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Financial Highlights ............................................................................ 1Business Lineup .................................................................................. 2Local Touch, Global Reach .................................................................. 4

Interview with the President ...................................................... 4In-depth, Broad-ranging R&D .................................................. 6Quicker to Market ..................................................................... 8Bridgeheads for Globalization .................................................. 10

Review of Operations ........................................................................ 12Financial Review ............................................................................... 16Six-Year Summary ............................................................................. 17Financial Section ............................................................................... 18Board of Directors ............................................................................. 38Corporate Data ................................................................................. 38Organization Chart ........................................................................... 39

Nisshinbo Industries, Inc. (the “Company”) was foundedin 1907 as a manufacturer of cotton yarns and threads, and quickly assumeda position of leadership in the industry. The Company’s history has beencharacterized by strategic moves taken in advance of competitors and designedto raise productivity, improve quality and add value. Today, Nisshinbo is a

total textiles manufacturer, controlling operations from spinning to finishing.This, together with its accumulated high levels of technology, gives the Companyan advantage in the development of truly distinctive products and in qualitycontrol. Through the application in other fields of technologies and expertiseoriginally developed in the textiles area, Nisshinbo has diversified its operations into themanufacture of automobile brakes, machine tools, chemical products, papers, and others. Thesenon-textile lines have grown steadily, and now account for almost 50% of net sales. Nisshinbo hastargeted certain strategic products to form the basis of future growth: High value-added finishingprocessing and products in the textiles field, including SUPER SOFT, SSP (SUPER SOFT

PEACHPHASE), new-generation anti-lock brakesystems, CNC machine tools, non-fluorocarbonpolyurethane foams, new carbon products, fine papers,and computer color matching systems. The Companyand its subsidiaries and affiliates are focused on thecreation of a comprehensive range of top-qualityproducts which appeal to customers globally.

Contents

The paper used for this Annual Report isfrom Nisshinbo's VENT NOUVEAUseries of fine papers.

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Note

The United States dollar amounts in this report are given for convenience only and represent translations of Japanese yen at the rate of ¥130 =US$1.

Financial Highlights(Years ended 31st March)

Per Share:

Net SalesNet IncomeShareholders’ Equity

Net IncomeShareholders’ EquityCash Dividends

1997

¥167,2721,968

166,163

1998

¥170,3181,808

166,948

¥ 7.64706.08

7.00

(millions of yen)

(yen)

¥ 8.32702.76

7.00

Non-Consolidated:

Per Share:

Net SalesNet IncomeShareholders’ Equity

Net IncomeShareholders’ Equity

1997

¥234,2682,359

198,758

1998

¥240,2491,087

199,373

¥ 4.60843.21

(millions of yen)

(yen)

¥ 9.98840.62

Consolidated:

1998

$ 1,31014

1,284

(millions ofUS dollars)

(US dollars)

$ 0.065.430.05

1998

$ 1,8488

1,534

(millions ofUS dollars)

(US dollars)

$ 0.046.49

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Textiles

Textile products have been the mainstay of Nisshinbo since its foundation.These products are distinguished by their quality and competitiveness.Nisshinbo has the top share in domestic markets for shirt materials (around40%), textile sheets for bedding (around 40%), denim (around 40%), Tetron &cotton blended uniform materials (almost 25%), and spandex for total-supportpanty hose (almost 50%). The Company’s state-of-the-art production facilitiesand unique, comprehensive in-house production system, which includes thefinishing process, allow the manufacture of products that overseas makerscannot match for quality. An ability to meet the precise needs of customersis a particularly strong point of Nisshinbo. Nisshinbo’s original textileproducts include MOBILON spandex and OIKOS non-woven cotton fabrics.The SUPER SOFT, SSP and CELTOPIA finishing processes are also original.

Non-textiles

Automobile BrakesNisshinbo is one of Japan’s leading makers of automobile brakes and fric-tion materials, and this sector has an important role in the Company’s driveto diversification. Product development emphasis is on asbestos-free fric-tion materials, new concept brakes, Anti-lock Brake Systems (ABS) andTraction Control Systems (TCS). The latest original products in the ABSfield are the compact, lightweight, low-cost NT20i and NT20Si, targeted atmarkets worldwide. The Company has also developed a stability controlsystem, which makes it easier for the driver to control movement of the carand thus enhances safety.

In parallel with the development of its own technologies, Nisshinboexchanges technologies and collaborates with major overseas brakemanufacturers.

Business Lineup

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Machine ToolsNisshinbo is an acknowledged specialist in the manufacture and sale ofcustomized machine tools and CNC turret punch presses, laser cuttingmachines and press brakes. The Company also produces cross-flow fans.Modular units for FMS and CNC hardware/software systems are developedand manufactured for the automotive, electronics and aerospace industries.Through subsidiaries and joint ventures, Nisshinbo is actively expandingsales of machine tools overseas as well as in Japan.

Chemical ProductsNisshinbo produces rigid-type polyurethane foams for application as heat-insulation material, and flexible types used as cushion material. Processedproducts include AIRLITE-FRU, a lightweight, high-strength, corrosion-resistant glass fiber-reinforced polyurethane foam widely used in the watertreatment and construction industries, and SETFOAM for civil engineeringapplications. The Company is also a pioneer in the introduction ofenvironment-friendly non-fluorocarbon polyurethane foam for applicationas heat-insulation material in the construction field. Our original polyurethaneelastomer MOBILON is used in various industrial products and consumeritems. In addition, Nisshinbo offers new carbon products for application insemiconductor production and other electronics fields.

Other materials include CARBODILITE and electromagnetic wave shieldmaterials and molded METTON™ products produced and marketed byNisshinbo.

PapersNisshinbo manufactures a wide range of paper products. These includehousehold papers, such as tissue paper, toilet paper and kitchen-use papertowels, fine papers used in printing and packaging, and synthetic papers.In each of these areas, the Company occupies a top-ranking position. Value-added products of note include VENT NOUVEAU natural-feel fine paperfor high-quality printing and synthetic papers for ink-jet printing.

Nisshinbo is also involved in label printing and the manufacture of labelprinters. The product lineup in this field includes small-size, high-speedprinters and integration software for information processing, printing anddistribution.

OthersNisshinbo develops and supplies the production systems which integratethe CHOSHOKU SENKA fuzzy logic computer color matching (CCM)system, manufacturing process support system and automatic inspectionsystem, all based on original technologies.

The Company is also engaged in the real estate business, leasing a newoffice building on the site of its former headquarters, and shopping centersbuilt on land previously occupied by factory facilities. It also leases landused for model homes. Plans to extend this real estate leasing business forshopping centers are under way.

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restructuring efforts. The Non-textile Division re-corded a rise in total sales, fueled by growth in salesof ABS, but a decline in profit, due mainly to inten-sified competition.

On a consolidated basis, net sales for fiscal 1998amounted to ¥240,249 million (US$1,848 million),up 2.6% over fiscal 1997. Operating income was¥3,989 million (US$31 million), down 12.2%. Netincome came in at ¥1,087 million (US$8 million),a decrease of 53.9%. These decreases were duemainly to declines in market demand faced by theCompany and one of its domestic affiliates ac-counted for on the equity method, as well as for-eign exchange losses incurred by a consolidatedsubsidiary in Thailand and an affiliate in Indone-sia, also accounted for on the equity method.

Q. What do you mean by “Local Touch,Global Reach,” the theme of this year’sannual report?

A. The global economy is now a reality, and weaim to be a leading global company, capable of re-sponding to local market trends in all major mar-

Q. Can you outline recent developmentsat Nisshinbo, and Nisshinbo’s results forfiscal 1998, ended March 31, 1998?

A. First of all, let me tell you that Mr. TatsuoTanabe stood down as chairman of the Companyand assumed the position of Senior Advisor to theBoard as of June 26, 1998. During his term of officeas president as well as chairman, the Japaneseeconomy underwent drastic structural changes. Inresponse, Mr. Tanabe focused on a shift to highvalue-added products, both in textiles and non-tex-tiles, constantly anticipating market trends. I amconfident that his efforts will continue to bear fruit,and serve as a sound foundation for Nisshinbo’ssuccess in the future.

Turning to our non-consolidated business results,net sales increased 1.8% over fiscal 1997 to ¥170,318million (US$1,310 million), while operating in-come declined 3.2% to ¥3,036 million (US$23 mil-lion). Net income was down 8.1% to ¥1,808 mil-lion (US$14 million). Sales of textiles amounted to¥88,479 million (US$681 million), down 3.1%.Sales of non-textiles rose 7.8% to ¥81,839 million(US$630 million). The ratio of non-textile sales tototal sales increased 2.7 percentage points to 48.1%.

During fiscal 1998, there was virtually no growthin the Japanese economy. Consumer spending fellsharply under the impact of a rise in the consump-tion tax rate beginning April 1997. Business confi-dence, already low, suffered as a result of the failureof certain financial institutions and increased fearsabout non-performing loans held by banks. Un-der these circumstances, Nisshinbo concentratedon improving its business efficiency while continu-ing the shift to high value-added products. Theseefforts resulted in a slight increase in net sales andlimited the drop in net income to less than 10%.The Textile Division posted a decline in sales but amodestly higher profit, thanks to the Company’s

Interview with the President

Akihiro Mochizuki, President

5

production of dress shirts, and P.T. GistexNisshinbo Indonesia, which will undertake dye-ing and finishing.

In order to increase export sales, we refined ourtextile organization related to exports.

In the non-textile sector, Nisshinbo AutomotiveManufacturing, Inc., a wholly-owned subsidiary ofNisshinbo Automotive Corporation, has begunconstruction of a plant for the production of auto-mobile brake friction materials. In Thailand, oursubsidiary Nisshinbo Somboon Automotive Co.,Ltd. completed construction of a factory for theproduction of automobile brake parts.

We intend to strengthen our international textileand non-textile operations by capitalizing on theseties with overseas subsidiaries and affiliates.

Q. What is your policy with regard todividends?

A. We declared an annual per share dividend of¥7.00 (US$0.05) for fiscal 1998. We intend to keepdividends at this level until such time as profits jus-tify an increase. This decision is based on a judge-ment as to the level of retained earnings needed tosustain future development.

Nisshinbo has created adiverse range of uniqueproducts, such as all-cot-ton wrinkle-free materialsfor shirts, lightweightcompact ABS, non-fluo-rocarbon polyurethanefoam, new carbon prod-ucts and computer colormatching systems.

During fiscal 1998, theCompany carried out anumber of investments toexpand and improve itsproduction facil it ies.These included expansionof production capacity forABS at the HamakitaPlant, upgrading of facili-ties for production ofhousehold papers at theShimada Plant, expansionof production facilities forfriction materials at theTatebayashi Plant, instal-lation of new carbon pro-duction facilities at theKawagoe Plant, and intro-duction of leading-edgespinning facilities at theFujieda Plant and otherplants.

Nisshinbo’s productshave gained an excellentreputation in overseasmarkets. For example, theCompany’s all-cottonSSP has received a “Glo-bal Recognition Award”from Cotton Incorporatedof the United States.

kets. The theme “Local Touch, Global Reach” en-capsulates that aim. We intend to apply our exper-tise cultivated in the domestic market to our over-seas operations, utilizing our strong technologicalbase and product development capabilities toachieve our goals. In Japan, even though the reces-sion is expected to continue into fiscal 1999, thesame theme will help us to clearly delineate our ef-forts to respond quickly and flexibly to changingmarket needs.

Q. What are Nisshinbo’s strengths interms of technology and product develop-ment?

A. Nisshinbo has a broad range of technologi-cal expertise, accumulated over 90 years of opera-tions. Our emphasis has been on the developmentof leading-edge material technologies and process-ing techniques, and these have allowed us to createa diversified range of products. Our ability to in-novate has earned us an excellent reputation in themarket.

When we identify a business field with great po-tential, we swiftly invest in facilities to establish ver-satile development and production systems thatallow us to secure a leading market position.

Q. How are you planning to proceedwith business globalization?

A. Our high value-added products are highlycompetitive internationally. We are promoting thefurther globalization of our business by balancingexport sales and local production on the basis ofparticular local needs.

During fiscal 1998, we strengthened our textileproduction network in Asia with the addition oftwo joint venture operations: Shanghai KaikaiNon-Ironing Garment Co., Ltd., which has started

Akihiro MochizukiPresident

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Unique, Diverse TechnologiesBuilding on its accumulated textile-related tech-nologies and expertise, Nisshinbo has successfullywidened its business base. Today, Nisshinbo is alsoactive in the areas of polymer chemistry,mechatronics, control systems, electronic engineer-ing, advanced materials and biotechnology.

In the textile field, high value-added products de-veloped with original technologies include SUPERSOFT, SSP, TPP (TREPESCA PEACHPHASE),CELTOPIA, and health/comfort products includeShizen-no-Yuragi materials, IONAGE healing ma-terials and SUNSHELTA ultra-violet shield mate-rials. Environment-friendly materials includeECOLOGIA, produced by recycling PET bottles,and OIKOS non-woven all-cotton fabrics.

In the non-textile field, the refinement of appliedtechnologies for such materials as polyurethanes hasresulted in MOBILON, a new polyurethane elas-

tomer, carbon products, moldedMETTON™ products andCARBODILITE, which all have awide application potential. In theareas of automobile brakes andmachine tools, Nisshinbo is capi-talizing on its state-of-the-art elec-tronics engineering and precisionmachinery technologies to de-velop products that are more com-pact or more advanced, or both.

Nisshinbo’s involvement in biotechnology isbased on technologies originally adopted for theproduction of textiles and chemical products. Inview of the growth in the medical and pharmaceu-tical fields, our research and development effortsare now focused on DNA reagents, and the devel-opment of markets for such products.

Another aspect of our expanding technology isCCM systems technology, which originated fromour textile technology and was further developedusing fuzzy logic. This technology is now appliednot only in the dyed textiles field, but also in thefields of painting, printing, papers, resin, transpar-ent solids and others. Recent refinements coverCCM for metallic color painting of automobilebodies and CCM for white and fluorescent colors.

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Nisshinbo is noted for its development of new technologies and itsability to transfer them from one field to another, and for its constantfocus on commercial potential.

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New Businesses, New MarketsNisshinbo’s recent capital investment inR&D facilities remains focused on fieldswith great commercial potential.

A good example is the Development Cen-ter for Paper Products and Coating Tech-nologies at the Fuji Plant, which became op-erational in April 1998. The Center will de-velop original paper products, such as thosecombining synthetic paper and fine paper.

Investments in the automobile brakes R&D fieldinclude the Vehicle Research Facility adjacent to theAsahi Testing Ground at the Chiba Plant. Equippedwith cutting-edge testing devices, the Vehicle Re-search Facility is used to measure the performanceof brakes for various types of automobiles and ABS.A new track at the Testing Ground, scheduled forcompletion in October 1998, will allow on-roadtesting on a variety of surfaces under different con-ditions. A testing ground for testing under snow/ice conditions was constructed in Hokkaido.

In the biotechnology field, the Tokyo ResearchCenter is being expanded to keep pace with thegrowing market for “DNA Origomar,” an essentialproduct for DNA analysis.

For fiscal 1998, Nisshinbo’s research and devel-opment expenditure totaled ¥6,111 million (US$47million), an increase of 7.9% over fiscal 1997. As ofthe end of March 1998, the total number of patentsheld by Nisshinbo within and without Japan was644. Patent applications outstanding totaled 1,592.

Pattern of electromagnetic waveshield material (inset, opposite)

Carbon products, shaped for specificapplications (inset)

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Nisshinbo’s goal in terms of product development is clear: to bringhigh-quality products to market in anticipation of fast-changingtrends, thereby satisfying the emerging demands of consumers faster.Nisshinbo’s depth of technological know-how is fundamental in thecreation of superior, attractive products that set the pace in the globalmarket.

Making the Most of Materials andTechnologyNisshinbo seeks to unlock hitherto undiscoveredproperties and applications of materials in orderto create products that satisfy existing or as yetunimagined needs within society.

For example, SUPER SOFT processing technol-ogy for cotton cloth has been extended from shirts,uniform and bedding materials to blouse, pants,knitted and denim materials. In response to thetrend toward more individualistic, less formal busi-ness wear, SUPER SOFT HI-NATURAL is nowused for order-made shirts. The development ofSSP processing has created a significant market forshirts featuring wrinkle-free properties.

In the non-textiles sphere, the application ofNisshinbo technology has allowed reductions in thesize and weight of ABS, from the NT20 throughthe NT20i to the NT20Si. As a consequence, thepercentage of new vehicles fitted with ABS has in-creased.

Nisshinbo is currently looking for new applica-tions in growing fields for its carbon-related tech-nology.

In recent years, “environment-friendly and amenity” has become animportant theme. In this category,Nisshinbo textile products includeShizen-no-Yuragi, OIKOS, andIONAGE, a material used for pants andsuits. Non-textile products noted fortheir human and environment-friendlyproperties include non-fluorocarbonpolyurethane foam, various types of re-cycled papers, and paper producedfrom materials other than pulp.

Collaboration with other companiesis yet another aspect of Nisshinbo’s strat-egies for progress. In cooperation with

TEIJIN Limited, a synthetic fiber manufacturer, andThe Japan Wool Textile Co., Ltd., Nisshinbo set upthe Triangle Committee. The first product developedby the committee was ECOLOGIA, a fiber madefrom recycled PET bottle material that is used forwork uniforms. Another was HARMONIX, a brandname for a wide range of men’s “business casual”wear made from newly developed materials.

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9

SUPER SOFT is applied to manyhigh-quality textile products (inset,opposite)

SUPER SOFT HI-NATURAL prod-ucts come in a variety of colors anddesigns (inset)

Development-oriented ProductionNisshinbo is constantly refining its production sys-tem, linking it tightly with product development.In the textile field, the transition to a development-oriented production system is well un-der way. Production capacity for spe-cialty yarns will be expanded to 100,000spindles by the end of 1998, mainly atthe Hamamatsu Plant. This will facili-tate the simultaneous production of alarger number of newly developed prod-ucts. In the non-textile field, new carbonproduct capacity at the Kawagoe Plantis to be increased, making it Nisshinbo’smain production center for these prod-ucts. The emphasis is on products wherehigh growth is anticipated, such asAIRLITE-FRU, whose applications as alightweight, high-strength, corrosion-resistant material are being widened, MOBILONpolyurethane elastomer, and certain papers such askitchen-use paper towels.

Chosen GloballyNisshinbo products are widely respected for theirquality, both in Japan and overseas. They have per-meated markets internationally, either through ex-ports or local production. SSP shirts are winningmarket share throughout Europe, especially theU.K., and elsewhere, while Nisshinbo’s MOBILONspandex for panty hose has been very well receivedin Europe and is also expanding its market there.Nisshinbo’s brake friction materials are used by the“Big Three” automobile manufacturers of the U.S.,and several Korean companies recently opted forNisshinbo’s ABS.

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Overseas BasesNisshinbo’s overseas network has been steadily ex-panded to ensure that nuances of demand in thedifferent regions of the world are picked up quickly.Not only is overseas local production geared to meetlocal needs, but it is also exported to third countries.

Production bases in Asia for textiles, automobilebrakes and chemical products have been estab-lished as local subsidiaries, affiliates or joint ven-tures, depending on the local circumstances. In fis-cal 1998, Shanghai Kaikai Non-Ironing GarmentCo., Ltd. was established to manufacture SSP shirtsfor the Chinese market, and P.T. Gistex NisshinboIndonesia was established as a dyeing and finish-ing specialist for value-added textiles destined forSoutheast Asia and China.

In the United States, Nisshinbo’s automobilebrakes business is growing. With production fa-cilities located in Michigan, Nisshinbo is ideallyplaced to offer efficient supply to the “Big Three”as well as Japanese manufacturers. Production ca-pacity at Nisshinbo Automotive Corporation wasincreased during fiscal 1998, and construction workhas begun on a plant to be operated by NisshinboAutomotive Manufacturing, Inc. in Georgia. Theplant is scheduled to start production in spring1999. Nisshinbo is seeking to expand sales in theU.S. and is also considering exports to SouthAmerica from U. S. plants.

Strengthened Export CapabilityNisshinbo continues to promote exports of its highvalue-added products, including textiles, chemicals,automobile brakes, ABS and machine tools. Tech-nical and cross-licensing agreements play an im-portant role in expanding exports.

With regard to quantity, an organizational re-structuring will allow all Company departmentsin charge of specific textiles products to directlyhandle the sales of those products in both domes-tic and overseas markets, and to be responsible forthe related sales operations of overseas subsidiar-ies and affiliates and the activities of regional rep-resentative offices. To meet rising exports to Eu-rope, production capacity at the Tokushima Plantis being expanded for the MOBILON spandexyarns used for panty hose.

INTERNATIONAL NETWORK

Nisshinbo is determined to make the world market its “homeground.” That is to say, its overseas business strategies will beincreasingly fine-tuned to meet the requirements of different areasof the world for different types of products.

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Artist’s impression of Nisshinbo Au-tomotive Manufacturing, Inc. plant,Georgia

With regard to quality, the Mechatronics Divi-sion, the subsidiary Nisshinbo Mechatronics, Inc.,and the ABS Division have acquired ISO9001 cer-tification. In the textile field, the MiaiPlant has received ISO14001 certifi-cation for environment manage-ment systems, and the TokushimaPlant is currently working towardthat same objective.

Creating Clean Energy for Asia

During fiscal 1998, Nisshinbo was commissioned to produce the manufacturingequipment for the solar energy modules of Spire, a U.S. company. Spire commands80% of the world market for such modules. The order came via Marubeni Corp.,which manufactures and markets the modules in Asia under license. It is expected

that power generation through solar energy will grow in importance in Asia as theenergy demands of the region continue to rise. That Nisshinbo was engaged toparticipate in this fast-growing sector is testament to the Company’s reputation forengineering excellence.

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As licensee:•Cluett Pebody & Co., Inc. of the U.S.A. for textiles finishing technology•Beyeler Machines SA of Switzerland for CNC press brake manufacturing technology•BBA Group PLC of the U.K. for friction materials technology*•LucasVarity PLC of the U.K. for drum brake technology*•LucasVarity PLC of the U.K. for commercial vehicle disc brake technology•ITT Automotive Europe GmbH of Germany for passenger car disc brake technology*•ITT Automotive Europe GmbH of Germany for TCS technology•ITT Automotive Europe GmbH of Germany for NT20/MK20 ABS and TCS technologies*

As licensor:•Rane Brake Linings Limited of India for friction materials technology•Daedong Brake Manufacturing Co., Ltd. of the Republic of Korea for friction materials technology•BBA Group PLC of the U.K. for friction materials technology*•Heng Tong Machinery Co., Ltd. of Taiwan for friction materials and passenger car disc brake technologies•LucasVarity PLC of the U.K. for drum brake technology*•ITT Automotive Europe GmbH of Germany for passenger car disc brake technology*•ITT Automotive Europe GmbH of Germany for NT20/MK20 ABS and TCS technologies*•Mando Machinery Corporation of the Republic of Korea for drum brake technology•Nisshinbo Somboon Automotive Co., Ltd. of Thailand for friction materials and drum brake assemblytechnologies

*Cross-licensing agreements

International Technical Agreements

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Textiles

In fiscal 1998, ended March 31, 1998, theJapanese textile industry faced businessconditions even more difficult thanthose in fiscal 1997, ended March 311997. Consumer spending, already low,declined under the impact of a rise inthe consumption tax rate effective April1, 1997 and a general lack of confidenceinspired by bankruptcies and fears aboutnon-performing loans among financialinstitutions.

The Textile Division responded by de-veloping new products to strengthen itslineup, energizing sales activities, expand-ing exports, and restructuring its business.The Division posted a modest increase inprofit, thanks to the with-drawal from the lace businessand a downsizing of the syn-thetic fabrics business, and adepreciation of the yen. Salesdeclined, due mainly to lowconsumer demand and a fallin market selling prices. Salesof the Textile Div isionamounted to ¥88,479 million

(US$681 million), a drop of3.1% from fiscal 1997 andaccounting for 51.9% of to-tal sales, down 2.7 percent-age points. Domestic salesdeclined by 6.5% to ¥78,188million (US$601 million),while export sales recordedan increase of 34.0% to¥10,290 million (US$79million).

Sales of yarns, knittedproducts, and household textiles were slug-gish due to weak consumer spending. Ex-port sales of lightweight textiles, mainlyhigh-class and value-added products, wereup. Sales of materials for shirts, casual wear,and uniforms remained low due to a fur-

ther drop in consumerspending in the second halfof fiscal 1998, a decline inpurchases by companies, andinventory adjustments byapparel manufacturers.

Domestic sales of SSP shirtmaterials were stable. Exportsales of Nisshinbo’s original,all-cotton SSP increased, re-

flecting a strong market pres-ence. Applications of newproducts combining SUPERSOFT and specialty yarnswere extended from shirts,blouses, and printed textilesinto fields such as pants, jack-ets, coats, and knitted prod-ucts. Sales of these productsincreased throughout theyear, regardless of season.

The market for basic bluedenim showed an upturn, with particularlystrong sales of SUPER SOFT denim. Ex-port sales also showed strong growth, con-tributing to increases in both sales andprofit.

Domestic sales of MOBILON spandexwere weak. Helped by higher export salesof spandex for panty hose, however, over-all sales and profit showed steady growth.

OIKOS non-woven all-cotton fabricsexpanded their range of applications inthe fields of household goods, includingbacillus-eliminating wet towels and gasrange wiping materials, as well as medi-cal, sanitary materials, nursing goods, andcivil engineering/agricultural materials.

Entry at Annual Nisshinbo FashionContest

SUPER SOFT products, available throughCOMFORT PROPOSAL and other channels

Review of Operations

Joint Venture for ShirtProduction in Shanghai

With the aim of exploiting the latent demand forwrinkle-free shirts in the Chinese market,Nisshinbo Industries, Inc., Shanghai Kaikai(Group) Co., Ltd. (a top shirt manufacturer inChina), Marubeni Corp. and CHOYA CORP. es-tablished a joint venture, Shanghai Kaikai Non-Ironing Garment Co., Ltd., to manufacture shirtsin Shanghai. The joint venture is capitalized atUS$1.5 million, with Nisshinbo holding a 15%stake. The company will manufacture 640,000shirts a year by the year 2000, with a sales tar-get of ¥1 billion.

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We placed particular emphasis on an ex-pansion of sales of our original brandproducts in the household and nursinggoods fields.

COMFORT PROPOSAL, our directmarketing business, posted a slight declinein sales for the first time since the com-mencement of its services as a result ofweak consumer spending.

The difficult business climate is expectedto continue well into the next term. Tocounter this, we will focus on a further ex-pansion of export sales, intra-overseas re-gion sales activities and advancement intooverseas markets while accelerating prod-uct development, refining production sys-tems, and responding to a variety of userneeds. In fiscal 1998, we reorganized theTextile Sales Division, establishing overseassales systems for each particular productwith a view to reinforcing exports. In ad-dition, we enhanced sales support to ouroverseas subsidiaries and affiliates by in-

creasing staff num-bers at our repre-sentative offices inNew York andHong Kong.

Non-textiles

Sales of Non-textiles increased 7.8% overfiscal 1997 to ¥81,839 million (US$630million), due in large part to higher salesof ABS. Profit, however, declined as a re-sult of intensified competition. Sales ofNon-textiles accounted for 48.1% of totalsales, an increase of 2.7 percentage points.Export sales of Automobile Brakes andMachine Tools were particularly strong,contributing to a 48.2% increase in totalexport sales to ¥5,294 million (US$41million).

Automobile BrakesSales of Automobile Brakes rose 14.6% to¥39,588 million (US$305 million), fueledby an increase in sales of ABS.

Sales of brake-related products, such asfriction materials and brake assemblies,were slightly down from fiscal 1997. Thedecline was accounted for by weak sales ofcommercial-use vehicles in both the do-mestic and Southeast Asian markets,which outweighed a small increase in do-mestic automobile production.

Sales of ABS posted an increase of

70.8% to ¥13,428 million (US$103 mil-lion), thanks to increases in the numberof car models fitted with our ABS and theproportion of cars equipped with ABS.Our competitive position was further im-proved by the release of NT20Si.

Overseas, an expansion of productionfacilities at Nisshinbo Automotive Corpo-ration was completed in order to meet arise in demand in the North Americanmarket. Nisshinbo Automotive Manufac-turing, Inc. started construction of a plantduring fiscal 1998. Start-up is scheduledfor 1999.

The automobile industry faces an evenmore adverse business environment in fis-cal 1999 both at home and overseas, and

Our ABS is fitted in the Mitsubishi Chariot Grandis(© Mitsubishi Motors Corporation)

Excellent Prospects for NT20Si

In August 1997, we introduced NT20Si ABS asa follow-up to the NT20i, released during fiscal1997. The NT20Si is 20% lighter and 30% morecompact than NT20i, and features improved

low-noise characteristics. It is cost-competitive and can be used in carsfrom compacts to the 3,000cc class.NT20Si has already been employedby several automakers in their newmodels and is expected to developinto a major product for Nisshinbo.

SUPER SOFT HI-NATURAL,ideal for “Business Casual” apparel

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the demand for brake-related products islikely to decline. In the ABS sector, it willbe difficult to increase sales, due to yetstronger competition and the proportionand unit volume of cars equipped withABS likely to peak.

We must enlarge our business domainby concentrating on the development ofnew products and expansion of our over-seas operations. It is also essential to re-duce manufacturing costs. With a view todeveloping new products, Nisshinbopressed ahead with the upgrading of itsR&D facilities, refined and expandedbrake-testing facilities at its Chiba Plant,and constructed a winter testing groundin Hokkaido.

Machine ToolsSales of Machine Tools increased 4.0% to¥8,327 million (US$64 million). This wasdue to a steady increase in capital invest-ment on the part of our major client in-dustries, which continued from fiscal 1997,and growth of overseas demand, mainlyin the U.S. and Asian markets, fueled by adepreciation of the yen. Growth in exportsales to the automobile-related industry,

one of our main clients, and a rise in do-mestic demand contributed to an increasein sales of customized machine tools. Salesof general-purpose machine tools fell, af-fected by a drop in housing demand andrelated capital investment.

During fiscal 1998, Nisshinbo, under li-cense, started development, design andproduction of manufacturing equipmentfor solar energy modules ordered byMarubeni Corporation. The demand forsolar energy equipment for home-use aswell as office-use power generating systemsis expected to increase.

Chemical ProductsSales of Chemical Products increased 4.9%to ¥11,436 million (US$88 million).

Sales of polyurethane products, our ma-jor line in this sector, declined due to weakdemand for rigid polyurethane foams usedas heat-insulation material for housing,pushing down profit.

Sales of polyurethane elastomers posted

steady growth, thanks to a sharp increasein sales of apparel-use products with ex-cellent elasticity and waterproofness.

Our carbon products, used mainly insemiconductor manufacturing equip-ment, posted decreases in both sales andprofit. This was accounted for by weak-ness in the domestic semiconductor in-dustry and the severe economic down-turn in South Korea, one of our majormarkets. We intend to concentrate on de-velopment of new applications for ournew carbon products.

During fiscal 1998, we installed pro-duction facilities for new carbon prod-ucts at the Kawagoe Plant and startedconstruction of a new production lineat the Chiba Plant to make AIRLITE-FRU synthetic wood products on a com-mercial scale. We also began construc-tion of a new production line for elas-tomers at the Tokushima Plant.

Polyurethane elastomer pellet

Bead finisher for sinks

15

PapersSales of Papers decreased 3.3% to ¥19,236million (US$148 million).

In the household papers field, low con-sumer spending and an excess of supplywhich triggered discount competitionamong retailers caused drops in both salesand profit.

Sales of fine papers leveled off, but ourefforts to cut unit costs through an im-provement in productivity helped to im-prove profit.

In the synthetic papers field, good salesof original products and molded productsusing synthetic papers helped to increasesales and profit.

Sales of label system products remainedat the same level as fiscal 1997. However,we were able to increase profit through ourrationalization and cost-cutting efforts.

With the aim of establishing a soundfoundation for future development, weexpanded production of household papersat the Shimada Plant and established anintegrated product development center atour Fuji Plant.

OthersSales of this sector totaled ¥3,252 million(US$25 million), an increase of 24.9% overfiscal 1997. Sales broke down as follows:

real estate leasing ¥2,492 million (US$19million), and Computer Color Matching(CCM) systems and other products ¥760million (US$6 million).

Our leasing business proceeded with therental of unused land in Miai, Tosaki andShimada for a model home and shoppingcenters. At Miai, we leased a permanenthousing exhibition site sponsored by theAsahi Shimbun newspaper. At Tosaki, aplan has been adopted for a departmentstore and shopping mall adjacent to theexisting shopping center and their integra-tion into one large shopping center (sched-uled to open in April 2000). Constructionof a shopping center at the Shimada sitewent ahead smoothly and the center isscheduled to open in March 1999.

Computer mouse pads made from synthetic papers

Artist’s impression of shopping center in Shimada

Review of Operations

Synthetic Paper Mouse Pad Kit

Nisshinbo’s FREE STAGE, a kit to make com-puter mouse pads, uses our synthetic paper,thereby highlighting the wide range of uses forthese papers. It is environment-friendly in thatit does not contain vinyl chloride and thereforedoes not generate toxic gases when incinerated.A number of junior high schools have adoptedthe kits as educational tools.

CCM Systems BusinessStrengthened

Our CCM systems business is expanding. Inorder to accelerate this progress, on July 1, 1998we set up a new department for the develop-ment and sales of CCM systems.

Meanwhile, during fiscal 1998 Nisshinboproducts were in the limelight at the Sixth OsakaInternational Textile Machinery Show, the larg-est textile machinery exhibition in Asia. Amongthe Nisshinbo exhibits to attract the attentionof visitors from the industry were the originalCHOSHOKU SENKA CCM system, fluorescentCCM system, on-line color analyzing system andautomatic inspection system.