NISSHINBO ANNUAL REPORT 2003

2-31-11, Ningyo-cho, Nihonbashi, Chuo-ku, Tokyo 103-8650, Japan
Tel: 03-5695-8833 / Fax: 03-5695-8970
URL: http://www.nisshinbo. co.jp/

Year ended March 31, 2003

Annual Report 2003
(Year ended March 31, 2003)

Printed in Japan

FINANCIAL HIGHLIGHTS(Years ended 31st March)

Consolidated:(millions of
US dollars)(millions of yen)

2002

Net Sales¥
Net Income
Shareholders’ Equity

2003

225,836 ¥
231,193 $(2,649)777
213,664
186,028

2003

1,927
6
1,550

Per Share:(yen)

Net Income
Shareholders’ Equity
Cash Dividends¥(42.03)988.027.00(US dollars)¥

3.18
860.52
7.00

$

0.03
7.17
0.06

Note: The United States dollar amounts in this report are given for convenience only and represent translations ofJapanese yen at the rate of ¥120=US$1.

Net Sales

Net Income

Shareholders’ Equity(billions of yen)(billions of yen)(billions of yen)

250

5

250

4
200

200
3
2

150

150

1
100

100

0
-1

50

50
-2

0

-3
’99 ’00 ’01 ’02 ’03’99 ’00 ’01 ’02 ’03

0’99 ’00 ’01 ’02 ’03

In this annual report, statements other than historical facts are forward-looking statements that reflect our plans
and expectations. These forward-looking statements involve risks, uncertainties and other factors that may cause
our actual results and achievements to differ materially from those anticipated in these statements.

The paper used for this Annual Report is from Nisshinbo’s VENT NOUVEAU series of fine papers.

CONTENTS
ProfileBusiness Lineup
Pushing the Pace on Profitability
Interview with the President
Special Features
New Development and Creationof New Markets Aimed at an
Improvement in Profitability
Global Development
Review of Operations
Six-year Summary
Financial Review
Financial Section
Nisshinbo History
Nisshinbo Group
Board of Directors/Corporate Data
Organization Chart

1
2
4
8

12
16
17
18
30
31
32
33

NISSHINBO Industries, Inc. (the “Company”) was founded in 1907
as a manufacturer of cotton yarns and threads, and quickly
assumed a position of leadership in the industry. Our history has
been characterized by strategic moves taken in advance ofcompetitors and designed to raise productivity, improve quality
and add value. Today, we are a total textiles manufacturer,
controlling operations from spinning to finishing. This, together
with our accumulated high levels of technology, gives us anadvantage in the development of truly distinctive products and inquality control.
Through the application in other fields of technologies andexpertise originally developed in the textiles area, we havediversified our operations into the manufacture of automobile
brakes, papers, machine tools, chemical products, and others.
These non-textile lines have grown steadily, and now account forover 65% of consolidated net sales. We offer a truly diverse
range of products tailored to customers’ needs: high valueadded finishing processing and products in the textiles segment,
including SUPER SOFT (SS), SUPER SOFT PEACHPHASE (SSP) andNON CARE, new-generation electronic braking systems, highheat-insulation panels, fuel cell separators (bipolar plates), andfilters for plasma display panels.
The Company and its consolidated subsidiaries and affiliates(together, “Nisshinbo”) are fully focused on enhancing theircollective strengths across their entire business range. As agenuinely 21st century manufacturer backed by advanced
production systems and a wide range of high value-added
products, we will capitalize on these strengths to promotebusinesses under such themes as strengthening of profitability
and enhancement of corporate value.
1

BUSINESS LINEUP

TextilesTextile products have been the mainstay of our business since our foundation. We lead the Japanese textiles industry
with our high-quality products, backed up by our accumulated technology, and have gained the trust of customers.
We have the top share in the domestic markets for shirt materials, denim, and polyester and cotton blended uniform
materials.
We undertake comprehensive operations including spinning and finishing, and by integrating manufacturing andsales activities we have established a flexible system to supply original products that overseas makers cannot matchfor quality. An ability to respond quickly to the precise needs of customers is our particular strength.
We offer a variety of unique, high value-added textile finishing processing and products, including SS soft andeasy care fabrics, SSP wrinkle-free fabrics, CELTOPIA cotton/wool blended fabrics, NON CARE ultimate wrinkle-freefabrics, Nisshinbo Mobilon spandex, and OIKOS non-woven cotton fabrics.
We are taking aggressive measures to expand our overseas operations, targeting both domestic and overseas
markets. To sharpen our competitiveness on a global basis, we have been enhancing production facilities in China
and Indonesia, and have established joint ventures to be engaged in spinning, weaving and processing in China. In
addition, we also operate Nisshinbo (Shanghai) Co., Ltd., our sales base in China, and Global Operation Promotion
Office, which was set up to provide maximum support to our overseas operations

Non-textiles
AUTOMOBILE BRAKESWe are one of Japan’s leading makers of friction materials and automobile brakes, and this sector has an importantrole in our drive toward diversification. We undertake technology development and investments looking to the future
by getting a clear picture of customers’ needs, under such themes as high coefficient of friction, noise/vibration
characteristics, improvements of brake pad life, application of new, eco-friendly technology, construction methods
and materials. Our product development emphasis is on “green” pads using environment-friendly materials, newconcept drum brakes, Anti-lock Brake Systems (ABS) and Stability Control Systems. In the ABS sector, our original,
compact, lightweight, low-cost NT series is targeted at markets worldwide. Stability Control Systems enhance safe

Consolidated Sales Composition(%)

Sales by Segment in Fiscal 2003
(%)

100

80

60

Textiles

32.0

Automobile Brakes

24.4

Papers11.7

Chemical Products

13.7

Other Products

17.1

Real Estate Leasing

2.1

40

20

0
’99

2

’00

’01

’02

’03

Note: Chemical Products, previously includedin the Other Products sector, will be treatedindependently from fiscal 2003, due to thegrowing importance and potential of thesector. Figures for previous fiscal years havebeen adapted to take account of this change.

driving by supporting the driver in controlling directional movement of the vehicle.
In parallel with the development of our own technologies, we engage in technology exchange and collaborate
with major overseas brake manufacturers. We have also set up production bases for friction materials andautomobile brakes in the U.S., Thailand and South Korea in order to strengthen our presence in those markets.
PAPERS
We manufacture a wide range of paper and paper-related products. These include household papers, such as tissue
paper, toilet paper and kitchen-use paper towels, fine papers used for quality printing, publications and packaging,synthetic papers, and labels. Our value-added products include COTTON FEEL, a household paper made using ourspinning technologies, VENT NOUVEAU and MILT GA natural-feel fine paper for high-quality printing, and synthetic
papers for fine digital printing.
CHEMICAL PRODUCTS
We produce rigid-type polyurethane foam used for heat-insulation material, flexible types used for cushion material,
and a glass fiber-reinforced polyurethane foam, a lightweight, high-strength, corrosion-resistant material widelyused in the water treatment and construction industries. In the civil engineering field, we provide products such as
SET FOAM. We are also a pioneer in the introduction of environment-friendly, non-fluorocarbon polyurethane foam
for application as heat-insulation material in the construction field. We are expanding the applications of our original
polyurethane elastomer Nisshinbo Mobilon, which has excellent elasticity and water-resistance characteristics.
Nisshinbo Mobilon is used in a number of industrial products and consumer goods fields. In addition, we provide newcarbon products for application mainly in semiconductor production and other electronics sectors.
Other materials include APG® (Aqua Porous Gel), BCN® (Bio Contact N), and Vacuum Insulation Panel, produced by
Nisshinbo.
We also produce molded plastic cross-flow fans for air conditioners for electric appliance markets, mainly in
China and Southeast Asia.
OTHER PRODUCTS
Machine Tools
We are an acknowledged specialist in the manufacture and sale of customized machine tools and CNC sheet-metalmachinery. We develop and manufacture modular units for FMS and CNC hardware/software systems for the
automotive, electronics and aerospace industries. We also manufacture environment-related products, including aphotovoltaic module manufacturing system and a kitchen waste disposal unit for commercial use.
Others
We manufacture medical-use electronics equipment, including ultrasonic-scanning diagnostic devices and surgicalequipment, applied electronic equipment, including “handy” terminals and CRT graphic displays, and radio
communications equipment, including mobile telephones and PHS.
In the digital household electronic field, we manufacture and market optical filters for plasma display panels (PDP).
We also provide fuel cell separators (bipolar plates), which are widely regarded as the next-generation energy
system parts.
We also develop and supply the production systems which integrate the CHOSHOKU SENKA fuzzy logic computer
color matching (CCM) system, manufacturing process support system and automatic inspection system. All are
based on original technologies.
REAL ESTATE LEASING
We are engaged in the real estate leasing business for the purpose of efficient utilization of unused land. We lease
office and residential buildings in Tokyo, and lease land previously occupied by factory facilities for use as shopping
centers and model homes.
3

INTERVIEW WITH THE PRESIDENTFirst of all, we would like to report that Mr. Akihiro Mochizuki
has retired as chairman and become an advisor to theCompany. Mr. Mochizuki served as president and chairman of
the Company in difficult times, and under his strong
leadership the Company successfully laid the foundation for
a new stage of growth.

Q1. What were Nisshinbo’s
consolidated results for fiscal 2003,
ended March 31, 2003?
During fiscal 2003, the Japanese economy went deeper into
recession under continued deflationary pressures. Problems
relating to the huge amounts of non-performing loans held bybanks and a slump in the securities markets militated against theprospects for growth.
Owing to the first-time inclusion of a subsidiary in ourconsolidated results, consolidated net sales increased 2.4% overfiscal 2002, ended March 31, 2002, to ¥231,193 million (US$1,927
million). Operating income increased 50.9% to ¥5,989 million(US$50 million). Although we posted a loss due to the sale ofsome of the shares of an affiliate engaged in sales of electronicparts, accounted for by the equity method, the exclusion of thisaffiliate from the consolidated accounts led to a decrease ininvestment loss. As a consequence, we posted net income of¥777 million (US$6 million). By business segment (see page 12-15),
sales of Textiles decreased 5.3% to ¥74,034 million (US$617
million), and sales of Non-textiles were up 6.1% to ¥157,159

million (US$1,310 million). The ratio of Non-textiles sales to total
sales increased 2.6 percentage points to 68.0%, while the ratio of
Textiles sales to total sales decreased 2.6 percentage points
to 32.0%.

Q2. How do you view the three-year
management plan that ended in fiscal
2003?
For the last three years, the Nisshinbo Group as a wholeenthusiastically took various actions based on the management
plan. However, rapid changes in the business environment forced
us to accelerate structural reform, overseas operations and thelaunch of new businesses, and we incurred extra costs related torestructuring and investment. As a result, we were not able toachieve targeted consolidated sales of ¥300 billion and operating
income of ¥13 billion. This was disappointing, but we believe weremoved obstacles in our path and set up a base for smooth andspeedy business development. The Textile Division, in particular,
encouraged the reorganization of unprofitable sectors at homewhile stepping up its efforts to enhance production and sales
bases overseas, with the aim of establishing a worldwide
optimum production scheme (see page 10) for increased
competitiveness.

Q3.

What is the focus of the newthree-year management plan?
Up to the present, Nisshinbo emphasized the so-called “stock”type management. This management style involves theaccumulation of various assets and resources in-house and isrelatively immune to short-term changes in the businessenvironment such as cyclical recession. However, under theongoing structural change in the business environment, which
entails a decline in the value of these assets and resources, wemust adopt other measures as well. Our new three-year
management plan is designed to introduce a “flow”-type (morefluid) management style into such fields as performance
evaluation to revitalize our business operations, while retaining
the foundation of the traditional “stock”-type management withmore emphasis on efficient utilization of assets and resources instock to improve profitability.
Our major goal is to “strengthen our profit-making capability

4

Yoshikazu Sashida, President

and increase our corporate value.” For Nisshinbo, increasing
corporate value means enhancing our excellent corporate image
among all stakeholders, including shareholders, investors,
customers, business partners, employees, and local societies.
Under the corporate philosophy of “In all sincerity,” Nisshinbo
takes its corporate responsibility seriously and encourages“honest” corporate activities. In harmony with society and asa global citizen (see page 11), we will carry out corporate
activities in compliance with relevant regulations, corporate
ethics and environmental responsibility with the ultimate goal ofachieving further prosperity through fair business operations.
We will make strategic moves that address four importanttasks: “effective business planning” and “detailed performance
evaluation,” designed to facilitate activities of each businesssegment, “enhanced group management operations” tostrengthen the management capabilities of our group companies,
and “efficient business development” for promoting
commercialization of products originating from our R&D
operations.
The theme we have set for fiscal 2004 is “Thorough goal
management and increased profitability.” This also represents
the action theme of the new three-year management plan.
As a first step, we intend to spread the idea throughout the
Nisshinbo Group.

Three-year Management Plan 2006
Basic Objective• Increase profitability with the aim of enhancing corporate value
Key Tasks• Business plan: Formulate business plans for each segment and verify progress• Performance assessment: Assess segment performances every term based on
the performance assessment criteria• Consolidated management: Reinforce management capabilities of the Group
companies• New businesses: Promote commercialization of R&D themes companywide
Promotional Measures
In response to changing public perspectives on companies and globalization ofmanagement, the Company will promote the following measures to take a more
central role in the market.
1. Stress Customer Satisfaction (CS)
2. Improve asset efficiency
3. Establish globally optimized production and distribution systems
4. Form flexible corporate alliances and concentrate management resources on
key areas of strength
5. Develop and reinforce new businesses
6. Enhance investor relations
7. Ensure full compliance5

Q4. How are you going to carry out
thorough goal management?
For the last three years, we concentrated on the establishment ofa business system for effective goal management. During theterm under review, we set up a “Program for Promoting Annual
Management Goals,” which closely monitors and evaluates the
management goals of each segment headquarters. Based on thisprogram, we also introduced a management system called “N21
System,” which reflects the achievements of each segment on
the performance evaluation of individual employees. By clearly
defining the responsibilities of each segment headquarters, weplan to enhance their self-reliance. Also, each businessheadquarters is required to strengthen ties among groupcompanies within the segment. Through these efforts, we willconcentrate on three of the designated important tasks, namely“effective business planning,” “detailed performance
evaluation,” and “enhanced group management operations.” I
intend to attend meetings held at various corporate levels andimprove awareness of employees through direct discussions.

Q5. What approach are you taking topromote new business development?
We believe that our most important mission is to “produce whatcustomers demand.” As a manufacturer of intermediatematerials, we must satisfy customers’ requirements and provide
materials that contribute to making their final products morecompetitive. If we could do that, we could also improve
profitability. From this point of view, our efforts to develop new
businesses will concentrate on promoting direct communications
with our customers and gaining their confidence in our products.
As an example, we are currently promoting the fuel cell
separators (bipolar plates) business by asking our customers toevaluate various prototypes. Our ultimate goal is to establish ade facto standard.
Another important task is to eliminate a “death valley”
between our R&D efforts and product commercialization. If we do
not have know-how to convert business seeds into products thatcan contribute to society, these seeds, no matter how excellent
they look, will wither. To keep these seeds alive, we are
implementing two measures. One is the establishment ofa Business Developing Division which defines a clear pathto product commercialization (see page 8). The other is to draw
6

a distinctive line between seeds we can promote ourselves andthose needing external support by thoroughly considering thepossibilities of commercialization in the Business Implementing
Department, Research and Development Division. For the latter,our commercialization efforts will take the form of businessalliances with other companies having the required expertise, or
sales of commercialization rights.

Q6. What is your plan for improving the
profitability of existing business sectors?
Under the global deflationary trend, demand and supply
imbalance will impose increasing pressures on the sales prices ofindustrial goods. To make a profit, we must pursue “higher
quality,” “lower cost,” and “differentiation of productfunction” (see page 8), and finally gain competitiveness in the
global markets. Nisshinbo has been making efforts to achievethese three goals. Looking back at the past three years, ouraggressive business restructuring activity enabled us to become
more competitive. We will continue these efforts.
As in the case of new business development, we regard
business alliances as an important factor in promoting existing
businesses. An alliance may be formed within the Nisshinbo
Group or with customers, suppliers, and other companies withtechnical expertise. For example, the “Triangle Project” in the
textile sector, conducted jointly with Teijin Fibers Limited andNippon keori Kaisha Ltd., will need years to show adequate profit.
The point is that it allows us to accumulate technical assets,
thereby contributing to the attainment of higher quality andINTERVIEW WITH THE PRESIDENT

product differentiation. Close ties with shirt and denim material
manufacturers enables us to identify the preferences of end users
and develop differentiated products exactly tailored to theirneeds. With each company providing support based on its
expertise, we can also eliminate unnecessary costs. Establishingbusiness alliances in a flexible manner is our intention.

Q7.

You are also accelerating global
business development. Is that correct?
Yes. In the Textiles segment, we plan to encourage the worldwide
optimum production scheme. At the same time, the Global
Operations Promotion Office is playing a key role in establishinga global sales channel (see page 10), with the ultimate goal of
improving profitability. We are taking firm steps to make steadyprogress in overseas development of the textiles business.
Currently, we are focusing on reinforcing ties with existingproduction bases and smoothly launching operations at the two
joint ventures established in China during the previous term.
Overseas business development of the Automobile Brakes
sector (see page 11) is proceeding steadily. We are promoting
speedy business operations to keep pace with the rapid
globalization occurring in the automobile industry. In the friction
materials and automobile brakes field, the four local enterprisesin the U.S., Thailand, and South Korea are showing sound growth,and we are planning to expand their production facilities
accordingly. In the ABS segment, we transferred sales anddevelopment operations to Continental Teves Corporation (CTC),a joint venture with Continental Teves AG & Co. oHG (CT). This isalso an example of a business alliance that enables us to reduce
costs and demonstrate our respective areas of expertise in amore efficient manner.
We are also encouraging global business development in
the Papers, Chemical Products, and Machine Tools sectors(see page 10), pushing ahead with improvement of profitability.

Q8. Nisshinbo is introducing a “flow”-typebusiness reform and making the investments required for future
growth. The Real Estate Leasing business, one of our focusedfields, is showing steady progress, allowing us to set up a system
to circulate profits generated in this sector to our mainstay
business areas. Regarding marketable securities, we plan toreview and optimize our portfolio in order to counter a decreasein asset values caused by the sluggish market conditions. Finally,
we will review our capital participation in our subsidiaries andaffiliates, as necessary, to promote sound group operations.
Personnel is another important asset. In addition to thecontinuing cultivation of personnel skills, we will facilitate
efficient reallocation of human resources to improve profitability.

Q9. What is your policy regarding
dividends?
Our policy regarding dividends is to return profits toshareholders, ideally in line with earnings, while keeping retained
earnings at the level required to sustain future growth. Despite
our disappointing results for fiscal 2003, the dividend is ¥7.00(US$0.06) per common share, the same as for fiscal 2002.
We have completed the adjustment of our basic businessstructure and have made a good start on the new three-year
management plan. Because a company is a “living thing,” wemay face unexpected difficulties in the future, but we are ready tomake a swift response to changes in the situation and reinforce
our profit base. Our goal is to achieve balanced management thatcombines the strengths of both “stock”-type and “flow”-typemanagement styles. Nisshinbo and its employees recognize theimportance of carrying out corporate activities in harmony withsociety and in compliance with relevant regulations andcorporate ethics, and we will devote ourselves to theachievement of further prosperity through fair business
operations. We will also enhance our IR activities and encourage
disclosure of information to our shareholders. We take thisopportunity to ask for the continued support of our shareholders,customers and friends.

management style. How are you going toutilize your accumulated assets?
Our intention is to effectively utilize assets and resources
entrusted to us by our predecessors and shareholders. We plan tocarry out thorough asset management, while encouraging

Yoshikazu Sashida
President

7

SPECIAL FEATURES

Nisshinbo is engaged in new developments, including researchand development, product development, and marketing, with aview to pushing the pace on profitability. In addition, Nisshinbo isputting efforts into overseas development with an eye to market
globalization, thereby strengthening earning power throughtransfer of production bases and market expansion. The following
explanation highlights how Nisshinbo is tackling these two
agendas.

New development and creation of new markets
aimed at an improvement in profitability
Renovating the mechanism for commercializing development
projects
In fiscal 2003, Nisshinbo set up a
Business Developing Divisionindependently from its Researchand Development Division. The
purpose is to establish an
efficient mechanism that enables
highly promising new business
Next-generation condenser device (Original “ionicprojects to acquire earning power
liquid” as electrolyte in capacitor)
as soon as possible and be
nurtured to become pillar
businesses of Nisshinbo. To be
more specific, the Research andDevelopment Division nurturesdevelopment and highly
promising seeds, and hands over
Carbon molded separators (bipolar plates)

those that are considered most promising and given approval bymanagement to the Business Developing Division in order to develop
the projects into profitable lines of business. (See flow chart.)
Although the Research and Development Division used to be
responsible for the entire commercialization process, the narrowing
down of its roles has enabled the division to concentrate on
supplying seed businesses, so allowing it to promote research anddevelopment activities efficiently with more focused targets. Some ofthe seed businesses waiting for commercialization include thefollowing:* An electric double layer capacitor developed by applying ouroriginal “ionic liquid” as an electrolyte. There are possible
applications in electric cars, etc.
* Applications in the field of biodegradation (return to the soil) of
polycarbodiimide that can enhance the functions of materials
Projects currently in progress at the Business Developing Division
include fuel cell separators (bipolar plates) (by the Fuel Cell
Department) and optical filters for plasma display panels (by the
Optical Department). For the former project, following the transfer tothe Miai Plant in May 2002, a production system has been
established to provide an annual production of 2 million units, andthe division is now in the process of promoting development incollaboration with our customers through production of prototypes
aimed at full-scale introduction to the fuel cell market. The latterproject was transferred to the Harisaki Plant in March 2003, andbuilding up of a production system is currently under way. Against abackground of rapid market expansion, we are facing the urgent
need to reinforce our production system. With this project, we arewitnessing improvements in the profit structure, and expect thebusiness to show a gain.
R&D expenditure for fiscal 2003 was ¥5,917 million (US$49
million), a 2.8% reduction from fiscal 2002. The reduction was
attributable to the establishment of a new division, and indicates asmooth shift from development to commercialization. As of the endof March, 31, 2003, the number of domestic and overseas patents
held by Nisshinbo was 819, while patent applications outstanding
totaled 1,771.
Earning ability supported by competitiveness gained through adifferentiation strategy“Differentiation” is the keyword in product development at eachdivision. We are stepping up our initiatives by combining maximum
use of diverse technological bases and collaboration with ourcustomers and partners, aimed at developing high value-added

8

products that can contribute to a high-profit structure.
In the Textiles segment, collaboration among our sales, marketingand production departments in developing products with the Textile
Research and Development Center is playing a pivotal role. The
direction of the development themes is high performance (wash &wear properties, water-absorbency and quick drying properties,
antibacterial properties, etc.), high sensitivity (touch, comfort inwearing, etc.) and environment-friendliness (use of materials andprocessing methods that can reduce environmental loads). In
collaboration with customers, we are promoting development of
products that support their needs. Recently, for example, wedeveloped the NON CARE 100% cotton wash-and-wear shirt.
In the Automobile Brakes sector, following the transfer of sales
and development of ABS and ESP (Electronic Stability Program) to
the joint venture company Continental
R&D Expenditure
Teves Corporation (CTC), we have focused(billions of yen)
our efforts on strengthening our
8technology in friction materials and drumbrakes. We have been building the7
foundations for further growth by
6
implementing technology development
and investments looking to the future by
5getting a clear picture of customers’
4needs, under such themes as highcoefficient of friction, noise/vibration
3
characteristics, improvements of brake2
pad life, eco-friendly and innovative cost
reduction through the application of new
1
technology, construction methods and0materials. We place emphasis on’99 ’00 ’01 ’02 ’03

strengthening our capability in developing products that can satisfy
different market needs in Japan, Europe, and the U.S., and on
standardizing the platform as part of the global trend. Developmentof environment-friendly friction materials is also under way. We areengaged in these activities through diversified collaboration with ouroverseas subsidiaries, affiliates, and technical affiliation partners.
Our Paper business is characterized by product development
based on our original technology and unique concept, targeting nichemarkets which major paper manufacturers are not eager to exploit.
Apart from household papers and fine papers, we are making astrong effort to develop all types of ink jet media.
In the Chemical Products sector, we are tackling diversified
projects, including: establishment of next-generation CFC-freetechnology; application of a high-insulation, anti-global warming
product, N’s VIP ; development of recycling-oriented products, APG®
(Aqua Porous Gel) for water treatment; environment-related businessinvolving the use of BCN® (Bio Contact N); and the nurturing andstrengthening of health and nursing care-related businesses.
In the Machine Tools business, apart from development focusedon environment-friendly facilities such as a photovoltaic module
manufacturing system and kitchen waste disposal units, we also
intend to develop products targeting the aircraft industry.
In the CCM systems business, we areproceeding with product development of highperformance and high value-added CCM, andworking on product operation and market
cultivation. We intend to expand into thecosmetics market, where toning is generally
considered difficult, and the automobile
market.
Do Jyo Riki III, a kitchen waste
disposal unit

Flow Chart of Commercialization of New Business

Basic research↓
Selection of promising projects↓
Early-stage business↓
Decision reached (whether to proceed)↓
Full-scale commercialization
Initiatives to secure profit

Research and Development Division

Business Implementing Dept., Researchand Development Division

Board of Directors’ meeting

Business Developing Division

100% pure cotton NON CARE wash-and-wear shirt
The first 100% cotton wash-and-wear shirt is a product of our joint project with Itochu
Corporation, a leading Japanese trading company, and TAL Apparel Ltd., a major
apparel manufacturer in Hong Kong. It is the ultimate 100% cotton shirt, offering all
the comfort of a cotton product while remaining genuinely wrinkle free after washing,with no need for ironing. The
combination of the material
developed by Nisshinbo, thespecial sewing technology of
TAL Apparel Ltd., and thecoordination ability of Itochu
Corporation, has optimized the
product, which is attracting
attention in markets in Japan,
Europe and the U.S.

9

Establishing an optimized global production and marketingsystem in the textiles businessOur basic policy is to develop new products and high value-added
products in Japan while producing high-quality basic products
overseas for the global markets. In this way, we ensure that local
and overseas production facilities are kept in balance. However, we
make a decision on the optimal production base throughcomprehensive judgment of conditions, including location of thecustomer, operation status, leadtime, etc. Therefore, we determine
production bases on a case-by-case basis; for instance, we produce
high value-added products in Indonesia. In addition, highly advanced
technology that we have developed domestically is being used
overseas, thereby increasing our competitiveness through the
manufacture of high-quality, low-cost products.
By strengthening facilities and building an integrated production
system at P.T. Nikawa Textile Industry (Nikawa Tex) in Indonesia and
P.T. Gistex Nisshinbo Indonesia (G&N), we are operating with anincreased sense of unity. In addition to Mingly Textiles (Changzhou)Ltd., specializing in spinning and weaving, and Hangzhou Yimian
Limited, specializing in spinning, weaving, finishing and knitting in
China, we are preparing for the operational launch of Ningbo Veken
Textile Co., Ltd., which will produce cotton and synthetic fiber spun

yarn, and Ningbo Sunrise Textile
Dyeing and Finishing Co., Ltd.,
which will specialize in bleachand dye processing of shirt andtrouser materials. These
companies are scheduled tostart operations during 2003.
The highly advanced
technological power we havedeveloped in Japan is being
used overseas, ensuring highquality products under the
Nisshinbo brand while keeping
costs low and allowing us to be
Mingly Textiles (Changzhou) Ltd.
competitive in the markets.
Our overseas business strategy is characterized by exports toJapan, Japanese apparel manufacturing affiliates overseas, andexports to third countries, including Europe and the U.S. Nisshinbo(Shanghai) Co., Ltd. is in charge of marketing products produced in
China. In addition, Nisshinbo do Brasil Industria Textil Ltda. isdeveloping stable sales activities centered on the local market.
We set up a Global Operation Promotion Office in April 2002. This
office has the role of building strategic marketing systems formarkets in Japan, Europe, the U.S. and Asia by coordinating
divisions, departments and bases in order to maximize earning
capability.

Overseas Network

International Technical Agreements

Global Development

As licensee:● Taltech Limited of the British Virgin Islands for Pucker Free Seam Technology● Meritor Heavy Vehicle Braking Systems (UK) Ltd. for commercial vehicle disc braketechnology● Continental Teves AG & Co. oHG of Germany for MK60 ABS and ESP TCS technology

As licensor:● Jiangsu yawei machine tool Co., LTD. of China for CNC turret punch press technology● Rane Brake Linings Limited of India for friction materials technology● Heng Tong Auto Parts Inc. of Taiwan for friction materials and passenger car disc braketechnologies

As cross-licensing partners:● TMD Friction Beteiligungs GmbH & Co KG of Germany for friction materials technology● TRW Inc. of the U.K. for drum brake technology● Meritor Heavy Vehicle Braking Systems (UK) Ltd. for drum brake technology● Continental Teves AG & Co. oHG of Germany for passenger car disc brake technology● Continental Teves AG & Co. oHG of Germany for NT20/MK20 ABS and TCS technologies

10SPECIAL FEATURES

Overseas development of automobile brakes, responding quickly
to globalization of automobile production
Based on two domestic companies and four overseas subsidiaries,
Nisshinbo is developing its Automobile Brake business bycooperating with several technical affiliation partners overseas.
Globalization of the automobile and automobile parts markets has
accelerated customers’ movements toward “optimal global
procurement of parts.” Accordingly, Nisshinbo has been required to
globalize its entire corporate activities, including QCD (quality, cost,and delivery) and product development. Recognizing globalization as
an opportunity, we set up a Global Business Department in April
2003 in our Brake Division with the aim of expediting businessdevelopment by leveraging the management resources of Group
companies at home, abroad and in alliance with our overseas
technical affiliation partners. To pursue optimal profitability acrossNisshinbo’s entire Automobile Brake business, the unit has the roleof distributing management resources, including manpower andstrategy development, and managing domestic and overseas
business offices.
Saeron Automotive Corporation in South Korea plans to set up a
subsidiary that manufactures sintering products in a suburb of Beijing,a response to the entry of Korean automobile manufacturers into
China. Once the business gets on track, the company will accept neworders locally. Although this marks our first automobile brake businessdevelopment in China, Nisshinbo is also studying a plan to enter themarket independently in the field of friction materials production.

Measures to strengthen earning power through other global
activities
In the Paper Products business, we are promoting optimal location
production and procurement by procuring from overseas crude
papers for household paper products and producing standard
molded products in China, etc. We are also planning to develop ahigh-quality printing paper business overseas.
In the Chemical Products sector, we are preparing for overseas
production and overseas sales network development for N’s VIP,
polyurethane elastomer, and carbon products. We have started
studying business development in China and Thailand by survey
activities in cooperation with a domestic trading company andthrough reinforcing our partnership with Nippon Kohbunshi Co., Ltd.
and its subsidiaries.
In the Machine Tools sector, we have been offering expertise to aturret punch press manufacturing company in China in order toobtain access to local markets. We plan to acquire a market throughcompartmentalization with an eye to forming alliances with overseas
competitor manufacturers.
In the Human Resources
Division, we set up a Global
Human Resources Department
in January 2002 to support
smooth global operations andemployees’ activities atoverseas subsidiaries.
Our high-quality printing paper

Promoting corporate activities aimed at coexistence with society
Corporate governance initiatives
We believe that the Company’s Board of Directors, which meets monthly, is functioning
properly as the supervising organization of Nisshinbo. The Company has two internal
auditors and three external auditors. To assure fair practice in financial audits, we
receive advice from corporate lawyers as necessary and undergo audits by multiple
public accounting firms. We also actively disclose information such as IR information,
including quarterly account settlement data.
Activities aimed at stepping up complianceIn accordance with our basic philosophy, “In all sincerity,” we have continually madestrong efforts to assure compliance. We instituted a “corporate ethics reporting system”
in July 2003 by setting up a window to service inside and outside the Company in the
Corporate Ethics Committee.
Environmental initiatives
Of the specific action targets set out in the “Nisshinbo Environmental Charter” asrevised in April 2000, we have succeeded in achieving the following two:
* Reducing industrial waste emissions for fiscal 2003, ended March 2003, by 10%
compared with fiscal 2000, ended March 2000.

* Reducing energy consumption rate (share of energy in the manufacturing cost) by 1%each year, and achieving a 3% reduction in fiscal 2003 compared with fiscal 2000.
We will step up our initiatives, and consider disclosure of environmental information of
the entire Group by setting up a website.
Acquisition of ISO14001, the international certification for environmental
management systems, by all domestic business offices excluding the Harisaki Plant
and Miai Mechatronics Plant is completed. Three overseas brakerelated subsidiaries have already obtained the certification.
At Nisshinbo, we are devoted to the development of
eco-conscious products. Our Textile Division
succeeded in manufacturing the world’s firstfiber products from banana stems, usuallydisposed of as industrial waste. The
product is attracting attention as ahighly water-absorbent andlightweight new material.

11

REVIEW OF OPERATIONS

TextilesIn fiscal 2003, ended March 31, 2003, Japanese textile consumption
showed only a limited recovery in the face of an uncertain economic
future. With an increase in the shift of production overseas, mainly of
secondary products, and growing concern over credit uneasinesstriggered by the disposal of non-performing loans held by banks, thetextile industry endured an extremely difficult business environment.
In the Textiles segment, while we have been promoting cost reduction
through the reorganization of domestic plants and strengthening ouroverseas business operations, we have also been making efforts tofacilitate product development, boost sales capabilities, and reduce
sales and administrative costs. Particularly, we conducted a trimmingof inventory aimed at strengthening our profitability structure. Althoughthese efforts began to bear some fruit in the latter half of the fiscal
year, they were insufficient to cover a fall in sales during the first half.
Accordingly, sales and operating income decreased compared withfiscal 2002. Consolidated net sales of the Textiles segment amounted to¥74,034 million (US$617 million), a decrease of 5.3% and accounting
for 32.0% of total consolidated net sales, down 2.6 percentage points.
Operating loss was ¥687 million (US$6 million).
Sales of yarns for textiles and knitted products decreased, due to adecrease in domestic demand triggered by the shift of production
overseas by customer companies. However, our efforts to concentrateon sales of special and originally developed yarns allowed us to post an
increase in operating income.

Despite our efforts to expand
sales to manufacturers of
women’s apparel and develop
differentiated textile materials,
sales and operating income ofknitted products decreased
sharply, affected by a shift of
production overseas of suchproducts as sport wear andcasual wear targeting masssales outlets.
Sales of shirt materials
Our COMFORT PROPOSAL direct marketing businessincreased steadily owing tooffers high value-added products, such as those ina successful reinforcement ofour prestigious SUPER SOFT line
efforts targeted at large domestic
and overseas customers. Operating income from domestic products
decreased due to a fall in sales prices. Operating income from overseas
products increased as a result of our efforts to raise the added value ofour products.
Sales and operating income of bedding, our mainstay product in thehousehold textiles sector, decreased sharply due to the firm
establishment in the market of low-priced imports.
Sales of denim, our main product, increased owing to a steady
growth in the domestic, U.S. and European markets. In the casual wear
field, new products such as stretch and complex textile materials werein good demand. However, stagnant demand for general products led toa decrease in overall sales. In spite of a decrease in sales of uniform

Sales of Textiles(billions of yen)

100

80

60

40
Our denim products appeal to a wide range ofconsumers.

20

0

12

’99 ’00 ’01 ’02 ’03

materials due to a fall in customer demand, strengthened cooperation
with overseas affiliated companies contributed to a recovery inoperating income.
Domestic demand for spandex for panty hose remained weak anda reduction in shipment volume caused by users’ production
adjustments resulted in a decrease in sales. However, operating
income increased owing to our efforts in developing and expanding
sales of differentiated yarns.
Our OIKOS non-woven fabrics, valued for their pure cotton feature,steadily gained market popularity, leading to an expansion in sales of
new products together with an increase in overall sales.
In our direct marketing business, COMFORT PROPOSAL, certain
high-quality goods showed a slowdown in sales in the latter half of the
fiscal year. However, sales of SS
products for women’s wear
steadily increased, resulting in an
increase in overall sales andoperating income.
Overseas, we completed areinforcement of spinningfacilities at P.T. Nikawa Textile
Industry in Indonesia. In China,
we expanded our cooperative
production system with Mingly
Textiles (Changzhou) Ltd. andHangzhou Yimian Limited.
An entry at the Annual Nisshinbo Fashion Contest
Projects for the launch ofoperations at Ningbo Sunrise Textile Dyeing and Finishing Co., Ltd. andNingbo Veken Textile Co., Ltd., which is currently constructing its plant,
were carried out as planned.

Non-textiles
The Non-textile segment, excluding the Other Products sector, madea good showing, which, together with the consolidation of an additional
subsidiary, led to a growth of thewhole segment. Consolidated net
sales increased 6.1% from fiscal
2002 to ¥157,159 million(US$1,310 million). Operating
income was up 44.8% to ¥6,676
million (US$56 million). The ratioof Non-textile sales to total sales
Our brake parts
was up 2.6 percentage points to
68.0%. Chemical Products, which were formerly included in the Other
Products sector, became an independent sector from fiscal 2003.
Automobile Brakes
Sales of Automobile Brakes increased 8.5% from fiscal 2002 to ¥56,353
million (US$470 million). Operating income increased to ¥5,079 million(US$42 million), 53.6% up from fiscal 2002.
Sales of Automobile Brakes increased both in Japan and overseas.

Sales of Automobile
Brakes(billions of yen)
60

50

40

30

20

10

0

’99 ’00 ’01 ’02 ’03

13

In Japan, an increase inautomobile production andorders for spare parts contributed
to good results. Overseas, anincrease in orders from the Big
Three and other U.S. customers,
increased orders in South Korea
due to expanded production by
Our ABS is fitted in the Honda MOBILIO
major customers, and a rise in© Honda Motors Co., Ltd.
shipments in Thailand
contributed to a favorable sales
performance. In addition to the increases in orders, enhanced efficiency
accompanying the transfer of friction materials production facilities to
the Tatebayashi Plant began to show results and led to an increase inoperating income.
Sales and operating income of ABS increased owing to good sales
performance of the vehicles equipped with our products.
PapersSales of paper products
increased 6.0% from fiscal 2002
to ¥27,024 million (US$225
million), while operating income
was up 4.9% to ¥1,611 million(US$13 million), reflecting stablepulp prices.
In the household papers

Sales of Papers(billions of yen)

Our household paper products

sector, sales expansion of new products and a recovery in sales prices
contributed to an increase in sales.
Sales of fine papers increased owing to an increase in orders forhigh-quality printing papers.
In the fabricated products sector, operating income increasedslightly due to cost reductions resulting from manufacturing in China
and in spite of a decrease in sales owing to a fall in orders.
Sales and operating income of label printing increased due to anincrease in orders and our efforts to improve production efficiency.
Chemical Products
Sales of Chemical Products sector totaled ¥30,778 million (US$256
million), up 27.7% from fiscal 2002. Operating income was ¥151 million(US$1 million), compared with a loss for fiscal 2002.
Despite a decrease in sales of polyurethane foam, affected bystagnation in the construction and plant industries, operating income
increased owing to our efforts in expanding sales of new products such
as N’s VIP, a vacuum heat insulation panel, products used in water
treatment plants, and seats usedin railway cars. Rationalizationof production systems andstructural reforms wereadditional contributory factors.
Sales and operating income ofpolyurethane elastomers
increased due to a recovery in
N’s VIP, our vacuum insulation panel
sales of tapes for apparel for

Sales of Chemical
Products(billions of yen)
35

30

30

25

25
20
20
15
15
10
10
5

0

5

’99 ’00 ’01 ’02 ’03

0’99 ’00 ’01 ’02 ’03

Note: Chemical Products, previously included in the Other Products sector, will be treatedindependently from fiscal 2003, due to the growing importance and potential of the sector.
Figures for previous fiscal years have been adapted to take account of this change.

14

overseas.
Sales of carbon products increased due to a sales expansion ofplates for semi-conductor manufacturing systems.
Another contributory factor to the increase in sales was ourconsolidation with Iwao & Co., Ltd.
Other Products
Sales of Other Products
totaled ¥38,220 million(US$319 million), a decreaseof 8.3% from fiscal 2002.
Operating loss was ¥2,764
million (US$23 million).
Solar Module Laminator, Solar Battery Production Equipment● Machine Tools
In spite of the severe environment, characterized by continued
weakness in domestic capital investment in plant and equipment, sales
and operating income of Machine Tools increased owing to a good
performance by cutting and welding equipment in line with higher
demand for auto-related facilities.

Our CCM systems lead the toning industry, especially in the ink andpaint industries. In fiscal 2003, we began engineering at toning
manufacturing through sales andinstallation of large-scaled, fuzzy
logic CCM, Automatic Dispensing
System and Computer Aided
Process Control System. We
will continue to make efforts
CHOSHOKU SENKA color matching system
in manufacturing process
support systems.
Real Estate Leasing
The Real Estate Leasing business is growing steadily, and sales
increased 8.7% over fiscal 2002 to ¥4,785 million (US$40 million).
Operating income was up 12.5% to ¥2,569 million (US$21 million).
New leasing projects increased and now include the former groundat the Notogawa Plant leased to Heiwado Co., Ltd., a distribution
company, as a commodities and grocery store in February 2003.

● Others
Sales and operating income of electronic communications equipment
decreased, due to a termination of transactions with major customers
and lower sales prices. Sales of optical filters for plasma display panels(PDP) increased owing to market expansion, while losses increased due
mainly to a rise in production costs.

Sales of Other Products(billions of yen)

Friend Mart Shopping Center (Shiga Prefecture, Japan)

Sales of Real Estate
Leasing(billions of yen)

50

5

40

4

30

3

20

2

10

1

0

’99 ’00 ’01 ’02 ’03

0’99 ’00 ’01 ’02 ’03

15

SIX-YEAR SUMMARY(millions of yen)

Net Sales
Operating Income
Net Income
Shareholders’ Equity
Total Assets
Shareholders’ Equity Ratio (%)
Return on Equity (%)
Capital Investment
Depreciation and Amortization

1998
240,249
3,989
1,087
199,373
329,10260.6
0.5
13,385
13,634

1999
226,800
373
4,161
200,779
359,390
55.9
2.1
23,002
13,411

2000
227,452
4,140
2,648
194,685
339,373
57.4
1.3
23,232
14,228

2001
233,535
5,751
517
192,331
334,460
57.5
0.3
17,093
13,134

2002
225,836
3,968-2,649213,665
364,16158.7-1.3
13,243
13,422

2003
231,193
5,989
777
186,028
312,909
59.5
0.4
9,057
12,758Per Share (in yen):
Net Income
Shareholders’ Equity
Cash Dividends

4.60
843.21
7.00

17.60
843.177.00

11.36
857.057.00

2.32
868.497.00-12.03988.027.00

3.18
860.52
7.00

Number of Employees

8,452

8,452

8,235

8,104

8,456

8,627

Operating Income

Total Assets(billions of yen)(billions of yen)

Shareholders’Equity Ratio

Return on Equity
(%)

(%)
6

400

80

300

60

3.0

4

1.5
200

40

100

20

2

0.0

0

0
’98 ’99 ’00 ’01 ’02 ’03

Capital Investment(billions of yen)

-1.5

0’98 ’99 ’00 ’01 ’02 ’03’98 ’99 ’00 ’01 ’02 ’03

Depreciation andAmortization

Net Income per Share(yen)(billions of yen)
15

25

’98 ’99 ’00 ’01 ’02 ’03

Shareholders’Equity per Share
(yen)
1,000

20
15

20

800
10
10

15

600

5
0

10

400

5
-5
5

200
-10
0

0
’98 ’99 ’00 ’01 ’02 ’03
16

0

-15
’98 ’99 ’00 ’01 ’02 ’03’98 ’99 ’00 ’01 ’02 ’03’98 ’99 ’00 ’01 ’02 ’03

FINANCIAL REVIEW

Operating Results
On a consolidated basis, net sales for fiscal 2003, ended March 31,
2003, totaled ¥231,193 million (US$1,927 million), an increase of
2.4% over fiscal 2002.
In the Textiles segment, we reorganized our domestic plants asa means of reducing costs and strengthened overseas operations,while stepping up efforts to develop new products, boost sales
capabilities and reduce selling, general and administrative
expenses. These initiatives, however, proved insufficient to offset
the effect of a severe drop in domestic sales resulting from thepressure of imports on sales prices. Consequently, net sales
decreased 5.3% from fiscal 2002 to ¥74,034 million (US$617 million), showing an operating loss. Causative factors included loss onreevaluation of slow-moving inventories and reduced profit of a
subsidiary in Indonesia, and the ratio of Textiles sales to total sales
was 32.0%, down 2.6 percentage points.
With the exception of the Other Products sector, the Non-textiles
segment showed steady sales, with a newly consolidated affiliate in
the Chemical Products sector making a contribution. Net sales
totaled ¥157,159 million (US$1,310 million), up 6.5% over fiscal
2002 while operating income also increased. The ratio of Nontextiles sales to total sales was 68.0%, up 2.6 percentage points.
Cost of sales increased 1.7% over fiscal 2002 to ¥199,272
million (US$1,661 million), while the ratio of cost of sales to net
sales was down 0.6 percentage points to 86.2%. Selling, generaland administrative expenses decreased 0.1% to ¥25,932 million(US$216 million). Costs and expenses amounted to ¥225,204 million(US$1,877 million), up 1.5% over fiscal 2002. As a result, operating
income increased 50.9% to ¥5,989 million (US$50 million).
Equity in losses of affiliates was ¥310 million (US$3 million),a ¥4,847 million decrease from fiscal 2002, due to the disposal ofsome shares of Japan Radio Co., Ltd. and Nagano Japan Radio Co.,
Ltd. After this disposal, these affiliates were excluded from thoseaccounted for by the equity method. With these factors, otherexpenses for fiscal 2003 were ¥2,435 million (US$20 million),a ¥1,487 million decrease in loss from fiscal 2002. Income before
income taxes and minority interests was ¥3,554 million (US$30
million), up ¥3,508 million over fiscal 2002. After deducting ¥2,971
million (US$25 million) of income taxes and adding ¥194 million(US$2 million) of minority interests in net income, we recorded a net
income for fiscal 2003 of ¥777 million (US$6 million). Net income
per share was ¥3.18 (US$0.03), an increase of ¥15.21, while ROE
was 0.4%, up 1.7 percentage points over fiscal 2002.
Total cash dividends per share for fiscal 2003 were ¥7.00(US$0.06), the same as for fiscal 2002. Cash dividends paid totaled¥1,515 million (US$13 million). Taking a long-term point of view, we
will continue to follow our basic policy of maintaining dividends at
a stable level.

Financial Position
Total assets amounted to ¥312,909 million (US$2,608 million), down
14.1% from fiscal 2002. Under current assets, accounts such as
cash and cash equivalents, and deferred tax assets increased,
while receivables and inventories decreased. As a result, current
assets for fiscal 2003 were ¥137,575 million (US$1,146 million),
down 1.7% from fiscal 2002. With regard to fixed assets, property,
plant and equipment decreased 5.5% to ¥104,552 million (US$871
million). Investments and other assets totaled ¥70,782 million(US$590 million), down 37.7% from fiscal 2002, due to a decreasein the balance of investment securities caused mainly by the slump
in the stock market.
Total current liabilities amounted to ¥78,905 million (US$658
million), down 9.3% from fiscal 2002, with a reduction in the balanceof short-term bank loans making a contribution. Long-term liabilities were ¥42,808 million (US$357 million), down 26.4% from fiscal
2002, due mainly to reductions in long-term debt and deferred tax
liabilities as a result of mark-to-market valuation of marketablesecurities. Total current and long-term liabilities were ¥121,713
million (US$1,014 million), a 16.1% decrease from fiscal 2002.
Shareholders’ equity decreased 12.9% to ¥186,028 million(US$1,550 million), making shareholders’ equity ratio 59.5% (up 0.8
percentage points over fiscal 2002), and shareholders’ equity pershare was ¥860.52 (US$7.17), down ¥127.50 from fiscal 2002.
Cash Flows
Cash flows from operating activities

Net cash provided by operating activities was ¥24,031 million(US$200 million), reflecting ¥3,554 million (US$30 million) net
income before income taxes and minority interests, and was offset
by ¥12,758 million (US$106 million) for depreciation and amortization, and decrease of ¥5,615 million (US$47 million) in inventories.
Cash flows from investing activities

Net cash provided by investing activities was ¥6,055 million (US$50
million). This was due mainly to proceeds from sales of property,
plant, and equipment of ¥14,071 million (US$117 million), including
the sale of a former site of the Tokyo Plant, offset by payment forpurchase of new property, plant, and equipment of ¥10,242 million(US$85 million).
Cash flows from financing activities

Net cash used in financing activities was ¥13,917 million(US$116 million), due mainly to a ¥11,791 million (US$98 million)
decrease in long/short-term borrowings.
As a result of the above, cash and cash equivalents at the endof the fiscal year totaled ¥29,523 million (US$246 million), up¥16,104 million over fiscal 2002.

*For details of divisional results, see “Review of Operations.”17

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Consolidated Balance Sheets
31st March, 2003 and 2002

(millions of yen)
2003
2002

(thousands of
US dollars)(Note 1)
2003

29,523
5,273
592

13,4195,794—$ 246,025
43,942
4,933

12,09341,888
7,493
675
62,149(1,215)60,93437,351
2,552
1,350
137,575

12,90137,001
10,531
13,27573,708(742)
72,96643,3801,528
2,886
139,973

100,775
349,066
62,442
5,625
517,908(10,125)
507,783
311,258
21,267
11,2501,146,458

16,76098,277
193,129711
308,877(204,325)
104,552

16,236
96,621
202,136
2,941
317,934(207,333)
110,601

139,667
818,975
1,609,408
5,925
2,573,975(1,702,708)
871,267

64,29787,723535,808

3,870
368
2,247
70,782¥ 312,909

23,500532
1,832
113,587¥ 364,161

32,2503,067
18,725589,850$ 2,607,575

ASSETS
Current assets:
Cash and cash equivalents ..................................................................................
Time deposits.......................................................................................................
Marketable securities (Note 4).............................................................................
Receivables
Notes receivable, trade....................................................................................
Accounts receivable, trade ..............................................................................
Unconsolidated subsidiaries and affiliates ......................................................
Other ................................................................................................................
Less allowance for doubtful accounts .............................................................
Inventories (Note 3)..............................................................................................
Deferred tax assets (Note 7) ................................................................................
Other current assets ............................................................................................
Total current assets.....................................................................................

Property, plant and equipment:
Land .....................................................................................................................
Buildings and structures ......................................................................................
Machinery, equipment and tools..........................................................................
Construction in progress......................................................................................
Less accumulated depreciation ...........................................................................

Investments and other assets:
Investment securities (Note 4) .............................................................................
Investments in and advances to unconsolidated
subsidiaries and affiliates (Note 4) ..................................................................
Deferred tax assets (Note 7) ................................................................................
Other ....................................................................................................................

See Notes to Consolidated Financial Statements.

18

¥

¥

LIABILITIES AND SHAREHOLDERS’ EQUITY(millions of yen)
2003
2002

(thousands of
US dollars)(Note 1)
2003

Current liabilities:
Short-term bank loans (Note 5)............................................................................
Current portion of long-term debt (Note 5) ..........................................................
PayablesNotes and accounts payable, trade.................................................................
Unconsolidated subsidiaries and affiliates......................................................
Other................................................................................................................
Employees’ savings deposits ...............................................................................
Accrued expenses................................................................................................
Accrued income taxes..........................................................................................
Other current liabilities ........................................................................................
Total current liabilities................................................................................
Long-term liabilities:
Long-term debt (Note 5).......................................................................................
Accrued severance benefits (Note 6) ...................................................................
Deferred tax liabilities (Note 7) ............................................................................
Other long-term liabilities ....................................................................................

Minority interests in consolidated subsidiaries ..............................................................................

48,4152,185$ 313,083
27,35020,859405
3,557
24,821
4,021
3,695
3,831
1,685
78,905

19,236
1,023
4,274
24,533
4,165
3,690
422
3,553
86,963

173,825
3,375
29,642
206,842
33,50830,792
31,925
14,042
657,542

7,574
23,574
3,553
8,107
42,80811,02922,893
16,042
8,172
58,136

63,117
196,450
29,60867,558356,733

5,168

5,397

43,067

27,58820,401—
131,5319,628(2,921)

27,58820,401
170
141,022
25,715(1,151)

229,900
170,008—
1,096,092
80,233(24,342)(199)
186,028¥ 312,909(80)
213,665¥ 364,161(1,658)1,550,233$ 2,607,575¥

37,5703,282¥Commitments and contingencies (Note 12)
Shareholders’ equity (Notes 10 and 13):
Common stock:
Authorized — 380,137,000 shares
Issued — 216,580,939 shares ........................................................................
Additional paid-in capital .....................................................................................
Revaluation surplus..............................................................................................
Retained earnings ................................................................................................
Net unrealized gain on available-for-sale securities ...........................................
Foreign currency translation adjustments ...........................................................
Less shares in treasury
2003 — 504,285 shares
2002 — 325,316 shares .................................................................................

19

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Consolidated Statements of Income
Years ended 31st March, 2003 and 2002

(thousands of
US dollars)(Note 1)
2003

(millions of yen)
2003
2002

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

¥ 231,193¥ 225,836$ 1,926,608

199,272
25,932
225,204

195,917
25,951
221,868

1,660,600
216,100
1,876,700

5,989

3,968

49,908

1,957(1,464)(310)(2,618)(2,435)2,073(1,767)(5,157)929(3,922)

16,308(12,200)(2,583)(21,817)(20,292)

3,554

46

29,616

4,529(1,558)
2,971

1,426
1,238
2,664

37,741(12,983)
24,758

583
194
777

(2,618)(31)
2,649)

4,858
1,617
6,475

Costs and expenses:
Cost of sales.........................................................................................................
Selling, general and administrative expenses.....................................................

Operating income ...............................................................................................................................
Other income (expenses):
Interest and dividend income...............................................................................
Interest expenses.................................................................................................
Equity in losses of affiliates .................................................................................
Other, net (Note 11)..............................................................................................

Income before income taxes and minority interests.......................................................................
Income taxes (Note 7)
Current .................................................................................................................
Deferred ...............................................................................................................

Income (loss) before minority interests............................................................................................
Minority interests in net income (loss).............................................................................................
Net income (loss) ................................................................................................................................

¥

(¥

(yen)

$

(US dollars)

Per share:
Net income (loss) .................................................................................................
Cash dividends.....................................................................................................

See Notes to Consolidated Financial Statements.

20

¥

3.18
7.00

(¥

12.03)
7.00

$

0.03
0.06

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Consolidated Statements of Shareholders’ Equity
Years ended 31st March, 2003 and 2002

(millions of yen)
2003
2002

(thousands of
US dollars)(Note 1)
2003¥

27,588¥27,588$ 229,900¥

27,588¥27,588$ 229,900

Additional paid-in capital:
Balance at beginning of year ...............................................................................

¥

20,401¥

20,401$ 170,008

Balance at end of year .........................................................................................

¥

20,401¥

20,401$ 170,008

¥

170
(170)
—

¥

—
170
170

Common stock:
Balance at beginning of year
(2003 — 216,580,939 shares; 2002 — 221,743,939 shares).........................
Balance at end of year
(2003 and 2002 — 216,580,939 shares).........................................................

Revaluation surplus:
Balance at beginning of year ...............................................................................
Net changes .........................................................................................................
Balance at end of year .........................................................................................

¥

¥

$
$

1,417
(1,417)—Retained earnings:
Balance at beginning of year ...............................................................................
Adjustments due to decrease in consolidated subsidiaries.................................
Adjustments due to increase/decrease in 20%~50% owned affiliates ...............
Adjustments due to increase in ownership interest in
20%~50% owned affiliates .............................................................................
Net income (loss) .................................................................................................
Cash dividends.....................................................................................................
Directors’ and statutory auditors’ bonuses ..........................................................
Retirement of treasury stock ...............................................................................

Net unrealized gain on available-for-sale securities:
Balance at beginning of year ...............................................................................
Net changes .........................................................................................................
Balance at end of year .........................................................................................
Foreign currency translation adjustments:
Balance at beginning of year ...............................................................................
Net changes .........................................................................................................
Balance at end of year .........................................................................................
Treasury stock at cost:
Balance at beginning of year ...............................................................................
Add: acquired .......................................................................................................
Balance at end of year .........................................................................................
See Notes to Consolidated Financial Statements.

¥ 141,022—(8,667)¥ 148,214
79(39)$ 1,175,183—(72,225)—
777(1,515)(86)—¥ 131,531(354)(2,649)(1,550)(77)(2,602)¥ 141,022—
6,475(12,625)(716)—$ 1,096,092¥¥$ 214,291(134,058)$ 80,233

¥

(¥
(¥

(¥
(¥

25,715(16,087)
9,628

¥

—
25,71525,715

1,151) (¥(1,770)2,921) (¥3,809) ($2,658
1,151) ($9,592)(14,750)
24,342)80) (¥(119)
199) (¥63) ($(17)80) ($

667)(991)
1,658)
21

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Consolidated Statements of Cash Flows
Years ended 31st March, 2003 and 2002
(thousands of
US dollars)(Note 1)
2003

(millions of yen)
2003
2002

Cash flows from operating activities:
Income before income taxes and minority interests .......................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Income taxes-paid..................................................................................................
Depreciation and amortization ...............................................................................
Equity in losses of affiliates....................................................................................
Provision for doubtful receivables ..........................................................................
Provision for accrued pension and severance benefits..........................................
Payment of accrued pension and severance benefits............................................
Directors’ and statutory auditors’ bonuses paid.....................................................
(Gain) loss on sale of property, plant and equipment.............................................
(Gain) loss on sale of investment securities and investments inand advances to unconsolidated subsidiaries and affiliates..............................
Write-down of investment securities .....................................................................
Loss on plant closures............................................................................................
Other.......................................................................................................................
Changes in operating assets and liabilities:
Receivables ............................................................................................................
Inventories..............................................................................................................
Payables .................................................................................................................
Other.......................................................................................................................
Net cash provided by operating activities.............................................

¥

3,554

¥

46

$

29,616(1,154)
12,758
310
713
2,920
(2,329)(92)
421(1,947)
13,422
5,157
(122)
3,453
(3,572)(84)(1,751)(9,616)
106,317
2,583
5,942
24,333(19,408)
(767)
3,508

449
473
709
(1,006)(3,061)
1,343
775
112

3,742
3,942
5,908
(8,383)

1,293
5,615
(405)
(198)
24,031

8,323
884(7,067)(2,613)
13,298

10,775
46,792(3,375)(1,650)200,259

14,071

4,448

117,259

3,427(10,242)

4,869(12,397)

28,558(85,350)

(563)
(471)
809
(976)
6,055

(4,494)386(1,002)(1,624)(9,814)(4,692)(3,925)
6,741(8,133)50,458Cash flows from financing activities:
Proceeds from issuance of long-term debt.....................................................................
Repayment of long-term debt .........................................................................................
Decrease in short-term bank loans.................................................................................
Cash dividends paid ........................................................................................................
Payment for purchase of treasury stock .........................................................................
Other................................................................................................................................
Net cash used in financing activities ....................................................

1,101(2,378)(10,514)(1,515)(149)(462)(13,917)714(1,998)(2,721)(1,550)(2,620)(9)(8,184)

9,175(19,817)(87,616)(12,625)(1,242)(3,850)(115,975)

Effect of exchange rate changes on cash ........................................................................................
Net increase (decrease) in cash and cash equivalents ..................................................................
Cash and cash equivalents of newly consolidated subsidiaries at beginning of year ...............
Cash and cash equivalents of decreased consolidated subsidiaries at beginning of year........
Cash and cash equivalents at beginning of year.............................................................................

(327)
15,842282(20)
13,419220(4,480)208(33)
17,724(2,725)132,0172,350(167)
111,825

Cash flows from investing activities:
Proceeds from sale of property, plant and equipment....................................................
Proceeds from sale of investment securities and investments
in and advances to unconsolidated subsidiaries and affiliates ..................................
Payment for purchase of property, plant and equipment................................................
Payment for purchase of investment securities andinvestments in and advances to unconsolidated subsidiaries and affiliates..............
(Increase) decrease in loans receivable..........................................................................
Increase in time deposits ................................................................................................
Other, net ........................................................................................................................
Net cash provided by (used in) investing activities...............................

Cash and cash equivalents at end of year .......................................................................................

¥

29,523¥

13,419$ 246,025

Noncash investing and financing activities :Assets acquired by incurring accounts payable..............................................................

¥

572

¥

2,056

$

See Notes to Consolidated Financial Statements.

22

4,767

Nisshinbo Industries, Inc. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
1. BASIS OF PRESENTING FINANCIAL STATEMENTS:
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Securities
and Exchange Law and its related accounting regulations, and in conformity with accounting principles and practices generally accepted in Japan,
which are different in certain respects as to application and disclosure requirements of International Accounting Standards. The consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting
principles and practices generally accepted in countries and jurisdictions other than Japan.
In addition, the accompanying footnotes include information which is not required under generally accepted accounting principles and practices
in Japan but is presented herein as additional information.
The United States dollar ($) amounts included herein are given solely for convenience and are stated, as a matter of arithmetical computation
only, at the rate of ¥120 = $1, the approximate exchange rate at 31st March, 2003. The translations should not be construed as representations that
the Japanese yen amounts have been, could have been, or could in the future be, converted into United States dollars.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:(a) Consolidation
The consolidated financial statements include the accounts of Nisshinbo Industries, Inc. (the “Company”) and its significant subsidiaries (together,
the “Group”).
Under the control or influence concept, those companies in which the Parent, directly or indirectly, is able to exercise control over
operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for by
the equity method.
Investments in unconsolidated subsidiaries and associated companies are accounted for by the equity method.
Investments in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If the equity method of accounting had
been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets
resulting from transactions within the Group is eliminated.
(b) Foreign currency transactions
All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange
rates at the balance sheet dates. The foreign exchange gains and losses from translation are recognized in the income statement to the extent thatthey are not hedged by forward exchange contracts.
Investments in and advances to unconsolidated subsidiaries and affiliates in foreign currencies are translated at the historical rates effective at
the dates of transaction from which such accounts were originated.
(c) Foreign currency financial statements
The balance sheet accounts, revenue and expense accounts of the consolidated foreign subsidiaries are translated into Japanese yen at thecurrent exchange rate as of the balance sheet date except for shareholders’ equity, which is translated at the historical rate.
(d) Cash equivalents
Cash equivalents include time deposits which mature or become due within six months of the date of acquisition.
(e) Marketable and investment securities
Marketable and investment securities classified as available-for-sale securities are reported at fair value, with unrealized gain and losses, net of
applicable taxes, reported in a separate component of shareholders’ equity.
(f) Inventories
Inventories are stated principally at the lower of cost or market, cost being substantially determined by the average cost method.
(g) Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation is computed principally on the declining balance method over their estimateduseful lives.
(h) Retirement and pension plans
Under the employees’ retirement plans for the Company and certain consolidated subsidiaries, the annual provision for retirement benefits is
calculated to state the liability for retirement benefits based on the projected benefit obligations and plan assets at the balance sheet date.
Retirement benefits to directors and corporate auditors are provided at the amount which would be required if all directors and corporate
auditors retired at the balance sheet date.
(i) Income taxes
The provision for income taxes is computed based on the pretax income included in the consolidated statements of income. The asset and liability
approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary
differences.
(j) Derivative financial instruments
The Group uses a variety of derivative financial instruments, including foreign currency forward contracts and interest rate swaps as a means ofhedging exposure to foreign currency and interest rate risks. The Group does not enter into derivatives for trading or speculative purposes.
23

The foreign currency forward contracts are utilized to hedge foreign currency exposures in procurement of raw materials from overseas suppliers.
Trade payables denominated in foreign currencies are translated at the contracted rates if the forward contracts qualify for hedge accounting.
Interest rate swaps are utilized to hedge interest rate exposures of long-term debt. These swaps which qualify for hedge accounting and meet
specific matching criteria are not remeasured at market value but the differential paid or received under the swap agreements are recognized andincluded in interest expense or income.
3. INVENTORIES:
Inventories at 31st March, 2003 and 2002 were as follows:

Finished products ..................................................................................................................................
Work in process.....................................................................................................................................
Materials and supplies ..........................................................................................................................

(millions of yen)
2003
2002

(thousands of
US dollars)
2003

20,916
7,776
8,659
37,351$ 174,300
64,80072,158$ 311,258

¥

¥

¥

¥

25,5438,343
9,494
43,3804. MARKETABLE AND INVESTMENT SECURITIES:The carrying amounts and aggregate fair value of securities available-for-sale included in marketable and investment securities at 31st March,
2003 and 2002 were as follows:

Cost ...................................................................................................................................................
Unrealized gains ................................................................................................................................
Unrealized losses ..............................................................................................................................
Fair value...........................................................................................................................................

(millions of yen)
2003
2002

(thousands of
US dollars)
2003

39,93623,963(7,445)56,454$ 332,800
199,692(62,042)$ 470,450

¥

¥

¥

¥

33,65245,285(768)
78,1695. SHORT-TERM BANK LOANS AND LONG-TERM DEBT:
Short-term bank loans at 31st March, 2003 and 2002 were principally represented by 180 to 365 days notes issued by Nisshinbo and its consolidated
subsidiaries to banks. The annual interest rates applicable to the short-term bank loans at 31st March, 2003 and 2002 were 0.6% to 8.8%.
Long-term debt at 31st March, 2003 and 2002 consisted of the following:(thousands of
US dollars)
2003(millions of yen)
2003
2002

Long-term debt with collateral:
Loans from banks maturing serially to 2005, ranging from 1.7% to 4.8%........................................

¥

624

Long-term debt without collateral:
Loans from banks maturing serially to 2016, ranging from 1.3% to 7.0%........................................
Capital lease obligations, due through 2010 .....................................................................................
Less current portion ..............................................................................................................................
¥

¥

1,061

$

5,200

4,282

5,356

35,683

5,950
10,856(3,282)
7,574

6,797
13,214(2,185)
11,02949,58490,467(27,350)
63,117¥$

Annual maturities of long-term debt were as follows:Year ending 31st March,
2004 ..............................................................................................................................................
2005 ..............................................................................................................................................................
2006 ..............................................................................................................................................
2007 ..............................................................................................................................................
2008 and thereafter.......................................................................................................................

(millions of yen)¥¥(thousands of US dollars)

3,282
1,958
998
971
3,647
10,856$$27,35016,3178,317
8,092
30,391
90,467

At 31st March, 2003 and 2002, net book value of assets pledged as collateral for short-term bank loans and long-term debt were as follows:(millions of yen)
2003
2002

Property, plant and equipment ..............................................................................................................
Notes receivable, trade..........................................................................................................................

¥
¥

24

6,443
—
6,443

¥
¥

6,743
200
6,943

(thousands of
US dollars)
2003

$
$

53,692—
53,692

6. RETIREMENT AND PENSION PLANS:
Under most circumstances, employees terminating their employment are entitled to lump-sum severance payments based on the rate of pay attermination, years of service and certain other factors.
The liability for retirement benefits for directors and corporate auditors at 31st March, 2003 and 2002 were ¥847 million ($7,058 thousand) and¥862 million. The retirement benefits for directors and corporate auditors are paid subject to the approval of the shareholders.
The liability for employees’ retirement benefits at 31st March, 2003 and 2002 consisted of the following:

Projected benefit obligation ..........................................................................................................
Fair value of plan assets............................................................................................................................
Unrecognized prior service cost....................................................................................................
Unrecognized actuarial loss ..........................................................................................................
Net liability ................................................................................................................................

¥¥(millions of yen)
2003
2002

(thousands of
US dollars)
2003

65,064(25,594)
39,470
3,043(19,786)
22,727$ 542,200(213,283)
328,917
25,358(164,883)$ 189,392¥¥

61,849(32,222)
29,627—(7,596)22,031

The components of net periodic benefit costs for the years ended 31st March, 2003 and 2002 were as follows:(millions of yen)
2003
2002

Service cost...................................................................................................................................
Interest cost ..................................................................................................................................
Expected return on plan assets.....................................................................................................
Amortization of prior service cost .................................................................................................
Recognized actuarial loss .............................................................................................................
Net periodic benefit costs .........................................................................................................

¥

¥

1,660
1,802
(1,220)
(195)
712
2,759

¥

¥

2,513
1,841
(1,300)
—
279
3,333

(thousands of
US dollars)
2003

$

$

13,83315,017(10,166)(1,625)
5,933
22,992

Assumptions used for the years ended 31st March, 2003 and 2002 were set forth as follows:
Discount rate ........................................................................................................................................
Expected rate of return on plan assets.................................................................................................
Amortization period of prior service cost..............................................................................................
Recognition period of actuarial gain / loss ...........................................................................................

2003
2.5%~3.0%
3.5%~4.0%
15 years
15 years

2002
3.0%
3.5~4.0%—
15 years

7. INCOME TAXES:
The tax effects of significant temporary differences and loss carryforwards which resulted in deferred tax assets and liabilities at 31st March,
2003 and 2002 were as follows:(millions of yen)
2003
2002

Deferred tax assets:
Property, plant and equipment......................................................................................................
Tax loss carryforwards..................................................................................................................
Allowance for doubtful accounts...................................................................................................
Accrued employees’ bonuses........................................................................................................
Accrued severance benefits..........................................................................................................
Other..............................................................................................................................................
Less valuation allowance ..............................................................................................................

¥¥
Deferred tax liabilities:
Unrealized gain on available-for-sale securities...........................................................................
Deferred gains on sale of property................................................................................................
Other..............................................................................................................................................

Net deferred tax assets (liabilities)........................................................................................................

(¥

231
666
597
912
9,110
1,659
(1,744)
11,431¥¥(¥

6,778) (¥(4,469)(817)
12,064) (¥(¥633) (¥

149
1,824
343
722
8,470
1,206
(2,740)9,974(thousands of
US dollars)
2003

$

$

1,925
5,550
4,975
7,600
75,916
13,825(14,533)
95,25818,758) ($ 56,483)(5,110)(37,242)(88)(6,808)23,956) ($ 100,533)
13,982) ($5,275)25

A reconciliation between the normal effective statutory tax rate for the years ended 31st March, 2003 and 2002 and the actual effective tax rates
reflected in the accompanying consolidated statement of income was as follows:
2002
2003
42.0%
42.0%
Normal effective statutory tax rate.................................................................................................................................
(46.9)(2.0)
Dividend income not taxable..................................................................................................................................
226.7
2.2
Expenses not deductible for income tax purposes ................................................................................................
1,102.5
7.2
Tax benefits not recognized on operating losses of subsidiaries ..........................................................................
4,736.3
3.7
Equity in losses of affiliates ...................................................................................................................................
(279.8)(4.1)
Lower income tax rates applicable to income in certain foreign countries ...........................................................
—
18.9
Consolidation adjustment of gain on 20%-50% owned affiliate securities sold ....................................................
—
4.1
Decrease in non-current deferred tax assets due to effect of tax rate ..................................................................
10.5
11.6
Other ......................................................................................................................................................................
5,791.3%
83.6%
Actual effective tax rate .................................................................................................................................................
8. LEASES:
The Group leases certain machinery, computer equipment and other assets.
Total rental expenses for the years ended 31st March, 2003 and 2002 were ¥447 million ($3,725 thousand) and ¥565 million, respectively, including ¥432 million ($3,600 thousand) and ¥530 million of lease payments under finance leases.
Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligation under finance lease, depreciation expenseof finance leases that do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis for the years ended 31st March,
2003 and 2002 was as follows:(millions of yen)
2003
2002

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

¥

2,229
(1,595)
634

¥

¥
¥

2,809
(1,887)922(thousands of
US dollars)
2003

$
$

18,575(13,292)
5,283

Obligations under finance leases:(millions of yen)
2003
2002

Due within one year ......................................................................................................................
Due after one year.........................................................................................................................
Total ..............................................................................................................................................

¥

253
381
634

¥

¥
¥

432
490
922

(thousands of
US dollars)
2003

$
$

2,108
3,175
5,283

Depreciation expense under finance leases:(millions of yen)
2003
2002

¥

Depreciation expense....................................................................................................................

432

¥

530

(thousands of
US dollars)
2003

$

3,600

Depreciation expense, which is not reflected in the accompanying statements of income, is computed by the straight-line method.
9. DERIVATIVES:The Group enters into foreign currency forward contracts to hedge exchange risk associated with certain assets and liabilities denominated inforeign currencies. Foreign currency forward contracts which qualify for hedge accounting for the years ended 31st March, 2003 and 2002 and suchamounts which are assigned to the associated assets and liabilities and are recorded on the balance sheets at 31st March, 2003 and 2002, are excluded
from disclosure of market value information.
The Group also enters into interest rate swap contracts to manage its interest rate exposures on certain liabilities. Such contracts outstanding at
31st March, 2003 and 2002 were as follows:(millions of yen)Contract
amountInterest rate swaps:
Fixed rate payments, floating rate receipt.......
Fixed rate receipt, floating rate payment ........

26¥ 1,495 ¥—¥ 1,495 ¥

2003
Fair
value

Unrealized
gain

9 ¥
—
9 ¥

Contract
amount9 ¥ 413 (¥1,057—
9 ¥ 1,470 ¥

2002
Fair
value

Unrealized
gain (loss)

11) (¥
36
25 ¥(thousands of US dollars)
2003
Fair
Unrealized
Contractvalue
gain
amount11) $12,458 $—36
25 $12,458 $

75 $
—
75 $

75
—
75

10. SHAREHOLDERS’ EQUITY:The Japanese Commercial Code provides that an amount equal to at least 10% of all cash payments which are made as an appropriation of retained
earnings be appropriated as a legal reserve until such reserve and additional paid-in capital equal 25% of stated value of capital stock. This reserve
is not available for dividends but may be used to reduce a deficit by resolution of the shareholders or may be capitalized by resolution of the Boardof Directors.
Dividends are approved by the shareholders at a meeting held subsequent to the fiscal year to which the dividend is applicable. In addition,
a semi-annual interim dividend may be paid upon resolution of the Board of Directors, subject to limitations imposed by the Code.
The computation of net income per share is based on the weighted average number of shares of common stock outstanding during eachfiscal year.
11. OTHER INCOME (EXPENSES) — OTHER, NET:
Other income (expenses) — Other, net consisted of the following:(millions of yen)
2003
2002

Gain (loss) on sale of property, plant and equipment ............................................................................
Gain (loss) on sale of securities.............................................................................................................
Write-down of securities .......................................................................................................................
Write-off of inventories..........................................................................................................................
Loss on plant closures...........................................................................................................................
Retirement benefits paid due to restructuring of business operations .................................................
Other, net...............................................................................................................................................

(¥

421)
(449)
(473)
(239)
(709)
(58)
(269)
2,618)(¥¥¥(thousands of
US dollars)
2003

1,751 ($
3,061
(1,343)
(825)
(775)
(752)
(188)
929 ($

3,508)(3,742)(3,942)(1,992)(5,908)(483)(2,242)
21,817)

12. COMMITMENTS AND CONTINGENCIES:
Contingent liabilities at 31st March, 2003 and 2002 for trade notes discounted with banks and trade notes delivered with endorsements forpayments amounted to ¥318 million ($2,650 thousand) and ¥403 million, respectively. Contingent liabilities at 31st March, 2003 and 2002 for loans
guaranteed amounted to ¥2,208 million ($18,400 thousand) and ¥2,477 million, respectively.
Commitments for capital expenditures outstanding at 31st March, 2003 and 2002 were in the approximate amounts of ¥1,113 million ($9,275
thousand) and ¥3,655 million, respectively.
13. SUBSEQUENT EVENT:
Appropriation of retained earnings
On 27th June, 2003, Nisshinbo’s shareholders authorised the appropriation of retained earnings as follows:(millions of yen)

Cash dividends (¥3.50 per share) ..........................................................................................................
Directors’ bonuses.................................................................................................................................

¥

757
50

(thousands of US dollars)

$

6,308
417

27

14. SEGMENT INFORMATION:
Information about industry segments, geographic segments and sales to foreign customers of the Company and its consolidated subsidiaries forthe years ended 31st March, 2003 and 2002 were as follows:(1) Industry Segments

Industry
TextilesIndustry
Automobile
BrakesIndustry
Papers(millions of yen)
2003
Industry
Industry
ChemicalReal Estate
Products
Leasing

I. Sales and Operating Income
Sales to customers .............................. ¥ 74,034 ¥ 56,352
0—Intersegment sales...............................
74,03456,352
Total sales ........................................
74,721
51,274
Operating expenses .............................
687) ¥ 5,078
Operating income (loss) ....................... (¥¥ 27,024
14
27,03825,427¥ 1,611¥ 30,778
887
31,66531,513¥152¥

II. Total Assets, Depreciation and Capital Expenditures
Total assets.......................................... ¥ 80,223 ¥ 61,626
Depreciation......................................... ¥ 4,202 ¥ 4,328
Capital expenditures ............................ ¥ 2,842 ¥ 2,261¥ 19,918¥ 1,250¥ 1,331¥ 21,436¥ 1,086¥615¥ 16,850
¥
862
¥
586

Industry
TextilesI. Sales and Operating Income
Sales to customers .............................. ¥ 78,203
0Intersegment sales...............................
78,203
Total sales ........................................
77,981
Operating expenses .............................
222
Operating income (loss) ....................... ¥Industry
Automobile
Brakes¥ 51,926
1
51,92749,570¥ 2,357

II. Total Assets, Depreciation and Capital Expenditures
Total assets.......................................... ¥ 89,071 ¥ 67,538
Depreciation......................................... ¥ 4,393 ¥ 4,723
Capital expenditures ............................ ¥ 6,677 ¥ 3,524

Industry
TextilesIndustry
Automobile
BrakesIndustry
Papers¥¥ 19,887¥ 1,275¥
928

Industry
Papers¥ 19,435¥ 1,217¥ 1,118

Eliminations/
Corporate

Consolidated

4,785 ¥ 38,220 ¥— ¥ 231,193
1,386
304
(2,591)—
39,606
5,089(2,591)
231,193
42,3702,520(2,621)
225,204
2,569 (¥ 2,764) ¥
30 ¥
5,989

(millions of yen)
2002
Industry
Industry
ChemicalReal Estate
Products
Leasing¥ 25,497 ¥ 24,110 ¥11718
25,50824,82824,40425,033¥ 1,104 (¥205) ¥

Industry
Others¥ 29,835¥ 1,030¥ 1,422¥ 83,021¥—¥—¥ 312,909¥ 12,758¥
9,057

Industry
OthersEliminations/
Corporate

Consolidated

4,404 ¥ 41,696 ¥— ¥ 225,836
942
260(1,932)—
42,638
4,664(1,932)
225,836
44,4582,417(1,995)
221,868
2,247 (¥ 1,820) ¥
63 ¥
3,968

¥ 15,910
¥
845
¥
353

(thousands of US dollars)
2003
Industry
Industry
ChemicalReal Estate
Products
Leasing¥ 31,710
¥
969
¥
643

¥ 120,610¥—¥—¥ 364,161¥ 13,422¥ 13,243

Industry
OthersEliminations/
Corporate

Consolidated

I. Sales and Operating Income
Sales to customers .............................. $ 616,950 $ 469,600
Intersegment sales...............................
0—
Total sales ........................................
616,950
469,600
Operating expenses .............................
622,675
427,283
Operating income (loss) ....................... ($ 5,725) $ 42,317$ 225,200
117
225,317
211,892$ 13,425$ 256,483
7,392
263,875
262,608$ 1,267$ 39,875 $ 318,500 $— $1,926,608
11,5502,533(21,592)—
330,050
42,408(21,592) 1,926,608
353,084
21,000(21,842) 1,876,700$ 21,408 ($ 23,034) $250 $ 49,908

II. Total Assets, Depreciation and Capital Expenditures
Total assets.......................................... $ 668,525 $ 513,550
Depreciation......................................... $ 35,017 $ 36,067
Capital expenditures ............................ $ 23,683 $ 18,842$ 165,983$ 10,417$ 11,092$ 178,633$ 9,050$ 5,125$ 140,417$ 7,183$ 4,88328$ 248,625$ 8,583$ 11,850$ 691,842$—$—$2,607,575$ 106,317$ 75,475

(2) Geographical Segments
The geographical segments of the Company and its consolidated subsidiaries for the years ended 31st March, 2003 and 2002 were as follows:(millions of yen)
Japan

2003
Eliminations/
OthersCorporate

Consolidated

Japan

Others

2002
Eliminations/
Corporate

Consolidated

Sales to customers .................................. ¥ 208,448
2,569Interarea transfer.....................................
211,017
Total sales............................................
206,827
Operating expenses .................................
Operating income (loss)........................... ¥ 4,190¥ 22,745
3,116
25,861
24,133¥ 1,728¥— ¥ 231,193(5,685)—(5,685)
231,193(5,756)225,204¥
71 ¥ 5,989¥ 203,709
2,276
205,985
202,825¥ 3,160¥ 22,127 ¥— ¥ 225,836
2,962(5,238)—25,089(5,238)225,836
24,205(5,162)
221,868¥884 (¥76) ¥3,968

Total assets.............................................. ¥ 209,793¥ 20,095¥ 83,021¥ 220,466¥ 23,085

Japan¥ 312,909(thousands of US dollars)
2003
Eliminations/
OthersCorporate

Sales to customers .................................. $1,737,067
Interarea transfer.....................................
21,408
Total sales............................................ 1,758,475
Operating expenses ................................. 1,723,558
Operating income (loss)........................... $ 34,917$ 189,541
25,967
215,508
201,108$ 14,400$

Total assets.............................................. $1,748,275$ 167,458$ 691,842¥ 120,610¥ 364,161

Consolidated— $1,926,608(47,375)—(47,375) 1,926,608(47,966) 1,876,700$
591 $ 49,908$2,607,575(3) Sales to Foreign Customers
Sales to foreign customers for the years ended 31st March, 2003 and 2002 amounted to ¥41,210 million ($343,417 thousand) and ¥37,037
million, respectively.

Independent Auditors’ Report
To the Board of Directors of
Nisshinbo Industries, Inc.
We have audited the consolidated balance sheets of Nisshinbo Industries, Inc. and consolidated subsidiaries as of 31st March,
2003 and 2002, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years thenended, all expressed in Japanese yen. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and applied inJapan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Nisshinbo Industries, Inc. and consolidated subsidiaries as of 31st March, 2003 and 2002, and the results of theiroperations and their cash flows for the years then ended, in conformity with accounting principles and practices generally
accepted in Japan.
The United States dollar amounts shown in the consolidated financial statements have been translated solely for convenience.
We have reviewed this translation and, in our opinion, the consolidated financial statements expressed in Japanese yen havebeen translated into US dollars on the basis described in Note 1.

Masami Tsukeshiba
Certified Public Accountant

Etsuko Nagashima
Certified Public Accountant

27th June, 2003
Tokyo, Japan
29

NISSHINBO HISTORY

1907
1908
1920

1921
1924
1925

1926
1933
1937
1938
1940
1945
1947

1949

1950
1952
1958

1961
1962
1966
1972
1978
1981
1984
30

Nisshin Cotton Spinning Co., Ltd.
established.
The former Kameido Head OfficePlant began operations.
Office opened in Nihonbashi, andthereafter became the head officeof Nisshin Cotton Spinning.
Nisshin Cotton Spinning mergedwith Okazaki Boseki Co., Ltd.
(the present Harisaki Plant).
Nagoya Plant began operations (completely burnt
down in 1945 due to the war, restored in 1951).
Nisshin Cotton Spinning merged with Tokyo BosekiCo., Ltd. (the present Tokyo Plant).
Branch office opened in Nagoya (the present Nagoya
Branch).
Branch office opened in Osaka (the present Osaka
Branch).
Hamamatsu Plant began operations.
Toyama Plant began operations.
Nisshin Cotton Spinning acquired Kawagoe Boseki Co.,
Ltd. (the present Kawagoe Plant).
Nisshin Cotton Spinning merged with Nisshin Rayon
Co., Ltd. (the present Miai Plant).
Toa Jitsugyo Co., Ltd. established (the company namechanged to Nissin Toa Inc. in 1990).
Nisshin Cotton Spinning acquired the Meiji Plant ofNanshin Seiki Co., Ltd. (the present Fuji Plant).
Non-textiles Division set up and thereafter expanded
operations to include automobile brakes, chemical
products, papers, and machine tools.
Nihon Postal Franker Co., Ltd. established.
Nisshin Cotton Spinning listed on the Tokyo Stock
Exchange.
Nitto Asbestos Co., Ltd. established (the company
name changed to Nisshinbo Brake Sales Co., Ltd.
in 1987).
Ueda Japan Radio Co., Ltd. established.
Shimada Plant began operations.
Tokushima Plant began operations.
Nippon Kohbunshikan Co., Ltd. established (thecompany name changed to Nippon Kohbunshi Co., Ltd.
in 1986).
Nisshin Cotton Spinning listed on the first section of
the Tokyo Stock Exchange.
Nisshin Cotton Spinning's English company namechanged to Nisshin Spinning Co., Ltd.
Fujieda Plant began operations.
Nisshinbo do Brasil Industria Textil Ltda. (Brazil)
established.
Nisshin Spinning acquired Tokai Seishi Kougyou
Co., Ltd.
Tatebayashi Chemical Plant (the present Tatebayashi
Plant) began operations.
Nisshin Spinning's English company name changed to
Nisshinbo Industries, Inc.

1985
1986

1987
1989
1992
1993

1995

1996
1997

1998
1999

2000

2001
2002

Nisshinbo Industries acquired Nisshin Denim Inc.
The Machine Tools Department of the Miai Plant spun
off to create the Miai Mechatronics Plant.
Anti-skid Brake System (now ABS) Division set up.
Hamakita Plant began operations.
Kohbunshi (Thailand) Ltd. established.
Chiba Plant began operations.
The head office relocated to its
present location in Ningyo-cho,
Nihonbashi, Chuo-ku, Tokyo.
Pudong Kohbunshi (Shanghai) Co.,
Ltd. (China) established.
Nisshinbo Automotive Corporation(U.S.A.) established.
Nisshinbo Urban Development Co., Ltd. established.
Nisshinbo Somboon Automotive Co., Ltd. (Thailand)established.
Nisshinbo Automotive Manufacturing Inc. (U.S.A.)
established through complete financing from thesubsidiary Nisshinbo Automotive Corporation.
P.T. Gistex Nisshinbo Indonesia established as a joint
venture.
Saeron Automotive Corporation (South Korea)
established.
Research & Development
Center established.
P.T. Nikawa Textile
Industry (Indonesia)
established as a
subsidiary through theadditional acquisition ofstocks.
Continental Teves Corporation established as a joint
venture.

Ningbo Sunrise Textile Dyeing and Finishing Co., Ltd.
(China) established as a joint venture.
Ningbo Veken Textile Co., Ltd. (China) established asa joint venture.
Nisshinbo Industries
acquired all shares of Iwao
& Co., Ltd.
Nisshinbo (Shanghai) Co.,
Ltd. (China) began
operations.

NISSHINBO GROUP
The Nisshinbo Group consists of Nisshinbo Industries, Inc., its 38 subsidiaries, and 9 affiliates.

Main Group Companies (As of March 31, 2003)
Consolidated Subsidiaries
Company
Nisshin Toa Inc.
Ebisu Syokuhu Co., Ltd.
Nisshinbo Mobix Co., Ltd.
Nisshinbo Yarn Dyed Co., Ltd.
Nisshin Denim Inc.
Nisshin Tex Co., Ltd.
Nisshinbo do Brasil Industria Textil Ltda.
P.T. Gistex Nisshinbo Indonesia
P.T. Nikawa Textile Industry
Nisshinbo Brake Sales Co., Ltd.
Nisshinbo Techno Vehicle Inc.
Nisshinbo Automotive Corporation
Nisshinbo Automotive Manufacturing Inc.
Nisshinbo Somboon Automotive Co., Ltd.
Saeron Automotive Corporation
Tokai Seishi Kougyou Co., Ltd.
Nihon Postal Franker Co., Ltd.
Nisshinbo Urban Development Co., Ltd.
Kansai Nisshinbo Urban Development Co., Ltd.
Nisshinbo Europe B.V.
Ueda Japan Radio Co., Ltd.
Nippon Kohbunshi Co., Ltd.
Nisshinbo Kikai Hanbai Co., Ltd.
Nisshinbo Engineering Co., Ltd.
Kohbunshi (Thailand) Ltd.
Pudong Kohbunshi (Shanghai) Co., Ltd.
Iwao & Co., Ltd.

Location
Tokyo, Japan
Shizuoka, Japan
Wakayama, Japan
Nagoya, Japan
Tokushima, Japan
Osaka, Japan
BrazilIndonesia
Indonesia
Tokyo, Japan
Yokohama, Japan
U.S.A.
U.S.A.
ThailandSouth Korea
Shizuoka, JapanTokyo, JapanTokyo, Japan
Osaka, JapanThe Netherlands
Nagano, JapanTokyo, JapanTokyo, JapanTokyo, Japan
ThailandChina
Osaka, Japan

Capital¥450 million¥50 million¥80 millon¥80 millon¥200 million¥10 million
R$20.075 million
US$10 million
US$75 million¥150 million¥50 million
US$88 million
US$15.44 million
BAHT732.6 million
WON8,160 million¥300 million¥310 million¥480 million¥30 million
EUR2.165 million¥700 million¥310 million¥30 million¥10 million
BAHT100 million
US$7 million¥250 million

Business
Textiles, Food Ingredients, Papers
TextilesTextilesTextilesTextilesTextilesTextilesTextilesTextilesAutomobile Brakes
Automobile Brakes
Automobile Brakes
Automobile Brakes
Automobile Brakes
Automobile Brakes
PapersPapers, Chemical Products
Real Estate Leasing
Real Estate Leasing
Real Estate Leasing
Electronics
Plastic Molded Products
Machine Tools
Chemical Products
Plastic Molded Products
Plastic Molded Products
Textiles, Chemical Products,
Real Estate Leasing

Capital¥90 million¥1,390 million

Business
TextilesAutomobile Brakes

Subsidiary and Affiliates Accounted for by the Equity Method
Company
Naigai Shirts Co., Ltd.
Continental Teves Corporation

Location
Osaka, JapanTokyo, Japan

31

BOARD OF DIRECTORS AND STATUTORY AUDITORS

President

Executive Director

DirectorStanding Statutory Auditor

Yoshikazu Sashida

Takashi Iwashita

Hideyuki Tanaka

Kenji Tasaki

Executive Director

Director

Statutory Auditor

Kunihiro Toda

Takeo Shimura

Shoichi Hayashi

Senior Executive Director

Executive Director

Director

Statutory Auditor

Kohshi Fujino

Yasuo Takeuchi

Shizuka Uzawa

Tomofumi Akiyama

Senior Executive Director

Executive Director

Director

Statutory Auditor

Tadashi Nakai

Masao Kinoshita

Masashi Shinagawa

Yoshikuni Utsunomiya

Executive Director

Director

Statutory Auditor

Hajime Takagiwa

Yoshihito Onda

Takehiko Urushihara

Director

Hideo Yakuden
Director

Kinjirou Kawashima
Director

Seiichiro Tomizawa

CORPORATE DATA
(As of March 31, 2003)

Founded:February 5, 1907

Head Office:2-31-11, Ningyo-cho, Nihonbashi, Chuo-ku, Tokyo 103-8650, Japan
Tel: 03-5695-8833 Fax: 03-5695-8970
URL: http://www.nisshinbo.co.jp/

Osaka Branch:

2-4-2, Kitakyuhoji-machi, Chuo-ku, Osaka 541-0057, Japan
Tel: 06-6267-5501 Fax: 06-6267-5679

Nagoya Branch:

5-2-38, Sakae, Naka-ku, Nagoya 460-0008, Japan
Tel: 052-261-6151 Fax: 052-263-9480

Employees:

Parent Company
Subsidiaries
Total

3,525
5,102
8,627

Common Stock:32

Authorized:

380,137,000 shares

Issued:216,580,939 shares¥27,588 million — US$230 million

Shareholders:

13,541

Listings:

Tokyo, Osaka, Nagoya, Fukuoka and Sapporo

Transfer Agent:

UFJ Trust Bank Limited
1-4-3, Marunouchi, Chiyoda-ku, Tokyo 100-0005, JapanORGANIZATION CHART

Board of Directors

Chairperson
President

General Affairs Division

General Affairs Dept.
Secretary Dept.
Purchasing Dept.

Accounting and Finance Division

Finance Dept.
Accounting Dept.

Human Resources Division

Human Resources Dept.
Labor Administration Dept.
Health and Medicine Dept.
Human Rights Team

Engineering Administration Division

Utilities, Construction and Environmental Affairs Dept.

Research and Development Division

Research Planning Dept.
Research Administration Dept.
Intellectual Property Dept.
Business Implementing Dept.

Trademark Committee

Research and Development Center
Administration Dept.
Fuel Cell Dept.
Optical Dept.

Business Developing Division
Policy Board

Textile Division

Board of
Statutory Auditors

Statutory
Auditors

First Group

Raw Materials Dept.
Mobilon Dept.
Direct Marketing Dept.
Industrial Materials Dept.

Second Group

Knits Dept.
Shirt Fabrics Dept.
Home Textiles Dept.
Outer-Wear Fabrics Dept.

Third GroupTokyo Textiles Dept.

Fourth Group

Textiles Control Dept.
Engineering Dept.
Textile Research and Development Center
Marketing Dept.
Global Operation Promotion Office
Shanghai Representative Office

Mechatronics DivisionMarketing Dept.
Engineering Dept.

Brake Division

Global Business Dept.
Quality Assurance Dept.
Friction Material R&D Dept.

ABS Division

Business Dept.
Engineering Dept.

Chemical Products DivisionMarketing Dept.
Engineering Dept.
New Carbon Dept.

Paper Products Division

Household Paper Sales Dept.
Specialty Paper Sales Dept.
Engineering Dept.
Color Systems Dept.
Administration Dept.

Osaka Branch

Nagoya BranchBusiness Planning OfficeInformation Systems OfficeEnvironmental Affairs Committee
Advertising Committee
Product Safety Committee

Information Dissemination
Committee

Hamamatsu Plant
Shimada Plant
Fujieda Plant
Toyama Plant
Nagoya Plant
Harisaki Plant
Kawagoe Plant
Miai Plant

Miai Mechatronics Plant
Hamakita Plant
Tokushima Plant
Tokyo Plant
Tatebayashi Plant
Chiba Plant
Fuji Plant

Human Rights Committee

33

NISSHINBO ANNUAL REPORT 2003

2-31-11, Ningyo-cho, Nihonbashi, Chuo-ku, Tokyo 103-8650, Japan
Tel: 03-5695-8833 / Fax: 03-5695-8970
URL: http://www.nisshinbo. co.jp/

Year ended March 31, 2003

Annual Report 2003
(Year ended March 31, 2003)

Printed in Japan