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sinse 1908

Contents

Profile of NIKKO

1Financial Highlights

4

Consolidated Balance Sheets

5

Consolidated Statement of Income

7

Consolidated Statement of Shareholders' Equity

8

Consolidated Statement of Cash Flows9

Notes to the Consolidated Financial Statements

10

Board of Directors and Satutory Auditors

19

Corporate Data

19

~PROFILE of NIKKO~Key Concept
NIKKO’s oval shape in brown as a symbol expresses ‘Earth’ and ‘Ware’. ’Earth’brought up human beings, and ‘Ware’ is what our remote ancestors created by being
attached to the earth.
The oval shape is derived from a conception of tableware that a round shape always
be seen at an angle in our daily life. We borrow, through the history of mankind, anoval shape to expect human communications of heart and mind which are hardly
embodied in words.
The oval shape symbolizes NIKKO continuously moving on toward a perfect circle
and round.
TABLETOP DIVISION
In 1905, in the city of kanazawa, production of semi-porcelain dinnerware was attempted
for the first time in Japan. Nihon Koshitsu Toki Co., Ltd. Was established in 1908 by theformer feudal lord family, Maeda and some prominent members of community.
As a pioneer in the manufacture of semi-porcelaindinnerware, the company started in 1917
operations in Pusan, Korea to further upscale its
production. Experiencing the ordeal of World War II,
the company’s technology, fostered by its long courseof history, came into bloom in the early sixties. In
1961, the company moved its head office and plant
to the present location to set the integrated
production line with modern equipment andfacilities, securing a position as a leading semi-porcelain dinnerware maker. Anticipating
the trend of the times, the company has developed a various kinds of materials such as finebone china, fine vitrified china, fine porcelain, oven ware and decoration tile helped by its
innovative technology. Entering successfully into the hotel and restaurant ware market in
the 80’s was another stride of the company. Continuous development of products always
satisfies various requirements of hoteliers and caterers in the world.
In an attempt to expand its global business, established in 1968 were Nikko Ceramics, Inc.
in New York, a joint-venture factory in 1973 in Malaysia and another joint venture in 1991
in Thailand. The company freshened up in 1983 under the name of NIKKO COMPANY.
During the recent several years, NIKKO has dramatically been spreading out its
reputation for manufacturing technology into the field of OEM trade. Discerning the
rapidly changing market, NIKKO always makes efforts to stay in the course of a company
to sell overall performances both in product quality and services.
−1−

ELECTRO-CERAMICS DIVISION

Based on this long experience in ceramics technology, Nikko has established in 1982 an
Electro-Ceramics Division to make a start with alumina substrates and hybrid IC. This
was to take the lead in the electronics industry with a three-step development of coreproducts meeting an increasing demand form the market.
A gas-firing kiln for large-sized alumina substrates
was put into practical use for the first time in theindustry. Then, thick film substrates enabled asuccessful application of precision printing techniqueonto electronic circuit, which was helped by thepeculiar know-how cultivated for many years in theceramics manufacturing. Hybrid IC has followed withflexible production on a basis of ‘customized
development’ policy to meet various demands formainly industrial devices from time to time.
Another successful production in 1992 was of multi-layered substrates, and complete
packages of product line-ups were placed in the broad market inclusive of U.S.A. Dielectric
ceramic compositions in 1996 and multi-layer piezo ceramic transformers are anotherremarkable development, and of wide application to today’s personal computers, cellular or
mobile phones and many more of electronic units.
With a background of the down-sizing and high-functioning trend, Nikko positively
discerns the move of the electronics field expected to grow with speed especially in the fieldof communication apparatus, in contrast to the tableware division making a strenuous
efforts in the crucial market status.

−2−

HOUSING & ENVIRONMENTAL EQUIPMENT DIVISION
The division has started with an applied study of organic materials for
Fiberglass-Reinforced-Plastics (FRP) , while both Tableware division and Electro-Ceramics
Division are based on inorganic materials.
Established of the division in 1962 was on theopportunity of newly developed FRP bath-tubs being
recognized to be in the product range authorized by
Tokyo Gas Co., Ltd. Its FRP factory was set up in 1966
near Tokyo to produce environmental equipment such as
single bath-tubs, bathroom units, septic tanks andwater treatment facilities.
Not later than any other brand, Nikko introduced
high-leveled technology for FRP press-forming method
when others still applied a manual forming method, and its production capacity of septic
tanks has reached a top in the industry.
In the marketing aspect, a wide network system of sales is spread throughout the nation
together with some showrooms as well. Close services and market exploration are
efficiently performed to lead new developments.
Nikko always takes the position that product development be done from the viewpoint of
amenities in a human life and global protection of environment.

−3−

Financial Highlights
NIKKO COMPANY

Consolidated

Data

Net Income

Net Sales(Million Yen)

Total Assets &Shareholders' Equity(Million Yen)
300

Total Assets
Shareholders' Equity
Shareholders' Equity Ratio (%) 100

25,000(%)

200

23,000100(Million Yen)
20,00080

15,00060

10,000

40

5,000

20

0

21,000Δ100
19,000Δ200
17,000
Δ300
Δ697
Δ400

15,000
1999

'00

'01

0
1999

'02 2003
2003

1999

'00

'01

'02 2003
2003

'00

'01

0
1999

'02

'00

'01

(except per share amounts and %)Number of Shares

1999
21,000(398)
20,16913,193
65.4
(3.0)

2000
24,14371
21,876
13,074
59.8
0.5

2001
21,611(697)
20,186
12,078
59.8
(5.5)

2002
21,100(168)
20,265
11,632
57.4
(1.4)

2003
22,35450
20,677
11,67656.5
0.4

17,072,000

17,072,000

17,072,000
Yen

17,072,000

17,072,000(40.86)707.584.00(9.93)
701.96
8.00

Per Share of Common StockNet Income
Shareholders' Equity
Cash Dividends(23.32)772.9510.00

4.17
766.1310.00

Note: ￥108.80 = U.S.$1.00; See Notes to the Consolidated Financial Statements.

-4-

2003
2003

2003

Millions of yen

Consolidated Data
Net Sales
Net Income
Total Assets
Shareholders' Equity
Shareholders' Equity Ratio (%)
Return on Shareholders' Equity (%)'02

Thousands of
U. S. dollar(except per
share amounts)
2003
156,067463
190,054
107,324

U. S. dollar
3.01
684.77
8.00

0.028
6.294
0.074

Consolidated Balance Sheets
NIKKO COMPANY

October 31, 2003 and 2002

Thousands of yen
2003
2002

ASSETS
Current Assets:
Cash and time deposits
Notes and accounts receivable:
Trade
Subsidiaries and affiliates
Allowance for doubtful accounts
Inventories
Deferred tax assets
Prepaid expenses and other current assets
Total current assets

Investments and Other Assets:
Investment securities
Investment in and advances to subsidiaries and affiliates
Deferred tax assets
Other
Allowance for doubtful accounts
Total investments and other assets

Property, plant and equipment, at cost:
Land
Buildings
Machinery and equipment
Construction in progress
Accumulated depreciation
Net property, plant and equipment

Intangible Assets and otherTotal Assets

See Notes to the Consolidated Financial Statements.

-5-

Thousands of
U. S. dollar
2003¥3,907,319¥3,069,281$35,912

4,953,425
100,336(52,987)

4,906,391
116,540(86,668)

45,527922(487)

5,135,873
408,231
153,368
14,605,567

5,392,320
254,276
110,163
13,762,306

47,204
3,752
1,409
134,242806,100
194,115
229,948
306,018(29,454)
1,506,728

780,936
194,115
408,669
391,801(73,865)
1,701,657

7,409
1,784
2,113
2,812
(270)
13,8481,052,526
5,739,851
8,168,694
30,404(10,466,271)
4,525,205

1,052,526
5,757,988
7,988,371
59,319(10,105,860)
4,752,345

9,673
52,75575,079279(96,197)
41,59140,37949,459371¥20,677,880¥20,265,769$190,054

Consolidated Balance Sheets
NIKKO COMPANY

October 31, 2003 and 2002

Thousands of yen
2003
2002

LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:
Notes and accounts payable:
Trade
Subsidiaries and affiliates
Other
Short-term borrowings
Construction notes payable
Accrued expenses
Accrued income taxes
Other
Total current liabilities
Long-term liabilities:
Accrued directors' and statutory auditors' retirement benefits
Allowance for operating loss of subsidiaries
Liabilities for retirement benefits
Other
Total long-term liabilities

Minority Interests
Shareholders' Equity:
Common stock, ￥50 par value per share
Authorized-60,000,000 shares;
Issued-17,072,000 shares in 2003
and 17,072,000 shares in 2002
Additional paid-in capital (Capital reserve)

Thousands of
U. S. dollar
2003¥3,941,024
331,523
65,185¥3,746,292
265,844
67,157$36,2223,047
599

2,924,553
75,460623,587
46,154529,205
8,536,694

2,992,054
54,119588,045
34,527603,330
8,351,371

26,880
693
5,731
424
4,864
78,462

86,64252,000228,765
96,920464,32880,04052,00073,171
68,222
273,433

796
477
2,102
890
4,267

−

8,246

−

2,800,000
3,240,208

2,800,000
3,239,912

25,73529,781Retained earnings
Unrealized profit (Loss) on securiteis
Adjustment on foreign currency statement translation
Treasury stocks
19,866 shares in 2003 and 500,281 shares in 2002
Total shareholders' equity

5,847,118(84,966)(120,944)(4,557)

5,929,229(97,967)(125,680)(112,774)

53,741(780)(1,111)(41)

11,676,857

11,632,718

107,324

Total Liabilities and Shareholders' Equity¥20,677,880¥20,265,769$190,054

See Notes to the Consolidated Financial Statements.

-6-

Consolidated Statement of Income
NIKKO COMPANY

Years ended October 31, 2003 and 2002

Thousands of
U. S. dollar
2003$205,460
156,067
49,392Thousands of yen
2003
2002
¥22,354,069¥21,100,238
16,980,163
16,241,721
5,373,905
4,858,517

Net Sales
Cost of Sales
Gross profit
Selling, General and Administrative Expenses
Operating income

5,061,227
312,678

5,086,003(227,485)

46,5182,873

Other (Income) Expenses:
Interest expenses
Interest and dividend income(Gain) on sale or loss on disposal of property, net
Other, net
Income before taxes

47,220(691)
10,824
152,571
102,753

56,654(4,308)28,00151,805(359,639)

434
(6)
99
1,402
944

Income and enterprise tax
Income taxes adjustment (by tax effect accounting)
Income taxes

46,366
14,30560,672

36,567(227,578)(191,010)

426
131
557

Minority interest in net income of Consolidated Subsidiaries(8,309)Net income¥50,390―¥(168,628)

Yen
2003
Amounts Per Share of Common Stock:
Net Income
Cash dividends

3.01
8.00

See Notes to the Consolidated Financial Statements.

-7-

Yen
2002
(9.93)
8.00

(76)

$463

U. S. dollar
2003$0.0280.074

Consolidated Statement of Shareholders' Equity
NIKKO COMPANY

Years ended October 31, 2003 and 2002

Balance, October 31, 2002
Net income for the year
Cash dividends
Gain on sale of treasury stock
Balance, October 31, 2003

Number ofshares ofcommon stock(thousands)
17,072−−−
17,072Thousands of yen
Commonstock¥2,800,000−−−¥2,800,000

Capitalsurplus¥3,239,912−−
296¥3,240,208

Retainedearnings¥5,929,229
50,390(132,501)−¥5,847,118

Thousands of U. S. dollars
CommonCapitalRetainedstock
surplusearnings$22,932$26,534$48,126−−463−−(1,217)−2−$25,735$29,781$53,741

Balance, October 31, 2002
Net income for the year
Cash dividends
Gain on sales of treasury stock
Balance, October 31, 2003

See Notes to the Consolidated Financial Statements.

-8-

Consolidated Statement of Cash Flows
NIKKO COMPANY

Years ended October 31, 2003 and 2002

Thousands of yen
2003
2002
Cash Flows from Operating Activities:
Income before income taxes

Thousands of
U. S. dollar
2003¥102,753¥(359,639)$944

Depreciation
Provision for doubtful receivables
Provision for bonus
Liability for employee's retirement benefits
Interest and dividend income
Loss on disposal of property
Loss (Gain) on sales of investments in securities
Loss (Gain) on devaluation of investments in securities
Equity in loss of unconsolidated subsidiaries and affiliates
Loss (Gain) on sales of golf club membership
Interest expenses(Increase) Decrease in notes and accounts receivables(Increase) Decrease in receivables(Increase) Decrease in inventories(Increase) Decrease in payables

512,268(78,092)
7,000
155,594(691)
10,824(5,357)38,433―2,400
47,220(34,653)(11,399)
256,446
281,751
1,284,497

553,135
57,010(3,000)60,772(4,308)28,001
7,663
4,500
52,000―56,654(410,887)
175,856
315,901
592,258
1,125,919

4,708
(717)
64
1,430
(6)
99
(49)
353
―
22
434
(318)
(104)
2,357
2,589
11,806

Receipt of interest and dividend income
Payment of interest expenses
Payment of income taxes
Refunded of income taxes
Cash Flows from Operating Activities

691(47,220)(34,739)―¥1,203,228

4,308(55,812)(21,728)130,028¥1,182,714

6
(434)
(319)
―
$11,059

Cash Flows from Investing Activities:
Acquisition of investments in securities
Proceeds from sales of investments in securities
Acquisition of investments in affiliates
Acquisition of property, plant and equipment
Other
Cash Flows from Investing Activities(56,229)
21,450(2,319)(286,660)
45,918¥(277,840)(53,453)
70,019―(244,570)
115,867¥(112,138)

(516)
197
(21)
(2,634)422$(2,553)

Cash Flows from Financing Activities:
Borrowing short-term bank loans-net
Acquisition of treasury stocks
Proceeds from treasury stocks
Payments of cash dividends
Cash Flows from Operating Activities(67,501)(3,986)
112,500(132,606)¥(91,593)(238,003)(112,160)―(69,525)¥(419,689)

(620)
(36)
1,034
(1,218)$(841)

Exchange difference of cash and cash equivalents

4,736

1,607

43

Net increase (decrease) in cash

838,530

652,494

7,707

Cash at beginning of period

3,003,559

2,351,065

27,606

Cash at end of period¥3,842,090¥3,003,559$35,313

See Notes to the Consolidated Financial Statements.

-9-Notes to the Consolidated Financial Statements
NIKKO COMPANY

1. Basis of Presenting Consolidated Financial Statements(1) Accounting Principles and Presentation

The accompanying consolidated financial statements have been prepared from the accounts maintained by
Nikko Company (the "Company") and its consolidated subsidiaries (the "Companies") in accordance with theprovisions set forth in the Japanese Commercial Code and other countries' regulations and in conformity withaccounting principles and practices generally accepted in Japan, which are different in certain respects as toapplication and disclosure requirements from International Accounting Standards.
Certain items presented in the consolidated financial statements filed with the Ministry of Finance (the"MOF") in Japan have been reclassified for the convenience of readers outside Japan.
The consolidated financial statements are not intended to present the consolidated financial position, resultsof operations and cash flows in accordance with accounting principles and practices generally accepted incountries and jurisdictions other than Japan.
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of¥108.80=U.S.$1 the approximate rate of exchange at October 31, 2003, has been used in translation. The
inclusion of such amounts is not intended to imply that Japanese yen have been or could be readily converted,
realized or settled in U.S. dollars at the rate or any other rate.

(2) Scope of Consolidation
The Company had 2 subsidiaries as at October 31, 2003 and October 31, 2002. The consolidated financial
statements include the accounts of the Company and 2 of its subsidiaries. The major consolidated subsidiaries
are listed below:

Nikko Ceramics, Inc.
Nikko Hanbai Co., Ltd.

As at October 31, 2003
Equity ownership percentage,
Capital stockincluding indirect ownership(thousands)
100.00 %$4,00094.03 %

¥470,000(3) Consolidation and Elimination
For the purposes of preparing the consolidated financial statements, all significant intercompany
transactions, account balances and unrealized profits among the Companies have been eliminated, and the
portion thereof attributable to minority interests is charged to minority interests.
The cost of investments in the common stock of consolidated subsidiaries is eliminated with the underlying
equity in net assets of such subsidiaries. The material difference between the cost of an investment and theamount of underlying equity in net assets of such subsidiary is deferred and amortized over a reasonable
period within 5 years on a straight-line basis.

(4) Investments in Unconsolidated Subsidiaries and Affiliates

At October 31, 2003, the Company had 4 affiliates. They have not been accounted for by the equity method
for the following reasons: insignificant amount of net income and retained earnings. The investments inaffiliates are stated at cost.

−10−2. Summary of Significant Accounting Policies(1) Valuation of Securities
The accounting standard for financial instruments requires that securities be classified into three categories:
trading, held-to-maturity or other securities. Trading securities are carried at fair value and held-to-maturity
securities are carried at amortized cost. Marketable securities classified as other securities are carried at fairmarket value with any changes in unrealized gain or loss, net of the applicable income taxes, included directly
in shareholders equity. Non-marketable securities classified as other securities are carried at cost. The costof securities sold is determined by the moving average method.

(2) Inventories
Inventories held by the Company and the domestic consolidated subsidiary are stated at cost. Cost isdetermined by the periodic average method for finished goods and goods in process, by the moving averagemethod for raw materials and supplies, and by the specific identification method for construction in process.
Inventories held by the overseas consolidated subsidiary are valued at lower cost, which is determined by the
FIFO method.

(3) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment except forbuildings of the Company is computed on the declining-balance method and depreciation of buildings iscomputed on the straight-line method, at rates based on the estimated useful lives of the assets. Depreciationof property, plant and equipment of the domestic consolidated subsidiary is computed on the declining-balancemethod and buildings (except for structures attached to the buildings) acquired on and after April 1, 1998
have been depreciated by the straight-line method. The estimated useful lives are based on the prescribed by
the Japanese income tax laws. The overseas consolidated subsidiary has computed by the straight-line
method. Normal repairs and maintenance, including minor renewals and improvements, are charged toincome as incurred.

(4) Foreign Currency Translation
Foreign currency amounts except for those covered by forward exchange contracts are translated into
Japanese yen on the basis of the rates of exchange in effect at the balance sheet date for monetary current
assets and current liabilities, and at historical rates for other assets and liabilities unless they have accrued
significant exchange losses. Foreign currency amounts covered by forward exchange contracts are translated
into Japanese yen at the relevant contract rates. Historical rates are used for translation of income andexpenses.

(5) Recognition of Income Taxes
The Companies adopted deferred tax accounting, whereby tax effects on temporary differences are adequatelyreflected and recognized as additions to or deductions from "Income Taxes" in the accompanying Consolidated
Statements of Income.

(6) Translation of Foreign Currency Financial Statements(Accounts of Overseas Subsidiaries and Affiliates)
Financial statements of foreign subsidiary is translated into Japanese yen at the current exchange rates as of
the balance sheet date for all balance sheet accounts except for shareholders’ equity accounts, which istranslated at the historical exchange rate. The annual average rate is used for revenue and expense accounts.

(7) Amortization

The amortization of intangible assets of the Company and the domestic consolidated subsidiary are computedby the straight-line method, at rates based on the prescribed by the Japanese income tax laws. the overseas
consolidated subsidiary has computed by the straight-line method.

(8) Derivatives
Derivatives are valued at fair value if hedging accounting is not appropriate or where there is no hedging
designation, and the gains or losses on derivatives are recognized in the current earnings. Certaintransactions classified as hedging transactions such as commodity swap are accounted for under a deferral
method, whereby unrealized gains or losses on hedging instruments are carried as assets or liabilities on thebalance sheet until the gains and losses on the hedged items are realized.

−11−

(9) Accounting for Leases
Finance leases other than those which are deemed to transfer the ownership of the leased assets to lessees areaccounted for by the method similar to that applicable to ordinary operating leases.

(10) Net Income and Dividends per Share"Net income per share" of common stock is based upon the weighted average number of shares of common
stock outstanding during each year. Cash dividends per share shown for each year in the Consolidated
Statements of Income represent dividends declared as applicable to the respective year, rather than those
paid in each year.

(11) 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. Cash equivalents include time deposits and investment trusts that
represent short-term investments, all of which mature or become due within three months of the date ofacquisition.

(12) Allowance for Doubtful Accounts
Allowance for doubtful accounts is calculated based on the aggregate amount of estimated credit losses for
doubtful receivables plus an amount for receivables other than doubtful receivables calculated using historical
write-off experience from certain prior periods.

(13) Shareholders’ Equity
The amount of retained earnings available for dividends under the Commercial Code of Japan is based on theamount stated in the statutory financial statements of the Company. Dividends are approved by theshareholders at a meeting held subsequent to the fiscal year to which the dividend is applicable. In addition, asemi-annual interim dividend payment may be made by resolution of the Board of Directors subject to certain
limitations imposed by the Commercial Code.
.

(14) Research and Development Costs

Expenses relating to research and development activities are charged to income as incurred. Such researchand development expenses were included in cost of goods sold and selling, general and administrative
expenses in the accompanying consolidated statements of income and amounted to ¥136,520 thousand ($1,254
thousand) and ¥154,394 thousand ($1,253 thousand) for the years ended October 31, 2003 and 2002,
respectively.

3. Short-term Bank Loans
Short-term bank loans of subsidiaries are secured by the Company, at an annual weighted average interest
rate of 1.93 at October 31, 2003.and 1.88 at October 31, 2002.

2003

2002

Thousands of
U.S. dollars
2003¥2,924,553¥2,992,054$26,880

Thousands of yen
Short-term bank loans

4. Pledged Assets
The carrying amounts of assets pledged as fixed collateral at October 31, 2003 and 2002, the Company had noliabilities.
Thousands of yen
Property, plant and equipment– net of accumulated depreciation

−12−

2003

2002

¥248,755¥257,714

Thousands of
U.S. dollars
2003$2,286

5. Contingent Liabilities
As at October 31, 2003, contingent liabilities in respect of trade notes discounted in ordinary course ofbusiness, guarantees of indebtedness of employees, and guarantees of subscription or that of reservation
amounted to ¥252,746thousand ($2,323thousand) and ¥11,690thousand ($107thousand), ¥61,045thousand($561thousand), respectively. As at October 31, 2002, they amounted to ¥323,923thousand ($2,629thousand)and ¥10,967thousand ($89thousand), ¥48,671thousand ($395thousand), respectively.

6. Retirement Plans and Severance Indemnities(1) The Company and its domestic consolidated subsidiaries have defined benefit plans, tax-qualified pension
plans, covering substantially all employees who are entitled to lump-sum or annuity payments, the amountsof which are determined by reference to their basic rates of pay, length of service, and the conditions underwhich termination occurs.
The following table sets forth the funded and accrued status of the plans, and the amounts recognized in the
consolidated balance sheet as of October 31, 2003 and 2002 for the Company’s and the consolidated
subsidiaries’ defined benefit plans(2) Components of accrued pension and severance costs as of October 31, 2003 and 2002 are as follows:
Thousands ofThousands of yen
U.S. dollar
2003
2002
2003
Retirement benefit obligation at end of year
Plan assets
Unfunded retirement benefit obligation
Unrecognized net retirement benefit obligation
at transition
Unrecognized actuarial loss
Unrecognized prior service cost
Net amount recognized on the balance sheet
Prepaid pension expenses
Accrued retirement benefits¥(2,952,278) ¥(2,752,704)
1,362,549
1,424,083(1,589,729) (1,328,620)$(27,134)
12,523(14,611)820,739

889,134

7,543

540,224―(228,765)―(228,765)

366,315―(73,171)―(73,171)

4,965―(2,102)―(2,102)A consolidated subsidiary use the simplified method.
(3) Components of retirement benefit expenses for the year ended October 31, 2003 and 2002 are as follows
Thousands ofThousands of yen
U.S. dollar
2003
2002
2003
Service cost
Interest cost
Expected return on plan assets
Amortization of transition obligation
Amortization of actual loss
Amortization of prior service cost
Retirement benefit expenses¥192,405
56,670(26,273)
64,16929,042
17,347
333,362¥174,776
83,210(39,742)
64,16911,2407,576
301,231$1,768
520
(241)
589
266
159
3,063

Retirement expenses under the simplified method are included in service cost.
(4) Assumptions used for calculation of retirement benefits for the year ended October 31, 2003 and 2002 are as
follows:
2003
2002
Method of attributing the project benefits to periods of service
Discount rate
Expected return on plan assets
Amortization period of unrecognized actuarial gains or losses
Amortization period of net transition obligation−13−

Straight-line method
2.5 %
3.0 %
2.0 %
3.0 %
13 years
15 years7. Deferred Tax
Deferred tax assets and liabilities (both current and non-current) consisted of the following elements:

Thousands of yen

Thousands
ofU.S. dollar
2003

2003

2002

Deferred tax assets:
Allowance for bonuses not deductible until paid
Allowance for doubtful accounts
Loss on valuation of inventories
Accrued directors' and statutory auditors' retirement benefits
Liabilities for retirement benefits
Loss on valuation of investments in memberships
Allowance for operating loss of subsidiaries
Unrealized loss on securities
Unrealized intercompany profit of inventory
Tax loss carried forward
Other
Subtotal
Allowance for valuation
Net deferred tax assets¥143,676
37,148286,362
35,00392,421
18,49921,00857,59541,539488,245
70,2091,291,708(644,927)¥646,781¥112,477
33,280236,30932,81630,00024,41921,32068,070―741,387
62,844
1,362,927(690,883)¥672,044$1,320
341
2,632
321
849
170
193
529
381
4,487
645
11,872(5,927)$5,944

Deferred tax liabilities:
Deferred gains on sales of property
Net deferred tax liabilities(8,600)¥(8,600)(9,097)¥(9,097)

(79)
$(79)

Reconciliation of actual tax rate is shown below:
Effective statutory tax rate
Adjustments:
Entertainment expenses and other not deductible
Dividends income and other not taxable
Taxation on per capita basis
Valuation allowance change
Loss of subsidiaries
Unrealized intercompany profit of inventory
Unrecognized deferred income taxes at subsidiaries
Elimination of loss on devaluation of investment securities
Changes in tax rate
Other factor
Actual tax rate

41.0%
25.3%
(1.0)%
33.1%(65.1)%
96.0%(46.1)%(17.7)%(7.8)%
3.3%(1.8)%
59.0%

No information for differences between the statutory income tax rate and the effective income tax rate isrequired for the years ended October 31, 2002, as loss before income taxes and minority interests was reported
for the year.
The statutory tax rate used for calculation of deferred income tax assets and liabilities was 41% for the year
ended October 31, 2003. Effective for the year commencing on November 1, 2004, or later, according to therevised local tax law, income tax rates for enterprise taxes will be reduced as a result of introducing theassessment by estimation on the basis of the size of business. Based on the change of income tax rates, forcalculation of deferred tax assets and liabilities, the Company and consolidated domestic subsidiaries used thestatutory tax rates of 41.0% and 40.4% for current items and non-current items, respectively, at October 31,
2003.
As the result of the change in the statutory tax rates, deferred income tax assets decreased by ¥4,270thousand($39thousand), income taxes-deferred increased by ¥3,415thousand ($31thousand) and net unrealized holding
losses on securities increased by ¥855thousand ($7thousand) compared with what would have been recorded
under the previous local tax law−14−

8. Accounting for Leases
The following pro forma information of leased property such as acquisition cost, accumulated depreciation,
obligations under finance leases, depreciation expense, 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 October 31,
2003 and 2002, was as follows.

2003

2002

Thousands of
U.S. dollars
2003¥544,333
646,777¥1,191,110¥540,645
572,312¥1,112,957$5,003
5,944$10,947¥232,441
378,354¥610,796¥156,403
264,686¥421,090$2,136
3,477$5,613¥311,891
268,422¥580,314¥384,241307,625¥691,867$2,866
2,467$5,333Thousands of yen
Acquisition cost
Machinery and equipment
Other assets
Accumulated depreciation
Machinery and equipment
Other assets
Net book value
Machinery and equipment
Other assets

Obligations under finance leases as of October 31,2003 and 2002, are as follows:
Thousands of yen
Due within one year
Due after one year

2003

2002

¥213,571
392,683¥606,254¥191,307
521,388¥712,696

Thousands of
U.S. dollars
2003$1,962
3,609$5,572The imputed interest expenses portion which is computed using the interest method is excluded from theabove obligations under finance leases.
Depreciation expenses and interest expenses under finance leases as of 2003 and 2002, were as follows:
Thousands of yen
Lease expenses for the year
Depreciation expense
Interest expense

2003

2002

¥231,846
209,442
27,511¥252,998
233,589
26,274

Thousands of
U.S. dollars
2003$2,1301,925252

Depreciation expenses and interest expense, which are not reflected in the accompanying consolidated
statement of income, computed by the straight-line method and the interest method.

−15−

9. Investments
In accordance with the accounting standard for financial instruments, investment securities include equity
securities, bonds and other, of which the aggregate cost, gross unrealized gains/losses and fair value pertaining
to available-for-sale securities and held-to-maturities at October 31, 2003 and 2002 were as follows.
Available-for-sale securities
Securities with book values exceeding
Thousands of yen
2003
Acquisition
cost¥323,383

Other securities
Thousands of yen
2003

Book value

Difference¥344,073¥20,689

Acquisitioncost¥509,811

Thousands of U.S. dollars
2003

Difference¥346,558¥(163,252)

Thousands of U.S. dollars
2003

Acquisition
Book value
Difference
cost$2,972$3,162$190
Available-for-sale securities
Securities with book values exceeding
Thousands of yen
2002
Acquisition
cost¥51,855

Book value

Book value

Difference¥56,873¥5,017

Acquisition
cost$4,685

Book value

Difference$3,185$(1,500)

Other securities
Thousands of yen
2002
Acquisition
cost¥794,003

Book value

Difference¥622,959¥(171,044)

The sales amounts of available-for-sale securities sold, gains and losses, in the years ended October 31, 2003
and 2002 are as follows:
Thousands of yen
Sales amount
Gains
Losses2003

2002¥21,450
5,897
539¥70,019
11,736
19,399Thousands of
U.S. dollars
2003
$197
54
4

Available-for-sale securities whose fair value is not readily available as of October 31, 2003 and 2002 comprisefollowing:Thousands of yen
Unlisted stocks
Others
Total

2003

2002

¥109,468
6,000
115,468¥97,103
4,000
101,103

Thousands of
U.S. dollars
2003$1,00655
1,061

The carrying values of debt securities by contractual maturities classified as available-for-sale andheld-to-maturity for the years subsequent to October 31, 2003 and 2002 are as follows:
Thousands of yen
Within one year
Over 1 year but within 5 years
Over 5 years but within 10 years
Over 10 years

−16−

2003

2002

―
¥6,000―――¥4,000――Thousands of
U.S. dollars
2003
―
$55
―
―

10. Segment Information(1) Industry Segment Information
The Companies operate principally in the following three industrial segments:
Tabletop
Electro-Ceramics
Housing & Environmental Equipment

Fine bone china, Fine vitrified china, Fine porcelain, Oven ware
Alumina substrates, Hybrid IC, LTCC substrates, Dielectric
ceramics, Wind turbine
FRP bath-tubs, Bathroom units, Septic tanks, Water treatment
facilities, Tiles

The segment information of the Companies ended October 31, 2003 and 2002 are presented below:
Thousands of yen
2003

Sales:
Sales to customers
Intersegment sales
Total sales
Operating expenses
Operating income (loss)
Total assets:
Depreciation:
Capital expenditure:

Housing &Environmental
Equipment

Tabletop

ElectroCeramics¥5,986,954―¥5,084,236―¥11,282,878 ¥22,354,069――

5,986,954
6,184,737(197,783)¥7,010,361
112,919
104,116

5,084,236
4,826,602
257,634¥4,067,499
254,189
149,268

11,282,878
22,354,069
10,520,745
21,532,085
762,132
821,983¥4,977,225 ¥16,055,087
136,788503,896
60,939314,323

Eliminations/
Consolidated
Corporate

Total― ¥22,354,069―――
22,354,069
509,305
22,041,390(509,305)
312,678¥4,622,793 ¥20,677,880
8,867
512,763
6,268
320,592

Thousands of U.S. dollars
2003
Tabletop
Sales:
Sales to customers
Intersegment sales
Total sales
Operating expenses
Operating income (loss)
Total assets:
Depreciation:
Capital expenditure:$55,027―55,027
56,845(1,817)$64,433
1,037
956

Housing &Environmental
Equipment

ElectroCeramics$46,730―
46,73044,362
2,367$37,385
2,336
1,371

$103,702―
103,702
96,6987,004$45,746
1,257
560

Total

$205,460―
205,460
197,905
7,554$147,565
4,631
2,889

Eliminations/
Consolidated
Corporate
―
―
―
4,681
(4,681)$42,48881
57$205,460―
205,460
202,586
2,873$190,054
4,712
2,946

Thousands of yen
2002

Sales:
Sales to customers
Intersegment sales
Total sales
Operating expenses
Operating income (loss)
Total assets:
Depreciation:
Capital expenditure:

Housing &Environmental
Equipment

Tabletop

ElectroCeramics¥6,387,015―
6,387,015
6,573,363(186,348)¥7,592,743
97,84096,771¥4,431,125―
4,431,125
4,435,404(4,278)¥4,104,639
292,610
86,799Total¥10,282,097 ¥21,100,238――
10,282,097
21,100,238
9,808,804
20,817,572
473,293282,666¥4,765,854 ¥16,463,238
158,433
548,883
69,026
252,597−17−

Eliminations/
Consolidated
Corporate― ¥21,100,238――― 21,100,238
510,152 21,327,724(510,152)(227,485)¥3,802,531 ¥20,265,769
7,343
556,227―
252,597

(2) Information by Geographic Segment
As more than 90% of the consolidated net sales for the two years in the period ended October 31, 2003 and 2002
were made in Japan, the disclosure of geographic segment information has been omitted.

(3) Export Sales and Sales by Overseas Subsidiaries
Export sales of the Companies (meaning the amounts of export made by the Company and its domestic
subsidiaries plus the sales of overseas consolidated subsidiaries) ended October 31, 2003 and 2002 arepresented below:
Thousands of yen
2003
Export sales and sales by overseas subsidiaries:
Overseas sales
Net sales

AmericasAsia¥1,313,797 ¥1,474,175

Percentage of such sales against consolidated net sales

5.9%

6.6%

Other
¥175,287

Total¥2,963,260
22,354,069

0.8%

13.3%

Thousands of U.S. dollars
2003
Export sales and sales by overseas subsidiaries:
Overseas sales
Net sales

Americas$12,075

Asia$13,549

Other$1,611

Total$27,235
205,460

Thousands of yen
2002
Export sales and sales by overseas subsidiaries:
Overseas sales
Net sales

AmericasAsia¥1,546,074 ¥1,345,581

Percentage of such sales against consolidated net sales

7.3%

6.4%

Other
¥209,502

Total¥3,101,158
21,100,238

1.0%

14.7%

11. Derivative Financial Instruments
The Company have entered into forward exchange contracts with banks as hedges against receivables
denominated in foreign currencies and into commodity swap with banks as hedges against purchase price offuel. These derivative financial transactions are utilized solely for hedging purposes under the internal control
rules and the supervision by the Board of Directors.
All derivative transactions outstanding were accounted for under hedge accounting in accordance with theaccounting standard for financial instruments at October 31, 2003 and 2002. The effectiveness of a hedge isevaluated by confirming the relationship between the hedge contract and the transaction hedged by that
contract.

12. Amounts Per Share Common Stock
Net income per share is computed by dividing income available to common shareholders by the weightedaverage number of shares of common stock outstanding during the respective years.

−18−

Board of Directors and Statutory Auditors
NIKKO COMPANY(As of January 29th, 2004)

President & Representative Director (CEO)Akitoshi Sakai
Senior Managing Director
Akira Kamide
Directors
Yoshio Ikeno
Takeshi Kaneda
Katsuhiro Taka
Yoshiaki Iwasaki
Hisakazu Fujimoto
Hoshimitsu Takamori
Kazuto Futamata
Shigekazu Kaneda
Masatoshi Mitani
Mitsuru Mitani
Makoto Yoshida(Electro-Ceramics Division, General Mnager)(Housing & Environmental Equipment Division, General Manager)(Tabletop Division, General Manager)(Tabletop Division, Factory Manager)(Electro-Ceramics Division, Chief Operation Officer of Ceramic Buisiness Unit)(Electro-Ceramics Division, General Manager of Sales Department)(Housing & Environmental Equipment Division, General Manager of Sales Department)(Strategy Planning Division, General Manager)

Standing Statutory Auditor
Hidemi Shimizu
Nanatoshi Okuda
Statutory Auditors
Shigeru Sawa
Takao Anzai

Corporate Data
Head Office
383 Ainoki-Machi, Matto-City,
Ishikawa-Prefecture 924-8686 Japan
Tel : 076-276-2121
Facsimile : 076-276-3309
Date of Establishment
5/1/1908
Show RoomTokyo, Ohmiya, Matto, Tsukuba, New York
Factories
Matto Factory, Tsurugi Factory, Saitama Factory
Subsidiaries and Affiliates
Nikko Ceramics, Inc. (U.S.A.)
Nikko Hanbai Co., Ltd. (Japan)
N&I ASIA PTE LTD. (Singapore)
Nikko (ASIA) Co., LTD. (Thailand)
Oriental Ceramics, Sdn. Bhd. (Malaysia)
Nikko Service Co., Ltd. (Japan)

Japanese Stock Exchange
Nagoya Stock Exchange
Transfer Agent and Registrar
The Sumitomo Trust & Banking Co., Ltd.
5-33 Kitahama 4-chome, Chuo-ku, Osaka 541-0041
Japan
Annual General Meeting
The annual general meeting of shareholders
is held in January each year in Ishikawa-Prefecture

Auditors
AZSA & CO.
URL
http://www.nikko-company.co.jp/- 19 -