Financial Information: Annual Report 2003

 Hub unit bearings, which are bearing units used in wheels, represents our best growth opportunity in the strategy to gain the No. 1 share of the global automotive bearing market. These products are rapidly being adopted as they make vehicles lighter and more functional. Hub unit bearings are also useful to automakers since they can simplify the vehicle assembly process.
 In fiscal 2002, hub unit bearings accounted for 25% of our total automotive bearing sales. Overall hub unit bearing sales were ¥39.6 billion, up 24% year-on-year, and we expect this to reach ¥65.0 billion in fiscal 2005.

HUB III Bearings: Third-Generation Hub Unit Bearings

 A shift is now taking place globally to third-generation hub unit bearings (HUB III). We moved early to develop our HUB III bearings and are seeing steady growth in new businesses given our superior technological position in the market. In addition to domestic orders, we are also receiving orders overseas from European and American automakers as well as from Japanese transplants.
 In terms of manufacturing, we have established a global supply network with production bases in each major geographical region, including Japan, the Americas and Europe. We also intend to reinforce our global position in the tapered roller hub unit bearing product area through our alliance with The Timken Company.
 Going forward, we will use our expertise in cutting-edge technology and global supply network to become the top global supplier of these products. We plan to expand worldwide production volume of HUB III bearings. NSK currently produces 4.0 million units or 13% of the global market and we expect to increase production to 11.5 million units or 25% of the global market by 2005.

Strengthening Our Technological Edge in Hub Unit Bearings

 NSK hub unit bearings are superior technologically for the following reasons:

• They are highly functional due to the inclusion of various sensing capabilities
• They are designed by digital simulation to meet ultimate requirements: Light weight, High rigidity, Low torque

 Using these technological strengths, we are developing the products listed below :

 China represents the cornerstone of our strategy for future growth. We estimate that bearing demand in China will rise from ¥300 billion in 2002 to ¥370 billion in 2005. We established operations in China in 1995, ahead of other bearing manufacturers, and have thus gained considerable expertise in local production and procurement. We will take advantage of this strength to solidify our position in China. Improvements will also be made on all fronts, including manufacturing, sales, procurement, and engineering.
 The following projects are currently being pursued:

Headquarters and Sales

 Integration of Chinese Operations Under a Holding Company (Shanghai)
 In February 2003, we established NSK (China) Investment Co., Ltd. as a holding company for our Chinese operations. In addition to supervising existing projects and local subsidiaries, the holding company will work to strengthen our sales organization in China in an effort to bolster marketing capabilities, particularly to the automotive-related business where we expect to see rapid growth hereafter.

Production

 Joint Venture with The Timken Company for Production of Tapered Roller Bearings (Suzhou, Jiangsu)
 We have established a joint venture in China, Timken-NSK Bearings (Suzhou) Co., Ltd., with The Timken Company, the largest bearing manufacturer in the U.S. The company is scheduled to begin production of tapered roller bearings for use in automobile transmissions and wheels in early 2004. Annual production capacity is planned to be 15 million sets.

 Construction of a Third Factory Building at Kunshan NSK Co., Ltd. (Kunshan, Jiangsu)
 Since Kunshan NSK Co., Ltd. started production in China in 1997, we have continued to increase output of bearings for home electronics products such as air-conditioners and vacuum cleaners every year. In order to better respond to growing local demand, we completed construction of a second factory building at the plant in July 2002 and will construct a third factory building by the end of 2003. We plan to boost monthly production capacity from the current 10 million units to 17.5 million units.

 Establishment of a Production Base for Steering Products (Dongguan, Guangdong)
 We have established NSK Steering Systems Dongguan Co., Ltd. as our first production base in China for automotive components, and production of steering columns and joints is expected to start July 2004. We intend to supply cost competitive products and components not only in China, but also to our overseas markets including Japan.

Procurement

 Establishment of a Procurement Center to Promote Global Procurement (Shanghai)
 In September 2002, we established a procurement center in Shanghai. This center procures low-cost bearing steel, preprocessed rings and other components. It will then supply these products to our production bases in China and other regions.

 Establishment of a Production Base for Preprocessed Rings (Zhangjiagang, Jiangsu)
 We have established Zhangjiagang NSK Precision Machinery Co., Ltd. as a production facility in China to manufacture preprocessed rings for standard ball bearings and automotive bearings. Production is planned to start at the end of 2003, allowing us to better respond to increasing demand for automotive bearings in Asia, including China, and to provide cost competitive components to production bases around the world. We anticipate sales of these products to reach ¥1.5 billion in 2006.

Technology

 Strengthening Engineering Support in China through the New Technical Center Building (Kunshan, Jiangsu)
 In December 2002, we completed a new building at our Chinese Technical Center located on the site of Kunshan NSK Co., Ltd. In addition to boosting our team of field engineers, we will expand our sales support from the electronics sector to the automotive industry and the roller bearings market. We also plan to expand the Center’s functions to provide support for component procurement activities.

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