ANNUAL REPORT 2006

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, 2006). In the fiscal year to March 2006, it had net sales of ¥51,011
million, operating income of ¥6,331 million and net income of ¥3,782 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 Features

25 Corporate History

10 Six-year Summary

26 Corporate Information

11 Business Review in Fiscal 2006

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, 2006, 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, 2006, 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, 2006 and 2005

Millions of yen

2005

2006
For the year:
Net sales
Operating income
Income before income taxes and minority interests
Net income¥

Thousands of U.S. dollars¥

51,011
6,331
6,544
3,782

2006

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

$

434,247
53,89555,70832,195Per share data (yen):
Basic net income
Diluted net income
Total shareholders’ equity

120.61120.592,300.19

162.38162.332,224.17

1.03
1.03
19.58

At year-end:
Total assets
Total shareholders’ equity

84,31570,016

83,161
69,900717,758
596,033

Note: The U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥117.47 to U.S.$1, the approximate exchange rate at March 31, 2006, as discribed.

Net sales

Millions of yen

60,00045,000Operating income

Millions of yen

8,000

45,15345,77447,89550,616

7,103

51,011

7,632
6,331

5,891

6,000

4,786
30,0004,000

15,000

2,000

0

0

2002

2003

2004

2005

Net income

2002

2006

Millions of yen

2003

2005

Total shareholders’ equity

2006

Millions of yen

80,000

6,000

5,140
4,500

3,000

2004

60,0004,182

59,442

61,148

2002

2003

66,16069,90070,016

2005

2006

3,782

3,127

40,000

2,498

1,500

20,000

0

0

2002

2003

2004

2005

2006

2004

2

To Our Shareholders

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

Sales increased, but profits decreased
With consolidated net sales up 0.8% from the previous
year at ¥51,011 million, Paramount Bed Co., Ltd. hasachieved a growth in sales for the fourth consecutive year.
However, a commensurate increase in profits for the
fourth straight year could not be realized, mainly because
the rises in manufacturing cost due to sharp priceincreases for steel components and other materials could
not be offset by enhanced sales activities, such as thelaunch of new products. As a result, the Company posted
operating income of ¥6,331 million (down 17.1%,
year-on-year) and net income of ¥3,782 million (down
26.4%, year-on-year).
The Company disbursed ¥25 per share to theshareholders as an interim dividend, and the sameamount as a year-end dividend, for a total annual payoutof ¥50 per share.
For the fiscal year ending March 2007, we plan tocontinue disbursing ¥25 per share both as an interim anda year-end dividend, totaling ¥50 per share annually.
The Company continues to put a high priority on providing
returns to its shareholders.
Kenji Kimura
President and Representative Director3

In the sector of welfare for seniors, a revised nursing-care

Revisions of medical service fee andnursing-care insurance systeminsurance law became effective from April 2006. Due tothis amendment, welfare-equipment rental services such

Concerning the fiscal year ending March 2007, in theas those of nursing-care beds for persons requiring mild

Japanese healthcare industry, a revision of medical

nursing care at home — the Company’s main businessservice fees became effective from April 2006, and thearea — are no longer eligible for the insurance payments.

fees were cut by 1.36% in the core portion and by 3.16%

Even though this revision entailed a transitional period of

in total — the largest ever reductions. This is expected to

six months, rental companies have been putting off new

adversely affect the management conditions of medical

equipment purchases since March 2006, because of the

facilities, our main clients.

uncertain outlook.

TopicsTechnical Center started full operation
In March 2006, the Company completed construction of theTechnical Center, which was under construction since January
2005, adjacent to head office. The building is entirely glasswalled, having 7 stories above ground, with a total lot area of
1,095m2 and a gross floor area of 5,089m2.
Technical Center

Besides the office spaces for the development staff, the Centerhas laboratories for mattresses and sleeping tests, as well as
facilities for noise measurement, electronic microscopy, bed cleaning, and testing for driving/rolling on
inclined slopes. This Center will become the basis for our technological developments.

PT. Paramount Bed Indonesia: 10th Anniversary of foundation
PT. Paramount Bed Indonesia (PBI) celebrated the 10th anniversaryof its foundation in September 2005.
In the fiscal year ending March 2007, PBI seeks to obtain the largest
share in the hospital-use bed market in Indonesia, as well as to pioneer
new markets as alternatives to China, and to develop new products.

At a hospital constructing new annex
toward recovery
Hospital staff and President of PBI,
Hideo Sakamoto (second left)(November 2005)

The Indian Ocean tsunami in 2004 caused severe damage,especially to Aceh province in Indonesia. PBI donated 30 beds tothe local hospitals, along with clothes, food and support payments.
Considering that the damage was serious and further aid would benecessary, PBI additionally donated 100 beds to the hospitals
specified by the Ministry of Health of Indonesia in autumn 2005.

✽ It was reported that a major earthquake occurred on May 27, 2006 on the island of Java in Indonesia, resulting in over 6,000 casualties.
On June 1, the Paramount Bed group delivered and installed 18 beds and 40 mattresses among others to the five hospitals in the
afflicted area through PBI.

4

To Our Shareholders

Priority issues for fiscal year ending
March 2007

holding workshops on “fitting” (selecting and adjusting)our products, as well as expanding their use for elderly
patients with medium- to high-nursing care requirements.

In the healthcare sector, the Company is endeavoring to
expand sales by stepping up the distribution of existing

Regarding the “INTIME” brand, the Company continues to

products, such as the strong-selling mattress “Ever Fit,”enhance its sales capabilities in directly-managed stores,

and safety products including low-height beds, as well as

and also stimulates demand from various incorporated

by increasing the number of products such as medical

entities and foundations.

carts (i.e., vehicles/trolleys for medical equipment anddrugs). In addition, the Company continues to train sales
specialists to be in charge of the so-called “high care”
field (intensive care, including ICU and emergency

Role sharing and enhanced partnerships
within the Group

medical care).
The Paramount Bed group consists of the core company
In the sector of welfare for seniors, the Company isof Paramount Bed Co., Ltd. (the Company), overseas

enhancing sales activities to elderly-care facilities, thesubsidiaries engaging in production, such as PT.

number of which is likely to increase. As for home care,

Paramount Bed Indonesia (PBI), and Paramount Bed

we are explaining the utility of nursing-care beds to(China) Co., Ltd. (PBC), as well as a domestic subsidiary

prospective users and other concerned parties, by

PARA TECHNO Co., Ltd. (PT), which is engaged in

TopicsFully revised Internet websites of Paramount Bed and INTIME
We upgraded our INTIME and Paramount Bed websites, in June and July 2005, as described.
INTIME website
We revised the INTIME website to emphasize our
superior product quality by selecting
sophisticated and exclusive images. For
electrically adjustablebeds, we use videos toexplain the movements,
which are difficult toconvey in conventional
hard-copy catalogues.
For our custom-mademattress “Styleport,”
before visiting our shops
clients can peruse thewebsite to informthemselves about the

http://www.in-time.jp

5customizing process from measurements toordering process, including productspecifications.
The Company is enhancing its web content by
including information about INTIME Sapporo (anewly opened retail outlet), as well as various
informative articles written by medical doctors
and designers.
Paramount Bed website
The new website of Paramount Bed provides
bright and clean images based on the colors
white and blue. Being friendly to users is theprimary focus, and all catalogues for home-careand nursing-care facilities can be accessed formaintenance services and the lease/installment-selling

decided to improve its profitability by focusing its production

businesses in Japan. Currently, we are strengthening

and sales activities on high-end models. PBC plans tocooperation within the group, to be able to rapidly

manufacture some of the new products for the Company.

respond to changes in our business environment, andensure a solid management basis.

In April 2005, PT took over all services previously handledinternally by the Customer Service Center and After

PBI, which celebrated the 10th anniversary of its founding

Service Division in the Company. Furthermore, PT

in September 2005, has been strengthening sales within

reinforced its services by newly adding lease/installment-Indonesia, in order to offset the decline in exports to China

selling businesses to the existing maintenance services,

after the launch of PBC in April 2005. In addition, part ofincluding upkeep and inspection, etc. PT continues to do

the production of hand-operated beds was transferred

its best to improve the reliability and brand image offrom the Company to PBI to optimize the production

Paramount Bed by stepping up its business activities.

process within the group. PBI continues to pursue thedevelopment of new products.

July 2006

PBC, which started the operation in April 2005, has been
facing intensive competition with domestic bed makers in
China. In January 2006, PBC reviewed its initial businessstrategy for the hospital-use bed market in China andKenji Kimura
President and Representative Director

Website forhome-care specialists opened
browsing to one’s heart’s
content.
In addition, we offer a
special web page forpeople considering
establishing for-profit
nursing homes, andhttp://www.paramount.co.jp
inform our sales trackrecords to these facilities, as well as our
proprietary approaches to support
establishments.
Finally, we enhanced the information related to
PARA TECHNO Co., Ltd. (our subsidiary),
universal design and IR, as well as highlighting
the links to the INTIME website.

In December 2005, we opened a “Website forhome-care specialists,” targeting care managers
and rental-business companies of welfare
equipment. This website enables visitors to
download instruction manuals of the Company’s
products, find useful information including event
schedules, and browse “Care Full,” an information
magazine publishedby the Company forhome-carespecialists.

Website forhome-care specialists

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)
Falling out of bed can be a cause ofserious injury for residents of elderly-carefacilities. Our ultra-low Callisto beds
(Callisto Series) reduce the risk of harm in
the event of a fall. (Photo shows bed fittedwith Thestor shock-absorbing mattress)

Advanced, emergency use

SO-5000

KA-8900 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 tothe varied 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 theposture during sleep.
The mattress is reversible and both sides
have different functions that users canchoose to suit their condition, build andpreference.
We also offer the versatile Preglar Matress,
for use in hospitals, elderly-care facilities
and home 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 Features

Launched “Rakusho — independence encouragement series”:
a bed aiming to promote independence of elderly patients requiring mild nursing care
On September 13, 2005, the Company released“Rakusho — independence encouragement series,” witha new concept of encouraging independence of elderly
patients. This series targets patients requiring moderatenursing care (needing level 1-2 nursing care) whose
numbers are now increasing at the highest rate. This
series is equipped with enhanced functions and options
to effectively support independent “sitting-up” and “standingup” movements of patients, with simplified electrical operations.
The series consists of two models, “Sitting-up bed” (the backrest comes up electrically)and “Standing-up bed” (the height is adjustable). Furthermore, users can select from a total of 144 types
by combining various elements such as width of mattress (1,000 mm and 910 mm), length of bed (mini,
regular and long), and design, etc. The price ranges from ¥239,400 to ¥300,300 (including tax).

The main features of “Rakusho — independence promotion series”

Sitting-up
movement using
the support wing

• “Support wing” that triggers movements of “sitting-up” and“standing-up” are standard equipment.
• “Limiter function” (automatically locks into the pre-adjusted angle orheight) promotes “sitting-up” and “standing-up” movements on
one’s own (available for some models).
• Support patients’ movements with seven options jointly developedwith a specialized institution (Yokohama Rehabilitation Center).
• Newly equipped with a monitoring system that enables caregivers tocheck the operating status remotely, and monitor patients (pay-foruse service).

Newly launched “Para Walk,” a user-friendly
walking chair that allows fine-tuning
In April 2006, the Company released “Para Walk,” awalking chair that can be fine-tuned to suit the user’s
physical condition, stature, habits, etc.
With Para Walk, the height of the handlevers is infinitely
variable between 670 mm to 870 mm, the angle of thehandlevers can be flexibly shifted from side to side or up
and down, and the height of the seat is adjustable tothree levels (450 mm, 490 mm, 530 mm). Thanks to theappropriate adjustments, users can easily place theirweight on the walking chair, and walk steadily.
Furthermore, Para Walk incorporates a shock absorbing
function to reduce impact from roadway surfaces, tostabilize the body even on bumpy uneven surfaces.

We offer two models
of Para Walk withouta basket (¥64,000)
and with attachedbasket (¥69,500)(excluding sales tax).

Para Walk without a basket

9Para Walk with attached basket

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

2006

2005

For the year:
Net sales

2004

2003

2002

2001

Millions of yen¥ 51,011¥ 50,616¥ 47,895¥ 45,774¥ 45,153¥ 46,541

Cost of sales

31,63030,232

28,251

27,57427,304

26,836Gross profit

19,381

20,384

19,644

18,20017,84919,705

Selling, general and administrative expenses

13,05012,752

12,541

12,30913,063

13,381

Operating income

6,331

7,632

7,103

5,891

4,786

6,324

Net income

3,782

5,140

4,182

3,127

2,498

3,889

Net cash provided by operating activities

5,069

4,556

7,138

6,194

4,076

4,042

Net cash used in investing activities(6,057)(3,253)(423)(1,615)(3,948)(3,715)

Net cash used in financing activities(4,588)(1,134)(758)(1,198)(1,040)(917)

Cash and cash equivalents, end of year

15,247

20,79020,622

14,661

11,267

12,158

Research and development costs

1,004

898

950

1,075

983

890

Total assets

84,315

83,161

81,17074,331

72,822

72,078

Total shareholders’ equity

70,016

69,90066,16061,14859,44257,753

At year-end:

Per share data:

Yen

Basic net income

120.61

162.38131.87

98.29

78.86

122.75

Diluted net income

120.59162.33————2,300.19

2,224.17

2,105.03

1,945.48

1,882.47

1,822.88

Total shareholders’ equity%

Value indicators:
Return on equity (*1)

5.41

7.56

6.57

5.19

4.26

6.90

Return on assets (*2)

4.52

6.26

5.38

4.25

3.45

5.34

Shareholders’ equity ratio

83.04

84.05

81.51

82.26

81.63

80.13

*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 2006
Year ended March 31, 2006

Overview of Financial Results
The Japanese economy showed moderate recovery in
the fiscal term ended March 2006, primarily due tohigher corporate earnings, increased capital
expenditure, improved employment conditions anda gradual rise in consumer spending.
With regard to the healthcare industry, several bills
related to medical system reforms were submitted to
the Diet, based on a medical system reform outline
determined by the Japanese government and the rulingparty. These bills propose the establishment of a
medical care system for the elderly, an increase inburden of medical charges to be borne by elderly
patients, and the reforming of the system for long-termcare beds.
In the sector of welfare for the elderly, the welfare
equipment market continued to expand, backed up by
the nursing-care insurance system, and the number ofusers of home nursing-care beds jumped by 10.7%,
year-on-year, to 705,000 by the end of December 2005.
As for the changes related to the nursing care insurance
system, nursing-care facility users became liable to pay
food and accommodation costs from October 2005,
due to a revision of the system. In addition, details of
the revision planned in April 2006 were clarified, andnursing-care benefits were revised (down by 2.4%
including the revision made in October).

persons who require mild nursing care in sitting up andstanding up; universal design walking chairs; and thewashable “Ever Fit Mattress.” In addition, the Company
launched hand-operated beds, gatch beds for hospitaluse in China, and started development of powered beds.
The Company fully transferred its maintenance service toits subsidiary, PARA TECHNO Co., Ltd.
In the fiscal term under review, consolidated sales
related to nursing-care facilities grew by 6.1% year-onyear, driven by increasing demand from private hospitals
due to reconstruction and renovation, while sales ofhome-care products dropped by 9.1%, year-on-year,
despite launches of new products, because the revisions
to the nursing-care insurance system remained uncertainand distributors tended to take a wait-and-see stance.
Sales by major product category for the fiscal year wereas follows:

2006
Beds

As for major capital investments, the Company
completed construction of a Technical Center next tothe headquarters which was launched in the previous
fiscal year as a part of the efforts to enhance its
technical development. In addition, the Company
expanded and upgraded the Osaka branch’s showroom,and opened a directly-managed store, “INTIME
Sapporo,” to strengthen the sales force.
With respect to the development and sales of products,
the Company released “Rakusho — independence
encouragement series,” home-care beds to help elderly

11¥30,1642005¥

Year-on-year Change

30,987(2.7)

Mattresses

4,390

4,166

5.4

Hospital-use furniture

3,884

3,829

1.4

Medical-use products

3,017

2,919

3.4

Other

9,556

8,715

9.7

50,6160.8

Total
In this business environment, the Company groupincreased its capital investment and focused on
research and development activities in order to bolster
earnings.

%

Millions of yen¥

51,011¥

As a result, consolidated net sales for the fiscal year
rose 0.8%, or ¥395 million, year-on-year, to ¥51,011
million.
Operating income decreased by 17.1% year-on-year, to¥6,331 million, primarily due to rises in manufacturingcosts on the back of sharp price hikes of steel products
and other materials. Net income for the fiscal year
dropped by 26.4% year-on-year, to ¥3,782 million, due
to a decline in non-operating income such as interest
received and a significant decrease in extraordinary
income compared with the previous year, when the
Company posted accrued profits due to the terminationof its qualified pension plan.

Cash Flows(Cash flows from operating activities)
Net cash provided by operating activities amounted to¥5,069 million in the fiscal year under review. A breakdownof inflow shows income before income taxes and minority
interests of ¥6,544 million, depreciation and amortizationof ¥1,768 million, and decrease in notes and accounts
receivable of ¥1,002 million. Meanwhile, the contributors
to cash outflow were an increase in inventories of ¥827
million and the payment of income taxes amounting to¥3,199 million.
(Cash flows from investing activities)
Net cash used in investing activities was ¥6,057 million.
This was chiefly attributable to acquisition of marketable
and investment securities and acquisition costs ofproperty, plant and equipment, which totaled ¥9,374
million and ¥2,524 million, respectively, as well asproceeds from sales of marketable and investment
securities, which amounted to ¥5,652 million.
(Cash flows from financing activities)
Net cash used in financing activities was ¥4,588 million,
owing primarily to the payment of cash dividends of¥1,789 million, and acquisition of treasury stock of¥2,801 million.
As a result, cash and cash equivalents at end of year
totaled ¥15,247 million, down ¥5,543 million from theprevious year-end.

Issues to Be Addressed and Outlook for
the Next Term
In the healthcare industry, the business environment is
expected to become more severe for medical institutions
due to a revision of medical service fees that became
effective from April 2006, with the largest ever range ofreduction (down 3.16% in total). In the sector of welfare
for the elderly, a revision of the nursing-care insurance
system became effective from April 2006 to handle thegrowing numbers of persons requiring nursing care.
Welfare equipment rental services, including nursingcare beds to persons with need of mild nursing care,became ineligible for insurance payments by thisrevision, which has forced companies in the sector totake special measures.
Due to this situation in the healthcare sector, theCompany plans to train sales specialists in the area of“high care” (intensive care), a quickly developing
market, to meet the increasing demand for private
hospital rooms, and in addition will work to expand salesof various safety products, including low-height beds
and medical carts (vehicles for carrying medical
equipment and drugs).
In the sector of welfare for the elderly, the Company
seeks to improve the utilization ratio of home nursingcare beds using workshops on selection and adjustmentof beds, in addition to encouraging existing customers to
replace older beds, since an increasing number of items
are approaching a suitable time for their replacement.
With regard to elderly-care facilities, the Company ismaking efforts to enhance its sales force by training
sales specialists in this area, similarly to its approach tothe high-care products area.
With regard to its “INTIME” brand, the Company will seek
to enhance its sales capabilities in directly-managed
stores, as well as to develop corporate demand. In
addition, the Company plans to review its production
system throughout the group, and to manufacture in its
Chinese plants new products targeting the Japanesemarket.

12

Consolidated Balance Sheets
Paramount Bed Co., Ltd. and Subsidiaries — March 31, 2006 and 2005

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

2006

ASSETS

2005

2006

CURRENT ASSETS:
Cash and cash equivalents

20,790$ 129,795

4,501

3,368

38,316

Trade notes

5,052

5,625

43,007

Trade accounts¥

Marketable securities (Note 3)

15,247¥

Notes and accounts receivable:
11,542

11,851

98,255

Other

23

57

196

Allowance for doubtful accounts

(7)

(11)

(60)

Inventories (Note 4)

5,346

4,481

45,510

Deferred tax assets (Note 6)

611

556

5,201

Prepaid expenses and other current assets

164

91

1,396

42,47946,808361,616

Land

8,403

8,363

71,533

Buildings and structures

23,722

21,324201,941

Machinery and equipment

14,436

12,983

122,891

Construction in progress

95

571

809

Total current assets
PROPERTY, PLANT AND EQUIPMENT:

Total

46,65643,241

397,174(23,903)(22,485)(203,482)

22,75320,756

193,692

Investment securities (Note 3)

14,825

11,442

126,202

Life insurance premium

1,228

1,238

10,454

3

8

26

3,027

2,909

25,76819,083

15,597

162,450

83,161$ 717,758

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

Deferred tax assets (Note 6)
Other assets
Total investments and other assets

TOTAL
See notes to consolidated financial statements.

13¥

84,315¥

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

2006

LIABILITIES 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.g 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

2006

6,372
1,639
1,741
1,308
512

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

11,572

11,356

98,5101,280

10,896

551
769

968
395
362
15

2,600

1,740

22,134

127

165

1,081

6,591
7,277
57,378
2,168
132

6,591
7,277
55,4261,402(65)56,10861,948488,448
18,456
1,123(3,530)(731)(30,050)

70,016

69,900596,033

83,161$ 717,758$

54,244
13,952
14,821
11,135
4,358

4,691
6,547

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, 1,260,653 shares in 2006 and273,280 shares in 2005
Total shareholders’ equity
TOTAL

¥

84,315¥14

Consolidated Statements of Income
Paramount Bed Co., Ltd. and Subsidiaries — Years Ended March 31, 2006 and 2005

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

2006
NET SALES¥

2005

51,011¥

50,616

2006$

COST OF SALES

31,63030,232

269,260

Gross profit

19,381

20,384

164,987

13,05012,752

111,092

6,331

7,632

53,895

162
47
6

1,379
400
51

(2)

212
38
130
551
(117)
242

213

1,056

1,813

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

6,544

8,688

55,708

INCOME TAXES (Note 6):
Current
Deferred

3,213
(385)

3,420
128

27,352(3,278)

Total income taxes

2,828

3,548

24,074SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 10)
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income
Foreign exchange gain
Gain on sales of investment securities (Note 3)
Gain on termination of qualified pension plan (Notes 2.g and 5)
Loss on sales of investment securities (Note 3)
Other — net
Other income — net

MINORITY INTERESTS IN NET LOSSNET INCOME

(17)

66
¥

561

3,782

¥

5,140

$

Yen

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

15434,247¥120.61120.5950.00

32,195

U.S. dollars¥

162.38162.33
50.00

$

1.03
1.03
0.43

Consolidated Statements of Shareholders’ Equity
Paramount Bed Co., Ltd. and Subsidiaries — Years Ended March 31, 2006 and 2005

Millions of yen

Thousands
Outstanding
Number of
Shares ofCommon Stock

BALANCE, APRIL 1, 2004
Net income
Cash dividends, ¥36 per share
Bonuses to directors
Purchase of treasury stock
Disposal of treasury stock
Net decrease in unrealized gain
on available-for-sale securities
Net decrease in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2005
Net income
Cash dividends, ¥57 per share
Bonuses to directors
Purchase of treasury stock
Disposal of treasury stock
Net increase in unrealized gain
on available-for-sale securities
Net increase in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2006

BALANCE, MARCH 31, 2005

31,410Common
Stock

¥

6,591

CapitalSurplus¥7,277¥ 51,456

Unrealized
Gain onAvailable-forsale Securities

Foreign
Currency
Translation
Adjustments

¥

¥

1,582

TreasuryStock(19) ¥

(727)

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

(9)
5
(180)
(46)

31,409

7,277

6,591

1,402

55,426

(731)

(65)

3,782
(1,790)
(40)
(988)
1

(2,801)
2766
197

30,422

¥

6,591

¥

7,277

CommonStockCapitalSurplus$ 56,108$ 61,948

Net income
Cash dividends, $0.49 per share
Bonuses to directors
Purchase of treasury stock
Disposal of treasury stock
Net increase in unrealized gain
on available-for-sale securities
Net increase in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2006

Retained
Earnings¥ 57,378¥

2,168

Thousands of U.S. dollars (Note 1)
Unrealized
Gain onRetained
Available-forEarnings
sale Securities$ 471,831$ 11,935

¥

132

¥

Foreign
Currency
Translation
Adjustments$(3,530)TreasuryStock(554) $

(6,223)32,195(15,238)(340)(23,844)
17
6,521
1,677
$ 56,108$ 61,948$ 488,448$ 18,456$

1,123$ (30,050)

See notes to consolidated financial statements.

16

Consolidated Statements of Cash Flows
Paramount Bed Co., Ltd. and Subsidiaries — Years Ended March 31, 2006 and 2005

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

2006
OPERATING ACTIVITIES:
Income before income taxes and minority interests
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:
Decrease (increase) in notes and accounts receivable
Increase in inventories
Increase in prepaid expenses and other current assets
Decrease in notes and accounts payable(Decrease) increase in accrued expenses and other current liabilities
Other — net

¥

6,544

¥

2006

8,688

$

55,708(3,199)1,768(6)(4,267)
1,768
(130)
117

(27,232)
15,051
(51)

1,002
(827)
(68)
(616)
(24)
495

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

8,530
(7,040)(579)(5,244)
(204)
4,213

5,069

4,556

43,152(3,801)
3,360(2,524)(5,573)2,292
189(3,000)2,100(1,368)(3,259)
3,230
(956)

(32,357)
28,603(21,486)(47,442)
19,511
1,609(6,057)(3,253)(51,562)(2,801)2(1,789)(9)
5(1,130)(23,844)17(15,230)(4,588)(1,134)(39,057)

33

(1)

281

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(5,543)

168(47,186)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

20,79020,622

176,981

20,790$ 129,795

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
Disposal of treasury stock
Cash dividends paid
Net cash used in financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS

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

17

2005

¥

15,247¥

Notes to Consolidated Financial Statements
Paramount Bed Co., Ltd. and Subsidiaries — Years Ended March 31, 2006 and 2005

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 2005 consolidated financial statements to conform to theclassifications used in 2006.
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 ¥117.47 to $1, the rate ofexchange at March 31, 2006. 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.

subsidiary is computed by the declining-balance method, while
the straight-line method is applied to the buildings of theCompany and its consolidated domestic subsidiary acquired
after April 1, 1998 and is principally applied to the property, plantand equipment of consolidated foreign subsidiaries. The range ofuseful lives is principally from 3 to 50 years for buildings andstructures and from 2 to 20 years for machinery and equipment.
f. Long-lived Assets — In August 2002, the BusinessAccounting Council (“BAC”) issued a Statement of Opinion,“Accounting for Impairment of Fixed Assets,” and in October2003 the Accounting Standards Board of Japan (“ASBJ”) issued
ASBJ Guidance No. 6, “Guidance for Accounting Standard for
Impairment of Fixed Assets.” These new pronouncements wereeffective for fiscal years beginning on or after April 1, 2005 withearly adoption permitted for fiscal years ending on or after March
31, 2004.
The Group adopted the new accounting standard for impairmentof fixed assets as of April 1, 2005.
The Group reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying amountof an asset or asset group may not be recoverable. An
impairment loss would be recognized if the carrying amount of anasset or asset group exceeds the sum of the undiscounted future
cash flows expected to result from the continued use andeventual disposition of the asset 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 thehigher of the discounted cash flows from the continued use andeventual disposition of the asset or the net selling price at
disposition.
There was no effect of adoption of the new accounting standard
for impairment of fixed assets.

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.

g. 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.

c. Inventories — Inventories are stated at cost determined by theaverage cost method except for supplies, which are stated by themost recent purchase price method.

The Group accounts for liability for retirement benefits based on
the projected benefit obligations and plan assets at the balance
sheet date.

d. Marketable and Investment Securities — Marketable andinvestment securities are classified and accounted for,depending on management’s intent, as follows: (1) held-tomaturity debt securities, which 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.

The existing accounting standard for employees’ retirement
benefits prohibited recognition of any excess portion of plan
assets exceeding the projected benefit obligation that had arisen
due to an excess of the actual return of plan assets over the
expected return or a reduction of benefits level. This standard
was amended in March 2005 to allow recognition of such excess
portion of plan assets from the year ended March 31, 2005. In
accordance with the amended standard, the Company
recognized excess plan assets due to actual return of plan assets
exceeding the expected return. Such excess was recognized as
actuarial gain and is being recognized over 10 years from theyear ended March 31, 2006.

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 Company and its consolidated domestic

The effect of this change to profit or loss was not material.
Prior to June 29, 2005, retirement benefit to directors andcorporate auditors of the Company are provided at the amountwhich would be required if all directors and corporate auditors
retired at each balance sheet date.
On June 29, 2005, the Company terminated retirement benefit

18

plan to directors and corporate auditors of the Company. The
amount granted prior to the termination date was transferred toother long-term liabilities.
h. Research and Development Costs — Research anddevelopment costs are charged to income as incurred.
i. Lease — 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.
j. 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.
k. Appropriations of Retained Earnings — Appropriations ofretained earnings at each year end are reflected in the financial
statements for the following year upon shareholders’ approval.
l. 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.
m. 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.
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.
n. 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.

19

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.
o. New Accounting Pronouncements
Business combination and business separation
In October 2003, the BAC issued a Statement of Opinion,“Accounting for Business Combinations,” and on December 27,
2005 the ASBJ issued “Accounting Standards for BusinessSeparations” and ASBJ Guidance No.10, “Guidance for
Accounting Standards for Business Combinations and BusinessSeparations.” These new accounting pronouncements are
effective for fiscal years beginning on or after April 1, 2006.
The accounting standard for business combinations allows
companies to apply the pooling of interests method of accounting
only when certain specific criteria are met such that the businesscombination is essentially regarded as a uniting-of-interests.
These specific criteria are as follows:(a) the consideration for the business combination consists
solely of common shares with voting rights,(b) the ratio of voting rights of each predecessor shareholder
group after the business combination is nearly equal, and(c) there are no other factors that would indicate any control
exerted by any shareholder group other than voting rights.
For business combinations that do not meet the uniting-ofinterests criteria, the business combination is considered to be an
acquisition and the purchase method of accounting is required.
This standard also prescribes the accounting for combinations ofentities under common control and for joint ventures. Goodwill,
including negative goodwill, is to be systematically amortizedover 20 years or less, but is also subject to an impairment test.
Under the accounting standard for business separations, in abusiness separation where the interests of the investor no longer
continue and the investment is settled, the difference between thefair value of the consideration received for the transferredbusiness and the book value of net assets transferred to theseparated business is recognized as a gain or loss on businessseparation in the statement of income. In a business separation
where the interests of the investor continue and the investment is
not settled, no such gain or loss on business separation isrecognized.
Stock options
On December 27, 2005, the ASBJ issued “Accounting Standards
for Stock Options” and related guidance. The new standard andguidance are applicable to stock options newly granted on andafter May 1, 2006.
This standard requires companies to recognize compensation
expense for employee stock options based on the fair value atthe date of grant and over the vesting period as consideration forreceiving goods or services. The standard also requires
companies to account for stock options granted to nonemployees based on the fair value of either the stock option or
the goods or services received. In the balance sheet, the stock
option is presented as a stock acquisition right as a separate
component of shareholders’ equity until exercised. The standard
covers equity-settled, share-based payment transactions, butdoes not cover cash-settled, share-based payment transactions.
In addition, the standard allows unlisted companies to measure
options at their intrinsic value if they cannot reliably estimate fairvalue.
Bonuses to directors and corporate auditors
Prior to the fiscal year ended March 31, 2005, bonuses todirectors and corporate auditors were accounted for as a
reduction of retained earnings in the fiscal year following
approval at the general shareholders meeting. The ASBJ issued
ASBJ Practical Issues Task Force (PITF) No.13, “AccountingTreatment for Bonuses to Directors and Corporate Auditors,”
which encouraged companies to record bonuses to directors andcorporate auditors on the accrual basis with a related charge toincome, but still permitted the direct reduction of such bonuses
from retained earnings after approval of the appropriation ofretained earnings.

Available-for-sale securities whose fair value was not readily
determinable as of March 31, 2006 and 2005 were as follows:

The ASBJ replaced the above accounting pronouncement by
issuing a new accounting standard for bonuses to directors andcorporate auditors on November 29, 2005. Under the new
accounting standard, bonuses to directors and corporate
auditors must be expensed and are no longer allowed to be
directly charged to retained earnings. This accounting standard
is effective for fiscal years ending on or after May 1, 2006. The
companies must accrue bonuses to directors and corporate
auditors at the year end to which such bonuses are attributable.

Available-for-sale—Equity securities

3. MARKETABLE AND INVESTMENT SECURITIESThe carrying values of debt securities and others by contractual
maturities for securities classified as available-for-sale and heldto-maturity at March 31, 2006 were as follows:

Marketable and investment securities as of March 31, 2006 and2005 consisted of the following:

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

2006

2005

2006

¥ 1,0013,500¥ 2,868500$ 8,521
29,795¥ 4,501¥ 3,368$ 38,316¥ 2,466
4,610
7,060
689

¥ 2,394
4,114
4,241
693

$ 20,993
39,244
60,1005,865¥ 14,825¥ 11,442$126,202

The carrying amounts and aggregate fair values of marketable
and investment securities at March 31, 2006 and 2005 were as
follows:
Millions of yen

March 31, 2006

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

Cost

¥

Unrealized Unrealized
Gains
Losses381 ¥ 2,092 ¥
4,773
3
8,928
1,679
900
10

Fair
Value

7 ¥ 2,466
65
4,711
47 10,560
13
897

Thousands of
U.S. dollars

Millions of yen

2006

2005

2006

¥

¥

$ 5,865

689

693

Proceeds from sales of available-for-sale securities for the years
ended March 31, 2006 and 2005 were ¥4,980 million ($42,394
thousand) and ¥5,316 million, respectively. Gross realized gains
and losses on these sales, computed on the moving average costbasis, were ¥6 million ($51 thousand) gains for the year ended
March 31, 2006 and ¥130 million gains and ¥117 million losses
for the year ended March 31, 2005.

Thousands of
U.S. dollars

Millions of yen

Current:
Government and corporate bonds
Trust fund investments

Carrying AmountThousands of U.S.
dollars

Millions of yen

March 31, 2006

Available
for SaleHeld toMaturity

Available
for SaleHeld toMaturity

Due in one year or less
¥ 6,001
Due after one year through five years
7,186
Due after five years through ten years
1,834
Due after ten years
997 ¥$ 51,085
61,173
15,613900
8,487 $ 7,662

Total

900 $136,358 $ 7,662¥ 16,018 ¥4. INVENTORIESInventories at March 31, 2006 and 2005 consisted of thefollowing:
Millions of yen

Thousands of
U.S. dollars

2006

2005

2006

Merchandise
Finished products
Work in process
Raw materials and supplies

¥

¥

182
3,413
169
717

$ 2,171
33,617
1,422
8,300

Total

¥ 5,346¥ 4,481$ 45,510

255
3,949
167
975

5. LIABILITY FOR RETIREMENT BENEFITS
Under most circumstances, employees terminating theiremployment are entitled to certain severance payments based on
their average pay during their employment, years of service andcertain other factors.

Millions of yen

March 31, 2005

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

Cost

¥

Unrealized Unrealized
Gains
Losses381 ¥ 2,018 ¥
5,483
8
3,789
531
2,100
1

5 ¥
110
79
35

Fair
Value

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

Thousands of U.S. dollars

March 31, 2006

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

Cost

Unrealized Unrealized
Gains
Losses$ 3,243 $ 17,809 $
40,63225
76,002 14,293
7,662
85

Fair
Value

59 $ 20,993
553 40,104
400 89,895
111
7,636

A portion of the severance payment is made in the form of a
lump-sum payment for the terminating employee, and the rest isannuity payment by a defined contribution pension plan. Under
the plan, employees are entitled to select the defined contribution
pension plan or the prepaid retirement benefit plan.
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
not include that of the Foundation. The Company’s undivided
portion of the plan assets amounted to ¥6,031 million ($51,341
thousand) as of March 31, 2006.
Liabilities for employees’ retirement benefits as of March 31, 2006
and 2005 consisted of the following:20

Thousands of
U.S. dollars

Millions of yen

2006
Projected benefit obligation
Fair value of plan assets
Unrecognized pension assets
Unrecognized actuarial net loss
Unrecognized prior service cost
Prepaid pension cost
Liabilities presented on the
consolidated balance sheets

2,763 $ 24,491
(911)
(122)
20
(3,141)(441)(9,560)(1,252)17(369)(1,123)2¥ 1,280

2006

2005

¥ 2,877 ¥
(107)

¥

968

$ 10,896

The components of net periodic benefit costs for the years ended
March 31, 2006 and 2005 were as follows:
Thousands of
U.S. dollars

Millions of yen

2006
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Amortization of prior service cost
Installment on the welfare annuity
Installment on the defined contribution pension plan
Others¥Net periodic benefit costs

¥

185 ¥
54
(2)
57
128
229
116
14

296 $
88
(34)
72
32
200
19
129

1,575
460
(17)
485
1,090
1,949
988
119

781

802

6,649

$

Assumptions used for the years ended March 31, 2006 and 2005
were set forth as follows:

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

2006

2005

2.0%
1.5%
10 years
10 years

2.0%
1.5%
10 years
10 years

6. INCOME TAXESThe Company and its domestic subsidiary are subject to anumber of different taxes based on income, which, in theaggregate, resulted in a normal effective statutory tax rate of
approximately 40.7% for the years ended March 31, 2006 and2005.
The tax effects of significant temporary differences at March 31,
2006 and 2005 were as follows:
Thousands of
U.S. dollars

Millions of yen

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

2005

2006

¥

¥

$ 3,014
1,217

360
139
161

263
519
348
(74)

320
251
(64)

2,239
4,418
2,962
(630)

Deferred tax assets

1,553

1,167

13,220

Deferred tax liabilities:
Unrealized gain on available-for-sale securities
Reserve for advanced depreciation(1,487)
(3)

(962)
(3)

(12,659)(25)

Deferred tax liabilities(1,490)(965)(12,684)202$

Net deferred tax assets

21

2006
354
143

¥

63

¥

2006
Normal effective statutory tax rate
Lower income tax rates applicable to income in certain foreign countries
Permanently non-deductible expenses
Other—net

40.7%
2.0
0.7
(0.2)

Actual effective tax rate

43.2%

7. CONTINGENT LIABILITIESAt March 31, 2006, the Group had the following contingent
liabilities:
Millions of yen

2006

2005

¥

A reconciliation between the normal effective statutory tax rates
and the actual effective tax rates reflected in the accompanying
consolidated statement of income for the year ended March 31,
2006 is as follows:

536

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

¥

449
2,068

Thousands of
U.S. dollars

$

3,822
17,604

8. SHAREHOLDERS’ EQUITY
Through May 1, 2006, Japanese companies are subject to theCommercial Code of Japan (the “Code”).
The Code requires that all shares of common stock be issued
with 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 are required to be presented asadditional paid-in capital, which is included in capital surplus.
The Code permits Japanese companies, upon approval of theBoard of Directors, to issue shares to existing shareholders
without consideration by way of a stock split. Such issuance ofshares generally does not give rise to changes within theshareholders’ accounts.
The Code also provides that an amount of 10% or more of theaggregate amount of cash dividends and certain otherappropriations of retained earnings associated with cash outlays
applicable to each period (such as bonuses to directors) shall beappropriated as a legal reserve (a component of retained
earnings) until the total of such reserve and additional paid-in
capital equals 25% of common stock. The amount of total legal
reserve and additional paid-in capital that exceeds 25% of thecommon stock may be available for dividends by resolution of theshareholders after transferring such excess in accordance with
the Code. In addition, the Code permits the transfer of a portionof additional paid-in capital and legal reserve to the common
stock by resolution of the Board of Directors.
The Code allows Japanese companies to purchase treasury
stock and dispose of such treasury stock upon resolution of theBoard of Directors. The aggregate purchased amount of treasury
stock cannot exceed the amount available for future dividends
plus the amount of common stock, additional paid-in capital or
legal reserve that could be transferred to retained earnings orother capital surplus other than additional paid-in capital upon
approval of such transfer at the annual general meeting ofshareholders.
In addition to the provision that requires an appropriation for alegal reserve in connection with the cash outlays, the Code also
imposes certain limitations on the amount of capital surplus andretained earnings available for dividends. The amount of capitalsurplus and retained earnings available for dividends under the
Code was ¥53,349 million ($454,150 thousand) as of March 31,
2006, based on the amount recorded in the Company’s generalbooks of account.
Dividends are approved by the shareholders at a meeting held
subsequent to the end of the fiscal year to which the dividendsare applicable. Semiannual interim dividends may also be paid
upon resolution of the Board of Directors, subject to certain
limitations imposed by the Code.
On May 1, 2006, a new corporate law (the “Corporate Law”)
became effective, which reformed and replaced the Code withvarious revisions that would, for the most part, be applicable toevents or transactions which occur on or after May 1, 2006 andfor the fiscal years ending on or after May 1, 2006. The significant
changes in the Corporate Law that affect financial andaccounting matters are summarized below:
a. Dividends
Under the Corporate Law, companies can pay dividends at any
time during the fiscal year in addition to the year-end dividend
upon resolution at the shareholders meeting. For companies thatmeet certain criteria such as: (1) having the Board of Directors,(2) having independent auditors, (3) having the Board of
Corporate Auditors, and (4) the term of service of the directors isprescribed as one year rather than two years of normal term by
its articles of incorporation, the Board of Directors may declare
dividends (except for dividends in kind) if the company hasprescribed so in its articles of incorporation.
The Corporate Law permits companies to distribute dividends-inkind (non-cash assets) to shareholders subject to a certain
limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon
resolution by the Board of Directors if the articles of incorporationof the company so stipulate. Under the Code, certain limitations
were imposed on the amount of capital surplus and retained
earnings available for dividends. The Corporate Law also
provides certain limitations on the amounts available fordividends or the purchase of treasury stock. The limitation isdefined as the amount available for distribution to theshareholders, but the amount of net assets after dividends must
be maintained at no less than ¥3 million.

accounting standard, certain items which were previously
presented as liabilities are now presented as components ofshareholders’ equity. Such items include stock acquisition rights,
minority interest, and any deferred gain or loss on derivatives
accounted for under hedge accounting. This standard iseffective for fiscal years ending on or after May 1, 2006.
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 are granted at an exercise
price of ¥2,687 ($22.87). 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 ¥76 million ($647 thousand) and ¥83
million for the years ended March 31, 2006 and 2005,
respectively. Total lease revenues were ¥21 million ($179
thousand) and ¥4 million for the years ended March 31, 2006 and2005, 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, 2006
and 2005 was as follows:
Thousands of
U.S. dollars

Millions of yen

b. Increases / Decreases and Transfer of Common Stock,
Reserve and Surplus
The Corporate Law requires that an amount equal to 10% of
dividends must be appropriated as a legal reserve (a componentof retained earnings) or as additional paid-in capital (acomponent of capital surplus) depending on the equity accountcharged upon the payment of such dividends until the total of
aggregate amount of legal reserve and additional paid-in capitalequals 25% of the common stock. Under the Code, theaggregate amount of additional paid-in capital and legal reservethat exceeds 25% of the common stock may be made available
for dividends by resolution of the shareholders. Under the
Corporate Law, the total amount of additional paid-in capital andlegal reserve may be reversed without limitation of such
threshold. The Corporate Law also provides that common stock,legal reserve, additional paid-in capital, other capital surplus andretained earnings can be transferred among the accounts undercertain conditions upon resolution of the shareholders.
c. Treasury Stock and Treasury Stock Acquisition Rights
The Corporate Law also provides for companies to purchasetreasury stock and dispose of such treasury stock by resolution of
the Board of Directors. The amount of treasury stock purchased
cannot exceed the amount available for distribution to theshareholders which is determined by specific formula.
Under the Corporate Law, stock acquisition rights, which werepreviously presented as a liability, are now presented as aseparate component of shareholders’ equity.
The Corporate Law also provides that companies can purchaseboth treasury stock acquisition rights and treasury stock. Suchtreasury stock acquisition rights are presented as a separate
component of shareholders’ equity or deducted directly fromstock acquisition rights.
On December 9, 2005, the ASBJ published a new accounting
standard for presentation of shareholders’ equity. Under this

2006

2005

2006

Acquisition cost
Accumulated depreciation

¥

304
130

¥

324
159

$ 2,588
1,107

Net leased property

¥

174

¥

165

$ 1,481

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

Millions of yen

2006

2005

2006

Due within one year
Due after one year

¥

75
132

¥

65
104

$

Total

¥

207

¥

169

$ 1,762638
1,124

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

Millions of yen

2006

2005

2006

Depreciation expense
Interest expense

¥

73
4

¥

79
5

$

621
34

Total

¥

77

¥

84

$

655

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.
(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, 200622

and 2005 was as follows:

Thousands of U.S. dollars

2006

Thousands of
U.S. dollars

Millions of yen

2006

2005

2006

Acquisition cost
Accumulated depreciation

¥

218
27

¥

25
8

$ 1,856
230

Net leased property

¥

191

¥

17

$ 1,626

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

Millions of yen

2006

2005

2006

Due within one year
Due after one year

¥

42
150

¥

4
13

$

Total

¥

192

¥

17

$ 1,634357
1,277

Contract
AmountForeign exchange forward contracts—
Receivables—Euro2005

Depreciation expense
Interest income

¥

20
2

¥

Total

¥

22

¥

2006
4
1

$

5

$

170
17
187

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
¥1,004 million ($8,547 thousand) and ¥898 million for the years
ended March 31, 2006 and 2005, 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.
The Group does not hold or issue derivatives for trading or
speculative purposes.

$ 9,602 $ (477) $ (477)

12. NET INCOME PER SHARE
Reconciliation of the differences between basic and diluted net
income per share (“EPS”) for the years ended March 31, 2006
and 2005 is as follows:
Millionsof yenThousandsof shares

Net income

Weightedaverage shares

Thousands of
U.S. dollars

2006Year Ended March 31, 2006

Basic EPS —Net income available tocommon shareholders
Effect of dilutive securities—
Warrants
Diluted EPS —Net income for computation¥ 3,743

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.
Fair Value of Derivative Financial Instruments
The fair value of the Company’s derivative financial instruments at
March 31, 2006 is as follows:
Millions of yen

2006
Contract
AmountForeign exchange forward contracts—
Receivables—Euro

23¥ 1,128 ¥

Fair
Value

UnrealizedLoss(56) ¥(56)

U.S.
dollars

Yen
EPS

31,029 ¥ 120.61 $ 1.03
5

¥ 3,743

31,034 ¥ 120.59 $ 1.03

¥ 5,100

31,409 ¥ 162.38

Year Ended March 31, 2005

Basic EPS —Net income available tocommon shareholders
Effect of dilutive securities—
Warrants
Diluted EPS —Net income for computation10¥ 5,100

31,419 ¥ 162.33

13. SUBSEQUENT EVENTOn June 29, 2006, the shareholders of the Company authorized
the following appropriations of retained earnings as of March 31,
2006:
Millions of yen

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.

Unrealized
Loss

Foreign exchange forward contracts which qualify for hedge
accounting for the years ended March 31, 2006 and 2005 andsuch amounts which are assigned to the associated assets andliabilities and are recorded on the balance sheets at March 31,
2006 and 2005, are excluded from disclosure of market value
information.

Depreciation expense and interest income under finance leases:
Millions of yen

Fair
Value

Thousands of
U.S. dollars

Ordinary year-end cash dividends,¥25 ($0.21) per share
Bonuses to directors

¥

761
40

$ 6,478
341

Total

¥

801

$ 6,819

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,
2006 and 2005, 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, 2006 and 2005, and the consolidated resultsof their operations and their cash flows for the years then ended in conformity with accounting principles generally acceptedin Japan.
As discussed in Note 2.f, effective April 1, 2005, the consolidated financial statements have been prepared in accordancewith the new accounting standard for impairment of fixed assets.
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, 200624

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.
March 2006: Head Office, Completed construction of the Technical Center.

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, 2006

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
936

Board of Directors and Corporate Auditors(As of June 29, 2006)
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
Hirokatsu Tokuda

Standing Corporate Auditors:

Tadahiro Sekine
Katsuhiro Shibata

Corporate Auditors:

Tetsuo Takekawa
Etsuji Ikegami

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

100,000,000
31,682,526
20,237

Major Shareholders
Number of Shares Percentage of
Owned (Thousands) Voting Rights (%)

Kimura Kosan Co., Ltd.
Kenji Kimura
Kyosuke Kimura
Mizuho Bank, Ltd.
Michihide Kimura
The Master Trust Bank of Japan, Ltd. (Trust)Japan Trustee Services Bank, Ltd. (Trust)
The Kimura Foundation for Nursing Education
Ryusuke Kimura
Paramount Bed Employees’ Stockholding Association

6,607
2,535
1,913
1,203
1,195
787
704
675
669
292

21.8
8.4
6.3
4.0
3.9
2.6
2.3
2.2
2.2
1.0

The Company holds 1,260 thousands shares of treasury stock, but is excluded fromthe above major shareholders.

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
SapporoBranch●318-11, 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, Sammu-shi, Chiba 289-1306
Tel. +81-475-82-6111● Matsuo Plant
617, Kashikehongo, Matsuo-machi, Sammu-shi, Chiba 289-1537
Tel. +81-479-86-3331● Ohira Plant
690-1, Shimonogo, Matsuo-machi, Sammu-shi, 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

Overseas

Representative Office

Ownership among Shareholders● Shanghai Representative Office
Number of Shares Percentage of Total
Owned (Thousands) Shares Issued (%)

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

4,969
169
2,777
8,004
14,500
1,260

15.7
0.5
8.8
25.2
45.8
4.0

Suite 1105, Liu Lin Tower, No.1 Huai Hai Middle Road, Shanghai
20021, P.R. China
Tel. +86-21-5383-5111
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. +86-510-8532-3201

26

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