Financial Section
ANNUAL REPORT 2012
Year ended March 31, 2012 KYORIN Holdings, Inc.

Contents
Financial Analysis

01

Consolidated Balance Sheets

07

Consolidated Statements of Income, Consolidated Statements of Comprehensive Income

09

Consolidated Statements of Changes in Net Assets

10Consolidated Statements of Cash Flows11

Notes to the Consolidated Financial Statements

12

Independent Auditor’s Report29

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 otherstatements other than 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 decreased 0.8% year on year to ¥103,232 million. Our pharmaceuticalbusiness in Japan was up slightly year on year, reflecting orders brought forward out ofconsideration of possible inventory shortages due to the Great East Japan Earthquake inMarch 2011. However, the generic drug, ethical drug sales overseas, over-the-counter drugs
and others, and consumer healthcare (skincare) businesses were down year on year.
■ Operating income amounted to ¥14,464 million, down 12.0% year on year. The main factor
behind this decrease was a drop in gross profit of ¥208 million despite an effort to reduce costof sales. Also selling, general and administrative (SG&A) expenses were higher, primarily
because R&D expenses increased by 11.8% year on year.

Business Overview
The Kyorin Group comprises KYORIN Pharmaceutical Co., Ltd., which ismainly involved with the R&D, manufacture and sales of pharmaceuticals;
KYORIN Rimedio Co., Ltd., which mainly manufactures and sells genericdrugs; Dr. Program Co., Ltd., which mainly develops and sells skincare products; and KYORIN Medical Supply Co., Ltd., which is mainly involved in sales
promotion, advertising planning and production, and the environmental hygiene
business. 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.

Industry Trends
In fiscal 2011, the Japanese economy got off to a challenging start mainly due
to the Great East Japan Earthquake and the associated nuclear power station
accident in March 2011, and the subsequent electric power supply instabilities.
Although business conditions steadily recovered at the beginning of 2012, thefuture of the Japanese economy remains uncertain.
Under these circumstances, in the domestic pharmaceutical industry, where
the core business of the Kyorin Group operates, the Japanese government
continued to implement various policies designed to curtail spending on drugs,
and there was intensified competition among medical companies. The consumer healthcare business faces a harsh environment due to the continued
slump in consumer spending.
Net sales(Millions of yen)
120,000

99,764 104,069 103,232
90,88990,000Consolidated Operating Results
Net sales

81,070In fiscal 2011, business performance was inflated by an increase in distributors’
inventory at the end of fiscal 2011 due to orders that were brought forward

60,000during fiscal 2011 out of consideration of possible inventory shortages associated with the Great East Japan Earthquake. In reaction to this, ethical drug

30,000sales in Japan increased slightly by 0.8% to ¥85,995 million.
0

2007

2008

2009

2010

2011 (FY)n Ethical drug sales in Japan (Ethical drug business)n Ethical drug sales overseas (Ethical drug business)
n Generic drug businessn Consumer healthcare business01

Annual Report 2012

Sales increased of our principal new products including Kipres, a treatment
for bronchial asthma and allergic rhinitis; Uritos, a treatment for overactive
bladder; and Mucodyne, a mucoregulant. Sales decreased of Pentasa, a treatment for ulcerative colitis and Crohn’s disease.

Sales of gatifloxacin ophthalmic solution (out-licensed to Allergan, Inc. (US)),a product for ethical drug sales overseas, decreased by 26.4% to ¥2,015 million.
Sales for generic drugs decreased 2.4% year on year to ¥8,656 million. The
increased sales to insurance dispensing pharmacies, thanks to the implementation of measures to promote the use of generic drugs since fiscal 2010, were
outweighed by lower sales for products manufactured under outsourcing contracts, and decreased sales at sales companies in the area affected by theGreat East Japan Earthquake.
Sales in the consumer healthcare business (skincare and nonprescription

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

(%)

40,000

20.0
15.8
15.0

9.8
20,00016,4437.7

10,000

6,251

0

2007

drugs, etc.) decreased 8.5% year on year to ¥6,564 million. Sales of our coreproduct, the Milton brand of baby bottle disinfectant, remained at the same

14.0

13.3

30,00013,261

14,464

8,952

2008

10.0

5.0

2009

2010

0

2011 (FY)n Operating income (Left scale)level as the previous fiscal year due to bolstering of marketing capabilitiesn

Operating income margin (Right scale)within a stagnant economic situation. However, sales fell year on year at Dr.
Program, which is engaged in a nanocapsule technology-based cosmetics
business.
As a result, overall net sales decreased 0.8% year on year to ¥103,232 million.
Summary of Consolidated Statements of Income

Net income and ROE(Millions of yen)

(%)

15,000

12.0
10.1

Millions of yen

Net sales

FY2010FY2011

104,069

103,232

YoY change YoY change (%)

(837)

(0.8)

Cost of sales

37,55436,926

(628)

(1.7)

Gross profit

66,51466,306

(208)

(0.3)

SG&A expenses(Including R&D expenses)

50,071
12,49551,842
13,964

1,771
1,469

3.5
11.8

Operating income

16,443

14,464(1,979)(12.0)

Other income

769

879

110

14.3

Other expenses

102

67

(35)

(34.3)

Income before income taxes

17,136

15,262(1,874)(10.9)Net income

10,9279,231(1,696)(15.5)

8.8
10,927

10,000

0

8.0

4.0

2.2

2.1

2,189

2,037

2007

2008

2009

2010

2011 (FY)

36.1

35.8

2010

2011 (FY)0n Net income (Left scale)n

ROE (Right scale)

Cost of sales ratio, SG&A expenses, and operating income

Cost of sales ratio

The cost of sales ratio decreased 0.3 of a percentage point year on year to(%)

35.8%, due to lower cost of sales mainly reflecting increased sales of high-60.0

margin company products in ethical drugs, a rise in the production rates ofplants, and lower manufacturing costs.

9,231

8,848

5,000

8.0

40.5
40.0

SG&A expenses increased 3.5% year on year to ¥51,842 million, mainly

39.2

37.6

attributable to an increase in R&D expenses of ¥1,469 million (up 11.8%) in linewith progress in the development pipeline. As a result, operating income

20.0

decreased 12.0% year on year to ¥14,464 million. The operating income
margin dropped 1.8 percentage points to 14.0%.

0

2007

2008

2009

Net income and net income per share
Net income decreased 15.5% year on year to ¥9,231 million mainly due to therecording of higher deferred income taxes resulting from the reversal ofdeferred tax assets in line with the corporate income tax rate reduction
announced in December 2011. Net income per share decreased ¥15.5% fromthe previous fiscal year to ¥123.54.

KYORIN Holdings, Inc.

02

Net assets

Assets, Liabilities and Net Assets(Millions of yen)

At March 31, 2012, current assets had declined ¥4,577 million mainly due to

150,000
120,000

97,18496,501

104,911

111,706

118,201

decreases in cash and cash in banks and deferred tax assets. These
decreases were partly offset by increases in notes and accounts receivable.
Fixed assets rose ¥3,016 million mainly due to an increase in investment secu-

90,000rities despite declines in property, plant and equipment, net, and deferred tax
assets. As a result, total assets decreased ¥1,561 million from a year earlier to60,000¥145,673 million.
30,0000Liabilities at year-end were down ¥8,056 million to ¥27,471 million from the
2007

2008

2009

2010

2011 (FY)

previous year-end. This was mainly due to decreases in notes and accounts
payable, short-term bank loans, accrued income taxes, and accrued retirement
benefits for employees.
Net assets at year-end amounted to ¥118,201 million, up ¥6,495 million
from a year ago. This was mainly attributable to increases in retained earnings

Shareholders’ equity ratio

and in unrealized holding gain on securities.

(%)

As a result, the shareholders’ equity ratio at year-end was 81.1%, up 5.2

90.0
79.4

77.5

76.5

75.9

81.1

60.0

percentage points from the previous fiscal year-end.
Return on Equity (ROE)The Kyorin Group has established net sales and operating income as its performance targets, with the aim of achieving sustainable growth.

30.0

The Group recognizes that improving profitability and raising ROE is crucial
to attaining those targets. In fiscal 2011, ROE was 8.0%, a figure the Group will
0

2007

2008

2009

2010

2011 (FY)seek to raise going forward.
Summary of Consolidated Balance Sheets
Millions of yen
FY2010

Annual Report 2012

YoY change YoY change (%)

Current assets

104,427

99,850(4,577)

Fixed assets

42,80645,822

3,016

7.0

Total assets

147,234

145,673(1,561)(1.1)

Current liabilities

30,421

23,385(7,036)(23.1)

Long-term liabilities

5,105

4,086

(1,019)(20.0)(4.4)

Total liabilities

35,52727,471(8,056)(22.7)

Shareholders’ equity

112,076

117,931

5,855

5.2

Total accumulated othercomprehensive income

03

FY2011

(370)

269

639

—

Net assets

111,706

118,201

6,495

5.8

Total liabilities andnet assets

147,234

145,673(1,561)(1.1)

Cash Flows

Cash flows from operating activities, cash flows
from investing activities, and free cash flow

Net cash provided by operating activities totaled ¥8,913 million. The main
components were income before income taxes of ¥15,262 million, depreciation
and amortization of ¥2,363 million, an increase in notes and accounts receiv-(Millions of yen)
20,00012,027 12,439

able of ¥2,474 million, a decrease in notes and accounts payable of ¥1,809
million, and income taxes paid of ¥6,505 million.

10,0004,444

Net cash used in investing activities was ¥4,926 million. Cash was mainly

346

used for payments for purchase of property, plant and equipment of ¥1,686

0

million, and payments for purchase of investment securities of ¥7,427 million.
On the other hand, cash was provided by proceeds from sales and redemptionof investment securities of ¥5,121 million.
Net cash used in financing activities was ¥7,412 million. This was largely

2007

8,913
3,987

412

(1,700)(6,144)–10,000

6,805
4,999

4,575

(1,806)(4,229)2008(4,926)

2009

2010

2011 (FY)n Cash flows from operating activitiesn Cash flows from investing activities

attributable to a net decrease in short-term loans of ¥3,840 million and pay-nFree cash flow

ment of cash dividends of ¥3,357 million.
As a result, cash and cash equivalents at the end of the fiscal year were
down ¥3,455 million year on year to ¥23,210 million.
Cash flows for the next fiscal year, the fiscal year ending March 31, 2013,
are projected as follows.
Investing activities are projected to use ¥3,000 million cash mainly for
acquiring property, plant and equipment, including enhancing plant facilities.
Financing activities are projected to use approximately ¥3,400 million for thepayment of dividends, comprising ¥35.00 per share for the year-end dividend,and ¥10.00 per share for the interim dividend.
Summary of Consolidated Statements of Cash Flows
Millions of yen
FY2010FY2011

YoY change YoY change (%)

Cash provided by operating
activities

6,805

8,913

2,108

31.0

Cash used ininvesting activities(1,806)(4,926)(3,120)172.8

Cash provided by (used in)financing activities

201(7,412)(7,613)—

Cash and cash equivalents
at end of year

26,66523,210(3,455)(13.0)KYORIN Holdings, Inc.

04

Outlook for Fiscal 2012
The outlook for the domestic pharmaceutical industry is expected to remainchallenging mainly due to the fact that NHI drug prices were revised down in
April 2012 by 6.0% on average for the industry as a whole and by roughly 6%
for KYORIN Pharmaceutical, and to the negative impact of the ongoing implementation of government policies to curb medical expenditures. In the consumer healthcare business, the outlook for market conditions remains
shrouded in uncertainty.
Under these conditions, the Kyorin Group will make every effort to achieve
the targets prescribed by our medium-term business plan, HOPE 100 Stage 1(for fiscal 2010–2015). Fiscal 2012 is the third year of this plan, and we will
actively promote the plan’s business strategies, including the acceleration of
the Pharma Complex Model and the development of new consumer healthcare
operations. Our ultimate goal here is to achieve sustainable growth and earntrust and improved assessments from all our stakeholders.
On the sales front, we are projecting record high sales mainly due to growthof the bronchial asthma and allergic rhinitis treatment Kipres, and the overactive
bladder (OAB) treatment Uritos, both primary products in the new drugs business, and to the sales expansion of generic drugs.
On the earnings front, the cost of sales ratio is projected to be at the samelevel as the previous fiscal year, mainly due to efforts to reduce the ratio despite
the impact of drug price reductions. On the other hand, SG&A expenses areprojected to fall dramatically as a result of the lowering of R&D expenses due toreviews of development pipelines. As a result, the Kyorin Group expects operating income to achieve a record high.
Forecasts for Fiscal 2012
Millions of yen
FY201105

Annual Report 2012

FY2012 YoY change (%)

Net sales

103,232

104,700

1.4

Operating income

14,464

17,90023.8

Net income

9,231

11,80027.8

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) Legal Regulations
Legal regulations in Japan, such as the Pharmaceutical Affairs Law, the National Health Insurance(NHI) system, NHI drug prices and laws in othercountries can affect the Group’s business. Everystage of our operations, including pharmaceuticaldevelopment, production, import, and distribution,is regulated by various approval and licensing
systems. Unforeseen substantial shifts in future
healthcare administration policy could affect ourbusiness performance and financial health.
(2) Pharmaceutical R&D
Ethical drug development requires substantial
R&D investment over lengthy periods. Furthermore, the success rate is low for companies seeking to discover original compounds and bring
pharmaceutical products to market. Currently,
several of KYORIN Pharmaceutical Co., Ltd.’s
ethical drugs are undergoing clinical trials. The
clinical development of such drugs could be terminated as a consequence of various factors, suchas unforeseeable side effects or failure to achieveintended results.
(3) 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 weremore useful or produced the same effects.
(4) NHI Drug Price Revisions
Japan’s healthcare system, including National
Health Insurance (NHI) drug prices, is being
revised. When forecasting business results, theKyorin Group does its best to predict and factor in
the effects of such changes. Nevertheless, ourperformance could suffer as a result of greaterthan-expected NHI drug price revisions or changes
to the NHI system.
(5) Slowdowns or Delays in Production
Technical or regulatory problems, natural disasters
and accidents, including fires, could cause slowdowns or delays in production or the cessation ofoperations, thereby affecting the Group’s performance. Operations at the Noshiro Plant (Noshiro,
Akita Prefecture, Japan) of Kyorin Group company
KYORIN Pharmaceutical Co., Ltd. were notaffected by the Great East Japan Earthquake thatstruck on March 11, 2011. No plant personnel
were injured, and the plant itself sustained nophysical damage from the disaster.
(6) Pharmaceutical Recalls
If the Group’s pharmaceuticals are shown to be
defective due to contamination or other causes,
they will be recalled. Such a situation would
adversely affect the Group’s business results.
(7) Intellectual Property Protection
There is a risk that the Group may become unable
to protect its intellectual property effectively inJapan or overseas. In this event, third parties could
exploit the Group’s technology and reducedemand for its principal products and related
pharmaceuticals. If the Group’s other activities are
deemed to infringe on another company’s patents
or threaten its intellectual property rights relating to
its products, the Group may become involved inlegal disputes and have to terminate some business operations.
(8) Lawsuits
The Group could become the subject of a lawsuit
for alleged patent infringements, violations of the
Product Liability Act or the Antimonopoly Act or asa result of environmental issues or labor disputes.
(9) Exchange Rate Fluctuations
As the Group imports and exports pharmaceuticalproducts, its sales are vulnerable to exchange rate
fluctuations.
(10) Cancellations of Tie-Up Agreements
The Group promotes strategic alliances to makeefficient use of external capital. Through tie-up
agreements with other pharmaceutical companies
in and outside of Japan, the subsidiary allocatessales 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.
(11) IT Security and Information Management
In the course of business operations the Grouputilizes numerous IT systems. This means business
operations are vulnerable to disruptions caused bysystem faults or outside causes such as computerviruses. Furthermore, the leakage of information
could cause a loss of trust in the Group and materially affect the business performance of the Group.
KYORIN Holdings, Inc.

06

Consolidated Balance Sheets
KYORIN Holdings, Inc. and Consolidated Subsidiaries
As of March 31, 2012 and 2011

Millions of yen

Thousands of
U.S. dollars(Note 3)

2012

2011

2012

¥ 21,615¥ 25,518$  263,148

Notes and accounts receivable (Note 11)45,06742,594

548,661

Short-term investments (Notes 4,5 and 11)

7,372

6,976

89,74911,016

10,471

134,112

632

1,024

7,694

Raw materials and supplies

9,089

8,868

110,653

Deferred tax assets (Note 14)

2,340

2,618

28,488

Other

2,774

6,420

33,772

(58)

(65)

(706)

99,850104,427

1,215,607

Land

1,619

1,624

19,710

Buildings and structures (Note 13)

28,222

27,971

343,584

Machinery and vehicle

15,827

14,937

192,683

Lease assets (Note 10)

149

203

1,814

Construction in progress

39

110

475

6,690

6,495

81,446(38,003)(36,423)(462,661)

14,544

14,916

177,064

26,04021,660317,020

Long-term loans

24

23

292

Goodwill

192

339

2,337

Trademark

11

14

134

Deferred tax assets (Note 14)

3,144

4,111

38,276

Other

2,284

2,162

27,806

Less allowance for doubtful accounts

(421)

(422)

(5,125)31,27727,889380,777¥145,673¥147,234$1,773,472

AssetsCurrent assets:
Cash and cash in banks (Notes 4, 11 and 13)

Inventories:
Merchandise and finished goods
Work in process

Less allowance for doubtful accounts
Total current assets

Property, plant and equipment:

Other (Note 13)
Less accumulated depreciation and impairment loss
Property, plant and equipment, net

Investments and other assets:
Investment securities (Notes 5 and 11)

Total investments and other assets
Total assets

07

Annual Report 2012

Millions of yen

Thousands of
U.S. dollars(Note 3)

2012

2011

2012

¥  9,043¥ 10,852$  110,093

3,159

6,996

38,459

39

42

475

Accrued income taxes (Note 14)

2,111

3,437

25,700Accrued bonuses to employees

3,110

3,222

37,862

Reserve for sales returns

52

52

633

Provision for point card certificates

65

59

791

5,802

5,758

70,63623,38530,421

284,697

Long-term debt (Notes 6 and 11)

316

449

3,847

Lease obligations (Note 6)

45

11

548

2,949

3,765

35,902

Accrued retirement benefits for directors and corporate auditors

32

23

390

Other

743

855

9,046

4,086

5,105

49,744

700

700

8,522

Capital surplus

4,752

4,752

57,852Retained earnings

112,797

106,928

1,373,229

(318)

(304)

(3,871)

117,931112,076

1,435,732

Unrealized holding gain (loss) on other securities

537

(137)

6,538

Translation adjustments

(267)

(232)

(3,251)

269

(370)

3,275

Total net assets

118,201

111,706

1,439,019

Total liabilities and net assets¥145,673¥147,234$1,773,472

Liabilities and net assets
Current liabilities:
Notes and accounts payable (Note 11)
Short-term bank loans (Notes 6, 11 and 13)
Lease obligations (Note 6)

Other
Total current liabilities

Long-term liabilities:

Accrued retirement benefits for employees (Note 12)

Total long-term liabilities

Contingent liabilities (Note 17)

Net assets:
Shareholders’ equity (Note 7):
Common stock, no par value:
Authorized—297,000,000 shares in 2012 and 2011
Issued—74,947,628 shares in 2012 and 2011

Treasury stock, at cost:
228,377 shares in 2012
219,032 shares in 2011
Total shareholders’ equity
Accumulated other comprehensive income:

Total accumulated other comprehensive income

See accompanying notes to consolidated financial statements.

KYORIN Holdings, Inc.

08

Consolidated Statements of Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the years ended March 31, 2012 and 2011

Millions of yen

Thousands of
U.S. dollars(Note 3)

2012

2011

2012

¥103,232¥104,069$1,256,781

36,92637,554

449,550

66,306

66,514807,232

51,84250,071

631,142

14,464

16,443

176,090

Interest and dividend income

340

358

4,139

Rent income

269

273

3,275

Interest expense

(48)

(51)

(584)

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 8)
Operating income
Other income (expenses):

Equity in earnings of affiliates

26

39

317

Loss on investments in partnership

(17)

(47)

(207)

Loss (gain) on sales and disposal of property, plant and equipment, net (Note 9)

(5)

67

(61)

Gain on sales of investment securities, net (Note 5)

1

22

12

Loss on devaluation of investment securities

(7)

(62)

(85)

Other, net

242

93

2,946

800

693

9,739

15,262

17,136

185,805

Current

5,179

5,944

63,051

Deferred851

265

10,360

Other income, net
Income before income taxes and minority interests
Income taxes (Note 14)

Total income taxes
Income before minority interests
Net income

6,031

6,209

73,4239,231

10,927112,381¥  9,231¥ 10,927$  112,381

Millions of yen

Thousands of
U.S. dollars(Note 3)

See accompanying notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the years ended March 31, 2012 and 2011

2012

2011

2012

¥9,231¥10,927$112,381

Unrealized holding gain (loss) on other securities

672

(271)

8,181

Translation adjustments

(34)

(97)

(414)

Income before minority interests
Other comprehensive income (Note 15):

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

2

(4)

24

640

(373)

7,792

¥9,871¥10,554$120,173¥9,871¥10,554$120,173———

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

09

Annual Report 2012

Consolidated Statements of Changes in Net Assets
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the years ended March 31, 2012 and 2011
Millions of yen

Balance as of April 1, 2010

Shareholders’ equity

Accumulated othercomprehensive income
Unrealized
Total
holding
accumulated
Translation
gain (loss)otheradjustments
on othercomprehensive
securities
incomeNumber ofshares issued(Commonstock)

Commonstock

CapitalsurplusRetainedearnings

Treasurystock,
at costTotal
shareholders’equity74,947,628¥700¥4,752¥ 99,738¥(283)¥104,907¥ 138¥(134)

¥   3

Total
net assets¥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
Balance as of April 1, 2011

—

—

—

7,190

(21)

7,168

(275)

(97)

(373)

6,795

74,947,628

700

4,752

106,928(304)

112,076

(137)

(232)

(370)

111,706

Cash dividends

—

—

—

(3,362)—(3,362)———(3,362)

Net income

—

—

—

9,231

—

9,231

—

—

—

9,231

Purchase of treasury stock

—

—

—

—

(13)

(13)

—

—

—

(13)

Other changes

—

—

—

—

—

—

674

(34)

640

640

Net changes during the year

—

—

—

5,868

(13)

5,854

674

(34)

640

6,494

Balance as of March 31, 2012

74,947,628¥700¥4,752¥112,797¥(318)¥117,931¥ 537¥(267)¥ 269¥118,201

Thousands of U.S. Dollars (Note 3)

Balance as of April 1, 2011

Shareholders’ equity

Accumulated othercomprehensive income

Commonstock

CapitalsurplusRetainedearnings

Treasurystock,
at costTotal
shareholders’equityUnrealized
Total
holding
accumulated
Translation
gain (loss)otheradjustments
on othercomprehensive
securities
incomeTotal
net assets$8,522$57,852$1,301,777$(3,701)$1,364,451$(1,668)$(2,824)$(4,505)

Cash dividends——(40,930)—(40,930)———$1,359,946(40,930)

Net income——

112,381—

112,381———

112,381

Purchase of treasury stock

—

—

—

(158)

(158)

—

—

—

(158)

Other changes

—

—

—

—

—

8,206

(414)

7,792

7,792

Net changes during the year——

71,439(158)

71,269

8,206

(414)

7,792

79,060

Balance as of March 31, 2012

$8,522$57,852$1,373,229$(3,871) $1,435,732$6,538$(3,251)$ 3,275$1,439,019

See accompanying notes to consolidated financial statements.

KYORIN Holdings, Inc.

10

Consolidated Statements of Cash Flows
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the years ended March 31, 2012 and 2011

Operating activities
Income before income taxes and minority interests
Depreciation and amortization
Amortization of goodwill
Decrease in allowance for doubtful accounts(Decrease) increase in accrued bonuses to employees
Decrease in accrued retirement benefits for employees
Increase (decrease) in accrued retirement benefits for directors
and corporate auditors
Equity in earnings of affiliates
Interest and dividend income
Interest expense
Loss (gain) on sales and disposal of property, plant and equipment, net
Gain on sales of investment securities, net
Loss on devaluation of investment securities
Increase in notes and accounts receivable(Increase) decrease in inventories(Decrease) increase in notes and accounts payable(Decrease) increase in consumption taxes payable
Other
SubtotalInterest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities
Investing activities
Payments for time deposits
Proceeds from withdrawal of time deposits
Purchase of short-term investments
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Purchase of investment securities
Proceeds from sales and redemption of investment securities
Other
Net cash used in investing activities
Financing activities(Decrease) increase in short-term bank loans, net
Repayments of lease obligations
Proceeds from long-term debt
Repayments of long-term debt
Redemption of bonds
Net increase in treasury stock
Cash dividends
Net cash (used in) provided by financing activities
Effects of exchange rate changes on cash and cash equivalents(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 4)
See accompanying notes to consolidated financial statements.

11

Annual Report 2012

Millions of yen

Thousands of
U.S. dollars(Note 3)

2012

2011

2012

¥15,262
2,363
147
(7)
(110)
(816)

¥17,136
2,458
213
(14)
187
(629)

$185,805
28,7681,790(85)(1,339)(9,934)

8
(26)
(340)
48
5
(1)
7
(2,474)(374)(1,809)(238)
3,451
15,098369(48)(6,505)
8,913

(30)
(39)
(359)
51
(67)
(22)
62
(5,736)
1,509
993
249
(2,461)
13,501363(51)(7,007)
6,805

97
(317)
(4,139)
584
61
(12)
85
(30,119)(4,553)(22,023)(2,897)42,014
183,808
4,492(584)(79,194)
108,510

(822)
1,057
(799)
(1,686)25(357)(7,427)5,121(36)(4,926)

(874)
622
—
(1,274)251(226)(4,960)4,749(94)(1,806)(10,007)
12,868(9,727)(20,526)304(4,346)(90,419)
62,345(438)(59,971)(3,840)
(43)
200
(328)
(30)
(12)
(3,357)(7,412)(29)(3,454)
26,665¥23,210

4,209
(60)
200
(332)
(60)
(21)
(3,732)
201
(93)
5,108
21,556¥26,665(46,749)
(523)
2,435
(3,993)(365)(146)(40,869)(90,236)(353)(42,050)
324,629$282,566

Notes to the Consolidated Financial Statements
KYORIN Holdings, Inc. and Consolidated Subsidiaries
For the years ended March 31, 2012 and 2011

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 inJapan (“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 statements prepared by the Company as required by the Financial Instruments and Exchange Act
of Japan.
Certain reclassifications have been made in the 2011 consolidated financial statements to conform to the2012 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 in terms of their operating and financial policies are included in the consolidatedbalance sheets on an equity basis. All significant inter-company balances and transactions are eliminatedin consolidation.
Investments in subsidiaries and affiliates, which are not consolidated or accounted for by the equity
method, are carried 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. Their financial statements
are used for preparing the consolidated financial statements, and necessary adjustments are made to theconsolidated financial statements for any significant transactions between their balance sheet date
(December 31) and the consolidated balance sheet date (March 31).
(b) Foreign Currency Translation
The revenue and expense accounts of the foreign consolidated subsidiaries are translated into yen at the
average rates of exchange in effect during the year. The balance sheet accounts, except for the components of shareholders’ equity, are translated into yen at the exchange rates in effect at the balance sheet
date. The components of shareholders’ equity are translated at their historical exchange rates. 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, andshort-term investments which are readily convertible into cash subject to an insignificant risk of any changes
in their value and which were purchased with an original maturity of three months or less.
(d) Short-Term Investments and Investment Securities
Securities other than equity securities issued by subsidiaries and an affiliate 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 the applicable income taxes, directly included in net assets. Non-marketable securities
classified as other securities are stated at cost. Cost of securities sold is determined by the moving average method.

KYORIN Holdings, Inc.

12

(e) Inventories
Merchandise and finished goods, work in process, raw materials, and some supplies (samples) are mainly
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 basedon the estimated useful lives of the respective assets. For buildings (excluding accompanying facilities)
acquired on or after April 1, 1998, the straight-line method is used. The useful lives of property, plant andequipment are summarized as follows:
Buildings and structures

3 to 50 years

Machinery and vehicle

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 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 lease term by
the straight-line method with no residual value. All finance leases are accounted for in the same manner assales transaction. However, finance lease transactions that do not transfer ownership of the leased property
to the lessee whose term commences on or before March 31, 2008 are still accounted for in a similarmanner as operating lease transactions.
( h ) Amortization of Goodwill
Goodwill is amortized over a period of 20 years or less on a straight-line basis except that when the amountis 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 andthe 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 the balance sheet date, as adjusted
for unrecognized actuarial gain or loss and unrecognized prior service cost. The retirement benefit obligation
is attributed to each period by the straight-line method over the estimated years of service of the eligible
employees. Actuarial gains or losses are amortized from the year following the year in which the gain or loss
is recognized primarily by the straight-line method over the average remaining years of service of theemployees (10 years). Prior service cost is amortized as incurred by the straight-line method over the average remaining years of services of the employees (10 years).
In addition, directors and corporate auditors of certain consolidated subsidiaries are customarily entitledto lump-sum payments under their respective unfunded retirement benefits plans. Accrued retirement benefits for these directors and corporate auditors have been estimated in an amount required under theassumption that all directors and corporate auditors retired at the balance sheet date based on their policy.

13

Annual Report 2012

( l ) Appropriation of Retained Earnings
Appropriation of retained earnings with respect to a given financial period is made by resolution of the boardof directors’ meeting for dividend and resolution of the ordinary general shareholders’ meeting for otherappropriations. (see Note 7).
(m) Accounting Changes and Error Corrections
The “Accounting Standard for Accounting Changes and Error Corrections” (Accounting Standards Board ofJapan (“ASBJ”) Statement No. 24, issued on December 4, 2009) and the “Guidance on Accounting Standard for Accounting Changes and Error Corrections” (ASBJ Guidance No. 24, issued on December 4,2009) have been applied to the accounting changes and corrections of prior period errors which are madeafter the beginning of the fiscal year ended March 31, 2012.

3.

U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter ofarithmetic computation only, at the rate of ¥82.14 = U.S.$1.00, the approximate rate of exchange on March
30, 2012. The translation should not be construed as a representation that yen have been, could havebeen, or could in the future be, converted into U.S. dollars at the above or any other rate.

4.

Cash and Cash Equivalents
Cash and cash equivalents as of March 31, 2012 and 2011 for the consolidated statements of cash flows
consisted of the following:
Millions of yen

Cash and cash in banks

Thousands of
U.S. dollars

2012

2011

2012

¥21,615¥25,518$263,148

Short-term investments

2,662

2,462

32,408Time deposits with a maturity over three months(1,067)(1,315)(12,990)¥23,210¥26,665$282,566

Cash and cash equivalents

KYORIN Holdings, Inc.

14

5.

Short-Term Investments and Investment Securities
Information regarding marketable securities classified as other securities as of March 31, 2012 and 2011 are
as follows:
Marketable other securities
Millions of yen

Thousands of U.S. dollars

2012

2012

Acquisition
cost

Carrying
value

Unrealized
gain (loss)

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥ 4,623¥ 6,027¥1,404$ 56,282$ 73,375$17,093

Government bonds

11,79911,895

96

143,645

144,814

1,169

Corporate bonds

4,733

4,794

60

57,62158,364

730

—

—

—

—

—

—

18

19

0

219

231

0

21,17522,736

1,561

257,792

276,796

19,004

2,062

1,692

(369)

25,103

20,599(4,492)

5,799

5,768

(30)

70,59970,222(365)

Corporate bonds

1,300

1,254

(45)

15,827

15,267(548)

Other bonds

1,200

914

(285)

14,60911,127(3,470)

Securities whose carrying
value exceeds
their acquisition cost:
Equity securities
Debt securities:

Other bonds
Other
Subtotal
Securities whose carrying
value does not exceed
their acquisition cost:
Equity securities
Debt securities:
Government bonds

Other

30

28

(2)

365

341

(24)

Subtotal

10,392

9,659

(733)

126,516

117,592(8,924)

Total¥31,567¥32,395¥  828$384,307$394,388$10,080
Millions of yen
2011

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥ 1,560¥ 2,128¥ 568

Securities whose carrying value exceeds
their acquisition cost:
Equity securities
Debt securities:
Government bonds

4,398

4,428

29

Corporate bonds

9,323

9,417

93

200

200

0

Other bonds
Other
Subtotal———

15,482

16,174

692

3,568

2,943

(625)

Securities whose carrying value does not exceed
their acquisition cost:
Equity securities
Debt securities:
Government bonds

6,600

6,534

(66)

Corporate bonds

1,000

946

(53)

Other bonds

1,200

1,007

(192)

53

53

—

Subtotal

12,423

11,486

(937)

Total

¥27,905¥27,660¥(245)

Other

15

Annual Report 2012

Unlisted securities and other non-marketable securities are not included in the above schedules as theirfair market values are extremely difficult to be determined. The amounts of these securities were ¥511 million($6,221 thousand) and ¥488 million as of March 31, 2012 and 2011, respectively.
Sales amounts of securities classified as other securities and the related aggregate gain and loss for theyears ended March 31, 2012 and 2011 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen
2012

2011

2012

¥301

¥828

$3,664

Gains on sales

1

24

12

Losses on sales

0

2

0

Proceeds from sales

6.

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,
2012 and 2011 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2012

2011

2012

¥2,855¥6,695$34,758

Current portion of long-term debt

304

301

3,701

Current portion of lease obligations

39

42

475

¥3,198¥7,038$38,934

Short-term bank loans

Total

The average interest rates applicable to short-term bank loans outstanding as of March 31, 2012 and2011 are 0.9% and 0.6%, respectively.
Long-term debt as of March 31, 2012 and 2011 consisted of the following:

Long-term debt, due through 2015 and 2014
at average interest rate of 1.6% and 1.9% in 2012
and 2011, respectively

Millions of yen

Thousands of
U.S. dollars

2012

2011

2012

¥ 620

¥ 750

$ 7,548

Lease obligations due through 2015

84

54

1,023

1.4% unsecured bonds, payable in yen, due 2011

—

30

—

Current portion of long-term debt and lease obligations,and bonds due within one year

(343)

(374)

(4,176)

Total

¥ 361

¥ 460

$ 4,395

The annual maturities of long-term debt and lease obligations are summarized as follows:
Millions of yen

Thousands of
U.S. dollars

2013

¥343

$4,176

2014

310

3,774

2015

50

609

2016

—

—

2017 and thereafter

—

—

¥704

$8,571

Year ending March 31

Total

KYORIN Holdings, Inc.

16

7.

Shareholders’ Equity
Japanese companies have been subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to theyear-end 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 forcompanies 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) the term of service of the directors is prescribed as one year rather than two years of normal term by
its articles of incorporation
The Companies Act 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 Companies Act 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 Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal
reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus)
depending on the equity account charged upon the payment of such dividends until the total of aggregate
amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation.
The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capitalsurplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.
(c) Treasury Stock and Stock Option
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury
stock by resolution of the board of directors. The amount of treasury stock purchased cannot exceed theamount available for distribution to the shareholders, which is determined by specific formula. Under theCompanies Act, stock acquisition rights, which were previously presented as a liability, are now presented
as a separate component of net assets. The Companies Act also provides that companies can purchaseboth treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of net assets or deducted directly from stock acquisition rights.

17

Annual Report 2012

8.

Research and Development Expenses
Research and development expenses included in selling, general and administrative expenses for the years
ended March 31, 2012 and 2011 were ¥13,964 million ($170,002 thousand) and ¥12,495 million, respectively.

9.

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 theyears ended March 31, 2012 and 2011 were as follows:
Millions of yen

Thousands of
U.S. dollars

2012

2011

2012

$    —Gain:
Buildings and structures

¥  —

¥ 16

Machinery and vehicle

0

—

0

Land

21

100

256

Other

—

0

—

¥ 21

¥116

$ 256

Buildings and structures¥ (9)¥ (15)$(110)

Machinery and vehicle

(1)

(12)

(12)

Other

(16)

(20)

(195)

(27)

(49)

(329)

¥ (6)

¥ 67

$ (73)

Loss:

Total

10.

LeasesLeased assets principally consist of medical devices and system devices (machinery and vehicle) for the
Pharmaceutical Business.
Pro forma information of the leased property whose term commences on or before March 31, 2008 andwhich does not transfer ownership of the leased property to the lessee on an “as if capitalized” basis for theyears ended March 31, 2012 and 2011 was as follows:
Millions of yen
March 31, 2012

Machinery and vehicle

Acquisition
costs

Accumulated
depreciation

Accumulated
impairment loss

Net book
value

¥80

¥1,065¥  985

¥232

Other

74

69

—

4

Total

¥1,140¥1,055¥232¥85$12,966$11,992$2,824

Other

901

840

—

49

Total

$13,879$12,844$2,824$1,035

Thousands of U.S. dollars

Machinery and vehicle$  974

Millions of yen
March 31, 2011

Machinery and vehicle

Acquisition
costs

Accumulated
depreciation

Accumulated
impairment loss

Net book
value¥1,065

¥602

¥344

¥118

Other

445

377

—

68

Total

¥1,511

¥980

¥344

¥186

KYORIN Holdings, Inc.

18

For the years ended March 31, 2012 and 2011, lease payments relating to finance leases accounted forin a similar manner as operating lease transactions amounted to ¥213 million ($2,593 thousand) and ¥262
million, respectively, which were equal to the depreciation expense of the leased assets computed by thestraight-line method over the lease terms assuming no residual value, reversal of accumulated impairment
loss on leased assets amounted to ¥111 million ($1,351 thousand) and ¥111 million, respectively, andrelated impairment losses amounted to none.
Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2012
on noncancelable operating leases and finance leases accounted for as rental transactions are summarized
as follows:
Millions of yen

11.

Thousands of U.S. dollars

Year ending March 31,

FinanceleasesOperatingleasesFinanceleasesOperatingleases

2013

¥154

¥505

$1,875$ 6,1482014 and thereafter

163

413

1,984

5,028

Total

¥317

¥918

$3,859$11,176

Accumulated impairment loss

¥232

¥  —

$2,824$       —Financial Instruments(a) Investment policy of financial instruments
The Company and its consolidated subsidiaries mainly operate funds by the highly secured financial instruments such as deposits and highly rated bonds, ensuring the security and liquidity. The Company and its
consolidated subsidiaries use bank loans as the prime source of financing, and no derivatives are used.
(b) Details of financial instruments, associated risks and risk management
Operating receivables such as notes and accounts receivable are exposed to credit risk.
The Company and its consolidated subsidiaries, in accordance with internal rules, keep track of theadverse financial conditions of the customers in the early stage to mitigate the bad debt by monitoring the
major customers’ credit conditions periodically and managing the due date and balance per each customer.
The Company and its consolidated subsidiaries mitigate foreign currency risk by utilizing foreign currency
deposits for operating receivables denominated in foreign currencies and settling payables denominated in
the same currencies through the deposits.
Short-term investments and investment securities mainly consist of highly rated bond securities andequity securities of companies with business relationship and are exposed to market risk and credit risk.
The Company and its consolidated subsidiaries regularly review the fair value and issuers’ financial condition
to mitigate the risks.
Operating payables such as notes and accounts payable are mainly due within six months. Certain operating payables are denominated in foreign currencies.
Short-term bank loans are mainly used to finance operating capital, and long-term debts and bonds
payable are mainly used to finance necessary funds for the capital investments and business expansion.
Operating payables, loans and debts, and bonds payable are exposed to liquidity risk. The Company
and its consolidated subsidiaries manage the risk by preparing and updating the cash management
plan periodically.

19

Annual Report 2012

(c) 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 arereasonably calculated in case market prices do not exist. As the calculation of those values includes variablefactors, those values may vary in case different assumptions are applied.
Carrying values, fair values, and their differences of financial instruments as of March 31, 2012 and 2011
are as follows:
Millions of yen

Thousands of U.S. dollars

2012
Carrying
value

Fair value

Cash and cash in banks¥21,615

Notes and accounts
receivable

45,067

Short-term investments
and investment securities

2012

Difference

Carrying
value

Fair value

Difference¥21,615¥—$  263,148$  263,148$—

45,067—548,661

548,661—

32,39532,395—394,388394,388—¥99,079¥99,079¥—$1,206,221$1,206,221$—

Notes and accounts
payable¥ 9,043¥ 9,043¥—$  110,093$  110,093$—

Total liabilities¥ 9,043¥ 9,043¥—$  110,093$  110,093$—

Total assets

Millions of yen
2011
Carrying
value

Fair value

Difference

Cash and cash in banks¥25,518¥25,518¥—

Notes and accounts receivable

42,594

42,594—

Short-term investments and investment securities

27,66027,660—¥95,772¥95,772¥—¥10,852¥10,852¥—¥10,852¥10,852¥—

Total assets
Notes and accounts payable
Total liabilities

Unlisted securities and others of ¥1,017 million ($12,381 thousand) and ¥976 million whose fair values
are extremely difficult to determine as of March 31, 2012 and 2011, respectively, were not included in theabove schedules.
Valuation method of fair value of financial instruments and information about securities are as follows:
Cash and cash in banks and 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.
Short-term investments and Investment securities
Fair value of equity securities 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 counterparty financial institutions. Please see
Note 5, Short-Term Investments and Investment Securities, for securities by classification.
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.

KYORIN Holdings, Inc.

20

The redemption schedule for monetary receivables and securities with maturities subsequent to March
31, 2012 is as follows:
Millions of yen
2012
Due in one
year or lessDue after one
year throughfive years

Due after five
years throughten years

Due after
10 years

Cash and cash in banks¥21,615¥        —¥      —¥  —

Notes and accounts receivable

45,067———¥ 4,600¥ 9,000¥4,000

¥  —

2,700

1,900

1,000

500

Short-term investments andinvestment securities:
Other securities with maturities:
Government bonds
Bonds
Other
Total

—

—

1,000

200

¥73,983¥10,900¥6,000¥700

Thousands of U.S. dollars
2012
Due in one
year or lessDue after one
year throughfive years

Due after five
years throughten years

Due after
10 years

Cash and cash in banks$263,148$        —$       —

$      —

Notes and accounts receivable

548,661———$ 56,002$109,569$48,697$      —

32,871

23,131

12,174

6,087

Short-term investments andinvestment securities:
Other securities with maturities:
Government bonds
Bonds
Other
Total

21

Annual Report 2012——

12,1742,435$900,694$132,700$73,046$8,522

12.

Retirement 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 adopt lump-sum retirement plans and Government Welfare Pension Fund Plan.
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, 2012 and 2011 for the Company’s and the consolidated
subsidiaries’ defined benefit plans:Millions of yen

Thousands of
U.S. dollars

2012

2011

2012

¥(27,875)¥(27,835)$(339,360)

Plan assets at fair value

22,14120,803

269,552

Unfunded retirement benefit obligation(5,733)(7,031)(69,795)———
34,843

Projected benefit obligation

Unrecognized transitional assets and liabilities
Unrecognized actuarial gain or loss

2,862

3,372

Unrecognized prior service cost

(77)

(106)

(937)

Net retirement benefit obligation(2,949)(3,765)(35,902)———¥ (2,949)¥ (3,765)$ (35,902)

Prepaid pension costAccrued retirement benefits for employees

The components of retirement benefit expenses for the years ended March 31, 2012 and 2011 areoutlined as follows:
Millions of yen

Thousands of
U.S. dollars

2012

2011

2012

Service cost¥  922¥  924$11,225

Interest cost

546

545

6,647

Expected return on plan assets(7,536)

(619)

(587)

Amortization of transitional assets and liabilities

—

8

—

Amortization of actuarial gain or loss

509

645

6,197

Amortization of prior service cost

(28)

(28)

(341)

Premium of defined contribution pension plan andannuity in advance retirement severance plan, etc.
Total

289

288

3,518

¥1,619¥1,797$19,710

The assumptions used in accounting for the above plans are as follows:
2012

2011

Discount rates

2.0%

2.0%

Expected rate of return on plan assets

3.0%

3.0%

KYORIN Holdings, Inc.

22

13.

Pledged Assets
Assets pledged as collateral for guaranty deposits and plant mortgage as of March 31, 2012 and 2011were as follows:

Assets pledged as collateral:

Millions of yen

Thousands of
U.S. dollars

2012

2011

2012

¥   10¥   10$   122¥   10¥   10$   122

For guaranty deposits
Cash and cash in banks
Total
For plant mortgage
Buildings and structures¥1,668¥1,738$20,307

Other

692

493

8,425

Total

¥2,360¥2,231$28,731¥      —¥   65$        —¥      —¥   65$        —Related loans and debt for plant mortgage pledged
as collateral
Short-term bank loans
Total

14.

Income Taxes
Significant components of deferred tax assets and liabilities as of March 31, 2012 and 2011 were as follows:
Millions of yen

Thousands of
U.S. dollars

2012

2011

2012

Deferred tax assets:
Accrued retirement benefits for employees¥1,091¥ 1,551$ 13,282

Accrued bonuses to employees

1,162

1,308

14,147

Allowance for doubtful accounts

158

185

1,924

Accrued enterprise tax

189

279

2,301

Loss on disposal of inventories

205

253

2,496

Loss on devaluation of investment securities

250

298

3,044

Loss on disposal of property, plant and equipment

918

1,072

11,176

Amortization of deferred assets

944

547

11,493

Asset adjustment account

222

483

2,703

Tax loss carryforward
Other
Subtotal

342

665

4,164

1,255

1,394

15,279

6,741

8,042

82,067(909)(1,230)(11,066)

5,832

6,811

71,001

Reserve for reduction entry of property, plant andequipment

(48)

(69)

(584)

Unrealized holding gain on other securities

(290)

—

(3,531)

Valuation allowance
Total deferred tax assets
Deferred tax liabilities:

Other
Total deferred tax liabilities
Net deferred tax assets

23

Annual Report 2012

(8)

(11)

(97)

(347)

(81)

(4,224)¥5,484¥ 6,730$ 66,764

Taxes on income consist of corporate, inhabitants and enterprise taxes. Information on reconciliation of
the statutory tax rate to the effective tax rate for the year ended March 31, 2012 is not disclosed as theirdifference was less than 5% of the statutory tax rate for the year ended March 31, 2012. Reconciliation of
the statutory tax rate to the effective tax rate for the year ended March 31, 2011 was as follows:
2011

Statutory tax rate

		

41.3%

Entertainment expenses and others that are not tax deductible permanently

		

3.4

Inhabitants’ per capita taxes

		

0.4

Tax credits for research and development expenses

		

(6.5)

Valuation allowance

		

(1.6)

Other

		

(0.8)

		

36.2%

Effective tax rate

Following the promulgation on December 2, 2011 of the “Act for Partial Revision of the Income Tax Act,etc. for the Purpose of Creating a Taxation System Responding to Changes in Economic and Social Structures” (Act No. 114 of 2011) and the “Act on Special Measures for Securing Financial Resources Necessary
to Implement Measures for Reconstruction following the Great East Japan Earthquake” (Act No. 117 of
2011), the corporate income tax rate will be reduced and the special reconstruction corporation tax, asurtax for reconstruction funding after the Great East Japan Earthquake, will be imposed for the fiscal years
beginning on or after April 1, 2012. In line with these changes, the statutory tax rate to calculate deferred
tax assets and liabilities was changed from 41.3% to 38.0% for temporary differences which are expected
to reverse during the periods from the fiscal year beginning on April 1, 2012 to the fiscal year beginning on
April 1, 2014, and to 35.6% for temporary differences which are expected to reverse from the fiscal years
beginning on or after April 1, 2015, respectively.
As a result of this change, the net amount of deferred tax assets decreased by ¥578 million ($7,037
thousand), income taxes - deferred and unrealized holding gain on other securities increased by ¥624 million($7,597 thousand) and ¥45 million ($548 thousand), respectively.

15.

Comprehensive Income
Reclassification adjustments and income tax effects on other comprehensive income for the year ended
March 31, 2012 were as follows:
Millions of yen

Thousands of
U.S. dollars

2012

2012

Gain arising during the year

¥1,066$12,978

Reclassification adjustments

00Before income tax effects

1,066

12,978

Income tax effects(393)(4,785)

Unrealized holding gain on other securities

672

8,181

(34)

(414)

Unrealized holding gain on other securities:

Translation adjustments:
Adjustments arising during the year
Share of other comprehensive income of associates accounted forusing equity method:Gain arising during the year
Total other comprehensive income

224¥  640$ 7,792

KYORIN Holdings, Inc.

24

16.

Segment Information(a) Overview of Reportable Segments
The Company’s reportable segments are those for which separate financial information is available andregular examination by the board of directors is performed in order to decide how resources are allocatedamong the Company and evaluate their performance.
The Company has two 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 mainly produces, sells, and purchases ethical drugs, generic drugs andover-the-counter drugs. The Consumer Healthcare (Skincare) Business mainly sells and purchases skincare products.
(b) Method of Calculating Net Sales, Profit, 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.
Inter-segment transactions are based on prevailing market price.
(c) Information about Net Sales, Profit, Assets and Other Items by Reportable Segment
Millions of yen
2012
Reportable segments
PharmaceuticalBusiness

Consumer
Healthcare(Skincare)Business

Total

Adjustments

Consolidated¥100,654¥2,577¥103,232¥        —¥103,232

Net sales:
Sales to third parties
Inter-segment sales or transfers
Total

65

1

66

(66)

—

¥100,720¥2,578¥103,299¥   (66)¥103,232

Segment profit¥ 14,218¥   52¥ 14,270¥   193¥ 14,464

Segment assets¥134,354¥  968¥135,322¥10,350¥145,673

Other items:
Depreciation and amortization¥  2,214¥   34¥  2,248¥   115¥  2,363

Amortization of goodwill

147

—

147

—

147

Investment in associates
accounted for using equity
method

505

—

505

—

505

1,868

15

1,884

163

2,048

Increase in property, plant andequipment, and intangible assets

25

Annual Report 2012

Thousands of U.S. dollars
2012
Reportable segments
PharmaceuticalBusiness

Consumer
Healthcare(Skincare)Business

Total

Adjustments

Consolidated$1,225,396$31,373$1,256,781$         —$1,256,781

791

12

804

(804)

—

Net sales:
Sales to third parties
Inter-segment sales or transfers
Total$1,226,199$31,385$1,257,597$   (804)$1,256,781

Segment profit$  173,095$   633$  173,728$  2,350$  176,090

Segment assets$1,635,671$11,785$1,647,456$126,004$1,773,472$   26,954$   414$   27,368$  1,400$   28,768

Other items:
Depreciation and amortization
Amortization of goodwill

1,790

—

1,790

—

1,790

Investment in associates
accounted for using equity
method

6,148

—

6,148

—

6,148

Increase in property, plant andequipment, and intangible assets

22,742

183

22,936

1,984

24,933
Millions of yen
2011

Reportable segments
PharmaceuticalBusiness

Consumer
Healthcare(Skincare)Business

Total

Adjustments

Consolidated¥101,271¥2,797¥104,069¥        —¥104,069

Net sales:
Sales to third parties
Inter-segment sales or transfers
Total

66

0

67

(67)

—

¥101,338¥2,798¥104,136¥      (67)¥104,069

Segment profit¥ 16,318¥  104¥ 16,422¥    20¥ 16,443

Segment assets¥135,903¥1,020¥136,924¥10,309¥147,234

Other items:¥  2,328¥   34¥  2,362¥    95¥  2,458

Amortization of goodwill

Depreciation and amortization

213

—

213

—

213

Investment in associates
accounted for using equity
method

488

—

488

—

488

1,507

47

1,554

129

1,684

Increase in property, plant andequipment, and intangible assets

1. “Adjustments” for “Segment profit” of ¥193 million ($2,350 thousand) and ¥20 million for the years ended
March 31, 2012 and 2011, respectively, were mainly eliminations of inter-segment transactions.
2. “Adjustments” for “Segment assets” of ¥10,350 million ($126,004 thousand) and ¥10,309 million as ofMarch 31, 2012 and 2011, respectively, were the Company’s assets and offset of inter-segment receivables and payables.
3. “Adjustments” for “Depreciation and amortization” of ¥115 million ($1,400 thousand) and ¥95 million forthe years ended March 31, 2012 and 2011, respectively, were depreciation of property, plant and equipment and intangible assets of the Company.
4. “Adjustments” for “Increase in property, plant and equipment and intangible assets” of ¥163 million($1,984 thousand) and ¥129 million for the years ended March 31, 2012 and 2011, respectively, wereincrease in property, plant and equipment and intangible assets of the Company.
5. “Segment profit” is adjusted to operating income disclosed in the accompanying consolidated statements of income.

KYORIN Holdings, Inc.

26

(Related information)(a) Information about Products and Services
Information about products and services was omitted since the classification by product and service was
the same as the reportable segment for the years ended March 31, 2012 and 2011.
(b) Information about Geographical Areas(1) Sales
Information about sales by geographical area was omitted for the years ended March 31, 2012 and2011, since domestic sales were more than 90% of net sales on the consolidated statements of income.
(2) Property, plant and equipment
Information about property, plant and equipment was omitted for the years ended March 31, 2012
and 2011, since property, plant and equipment in Japan constituted more than 90% of property, plantand equipment on the consolidated balance sheets.
(c) Information by Major Customer for the Years Ended March 31, 2012 and 2011
Millions of yen
2012
Name of customer

Sales amount

Related segments

Alfresa Corporation¥18,405

Pharmaceutical Business

SUZUKEN CO., LTD.

17,141

Pharmaceutical Business

MEDIPAL HOLDINGS CORPORATION

15,504

Pharmaceutical BusinessToho Pharmaceutical Co., Ltd.

13,795

Pharmaceutical Business and Consumer
Healthcare (Skincare) BusinessThousands of U.S. dollars
2012

Name of customer

Sales amount

Related segments

Alfresa Corporation$224,069

Pharmaceutical Business

SUZUKEN CO., LTD.

208,680

Pharmaceutical Business

MEDIPAL HOLDINGS CORPORATION

188,751

Pharmaceutical BusinessToho Pharmaceutical Co., Ltd.

167,945

Pharmaceutical Business and Consumer
Healthcare (Skincare) BusinessMillions of yen
2011

Name of customer

27

Annual Report 2012

Sales amount

Related segments

Alfresa Corporation¥17,869

Pharmaceutical Business

SUZUKEN CO., LTD.

17,291

Pharmaceutical Business

MEDIPAL HOLDINGS CORPORATION

15,452

Pharmaceutical BusinessToho Pharmaceutical Co., Ltd.

13,261

Pharmaceutical Business and Consumer
Healthcare (Skincare) Business(d) Information about Amortization and Unamortized Balance of Goodwill by Reportable Segment
Millions of yen
2012
PharmaceuticalBusiness

Consumer Healthcare(Skincare) BusinessEliminations

Total

¥192

—

—

¥192

Balance as of March 31, 2012

Thousands of U.S. dollars
2012
PharmaceuticalBusiness

Consumer Healthcare(Skincare) BusinessEliminations

Total$2,337——$2,337

Balance as of March 31, 2012

Millions of yen
2011
PharmaceuticalBusiness

Consumer Healthcare(Skincare) BusinessEliminations

Total

¥339

—

—

¥339

Balance as of March 31, 2011

Information about amortization of goodwill by reportable segment for the years ended March 31, 2012
and 2011 was omitted since the information is disclosed under “(c) Information about net sales, income,assets and other items by reportable segment” in this section.

17.

Contingent Liabilities
Contingent liabilities as of March 31, 2012 and 2011 were as follows:

Guarantors of indebtedness of employees

18.

Millions of yen

Thousands of
U.S. dollars

2012

2011

2012

¥4

¥5

$49

Yen

U.S. dollars

Amounts per Share
Amounts per share for the years ended March 31, 2012 and 2011 were as follows:

Basic net income
Cash dividends
Net assets

2012

2011

2012

¥  123.54¥  146.21$ 1.50

45.00

45.00

0.55

1,581.94

1,494.83

19.26

Basic net income per share was computed based on the net income available for distribution to shareholders of common stock and the weighted average number of shares of common stock outstanding
during the year. Diluted net income per share was omitted because no potentially dilutive shares were outstanding during the years ended March 31, 2012 and 2011.
Cash dividends per share represent the cash dividends applicable to the year.
The amount per share of net assets is computed based on the net assets available for distribution to theshareholders of common stock and the number of shares of common stock outstanding at the year-end.

19.

Subsequent Events
There are no relevant items.

KYORIN Holdings, Inc.

28

Independent Auditor’s Report29

Annual Report 2012

For reference: NON-CONSOLIDATED FINANCIAL SUMMARY

Non-consolidated Balance Sheets
KYORIN Holdings, Inc.
As of March 31, 2012 and 2011
Millions of yen

Thousands of
U.S. dollars

2012

2011

2012

¥ 9,140¥ 9,074$  111,273

Cash and deposits

8,259

6,759

100,548

Prepaid expenses

66

65

804

Income taxes receivable

668

2,079

8,132

Deferred tax assets

133

142

1,619

AssetsCurrent assets

Other

12

27

146

80,95881,009985,610

Property, plant and equipment

245

221

2,983

Intangible assets

198

167

2,411

80,51480,620980,205

90,09990,084

1,096,896

586

603

7,134

Noncurrent assets

Investments and other assets
Total assets
Liabilities
Current liabilities

8

16

97

594

619

7,232

Shareholders’ equity

89,50489,465

1,089,652

Total net assets

89,50489,465

1,089,652

90,09990,084

1,096,896

Millions of yen

Thousands of
U.S. dollars

2012

2011

2012

Operating revenue¥6,139¥12,819$74,738

Operating expenses

2,650

2,457

32,262

Operating income

3,489

10,36142,476

33

40

402

3,523

10,40142,890—14—

Non-current liabilities
Total liabilities
Net assets

Total liabilities and net assets

Non-consolidated Statements of Income
KYORIN Holdings, Inc.
As of March 31, 2012 and 2011

Non operating income
Ordinary income
Extraordinary income
Extraordinary loss
Income before income taxes

7

6

85

3,515

10,40942,793

Income taxes—current

3

3

37

Income taxes—deferred

97

20

1,181

3,414

10,38541,563

Net income

Note: The rate of ¥82.14 to US$1, prevailing on March 31, 2012, 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-mail http://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