ANNUAL REPORT 2007 - · PDF fileNIKKISO CO., LTD. ANNUAL REPORT 2007 Toward Business Expansion...

3-43-2, Ebisu, Shibuya-ku, Tokyo 150-8677, JapanPhone: +81-3-3443-3711Fax: +81-3-3473-4963URL: http://www.nikkiso.co.jp

This annual report is Printed in Japan on recycled paper

A N N U A L R E P O R TYear ended March 31,2007

2007

NIKKISO CO., LTD. was founded in 1953 by Keijiro Oto. At that time, the company was known as Special Pump Co., Ltd., and

its main business operations were the import and sale, as the sole agent in Japan, of pumps manufactured by Milton Roy

Company of the U.S.A.

Two years later, under a technical assistance and licensing agreement with Milton Roy, we began to manufacture pumps in

Japan. Since then, we have diversified into various new fields such as projects & instrumentation, medical equipment, and

advanced materials. We seek to make advances into overseas markets and expand our operations through distributorships and

technical licensing agreements in many countries.

Foremost among the reasons for our continued growth has been our constant awareness of new needs and market trends.

This, along with our wide-ranging and imaginative research and development activities, provides our customers with products

and services second to none, and has been a driving force which has brought us to a unique position in the industrial world.

Today you can find our products in use worldwide, working to ensure a better tomorrow, in areas such as fluid equipment,

high purity water conditioning systems for thermal and nuclear power plants, medical equipment, carbon fiber products and

other apparatuses.

A key element in our corporate philosophy is ”human life” and ”environment”, and we are constantly taking up the challenge

of highly specialized products. Drawing on our extensive experience and independent research and development, we will

continue to play a leading role in meeting the ever-changing needs of industry and society.

CONTENTS

CONSOLIDATED FINANCIAL HIGHLIGHTS 1

TO OUR SHAREHOLDERS AND INVESTORS 2

RESULTS BY SEGMENT 4

RESULTS BY REGION 7

RESEARCH AND DEVELOPMENT 7

CONSOLIDATED BALANCE SHEETS 8

CONSOLIDATED STATEMENTS OF INCOME 10

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 11

CONSOLIDATED STATEMENTS OF CASH FLOWS 12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 23

GLOBAL NETWORK 24

BOARD OF DIRECTORS 25

EXECUTIVE OFFICERS 25

CORPORATE DATA 25

Forward-looking StatementsStatements in this annual report withrespect to NIKKISO's plans, strategies,and beliefs, as well as other statementsthat are not historical facts are forward-looking statements involving risks anduncertainties. The important factors thatcould cause actual results to differmaterially from such statements include,but are not limited to, general economicconditions in NIKKISO's markets, whichare primarily Japan, North America, Asiaand Europe; demand for, and competitivepricing pressure on, NIKKISO's productsand services in the marketplace;NIKKISO's ability to continue to winacceptance for its products and services inthese highly competitive markets; andmovements of currency exchange rates.

PROFILE

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As of March 31, 2007

President & Chief Executive OfficerToshihiko Kai

Managing DirectorAkihiro Nagao

DirectorsMichio KubotaHiroshi KinoshitaHiroshi Nakamura

Director & Senior AdvisorTakashi Oto

Standing AuditorsMitsuyoshi YamamotoShigeo Maruo

AuditorsKenjiro NakaneYutaro Kikuchi

Company Name NIKKISO CO., LTD.

Date of Establishment December 26, 1953

Paid-in Capital ¥6,094,984,191

Number of Employees 3,465 (Consolidated)

1,280 (Non-Consolidated)

Authorized Number of Shares 249,500,000

Issued Number of Shares 72,611,464

Number of Shareholders 9,532

Major ShareholdersNumber of Percent of Shares Held Total Shares

Name (Thousands) Outstanding

Mizuho Bank, Ltd. 3,436 5.32%Japan Trustee Service Bank, Ltd. (Trust Account) 2,900 4.49

Mizuho Corporate Bank, Ltd. 2,577 3.99

Mitsui Sumitomo Insurance Co., Ltd. 1,966 3.04

The Bank of Tokyo-Mitsubishi UFJ, Ltd. 1,822 2.82

Nikkiso Employee Shareholders Association 1,577 2.44

Nikkiso Shareholders Association 1,522 2.35

Nippon Life Insurance Company 1,500 2.32

Japan Trustee Service Bank, Ltd. 1,404 2.17(CMTB Equity Investments Co., Ltd. Trust account re-entrusted by Mitsui Asset Trust and Banking Company, Limited)

The Master Trust Bank of Japan, Ltd. (Trust Account) 1,313 2.03

Yoshikazu FusasakiHisashi HommaHiroshi NogamiAkira NishiwakiHiroaki MiyataTakao YagiKaoru NakamuraShuichi ShirakiNobuhiko BanYasuyuki Tanaka

As of June 26, 2007

BOARD OF DIRECTORS CORPORATE DATA

EXECUTIVE OFFICERS

As of June 26, 2007

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Thousands ofMillions of Yen U.S. Dollars

2007 2006 2005 2004 2003 2007

Results of OperationsNet sales ¥ 65,400 ¥ 58,916 ¥ 54,307 ¥ 50,571 ¥ 50,304 $ 554,236Gross profit16,982 20,354 18,883 16,982 14,744 14,467 172,491Operating income 5,737 5,630 3,737 2,159 1,472 48,617Income before income taxes andminority interests 6,248 5,817 3,989 1,893 804 52,954 Net income 4,015 3,709 2,518 827 58 34,027

Financial PositionTotal assets 80,144 70,530 64,577 63,639 65,010 679,191Inventories 11,442 10,058 9,385 8,393 8,938 96,962Property, plant and equipment,net 17,070 15,840 16,235 17,221 18,486 144,660Total liabilities 40,714 28,337 27,774 28,866 31,172 2345,036Equity 39,430 41,585 36,257 34,171 33,247 334,155

Yen U.S. Dollars

Per ShareNet income

Basic ¥ 60.44 ¥ 52.48 ¥ 35.31 ¥ 11.24 ¥ 0.41 $ 0.51Diluted – 51.98 – – 9.47– –

Cash dividends applicable to the year 8.5012.00 12.00 8.50 8.50 8.50 0.10

Equity5 601.46 595.65 521.13 487.56 471.04 5.10

Notes : The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥118 to $1, the approximate rate of exchange at March 31, 2007.

Under a new accounting standard for presentation of equity which is effective for fiscal years ending on or after May 1, 2006, certain items such as stock acquisition rights, minority interests, and deferred gain or loss on derivatives are now presented as components of equity, while they were previously presented as liabilities.

NIKKISO CO., LTD. AND CONSOLIDATED SUBSIDIARIESFor the years ended March 31

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0

1,000

2,000

3,000

4,000

5,000

Net Sales(Millions of Yen)

2003

2004

2005

2006

2007

50,3

04

50,5

71 54,3

07

Net Income(Millions of Yen)

2003

2004

2005

2006

2007

Total Assets(Millions of Yen)

2003

2004

2005

2006

2007

Equity(Millions of Yen)

2003

2004

2005

2006

2007

58

827

2,51

8

3,70

9 4,01

5

0

20,000

40,000

60,000

80,000

100,000

65,0

10

63,6

39

64,5

77

58,9

16

65,4

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70,5

30

80,1

44

0

10,000

20,000

30,000

40,000

50,000

33,2

47

34,1

71 36,2

57

41,5

85

39,4

30

CONSOLIDATED FINANCIAL HIGHLIGHTS

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A three-year medium-term management plan was established

this fiscal year based on new ideas and approaches, and

management and employees are working as one toward the

achievement of its aims. Under this plan, the Nikkiso Group

intends to achieve major advances by clarifying what needs

doing to realize unprecedented changes and by forging ahead

as a corporate group toward lofty goals.

Business Results

During the year ended March 31, 2007 (fiscal 2007), the Nikkiso

Group confronted a divided business environment. Although

energy-related projects enjoyed vigorous global demand and

the domestic economy continued to expand, government

policies to curtail medical costs squeezed the earnings of

hospitals, who are major customers of the Medical Division.

Under such an environment, the Nikkiso Group pursued

opportunities meeting the needs of customers and the demands

of the market in all aspects of its business from development to

production and sales. As a result, orders for the year totaled

¥70,239 million (up 12.8% year on year), sales equaled ¥65,399

million (up 11.0%), operating income was ¥5,736 million (up

1.9%), and net income came to ¥4,015 million (up 8.2%).

Both orders and sales surged sharply year on year to reach all-

time highs, contributing to the steady strengthening of the

Nikkiso Group’s business foundations.

Although the Medical Division contributed less to income, this

was more than offset by the buoyant Industrial Division, and

operating income and net income climbed to record highs at the

Corporate Group level.

I would like to thank our shareholders and investors for their continued support and

encouragement. I am pleased to announce the financial results of the Nikkiso Group for the

year ended March 31, 2007 (fiscal 2007),

and to provide an overview of the Group’s standing.

President and CEOToshihiko Kai

TO OUR SHAREHOLDERS AND INVESTORS

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Toward Business Expansion

In fiscal 2007, corporate resources were actively directed toward

measures to achieve future business growth. Responding to the

sustained increase of orders, the Fluid Technologies Unit

reorganized production systems at its main Higashimurayama

Plant to increase production efficiency.

In fiscal 2006 (April1,2005-March 31,2006), three units of the

Industrial Division were merged together to create the Industrial

Solutions Unit. Benefiting from the effects of this merger, the

new Unit’s opportune responses to the changes and growth of

markets led to higher earnings. In addition, the Unit is promoting

new technological applications in the environmental area.

In North America, Nikkiso America, Inc. was established to

oversee the operations of the three subsidiaries. Nikkiso America

is pursuing activities to further strengthen pump and particle size

analyzer businesses in that geographic region.

To respond to robust orders and sales, efforts are being made

to expand the production capacity of manufacturing sites. In

fiscal 2007, preparations for expanded production were made at

Nikkiso Cryo, Inc., the Composite Products Factory, the

Kanazawa Plant, and Nikkiso Vietnam MFG Co., Ltd. Moreover,

for the Medical Equipment Unit, Nikkiso acquired a German

medical equipment manufacturer to establish a production base

for hemodialysis systems in Europe.

Nikkiso is working to strengthen its management foundations

to support expanded business operations. We are enhancing a

corporate governance system to ensure the reliability of business

operations. We also have adopted defensive measures against

buyouts that would harm the common interests of shareholders

and reduce corporate value.

Future Endeavors

To address the issues it is facing and to achieve the aims of its

medium-term management plan, Nikkiso is actively working to

overhaul business activities, operations, and systems and to

establish a global presence in sales, procurement, and

production from a medium- to long-term perspective.

The strength required to achieve these goals is found in

human resources. Fostering a corporate culture that instills

employees with future aspirations and a passion about working

for the Nikkiso Group as well as strengthening the capabilities of

all employees are certain to contribute to the substantial growth

of the Nikkiso Group. Based on such a conviction, we intend to

work deliberately at developing the human resources needed to

support the future growth of the Company.

In the coming fiscal year, the Industrial Division is expected to

sustain its vigorous growth, and the Medical Division is foreseen

to rebound. Taken together, sales, operating income, and net

income are anticipated to reach new highs.

In our projections for fiscal 2008 (April1,2007-March 31,2008),

the Nikkiso Group will record sales of ¥72,000 million, operating

income of ¥6,500 million, and net income of ¥4,300 million.

We are firmly committed to companywide efforts aimed at

further increasing earnings and at realizing an even stronger

Nikkiso Group.

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Industrial

Division

Fluid Technologies Unit

The Fluid Technologies Unit engages in the manufacture, sale, and maintenance of various

types of equipment, mainly canned motor pumps (Non-Seal Pump), high-accuracy metering

pumps (Milflow Pump), high-speed centrifugal pumps (Sundyne Pump), and cryogenic pumps

for use with liquefied natural gas.

In fiscal 2007 (April1,2006-March 31,2007), the Unit achieved record-high orders and sales in

both domestic and foreign markets. In Japan, an increase in the capital investments of the

petroleum and petrochemical industries, the Unit’s main customers, enabled earnings on

mainline products to grow sharply. In foreign markets, the acquisition of the sealless pump

business of Sundyne Corporation (U.S.) in 2005 contributed to higher orders and sales.

In the cryogenic pump business, higher orders placed through domestic engineering

companies and vigorous foreign orders yielded record-high orders. The strengthening of

foreign sales operations has made it possible to follow up on large-scale energy and

petrochemical projects, and this is contributing to the booking of orders.

The Fluid Technologies Unit recorded orders of ¥21,583 million (up 25.1% year on year) and

sales of ¥17,581 million (up 17.6%) in fiscal 2007.

The Industrial Division is divided into three units according to the products handled: the Fluid TechnologiesUnit, the Industrial Solutions Unit, and the Composite Technologies Unit.

In fiscal 2007 (April1,2006-March 31,2007), capital investments increased further in the industries ofcustomer companies. By responding with precision to such demand, orders, sales, and income increasedsharply for all Units in both domestic and foreign markets. Orders in particular grew dramatically, surging 24%year on year for the Industrial Division, with unfilled orders at year-end jumping 41.9%.

Sales of Fluid Technologies Unit(Millions of Yen)

2005

2006

2007

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5,000

10,000

15,000

20,000

14,4

30

14,9

51 17,5

81

Hi-power pump(Triplex type power pumps)

RESULTS BY SEGMENT

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The Composite Technologies Unit engages in the manufacture and sale of carbon-fiber

reinforced plastics and offers related consulting services. Its main products are the cascades of

turbofan jet-engine thrust reversers for commercial aircraft.

The Boeing Company (U.S.), a major end user of the Unit’s products, registered huge orders

from the airlines of many nations and greatly expanded the production of medium- and long-

haul aircraft. In addition, manufacturers of small, short-haul aircraft, known as regional jets,

increased sales, highlighting the increasingly brisk business of the aircraft industry.

Under such circumstances, the volume of cascade production trended firmly, and orders and

sales increased sharply in fiscal 2007 (April1,2006-March 31,2007) as in the previous fiscal year.

Another noteworthy development was the successful

first test flight of a GE-Aviation engine using a cascade

being developed by the Unit, an engine that will be used

in the Boeing 787 Dreamliner, Boeing’s future flagship

aircraft. The Unit also received two new orders for the

development of new cascades.

In fiscal 2007, the Composite Technologies Unit

recorded orders of ¥4,394 million (up 21.5% year on year)

and sales of ¥4,388 million (up 21.9%).

The Industrial Solutions Unit engages in the manufacture, sale, and maintenance of isostatic

pressing units, such as warm laminating systems used in manufacturing electric components,

water conditioning systems for thermal and nuclear power plants, particle size analyzers, and

other systems combined with these products that include related automation apparatuses.

In fiscal 2007 (April1,2006-March 31,2007), demand for electronic components increased,

and orders and sales for warm laminating systems used in their production rose to record

highs. Orders from Asia, in particular, climbed conspicuously.

Foreign orders were robust for water conditioning systems for power plants, and sales of

particle size analyzers for nanotechnology applications

grew strongly in the United States.

In fiscal 2007, the Industrial Solutions Unit posted

orders of ¥10,041 million (up 22.9% year on year) and

sales of ¥9,362 million (up 28.0%).

Industrial Solutions Unit

Composite Technologies Unit

0

2,500

5,000

7,500

10,000

Sales of Industrial Solutions Unit(Millions of Yen)

2005

2006

2007

7,31

2

9,36

2

6,52

3

0

1,000

2,000

3,000

4,000

5,000

Sales of CompositeTechnologies Unit(Millions of Yen)

2005

2006

2007

2,80

1

3,60

0

4,38

8

The figures before March 2005 for theIndustrial Solutions Unit are listed asthe combined total from the ParticlesSolution Unit, Industrial EquipmentUnit, and the Instrumentation & PowerSystems Unit.

Isostatic pressing unit(Ultra-high pressure technology)

Cascades for turbo-fan jet enginethrust reversers

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Medical

Division

The Medical Division is made up solely of the Medical Equipment Unit. In fiscal 2007 (April1,2006-March31,2007), the Medical Division was affected by the revision of the medical insurance system that took effect inApril 2006. While sales increased year on year, they did not reach their target, and higher costs caused incometo decrease against the prior year.

In the second half of fiscal 2007, however, sales of mainline hemodialysis systems rebounded, and earningsrecovered rapidly.

Medical Equipment Unit

The Medical Equipment Unit engages in the manufacture, sale, and maintenance of

hemodialysis products, such as artificial kidney machines, dialyzers, blood tubing, and

powdered dialysate solutions, as well as medical equipment including artificial pancreas units

and pharmaceutical products.

The revision of the medical insurance system in April 2006 worsened the management

environment for medical institutions. This prompted them to curtail the replacement of the

Unit’s mainline hemodialysis systems, which had a major impact on income.

Sales, however, grew rapidly with the recovery of demand for hemodialysis systems in the

second half of the year. As a result, sales increased slightly for the full fiscal year, although still

falling short of their target.

Sales are increasing steadily for such consumables as dialyzers, blood tubing, and powdered

dialysate solutions. Demand has grown for Nikkiso’s PEPA membrane dialyzer, with its features

winning strong market favor, and production capacity was increased

at the Kanazawa Plant. Sales volume is climbing steadily for blood

tubing, and related production capacity is being expanded. Sales

volume is also rising for D-DryS, a dialysate powder.

In foreign markets, Nikkiso acquired a German medical equipment

manufacturer to prepare for the local production of hemodialysis

systems. Responding to the growth of demand in European and

Asian markets, Nikkiso strengthened its market presence such as by

expanding its agency network.

In fiscal 2007 (April1,2006-March 31,2007), the Medical Equipment

Unit recorded orders of ¥34,219 million (up 3.0% year on year) and

sales of ¥34,067 million (up 3.1%).

0

10,000

20,000

30,000

40,000

Sales of Medical Equipment Unit(Millions of Yen)

2005

2006

2007

30,5

51 34,0

67

33,0

52

Hemodialysis system DBB-05

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In Japan, both the Industrial Division and the Medical Division posted higher sales.

Income increased for the Industrial Division, but the Medical Division was affected by the

reform of the medical insurance system and higher costs. Sales in Japan totaled ¥60,842

million (up 8.9% year on year) and operating income equaled ¥7,786 million (up 2.8%).

In Asia, sales grew for the Industrial Division and for medical equipment subsidiaries,

but changes in foreign exchange rates caused income to decline. Sales of ¥5,264 million

(up 14.4%) and operating income of ¥44 million (down 66.0%) were recorded in Asia.

In North America, fluid-technology and particle-related sales increased, and income

rose substantially. Sales of ¥2,568 million (up 42.7%) and operating income of ¥244

million (up 46.1%) were posted in this geographic region.

In Europe, fluid-technology and medical-equipment sales achieved gains, and income

increased sharply. Sales totaled ¥5,423 million (up 26.5%) and operating income came to

¥180 million (up 141.0%).

Nikkiso Group companies conduct research and development on creating new products

and technologies for the future in the areas of human life and the environment based on

Nikkiso’s original and proprietary technology.

In areas related to human life, Nikkiso is leveraging its hemodialysis technology

developed over the years to research hemocatharsis and next-generation artificial

pancreas units with the view of contributing to the treatment of a variety of diseases.

Nikkiso is endeavoring to further develop such proprietary technologies as the

synthesis of multi-walled and single-walled carbon nanotubes, supercritical technology,

and Micro-Electro-Mechanical Systems (MEMS) technology, and is engaging in research

and development toward the creation of new businesses using these technologies.

In fiscal 2007 (April1,2006-March 31,2007), the Research and Development Center was

reorganized as the Business Development and Resource Management Unit to focus on

products and technologies in areas beyond those of Nikkiso’s business units and to

undertake research and development directed toward the creation of new businesses

based on clear needs.

In August 2006, Nikkiso acquired an equity interest in UV Craftory Co., Ltd., to

participate in a promising new business with the aim of developing and commercializing

UV LEDs.

Asia 7.1%Japan 82.1%

North America 3.5%Europe 7.3%

Consolidated Net Salesby Region (%)

RESULTS BY REGION

RESEARCH AND DEVELOPMENT

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Thousands ofU.S. Dollars

Millions of Yen (Note 1)

2007 2006 2007

ASSETSCurrent Assets:

Cash and cash equivalents ¥ 6,278 ¥ 8,077 $ 53,206Short-term investments (Note 5) 135 1,097 1,142Marketable securities (Note 6) 295

Notes and accounts receivable:

Unconsolidated subsidiaries and affiliated companies 1,272 1,341 10,781Trade 24,765 20,228 209,876Other 263 200 2,228Allowance for doubtful accounts (199) (129) (1,685)

Inventories (Note 7) 11,442 10,058 96,962Deferred tax assets (Note 12) 1,136 1,048 9,629Other current assets 455 409 3,856

Total current assets 45,547 42,624 385,995

Property, Plant and Equipment (Note 9) :Land (Note 8) 3,593 3,281 30,445Buildings and structures 20,979 20,598 177,788Machinery and equipment 13,308 12,465 112,781Furniture and fixtures 5,358 5,242 45,404Construction in progress 456 43 3,869Accumulated depreciation (26,624) (25,789) (225,627)

Property, plant and equipment, net 17,070 15,840 144,660

Investments and Other Assets:Investment securities (Note 6) 12,155 8,529 103,012Investments in and advances to unconsolidated

subsidiaries and affiliated companies 2,003 1,142 16,973Long-term loans receivable 34 52 286Software 244 213 2,067Deferred tax assets (Note 12) 35 33 298Goodwill (Note 2.(6)) 1,330 703 11,272Other assets 1,744 1,399 14,785Allowance for doubtful accounts (18) (5) (157)

Total investments and other assets 17,527 12,066 148,536

Total ¥ 80,144 ¥ 70,530 $ 679,191

See notes to consolidated financial statements.

NIKKISO CO., LTD. and Consolidated SubsidiariesAs of March 31, 2007 and 2006

CONSOLIDATED BALANCE SHEETS

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2007 2006 2007

LIABILITIES AND EQUITYCurrent Liabilities:

Short-term bank loans (Note 9) ¥ 6,991 ¥ 2,886 $ 59,247Current portion of long-term debt (Note 9) 6,910 988 58,559Notes and accounts payable:

Unconsolidated subsidiaries and affiliated companies 35 27 298Trade 10,286 10,049 87,169Construction and other 1,184 720 10,037

Income taxes payable 1,073 1,607 9,090Accrued expenses 2,239 2,003 18,973Deposits received

Unconsolidated subsidiaries and affiliated companies 91 69 771Other 320 293 2,714

Other current liabilities 825 410 6,991

Total current liabilities 29,954 19,052 253,849

Long-term Liabilities:Long-term debt (Note 9) 8,273 6,671 70,106Liability for employees’ retirement benefits (Note 10) 185 421 1,566Deferred tax liabilities (Note 12) 2,053 1,942 17,400Allowance for retirement benefit for directors and corporate auditors 238 228 2,020Other long-term liabilities 11 23 95

Total long-term liabilities 10,760 9,285 91,187

Minority interests 608

Commitments and Contingent Liabilities (Notes 14, 15 and 17)

Equity (Notes 2.(5) and 11) :Common stock no par value,

authorized, 249,500,000 shares; 6,095 6,095 51,652issued, 72,611,464 shares in 2007 and 2006

Capital surplus 10,272 10,305 87,055Retained earnings 26,202 23,483 222,046Unrealized gain on available-for-sale securities 2,978 3,103 25,238Foreign currency translation adjustments 471 204 3,993Treasury stock–at cost, 7,973,248 shares in 2007

and 2,900,345 shares in 2006 (7,141) (1,605) (60,517)

Total 38,877 41,585 329,467Minority interests 553 4,688

Total Equity 39,430 41,585 334,155

Total ¥80,144 ¥70,530 $679,191

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2007 2006 2007

Net sales (Note 16) ¥65,400 ¥58,916 $554,236Cost of sales (Notes 10, 13, 14 and 16) 45,046 40,033 381,745

Gross profit 20,354 18,883 172,491

Selling, general and administrative expenses (Notes 10, 13 and 14) 14,617 13,253 123,874

Operating income 5,737 5,630 48,617

Other income (expenses):Interest and dividend income 122 97 1,038Interest expense (257) (188) (2,179)Gain on sale of investment securities 61 4 517Gain on sale of property, plant and equipment 2 156 18Loss on sale and disposal of property, plant and equipment (141) (168) (1,193)Loss on impairment of long -lived assets (164)

Equity in earnings of affiliated companies 352 252 2,981Foreign exchange gain (loss), net 118 362 996Loss on legal settlement (27)

Retirement benefits to directors and corporate auditors (2)

Provision for retirement benefits for directors and corporate auditors (189)

Other, net (Note 16) 254 54 2,159

Other income (expenses) – net 511 187 4,337

Income before income taxes and minority interests 6,248 5,817 52,954

Income taxes (Note 12) :Current 2,102 2,156 17,816Deferred 109 (84) 923

Total income taxes 2,211 2,072 18,739

Minority interests in net income 22 36 188

Net income ¥ 4,015 ¥ 3,709 $ 34,027

Per share of common stock (Notes 2.(16) and 18) :U.S. Dollars

Yen (Note 1)

2007 2006 2007

Basic net income ¥60.44 ¥52.48 $0.51Diluted net income – 51.98 –Cash dividends applicable to the year 12.00 12.00 0.10


NIKKISO CO., LTD. and Consolidated SubsidiariesFor the years ended March 31, 2007 and 2006

CONSOLIDATED STATEMENTS OF INCOME

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Millions of Yen

Outstanding Unrealized Foreignnumber of gain on currencyshares of Common Capital Retained available-for- translation Treasury Minority Total

common stock stock surplus earnings sale securities adjustments stock Total interests Equity

Balances, April 1, 2005 69,474,097 ¥6,095 ¥10,251 ¥20,413 ¥1,427 ¥(204) ¥(1,725) ¥36,257 ¥36,257

Net income 3,709 3,709 3,709

Cash dividends, ¥12.00 per share (590) (590) (590)

Bonuses to directors (49) (49) (49)

Net increase in unrealized gain on

available-for-sale securities 1,676 1,676 1,676

Net increase in foreign currency

translation adjustments 408 408 408

Repurchase of treasury stock (39,821) (32) (32) (32)

Disposal of treasury stock 276,843 54 152 206 206

Balances, March 31, 2006 69,711,119 6,095 10,305 23,483 3,103 204 (1,605) 41,585 41,585

Reclassified balance as of

March 31, 2006 (Note 2.(10)) 608 608Net income 4,015 4,015 4,015Cash dividends, ¥12.00 per share (1,236) (1,236) (1,236)Bonuses to directors (60) (60) (60)Net decrease in unrealized gain on

available-for-sale securities (125) (125) (125)Net increase in foreign currency

translation adjustments 267 267 267Repurchase of treasury stock (5,425,542) (5,832) (5,832) (5,832)Disposal of treasury stock 352,639 (33) 296 263 263Net change in the year (55) (55)

Balances, March 31, 2007 64,638,216 ¥6,095 ¥10,272 ¥26,202 ¥2,978 ¥471 ¥(7,141) ¥38,877 ¥553 ¥39,430

Thousands of U.S. Dollars (Note1)

Unrealized Foreigngain on currency

Common Capital Retained available-for- translation Treasury Minority Totalstock surplus earnings sale securities adjustments stock Total interests Equity

Balance, March 31, 2006 $51,652 $87,328 $199,008 $26,296 $1,729 $(13,600) $352,413 $352,413

Reclassified balance as of

March 31, 2006 (Note 2.(10)) 5,156 5,156Net income 34,027 34,027 34,027Cash dividends, $0.10 per share (10,479) (10,479) (10,479)Bonuses to directors (510) (510) (510)Net decrease in unrealized gain on

available-for-sale securities (1,058) (1,058) (1,058)Net increase in foreign currency

translation adjustments 2,264 2,264 2,264Repurchase of treasury stock (49,423) (49,423) (49,423)Disposal of treasury stock (273) 2,506 2,233 2,233Net change in the year (468) (468)

Balances, March 31, 2007 $51,652 $87,055 $222,046 $25,238 $3,993 $(60,517) $329,467 $4,688 $334,155



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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2007 2006 2007

Cash flows from operating activities:Income before income taxes and minority interests ¥6,248 ¥5,817 $52,954Adjustments for:

Income taxes paid (2,535) (1,545) (21,481)Depreciation expense 1,920 1,731 16,270Loss on impairment of long-lived assets 164Gain on sale of investment securities (61) (4) (517)Gain on sale of property, plant and equipment (2) (156) (18)Loss on sale and disposal of property, plant and equipment 141 168 1,193Equity in earnings of affiliated companies (352) (252) (2,981)Provision (Reversal) for doubtful accounts 72 (821) 611Decrease in liability for employees’ retirement benefits (246) (222) (2,085)Foreign exchange gain, net (39) (139) (330)Changes in assets and liabilities:

Increase in notes and accounts receivable (3,944) (1,086) (33,423)Increase in inventories (1,012) (595) (8,576)Decrease in interest and dividend receivable 257 191 2,173(Decrease) Increase in trade notes and accounts payable (191) 1,007 (1,622)Other 682 645 5,778

Net cash provided by operating activities 938 4,903 7,946Cash flows from investing activities:

Decrease in short-term investments, net 864 480 7,325Payments for purchases of property, plant and equipment (2,990) (1,430) (25,339)Proceeds from sales of property, plant and equipment 20 246 173Payments for purchases of investment securities (5,262) (29) (44,592)Proceeds from redemptions of investment securities 705 230 5,973Collection of loans receivable 261 136 2,208Payments for loans receivable (483) (296) (4,096)Payments for acquisition of goodwill (562)Payment for acquisition of shares of newly consolidated subsidiary (767) (6,500)Proceeds from transfer of business 57 485Net cash used in investing activities (7,595) (1,225) (64,363)

Cash flows from financing activities:Increase in short-term borrowings 4,022 41 34,086Proceeds from long-term debt 8,500 72,033Repayment of long-term debt (994) (2,285) (8,424)Repurchase of treasury stock (5,832) (32) (49,423)Disposal of treasury stock 263 206 2,233Cash dividends paid (1,241) (602) (10,521)Net cash provided by (used in) financing activities 4,718 (2,672) 39,984

Foreign currency translation adjustments 140 144 1,189Net (decrease) increase in cash and cash equivalents (1,799) 1,150 (15,244)Cash and cash equivalents at beginning of year 8,077 6,927 68,450Cash and cash equivalents at end of year ¥6,278 ¥8,077 $53,206

Additional informationNewly consolidated subsidiary for the year ended March 31, 2007 (Note 4)MeSys GmbH Medizinische Systeme

Current assets ¥ 543 $ 4,603Fixed assets 20 167Goodwill 621 5,259Current liabilities (244) (2,072)Fixed liabilities (157) (1,326)Acquisition of MeSys 783 6,631Cash and cash equivalents (16) (131)Payment for acquisition of shares of newly consolidated subsidiary ¥ 767 $ 6,500

Transfer of business for the year ended March 31, 2007:Current assets ¥ 70 $ 592Total of Assets ¥ 70 $ 592Price of the sales of business ¥ 57 $ 485Cash and cash equivalents – –Proceeds from transfer of business ¥ 57 $ 485

Acquisition of business for the year ended March 31, 2006:Current assets ¥ 130Property, plant and equipment, net 17Goodwill 562

Total ¥ 709See notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF CASH FLOWS

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1. BASIS OF PRESENTING CONSOLIDATED FINANCIALSTATEMENTS

The accompanying consolidated financial statements have beenprepared in accordance with the provisions set forth in the JapaneseSecurities and Exchange Law and its related accounting regulations, andin conformity with accounting principles generally accepted in Japan,which are different in certain respects as to application and disclosurerequirements of International Financial Reporting Standards.

On December 27, 2005, the Accounting Standard Board of Japan (the “ASBJ”) published a new accounting standard for the statement ofchanges in equity, which is effective for fiscal years ended on or afterMay 1, 2006.

The statement of shareholders’ equity, which was previously volun-tarily prepared in line with the international accounting practices, is nowrequired under generally accepted accounting principles in Japan andhas been renamed “the statement of changes in equity” in the currentfiscal year.

In preparing these consolidated financial statements, certain reclas-sifications and rearrangements have been made to the consolidatedfinancial statements issued domestically in order to present them ina form which is more familiar to readers outside Japan. In addition,certain reclassifications have been made in the 2006 financial statementsto conform to the classifications used in 2007.

The consolidated financial statements are stated in Japanese yen, thecurrency of the country in which Nikkiso Co., Ltd. (the “Company”) isincorporated and operates. The translations of Japanese yen amountsinto U.S. dollar amounts are included solely for the convenience ofreaders outside Japan and have been made at the rate of ¥118 to $1,the approximate rate of exchange at March 31, 2007. Such translationsshould not be construed as representations that the Japanese yenamounts could be converted into U.S. dollars at that or any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) ConsolidationThe consolidated financial statements as of March 31, 2007 include theaccounts of the Company and its 19 significant (17 in 2006) subsidiaries(together, the “Group”).

Under the control or influence concept, those companies in which theCompany, directly or indirectly, is able to exercise control overoperations are fully consolidated, and those companies over which theGroup has the ability to exercise significant influence are accounted forby the equity method.

Investments in seven (five in 2006) affiliated companies are accountedfor by the equity method. Investments in the remaining unconsolidatedsubsidiaries and affiliated companies are stated at cost. If the equitymethod of accounting had been applied to the investments in thesecompanies, the effect on the accompanying consolidated financialstatements would not be material.

All significant intercompany balances and transactions have beeneliminated in consolidation. All material unrealized profit included inassets resulting from transactions within the Group is eliminated.(2) Cash equivalentsCash equivalents are short-term investments that are readily convertibleinto cash and that are exposed to insignificant risk of changes in value.

Cash equivalents include time deposits, certificate of deposits,commercial paper and bond funds, all of which mature or become duewithin three months of the date of acquisition.(3) InventoriesInventories are stated at cost, determined by the moving-averagemethod with the exception of certain work in process by the specificidentification method.(4) Marketable and Investment SecuritiesMarketable and investment securities are classified and accounted for,depending on management's intent, as follows:i) held-to-maturity debt securities, which are expected to be held tomaturity with the positive intent and ability to held to maturity arereported at amortized cost and ii) marketable available-for-salesecurities, which are not classified as the aforementioned securities, arereported at fair value, with unrealized gains and losses, net of applicabletaxes, reported in a separate component of equity.

Non-marketable available-for-sale securities are stated at costdetermined by the moving-average method.

For other than temporary declines in fair value, investment securitiesare reduced to net realizable value by a charge to income.(5) Property, Plant and EquipmentProperty, plant and equipment are stated at cost. Depreciation ofproperty, plant and equipment of the Company and its consolidated

domestic subsidiaries is computed substantially by the declining-balance method at rates based on the estimated useful lives of theassets. The straight-line method is applied to certain buildings of theCompany and its consolidated domestic subsidiaries, and all property,plant and equipment of consolidated foreign subsidiaries. The range ofuseful lives is principally from 3 to 50 years for buildings and structures,from 4 to 12 years for machinery and equipment and 2 to 20 years forfurniture and fixtures.

Under certain conditions such as exchanges of fixed assets of similarkinds and cash subsidies granted from governmental or municipalauthorities, Japanese tax laws permit an entity to defer the recognitionof profit arising from such transactions by reducing the cost of the assetsacquired or by providing a special reserve in the equity section. Thereduction of the cost of the assets as of March 31, 2007 and 2006 is ¥916million ($7,763 thousand), respectively, and the special reserve in theequity section as a part of retained earnings as of March 31, 2007 and2006 is ¥377 million ($3,195 thousand) , respectively. (6) Goodwill Goodwill, which was recognized by the Company and its consolidatedsubsidiaries other than subsidiaries located in the United States, is bothsubject to amortization over a period not to exceed 20 years and testfor impairment. Goodwill, which was recognized by subsidiaries locatedin the United States of America, is not subject to amortization but testfor impairment.(7) Retirement and Pension PlansThe Company and certain domestic consolidated subsidiaries have non-contributory defined benefit pension plans. The Group accounts for theliability for employees’ retirement benefits based on the projectedbenefit obligations and plan assets at the balance sheet date. Certainconsolidated subsidiaries have unfunded retirement benefit plans. (8) Presentation of EquityOn December 9, 2005, the ASBJ published a new accounting standardfor presentation of equity. Under this accounting standard, certainitems which were previously presented as liabilities are now presentedas components of equity. Such items include stock subscription rights,minority interests, and any deferred gain or loss on derivativesaccounted for under hedge accounting. This standard is effectivefor fiscal years ended on or after May 1, 2006. The consolidatedbalance sheet as of March 31, 2007 is presented in line with this newaccounting standard.(9) Research and Development CostsResearch and development costs are charged to income as incurred.(10) LeasesAll leases are accounted for as operating leases. Under Japaneseaccounting standards for leases, finance leases that deem to transfer

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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T 2007 ownership of the leased property to the lessee are to be capitalized,

while other finance leases are permitted to be accounted for asoperating lease transactions if certain “as if capitalized” information isdisclosed in the notes to the lessee's financial statements.(11) Income taxesThe provision for income taxes is computed based on the pretaxincome included in the consolidated statements of income. The assetand liability approach is used to recognize deferred tax assets andliabilities for the expected future tax consequences of temporarydifferences between the carrying amounts and the tax bases of assetsand liabilities. Deferred taxes are measured by applying currentlyenacted tax laws to temporary differences.(12) Appropriations of Retained EarningsAppropriations of retained earnings are reflected in the financialstatements for the following year upon shareholders’ approval.(13) Foreign Currency TransactionsAll short-term and long-term monetary receivables and payablesdenominated in foreign currencies are translated into Japanese yen atthe exchange rates at the balance sheet date. The foreign exchangegains and losses from translation are recognized in the incomestatement.(14) Foreign Currency Financial StatementsThe balance sheet accounts of the consolidated foreign subsidiariesare translated into Japanese yen at the current exchange rate as ofthe balance sheet date except for equity, which is translated at thehistorical rate.

Differences arising from such translation are shown as “Foreigncurrency translation adjustments” in a separate component of equity.

Revenue and expense accounts of consolidated foreign subsidiariesare translated into yen at the average exchange rate.(15) Derivatives and Hedging ActivitiesThe Group uses derivative financial instruments to manage its exposuresto fluctuations in foreign exchange and interest rates. Foreign exchangeforward contracts and interest rate swaps are utilized by the Group toreduce foreign currency exchange and interest rate risks. The Groupdoes not enter into derivatives for trading or speculative purposes.

Derivative financial instruments are classified and accounted for asfollows: a) all derivatives are recognized as either assets or liabilities andmeasured at fair value, and gains or losses on derivative transactions arerecognized in the income statement and b) for derivatives used forhedging purposes, if derivatives qualify for hedge accounting becauseof high correlation and effectiveness between the hedging instrumentsand the hedged items, gains or losses on derivatives are deferred untilmaturity of the hedged transactions.

The foreign currency forward contracts employed to hedge foreignexchange exposures are measured at the fair value and the unrealizedgains / losses are recognized in income.

The interest rate swaps which qualify for hedge accounting and meetspecific matching criteria are not re-measured at market value, but thedifferential paid or received under the swap agreements are recognizedand included in interest expenses or income.(16) Per Share InformationBasic net income per share is computed by dividing net incomeavailable to common shareholders by the weighted-average number ofcommon stocks outstanding for the period, retroactively adjusted forstock splits.

Diluted net income per share reflects the potential dilution that couldoccur if securities were exercised or converted into common stock.Diluted net income per share of common stock assumes full conversionof the outstanding convertible notes and bonds at the beginning of theyear (or at the time of issuance) with an applicable adjustment for relatedinterest expense, net of tax, and full exercise of outstanding warrants.

Diluted net income per share of common stock for the years endedMarch 31, 2007 is not disclosed because no potentially dilutive shareshave been issued.

Cash dividends per share presented in the accompanying consoli-dated statements of income are dividends applicable to the respectiveyears including dividends to be paid after the end of the year.

(17) New Accounting PronouncementsMeasurement of Inventories–Under generally accepted accountingprinciples in Japan (“Japanese GAAP”), inventories are currentlymeasured either by the cost method, or at the lower of cost or market.On July 5, 2006, the ASBJ issued ASBJ Statement No.9, “AccountingStandard for Measurement of Inventories”, which is effective for fiscalyears beginning on or after April 1, 2008 with early adoption permitted.This standard requires that inventories held for sale in the ordinarycourse of business be measured at the lower of cost or net selling value,which is defined as the selling price less additional estimated manufac-turing costs and estimated direct selling expenses. The replacementcost may be used in place of the net selling value, if appropriate. Thestandard also requires that inventories held for trading purposes bemeasured at the market price.Lease Accounting–On March 30, 2007, the ASBJ issued ASBJStatement No.13, “Accounting Standard for Lease Transactions”, whichrevised the existing accounting standard for lease transactions issued onJune 17, 1993.

Under the existing accounting standard, finance leases that deemto transfer ownership of the leased property to the lessee are to becapitalized, however, other finance leases are permitted to beaccounted for as operating lease transactions if certain “as ifcapitalized” information is disclosed in the note to the lessee’sfinancial statements.

The revised accounting standard requires that all finance leasetransactions should be capitalized. The revised accounting standard forlease transactions is effective for fiscal years beginning on or after April1, 2008 with early adoption permitted for fiscal years beginning on orafter April 1, 2007.Unification of Accounting Policies Applied to Foreign Subsidiaries forthe Consolidated Financial Statements–Under Japanese GAAP, acompany currently can use the financial statements of foreign sub-sidiaries which are prepared in accordance with generally acceptedaccounting principles in their respective jurisdictions for its consoli-dation process unless they are clearly unreasonable. On May 17, 2006,the ASBJ issued ASBJ Practical Issues Task Force (PITF) No.18,“Practical Solution on Unification of Accounting Policies Applied toForeign Subsidiaries for the Consolidated Financial Statements”. Thenew task force prescribes: 1) the accounting policies and proceduresapplied to a parent company and its subsidiaries for similar transactionsand events under similar circumstances should in principle be unified forthe preparation of the consolidated financial statements, 2) financialstatements prepared by foreign subsidiaries in accordance with eitherInternational Financial Reporting Standards or the generally acceptedaccounting principles in the United States tentatively may be used forthe consolidation process, 3) however, the following items should beadjusted in the consolidation process so that net income is accountedfor in accordance with Japanese GAAP unless they are not material;

(1) Amortization of goodwill (2) Actuarial gains and losses of defined benefit plans recognized

outside profit or loss(3) Capitalization of intangible assets arising from development

phases(4) Fair value measurement of investment properties, and the

revaluation model for property, plant and equipment, andintangible assets

(5) Retrospective application when accounting policies arechanged

(6) Accounting for net income attributable to a minority interestThe new task force is effective for fiscal years beginning on or after

April 1, 2008 with early adoption permitted.

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5. SHORT-TERM INVESTMENTSShort-term investments as of March 31, 2007 and 2006 consisted of the following:


2007 2006 2007

Time deposits ¥135 ¥ 97 $1,142Commercial paper 1,000

Total ¥135 ¥1,097 $1,142

4. BUSINESS COMBINATIONEffective December 1, 2006, the Company’s consolidated subsidiarylocated in Germany, NIKKISO MEDICAL GmbH acquired 100 % of theshare of MeSys GmbH Medizinische Systeme, (the “Mesys”), a manu-facturing and trading company of hemodialysis, acute blood purificationand plasma therapies in Germany for a purchase price of ¥783 million($6,631 thousand).

The company used the purchase method of accounting for theacquisition of MeSys and accordingly, the purchase price has beenallocated to the current and fixed assets of the Company based on theestimated fair value of such assets. The amount of consideration paid inexcess of the estimated fair value of the assets acquired of ¥621 million($5,259 thousand) has been recorded as goodwill and amortized over5 years.

If the business acquisition had been completed as of April 1, 2006, the beginning of the current fiscal year, the unaudited condensed pro formainformation of the operations of the Mesys for the year ended March 31, 2007 would be as follows:

Millions of Yen Thousands of U.S. Dollars

Sales ¥1,180 $10,004Operating loss (70) (591)Loss before income taxes and minority interests (79) (673)Net loss (98) (830)

3. ACCOUNTING CHANGES(1) Bonuses to directors and corporate auditorsPrior to the fiscal year ended March 31, 2005, bonuses to directors andcorporate auditors were accounted for as a reduction of retainedearnings in the fiscal year following approval at the general shareholdersmeeting. The ASBJ issued PITF No.13, “Accounting Treatment forBonuses to Directors and Corporate Auditors”, which encouragedcompanies to record bonuses to directors and corporate auditors on theaccrual basis with a related charge to income, but still permitted thedirect reduction of such bonuses from retained earnings after approvalof the appropriation of retained earnings.

The ASBJ replaced the above accounting pronouncement by issuinga new accounting standard for bonuses to directors and corporateauditors on November 29, 2005. Under the new accounting standard,bonuses to directors and corporate auditors must be expensed and areno longer allowed to be directly charged to retained earnings. Thisaccounting standard is effective for fiscal years ended on or after May 1,2006. The companies must accrue bonuses to directors and corporateauditors at the year end to which such bonuses are attributable.

The Company adopted the new accounting standard for bonuses todirectors and corporate auditors from the year ended March 31, 2007.The effect of adoption of this accounting standard was to decreaseincome before income taxes and minority interests for the year endedMarch 31, 2007 by ¥67 million ($ 568 thousand).(2) Business CombinationIn October 2003, the Business Accounting Council (BAC) issued aStatement of Opinion, “Accounting for Business Combinations”, andon December 27, 2005 the ASBJ issued ASBJ Statement No.7,“Accounting Standard for Business Separations” and ASBJ GuidanceNo.10, “Guidance for Accounting Standard for Business Combinationsand Business Separations”. These new accounting pronouncementswere effective for fiscal years beginning on or after April 1, 2006.

The accounting standard for business combinations allows companiesto apply the pooling of interests method of accounting only whencertain specific criteria are met such that the business combination isessentially regarded as a uniting-of-interests.

For business combinations that do not meet the uniting-of-interestscriteria, the business combination is considered to be an acquisition and

the purchase method of accounting is required. This standard alsoprescribes the accounting for combinations of entities under commoncontrol and for joint ventures.(3) Long-lived assetsIn August 2002, the BAC issued a Statement of Opinion, Accounting forImpairment of Fixed Assets, and in October 2003 the ASBJ issued ASBJGuidance No.6, Guidance for Accounting Standard for Impairment ofFixed Assets. These new pronouncements are effective for fiscal yearsbeginning on or after April 1, 2005 with early adoption permitted forfiscal years ended on or after March 31, 2004.

The Group adopted the new accounting standard for the impairmentof fixed assets as of April 1, 2005. The Group reviews its long-livedassets for impairment whenever events or changes in circumstanceindicate the carrying amount of an asset or asset group may not berecoverable. An impairment loss would be recognized if the carryingamount of an asset or asset group exceeds the sum of the undiscountedfuture cash flows expected to result from the continued use and even-tual disposition of the asset or asset group. The impairment loss wouldbe measured as the amount by which the carrying amount of the assetexceeds its recoverable amount, being either the discounted cash flowsfrom the continued use and eventual disposition of the asset or the netselling price at disposition whichever is higher.

Adoption of the new accounting standard for impairment of fixedassets decreased income before income taxes and minority interests forthe year ended March 31, 2006 by ¥164 million.(4) Allowance for retirement benefits for directors and corporate

auditorsPrior to April 1, 2005, no provisions were recorded for retirementbenefits to be paid to the Company's directors and corporate auditors.Effective April 1, 2005, the Company changed its method of accountingfor such retirement benefits to the accrual basis in order to implementefficient management of the Company. In addition to the accountingchange at the board of directors meeting on March 6, 2006, theCompany resolved to abolish such retirement benefit system fordirectors and corporate auditors as of the date of the generalshareholders meeting held on June 23, 2006.

The effect of this change was to decrease income before income taxesand minority interests for the year ended March 31, 2006 by ¥228 million.

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6. MARKETABLE AND INVESTMENT SECURITIESMarketable and investment securities as of March 31, 2007 and 2006 consisted of the following:


2007 2006 2007

Current:Government and corporate bonds ¥ 295

Non-current:Equity securities ¥12,100 ¥8,154 $102,545Government and corporate bonds 286Trust fund investments and other 55 89 467

Total ¥12,155 ¥8,529 $103,012

The carrying amounts and aggregate fair values of marketable and investment securities at March 31, 2007 and 2006 were as follows:

Millions of YenMarch 31, 2007

Cost Unrealized Gains Unrealized Losses Fair Value

Securities classified as: Available-for-sale:

Equity securities ¥6,565 ¥5,097 ¥86 ¥11,575

Millions of YenMarch 31, 2006



Equity securities ¥2,379 ¥5,250 ¥ 0 ¥7,629Debt securities 602 21 581

Thousands of U.S. DollarsMarch 31, 2007



Equity securities $55,634 $43,195 $736 $98,092

Available-for-sale securities whose fair value is not readily determinable as of March 31, 2007 and 2006 were as follows:

Carrying amount


2007 2006 2007

Available-for-sale: Equity securities ¥525 ¥525 $4,453Other 55 89 467

Total ¥580 ¥614 $4,920

7. INVENTORIESInventories as of March 31, 2007 and 2006 consisted of the following:


2007 2006 2007

Merchandise ¥ 1,941 ¥ 1,870 $16,446Finished products 2,356 2,133 19,970Work in process 2,164 1,600 18,336Raw materials and supplies 4,981 4,455 42,210

¥11,442 ¥10,058 $96,962

8. LONG-LIVED ASSETSThe Group reviewed its long-lived assets for impairment as of the year ended March 31, 2006 and, as a result, recognized an impairment loss of ¥164million as other expense for certain idle land in Wakayama, Shizuoka and Yamanashi prefectures due to plummet in the net selling price and thecarrying amount was written down to the recoverable amount. The recoverable amount of those lands was measured by the quotation from a third-party appraiser.

No impairment loss was recognized in 2007.

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9. SHORT-TERM BANK LOANS AND LONG-TERM DEBTShort-term bank loans at March 31, 2007 and 2006 consisted of notes to banks and bank overdrafts, with weighted average interest rates of 2.08% and2.63%, respectively.

Long-term debt at March 31, 2007 and 2006 consisted of the following:Thousands of

Millions of Yen U.S. Dollars

2007 2006 2007

Unsecured loans from banks and other financial institutions due serially to 2014 with interest rates of Tokyo Interbank Offered Rate plus a certain spread ranging from 1.1% to 7.0% (2006 and 2007) ¥15,183 ¥7,659 $128,665

Less current portion 6,910 988 58,559

Long-term debt, less current portion ¥ 8,273 ¥6,671 $ 70,106

Annual maturities of long-term debt at March 31, 2007 were as follows:

Year ending March 31 Millions of Yen Thousands of U.S. Dollars

2008 ¥ 6,910 $ 58,5592009 630 5,3402010 593 5,0212011 580 4,9152012 580 4,9152013 and 2014 5,890 49,915

Total ¥15,183 $128,665

The carrying amounts of assets pledged as collateral for short-term bank loans of ¥740 million ($6,271 thousand) as of March 31, 2007 were as follows:


Land ¥ 41 $ 346Buildings and structures 2,724 23,085Machinery and equipment 445 3,776

Total, net of accumulated depreciation ¥3,210 $27,207

10. EMPLOYEES’ RETIREMENT AND PENSION PLANSThe Company and certain of its consolidated subsidiaries have severance payment plans for employees.

Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at thetime of termination, years of service and certain other factors. These retirement benefits are comprised of a lump-sum severance payment from theCompany or consolidated subsidiaries together with annuity payments from trustees. Employees are entitled to larger payments if the termination isinvoluntary such as where it results from retirement at the mandatory retirement age or death, than employees who take voluntary retirement at certainspecific ages prior to the mandatory retirement age.

The liability for employees’ retirement benefits at March 31, 2007 and 2006 consisted of the followings:Thousands of


2007 2006 2007

Projected benefit obligation ¥ 14,747 ¥ 14,010 $ 124,976Fair value of plan assets (13,308) (12,092) (112,783)Unrecognized prior service cost 1,349 1,627 11,431Unrecognized actuarial loss (2,844) (3,124) (24,100)Prepaid pension expense 241 2,042

Liability ¥ 185 ¥ 421 $ 1,566

Prepaid pension expense recorded as of March 31, 2007 is included in the other assets on the balance sheet.

The components of net periodic retirement benefit costs for the years ended March 2007 and 2006 were as follows:Thousands of


2007 2006 2007

Service cost ¥ 497 ¥ 439 $ 4,209Interest cost 330 342 2,798Expected return on plan assets (240) (203) (2,030)Recognized actuarial loss 508 534 4,300Amortization of prior service cost (278) (278) (2,356)

Net periodic retirement benefit costs ¥ 817 ¥ 834 $ 6,921

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T 2007 Assumptions used for the years ended March 31, 2007 and 2006 were set forth as follows

2007 2006

Discount rate 2.4% 2.4%Expected rate of return on plan assets 2.0% 2.0%Amortization period of prior service cost 10 years 10 yearsRecognition period of actuarial gain / loss 10 years 10 years

11. EQUITY

12. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normaleffective statutory tax rate of approximately 40.7% for the years ended March 31, 2007 and 2006, respectively.

The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2007and 2006 were as follows:


2007 2006 2007

Deferred tax assets:Inventories ¥ 238 ¥ 208 $ 2,015Accrued bonuses to employees 671 608 5,683Accrued business taxes 92 132 783Tax loss carryforwards 151 483 1,283Investment securities 194 194 1,648Liability for employees’ retirement benefits 22 136 187Others 297 251 2,515Less valuation allowance (151) (483) (1,283)

Total ¥1,514 ¥1,529 $12,831

Deferred tax liabilities:Unrealized gain on available-for-sale securities 2,039 2,130 17,280Reserve for deferred income on fixed assets 259 259 2,192Prepaid pension expense 98 832Others 1

Total ¥2,396 ¥2,390 $20,304

Net deferred tax liabilities ¥ (882) ¥ (861) $ (7,473)

On and after May 1, 2006, Japanese companies are subject to a newcorporate law of Japan (the “Corporate Law”) , which reformed andreplaced the Commercial Code of Japan (the “Code”) with variousrevisions that are, for the most part, applicable to events or transactionswhich occur on or after May 1, 2006 and for the fiscal years ending on orafter May 1, 2006. The significant changes in the Corporate Law thataffect financial and accounting matters are summarized below:

(a) DividendsUnder the Corporate Law, companies can pay dividends at any timeduring the fiscal year in addition to the year-end dividend uponresolution at the shareholders meeting. If companies that meet certaincriteria such as; (1) having the Board of Directors, (2) having indepen-dent auditors, (3) having the Board of Corporate Auditors, and (4) theterm of service of the directors is prescribed as one year rather than twoyears of normal term by its articles of incorporation, the Board ofDirectors may declare dividends (except for dividends in kind) at anytime during the fiscal year if the company has prescribed so in its articlesof incorporation. However, the Company cannot do so because it doesnot meet all the above criteria.

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 uponresolution by the Board of Directors if the articles of incorporation of thecompany so stipulate. The Corporate Law provides certain limitations onthe amounts available for dividends or the purchase of treasury stock.The limitation is defined as the amount available for distribution to the

shareholders, but the amount of net assets after dividends must bemaintained at no less than ¥3 million.(b) Increases / decreases and transfer of common stock, reserve and

surplusThe Corporate Law requires that an amount equal to 10% of dividendsmust be appropriated as a legal reserve (a component of retainedearnings) or as additional paid-in capital (a component of capital surplus)depending on the equity account charged upon the payment of suchdividends until the total of aggregate amount of legal reserve andadditional paid-in capital equals 25% of the common stock. Under theCorporate Law, the total amount of additional paid-in capital and legalreserve may be reversed without limitation. The Corporate Law alsoprovides 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 rightsThe Corporate Law also provides for companies to purchase treasurystock and dispose of such treasury stock by resolution of the Board ofDirectors. The amount of treasury stock purchased cannot exceedthe amount available for distribution to the shareholders which isdetermined by specific formula.

Under the Corporate Law, stock subscription rights, which werepreviously presented as a liability, are now presented as a separatecomponent of equity.

The Corporate Law also provides that companies can purchase bothtreasury stock subscription rights and treasury stock. Such treasury stocksubscription rights are presented as a separate component of equity ordeducted directly from stock subscription rights.

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A reconciliation between the effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statements ofincome for the years ended March 31, 2007 and 2006 was as follows:

2007 2006

Effective statutory tax rate 40.7% 40.7%Expenses not deductible for income tax purposes 1.3 1.4Inhabitants’ tax-per capita levy 0.9 0.9Dividend income, non-taxable (0.1) 0.4Equity in earnings of affiliated companies (2.3) (2.1)Variance of tax rate for consolidated subsidiaries (0.7) (1.6)Decrease in valuation allowance (1.3) (0.2)Tax credit for research and development costs of domestic companies (2.1) (2.4)Others, net (1.0) (1.5)

Actual effective tax rate 35.4% 35.6%

As of March 31, 2007, certain subsidiaries had tax loss carryforwards aggregating to approximately ¥1,170 million ($9,916 thousand) which areavailable to be offset against taxable income of such subsidiaries in future years. These tax loss carryforwards of ¥511 million ($4,329 thousand), if notutilized, will expire as follows:

Year ending March 31 Millions of Yen Thousands of U.S. Dollars

2012 ¥ 9 $ 752013 9 772019 through 2027 493 4,177

Total ¥511 $4,329

Remaining tax loss carryforwards of ¥659 million ($5,587 thousand) do not have an expiration date.

13. RESEARCH AND DEVELOPMENT COSTSResearch and development costs charged to income were ¥901 million ($7,635 thousand) and ¥934 million for the years ended March 31, 2007 and 2006,respectively.

14. LEASESThe Group leases certain machinery, computer equipment, office space and other assets.

Total lease and rental expenses for the years ended March 31, 2007 and 2006 were ¥1,105 million ($9,367 thousand) and ¥1,038 million, respectively,including ¥106 million ($902 thousand) (2007) and ¥119 million (2006) of lease payments under finance leases.

Pro forma information of leased property such as acquisition costs, accumulated depreciation, obligations under finance leases, depreciationexpense, interest expense of finance leases that do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis for theyears ended March 31, 2007 and 2006 was as follows:

Millions of Yen

2007 2006Machinery and Furniture and Machinery and Furniture and

Equipment Fixtures Software Total Equipment Fixtures Software Total

Acquisition cost ¥33 ¥379 ¥150 ¥562 ¥43 ¥523 ¥137 ¥703Accumulated depreciation 18 171 39 228 27 332 82 441

Net leased property ¥15 ¥208 ¥111 ¥334 ¥16 ¥191 ¥ 55 ¥262

Thousands of U.S. Dollars

2007Machinery and Furniture and

Equipment Fixtures Software Total

Acquisition cost $276 $3,209 $1,275 $4,760Accumulated depreciation 153 1,448 332 1,933

Net leased property $123 $1,761 $ 943 $2,827

Obligations under finance leases :Thousands of


2007 2006 2007

Due within one year ¥ 99 ¥ 89 $ 837Due after one year 235 173 1,990

Total ¥334 ¥262 $2,827

The imputed interest expense is included in the above obligations under finance leases.

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2007 2006 2007

Depreciation expense ¥106 ¥119 $902

Depreciation expense, which is not reflected in the accompanying statements of income, is computed by the straight-line method.

15. DERIVATIVES

The derivatives contracts outstanding at March 31, 2007 and 2006 were as follows:Thousands of


2007 2006 2007Contract Fair Unrealized Contract Fair Unrealized Contract Fair UnrealizedAmount Value Gain / (Loss) Amount Value Gain / (Loss) Amount Value Gain / (Loss)

Buying US$ Foreign Currency forward contracts: ¥ 206 ¥ 211 ¥ 5 – – – $ 1,746 $ 1,787 $ 41Selling EUR Foreign Currency forward contracts: ¥4,839 ¥5,136 ¥(297) ¥999 ¥1,019 ¥(20) $41,005 $43,523 $(2,518)

Total ¥5,045 ¥5,347 ¥(292) ¥999 ¥1,019 ¥(20) $42,751 $45,310 $(2,477)

Derivatives contracts which qualify for hedge accounting were excluded from the above table.The contract amounts of derivatives which are shown in the above table do not represent the amounts exchanged by the parties and do not measure

the Group’s exposure to credit or market risk.

16. RELATED PARTY TRANSACTIONSThe Group had the following transactions with unconsolidated subsidiaries and affiliated companies for the years ended March 31, 2007 and 2006:


2007 2006 2007

Sales ¥2,798 ¥3,110 $23,709Purchases 94 87 796Other income, net 43 49 365

The Company had a rental contract for the company housing provided by one director’s family and recorded ¥16 million ($136 thousand ) as therental expense for the year ended March 31, 2007 and 2006.

17. CONTINGENT LIABILITIESAt March 31, 2007, the Group had the following contingent liabilities:


Guarantees for bank loans of an affiliated company ¥573 $4,859

18. NET INCOME PER SHAREInformation to compute basic net income per share (“EPS”) for the years ended March 31, 2007 and 2006 was as follows:

Millions of Yen Thousands of shares Yen U.S. Dollars

Weighted averageNet income shares EPS

For the year ended March 31, 2007:

Basic EPSNet income available to common shareholders ¥4,015 66,429 ¥60.44 $0.51Effect of dilutive securities warrants –

Diluted EPSNet income for computation ¥4,015 66,429 – –

The Group enters into foreign currency forward contracts to hedgeforeign exchange risk associated with certain assets and liabilitiesdenominated in foreign currencies. The Group also enters into interestrate swap contracts to manage its interest rate exposures on certainassets and liabilities.

All derivative transactions were entered into to hedge interest andforeign currency exposures incorporated within the Company’sbusiness. Accordingly, the respective risk in these derivatives were

basically offset by opposite movements in the value of hedged assetsor liabilities.

Because the counterparties to these derivatives are limited to majorinternational financial institutions, the Group does not anticipate anylosses arising from credit risk.

Derivative transactions entered into by the Company have beenmade in accordance with internal policies which regulate theauthorization and credit limit amount.

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Millions of Yen Thousands of shares Yen

Weighted averageNet income shares EPS

For the year ended March 31, 2006:

Basic EPSNet income available to common shareholders ¥3,648 69,518 ¥52.48Effect of dilutive securities warrants 664

Diluted EPSNet income for computation ¥3,648 70,182 ¥51.98

19. SUBSEQUENT EVENTS

Appropriations of Retained Earnings

At the general shareholder’s meeting held on June 26, 2007, the shareholders approved the following:


Year-end cash dividends, ¥6.00 ($0.05) per share ¥387 $3,287

20. SEGMENT INFORMATIONThe Group operates in the following industry segments:

Industrial Division consists of production, sale and maintenance of industrial pumps, water conditioning equipment, carbon fiber reinforcedplastics and other various industrial equipment. Medical Division consists of production, sale and maintenance of artificial kidney machines, dialyzers, blood tubings and powder dialysate.

Information about industry segments, geographical segments and sales to foreign customers of the Group for the years ended March 31, 2007 and2006, was as follows:

(1) Industry Segmentsa. Sales and Operating Income

Millions of Yen

2007

Industrial Division Medical Division Eliminations/Corporate Consolidated

Sales to customers ¥31,332 ¥34,068 ¥ – ¥65,400Operating expenses 27,428 29,882 2,353 59,663

Operating income ¥ 3,904 ¥ 4,186 ¥(2,353) ¥ 5,737

b. Total Assets, Depreciation and Capital ExpendituresMillions of Yen

2007


Total assets ¥31,765 ¥25,292 ¥23,087 ¥80,144Depreciation 758 1,024 138 1,920Capital expenditures 1,374 1,256 523 3,153

a. Sales and Operating IncomeThousands of U.S. Dollars

2007


Sales to customers $265,528 $288,708 $ – $554,236Operating expenses 232,440 253,236 19,943 505,619

Operating income $ 33,088 $ 35,472 $(19,943) $ 48,617

b. Total Assets, Depreciation and Capital ExpendituresThousands of U.S. Dollars

2007


Total assets $269,196 $214,343 $195,652 $679,191Depreciation 6,423 8,682 1,165 16,270Capital expenditures 11,645 10,641 4,435 26,721

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Millions of Yen

2006


Sales to customers ¥25,864 ¥33,052 ¥ – ¥58,916Operating expenses 23,138 27,997 2,151 53,286

Operating income ¥ 2,726 ¥ 5,055 ¥(2,151) ¥ 5,630

b. Total Assets, Depreciation and Capital ExpendituresMillions of Yen

2006


Total assets ¥26,047 ¥23,749 ¥20,734 ¥70,530Depreciation 549 1,043 139 1,731Loss on impairment of long-lived assets 137 – 27 164Capital expenditures 1,121 826 133 2,080

(2) Geographical SegmentsThe geographical segments of the Group for the years ended March 31, 2007 and 2006 were summarized as follows:

Millions of Yen

2007

Japan Asia North America Europe Eliminations/Corporate Consolidated

Sales to customers ¥56,523 ¥1,850 ¥1,610 ¥5,417 ¥ – ¥65,400Interarea transfer 4,320 3,415 958 6 (8,699) –

Total sales 60,843 5,265 2,568 5,423 (8,699) 65,400Operating expenses 53,057 5,220 2,323 5,243 (6,180) 59,663

Operating income ¥ 7,786 ¥ 45 ¥ 245 ¥ 180 ¥ (2,519) ¥ 5,737

Total assets ¥55,964 ¥4,230 ¥3,157 ¥5,188 ¥11,605 ¥80,144

Thousands of U.S. Dollars

2007


Sales to customers $479,006 $15,675 $13,647 $45,908 $ – $554,236Interarea transfer 36,610 28,941 8,116 54 (73,721) –


Operating income $ 65,983 $ 380 $ 2,072 $ 1,530 $(21,348) $ 48,617

Total assets $474,268 $35,849 $26,759 $43,969 $ 98,346 $679,191

Millions of Yen

2006


Sales to customers ¥52,056 ¥1,526 ¥1,092 ¥4,242 ¥ – ¥58,916Interarea transfer 3,797 3,076 708 44 (7,625) –


Operating income ¥ 7,572 ¥ 132 ¥ 167 ¥ 75 ¥ (2,316) ¥ 5,630

Total assets ¥48,635 ¥3,847 ¥2,817 ¥3,538 ¥11,693 ¥70,530

(3) Sales to Foreign CustomersSales to foreign customers for the years ended March 31, 2007 and 2006 amounted to ¥23,029 million ($195,164 thousand) and ¥18,259 million,respectively.

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OFFICES AND PLANTSDOMESTIC

Head Office3-43-2, Ebisu, Shibuya-ku, Tokyo 150-8677, JapanPhone: +81-3-3443-3711Fax: +81-3-3473-4963In-House CompaniesFluid Technologies UnitPhone: +81-3-3443-3726Fax: +81-3-3444-2438Industrial Solutions UnitPhone: +81-3-3443-3732Fax: +81-3-3473-5473Composite Technologies UnitPhone: +81-3-3443-3734Fax: +81-3-3443-9863Medical Equipment UnitPhone: +81-3-3443-3727Fax: +81-3-3440-0681PlantsHigashimurayama Plant2-16-2, Noguchi-cho, Higashimurayama, Tokyo 189-8520, JapanPhone: +81-42-392-3311Fax: +81-42-393-2201Shizuoka Plant498-1, Shizutani, Makinohara-shi, Shizuoka 421-0496, JapanPhone: +81-548-22-5801Fax: +81-548-22-5886Kanazawa Plant3-1, Hokuyohdai, Kanazawa, Ishikawa 920-0177, JapanPhone: +81-76-257-4181Fax: +81-76-257-4250

OVERSEAS

OfficesNikkiso Cryogenic Pump Representative Office(Nikkiso Cryo. Europe)Fountain Court 2, Victoria Square, Victoria Street, St Albans, Hertfordshire AL1 3TF, United KingdomPhone: +44-1727-884-949Fax: +44-1727-884-800Nikkiso Beijing Representative OfficeRoom 3201, Jing Guang Center, Hu Jia Lou, Chao Yang Qu, Beijing, 100020, The People’s Republic of ChinaPhone: +86-10-6597-3011Fax: +86-10-6597-3012Nikkiso Singapore Representative Office101 Cecil Street, Units #18-11 Tong Eng Building,Singapore 069533Phone: +65-6221-1235Fax: +65-6221-3244Nikkiso Pumps Middle East7th Floor-Al Yasat Tower-Baniyas Street, P.O.Box97, Abu Dhabi U.A.E.Phone: +971-4-265-9979Fax: +971-4-265-9980

SUBSIDIARIES & AFFILIATESDOMESTIC

Nikkiso Eiko Co., Ltd.Phone: +81-42-390-6540Fax: +81-42-390-6541Manufacture, sale and after-sales service of smalltype pumps, sand filters, etc.http://www.nikkiso-eiko.co.jpNikkiso–Ryuki Techno Co., Ltd.Phone: +81-42-396-9110Fax: +81-42-396-5767Technical service and parts sales for our ownindustrial products (pumps, compressors, and otherequipment).

Sundyne-Nikkiso CompanyPhone: +81-3-3444-6475Fax: +81-3-3444-6806Sales of SUNDYNE pumps and compressors andSUNFLO pumps and compressors in Asian andOceanic regions.http://www.nikkiso-sundstrand.comNikkiso Technica Co., Ltd.Phone: +81-42-394-7900Fax: +81-42-394-1181Technical service and installation of industrialproducts.Nikkiso -Therm Co., Ltd.Phone: +81-422-37-9811Fax: +81-422-37-9820Manufacture and sales of precision thermistors andthermistor-applied products.http://www.nktherm.comNikkiso M.E.S. Co., Ltd.Phone: +81-3-5791-2581Fax: +81-3-5791-2582Technical service for medical products. http://www.nikkiso-mes.co.jpNikkiso Tohoku Medical Co., Ltd.Phone: +81-22-262-0421Fax: +81-22-263-2640Sales and after-sales service of medical products inthe Tohoku area in Japan

OVERSEAS

Nikkiso America, Inc.600 kenrick Drive, Suite C-1, Houston, Texas 77060, U.S.A.Phone: +1-281-310-6747Fax: +1-281-310-6771Nikkiso Pumps America, Inc.600 Kenrick Drive, Suite C-1, Houston, Texas 77060, U.S.A.Phone: +1-281-310-6747Fax: +1-281-310-6771Manufacture, sale and after-sales service of pumps.http://www.nikkisoamerica.comNikkiso Cryo, Inc.4661 Eaker Street, North Las Vegas, NV, 89081-2746, U.S.A.Phone: +1-702-643-4900Fax: +1-702-643-0391Service of testing and analysis of the submergedcryogenic pumps and other cryogenic componentsand systems for liquefied gases.http://nikkisocryo.comMicrotrac, Inc.148 Keystone Drive, Montgomeryville, PA 18936, U.S.A.Phone: +1-215-619-9920Fax: +1-215-619-9932Manufacture and sale of Microtrac Particle SizeAnalyzer for the powder fluid industry.http://www.microtrac.comNikkiso Pumps Europe GmbHNikkisostrasse D-63674 Altenstadt, GermanyPhone: +49-6047-96490Fax: +49-6047-964999Manufacture, sale and after-sales service of Nikkisoindustrial products.http://www.nikkiso-pumps.comNikkiso Medical GmbHBrodermannsweg 1, 22453 Hamburg, GermanyPhone: +49-40-414629-0Fax: +49-40-414629-49Sale and after-sales service of medical products(dialysis equipments, disposable products, etc.) inthe European market.http://www.nikkiso-medical.de

MeSys GmbH Medizinische SystemeBeneckeallee 30, 30419 Hannover, GermanyPhone: +49-511-679999-0Fax: +49-511-679999-11Manufacture of medical products in the EuropeanmarketShanghai Nikkiso Non-Seal Pump Co., Ltd.No.1795, Huhang Road, Nanqiao town, Fenxian District, Shanghai 201400, The People’s Republic of ChinaPhone: +86-21-6710-3258Fax: +86-21-6710-3250Manufacture, sale and after-sales service of NikkisoNon-Seal pumps.http://www.shnikkisopump.comShanghai Nikkiso Medical Products Trading Co., Ltd.Room 1005, Union Building, No.100 Yanan Rd. (E.)HuangPu District, Shanghai, 200002, The People’sRepublic of ChinaPhone: +86-21-6321-7588Fax: +86-21-6321-7699Sale and after-sales service of dialysis equipment inthe Chinese domestic market.Nikkiso Pumps Korea Ltd.603, 6F Ilshin Building, 541 Dowha-Dong, Mapo, Gu, Seoul, KoreaPhone: +82-2-719-1446Fax: +82-2-719-1440Sale and after-sales service of Nikkiso Non-Sealpumps, Nikkiso Metering pumps and sale of otherNikkiso products.Nikkiso Asahikasei Medical Korea Co., Ltd.Sungbo B/D 4F, 833-2 Yeoksam-dong, kangnam-gu, Seoul, 135-933, KoreaPhone: +82-2-3452-3385Fax: +82-2-3452-3387Sale and after-sales service of hemodialysisProducts (dialysis equipments and dialyzers, etc.) inthe Korean domestic market.Taiwan Nikkiso Co., Ltd.75 Section 4, Nanking East Road, Shongshan District, Taipei City 105, TaiwanPhone: +886-2-2713-9906Fax: +886-2-2713-9936Engineering and design, manufacture, sale andafter-sales service of Boiler-water conditioningsystems for Asian area.(Medical Devices Division)6F.–6, No.179, Fusing North Road, Songshan District, Taipei City 105, TaiwanPhone: +886-2-2718-5759Fax: +886-2-2718-5739Consultant of sale and afterservice of dialysisequipment in Taiwan.http://www.nikkiso.com.twNikkiso Medical (Thailand) Co., Ltd.663 On-nuch Road (Sukhumvit 77) Suanluang, Bangkok 10250, ThailandPhone: +66-2-311-5736Fax: +66-2-716-2895Sale and after-sales service of medical products(dialysis equipments, disposable products, etc.) inThailand and neighbor countries.M. E. Nikkiso Co., Ltd.74 Suwintawong Road, Saladang, Bangnumpeo Chacheongsao, 24000, ThailandPhone: +66-38-593-207Fax: +66-38-593-208 Manufacture and sale of disposable products formedical equipment.Nikkiso Vietnam MFG Co., Ltd.Road 19, Tan Thuan Export Processing Zone, Tan Thuan Dong Ward, District 7, Ho Chi Minh City, Socialist Republic of VietnamPhone: +84-8-7701320Fax: +84-8-7701640Manufacturing of medical equipment (blood tubeetc.) for dialysis treatments.

GLOBAL NETWORK

As of June 26, 2007

NIKKISO CO., LTD. was founded in 1953 by Keijiro Oto. At that time, the company was known as Special Pump Co., Ltd., and

its main business operations were the import and sale, as the sole agent in Japan, of pumps manufactured by Milton Roy

Company of the U.S.A.

Two years later, under a technical assistance and licensing agreement with Milton Roy, we began to manufacture pumps in

Japan. Since then, we have diversified into various new fields such as projects & instrumentation, medical equipment, and

advanced materials. We seek to make advances into overseas markets and expand our operations through distributorships and

technical licensing agreements in many countries.

Foremost among the reasons for our continued growth has been our constant awareness of new needs and market trends.

This, along with our wide-ranging and imaginative research and development activities, provides our customers with products

and services second to none, and has been a driving force which has brought us to a unique position in the industrial world.

Today you can find our products in use worldwide, working to ensure a better tomorrow, in areas such as fluid equipment,

high purity water conditioning systems for thermal and nuclear power plants, medical equipment, carbon fiber products and

other apparatuses.

A key element in our corporate philosophy is ”human life” and ”environment”, and we are constantly taking up the challenge

of highly specialized products. Drawing on our extensive experience and independent research and development, we will

continue to play a leading role in meeting the ever-changing needs of industry and society.

CONTENTS

CONSOLIDATED FINANCIAL HIGHLIGHTS 1

TO OUR SHAREHOLDERS AND INVESTORS 2

RESULTS BY SEGMENT 4

RESULTS BY REGION 7

RESEARCH AND DEVELOPMENT 7

CONSOLIDATED BALANCE SHEETS 8

CONSOLIDATED STATEMENTS OF INCOME 10

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 11

CONSOLIDATED STATEMENTS OF CASH FLOWS 12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 23

GLOBAL NETWORK 24

BOARD OF DIRECTORS 25

EXECUTIVE OFFICERS 25

CORPORATE DATA 25

Forward-looking StatementsStatements in this annual report withrespect to NIKKISO's plans, strategies,and beliefs, as well as other statementsthat are not historical facts are forward-looking statements involving risks anduncertainties. The important factors thatcould cause actual results to differmaterially from such statements include,but are not limited to, general economicconditions in NIKKISO's markets, whichare primarily Japan, North America, Asiaand Europe; demand for, and competitivepricing pressure on, NIKKISO's productsand services in the marketplace;NIKKISO's ability to continue to winacceptance for its products and services inthese highly competitive markets; andmovements of currency exchange rates.

PROFILE

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As of March 31, 2007

President & Chief Executive OfficerToshihiko Kai

Managing DirectorAkihiro Nagao

DirectorsMichio KubotaHiroshi KinoshitaHiroshi Nakamura

Director & Senior AdvisorTakashi Oto

Standing AuditorsMitsuyoshi YamamotoShigeo Maruo

AuditorsKenjiro NakaneYutaro Kikuchi

Company Name NIKKISO CO., LTD.

Date of Establishment December 26, 1953

Paid-in Capital ¥6,094,984,191

Number of Employees 3,465 (Consolidated)

1,280 (Non-Consolidated)

Authorized Number of Shares 249,500,000

Issued Number of Shares 72,611,464

Number of Shareholders 9,532

Major ShareholdersNumber of Percent of Shares Held Total Shares

Name (Thousands) Outstanding

Mizuho Bank, Ltd. 3,436 5.32%Japan Trustee Service Bank, Ltd. (Trust Account) 2,900 4.49

Mizuho Corporate Bank, Ltd. 2,577 3.99

Mitsui Sumitomo Insurance Co., Ltd. 1,966 3.04

The Bank of Tokyo-Mitsubishi UFJ, Ltd. 1,822 2.82

Nikkiso Employee Shareholders Association 1,577 2.44

Nikkiso Shareholders Association 1,522 2.35

Nippon Life Insurance Company 1,500 2.32

Japan Trustee Service Bank, Ltd. 1,404 2.17(CMTB Equity Investments Co., Ltd. Trust account re-entrusted by Mitsui Asset Trust and Banking Company, Limited)

The Master Trust Bank of Japan, Ltd. (Trust Account) 1,313 2.03

Yoshikazu FusasakiHisashi HommaHiroshi NogamiAkira NishiwakiHiroaki MiyataTakao YagiKaoru NakamuraShuichi ShirakiNobuhiko BanYasuyuki Tanaka

As of June 26, 2007

BOARD OF DIRECTORS CORPORATE DATA

EXECUTIVE OFFICERS

As of June 26, 2007

3-43-2, Ebisu, Shibuya-ku, Tokyo 150-8677, JapanPhone: +81-3-3443-3711Fax: +81-3-3473-4963URL: http://www.nikkiso.co.jp

This annual report is Printed in Japan on recycled paper

A N N U A L R E P O R TYear ended March 31,2007

2007

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