EIZO NANAO CORPORATION

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

Millions of Yen

2003

2004

2005

2005

¥ 77,548¥ 91,624¥ 91,094$ 848,807

Operating income

6,223

11,567

10,425

97,139Net income

2,774

6,971

6,411

59,737

Total assets

47,576

71,72665,869613,763

Total shareholders’ equity

24,13836,646

41,553

387,188¥ 132.37¥ 314.98¥ 277.39

15.00

30.00

40.00

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 ¥107.32 to US$1, the approximate exchange rate at March 31, 2005.

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2.58
0.37

Net Sales

Operating Income

Net Income

Net Sales by Products

Millions of Yen

Millions of Yen

Millions of Yen

Millions of Yen

91,624

LCD
CRT

6,971

11,567

6,411

91,094
10,42577,548

Amusement
Other
5,236
46,7495,764
48,7192,169
37,470374
36,237

6,725
27,692

6,223
4,535
38,596

2,774

2003

2004

2005

2003

2004

2005

2003

2004

2005

Total Shareholders’EquityBasic Net Income per
Share

Total Shareholders’Equity per Share

Millions of Yen

Yen

Yen

41,553314.9836,646

2003

2004

2005

1,823.40
1,606.91

277.391,185.77

24,138132.37

2003

2004

2005

2003

2004

2005

2003

2004

2005

2

Consolidated Balance Sheets
Eizo Nanao Corporation and Subsidiaries
Thousands of
U.S. Dollars(Note 1)Millions of Yen
March 31, 2005 and 2004

2005

2004

2005

ASSETS
CURRENT ASSETS:
17,807$ 132,044

3,505

1,110

32,659Trade notes

2,915

3,681

27,162

Trade accounts

14,53815,214135,464

95

340

885

(258)

(278)

(2,404)Inventories (Note 4)

7,762

10,80872,326

Deferred tax assets (Note 8)

2,875

2,943

26,789

225

362

2,097

45,82851,987427,022

Land

2,634

2,441

24,543

Buildings and structures

7,442

7,507

69,344

Machinery and equipment

2,332

2,153

21,729Furniture and fixtures

3,576

3,702

33,321

Construction in progress

54

1

504

16,03815,804

149,441(9,156)(8,887)(85,315)

6,882

6,917

64,126

Investment securities (Note 3)

11,265

10,963104,966

Deferred tax assets (Note 8)

391

393

3,643

1,503

1,466

14,006

13,15912,822

122,615

71,726$ 613,763

Cash and cash equivalents
Short-term investments (Note 3)¥ 14,171¥

Notes and accounts receivables:

Other
Allowance for doubtful receivables

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

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

Other assets
Total investments and other assets
TOTAL

See notes to consolidated financial statements.

3¥ 65,869¥

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

2005

2004

2005

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

¥

11

¥

144

$

102

Notes and accounts payables:
Trade notes

424

2,908

3,951

Trade accounts

12,632

17,411

117,704

Other

1,126

2,551

10,492

Income taxes payable

2,186

3,868

20,369Accrued expenses

3,372

3,290

31,420

450

152

4,193

20,20130,324

188,231

37

48

345

Liability for retirement benefits (Note 6)

1,675

2,115

15,608Deferred tax liabilities (Note 8)

2,147

2,586

20,006

256

7

2,385

4,115

4,756

38,344

4,426

4,426

41,241

Capital surplus

4,314

4,314

40,198Retained earnings

28,75423,258267,928

Unrealized gain on available-for-sale securities

4,236

4,869

39,470Foreign currency translation adjustments

(176)

(220)

(1,640)

(1)

(1)

(9)

41,55336,646387,188

71,726$ 613,763

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 2005 and 2004

Treasury stock—at cost, 606 shares in 2005 and620 shares in 2004
Total shareholders' equity
TOTAL¥ 65,869¥4

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

2005

Years ended March 31, 2005 and 2004

NET SALES

2004¥ 91,094¥

2005

91,624$ 848,807

COST OF SALES

70,12870,513

653,447

Gross profit

20,96621,111

195,360

10,541

9,544

98,221

10,425

11,567

97,139Interest and dividend income

90

84

839

Interest expense

(1)

(5)

(9)

Loss on disposal of property, plant and equipment — net

(55)

(81)

(512)

Foreign exchange loss — net

(16)

(79)

(149)

Other — net

(11)

(133)

(103)

7

(214)

66

10,432

11,353

97,205Current

3,937

5,462

36,685

Deferred84(1,080)

783

4,021

4,382

37,468

6,971$ 59,737

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

Other income (expenses) — net
INCOME BEFORE INCOME TAXESINCOME TAXES (Note 8):

Total income taxes
NET INCOME

¥

¥

6,411

Yen
Years ended March 31, 2005 and 2004

U.S. Dollars

2004

2005

2005

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

See notes to consolidated financial statements.

5¥ 277.39
40.00¥

314.98
30.00

$

2.58
0.37

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

Years ended March 31, 2005 and 2004

BALANCE, APRIL 1, 2003
Net income
Cash dividends, ¥17.5 per share
Bonuses to directors
Issuance of common stock to public in
Japan (Note 7)
Net increase in unrealized gain on
available-for-sale securities
Net change in foreign currencytranslation adjustments
BALANCE, MARCH 31, 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

IssuedNumber of
Shares ofCommon Stock

20,281

2,450

Millions of Yen

CommonStockCapitalSurplusRetained
Earnings

Foreign
Unrealized
Currency
Gain onAvailable-for-sale Translation
Adjustments
Securities¥ 2,272 ¥ 2,162 ¥ 16,756 ¥ 3,170 ¥
6,971
(379)
(90)
2,154

TreasuryStock(221) ¥

(1)

1
(220)

(1)

44
(176) ¥

¥(1)

2,152
1,699

22,731

4,426

4,314

23,258
6,411
(795)
(120)

4,869

(633)

22,731¥ 4,426 ¥ 4,314 ¥ 28,754 ¥ 4,236 ¥Thousands of U.S. Dollars (Note 1)

Years ended March 31, 2005 and 2004

BALANCE, MARCH 31, 2004
Net income
Cash dividends, $0.33 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

CommonStockCapitalSurplusRetained
Earnings

Foreign
Unrealized
Currency
Gain onAvailable-for-sale Translation
Adjustments
Securities$ 41,241 $ 40,198 $216,716 $ 45,369 $ (2,050) $59,737(7,407)(1,118)Treasury
Stock

(9)

(5,899)410$ 41,241 $ 40,198 $267,928 $ 39,470 $ (1,640) $(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

2005

Years ended March 31, 2005 and 2004

OPERATING ACTIVITIES:
Income before income taxes
Adjustments for:
Income taxes — paid
Depreciation and amortization(Reversal of) provision for doubtful receivables
Loss on disposal of property, plant and equipment
Bonuses to directors
Changes in assets and liabilities:
Decrease (increase) in notes and accounts receivable
Decrease (increase) in inventories(Decrease) increase in notes and accounts payable
Increase (decrease) in accrued expenses(Decrease) increase 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
Increase in other assets
Net cash used in investing activities
FINANCING ACTIVITIES:
Repayments of long-term debt
Issuance of common stock to public in Japan
Dividends paid
Other
Net cash (used in) provided by financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
ON CASH AND CASH EQUIVALENTS
NET (DECREASE) INCREASE 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¥ 10,432¥

11,353$ 97,205(5,636)
1,262
(21)
55
(120)

(3,826)
1,058
88
81
(90)

(52,516)
11,759(196)
512(1,118)

1,728
3,083
(8,500)
330
(299)
315
(7,803)
2,629(6,156)(3,725)
8,604
(198)
786
(195)
(3,573)
7,780

16,101
28,727(79,202)
3,075(2,786)
2,936(72,708)
24,497(1,163)(803)(10,837)

5,305(9,079)(408)(5,345)2,016(3,536)(924)(3,247)49,432(84,597)(3,802)(49,804)(144)(1,342)

(934)

(400)
4,306
(379)
(34)
3,493

(8,703)

14

10

130

8,036
9,771
17,807$ (33,880)
165,924$ 132,044

(790)

¥

2005

2004

(3,636)
17,807¥ 14,171¥¥(7,361)

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 ¥107.32 to $1, theapproximate rate of exchange at March 31, 2005. Such translations should
not be construed as representations that the Japanese yen amounts could be
converted into U.S. dollars at that or any other rate.

2. Summary of significant accounting policies
a. Consolidation — The consolidated financial statements as of March
31, 2005 and 2004 include the accounts of the Company and its 10
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.
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 determinedby the average method for finished products and work in process, and by themoving-average method for raw materials.
Effective from the year ended March 31, 2004, the Company has changed
the method of valuation for raw materials from the average method to themoving-average method. This change was made in order to strengthen the
Company's monthly and yearly profit control, by way of introducing theEnterprise Resource Planning system. The effect of this change is not
significant.
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
are stated 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
issued a Statement of Opinion, "Accounting for Impairment of Fixed Assets,"
and in October 2003 the Accounting Standards Board of Japan ("ASB")
issued ASB Guidance No. 6, "Guidance for Accounting Standard for
Impairment of Fixed Assets." These new pronouncements are effective forfiscal 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.
The adoption had no effect on the financial statements.
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 to8

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 operatinglease 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, 2005 and 2004.

9

3. Short-term investments and investment
securities
Short-term investments and investment securities as of March 31, 2005 and2004 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2005

2004

2005

Short-term investments:
Debt securities

¥

2,805

¥

¥

¥

1,110

$

26,137

3,505

¥

1,110

$

32,659

8,745

¥

9,521

$

81,485

Others

700

Total

6,522

Investment securities:
Marketable equity securities
Non-marketable equity securities
Debt securities

126

126

1,174

1,602

1,316

14,927

Others

792

Total

¥

11,265

7,380¥

10,963$ 104,966

The carrying amounts and aggregate fair values of the securities classified asavailable-for-sale at March 31, 2005 and 2004 were as follows:
Millions of Yen

Cost

Unrealized
Gains

Unrealized
LossesFair
Value

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

1,627 ¥

Debt securities

4,410

Others

1,500

Total

7,118
2 ¥

¥

7,537 ¥

7,120 ¥¥

1,354 ¥

8,167

¥

8,745

5

4,407

8

1,492

13 ¥ 14,644

March 31, 2004
Securities classified asavailable-for-sale:
Equity securities
Debt securities
Total

2,424
¥

3,778 ¥

4 ¥
8,171 ¥

¥
2

9,521
2,426

2 ¥ 11,947

5. Long-term Debt

Thousands of U.S. Dollars
Unrealized
Gains

Cost

Unrealized
LossesFair
Value

Long-term debt at March 31, 2005 and 2004 consisted of the following:

March 31, 2005
Securities classified as2005

available-for-sale:
Equity securities

2004

2005

Unsecured loans from banks,$ 15,160 $ 66,325

Debt securities

41,092Others13,977

Total

Thousands of
U.S. Dollars

Millions of Yen$ 81,485

19 $$ 70,229 $ 66,344 $

47

41,06475

13,902

122 $ 136,451

Available-for-sale securities whose fair values are not readily determinable
as of March 31, 2005 and 2004 were as follows:

due through 2010,
with interest ranging
from 1.4% to 2.9% for 2005
(from 0.6% to 3.0% for 2004)

48

¥

(11)

192

$

(144)

447
(102)

Long-term debt,
less current portion

Carrying Amount¥Less current portion
¥

37

¥

48

$

345

Thousands of
U.S. Dollars

Millions of Yen

Annual maturities of long-term debt at March 31, 2005, were as follows:
2005

2004

2005

Available-for-sale—Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars¥$

Equity securities

¥

126

¥

126

$

1,174

2006

Total

¥

126

¥

126

$

1,174

2007

11

103

2008

11

103

2009

11

103

2010

4

35

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

Due in one year or lessMillions of Yen

Thousands of U.S. Dollars

Available for Sale

Available for Sale

¥

3,505

$

2,394
¥

22,307

5,899$

54,966

4. Inventories
Inventories at March 31, 2005 and 2004 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2005¥

Work in process

3,114

2004
¥

684

Raw materials and supplies
Total

48

$

447

6. Retirement and pension plans

through five years

Finished products¥

103

32,659Due after one year
Total

Total

11

7,762

$

700

3,964
¥

3,722

2005

10,80829,016
6,374

6,386
¥

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.

36,936$72,326

10

The liability for employees' retirement benefits at March 31, 2005 and2004 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2005
Projected benefit obligation

¥

2004

2,058

¥

2005

3,309

Fair value of plan assets(445)(1,659)Unrecognized actuarial loss

(79)

(91)

Net liability

¥

1,534

¥

1,559

$

19,176(4,146)(736)$

14,294The components of net periodic benefit costs for the years ended March 31,
2005 and 2004 are as follows:
Thousands of
U.S. Dollars

Millions of Yen

2005
Service cost¥

Interest cost
Recognized actuarial loss
Gain on transfer of pension plan
Net periodic benefit costs

2004

402

¥

2005

996

26

35

4

56

$

242
37

(140)
¥

292

3,747

(1,305)
¥

1,087

$

2,721

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

2005
Discount rate

2.0%

2004
2.0%

Expected rate of return on plan assets

0.01%

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 ($1,305 thousand) and was recorded as gain ontransfer of pension plan in the consolidated statements of income for theyear ended March 31, 2005.
The liability for retirement benefits at March 31, 2005 and 2004 fordirectors and corporate auditors is ¥141 million ($1,314 thousand) and ¥556
million, respectively.

7. Shareholders' Equity
Japanese companies are subject to the Japanese Commercial Code (the"Code").
The Code requires that all shares of common stock are recorded with nopar value and at least 50% of the issue price of new shares is required to be

11

recorded as common stock and the remaining net proceeds as additional
paid-in capital, which is included in capital surplus. The Code permits
Japanese companies, upon approval of the Board of Directors, to issue
shares to existing shareholders without consideration as a stock split. Suchissuance of shares generally does not give rise to changes within theshareholders' accounts.
The Code also provides that an amount at least equal to 10% of theaggregate amount of cash dividends and certain other appropriations ofretained earnings associated with cash outlays applicable to each period
shall be appropriated as a legal reserve (a component of retained earnings)
until such reserve and additional paid-in capital equals 25% of common
stock. The amount of total additional paid-in capital and legal reserve thatexceeds 25% of the common stock may be available for dividends byresolution of the shareholders. In addition, the Code permits the transfer ofa portion of additional paid-in capital and legal reserve to the common stockby resolution of the Board of Directors.
The Code allows Japanese companies to repurchase treasury stock anddispose of such treasury stock by resolution of the Board of Directors. The
repurchased amount of treasury stock cannot exceed the amount available
for future dividend plus amount of common stock, additional paid-in capitalor legal reserve to be reduced in the case where such reduction was resolved
at the general shareholders meeting.
In addition to the provision that requires an appropriation for a legal
reserve in connection with the cash payment, the Code imposes certain
limitations on the amount of retained earnings available for dividends. The
amount of retained earnings available for dividends under the Code was¥26,866 million ($250,335 thousand) as of March 31, 2005, based on theamount recorded in the parent company's general books of account.
Dividends are approved by the shareholders at a meeting held
subsequent to the fiscal year to which the dividends are applicable.
Semiannual interim dividends may also be paid upon resolution of the Boardof Directors, subject to certain limitations imposed by the Code.
On August 20, 2003 and September 18, 2003, the Company issued 2,450
thousand new shares to the public in Japan. Of total proceeds from theissuance of new shares amounting to ¥4,306 million, ¥2,154 million wascredited to common stock and the remaining ¥2,152 million was credited tocapital surplus.

8. Income Taxes
The Company and its domestic subsidiaries are subject to Japanese national
and local income taxes which, in the aggregate, resulted in normal effective
statutory tax rates of approximately 40.4% and 41.7% for the years ended
March 31, 2005 and 2004, respectively.
On March 31, 2003, a tax reform law concerning enterprise tax wasenacted in Japan which changed the normal effective statutory tax rate from
41.7% to 40.4%, effective for years beginning on or after April 1, 2004. The
deferred tax assets and liabilities which will realize on or after April 1, 2004
are measured at the effective tax rate of 40.4% as at March 31, 2005 and2004.
The tax effects of significant temporary differences and tax loss
carryforwards which resulted in deferred tax assets and liabilities at March
31, 2005 and 2004 are as follows:Thousands of
U.S. Dollars

Millions of Yen

2005

2004

2005

Deferred tax assets:
Inventories

¥

1,455

¥

1,440

$

13,558Pension and severance costs

655

806

6,103

Tax loss carryforwards

574

540

5,348

Accrued expenses

1,195

1,216

11,135

Other

1,164

1,122

10,846

Less valuation allowance

(979)

(963)

(9,122)

4,064

4,161

37,868

2,874

3,300

26,780

Total
Deferred tax liabilities:

9. Research and Development Costs
Research and development costs charged to income were ¥3,643 million($33,945 thousand) and ¥3,319 million for the years ended March 31, 2005
and 2004, 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 ¥98 million ($913 thousand) and ¥94 million for the years
ended March 31, 2005 and 2004, 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, 2005 and 2004
was as follows:

Unrealized gain on

Millions of Yen

available-for-sale securities
Other
Total

71

111

662

2,945

3,411

27,442

MachineryandEquipment

Acquisition cost
Net deferred tax assets

¥

1,119

¥

750

$

10,426¥

Accumulated depreciation
Net leased property

A reconciliation between the normal effective statutory tax rates and theactual effective tax rates reflected in the accompanying consolidated
statements of income for the years ended March 31, 2005 and 2004 is asfollows:

OthersTotal

March 31, 2004
529

¥

12

312

Acquisition cost
Net leased property

Normal effective statutory tax rate

40.4 %

41.7 %Tax credit for research expenses

(2.6)

(2.2)

Other—net

0.7

(0.8)

Actual effective tax rate

38.5 %

38.7 %

217

¥

9

¥

226

¥

529

¥

12

¥

541

At March 31, 2005, certain subsidiaries have tax loss carryforwards
aggregating approximately ¥1,535 million ($14,303 thousand) which areavailable to be offset against taxable income of such subsidiaries in futureyears. These tax loss carryforwards, if not utilized, will expire as follows:

391
¥

138

6
¥

6

OthersMarch 31, 2005$

Accumulated depreciation
Net leased property

4,929

$

112

3,643
$

1,286

$

2005

2009
2010 and thereafter
Total

¥

Due within one year

$

1,370

Due after one year

2

19

Total

1,386

12,914

1,535$

14,303

$

56
56

5,041
3,699

$

1,342

Obligations under finance leases:

Thousands of
U.S. Dollars

147

144

Total

Thousands of
U.S. Dollars

Millions of Yen

¥

397
¥

Thousands of U.S. Dollars
MachineryandEquipment

Acquisition cost

2006

315

¥

Accumulated depreciation

2004

Millions of Yen

541

March 31, 2005

2005

Year Ending March 31

¥

3

¥

2004
91

¥

53
¥

144

2005
93

$

848

$

1,342

133
¥

226

494

The amount of obligations under finance leases includes the imputed interest
expense portion.

12

Depreciation expense, which is not reflected in the accompanying
consolidated statements of income, computed by the straight-line method,was ¥98 million ($913 thousand) and ¥94 million for the years ended March
31, 2005 and 2004, respectively.
The minimum rental commitments under noncancelable operating leases
at March 31, 2005 and 2004 were as follows:
Thousands of
U.S. Dollars

Millions of Yen

2005
Due within one year¥

Due after one yearr
Total

2004
83

¥

129
¥

212

2005
67

$

144
¥

211

$

Millions of Yen
Contract
AmountFair
Value

Unrealized
Gain/Loss

March 31, 2004
Foreign currency
forward contracts:
Buying Japanese ¥¥Selling U.S.$
Total

414

¥

21

211

¥

21

(1)

(1)

¥

625

¥

20

¥

20

¥

582

¥

(5)

¥

(5)

¥

582

¥

(5)

¥

(5)

773
1,202

March 31, 2005

1,975

Foreign currency
forward contracts:

11. Derivatives
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, 2005 and 2004:

Buying Japanese ¥Total

Thousands of U.S. Dollars
Contract
AmountFair
Value

Unrealized
Gain/Loss

March 31, 2005
Foreign currency
forward contracts:
Buying Japanese ¥

$

5,423

$

(47)

$

(47)

The 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.

12. Subsequent Event
The following appropriations of retained earnings at March 31, 2005 wereapproved at the Company's shareholders meeting held on June 22, 2005:
Year-end cash dividends, ¥25 ($0.23) per share

Millions of Yen

Thousands of
U.S. Dollars

¥

$

5,293

$

6,281

Bonuses to directors
Total

568
106

¥

674

988

13. Segment Information
Information about industry segments, geographic segments and sales toforeign customers of the Company and subsidiaries for the years ended
March 31, 2005 and 2004 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.

13

(2) Geographical Segments
The geographical segments of the Company and its subsidiaries for the years
ended March 31, 2005 and 2004 are summarized as follows:
Millions of Yen

Japan

North America

North Europe

86,665¥¥

Eliminations/
Corporate

Consolidated

Year ended March 31, 2004
Sales to customers¥

Interarea transfer

3,746

Total sales

90,411

Operating expenses

2,883

2,076

¥
¥

76,305

2,883

2,076

2,925

2,027

91,624(3,746)(3,746)

91,624(1,200)80,057

Operating income (loss)¥

14,106¥(42) ¥

49¥(2,546) ¥11,567

Total assets¥

47,610

¥

641

¥

987

¥

22,488¥71,726¥85,878

¥

2,864

¥

2,352

¥

91,094

Year ended March 31, 2005
Sales to customers
Interarea transfer

4,768

Total sales

90,646

Operating expenses¥

77,647(4,768)

2,864

2,352

(4,768)91,094

2,933

2,394

(2,305)80,669Operating income (loss)¥

12,999¥(69) ¥

Total assets¥

42,787¥746¥(42) ¥
1,241¥(2,463) ¥10,42521,09565,869¥Thousands of U.S. Dollars

Japan

North America

North Europe$$

Eliminations/
Corporate

Consolidated

Year ended March 31, 2005
Sales to customers$ 800,205

26,687

21,915$ 848,807

Interarea transfer

44,428

Total sales

844,633

26,687

21,915$ (44,428)(44,428)

848,807

Operating expenses

723,510

27,32922,307(21,478)

751,668

Operating income (loss)$ 121,123$(642) $

Total assets$ 398,686

$

6,951

$

(392) $ (22,950) $11,564$ 196,562

97,139$ 613,763(3) Sales to Foreign Customers
Sales to foreign customers for the years ended March 31, 2005 and 2004
consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2005
North America

¥

2,864

2004
¥

2,969

2005
$

26,687

Europe20,39820,933

190,066

Other

1,417

1,619

13,20425,521$ 229,957

Total

¥

24,679¥14

Independent Auditors’ Report
Eizo Nanao Corporation

15

Group Network(As of July 1, 2005)

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 Techno Career 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, 2005)

Board of Directors andStatutory Auditors(As of June 22, 2005)

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

Employees on a Consolidated Basis
1,219

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

17

Shareholders‘ Information(As of March 31, 2005)

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
9,028
Major Shareholders

Number of Shares Held(Thousands)

Percentage of
Voting Rights (%)

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

1,914
1,885
1,885
1,885

8.4
8.3
8.3
8.3

1,415

6.2

1,195
902

5.3
4.0

Distribution of Shares
by Type of Shareholders

Distribution of Sharesby Number of Shares

Financial Institutions
4,409,500 shares

100,000 or more
3,444,564 shares

500,000 or more
2,428,340 shares

Securities Firms
371,105 shares

50,000 or more
1,528,376 shares
10,000 or more
1,473,746 shares

Other Firms
153,000 shares

5,000 or more
484,369 shares

Foreign Companies
3,188,255 shares

Individuals and others
14,608,694 shares

Treasury Stock
606 shares

1,000,000 or more
10,181,000 shares
under 100254 shares

1,000 or more
1,667,280 shares
500 or more
473,006 shares
100 or more
1,050,225 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/
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