FORWARD-LOOKING STATEMENTS

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2 PROFILE Sysmex offers total solutions in the field of clinical laboratory testing, including hematology and urinalysis, providing customers with instruments, reagents and its original Laboratory Information System, as well as service and support. In its core field of hematology, Sysmex is a market leader, holding the number-one share of the Japanese market and the number-two share of the global market. Aiming to supply products that meet market requirements in different regions, Sysmex has its own global network of research and development, production, and marketing bases at 31 sites in 17 countries, including Japan. As a leading company in the field of clinical laboratory testing, Sysmex is building its operating base and pursuing strategic alliances. In addition, the Company is working to expand its field of operations by developing industrial applications for particle analysis technology. In April 2002, International Reagents Corporation (at that time, listed on the First Section of the Osaka Securities Exchange) became a wholly owned subsidiary. The integration of its product lineup and sales network in Japan and acquisition of its reagent production facilities and development technology have served to enhance the collective strength of the Sysmex Group. With a view toward further progress as a leading company in the field of clinical testing, Sysmex will continue to focus on post-genome research in order to discover new testing and diagnostic technologies. CONTENTS Consolidated Financial Highlights... 1 Message from the President... 2 Topics: Sysmex s Business Domain... 7 Core Competence... 8 Research and Development Production System Marketing Support and Service Global Business New Business Fields Management s Discussion and Analysis Consolidated Financial Statements Board of Directors Sysmex at a Glance Consolidated Subsidiaries and Affiliates A Brief History of the Company Investor Information FORWARD-LOOKING STATEMENTS Statements in this annual report, other than those of historical fact, are forward-looking statements about the future performance of Sysmex that are based on management s assumptions and beliefs in light of information currently available, and involve both known and unknown risks and uncertainties. Actual events and results may differ materially from those anticipated in these statements. This logo symbolizes our determination, and reflects our business approach of always looking to the future and anticipating future needs.

3 CONSOLIDATED FINANCIAL HIGHLIGHTS Sysmex Corporation and Subsidiaries Thousands of Millions of Yen U.S. Dollars 2002/2001 For the years ended March 31, % Change For the year: Net sales 47,532 38,817 37,244 $357, % Operating income 3,417 2,975 3,618 25, Net income 1,308 1,363 1,838 9,835 (4.0) At year-end: Total assets 66,502 55,219 49,967 $500, % Total shareholders equity 35,577 34,103 33, , Yen U.S. dollars Per share data: Net income $0.47 (4.0)% Cash dividends applicable to the year Note: U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of 133 = U.S. $1, the approximate rate of exchange on March 31, Net Sales ( Millions) Operating Income/ Operating Income Margin ( Millions/%) Net Income per Share ( ) 35,576 38,337 37,244 38,817 47,532 3,178 3,400 3,618 2,975 3, Operating income Operating income margin 1

4 MESSAGE FROM THE PRESIDENT In establishing its position as a leading company in the field of clinical laboratory testing, Sysmex has worked to provide customers with total solutions encompassing instruments, reagents and its original Laboratory Information System, as well as service and support. At the same time, we continue to develop our global operations by establishing an independent sales and service network and pursuing alliances. The expansion of operating infrastructure in Asia and the establishment of International Reagents Corporation* (IRC) as a wholly owned subsidiary has served to enhance the collective strength of the Sysmex Group. As a result, consolidated net sales for fiscal 2001, the year ended March 31, 2002, increased 22.5 percent compared with the previous fiscal year to 47,532 million, and operating income increased 14.9 percent to 3,417 million. Net income fell 4.0 percent to 1,308 million, due to valuation losses on shares held by the Company and on the inventory assets of IRC. * IRC s sales and income for the second half of the fiscal year are reflected in Sysmex s consolidated financial statements for fiscal President and CEO Hisashi Ietsugu Review of Fiscal 2001 and Analysis of Factors Increasing revenue by expanding the product lineup through alliances and establishing IRC as a wholly owned subsidiary Sysmex built on its strengths as a comprehensive supplier of instruments, reagents, the Laboratory Information System, service and support by expanding its product lineup through alliances while making IRC, in which it had previously made a capital participation, a wholly owned subsidiary. As a result, consolidated net sales increased 22.5 percent year-onyear to 47,532 million, supported by sales growth both in Japan and overseas. Operating income increased 14.9 percent to 3,417 million, despite continued investment to expand our operating infrastructure, due to efforts to reduce costs and selling, general and administrative expenses as well as the effect of the weaker yen. However, net income declined 4.0 percent to 1,308 million, due to a valuation loss on shares held by the Company caused by the depressed stock market and a valuation loss on inventory assets of IRC following the company s 2

5 reorganization. IRC s sales and income for the second half of the fiscal year are reflected in Sysmex s consolidated financial statements for fiscal In Japan, the establishment of IRC as a wholly owned subsidiary and an alliance with Roche Ltd. for urinalysis-related products expanded our product lineup. In addition, despite efforts to restrain costs throughout the health care industry, customers have responded positively to our ability to offer total solutions, including the Laboratory Information Systems, service and support. As a result, net sales in Japan jumped 27.6 percent to 24,624 million. In North and South America, sales of hematology and hemostasis products were lower than expected, but sales of urinalysis products increased. As a result of these factors, coupled with the depreciation of the yen, net sales increased 7.6 percent to 5,698 million. In Europe, sales of instruments increased, particularly the XE-2100 automated hematology analyzer, a flagship product. Reagents and LIS also performed well. Net sales increased 16.0 percent to 12,098 million. Sysmex worked to expand its sales and service network in the Asia-Pacific region, particularly China, resulting in stronger sales of hematology, hemostasis and urinalysis products. Net sales soared 34.9 percent to 5,112 million, and sales in this region are expected to continue to grow substantially. Trends in the Medical and Clinical Testing Market Increased health care efficiency through technological innovations and stronger emphasis on preventative treatment Budgetary constraints are affecting more and more medical institutions, as the progressive aging of the population in advanced countries and the increase in lifestyle-related diseases have caused health care expenditures to rise. At the same time, the global diagnostics market is projected to expand at an average annual rate of 5 percent until 2005 due to increasing demand for preventative medicine. Consequently, we can expect to see technological innovations in IT, genome analysis and nanotechnology, which will lead to new developments in clinical labotatory testing methods that will contribute to the prevention, early detection and treatment of illness. In the Asia-Pacific region (where China has recently joined the WTO), Eastern Europe and Latin America, economic development is stimulating demands for a better health care infrastructure. In Japan, comprehensive reforms of the health care system are underway. Revisions to the way medical institutions are reimbursed for treatment and a decision to change national universities into independent administrative institutions are dramatically affecting the medical community. In addition, the use of IT in medical and clinical testing is contributing to improvements in the efficiency and quality of medical care. Global Niche Strategy Aiming to become the global leader in the hematology field To capitalize on our strengths and establish a dynamic presence as a leading company, Sysmex has developed a Global Niche strategy with the aim of securing the top share in certain global markets such as hematology. While leveraging our proprietary technologies and maximizing the capabilities of our overseas bases, we are working to further expand our market share and become the global industry leader through alliances with leading international corporations such as F. Hoffman-La Roche Ltd. in the field of hematology and Dade Behring Inc. in the field of hemostasis. Sysmex currently maintains the 3

6 companies. Through these initiatives, Sysmex aims to become the number-one comprehensive diagnostics supplier in Asia, including Japan. number-two share in the global hematology market, and the number-one share in the global hemostasis market, together with Dade Behring. Asia-Pacific Becoming the number-one comprehensive diagnostics supplier in Asia, including Japan In Asia, health care needs are rising in tandem with economic development, making the region a market with high growth potential. Particularly in China, where economic growth has been remarkable, rapid market expansion is expected. Over the past several years, Sysmex has worked to build an operating infrastructure throughout the extensive Chinese market in order to expand its sales, service, reagent production and IT development capabilities. In 2001, Sysmex established New Zealand-based IT company Sysmex Delphic Limited as a consolidated subsidiary and opened a new IT facility, and in 2002, established a subsidiary in Indonesia. In addition to making use of an expanded Asia-Pacific sales and service network centered in Singapore and extending to Thailand, Malaysia and India, Sysmex is expanding its product lineup by establishing IRC as a wholly owned subsidiary and pursuing alliances with other Incorporating IRC The creation of Japan s leading corporate group in the field of hematology In April 2002, IRC was integrated into the Sysmex Group as a wholly owned subsidiary, making Sysmex Japan s leading corporate group in the field of hematology. Combining the two companies strengths Sysmex s instruments and IT with IRC s reagents will produce a synergistic effect that will enable us to increase our corporate value as a group and become the number-one comprehensive diagnostics supplier in Asia, including Japan. Incorporating its sales and service functions in Japan into the Sysmex Group will enable IRC to focus specifically on the development and production of reagents. The acquisition has also enabled the Sysmex Group to build one of Japan s leading research and development networks. We will focus on the development of new products by combining the technology and human resources of both companies. In addition, we have built a reagent production system that leverages the strengths of both companies, combining our production technologies and knowhow to improve production efficiency and reduce costs. The staff of IRC has been transferred to Sysmex, and we are working to improve the motivation and attitude of all employees. Total Solutions Offering new value by combining instruments, reagents, LIS, service and support The health care environment in advanced countries is changing rapidly. Although there is increasing pressure to contain costs, there is also a strong 4

7 MESSAGE FROM THE PRESIDENT emphasis on improving the efficiency and quality of care. Sysmex is responding to this environment by offering consulting services for all aspects of laboratory operation as well as total management solutions that meet customers needs by effectively combining instruments, reagents, service and support, centered around the Laboratory Information System (LIS), which links diagnostic information obtained from various instruments into a network so that it can be easily shared and accessed. One of our key strengths is our ability to draw on our expertise in the field of clinical testing in order to offer service and support together with our products. In the future, we plan to continue developing total solutions for laboratory needs. Focusing on the Field of Life Sciences Successfully developing genetic testing technology for metastatic cancer of the lymph nodes With the aging of society and the rise in lifestylerelated diseases, Sysmex is working to improve patients quality of life by researching new testing methods in the areas of risk evaluation and definitive diagnosis in order to contribute to the prevention of disease. The Central Research Laboratories were established in April 2000 to conduct post-genome research, including joint research with universities in Japan and overseas, in order to develop new core technologies. For example, in May 2002 a genetic testing system was developed that can detect metastatic cancer of the lymph nodes within 15 minutes. We will continue to focus on research in the field of life sciences in order to help improve people s quality of life. Dealing with Environmental Issues Acquisition of ISO certification for the head office and the Techno Center In recognition of the fact that environmental protection is an important social responsibility of corporations, Sysmex is working to acquire ISO certification for all parent-company facilities as well as our subsidiaries in Japan and overseas. In March 2002, the head office of Sysmex and the Techno Center received ISO certification, bringing the total number of facilities in the Sysmex Group with ISO certification to seven. In the future, the Sysmex Group will remain committed to actively addressing environmental issues. Sysmex will continue to pursue leading-edge technologies and create new value while working to further expand our global operations. Focusing on quality of life, we are committed to developing new testing and diagnostic technologies in order to contribute to the formation of a healthy society. I am grateful to our shareholders and investors for their continued support as we work toward meeting their expectations. Hisashi Ietsugu President and CEO 5

8 TOPICS: July August September Renewed sales alliance for hemostasis products with Dade Behring Inc. Signed patent license contract with Beckman Coulter, Inc. for patents related to blood smear preparation equipment and reagents for classifying leucocytes Formed sales alliance with Tosoh Corporation for sale of Tosoh s glycohemoglobin analyzer in Asia Launched PAMIA-40i immunoagglutination analyzer, which reduces testing time by two-thirds through whole blood testing New Zealand-based IT enterprise Delphic Medical Systems, Ltd. became a consolidated subsidiary 2002 January March April Launched CA-550 automatic blood coagulation analyzer Established Welltec GmbH in Germany The Sysmex corporate headquarters and the Techno Center received ISO certification Construction work completed on expansion of International Reagents Corporation s Seishin Factory Signed agreement with International Reagents Corporation concerning transfer of operations and carried out stock-for-stock exchange Launched XT-2000i multichannel automated hematology analyzer and XE Pro series software upgrade for blood analyzers May Developed genetic screening technology that can detect metastasis within 15 minutes XT-2000i June July Laboratory Information System (LIS), developed by Belgian subsidiary Sysmex Molis S.A., was launched in Japan The Sysmex Network Communication System (SNCS), Sysmex s online technical support and quality control system, was adapted for Sysmex s hemostasis analyzer (in Japan) Subsidiary PT. Sysmex Indonesia commenced operations Formed sales alliance with Eiken Chemical Co., Ltd. for sale of Sysmex s automated urinalysis equipment and test strips for urine analyzers in China Expanded the development and support capabilities of Sysmex Molis S.A. September Construction work completed on expansion of the Kakogawa Factory, a production facility for instruments Developed a production system capable of accommodating the heightened demand for instruments resulting from global expansion of the Company s operations Sysmex Molis S.A. Kakogawa Factory 6

9 SYSMEX S BUSINESS DOMAIN When you undergo medical examinations at your workplace or school, or when you feel ill and go to the hospital, various clinical tests will be performed, such as X- rays or blood tests. The data from these tests assists doctors in making a diagnosis and determining a course of treatment. Tests are also performed when checking on the progress of treatment, such as determining the extent of your recovery. These tests are extremely useful because they provide information that can lead to the detection of abnormalities and the most appropriate treatment. There are two types of diagnostic testings: clinical laboratory testings, in which blood, urine and cell samples such as biopsies are taken from the body and examined; and tests in which the body is directly examined, such as X-rays, electrocardiograms (ECG) or electroencephalograms (EEG). Sysmex offers a broad range of products, services and support for laboratory tests, from the necessary instruments and reagents to information systems. Furthermore, to respond to changes in the health care environment, Sysmex is expanding further into areas such as point-of-care (POC) testing, information technology and particle analysis technology for industrial applications. Clinical Laboratory Testing Field Clinical Hematology Measuring the number, type and size of white blood cells (leukocytes), red blood cells (erythrocytes) and platelets (thrombocytes) and checking hemoglobin concentration. Red blood cell count and hemoglobin levels are measured for evidence of anemia or polycythemia, white blood cell count is used to determine leukemia or various types of inflammation and platelet count is used to check blood clotting function. POC Testing Field Point-of-care tests can be carried out in operating rooms, intensive care units or at the patient s bedside, rather than in central laboratories, to enable faster diagnosis and treatment. Hemostasis Examining the plasma taken from blood in order to test for clotting abnormalities, which can indicate hemophilia or thrombosis, as well as hepatic function. Immunochemistry Testing for the presence of the hepatitis virus or a history of hepatitis or other viral infections. Also involves checking for the appearance of specific proteins in the blood that signal the presence of cancer, and measuring insulin in order to diagnose diabetes. Biochemistry Checking the enzymes, sugars and proteins in blood serum and blood plasma, while examining the body s nutritional status and liver and kidney function. Also involves testing for diseases such as diabetes and arteriosclerosis. Urinalysis/Fecal Occult Blood Testing, etc. Urinalysis testing entails checking for signs of sugar, protein and blood in urine, while also looking for the presence of urinary stones, examining kidney function and testing for diabetes. Fecal occult testing involves using an occult blood test to check for bleeding from the digestive tract, cancer or the presence of parasites or their eggs. Bacteriology Testing urine, blood, spinal fluid, pus and other bodily fluids for pathogenic bacteria, in order to detect the bacteria that may be causing symptoms such as fever, and to make a diagnosis and determine the most effective antibiotic. (Non-Sysmex Field) Blood Gas/Electrolyte Collecting arterial blood to measure the concentration of oxygen and carbon dioxide as well as the ph level, in order to evaluate lung function and determine if oxygen is circulating throughout the body. In addition, the test measures the number of sodium, potassium and calcium ions in blood in order to check that the body s hormone levels are in balance. Information Technology (IT) Field The health care industry is moving towards the establishment of IT-based medical information networks, which contribute to more effective diagnoses by collecting and Business Domain analyzing data from clinical tests and consolidating this information into a convenient database. In the future, Sysmex will continue to make use of IT to promote the establishment of local health care networks made up of hospitals and clinics, and develop remote medical care capabilities. New Business Fields: Particle Analysis for Industrial Applications and Health Care Sysmex is focusing on industrial applications for particle analysis technology, developed based on hematology technology, which is one of the Company s core strengths. It is used in many industrial processes including research and quality control of copier toner and ceramic particles. Sysmex is also expanding into the field of health care. 7

10 ORE CCOMPETENCE Sophisticated Technology Through the development of hematology equipment, Sysmex has established strengths in the area of sensing technology a combination of various electrical, mechanical, optical, fluid and other technologies as well as biology and software development. The Company s greatest asset is its ability to create an optimum balance between these advanced technologies in order to respond accurately to customers needs with a combination of instruments, reagents and the Laboratory Information System (LIS). A Leading Company in the Field of Hematology Sysmex possesses technology that is highly regarded by customers around the world. The Company commands the top share of the Japanese hematology market and the numbertwo share of the global market, providing a stable source of revenue. As a leading company in the field of hematology, Sysmex offers a broad range of products, from highperformance network-ready equipment to compact units. In addition to instruments and reagents, Sysmex complements its full lineup with carrier systems and blood sample preparation kits. 8

11 Global Development Since its establishment, Sysmex has focused on expanding its presence overseas, tailoring its operations to the specific market needs of particular regions. At present, Sysmex has 31 subsidiaries and affiliates in 17 countries, including Japan, that serve as regional R&D, production and marketing bases, and exports products to more than 125 countries around the world. The Company also pursues alliances with leading global corporations, with the aim of capitalizing on its strengths and efficiently increasing market share. For example, in the field of hematology, Sysmex formed an alliance with Roche Diagnostics Corporation of Switzerland in 1998, whereby Roche markets Sysmex s hematology analyzers in the United States and Sysmex markets Roche s POC testing products in Japan. In the field of hemostasis, Sysmex has maintained an alliance with Dade Behring Inc. of the U.S. since 1995, providing both companies with access to Sysmex s hemostasis instruments and Dade Behring s hemostasis reagents. This alliance has enabled the two companies to claim the leading share of the global hemostasis market. Furthermore, in 1998, Sysmex expanded its product lineup in the field of scientific measurement through a sales agreement with Malvern Instruments Ltd. of the U.K. A Strong Operating Base in Asia Sysmex is targeting Asia as a future growth market, and is aiming to become the number-one comprehensive diagnostics supplier in Asia. Of the world s top ten diagnostics companies, only Sysmex is based in Asia, giving it a distinct geographical advantage. With 14 sales and service bases in seven countries, including China and Singapore, and reagent production facilities in China, India and Singapore, Sysmex works to tailor its operations to the specific market needs of each region where it conducts business. Sysmex is actively developing its operating infrastructure in China to take advantage of the rapidly growing Chinese market. In addition to building a direct sales network in China, Sysmex plans to establish a regional software development subsidiary that will develop software products incorporating IT for more effective utilization of diagnostic information. Sysmex scientific seminar Total Solutions The health care environment in advanced countries is changing rapidly. Although there is increasing pressure to contain costs, there is also a strong emphasis on improving the efficiency and quality of care. Sysmex is responding to this need by offering consulting services for all aspects of laboratory operation as well as total management solutions that meet customers needs by effectively combining instruments, reagents, service and support, centered around the Laboratory Information System (LIS), which links diagnostic information obtained from various instruments into a network so that it can be easily shared and accessed. One of our key strengths is our ability to draw on our expertise in the field of clinical testing in order to offer service and support together with our products. In the future, we plan to continue developing total solutions for laboratory needs. Technical Support Center 9

12 R ESEARCH AND DEVELOPMENT ASTRIM: non-invasive blood vessel monitor Research and Development Organization Sysmex invests approximately 10 percent of net sales into R&D to support the development of highly specialized and innovative technologies. Research at the Techno Center combines technologies such as electronics, mechanics, optics, fluid dynamics, and software development to develop instruments and software. The Central Research Laboratories focus on developing core technologies for the twenty-first century, such as research in the field of life sciences. With the integration of International Reagents Corporation (IRC) into the Sysmex Group, reagent development will be concentrated at IRC s Research and Development Center, creating a research and development organization suited to the unique characteristics of reagents and enabling Sysmex to develop new products combining the technology of both companies. Overseas, the Technology Assessment Group was established at Sysmex Corporation of America to collect information on leading-edge technologies in North America and conduct joint research with universities and other research institutions. Promoting Global IT Development Medical institutions in advanced countries are pursuing improvements in the efficiency and quality of care. The use of information technology 10

13 will be crucial in resolving these issues. In response, Sysmex is moving forward with the global development of its Laboratory Information System (LIS), which links diagnostic information received from various instruments into a network so that it can be easily shared and accessed. In addition to Sysmex s software development bases in Japan, the U.S., Belgium and China, New Zealandbased Delphic Medical Systems, Ltd. became a consolidated subsidiary in The Company has established a global software development network, linking its operations in Japan with software development subsidiaries around the world, such as in the Eastern European nation of Slovakia. At present, a standard model of LIS developed by Sysmex Molis S.A. in Belgium is being created in order to meet the specific regional needs of users in the U.S. and Japan. In 2002, the Company strengthened the development and support capabilities of Sysmex Molis, aiming for further global development of LIS in the future. Creating New Core Technologies at the Central Research Laboratories The Central Research Laboratories were established in April 2000 to develop new core technologies that will play a vital role in the twenty-first century. They conduct international technical exchange and joint research with corporations, universities and other research institutions, and have established an advisory board of toplevel medical experts in various fields from Japan and abroad to offer insight from different perspectives. Currently, the Central Research Laboratories are working to improve people s quality of life by focusing on researching new testing methods in the areas of risk evaluation and definitive diagnosis. In addition, Sysmex has succeeded in developing a non-invasive blood vessel monitor that can measure hemoglobin levels without a blood sample. The Company is marketing this instrument under the brand name Astrim to athletes for use in their personal training regimens. In the future, Sysmex plans to develop new applications for non-invasive measurement technology. Techno Center 11

14 RODUCTION PSYSTEM Kakogawa Factory Ensuring a Stable Supply of High-Quality Products Through Careful Quality Management Sysmex manufactures high-quality instruments and reagents based on a strict quality control system in order to ensure a stable supply to its customers in Japan and abroad. Instruments Production Instruments are manufactured at the Kakogawa Factory, which operates flexible production lines capable of producing a variety of instruments, from large to small. The factory s comprehensive quality control management includes computerized production management and Sysmex s own process control system. This attention to quality and advanced production technology is apparent in the Company s reliable products that are exported to more than 125 countries. An expansion of the Kakogawa Factory was completed in September 2002, creating a production system with increased efficiency and doubled capacity that is capable of accommodating the heightened demand for instruments resulting from global expansion of the Company s operations. In addition, the move has strengthened the Company s ability to manufacture optical units and major components in-house. Reagent Production The integration of International Reagents Corporation (IRC) into the Sysmex Group has created a reagent production system that takes advantage of the strengths of both 12

15 companies. Sysmex s Ono Factory handles medium- and large-scale production of reagents, primarily for hematology equipment, and IRC s Seishin Factory is responsible for small-scale production of reagents manufactured from biological materials, focusing on reagents used in the biochemical and immunological fields. An expansion of the Seishin Factory has established a system for more efficient production of higherquality products. In addition, Jinan Sysmex Medical Electronics Co., Ltd. in China manufactures IRC s biochemical reagents, and Sysmex plans to market these reagents throughout Asia, including China. Overseas, Sysmex has established a global network for the stable production and supply of reagents, consisting of manufacturing facilities located near major customers in the U.S., Brazil, Germany, China, India, and Singapore. Quality Control and Environmental Activities All of Sysmex s instrument and reagent production facilities are thoroughly committed to quality control and environmental protection. Both the Kakogawa Factory and the Ono Factory strictly adhere to quality control systems based on the Ministry of Health, Labour and Welfare s Good Manufacturing Practice (GMP) quality control standards for medical devices, as well as ISO 9001 international quality control standards and ISO and EN quality guarantee standards for medical devices. The Kakogawa Factory, the Ono Factory and the Neumünster Factory of Sysmex Europe GmbH, Sysmex s European subsidiary, have acquired ISO certification, an international standard for environmental management systems. IRC s Seishin Factory has already obtained ISO 9001 certification, and is currently working to achieve ISO certification. In the future, the Sysmex Group will continue to actively address quality control and environmental issues. 13

16 ARKETING SUPPORT MAND SERVICE 14 The Number-One Sales, Service and Support Network in Japan The integration of International Reagents Corporation (IRC) into the Sysmex Group has created the leading sales, service and support network in Japan, comprising seven branch offices and thirteen sales offices. Acquiring IRC s lineup of biochemistry and immunology products and uniting the two companies instruments, reagents, service and support functions and Sysmex s LIS have enabled the Company to offer an even greater range of total solutions. In addition, Sysmex has established a new sales network for the POC testing market. Because POC testing can be carried out at the patient s bedside, it enables doctors to diagnose and treat illness faster. As a result, it contributes to improved efficiency of care and patient satisfaction, and is regarded as a future growth market. Sysmex is complementing its own lineup of POC testing products through alliances with other manufacturers. Leading-Edge Service and Support at the Technical Support Center The Technical Support Center within the Techno Center is staffed by knowledgeable specialists who respond to inquiries from customers regarding questions or problems with Sysmex products. In addition to basic questions about instruments and reagents, they are able to discuss detailed scientific issues such as measurement results. Sysmex is also working to provide fast and accurate service and support by linking branch offices and sales offices. SNCS: Advanced Service and Support Using IT The Sysmex Network Communication System (SNCS) is an online maintenance and quality control support system for Sysmex instruments that links customers with the Technical Support Center. For Sysmex products that are part of the SNCS, such as the XE-2100 automated hematology analyzer, customers can connect to the SNCS to get help using their equipment from the Technical Support Center. The SNCS is a secure, easy-to-use environment that significantly shortens equipment downtime. In the future, Sysmex plans to make SNCS available to overseas customers as well.

17 LOBAL GBUSINESS Expanding Our Global Sales and Service Network Since its establishment, Sysmex has focused on expanding its presence overseas. The Company has worked to establish regional production bases for reagents and expand its sales and service network, particularly in the U.S. and Europe. In addition, Sysmex is actively working to build sales and service networks in Latin America, Eastern Europe and Africa. Sysmex s global operations are overseen by four companies: Sysmex Corporation of America in the U.S.; Sysmex Europe GmbH in Europe; Sysmex Singapore Pte Ltd. in the Asia- Pacific region; and Sysmex Shanghai Ltd. in China. At present, Sysmex exports products to more than 125 countries around the world, tailoring its marketing activities to individual regions. Sysmex s future efforts to expand its global sales and service network and develop regional marketing strategies will include making use of alliances. Operations in North and South America Sysmex Corporation of America, which is responsible for marketing activities in North America, utilizes the extensive sales and service network of Roche Diagnostics Corporation to expand its share of the hematology market. Sysmex s products have won strong support and are used in the top five hospitals in the U.S. In the future, Sysmex aims to strengthen its joint sales and service network with Roche and further increase market share. Furthermore, the Company is working 15

18 Overseas Consolidated Subsidiaries and Affiliates to offer IT-based total solutions by customizing the Laboratory Information System (LIS), developed by Belgian subsidiary Sysmex Molis S.A., for the American market. In the field of hemostasis, Sysmex has already captured the leading market share through an alliance with Dade Behring Inc. In addition, Sysmex has fully entered the POC testing market, and is working to expand its share of the urinalysis market. Sysmex has targeted Latin America as an important market with high growth potential, and is expanding its operations in the region through an alliance with Roche. European Operations Sysmex Europe GmbH, which is in charge of European operations, has established sales and service offices in the United Kingdom, Germany and France, and also utilizes local distributors to provide total solutions incorporating the IT-based LIS. A standard model of Sysmex Molis s LIS, which is already well received in the European market, is being created in order to meet the specific needs of regional users in the U.S. and Japan. In the future, the Company will work to strengthen the development and support capabilities of Sysmex Molis, aiming for further global development of the LIS. Sysmex is also working to develop its operations in Eastern Europe, Russia, the Middle East and Africa. For example, the Company has established a technical service center in Africa to provide technical support for the African market. Asia-Pacific Operations In Asia, health care needs are rising in tandem with economic development, with high growth 16

19 GLOBAL BUSINESS OVERSEAS Sales Production R&D Holding Company JAPAN North and South America 1 SYSMEX CORPORATION OF AMERICA 2 SYSMEX REAGENTS AMERICA, INC. 3 SYSMEX INFOSYSTEMS AMERICA, INC. 4 SYSMEX DO BRASIL INDUSTRIA E COMERCIO LTDA. Europe 5 SYSMEX EUROPE GMBH 6 SYSMEX DEUTSCHLAND GMBH 7 WELLTEC GMBH 8 SYSMEX UK LIMITED 9 SYSMEX BELGIUM S.A. 10 SYSMEX MOLIS S.A. 11 SYSMEX FRANCE S.A.R.L. 12 SYSMEX MOLIS IT SERVICES SLOVAKIA, S.R.O. Asia-Pacific 13 JINAN SYSMEX MEDICAL ELECTRONICS CO., LTD. 14 SYSMEX HONG KONG LIMITED 15 SYSMEX SHANGHAI LTD. 16 SYSMEX INFOSYSTEMS CHINA, LTD. 17 SYSMEX SAN TUNG CO., LTD. 18 SYSMEX SINGAPORE PTE LTD. 19 SYSMEX (MALAYSIA) SDN BHD 20 SYSMEX TRANSASIA BIO-MEDICALS PRIVATE LTD. 21 SYSMEX (THAILAND) CO., LTD. 22 MED-ONE CO., LTD. 23 SYSMEX DELPHIC LIMITED 24 WHOOSH TECHNOLOGY PTY LIMITED 25 PT. SYSMEX INDONESIA INTERNATIONAL REAGENTS CORPORATION MEDICA CO., LTD. TOA MEDICAL CO., LTD. SYSMEX LOGISTICS CO., LTD. RA SYSTEMS CORP. JAPAN INSTITUTE OF FOODS ECOLOGY INC. expected in the future. Sysmex Singapore Pte Ltd., which handles operations in the Asia-Pacific region, maintains an extensive sales and service network comprising subsidiaries in Thailand, Malaysia and India, and representative offices in the Philippines and Vietnam. With a full product lineup that meets the needs of regional markets, Sysmex is aiming to become the number-one comprehensive supplier in Asia, including Japan. The Company is actively working to expand its operations in this important region. In 2001, New Zealand-based IT company Delphic Medical Systems, Ltd. was made a consolidated subsidiary, strengthening Sysmex s marketing, service and support capabilities in the field of IT, and in 2002, a new subsidiary was established in Indonesia. Sysmex is actively developing its operating infrastructure in China in order to take advantage of the rapidly growing Chinese market, which is administered by Jinan Sysmex Medical Electronics Co., Ltd. In addition to its reagent production facility, Sysmex conducts regional-based marketing, service and support through an expansive network made up of a sales subsidiary in Taiwan, five sales offices and twelve distributors. The Company also established a software development subsidiary in Shanghai in order to offer products tailored to the needs of regional customers. In an effort to contribute to the quality of health care, Sysmex held academic seminars on hematology and clinical laboratory testing in Malaysia, the Philippines and China during fiscal 2001, and plans to expand the seminars to other Asian countries in fiscal

20 EW NBUSINESS FIELDS Central Research Laboratories Particle Analysis for Industrial Application Technology Sysmex is focusing on industrial applications for particle analysis technology and image processing technology, two of the Company s core technologies. These technologies allow the measurement of micronsized particles in copier toner, electronic materials, pharmaceuticals and cosmetics. In addition, Sysmex is working to create new markets through test marketing, such as accepting commissions to analyze samples provided by customers. A sales agreement with U.K.-based Malvern Instruments Ltd., a leading company in the field of particle measurement, has enabled Sysmex to expand its lineup of particle analyzers. Discovering New Core Technologies at the Central Research Laboratories The Central Research Laboratories research new testing methods in the areas of risk evaluation and definitive diagnosis in order to contribute to the prevention of disease. One example is the successful development of a genetic testing system that can detect metastatic cancer of the lymph nodes within 15 minutes. The fully integrated process from preparation to gene amplification to detection is the fastest in the world. Sysmex plans to market the equipment and reagents internationally first for research applications, and then for clinical use. Joint research is conducted with corporations, universities and other research institutions, and an advisory board of top-level medical experts in various fields from Japan and abroad offers insights from different perspectives. In addition, the Central Research Laboratories conduct research on performance analysis of cellular protein as part of the Millennium Project initiated by the Ministry of Economy, Trade and Industry (METI), which aims to develop new industries and spur technological innovations in a variety of fields. In the future, Sysmex will continue to work to develop new testing methods designed to improve people's quality of life. 18

21 MANAGEMENT S DISCUSSION AND ANALYSIS Financial Strategy Sysmex s management objective is to maximize the value of the corporation as a public company by striving to increase market capitalization and improve the Company s credit rating. Sysmex s financial strategy is to focus on the balance sheet and cash flow statement as well as the income statement, with the objective of building a flexible and firm financial basis. For the fiscal year ended March 31, 2002, Sysmex continued to maintain a sound financial structure, with a shareholders equity ratio of 53.5 percent and an interest-bearing debt ratio of 16.6 percent. At present, Sysmex has an A- (single A minus) rating from Rating and Investment Information, Inc. To ensure smooth financing, the Company continues to work toward improving this rating while maintaining a healthy debt/equity balance and further strengthening its financial position. In November 1995, the Company raised approximately 6.0 billion through a public offering of 2.2 million shares. In March 2000, the Company issued its first unsecured convertible bonds amounting to 5.0 billion, its first financing in the capital markets since its public listing. In December 2000, the Company borrowed 5.0 billion in long-term bank loans. Each of the Company s consolidated subsidiaries borrows funds from banks as required for its own working capital needs. The Company raises working funds through short-term borrowings. To meet funding needs for long-term capital investments in plant and equipment and other purposes, Sysmex selects the most appropriate funding method considering factors such as the investment recovery term and associated risks. For the time being, Sysmex plans to focus on equity finance as its primary funding method. Sales and Income Net Sales Consolidated net sales increased 22.5 percent over the previous fiscal year to 47,532 million. Sales in Japan rose 27.6 percent to 24,624 million and sales outside Japan increased 17.4 percent to 22,908 million, accounting for 48.2 percent of total net sales. The major factor responsible for the increase in sales in Japan was the addition of International Reagents Corporation as a consolidated subsidiary in August 2001, while the weaker yen contributed to stronger sales in Europe and the Asia-Pacific region. Average exchange rates for the two key currencies, the U.S. dollar and the euro, were and 108.8, respectively, representing a yen depreciation of 12.7 percent and 9.2 percent, respectively, over the previous fiscal year, and had the effect of increasing net sales by 2,055 million. If the effects of exchange rate fluctuations were excluded, sales outside Japan would have increased only 6.8 percent. Cost of Sales, SG&A Expenses and Operating Income Cost of sales rose 21.3 percent over the previous fiscal year to 19,770 million due to the increase in net sales, but decreased from 42.0 percent to 41.6 percent as a percentage of net sales. Selling, general and administrative (SG&A) expenses rose 24.6 percent over the previous fiscal year to 24,345 million, and increased from 50.3 percent to 51.2 percent as a percentage of net sales. These increases were mainly attributable to the addition of International Reagents Corporation as a consolidated subsidiary as well as higher R&D investment aimed at strengthening the Company s capabilities in the field of information technology and creating new core technologies. Capital Expenditures ( Millions) Total Capital ( Millions) ROE & ROA (%) 2,890 2,140 3,018 2,098 2, , ,649 1,369 1,665 8, ,680 33,596 34,103 35, Short-term bank loans Current portion of long-term debt Long-term debt Shareholders equity ROE ROA 19

22 As a result, operating income increased 14.9 percent to 3,417 million, while the operating income margin declined from 7.7 percent to 7.2 percent. The effect of exchange rates on operating income was a gain of 817 million. Other Income (Expenses) and Income Before Income Taxes Net other expenses increased from 24 million in the previous fiscal year to 343 million in the year under review. This increase resulted primarily from a valuation loss on shares held by the Company due to the sluggish stock market as well as a valuation loss resulting from a review of inventory assets prior to the reorganization of operations with the establishment of International Reagents Corporation as a wholly owned subsidiary. As a result, income before income taxes and minority interests increased 4.2 percent to 3,074 million. Net Income Corporate, residential and enterprise taxes increased 18.6 percent to 1,907 million, and net income decreased 4.0 percent to 1,308 million. Regional Segments Japan In Japan, major reforms to the healthcare system are being carried out in response to the declining birthrate and aging population, and medical institutions are striving to further improve their operating efficiency. In this environment, Sysmex is working to strengthen its sales and service system in Japan, introduce new products for more efficient and faster diagnosis, enhance its product selection through alliances with leading companies from around the world, and reinforce its position as a total diagnostics supplier by making International Reagents Corporation a consolidated subsidiary. As a result, net sales to customers in Japan increased 27.6 percent over the previous fiscal year to 24,624 million and net sales of the Sysmex Group in Japan increased 27.1 percent to 25,497 million. Major factors behind this increase were the addition of International Reagents Corporation as a consolidated subsidiary, an expanded lineup of laboratory testing products including automatic urinalysis equipment from F. Hoffmann-La Roche Ltd., and efforts to respond to the increasingly diverse needs of customers by offering total diagnostics solutions, including products and services in the field of Laboratory Information System. Operating income decreased 3.3 percent to 2,864 million, despite efforts to reduce costs and curb SG&A expenses, due to increased R&D investment aimed at creating new technologies. International Reagents Corporation was made a consolidated subsidiary in August 2001 as the result of a takeover bid, which was reflected in net sales and operating income during the second half of the fiscal year. In the future, the Sysmex Group plans to build on its collective strength while expanding into new business areas by making International Reagents Corporation a wholly-owned subsidiary in April 2002 and incorporating its sales and service functions, reagent technology and administrative operations. The Americas In the U.S. market, Sysmex is restructuring its IT business while working to expand sales of hematology and coagulation products through alliances with the Roche Group and Dade Shareholders Equity per Share ( ) Free Cash Flow ( Millions) Income before Income Taxes and Minority Interests ( Millions) 1, , , , , ,116 1,997 2,122 3,283 3,006 3,179 2,951 3, (-845) (-7,407)

23 MANAGEMENT S DISCUSSION AND ANALYSIS Behring respectively and increase sales of urinalysis products. As a result, net sales to customers in the Americas increased 7.6 percent over the previous fiscal year to 5,698 million and net sales of subsidiaries in the Americas increased 7.0 percent to 5,654 million. Factors responsible for this increase included higher sales of urinalysis products and the effect of the weaker yen on exchange rates. However, the reinforcement of the development and sales systems of software development subsidiary Sysmex Infosystems America, Inc. (SIA) and the necessary increase in personnel led to an operating loss of 282 million. Sysmex will work to increase its share of the hematology market in North America and expand sales of urinalysis products, for which demand is rising, by making use of alliances and focusing on sales of Laboratory Information System. Europe Sysmex maintains a large share of the market for hematologyrelated products in Europe, but is concentrating on sales of Laboratory Information System developed by software development subsidiary Sysmex Molis S.A. Net sales to customers in Europe increased 16.0 percent over the previous fiscal year to 12,098 million and net sales of subsidiaries in Europe increased 15.6 percent to 12,045 million. This increase resulted primarily from strong sales of blood testing equipment such as the XE-2100 automated hematology analyzer, reagents and Laboratory Information System, as well as the effect of the weaker yen on exchange rates. As a result, operating income in Europe increased 46.6 percent over the previous fiscal year to 705 million. With Sysmex Europe GmbH as its main base of operations, the Company will continue working to expand sales of existing businesses as well as IT-related products. Asia-Pacific Sysmex aims to become the number-one comprehensive supplier in the future growth markets of Asia, and is working to strengthen its operating base by building its marketing and production presence in the region. As a result, net sales to customers in the Asia-Pacific region increased 34.9 percent over the previous fiscal year to 5,112 million and net sales of subsidiaries in the Asia-Pacific region increased 41.8 percent to 4,336 million. Key factors were an increase in sales of blood testing equipment and blood coagulation analyzers due to expanded sales and service functions in China. However, stronger sales were not able to fully absorb the increase in SG&A expenses required to strengthen the sales and service network in China, and the Company recorded an operating loss of 148 million. Sysmex plans to vigorously develop its business in the region with a focus on China, while strengthening its sales and service network throughout the Asia-Pacific region. Financial Position Total assets as of March 31, 2002 stood at 66,502 million, an increase of 11,283 million from a year earlier. The primary reason for this increase was the consolidation of the assets of International Reagents Corporation. Current liabilities increased 4,606 million to 15,099 million, mainly due to the repayment of bank loans, the transfer of longterm debt, an increase in short-term loans to cover the rise in working capital of overseas subsidiaries, and an increase in the reserve for bonuses. Long-term liabilities decreased 1,133 million to 9,475 million, as Sysmex repaid some of the shortterm loans that had been taken out for the acquisition of shares in International Reagents Corporation during the previous fiscal year. As a result, interest-bearing liabilities increased 42 million to 11,063 million. However, the ratio of interest-bearing liabilities to total liabilities and shareholders equity decreased from 19.9 percent to 16.6 percent. Minority interests increased significantly, from 15 million to 6,351 million, due to the acquisition of approximately 52 percent of shares in International Reagents Corporation at the end of the fiscal year under review. Shareholders equity increased 1,474 million to 35,577 million, and shareholders equity ratio decreased 8.26 percentage points from the previous fiscal year to 53.5 percent. Cash Flow Net cash provided by operating activities increased 2,511 million to 4,234 million. The main reasons for this increase were income before income taxes and minority interests of 3,074 million and a non-cash depreciation charge of 2,810 million, as well as a decrease in inventories despite increases in accounts receivable and tax payments and a decrease in accounts payable. Net cash used in investing activities decreased 7,018 million to 2,112 million. Principal uses of cash were a payment of 2,093 million to renovate the Kakogawa Factory and International Reagent Corporation s Seishin Factory to increase the production capacity of laboratory testing equipment and reagents and acquire property, plant and equipment such as sales promotion facilities, as well as a payment of 331 million related to the establishment of International Reagent Corporation as a subsidiary. Net cash used in financing activities was 568 million. An increase in short-term borrowings was offset by repayments of long-term debt and the payment of dividends. Risk Factors Sysmex incurs foreign exchange risk related to transactions such as the import and export of raw materials, parts, and finished products. The Company enters into forward foreign exchange contracts to hedge the foreign exchange risk of receivables and liabilities generated by such transactions. 21

24 CONSOLIDATED BALANCE SHEETS Sysmex Corporation and Subsidiaries Thousands of Millions of Yen U.S. Dollars (Note 3) March 31, 2002 and ASSETS Current Assets: Cash and cash equivalents 9,182 7,339 $ 69,038 Short-term investments (Note 4) ,075 Notes and accounts receivable: Trade notes 3,938 3,390 29,609 Trade accounts 13,919 8, ,654 Affiliates Others ,308 Allowance for doubtful notes and accounts (114) (128) (857) Inventories (Note 5) 11,201 9,246 84,218 Deferred tax assets (Note 9) 1,511 1,407 11,361 Prepaid expenses and other current assets ,692 Total current assets 40,916 31, ,639 Property, Plant and Equipment: Land 5,903 3,455 44,384 Buildings and structures 12,726 9,428 95,684 Machinery and equipment 4,384 3,209 32,962 Furniture and fixtures 14,930 10, ,256 Construction in progress 1, ,947 Total 39,798 27, ,233 Accumulated depreciation (21,590) (14,743) (162,331) Net property, plant and equipment 18,208 12, ,902 Investments and Other Assets: Investments in and advances to affiliates (Note 4) 65 4, Investment securities (Note 4) 1,766 1,483 13,278 Software 1,934 1,717 14,541 Goodwill ,023 Deposits ,166 Deferred tax assets (Note 9) ,744 Other assets 1,228 1,121 9,233 Total investments and other assets 7,378 11,132 55,474 Total 66,502 55,219 $500,015 See notes to consolidated financial statements. 22

25 Thousands of Millions of Yen U.S. Dollars (Note 3) LIABILITIES AND SHAREHOLDERS EQUITY Current Liabilities: Short-term bank loans (Note 6) 1, $ 10,293 Current portion of long-term debt (Note 6) 1, ,519 Notes and accounts payable: Trade notes 1, ,774 Trade accounts 4,500 4,486 33,835 Affiliates Construction and other 2,409 1,260 18,113 Income taxes payable 1,165 1,006 8,759 Accrued expenses 1,872 1,481 14,074 Deferred tax liabilities (Note 9) 1 8 Other current liabilities ,331 Total current liabilities 15,099 10, ,526 Long-Term Liabilities: Long-term debt (Note 6) 8,029 9,649 60,368 Liability for retirement benefits (Note 7) ,399 Deferred tax liabilities (Note 9) ,414 Other long-term liabilities ,060 Total long-term liabilities 9,475 10,608 71,241 Minority Interests 6, ,752 Commitments (Note 10) Shareholders Equity (Notes 8 and 13): Common stock, 74,836,000 shares authorized, 20,909,200 shares issued in 2002 and ,385 3,385 25,451 Additional paid-in capital 5,561 5,561 41,812 Retained earnings 26,234 25, ,248 Unrealized gain (loss) on available-for-sale securities 91 (165) 684 Foreign currency translation adjustments 311 (158) 2,339 Total 35,582 34, ,534 Treasury stock - at cost: 51 shares in 2002 and 2001 (5) (38) Total shareholders equity 35,577 34, ,496 Total 66,502 55,219 $500,015 23

26 CONSOLIDATED STATEMENTS OF INCOME Sysmex Corporation and Subsidiaries Thousands of Millions of Yen U.S. Dollars (Note 3) Years Ended March 31, 2002 and Net Sales 47,532 38,817 $357,384 Operating Costs and Expenses: Cost of sales 19,770 16, ,647 Selling, general and administrative 24,345 19, ,045 Total operating costs and expenses 44,115 35, ,692 Operating Income 3,417 2,975 25,692 Other Income (Expenses): Interest and dividend income ,376 Interest expense (169) (66) (1,271) Foreign exchange gain ,090 Write-down of investment securities (423) (118) (3,180) Other net (478) (351) (3,594) Other expenses net (343) (24) (2,579) Income before Income Taxes and Minority Interests 3,074 2,951 23,113 Income Taxes (Note 9): Current 2,273 1,978 17,090 Deferred (366) (370) (2,752) Total income taxes 1,907 1,608 14,338 Net Income before Minority Interests 1,167 1,343 8,775 Minority Interests in Net Loss of Subsidiaries ,060 Net Income 1,308 1,363 $ 9,835 Yen U.S. Dollars Amounts per Common Share: Net income $0.47 Diluted net income Cash dividends applicable to the year See notes to consolidated financial statements. 24

27 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY Sysmex Corporation and Subsidiaries Millions of Yen Unrealized Foreign Number of Additional Gain (Loss) on Currency Total Common Shares Common Paid-in Retained Available-for-sale Translation Treasury Shareholders Years Ended March 31, 2002 and 2001 Issued Stock Capital Earnings Securities Adjustments Stock Equity Balance, April 1, ,909,200 3,385 5,561 24,650 33,596 Net income 1,363 1,363 Cash dividends, per share (460) (460) Bonuses to directors and corporate auditors (73) (73) Unrealized loss on available-for-sale securities (165) (165) Foreign currency translation adjustments (158) (158) Balance, March 31, ,909,200 3,385 5,561 25,480 (165) (158) 34,103 Net income 1,308 1,308 Cash dividends, per share (480) (480) Bonuses to directors and corporate auditors (74) (74) Unrealized gain on available-for-sale securities Foreign currency translation adjustments Increase in treasury stock (5) (5) Balance, March 31, ,909,200 3,385 5,561 26, (5) 35,577 Thousands of U.S. Dollars (Note 3) Unrealized Foreign Additional Gain (Loss) on Currency Total Common Paid-in Retained Available-for-sale Translation Treasury Shareholders Stock Capital Earnings Securities Adjustments Stock Equity Balance, March 31, 2001 $25,451 $41,812 $191,579 $(1,241) $(1,187) $256,414 Net income 9,835 9,835 Cash dividends, $0.17 per share (3,609) (3,609) Bonuses to directors and corporate auditors (557) (557) Unrealized gain on available-for-sale securities 1,925 1,925 Foreign currency translation adjustments 3,526 3,526 Increase in treasury stock $(38) (38) Balance, March 31, 2002 $25,451 $41,812 $197,248 $ 684 $ 2,339 $(38) $267,496 See notes to consolidated financial statements. 25

28 CONSOLIDATED STATEMENTS OF CASH FLOWS Sysmex Corporation and Subsidiaries Thousands of Millions of Yen U.S. Dollars (Note 3) Years Ended March 31, 2002 and Operating Activities: Income before income taxes and minority interests 3,074 2,951 $ 23,113 Adjustments for: Income taxes paid (2,241) (1,872) (16,850) Depreciation and amortization 2,944 2,594 22,135 Write-down of marketable equity securities ,180 Write-down of inventories 179 1,346 Gain on sales of investment securities (10) (75) Loss on disposals of property, plant and equipment ,677 Provision for planned cancellation of an underfunded retirement plan of an acquired subsidiary 172 1,293 Changes in assets and liabilities, net of effects from newly consolidated subsidiary: Increase in notes and accounts receivable (752) (423) (5,654) Decrease (increase) in inventories 1,192 (1,521) 8,962 Decrease in prepaid expenses and other current assets Increase (decrease) in notes and accounts payable (1,636) 398 (12,301) Decrease in liability for retirement benefits, net of provision (5) (3) (38) Increase (decrease) in accrued expenses and other current liabilities 366 (372) 2,752 Other net 266 (238) 2,002 Net cash provided by operating activities 4,234 1,723 31,835 Investing Activities: Purchases of property, plant and equipment (2,093) (2,464) (15,737) Purchases of software and other assets (924) (882) (6,947) Increase in investments in and advances to affiliates (7) (4,965) (53) Payments for purchases of investment securities (32) (470) (241) Proceeds from sales of investment securities Redemption of investment securities 70 Acquisitions, net of cash acquired 246 1,850 Payment for purchase of minority interests in subsidiaries (229) Other net 653 (240) 4,910 Net cash used in investing activities (2,112) (9,130) (15,880) Financing Activities: Increase in short-term bank loans net ,226 Proceeds from borrowing of long-term debt 50 5, Repayments of long-term debt (914) (243) (6,872) Cash dividends paid (481) (460) (3,617) Other net (51) 8 (383) Net cash provided by (used in) financing activities (568) 4,740 (4,270) Effect of Exchange Rate Changes on Cash and Cash Equivalents ,173 Net Increase (Decrease) in Cash and Cash Equivalents 1,843 (2,563) 13,858 Cash and Cash Equivalents, Beginning of Year 7,339 9,902 55,180 Cash and Cash Equivalents, End of Year 9,182 7,339 $ 69,038 Additional Cash Flow Information: Interest paid $ 1,474 Assets acquired and liabilities assumed by acquisitions: Assets acquired 16, ,519 Liabilities assumed (3,261) (24,519) See notes to consolidated financial statements. 26

29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sysmex Corporation and Subsidiaries 1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principles and practices generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Accounting Standards. The consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Japan. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Principles of Consolidation The consolidated financial statements as of March 31, 2002 include the accounts of Sysmex Corporation (the Company ) and 27 (22 in 2001) subsidiaries (together, the Companies ). Under the control or influence concept, those companies over whose operations the Parent, directly or indirectly, is able to exercise control are fully consolidated, and those companies over which the Company has the ability to exercise significant influence are accounted for by the equity method. Investments in 3 affiliated companies in 2002 and 2001 are accounted for by the equity method. The excess of the cost of the Company s investments in subsidiaries and affiliates over its equity in the net assets at the respective dates of acquisition, is amortized over a period of five years. All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Companies has been eliminated. b. Cash and Cash Equivalents Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits and mutual funds investing in bonds, all of which mature or become due within three months of the date of acquisition. c. Short-term Investments and Investment Securities Short-term investments and investment securities are classified and accounted for, depending on management s intent, as follows: i) trading securities, which are held for the purpose of earning capital gains in the near term, are reported at fair value, and the related unrealized gains and losses are included in earnings, ii) heldto-maturity debt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity, are reported at amortized cost and iii) available-for-sale securities, which are not classified as either of the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported as a separate component of shareholders equity. Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For other than temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income. d. Allowance for Doubtful Notes and Accounts The allowance for doubtful notes and accounts is stated in amounts considered to be appropriate based on the Companies past credit loss experience and an evaluation of potential losses in the receivables outstanding. e. Inventories Inventories are stated at cost determined by the average method for the Company and its domestic subsidiaries, and at the lower of cost, determined by the first-in, first-out method, or market for foreign subsidiaries. f. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment of the Company and its domestic subsidiaries is computed substantially by the declining-balance method except that buildings are depreciated by the straight-line method, at rates based on the estimated useful lives of the assets, while the straight-line method is principally applied to the property, plant and equipment of foreign subsidiaries. Effective April 1, 2001, a domestic subsidiary adopted the straight-line method for depreciation of rental properties, which previously had been depreciated by the declining-balance method. This change was made to provide a more accurate allocation of the cost of the rental properties. The effect of this change was to decrease depreciation by 118 million ($887 thousand) and to increase income before income taxes by the same amount for the year ended March 31, The range of useful lives is principally from 31 to 50 years for buildings and structures, and from 7 to 12 years for machinery and equipment. g. Software Software is stated at cost, net of accumulated amortization. Amortization is computed by the straight-line method based on the useful lives of 3 to 5 years estimated by the Company and its subsidiaries. h. Goodwill Goodwill on purchases of specific businesses and consolidation goodwill are carried at cost less accumulated amortization, which is calculated by the straight-line method over 5 years. i. Bond Issue Costs Bond issue costs are amortized by the straight-line method over 3 years. j. Liability for Retirement Benefits The Company has a non-contributory funded pension plan and contributory funded retirement plans covering substantially all of its employees. Effective April 1, 2000, the Companies adopted a new accounting standard for employees retirement benefits and accounted for the liability for retirement benefits based on projected benefit obligations and plan assets at the balance sheet date. The transitional obligation of 553 million ($4,158 thousand), determined as of April 1, 2000, is amortized over 5 years and presented under Other-net in the consolidated statements of income. Unfunded retirement benefits for the Company s directors and corporate auditors are provided at the estimated amount which would be required if such individuals retired at the balance sheet date. 27

30 k. Foreign Currency Transactions All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statements of income to the extent that they are not hedged by forward exchange contracts. l. Foreign Currency Financial Statements The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date except for shareholders equity, which is translated at the historical rate. Differences arising from such translation were shown as Foreign currency translation adjustments as a separate component of shareholders equity. Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rate. m. Leases All leases of the Company and its domestic subsidiaries are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases that are deemed to transfer ownership of the leased property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions if certain as if capitalized information is disclosed in the notes to the lessee s financial statements. Finance leases of certain overseas subsidiaries are accounted for as capital leases. n. Research and Development Research and development costs are charged to income as incurred. Such costs were 4,130 million ($31,053 thousand) and 3,528 million for the years ended March 31, 2002 and 2001, respectively. o. Income Taxes The provision for income taxes is computed based on the pretax income included in the consolidated statements of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences. Certain overseas subsidiaries provide for deferred income taxes relating to temporary differences in accordance with accounting principles generally accepted in each country. p. Derivatives and Hedging Activities The Companies use foreign exchange forward contracts and interest rate swaps to manage their exposure to fluctuations in foreign exchange and interest rates. The Companies do not enter into derivatives for trading or speculative purposes. Because the counterparties to these derivatives are limited to major international financial institutions, the Companies do not anticipate any losses arising from credit risk. Derivative transactions entered into by the Companies have been made in accordance with internal policies, which regulate the authorization of such transactions. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: a) all derivatives are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the income statement and b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions. The foreign currency forward contracts are utilized to hedge foreign currency exposures from trade receivables related to export sales. Such trade receivables denominated in foreign currencies are translated at the contracted rates if the forward contracts qualify for hedge accounting. The interest rate swaps that qualify for hedge accounting and meet specific matching criteria are not remeasured at market value but the differential paid or received under the swap agreements is recognized and included in interest expense or income. q. Per Share Information The computation of net income per common share is based on the weighted average number of shares outstanding of 20,909,149 and 20,909,176 for the years ended March 31, 2002 and 2001, respectively. The diluted net income per common share assumes full conversion of outstanding convertible bonds at the beginning of the year (or at the time of issuance, if later) with an applicable adjustment for related net-of tax interest expense. Cash dividends charged to retained earnings are those actually paid during the year, which represent the year-end dividends for the preceding fiscal year and interim dividends for the current fiscal year. r. Reclassification Certain prior year amounts have been reclassified to conform to the fiscal 2002 presentation. These changes had no impact on previously reported results of operations or shareholders equity. 3. TRANSLATIONS INTO UNITED STATES DOLLARS The consolidated financial statements are stated in Japanese yen. The United States dollar amounts included herein are presented solely for convenience and have been translated from the yen amounts at the rate of 133=$1, the approximate exchange rate at March 31, The translations should not be construed as representations that the yen amounts could be converted into United States dollars at that or any other rate. 4. SHORT-TERM INVESTMENTS AND INVESTMENTS Short-term investments and investment securities as of March 31, 2002 and 2001 consisted of the following: Thousands of Millions of Yen U.S. Dollars Current: Time deposits other than cash equivalents $ 489 Debt securities Investment trust and other Total $ 1,075 Non-current: Marketable equity securities 1,435 1,279 $10,789 Debt securities 83 Investment trust and other 177 1,331 Unquoted equity securities ,158 Total 1,766 1,483 $13,278 28

31 All marketable and investment securities as of March 31, 2002 and 2001 were classified as available-for-sale. Fair values of unquoted equity securities are not readily determinable. The carrying amounts and aggregate fair values at March 31, 2002 and 2001 were as follows: Millions of Yen 2002 Unrealized Unrealized Fair Cost Gains Losses Value Equity securities 1, ,435 Debt securities Investment trust and other Total 1, ,690 Millions of Yen 2001 Unrealized Unrealized Fair Cost Gains Losses Value Equity securities 1, ,279 Debt securities Total 1, ,362 Thousands of U.S. Dollars 2002 Unrealized Unrealized Fair Cost Gains Losses Value Equity securities $ 9,519 $2,699 $1,429 $10,789 Debt securities Investment trust and other 1, ,474 Total $11,443 $2,699 $1,436 $12,706 Proceeds from sales of investment securities for the years ended March 31, 2002 and 2001 were 51 million ($383 thousand) and 50 million, respectively. Gross realized gains and losses on these sales, computed on the moving average cost basis, were 10 million ($75 thousand) and 5 million ($38 thousand), respectively for the year ended March 31, Gross realized gains and losses on sales of investment securities for the year ended March 31, 2001 were not significant. The carrying values of debt securities and current investment trust and other by contractual maturities for securities at March 31, 2002 are as follows: Millions Thousands of of Yen U.S. Dollars Due in one year or less 78 $586 Investments in and advances to affiliates at March 31, 2002 and 2001 consisted of the following: Thousands of Millions of Yen U.S. Dollars Initial investment at cost 160 5,071 $1,203 Equity interest in accumulated deficit (101) (110) (759) Advances Total 65 4,967 $ 489 Additionally, at March 31, 2002, included in other liabilities is an amount of 46 million ($346 thousand) representing the Company s equity interest in the accumulated deficit of an affiliate exceeding the Company s initial investment in that affiliate, whose operations the Company continues to support as an integral part of their business. 5. INVENTORIES Inventories at March 31, 2002 and 2001 consisted of the following: Thousands of Millions of Yen U.S. Dollars Finished products 5,009 4,666 $37,662 Work in process ,015 Raw materials 1,853 1,077 13,932 Supplies Merchandise 3,492 2,766 26,256 Total 11,201 9,246 $84, SHORT-TERM BANK LOANS AND LONG-TERM DEBT Short-term bank loans were principally represented by bank overdrafts. Weighted average per annum interest rates of short-term bank loans at March 31, 2002 and 2001 were 5.3% and 5.6%, respectively. Long-term debt at March 31, 2002 and 2001 consisted of the following: Thousands of Millions of Yen U.S. Dollars Unsecured loans from banks, due through 2005, with interest ranging from 1.0% to 4.4% for 2002 (from 1.2% to 5.6% for 2001) 4,694 5,553 $ 35,293 Unsecured 0.2% convertible bonds due ,000 5,000 37,594 Total 9,694 10,553 72,887 Less current portion (1,665) (904) (12,519) Long-term debt, less current portion 8,029 9,649 $ 60,368 The 0.2% convertible bonds due 2004 outstanding at March 31, 2002 were convertible into 1,613 thousand shares of common stock of the Company at the conversion price of 3,100 ($23.3) per share, subject to an anti-dilutive provision. The conversion prices of the convertible bonds are subject to adjustments in certain circumstances. In April 2002, the conversion price of convertible bonds due 2004 was changed to 2,480 ($18.6) in accordance with the agreement of issuance of convertible bonds. At March 31, 2002, annual maturities of long-term debt were as follows: Millions Thousands of Year ending March 31, of Yen U.S. Dollars ,665 $12, ,523 49, ,506 11,323 Total 9,694 $72, RETIREMENT BENEFITS The Company and certain of its consolidated subsidiaries have retirement benefit plans for employees. Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain other factors. Employees are entitled to larger payments if the termination is involuntary, as opposed to by retirement at the mandatory retirement age or by death. Certain consolidated subsidiaries have non-contributory unfunded retirement benefit plans and certain consolidated overseas subsidiaries have defined contribution pension plans. 29

32 The assets for employees retirement benefits at March 31, 2002 and 2001 consisted of the following: Thousands of Millions of Yen U.S. Dollars Projected benefit obligation (5,338) (2,884) $(40,135) Fair value of plan assets 4,294 2,241 32,286 Unrecognized actuarial loss ,586 Unrecognized transitional obligation ,496 Net assets $ 233 The net assets for employees retirement benefits at March 31, 2002 and 2001 comprise 52 million ($391 thousand) and 17 million assets on the books of the Company, and 21 million ($158 thousand) and 5 million liabilities on the books of its subsidiaries, respectively. The components of net periodic benefit costs for the years ended March 31, 2002 and 2001 are as follows: Thousands of Millions of Yen U.S. Dollars Service cost $4,188 Interest cost ,015 Expected return on plan assets (111) (66) (835) Recognized actuarial loss Amortization of transitional obligation Provision for planned cancellation of an underfunded retirement plan of an acquired subsidiary 172 1,293 Additional payments for early retirement Net periodic benefit costs $7,098 Assumptions used for the years ended March 31, 2002 and 2001 are set forth as follows: Discount rate 2.5% 3.5% Expected rate of return on plan assets % 3.25% Recognition period of actuarial gain/loss 5 years 5 years Amortization period of transitional obligation 5 years 5 years The Company also has recorded a liability for an unfunded retirement benefit plan covering all of its directors and corporate auditors in the amount of 298 million ($2,241 thousand), and 227 million as of March 31, 2002 and 2001, respectively. Payment of retirement benefits to directors and corporate auditors is subject to approval at the shareholders meeting. 8. SHAREHOLDERS EQUITY Japanese companies are subject to the Japanese Commercial Code (the Code ) to which certain amendments became effective from October 1, Prior to October 1, 2001, the Code required at least 50% of the issue price of new shares, with a minimum of the par value thereof, to be designated as stated capital as determined by resolution of the Board of Directors. Proceeds in excess of amounts designated as stated capital were credited to additional paid-in capital. Effective October 1, 2001, the Code was revised and common stock par values were eliminated resulting in all shares being recorded with no par value. Prior to October 1, 2001, the Code also provided that an amount at least equal to 10% of the aggregate amount of cash dividends and certain other cash payments which are made as an appropriation of retained earnings applicable to each fiscal period shall be appropriated and set aside as a legal reserve until such reserve equals 25% of stated capital. Effective October 1, 2001, the revised Code allows for such appropriations to be set aside as a legal reserve until the total additional paid-in capital and legal reserve equals 25% of stated capital. The amount of total additional paid-in capital and legal reserve which exceeds 25% of stated capital can be transferred to retained earnings by resolution of the shareholders, which may be available for dividends. The Company s legal reserve amount, which is included in retained earnings, totals 403 million ($3,030 thousand) and 368 million as of March 31, 2002 and 2001, respectively. Under the Code, companies may issue new common shares to existing shareholders without consideration as a stock split pursuant to a resolution of the Board of Directors. Prior to October 1, 2001, the amount calculated by dividing the total amount of shareholders equity by the number of outstanding shares after the stock split could not be less than 50. The revised Code eliminated this restriction. Prior to October 1, 2001, the Code imposed certain restrictions on the repurchase and use of treasury stock. Effective October 1, 2001, the Code eliminated these restrictions allowing companies to repurchase treasury stock by a resolution of the shareholders at the general shareholders meeting and dispose of such treasury stock by resolution of the Board of Directors after March 31, The repurchased amount of treasury stock cannot exceed the amount available for future dividends plus amount of stated capital, additional paid-in capital or legal reserve to be reduced in the case where such reduction was resolved at the general shareholders meeting. The Code permits companies to transfer a portion of additional paid-in capital and legal reserve to stated capital by resolution of the Board of Directors. The Code also permits companies to transfer a portion of unappropriated retained earnings, available for dividends, to stated capital by resolution of the shareholders. Dividends are approved by the shareholders at a meeting held subsequent to the fiscal year to which the dividends are applicable. Semiannual interim dividends may also be paid upon resolution of the Board of Directors, subject to certain limitations imposed by the Code. Under the Japanese Commercial Code, the amount available for dividends is based on retained earnings as recorded on the Company s books. At March 31, 2002, retained earnings recorded on the Company s books were 27,711 million ($208,353 thousand) of which a portion is available for future dividends subject to the approval of the shareholders and legal reserve requirements. On June 29, 2000, the Company s shareholders approved a stock option plan for the Company s directors and key employees to purchase up to 460 thousand shares of the Company s common stock in the period from April 1, 2001 to June 28, On July 27, 2000 the options were granted at an exercise price of 3,512 per share. Options are exercisable with respect to all shares on or after April 1, The Company plans to issue new shares upon exercise of the options. All options expire and are void unless exercised on or before June 28, INCOME TAXES The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 41.8% for the years ended March 31, 2002 and Foreign subsidiaries are subject to income taxes of the countries in which they operate. 30

33 The tax effects of significant temporary differences and loss carryforwards which result in deferred tax assets and liabilities at March 31, 2002 and 2001 are as follows: Thousands of Millions of Yen U.S. Dollars Deferred Tax Assets (Current): Intercompany profits $ 5,579 Inventory 151 1,135 Accrued expense and other current liabilities ,308 Accrued enterprise tax Tax loss carryforwards Other ,511 1,407 11,361 Deferred Tax Assets (Non-Current): Depreciation $ 564 Liability for retirement benefits Tax loss carryforwards ,692 Software ,083 Investment securities 268 2,015 Net unrealized loss on available-for-sale securities 113 Other Offsetting deferred tax liability (356) (2,677) Less valuation allowance (358) (58) (2,692) ,744 Deferred Tax Liabilities (Current) - Other 1 $ 8 Deferred Tax Liabilities (Non-Current): Undistributed earnings of foreign subsidiaries $ 504 Net unrealized gain on available-for-sale securities Revaluation of land for consolidation 475 3,572 Other Offsetting deferred tax assets (356) (2,677) ,414 Net deferred tax assets 1,687 1,829 $12,683 A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statement of income for the years ended March 31, 2002 and 2001 is as follows: Normal effective statutory tax rate 41.8% 41.8% Expenses not deductible for income tax purposes Per capita levy Foreign tax credit (3.6) (2.8) Undistributed earnings of foreign subsidiaries Tax loss of subsidiaries Goodwill Other - net Actual effective tax rate 62.0% 54.5% Certain subsidiaries have tax loss carryforwards available to offset future taxable income as of March 31, 2002 of approximately 1,126 million ($8,466 thousand) which will expire in years 2017 through COMMITMENTS Outstanding commitments at March 31, 2002 for the purchase of property, plant and equipment approximated 333 million ($2,504 thousand). 11. LEASES Total lease payments under finance leases that do not transfer ownership of the leased property to the lessee were 712 million ($5,353 thousand) and 496 million for the years ended March 31, 2002 and 2001, respectively. Pro forma information of leased property under finance leases that do not transfer ownership of the leased property to the lessee on an as if capitalized basis for the years ended March 31, 2002 and 2001, was as follows: Machinery and Equipment Thousands of Millions of Yen U.S. Dollars Acquisition cost 4,137 2,846 $31,105 Accumulated depreciation 1,670 1,292 12,556 Net leased property 2,467 1,554 $18,549 Obligations under finance leases (including imputed interest expense): Machinery and Equipment Thousands of Millions of Yen U.S. Dollars Due within one year $ 6,541 Due after one year 1, ,008 Total 2,467 1,554 $18,549 Depreciation expense, which is not reflected in the accompanying statements of income, computed by the straight-line method was 712 million ($5,353 thousand) and 496 million for the years ended March 31, 2002 and 2001, respectively. 31

34 Obligations under operating leases (including imputed interest expense): Millions Thousands of of Yen U.S. Dollars Due within one year 56 $ 421 Due after one year Total 160 $1, RELATED PARTY TRANSACTIONS Transactions of the Company with affiliates for the years ended March 31, 2002 and 2001 were as follows: Thousands of Millions of Yen U.S. Dollars Sales $ 346 Purchase 1,268 1,638 9, SUBSEQUENT EVENTS a. The following appropriations of retained earnings at March 31, 2002 were approved at the shareholders general meeting of the Company held on June 27, 2002: Millions Thousands of of Yen U.S. Dollars Year-end cash dividends, 11 ($0.08) per share 230 $1,729 Bonuses to directors and corporate auditors b. Also at the shareholder s general meeting the Company was authorized to repurchase up to 2,300 thousand shares of the Company s common stock for an aggregate amount of 7,000 million. c. On April 1, 2002, the Company acquired the remaining shares of International Reagents Corporation, a consolidated subsidiary, in a stock-for-stock transaction. The Company issued 2,123,820 shares of common stock with a fair value of 6,230 million ($46,842 thousand) in connection with the transaction. International Reagents Corporation produces and sells reagents to primarily the Japanese market. d. Under a separate agreement, International Reagents Corporation transferred certain operating assets with a net book value of 1,812 million ($13,624 thousand) to the Company on May 1, Additionally, as part of this same agreement, all employees of International Reagents Corporation became employees of the Company. 14. SEGMENT INFORMATION a. Operations in Different Industries The Companies main operations are to manufacture and sell laboratory testing instruments and reagents used by clinical laboratories around the world. Under Japanese accounting regulations, the Companies are not required to disclose industry segment information because their main industry segment represented more than 90% of their operations. 32

35 b. Foreign Operations Information about operations by geographic area for the years ended March 31, 2002 and 2001 are summarized below. Millions of Yen Eliminations/ Consoli- For the Year Ended March 31, 2002 Japan Americas Europe Asia-Pacific Total Corporate dated Net sales to outside customers 25,497 5,654 12,045 4,336 47,532 47,532 Interarea transfer 11, ,161 (11,161) Total net sales 36,522 5,658 12,147 4,366 58,693 (11,161) 47,532 Operating expenses 33,658 5,940 11,442 4,514 55,554 (11,439) 44,115 Operating income (loss) 2,864 (282) 705 (148) 3, ,417 Assets 57,158 3,816 6,619 4,855 72,448 (5,946) 66,502 Thousands of U.S. Dollars Eliminations/ Consoli- For the Year Ended March 31, 2002 Japan Americas Europe Asia-Pacific Total Corporate dated Net sales to outside customers $191,707 $42,511 $90,564 $32,602 $357,384 $ $357,384 Interarea transfer 82, ,918 (83,918) Total net sales 274,602 42,541 91,331 32, ,302 (83,918) 357,384 Operating expenses 253,068 44,662 86,030 33, ,700 (86,008) 331,692 Operating income (loss) $ 21,534 $(2,121) $ 5,301 $ (1,112) $ 23,602 $ 2,090 $ 25,692 Assets $429,759 $28,692 $49,767 $36,504 $544,722 $(44,707) $500,015 Millions of Yen Eliminations/ Consoli- For the Year Ended March 31, 2001 Japan Americas Europe Asia-Pacific Total Corporate dated Net sales to outside customers 20,060 5,282 10,417 3,058 38,817 38,817 Interarea transfer 11, ,507 (11,507) Total net sales 31,534 5,296 10,436 3,058 50,324 (11,507) 38,817 Operating expenses 28,572 5,352 9,955 3,194 47,073 (11,231) 35,842 Operating income (loss) 2,962 (56) 481 (136) 3,251 (276) 2,975 Assets 43,497 3,278 6,303 3,006 56,084 (865) 55,219 Effective April 1, 2001, a domestic subsidiary adopted the straight-line method for depreciation of rental properties, which, previously, had been depreciated by the declining-balance method. This change was made to provide a more accurate allocation of the cost of the rental properties. The effect of this change was to decrease depreciation by 118 million ($887 thousand) and to increase operating income of the Japan segment by the same amount for the year ended March 31, c. Net Sales to Foreign Customers Net sales to foreign customers for the years ended March 31, 2002 and 2001 consisted of the following: Thousands of Millions of Yen U.S. Dollars Americas 5,698 5,295 $ 42,842 Europe 12,098 10,433 90,963 Asia-Pacific 5,112 3,790 38,436 Total 22,908 19,518 $172,241 33

36 INDEPENDENT AUDITORS REPORT Tohmatsu & Co. Osaka Kokusai Building 3-13, Azuchimachi 2-chome, Chuo-ku, Osaka , Japan Te l: Fax: To the Board of Directors and Shareholders of Sysmex Corporation: We have examined the consolidated balance sheets of Sysmex Corporation and subsidiaries as of March 31, 2002 and 2001, and the related consolidated statements of income, shareholders equity, and cash flows for the years then ended, all expressed in Japanese yen. Our examinations were made in accordance with auditing standards, procedures and practices generally accepted and applied in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the consolidated financial statements referred to above present fairly the financial position of Sysmex Corporation and subsidiaries as of March 31, 2002 and 2001, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles and practices generally accepted in Japan consistently applied during the period except for the change, effective April 1, 2001, with which we concur, in the accounting for depreciation of rental properties of a subsidiary, as discussed in Note 2.f. Our examinations also comprehended the translation of Japanese yen amounts into United States dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 3. Such United States dollar amounts are presented solely for the convenience of readers outside Japan. June 27,

37 BOARD OF DIRECTORS President and CEO Hisashi Ietsugu Senior Managing Director Kenichi Yukimoto Managing Director Tokuhiro Okada Managing Director Mitsuo Waka Director Eiichi Heki Director Tadashi Nakatani Director Masayoshi Hayashi Director Shigenori Ohigashi Director Hiroshi Yamamoto Director Yukio Nakajima Director Tameo Iwasaki Director Koji Tamura President and CEO Hisashi Ietsugu Senior Managing Director Kenichi Yukimoto Managing Directors Tokuhiro Okada Mitsuo Waka Directors Eiichi Heki Tadashi Nakatani Masayoshi Hayashi Shigenori Ohigashi Hiroshi Yamamoto Yukio Nakajima Tameo Iwasaki Koji Tamura Corporate Auditors Mitsuhiro Aketa Toyotaro Iwata Yoshiro Ishida (As of June 27, 2002) 35

38 SYSMEX AT A GLANCE SYSTEMIZATION HST-N330: The HST series offers fully automated blood cell counting, including white blood cell differentials, reticulocyte analysis, preparation of smears and staining. Multiple system configurations are available to meet the needs of individual laboratory requirements. XE-Alpha N: Fully automated blood cell counting, white blood cell differentials, reticulocyte analysis, preparation of smears and staining are carried out by a compact system, ensuring efficient workflow and improved test precision. HEG-50S: White blood cell differentials are automatically performed using digital imaging technology. The blood cell images generated are then filed into the LAFIA database for examination in various clinical settings via an information network. HEMATOLOGY XE-2100: With its networking capability, ability to coordinate with other Sysmex products, high expandability, and potential for enhanced functioning through software upgrades, the XE-2100 is Sysmex's flagship model. XT-2000i: This basic, compact model is supported by the Sysmex Network Communication System (SNCS), and features a viewerfriendly screen and an easy-to-use operating system. SE series/ram-1: Simultaneous determination of blood cell counting, white blood cell differentials and reticulocyte analysis is made possible by combining two reliable technologies to provide comprehensive test results. Suitable for POC KX-21N: Provides blood test data such as the white blood cell three-part differential in less than one minute through simple operation. Can be linked to an information system via a LAN connection. HEMOSTASIS CA-7000: The top of the CA series product line, delivering ultra-fast throughput of 500 tests/ hour (for simultaneous measurement of PT/APTT). Auto batch control of reagent names, lot numbers and expiration dates is performed by a reagent control system with a bar code reader. CA-1500: This single unit incorporates the clotting time method, the chromogenic substrate method and the turbidimetric immunoassay method. Its optimum processing capacity for mid-sized laboratories ensures efficient testing. CA-500 series: This compact, fully automated analyzer offers the advantages of the CA series such as high precision and ease of use. Operation is simple, making it ideal for emergency laboratories and small-scale use. Suitable for POC CA-50: A semi-automated system with a compact design. Four independent detection blocks provide four independent test analyses. Suitable for point-of-care testing. IMMUNOCHEMISTRY PAMIA-40i: Incorporates Sysmex's unique whole blood measurement technology. Because the preparation time needed to separate blood serum is reduced, infectious disease tests that used to take 30 minutes are completed in only 15 minutes. ELSIA-FS1200: This fully automated enzyme immunochemistry analyzer offers a measuring time of approximately 20 minutes, a high throughput of 180 tests/minute, and simultaneous measurement of 12 different test items. Enables real-time random access. 36

39 URINALYSIS / FECAL OCCULT BLOOD TESTING UF-100: Fully automated, high precision, quantitative analysis of urine sediment using Sysmex's proprietary technology involving flow cytometry. Further improves the reliability of urinalysis. INFORMATICS Suitable for POC UF-50: The sample is drawn directly from the collection cup into the unit. Offers full automation and high precision in a compact unit. Hemo-LIAS200: This fully automated fecal occult blood testing analyzer uses biodegradable containers for stool samples. Convenient for both the person performing the test and the person undergoing the test. MOLIS: The MOLIS Laboratory Information System forms the core of Sysmex's total solutions package. It not only increases efficiency but also optimizes all aspects of laboratory operation, including patient services. LAFIA: This system files blood images together with patients' demographic information. Network-compliant, it allows access to the image database from anywhere in the hospital through a network. PARTICLE ANALYSIS FOR INDUSTRIAL APPLICATIONS FPIA-2100: This advanced particle analyzer with CCD camera provides not only the particle distribution of powder grains but also particle images and shape information at the same time. SD-2000: Through an ideal combination of the electric resistance method and sheath flow technology, particle distribution is obtained without complex correction and analysis, and the sizes and numbers of particles are determined more accurately. CDA-500: This basic, easy-to-operate particle counter measures the distribution of particles and cells with high precision. NEW BUSINESS (HEALTH CARE) REAGENTS A full lineup of reagents for all laboratory testing needs, including hematology, hemostasis, immunochemistry, urinalysis, and biochemistry. ASTRIM: This non-invasive blood vessel monitor measures hemoglobin concentrations and blood vessel width through near-infrared spectroscopic images simply by placing a finger on the detector, without the need for blood sampling. 37