Corporate Vision
Our commitment totreating people around the world
with topical and transdermal patches
Topical and transdermal patches are simple to use, being placed on the skin totreat medical conditions. They are consistent with the latest trend of improving
drug delivery in medical treatment designed to enhance people’s quality of life.
Our message that medicated skin patches have a lot to offer is embodied in
the word Salonpathy, derived from our mainstay product Salonpas. Over theyears we have continued to help people improve their health by leveraging ourtransdermal drug delivery system (TDDS) expertise to develop topical andtransdermal patches mainly for pain relief and reducing inflammation.
Our basic management policy is to concentrate on and specialize in creating
new pharmaceutical products and formulations adaptable to TDDS, which isthe source of our competitiveness. We believe this will allow us to respond to
the underlying need for health, safety, and comfort of people around the world
and improve their quality of life.
We are committed to supplying pharmaceutical products capable of treating
people anywhere in the world simply by applying them to the skin.
Forward-looking statements:
Statements in this financial report concerning current plans, forecasts, strategies, beliefs, and other forward-looking
information related to Hisamitsu Pharmaceutical Co., Ltd., other than those of historical fact, are forecasts of futurebusiness 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 forecastsof business performance in this financial report. Actual business performance may differ significantly from these
forecasts due to changes in a variety of factors.
Note: Amounts in US dollars are included solely for convenience and are translated at a rate of ¥81.71=U.S.$1.00, theapproximate rate of exchange on February 28, 2011.

Contents
Corporate Vision
Consolidated Financial Highlights

1

Consolidated Statements of Income24

To Our Stakeholders

2

Consolidated Statements of Changes in Shareholders’ Equity

25

Overview of Operations

3

Consolidated Statements of Cash Flows

27

Corporate Governance and Internal Auditing

12

Basis of Preparation of Consolidated Financial Statements

29

Analysis of Financial Position, Operating Results, and Cash Flows18

Significant Accounting Policies Concerning the Preparation ofConsolidated Financial Statements

29

Capital Expenditures

19

Changes in Presentation

32

Dividend Policy

20

Additional Information

33

Business and Other Risks

21

Supplementary Schedule

58

Consolidated Balance Sheets

22

Financial Section

HISAMITSU PHARMACEUTICAL CO., INC

Corporate Information

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FINANCIAL REPORT 2011

Consolidated Financial Highlights
Years ended the last day of February(Thousands of
U.S. dollars)(Millions of yen)
Fiscal 2007

Fiscal 2008

Fiscal 2009

Fiscal 2010

Fiscal 2011

Fiscal 2011

Net sales

109,791

119,061

124,655

129,834

137,184

1,678,913

Operating income

26,13429,071

32,53228,58528,193345,037

Ordinary income

27,00130,20432,476

31,231

33,236

406,756

Net income

15,847

18,663

19,12018,423

20,956

256,468

Net assets

103,966

113,929

124,105

130,976

141,222

1,728,332

Total assets

141,143

149,750

167,642

193,551

194,787

2,383,882

Net assets per share (yen and dollars)

1,164.05

1,276.16

1,391.49

1,500.92

1,618.69

19.81

Net income per share (yen and dollars)

178.74210.45215.61210.78241.80

2.96

—

—

—

—

—

—

Shareholders’ equity ratio (%)

73.1

75.6

73.6

67.2

72.0

—

Return on equity (ROE) (%)

16.4

17.2

16.2

14.5

15.5

—

Price-earnings ratio (PER) (times)

20.0

15.9

13.8

15.4

13.6

—

Net cash provided by operating activities

12,22825,722

22,382

20,49836,342444,768

Net cash used in investing activities(11,804)(11,911)(15,927)(32,547)(8,248)(100,942)

Net cash provided by (used in) financing activities(9,580)(7,479)(5,467)

4,899(15,659)(191,641)

Cash and cash equivalents, end of year

26,51032,70633,356

26,23237,654

460,825

Number of employees[average temporary staff]

1,629
[353]

1,752
[297]

1,890
[288]

2,562
[369]

2,635
[415]

—

Diluted net income per share (yen and dollars)

Notes: 1. Net sales do not include consumption tax.
2. Diluted net income per share is not listed due to the absence of residual securities.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2011

To Our Stakeholders

The market environment during the fiscal year ended
February 28, 2011 for ethical pharmaceutical industry inJapan remained severe due to the impact of the April 2010
round of national health insurance drug price cuts and also
the government’s stance of curtailing health spending,including strengthened measures to promote the use ofgeneric drugs.
In the ethical pharmaceuticals business, we have
responded to these conditions by launching products in new
areas and providing medical institutions with targetedscientific information. In the OTC pharmaceutical business,
Medical Products

we have worked to promote sales through launches of new
products, especially our anti-inflammatory pain relief
patches. In research and development activities with Noven
Pharmaceuticals, which was acquired two years ago, we
have improved cooperation in efforts to speed up productdevelopment.
As a result of such efforts, consolidated net sales grew
5.7% year on year, to ¥137,184 million. Operating income
declined 1.4% year on year to ¥28,193 million, ordinary
income increased 6.4% year on year to ¥33,236 million,
and net income grew 13.7% year on year to ¥20,956 million.

For Export

NAKATOMI, Hirotaka
President & CEO

Over the Counter Products
HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2011

Overview of Operations

Operating results
Although the Japanese economy showed some signs of a recovery after the worldwide economic downturn triggered by
the U.S. financial crisis, the effect of global financial instability remained severe, with a slowdown in employment andconsumption. In addition, the situation in the Middle East has become unstable over the past year, causing new concerns
over supplies of crude oil and raw materials.
The operating environment for the ethical pharmaceutical industry in Japan remained severe, due to the impact of theApril 2010 round of national health insurance drug price cuts and also the government’s stance of curtailing healthcare
spending, including strengthened measures to promote generic drug use.
In Japan, we have responded to these conditions by launching new products in new areas of the ethicalpharmaceuticals, particularly our mainstay anti-inflammatory pain relief patches, and providing medical institutions with
scientific information that precisely corresponds to their needs.
We have also worked to launch and promote sales of OTC pharmaceuticals, especially our anti-inflammatory pain relief
patches, amid continued stagnating consumption in the OTC market and tough sales competition.
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.
Further, in research and development activities carried out with Noven Pharmaceuticals, Inc. (“Noven”), which was
acquired two years ago, we have developed cooperation, including personnel exchanges and strived to speed up productdevelopment.
As for our production facilities, at the Tosu and Utsunomiya plants, we carried on our initiatives to help protect the
global environment as ISO 14001 (international environmental management standard) certified factories. In addition to
improving the efficiency of manufacturing processes, we continued introducing solar power generation, switching from aheavy oil boiler to a natural gas boiler, introducing sodium sulfur (NAS) batteries to reduce the consumption of resources,
and taking steps to reduce our environmental footprint by saving energy and reducing waste. We have also established
Energy Management Committee and promoted environmental conservation activities across the company.
The Company and employees took part in community service programs such as the “Japan Red Cross Society street
collections for its overseas programs,” and supported nonprofit organizations through the “Hisamitsu Hot Heart Club,” inwhich the company matches donations deducted from employees’ and directors’ salaries.
In addition, we have provided active financial support for success of the “SAGA Heavy Ion Medical Accelerator in Tosu
Project” that was launched to contribute to the crusade against cancer.
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 net sales grew 5.7% year on year, or 7,350 million, to ¥137,184
million. Operating income declined 1.4% year on year, or ¥391 million, to ¥28,193 million. Ordinary income increased 6.4%
year on year, or ¥2,005 million, to ¥33,236 million; and net income grew 13.7% year on year, or ¥2,532 million, to ¥20,956 million.

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FINANCIAL REPORT 2011

Overview of Operations

Results by business segment
Pharmaceuticals and related products
The pharmaceuticals and related products segment, particularly the ethical pharmaceuticals business, faced an extremely
uncertain business environment during FY 02/2011 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®, aketoprofen transdermal patch; Mohrus® Pap, a ketoprofen transdermal patch; Estrana® Tape, an estradiol transdermal
patch; and HMT, a transdermal patch containing the bronchodilator tulobuterol.
In April 2010, we obtained approval for Fentos® Tape, a transdermal sustained-release cancer pain relief patch that was
our first narcotic product, and commenced sales in June. Fentos® Tape is a narcotic ethical pharmaceutical productdeveloped as a transdermal patch of fentanyl citrate, as synthetic narcotic that exhibits significant analgesic effects, using
Hisamitsu Pharmaceutical’s transdermal drug delivery system (TDDS). This patch has drug release properties suitable fora single daily application.
In February 2011, approval was received to add the effects related to “pain and inflammation relief for acute disorders
and symptoms (muscle pain, swelling and pain due to external injuries)” to the transdermal pain reliever and antiinflammatory Mohrus Tape®. We believe that with the recent addition of “acute disorders” to “chronic disorders”, Mohrus
Tape can contribute to pain relief treatments for even more patients.
Also in February 2011, Mundipharma K.K. received a marketing approval for NORSPAN® Tape, a buprenorphine patch.
NORSPAN® Tape is a pharmaceutical indicated for analgesia of chronic pain associated with osteoarthritis and low backpain not being controlled sufficiently with non-opioid analgesics. In 2007, we acquired the exclusive distribution right of
NORSPAN® Tape in Japan from Mundipharma K.K.
In the OTC pharmaceutical business, we worked to pioneer a new user base through launches of new products,
including our mainstay anti-inflammatory pain relief patches. We have worked towards acquiring new users, releasing theHisamitsu® ICE TOWEL in March 2010, COCOSALO® in June 2010, Air Salonpas® Jet α in July 2010, and DecoDeco Cool®
Strong in December 2010.
Overseas, we began to export Salonpas® Pain Relief Patch - the only OTC pain relief patch in the world that has
obtained approval from the US Food and Drug Administration (FDA) - to five additional countries.
In the US ethical pharmaceuticals market, sales of the Fentanyl Transdermal System, a transdermal sustained-releasepatch for the management of chronic pain, commenced in March 2010, following the approval from the FDA in October
2009.
As a result of these efforts, net sales in the pharmaceutical and related products segment grew 5.4% year on year, or¥6,832 million, to ¥133,237 million.

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FINANCIAL REPORT 2011

Overview of Operations

Cable television broadcasting and other businesses
In our cable and television broadcasting business, we sought to acquire customers for cable television and cable Internet
services by expanding our service area and enhancing the contents. As part of such efforts, we have established “Happy
Tosu Vision” in March 2010 as a substation of CRCC Media Co., Ltd.
We also worked to improve earnings in other businesses, including the production and sales of laboratory animals, byexpanding sales channels, improving customer services, and streamlining operations.
As a result, net sales in the cable television broadcasting and other businesses grew 15.1% year on year, or ¥517
million, to ¥3,946 million.

Net sales by regional segment
Japan
Net sales in Japan increased 0.0% year on year, or ¥57 million, to ¥122,042 million, and operating income decreased 4.5%
year on year, or ¥1,541 million, to ¥32,470 million.
North America
Net sales in North America grew 176.0% year on year, or ¥6,917 million, to ¥10,847 million, and operating loss in North
America shrank 18.2% year on year, or ¥995 million, to ¥4,477 million.
Other
Net sales in other regions expanded 9.6% year on year, or ¥375 million, to ¥4,294 million, and operating income increased
1.2% year on year, or ¥1 million, to ¥141 million.

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FINANCIAL REPORT 2011

Overview of Operations

Sales results
Our sales results broken down by business segment are as follows:(Millions of yen)
Business segment

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

Fiscal 2011

Fiscal 2010

Fiscal 2011

126,404

3.8

133,237

5.4

1,630,608

113,5811.8

112,438(1.0)

1,376,062

Other topical and transdermal products

3,549(15.0)

3,579

0.8

43,801Others

9,273

54.4

17,22085.7

210,745

Cable television broadcasting

2,128

17.9

2,869

34.8

35,112Other businesses

1,300

20.1

1,076

(17.2)

13,169129,834

4.2

137,184

5.7

1,678,913

Pharmaceuticals and related products
Topical analgesic products

Total

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

Sales
Fiscal 2010

% of total

Sales
Fiscal 2011

% of total

Fiscal 2011

Medipal Holdings Corporation

28,71722.1

27,72420.2

339,298

Alfresa Holdings Corporation

23,95718.5

24,05017.5

294,334

Alfresa Holdings Corporation made Tampei Nakata Co., Ltd. a wholly-owned subsidiary as of October 1, 2010. The
amounts stated above for the previous fiscal year have been recalculated to allow comparison after the change.
2. The foregoing figures do not include consumption tax.

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 and strengthened measures
to promote use of generic drugs, against a backdrop of a rapidly aging population. In response to this difficult businessenvironment, 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. Furthermore, we strive
to grow further with an aim to improve our profitability as well as enhance our sales and R&D capabilities.
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 improveexisting products 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.
Especially, in the U.S. ethical pharmaceutical market, we plan to enhance our R&D capability at our business baseNoven Pharmaceuticals by combining our areas of strength in technology, as well as building a manufacturing and sales network.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2011

Overview of Operations

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.
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 on the entity with control over decision-making related to the company’s financial
and business policies
We believe any entity with control over decision-making related to the company’s financial and business policies must havean understanding of the source of the company’s enterprise value and be able to consistently maintain and improve thisenterprise value and the common interests of shareholders.
We believe any decision on how to respond to a proposed acquisition that would transfer control over the company
should ultimately be based on the wishes of individual shareholders. We are not opposed to large purchases of thecompany’s stock, provided that it contributes to enterprise value and the common interests of shareholders.
However, there are many instances in which large stock purchases and proposed acquisitions may not contribute to thetarget company’s enterprise value and the common interests of shareholders. Examples include: those that clearly damage
the target company’s enterprise value and the common interests of shareholders, in light of the objective and other aspectsof the share purchase or proposed acquisition; those that effectively coerce shareholders into selling their shares; thosethat fail to provide a reasonable amount of time for the target company’s board of directors and shareholders to consider
the details and possibly prepare a counteroffer; those that have conditions (e.g., purchase price, timing, and method) thatare either inadequate or inappropriate in light of the target company’s enterprise value; and those that damage relations
with employees, customers, creditors, or other parties essential to continued growth in the target company’s enterprisevalue.
We believe any entity that pursues a large stock purchase or proposed acquisition that does not contribute to thecompany’s enterprise value and the common interests of shareholders is not an appropriate entity for controlling decisionmaking related to the company’s financial and business affairs, and that any large stock purchase or proposed acquisition
by such an entity must be necessarily and appropriately counteracted to ensure the company’s enterprise value and thecommon interests of shareholders.
(2) Overview of specific initiatives instrumental to achieving our basic policy
Since launching a pharmaceutical business in 1847, our company has worked hard to improve the health of people byproviding pharmaceutical products, mainly pain relieving patches. Transdermal patches, that can heal the body simply by
being applied to the skin, will be an improvement of not only the administration of drugs but also quality of life, and they arealso representative of Japan’s therapeutic culture, which is well respected around the world. We pursue our business as a
mission to convey to the world the effectiveness and resulting excitement of this therapeutic patch culture.
Since releasing Salonpas® in 1934, we have successfully developed and marketed a variety of pharmaceutical patch
products, including the OTC pharmaceutical Salonsip and the ethical pharmaceuticals Mohrus® Pap and Mohrus Tape®, byconcentrating on the creation of new drugs and new drug preparations based on our accumulated expertise andexperience and the support of our customers. We have also created products in new areas other than anti-inflammatory
HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2011

Overview of Operations

pain relief, including an estradiol transdermal patch Estrana® Tape, the transdermal sustained-release cancer pain relief
patch Fentos® Tape, and the like, and are expanding our business internationally by conducting sales, pursuing researchand development, and acquiring approvals in various countries around the world. As part of these efforts, Noven
Pharmaceuticals, Inc. was acquired and made a subsidiary in 2009 to establish the Hisamitsu brand in the US and toensure future growth.
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 created by anumber 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 highquality products; 3) marketing prowess to cultivate several long-selling and market-leading brands, including Salonpas®,
Salonsip®, Feitas®, Butenalock®, Mohrus® Pap, Mohrus Tape®, and Estrana® Tape; and 4) an integrated research anddevelopment, manufacturing, and sales structure that allows us to quickly reflect the needs of our customers to improve
products and services.
Going forward, we will continue our efforts to increase enterprise value and maximize the common interests ofshareholders through ongoing and aggressive investment.
To achieve this goal, we aim to build a robust corporate structure capable of meeting our sales targets and securing net
profits despite the difficult competitive environment, and to ensure sustained growth in net profits by strengthening ourbusiness both in Japan and overseas. We also aspire to be an independent research and development-based
pharmaceutical company by concentrating research in our areas of specialty, in line with our basic management policy,
and by focusing on the creation of new drugs and new drug preparations.
We are also actively pursuing licensing activities, including an agreement with Mundipharma K.K. for the exclusive
distribution rights in Japan of NORSPAN® Tape, a buprenorphine patch for treatment of chronic pain associated withosteoarthritis and low back pain not being controlled sufficiently with non-opioid analgesics.
In this way, we seek to increase cash flow through the active pursuit of our business and to create future assets that willcontribute to the common interests of shareholders through the development of new topical and transdermal products,
international expansion of our brands in terms of 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.
In particular, we seek to maintain ROE at 15% or higher from the standpoint of raising capital efficiency, and to
consistently pay dividends with a target payout ratio of 30%.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2011

Overview of Operations(3) Initiatives in light of our basic policy to prevent inappropriate entities from controlling decision-making related
to the group’s financial and business affairs
At the 106th annual general meeting of shareholders held on May 22, 2008, “Takeover defense measures to counter large
purchases of the company’s stock” were adopted to ensure and enhance the company’s enterprise value and the common
interests of shareholders. Upon expiration of the effective period for the takeover defense measures, the measures werepartly revised and its renewal was approved by shareholders at the 109th annual general meeting of shareholders held on
May 26, 2011 (hereinafter the renewed takeover defense measures are referred to as “the Plan”).
The Plan applies to purchases of the company’s stock with the objective or result of a specific shareholder groupowning 20% or more of the voting rights (hereinafter referred to as “Purchases” and those who conduct the “Purchases”
are referred to as “Purchasers”). Purchasers are required to follow certain procedures in providing shareholders, thecompany’s board of directors, and an independent committee with information on which to base their decision. If thepurchaser fails to comply with these procedures or if the purchase will damage the company’s enterprise value and thecommon interests of shareholders, then the company can pursue countermeasures against the purchaser in the form of a
gratis allotment of share acquisition rights or other appropriate countermeasure that the board of directors is permitted totake based on the Companies Act, other laws, and the company’s articles of incorporation. Whether countermeasures
based on the Plan are adopted is ultimately a decision of the board of directors, but to ensure the proper use of the Planand objective, rational, and impartial decisions by the company’s board of directors, we established a committee
independent from the board of directors and will give utmost respect to the opinions of this committee.
The Plan shall be effective until the conclusion of the annual general meeting of shareholders for the fiscal year ending
February 28, 2014. Additionally, the Plan shall be terminated immediately if the board of directors comprising directors
appointed at a general meeting of shareholders decides to terminate the Plan.
(4) Board of directors’ opinion and reasoning for the foregoing initiatives
1) Specific initiatives to achieve our basic policy
The initiatives outlined above are intended to contribute to fulfilling our basic policy and have been prepared as specificpolicies to ensure and enhance on an ongoing basis the company’s enterprise value and the common interests ofshareholders. Accordingly, these initiatives comply with our basic policy and will not damage the common interests ofshareholders.
2) Initiatives in light of our basic policy to prevent inappropriate entities from controlling decision-making related
to the group’s financial and business affairs
The Plan complies in its content with our basic policy and is intended to ensure objectivity and rationality in the decisions of
the board of directors. Further, the Plan was adopted to ensure and enhance the company’s enterprise value and thecommon interests of shareholders, and is not intended to maintain the position of the company’s directors.

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FINANCIAL REPORT 2011

Overview of Operations

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 Fentos® Tape, a transdermal sustained-release drug for the treatment of cancer pain.
(1) Counterparty to the agreement
Kyowa Hakko Kirin Co., Ltd.
(2) Agreement details
Contract on the joint sales within Japan with Kyowa Hakko Kirin Co., Ltd. of Fentos® Tape, a transdermal sustained-releasepatch for treatment of cancer pain that Hisamitsu Pharmaceutical has acquired manufacturing and marketing approval for.
(3) Compensation
Compensation commensurate with a one-time contract payment and subsequent payments according to milestones
reached.
Co-promotion agreement
We concluded an agreement with MSD K.K. (headquarters: Chiyoda-ku, Tokyo; formerly called Banyu Pharmaceutical Co.,
Ltd.) on January 23, 2009, on co-promotion within Japan of the MSD-manufactured and marketed drug Fosamac ® forosteoporosis.
(1) Counterparty to the agreement
MSD K.K.
(2) Agreement details
Contract on co-promotion within Japan of the MSD-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 K.K. on August 6, 2007, for the Japanese distribution rights to
NORSPAN® Tape, a transdermal sustained-release pain relief patch.
(1) Counterparty to the agreement
Mundipharma K. K.

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FINANCIAL REPORT 2011

Overview of Operations(2) Agreement details
Contract acquiring the exclusive rights for distribution of NORSPAN® Tape, a transdermal sustained-release pain relieftape, in Japan(3) Compensation
Compensation commensurate with a one-time contract payment and subsequent milestone payments based on
development progress and sales.

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 independently developed and obtained approval for Fentos® Tape (development
code: HFT-290), a transdermal sustained-release cancer pain relief patch. Currently phase 3 trials are underway for medical
additional indications of chronic non-cancer pain relief for the Fentos® Tape. For Mohrus Tape®(development code: KPT-220;
generic name: ketoprofen), a transdermal analgesic anti-inflammatory patch, approval was obtained for additional indicationsof pain and inflammation relief for acute disorders and symptoms (muscle pain, swelling and pain due to external injuries). For
NORSPAN® Tape (development code: BTDS), a transdermal sustained-release pain relief patch introduced to us by
Mundipharma K.K., the Mundipharma K.K. has obtained approval. Currently phase 3 trials are underway for HTU-520(generic name: terbinafine hydrochloride), a patch to treat Tinea unguium. Currently phase 3 trials are underway for HOB-294(generic name: oxybutynin hydrochloride), a patch to treat an overactive bladder.
For OTC pharmaceuticals, we are developing new products and improving existing products for the purpose of
improving effectiveness, safety, and user satisfaction.
In the U.S. ethical pharmaceutical market, although phase 3 trials were conducted for HKT-500 (generic name:
ketoprofen), a transdermal analgesic anti-inflammatory patch, development has been cancelled. Noven is currently
conducting phase 3 trials for Mesafem (generic name: paroxetine hydrochloride), an oral preparation for vasomotor
symptom treatment.
For OTC pharmaceuticals, the transdermal analgesic anti-inflammatory Salonpas® Pain Relief Patch (development
code: FS-67; generic name: methyl salicylate, ℓ-menthol) is undergoing post-sale clinical trials with pediatric patients
following the request received from the FDA.
In addition to development of our own fundamental technologies, we utilise Noven’s transdermal delivery system(TDDS) technology to improve the value of developed products and to conduct joint development with externalorganizations, working towards improvement of commercialization technologies to expand the possibilities of transdermal
absorption.
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 expenses totaled ¥13,809 million in FY2/11.

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Corporate Governance and Internal Auditing

Corporate Governance(1) Basic approach to corporate governance1) Corporate governance structure
We have prepared basic internal control policies to enhance management transparency and ensure compliance, and we
consider the improvement of corporate governance to be an important task. To this end, we have placed priority on
creating an organization capable of responding quickly to changes in the business environment and have implemented
structural reforms.
With this in mind, we have adjusted the number of directors to an appropriate level with the goals of enhancing theperformance of the board of directors and speeding up decision making. We have also introduced an executive officer
system to clarify roles and responsibilities in business execution.
Going forward, we seek to create a stronger bond of trust with our stakeholders as a good corporate citizen by
improving transparency, ensuring compliance, and upholding corporate ethics in our business activities.
Overview of our corporate governance structure and reasons for adopting the structure
We are structured as a company with a Board of Corporate Auditors, comprising 10 directors and 6 corporate auditors(including 3 outside corporate auditors) as of May 27, 2011.
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 less to 10 or less 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.
To clarify management responsibilities of directors and construct a management structure that can respond to changes
in management environments, the term of directors was changed from 2 years to 1 year at the annual general meeting ofshareholders held on May 26, 2011.
Important management decisions are made by the Management Advisory Council comprising key directors andexecutive officers, and important resolutions are debated and decided by the board of directors. We introduced an
executive officer system in March 2003 with the goals of accelerating management decisions and improving theirtransparency and strategic focus.
We have also worked to enhance management oversight and to separate, decentralize, and strengthen decisionmaking functions and business execution functions.
To better facilitate fair auditing, we switched to an auditing system in which two of the four corporate auditors compriseoutside corporate auditors at the annual general meeting of shareholders on May 26, 2004. To bolster management
oversight further and strengthen our auditing system, we changed the articles of incorporation to increase the number ofcorporate auditors from 4 or fewer to 6 or fewer at the annual general meeting of shareholders on May 25, 2006. In
addition, the number of corporate auditors was increased to 6 (including 3 outside corporate auditors) at the annual general
meeting of shareholders held on May 26, 2011.
Corporate Auditors attend meetings of the board of directors, regularly convene meetings of the board of corporate
auditors, and receive audit reports from the independent auditor as needed. The independence of our three outside
corporate auditors from the company has been ensured and we believe that a structure sufficiently capable of monitoring
management has been established.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2011

Corporate Governance and Internal Auditing

Internal auditing and audit by Board of Corporate Auditors
We established the Internal Audit Office (three corporate 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, reportingto the board of directors and the board of corporate auditors, promoting mutual cooperation, reporting to relevant businessdivision managers and directors, and providing support and advice as needed to improve internal control.
In addition to conducting audits based on predetermined audit guidelines and plans, the Board of Corporate Auditors
also regularly holds individual hearings with directors, executive officers, division managers and key staff from eachbusiness division.
Outside Directors and Outside Corporate Auditors
Our three outside corporate auditors are ONO Keinosuke, ICHIKAWA Isao, and TOKUNAGA Tetsuo. ONO Keinosuke has
gained scholarly knowledge related to management through his past career experience as a professor of a graduate
school of business. ICHIKAWA Isao has gained management experience and insight through his past career experience
as executive vice president and representative director of a listed company. TOKUNAGA Tetsuo has gained overallmanagement experience and knowledge through his past career experience as executive vice president andrepresentative director of a listed company, etc.
Outside corporate auditors regularly attend meetings of the Board of Directors and meetings of the Board of Corporate
Auditors. We believe that a structure sufficiently capable of auditing management has been established. In consideration of
the efficiency and flexibility of the business decision making process, no outside directors have been appointed. There isno conflict of interests between our outside corporate auditors and the company.
2) Risk management systems
To respond to a variety of business risks, we have sought to enhance risk management and corporate governance by
establishing a variety of internal committees.
Compliance Promotion Committee and Compliance Promotion Office (Chair: 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 toensure 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.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2011

Corporate Governance and Internal Auditing

Crisis Management Committee (Chair: President & CEO)We established a Crisis Headquarters to help prevent risk and prepare for times of crisis, standing as a permanent Crisis
Management Committee to operate in normal times, and conduct training of committee members as needed.
Privacy Protection Committee (Chair: Director 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.

Corporate governance structure

General Meeting of Shareholders
Appoint and remove

Independent auditor

Board of Corporate
Auditors
Corporate Auditors
Operational andaccounting auditing

Appoint and remove

Audit

Board of Directors
Directors

Audit

Representative
director

Management Advisory
Council
Directors and Executive Officers
AdviceInternal Audit OfficeCommittees
Compliance Promotion Committee
Crisis Management Committee
Privacy Protection Committee
Disclosure Policy TeamCSR Committee

Audit

Advising attorneys and other specialists

Appoint and remove

Various business divisions and group companies

HISAMITSU PHARMACEUTICAL CO., INC

14

FINANCIAL REPORT 2011

Corporate Governance and Internal Auditing

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 (Chair: 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.
3) Executive compensation
A. Total compensations by classification of executives and by type of compensations, and number of executives
by category of the filing company(Millions of yen)
Fiscal 2011
Category

Total
compensation

Directors (Excluding Outside Directors)

285

Total compensation by type
Basiccompensation

Stock options

Bonuses

Retirement
benefits

265

—

—

20

Number of
officers to be paid
10

Corporate Auditors (Excluding Outside Corporate Auditors)

32

28

—

—

4

2

Outside Officers

15

13

—

—

1

2

(Thousands of U.S. dollars)
Fiscal 2011
Category

Total
compensation

Directors (Excluding Outside Directors)

3,488

Total compensation by type
Basiccompensation
3,243

Stock options

Bonuses

Retirement
benefits

—

—

245

Number of
officers to be paid
10

Corporate Auditors (Excluding Outside Corporate Auditors)

392

343

—

—

49

2

Outside Officers

184

159

—

—

12

2

B. Total consolidated compensation paid to executive of the filing company
This item is not stated as there are no executives with consolidated compensation exceeding ¥100 million.
C. Material disclosures on employee salaries for directors who also serve as employees.
Not applicable.
D. Policy on deciding amount of executive compensation
Directors’ compensation is determined at the Board of Directors meeting within the range approved at the annual
general meeting of shareholders in consideration of the company’s business performance, as well as the position, job
specifications, and individual performance of each director.
Corporate Auditors’ compensation is determined at the Board of Corporate Auditors meeting within the range
approved at the annual general meeting of shareholders.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2011

Corporate Governance and Internal Auditing

4) Accounting Auditing
The company has concluded an auditing contract with KPMG AZSA LLC to serve as an independent auditor responsible
for accounting auditing, and by providing accurate business information and taking other steps, we provide an environment
conductive to fair auditing. There are no special interests between the company and KPMG AZSA LLC and theirdesignated limited liability partner and engagement partners.
Audit company providing auditing services
Audit company
KPMG AZSA LLC

Certified public accountants providing auditing services
Designated limited liability partner and engagement partner

Hiromi Kimura

Designated limited liability partner and engagement partner

Yoshihide Takehisa

Designated limited liability partner and engagement partner

Akihisa Sada

Assisting personnel
2 CPAs & 10 others

Notes: A statement on the years of continuous audit service is omitted because all accounting auditors have served less than seven years.

5) Annual general meeting of shareholders resolution items that can be decided at the Board of Directors meeting
Acquisition of treasury stock
To enable the flexible execution of capital policy, the articles of incorporation stipulate that the company can repurchaseshares in the open market or through other means based on a board of directors resolution in accordance with Article 1652 of the Companies Act.
Interim dividends
To flexibly return profits to shareholders, the articles of incorporation stipulate that interim dividends from retained earnings,
as defined in Article 454-5 in the Companies Act, can be paid based on a board of directors resolution to shareholders orpledgees listed or registered in the final shareholder registry at the end of August each year.
6) Resolutions to appoint or remove directors(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 remove directors require a minimum two-third vote ofshareholders owning a majority of the voting rights of shareholders capable of executing voting rights.
7) Special resolutions of the general meeting of shareholders
To facilitate the smooth administration of general meetings of shareholders, the articles of incorporation stipulate that
resolutions based on Article 309-2 of the Companies Act require a minimum two-third vote of shareholders owning aminimum one-third of the voting rights of shareholders capable of executing voting rights, except as otherwise provided forby the articles of incorporation.

HISAMITSU PHARMACEUTICAL CO., INC

16

FINANCIAL REPORT 2011

Corporate Governance and Internal Auditing(2) Remuneration for Auditing
1) Breakdown of compensation for certified public accountants providing auditing services, etc.
(Millions of yen)
Fiscal 2010
Compensation forCompensation
audit certification
for non-auditing
services
services(Thousands of U.S. dollars)
Fiscal 2011

Compensation foraudit certification
services

Fiscal 2011

Compensation
for non-auditing
services

Compensation foraudit certification
services

The company

52

—

52

5

636

Compensation
for non-auditing
services
61

Subsidiaries

4

—

4

—

49

—

Total

57

—

57

5

698

61

Category

2) Breakdown of other important compensation
FY2/10The company and most of its overseas consolidated subsidiaries paid the KPMG Group, which belongs to the same
network as our certified public accountants providing auditing services, for audit certification and non-auditing services(such as tax advisory services).
FY2/11
The company and most of its overseas consolidated subsidiaries paid the KPMG Group, which belongs to the same
network as our certified public accountants providing auditing services, for audit certification and non-auditing services(such as tax advisory services).
3) Details of non-auditing services provided by certified public accountants to the company
FY2/10Not applicable.
FY2/11
We have commissioned the audit company with financial due diligence support business, which is a non-auditing service
as stipulated in Article 2, Paragraph 1 of the Certified Public Accountants Act.
4) Policy on setting compensation for auditing services
Not applicable.

HISAMITSU PHARMACEUTICAL CO., INC

17

FINANCIAL REPORT 2011

Financial Section

Analysis of Financial Position, Operating Results, and Cash Flows(1) Analysis of financial position at the end of Fiscal 2011
1) Assets
Assets totaled ¥194,787 million at the end of FY2/11, an increase of ¥1,236 million from the previous year, due mainly toincreases of ¥6,251 million in cash and deposits and of ¥5,380 million in short-term investment securities, despite adecrease of ¥5,464 million in notes and accounts receivable-trade.
2) Liabilities
Liabilities totaled ¥53,564 million at the end of FY2/11, a decrease of ¥9,009 million from the previous year, due mainly toa decrease in short-term loans payable of ¥4,428 million and a decrease in long-term loans payable of ¥5,053 million.
3) Net assets
Net assets totaled ¥141,222 million at the end of FY2/11, an increase of ¥10,246 million from the previous year, due mainly
to an increase in retained earnings of ¥14,973 million and a decrease in foreign currency translation adjustment of ¥4,981 million.
(2) Analysis of operating results in Fiscal 2011
1) Net sales
Net sales grew 5.7% year on year to ¥137,184 million. This increase is attributable mainly to the contribution to sales madeby Noven from the beginning of FY2/11, which was acquired in August 2009.
2) Operating income
Operating income fell 1.4% year on year to ¥28,193 million. This decrease is attributable mainly to the increase in cost of
sales ratio and R&D expenses following the NHI drug price cuts and inclusion of Noven as a consolidated subsidiary.
3) Ordinary income
Ordinary income rose 6.4% year on year to ¥33,236 million. This increase is attributable mainly to an increase in equity inearnings of affiliates.
4) Net income
Net income grew 13.7% year on year to ¥20,956 million as a result of income received from distribution license fees.
Consequently, net income per share totaled ¥241.80 in FY2/11, and return on equity was 15.5%.

HISAMITSU PHARMACEUTICAL CO., INC

18

FINANCIAL REPORT 2011

Financial Section(3) Analysis of cash flows in Fiscal 2011
Cash and cash equivalents at the end of the FY2/11 totaled ¥37,654 million, an increase of ¥11,422 million from the
beginning of the fiscal year.
1) Net Cash provided by (used in) operating activities
Net cash provided by operating activities totaled ¥36,342 million (¥20,498 million provided at the end of the previous fiscal
year), due mainly to income before taxes and minority interests (¥36,104 million), interest and dividends received (¥5,954
million), and income taxes paid (¥11,796 million).
2) Net Cash provided by (used in) investment activities
Net cash used in investment activities totaled ¥8,248 million (¥32,547 million used at the end of the previous fiscal year),due mainly to payments for purchases of tangible fixed assets (¥5,947 million) and payments for purchases of investment
securities (¥2,428 million).
3) Net cash provided by (used in) financing activities
Net cash used in financing activities totaled ¥15,659 million (¥4,899 million provided at the end of the previous fiscal year),due mainly to outflow from decrease in short-term loans payable (¥4,549 million), outflow from repayment of long-termloans payable (¥5,216 million) and cash dividends paid (¥5,980 million).

Capital Expenditures
Capital investment totaled ¥4,381 million in FY2/11, due mainly to augmenting and expanding production and researchequipment.
In the pharmaceuticals and related products business, we mainly augmented and expanded production equipment at
the Tosu plant and the Utsunomiya plant, and expanded research equipment at the Tosu Laboratories, requiring capital
investment of ¥3,597 million.
In the cable television broadcasting business, we mainly invested to expand bandwidth to provide digital capabilities toour subscribers, resulting in capital investment of ¥663 million.
We did not sell or remove any equipment that would affect production capacity in FY2/11.

HISAMITSU PHARMACEUTICAL CO., INC

19

FINANCIAL REPORT 2011

Financial Section

Dividend Policy
Our basic policy is to continue paying stable dividends to shareholders. We pay special and commemorative dividends inlight of earnings and other factors in an effort to return profits to shareholders.
We also implement various other financial measures, such as company share buybacks, as effective means for
returning profits to shareholders.
Our basic policy is to pay dividends from retained earnings twice yearly through interim dividends and year-end
dividends. The General Meeting of Shareholders is responsible for deciding on year-end dividends and the Board of
Directors decides on interim dividends.
In FY2/11 we paid an interim dividend of ¥35 per share and a year-end dividend of ¥35 per share, for an annual
dividend of ¥70 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 Fiscal 2011 are as follows.

Resolution date(Millions of yen)

(Yen)

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

Total dividends

Dividends per share

Total dividends

Dividends per share

October 4, 2010
Board of directors resolution

3,034

35

37,131

0.43

3,034

35

37,131

0.43

May 26, 2011
General meeting of shareholders resolution

HISAMITSU PHARMACEUTICAL CO., INC

20

FINANCIAL REPORT 2011

Financial Section

Business and Other Risks
The following risks associated with our group’s business activities could have a significant impact on the decisions ofinvestors.
Any forward-looking statements are based on our judgments at the end of FY2/11.
(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.
(8) Other risks
In addition to the foregoing, other potential risks include natural disasters and the security of computer systems.
HISAMITSU PHARMACEUTICAL CO., INC

21

FINANCIAL REPORT 2011

Financial Section

Consolidated Balance Sheets
February 28, 2010 and 2011

(Millions of yen)
Fiscal 2010

(Thousands of U.S. dollars)

Fiscal 2011

Fiscal 2011

(Assets)
Current assets
Cash and deposits

26,93533,186406,144

Notes and accounts receivable-trade42,32436,860451,108

Short-term investment securities

—

5,380

65,843Merchandise and finished goods

7,279

6,198

75,854

481

333

4,075

Raw materials and supplies

4,511

4,770

58,377

Deferred tax assets

2,258

3,620

44,303

Other

2,577

2,786

34,096

Allowance for doubtful accounts

(267)

(241)

(2,949)86,10092,896

1,136,899

Buildings and structures (Notes 2, 3)

20,082

18,825

230,388

Machinery, equipment and vehicles (Notes 2, 3)

9,692

7,452

91,201

Work-in-process

Total current assets
Noncurrent assets
Tangible fixed assets, net

Tools, furniture and fixtures (Note 2)

2,347

2,223

27,206

Land (Notes 2, 4)

12,43812,422

152,025

177

454

5,556

Construction in progress

1,479

2,882

35,271

Total tangible fixed assets

46,21844,260541,672

Goodwill

7,902

6,268

76,710Software

117

85

1,040

Temporary account for intangible fixed assets

2,823

2,813

34,427

Other

4,912

3,774

46,18815,756

12,943

158,402

31,97931,799389,169

Lease assets

Intangible fixed assets

Total intangible fixed assets
Investments and other assets
Investment securities (Note 1)

62

—

—

Long-term deposits

2,150

2,000

24,477

Prepaid pension cost

4,853

4,581

56,064

Deferred tax assets

3,829

3,833

46,910

Other

2,741

2,603

31,857

Allowance for doubtful accounts

(140)

(131)

(1,603)Long-term loans receivable

Total investments and other assets

45,47544,686546,885

Total noncurrent assets

107,450

101,890

1,246,971

TOTAL ASSETS

193,551

194,787

2,383,882

HISAMITSU PHARMACEUTICAL CO., INC

22

FINANCIAL REPORT 2011

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

Fiscal 2010

Fiscal 2011

Fiscal 2011

Notes and accounts payable-trade

14,66911,279138,037

Short-term loans payable (Note 2)

10,484

6,055

74,104

Lease obligations

35

103

1,261

Accounts payable

8,463

7,192

88,019

Income taxes payable

4,878

10,239125,309(Liabilities)
Current liabilities

Allowance for sales returns
Provision for bonuses
Other
Total current liabilities

237

176

2,154

1,381

1,499

18,345

2,674

2,729

33,39942,82539,275

480,663

8,142

3,089

37,804

Noncurrent liabilities
Long-term loans payable (Note 2)

145

375

4,589

Deferred tax liabilities on revaluation (Note 4)

2,164

2,164

26,484

Deferred tax liabilities

3,027

1,968

24,085

Provision for retirement benefits

4,716

4,910

60,091

Provision for directors’ retirement benefits

1,174

1,200

14,686

Lease obligations

378

579

7,086

Total noncurrent liabilities

19,74914,288

174,862

TOTAL LIABILITIES

62,57453,564

655,538

8,473

8,473

103,696

Other

NET ASSETS
Shareholders’ equity
Capital stock

8,396

8,396

102,754

Retained earnings

132,298

147,272

1,802,374

Treasury stock(18,521)(18,525)(226,716)

130,647

145,616

1,782,107

Capital surplus

Total shareholders’ equity
Valuation and translation adjustments
Valuation difference on available-for-sale securities

(780)

(564)

(6,902)

Revaluation reserve for land (Note 4)

3,188

3,189

39,028Foreign currency translation adjustment(2,968)(7,949)(97,283)

Total valuation and translation adjustments(560)(5,324)(65,157)

Minority interests

889

930

11,382TOTAL NET ASSETS

130,976

141,222

1,728,332

TOTAL LIABILITIES AND NET ASSETS

193,551

194,787

2,383,882

HISAMITSU PHARMACEUTICAL CO., INC

23

FINANCIAL REPORT 2011

Financial Section

Consolidated Statements of Income
Years ended February 28, 2010 and 2011

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

Fiscal 2010

Fiscal 2011

Fiscal 2011

Net sales

129,834

137,184

1,678,913

Cost of sales (Notes 2, 3)

42,65947,697583,735

Gross profit

87,174

89,486

1,095,166

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

58,58961,292

750,116

Operating income

28,58528,193345,037

Interest income

96

59

722

Dividends income

291

356

4,357

Development license revenues

182

137

1,677

Equity in earnings of affiliates

1,901

4,539

55,550

445

357

4,369

2,918

5,448

66,675Interest expenses

108

125

1,530

Foreign exchange losses

58

131

1,603

Loss on sales of receivables

29

23

281

Other

75

125

1,530

Total non-operating expenses

272

406

4,969

31,231

33,236

406,756

Government subsidies

310

19

233

Gain on disposals of fixed assets (Note 4)

—

7

86

Reversal of allowance for doubtful accounts

24

34

416

Distribution license fees

—

3,000

36,715R&D expenses received

710

—

—

Gain on licensing rights to develop drugs

225

—

—

Other

87

39

477

1,357

3,099

37,927

Non-operating income

Other
Total non-operating income
Non-operating expenses

Ordinary income
Extraordinary income

Total extraordinary income
Extraordinary loss
Loss on disposals of fixed assets (Note 5)

73

83

1,016

Advanced depreciation deduction of fixed assets

294

9

110

Impairment loss (Note 6)

191

—

—

Loss on valuation of investment securities

181

138

1,689

740

231

2,827

Income before taxes and minority interests

31,84836,104

441,855

Income taxes-current

12,85817,121

209,534

Income taxes-deferred426(2,146)(26,264)

13,284

14,975183,270

Total extraordinary loss

Total income taxes
Minority interests
Net income

HISAMITSU PHARMACEUTICAL CO., INC

24

139

173

2,117

18,423

20,956

256,468

FINANCIAL REPORT 2011

Financial Section

Consolidated Statements of Changes in Shareholders’ Equity
Years ended February 28, 2010 and 2011

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

Fiscal 2010

Fiscal 2011

Fiscal 2011

8,473

8,473

103,696

Shareholders’ equity
Common stock
Balance at February 28, 2010
Changes of items during the period
Total changes of items during the period
Balance at February 28, 2011

—

—

8,473

8,473

103,696

8,396

8,396

102,754

—

—

8,396

8,396

102,754

119,650132,298

1,619,116

Capital surplus
Balance at February 28, 2010
Changes of items during the period
Total changes of items during the period
Balance at February 28, 2011
Retained earnings
Balance at February 28, 2010
Changes of items during the period
Cash dividends(5,775)(5,982)(73,210)Net income

18,423

20,956

256,468

Revaluation reserve for land
Total changes of items during the period
Balance at February 28, 2011

—

(0)

(11)

12,648

14,973

183,246

132,298

147,272

1,802,374(12,571)(18,521)(226,667)(5,949)(4)(49)

Treasury stock
Balance at February 28, 2010
Changes of items during the period
Purchase of treasury stock(5,949)(4)(49)(18,521)(18,525)(226,716)

123,948

130,647

1,598,911

Cash dividends(5,775)(5,982)(73,210)Net income

18,423

20,956

256,468

Purchase of treasury stock(5,949)(4)(49)

Total changes of items during the period
Balance at February 28, 2011
Total shareholders’ equity
Balance at February 28, 2010
Changes of items during the period

Revaluation reserve for land
Total changes of items during the period
Balance at February 28, 2011

HISAMITSU PHARMACEUTICAL CO., INC

25

—

(0)

(11)

6,698

14,969183,197

130,647

145,616

1,782,107

FINANCIAL REPORT 2011

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

Fiscal 2010

Fiscal 2011

Fiscal 2011

(2,154)(780)(9,546)

Net changes of items other than shareholders’ equity

1,373

215

2,631

Total changes of items during the period

1,373

215

2,631

(780)

(564)

(6,902)

3,188

3,188

39,016

Net changes of items other than shareholders’ equity

—

0

11

Total changes of items during the period

—

0

11

3,188

3,189

39,028(1,596)(2,968)(36,324)

Net changes of items other than shareholders’ equity(1,371)(4,981)(60,959)

Total changes of items during the period(1,371)(4,981)(60,959)(2,968)(7,949)(97,283)

(561)

(560)

(6,854)1(4,764)(58,304)

Valuation and translation adjustments
Valuation difference on available-for-sale securities
Balance at February 28, 2010
Changes of items during the period

Balance at February 28, 2011
Revaluation reserve for land
Balance at February 28, 2010
Changes of items during the period

Balance at February 28, 2011
Foreign currency translation adjustments
Balance at February 28, 2010
Changes of items during the period

Balance at February 28, 2011
Total valuation and translation adjustments
Balance at February 28, 2010
Changes of items during the period
Net changes of items other than shareholders’ equity

1(4,764)(58,304)(560)(5,324)(65,157)

719

889

10,880Net changes of items other than shareholders’ equity

170

40

490

Total changes of items during the period

170

40

490

889

930

11,382

124,105

130,976

1,602,937

Cash dividends(5,775)(5,982)(73,210)Net income

18,423

20,956

256,468

Purchase of treasury stock(5,949)(4)(49)

Total changes of items during the period
Balance at February 28, 2011
Minority interests
Balance at February 28, 2010
Changes of items during the period

Balance at February 28, 2011
Total net assets
Balance at February 28, 2010
Changes of items during the period

Revaluation reserve for land

—

(0)

(11)

Net changes of items other than shareholders’ equity

171(4,723)(57,802)

Total changes of items during the period
Balance at February 28, 2011
HISAMITSU PHARMACEUTICAL CO., INC

26

6,870

10,246125,395

130,976

141,222

1,728,332
FINANCIAL REPORT 2011

Financial Section

Consolidated Statements of Cash Flows
Years ended February 28, 2010 and 2011

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

Fiscal 2010

Fiscal 2011

Fiscal 2011

Income before taxes and minority interests

31,84836,104

441,855

Depreciation and amortization

5,255

6,374

78,008

191——

Amortization of goodwill

2,369

779

9,534

In-process R&D expenses associated with company acquisition

1,270

—

—

154

198

2,423

Increase (decrease) in provision for directors’ retirement benefits

2

26

318

Increase (decrease) in provision for bonuses

74

185

2,264

Increase (decrease) in allowance for doubtful accounts

34

(29)

(355)

Increase (decrease) in provision for sales returns

24

(61)

(747)

Interest and dividends income

(388)

(415)

(5,079)Interest expenses

108

125

1,530

Foreign exchange losses (gains)

15

71

869

Cash flows from operating activities

Impairment loss

Increase (decrease) in provision for retirement benefits(1,901)(4,539)(55,550)

Subsidy income

(310)

(19)

(233)

Loss (gain) on sales of investment securities

(87)

(39)

(477)

Loss (gain) on valuation of investment securities

181

138

1,689

Loss (gain) on disposal of tangible fixed assets

73

83

1,016

Decrease (increase) in notes and accounts receivable-trade(1,369)5,140

62,905Decrease (increase) in inventories(1,279)

702

8,591

Decrease (increase) in other current assets

(280)

(568)

(6,951)

Increase (decrease) in notes and accounts payable-trade857(3,184)(38,967)(2,794)

494

6,046

Equity in losses (earnings) of affiliates

Increase (decrease) in other current liabilities

604

742

9,081

34,65542,310517,807

Interest and dividends received

2,781

5,954

72,867

Interest expenses paid

(108)

(125)

(1,530)(16,829)(11,796)(144,364)

20,49836,342444,768

Other, net
Sub-total

Income taxes paid
Net cash provided by (used in) operating activities

HISAMITSU PHARMACEUTICAL CO., INC

27

FINANCIAL REPORT 2011

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

Fiscal 2010

Fiscal 2011

Fiscal 2011

Net decrease (increase) in time deposits

6,152

(259)

(3,170)Decrease (increase) in long-term deposits

(250)

150

1,836

(6,849)(5,947)(72,782)

0

37

453

Payments for purchase of intangible fixed assets

(201)

(217)

(2,656)

Payments for purchase of marketable securities(3,002)——

Proceeds from sales and redemptions of marketable securities

6,330

—

—

Payments for purchase of investment securities(2,354)(2,428)(29,715)

Proceeds from sales and redemption of investment securities

222

189

2,313

Payments of loans receivable

—

(9)

(110)

Collection of loans receivable

112

216

2,643

Proceeds from subsidy

202

19

233

(32,900)

—

—

(9)

—

—

(32,547)(8,248)(100,942)

Increase (decrease) in short-term loans payable

4,435(4,549)(55,673)

Proceeds from long-term loans payable

15,000270

3,304

Repayment of long-term loans payable(2,731)(5,216)(63,836)

Proceeds from stock issuance to minority shareholders

—

2

24

Cash dividends paid to minority shareholders

(37)

(114)

(1,395)Purchase of treasury stock(5,948)(3)(37)

Cash dividends paid

(5,773)(5,980)(73,186)

Cash flows from investment activities

Payments for purchase of tangible fixed assets
Proceeds from sales of tangible fixed assets

Purchase of investments in subsidiaries resulting in change in scope of consolidation (Note 2)
Other, net
Net cash provided by (used in) investment activities
Cash flows from financing activities

(45)

(67)

(820)

4,899

(15,659)(191,641)

25(1,011)(12,373)

Net increase (decrease) in cash and cash equivalents(7,124)

11,422

139,787

Cash and cash equivalents, beginning of year

33,356

26,232321,038

Cash and cash equivalents, end of year (Note 1)

26,23237,654

460,825

Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents

HISAMITSU PHARMACEUTICAL CO., INC

28

FINANCIAL REPORT 2011

Financial Section

Basis of Preparation of Consolidated Financial Statements
The Company has prepared consolidated financial statements in accordance with the Regulations Concerning the
Terminology, Forms and Preparation Methods of Consolidated Financial Statements (Ministry of Finance Ordinance No.
28,1976; hereinafter, Regulations for Consolidated Financial Statements).
However, the consolidated financial statements for Fiscal 2010 (March 1, 2009 – February 28, 2010) were preparedbased on the Regulations for Consolidated Financial Statements prior to revision, whereas the consolidated financial
statements for Fiscal 2011 (March 1, 2010 – February 28, 2011) were prepared based on the Regulations for Consolidated
Financial Statements after revision.

Significant Accounting Policies Concerning the Preparation of Consolidated Financial Statements
Fiscal 2011 (March 1, 2010 – February 28, 2011)
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(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 the Group) nor retained earnings (proportion attributable
to the Group) would have a material impact on the consolidated financial statements.

HISAMITSU PHARMACEUTICAL CO., INC

29

FINANCIAL REPORT 2011

Financial Section

II. Investments accounted for under the equity method(a) Equity-method non-consolidated subsidiaries: 0(b) Equity-method affiliates: 2
Maruto Sangyo Co., Ltd.
Novogyne Pharmaceuticals
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 noaffiliated companies for which the equity method is not being used.
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 theend 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) Available-for-sale 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 average cost method (book value on the balance sheet is written down according to the decline inprofitability).

HISAMITSU PHARMACEUTICAL CO., INC

30

FINANCIAL REPORT 2011

Financial Section

B. Depreciation methods for significant depreciable assets
1. Tangible fixed assets (excluding lease assets)a) Company and domestic consolidated subsidiaries
Mainly the declining balance method.
b) Overseas consolidated subsidiaries
Mainly straight-line method.
2. Intangible fixed assets (excluding lease assets) and long-term prepaid expenses
Measured by the straight line method.
Within intangible fixed assets, software for internal use is depreciated over its useful life (5 years) using the straight line
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, depreciation is calculated by the straight-line method based on the assumption that theuseful life equals the lease term and the residual value equals zero. The accounting treatment 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
and whose lease period commenced before February 28, 2009 is similar to that of normal rental transactions.
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. Provision for sales returns
In order to provide against losses from product returns after the balance sheet date, the company makes a provision up to
the maximum amount allowed under the Corporation Tax Law.
3. Provision for bonuses
To provide for the payment of bonuses to employees, the Company and its certian subsidiaries record a provision equal tothe portion of expected future bonus payments incurred during the term under review.
4. Provision for 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.

HISAMITSU PHARMACEUTICAL CO., INC

31

FINANCIAL REPORT 2011

Financial Section

Change in accounting policy
The Company adopted “Partial Amendments to Accounting Standard for Retirement Benefits (Part3)” (ASBJ Statement
No.19; July 31, 2008) from FY2/11. This change has no impact on profit and loss.
5. Provision for directors’ retirement benefits
The Company makes a provision for estimated retirement payments to directors and corporate 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 day of
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 Adjustment line under Net Assets.
E. 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. Information concerning goodwill and negative goodwill amortization.
Goodwill is amortized evenly over a five to ten-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.
VII. Scope of funds in the Consolidated Statements of Cash Flows
Funds (cash & cash equivalents) in the Consolidated Statements of Cash Flows consist of cash in hand, demand deposits
and easily realizable short-term investments with high liquidity and maturity dates not more than three months from thedate of purchase, and which carry negligible risks of price fluctuation.

Changes in Presentation
Consolidated balance sheet
Because “long-term loans receivable” are no longer material, they have been included in “other” of “investments and otherassets” from FY2/11. Long-term loans receivable in FY2/11 totaling ¥1 million were recorded under “other.”

HISAMITSU PHARMACEUTICAL CO., INC

32

FINANCIAL REPORT 2011

Financial Section

Additional Information
Fiscal 2010 (March 1, 2009–February 28, 2010) and Fiscal 2011 (March 1, 2010–February 28, 2011)
CONSOLIDATED BALANCE SHEETS*1 Investment securities for non-consolidated subsidiaries and affiliated companies are as follows.
(Millions of yen)
Fiscal 2010
Investment securities (stocks)

16,242

Fiscal 2011
13,592(Thousands of U.S. dollars)
Fiscal 2011
166,344*2 Assets pledged as collateral are as follows.
Pledged assets
Buildings and structures

748 (book value)

736 (book value)

9,007

Machinery, equipment and vehicles

28 (book value)

13 (book value)

159

Tools, furniture and fixtures

109 (book value)

90 (book value)

1,101

Land

—

59 (book value)

722

Total

886 (book value)

900 (book value)

11,015487 (book value)

461 (book value)

5,642

5 (book value)

3 (book value)

37

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

108 (book value)

90 (book value)

1,101

Total

600 (book value)

555 (book value)

6,792

149

119

1,456

Liabilities related to the above assets
Short-term loans payable
Long-term loans payable

456

407

4,981

Total

605

526

6,437

67

54

661

Liabilities provided for factory foundation mortgage
Short-term loans payable
Long-term loans payable

223

169

2,068

Total

291

223

2,729

*3 Advanced depreciation of government subsidies is ¥1,210 million and ¥1,220 million in FY2/10 and FY2/11, respectively.
This figure is not included in the consolidated balance 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 liabilities on revaluation,” while the net sum after this transfer tothe deferred tax liability account is recorded under net assets as “Revaluation reserve for land.”HISAMITSU PHARMACEUTICAL CO., INC

33

FINANCIAL REPORT 2011

Financial Section
Years ended February 28, 2010 and 2011

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
FY2/10 and FY2/11 was ¥2,292 million and ¥2,810 million lower than the book value after revaluation.
CONSOLIDATED STATEMENTS OF INCOME*1 Main items and the amounts under “Selling, general and administrative expenses” are as follows.
(Millions of yen)
Fiscal 2010

(Thousands of U.S. dollars)

Fiscal 2011

Fiscal 2011

Advertising expenses

9,039

8,581

105,018

Sales promotion expenses

12,431

11,702

143,214

Packing and transportation expenses

2,531

2,399

29,360

21

10

122

Salaries and allowances

6,883

6,875

84,139Provision for bonuses

527

921

11,272

Provision for retirement benefits

538

449

5,495

Provision of allowance for doubtful accounts

82

26

318

2,369

779

9,534

Provision for directors’ retirement benefits
Amortization of goodwill

—

3,127

38,26910,447

13,809169,000

Provision for bonuses

164

267

3,268

Provision for retirement benefits

179

148

1,811

Business consignment expenses
Research and development expenses, of which:*2 General and administrative expenses include research and development expenses of ¥10,447 million and ¥13,809
million in FY2/10 and FY2/11, respectively.
Manufacturing costs do not include research and development expenses.
*3 In FY2/10 and FY2/11, manufacturing costs include provision for bonuses of ¥248 million and ¥350 million and provision
for retirement benefits of ¥319 million and ¥266 million, respectively.

HISAMITSU PHARMACEUTICAL CO., INC

34

FINANCIAL REPORT 2011

Financial Section*4 Breakdown of gains on disposals of fixed assets(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2011

Fiscal 2011

Machinery, equipment and vehicles

7

86

Total

7

86

Gain on sales*5 Breakdown of losses on the disposal of fixed assets(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2010

Fiscal 2011

Fiscal 2011

Buildings and structures

41

29

355

Machinery, equipment and vehicles

4

38

465

Tools, furniture and fixtures

27

14

171

Total

73

82

1,004

Land

—

1

12

Total

—

1

12

Loss on retirement

Loss on sales*6 Our Group posted impairment losses on the assets below during fiscal 2010.
(Millions of yen)
AssetsIdle property

Place

Fiscal 2010

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 theirrecoverable value has diminished sharply.
We have assessed their recoverable value based on reasonable estimates of their net sales.

HISAMITSU PHARMACEUTICAL CO., INC

35

FINANCIAL REPORT 2011

Financial Section

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY)
Fiscal 2010 (March 1, 2009–February 28, 2010)
1. Shares issued
Type of shares

End of fiscal 2009

Increase

Decrease

End of fiscal 2010

Common stock

95,164,895——

95,164,895

Type of shares

End of fiscal 2009

Increase

Decrease

End of fiscal 2010

Common stock

6,492,238

2,001,208—

8,493,446

2. Treasury shares

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
Company portion of treasury shares purchased by equity method affiliates

885 shares
323 shares

3. Dividends(1) Dividends paid
Resolution

Type of shares

Total dividends(millions of yen)

Dividends per share(yen)

Record date

May 26, 2009
Annual general meeting ofshareholders

Common stock

2,793

31.5

February 28, 2009

May 27, 2009

September 30, 2009
Board of Directors meeting

Common stock

2,981

34

August 31, 2009

November 2, 2009

Resolution

Type of shares

Total dividends(Thousands of
U.S. dollars)

Dividends per share(U.S. dollar)

Record date

Payment date

May 26, 2009
Annual general meeting ofshareholders

Common stock

34,1820.39

February 28, 2009

May 27, 2009

September 30, 2009
Board of Directors meeting

Common stock

36,4830.42

August 31, 2009

November 2, 2009

HISAMITSU PHARMACEUTICAL CO., INC

36

Payment date

FINANCIAL REPORT 2011

Financial Section(2) Dividends with a record date in fiscal 2010 but a payment date in fiscal 2011
Resolution
May 26, 2010
Annual general meeting ofshareholders

Resolution
May 26, 2010
Annual general meeting ofshareholders

Type of shares

Source of dividend

Total dividends(million of yen)

Dividends per share(yen)

Record date

Payment dateCommon stock

Retained earnings

2,947

34

February 28, 2010

May 27, 2010

Type of shares

Source of dividend

Total dividends(Thousands of
U.S. dollars)

Dividends per share(U.S. dollar)

Record date

Payment dateCommon stock

Retained earnings

36,0670.42

February 28, 2010

May 27, 2010

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Fiscal 2011 (March 1, 2010–February 28, 2011)
1. Shares issued
Type of shares

End of fiscal 2010

Increase

Decrease

End of fiscal 2011

Common stock

95,164,895——

95,164,895

Type of shares

End of fiscal 2010

Increase

Decrease

End of fiscal 2011

Common stock

8,493,446

1,311

—

8,494,757

2. Treasury shares

Reasons for changes
Shares increased for the following main reasons
Increase from purchasing shares in less than one unit

991 sharesCompany portion of treasury shares purchased by equity method affiliates

320 shares

HISAMITSU PHARMACEUTICAL CO., INC

37

FINANCIAL REPORT 2011

Financial Section

3. Dividends(1) Dividends paid
Resolution

Type of shares

Total dividends(millions of yen)

Dividends per share(yen)

Record date

May 26, 2010
Annual general meeting ofshareholders

Common stock

2,947

34

February 28, 2010

May 27, 2010

October 4, 2010
Board of Directors meeting

Common stock

3,034

35

August 31, 2010

November 8, 2010

Resolution

Type of shares

Total dividends(Thousands of
U.S. dollars)

Dividends per share(U.S. dollar)

Record date

Payment date

May 26, 2010
Annual general meeting ofshareholders

Common stock

36,0670.42

February 28, 2010

May 27, 2010

October 4, 2010
Board of Directors meeting

Common stock

37,1310.43

August 31, 2010

November 8, 2010

Payment date(2) Dividends with a record date in fiscal 2011 but a payment date in fiscal 2012
Resolution
May 26, 2011
Annual general meeting ofshareholders

Resolution
May 26, 2011
Annual general meeting ofshareholders

Total dividends Dividends per share(yen)(Millions of yen)Type of shares

Source of dividend

Common stock

Retained earnings

3,034

Type of shares

Source of dividend

Common stock

Retained earnings

HISAMITSU PHARMACEUTICAL CO., INC

Record date

Payment date35

February 28, 2011

May 27, 2011

Total dividends(Thousands of
U.S. dollars)

Dividends per share(U.S. dollar)

Record date

Payment date

37,131

0.43

February 28, 2011

May 27, 201138

FINANCIAL REPORT 2011

Financial Section

CONSOLIDATED STATEMENTS OF CASH FLOWS*1 Relationship between year-end balances of cash and cash equivalents and amounts stated in the consolidatedbalance sheets(Millions of yen)
Cash and deposits
Short-term investment securities
Total
Term deposits longer than three months
Cash and cash equivalents(Thousands of U.S. dollars)

Fiscal 2010

Fiscal 2011

Fiscal 2011

26,93533,186406,144—

5,380

65,84326,93538,567

471,999

(703)

(912)

(11,161)

26,23237,654

460,825*2 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:(Millions of yen)
Fiscal 2010
Current assets

11,584

Noncurrent assets

28,768Goodwill

8,702

Current liabilities(5,012)

Noncurrent liabilities(3,846)

Foreign exchange adjustment account

1,416

Acquisition amount of subsidiary

41,611

Stake acquired in previous years(1,915)

Subsidiary’s cash and cash equivalents(6,795)

Balance

32,900HISAMITSU PHARMACEUTICAL CO., INC

39

FINANCIAL REPORT 2011

Financial Section

LEASE TRANSACTIONS
Lease transactions other than finance leases in which ownership of the leased asset is deemed to have passed to thelessee and whose lease period commenced before February 28, 2009
1. Purchase price equivalent, accumulated depreciation equivalent, and book value equivalent(Millions of yen)
Fiscal 2010
Purchase value
equivalent
Machinery, equipment and vehicles
Tools, furniture and fixtures
Software
Total

Accumulated
depreciation equivalentBook value
equivalent

403

183

220

1,017

588

429

41

23

17

1,462

795

667

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

Fiscal 2011

Fiscal 2011

Purchase value
equivalent

Accumulated
depreciation equivalentBook value
equivalent

Purchase value
equivalent

Accumulated
depreciation equivalentBook value
equivalent

Machinery, equipment and vehicles

403

280

122

4,932

3,427

1,493

Tools, furniture and fixtures

959

687

271

11,737

8,408

3,317

Software
Total

41

30

10

502

367

122

1,404

999

405

17,183

12,226

4,957

Note: The purchase price equivalent was computed by including interest paid because the ratio of future lease payment
obligations to the year-end balance of tangible fixed assets is not material.

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Financial Section

2. Book value equivalent of future lease payments(Millions of yen)
Fiscal 2010

(Thousands of U.S. dollars)

Fiscal 2011

Fiscal 2011

Within one year

259

228

2,790

Over one year

407

176

2,154

Total

667

405

4,957

Note: Future lease payment obligations were computed by including interest paid because the ratio of the year-end balanceof future lease payments to the year-end balance of tangible fixed assets is not material.

3. Lease payments and depreciation equivalent(Millions of yen)
Fiscal 2010

(Thousands of U.S. dollars)

Fiscal 2011

Fiscal 2011

Lease payments

297

259

3,170

Depreciation equivalent

297

259

3,170

4. Method of calculating depreciation equivalent
The value is calculated using the straight-line method whereby the lease period equals the useful life of the lease asset,
and the residual value of the lease asset is zero.
FINANCIAL INSTRUMENTS
1. Outline of financial instruments(1) Policy for financial instruments
Our Group raises funds necessary to conduct mainly the manufacturing and sales of pharmaceuticals through bank loans
or issuance of bonds. Temporary cash surpluses are invested in low risk financial assets. Derivatives are used within thescope of actual requirements and not for speculative purposes.
(2) Nature and extent of risks arising from financial instruments, and risk management for financial instruments
Although operating receivables such as notes and accounts receivable-trade are exposed to customer credit risk, this risk
is managed through regular checks on the business and credit position of customers.
Short-term investment securities and investment securities, mainly consisting of stocks of corporations that theCompany has business relationships with, are exposed to the risk of market price fluctuations. This risk is managed
through periodic monitoring of market value and the financial status of the related issuers. With respect to stocks incompanies that have a business relationship, the Company checks necessity for holding them, taking into account thebusiness relationship.
Payment terms of operating payables, such as notes and accounts payable-trade, accounts payable, and income taxes
payable are less than one year. Loans were mainly used to procure the funds needed for mergers and acquisitions.
Although operating payables and borrowings are exposed to liquidity risk, this risk is managed through methods such as
preparing cash flow planning on a monthly basis.
Derivatives transactions are undertaken by the Finance Department after authorization by the Board of Directors or the
General Manager of the Finance Department, depending on the importance of the transaction, and details areappropriately reported to the Board of Directors.
HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2011

Financial Section(3) Market values of financial instruments
Carrying amount, market value and unrealized gain/loss of the financial instruments as of February 28, 2011 are as follows:
Financial instruments whose market values are not readily determinable are excluded from the following table (See (Note 2)):
(Millions of yen)
Carrying amount Market value(Thousands of U.S. dollars)
Unrealized gain
Carrying amount Market value(loss)

Unrealized gain
(loss)(1) Cash and deposits

33,18633,186—406,144406,144—(2) Notes and accounts receivable-trade

36,86036,860—451,108

451,108—

Available-for-sale securities

22,956

22,956—

280,945

280,945—

Stock of affiliated companies

1,329

663

(666)

16,265

8,114(8,151)(4) Long-term deposits

2,000

1,967

(32)

24,477

24,073(392)

Total assets

96,332

95,634(698)

1,178,950

1,170,408(8,542)(1) Notes and accounts payable-trade

11,27911,279—138,037

138,037

—

770

770

—

9,424

9,424

—

(3) Short-term investment securities andinvestment securities(2) Short-term loans payable(3) Accounts payable

7,192

7,192

—

88,01988,019—(4) Income taxes payable

10,23910,239—125,309125,309—(5) Long-term loans payable (*)

8,375

8,380

5

102,497

102,558

61

Total liabilities

37,85637,861

5463,297

463,358

61

—

—

—

—

—

—

Derivative transactions(*) Includes current portion of long-term loans payable.
Note 1: Calculation method of market values of financial instruments and securities Assets
Assets(1) Cash and deposits and (2) Notes and accounts receivable-trade
These assets are recorded using book values because market values approximate book values because of theirshort-term maturities.
(3) Short-term investment securities and investment securities
Certificates of deposit are recorded using book values because market values approximate book values becauseof their short-term maturities. The market values of stocks are determined using the quoted market price on
applicable stock exchanges.
(4) Long-term deposits
Long-term deposits are stated using the quoted prices obtained from financial institutions.
Liabilities(1) N otes and accounts payable-trade, (2) Short-term loans payable, (3) Accounts payable, and (4) Income taxes
payableThese payables are recorded using book values because market values approximate book values because of theirshort-term maturities.
(5) Long-term loans payable (including current portion of long-term loans payable)
Long-term loans payable with floating interest rates are recorded using book values because market values
approximate book values as these rates reflect market interest rates over the short-term. For long-term loans

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2011

Financial Section

payable with fixed interest rates, market values are determined by discounting the aggregated values of theprincipal and interest using an assumed interest rate based on the interest rate that would be applied to a newloan of a similar nature.
Note 2: Financial instruments whose market values are not readily determinable(Millions of yen)

Category(Thousands of U.S. dollars)
Carrying amountUnlisted equity securities

12,812

156,798

81

991

Other

These items are not included in “(3) Short-term investment securities and investment securities,” because there is nomarket price, and it is very difficult to identify market values.
Note 3: Redemption schedule of monetary assets and securities with contractual maturities after the balance sheet date(Millions of yen)(Thousands of U.S. dollars)Within one
year

One to five
years

Five to ten
years

Over tenyears

Within one
year

One to five
years

Five to ten
years

Over tenyears

Cash and deposits

33,186———406,144———

Notes and accounts
receivable-trade

36,860———451,108

—

—

—

2,500

—

—

—

30,596———

Short-term investment securities
and investment securities:
Available-for-sale securities with
contractual maturities:
Negotiable certificates of deposit
Other

—

—

505

341

—

—

6,180

4,173

Long-term deposits

—

2,000

—

—

—

24,477——72,547

2,000

505

341

887,860

24,477

6,180

4,173

Total

Note 4: Redemption schedule of long-term loans payable after the balance sheet date(Millions of yen)(Thousands of U.S. dollars)Within one
year

One to five
years

Five to ten
years

Over tenyears

Within one
year

One to five
years

Five to ten
years

Over tenyears

Long-term loans payable

5,285

3,034

28

26

64,68037,131

343

318

Total

5,285

3,034

28

26

64,68037,131

343

318

Additional information
The Company adopted the “Accounting Standard for Financial Instruments” (ASBJ Statement No. 10; March 10, 2008) and“Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No. 19; March 10, 2008) from FY2/11.

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SECURITIESFiscal 2010 (March 1, 2009–February 28, 2010)
1. Held-to-maturity bonds with market value(Millions of yen)
Fiscal 2010
Category

Carrying amountMarket value

DifferenceMarket value higher than carrying amount(1) Government and municipal bonds, etc.

—

—

—

(2) Corporate bonds

—

—

—

(3) Other———

Subtotal

—

—

—

—

—

—

Market value lower than carrying amount(1) Government and municipal bonds, etc.
(2) Corporate bonds

—

—

—

(3) Other———

Subtotal

—

—

—

Total

—

—

—

2. Available-for-sale securities with market value(Millions of yen)
Fiscal 2010
Category

Acquisition cost

Carrying amount

Difference(1) Stocks

3,769

4,673

903

(2) Bonds———

Carrying amount higher than acquisition cost(3) Other———

Subtotal

3,769

4,673

903

(1) Stocks

12,82910,551(2,278)(2) Bonds———(3) Other———

Subtotal

12,82910,551(2,278)

Total

16,59915,225(1,374)

Carrying amount lower than acquisition cost

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FINANCIAL REPORT 2011

Financial Section

Note: In FY2/11, we applied write-downs to shares with a market value included in the Available-for-sale securities item, suchthat we recorded a ¥181 million loss on valuation of investment securities.
For the write-downs, we applied write-downs to all shares where the market price had fallen 50% or more of theacquisition cost at the end of FY2/11 and to some shares where the market price had fallen 30–50% of the acquisition
cost at the end of FY2/11, based on comprehensive estimates of recoverability for each investment.

3. Available-for-sale securities sold during fiscal 2010
Fiscal 2010 (Millions of yen)
Sale value

Profit from sale

Loss from sale

222

87

—

4. Main securities without market value(Millions of yen)
Fiscal 2010

Details

Carrying amount

Available-for-sale securities(1) Unlisted stocks

510(2) Trust beneficiary certificates, etc.

—

Total

510

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

48(2) Stock in affiliated companies

16,194

Total

16,242

5. Held-to-maturity bonds to be redeemed after the balance sheet date(Millions of yen)
Fiscal 2010
Category

Within one year

One to five years

Five to ten years

Over ten years(1) Corporate bonds

—

—

—

—

(2) Other

—

—

—

—

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Fiscal 2011 (March 1, 2010–February 28, 2011)
1. Available-for-sale securities (February 28, 2011)(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2011

Fiscal 2011

Carrying
amountAcquisition
cost

Difference

Carrying
amountAcquisition
cost

Difference(1) Stocks

5,795

4,299

1,496

70,922

52,61318,309(2) Bonds

—

—

—

—

—

—

(3) Other

—

—

—

—

—

—

Subtotal

5,795

4,299

1,496

70,922

52,61318,309

11,77914,445(2,665)

144,156

176,784(32,615)Type
Acquisition cost higher than on
consolidated balance sheets

Acquisition cost lower than on
consolidated balance sheets(1) Stocks(2) Bonds

—

—

—

—

—

—

(3) Other

5,380

5,380

—

65,84365,843—

Subtotal

17,16019,825(2,665)210,011242,626(32,615)

Total

22,95624,124(1,168)

280,945295,239(14,294)

2. Available-for-sale securities sold during fiscal 2011 (March 1, 2010–February 28, 2011)

Type

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

Fiscal 2011

Fiscal 2011

Profit from sale Loss from sale

Sale value

Profit from sale Loss from sale(1) Stocks

189

39

—

2,313

477

—

(2) Bonds

—

—

—

—

—

—

(3) Other

—

—

—

—

—

—

Total

189

39

—

2,313

477

—

3. Impairment loss on securities (March 1, 2010–February 28, 2011)
In FY2/11, the Group recognized an impairment loss of ¥138 million on stocks under available-for-sale securities.
Note that when the market value at the end of FY2/11 declines more than approximately 30% of its acquisition cost, themarket value is considered to have diminished sharply. An impairment loss is recognized when the market value declines
more than 50% of its acquisition cost, as it is not considered possible for market value to be recovered. When the market
value declines between 30% and 50% of the acquisition cost, the amount considered to be necessary, taking into accountthe recoverability in light of the market value and the financial position of the issuer of the security, is recognized as an
impairment loss.

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DERIVATIVE TRANSACTIONSFiscal 2010 (March 1, 2009–February 28, 2010)
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 offuture 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 thevalue of 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
on transactions – to be minimal.
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 theimportance of the transaction, and details are appropriately reported to the Board of Directors.
2. Transaction market value, etc.
Fiscal 2010 (March 1, 2009 – February 28, 2010)
No relevant transactions during FY2/10.
Fiscal 2011 (March 1, 2010 – February 28, 2011)
1) Derivative transactions to which hedge accounting is not applied
Not applicable.
2) Derivative transactions to which hedge accounting is applied
Not applicable.

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RETIREMENT BENEFITS
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
benefit regulations. In some cases, employees may receive an additional retirement allowance upon retirement.
2. Retirement benefit obligations(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2010

Fiscal 2011

Fiscal 2011(10,981)(11,369)(139,138)(2) Pension assets

8,703

9,239

113,071(3) Subtotal (1) + (2)(2,277)(2,129)(26,056)(4) Unrecognized actuarial differences

2,414

1,800

22,029137(329)(4,026)(6) Prepaid pension costs(4,853)(4,581)(56,064)(7) Provision for retirement benefits (5) + (6)(4,716)(4,910)(60,091)(1) Retirement benefit obligations(5) Total (3) + (4)HISAMITSU PHARMACEUTICAL CO., INC

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3. Retirement benefit costs(Millions of yen)
Fiscal 2010

(Thousands of U.S. dollars)

Fiscal 2011

Fiscal 2011

(1) Service costs

476

521

6,376

(2) Interest costs

208

216

2,643

(3) Expected return on plan assets

(228)

(252)

(3,084)(4) Amortization of actuarial differences

580

394

4,822

1,037

880

10,770(5) Retirement benefit expenses

Notes: 1. Excludes employee contributions to the corporate pension plan.
2. R
 etirement benefit expenses 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(2) Discount rate(3) Expected return on plan assets

Straight-line method
2.00%
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.)

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

Fiscal 2010

Fiscal 2011

Fiscal 2011

1,883

1,960

23,987

Provision for directors’ retirement benefits

474

485

5,936

Accrued enterprise tax

372

712

8,714

Allowance for doubtful accounts

179

158

1,934

Valuation difference on available-for-sale securities

514

597

7,306

Inventories

495

252

3,084

Excess depreciation

906

797

9,754

Intangible fixed assets

3,136

3,138

38,404

Valuation losses on memberships

322

322

3,941

Loss on valuation of investment securities

599

555

6,792

Provision for bonuses

391

384

4,700

Outsourced research and development

502

1,760

21,540

Deferred tax assets
Provision for retirement benefits

Other

1,124

937

11,467

Sub-total deferred tax assets

10,903

12,062

147,620

(853)

(850)

(10,403)

10,05011,212

137,217

Stock and investments in affiliated companies(4,194)(3,135)(38,367)

Prepaid pension costs(1,962)(1,852)(22,666)

Valuation allowance
Total deferred tax assets
Deferred tax liabilities

Other
Total deferred tax liabilities
Net deferred tax assets

(834)

(739)

(9,044)(6,990)(5,727)(70,089)

3,060

5,485

67,128

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

Fiscal 2010

Fiscal 2011

Fiscal 2011

Current assets − deferred tax assets

2,258

3,620

44,303

Noncurrent assets − deferred tax assets

3,829

3,833

46,910Noncurrent liabilities − deferred tax liabilities(3,027)(1,968)(24,085)

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2. Main reasons for difference in statutory tax rate and income tax rate after application of tax effect accounting
Fiscal 2010

Fiscal 2011

40.4%

40.4%

Non-deductible expenses, such as entertainment expenses

1.4%

1.2%

Non-taxable income, such as dividend income(0.2)%(0.2)%

Special tax exemption for experimental research and development(2.8)%(2.4)%

Statutory tax rate
(Adjustments)

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

1.6%

—

Valuation reserve

2.7%

—

—

2.1%

Amortization of goodwill
Other(1.4)%

0.4%

Income tax rate after application of tax effect accounting

41.7%

41.5%

INVESTMENT AND RENTAL PROPERTY
Fiscal 2011 (March 31, 2010 – February 28, 2011)
Because the total amount of investment and rental property is not material, this item is not stated.
Additional information
The Company adopted “Accounting Standard for Disclosures about Fair Value of Investment and Rental Property” (ASBJ
Statement No. 20; November 28, 2008) and “Guidance on Accounting Standard for Disclosures about Fair Value ofInvestment and Rental Property” (ASBJ Guidance No. 23; November 28, 2008) from FY2/11.

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 “other businesses.” 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.

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Geographic segment information
Fiscal 2010 (March 1, 2009 – February 28, 2010)(Millions of yen)Japan

North America

Other

Total

Eliminations

Consolidated

Net sales and operating income (loss)
Net sales
Sales to third parties
Intra-sales andtransfer

121,984

3,930

3,918

129,834—

129,834

1,541

—

277

1,818

(1,818)—

Total Sales

123,526

3,930

4,195

131,652(1,818)129,834

Operating expenses

89,513

9,403

4,055

102,973(1,725)

101,248

Operating Income(loss)

34,012(5,473)

139

28,679(93)

28,585

Assets188,595

46,856

3,786

239,238(45,687)

193,551

Eliminations

Consolidated

Fiscal 2011 (March 1, 2010 – February 28, 2011)(Millions of yen)Japan

North America

Other

Total

Net sales and operating income (loss)
Net sales
122,042

10,847

4,294

137,184—

137,184

1,761

173

288

2,224

(2,224)—

Total Sales

123,804

11,021

4,582

139,408(2,224)

137,184

Sales to third parties
Intra-sales andtransfer
Operating expenses

91,333

15,4994,441

111,273(2,283)

108,990

Operating Income(loss)

32,470(4,477)

141

28,13459

28,193

Assets

194,43142,9194,607

241,958(47,171)

194,787

Eliminations

Consolidated

Fiscal 2011 (March 1, 2010 – February 28, 2011)(Thousands of U.S. dollars)
Japan

North America

Other

Total

Net sales and operating income (loss)
Net sales
1,493,599

132,750

52,552

1,678,913—

1,678,913

21,552

2,117

3,525

27,218(27,218)—

Total Sales

1,515,163

134,879

56,076

1,706,131(27,218)

1,678,913

Operating expenses

1,117,770

189,683

54,351

1,361,804(27,940)

1,333,864

Operating Income(loss)

397,381(54,791)

1,726

344,315722

345,0372,379,525

525,260

56,382

2,961,180(577,298)

2,383,882

Sales to third parties
Intra-sales andtransfer

AssetsGeographic segments:
1. North America ..........America
2. Other ........................Brazil, Vietnam, Indonesia, and others
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Overseas Sales
Fiscal 2010 (March 1, 2009 – February 28, 2010)
Because overseas sales account for under 10% of consolidated net sales, this item is not stated.
Fiscal 2011 (March 1, 2010 – February 28, 2011)(Millions of yen)(Thousands of U.S. dollars)

North America

Other

Total

North America

Other

Total

9,979

7,693

17,672

122,127

94,150216,277

Overseas sales
Consolidated net sales——

137,184——

1,678,913

Ratio of overseas sales to consolidated net sales (%)

7.3

5.6

12.9

7.3

5.6

12.9

Geographic segments:
1. North America ..........America
2. Other ........................Brazil, Vietnam, Indonesia, and others
3. Overseas sales consist of sales conducted by the Company and its subsidiaries in countries or regions outside
Japan.
RELATED PARTY INFORMATION
Fiscal 2010 (March 1, 2009 – February 28, 2010)
Not applicable.
Fiscal 2011 (March 1, 2010 – February 28, 2011)
Not applicable.

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BUSINESS COMBINATION
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 toachieve further growth.
Noven Pharmaceuticals has proprietary DOT Matrix® TDDS technology in the U.S. market, and has established asubstantial 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 move into the U.S. market. We concluded that making Noven Pharmaceuticals a subsidiary was the best way toenhance the corporate 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 growthprospects 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, andmost of 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.
6) Percentage of voting rights acquired: 100%

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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)
Current assets

11,584

Noncurrent assets

28,768Current liabilities(5,012)

Noncurrent liabilities(3,846)

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 firstday of fiscal 2010
(Millions of yen)
Sales

6,705

Operating income/loss(2,712)

Ordinary income219

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

HISAMITSU PHARMACEUTICAL CO., INC

55

FINANCIAL REPORT 2011

Financial Section

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

Fiscal 2010

Fiscal 2011

Fiscal 2011

Net assets per share

1,500.92

1,618.69

19.81

Net income per share

210.78241.802.96

Diluted net income per share is not listed due to the absence of residual securities.

Note: Basis of calculation

1. Net assets per share(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2010

Fiscal 2011

Fiscal 2011

Total net assets in the consolidated balance sheets

130,976

141,222

1,728,332

Net assets attributable to common shareholders

130,087

140,291

1,716,938

Main differences
Minority interests

889

930

11,382

Common stock issued (Thousands of shares)

95,164

95,164—

Common stock held in treasury (Thousands of shares)

8,493

8,494

—

Common stock used in calculating net assets per share (Thousands of shares)

86,671

86,670—2. Net income per share(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2010

Fiscal 2011

Fiscal 2011

18,423

20,956

256,468

Amount not attributable to common shareholders

—

—

—

Net income attributable to common shareholders

18,423

20,956

256,468

Average common stock during year (Thousands of shares)

87,41086,670—Net income

HISAMITSU PHARMACEUTICAL CO., INC

56

FINANCIAL REPORT 2011

Financial Section

SIGNIFICANT SUBSEQUENT EVENTSFiscal 2011 (March 1, 2010 – February 28, 2011)
1. Acquisition of treasury stock in compliance with the Articles of Association under the provisions of Paragraph
2, Article 165 of the Companies Act In
Accordance with Article 156 of the Companies Act replacing the phrases pursuant to the provisions of Paragraph 3, Article
165 of the Companies Act, a resolution was made at the meeting of the Board of Directors held on March 15, 2011 toacquire treasury stock as described below.
1) Reason
This treasury stock acquisition is being conducted in an effort to improve capital efficiency and deliver even more returns toshareholders, as we execute a flexible capital policy in response to changes in the business environment.
2) Class of acquired shares
Common stock3) Acquisition method
Purchase in the open market
4) Number of acquired shares
1,000,000 shares
5) Acquisition price of shares¥3,316 million
6) Treasury stock acquisition period
March 22, 2011 to April 20, 2011
2. Impact of the Great East Japan Earthquake
Our Utsunomiya Factory was affected by the Great East Japan Earthquake, which occurred on March 11, 2011. At the
Utsunomiya Factory, some buildings and facilities were damaged, and product inventories also suffered some damage.
We are doing our utmost to promptly make detailed estimates of the amount of damage and the impact on the businessperformance of the FY2/12.

HISAMITSU PHARMACEUTICAL CO., INC

57

FINANCIAL REPORT 2011

Financial Section

Supplementary Schedule
Supplementary schedule of bonds payableNot applicable.
Supplementary schedule of loans payable(Thousands of
U.S. dollars)(Millions of yen)(%)

Balance as ofFebruary 28, 2010

Balance as ofFebruary 28, 2011

Balance as ofFebruary 28, 2011

Average interest rate

Due date

Short-term loans

5,320

770

9,424

0.60

—

Current position of long-termloans due within one year

5,164

5,285

64,680

1.11—

Current position of long-termlease obligation due within
one year

35

103

1,261

—

—

Long-term loans(excluding current portion)

8,142

3,089

37,8040.76

March 1, 2012 toMarch 31, 2026

Lease obligation(excluding current portion)

145

375

4,589

—

March 1, 2012 toJanuary 31, 2017

Other liabilities

—

—

—

—

—

18,808

9,624

117,782——

Category

Total

Notes: 1. Average interest rate is the weighted average interest rate for the year-end balances of loans, etc.
2. R epayments of long-term loans due within one year, include ¥115 million in interest free loans from theDevelopment Bank of Japan Inc.
3. The average interest rate on lease obligations is not listed, mainly because lease obligations are stated in the
consolidated balance sheet mainly as a total before deduction of the equivalent of interest contained in the totallease payment.
4. Repayments of long-term loans (excluding those due within one year), include ¥341 million in interest free loans
from the Development Bank of Japan Inc.
5. Yearly repayments of long-term loans and lease obligations (both excluding those due within one year) within five
years after the consolidated balance sheet date are as follows:(Millions of yen)
Due after one year
but within two years

Due after two years
but within three years

Long-term loans

2,731

173

87

42

Lease obligations

104

104

86

75

Category

Due after three years
but within four years

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

Due after two years
but within three years

Due after three years
but within four years

Due after four years
but within five years

Long-term loans

33,423

2,117

1,065

514

Lease obligations

1,273

1,273

1,053

918

Category

HISAMITSU PHARMACEUTICAL CO., INC

58

FINANCIAL REPORT 2011

Financial Section

Other
Consolidated sales and income by quarter, Fiscal 2011
(Millions of yen)First quarter(March 1 – May 31, 2010)

Second quarter(June 1 – August 31, 2010)

Net sales

32,86938,20931,504

34,599

Income before income taxes

10,49910,387

8,136

7,080

Net income

6,085

5,917

4,667

4,286

Net income per share (yen)

70.21

68.27

53.85

49.46

Third quarter
Fourth quarter(September 1 – November 30, 2010) (December 1 – February 28, 2011)

Consolidated sales and income by quarter, Fiscal 2011
(Thousands of U.S. dollars)First quarter(March 1 – May 31, 2010)

Second quarter(June 1 – August 31, 2010)

Net sales

402,264

467,617385,559

423,437

Income before income taxes

128,491

127,120

99,572

86,648Net income

74,471

72,415

57,11752,454

0.86

0.84

0.66

0.61

Net income per share (U.S. dollars)

HISAMITSU PHARMACEUTICAL CO., INC

59

Third quarter
Fourth quarter(September 1 – November 30, 2010) (December 1 – February 28, 2011)

FINANCIAL REPORT 2011

Corporate Information

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

Total authorized shares

Common stock

380,000,000

Total

380,000,000

2) Shares issued
Type of shares

Shares issued
at endFiscal 2011
(February 28, 2011)

Shares issued
on filing date
(May 27, 2011)

Names of listing stock
exchanges or registeredsecurities dealers
associations

Details

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

Common stock

95,164,895

95,164,895

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

Total

95,164,895

95,164,895—(2) Status of share subscription rights to shares
Not applicable.
(3) Execution of warrant bonds, etc. with clause allowing change in exercise priceNot applicable.
(4) Details of rights plans
Not applicable.

HISAMITSU PHARMACEUTICAL CO., INC

60

FINANCIAL REPORT 2011

Corporate Information(5) Changes in shares issued, common stock, and other items(Shares)
Date

Change in sharesissuedJuly 5, 2002 (Note)—(Millions of yen)

Shares issued

Change in capitalstock

Capital stock

Change in additional
paid-in capital

Additional paid-in
capital95,164,895

—

8,473

(6,123)

2,118(Shares)(Thousands of U.S. dollars)

Date

Change in sharesissuedShares issued

Change in common
stockCommon stock

Change in additional
paid-in capital

Additional paid-in
capitalJuly 5, 2002 (Note)—

95,164,895—

103,696(74,936)

25,921

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

(6) Details of shareholders
As of February 28, 2011
Status of shares (investment unit comprises 100 shares)
Category

National
and local
government

Financial
institutions

Securities
companies

Other
corporations

Foreign shareholders
Nonindividuals

Individuals

Individuals
and other

Total

Shares under
one unit(shares)

Shareholders(entities)

—

65

34

189

283

7

6,260

6,838

—

Shares owned(units)—449,866

9,160

162,659

136,818

22

192,643

951,168

48,095

Ratio (%)

—

47.30

0.96

17.10

14.39

0.00

20.25

100.00—Note: Treasury stock of 8,468,667 are listed as 84,686 units in the individuals and other column and as 67 shares in theshares under one unit column. The 8,468,667 treasury share figure is the number of shares listed in the shareholder
registry.

HISAMITSU PHARMACEUTICAL CO., INC

61

FINANCIAL REPORT 2011

Corporate Information(7) Principal shareholders
As of February 28, 2011
Name

Address

Shares owned(thousand shares)

Percentage ofshares issued(%)

Japan Trustee Service Bank, Ltd. (trust account)

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

5,482

5.76

Nippon Life Insurance Company

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

4,887

5.13

The Nomura Trust and Banking Co., Ltd.
(The Bank of Tokyo-Mitsubishi UFJ, Ltd.
pension trust account)

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

4,387

4.60

Japan Trustee Service Bank, Ltd.
(Resona Trust & Banking Co., Ltd. retrust
account, The Nishi-Nippon City Bank, Ltd.
pension trust account)

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

4,370

4.59

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

2-11-3 Hamamatsucho, Minato-ku, Tokyo

4,304

4.52

Fukuoka Bank

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

3,871

4.06

The Bank of Saga, Ltd.

2-7-20 Tojin, Saga

3,356

3.52

BBH for Matthews Asian Growth andIncome Fund

2-7-1 Marunouchi, Chiyoda-ku, Tokyo

2,563

2.69

Japan Trustee Service Bank, Ltd.
(The Sumitomo Trust & Banking Co., Ltd. retrust
account, Sumitomo Mitsui Banking Corporation
pension trust account)

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

2,064

2.16

Japan Trustee Service Bank, Ltd.
(The Sumitomo Trust & Banking Co., Ltd.
retrust account ; Resona Bank,
Limited pension trust account)

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

2,000

2.10

37,287

39.19

Total

Notes: 1. The number of the foregoing shares related to fiduciary services is as follows.
Japan Trustee Service Bank, Ltd.: 13,916 thousand shares
The Master Trust Bank of Japan, Ltd.: 4,304 thousand shares
The Nomura Trust and Banking Co., Ltd.: 4,387 thousand shares
2. In addition to the shares listed above, the company owns treasury stock of 8,468,000 (8.90%).

HISAMITSU PHARMACEUTICAL CO., INC

62

FINANCIAL REPORT 2011

Corporate Information(8) Information on transfer of the Company’s stock
Stock exchange listings

First sections of the Tokyo Stock Exchange, and Nagoya 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 ofMay each year

shareholders
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

Nihon Keizai Shimbun

announcements
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

HISAMITSU PHARMACEUTICAL CO., INC

63

FINANCIAL REPORT 2011

Corporate Information

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

Location

Capital orinvestment

Main businessactivities

Votingrights(%)

Concurrent employees

CapitalHisamitsu Hisamitsu support from Business transactions
officers employees Hisamitsu(Persons) (Persons)

Other

Remarks

Consolidated subsidiaries
CRCC Media Co., Ltd.

Kurume,Fukuoka¥1,115 million

Cable television
broadcasting

69.50

1

4

Debt
guarantees——

Saga City-Vision Co.,Ltd.

Saga, Saga

¥605 million

Cable television
broadcasting

70.12

—

3

Debt
guarantees——

Taiyo Co., Ltd.

Tosu, Saga

¥50 million Other businesses

100

1

3

—

Agent for casualty
insurance contracts
for Hisamitsu

Hisamitsu
leases land

Kyudo Co., Ltd.

Tosu, Saga

¥10 million Other businesses

100

1

2

—

Provide laboratory
animals and equipment to Hisamitsu

Hisamitsu
leases land
& buildings

Hisamitsu Agency Co.,
Ltd.

Kurume,Fukuoka¥25 million Other businesses

100
(100)

—

3

—

Provide advertising
agency services to
Hisamitsu

Hisamitsu
leases partof a leasebuilding

Hisamitsu U.S., Inc.

DelawareUSA

Pharmaceuticals
USD
and related
10
products

100

1

—

—

—

—

Hisamitsu America, Inc.

California,
USA

Pharmaceuticals
USD
and related
3,000,000
products

100
(100)

1

1

Selling productsWorking—
capital loans supplied by Hisamitsu

Pharmaceuticals
USD
and related
10
products

100
(100)

2

—

—

Hisamitsu outsources—
development

Note 3Note 3Noven Pharmaceuticals, Florida,
Inc.
USA

Hisamitsu Farmaceutica
do Brasil Ltda.

Manaus,BrazilPharmaceuticals
BRL
and related
15 million
products

100

—

4

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

Hisamitsu UK Ltd.

London, UK

Pharmaceuticals
GPB
and related
120,000
products

100

—

2

—

Hisamitsu outsources—
development

Debt
guarantees

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

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

PT. Hisamitsu PharmaIndonesia

Surabaya,Indonesia

5 other companies—

Pharmaceuticals
VND
and related
258,775 million
products

100

—

3

Pharmaceuticals
IDR
and related
32,518 million
products

75

—

3

—

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

— —

—

—

—

—

—

HISAMITSU PHARMACEUTICAL CO., INC

64

Note 3Note 3Note 3—

FINANCIAL REPORT 2011

Corporate Information

Relationship
Location

Capital orinvestment

Main businessactivities

Votingrights(%)

Maruto Sangyo Co., Ltd.

Ogori,
Fukuoka¥1,807 million Other businesses

39.76

1

2

—

Supplies raw
materials to
Hisamitsu—

Note 4

Novogyne
Pharmaceuticals

USA

Pharmaceuticals
USD
and related
45 million
products

49.0(49.0)

—

—

—

—

—

—

Name

Concurrent employees

CapitalHisamitsu Hisamitsu support from Business transactions
officers employees Hisamitsu(Persons) (Persons)

Other

Remarks

Equity-method affiliates

Notes: 1. Main business activities column lists names of business segments.
2. T here are no companies in accounting insolvency that would significantly affect the consolidated financial statements.
3. Specified subsidiary.
4. Listed and files financial statements.
5. Figures in parenthesis in the voting rights column indicate indirect ownership.
6. K ey earnings information for the foregoing consolidated subsidiaries is not listed because sales at these companies account for less than 10% of consolidated sales (excluding internal sales between consolidated subsidiaries).

Management
President & CEO

NAKATOMI, Hirotaka

Standing Corporate Auditor

NAKATOMI, Nobuyuki

Senior Managing Director

YOSHIDA, Tsukasa

Standing Corporate Auditor

UEDA, Masahiro

Senior Managing Director

NAKATOMI, KazuhideStanding Corporate Auditor

HIRANO, MunehikoManaging Director

HADATE, Hidenori

Corporate Auditor

ONO, Keinosuke

Managing Director

YOSHIDA, Minoru

Corporate Auditor

ICHIKAWA, Isao

Managing Director

NODA, TakehikoCorporate Auditor

TOKUNAGA, Tetsuo

Director

AKIYAMA, Tetsuo

Director

SUGIYAMA, Kousuke

Director

KABASHIMA, Mitsumasa

Director

TSURUDA, Toshiaki

Notes: 1. NAKATOMI Nobuyuki, Standing Corporate Auditor, is the younger brother of NAKATOMI Hirotaka, President & CEO.
2. N
 AKATOMI Kazuhide, Senior Managing Director, is the first son of NAKATOMI Hirotaka, President & CEO.
3. C
 orporate Auditors ONO Keinosuke, ICHIKAWA Isao, and TOKUNAGA Tetsuo are Outside Corporate Auditors
provided for under Article 2, Paragraph 16, of the Companies Act.

HISAMITSU PHARMACEUTICAL CO., INC

65

FINANCIAL REPORT 2011

Corporate Information

Company Profile
Company name
FoundedHisamitsu Pharmaceutical Co., Inc.
1847

Established
Head office
Representative

May 22, 1944
408 Tashiro Daikan-machi, Tosu, Saga
NAKATOMI, Hirotaka, President & CEO

CapitalFiscal year
Number of Employees¥8,473,839,816
March 1 – End of February
Business segment
Pharmaceuticals and related products
Cable television broadcasting
Other businesses
Total

Employees (As of February 28, 2011)
2,488 (337)
60 (33)87 (45)2,635 (415)Note: E mployee figures are for full-time employees. Temporary employees are shown inparentheses; these figures are averages for the fiscal year and are not included in
totals.

HISAMITSU PHARMACEUTICAL CO., INC

66

FINANCIAL REPORT 2011

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