Corporate Vision
Our commitment totreating people around the world
with topical and transdermal patches
Topical and transdermal patches are simple to use, being placed on the skin totreat medical conditions. They are consistent with the latest trend of improving
drug delivery in medical treatment designed to enhance people’s quality of life.
Our message that medicated skin patches have a lot to offer is embodied in
the word Salonpathy, derived from our mainstay product Salonpas®. Over theyears we have continued to help people improve their health by leveraging ourtransdermal drug delivery system (TDDS) expertise to develop topical andtransdermal patches mainly for pain relief and reducing inflammation.
Our basic management policy is to concentrate on and specialize in creating
new pharmaceutical products and formulations adaptable to TDDS, which isthe source of our competitiveness. We believe this will allow us to respond to
the underlying need for health, safety, and comfort of people around the world
and improve their quality of life.
We are committed to supplying pharmaceutical products capable of treating
people anywhere in the world simply by applying them to the skin.
Forward-looking statements:
Statements in this financial report concerning current plans, forecasts, strategies, beliefs, and other forward-looking
information related to Hisamitsu Pharmaceutical Co., Inc., other than those of historical fact, are forecasts of futurebusiness performance based on the judgments of management at Hisamitsu Pharmaceutical Co., Inc. in light ofcurrently available information. Accordingly, please refrain from making investment decisions based solely on forecastsof business performance in this financial report. Actual business performance may differ significantly from these
forecasts due to changes in a variety of factors.
Note:
Amounts in US dollars are included solely for convenience and are translated at a rate of ¥112.56=U.S.$1.00, theapproximate rate of exchange on February 28, 2017.

Contents
Consolidated Financial Highlights
To Our Investors
Overview of Operations
Corporate Governance and Internal Auditing
Financial Section:
Analysis of Financial Position, Operating Results, and Cash Flows
Capital Expenditures
Dividend Policy
Business and Other Risks
Consolidated Balance Sheets
Consolidated Statements of Income

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Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Basis of Preparation of Consolidated Financial Statements
Significant Accounting Policies Concerning the Preparation ofConsolidated Financial Statements
Changes in Accounting Policies
Unapplied Accounting Standards, etc.
Notes to Consolidated Financial Statements
Supplementary Schedule
Corporate Information

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Consolidated Financial Highlights
Years ended the last day of February(Thousands of
U.S. dollars)(Millions of yen)
Fiscal 2013

Fiscal 2014

Fiscal 2015

Fiscal 2016

Fiscal 2017

Fiscal 2017

Net sales

142,772

150,635

156,743

161,852

145,925

1,296,420

Operating income

25,326

19,123

20,527

27,73026,306

233,706

Ordinary income

33,051

28,91028,48928,00828,179250,346

Profit attributable to owners of parent

18,80921,357

18,784

17,784

20,395

181,192

Comprehensive income

24,74034,44832,244

15,29921,156

187,953

Net assets

167,933

196,308

222,054226,095

229,205

2,036,292

Total assets

214,141

251,852

285,440

284,954

278,820

2,477,079

Net assets per share (yen and dollars)

1,951.54

2,281.40

2,580.02

2,657.41

2,724.00

24.20

Net income per share (yen and dollars)

219.56249.30219.28208.81241.27

2.14

—

—

—

208.76241.15

2.14

Shareholders’ equity ratio (%)

78.1

77.6

77.4

79.0

81.7

—

Return on equity (ROE) (%)

11.9

11.8

9.0

8.0

9.0

—

Price-earnings ratio (PER) (times)

24.5

19.1

20.4

23.6

25.0

—

Net cash provided by operating activities

32,48535,84523,23230,923

19,910176,883

Net cash (used in) provided by investing activities(7,946)(5,843)(8,945)(3,912)

1,070

9,506

Net cash used in financing activities(9,288)(6,476)(7,036)(11,616)(18,402)(163,486)

Cash and cash equivalents, end of year

50,86077,78088,614

103,940

105,610938,255

Number of employees[average temporary staff]

2,826
[610]

2,949
[625]

2,942
[626]

2,900
[583]

2,751
[630]

—
[—]

Diluted net income per share (yen and dollars)

Notes: 1. Net sales do not include consumption tax.
2. Diluted net income per share for fiscal 2013, fiscal 2014 and fiscal 2015 is not listed due to the absence of residual securities.
3. ‌As a result of the adoption of Accounting Standard for Business Combinations (ASBJ Statement No. 21, September 13, 2013), “net income” hasbeen changed to “profit attributable to owners of parent” from FY2/17.

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FINANCIAL REPORT 2017

To Our Investors

We would like to express our sincere appreciation for ourinvestors’ continued patronage and support.
We hereby report the overview of operations andfinancial results for the 115th fiscal year (from March 1, 2016
to February 28, 2017).
Ethical pharmaceuticals in the domestic market posted adecrease in revenue, as our mainstay product, MOHRUS®
TAPE, was affected by the revision of National Health
Insurance drug prices and the medical service fees. In the
OTC pharmaceuticals business, sales increased mainly for
Salonpas®, and new products of the Nobinobi® Salonsip®
brand and Feitas® brand also made a contribution, thus
leading to an increase in revenue.
In overseas markets, ethical pharmaceuticals suffered adecrease in sales amid intensified competition with genericdrugs. In the OTC pharmaceuticals business, products,
especially Salonsip®, achieved sales growth, leading to anincrease in revenue.
These business activities led to consolidated results asfollows. Net sales decreased 9.8% year on year to ¥145,925
million, operating income decreased 5.1% year on year to¥26,306 million, ordinary income increased 0.6% year on
year to ¥28,179 million, and profit attributable to owners ofparent increased 14.7% year on year to ¥20,395 million. The
increase in profit attributable to owners of parent is mainly
due to the posting of gain on transfer of manufacturing andmarketing approval of Brisdelle® and Pexeva® by Noven
Pharmaceuticals, Inc.
The Company formulated and initiated “the 6th Mediumterm Management Policy” based on changes in the businessenvironment. Under this policy, we strive to achieve net
sales of ¥170,000 million, operating income of ¥34,000 million,
and ROE at 8.0% or more in FY2021, five years from now.
We ask for our investors’ continued support andencouragement.

Medical Products

For Export

NAKATOMI, Hirotaka
Chairman & CEO
NAKATOMI, Kazuhide
President & COO
Over the Counter Products

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Overview of Operations

Operating results
The Japanese economy during the fiscal year under review remained on a track of gradual recovery, due to the recoveryof corporate earnings and the improvement in employment situation, backed by the government’s economic policy alongwith the monetary easing by the Bank of Japan.
However, uncertainty still prevailed, as witnessed in the disorder in the financial markets such as the foreign exchange
market and stock market, affected by concern for the slowdown of emerging economies, the U.K.’s exit from the E.U. andthe results of the U.S. Presidential election.
The operating environment for the ethical pharmaceutical industry in Japan became more severe due to the measures
to curtail healthcare spending, which involves enhanced measures to promote generic drug use.
We have responded to the changes by engaging in our business with a focus on our mainstay transdermal patches andproviding medical institutions with scientific information that precisely corresponds to their needs.
Regarding the OTC pharmaceuticals in Japan, we have worked to launch and promote sales of new products, as toughcompetition continues.
Our research and development concentrated its resources in transdermal patches, a mainstay product, and strove todevelop new products with novel topical or systemic effects.
Additionally, in research and development activities carried out with overseas subsidiary Noven Pharmaceuticals, Inc.
(hereinafter referred to as “Noven”) we have strengthened cooperation that includes personnel exchanges and strived to
speed up the development of pharmaceutical products.
As for our production facilities, the Tosu and Utsunomiya Plants carried on initiatives to help protect the global
environment as “ISO 14001” (International Environmental Management Standard) certified factories.
Furthermore, in addition to improving the efficiency of our manufacturing processes, we made an effort to reduce ourenvironmental footprint through the reduction of energy usage and waste by changing its method of product transport andchanging the air conditioning, and through maintaining 99% or more recycle rate.
We also promoted energy conservation through the activities of the Energy Management Committee and made an effort
to conserve electricity by adjusting room temperatures.
As for CSR activities, the Company and employees jointly took part in community service programs such as the yearend collection drive for overseas. The Company also provided support to a total of 50 organizations through the “Hisamitsu
Pharmaceutical Co., Inc. Hot Heart Club” program, in which the Company makes matching donations deducted from
employees’ and directors’ salaries, and made donation of first-aid supplies to the Japan Red Cross Society.
In the aftermath of the Kumamoto Earthquake in April 2016, we engaged in support activities such as donating relief
money and the Company’s products, as well as calling for charity through events organized by the Company.
Furthermore, we supported intercultural exchange through cultural activities by sponsoring the exhibition, CECCO
BONANOTTE – IL TEATRO DEI RICORDI –” which was held in commemoration of the 150th anniversary of diplomatic
relations between Italy and Japan.
Hisamitsu Springs, a women’s volleyball team, became the first team in women’s volleyball history in 2016 to win theEmperor’s Cup and Empress’s Cup All Japan Volleyball Championship five times in a row. In addition, the team held
volleyball classes in a number of prefectures, mostly in Saga and Hyogo.
For the coming 2020 Tokyo Olympics, we will continue our support for further development and improvement of sports
culture.
“Pharmaceuticals” is the Company’s sole reportable segment, whose performance is as follows.

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Overview of Operations

Pharmaceuticals
The Pharmaceuticals segment, particularly the ethical pharmaceuticals business in Japan, faced an uncertain environment
during FY2/17 due to further measures to curb healthcare expenditures.
We responded to the situation by providing medical institutions with appropriate and detailed scientific information about
our products, particularly our transdermal patches. While collecting and supplying information on efficacy and safety, we
engaged in activities to promote the proper use of our mainstay products, including MOHRUS® TAPE, MOHRUS® PAP XR
and MOHRUS® PAP, ketoprofen transdermal patches; ESTRANA® TAPE, an estradiol transdermal patch; Fentos® Tape, atransdermal sustained-release pain relief patch of fentanyl citrate that has significant analgesic effects; NORSPAN® TAPE,a transdermal sustained-release pain relief patch of buprenorphine; and NEOXY® TAPE, an oxybutynin hydrochloride
transdermal patch for the treatment of an overactive bladder.
In the OTC pharmaceuticals business in Japan, we launched new products, in addition to engaging in sales of ourmainstay transdermal anti-inflammatory pain relief patches, targeting new users.
In April 2016, we began marketing the transdermal anti-inflammatory pain relief patch, Nobinobi® Salonsip® F and thetransdermal anti-inflammatory pain relief tape, Feitas® Zα Dicsas® and Feitas® Zα Dicsas® Oban.
For Nobinobi® Salonsip® F, we made an improvement in adhesion, so that it firmly sticks to joints which are difficult
parts of the body to maintain patches on. Moreover, Nobinobi® Salonsip® F is made thinner with four rounded corners,
making it less troublesome to wear under clothing and reducing the possibility of peeling off from the corner.
Feitas® Zα Dicsas® as well as Feitas® Zα Dicsas® Oban is a transdermal anti-inflammatory pain relief tape featuring dual
pain relief action, containing 2.0% diclofenac sodium and 1.0% l-menthol. Compared with existing products, these new
products are better fit and easier to peel off. Thanks to our technology, their expiry period has extended from two years to
three years for the first time as a patch containing diclofenac sodium.
In the overseas business, we began marketing renewed Salonpas® in the U.S. as well.
Salonpas® brand is engaged in active sales promotion overseas as well, achieving the largest share of sales in the OTC
anti-inflammatory pain relief patch market of the U.S.
Furthermore, our overseas subsidiary P.T. Hisamitsu Pharma Indonesia started the operation of a new plant, in aneffort to enhance production capacity and further localization of Salonpas® brand.
As a result of our research and development activities, in April 2016, we received the “Technology prize” (Development
section) of the 2016 Commendation for Science and Technology by the Ministry of Education, Culture, Sports, Science andTechnology, in honor of the “development of a transdermal anti-inflammatory pain relief patch with superior transdermal
absorption.”
As a result of these business activities, net sales of our group decreased 9.8% year on year, or ¥15,926 million, to¥145,925 million. Operating income decreased 5.1% year on year, or ¥1,424 million, to ¥26,306 million. Ordinary income
increased 0.6% year on year, or ¥170 million, to ¥28,179 million; and profit attributable to owners of parent increased
14.7% year on year, or ¥2,611 million, to ¥20,395 million.

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Overview of Operations

Sales results
Our sales results broken down by business segment are as follows:(Millions of yen)(Thousands of
U.S. dollars)YoY (%)

Sales
Fiscal 2017

Business segment

Sales
Fiscal 2017

Pharmaceuticals

142,689(10.0)

1,267,671

Other businesses

3,235

(1.1)

28,740145,925(9.8)

1,296,420

Total

Notes: 1. Sales breakdown by main customers and percentage of sales to main customers.
(Thousands of
U.S. dollars)(Millions of yen)
Sales
Fiscal 2016

% of total

MEDIPAL HOLDINGS CORPORATION

24,26415.0

22,416

15.4

199,147

Alfresa Holdings Corporation

23,72914.7

22,07215.1

196,091

Customer

Sales
Fiscal 2017

% of total

Sales
Fiscal 2017

2. The foregoing figures do not include consumption tax.

Key Challenges
We expect the ethical pharmaceuticals business in Japan to witness continued efforts to curb healthcare expenditures,
including strengthened measures to promote the use of generic drugs and additional National Health Insurance drug
reimbursement price cuts for long listed products, against a backdrop of a rapidly aging population. In response to thisdifficult business environment, we are stepping up efforts to provide medical institutions with scientific information and seek
to develop new topical and systemic pharmaceutical products that meet the needs of medical institutions and their patients.
Furthermore, we strive to grow further with an aim to improve our profitability as well as enhance our sales, production and
R&D capabilities.
For OTC pharmaceuticals in Japan, amid a prolonged market slump and intensifying competition, we seek to expand
sales of mainstay anti-inflammatory pain relief patches and respond to the needs of our customers by improving existingproducts and developing new products.
In overseas business, we are working to establish our brand in terms of intellectual property, manufacturing technology,
and quality control technology, and to further augment overseas production facilities and promote overseas clinical trials.
Especially, in the U.S. ethical pharmaceutical market, we plan to enhance our R&D function at our business baseNoven by combining our areas of strength in technology, as well as strengthening our manufacturing.
Continuing to recognize our mission and responsibility as a pharmaceutical company, we aim to create a more robust
business base and manufacturing structure, and to accelerate the development of new products by concentrating
management resources more in our specialty area of transdermal patches.

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Overview of Operations

Basic policy on control of the company
The basic policy and the takeover defense measures described below are policy and measures as of the end of FY2/17.
These were terminated at the conclusion of the 116th annual general meeting of shareholders held on May 25, 2017.
(1) Overview of our basic policy on the entity with control over decision-making related to the company’s financial
and business policies
We believe any entity with control over decision-making related to the company’s financial and business policies must havean understanding of the source of the company’s enterprise value and be able to consistently maintain and improve thisenterprise value and the common interests of shareholders.
We believe any decision on how to respond to a proposed acquisition that would transfer control over the company
should ultimately be based on the wishes of individual shareholders. We are not opposed to large purchases of thecompany’s stock, provided that it contributes to enterprise value and the common interests of shareholders.
However, there are many instances in which large stock purchases and proposed acquisitions may not contribute to thetarget company’s enterprise value and the common interests of shareholders. Examples include: those that clearly damage
the target company’s enterprise value and the common interests of shareholders, in light of the objective and other aspectsof the share purchase or proposed acquisition; those that effectively coerce shareholders into selling their shares; thosethat fail to provide a reasonable amount of time for the target company’s board of directors and shareholders to consider
the details and possibly prepare a counteroffer; those that have conditions (e.g., purchase price, timing, and method) thatare either inadequate or inappropriate in light of the target company’s enterprise value; and those that damage relations
with employees, customers, creditors, or other parties essential to continued growth in the target company’s enterprisevalue.
We believe any entity that pursues a large stock purchase or proposed acquisition that does not contribute to thecompany’s enterprise value and the common interests of shareholders is not an appropriate entity for controlling decisionmaking related to the company’s financial and business affairs, and that any large stock purchase or proposed acquisition
by such an entity must be necessarily and appropriately counteracted to ensure the company’s enterprise value and thecommon interests of shareholders.
(2) Overview of specific initiatives instrumental to achieving our basic policy
Since launching a pharmaceutical business in 1847, our company has worked hard to improve the health of people byproviding pharmaceutical products, mainly pain relieving patches. Transdermal patches, that can heal the body simply by
being applied to the skin, will be an improvement of not only the administration of drugs but also quality of life, and they arealso representative of Japan’s therapeutic culture, which is well respected around the world. We pursue our business as a
mission to convey to the world the effectiveness and resulting excitement of this therapeutic patch culture.
Since releasing Salonpas® in 1934, we have successfully developed and marketed a variety of pharmaceutical patch
products, including the OTC pharmaceutical Salonsip® and the ethical pharmaceuticals MOHRUS® PAP and MOHRUS®
TAPE, by concentrating on the creation of new drugs and new drug preparations based on our accumulated expertise andexperience and the support of our customers. We have also created products in new areas other than anti-inflammatory
pain relief, including an estradiol transdermal patch ESTRANA® TAPE, the transdermal sustained-release cancer pain
relief patch Fentos® Tape, and NEOXY® TAPE, a transdermal patch to treat an overactive bladder and are expanding ourbusiness internationally by conducting sales, pursuing research and development, and acquiring approvals in various
countries around the world. As part of these efforts, Noven Pharmaceuticals, Inc. was acquired and made a subsidiary toestablish the Hisamitsu brand in the US and to ensure future growth, and Hisamitsu Pharmaceutical Technology
Consulting (Beijing) Co., Ltd. was established as a local subsidiary in order to enter the rapidly growing Chinese market
and promote our pharmaceutical business, etc.
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Overview of Operations

Our corporate philosophy is to strive to improve the quality of life of people around the world by creating external drugs
to meet the needs of our customers, and by implementing this philosophy, we seek to enhance enterprise value and thecommon interests of shareholders.
In other words, the sources of enterprise value for our company are: a) broad access to a variety of drugs created by anumber of companies, and research and development capabilities to make these drugs available in patches; b)
manufacturing technology and quality control technology that enable the efficient, stable, and ongoing production of highquality products; c) marketing prowess to cultivate several long-selling and market-leading brands, including Salonpas®,
Salonsip®, Feitas®, Butenalock®, MOHRUS® PAP, MOHRUS® TAPE, and ESTRANA® TAPE; and d) an integrated researchand development, manufacturing, and sales structure that allows us to quickly reflect the needs of our customers to
improve products and services.
Going forward, we will continue our efforts to increase enterprise value and maximize the common interests ofshareholders through ongoing and aggressive investment.
To achieve this goal, we aim to build a robust corporate structure capable of meeting our sales targets and securing net
profits despite the difficult competitive environment, and to ensure sustained growth in net profits by strengthening ourbusiness both in Japan and overseas. We also aspire to be an independent research and development-based
pharmaceutical company by concentrating research in our areas of specialty, in line with our basic management policy,
and by focusing on the creation of new drugs and new drug preparations.
For licensing activities, we entered an agreement with Mundipharma K.K. for exclusive distribution rights in Japan of the
ethical pharmaceutical NORSPAN® TAPE, which is a transdermal sustained-release pain relief patch for the treatment ofchronic pain associated with osteoarthritis and low back pain not being controlled sufficiently with non-opioid analgesics.
We are also actively pursuing OTC pharmaceuticals, including the acquisition of distribution rights from Sanofi K.K. of
allegra® FX, an allergic nasal inflammation medication and a switch OTC product for allegra® 60 mg marketed as an ethicalpharmaceutical for allergic disease treatment.
In this way, we seek to increase cash flow through the active pursuit of our business and to create future assets that willcontribute to the common interests of shareholders through the development of new topical and transdermal products,
international expansion of our brands in terms of intellectual property, manufacturing technology, and quality control
technology, streamlining of management, and bolstering of our corporate structure.
We consider the return of profits to shareholders to be an important management issue, and we seek to pay appropriate
dividends based on earnings and pursue flexible financial policies, including share buybacks, after considering researchand development investment to raise capital efficiency and enterprise value and the internal reserves needed for future
growth.
In particular, we seek to maintain Return on Equity (ROE) at 15% or higher from the standpoint of raising capitalefficiency, and to consistently pay dividends with a target payout ratio of 30%. In “the 5th Medium-term Management Policy
for FY2014-2018” released as of May 13, 2014, the targets for FY2018 are 11% or more in Return on Equity (ROE), 40%
or more in payout ratio, and 4.5% or more in Dividend on Equity (DOE).
Further, we have implemented structural reforms as we have placed priority on creating an organization capable ofresponding quickly to changes in the business environment, as well as enhanced corporate governance, in order toenhance management transparency and ensure compliance. To be specific, we have established the Management
Advisory Council, introduced an executive officer system, established the Crisis Management Committee, prepared theHisamitsu Corporate Charter summarizing behavior based on high ethical and moral standards as an employee, which
was ensured for officers and employees by the Compliance Promotion Committee and Compliance Promotion Office,introduced the System of Outside Corporate Auditors, prepared basic internal control policies, established the Internal

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Overview of Operations

Audit Department, established the Privacy Protection Committee, and prepared Disclosure Policy Rules to provide timely
and appropriate disclosure of corporate information.
Going forward, we seek to create a stronger bond of trust with our stakeholders as a good corporate citizen and toensure and enhance the company’s enterprise value and the common interests of shareholders, and thus, we plan tocontinue to achieve our basic policy.
(3) Initiatives in light of our basic policy to prevent inappropriate entities from controlling decision-making related
to the group’s financial and business affairs
At the 106th annual general meeting of shareholders held on May 22, 2008, “Takeover defense measures to counter large
purchases of the company’s stock (takeover defense measures)” was approved to be adopted with an effective period until
the conclusion of the annual general meeting of shareholders for the fiscal year ended February 28, 2011 (hereinafter “thePlan”). After that, by shareholders at the 109th annual general meeting of shareholders held on May 26, 2011 and the112th annual general meeting of shareholders held on May 22, 2014, the continuation of the Plan with partial revision wasapproved with an effective period until the conclusion of the annual general meeting of shareholders for the fiscal year
ending February 28, 2017.
The Plan applies to purchases of the company’s stock with the objective or result of a specific shareholder groupowning 20% or more of the voting rights (hereinafter referred to as “Purchases” and those who conduct the “Purchases”
are referred to as “Purchasers”). Purchasers are required to follow certain procedures in providing shareholders, thecompany’s board of directors, and an independent committee with information on which to base their decision and in
granting a period for review and evaluation by this independent committee and the board of directors. If the purchaser fails
to comply with these procedures or if the purchase will damage the company’s enterprise value and the common interestsof shareholders, then the company can pursue countermeasures against the purchaser in the form of a gratis allotment ofshare acquisition rights or other appropriate countermeasure that the board of directors is permitted to take based on the
Companies Act, other laws, and the company’s articles of incorporation. Whether countermeasures based on the Plan are
adopted is ultimately a decision of the board of directors, but to ensure the proper use of the Plan and objective, rational,
and impartial decisions by the company’s board of directors, we established a committee independent from the board of
directors and will give utmost respect to the opinions of this committee.
(4) Board of directors’ opinion and reasoning for the foregoing initiatives
1) Specific initiatives to achieve our basic policy
The initiatives outlined above are intended to contribute to fulfilling our basic policy and have been prepared as specificpolicies to ensure and enhance on an ongoing basis the company’s enterprise value and the common interests ofshareholders. Accordingly, these initiatives comply with our basic policy and will not damage the common interests ofshareholders.
2) Initiatives in light of our basic policy to prevent inappropriate entities from controlling decision-making related
to the group’s financial and business affairs
The Plan complies in its content with our basic policy and is intended to ensure objectivity and rationality in the decisions of
the board of directors. Further, the Plan was adopted to ensure and enhance the company’s enterprise value and thecommon interests of shareholders, and is not intended to maintain the position of the company’s directors.

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Overview of Operations

Important Business Agreements
Joint sales agreement(1) We concluded an agreement with Kyowa Hakko Kirin Co., Ltd. (headquarters: Chiyoda-ku, Tokyo) on June 18, 2008 on
joint sales in Japan of Fentos® Tape, a transdermal sustained-release pain relief patch.
1) Counterparty to the agreement
Kyowa Hakko Kirin Co., Ltd.
2) Agreement details
Contract on the joint sales within Japan with Kyowa Hakko Kirin Co., Ltd. of Fentos® Tape, a transdermal sustainedrelease pain relief patch that Hisamitsu Pharmaceutical has acquired manufacturing and marketing approval for.
3) Compensation
Compensation commensurate with a one-time contract payment.

Distribution agreement(1) We concluded an exclusive contract with Mundipharma K.K. on August 6, 2007, for the Japanese distribution rights to
NORSPAN® TAPE, a transdermal sustained-release pain relief patch.
1) Counterparty to the agreement
Mundipharma K. K.
2) Agreement details
Contract acquiring the exclusive rights for distribution of NORSPAN® TAPE, a transdermal sustained-release pain
relief patch, in Japan.
3) Compensation
Compensation commensurate with a one-time contract payment and subsequent milestone payments based on
development progress and sales.

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Overview of Operations

Research and Development
Pharmaceuticals
Our R&D program is centered on the development of patch products that targets the needs of medical institutions.
For ethical pharmaceuticals in Japan, application has been submitted for HP-3060 (active pharmaceutical ingredient:emedastine difumarate), a transdermal system for the treatment of allergic rhinitis. Phase 3 trials are underway for HP3000 (active pharmaceutical ingredient: ropinirole hydrochloride), a transdermal patch to treat Parkinson’s disease. Phase
3 trials of HP-3000 for the treatment of idiopathic restless legs syndrome are being prepared. Regarding HP-3150, an
analgesic transdermal drug containing NSAIDs, phase 3 trials for cancer pain relief and low back pain are underway.
For the U.S. ethical pharmaceuticals, applications for generic approval have been submitted for HP-1010 (active
pharmaceutical Ingredient: Lidocaine), a transdermal patch to treat postherpetic neuralgia and HP-1030 (active
pharmaceutical Ingredient: rivastigmine), a transdermal patch to treat dementia of the Alzheimer’s type. We are conducting
phase 3 trials for HP-3070, a transdermal patch drug preparation for the treatment of schizophrenia. We are preparing forphase 3 trials for ATS (active pharmaceutical Ingredient: d-amphetamine), a transdermal patch to treat Attention Deficit
Hyperactivity Disorder.
For OTC pharmaceuticals both in Japan and overseas, we are developing new products and improving existingproducts for the purpose of improving effectiveness, safety, and user satisfaction.
In addition to the development of our own fundamental technologies, we are promoting the utilization of Noven’s
transdermal drug delivery system (TDDS) technology as well as joint development with external organizations, to expand
the possibilities of TDDs.

Other businesses
We conduct some research and development in other businesses, but because the amount is limited, it does not merit
special mention.
As a result of the foregoing, research and development expenses totaled ¥14,378 million in FY2/17.

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Corporate Governance and Internal Auditing

Corporate Governance(1) Basic approach to corporate governance1) Corporate governance structure
We consider corporate governance as the framework for transparent, fair, prompt and resolute decision-making with due
consideration to the interests of its stakeholders including shareholders, customers, employees and local communities andposition the improvement of corporate governance to be an important task. To this end, we have placed priority on creating
an organization capable of responding quickly to changes in the business environment and have implemented structuralreforms.
With this in mind, we have adjusted the number of directors to an appropriate level with the goals of enhancing theperformance of the board of directors and speeding up decision making. We have also introduced an executive officer
system to clarify roles and responsibilities in business execution.
Going forward, we seek to create a stronger bond of trust with our stakeholders as a good corporate citizen by
improving transparency, ensuring compliance, and upholding corporate ethics in our business activities.
Overview of our corporate governance structure and reasons for adopting the structure
We are structured as a company with a board of corporate auditors, comprising 12 directors (including 2 outside directors) and 4
corporate auditors (including 2 outside corporate auditors) as of May 26, 2017.
In the area of corporate governance, we reduced the number of directors as a way to clarify the responsibilities and authorityof management and speed up decision-making and business execution. But in order to further reinforce and enhance ourmanagement structure in conjunction with the expansion of the organization, we changed the articles of incorporation to increase
the number of directors from 10 or less to 12 or less, at the annual general meeting of shareholders held on May 23, 2013.
Furthermore, we appointed 2 outside directors at the annual general meeting of shareholders held on May 21, 2015 to further
reinforce corporate governance.
In addition, we introduced an executive officer system in March 2003 to improve the speed, transparency, and strategic focus
of business decisions. Moreover, to clarify management responsibilities of directors and construct a management structure thatcan respond to changes in management environments, the term of directors was changed from 2 years to 1 year at the annual
general meeting of shareholders held on May 26, 2011.
Important management decisions are made by the Management Advisory Council comprising key directors and executive
officers, and important resolutions are debated and decided by the board of directors.
As we stated above, we have worked to enhance management oversight and to separate, decentralize, and strengthen
decision making functions and business execution functions.
To better facilitate fair auditing, we switched to an auditing system in which 2 of the 4 corporate auditors comprise outside
corporate auditors at the annual general meeting of shareholders held on May 26, 2004.
Corporate auditors attend meetings of the board of directors, regularly convene meetings of the board of corporate auditors,
and receive audit reports from the independent auditor as needed. The independence of our 2 outside corporate auditors fromthe company has been ensured and we believe that a structure sufficiently capable of monitoring management has been
established.
Systems to ensure appropriate operations of the corporate group comprising Hisamitsu Pharmaceutical and groupcompanies
We have requested group companies to prepare and observe their own rules regarding compliance, equivalent to the Hisamitsu
Corporate Charter, and are making the best efforts to foster the compliance awareness of directors and employees of the Group
as a whole.
HISAMITSU PHARMACEUTICAL CO., INC.

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Corporate Governance and Internal Auditing

We are monitoring the business status of each subsidiary through compliance of the Operation Manuals for Overseas andDomestic Group Corporations, reporting at meetings of the subsidiaries’ presidents and group audit by the Company’s corporate
auditors, and also working on sharing information through exchanging opinions between corporate auditors of the subsidiaries
and the Company.
Directors, executive officers, division managers of the Company and presidents of group companies have authority andresponsibility for establishment and operations of internal control system to ensure appropriate business execution in eachbusiness division.
The Internal Audit Department of the Company carries out internal audits of Hisamitsu Pharmaceutical and group companies,
reports results to relevant business division managers and directors in charge, and provides guidance on improvement
measures for internal control as well as support and advice on their implementation as needed.
Internal auditing and audit by board of corporate auditors
We established the Internal Audit Department (3 persons in charge) as an internal audit division. The Internal Audit Department
is responsible for auditing the business activities of Hisamitsu Pharmaceutical and group companies to ensure that these
activities are effective and appropriate and that they comply with relevant laws and the articles of incorporation, reporting to theboard of directors and the board of corporate auditors, promoting mutual cooperation, reporting to relevant business division
managers and directors, and providing support and advice as needed to improve internal control.
In addition to conducting audits based on predetermined audit guidelines and plans, the Board of Corporate Auditors also
regularly holds individual hearings with directors, executive officers, division managers and key staff from each business division.
Outside directors and outside corporate auditors
Although we have not established selection criteria regarding the independence of outside officers, we do select our outside
officers based on the criteria of independence set forth by the Financial Instruments Exchange.
We have entered into agreements, in accordance with Article 427-1 of the Companies Act, with outside directors and outside
corporate auditors to limit their liability for damages to the minimum amount stipulated in Article 425-1 of the Companies Act,
provided that their duties have been carried out in good faith and with no gross negligence.
Our 2 outside directors are ICHIKAWA Isao and FURUKAWA Teijiro. ICHIKAWA Isao has gained overall management
experience and knowledge through his past career experience such as executive vice president and representative director of alisted company. FURUKAWA Teijiro has gained deep insight with regard to our particular business through his experience inimportant positions at the Ministry of Health, Labour and Welfare.
Although FURUKAWA Teijiro concurrently serves as Executive Chairman of Imperial Gift Foundation Boshi-Aiiku-Kai, thecompany does not have any special conflict of interests in this Foundation.
Our 2 outside corporate auditors are ONO Keinosuke and TOKUNAGA Tetsuo. ONO Keinosuke has gained scholarly
knowledge related to management through his past career experience such as professor of a graduate school of business.
TOKUNAGA Tetsuo has gained overall management experience and knowledge through his past career experience such as
executive vice president and representative director of a listed company.
Outside corporate auditors regularly attend meetings of the board of directors and meetings of the board of corporate
auditors. We believe that a structure sufficiently capable of auditing management has been established.
Although ONO Keinosuke concurrently serves as an outside director of YKK Corporation and Professor Emeritus of Chubu
University, the company does not have any special conflict of interests in YKK Corporation or Chubu University. Additionally,
ONO Keinosuke serves as Professor Emeritus of Keio University and the company outsources research to Keio University,
although the transaction amounts are minimal.
Apart from the information stated above, there are no special cases of conflict of interest between our outside directors andoutside corporate auditors and the company.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2017

Corporate Governance and Internal Auditing

2) Risk management systems
To respond to a variety of business risks, we have sought to enhance risk management and corporate governance by
establishing a variety of internal committees.
Compliance Promotion Committee and Compliance Promotion Office (Chair and head of office: Director)
We prepared the Hisamitsu Corporate Charter in June 2002 and established the Compliance Promotion Committee andCompliance Promotion Office, where the director serves as chair of the committee and head of office, to promote thoroughand ethical compliance. We have distributed handbooks to officers and employees to promote a recognition and sustained
awareness of the importance of compliance, and have worked to ensure behavior based on high ethical and moral
standards.
Going forward, we will continue our efforts to bolster compliance related to social responsibility, including corporate
ethics, the environment, and privacy protection, at Hisamitsu Pharmaceutical and group companies.
Crisis Management Committee (Chair: Chief Executive Officer (CEO))We established a Crisis Headquarters to help prevent risk and prepare for times of crisis, standing as a permanent Crisis
Management Committee to operate in normal times, and conduct training of committee members as needed.
Privacy Protection Committee (Chair: Director)
We established the Privacy Protection Committee in April 2005 to fully comply with the Personal Information Protection
Act. We have called personal information administrators together and held committee meetings as needed to create anorganization to protect individual rights and interests and to ensure that this organization is safely managed.
Disclosure Policy Team (Chair: Chief Executive Officer (CEO))We established the Disclosure Policy Team in April 2001 to provide the timely and appropriate disclosure of corporate
information. All officers and employees work toward timely disclosure based on our Disclosure Policy Rules.
We strive to actively disclose information to enhance management transparency and seek to promote smoothcommunication with shareholders and investors through our investor relations activities.
CSR Committee (Chair: Director)
We have set up the CSR Committee to progress our environmental and community service programs. Headed by the Cultural
Program and CSR Promoting Department, the CSR Committee is made up of CSR committee members in each businessdivision and engages in CSR programs.

HISAMITSU PHARMACEUTICAL CO., INC.

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Corporate Governance and Internal Auditing

Corporate governance structure
General Meeting of Shareholders
Appoint and remove

Appoint and remove

Board of Corporate
Auditors

Independent auditor

Corporate Auditors(Operational andaccounting auditing)

Audit

Board of Directors
Directors

Audit

Representative
director

Inquiry
Reporting

Nomination andRemuneration
Committee

Management Advisory
Council
Directors and Executive Officers
AdviceInternal Audit Department

Committees
Compliance Promotion Committee
Crisis Management Committee
Privacy Protection Committee
Disclosure Policy TeamCSR Committee

Audit

Advising attorneys and other specialists

Appoint and remove

Various business divisions and group companies

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2017

Corporate Governance and Internal Auditing

3) Executive compensationa) ‌Total compensations by classification of executives and by type of compensations, and number of executives
by category of the filing company(Millions of yen)
Fiscal 2017
Total compensation by type
Total
compensation

Basic
compensation

Stock options

Bonuses

Retirement
benefits

Number of
officers to be paid

Directors (Excluding Outside Directors)

402

300

101

—

—

10

Corporate Auditors(Excluding Outside Corporate Auditors)

38

38

—

—

—

2

Outside Officers

34

34

—

—

—

4

Category(Thousands of U.S. dollars)
Fiscal 2017
Total compensation by type
Category

Total
compensation

Basic
compensation

Stock options

Bonuses

Retirement
benefits

Number of
officers to be paid

Directors (Excluding Outside Directors)

3,571

2,665

897

—

—

10

Corporate Auditors(Excluding Outside Corporate Auditors)

338

338

—

—

—

2

Outside Officers

302

302

—

—

—

4

b) Total consolidated compensation paid to executive of the filing company(Millions of yen)
Fiscal 2017
Name
(Category of executive)
NAKATOMI, Hirotaka(Chairman & CEO)

Total
consolidated
compensation
181

Total compensation by type
Category ofcompany

Basiccompensation

Stock options

Bonuses

Retirement
benefits

The filingcompany

126

55

—

—

(Thousands of U.S. dollars)
Fiscal 2017
Name
(Category of executive)
NAKATOMI, Hirotaka(Chairman & CEO)

Total
consolidated
compensation
1,608

Total compensation by type
Category ofcompany
The filingcompany

Basiccompensation
1,119

Stock options

Bonuses

Retirement
benefits

489

—

—

c) Material disclosures on employee salaries for directors who also serve as employees
Not applicable.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2017

Corporate Governance and Internal Auditingd) Policy on deciding amount of executive compensation
Directors’ compensation is determined at the board of directors meeting within the range approved at the annual
general meeting of shareholders in consideration of the company’s business performance, as well as the position, job
specifications, and individual performance of each director.
Corporate auditors’ compensation is determined at the board of corporate auditors meeting within the range
approved at the annual general meeting of shareholders.
4) Accounting auditing
The company has concluded an auditing contract with KPMG AZSA LLC to serve as an independent auditor responsible
for accounting auditing, and by providing accurate business information and taking other steps, we provide an environment
conductive to fair auditing. There are no special interests between the company and KPMG AZSA LLC and theirdesignated limited liability partner and engagement partners.
Audit company providing auditing services
Audit company

Certified public accountants providing auditing services

KPMG AZSA LLC

Designated limited liability partner and engagement partner

MASUDA Yasushi

Designated limited liability partner and engagement partner

SADA Akihisa

Designated limited liability partner and engagement partner

KOBAYASHI Atsushi

Assisting personnel
8 CPAs & 10 others

Note: A statement on the years of continuous audit service is omitted because all of the above accounting auditors have served less thanseven years.

5) Annual general meeting of shareholders resolution items that can be decided at the board of directors meeting
Acquisition of treasury stock
To enable the flexible execution of capital policy, the articles of incorporation stipulate that the company can repurchaseshares in the open market or through other means based on a board of directors’ resolution in accordance with Article 1652 of the Companies Act.
Interim dividends
To flexibly return profits to shareholders, the articles of incorporation stipulate that interim dividends from retained earnings,
as defined in Article 454-5 in the Companies Act, can be paid based on a board of directors resolution to shareholders orpledgees listed or registered in the final shareholder registry at the end of August each year.
6) Resolutions to appoint or remove directors
The articles of incorporation stipulate that resolutions to appoint directors require a majority vote of at least one-third of
shareholders capable of executing voting rights. Cumulative voting is not provided for.
The articles of incorporation stipulate that resolutions to remove directors require a minimum two-third vote of shareholders
owning a majority of the voting rights of shareholders capable of executing voting rights.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2017

Corporate Governance and Internal Auditing7) Special resolutions of the general meeting of shareholders
To facilitate the smooth administration of general meetings of shareholders, the articles of incorporation stipulate that
resolutions based on Article 309-2 of the Companies Act require a minimum two-third vote of shareholders owning aminimum one-third of the voting rights of shareholders capable of executing voting rights, except as otherwise provided forby the articles of incorporation.

(2) Compensation for auditing
1) Breakdown of compensation for certified public accountants providing auditing services, etc.
(Millions of yen)
Category

Fiscal 2016
Compensation forCompensation
audit certification
for non-auditing
services
services(Thousands of U.S. dollars)
Fiscal 2017

Fiscal 2017

Compensation foraudit certification
services

Compensation
for non-auditing
services

Compensation foraudit certification
services

50

—

444

Compensation
for non-auditing
services—

The filing company

502

Subsidiaries

13

—

3

—

27

—

Total

63

2

53

—

471

—

2) Breakdown of other important compensation
FY2016The Company and most of its overseas consolidated subsidiaries paid the KPMG Group, which belongs to the same
network as our certified public accountants providing auditing services for audit certification services.
FY2017The Company and most of its overseas consolidated subsidiaries paid the KPMG Group, which belongs to the same
network as our certified public accountants providing auditing services for audit certification services.
3) Details of non-auditing services provided by certified public accountants to the company
FY2016The Company has entrusted the accounting auditor with accounting advisory services, etc., that is other than the services
set forth in Article 2-1 of the Certified Public Accountants Act (non-auditing services).
FY2017
Not applicable.
4) Policy on setting compensation for auditing services
Not applicable.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2017

Financial Section

Analysis of Financial Position, Operating Results, and Cash Flows(1) Analysis of financial position in Fiscal 2017
1) Assets
Assets totaled ¥278,820 million at the end of FY2/17, a decrease of ¥6,134 million from the previous year, due mainly to adecrease in notes and accounts receivable—trade of ¥1,550 million, an increase in merchandise and finished goods of¥2,509 million, and a decrease in goodwill of ¥3,905 million.
2) Liabilities
Liabilities totaled ¥49,614 million at the end of FY2/17, a decrease of ¥9,244 million from the previous year, due mainly todecreases in income taxes payable of ¥3,648 million, and in other current liabilities of ¥4,181 million.
3) Net assets
Net assets totaled ¥229,205 million at the end of FY2/17, an increase of ¥3,110 million from the previous year, due mainly
to an increase in retained earnings of ¥13,489 million, and a decrease in treasury stock of ¥8,671 million.

(2) Analysis of operating results in Fiscal 2017
1) Net sales
Net sales decreased 9.8% year on year to ¥145,925 million. This decrease is due mainly to a decrease in revenue of the
ethical pharmaceuticals business in Japan, affected by the revisions of national health insurance drug prices and medical
service fees.
2) Operating income
Operating income decreased 5.1% year on year to ¥26,306 million. This decrease is attributable mainly to the decrease in
net sales.
3) Ordinary income
Ordinary income increased 0.6% year on year to ¥28,179 million. This is attributable mainly to the increase in equity inearnings of affiliates and the decrease in foreign exchange losses.
4) Profit attributable to owners of parent
Profit attributable to owners of the parent increased 14.7% year on year to ¥20,395 million. This increase is due mainly tothe posting of gain associated with the termination of the joint sales agreement and gain on transfer of rights of approval
for manufacture and commercial sale under extraordinary gain. Consequently, net income per share totaled ¥241.27 in
FY2/17, and return on equity was 9.0%.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2017

Financial Section(3) Analysis of cash flows in Fiscal 2017
Cash and cash equivalents at the end of the FY2/17 totaled ¥105,610 million, an increase of ¥1,669 million from the end of
the previous fiscal year.
1) Cash flows from operating activities
Net cash provided by operating activities totaled ¥19,910 million (¥30,923 million provided in the previous fiscal year), due
mainly to income before taxes (¥29,984 million), depreciation and amortization (¥6,438 million), and income taxes paid(¥11,228 million).
2) Cash flows from investing activities
Net cash provided in investing activities totaled ¥1,070 million (¥3,912 million used in the previous fiscal year), due mainly
to payments for purchase of tangible fixed assets (¥3,125 million) and gain on transfer of rights of approval for manufacture
and commercial sale (¥3,280 million).
3) Cash flows from financing activities
Net cash used in financing activities totaled ¥18,402 million (¥11,616 million used in the previous fiscal year), due mainly topurchase of treasury stock (¥11,153 million) and cash dividends paid (¥6,944 million).

Capital Expenditures
Capital investment totaled ¥3,693 million in FY2/17.
In the Pharmaceutical segment, we mainly invested in the building and manufacturing equipment, etc. of the Tosu andUtsunomiya Plants resulting in capital investment of ¥2,302 million.
In other businesses, we mainly invested to expand bandwidth to provide digital capabilities to our subscribers, resulting
in capital investment of ¥212 million.
In FY2/17, there was no disposal or removal of equipment that could impact production capacity.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2017

Financial Section

Dividend Policy
Our basic policy is to continue paying stable dividends to shareholders. We pay special and commemorative dividends inlight of earnings and other factors in an effort to return profits to shareholders.
We also implement various other financial measures, such as company share buybacks, as effective means for
returning profits to shareholders.
Our basic policy is to pay dividends from retained earnings twice yearly through interim dividends and year-end
dividends. The General Meeting of Shareholders is responsible for deciding on year-end dividends and the Board of
Directors decides on interim dividends.
In FY2/17, we paid a year-end dividend of ¥41 per share including an interim dividend of ¥40.5 per share, which makes
an annual dividend of ¥81.5 per share.
We work to improve our business base through the targeted investment of internal reserves into research anddevelopment, manufacturing facilities, overseas business development, and other areas.
Our Articles of Incorporation stipulate that interim dividends can be paid based on a Board of Directors’ resolution toshareholders or pledgees listed or registered in the final shareholder registry at the end of August each year.
Note: Dividends from retained earnings with a record date in Fiscal 2017 are as follows.

Resolution date
October 11, 2016
Board of directors resolution
May 25, 2017
Annual general meeting of shareholders resolution

HISAMITSU PHARMACEUTICAL CO., INC.

(Millions of yen)

(Yen)

(Thousands of
U.S. dollars)(U.S. dollars)

Total dividends

Dividends per share

Total dividends

Dividends per share

3,470

40.5

30,828

0.36

3,431

41.0

30,482

0.36

20

FINANCIAL REPORT 2017

Financial Section

Business and Other Risks
The following risks associated with our group’s business activities could have a significant impact on the decisions ofinvestors.
Any forward-looking statements are based on our judgments at the end of FY2/17.
1) Legal and regulatory risks
Our mainstay pharmaceuticals and related products business is affected by a variety of regulations, including the national
health insurance drug price system and the healthcare insurance system. For example, the revision of national healthinsurance drug prices every two years places regular downward pressure on selling prices, and this could have a negative
impact on earnings. We are similarly affected by a variety of regulations overseas.
2) Risks from side effects
Unforeseen side effects could force our mainstay pharmaceuticals and related products business to recall products orcancel product launches, which could have a negative impact on earnings.
3) Research and development risks
We conduct research and development into new products and new technologies. However, earnings could be adversely
affected by the suspension of research and development activities for a variety of reasons, including failure to produce
anticipated results, or by the inability to recover research and development investment through sales.
4) Manufacturing and procurement risks
We manufacture products using independent technology at our own plants. We rely on specific vendors to supply certain
products and raw materials. Consequently, earnings could be adversely affected by the suspension of manufacturing orpurchasing of these products and raw materials for some reason.
5) Environmental risksSome of the chemicals used in our research and development activities and manufacturing processes can have an
adverse impact on human health and the surrounding environment. Although we take sufficient safeguards, earnings could
be adversely affected if these substances are judged to be having a negative impact on the surrounding environment.
6) Intellectual property risks
Our business activities could possibly be suspended or lead to litigation if they violate the patents or other intellectual
property rights of another company. We may also initiate litigation if another company violates our intellectual property
rights. Earnings could be adversely affected by the process and outcome of such actions.
7) Litigation risks
Our business activities could possibly lead to litigation related to pharmaceutical side effects and product liability. Earnings
could be adversely affected by the process and outcome of such actions.
8) Other risks
In addition to the foregoing, other potential risks include natural disasters and the security of computer systems.
HISAMITSU PHARMACEUTICAL CO., INC.

21

FINANCIAL REPORT 2017

Financial Section

Consolidated Balance Sheets
February 29, 2016 and February 28, 2017

(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

Cash and deposits

81,58480,280713,220

Notes and accounts receivable—trade37,63836,087

320,602

Securities

30,89532,767291,107

Merchandise and finished goods

8,105

10,61594,305ASSETS
Current assets:

493

441

3,918

Raw materials and supplies

7,317

6,631

58,911

Deferred tax assets

4,293

2,960

26,297

Other

1,714

2,628

23,348

Allowance for doubtful accounts

(283)

(315)

(2,799)171,760

172,097

1,528,936

Buildings and structures (Notes 2 and 3)

18,122

16,979150,844

Machinery, equipment and vehicles (Notes 2 and 3)

7,213

8,178

72,655Tools, furniture and fixtures (Notes 2 and 3)

2,080

1,972

17,520Land (Notes 2 and 4)

13,015

13,138116,720Work in process

Total current assets
Non-current assets
Property, plant and equipment:

58

42

373

Construction in progress

3,361

2,718

24,147

Total property, plant and equipment

43,851

43,031

382,294

Sales rights

3,676

2,612

23,205

Goodwill

3,905

—

—

Lease assets

Intangible assets:

912

572

5,082

Other

4,028

2,788

24,769Total intangible assets

12,522

5,973

53,06548,23449,989444,110

SoftwareInvestments and other assets:
Investment securities (Note 1)

129

200

1,777

Net defined benefit asset

1,602

2,284

20,291

Deferred tax assets

2,056

512

4,549

Other

5,014

4,948

43,959Long term-bank cash

Allowance for doubtful accounts

(216)

(216)

(1,919)Total investments and other assets

56,82057,718

512,775

Total non-current assets

113,194

106,722

948,134

TOTAL ASSETS

284,954

278,820

2,477,079

HISAMITSU PHARMACEUTICAL CO., INC.

22

FINANCIAL REPORT 2017

Financial Section(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

Notes and accounts payable—trade

7,669

8,005

71,118

Electronically recorded obligations—operating

6,347

6,375

56,636

Short-term loans payable (Note 2)

1,683

1,561

13,868LIABILITIESCurrent liabilities:

33

22

195

Accounts payable—other

7,012

6,264

55,650

Income taxes payable

6,208

2,559

22,735

126

134

1,190

Provision for bonuses

1,940

1,708

15,174

Other

9,975

5,793

51,466

Total current liabilities

40,99732,425

288,069

Long-term loans payable (Note 2)

647

576

5,117

Lease obligations

42

32

284

Deferred tax liabilities for land revaluation (Note 4)

1,716

1,614

14,339Deferred tax liabilities

4,014

3,911

34,746

Net defined benefit liability

6,817

7,028

62,438

Lease obligations

Provision for sales returns

Non-current liabilities:

Other

4,623

4,025

35,759Total non-current liabilities

17,862

17,189152,71058,85949,614

440,778

8,473

8,473

75,275

Total Liabilities
NET ASSETS
Shareholders’ equity:
Capital stock

8,396

5,914

52,541Retained earnings

210,725

224,214

1,991,951

Treasury shares(26,033)(34,705)(308,324)

Total shareholders’ equity

201,561

203,897

1,811,452

Valuation difference on available-for-sale securities

13,367

14,531129,096

Revaluation reserve for land (Note 4)

3,637

3,685

32,738

Capital surplus

Accumulated other comprehensive income:

Foreign currency translation adjustment

8,360

6,904

61,336

Remeasurements of defined benefit plans(1,934)(1,115)(9,906)

Total accumulated other comprehensive income

23,43024,007

213,282

101

203

1,803

Subscription rights to shares
Non-controlling interests

1,000

1,097

9,746

Total net assets

226,095

229,205

2,036,292

TOTAL LIABILITIES AND NET ASSETS

284,954

278,820

2,477,079

HISAMITSU PHARMACEUTICAL CO., INC.

23

FINANCIAL REPORT 2017

Financial Section

Consolidated Statements of Income
Years ended February 29, 2016 and February 28, 2017

(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

Net sales

161,852

145,925

1,296,420

Cost of sales (Notes 2 and 3)

58,31953,155472,237

Gross profit

103,532

92,770824,183

Selling, general and administrative expenses (Notes 1 and 2)

75,802

66,464590,476

Operating income

27,73026,306

233,706

Interest income

184

292

2,594

Dividend income

615

675

5,997

Royalty income

43

37

329

Share of profit of entities accounted for using equity method

—

471

4,184

Non-operating income:

370

557

4,948

1,214

2,034

18,070Interest expenses

32

39

346

Foreign exchange losses

832

8

71

Loss on sales of accounts receivable

23

21

187

Share of loss of entities accounted for using equity method

11

—

—

Other

35

91

808

Other
Total non-operating income
Non-operating expenses:

Total non-operating expenses
Ordinary income

936

160

1,421

28,00828,179250,346
115

Extraordinary income:Gain on disposal of non-current assets (Note 4)

2

13

Gain on sales of investment securities

—

0

0

Gain on discontinuation of joint sales agreement

—

1,303

11,576

Gain on transfer of manufacturing and marketing approval

—

2,914

25,888

Total extraordinary income

2

4,231

37,589Extraordinary loss:
Loss on disposal of non-current assets (Note 5)

89

71

631

Impairment loss

—

2,354

20,91389

2,426

21,553

Profit before income taxes

27,922

29,984

266,382

Income taxes—current

10,823

7,287

64,739

Income taxes—deferred

(829)

2,155

19,145

Total extraordinary loss

Total income taxes

9,993

9,443

83,893

Profit17,92920,541

182,489

Profit attributable to non-controlling interests
Profit attributable to owners of parent

HISAMITSU PHARMACEUTICAL CO., INC.

24

145

146

1,297

17,784

20,395

181,192

FINANCIAL REPORT 2017

Financial Section

Consolidated Statements of Comprehensive Income
Years ended February 29, 2016 and February 28, 2017

(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

17,92920,541

182,489

Valuation difference on available-for-sale securities

296

1,119

9,941

Revaluation reserve for land

177

85

755

Foreign currency translation adjustment(926)(1,454)(12,918)(2,158)

838

7,445

(18)

26

231

(2,629)

614

5,455

15,29921,156

187,953

15,19821,008

186,638

101

147

1,306

ProfitOther comprehensive income:Remeasurements of defined benefit plans, net of tax
Share of other comprehensive income of entities accounted for using
equity method
Total other comprehensive income (Note 1)
Comprehensive income
Comprehensive income attributable to:Comprehensive income attributable to owners of the parent
Comprehensive income attributable to non-controlling interests

HISAMITSU PHARMACEUTICAL CO., INC.

25

FINANCIAL REPORT 2017

Financial Section

Consolidated Statements of Changes in Shareholders’ Equity
Years ended February 29, 2016 and February 28, 2017

(Millions of yen)
Shareholders’ equity

Capital stock

Capital surplus

8,473

8,396

Balance as at March 1, 2015

Retainedearnings
199,990

Cumulative effects of changes inaccounting policies

Treasury shares

Total
shareholders’equity(21,854)

195,006

20

Restated balance

8,473

8,396

200,01120(21,854)

195,026

Dividends of surplus(7,069)(7,069)Profit attributable to owners of parent

17,784

17,784

Reversal of revaluation reserve for land—

Purchase of treasury shares(4,179)(4,179)

Disposal of treasury shares—

Net changes of items other thanshareholders’ equity—

Total changes of items during the period
Balance as at February 29, 2016——

10,714(4,179)

6,534

8,473

8,396

210,725(26,033)

201,561(Millions of yen)
Accumulated other comprehensive income
Valuation
Total
difference on
Foreign Re­mea­sure­ accumulated
Subscription
available-for- Revaluation currency
other
Nonments ofsale securi- reserve for translation
Total
defined comprehen- rights to controllingties:
shareslandinterests net assets
adjustment benefit plans sive income
Balance as at March 1, 2015

13,087

3,459

9,243

225

26,016—

1,031

Cumulative effects of changes inaccounting policies
Restated balance

222,05420

13,087

3,459

9,243

225

26,016—

1,031

222,075

Dividends of surplus(7,069)Profit attributable to owners of parent

17,784

Reversal of revaluation reserve for land—

Purchase of treasury shares(4,179)

Disposal of treasury shares—

Net changes of items other thanshareholders’ equity
Total changes of items during the period
Balance as at February 29, 2016

HISAMITSU PHARMACEUTICAL CO., INC.

279

177

(882)

(2,160)(2,585)101(30)(2,514)

279

177

(882)

(2,160)(2,585)

101

(30)

4,020

13,367

3,637

8,360

(1,934)23,430101

1,000

226,095

26

FINANCIAL REPORT 2017

Financial Section(Millions of yen)
Shareholders’ equity

Capital stock

Capital surplus

8,473

8,396

Balance as at March 1, 2016

Retainedearnings
210,725

Treasury shares

Total
shareholders’equity(26,033)

201,561

Cumulative effects of changes inaccounting policies—

Restated balance

8,473

8,396

210,725(26,033)

201,561

Dividends of surplus(6,943)(6,943)

Profit attributable to owners of parent

20,935

20,395

Reversal of revaluation reserve for land

37

Purchase of treasury shares
Disposal of treasury shares(2,482)

37(11,153)(11,153)2,483

1

Net changes of items other thanshareholders’ equity—

Total changes of items during the period
Balance as at February 28, 2017—

(2,482)

13,489(8,671)

2,335

8,473

5,914

224,214(34,705)

203,897(Millions of yen)
Accumulated other comprehensive income
Valuation
Total
difference on
Foreign Re­mea­sure­ accumulated
Subscription
available-for- Revaluation currency
other
Nonments ofsale securi- reserve for translation
Total
defined comprehen- rights to controllingties:
shareslandinterests net assets
adjustment benefit plans sive income
Balance as at March 1, 2016

13,367

3,637

8,360

(1,934)23,430101

1,000

Cumulative effects of changes inaccounting policies
Restated balance

226,095—

13,367

3,637

8,360

(1,934)23,430101

1,000

226,095

Dividends of surplus(6,943)

Profit attributable to owners of parent

20,395

Reversal of revaluation reserve for land

37

Purchase of treasury shares(11,153)

Disposal of treasury shares

1

Net changes of items other thanshareholders’ equity
Total changes of items during the period
Balance as at February 28, 2017

HISAMITSU PHARMACEUTICAL CO., INC.

1,164

48

(1,456)

1,164

48(1,456)

14,531

3,685

6,904

27

819

576

101

96

774

819

576

101

96

3,110

(1,115)24,007203

1,097

229,205

FINANCIAL REPORT 2017

Financial Section(Thousands of U.S. dollars)
Shareholders’ equity

Capital stock

Capital surplus

75,27574,591

Balance as at March 1, 2016

Retainedearnings

Treasury shares

Total
shareholders’equity(231,281)

1,790,698

1,872,113

Cumulative effects of changes inaccounting policies—

Restated balance

75,27574,591

1,872,113(231,281)

1,790,698

Dividends of surplus(61,683)(61,683)

Profit attributable to owners of parent

185,990

181,192

Reversal of revaluation reserve for land

329

Purchase of treasury shares
Disposal of treasury shares(22,050)329(99,085)(99,085)

22,0599Net changes of items other thanshareholders’ equity—

Total changes of items during the period
Balance as at February 28, 2017—(22,050)

119,838(77,034)

20,74475,27552,541

1,991,951(308,324)

1,811,452(Thousands of U.S. dollars)
Accumulated other comprehensive income
Valuation
Total
difference on
Foreign Re­mea­sure­ accumulated
Subscription
available-for- Revaluation currency
other
Nonments ofsale securi- reserve for translation
Total
defined comprehen- rights to controllingties:
shareslandinterests net assets
adjustment benefit plans sive income
Balance as at March 1, 2016

118,754

32,312

74,271(17,182)

208,156

897

8,884

Cumulative effects of changes inaccounting policies
Restated balance

2,008,662—

118,754

32,312

74,271(17,182)

208,156

897

8,884

2,008,662

Dividends of surplus(61,683)

Profit attributable to owners of parent

181,192

Reversal of revaluation reserve for land

329

Purchase of treasury shares(99,085)

Disposal of treasury shares

9

Net changes of items other thanshareholders’ equity
Total changes of items during the period
Balance as at February 28, 2017

HISAMITSU PHARMACEUTICAL CO., INC.

10,341426(12,935)

10,341426(12,935)

7,276

5,117

897

853

27,630129,096

32,73861,336(9,906)

213,282

1,803

9,746

2,036,292

28

7,276

5,117

897

853

6,876

FINANCIAL REPORT 2017

Financial Section

Consolidated Statements of Cash Flows
Years ended February 29, 2016 and February 28, 2017

(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 201727,922

29,984

266,382

Depreciation

7,477

6,438

57,196

Amortization of goodwill

1,068

930

8,262

—

2,354

20,913

Cash flows from operating activities
Profit before income taxes

Impairment loss
Increase (decrease) in net defined benefit liability

275

288

2,559

Increase (decrease) in provision for bonuses

(310)

(186)

(1,652)

Increase (decrease) in allowance for doubtful accounts

(41)

29

258

Increase (decrease) in provision for sales returns

(48)

7

62

Interest and dividend income

(800)

(967)

(8,591)

Interest expenses

32

39

346

Foreign exchange losses (gains)

178

5

44

Gain on transfer of manufacturing and marketing approval—(2,914)(25,888)

Share of (profit) loss of entities accounted for using equity method

11

(471)

(4,184)

Loss (gain) on sales of investment securities

—

0

0

Loss (gain) on disposal of non-current assets

86

58

515

Decrease (increase) in notes and accounts receivable—trade

8,626

1,371

12,180Decrease (increase) in inventories(605)(2,262)(20,096)

Decrease (increase) in other current assets

(46)

(586)

(5,206)(3,868)

421

3,740

(189)

(4,677)(41,551)

Other, net(1,083)

330

2,932

Subtotal

38,68630,194

268,248

818

984

8,742

Increase (decrease) in notes and accounts payable—trade
Increase (decrease) in other current liabilities

Interest and dividend income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities

HISAMITSU PHARMACEUTICAL CO., INC.

29

(33)

(39)

(346)

(8,548)(11,228)(99,751)

30,923

19,910176,883

FINANCIAL REPORT 2017

Financial Section(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

1,737

582

5,171

25

(73)

(649)

(5,052)(3,125)(27,763)

54

54

480

Cash flows from investing activities
Decrease (increase) in time deposits
Decrease (increase) in long term-time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment

(97)

(74)

(657)

(1,737)

909

8,076

(806)

(493)

(4,380)

Proceeds from sales and redemption of investment securities

—

3

27

Collection of loans receivable

11

7

62

1,952

—

—

—

3,280

29,140(3,912)

1,070

9,506

Purchase of intangible assets
Decrease (increase) in short-term investment securities
Purchase of investment securities

Proceeds from the liquidation of subsidiaries and affiliates
Proceeds from transfer of manufacturing and marketing approval (Note 2)
Net cash provided by (used in) investing activities
Cash flows from financing activities
Increase (decrease) in short-term loans payable

45

(115)

(1,022)

Proceeds from long-term loans payable

244

—

—

Repayment of long-term loans payable

(370)

(78)

(693)

Dividends paid to non-controlling interests

(132)

(50)

(444)

(4,178)(11,153)(99,085)—1

9(7,067)(6,944)(61,692)

(158)

(60)

(533)

(11,616)(18,402)(163,486)

(67)

(909)

(8,076)

Purchase of treasury shares
Proceeds from disposal of treasury shares
Cash dividends paid
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents

15,326

1,669

14,828Cash and cash equivalents at beginning of period

88,614

103,940

923,419

Cash and cash equivalents at end of period (Note 1)

103,940

105,610938,255

HISAMITSU PHARMACEUTICAL CO., INC.

30

FINANCIAL REPORT 2017

Financial Section

Basis of Preparation of Consolidated Financial Statements
The Company has prepared consolidated financial statements in accordance with the Regulations Concerning the
Terminology, Forms and Preparation Methods of Consolidated Financial Statements (Ministry of Finance OrdinanceNo. 28, 1976).

Significant Accounting Policies Concerning the Preparation of Consolidated Financial Statements
Fiscal 2017 (March 1, 2016 – February 28, 2017)

1. Scope of consolidation
Consolidated subsidiaries: 16
Names of consolidated subsidiaries:
CRCC Media Co., Ltd.
Saga City-Vision Co., Ltd.
Taiyo Co., Ltd
Kyudo Co., Ltd
Hisamitsu Agency Co., Ltd.
Hisamitsu U.S., Inc.
Hisamitsu America, Inc.
Noven Pharmaceuticals, Inc.
Hisamitsu Farmaceutica do Brasil Ltda.
Hisamitsu UK Ltd.
Hisamitsu Vietnam Pharmaceutical Co., Ltd.
Hisamitsu Pharmaceutical Technology Consulting (Beijing) Co., Ltd.
P.T. Hisamitsu Pharma Indonesia
3 other companies
F or the fiscal year under review, one of the consolidated subsidiaries has been excluded from the scope of
consolidation due to liquidation.

2. Investments accounted for under the equity method
Equity-method affiliates: 3
Names of companies:
SANOFI-HISAMITSU K.K.
Yutoku Pharmaceutical Ind. Co., Ltd.
Maruto Sangyo Co., Ltd.

HISAMITSU PHARMACEUTICAL CO., INC.

31

FINANCIAL REPORT 2017

Financial Section

3. Information concerning fiscal years, etc., of consolidated subsidiaries
The fiscal years of the 11 overseas consolidated subsidiaries end on December 31. Since there is less than three months’
difference between that date and the end of the consolidated fiscal year, we use financial statements as of the date of the endof the fiscal years of the consolidated subsidiaries. We make the required consolidated adjustments if any major transactions
occur between the end of the fiscal years of the consolidated subsidiaries and end of the consolidated fiscal year.

4. Accounting policies(1) Valuation standards and methods for significant assets
1) Securitiesa) Held-to-maturity bonds
Valued under amortized cost method (straight-line method).
b) Available-for-sale securitiesi ) Securities with market value
Valued at market price, using the market price at the balance sheet date.
All valuation differences are directly charged or credited to shareholders’ equity, and costs of securities sold
are computed using the moving average method.
ii) Securities without market value
Valued at cost, determined by the moving average method.
2) Inventories
Calculated by the average cost method (book value on the balance sheet is written down according to the decline inprofitability).

(2) Depreciation methods for significant depreciable assets
1) Tangible fixed assets (excluding lease assets)a) Company and domestic consolidated subsidiaries
Mainly the declining balance method.
b) Overseas consolidated subsidiaries
Mainly the straight-line method.
2) Intangible fixed assets (excluding lease assets) and long-term prepaid expenses
Measured by the straight-line method.
Within intangible fixed assets, software for internal use is depreciated over its useful life (five years) using thestraight-line method.
3) Lease assets
For finance lease transactions other than those for which the right of ownership of the lease assets transfers to thelessee at the end of the lease period, depreciation is calculated by the straight-line method based on the assumptionthat the useful life equals the lease term and the residual value equals zero.

HISAMITSU PHARMACEUTICAL CO., INC.

32

FINANCIAL REPORT 2017

Financial Section(3) Standards for significant reserves and allowances
1) Allowance for doubtful accounts
In order to provide against losses from doubtful receivables, estimated irrecoverable amounts are recorded.
a) General receivables
Based on historical bad debt experience.
b) Receivables at risk of default and in bankruptcy reorganization
Based on an assessment of the financial position.
2) Provision for sales returns
In order to provide against losses from product returns after the balance sheet date, the company makes a provision up
to the maximum amount allowed under the Corporation Tax Law.
3) Provision for bonuses
To provide for the payment of bonuses to employees, the Company and its certain subsidiaries record a provision equal
to the portion of expected future bonus payments incurred during the term under review.

(4) Accounting method for retirement benefits
The Company and certain subsidiaries, to prepare for the payment of retirement benefits to employees, record a provisionat an amount deemed to arise at the end of the fiscal year under review based on estimated retirement benefit obligations
and pension assets at the end of the consolidated fiscal year.
1) Method of attributing estimated retirement benefits to periods
In the calculation of retirement benefit obligations, estimated retirement benefits are attributed to the periods up to theend of the consolidated fiscal year using the benefit formula basis.
2) Treatment of actuarial differences
Actuarial differences are amortized starting in the next consolidated fiscal year using the straight-line method over a
fixed number of years (five years) that is less than the average remaining years of service of employees when incurred.
3) Simplified method for small companies
Certain consolidated subsidiaries apply the simplified method to calculate net defined benefit liability and retirement
benefit expenses, where retirement benefit obligations are assumed to be equal to the benefits payable upon thevoluntary retirement of all employees at fiscal year-end.

(5) Translation of significant foreign currency denominated assets and liabilities
Assets and liabilities denominated in foreign currencies are translated into yen using the spot exchange rate for final day of
the fiscal year, and translation differences are booked as gains or losses. Note that the assets and liabilities of overseas
consolidated subsidiaries and other like entities are translated into yen using the spot exchange rate for final day of the
fiscal year, while revenues and expenses are translated using the average exchange rate for the period, and thesetranslation differences are booked on the Foreign Currency Translation Adjustment and Non-controlling Interests under
Net Assets.

HISAMITSU PHARMACEUTICAL CO., INC.

33

FINANCIAL REPORT 2017

Financial Section(6) Method and period of amortization of goodwill
Goodwill is amortized evenly over a five to ten-year period which is expected to show an effect. If the value of goodwill issmall, it is amortized in full in the fiscal year when it accrues.

(7) Scope of funds in the Consolidated Statements of Cash Flows
Funds (cash & cash equivalents) in the Consolidated Statements of Cash Flows consist of cash in hand, demand deposits
and easily realizable short-term investments with high liquidity and maturity dates not more than three months from thedate of purchase, and which carry negligible risks of price fluctuation.

(8) Other significant accounting policies used in the preparation of the consolidated financial
statements
Treatment of Consumption Tax etc.
The accounts are prepared excluding Consumption Tax and Local Consumption Tax.

Changes in Accounting Policies
Adoption of the Accounting Standard for Business Combinations
Effective as of the fiscal year under review, the “Accounting Standard for Business Combinations” (ASBJ Statement No.
21; September 13, 2013; hereinafter the “Business Combinations Accounting Standard”), the “Accounting Standard forConsolidated Financial Statements” (ASBJ Statement No. 22; September 13, 2013; hereinafter the “Consolidated
Accounting Standard”) and the “Accounting Standard for Business Divestitures” (ASBJ Statement No. 7; September 13,
2013; hereinafter the “Business Divestitures Accounting Standard”) have been adopted, whereby differences from changes
to the Company’s ownership interest in its subsidiaries while retaining its control have been recorded as capital surplus,
while acquisition-related expenses have been recorded as expenses for the consolidated fiscal year when incurred.
Moreover, for business combinations to be performed after the beginning of the fiscal year under review, the method has
been changed to reflect the review of allocated acquisition cost due to finalization of the provisional accounting treatment
on the consolidated financial statements for the consolidated fiscal year to which the date of the business combination
belongs. In addition, changes in the presentation of net income have been made, as well as a change in presentation fromminority interests to non-controlling interests. In order to reflect such changes in presentation, the consolidated financial
statements for the previous fiscal year have been reclassified.
On the consolidated statements of cash flows for the fiscal year under review, cash flows from purchase or sales ofshares of subsidiaries not resulting in change in the scope of consolidation has been presented in “cash flows fromfinancing activities,” and cash flows from acquisition-related expenses of shares of subsidiaries resulting in the change inthe scope of consolidation or expenses related to purchase or sales of shares of subsidiaries not resulting in the change inthe scope of consolidation has been presented in “cash flows from operating activities.”
The adoption of the Business Combinations Accounting Standard, etc. is in accordance with the transitional treatments
set forth in paragraph 58-2 (4) of the Business Combinations Accounting Standard, paragraph 44-5 (4) of the Consolidated
Accounting Standard, and paragraph 57-4 (4) of the Business Divestitures Accounting Standard, and they have been
adopted prospectively from the beginning of the fiscal year under review.
There are no impacts on the consolidated financial statements for the fiscal year under review.
HISAMITSU PHARMACEUTICAL CO., INC.

34

FINANCIAL REPORT 2017

Financial Section

Unapplied Accounting Standards, etc.
• “Implementation Guidance on Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26, March 28, 2016)(1) Outline
With respect to the recoverability of deferred tax assets, necessary revisions are made to the following treatments
primarily based on the framework proposed under the Implementation Guidance on Recoverability of Deferred Tax
Assets provided in the JICPA Audit Committee Report No. 66 in which companies are classified into five categories andthe recoded amount of deferred tax assets are estimated according to such classification.
( i ) Treatment of entities that do not meet any of the classification requirements for Category 1 through Category 5(ii) Classification requirements for Category 2 and Category 3(iii) Treatment of future deductible temporary difference that cannot be scheduled for entities classified as Category 2(iv) Treatment of the reasonably estimable period of the taxable income before adding or deducting future temporary
difference for entities classified as Category 3(v) Treatment of entities that meet the classification requirements for Category 4 but which also qualifies as either
Category 2 or Category 3(2) Scheduled date of adoption
We plan to adopt them from the beginning of FY2/18.
(3) Impact of adoption of this accounting standard and guidance
The impact of adoption is currently being evaluated in preparing consolidated financial statements.

HISAMITSU PHARMACEUTICAL CO., INC.

35

FINANCIAL REPORT 2017

Financial Section

Notes to Consolidated Financial Statements
Fiscal 2016 (March 1, 2015 – February 29, 2016) and Fiscal 2017 (March 1, 2016 – February 28, 2017)

CONSOLIDATED BALANCE SHEETS(Note 1) Investment securities for unconsolidated subsidiaries and affiliated companies are as follows.
(Millions of yen)
Fiscal 2016
4,856

Investment securities (stocks)

Fiscal 2017
5,544

(Thousands of U.S. dollars)
Fiscal 201749,254(Note 2) Assets pledged as collateral are as follows.
(Millions of yen)
Fiscal 2016
Fiscal 2017
Pledged assets
Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures
Land
Total
Assets provided for factory foundation mortgage
Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures
Total
Liabilities related to the above assets
Short-term loans payable
Long-term loans payable
Total
Liabilities provided for factory foundation mortgage
Short-term loans payable
Long-term loans payable
Total(Thousands of U.S. dollars)
Fiscal 2017

945 (book value)
6 (book value)
107 (book value)
59 (book value)
1,119 (book value)

794 (book value)
1 (book value)
86 (book value)
59 (book value)
941 (book value)

7,054
9
764
524
8,360

827 (book value)
6 (book value)
107 (book value)
941 (book value)

766 (book value)
1 (book value)
86 (book value)
855 (book value)

6,805
9
764
7,596

78
647
726

249
398
647

2,212
3,536
5,748

66
605
672

244
360
605

2,168
3,198
5,375

(Note 3) Advanced depreciation of government subsidies is ¥5,832 million in both FY2/16 and FY2/17.
These figures are deducted from the consolidated balance sheets.
(Note 4) Application of the Land Revaluation Law
Land used for business purposes has been revalued in accordance with the “Act on revaluation of land” (Law 34 of1998, promulgated on March 31, 1998) and the “Law Partially Amending the Act on Revaluation of Land” (revisionof March 31, 1999). The portion of the revaluation gain equivalent to corporation tax and other taxes with tax
bases linked to corporate profits has been presented under liabilities as “Deferred tax liabilities on revaluation,”while the net sum after this transfer to the deferred tax liability account is presented under net assets as“Revaluation reserve for land.”HISAMITSU PHARMACEUTICAL CO., INC.

36

FINANCIAL REPORT 2017

Financial Section

Revaluation method
The land value used as the basis for calculation of the tax base under the Land Value Tax, stipulated in Article 16 of theLand Value Tax Law (Law No. 69 of 1991), has been calculated by making rational adjustments to the price calculated by
the method determined and publicly announced by the Commissioner of the National Tax Agency, as stipulated in Article
2.4 of the “Regulations for Applying the Land Revaluation Law” (Government Ordinance No. 119 of 1998, promulgatedMarch 31, 1998).
Revaluation dateFebruary 28, 2001
The market value of commercial land revalued in accordance with Article 10 of the Land Revaluation Law at the end of
FY2/16 and FY2/17 was ¥3,266 million and ¥3,644 million lower than the book value after revaluation.

CONSOLIDATED STATEMENTS OF INCOME(Note 1) Main items and the amounts under “Selling, general and administrative expenses” are as follows.
(Millions of yen)
Fiscal 2016

(Thousands of U.S. dollars)

Fiscal 2017

Fiscal 2017

Advertising expenses

10,005

9,661

85,830

Sales promotion expenses

17,64813,740122,068

Freightage and packing expenses

2,702

2,687

23,872

(23)

16

142

Salaries and allowances

11,085

8,553

75,986

Provision for bonuses

997

836

7,427

281

691

6,139

1,068

930

8,262

Provision of allowance for doubtful accounts

Retirement benefit expenses
Amortization of goodwill

974

443

3,936

14,965

14,378

127,736

Provision for bonuses

346

346

3,074

Retirement benefit expenses

95

233

2,070

Business consignment expenses
Research and development expenses, of which:(Note 2) ‌General and administrative expenses include research and development expenses of ¥14,965 million and ¥14,378
million in FY2/16 and FY2/17, respectively.
Manufacturing costs do not include research and development expenses.
(Note 3) ‌In FY2/16 and FY2/17, manufacturing costs include provision for bonuses of ¥435 million and ¥437 million andretirement benefit expenses of ¥165 million and ¥404 million, respectively.

HISAMITSU PHARMACEUTICAL CO., INC.

37

FINANCIAL REPORT 2017

Financial Section(Note 4) Breakdown of gain on disposal of non-current assets(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

Buildings and structures

—

0

0

Machinery, equipment and vehicles

1

—

—

Tools, furniture and fixtures

0

—

—

Land

1

12

107

Total

2

13

115

(Note 5) Breakdown of loss on disposal of non-current assets(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

Buildings and structures

6

25

222

Machinery, equipment and vehicles

66

32

284

Tools, furniture and fixtures

8

1

9

Lease assets

2

—

—

—

0

0

Land

5

12

107

Total

89

71

631

Loss on retirement

Loss on sales
Buildings and structures(Note 6) For the fiscal year under review, the Group recorded impairment loss on the following assets.
Purpose of use
Business assets

Location

Type

U.S.

Goodwill

Amount(Millions of yen)
2,354

Amount(Thousands of U.S. dollars)
20,913

The Group’s business assets are grouped based on business units on which the Group can reasonably performprofit and loss management, and rental assets and idle assets are grouped by individual assets. For determining
an indication of impairment loss, each consolidated subsidiary is determined as one unit.
For the goodwill recorded with the acquisition of Noven Pharmaceuticals, Inc., our U.S. subsidiary, as a resultof the impairment test during the review of the business structure of the company, the entire amount of goodwill
was impaired. The recoverable amount was measured based on the value in use and calculated by discounting
future cash flows by 10.7%.

HISAMITSU PHARMACEUTICAL CO., INC.

38

FINANCIAL REPORT 2017

Financial Section

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Note 1) Reclassification adjustments amount and tax effect amount relating to other comprehensive income(Millions of yen)
Fiscal 2016

(Thousands of U.S. dollars)

Fiscal 2017

Fiscal 2017

1,046

9,293

Valuation difference on available-for-sale securities:
Amount arising during fiscal year under review

(409)
17

(0)

(0)

Before tax effect adjustment

(392)

1,045

9,284

Tax effect amount

689

74

657

Valuation difference on available-for-sale securities

296

1,119

9,941

177

85

755

(926)

(1,454)(12,918)(3,151)

611

5,428

Reclassification adjustment amount:

Revaluation reserve for land:Tax effect amountForeign currency translation adjustment:
Amount arising during fiscal year under review
Remeasurements of defined benefit plan, net of tax:
Amount arising during fiscal year under review

(29)

645

5,730

(3,180)1,256

11,158Tax effect amount

1,021

(418)

(3,714)Remeasurements of defined benefit plan, net of tax(2,158)

838

7,445

(18)

26

231

(2,629)

614

5,455

Reclassification adjustment amount:
Before tax effect adjustment

Share of other comprehensive income of entities accounted for using
equity method:Amount arising during fiscal year under review
Total other comprehensive income

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Fiscal 2016 (March 1, 2015 – February 29, 2016)

1. Shares issued(Shares)

Type of shares

Beginning of fiscal 2016

Increase

Decrease

End of fiscal 2016

Common stock

95,164,895——

95,164,895

2. Treasury shares(Shares)

Type of shares

Beginning of fiscal 2016

Increase

Decrease

End of fiscal 2016

Common stock

9,497,715

1,001,071—

10,498,786

Reasons for changes
Shares increased for the following main reasons:
Increase from acquisition of treasury shares by resolution of the board of directors
Increase from purchasing shares in less than one unit
The Company portion of treasury shares acquired by equity method affiliates

HISAMITSU PHARMACEUTICAL CO., INC.

39

1,000,000 shares
818 shares
253 shares

FINANCIAL REPORT 2017

Financial Section

3. Subscription rights to shares
Number of shares
Name ofcompany
The filingcompany

BreakdownType of shares

Beginning offiscal 2016

Subscription
rights to sharesas stock option——

Increase—

Decrease

End offiscal 2016

Balance at theend of the fiscal
2016

—

—

101

4. Dividends(1) Dividends paid

(Millions of yen)

(Yen)

Resolution

Type of shares

Total dividends

Dividends per share

Record date

May 21, 2015
Annual general meeting ofshareholders

Payment dateCommon stock

3,642

42.5

February 28, 2015

May 22, 2015

October 9, 2015
Board of Directors meeting

Common stock

3,427

40.0

August 31, 2015

November 10, 2015

(2) Dividends with a record date in fiscal 2016 but a payment date in fiscal 2017
(Millions of yen)

(Yen)

Resolution

Type of shares

Source of dividend

Total dividends

Dividends per share

Record date

Payment date

May 26, 2016
Annual general meeting ofshareholders

Common stock

Retained earnings

3,472

41.0

February 29, 2016

May 27, 2016

Fiscal 2017 (March 1, 2016 – February 28, 2017)

1. Shares issued(Shares)

Type of shares

Beginning of fiscal 2017

Increase

Decrease

End of fiscal 2017

Common stock

95,164,895——

95,164,895

2. Treasury shares(Shares)

Type of shares

Beginning of fiscal 2017

Increase

Decrease

End of fiscal 2017

Common stock

10,498,786

2,000,794

1,000,000

11,499,580

Reasons for changes
Shares increased for the following main reasons:
Increase from acquisition of treasury shares by resolution of the board of directors
Increase from purchasing shares in less than one unit
The Company portion of treasury shares acquired by equity method affiliates
Decrease from disposal of treasury shares by resolution of the general meeting of shareholders

HISAMITSU PHARMACEUTICAL CO., INC.

40

2,000,000 shares
573 shares
221 shares
1,000,000 shares

FINANCIAL REPORT 2017

Financial Section

3. Subscription rights to shares
Number of shares
Name ofcompany
The filingcompany

BreakdownType of shares

Beginning offiscal 2017

Subscription
rights to sharesas stock option——

Increase—

Decrease

End offiscal 2017

Balance at theend of the fiscal
2017

—

—

203

4. Dividends(1) Dividends paid

(Millions of yen)

(Yen)

Resolution

Type of shares

Total dividends

Dividends per share

Record date

May 26, 2016
Annual general meeting ofshareholders

Payment dateCommon stock

3,472

41.0

February 29, 2016

May 27, 2016

October 11, 2016
Board of Directors meeting

Common stock

3,470

40.5

August 31, 2016

November 8, 2016

(Thousands of U.S. dollars)(U.S. dollars)
Payment date

Resolution

Type of shares

Total dividends

Dividends per share

Record date

May 26, 2016
Annual general meeting ofshareholders

Common stock

30,8460.36

February 29, 2016

May 27, 2016

October 11, 2016
Board of Directors meeting

Common stock

30,8280.36

August 31, 2016

November 8, 2016

(2) Dividends with a record date in fiscal 2017 but a payment date in fiscal 2018
(Millions of yen)

(Yen)

Resolution

Type of shares

Source of dividend

Total dividends

Dividends per share

Record date

Payment date

May 25, 2017
Annual general meeting ofshareholders

Common stock

Retained earnings

3,431

41.0

February 28, 2017

May 26, 2017

(Thousands of U.S. dollars)(U.S. dollars)

Resolution

Type of shares

Source of dividend

Total dividends

Dividends per share

Record date

Payment date

May 25, 2017
Annual general meeting ofshareholders

Common stock

Retained earnings

30,4820.36

February 28, 2017

May 26, 2017

HISAMITSU PHARMACEUTICAL CO., INC.

41

FINANCIAL REPORT 2017

Financial Section

CONSOLIDATED STATEMENTS OF CASH FLOWS(Note 1) Relationship between year-end balances of cash and cash equivalents and amounts stated in the consolidatedbalance sheets(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

Cash and deposits

81,58480,280713,220

Cash equivalents included in short-term investment securities

25,90928,419252,479

Total

107,494

108,699965,698(3,553)(3,089)(27,443)

103,940

105,610938,255

Term deposits longer than three months
Cash and cash equivalents(Note 2) ‌Breakdown of main items of assets and liabilities related to transfer of business with cash and cash equivalents as
consideration
The following is the breakdown of assets and liabilities due to the transfer of rights of approval for manufacture
and commercial sale of Noven Pharmaceuticals, Inc., our U.S. subsidiary, and the transfer price of business andgain on transfer of business.
(Millions of yen)(Thousands of U.S. dollars)

Current assets

255

2,265

Noncurrent assets

394

3,500

Noncurrent liabilities(546)(4,851)

Transfer-related expenses

262

2,328

Gain on transfer of business

2,914

25,888Transfer price of business

3,280

29,140

Proceeds from transfer of business

3,280

29,140FINANCIAL INSTRUMENTS
1. Outline of financial instruments(1) Policy for financial instruments
Our Group raises funds necessary to conduct mainly the manufacturing and sales of pharmaceuticals through bank loans
or issuance of bonds in light of the business plan. Temporary cash surpluses are invested in low risk financial assets.
Derivatives are used within the scope of actual requirements and not for speculative purposes.
(2) Nature and extent of risks arising from financial instruments, and risk management for financial instruments
Although operating receivables such as notes and accounts receivable—trade are exposed to customer credit risk, this risk
is managed through regular checks on the business and credit position of customers.
Short-term investment securities and investment securities, mainly consisting of stocks of corporations that theCompany has business relationships with, are exposed to the risk of market price fluctuations. This risk is managed
through periodic monitoring of market value and the financial status of the related issuers. With respect to stocks incompanies that have a business relationship, the Company checks necessity for holding them, taking into account thebusiness relationship.

HISAMITSU PHARMACEUTICAL CO., INC.

42

FINANCIAL REPORT 2017

Financial Section

Payment terms of operating payables, such as notes and accounts payable—trade, electronically recorded obligations—operating, accounts payable, and income taxes payable are less than one year. Borrowings are mainly for funding required forcorporate acquisitions and capital investment. Although operating payables and borrowings are exposed to liquidity risk, thisrisk is managed through methods such as preparing cash flow planning on a monthly basis.
Derivatives transactions are undertaken by the Finance Department after authorization by the Board of Directors or the
General Manager of the Finance Department, depending on the importance of the transaction, and details areappropriately reported to the Board of Directors.

2. Market values of financial instruments
Carrying amount, market value and unrealized gain/loss of the financial instruments are as follows:
Financial instruments whose market values are not readily determinable are excluded from the following table (See (Note 2)):
Fiscal 2016 (February 29, 2016)(Millions of yen)
Carrying amountMarket value

Unrealized gain
(loss)(1) Cash and deposits

81,584

81,584—(2) Notes and accounts receivable—trade37,63837,638—( i ) Available-for-sale securities

73,53373,533—(ii) Stock of affiliated companies

1,634

770

(864)

129

131

2

194,520

193,658

(862)

7,669

7,669

—

(3) Short-term investment securities and investment securities:(4) Long-term deposits
Total assets(1) Notes and accounts payable—trade(2) Electronically recorded obligations—operating

6,347

6,347

—

(3) Short-term loans payable

1,605

1,605

—

(4) Accounts payable

7,012

7,012

—

(5) Income taxes payable

6,208

6,208

—

726

731

4

29,56929,5744———(6) Long-term loans payable (*)
Total liabilities
Derivative transactions(*) Includes current portion of long-term loans payable.

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43

FINANCIAL REPORT 2017

Financial Section

Fiscal 2017 (February 28, 2017)(Millions of yen)
Carrying amount Market value(Thousands of U.S. dollars)
Unrealized gain
(loss)
Carrying amount Market value

Unrealized gain
(loss)(1) Cash and deposits

80,28080,280—713,220713,220—(2) Notes and accounts receivable—
trade

36,08736,087—

320,602

320,602—( i ) Available-for-sale securities

76,47276,472—

679,389

679,389—(ii) Stock of affiliated companies

1,949

1,894

(55)

17,315

16,827

(489)

200

205

5

1,777

1,821

44

(3) Short-term investment securities andinvestment securities:(4) Long-term deposits

194,990

194,940(49)

1,732,321

1,731,876(435)(1) Notes and accounts payable—trade

8,005

8,005

—

71,118

71,118—(2) Electronically recorded obligations—operating

6,375

6,375

—

56,63656,636—(3) Short-term loans payable

1,490

1,490

—

13,237

13,237—(4) Accounts payable

6,264

6,264

—

55,65055,650—(5) Income taxes payable

2,559

2,559

—

22,73522,735

—

647

647

—

5,748

5,748

—

25,34325,343—

225,151

225,151

—

—

—

—

—

—

—

Total assets(6) Long-term loans payable (*)
Total liabilities
Derivative transactions(*) Includes current portion of long-term loans payable.
Note 1: Calculation method of market values of financial instruments and securities
Assets(1) Cash and deposits and (2) Notes and accounts receivable—trade
These assets are recorded using book values because market values approximate book values because of their shortterm maturities.
(3) Short-term investment securities and investment securities
MMFs are recorded using book values because market values approximate book values because of their short-term
maturities. The market values of stocks are determined using the quoted market price on applicable stock exchanges.
(4) Long-term deposits
Long-term deposits are stated using the quoted prices obtained from financial institutions.
Liabilities(1) Notes and accounts payable—trade, (2) Electronically recorded obligations—operating, (3) Short-term loans payable,(4) Accounts payable, and (5) Income taxes payable
These payables are recorded using book values because market values approximate book values because of their shortterm maturities.
(6) Long-term loans payable (including current portion of long-term loans payable)
Long-term loans payable with floating interest rates are recorded using book values because market values approximatebook values as these rates reflect market interest rates over the short-term. For long-term loans payable with fixedinterest rates, market values are determined by discounting the aggregated values of the principal and interest using anassumed interest rate based on the interest rate that would be applied to a new loan of a similar nature.

HISAMITSU PHARMACEUTICAL CO., INC.

44

FINANCIAL REPORT 2017

Financial Section

Note 2: Carrying amounts of financial instruments whose market values are not readily determinable(Millions of yen)
Category
Unlisted equity securities(Thousands of U.S. dollars)

February 28, 2017

February 29, 2016

February 28, 2017

4,334

3,961

38,504

These items are not included in “(3) Short-term investment securities and investment securities,” because there is no market
price, and it is very difficult to identify market values.
Note 3: Redemption schedule of monetary assets and securities with contractual maturities after the balance sheet dateFiscal 2016 (February 29, 2016)(Millions of yen)
Due within
one year

Due after one Due after five
year but within years but within
five years
ten years

Due after
ten years

Cash and deposits

81,584———

Notes and accounts receivable—trade37,638

—

—

—

4,986

—

—

—

—

129

—

—

124,209129——

Short-term investment securities and investment securities:
Available-for-sale securities with contractual maturities
Long-term deposits
Total

Fiscal 2017 (February 28, 2017)(Millions of yen)(Thousands of U.S. dollars)

Due within
one year

Due after
one year
but within
five years

Due after
five years
but within
ten years

Due after
ten years—

713,220

—

—

—

—

—

320,602

—

—

—

—

—

—

38,628

—

—

—

—

200

—

—

—

1,777

—

—

120,716200——

1,072,459

1,777

—

—

Due within
one year

Due after
one year
but within
five years

Due after
five years
but within
ten years

Due after
ten years

Cash and deposits

80,280——Notes and accounts
receivable—trade

36,087—

4,348

Short-term investment securities
and investment securities:
Available-for-sale securities
with contractual maturities
Long-term deposits
Total

HISAMITSU PHARMACEUTICAL CO., INC.

45

FINANCIAL REPORT 2017

Financial Section

Note 4: Redemption schedule of short-term loans payable and long-term loans payable after the balance sheet dateFiscal 2016 (February 29, 2016)(Millions of yen)
Due within
one year

Due after one year but
within five years

Due after five years but
within ten years

Due after
ten years

Short-term loans payable

1,605

—

—

—

Long-term loans payable

78

279

357

10

1,683

279

357

10

Total

Fiscal 2017 (February 28, 2017)(Millions of yen)(Thousands of U.S. dollars)

Due within
one year

Due after
one year
but within
five years

Due after
five years
but within
ten years

Due after
ten years

—

631

2,532

2,576

—

—

631

2,532

2,576

—

Due within
one year

Due after
one year
but within
five years

Due after
five years
but within
ten years

Due after
ten years

Long-term loans payable

71

285

290

Total

71

285

290

SECURITIES
1. Available-for-sale securities
Fiscal 2016 (February 29, 2016)(Millions of yen)
Category

Carrying amount

Acquisition cost

Difference(1) Stocks

39,212

19,98819,224(2) Bonds———(3) Other———

Subtotal

39,212

19,98819,224(1) Stocks

3,424

3,924

(499)

(2) Bonds———(3) Other

30,89530,895—

Subtotal

34,32034,820

(499)

Total

73,53354,80818,724

Carrying amount higher than acquisition cost:

Carrying amount lower than acquisition cost:

HISAMITSU PHARMACEUTICAL CO., INC.

46

FINANCIAL REPORT 2017

Financial Section

Fiscal 2017 (February 28, 2017)(Millions of yen)
Category

Carrying amount Acquisition cost(Thousands of U.S. dollars)
Difference

Carrying amount Acquisition cost

Difference

Carrying amount higher than acquisition cost:(1) Stocks

42,90223,09619,805381,148

205,188

175,951(2) Bonds

—

—

—

—

—

—

(3) Other

—

—

—

—

—

—

Subtotal

42,90223,09619,805381,148

205,188

175,951

802

838

(35)

7,125

7,445

(311)

Carrying amount lower than acquisition cost:(1) Stocks(2) Bonds

—

—

—

—

—

—

(3) Other

32,76732,767—291,107291,107—

Subtotal

33,57033,606(35)

298,241

298,561

(311)

Total

76,47256,702

19,769679,389

503,749

175,631

2. Available-for-sale securities sold during the fiscal year
Fiscal 2016 (March 1, 2015 – February 29, 2016)
Not applicable.
Fiscal 2017 (March 1, 2016 – February 28, 2017)(Millions of yen)
Category

Sales(Thousands of U.S. dollars)

Total gains
on salesTotal losses
on salesSales

Total gains
on salesTotal losses
on sales

Stocks

1

0

—

9

0

—

Bonds

—

—

—

—

—

—

Other

—

—

—

—

—

—

Total

1

0

—

9

0

—

HISAMITSU PHARMACEUTICAL CO., INC.

47

FINANCIAL REPORT 2017

Financial Section

RETIREMENT BENEFITS
1. Overview of retirement benefit plans
The Company and consolidated subsidiaries have adopted funded and unfunded defined benefit plans, in order to prepare
for the payment of retirement benefits to employees.
Corporate pension plan
The Company previously used the Hisamitsu Pharmaceutical Welfare Pension Plan to cover a portion of retirement benefits
starting on July 1, 1995, but it switched to the Hisamitsu Pharmaceutical Corporate Pension Plan on July 1, 2005.
The Company previously used a qualified pension plan to augment its retirement benefit plans from March 1, 1966, but
this plan was terminated on April 1, 2007 and integrated into the corporate pension plan.
Lump sum retirement allowance
The Company and domestic consolidated subsidiaries provide lump sum retirement allowances based on retirement
benefit regulations. In some cases, employees may receive an additional retirement allowance upon retirement.
For lump sum retirement allowance system of some consolidated subsidiaries, net defined benefit liability and retirement
benefits expenses are calculated using the simplified method.

2. Defined benefit plans(1) Reconciliation of beginning and ending balances of retirement benefit obligations(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

14,474

17,290153,607

(95)

—

—

14,37817,290153,607

747

966

8,582

Beginning balance of retirement benefit obligations:
Cumulative effects of changes in accounting policies
Restated balance
Service costs

183

68

604

Actuarial differences incurred

2,414

(366)

(3,252)

Payment of retirement benefits

(423)

(538)

(4,780)Interest costs

Other
Ending balance of retirement benefit obligations

(10)

28

249

17,29017,448155,011(2) Reconciliation of beginning and ending balances of pension assets(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

Beginning balance of pension assets:

12,374

12,074

107,267

Expected return on plan assets

358

350

3,109

Actuarial differences incurred

(736)

245

2,177

Employer contributions

348

352

3,127

Payment of retirement benefits

(269)

(317)

(2,816)

Ending balance of pension assets

12,074

12,704

112,864HISAMITSU PHARMACEUTICAL CO., INC.

48

FINANCIAL REPORT 2017

Financial Section(3) Reconciliation of ending balance of retirement benefit obligations and pension assets with net defined benefit liability
and net defined benefit asset recorded in the consolidated balance sheets(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017Retirement benefit obligations for funded plans

10,472

10,41992,564

Pension assets(12,074)(12,704)

112,864(1,602)(2,284)(20,291)

Retirement benefit obligations for unfunded plans

6,817

7,028

62,438

Net amount of liabilities and assets in consolidated balance sheets

5,215

4,743

42,138Net defined benefit liability

6,817

7,028

62,438Net defined benefit asset(1,602)(2,284)(20,291)

Net amount of liabilities and assets in consolidated balance sheets

5,215

4,743

42,138(4) Breakdown of retirement benefit expenses(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

Service costs

747

966

8,582

Interest costs

183

68

604

Expected return on plan assets

(358)

(350)

(3,109)Amortization of actuarial differences

(29)

645

5,730

Retirement benefit expenses for defined benefit plans

542

1,329

11,807(5) Remeasurements of defined benefit plans, net of tax
Items recorded in remeasurements of defined benefit plans (before related tax effects) are as follows:(Millions of yen)
Actuarial differences(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

(3,182)

1,256

11,158(6) Remeasurements of defined benefit plans
Items recorded in remeasurements of defined benefit plans (before related tax effects) are as follows:(Millions of yen)
Unrecognized actuarial differences

HISAMITSU PHARMACEUTICAL CO., INC.

49

(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

2,834

1,577

14,010FINANCIAL REPORT 2017

Financial Section(7) Pension assets
1) Breakdown by main items of pension assets
The proportions of main items to the total pension assets are as follows:
Fiscal 2016

Fiscal 2017

Bonds

57%

54%

Stocks29%

31%

General account

10%

10%

Other

4%

5%

Total

100%

100%

2) Long-term expected rate of return on plan assets
Long-term expected rate of return on plan assets is determined considering the current and projected pension asset
allocations and the current and future long-term return rates expected from various assets that compose pension
assets.
(8) Basis for actuarial calculation
Fiscal 2016

Fiscal 2017

Discount rate

0.4%

0.4%

Long-term expected rate of return on plan assets

2.9%

2.9%

MATTERS RELATED TO STOCK OPTIONS, ETC
1. Expenses related to stock options and its items(Millions of yen)
Expenses for stock option as compensation of selling,
general and administrative expenses(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

101

101

897

2. Description, scale and transition of stock options(1) Description of stock options
Hisamitsu Pharmaceutical Co., Inc.
The first subscription rights to shares

Hisamitsu Pharmaceutical Co., Inc.
The second subscription rights to shares

Resolution dateJuly 10, 2015

July 8, 2016

Classification and number of persons to be granted

10 directors of the Company

10 directors of the Company

Class and number of shares

Common stock of 35,800 shares

Common stock of 17,900 shares

Date of grant

July 27, 2015

July 25, 2016

Vesting conditions

No vesting conditions are applied.

No vesting conditions are applied.

Requisite service period——

Exercise period

From July 28, 2015 to July 27, 2065

From July 26, 2016 to July 25, 2066

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2017

Financial Section(2) Scale and transition of stock options
The following is applicable to the stock options prevalent in the fiscal year under review (FY2/17), whereby the number ofstock options is converted into number of shares.
( i ) Number of stock options(Shares)
Hisamitsu Pharmaceutical Co., Inc.
The first subscription rights to shares
Date of resolution

July 10, 2015

Hisamitsu Pharmaceutical Co., Inc.
The second subscription rights to shares
July 8, 2016

Prior to vesting:End of fiscal 2016——

Granted—17,900

Expired——

Vested—17,900

Outstanding prior to vesting——

Post-vesting:End of fiscal 2016

35,800—

Vested—17,900Exercised——

Expired——35,80017,900

Outstanding prior to exercise(ii) Unit price information(yen)
Hisamitsu Pharmaceutical Co., Inc.
The first subscription rights to shares
Date of resolution

July 10, 2015

Hisamitsu Pharmaceutical Co., Inc.
The second subscription rights to shares
July 8, 2016

Exercise price

1

1

Average share price at the time of exercise——

Fair valuation unit price as at the grant date

3,796

5,032

3.	Method for estimating fair valuation unit price of the stock options
granted during the fiscal year under review(1) Valuation method used: Black-Scholes model(2) Main base number and the method for the estimation thereof
Share price volatility (Note 1)
Expected remaining period (Note 2)

27.754%10 years

Expected dividends (Notes 3)¥81 per share

Risk-free interest rate (Note 4)(0.249)%Notes: 1. Calculated based on the actual share price over a ten-year period (from July 2006 to July 2016).
2. Period from the grant date up to the estimated average timing of exercise.
3. Based on the actual dividend paid for FY2/16.
4. Japanese government bond yields corresponding to the expected remaining period.

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Financial Section

TAX EFFECT ACCOUNTING
1. Main reasons for deferred tax assets and deferred tax liabilities(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

1,838

1,901

16,889Provision for directors’ retirement benefits (long-term accounts payable)

419

398

3,536

Accrued enterprise tax

402

178

1,581

Allowance for doubtful accounts

154

156

1,386

Inventories

252

233

2,070

Excess depreciation

674

625

5,553

Intangible fixed assets

2,109

170

1,510

Valuation losses on memberships

195

186

1,652

Loss on valuation of investment securities

827

784

6,965

Provision for bonuses

649

547

4,860

Outsourced research and development

1,254

1,263

11,221

Other

5,846

4,903

43,559Sub-total deferred tax assets

14,625

11,349100,826

Valuation allowance(2,780)(2,737)(24,316)

Total deferred tax assets

11,844

8,611

76,501

Deferred tax assets:
Net defined benefit liability

Deferred tax liabilities:
Net defined benefit asset(1,099)(966)(8,582)

Valuation difference on available-for-sale securities(5,587)(5,513)(48,978)

Other(2,821)(2,570)(22,832)

Total deferred tax liabilities(9,508)(9,050)(80,402)

2,336

(438)

(3,891)

Net deferred tax assets

Note: The net value of deferred tax assets are included in the following consolidated balance sheet categories:(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

Current assets: deferred tax assets

4,293

2,960

26,297

Noncurrent assets: deferred tax assets

2,056

512

4,549

Noncurrent liabilities: deferred tax liabilities(4,014)(3,911)(34,746)

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Financial Section

2. Breakdown by main items that caused major differences in statutory tax rate and income tax rate
after application of tax effect accounting
Because the difference in the statutory tax rate and the income tax after the application of tax effect accounting is lessthan five percent of the statutory tax rate, notes for Fiscal 2016 and Fiscal 2017 are omitted.

3. Revisions to the amount of deferred tax assets and deferred tax liabilities due to changes in therate of income taxes
With the approval at the Diet on March 29, 2016 of the “Act for Partial Amendment of the Income Tax Act, etc.” as well as
the “Act, etc. for Partial Amendment of Local Income Tax, etc.,” statutory effective tax rate used for calculating deferred
tax assets and deferred tax liabilities in the fiscal year under review (only for those likely to be eliminated on and after
March 1, 2017), has been changed from the 32.1% applicable hitherto to 30.7% for those likely to be collected or paid
during the period from March 1, 2017 to February 28, 2019, while to 30.5% for those likely to be collected or paid on orafter March 1, 2019.
The impact of this change in tax rate is minor.

Business Combinations
Business divestiture
Noven Pharmaceuticals, Inc., our U.S. subsidiary (hereinafter, “Noven”) has transferred the rights of approval for
manufacture and commercial sale of “Brisdelle®,” a non—hormonal oral preparation for moderate to severe vasomotor
symptoms (VMS) associated with menopause and “Pexeva®,” an antidepressant oral preparation to Sebela International
Limited on July 25, 2016.
1. Outline of the business divestiture(1) Name of the successor company
Sebela International Limited(2) Detail of the divested business
Manufacture and commercial sales of “Brisdelle®” and “Pexeva®”(3) Main reasons for the business divestiture
To further concentrate management resources on the patch business as part of business restructuring of Noven(4) Date of the business divestiture
July 25, 2016(5) Matters regarding the outline of transaction including its legal form
Transfer limiting consideration received to property such as cash

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Financial Section

2. Outline of accounting treatments performed(1) Amount of gain or loss on transfer¥2,914 million(2) Fair carrying amounts and breakdown of main items of assets and liabilities related to the business transferred(Millions of yen)(Thousands of U.S. dollars)

Current assets

255

2,265

Noncurrent assets

394

3,500

Total assets

649

5,766

Noncurrent liabilities

546

4,851

Total liabilities

546

4,851

(3) Accounting treatment
The differences between the consideration for transfer and the equivalent of shareholders’ equity related to thetransferred business and the expenses associated with the transfer of business are recognized as gain on transfer ofrights of approval for manufacture and commercial sale on the consolidated statements of income.
3. Reportable segment that included the divested businessPharmaceuticals
4. Approximate amount of gains or losses related to the divested business recorded on the consolidated statements ofincome for the fiscal year under review
Cumulative(Millions of yen)
Net sales
Operating income

HISAMITSU PHARMACEUTICAL CO., INC.

(Thousands of U.S. dollars)

1,250

11,105

266

2,363

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Financial Section

INVESTMENT AND RENTAL PROPERTY
Because the total amount of investment and rental property is not material, this item is not stated.

SEGMENT INFORMATION
1. Outline of reportable segments
The Company engages in business activities primarily in research and development, manufacturing, purchase, and salesof pharmaceuticals, where “Pharmaceuticals” is the concerned reportable segment.
“Pharmaceuticals” is conducting business related to ethical and OTC pharmaceuticals both in Japan and overseas.

2. Method to calculate the amounts of net sales, profit or loss, assets, liabilities and other items
by reportable segment
Because the reportable segment of the Company is “Pharmaceuticals” only, this item is not stated.

3. Information regarding the amounts of net sales, profit or loss, assets, liabilities and other items
by reportable segment
Because the reportable segment of the Company is “Pharmaceuticals” only, this item is not stated.

4. Difference between the aggregate of all reportable segments and the consolidated financial
statements amount, and the details of such difference (items concerning the adjustment
of difference)
Because the reportable segment of the Company is “Pharmaceuticals” only, this item is not stated.

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RELATED INFORMATION
Fiscal 2016 (March 1, 2015 – February 29, 2016)

1. Information by product/service segment
This information is omitted, as net sales to external customers in single product/service segment accounts for more than
90% of net sales in the consolidated statements of income.

2. Information by geographic segment(1) Net sales(Millions of yen)Japan

North America

Other

Total

112,957

36,014

12,880161,852

Note: Net sales are segmented into countries or territories according to the location of the customer.

(2) Tangible fixed assets(Millions of yen)Japan

North America

Other

Total

33,208

7,143

3,499

43,851

3. Information by significant customer(Millions of yen)
Name of customers

Net sales

Related segment

MEDIPAL HOLDINGS CORPORATION

24,264

Pharmaceuticals

Alfresa Holdings Corporation

23,729Pharmaceuticals

Fiscal 2017 (March 1, 2016 – February 28, 2017)

1. Information by product/service segment
This information is omitted, as net sales to external customers in single product/service segment accounts for more than
90% of net sales in the consolidated statements of income.

2. Information by geographic segment(1) Net sales(Millions of yen)Japan

North America

Other

Total

104,957

27,79013,177

145,925

Japan

North America

Other

Total

932,454

246,891

117,066

1,296,420(Thousands of U.S. dollars)Note: Net sales are segmented into countries or territories according to the location of the customer.

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Financial Section(2) Tangible fixed assets(Millions of yen)Japan

North America

Other

Total

33,153

6,643

3,234

43,031

Japan

North America

Other

Total

294,536

59,01728,731

382,294(Thousands of U.S. dollars)

3. Information by significant customer
Name of customers(Millions of yen)(Thousands of U.S. dollars)

Net sales

Net sales

Related segment

MEDIPAL HOLDINGS CORPORATION

22,416

199,147

Pharmaceuticals

Alfresa Holdings Corporation

22,072

196,091

Pharmaceuticals

Information on the impairment loss of noncurrent assets by reportable segment
Because the reportable segment of the Company is “Pharmaceuticals” only, this item is not stated.
Information on the amortization of goodwill and unamortized balance by reportable segment
Because the reportable segment of the Company is “Pharmaceuticals” only, this item is not stated.
Information on the gain on negative goodwill by reportable segment
Because the reportable segment of the Company is “Pharmaceuticals” only, this item is not stated.

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Financial Section

RELATED PARTY INFORMATION
Fiscal 2016 (March 1, 2015 – February 29, 2016)
Because the item is not material, this item is not stated.
Fiscal 2017 (March 1, 2016 – February 28, 2017)

Transactions with related parties
Type

Executive andtheir close family
memberRelationship withrelated party
Concurrently
served as thechairman of afoundation

Name ofcompany, etc.

NAKATOMI
Hirotaka

Description oftransaction
Disposal oftreasury sharesthrough third-party
allotment (Note)

Capital orinvestment(Millions of yen)

Capital or investment(Thousands ofBusiness activities orHolding (held) of
U.S. dollars)
occupation
voting rights, etc. (%)——

Chairman & CEO of
the Company
Chairman of the
Nakatomi Memorial
Foundation, an
incorporated
foundation

Amount oftransaction(Millions of yen)Amount oftransaction(Thousands of
U.S. dollars)

1

9

Location

—

—

Item

Balance at end of
the fiscal year
(Millions of yen)

Balance at end of
the fiscal year
(Thousands of
U.S. dollars)

—

—

—

Note: Disposal of treasury shares through third-party allotment was performed in order to generate funds for the social contribution
activities of the Nakatomi Memorial Foundation, an incorporated foundation, with the dividend of the Company (¥1 million for 1
million shares). As the issuance amount of ¥1 per share corresponds to advantageous placement, the issuance was performed
with the approval at the Company’s 114th annual general meeting of shareholders held on May 26, 2016.

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Financial Section

PER SHARE INFORMATION(Yen)(U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

Net assets per share

2,657.41

2,724.00

24.20

Net income per share

208.81241.27

2.14

Diluted net income per share

208.76241.15

2.14

Notes: 1. The basis for the calculation of net income per share and diluted net income per share is as follows.
(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

17,784

20,395

181,192

Net income per share:
Profit attributable to owners of parent

—

—

—

Profit attributable to owners of parent attributable to common stock

17,784

20,395

181,192

Average common stock during year (Thousands of shares)

85,166

84,532

750,995

Adjusted profit attributable to owners of parent

—

—

—

Increase in common stock (Thousands of shares)

22

44

391

(Subscription rights to shares (Thousands of shares))

(22)

(44)

(391)

Amount not attributable to common shareholders

Diluted net income per share:—

Outline of residual securities that were not included in calculating
diluted net income per share as they had no dilutive effect

2. The basis for the calculation of net assets per share is as follows.
(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2017

Fiscal 2017

226,095

229,205

2,036,292

Amount deducted from total net assets:

1,102

1,301

11,558(Subscription rights to shares)

(101)

(203)

(1,803)(1,000)(1,097)(9,746)

Net assets attributable to common stock as at the end of the fiscal year

224,992

227,904

2,024,733

Common stock used in calculating net assets per share as at the end of
the fiscal year (Thousands of shares)

84,666

83,665743,292

Total net assets(Non-controlling interests)

SIGNIFICANT SUBSEQUENT EVENTS
Not applicable.

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Financial Section

Supplementary Schedule
Supplementary schedule of bonds payableNot applicable.

Supplementary schedule of loans payable(Millions of yen)(Thousands of U.S. dollars)(%)

Balance at the beginning Balance at the end Balance at the beginning Balance at the endof Fiscal 2017of Fiscal 2017of Fiscal 2017of Fiscal 2017
Average interest rate

Category
Short-term loans

1,490

14,25913,237

0.37

—

78

71

693

631

0.64

—

33

22

293

195

—

—

647

576

5,748

5,117

0.65

42

32

373

284

—

Current portion of long-term
loans
Current portion of long-termlease obligation
Long-term loans(excluding current portion)
Lease obligation(excluding current portion)

March 2018 toMarch 2026
March 2018 toSeptember 2022

—

—

—

—

—

—

2,407

2,192

21,384

19,474——

Other interest-bearing liabilities
Total

Due date

1,605

Notes: 1. Average interest rate is the weighted average interest rate for the year-end balances of loans, etc.
2. The average interest rate on lease obligations is not listed, mainly because lease obligations are stated in the
consolidated balance sheet mainly as a total before deduction of the equivalent of interest contained in the totallease payment.
3. Long-term loans and lease obligations (both excluding current portion) within five years after the consolidatedbalance sheet date are as follows:(Millions of yen)
Category

Due after one year
but within two years

Due after two years
but within three years

Due after three years
but within four years

Due after four years
but within five years

Long-term loans

71

65

71

77

Lease obligations

14

6

5

4

(Thousands of U.S. dollars)
Due after one year
but within two years

Due after two years
but within three years

Due after three years
but within four years

Due after four years
but within five years

Long-term loans

631

577

631

684

Lease obligations

124

53

44

36

Category

Supplementary schedule of asset retirement obligations
Not applicable.

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Financial Section

Other
Quarterly consolidated financial information for Fiscal 2017
(Millions of yen)Three months ended
May 31, 2016

Six months ended
August 31, 2016

Nine months ended
November 30, 2016

Fiscal 2017

Net sales

38,15374,447

109,729

145,925

Profit before income taxes

6,859

13,812

27,031

29,984

Profit attributable to ownersof parent

4,529

9,286

18,34020,395

Net income per share (yen)53.50

109.47216.23241.27

Three months ended
May 31, 2016

Six months ended
August 31, 2016

Nine months ended
November 30, 2016

Fiscal 2017

Net sales

338,957

661,398

974,849

1,296,420

Profit before income taxes

60,936

122,708240,147

266,382

Profit attributable to ownersof parent

40,23682,498

162,935

181,192

Net income per share (U.S. dollars)

0.48

0.97

1.92

2.14

(Cumulative)(Thousands of U.S. dollars)(Cumulative)(Yen)(Quarterly)
Net income per shareFirst quarter

Second quarter

Third quarter

Fourth quarter

53.50

55.96

106.77

24.56(U.S. dollars)(Quarterly)
Net income per share

HISAMITSU PHARMACEUTICAL CO., INC.

First quarter

Second quarter

Third quarter

Fourth quarter

0.48

0.50

0.95

0.22

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Corporate Information

Stock Information(1) Total number of shares
1) Total number of shares
Type of shares

Total authorized shares (Shares)

Common stock

380,000,000

Total

380,000,000

2) Shares issued(Shares)

Type of shares

Shares issued
at year end Fiscal 2016
(February 28, 2017)

Shares issued on
filing date
(May 26, 2017)

Names of listing stock
exchanges or registeredsecurities dealers
associations

Details

Common stock

95,164,895

95,164,895

Tokyo Stock Exchange(First Section)
Nagoya Stock Exchange(First Section)
Fukuoka Stock Exchange

Total

95,164,895

95,164,895—

All voting shares, standard
shares with unlimited rights(Voting units: 100 shares)—(2) Status of share subscription rights to shares
Subscription rights to shares issued pursuant to the Companies Act, are as follows.
The first subscription rights to shares (resolved on July 10, 2015, issued on July 27, 2015)
As of the end of the fiscal year under review As at the end of the month preceding the filing date(February 28, 2017)(April 30, 2017)
Number of subscription rights to shares (Units)

358 (Note 1)

Same as left——

Common stock

Same as left

35,800 (Notes 1, 2)Same as left

1

Same as left

Exercise period of subscription rights to shares

July 28, 2015 to July 27, 2065

Same as left

Price of the shares to be issued upon exerciseof subscription rights to shares, and the amountto be incorporated into capital stock (yen)Price of shares issued: 3,797
Amount to be incorporated into
capital stock: 1,899 (Note 3)

Same as left

(Note 4)Same as left

Acquisition of subscription rights to sharesby transfer shall be subject to the approval
based on the resolution of the board of
directors of the Company.

Same as left——

(Note 5)Same as left

Of the above, number of treasury subscription
rights to sharesClass of shares to be issued upon exercise ofsubscription rights to shares
Number of shares to be issued upon exerciseof subscription rights to shares (Shares)
Cash payment upon exercise of subscription
rights to shares (yen)Conditions for the exercise of subscription
rights to shares
Matters concerning the transfer of subscription
rights to shares
Matters concerning substitute payment
Matters concerning the issuance of subscription rights
to shares associated with organizational restructuring
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Corporate Information

Notes: 1. Class and number of allottees of subscription rights to shares, as well as number of subscription rights to shares tobe allotted are as follows:			Directors of the Company (excluding outside directors): 10 persons; 358 subscription rights to shares		Number of shares to be issued upon exercise of each subscription right to shares (hereinafter “number of shares tobe granted”) shall be 100.
2.	In the event the Company conducts a stock split of the shares of its common stock (including a gratis allotment of
its common stocks; hereinafter the same in every reference to stock splits), on and after the date on which
subscription rights to shares are allotted (hereinafter the “allotment date”), or a reverse stock split, the number ofshares granted shall be adjusted according to the following formula, and fractions less than one share resulting
from the calculation shall be rounded down.
			
Number of shares granted after adjustment = Number of shares granted before adjustment × Ratio of stock
splits or reverse stock splits		Number of shares granted after adjustment shall, in the case of a stock split, be applicable on and after the day
following the record date thereof (if a record date is not established, effective date thereof), while in the case of areverse stock split, effective date thereof. However, in the case where a stock split is conducted subject to theapproval at the general meeting of shareholders, of a proposal to increase capital stock or additional paid-in-capitalby reducing surplus, if a date prior to the conclusion of such general meeting of shareholders is set as the record
date for the stock split, number of shares granted after adjustment shall, for the period on and after the day
following the conclusion of such general meeting of shareholders, become applicable retroactively on such record
date.
		Subsequent to the allotment date, in the event of a need for an adjustment to the number of shares granted inassociation with a merger or company split of the Company or otherwise, the Company may make an adjustment
to the number of shares granted as appropriate, within a reasonable extent.
		In the event of an adjustment to the number of shares granted, within the period up to the day before the date on
which the number of shares granted after adjustment becomes applicable, the Company shall notify each holder ofsubscription rights to shares registered in the original register of subscription rights to shares (hereinafter the“holder of subscription rights to shares”), of the matters required to be communicated thereto, via personal or public
notice. However, if such personal or public notice cannot be delivered in the aforementioned period, it shall bedelivered as soon as possible.
3. (1)	The amount of an increase in capital associated with the issuance of shares as a result of the exercise ofsubscription rights to shares, shall be half of the maximum amount of an increase in capital stock calculated inaccordance with Article 17-1 of the Company Accounting Ordinance, where any fraction less than ¥1 resulting
therefrom shall be rounded up.
		 (2)	The amount of an increase in additional paid-in capital associated with the issuance of shares as a result of
the exercise of subscription rights to shares, shall be calculated by subtracting the amount of an increase incapital stock described in (1) above, from the maximum amount of an increase in capital stock, etc., also
described in (1) above.
4. (1)	A holder of subscription rights to shares shall, on or after the day following the date of loss of his/her position
as a director, be entitled to exercise the subscription rights to shares allotted to him/her based on such loss.
		 (2)	In the event of death of a holder of subscription rights to shares, only if all of the subscription rights to shares
held by such holder are succeeded by one person who is his spouse, child, parents or sibling among all hisheirs (hereinafter such heir who succeed the subscription rights to shares shall be called the “successor”), thesuccessor shall be entitled to exercise subscription rights to shares. However, conditions and procedures forthe exercise, etc., shall be based on the agreement on the allotment of subscription rights to shares, asconcluded between the Company and the holder of subscription rights to shares subject to the resolution of
the board of directors of the Company.

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Corporate Information

		 (3)	Once having abandoned subscription rights to shares, a holder of subscription rights to shares shall not be
entitled to exercise such subscription rights to shares.
		 (4)	A holder of subscription rights to shares must exercise the whole of the subscription rights to shares allotted tohim/her at once (subscription rights to shares remaining after the partial abandonment, if such partial
abandonment is conducted).
5.	In the event the Company engages in a merger (referring only to the merger in which the Company is an absorbed
company), absorption-type or incorporation-type company split (referring only to the company split in which theCompany is a split company), or share exchange or share transfer (referring only to the share exchange or sharetransfer in which the Company becomes a wholly-owned subsidiary) (hereinafter collectively an “organizational
restructuring”), the Company shall issue subscription rights to shares in the stock company listed in (a) to (e) ofArticle 236-1, Item 8 of the Companies Act (hereinafter the “restructured company”) in the respective type of theaforementioned organizational restructuring, to the holder of subscription rights to shares who holds thesubscription rights to shares remaining immediately prior to the effective date of such organizational restructuring(hereinafter the “residual subscription rights to shares”) the Company engages in (effective date of the absorptiontype merger in the case of an absorption-type merger; date of establishment of the new stock company created asa result of the incorporation-type merger in the case of an incorporation-type merger; effective date of theabsorption-type company split, in the case of an absorption-type company split; date of establishment of the newstock company created as a result of the incorporation-type company split in the case of an incorporation-typecompany split, effective date of the share exchange in the case of an share exchange; the date of establishment of
the wholly-owned parent created as a result of the share transfer, in the case of the share transfer; hereinafter thesame shall apply). However, the aforementioned issuance shall be subject to the creation of provisions to the effectthat the subscription rights to shares in the restructured company be issued in accordance with the items as follows
in the absorption-type merger agreement, incorporation-type merger agreement, absorption-type company split
agreement, incorporation-type company split plan, share exchange agreement or share transfer plan.
		 (1)	Number of the subscription rights to shares in the restructured company to be issued
			Subscription rights in the restructured company shall be issued to each holder of subscription rights to shares,in the same number as the number of residual subscription rights to shares held by each such holder.
		 (2)	Type of shares in the restructured company to be issued upon exercise of subscription rights to shares			Common stock of the restructured company.
		 (3)	Number of shares in the restructured company to be issued upon exercise of subscription rights to shares			It shall be determined in the same manner as described in 1. and 2. above, in consideration of the conditions
for the organizational restructuring.
		 (4)	The value of asset to be contributed at the time of the exercise of subscription rights to shares			The value of asset to be contributed at the time of the exercise of each subscription right to shares to beissued, shall be the amount calculated by multiplying the post-restructuring exercise price as determined asfollows, by the number of shares in the restructured company to be issued upon exercise of the subscription
rights to shares as determined in (3) above. The post-restructuring exercise price shall be ¥1 for each share in
the restructured company, which can be granted upon exercise of each subscription right to shares issued.
		 (5)	Period during which the subscription rights to shares can be exercised			It shall be the period beginning on the inception date of the period prescribed in the aforementioned “Exercise
period of subscription rights to shares,” or the effective date of the organizational restructuring, whicheverlater, ending on the expiry date of the period prescribed in the aforementioned “Exercise period of subscription
rights to shares.”		 (6)	Matters concerning capital stock and additional paid-in capital, in the case of issuance of shares upon exerciseof subscription rights to shares			It shall be decided in the same manner as described in 3. above.

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		 (7)	Restriction on the acquisition of subscription rights to shares by transfer
			Acquisition of subscription rights to shares by transfer shall require the approval based on the resolution of theboard of directors of the restructured company (“general meeting of shareholders” if the restructured company
is not a company with board of directors).
		 (8)	Terms of acquisition of subscription rights to shares			It shall be decided in the way described as follows.
			Upon the approval at general meeting of shareholders of the Company on the proposals (i), (ii), (iii), (iv) and(v) as follows (or upon the resolution of the board of directors of the Company, if resolution of the general
meeting of shareholders is not required), the Company shall be entitled to acquire the subscription rights toshares without compensation on the date as separately specified by the board of directors of the Company.
			(i)	Proposal for the approval of the merger agreement in which the Company becomes the absorbed company
			(ii)	Proposal for the approval of the company split agreement in which the Company becomes the split
company, or on the plan for such company split			(iii)	Proposal for the approval of the share exchange agreement or plan for the share transfer, in which theCompany becomes a wholly-owned subsidiary			(iv)	Proposal for the approval of the amendment to the Company’s articles of incorporation to create newprovisions to the effect that that acquisition of all of the shares issued by the Company by transfer, shallrequire the approval of the Company.
			(v)	Proposal for the approval of the amendment to the Company’s articles of incorporation to create provisions
to the effect that that acquisition of the type of shares to be delivered upon exercise of subscription rights
to shares by means of transfer, shall require the approval of the Company, or the provisions that govern
the acquisition of all shares of such type based on the resolution of general meeting of shareholders of theCompany.
		 (9) Other conditions for the exercise of subscription rights to shares			It shall be decided in the same manner as described in 4. above.

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The second subscription rights to shares (resolved on July 8, 2016, issued on July 25, 2016)
As of the end of the fiscal year under review As at the end of the month preceding the filing date(February 28, 2017)(April 30, 2017)
Number of subscription rights to shares (Units)

179 (Note 1)

Same as left——

Common stock

Same as left

17,900 (Notes 1, 2)Same as left

1

Same as left

Exercise period of subscription rights to shares

July 26, 2016 to July 25, 2066

Same as left

Price of the shares to be issued upon exerciseof subscription rights to shares, and the amountto be incorporated into capital stock (yen)Price of shares issued: 5,033
Amount to be incorporated into
capital stock: 2,517 (Note 3)

Same as left

(Note 4)Same as left

Acquisition of subscription rights to sharesby transfer shall be subject to the approval
based on the resolution of the board of
directors of the Company.

Same as left——

(Note 5)Same as left

Of the above, number of treasury subscription
rights to sharesClass of shares to be issued upon exercise ofsubscription rights to shares
Number of shares to be issued upon exerciseof subscription rights to shares (Shares)
Cash payment upon exercise of subscription
rights to shares (yen)Conditions for the exercise of subscription
rights to shares
Matters concerning the transfer of subscription
rights to shares
Matters concerning substitute payment
Matters concerning the issuance of subscription rights
to shares associated with organizational restructuring

Notes: 1. Class and number of allottees of subscription rights to shares, as well as number of subscription rights to shares tobe allotted are as follows:			Directors of the Company (excluding outside directors): 10 persons; 179 subscription rights to shares		Number of shares to be issued upon exercise of each subscription right to shares (hereinafter “number of shares tobe granted”) shall be 100.
2.	Notes 2 through 5 are the same as the corresponding notes in the first subscription rights to shares.

(3) Execution of warrant bonds, etc. with clause allowing change in exercise priceNot applicable.
(4) Details of rights plans
Not applicable.

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FINANCIAL REPORT 2017

(5) Changes in shares issued, capital stock, and other items(Shares)
Date

Change in sharesissued—(Millions of yen)

Shares issued

Change in capitalstock

Capital stock

Change in additional
paid-in capital

Additional paid-in
capital95,164,895

—

8,473

(6,123)

2,118

Change in sharesissuedShares issued

Change in capitalstock

Capital stock

Change in additional
paid-in capital

Additional paid-in
capital—95,164,895—

75,275(54,398)

18,817

July 5, 2002 (Note)(Shares)
Date
July 5, 2002 (Note)(Thousands of U.S. dollars)Note: The decrease in additional paid-in capital was based on provisions in Article 289-2 of the former Commercial Code(creditor protection procedures were completed on July 5, 2002).

(6) Details of shareholders
As of February 28, 2017
Status of shares (Investment unit comprises 100 shares)
Foreign shareholders
National andlocal
government

Category

Financial
institutions

Securities
companies

Other
corporations

Nonindividuals

Individuals

Individuals
and other

Total

Shares under
one unit(Shares)

Shareholders(entities)

—

53

22

183

406

4

3,386

4,054

—

Shares owned(units)—447,281

8,208

184,636

113,053

13

198,030

951,22142,795

Ratio (%)

—

47.02

0.86

19.41

11.89

0.00

20.82

100.00—Note: ‌Treasury stock of 11,471,881 are listed as 114,718 units in the individuals and other column and as 81 shares in the shares
under one unit column. The 11,471,881 treasury stock figure is the number of shares listed in the shareholder registry.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2017

(7) Principal shareholders
As of February 28, 2017
Percentage ofShares owned
shares outstanding(thousand shares)
(%)

Name

Address

Japan Trustee Service Bank, Ltd. (trust account)

1-8-11 Harumi, Chuo-ku, Tokyo

6,281

6.60

4,387

4.61

4,370

4.59

The Master Trust Bank of Japan, Ltd. (trust account) 2-11-3 Hamamatsucho, Minato-ku, Tokyo

4,296

4.51

Nippon Life Insurance Company

1-6-6 Marunouchi, Chiyoda-ku, Tokyo

3,910

4.11

The Bank of Fukuoka, Ltd.

2-13-1 Tenjin, Chuo-ku, Fukuoka

3,871

4.07

The Bank of Saga, Ltd.

2-7-20 Tojin, Saga

2,956

3.11

2,165

2.28

2,064

2.17

1,834

1.93

36,136

37.97

The Nomura Trust and Banking Co., Ltd. (The Bank
2-2-2 Otemachi, Chiyoda-ku, Tokyo
of Tokyo-Mitsubishi UFJ, Ltd. pension trust account)
Japan Trustee Service Bank, Ltd.
(Resona Bank, Ltd. retrust account, The Nishi1-8-11 Harumi, Chuo-ku, Tokyo
Nippon City Bank, Ltd. pension trust account)Hisamitsu Business Partners’ Shareholding
408 Tashiro Daikan-machi, Tosu-shi Saga
Association
Japan Trustee Service Bank, Ltd.
(Sumitomo Mitsui Trust Bank, Ltd. retrust account,
1-8-11 Harumi, Chuo-ku, Tokyo
Sumitomo Mitsui Banking Corporation pension
trust account)
TKY

1-12-3 Sasayama-machi, Kurume-shi, Fukuoka
Total

Notes: 1. The number of the foregoing shares related to fiduciary services is as follows.
Japan Trustee Service Bank, Ltd.: 12,715 thousand shares
The Nomura Trust and Banking Co., Ltd.: 4,387 thousand shares
The Master Trust Bank of Japan, Ltd.: 4,296 thousand shares
2. In addition to the shares listed above, the company owns treasury stock of 11,471 thousand shares (12.05%).

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FINANCIAL REPORT 2017

(8) Details of stock option system
It was resolved at the annual general meeting of shareholders that the Company awards stock options as compensation
for the Company’s directors (excluding outside directors) in accordance with Article 361 of the Companies Act.
The description of the relevant system is as follows.
Hisamitsu Pharmaceutical Co., Inc.
The first subscription rights to shares

Hisamitsu Pharmaceutical Co., Inc.
The second subscription rights to shares

July 10, 2015

July 8, 2016

10 directors of the Company(excluding outside directors)
Provided in (2) Status of sharesubscription rights to shares

10 directors of the Company(excluding outside directors)
Provided in (2) Status of sharesubscription rights to shares

Number of shares

Same as the above

Same as the above

Cash payment upon exercise of subscription
rights to shares

Same as the above

Same as the above

Exercise period of subscription rights to shares

Same as the above

Same as the above

Same as the above

Same as the above

Same as the above

Same as the above

Matters concerning substitute payment

Same as the above

Same as the above

Matters concerning the issuance of subscription
rights to shares accompanying organizational
restructuring

Same as the above

Same as the above

Resolution date
Classification and number of persons to be
grantedClass of shares to be issued upon exercise ofsubscription rights to shares

Conditions for the exercise of subscription
rights to shares
Matters concerning the transfer of subscription
rights to shares

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FINANCIAL REPORT 2017

(9) Stock Administration of the Filing Company
Fiscal year

From March 1 to end of February

Annual general meeting of shareholders In May
Record date

End of February

Record date for distribution of surplus

End of August
End of February

Number of shares constituting one unit

100 shares

Purchase of shares less than one unit
Handling officeTransfer agent

1-4-5 Marunouchi, Chiyoda-ku, Tokyo
Securities Agency Division, Mitsubishi UFJ Trust and Banking Corporation
1-4-5 Marunouchi, Chiyoda-ku, Tokyo
Mitsubishi UFJ Trust and Banking Corporation

Transfer office—

Purchasing fee

FreeMethod of public notice

The Company’s public notice shall be by electronic public notice. However, if electronic public notice
is not available due to accident or other unavoidable reason, the public notice shall be posted on the
Nihon Keizai Shimbun.
The Company’s electronic public notice is posted on our website at the following address:
http://www.hisamitsu.co.jp/ir/koukoku.html

Shareholders’ privileges

None

Notes: 1. For the Company’s shares less than one unit, rights other than the following cannot be exercised:
1) The rights set out in each item of Article 189, Paragraph 2 of the Companies Act.
2) The right to claim pursuant to Article 166, Paragraph 1 of the Companies Act.
3) The right to receive an allotment of shares for subscription or subscription rights to shares for subscription.

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FINANCIAL REPORT 2017

Corporate Information

Group Companies
Our corporate group comprises Hisamitsu Pharmaceutical, 16 consolidated subsidiaries, and 3 equity-method affiliates.
Relationship
Concurrent employees

Name

Location

Capital orinvestment

Main businessactivities

Votingrights(%)

Hisamitsu Hisamitsu
Capitalofficers employees support from
(Persons) (Persons)
Hisamitsu Business transactions

Other

Remarks

Consolidated subsidiaries
CRCC Media Co., Ltd.

Kurume,Fukuoka¥1,115 million Other businesses

69.50

3

—

—

—

—

Saga City-Vision Co.,Ltd.

Saga, Saga

¥605 million Other businesses

70.12

2

—

—

—

—

Taiyo Co., Ltd.

Tosu, Saga

¥50 million Other businesses

100

2

2

—

Agent for casualty
insurance contracts
for Hisamitsu

Hisamitsu
leases land

Kyudo Co., Ltd.

Tosu, Saga

¥10 million Other businesses

100

2

1

—

Provide laboratory
animals and equipment to Hisamitsu

Hisamitsu
leases land
& buildings

Hisamitsu Agency Co.,
Ltd.

Kurume,Fukuoka¥25 million Other businesses

100
(100)

1

1

—

Provide advertising
agency services to
Hisamitsu

Hisamitsu
leases partof a leasebuilding

Hisamitsu U.S., Inc.

DelawareUSA

USD Pharmaceuticals
10

100

1

—

—

—

—

Hisamitsu America, Inc.

New Jersey,
USD Pharmaceuticals
3,000 thousands
USA

100
(100)

1

1

Working
Selling products—
capital loans supplied by Hisamitsu

USD Pharmaceuticals
10

100
(100)

2

—

—

Hisamitsu outsources —development

Note 3

BRL Pharmaceuticals
15 million

100

—

3

Manufacture and sell —Working
capital loans products in Brazil,
with products andsome raw materials
supplied by Hisamitsu

Note 3

GBP Pharmaceuticals
120 thousands

100

1

1

—

Hisamitsu Vietnam
Bien Hoa,
Pharmaceutical Co., Ltd. Vietnam

VND Pharmaceuticals
258,775 million

100

—

3

Manufacture and sell —Working
capital loans products in Vietnam,with products andsome raw materials
supplied by Hisamitsu

Hisamitsu
Pharmaceutical
Technology Consulting(Beijing) Co., Ltd.

Beijing,
China

CNY Pharmaceuticals
1,206 thousand

100

2

2

—

PT. Hisamitsu PharmaIndonesia

Surabaya,Indonesia

IDR Pharmaceuticals
32,518 million

75

1

2

Manufacture and—Working
capital loans sell products inIndonesia, withproducts and some
raw materials
supplied by Hisamitsu

3 other companies

—

— —

—

—

—

—

Noven Pharmaceuticals, Florida,
Inc.
USA
Hisamitsu Farmaceutica
do Brasil Ltda.

Manaus,BrazilHisamitsu UK Ltd.

London, UK

HISAMITSU PHARMACEUTICAL CO., INC.

71

Note 3Note 3

Hisamitsu outsources —development
Note 3

Hisamitsu outsources —medical marketing——

FINANCIAL REPORT 2017

Corporate Information

Relationship
Concurrent employees

Name

Location

Capital orinvestment

Main businessactivities

Votingrights(%)

Hisamitsu Hisamitsu
Capitalofficers employees support from
(Persons) (Persons)
Hisamitsu Business transactions

Other

Remarks

Equity-method affiliates
Sanofi-Hisamitsu K.K.

Shinjuku
Tokyo¥250 million Pharmaceuticals

49.0

2

2

—

Yutoku PharmaceuticalInd. Co., Ltd.

Kashima,Saga¥120 million Pharmaceuticals

15.0

2

—

—

Maruto Sangyo Co., Ltd. Ogori,
Fukuoka¥1,807 million Other businesses

39.8

1

2

—

Supplies—
merchandise to
Hisamitsu
Manufacture and sell—
products with someproducts supplied by
Hisamitsu, supply merchandise of Hisamitsu
Supplies raw—
materials to
Hisamitsu

Note 4

Notes: 1. Main business activities column lists names of business segments.
2. There are no companies in accounting insolvency that would significantly affect the consolidated financial
statements.
3. Specified subsidiary.
4. Listed and files financial statements.
5. Figures in parenthesis in the voting rights column indicate indirect ownership.
6. Net sales of Noven Pharmaceuticals, Inc. (excluding internal sales among consolidated subsidiaries) accounted
for more than 10% of consolidated sales and key earnings information is as follows. Noven Pharmaceuticals, Inc.
prepares financial statements on a consolidated basis and thus the information below is also presented on a consolidated basis.
Key earnings information(1) Net sales(2) Ordinary income(3) p rofit attributable toowners of parent(4) Net assets(5) Total assets

HISAMITSU PHARMACEUTICAL CO., INC.

(Millions of yen)
22,265
2,758(Thousands of U.S. dollars)
197,806
24,502

1,262

11,212

48,57557,251

431,548
508,627

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FINANCIAL REPORT 2017

Corporate Information

Management
Chairman & CEO

NAKATOMI Hirotaka

Standing Corporate Auditor

NAKATOMI Nobuyuki

President & COO

NAKATOMI KazuhideStanding Corporate Auditor

HIRANO MunehikoSenior Managing Director

SUGIYAMA Kousuke

Corporate Auditor

ONO Keinosuke

Managing Director

AKIYAMA Tetsuo

Corporate Auditor

TOKUNAGA Tetsuo

Director

HIGO Naruhito

Director

TSURUDA Toshiaki

Director

TAKAO Shinichiro

Director

SAITO Kyu

Director

TSUTSUMI Nobuo

Director

MURAYAMA Shinichi

Director

ICHIKAWA Isao

Director

FURUKAWA Teijiro
Notes: 1. NAKATOMI Kazuhide, President & COO, is the first son of NAKATOMI Hirotaka, Chairman & CEO.
2. NAKATOMI Nobuyuki, Standing Corporate Auditor, is the younger brother of NAKATOMI Hirotaka,
Chairman & CEO.
3. Directors ICHIKAWA Isao and FURUKAWA Teijiro are Outside Directors.
4. Corporate Auditors ONO Keinosuke and TOKUNAGA Tetsuo are Outside Corporate Auditors.

Company Profile
Company name
FoundedEstablished
Head officeHisamitsu Pharmaceutical Co., Inc.
1847
May 22, 1944
408 Tashiro Daikan-machi, Tosu, Saga

Representative
Capital

NAKATOMI, Hirotaka, Chairman & CEO¥8,473,839,816

Fiscal year
Number of employees

March 1–End of February(As of February 28, 2017)
Business segment
Pharmaceuticals

Employees
2,609 (584)Other businesses
Total

142 (46)
2,751 (630)Note: Employee figures are for full-time employees. Temporary employees are shown in parentheses;
these figures are averages for the fiscal year and are not included in the employees column.

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408 Tashiro Daikan-machi, Tosu,
Saga 841-0017, Japan
Tel: +81-942-83-2101
Fax: +81-942-83-6119
Website: http://www.hisamitsu.co.jp