FINANCIAL REPORT 2010
For the Fiscal Year Ended February 28, 2010

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

More than a half century has elapsed since
the launching of Salonpas, and about 20
billion pieces have been sold in last twenty
years.
Approx. 1.3 million kilometers, encircling theearth 31 times.

the years we have continued to help people improve their health by leveraging
our transdermal 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 is thesource of our competitiveness. We believe this will allow us to respond to theunderlying need for health, safety, and comfort of people around the world andimprove 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.,
Ltd., other than those of historical fact, are forecasts of future business performance based on the judgments of management at Hisamitsu Pharmaceutical Co., Ltd. in light ofcurrently available information. Accordingly, please refrain from making investment decisions based solely on forecasts of 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 ¥89.43=U.S.$1.00, the approximate rate of exchange on February 28, 2010.

Contents

Corporate Vision
Consolidated Financial Highlights

1

To Our Shareholders

2

Milestone

3

Overview of Operations

4

Corporate Governance and Internal Auditing

16

Corporate Information

22

Financial Section

HISAMITSU PHARMACEUTICAL CO., INC

Consolidated Balance Sheets

28

Consolidated Statements of Income

30

Statements of Changes in Consolidated Shareholders’ Equity

31

Consolidated Statements of Cash Flows

32

Notes to Consolidated Financial Statements

34

Corporate Data

60

FINANCIAL REPORT 2010

Consolidated Financial Highlights

Fiscal year (FY) to:

2/06

2/07

2/08

2/09

2/10

Sales

(¥ million)

102,665

109,791

119,061

124,655

129,834

Operating income(¥ million)

22,77026,13429,071

32,53228,585

Ordinary income(¥ million)

24,15927,00130,20432,476

31,231

Net income(¥ million)

14,44815,847

18,663

19,12018,423

Net assets(¥ million)

90,520103,966

113,929

124,105

130,976

Total assets(¥ million)

136,584

141,143

149,750

167,642

193,551

Net assets per share(¥)

1,020.26

1,164.05

1,276.16

1,391.49

1,500.92

EPS(¥)

159.75178.74210.45215.61210.78

Diluted EPS

(¥)

—

—

—

—

—

Equity ratio

(%)

66.3

73.1

75.6

73.6

67.2

ROE

(%)

16.9

16.4

17.2

16.2

14.5

P/E

(x)

17.3

20.0

15.9

13.8

15.4

Operating cash ﬂow(¥ million)

23,114

12,22825,722

22,382

20,498Investing cash ﬂow(¥ million)(18,606)(11,804)(11,911)(15,927)(32,547)

Financing cash ﬂow(¥ million)(303)(9,580)(7,479)(5,467)

4,899

Cash and equivalents at year-end(¥ million)

35,623

26,51032,70633,356

26,232

Employees(average temporary staff)(People)

1,671
(295)

1,629
(353)

1,752
(297)

1,890
(288)

2,562
(369)

Notes: 1. Sales do not include consumption tax.
2. Diluted EPS is not listed due to the absence of residual securities.
3. Net assets have been calculated since FY 2/07 based on the Accounting Standards for the Presentation of Net Assets in the Balance Sheets(Corporate Accounting Standard No. 5) and the Application Guidelines for Accounting Standards for the Presentation of Net Assets in the
Balance Sheets (Corporate Accounting Standard Application Guideline No. 8).

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2010

To Our Stakeholders

I would like to provide an overview of our operations andﬁnancial results for the year to February 28, 2010 (FY 2/10).

the services provided to our customers.
As a result of these business activities, groupwide sales

The ethical pharmaceutical industry continued to facea challenging business environment amid ongoing efforts
to curb healthcare expenditures, notably the promotion ofgrew 4.2% year on year, or ¥5,178 million, to ¥129,834
million; ordinary income decreased 3.8%, or ¥1,244 million,to ¥31,231 million; and net income declined 3.6%, or ¥696

generic drugs. We have responded to these circumstances
by working to provide medical institutions with pertinentscientiﬁc information about our ethical pharmaceuticals,

million, to ¥18,423 million.

particularly our mainstay anti-inﬂammatory pain relief
patches. We have also sought to promote sales of over-thecounter (OCT) pharmaceuticals, mainly anti-inﬂammatory
pain relief patches, amid a slumping market. Our researchand development efforts have focused on research in areasof specialty and on the development of new topical andtransdermal products. In our production facilities, we haveupgraded equipment to raise efﬁciency and improve quality,and have sought to maintain and increase ISO 14001
certiﬁcations to help protect the global environment. In ourcable television broadcasting and other businesses, groupcompanies have worked to improve earnings by enhancing

NAKATOMI Hirotaka
President & CEO

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FINANCIAL REPORT 2010

Milestone

1847
Komatsuya founded.
Emblem of “Komatsuya”

1903
Hisamitsu & Co. (Saburo Nakatomi,
representative) established

1934
SALONPAS
introduced to the market

1937
SALONPAS
begins overseas export

1988
MOHRUS
introduced to the market

1995
MOHRUS TAPE
introduced to the market

2003
Hisamitsu’s
corporate logo mark renewed

2007
The 160th anniversaryof the company’s founding

2008
SALONPAS PAIN RELIEF PATCH
SALONPAS ARTHRITIS PAIN
approved as the ﬁrst OTC topicalanalgesic patch by FDA

Hisamitsu Pharmaceutical was founded in the mid-19th century under thename of Komatsuya. The company went on to create a large variety ofhealth-related products, and has been the organization responsible for thepromotion of new ideas based on its comprehensive system encompassing
research, development, manufacturing, and sales. Salonpas was in fact introduced in 1934, and with its outright effectiveness achieved the positionof market leadership it continues to hold today. Salonpas was developed
through the application of Asahi Mankinko, the prototype therapeutic patch

HISAMITSU PHARMACEUTICAL CO., INC

or that we introduced back in 1903. Just as its market launch signaled ahigh level of reﬁnement, the product has evolved considerably since then,thanks to the comments of everyday users. Moreover, it has served to expand the culture of patch treatment, in which therapeutic patches are promoted as safe and easy to use. Diversity has become a key word in termsof culture and lifestyle today, yet unfortunately this has brought forth newhealth concerns associated with increased stress and reduced exercise.

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FINANCIAL REPORT 2010

Overview of Operations

1. Overview of Operations(1) Operating results
Although the Japanese economy showed some signs of a recovery after the worldwide economic downturn triggeredby the U.S. ﬁnancial crisis, the effect of global ﬁnancial instability remained severe, with a slowdown in employment andconsumption. The operating environment for the ethical pharmaceutical industry remains severe, with no change to thegovernment’s stance of curtailing healthcare spending. In Japan, we have responded to these conditions by providing
medical institutions with targeted scientiﬁc information about our ethical pharmaceuticals, particularly our mainstay antiinﬂammatory pain relief patches.
Having concluded that preparing overseas development, manufacturing, and sales infrastructure for ethicalpharmaceuticals was essential for further growth of our business, especially in the U.S., we acquired U.S. pharmaceuticalcompany Noven Pharmaceuticals in August 2009. With proprietary transdermal delivery system (TDDS) technology, Noven
Pharmaceuticals has a strong presence in the U.S. market in treatments for central nervous system and gynecologicaldisorders.
We also worked to launch and promote sales of OTC pharmaceuticals, especially our anti-inﬂammatory pain relief
patches, amid a slumping market. Our research and development efforts have focused on research in our specialty areas
and on the development of new products with novel local or systemic effects.
At our production facilities, we acquired ISO 14001 (international environmental management standard) certiﬁcation
for the Tosu and Utsunomiya plants to help protect the global environment. Speciﬁcally, we improved the efﬁciency of
manufacturing processes, introduced solar power generation, switched from a heavy oil boiler to a natural gas boiler,
introduced sodium sulfur (NAS) batteries to reduce the consumption of resources, and took steps to reduce our environmental
footprint by saving energy and reducing waste.
The company and employees took part in community service programs such as the Japan Red Cross Society street
collections for its overseas programs, supported nonproﬁt organizations through the Hisamitsu Hot Heart Club, in which thecompany matches donations deducted from employees’ and directors’ salaries, and made an emergency relief donation to
Haiti after the January 2010 earthquake.
In our cable television broadcasting and other businesses, group companies worked to improve earnings by enhancing
the services they provide to customers.
As a result of these business activities, consolidated sales grew 4.2% year on year, or ¥5,178 million, to ¥129,834
million. Operating income declined 12.1% year on year, or ¥3,946 million, to ¥28,585 million due to posting expenses suchas in-process R&D costs and goodwill amortization associated with the acquisition of Noven Pharmaceuticals. Ordinary
income declined 3.8% year on year, or ¥1,244 million, to ¥31,231 million; and net income declined 3.6% year on year or¥696 million, to ¥18,423 million.

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FINANCIAL REPORT 2010

Overview of Operations

Pharmaceuticals and related products
The pharmaceuticals and related products segment, particularly the ethical pharmaceuticals business, faced an extremely
uncertain business environment during FY 2/09 amid national efforts to curb healthcare expenditures. We responded
to these circumstances by providing medical institutions with appropriate and detailed scientiﬁc information about our
products, particularly our anti-inﬂammatory pain relief patches. While collecting and supplying information on efﬁcacy andsafety, we sought to expand our market share for a variety of products, including our mainstay product Mohrus Tape 20mg,
a ketoprofen transdermal patch; Mohrus Tape L 40mg, a double-sized version of the Mohrus Tape patch; Mohrus Pap
30mg, a ketoprofen transdermal patch; Mohrus Pap 60mg, a ketoprofen transdermal patch that can be applied to a large
area; Estrana Tape 0.72mg, an estradiol transdermal patch; and HMT, a transdermal patch containing the bronchodilator
tulobuterol.
In November 2009, we obtained an approval from the Japanese health authorities for additional indication for reliefof local pain associated with rheumatoid arthritis for MOHRUS Tape®—the ﬁrst for a non-steroid transdermal pain relief
product. This has given patients an additional option of using a patch for pain relief associated with rheumatoid arthritis.
In the OTC business, the impact of deregulation of pharmaceutical sales by means of a revision to the Pharmaceutical
Affairs Law of June 2009 proved limited. Amid a continued market slump, we sought to increase sales by expanding anddeveloping our customer base through existing product improvements and new product launches, including our mainstay
anti-inﬂammatory pain relief patches and an improved Butenalock V. We also worked to pioneer a new user base in thelifestyle disease market. In FY2/10, we began selling Switch OTC products made from the compound diclofenac sodium—
Feitas® Z Tape, Feitas® Z Sip, and Feitas® Z Gel to cultivate new users.
Overseas, we began sales of Salonpas® Pain Relief Patch and Salonpas® Arthritis Pain—the only OTC pain relief
patches in the world to be approved by the US Food and Drug Administration—in February 2008.
As a result of these efforts, sales in the pharmaceutical and other products segment grew 3.8% year on year, or ¥4,637
million, to ¥126,404 million.
Cable television broadcasting and other businesses
In our cable and television broadcasting business, we completed preparations for terrestrial digital broadcasting and soughtto acquire customers for cable television and cable Internet services by expanding our service area.
We also worked to improve earnings in other businesses, including the production and sales of laboratory animals,
by expanding sales channels, improving customer services, and streamlining operations. As a result, sales in the cable
television broadcasting and other businesses grew 18.7% year on year, or ¥540 million, to ¥3,429 million.
Sales by regional segment were as follows:
Japan:
Sales in Japan were ¥121,984 million and operating income was ¥34,012 million.
North America:
Sales in North America were ¥3,930 million, of which sales of Noven Pharmaceuticals, which became
a consolidated subsidiary in FY2/10, accounted for ¥2,470 million. The operating loss in North America
was ¥5,473 million.
Other:
Sales in other regions were ¥3,918 million and operating income was ¥139 million.

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FINANCIAL REPORT 2010

Overview of Operations(2) Cash ﬂows
Cash provided by operating activities in FY2/10 totaled ¥20,498 million, a decrease of ¥1,884 million year on year, due
mainly to a decrease in notes and accounts receivable and despite an increase in equity-method investment proﬁt andincome taxes paid.
Cash used in investing activities totaled ¥32,547 million, an increase of ¥16,619 million year on year, due mainly tospending on the acquisition of shares in subsidiaries.
Cash provided by ﬁnancial activities totaled ¥4,899 million, an increase of ¥10,366 million year on year, due mainly to anincrease in proceeds from issuance of long-term borrowings.
As a result of the foregoing, cash and cash equivalents at the end of the ﬁscal year totaled ¥26,232 million, a decreaseof ¥7,124 million from the beginning of the ﬁscal year.
(3) Production, orders and sales results
1) Actual production
A breakdown of actual production by business segment in FY 2/10 is provided below.
Business segment
Pharmaceuticals and related products
Topical analgesic products(Millions of yen)

YoY (%)

120,2483.6

110,076

2.0

Other topical and transdermal products

5,007

3.1

Others

5,164

58.5

—

—

183

(7.0)

120,431

3.6

Cable television broadcasting
Other businesses
Total

Notes: 1. Sales to main customers and percentage to total sales
2. The above values do not include consumption tax.
3. The above totals exclude the two cable television broadcasting companies (Saga City-Vision Co., Ltd.
and CRCC Media Co., Ltd.) and companies in the Other businesses segment (Taiyo Co., Ltd. andHisamitsu Agency Co., Ltd.), which do not engage in production.
2) OrdersHisamitsu group does not manufacture goods to order. We have a made-to-stock manufacturing system, taking into accountgeneral market trends and other factors.
3) Sales results
Our sales results broken down by business segment are as follows:

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2010

Overview of Operations

Business segment(Millions of yen)

YoY (%)

126,404

3.8

113,581

1.8

Other topical and transdermal products

3,549(15.0)

Others

9,273

54.4

2,128

17.9

1,300

20.1

129,834

4.2

Pharmaceuticals and related products
Topical analgesic products

Cable television broadcasting
Other businesses
Total

Notes: 1. Sales breakdown by main customers and percentage of sales to main customers.
FY 2/09
Customer

FY 2/10

Sales (¥ million)% of total

Sales (¥ million)% of total

Medipal Holdings Corporation

28,88723.2

28,71722.1

Alfresa Holdings Corporation

19,04315.3

20,101

15.5

Mediceo Paltac Holdings Co., Ltd. changed its company name to Medipal Holdings Corporation as of
October 1, 2009.
2. The foregoing ﬁgures do not include consumption tax.

2. Key Challenges
Pharmaceuticals and related products
We expect the ethical pharmaceuticals business to face continued efforts to curb pharmaceutical expenditures, including
a 6.5% across-the-board National Health Insurance drug reimbursement price cut in April 2010, against a backdrop of a
rapidly aging population. In response to this difﬁcult business environment, we are stepping up efforts to provide medical
institutions with scientiﬁc information and we seek to develop new topical and transdermal products that meet the needs of
medical institutions and their patients.
For OTC pharmaceuticals, amid a prolonged market slump and intensifying competition, we seek to expand sales ofmainstay anti-inﬂammatory pain relief patches and respond to the needs of our customers by continuing to improve existingproducts and developing new products.
In overseas business, we are working to establish our brand in terms of trademarks, designs, manufacturing technology,
and quality control systems, and to further augment overseas manufacturing facilities and promote overseas clinical trials.
In the U.S. ethical pharmaceutical market, we plan to enhance our R&D capability at our business base Noven
Pharmaceuticals by combining our areas of strength in technology, as well as building a manufacturing and sales network.
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 researchin areas of specialty.

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Overview of Operations

Cable television broadcasting and other businesses
In the cable television broadcasting and other businesses, including the production and sale of laboratory animals, ourgroup companies are working to expand their businesses and provide precise services to their customers while further
improving earnings by streamlining management and bolstering their corporate structure.
Basic policy on control of the company(1) Overview of our basic policy
We believe any entity with control over decision-making related to the company’s ﬁnancial and business affairs 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 the company’s stock, provided that it contributes to enterprise value and thecommon 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 thedetails and possibly prepare a counteroffer; those that have conditions (e.g., purchase price, timing, and method) that areeither 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 enterprise value.
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 necessary and appropriate countermeasures must
be taken against any large stock purchase or proposed acquisition by such an entity to ensure the company’s enterprisevalue and the common interests of shareholders.
(2) Speciﬁc initiatives to achieve our basic policy
1) Speciﬁc initiatives to achieve 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. External patches that are easy for anyone to apply topromote healing are consistent with the current interest in improving therapeutic drugs and 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.

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Overview of Operations

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, byconcentrating on the creation of new drugs and new drug preparations based on our accumulated expertise and experienceand the support of our customers. We have also created products in new areas other than anti-inﬂammatory pain relief,
including the external antifungal drug Volley and the hormone replacement patch Estrana, and are expanding our businessinternationally by conducting sales, pursuing research and development, and acquiring approvals in various countries
around the world.
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: 1) broad access to a variety of drugs createdby a number of companies, and research and development capabilities to make these drugs available in patches; 2)
manufacturing technology and quality control systems that enable the efﬁcient, stable, and ongoing production of high-quality
products; 3) marketing prowess to cultivate several long-selling and market-leading brands, including Salonpas, Salonsip,
Feitas, Butenalock, Mohrus Pap, and Mohrus Tape; and 4) an integrated research and development, manufacturing, andsales 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 pharmaceuticalcompany 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.
We are also actively pursuing licensing activities, including an agreement with Mundipharma International Limited for the
exclusive distribution in Japan of Norspan, a buprenorphine patch to treat noncancerous moderate to severe back pain andchronic osteoarthritis pain.
In this way, we seek to increase cash ﬂow through the active pursuit of our business and to create future assets thatwill contribute to the common interests of shareholders through the development of new topical and transdermal products,
international expansion of our brands in terms trademarks, designs, manufacturing technology, and quality control systems,
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.

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FINANCIAL REPORT 2010

Overview of Operations

In particular, we seek to maintain ROE at 15% or higher from the standpoint of raising capital efﬁciency, and to consistently
pay divides with a target payout ratio of 30%.
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
Our board of directors voted at a meeting held on March 27, 2008 to adopt takeover defense measures to counter large
purchases of the company’s stock. These takeover defenses apply to purchases of the company’s stock with the objective
or result of a speciﬁc shareholder group owning 20% or more of the voting rights. Purchasers are required to follow certain
procedures in providing shareholders, the company’s board of directors, and an independent committee with information
on which to base their decision. If the purchaser fails to comply with these procedures or if the purchase will damage thecompany’s enterprise value and the common interests of shareholders, then the company can pursue countermeasuresagainst the purchaser in the form of a gratis allotment of share acquisition rights or other appropriate countermeasurethat the board of directors is permitted to take based on the Companies Act, other laws, and the company’s articles ofincorporation.
Whether countermeasures based on these takeover defenses are adopted is ultimately a decision of the board of
directors, but to ensure the proper use of these takeover defenses and objective, rational, and impartial decisions by thecompany’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.
These takeover defenses were effective from March 27, 2008 until the conclusion of the annual meeting of shareholders
on May 22, 2008, but upon approval by shareholders at this annual meeting, the effective period was extended until theconclusion of the annual meeting of shareholders for the ﬁscal year ending on February 28, 2011. Additionally, thesetakeover defenses shall be terminated immediately if the board of directors comprising directors appointed at a general
meeting of shareholders decides to terminate these defenses.
(3) 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 speciﬁc policies
to ensure and enhance on an ongoing basis the company’s enterprise value and the common interests of shareholders.
Accordingly, these initiatives comply with our basic policy and will not damage the common interests of shareholders.
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
These takeover defenses comply in their content with our basic policy and are intended to ensure objectivity and rationality inthe decisions of the board of directors. Further, these defenses were adopted to ensure and enhance the company’s enterprisevalue and the common interests of shareholders, and are not intended to maintain the position of the company’s directors.

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FINANCIAL REPORT 2010

Overview of Operations

3. 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 FY 2/10.
(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 ligation 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.

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FINANCIAL REPORT 2010

Overview of Operations(8) Other risks
In addition to the foregoing, other potential risks include natural disasters and the security of computer systems.

4. Important Business Agreements
Joint sales agreement
We concluded an agreement with Kyowa Hakko Kirin Co., Ltd. (headquarters: Chiyoda-ku, Tokyo) on June 18, 2008 on
joint sales in Japan of a transdermal sustained-release drug for the treatment of cancer pain, which is currently underdevelopment by Hisamitsu Pharmaceutical.
(1) Counterparty to the agreement
Kyowa Hakko Kirin Co., Ltd.
(2) Agreement details
Contract on the joint sale within Japan of a transdermal sustained-release drug for cancer pain (development code: HFT290) currently under development by Hisamitsu Pharmaceutical.
(3) Compensation
Compensation commensurate with a one-time contract payment.
Co-promotion agreement
We concluded an agreement with Banyu Pharmaceutical Co., Ltd. (headquarters: Chiyoda-ku, Tokyo) on January 23, 2009,
on co-promotion within Japan of the Banyu-manufactured and marketed drug Fosamac for osteoporosis.
(1) Counterparty to the agreement
Banyu Pharmaceutical Co., Ltd.
(2) Agreement details
Contract on co-promotion within Japan of the Banyu-manufactured and marketed drug Fosamac for osteoporosis.
(3) Compensation
Compensation commensurate with the results of the co-promotion
Distribution agreement
We concluded an exclusive contract with Mundipharma International Limited of Switzerland on August 6, 2007, for theJapanese distribution rights to BTDS, a transdermal sustained-release pain relief patch. The agreement includes a one-time
payment at the conclusion of the contract and subsequent milestone payments based on development progress and sales.

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Overview of Operations

Agreements concerning conversion of a company to a subsidiary by takeover bid and merger
On July 14, 2009 we concluded an agreement with U.S. company Noven Pharmaceuticals concerning a takeover bid for thecompany’s shares, and to convert make the company subsidiary by a subsequent merger. The acquisition was completed
on August 28, 2009. A summary of the transaction is provided in the Notes to Consolidated Balance Sheets in Financial
Section, Scope of consolidation on page 55.

5. Research and Development
Pharmaceuticals and related products
Our R&D program centered on the development of transdermal pharmaceutical products targets the needs of medical
institutions. For ethical pharmaceuticals in Japan, we obtained approval for the additional indication of rheumatoid arthritis
pain for the anti-inﬂammatory pain relief patch Mohrus Tape (KPT-220; generic name: ketoprofen) in November 2009.
We independently developed Fentos Tape (HFT-290), a transdermal, long-acting cancer pain relief patch, and obtained
approval in April 2010. We have a joint sales agreement on HFT-290 in Japan with Kyowa Hakko Kirin.
We also concluded a joint distribution and sales agreement in Japan with Kyowa Hakko Kirin for oral cancer pain relief
fentnyl citrate (KW2246) in February 2010, which Kyowa Hakko Kirin has filed an NDA (KW2246) as a new breakthroughcancer drug.
Mundipharma International Limited has ﬁled an NDA in Japan for BTDS, a transdermal, sustained-released pain relief
patch, for which we have concluded an in-licensing agreement.
We completed phase 2 trials of HTU-520 (generic name: terbinaﬁne hydrochloride), a patch to treat Tinea unguium, andHOB-294 (generic name: oxybutynin hydrochloride), a patch to treat an overactive bladder, and are preparing for phase 3
trials.
In the United States, we obtained FDA approval for Fentanyl Transdermal System (HFG-512), a generic transdermal
patch for the management of chronic pain that was transferred to our consolidated subsidiary Noven Pharmaceuticals.
Apotex has commenced sales of the product in the U.S.
For OTC pharmaceuticals, the transdermal anti-inﬂammatory Salonpas Pain Relief Patch (FS-67) is undergoing postsale clinical trials with pediatric patients on request from the FDA.
In the U.S. ethical pharmaceutical market, we plan to enhance our R&D capability at our business base Noven
Pharmaceuticals by combining our areas of strength in technology.
Cable television broadcasting and other businesses
We do not conduct research and development in our cable television broadcasting business.
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 expenditures totaled ¥10,447 million in FY 2/10.

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FINANCIAL REPORT 2010

Overview of Operations

6. Analysis of Financial Position, Operating Results, and Cash Flows(1) Analysis of ﬁnancial position in FY 2/10
1) Assets
Assets totaled ¥193,551 million at the end of FY2/10, an increase of ¥25,908 million from the previous year, due mainly
to acquisition of Noven Pharmaceuticals, a ¥5,800 million increase in goodwill and ¥18,514 million increase in investment
securities.
2) Liabilities
Liabilities totaled ¥62,574 million at the end of FY2/10, an increase of ¥19,037 million from the previous year, due mainly toacquisition of Noven Pharmaceuticals, an increase in short-term borrowings of ¥9,437 million and an increase in long-termborrowings of ¥7,260 million.
3) Net assets
Net assets totaled ¥130,976 million at the end of FY2/10, an increase of ¥6,870 million from the previous year, due mainly
to posting ¥5,775 million in dividend payments, ¥5,949 million in treasury shares, and ¥18,423 million in net income.
(2) Analysis of operating results in FY 2/10
1) SalesSales grew 4.2% year on year to ¥129,834 million. Sales growth of mainstay product Mohrus Tape L and sales of acquiredcompany Noven Pharmaceutical contributed to sales growth .
2) Operating income
Operating income fell 12.1% year on year to ¥28,585 million as a result of an increase in sales promotion expenses tostrengthen sales operations and a rise in R&D expenses associated with making Noven Pharmaceuticals a consolidated
subsidiary.
3) Ordinary income
Ordinary income fell 3.8% year on year to ¥31,231 million as a result of an increase in equity-method investment proﬁt
associated with the acquisition of Noven Pharmaceuticals.
4) Net income
Net income fell 3.6 % year on year to ¥18,423 million as a result of income from R&D expenses received. Consequently,
earnings per share totaled ¥210.78 in FY2/10, and return on equity was 14.5%.

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FINANCIAL REPORT 2010

Overview of Operations(3) Analysis of cash ﬂows in FY2/10
Cash and cash equivalents at the end of the FY2/10 totaled ¥26,232 million, a decrease of ¥7,124 million from the beginningof the ﬁscal year.
1) Cash provided by operating activities
Cash provided by operating activities totaled ¥20,498 million, a decrease of ¥1,884 million year on year, due mainly to an
decrease in notes and accounts receivable and despite an increase in equity-method investment proﬁt and income taxes
paid.
2) Cash used in investing activities
Cash used in investing activities totaled ¥32,547 million, an increase of ¥16,619 million year on year, due mainly to spendingon the acquisition of shares in subsidiaries.
3) Cash provided by ﬁnancial activities
Cash provided by ﬁnancial activities totaled ¥4,899 million, an increase of ¥10,366 million year on year, due mainly to anincrease in proceeds from issuance of long-term borrowings.

7. Capital Expenditures
Capital expenditures totaled ¥6,229 million in FY 2/10, due mainly to augmenting and expanding production and researchequipment.
In the pharmaceuticals and related products business, we mainly augmented production equipment at the Tosu plant andproduction equipment at the Utsunomiya plant, and expanded research equipment at the formulation research laboratories,
requiring capital expenditures of ¥4,028 million.
In the cable television broadcasting business, we mainly invested to expand bandwidth to provide digital capabilities toour subscribers, resulting in capital expenditures of ¥440 million.
We did not sell or remove any equipment that would affect production capacity in FY 2/10.

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FINANCIAL REPORT 2010

Corporate Governance and Internal Auditing

8. 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 FY 2/10 we paid an interim dividend of ¥34 per share and a year-end dividend of ¥34 per share, for an annual dividendof ¥68 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 in FY 2/10 are as follows.
Resolution date

Total dividends (¥ million)

Dividends per share (¥)

2,981

34

2,947

34

September 30, 2009
Board of directors resolution
May 26, 2010
General meeting of shareholders resolution

9. Corporate Governance(1) Basic approach to corporate governance
We have prepared basic internal control policies to enhance management transparency and ensure compliance, and we
consider the improvement of corporate government 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 the performance 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.

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FINANCIAL REPORT 2010

Corporate Governance and Internal Auditing(2) Corporate organization and internal control systems
Directors, executive ofﬁcers, and auditors
In the area of corporate governance, we reduced the number of directors and introduced an executive ofﬁcer system toclarify the responsibilities and authority of management and speed up decision-making and business execution.
To bolster our management structure further, we changed the articles of incorporation to reduce the number of directors
from 13 or fewer to 10 or fewer at the annual general meeting of shareholders on May 25, 2006. In March 2003, we introduced an executive ofﬁcer system to improve the speed, transparency, and strategic focus of business decisions.
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. We introduced an executiveofﬁcer system in March 2003 with the goals of accelerating management decisions and improving their transparency andstrategic focus. We have also 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 two of the four auditors comprise outside
auditors at the annual general meeting of shareholders on May 26, 2004. To bolster management oversight further andstrengthen our auditing system, we changed the articles of incorporation to increase the number of auditors from 4 or fewer
to 6 or fewer at the annual general meeting of shareholders on May 25, 2006.
Auditors attend meetings of the board of directors, regularly convene meetings of the board of auditors, and receive audit
reports from the independent auditor as needed. Our two outside auditors do not have any business relationships or otherinterests with the company.
Resolutions to appoint or remove directors(1) 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.
(2) The articles of incorporation stipulate that resolutions to appoint auditors require a minimum two-thirds vote of shareholders owning a majority of the voting rights of shareholders capable of executing voting rights.
Acquisition of treasury shares
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 165-2of the Companies Act.

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FINANCIAL REPORT 2010

Corporate Governance and Internal Auditing

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.
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 a minimum
one-third of the voting rights of shareholders capable of executing voting rights, except as otherwise provided for by thearticles of incorporation.
Internal auditing
We established the Internal Audit Ofﬁce (two auditors) as an internal audit division. The Internal Audit Ofﬁce 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 the boardof directors and the board of auditors, promoting mutual cooperation, reporting to relevant business division managers anddirectors, and providing support and advice as needed to improve internal control.
Independent auditing
We have concluded an auditing contract with KPMG AZSA & Co. to serve as an independent auditor responsible for accounting auditing, and by providing accurate business information and taking other steps, we provide an environment conducive to fair auditing. There are no special interests between the company and KPMG AZSA & Co. and their designatedand engagement partners. We also receive advice as needed from advisory lawyers related to routine legal matters.
Audit certiﬁcation
In compliance with article 193-2-1 of the Financial Instruments and Exchange Law, KPMG AZSA & Co. audited the consolidated and non-consolidated ﬁnancial statements for the previous ﬁscal year (March 1, 2008 to February 28, 2009) andthe 107th ﬁscal period (March 1, 2008 to February 28, 2009), as well as for this ﬁscal year (March 1, 2009 to February 28,2010) and the 108th ﬁscal period (March 1, 2009 to February 28, 2010).
Audit company providing auditing services
Audit company

Certiﬁed public accountants providing auditing services

Assisting personnel

KPMG AZSA & Co.

Designated and Engagement Partner

Hiromi Kimura

CPAs

3

KPMG AZSA & Co.

Designated and Engagement Partner

Yoshihide Takehisa

Other

11

KPMG AZSA & Co.

Designated and Engagement Partner

Gensei Yamane

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FINANCIAL REPORT 2010

Corporate Governance and Internal Auditing

Note: A statement on the years of continuous audit service is omitted because all auditors have served fewer
than seven years.
Corporate governance structure

General shareholders meeting
Appoint and remove

Appoint and remove

Audit

Independent auditor

Board of Directors
Directors

Audit

Representative
director

Management Advisory
Council
Directors and auditors
AdviceInternal Audit Ofﬁce

Committees
Compliance Promotion Committee

Advising attorneys and other specialists

Board of Auditors
Auditors
Operational andaccounting auditing

Appoint and remove

Crisis Management Committee
Privacy Protection Committee
Audit

Disclosure Policy TeamCSR Committee

Various business divisions and group companies

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FINANCIAL REPORT 2010

Corporate Governance and Internal Auditing(3) 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.
Various committees
Compliance Promotion Committee and Compliance Promotion Ofﬁce (Chair: Director)
We prepared the Hisamitsu Corporate Charter in June 2002 and established the Compliance Promotion Committee andCompliance Promotion Ofﬁce, to promote thorough and ethical compliance. We have distributed handbooks to ofﬁcers andemployees 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: President & CEO)We established a Crisis Headquarters to help prevent risk and prepare for times of crisis, established a permanent Crisis
Management Committee to operate in normal times, and conduct training of committee members as needed.
Privacy Protection Committee (Chair: Director of Human Resources)
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: President & 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 (chairman: Production Environment Division Manager)
We set up the CSR Committee to progress our environmental and community service programs. Headed by the CSR Ofﬁce,
the CSR Committee is made up of CSR committee members in each business division and engages in CSR programs.

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FINANCIAL REPORT 2010

Corporate Governance and Internal Auditing(4) Executive compensation
The company’s directors and auditors receive the following compensation.
Directors¥346 million

Auditors¥45 million (including ¥14 million for outside auditors)

Notes: 1. The above ﬁgures include provision for directors’ retirement beneﬁt transferred in FY 2/10.
2. Directors’ compensation does not include employee salaries for directors who also serve as employees.
3. There are no outside directors.
(5) Auditor compensation
Breakdown of auditor compensation
1) Breakdown of compensation for certiﬁed public accountants providing auditing services, etc.
FY 2/09

FY 2/10Compensation for audit
certiﬁcation services(¥mn)

Compensation for nonauditing services(¥mn)

Compensation for audit
certiﬁcation services(¥mn)

Compensation for nonauditing services(¥mn)

The company

—

—

52

—

Subsidiaries

—

—

4

—

Total

—

—

57

—

Category

2) Breakdown of other important compensation
The company and most of its overseas consolidated subsidiaries pay the KPMG Group, which belongs to the same network
as our certiﬁed public accounts providing auditing services, for audit certiﬁcation and non-auditing services (such as tax
advisory services).
3) Details of non-auditing services provided by certiﬁed public accountants to the company
Not applicable4) Policy on setting compensation for auditing services
Not applicable

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FINANCIAL REPORT 2010

Corporate Information

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

Total authorized shares

Ordinary shares

380,000,000

Total

380,000,000

2) Shares issued and outstanding
Type of shares

Shares outstanding on
ﬁling date
(May 27, 2010)

Names of listing stock exchanges
or registered securities dealers
associations

Details

95,164,895

95,164,895

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

All voting shares, standard
shares with unlimited rights(Share units: 100 shares)

95,164,895

95,164,895——

Shares outstanding at endFY 2/09
(February 28, 2010)

Ordinary shares

Total

Note: The board of directors voted to delist our shares from the Osaka Securities Exchange at a meeting on May
26, 2010 and ﬁled a delisting application on May 27, 2010.
(2) Status of share subscription rights
Not applicable.
(3) Execution of warrant bonds, etc., with clause allowing change in exercise priceNot applicable, since it applies to ﬁnancial reports concerning ﬁscal years starting on or after February 1, 2010.
(4) Details of rights plans
Not applicable.
(5) Changes in shares outstanding, common stock, and other items

Date

Change in shares
outstanding(Shares)

Shares outstanding(Shares)

Change in common
stock(¥ million)

Common stock(¥ million)

July 5, 2002(Note)—

95,164,895

—

8,473

Change in additional Additional paid-in
capitalpaid-in capital(¥ million)(¥ million)−6,123

2,118

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).

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FINANCIAL REPORT 2010

Corporate Information(6) Details of shareholders
As of February 28, 2010
Status of shares (investment unit comprises 100 shares)
Category

National
and local
government

Foreign shareholders
Financial
institutions

Securities
companies

Other
corporations

Nonindividuals

Individuals

Individuals
and other

Total

Shares under
one unit(shares)

Shareholders(entities)

—

71

35

196

289

4

7,262

7,857

—

Shares owned(units)—479,724

3,057

156,793

115,84415

195,730

951,163

48,595

Ratio
(%)

—

50.44

0.32

16.48

12.18

0.00

20.58

100.00—Note:

A total of 8,467,676 treasury shares are listed as 84,676 units in the individuals and other column andas 76 shares in the shares under one unit column. The 8,467,676 treasury share ﬁgure is the numberof shares listed in the shareholder registry.

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FINANCIAL REPORT 2010

Corporate Information(7) Principal shareholders
As of February 28, 2010
Name

Address

Percentage ofShares owned
shares outstanding(thou shares)(%)

Japan Trustee Service Bank, Ltd. (trust account) 1-8-11 Harumi, Chuo-ku, Tokyo

6,501

6.83

Nippon Life Insurance Company

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

6,108

6.42

The Master Trust Bank of Japan, Ltd.
(trust account)

2-11-3 Hamamatsu-cho, Minato-ku, Tokyo

5,039

5.30

2-2-2 Otemachi, Chiyoda-ku, Tokyo

4,387

4.61

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

4,370

4.59

Fukuoka Bank

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

3,871

4.07

The Bank of Saga, Ltd.

2-7-20 Tojin, Saga

3,356

3.53

2,064

2.17

2,000

2.10

1,834

1.93

39,531

41.54

The Nomura Trust and Banking Co., Ltd.
(The Bank of Tokyo-Mitsubishi UFJ, Ltd.
pension trust account)
Japan Trustee Service Bank, Ltd.
(Resona Trust & Banking Co., Ltd. retrust
account, The Nishi-Nippon City Bank, Ltd.
pension trust account)

Japan Trustee Service Bank, Ltd.
(The Sumitomo Trust & Banking Co., Ltd. retrust
1-8-11 Harumi, Chuo-ku, Tokyoaccount, Sumitomo Mitsui Banking Corporation
pension trust account)
Japan Trustee Service Bank, Ltd.
(Resona, Trust & Banking Co., Ltd. retrust
1-8-11 Harumi, Chuo-ku, Tokyoaccount, Resona Bank, Limited pension trust
account)
TKY

1-12-3 Shinoyama-cho, Kurume, Fukuoka
Total

Notes: 1. The number of the foregoing shares related to ﬁduciary services is as follows.
Japan Trustee Service Bank, Ltd.: 14,935,000 shares
The Master Trust Bank of Japan, Ltd.: 5,039,000 shares
The Nomura Trust and Banking Co., Ltd. 4,387,000 shares
2. In addition to the shares listed above, the company owns 8,467,000 treasury shares (8.90%).

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2010

Corporate Information(7) Status of voting rights
1) Shares issued
As of February 28, 2010
SharesVoting rights

Details

Shares without voting rights

—

—

—

Shares with limited voting rights(treasury shares, etc.)

—

—

—

Shares with limited voting rights(other)———(Treasury shares) Ordinary shares
8,467,600—

Standard shares with unlimited
rights(Cross-held shares) Ordinary shares
64,800—Same as above

Shares with full voting rights (other)

Ordinary shares
86,583,900

865,839

Same as above

Shares less than one unit

Ordinary shares
48,595—Same as above

95,164,895

—

—

—

865,839—

Shares with full voting rights(treasury shares, etc.)

Total shares issued
Total voting rights of shareholders

Note: 1. The shares with less than one unit section includes 76 treasury shares held by the company.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2010

Corporate Information

2) Treasury shares and cross-held shares
As of February 28, 2010
Shares held under thename of others

Total shares held

8,467,600—

8,467,600

8.90

892-1 Hikata Ogori-shi,
Fukuoka

23,00041,80064,8000.07—

8,490,600

41,8008,532,400

8.97

Address(Treasury shares)
408 Tashiro DaikanHisamitsu
machi, Tosu-shi Saga
Pharmaceutical Co., Ltd.
(Cross-held shares)
Maruto Co., Ltd.

Ratio to shares
outstanding (%)

Shares held under own
nameShareholders

Total

Note: 1. Reason for holding shares under the name of others
ReasonJointly held shares in shareholding
company

Name

Address

Hisamitsu Pharmaceutical Torihikisaki
Mochikabukai

Tashiro Daikan-machi, Tosu-shi Saga

(8) Stock option plans
Not applicable.

11. Acquisition of Treasury Shares
Share types

Acquisition of common stock according to articles 155-3 and 155-7 of the Companies Act(1) Acquisition based on a resolution by the general meeting of shareholders
Not applicable.
(2) Acquisition based on a resolution by the board of directors
Acquisition of common stock according to article 155-3 of the Companies Act
Category

No. of shares

Total value

Resolution at board of directors meeting on February 26, 2009(acquisition period: March 4–31, 2009)

1,000,000

3,500,000,000

Treasury shares repurchased before FY2/10——

Treasury shares repurchased during FY2/10

1,000,000

2,902,439,000

board of directors and their total value—

597,561,000

Percentage of shares not yet acquired at the end of FY2/10 (%)

—

17.1

Shares to be repurchased during the acquisition period——

Percentage of shares not yet acquired at ﬁling date (%)

—

17.1

Remaining shares to be acquired based on resolution by

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2010

Corporate Information

Category

No. of shares

Total value

Resolution at board of directors meeting on November 12, 2009(acquisition period: November 19–December 25, 2009)

1,000,000

3,500,000,000

Treasury shares repurchased before FY2/10——

Treasury shares repurchased during FY2/10

1,000,000

3,043,424,500

board of directors and their total value—

456,575,500

Percentage of shares not yet acquired at the end of FY2/10 (%)

—

13.0

Shares to be repurchased during the acquisition period——

Percentage of shares not yet acquired at ﬁling date (%)

—

13.0

Remaining shares to be acquired based on resolution by(3) Acquisition not based on a resolution by the general meeting of shareholders or the board of directors
SharesTotal value (¥)

Treasury shares acquired during FY 2/10

885

2,695,940

Treasury shares acquired during FY 5/10

172

555,930

Note: Treasury shares acquired during FY 5/10 do not include shares acquired for less than one unit between
May 1, 2010 and the ﬁling date of this annual securities report.
(4) Treatment and holding of acquired treasury shares
FY 2/10FY 5/10

SharesTotal amount(¥ thousand)SharesTotal amount(¥ thousand)Acquired treasury shares that were offered to subscribers

—

—

—

—

Acquired treasury shares that were retired

—

—

—

—

Acquired treasury shares that were transferred in relation to merger, share exchange,or corporate separation

—

—

—

—

—

—

—

—

8,467,676—

8,467,848—

Other
Held treasury shares

Note: Treasury shares acquired during FY 2/10 do not include shares acquired for less than one unit between
May 1, 2010 and the ﬁling date of this annual securities report.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

Consolidated Balance Sheets(Millions of yen)
Fiscal 2009
Fiscal 2010
(to February 28, 2010)
Value(Thousands of U.S. dollars)
Fiscal 2010

(Assets)
I Current assets
Cash and deposits¥ 39,354¥ 26,935$ 301,185Trade notes and accounts

39,41542,324473,264

Marketable securities

4,169

—

—

Inventories

9,180

—

—

Merchandise and ﬁnished goods

—

7,279

81,393Work in process

—

481

5,379

Raw materials and stores

—

4,511

50,442

2,133

2,258

25,249Deferred tax assets
Others975

2,577

28,816

Allowance for doubtful accounts

(217)

(267)

(2,986)

Total current assets

95,00986,100962,764

II Fixed assets
1 Property, plant and equipment
Buildings and structures (accumulated depreciation) (Note 2,3)

15,971

20,082

224,556

Machinery, equipment and vehicles (accumulated depreciation) (Note 2)

6,589

9,692

108,375

Tools, furniture and ﬁxtures (accumulated depreciation) (Note 2)

2,287

2,347

26,244

Land (Note 4)

11,38912,438139,081

Lease assets (accumulated depreciation)

—

177

1,979

Construction in progress

4,088

1,479

16,538

Tangible ﬁxed assets total

40,325

46,218516,806

Goodwill

2,102

7,902

88,360Software

19

117

1,308

2 Intangible assets

Temporary account for intangible ﬁxed assets
OthersTotal intangible assets

2,704

2,823

31,567

13

4,912

54,926

4,840

15,756

176,182

13,46531,979357,587

3 Investments and other assets
Investment securities (Note 1)
Long-term loans receivable

361

62

693

Long-term deposits

1,900

2,150

24,041

Prepaid pension expenses

5,346

4,853

54,266

Deferred tax assets

4,588

3,829

42,816

Others

1,960

2,741

30,650Allowance for doubtful accounts

(154)

(140)

(1,565)

Total investments and other assets

27,46645,475

508,498

Total ﬁxed assets
Total assets
HISAMITSU PHARMACEUTICAL CO., INC

28

72,632

107,450

1,201,498¥ 167,642¥ 193,551$ 2,164,274
FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)(Millions of yen)
Fiscal 2009
Fiscal 2010
(to February 28, 2010)
Value(Thousands of U.S. dollars)
Fiscal 2010

(Liabilities)
I Current liabilities
Trade notes and accounts¥ 13,062¥ 14,669$ 164,028

Short-term borrowings (Note 2)

1,047

10,484

117,231

Accounts payable

9,936

8,463

94,633

Lease obligations
Income taxes payable

—

35

391

8,838

4,878

54,545

Allowance for sales returns

213

237

2,650

Provision for bonuses

844

1,381

15,442Others704

2,674

29,90034,64642,825478,866

Long-term borrowings (Note 2)

881

8,142

91,043

Lease obligations

—

145

1,621

2,164

2,164

24,198—3,027

33,848

Employees’ severance and retirement beneﬁts

4,554

4,716

52,734

Directors’ and corporate auditors’ retirement beneﬁts

1,172

1,174

13,128

117

378

4,227

Total long-term liabilities

8,890

19,749220,832

Total liabilities

43,536

62,574

699,698

8,473

8,473

94,744

Total current liabilities
II Long-term liabilities

Deferred tax liabilities on revaluation (Note 4)
Deferred income tax liabilities

OthersI Shareholders’ equity
Common stock
Capital surplus

8,396

8,396

93,883Retained earnings

119,650132,298

1,479,347

Treasury stock(12,571)(18,521)(207,101)

123,948

130,647

1,460,886

Total shareholders’ equity
II Valuation and translation adjustments
Valuation adjustment on other marketable securities(2,154)(780)(8,722)Land revaluation adjustment (Note 4)

3,188

3,188

35,648Foreign currency translation adjustments(1,596)(2,968)(33,188)

Total valuation and translation adjustments etc.

(561)

(560)

(6,262)

III Minority interests
Total net assets
Total liabilities and net assets

HISAMITSU PHARMACEUTICAL CO., INC

29

719

889

9,941

124,105

130,976

1,464,564¥ 167,642¥ 193,551$ 2,164,274

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

Consolidated Statements of Income(Millions of yen)(Thousands of U.S. dollars)
Fiscal 2009
Fiscal 2010
Fiscal 2010
(March 1, 2009 to February 28, 2010)
Value
I Net sales
II Cost of sales (Note 2, 3)
Gross proﬁt
III Selling, general and administrative expenses (Note 1, 2)
Operating income¥ 124,655
39,884
84,771
52,23932,532¥ 129,834
42,65987,17458,58928,585$ 1,451,795
477,010
974,774
655,138
319,635

237
241
114

96
291
182

42
685

1,901
445

1,073
3,254
2,035
21,257
4,976

19
1,194
53
108
32,476

108
58
29
75
31,231

1,208
649
324
839
349,223

—
4
53
701
1,000
—
—
94

310
24
—
—
—
710
225
87

3,466
268
—
—
—
7,939
2,516
973

515
92
—
0

73
294
191
—

1,509
4
32,208
14,584(1,564)67¥ 19,120

181
—

816
3,287
2,136
—
2,024
—
356,122
143,7774,764
1,554$ 206,005

IV Non-operating income
Interest received
Dividend income
Development license revenues
Equity in earnings of afﬁliated companies
Other
V Non-operating expenses
Interest expenses
Foreign exchange losses
Loss on sales of receivables
OthersRecurring income
VI Extraordinary income
Government subsidies
Reversal of allowance for doubtful accounts
Gain on liquidation of afﬁliates
Gain on return of welfare pension fund substitutional portion
Distribution license fees
R&D expenses received
Gain on licensing rights to develop drugs
OthersVII Extraordinary losses
Loss on disposals of ﬁxed assets (Note 4)
Advanced depreciation deduction of property, plant and equipment
Asset impairment losses (Note 5)
Loss on sales of investment securities
Book loss on investment securities
Others
Net income
Corporate, other taxes
Income taxes: deferred
Minority interests (deduction)
Net income

HISAMITSU PHARMACEUTICAL CO., INC

30

31,84812,858426
139¥ 18,423

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

Statement of Changes in Consolidated Shareholders’ Equity
Shareholders’ equity
CommonStock
Balance, February 28, 2009
(Millions of yen)

8,473

CapitalsurplusRetainedearnings

8,396

119,650

Treasury
stock

Total
shareholders’ equity(12,571)

Total
shareholders’ equity(Thousands of
U.S. dollars)

123,948

1,385,978(5,775)(64,576)

Changes during ﬁscal term
Final dividends paid from retained earnings(5,775)

Net income

18,423Purchases of treasury stock
Total changes during ﬁscal term(Millions of yen)
Balance,February 28, 2010
(Millions of yen)

18,423206,005(5,949)(5,949)(66,521)——

12,648(5,949)6,698

74,897

8,473

8,396

132,298(18,521)130,647

1,460,886

Valuation and translation adjustments etc.
Other
Foreign
Total valuation
MarketableLand
currency
and translation
securities
revaluationtranslation
adjustments
Valuation
adjustment
adjustments
etc.
gains (losses)
account
Balance, February 28, 2009
(Millions of yen)

(2,154)

3,188(1,596)(561)

Minority
interests

719

Total
net assets

Total
net assets(Thousands of
U.S. dollars)

124,105

1,387,733(5,775)(64,576)

Changes during ﬁscal term
Final dividends paid from retained earnings
Net income

18,423206,005

Purchases of treasury stock(5,949)(66,521)

Changes during ﬁscal term in items notincluded in shareholders’ equity (net)

1,373

—

(1,371)

1

170

171

1,912

Total changes during ﬁscal term(Millions of yen)

1,373

—

(1,371)

1

170

6,870

76,820

Balance, February 28, 2010
(Millions of yen)

(780)

3,188

(2,968)

(560)

889

130,976

1,464,564

HISAMITSU PHARMACEUTICAL CO., INC

31

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

Consolidated Statements of Cash Flows(Millions of yen)(Thousands of U.S. dollars)
Fiscal 2009
Fiscal 2010
Fiscal 2010
(March 1, 2009 to February 28, 2010)
Value
I Cash ﬂows from operating activities
Income before income taxes¥ 32,208¥ 31,848$ 356,122

Depreciation and amortization

4,765

5,255

58,761

Asset impairment losses

—

191

2,136

Amortization of goodwill

2,114

2,369

26,490In-process R&D expenses associated with company acquisition

—

1,270

14,201

Reduction in provision for employees’ severance and retirement beneﬁts

505

154

1,722

Increase in provision for directors’ retirement beneﬁts

70

2

22

Increase in provision for bonuses

35

74

827

Reduction in provision for doubtful accounts

41

34

380

Reduction in provision for sales returns

56

24

268

(478)

(388)

(4,339)Interest expenses

19

108

1,208

Foreign currency gains

23

15

168

Interest and dividend income(42)(1,901)(21,257)

Subsidy income

—

(310)

(3,466)

Losses on sales of investment securities

0

(87)

(973)

Book loss on investment securities

1,509

181

2,024

Loss on disposal of ﬁxed assets

515

73

816

Equity in losses of afﬁliated companies (Negative sign denotes earnings)(8,416)(1,369)(15,308)

Increase in inventories(784)(1,279)(14,302)

Increase in other current assets

(105)

(280)

(3,131)

Increase in notes and accounts payable (Negative sign denotes decrease))

3,330

857

9,583

Increase in notes and accounts receivable

Increase in other current liabilities (Negative sign denotes decrease)
Others693(2,794)(31,242)(1,665)

604

6,754

34,39734,655387,510

Interest and dividends received

758

2,781

31,097

Interest paid

(19)

(108)

(1,208)Subtotal

Income taxes paid
Cash ﬂows from operating activities

HISAMITSU PHARMACEUTICAL CO., INC

32(12,752)(16,829)(188,181)¥ 22,382¥ 20,498$ 229,207

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)(Millions of yen)(Thousands of U.S. dollars)
Fiscal 2009
Fiscal 2010
Fiscal 2010
(March 1, 2009 to February 28, 2010)
Value
II Cash ﬂows from investing activities
Outﬂow resulting from change in balance of term deposits¥ (2,901)¥ 6,152$ 68,791

Expenditure associated with increase or decrease of long-term deposits(1,300)(250)(2,795)

Payments for purchases of tangible ﬁxed assets(4,475)(6,849)(76,585)2000Proceeds from sales of tangible ﬁxed assets
Payments for purchases of intangible ﬁxed assets(1,511)(201)(2,248)

Payments for purchases of marketable securities(10,794)(3,002)(33,568)

9,247

6,330

70,782(4,558)(2,354)(26,322)

65

222

2,482

Outﬂow from loans extended

(17)

—

—

Proceeds from loan repayments

206

112

1,252

Expenditure for acquisition of shares in subsidiaries associated with change to scope of consolidation—(32,900)(367,885)

Others

92

(9)

(101)

(15,927)(32,547)(363,938)

124

4,435

49,592

Proceeds from sales and redemptions of marketable securities
Payments for purchases of investment securities
Proceeds from sales and redemptions of investment securities

Cash ﬂows from investing activities
III Cash ﬂows from ﬁnancing activities
Inﬂow (Negative sign denotes outﬂow) from change in short-term borrowings
Proceeds from long-term borrowings

245

15,000167,729

Outﬂow from repayments of long-term borrowings(279)(2,731)(30,538)

Dividend payments to minority investors

(48)

(37)

(414)

Outﬂow from purchases of treasury stock
Cash dividends paid
OthersCash ﬂows from ﬁnancing activities
IV Translation adjustment cash & equivalents
V Increase in cash and cash equivalents (Negative sign denotes decrease)(66)(5,948)(66,510)(5,433)(5,773)(64,553)

(9)

(45)

(503)

(5,467)

4,899

54,780

(337)

25

280

650

(7,124)(79,660)

VI Balance of cash and cash equivalents at beginning of year

32,70633,356372,984

VII Balance of cash and cash equivalents at end of year (Note 1)¥ 33,356¥ 26,232$ 293,324

HISAMITSU PHARMACEUTICAL CO., INC

33

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

Consolidated Financial Statements
1. Basis of preparation of consolidated ﬁnancial statements(1) 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 Ordinance No.
28, 1976; hereinafter, Regulations for Consolidated Financial Statements).
However, the consolidated ﬁnancial statements for FY 2/09 (March 1, 2008 – February 28, 2009) were prepared basedon the Regulations for Consolidated Financial Statements prior to revision, whereas the consolidated ﬁnancial statements
for FY 2/10 (March 1, 2009 – February 28, 2010) were prepared based on the Regulations for Consolidated Financial
Statements after revision.
(2) The company has prepared non-consolidated ﬁnancial statements in accordance with the Regulations Concerning the
Terminology, Forms and Preparation Methods of Non-Consolidated Financial Statements (Ministry of Finance Ordinance
No. 59, 1963; hereinafter, Regulations for Non-Consolidated Financial Statements).
However, the non-consolidated ﬁnancial statements for FY 2/09 (March 1, 2008 – February 28, 2009) were preparedbased on the Regulations for Non-Consolidated Financial Statements prior to revision, whereas the non-consolidated
ﬁnancial statements for FY 2/10 (March 1, 2009 – February 28, 2010) were prepared based on the Regulations for NonConsolidated Financial Statements after revision.
I.Scope of consolidation(a) Consolidated subsidiaries: 17
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.
P.T. Hisamitsu Pharma Indonesia
5 other companies
Newly established company Hisamitsu U.S. Incorporated was included in the scope of consolidation. Noven Pharmaceuticals
and its ﬁve subsidiaries were also included in the scope of consolidation on the acquisition of Noven Pharmaceuticals.

HISAMITSU PHARMACEUTICAL CO., INC

34

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)(b). Non-consolidated subsidiaries: 2
Names of non-consolidated subsidiaries
Kokusai Pappu-zai Kenkyusho Co., Ltd.
Taiyo Kaihatsu Co., Ltd.
(Reason why non-consolidated subsidiaries have been excluded from the scope of consolidation)
Non-consolidated subsidiaries have been excluded from the scope of consolidation because they are small, and neither
their total assets, net sales, net income (proportion attributable to Group) nor retained earnings (proportion attributable toGroup) would have a material impact on the consolidated ﬁnancial statements.
II. Afﬁliates accounted for under the equity method(a). Equity-method non-consolidated subsidiaries: 0(b). Equity-method afﬁliates: 2
Maruto Co., Ltd.
Novogyne Pharmaceuticals
On the acquisition of Noven Pharmaceuticals, its afﬁliate Novogyne Pharmaceuticals became an equity-method company.
(Reason why non-consolidated subsidiaries have not been accounted for under the equity method)
The above non-consolidated subsidiaries have not been accounted for under the equity method because their impacts
on items such as net income and retained earnings is negligible, and is not material in the context of the total.
There are no afﬁliated companies for which the equity method is not being used.
(3) Names of companies in which the company holds more than 20% but less than 50% of voting rights by our own estimate,
but has not become an afﬁliate
Kyushu Heavy Ion Medical Accelerator Management Co., Ltd.
Reason for not making the above company an afﬁliate: We have not included the above company in our afﬁliates, because
it does not have a signiﬁcant effect on decisions on ﬁnance, sales, or business policy given our reasons for investing in thecompany and current business dealings with the company.

HISAMITSU PHARMACEUTICAL CO., INC

35

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

III. Information concerning business years, etc., of consolidated subsidiaries
The ﬁscal years of the 12 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 end of the ﬁscal years of the consolidated subsidiaries. We make the required consolidated adjustments if any majortransactions occur between the end of the ﬁscal years of the consolidated subsidiaries and end of the consolidated ﬁscal
year.
IV. Accounting standards
A. Valuation standards and methods for signiﬁcant assets
1. Securitiesa) Held-to-maturity bonds
Valued under amortized cost method.
b) Other marketable securities
1) 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 arecomputed using the moving average method.
2) Securities without market value
Valued at cost, determined by the moving average method.
2. Inventories
Calculated by the weighted average cost method (book value on the balance sheet is written down according to the decline
in proﬁtability).
Change in company policy
Calculated using the cost method (book value on the balance sheet is written down according to the decline in
proﬁtability) as a result of Accounting Standard for Measurement of Inventories (ASBJ Statement No. 9; July 5, 2006)
being applied from FY2/10. The impact of this accounting change on proﬁt and loss is minimal.
Depreciation of the company’s materials and supplies had been by the ﬁrst-in, ﬁrst-out cost method, but this waschanged to the weighted average cost method from FY2/10. This change, which coincided with the introduction of a
new cost calculation system, was designed to speed up the calculation of manufacturing expenses and track proﬁt
and loss for the current term at an early stage. The impact of this accounting change on proﬁt and loss is minimal.
The company revised the working life of machinery and equipment from FY2/10 in compliance with the revised
Corporation Tax Law (partial revision of the Income Tax Law, etc., Law No. 23, April 30, 2008). The impact of thisaccounting change on proﬁt and loss is minimal.

HISAMITSU PHARMACEUTICAL CO., INC

36

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

B. Depreciation methods for signiﬁcant depreciable assets
1. Property, plant and equipmenta) Company and domestic consolidated subsidiaries(1) Acquired before March 31, 2007
Mainly the former declining balance method.
(2) Acquired after April 1, 2007
Mainly the declining balance method.
(Change in accounting method)
Changed to the method prescribed in the revised Corporation Tax Law for assets acquired after April 1, 2007 as aresult of revisions of the Corporation Tax Law (Law Amending the Income Tax Law, March 30, 2007, Law No. 6 andOrdinance Amending the Income Tax Law Enforcement Ordinance, March 30, 2007, Ordinance No. 83). This change
has a negligible impact on income.
Additional information
The company revised the working life of machinery and equipment from FY2/10 in compliance with the revised
Corporation Tax Law (partial revision of the Income Tax Law, etc., Law No. 23, April 30, 2008). The impact of thisaccounting change on proﬁt and loss is minimal.
b) Overseas consolidated subsidiaries
Mainly straight-line method.
2. Intangible ﬁxed assets (excluding lease assets) and long-term prepaid expenses
Measured by the straight line method.
For usable lives, the same criteria as those stipulated in the Corporation Tax Law are used. Goodwill is amortized on astraight-line basis over 5 years.
Within intangible ﬁxed assets, software used by the Company is depreciated over its useful life (5 years) using the straightline method.
3. Lease assets
For ﬁnance lease transactions other than those for which the right of ownership of the lease assets transfers to the lessee
at the end of the lease period, the lease period equals the working life of the assets, and the residual value of the leaseasset calculated by the straight-line method. The accounting treatment of ﬁnance lease transactions other than those forwhich the right of ownership of the lease assets transfers to the lessee at the end of the lease period, and whose lease
period commenced before the ﬁrst year that the Lease Accounting Standard was applied, is similar to that of normal rental
transactions.

HISAMITSU PHARMACEUTICAL CO., INC

37

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

C. 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 as a provision.
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. Allowance 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. Bonus reserve
To provide for the payment of bonuses to employees, the Company and its domestic subsidiaries record a provision equal
to the portion of expected future bonus payments incurred during the term under review.
4. Allowance for employee retirement beneﬁts
The company and certain subsidiaries, to prepare for the payment of retirement beneﬁts to employees, provide a reserve at
an amount based on estimated retirement beneﬁt obligations and pension assets at the end of the consolidated ﬁscal year.
Actuarial differences are amortized starting in the next consolidated ﬁscal year in equal amounts for a ﬁxed number ofyears (ﬁve years) that is less than the average remaining years of service of employees when incurred.
5. Allowance for directors and statutory auditors retirement beneﬁts
The company makes a provision for estimated retirement payments to directors and statutory auditors in accordance with
its internal regulations.
D. Translation of signiﬁcant foreign currency denominated assets and liabilities used in preparing the ﬁnancial
statements of consolidated companies on which the consolidated ﬁnancial statements are based
Assets and liabilities denominated in foreign currencies are translated into yen using the spot exchange rate for ﬁnal dayof the ﬁscal year, and translation differences are booked as gains or losses. Note that the assets and liabilities of overseas
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 these translation differences
are booked on the Foreign Currency Translation Adjustments line under Net Assets.
E. Treatment of signiﬁcant lease transactions
With the exception of ﬁnance leases in which ownership of the leased assets is deemed to have passed to the lessee,
leases are accounted for as operating lease transactions.

HISAMITSU PHARMACEUTICAL CO., INC

38

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

F. 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.
V. Valuation of assets and liabilities of consolidated subsidiaries
Assets and liabilities of consolidated subsidiaries are valued using the full market value method.
VI. Amortization of consolidation adjustments account
The consolidation adjustments account is amortized on a straight-line basis over 5 years. However, where sums are small,they are expensed in full in the term in which they are incurred.
VII. Information concerning goodwill and negative goodwill amortization.
Goodwill is amortized evenly over a ﬁve to 10-year period over which it is expected to show an effect. If the value of goodwill
is small, it is amortized in full in the ﬁscal year that it accrues.
VIII. 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 3 months from the date ofpurchase, and which carry negligible risks of price ﬂuctuation.

Changes In Accounting Policies
Application of accounting rules to lease transactions
In previous years, we applied accounting treatment similar to rental transactions to ﬁnance lease transactions other thanthose for which the right of ownership of the lease assets transfers to the lessee at the end of the lease period, but[from FY2/10], we have applied accounting treatment similar to normal sale and purchase transactions, i.e., AccountingStandards for Lease Transactions (ASBJ Statement No. 13 issued by the Financial Services Agency Business Accounting
Council Subcommittee No. 1 on June 17, 1993 and revised March 30, 2007; and Guidelines for Application of AccountingStandards for Lease Transactions (Guidelines for Application of Accounting Standards No. 16; issued on January 18, 1994
by the Japanese Institute of Certiﬁed Public Accountants Laws and Regulations Committee and revised March 30, 2007).
For the amortization of ﬁnance lease transactions other than those for which the right of ownership of the lease assets
transfers to the lessee at the end of the lease period, the lease period equals the working life of the assets, and the residual
value of the lease asset is calculated by the straight-line method. For the amortization of ﬁnance lease transactions otherthan those for which the right of ownership of the lease assets transfers to the lessee at the end of the lease period, andwhose lease period commenced before the ﬁrst year that Lease Accounting Standard was applied, the previous accounting
treatment similar to that of normal rental transactions was applied. The impact of these accounting changes on proﬁt andloss in FY2/10 is minimal.
HISAMITSU PHARMACEUTICAL CO., INC

39

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

Application of current accounting rules concerning overseas subsidiaries in the preparation of consolidated
ﬁnancial statements
From FY2/10 we have applied “the application of current accounting rules concerning overseas subsidiaries in the
preparation of consolidated ﬁnancial statements” (Accounting Standards Board of Japan business practice report No. 18,
May 17, 2006) and made the required adjustments to consolidated earnings results. As a result, there was a ¥1,535 million
reduction to operating income, ordinary income, and net income before adjustment for taxes.
Consolidated balance sheet
Items recorded in the balance sheet under “inventory” in FY2/09 have been reclassiﬁed in FY2/10 as “merchandise andﬁnished goods,” “work in process,” and “raw materials and stores” following the application of the “cabinet ofﬁce order thatpartially revises the rules concerning the terminology, format, and preparation method of ﬁnancial statements” (Cabinet
Ofﬁce Ordinance No. 50, August 7, 2008). The “merchandise and ﬁnished goods,” “work in process,” and “raw materials andstores” included in “inventory” in FY2/09 totaled ¥6,067 million, ¥330 million, and ¥2,783 million, respectively.
Consolidated proﬁt and loss statement“Government subsidies” have been recorded separately from FY2/10, because they exceeded 10/100 of extraordinary
proﬁt. Government subsidies in FY2/09 totaling ¥92 million were recorded under “other.”

HISAMITSU PHARMACEUTICAL CO., INC

40

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

Additional Information
CONSOLIDATED BALANCE SHEETS*1 Investment securities for non-consolidated subsidiaries and afﬁliated companies are as follows.
(Millions of yen)
Investment securities (stocks)

16,242*2 Assets pledged as collateral are as follows.
(Pledged assets)
Buildings and structures748(book value)

Machinery, equipment, and vehicles

28(book value)

Tools, furniture, and ﬁxtures

109(book value)

Total

886

(book value)

487(book value)

Assets provided for factory foundation mortgage
Buildings and structures
Machinery, equipment, and vehicles
Tools, furniture, and ﬁxtures
Total

5

(book value)

108(book value)

600(book value)(Millions of yen)
Liabilities related to the above assets
Short-term borrowings

149(book value)

Long-term borrowings456(book value)

Total

605

(book value)

Liabilities provided for factory foundation mortgage
Short-term borrowings

67

Long-term borrowings

223

Total

291

*3 Accelerated depreciation from government subsidies is ¥1,210 million. This ﬁgure is not included in the consolidatedbalance sheets.
*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 of 1998,
promulgated on 31 March 1998) and the “Law Partially Amending the Act on Revaluation of Land” (revision of 31 March
1999). The portion of the revaluation gain equivalent to corporation tax and other taxes with tax bases linked to corporate
proﬁts has been recorded under liabilities as “Deferred tax liability related to revaluation,” while the net sum after thistransfer to the deferred tax liability account is recorded under net assets as “Land revaluation adjustment”

HISAMITSU PHARMACEUTICAL CO., INC

41

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

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, promulgated 31
March 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 ﬁscal
2010 was ¥2,292 million lower than the book value after revaluation.
CONSOLIDATED INCOME STATEMENT*1 Main selling, general, and administrative expense items and amounts are as follows.
(Millions of yen)
Advertising expenses

9,039

Sales promotion expenses

12,431

Packing and transportation expenses

2,531

Addition to allowance for doubtful accounts

21

Salaries and allowances

6,883

Addition to bonus reserve

527

Addition to allowance for employee retirement beneﬁts

538

Addition to allowance for executive retirement beneﬁts

82

Goodwill amortization

2,369

Research and development expenses

10,447

Addition to bonus reserve

164

Addition to allowance for employee retirement beneﬁts

179*2 The addition to the allowance for employee retirement beneﬁts is a negative ﬁgure because expected investment returns
and actuarial gains were higher than service costs and interest costs.
General and administrative expenses include research and development expenses of ¥10,447 million. Manufacturingcosts do not include research and development expenses.
*3 Manufacturing costs include an addition to the bonus reserve of ¥248 million and an addition to the allowance for
employee retirement beneﬁts of ¥319 million.

HISAMITSU PHARMACEUTICAL CO., INC

42

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)*4 Breakdown of losses on the disposal of ﬁxed assets(Loss on retirement)(Millions of yen)

Buildings and structures

41

Machinery, equipment, and vehicles

4

Tools, furniture, and ﬁxtures

27

Total

73

*5 Losses on disposal of assets
Idle property

AssetsPlace

Millions of yen

Buildings and structures

Tosu-shi, Saga

76

Machinery, equipment and vehicles

Tosu-shi, Saga

115

Total

191

Our group categorizes assets into assets for business use, rental assets, and idle assets. We booked impairment losses on
the above idle assets, because we have no plans for their future use, and their recoverable value has diminished sharply.
We have assessed their recoverable value based on reasonable estimates of their net sale
STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS EQUITY
Fiscal 2009 (March 1, 2008 - February 28, 2009)
1. Shares outstanding
Type of shares

End of ﬁscal 2008

Increase

Decrease

End of ﬁscal 2009

Ordinary shares

95,164,895——

95,164,895

2. Treasury shares
Type of shares End of ﬁscal 2009 Increase
Type of shares

End of ﬁscal 2008

Increase

Decrease

End of ﬁscal 2009

Ordinary shares

6,477,487

14,751—

6,492,238

Reasons for changes
Shares increased for the following main reasons
Acquisition in compliance with the Articles of Association under the provisions of Paragraph 2,
Increase from purchasing shares in less than one unit
14,533 sharesCompany portion of treasury shares purchased by equity method afﬁliates
218 shares

HISAMITSU PHARMACEUTICAL CO., INC

43

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

3. Dividends(1) Dividends paid
Resolution

Type of shares

Total dividends(¥ million)

Dividends per share (¥)

Record date

Payment date

May 22, 2008
Annual general meeting ofshareholders

Ordinary shares

2,661

30

February 29, 2008

May 23, 2008

October 9, 2008
Board of Directors meeting

Ordinary shares

2,794

31.5

August 31, 2008

November 4, 2008

(2) Dividends with a record date in ﬁscal 2009 but a payment date in ﬁscal 2010
Resolution

Type of shares

Source of dividend

Total dividends(¥ million)

Dividends per share(¥)

Record date

Payment date

May 26, 2009
Annual general meeting ofshareholders

Ordinary shares

Retained earnings

2,793

31.5

February 28, 2009

May 27, 2009

STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS EQUITY
Fiscal 2010 (March 1, 2009 - February 28, 2010)
1. Shares outstanding
Type of shares

End of ﬁscal 2009

Increase

Decrease

End of ﬁscal 2010

Ordinary shares

95,164,895——

95,164,895

2. Treasury shares
Type of shares End of ﬁscal 2009 Increase
Type of shares

End of ﬁscal 2009

Increase

Decrease

End of ﬁscal 2010

Ordinary shares

6,492,238

2,001,208—

8,493,446

Reasons for changes
Shares increased for the following main reasons
Acquisition in compliance with the Articles of Association under the provisions of Paragraph 2,
Article 165 of the Companies Act
2,000,000 shares
Increase from purchasing shares in less than one unit
885 sharesCompany portion of treasury shares purchased by equity method afﬁliates
323 shares

HISAMITSU PHARMACEUTICAL CO., INC

44

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

3. Dividends(1) Dividends paid
Resolution

Type of shares

Total dividends(¥ million)

Dividends per share (¥)

Record date

Payment date

May 26, 2009
Annual general meeting ofshareholders

Ordinary shares

2,793

31.5

February 28, 2009

May 27, 2009

September 30, 2009
Board of Directors meeting

Ordinary shares

2,981

34

August 31, 2008

November 2, 2009

(2) Dividends with a record date in ﬁscal 2010 but a payment date in ﬁscal 2010
Resolution

Type of shares

Source of dividend

Total dividends(¥ million)

Dividends per share(¥)

Record date

Payment date

May 26, 2010
Annual general meeting ofshareholders

Ordinary shares

Retained earnings

2,947

34

February 28, 2010

May 27, 2010

CONSOLIDATED CASH FLOW STATEMENT*1 Relationship between year-end balances of cash and cash equivalents and amounts stated in the consolidatedbalance sheets(Millions of yen)
Cash and deposits
26,935
Total
26,935
Term deposits longer than three months(703)
Cash and cash equivalents
26,232
Breakdown of assets and liabilities of newly consolidated company by acquisition of shares
A breakdown of assets and liabilities acquired by the consolidation of Noven Pharmaceuticals following the acquisitionof shares at the start of consolidation, and the relationship between the acquisition price of the shares and expenditureassociated with the acquisition are as follows:

HISAMITSU PHARMACEUTICAL CO., INC

45

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)(Millions of yen)
11,58428,768
8,702(5,012)(3,846)
1,416
41,611(1,915)(6,795)32,900Current assets
Fixed assets
Goodwill
Current liabilities
Fixed liabilities
Foreign exchange adjustment account
Acquisition amount of subsidiary
Stake acquired in previous years
Subsidiary’s cash and cash equivalents
Balance
LEASE TRANSACTIONS

Lease transactions other than ﬁnance leases in which ownership of the leased asset is deemed to have passed to the lessee
1. Equivalent purchase value, equivalent accumulated depreciation, and equivalent year-end residual value ofleased assets(Millions of yen)

Machinery, equipment and vehicles
Tools, furniture, and ﬁxtures
Software
Total

Purchase value equivalent(¥ million)

Accumulated depreciation equivalent(¥ million)

Year-end balance at equivalent(¥ million)

403

183

220

1,017

588

429

41

23

17

1,462

795

667

2. Equivalent year-end balance of remaining lease payments(Millions of yen)
Within one year259

Over one year

407

Total

667

3. Lease payments and equivalent depreciation(Millions of yen)
Lease payments

297

Equivalent depreciation

297

4. Method of calculating equivalent depreciation
The value is calculated using the straight-line method whereby the lease period equals the working life of the lease asset,
and the residual value of the lease asset is zero.

HISAMITSU PHARMACEUTICAL CO., INC

46

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

SECURITIES
1. Held-to-maturity bonds with market value(Millions of yen)
Fiscal 2009 (February 28, 2009)
Consolidatedbalance sheetsvalue

Market value¥—(2) Corporate bonds(3) Other
Subtotal

Fiscal 2010 (February 28, 2010)

Difference

Consolidatedbalance sheetsvalue

Market value

Difference

¥—

¥—

¥—

¥—

¥—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Market value higher than on consolidated balance sheets(1) National and local government bonds, etc.

Market value lower than on consolidated balance sheets(1) National and local government bonds, etc.

—

—

—

—

—

—

(2) Corporate bonds

299

297

(2)

—

—

—

(3) Other

300

288

(11)

—

—

—

Subtotal
Total

599

585

(14)

—

—

—

¥ 599

¥ 585

¥ (14)¥—¥—¥—

2. Other securities with market value(Millions of yen)
Fiscal 2009 (February 28, 2009)

Fiscal 2010 (February 28, 2010)

Acquisition cost

Consolidatedbalance sheets
value

Difference

Acquisition cost

Consolidatedbalance sheets
value

Difference(1) Stocks¥ 1,305¥ 1,622¥ 356¥ 3,769¥ 4,673¥ 903(2) Bonds

—

—

—

—

—

—

(3) Other

—

—

—

—

—

—

Subtotal

1,305

1,622

356

3,769

4,673

903

(1) Stocks¥ 14,066¥ 10,112¥ (3,953)¥ 12,829¥ 10,551¥ (2,278)(2) Bonds

—

—

—

—

—

—

Acquisition cost higher than on consolidated balance sheets

Acquisition cost lower than on consolidated balance sheets(3) Other
Subtotal
Total

HISAMITSU PHARMACEUTICAL CO., INC

—

—

—

—

—

—

14,066

10,112(3,953)

12,82910,551(2,278)¥ 15,372¥ 11,775¥ (3,596)¥ 16,599¥ 15,225¥ (1,374)

47

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

Fiscal 2009 (March 1, 2008 - February 28, 2009)
Note: In previous ﬁscal year, we applied write-downs to shares with a market value included in the Other
marketable securities item, such that we recorded a ¥1,509 million loss on revaluation of investments insecurities.
For the write-downs, we applied write-downs to all shares where the market price had fallen to 50% orless of the acquisition cost at the end of this ﬁscal year and to some shares where the market price had
fallen to 30–50% of the acquisition cost at the end of this ﬁscal year, based on comprehensive estimatesof recoverability for each investment.
Fiscal 2010 (March 1, 2009 - February 28, 2010)
Note: In this ﬁscal year, we applied write-downs to shares with a market value included in the Other marketablesecurities item, such that we recorded a ¥181 million loss on revaluation of investments in securities.
For the write-downs, we applied write-downs to all shares where the market price had fallen to 50% orless of the acquisition cost at the end of this ﬁscal year and to some shares where the market price had
fallen to 30–50% of the acquisition cost at the end of this ﬁscal year, based on comprehensive estimatesof recoverability for each investment.
3. Other securities sold during FY2/10
Fiscal 2009 (March 1 - February 28, 2009)

Fiscal 2010 (March 1 - February 28, 2010)

Sale value (¥mn)

Proﬁt from sale (¥mn)

Loss from sale (¥mn)

Sale value (¥mn)

Proﬁt from sale (¥mn)

Loss from sale (¥mn)

3

1

0

222

87

—

4. Main securities without market value(Millions of yen)
Details

Fiscal 2009 (February 28, 2009)

Fiscal 2010 (February 28, 2010)

Consolidated balance sheets value

Consolidated balance sheets value

Other securities(1) Unlisted stocks

¥ 489

¥ 510

(2) Trust beneﬁciary certiﬁcates, etc.

3,526

—

Total

4,015

510

Stock in subsidiaries and afﬁliated companies(1) Stock in subsidiaries(2) Stock in afﬁliated companies
Total

HISAMITSU PHARMACEUTICAL CO., INC

48

48

48

1,152

16,194¥ 1,200¥ 16,242

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

4. Held-to-maturity bonds to be redeemed after the balance sheet dateFiscal 2009 (March 1, 2008 – February 28, 2009)
Within one year(¥ million)

One to ﬁve years(¥ million)

Five to 10 years(¥ million)

Over 10 years(¥ million)(1) Corporate bonds

299

—

—

—

(2) Other

300

—

—

—

Fiscal 2010 (March 1, 2009 – February 28, 2010)
Within one year(¥ million)

One to ﬁve years(¥ million)

Five to 10 years(¥ million)

Over 10 years(¥ million)(1) Corporate bonds

—

—

—

—

(2) Other

—

—

—

—

DERIVATIVE TRANSACTIONS
1. Transaction information
1) Transaction details and reason for use
The Group uses interest rate swap transactions to avoid risks of future ﬂuctuations in interest rates. The Group also uses
forward foreign exchange transactions in connection with foreign currency-denominated transactions, to avoid risks of future ﬂuctuations in foreign exchange rates.
2) Transaction policies
Foreign currency-related derivative transactions are undertaken in connection with foreign currency transactions to hedge
against risks of ﬂuctuations in foreign exchange rates. Forward foreign exchange transactions are used only up to the valueof the transactions to which they relate, or less.
Interest rate-related derivative transactions are undertaken in connection with interest on corporate bonds to avoid risks
of interest rate ﬂuctuations. Interest rate swap transactions are used only up to the value of the bond interest payments towhich they relate, or less. Interest rate swap transactions and interest rate swaption transactions are also used to avoid
risks of future rises in interest rates on borrowings, only up to the value of the expected interest payments to which they
relate, or less.
The Group’s policy is not to engage in derivative transactions for speculative purposes.
3) Transaction risks
All forward foreign currency transactions, interest rate swap transactions, and interest rate swaption transactions enteredinto by the corporate group relate to actual demand, and because all counterparties in derivatives transactions are Japanese banks with strong credit standing, we consider the so-called credit risk - i.e. risk that counterparties will default ontransactions – to be minimal.

HISAMITSU PHARMACEUTICAL CO., INC

49

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

4) Transaction risk management
Execution and administration of the corporate group’s 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 are appropriately reported to the Board of Directors.
2. Transaction market value, etc.
Fiscal 2009 (March 1, 2008 – February 28, 2009)
No relevant transactions during ﬁscal 2008.
Fiscal 2010 (March 1, 2009 – February 28, 2010)
No relevant transactions during ﬁscal 2009.
RETIREMENT BENEFITS
Fiscal 2009 (March 1, 2008 – February 28, 2009)
1. Overview of retirement beneﬁt plans
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 beneﬁtregulations. In some cases, employees may receive an additional retirement allowance upon retirement.
2. Retirement beneﬁt obligations(Millions of yen)
(1) Retirement beneﬁt obligations(10,583)(2) Pension assets

7,869(3) Subtotal (1) + (2)(2,714)(4) Unrecognized actuarial differences

3,505(5) Total (3) + (4)791(6) Prepaid pension costs(5,346)(7) Allowance for employee retirement beneﬁts (5) + (6)(4,554)HISAMITSU PHARMACEUTICAL CO., INC

50

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

3. Retirement beneﬁt costs(Millions of yen)
(1) Service costs

457(2) Interest costs

200(3) Expected return on plan assets(304)(4) Amortization of actuarial differences(222)(5) Amortization of prior service costs(701)(6) Retirement beneﬁt costs(570)

Notes: 1. Excludes employee contributions to the corporate pension plan and qualiﬁed pension plan.
2. Retirement beneﬁt costs at consolidated subsidiaries using the simpliﬁed method are recorded under(1) Service costs.
4. Basis for calculating retirement beneﬁt obligations(1) Allocation of expected retirement beneﬁts
Straight-line method(2) Discount rate
2.00%(3) Expected return on plan assets
2.90%(4) Amortization period of prior service costs
Two years (amortized in equal amounts for a ﬁxed number of years that is less than the average remaining years ofservice of employees when incurred)(5) Amortization period of actuarial differences
Five years (amortized starting in the next consolidated ﬁscal year in equal amounts for a ﬁxed number of years that isless than the average remaining years of service of employees when incurred.)Fiscal 2010 (March 1, 2009 – February 28, 2010)
1. Overview of retirement beneﬁt plans
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 beneﬁtregulations. In some cases, employees may receive an additional retirement allowance upon retirement.

HISAMITSU PHARMACEUTICAL CO., INC

51

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

2. Retirement beneﬁt obligations(Millions of yen)
(1) Retirement beneﬁt obligations(10,981)(2) Pension assets

8,703(3) Subtotal (1) + (2)(2,277)(4) Unrecognized actuarial differences

2,414(5) Total (3) + (4)137(6) Prepaid pension costs(4,853)(7) Allowance for employee retirement beneﬁts (5) + (6)(4,716)

3. Retirement beneﬁt costs(Millions of yen)
(1) Service costs

476(2) Interest costs

208(3) Expected return on plan assets(228)(4) Amortization of actuarial differences

580(5) Retirement beneﬁt costs

1,037

Notes: 1. Excludes employee contributions to the corporate pension plan and qualiﬁed pension plan.
2. Retirement beneﬁt costs at consolidated subsidiaries using the simpliﬁed method are recorded under(1) Service costs.
4. Basis for calculating retirement beneﬁt obligations(1) Allocation of expected retirement beneﬁts
Straight-line method(2) Discount rate
2.00%(3) Expected return on plan assets
2.90%(4) Amortization period of prior service costs
Two years (amortized in equal amounts for a ﬁxed number of years that is less than the average remaining years ofservice of employees when incurred)(5) Amortization period of actuarial differences
Five years (amortized starting in the next consolidated ﬁscal year in equal amounts for a ﬁxed number of years that isless than the average remaining years of service of employees when incurred.)

HISAMITSU PHARMACEUTICAL CO., INC

52

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

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

Deferred tax assets
Allowance for employee retirement beneﬁts

1,883

Allowance for executive retirement beneﬁts

474

Accrued enterprise tax

372

Allowance for doubtful accounts

179

Net unrealized gains on other securities

514

Inventories

495

Excess depreciation

906

Intangible ﬁxed assets

3,136

Valuation losses on memberships

322

Net unrealized gains on investment securities

599

Bonus reserve391

Outsourced research and development

502

Other

1,124

Total

10,903

Valuation allowance(853)

Total deferred tax assets

10,050

Deferred tax liabilities
Valuation losses on stock and investments in afﬁliated companies(4,194)

Prepaid pension costs(1,962)

Other

(834)

Total deferred tax liabilities(6,990)Net deferred tax assets

3,060

Note: The net value of deferred tax assets are included in the following consolidated balance sheet categories:(Millions of yen)
Current assets − deferred tax assets

2,258

Fixed assets − deferred tax assets

3,829

Fixed liabilities − deferred tax liabilities(3,027)HISAMITSU PHARMACEUTICAL CO., INC

53

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

2. Main reasons for difference in statutory tax rate and income tax rate after application of tax effect accounting
Statutory tax rate

40.4%

(Adjustments)
Entertainment expenses excluded from income

1.4%

Dividend income excluded from income(0.2)%

Special tax exemption for experimental research and development(2.8)%

In-process R&D associated with merger R&D expenses

1.6%

Valuation reserve

2.7%

Other

(1.4)%

Income tax rate after application of tax effect accounting

41.7%

SEGMENT INFORMATIONBusiness segment information
The company and its consolidated subsidiaries, in consideration of the types of products sold and their qualitative similarities,
operate the three business segments of pharmaceuticals and related products, cable television broadcasting, and otherbusinesses. Segment information is omitted because pharmaceuticals and related products account for more than 90% of
the total sales, operating income, and assets of all business segments.
Geographic segment information
Fiscal 2010 (March 1, 2009 – February 28, 2010)
Fiscal Year 2/10

Japan

North America

Other

Total

Eliminations

Consolidated(Millions of yen)
Net sales
Sales to third parties
Intra-sales andtransfer
Total Sales¥ 121,984¥ 3,930¥ 3,918¥ 129,834¥—¥ 129,834

1,541

—

277

1,818

(1,818)—

123,526

3,930

4,195

131,652(1,818)129,834

Operating expenses
Operating Income(loss)
Assets89,513

9,403

4,055

102,973(1,725)

101,248

34,012(5,473)

139

28,679(93)

28,585¥ 188,595¥ 46,856¥ 3,786¥ 239,238¥ (45,687)¥ 193,551

Geographic segments:
1. North America..........America
2. Other........................Brasil, Vietnam, Indonesia

HISAMITSU PHARMACEUTICAL CO., INC

54

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

SIGNIFICANT SUBSEQUENT EVENTS
Scope of consolidation
Fiscal 2010 (March 1, 2009 – February 28, 2010)
Purchase method
1. Name and business of acquired company, main reason for merger, date of merger, legal form of merger andname of company post-merger and percentage of voting rights acquired1) Name and business of acquired company:
Noven Pharmaceuticals, Inc.
Pharmaceutical manufacture and sales
2) Main reasons for merger
Hisamitsu Pharmaceuticals has a strong presence in Japan’s pharmaceuticals market with its transdermal delivery system(TDDS) technology represented by the MOHRUS range as its main source of competitiveness. Developing business infrastructure for development, manufacture, and sales overseas (especially in the U.S.) is a priority for the company to achieve
further growth.
Noven Pharmaceuticals has proprietary DOT Matrix® TDDS technology in the U.S. market, and has established a substantial presence in central nervous system and gynecological treatments. We took an equity stake in Noven Pharmaceuticals in 2001 to deepen the strategic alliance between the two companies, and continued to explore how we could moveinto the U.S. market. We concluded that making Noven Pharmaceuticals a subsidiary was the best way to enhance thecorporate value of the two companies.
For us, the acquisition of Noven Pharmaceuticals’ is a key strategic investment that not only provides business infrastructure in the U.S., but also allows us to establish the Hisamitsu brand in the U.S. and strengthens our growth prospects
by maximizing the value of products developed by leveraging the two companies’ TDDS technologies.
Noven Pharmaceuticals will play a key role in our U.S. pharmaceuticals business and is positioned as our strategic business development base. We are committed to making a greater contribution to doctors, healthcare professionals, and mostof all patients in Japan as a true global company.
3) Merger date:August 28, 20094) Legal form of merger
Cash offer for shares5) Name of company post-merger:
Noven Pharmaceuticals, Inc.

HISAMITSU PHARMACEUTICAL CO., INC

55

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

6) Percentage of voting rights acquired: 100%
Fiscal 2010 (March 1, 2009 – February 28, 2010)
2. Earnings period of acquired company included in consolidated ﬁnancial statements:
September 1, 2009 – December 31, 2009
3. Acquisition price and breakdown
Acquisition price: 41,611 million yen in cash
4. Amount of goodwill accrued, goodwill amortization method and amortization period
1) Amount of goodwill: 8,702 million yen
2) Reasons for accrual of goodwill:
Since the acquisition price exceeded the net value calculated from acquired assets and liabilities, the difference has beenrecorded as goodwill.
3) Goodwill amortization method and period:
Amortized equally over 10 years
5. Assets and liabilities received on merger date, and broad breakdown(Millions of yen)
11,58428,768(5,012)(3,846)

Current assets
Fixed assets
Current liabilities
Fixed liabilities

6. Value allocated to, and treated as R&D expenses, etc., and expense category
R&D expenses 1,270 million yen
7. Estimated impact on consolidated proﬁt and loss statement of merger assuming it was completed on the ﬁrst
day of ﬁscal 2010
(Millions of yen)
6,705
(2,712)219

Sales
Operating income/loss
Ordinary income

The above estimated impact ﬁgures are calculated from values recorded in Noven Pharmaceuticals’ consolidated proﬁt andloss statement adjusted for goodwill amortization, etc. These ﬁgures have not been certiﬁed by an auditor.

HISAMITSU PHARMACEUTICAL CO., INC

56

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

PER SHARE INFORMATION
Fiscal 2009
(March 1, 2008 – February 28, 2009)

Fiscal 2010
(March 1, 2009 – February 28, 2010)

Net assets per share

1,391.49

Net assets per share

1,500.92

Earnings per share

215.61

Earnings per share

210.78

Diluted earnings per share are not listed due to the absence of residual
securities.

Diluted earnings per share are not listed due to the absence of residual
securities.

Note: Basis of calculation
1. Net assets per share
Fiscal 2009
(March 1, 2008 – February 28, 2009)

Fiscal 2010
(March 1, 2009 – February 28, 2010)

Total net assets in the consolidated balance sheets (¥ million)

124,105

130,976

Net assets attributable to ordinary shareholders (¥ million)
Main differences (¥ million)
Minority interests
Ordinary shares outstanding

123,386

130,087719

889

95,164,000

95,164,000

Ordinary shares held in treasury

6,492,000

8,493,000

Ordinary shares used in calculating net assets per share

88,672,000

86,671,000

Fiscal 2009
(March 1, 2008 – February 28, 2009)

Fiscal 2010
(March 1, 2009 – February 28, 2010)

2. Earnings per share

Net income (¥ million)
Amount not attributable to ordinary shareholders (¥ million)
Net income attributable to ordinary shareholders (¥ million)
Average ordinary shares during year

HISAMITSU PHARMACEUTICAL CO., INC

57

19,12018,423——

19,12018,42388,680,000

87,410,000

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

ADDITIONAL CONSOLIDATED INFORMATION
Bond information
Not applicable.
Borrowing information

Short-term borrowings
Long-term borrowings due
within one year
Lease liability due
within one year
Long-term borrowings(excluding borrowings due
within one year)
Lease liability (exchangeborrowings due within one
year)
Other liabilities
Total

Notes:

Balance at end of ﬁscal 2009 Balance at end of ﬁscal 2010(¥ million)(¥ million)
885
5,320

Average interest rate
(%)
0.53

Repayment date
—

162

5,164

0.94

—

—

35

—

—

881

8,142

0.98

March 1, 2011 toJanuary 31, 2017

—

145

—

March 1, 2011 toJanuary 31, 2016

—
1,929

—
18,808————

1. Average interest rate shows the weighted average interest rate for year-end balances of borrowings,
etc.
2. Long-term borrowings due within one year include ¥149 million in interest free loans from the Development Bank of Japan.
3. The average interest rate on lease liabilities is not provided, because lease liabilities are stated in the
consolidated balance sheet as a sum before deduction of the equivalent of interest contained in the
total lease payment.
4. Of the long-term borrowings (excluding those scheduled for repayment within one year), ¥456 million
borrowed from the Development Bank of Japan Inc. is interest-free.
5. Of the long-term borrowings (excluding those scheduled for repayment within one year), the scheduled
repayments of lease liabilities (excluding those scheduled for repayment within one year) within ﬁve
years of the end of the consolidated ﬁscal year are as follows:

HISAMITSU PHARMACEUTICAL CO., INC

58

FINANCIAL REPORT 2010

Financial Section
Fiscal 2010
(March 1, 2009 – February 28, 2010)

Long-term borrowings

One to two years(¥ million)
5,177

Two to three years(¥ million)
2,673

Three to four years(¥ million)
164

Four to ﬁve years(¥ million)
84

36

36

36

23

Q1
(Mar 1 – May 31, 2009)
30,328Q2(Jun 1 – Aug 31, 2009)
34,472

Q3(Sep 1 – Nov 30, 2009)
33,576

Q4(Dec 1, 2009 – Feb 28, 2010)
31,455

7,324

8,677

10,996

4,800

4,396

5,172

6,530

2,323

50.15

59.00

74.53

26.81

Lease liability(2) Other
Consolidated sales and income by quarter, FY 2/10.

Sales (¥mn)
Quarterly net income before
adjustment for tax, etc.
(¥mn)
Quarterly net income (¥mn)
Quarterly net income pershare (¥)

HISAMITSU PHARMACEUTICAL CO., INC

59

FINANCIAL REPORT 2010

Corporate Data

Group Companies
Our corporate group comprises Hisamitsu Pharmaceutical, 17 consolidated subsidiaries, two non-consolidated subsidiaries, and two equity-method afﬁliates.
Relationship
Votingrights(%)

Concurrent employees

Capital orinvestment

Main businessactivities

CRCC Media Co., Ltd.

Kurume,Fukuoka¥1,115 million

Cable television
broadcasting

69.50

1

4

Saga City-Vision Co.,Ltd.

Saga, Saga

¥603 million

Cable television
broadcasting

69.41

—

3

Taiyo Co., Ltd.

Tosu, Saga

¥10 million

Other businesses

100

1

2

Kyudo Co., Ltd.

Ueki-machi,
Kamoto-gun,
Kumamoto¥10 million

Other businesses

100

1

1

Hisamitsu Agency Co.,
Ltd.

Kurume,Fukuoka¥25 million

Other businesses

100
(100)

—

3

Hisamitsu U.S., Inc.

Delaware
USA

USD
10

100

1

—

Hisamitsu America, Inc.

California,
USA

USD
100,000

100
(100)

—

1

Noven Pharmaceuticals,
Inc.

Florida,
USA

USD
10

100
(100)

2

—

Name

Location

CapitalHisamitsu Hisamitsu support from Business transactionsofﬁcers employees Hisamitsu(Persons) (Persons)

Other

Remarks

Consolidated subsidiaries

Pharmaceuticals
and related
products
Pharmaceuticals
and related
products
Pharmaceuticals
and related
products

Hisamitsu Farmaceutica
do Brasil Ltda.

Manaus,BrazilBRL
14 million

Pharmaceuticals
and related
products

Hisamitsu UK Ltd.

London, UK

GPB
120,000

Pharmaceuticals
and related
products

Hisamitsu Vietnam
Pharmaceutical Co., Ltd.

Bien Hoa,
Vietnam

Pharmaceuticals
VND
and related
31,293 million
products

HISAMITSU PHARMACEUTICAL CO., INC

100

—

4

100

—

2

100

—

60

3

Working
capital loans Hisamitsu outsources—and debt
advertisingguarantees
Working
capital loans——
and debt
guarantees
Agent for casualty
Hisamitsu—
insurance contracts
leases landfor Hisamitsu
Provide advertising Hisamitsu—
agency services to leases land
Hisamitsu& buildings
Hisamitsu
Provide advertisingleases part—agency services toof a lease
Hisamitsu
building
Mainly sell products—
supplied by Hisamitsu—
in the US

Note 3Note 3

Working
Selling products
capital loans supplied by Hisamitsu—

Hisamitsu outsources
development—

Note 3

Manufacture and sell
products in Brazil,
Workingwith products andcapital loans
some raw materials
supplied by Hisamitsu—

Note 3—

Hisamitsu outsources
development——

Manufacture and sell
products in Vietnam,with some raw
materials supplied by
Hisamitsu——

FINANCIAL REPORT 2010

Corporate Data

PT. Hisamitsu PharmaIndonesia

Surabaya,Indonesia

IDR
32,518 million

Pharmaceuticals
and related
products

75

—

3

—

Manufacture andsell products inIndonesia, withproducts and some
raw materials
supplied by Hisamitsu

5 other companies

—

—

—

—

—

—

—

—

—

¥1,807 million Other businesses

39.76

1

2

Working
capital loans

Supplies raw
materials to
Hisamitsu—

Note 4

Pharmaceuticals
and related
products

49.0(49.0)

—

—

—

—

—

—

—

Equity-method afﬁliates
Maruto Co., Ltd.

Novogyne
Pharmaceuticals

Ogori,
FukuokaUSA

USD
45 million

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 on the Fukuoka Stock Exchange and ﬁles ﬁnancial statements.
5. Figures in parenthesis in the voting rights column indicate indirect ownership.
6. Key earnings information for the foregoing consolidated subsidiaries is not listed because sales atthese companies account for less than 10% of consolidated sales (excluding internal sales between
consolidated subsidiaries).

HISAMITSU PHARMACEUTICAL CO., INC

61

FINANCIAL REPORT 2010

Corporate Data

Company Profile
Company name
FoundedEstablished
Head ofﬁce
Representative
CapitalFiscal year

Hisamitsu Pharmaceutical Co., Inc.
1847
May 22, 1944
408 Tashiro Daikan-machi, Tosu, Saga
NAKATOMI Hirotaka, President & CEO¥8,473,839,816
March 1 – End of February

Stock Information
Authorized shares
Shares outstanding
Shareholders
Stock exchange listings

380,000,000
95,164,895
7,857
First sections of the Tokyo Stock Exchange, Osaka Securities Exchange, andNagoya Stock Exchange, and the Fukuoka Stock Exchange (stock code: 4530)
Stock registrar
Mitsubishi UFJ Trust and Banking Corporation
1-4-5 Marunouchi, Chiyoda-ku, Tokyo
Annual general meeting of shareholders
May each year
Ex dividend date
End of February (August 31 for interim dividend)
Record date
Record date for the annual general meeting of shareholders is the end of February.
Report in advance if otherwise needed.
Newspaper for public announcements
Nihon Keizai Shimbun
Stock related inquiries
Stock Section, General Affairs Department, Kyushu Head Ofﬁce
408 Tashiro Daikan-machi, Tosu-shi Saga
Tel: +81 942-83-2101 Fax: +81 942-83-6119
Website: http://www.hisamitsu.co.jp

Number of Employees
Business segment

Employees

As of February 28, 2010

Pharmaceuticals and related products
2,425 (307)Cable television broadcasting47 (16)
Other businesses
90 (46)
Total
2,562 (369)Note: 1. 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 totals.
2. Number of emplayees in pharmaceuticals and related products has been increased by 669, mainly
due to acquiring Noven pharmaceuticals.

HISAMITSU PHARMACEUTICAL CO., INC

62

FINANCIAL REPORT 2010

Hisamitsu Pharmaceutical Co., Inc.
408 Tashiro Daikan-machi, Tosu, Saga
Tel: +81 942-83-2101
Fax:+81 942-83-6119
Website: http://www.hisamitsu.co.jp