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NIPPON SHEET GLASS Fiscal Year ended March 31, 2004 2004 ANNUAL REPORT

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Page 1: NIPPON SHEET GLASS · Double-glazing glass Vacuum glass Tempered glass Laminated glass Fire safety glass Special-function glass Hi-Mirror Co., Ltd. MAG Co., Ltd. Malaysian Sheet Glass

NIPPON SHEET GLASS

Fiscal Year ended March 31, 2004

2004ANNUALREPORT

Page 2: NIPPON SHEET GLASS · Double-glazing glass Vacuum glass Tempered glass Laminated glass Fire safety glass Special-function glass Hi-Mirror Co., Ltd. MAG Co., Ltd. Malaysian Sheet Glass

Business Overview

Nippon Sheet Glass—At a Glance

Flat and Safety Glass and Building Materials

Information/Electronics Materials and Devices

Glass Fiber

Building Products

Automotive Glass

Optoelectronics Products

Display Glass

In order to meet the need for comfort and safety in urban and residential spaces, NSG creates a wide array of highly functional architectural glass with sophisticated designs, developed with the aim of perpetuating environmental conservation and pleasant living spaces.

NSG develops and manufactures functional glass for means of transportation such as automobiles, railway cars and aircraft. We design the complete system, including peripheral components, in our aim to create pleasant and relaxing spaces.

As a pioneer in fiber optics, NSG researches, develops and manufactures a wide variety of optoelectronics products using the sophisticated technologies and expertise it has accumulated through years of original R&D.

A major contributor to the advance of information technology, NSG manufactures glass for LCDs and PDPs, always pursuing user-friendly technology and meeting contemporary needs for sophisticated information devices.

As a leader in the field of specialty glass fiber, NSG makes the most of the basic and applied technologies it has created over the years to expand the frontiers of the field-from automobiles to cosmetics .

Page 3: NIPPON SHEET GLASS · Double-glazing glass Vacuum glass Tempered glass Laminated glass Fire safety glass Special-function glass Hi-Mirror Co., Ltd. MAG Co., Ltd. Malaysian Sheet Glass

Main Subsidiaries and AffiliatesMain Products

Double-glazing glassVacuum glassTempered glassLaminated glassFire safety glassSpecial-function glass

Hi-Mirror Co., Ltd.MAG Co., Ltd.Malaysian Sheet Glass Sdn. Bhd.NSG Spacia Co., Ltd.NSG Umu Products Co., Ltd.Vietnam Float Glass Co., Ltd.

Tempered glass Laminated glassWater-repellent glassSolar control glassUV-cut glass

Nishinihon Modular Window Co., Ltd.NSG Europe N.V./S.A. Penstone, Inc.Taiwan Auto Glass Industry Corp. Tianjin NSG Safety Glass Co., Ltd.Tochigi Nippon Sheet Glass Co., Ltd.

SELFOC™ micro lensesSELFOC™ lens arraysScanner light sourcesOptical devicesChemically tempered glassMultilayer coated glass

NSG America, Ltd.NSG Micro Optics Philippines, Inc.NSG Precision Co., Ltd.

High-uniformity ultra-thin flat glassGlass with transparent conductive film for flat displays LCD panels

Nanox Corp.NH Techno Glass Corp.Suzhou NSG AFC Thin Films Electronics Co., Ltd.Suzhou NSG Electronics Co., Ltd.

Air filtersBattery separatorsGlass flakeGlass cord

Japan GMT Co., Ltd. NGF Canada Ltd.NGF Europe Ltd.Nippon Muki Co., Ltd.

Page 4: NIPPON SHEET GLASS · Double-glazing glass Vacuum glass Tempered glass Laminated glass Fire safety glass Special-function glass Hi-Mirror Co., Ltd. MAG Co., Ltd. Malaysian Sheet Glass

Profile

Dedicated to providing a range of glass products, services and systems that enhance living space, the NSG Group applies cutting-edge technology to build the environment of the future. Since its establishment in 1918, NSG has supplied a wide range of high-quality, high-performance and high added-value products based on its own innovative technologies to Japan and the rest of the world through its core Flat and Safety Glass and Building Materials, Information/Electronics Materials and Devices, and Glass Fiber businesses. With operations in Japan, Europe, North America and Asia, NSG is rapidly growing into a truly global concern.

Contents

Nippon Sheet Glass—At a Glance

Financial Highlights

To Our Shareholders

Interview with the President

Review of Operations

Flat and Safety Glass and Building Materials Business

Information/Electronics Materials and Devices Business

Glass Fiber Business

Research & Development

Environmental Activities

Financial Section

Management

Major Subsidiaries and Affiliates

Plants in Japan

Corporate Information

Foldout

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Inside back cover

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1

Nippon Sheet Glass Company, Limited and Consolidated Subsidiaries ● For the years ended March 31, 2004 and 2003

Net salesIncome before income taxes and minority interestsNet income (loss)

Amounts per share (yen and U.S.dollars): Net income (loss) Cash dividends

Total assetsShareholders’ equity

Number of employees

2004 ¥269,149

9,562 3,207

¥ 7.19 3.00

¥442,163 200,562

11,392

2004 $2,539,142

90,208 30,255

$ 0.07 0.03

$4,171,349 1,892,094

2003 ¥280,100

1,468 (3,152)

¥ (7.17)3.00

¥452,463 190,913

13,406

Note: The translation of Japanese yen amounts into U.S.dollar amounts is included solely for the convenience of readers outside Japan and has been made at ¥106=U.S.$1.00, the exchange rate prevailing on March 31, 2004. This translation should not be construed as a representation that yen can be converted into U.S.dollars at the above or any other rate.

Thousands ofU.S. dollarsMillions of yen

Financial Highlights

0

7,500

15,000

22,500

30,000

00 01 02 03 04

Operating Income(¥ millions)

0

100,000

200,000

300,000

400,000

00 01 02 03 04

Net Sales and Operating Incometo Net Sales

(¥ millions, %)

3.7%3.1%

8.5%

1.7% 1.5%

0

75,000

150,000

225,000

300,000

00 01 02 03 04

Shareholders’ Equity and ROE(¥ millions, %)

9.1%13.5%

-1.0% -1.7%1.6%

-7,500

0

7,500

15,000

30,000

00 01 02 03 04

Net Income (Loss)(¥ millions)

Page 6: NIPPON SHEET GLASS · Double-glazing glass Vacuum glass Tempered glass Laminated glass Fire safety glass Special-function glass Hi-Mirror Co., Ltd. MAG Co., Ltd. Malaysian Sheet Glass

To Our Shareholders

2

In the fiscal year ending March 31, 2004 (fiscal 2004), the Iraq war and the SARS outbreak early in the year, coupled with the yen’s appreciation against the dollar in the second half of the fiscal year, impeded economic recovery in Japan, but strong performance in sectors such as digital consumer electronics drove improvements in corporate earnings, which was reflected in higher stock prices. The price of raw materials also rose, heralding a possible end to the prolonged deflationary trend. In NSG’s business markets, the construction industry saw an increase in the number of new housing starts over the previous fiscal year, while the decrease in the number of large buildings constructed in the Tokyo metropolitan area led to a year-on-year reduction in the floor area of non-residential building construction starts. The automotive market experienced a slight drop in domestic passenger car production. In the information and electronic markets, units of personal computers shipped and mobile phones produced increased to exceed figures for the previous fiscal year, but optical communications investment in North America remained stagnant.

Business Results

Sales of high added-value glass such as double-glazed glass for residences and crime-prevention glass, as well as optical components used in multifunctional printers for home use, were solid. However, overall net sales fell year-on-year due to the sale of the glass disk business and the subsidiary Nippon Pelnox Corporation. As a result, consolidated net sales declined 3.9% year-on-year, to ¥269,149 million. Operating income improved considerably, up 133.0% year-on-year to ¥10,025 million. This can be attributed to restructuring in the optical communications division and the sale of the unprofitable continuous glass fiber business in the latter half of fiscal 2003, and the strong sale of optical components for printers. In addition to this growth in operating income, equity-method affiliates such as NH Techno Glass Corporation also turned in a strong performance. As part of our efforts to focus resources on key business areas, we sold our glass disk business and our shares in Tianjin NSG Float Glass Co., Ltd., compelling us to record ¥6,508 million in extraordinary losses. However, we posted ¥10,738 million in extraordinary income generated from the sale of investment securities, bringing consolidated net income to ¥3,207 million. This was the first time in three fiscal years for us to achieve positive net income, making fiscal 2004 the start of our earnings recovery. We reduced interest-bearing debt 16% year-on-year to

¥134,103 million, through cuts in external borrowings enabled by use of a cash management system (CMS) as well as the transfer of shares in affiliated companies. As a result, the debt-equity ratio improved significantly to 0.67. While augmenting internal reserves to ensure future business development and a solid financial position, the NSG Group maintains a policy of providing stable dividends. A final dividend of ¥3 per share will be paid for the year ended March 31, 2004.

Basic Business Strategy

In a business environment characterized by heightened global competition, rapid changes, greater responsibility in addressing environmental issues and the development of a society based on IT and networks, the NSG Group faithfully observes its three basic codes of behavior: “open and fair business practices,” “adherence to corporate ethics” and “contributions to the resolution of environmental issues.” True to this stance, NSG strives to be an innovative company with a global presence and to increase its corporate value. Our basic strategy calls for expansion and development through priority allocation of business resources in growth areas and high-profit fields and ensuring that our structural reforms succeed in transforming established businesses into a stable source of revenue. In 1999, NSG introduced an in-house company system to serve as its new organizational and business structure and also adopted an executive officer system. This in-house company system divided NSG into four companies to facilitate independent management and an emphasis on cash flow. The executive officer system defines the responsibilities and authorities of the board of directors and the executive officers. This system also makes management more efficient and faster. After the shareholders’ meeting held in June 2004, NSG reduced the number of members of the board of directors from ten to seven to improve its effectiveness and further delineate executive and operational functions. We also continue our practice of inviting individuals external to the Company to serve on our board of directors and as auditors to ensure transparency of management. As part of continuous efforts to improve our compliance system, we have established a compliance committee and are ensuring that our employees are fully knowledgeable about the NSG Group Code of Conduct. We will enhance and build upon these efforts in the future by strengthening our IR and PR activities to enhance business transparency, as well as augment our initiatives targeting reduced environmental impact.

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3

Medium-Term Business Plan and Long-Term Vision

In developing its business, the NSG Group has set the goal of becoming an innovative company with a global presence within the next ten years. In 2000, we established a long-term vision to take us through 2010 named “New Vision” to lay the groundwork for our success, targeting ROE and ROA of 10% or more. As the first step toward the achievement of the “New Vision”, we established a medium-term business plan entitled “ACT21,” launched in April 2001 and lasting four years, and have been pursuing business development in line with this plan. In keeping with our company-wide policy of withdrawing from unprofitable business and focusing on core businesses, we are striving to build up a world-class, highly profitable Flat and Safety Glass and Building Materials business. We will restructure the Information/Electronics Materials and Devices business in an effort to build a new organization and business processes capable of generating higher earnings. In the Glass Fiber business, we will pursue higher revenues by making the most of our competitive advantage under a strategy entitled “number one, only one.” Finally, in R&D we intend to accelerate development of new technology and products, by establishing new R&D structures and enhancing our solution skills. We are currently in the process of formulating a new medium-term plan, to be launched in April 2005. The plan represents a key milestone along the path to achieving our “New Vision” for 2010. We plan to publish the details of this plan in the fall of 2004.

Outlook for Fiscal 2005

We expect that the overall economy will enter an upward trend, although it may not be robust. However, the picture is somewhat bleaker in the markets in which we operate, with demand in the optical communications market expected to be slow. Building and automotive glass markets such as non-residential building construction are forecasted to be flat at best. We will continue to focus on improving profitability and expanding sales of our “only one” products as well as other competitive products. Our upcoming efforts in each business division are described below. As in fiscal 2003, in the Flat and Safety Glass and Building Materials business, we will strive to reduce costs further and to develop and expand the sale of high-performance products. In the Information/Electronics Materials and Devices business, we will actively focus on setting up systems for obtaining market information on new products

and technology and further developing them. In the Glass Fiber business, we will pursue further growth by accelerating new product development and expanding our global product range under our “number one, only one” strategy. In R&D, we will strive to develop proprietary technologies in our current business areas as well as new proprietary products. Furthermore, we will pursue the development of products in new business areas such as biotechnology and environment-related markets. We will also continue to pursue corporate activities that are environmentally friendly, not only by conserving energy and recycling, but also by developing products with less environmental impact in order to protect the environment. Given these business developments, we anticipate that consolidated net sales in fiscal 2005 will decline slightly in comparison to the previous fiscal year due to the loss of sales from business transferred in fiscal 2004. However, we forecast increased net sales, excluding these factors. We anticipate higher earnings due to restructuring of unprofitable businesses and expanded sales of highly functional architectural glass and printer lenses. In the final year of the four-year medium-term business plan “ACT21,” we plan to increase our dividend payments to ¥3 for the interim dividend and a total of ¥6 for the full year dividend—doubled from fiscal 2004 to the same amount as fiscal 2002—to commemorate the recovery of our earnings. We forecast a 1.5% decrease in net sales, to ¥265 billion, a 39.7% increase in operating income, to ¥14 billion, and a 118.3% surge in net income, to ¥7 billion. To close, let us request the continued support of our shareholders, customers, business partners and employees.

Yozo IzuharaChairman and Chief Executive Officer

Katsuji Fujimoto President

Yozo IzuharaChairman andChief Executive Officer

Katsuji Fujimoto President

Page 8: NIPPON SHEET GLASS · Double-glazing glass Vacuum glass Tempered glass Laminated glass Fire safety glass Special-function glass Hi-Mirror Co., Ltd. MAG Co., Ltd. Malaysian Sheet Glass

Interview with Katsuji Fujimoto, New President of Nippon Sheet Glass Co., Ltd.

4

Q1.Having succeeded former NSG president Yozo Izuhara (the current chairman), please tell us about the business strategies you will pursue in your new position.

A. Vision and strategyFormer president Izuhara formulated NSG’s long-term vision, entitled “New Vision,” which will bring us to the year 2010. Our sense of direction and objectives are very clearly outlined in this vision, so there is no need to change our strategies immediately. Our near-term goal should be to address the issues presented in the New Vision. ACT21, the medium-term business plan due for completion in fiscal 2005, emphasizes ten areas for structural reform proposed by former president Izuhara, as outlined below 1. Generate stable revenue from well-developed businesses 2. Expand businesses with potential for growth 3. Withdraw from unprofitable businesses 4. Focus resources on core businesses 5. Augment R&D and create new businesses 6. Reassess overseas businesses 7. Reinforce management fundamentals 8. Use assets effectively 9. Promote corporate governance 10. Create new corporate culture

NSG is making progress with all of these issues, so we will continue operations along these lines. However, I will prioritize further effort in areas where we have not made as much progress, for example, updating our information systems and production innovation. Our efforts are motivated by our desire to strengthen our frontline divisions and to prove our worth as a company that is competitive in manufacturing. A company’s competence in the manufacturing industry is measured by its competitiveness in manufacturing, and without this strength we cannot survive in today’s challenging marketplace. I will take field-oriented measures to enhance our frontline divisions.

Q2.This is the fourth year of ACT21. Can you summarizethe past three years and your objectives for the plan’s final year?

A.In ACT21, we targeted a highly profitable Flat and Safety

Glass and Building Materials business meeting global standards. We reorganized the Information/Electronics Materials and Devices business, and expect the new structure to generate higher earnings. In the Glass Fiber business, we pursued higher revenues by making the most of our competitive advantage under a strategy entitled “number one, only one.” Finally, in R&D, we accelerated the development of new technology and products, building new business systems and devising new problem-solving methods. These efforts are paying off. In the Flat and Safety Glass and Building Materials business, we cut costs by consolidating offices and plants and generated stable revenues through expanded sales of functional glass, despite the overall slump in demand in this business. We expect to post profits in the Information/Electronics Materials and Devices business in the near future, thanks to realignment in the optical communications business and the sale of our glass magnetic disk business. We boosted revenue in the Glass Fiber business by withdrawing from unprofitable businesses and specializing in our proprietary “only one” products. In the final fiscal year of ACT21, fiscal 2005, we are putting all of our efforts into achieving the targets of ¥265 billion in net sales, ¥14 billion in operating income and ¥7 billion in net income. NSG’s earnings began to move upwards in the last half of fiscal 2004. This was partially due to Japan’s economic recovery, but I also believe that these improvements are a sign of NSG’s success in its efforts at manufacturing sites. This demonstrates that our profits will grow along with the enhanced capabilities of our worksites. I am also confident that our corporate culture will simultaneously improve.

Q3.You were appointed president from your position as managing director in charge of the Information/Electronics Materials and Devices business. This business is performing particularly well now, so I’m interested in the areas you chose to focus on.

A. Experience in the Information/Electronics Materials and Devices business In 1998, I managed NSG’s optical business (micro-optics), and in 2002, I was made managing director in charge of the Information/Electronics Materials and Devices business. The late 1990s witnessed the prevalence of the

Page 9: NIPPON SHEET GLASS · Double-glazing glass Vacuum glass Tempered glass Laminated glass Fire safety glass Special-function glass Hi-Mirror Co., Ltd. MAG Co., Ltd. Malaysian Sheet Glass

5

information highway concept in North America, which drove demand for optical communications and generated the IT bubble. NSG’s Information/Electronics Materials and Devices business—particularly the optical communications business—expanded production to keep up with the dramatic spike in demand for micro-lenses. However, the collapse of the IT bubble caused demand to plummet rapidly and led to heavy losses. Subsequently, NSG carried out a full-scale realignment in this area and was eventually able to see signs of a restoration of profitability in this business. I believe that the losses were caused by an excessive reliance on micro-lens sales and delays in adjusting to what market information was telling us about future trends.

Future business developmentsThe challenge we face now is to build a system that is able to turn out innovative products one after another. To do this, it is crucial that we react quickly to market development and enhance NSG’s areas of strength. Specifically, 1. Accelerate the launch of VINGT ET UNTM, glass for plasma display panels (PDPs) 2. In the TFT LCD business, market large-scale high- quality and distinctive glass through NH Techno Glass to meet the needs of an expanding market 3. Strengthen development of SLED to bring highly functional models onto the market 4. Enter the biotechnology market with chemical chip and proprietary analysis equipment

Q4.Your background is in technology research, which has recently become essential for a manufacturer in upgrading products and quality. Please tell us a little more about NSG’s production and R&D system.

A. Operations experienceI have worked in the manufacture and development of float glass since I joined NSG. I have observed all the manufacturing stages along the float glass line, from the hot end to the cold end (from melting to fabrication processes), and worked with a wide range of technology. This experience has given me the ability to judge how well a new technology will fit our needs and assess its future potential. My managerial positions with NH Techno Glass and the optical business (micro-optics) was also a valuable

experience for me as a businessman, teaching me the importance of marketing and operating activities. This has given me the key asset of being a technician with a solid understanding of business operations.

Views on last year’s quality issuesProduct quality is the most important issue in NSG’s production innovation initiatives. I am not yet satisfied with the quality of our current products, and feel that raising quality to the highest levels is the most important issue we currently face. A company that is proficient in manufacturing must also be a company that puts out high-quality products. I plan on changing our system so that our quality always exceeds market demands.

Opinions on R&D systemSince NSG is a manufacturer, the ability to maintain sustainable growth depends on a successful R&D process that can produce new products that will win the market’s praise. In the short term, we must add innovation to our production process in order to strengthen our worksites, but in the medium to long term we must upgrade our R&D. I will devote my energies to ensuring that our R&D organization is more successful than ever. During my time as managing director in charge of the Information/Electronics Materials and Devices business, we endeavored to produce technicians with a broad range of solid experience. We tried to raise up engineers with good marketing sense, knowledge of core technologies and a passion for their work.

Q5.NSG is working to achieve the ideals put forth in “New Vision” by 2010. Please tell us more about the direction you plan to take under the vision.

A.In 2000, NSG established its “New Vision,” goals to be achieved by 2010 to ensure our success as a winning company. This plan targets ROE and ROA over 10% by 2010. We have recovered from the net losses posted in the past two years and achieved a net profit this fiscal year. Our efforts over the past few years to focus resources on core business areas and review unprofitable business have yielded solid results, putting us back on track to achieving the New Vision. We are currently in the process of formulating our new medium-term plan, which will explain the growth strategies to be implemented. We plan to publish the plan this year.

Page 10: NIPPON SHEET GLASS · Double-glazing glass Vacuum glass Tempered glass Laminated glass Fire safety glass Special-function glass Hi-Mirror Co., Ltd. MAG Co., Ltd. Malaysian Sheet Glass

Review of Operations

Flat and Safety Glass and BuildingMaterials Business

6

In February 2004, NSG introduced its photocatalytic self-cleaning glass. CLEARTECTTM, an environmentally friendly product capable of maintaining clean surfaces through the photocatalytic effects created by its interaction with sunlight, wind and rain. NSG was the forerunner in developing this glass in Japan, and its originality and superior functions

have earned the industry’s praise. This glass has been used in large buildings such as the Tokyo headquarters of Matsushita Electric Works and the Central Japan International Airport terminal building. The Company’s marketing efforts will encourage the use of CLEARTECTTM in housing complexes and single-family houses as well.

Release of photocatalytic self-cleaning glass CLEARTECT TM

This business consists of the Building Products business and the Automotive Glass business. NSG strives to create highly functional products that are both environmentally friendly and safe, ensuring that the Company makes a significant contribution to the creation of enhanced living spaces. In fiscal 2004, consolidated sales in this business fell 4.4% year-on-year, to ¥168,599 million, and operating income rose 1.0% year-on-year, to ¥6,488 million. In fiscal 2005, NSG forecasts that the slight downtrend in overall demand will slow net sales 1.5% year-on-year, to ¥166 billion. However, the Company anticipates that stable production and progress with cost reductions will boost operating income 38.7% year-on-year, to ¥9 billion.

Building Products Business

Although the number of new housing starts increased compared to the previous fiscal year, the decrease in the number of large buildings constructed in the Tokyo metropolitan area led to a year-on-year drop in the floor area of non-residential building construction starts. As a result, domestic demand for architectural glass declined slightly. However, demand for highly functional architectural glass is increasing every year nationwide, and double-glazed glass is now used in 53% of new houses. At the same time, demand for crime prevention glass has risen annually. At less than 10%, market penetration of double-glazed glass in the estimated 30 million existing homes is still low, and there is considerable margin for upgrades to highly functional glass when these existing homes are renovated. Given these favorable conditions, fiscal 2004 sales exceeded sales in the previous fiscal year, driven by increased sales of highly functional glass such as double-glazed

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NSG has decided to enter into a new joint venture with a local partner to manufacture float glass in Vietnam in order to meet growing demand from the promising local market. This new company, Vietnam Glass Industries, Ltd., will be built in the suburbs outside of Ho Chi Minh City in the south of Vietnam, and plans to start commercial production of high quality architectural glass by the end of 2006. The total investment is estimated to

be approximately US$90 million (equivalent to about ¥10 billion at an exchange rate of US$1 to ¥110). NSG already has another manufacturing joint venture for float glass in Vietnam, Vietnam Float Glass Co., Ltd. (“VFG”), located near Hanoi in the north of Vietnam. The integration of the two companies’ management is being considered as a future option to improve the efficiency of NSG’s float glass business in Vietnam.

Establishment ofnew float glasscompany in Vietnam

62.6% of Net Sales

0

50,000

100,000

150,000

200,000

00 01 02 03 04

Net Sales ofFlat and Safety Glass and

Building Materials (¥ millions)

glass and crime prevention glass. However, our withdrawal from the window sash trading business resulted in total sales in the Building Products business falling below fiscal 2003 figures. Fiscal 2004 income exceeded that in fiscal 2003, attributable to structural reforms and cost-cutting measures such as the discontinuation of unprofitable manufacturing facilities and the consolidation of processing plants. Net sales and income in overseas markets fell on a year-on-year basis due to deteriorating business conditions in Southeast Asia, affecting NSG’s manufacturing affiliates in Malaysia and Vietnam. Accordingly, net sales in this business fell 5% year-on-year, to ¥120,200 million. In fiscal 2005, NSG will expand domestic sales of its highly innovative products such as CLEARTECTTM, a self-cleaning glass that utilizes photocatalytic effects, as well as its new vacuum glass and laminated glass with energy conservation and crime prevention features. The Company will endeavor to reduce manufacturing costs through more efficient operation of its plants. Overseas, it will focus its energies on expanding business as the markets in Vietnam and Malaysia stabilize. NSG acquired shares in Malaysian Sheet Glass from the local partners, thus raising NSG’s stake in the company to 95%, as part of its effort to operate more flexibly by taking full advantage of its network of group companies. The Company anticipates robust growth in demand in Vietnam over the long term, and thereby plans to construct new float glass facilities with a target start date of 2006. In light of these factors, NSG forecasts that fiscal 2005 net sales will remain roughly flat, at ¥119 billion, but that income will rise.

Automotive Glass Business

NSG’s sales of automotive glass are almost entirely limited to the Japanese market, so a slight decrease in domestic auto production led to a modest decline in net sales compared to fiscal 2003. Despite a slump in production in the first half of fiscal 2004, however, the stabilization of production in the second half in tandem with cost reduction efforts allowed the Company to maintain income at the level of fiscal 2004, although net sales fell 4.0% year-on-year, to ¥48,400 million. In fiscal 2005, NSG plans to cut costs by consolidating its production system with the closure of the Aichi Plant, thus offsetting the decline in sales price and volume. The Company will also pursue an aggressive business strategy in China, where demand is expected to grow. NSG forecasts a 3% year-on-year decline in net sales to ¥47 billion, but expects that efforts to streamline operations will result in income growth.

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In December 2003, NSG agreed to collaborate with Fuji Xerox Co., Ltd., and Suzuka Fuji Xerox Co., Ltd., in the development of 1200 dpi light-emitting diode (LED) printing heads using Self-Scanning Light Emitting Devices (SLED) and radially distributed refractive index rod lens arrays (SELFOCTM Lens Arrays: SLATM) developed by NSG.

Upon success of the project, Suzuka Fuji Xerox plans to actively promote the products in the marketplace, while Fuji Xerox plans to incorporate them into marketable products that can take advantage of the LED system’s exceptional qualities.

NSG begins collaboration with Fuji Xerox in development of high-resolution SLED

Information/Electronics Materialsand Devices Business

The Information/Electronics Materials and Devices business consists of the Optoelectronics Products and Display Glass businesses. The Company intends to expand on a global scale and to make significant contributions to the development of an IT society by capitalizing on the technical superiority of its innovative product line-up. In March 2004, NSG completed the transfer of its glass magnetic disk business—part of the Information/Electronics Materials and Devices business until fiscal 2003—to Hoya Corporation, as part of the Company’s efforts to withdraw from unprofitable businesses. The transferred business included the magnetic disk manufacturing division of NSG Philippines Inc. and Advanced Disk Technology Sdn. Bhd. In fiscal 2004, consolidated net sales slipped 1.6%, to ¥48,953 million, and the operating loss decreased 86.1% year-on-year, to ¥924 million. Despite the loss of the glass magnetic disk business, the Company anticipates that solid results in other businesses will enable this segment to maintain net sales of ¥49 billion in fiscal 2005. The elimination of the losses incurred by the magnetic disk business as well as expanded sales of lens components for printers is expected to generate ¥1 billion in operating income—the first time NSG will post positive income in this business in three fiscal years.

Optoelectronics Products Business

NSG manufactures and markets optical components and devices for the telecommunications and office equipment markets using its proprietary SELFOCTM lenses. In fiscal 2004, demand for lenses for the optical telecommunications industry remained stagnant, but dramatic growth of multifunctional printers in the ink-jet printer market led to a sharp rise in the sale of optical

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0

20,000

40,000

60,000

80,000

00 01 02 03 04

Net Sales ofInformation/Electronics Materials

Devices (¥ millions)

In September 2003, the Hong Kong sales company Applied Films Asia Pacific Limited transferred sales rights for TN and STN LCD glass substrates to NSG. In light of this transfer, NSG intends to boost sales of the promising film-coated glass in the Southern China Economic Zone and to enhance the superiority of its LCD glass substrate business.

NSG acquires the sales rights for TN and STN LCD glass substrates from a Hong Kong company

18.2% of Net Sales

9

components for office equipment. As a result, net sales in this business rose significantly year-on-year. Income also saw significant improvement, thanks to higher sales of office equipment components and lower costs achieved through major restructuring of the telecommunications lens business. Due to these factors, net sales surged 81% year-on-year, to ¥17,200 million. The scale of losses related to the optical telecommunications business narrowed significantly, and income generated by office equipment components rose. In fiscal 2005, NSG plans to actively develop business in the multifunctional printer market, building up a mass production system that can meet the needs of market expansion. The Company will reorganize its telecommunicationslens business by putting in place a more efficient system to prepare for improved demand. The Company will also continue to introduce highly functional, high added-value products to the market. With these efforts, NSG forecasts that sales will rise 34% year-on-year, to ¥23 billion.

Increased production of optical lens parts for ink-jet multifunctional printers (MFPs)

NSG has decided to increase production of its proprietary optical lens component, the SELFOCTM Lens Array (SLATM), and SELGUIDETM (SG), the illumination component, which are primarily used in ink-jet multifunctional printers (MFPs; also called all-in-one printer). The Company is targeting summer 2004 as the start of this increased production. This decision to establish a mass-production system was made in light of the strong growth in the market for ink-jet MFPs. The Sagamihara plant and factories in China are being retuned to allow for a 50% increase in production to 3 million units a month.

Display Glass Business and Others

In this business, NSG manufactures and markets glass for STN and TN LCDs, a field in which NSG holds more than a 50% global market share, as well as LCD panels. TFT LCD glass is manufactured by NH Techno Glass Corp., a joint venture company (to which the equity method is applied), in which Hoya Corporation shares a 50% stake. In the first half of fiscal 2004, cutbacks in the inventory of LCDs for mobile phones in the Chinese market hurt sales in the Display Glass business, and fiscal 2004 sales under-performed fiscal 2003 levels, despite a recovery in demand in the second half of the year. However, one promising development was the reinforcement of facilities at NH Techno Glass’s Taiwan plant to keep up with the notable growth in demand for TFT LCD glass. Net sales fell 26% year-on-year, to ¥21,800 million, while operating income improved on an expansion in the business for TFT LCD applications. In fiscal 2005, NSG will enter the market for a new glass substrate for plasma display panels, and will also endeavor to expand sales of the small to medium-sized LCD glass substrate currently in great demand. NH Techno Glass will upgrade its facilities for manufacturing glass substrates and will continue to handle operations to satisfy the demand for larger LCD glass. NSG forecasts a 19% year-on-year increase in net sales in this business, to ¥26 billion.

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The Glass Fiber business concentrates on high-tech materials and glass fibers used in a wide array of applications ranging from construction and IT equipment to marine and space exploration. This is a very specialized niche area, and NSG’s high market share gives it a competitive advantage on the global playing field. NSG’s glass cord used for automotive timing belts boasts a global market share exceeding 80%. Its lead-acid battery separators have a 90% share in Japan, and its share in the Asian market continues to grow. GLASFLAKETM, a flake-shaped glass, offers excellent acid resistance and is used to prevent bending and distortion of plastic. NSG is the only supplier of this type of product in the world. It also has a top share of 25% in the Japanese air filters market, and is the sole provider of highly functional products such as heat-resistant filters. Sales of glass cord, GLASFLAKETM, battery separators and air filters were solid in fiscal 2004. NSG endeavored to pursue R&D activities and create and market new products during the fiscal year, as demonstrated by its entrance into the cosmetics field with METASHINETM,a highly glittering pigment based on GLASFLAKETM. NSG also developed a super heat-resistant air filter and a separator for electronic double-layer capacitors. Due to the transfer of the unprofitable continuous glass fiber business in fiscal 2003, net sales fell year-on-year, but income saw tremendous growth. As a result, net sales in the Glass Fiber business dropped 1.4% year-on-year, to ¥35,681 million, while operating income climbed 37.0%, to ¥4,560 million. NSG will continue to aim for higher income by expediting the development of new products and augmenting sales through global expansion under a strategy entitled “number one, only one.” The Company forecasts fiscal 2005 net sales and income of ¥36 billion and ¥4.5 billion, respectively, maintaining fiscal 2004 earnings.

Using the technical and manufacturing expertise gained in NSG’s lengthy experience in producing battery separators for automobiles, it has developed a new insulating battery electrolyte film (separator) for electric double-layer capacitors (EDLCs) that are highly porous with minute apertures (at the

sub-micron level). EDLCs have strong potential as storage devices for acceleration and energy regeneration in electric cars and hybrid cars using fuel cells, and are attracting considerable attention. NSG has already begun supplying this product to some EDLC manufacturers, and the market is expected to expand in the future.

NSG develops separator for electric double-layer capacitors

Glass Fiber Business

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0

20,000

40,000

60,000

80,000

00 01 02 03 04

Net Sales ofGlass Fiber & Other

(¥ millions)

19.2% of Net Sales

1110

The NSG Group has been a leader in the manufacture and sale of air filters that can withstand heat at temperatures as high as 350°C, and has now succeeded in developing an air filter resistant to 500°C temperatures and capable of withstanding the high temperatures reached during the LCD and PDP manufacturing process. This addition further enhanced the Company’s lineup, enabling it to launch yet another unique product.

NSG develops superheat-resistant air filter (500°C)

Net sales:Flat and safety glass and building materialsInformation/electronics materials devicesGlass fiberOtherConsolidated

Operating income (loss):Flat and safety glass and building materialsInformation/electronics materials devicesGlass fiberOtherConsolidated

2004

¥168,599 48,953 35,681 15,914

¥269,149

¥6,488 (924)

4,560 (153)

10,025

Percent change

-4.4 -1.6 -1.4

-10.2 -3.9

1.0 86.1 37.1

(113.0)133.0

2003

¥176,433 49,754 36,188 17,724

¥280,100

¥ 6,421 (6,633)3,327 1,179 4,302

Thousands ofU.S. dollarsMillions of yen

Business segment informationYear ended March 31

2002

¥185,450 38,451

- 62,948

¥286,849

¥ 7,734 (5,697)

- 3,042 5,008

2001

¥184,159 65,404

- 57,837

¥307,401

¥ 8,113 13,428

- 4,887

26,235

2000

¥169,454 54,647

- 46,552

¥270,654

¥ 1,551 4,415

- 2,395 8,362

2004

$1,595,221 463,175 337,601 150,572

$2,546,589

$ 61,387 (8,743)43,145 (1,448)94,853

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Research & Development

True to its ongoing commitment to developing revolutionary new technologies, R&D at the NSG Group is focused on the integration of glass and electronics technologies, thereby enhancing living space and developing the environment of the future through application of information technology. The Group has a total of about 300 R&D engineers at its Research Centers in Kansai and Tsukuba, Production Engineering Center, Flat Glass Department (launched in fiscal 2004 to efficiently integrate the float glass technologies used in each individual business unit), and the R&D departments of each business segment. R&D expenditures totaled ¥7,714 million in fiscal 2004.

Flat and Safety Glass and Building Materials

In this business, the NSG Group develops innovative architectural glass, automotive glass and antennas. In fiscal 2004, NSG began nationwide sales of vacuum PAIRMULTITM SPACIATM 21, which represents its successful synthesis of double-glazed glass and vacuum glass SPACIATM 21, the world’s first ultra-thin glass with high insulation. In our tests, this SPACIATM 21 has been shown to conserve about 20% more energy than Japan’s Next-Generation Energy-Saving Standards call for. The Company also succeeded in developing technology that can bind glass together at low pressures using precise temperature control, enabling it to create a multifunctional glass (a multi-layered thin glass made up of three layers—a central layer surrounded on each side by a 0.2 millimeter vacuum layer and a layer of plastic—which integrates the functions of both laminated glass and vacuum glass SPACIATM. This technology enabled the Company to create a thin multifunctional glass offering heat insulation properties, crime prevention and noise insulation. This glass is so thin that it can also be used in the large number of existing homes with conventional window sashes for one-pane glass. Accordingly, it is expected to make a significant contribution to environmental conservation. NSG also launched nationwide sales of CLEARTECTTM, a self-cleaning glass that is Japan’s first glass to keep its surfaces clean by utilizing photocatalytic effects and super hydrophilic qualities, thereby reducing the frequency with which windows must be cleaned and giving buildings a more attractive appearance. It was used in the Central Japan International Airport terminal building, which is slated to open in 2005. Its convenience, impressive performance and high-temperature treatment make this

glass extremely durable compared to the conventional on-site treatment method. Using this technology, NSG is participating in the Photocatalytic High Performance Residential Unit Material Project promoted by the New Energy and Industrial Technology Development Organization (NEDO). The purpose of this project is to develop and commercialize systems that would reduce the environmental impact of air conditioning using heat radiation materials in residences, buildings and large open spaces. Funding these achievements required R&D expenditures in this segment of ¥2,465 million. NSG will continue to develop new products while creating glass products integrating multiple high added-value functions. In working to create pleasant living spaces, the Company will strive to ensure that its business activities do not harm the environment.

Information/Electronics Materials & Devices

In this business, the NSG Group pursues developments in optical communications, information devices, and display glass. In the information devices field, the Company increased production of the optical lens component, the SELFOCTM lens array (SLATM), and the light component, SELGUIDETM, to meet the increasing demand for ink-jet multifunctional printers (MFPs). At the same time, there is a growing market for printers featuring higher resolution, faster

R&D Expenses andR&D Expenses to Net Sales

(¥ millions, %)

0

2,500

5,000

7,500

10,000

00 01 02 03 04

2.5%2.1%

2.9% 3.2% 2.9%

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13

speed, better color quality, smaller size and more environmental benefits. Especially, in electro-photographic printing technologies, where laser systems have dominated the market, high-definition printer heads with 1200dpi light-emitting diodes (LEDs) using the Company’s proprietary self-scanning LED (SLED) and radially distributed refractive index rod lens array (SLATM) are attracting attention for their ability to standardize components across the product lineup, potentially cut development costs and make color printers significantly smaller. NSG has agreed to collaborate with Fuji Xerox Co., Ltd., and Suzuka Fuji Xerox Co., Ltd., in developing the core technology, and the R&D work is moving forward. NSG also continues to develop micro chemical chips (microchips) and GRINSpectraTM, a portable thermal lens spectroscopy detection system. This system enables users to measure the density of concentrations of 10-30 micron samples quickly and accurately. Integrating this device with a microchip enables substances to be measured after reaction or division using micro chemical chips such as a micro chemical reaction chip or DNA chip, which are currently receiving high acclaim. This integration basically realizes a “lab on a chip.” To fuel these efforts, R&D expenditures in this segment were ¥3,017 million. NSG will continue to pursue cutting-edge R&D in this and other segments to develop products that meet customer needs. The Company’s basic mission is to create a future based on information technology.

Glass Fiber

NSG spun off the continuous glass fiber operations in September 2002. The resulting new joint-venture company is now developing and manufacturing continuous glass fibers for plastic reinforcement and other industrial uses. The remaining glass fiber operations of the NSG Group are now focusing on R&D activities in new applications for METASHINETM, GLASFLAKETM, glass cord and their applied products. The Company has developed new applications for several fields, and succeeded in creating a system for the mass production of NANOFLEXTM, silica glass flakes made using the sol-gel method. The synergies created with the addition of group company Nippon Muki Co., Ltd., has allowed the Company to actively pursue the development of specialized glass fiber products for air filters and battery separators. For instance, NSG developed and marketed a polyolefin porous film for electric double-layer capacitors. This new film is more

porous than the original paper film, giving the battery electrolyte more holding power as well as superior strength and durability. The Company also developed a heat-resistant filter capable of withstanding temperatures as high as 500°C, and is the sole source of this product in the Japanese market. This filter is widely used in manufacturing flat panel displays (FPDs) including heat treatment process for PDPs. R&D expenditures in this segment totaled ¥1,195 million. NSG will continue to pursue R&D activities to enhance its leadership position in the Glass Fiber business.

New Businesses

In keeping with its “New Vision” for 2010, NSG is building a foundation capable of constantly turning out sophisticated products, while pursuing new businesses in the environmental and biological fields. In fiscal 2004, the Company developed a glass micro plate used in the precise analysis of proteins and other substances. NSG was also an active participant in the Nanotechnology Glass Project, which is part of the NEDO’s Nanotechnology Materials Program, and the Nanotechnology Glass Project for Electron Devices. This latter program is part of the Ministry of the Economy, Trade and Industry’s “Focus21,” a goal-oriented project geared toward speedy commercialization. R&D expenditures in this segment totaled ¥1,035 million. NSG will continue to develop proprietary technologies and products in existing fields and participate in the Nanotechnology Glass Project. The Company will also strive to develop new products in high-potential fields such as biology and the environment.

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Environmental Activities

Progress in Fiscal 2004

Environmental Targets for 2010

1. Achievement of zero emissions NSG achieved zero emissions in the Kyoto plant and Tsukuba Research Center in fiscal 2003 and currently maintains this practice.The company is taking the necessary steps to attain zero emissions in fiscal 2005 in the Chiba plant and Yokkaichi plant.

2. Activities to reduce harmful substances in products Products to which the European Union’s Restriction of Hazardous Substances in Electrical and Electronic Equipment (RoHS) Directive and the End-of-Life Vehicles (ELV) Directive apply are completely free from harmful substances, such as the lead which was formerly used in automotive glass.

3. Marketing of environmentally-friendly “green” productsNSG’s double-glazed glass, PAIRMULTITM (Low-E type), which is expected to be extremely efficient in energy conservation, earned the Eco Mark from the Japan Environment Association. NSG has also released CLEARTECTTM, a photocatalytic cleaning glass that can maintain clean surfaces through the photocatalytic effects created by its interaction with sunlight, wind and rain.

Action Plans

1. EnergyNSG reduced energy consumption in the production process by 10.7% compared to 1990 levels.

2. Waste NSG reduced the volume of landfill waste generated by production processes by 79.6% in comparison to 1990, achieving targets set in its action plan.

Environmental Approaches

In recent years, companies have been increasingly evaluated based on their attitudes toward global environmental issues. Since 2000, when the NSG Group drew up its environmental targets and action plans to express its commitment to the environment, we have been striving to achieve the following goals:

Environmental Targets for 2010

1. Attainment of zero emissions throughout the entire NSG Group

2. Development of technologies required for making all our products free of harmful substances

3. Active marketing of environmentally friendly products (green products)

Action Plans

1. Energy Reduction of energy consumption in production processes by 14% in 2005 and by 15% in 2010 in comparison to 1990

2. Waste Reduction of the volume of landfill disposal from production processes by 78% in 2005 and by 80% in 2010 in comparison to 1990

Energy Conservation

EnergyIndex (1990=100)

Ener

gy (P

J)

Inde

x (1

990=

100)

Waste Reduction

RecycleLandfillIndex (1990=100)

Was

te (1

000

ton)

Inde

x (1

990=

100)

0

40

80

120

160

0

20

40

60

80

00 01 02 03 04

0

4

8

12

16

80

90

100

110

120

00 01 02 03 04

94.8

108.7 106.4

95.4

89.3

51.0

55.1

35.432.1

20.4

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15

Financial Section

Financial Review

Selected Consolidated Financial and Operating Data

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Financial Statements

Report of Independent Auditors

16

18

20

22

23

24

25

34

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Net sales and earnings by segment In the fiscal year ending March 31, 2004 (fiscal 2004), net sales fell 3.9% year-on-year, to ¥269,149 million (US$2,539 million). Net sales in Japan fell 2.8% year-on-year, to ¥219,488 million (US$2,071 million), while overseas net sales declined 8.5%, to ¥49,661 million (US$469 million). As a result, the proportion of overseas net sales in consolidated net sales dropped from 19.4% to 18.5%. In the Flat and Safety Glass and Building Materials business, sales in Japan in the Building Products business fell, as the growth in glass sales attributable to expanded sales of highly functional glass was unable to offset the slump in Japanese construction demand caused by the drop in large-scale building construction in the Tokyo metropolitan area. Automotive Glass sales fell from fiscal 2003 levels due to the drop in delivery volume caused by the slight decline in automobile production. Income declined in the overseas market due to deteriorating business conditions in Southeast Asia. As a result, net sales in this segment fell 4.4% compared to the previous fiscal year, totaling ¥168,599 million (US$1,591 million). Operating income rose 1.0%, to ¥6,488 million (US$61 million), due to cost-cutting measures and higher sales of highly functional architectural glass. The operating margin rose 0.2 points, to 3.8%. In the Information/Electronics Materials and Devices business, net sales in the Optoelectronics business rose year-on-year, thanks to the dramatic growth in the multifunctional printer market, which supported sales of optical components for office equipment. In the Chinese market, efforts to adjust inventories of LCDs for mobile phones in the first half of the fiscal year reduced net sales year-on-year in the Display Glass business. The Company transferred the glass magnetic disk business in fiscal 2004. Restructuring in the telecommunications lens business and cost-cutting measures led to significant improvements in income. As a result, net sales in this segment declined 1.6% year-on-year, to ¥48,953 million (US$462 million). Operating income recovered from a ¥6,633 million loss in fiscal 2003 to a ¥924 million loss (US$9 million). In the Glass Fiber business, sales in the proprietary product lineup utilizing the NSG Group’s technical expertise rose steadily. Overall net sales dropped due to the transfer of the continuous glass fiber business in the first half of fiscal 2003, but income improved. As a result, net sales in this segment fell 1.4% year-on-year, to ¥35,681 million (US$337 million), while operating income climbed 37.1%, to ¥4,560 million (US$43 million).

The operating margin rose 3.6 points, to 12.8%. Overseas net sales by region were as follows. Net sales in Asia fell 10.7% year-on-year, to ¥32,961 million (US$311 million). Net sales in North America dropped 15.8% year-on-year, to ¥6,311 million (US$60 million). Net sales in Europe and other regions rose 5.4% year-on-year, to ¥10,389 million (US$98 million).

Operating results In keeping with NSG’s medium-term business plan “ACT21,” ending fiscal 2005, the Company is striving to build up a highly profitable Flat and Safety Glass and Building Products business that meets global standards. The Company will restructure the Information/Electronics Materials and Devices business and expects the new organization and business processes to generate greater earnings from this segment. In the Glass Fiber business, the Company will aim for higher income by utilizing its competitive advantages under a strategy entitled “number one, only one.” Business results in fiscal 2004 were as follows. Net sales totaled ¥269,149 million (US$2,539 million), down ¥10,951 million compared to fiscal 2003, but business restructuring and cost-cutting measures increased operating income by ¥5,723 million year-on-year, to ¥10,025 million (US$95 million), excluding cost of sales and SGA costs. Lower interest-bearing debt reduced interest expenses. Net interest expense, equivalent to interest and dividend income less interest expenses, totaled ¥1,407 million (US$13 million) in payments. This represented an improvement on the ¥1,645 million in net interest expense paid in fiscal 2003. Equity in earnings of affiliates rose ¥1,210 million (US$11 million), due primarily to solid sales of LCD glass substrates. Gains on sale of investment securities resulted in ¥10,738 million (US$101 million) in extraordinary income. Losses incurred with the transfer of affiliates amounted to ¥6,508 million (US$61 million) in extraordinary losses. This was due to the sale of the glass magnetic disk business and the shares in Tianjin NSG Float Glass Co., Ltd. As a result, NSG posted ¥9,562 million (US$90 million) in income before income taxes and minority interests. Net income excluding income taxes for the fiscal year ended March 31, 2004 and minority interests in net income of consolidated subsidiaries totaled ¥3,207 million (US$30 million), representing a

Financial Review

0

100,000

200,000

300,000

400,000

00 01 02 03 04

Net Sales andOperating Income

(¥ millions)

Domestic SalesOverseas SalesOperating Income

0

5,000

10,000

15,000

20,000

00 01 02 03 04

Capital Expenditure(¥ millions)

0

20

40

60

80

00 01 02 03 04

Cost of Sales andSG&A Expenses, as

Percentages of Sales (%)

Cost of Sales/SalesSG&A Expenses/Sales

0

2,500

5,000

7,500

10,000

00 01 02 03 04

R&D Expenses and as Percentages of Sales

(¥ millions, %)

2.5% 2.1%2.9%

3.2% 2.9%

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17

recovery from the ¥3,152 million loss in fiscal 2003. Net income per share was ¥7.19 (US$0.07). Financial position and investments The Company’s financial policy calls for a sound balance sheet and a flexible capital procurement system to strengthen its future business expansion and business foundation. The results of its business activities in fiscal 2004, performed in line with this financial policy, are described below. Total assets stood at ¥442,163 million (US$4,171 million), a ¥10,300 million decline compared to the previous fiscal year. Current assets increased by ¥5,815 million, to ¥165,785 million (US$1,564 million). However, fixed assets fell ¥16,115 million, to ¥276,378 million (US$2,607 million). The primary reason for the increase in current assets was the rise in cash and cash equivalents, which was sufficient to offset the year-on-year decrease in trade notes and accounts receivable and inventories caused by changes in the scope of consolidation. The fall in fixed assets was due to the decrease in property, plant and equipment caused by changes in the scope of consolidation and depreciation. Investments in securities increased as the market value of listed shares rose to reflect the stock market rally, but the fall in fixed assets exceeded this rise. Liabilities totaled ¥235,702 million (US$2,224 million), a ¥16,197 million decrease compared to the previous fiscal year. This total reflects a ¥5,474 million year-on-year decrease in current liabilities, to ¥136,219 million (US$1,285 million), and a ¥10,723 million drop in fixed liabilities, to ¥99,483 million (US$939 million). As a result of continued efforts to reduce interest-bearing debt (consisting of short-term bank borrowings, bonds to be redeemed within one year, bonds, convertible bonds and long-term indebtedness), the balance stood at ¥134,103 million (US$1,265 million) at March 31, 2004, down ¥25,895 million. NSG increased its stake in consolidated subsidiary Malaysian Sheet Glass, thereby decreasing minority interests in consolidated subsidiaries by ¥3,751 million year-on-year, to ¥5,898 (US$56 million) million. Shareholders’ equity totaled ¥200,562 million (US$1,892 million), a ¥9,649 million increase compared to the previous fiscal year. This was primarily because retained earnings increased to ¥90,558 (US$854 million) million due to the net income posted this fiscal period, recovering from a net loss in fiscal 2003. Additionally, unrealized holding gains on securities doubled to ¥28,751 million as the stock market

rallied. However, the stronger yen decreased the total assets of US subsidiaries when converted into yen, resulting in a ¥10,008 million (US$94 million) loss for translation adjustments. Based on these factors, NSG’s capital adequacy ratio rose slightly from 42.2% in fiscal 2003 to 45.4% in fiscal 2004. Net assets per share rose from ¥430.45 to ¥452.32 (US$4.27). Cash flows

Cash and cash equivalents at end of year increased ¥9,576 million (US$90 million) compared to the previous fiscal year, to ¥55,357 million (US$522 million). Net cash provided by operating activities fell ¥127 million (US$1 million) to ¥17,603 million (US$166 million). Net cash provided by investing activities decreased ¥2,056 million (US$19 million) compared to the previous fiscal year, to ¥9,642 million (US$91 million). This was primarily due to high proceeds from sales of investments in affiliates. Free cash flow (the sum of net cash provided by operating activities and net cash provided by investing activities) amounted to ¥27,244 million (US$257 million). Net cash used in financing activities fell ¥96 million (US$1 million) compared to the previous fiscal year, to ¥16,623 million (US$157 million). This was primarily due to the decrease in interest-bearing debt caused by repayment of long-term indebtedness and redemption of bonds.

0

1.5

3.0

4.5

6.0

00 01 02 03 04

Interest Coverage(times)

0

50,000

100,000

150,000

200,000

00 01 02 03 04

Interest-bearing Debt andDebt/Equity Ratio(¥ millions, times)

1.210.68 0.78 0.84 0.67

0

150,000

300,000

450,000

600,000

00 01 02 03 04

Total Assets andReturn on Total Assets

(¥ millions, %)

3.1% 5.8%

-0.4% -0.6% 0.7%

0

75,000

150,000

225,000

300,000

Shareholders’ Equity andEquity Ratio

(¥ millions, %)

00 01 02 03 04

33.9%

42.7%

42.3%42.2%45.4%

1. Operating Activities2. Investing Activities3. Free Cash Flow4. Financing Activities5. Exchange Difference6. Net Cash Inflows

-30,000

-15,000

0

15,000

30,000

1 2 3 4 5 6

Cash Flows (¥ millions)

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Selected Consolidated Financial and Operating Data

Results of Operations: Net sales Flat and safety glass and building materials Information/electronics materials and devices Glass fiber products Other Operating income Flat and safety glass and building materials Information/electronics materials and devices Glass fiber products Other Eliminations Income (loss) before income taxes and minority interest Net income (loss) Capital expenditures Depreciation Research and development costsFinancial Position: Total assets Property and equipment Long-term indebtedness Interest-bearing debt Modified working capital Shareholders’ equityAmounts per Share (in yen): Net income Cash dividends Shareholders’ equityFinancial Ratios: Operating income to net sales Net income to net sales R&D costs to net sales SG&A expenses to net sales Equity ratio Return on equity Return on total assets Interest coverage (times) Debt/equity ratio (times)Other Statistics: Number of employees at fiscal year-end (persons) Common stock issued (thousand shares) Common stock price range (in yen): High Low

2004

¥269,149 168,599 48,953 35,681 15,916 10,025 6,488 (924)

4,560 (153)

54 9,562 3,207

12,775 14,875 7,714

¥442,163 126,271 61,011

134,103 29,566

200,562

7.19 3.00

452.32

3.7 1.2 2.9

21.6 45.4 1.6 0.7 5.6

0.67

11,392 443,946

454235

2003

¥280,100 176,433 49,754 36,188 17,724

4,302 6,421

(6,633)3,327 1,179

6 1,468

(3,152)14,405 17,753

8,926

¥452,463 151,876 80,327

159,997 18,277

190,913

(7.17)3.00

430.45

1.5 -

3.2 21.4 42.2 - -

4.7 0.84

13,406 443,946

541 194

2002

¥286,849 185,450

38,451 -

62,948 5,008 7,734

(5,697)-

3,042 (71)

(174)(2,278)19,430 18,696 8,205

¥528,227 168,057

95,078 173,841

22,249 223,202

(5.13)6.00

502.82

1.7 -

2.9 21.5 42.3 - -

3.6 0.78

11,985 443,946

1,319 351

2001

¥307,401 184,159 65,404

- 57,838 26,235 8,113

13,428 -

4,888 (194)

35,562 31,522 15,953 16,275 6,328

¥546,329 156,179 99,803

159,162 55,512

233,236

71.70 6.00

530.49

8.5 10.3 2.1

19.7 42.7 13.5 5.8 5.5

0.68

12,640 439,675

1,998 871

Selected Consolidated Financial and Operating DataNippon Sheet Glass Company, Limited and Consolidated SubsidiariesYears ended March 31

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Millions of yen2000

¥270,654 169,454 54,647

- 46,552

8,362 1,551 4,415

- 2,396

0 34,746 14,007 12,233 15,685

6,750

¥452,283 154,919 101,567 186,089 54,671

153,455

31.86 3.00

349.07

3.1 5.2 2.5

21.7 33.9

9.1 3.1 3.0

1.21

10,993 439,609

1,195 374

1999

¥249,521 155,153 47,666

- 46,700

2,206 (4,655)3,846

- 3,070

(54)(1,957)(2,976)17,617 14,911

5,297

¥401,437 138,700 107,701 180,287 36,291

135,928

(6.77)3.00

309.31

0.9 -

2.1 21.9 33.9 - - -

1.33

8,258 439,463

433 191

1998

¥269,981 178,317

- -

91,664 4,677 (485)

- -

5,203 (41)

4,648 1,238

23,721 12,015

6,079

¥425,406 138,324 86,676

172,950 18,923

144,106

2.82 3.00

327.92

1.7 0.5 2.3

20.6 33.9

0.9 0.3 -

1.20

7,765 439,463

458 145

1997

¥263,167 183,196

- -

79,970 4,552 4,226

- -

336 (10)

3,112 510

12,220 11,988

6,129

¥396,170 124,295 88,460

146,581 34,265

144,282

1.16 3.00

328.32

1.7 0.2 2.3

20.2 36.4

0.4 0.1 -

1.02

7,184 439,463

559 330

1996

¥256,341 184,343

- -

71,997 1,006

545 - -

470 (9)

3,230 1,087

11,135 13,094

6,176

¥386,530 127,048 81,059

135,468 32,751

145,605

2.47 3.00

331.33

0.4 0.4 2.4

20.9 37.7

0.7 0.3 -

0.93

7,233 439,463

535 350

1995

¥258,582 190,012

- -

68,568 (17)

1,930 - -

(1,934)(13)

2,026 (554)

- 14,891

6,451

¥391,408 130,346 58,765

136,132 15,389

145,830

(1.26)3.00

331.84

- -

2.5 21.7 37.3 - - -

0.93

7,183 439,463

604 426

1994

¥258,779 195,068

- -

63,711 (2,091)

740 - -

(2,831)-

438 (885)

- 16,967

8,411

¥383,950 143,081 91,417

131,556 38,385

146,513

(2.01)5.00

333.40

- -

3.3 22.1 38.2 - - -

0.90

7,603 439,461

656 412

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

2004 2003 2004

ASSETSCurrent assets:

Cash and cash equivalents ¥ 55,357 ¥ 45,781 $ 522,236Short-term investments (Note 5) 612 894 5,774Trade notes and accounts receivable 67,875 68,356 640,330

Allowance for doubtful accounts (597) (2,349) (5,632)Inventories:

Finished goods 20,125 20,666 189,858Work in process and raw materials 16,059 17,536 151,500

Deferred income taxes (Note 4) 1,490 2,575 14,057Other current assets 4,864 6,511 45,886

Total current assets 165,785 159,970 1,564,009

Property, plant and equipment (Note 5):Land 29,034 30,076 273,906Buildings and structures 116,948 126,279 1,103,283Machinery and equipment 185,615 223,294 1,751,085Construction in progress 7,849 4,265 74,047

339,446 383,914 3,202,321Accumulated depreciation (213,175) (232,038) (2,011,085)

Property, plant and equipment, net 126,271 151,876 1,191,236

Investments and other assets:Investments in securities (Note 2) 70,939 52,432 669,236Investments in and advances to non-consolidated subsidiaries and affiliates 67,702 73,475 638,698Deferred income taxes (Note 4) 1,013 1,411 9,557Long-term loans receivable and other assets 10,453 13,299 98,613

150,107 140,617 1,416,104

Total assets ¥442,163 ¥452,463 $4,171,349

See accompanying notes to consolidated financial statements.

Consolidated Balance SheetsNippon Sheet Glass Company, Limited and Consolidated Subsidiaries • March 31, 2004 and 2003

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

2004 2003 2004

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:

Short-term bank borrowings (Note 5) ¥ 46,798 ¥ 54,141 $ 441,491Current portion of long-term indebtedness (Note 5) 26,294 25,530 248,057Notes and accounts payable:

Trade 41,939 39,469 395,651Construction 3,409 5,277 32,160

Accrued expenses 7,408 8,415 69,887Accrued income taxes (Note 4) 2,678 1,461 25,264Deferred income taxes (Note 4) 1,441 502 13,594Customers’ deposits and other 6,252 6,898 58,981

Total current liabilities 136,219 141,693 1,285,085

Long-term liabilities:Long-term indebtedness (Note 5) 61,011 80,327 575,575Accrued retirement benefits (Note 3) 14,172 15,048 133,698Reserve for rebuilding furnaces 8,503 7,589 80,217Deferred income taxes (Note 4) 14,246 3,987 134,396Other long-term liabilities 1,551 3,257 14,633

99,483 110,208 938,519

Minority interests in consolidated subsidiaries 5,899 9,649 55,651

Contingent liabilities (Note 7)

Shareholders’ equity (Notes 6 and 14):Common stock:

Authorized — 1,150,000,000 sharesIssued — 443,946,452 shares in 2004 and 2003 41,060 41,060 387,358

Capital surplus 50,371 50,371 475,198Retained earnings 90,558 88,047 854,321Unrealized holding gain on securities (Notes 2 and 4) 28,751 13,396 271,236Translation adjustments (10,008) (1,822) (94,415)Treasury stock, at cost; 585,530 shares in 2004 and 494,853 shares in 2003 (170) (139) (1,604)

200,562 190,913 1,892,094

¥442,163 ¥452,463 $4,171,349

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

2004 2003 2004

Net sales ¥269,149 ¥280,100 $2,539,142Cost of sales 200,974 215,743 1,895,982

Gross profit 68,175 64,357 643,160Selling, general and administrative expenses 58,150 60,055 548,585

Operating income 10,025 4,302 94,575

Other income (expenses):Interest and dividend income 1,693 2,124 15,972Interest expense (3,100) (3,769) (29,245)Equity in earnings (losses) of affiliates 1,210 (391) 11,415Additional retirement benefits (Note 3) — (302) —Gain on exemption from future pension obligation of the welfare pension fund plan (Note 3) 1,259 — 11,877Other, net (1,525) (496) (14,386)

(463) (2,834) (4,367)

Income before income taxes and minority interests 9,562 1,468 90,208

Income taxes (Note 4):Current 3,998 3,426 37,717Deferred 2,121 1,118 20,010

6,119 4,544 57,727

Income (loss) before minority interests 3,443 (3,076) 32,481

Minority interests in net income of consolidated subsidiaries (236) (76) (2,226)

Net income (loss) ¥ 3,207 ¥ (3,152) $ 30,255

See accompanying notes to consolidated financial statements.

Consolidated Statements of OperationsNippon Sheet Glass Company, Limited and Consolidated Subsidiaries • For the years ended March 31, 2004 and 2003

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Number of shares Thousands ofof common stock Millions of yen U.S. dollars (Note 1)

2004 2003 2004 2003 2004

Common stock:Balance at beginning and end of the year 443,946,452 443,946,452 ¥ 41,060 ¥41,060 $387,358

Capital surplus:Balance at beginning of the year ¥ 50,371 ¥50,371 $475,198

Increase resulting from sales of treasury stock 0 — 0

Balance at end of the year ¥ 50,371 ¥50,371 $475,198

Retained earnings:Balance at beginning of the year ¥ 88,047 ¥92,796 $830,632

Net income (loss) 3,207 (3,152) 30,255Cash dividends (1,330) (1,331) (12,547)Bonuses to directors and corporate auditors (35) (43) (330)Increase (decrease) resulting from changes in scope of consolidation and application of equity method and ownership ratios 669 (223) 6,311

Balance at end of the year ¥ 90,558 ¥88,047 $854,321

Unrealized holding gain on securities (Notes 2 and 4)Balance at beginning of the year ¥ 13,396 ¥34,742 $126,377

Net change during the year 15,355 (21,346) 144,859

Balance at end of the year ¥ 28,751 ¥13,396 $271,236

Translation adjustments:Balance at beginning of the year ¥ (1,822) ¥ 4,255 $ (17,189)

Net change during the year (8,186) (6,077) (77,226)

Balance at end of the year ¥(10,008) ¥ (1,822) $ (94,415)

See accompanying notes to consolidated financial statements.

Consolidated Statements of Shareholders’ EquityNippon Sheet Glass Company, Limited and Consolidated Subsidiaries • For the years ended March 31, 2004 and 2003

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Consolidated Statements of Cash FlowsNippon Sheet Glass Company, Limited and Consolidated Subsidiaries • For the years ended March 31, 2004 and 2003

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

2004 2003 2004

I. Cash flows from operating activities:Income before income taxes and minority interests ¥ 9,562 ¥ 1,468 $ 90,208Adjustments for:

Depreciation and amortization 14,875 17,753 140,330(Decrease) increase in allowance for doubtful accounts (174) 2,356 (1,642)Decrease in accrued retirement benefits (515) (494) (4,858)Loss on disposal and sales of property, plant and equipment 2,765 2,125 26,085Gain on sales of investments in securities (10,738) (15,004) (101,302)Loss on revaluation of investments in securities 93 1,651 877Equity in (earnings) losses of affiliates (1,210) 391 (11,415)Interest and dividend income (1,693) (2,124) (15,972)Interest expense 3,100 3,769 29,245

Decrease in notes and accounts receivable 1,166 3,170 11,000(Increase) decrease in inventories (429) 9,076 (4,047)Increase (decrease) in notes and accounts payable 2,096 (1,867) 19,774Increase (decrease) in reserve for rebuilding furnaces 914 (2,225) 8,623Other, net 49 162 462

Subtotal 19,861 20,207 187,368Interest and dividend income received 4,139 4,614 39,047Interest paid (3,144) (3,761) (29,660)Income taxes paid (3,253) (3,330) (30,689)

Net cash provided by operating activities 17,603 17,730 166,066

II. Cash flows from investing activities:Payments for time deposits (1,775) (576) (16,745)Proceeds from time deposits 2,056 215 19,396Purchases of investments in securities (5,531) (945) (52,179)Proceeds from sales of investments in securities 18,634 18,880 175,793Proceeds from sales of investments in affiliates 6,412 — 60,491Purchases of property, plant and equipment (12,583) (11,937) (118,708)Proceeds from sales of property, plant and equipment 3,673 2,223 34,651Purchases of other assets (543) (609) (5,123)(Increase) decrease in short-term loans (981) 1,358 (9,255)Increase in long-term loans (391) (1,795) (3,689)Other, net 671 4,884 6,330

Net cash provided by investing activities 9,642 11,698 90,962

III. Cash flows from financing activities:Increase (decrease) in short-term bank borrowings 817 (5,033) 7,708Proceeds from long-term loans 9,306 10,175 87,793Repayment of long-term loans (24,610) (17,450) (232,170)Issuance of bonds 20,000 — 188,679Redemption of bonds (20,566) (2,481) (194,019)Early redemption of bonds — (50) —Cash dividends paid (1,330) (1,331) (12,547)Other, net (240) (357) (2,264)

Net cash used in financing activities (16,623) (16,527) (156,820)Effect of exchange rate changes on cash and cash equivalents (1,046) (1,882) (9,868)

Net increase in cash and cash equivalents 9,576 11,019 90,340Cash and cash equivalents at beginning of the year 45,781 33,799 431,896Effect of changes in scope of consolidation — 963 —

Cash and cash equivalents at end of the year ¥ 55,357 ¥ 45,781 $ 522,236

See accompanying notes to consolidated financial statements.

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Notes to Financial StatementsNippon Sheet Glass Company, Limited and Consolidated Subsidiaries • March 31, 2004

1. Summary of Significant Accounting Policies

(a) Basis of preparationThe accompanying consolidated financial statements of Nippon SheetGlass Company, Limited (the “Company”) and consolidated subsidiaries areprepared on the basis of accounting principles generally accepted in Japan,which are different in certain respects as to the application and disclosurerequirements of International Financial Reporting Standards and have beencompiled from the consolidated financial statements prepared by theCompany as required by the Securities and Exchange Law of Japan.

The translation of Japanese yen amounts into U.S. dollar amounts isincluded solely for the convenience of readers outside Japan and has beenmade at ¥106= U.S.$1.00, the exchange rate prevailing on March 31, 2004.This translation should not be construed as a representation that yen can beconverted into U.S. dollars at the above or any other rate.

(b) Principles of consolidationThe accompanying consolidated financial statements include the accountsof the Company and the significant companies which it controls directly orindirectly. Companies over which the Company exercises significant influ-ence in terms of their operating and financial policies have been included inthe consolidated financial statements on an equity basis. The assets andliabilities of the newly consolidated subsidiaries are stated at fair value asof their respective dates of acquisition.

The balance sheet dates of certain consolidated subsidiaries areDecember 31 and February 28 or 29. Any significant differences in inter-company accounts and transactions arising from intervening intercompanytransactions during the periods from January 1 through March 31 andMarch 1 through March 31 have been adjusted, if necessary.

The differences between the cost and the underlying net equity in thenet assets at the dates of acquisition of the consolidated subsidiaries andcompanies accounted for by the equity method are amortized by thestraight-line method principally over a period of five years.

(c) Foreign currency translationThe balance sheet accounts of the overseas consolidated subsidiariesare translated into yen at the rates of exchange in effect at the balancesheet date, except for the components of shareholders’ equity whichare translated at their historical exchange rates. Revenue and expenseaccounts are translated at the average rates of exchange in effect duringthe year.

(d) Cash equivalentsFor purposes of the consolidated statements of cash flows, cash and cashequivalents consist of cash on hand, deposits with banks withdrawable ondemand, and short-term investments, which are readily convertible to cashsubject to an insignificant risk of changes in their value and which werepurchased with an original maturity of three months or less.

(e) Short-term investments and investments in securitiesAn accounting standard for financial instruments requires that securities beclassified into three categories: trading, held-to-maturity or other securities.Under this accounting standard, trading securities are carried at fair valueand held-to-maturity debt securities are carried at amortized cost. Market-able securities classified as other securities are carried at fair value withany changes in unrealized holding gain or loss, net of the applicable incometaxes, included directly in shareholders’ equity. Non-marketable securitiesclassified as other securities are carried at cost. Cost of securities sold isdetermined by the moving average method.

(f) DerivativesDerivatives are stated at fair value.

(g) InventoriesInventories are principally stated at cost determined by the moving averagemethod.

(h) Property, plant and equipmentProperty, plant and equipment is stated at cost. Depreciation is calculatedat rates based on the estimated useful lives of the respective assets by thedeclining-balance method, except for the depreciation of buildings (otherthan leasehold improvements) acquired on or after April 1, 1998, which iscalculated by the straight-line method.

The estimated useful lives adopted are principally as follows:Buildings and structures 3–50 yearsMachinery and equipment 3–15 years

Maintenance, repairs and minor renewals are charged to income asincurred; however, significant renewals and improvements are capitalized.

(i) Retirement benefitsAccrued retirement benefits for employees are provided mainly at anamount calculated based on the retirement benefit obligation and the fairvalue of the pension plan assets as adjusted for unrecognized actuarialgain or loss and unrecognized prior service cost. The retirement benefitobligation is attributed to each period by the straight-line method overthe estimated remaining years of service of the eligible employees.

Actuarial gain or loss is amortized commencing the year following theyear in which the gain or loss is recognized by the straight-line method overa period of five years, which is shorter than the average remaining years ofservice of the eligible employees.

The Company and certain consolidated subsidiaries have unfundedretirement benefit plans for directors and statutory auditors. The amountsrequired under the plans have been fully accrued in accordance with theirinternal regulations.

(j) Reserve for rebuilding furnacesThe Company’s furnaces and related machinery periodically require sub-stantial repairs and replacement of their components. Such work occurs,normally, every eight to ten years after a furnace is put into operation orrebuilt.

The estimated costs of such work, which are substantially non-deductible for tax purposes until actually expended, are provided andcharged to income on a straight-line basis over the period to the date of theanticipated repairs or replacement. The differences between the estimatedand the actual costs are charged or credited to income at the time the workis performed.

(k) LeasesThe Company and its consolidated subsidiaries lease certain machinery andequipment under noncancelable lease agreements referred to as financeleases. At both the Company and the domestic consolidated subsidiaries,finance leases, which are defined as leases which do not transfer theownership of the leased property to the lessee, are principally accountedfor as operating leases.

(l) Bond issuance expensesBond issuance expenses are charged to income as incurred.

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(m) Research and development costs and software developmentcosts

Research and development costs are charged to income as incurred.Expenditures relating to the development of software intended for

internal use are charged to income when incurred, except if it is anticipatedthat this software will contribute to the generation of future income or costsavings. Such expenditures are capitalized as assets and are amortized bythe straight-line method over their estimated useful life of 5 years.

(n) Income taxesDeferred income taxes are recognized by the liability method. Under theliability method, deferred tax assets and liabilities are determined based onthe differences between financial reporting and the tax bases of the assetsand liabilities and are measured using the enacted tax rates and lawswhich will be in effect when the differences are expected to reverse.

(o) Hedge accountingGain or loss on derivatives designed as hedging instruments is deferreduntil the loss or gain on the underlying hedged item is recognized.Interest-rate swaps which meet certain conditions are accounted for as ifthe interest rates applied to the interest-rate swaps had originally appliedto the underlying debt. Receivables and payables hedged by forward for-eign exchange contracts which meet certain conditions are translatedat the corresponding foreign exchange contract rates.

(p) Appropriation of retained earningsUnder the Commercial Code of Japan, the appropriation of retained earn-ings with respect to a given financial period is made by resolution of theshareholders at a general meeting held subsequent to the close of thefinancial period and the accounts for the period, therefore, do not reflectsuch appropriations.

2. Investments in Securities

The Company and its consolidated subsidiaries did not hold any tradingsecurities or held-to-maturity debt securities at March 31, 2004 and 2003.

Marketable other securities at March 31, 2004 and 2003 are summa-rized as follows:

Millions of yen

2004

Acquisition Carrying Unrealizedcosts value gain (loss)

Securities whose carrying value exceeds their acquisition costs:

Equity securities ¥20,209 ¥68,652 ¥48,443Other 100 100 0

Subtotal 20,309 68,752 48,443

Securities whose carrying value does not exceed their acquisition costs

Equity securities 999 255 (744)

Total ¥21,308 ¥69,007 ¥47,699

Millions of yen

2003

Acquisition Carrying Unrealizedcosts value gain (loss)

Securities whose carrying value exceeds their acquisition costs:

Equity securities ¥11,785 ¥38,712 ¥26,927Other 100 100 0

Subtotal 11,885 38,812 26,927

Securities whose carrying value does not exceed their acquisition costs

Equity securities 15,847 9,615 (6,232)

Total ¥27,732 ¥48,427 ¥20,695

Thousands of U.S. dollars

2004

Acquisition Carrying Unrealizedcosts value gain (loss)

Securities whose carrying value exceeds their acquisition costs:

Equity securities $190,651 $647,660 $457,009Other 943 943 0

Subtotal 191,594 648,603 457,009

Securities whose carrying value does not exceed their acquisition costs

Equity securities 9,425 2,406 (7,019)

Total $201,019 $651,009 $449,990

At the year end, the Company and its consolidated subsidiaries com-pare the market value and carrying value, by security, of their marketableequity securities and record an impairment loss on those whose marketvalue shows a substantial decline of 50% or more, or those whose declineis within a range of 30% or more but less than 50% for a consecutive two-year period with the decline not deemed recoverable. The Company and itsconsolidated subsidiaries recorded an impairment loss on marketable othersecurities of nil and ¥970 million for the years ended March 31, 2004 and2003, respectively.

Sales of other securities for the years ended March 31, 2004 and 2003are summarized as follows:

Thousands ofMillions of yen U.S. dollars

2004 2003 2004

Sales ¥18,634 ¥18,880 $175,792Aggregate gain 10,752 15,363 101,434Aggregate loss 13 359 123

The carrying value of investments in non-marketable securities atMarch 31, 2004 and 2003 was as follows:

Thousands ofMillions of yen U.S. dollars

2004 2003 2004

Unlisted equity securities (except for equity securities traded on the OTC market) ¥9,805 ¥17,447 $92,500Other 72 46 679

The redemption schedule as of March 31, 2004 for other securitieswith maturity dates is summarized as follows:

Millions of yen

Due after one Due after fiveDue within year through years through Due after tenone year five years ten years years

Government bonds ¥1 ¥4 ¥4 ¥—Thousands of U.S. dollars

Due after one Due after fiveDue within year through years through Due after tenone year five years ten years years

Government bonds $9 $38 $38 $—

3. Retirement Benefits

The Company and its domestic consolidated subsidiaries have unfundedretirement benefit plans for all their eligible employees who terminate theiremployment before the age of 50. The amounts of the retirement benefitsare, in general, determined on the basis of length of service and currentbasic salary at the time of retirement.

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In addition, the Company and certain consolidated subsidiaries havenon-contributory funded pension plans for certain eligible employees tosupplement the unfunded retirement benefit plans.

On August 29, 2003, the Company received approval from the Ministerof Health, Labor and Welfare with respect to its application for exemptionfrom the obligation for benefits related to future employee services underthe substitutional portion of the welfare pension fund plans (the “WPFP”).

The following table sets forth the funded and accrued status of theplans and the amounts recognized in the consolidated balance sheets atMarch 31, 2004 and 2003 for the defined benefit plans of the Companyand its consolidated subsidiaries:

Thousands ofMillions of yen U.S. dollars

2004 2003 2004

Retirement benefit obligation ¥(48,456) ¥(53,258) $(457,132)Plan assets at fair value 27,458 28,169 259,038

Unfunded retirement benefit obligation (20,998) (25,089) (198,094)Unrecognized actuarial loss 7,914 11,053 74,660

Net amount recognized (13,084) (14,036) (123,434)Prepaid pension expense 97 24 915

Accrued retirement benefits ¥(13,181) ¥(14,060) $(124,349)

The consolidated subsidiaries, except for Isolite Insulating ProductsCo., Ltd. and Nippon Muki Co., Ltd., have adopted simplified methodsfor calculating their accrued retirement benefits as permitted under theaccounting standard for employees’ retirement benefits.

In accordance with the transitional provision stipulated in the account-ing standard, the Company accounted for the separation of the substitu-tional portion of the benefit obligation from the corporate portion of thebenefit obligation under its WPFP as of the date of approval of its exemp-tion, assuming that the transfer to the Japanese government of the sub-stitutional portion of the benefit obligation and the related pension planassets had been completed as of that date. As a result, the Companyrecognized a gain of ¥1,259 million ($11,877 thousand) for the year endedMarch 31, 2004 which has been reflected in the consolidated statementsof operations for the year then ended as a component of other income.The pension assets which are to be transferred were calculated at ¥3,137million ($29,594 thousand) at March 31, 2004.

The components of retirement benefit expenses for the years endedMarch 31, 2004 and 2003 are outlined as follows:

Thousands ofMillions of yen U.S. dollars

2004 2003 2004

Service cost ¥ 2,226 ¥2,227 $ 21,000Interest cost 1,170 1,446 11,038Expected return on plan assets (712) (878) (6,717)Net actuarial loss recognized during the year 2,415 1,295 22,783

Retirement benefit expenses 5,099 4,090 48,104Gain on exemption from future pension obligation of the WPFP (1,259) — (11,878)

Total ¥ 3,840 ¥4,090 $ 36,226

The retirement benefit expenses of the consolidated subsidiaries whichcalculate these by simplified methods have been included in service cost inthe above table.

With respect to the retirement benefit expenses presented in theabove table, additional retirement benefits of ¥302 million were paid forthe year ended March 31, 2003 and this has been reflected in the consoli-dated statement of operations for the year then ended as a component ofother expenses.

The assumptions used in accounting for the above plans were as follows:2004 2003

Discount rates Principally 2.0% Principally 2.5%Expected rate of return on plan assets Principally 3.0% Principally 3.0%

The Company and certain consolidated subsidiaries, based on theirinternal bylaws, recorded accrued retirement benefits to directors andstatutory auditors of ¥991 million ($9,349 thousand) and ¥988 million atMarch 31, 2004 and 2003, respectively.

4. Income Taxes

Income taxes in Japan applicable to the Company and its domestic con-solidated subsidiaries consist of corporation tax, inhabitants’ taxes andenterprise tax, which in the aggregate, resulted in a statutory tax rate ofapproximately 41.9% for the years ended March 31, 2004 and 2003. For-eign subsidiaries are subject to the income tax regulations of the countriesin which they operate.

The effective tax rates reflected in the consolidated statements ofoperations for the years ended March 31, 2004 and 2003 differ from thestatutory tax rate for the following reasons:

2004 2003

Statutory tax rate 41.9% 41.9%Losses at subsidiaries 15.1 69.2Permanently non-deductible expenses 1.8 78.2Permanently non-taxable income (4.0) (29.3)Elimination of dividend income for consolidation purposes 16.9 281.2Reversal of devaluation of investments in affiliates — (125.3)Temporary differences resulting from eliminations for consolidation purposes (11.8) (16.7)Other 4.1 10.2

Effective tax rates 64.0% 309.4%

The significant components of deferred tax assets and liabilities atMarch 31, 2004 and 2003 were as follows:

Thousands ofMillions of yen U.S. dollars

2004 2003 2004

Deferred tax assets:Accrued retirement benefits ¥ 4,493 ¥ 5,223 $ 42,387Reserve for rebuilding furnaces 2,661 2,254 25,104Tax loss carryforwards 2,158 2,324 20,358Loss on revaluation of investments in securities 2,915 2,267 27,500Accrued expenses 877 599 8,273Allowance for doubtful accounts 836 493 7,887Unrealized profit on fixed assets 2,324 2,505 21,925Other 2,555 3,310 24,104

Subtotal 18,819 18,975 177,538Less valuation allowance (6,657) (4,769) (62,802)

Total deferred tax assets 12,162 14,206 114,736

Deferred tax liabilities:Unrealized holding gain on securities (20,812) (9,216) (196,340)Reserve for special depreciation (a reserve for tax purposes under the Corporation Tax Law of Japan) (2,988) (3,368) (28,188)Other (1,546) (2,125) (14,584)

Total deferred tax liabilities (25,346) (14,709) (239,112)

Net deferred tax liabilities ¥(13,184) ¥ (503) $(124,376)

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In accordance with a law on amendments to local tax laws, etc.announced on March 31, 2003, the Company and its domestic consolidatedsubsidiaries applied a statutory tax rate of 40.5% to the calculation ofdeferred tax assets and liabilities at March 31, 2003, which are expectedto be reversed on April 1, 2004 and thereafter. The effect of this changein the statutory tax rate applied was to decrease deferred tax assets andliabilities at March 31, 2003 by ¥20 million and ¥185 million, respectively,and to increase income taxes-deferred for the year ended March 31, 2003and unrealized holding gain on securities at March 31, 2003 by ¥134 millionand ¥299 million, respectively.

5. Short-Term Bank Borrowings and Long-Term Indebtedness

Short-term bank borrowings generally represent bank overdrafts. Theaverage interest rates on these borrowings were 1.0% and 1.1% at March31, 2004 and 2003, respectively.

For flexible financing purposes, the Company and a consolidatedsubsidiary concluded line-of-credit agreements with banks. The status ofthese at March 31, 2004 and 2003 was as follows:

Thousands ofMillions of yen U.S. dollars

2004 2003 2004

Lines of credit ¥11,000 ¥1,000 $103,774Lines used — — —

Remaining lines ¥11,000 ¥1,000 $103,774

Long-term indebtedness at March 31, 2004 and 2003 consisted of thefollowing:

Thousands ofMillions of yen U.S. dollars

2004 2003 2004

1.06% to 3.35% secured loans from banks and other financial institutions, due in installments through 2011 ¥ 2,889 ¥ 6,699 $ 27,2540.93% to 12.72% unsecured loans from banks and other financial institutions, due in installments through 2007 34,825 49,867 328,5372.5% unsecured bonds, due September 25, 2003 — 9,900 —2.85% unsecured bonds, due April 27, 2005 9,600 9,600 90,5663.2% unsecured bonds, due August 3, 2005 — 10,000 —1.8% unsecured convertible bonds, due September 30, 2004 19,791 19,791 186,7081.18% unsecured bonds, due September 8, 2008 10,000 — 94,3401.77% unsecured bonds, due September 8, 2010 10,000 — 94,340Other bonds 200 — 1,887

Total 87,305 105,857 823,632Less-current portion included in current liabilities 26,294 25,530 248,057

¥61,011 ¥ 80,327 $575,575

Convertible bonds, unless previously redeemed, are convertible intocommon stock of the Company at ¥1,122 per share during the period fromAugust 1, 1989 to September 29, 2004.

The conversion price is subject to adjustment in certain cases such asthe issuance of common stock at less than fair value or a stock split.

The Company concluded an agreement effective December 2, 2003 onan in-substance defeasance on its 3.2% unsecured bonds of ¥10,000 mil-lion ($94,340 thousand) and made a cash payment into the trust account ofthe amount necessary for the payment of the related principal and interest.Accordingly, these bonds have been treated as redeemed and loss onredemption of bonds in the amount of ¥666 million ($6,283 thousand) wasrecognized. The contingent liabilities to the bond holders with respect tothis transaction are described in Note 7.

The assets pledged as collateral for long-term indebtedness of ¥2,624million ($24,755 thousand), short-term bank borrowings of ¥3,989 million($37,632 thousand), and trade notes discounted with banks of ¥711 million($6,708, thousand) at March 31, 2004 were as follows:

Thousands ofMillions of yen U.S. dollars

Short-term investments ¥ 40 $ 377Land 4,965 46,840Buildings and structures 3,672 34,642Machinery and equipment 187 1,764

Total ¥8,864 $83,623

The aggregate annual maturities of long-term indebtedness subsequentto March 31, 2004 are summarized as follows:

Thousands ofYear ending March 31, Millions of yen U.S. dollars

2005 ¥26,294 $248,0572006 13,317 125,6322007 5,900 55,6602008 11,384 107,3962009 18,217 171,8582010 and thereafter 12,193 115,029

¥87,305 $823,632

6. Shareholders’ Equity

The Commercial Code of Japan (the “Code”) provides that an amountequivalent to at least 10% of cash dividends paid and bonuses to directorsand statutory auditors, and exactly 10% of interim cash dividends paid beappropriated to the legal reserve until the sum of additional paid-in capital,which is included in capital surplus, and the legal reserve, which is includedin retained earnings, equals 25% of stated capital. The Code also providesthat additional paid-in capital and the legal reserve are not available fordividends, but may be used to reduce a capital deficit by resolution of theshareholders or may be capitalized by resolution of the Board of Directors.The legal reserve of the Company amounted to ¥6,376 million ($60,151thousand) at March 31, 2004 and 2003.

7. Contingent Liabilities

At March 31, 2004, the Company was contingently liable for an in-substance defeasance on bonds in the amount of ¥10,000 million ($94,340thousand).

In addition, at March 31, 2004, the Company and its consolidatedsubsidiaries were contingently liable for trade notes receivable discountedwith banks of ¥4,354 million ($41,075 thousand), trade rates receivableendorsed of ¥632 million ($5,962 thousand), and for guarantees of loansof non-consolidated subsidiaries, affiliates and distributors amounting to¥4,181 million ($39,443 thousand). These amounts included contingentguarantees and letters of awareness amounting to ¥843 million ($7,953thousand) in the aggregate.

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8. Leases

The Company and its consolidated subsidiaries lease certain machinery andequipment. Lease payments remitted under these leases totaled ¥2,508million ($23,660 thousand) and ¥2,079 million for the years ended March31, 2004 and 2003, respectively.

The pro forma information relating to acquisition costs, accumulateddepreciation and the net book value of the leased assets at March 31, 2004and 2003, which would have been reflected in the consolidated balancesheets if finance lease accounting had been applied to the finance leasescurrently accounted for as operating leases, is summarized as follows:

Thousands ofMillions of yen U.S. dollars

2004 2003 2004

Acquisition costs ¥17,579 ¥19,252 $165,840Accumulated depreciation 13,763 13,865 129,840

Net book value ¥ 3,816 ¥ 5,387 $ 36,000

Future minimum lease payments to be made under finance leasessubsequent to March 31, 2004 were as follows:

Thousands ofYear ending March 31, Millions of yen U.S. dollars

Due within one year ¥1,287 $12,142Due after one year 2,529 23,858

Total ¥3,816 $36,000

The acquisition costs and future minimum lease payments underfinance leases include the imputed interest expense portion.

Depreciation expense, which is not reflected in the accompanyingconsolidated statements of operations, if computed by the straight-linemethod, would have been ¥2,508 million ($23,660 thousand) and ¥2,079million for the years ended March 31, 2004 and 2003, respectively.

9. Derivatives

Derivative financial instruments are utilized by the Company and its con-solidated subsidiaries principally to hedge against the risk of fluctuation ininterest rates and foreign currency exchange rates. The Company and itsconsolidated subsidiaries have established a control environment whichincludes policies and procedures for risk assessment and for the approval,reporting and monitoring of transactions involving derivatives. The Com-pany and its consolidated subsidiaries do not hold or issue derivatives fortrading purposes.

The Company and its consolidated subsidiaries are exposed to certainmarket risks arising from derivative transactions; however, their derivativespositions are strictly limited in amount based on the underlying hedgedtransactions. The Company and its consolidated subsidiaries are alsoexposed to certain credit risk in the event of nonperformance by thecounterparties to the currency and interest-rate related derivatives; how-ever, the Company and its consolidated subsidiaries believe that the creditrisk is minimal because they do not anticipate nonperformance by any ofthese counterparties all of which are financial institutions with high creditratings.

Disclosure of fair value information on derivatives at March 31, 2004and 2003 has been omitted because all open derivatives positions qualifiedfor hedge accounting.

10. Research and Development Costs

Costs relating to research and development activities which are chargedto income as incurred amounted to ¥7,714 million ($72,774 thousand) and¥8,926 million for the years ended March 31, 2004 and 2003, respectively.

11. Supplementary Cash Flow Information

Effective April 1, 2002, the Company acquired all outstanding shares ofAdvanced Disk Technology SDN. BHD. which Kobe Steel, Ltd. had owned,from Kobe Steel, Ltd. free of any consideration. Consequently, cash andcash equivalents increased by ¥1,103 million as the Company initiallyincluded this company in consolidation.

The assets and liabilities of Advanced Disk Technology SDN. BHD. atApril 1, 2002, the date of its initial consolidation, were as follows:

Millions of yen

Current assets ¥2,000Non-current assets 2,831Current liabilities 880Non-current liabilities 2,590

Effective September 2, 2002, the Company carved out the glass fiberand carbon fiber business from the Company and transferred this businessto a newly established company named “NSG Vetrotex Co., Ltd.” The Com-pany sold 60% of its shares of common stock of this new company to Saint-Gobain Vetrotex International for ¥3,606 million effective the same date.The assets and liabilities transferred to NSG Vetrotex Co., Ltd. as of August31, 2002 were as follows:

Millions of yen

Current assets ¥6,118Non-current assets 4,810Current liabilities 1,330Non-current liabilities 813

Effective the year ended March 31, 2004, NSG Philippines Inc. andfour other subsidiaries have been excluded from the scope of consolidationbecause the investments in these companies had been sold. The assetsand liabilities of these companies as of the dates of the respective saleswere as follows:

Thousands ofMillions of yen U.S. dollars

Current assets ¥ 7,198 $ 67,906Non-current assets 14,561 137,368Current liabilities 13,141 123,972Non-current liabilities 1,396 13,170

12. Amounts per Share

Net assets per share are based on the number of shares of common stockoutstanding at the year end.

Basic net income (loss) per share is based on the weighted-averagenumber of shares of common stock outstanding during each year. Dilutednet income per share is computed based on the weighted-average numberof shares of common stock outstanding each year after giving effect to thedilutive potential of the shares of common stock to be issued upon theconversion of convertible bonds.

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Cash dividends per share represent the cash dividends declared as ap-plicable to the respective years.

Amounts per share at March 31, 2004 and 2003 and for the years thenended were as follows:

Yen U.S. dollars

2004 2003 2004

Net assets ¥452.32 ¥430.45 $4.27Net income (loss) 7.19 (7.17) 0.07Cash dividends 3.00 3.00 0.03

Diluted net income per share for the year ended March 31, 2004 hasnot been presented because no potential for a dilutive effect exists. Di-luted net income per share for the year ended March 31, 2003 has not beenpresented because a net loss was recorded for the year.

13. Segment Information

(a) Business segmentsThe Company and its consolidated subsidiaries operate principally in four business segments: the “flat and safety glass and building materials” business,the “information/electronics materials and devices” business, the “glass fiber products” business, and “other” business.

The “flat and safety glass and building materials” business principally includes the manufacture and sale of flat glass, the transportation of glass, andinterior and exterior construction materials.

The “information/electronics materials and devices” business principally includes the manufacture and sale of micro-optics, fine glass and glass disks.The “glass fiber products” business principally includes the manufacture and sale of glass fiber products.The segment designated “other” business principally includes the manufacture and sale of fire-proof adiabators and other items.The business segment information for the years ended March 31, 2004 and 2003 is summarized as follows:

Millions of yen

Year ended March 31, 2004

Flat and Information/ Eliminationssafety glass electronics and generaland building materials Glass fiber corporate

materials and devices products Other Total assets Consolidated

I. Sales and operating incomeExternal sales ¥168,599 ¥48,953 ¥35,681 ¥ 15,916 ¥269,149 ¥ — ¥269,149Intersegment sales 1,285 606 96 8,368 10,355 (10,355) —

Total sales 169,884 49,559 35,777 24,284 279,504 (10,355) 269,149Operating expenses 163,396 50,483 31,217 24,437 269,533 (10,409) 259,124

Operating income (loss) ¥ 6,488 ¥ (924) ¥ 4,560 ¥ (153) ¥ 9,971 ¥ 54 ¥ 10,025

II. Assets, depreciation and capital expenditures

Total assets ¥167,197 ¥56,565 ¥45,039 ¥189,198 ¥457,999 ¥(15,836) ¥442,163Depreciation 7,139 5,091 1,668 1,295 15,193 (318) 14,875Capital expenditures 4,984 3,405 1,638 2,911 12,938 (163) 12,775

Net income (loss) per share for the years ended March 31, 2004 and2003 is based on the following factors:

Thousands ofMillions of yen U.S. dollars

2004 2003 2004

Net income (loss) ¥3,207 ¥(3,152) $30,255Amounts not attributable to shareholders of common stock:Officers’ bonuses appropriated from retained earnings (20) (28) (189)

Net income (loss) attributable to shareholders of common stock ¥3,187 ¥(3,180) $30,066

Weighted-average number of shares 443,411 443,716 — of common stock outstanding thousand thousand during the year shares shares

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Millions of yen

Year ended March 31, 2003

Flat and Information/ Eliminationssafety glass electronics and generaland building materials corporate

materials and devices Other Total assets Consolidated

I. Sales and operating incomeExternal sales ¥176,433 ¥49,754 ¥ 53,913 ¥280,100 ¥ — ¥280,100Intersegment sales 1,288 425 11,036 12,749 (12,749) –

Total sales 177,721 50,179 64,949 292,849 (12,749) 280,100Operating expenses 171,300 56,812 60,441 288,553 (12,755) 275,798

Operating income (loss) ¥ 6,421 ¥ (6,633) ¥ 4,508 ¥ 4,296 ¥ 6 ¥ 4,302

II. Assets, depreciation and capital expenditures

Total assets ¥219,790 ¥62,135 ¥180,588 ¥462,513 ¥ (10,050) ¥452,463Depreciation 8,905 5,594 3,559 18,058 (305) 17,753Capital expenditures 6,796 4,352 3,466 14,614 (209) 14,405

Thousands of U.S. dollars

Year ended March 31, 2004

Flat and Information/ Eliminationssafety glass electronics and generaland building materials Glass fiber corporate

materials and devices products Other Total assets Consolidated

I. Sales and operating incomeExternal sales $1,590,557 $461,821 $336,613 $ 150,151 $2,539,142 $ — $2,539,142Intersegment sales 12,122 5,717 906 78,943 97,688 (97,688) —

Total sales 1,602,679 467,538 337,519 229,094 2,636,830 (97,688) 2,539,142Operating expenses 1,541,471 476,255 294,500 230,538 2,542,764 (98,197) 2,444,567

Operating income (loss) $ 61,208 $ (8,717) $ 43,019 $ (1,444) $ 94,066 $ 509 $ 94,575

II. Assets, depreciation and capital expenditures

Total assets $1,577,330 $533,632 $424,896 $1,784,887 $4,320,745 $(149,396) $4,171,349Depreciation 67,349 48,028 15,736 12,217 143,330 (3,000) 140,330Capital expenditures 47,019 32,123 15,453 27,462 122,057 (1,538) 120,519

Data on the “glass fiber products” business was included in the “other” segment up to the year ended March 31, 2003. Effective the year ended March31, 2004, the Company presented these data separately because the Group had almost completed the reorganization of this business, its importance hadincreased and it was recording stable operating income.

The business segment information for the year ended March 31, 2003, which has been restated based on the revised segmentation policy for the yearended March 31, 2004, is presented as follows:

Millions of yen

Year ended March 31, 2003

Flat and Information/ Eliminationssafety glass electronics and generaland building materials Glass fiber corporate

materials and devices products Other Total assets Consolidated

I. Sales and operating incomeExternal sales ¥176,433 ¥49,754 ¥36,188 ¥ 17,725 ¥280,100 ¥ — ¥280,100Intersegment sales 1,288 425 201 11,166 13,080 (13,080) —

Total sales 177,721 50,179 36,389 28,891 293,180 (13,080) 280,100Operating expenses 171,300 56,812 33,062 27,711 288,885 (13,087) 275,798

Operating income (loss) ¥ 6,421 ¥ (6,633) ¥ 3,327 ¥ 1,180 ¥ 4,295 ¥ 7 ¥ 4,302

II. Assets, depreciation and capital expenditures

Total assets ¥219,790 ¥62,135 ¥53,901 ¥137,350 ¥473,176 ¥(20,713) ¥452,463Depreciation 8,905 5,594 1,871 1,688 18,058 (305) 17,753Capital expenditures 6,796 4,352 1,693 1,773 14,614 (209) 14,405

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(b) Geographic segmentsThe geographic segment information for the years ended March 31, 2004 and 2003 is summarized as follows:

Millions of yen

Year ended March 31, 2004

Eliminationsand general

North Other corporateJapan Asia America areas Total assets Consolidated

I. Sales and operating incomeExternal sales ¥232,354 ¥25,675 ¥ 1,050 ¥10,070 ¥269,149 ¥ — ¥269,149Intersegment sales 16,288 9,899 574 310 27,071 (27,071) —Total sales 248,642 35,574 1,624 10,380 296,220 (27,071) 269,149Operating expenses 242,816 33,846 1,686 9,443 287,791 (28,667) 259,124Operating income (loss) ¥ 5,826 ¥ 1,728 ¥ (62) ¥ 937 ¥ 8,429 ¥ 1,596 ¥ 10,025

II. Assets ¥418,480 ¥36,175 ¥50,347 ¥30,331 ¥535,333 ¥(93,170) ¥442,163Millions of yen

Year ended March 31, 2003

Eliminationsand general

North Other corporateJapan Asia America areas Total assets Consolidated

I. Sales and operating incomeExternal sales ¥239,358 ¥29,732 ¥ 1,490 ¥ 9,520 ¥280,100 ¥ — ¥280,100Intersegment sales 14,558 7,447 141 302 22,448 (22,448) –

Total sales 253,916 37,179 1,631 9,822 302,548 (22,448) 280,100Operating expenses 251,471 34,983 2,281 8,806 297,541 (21,743) 275,798

Operating income (loss) ¥ 2,445 ¥ 2,196 ¥ (650) ¥ 1,016 ¥ 5,007 ¥ (705) ¥ 4,302

II. Assets ¥399,475 ¥64,453 ¥40,679 ¥32,486 ¥537,093 ¥(84,630) ¥452,463Thousands of U.S. dollars

Year ended March 31, 2004

Eliminationsand general

North Other corporateJapan Asia America areas Total assets Consolidated

I. Sales and operating incomeExternal sales $2,192,019 $242,217 $ 9,906 $ 95,000 $2,539,142 $ — $2,539,142Intersegment sales 153,660 93,387 5,415 2,924 255,386 (255,386) —

Total sales 2,345,679 335,604 15,321 97,924 2,794,528 (255,386) 2,539,142Operating expenses 2,290,717 319,302 15,906 89,084 2,715,009 (270,442) 2,444,567

Operating income (loss) $ 54,962 $ 16,302 $ (585) $ 8,840 $ 79,519 $ 15,056 $ 94,575

II. Assets $3,947,925 $341,274 $474,972 $286,140 $5,050,311 $(878,962) $4,171,349

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The particulars of this stock option plan are outlined as follows:

Date of resolution June 29, 2004

Recipients The Company’s directors and executive officers,except for outside directors as prescribed inArticle 188, Clause 2, Number 7-2 of the Code

Type of shares Common stock

Number of shares Up to 500,000 shares (Note (1))

Exercise value Note (2)

Exercise period From July 1, 2006 to June 28, 2014

Conditions on exercise Note (3)

Restrictions on transfer Approval by the Board of Directors is required forthe transfer of subscription rights.

Note (1): The Company will issue 1,000 shares upon the exercise of each subscrip-tion right. If the Company carries out a split or a reverse split of its sharesof common stock, the number of shares will be adjusted according tothe following formula. This adjustment will be limited to unexercised subscriptionrights and any fractional shares resulting from this adjustment will berounded down.

Note (2): The amount to be paid upon exercise will be determined by multiplying theaverage of the closing price of the Company’s common shares traded inordinary transactions on the Tokyo Stock Exchange for each day (except fordays when no trading takes place) of the month preceding the month whichincludes the day when the shares are to be issued for this purpose. Fur-ther, if the Company carries out a split or a reverse split of its sharesof common stock, the exercise value will be adjusted according to the fol-lowing formula and any fractional amounts less than one yen resultingfrom the adjustment will be rounded up to full yen.

If the Company issues new shares of common stock at a value lower thanthe prevailing market price (except in the case of the exercise of subscrip-tion rights), the exercise value will be adjusted according to the followingformula and any fractional amounts less than one yen resulting from theadjustment will be rounded up to full yen.

Note (3): 1. Eligible recipients who have been allocated subscription rights may notcontinue to be eligible to exercise such rights if they lose their positionsas directors or executive officers of the Company, except in the case ofretirement at the end of their terms of office, retirement at the manda-tory retirement age, or for other valid reasons.

2. In the event that a stock option holder dies, his/her immediate heirs mayexercise the deceased’s subscription rights. However, secondary heirs(the heirs’ heirs) may not exercise these subscription rights.

3. Other conditions will be as prescribed in the agreement entered intobetween the Company and the stock option recipients based on a reso-lution approved at a meeting of the Company’s shareholders and a reso-lution of the Company’s Board of Directors.

(d) Appropriations of retained earningsThe following appropriations of retained earnings of the Company, whichhave not been reflected in the accompanying consolidated financial state-ments for the year ended March 31, 2004, were approved at a meeting ofthe Company’s shareholders held on June 29, 2004:

Thousands ofMillions of yen U.S. dollars

Year-end cash dividends (¥3.0 = $0.03 per share) ¥1,330 $12,547

Exercisevalueafteradjustment

Exercisevaluebeforeadjustment

Numberof sharesalreadyissued

+

Number of newshares issued

Amount paidper share

Number of newshares issued

Number of sharesalready issued

(c) Overseas salesOverseas sales, which include export sales of the Company and its domes-tic consolidated subsidiaries and sales (other than exports to Japan) of theoverseas consolidated subsidiaries, for the years ended March 31, 2004and 2003 are summarized as follows:

Thousands ofMillions of yen U.S. dollars

2004 2003 2004

Overseas sales:Asia ¥ 32,961 ¥ 36,915 $ 310,953North America 6,311 7,492 59,538Other areas 10,389 9,856 98,009

Total ¥ 49,661 ¥ 54,263 $ 468,500

Consolidated net sales ¥269,149 ¥280,100 $2,539,142

Overseas sales as a percentage of consolidated net sales:

Asia 12.2% 13.2%North America 2.3% 2.7%Other areas 4.0% 3.5%

Total 18.5% 19.4%

14. Subsequent Events

(a) Bond issueIn order to raise funds for the redemption of bonds, capital expendituresand long-term working capital, based on a resolution approved by theCompany’s Board of Directors at a meeting held on April 26, 2004, the Com-pany issued the following convertible bonds:

Description The Nippon Sheet Glass Company, Limited YenConvertible Bonds with Stock Acquisition Rightsdue 2011

Aggregate amount of the issue ¥23,000 million ($216,981 thousand)

Face value ¥500 million ($4,717 thousand)

Issue price 100% of the face value

Annual interest rate Interest-free

Issue date May 13, 2004

Maturity date May 13, 2011

(b) Foundation of a subsidiaryIn order to respond to the increasing demand for sheet glass in the Viet-namese market, the Company’s Board of Directors, at a meeting held onMay 31, 2004, passed a resolution to establish a new joint venture with alocal partner to manufacture float glass products in Vietnam. The newcompany plans to construct a plant located near Ho Chi Minh City in thesouth of Vietnam, and to commence manufacturing high quality float glassproducts, mainly for architectural usage, by the end of 2006.

The outline of the new company is as follows:

Name Vietnam Glass Industries Ltd.

Common stock $40 million to $50 million(¥4,240 million to ¥5,300 million)

Ownership ratio 70%

(c) Introduction of stock option planAt a meeting of the shareholders of the Company held on June 29, 2004, aresolution was passed granting stock options to the Company’s directorsand executive officers in accordance with the provisions of Article 280-20and Article 280-21 of the Commercial Code of Japan (the “Code”).

Number of shares = xafter adjustment

Ratio of split orreverse split

Number of sharesbefore adjustment

Exercise value = xafter adjustment

1Ratio of split or reverse split

Exercise valuebefore adjustment

= x

Market price beforethe new share issuance

x+

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The Board of Directors

Nippon Sheet Glass Company, Limited

We have audited the accompanying consolidated balance sheets of Nippon Sheet Glass Company, Limited andconsolidated subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements of operations,

shareholders’ equity, and cash flows for the years then ended, all expressed in yen. These financial statements

are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are

free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and

disclosures in the financial statements. An audit also includes assessing the accounting principles used and signifi-cant estimates made by management, as well as evaluating the overall financial statement presentation. We believe

that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated

financial position of Nippon Sheet Glass Company, Limited and consolidated subsidiaries at March 31, 2004 and 2003,

and the consolidated results of their operations and their cash flows for the years then ended in conformity withaccounting principles generally accepted in Japan.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year endedMarch 31, 2004 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S.

dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1.

Shin Nihon & Co.

Osaka, Japan

June 29, 2004

Report of Independent Auditors

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35

Management

Managing Officers Executive Officers

Kazuyuki IzumiManaging Officer, Head of AutomotiveGlass Business Unit

Noboru InoueManaging Officer,Head of Glass FiberBusiness Unit

Takeshi Horiguchi

Itsuo Umemoto

Toru Sano

Takashi Murakami

Chiharu Hisamoto

Naotaka Todoroki

Masaaki Funaki

Toru Ito

Yoshinobu Kato

Seiichiro Honjo

Hiroyoshi Koshiba

Keiji Yoshikawa

Akinobu Okamura

Corporate Auditors

Isao UchigasakiAuditor

Chairman of the BoardHitachi Chemical Co., Ltd.

Shoichi OiAuditor

Professor Tokyo Denki University

Kiyohiko IchinoheStanding Auditor

Togo TanakaStanding Auditor

Board of Directors

Yozo IzuharaChairman & CEO,Representative Director

Tomoaki AbeVice Chairman,Representative Director

Katsuji FujimotoPresident,Representative Director

Noritaka KurauchiDirector

AdviserSumitomo ElectricIndustries, Ltd.

Isao NagaiDirector &Senior Managing Officer, Head of Building ProductsBusiness Unit

Masakuni NittaDirector &Senior Managing Officer, Head of Corporate Administration

Toshikazu KondoDirector &Managing Officer, Head of Information TechnologyBusiness Unit

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36

Major Subsidiaries and Affiliates

<Japan>Display Glass

Building Products

Automotive Glass

Glass Fiber

Company Name

NSG Precision Co., Ltd.

Nanox Corp.NH Techno Glass Corp.Hi-Mirror Co., Ltd.NSG Umu Products Co., Ltd.

NSG Spacia Co., Ltd.

MAG Co., Ltd.

Nippon Tokushu Sangyo Co., Ltd.

Tochigi Nippon Sheet Glass Co., Ltd.

Nishinihon Modular Window Co., Ltd.Nippon Muki Co., Ltd.

Japan GMT Co., Ltd.

Percentage Owned (%)

100.0

100.0 50.0 84.2

100.0

100.0

45.8

35.3

95.0

51.0 100.0

34.0

Business Lines

Manufacture and sale of processed glass for electronic components; Manufacture, processing and sale of special glassManufacture and sale of LCD panels and electronic devicesManufacture and sale of glass substrates for TFT LCDsManufacture and sale of mirrorsManufacture, sale and installation of LCD optical films, plastic films andinstantaneous light control glassProcessing and sale of SPACIA™ and other flat glass products; manufacture andsale of related construction materialsManufacture and sale of glass wool products and building materials such as insulatingand soundproofing materials; design, operation and installation of related construction Processing, sale and installation of flat glass, and glass utensils; design and constructionof shop interiors; design, construction and operation of furnacesManufacture and sale of glass products for automobiles, trains, ships, aircraftand household electronic goodsManufacture and sale of modular windows for automobilesManufacture and sale of air filters, thermal and acoustic insulation materialsand inorganic applied productsManufacture, processing and sale of glass fiber reinforced thermoplastic resin compoundsheets and related products; manufacture, processing and sale of molded products

Holding CompanySales CompanyManufacturer

NSG Holding (Europe) Ltd.

NGF Europe Ltd.

NSG Europe N.V. / S.A.

FMC Wyoming Corp.

NGF Canada Ltd.

Penstone, Inc.

NSG Holding USA, Inc.

NSG America, Inc.

Tianjin NSG Safety Glass Co., Ltd.

Tianjin NGFGlass Fiber Co., Ltd.

Malaysian Sheet Glass Sdn. Bhd.

NSG Asia Pte., Ltd.

NSG Hong Kong Co., Ltd.

NSG Micro Optics Philippines, Inc.

Taiwan Auto Glass Industry Corp.

Suzhou NSG Electronics Co., Ltd.

Vietnam Float Glass Co., Ltd.

Suzhou NSG AFC Thin Films Electronics Co., Ltd.

United L-N Glass, Inc.

NSG North America, Inc.

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37

System Engineering

Information, Communication and Services

Other

<Asia>China

SingaporeThe PhillippinesMalaysiaTaiwanVietnam

<Europe>BelgiumUnited Kingdom

<North America>U.S.A

Canada

Company NameNippon Sheet Glass Engineering Co., Ltd.

Nippon Sheet Glass Environment Amenity Co., Ltd.NSG D&G System Co., Ltd.

Nissho Kosan Co., Ltd.

NSG Purchase & Supply Co., Ltd.NTT Data Business Brains Co., Ltd.

NSG Techno-Research Co., Ltd.

Kagami Crystal Co., Ltd.

NSG Hong Kong Co., Ltd.Tianjin NSG Safety Glass Co., Ltd.Suzhou NSG Electronics Co., Ltd.

Tianjin NGF Glass Fiber Co., Ltd.Suzhou NSG AFC Thin Films Electronics Co., Ltd. NSG Asia Pte., Ltd.NSG Micro Optics Philippines, Inc.Malaysian Sheet Glass Sdn. Bhd.Taiwan Auto Glass Industry Corp.Vietnam Float Glass Co., Ltd.

NSG Europe N.V. /S.A.NGF Europe Ltd.NSG Holding (Europe) Ltd.

NSG America, Inc.Penstone, Inc.United L-N Glass, Inc.NSG Holding USA, Inc.FMC Wyoming Corp.NSG North America, Inc.NGF Canada Ltd.

Percentage Owned (%)100.0

100.0

100.0

100.0

100.0 30.0

100.0

100.0

100.0 100.0 100.0

100.0 50.0

100.0 100.0 95.0 24.5 55.0

100.0 100.0 100.0

100.0 30.0 50.0

100.0 6.3

100.0 100.0

Business LinesManufacture and sale of equipment for glass manufacturing; design, operationand installation of related processes and equipmentManufacture, processing, sale and lease of materials for acoustic, soundproofing and anti-vibrationequipment; acoustic, soundproofing and anti-vibration environmental studies and measurementDesign and construction of civil engineering projects; inspection, measurement and evaluation of civil construction materials and methodsInsurance agency operation, facility management and operation, beverage outlet management, travel agency operation, civil construction design, operation and contractingProcurement, storage, processing and sale of building and machinery suppliesGeneral business consulting; development and sale of information andcommunication system; development and sale of software Problem-solving research development support (test analysis, materials / environment / technological information surveys, patent information)Manufacture and sale of crystal glassware and glass artwork; sale of ceramics and other household items

Sale of flat glass productsManufacture and sale of safety glass for automobilesDevelopment, manufacture and sale of glass substrates for displays and optical glass materials for communications equipmentManufacture and sale of separators for sealed lead acid batteriesManufacture and sale of thin films coating glass for LCD

Investment in affiliated companies Manufacture and sale of optoelectronic devicesManufacture and sale of flat glass and automotive glass productsManufacture and sale of safety glass for automobilesManufacture and sale of flat glass products

Sale of safety glass for automobiles, optical equipment and flat glass productsManufacture and sale of glass cordInvestment in affiliated companies

Manufacture and sale of optoelectronic devicesAssembly and delivery of safety glass for automobilesManufacture and sale of safety glass for automobilesInvestment in affiliated companies, sale of flat glass productsManufacture and sale of soda ashSale of glass for automobiles and other glass productsManufacture and sale of glass cord

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Plants in Japan

Chiba PlantLand area: 410,000m2 Floor area: 190,000m2

Products: float glass, processed glass, figured glass

The plant started production in 1964.With two float glass lines, one figured glass line and architectural glass fabrication lines, it mainly manufactures various architectural glass. Specialty products made at this plant include glass for solar cells and PDPs.The plant acquired ISO 9002 certification in 1997, and ISO 14001 in 1999.

Sagamihara PlantLand area: 66,000m2 Floor area: 44,000m2

Products: SELFOC™ lens arrays (SLA™), SELFOC™ micro lenses (SML), laser diode modules (LDM), photodiode modules (PDM)

Since the establishment in 1980, the plant has been the production and R&D base for information/electronics products. In 1990, the Transportation Glass and Materials Technical Center was established here to primarily develop automotive glass. The plant acquired lSO 14001 in 2000.

Yokkaichi PlantLand area: 118,000m2 Floor area: 77,000m2

Products: glass substrates for active matrix LCDs, copier table glass with conductive film, glass paper, glass for electronic components, glass reinforced thermoplastics

The plant began operations in 1936 and acquired lSO 14001 in 1999.

Tsu PlantLand area: 116,000m2 Floor area: 67,000m2 Products: Glasflake™, glass cord

The plant was founded in 1912 and is the main plant for specialty glass fiber production.It acquired ISO 14001 certification in 2000.

Kyoto PlantLand area: 75,000m2 Floor area: 49,000m2

Products: automotive glass, vacuum glass-SPACIA™

The plant began operations in 1961 and acquired ISO 9002 certification in May 1995 and ISO 14001 in 2000.

Maizuru PlantLand area: 672,000m2 Floor area: 295,000m2

Products: automotive glass, mirrors, glass substrates for LCDs

The plant began production in 1952 and became the first in East Asia to manufacture float glass in 1965.With two float glass lines, it has integrated operations for automotive glass production, from furnaces to processing.The plant acquired ISO 9002 certification as Japan’s first float glass manufacturing plant in March 1997 and ISO 14001 in 2000.

Maizuru Plant

Kyoto Plant

Tsu Plant

Sagamihara Plant

Chiba Plant

Yokkaichi Plant

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38

Corporate Information

Head Office:

Osaka Head Office:

Establishment:Number of Employees (Consolidated):

Common Stock:

Number of Shareholders:Paid-in Capital:

Stock Listing:Independent Auditors:

Transfer Agent:

Japan Trustee Services Bank, Ltd.The Master Trust Bank of Japan, Ltd.

Sumitomo Mitsui Banking Corporation Nippon Life Insurance Company

OM 04 SSB Client OmnibusTrust & Custody Services Bank, Ltd.Sumitomo Life Insurance Company

Toyota Motor CorporationMitsui Sumitomo Insurance Co., Ltd.

Number of shares (thousands)

Percentagesof shares

59,13042,89612,20911,32311,24110,11310,103

9,6109,522

13.329.662.752.552.532.282.282.162.14

National/local governmentsFinancial institutions

Securities firmsOther corporations

Foreign investorsIndividuals and others

Total

Number ofshareholders

Number of shares (thousands)

Percentagesof shares

110859

724246

52,52353,661

63186,103

5,28346,69177,522

123,779439,441

0.0142.361.20

10.6317.6428.16

100.00

1-7, Kaigan 2-chome, Minato-ku, Tokyo 105-8552 JapanTel: 81-3-5443-9522 Fax: 81-3-5443-95665-33, Kitahama 4-chome, Chuo-ku, Osaka 541-8559 JapanTel: 81-6-6222-7511 Fax: 81-6-6222-7580November 22, 191711,392Authorized: 1,150,000,000 sharesIssued: 443,946,452 shares53,661¥41,060 millionTokyo and Osaka (Code: 5202)Shin Nihon & Co.The Sumitomo Trust & Banking Co., Ltd. 5-33, Kitahama 4-chome, Chuo-ku, Osaka 540-8639 Japan

Corporate Data

Major Shareholders

Status of Shareholders

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Printed in Japan on recycled paper made from 100% post-consumer materials.

NIPPON SHEET GLASS

Head Office: 1-7, Kaigan 2-chome, Minato-ku, Tokyo 105-8552 Japan

URL: http://www.nsg.co.jp/en/

August 2004