Financial Section
ANNUAL REPORT 2011
Year ended March 31, 2011 KYORIN Holdings, Inc.

Contents
Financial Analysis

01

Consolidated Balance Sheets

05

Consolidated Statements of Income, Consolidated Statement of Comprehensive Income

07

Consolidated Statements of Changes in Net Assets

08

Consolidated Statements of Cash Flows09

Notes to the Consolidated Financial Statements

10

Report of Independent Auditors

29

For reference: NON-CONSOLIDATED FINANCIAL SUMMARY
Non-consolidated Balance Sheets, Non-consolidated Statements of Income

30

Disclaimer Regarding Forward-looking Statements
Statements made in this annual report with respect to KYORIN Holdings, Inc.’s forecasts, plans, strategies, and other statements otherthan those of historical facts are forward-looking statements about the future performance of the Company and its consolidated
subsidiaries and are based on management’s rational assumptions and beliefs in light of information currently available. As a consequence,
readers should understand that, for a variety of reasons, actual results could differ materially from projections presented in this report.
Key factors that could impact our results include, but are not limited to, economic conditions, social trends, competition from rival
companies, laws and regulations, uncertainties in drug development, and exchange rate fluctuations.

Financial Analysis■ Consolidated net sales increased for the seventh consecutive year, rising 4.3% year on year to a record¥104,069 million. With regard to the ethical drugs business in Japan, the increase followed efforts topromote uptake of our main products in the market that increased sales volumes and offset a decline in
drug prices. Moreover, strong performance in the insurance dispensing pharmacy market saw sales andother results for generic drugs increase year on year.
■ Operating income and net income were ¥16,443 million (up 24.0% year on year) and ¥10,927 million (up23.5% year on year) respectively, allowing the Group to post record profits for a second consecutive year.
This result reflected an increase in sales of high-margin company products and efforts to curtail theincrease in selling, general and administrative (SG&A) expenses (incl. R&D expenses).
Net sales

Business Overview(Millions of yen)

The Kyorin Group comprises KYORIN Pharmaceutical Co., Ltd., which is mainly
involved with R&D, manufacture and sales of pharmaceuticals; KYORIN Rimedio Co.,
Ltd., which mainly manufactures and sells generic drugs; Dr. Program Co., Ltd., whichmainly develops and sells skincare products; and KYORIN Medical Supply Co., Ltd.,
which is mainly involved in sales promotion, and advertising planning and production.
These four companies operate under the Group holding company, KYORIN Holdings,
Inc. (“the Company”). As the Group’s controlling company, KYORIN Holdings is
responsible for the business strategies of the overall Group, and strives to efficiently
allocate and utilize management resources.

120,000
99,764

104,069

20092010 (FY)90,88990,00077,093

81,07060,00030,000

0

2006

2007

2008

* Kyobundo Co., Ltd. was renamed KYORIN Medical Supply Co., Ltd. on April 1, 2011.

nE
 thical drug sales in Japan (Ethical drug business)nE thical drug sales overseas (Ethical drug business)
n Generic drugs businessn Consumer healthcare businessIndustry Trends

Operating income and operating income margin(Millions of yen)

(%)

40,000

20.0
15.8
13.3

30,00010.9
20,00010,000

0

8,413

2006

15.0

Consolidated Operating Results

9.8
16,443

7.7

6,251

2007

10.0

13,261
8,952

2008

5.0

2009

2010 (FY)0nO
 perating income (Left scale)nOperating income margin (Right scale)

Net income and ROE(Millions of yen)

10.1

15,00010,927

12,000
8,848
5.0

6,000

4,842

3,000
0

2006

01

ROE (Right scale)

Annual Report 2011

8.0
6.0
4.0

2.2

2.1

2,189

2,037

2007

2008

nN
 et income (Left scale)
n

(%)
10.0

8.8

9,000

In the pharmaceutical industry, where the core business of the Kyorin Group operates,
the Japanese government continued to implement various policies designed to curtail
medical expenditures and spending on drugs. NHI drug prices were revised down in
April 2010 by approximately 6.5% on average for the industry as a whole and by
roughly 6% for KYORIN Pharmaceutical. As a result, the operating environment
became even tougher.

2.0

2009

2010 (FY)0

Net sales
Under these conditions, in terms of net sales in fiscal 2010, sales of our principal new
products in the domestic ethical drug business showed steady growth, despite thenegative impact of the downward revision of official ethical drug prices. These products
included Kipres, a treatment for bronchial asthma and allergic rhinitis; and Uritos, atreatment for overactive bladder. Higher sales were also posted for Mucodyne, amucoregulant. In the generic drug business, sales rose on the back of increased genericdrug sales at insurance dispensing pharmacies and other locations. In the consumer
healthcare (skincare) business, sales were soft mainly due to weakening demand.
­Overall, net sales increased 4.3% year on year to ¥104,069 million, marking sevenstraight years of top-line growth. Net sales also surpassed the ¥100,000 million markfor the first time since the Company was founded.
Cost of sales ratio, SG&A expenses, and operating income
The cost of sales ratio decreased 1.5 percentage points year on year, mainly reflecting
increased sales of high-margin company products in ethical drugs and a reduced costof sales ratio at KYORIN Rimedio Co., Ltd. SG&A expenses excluding R&D expenses
increased only 1.0% year on year to ¥37,576 million. As a result, the SG&A expenses
ratio declined 1.2 percentage points to 36.1%. Consequently, operating income rose
24.0% year on year to ¥16,443 million. The operating income margin rose 2.5 percentage points to 15.8%.

Summary of Consolidated Statements of Income

Cost of sales ratio

FY200999,76437,47762,28749,025
11,807
13,261FY2010104,069
37,554
66,51450,071
12,495
16,443

Other income

1,092

769

Other expenses
Income before income taxes
Net income

120
13,982
8,848

102
17,136
10,927

Net sales
Cost of sales
Gross profit
SG&A expenses(Including R&D expenses)
Operating income

Millions of yen(%)

YoY change YoY change (%)
4,305
4.3
77
0.2
4,227
6.8
1,046
2.1
688
5.8
3,182
24.0
(323)
(29.6)

60.0(18)(15.0)

3,154
2,079

22.6
23.5

40.5

39.7
40.0

39.2

37.6

36.1

2009

2010 (FY)

20.0

0

2006

2007

2008

98,17897,18496,501

2006

2007

2008

Net income and net income per share
Net income rose 23.5% year on year to ¥10,927 million. Net income per share
increased ¥27.84 from the previous fiscal year to ¥146.21.
Net assets

Segment Information
Please see Annual Report pages 19-21 “At a Glance, Segment Overview” for a breakdown of results by segment.

(Millions of yen)
120,000

104,911

111,706

90,000Assets, Liabilities and Net Assets
At March 31, 2011, current assets had increased ¥13,366 million due to increases incash and cash in banks, notes and accounts receivable, and short-term investments. The
increases were partly offset by a decrease in inventories. Fixed assets decreased¥3,322 million mainly due to declines in property, plant and equipment, net, intangible
fixed assets and investment securities. As a result, total assets increased ¥10,044 million,
or 7.3%, from a year earlier to ¥147,234 million.
Liabilities at year-end were up ¥3,249 million, or 10.1%, to ¥35,527 million from theprevious year-end. This was mainly due to increases in notes and accounts payable andshort-term bank loans, which were partly offset by a decrease in accrued income taxes.
Net assets at year-end amounted to ¥111,706 million, up ¥6,795 million, or 6.5%,
from a year ago. This was mainly attributable to an increase in retained earnings,
despite a decrease in unrealized holding gain on securities.
As a result, the shareholders’ equity ratio at year-end was 75.9%, down 0.6 of apercentage point from the previous fiscal year-end.
Return on Equity (ROE)The Kyorin Group has established net sales and operating income as its performancetargets, with the aim of achieving sustainable growth. The Group recognizes that
improving profitability and raising ROE is crucial to attaining those targets. Therefore,
the Group is targeting ROE of around 10%, while maintaining ROE of at least the fiscal
2009 level of 8.8%. In fiscal 2010, ROE was 10.1%.
Summary of Consolidated Balance Sheets

60,00030,0000

20092010 (FY)

Shareholders’ equity ratio
(%)
90.0
79.2

79.4

77.5

76.5

75.9

2006

2007

2008

2009

2010 (FY)

60.0

30.0

0

Millions of yen

Current assets

FY200991,060FY2010104,427

Fixed assets
Total assets
Current liabilities

46,129137,190
26,19842,806147,234
30,421Long-term liabilities
Total liabilities
Shareholders’ equity
Total accumulated othercomprehensive income
Net assets
Liabilities and net assets

6,079
32,278104,907

5,105
35,527
112,0763
104,911
137,190

YoY change YoY change (%)
13,36614.7(3,322)(7.2)
10,044
4,223
(974)

7.3
16.1
(16.0)

3,249
7,169

10.1
6.8

(370)

(373)

111,706
147,234

6,795
10,044—
6.5
7.3

KYORIN Holdings, Inc.

02

Cash flows from operating activities, cash flows frominvesting activities, and free cash flow
(Millions of yen)
20,00012,027 12,439
10,000

6,805
5,005

4,444

4,575

1,865
0
(3,140)(1,700)(6,144)–10,000

2006

2007

Free cash flow

412
(1,806)(4,229)2008

n Cash flows from operating activitiesn Cash flows from investing activities
n

4,999
346

2009

2010 (FY)

Cash FlowsNet cash provided by operating activities totaled ¥6,805 million. The main components
were income before income taxes of ¥17,136 million, depreciation and amortizationof ¥2,458 million, increase in notes and account receivable of ¥5,736 million, decrease
in inventories of ¥1,509 million, increase in notes and accounts payable of ¥993 million,
and income taxes paid of ¥7,007 million.
Net cash used in investing activities was ¥1,806 million. Cash was mainly usedfor ­payments for purchase of property, plant and equipment of ¥1,274 million,­payments for purchase of investment securities of ¥4,960 million. On the other hand,cash was provided by proceeds from sales and redemption of investment securitiesof ¥4,749 million.
Net cash provided by financing activities was ¥201 million. This was largely attributable to a net increase in short-term loans of ¥4,209 million, partly offset by paymentof cash dividends of ¥3,732 million.
As a result, cash and cash equivalents at the end of the fiscal year were up ¥5,108­million year on year, or 23.7%, to ¥26,665 million.
Summary of Consolidated Statements of Cash Flows
Cash provided by operating
activities
Cash provided by (used in)investing activities
Cash provided by (used in)financing activities
Cash and cash equivalents
at end of year

Millions of yen

FY2009FY2010YoY change

YoY change (%)

12,027

6,805(5,222)(43.4)

412(1,806)(2,218)—(3,297)

201

3,498

—

21,556

26,665

5,108

23.7

Outlook for Fiscal 2011
The outlook for the domestic pharmaceutical industry is clouded by concerns over the
impact of the Great East Japan Earthquake that struck on March 11, 2011, in addition
to the negative impact of ongoing implementation of government policies to curb
medical e­ xpenditures, intensified competition among companies, and other factors. In
the consumer healthcare business, the outlook for market conditions has remained
shrouded in uncertainty.
Under these conditions, the Kyorin Group is projecting higher net sales for fiscal
2011, based on expectations of sales growth for key products in the domestic ethicaldrug business, namely Kipres, Uritos, and Mucodyne, as well as increased generic drug
sales. In overseas ethical drugs, the Group is expecting a drop in sales of gatifloxacin
opthalmic solution as generic versions of Zymar to come onto the market. In the
consumer healthcare business, the Group is forecasting increased sales at
Dr. Program Co., Ltd.
On the earnings front, the cost of sales ratio is projected to decrease primarily
due to a rise in the production rates of plants. On the other hand, SG&A expenses
should increase compared with fiscal 2010, largely in line with higher R&D expenses.
The impact of the Great East Japan Earthquake on the Group’s markets remains­uncertain at this time. Nonetheless, the disaster has had very little direct impact on the
Kyorin Group. Therefore, the Group believes that the disaster will have only a negligible
impact on business forecasts for fiscal 2011.
Forecasts for Fiscal 2011Net sales
Operating income
Net income

03

Annual Report 2011

Billions of yen

FY2010
104.1
16.4
10.9

FY2011
106.5
16.6
10.9

YoY change (%)
2.3
1.0
(0.2)

Business Risks
We have described below the risk factors that could affect the businessperformance or financial health of the Group. Although the Group has takenorganizational and systematic measures to minimize risk, the outline does notinclude every risk or variable that could affect its business.

(1) Slowdowns or Delays in Production
Technical or regulatory problems, natural disasters andaccidents, including fires, could cause slowdowns ordelays in production or the cessation of operations,
thereby affecting the Group’s performance. At this time,
the Great East Japan Earthquake has had no impact on
the Group’s production activities.
(2) Legal Regulations
Legal regulations in Japan, such as the Pharmaceutical
Affairs Law, the National Health Insurance (NHI)
system, NHI drug prices and laws in other countries canaffect the Group’s business. Every stage of our operations, including pharmaceutical development, production, import, and distribution, is regulated by various
approval and licensing systems. Unforeseen substantial
shifts in future healthcare administration policy could
affect our business performance and financial health.
(3) Pharmaceutical R&D
Ethical drug development requires substantial R&D
investment over lengthy periods. Furthermore, thesuccess rate is low for companies seeking to discoveroriginal compounds and bring pharmaceutical products
to market. Currently, several of KYORIN PharmaceuticalCo., Ltd.’s ethical drugs are undergoing clinical trials. The
clinical development of such drugs could be terminatedas a consequence of various factors, such as unforeseeable side effects or failure to achieve intended results.
(4) Increased Competition
The pharmaceutical industry is experiencing rapid
technological change. Sales of the Group’s principal
products could be affected if a competitor developed
and brought to market drugs that were more useful or
produced the same effects.
(5) NHI Drug Price Revisions
Japan’s healthcare system, including National Health
Insurance (NHI) drug prices, is being revised. Whenforecasting business results, the Kyorin Group does its
best to predict and factor in the effects of such changes.
Nevertheless, our performance could suffer as a resultof greater-than-expected NHI drug price revisions orchanges to the NHI system.
(6) Side Effects
Information concerning the safety of new pharmaceuticals is based only on clinical trials using a limited
number of subjects and therefore cannot eliminate thepossibility of all side effects. If a drug in general use isfound to have unknown and unreported side effects
after its launch, its usage may be restricted or, in somecases, its sale could be discontinued.
(7) Pharmaceutical Recalls
If the Group’s pharmaceuticals are shown to be defective due to contamination or other causes, they will berecalled. Such a situation would adversely affect theGroup’s business results.
(8) Intellectual Property Protection
There is a risk that the Group may become unable toprotect its intellectual property effectively in Japan oroverseas. In this event, third parties could exploit theGroup’s technology and reduce demand for its principal
products and related pharmaceuticals. If the Group’s
other activities are deemed to infringe on anothercompany’s patents or threaten its intellectual property
rights relating to its products, the Group may become
involved in legal disputes and have to terminate somebusiness operations.
(9) Lawsuits
The Group could become the subject of a lawsuit foralleged patent infringements, violations of the Product
Liability Act or the Antimonopoly Act or as a result ofenvironmental issues or labor disputes.
(10) Exchange Rate Fluctuations
As the Group imports and exports pharmaceuticalproducts, its sales are vulnerable to exchange rate
fluctuations.
(11) Cancellations of Tie-Up Agreements
The Group promotes strategic alliances to make efficientuse of external capital. Through tie-up agreements withother pharmaceutical companies in and outside of Japan,
the subsidiary allocates sales rights for some of its products and collaborates in sales, R&D, and other activities. A
cancellation of these tie-up agreements for any reason
could affect the forecast performance of the Group.
(12) IT Security and Information Management
In the course of business operations the Group utilizes
numerous IT systems.This means business operations arevulnerable to disruptions caused by system faults oroutside causes such as computer viruses. Furthermore,
the leakage of information could cause a loss of trust in
the Group and materially affect the business performanceof the Group.

KYORIN Holdings, Inc.

04

Consolidated Balance Sheets
KYORIN Holdings, Inc. and Consolidated Subsidiaries
As of March 31, 2011 and 2010

Millions of yen

Thousands of
U.S. dollars(Note 4)

2011

2010

2011

Cash and cash in banks (Notes 5, 13 and 15)¥ 25,518¥ 20,193$ 306,891

Notes and accounts receivable (Note 13)

42,59436,859512,255

Short-term investments (Notes 5, 6 and 13)

6,976

5,353

83,897

Merchandise and finished goods

10,471

11,068125,929Work in process

1,024

1,195

12,315

Raw materials and supplies

8,868

9,609

106,651

Deferred tax assets (Note 16)

2,618

2,616

31,485

Other

6,420

4,232

77,210

(65)

(69)

(782)

104,427

91,0601,255,887

Land

1,624

1,645

19,531

Buildings and structures (Note 15)

27,971

28,295336,392

Machinery and vehicle

14,937

14,524

179,639

Lease assets (Notes 7 and 12)

203

189

2,441

Construction in progress

110

29

1,323

6,495

6,308

78,112(36,423)(35,165)(438,040)

14,916

15,825

179,387

21,66023,779260,493Long-term loans

23

27

277

Goodwill

339

552

4,077

Trademark

14

18

168

Deferred tax assets (Note 16)

4,111

4,188

49,441

Other

2,162

2,167

26,001Less allowance for doubtful accounts

(422)

(432)

(5,075)27,88930,302

335,406¥147,234¥137,190$1,770,704

AssetsCurrent assets:

Inventories:

Less allowance for doubtful accounts
Total current assets

Property, plant and equipment:

Other (Note 15)
Less accumulated depreciation and impairment loss (Note 7)
Property, plant and equipment, net

Investments and other assets:
Investment securities (Notes 6 and 13)

Total investments and other assets
Total assets

05

Annual Report 2011

Millions of yen

Thousands of
U.S. dollars(Note 4)

2011

2010

2011

¥ 10,852¥ 9,858$ 130,511

6,996

2,795

84,137

42

59

505

Accrued income taxes (Note 16)

3,437

4,501

41,335

Accrued bonuses to employees

3,222

3,043

38,749Reserve for sales returns

52

114

625

Provision for point card certificates

59

57

710

5,758

5,767

69,24830,421

26,198365,857

Long-term debt (Notes 8, 13 and 15)

449

602

5,400

Lease obligations (Note 8)

11

40

132

3,765

4,394

45,280Accrued retirement benefits for directors and corporate auditors

23

53

277

Other

855

988

10,283

5,105

6,079

61,395

700

700

8,419

Capital surplus

4,752

4,752

57,150Retained earnings

106,928

99,7381,285,965

(304)

(283)

(3,656)

112,076

104,907

1,347,877

Unrealized holding (loss) gain on securities

(137)

138

(1,648)Translation adjustments

(232)

(134)

(2,790)(370)

3(4,450)Total net assets

111,706

104,911

1,343,428

Total liabilities and net assets¥147,234¥137,190$1,770,704

Liabilities and net assets
Current liabilities:
Notes and accounts payable (Note 13)
Short-term bank loans (Notes 8, 13 and 15)
Lease obligations (Note 8)

Other
Total current liabilities

Long-term liabilities:

Accrued retirement benefits for employees (Note 14)

Total long-term liabilities

Contingent liabilities (Note 19)

Net assets:
Shareholders’ equity (Note 9):
Common stock, no per value:
Authorized — 297,000,000 shares in 2011 and 2010
Issued — 74,947,628 shares in 2011 and 2010

Treasury stock, at cost:
219,032 shares in 2011
203,047 shares in 2010
Total shareholders’ equity
Accumulated other comprehensive income:

Total accumulated other comprehensive income

See accompanying notes to consolidated financial statements.

KYORIN Holdings, Inc.

06

Consolidated Statements of Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the years ended March 31, 2011 and 2010

Millions of yen

Thousands of
U.S. dollars(Note 4)

2011

2010

2011

¥104,069¥99,764$1,251,581

37,55437,477

451,642

66,51462,287

799,928

50,071

49,025602,177

16,443

13,261

197,751

Interest and dividend income

358

411

4,305

Rent income

273

277

3,283

Interest expense

(51)

(60)

(613)

Equity in earnings of affiliates

39

123

469

Loss on investments in partnership

(47)

(26)

(565)

Gain (loss) on sales and disposal of property, plant and equipment, net (Note 11)

67

(62)

806

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 10)
Operating income
Other income (expenses):Gain on sales of investment securities, net (Note 6)

22

32

265

Loss on devaluation of investment securities

(62)

(17)

(746)

Impairment loss (Note 7)

—

(154)

—

Loss on valuation of stocks of subsidiaries and affiliates

—

(10)

—

Loss on liquidation of subsidiaries and affiliates

—

(40)

—

Other, net

93

247

1,118

693

720

8,334

17,136

13,982206,085

5,944

5,518

71,485

Other income, net
Income before income taxes and minority interests
Income taxes (Note 16)
Current
Deferred
Total income taxes

(385)

3,187

5,133

74,672

10,927—

131,413¥ 10,927¥ 8,848$ 131,413

Income before minority interests
Net income

265
6,209

See accompanying notes to consolidated financial statements.

Consolidated Statement of Comprehensive Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the year ended March 31, 2011

Millions of yen

Income before minority interests
Other comprehensive income (Note 17):
Unrealized holding loss on securities

Thousands of
U.S. dollars(Note 4)

2011

2011

¥10,927$131,413(271)(3,259)Translation adjustments(97)(1,167)

Share of other comprehensive income of associates accounted for using equity method

(4)

(48)

Total other comprehensive income
Comprehensive income (Note 17)(373)(4,486)¥10,554$126,927¥10,554$126,927——

Total comprehensive income attributable to (Note 17):
Owners of the parent
Minority interest
See accompanying notes to consolidated financial statements.

07

Annual Report 2011

Consolidated Statements of Changes in Net Assets
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the years ended March 31, 2011 and 2010

Millions of yen
Accumulated othercomprehensive income

Shareholders’ equity

Total
Shareholders’equityUnrealized
holding
gain (loss)
on securities

Total
accumulated
otherTranslation comprehensive
incomeadjustments

Total
net assets¥(250)¥ 97,513¥(852)¥(159) ¥(1,012)¥ 96,501(1,420)—(1,420)———(1,420)

8,848

—

8,848

—

—

—

8,848

—

—

(33)

(33)

—

—

—

(33)

—

—

—

—

990

24

1,015

1,015

—

—

7,428

(33)

7,394

990

24

1,015

8,410

Number ofshares issued(Commonstock)

Commonstock

CapitalsurplusRetainedearnings

Treasurystock,
at cost74,947,628¥700¥4,752¥ 92,310

Cash dividends

—

—

—

Net income

—

—

—

Purchase of treasury stock——

Other changes——

Net changes during the year—

Balance as of March 31, 2010

Balance as of March 31, 2009

74,947,628

700

4,752

99,738(283)

104,907

138

(134)

3

104,911

Cash dividends

—

—

—

(3,737)—(3,737)———(3,737)

Net income

—

—

—

10,927—

10,927———

10,927Purchase of treasury stock

—

—

—

—

(21)

(21)

—

—

—

(21)

Other changes

—

—

—

—

—

—

(275)

(97)

(373)

(373)

Net changes during the year

—

—

—

7,190

(21)

7,168

(275)

(97)

(373)

6,795

Balance as of March 31, 2011

74,947,628¥700¥4,752¥106,928¥(304)¥112,076¥(137)¥(232) ¥ (370)¥111,706

Thousands of U.S. Dollars (Note 4)
Accumulated othercomprehensive income

Shareholders’ equity

Commonstock

Balance as of March 31, 2010

CapitalsurplusRetainedearnings$8,419 $57,150 $1,199,495

Total
Shareholders’equityUnrealized
holding
gain (loss)
on securities$(3,403) $1,261,660$ 1,660

Treasurystock,
at costTotal
accumulated
otherTranslation comprehensive
incomeadjustments$(1,612) $

36

Total
net assets$1,261,708

Cash dividends——(44,943)—(44,943)———(44,943)

Net income——

131,413—

131,413———

131,413Purchase of treasury stock

—

—

—

(253)

(253)

—

—

—

(253)

Other changes

—

—

—

—

—

(3,307)(1,167)(4,486)(4,486)——86,470(253)

86,206(3,307)(1,167)(4,486)

81,720Net changes during the year
Balance as of March 31, 2011

$8,419 $57,150 $1,285,965$(3,656) $1,347,877$(1,648) $(2,790) $(4,450) $1,343,428

See accompanying notes to consolidated financial statements.

KYORIN Holdings, Inc.

08

Consolidated Statements of Cash Flows
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the years ended March 31, 2011 and 2010

Millions of yen

Thousands of
U.S. dollars(Note 4)

2011

2010

2011

Income before income taxes¥17,136¥13,982$206,085

Depreciation and amortization

2,458

2,810

29,561

Impairment loss

—

154

—

Amortization of goodwill

213

400

2,562

(Decrease) increase in allowance for doubtful accounts

(14)

72

(168)

Increase in accrued bonuses to employees

187

481

2,249

(Decrease) increase in accrued retirement benefits for employees

(629)

64

(7,565)

Operating activities

Decrease in accrued retirement benefits for directors and corporate auditors

(30)

(33)

(361)

Equity in earnings of affiliates, net

(39)

(123)

(469)

Interest and dividend income(4,317)

(359)

(411)

Interest expense

51

60

613

(Gain) loss on sales and disposal of property, plant and equipment, net

(67)

62

(806)

Gain on sales of investment securities, net

(22)

(32)

(265)

Loss on devaluation of investment securities

62

17

746

Increase in notes and accounts receivable(5,736)(1,244)(68,984)

Decrease (increase) in inventories

1,509(3,686)18,148

Increase in notes and accounts payable

993

1,600

11,942

Increase (decrease) in consumption taxes payable

249

(91)

2,995

(2,461)(418)(29,597)

13,501

13,665

162,369

363

406

4,366

Other
SubtotalInterest and dividend received

(51)

(63)

(613)

Income taxes paid

(7,007)(1,981)(84,269)

Net cash provided by operating activities

6,805

12,027

81,840

Payments for time deposits

(874)

(955)

(10,511)

Proceeds from cancellation of time deposits

622

773

7,480

Purchase of property, plant and equipment(1,274)(1,153)(15,322)

251

39

3,019

Interest paid

Investing activities

Proceeds from sales of property, plant and equipment

(226)

(99)

(2,718)

Payments for purchase of investment securities(4,960)(2,905)(59,651)

Proceeds from sales and redemption of investment securities

4,749

4,153

57,114(94)

561(1,130)(1,806)412(21,720)

4,209(1,358)50,619

(60)

(58)

(722)

Purchase of intangible assets

Other
Net cash (used in) provided by investing activities
Financing activities
Increase (decrease) in short-term loans, net
Repayments of lease obligations
Proceeds from long-tern loans payable

200

—

2,405

Repayment of long-term loans payable

(332)

(367)

(3,993)(722)

Redemption of bonds

(60)

(60)

Purchase of treasury stock, net

(21)

(33)

(253)

(3,732)(1,418)(44,883)

201(3,297)

2,417

Cash dividends
Net cash provided by (used in) financing activities
Effects of exchange rate changes on cash and cash equivalents
Increase in cash and cash equivalents

09

(93)

50

(1,118)

5,108

9,193

61,431

Cash and cash equivalents at beginning of year

21,556

12,363

259,242

Cash and cash equivalents at end of year (Note 5)¥26,665¥21,556$320,686

Annual Report 2011

Notes to the Consolidated Financial Statements
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the years ended March 31, 2011 and 2010

1.

Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated financial statements of KYORIN Holdings, Inc. (the “Company”) and its domestic
subsidiaries have been prepared in accordance with accounting principles generally accepted in Japan (“Japanese
GAAP”), which are different in certain respects as to the application and disclosure requirements of International
Financial Reporting Standards, and are compiled from the consolidated financial statement prepared by the Company
as required by the Financial Instruments and Exchange Law of Japan.
Under Japanese GAAP, a consolidated statement of comprehensive income is required from the year ended
March 31, 2011 and has been presented herein. Accordingly, accumulated other comprehensive income is presented
in the consolidated balance sheets and the consolidated statements of changes in net assets. Information with respect
to other comprehensive income for the year ended March 31, 2010 is disclosed in Note 17 as required under Japanese GAAP.
Certain reclassifications have been made in the 2010 consolidated financial statements to conform to the 2011
presentation. These reclassifications had no effect on consolidated net income and net assets.

2.

Summary of Significant Accounting Policies(a) Basis of Consolidation and Accounting for Investments in Unconsolidated Subsidiaries and Affiliates
The accompanying consolidated financial statements include the accounts of the Company and significant companies
controlled directly or indirectly by the Company. Companies over which the Company exercises significant influence interms of their operating and financial policies are included in the consolidated balance sheets on an equity basis. All
significant inter-company balances and transactions are eliminated in consolidation.
Investments in subsidiaries and affiliates, which are not consolidated or accounted for by the equity method, arecarried at cost or less. Where there has been a permanent decline in the value of such investments, the Company has
written down the investments.
Among the consolidated subsidiaries, Kyorin USA, Inc., Kyorin Europe GmbH, and ActivX Biosciences, Inc. close
their books of account at December 31 for financial reporting purposes. Kyobundo Co., Ltd. closed its book at­February 28 and KYORIN Rimedio Co., Ltd. closed its book at January 31. Effective from the year ended March 31,
2010, Kyobundo Co., Ltd. and KYORIN Rimedio Co., Ltd. changed their fiscal year end to March 31 from February 28
and January 31, respectively. Because of these changes, they have a transitional 13 or 14-month fiscal year for the year
ended March 31, 2010.
Kyobundo Co., Ltd. was renamed to Kyorin Medical Supply, Co., Ltd at April 1, 2011.
The necessary adjustments are made to the consolidated balance sheets of all the consolidated subsidiaries toreflect any significant transactions between their respective fiscal year end and the Company’s fiscal year end.
(b) Foreign Currency Translation
The balance sheets accounts of the foreign consolidated subsidiaries are translated into yen at the exchange rates in
effect at the balance sheet date. Translation adjustments are presented as a component of net assets in the accompanying consolidated balance sheets.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, deposit with banks withdrawable on demand, and short-term
investments which are readily convertible into cash subject to an insignificant risk of any changes in their value andwhich were purchased with an original maturity of three months or less.

KYORIN Holdings, Inc.

10

(d) Short-Term Investments and Investment Securities
Securities other than equity securities issued by subsidiaries and affiliates are classified into other securities. Marketable securities classified as other securities are carried at fair value with changes in unrealized gain or loss, net of theapplicable income taxes, directly included in net assets. Non-marketable securities classified as other securities arestated at cost.
Cost of securities sold is determined by the moving average method.
(e) Inventories
Merchandise and finished goods, work in process, raw materials, and some supplies are stated at cost determined by
the gross average method. These inventories with lower profitability are written down to their net realizable value.
Supplies except for samples are stated at the last purchase price method.
(f) Depreciation and Amortization (Except for Leased Assets)
Depreciation of property, plant and equipment is calculated by the declining-balance method at rates based on theestimated useful lives of the respective assets. For buildings acquired after April 1998, the straight-line method is used.
The useful lives of property, plant and equipment are summarized as follows:
Buildings and structures

3 to 50 years

Machinery, equipment and vehicles

4 to 17 years

Intangible assets are amortized by the straight-line method over their estimated useful lives. Computer software
for internal use is capitalized and is amortized by the straight-line method over the useful life of five years.
(g) Leases
Leased assets are initially accounted for at their acquisition costs and depreciated over the leased term by the straightline method with no residual value. All finance leases are accounted for in the same manner as sales transaction. However, finance lease transactions that do not deem to transfer ownership of the leased property to the lessee whose termcommences on or before March 31, 2008 are still accounted for in a similar manner as operating lease transactions.
(h) Amortization of Goodwill
Goodwill is amortized over a period of within 20 years on a straight-line basis except that when the excess is immaterial, it is fully charged to income as incurred.
(i) Research and Development Expenses
Research and development expenses are charged to income as incurred.
(j) Income Taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax
bases of the assets and liabilities and are measured using the effective tax rates and laws which will be in effect when
the differences are expected to reverse.
(k) Retirement Benefits
Accrued retirement benefits for employees are provided mainly at an amount calculated based on the projected
benefit obligation and the fair value of the pension plan assets at balance sheet dates, as adjusted for unrecognizedactuarial gain or loss and unrecognized prior service cost. The retirement benefit obligation is attributed to eachperiod by the straight-line method over the estimated years of service of the eligible employees. Actuarial gains orlosses are being amortized in the following year in which the gain or loss is recognized primarily by the straight-line
method over the average remaining years of service of the employees (10 years). Prior service cost is being amortized as incurred by the straight-line method over the average remaining years of services of the employees (10years). At certain domestic consolidated subsidiaries, ¥504 million ($6,061 thousand) of unrecognized transitional
assets and liabilities is amortized over 10 years.

11

Annual Report 2011

In addition, directors and corporate auditors of certain consolidated subsidiaries are customarily entitled to lumpsum payments under their respective unfunded retirement benefits plans. The provision for retirement benefits forthese officers has been estimated in an amount as 100% as benefit obligation based on their policy required underassumption that all directors and corporate auditors retired at the balance sheets date.
Effective from the year ended March 31, 2010, the Company adopted “Partial Amendments to Accounting Standard for Retirement Benefits (Part 3)” (ASBJ Statement No. 19, issued on July 31, 2008). As actuarial gains or losses
are being amortized from the following year, there were no effects of this change on operating income and income
before income taxes for the year ended March 31, 2010. As a result of adoption of new standard, liabilities for
employees’ retirement benefits increased by ¥1,922 million as of March 31, 2010.
(l) Appropriation of Retained Earnings
Appropriation of retained earnings with respect to a given financial period is made by resolution of the board of
directors’ meeting for dividend and resolution of the ordinary general shareholders’ meeting for other appropriations.
(see Note 9).

3.

Changes in Accounting Standards(a) Equity Method of Accounting for Investments
Effective from the year ended March 31, 2011, the Company adopted the “Accounting Standard for Equity Method of
Accounting for Investments” (ASBJ Statement No. 16, issued on March 10, 2008) and the “Practical Solution on Unification of Accounting Policies Applied to Associates Accounted for Using the Equity Method” (ASBJ PITF No. 24, issued
on March 10, 2008).
The adoption of this new standard had no impact on income before income taxes and minority interests for theyear ended March 31, 2011.
(b) Asset Retirement Obligations
Effective from the year ended March 31, 2011, the Company adopted the “Accounting Standard for Asset Retirement
Obligations” (ASBJ Statement No. 18, issued on March 31, 2008) and the “Implementation Guidance on AccountingStandard for Asset Retirement Obligations” (ASBJ Guidance No. 21, issued on March 31, 2008).
The adoption of this new standard had no material impact on operating income and income before income taxes
and minority interests for the year ended March 31, 2011.
(c) Income before Minority Interests
Effective from the year ended March 31, 2011, the Company adopted the “Regulation for Terminology, Forms, andPreparation of Financial Statements” (Cabinet Office Ordinance No. 5, issued on March 24, 2009), based on the“Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22, issued on December 26, 2008)
and Income before minority interests is presented in the accompanying consolidated statements of income.
(d) Presentation of Comprehensive Income
Effective from the year ended March 31, 2011, the Company adopted the “Accounting Standard for Presentation ofComprehensive Income” (ASBJ Statement No. 25, issued on June 30, 2010). The amounts of “Accumulated othercomprehensive income” and “Total accumulated other comprehensive income” as of March 31, 2010 represent theamounts of “Valuation and translation adjustments” and “Total valuation and translation adjustments,” respectively.

KYORIN Holdings, Inc.

12

4.

U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of arithmetic
computation only, at the rate of ¥83.15 = U.S.$1.00, the approximate rate of exchange on March 31, 2011. The translation should not be construed as a representation that yen have been, could have been, or could in the future be,converted into U.S. dollars at the above or any other rate.

5.

Cash and Cash Equivalents
Cash and cash equivalents as of March 31, 2011 and 2010 for the consolidated statements of cash flows consisted of
the following:
Millions of yen

Cash and cash in banks
Short-term investments
Time deposits with a maturity over three months
Cash and cash equivalents

6.

Thousands of
U.S. dollars

2011

2010

2011

¥25,518
2,462(1,315)¥26,665¥20,193
2,462(1,099)¥21,556$306,891
29,609(15,815)$320,686

Short-Term Investments and Investment Securities
Information regarding marketable securities classified as other securities as of March 31, 2011 and 2010 are as follows:
Millions of yen

Thousands of U.S. dollars

2011
Marketable other securities

Securities whose carrying
value exceeds theiracquisition cost:
Stock
Debt securities:
Government bonds
Corporate bonds
Other bonds
Other
Subtotal
Securities whose carrying
value does not exceed theiracquisition cost:
Stock
Debt securities:
Government bonds
Corporate bonds
Other bonds
Other
Subtotal
Total

13

Annual Report 2011

2011

Acquisition
cost

Carrying
value

Unrealized
gain (loss)

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥ 1,560¥ 2,128¥568$ 18,761$ 25,592$ 6,831

4,398
9,323
200
—
15,482

4,428
9,417
200
—
16,174

29
93
0
—
692

52,892
112,123
2,405—
186,194

53,253
113,253
2,405—
194,516

349
1,118
0
—
8,322

3,568

2,943

(625)

42,91035,394(7,517)

6,600
1,000
1,200
53
12,423¥27,905

6,534
946
1,007
53
11,486¥27,660

(66)
(53)
(192)
—
(937)
¥(245)

79,375
12,026
14,432
637
149,405$335,598

78,581
11,377
12,111
637
138,136$332,652

(794)
(637)
(2,309)—(11,269)$ (2,946)

Millions of yen
2010

Securities whose carrying value exceeds
their acquisition cost:
Stock
Debt securities:
Government bonds
Corporate bonds
Other bonds
Other
Subtotal
Securities whose carrying value does not exceed
their acquisition cost:
Stock
Debt securities:
Government bonds
Corporate bonds
Other bonds
Other
Subtotal
Total

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥ 1,962¥ 2,854

¥892

1,400
9,683
200
—
13,246

1,401
9,809
202
—
14,268

1
126
2
—
1,022

1,807

1,621

(185)

6,198
4,817
1,700
93
14,616¥27,863

6,104
4,566
1,462
59
13,815¥28,083

(93)
(250)
(237)
(34)
(801)
¥220

Unlisted securities and other non-marketable securities are not included in the above schedules as their fairmarket values are extremely difficult to be determined. The amounts of these securities are ¥488 million ($5,869
thousand) and ¥588 million as of March 31, 2011 and 2010, respectively.
Sales amounts of securities classified as other securities and the related aggregate gain and loss for the years
ended March 31, 2011 and 2010 are summarized as follows:
Millions of yen

Proceeds from sales
Gains on sales
Losses on sales

Thousands of
U.S. dollars

2011

2010

2011

¥828
24
2

¥542
37
5

$9,958289
24

KYORIN Holdings, Inc.

14

7.

Impairment Loss
There was no loss on impairment of long-lived assets for the year ended March 31, 2011.
The Company and its consolidated subsidiaries recognized a loss on impairment of long-lived assets for the year
ended March 31, 2010 as follows:
2010
Location

Use

Type of assets

Shinjuku-ku, Tokyo
Total

Business use

Leased assets

Millions of yen

¥154
¥154

The Company and its consolidated subsidiaries identify groups of assets based on the managerial accounting
categories except for idle asset, which is grouped individually.
For the year ended March 31, 2010, the book value of the leased assets of Kyobundo Co., Ltd. was written down
to its recoverable value as it fell below the book value due to deterioration of the assets in terms of profitability. Thisdecrease in value was included in other expenses as impairment loss. The recoverable amount of the leased assets
was estimated based on its utility value with a discount rate of 6.7%.

8.

Short-Term Bank Loans, Long-Term Debt and Lease Obligations
Short-term bank loans and the current portion of long-term debt and lease obligations as of March 31, 2011 and2010 consisted of the following:
Millions of yen

Short-term bank loans
Current portion of long-term bank loans
Current portion of lease obligations
Total

Thousands of
U.S. dollars

2011

2010

2011

¥6,695301
42¥7,038¥2,486309
59¥2,854$80,5173,620
505$84,642

The average interest rates applicable to short-term bank loans outstanding as of March 31, 2011 and 2010 are
0.6% and 1.0%, respectively.
Long-term debt as of March 31, 2011 and 2010 consisted of the following:

Long-term bank loans due through 2014 at average interest
rate of 1.9% and 2.2% in 2011 and 2010, respectively
Lease obligations due through 2015
1.4% unsecured bonds, payable in yen, due 2011
Current portion of long-term bank loans and lease obligations,and bonds due within one year
Total

15

Annual Report 2011

Millions of yen

Thousands of
U.S. dollars

2011

2010

2011

¥750

¥881

$9,020

54
30

99
90

649
361

(374)
¥460

(428)
¥642

(4,498)$5,532

The annual maturities of long-term debt and lease obligations are summarized as follows:Year ending March 31

2012
2013
2014
2015
2016 and thereafter
Total

9.

Millions ofyen

Thousands of
U.S. dollars

¥374
244
208
5
—
¥835

$ 4,498
2,934
2,502
60
—
$10,042

Shareholders’ Equity
Japanese companies have been subject to the Corporation Law of Japan (the “Corporation Law”). The significant
provisions in the Corporation Law that affect financial and accounting matters are summarized below:(a) Dividends
Under the Corporation Law, companies can pay dividends at any time during the fiscal year in addition to the yearend dividend upon resolution at the shareholders meeting. The board of directors may declare dividends (except for
dividends in kind) if the company has prescribed so in its articles of incorporation for companies that meet certain
criteria such as:(1) having the Board of Directors,(2) having independent auditors,(3) having the Board of Corporate Auditors, and(4) the term of service of the directors is prescribed as one year rather than two years of normal term by its
articles of incorporation
The Corporation Law permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject
to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles
of incorporation of the company so stipulate. The Corporation Law also provides certain limitations on the amounts
available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution
to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥ 3 million.
(b) Increases/Decreases and Transfer of Common Stock, Reserve, and Surplus
The Corporation Law requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (acomponent of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on theequity account charged upon the payment of such dividends until the total of aggregate amount of legal reserve andadditional paid-in capital equals 25% of the common stock. Under the Corporation Law, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Corporation Law also provides that
common stock, legal reserve, additional paid-in capital, other capital surplus, and retained earnings can be transferredamong the accounts under certain conditions upon resolution of the shareholders.
(c) Treasury Stock and Stock Option
The Corporation Law also provides for companies to purchase treasury stock and dispose of such treasury stock byresolution of the board of directors. The amount of treasury stock purchased cannot exceed the amount available for
distribution to the shareholders, which is determined by specific formula. Under the Corporation Law, stock acquisition rights, which were previously presented as a liability, are now presented as a separate component of net assets.
The Corporation Law also provides that companies can purchase both treasury stock acquisition rights and treasury
stock. Such treasury stock acquisition rights are presented as a separate component of net assets or deducted directlyfrom stock acquisition rights.

KYORIN Holdings, Inc.

16

10.

Research and Development Expenses
Research and development expenses included in selling, general and administrative expenses for the years ended
March 31, 2011 and 2010 were ¥12,495 million ($150,271 thousand) and ¥11,807 million, respectively.

11.

Gain (Loss) on Sales and Disposal of Property, Plant and Equipment, Net
Significant components of the gain (loss) on sales and disposal of property, plant and equipment, net for the years
ended March 31, 2011 and 2010 were as follows:

Gain:
Buildings and structures
Machinery and vehicle
Land
Other
Loss:
Buildings and structures
Machinery and vehicle
Other
Total

17

Annual Report 2011

Millions of yen

Thousands of
U.S. dollars

2011

2010

2011

¥ 16
—
100
0
¥116

¥ 6
0
5
0
¥11

$ 192—1,203
0$1,395¥(15)
(12)
(20)
(47)
¥ 67

¥(25)
(12)
(34)
(71)
¥(62)

$ (180)
(144)
(241)
(565)
$ 806

12.

LeasesLeased assets principally consist of medical devices and system devices (machinery and vehicle) for medical use.
Pro forma information of the leased property whose term commences on or before March 31, 2008 such as
acquisition cost, accumulated depreciation, obligations under finance leases, and depreciation expense for financeleases that do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis for the years
ended March 31, 2011 and 2010 were as follows:
Millions of yen
March 31, 2011
Acquisition
costs

Accumulated
depreciation

Accumulated
impairment
loss

Net book
value

Machinery and vehicle
Other
Total

¥1,065445¥1,511

¥602
377
¥980

¥344
—
¥344

¥118
68
¥186

Machinery and vehicle
Other
Total

$12,808
5,352$18,172$ 7,240
4,534$11,786$4,137—$4,137

Thousands of U.S. dollars$1,419818$2,237
Millions of yen
March 31, 2010

Machinery and vehicle
Other
Total

Acquisition
costs

Accumulated
depreciation

Accumulated
impairment
loss

Net book
value¥1,383463¥1,846¥ 757295¥1,052

¥455
—
¥455

¥170
167
¥338

For the years ended March 31, 2011 and 2010, lease payments relating to finance leases accounted for in a similarmanner as operating lease transactions amounted to ¥262 million ($3,151 thousand) and ¥346 million, respectively,
which was equal to the depreciation expense of the leased assets computed by the straight-line method over thelease terms assuming no residual value, reversal of accumulated impairment loss on leased assets amounted to ¥111
million ($1,335 thousand) and ¥92 million, respectively, and related impairment losses amounted to none and ¥154
million, respectively.
Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2011 on noncancelable operating leases and finance leases accounted for as rental transactions are summarized as follows:
Millions of yen

Thousands of U.S. dollars

Year ending March 31,

FinanceleasesOperatingleasesFinanceleasesOperatingleases

20122013 and thereafter
Total
Accumulated impairment loss

¥213
317
¥530
¥344

¥ 499926¥1,425¥ —$2,562
3,812$6,374$4,137$ 6,001
11,137$17,138$—KYORIN Holdings, Inc.

18

13.

Financial Instruments
Effective from the year ended March 31, 2010, the Company and its consolidated subsidiaries (“the Companies”)
adopted “Accounting Standard for Financial Instruments” (ASBJ Statement No. 10, issued on March 10, 2008) and
Guidance on Disclosure about Fair Value of Financial Instruments (ASBJ Guidance No. 19, issued on March 10, 2008).
Status of financial instruments is as follows:(1) Investment policy of financial instruments
The Companies mainly operate funds by the highly secured financial instruments such as deposits and highly rated
bonds, ensuring the security and liquidity. The Companies use bank loans as our prime source of financing and no
derivatives are used.
(2) Details of financial instruments, associated risk and risk management
Operating receivables such as notes and accounts receivable are exposed to credit risk.
The Companies follow internal rules and monitors the major customers’ credit conditions periodically and manages the due date and balance per each customer. The Companies keep track of the adverse financial conditions of ourcustomers in the early stage to mitigate the bad debt. The Companies have operating receivables dominated in foreign
currencies that are exposed to foreign currency fluctuation risk. The Companies mitigate foreign currency fluctuation
risk by utilizing foreign currency deposits and netting receivables with payables dominated in foreign currencies.
Short-term investments and investment securities are mainly consists of highly rated bonds and stock of companies that have business relationship with the Companies. These are exposed to market fluctuation risk and credit risk,
and the Companies regularly review the fair value and issuers’ financial condition to mitigate market fluctuation risk
and credit risk.
Operating payables such as notes and accounts payable are due within six months and the Companies haveoperating payables dominated in foreign currencies.
Short-term bank loans are mainly used to finance operating capital, long-term loans, and bonds payable are mainly
used to finance necessary funds for the capital investments and business expansion.
Operating payables, loans, and bonds are exposed to liquidity risk. The Companies manages the liquidity risk by
preparing and updating the cash management plan periodically.
(3) Supplemental information on fair value of financial instruments
As well as the values based on market prices, fair values of financial instruments include values, which are reasonably
calculated in case market prices do not exist. As the calculation of those values adopts certain assumptions, thosevalues may vary in case different assumptions are applied.

19

Annual Report 2011

Fair value and others of financial instruments as of March 31, 2011 and 2010 are as follows:
Millions of yen

Thousands of U.S. dollars

2011

Cash and cash in banks
Notes and accounts receivable
Short-term investments andinvestment securities
Total assets
Notes and accounts payable
Total liabilities

Carrying
value

Fair value¥25,518
42,594¥25,518
42,594

27,660¥95,772¥10,852¥10,852

27,660¥95,772¥10,852¥10,852

2011

Difference

Carrying
value

Fair value

Difference¥——$ 306,891
512,255$ 306,891
512,255

$—
—

—
¥—
¥—
¥—

332,652$1,151,798$ 130,511$ 130,511

332,652$1,151,798$ 130,511$ 130,511

—
$—
$—
$—
Millions of yen
2010

Cash and cash in banks
Notes and accounts receivable
Short-term investments and investment securities
Total assets
Notes and accounts payable
Total liabilities

Carrying
value

Fair value

Difference¥20,193
36,85928,083¥85,136¥ 9,858¥ 9,858¥20,193
36,85928,083¥85,136¥ 9,858¥ 9,858

¥—
—
—
¥—
¥—
¥—

Unlisted securities and others of ¥976 million ($11,738 thousand) and ¥1,049 million whose fair values are
extremely difficult to determine as of March 31, 2011 and 2010, respectively, were not included in the above schedules.
Valuation method of fair value of financial instruments information regarding securities is as follows:(1) Cash and cash in banks
The carrying value is deemed as the fair value since it is scheduled to be settled in a short period of time.
(2) Notes and accounts receivable
The carrying value is deemed as the fair value since it is scheduled to be settled in a short period of time.
(3) Short-term investments and investment securities
Fair value of stocks is based on the price on stock exchanges and that of bonds is based on the price on bond markets or the price presented by the counter party financial institutions. Please see Note 6, Short-Term Investments andInvestment Securities.

KYORIN Holdings, Inc.

20

(4) Notes and accounts payable
The carrying value is deemed as the fair value since it is scheduled to be settled in a short period of time.
The redemption schedule for monetary receivables and security with maturities subsequent to March 31, 2011 is
as follows:
Millions of yen
2011

Cash and cash in banks
Notes and accounts receivable
Securities with maturities classified as other securities:
Government bonds
Bonds
Other
Total

Due in one
year or lessDue after
one yearthrough fiveyears

Due after
five years
throughten years

Due after
10 years¥25,517
42,594

¥ —
—

¥ —
—

¥ —
—

¥ 3,000
3,700
200¥75,011¥4,0004,600—¥8,600¥2,0001,600
1,000¥4,600¥2,000500
200¥2,700Thousands of U.S. dollars
2011

Due in one
year or less

Cash and cash in banks
Notes and accounts receivable
Securities with maturities classified as other securities:
Government bonds
Bonds
Other
Total

14.

Due after
one yearthrough fiveyears

$306,879
512,255$$ 36,079
44,4982,405$902,117$ 48,106
55,322—$103,428

Due after
five years
through ten
years

—
—

$

—
—

$24,053
19,242
12,026$55,322

Due after
10 years$——$24,053
6,013
2,405$32,471Retirement Benefit Plans
The Company and its consolidated subsidiaries have defined benefit pension plans, defined contribution pension plans,
and annuity in advance retirement severance plans, and certain of its domestic consolidated subsidiaries have lumpsum retirement plan, Government Welfare Pension Fund Plan, and tax-qualified pension plans.
The following table sets forth the funded and accrued status of the plans and the amounts recognized in the
consolidated balance sheets as of March 31, 2011 and 2010 for the Company’s and the consolidated subsidiaries’
defined benefit plans:Millions of yen

21

Annual Report 2011

Thousands of
U.S. dollars

2011

2010

2011

Projected benefit obligation
Plan assets at fair value
Unfunded retirement benefit obligation
Unrecognized transitional assets and liabilities
Unrecognized actuarial gain or loss
Unrecognized prior service cost
Net retirement benefit obligation
Prepaid pension cost¥(27,835)
20,803(7,031)
—
3,372
(106)
(3,765)—¥(27,759)
19,709(8,049)
8
3,781
(134)
(4,394)—$(334,756)
250,186(84,558)—
40,553(1,275)(45,280)—

Accrued retirement benefits for employees¥ (3,765)¥ (4,394)$ (45,280)

The components of retirement benefit expenses for the years ended March 31, 2011 and 2010 are outlined asfollows:
Millions of yen

Thousands of
U.S. dollars

2011

2010

2011

Service cost
Interest cost
Expected return on plan assets
Amortization of transitional assets and liabilities
Amortization of actuarial gain or loss
Amortization of prior service cost
Premium of defined contribution pension plan andannuity in advance retirement severance plan, etc.

¥ 924
545
(587)
8
645
(28)

¥ 830
633
(427)
58
643
(28)

$11,112
6,554(7,060)
96
7,757
(337)

288

286

3,464

Total

¥1,797¥1,996$21,612

The assumptions used in accounting for the above plans are as follows:

Discount rates
Expected return on plan assets

15.

2011

2010

2.0%
3.0%

2.0%
2.5%

Pledged Assets
Assets pledged as collateral for guaranty deposits and plant mortgage as of March 31, 2011 and 2010 were as follows:

Assets pledged as collateral:

Millions of yen

Thousands of
U.S. dollars

2011

2010

2011

¥ 10
¥ 10

¥ 10
¥ 10

$ 120$ 120¥1,738493¥2,231¥1,866402¥2,269$20,902
5,929$26,831¥ 65—¥ 13865$ 782—¥ 65¥ 204$ 782For guaranty deposits
Cash and cash in banks
Total
For plant mortgage
Buildings and structures
Other
Total
Related loans and debt for plant mortgage pledged as collateral
Short-term bank loans
Long-term bank loans
Total

KYORIN Holdings, Inc.

22

16.

Income Taxes
Significant components of deferred tax assets and liabilities as of March 31, 2011 and 2010 were as follows:

Deferred tax assets:
Accrued retirement benefits for employees
Accrued bonuses to employees
Allowance for doubtful accounts
Accrued enterprise tax
Loss on disposal of inventories
Loss on devaluation of investment securities
Loss on disposal of property, plant and equipment
Amortization of deferred assets
Impairment loss
Asset adjustment accountTax loss carryforward
Other
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
One time revaluation for property, plant and equipment
Other
Total deferred tax liabilities
Net deferred tax assets

Millions of yen

Thousands of
U.S. dollars

2011

2010

2011

¥1,551
1,308
185
279
253
298
1,072
547
—
483
665
1,394
8,042
(1,230)6,811¥1,814
1,230
186
361
205
327
1,084
—
245
725
967
1,262
8,411
(1,502)
6,908$18,653
15,731
2,225
3,355
3,043
3,584
12,892
6,578
—
5,809
7,998
16,76596,717(14,793)
81,912

(69)
(11)
(81)

(77)
(26)
(103)

(830)
(132)
(974)

¥6,730¥6,804$80,938

Taxes on income consist of corporate, inhabitants, and enterprise taxes. Reconciliation of the statutory tax rate to
the effective tax rate for the years ended March 31, 2011 and 2010 were as follows:

Statutory tax rate
Entertainment expenses and others that are not tax-deductible permanently
Inhabitants’ per capita taxes
Tax credits for research and development expenses
Valuation allowance
Other
Effective tax rate

23

Annual Report 2011

2011

2010

41.3%
3.4
0.4
(6.5)
(1.6)
(0.8)
36.2%

41.3%
3.8
0.5
(9.4)
(0.9)
1.4
36.7%

17.

Comprehensive Income
For the year ended March 31, 2010
Other comprehensive income for the year ended March 31, 2010 consists of the following:
Millions of yen
2010

Other comprehensive income:Unrealized holding gain on securities
Translation adjustments
Share of other comprehensive income of associates accounted for using equity method
Total other comprehensive income¥ 98124
9¥1,015

Total comprehensive income for the year ended March 31, 2010 comprises the following:
2010

Total comprehensive income attributable to:
Owners of the parent
Minority interests
Total comprehensive income

18.

¥9,864—¥9,864

Segment Information
Effective from the year ended March 31, 2011, the Company has adopted “Accounting Standard for Disclosures about
Segments of an Enterprise and Related Information” (ASBJ Statement No. 17, issued on March 27, 2009) and “Guidance on the Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ
Guidance No. 20, issued on March 21, 2008). The segment information for the year ended March 31, 2010 under thisnew accounting standard is also disclosed hereunder as required.
(a) Overview of Reportable Segments
The Company’s reportable segments are those for which separately financial information is available and regular
evaluation by the Board of Directors is being performed in order to decide how resources are allocated among
the Company.
The Company has 2 reportable segments, the Pharmaceutical Business and the Consumer Healthcare (Skincare)Business, which are classified based on similarities in the products and services.
The Pharmaceutical Business produces, sells, and purchases ethical drugs and over-the-counter drugs.
The Consumer Healthcare (Skincare) Business produces, sells, and purchases mainly skincare products.
(b) Method of Calculating Net Sales, Income, Assets, Liabilities and Other Items by Reportable Segment
Accounting policies of the reportable segments are consistent to those described in Note 2, Summary of Significant
Accounting Policies. Income by the reportable segment is based on operating income. Intersegment transactions are
based on prevailing market price.

KYORIN Holdings, Inc.

24

(c) Information about Net Sales, Income, Assets and Other Items by Reportable Segments
Millions of yen
2011
Reportable segments

Net sales:
Outside sales
Intersegment sales or transfers
Total
Segment income
Segment assets
Other items:
Depreciation and amortization
Amortization of goodwill
Investment in associates accounted forusing equity method
Increase in property, plant and equipment,
and intangible assets

PharmaceuticalBusiness

Consumer
Healthcare
Business

Total¥101,271
66
101,338¥ 16,318¥135,903¥2,797
02,798¥ 104¥1,020¥104,06967
104,136¥ 16,422¥136,924¥ 2,328
213

¥ 34
—

¥ 2,362
213

488

—

1,507

47

Adjustments

Consolidated

¥

—
(67)
(67)
¥ 20
¥10,309¥104,069—
104,069¥ 16,443¥147,234¥

95—¥ 2,458
213

488

—

488

1,554

129

1,684

Thousands of U.S. dollars
2011
Reportable segments

Net sales:
Outside sales
Intersegment sales or transfers
Total
Segment income
Segment assets
Other items:
Depreciation and amortization
Amortization of goodwill
Investment in associates accounted forusing equity method
Increase in property, plant and equipment,
and intangible assets

PharmaceuticalBusiness

Consumer
Healthcare
Business

Total$1,217,931
794
1,218,737$ 196,248$1,634,432$33,63812
33,650$ 1,251$12,267$1,251,581
806
1,252,387$ 197,498$1,646,711— $1,251,581(806)—(806) 1,251,581$ 241 $ 197,751$123,981 $1,770,704$ 27,998
2,562$ 409—$ 28,406
2,562$ 1,143—$ 29,561
2,562

5,869

—

5,869

—

5,869

18,124565

18,6891,551

20,253Adjustments

Consolidated$Millions of yen
2010
Reportable segments

Net sales:
Outside sales
Intersegment sales or transfers
Total
Segment income (loss)
Segment assets
Other items:
Depreciation and amortization
Amortization of goodwill
Investment in associates accounted forusing equity method
Increase in property, plant and equipment,
and intangible assets

25

Annual Report 2011

PharmaceuticalBusiness

Consumer
Healthcare
Business

Total

Adjustments

Consolidated¥ 96,422
68
96,490¥ 13,218¥131,409¥3,3420
3,342¥(192)¥1,243¥ 99,764
69
99,833¥ 13,026¥132,653

¥ —
(69)
(69)
¥ 235¥4,536¥ 99,764—
99,764¥ 13,261¥137,190¥ 2,666
291

¥ 40
108

¥ 2,707400¥ 102—¥ 2,810
400

461

—

461

—

461

1,218

21

1,240

61

1,302

1. “Adjustments” for “Segment income (loss)” of ¥20 million ($241 thousand) and ¥235 million for the years ended
March 31, 2011 and 2010, respectively were mainly eliminations of intersegment transactions.
2. “Adjustments” for “Segment assets” of ¥10,309 million ($123,981 thousand) and ¥4,536 million as of March 31,
2011 and 2010, respectively were offset assets of the Company and intersegment receivables and payables.
3. “Adjustments” for “Depreciation and amortization” of ¥95 million ($1,143 thousand) and ¥102 million for the years
ended March 31, 2011 and 2010, respectively were depreciation of property, plant and equipment of the Company.
4. “Adjustments” for “Increase in property, plant and equipment and intangible assets” of ¥129 million ($1,551 thousand) and ¥61 million for the years ended March 31, 2011 and 2010, respectively were increase in property, plantand equipment and intangible assets of the Company.
5. “Segment income (loss)” is adjusted to operating income disclosed in the accompanying consolidated statements
of income.
(Related information)(a) Information about Products and Services
Information about products and services has been omitted since the classification by products and services is thesame as the reportable segment.
(b) Information about Geographical Areas(1) Sales
Information about sales by geographical areas has been omitted for the years ended March 31, 2011, sincedomestic sales is more than 90% of net sales on the consolidated statements of income.
(2) Property, plant and equipment
Information about property, plant and equipment has been omitted for the years ended March 31, 2011, sinceproperty, plant and equipment in Japan constituted more than 90% of property, plant and equipment on the
consolidated balance sheets.
(c) Information by Major Customers for the Year Ended March 31, 2011
Millions of yen
Name of customer

Alfresa Corporation
Suzuken Co., Ltd.
Medipal Holdings Corporation
Toho Pharmaceutical Co., Ltd.

Sales amount¥17,869
17,291
15,452
13,261

Related segments

Pharmaceutical BusinessPharmaceutical BusinessPharmaceutical BusinessPharmaceutical Business andConsumer Healthcare BusinessThousands of U.S. dollars

Name of customer

Alfresa Corporation
Suzuken Co., Ltd.
Medipal Holdings Corporation
Toho Pharmaceutical Co., Ltd.

Sales amount$214,901
207,949
185,833
159,483

Related segments

Pharmaceutical BusinessPharmaceutical BusinessPharmaceutical BusinessPharmaceutical Business andConsumer Healthcare Business

KYORIN Holdings, Inc.

26

(d) Information about Amortization and Unamortized Balances of Goodwill by Reportable Segment
Millions of yen
PharmaceuticalBusiness

Consumer
Healthcare
Business

Eliminations

Total

¥339

—

—

¥339

PharmaceuticalBusiness

Consumer
Healthcare
Business

Eliminations

Total$4,077——$4,077

Balances as of March 31, 2011

Thousands of U.S. dollars

Balances as of March 31, 2011

Information about amortization of goodwill by reportable segment has been omitted since the information is disclosed
under “(c) Information about net sales, income, assets, and other items by reportable segments” in this section.

19.

Contingent Liabilities
Contingent liabilities as of March 31, 2011 and 2010 were as follows:

Guarantors of indebtedness of employees
Notes receivable endorsed

20.

Millions of yen

Thousands of
U.S. dollars

2011

2010

2011

¥5
—

¥ 8
11

$60
—

Yen

U.S. dollars

Amounts per Share
Amount per share for the years ended March 31, 2011 and 2010 were as follows:

Basic net income
Cash dividends
Net assets

2011

2010

2011

¥ 146.21
45.00
1,494.83¥ 118.37
50.00
1,403.60$ 1.76
0.54
17.98

Basic net income per share was computed based on the net income available for distribution to shareholders ofcommon stock and the weighted average number of shares of common stock outstanding during the year. Diluted net
income per share has been omitted because no potentially dilutive instruments were outstanding during the years
ended March 31, 2011 and 2010.
Cash dividends per share represent the cash dividends as applicable to the year.
The amount per share of net assets is computed based on the net assets available for distribution to the shareholders of common stock and the number of shares of common stock outstanding at the year end.

27

Annual Report 2011

21.

Subsequent Events(a) Appropriation of Retained Earnings
The following appropriations of retained earnings, which have not been reflected in the accompanying consolidated
financial statements for the year ended March 31, 2011, were approved at the Board of Directors’ meeting held on
May 25, 2011:

Cash dividends (¥35.0 = U.S.$0.42 per share)

Millions ofyen

Thousands of
U.S. dollars¥2,615$31,449(b) Decrease in the Amount of Additional Paid-in Capital
The resolution of decrease in the amount of additional paid-in capital was approved at the Board of Directors’ meeting held on May 25, 2011 and general shareholders’ meeting of the Company held on June 24, 2011.
(1) Purpose of decrease in the amount of additional paid-in capitalIn order to secure financial flexibility and mobility, the Company decreases additional paid-in capital and transfers the same amount to other capital surplus.
(2) Details of decrease in the amount of additional paid-in capital
The Company decided the amount to be decreased from additional paid-in capital and its method pursuant
to Article 448, Paragraph 1 of the Corporation Law. The Company decreases additional paid-in capital andtransfers the same amount to other capital surplus.
1. Component and amount in additional paid-in capital to be decreased
Additional paid-in capital¥39,000 million ($469,032 thousand)

2. Component and amount in surplus to be increased
Other capital surplus¥39,000 million ($469,032 thousand)(3) Schedule of decrease in the amount of additional paid-in capital
1. Resolution of Board of Directors’ meeting				

May 25, 2011

2. Resolution of general shareholders’ meeting				June 24, 2011

3. Final due date of creditors’ objections				

July 28, 2011

4. Effective date					July 29, 2011

KYORIN Holdings, Inc.

28

Report of Independent Auditors

29

Annual Report 2011

For reference: NON-CONSOLIDATED FINANCIAL SUMMARY

Non-consolidated Balance Sheets
KYORIN Holdings, Inc. (formerly KYORIN Co., Ltd.)As of March 31, 2011 and 2010

Millions of yen

Thousands of
U.S. dollars

2011

2010

2011

¥ 9,074¥ 3,289$ 109,128

Cash and deposits

6,759

2,357

81,287

Prepaid expenses

65

53

782

2,079

—

25,003

Deferred tax assets

142

156

1,708

Other

27

721

325

81,00980,043

974,251

221

266

2,658

AssetsCurrent assets

Income taxes receivableNoncurrent assets
Property, plant and equipment
Intangible assets
Investments and other assets
Total assets

167

88

2,008

80,62079,688969,573

90,084

83,333

1,083,391

Liabilities
Current liabilities

603

470

7,252

Non-current liabilities

16

23

192

Total liabilities

619

494

7,444

Shareholders’ equity

89,46582,8381,075,947

Total net assets

89,46582,8381,075,947

90,084

83,333

1,083,391

Millions of yen

Thousands of
U.S. dollars

Net assets

Total liabilities and net assets

Non-consolidated Statements of Income
KYORIN Holdings, Inc. (formerly KYORIN Co., Ltd.)Years Ended March 31, 2011 and 2010
2011

2010

2011

¥12,819¥6,082$154,167

Operating expenses

2,457

2,470

29,549Operating income

10,361

3,612

124,606

40

43

481

Operating revenue

Non operating income

—

77

—

10,401

3,577

125,087

Extraordinary income

14

134

168

Extraordinary loss

6

914

72
125,183

Non operating expenses
Ordinary income

Income before income taxes

10,4092,798

Income taxes—current

3

3

36

Income taxes—deferred

20

51

241

10,385

2,743

124,895

Net income

Note: The rate of ¥83.15 to US$1, prevailing on March 31, 2011, has been used for translation into U.S. dollar amounts.

KYORIN Holdings, Inc.

30

KYORIN Holdings, Inc.
5, Kanda Surugadai 2-chome, Chiyoda-ku, Tokyo
101-8311, Japan
Corporate Communication
TEL+81-3-3293-3414
E-mailhttp://www.kyorin-gr.co.jp/en/contact/
URL
http://www.kyorin-gr.co.jp/

This report was printed using vegetable oil ink.
Printed in Japan