ANNUAL REPORT 2005

PARAMOUNT BED CO., LTD.

Profile

Statement:

As Human, for Human
Paramount Bed Co., Ltd., founded in 1947, is a pioneer in the field of medical beds.
Using its own unique integrated production system, it has been providing products
designed not only to improve conditions for convalescing patients, but also to facilitate
the work of caregivers for more than half a century. With the aging of the Japanese
population, it has expanded its scope of business to cover facilities for the elderly andhome nursing care in recent years, developing home-care beds and various other types
of welfare equipment. These initiatives are in line with Paramount Bed’s goal of creatinga patient-friendly healthcare environment.
The Paramount Bed group consists of Paramount Bed and 3 consolidated subsidiaries(as of March 31, 2005). In the fiscal year to March 2005, it had net sales of ¥50,616
million, operating income of ¥7,632 million and net income of ¥5,140 million. Paramount
Bed is Japan’s leading maker of medical beds and has acquired a strong reputation, as
reflected in its domestic market share of 70% (PB estimate).

Contents
2 Financial Highlights

17 Consolidated Statements of Cash Flows

3 To Our Shareholders

18 Notes to Consolidated Financial Statements

7 Product Lineup

24 Independent Auditors’ Report

9 Special Feature

25 Corporate History

10 Six-year Summary

26 Corporate Information

11 Business Review in Fiscal 2005

Corporate Data

13 Consolidated Balance Sheets

Board of Directors and Corporate Auditors

15 Consolidated Statements of Income

Shareholder Information

16 Consolidated Statements of Shareholders’ Equity

Network

Disclaimer Regarding Forward-Looking Statements
The information contained in this annual report is given for the sole purpose of providing information regarding the business performance ofParamount Bed Co., Ltd. during the fiscal year ended March 31, 2005, and is not intended to solicit investment in any securities issued by
the Company. Any statements with respect to Paramount Bed’s current plans, strategies and forecasts are forward-looking statements
based upon information available as of March 31, 2005, and involve known and unknown risks and uncertainties. Actual events and results
may differ materially from those anticipated in these statements.

1

Financial Highlights
Paramount Bed Co., Ltd. and Subsidiaries — Years ended March 31, 2005 and 2004

Millions of yen

2004

2005
For the year:
Net sales
Operating income
Income before income taxes
Net income¥

Thousands of U.S. dollars¥

50,616
7,632
8,688
5,140

2005

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

$

471,329
71,06880,90147,863Per share data (yen):
Basic net income
Diluted net income
Total shareholders’ equity

162.38162.332,224.17

131.87—2,105.03

1.51
1.51
20.71

At year-end:
Total assets
Total shareholders’ equity

83,161
69,90081,17066,160774,383
650,899

Note:The U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥107.39 to U.S.$1, the approximate exchange rate at March 31, 2005.

Net sales

Millions of yen

60,00045,000Operating income

Millions of yen

10,00046,54145,15345,77447,89550,616

8,000
6,000

7,103
6,324

7,632

5,891
4,786

30,0004,000
15,000

2,000
0

0

2001

2002

2003

2004

Net income

2001

2005

Millions of yen

2002

2003

Total shareholders’ equity

5,140
4,500

4,182

3,889

57,75359,442

61,148

2001

2002

2003

66,16069,90050,00040,000

3,127

3,000

60,0002005

Millions of yen

70,000

6,000

2004

2,498

30,00020,0001,500

10,000
0

0

2001

2002

2003

2004

2005

2004

2005

2

To Our Shareholders

We strive to create
a comfortable healthcare environment
with advanced technology andconsideration towards users.

Both sales and profits rose forthe third straight year
Annual dividend of total ¥50 per share
In the fiscal term under review, both sales and profits wereup on a consolidated basis for the third consecutive year.
Net sales rose 5.7% from the previous year, to ¥50,616
million, while operating income climbed 7.4%, to ¥7,632
million, and net income jumped 22.9%, to ¥5,140 million.
The Company has decided to disburse a year-end
dividend of ¥32 per share, up ¥14 from a year earlier,following our basic policy of returning profits toshareholders commensurate with our performance.
As a result, the annual dividend will amount to ¥50,
including an interim dividend of ¥18.
For the current fiscal term, Paramount Bed plans to
disburse ¥25 per share as both an interim and a year-end
dividend, with the annual payout totaling ¥50 per share.
The Company will continue to make it a priority to return
profits to shareholders.

Kenji Kimura
President and Representative Director

3

A focus on the progress of the reforms
in the nursing care insurance system

In the sector of welfare for seniors, a revision of thenursing care insurance law is planned. Although only an
overall outline of the envisioned reforms has been madeIn the healthcare industry, it is expected that the reform ofclear to date, we expect that it will have considerable

the mandatory number and type of beds that hospitals

impact on nursing care related businesses. The revision ofmust have available will gain momentum considering thatthe nursing care insurance law will not fully go into effectamendments to the Pharmaceutical Affairs Law wereuntil April 2006, some parts will already become effective

enacted in April 2005 while concrete standards were alsoin October 2005.

established that stipulate the number of hospital beds to
be available according to specific type.

TopicsReleased medical and nursing-care mattress “Ever Fit”
The Company released the medical and nursingcare mattress “Ever Fit” on August 2004.
With elasticity similar to the human body’s,
Ever Fit reduces the resistance produced whenusers turn over on the bed and it also stabilizes
the human posture during sleep.
In addition, the mattress is reversible and bothsides have different functions that adapt to theintended use. Specifically, one side features“soft fit” with relative softness that prioritizes
dispersiveness of the body pressure, and theother side features “hard fit” with relative
hardness that prioritizes bodysupport such as ease atturning over; users canchoose either side according
to their condition, build andtaste, etc.

If the entire mattress is too soft, it tends to affectthe users’ posture; to help maintain a steady
posture, the hardness of the mattress is set so as
to adapt to certain parts of the human body,relatively hard at the waist part and soft at the
buttocks part.
As for mattress covers, we have taken into
consideration factors such as ease ofmaintenance, user-friendliness, and safeness,
etc. at medical and nursing-care scenes.
These mattress covers are waterproof, chemical
resistant, antibacterial (anti MRSA), fire resistantand flexible, and allow bed-bath and disinfection.

Medical andNursing-care
Mattress“Ever Fit”

4

To Our Shareholders

Improving earnings through introduction of
new products and businesses

As for the new brand INTIME, the Company will seek toenhance its sales activities by opening new directlymanaged stores as well as increasing its business with

Under these circumstances, the Company strives todepartment stores. In the meantime, we are successively

expand the sales of new value-added products, including

expanding the range of items produced at our new plant

the Metis Series, in addition to enhancing the sales ofin China that is now in operation.

related products, for instance, mattresses.
In the sector of welfare for seniors, the Company is intent on
continuing to increase sales of the Rakusho, a home-care

Restructuring the existing and establishing
new organizations

bed, as well as boosting the nursing-care bed market byaccepting returns and reconditioning used products. In

In order to adapt to our changing business environment

response to the rapid growth in the number of senior citizens

and form a stronger corporate management base, thewith a moderate need for nursing care, the Company plans

Company established new organizations and restructured

to release new products that will enable such individuals tothe existing ones.

avoid the need for a high degree of nursing care.

TopicsHome-care bed “Rakusho” wins “GOOD DESIGN AWARD”— Evaluated for its universal design —In October 2004, “Rakusho,” a very popularhome-care bed launched in November 2003, won
the “GOOD DESIGN AWARD 2004” (G-Mark)sponsored by the Japan Industrial Design
Promotion Organization. It was the seventh time
we had received the award.
Besides the basic evaluation criteria for the
product such as: “developed with a true concern
for the user,” “product developed with safety
considerations,” “having a high functionality andperformance,” or “satisfies the needs of theusers,” the judges recognized Rakusho’s
excellent design based on a universal designconcept.
Based on the concept of universal design,
Rakusho provides everyone involved in nursingcare with comfort, safety and ease of operation.
Rakusho has developed its own KIND Motion
mechanism, which allows the body to be5

positioned appropriately, maintaining correct
posture and alleviating any feeling of pressure.
The KIND Motion allows the caregiver to properly
synchronize the motions of raising the backrestand knees by simply pushing a single button.
With these features, Rakusho reduces the burden
on the user by maintaining an optimal body
posture for them.
In addition, the height of Rakusho is 5cm lower
than that of conventional models, with a minimum
height of 25cm (without mattress). This low-height
design allows most users to use the bed
effectively and comfortably.
Rakusho offers 7 types of design, based primarily
on “natural interior” concept. Users can choose
from 126 models, featuring different combinationsof functions, width, length, colors and otheraspects, to suit their requirements or theambience of their rooms.

In November 2004, we started by consolidating andMoreover, in April 2005, the Company transferred its

expanding the existing product related departments andentire maintenance service department to PARA TECHNO

establishing a new Product Quality Headquarters

Co., Ltd., a wholly-owned subsidiary (established in Julycomprising three departments: product planning, product2002 to provide services such as maintenance, repair,safety center and product quality assurance. Corporatecleaning as well as leasing/renting of beds and bed-

headquarters is targeting concerted company-wide efforts

related peripheral products for medical facilities).

to improve product quality, including: marketing, service

By consolidating our service businesses, we at Paramountand maintenance, as well as design and manufacturing

Bed are striving to further improve customer satisfaction

aspects.

and create more synergistic effects.

In February 2005, the Company established its EBM

July 2005(evidence based medicine) laboratory. The purpose ofthis laboratory is to disseminate information on the proper
usage of beds and bed-related peripheral products
based on research and proven data to enable theseproducts to be used more effectively.

Kenji Kimura
President and Representative Director

Electricallyoperated bed withremote-control
function KA-6000

Home-care bed
Rakusho(Award year = 2004)(Award year = 1998)

Electricallyoperated bed withremote-control
function KA-723

Transfer stretcher
KK-723(Award year = 1998)(Award year = 1996)

1995

1996

1997

1998

2000

2004
GOOD DESIGNAWARD 2004

Kyma Aura bed
KQ-603(Award year = 1997)

Aura 21 KQ-903“Original” Rakusho
KQ-803(Award year = 2000)

Previous award-winning
product ofGOOD DESIGN AWARD(G-Mark)(Award year = 1995)“GOOD DESIGN AWARD” is the only comprehensive design evaluation and recommendation system in Japan sponsored by
Japan Industrial Design Promotion Organization from 1998 as the successor to the “Good Design Selection System” that wasestablished by the Ministry of International Trade and Industry in 1957. The Good Design Award was established with the aim ofcreating a new era of culture and life and has contributed to the development of a more affluent life style and good business, as
the “G-Mark,” the award-winning symbol, has gained wide acceptance throughout Japanese society.

6Product Lineup

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

Beds for elderly-care facilities

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

Advanced, emergency use

SO-5000

KA-8530 ICU Bed
Callisto Series

Metis Series

Woody SeriesMulti-Purpose Medical Chair7

Beds for the home (INTIME)
Everyone spends time in bed, and thesemodels are designed to facilitate deep,
refreshing sleep.

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

Bed peripherals
Mattresses
With elasticity similar to the human body’s,
the new released “Ever Fit” reduces theresistance produced when users turn overon the bed and it also stabilizes the humanposture during sleep.
The mattress is reversible and both sides
have different functions that users canchoose their condition, build and taste, etc.
And the versatile Preglar Matress, for use
in hospitals, elderly-care facilities andhome care.

5121 BedEver Fit Mattress

Style Port

Preglar Mattress
Rakusho Series

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

Wide Aura Bed

Scot-klean

KK-330S Wheelchair

Patient Lifter

I.V Stand

8

Special Feature

Launch of lounging bed “Day Bed”
The Company released the “Day Bed,” a daytime
lounging bed with a reclining function, in January 2005
as a new product of our INTIME brand that offers “quality
sleep for better health.”

The bed is available with a choice of covering material ineight colors: basic black or white, and six additional
made-to-order colors: ivory, green, orange, red, brownand blue. Day Bed is available at four directly-managed
stores across Japan at a retail price of ¥194,250.

With the increase in the number of people suffering frominsomnia in recent years, once again more attention is
being given to the benefits of short naps. It has become
known that people can wake up easily when they doze
on a bed with a slightly-raised backrest because thathelps prevent the blood pressure from going down.
With Day Bed, users can change the angle of thebackrest freely between zero and fifty-five degrees bypressing a single button at the bedside, causing thebackrest and knee-section to rise in synchronizedmotion. The Day Bed is ideal not only for short naps but
also for reading and watching TV or video.

Developed new high-function ICU bed— to be released in July 2005
Paramount Bed has developed a new highly functional
ICU bed “KA-8900 series” that is equipped with various
features required in intensive care units; volume
production and sales will commence in July 2005.
The following are main features of KA-8900 series:

Color Liquid Crystal Touch Panel
KA-8900 is equipped with a control panel that is embedded in
the bedside rail that moves with the bottom and is operated by
the nurse. In order to improve the ease of operation, theCompany adopted a large color screen set at an angle that is
eye-friendly when operated in the standing position.

Digital Scale
So as to facilitate procedures such as dialysis, the bed iscapable of measuring the patients’ weight as well as any
incremental change of weight in tens of gram.

Variable Bed-length Control Function
The bed enables the length to be increased by 18cm from thestandard position, or decreased by 15cm via a special control
function to adjust to the height of patients.

Cardiac Chair Position

Transportation Assist System
KA-8900 series bed is equipped with an electric motor to easetransportation. In addition, this bed is designed withconsiderations for safety and it does not work without activating
the safety switch on the transportation handle.

9

By raising the backrest of the bed to an angle closer to that of achair (the so-called: “cardiac chair position”), patients can
reduce the burden on the heart and lungs. In this way, patients
can prevent the deterioration in cardiopulmonary function to
support an early recovery.

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

2005

2004

For the year:
Net sales

2003

2002

2001

2000

Millions of yen¥ 50,616¥ 47,895¥ 45,774¥ 45,153¥ 46,541¥ 46,359

Cost of sales

30,232

28,251

27,57427,304

26,836

26,074Gross profit

20,384

19,644

18,20017,84919,70520,285

Selling, general and administrative expenses

12,752

12,541

12,30913,063

13,381

12,935

Operating income

7,632

7,103

5,891

4,786

6,324

7,350

Net income

5,140

4,182

3,127

2,498

3,889

4,355

Net cash provided by operating activities

4,556

7,138

6,194

4,076

4,042

4,761

Net cash used in investing activities(3,253)(423)(1,615)(3,948)(3,715)(5,373)

Net cash (used in) provided by financing activities(1,134)(758)(1,198)(1,040)

(917)

822

Cash and cash equivalents, end of year

20,79020,622

14,661

11,267

12,15812,641

Research and development costs

898

950

1,075

983

890

881

Total assets

83,161

81,17074,331

72,822

72,07873,524

Total shareholders’ equity

69,90066,16061,14859,44257,75355,021

At year-end:

Per share data:

Yen

Basic net income

162.38131.87

98.29

78.86

122.75140.45

Diluted net income

162.33

—

—

—

—

—

2,224.17

2,105.03

1,945.48

1,882.47

1,822.88

1,736.65

Total shareholders’ equity%

Value indicators:
Return on equity (*1)

7.56

6.57

5.19

4.26

6.90

9.24

Return on assets (*2)

6.26

5.38

4.25

3.45

5.34

6.31

Shareholders’ equity ratio

84.05

81.51

82.26

81.63

80.13

74.83

*1) Return on equity (ROE): Net income / Average total shareholders’ equity*2) Return on assets (ROA): Net income / Average total assets

10Business Review in Fiscal 2005

Overview of Financial Results
The Japanese economy showed moderate recovery in
the fiscal term ended March 2005, primarily due toimproved corporate earnings. However, the growth inconsumer spending slowed down in the second half ofthe term and almost flattened out at the end of term,
resulting in a moderate economic slowdown.
With regard to the healthcare industry, medical
expenses increased slightly over the previous term,
despite revisions made to the medical service fee
system in April 2004 which were intended to produce
a 1.0% reduction in the overall amount of medical
expenses. According to a recent survey conducted by
the Japan Hospital Federation, the percentage of lossmaking hospitals has decreased.
In the sector of welfare for the elderly, the welfare
equipment market continued to expand under thenursing-care insurance system, and the number of usersof nursing-care beds increased by 17.4%, year-on-year,
to 627,000 as of the end of October 2004. Regarding
the revision of nursing-care insurance system,
the amendment bill with significant revision, such as
conversion to the system focusing on preventing seniorcitizens from requiring a high degree of nursing care,
was submitted to the Diet (Japan’s parliament) in
February 2005.
In this environment, the Company group increased its
capital investment and focused on research anddevelopment activities, with the aim of bolstering
earnings.
As a first step towards enhancing its technicaldevelopment department, the Company began
constructing a Technical Center next to the headquarters
building. In addition, we constructed a new plant for
manufacturing hospital beds and related products in
Wuxi (Jiangsu Province), China.
With respect to the development and sales of products,
the Company released the reversible “Ever Fit Mattress,”(which allows patients to alternately use either side of themattress depending on their physical condition), and awalker with an integrated seat. In addition, the Company
worked on the development of high-performance

11

products for hospitals such as ICU beds and newmodels to be manufactured at the new plant in China.
In the fiscal term under review, consolidated sales tohospitals remained stable, while those to nursing-carefacilities grew 7.3% compared to the previous year.
Sales of products for home-care use increased by only
2.1%, partly due to the fact that demand for Rakusho,
the new home-care bed, was stagnating somewhat one
year after its launch.
Sales by major product category for the fiscal year are
as follows.

%

Millions of yen

2005
Beds

¥

30,987

2004¥

Year-on-year Change

28,5208.7

Mattresses

4,166

4,244

(1.8)

Hospital-use furniture

3,829

4,238

(9.6)

Medical-use products

2,919

2,925

(0.2)

Other

8,715

7,968

9.4

47,895

5.7

Total

¥

50,616¥

As a result, consolidated net sales for the fiscal year
rose 5.7%, or ¥2,721 million, year-on-year, to ¥50,616
million.
Operating income increased by 7.4%, year-on-year, to¥7,632 million, primarily due to an increase in sales ofbeds for nursing-care facilities and a reduction in selling,
general and administrative expenses despite the rise in
manufacturing costs on the back of sharp price hikes forsteel products and other materials. Net income jumped
22.9% to ¥5,140 million, primarily due to foreignexchange gains and a reversal of the reserves for
employees’ retirement benefits (commensurate with
accrued profits at the termination of the qualified
pension plan) following the introduction of a defined
contribution pension system.
All of the above figures, as well as those in theaccounting statement below, are exclusive ofconsumption tax.

Year ended March 31, 2005

Cash Flows(Cash flows from operating activities)
Net cash provided by operating activities was ¥4,556
million in the fiscal year under review. A breakdown of
inflow shows income before income taxes of ¥8,688
million, depreciation and amortization of ¥1,768 million.
Meanwhile, the contributors to cash outflow were an
increase in notes and accounts receivables of ¥530
million, a decrease in notes and accounts payable of¥632 million and the payment of income taxes amounting
to ¥4,267 million.
(Cash flows from investing activities)
Net cash used in investing activities was ¥3,253 million.
This was chiefly attributable to the acquisition ofmarketable and investment securities and property,
plant and equipment, which totaled ¥6,259 million and¥1,368 million, respectively, as well as proceeds fromthe sale of marketable and investment securities, whichamounted to ¥5,330 million.
(Cash flows from financing activities)
Net cash used in financing activities was ¥1,134 million,
owing primarily to the payment of cash dividends.
As a result, cash and cash equivalents at year-end
totaled ¥20,790 million, up ¥168 million from the previous
year-end.

Issues to Be Addressed and Outlook for
the Next Term
In the healthcare industry, it is expected that the reformof the mandatory number and type of beds that hospitals
must have available will gain momentum consideringthat amendments to the Pharmaceutical Affairs Law wereenacted in April 2005 while concrete standards werealso established that stipulate the number of hospitalbeds to be available according to specific type.
In the sector of welfare for the elderly, a revision of thenursing care insurance law is planned. Although only an
overall outline of the envisioned reforms has been madeclear to date, we expect that it will have considerable
impact on nursing care related businesses. The revisionof the nursing care insurance law will not fully go into
effect until April 2006, but partial revisions will become
effective in October 2005.
Under these circumstances, the Company is working to
expand sales of new value-added products, including
the Metis Series, in addition to enhancing sales ofrelated products, for instance, mattresses.
In the sector of welfare for the elderly, the Company isintent on continuing to increase sales of the Rakusho,
a home-care bed, as well as boosting the nursing-care
bed market by accepting returns and reconditioning
used products. In response to the rapid growth in thenumber of senior citizens with some need for nursing
care, the Company plans to release new products thatwill enable such individuals to avoid the need for highintersity nursing care.
As for the new brand INTIME, the Company will seek toenhance its sales activities by opening new directlymanaged stores as well as increasing its business withdepartment stores. In the meantime, we are successively
expanding the range of items produced at our new plantin China, which is now in operation.
In addition, the Company will reorganize PARA TECHNO
Co., Ltd., our subsidiary, to enhance maintenanceservices. In addition, we will focus on improving
manufacturing productivity and reducing costs such as
distribution expenses to offset rising raw material prices.

12

Consolidated Balance Sheets

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

ASSETS

2005

2004

2005

CURRENT ASSETS:
Cash and cash equivalents

20,622$ 193,593

3,368

2,106

31,362

Trade notes

5,625

5,686

52,379Trade accounts

110,355¥

Marketable securities (Note 3)

20,790¥Notes and accounts receivable:
11,851

11,305

Other

57

14

531

Allowance for doubtful accounts

(11)

(18)

(102)

Inventories (Note 4)

4,481

4,475

41,727

Deferred tax assets (Note 6)

556

555

5,177

Prepaid expenses and other current assets

91

73

847

46,80844,818435,869

Land

8,363

8,371

77,875

Buildings and structures

21,324

21,192

198,566

Machinery and equipment

12,983

12,654

120,896

Construction in progress

571

3

5,317

Total current assets
PROPERTY, PLANT AND EQUIPMENT:

Total

43,241

42,220402,654(22,485)(21,132)(209,377)

20,75621,088193,277

Investment securities (Note 3)

11,442

11,957

106,546

Life insurance premium

1,238

787

11,528

Accumulated depreciation
Net property, plant and equipment
INVESTMENTS AND OTHER ASSETS:

Deferred tax assets (Note 6)

8

Other assets
Total investments and other assets

TOTAL
See notes to consolidated financial statements.

13

¥

75

2,909

2,520

27,08815,597

15,264145,237

81,170$ 774,383

83,161¥

Consolidated Balance Sheets — March 31, 2005 and 2004

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

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

2005

¥

Total current liabilities
LONG-TERM LIABILITIES:
Liability for employees’ retirement benefits (Notes 2.f and 5)
Liability for directors’ and corporate auditors’ retirement benefits
Deferred tax liabilities (Note 6)
Other long-term liabilities
Total long-term liabilities
MINORITY INTERESTS

166
6,470
1,185
1,727
1,283
525

2004

¥

2005

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

$

1,546
60,248
11,03416,081
11,947
4,889

11,356

12,870105,745

968
395
362
15

1,405
381
349
5

9,014
3,678
3,371
140

1,740

2,140

16,203

165

—

1,536

6,591
7,277
55,426
1,402
(65)

6,591
7,277
51,4561,582(19)61,37567,762
516,119
13,055
(605)

(731)

(727)

(6,807)

69,90066,160650,899

81,170$ 774,383

COMMITMENTS AND CONTINGENT LIABILITIES(Notes 7, 9 and 11)
SHAREHOLDERS’ EQUITY (Notes 8 and 13):
Common stock — authorized, 100,000,000 shares;
issued, 31,682,526 shares
Capital surplus
Retained earnings
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Treasury stock — at cost, 273,280 shares in 2005 and272,199 shares in 2004
Total shareholders’ equity
TOTAL

¥

83,161¥

14

Consolidated Statements of Income
Paramount Bed Co., Ltd. and Subsidiaries — Years Ended March 31, 2005 and 2004

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

2005
NET SALES

¥

2004
¥

50,616

2005

47,895$COST OF SALES

30,232

28,251

281,516Gross profit

20,384

19,644

189,813

12,752

12,541

118,745

7,632

7,103

71,068

212
38
130
551
(117)
242

189
(148)
568

(5)

1,974
354
1,211
5,131
(1,090)
2,253

1,056

604

9,833

INCOME BEFORE INCOME TAXES

8,688

7,707

80,901

INCOME TAXES (Note 6):
Current
Deferred

3,420
128

3,885
(360)

31,846
1,192

Total income taxes

3,548

3,525

33,038SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 10)
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income
Foreign exchange gain (loss)
Gain on sales of investment securities (Note 3)
Gain on termination of qualified pension plan (Notes 2.f and 5)
Loss on sales of investment securities (Note 3)
Other — net
Other income — net

NET INCOME

¥

¥

5,140

4,182

$

Yen

PER SHARE OF COMMON STOCK (Notes 2.m and 12):
Basic net income
Diluted net income
Cash dividends applicable to the year
See notes to consolidated financial statements.

15

471,329¥

162.38162.3350.00

47,863

U.S. dollars¥

131.87
30.00

$

1.51
1.51
0.47

Consolidated Statements of Shareholders’ Equity
Paramount Bed Co., Ltd. and Subsidiaries — Years Ended March 31, 2005 and 2004

Millions of yen

Thousands
Outstanding
Number of
Shares ofCommon Stock

BALANCE, APRIL 1, 2003
Net income
Cash dividends, ¥24 per share
Bonuses to directors
Purchase of treasury stock
Net increase in unrealized gain
on available-for-sale securities
Net decrease in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2004
Net income
Cash dividends, ¥36 per share
Bonuses to directors
Purchase of treasury stock
Proceeds from sales of treasury stock
Net decrease in unrealized gain
on available-for-sale securities
Net decrease in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2005

BALANCE, MARCH 31, 2004

31,412

Common
Stock

¥

6,591

CapitalSurplus¥7,277¥ 48,065

Unrealized
Gain (Loss) on
Available-forsale Securities¥

Foreign
Currency
Translation
Adjustments(153) ¥

92

Treasury
Stock

¥

(723)

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

(4)
1,735
(111)

31,410

7,277

6,591

1,582

51,456

(19)

(727)

5,140
(1,130)
(40)
(3)
2

(9)
5
(180)
(46)

31,409

¥

6,591

¥

7,277

CommonStockCapitalSurplus$ 61,375$ 67,762

Net income
Cash dividends, $0.34 per share
Bonuses to directors
Purchase of treasury stock
Proceeds from sales of treasury stock
Net decrease in unrealized gain
on available-for-sale securities
Net decrease in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2005

Retained
Earnings¥ 55,426¥

1,402

Thousands of U.S. dollars (Note 1)
Unrealized
Gain (Loss) on
Retained
Available-forEarnings
sale Securities$ 479,151$ 14,731¥(65) ¥

Foreign
Currency
Translation
Adjustments$(177) $

(731)

Treasury
Stock(6,769)47,863(10,522)
(373)
(84)
46
(1,676)(428)$ 61,375$ 67,762$ 516,119$ 13,055$(605) $

(6,807)

See notes to consolidated financial statements.

16

Consolidated Statements of Cash Flows
Paramount Bed Co., Ltd. and Subsidiaries — Years Ended March 31, 2005 and 2004

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

2005
OPERATING ACTIVITIES:
Income before income taxes
Adjustments for:
Income taxes — paid
Depreciation and amortization
Gain on sales of investment securities
Loss on sales of investment securities
Changes in operating assets and liabilities:(Increase) decrease in notes and accounts receivable(Increase) decrease in inventories(Increase) decrease in prepaid expenses and other current assets(Decrease) increase in notes and accounts payable
Increase in accrued expenses and other current liabilities
Other — net

¥

8,688

¥

2005

7,707

$

80,901(4,267)
1,768
(130)
117

(2,982)
1,857
(568)

(39,733)
16,463(1,211)
1,090

(530)
(1)
(19)
(632)
148
(586)

786
1
24
524
20
(231)

(4,935)(9)(177)(5,885)
1,378(5,457)

4,556

7,138

42,425(3,000)2,100(1,368)(3,259)
3,230
(956)

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

(27,936)
19,555(12,739)(30,347)
30,077(8,902)(3,253)(423)(30,292)(9)
5(1,130)

(4)
(754)

(84)
46
(10,522)(1,134)(758)(10,560)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS

(1)

4

(9)

NET INCREASE IN CASH AND CASH EQUIVALENTS

168

5,961

1,564

20,622

14,661

192,029

20,622$ 193,593

Net cash provided by operating activities
INVESTING ACTIVITIES:
Purchases of marketable securities
Proceeds from sales of marketable securities
Purchases of property, plant and equipment
Purchases of investment securities
Proceeds from sales of investment securities
Increase in other assets
Net cash used in investing activities
FINANCING ACTIVITIES:
Purchases of treasury stock
Proceeds from sales of treasury stock
Cash dividends paid
Net cash used in financing activities

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

17

2004

¥

20,790¥Notes to Consolidated Financial Statements
Paramount Bed Co., Ltd. and Subsidiaries — Years Ended March 31, 2005 and 2004

1. BASIS OF PRESENTING CONSOLIDATEDFINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in theJapanese Securities and Exchange Law and its related
accounting regulations, and in conformity with accounting
principles generally accepted in Japan, which are different incertain respects as to application and disclosure requirements ofInternational Financial Reporting Standards.
In preparing these consolidated financial statements, certain
reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in order topresent them in a form which is more familiar to readers outside
Japan. In addition, certain reclassifications have been made in
the 2004 consolidated financial statements to conform to theclassifications used in 2005.
The consolidated financial statements are stated in Japaneseyen, the currency of the country in which Paramount Bed Co.,
Ltd. (the “Company”) is incorporated and operates. The
translations of Japanese yen amounts into U.S. dollar amounts
are included solely for the convenience of readers outside Japanand have been made at the rate of ¥107.39 to $1, the rate ofexchange at March 31, 2005. Such translations should not be
construed as representations that the Japanese yen amounts
could be converted into U.S. dollars at that or any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES
a. Consolidation — The consolidated financial statements
include the accounts of the Company and all its threesubsidiaries (together, the “Group”). All significant intercompany
balances and transactions have been eliminated in consolidation.
All material unrealized profit included in assets resulting fromtransactions within the Group is eliminated.
b. Cash Equivalents — Cash equivalents are short-term
investments that are readily convertible into cash and that are
exposed to insignificant risk of changes in value. Cashequivalents include time deposits and mutual funds investing inbonds, all of which mature or become due within three months ofthe date of acquisition.
c. Inventories — Inventories are stated at cost determined by theaverage cost method except for supplies, which are stated by themost recent purchase price method.

investment securities are classified and accounted for,depending on management’s intent, as follows: (1) held-tomaturity debt securities, which management has the positive
intent and ability to hold to maturity are reported at amortizedcost and (2) available-for-sale securities, which are not classified
as the aforementioned securities, are reported at fair value, withunrealized gains and losses, net of applicable taxes, reported ina separate component of shareholders’ equity.
Non-marketable available-for-sale securities are stated at cost
determined by the moving-average method. The cost of
securities sold is determined based on the moving-averagemethod. For other than temporary declines in fair value,
investment securities are reduced to net realizable value by acharge to income.
e. Property, Plant and Equipment — Property, plant andequipment are stated at cost. Depreciation of property, plant andequipment of the Group is computed by the declining-balancemethod, while the straight-line method is applied to the buildingsof the Company acquired after April 1, 1998. The range of useful
lives is principally from 3 to 50 years for buildings and structuresand from 2 to 20 years for machinery and equipment.
f. Retirement and Pension Plans — The Company has an
unfunded severance indemnity plan partially supplemented by adefined contribution pension plan and a welfare annuity plan.
One of the consolidated foreign subsidiaries adopts a national
welfare pension system of the country where the subsidiary is
located.
The Group accounts for liability for retirement benefits based on
the projected benefit obligations and plan assets at the balance
sheet date.
In connection with amendments to the Company’s severance
indemnity plan, effective January 1, 2005, prior service cost of¥1,283 million was incurred. Such cost is amortized over
10 years, including current fiscal year. On January 1, 2005, in
accordance with the law of defined contribution pension plan, theCompany also terminated the qualified pension plan and shifted
into the defined contribution pension plan and the prepaid
retirement benefit plan (See Note 5).
Retirement benefits to directors and corporate auditors of theCompany are provided at the amount which would be required if
all directors and corporate auditors retired at the balance sheet
date.

d. Marketable and Investment Securities — Marketable and18

g. Research and Development Costs — Research anddevelopment costs are charged to income as incurred.
h. Leases — All leases are accounted for as operating leases.
Under Japanese accounting standards for leases, finance leases
that deem to transfer ownership of the leased property to thelessee are to be capitalized, while other finance leases are
permitted to be accounted for as operating lease transactions if
certain “as if capitalized” information is disclosed in the notes tothe lessee's financial statements.
i. Income Taxes — The provision for income taxes is computed
based on the pretax income included in the consolidated
statements of income. The asset and liability approach is used torecognize deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
Deferred taxes are measured by applying currently enacted tax
laws to the temporary differences.
j. Appropriations of Retained Earnings — Appropriations ofretained earnings at each year end are reflected in the financial
statements for the following year upon shareholders’ approval.
k. Foreign Currency Transactions and Financial Statements —All short-term and long-term receivables and payables
denominated in foreign currencies are translated into Japanese
yen at the exchange rates at each balance sheet date. The
foreign exchange gains and losses from translation arerecognized in the consolidated statements of income to theextent that derivatives for foreign currency transactions do not
qualify for hedge accounting.
The balance sheet accounts of the consolidated foreignsubsidiaries are translated into Japanese yen at the current
exchange rate as of the balance sheet date except forshareholders’ equity, which is translated at the historical rate.
Differences arising from such translation are shown as “Foreign
currency translation adjustments” in a separate component ofshareholders’ equity.
Revenue and expense accounts of the consolidated foreignsubsidiaries are translated into Japanese yen at the current
exchange rate as of the balance sheet date.
l. Derivatives and Hedging Activities — The Group uses
derivative financial instruments, such as foreign exchange
forward contracts (“derivatives”) to manage their exposures tofluctuations in foreign exchange rates. The Group does not enter
into derivatives for trading or speculative purposes.

19

All derivatives are recognized as either assets or liabilities andmeasured at fair value, with gains or losses recognized in the
consolidated statements of income. If derivatives used forhedging purposes qualify for hedge accounting because of highcorrelation and effectiveness between the hedging instruments
and the hedged items, gains or losses on derivatives aredeferred until maturity of the hedged transactions.
The foreign exchange forward contracts, which qualify for hedge
accounting employed to hedge foreign exchange exposures forimport purchases, are translated at the foreign exchange rate
stipulated in the contract.
m. Per Share Information — Basic net income per share iscomputed by dividing net income available to commonshareholders by the weighted-average number of commonshares outstanding for the period.
Diluted net income per share reflects the potential dilution that
could occur if treasury stock were issued by stock option plan.
Cash dividends per share presented in the accompanying
consolidated statements of income are dividends applicable to
the respective years including dividends to be paid after the endof the year.
n. New Accounting Pronouncements — In August 2002, theBusiness Accounting Council issued a Statement of Opinion,“Accounting for Impairment of Fixed Assets,” and in October2003 the Accounting Standards Board of Japan (“ASB”) issued
ASB Guidance No.6, “Guidance for Accounting Standard for
Impairment of Fixed Assets.” These new pronouncements are
effective for fiscal years beginning on or after April 1, 2005 withearly adoption permitted for fiscal years ending on or after March
31, 2004.
The new accounting standard requires an entity to review its
long-lived assets for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset or
asset group may not be recoverable. An impairment loss would
be recognized if the carrying amount of an asset or asset groupexceeds the sum of the undiscounted future cash flows expected
to result from the continued use and eventual disposition of theasset or asset group. The impairment loss would be measured as
the amount by which the carrying amount of the asset exceeds its
recoverable amount, which is the higher of the discounted cash
flows from the continued use and eventual disposition of theasset or the net selling price at disposition.

The Group expects to adopt these pronouncements as of April 1,2005 and is currently in the process of assessing the effect of
adoption of these pronouncements.

Available-for-sale securities whose fair value was not readily
determinable as of March 31, 2005 and 2004 were as follows:
Carrying Amount

3. MARKETABLE AND INVESTMENT SECURITIESMarketable and investment securities as of March 31, 2005 and2004 consisted of the following:Thousands of
U.S. dollars

Millions of yen

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

2005

2004

2005

¥ 2,868500¥ 2,106$ 26,706
4,656¥ 3,368¥ 2,106$ 31,362¥ 2,394
4,114
4,241
693

¥ 3,173
3,635
4,453
696

$ 22,293
38,30939,491
6,453¥ 11,442¥ 11,957$106,546

The carrying amounts and aggregate fair values of marketable
and investment securities at March 31, 2005 and 2004 were as
follows:
Millions of yen

March 31, 2005

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

Cost

Unrealized Unrealized
Gains
LossesFair
Value

Available-for-sale—Equity securities

381 ¥ 2,018 ¥
5,483
8
3,789
531
2,100
1

5 ¥
110
79
35

2,394
5,381
4,241
2,066

2005

2004

2005

¥

¥

$ 6,453

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

Cost

¥

Unrealized Unrealized
Gains
Losses379 ¥ 2,803 ¥
4,467
84
4,555
138
1,300

9 ¥
110
240
18

March 31, 2005

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

Cost

Thousands of U.S.
dollars

Millions of yen

March 31, 2005

Available
for SaleHeld toMaturity

Available
for Sale¥ 9,432 ¥ 2,100 $ 87,829 $ 19,555

4. INVENTORIESInventories at March 31, 2005 and 2004 consisted of thefollowing:

Fair
Value

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

Held toMaturity

Due in one year or less¥ 3,167 ¥ 500 $ 29,490 $ 4,656
Due after one year through five years
3,539
32,955Due after five years through ten years
1,288
11,994Due after ten years
1,600 13,390 14,899
1,438

Millions of yen

Thousands of U.S. dollars
Unrealized Unrealized
Gains
Losses696

The carrying values of debt securities and others by contractual
maturities for securities classified as available-for-sale and heldto-maturity at March 31, 2005 were as follows:

Millions of yen

March 31, 2004

693

Proceeds from sales of available-for-sale securities for the years
ended March 31, 2005 and 2004 were ¥5,316 million ($49,502
thousand) and ¥3,468 million, respectively. Gross realized gains
and losses on these sales, computed on the moving average costbasis, were ¥130 million ($1,211 thousand) gains and ¥117
million ($1,089 thousand) losses for the year ended March 31,
2005 and ¥568 million gains and ¥64 million losses for the year
ended March 31, 2004.

Total
¥

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

2005

2004

2005

Merchandise
Finished products
Work in process
Raw materials and supplies

¥

¥

172
3,483
151
669

$ 1,695
31,781
1,574
6,677

Total

¥ 4,481¥ 4,475$ 41,727

182
3,413
169
717

5. LIABILITY FOR RETIREMENT BENEFITS
Fair
Value

$ 3,548 $ 18,791 $46 $ 22,293
51,05774
1,024 50,107
35,283
4,945
736 39,492
19,5559326 19,238

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

20

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

Assumptions used for the years ended March 31, 2005 and 2004
were set forth as follows:

Prior to January 1, 2005, the Company has a qualified pension
plan which covers employees only in case they retire at thenormal retirement age. Effective January 1, 2005, the Company
terminated the qualified pension plan and shifted into the new
annuity system. In this system, employees are entitled to selectthe defined contribution pension plan or the prepaid retirement
benefit plan. Accounting policy on transfers within retirement
benefit plans (No.1 of Application Guidelines in AccountingStandards for Business Enterprises) has been applied to thisshift. As a result of this shift, ¥551 million ($5,131 thousand) gain
occurred and credited to other income for the year ended March
31, 2005.

Discount rate
Expected rate of return on plan assets
Recognition period of actuarial gain/loss
Amortization period of prior service cost

In addition to the plan above, the Company participates in theTokyo Pharmaceutical Welfare Annuity Foundation, which isestablished as a mutual pension plan for employees in the same
industrial parties. The projected benefit obligation above does notinclude that of the Foundation. The Company’s undivided portionof the plan assets amounted to ¥4,824 million ($44,920 thousand)as of March 31, 2005.
Liabilities for employees’ retirement benefits as of March 31, 2005
and 2004 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2005

2004

2005

Projected benefit obligation
Fair value of plan assets
Unrecognized pension assets
Unrecognized actuarial net loss
Unrecognized prior service cost

¥ 2,763
(122)
20
(441)
(1,252)¥ 5,028(3,003)$ 25,729(1,136)
186(4,107)(11,658)

Liabilities presented on the
consolidated balance sheets¥¥ 1,405

968

(620)

$ 9,014

The components of net periodic benefit costs for the years ended
March 31, 2005 and 2004 were as follows:
Thousands of
U.S. dollars

Millions of yen

2004

2005

296
88
(34)
72
32
200
148

¥

194
102

$ 2,756
820
(317)
671
298
1,862
1,378

802

¥

730

$ 7,468

2005

21

Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Amortization of prior service cost
Installment on the welfare annuity
Others¥Net periodic benefit costs

¥

309
113
(40)
52

2005

2004

2.0%
1.5%
10 years
10 years

2.0%
1.5%
10 years

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

6. INCOME TAXESThe Company and its domestic subsidiary are subject to anumber of different taxes based on income, which, in theaggregate, resulted in normal effective statutory tax rates ofapproximately 40.7% and 41.6% for the years ended March 31,
2005 and 2004, respectively.
The tax effects of significant temporary differences at March 31,
2005 and 2004 were as follows:
Thousands of
U.S. dollars

Millions of yen

2005

2004

2005

¥

¥

345
218

$ 3,352
1,295

161
320
251
(64)

155
424
200
(47)

1,499
2,980
2,337
(596)

Deferred tax assets

1,167

1,295

10,867

Deferred tax liabilities:
Unrealized gain on available-for-sale securities
Reserve for advanced depreciation

(962)
(3)

(1,085)(4)(8,958)(28)

Deferred tax liabilities(965)(1,089)(8,986)206$ 1,881Deferred tax assets:
Accrued bonuses
Enterprise taxes
Liability for directors’ and corporate
auditors’ retirement benefits
Liability for employees’ retirement benefits
Other
Less valuation allowance

Net deferred tax assets

¥

360
139

202

¥

7. CONTINGENT LIABILITIESAt March 31, 2005, the Group had the following contingent
liabilities:
Millions of yen

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

Thousands of
U.S. dollars

610$ 5,680

1,901

17,702

8. SHAREHOLDERS’ EQUITY
Japanese companies are subject to the Code.
The Code requires that all shares of common stock are recordedwith no par value and at least 50% of the issue price of newshares is required to be recorded as common stock and theremaining net proceeds as additional paid-in capital, which isincluded in capital surplus. The Code permits Japanesecompanies, upon approval of the Board of Directors, to issue
shares to existing shareholders without consideration as a stock
split. Such issuance of shares generally does not give rise tochanges within the shareholders’ accounts.
The Code also provides that an amount at least equal to 10% of
the aggregate amount of cash dividends and certain otherappropriations of retained earnings associated with cash outlays
applicable to each period shall be appropriated as a legal
reserve (a component of retained earnings) until such reserve
and additional paid-in capital equals 25% of common stock. The
amount of total additional paid-in capital and legal reserve thatexceeds 25% of the common stock may be available fordividends by resolution of the shareholders. In addition, the Codepermits the transfer of a portion of additional paid-in capital andlegal reserve to the common stock by resolution of the Board of
Directors.
The Code allows Japanese companies to purchase treasury
stock, if authorized by the Articles of Incorporation. The
purchased amount of treasury stock cannot exceed the amountavailable for future dividend plus amount of common stock,
additional paid-in capital or legal reserve to be reduced in thecase where such reduction was resolved at the generalshareholders meeting. In order to be able to execute flexible
financial strategies which comply with the operating environment,
the Company established a new article on purchase of treasury
stock authorized by the resolution of the shareholders at thegeneral shareholders meeting on June 29, 2004.

The Company has following stock option plan. The plan provides
for granting options to directors and employees to 221,000
shares of the Company’s common stock in the period from July 1,
2004 to June 29, 2007. The options is granted at an exercise
price of ¥2,687 ($25.02). The Company plans to issue acquired
treasury stock upon exercise of the stock options.

9. LEASES
The Group, as a lessee, leases certain machinery, computerequipment and other assets. As a lessor, the Group leases
certain beds to its customers.
Total lease payments included in cost of sales and selling,
general and administrative expenses under finance leasearrangements that do not transfer ownership of the leased
property to the lessee were ¥83 million ($773 thousand) and ¥112
million for the years ended March 31, 2005 and 2004,
respectively. Total lease revenues were ¥4 million ($37thousand)and ¥3 million for the years ended March 31, 2005 and 2004,
respectively.
(1) The Group as Lessee
Pro forma information of leased property such as acquisition cost,
accumulated depreciation, obligations under finance lease,depreciation expense and interest expense of finance leases that
do not transfer ownership of the leased property to the lessee on
an “as if capitalized” basis for the years ended March 31, 2005
and 2004 was as follows:
Thousands of
U.S. dollars

Millions of yen

2005

2004

2005

Acquisition cost
Accumulated depreciation

¥

324
159

¥

458
295

$ 3,017
1,481

Net leased property

¥

165

¥

163

$ 1,536

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

Millions of yen

In addition to the provision that requires an appropriation for alegal reserve in connection with the cash payment, the Codeimposes certain limitations on the amount of retained earnings
available for dividends. The amount of retained earnings
available for dividends under the Code was ¥53,796 million($500,940 thousand) as of March 31, 2005, based on the amountrecorded in the Company’s general books of account.

2005

2004

2005

Due within one year
Due after one year

¥

65
104

¥

69
97

$

Total

¥

169

¥

166

$ 1,574

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

Millions of yen

Dividends are approved by the shareholders at a meeting held
subsequent to the fiscal year to which the dividends areapplicable. Semiannual interim dividends may also be paid upon
resolution of the Board of Directors, subject to certain limitations
imposed by the Code.

605
969

2004

2005

Depreciation expense
Interest expense

¥

79
5

¥

105
5

$

736
46

Total

¥

84

¥

110

$

782

2005

22

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

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

(2)The Group as Lessor
Pro forma information of leasing property such as acquisition
cost, accumulated depreciation, credits under finance lease,depreciation expense and interest income of finance leases that
do not transfer ownership of the leasing property to the lessee on
an “as if capitalized” basis for the years ended March 31, 2005
and 2004 was as follows:

Derivative transactions are controlled by the finance department
in accordance with the Group’s internal regulations and are
periodically reported by the finance manager in regular meetingsof the Board of Directors.

Thousands of
U.S. dollars

Millions of yen

2005

2004

2005

Acquisition cost
Accumulated depreciation

¥

25
8

¥

20
4

$

233
75

Net leased property

¥

17

¥

16

$

158

All derivatives were excluded from the disclosure of market value
information because all of them qualified for hedge accounting
and were recorded on the consolidated balance sheets as ofMarch 31, 2005 and 2004.

12. NET INCOME PER SHARE

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

Millions of yen

2005

2004

2005

Due within one year
Due after one year

¥

4
13

¥

4
13

$

37
121

Total

¥

17

¥

17

$

158

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

Millions of yen

2005

2005

2004

Depreciation expense
Interest income

¥

4
1

¥

3
1

$

37
9

Total

¥

5

¥

4

$

46

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

10. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥898
million ($8,362 thousand) and ¥950 million for the years ended
March 31, 2005 and 2004, respectively.

11. DERIVATIVESThe Group enters into foreign exchange forward contracts inorder to hedge market risk. Foreign exchange forward contracts
were used to hedge foreign exchange risk associated withcertain liabilities denominated in foreign currencies.

23

Derivatives are subject to market risk and credit risk frompotential fluctuations in foreign exchange rates. The Group does
not anticipate any losses arising from credit risk because thecounterparties to those derivatives are limited to highly rated
major financial institutions.

Reconciliation of the differences between basic and diluted net
income per share (“EPS”) for the years ended March 31, 2005
and 2004 is as follows:Year Ended March 31, 2005

Basic EPS —Net income available tocommon shareholders
Effect of dilutive securities—
Warrants
Diluted EPS —Net income for computation

Millionsof yenThousandsof shares

Net income

Weightedaverage shares¥ 5,100

U.S.
dollars

Yen
EPS

31,409 ¥ 162.38 $ 1.51
10

¥ 5,100
Millionsof yen31,419 ¥ 162.33 $ 1.51
Thousandsof shares

Yen

Year Ended March 31, 2004

WeightedNet income
average shares

EPS

Basic EPS —Net income available tocommon shareholders¥ 4,142

31,411 ¥ 131.87

Diluted EPS for the year ended March 31, 2004 is not disclosed
because it is anti-dilutive.

13. SUBSEQUENT EVENTOn June 29, 2005, the shareholders of the Company authorized
the following appropriations of retained earnings as of March 31,
2005:
Millions of yen

Thousands of
U.S. dollars

Ordinary year-end cash dividends,¥32 ($0.30) per share
Bonuses to directors¥ 1,00540$ 9,358
373

Total¥ 1,045$ 9,731Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors of
Paramount Bed Co., Ltd.:We have audited the accompanying consolidated balance sheets of Paramount Bed Co., Ltd. and subsidiaries as of March 31,
2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years thenended, all expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis forour opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Paramount Bed Co., Ltd. and subsidiaries as of March 31, 2005 and 2004, and the consolidated resultsof their operations and their cash flows for the years then ended in conformity with accounting principles generally acceptedin Japan.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely forthe convenience of readers outside Japan.

June 29, 200524

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

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

25

Gatch (hospital) bed

KA-500 Series hospital bed

Aura electric bed

Hestia Series

Callisto Series

INTIME

Rakusho SeriesCorporate Information
As of March 31, 2005

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

NetworkParamount Bed Co., Ltd.
14-5, Higashisuna 2-chome, Koto-ku,
Tokyo 136-8670, JapanMay 1947¥6,591 million
951

Board of Directors and Corporate Auditors(As of June 29, 2005)
President and Representative Director:
Vice-president and Representative Director:

Kenji Kimura
Kyosuke Kimura

Directors:

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

Standing Corporate Auditors:

Tadahiro Sekine
Katsuhiro Shibata

Corporate Auditors:

Tetsuo Takekawa
Etsuji Ikegami

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

100,000,000
31,682,526
19,843Major Shareholders
Number of Shares Percentage of Equity
Ownership to
Owned (Hundreds) Total Shares Issued (%)

Kimura Kosan Co., Ltd.
Kenji Kimura
Kyosuke Kimura
Mizuho Bank, Ltd.
Michihide Kimura
Morgan Stanley & Company International Limited
Japan Trustee Services Bank, Ltd. (Trust)
The Master Trust Bank of Japan, Ltd. (Trust)
The Kimura Foundation for Nursing Education
Ryusuke Kimura

66,07825,35019,134
15,632
11,954
10,437
9,178
8,455
7,103
6,691

20.8
8.0
6.0
4.9
3.7
3.2
2.8
2.6
2.2
2.1

Ownership among Shareholders

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

Domestic
Head Office14-5, Higashisuna 2-chome, Koto-ku, Tokyo 136-8670
Tel. +81-3-3648-1111 (key number)Tel. +81-3-3648-2961 (Overseas Trade Division)
Branches● Sapporo Branch318-11, Nishi 13-chome, Minaminijo, Chuo-ku, Sapporo,
Hokkaido 060-0062
Tel. +81-11-271-1181● Sendai Branch
3-3, Oroshi-machi 2-chome, Wakabayashi-ku, Sendai, Miyagi 984-0015
Tel. +81-22-239-5211● Saitama Branch
4-7, Kamiochiai 9-chome, Chuo-ku, Saitama, Saitama 338-0001
Tel. +81-48-852-0707● Yokohama Branch
1715-1, Tsuruma, Machida, Tokyo 194-0004
Tel. +81-42-795-8800● Nagoya Branch
20-17, Izumi 1-chome, Higashi-ku, Nagoya, Aichi 461-0001
Tel. +81-52-963-0600● Osaka Branch
3-33, Tosabori 2-chome, Nishi-ku, Osaka, Osaka 550-0001
Tel. +81-6-6443-8791● Hiroshima Branch
8-5, Yokogawa-cho 3-chome, Nishi-ku, Hiroshima, Hiroshima 733-0011
Tel. +81-82-293-1311● Takamatsu Branch223-1, Goto-cho, Takamatsu, Kagawa 761-8031
Tel. +81-87-881-8800● Fukuoka Branch
14-20, Hakataeki-higashi 3-chome, Hakata-ku, Fukuoka,
Fukuoka 812-0013
Tel. +81-92-461-1131
INTIME Shops and PUDS (Paramount Universal Design Station)● INTIME Kyobashi and PUDS
Sumitomo Mitsui Hull Tepco Bldg.1F
6-1, Kyobashi 1-chome, Chuo-ku, Tokyo 104-0031
Tel. +81-3-5250-1515 (INTIME)
Tel. +81-3-5250-1535 (PUDS)● INTIME Sapporo
1-4, Nishi 5-chome, Kitayojo, Chuo-ku, Sapporo, Hokkaido 060-0004
Tel. +81-11-219-8800● INTIME Nagoya
Address: Same as Nagoya Branch
Tel. +81-52-963-6800● INTIME Shinsaibashi
Sanei Shinsaibashi Bldg.1F
13-15, Nishishinsaibashi 1-chome, Chuo-ku, Osaka, Osaka 542-0086
Tel. +81-6-6245-9021● INTIME Fukuoka
Address: Same as Fukuoka Branch
Tel. +81-92-461-0666Plants● Chiba Plant
2078, Shirahata, Naruto-machi, Sambu-gun, Chiba 289-1306
Tel. +81-475-82-6111● Matsuo Plant
617, Kashikehongo, Matsuo-machi, Sambu-gun, Chiba 289-1537
Tel. +81-479-86-3331● Ohira Plant
690-1, Aza Uenohara, Shimonogo, Matsuo-machi, Sambu-gun,Chiba 289-1536
Tel. +81-479-86-2121
Subsidiary● PARA TECHNO CO., LTD.
1648-7, 1-chome, Kaijincho-minami, Funabashi, Chiba 273-0024
Tel. +81-47-431-0552

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

Overseas

66,2581,484
27,19979,524
139,619
2,738

Suite 1701, Shanghai Plaza Building, No.138, Huai hai M. Road,
Shanghai 200021, P.R. China
Tel. +86-021-5383-5111
Subsidiaries● PT. Paramount Bed Indonesia
MM2100 Industrial Town, Block M-1-1, Export Processing Zone,
Cikarang Barat, Bekasi 17520, Jawa Barat, Indonesia
Tel. +62-21-8980715● Paramount Bed (China) Co., Ltd.
A-105, Wuxi National Hi & New Tech Industrial Developement Zone,
Wuxi, Jiangsu, China
Tel. +86-510-532-3201

20.9
0.5
8.6
25.1
44.1
0.8

Representative Office● Shanghai Representative Office26

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