is principally applied tothe property, plant and equipment of foreign subsidiaries.
The range of useful lives is principally from 31 to 50 years forbuildings and from 7 to 12 years for machinery and equipment.
( g) Income Taxes
The provision for income taxes is computed based on income for financial
statement purpose. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for income tax purposes.

Annual Report 2004 38

Notes to Consolidated Financial Statements( h) Leases
Finance leases which do not transfer ownership are accounted for in
the same manner as operating leases in accordance with Japanese
accounting standards for leases.

have a dilutive effect.
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 end of the period.

(i) Amounts per Common Share
Basic earnings per share is computed by dividing net income available tocommon shareholders by the weighted-average number of commonshares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could
occur if securities were exercised or converted into common stock. Diluted
earnings per share of common stock assumes full conversion of theoutstanding convertible notes and bonds at the beginning of the year (orat the time of issuance) with an applicable adjustment for related interest
expense, net of tax, and full exercise of outstanding warrants. For the year
ended March 31, 2004, there was no common stock equivalents that( j) Cash Flow
Additional cash flow information is as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

2004

2003

2004

—
—

¥ 5,550
5,537——

Non-cash financing activities:
Conversion of convertible bonds into:
Common stock ...................
Additional paid-in capital ........

3. Inventories
Inventories consisted of the following:
Millions of yen

2004
Food and groceries ........................................ .............................
Household goods .......................................................................
Medicine (in stores) .....................................................................
Finished goods..........................................................................
Raw materials ...........................................................................
Work in process .........................................................................
Packing and other.......................................................................

¥

667
3,275
1,182
20,394
3,749
2,176
1,098
¥ 32,541

Thousands of U.S. dollars (Note 1)

2003

2004

¥

689
2,305
841
20,413
3,484
2,407
1,075
¥ 31,214$

6,314
31,002
11,189193,052
35,48820,598
10,394$ 308,037

4. Short-Term Loans and Long-Term Debt
Short-term loans comprised overdrafts and promissory notes.
The interest rates of short-term bank loans and commercial paper as of March 31, 2004 and 2003 ranged from 0.032% to 1.875%
and from 0.058% to 1.875%, respectively.
Long-term debt comprised the following:
Millions of yen

Zero coupon convertible bonds due 2023 ............................................
2.325% unsecured bonds due 2004 ..................................................
3.2% unsecured bonds due 2008 .....................................................
3.0% unsecured bonds due 2006 .....................................................
0.82% fixed rate bonds due 2003 .....................................................
0.67% unsecured bonds due 2006 ....................................................
1.07% unsecured bonds due 2010 ....................................................
Loans, primarily from banks due 2004-2018, with interest ranging from
0.1500% to 10.64%.................................................................
Less current portion of long-term debt ................................................

39 Annual Report 2004

Thousands of U.S. dollars (Note 1)

2004

2003

2004

¥ 14,000
10,00010,00010,000
—
3,000
3,000

—
¥ 10,000
10,00010,000
2,000
3,000
3,000

$ 132,526
94,661
94,661
94,661—
28,39828,39842,441(18,257)¥ 74,184

44,069(9,248)¥ 72,821

401,752(172,823)$ 702,234

In November 1997, the Company issued ¥10,000 million (US$94,661
thousand) of 2.325% unsecured bonds due 2004.
In June 1998, the Company issued ¥10,000 million (US$94,661
thousand) of 3.2% unsecured bonds due 2008.
In June 1998, the Company issued ¥10,000 million (US$94,661
thousand) of 3.0% unsecured bonds due 2006.

In March 2003, the Company issued ¥3,000 million (US$28,398
thousand) of 0.67% privately placed bonds due 2006.
In March 2003, the Company issued ¥3,000 million (US$28,398
thousand) of 1.07% privately placed bonds due 2010.
In July 2003, the Company issued ¥14,000 million(US$132,526
thousand) of zero coupon convertible bonds due 2023.

The aggregate annual maturities of long-term debt outstanding at March 31, 2004 are as follows:
Millions of yen

Years ending March 31

2005 ...................................................................................
2006 ...................................................................................
2007 ...................................................................................
2008 and thereafter ...................................................................
As is customary in Japan, long-term and short-term bank loans are madeunder general agreements which provide that additional securities andguarantees for present and future indebtedness will be given under certain
circumstances at the request of the bank, and that any collateral so
furnished will be applicable to all indebtedness due to the bank.

Thousands of U.S. dollars (Note 1)

2004

2004

¥ 18,257
10,364
15,684
48,136¥ 92,441$ 172,823
98,107
148,466
455,661$ 875,057

In addition, the agreements provide that the bank has the right to offset
cash deposits against any long-term and short-term bank loan that
becomes due, and in case of default and certain other specified events,
against all other loans payable to the bank. Such rights have never been
exercised by banks against the Company or its Consolidated Subsidiaries.

5. Leases
Information relating to finance leases, except for which the ownership of the leased assets is considered to be transferred to the lessee.
The pro forma information of leased assets under finance leases that do not transfer ownership of the leased property to the lessee on an“as if capitalized” basis for the year ended March 31, 2004 and 2003 was follows:
Millions of yen

Acquisition cost ......................................................................
Accumulated depreciation ..........................................................
Net leased property .................................................................

2004

2003

2004

¥ 9,435
6,456¥ 2,979¥ 9,687
4,772¥ 4,915$ 89,313
61,113$ 28,200

Millions of yen

Payments due within one year ......................................................
Payments due after one year ........................................................

Thousands of U.S. dollars (Note 1)

Thousands of U.S. dollars (Note 1)

2004

2003

2004

¥ 1,162
2,371¥ 3,533¥ 1,477
4,023¥ 5,500$ 11,000
22,444$ 33,444

Lease payments under such leases for the year ended Mach, 2004 and 2003 were ¥2,150 million (US$20,352 thousand) and ¥1,749 million, respectively.

6. Marketable Securities for Investments and Other Investments
Marketable securities for investments and other investments as of March 31, 2004 and 2003 consisted of the followings:
Millions of yen

Non-current:
Marketable:
Marketable equity securities ...................................................
Marketable debt securities .....................................................

Sub total ........................................................................
Other investments: non-marketable equity securities ...........................
Total .........................................................................

Thousands of U.S. dollars (Note 1)

2004

2003

2004

¥ 31,93755¥ 31,992¥ 4,418¥ 36,410¥ 15,716
345¥ 16,061¥ 4,574¥ 20,635$ 302,319
521$ 302,840$41,821$ 344,661

Annual Report 2004 40

Notes to Consolidated Financial Statements

The fair value of other investments, which are non-marketable securities, was not readily determinable as of March 31, 2004 and 2003.
The carrying amounts and aggregate fair values of marketable securities for investments as of March 31, 2004 and 2003 were as follows:
Millions of yen

2004
Available-for-sale securities
Equity securities ....................................................
Debt securities ......................................................
Total .............................................................

Cost

Unrealized Gains¥ 12,415
60¥ 12,475¥ 19,527—¥ 19,527

Unrealized Losses¥¥

Fair Value

5
5
10¥ 31,93755¥ 31,992

Thousands of U.S. dollars (Note 1)

2004
Available-for-sale securities
Equity securities ....................................................
Debt securities ......................................................
Total .............................................................

Cost

Unrealized Gains$ 117,522
568$ 118,090$ 184,844—$ 184,844

Unrealized Losses$$

Fair Value

47
47
94

$ 302,319
521$ 302,840

Millions of yen

2003
Cost

Available-for-sale securities
Equity securities ....................................................
Debt securities ......................................................
Total .............................................................

¥¥

Unrealized Gains

12,402368
12,770¥¥

Unrealized Losses

4,344
—
4,344

¥
¥

Fair Value

1,030
23
1,053

¥ 15,716
345¥ 16,061

Proceeds from sales of securities and gross realized gains on those sales for the year ended March 31, 2004 and 2003 were as follows:
Millions of yen

2004
Proceeds .............................................................................
Gains on sales .......................................................................

¥

Thousands of U.S. dollars (Note 1)

2003

449
140

¥

5
—

2004
$

4,250
1,325

7. Pledged Assets
The following assets were pledged as collateral:
Millions of yen

2004
Land ...................................................................................
Buildings ..............................................................................
Notes receivable .....................................................................
Certificate of deposit ................................................................

Thousands of U.S. dollars (Note 1)

2003

¥

5,175
7,951
2,277
392
¥ 15,795

¥

5,175
8,434
4,245
237
¥ 18,091

2004$

48,98775,26521,5553,710$ 149,517

Bank loans due within one year and due after one year at March 31, 2004 and 2003 as collateral were as follows:
Millions of yen

2004
Bank loans due within one year .....................................................
Bank loans due after one year ......................................................

¥¥

41 Annual Report 2004

4,015
5,120
9,135

Thousands of U.S. dollars (Note 1)

2003
¥
¥

5,673
3,863
9,536

2004
$
$

38,006
48,46786,473

8. Accrued Pension and Severance Liabilities
The Company and certain consolidated subsidiaries have defined benefit
pension plans and unfunded retirement benefit plans for employees.
Effective April 1, 2000 the Company and its consolidated
subsidiaries adopted a new accounting standard for employees’
retirement benefits and accounted for the liability for retirement benefits

based on the projected benefit obligations and plan assets at thebalance sheet date.
The transitional obligation of ¥519 million determined as of April 1,
2000 is amortized over five years and presented as other expense in theincome statement.

The following table sets forth the changes in projected benefit obligation, plan assets and funded status of the Company and its Consolidated Subsidiaries at
March 31, 2004 and 2003.
Millions of yen

1) Projected benefit obligation at end of year ....................................
2) Fair value of plan assets at end of year ........................................
3) Projected benefit obligation in excess of plan assets 1)+2) .................
4) Unrecognized actuarial (gain) loss .............................................
5) Unrecognized transition obligation at date of adoption ......................
6) Accrued pension and severance liabilities 3) + 4) + 5)

Thousands of U.S. dollars (Note 1)

2004

2003

2004

¥ (8,794)
5,795¥ (2,999)
367
104¥ (2,528)¥ (8,678)
4,884¥ (3,794)
1,609
208¥ (1,977)$ (83,245)
54,856$ (28,389)
3,474
985
$ (23,930)

The breakdown of net pension and severance costs for the years ended March 31, 2004 and 2003 were as follows:
Millions of yen

Thousands of U.S. dollars (Note 1)

2004
Service cost ..........................................................................
Interest cost ..........................................................................
Expected return on plan assets .....................................................
Amortization:
Retirement benefit obligation at transition .......................................
Actuarial losses ..................................................................
Net periodic benefit cost ............................................................

¥

601
215
(73)

104
394
¥ 1,241

2003
¥

¥

2004

535
231
(180)

$

5,689
2,035
(691)
—
984
3,730
$ 11,747

104
193
883

The assumptions used in the accounting for the above benefit plans were as follows:

2004

2003

Discount rate .................................................................................

Primarily 2.5%

Expected rate of return on plan assets .....................................................
Amortization period for transition obligation at date of adoption ...........................
Amortization period for actuarial losses .....................................................

1.5%
5 years
5 years

Primarily3.0%
at start of yearand 2.5% atyear - end
1.5 - 4.0%
5 years
5 years

9. Shareholders’ Equity( i ) In connection with conversion of convertible bonds, 7,208,356 sharesof common stock were issued for the year ended March 31, 2003.
The amount of retained earnings available for future dividends
under the Japanese Commercial Code was ¥35,927 million(US$340,089 thousand) as of March 31, 2004, based on the amountrecorded in the parent company’s general books of account.
The Japanese Commercial Code imposes certain limitations on
the amount of retained earnings available for dividends.

( ii) The following appropriation of retained earnings was approved by
the Shareholders’ Meeting held on June 29, 2004:

Cash dividends paid ................
Bonuses to directors andstatutory auditors ...............

Millions of yen

Thousands of
U.S. dollars (Note 1)¥ 1,240$ 11,738

86

814

Annual Report 2004 42

Notes to Consolidated Financial Statements

10. Income Taxes
The Company and its domestic subsidiaries are subject to Japanesenational and local taxes based on income which, in aggregate, resulted ina normal statutory tax rate of approximately 41.9% for the year ended
March 31, 2004 and 2003.
An amendment to the Japanese tax regulations was enacted on March
31, 2003, and the nomal statutory rate was reduced from approximately

41.9% to 40.5%, effective from April 1, 2004. As a result of this amendment,
for the year ended March 31, 2003, deferred income tax was calculated at
the tax rate of 41.9% for current portion of temporary differences and 40.5%
for non-current portion. And for the year ended March 31, 2004, deferredincome tax was calculated at the tax rate of 40.5%.

The significant components of deferred tax assets and liabilities are as follows:
Thousands of U.S. dollars (Note 1)

Millions of yen

Deferred tax assets
Operating loss carry forwards for tax purposes ............................
Intercompany profits .........................................................
Accrued for bonuses to employees.........................................
Accounts receivable..........................................................
Accrued pension and serverance liabilities .................................
Other ..........................................................................
Gross deferred tax assets ......................................................
Less: Valuation allowance ......................................................
Total deferred tax assets .......................................................
Deferred tax liabilities
Unrealized gains on marketable securities for investments ..................
Other .............................................................................
Total deferred tax liabilities .....................................................
Net deferred tax assets (liabilities) .................................................

2004

2003

2004

¥ 1,739
430
587
247
901
1,081
¥ 4,985(1,634)¥ 3,351¥ 1,951
517
553
570
612
1,005
¥ 5,208(1,645)¥ 3,563$¥ 7,910201¥ 8,111¥ (4,760)¥ 1,354331¥ 1,685¥ 1,878$

16,462
4,070
5,557
2,338
8,529
10,233$ 47,189(15,468)$ 31,721
74,877
1,903$ 76,780$ (45,059)

Reconciliation of the differences between the statutory tax rates and the effective income tax rates was as follows:

2004
Statutory tax rate ..........................................................................................................................
Expenses not deductible for tax purposes ............................................................................................
Non-taxable dividend income ..........................................................................................................
Loss in subsidiaries ....................................................................................................................
Other ....................................................................................................................................
Effective tax rate ...........................................................................................................................

41.9%
2.3
(0.8)
3.5
1.0
47.9%

For the year ended March 31, 2003, there were no significant reconciling items between the statutory tax rate and effective tax rate.

11. Research and Development Expenses
Research and development expenses for the year ended March 31, 2004 and 2003 were ¥3,074 million (US$29,099 thousand) and ¥2,328 million, respectively.

12. Commitments and Contingent Liabilities
The Company and Consolidated Subsidiaries have the following commitments and contingent liabilities:
Millions of yen

2004
Liabilities for guarantees .............................................................
Export drafts discounted ............................................................

¥¥

43 Annual Report 2004

2,728
51
2,779

¥
¥

Thousands of U.S. dollars (Note 1)

2003

2004

3,273
35
3,308

$ 25,824
483$ 26,30713. Segment Reporting
The Company and Consolidated Subsidiaries are primarily engaged in
the business consisting of four major segments: medical equipment,
pharmaceutical products, glass and material products and supermarket.
The Company is organized into operating segments based on the market
nature of products.
The medical segment manufactures and sells disposable medical
equipment. Their medical equipment sold includes dialyzers, dialysis-related
devices, and injection-related products.
The pharmaceutical segment manufactures and sells a range ofpharmaceutical products and devices, such as prescribed specialized anddiagnostic products for hospital use, and medical equipment incorporating
solutions and drugs, such as pre-filled syringes and infusion kits.
The glass and materials segment sells internal glass sections for vacuum
flasks, glass tubes for ampoule and vial production, glass tube vials and otherglass products.
The supermarket segment encompasses a supermarket business anda drugstore business. The supermarket segment sells fresh and daily foods,
general grocery, household goods, medicine and other merchandise.
The sales of “Other” include the sales of machinery for manufacture of
medical equipment and real estate rental income.

Business segment information for the year ended March 31, 2004 and 2003 was as follows:
Millions of yen

2004
Medical

Net sales:
Outside ................................. ¥ 78,727
Intersegment ............................
639
Total ..................................... ¥ 79,366
Cost and expenses ........................ 67,249
Operating income ......................... ¥ 12,117
Identifiable assets .......................... ¥ 83,785
3,834
Depreciation ...............................
5,232
Capital expenditures ......................

Pharmaceutical

Glass &
Materials

Supermarket

Other

Total

¥ 25,339—¥ 25,339
22,868¥ 2,471¥ 54,037
3,638
6,747

¥ 11,891
2,357¥ 14,248
12,429¥ 1,819¥ 13,208
630
625¥ 71,357—¥ 71,357
70,937¥420¥ 43,103
1,164
1,451

¥ 1,386597¥ 1,983
1,579¥
404¥ 1,15532
4¥188,700
3,593¥192,293
175,062¥ 17,231¥195,288
9,298
14,059Eliminations /Corporate—¥ (3,593)¥ (3,593)
1,081 (1)¥ (4,674)¥ 84,413 (2)521
441

Consolidated¥188,700—¥188,700
176,143¥ 12,557¥279,701
9,819
14,500Thousands of U.S. dollars (Note 1)

2004
Medical

Net sales:
Outside ................................. $745,239
Intersegment ...........................
6,049
Total .................................... $751,288
Cost and expenses ....................... 636,587
Operating income ......................... $114,701
Identifiable assets ......................... $793,118
Depreciation ...............................
36,293
Capital expenditures ......................
49,527

Eliminations /Corporate

Pharmaceutical

Glass &
Materials

Supermarket

Other

Total

$239,862—$239,862
216,471$ 23,391$ 112,561
22,312$134,873
117,654$ 17,219$675,473—$675,473
671,497$ 3,976$ 13,120
5,651$ 18,771
14,947$ 3,824$1,786,255
34,012$1,820,267
1,657,156$ 163,111— $1,786,255—$ (34,012)$ (34,012) $1,786,255
10,233 (1) 1,667,389$ (44,245) $ 118,866$511,520
34,43863,868$125,029
5,964
5,916

$408,018
11,01813,735$ 10,933
303
38$1,848,618
88,016
133,084$799,063 (2) $2,647,681
4,932
92,9484,175
137,259

Consolidated

Millions of yen

2003
Net sales:
Outside ................................
Intersegment ...........................
Total ....................................
Cost and expenses .......................
Operating income .........................
Identifiable assets .........................
Depreciation ..............................
Capital expenditures .....................

MedicalPharmaceutical

Glass &
Materials¥ 76,009
534¥ 76,543
62,368¥ 14,175¥ 84,726
3,650
7,853

¥ 21,979—¥ 21,979
19,998¥ 1,981¥ 51,192
2,828
9,646

¥ 11,064
2,473¥ 13,537
11,760¥ 1,777¥ 13,604
559
1,476

Supermarket

Other

Total

Eliminations /Corporate

Consolidated¥ 69,560—¥ 69,560
68,451¥ 1,109¥ 41,879
1,152
1,327

¥ 1,758668¥ 2,4262,278¥
148¥ 2,04440
70¥ 180,370
3,675¥ 184,045
164,855¥ 19,190¥ 193,445
8,229
20,372—¥ (3,675)¥ (3,675)
616 (1)¥ ( 4,291)¥ 59,403 (2)538403¥ 180,370—¥ 180,370
165,471¥ 14,899¥ 252,848
8,767
20,775Note:(1)Cost and expenses of “Eliminations/Corporate” for the year ended March 31, 2004 and 2003 included unallocated corporate costs of ¥4,674 million ($44,245 thousand) and¥4,291 million, respectively. The unallocated corporate costs consisted primarily of research and development costs and headquarters administration costs.
(2)Assets of “Eliminations/Corporate” at March 31, 2004 and 2003 included ¥84,558 million (US$800,435 thousand) and ¥59,673 million of corporate assets, respectively, consisting
primarily of cash and cash equivalents, investments in securities, research and development-related equipment and headquarters administration-related assets.

Annual Report 2004 44

Notes to Consolidated Financial Statements

The information by geographic area for the year ended March 31, 2004 and 2003 was as follows:
Millions of yen

2004
Japan

Net sales:
Outside ...................................................
Intersegment .............................................
Total ......................................................
Cost and expenses .........................................
Operating income (loss) ....................................
Identifiable assets ...........................................

¥ 176,374
9,609¥ 185,983
169,172¥ 16,811¥ 174,610

America

¥
¥
¥
¥

4,707
378
5,085
5,265
(180)
6,081

Europe

¥
¥
¥
¥

Asia

5,922
27
5,949
5,833
116
3,346

¥

1,697
8,471
¥ 10,168
9,756
¥
412
¥ 17,210

Eliminations /Corporate—¥ (18,485)¥ (18,485)(13,883) (1)¥ (4,602)¥ 78,454 (2)Consolidated¥ 188,700—¥ 188,700
176,143¥ 12,557¥ 279,701

Thousands of U.S. dollars (Note 1)

2004
Net sales:
Outside ...................................................
Intersegment .............................................
Total ......................................................
Cost and expenses .........................................
Operating income (loss) ....................................
Identifiable assets ...........................................

Japan

America

EuropeAsia$1,669,576
90,960$1,760,536
1,601,401$ 159,135$1,652,878$ 44,557
3,578$ 48,135
49,839$ (1,704)$ 57,563$ 56,058
256$ 56,314
55,216$ 1,098$ 31,674$ 16,064
80,187$ 96,251
92,351$ 3,900$162,912

Eliminations /Corporate

Consolidated—$ (174,981)$ (174,981)(131,418) (1)$ (43,563)$ 742,654 (2)$1,786,255—$1,786,255
1,667,389$ 118,866$2,647,681

Eliminations /Corporate

Consolidated

Millions of yen

2003
Japan

Net sales:
Outside ..................................................... ¥168,848
Intersegment ...............................................
8,801
Total ........................................................ ¥177,649
Cost and expenses ............................................ 159,550
Operating income ............................................. ¥ 18,099
Identifiable assets .............................................. ¥172,740

America

EuropeAsia¥ 4,545419¥ 4,964
4,711¥ 253¥ 4,840¥ 5,36034¥ 5,394
5,239¥
155¥ 3,076¥ 1,6178,235¥ 9,852
8,967¥ 885¥18,119—¥ (17,489)¥ (17,489)(12,996) (1)¥ (4,493)¥ 54,073 (2)¥180,370—¥180,370
165,471¥ 14,899¥252,848

Note:(1) Cost and expenses of “Eliminations/Corporate” for the year ended March 31, 2004 and 2003 included unallocated corporate costs of ¥4,674million ($44,245 thousand) and¥4,291 million, respectively. The unallocated corporate costs consisted primarily of research and development costs and headquarters administration costs.
(2) Assets of “Eliminations/Corporate” at March 31, 2004 and 2003 included ¥84,558 million (US$800,435 thousand) and ¥59,673 million of corporate assets, respectively,
consisting primarily of cash and cash equivalents, investments in securities, research and development-related equipment and headquarters administration-related assets.
(2) The main countries of each geographic area are as follows:
America: The United States of America and Brazil
Europe: Belgium
Asia : China and Thailand

45 Annual Report 2004

Sales to foreign customers were as follows:
Millions of yen

2004
America

Export sales and sales byoverseas subsidiaries ......................... ¥ 21,136
Percentage of such sales against
11.2%
consolidated net sales ........................

Europe¥ 18,862

¥

10.0%

2003
Asia

Total

America

Europe

Asia

Total

5,425

¥ 45,423¥ 19,032¥ 17,364¥ 5,427¥ 41,823

2.9%

24.1%

10.6%

9.6%

3.0%

23.2%

Thousands of U.S. dollars (Note 1)

2004
America

Export sales and sales byoverseas subsidiaries ......................... $200,076
Percentage of such sales against
11.2%
consolidated net sales ........................

Europe

Asia

Total

$178,550$ 51,354$429,980

10.0%

2.9%

24.1%

14. Subsequent Event
On June 24, 2002, Tomita Pharmaceutical Co., Ltd. (“Tomita”) filed
a lawsuit in the Osaka District Court naming the Company and Nipro
Pharma Corporation as the defendants, alleging infringement of their
Japanese patent no. 2769592 by “Lympack” and “Lympack No. 3”,
powdered dialysate solutions, seeking damages and an injunction of
manufacture and sale.

On May 27, 2004, a judgement was made by the court, which ordered(1) an injunction of manufacture and sale, (2) disposal of the inventory, and(3) payment of 1,196 million yen and its interest. The judgment did not justify
our assertion that the Tomita’s patent was invalid and the Company andNipro Pharma Corporation did not infringe their patent, and an appeal was
made to the Osaka Higher Court on the same day.

Annual Report 2004 46

Report of Independent Certified Public Accountantson The Consolidated Financial Statements

To the Board of Directorsof Nipro Corporation

We have audited the accompanying consolidated balance sheets of Nipro Corporation and consolidated
subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements of income,shareholders’ equity, and cash flows for the years then ended, all expressed in Japanese yen.
These consolidated financial statements are the responsibility of Nipro Corporation’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, procedures and practices generally
accepted and applied in Japan. Those standards require that we plan and perform the audit to obtainreasonable 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 madeby management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Nipro Corporation and consolidated subsidiaries as of March
31, 2004 and 2003 and the consolidated results of their operations and their cash flows for the years thenended in conformity with accounting principles and practices generally accepted in Japan.

Osaka, Japan
July 31, 2004
Tomei Audit Corporation

47 Annual Report 2004

Corporate Information(As of March 31, 2004)

Common Stock
Authorized
200,000,000 shares
Issued63,878,505 shares
Outstanding
63,613,567 shares
Number of Shareholders
10,408Date of Establishment
July 8, 1954
Head Office
3-9-3 Honjo-nishi, Kita-ku, Osaka 531-8510, Japan
Telephone: +81-6-6372-2331
Facsimile : +81-6-6375-0669
URL: http://www.nipro.co.jp/english/

Stock Listings
Tokyo Stock Exchange, Osaka Securities Exchange
Ticker Codes: 8086

Tokyo Office
4-3-4 Hongo, Bunkyo-ku, Tokyo 113-0033, Japan
Telephone: +81-3-5684-5611
Facsimile : +81-3-5684-5610

Transfer AgentThe UFJ Trust and Banking Co., Ltd.
6-3, Fushimi-machi 3-chome, Chuo-ku, Osaka 541-8503, Japan

Number of Employees

Stock Price Range (Tokyo Stock Exchange)

Parent company .............................................. 1,830
Consolidated subsidiaries .................................... 6,302
Total ........................................................... 8,132

(Yen)
2,500

2,000

2,000

1,500

1,500

Principal Shareholders
Number ofPercentage ofShares Held Total Shares in(in thousands)
Issue (%)

Sanri Kosan Co., Ltd. ................................. 12,920
Japan Trustee Services Bank, Ltd. (Trust Account) ... 6,148
The Master Trust Bank of Japan, Ltd. (Trust Account) ... 4,984
Trust & Custody Service Bank, Ltd. (Trust Account) ... 2,318
Minoru Sano .......................................... 1,993
Resona Bank Limited ................................. 1,380
The Mitsubishi Trust and Banking Corporation (Trust Account)... 1,140784
The Dai-ichi Mutual Life Insurance Company ..........
782
Mizuho Corporate Bank, Ltd. ..........................
623
Kazuo Sano ...........................................
Total .................................................. 33,073

20.22
9.62
7.80
3.62
3.12
2.16
1.78
1.22
1.22
0.97
51.77

1,000

500

0

12

3

6

2002

9

12

3

6

9

2003

12

3

2004

Subsidiaries and affiliates
Area

Asia

CountryJapan

Thailand
China

America

EuropeSingapore
BrazilU.S.A
PanamaMexicoU.S.A.
BelgiumCompany

Nipro Medical Industries, Ltd.
Nipro Pharma Corporation
Shinwa Shoji Co., Ltd.
Nissho Corporation
Nissho Drug Co., Ltd.
Nissho Insurance Services Co., Ltd.*
Bipha Corporation**
Nipro (Thailand) Corporation Ltd.
Fuzhou Nipro Co., Ltd.
Nipro (Shanghai) Co., Ltd.
Nipro Trading (Shanghai) Co., Ltd.*
Shanghai Nissho Vacuum Flask Refill Co., Ltd.
Nipro Asia Pte. Ltd.*
Nipro Medical LTDA.
Nipro Medical Corporation
Nipro Medical Panama S.A.
Nipro Medica de Mexico, S.A. DE C.V.
Nipro Diabetes Systems, Inc.*
Nipro Europe N.V.

Segment

MedicalPharmaceutical
Glass & Materials
Supermarket
Supermarket
Other
Pharmaceutical
Medical
Medical
Medical
MedicalGlass & Materials
Medical
Medical
Medical
Medical
Medical
Medical
MedicalPrincipal business

Manufacturing
Manufacturing and Marketing
Manufacturing and Marketing
Supermarket management
Drugstore management
Insurance agency
R&D and Manufacturing
Manufacturing and Marketing
Manufacturing and Marketing
Manufacturing and Marketing
Marketing
Manufacturing and Marketing
Marketing
Manufacturing and Marketing
MarketingMarketingMarketing
R&D and Marketing
MarketingNote:(1) * Unconsolidated** Affiliate applied equity method(2) Sanri Kosan Co., Ltd., an Affiliate Company, manages rental of real property estate.

Annual Report 2004 48

NIPRO CORPORATION
3-9-3 Honjo-nishi, Kita-ku, Osaka 531-8510, Japan
Telephone: +81-6-6372-2331
Facsimile : +81-6-6375-0669
http://www.nipro.co.jp/english/

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