EIZO NANAO CORPORATION

Financial Highlights
Eizo Nanao Corporation and Subsidiaries
Thousands of
U.S. Dollars

Millions of Yen

2004

2005

2006

2006

¥ 91,624¥ 91,094¥ 85,058$ 726,991

Operating income

11,567

10,425

11,880101,538

Net income

6,971

6,411

7,257

62,026

Total assets

71,72665,86974,590637,521

Total shareholders’ equity

36,646

41,55349,623424,128¥ 314.98¥ 277.39¥ 314.79

30.00

40.00

55.00

Years ended March 31:
Net sales

As of March 31:

Per share data: (Yen and U.S. Dollars)
Basic net income
Cash dividends applicable to the year

Note : U.S. dollar amounts are provided solely for convenience at the rate of ¥117 to US$1, the approximate exchange rate at March 31, 2006.

FlexScan®

AirView® Quad

1

ColorEdge®

InfoPerformer®

RadiForce®

FORIS.TV®

$

2.69
0.47

Net Sales

Operating Income

Net Income

Net Sales by Products

Millions of Yen

Millions of Yen

Millions of Yen

Millions of Yen
Monitor for Computer use
Other91,62491,094

11,88011,567

7,257

6,971

85,058
10,425

5,236
46,749

2005

2006

2004

2005

2006

2004

2005

2006

Total Shareholders’EquityBasic Net Income per
Share

Total Shareholders’Equity per Share

Millions of Yen

Yen

Yen

49,623314.98314.792004

36,611

2005

5,209
43,60036,2492006

2,178.63

277.3941,553

1,823.40

36,646

2004

5,764
48,7196,411

39,6402004

Amusement Monitor

1,606.91

2005

2006

2004

2005

2006

2004

2005

2006

2

Consolidated Balance Sheets
Eizo Nanao Corporation and Subsidiaries
Thousands of
U.S. Dollars(Note 1)Millions of Yen
March 31, 2006 and 2005

2006

2006

2005

ASSETS
CURRENT ASSETS:
14,171$ 166,718

2,402

3,505

20,530Trade notes

2,651

2,915

22,658Trade accounts

9,736

14,53883,214

Other

444

95

3,795

Allowance for doubtful receivables

(160)

(258)

(1,368)Inventories (Note 4)

13,536

7,762

115,692

Deferred tax assets (Note 8)

1,992

2,875

17,026

428

225

3,658

50,53545,828431,923

Land

2,641

2,634

22,573

Buildings and structures

7,959

7,442

68,026

Machinery and equipment

2,767

2,332

23,650Furniture and fixtures

3,589

3,576

30,674154

8

16,957

16,038144,931(9,631)(9,156)(82,316)

7,326

6,882

62,615

15,551

11,265

132,915

44

391

376

1,134

1,503

9,692

16,72913,159142,983

65,869$ 637,521

Cash and cash equivalents
Short-term investments (Note 3)¥ 19,506¥

Notes and accounts receivables:

Prepaid expenses and other current assets
Total current assets
PROPERTY, PLANT AND EQUIPMENT:

Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment
INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 3)
Deferred tax assets (Note 8)
Other assets
Total investments and other assets
TOTAL

See notes to consolidated financial statements.

3¥ 74,590¥

Thousands of
U.S. Dollars(Note 1)Millions of Yen

2006

2006

2005

LIABILITIES AND SHAREHOLDERS' EQUITYCURRENT LIABILITIES:
Short-term bank loans (Note 5)
Current portion of long-term debt (Note 5)

¥

9
11

$
¥

11

77
94

Notes and accounts payables:
Trade notes

424

Trade accounts

12,202

12,632104,291

Other

1,508

1,126

12,889

Income taxes payable

2,082

2,186

17,795

Accrued expenses

3,306

3,372

28,256

538

450

4,598

19,656

20,201

168,000

26

37

222

Liability for retirement benefits (Note 6)

1,719

1,675

14,692

Deferred tax liabilities (Note 8)

3,153

2,147

26,949

413

256

3,530

5,311

4,115

45,393

4,426

4,426

37,829

Capital surplus

4,314

4,314

36,872Retained earnings

34,76928,754

297,171

Unrealized gain on available-for-sale securities

6,266

4,236

53,556

Foreign currency translation adjustments

(151)

(176)

(1,291)

(1)

(1)

(9)

49,62341,553424,128

65,869$ 637,521

Other current liabilities
Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (Note 5)

Other long-term liabilities
Total long-term liabilities
SHAREHOLDERS' EQUITY (Notes 7 and 12):
Common stock—authorized, 65,000,000 shares;
issued, 22,731,160 shares in 2006 and 2005

Treasury stock—at cost, 698 shares in 2006 and606 shares in 2005
Total shareholders' equity
TOTAL¥ 74,590¥

4

Consolidated Statements of Income
Eizo Nanao Corporation and Subsidiaries
Thousands of
U.S. Dollars(Note 1)Millions of Yen

2006

Years ended March 31, 2006 and 2005

NET SALES

2006

2005
¥

¥ 85,058

91,094$ 726,991

COST OF SALES

62,06070,128530,427

Gross profit

22,99820,966

196,564

11,118

10,541

95,026

11,88010,425

101,538

115

90

983

Interest expense

(1)

(1)

(9)

Loss on disposal of property, plant and equipment—net

(42)

(55)

(359)

Foreign exchange gain (loss)—net

130

(16)

1,111

Other—net

(54)

(11)

(461)

Other income—net

148

7

1,265

INCOME BEFORE INCOME TAXES

12,02810,432

102,803

Current

3,931

3,937

33,598Deferred

840

84

7,179

4,771

4,021

40,777

6,411$ 62,026

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income

INCOME TAXES (Note 8):

Total income taxes
NET INCOME

¥

¥

7,257

Yen
Years ended March 31, 2006 and 2005

U.S. Dollars

2006

2005

2006

PER SHARE OF COMMON STOCK (Note 2.o):Basic net income
Cash dividends applicable to the year

See notes to consolidated financial statements.

5¥ 314.79
55.00¥

277.39
40.00

$

2.69
0.47

Consolidated Statements of Shareholders’ Equity
Eizo Nanao Corporation and Subsidiaries
Thousands

Years ended March 31, 2006 and 2005

BALANCE, APRIL 1, 2004
Net income
Cash dividends, ¥35 per share
Bonuses to directors
Net decrease in unrealized gain on
available-for-sale securities
Net change in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2005
Net income
Cash dividends, ¥50 per share
Bonuses to directors
Net increase in unrealized gain on
available-for-sale securities
Net change in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2006

IssuedNumber of
Shares ofCommon StockMillions of Yen

CommonStockCapitalSurplusRetained
Earnings

Foreign
Unrealized
Currency
Gain onAvailable-for-sale Translation
Adjustments
Securities

22,731 ¥ 4,426 ¥ 4,314 ¥ 23,258 ¥ 4,869 ¥
6,411
(795)
(120)

TreasuryStock(220) ¥

(1)

44
(176)

(1)

25
(151) ¥

(1)

(633)

22,731

4,426

4,314

28,754
7,257(1,136)
(106)

4,236

2,030

22,731 ¥ 4,426 ¥ 4,314 ¥ 34,769 ¥ 6,266 ¥Thousands of U.S. Dollars (Note 1)

Years ended March 31, 2006 and 2005

BALANCE, MARCH 31, 2005
Net income
Cash dividends, $0.43 per share
Bonuses to directors
Net increase in unrealized gain on
available-for-sale securities
Net change in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2006

CommonStockCapitalSurplusRetained
Earnings

Foreign
Unrealized
Currency
Gain onAvailable-for-sale Translation
Adjustments
Securities$ 37,829 $ 36,872 $245,761 $ 36,205 $ (1,504) $62,026(9,710)(906)

Treasury
Stock

(9)

17,351
213$ 37,829 $ 36,872 $297,171 $ 53,556 $ (1,291) $(9)

See notes to consolidated financial statements.

6

Consolidated Statements of Cash Flows
Eizo Nanao Corporation and Subsidiaries
Thousands of
U.S. Dollars(Note 1)Millions of Yen

2006

Years ended March 31, 2006 and 2005

OPERATING ACTIVITIES:
Income before income taxes
Adjustments for:
Income taxes—paidDepreciation and amortization
Reversal of doubtful receivables
Loss on disposal of property, plant and equipment
Bonuses to directors
Changes in assets and liabilities:
Decrease in notes and accounts receivable(Increase) decrease in inventories
Decrease in notes and accounts payable(Decrease) increase in accrued expenses
Increase (decrease) in liability for retirement benefits
Other—net
Total adjustments
Net cash provided by operating activities
INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Proceeds from sales of short-term investments andinvestment securities
Purchases of short-term investments and investment securities
Payment for purchase of newly consolidated subsidiary,
net of cash acquired
Decrease (increase) in other assets
Net cash used in investing activities
FINANCING ACTIVITIES:
Increase in short-term bank loans
Repayments of long-term debt
Dividends paid
Net cash used in financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
ON CASH AND CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR

See notes to consolidated financial statements.

7¥ 12,028

2005¥

10,432$ 102,803(4,046)
1,300
(99)
42
(106)

(5,636)
1,262
(21)
55
(120)

(34,581)
11,111
(846)
359
(906)

4,752
(5,096)
(354)
(69)
44
(134)
(3,766)
8,262

1,728
3,083
(8,500)
330
(299)
315
(7,803)
2,629

40,615(43,556)(3,026)(590)
376(1,144)(32,188)
70,615(1,425)(1,163)(12,179)

7,666(7,450)5,305(9,079)65,521(63,675)(408)(5,345)(5,205)
128(15,410)

(144)
(790)
(934)

77
(94)
(9,726)(9,743)14(3,636)
17,807
14,171136$ 45,598
121,120$ 166,718(609)
15(1,803)9(11)(1,138)(1,140)16
5,335
14,171¥ 19,506

¥

2006

¥
¥

Notes to Consolidated Financial Statements
Eizo Nanao Corporation and Subsidiaries

1. Basis of presenting consolidated financial
statements
The accompanying consolidated financial statements have been prepared inaccordance with the provisions set forth in the Japanese Securities andExchange Law and its related accounting regulations, and in conformity withaccounting 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 the consolidated
financial statements issued domestically in order to present them in a form
which is more familiar to readers outside Japan.
The consolidated financial statements are stated in Japanese yen, thecurrency of the country in which EIZO NANAO CORPORATION (the"Company") is incorporated and operates. The translations of Japanese yenamounts into U.S. dollar amounts are included solely for the convenience ofreaders outside Japan and have been made at the rate of ¥117 to $1, theapproximate rate of exchange 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 accounting policies
a. Consolidation—The consolidated financial statements as of March 31,
2006 and 2005 include the accounts of the Company and its 11 (10 in 2005)
subsidiaries (together, the "Group").
Under the control concept, those companies in which the Company,
directly or indirectly, is able to exercise control over operations are fully
consolidated.
All significant intercompany balances and transactions have been
eliminated in consolidation. All material unrealized profit included in assets
resulting from transactions within the Group is eliminated.
During the year ended March 31, 2006, Eizo Nanao AG has been included
in consolidation as a result of the acquisition of its shares.
b. Cash Equivalents—Cash equivalents are short-term investments thatare readily convertible into cash and that are exposed to insignificant risk ofchanges in value.
Cash equivalents include time deposits, certificate of deposit andcommercial paper, all of which mature or become due within three monthsof the date of acquisition.
c. Inventories—Inventories are stated at cost substantially determined by
the average method for finished products and work in process, and by themoving-average method for raw materials.
d. Short-term Investments and Investment Securities—Short-term
investments and investment securities are classified and accounted for
depending on management's intent. Available-for-sale securities, which
represent securities not classified as either trading securities or held-tomaturity debt securities, are reported at fair value, with unrealized gains andlosses, net of applicable taxes, reported as a separate component ofshareholders' equity. The cost of available-for-sale securities sold isdetermined based on the moving-average method.

Non-marketable available-for-sale securities are stated at cost
determined by the moving-average method.
For other than temporary declines in fair value, investment securities are
reduced to net realizable value by a charge to income.
e. Property, Plant and Equipment—Property, plant and equipment arestated at cost. Depreciation of property, plant and equipment of theCompany and its domestic subsidiaries is computed substantially by the
declining-balance method at rates based on the estimated useful lives of theassets, while the straight-line method is applied to buildings acquired after
April 1, 1998 of the Company and its domestic subsidiaries, and all property,
plant and equipment of foreign subsidiaries. The range of useful lives isprincipally from 15 to 50 years for buildings and structures, 10 years formachinery and equipment, and from 2 to 6 years for furniture and fixtures.
f. Long-lived Assets—In August 2002, the Business Accounting Council("BAC") issued a Statement of Opinion, "Accounting for Impairment of
Fixed Assets, " and in October 2003 the Accounting Standards Board ofJapan ("ASBJ") issued ASBJ Guidance No. 6, "Guidance for AccountingStandard for Impairment of Fixed Assets." These new pronouncements wereeffective for fiscal years beginning on or after April 1, 2005 with early
adoption permitted for fiscal years ending on or after March 31, 2004.
The Group adopted the new accounting standard for impairment of fixed
assets as of April 1, 2004.
The Group reviews its long-lived assets for impairment whenever eventsor changes in circumstance indicate the carrying amount of an asset or asset
group may not be recoverable. An impairment loss would be recognized if
the carrying amount of an asset or asset group exceeds the sum of theundiscounted future cash flows expected to result from the continued use
and eventual disposition of the asset or asset group. The impairment loss
would be measured as the amount by which the carrying amount of theasset exceeds its recoverable amount, which is the higher of the discounted
cash flows from the continued use and eventual disposition of the asset or
the net selling price at disposition.
g. Retirement and Pension Plans—The Company and certain
subsidiaries have a defined contribution pension plan, non-contributory
funded pension plan and unfunded retirement benefit plans which coversubstantially all of their employees.
The Group accounted for the liability for retirement benefits based on the
projected benefit obligations and plan assets at the balance sheet date.
Retirement benefits to directors and corporate auditors are previously
provided at the amount which would be required if all directors andcorporate auditors retired at the balance sheet date.
In June 2004, the retirement benefit system was abolished, and theamount required to be paid at the time of the abolishment will be paid to
directors and corporate auditors upon their retirement.
h. Research and Development Costs—Research and development
costs are charged to income as incurred.
i. Leases—All leases are accounted for as operating leases. Under
Japanese accounting standards for leases, finance leases that deem totransfer ownership of the leased property to the lessee are to be capitalized,
while other finance leases are permitted to be accounted for as operating8

lease transactions if certain "as if capitalized" information is disclosed in thenotes to the 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 to recognize deferred tax assets andliabilities 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 thetemporary differences.
k. Appropriations of Retained Earnings—Appropriations of retained
earnings are reflected in the financial statements for the following year uponshareholders' approval.
l. Foreign Currency Transactions—All short-term and long-termmonetary receivables and payables denominated in foreign currencies aretranslated into Japanese yen at the exchange rates at the balance sheet
date. The foreign exchange gains and losses from translation are recognizedin the statement of income.
m. Foreign Currency Financial Statements—The balance sheet
accounts of the foreign subsidiaries are translated into Japanese yen at thecurrent exchange rate as of the balance sheet date except for shareholders'equity, which is translated at the historical rate.
Differences arising from such translation were shown as "Foreign
currency translation adjustments" in a separate component of shareholders'equity.
Revenue and expense accounts of foreign subsidiaries are translated into
yen at the average exchange rate.
n. Derivatives and Hedging Activities—The Group uses derivative
financial instruments to manage its exposures to fluctuations in foreignexchange. Foreign exchange forward contracts and currency options
contracts are utilized by the Group to reduce foreign currency exchangerisks. The Group does not enter into derivatives for trading or speculative
purposes.
Derivative financial instruments and foreign currency transactions areclassified and accounted for as follows: all derivatives be recognized aseither assets or liabilities and measured at fair value, and gains or losses onderivative transactions are recognized in the statement of income.
The foreign currency forward contracts and currency options contracts
employed to hedge foreign exchange exposures for export sales and importpurchases are measured at the fair value and the unrealized gains/losses arerecognized in income.
o. Per Share Information—Basic net income per share is computed by
dividing net income available to common shareholders by the weightedaverage number of common shares outstanding for the period.
Cash dividends per share shown in the consolidated statements ofincome are presented on an accrual basis and include interim dividends paid
and year-end dividends to be approved after balance sheet date.
Diluted net income per share of common stock is not disclosed hereinbecause the Company has not issued any securities that are potentiallydilutive for the years ended March 31, 2006 and 2005.
p. 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 Standard for Business Separations" and ASBJ Guidance No. 10,"Guidance for Accounting Standard 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 to9apply the pooling of interests method of accounting only when certain
specific criteria are met such that the business combination is essentiallyregarded as a uniting-of-interests. These specific criteria are as follows:(a) the consideration for the business combination consists solely ofcommon 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 byany shareholder group other than voting rights.
For business combinations that do not meet the uniting-of-interests
criteria, the business combination is considered to be an acquisition and thepurchase method of accounting is required. This standard also prescribes
the accounting for combinations of entities under common control and forjoint ventures. Goodwill, including negative goodwill, is to be systematicallyamortized over 20 years or less, but is also subject to an impairment test.
Under the accounting standard for business separations, in a businessseparation where the interests of the investor no longer continue and theinvestment is settled, the difference between the fair value of theconsideration received for the transferred business and the book value of net
assets transferred to the separated business is recognized as a gain or loss
on business separation in the statement of income. In a business separation
where the interests of the investor continue and the investment is notsettled, no such gain or loss on business separation is recognized.
Stock options
On December 27, 2005, the ASBJ issued "Accounting Standard for Stock
Options" and related guidance. The new standard and guidance areapplicable to stock options newly granted on and after May 1, 2006.
This standard requires companies to recognize compensation expense for
employee stock options based on the fair value at the date of grant and overthe vesting period as consideration for receiving goods or services.
The standard also requires companies to account for stock options
granted to non-employees based on the fair value of either the stock option
or the goods or services received. In the balance sheet, the stock option ispresented as a stock acquisition right as a separate component ofshareholders' equity until exercised. The standard covers equity-settled,share-based payment transactions, but does not cover cash-settled, sharebased payment transactions. In addition, the standard allows unlistedcompanies to measure options at their intrinsic value if they cannot reliably
estimate fair value.
Bonuses to directors and corporate auditors
Prior to the fiscal year ended March 31, 2005, bonuses to directors andcorporate 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 and corporate auditorson the accrual basis with a related charge to income, but still permitted the
direct reduction of such bonuses from retained earnings after approval of theappropriation of retained earnings.
The ASBJ replaced the above accounting pronouncement by issuing a
new accounting standard for bonuses to directors and corporate auditors on
November 29, 2005. Under the new accounting standard, bonuses todirectors 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 theyear end to which such bonuses are attributable.

3. Short-term investments and investment
securities

Thousands of U.S. Dollars
Unrealized
Gains

Cost

Short-term investments and investment securities as of March 31, 2006 and2005 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2006

2005

2006

Short-term investments:
Debt securities¥

Others

1,302

¥

2,805

1,100

Total

¥

2,402

$

700
¥

3,505

$

March 31, 2006
Securities classified asavailable-for-sale:
Equity securities$ 17,726 $ 90,308 $77 $ 107,957

23,120163

22,957

11,128Others21,650197

21,453

9,402

Total

$ 62,496 $ 90,308 $437 $ 152,367

20,530Available-for-sale securities whose fair values are not readily determinable
as of March 31, 2006 and 2005 were as follows:

¥

8,745

$ 107,957

126

126

1,078

Debt securities

1,384

1,602

11,829Others

1,410

792

12,051

11,265$ 132,915

Marketable equity securities

12,631Non-marketable equity securities

Total

¥

15,551¥¥

The carrying amounts and aggregate fair values of the securities classified asavailable-for-sale at March 31, 2006 and 2005 were as follows:
Millions of Yen

Cost

Unrealized
Gains

Unrealized
LossesCarrying Amount

2006

2005

2006

Available-for-sale—
Equity securities

¥

126

¥

126

$

1,078

Total

¥

126

¥

126

$

1,078

The carrying values of debt securities and others by contractual maturities
for securities classified as available-for-sale at March 31, 2006 are as
follows:

Fair
Value

Due in one year or lessSecurities classified as

Thousands of
U.S. Dollars

Millions of Yen

March 31, 2006

Millions of Yen

Thousands of U.S. Dollars

Available for Sale

Available for Sale

¥

2,573

$

21,991

Due after one year throughavailable-for-sale:¥2,074 ¥ 10,566 ¥9 ¥ 12,631

Debt securities

2,705

19

2,686

Others

2,533

23

2,510

Total

Fair
Value

Debt securities

Investment securities:

Equity securities

Unrealized
Losses¥7,312 ¥ 10,566 ¥51 ¥ 17,827

five years

2,148

18,359Due after five years throughten years
Due over ten years
Total

¥

71

607

304

2,598

5,096

$

43,555

March 31, 2005
Securities classified asavailable-for-sale:
Equity securities

4. Inventories¥

1,627 ¥

Debt securities

4,410

Others

1,500

Total

¥

7,537 ¥

7,118
2 ¥
7,120 ¥

¥

8,745

5

4,407

8

1,492

Inventories at March 31, 2006 and 2005 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

13 ¥ 14,644

2006
Finished products

¥

3,343

2005
¥

3,114

2006
$

28,573Work in process

1,095

684

9,359

Raw materials and supplies

9,098

3,964

77,7607,762$ 115,692

Total

¥

13,536¥10

5. Short-term bank loans and long-term Debt

Thousands of
U.S. Dollars

Millions of Yen

2006

2005

2006
Service cost

Long-term debt at March 31, 2006 and 2005 consisted of the following:

¥

2005

358

¥

$

3,060

39

26

333

Recognized actuarial loss

13

4

111

Net periodic benefit costs

Unsecured loans from banks,

2006

402

Interest cost
Gain on transfer of pension plan2006

Thousands of
U.S. Dollars

Millions of Yen

Short-term bank loans at March 31, 2006 consisted of a bank loan. The
annual interest rate for the short-term bank loan is 2.7% at March 31, 2006.

(140)
¥

410

¥

292

$

3,504

due through 2010,
Assumptions used for the years ended March 31, 2006 and 2005 are set
forth as follows:with interest ranging
from 1.4% to 2.9% for 2006
and 2005

2006
¥

37

¥

48

(11)

Less current portion

$

316
(94)

(11)

Long-term debt,
less current portion

¥

26

¥

37

$

222

Annual maturities of long-term debt at March 31, 2006 were as follows:Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars

2007

¥

$

11

94

2008

11

2009

11

94

2010

4

34

Total

¥

37

94

$

2005

Discount rate

2.0%

2.0%

Expected rate of return on plan assets

0.75%

0.01%

Recognition period of actuarial gain/loss

5 years

5 years

According to the enactment of the Defined Contribution Pension Plan Law in
October 2001, the Company and certain domestic subsidiaries implemented
a defined contribution pension plan in April 2004, by which a portion of theseverance lump-sum payment plan and defined benefit pension plans were
terminated. The effect of this transfer was to increase income before income
taxes by ¥140 million and was recorded as gain on transfer of pension planin the consolidated statements of income for the year ended March 31,
2005.
The liability for retirement benefits at March 31, 2006 and 2005 fordirectors and corporate auditors is ¥123 million ($1,051 thousand) and ¥141
million, respectively.

316

7. Shareholders' Equity
6. Retirement and pension plans
The Company and its certain subsidiaries have severance payment plans for
employees, directors and corporate auditors.
Under most circumstances, employees terminating their employment areentitled to retirement benefits determined based on the rate of pay at thetime of termination, years of service and certain other factors. Suchretirement benefits are made in the form of a lump-sum severance payment
from the Company or from certain subsidiaries and annuity payments from atrustee. Employees are entitled to larger payments if the termination is
involuntary, by retirement at the mandatory retirement age, by death, or byvoluntary retirement at certain specific ages prior to the mandatory
retirement age.
The liability for employees' retirement benefits at March 31, 2006 and2005 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2006
Projected benefit obligation¥

Fair value of plan assets

2005
¥

(553)

Unrecognized actuarial loss
Net liability

2,160

1,596

$

(445)

(11)
¥

2006

2,058

(4,726)

(79)
¥

1,534

18,461(94)$

13,641

The components of net periodic benefit costs for the years ended March 31,
2006 and 2005 are as follows:11

Through May 1, 2006, Japanese companies are subject to the Commercial
Code of Japan (the "Code").
The Code requires that all shares of common stock be issued with no parvalue and at least 50% of the issue price of new shares is required to berecorded as common stock and the remaining net proceeds are required to
be presented as additional paid-in capital, which is included in capitalsurplus. The Code permits Japanese companies, upon approval of the Boardof Directors, to issue shares to existing shareholders without consideration
by way of a stock split. Such issuance of shares generally does not give rise
to changes within the shareholders' accounts.
The Code also provides that an amount of 10% or more of the aggregate
amount of cash dividends and certain other appropriations of retained
earnings associated with cash outlays applicable to each period (such as
bonuses to directors) shall be appropriated as a legal reserve (a componentof retained earnings) until the total of such reserve and additional paid-in
capital equals 25% of common stock. The amount of total legal reserve andadditional paid-in capital that exceeds 25% of the common stock may beavailable for dividends by resolution of the shareholders after transferring
such excess in accordance with the Code. In addition, the Code permits thetransfer of a portion of additional paid-in capital and legal reserve to thecommon stock by resolution of the Board of Directors.
The Code allows Japanese companies to purchase treasury stock anddispose of such treasury stock upon resolution of the Board of Directors. The
aggregate purchased amount of treasury stock cannot exceed the amountavailable for future dividends plus the amount of common stock, additional
paid-in capital or legal reserve that could be transferred to retained earnings
or other capital surplus other than additional paid-in capital upon approvalof such transfer at the annual general meeting of shareholders.
In addition to the provision that requires an appropriation for a legal
reserve in connection with the cash outlays, the Code also imposes certain

limitations on the amount of capital surplus and retained earnings available
for dividends. The amount of capital surplus and retained earnings available
for dividends under the Code was ¥32,991 million ($281,974 thousand) as ofMarch 31, 2006, based on the amount recorded in the parent company's
general books of account.
Dividends are approved by the shareholders at a meeting held
subsequent to the end of the fiscal year to which the dividends areapplicable. Semiannual interim dividends may also be paid upon resolutionof 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 with various revisions thatwould, for the most part, be applicable to events or transactions which occur
on or after May 1, 2006 and for 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 that meet certain criteriasuch as: (1) having the Board of Directors, (2) having independent
auditors, (3) having the Board of Corporate Auditors, and (4) the term ofservice of the directors is prescribed as one year rather than two years ofnormal 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-in-kind(non-cash assets) to shareholders subject to a certain limitation andadditional requirements.
Semiannual interim dividends may also be paid once a year upon
resolution by the Board of Directors if the articles of incorporation of thecompany so stipulate. Under the Code, certain limitations were imposedon the amount of capital surplus and retained earnings available fordividends. The Corporate Law also provides certain limitations on theamounts available for dividends or the purchase of treasury stock. The
limitation is defined 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.
b. Increases/Decreases and Transfer of Common Stock, Reserveand Surplus
The Corporate Law requires that an amount equal to 10% of dividends
must be appropriated as a legal reserve (a component of retained
earnings) or as additional paid-in capital (a component of capital surplus)
depending on the equity account charged upon the payment of such
dividends until the total of aggregate amount of legal reserve andadditional paid-in capital equals 25% of the common stock. Under theCode, the aggregate amount of additional paid-in capital and legal
reserve that 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 and legal 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 and retained earnings can be transferred among theaccounts under certain conditions upon resolution of the shareholders.
c. Treasury Stock and Treasury Stock Acquisition Rights
The Corporate Law also provides for companies to purchase treasury
stock and dispose of such treasury stock by resolution of the Board of
Directors. The amount of treasury stock purchased cannot exceed theamount available for distribution to the shareholders which is determinedby specific formula.
Under the Corporate Law, stock acquisition rights, which werepreviously presented as a liability, are now presented as a separate
component of shareholders' equity.
The Corporate Law also provides that companies can purchase bothtreasury stock acquisition rights and treasury stock. Such treasury stockacquisition rights are presented as a separate component of shareholders'equity or deducted directly from stock acquisition rights.
On December 9, 2005, the ASBJ published a new accounting standard forpresentation of shareholders' equity. Under this accounting standard,certain items which were previously presented as liabilities are now
presented as components of shareholders' equity. Such items include stockacquisition rights, minority interest, and any deferred gain or loss onderivatives accounted for under hedge accounting. This standard is effective
for fiscal years ending on or after May 1, 2006.

8. Income Taxes
The Company and its domestic subsidiaries are subject to Japanese national
and local income taxes which, in the aggregate, resulted in a normal
effective statutory tax rate of approximately 40.4% for the years ended
March 31, 2006 and 2005.
The tax effects of significant temporary differences and tax loss
carryforwards which resulted in deferred tax assets and liabilities at March
31, 2006 and 2005 are as follows:
Thousands of
U.S. Dollars

Millions of Yen

2006

2005

2006

Deferred tax assets:
Inventories

¥

736

¥

1,455

$

6,291

Pension and severance costs

685

655

Tax loss carryforwards

665

574

5,684

1,321

1,195

11,291

Other

1,004

1,164

8,580

Less valuation allowance(1,196)(979)(10,222)

3,215

4,064

27,479

4,251

2,874

36,333

82

71

702

4,333

2,945

37,035(1,118) ¥1,119

Accrued expenses

Total

5,855

Deferred tax liabilities:
Unrealized gain on
available-for-sale securities
Other
Total
Net deferred tax assets¥$(9,556)

A reconciliation between the normal effective statutory tax rates and theactual effective tax rates reflected in the accompanying consolidated
statements of income for the year ended March 31, 2005 is as follows:
2005
Normal effective statutory tax rate

40.4 %Tax credit for research expenses(2.6)

Other—net

0.7

Actual effective tax rate

38.5 %The difference between the normal effective statutory tax rate for the year
ended March 31, 2006 and the actual effective tax rate is not exceeding 5%of the normal effective statutory tax rate.
At March 31, 2006, certain subsidiaries have tax loss carryforwards
aggregating approximately ¥1,697 million ($14,504 thousand) which areavailable to be offset against taxable income of such subsidiaries in future

12years. These tax loss carryforwards, if not utilized, will expire as follows:

at March 31, 2006 and 2005 were as follows:Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars

2009

¥

$

2

2010

60

2011 and thereafter

1,635

Total

¥

1,697

$

Thousands of
U.S. Dollars

Millions of Yen

2006

17
513

Due within one year

13,974Due after one year

14,504

Total

¥

2005

102

¥

259
¥

361

2006
83

$

129
¥

212

872
2,213

$

3,085

11. Derivatives
9. Research and Development Costs
Research and development costs charged to income were ¥3,805 million($32,521 thousand) and ¥3,643 million for the years ended March 31, 2006
and 2005, respectively.

10. Leases
The Group leases certain machinery, equipment and other assets. Totallease payments under financing leases arrangements that do not transfer
ownership of the leased property to the Company and its domestic
subsidiaries were ¥143 million ($1,222 thousand) and ¥98 million for theyears ended March 31, 2006 and 2005, respectively.
Pro forma information of leased property carried by finance leases that do
not transfer ownership of the leased property to the lessee on an "as if
capitalized" basis as of and for the years ended March 31, 2006 and 2005
was as follows:
Millions of Yen

2006
MachineryandEquipment

Acquisition cost¥

Net leased property

38

¥

¥

20

¥

Millions of Yen

2005
Total

18

Accumulated depreciation

The Group enters into derivative contracts, including foreign currency
forward contracts and currency options contracts to hedge foreign exchange
risk associated with certain assets and liabilities denominated in foreign
currencies.
All derivative transactions are entered into to hedge foreign currency
exposures incorporated within its business. Accordingly, market risk in thesederivatives is basically offset by opposite movements in the value of hedged
assets or liabilities.
Because the counterparties to these derivatives are limited to majorinternational financial institutions, the Group does not anticipate any losses
arising from credit risk.
Derivative transactions entered into by the Group have been made inaccordance with internal policies which regulate the authorization and credit
limit amount.
The Group had the following derivatives contracts outstanding at March
31, 2006 and 2005:

MachineryandEquipment

Others

¥

38

¥ 529

18

391

20

¥ 138

¥

2006
Contract
Amount

Total

¥ 541

6

397

forward contracts—

6

¥ 144

Buying Japanese ¥

¥

282 ¥

Total

$ 325

$ 325

Accumulated depreciation

154

154

Net leased property

$ 171

$ 171

¥

¥ 582 ¥

Unrealized
Gain/(Loss)11(5) ¥ (5)

Fair
Value

Unrealized
Gain/(Loss)

Foreign currency
forward contracts—
Buying Japanese ¥$ 2,410 $9$9The contract or notional amounts of derivatives which are shown in theabove table do not represent the amounts exchanged by the parties and do
not measure the Group's exposure to credit or market risk.

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

Millions of Yen

2006¥

Due after one year

2005
7

¥

13
¥

20

2006
91

$

53
¥

144

60

12. Subsequent Event
The following appropriations of retained earnings at March 31, 2006 wereapproved at the Company's shareholders meeting held on June 21, 2006:

111
$

171

Year-end cash dividends, ¥30 ($0.26) per share

Millions of Yen

Thousands of
U.S. Dollars

¥

$

5,829

$

6,701

Bonuses to directors
The amount of obligations under finance leases includes the imputed interest
expense portion.
Depreciation expense, which is not reflected in the accompanying
consolidated statements of income, computed by the straight-line method,was ¥143 million ($1,222 thousand) and ¥98 million for the years ended
March 31, 2006 and 2005, respectively.
The minimum rental commitments under noncancelable operating leases

13

Fair
Value

2006
Contract
AmountMachineryandEquipment

Total

Contract
AmountThousands of U.S. Dollars

2006

Due within one year

2005
Unrealized
Gain/(Loss)

Foreign currency

12

Thousands of U.S. Dollars

Acquisition cost

Fair
Value

Total

682
102

¥

784

872

13. Segment Information
Information about industry segments, geographical segments and sales toforeign customers of the Group for the years ended March 31, 2006 and2005 is as follows:(1) Industry Segments
The Group is primarily engaged in the manufacture, development and salesof products in the visual display system and related products. Under
Japanese accounting regulations, the Group is not required to discloseindustry segment information because its main industry segment represented
more than 90% of its operations.
(2) Geographical Segments
The geographical segments of the Group for the years ended March 31, 2006
and 2005 are summarized as follows:
Millions of Yen

Japan

North America

85,878¥Eliminations/
Corporate

EuropeConsolidated

Year ended March 31, 2005
Sales to customers¥

Interarea transfer

4,768

Total sales

90,646

Operating expenses

2,864

¥

2,352

¥
¥

77,64791,094(4,768)

2,864

2,352

(4,768)91,094

2,933

2,394

(2,305)80,669Operating income (loss)¥

12,999¥(69) ¥(42) ¥

Total assets¥

42,787

¥

746

¥

1,241

¥ 79,224

¥

2,625

¥

3,209

¥

(2,463) ¥10,42521,09565,869¥Year ended March 31, 2006
Sales to customers
Interarea transfer

4,330

Total sales

83,554

Operating expenses

85,058¥2,625

68,924

2,599

Operating income (loss)¥ 14,630¥

26¥

Total assets¥ 42,556

¥

643

¥

(4,330)3,209(4,330)85,0583,270(1,615)73,178(2,715) ¥11,88029,475 ¥74,590(61) ¥
1,916¥

Thousands of U.S. Dollars

Japan

North America

EuropeEliminations/
Corporate

Consolidated

Year ended March 31, 2006
$ 677,128

Sales to customers$

22,436$27,427$ 726,991

Interarea transfer

37,009Total sales

714,137

22,43627,427$ (37,009)(37,009)

726,991

Operating expenses

589,094

22,21427,948(13,803)625,453

Operating income (loss)$ 125,043

$

222

$

Total assets$ 363,726

$

5,496

$

(521) $ (23,206) $ 101,538
16,376$ 251,923$ 637,521(3) Sales to Foreign Customers
Sales to foreign customers for the years ended March 31, 2006 and 2005
consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2006
North America

¥

2,625

2005
¥

2,864

2006
$

22,436

Europe16,87020,398

Other

1,645

1,417

14,06024,679$ 180,684

Total

¥

21,140¥144,18814

Independent Auditors’ Report
Eizo Nanao Corporation

15

Group Network(As of July 1, 2006)

Eizo Europe AB
Eizo Nanao AG
Eizo Nanao Corporation
Headquarters

Eizo Nanao
Technologies Inc.
Headquarters

East Coast
OfficeEizo Nanao Corporation Headquarters
Overseas Group Companies
Overseas Distribution

Overseas Network
Eizo Nanao Technologies Inc.
Headquarters
5710 Warland Drive Cypress, CA 90630, U.S.A.
Phone: +1-562-431-5011 Fax: +1-562-431-4811
East Coast Office
One Center Court, Unit D Totowa, NJ 07512, U.S.A.
Phone: +1-973-785-8838 Fax: +1-973-785-8839
Eizo Nanao Corporation

Eizo Europe AB
Lövängsvägen 14 194 61 Upplands Väsby, Sweden
Phone: +46-8-590 80 000 Fax: +46-8-590 91 575

Domestic Network
Domestic Support Network

Eizo Nanao AG
Moosacherstrasse 6, Au, CH-8804 Wädenswil, Switzerland
Phone: +41-0-44-782 24 40 Fax: +41-0-44-782 24 50
Domestic Network
Eizo Nanao MS Corporation
37-9 Re, Jike, Hakui, Ishikawa 925-8566, Japan
Phone: +81 767 22-7121 Fax: +81 767 22-6601
Irem Software Engineering Inc.
655 Fukudome, Hakusan, Ishikawa 924-8533, Japan
Phone: +81 76 277-3800 Fax: +81 76 277-3622

Nanao Agency Corporation
153 Shimokashiwano, Hakusan, Ishikawa 924-8566, Japan
Phone: +81 76 274-0035 Fax: +81 76 274-2416
EIZO Engineering Corporation
153 Shimokashiwano, Hakusan, Ishikawa 924-8566, Japan
Phone: +81 76 274-2448 Fax: +81 76 274-0041

Eizo Support Network Corporation
153 Shimokashiwano, Hakusan, Ishikawa 924-8566, Japan
Phone: +81 76 274-2424 Fax: +81 76 274-2416
16

Corporate Data
(As of March 31, 2006)

Board of Directors andStatutory Auditors(As of June 21, 2006)

Company Name
Eizo Nanao Corporation

Board of Directors

EstablishedMarch 1968

President and CEO
Yoshitaka Jitsumori

Capital¥4,425,745,500

Executive Vice President
Tsutomu Tanabe

Address
153 Shimokashiwano, Hakusan,
Ishikawa, 924-8566, Japan
Phone: +81-76-275-4121
Fax: +81-76-275-4125

Directors
Shuji Taniho
Kazuya Maeda
Eiji Tsurumi
Masaki Ono
Shigekazu Wakamura

Employees on a Consolidated Basis
1,248
Statutory Auditors
Business Activities
Development, design, manufacturing
and sale of display monitors andperipherals, amusement products, andimaging system software.

Standing Corporate Auditor
Katsuhiro Hori
Corporate Auditors
Masakatsu Atarashi
Masafumi Kubo
Tadao Kitagawa

Managing Officer
Executive Managing Officer
Shuji Taniho
Senior Managing Officer
Yoji Shimakura
Managing Officer
Kazuya Maeda
Eiji Tsurumi
Masaki Ono
Shigekazu Matsumoto
Yuichi Murai
Kazuhide Shimura
Muneharu Yamamoto

17

Shareholders‘ Information(As of March 31, 2006)

Total Number of Shares Authorized
65,000,000
Number of Shares Issued
22,731,160
Shares Listed On
The first section of the Tokyo Stock Exchange
Number of Shareholders
11,883Major Shareholders

Number of Shares Held(Thousands)

Percentage of
Voting Rights (%)

Yasutaka Murata
Tsuneo Murata
Naoki Murata
Tetsu Takashima
Masayuki Murata
Japan Trustee Service Bank, Ltd.
(Investment Trust Account)
The Master Trust Bank of Japan, Ltd.
(Investment Trust Account)

1,885
1,885
1,885
1,133
1,095

8.3
8.3
8.3
5.0
4.8

932

4.1

929

4.1

Distribution of Shares
by Type of Shareholders

Distribution of Sharesby Number of Shares

Financial Institutions
5,002,900 shares
Securities Firms
506,866 shares

500,000 or more
2,763,540 shares

100,000 or more
5,127,149 shares
50,000 or more
1,122,952 shares

1,000,000 or more
7,884,800 shares

10,000 or more
1,833,801 shares
Other Firms
293,200 shares
Foreign Companies
3,207,605 shares
Individuals and others
13,719,891 shares

Treasury Stock698 shares

5,000 or more
438,846 shares

under 100746 shares
100 or more
1,425,855 shares

500 or more
515,398 shares

1,000 or more
1,618,073 shares

18

EIZO NANAO CORPORATION
153 Shimokashiwano‚ Hakusan, Ishikawa 924-8566, Japan
Tel: +81-76-275-4121, Fax: +81-76-275-4125
http://www.eizo.com/
Printed on 100% Recycled Paper