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®. Overthe years we have continued to help people improve their health by leveraging
our transdermal drug delivery system (TDDS) expertise to develop topical andtransdermal patches mainly for pain relief and reducing inflammation.
Our basic management policy is to concentrate on and specialize in creating
new pharmaceutical products and formulations adaptable to TDDS, which 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 ¥101.94=U.S.$1.00, theapproximate rate of exchange on February 28, 2014.

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

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

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Consolidated Financial Highlights
Years ended the last day of February(Thousands of
U.S. dollars)(Millions of yen)
Fiscal 2010

Fiscal 2011

Fiscal 2012

Fiscal 2013

Fiscal 2014

Fiscal 2014

Net sales

129,834

137,184

137,794

142,772

150,635

1,477,683

Operating income

28,58528,19325,93725,326

19,123

187,591

Ordinary income

31,231

33,23633,49433,051

28,910283,598

Net income

18,423

20,956

18,43918,80921,357

209,506——

17,45824,74034,448337,924

Net assets

130,976

141,222

149,263

167,933

196,308

1,925,721

Total assets

193,551

194,787

192,838

214,141

251,852

2,470,591

Net assets per share (yen and dollars)

1,500.92

1,618.69

1,730.22

1,951.54

2,281.40

22.38

Net income per share (yen and dollars)

210.78241.80215.09219.56249.30

2.45

—

—

—

—

—

—

Shareholders’ equity ratio (%)

67.2

72.0

76.9

78.1

77.6

—

Return on equity (ROE) (%)

14.5

15.5

12.8

11.9

11.8

—

Price-earnings ratio (PER) (times)

15.4

13.6

17.1

24.5

19.1

—

Net cash provided by operating activities

20,49836,34225,55832,48535,845

351,628

Net cash used in investing activities(32,547)(8,248)(15,473)(7,946)(5,843)(57,318)

Net cash provided by (used in) financing activities

4,899(15,659)(13,010)(9,288)(6,476)(63,528)

Cash and cash equivalents, end of year

26,23237,65434,22250,86077,780762,998

Number of employees[average temporary staff]

2,562
[369]

2,635
[415]

2,718
[503]

2,826
[610]

2,949

—

[625]

[—]

Comprehensive income

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.

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FINANCIAL REPORT 2014

To Our Stakeholders

Looking back on business conditions in the domestic market
for the fiscal year ended February 28, 2014, in the ethicalpharmaceuticals business, sales of mainstay products suchas MOHRUS® TAPE and new products NEOXY® TAPE and
Abstral ® Sublingual Tablets dropped slightly from theprevious fiscal year, despite efforts to provide medical
institutions with scientific information about our products.
Regarding OTC pharmaceuticals business, sales grewsignificantly for allegra® FX which was launched during theprevious fiscal year, while mainstay products such as
SALONPAS ®, and FEITAS ® families also continued toperform strongly.

Medical Products

In overseas markets, pharmaceutical sales expanded
steadily in North America as well as in other areas. Net
sales at U.S. subsidiary Noven Pharmaceuticals Inc. also
made a positive contribution due to factors such as theimpact of the exchange rate.
We achieved revenue growth as a result of the above,with consolidated net sales increasing 5.5% year on year to¥150,635 million. In terms of profits, consolidated operating
income decreased 24.5% year on year to ¥19,123 million,
and consolidated ordinary income decreased 12.5% year
on year to ¥28,910 million, reflecting factors such as theincrease in selling, general and administrative expenses
For Export

associated with strengthening sales promotion. However,thanks mainly to the posting of extraordinary income from
distribution license fees for NEOXY® TAPE, consolidated
net income increased 13.5% year on year to ¥21,357
million.
We invite all our investors to look forward to further
development of the Group’s businesses, and ask for yourcontinued support and encouragement.
NAKATOMI, Hirotaka
President & CEO

Over the Counter Products
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Overview of Operations

Operating results
The Japanese economy during the fiscal year under review witnessed a gradual recovery affected by expectations for
economic improvement thanks to new economic policies, which resulted in improved stock prices and export conditions
due to the depreciating yen.
However, uncertainty prevailed against the backdrop of a sluggish world economy, mostly seen in emerging countries.
The operating environment for the ethical pharmaceutical industry in Japan remained severe due to the government’s
basic stance of curtailing healthcare spending, which involves enhanced measures to promote generic drug use.
We have responded to the changes by engaging in our business with a focus on our mainstay transdermal therapeutic
formulation and providing medical institutions with scientific information that precisely corresponds to their needs.
Regarding the OTC pharmaceuticals, we have also worked to launch and promote sales of new products, as sluggish
consumption and tough competition continue in the OTC market.
Our research and development concentrated its resources on transdermal patches, a mainstay product, and focused on
the development of new products with novel topical or systemic effects.
Additionally, in research and development activities carried out with overseas subsidiary Noven Pharmaceuticals, Inc.
(hereinafter referred to as “Noven”) we have strengthened cooperation that includes personnel exchanges and strived to
speed up the development of pharmaceutical products.
As for our production facilities, the Tosu and Utsunomiya Plants carried on initiatives to help protect the global
environment as “ISO 14001” (International Environmental Management Standard) certified factories.
In addition to improving the efficiency of our manufacturing processes, we made an effort to reduce our environmental
footprint through the reduction of energy usage and waste by changing its method of product transport and introducing
highly functional air conditioning, and through maintaining a 99% recycle rate.
We also promoted energy conservation by establishing the Energy Management Committee and made an effort toconserve electricity by adjusting room temperatures.
As for CSR activities, the Company and employees jointly took part in community service programs such as the “JapanRed Cross Society Street Collection Drive for Overseas Programs.” The Company also provided support to a total 38
organizations including 7 that were engaged in recovery efforts after the Great East Japan Earthquake through the“Hisamitsu Hot Heart Club” program, in which the Company makes matching donations deducted from employees’ anddirectors’ salaries.
In addition, we have continued to provide various support for the “SAGA Heavy Ion Medical Accelerator in Tosu (SAGAHIMAT) Project” that was launched to contribute to the crusade against cancer.
SAGA HIMAT was established in May 2013, and started treatment of prostate cancer using heavy ion radiotherapy
from August 2013.
In November 2013, by fulfilling the national standard criteria, heavy ion radiotherapy became available as advanced
medical care.
Hisamitsu Springs, a women’s volleyball team, won 5 titles in 2013 (the National Sports Festival championship,championship of the Emperor’s Cup and Empress’s Cup All Japan Volleyball Championship, V.Premier League
championship, the Japan Korea V.League Top Match championship, and the Kurowashiki All Japan Volleyball Tournamentchampionship), which was the first time in women’s volleyball history. In addition, the team held volleyball classes in a
number of prefectures, mostly in Saga and Hyogo.
For the coming 2020 Tokyo Olympics, we will continue to contribute to the further development and improvement ofsports culture.
“Pharmaceuticals” is the Company’s sole reportable segment, whose performance is as follows.
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Overview of Operations

Pharmaceuticals
The Pharmaceuticals segment, particularly the ethical pharmaceuticals business, faced an extremely uncertain businessenvironment during FY2/14 due to further measures to curb healthcare expenditures.
We responded to the situation by providing medical institutions with appropriate and detailed scientific information about
our products, particularly our transdermal therapeutic formulations. While collecting and supplying information on efficacy
and safety, we engaged in activities to promote the proper use of our mainstay products, including MOHRUS® TAPE andMOHRUS® PAP, ketoprofen transdermal patches; ESTRANA® TAPE, an estradiol transdermal patch; FENTOS® TAPE, atransdermal sustained-release cancer pain relief patch of fentanyl citrate that is a synthetic narcotic with significant
analgesic effects; and NORSPAN® TAPE, a transdermal sustained-release pain relief patch of buprenorphine.
In June 2013, we also began marketing NEOXY® TAPE 73.5 mg, an oxybutynin hydrochloride transdermal patch, as a
new alternative for the treatment of an overactive bladder.
In December 2013, we also began marketing Abstral® Sublingual Tablets in 100 μg, 200 μg, and 400 μg, a cancer pain
relief as a new alternative for the treatment of pain.
The tablets are marketed jointly with Kyowa Hakko Kirin Co., Ltd. in order to enhance activities for product distribution
and providing information in Japan.
In the OTC pharmaceuticals business, we launched new products, in addition to engage in sales of our mainstay antiinflammatory pain relief patches, targeting new users.
In September 2013, in order to acquire new customers, we began marketing FEITAS® 5.0 and FEITAS® 5.0 large-sized,a transdermal anti-inflammatory pain relief tape containing 5.0% of felbinac.
In October 2013, the product groups of FEITAS® and NOBINOBI® SALONSIP® received the Good Design Award 2013
for our efforts in product development from the customer’s perspective, especially their user-friendly features such as being
easier to patch and peel off.
Overseas, in November 2013, we began marketing BRISDELLE® CAPSULE 7.5 mg, a non-hormonal treatment agent
in the category of ethical pharmaceuticals.
This product was developed as a remedy for moderate to severe menopausal vasomotor symptom (VMS), so-called hot
flash, and was the first non-hormone therapeutic agent product approved by the FDA (the U.S. Food and Drug
Administration).
In January 2014, Noven entered a co-promotion agreement with Shionogi Inc. in order to increase the recognition ofthis product to medical professionals.
In addition, we began the marketing in Thailand, Brazil and Malaysia of SALONPAS® PAIN RELIEF PATCH, the firstanti-inflammatory pain relief patch product approved by the FDA in the category of OTC pharmaceuticals.
As a result of these business activities, net sales grew 5.5% year on year, or ¥7,862 million, to ¥150,635 million.
Operating income declined 24.5% year on year, or ¥6,203 million, to ¥19,123 million. Ordinary income decreased 12.5%
year on year, or ¥4,140 million, to ¥28,910 million; and net income increased 13.5% year on year, or ¥2,547 million, to¥21,357 million.

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Overview of Operations

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

Fiscal 2014

Business segment:

Fiscal 2014

Pharmaceuticals

147,439+5.6

1,446,331

Other businesses

3,196

(0.2)

31,352

150,635+5.5

1,477,683

Total

Notes: 1. Sales breakdown by main customers and percentage of sales to main customers.
(Thousands of
U.S. dollars)(Millions of yen)
Sales
Fiscal 2013

% of total

Alfresa Holdings Corporation

26,31418.4

26,132

17.3

256,347

Medipal Holdings Corporation

26,00718.2

25,98017.2

254,856

Customer

Sales
Fiscal 2014

% of total

Fiscal 2014

2. The foregoing figures do not include consumption tax.

Key Challenges
We expect the ethical pharmaceuticals business to witness continued efforts to curb pharmaceutical expenditures,
including additional National Health Insurance drug reimbursement price cuts for long listed products, and strengthened
measures to promote the use of generic drugs, against a backdrop of a rapidly aging population. In response to this difficult
business environment, we are stepping up efforts to provide medical institutions with scientific information and seek todevelop new topical and systemic pharmaceutical products that meet the needs of medical institutions and their patients.
Furthermore, we strive to grow further with an aim to improve our profitability as well as enhance our sales 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 production 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 by combining our areas of strength in technology, as well as expanding and strengthening our manufacturing andsales network. Continuing to recognize our mission and responsibility as a pharmaceutical company, we aim to create amore robust business base and manufacturing structure, and to accelerate the development of new products byconcentrating research in areas of specialty.

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Overview of Operations

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, by concentrating on the creation of new drugs and new drug preparations based on our accumulated expertise andexperience and the support of our customers. We have also created products in new areas other than anti-inflammatory
pain relief, including an estradiol transdermal patch ESTRANA® TAPE, the transdermal sustained-release cancer pain
relief patch FENTOS® TAPE, and NEOXY® TAPE, a transdermal patch to treat an overactive bladder and are expanding
our business internationally by conducting sales, pursuing research and development, and acquiring approvals in various
countries around the world. As part of these efforts, Noven Pharmaceuticals, Inc. was acquired and made a subsidiary toestablish the Hisamitsu brand in the US and to ensure future growth, and Hisamitsu Pharmaceutical Technology
Consulting (Beijing) Co., Ltd. was established as a local subsidiary in order to enter the rapidly growing Chinese market
and promote our pharmaceutical business, etc.

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Overview of Operations

Our corporate philosophy is to strive to improve the quality of life of people around the world by creating external drugs
to meet the needs of our customers, and by implementing this philosophy, we seek to enhance enterprise value and thecommon interests of shareholders.
In other words, the sources of enterprise value for our company are: 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 ofhigh-quality 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 and development, manufacturing, and sales structure that allows us to quickly reflect the needs ofour customers to improve products and services.
Going forward, we will continue our efforts to increase enterprise value and maximize the common interests ofshareholders through ongoing and aggressive investment.
To achieve this goal, we aim to build a robust corporate structure capable of meeting our sales targets and securing net
profits despite the difficult competitive environment, and to ensure sustained growth in net profits by strengthening ourbusiness both in Japan and overseas. We also aspire to be an independent research and development-based
pharmaceutical company by concentrating research in our areas of specialty, in line with our basic management policy,
and by focusing on the creation of new drugs and new drug preparations.
For licensing activities, we entered an agreement with Mundipharma K.K. for exclusive distribution rights in Japan of the
ethical pharmaceutical NORSPAN® TAPE, which is a transdermal sustained-release pain relief patch for the treatment ofchronic pain associated with osteoarthritis and low back pain not being controlled sufficiently with non-opioid analgesics.
We are also actively pursuing OTC pharmaceuticals, including the acquisition of distribution rights from Sanofi K.K. of
allegra® FX, an allergic nasal inflammation medication and a switch OTC product for allegra® 60 mg marketed as an ethicalpharmaceutical for allergic disease treatment.
In this way, we seek to increase cash flow through the active pursuit of our business and to create future assets that willcontribute to the common interests of shareholders through the development of new topical and transdermal products,
international expansion of our brands in terms of 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%. In the “5th Medium-term Management Plan for FY2014-2018”
released as of May 13, 2014, the targets for FY2018 are 11% or more in ROE, 40% or more in payout ratio, and 4.5% ormore in Dividend on Equity (DOE).
Further, we have implemented structural reforms as we have placed priority on creating an organization capable ofresponding quickly to changes in the business environment, as well as enhanced corporate governance, in order toenhance management transparency and ensure compliance. To be specific, we have established the Management
Advisory Council, introduced an executive officer system, established the Crisis Management Committee, prepared theHisamitsu Corporate Charter summarizing behavior based on high ethical and moral standards as an employee, which
was ensured for officers and employees by the Compliance Promotion Committee and Compliance Promotion Office,introduced the System of Outside Corporate Auditors, prepared basic internal control policies, established the Internal

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Overview of Operations

Audit Department, established the Privacy Protection Committee, and prepared Disclosure Policy Rules to provide
timely and appropriate disclosure of corporate information.
Going forward, we seek to create a stronger bond of trust with our stakeholders as a good corporate citizen and toensure and enhance the company’s enterprise value and the common interests of shareholders, and thus, we plan tocontinue to achieve our basic policy.
(3) Initiatives in light of our basic policy to prevent inappropriate entities from controlling decision-making related
to the group’s financial and business affairs
At the 106th annual general meeting of shareholders held on May 22, 2008, “Takeover defense measures to counter large
purchases of the company’s stock (takeover defense measures)” was approved to be adopted with an effective period until
the conclusion of the annual general meeting of shareholders for the fiscal year ended February 28, 2011 (hereinafter “thePlan”). After that, the necessary measures were revised, and the renewals were approved by shareholders at the 109th
annual general meeting of shareholders held on May 26, 2011 and the 112th annual general meeting of shareholders heldon May 22, 2014, respectively (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 and in
granting a period for review and evaluation by this independent committee and the board of directors. If the purchaser fails
to comply with these procedures or if the purchase will damage the company’s enterprise value and the common interestsof shareholders, then the company can pursue countermeasures against the purchaser in the form of a gratis allotment ofshare acquisition rights or other appropriate countermeasure that the board of directors is permitted to take based on the
Companies Act, other laws, and the company’s articles of incorporation. Whether countermeasures based on the Plan are
adopted is ultimately a decision of the board of directors, but to ensure the proper use of the Plan and objective, rational,
and impartial decisions by the company’s board of directors, we established a committee independent from the board of
directors and will give utmost respect to the opinions of this committee.
The Plan shall be effective until the conclusion of the annual general meeting of shareholders for the fiscal year ending
February 28, 2017. 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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Overview of Operations

Important Business Agreements
Joint sales agreement(1) We concluded an agreement with Kyowa Hakko Kirin Co., Ltd. (headquarters: Chiyoda-ku, Tokyo) on June 18, 2008 on
joint sales in Japan of FENTOS® TAPE, a transdermal sustained-release patch 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 sustainedrelease patch 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.
(2) We concluded an agreement with Asahi Kasei Pharma Corp. (headquarters: Chiyoda-ku, Tokyo) on December 10,
2012 on joint sales in Japan of NEOXY® TAPE, a transdermal patch to treat overactive bladder.
1) Counterparty to the agreement
Asahi Kasei Pharma Corp.
2) Agreement details
Contract on the joint sales within Japan with Asahi Kasei Pharma Corp. of NEOXY® TAPE, a transdermal patch to treat
overactive bladder 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(1) Noven Pharmaceuticals, our U.S. subsidiary concluded a co-promotion agreement with Shionogi Inc., the U.S.
subsidiary of Shionogi & Co., Ltd. to co-promote BRISDELLE® CAPSULE 7.5 mg, a non-hormonal treatment agent on
January 13, 2014.
1) Counterparty to the agreement
Shionogi Inc.
2) Agreement details
Co-promotion agreement with Shionogi, Inc. to co-promote Noven Pharmaceuticals’ BRISDELLE® CAPSULE 7.5 mg,
an FDA-approved non-hormonal treatment agent.
3) Compensation
Compensation commensurate with co-promotion performance.

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

Research and Development
Pharmaceuticals
Our R&D program centered on the development of transdermal pharmaceutical products targets the needs of medical
institutions.
For ethical pharmaceuticals in Japan, we received approval for NEOXY® TAPE (development code: HOB-294; active
pharmaceutical Ingredient: oxybutynin hydrochloride), a transdermal patch to treat an overactive bladder, on March 25,
2013. We received approval for the additional indication and dosage and administration of ESTRANA® TAPE, an estradioltransdermal patch, for treatment of hypoestrogenism due to hypogonadism or other reasons, on February 21, 2014. Thiswas evaluated to have high medical needs by the Evaluation Committee on Unapproved or Off-Labeled Drugs with High
Medical Needs, and development was requested by the Ministry of Health, Labour and Welfare. Phase 3 trials have been
completed for the FENTOS® TAPE (development code: HFT-290), a transdermal sustained-release cancer pain relief
patch, additional indications of chronic pain relief, and an application for approval for additional indications of chronic pain
relief has been filed on July 31, 2013. Phase 2 trials have been completed for HP-3000 (active pharmaceutical Ingredient:ropinirole hydrochloride), a transdermal patch to treat Parkinson’s disease, and we are preparing for phase 3 trials. Phase
2 trials of HP-3000 were also commenced for the treatment of idiopathic restless legs syndrome. Regarding HP-3060, atransdermal system for the treatment of allergic rhinitis, phase 2 trials have been completed and we are preparing forphase 3 trials. Regarding HTU-520 (active pharmaceutical Ingredient: terbinafine hydrochloride), a patch to treat tinea
unguium, further development of the current agent has been stopped based on analysis of results of Japanese phase 3
trials and U.S. phase 2 trials.
For OTC pharmaceuticals in Japan, we are developing new products and improving existing products for the purpose of
improving effectiveness, safety, and user satisfaction.
For the U.S. ethical pharmaceuticals, we received approval for BRISDELLE ® (active pharmaceutical Ingredient:paroxetine mesylate), a non-hormonal oral preparation for the treatment of vasomotor symptoms due to menopause, on
June 28, 2013. Applications for generic approval have been submitted for HP-1010 (active pharmaceutical Ingredient:
Lidocaine), a patch to treat post-herpetic neuralgia and HP-1030 (active pharmaceutical Ingredient: rivastigmine), a patch
to treat dementia of the Alzheimer’s type. We have completed Phase 2 trials for d-ATS (active pharmaceutical Ingredient:d-amphetamine), a transdermal patch to treat Attention Deficit Hyperactivity Disorder, and phase 3 trials are in preparation.
We commenced phase 1 trials on a transdermal tape formulation for the treatment of schizophrenia (development code:
HP-3070).
In addition to the development of our own fundamental technologies, we utilize Noven’s transdermal drug delivery
system (TDDS) technology to develop pharmaceuticals and to conduct joint development with external organizations,working towards improvement of commercialization technologies to expand the possibilities of transdermal absorption.

Other businesses
We conduct some research and development in other businesses, but because the amount is limited, it does not merit
special mention.
As a result of the foregoing, research and development expenses totaled ¥13,924 million in FY2/14.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

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 11 directors and 6 corporate auditors(including 3 outside corporate auditors) as of May 23, 2014.
In the area of corporate governance, we reduced the number of directors as a way to clarify the responsibilities andauthority of management and speed up decision-making and business execution. But in order to further reinforce andenhance our management structure in conjunction with the expansion of the organization, we changed the articles ofincorporation to increase the number of directors from 10 or less to 12 or less, at the annual general meeting ofshareholders on May 23, 2013.
In addition, we introduced an executive officer system in March 2003 to improve the speed, transparency, and strategic
focus of business decisions. Moreover, to clarify management responsibilities of directors and construct a management
structure 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 of shareholders 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.
As started above, We have worked to enhance management oversight and to separate, decentralize, and strengthen
decision making functions and business execution functions.
To better facilitate fair auditing, we switched to an auditing system in which 2 of the 4 corporate auditors 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 3 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 2014

Corporate Governance and Internal Auditing

Internal auditing and audit by board of corporate auditors
We established the Internal Audit Department (3 persons in charge) as an internal audit division. The Internal Audit Department
is responsible for auditing the business activities of Hisamitsu Pharmaceutical and group companies to ensure that these
activities are effective and appropriate and that they comply with relevant laws and the articles of incorporation, reporting to theboard of directors and the board of corporate auditors, promoting mutual cooperation, reporting to relevant business division
managers and directors, and providing support and advice as needed to improve internal control.
In addition to conducting audits based on predetermined audit guidelines and plans, the Board of Corporate Auditors also
regularly holds individual hearings with directors, executive officers, division managers and key staff from each business division.
Outside directors and outside corporate auditors
Our 3 outside corporate auditors are ONO Keinosuke, ICHIKAWA Isao, and TOKUNAGA Tetsuo. Although we have notestablished selection criteria regarding the independence of outside officers, we do select our outside corporate auditors basedon the criteria of independence set forth by the Financial Instruments Exchange. ONO Keinosuke has gained scholarly knowledge
related to management through his past career experience such as professor of a graduate school of business. ICHIKAWA Isao
has gained overall management experience and knowledge through his past career experience such as executive vice president
and representative director of a listed company. TOKUNAGA Tetsuo has gained overall management experience and knowledge
through his past career experience such as executive vice president and representative director of a listed company.
Outside corporate auditors regularly attend meetings of the board of directors and meetings of the board of corporate
auditors. We believe that a structure sufficiently capable of auditing management has been established. In consideration of theefficiency and flexibility of the business decision making process, no outside directors have been appointed.
Although ONO Keinosuke concurrently serves as an outside director of YKK Corporation, a Trustee of Chubu University
Educational Foundation, and Professor of Chubu University, the company does not have any special conflict of interests in YKKCorporation or Chubu University. Additionally, ONO Keinosuke serves as Professor Emeritus of Keio University and thecompany outsources research to Keio University, although the transaction amounts are minimal.
Apart from the information stated above, there are no special cases of conflict of interest between our outside 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 and head of office: Director)
We prepared the Hisamitsu Corporate Charter in June 2002 and established the Compliance Promotion Committee andCompliance Promotion Office, where the director serves as chair of the committee and head of the office, to promotethorough and ethical compliance. We have distributed handbooks to officers and employees to promote a recognition andsustained awareness of the importance of compliance, and have worked to ensure behavior based on high ethical andmoral standards.
Going forward, we will continue our efforts to bolster compliance related to social responsibility, including corporate
ethics, the environment, and privacy protection, at Hisamitsu Pharmaceutical and group companies.
Crisis Management Committee (Chair: President & CEO)We established a Crisis Headquarters to help prevent risk and prepare for times of crisis, standing as a permanent Crisis
Management Committee to operate in normal times, and conduct training of committee members as needed.
Privacy Protection Committee (Chair: Director)
We established the Privacy Protection Committee in April 2005 to fully comply with the Personal Information Protection
Act. We have called personal information administrators together and held committee meetings as needed to create anorganization to protect individual rights and interests and to ensure that this organization is safely managed.
HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

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: Director)
We have 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.

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 Department

Committees
Compliance Promotion Committee
Crisis Management Committee

Advising attorneys and other specialists

Appoint and remove

Privacy Protection Committee
Disclosure Policy TeamAudit

CSR Committee

Various business divisions and group companies

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

Corporate Governance and Internal Auditing

3) Executive compensationa) Total compensations by classification of executives and by type of compensations, and number of executives
by category of the filing company(Millions of yen)
Fiscal 2014
Total compensation by type
Category

Total
compensation

Basic
compensation

Stock options

Bonuses

Retirement
benefits

Number of
officers to be paid

Directors (Excluding Outside Directors)

354

275

—

—

78

14

Corporate Auditors (Excluding Outside Corporate Auditors)

54

48

—

—

5

3

Outside Officers

21

19

—

—

1

3

(Thousands of U.S. dollars)
Fiscal 2014
Total compensation by type
Category
Directors (Excluding Outside Directors)

Total
compensation
3,473

Basic
compensation
2,698

Stock options

Bonuses

Retirement
benefits

Number of
officers to be paid

—

—

765

14

Corporate Auditors (Excluding Outside Corporate Auditors)

530

471

—

—

49

3

Outside Officers

206

186

—

—

10

3

b) Total consolidated compensation paid to executive of the filing company(Millions of yen)
Fiscal 2014
Name
(Category of executive)
NAKATOMI, Hirotaka (President & CEO)

Total
consolidated
compensation
151

Total compensation by type
Category ofcompany

Basiccompensation

Stock options

Bonuses

Retirement
benefits

The filingcompany

111

—

—

40

(Thousands of U.S. dollars)
Fiscal 2014
Name
(Category of executive)
NAKATOMI, Hirotaka (President & CEO)

Total
consolidated
compensation
1,481

Total compensation by type
Category ofcompany
The filingcompany

Basiccompensation
1,089

Stock options

Bonuses

Retirement
benefits

—

—

392

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

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

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

Certified public accountants providing auditing services

KPMG AZSA LLC

Designated limited liability partner and engagement partner

Yasushi Masuda

Designated limited liability partner and engagement partner

Akihisa Sada

Assisting personnel
8 CPAs & 6 others

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

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

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

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

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

Fiscal 2013
Compensation forCompensation
audit certification
for non-auditing
services
services(Thousands of U.S. dollars)
Fiscal 2014

Fiscal 2014

Compensation foraudit certification
services

Compensation
for non-auditing
services

Compensation foraudit certification
services

52

—

510

Compensation
for non-auditing
services—

52—

Subsidiaries

4

—

4

—

39

—

Total

56

—

56

—

549

—

2) Breakdown of other important compensation
FY2/13The company and most of its overseas consolidated subsidiaries paid the KPMG Group, which belongs to the same
network as our certified public accountants providing auditing services for audit certification services.
FY2/14The company and most of its overseas consolidated subsidiaries paid the KPMG Group, which belongs to the same
network as our certified public accountants providing auditing services for audit certification services.
3) Details of non-auditing services provided by certified public accountants to the company
FY2/13
Not applicable.
FY2/14
Not applicable.
4) Policy on setting compensation for auditing services
Not applicable.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

Financial Section

Analysis of Financial Position, Operating Results, and Cash Flows(1) Analysis of financial position in Fiscal 2014
1) Assets
Assets totaled ¥251,852 million at the end of FY2/14, an increase of ¥37,711 million from the previous year, due mainly toincreases in cash and deposits of ¥25,150 million, in short-term investment securities of ¥3,115 million, and in investment
securities of ¥6,261 million.
2) Liabilities
Liabilities totaled ¥55,544 million at the end of FY2/14, an increase of ¥9,336 million from the previous year, due mainly to
an increase in electronically recorded obligations — operating of ¥5,625 million and increases in other current liabilities of¥5,173 million.
3) Net assets
Net assets totaled ¥196,308 million at the end of FY2/14, an increase of ¥28,374 million from the previous year, due mainly
to increases in retained earnings of ¥15,358 million, in valuation difference on available-for-sale securities of ¥4,435 million
and in foreign currency translation adjustment of ¥8,467 million.

(2) Analysis of operating results in Fiscal 2014
1) Net sales
Net sales grew 5.5% year on year to ¥150,635 million. This increase is due mainly to the healthy sales of SALONPAS ® andallegra® FX, in addition to the strong sales from overseas subsidiaries affected by the depreciating yen.
2) Operating income
Operating income fell 24.5% year on year to ¥19,123 million. This decrease is attributable mainly to the rises in selling,
general and administrative expenses as a result of enhanced sales promotion activities.
3) Ordinary income
Ordinary income fell 12.5% year on year to ¥28,910 million. This decrease is attributable mainly to the decrease inoperating income.
4) Net income
Net income grew 13.5% year on year to ¥21,357 million. This increase is due mainly to the posting distribution license feesof NEOXY® TAPE, a transdermal patch to treat an overactive bladder. Consequently, net income per share totaled ¥249.30
in FY2/14, and return on equity was 11.8%.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

Financial Section(3) Analysis of cash flows in Fiscal 2014
Cash and cash equivalents at the end of the FY2/14 totaled ¥77,780 million, an increase of ¥26,920 million from the end of
the previous fiscal year.
1) Cash flows from operating activities
Net cash provided by operating activities totaled ¥35,845 million (¥32,485 million provided for of the previous fiscal year),due mainly to income before taxes and minority interests (¥33,727 million), interest and dividends received (¥12,360
million), and income taxes paid (¥13,349 million).
2) Cash flows from investing activities
Net cash used in investment activities totaled ¥5,843 million (¥7,946 million used for of the previous fiscal year), due mainly
to payments for purchase of tangible fixed assets (¥4,089 million) and payments for purchase of investment securities(¥1,354 million).
3) Cash flows from financing activities
Net cash used in financing activities totaled ¥6,476 million (¥9,288 million used for of the previous fiscal year), due mainly
to cash dividends paid (¥5,998 million).

Capital Expenditures
Capital investment totaled ¥3,843 million in FY2/14.
In the Pharmaceutical segment, we mainly invested in the building and manufacturing equipment, etc. of the Tosu andUtsunomiya Plants and Pharmaceutical Technology Laboratories resulting in capital investment of ¥1,947 million.
In other businesses, we mainly invested to expand bandwidth to provide digital capabilities to our subscribers, resulting
in capital investment of ¥132 million.
In FY2/14, there was no disposal or removal of equipment that could impact production capacity.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

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 FY2/14, we paid ¥40 per share, consisting of a year-end dividend of ¥35 per share plus ¥5 per share as acommemorative dividend for the 80th anniversary of the sales of SALONPAS®, and an interim dividend of ¥35 per share,
which makes an annual dividend of ¥75 per share.
We work to improve our business base through the targeted investment of internal reserves into research anddevelopment, manufacturing facilities, overseas business development, and other areas.
Our Articles of Incorporation stipulate that interim dividends can be paid based on a Board of Directors’ resolution toshareholders or pledgees listed or registered in the final shareholder registry at the end of August each year.
Note: Dividends from retained earnings with a record date in Fiscal 2014 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 9, 2013
Board of directors resolution

2,999

35.00

29,419

0.34

3,427

40.00

33,6180.39

May 22, 2014
General meeting of shareholders resolution

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

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 FY2/14.
1) Legal and regulatory risks
Our mainstay pharmaceuticals and related products business is affected by a variety of regulations, including the national
health insurance drug price system and the healthcare insurance system. For example, the revision of national healthinsurance drug prices every two years places regular downward pressure on selling prices, and this could have a negative
impact on earnings. We are similarly affected by a variety of regulations overseas.
2) Risks from side effects
Unforeseen side effects could force our mainstay pharmaceuticals and related products business to recall products orcancel product launches, which could have a negative impact on earnings.
3) Research and development risks
We conduct research and development into new products and new technologies. However, earnings could be adversely
affected by the suspension of research and development activities for a variety of reasons, including failure to produce
anticipated results, or by the inability to recover research and development investment through sales.
4) Manufacturing and procurement risks
We manufacture products using independent technology at our own plants. We rely on specific vendors to supply certain
products and raw materials. Consequently, earnings could be adversely affected by the suspension of manufacturing orpurchasing of these products and raw materials for some reason.
5) Environmental risksSome of the chemicals used in our research and development activities and manufacturing processes can have an
adverse impact on human health and the surrounding environment. Although we take sufficient safeguards, earnings could
be adversely affected if these substances are judged to be having a negative impact on the surrounding environment.
6) Intellectual property risks
Our business activities could possibly be suspended or lead to litigation if they violate the patents or other intellectual
property rights of another company. We may also initiate litigation if another company violates our intellectual property
rights. Earnings could be adversely affected by the process and outcome of such actions.
7) Litigation risks
Our business activities could possibly lead to litigation related to pharmaceutical side effects and product liability. Earnings
could be adversely affected by the process and outcome of such actions.
8) Other risks
In addition to the foregoing, other potential risks include natural disasters and the security of computer systems.
HISAMITSU PHARMACEUTICAL CO., INC

20

FINANCIAL REPORT 2014

Financial Section

Consolidated Balance Sheets
February 28, 2013 and February 28, 2014

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

Fiscal 2013

Fiscal 2014

Fiscal 2014

Cash and deposits

41,15766,307650,451

Notes and accounts receivable — trade

36,98637,092363,861

Short-term investment securities

12,33815,453

151,589

Merchandise and finished goods

7,927

9,694

95,095ASSETS
Current assets:

271

417

4,091

Raw materials and supplies

5,130

5,085

49,882

Deferred tax assets

2,281

2,921

28,654

Other

1,838

2,389

23,435

Allowance for doubtful accounts

(211)

(255)

(2,501)

107,719

139,1071,364,597

Buildings and structures (Notes 2 and 3)

17,643

17,735

173,975

Machinery, equipment and vehicles (Notes 2 and 3)

6,094

6,159

60,418Tools, furniture and fixtures (Notes 2 and 3)

2,354

2,320

22,758Land (Notes 2 and 4)

12,462

12,677

124,357

Work-in-process

Total current assets
Noncurrent assets
Tangible fixed assets, net:

145

116

1,138

Construction in progress

4,518

4,321

42,388

Total tangible fixed assets

43,21943,330425,054

Distribution right

6,828

5,844

57,328Goodwill

5,112

5,280

51,795

Software

291

633

6,210

Temporary account for intangible fixed assets

50

—

—

Lease assets

Intangible fixed assets:

Other

4,881

5,053

49,568

Total intangible fixed assets

17,163

16,812

164,921

Investment securities (Note 1)

36,68542,947421,297

Long-term deposits

2,500

2,000

19,619Prepaid pension cost

3,170

2,822

27,683

Deferred tax assets

460

1,239

12,154

Other

3,440

3,811

37,385

Allowance for doubtful accounts

(218)

(218)

(2,139)Investments and other assets:

46,03852,602516,009

Total noncurrent assets

106,421112,745

1,105,994

TOTAL ASSETS

214,141

251,852

2,470,591

Total investments and other assets

HISAMITSU PHARMACEUTICAL CO., INC

21

FINANCIAL REPORT 2014

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

Fiscal 2013

Fiscal 2014

Fiscal 2014

12,991

8,987

88,160—5,625

55,180

1,674

1,677

16,451

LIABILITIESCurrent liabilities:
Notes and accounts payable — trade
Electronically recorded obligations — operating
Short-term loans payable (Note 2)
Lease obligations

125

112

1,099

Accounts payable

7,035

6,656

65,293

Income taxes payable

6,576

7,354

72,140

229

180

1,766

Provision for bonuses

1,714

1,942

19,050

Other

4,036

9,209

90,337

Total current liabilities

34,38541,745409,506

Long-term loans payable (Note 2)

989

852

8,358

Lease obligations

245

156

1,530

1,894

1,894

18,580Allowance for sales returns

Noncurrent liabilities:

Deferred tax liabilities on revaluation (Note 4)

392

1,881

18,452

Provision for retirement benefits

5,119

5,265

51,648Provision for directors’ retirement benefits

1,302

1,200

11,772

Other

1,878

2,548

24,995

Total noncurrent liabilities

11,822

13,799135,364

46,20755,544

544,870

Capital stock

8,473

8,473

83,118

Capital surplus

8,396

8,396

82,362

172,488

187,846

1,842,711

Deferred tax liabilities

Total Liabilities
NET ASSETS
Shareholders’ equity:

Retained earnings
Treasury stock(21,846)(21,851)(214,352)

Total shareholders’ equity

167,511

182,865

1,793,849

2,175

6,611

64,852

Accumulated other comprehensive income:
Valuation difference on available-for-sale securities
Revaluation reserve for land (Note 4)

3,459

3,459

33,932Foreign currency translation adjustment(5,961)

2,506

24,583(325)

12,577

123,376

747

865

8,485

Total net assets

167,933

196,308

1,925,721

TOTAL LIABILITIES AND NET ASSETS

214,141

251,852

2,470,591

Total accumulated other comprehensive income
Minority interests

HISAMITSU PHARMACEUTICAL CO., INC

22

FINANCIAL REPORT 2014

Financial Section

Consolidated Statements of Income
Years ended February 28, 2013 and February 28, 2014

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

Fiscal 2013

Fiscal 2014

Fiscal 2014

Net sales

142,772

150,635

1,477,683

Cost of sales (Notes 2 and 3)

51,65955,471

544,153

Gross profit

91,112

95,163

933,520

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

65,78676,040745,929

Operating income

25,326

19,123

187,591

Non-operating income:Interest income

67

84

824

Dividends income

433

477

4,679

Foreign exchange gains

253

294

2,884

Royalty Income

122

74

726

6,540

8,456

82,951

383

484

4,748

7,800

9,872

96,841

Interest expenses

38

34

334

Loss on sales of receivables

24

24

235

Other

11

25

245

Total non-operating expenses

74

85

834

33,051

28,910283,598

Gain on sales of investment securities

—

108

1,059

Distribution license fees

500

5,000

49,048

1

—

—

501

5,108

50,1082,855

Equity in earnings of affiliates
Other
Total non-operating income
Non-operating expenses:

Ordinary income
Extraordinary income:

Other
Total extraordinary income
Extraordinary loss:

208

291

Impairment loss

1,353

—

—

Total extraordinary loss

1,561

291

2,855

Income before taxes and minority interests

31,99133,727

330,851

Income taxes — current

13,927

14,072138,042

Income taxes — deferred(518)(1,905)(18,687)

Total income taxes

13,40912,166

119,345

Income before minority interests

18,582

21,560211,497

Loss on disposals of fixed assets (Note 4)

Minority interests in income (loss)
Net income

HISAMITSU PHARMACEUTICAL CO., INC

23

(227)

203

1,991

18,80921,357

209,506

FINANCIAL REPORT 2014

Financial Section

Consolidated Statements of Comprehensive Income
Years ended February 28, 2013 and February 28, 2014

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

Fiscal 2013

Fiscal 2014

Fiscal 2014

18,582

21,560211,497

Valuation difference on available-for-sale securities

2,050

4,338

42,554Foreign currency translation adjustment

3,077

6,879

67,481

Share of other comprehensive income of associates accounted for under the equity method

1,030

1,669

16,372

Income before minority interests
Other comprehensive income:

Total other comprehensive income (Note 1)
Comprehensive income

6,158

12,887

126,418

24,74034,448337,924

24,96034,260336,080

(219)

187

1,834

Comprehensive income attributable to:
Owners of the parent
Minority interests

HISAMITSU PHARMACEUTICAL CO., INC

24

FINANCIAL REPORT 2014

Financial Section

Consolidated Statements of Changes in Shareholders’ Equity
Years ended February 28, 2013 and February 28, 2014

(Millions of yen)
Shareholders’ equity

Balance as at March 1, 2012

Common stock

Capital surplus

8,473

8,396

Retainedearnings

Treasury stock

Total
shareholders’equity(21,844)

154,702

159,677

Cash dividends(5,998)(5,998)Net income

18,80918,809Purchase of treasury stock

(1)

(1)

Net changes of items other than shareholders’ equity
Total changes of items during the period
Balance as at February 28, 2013——12,810(1)

12,808

8,473

8,396

172,488(21,846)

167,511(Millions of yen)
Accumulated other comprehensive income
Valuationdifference on
available-forRevaluation
sale securities: reserve for land
Balance as at March 1, 2012

47

3,459

Foreigncurrencytranslation
adjustments(9,983)

Total
accumulated
othercomprehensive
income(6,476)

Minority
interests

Total
net assets

1,036

149,263

Cash dividends(5,998)Net income

18,809Purchase of treasury stock(1)

Net changes of items other than shareholders’ equity

2,128

—

4,022

6,150

(289)

5,861

Total changes of items during the period

2,128

—

4,022

6,150

(289)

18,670

2,175

3,459

(5,961)

(325)

747

167,933

Balance as at February 28, 2013

HISAMITSU PHARMACEUTICAL CO., INC

25

FINANCIAL REPORT 2014

Financial Section(Millions of yen)
Shareholders’ equity

Balance as at March 1, 2013

Common stock

Capital surplus

8,473

8,396

Retainedearnings

Treasury stock

Total
shareholders’equity(21,846)

167,511

172,488

Cash dividends(5,998)(5,998)Net income

21,357

21,357Purchase of treasury stock

(4)

(4)

Net changes of items other than shareholders’ equity——

15,358(4)

15,353

8,473

8,396

187,846(21,851)

182,865

Total changes of items during the period
Balance as at February 28, 2014

(Millions of yen)
Accumulated other comprehensive income
Valuationdifference on
available-forRevaluation
sale securities: reserve for land
Balance as at March 1, 2013

2,175

3,459

Foreigncurrencytranslation
adjustments(5,961)

Total
accumulated
othercomprehensive
income(325)

Minority
interests

Total
net assets

747

167,933

Cash dividends(5,998)Net income

21,357(4)Purchase of treasury stock
Net changes of items other than shareholders’ equity

4,435

—

8,467

12,903

118

13,021

Total changes of items during the period

4,435

—

8,467

12,903

118

28,374

6,611

3,459

2,506

12,577865

196,308

Balance as at February 28, 2014

HISAMITSU PHARMACEUTICAL CO., INC

26

FINANCIAL REPORT 2014

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

Balance as at March 1, 2013

Common stock

Capital surplus

83,11882,362Retainedearnings

Treasury stock

Total
shareholders’equity(214,303)

1,643,231

1,692,054

Cash dividends(58,839)(58,839)

Net income

209,506

209,506

Purchase of treasury stock

(39)

(39)

Net changes of items other than shareholders’ equity——

150,657(39)

150,608

83,11882,362

1,842,711(214,352)

1,793,849

Total changes of items during the period
Balance as at February 28, 2014

(Thousands of U.S. dollars)
Accumulated other comprehensive income
Valuationdifference on
available-forRevaluation
sale securities: reserve for land
Balance as at March 1, 2013

21,33633,932Foreigncurrencytranslation
adjustments(58,476)

Total
accumulated
othercomprehensive
income(3,188)

Minority
interests

Total
net assets

7,328

1,647,371

Cash dividends(58,839)

Net income

209,506(39)

Purchase of treasury stock
Net changes of items other than shareholders’ equity

43,506—

83,059126,574

1,158

127,732

Total changes of items during the period

43,506—

83,059126,574

1,158

278,340

64,85233,932

24,583

123,376

8,485

1,925,721

Balance as at February 28, 2014

HISAMITSU PHARMACEUTICAL CO., INC

27

FINANCIAL REPORT 2014

Financial Section

Consolidated Statements of Cash Flows
Years ended February 28, 2013 and February 28, 2014

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

Fiscal 2013

Fiscal 2014

Fiscal 2014

Income before taxes and minority interests

31,99133,727

330,851

Depreciation and amortization

6,878

6,619

64,930

Impairment loss

1,353

—

—

Amortization of goodwill

715

873

8,564

Increase (decrease) in provision for retirement benefits

188

146

1,432

Increase (decrease) in provision for directors’ retirement benefits

72

(102)

(1,001)

Increase (decrease) in provision for bonuses

87

60

589

Increase (decrease) in allowance for doubtful accounts

(2)

40

392

Increase (decrease) in provision for sales returns

30

(49)

(481)

(500)

(562)

(5,513)

Interest expenses

38

34

334

Foreign exchange losses (gains)

(83)

(23)

(226)

(6,540)(8,456)(82,951)

Loss (gain) on sales of investment securities

(1)

(108)

(1,059)Loss (gain) on disposal of tangible fixed assets

208

291

2,855

(3,068)

571

5,601

Decrease (increase) in inventories(754)(1,365)(13,390)

Decrease (increase) in other current assets

621

(445)

(4,365)

Increase (decrease) in notes and accounts payable — trade

792

896

8,789

1,759

4,180

41,005

412

540

5,297

34,20336,869361,674

8,162

12,360121,248

Cash flows from operating activities:

Interest and dividends income

Equity in losses (earnings) of affiliates

Decrease (increase) in notes and accounts receivable — trade

Increase (decrease) in other current liabilities
Other, net
Sub-totalInterest and dividends received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities

HISAMITSU PHARMACEUTICAL CO., INC

28

(38)

(35)

(343)

(9,841)(13,349)(130,950)

32,48535,845

351,628

FINANCIAL REPORT 2014

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

Fiscal 2013

Fiscal 2014

Fiscal 2014

Net decrease (increase) in time deposits

(134)

(315)

(3,090)Decrease (increase) in long-term deposits

500

(500)

(4,905)(4,976)(4,089)(40,112)

5

6

59

Payments for purchase of intangible fixed assets

(659)

(119)

(1,167)

Decrease (increase) in short-term investment securities

(967)

(532)

(5,219)(1,763)(1,354)(13,282)

Proceeds from sales and redemption of investment securities

3

1,045

10,251

Collection of loans receivable

44

14

137

(7,946)(5,843)(57,318)

(211)

63

618

(2,803)(243)(2,384)

Cash dividends paid to minority shareholders

(69)

(69)

(677)

Purchase of treasury stock

(0)

(3)

(29)

(6,000)(5,998)(58,839)

(202)

(223)

(2,188)(9,288)(6,476)(63,528)

Effect of exchange rate changes on cash and cash equivalents

1,387

3,394

33,294

Net increase (decrease) in cash and cash equivalents

16,637

26,920264,077

Cash and cash equivalents, beginning of year

34,22250,860498,921

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

50,86077,780762,998

Cash flows from investing activities

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

Payments for purchase of investment securities

Net cash provided by (used in) investing activities
Cash flows from financing activities
Increase (decrease) in short-term loans payable
Repayment of long-term loans payable

Cash dividends paid
Other, net
Net cash provided by (used in) financing activities

HISAMITSU PHARMACEUTICAL CO., INC

29

FINANCIAL REPORT 2014

Financial Section

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

Significant Accounting Policies Concerning the Preparation of Consolidated Financial Statements
Fiscal 2014 (March 1, 2013 – February 28, 2014)

1. Scope of consolidation
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.
Hisamitsu Pharmaceutical Technology Consulting (Beijing) Co., Ltd.
P.T. Hisamitsu Pharma Indonesia
4 other companies

2. Investments accounted for under the equity method
Equity-method affiliates: 4
SANOFI-HISAMITSU K.K.
Yutoku Pharmaceutical Ind. Co., Ltd.
Maruto Sangyo Co., Ltd.
Novogyne Pharmaceuticals

3. Information concerning fiscal 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.

HISAMITSU PHARMACEUTICAL CO., INC

30

FINANCIAL REPORT 2014

Financial Section

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

(2) Depreciation methods for significant depreciable assets
1) Tangible fixed assets (excluding lease assets)a) Company and domestic consolidated subsidiaries
Mainly the declining balance method.
Change in accounting policies, which is difficult to differentiate from change in accounting estimate
In accordance with revisions to the Corporate Tax Law, from the fiscal year under review, the Company and domestic
consolidated subsidiaries changed the depreciation methods for tangible fixed assets acquired on and after March 1,
2013, pursuant to the revised Corporate Tax Law. However, there were only minor impacts on the amounts ofoperating income, ordinary income and income before taxes and minority interests of the fiscal year under review
affected by this change.
b) Overseas consolidated subsidiaries
Mainly straight-line method.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

Financial Section2) Intangible fixed assets (excluding lease assets) and long-term prepaid expenses
Measured by the straight-line method.
Within intangible fixed assets, software for internal use is depreciated over its useful life (five years) using the straightline method.
3) Lease assets
For finance lease transactions other than those for which the right of ownership of the lease assets transfers to the lessee
at the end of the lease period, 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 accounted for in accordance with that of normal rental
transactions.

(3) Standards for significant reserves and allowances
1) Allowance for doubtful accounts
In order to provide against losses from doubtful receivables, estimated irrecoverable amounts are recorded as a gain/loss.
a) General receivables
Based on historical bad debt experience.
b) Receivables at risk of default and in bankruptcy reorganization
Based on an assessment of the financial position.
2) Provision for sales returns
In order to provide against losses from product returns after the balance sheet date, the company makes a provision up to
the maximum amount allowed under the Corporation Tax Law.
3) Provision for bonuses
To provide for the payment of bonuses to employees, the Company and its certain subsidiaries record a provision equal 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, record a provision at
an amount deemed to arise at the end of the fiscal year under review based on estimated retirement benefit obligations andpension assets at the end of the consolidated fiscal year.
Actuarial differences are amortized starting in the next consolidated fiscal year in equal amounts for a fixed number ofyears (five years) that is less than the average remaining years of service of employees when incurred.
5) Provision for directors’ retirement benefits
The Company and certain subsidiaries make a provision for estimated retirement payments to directors and corporate
auditors in accordance with its internal regulations.

HISAMITSU PHARMACEUTICAL CO., INC

32

FINANCIAL REPORT 2014

Financial Section(4) 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 and Minority Interests under Net Assets.

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

(6) 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.

(7) 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.

HISAMITSU PHARMACEUTICAL CO., INC

33

FINANCIAL REPORT 2014

Financial Section

Unapplied Accounting Standards, etc.
“Accounting Standard for Retirement Benefits” (ASBJ Statement No. 26; May 17, 2012), and “Guidance on AccountingStandard for Retirement Benefits” (ASBJ Guidance No.25; May 17, 2012)(1) Outline
This accounting standard and guidance have been revised mainly in terms of the accounting methods of unrecognizedactuarial differences and past service costs, the calculation methods of projected retirement benefit obligations andservice costs, and the improvement of disclosure, from the perspective of improving financial statements and in light ofcurrent international trends.
(2) Scheduled date of adoption
We plan to adopt them for the consolidated financial statements for the fiscal year ending February 28, 2015. However,we plan to revise the method of attributing expected retirement benefits to the periods starting from the beginning of the
fiscal year ending February 29, 2016.
(3) Impact of adoption of this accounting standard and guidance
In preparing consolidated financial statements, the impact in the financial statements as a result of the adoption iscurrently being evaluated.

HISAMITSU PHARMACEUTICAL CO., INC

34

FINANCIAL REPORT 2014

Financial Section

Notes to Consolidated Financial Statements
Fiscal 2013 (March 1, 2012 – February 28, 2013) and Fiscal 2014 (March 1, 2013 – February 28, 2014)

CONSOLIDATED BALANCE SHEETS(Note 1) Investment securities for unconsolidated subsidiaries and affiliated companies are as follows.
(Millions of yen)
Investment securities (stocks)(Thousands of U.S. dollars)

Fiscal 201313,069Fiscal 2014
11,479Fiscal 2014
112,605

1,306 (book value)
23 (book value)
171 (book value)
59 (book value)
1,560 (book value)

1,118 (book value)
17 (book value)
150 (book value)
59 (book value)
1,344 (book value)

10,967
167
1,471
579
13,184

1,147 (book value)
21 (book value)
171 (book value)
1,340 (book value)

972 (book value)
16 (book value)
150 (book value)
1,138 (book value)

9,535
157
1,471
11,163(Note 2) Assets pledged as collateral are as follows.
Pledged assets
Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures
Land
Total
Assets provided for factory foundation mortgage
Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures
Total
Liabilities related to the above assets
Short-term loans payable
Long-term loans payable
Total
Liabilities provided for factory foundation mortgage
Short-term loans payable
Long-term loans payable
Total

174
989
1,164

137
852
989

1,344
8,358
9,702

118
870
989

99
770
870

971
7,553
8,534

(Note 3) Advanced depreciation of government subsidies is ¥5,832 million in both FY2/13 and FY2/14.
These figures are deducted from the consolidated balance sheets.
(Note 4) Application of the Land Revaluation Law
Land used for business purposes has been revalued in accordance with the “Act on revaluation of land” (Law 34 of 1998,
promulgated on March 31, 1998) and the “Law Partially Amending the Act on Revaluation of Land” (revision of March 31,
1999). The portion of the revaluation gain equivalent to corporation tax and other taxes with tax bases linked to corporate
profits has been presented under liabilities as “Deferred tax liabilities on revaluation,” while the net sum after this transfer tothe deferred tax liability account is presented under net assets as “Revaluation reserve for land.”
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
HISAMITSU PHARMACEUTICAL CO., INC

35

FINANCIAL REPORT 2014

Financial Section

2.4 of the “Regulations for Applying the Land Revaluation Law” (Government Ordinance No. 119 of 1998, promulgatedMarch 31, 1998).
Revaluation dateFebruary 28, 2001

The market value of commercial land revalued in accordance with Article 10 of the Land Revaluation Law at the end of
FY2/13 and FY2/14 was ¥3,464 million and ¥3,610 million lower than the book value after revaluation.

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

Fiscal 2013

Fiscal 2014

Advertising expenses

10,086

11,950117,226

Sales promotion expenses

12,54915,290149,990

Freightage and packing expenses

2,757

2,643

25,927

20

38

373

Salaries and allowances

7,299

10,11599,225

Provision for bonuses

1,004

1,013

9,937

Provision for retirement benefits

819

605

5,935

Provision for directors’ retirement benefits

84

94

922

Provision of allowance for doubtful accounts

Fiscal 2014

715

873

8,564

Business consignment expenses

2,933

2,607

25,574

Research and development expenses, of which:

12,662

13,924

136,590

Provision for bonuses

312

339

3,325

Provision for retirement benefits

269

168

1,648

Amortization of goodwill(Note 2) General and administrative expenses include research and development expenses of ¥12,662 million and ¥13,924
million in FY2/13 and FY2/14, respectively.
Manufacturing costs do not include research and development expenses.
(Note 3) In FY2/13 and FY2/14, manufacturing costs include provision for bonuses of ¥380 million and ¥470 million andprovision for retirement benefits of ¥442 million and ¥311 million, respectively.
(Note 4) Breakdown of losses on the disposal of fixed assets(Millions of yen)
Loss on retirement

Fiscal 2013

(Thousands of U.S. dollars)

Fiscal 2014

Fiscal 2014

Buildings and structures

116

87

853

Machinery, equipment and vehicles

77

190

1,864

Tools, furniture and fixtures

13

12

118

Lease assets

—

0

0

Software
Total

HISAMITSU PHARMACEUTICAL CO., INC

36

0

0

0

208

291

2,855

FINANCIAL REPORT 2014

Financial Section(Note 5)
Fiscal 2013 (March 1, 2012–February 28, 2013)
The Group recorded impairment losses on the following assets.
Purpose of use

Location

Assets used forbusiness activities

Kurume city,
Fukuoka, etc.

Amount(Millions of yen)

Category
Buildings and structures

645

Machinery, equipment and vehicles

42

Tools, furniture and fixtures

3

Lease assets

199

Software
United States

2

Future lease payments

53

Other intangible fixed assets

406

Assets used for business activities are basically grouped according to the business unit for which reasonable profit and loss
management is possible, and rental assets and idle assets are grouped by individual asset. Each consolidated subsidiaryis taken as a single unit when determining signs of impairment.
Consequently, in terms of the aforementioned assets used for business activities, the estimated future cash flows havebeen determined to fall below the book values of each asset. Accordingly, the book values have been written down to theirrecoverable amounts and the write-down amount was recognized as impairment loss.
Recoverable amounts are measured based on value in use, and value in use is calculated by discounting future cash
flow by 3.0%. A discount rate of 18.45% has been applied to the assets of overseas consolidated subsidiaries.
Fiscal 2014 (March 1, 2013–February 28, 2014)
Not applicable.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Note 1) Reclassification adjustments amount and tax effect amount relating to other comprehensive income(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2014

Fiscal 2014

3,082

6,577

64,518

(78)

(96)

(942)

Fiscal 2013
Valuation difference on available-for-sale securities
Amount arising during fiscal year under review
Reclassification adjustment amount:
Before tax effect adjustment

3,004

6,480

63,567

Tax effect amount(954)(2,142)(21,012)Valuation difference on available-for-sale securities

2,050

4,338

42,554

3,077

6,879

67,481

Foreign currency translation adjustment
Amount arising during fiscal year under review
Share of other comprehensive income of associates accounted for underthe equity method
Amount arising during fiscal year under review
Total other comprehensive income

HISAMITSU PHARMACEUTICAL CO., INC

37

1,030

1,669

16,372

6,158

12,887

126,418

FINANCIAL REPORT 2014

Financial Section

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Fiscal 2013 (March 1, 2012–February 28, 2013)

1. Shares issued(shares)

Type of shares

Beginning of fiscal 2013

Increase

Decrease

End of fiscal 2013

Common stock

95,164,895——

95,164,895

2. Treasury shares(shares)

Type of shares

Beginning of fiscal 2013

Increase

Decrease

End of fiscal 2013

Common stock

9,495,624

453—

9,496,077

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

166 shares
287 shares

3. Dividends(1) Dividends paid
Resolution

Type of shares

Total dividends(millions of yen)

Dividends per share(yen)

Record date

May 24, 2012
Annual general meeting ofshareholders

Common stock

2,999

35

February 29, 2012

May 25, 2012

October 10, 2012
Board of Directors meeting

Common stock

2,999

35

August 31, 2012

November 8, 2012

Payment date(2) Dividends with a record date in fiscal 2013 but a payment date in fiscal 2014
Resolution

Type of shares

Source of dividend

Total dividends(millions of yen)

Dividends per share(yen)

Record date

Payment date

May 23, 2013
Annual general meeting ofshareholders

Common stock

Retained earnings

2,999

35

February 28, 2013

May 24, 2013

Fiscal 2014 (March 1, 2013–February 28, 2014)

1. Shares issued(shares)

Type of shares

Beginning of fiscal 2014

Increase

Decrease

End of fiscal 2014

Common stock

95,164,895——

95,164,895

HISAMITSU PHARMACEUTICAL CO., INC

38

FINANCIAL REPORT 2014

Financial Section

2. Treasury shares(shares)

Type of shares

Beginning of fiscal 2014

Increase

Decrease

End of fiscal 2014

Common stock

9,496,077

949—

9,497,026

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

724 shares
225 shares

3. Dividends(1) Dividends paid

(millions of yen)(yen)

Resolution

Type of shares

Total dividends

Dividends per share

Record date

May 23, 2013
Annual general meeting ofshareholders

Common stock

2,999

35

February 28, 2013

Payment date
May 24, 2013

October 9, 2013
Board of Directors meeting

Common stock

2,999

35

August 31, 2013

November 8, 2013

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

Resolution

Type of shares

Total dividends

Dividends per share

Record date

May 23, 2013
Annual general meeting ofshareholders

Common stock

29,4190.34

February 28, 2013

May 24, 2013

October 9, 2013
Board of Directors meeting

Common stock

29,4190.34

August 31, 2013

November 8, 2013

(2) Dividends with a record date in fiscal 2014 but a payment date in fiscal 2015
(millions of yen)(yen)

Resolution

Type of shares

Source of dividend

Total dividends

Dividends per share

Record date

Payment date

May 22, 2014
Annual general meeting ofshareholders

Common stock

Retained earnings

3,427

40

February 28, 2014

May 23, 2014

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

Resolution

Type of shares

Source of dividend

Total dividends

Dividends per share

Record date

Payment date

May 22, 2014
Annual general meeting ofshareholders

Common stock

Retained earnings

33,6180.39

February 28, 2014

May 23, 2014

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

Financial Section

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

Fiscal 2013

Fiscal 2014

Fiscal 2014

Cash and deposits

41,15766,307650,451

Cash equivalents included in short-term investment securities

10,495

13,609133,500

Total

51,652

79,917783,961(792)(2,136)

20,95450,86077,780762,998

Term deposits longer than three months
Cash and cash equivalents

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 2013
Purchase value
equivalent

Accumulated
depreciation equivalent

638

585

52

3

3

0

642

588

53

Tools, furniture and fixtures
Software
Total

Book value
equivalent

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

Fiscal 2014

Tools, furniture and fixtures
Software
Total

Fiscal 2014

Purchase value
equivalent

Accumulated
depreciation equivalentBook value
equivalent

Purchase value
equivalent

Accumulated
depreciation equivalentBook value
equivalent

271

261

9

2,658

2,560

88

2

2

0

20

20

0

273

264

9

2,678

2,590

88

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.

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

Financial Section

2. Book value equivalent of future lease payments(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2013

Fiscal 2014

Fiscal 2014

44

8

78

Over one year

8

1

10

Total

53

9

88

Within one year

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)(Thousands of U.S. dollars)

Fiscal 2013

Fiscal 2014

Fiscal 2014

Lease payments

95

38

373

Depreciation equivalent

95

38

373

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 in light of the business plan. Temporary cash surpluses are invested in low risk financial assets.
Derivatives are used within the scope of actual requirements and not for speculative purposes.
(2) Nature and extent of risks arising from financial instruments, and risk management for financial instruments
Although operating receivables such as notes and accounts receivable — trade are exposed to customer credit risk, thisrisk 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, electronically recorded obligations— operating, accounts payable, and income taxes payable are less than one year. Although operating payables andborrowings are exposed to liquidity risk, this risk is managed through methods such as preparing cash flow planning on amonthly 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 Section

2. Market values of financial instruments
Carrying amount, market value and unrealized gain/loss of the financial instruments are as follows: Financial instruments
whose market values are not readily determinable are excluded from the following table (See (Note 2)).
Fiscal 2013 (February 28, 2013)(Millions of yen)
Carrying amountMarket value

Unrealized gain
(loss)(1) Cash and deposits

41,157

41,157—(2) Notes and accounts receivable — trade

36,98636,986—

Available-for-sale securities

34,92434,924—

Stock of affiliated companies

1,440

637

(802)

2,500

2,494

(5)

Total assets

117,009116,200(808)(3) Short-term investment securities and investment securities:(4) Long-term deposits(1) Notes and accounts payable — trade

12,991

12,991—(2) Short-term loans payable

1,440

1,440

—

(3) Accounts payable

7,035

7,035

—

(4) Income taxes payable

6,576

6,576

—

(5) Long-term loans payable (*)

1,224

1,227

3

Total liabilities

29,26829,272

3———

Derivative transactions(*) Includes current portion of long-term loans payable.

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Financial Section

Fiscal 2014 (February 28, 2014)(Millions of yen)
Carrying amount Market value(Thousands of U.S. dollars)
Unrealized gain
(loss)
Carrying amount Market value

Unrealized gain
(loss)(1) Cash and deposits

66,30766,307—650,451

650,451—(2) Notes and accounts receivable —trade

37,09237,092—363,861

363,861—

Available-for-sale securities

45,92245,922—450,481450,481—

Stock of affiliated companies

1,488

764

(724)

14,597

7,495(7,102)

2,000

1,996

(3)

19,61919,580(29)(3) Short-term investment securities andinvestment securities:(4) Long-term deposits

152,811

152,083(727)

1,499,029

1,491,887(7,132)(1) Notes and accounts payable — trade

8,987

8,987

—

88,16088,160—(2) Electronically recorded obligations —operating

5,625

5,625

—

55,18055,180—(3) Short-term loans payable

1,540

1,540

—

15,107

15,107—(4) Accounts payable

6,656

6,656

—

65,29365,293—(5) Income taxes payable

7,354

7,354

—

72,14072,140

—

989

992

2

9,702

9,731

20

31,152

31,1552

305,592

305,621

20

—

—

—

—

—

—

Total assets(6) Long-term loans payable (*)
Total liabilities
Derivative transactions(*) Includes current portion of long-term loans payable.
Note 1: Calculation method of market values of financial instruments and securities
Assets(1) Cash and deposits and (2) Notes and accounts receivable — trade
These assets are recorded using book values because market values approximate book values because of 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) Notes and accounts payable — trade, (2) Electronically recorded obligations — operating (3) Short-term loans
payable, (4) Accounts payable, and (5) Income taxes payable
These payables are recorded using book values because market values approximate book values because of theirshort-term maturities.
(6) Long-term loans payable (including current portion of long-term loans payable)
Long-term loans payable with floating interest rates are recorded using book values because market values
approximate book values as these rates reflect market interest rates over the short-term. For long-term loans
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.
HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

Financial Section

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

February 28, 2014

February 28, 2013

February 28, 2014

10,99012,659107,809

These items are not included in “(3) Short-term investment securities and investment securities,” because there is no market
price, and it is very difficult to identify market values.
Note 3: Redemption schedule of monetary assets and securities with contractual maturities after the balance sheet dateFiscal 2013 (February 28, 2013)(Millions of yen)
Within one
year

One to five
years

Five to ten
years

Cash and deposits

41,157———

Notes and accounts receivable — trade

36,986

—

—

—

1,842

—

—

—

—

2,500

—

—

79,987

2,500

—

—

Over ten years

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

Fiscal 2014 (February 28, 2014)(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

66,307———650,451———

Notes and accounts
receivable — trade

37,092———363,861

—

—

—

1,844

728

—

—

18,089

7,141

—

—

—

2,000

—

—

—

19,619——105,245

2,728

—

—

1,032,421

26,761——

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

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

Financial Section

Note 4: Redemption schedule of short-term loans payable and long-term loans payable after the balance sheet dateFiscal 2013 (February 28, 2013)(Millions of yen)
Within one year

One to five years

Five to ten years

Over ten years

Short-term loans payable

1,440

—

—

—

Long-term loans payable

234

412

356

221

1,674

412

356

221

Total

Fiscal 2014 (February 28, 2014)(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

Short-term loans payable

1,540

—

—

—

15,107———Long-term loans payable

137

346

356

149

1,344

3,394

3,492

1,462

1,677

346

356

149

16,451

3,394

3,492

1,462

Total

SECURITIES
1. Available-for-sale securities
Fiscal 2013 (February 28, 2013)(Millions of yen)
Category

Carrying amount

Acquisition cost

Difference(1) Stocks

16,053

12,194

3,859(2) Bonds———

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

Subtotal

16,053

12,194

3,859

6,532

7,354

(821)

Carrying amount lower than acquisition cost(1) Stocks(2) Bonds———(3) Other

12,33812,338—Subtotal

18,87019,692

(821)

Total

34,92431,887

3,037

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

Financial Section

Fiscal 2014 (February 28, 2014)(Millions of yen)
Category

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

Carrying amount Acquisition cost

Difference

Carrying amount higher than acquisition cost(1) Stocks

27,264

17,495

9,769

267,451

171,62195,831(2) Bonds

—

—

—

—

—

—

(3) Other

—

—

—

—

—

—

Subtotal

27,264

17,495

9,769

267,451

171,62195,831

2,474

2,726

(251)

24,26926,741(2,462)Carrying amount lower than acquisition cost(1) Stocks(2) Bonds

—

—

—

—

—

—

(3) Other

16,182

16,182—

158,740

158,740—

Subtotal

18,657

18,908(251)

183,019

185,482(2,462)

Total

45,92236,4049,517

450,481357,11293,3592. Available-for-sale securities sold during the fiscal year
Fiscal 2013 (March 1, 2012–February 28, 2013)(Millions of yen)
Category

Sale value

Gain from sale

Loss from sale(1) Stocks

3

1

—

(2) Bonds———(3) Other

—

—

—

Total

3

1

—

Fiscal 2014 (March 1, 2013–February 28, 2014)(Millions of yen)(Thousands of U.S. dollars)

Category

Sale value(1) Stocks

—

—

—

—

—

—

(2) Bonds

—

—

—

—

—

—

(3) Other

—

—

—

—

—

—

Total

—

—

—

—

—

—

HISAMITSU PHARMACEUTICAL CO., INC

Gain from sale Loss from sale46

Sale value

Gain from sale Loss from sale

FINANCIAL REPORT 2014

Financial Section

DERIVATIVE TRANSACTIONS
1. Derivative transactions to which hedge accounting is not applied
Not applicable.

2. Derivative transactions to which hedge accounting is applied
Not applicable.

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 benefit upon retirement.

2. Retirement benefit obligations(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2013

Fiscal 2014

Fiscal 2014(12,213)(14,059)(137,914)(2) Pension assets

9,938

11,148109,358(3) Subtotal (1) + (2)(2,275)(2,910)(28,546)

326

466

4,571

(5) Total (3) + (4)(1,949)(2,443)(23,965)(6) Prepaid pension costs(3,170)(2,822)(27,683)(7) Provision for retirement benefits (5) + (6)(5,119)(5,265)(51,648)(1) Retirement benefit obligations(4) Unrecognized actuarial differences

HISAMITSU PHARMACEUTICAL CO., INC

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3. Retirement benefit costs(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2013

Fiscal 2014

Fiscal 2014

(1) Service costs

575

597

5,856

(2) Interest costs

228

239

2,345

(3) Expected return on plan assets

(261)

(288)

(2,825)(4) Amortization of actuarial differences

989

536

5,258

1,531

1,085

10,644(5) Retirement benefit expenses

Notes: 1 .   Excludes employee contributions to the corporate pension plan.
2. Retirement benefit expenses at consolidated subsidiaries using the simplified method are included in “(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

Fiscal 2013

Fiscal 2014

Straight-line method
2.00%
2.90%

Straight-line method
1.30%
2.90%

(4) Amortization period of prior service costs
Two years (amortized in equal amounts for a fixed number of years that is less than the average remaining years ofservice of employees when incurred)(5) Amortization period of actuarial differences
Five years (amortized starting in the next consolidated fiscal year in equal amounts for a fixed number of years that isless than the average remaining years of service of employees when incurred.)

HISAMITSU PHARMACEUTICAL CO., INC

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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 2013

Fiscal 2014

Fiscal 2014

1,798

1,846

18,109

459

423

4,149

Deferred tax assets:
Provision for retirement benefits
Provision for directors’ retirement benefits
Accrued enterprise tax

351

340

3,335

Allowance for doubtful accounts

240

252

2,472

Inventories

99

217

2,129

Excess depreciation

586

539

5,287

Intangible fixed assets

1,967

2,381

23,357

Valuation losses on memberships

248

248

2,433

Loss on valuation of investment securities

945

892

8,750

Provision for bonuses

360

372

3,649

Outsourced research and development

759

877

8,603

1,791

2,402

23,563Sub-total deferred tax assets

9,607

10,793

105,876

Valuation allowance(2,413)(2,993)(29,360)

Total deferred tax assets

7,193

7,800

76,516

Stock and investments in affiliated companies(1,845)(835)(8,191)

Prepaid pension costs(1,121)(998)(9,790)Other(1,877)(3,685)(36,149)

Total deferred tax liabilities(4,844)(5,519)(54,140)

2,349

2,280

22,366

Other

Deferred tax liabilities:

Net deferred tax assets

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

Fiscal 2013

Fiscal 2014

Fiscal 2014

2,281

2,921

28,654

Noncurrent assets; deferred tax assets

460

1,239

12,154

Noncurrent liabilities; deferred tax liabilities(392)(1,881)(18,452)

Current assets; deferred tax assets

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

Financial Section

2. Main reasons for difference in statutory tax rate and income tax rate after application of tax effectaccounting
Because the difference in the statutory tax rate and the income tax after the application of tax effect accounting is lessthan five per cent of the statutory tax rate, notes to the difference are omitted.

3. Changes in the rate of income taxes after the balance sheet dateWith the promulgation on March 31, 2014 of the “Act for Partial Amendment of the Income Tax Act, etc.” (Act No. 10,2014), the Special Corporation Tax for Reconstruction will no longer be imposed from the fiscal year beginning on andafter April 1, 2014. In accordance with this Act, the statutory tax rate used for the calculation of deferred tax assets anddeferred tax liabilities has been changed from the 37.8% applicable hitherto to 35.4%, for the temporary differences likely
to be eliminated in the fiscal year beginning on March 1, 2015.
The impact of this change in tax rate is minor.

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

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

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

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

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

HISAMITSU PHARMACEUTICAL CO., INC

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FINANCIAL REPORT 2014

Financial Section

RELATED INFORMATION
Fiscal 2013 (March 1, 2012 – February 28, 2013)

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

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

North America

Other

Total

119,242

14,135

9,394

142,772

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

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

North America

Other

Total

35,128

5,976

2,115

43,2193. Information by significant customer(Millions of yen)
Name of customers

Net sales

Related segment

Alfresa Holdings Corporation

26,314

Pharmaceuticals

Medipal Holdings Corporation

26,007

Pharmaceuticals

Fiscal 2014 (March 1, 2013 – February 28, 2014)

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

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

North America

Other

Total

119,497

19,67011,467

150,635

Japan

North America

Other

Total

1,172,229

192,957

112,488

1,477,683(Thousands of U.S. dollars)Note: Net sales are segmented into countries or territories according to the location of the customer.

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FINANCIAL REPORT 2014

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

North America

Other

Total

33,763

7,129

2,436

43,330

Japan

North America

Other

Total

331,205

69,93323,896425,054(Thousands of U.S. dollars)

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

Net sales

Net sales

Related segment

Alfresa Holdings Corporation

26,132

256,347

Pharmaceuticals

Medipal Holdings Corporation

25,980254,856

Pharmaceuticals

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

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RELATED PARTY INFORMATION
Fiscal 2013 (March 1, 2012–February 28, 2013)

1. Transactions with related parties
Affiliated companies, etc.
Type

Name of company, etc.

Location

Capital orinvestment(Millions of yen)Affiliate

YutokuPharmaceuticalInd. Co., Ltd.

Kashima, Saga

120

Capital or investment(Thousands ofBusiness activities orHolding (held) of
U.S. dollars)
occupation
voting rights, etc. (%)
1,177

Amount oftransaction(Thousands of
U.S. dollars)

Pharmaceuticals

Holding
Direct15.0

Balance at endof the fiscal year
(Millions of yen)

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

Relationship withrelated party

Description oftransaction

Amount oftransaction(Millions of yen)

Selling of products

Selling of products

9,344

91,662

Account
receivable-trade

3,014

29,566

Purchase ofmerchandise

14

137

Accounts payabletrade

4

39

Purchase ofmerchandise

Item

Interlocking ofexecutives

Notes: 1. Transaction amounts do not include consumption tax.
2. Terms and conditions for the purchasing and selling of products and merchandises are determined similarly togeneral trading terms and conditions following discussions taking into account market prices.

2. Notes to parent entities or significant affiliated companies
Summarized financial statements of significant affiliated companies
For FY2/13, the significant affiliated company is Novogyne Pharmaceuticals and its summarized financial statement is asfollows.
(Millions of yen)
Total current assets

7,564

Total noncurrent assets

514

Total current liabilities

2,008

Total net assets

6,070

Net sales

29,042

Income before income taxes

18,750HISAMITSU PHARMACEUTICAL CO., INC

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Fiscal 2014 (March 1, 2013–February 28, 2014)

1. Transactions with related parties
Affiliated companies, etc.
Type

Name of company, etc.

Location

Capital orinvestment(Millions of yen)Affiliate

YutokuPharmaceuticalInd. Co., Ltd.

Kashima, Saga

120

Capital or investment(Thousands ofBusiness activities orHolding (held) of
U.S. dollars)
occupation
voting rights, etc. (%)
1,177

Amount oftransaction(Thousands of
U.S. dollars)

Relationship withrelated party

Description oftransaction

Amount oftransaction(Millions of yen)

Selling of products

Selling of products

8,965

87,944Purchase ofmerchandise

10

98

Purchase ofmerchandise

Pharmaceuticals

Item
Account
receivable-trade
Electronicallyrecorded obligationsoperating
Accounts payabletrade

Holding
Direct15.0

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

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

2,920

28,644

1

10

0

0

Interlocking ofexecutives

Notes: 1. Transaction amounts do not include consumption tax.
2. Terms and conditions for the purchasing and selling of products and merchandises are determined similarly togeneral trading terms and conditions following discussions taking into account market prices.

2. Notes to parent entities or significant affiliated companies
Summarized financial statements of significant affiliated companies
For FY2/14, the significant affiliated company is Novogyne Pharmaceuticals and its summarized financial statement is asfollows.
(Millions of yen)(Thousands of U.S. dollars)

9,320

91,426

Total noncurrent assets

203

1,991

Total current liabilities

1,651

16,196

Total net assets

7,873

77,232

Net sales

29,649290,848

Income before income taxes

25,092

246,145

Total current assets

HISAMITSU PHARMACEUTICAL CO., INC

54

FINANCIAL REPORT 2014

Financial Section

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

Fiscal 2013

Fiscal 2014

Fiscal 2014

Net assets per share

1,951.54

2,281.40

22.38

Net income per share

219.56249.302.45

Notes: 1. Diluted net income per share is not listed due to the absence of residual securities.
2. The basis for the calculation of net assets per share is as follows.
(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2013

Fiscal 2014

Fiscal 2014

Total net assets in the consolidated balance sheets

167,933

196,308

1,925,721

Net assets attributable to common shareholders

167,186

195,442

1,917,226

747

865

8,485

Common stock issued (Thousands of shares)

95,164

95,164—

Common stock held in treasury (Thousands of shares)

9,496

9,497

—

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

85,66885,667—Main differences:
Minority interests

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

Fiscal 2013

Fiscal 2014

Fiscal 2014

18,80921,357

209,506

Amount not attributable to common shareholders

—

—

—

Net income attributable to common shareholders

18,80921,357

209,506

Average common stock during year (Thousands of shares)

85,66985,668—Net income

SIGNIFICANT SUBSEQUENT EVENTS
Not applicable.

HISAMITSU PHARMACEUTICAL CO., INC

55

FINANCIAL REPORT 2014

Financial Section

Supplementary Schedule
Supplementary schedule of bonds payableNot applicable.

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

Balance at the beginning Balance at the end Balance at the beginning Balance at the endof Fiscal 2014of Fiscal 2014of Fiscal 2014of Fiscal 2014
Average interest rate

Category
Short-term loans

1,540

14,126

15,107

0.61

—

234

137

2,295

1,344

0.53

—

125

112

1,226

1,099

—

—

989

852

9,702

8,358

1.06

245

156

2,403

1,530

—

March, 2015 toMarch, 2026
March, 2015 to
October, 2019

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

—

—

—

—

—

—

3,036

2,798

29,78227,448——Other interest-bearing liabilities
Total

Due date

1,440

Notes: 1. Average interest rate is the weighted average interest rate for the year-end balances of loans, etc.
2. Current portion of long-term loans include ¥74 million in interest free loans from the Development Bank of JapanInc.
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. Long-term loans (excluding current portion) include ¥53 million in interest free loans from the Development Bank ofJapan Inc.
5. Yearly repayments of long-term loans and lease obligations (both excluding current portion) within five years after
the consolidated balance sheet date are as follows:(Millions of yen)
Category

Due after one year
but within two years

Due after two years
but within three years

Due after three years
but within four years

Due after four years
but within five years

Long-term loans

125

78

71

71

Lease obligations

99

25

15

9

(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

1,226

765

696

696

Lease obligations

971

245

147

88

Category

HISAMITSU PHARMACEUTICAL CO., INC

56

FINANCIAL REPORT 2014

Financial Section

Supplementary schedule of asset retirement obligations
The supplementary schedule of asset retirement obligations is omitted because the amounts of asset retirement obligations
at the beginning and the end of the fiscal year under review were not more than 1/100 of the total amounts of liabilities andnet assets at the beginning and the end of the fiscal year under review.

Other
Quarterly Consolidated financial information for Fiscal 2014
(Millions of yen)Three months ended
May 31, 2013

Six months ended
August 31, 2013

Nine months ended
November 30, 2013

Fiscal 2014

Net sales

37,06577,382

115,129

150,635

Income before taxes andminority interests

11,801

21,84930,55433,727

Net income

7,514

13,681

19,18821,357

Net income per share (yen)87.71

159.71223.99249.30(Cumulative)(Thousands of U.S. dollars)
Three months ended
May 31, 2013

Six months ended
August 31, 2013

Nine months ended
November 30, 2013

Fiscal 2014

Net sales

363,596

759,094

1,129,380

1,477,683

Income before taxes andminority interests

115,764

214,332

299,725

330,851

Net income

73,710134,206

188,228

209,506

0.86

1.57

2.20

2.45

(Cumulative)

Net income per share (U.S. dollars)(yen)(Quarterly)
Net income per shareFirst quarter

Second quarter

Third quarter

Fourth quarter

87.71

72.00

64.28

25.31

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

HISAMITSU PHARMACEUTICAL CO., INC

First quarter

Second quarter

Third quarter

Fourth quarter

0.86

0.71

0.63

0.25

57

FINANCIAL REPORT 2014

Corporate Information

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

Total authorized shares(shares)Common stock

380,000,000

Total

380,000,000

2) Shares issued
Names of listing stock
exchanges or registeredsecurities dealers
associations

Type of shares

Shares issued
at year end Fiscal 2014
(February 28, 2014)

Shares issued
on filing date
(May 23, 2014)

Common stock

95,164,895

95,164,895

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

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

Total

95,164,895

95,164,895——

Details(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.
(5) Changes in shares issued, capital stock, and other items(Shares)
Date
July 5, 2002 (Note)(Millions of yen)

Change in sharesissuedShares issued

Change in capitalstock

Capital stock

Change in additional
paid-in capital

Additional paid-in
capital—95,164,895

—

8,473

(6,123)

2,118(Shares)
Date
July 5, 2002 (Note)(Thousands of U.S. dollars)

Change in sharesissuedShares issued

Change in capitalstock

Capital stock

Change in additional
paid-in capital

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

83,118(60,065)

20,777

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).

HISAMITSU PHARMACEUTICAL CO., INC

58

FINANCIAL REPORT 2014

Corporate Information(6) Details of shareholders
As of February 28, 2014
Status of shares (Investment unit comprises 100 shares)
Foreign shareholders
National andlocal
government

Category

Financial
institutions

Securities
companies

Other
corporations

Nonindividuals

Individuals

Individuals
and other

Total

Shares under
one unit(shares)

Shareholders(entities)

—

53

28

183

301

4

4,727

5,296

—

Shares owned(units)—458,106

3,789

172,339

132,44215

184,519

951,21043,895

Ratio (%)

—

48.16

0.40

18.12

13.92

0.00

19.40

100.00—Note: Treasury stock of 9,470,095 are listed as 94,700 units in the individuals and other column and as 95 shares in theshares under one unit column. The 9,470,095 treasury share figure is the number of shares listed in the shareholder
registry.

HISAMITSU PHARMACEUTICAL CO., INC

59

FINANCIAL REPORT 2014

Corporate Information(7) Principal shareholders
As of February 28, 2014
Percentage ofShares owned
shares outstanding(thousand shares)
(%)

Name

Address

Japan Trustee Service Bank, Ltd. (trust account)

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

6,223

6.54

Nippon Life Insurance Company

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

4,887

5.14

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

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

4,724

4.96

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

4.61

Japan Trustee Service Bank, Ltd.
(Resona Bank, Ltd. retrust account, The NishiNippon City Bank, Ltd. pension trust account)

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

4,370

4.59

The Bank of Fukuoka, Ltd.

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

3,871

4.07

The Bank of Saga, Ltd.

2-7-20 Tojin, Saga

2,956

3.11

Japan Trustee Service Bank, Ltd.
1-8-11 Harumi, Chuo-ku, Tokyo(Sumitomo Mitsui Trust Bank, Ltd. retrust account,
Sumitomo Mitsui Banking Corporation pension
trust account)

2,064

2.17

Japan Trustee Service Bank, Ltd.
1-8-11 Harumi, Chuo-ku, Tokyo(Sumitomo Mitsui Trust Bank, Ltd. retrust account;
Resona Bank, Ltd. pension trust account)

2,000

2.10

Hisamitsu Business Partner’ Shareholding
Association

1,844

1.94

37,32839.23

408 Tashiro Daikan-machi, Tosu-shi Saga

Total

Notes: 1. The number of the foregoing shares related to fiduciary services is as follows.
Japan Trustee Service Bank, Ltd.: 14,657 thousand shares
The Master Trust Bank of Japan, Ltd.: 4,724 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 9,470 thousand shares (9.95%).

HISAMITSU PHARMACEUTICAL CO., INC

60

FINANCIAL REPORT 2014

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

61

FINANCIAL REPORT 2014

Corporate Information

Group Companies
Our corporate group comprises Hisamitsu Pharmaceutical, 17 consolidated subsidiaries, and 4 equity-method affiliates.
Relationship
Concurrent employees

Name

Location

Capital orinvestment

Main businessactivities

Votingrights(%)

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

Other

Remarks

Consolidated subsidiaries
CRCC Media Co., Ltd.

Kurume,Fukuoka¥1,115 million Other businesses

69.50

2

2

Debt
guarantees——

Saga City-Vision Co.,Ltd.

Saga, Saga

¥605 million Other businesses

70.12

1

2

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)

1

2

—

Provide advertising
agency services to
Hisamitsu

Hisamitsu
leases partof a leasebuilding

Hisamitsu U.S., Inc.

DelawareUSA

USD Pharmaceuticals
10

100

1

—

—

—

—

Hisamitsu America, Inc.

California,
USA

USD Pharmaceuticals
3,000 thousands

100
(100)

1

1

Working
Selling products—
capital loans supplied by Hisamitsu

USD Pharmaceuticals
10

100
(100)

2

—

Working
Hisamitsu outsources —capital loans development

Note 3

BRL Pharmaceuticals
15 million

100

—

3

—

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

Note 3

GBP Pharmaceuticals
120 thousands

100

1

1

—

Hisamitsu outsources —development

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

VND Pharmaceuticals
258,775 million

100

—

3

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

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

Beijing,
China

CNY Pharmaceuticals
1,206 thousand

100

2

2

—

Hisamitsu outsources —medical marketing

PT. Hisamitsu PharmaIndonesia

Surabaya,Indonesia

IDR Pharmaceuticals
32,518 million

75

1

2

—

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

4 other companies

—

— —

—

—

—

—

—

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

Manaus,BrazilHisamitsu UK Ltd.

London, UK

HISAMITSU PHARMACEUTICAL CO., INC

62

Note 3Note 3Note 3—

FINANCIAL REPORT 2014

Corporate Information

Relationship
Concurrent employees

Name

Location

Capital orinvestment

Main businessactivities

Votingrights(%)

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

Other

Remarks

Equity-method affiliates
Sanofi-Hisamitsu K.K.

Shinjuku
Tokyo¥250 million Pharmaceuticals

49.0

2

1

—

Yutoku PharmaceuticalInd. Co., Ltd.

Kashima,Saga¥120 million Pharmaceuticals

15.0

2

—

—

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

39.9

2

2

—

USD Pharmaceuticals
32 million

49.0(49.0)———

Novogyne
Pharmaceuticals

Delaware,USA

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

Note 4—

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

HISAMITSU PHARMACEUTICAL CO., INC¥16,862 million¥2,125 million¥1,552 million¥43,777 million¥57,947 million

63

FINANCIAL REPORT 2014

Corporate Information

Management
President & CEO

NAKATOMI, Hirotaka

Standing Corporate Auditor

NAKATOMI, Nobuyuki

Executive Vice President

NAKATOMI, KazuhideStanding Corporate Auditor

UEDA, Masahiro

Senior Managing Director

SUGIYAMA, Kousuke

Standing Corporate Auditor

HIRANO, MunehikoManaging Director

AKIYAMA, Tetsuo

Corporate Auditor

ONO, Keinosuke

Managing Director

HIGO, Naruhito

Corporate Auditor

ICHIKAWA, Isao

Director

TSURUDA, Toshiaki

Corporate Auditor

TOKUNAGA, Tetsuo

Director

KABASHIMA, Mitsumasa

Director

TAKAO, Shinichiro

Director

SAITO, Kyu

Director

TSUTSUMI, Nobuo

Director

MURAYAMA, Shinichi
Notes: 1. NAKATOMI Nobuyuki, Standing Corporate Auditor, is the younger brother of NAKATOMI Hirotaka, President & CEO.
2. NAKATOMI Kazuhide, Executive Vice President, is the first son of NAKATOMI Hirotaka, President & CEO.
3. Corporate Auditors ONO Keinosuke, ICHIKAWA Isao, and TOKUNAGA Tetsuo are Outside Corporate Auditors
provided for under Article 2, Paragraph 16, of the Companies Act.

Company Profile
Company name
FoundedEstablished
Head office
Representative
CapitalFiscal year

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

Number of employees

Business segment(As of February 28, 2014)
Employees

Pharmaceuticals
Other businesses
Total

2,797 (573)152 (52)
2,949 (625)Note: Employee figures are for full-time employees. Temporary employees are shown in parentheses; these figures are averages for the fiscal year and are not included in employees colum.

HISAMITSU PHARMACEUTICAL CO., INC

64

FINANCIAL REPORT 2014

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