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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., Inc., other than those of historical fact, are forecasts of futurebusiness performance based on the judgments of management at Hisamitsu Pharmaceutical Co., Inc. in light ofcurrently available information. Accordingly, please refrain from making investment decisions based solely on forecastsof business performance in this financial report. Actual business performance may differ significantly from these
forecasts due to changes in a variety of factors.
Note:
Amounts in US dollars are included solely for convenience and are translated at a rate of ¥113.62=U.S.$1.00, theapproximate rate of exchange on February 29, 2016.

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

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

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FINANCIAL REPORT 2016

Consolidated Financial Highlights
Years ended the last day of February(Thousands of
U.S. dollars)(Millions of yen)
Fiscal 2012

Fiscal 2013

Fiscal 2014

Fiscal 2015

Fiscal 2016

Fiscal 2016

Net sales

137,794

142,772

150,635

156,743

161,852

1,424,503

Operating income

25,93725,326

19,123

20,527

27,730244,059

Ordinary income

33,49433,051

28,91028,48928,008

246,506

Net income

18,43918,80921,357

18,784

17,784

156,522

Comprehensive income

17,45824,74034,44832,244

15,299134,651

Net assets

149,263

167,933

196,308

222,054226,095

1,989,923

Total assets

192,838

214,141

251,852

285,440

284,9542,507,956

Net assets per share (yen and dollars)

1,730.22

1,951.54

2,281.40

2,580.02

2,657.41

23.39

Net income per share (yen and dollars)

215.09219.56249.30219.28208.81

1.84

—

—

—

—

208.76

1.84

Shareholders’ equity ratio (%)

76.9

78.1

77.6

77.4

79.0

—

Return on equity (ROE) (%)

12.8

11.9

11.8

9.0

8.0

—

Price-earnings ratio (PER) (times)

17.1

24.5

19.1

20.4

23.6

—

Net cash provided by operating activities

25,55832,48535,84523,23230,923272,162

Net cash used in investing activities(15,473)(7,946)(5,843)(8,945)(3,912)(34,431)

Net cash used in financing activities(13,010)(9,288)(6,476)(7,036)(11,616)(102,236)

Cash and cash equivalents, end of year

34,22250,86077,78088,614

103,940

914,804

Number of employees[average temporary staff]

2,718
[503]

2,826
[610]

2,949
[625]

2,942
[626]

2,900
[583]

—
[—]

Diluted net income per share (yen and dollars)

Notes: 1. Net sales do not include consumption tax.
2. Diluted net income per share for fiscal 2012, fiscal 2013, fiscal 2014 and fiscal 2015 is not listed due to the absence of residual securities.

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FINANCIAL REPORT 2016

To Our Investors

We would like to express our sincere appreciation for ourinvestors’ continued patronage and support.
We would also like to extend our sincere condolences toall those affected by the 2016 Kumamoto Earthquake andhope for a rapid recovery of the affected areas.
We hereby report the overview of operations andfinancial results for the 114th fiscal year (from March 1, 2015
to February 29, 2016).
Looking back at the domestic market, while new products
such as Fentos® Tape drove sales of ethical phar­ma­ceu­ti­cals, this was unable to offset the impact of the revision of
National Health Insurance drug prices and the spread ofgeneric drugs, thus resulting in a decrease in revenue. In the
OTC pharmaceuticals business, products, especially the
newly launched SALONPAS ®, performed well and also
captured the increase in demand from inbound tourists,
leading to an increase in revenue.
In overseas markets, CombiPatch ®, Minivelle ®, andBrisdelle ® , ethical pharmaceuticals sold by the U.S.
subsidiary Noven Pharmaceuticals, Inc., expanded sales. In
addition, OTC pharmaceuticals showed a significant increase
in revenue as well, reflecting the launch of Salonpas® in the
U.S. as well as the expansion of sales in Asian countries.
As a result of these business activities, steady increases
were seen in consolidated net sales and consolidated
operating income, each increasing 3.3% year on year to¥161,852 million and 35.1% year on year to ¥27,730 million.
However, owing to a decrease in equity in earnings ofaffiliates associated with the dissolution of a U.S. joint
venture company and the effects of foreign exchange,
consolidated ordinary income decreased 1.7% year on yearto ¥28,008 million and consolidated net income decreased
5.3% year on year to ¥17,784 million.
We ask for our investors’ continued support andencouragement.

Medical Products

For Export

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

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Overview of Operations

Operating results
The Japanese economy during the fiscal year under review witnessed a gradual recovery reflecting improvements in thecorporate performance thanks to aggressive economic policies and increased consumer spending by inbound tourists.
However, uncertainty prevailed against the backdrop of the sluggish overseas economies mainly in the emerging
economies.
The operating environment for the ethical pharmaceutical industry in Japan became more severe due to the measures
to curtail healthcare spending, which involves enhanced measures to promote generic drug use.
We have responded to the changes by engaging in our business with a focus on our mainstay transdermal patches andproviding medical institutions with scientific information that precisely corresponds to their needs.
Regarding the OTC pharmaceuticals in Japan, we have worked to launch and promote sales of new products, as toughcompetition continues.
Our research and development concentrated its resources in transdermal patches, a mainstay product, and strove todevelop new products with novel topical or systemic effects.
Additionally, in research and development activities carried out with overseas subsidiary Noven Pharmaceuticals, Inc.
(hereinafter referred to as “Noven”) we have strengthened cooperation that includes personnel exchanges and strived to
speed up the development of pharmaceutical products.
As for our production facilities, the Tosu and Utsunomiya Plants carried on initiatives to help protect the global
environment as “ISO 14001” (International Environmental Management Standard) certified factories.
Furthermore, in addition to improving the efficiency of our manufacturing processes, we made an effort to reduce ourenvironmental footprint through the reduction of energy usage and waste by changing its method of product transport andchanging the air conditioning, and through maintaining 99% or more recycle rate.
We also promoted energy conservation 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 of 55
organizations including those engaged in recovery efforts after the Great East Japan Earthquake through the “Hisamitsu
Pharmaceutical Co., Inc. Hot Heart Club” program, in which the Company makes matching donations deducted from
employees’ and directors’ salaries.
In addition, we provided support to the overseas regions affected by natural disasters including the Middle Nepal
earthquake in April 2015, the Taiwan earthquake in February 2016, as well as to Kanto/Tohoku regions in Japan that were
hit by the severe rainstorm associated with Typhoon Etau (No. 18) in September 2015.
We have continued to provide various supports for the “SAGA Heavy Ion Medical Accelerator in Tosu (SAGA HIMAT)
Project” that was launched to contribute to the crusade against cancer.
Furthermore, we supported the intercultural exchange through cultural activities by sponsoring the exhibition, Roger
Mello “A Travelling Artist,” which was held in commemoration of the 120th anniversary of the establishment of diplomatic
relations between Japan and Brazil.
Hisamitsu Springs, a women’s volleyball team, became the first team in women’s volleyball history in 2015 to win theEmperor’s Cup and Empress’s Cup All Japan Volleyball Championship four times in a row. In addition, the team held
volleyball classes in a number of prefectures, mostly in Saga and Hyogo.
For the coming 2020 Tokyo Olympics, we will continue 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 in Japan, faced an uncertain environment
during FY2/16 due to further measures to curb healthcare expenditures.
We responded to the situation by providing medical institutions with appropriate and detailed scientific information about
our products, particularly our transdermal patches. While collecting and supplying information on efficacy and safety, we
engaged in activities to promote the proper use of our mainstay products, including MOHRUS® TAPE and MOHRUS® PAP,
ketoprofen transdermal patches; ESTRANA ® TAPE, an estradiol transdermal patch; Fentos ® Tape, a transdermalsustained-release pain relief patch of fentanyl citrate that has significant analgesic effects; NORSPAN ® TAPE, atransdermal sustained-release pain relief patch of buprenorphine; and NEOXY® TAPE, an oxybutynin hydrochloride
transdermal patch for the treatment of an overactive bladder.
In December 2015, we began marketing the transdermal anti-inflammatory pain relief drug MOHRUS® PAP XR 120 mg
as a new alternative option for pain-relief treatment.
MOHRUS® PAP XR 120 mg is a drug preparation developed as poultice that is to be applied to the affected area oncea day, based on our Transdermal Drug Delivery System (TDDS) technologies with nine indications for relief of low backpain and local pain associated with rheumatoid arthritis.
In the OTC pharmaceuticals business in Japan, we launched new products, in addition to engaging in sales of ourmainstay transdermal anti-inflammatory pain relief patches, targeting new users.
In March 2015, we began marketing the transdermal anti-inflammatory pain relief plaster SALONPAS® as part of
SALONPAS® brand.
SALONPAS® is a drug preparation with enhanced efficacy and sense of use with features including higher concentrationof active anti-inflammatory pain relief ingredients compared to SALONPAS® Ae, non-stretching skin-friendly feel, lessvisible beige color and Marukado®, making it harder to peel off with round corner.
In June 2015, we began marketing FEITAS® MEDICAL SUPPORTER, high performance supporter with higher mobility
and firmer support grip, and in September 2015, we began marketing Thermal Plaster Jikabari ® which provides quick
thermal therapy at home, in an effort to develop new customers.
In the overseas business, we began marketing renewed Salonpas® in the U.S. as well.
SALONPAS® brand is engaged in active sales promotion overseas as well, achieving the largest share of sales in the
OTC anti-inflammatory pain relief patch market of the U.S.
Furthermore, our overseas subsidiary P.T. Hisamitsu Pharma Indonesia established a new plant, in an effort to enhance
production capacity and further localization of SALONPAS® brand.
In April 2015, we received the 2015 award for intellectual property “Minister Prize of Economic, Trade and Industry
Award,” in honor of our initiatives including active effort for application and registration for new types of trademark
overseas.
As a result of these business activities, net sales of our group increased 3.3% year on year, or ¥5,108 million, to¥161,852 million. Operating income increased 35.1% year on year, or ¥7,203 million, to ¥27,730 million. Ordinary income
decreased 1.7% year on year, or ¥480 million, to ¥28,008 million; and net income decreased 5.3% year on year, or ¥1,000
million, to ¥17,784 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 2016

Business segment

Fiscal 2016

Pharmaceuticals

158,580+3.2

1,395,705

Other businesses

3,271

+4.1

28,789161,852+3.3

1,424,503

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 2015

% of total

MEDIPAL HOLDINGS CORPORATION

25,30516.1

24,264

15.0

213,554

Alfresa Holdings Corporation

24,62815.7

23,72914.7

208,845

Customer

Sales
Fiscal 2016

% of total

Fiscal 2016

2. The foregoing figures do not include consumption tax.

Key Challenges
We expect the ethical pharmaceuticals business in Japan to witness continued efforts to curb healthcare expenditures,
including 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, production and
R&D capabilities.
For OTC pharmaceuticals in Japan, amid a prolonged market slump and intensifying competition, we seek to expand
sales of mainstay anti-inflammatory pain relief patches and respond to the needs of our customers by improving existingproducts and developing new products.
In overseas business, we are working to establish our brand in terms of 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 function 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 a more robust
business base and manufacturing structure, and to accelerate the development of new products by concentrating
management resources more in our specialty area of transdermal patches.

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Overview of Operations

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

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

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Overview of Operations

Audit Department, established the Privacy Protection Committee, and prepared Disclosure Policy Rules to provide timely
and appropriate disclosure of corporate information.
Going forward, we seek to create a stronger bond of trust with our stakeholders as a good corporate citizen and toensure and enhance the company’s enterprise value and the common interests of shareholders, and thus, we plan tocontinue to achieve our basic policy.
(3) Initiatives in light of our basic policy to prevent inappropriate entities from controlling decision-making related
to the group’s financial and business affairs
At the 106th annual general meeting of shareholders held on May 22, 2008, “Takeover defense measures to counter large
purchases of the company’s stock (takeover defense measures)” was approved to be adopted with an effective period until
the conclusion of the annual general meeting of shareholders for the fiscal year ended February 28, 2011 (hereinafter “thePlan”). After that, by shareholders at the 109th annual general meeting of shareholders held on May 26, 2011 and the112th annual general meeting of shareholders held on May 22, 2014, the continuation of the Plan with partial revision wasapproved with an effective period until the conclusion of the annual general meeting of shareholders for the fiscal year
ending February 28, 2017.
The Plan applies to purchases of the company’s stock with the objective or result of a specific shareholder groupowning 20% or more of the voting rights (hereinafter referred to as “Purchases” and those who conduct the “Purchases”
are referred to as “Purchasers”). Purchasers are required to follow certain procedures in providing shareholders, thecompany’s board of directors, and an independent committee with information on which to base their decision and in
granting a period for review and evaluation by this independent committee and the board of directors. If the purchaser fails
to comply with these procedures or if the purchase will damage the company’s enterprise value and the common interestsof shareholders, then the company can pursue countermeasures against the purchaser in the form of a gratis allotment ofshare acquisition rights or other appropriate countermeasure that the board of directors is permitted to take based on the
Companies Act, other laws, and the company’s articles of incorporation. Whether countermeasures based on the Plan are
adopted is ultimately a decision of the board of directors, but to ensure the proper use of the Plan and objective, rational,
and impartial decisions by the company’s board of directors, we established a committee independent from the board of
directors and will give utmost respect to the opinions of this committee.
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 pain relief patch.
1) Counterparty to the agreement
Kyowa Hakko Kirin Co., Ltd.
2) Agreement details
Contract on the joint sales within Japan with Kyowa Hakko Kirin Co., Ltd. of Fentos® Tape, a transdermal sustainedrelease pain relief patch that Hisamitsu Pharmaceutical has acquired manufacturing and marketing approval for.
3) Compensation
Compensation commensurate with a one-time contract payment.
(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 totreat 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.
(Note) We reached an agreement with Asahi Kasei Pharma Corp. on March 16, 2016 to terminate the joint sales
agreement of NEOXY® TAPE, a transdermal patch to treat overactive bladder on June 26, 2016.

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 patch, in Japan.
3) Compensation
Compensation commensurate with a one-time contract payment and subsequent milestone payments based on
development progress and sales.

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Overview of Operations

Research and Development
Pharmaceuticals
Our R&D program centered on the development of transdermal pharmaceutical products targets the needs of medical
institutions.
For ethical pharmaceuticals in Japan, we received approval of transdermal anti-inflammatory pain-relief patches
MOHRUS® PAP XR on August 17, 2015. Phase 3 trials are underway for HP-3000 (active pharmaceutical Ingredient:ropinirole hydrochloride), a transdermal patch to treat Parkinson’s disease. Phase 3 trials of HP-3000 for the treatment of
idiopathic restless legs syndrome are being prepared. Regarding HP-3060 (active pharmaceutical ingredient: emedastine
difumarate), a transdermal system for the treatment of allergic rhinitis, phase 3 trials are underway. Regarding HP-3150,
an analgesic transdermal drug containing NSAIDs, phase 2/3 trials for cancer pain relief as well as phase 2 trials for low
back pain are underway.
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, applications for generic approval have been submitted for HP-1010 (active
pharmaceutical Ingredient: Lidocaine), a transdermal patch to treat postherpetic neuralgia and HP-1030 (active
pharmaceutical Ingredient: rivastigmine), a transdermal patch to treat dementia of the Alzheimer’s type. We are preparing
for phase 3 trials for ATS (active pharmaceutical Ingredient: d-amphetamine), a transdermal patch to treat Attention Deficit
Hyperactivity Disorder and HP-3070, a transdermal patch drug preparation for the treatment of schizophrenia.
In addition to the development of our own fundamental technologies, we are promoting the utilization of Noven’s
transdermal drug delivery system (TDDS) technology as well as joint development with external organizations, to expand
the possibilities of TDDS.

Other businesses
We conduct some research and development in other businesses, but because the amount is limited, it does not merit
special mention.
As a result of the foregoing, research and development expenses totaled ¥14,965 million in FY2/16.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

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 12 directors (including 2 outside directors) and 4
corporate auditors (including 2 outside corporate auditors) as of May 27, 2016.
In the area of corporate governance, we reduced the number of directors as a way to clarify the responsibilities and authorityof management and speed up decision-making and business execution. But in order to further reinforce and enhance ourmanagement structure in conjunction with the expansion of the organization, we changed the articles of incorporation to increase
the number of directors from 10 or less to 12 or less, at the annual general meeting of shareholders held on May 23, 2013.
Furthermore, we appointed 2 outside directors at the annual general meeting of shareholders held on May 21, 2015 to further
reinforce corporate governance.
In addition, we introduced an executive officer system in March 2003 to improve the speed, transparency, and strategic focus
of business decisions. Moreover, to clarify management responsibilities of directors and construct a management structure thatcan respond to changes in management environments, the term of directors was changed from 2 years to 1 year at the annual
general meeting of shareholders held on May 26, 2011.
Important management decisions are made by the Management Advisory Council comprising key directors and executive
officers, and important resolutions are debated and decided by the board of directors.
As we stated above, we have worked to enhance management oversight and to separate, decentralize, and strengthen
decision making functions and business execution functions.
To better facilitate fair auditing, we switched to an auditing system in which 2 of the 4 corporate auditors comprise outside
corporate auditors at the annual general meeting of shareholders held on May 26, 2004.
Corporate auditors attend meetings of the board of directors, regularly convene meetings of the board of corporate auditors,
and receive audit reports from the independent auditor as needed. The independence of our 2 outside corporate auditors fromthe company has been ensured and we believe that a structure sufficiently capable of monitoring management has been
established.
Systems to ensure appropriate operations of the corporate group comprising Hisamitsu Pharmaceutical andgroup companies
We have requested group companies to prepare and observe their own rules regarding compliance, equivalent to the Hisamitsu
Corporate Charter, and are making the best efforts to foster the compliance awareness of directors and employees of the Group
as a whole.

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Corporate Governance and Internal Auditing

We are monitoring the business status of each subsidiary through compliance of the Operation Manuals for Overseas andDomestic Group Corporations, reporting at meetings of the subsidiaries’ presidents and group audit by the Company’s corporate
auditors, and also working on sharing information through exchanging opinions between corporate auditors of the subsidiaries
and the Company.
Directors, executive officers, division managers of the Company and presidents of group companies have authority andresponsibility for establishment and operations of internal control system to ensure appropriate business execution in eachbusiness division.
The Internal Audit Department of the Company carries out internal audits of Hisamitsu Pharmaceutical and group companies,
reports results to relevant business division managers and directors in charge, and provides guidance on improvement
measures for internal control as well as support and advice on their implementation as needed.
Internal auditing and audit by board of corporate auditors
We established the Internal Audit Department (4 persons in charge) as an internal audit division. The Internal Audit Department
is responsible for auditing the business activities of Hisamitsu Pharmaceutical and group companies to ensure that these
activities are effective and appropriate and that they comply with relevant laws and the articles of incorporation, reporting to theboard of directors and the board of corporate auditors, promoting mutual cooperation, reporting to relevant business division
managers and directors, and providing support and advice as needed to improve internal control.
In addition to conducting audits based on predetermined audit guidelines and plans, the Board of Corporate Auditors also
regularly holds individual hearings with directors, executive officers, division managers and key staff from each business division.
Outside directors and outside corporate auditors
Although we have not established selection criteria regarding the independence of outside officers, we do select our outside
officers based on the criteria of independence set forth by the Financial Instruments Exchange.
We have entered into agreements, in accordance with Article 427-1 of the Companies Act, with outside directors and outside
corporate auditors to limit their liability for damages to the minimum amount stipulated in Article 425-1 of the Companies Act,
provided that their duties have been carried out in good faith and with no gross negligence.
Our 2 outside directors are ICHIKAWA Isao and FURUKAWA Teijiro. ICHIKAWA Isao has gained overall management
experience and knowledge through his past career experience such as executive vice president and representative director of alisted company. FURUKAWA Teijiro has gained deep insight with regard to our particular business through his experience inimportant positions at the Ministry of Health, Labour and Welfare.
Although FURUKAWA Teijiro concurrently serves as Executive Chairman of Imperial Gift Foundation Boshi-Aiiku-Kai, thecompany does not have any special conflict of interests in this Foundation.
Our 2 outside corporate auditors are ONO Keinosuke and TOKUNAGA Tetsuo. ONO Keinosuke has gained scholarly
knowledge related to management through his past career experience such as professor of a graduate school of business.
TOKUNAGA Tetsuo has gained overall management experience and knowledge through his past career experience such as
executive vice president and representative director of a listed company.
Outside corporate auditors regularly attend meetings of the board of directors and meetings of the board of corporate
auditors. We believe that a structure sufficiently capable of auditing management has been established.
Although ONO Keinosuke concurrently serves as an outside director of YKK Corporation and Professor Emeritus of Chubu
University, the company does not have any special conflict of interests in YKK Corporation or Chubu University. Additionally,
ONO Keinosuke serves as Professor Emeritus of Keio University and the company outsources research to Keio University,
although the transaction amounts are minimal.
Apart from the information stated above, there are no special cases of conflict of interest between our outside directors andoutside corporate auditors and the company.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

Corporate Governance and Internal Auditing

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

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

Corporate Governance and Internal Auditing

Corporate governance structure
General Meeting of Shareholders
Appoint and remove

Appoint and remove

Board of Corporate
Auditors

Independent auditor

Corporate Auditors(Operational andaccounting auditing)

Audit

Board of Directors
Directors

Audit

Representative
director

Management Advisory
Council
Directors and Executive Officers
AdviceInternal Audit Department

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

Audit

Advising attorneys and other specialists

Appoint and remove

Various business divisions and group companies

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

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 2016
Total compensation by type
Total
compensation

Basic
compensation

Stock options

Bonuses

Retirement
benefits

Number of
officers to be paid

Directors (Excluding Outside Directors)

411

295

101

—

14

11

Corporate Auditors(Excluding Outside Corporate Auditors)

44

43

—

—

1

3

Outside Officers

31

31

—

—

0

4

Category(Thousands of U.S. dollars)
Fiscal 2016
Total compensation by type
Category

Total
compensation

Basic
compensation

Stock options

Bonuses

Retirement
benefits

Number of
officers to be paid

Directors (Excluding Outside Directors)

3,617

2,596

889

—

123

11

Corporate Auditors(Excluding Outside Corporate Auditors)

387

378

—

—

9

3

Outside Officers

273

273

—

—

0

4

b) Total consolidated compensation paid to executive of the filing company(Millions of yen)
Fiscal 2016
Name
(Category of executive)
NAKATOMI, Hirotaka(Chairman & CEO)

Total
consolidated
compensation
183

Total compensation by type
Category ofcompany

Basiccompensation

Stock options

Bonuses

Retirement
benefits

The filingcompany

126

50

—

7

(Thousands of U.S. dollars)
Fiscal 2016
Name
(Category of executive)
NAKATOMI, Hirotaka(Chairman & CEO)

Total
consolidated
compensation
1,611

Total compensation by type
Category ofcompany
The filingcompany

Basiccompensation
1,109

Stock options

Bonuses

Retirement
benefits

440

—

62

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

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FINANCIAL REPORT 2016

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

Certified public accountants providing auditing services

KPMG AZSA LLC

Designated limited liability partner and engagement partner

MASUDA Yasushi

Designated limited liability partner and engagement partner

SADA Akihisa

Assisting personnel
6 CPAs & 7 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.

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FINANCIAL REPORT 2016

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 filing company

Fiscal 2015
Compensation forCompensation
audit certification
for non-auditing
services
services
51(Thousands of U.S. dollars)
Fiscal 2016

Compensation foraudit certification
services

Fiscal 2016

Compensation
for non-auditing
services

Compensation foraudit certification
services

67

50

2

440

Compensation
for non-auditing
services
18

Subsidiaries

4

—

13

—

114

—

Total

55

67

63

2

554

18

2) Breakdown of other important compensation
FY2015The 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.
FY2016The Company and most of its overseas consolidated subsidiaries paid the KPMG Group, which belongs to the same
network as our certified public accountants providing auditing services for audit certification services.
3) Details of non-auditing services provided by certified public accountants to the company
FY2015The Company has entrusted the accounting auditor with financial due diligence support service, etc., that is other than theservices set forth in Article 2-1 of the Certified Public Accountants Act (non-auditing services).
FY2016The Company has entrusted the accounting auditor with accounting advisory services, etc., that is other than the services
set forth in Article 2-1 of the Certified Public Accountants Act (non-auditing services).
4) Policy on setting compensation for auditing services
Not applicable.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

Financial Section

Analysis of Financial Position, Operating Results, and Cash Flows(1) Analysis of financial position in Fiscal 2016
1) Assets
Assets totaled ¥284,954 million at the end of FY2/16, a decrease of ¥485 million from the previous year, due mainly toincrease in cash and deposits of ¥10,286 million, decreases in notes and accounts receivable—trade of ¥8,949 million, andin net defined benefit asset of ¥2,203 million.
2) Liabilities
Liabilities totaled ¥58,859 million at the end of FY2/16, a decrease of ¥4,526 million from the previous year, due mainly todecreases in notes and accounts payable—trade of ¥2,259 million, in electronically recorded obligations—operating of¥1,575 million, an increase in income taxes payable of ¥2,229 million and a decrease in deferred tax liabilities of¥1,341 million.
3) Net assets
Net assets totaled ¥226,095 million at the end of FY2/16, an increase of ¥4,040 million from the previous year, due mainly
to an increase in retained earnings of ¥10,735 million, decreases in remeasurements of defined benefit plans of ¥2,160
million and in treasury stock of ¥4,179 million.

(2) Analysis of operating results in Fiscal 2016
1) Net sales
Net sales grew 3.3% year on year to ¥161,852 million. This increase is due mainly to the strong sales from overseas
subsidiaries.
2) Operating income
Operating income increased 35.1% year on year to ¥27,730 million. This increase is attributable mainly to the rise in net
sales and decrease in advertising expenses.
3) Ordinary income
Ordinary income decreased 1.7% year on year to ¥28,008 million. This is attributable mainly to the decrease in equity inearnings of affiliates associated with the dissolution of Novogyne Pharmaceuticals in the previous year.
4) Net income
Net income decreased 5.3% year on year to ¥17,784 million. This decrease is due mainly to the posting of gain on transfer
of rights of approval for manufacture and commercial sales of ¥958 million under extraordinary gain in the previous year.
Consequently, net income per share totaled ¥208.81 in FY2/16, and return on equity was 8.0%.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

Financial Section(3) Analysis of cash flows in Fiscal 2016
Cash and cash equivalents at the end of the FY2/16 totaled ¥103,940 million, an increase of ¥15,326 million from the endof the previous fiscal year.
1) Cash flows from operating activities
Net cash provided by operating activities totaled ¥30,923 million (¥23,232 million provided for of the previous fiscal year),due mainly to income before taxes and minority interests (¥27,922 million), in notes and accounts receivable—trade(¥8,626 million), and income taxes paid (¥8,548 million).
2) Cash flows from investing activities
Net cash used in investing activities totaled ¥3,912 million (¥8,945 million used for of the previous fiscal year), due mainly
to payments for purchase of tangible fixed assets (¥5,052 million) and gain on liquidation of subsidiaries and associates(¥1,952 million).
3) Cash flows from financing activities
Net cash used in financing activities totaled ¥11,616 million (¥7,036 million used for of the previous fiscal year), due mainly
to cash dividends paid (¥7,067 million) and purchase of treasury stock (¥4,178 million).

Capital Expenditures
Capital investment totaled ¥3,956 million in FY2/16.
In the Pharmaceutical segment, we mainly invested in the building and manufacturing equipment, etc. of the Tosu andUtsunomiya Plants resulting in capital investment of ¥1,651 million.
In other businesses, we mainly invested to expand bandwidth to provide digital capabilities to our subscribers, resulting
in capital investment of ¥103 million.
In FY2/16, there was no disposal or removal of equipment that could impact production capacity.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

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 FY2/16, we paid a year-end dividend of ¥41 per share including commemorative dividend of ¥1 per share celebrating
the launch of MOHRUS® PAP XR 120 mg and an interim dividend of ¥40 per share, which makes an annual dividend of¥81 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 2016 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, 2015
Board of directors resolution

3,427

40

30,162

0.35

3,472

41

30,5580.36

May 26, 2016
General meeting of shareholders resolution

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

Financial Section

Business and Other Risks
The following risks associated with our group’s business activities could have a significant impact on the decisionsof investors.
Any forward-looking statements are based on our judgments at the end of FY2/16.
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.

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FINANCIAL REPORT 2016

Financial Section

Consolidated Balance Sheets
February 28, 2015 and February 29, 2016

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

Cash and deposits

71,29881,584

718,043

Notes and accounts receivable—trade46,587

37,638331,262

Short-term investment securities

25,19230,895271,915

Merchandise and finished goods

8,762

8,105

71,334ASSETS
Current assets:

471

493

4,339

Raw materials and supplies

6,217

7,317

64,399Deferred tax assets

3,480

4,293

37,784

Other

3,641

1,714

15,085

Allowance for doubtful accounts

(335)

(283)

(2,491)

165,315

171,760

1,511,706

Buildings and structures (Notes 2 and 3)

18,105

18,122

159,497

Machinery, equipment and vehicles (Notes 2 and 3)

7,375

7,213

63,484Tools, furniture and fixtures (Notes 2 and 3)

2,220

2,080

18,307

Land (Notes 2 and 4)

12,84313,015

114,548

Work-in-process

Total current assets
Noncurrent assets
Tangible fixed assets, net:

83

58

510

Construction in progress

4,374

3,361

29,581

Total tangible fixed assets

45,00343,851

385,944

Distribution right

4,760

3,676

32,353

Goodwill

4,948

3,905

34,369Software

1,014

912

8,027

Other

5,580

4,028

35,452

Total intangible fixed assets

16,303

12,522110,209

48,77948,234

424,520

Lease assets

Intangible fixed assets:

Investments and other assets:
Investment securities (Note 1)

159

129

1,135

Net defined benefit asset

3,805

1,602

14,100

Deferred tax assets

1,705

2,056

18,095

Other

4,585

5,014

44,130Long-term deposits

Allowance for doubtful accounts

(216)

(216)

(1,901)

Total investments and other assets

58,81856,820500,088

Total noncurrent assets

120,125

113,194996,251TOTAL ASSETS

285,440

284,9542,507,956

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

Notes and accounts payable—trade

9,928

7,669

67,497

Electronically recorded obligations—operating

7,923

6,347

55,862

Short-term loans payable (Note 2)

1,685

1,683

14,813

LIABILITIESCurrent liabilities:

Lease obligations

102

33

290

Accounts payable

7,785

7,012

61,714

Income taxes payable

3,978

6,208

54,638

175

126

1,109

Allowance for sales returns
Provision for bonuses

2,249

1,940

17,074

Other

10,4709,975

87,793

Total current liabilities

44,29940,997360,826

Long-term loans payable (Note 2)

727

647

5,694

Lease obligations

61

42

370

Deferred tax liabilities on revaluation (Note 4)

1,894

1,716

15,103

Deferred tax liabilities

5,355

4,014

35,328Provision for directors’ retirement benefits

1,305

4

35

Net defined benefit liability

5,905

6,817

59,998

Other

3,835

4,618

40,644

Total noncurrent liabilities

19,086

17,862

157,208

63,38658,859518,034

Capital stock

8,473

8,473

74,573

Capital surplus

8,396

8,396

73,895

199,990

210,725

1,854,647

Noncurrent liabilities:

Total Liabilities
NET ASSETS
Shareholders’ equity:

Retained earnings
Treasury stock(21,854)(26,033)(229,123)

Total shareholders’ equity

195,006

201,561

1,773,992

Valuation difference on available-for-sale securities

13,087

13,367

117,647

Revaluation reserve for land (Note 4)

3,459

3,637

32,010Foreign currency translation adjustment

9,243

8,360

73,579

Accumulated other comprehensive income:Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Stock acquisition right

225(1,934)(17,022)

26,01623,430206,214

—

101

889

Minority interests

1,031

1,000

8,801

Total net assets

222,054226,095

1,989,923

TOTAL LIABILITIES AND NET ASSETS

285,440

284,9542,507,956

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

Financial Section

Consolidated Statements of Income
Years ended February 28, 2015 and February 29, 2016

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

Net sales

156,743

161,852

1,424,503

Cost of sales (Notes 2 and 3)

57,06358,319513,281

Gross profit

99,680103,532

911,213

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

79,15375,802

667,154

Operating income

20,527

27,730244,059

Interest income

104

184

1,619

Dividends income

519

615

5,413

Foreign exchange gains

597

—

—

Royalty Income

47

43

378

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

6,201

—

—

591

370

3,256

8,062

1,214

10,685Non-operating expenses:
Interest expenses

34

32

282

Foreign exchange losses

—

832

7,323

Loss on sales of receivables

23

23

202

Equity in losses of affiliates

—

11

97

Other

42

35

308

Total non-operating expenses
Ordinary income

100

936

8,238

28,48928,008

246,50618

Extraordinary gain:
Gain on disposal of fixed assets (Note 4)30

2

Gain on sales of investment securities

22

—

—

Gain on transfer of rights of approval for manufacture and commercial sale

958

—

—

1,012

2

18

Loss on disposal of fixed assets (Note 5)

24

89

783

Loss on valuation of investment securities

60

—

—

Total extraordinary gain
Extraordinary loss:

84

89

783

Income before taxes and minority interests

29,41627,922245,749

Income taxes—current

10,824

10,823

95,256

Income taxes—deferred

(392)

(829)

(7,296)

Total extraordinary loss

Total income taxes

10,431

9,993

87,951

Income before minority interests

18,984

17,929157,798

Minority interests in income
Net income

HISAMITSU PHARMACEUTICAL CO., INC.

24

200

145

1,276

18,784

17,784

156,522

FINANCIAL REPORT 2016

Financial Section

Consolidated Statements of Comprehensive Income
Years ended February 28, 2015 and February 29, 2016

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

18,984

17,929157,798

6,475

296

2,605

—

177

1,558

6,424

(926)

(8,150)Remeasurements of defined benefit plan, net of tax—(2,158)(18,993)

Share of other comprehensive income of associates accounted for underthe equity method

359

(18)

(158)

13,259(2,629)(23,139)

32,244

15,299134,651

31,99815,198

133,762

245

101

889

Income before minority interests
Other comprehensive income:
Valuation difference on available-for-sale securities
Revaluation reserve for land
Foreign currency translation adjustment

Total other comprehensive income (Note 1)
Comprehensive income
Comprehensive income attributable to:
Owners of the parent
Minority interests

HISAMITSU PHARMACEUTICAL CO., INC.

25

FINANCIAL REPORT 2016

Financial Section

Consolidated Statements of Changes in Shareholders’ Equity
Years ended February 28, 2015 and February 29, 2016

(Millions of yen)
Shareholders’ equity

Common stock

Capital surplus

8,473

8,396

Balance as at March 1, 2014

Retainedearnings
187,846

Treasury stock

Total
shareholders’equity(21,851)

182,865

Cumulative effects of changes inaccounting policies—

Restated balance

8,473

8,396

187,846(21,851)

182,865

Cash dividends(6,641)(6,641)

Net income

18,784

18,784Purchase of treasury stock

(2)

(2)

Net changes of items other thanshareholders’ equity
Total changes of items during the period
Balance as at February 28, 2015——

12,143(2)

12,140

8,473

8,396

199,990(21,854)

195,006(Millions of yen)
Accumulated other comprehensive income
Valuation
Total
difference on
Foreign Re­mea­sure­ accumulated
Stockavailable-for- Revaluation currency
otherments ofsale securi- reserve for translation
defined comprehen- acquisition
ties:
right
land
adjustments benefit plan sive income
Balance as at March 1, 2014

6,611

3,459

2,506

—

12,577—

Minority
interests

Total
net assets

865

196,308

Cumulative effects of changes inaccounting policies
Restated balance

—
6,611

3,459

2,506

—

12,577—865

196,308

Cash dividends(6,641)

Net income

18,784Purchase of treasury stock(2)

Net changes of items other thanshareholders’ equity

6,476

—

6,737

225

13,439—166

13,605

Total changes of items during the period

6,476

—

6,737

225

13,439—166

25,746

13,087

3,459

9,243

225

26,016—

1,031

222,054

Balance as at February 28, 2015

HISAMITSU PHARMACEUTICAL CO., INC.

26

FINANCIAL REPORT 2016

Financial Section(Millions of yen)
Shareholders’ equity

Common stock

Capital surplus

8,473

8,396

Balance as at March 1, 2015

Retainedearnings
199,990

Cumulative effects of changes inaccounting policies

Treasury stock

Total
shareholders’equity(21,854)

195,006

20

Restated balance

8,473

8,396

200,01120(21,854)

195,026

Cash dividends(7,069)(7,069)Net income

17,784

17,784Purchase of treasury stock(4,179)(4,179)Net changes of items other thanshareholders’ equity
Total changes of items during the period
Balance as at February 29, 2016——

10,714(4,179)

6,534

8,473

8,396

210,725(26,033)

201,561(Millions of yen)
Accumulated other comprehensive income
Valuation
Total
difference on
Foreign Re­mea­sure­ accumulated
Stockavailable-for- Revaluation currency
otherments ofsale securi- reserve for translation
defined comprehen- acquisition
ties:
right
land
adjustments benefit plan sive income
Balance as at March 1, 2015

13,087

3,459

9,243

225

26,016—

Minority
interests

Total
net assets

1,031

222,054

Cumulative effects of changes inaccounting policies
Restated balance

20
13,087

3,459

9,243

225

26,016—

1,031

222,075

Cash dividends(7,069)Net income

17,784Purchase of treasury stock(4,179)Net changes of items other thanshareholders’ equity

279

177

(882)

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

Total changes of items during the period

279

177

(882)

(2,160)(2,585)

101

(30)

4,020

13,367

3,637

8,360

(1,934)23,430101

1,000

226,095

Balance as at February 29, 2016

HISAMITSU PHARMACEUTICAL CO., INC.

27

FINANCIAL REPORT 2016

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

Common stock

Capital surplus

74,57373,895

Balance as at March 1, 2015

Retainedearnings

Treasury stock

Total
shareholders’equity(192,343)

1,716,300

1,760,165

Cumulative effects of changes inaccounting policies

176

Restated balance

74,57373,895

1,760,350

176(192,343)

1,716,476

Cash dividends(62,216)(62,216)

Net income

156,522

156,522

Purchase of treasury stock(36,780)(36,780)

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

94,297(36,780)

57,50774,57373,895

1,854,647(229,123)

1,773,992(Thousands of U.S. dollars)
Accumulated other comprehensive income

Balance as at March 1, 2015

Valuation
Total
difference on
Foreign Re­mea­sure­ accumulated
Stockavailable-for- Revaluation currency
otherments ofsale securi- reserve for translation
defined comprehen- acquisition
ties:
right
land
adjustments benefit plan sive income

Minority
interests

Total
net assets

115,182

9,074

1,954,357

30,44481,3501,980

228,974—

Cumulative effects of changes inaccounting policies
Restated balance

176
115,182

30,44481,3501,980

228,974—

9,074

1,954,541

Cash dividends(62,216)

Net income

156,522

Purchase of treasury stock(36,780)

Net changes of items other thanshareholders’ equity

2,456

1,558

(7,763)(19,011)(22,751)

889

(264)

(22,126)

Total changes of items during the period

2,456

1,558

(7,763)(19,011)(22,751)

889

(264)

35,381

117,647

32,01073,579(17,022)

206,214

889

8,801

1,989,923

Balance as at February 29, 2016

HISAMITSU PHARMACEUTICAL CO., INC.

28

FINANCIAL REPORT 2016

Financial Section

Consolidated Statements of Cash Flows
Years ended February 28, 2015 and February 29, 2016

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

Income before taxes and minority interests

29,41627,922245,749

Depreciation and amortization

6,667

7,477

65,807

Amortization of goodwill

946

1,068

9,400

Increase (decrease) in net defined benefit liability

298

275

2,420

Increase (decrease) in provision for directors’ retirement benefits

105(1,300)(11,442)

Increase (decrease) in provision for bonuses

149

(310)

(2,728)

Increase (decrease) in allowance for doubtful accounts

69

(41)

(361)

Increase (decrease) in provision for sales returns

(5)

(48)

(422)

(624)

(800)

(7,041)

34

32

282

(160)

178

1,567

(6,201)

11

97

Loss (gain) on sales of investment securities

(22)

—

—

Loss (gain) on valuation of investment securities

60

—

—

Loss (gain) on disposal of fixed assets

(6)

86

757

(8,506)

8,626

75,920Decrease (increase) in inventories

370

(605)

(5,325)Decrease (increase) in other current assets

394

(46)

(405)

2,840

(3,868)(34,043)

Increase (decrease) in other current liabilities

418

(189)

(1,663)

Other, net

185

216

1,901

26,43038,686

340,486

10,711

818

7,199

Cash flows from operating activities

Interest and dividends income
Interest expenses
Foreign exchange losses (gains)
Equity in losses (earnings) of affiliates

Decrease (increase) in notes and accounts receivable—trade

Increase (decrease) in notes and accounts payable—trade

Sub-totalInterest and dividends received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities

HISAMITSU PHARMACEUTICAL CO., INC.

29

(34)

(33)

(290)

(13,874)(8,548)(75,233)

23,23230,923272,162

FINANCIAL REPORT 2016

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

Net decrease (increase) in time deposits(1,317)

1,737

15,288Decrease (increase) in long-term deposits

(142)

25

220

Payments for purchase of tangible fixed assets(4,691)(5,052)(44,464)

Proceeds from sales of tangible fixed assets

117

54

475

Payments for purchase of intangible fixed assets

(180)

(97)

(854)

Proceeds from sales of intangible fixed assets

292

—

—

Decrease (increase) in short-term investment securities

556(1,737)(15,288)(3,867)(806)(7,094)279——

Collection of loans receivable

7

11

97

Gain on liquidation of subsidiaries and associates

—

1,952

17,180(8,945)(3,912)(34,431)

Cash flows from investing activities

Payments for purchase of investment securities
Proceeds from sales and redemption of investment securities

Net cash used in investing activities
Cash flows from financing activities
Increase (decrease) in short-term loans payable

20

45

396

Proceeds from long-term loans payable

—

244

2,148

Repayment of long-term loans payable

(137)

(370)

(3,256)

Cash dividends paid to minority shareholders

(79)

(132)

(1,162)

Purchase of treasury stock(1)(4,178)(36,772)(6,642)(7,067)(62,199)

(194)

(158)

(1,391)(7,036)(11,616)(102,236)

Effect of exchange rate changes on cash and cash equivalents

3,582

(67)

(590)

Net increase (decrease) in cash and cash equivalents

10,833

15,326

134,888

Cash and cash equivalents, beginning of year

77,78088,614

779,916

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

88,614

103,940

914,804

Cash dividends paid
Other, net
Net cash used in financing activities

HISAMITSU PHARMACEUTICAL CO., INC.

30

FINANCIAL REPORT 2016

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 2016 (March 1, 2015 – February 29, 2016)

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: 3
Names of companies:
SANOFI-HISAMITSU K.K.
Yutoku Pharmaceutical Ind. Co., Ltd.
Maruto Sangyo Co., Ltd.

HISAMITSU PHARMACEUTICAL CO., INC.

31

FINANCIAL REPORT 2016

Financial Section

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.

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

HISAMITSU PHARMACEUTICAL CO., INC.

32

FINANCIAL REPORT 2016

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

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

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

HISAMITSU PHARMACEUTICAL CO., INC.

33

FINANCIAL REPORT 2016

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

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

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

Changes in Accounting Policies
Adoption of the Accounting Standard for Retirement Benefits etc.
Effective as of the fiscal year under review, the “Accounting Standard for Retirement Benefits” (ASBJ” Statement No. 26,
May 17, 2012; hereinafter the “Retirement Benefits Accounting Standard”) and the “Guidance on Accounting Standard for
Retirement Benefits” (ASBJ Guidance No. 25, March 26, 2015; hereinafter the “Retirement Benefits Guidance”) have been
adopted with respect to the provisions in the main clause of paragraph 35 of the Retirement Benefits Accounting Standard
and the main clause of paragraph 67 of the Retirement Benefits Guidance, whereby method for calculating retirement
benefit obligations and service costs have been reviewed, to change the period attribution method for estimated retirement
benefits from the straight-line basis to the benefit formula basis, while changing the method for determining discount ratefrom the method based on the number of years approximate to the average remaining years of service of employees, tothe method using single weighted average discount rate reflecting the estimated payment period of retirement benefits aswell as the amount of payment corresponding to each portion of the estimated payment period.
The adoption of the Retirement Benefits Accounting Standard etc. is in accordance with the transitional treatment set
forth in paragraph 37 of the Retirement Benefits Accounting Standard, and the effect of the change in the method for
calculating retirement benefit obligations and service costs has been added to or deducted from retained earnings at the
beginning of the fiscal year under review.
As a result, investment securities, net defined benefit asset, net defined benefit liability at the beginning of the fiscal
year under review decreased ¥44 million, ¥15 million and ¥111 million, respectively, while retained earnings increased ¥20
million. These changes have minimal impact on operating income, ordinary income and income before taxes and minority
interests for the fiscal year under review.
Impacts on per share data are stated in the relevant section.

HISAMITSU PHARMACEUTICAL CO., INC.

34

FINANCIAL REPORT 2016

Financial Section

Unapplied Accounting Standards, etc.
• “Accounting Standard for Business Combinations” (ASBJ Statement No. 21; September 13, 2013)• “Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22; September 13, 2013)• “Accounting Standard for Business Divestitures” (ASBJ Statement No. 7; September 13, 2013)• “Accounting Standard for Earnings Per Share” (ASBJ Statement No. 2; September 13, 2013)• “Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures”(ASBJ Guidance No. 10; September 13, 2013)• “Guidance on Accounting Standard for Earnings Per Share” (ASBJ Guidance No. 4; September 13, 2013)(1) Outline
The amendments to these Accounting Standard, etc., are concerned mainly with the following areas: (i) changes to acompany’s ownership interest in its subsidiaries associated with additional acquisition of shares therein, while retaining
its control thereon; (ii) accounting treatment of the acquisition-related expenses; (iii) changes in the presentation of net
income, as well as change of presentation from minority interests to non-controlling interests; (iv) provisional accounting
treatment(2) Scheduled date of adoption
We plan to adopt them from the beginning of FY2/17. Provisional accounting treatment shall be applicable to thebusiness combinations enforced thereafter.
(3) Impact of adoption of this accounting standard and guidance
The impact of adoption is currently being evaluated in preparing consolidated financial statements.
• “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial
Statements” (ASBJ PITF No. 18, March 26, 2015)(1) Outline
This is to catch up with the amendment to the accounting standard in January 2014 in the U.S. related to goodwill, as
well as “Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22) as amended in
September 2013, and for the purpose of clarifying the recognition of actuarial difference in retirement benefits
accounting.
(2) Scheduled date of adoption
We plan to adopt them from the beginning of FY2/17.
(3) Impact of adoption of this accounting standard and guidance
The impact of adoption is currently being evaluated in preparing consolidated financial statements.

HISAMITSU PHARMACEUTICAL CO., INC.

35

FINANCIAL REPORT 2016

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

HISAMITSU PHARMACEUTICAL CO., INC.

36

FINANCIAL REPORT 2016

Financial Section

Notes to Consolidated Financial Statements
Fiscal 2015 (March 1, 2014 – February 28, 2015) and Fiscal 2016 (March 1, 2015 – February 29, 2016)

CONSOLIDATED BALANCE SHEETS(Note 1) Investment securities for unconsolidated subsidiaries and affiliated companies are as follows.
(Millions of yen)
Fiscal 2015
4,874

Investment securities (stocks)

Fiscal 2016
4,856

(Thousands of U.S. dollars)
Fiscal 2016
42,739(Note 2) Assets pledged as collateral are as follows.
(Millions of yen)
Fiscal 2015
Fiscal 2016
Pledged assets
Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures
Land
Total
Of the above, 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
Of the above, liabilities related to factory foundation mortgage
Short-term loans payable
Long-term loans payable
Total(Thousands of U.S. dollars)
Fiscal 2016

1,025 (book value)
11 (book value)
129 (book value)
59 (book value)
1,225 (book value)

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

8,317
53
942
519
9,849

892 (book value)
11 (book value)
129 (book value)
1,033 (book value)

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

7,279
53
942
8,282

125
727
852

78
647
726

686
5,694
6,390

98
672
770

66
605
672

581
5,325
5,914

(Note 3) Advanced depreciation of government subsidies is ¥5,832 million in both FY2/15 and FY2/16.
These figures are deducted from the consolidated balance sheets.
(Note 4) Application of the Land Revaluation Law
Land used for business purposes has been revalued in accordance with the “Act on revaluation of land” (Law 34 of1998, promulgated on March 31, 1998) and the “Law Partially Amending the Act on Revaluation of Land” (revisionof March 31, 1999). The portion of the revaluation gain equivalent to corporation tax and other taxes with tax
bases linked to corporate profits has been presented under liabilities as “Deferred tax liabilities on revaluation,”while the net sum after this transfer to the deferred tax liability account is presented under net assets as“Revaluation reserve for land.”HISAMITSU PHARMACEUTICAL CO., INC.

37

FINANCIAL REPORT 2016

Financial Section

Revaluation method
The land value used as the basis for calculation of the tax base under the Land Value Tax, stipulated in Article 16 of theLand Value Tax Law (Law No. 69 of 1991), has been calculated by making rational adjustments to the price calculated by
the method determined and publicly announced by the Commissioner of the National Tax Agency, as stipulated in Article
2.4 of the “Regulations for Applying the Land Revaluation Law” (Government Ordinance No. 119 of 1998, promulgatedMarch 31, 1998).
Revaluation dateFebruary 28, 2001
The market value of commercial land revalued in accordance with Article 10 of the Land Revaluation Law at the end of
FY2/15 and FY2/16 was ¥3,791 million and ¥3,266 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 2015

Fiscal 2016

Advertising expenses

13,13410,00588,057

Sales promotion expenses

18,411

17,648155,325

Freightage and packing expenses

2,644

2,702

23,781

73

(23)

(202)

Salaries and allowances

10,893

11,08597,562

Provision for bonuses

1,074

997

8,775

Retirement benefit expenses

289

281

2,473

Provision for directors’ retirement benefits

121

17

150

Provision of allowance for doubtful accounts

Fiscal 2016

946

1,068

9,400

Business consignment expenses

1,749

974

8,572

Research and development expenses, of which:

13,718

14,965

131,711

Provision for bonuses

371

346

3,045

Retirement benefit expenses

93

95

836

Amortization of goodwill(Note 2) General and administrative expenses include research and development expenses of ¥13,718 million and ¥14,965
million in FY2/15 and FY2/16, respectively.
Manufacturing costs do not include research and development expenses.
(Note 3) In FY2/15 and FY2/16, manufacturing costs include provision for bonuses of ¥446 million and ¥435 million andretirement benefit expenses of ¥156 million and ¥165 million, respectively.

HISAMITSU PHARMACEUTICAL CO., INC.

38

FINANCIAL REPORT 2016

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

Buildings and structures

21

—

—

Machinery, equipment and vehicles

0

1

9

Tools, furniture and fixtures

8

0

0

Land

—

1

9

Total

30

2

18

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

Buildings and structures

19

6

53

Machinery, equipment and vehicles

4

66

581

Tools, furniture and fixtures

0

8

70

Lease assets

—

2

18

Land

—

5

44

Total

24

89

783

Loss on retirement

Loss on sales

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 2016

Fiscal 2016

9,599

(409)

(3,600)

(0)

17

150

Before tax effect adjustment

9,598

(392)

(3,450)Tax effect amount(3,123)

689

6,064

Valuation difference on available-for-sale securities

6,475

296

2,605

—

177

1,558

6,424

(926)

(8,150)

Amount arising during fiscal year under review—(3,151)(27,733)

Reclassification adjustment amount:

—

(29)

(255)

Before tax effect adjustment—(3,180)(27,988)

Tax effect amount

—

1,021

8,986

Remeasurements of defined benefit plan, net of tax—(2,158)(18,993)

359

(18)

(158)

13,259(2,629)(23,139)

Fiscal 2015
Valuation difference on available-for-sale securities:
Amount arising during fiscal year under review
Reclassification adjustment amount:

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

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.

39

FINANCIAL REPORT 2016

Financial Section

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Fiscal 2015 (March 1, 2014 – February 28, 2015)

1. Shares issued(Shares)

Type of shares

Beginning of fiscal 2015

Increase

Decrease

End of fiscal 2015

Common stock

95,164,895——

95,164,895

2. Treasury shares(Shares)

Type of shares

Beginning of fiscal 2015

Increase

Decrease

End of fiscal 2015

Common stock

9,497,026

689—

9,497,715

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 acquired by equity method affiliates

395 shares
294 shares

3. Subscription rights to shares
Not applicable.

4. Dividends(1) Dividends paid
Resolution

Type of shares

Total dividends(Millions of yen)

Dividends per share(Yen)

Record date

May 22, 2014
Annual general meeting ofshareholders

Common stock

3,427

40

February 28, 2014

May 23, 2014

October 9, 2014
Board of Directors meeting

Common stock

3,213

37.5

August 31, 2014

November 10, 2014

Payment date(2) Dividends with a record date in fiscal 2015 but a payment date in fiscal 2016
Resolution

Type of shares

Source of dividend

Total dividends(Millions of yen)

Dividends per share(Yen)

Record date

Payment date

May 21, 2015
Annual general meeting ofshareholders

Common stock

Retained earnings

3,642

42.5

February 28, 2015

May 22, 2015

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

1. Shares issued(Shares)

Type of shares

Beginning of fiscal 2016

Increase

Decrease

End of fiscal 2016

Common stock

95,164,895——

95,164,895

HISAMITSU PHARMACEUTICAL CO., INC.

40

FINANCIAL REPORT 2016

Financial Section

2. Treasury shares(Shares)

Type of shares

Beginning of fiscal 2016

Increase

Decrease

End of fiscal 2016

Common stock

9,497,715

1,001,071—

10,498,786

Reasons for changes
Shares increased for the following main reasons:
Increase from acquisition of treasury shares by resolution of the board of directors
Increase from purchasing shares in less than one unit

1,000,000 shares
818 shares

The Company portion of treasury shares acquired by equity method affiliates

253 shares

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

BreakdownType of shares

Beginning offiscal 2016

Subscription
rights to sharesas stock option——

Increase—

Decrease

End offiscal 2016

Balance at theend of the fiscal
2016

—

—

101

4. Dividends(1) Dividends paid

(Millions of yen)

(Yen)

Resolution

Type of shares

Total dividends

Dividends per share

Record date

May 21, 2015
Annual general meeting ofshareholders

Common stock

3,642

42.5

February 28, 2015

May 22, 2015

October 9, 2015
Board of Directors meeting

Common stock

3,427

40.0

August 31, 2015

November 10, 2015

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

Resolution

Type of shares

Total dividends

Dividends per share

Record date

Payment date

May 21, 2015
Annual general meeting ofshareholders

Common stock

32,0540.37

October 9, 2015
Board of Directors meeting

Common stock

30,162

0.35

HISAMITSU PHARMACEUTICAL CO., INC.

41

Payment dateFebruary 28, 2015

May 22, 2015

August 31, 2015

November 10, 2015

FINANCIAL REPORT 2016

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

(Yen)

Resolution

Type of shares

Source of dividend

Total dividends

Dividends per share

Record date

Payment date

May 26, 2016
Annual general meeting ofshareholders

Common stock

Retained earnings

3,472

41.0

February 29, 2016

May 27, 2016

(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 26, 2016
Annual general meeting ofshareholders

Common stock

Retained earnings

30,5580.36

February 29, 2016

May 27, 2016

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 2015

Fiscal 2016

Fiscal 2016

Cash and deposits

71,29881,584

718,043

Cash equivalents included in short-term investment securities

22,87825,909228,032

Total

94,176

107,494

946,083

Term deposits longer than three months(5,562)(3,553)(31,271)

Cash and cash equivalents

88,614

103,940

914,804

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.

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

Financial Section(2) Nature and extent of risks arising from financial instruments, and risk management for financial instruments
Although operating receivables such as notes and accounts receivable—trade are exposed to customer credit risk, this risk
is managed through regular checks on the business and credit position of customers.
Short-term investment securities and investment securities, mainly consisting of stocks of corporations that theCompany has business relationships with, are exposed to the risk of market price fluctuations. This risk is managed
through periodic monitoring of market value and the financial status of the related issuers. With respect to stocks incompanies that have a business relationship, the Company checks necessity for holding them, taking into account thebusiness relationship.
Payment terms of operating payables, such as notes and accounts payable—trade, electronically recorded obligations—operating, accounts payable, and income taxes payable are less than one year. Borrowings are mainly for funding requiredfor corporate acquisitions and capital investment. Although operating payables and borrowings are exposed to liquidity risk,
this risk is managed through methods such as preparing cash flow planning on a monthly basis.
Derivatives transactions are undertaken by the Finance Department after authorization by the Board of Directors or the
General Manager of the Finance Department, depending on the importance of the transaction, and details areappropriately reported to the Board of Directors.

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 2015 (February 28, 2015)(Millions of yen)
Carrying amountMarket value

Unrealized gain
(loss)(1) Cash and deposits

71,29871,298—(2) Notes and accounts receivable—trade46,587

46,587—( i ) Available-for-sale securities

68,35868,358—(ii) Stock of affiliated companies

1,534

770

(764)

159

162

2

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

187,938

187,176(761)(1) Notes and accounts payable—trade

Total assets

9,928

9,928

—

(2) Electronically recorded obligations—operating

7,923

7,923

—

(3) Short-term loans payable

1,560

1,560

—

(4) Accounts payable

7,785

7,785

—

(5) Income taxes payable

3,978

3,978

—

852

855

3

32,02832,032

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

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43

FINANCIAL REPORT 2016

Financial Section

Fiscal 2016 (February 29, 2016)(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

81,584

81,584—

718,043

718,043—(2) Notes and accounts receivable—
trade

37,63837,638—331,262

331,262—( i ) Available-for-sale securities

73,53373,533—647,184

647,184—(ii) Stock of affiliated companies

1,634

770

(864)

14,381

6,777(7,604)

129

131

2

1,135

1,153

18

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

194,520

193,658(862)

1,712,023

1,704,436(7,587)(1) Notes and accounts payable—trade

7,669

7,669

—

67,49767,497—(2) Electronically recorded obligations—operating

6,347

6,347

—

55,86255,862—(3) Short-term loans payable

1,605

1,605

—

14,126

14,126—(4) Accounts payable

7,012

7,012

—

61,71461,714—(5) Income taxes payable

6,208

6,208

—

54,63854,638

—

726

731

4

6,390

6,434

35

29,56929,574

4

260,245

260,289

35

—

—

—

—

—

—

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

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FINANCIAL REPORT 2016

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 29, 2016

February 28, 2015

February 29, 2016

3,961

4,079

34,862

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 2015 (February 28, 2015)(Millions of yen)
Due within
one year

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

Due after
ten years

Cash and deposits

71,298———Notes and accounts receivable—trade46,587

—

—

—

2,313

158

—

—

—

159

—

—

120,199

318——

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

Fiscal 2016 (February 29, 2016)(Millions of yen)(Thousands of U.S. dollars)

Due within
one year

Due after
one year
but within
five years

Due after
five years
but within
ten years

Due after
ten years—

718,043

—

—

—

—

—

331,262

—

—

—

—

—

—

43,883

—

—

—

—

129

—

—

—

1,135

—

—

124,209129——

1,093,197

1,135

—

—

Due within
one year

Due after
one year
but within
five years

Due after
five years
but within
ten years

Due after
ten years

Cash and deposits

81,584——

Notes and accounts
receivable—trade37,638—

4,986

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

HISAMITSU PHARMACEUTICAL CO., INC.

45

FINANCIAL REPORT 2016

Financial Section

Note 4: Redemption schedule of short-term loans payable and long-term loans payable after the balance sheet dateFiscal 2015 (February 28, 2015)(Millions of yen)
Due within
one year

Due after one year but
within five years

Due after five years but
within ten years

Due after
ten years

Short-term loans payable

1,560

—

—

—

Long-term loans payable

125

284

358

84

1,685

284

358

84

Total

Fiscal 2016 (February 29, 2016)(Millions of yen)(Thousands of U.S. dollars)

Due within
one year

Due after
one year
but within
five years

Due after
five years
but within
ten years

Due after
ten years—

14,126

—

—

—

357

10

686

2,456

3,142

88

357

10

14,813

2,456

3,142

88

Due within
one year

Due after
one year
but within
five years

Due after
five years
but within
ten years

Due after
ten years

Short-term loans payable

1,605

—

—

Long-term loans payable

78

279

1,683

279

Total

SECURITIES
1. Available-for-sale securities
Fiscal 2015 (February 28, 2015)(Millions of yen)
Category

Carrying amount

Acquisition cost

Difference(1) Stocks

42,20822,965

19,242(2) Bonds———

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

Subtotal

42,20822,965

19,242

798

925

(126)

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

25,35025,350—Subtotal

26,14926,275

(126)

Total

68,35849,241

19,116HISAMITSU PHARMACEUTICAL CO., INC.

46

FINANCIAL REPORT 2016

Financial Section

Fiscal 2016 (February 29, 2016)(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

39,212

19,98819,224345,115

175,920

169,196(2) Bonds

—

—

—

—

—

—

(3) Other

—

—

—

—

—

—

Subtotal

39,212

19,98819,224345,115

175,920

169,196

3,424

3,924

(499)

30,13634,536(4,392)Carrying amount lower than acquisition cost:(1) Stocks(2) Bonds

—

—

—

—

—

—

(3) Other

30,89530,895—271,915

271,915—

Subtotal

34,32034,820(499)

302,059

306,460(4,392)

Total

73,53354,80818,724

647,184

482,380

164,795

2. Available-for-sale securities sold during the fiscal year
Fiscal 2015 (March 1, 2014 – February 28, 2015)
Because the total amount of gain or loss from sales is not material, this item is not stated.
Fiscal 2016 (March 1, 2015 – February 29, 2016)
Not applicable.

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.

HISAMITSU PHARMACEUTICAL CO., INC.

47

FINANCIAL REPORT 2016

Financial Section

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

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

14,05914,474

127,390

—

(95)

(836)

14,05914,378

126,545

Service costs

717

747

6,575

Interest costs

179

183

1,611

Actuarial differences incurred

(37)

2,414

21,246

Payment of retirement benefits

(436)

(423)

(3,723)

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

Other
Ending balance of retirement benefit obligations

(7)

(10)

(88)

14,474

17,290152,174(2) Reconciliation of beginning and ending balances of pension assets(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2015

Fiscal 2016

Fiscal 2016

Beginning balance of pension assets:

11,14812,374

108,907

Expected return on plan assets

323

358

3,151

Actuarial differences incurred

809

(736)

(6,478)

Employer contributions

341

348

3,063

Payment of retirement benefits

(249)

(269)

(2,368)Ending balance of pension assets

12,374

12,074106,267

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48

FINANCIAL REPORT 2016

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

8,568

10,472

92,167(12,374)(12,074)(106,267)(3,805)(1,602)(14,100)

Retirement benefit obligations for unfunded plans

5,905

6,817

59,998

Net amount of liabilities and assets in consolidated balance sheets

2,100

5,215

45,899Retirement benefit obligations for funded plans
Pension assets

Net defined benefit liability

5,905

6,817

59,998Net defined benefit asset(3,805)(1,602)(14,100)

Net amount of liabilities and assets in consolidated balance sheets

2,100

5,215

45,899(4) Breakdown of retirement benefit expenses(Millions of yen)(Thousands of U.S. dollars)

Fiscal 2015

Fiscal 2016

Fiscal 2016

Service costs

717

747

6,575

Interest costs

179

183

1,611

Expected return on plan assets

(323)

(358)

(3,151)

Amortization of actuarial differences

(33)

(29)

(255)

Retirement benefit expenses for defined benefit plans

539

542

4,770

(5) Remeasurements of defined benefit plans, net of tax
Items recorded in remeasurements of defined benefit plans (before related tax effects) are as follows:(Millions of yen)
Fiscal 2015
Actuarial differences(Thousands of U.S. dollars)

Fiscal 2016

Fiscal 2016

(3,182)(28,006)—(6) Remeasurements of defined benefit plans
Items recorded in remeasurements of defined benefit plans (before related tax effects) are as follows:(Millions of yen)
Unrecognized actuarial differences

HISAMITSU PHARMACEUTICAL CO., INC.

49

(Thousands of U.S. dollars)

Fiscal 2015

Fiscal 2016

Fiscal 2016

(347)

2,834

24,943

FINANCIAL REPORT 2016

Financial Section(7) Pension assets
1) Breakdown by main items of pension assets
The proportions of main items to the total pension assets are as follows:
Fiscal 2015

Fiscal 2016

Bonds

53%

57%

Stocks34%

29%

General account

9%

10%

Other

4%

4%

Total

100%

100%

2) Long-term expected rate of return on plan assets
Long-term expected rate of return on plan assets is determined considering the current and projected pension asset
allocations and the current and future long-term return rates expected from various assets that compose pension
assets.
(8) Basis for actuarial calculation
Fiscal 2015

Fiscal 2016

Discount rate

1.3%

0.4%

Long-term expected rate of return on plan assets

2.9%

2.9%

Fiscal 2015

Fiscal 2016

¥ — million¥101 million

MATTERS RELATED TO STOCK OPTIONS, ETC
1. Expenses related to stock options and its items
Expenses for stock option as compensation of selling,
general and administrative expenses

2. Description, scale and transition of stock options(1) Description of stock options
Name of company

The filing company

Resolution dateJuly 10, 2015

Classification and number of persons to be granted

10 directors of the Company

Class and number of shares

Common stock of 35,800 shares

Date of grant

July 27, 2015

Vesting conditions

No vesting conditions are applied

Requisite service period—

Exercise period

From July 28, 2015 to July 27, 2065

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

(2) Scale and transition of stock options
The following is applicable to the stock options prevalent in the fiscal year under review (FY2/16), whereby the number ofstock options is converted into number of shares.
( i ) Number of stock options
Name of company

The filing company

Date of resolution

July 10, 2015

Prior to vesting:End of fiscal 2015

— shares

Granted35,800 shares

Expired— shares

Vested35,800 shares

Outstanding prior to vesting— sharesPost-vesting:End of fiscal 2015
Vested— shares35,800 shares

Exercised— shares

Expired— shares

Outstanding prior to exercise

35,800 shares(ii) Unit price information
Name of company

The filing company

Date of resolution

July 10, 2015

Exercise price¥1

Average share price at the time of exercise¥—

Fair valuation unit price as at the grant date

¥3,796

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

26.713%

Expected remaining period (Note 2)

10 years

Expected dividends (Note 3)
Risk-free interest rate (Note 4)¥80 per share
0.405%

Notes: 1. Calculated based on the actual share price over a ten-year period (from July 2005 to July 2015).
2. Period from the grant date up to the estimated average timing of exercise.
3. Based on the actual dividend paid for FY2/15.
4. Japanese government bond yields corresponding to the expected remaining period.

HISAMITSU PHARMACEUTICAL CO., INC.

51

FINANCIAL REPORT 2016

Financial Section

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

1,953

1,838

16,177

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

460

419

3,688

Accrued enterprise tax

255

402

3,538

Allowance for doubtful accounts

180

154

1,355

Inventories

169

252

2,218

Deferred tax assets:
Net defined benefit liability

Excess depreciation

568

674

5,932

Intangible fixed assets

2,224

2,109

18,562

Valuation losses on memberships

216

195

1,716

Loss on valuation of investment securities

913

827

7,279

Provision for bonuses

784

649

5,712

Outsourced research and development

431

1,254

11,037

Other

5,157

5,846

51,452Sub-total deferred tax assets

13,315

14,625

128,719

Valuation allowance(3,023)(2,780)(24,468)

Total deferred tax assets

10,291

11,844104,242

Net defined benefit asset(1,107)(1,099)(9,673)

Valuation difference on available-for-sale securities(6,276)(5,587)(49,173)

Other(3,078)(2,821)(24,828)

Total deferred tax liabilities(10,462)(9,508)(83,682)

(170)

2,336

20,560

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 2015

Fiscal 2016

Fiscal 2016

Current assets: deferred tax assets

3,480

4,293

37,784

Noncurrent assets: deferred tax assets

1,705

2,056

18,095

Noncurrent liabilities: deferred tax liabilities(5,355)(4,014)(35,328)

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Financial Section

2.	Breakdown by main items that caused major differences in statutory tax rate and income tax rate
after application of tax effect accounting
Statutory tax rate

Fiscal 2015

Fiscal 2016

37.8%

—

Reconciliation:
Non-deductible expenses, such as entertainment expenses

1.1%

—

Non-taxable income, such as dividend income(0.5)%—

Special tax exemption for experimental research and development(3.6)%—

Amortization of goodwill

1.2%

—

Valuation allowance

0.1%

—

Other

(0.6)%

—

35.5%

—

Income tax rate after application of tax effect accounting

Note: Because the difference in the statutory tax rate and the income tax after the application of tax effect accounting is lessthan five percent of the statutory tax rate, notes for Fiscal 2016 are omitted.

3.	Revisions to the amount of deferred tax assets and deferred tax liabilities due to changes in therate of income taxes
With the promulgation on March 31, 2015 of the “Act for Partial Amendment of the Income Tax Act, etc.” as well as the “Actfor Partial Amendment of the Local Income Tax Act, etc.,” statutory effective tax rate used for calculating deferred tax
assets and deferred tax liabilities in the fiscal year under review (only for those likely to be eliminated on and after March
1, 2016), has been changed from the 35.4% applicable hitherto 32.8% for those likely to be collected or paid during theperiod from March 1, 2016 to February 29, 2017, while to 32.1% for those likely to be collected or paid on or after March
1, 2017.
The impact of this change in tax rate is minor.

4. Changes in the rate of income taxes after the balance sheet dateWith the promulgation on March 31, 2016 of the “Act for Partial Amendment of the Income Tax Act, etc.” (Act No. 15, 2016)
and “Act for Partial Amendment of the Local Tax Act, etc.” (Act No. 13, 2016), the income tax rate will be changed from thefiscal year beginning on and after April 1, 2016. In accordance with these Acts, the statutory tax rate used for the
calculation of deferred tax assets and deferred tax liabilities will be changed from the 32.1% applicable hitherto to 30.7%
for temporary differences expected to be eliminated in the fiscal year beginning on March 1, 2017 and fiscal year
beginning on March 1, 2018, and to 30.5% for temporary differences expected to be eliminated in the fiscal year
beginning on and after March 1, 2019.
The impact of this change in tax rates is minor.

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Financial Section

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

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

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

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

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

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RELATED INFORMATION
Fiscal 2015 (March 1, 2014 – February 28, 2015)

1. Information by product/service segment
This information is omitted, as net sales to external customers in single product/service segment account 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

114,90228,92912,911

156,743

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

34,003

7,665

3,334

45,003

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

Net sales

Related segment

MEDIPAL HOLDINGS CORPORATION

25,305

Pharmaceuticals

Alfresa Holdings Corporation

24,628

Pharmaceuticals

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

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

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

North America

Other

Total

112,957

36,014

12,880161,852

Japan

North America

Other

Total

994,165

316,969

113,360

1,424,503(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 2016

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

North America

Other

Total

33,208

7,143

3,499

43,851

Japan

North America

Other

Total

292,272

62,86730,796385,944(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

MEDIPAL HOLDINGS CORPORATION

24,264

213,554

Pharmaceuticals

Alfresa Holdings Corporation

23,729208,845

Pharmaceuticals

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

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Financial Section

RELATED PARTY INFORMATION
Fiscal 2015 (March 1, 2014 – February 28, 2015)

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. (%)
1,056

Amount oftransaction(Thousands of
U.S. dollars)

Pharmaceuticals

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)

Relationship withrelated party

Description oftransaction

Amount oftransaction(Millions of yen)

Selling of products
Purchase ofmerchandiseInterlocking ofexecutives

Selling of products

7,819

68,817

Accounts
receivable–trade

2,556

22,496

Purchase ofmerchandise

484

4,260

Electronicallyrecorded obligations–operating

194

1,707

Accounts payable–
trade

58

510

Item

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
Not applicable.
Fiscal 2016 (March 1, 2015 – February 29, 2016)
Because the item is not material, this item is not stated.

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Financial Section

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

Net assets per share

2,580.02

2,657.41

23.39

Net income per share

219.28208.81

1.84—

208.76

1.84

Diluted net income per share

Notes: 1. Diluted net income per share for fiscal 2015 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 2015

Fiscal 2016

Fiscal 2016

Total net assets in the consolidated balance sheets

222,054226,095

1,989,923

Net assets attributable to common shareholders

221,022

224,992

1,980,215

—

101

889

1,031

1,000

8,801

Common stock issued (Thousands of shares)

95,164

95,164

837,564

Common stock held in treasury (Thousands of shares)

9,497

10,49892,396

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

85,667

84,666745,168

Main differences:
Subscription rights to shares
Minority interests

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

Fiscal 2015

Fiscal 2016

Fiscal 2016

18,784

17,784

156,522Amount not attributable to common shareholders

—

—

—

Net income attributable to common shareholders

18,784

17,784

156,522

Average common stock during year (Thousands of shares)

85,667

85,166

749,569

Net income per share:
Net income

Diluted net income per share:
Adjusted net income

—

—

—

Increase in common stock

—

22

194

Of the above, subscription rights to shares

—

22

194

4. As stated in “Changes in Accounting Policies,” we have adopted the Retirement Benefits Accounting Standard and such
adoption is in accordance with the transitional treatment set forth in paragraph 37 of the Retirement Benefits AccountingStandard. 
The impact on net assets per share, net income per share and diluted net income per share for the fiscal year under review asa result of the adoption is minor.

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SIGNIFICANT SUBSEQUENT EVENTS
Recording of extraordinary gain following the termination of the joint sales agreement
The Company and Asahi Kasei Pharma Corp. reached an agreement on March 16, 2016 to terminate the joint sales
agreement in Japan of NEOXY® TAPE 73.5mg, a transdermal patch to treat overactive bladder (active pharmaceuticalingredient: oxybutynin hydrochloride; manufactured and distributed by Hisamitsu Pharmaceutical Co., Inc.) on June 26,
2016. As a result, the Company expects to record extraordinary gain of approximately ¥1.3 billion for the next fiscal year.
Asahi Kasei Pharma Corp. will terminate the sales of NEOXY® TAPE 73.5mg, once its stock is exhausted, but no later
than three months after June 26, 2016, the Company will solely engage in the sales of this product.
Disposition and Acquisition of Treasury Share through Third-Party Allotment
The Company, at its meeting of the Board of Directors held on April 8, 2016, has resolved to dispose of treasury shares forthe purpose of supporting social contribution activities of the Nakatomi Memorial Foundation, a public interest incorporated
foundation (hereafter “Nakatomi Memorial Foundation”), and acquire treasury shares under Article 156 of the Company Act,
as applied pursuant to Article 165-3 of the same act. The disposition of treasury shares is subject to the approval of theCompany’s annual general meeting of shareholders to be held in May 2016, and the acquisition of treasury shares issubject to the approval at the same meeting in which the disposition of treasury shares will be resolved.
1. About Nakatomi Memorial Foundation
Nakatomi Memorial Foundation was established with personal assets donated by the Company’s former Chairman
Masayoshi Nakatomi, and funds donated by the Company. The aim of the Foundation is to collect and exhibit materials
relating to medicine, cultural assets, and other historical materials and to provide knowledge of medicine and health as wellas enlightenment of the history of the culture of medicine, including Tashiro Baiyaku (Tashiro-style medicine selling),
through the operation of the Nakatomi Medicine Memorial Museum in Tosu-shi, Saga. The Foundation also aids young
people to develop into useful personnel.
2. Disposition of treasury shares
Overview of disposition(i) Number of shares to be disposed(ii) Disposal value(iii) Amount of funds raised(iv) Subscription or disposal method

Common stock: 1,000,000 shares¥1 per share¥1,000,000

By third-party allotment(v) Allottee (planned)
The Master Trust Bank of Japan, Ltd.
(vi) Disposal date
Not yet determined(vii) Other	The disposition of treasury shares is subject to the special resolution regarding
advantageous placement at the Company’s annual general meeting ofshareholders to be held in May 2016. The disposal date or other matters will bedecided at the meeting of the board of directors after the annual meeting.
3. Purpose and reason for disposition
With our corporate mission to convey the benefits of patch treatment, and our corporate philosophy to strive to improve thequality of life of people around the world, we have conducted business activities to bring patch culture to the world as wellas engaged in social contribution activities.

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Nakatomi Medicine Memorial Museum run by Nakatomi Memorial Foundation provides an environment for lifelong
learning on medicine and health through passing down medicine-related industrial culture to the next generation via
cultural heritage of medicine.
The Company sees fall in opportunities to pass down medicine culture to the younger people with the constant increasein single-person households. The Foundation’s activities, such as dissemination of knowledge of medicine and health,conform with the Company’s business activities and contribute to the Company’s benefit in terms of mid- to long-term andCSR perspectives, and therefore, the Company continuously supports the Foundation through donations.
To support the social contributions of the Nakatomi Memorial Foundation and provide the Foundation with more stablesupport, the Company will establish a third-party benefit trust (hereafter the “Trust”) in which Mitsubishi UFJ Trust andBanking Corporation is trustee, the Master Trust Bank of Japan, Ltd. is co-trustee, and Nakatomi Memorial Foundation isbeneficiary. The Trust will acquire the Company’s shares and deliver the trust proceeds, such as dividends from theCompany’s shares to the Nakatomi Memorial Foundation. The Nakatomi Memorial Foundation will then add said trust
proceeds to its source of funds to continue with its activities.
The disposition of treasury shares will be carried out for the Trust which will be established to generate source of funds
toward the social contribution activities of Nakatomi Memorial Foundation.
4. Amount, usage, and anticipated time of expenditure of funds raised(1) Amount of funds raised(i) Total paid-in amount¥1,000,000(ii) Estimated cost of issuance, etc.
¥0(iii) Estimated net proceeds¥1,000,000(2) Specific usage of funds raised
The estimated net proceeds above will be appropriated for expenses, such as attorney’s fees, which are necessary forforming the plan.
5. Acquisition of treasury shares(1) Reason for acquisition of treasury shares
To avoid dilution of shares caused by disposition of treasury shares as stated in above 2. and to implement a flexible capital
policy that can respond to increase in capital efficiency as well as the business environment.
(2) Details of acquisition(i) Type of shares to be acquired

Common stock of the Company(ii) Total number of shares to be acquired	Up to 2,000,000 shares(2.36% of the total number of issued shares excluding treasury shares)(iii) Total acquisition price of shares
Up to ¥12,000,000,000(iv) Period of acquisition	From the conclusion of the Company’s annual general meeting ofshareholders held in May 2016 to December 31, 2016(v) Other	The acquisition is subject to the resolution regarding the disposition oftreasury shares at the annual general meeting mentioned in above 2.

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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 2016of Fiscal 2016of Fiscal 2016of Fiscal 2016
Average interest rate

Category
Short-term loans

1,605

13,73014,126

0.56

—

125

78

1,100

686

0.61

—

102

33

898

290

—

—

727

647

6,399

5,694

0.65

61

42

537

370

March 2017 toMarch 2026
March 2017 to
October 2021

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

—

—

—

—

—

—

—

2,577

2,407

22,681

21,185——

Other interest-bearing liabilities
Total

Due date

1,560

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 ¥7 million in interest free loans from the Development Bank ofJapan Inc.
3. The average interest rate on lease obligations is not listed, mainly because lease obligations are stated in the
consolidated balance sheet mainly as a total before deduction of the equivalent of interest contained in the totallease payment.
4. Long-term loans and lease obligations (both excluding current portion) within five years after the consolidatedbalance sheet date are as follows:(Millions of yen)
Category

Due after one year
but within two years

Due after two years
but within three years

Due after three years
but within four years

Due after four years
but within five years

Long-term loans

71

71

65

71

Lease obligations

19

11

3

2

(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

625

625

572

625

Lease obligations

167

97

26

18

Category

Supplementary schedule of asset retirement obligations
Not applicable.

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Financial Section

Other
Quarterly consolidated financial information for Fiscal 2016
(Millions of yen)Three months ended
May 31, 2015

Six months ended
August 31, 2015

Nine months ended
November 30, 2015

Fiscal 2016

Net sales

39,68082,428122,283

161,852

Income before taxes andminority interests

5,639

14,59923,43927,922

Net income

3,535

9,376

15,31817,784

Net income per share (yen)41.27

109.45179.51208.81Three months ended
May 31, 2015

Six months ended
August 31, 2015

Nine months ended
November 30, 2015

Fiscal 2016

Net sales

349,234

725,471

1,076,245

1,424,503

Income before taxes andminority interests

49,630128,490

206,293245,749

Net income

31,11282,521

134,818

156,522

Net income per share (U.S. dollars)

0.363

0.963

1.58

1.838

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

Second quarter

Third quarter

Fourth quarter

41.27

68.18

70.18

29.12

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

HISAMITSU PHARMACEUTICAL CO., INC.

First quarter

Second quarter

Third quarter

Fourth quarter

0.36

0.60

0.62

0.26

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FINANCIAL REPORT 2016

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 2016
(February 29, 2016)

Shares issued on
filing date
(May 27, 2016)

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
Subscription rights to shares issued pursuant to the Companies Act, are as follows.
The first subscription rights to shares (resolved on July 10, 2015, issued on July 27, 2015)
As of the end of the fiscal year under review As at the end of the month preceding the filing date
(April 30, 2016)(February 29, 2016)
Number of subscription rights to shares

358 (Note 1)

Same as left——

Common stock

Same as left

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

¥1

Same as left

Exercise period of subscription rights to shares

July 28, 2015 to July 27, 2065

Same as left

Price of the shares to be issued upon exerciseof subscription rights to shares, and the amountto be incorporated into capital stock

Price of shares issued: ¥3,797
Amount to be incorporated into
capital stock: ¥1,899 (Note 3)

Same as left

(Note 4)Same as left

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

Same as left——

(Note 5)Same as left

Of the above, number of treasury subscription
rights to sharesClass of shares to be issued upon exercise ofsubscription rights to shares
Number of shares to be issued upon exerciseof subscription rights to shares
Cash payment upon exercise of subscription
rights to shares

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

Matters concerning substitute payment
Matters concerning the issuance of subscription rights
to shares associated with organizational restructuring

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Corporate Information

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

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Corporate Information

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

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

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

(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)

Change in sharesissued—(Millions of yen)

Shares issued

Change in capitalstock

Capital stock

Change in additional
paid-in capital

Additional paid-in
capital95,164,895

—

8,473

(6,123)

2,118(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—

74,573(53,890)

18,641

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.

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FINANCIAL REPORT 2016

(6) Details of shareholders
As of February 29, 2016
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)

—

55

25

186

374

5

4,089

4,734

—

Shares owned(units)—447,233

7,754

178,570

125,876

14

191,774

951,22142,795

Ratio (%)

—

47.02

0.82

18.77

13.23

0.00

20.16

100.00—Note: Treasury stock of 10,471,308 are listed as 104,713 units in the individuals and other column and as 8 shares in the shares
under one unit column. The 10,471,308 treasury stock figure is the number of shares listed in the shareholder registry.

(7) Principal shareholders
As of February 29, 2016
Percentage ofShares owned
shares outstanding(thousand shares)
(%)

Name

Address

Japan Trustee Service Bank, Ltd. (trust account)

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

6,214

6.53

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

4,680

4.92

The Nomura Trust and Banking Co., Ltd. (The Bank 2-2-2 Otemachi, Chiyoda-ku, Tokyo
of Tokyo-Mitsubishi UFJ, Ltd. pension trust account)
Japan Trustee Service Bank, Ltd.
1-8-11 Harumi, Chuo-ku, Tokyo(Resona Bank, Ltd. retrust account, The NishiNippon City Bank, Ltd. pension trust account)

4,387

4.61

4,370

4.59

Nippon Life Insurance Company

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

3,910

4.11

The Bank of Fukuoka, Ltd.

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

3,871

4.07

The Bank of Saga, Ltd.

2-7-20 Tojin, Saga

2,956

3.11

Hisamitsu Business Partners’ Shareholding
408 Tashiro Daikan-machi, Tosu-shi Saga
Association
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)

2,070

2.18

2,064

2.17

TKY

1,834

1.93

36,35838.21

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

Notes: 1. The number of the foregoing shares related to fiduciary services is as follows:
Japan Trustee Service Bank, Ltd.: 12,648 thousand shares
The Master Trust Bank of Japan, Ltd.: 4,680 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 10,471 thousand shares (11.00%).
HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

(8) Details of stock option system
It was resolved at the annual general meeting of shareholders held on May 21, 2015 that the Company awards stock
options as compensation for the Company’s directors (excluding outside directors) in accordance with Article 361 of theCompanies Act, accompanying the abolishment of the directors’ retirement benefit payment system.
The description of the relevant system is as follows.
HISAMITSU PHARMACEUTICAL CO., INC
1st Subscription Rights to Shares
Resolution dateJuly 10, 2015

Classification and number of persons to be granted

10 directors of the Company (excluding outside directors)

Class of shares to be issued upon exercise of subscription rights tosharesProvided in (2) Status of share subscription rights to shares

Number of shares

Same as the above

Cash payment upon exercise of subscription rights to shares

Same as the above

Exercise period of subscription rights to shares

Same as the above

Conditions for the exercise of subscription rights to shares

Same as the above

Matters concerning the transfer of subscription rights to shares

Same as the above

Matters concerning substitute payment—

Matters concerning the issuance of subscription rights to sharesaccompanying organizational restructuring

HISAMITSU PHARMACEUTICAL CO., INC.

Same as the above

68

FINANCIAL REPORT 2016

(9) Stock Administration of the Filing Company
Fiscal year

From March 1 to end of February

Annual general meeting of shareholders In May
Record date

End of February

Record date for distribution of surplus

End of August
End of February

Number of shares constituting one unit

100 shares

Purchase of shares less than one unit
Handling officeTransfer agent

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

Transfer office—

Purchasing fee

FreeMethod of public notice

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

Shareholders’ privileges

None

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

HISAMITSU PHARMACEUTICAL CO., INC.

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FINANCIAL REPORT 2016

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

3

1

Debt
guarantees——

Saga City-Vision Co.,Ltd.

Saga, Saga

¥605 million Other businesses

70.12

2

—

—

—

—

Taiyo Co., Ltd.

Tosu, Saga

¥50 million Other businesses

100

2

2

—

Agent for casualty
insurance contracts
for Hisamitsu

Hisamitsu
leases land

Kyudo Co., Ltd.

Tosu, Saga

¥10 million Other businesses

100

2

1

—

Provide laboratory
animals and equipment to Hisamitsu

Hisamitsu
leases land
& buildings

Hisamitsu Agency Co.,
Ltd.

Kurume,Fukuoka¥25 million Other businesses

100
(100)

1

1

—

Provide advertising
agency services to
Hisamitsu

Hisamitsu
leases partof a leasebuilding

Hisamitsu U.S., Inc.

DelawareUSA

USD Pharmaceuticals
10

100

1

—

—

—

—

Hisamitsu America, Inc.

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

—

4

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

Note 3

GBP Pharmaceuticals
120 thousands

100

1

1

—

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

VND Pharmaceuticals
258,775 million

100

—

3

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

—

PT. Hisamitsu PharmaIndonesia

Surabaya,Indonesia

IDR Pharmaceuticals
32,518 million

75

1

2

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

4 other companies

—

— —

—

—

—

—

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

Manaus,BrazilHisamitsu UK Ltd.

London, UK

HISAMITSU PHARMACEUTICAL CO., INC.

70

Note 3Note 3

Hisamitsu outsources —development
Note 3

Hisamitsu outsources —medical marketing——

FINANCIAL REPORT 2016

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

1

2

—

Yutoku PharmaceuticalInd. Co., Ltd.

Kashima,Saga¥120 million Pharmaceuticals

15.0

2

—

—

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

39.9

1

2

—

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

Note 4

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

HISAMITSU PHARMACEUTICAL CO., INC.

(Millions of yen)
30,489202
188
48,89964,312

71(Thousands of U.S. dollars)
268,3421,778
1,655
430,373
566,027

FINANCIAL REPORT 2016

Corporate Information

Management
Chairman & CEO

NAKATOMI Hirotaka

Standing Corporate Auditor

NAKATOMI Nobuyuki

President & COO

NAKATOMI KazuhideStanding Corporate Auditor

HIRANO MunehikoSenior Managing Director

SUGIYAMA Kousuke

Corporate Auditor

ONO Keinosuke

Managing Director

AKIYAMA Tetsuo

Corporate Auditor

TOKUNAGA Tetsuo

Managing Director

HIGO Naruhito

Director

TSURUDA Toshiaki

Director

TAKAO Shinichiro

Director

SAITO Kyu

Director

TSUTSUMI Nobuo

Director

MURAYAMA Shinichi

Director

ICHIKAWA Isao

Director

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

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

Representative
Capital

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

Fiscal year
Number of employees

March 1–End of February(As of February 29, 2016)
Business segment
Pharmaceuticals

Employees
2,754 (532)Other businesses
Total

146 (51)
2,900 (583)Note: Employee figures are for full-time employees. Temporary employees are shown in parentheses;
these figures are averages for the fiscal year and are not included in the employees column.

HISAMITSU PHARMACEUTICAL CO., INC.

72

FINANCIAL REPORT 2016

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