Growing Globally:

Lead the Way >>Annual Report 2006
For the year ended March 31, 2006

PROFILE

Sysmex Corporation (“the Company”) got its start in 1968 as Toa Medical
Electronics, Co., Ltd., a specialist manufacturer of instruments and reagentsin the hematology market. In 1998, on the 30th anniversary of its establishment, the Company changed its name to Sysmex Corporation, leveraging a
product brand asset developed over many years.
Today Sysmex is a global, comprehensive supplier in the diagnostics
field. The Company manufactures and markets hematology analyzers, urinalysis analyzers and other medical diagnostic instruments, as well as
reagents and Laboratory Information Systems. Sysmex is a comprehensive
manufacturer involved in every aspect of the diagnostics business, from
R&D to manufacturing, sales and support. The Company applies a highdegree of specialization in the diagnostics field and a strong technologicalorientation in the uncompromising pursuit of excellence in product development and manufacturing.
Sysmex has earned an excellent reputation among medical institutions
around the world by combining technological excellence with the capability topropose solutions that precisely meet customer needs. We have establisheda particularly strong position as the leading company in our core segment ofhematology, in which we hold the highest market share in Japan and rank
second in market share worldwide. To provide products and services thatsatisfy the diverse market needs of different regions, we maintain a global
network of R&D facilities, plants, and offices spanning 32 locations in 18
countries. Through this network, we supply products and services to customers in more than 150 countries. Though we are already a global company,
we continue to expand our operations and reinforce our technological capabilities through aggressive pursuit of alliances and M&A activities.
Sysmex currently seeks to leverage its extensive business infrastructure toachieve further growth and increase corporate value by expanding its business domain beyond diagnosis and treatment to encompass the broader
healthcare field that includes disease prevention and health maintenance. We
will fuse original technologies developed in the diagnostics field and newtechnologies in the life science field and take up the challenge of entering
new business fields. And, we will continue to provide high value-added products and services that contribute to improving the quality of life for people
everywhere. This is the unchanging corporate posture of Sysmex.

CONTENTS

02 10-year Growth and Highlights
04 To Our Shareholders
06 An Interview with the President
10 Strategies for Future Growth

CORPORATE VISION
With the objective of growing and developing a
distinctive global presence, Sysmex has set forth
the long-term vision of being “A Unique & Global

11 Strategy 1 >> Global Niche No.1

Healthcare Testing Company.” We aim to be aleading company in the healthcare testing field by

14 Strategy 2 >> Focus on Asia

providing solutions that leverage our advanced

16 Strategy 3 >> Focus on Life Sciences

technologies and unique strengths to their fulladvantage.

18 Corporate Governance

Today’s healthcare market has grown toencompass disease prevention and health mainte-

Directors, Executive Officers and

20 Corporate Auditors

nance, and the public is growing increasingly
aware of their benefits. At the same time, we see

22 Social Contributions
23 Management’s Discussion and Analysis
31 Independent Auditors' Report
32 Consolidated Financial Statements
44 Milestones of Growth
46 Technology Progress in Hematology
48 Business Domain
50 Major Products
52 Research and Development
56 Production
59 Customer Relations
62 Global Network
63 Investor Information
64 Consolidated Subsidiaries and Affiliates

technological innovations in the life sciences, IT,
and nanotechnology. These trends together mean
the potential of medical testing is expanding more
and more.
Sysmex is leveraging a high degree of specialization in the medical field developed over many
years and with sophisticated new technologicalcapabilities to create new businesses. Sysmex
aims to create value through advanced technologies and knowledge in order to contribute to thebuilding of a healthy and prosperous society.

Forward-looking Statements
Statements in this annual report, other than those of historical fact, are forwardlooking statements about the future performance of Sysmex that are based on
management’s assumptions and beliefs in light of information currently available,
and involve both known and unknown risks and uncertainties. Actual events andresults may differ materially from those anticipated in these statements.

1
Sysmex Annual Report 2006

10-year Growth and Highlights
Sysmex Corporation and Subsidiaries
Millions of Yen

1996

1997

1998

1999

¥ 30,942
3,021
1,160

¥ 33,992
3,817
1,642

¥ 35,576
3,178
1,555

¥ 38,337
3,400
913

2,104
2,130
2,989

2,890
2,310
2,992

4,083
2,140
2,359
2,813

42,00829,241
3,438

42,56830,2272,274

43,172
31,283981

42,51331,6801,328

1,398.5
59.4

1,445.7
78.5

1,496.1
74.4

1,515.1
43.7

20.0

20.0

20.0

22.0

69.6
4.5
2.8
36.2
1.5

71.0
5.5
3.9
23.2
1.3

72.5
5.1
3.6
15.2
0.8

74.5
2.9
2.1
42.1
1.2

For the years ended March 31,

For the year :Net Sales
Operating Income
Net Income
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, End of Year
Capital Expenditure
Depreciation
R&D Expenditure
At year-end :Total Assets
Shareholders’ Equity
Interest-bearing Liabilities
Per share data :Shareholders’ Equity (yen)Net Income (basic) (yen)Net Income (diluted) (yen)Cash dividends applicable to the year (yen)Other data :Shareholders’ Equity Ratio (%)
Return on Equity (%)
Return on Assets (%)
Price-earnings Ratio (times)
Price-book Value Ratio (times)
Number of Employees

Notes: 1. U.S. dollar amounts represent translations of Japanese yen, for convenience only, at the rate of ¥117 = U.S. $1, the approximate rate of exchange on March 31, 2006.
2. Per share data: Certain retroactive adjustments of previously reported per share information have been made to conform with the current method from the year ended
March 31, 2003.
(see Note 2(r). Per Share Information on page 38 of the Notes to Consolidated Financial Statements).
Management

M&A, AllianceMAR.
Signed an agreement withDADE INTERNATIONAL
INC. a U.S. based company. (Today's DADEBEHRING INC.) for collaboration in selling coagulation
product lines.

Products

Bases

JUL.
Listed stocks on the 2nd
Section of the Tokyo Stock
Exchange.

FEB.
Launch of the KX-21
compact, easy to maintain
automated hematology
analyzer.

MAY
Signed a basic agreementwith F. HOFFMANN-LA
ROCHE INC. of Switzerland
for global collaboration inmarketing and joint reserchand development.

NOV.
Listed stocks on the 2nd
Section of the Osaka
Securities Exchange.
NOV.
Increased its capital to¥3,385 million.

MAR.
Promoted to the 1st
Section of the Tokyo Stock
Exchange and the Osaka
Securities Exchange.

MAR.
Issued our first unsecured
convertible bonds.

FEB.
Established a Singaporean
subsidiary, SYSMEX SINGAPORE PTE.
LTD.(Today’s SYSMEXASIA PACIFIC PTE LTD.)

OCT.
Hisashi Ietsugu becomespresident.

DEC.
Signed a sales agency
agreement with ROCHEDIAGNOSTICS of
Germany for sales of andservices related to hematology analyzers and related products in markets
outside Japan, especiallythose of Latin America.

JUL.
Established the Chinese
subsidiary SYSMEXINFOSYSTEMS CHINA,
LTD. in Shanghai.

OCT.
Company name changed
to SYSMEX CORPORATION on the 30th anniversary of the Company's
establishment.

NOV.
Launch of UF-100, theworld's first analyzer of tangible constituents of urinethat fully automated inspections of urinary sediments.

1995

FEB.
Launch of XE-2100, an
automatic multi-item blood
cell analyzer developed as a
product of the 21st century.

1996

1997

1998

NET SALES

2
Sysmex Annual Report 2006

1999

2000

(¥ million)
100,000

Thousands of U.S.Dollars

2000

2001

2002

2003

2004

2005

2006

2006

¥ 37,244
3,618
1,838
5,818
9,901
3,018
2,316
3,155

¥ 38,817
2,975
1,363
(2,562)
7,338
2,098
2,541
3,527

¥ 47,532
3,417
1,308
1,842
9,181
2,455
2,810
4,130

¥ 57,253
5,299
3,125
1,071
10,253
2,317
3,107
4,969

¥ 65,970
6,615
3,157
3,465
13,718
2,451
3,203
5,549

¥ 76,935
9,104
5,731
(3,261)
10,458
2,729
3,296
6,509

¥ 87,888
10,724
7,423
(499)
9,416
5,638
3,592
8,184

$ 751,179
91,65863,444(4,265)80,47948,18830,701
69,94949,96733,596
5,810

55,21934,103
11,02066,50235,577
11,60666,44943,325
10,893

71,98351,096
4,175

77,66056,149657

87,44762,647
695

747,410535,444
5,940

1,606.8
87.9
87.7
22.0

1,631.0
65.2
60.8
22.0

1,701.5
62.6
58.4
22.0

1,879.5
132.2
121.8
25.0

2,042.7
132.9
123.1
30.0

2,244.9
225.1
224.0
40.0

1,251.8
145.5 *
143.8 *
36.0

67.2
5.6
4.0
36.7
2.0
1,392

61.8
4.0
2.6
42.6
1.7
1,507

53.5
3.8
2.1
35.6
1.3
1,966

65.2
7.9
4.7
15.9
1.1
2,128

71.0
6.7
4.6
20.3
1.3
2,342

72.3
10.7
7.7
27.2
2.7
2,563

71.6
12.5
9.0
35.3
4.1
2,741

10.7 (U.S.dollar)
1.2 (U.S.dollar)
1.2 (U.S.dollar)
0.3 (U.S.dollar)

90,00080,00070,00060,00050,000*Two-for-one stock split in Nov. 2005

40,000

AUG.
Acquired a total of 50.8%
of shares in INTERNATIONAL REAGENTS CORPORATION (Today’s SYSMEX INTERNATIONAL
REAGENTS CO., LTD.)
through takeover bid inorder to make IRC into a
consolidated subsidiary.

APR.
Consolidated INTERNATIONAL REAGENTS CORPORATION (Today’s SYSMEX INTERNATIONAL
REAGENTS CO., LTD.) asa wholly-owned subsidiarythrough a share change.

JUN.
Consolidation of SYSMEXCORPORATION OF
AMERICA and SYSMEXINFOSYSTEMS AMERICA,
INC. to establish SYSMEXAMERICA, INC. and started
direct sales and support.

MAR.
Increase in capital to¥7,943 million through a
97% conversion of the firstseries of unsecured convertible bonds.

APR.
Introduction of the Sysmex
Executive Officer System.
MAY
Established the European
subsidiary SYSMEX POLSKA S.P.Z O.O.

APR.
Introduction in Europe of the
RD-100 i gene amplification
detector for detecting breast
cancer lymph-node metastasis.

APR.
Acquired 50.8% of theshares in CNA CO., LTD., amedical data systems
enterprise, and consolidated as a subsidiary.

APR.
Increase in capital to¥5,587 million.

JUL.
Conclusion of an agreement with Eiken ChemicalCo., Ltd. for the marketingin China of an automatedurinalysis analyzer andtest strips.

JAN.
Released thehigh-performance, compact
automatedhematology analyzer “XS series”.

AUG.
Conclusion of a sales agreement
concerning the rapid influenza
diagnostic kit with Otsuka
APR.
Pharmaceutical Co., Ltd.
Establishment of a subsidiary inSouth Africa accelerates business development in Africa.

NOV.
A stock split.

2001

2002

2003

2004
3

Sysmex Annual Report 2006

2005

2006

0

To Our Shareholders

Sysmex engaged in aggressive business development
and achieved record-highbusiness performance inthe healthcare field, a
growth industry in the 21st
century. While striving toachieve the objectives of
the corporate mid-term
plan, Sysmex will accelerate its quest to reach a newstage of development.

Hisashi Ietsugu
President and CEO

4
Sysmex Annual Report 2006

In fiscal 2005, (the year ended March 31,

sales brought a substantial increase in¥100,000 million yen and global market

2006), the business environment in Japangross profit, and the cost to sales ratio

share leadership in the hematology segment.

was characterized by clear signs of eco-decreased as the increase in gross profit

With regard to cash dividends for fiscal

nomic recovery. Conditions were similarly

more than offset an increase in selling, gen-2005, seeking to return profits to share-

upbeat in other countries in which Sysmex

eral, and administrative expenses, such as

holders linked to advances in businessdoes business. The United States, Europe,

higher R&D investment. Return on equity

results, Sysmex declared a commemora-

Asia and elsewhere were all characterized(ROE) was 12.5%, up 1.8 points from thetive dividend of ¥2 per share to commemo-

by solid business expansion. In the health-previous term.

rate the 10th anniversary of the listing of thecare market, Sysmex’s business field, chal-

In business results by region, Sysmex

Company’s ordinary shares on the stocklenging market conditions continue inachieved higher revenues and profits in all

exchange, resulting in an annual dividend ofJapan, Europe, and North America due toregions. In Japan, Sysmex leveraged its¥36. As the Company conducted a two-

factors including the continued implemen-market-leading sales and support network,for-one stock split in November 2005, thetation of government policies to curb med-

expanded the product portfolio as a com-

effective annual dividend is ¥52 on a pre-ical expenses. At the same time, demandprehensive supplier, and engaged in a solu-

stock-split basis (prior year dividend: ¥40).

for medical treatment is expanding globallytions business aimed at increasing the effi-

November 2005 marked the 10thin a number of forms, including demandciency of hospital management. In the U.S.,

anniversary of the listing of Sysmex’s

arising from the development of sophisti-

Sysmex worked to increase market share

shares on the stock exchange. I amcated medical treatment in developed

by steadily expanding into the smaller mar-deeply grateful to our shareholders andcountries and the establishment and devel-

kets of small and medium-sized hospitals,

other stakeholders for the support that

opment of medical care infrastructure inin addition to the large-hospital market. It

made this possible.

developing countries.

also strengthened the sales and support

Sysmex will continue to build on the

structure to win recognition in the commer-

foundation of continuing growth and earn-

was able to achieve its strongest-ever busi-

cial laboratory market. In the European

ings increases in the diagnostics businessness performance, recording increases inregion, Sysmex has achieved substantial

to strengthen our technological capability.

net sales and operating income for the sixth

growth in revenues by actively proposing inThis will enable us to continuously create

consecutive year. Consolidated net sales

solutions that combine instruments,

high-value-added products and pursue

increased by 14.2% year on year to areagents, software, after-sales support andnovel approaches to unlock the potential ofrecord-high ¥87,888 million, as sales in

by increasing sales of hematology analyzers

the life science field. Sysmex will aim for fur-Japan increased by 6.0% to ¥35,419 million

in Eastern Europe, Russia, Africa, and otherther increases in corporate value by con-and sales in overseas markets increased by

new markets. In the Asia Pacific region,

tributing to the realization of a healthy,

20.5% to ¥52,469 million. Sales have risen

business performance was solid due toprosperous society through its businesssteadily, increasing by more than 10% forfactors including: Progress with upgrades

activities, and the entire Group will joinfive consecutive years. Sales growth into high-performance instruments in China’s

together in continuing the quest to attain aoverseas markets was a robust 20.5%, andcities attendant on economic growth, the

new stage of development.

the contribution of overseas sales to total

reinforcement of sales and support bases

sales increased by 3.1 points to 59.7%.

in the region before competitors, and com-

This ratio is increasing year by year.

petitive advantage as a comprehensive

In this business environment, Sysmex

Operating income increased by 17.8%

I request the continued support of ourshareholders for our activities.

Hisashi Ietsugu

supplier.

year on year to ¥10,724 million, and theSysmex is rapidly advancing toward a

operating income (margin) was 12.2%, up

new stage in its business development. The

0.4 points from the previous term. Higher

next stage will bring consolidated sales of5
Sysmex Annual Report 2006

President and CEO

An Interview with the President

Sysmex is pursuing business development
grounded in three basic strategies for further
growth. With the aim of becoming the leader
in the field of healthcare testing, we arecontinuing to boldly undertake
challenges to reach the next stage ofbusiness development.

How do you viewfor the healthcare industry. In Japan

ceive such changes and signs of thethe business environment in

there is a need for streamlining of med-

times is an extremely important role for awhich Sysmex operates?

ical institutions by lowering medical

business manager to fulfill.

I think that the healthcare industry will betreatment fees and by seeking greatera growth industry in the 21st century.

efficiency in hospital management. The

will formulate strategies suited to the

The aging of society is progressing rap-

situation is similar in Germany and otherrequirements of the geographical regions

idly in Japan and other developed coun-developed countries in Europe. It is pos-in which we operate, while conducting

tries around the world, and healthcare-sible that the worldwide trend towardbusiness on the entire world stage.

related demand is continuously increas-

corporate realignment through M&A that

ing. The trend in healthcare is a shift

is taking place in the pharmaceutical

You have set forth three

from treatment to prevention in step withindustry will spread to the diagnostic

core strategies for businessthe increasing health consciousness

reagents market segment.

development. What progress has

Under these circumstances, Sysmex

been made in implementing

among individuals. Of course, demandWith regard to technology, advances infor diagnosis and testing is expected topost-genome technology are about to give

those strategies?

grow further in the future. Medical carerise to new innovations such as tailor-

The first strategy we are pursuing is theinfrastructure enhancement is progress-

made medical treatment. Technological“Global Niche No.1 Company.” Thising and market expansion can beinnovation will give rise to even greater

involves manifesting strengths that com-

expected in the BRICs and other emerg-changes in the future: for instance, thepetitors cannot duplicate in niche mar-ing countries as well.

expansion of hospital collaboration con-kets, with the aim of becoming the glob-

At the same time, the business envi-

cerning IT-driven information networks.

al market leader. Specifically, we aim toronment poses a number of challenges

I feel that being among the first to per-be the global market leader in the6
Sysmex Annual Report 2006

hematology segment. We have alreadyket share in Europe’s developed coun-

China and the Asia Pacific region andattained market leadership in Japan andtries, our market coverage in the region

from now on will strive to increase sales

the rest of the world except the United

has expanded to Eastern Europe, Russia,

by enhancing the product portfolio.

States. Our excellent reputation is due

and Africa. We are achieving widespread

With regard to Japan, although theto several factors including the building

penetration of the Sysmex brand in themarket environment remains adverse,of customer relationships, trust in

global market place built on a solid foun-

we will take advantage of our market-

Sysmex instruments earned over time

dation of high-quality products.

leading sales and support structure,and the switch to a direct sales struc-

The second strategy is “Focus on

focus on the business of proposing

ture in 2003. We have made market

Asia.” We aim to leverage the competitive

high-value-added solutions as a com-

share leadership in the U.S. a strategic

advantage gained from being among theprehensive supplier, and push topriority. The U.S. is the world’s largest

first to enter and build a business base inincrease sales in new market segments

market, and we are leveraging our highly

the rapidly expanding markets of thesuch as the POC “Point of Care” andreputed customer satisfaction to focus

Asian region to become the leading com-

healthcare-related markets.

on expansion in two key market seg-prehensive supplier in Asia in the diag-With regard to the third strategy,

ments. The first market segment which

nostics field. We have nearly completed“Focus on Life Sciences,” we have at

we are focusing on is the small andthe task of establishing business bases inlast reached the starting line of commer-

medium-sized hospital market, in addition to large hospitals. We are increasing
sales opportunities by enhancing thesales and support structure, and byrecently introducing the new XS Seriesof compact automated hematology analyzers. These products use the samemeasurement principal as the high-end

External Changes in the Healthcare Market
・Economic growth in the BRICs (Brazil, Russia, India & China) ・Progress in post-genomic technology
・EU expansion (Eastern Europe)
・Practical application of advanced technologies
・Aging of population in developed countries
including regenerative medicine
・Growth in cancer and lifestyle-related diseases
・High-speed and broad information network
・Development of advanced medical care・Accelerated restructuring of the pharmaceuticalindustry (Japan)

XE Series, and we aim to achieve com-MarketTechnologicalinnovation

petitive product differentiation by meansof our comparability of results acrossHealthcare is the growing
industry in the 21st century.

our complete hematology product line.
The second market segment focus inRegulatoryenvironment

the U.S. is the large commercial laborato-

Healthcare
policiesry market, where we are also reinforcing
our proposal activities aimed at winning
recognition. We are seeing continuing・Introduction of a new company's act (Japan)
・Focus environmental protection (Europe)
・Tighter governmental medical regulations(China, AP)stable growth in the European region as
well. In addition to further increasing mar-

7
Sysmex Annual Report 2006

・Medical fee reimbursements decreased by 3.16% (Japan)
・Announcement of a draft of the Medical Care System
Reform (Japan)
・Converting national hospitals into independentadministrative agencies (Japan)
・Adoption of the 11th 5-year Plan (China)
・Self-supporting hospital operations (China)
・The new government’s policy to suppress healthcare
expenditure increases (Germany)

cialization. Just as information technolo-

stage we are in. From here on, I want to

we have participated in global disastergy has radically changed contemporary

engage in business management andrelief activities and community rebuilding

society, life sciences have the potential

business development adapted to a newactivities. In 2005, we established theto utterly transform the society of thestage of development without being

Corporate Social Responsibility

future. Since establishing the Central

overly concerned about the successful

Department to define a form of social

Laboratories in 2000, Sysmex has

experiences of the past. For the man-responsibility befitting Sysmex and weengaged in full-scale R&D. We aim toagement and employees of a company,

will continue to engage in a uniquecreate high-value-added medical tests

the period of competence development

approach to corporate social responsi-that contribute to disease managementin preparation for moving to a new stage

bility. It will have contributions to society

and we are currently pursuing researchof development is an extremely reward-

from our business operations as its core

projects with a focus on cancer and dia-

ing time. I feel that Sysmex is in justand involve environmental conservation

betes. All of these projects are pro-such a dynamic period.

and community involvement.

gressing steadily, and in April 2006 we

Because solid corporate governanceBy the same token, business expan-

introduced a breast cancer lymph nodeis essential for sustainable growth, wesion entails risk. For Sysmex, the poten-

metastasis rapid diagnosis system in the

moved to increase the speed of deci-tial impact of healthcare system reform

European market. In the coming years

sion-making with the executive officer

is especially significant. But, because

we will fuse original technologies devel-system and to enhance the manage-

Sysmex does not merely sell instru-

oped in the diagnostics field and thement supervision role of the corporate

ments and reagents that increase effi-

results of our efforts in the life science

auditors. In 2006, we laid out a compre-

ciency and simplify laboratory operation,

field to pursue businesses in which wehensive system of internal control. Now,

and also provides after-sales support

take advantage of Sysmex’s strengths.

we are working to increase manage-and IT-driven solutions, there are alsoment efficiency and transparency and torisks stemming from raw materials pro-strengthen compliance.

curement and the use of information

What is your thinking on initiatives for future growth?

As a company grows, it comes tosystems. Therefore, we engage in risk

attract public attention. Sysmex seeks tomanagement while keeping our cus-several stages, and I think that it isstep up to a new level of engagement intomers foremost in mind.

essential that we are fully aware of thecorporate social responsibility. To date

The growth of a company occurs in

8
Sysmex Annual Report 2006

On a related subject, interest in hos-An Interview with the President

tile takeovers has grown even indemonstrate their abilities is a businessJapan, and Sysmex regards the

manager’s most important work. If

achievement of sustainable increases

globalization advances further, Sysmex

Finally, do you have a message

in corporate value as an element of awill come to accommodate even more

for the shareholders?

takeover defense.

individuality within its corporate culture. I

I think that a company must continu-

believe that globalization is about

ously grow and also discharge its

Is there a particular concept you

accepting diversity. In the future I wantresponsibility to society. Sysmex isfavor in business management?

to assemble even more diverse capabili-

committed to increasing corporate

My philosophy regarding work, I placeties and use them as a new source ofvalue and meeting the expectations ofimportance on the concept “Where

growth for Sysmex.

our shareholders and other investors by

there’s a will, there’s a way.” This is

growth is also essential to Sysmex.

working to realize the long-term vision

about not making up one’s mind from

What are your views onof being a Unique and Global

the start that things are impossible, but

distribution of profits?

Healthcare Testing Company and con-rather thinking long and hard about how

The Company regards returning to ourtributing to a healthy and prosperous

to go about accomplishing them. In

shareholders profits earned as we growsociety. I ask that our shareholders viewother words, first set a goal, and thenas one of our highest management pri-

Sysmex’s quest to attain a new stage ofconsider a route to reach that goal.

orities, and our basic policy is to pay

growth from a medium-term to long-

Provided one does that, wisdom andattention to providing regular, stableterm perspective and continue to sup-resourcefulness are sure to follow. To

dividends while ensuring that the distri-

port our endeavors.

grow a business, one must constantly

bution of profits is supported by busi-

look a half step or a step ahead. Our

ness results. At the same time, because

early establishment of business bases in

Sysmex remains a company that con-the BRIC countries and other emerging

tinues to grow, I request that our share-markets reflects this way of thinking.

holders understand that active investment for the purpose of securing further

What are your views on the motivation of the human resources
essential to corporate growth?

Targets for FY2007 (Announced May 2005)

I believe that recruiting, retaining, anddeveloping human resources is one of

FY2005 Results

Targets for FY2007

Net Sales¥ 87.8 billion¥ 110 billion

weaknesses. Maintaining an environ-

Operating Income¥ 10.7 billion¥ 15.7 billion

ment for drawing out the good points

ROE

12.5 %

13.0 %

the most fundamental of managementtasks. Everyone has strengths andand enabling employees to maximally

9
Sysmex Annual Report 2006

Strategies for Future Growth

Sysmex is pursuing three core strategies aimed at bringing about growth
on a higher level. These were developed from close examination of thestrengths and opportunities of our business throughout the world. Basedon this review we have codified three complementary approaches: tobecome the world’s best in our chosen segment of hematology, to focus
new growth on the expanding markets of Asia and to develop strong, newmarkets in life sciences.

CORE STRATEGIESGlobal Niche No.1

Focus on Asia

Focus on Life Sciences

LONG-TERM VISION
A Unique & Global Healthcare Testing Company

TARGETS FOR FY2010
Positioning

Corporate Culture

・ No. 1 solutions provider inthe diagnostics field・ Value creator with state-of-the-art
technology and knowledge

・ Innovative company inthe life science field

・ Energetic innovator with
global vision

・ Leading company inthe diagnostics field in Asia

10
Sysmex Annual Report 2006

Strategy 1 >>Global Niche No.1

Climbing to the Top around the World in
Our Chosen Specialty of Hematology
Diagnostics and Sysmex

cal chemistry. Sysmex is a comprehen-

Diagnostics is a form of clinical testing

sive manufacturer that supplies products

used in medical diagnosis and treat-in nearly every diagnostics field, ranking

ment and in monitoring the effects ofsecond in global market share in the

drug administration. There are two

hematology segment, first in instrument

types of clinical tests: in vivo diagnostics

market share in the hemostasis seg-and in vitro diagnostics. In vivo diagnos-

ment, and ninth overall in the diagnostics

tics involve direct examination of the

field. Sysmex is also a comprehensive

body using x-rays, electrocardiograms

supplier that provides after-sales sup-(ECG) and other tests. In vitro diagnos-

port, such as instrument maintenancetics involve analysis of samples ofand quality control. Following thisblood, tissue, urine, and other speci-

approach, we have constructed a uniquemens taken from the body. The size ofbusiness model by which it fills the role of

the worldwide diagnostics market was

a comprehensive manufacturer.

US$26,000 million in 2003, and themarket is expected to grow at an annu-

Sysmex’s Strategy inal rate of about 7% through 2010.

the Hematology Segment

Diagnostics is broadly divided into

One of Sysmex’s core strategies is tocategories that include hematology,

become the “Global Niche No.1” com-hemostasis, immunochemistry, and clini-pany and our first objective is to attain

Diagnostics Market Sharesof the Global Majors(Sysmex estimates)

Roche
Abbott
J&J

Diagnostics
market in total
US$ 29,851
million(FY2005)

Bayer
Beckman Coulter
Dade Behring
Bio Merieux
Becton Dickinson
SysmexBio RadDPC
Others11
Sysmex Annual Report 2006

>>Global Niche No.1

market share leadership in the hematol-enues, reagent sales are steadily

ogy segment. Although, in recent years

increasing and we have achieved sta-

medical system reform has been imple-

ble, continuous sales growth. In May

mented in developed countries to curb

2005, we established our subsidiary

increasing healthcare costs, hematology

Sysmex Polska S.p.zo.o. as one of theremains an essential component ofoperations aiming to increase sales inbasic and screening testing to ascertain

emerging markets such as Eastern

the condition of the human body. Also,

Europe, an area expected to grow rap-

hematology is required for the establish-

idly in the coming years. We are aiming

ment and development of medical careto support the sales activities of its dis-infrastructure in developing countries,

tributor, identify customer needs

and future market expansion is antici-

through market research conducted onpated. Continuing growth in Europe andits initiative, and strive to supply prod-business expansion in the U.S. areucts and solutions that meet the needs

essential priorities in Sysmex’s mid-termof the market in Russia, and haveplan, which concludes in fiscal year

established a representative office2007, and we plan to enhance our sales

there. In April 2006, we establishedand support structure in these markets

Sysmex South Africa, a wholly owned

by establishing new business locations

subsidiary in the Republic of Southand enlarging the organization.

Africa, an economy marked for BRIClevel growth. In 2007, we will expand

Expanding Existing Markets andthe reagent production facility inEntering Fast-growing

Germany (the Neumünster Factory) to

New Markets

increase production capacity and effi-

In Europe, Sysmex has earned an

ciency. We will continue to leverage theexcellent reputation among customers

Sysmex brand to expand geographicalbefitting a regional market share leader,sales coverage and solidify our position

and the installed base of instruments is

as the market share leader in Europe.

expanding. In the hematology market

The U.S. is the world’s largest diag-

we have secured stable revenue by

nostics market, accounting for 40% of

implementing a business model involv-

global sales. Sysmex is strengthening

ing ongoing sales of specific reagents

marketing with the goal of increasing its

following the sale and installation ofshare of the U.S. hematology market to

instruments. As this business model

22%. In July 2003, we switched to amakes it possible to secure stable rev-

direct sales and support structure and12Sysmex Annual Report 2006

Strategies for Future Growth

we have steadily enhanced our reputa-

through increased production capacity

tured share leadership, and by increas-tion among customers. In the hospitaland efficiency. Sysmex aims to capture

ing market share in the U.S. As themarket, for example, we have focusedmarket share leadership in the U.S. byacknowledged leading company in theon increasing market coverage by sales

continuing to promote recognition andhematology segment, we will continue

representatives and service engineers.

penetration of the Sysmex brand and by

to provide added value and propose

We now utilize distributors and telemar-

offering customers a wide range ofsolutions to customers in these mar-keting in sales activities targeting the

products that have earned the recogni-

kets. Sysmex is also establishing sub-small and medium-sized hospital mar-tion and trust of customers in Japan,

sidiaries in all four BRIC countries.

ket. Sysmex also actively engages in

Europe, and Asia.

There, we provide hematology analyz-

sales activities targeting commercial lab-ers and reagents for basic screening

oratories, which account for about one-

Seeking to become thetesting and support improvements inthird of the U.S. diagnostics market. In“Global Niche No.1” Company

testing quality and the establishment

this market we promote the quality andSysmex has grown to the point of real-and development of the medical care

performance of Sysmex products andizing its ambition of winning market

infrastructure. By earning an excellent

make proposals to improve productivity

recognition as the leading company inreputation from a broad base of cus-and save valuable laboratory floorspace.

the hematology segment market. This

tomers in developed and developing

has been accomplished by further

countries, Sysmex seeks to solidify its

adjacent to Sysmex America, Inc. toboosting market presence in Japan andposition as the leading company in themeet increased demand for reagents

Europe, where we already have cap-

hematology segment.

In 2007, we will establish a new plant

Our Share of the Global Hematology Market*Figures show our share of each market in FY2005

No.3 Americas
No.1 Europe

Sales : ¥ 12.1 billion

Sales : ¥ 18.8 billion
No.1 Japan

Sales : ¥ 13.5 billion

No.1 Asia

Sales : ¥ 7.5 billion

13
Sysmex Annual Report 2006

Strategy 2 >>Focus on Asia

Building on Our Strong, No.1 Position
as a Comprehensive Supplier
Establishment of an Extensive

sales and support of instruments andBusiness Base in Asia

reagents in the mainstay hematology

As a comprehensive supplier based insegment and in the hemostasis market

Japan, Sysmex has constructed an

segment. Today, Sysmex operates

extensive business network in Asia thatbusinesses in nearly every diagnostic

includes sales and support bases,

testing segment. It has earned an excel-

reagent production facilities, and an IT

lent reputation among customers as thedevelopment base. Sysmex launchedregional market share leader in the

full-scale business development in Asia

hematology and hemostasis segments.

in 1995 with the establishment of Jinan

Sysmex has adopted as one of its

Sysmex Medical Electronics Co., Ltd., athree core strategies a focus on Asia.

reagent production facility in China,

Our goal is to secure a position as the

beginning construction of a businessNo.1 comprehensive supplier in thisbase in China well ahead of industry

region. The Japanese share many simi-competitors. In 1998, we establishedlar cultural characteristics with other

Sysmex Singapore Pte Ltd. as a sales

Asians, and there are few barriers withand support base for the Asia Pacificregard to understanding of businessregion. Today, Sysmex operates one ofpractices or communication. Also,

the industry’s top-class sales and sup-Sysmex is able to secure competitive

port networks in Asia, maintaining oper-

advantage over Western companies byations in numerous countries in theapplying elsewhere in the region knowl-

Asia Pacific region and utilizing the serv-

edge accumulated from its experience

ices of distributors. At the heart of ourand successes in Japan. In addition to

Asia Pacific operations are 5 subsidiaries

working to expand its business in Asia,

in China and 8 in other countries.

Sysmex aims to contribute to the qualitative improvement of medical care in

Serving Customers as a

the region by providing instruction

Comprehensive Supplier

aimed at standardizing diagnostics.

Sysmex’s initial business activities in the
Asia Pacific region were focused on the14
Sysmex Annual Report 2006

In China, sophisticated medical careis being provided in their cities, and aStrategies for Future Growth

healthcare system is being instituted inJapan is said to have the world’s

rural areas under government direction.

most adverse business environment for

support network. By expanding theSysmex has put in place a fine-tuned

the medical care industry owing to

product range and customer base,sales and support network adapted toreductions in medical expenses arising

Sysmex will solidify its position as thethe differing needs of these geographi-

from healthcare system reform. Sysmex

most comprehensive supplier in thecal areas and expanded the productis upgrading to a sales structure adapt-diagnostics field in Japan.

portfolio. We are also entering new

ed to customer needs and, as a com-business areas, including the clinicalprehensive supplier capable of providing

the industry to establish a call center inchemistry segment.

the laboratory information systems of

Asia. We will continue to strive to

subsidiary CNA Co., Ltd., instruments,

increase customer satisfaction andcustomer needs are diverse and, as inreagents, and after-sales support, ispeace of mind through communica-

China, there is a large gap between the

proposing comprehensive solutions

tions that put the customer first. We willstate of healthcare infrastructure in devel-

aimed at increasing the efficiency andcontinue to solidify our position as theoped areas and developing areas.

enhancing the quality of medical testing.

comprehensive supplier in the diagnos-

Sysmex promotes replacement purchas-

Furthermore, Sysmex is expanding its

tics field by leveraging the Sysmex

es of high-end hematology analyzers in

product range in the hospital and veteri-brand. Through an extensive sales anddeveloped areas and works to increasenary market and stepping up marketing

support network we will offer cus-sales of middle and low-end hematology

activities directed at these markets intomers not only our own products, but

analyzers in developing areas. Future

addition to conventional marketing

also products obtained through busi-

plans call for strengthening the productactivities for point-of-care (POC) prod-

ness alliances.

portfolio in the immunology and clinicalucts such as influenza testing kits

chemistry segments and solidifying ourdirected at physicians in private practice

position as a comprehensive supplier.

and clinics. It is also engaging in sales

Elsewhere in the Asia Pacific region,

Sysmex’s Operations in Asia

activities through an extensive sales andSysmex was the first manufacturer in

Substantial Sales and Profit Growthin the Diagnostics Business

A leading comprehensive
supplier in Asia

Market recognition activities
Academic publicity

Sales/service network
Local affiliates
Local bases
Representative offices

Competitive products/services

Brand

15
Sysmex Annual Report 2006

Strategy 3 >>Focus on Life Sciences

Creating New Markets throughInnovations in Testing Technology
The Importance of Testing inmedical treatment previously unimagin-

Medical Treatmentable. In the field of diagnostics,

The medical treatment industry is widely

Sysmex’s business domain, many man-recognized to be a growth industry owing

ufacturers are stepping up investment in

to advances in gene-related technologies

the life science field with the aim of cre-made in recent years, people’s desire to

ating new testing techniques. At its

live long, healthy lives, and the healthCentral Research Laboratories, estab-

improvement boom. Due to rapid popu-

lished in 2000, Sysmex pursues R&D

lation aging in developed countries, med-

grounded in the concept of creating

ical cost increases have become a social

high-value medical tests that contributeproblem. In order to curb increases into disease management. The term “dis-medical expenses, governments areease management” refers to the provi-

shifting healthcare policies from ansion of optimal medical care for individ-

emphasis on treatment to an emphasis

ual patients to prevent the occurrence,on prevention. In this environment, med-recurrence, or worsening of disease.

ical testing is taking on increased impor-

Sysmex aims to advance the cause oftance as a critical health indicator essen-

disease management by creating newtial to disease management decisions

medical testing techniques at the pre-grounded in evidence-based medicine

vention, screening, confirmed diagnosis,(EBM) and to the monitoring of treatment

recurrence prevention, and prognosis

results. Sysmex aims to create new med-

prediction stages of disease. Sysmex

ical testing techniques and contribute toalso aims to contribute to the improve-disease management through the fusion

ment of quality of life, the standardiza-of life science technologies and technolo-tion of medical care, and the optimiza-gies developed in diagnostics.

tion of medical costs by providing medical tests that support disease manage-

Expanding the Scope of Testing

ment decisions and diagnosis. Sysmex

through Technological Innovation

regards the life science business as aInnovation in gene and protein analysis

new testing market that will expand intechnologies is opening the way tothe coming years. Sysmex is engaged

16
Sysmex Annual Report 2006

Strategies for Future Growthin R&D related to four types of diseases:

erage for diagnosis using the system.

agement by establishing the R&D

infectious diseases, blood disorders,Sysmex’s efforts to commercialize

Strategic Planning Department and for-cancer and metabolic syndromes.

research projects besides cancer

mulated a new technology strategy. In

Research projects related to cancer andlymph-node metastasis rapid diagnosis

February 2006, we acquired real estate

diabetes are currently in progress.

technology are steadily bearing fruit. We

adjacent to the Techno Center, a key

will construct clinical development sys-

R&D base at Sysmex, with the objective

Commercialization of Life

tems and put in place development,of expanding the R&D function. In the

Science Research Projects

production, sales and support struc-coming years we will continue our efforts

In April 2004, Sysmex established thetures with a view to begin sequential

to contribute to disease management,Life Science Business Development

market introductions to begin in 2006.

carry on with focused investment of

Department and began preparing for

management resources in R&D and rein-group-wide entry into the life science

Reinforcement offorce our technological underpinnings as

business on a global basis. This will

Core Technologies

a technology-oriented company.

involve participation by affiliates in theSysmex is working to create new testing

U.S. and Europe. In April 2006, we

technologies by fusing technologies it

introduced a breast cancer lymph-node

has accumulated in the field of diagnos-

metastasis rapid diagnosis system intics with life science technologies. With

the European market as our first life sci-

the aim of strengthening the R&D struc-ence product. Since the reputation of ature, in February 2005 the reagent devel-

product is important to its commercial

opment operations of Sysmex

success, Sysmex will continue to pro-International Reagents Co., Ltd. weremote market recognition of the system.

integrated into Sysmex Corporation. In

Another aim is to obtain insurance cov-

April 2005, we strengthened R&D man-Gene Amplification Detector RD-100 i

Progress in R&D (As of May 2006)
Clinical Study

Research(Clinical Research)(Clinical Trial)

Colon cancer

Breast cancer

Application/
Approval

Introduction
into the Market

Listing

Introduced into the European market in April, 2006

Rapid lymph node metastasis detection
Chemosensitivity prediction
Recurrence prediction

Expandapplications
・Types of cancer

Japan: clinical trial underway
U.S.: in preparation for clinical trial

Clinical Research underway

・Various
chemotherapeutic
agentsClinical Research underway

Cervical cancer screening

Europe: Clinical Research underway

Minimally invasive blood glucose
self-measurement technology

Clinical Research underway
Clinical Research underway

Diabetes management system

Clinical trial: Clinical performance trial to obtain approval

17
Sysmex Annual Report 2006

Corporate Governance
Basic Policy on Corporate Governance
Sysmex Corporation regards the strengthening of corporate governance as an important management objective. The Company is maximizing corporate value throughout the Sysmex Group by increasing the soundness, transparency, speed, and efficiency of its management.

Status of Implementation of Corporate Governance Measures
The chart below depicts the execution of business, auditing, and internal control at Sysmex.

Description of Management Organization
The Company has adopted the corporate auditor system. The current management organization consisting of ten directors, four
corporate auditors (including two external auditors), and fifteen executive officers (nine of the fifteen are directors). The Company
adopted the executive officer system in April 2005 in order to increase the speed of decision making in the conduct of business andrespond quickly to changes in the business environment.
Shareholders’ Meeting
Election/Dismissal
Accounting
Auditors

Election/Dismissal
Board Meeting (Directors)

Auditors Meeting(Corporate Auditors)

Nominating Committee
Compensation Committee
Auditing

Auditing
President & CEO
Compliance Committee

Internal Audit Office

Global Strategic
Committee Meeting
Steering Committee
Executive Officers
Divisions/Subsidiaries and Affiliates

Matters Concerning Business Execution, Auditing, Supervision, Appointments, Compensation and Other Functions
The Board of Directors consists of ten directors. The Board meets regularly once a month to deliberate on important management
issues and convenes extraordinary meetings as necessary.
The Global Strategic Committee consists of the president and senior executive officers. As a rule the Committee meets once amonth to deliberate on the Group’s management direction and important strategic issues.
The Steering Officers Committee consists of the president, senior executive officers, and executive officers. The Committee meets
twice a month as a consultative body to the president to deliberate on important matters concerning the Group’s business.
The Operating Committee consists of directors of divisions. The Committee meets once a month to find solutions to cross-functional problems.
In the fiscal year ended March 2006 the Board of Directors met 18 times, the Global Strategic Committee met 10 times, theSteering Officers Committee met 26 times, and the Operating Committee met 12 times to address matters relating to management
strategy and important issues facing the Group.
The Internal Audit Office, which consists of six employees, confirms and evaluates internal controls, the state of management, andthe execution of business from the perspective of the sound development of the Group, issues reports based on the results of its
activities, promotes appropriate execution of business through improvements, advice, and proposals, and conducts internal audits
to contribute to the sound management of the Group.
The Board of Auditors consists of four corporate auditors, two of whom are external auditors. The corporate auditors attend
meetings of the Board of Directors and the Operating Officers Committee and maintain systems for appropriately supervising the
conduct of business on the part of the directors. The Board of Auditors will continue to enhance management soundness by engag-

18
Sysmex Annual Report 2006

ing in appropriate supervision of the execution of business as stipulated by law. The Board of Auditors works closely with theaccounting auditor on the audit plans report (annual) and the audit results reports (each mid-term and final settlement of accounts)
and exchanges information and opinions with the accounting auditor as necessary.
The Company has contracted with Deloitte Touche Tohmatsu to perform a certified public accountants audit. In addition to conducting an audit of the entire Sysmex Group, the Company maintains an environment that makes it possible to rapidly cope withchanges in the accounting system. The Company has contracts with several law offices and maintains a structure to solicit andobtain advice on important matters as necessary.

Basic Policy on Internal Control Systems and Their State of Development
1. Systems for ensuring that the execution of duties by directors and employees is compliant with the law and Articles of Incorporation
The Company defines compliance as the conduct of open and aboveboard business activities on the basis of observance of laws and regulations
and high ethical standards and will maintain a system to ensure compliance as described below.
The Company shall implement and strengthen compliance in the corporate group under the control of a compliance officer and compliance committee. The Company shall rigorously ensure compliance through education and training for directors and employees, promote the rapid detection
and correction of violations of the law or the Articles of Incorporation by means of an internal compliance-related reporting system, and conduct
audits of the compliance structure by means of the Internal Audit Office.
2. Systems for the retention and management of information relating to the execution of duties by directors
The Company shall appropriately retain and manage information relating to the execution of duties by directors in accordance with document management regulations and maintain the information in a state available for inspection as necessary.
3. Regulations concerning the management of risk and other systems
To maintain a company-wide structure concerning risk management, the Company shall establish regulations concerning risk management andestablish an organization to engage in the integrated management of risk throughout the Company. The company shall endeavor to discover foreseeable risks, clarify the sections responsible for coping with risks, and engage in measures to mitigate risks.
4. Systems to ensure that directors execute their duties efficiently
The Company has positioned the Board of Directors as the institution to make important management decisions and supervise the execution of theCompany’s business affairs. The Company has introduced the executive officer system to be capable of making swifter operating decisions andrespond quickly to changes in the business environment.
With respect to the management of business, the Company shall ensure the efficient execution of business in accordance with the organization
regulations, scope of authority regulations, and approval procedure. The Company shall establish mid-term plans and annual management plans,periodically confirm the progress made with those plans, and take any necessary measures.
5. Systems to ensure the appropriateness of business activities in the corporate group
The Company shall ensure compliance in accordance with the compliance code applied to all the directors and employees of companies in the corporate group. The Company shall establish regulations with respect to risk management and maintain group-wide risk management systems basedon those regulations. The Internal Audit Office shall conduct group-wide internal audits.
With regard to the management of affiliated companies, the Company shall respect the autonomy of the management of affiliated companies andensure the appropriateness of business activities throughout the corporate group by such means as periodic reporting on the details of the businessof affiliated companies and advance discussion concerning important matters.
6. Assignment of employees to assist corporate auditors and the independence of corporate auditors
Although the Company does not assign full-time staff to assist corporate auditors in the performance of their duties, employees of the Internal Audit
Office cooperate with the corporate auditors to conduct efficient audits at important places of business.
At the request of the corporate auditors, the Company shall provide full-time staff to assist the Board of Auditors. In such case, the directors shalldiscuss with the corporate auditors in advance matters such as the transfer of such support staff.
7. Systems for reporting to the corporate auditors and systems for ensuring effective and efficient auditing by the corporate auditors
When the directors have discovered a violation of the law or the Articles of Incorporation or a material fact that poses risk of causing significant damage to the Company, they shall promptly report such material fact to the Board of Auditors.
The corporate auditors shall attend meetings of the Board of Directors and other important meetings, read important documents such as approval
requests, and request explanations of directors and employees as necessary.

19
Sysmex Annual Report 2006

Directors, Executive Officers and Corporate Auditors

Masayoshi Hayashi

Shigenori Ohigashi
Tadashi Nakatani

Hiroshi Yamamoto
Koji Tamura

Yukio Nakajima

Tameo Iwasaki
Mitsuo Waka
Kenichi Yukimoto
Hisashi Ietsugu

Directors
Hisashi Ietsugu

Tadashi Nakatani

Hiroshi Yamamoto

1996 President and CEO

1995 Director and Executive Officer,
New Business Development

1997 Director and Executive Officer,
Instrument, Reagent Manufacturing and SCM

Kenichi Yukimoto

Masayoshi Hayashi

Yukio Nakajima

1998 Director and Senior Managing Officer,
Assistant to the President

1997 Director and Executive Officer,
Sales & Marketing and Customer Support

1999 Director and Executive Officer,
Corporate Business Planning

Mitsuo Waka

Shigenori Ohigashi

Koji Tamura

1998 Director and Managing Officer,
Administration and CSR Promotion

1997 Director and Executive Officer,
R&D(Deputy) Regulatory & Quality Assurance

2001 Director and Executive Officer, International
Business and IVD Business Development

Tameo Iwasaki
2003 Director and Managing Officer, R&D

20
Sysmex Annual Report 2006

Executive Officers
Michiaki Ishida
Masami Kitagawa

Mitsuru Watanabe

Takuji Nishino
2005 Executive Officer, Vice President ofIntellectual Property

Katsuo Uhara
2005 Executive Officer, Vice President of SCM

Masami Kitagawa
2005 Executive Officer, Vice President ofSales & Marketing

Michiaki Ishida2005 Executive Officer, Vice Presidentof Administration

Kazuya Obe
2005 Executive Officer, Executive Vice Chairman
and CEO of Sysmex America, Inc.

Mitsuru Watanabe
2005 Executive Officer, Vice President of
R&D Planning

Katsuo Uhara
Kazuya Obe
Takuji Nishino

Yoshiro Ishida

Hiromu Fujioka

Corporate Auditors
Mitsuhiro Aketa
2001 Corporate Auditor

Toyotaro Iwata
2001 Corporate Auditor

Yoshiro Ishida
Toyotaro Iwata

1995 Corporate Auditor
Mitsuhiro Aketa

Hiromu Fujioka
2006 Corporate Auditor

21
Sysmex Annual Report 2006

Social Contributions
Sysmex contributes to the advancement of medical care, engages in environmental protection activities, and supports
local communities in a manner befitting a global healthcare testing company. In April 2005, Sysmex established the
Corporate Social Responsibility Office to plan and implement environmental-protection and socially beneficial activities.

Social Contribution Activities at Sysmex
MS AL GA

Contributions to Medicine

LA・Establishment of an Endowed Course at Kobe University
・Hematology Seminars (See page 61.)
・Sysmex Scientific Awards
・Support for Pink Ribbon Activity

FL

New Orleans

Source: The Asahi Shimbun
Company

Environmental Activities

Corporate Citizenship・Establishment of
the environmental policy・ISO 14001 certification
program (See page 57.)

・Support for people andcommunities damaged by
Hurricane Katrina in the U.S.A.
・Support for disaster areas
・Sponsorship of Kobe Luminarie
・Women’s Track & Field Team

Establishment of an Endowed© Valerio Festi/ I & F Inc./
Kobe Luminarie O.C.

Sysmex has acquired certification for

opens its doors to enable students fromCourse at Kobe University

the ISO 14001 international standard for

local junior high schools to experience

Since 2004, Sysmex has provided funds

environmental management systems at

work in a manufacturing plant.

to the Kobe University School ofeight business sites, including those of

Medicine for an endowed course in labo-

subsidiaries, and is currently implement-

Sysmex Women’s Track &ratory medicine. The purpose of theing and enhancing environmental pro-

Field Teamcourse is to contribute to the advance-

tection initiatives. In Japan, Sysmex is

In December 2005, Sysmex establishedment of diagnosis and medical care by

actively engaging in environmental activ-

the Sysmex Women’s Track & Field

developing evaluation methods for newities and has adopted a Ministry of theTeam. Working with coach Nobuyuki

clinical testing in advanced medical fields.

Environment’s “Cool-Biz” proposal, aFujita, who has trained numerous interna-

By endowing a course directly connected

CO2 reduction program for lowering air

tional-caliber athletes, Sysmex will sup-with its business field at a local university,

conditioning use in offices.

port the Athens Olympic Gamesmarathon gold medalist, Mizuki Noguchi,

Sysmex aims to contribute to both“Try-Yaru Week”

and support and nurture promising young

Sysmex values its relationships with host

women athletes training to become

Environmental Protection

communities. Every year since 1998, theworld-class competitors. In addition,

Sysmex seeks to contribute to the build-

Sysmex Kakogawa Factory, an instru-

Sysmex aims to contribute to the creation

ing of a healthy and prosperous society

ment manufacturing facility, has partici-

of a fulfilling and healthy society throughthrough its global business activities andpated in “Try-Yaru Week,” a work-expe-

the promotion of sports, such as spon-

regards environmental preservation as

rience program in Hyogo Prefecture. For

sorship of events in local communities.

an important management task.

one week in early June, the factory

healthcare and the local community.

22
Sysmex Annual Report 2006

Management’s Discussion and Analysis
Financial Policy
Sysmex regards increasing market capitalization with the objective of maximizing corporate value animportant management task and also pays sufficient attention to stable cash flow generation.
Sysmex believes that to increase market capitalization it is important to share that management objectivewith all stakeholders, including shareholders, users, business partners, host communities, and employees, and at the same time sustain medium-term to long-term growth. To that end, Sysmex practices
transparent management for the purpose of communicating with stakeholders on Sysmex’s current situation and the direction it should pursue. These measures include enhancement of timely disclosure, theRating Information (As of May 31, 2006)
Rating Institution

RatingRating & Investment
Information Inc.(R&I)

A

Rating Symbols and Definitions:Rating A; The credit quality is high. It is also
accompanied by some excellent factors.

website, business reports, financial data, periodic briefings on business results, visits to institutional
investors, and briefings for individual investors.
Sustaining medium-term to long-term growth, requires a level of R&D investment sufficient to prevailin global competition. It must continuously create new technologies and products, and stimulate growthof the critical mass to absorb the increases in selling, general, and administrative expenses that comeNet Saleswith scale expansion.
In recent years growth in sales in overseas markets has been striking. Sysmex has succeeded in(¥ million)

increasing sales by about ¥10,000 million each year by means of the integration with International Reagents
Corporation (whose name was changed to Sysmex International Reagents Co., Ltd. on April 1, 2006) and

100,000

synergy from the capital and operating tie-up with CNA Co., Ltd. Sysmex is aggressively making forwardlooking investments not only in the hematology and other diagnostic segments, the current key business

87,88876,93580,000domain, but also in new forms of medical testing in the life science field.

65,970

Sysmex pays attention not only to business scale, but also to asset and capital efficiency and liability
and capital soundness. The Company has obtained an issuer rating from Rating & Investment Information,
Inc. (R&I) and each year reviews and renews the rating. As a result of the fiscal 2004 review, on January 5,

57,25360,00047,53240,0002005 the Company’s rating increased by one notch from A- (Single A Minus) to A (Single A Flat). A rating
increase not only reduces the cost of financing when procuring capital on the capital market, it also con-20,000

tributes to increasing confidence among stakeholders and the general public. To maintain and improve therating in the coming years, Sysmex will construct a flexible and more robust financial base, paying attention to expanding business scale while considering the balance between sales and profits and assets, lia-

0

02

03

04

05

06

bilities, and shareholders’ equity. Specifically, the Company regards return on assets (ROA)* and return on
equity (ROE) as important management indicators and aims to maintain balance between scale and efficiency by ensuring the optimal combination of sales and profits and of assets, liabilities, and shareholders’equity. In the mid-term plan launched in April 2005, the Company has set forth the objective of achieving¥110,000 million in sales and ROE of 13.0% in the fiscal year ending March 31, 2008.

Net Sales by Region*ROA = net income/total assets(yearly average) ×100

JAPAN
40.3%
¥35,419 million

Results of Operations

Japan
Overseas
Americas17.9%EuropeChina
Asia Pacific

The operating environment for Sysmex remains adverse, owing to factors including the continued
North America. At the same time, demand for medical treatment is expanding globally in a number of

Net Sales¥ 87,888 million

forms, including demand arising from the development of sophisticated medical treatment in developed(As of March 31,2006)

29.0%

5.5% 7.3%

OVERSEAS
59.7%¥52,469 million

implementation of government policies to curb medical treatment expenses in Japan, Europe, andcountries and the establishment and development of medical care infrastructure in developing countries. For the fiscal year ended March 31, 2006, the first year of the mid-term plan launched in April
2005 and concluding in the fiscal year ending March 31, 2008, Sysmex established the key tasks ofsustained growth and profit increases in the diagnostics field, the enhancement of technological capabilities and rebuilding of the business structure to ensure the continuous development of high-valueadded products, and the realization of growth through entry into the life science field. To achieve thosetasks, Sysmex engaged in the following initiatives.

23
Sysmex Annual Report 2006

The Net sales by region figure indicates the amountsold by the Sysmex Group to customers in the corresponding region. Net sales by geographic region figures indicate the amount sold by Group companies
located in the corresponding region.

Net Sales byGeographical Region

7.3%

1. Sustained growth and profit increases in the diagnostics field
Asia Pacificthe new XS Series of compact, highly functional automated hematology analyzers, in Japan Sysmex

Europeproposed solutions involving the combination of diagnostic instruments, reagents, and IT products andAmericas4.2%

In addition to enhancing the product portfolio for the diagnostics field by means of the introduction of

China

Japan

entered into an alliance with Otsuka Pharmaceutical Co., Ltd. with regard to marketing of the rapid
influenza diagnostic kit. Sysmex worked to enhance after-sales support by opening the Solutions

41.8%

Center, into which customer support and academic support activities have been consolidated.
Overseas, Sysmex strengthened its marketing structure, changing distribution channels and putting in

Net Sales¥ 87,888 million

place a customer information management system in the United States and opening business bases in
Eastern Europe and Russia, where high economic growth is expected. In China and the Asia Pacific(As of March 31,2006)

region, where economic growth continues, Sysmex expanded into the hemostasis and clinical chemistry segments.

28.9%
17.8%

2. Enhancement of technological capabilities and rebuilding of the business structure to ensure
the continuous development of high-value-added products
At the time Sysmex consolidated the reagent development function of Sysmex International Reagents Co.,
Ltd. into Sysmex Corporation, the Company implemented a technology strategy and management reform

Our Objectives and Future
Opportunities: Americas

in R&D, establishing the R&D Strategic Planning Department and strengthening collaboration in basic
research, instrument development, reagent development, and intellectual property management. As an

Reference Lab market

R&D-oriented comprehensive manufacturer, Sysmex acquired land adjacent to the Techno Center, a key<Approach to the Reference Lab market>
・Augment integrated hematology system-Add
third-party products to expand our range
・Drive promotion of coagulation/
urinalysis systems

R&D base, with the objective of strengthening the R&D structure. With regard to production, Sysmex
engaged in the rebuilding of the global reagent production system to enhance reagent production capacity
in line with business expansion. This entailed consolidating the reagent production function of Sysmex
Corporation into International Reagents Corporation and the start of a program to strengthen reagent production capacity through means including expansion of reagent facilities in Europe and North America.

IVD market
in US

3. Realization of growth through entry into the life science field
To enhance patient quality of life and contribute to the lengthening of healthy life expectancy, Sysmex has
worked to establish new forms of medical testing with the aim of realizing disease management that

Hospital market

makes possible the provision of optimal medical care for individual patients. Sysmex introduced its first<Direct sales>
・Promoting the standardization concept
to all market segment
・Improving market coverage
・Enhance the partnership withalliance partners

clinical instruments and reagents in the life science business in Europe.

Sysmex has engaged in activities based on regional strategies adapted to the characteristics ofeach geographical region as described below.

Sales and Operating Income byGeographical Region (Americas)
Net Sales
Operating Income(¥ million)

400

25,000200

20,000The U.S. market, the most critical region for achieving the objectives in the mid-term plan, accounts forabout 40% of the global diagnostics market. It is divided into the hospital market, centered on Integrated
Health Network (IHN), and the commercial laboratory market. In the fiscal year ended March 31, 2006,
Sysmex increased sales of hematology analyzers, reagents, and support by changing the reagent distribu-

215

200

The Americas

tion channel and enhancing the physical distribution and sales structure, stepping up sales promotion to
IHN, Group Purchasing Organization (GPO) and other organizations and by increasing sales to small hospi-

15,620 0
15,00013,580

customers rate the Sysmex brand highly, and excellent communication with customers is being established.

-235

-200

-282
9,153

10,000

-400
5,654

6,349

As a result of these developments, net sales in the region increased by ¥2,040 million or 15.0% year on
year to ¥15,620 million. With regard to profits, operating income rose by ¥15 million or 7.5% to ¥215 million
as the impact of higher revenues compensated for higher selling, general, and administrative expenses.

-601

5,000

tals and general practitioners. Thanks to the direct sales and support structure established in 2003, Sysmex-600

Sysmex will intensify the effort to expand into the small and medium-size hospital market by increasing
the call rate through enhancement of the sales and support structure. Sysmex will reinforce sales promo-

0

-800

02

03

04

05

06

tion directed at commercial laboratories and seek to increase market share in the U.S. To meet increased

24
Sysmex Annual Report 2006

demand for reagents due to market expansion, Sysmex will open a new reagent plant, reinforce thereagent supply system, and enhance the sales and support structure.

Our Objectives and Future
Opportunities: Europe

EuropeIn developed countries, cost reductions and greater efficiency are required due to healthcare policies
aimed at curbing increases in medical expenses attendant on the aging population. On the other hand, inthe emerging areas of Eastern Europe, Russia, and Africa, markets are expanding hand in hand with theestablishment and development of their medical care infrastructure. In the fiscal year ended March 31,
2006, Sysmex increased sales of hematology analyzers, reagents, and support services by proposing totalsolutions in its sales activities. These solutions utilized the Laboratory Information System in developed
countries and helped a successful expansion into the small and medium-sized hospital market. In addition,
sales of coagulation analyzers, urinalysis analyzers, and reagents developed favorably. At the same time,
Sysmex worked to increase sales of compact hematology analyzers in Eastern Europe and Russia by
establishing sales and support bases and by working with distributors.
As a result of these developments, net sales in the region increased by ¥4,169 million or 19.7% year on

Developed Areas

Emerging Areas

Provide solutions(to stimulate
replacement demand)

Multiply numberof instruments(installations)Greater penetration

Increased
reagent sales

year to ¥25,369 million. With regard to profits, the impact of sharply higher revenues and a reduction in thecost of sales ratio was due to factors including an increase in locally produced reagents. This compensated for an increase in selling, general, and administrative expenses attendant on business expansion, suchas the establishment of a subsidiary in Poland. Consequently, operating income increased by ¥719 million
or 31.3% to ¥3,014 million.
In the coming years Sysmex will expand its solutions business by helping to solve problems facing cus-

Sales and Operating Income byGeographical Region (Europe)
Net Sales
Operating Income(¥ million)

tomers in smaller markets via distributors. In emerging regions, Sysmex will enhance its sales and support
network through such means as the establishment of Sysmex South Africa and promoting increased sales

4,000

30,000of compact hematology analyzers through distributors.

25,000China

20,00025,3693,014
3,000

21,20017,586 2,295

The government is leading a move, fueled by economic growth, to establish and develop the medical careinfrastructure, primarily in rural areas. In urban areas, the level of medical care has risen to the point of shifting from infrastructure establishment and development stage to the provision of advanced medical care. In

14,52515,000

1,328
10,000

1,084

the fiscal year ended March 31, 2006, sales of instruments and reagents alike increased steadily as Sysmex
promoted replacement purchases of high-performance instruments in urban areas and engaged in sales

2,000

12,045

1,000

705
5,000

activities for compact hematology analyzers in rural areas. Profitability has increased, owing to factors
including higher reagent sales attendant on an increase in the number of instruments sold and an increase

0

0

02

03

04

05

06

in the usage of genuine Sysmex reagents due to a trend toward higher functionality. Today Sysmex is highly
rated by customers as the regional market share leader in the hematology segment. Sysmex is also
engaged in businesses that leverage the Sysmex brand in the hemostasis, urinalysis, and clinical chemistry
segments.
As a result of these developments, net sales in the region increased by ¥1,581 million or 32.8% year on
year to ¥6,404 million. With regard to profits, operating income increased by ¥117 million or 23.6% year on
year to ¥612 million as the impact of higher revenues coupled with a decrease in the cost of sales ratio

Sales and Operating Income byGeographical Region (China)
Net Sales
Operating Income(¥ million)

800

6,000

owing to a higher contribution to sales from reagents compensated for higher selling, general, and administrative expenses.

6,404
5,000

600

Sysmex will expand its business in China by strengthening the product portfolio and enhancing sales
and support activities with the aim of being a comprehensive supplier and regional market share leader in

4,823 612
4,000

495

3,000

400

3,867
362

the diagnostics field.
2,975 3,127

200

Asia Pacific

2,000

The Asia Pacific region can be broadly divided into two markets: a developed region that includes
Australia, New Zealand, Singapore, Taiwan, South Korea, and other markets, and an emerging region

-11
-139

including India and Indonesia in which market expansion is occurring owing to government-led establishment and development of medical care infrastructure. India, which is attracting worldwide attention as a

25
Sysmex Annual Report 2006

0

1,000

0

-200

02

03

04

05

06

Our Objectives and Future
Opportunities: China, Asia Pacific

BRICs country, is regarded as an especially promising market that will develop attendant on rapid economic growth.
In the fiscal year ended March 31, 2006, sales of hematology analyzers, coagulation analyzers, andreagents developed favorably in all geographical areas. As a result, net sales in the region increased by ¥933
million or 33.3% year on year to ¥3,735 million. With regard to profits, the impact of higher revenues andimprovement in the cost ratio compensated for an increase in selling, general, and administrative expenses.

Developed Areas
・Provide solutions
・Encourage shift tohigher models
・Academic publicity

Consequently, operating income increased by ¥108 million or 42.9% year on year to ¥360 million.
In the coming years, Sysmex will engage in a solutions business utilizing the Laboratory Information
System in the developed region and work to increase sales of compact hematology analyzers in theemerging Asia Pacific region. Sysmex will develop its business by expanding the product portfolio in new
areas such as the clinical chemistry and immunochemistry segments with the aim of being a comprehensive supplier and regional market share leader in the diagnostics field.

Emerging Areas
・Increase sales of compact
hematology analyzer models
・Increase sales of clinicalchemistry analyzers and reagents

Japan
Medical system reform is being implemented to curb rises in medical costs stemming from the rapidly
declining birthrate and aging of the population. The streamlining of hospital management and efforts toincrease operating efficiency are being implemented in response to the lowering of medical treatment fees.
In the fiscal year ended March 31, 2006, Sysmex engaged in sales activities proposing total solutions

Sales and Operating Income byGeographical Region (Asia Pacific)
Net Sales
Operating Income(¥ million)

involving the utilization of clinical testing information systems and ISO certification support to bolster efficiency in hospital operations. Sysmex strove to enhance the product lineup through initiatives such as thealliance with Otsuka Pharmaceutical Co., Ltd. with regard to marketing of the rapid influenza diagnostic
kits and with the launch of the new XS Series of compact, highly functional automated hematology analyz-

4,000

3,735

360
3,000

500

400

1,881
162

2,000
1,360

252

300

products in segments other than hematology.

200

increased by ¥2,230 million or 6.5% year on year to ¥36,760 million. With regard to profits, operating

As a result of these developments, net sales in the region excluding internal sales to overseas affiliates

146

income increased by ¥834 million or 14.8% to ¥6,484 million as the impact of higher revenues including

1,000

100

export sales to affiliates compensated for an increase in selling, general, and administrative expenses.

0

the market-leading sales and support structure in Japan and enhancing the product portfolio. Sysmex will-50

also work to expand the markets for its products to include the POC and healthcare markets.

Looking to the future, Sysmex aims to increase sales by engaging in a solutions business, leveraging

-8
0

02

customer support and academic support activities have been consolidated. As a comprehensive supplier,Sysmex engaged in sales activities directed at a broad base of customers to promote sales of a number of

2,802
2,334

ers. Sysmex worked to enhance its after-sales support structure by opening the Solutions Center, in which

03

04

05

06

Figures do not include net sales and operating incomeof Korea and Taiwan.

As a result of these activities, consolidated net sales for the fiscal year ended March 31, 2006
increased by ¥10,953 million or 14.2% year on year to ¥87,888 million, and net income increased by¥1,692 million or 29.5% to ¥7,423 million. Efficiency and profitability indicators improved: although theSales and Operating Income byGeographical Region (Japan)
Net Sales
Operating Income(¥ million)

shareholders’ equity ratio decreased from 72.3% the previous term to 71.6% due to an increase in total
assets, asset turnover increased from 1.03 times the previous term to 1.06 times, ROA increased from
7.7% to 9.0%, and ROE increased from 10.7% to 12.5%.

8,000

40,000Net Sales

36,76031,371
30,00033,0305,396

34,530

6,484

5,650

For the fiscal year ended March 31, 2006, overall sales of hematology analyzers, coagulation analyzers,
6,000

25,497

point-of-care (POC) segment increased. As a result, consolidated net sales increased by ¥10,953 million
or 14.2% year on year to ¥87,888 million. As a result of a particularly sharp increase in overseas sales of

3,654

20,000and reagents developed favorably, and sales of the rapid influenza diagnostic kit and other products in the

4,000

2,864

¥8,942 or 20.5% to ¥52,469 million, the contribution of overseas sales to total sales was 59.7%, up from
56.6% the previous term.

2,000

10,000By overseas geographical region, sales in the Americas were ¥15,620 million (an increase of ¥2,040
million or 15.0% year on year), sales in Europe were ¥25,369 million (an increase of ¥4,169 million or
19.7%), sales in China were ¥6,404 million (an increase of ¥1,581 million or 32.8%), and sales in Asia

0

0

02

03

04

05

06

Figures include net sales from Korea and Taiwan.
Figures for operating income include profits from
Korea, Taiwan and affiliated companies.

Pacific were ¥3,735 million (an increase of ¥933 million or 33.3%).

26
Sysmex Annual Report 2006

With regard to the impact on sales of exchange rates, the yen depreciated by ¥5.07 against the U.S.
dollar from ¥108.24 the previous term to ¥113.31 in the year ended March 2006, resulting in an increase

SG&A Expenses and SG&A Ratio(¥ million/%)

SG&A Expenses
SG&A Ratioin revenues of ¥691 million. The yen depreciated by ¥3.39 against the euro from ¥134.47 the previous
term to ¥137.86, resulting in an increase in revenues of ¥533 million. The total impact of exchange rates
for all currencies was an increase in revenues of ¥1,909 million. Foreign exchange sensitivity, the impact

100
40,42540,000on net sales of an exchange rate fluctuation of ¥1, was ¥136 million with respect to the U.S. dollar and35,027¥157 million with respect to the euro.

80

31,41430,000

Cost of Sales and Selling, General, and Administrative Expenses
The cost of sales increased by ¥3,935 million or 12.0% year on year to ¥36,739 million attendant on the

28,08760

24,345
51.2

49.1

47.6

45.5

46.0

20,00040

sharp increase in sales. The cost of sales ratio decreased by 0.8 points to 41.8% due to a decrease inproduction cost and the impact of yen depreciation.

10,00020

Selling, general, and administrative expenses increased by ¥5,398 million or 15.4% year on year to¥40,425 million due to factors including reinforcement of the marketing structure attendant on business

0

0

02

expansion overseas and an increase in R&D expenses, for which Sysmex, as a comprehensive supplier,

03

04

05

06

has set a benchmark of 10% of sales. The ratio of SG&A expenses to sales rose by 0.5 points from 45.5%
the previous term to 46.0%.

Profit and Loss

Operating Income

Operating income increased by ¥1,620 million or 17.8% year on year to ¥10,724 million as the impact ofhigher revenues compensated for higher SG&A expenses, and the ratio of operating income to sales(¥ million)

improved by 0.4 points from 11.8% to 12.2%. Foreign exchange contributed about ¥957 million more
12,000profit than in the previous term.

10,724

Income before income taxes and minority interests increased by ¥2,664 million or 28.8% year on year

10,0009,104

to ¥11,902 million as other income improved by ¥1,044 million as a result of factors including a foreignexchange gain of ¥828 million (an increase of ¥387 million year on year).

8,000
6,615

Net income increased by ¥1,692 million or 29.5% year on year to ¥7,423 million. The change wasattributable to the absence of the business restructuring costs for a U.S. subsidiary and the booking of aloss on revaluation of equity securities that occurred the previous term.

6,000

5,299

4,000 3,417

Dividend Policy

2,000

The Company regards the distribution of profits to shareholders as one of its most important policy priorities, and the Company’s basic policy is to take into consideration the provision of regular, stable dividends

0

02

03

04

05

06

while ensuring that the distribution of profit is justified by business performance. A proposal for a regulardividend of ¥14 per share and a commemorative dividend of ¥2 per share to mark the 10th anniversary of
the listing of the Company’s shares to be paid as a year-end dividend was submitted and approved at the39th general shareholders’ meeting, bringing the annual dividend to a total of ¥36 per share. When the

Net Income

stock split implemented on November 18, 2005 is taken into consideration, this represents an effective
dividend increase of ¥6 per share following the stock split. Sysmex plans to continue paying dividends(¥ million)

twice yearly on the interim and term-end closing dates even after the Corporation Law goes into effect.
Sysmex will continue its efforts to improve business performance and reinforce its business foundations in

8,000

7,423

order to satisfy shareholder expectations.
5,731

6,000

R&D Expenses
Sysmex has set a benchmark of 10% of sales for expenses for the development of new products toenhance the product portfolio in the diagnostics field and for R&D in the life science field, from which

4,000
3,125 3,157

future growth is expected. As a result of active R&D, total R&D expenses increased by ¥1,674 million
year on year to ¥8,184 million, and the ratio of R&D expenses to sales increased to 9.3% from 8.5% the

2,000
1,308

previous term.
0

02

27
Sysmex Annual Report 2006

03

04

05

06

Net Income per Share

Liquidity and Sources of Capital(¥)

Fund Procurement and Liquidity Management
The Company raises working capital as necessary through short-term bank loans and other means. The

300

consolidated subsidiaries obtain bank loans as necessary to secure working capital. In October 2003 theCompany introduced the Cash Management System(CMS) to increase efficiency by unifying financing and

225.1

capital management at affiliates in Japan.
200

For long-term capital requirements such as investment in property, plant and equipment, the Company
145.5*
132.2 132.9

decides the funding method after taking into account the investment recovery period and risk. In the fiscal
year ended March 31, 2006, the Company financed capital expenditures and R&D activities primarily fromcash provided by operating activities.

100
62.6

Assets, Liabilities, and Shareholders’ Equity
Total assets increased by ¥9,787 million or 12.6% from the previous term to ¥87,447 million. Principal rea-

0

02

03

04

05

06

*Two-for-one stock split in Nov. 2005

sons for the increase included higher current assets (an increase of ¥4,791 million year on year) owing toincreases in trade receivables and inventories attendant on higher sales and higher property, plant, andequipment (an increase of ¥3,482 million year on year) due to increases in land and construction inprogress. Liabilities increased by ¥3,230 million from the previous term to ¥23,939 million, primarily due toincreases of ¥726 million in income taxes payable and of ¥629 million in trade notes and accounts payable.

ROE

Shareholders’ equity at the period end increased by ¥6,498 million or 11.6% to ¥62,647 million, mainly(%)

due to a sharp increase in retained earnings. However, due to the substantial increase in total assets, theratio of shareholders’ equity to total assets decreased from 72.3% the previous term to 71.6%. As the15

Company implemented a two-for-one stock split of its ordinary shares on November 18, 2005, sharehold12.5

ers' equity per share was ¥1,251.81 at the term end.

10.7

Capital Expenditures and Depreciation

10
7.9

Capital expenditures increased by ¥2,909 million or 106.6% from the previous term to ¥5,638 million. The
6.7

5

principal reasons for the increases were the purchase of land adjacent to one of the Company’s R&D bases
and plant expansion at overseas affiliates. Depreciation increased by ¥295 million or 9.0% to ¥3,592 million.

3.8

Cash Flows
During the fiscal year ended March 31, 2006, although cash flow from operating activities rose substantial0

02

03

04

05

06

ly from the previous term, cash flows from investing activities fell sharply. As a result, cash and cash equivalents (hereinafter “cash”) at the term end decreased by ¥1,042 million to ¥9,416 million, following adecrease of ¥3,261 million the previous term.
In this way, as a growth company Sysmex is cycling cash generated from operating activities to investments aimed at further growth. Details of cash flows follow. Diminution in cash and cash equivalents not

Total Assets

included in cash flows as a result of a change in the fiscal terms of certain consolidated subsidiaries is(¥ million)¥543 million.

100,000
87,447

Cash Flow from Operating Activities

77,66080,00066,502 66,449

Cash provided by operating activities was ¥8,275 million (an increase of ¥1,583 million year on year). The

71,983principal reasons for the change were sharply higher income before income taxes and minority interests

60,000of ¥11,902 million (an increase of ¥2,664 million), which compensated for an increase of ¥2,384 million innotes and accounts receivable (following an increase of ¥4,120 million the previous term), and a

40,000decrease of ¥753 million in notes and accounts payable (an increase of ¥1,369 million the previous term).

20,000Cash Flow from Investing Activities
Cash used in investing activities was ¥7,859 million (an increase of ¥2,228 million year on year). The

0

02

03

04

05

06

change was mainly due to a sharp increase in payments for purchases of property plant, and equipment,

28
Sysmex Annual Report 2006

including the purchase of land adjacent to the Techno Center, a key R&D base, to ¥5,796 million (anShareholders’ Equity

increase of ¥3,412 million year on year). Payments for investment in real estate decreased to ¥59 million (a(¥ million)

decrease of ¥1,605 million year on year) following acquisition the previous term of investment real estate
for the Solutions Center.

80,000Cash Flow from Financing Activities

62,647

Cash used in financing activities was ¥1,191 million (a decrease of ¥3,186 million year on year). The

60,00056,14951,096change was mainly due to net decrease in short-term bank loans of ¥39 million (a decrease of ¥1,907 million year on year) and ¥19 million in payments for repayment of long-term debt (a decrease of ¥1,573 million year on year).

43,32540,000 35,577

20,000Operating Risk and Other Risks
002

Listed below are the main risk factors associated with Sysmex’s business that might have a significant

03

04

05

06

effect on operating results or financial position.

Overseas Sales
Sysmex engages primarily in the development, manufacture, and sale of diagnostic instruments andShareholders’ Equity Ratio

reagents. Sysmex sells to overseas customers through its overseas affiliates and distributors, and the contribution of overseas sales to total sales has increased each year from 51.8% in the fiscal year ended March(%)

2004, to 56.6% in the year ended March 2005, to 59.7% in the year ended March 2006. For this reason,
Sysmex has hedges against the risk of currency fluctuations through exchange contracts and other means.

80
71.0

72.3

71.6

04

05

06

65.2

Nevertheless, Sysmex’s operating results and financial position are affected by foreign exchange fluctuations.
60 53.5

The Impact of Healthcare System Reform
In Japan, against a backdrop of a sharp decline in the birthrate and rapid aging of the population,
advances in medical technology, increased patient desire for quality in medical care, and other changes

40in the healthcare environment, healthcare system reform continues to be implemented for the purposeof optimizing healthcare costs and efficiently providing high-quality healthcare services. It is possible

20

that Sysmex’s operating results or financial position will be affected by healthcare system reform.
In an environment where healthcare cost optimization measures will continue and greater efficiency
in hospital management, more advanced medical care, and a response to new clinical testing proce-

0

02

03

dures are required, Sysmex will boost investment in the life science field, including testing for diffinitive
diagnosis of cancer, and strive to meticulously respond to diversifying needs by providing total solutions
that combine diagnostic instruments and reagents, information technology, and after-sales support.

Capital Expenditure
Raw Material Procurement
Sysmex manufactures and sells diagnostic instruments, reagents, and other products, procuring the raw(¥ million)

materials used in these products from about 300 Japanese companies and about 50 overseas companies. The procurement of important parts and materials may at times become difficult due to matters such

6,000

5,638

as revisions to the laws and regulations of supplier countries, supplier realignment, or quality problems.
Sysmex is constructing a group-wide shared framework for the unified management of information
on suppliers and on industry, legal, and regulatory trends necessary to ensure stable procurement. By

4,000

means of the electronic procurement system (Sysmex Trade Mission or STM) implemented in 2004 as
2,729

the initial phase in a series of initiatives, Sysmex is constructing a system for responding to unexpected
situations by sharing information with suppliers.

2,455 2,317 2,451
2,000

Measures to Counter Risks Associated with Information Systems Use
Sysmex conveys information and handles approval requests and other decision procedures using a computer network, and group-wide utilization of information technology in areas including R&D, purchasing,29
Sysmex Annual Report 2006

0

02

03

04

05

06

production, sales, planning, and management is advancing. For this reason, any extended computer network failure might seriously affect business operations. For important networks, Sysmex has secured alternate routes through redundancy and other means.
To enhance security, the Company has implemented a double security scheme comprising the installation of anti-virus software in every personal computer and by the use of firewalls at Internet connections toprotect personal computers from viruses.
To guard against information leakage from mobile personal computers, a problem that has recently
become increasingly prevalent, the Company has made the use of fingerprint authentication devices
mandatory for portable computers likely to be taken out of offices to prevent unauthorized access by persons other than the owner.
To guard against unexpected situations the Company has implemented a daily backup procedure thatmakes it possible to restore important systems that support mission-critical tasks to the state at the closeof business the previous day. By separating the server room and the backup data storage location, theCompany ensures the safety of backup date even in the event of a server room accident.
To prevent service interruptions and maintain the provision of service to global customers, theCompany has installed the servers used for the Sysmex website and e-mail servers, which are criticalpoints of contact between Sysmex and the world, and the servers used for the Sysmex Network
Communication System (SNCS), which is a high-value-added customer service, in off-premise service
centers where professional engineers monitor system operations 24 hours a day, 365 days a year.

Investor Relations Policy
1. Basic Approach and Goals
Sysmex’s basic approach with respect to investor relations is to ensure accountability to shareholders
and other investors and to disclose information on business performance, financial position, future
vision, and management strategies in a fair, prompt, accurate and easy-to-understand manner in orderto obtain correct understanding of and trust in the Company’s management and business activities.

2. Information Disclosure Standards
Sysmex discloses information in accordance with applicable laws and ordinances concerning securities trading and the “Rules on Timely Disclosure of Corporate Information” and similar informationby the “Issuer of Listed Security and the Like” (the “Timely Disclosure Rules”) stipulated by the stock
exchange. Sysmex also seeks to disclose fairly and promptly corporate information not required by
the Timely Disclosure Rules in order to assist shareholders and other investors in better understanding the Company.

3. Information Disclosure Methods
Sysmex releases corporate information required under the Timely Disclosure Rules via TD-NET,
provided by the Tokyo Stock Exchange, and ED-NET, provided by the Osaka Securities Exchange.
The Company posts information disclosed through TD-NET and ED-NET on its website as swiftly
as possible. The Company also provides corporate information not subject to the Timely Disclosure
Rules on its website.

4.Quiet Period
Sysmex observes a quiet period from the day following the closing date of each quarter until therelease of earnings statements. During this period, the Company refrains from replying to questions
about or commenting on financial projections. However, in the event a projection that varies significantly from the forecast of business results emerges during the quiet period, the Company will disclose such information as it deems appropriate.

30
Sysmex Annual Report 2006

Independent Auditors’ Report

Deloitte Touche Tohmatsu
Nakanoshima Central Tower
2-2-7, Nakanoshima, Kita-ku
Osaka-shi, Osaka 530-0005
Japan
Tel: +81 6 4560 6000
Fax: +81 6 4560 6001
www.deloitte.com/jp

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors of Sysmex Corporation:
We have audited the accompanying consolidated balance sheets of Sysmex Corporation andsubsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of income,shareholders’ equity, and cash flows for the years then ended, all expressed in Japanese yen. These
consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Sysmex Corporation and subsidiaries as of March
31, 2006 and 2005, and the consolidated results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in Japan.
As discussed in Note 2, effective April 1, 2005, the consolidated financial statements have been
prepared in accordance with the new accounting standard for the impairment of fixed assets.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts
and, in our opinion, such translation has been made in conformity with the basis stated in Note 1.
Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

June 23, 2006

31
Sysmex Annual Report 2006

Consolidated Financial Statements
Consolidated Balance Sheets
Sysmex Corporation and Subsidiaries
Thousands of
U.S. Dollars (Note 1)

Millions of Yen

2006

March 31, 2006 and 2005ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Short-term investments (Notes 3 and 11)
Receivable:
Trade notes
Trade accounts
Associated company
OthersAllowance for doubtful accounts
Inventories (Note 4)
Deferred tax assets (Note 8)
Prepaid expenses and other current assets
Total current assets

¥

9,416
97

2005

¥

10,45886

2006$

80,479829

3,292
22,650
205
334
(419)
15,2912,541
1,445
54,852

3,180
20,15195
121(317)
13,4972,005
785
50,061

28,137
193,590
1,752
2,855(3,581)
130,692
21,71812,350468,821

PROPERTY, PLANT AND EQUIPMENT:Land (Note 5)
Buildings and structures (Note 5)
Machinery and equipment
Furniture and fixtures
Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment

7,738
15,872
5,781
14,052
1,019
44,462(23,017)
21,445

6,005
14,766
5,260
13,377245
39,653(21,690)
17,963

66,137
135,658
49,410120,103
8,709
380,017(196,726)
183,291

INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 3)
Investment in associated company
Goodwill
SoftwareDeposits
Investment in real estate
Deferred tax assets (Note 8)
Other assets
Total investments and other assets
TOTAL

3,946
43
217
2,921
965
2,174
178
706
11,15087,447

2,471
23
301
2,457
970
2,288
453
673
9,636
77,66033,726368
1,855
24,966
8,248
18,581
1,521
6,033
95,298$ 747,410¥

See notes to consolidated financial statements.

32
Sysmex Annual Report 2006¥

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

2006

March 31, 2006 and 2005

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:
Short-term bank loans (Note 5)
Current portion of long-term debt (Note 5)
Payable:Trade notes
Trade accounts
Construction and other
Income taxes payable
Accrued expenses
Deferred tax liabilities (Note 8)
Other current liabilities
Total current liabilities

¥

128
18

2005

¥

2006

55
19

$

1,094
154

1,264
7,605
2,525
2,665
4,279
3
2,480
20,967

1,061
7,179
2,176
1,939
3,816
—
1,917
18,162

10,80365,00021,581
22,77836,57326
21,196179,205

LONG-TERM LIABILITIES:Long-term debt (Note 5)
Liability for retirement benefits (Note 6)
Guarantee deposits received
Deferred tax liabilities (Note 8)
Other long-term liabilities
Total long-term liabilities
MINORITY INTERESTS

4
446
1,045
1,068
409
2,972
861

22
622
1,062
767
74
2,547
802

34
3,812
8,932
9,128
3,496
25,402
7,359

CONTINGENT LIABILITIES (Note 11)
SHAREHOLDERS’ EQUITY (Notes 7 and 13):
Common stock, 149,672,000 shares authorized,
50,005,596 shares issued in 2006 and25,002,798 shares issued in 2005
Capital surplus
Retained earnings
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Total
Treasury stock - at cost: 88,560 shares in 2006 and 40,218 shares in 2005
Total shareholders’ equity
TOTAL

7,955
11,18541,5501,235
873
62,798(151)
62,64787,447

7,955
11,182
36,051656
423
56,267(118)
56,14977,66067,991
95,598355,128
10,556
7,462
536,735(1,291)
535,444$ 747,410¥

See notes to consolidated financial statements.

33
Sysmex Annual Report 2006¥

Consolidated Statements of Income
Sysmex Corporation and Subsidiaries
Thousands of
U.S. Dollars (Note 1)

Millions of Yen

2006

Years Ended March 31, 2006 and 2005

NET SALESCOST OF SALESGROSS PROFITSELLING, GENERAL AND ADMINISTRATIVEOPERATING INCOME¥

OTHER INCOME (EXPENSES):Interest and dividend income
Interest expense
Foreign exchange gain
Other — net
Other income (expenses) — net
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTSINCOME TAXES (Note 8):
Current
Deferred
Total income taxes
MINORITY INTERESTS IN NET INCOME
NET INCOME

2005

87,88836,73951,14940,425
10,724¥¥

2006

76,93532,804
44,13135,0279,104$ 751,179
314,008
437,171345,51391,658

102
(22)
828
270
1,178
11,902

89
(44)
441
(352)
134
9,238

872
(188)
7,077
2,307
10,068
101,726

5,010
(562)
4,448
(31)
7,423

3,614
(108)
3,506
(1)
5,731

42,820(4,803)38,017(265)
63,444¥$

Yen

U.S. Dollars

2006

Years Ended March 31, 2006 and 2005

AMOUNTS PER COMMON SHARE (Note 12):Net income
Diluted net income
Cash dividends applicable to the year¥

See notes to consolidated financial statements.

34
Sysmex Annual Report 2006

145.482005¥

112.53143.77111.98

36.00

40.00

2006

$

1.24
1.23
0.31

Consolidated Statements of Shareholders’ Equity
Sysmex Corporation and Subsidiaries
Millions of Yen

Years Ended March 31, 2006 and 2005

Outstanding
Number of Sharesof Common Stock

CommonStockCapitalSurplusRetained
Earnings

BALANCE, APRIL 1, 2004

24,966,378¥7,943¥11,171¥31,245

Unrealized Gain on Foreign Currency
Available-for-saleTranslation
Securities
Adjustments

¥456

¥358

Treasury
Stock

Total
Shareholders’Equity¥(77)¥51,096

Net income

5,731

5,731

Cash dividends, ¥33.00 per share

(824)

(824)

Bonuses to directors and corporate auditors

(101)

(101)

(10,460)

Repurchase of treasury stock

(41)

162

Disposal of treasury stock

6,500

Exercise of warrants

0
12

0

11
200

Net change in foreign currencytranslation adjustments

200
65

24,962,580

7,955

11,1820
23

Net increase in unrealized gain on
available-for-sale securities

BALANCE, MARCH 31, 2005

(41)

36,051

656

423

65
(118)

56,149Net income

7,423

7,423

Cash dividends, ¥45.00 per share(1,123)(1,123)(113)

Bonuses to directors and corporate auditors
854

Disposal of treasury stock
Stock splits, net of treasury stock(113)(5,498)

Repurchase of treasury stock

3

(34)

1

4

24,959,100

Decrease in retained earnings due to fiscal
year-end change for subsidiaries (Note 2.a.)(688)

Net increase in unrealized gain on
available-for-sale securities

(688)
579

Net change in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2006

(34)

579
450

49,917,036¥7,955¥11,185¥41,550¥1,235¥873

450¥(151)¥62,647

Treasury
Stock

Total
Shareholders’EquityThousands of U.S. Dollars (Note 1)

Years Ended March 31, 2006 and 2005

CommonStock

BALANCE, MARCH 31, 2005

$67,991

CapitalSurplusRetained
Earnings$95,573 $308,128

Unrealized Gain on Foreign Currency
Available-for-saleTranslation
Securities
Adjustments$5,607$3,615$(1,009) $479,905

Net income

63,44463,444

Cash dividends, $0.38 per share(9,598)(9,598)

(966)

(966)

Bonuses to directors and corporate auditors
Repurchase of treasury stock25

Disposal of treasury stock
Decrease in retained earnings due to fiscal
year-end change for subsidiaries (Note 2.a.)(5,880)Net increase in unrealized gain on
available-for-sale securities

4,949$67,991$95,598 $355,128

See notes to consolidated financial statements.

35
Sysmex Annual Report 2006

(291)

9

34
(5,880)Net change in foreign currencytranslation adjustments
BALANCE, MARCH 31, 2006

(291)

$10,556

4,949
3,847

3,847

$7,462$(1,291) $535,444

Consolidated Statements of Cash Flows
Sysmex Corporation and Subsidiaries
Thousands of
U.S. Dollars (Note 1)

Millions of Yen

2006

Years Ended March 31, 2006 and 2005

OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:
Income taxes - paid
Depreciation and amortization
Loss on disposals of property, plant and equipment
Changes in assets and liabilities:
Increase in notes and accounts receivable
Increase in inventories
Increase (decrease) in notes and accounts payable
Decrease in liability for retirement benefits, net of provision
Other - net
Net cash provided by operating activities

¥

2005

11,9029,238$ 101,726(4,192)
3,626
132(3,859)3,304
94(35,829)
30,991
1,128(2,384)
(685)
(753)
(176)
805
8,275

(4,120)
(745)
1,369
(9)
1,420
6,692

(20,376)(5,855)(6,436)(1,504)
6,881
70,726INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Purchases of software and other assets
Purchases of investment securities
Payments for investment in real estates
Other - net
Net cash used in investing activities(5,796)(1,421)
(495)
(59)
(88)
(7,859)(2,384)(1,763)(12)(1,664)192(5,631)(49,538)(12,145)(4,231)(504)(753)(67,171)

FINANCING ACTIVITIES:
Decrease in short-term bank loans - net
Repayments of long-term debt
Cash dividends paid
Other - net
Net cash used in financing activities

(39)
(19)
(1,123)(10)(1,191)(1,946)(1,592)(824)(15)(4,377)

(333)
(162)
(9,598)(86)(10,179)276(499)
10,45855(3,261)
13,7192,359(4,265)89,385

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS CASH
AND CASH EQUIVALENTS
NET DECREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
DECREASE IN CASH AND CASH EQUIVALENTS DUE TO
FISCAL YEAR-END CHANGE FOR SUBSIDIARIESCASH AND CASH EQUIVALENTS, END OF YEARADDITIONAL CASH FLOW INFORMATION:
Interest paid
Assets acquired and liabilities assumed in merger acquisitions:
Assets acquired
Liabilities assumed

¥

2006

¥

(543)
9,416

¥

—
10,458$(4,641)80,479

¥

17

¥

21

$

145

—
—

See notes to consolidated financial statements.

36
Sysmex Annual Report 2006

1,746
(144)

—
—

Notes to Consolidated Financial Statements
Sysmex Corporation and Subsidiaries
tioned securities, are reported at fair value, with unrealized gains and losses, net of

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

applicable taxes, reported in a separate component of shareholders’ equity.

The accompanying consolidated financial statements have been prepared in

Non-marketable available-for-sale securities are stated at cost determined by theaccordance with the provisions set forth in the Japanese Securities and Exchange
Law and its related accounting regulations, and in conformity with accounting princi-

moving-average method.
For other than temporary declines in fair value, investment securities are reduced

ples generally accepted in Japan, which are different in certain respects as to appli-

to net realizable value by a charge to income.

cation and disclosure requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications andd. Allowance for Doubtful Accounts The allowance for doubtful accounts is statedrearrangements have been made to the consolidated financial statements issued

in amounts considered to be appropriate based on the Group’s past credit loss

domestically in order to present them in a form which is more familiar to readers out-

experience and an evaluation of potential losses in the receivables outstanding.

side Japan. In addition, certain reclassifications have been made in the 2005 finan-e. Inventories Inventories are stated at cost determined by the average cost

cial statements to conform to the classifications used in 2006.

method for the Company and its domestic subsidiaries, and at the lower of cost,

The consolidated financial statements are stated in Japanese yen, the currency ofdetermined by the first-in, first-out method, or market for foreign subsidiaries.

the country in which Sysmex Corporation (the “Company”) is incorporated and oper-

f. Property, Plant and Equipment Property, plant and equipment are stated atates. The translations of Japanese yen amounts into U.S. dollar amounts are includ-cost. Depreciation of property, plant and equipment of the Company and its domes-

ed solely for the convenience of readers outside Japan and have been made at thetic subsidiaries is computed substantially by the declining-balance method except

rate of ¥117 to $1, the approximate rate of exchange at March 31, 2006. Suchthat buildings are depreciated by the straight-line method, at rates based on thetranslations should not be construed as representations that the Japanese yen

estimated useful lives of the assets, while the straight-line method is principallyamounts could be converted into U.S. dollars at that or any other rate.

applied to the property, plant and equipment of foreign subsidiaries.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

tures, and from 7 to 12 years for machinery and equipment.

a. Consolidation The consolidated financial statements as of March 31, 2006 include

g. Long-lived Assets In August 2002, the Business Accounting Council (BAC) issued

the accounts of the Company and 30 (30 in 2005) subsidiaries (together, the “Group”).

a Statement of Opinion, Accounting for Impairment of Fixed Assets, and in October

Under the control or influence concept, those companies in which the Parent,

2003 the Accounting Standards Board of Japan (ASBJ) issued ASBJ Guidance No. 6,

directly or indirectly, is able to exercise control over operations are fully consolidated,

Guidance for Accounting Standard for Impairment of Fixed Assets. These new pro-and those companies over which the Group have the ability to exercise significant

nouncements were effective for fiscal years beginning on or after April 1, 2005 with

influence are accounted for by the equity method.

early adoption permitted for fiscal years ending on or after March 31, 2004.

The range of useful lives is principally from 31 to 50 years for buildings and struc-

The Group adopted the new accounting standard for impairment of fixed assets

Investment in an associated company is accounted for by the equity method.

as of April 1, 2005.

Goodwill represents the excess of the cost of an acquisition over the fair value of

The Group reviews its long-lived assets for impairment whenever events or

the net assets of the acquired subsidiary and associated company at the date ofacquisition, and are carried at cost less accumulated amortization, which is calculat-changes in circumstance indicate the carrying amount of an asset or asset grouped by the straight-line method over 5 years.

may not be recoverable. An impairment loss would be recognized if the carrying
amount of an asset or asset group exceeds the sum of the undiscounted future

All significant intercompany balances and transactions have been eliminated inconsolidation. All material unrealized profit included in assets resulting from transac-

cash flows expected to result from the continued use and eventual disposition of thetions within the Group is eliminated.

asset or asset group. The impairment loss would be measured as the amount by

The majority of December year-end overseas subsidiaries including Sysmex

which the carrying amount of the asset exceeds its recoverable amount, which is theAmerica, Inc. has changed its year-end from December 31 to March 31 or per-higher of the discounted cash flows from the continued use and eventual disposition

formed a hard close as of March 31, which was effective in the year ended Marchof the asset or the net selling price at disposition.
The effect of adoption of the new accounting standard for impairment of fixed

31, 2006.

assets had no impact on income before income taxes and minority interests for the

Prior to April 1, 2005, the Company had consolidated the overseas subsidiaries
using their December 31 financial statements as allowed by the accounting stan-year ended March 31, 2006.

dards generally accepted in Japan. Instead of consolidating 15 months of operatingh. Software Software to be sold is amortized at the greater of either the proportional

results in the year ended March 31, 2006 for such subsidiaries, the Company

amount to be amortized in proportion of the actual sales of the software to be madeaccounted for the financial results of the three month period from January 1 toof the software during the current year to the estimated total sales over the estimatedMarch 31, 2005 as an adjustment to the beginning retained earnings as of April 1,

salable years or the amount to be amortized using a straight-line method over the

2005, which amounted to ¥688 million ($5,880 thousand).

estimated salable years. The estimated salable years are principally three years.
Software for internal use is amortized by the straight-line method over the esti-b. Cash Equivalents Cash equivalents are short-term investments that are readily
convertible into cash and that are exposed to insignificant risk of changes in value.

mated usable years. The estimated usable years are principally five years.

Cash equivalents include time deposits, commercial paper and mutual funds invest-

i. Investment in Real Estate Investment in real estate mainly consists of a beneficial

ing in bonds, all of which mature or become due within three months of the date ofinterest in a trust. Depreciation of investment in real estate is computed according toacquisition.

property, plant and equipment. Accumulated depreciation of the investment in realc. Marketable and Investment Securities Marketable and investment securities are

estate is ¥108 million ($923 thousand) for the year ended March 31, 2006.

classified and accounted for, depending on management’s intent, as follows: i) trad-

j. Liability for Retirement Benefits The Company has a non-contributory funded

ing securities, which are held for the purpose of earning capital gains in the near term

pension plan covering substantially all of its employees.

are reported at fair value, and the related unrealized gains and losses are included in

Effective April 1, 2000, the Group adopted a new accounting standard forearnings, ii) held-to-maturity debt securities, which are expected to be held to maturi-

employees’ retirement benefits and accounted for the liability for retirement benefits

ty with the positive intent and ability to hold to maturity are reported at amortized costbased on projected benefit obligations and plan assets at the balance sheet date.

and iii) available-for-sale securities, which are not classified as either of the aforemen-

Unfunded retirement benefits for the Company and certain subsidiaries’ directors

37
Sysmex Annual Report 2006

and corporate auditors are provided at the estimated amount which would be(Accounting Change)

required if such individuals retired at the balance sheet date. However, the Company

Prior to April 1, 2005, in cases where the foreign currency forward contracts qual-abolished its unfunded retirement benefit plan in June 24, 2005. No additional provi-

ify for hedge accounting, trade receivables covered by these contracts are trans-

sions have been recorded for retirement benefits to be paid to the Company’s direc-

lated using the contracted rates. Effective April 1, 2005, trade receivables denom-

tors and corporate auditors since then. The liability for director and corporate auditor

inated in foreign currencies are translated using the current rates at the balance

retirement benefits is the amount provided in proportion to the term that present

sheet date. The foreign currency forward contracts employed to hedge foreign

directors and corporate auditors had been in place before June 24, 2005.

exchange exposures are measured at fair value at balance sheet date and thek. Foreign Currency Transactions All short-term and long-term monetary receiv-

resulting gains (losses) are currently recognized. This change was made to prop-

ables and payables denominated in foreign currencies are translated into Japanese

erly reflect the conditions of the derivative transactions. The effect of this change
was immaterial.

yen at the exchange rates at the balance sheet date. The foreign exchange gains
and losses from translation are recognized in the consolidated statements of income

r. Per Share Information Basic net income per share is computed by dividing net

to the extent that they are not hedged by forward exchange contracts.

income available to common shareholders by the weighted-average number ofl. Foreign Currency Financial Statements The balance sheet accounts of the con-common shares outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that could occur ifsolidated foreign subsidiaries are translated into Japanese yen at the current
exchange rate as of the balance sheet date except for shareholders’ equity, which issecurities were exercised or converted into common stock. Diluted net income pertranslated at the historical rate. Differences arising from such translation were shownshare of common stock assumes full conversion of the outstanding convertible

as “Foreign currency translation adjustments” in a separate component of share-

notes and bonds at the beginning of the year (or at the time of issuance) with anholders’ equity.

applicable adjustment for related interest expense, net of tax, and full exercise of

Revenue and expense accounts of consolidated foreign subsidiaries are translat-

outstanding warrants.
Cash dividends per share presented in the accompanying consolidated state-

ed into yen at the average exchange rate.
m. Leases All leases of the Company and certain subsidiaries are accounted for as

ments of income are dividends applicable to the respective years including dividends

operating leases. Under Japanese accounting standards for leases, finance leases

to be paid after the end of the year.

that are deemed to transfer ownership of the leased property to the lessee are to bes. New Accounting Pronouncements

capitalized, while other finance leases are permitted to be accounted for as operat-

Business Combination and Business Separation In October 2003, the Businessing lease transactions if certain “as if capitalized” information is disclosed in the notes

Accounting Council (BAC) issued a Statement of Opinion, Accounting for Businessto the lessee’s financial statements.

Combinations, and on December 27, 2005 the Accounting Standards Board of

Finance leases of certain overseas subsidiaries are accounted for as capital leases.

Japan (ASBJ) issued Accounting Standard for Business Separations and ASBJ

n. Research and Development Research and development costs are charged to

Guidance No. 10, Guidance for Accounting Standard for Business Combinations

income as incurred. Such costs were ¥8,184 million ($69,949 thousand) and ¥6,509

and Business Separations. These new accounting pronouncements are effective formillion for the years ended March 31, 2006 and 2005, respectively.

fiscal years beginning on or after April 1, 2006.

o. Income Taxes The provision for income taxes is computed based on the pretax

The accounting standard for business combinations allows companies to apply

income included in the consolidated statements of income. The asset and liability

the pooling of interests method of accounting only when certain specific criteria areapproach is used to recognize deferred tax assets and liabilities for the expected

met such that the business combination is essentially regarded as a uniting-of-inter-

future tax consequences of temporary differences between the carrying amounts

ests. These specific criteria are as follows:

and the tax bases of assets and liabilities. Deferred taxes are measured by applying(a) the consideration for the business combination consists solely of common shareswith voting rights,

currently enacted tax laws to the temporary differences.
Certain overseas subsidiaries provide for deferred income taxes relating to tem-(b) the ratio of voting rights of each predecessor shareholder group after the business combination is nearly equal, andporary differences in accordance with accounting principles generally accepted in(c) there are no other factors that would indicate any control exerted by any share-each country.

holder group other than voting rights.

p. Appropriations of Retained Earnings Appropriations of retained earnings arereflected in the financial statements for the following year upon shareholders’ approval.

For business combinations that do not meet the uniting-of-interests criteria, the busi-

q. Derivatives and Hedging Activities The Group uses foreign exchange forward

ness combination is considered to be an acquisition and the purchase method ofcontracts and interest rate swaps to manage their exposure to fluctuations in foreign

accounting is required. This standard also prescribes the accounting for combina-

exchange and interest rates. The Group does not enter into derivatives for trading ortions of entities under common control and for joint ventures. Goodwill, including

speculative purposes.

negative goodwill, is to be systematically amortized over 20 years or less, but is also

Because the counterparties to these derivatives are limited to major international

subject to an impairment test.

financial institutions, the Group does not anticipate any losses arising from credit

Under the accounting standard for business separations, in a business separation

risk. Derivative transactions entered into by the Group has been made in accor-

where the interests of the investor no longer continue and the investment is settled,

dance with internal policies, which regulate the authorization of such transactions.

the difference between the fair value of the consideration received for the transferred

Derivative financial instruments and foreign currency transactions are classified

business and the book value of net assets transferred to the separated business isand accounted for as follows: a) all derivatives are recognized as either assets or lia-

recognized as a gain or loss on business separation in the statement of income. In abilities and measured at fair value, and gains or losses on derivative transactions arebusiness separation where the interests of the investor continue and the investment

recognized in the statements of income and b) for derivatives used for hedging pur-is not settled, no such gain or loss on business separation is recognized.

poses, if derivatives qualify for hedge accounting because of high correlation andStock Options On December 27, 2005, the ASBJ issued Accounting Standard for

effectiveness between the hedging instruments and the hedged items, gains or loss-

Stock Options and related guidance. The new standard and guidance are applicablees on derivatives are deferred until maturity of the hedged transactions.

to stock options newly granted on and after May 1, 2006.

The interest rate swaps that qualify for hedge accounting and meet specificThis standard requires companies to recognize compensation expense formatching criteria are not remeasured at market value but the differential paid or

employee stock options based on the fair value at the date of grant and over thereceived under the swap agreements are recognized and included in interest

vesting period as consideration for receiving goods or services. The standard also

expense or income.

requires companies to account for stock options granted to non-employees based

38
Sysmex Annual Report 2006

on the fair value of either the stock option or the goods or services received. In theThousands of U.S. Dollars

balance sheet, the stock option is presented as a stock acquisition right as a sepa-

2006

rate component of shareholders’ equity until exercised. The standard covers equity-

Unrealized Unrealized
Gains
LossesCostsettled, share-based payment transactions, but does not cover cash-settled, sharebased payment transactions. In addition, the standard allows unlisted companies tomeasure options at their intrinsic value if they cannot reliably estimate fair value.
Bonuses to Directors and Corporate Auditors Prior to the fiscal year ended March
31, 2005, bonuses to directors and corporate auditors were accounted for as a
reduction of retained earnings in the fiscal year following approval at the general

Available-for-sale:
Equity securities
Investment trust and otherTotal$ 8,649
1,564$10,213$16,906
1,060$17,966

$
$

Fair
Value

(94)
—
(94)

$25,4612,624$28,085

Available-for-sale securities and held-to-maturity securities whose fair value is notshareholders meeting. The ASBJ issued ASBJ Practical Issues Task Force (PITF)

readily determinable as of March 31, 2006 and 2005 were as follows:

No. 13, Accounting treatment for bonuses to directors and corporate auditors,

Carrying Amountwhich encouraged companies to record bonuses to directors and corporate auditors on the accrual basis with a related charge to income, but still permitted theMillions of Yen

direct reduction of such bonuses from retained earnings after approval of the approAvailable-for-sale - Equity securities
Held-to-maturity - Commercial paper
Total

priation of retained earnings.
The ASBJ replaced the above accounting pronouncement by issuing a new
accounting standard for bonuses to directors and corporate auditors on November

Thousands of
U.S. Dollars

2006

2005

2006

¥660
—
¥660

¥

$5,641—$5,641165
2,000¥ 2,165

29, 2005. Under the new accounting standard, bonuses to directors and corporate
Commercial paper was classified as cash equivalents.

auditors must be expensed and are no longer allowed to be directly charged toretained earnings. This accounting standard is effective for fiscal years ending on orProceeds from sales of investment securities for the years ended March 31, 2006

after May 1, 2006. The companies must accrue bonuses to directors and corporate

and 2005 were immaterial and ¥36 million, respectively. Gross realized gains, com-

auditors at the year end to which such bonuses are attributable.

puted on the moving average cost basis, for both of the years ended March 31,
2006 and 2005 were immaterial.

3. SHORT-TERM INVESTMENTS AND INVESTMENTS SECURITIES
4. INVENTORIES

Short-term investments and investment securities as of March 31, 2006 andInventories at March 31, 2006 and 2005 consisted of the following:2005 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
2006

Current:
Time deposits other than cash equivalents
Investment trust
Total
Non-current:
Marketable equity securities
Investment trust and other
Unquoted equity securities
Total

2005

Millions of Yen

2006

¥69
28
¥97

¥33
53
¥86

$590
239
$829

¥2,979307
660¥3,946¥2,108198
165¥2,471$25,461
2,624
5,641$33,726

Finished products
MerchandiseWork in process
Raw materials
Supplies
Total

Thousands of
U.S. Dollars

2006

2005

2006

¥ 5,377
5,233
1,415
2,977
289
¥15,291¥ 4,384
4,552
1,355
2,996
210
¥13,497$ 45,957
44,727
12,09425,4442,470$130,692

5. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans were principally represented by bank overdrafts. Weighted
average per annum interest rates of short-term bank loans at March 31, 2006 andThe carrying amounts and aggregate fair values of investment securities at March
31, 2006 and 2005 were as follows:2005 were 0.5% and 5.0%, respectively.
Long-term debt at March 31, 2006 and 2005 consisted of the following:

Millions of Yen
Millions of Yen

2006
Cost

Available-for-sale:
Equity securities
Investment trust and otherTotal¥1,012
183¥1,195

Unrealized Unrealized
Gains
Losses¥1,978124¥2,102

¥(11)
—
¥(11)

2006

Fair
Value

Loans from banks, due through 2009,
with interest ranging from 2.0% to 5.0%
for 2006 (from 2.0% to 5.0% for 2005):
Collateralized
Unsecured
Total
Less current portionLong-term debt, less current portion¥2,979307¥3,286

Millions of Yen
2005
Cost

Available-for-sale:
Equity securities
Investment trust and otherTotal¥1,012
177¥1,189Unrealized Unrealized
Gains
Losses¥1,10721¥1,128¥ (11)—¥ (11)Fair
Value

Thousands of
U.S. Dollars

2005

¥ 19
3
22
(18)
¥ 4

2006

¥ 37
4
41
(19)
¥ 22

$ 162
26
188
(154)
$ 34

At March 31, 2006, annual maturities of long-term debt were as follows:¥2,108198¥2,306

Year Ending March 31

2007
2008
Total

39
Sysmex Annual Report 2006

Millions of Yen

¥18
4
¥22

Thousands of
U.S. Dollars

$154
34
$188

The carrying amounts of assets pledged as collateral for the above collateralizedcommon stock and the remaining net proceeds are required to be presented asadditional paid-in capital, which is included in capital surplus. The Code permits

long-term debt at March 31, 2006, were as follows:
Millions of Yen

Thousands of
U.S. Dollars

¥ 97
173
¥270

$ 829
1,479
$2,308Land
Buildings and structures
Total

Japanese companies, upon approval of the Board of Directors, to issue shares toexisting shareholders without consideration by way of a stock split. Such issuance ofshares generally does not give rise to changes within the shareholders’ accounts.
The Code also provides that an amount of 10% or more of the aggregate amountof cash dividends and certain other appropriations of retained earnings associatedwith cash outlays applicable to each period (such as bonuses to directors) shall be

6. RETIREMENT BENEFITS

appropriated as a legal reserve (a component of retained earnings) until the total of

The Company and its certain subsidiaries have retirement benefit plans for
employees. Under most circumstances, employees terminating their employment
are entitled to retirement benefits determined based on the rate of pay at the time oftermination, years of service and certain other factors. Employees are entitled tolarger payments if the termination is involuntary, as opposed to by retirement at thesuch reserve and additional paid-in capital equals 25% of common stock. The
amount of total legal reserve and additional paid-in capital that exceeds 25% of thecommon stock may be available for dividends by resolution of the shareholders after
transferring such excess in accordance with the Code. In addition, the Code permits
the transfer of a portion of additional paid-in capital and legal reserve to the common

mandatory retirement age or by death.
Certain subsidiaries have unfunded lump-sum payment plans and certain over-stock by resolution of the Board of Directors.
The Code allows Japanese companies to purchase treasury stock and dispose ofseas subsidiaries have defined contribution pension plans.
The liability for employees’ retirement benefits at March 31, 2006 and 2005 con-chased amount of treasury stock cannot exceed the amount available for future divi-

sisted of the following:
Millions of Yen

Projected benefit obligation
Fair value of plan assets
Unrecognized actuarial gain (loss)
Net liability

such treasury stock upon resolution of the Board of Directors. The aggregate pur-Thousands of
U.S. Dollars

dends plus the amount of common stock, additional paid-in capital or legal reservethat could be transferred to retained earnings or other capital surplus other than

2006

2005

2006

additional paid-in capital upon approval of such transfer at the annual general meet-¥ 7,332(7,799)629¥ 162¥ 7,090(6,031)
(736)
¥ 323

$ 62,667(66,658)
5,376$ 1,385

ing of shareholders.
In addition to the provision that requires an appropriation for a legal reserve inconnection with the cash outlays, the Code also imposes certain limitations on theamount of capital surplus and retained earnings available for dividends. The amountof capital surplus and retained earnings available for dividends under the Code was

The components of net periodic retirement benefit costs for the years ended
March 31, 2006 and 2005 are as follows:

recorded in the parent company’s general books of account.
Millions of Yen

Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Amortization of transitional obligation
Net periodic retirement benefit costs¥40,161 million ($343,256 thousand) as of March 31, 2006, based on the amountThousands of
U.S. Dollars

2006

2005

2006

¥ 920
137
(178)
288
—
¥1,167

¥ 805
150
(154)
200
111
¥1,112$7,863
1,171(1,521)
2,461—$9,974

Dividends are approved by the shareholders at a meeting held subsequent to theend of the fiscal year to which the dividends are applicable. Semiannual interim dividends may also be paid upon resolution of the Board of Directors, subject to certain
limitations imposed by the Code.
On May 1, 2006, a new corporate law (the “Corporate Law”) became effective,
which reformed and replaced the Code with various revisions that would, for themost part, be applicable to events or transactions which occur on or after May 1,
2006 and for the fiscal years ending on or after May 1, 2006. The significant
changes in the Corporate Law that affect financial and accounting matters are sum-

Assumptions used for the years ended March 31, 2006 and 2005 are set forth asfollows:
Discount rate
Expected rate of return on plan assets
Recognition period of actuarial gain/loss
Amortization period of transitional obligation

marized below:(a) Dividends

2006

2005

2.0%
3.0%
5years—2.0%
3.0%
5years
5yearsUnder the Corporate Law, companies can pay dividends at any time during the
fiscal year in addition to the year-end dividend upon resolution at the shareholders
meeting. For companies that meet certain criteria such as; (1) having the Board of
Directors, (2) having independent auditors, (3) having the Board of Corporate
Auditors, and (4) the term of service of the directors is prescribed as one year rather

In addition, the Company and certain subsidiaries participate in contributory multiemployer pension plans covering substantially all of their employees. The pension
fund and assets available for benefits under these plans were approximately ¥6,914

than two years of normal term by its articles of incorporation, the Board of Directors
may declare dividends (except for dividends in kind) if the company has prescribedso in its articles of incorporation.
The Corporate Law permits companies to distribute dividends-in-kind (non-cash

million ($59,094 thousand) at March 31, 2006.
The Company also has recorded a liability for an unfunded retirement benefit plan

assets) to shareholders subject to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution bycovering all of its directors and corporate auditors in the amount of ¥284 million($2,427 thousands), and ¥299 million as of March 31, 2006 and 2005, respectively.
Payment of retirement benefits to directors and corporate auditors is subject tothe Board of Directors if the articles of incorporation of the company so stipulate.
Under the Code, certain limitations were imposed on the amount of capital surplus
and retained earnings available for dividends. The Corporate Law also provides cer-

approval at the shareholders’ meeting.

tain limitations on the amounts available for dividends or the purchase of treasury
stock. The limitation is defined as the amount available for distribution to the share-

7. SHAREHOLDERS’ EQUITY
Through May 1, 2006, Japanese companies are subject to the Commercial Codeholders, but the amount of net assets after dividends must be maintained at no lessthan ¥3 million.

of Japan (the “Code”).
The Code requires that all shares of common stock be issued with no par value(b) Increases/decreases and transfer of common stock, reserve and surplus
The Corporate Law requires that an amount equal to 10% of dividends must be

and at least 50% of the issue price of new shares is required to be recorded as

appropriated as a legal reserve (a component of retained earnings) or as additional

40
Sysmex Annual Report 2006

paid-in capital (a component of capital surplus) depending on the equity accountcharged upon the payment of such dividends until the total of aggregate amount oflegal reserve and additional paid-in capital equals 25% of the common stock. Under
the Code, the aggregate amount of additional paid-in capital and legal reserve thatexceeds 25% of the common stock may be made available for dividends by resolution of the shareholders. Under the Corporate Law, the total amount of additional
paid-in capital and legal reserve may be reversed without limitation of such threshold. The Corporate Law also provides that common stock, legal reserve, additional

Deferred tax assets (Non-current):
Depreciation
Liability for retirement benefits
Tax loss carryforwards
SoftwareInvestment securities
Other
Less valuation allowance
Total

¥ 145
161
863
445
371
111
(880)
¥1,216

¥ 171
156
844
287
369
122
(578)
¥1,371$ 1,239
1,376
7,376
3,803
3,171
949
(7,521)$10,393

¥14

—

¥ 850
457

¥ 454
459

$ 7,265
3,906

384
415
¥2,106¥1,648498
274¥1,685¥1,691

3,282
3,547$18,000$14,085

paid-in capital, other capital surplus and retained earnings can be transferred among
the accounts under certain conditions upon resolution of the shareholders.

Deferred tax liabilities (Current)$

120(c) Treasury stock and treasury stock acquisition rights
The Corporate Law also provides for companies to purchase treasury stock anddispose of such treasury stock by resolution of the Board of Directors. The amountof treasury stock purchased cannot exceed the amount available for distribution to
the shareholders which is determined by specific formula. Under the Corporate Law,
stock acquisition rights, which were previously presented as a liability, are now presented as a separate component of shareholders’ equity. The Corporate Law also
provides that companies can purchase both treasury stock acquisition rights andtreasury stock. Such treasury stock acquisition rights are presented as a separate

Deferred tax liabilities (Non-current):
Net unrealized gain on
available-for-sale securities
Revaluation of land for consolidation
Investment loss for subsidiaries capital
reduction by corporation tax law
Other
Total
Net deferred tax assets

component of shareholders’ equity or deducted directly from stock acquisition rights.
On December 9, 2005, the Accounting Standards Board of Japan (ASBJ) pub-A reconciliation between the normal effective statutory tax rate and the actual

lished a new accounting standard for presentation of shareholders’ equity. Under

effective tax rate reflected in the accompanying consolidated statement of income

this accounting standard, certain items which were previously presented as liabilities

for the year ended March 31, 2006 is as follows:

are now presented as components of shareholders’ equity. Such items include
stock acquisition rights, minority interest, and any deferred gain or loss on derivatives accounted for under hedge accounting. This standard is effective for fiscal
years ending on or after May 1, 2006.
On June 25, 2004, the Company’s shareholders approved a stock option plan for
the Company’s directors and key employees to purchase up to 550 thousand
shares of the Company’s common stock in the period from July 1, 2006 to June 30,
2010. On July 1, 2004 the options were granted at an exercise price of ¥1,685 pershare. Options are exercisable with respect to all shares on or after July 1, 2006.

Normal effective statutory tax rate
Expenses not deductible for income tax purposes
Per capita levy
Research and development tax credit
Tax loss of subsidiaries
Other — net
Actual effective tax rate

2005

40.6%
1.5
0.6
(4.5)
(0.4)
0.1
37.9%

Certain subsidiaries have tax loss carryforwards available to offset future taxable

The Company plans to issue new shares upon exercise of the options. All options

income as of March 31, 2006 of approximately ¥2,391 million ($20,436 thousand). These

expire and are void unless exercised on or before June 30, 2010.
On November 18, 2005, the Company made a stock split by way of a free share
distribution at the rate of 2 shares for each outstanding share. As a result,

tax loss carryforwards, if not utilized, will expire mainly in years 2020 through 2025.
9. LEASES

25,002,798 shares of common stock and 43,698 shares of treasury stock were(Lessee)issued to shareholders of record on September 30, 2005.

Total lease payments under finance leases that do not transfer ownership of theleased property to the lessee were ¥1,417 million ($12,111 thousand) and ¥1,664

8. INCOME TAXES

million for the years ended March 31, 2006 and 2005, respectively.

The Company and its domestic subsidiaries are subject to Japanese national andlocal income taxes which, in the aggregate, resulted in a normal effective statutory tax
rate of approximately 40.6 % for the years ended March 31, 2006 and 2005. Foreignsubsidiaries are subject to income taxes of the countries in which they operate.

Pro forma information of leased property under finance leases that do not transfer
ownership of the leased property to the lessee on an “as if capitalized” basis for theyears ended March 31, 2006 and 2005, was as follows:
Machinery and Equipment

The tax effects of significant temporary differences and loss carryforwards which
result in deferred tax assets and liabilities at March 31, 2006 and 2005 are as follows:
Millions of Yen

Deferred tax assets (Current):
Unrealized intercompany profits
Inventory
Accrued bonuses
Accrued enterprise tax
Tax loss carryforwards
Other
Less valuation allowance
Total

2006

40.6%
1.6
0.6
(4.3)
(0.3)
(0.8)
37.4%

Thousands of
U.S. Dollars

2006

2005

2006

¥1,303
194
684
205
94
632
(560)
¥2,552

¥ 939
98
598
167
68
406
(271)
¥2,005$11,137
1,658
5,846
1,752
803
5,402
(4,786)$21,812

Millions of Yen

Acquisition cost
Accumulated depreciation
Net leased property

Thousands of
U.S. Dollars

2006

2005

2006

¥5,856
2,943¥2,913¥6,855
3,562¥3,293$50,051
25,154$24,897

Obligations under finance leases (including imputed interest expense):
Machinery and Equipment
Millions of Yen

Due within one year
Due after one year
Total

41
Sysmex Annual Report 2006

Thousands of
U.S. Dollars

2006

2005

2006

¥1,203
1,721¥2,924¥1,3701,936¥3,306$10,282
14,709$24,991

Notes: Amounts for forward exchange contracts in the column entitled Fair Value

Depreciation expense and interest expense under finance leases:
Millions of Yen

Depreciation expense
Interest expense

Thousands of
U.S. Dollars

2006

2005

2006

¥1,406
10¥1,63818$12,01785

represent the notional amount of the contracts at March 31 forward currency rates.
Foreign currency forward contracts which qualify for hedge accounting forthe years ended March 31, 2005 and such amounts which are assigned tothe associate assets and liabilities and are recorded on the balance sheets at
March 31, 2005 are excluded from disclosure of market value information.

Depreciation expense and interest expense, which are not reflected in theaccompanying statements of income, are computed by the straight-line method andthe interest method, respectively.

11. CONTINGENT LIABILITIESAt March 31, 2006, the Group had the following contingent liabilities:

The minimum rental commitments under noncancelable operating leases at
March 31, 2006 were as follows:

Thousands of
U.S. Dollars

Millions of Yen
Millions of Yen

Thousands of
U.S. Dollars¥1,213
4,780¥5,993$10,368
40,854$51,222

Due within one year
Due after one year
Total

Guarantees for bank loans of employees
and former employees

¥3

$26

The carrying amounts of assets pledged as collateral for the above contingent liabilities at March 31, 2006, was as follows:(Lessor)Thousands of
U.S. Dollars

Millions of Yen

Future rental income under operating leases (including imputed interest income):
Millions of Yen

Thousands of
U.S. Dollars

¥ 359
1,527
¥1,886$ 3,069
13,051$16,120

Due within one year
Due after one year
Total

Time deposits

Reconciliation of the differences between basic and diluted net income per share(“EPS”) for the years ended March 31, 2006 and 2005 is as follows:

The Group enters into foreign currency forward contracts to hedge foreign exchange
risk associated with certain assets and liabilities denominated in foreign currencies.
rate exposures on certain liabilities.
All derivative transactions are entered into to hedge interest and foreign currency
exposures incorporated within the Group’s business. Accordingly, market risk inthese derivatives is basically offset by opposite movements in the value of hedged
assets or liabilities. The Group does not hold or issue derivatives for trading purposes.
Because the counterparties to these derivatives are limited to major international$256

12. NET INCOME PER SHARE

10. DERIVATIVESThe Group also enters into interest rate swap contracts to manage its interest¥30

Millionsof YenThousandsof Shares

Net
IncomeWeighted
Average
SharesYen

Dollars

EPS

For the year ended March 31, 2006:
Basic EPS
Net income available tocommon shareholders¥7,263 49,921,043
Effect of Dilutive Securities
Stock option(0)593,500
Diluted EPS
Net income for computation¥7,262 50,514,543¥145.48

$1.24

—

—

¥143.77$1.23¥ 112.53$

financial institutions, the Group does not anticipate any losses arising from credit risk.
Derivative transactions entered into by the Group have been made in accordancewith internal policies which regulate the authorization and credit limit amount.
The Contract or Notional Amounts of derivatives which are shown in the following
table do not represent the amounts exchanged by the parties and do not measure
the Group’s exposure to credit or market risk.
The fair value of the Group’s derivative financial instruments at March 31, 2006 is
as follows:

For the year ended March 31, 2005:
Basic EPS
Net income available tocommon shareholders¥5,619 49,934,650
Effect of Dilutive Securities
Stock option—
244,754
Diluted EPS
Net income for computation¥5,619 50,179,404———¥ 111.98$—

Millions of Yen
Contract
AmountForeign currency forward
contracts:
Selling:
US dollars
Euro
Total

Fair
Value

Unrealized
Gain/Loss

The following appropriations of retained earnings at March 31, 2006 were approvedat the shareholders’ General Meeting of the Company held on June 23, 2006:¥1,062
2,537¥3,599¥1,052
2,561¥3,613

¥ 10
(24)
¥(14)

Fair
Value

Millions of Yen

Thousands of
U.S. Dollars

Year-end cash dividends, ¥16 ($0.14) per share¥799$6,829Bonuses to directors

155

1,325

14. SEGMENT INFORMATION

Thousands of U.S. Dollars
Contract
AmountForeign currency forward
contracts:
Selling:
US dollars
Euro
Total

13. SUBSEQUENT EVENTS

Unrealized
Gain/Lossa. Industry Segments
The Group’s main operations are to manufacture and sell laboratory testing instruments and reagents used by clinical laboratories around the world. Under Japanese
accounting regulations, the Group is not required to disclose industry segment informa-$ 9,077
21,684$30,761$ 8,991
21,889$30,880

$ 86
(205)
$ 119

tion because its main industry segment represented more than 90% of its operations.

42
Sysmex Annual Report 2006

b. Geographical Segments
The geographical segments of the Group for the years ended March 31, 2006 and 2005 are summarized as follows:
Millions of Yen
2006

Sales to customers
Interarea transfer
Total sales
Operating expenses
Operating income
Total assets

Japan¥36,760
22,622
59,382
52,898¥ 6,484¥68,546

Americas¥15,620176
15,796
15,581¥ 215¥ 7,954

Europe¥25,369
300
25,66922,655¥ 3,014¥14,555

China¥6,404
10
6,414
5,802
¥ 612
¥4,376

Asia Pacific¥3,735
109
3,844
3,484
¥ 360
¥2,997

Total¥ 87,888
23,217111,105
100,420¥ 10,685¥ 98,428

Eliminations/
Corporate¥—(23,217)(23,217)(23,256)¥
39¥(10,981)

Consolidated¥ 87,888—
87,88877,164¥ 10,724¥ 87,447

Total¥76,935
19,56296,49787,605¥ 8,892¥86,333

Eliminations/
Corporate¥—(19,562)(19,562)(19,774)¥212¥ (8,673)

Consolidated¥76,935—
76,93567,831¥ 9,104¥77,660

Total$751,179
198,436
949,615858,290$ 91,325$841,265

Eliminations/
Corporate$—(198,436)(198,436)(198,769)$333$ (93,855)

Consolidated$ 751,179—
751,179
659,521$ 91,658$747,410

Millions of Yen
2005

Sales to customers
Interarea transfer
Total sales
Operating expenses
Operating income
Total assets

Japan¥34,530
18,94253,47247,822¥ 5,650¥64,531

Americas¥13,580
158
13,73813,538¥ 200¥ 6,113

Europe¥21,200
353
21,553
19,258¥ 2,295¥10,101

China¥4,823
12
4,835
4,340
¥ 495
¥3,285Asia Pacific¥2,802
97
2,899
2,647
¥ 252
¥2,303Thousands of U.S. Dollars
2006

Sales to customers
Interarea transfer
Total sales
Operating expenses
Operating income
Total assets

Japan$314,188
193,350
507,538
452,120$ 55,418$585,863

Americas$133,504
1,505
135,009
133,171$ 1,838$ 67,983

Europe$216,829
2,564
219,393
193,632$ 25,761$124,402

China$54,73585
54,82049,589$ 5,231$37,402

Asia Pacific$31,923932
32,85529,778$ 3,077$25,615c. Sales to Foreign Customers
Sales to foreign customers for the years ended March 31, 2006 and 2005 consisted of the following:
Millions of Yen

Americas
EuropeChina
Asia Pacific
Total

43
Sysmex Annual Report 2006

Thousands of
U.S. Dollars

2006

2005

2006

¥15,762
25,4386,411
4,858¥52,469¥13,633
21,234
4,824
3,836¥43,527$134,718
217,419
54,795
41,521$448,453

Milestones of Growth
Era of Dramatic Advances
2000 JAN.

2000 MAR.

2002 APR.

2003 APR.

2004 JAN.

2004 JAN.

Founded a Shanghai
subsidiary, SYSMEXSHANGHAI LIMITED.

Issued our first unsecured convertible
bonds.

2000 MAR.

2000 MAR.

Promoted to the 1st
Section of the Tokyo
Stock Exchange andthe Osaka Securities
Exchange.

Opened Central
Research Laboratories
in the Techno Center.

Consolidated INTERNATIONAL REAGENTS
CORPORATION(Today’s SYSMEXINTERNATIONAL
REAGENTS CO., LTD.)
as a wholly-owned
subsidiary through ashare change.

SYSMEX and TOSHIBA
announce developmentof minimal-invasive
blood glucose selfmeasurment technology that does not require
blood sampling.

Release for research
purposes of the GD100, an instrument
incorporating the independently developed
OSNA method that
detects cancer lymph
node metastasis in
one-third of the time of
conventional methods.

Development of theworld's first multi-protein analysis chip capable of simultaneous
measurement of activities and amounts of up
to 20 proteins.

2003 JUN.
Consolidation of SYSMEX CORPORATIONOF AMERICA andSYSMEX INFOSYSTEMS AMERICA, INC.
to establish SYSMEXAMERICA, INC.
Rebuilding of the sales
and support structurein the U.S.

2002 NOV.
Start of joint development with Matritech of
the U.S. concerning amethod of detecting
cancer of the cervix.

2004 JAN.
Announcement of joint
development of an ECELL-based support system for determining diabetes diagnosis andtreatment methodologies.

2004 MAR.
Increased capital to¥7,943.18 million
through a 97% conversion of the first unsecured convertible
bonds.

Rapid Growth Period
1987 MAR.

1988 AUG.

1991 FEB.

1993 JUL.

1995 JUN.

1995 NOV.

Launch of the PAMIA10 immunochemistry
analyzer, which utilized
an original immunoassay method that combined the latex agglutination method and particle measuring technology, marks entry
into the immunochemistry field.

Launch of the world's
first Automatedreticulocyte Analyzer"R-1000".

Opened the Ono
Factory in Ono-shi,
Hyogo Prefecture, andtransferred thereagent production
division there.

Completed the
Neumünster Factory,
the base for reagent
production in Europe.

Established a joint venture, JINAN DONGYAMEDICAL ELECTRONICS CO., LTD. (Today's
JINAN SYSMEX MEDICAL ELECTRONICS
CO., LTD.) in China.

Launch of UF-100, theworld's first analyzer oftangible constituents ofurine that fully automated inspections of urinary sediments.

1990 AUG.
Launch of a integrated
hematology system thatfully automated theentire process from thecounting of blood cells,
leukocytes, and reticulocytes through preparation of smear samples.

1996 JUL.
Listed stocks on the
2nd Section of theTokyo Stock Exchange.

1995 MAR.
Signed an agreementwith DADE INTERNATIONAL INC. a U.S.
based company.
(Today's DADEBEHRING INC.) for collaboration in selling coagulation product lines.

1995 NOV.
Listed stocks on the
2nd Section of the
Osaka Securities
Exchange.

The Early Years
1963

1968 FEB.

1975 OCT.

1978 FEB.

1979 OCT.

Successfully developed and commercialized AutomatedHematology
Analyzer "CC-1001"
first blood cellcounter in Japan.

TOA ELECTRIC
CO., LTD. founded
TOA MEDICALELECTRONICS CO.,LTD. as the affiliatedsales agency of its
medical electronics
devices and equipment at a capitalization of ¥2 million.

Launch of the first
fully AutomatedHematology
Analyzer developedin Japan, "CC-710."

Launch of theSysmex brand to
mark the 10th
anniversary of theCompany's founding.

Established a U.S.
subsidiary, TOA
MEDICAL ELECTRONICS (USA), INC.
(Today's SYSMEXAMERICA, INC.)

Note: 1 Sales from 1963 to 1968 are not counted as Sysmex sales.
2 Figures from 1969 to 1994 are non-consolidated basis, and consolidated basis from 1995.

44
Sysmex Annual Report 2006

1980 OCT.
Established a
European subsidiary, TOA MEDICAL ELECTRONICS (DEUTSCLAND)
GMBH. (Today's
SYSMEX EUROPE
GMBH)

1984 OCT.
Launch of the CA100 automatedcoagulation analyzer
marks entry into thehemostasis field.

2004 APR.

2004 DEC.

2005 APR.

2005 AUG.

2006 APR.

Acquired 50.8% of theshares in CNA CO., LTD.,a medical data systems
enterprise, and consolidated as a subsidiary.

Receipt of the Japan
Investor Relations
Association's IR Award
for Excellence for 2004.

Introduction of theexecutive officer system as a means ofstrengthening corporate governance.

Conclusion of a sales
agreement concerning
the rapid influenza
diagnostic kit with Otsuka
Pharmaceutical Co., Ltd.

2005 MAY

2005 NOV.

Introduction in
Europe of the RD100 i gene amplification detector for
detecting breast
cancer lymph-nodemetastasis.

2004 JUN.
Established the R&D basesat the Business Support
Center for Biomedical
Research Activities (BMA)
on Port Island Second
Stage, off shore from Kobe.

2004 AUG.
Formed a marketingalliance with Fuji Photo
Film Co., Ltd. For thecompact dry-chemistry
testing system in China.

2005 JAN.
Sysmex develops technology to diagnose therisk of post-operative
recurrence of earlystage cancer.

A stock split.

Establishment of the
Solutions Center in
Nishi-ku, Kobe and concentration of the marketing planning, customer
support, and academic
support functions.

1996 OCT.

1998 MAY

1999 FEB.

Hisashi Ietsugu
becomes president.

Signed a basic agreement with F. HOFFMANN-LA ROCHE INC.
of Switzerland for global
collaboration in marketing and joint R&D.

Launch of the XE2100, an automatedhematology analyzer
developed for the
21st century.

2006 JAN.
Released the XS Series,
the world's smallest
automated hematology
analyzers, which require
only minute quantitiesof blood.

1998 OCT.
1998 FEB.
Established a
Singaporean subsidiary,
SYSMEX SINGAPORE
PTE. LTD.(Today’s
SYSMEX ASIA PACIFIC
PTE LTD.)

Change of company
name to SYSMEXCORPORATION tomark the 30th anniversary of the Company's
founding.

45
Sysmex Annual Report 2006

Technology Progress in Hematology
The Technology-Oriented Company — The Evolution of Hematology Technology
Sysmex tirelessly engages in advanced technology development, continuing to evolve to open the way to a bright future.

The Early Years
The Development of Japan’s First Hematology Instrument
Sysmex’s involvement in the medical electronic instruments field began in 1961 when TOAElectric Co., Ltd. (today’s TOA Corporation), a manufacturer of megaphones, entered the hematology segment. Utilizing megaphone technology for converting sounds into electrical signals andamplifying weak electrical signals, TOA Electric successfully developed Japan’s first hematology
instrument. The measurement principal used at the time was called the capacitance method1, atechnology that can be called the starting point of today’s Sysmex.
Automated Hematology Analyzer CC-1001

1 A method for ascertaining the number and type of blood cells by detecting the change in capacitance that occurs whenblood cells, which are insulators, pass between a pair of electrodes

Electrical Resistance Method — The Basic Principal for Detecting Changes in the Electrical Signals of Microscopic Blood Cells
The next measurement principal Sysmex applied to hematology instruments was the electrical resistance method, which has a simpler
structure the capacitance method. The basis for the electrical resistance method is Ohm’s Law (Voltage = Current × Resistance).
Blood cells are resistors that do not conduct electricity, and changes in electrical resistance occur when blood cells pass through a
detection aperture (a minute hole) in a liquid through which electricity is passed. Counting the number of these changes indicates the
blood cell “count.” As greater changes in electrical resistance occur when large blood cells pass through the aperture, it is possible todistinguish blood cell types according to the magnitude of resistance.
Measuring blood cell counts by means of electrical signal detection using the capacitance method and electrical resistance method
made the automation of blood cell counts measurement possible. This development made it possible to measure dozens of times more
blood cells than is possible by means of manual counting. These technologies dramatically increased the accuracy of measurement
results and contributed greatly to the modernization of testing and medical care (medical testing).

The Pursuit for More Accurate Blood Cell Count Measurement by Means of the Sheath Flow DC Detection Method
In their pursuit of more accurate measurement results from hematology instruments, the engineers at Sysmex developed hematology
instruments that employ the sheath flow DC detection method. This method contributed to instrument processing capacity by making
it possible to simplify fluid system processes, for instance by diluting automatically within instruments. This method was incorporated
into numerous products as a technology suited to customer needs for greater speed and efficiency in medical testing and remains inwide use in improved form today.

Sheath Flow Detection Method
The creation of sheath flow in the area where blood cells are counted

Detection
aperturepermits greater accuracy by aligning the cells in single file for meas-

Nozzleurement. Blood cells enter the flow of front sheath liquid flowing in the

Front sheathwave

direction of the detector and pass through the center of the detection
aperture. The blood cells that pass through the detection apertureA

enter the rear sheath flow and are discharged in a single direction.

Electrical signal A

B

Detection
aperture

Electrical signal B
Recoverytube(A) Accurate signal from a particle that passes through the center(B) Signal from a particle that passes near a wall surface

46
Sysmex Annual Report 2006

Back sheathwave

Rapid Growth Period
Sysmex Reagent Development Technology Supports Cell Measurement Technology to Pave the Way for AutomaticClassification of White Blood Cell
Depending on blood cell type, anywhere from several thousand to several million blood cells exist per microliter of blood. To accurately
measure the number of these blood cells, specific reagents are required for preprocessing to dilute the blood to an appropriate concentration and to hemolyze other blood cells that are not to be counted.2 Hematology analyzers provide accurate measurement results
by using these specific reagents.
Mature white blood cells are subdivided into five types, each with its own function. For this reason, the type of blood cell that showsabnormal values varies according to the patient’s disease. In the past, when abnormalities occurred in white blood cell counts, visually distinguishing the blood cells using a microscope involved enormous amounts of time and labor. At that time, Sysmex reinforced its reagent
development technology and succeeded in developing a hematology analyzer for automatically classifying white blood cells. This involved
the development of an instrument that made white blood cell classification possible by utilizing appropriate reagents for each blood cell type.
2 The phenomenon by which a red blood cell membrane is breached and the hemoglobin in a cell is discharged

Example of a White Blood Cell Classification Mechanism
A surface-active agent hemolyzes blood cells other than the type to beclassified. Classification is performed based on differences in volume

White blood cellto be classified

Shapemaintained

Other whiteblood cell

Shrinkage

Red blood cell

Shrinkage

between the white blood cells to be classified and the other blood cells.

Era of Dramatic Advances
Applying the Flow Cytometry Method to Upgrade Routine Hematology Analyzers to Contain Both Routine andDiagnostic Capability.
Hematology is evolving from simple blood cell count measurement to hematology analyzers that analyze the substances in blood.
These instruments make high-value-added medical testing possible by detecting abnormal cells in addition to measuring the five typesof white blood cells and performing the eight basic hematology tests.
Sysmex’s XE-2100 model is a representative example of a hematology analyzer. Sysmex was the first company in the world to commercialize the application of the flow cytometry method, which involves the use of semiconductor lasers, to a hematology analyzer.
Dyeing blood cells using specified reagents has dramatically increased the amount of information that can be obtained from a single cell.

FCM Method Acquisition Parameters
Shrinkage of red blood cells and platelets by means of a surface-acting agent
Nucleic acid staining of the white blood cells to be classified and analysis and classification of forward-scattered light, lateral-scattered light,
and lateral fluorescent light signals using a semiconductor laser.

Semiconductor laser

Dichroic
mirrorLateral fluorescent light
Lateral fluorescent light intensity
Principally information on RNA amount and DNA amount

Lateral-scattered light
Laser irradiation

Flow cell

Lateral-scattered light intensity
Principally information concerning theinternal structure of cells (nucleus shape,presence of cell granules, etc.)
Forward-scattered light intensity
Principally information on cell size

Forwardscattered light47
Sysmex Annual Report 2006

Business Domain
Sysmex offers a broad range of products and after-sales support for in vitro diagnostics (the examination of blood, urine or cellsamples taken from the body). These range from individual instruments and reagents to full Laboratory Information Systems (LIS).
The global diagnostics market, which was valued at ¥ 3,000 billion in 2005, is projected to expand at an annual rate of 7.0% overthe coming five years. In 2003, Sysmex ranked 9th in the world in the diagnostics field. Sysmex commands the second-highest
share of the global hematology segment and the highest share of the Japanese market.

Diagnostics
Hematology
Hematology is a form of screening testing that measures the number of white blood cells and red blood cells in the blood to determine
whether a more detailed examination is necessary. Because hematology is commonly performed around the world not only at times of illness, but also during routine health checkups, the total number of examinations is extremely high. Since hematology is performed using
an instrument and specific reagents, demand for the reagents is continuous. The size of the global hematology segment is ¥180 billion(Sysmex estimate). Three major global suppliers command a very high share of the market: Sysmex, Beckman Coulter, and Abbott.

Hemostasis
Hemostasis is testing for coagulation, an important function of the blood. By testing specimens of blood plasma it is possible to diagnose hemophilia and thrombosis and to examine hepatic (liver) functions. As a rule, hemostasis can be performed using general-purpose reagents, rather than specific reagents. As test results vary slightly depending on the reagent type and manufacturer, reagentsthat are used by many customers are desirable due to quality control requirements.
The size of the global hemostasis segment is ¥120 billion (Sysmex estimate). Since 1995, Sysmex has maintained a distribution agreement with Dade Behring, the global leader in hemostasis reagents. Sysmex is the global market share leader in coagulation analyzers.

Immunochemistry
Immunochemistry is performed on blood serum, the supernatant fluid isolated after blood separates, to detect antigen-antibody reactions. For example, it is used to test for the presence of the hepatitis virus or other infections and for cancer. Manufacturers of analyzers apply their own measurement principles, and specific reagents are used. The need for immunochemistry and its importance are
increasing, owing to worldwide outbreaks of HIV and other infectious diseases.
The size of the global immunochemistry market is ¥700 billion (Sysmex estimate), and the market is expected to expand in the coming years.

Clinical Chemistry
Clinical chemistry entails examining the body’s nutritional status and liver and kidney function and testing for contraction of hyperlipidemia and arterial sclerosis by chemically examining the enzymes, sugars, and proteins in blood serum or plasma. Like hematology,
clinical chemistry is commonly performed around the world not only at times of illness, but also in routine health checkups, and thetotal number of examinations is extremely high.
The size of the global clinical chemistry market is ¥750 billion (Sysmex estimate). Sysmex has a high market share in Japan for thequality control serum used with various types of general-purpose reagents.

Urinalysis, Fecal Occult Blood Testing
Urinalysis entails testing for signs of sugar, protein, or blood in urine and can be broadly divided into two types: qualitative urinalysis
and quantitative urinalysis. Urinalysis is an important screening test that typically yields clues for diagnosing a number of diseases.
Sysmex introduced the world’s first urine sediment analysis system that uses the flow cytometry method, which, in combination withqualitative testing, contributes greatly to the automation of diagnostic routines and greater efficiency.
Fecal occult blood testing is used to test for blood from the digestive track. Fecal occult blood testing is an extremely important
method of screening for colon cancer. In Japan, the aging of the population and dietary changes have brought an increase in fecal
occult blood testing, and market expansion is expected.

48
Sysmex Annual Report 2006

IT
Laboratory Information Systems
The healthcare industry is moving towards the establishment of IT-driven medical information networks, which contribute to more
effective diagnoses by collecting and analyzing data from clinical tests and consolidating this information into a convenient database. In
the future, Sysmex will continue to make use of IT to promote the establishment of local healthcare networks made up of hospitals andclinics and develop remote medical care capabilities.

POC Testing
POC is an abbreviation for point-of-care. POC testing can be carried out in operating rooms, intensive care units or at the patient’s
bedside, rather than in central laboratories, making possible rapid diagnosis and treatment.

New Business
Scientific Measurement and Healthcare
The scientific measurement segment is a new business area in which Sysmex focuses on industrial applications for its particle-analysis
technology, which was developed from within the core hematology business. This technology is used in many industrial processes
including research and quality control of copier toner and ceramic particles.

Life Sciences
Aging Societies and the Shift to Preventive Healthcare
Japan and other developed countries undergoing population aging are devising healthcare policies to enable people to live long, healthy
lives: in other words, to extend healthy life expectancy. As a result, a shift to preventive medical care is progressing on a global scale.
Along with the advancement of preventive medical care, what will be regarded as important is the realization of preventive medicine andprognosis prediction to increase patients quality of life. For this reason, the role of testing (diagnosis) is expected to increase inimportance. Sysmex is working to create new testing technologies by means of the fusion of diagnostics and the life sciences and aims
to continue to contribute to the realization of quality improvement and greater efficiency in healthcare through testing.

Breakdown of Medical Expenditure in Japan(Sysmex estimates)

Creating New Markets with New Technologies(¥ trillion)

Individual

Need for healthy, long lives

Policies

Suppression of growth of total medical expenditure

6

IVD: In-vitro Diagnostics
LS: Life Sciences

2

Labor and equipment

IVD

Treatmentoriented

Preventionoriented

In-vivo
Diagnostics

IVD
+
(LS)

In-vivo
Diagnostics

Advanced technologies
genome, protein, nanotechnology etc

22.2
Pharmaceuticals
Diagnostics

In-vitro Diagnostics

Imaging

In-vivo Diagnostics

Doctors (For evaluation)

Imaging

Imaging

Present

Future49
Sysmex Annual Report 2006

Diagnostics

1.5
Diagnostics

Medicalexpenditurein Japan¥ 33 Trillion

1.3

Major Products
Diagnostics
HEMATOLOGYSpecialization

XT

XS

SYSTEM

XE
High End

MiddleLow End
HST
XE-2100
The XE-2100 is Sysmex’s
flagship model, offering networking capability, ability tocoordinate with other
Sysmex products, highexpandability, and potential
for functional enhancement
through software upgrades.

XT-2000 i
XS Series
These compact, highly functional models share the samemeasurement principle,
reagents, and operability as
the XE-2100 and XT-2000 i
high-end models. These analyzers offer the ability to analyze five types of white blood
cells in a space-saving size,
as well as excellent measurement data interchangeability.
For this reason, they are suitable not only for use in hospital laboratories, but also for
POC testing at clinics andemergency laboratories.

This basic, compact model issupported by the Sysmex
Network Communication
System (SNCS), and features aviewer-friendly screen and aneasy-to-use operating system.

The HST series offers fully automated blood cell counting,including white blood cell differentials, reticulocyte analysis,
preparation of smears and staining. Multiple system configurations are available to meet the needs of individual laboratory
requirements.

XE-Alpha N
Fully automated blood cell counting, white blood cell differentials, reticulocyte analysis, preparation of smears and staining
are carried out by a compact system, ensuring efficient workflow and improved test precision. The SP-1000i Slide
Preparation Unit (to the left in the photograph) is a networkcapable system for automatically preparing hematology slides.

Information Diversity

POC

KX
REAGENTS

pocH-100i

KX-21

Featuring compact size andeasy operation, this counterallows high-precision measurement results and makes it possible to perform hematology
simply in diagnostic and therapeutic settings.

Featuring compact sized andeasy operation, this analyzer
provides valuable blood test
data such as the white blood
cell, three-part differential inless than one minute.

A full lineup of reagents is available for all diagnostic
needs, including hematology, hemostasis, immunochemistry, urinalysis, and biochemistry.

Scale of Laboratory

Efficiency and Handling Capability
HEMOSTASISIMMUNOCHEMISTRY

CA-7000

CA-1500

CA-500 Series

PAMIA-40 i

The top of the CA series product line
makes possible ultra-fast throughput of
500 tests/hour possible (for simultaneous
measurement of PT/APTT). The Secure
Reagent System (SRS) allows control ofreagent names, lot numbers, and expiry
dates through automatic barcode reading.

This stand-alone unit incorporates theclotting time method, the chromogenic
substrate method, and the turbidimetric immunoassay method. Optimal processing capacity for mid-sized laboratories ensures efficient testing.

These compact, fully automated analyzers offer advantages of the CA series
such as high precision and ease of use.
Operation is simple, making these analyzers ideal for emergency laboratories
and for use at small and mid-size institutions that test infrequently.

The PAMIA-40i uses Sysmex’s independently development whole-bloodmeasurement technology. As preparation time needed to separate blood
serum is unnecessary, infectious disease tests that previously required 30
minutes are possible in only 15 minutes.

50
Sysmex Annual Report 2006

Sales Composition by Business and Products
POC 3.9%

URINALYSIS/FECAL OCCULT BLOOD TESTING

New Business 2.6%

IT 4.3%12.7%
7.7%

Diagnostics

89.2%
UF-1000 i

Hemo-LIAS200

The UF-1000i offers fully automated, highprecision, quantitative analysis of urine
sediment using Sysmex's proprietary
technology utilizing flow cytometry, further improving the reliability of urinalysis.

This fully automated fecal occult blood
testing analyzer uses biodegradable containers for stool samples, offering convenience for both the person performing
and the person undergoing the test.

35.0%

44.6%

Net Sales¥ 87,888 million
Net Sales by Products
Medical Instruments
Reagent
Maintenance Service
OthersIT
INFORMATICS

CNA-NetMOLISThe MOLIS Laboratory Information System forms thecore of Sysmex’s total solutions package. It not only
increases efficiency, but also optimizes all aspects oflaboratory operation, including patient services.

CNA-Net is a laboratory-information system provided by Sysmex
subsidiary CNA Co., Ltd. The system consists of independently
operable subsystems for clinical chemistry, hematology, generalurinalysis, and immunology testing. When used as an independent
system, CNA-Net is configured to encompass all processes fromexamination reception to routine testing and test results reporting.

POC Testing

LAFIAThis system files blood images together withpatients’ demographic information. Network compliant, the system allows access to the image databasefrom anywhere in the hospital through a network.

Life Sciences

POCTEM Influenza A/B

CA-50

RD-100 i

POCTEM Influenza A/B is a rapid influenza diagnostic kit that employs the immunochromatographymethod. Samples extracted from the body are
dropped on test paper that can simultaneously
determine the presence of Influenza A and B.

This semi-automated and compact system is suitable for point-of-care testing. It features four independent detection blocks, making four simultaneous
independent test analyses possible.

This gene amplification detector, which extracts and amplifies
genes in lymphatic tissues in order to detect lymph-nodemetastasis, is the first commercial offering for clinical-use fromthe company's life science line.

New Business
PARTICLE ANALYSIS FOR
INDUSTRIAL APPLICATIONSSHEATH FLOW ELECTRICAL RESISTANCEPARTICLE SIZE DISTRIBUTIONHEALTHCARE

SD-2000

ASTRIM SU

Through a combination of the electric resistance method
and sheath flow technology, particle distribution is obtained
without complex correction and analysis and the sizes andnumbers of particles are determined more accurately.

This non-invasive blood vessel monitor measures hemoglobin concentrations and blood-vessel width throughnear-infrared spectroscopic images simply by placing a finger on the detector. There is no need for blood sampling.

FPIA-3000
The FPIA-3000 is a highly advanced particle measuring
analyzer that incorporates a CCD camera. The analyzer
not only measures particle size distribution, it also provides a great deal of information on particle size andshape and makes it possible to evaluate particulate matter that was previously difficult to analyze.

51
Sysmex Annual Report 2006

Research and Development
A pioneer in diagnostics and a challenger in the life sciencefield, Sysmex fuses diverse constituent technologies toestablish unique core technologies.
Sysmex is passionate about excellence in product development and manufacturing, and the source of this excellence and the most important facet of operations is research and development (R&D). Each year Sysmex invests about 10%of sales in its leading-edge R&D. Sysmex’s greatest strength lies in the possession of a diverse portfolio of electronics, mechanical, biological, chemical, andIT technologies and the fusion of these constituent technologies to create
unique core technologies. Building on our success in diagnostics, Sysmex isworking to create advanced testing technologies in the life science field.

On the Global Cutting Edgebine several types of analyzers with lab-in Diagnostic

oratory information systems.

Instrument Development

Sysmex is leveraging the diverse

Sysmex’s inimitable R&D activities

technologies nurtured in previous

began in 1963 when we became theproduct development to evolve new

first company in Japan to commercialize

products that bring efficiency to thehematology analyzers. Since that timeincreasingly complicated diagnostic

we have explored the possibilities oftesting environment. For instance, in

microscopic diagnostics and estab-

2006, we launched the XS series oflished core technologies such as parti-

automated hematology analyzers, thecle measurement technologies andworld’s smallest1, which use the samebioreaction measurement technologies

measurement principle as the high-end

by fusing diverse original technologies.

XE-2100 and require only minuteIn the diagnostics field, Sysmex has

quantities of blood. Our aim is to utilize

developed a number of world-first tech-

networks to contribute to increasing

nologies, including a urinalysis systemefficiency and lowering costs not onlythat automatically measures urine sedi-in the testing laboratory, but alsoment, an immunochemistry system thatthroughout the entire hospital for cus-

reduces the time required to test for

tomers ranging from large medical

infection to one third by testing whole

institutions such as community healthblood, and systems products that com-centers to small clinics.
1 In comparison with 5-part WBC differential hematology
analyzers (based on our data)

52
Sysmex Annual Report 2006

The application of Sysmex’s tech-Comprehensive IT-Driven

In 2002, we developed the One Step

nologies is expanding into fields otherTesting Systems

Nucleic Acid Amplification (OSNA) methodthan diagnostics. One example is non-An essential consideration in diagnostics

of amplifying and detecting genetic infor-

invasive measurement technologies.

is a mechanism for accurately and rapidly

mation without extracting and refining

Sysmex has led the way in the develop-

providing test data to physicians. Sysmex

genes, and in January 2006, we intro-

ment of technology for measuring

has long focused attention on the intro-

duced into the European market a breast

blood hemoglobin concentrations with-duction of information technology into

cancer lymph node metastasis rapid diag-out drawing blood, technology expect-testing operations and has developed anosis system incorporating this technology

ed to be applied in sports medicine andcomprehensive blood testing system thatas our first life science product. In addition,

in medical checkups for children andcombines analyzers with software forwe succeeded in developing the world’s

pregnant and parturient women. We

managing test data. In this market seg-

first protein chip that can simultaneously

are also actively applying technologies

ment, Sysmex possesses highly special-measure twenty types of proteins for use inin various industrial segments, forized technologies unmatched by any

predicting the effects of anticancer drugs. A

instance the fusion of particle measure-other company. We have established anclinical study conducted jointly with Osaka

ment technologies and image process-organization for providing localized soft-

University revealed that a cell-cycle profilinging technologies.

ware by setting up software development

technique that uses this protein chip makes

units in Belgium, Slovakia, the U.S.,

the early prediction of recurrence of breast

China, and New Zealand.

cancer possible. Sysmex has been con-Strengthening Reagent
R&D Capabilities

ducting a clinical study of the prediction of

Sysmex conducts broad-based R&D ofInnovative Cancer Diagnostic

sensitivity to anticancer drugs using thisreagents, products closely connected

Technologies and Other

protein chip jointly with the University ofwith the performance of diagnostic

World-first Technologies

Texas MD Anderson Cancer Center, widely

instruments. In 2002, Sysmex madeTo develop new core competencies thatregarded as the leading clinical cancer insti-

International Reagents Corporation acomplement those in the diagnostics

tution in the U.S. We are also conducting awholly owned subsidiary, fusing

field, Sysmex is actively pursuing R&D

clinical performance evaluation of automat-

International Reagent technology devel-

by fusing technologies developed in theed cervical cancer screening technology at

opment capabilities in clinical chemistry

diagnostics field and technologies in the

VU University in The Netherlands.

and immunology with Sysmex’s

life science field. In 2000, we estab-

Sysmex is engaged in joint develop-

strengths in hematology and hemostasis

lished the Central Laboratories as thement with Toshiba Corporation of technol-

to construct one of the most advanced

principal location for these activities.

ogy for minimally invasive self-monitoring

reagent development organizations in

There, we are engaged in the creationof blood glucose (SMBG) to lighten theJapan. In 2005, Sysmex absorbed theof new diagnostic technologies ground-burden on diabetes patients. We are also

reagent development unit of

ed in cutting-edge technologies, includ-

engaged in joint research with Osaka

International Reagents Corporation anding life science technologies, IT, andMedical Center for Cancer andis pursuing leading-edge R&D throughnanotechnology. We are currently

Cardiovascular Diseases, and with Keioclose collaboration between the reagent

engaged in research of infectious dis-

University into a Diabetes Management

development and instrument develop-

eases, blood disorders, cancer, andSystem based on the E-CELL cell-simula-ment units.

metabolic syndrome.

tion program.

53
Sysmex Annual Report 2006

Intellectual Property Activities

1. Basic Concept for Intellectual Property Activities
Sysmex has established the Basic Principles of Intellectual Property Activities for the purpose of sharing a basic concept for
intellectual property activities throughout the Sysmex Group and fully demonstrating the Group’s strengths in step with businessdomain expansion and global development. Specific activity policies are indicated in the Basic Policy on Intellectual Property.
Basic Principles of Intellectual Property Activities
The goal of Sysmex’s intellectual property activities is to secure flexibility in R&D and business development and contribute to
the management of the Group’s business.
Basic Policy on Intellectual Property
Sysmex ensures global competitive advantage and sustains stable growth by maintaining an environment that supports
employee intellectual creation activities, by actively securing and utilizing rights to valuable intellectual property created in theactivities of all Group companies, and by respecting the intellectual property of third parties.

2. The Organizational Structure of R&D Systems andthe Intellectual Property Division
The Intellectual Property Division collaborates with the Central

Unified Management System Extending from
Research to Product Development

Research Laboratories, Reagent Development Division, Diagnostics
System Development Division, New Business Development

R&D Strategic Planning Department

Division, and other development units, devises a patent application

Instrument development

strategy, engages in invention identification activities, and conducts
research into third-party intellectual property. It actively engages in

Research

Software development

intellectual property awareness activities and maintains an organizational structure for rapidly converting intellectual property created indevelopment activities into valuable intellectual property.

Reagent development
Intellectual Property

3. Remuneration System
Sysmex provides remuneration applicable to patents that contribute to the Group’s business and strives to enhance incentives
for inventors. Patent remuneration is provided based on rankings in accordance with the magnitude of the contribution using an
original calculation formula based on examination of factors including sales of products to which the invention has been applied
and royalty income in accordance with Sysmex’s employee commendation regulations.

4. External Awards and Commendation
Sysmex was awarded the Japan Patent Office Commissioner’s Incentive Award in
the 2005 Kinki Local Commendation for Invention for Patent No. 3485436,
Reagent and Method for Measuring Reticulocyte. The technology was recognized
for the capability of ascertaining the therapeutic affect of medication to increase
red blood cells in the treatment of anemia patients and its contribution to ensuring
fair competition by means of EPO doping testing at the Athens Olympic Gamesand the Tour de France.
The Japan Patent Office Commissioner’s Incentive Award

54
Sysmex Annual Report 2006

Research and Development

R&D Facilities

Techno Center

Central Research Laboratories

The Techno Center is a key location for the pursuit of excellence inSysmex established the Central Research Laboratories in 2000 as a

product development and manufacturing at Sysmex. The Center isbase for R&D in the life science field. The Laboratories pursue

involved in instrument, reagents, and software product develop-

research into new diagnostic technologies grounded in leading-edge

ment in the diagnostics field and in new technology development inlife science technologies, information technology, nanotechnology,

the life science field. The Techno Center is also involved withand bioinformatics, with a primary focus on the segments of cancer

industrial applications of particle measurement technologies anddiagnostics and diabetes. The Laboratories are fully equipped withimage processing technologies developed in diagnostics. In

multipurpose halls, an electronic library, and other facilities to sup-February 2006, Sysmex acquired real estate adjacent to theport technology exchange, joint research, and technical assistance inTechno Center for expansion purposes. As an R&D-oriented com-addition to high-level research facilities.

prehensive manufacturer, Sysmex is pursuing the development ofinnovative technologies for use in developing high-value-added
products and creating new markets through the fusion and integration of diverse technologies.

Techno Center

R&D Center

Central Research Laboratories
BMA Laboratories

R&D Center

BMA Laboratories

The R&D Center is the reagent development unit Sysmex

In June 2004, Sysmex opened the Sysmex BMA Laboratories atabsorbed from International Reagents Corporation in April 2005.

the Business Support Center for Biomedical Research Activities

The Center principally engages in the R&D of reagents for clinical(BMA) on Kobe Port Island. The BMA is the core institution in thechemistry and immunochemistry.

Kobe Medical Industry City Concept, which is being promoted
under the leadership of the City of Kobe. The Laboratories engage
in research into new detection techniques involving nanotechnology
and is expected to serve as Sysmex’s point of contact for collaboration with other companies, government agencies, and universities.

55
Sysmex Annual Report 2006

Production
Rigorous adherence to quality control and environmental
conservation standards, while boosting cost-competitiveness at a global network of production bases
The ultimate in quality is required of the diagnostic products that provide essential
support for medical care. Sysmex has established rigorous quality control and environmental protection systems to govern the production of instruments andreagents. The Kakogawa Factory in Japan serves as the primary location for the
manufacture of instruments that require sophisticated, specialized technologies.
This plant has introduced leading-edge production and quality control technologies, including an independently developed process management system. Sysmex
has designated two plants in Japan owned by subsidiary Sysmex International
Reagents Co., Ltd. as the core production facilities for reagents, products for which
continuous supply is required. We are transferring to our overseas production
bases and localizing the production technologies and quality control systems
developed at the factories in Japan to achieve a high-quality, low-cost global production system and ensure a stable supply of reagents to customers.

Producing Instruments Incorporatingcompetitive manufacturing based on a

Elaborate Technologies andhigh-quality, flexible production system.

Systems Possible Only in Japan

Sysmex’s strengths in production are

Sysmex follows a policy of producing

the rapid startup of production of new

diagnostic instruments in Japan. The

products achieved by means of collabo-

Kakogawa Factory, the principal pro-ration with the development units andduction base for instruments, engages in

production technology capabilities for

total control of materials receiving, mate-

the manufacture of sophisticated med-rials inspection, unit assembly, device

ical instruments.

assembly, production, inspection, andTo boost cost competitivenessfinal adjustment using Sysmex’s inde-through rigorous cost reductions,pendently developed IT-driven produc-

strengthen business operations, andtion management system. We apply

increase customer satisfaction, Sysmex

proprietary technological capabilities to

has introduced global supply chain man-in-house production of important com-agement that extends to overseas sales

ponents and optical units, for which highbases and encompasses everything fromaccuracy is required. We achieve costmaterials procurement to production.

56
Sysmex Annual Report 2006

Global Reagent Production

bulk biological reagents requiring

Factory engage in rigorous quality con-

System Centered on Production

advanced specialized knowledge at thetrol based on Good Manufacturing

Bases in Japan

Seishin Factory.

Practice (GMP), a quality control stan-

To ensure the stable, low-cost provision

Sysmex is automating and otherwise

dard applicable to medical instrumentsof high-quality diagnostic reagents,

upgrading the production facilities of theand pharmaceuticals, the ISO 9001

Sysmex maintains a global production

Ono Factory, a facilities-driven plant,international quality control standard,system comprising ten production

and accumulating production technolo-

and the ISO 13485 international quality-

bases in seven countries. The two coregy expertise at the Seishin Factory, aassurance standard for medical

facilities are the Ono Factory andknowledge-driven plant. We have posi-devices. The Kakogawa Factory, Ono

Seishin Factory of our subsidiary,tioned these two facilities as the

Factory, subsidiary Sysmex Medica,

Sysmex International Reagents Co.,Group’s mother plants and seek toand the Neumünster Factory of Sysmex

Ltd. To increase global cost competi-

strengthen and expand the global pro-

Europe have obtained certification fortiveness, we have undertaken facilities

duction system by actively transferring

the ISO 14001 international standard for

expansion and production line rebuilding

expertise developed at these plants toenvironmental management systems.

at these two plants, achieving tremen-overseas reagent production bases.

The Seishin Factory has obtained ISO
9001 certification and is actively work-

dous reduction in production lead times,
product cost reductions, and inventory

Introduction of Strict Quality

ing to obtain ISO 14001 certification. As

reductions. We pursue production thatControl Systems Based onthese efforts to obtain certification incapitalizes on the characteristics of each

International Standards

quality control and environmental man-plant by dividing production items to

Sysmex is focusing effort on the estab-agement standards indicate, Sysmex

take advantage of their specialties: welishment of rigorous quality control sys-

regards quality control and environmen-

engage in the mass production oftems and environmental protection at its

tal conservation as top priorities and will

reagents using automated facilities at

production facilities in Japan and over-continue to implement rigorous meas-

the Ono Factory and the production ofseas. The Kakogawa Factory and Ono

ures throughout the Group.

An instrument production line in the Kakogawa Factory

57
Sysmex Annual Report 2006

Production

Production Bases

Kakogawa Factory

Ono Factory

The Kakogawa Factory is a production base for diagnostic instru-

The Ono Factory of Sysmex International Reagents Co., Ltd. is one

ments that supplies a wide range of products to markets aroundof Sysmex’s principal reagent production facilities. The plant is

the world. In 2002, Sysmex launched a large-scale expansion of

dedicated to the high-volume production of about 400 reagents.

this facility, greatly increasing production capacity and putting in

The production lines are divided into four types, according toplace a flexible manufacturing system. Sysmex has also expanded

capacity, and the factory seeks to simultaneously increase quality,

production lines at the subsidiary in Japan that manufactures

reduce costs and mass-produce by optimizing input and automa-

instruments along with the Kakogawa Factory. This expansion hastion system in each process from raw materials supply, weighing,doubled the previous production capacity. We have introduced

preparation, filling, packing and final inspection.

world-leading Japanese manufacturing technologies and quality
control systems throughout the factory and produce highly reliable
instruments based on GMP, ISO 9001, and other quality control
standards and the laws and regulations of destination countries.

Seishin Factory
The Seishin Factory of Sysmex International Reagents Co., Ltd. is
the Group’s second key reagent factory. This plant is mainly
responsible for the production of bulk biological reagents anddraws on wide-ranging production technologies to produce a lineof more than 1,000 products spanning everything from clinical

Ono Factory

chemicals to immunology reagents, hemostasis reagents, fibrinoly-

Kakogawa Factorysis reagents, and control materials. The factory has also constructed a flexible production system to meet requirements for high-mix,
low-volume manufacturing. The factory is currently constructing a

Seishin Factory

new administration building scheduled for completion in August
2006. This will upgrade the factory’s production management
capabilities and expand the reagent production area.

JINAN SYSMEXMEDICAL ELECTRONICS CO., LTD.

Overseas Reagent Production BasesSYSMEX EUROPE GMBH

Diagnostic reagents are products that underpin the reliability of
instruments. For this reason, stable and speedy supply is essential.
Sysmex operates reagent production facilities in Germany, the U.S.,

SYSMEX REAGENTS AMERICA, INC.

Brazil, China, and Singapore and is working to further strengthen its
overseas production capabilities. We currently have begun construc-

SYSMEX WUXI CO., LTD.

tion of a new reagent factory to cope with increased demand for
SYSMEX ASIA PACIFIC PTE LTD.

reagents on the grounds of Sysmex America, Inc. in Chicago. In
Europe, we have begun expansion of the Neumünster Factory inGermany. Completion of these projects, scheduled for early in 2007,

SYSMEX TRANSASIA
BIO-MEDICALS PRIVATE LTD.

will roughly double our current reagent production capacity.

58
Sysmex Annual Report 2006

SYSMEX DO BRASIL
INDUSTRIA E COMERCIO LTDA.

Customer Relations
Flexible Sales Structure
Sysmex adapts its business activities to local requirementswith the aim of being the number one global solutions
provider in the diagnostics field.
Throughout its history, Sysmex has always set its sights on overseas markets
and adapted its business activities to the requirements of markets in diverse
geographical regions. Today we engage in R&D, production, sales and support
activities at 32 locations around the world and supply products to customers inmore than 150 countries. We have already established our position as the market leader in the hematology segment in Japan, Europe, and Asia and we aremaking an aggressive bid to become the leading global solutions provider in thesegment by rebuilding our business structure and working to expand market
share in the U.S., the world’s largest market.

1991 — Winning Customers withdirect communication with customers in

Direct Sales and Support

an overseas market, the start of opera-

The establishment of U.K. subsidiarytions at the subsidiary brought immedi-

Sysmex U.K. Limited in May 1991

ate improvement in business perform-

marked a major breakthrough inance. Today Sysmex is the market

Sysmex’s global business development.

share leader in hematology and hemo-

The Company had already establishedstasis in the U.K.

subsidiaries in the U.S. in 1979 and inThis success in the U.K. marked aGermany in 1980, and achieved busi-

turning point in the direction ofness expansion in Europe and North

Sysmex’s international business strate-

America by engaging in indirect sales

gy. We subsequently implemented an

and support under distributor agree-

overseas business model adapted toments. However, as nearly all manufac-

local characteristics that involves a mix-

turers had adopted direct sales systems

ture of indirect sales through distributors

in the U.K., Sysmex experienced great
difficulty in expanding its businessthrough a local distributor. Seeking further growth, Sysmex decided to commence direct sales and support througha local subsidiary. Although this marked
the first time for Sysmex to undertake
SYSMEX UK LIMITED

59
Sysmex Annual Report 2006

and direct sales and support. Today weinto distribution agreement in hematol-

duction base. Two years later, in 1998,

are constructing a direct sales and sup-ogy with Roche of Switzerland, one of

we established subsidiary Sysmex

port system even in the U.S., a vast

the world’s leading healthcare compa-

Singapore Pte Ltd. in Singapore. Since

country and the world’s largest market.

nies. As a result of this alliance,that time we have established sub-Sysmex’s hematology analyzers weresidiaries in a number of other countries

1995 — New Markets throughincluded in Roche’s global productand engaged in full-scale business

Global Alliances

range. Over the years the two compa-

activities throughout the region with the

In 1995, Sysmex entered into a businessnies have maintained an excellent rela-aim of becoming the leading company

alliance agreement with Dadetionship as long-germ global alliancein the diagnostics market in Asia.

International of the U.S. (now Dadepartners who cooperate in the market-

Behring), the world’s leading manufac-

ing of one another’s products andSeeking to Become the “Global

turer of reagents in the hemostasis seg-

jointly develop new products, sharing

Niche No.1” Company

ment. This global alliance was significant

business that leverages the strengths

One of Sysmex’s basic strategies is toin that it opened wide the door to theof both partners.

become the “Global Niche No.1” company and we are engaged in global

world’s markets for Sysmex. Although
Sysmex possessed advanced technolo-

1995 — Acceleration of a Market-

business activities with the aim of attain-

gies in the hematology and hemostasis

driven Asia Strategy

ing market share leadership in hematol-

segments, at that time it was regarded

1995, the year Sysmex entered into theogy. We are currently the market share

as nothing more than a creative Asian

alliance with Dade Behring, was also aleader in every region of the world

company. Working together in world-

major turning point in our Asian strate-

except the U.S., and enjoy an excellent

wide partnership, the two companies

gy. To strengthen the business struc-

reputation among customers. We aim

established the number one global

ture in China, a market of enormous

to become the global market leader inbrand in the hemostasis segment. The

hidden potential, we established sub-the hematology segment by leveraging

partnership represented a major turning

sidiary Jinan Sysmex Medical

experience obtained in overseas mar-point for Sysmex, which joined the ranks

Electronics Co., Ltd. as a reagent pro-kets since the successful switch toof global companies active not only indirect sales and support in the U.K. in

the hemostasis segment, but also in the

1991, by expanding market share in the

diagnostics market as a whole, andU.S., the world’s largest market.

enhanced its status in the eyes of theworld.
This period marked the beginning ofacceleration in Sysmex’s global
alliances. In 1998, Sysmex entered

JINAN SYSMEX MEDICAL ELECTRONICS CO., LTD.

60
Sysmex Annual Report 2006

Customer Relations

After-sales Support
Sysmex is enhancing its locally based after-sales support
operation to increase added value in the form of peace ofmind and confidence.
Sysmex operates a network of seven branches and thirteen sales offices in Japan and
The Customer Support Centerhas established a sales and support structure second to none in the diagnostics

market. We do not merely engage in the sales of diagnostic instruments and reagents, but propose multifaceted solutions
involving after-sales support that take full advantage of this extensive network. We have established locally based, meticulous
after-sales support structures in overseas markets by rolling out this highly specialized, high-value-added after-sales support.

24-hour, Comprehensive

requests by upgrading our Call Center

Sponsoring Scientific Seminars

Support Provided byand other service systems and ensuring

for Advancement of Healthcare

Consummate Professionals

close cooperation between the Call

To provide customers with the latest

In Japan, the Customer Support

Center and local service engineers. In

information and keep them abreast ofCenter responds to customer inquiries

China, another geographically vast mar-trends in hematology, in 1978 Sysmex

or problems with Sysmex products

ket, we have implemented a service

began to hold an annual Sysmex

around the clock. Knowledgeable spe-structure similar to that in the U.S. to

Hematology Seminar in Japan, in which

cialists answer questions not only

achieve differentiation from competitors.

many physicians and laboratory technol-

about instruments and reagents, butogists now participate. In 1998, Sysmex

also about scientific matters such as

Improving Support via

began similar scientific seminars inmeasurement results. To ensure that

Advanced Networked Services

China, and now, the company also holds

customers can use our products withIn Japan, the Sysmex Network

seminars and other activities which con-confidence at all times, Sysmex has

Communication System (SNCS) is atribute to the development of laboratory

established a rapid support system bysupport service for the online provision

diagnostics in Thailand, Indonesia, India

stepping up cooperation between theof remote instrument maintenance andand other areas of Asia. Sysmex also

Customer Support Center and Sysmex

quality control by connecting theholds symposiums in Europe and North

branches and sales offices across

Customer Support Center and cus-

America, and it will continue to makeJapan. We have further enhanced

tomers’ products via the World Wideacademic contributions in the healthcare

after-sales support by consolidating theWeb. Unique to Sysmex, the SNCS isfield in the coming years.

customer after-sales support functionused by many customers in Japan andInformation QC data/ Log
Hospital from web site informationin the Solutions Center, which opened

has earned a strong reputation.

in 2005.

Building on the success of the SNCS in

Hospital

SNCS Server
Error Notification

Hospital

In the U.S., where Sysmex has con-Technical
Specialist

Japan, Sysmex is rolling out the systemverted to a direct sales and support

globally, sequentially introducing it instructure, we have put in place a sys-

the U.S., Europe, China and Asia

tem for rapidly responding to customer

Pacific markets.

Technical
Support Center

Customer

Toll Free

Technical Support
Operator

SupportEngineer

Scientific Div.
Operator

Sysmex On-line Quality Control & Support

61
Sysmex Annual Report 2006

Global Network
SYSMEXUK LIMITEDSYSMEX LOGISTICS UK LTD.
SYSMEX DEUTSCHLAND GMBHSYSMEX EUROPE GMBHSYSMEX POLSKA S.P.ZO.O.
WELLTEC GMBH

JINAN SYSMEXMEDICAL ELECTRONICS CO., LTD.

SYSMEX BELGIUM IT
SLOVAKIA,S.R.O.
SYSMEX BELGIUM S.A.

SYSMEX SHANGHAI LTD.

SYSMEX FRANCE S.A.S.

SYSMEX HONG KONG LIMITEDSYSMEX AMERICA, INC.

SYSMEX WUXI CO., LTD.

SYSMEX REAGENTS AMERICA, INC.

SYSMEX INFOSYSTEMS CHINA, LTD.
SYSMEX SAN TUNG CO., LTD.

SYSMEX (THAILAND) CO., LTD.
MED-ONE CO., LTD.
SYSMEX (MALAYSIA) SDN BHDSYSMEX TRANSASIA
BIO-MEDICALS PRIVATE LTD.

SYSMEX ASIA PACIFIC PTE LTD.
PT. SYSMEX INDONESIASYSMEX DO BRASIL
INDUSTRIA E COMERCIO LTDA.
SYSMEX SOUTH AFRICA (PTY) LTD.
Sales
Production
R&D
Distribution
Regional Headquarters

SYSMEX NEW ZEALAND LIMITED

EuropeAmericasSince establishing subsidiary Sysmex Europe GmbH in Germany inSysmex began to engage in indirect sales and support in the U.S. in

1989, Sysmex has steadily expanded its business in Europe by setting

1999. This was on the basis of a sales distributor agreement with Rocheup sales and support bases and constructing a distribution network

Diagnostics of the U.S., covering the hematology segment. To reinvigo-

centered on Western Europe. In 2005, we established subsidiaryrate its business structure and take advantage of its unique strengths in

Sysmex Polska S.p.zo.o. in Poland to expand our sales and support

this important market, in July 2003 Sysmex constructed a direct sales

network in Eastern Europe, an area expected to grow rapidly in theand support system. We integrated a sales subsidiary and an IT devel-

coming years. We established our second business base in Africa,

opment subsidiary, to provide total solutions that combine instruments,

wholly owned subsidiary Sysmex South Africa, inreagents, after-sales support and IT. We are

the Republic of South Africa, an economy

achieving penetration of the Sysmex brandmarked for BRIC-level growth, and will enhancethrough direct communications with customers.

sales and support activities in this region.

In 2004, Sysmex strengthened its business infrastructure in Central and South America by
expanding the reagent production plant in Brazil.
SYSMEX EUROPE GMBHSYSMEX AMERICA, INC.

China

Asia Pacific

In 1995, Sysmex established a reagent production facility in China, aSysmex aggressively engages in business in Asia with the aim of being

market expected to show tremendous growth, and has secured market

the leading comprehensive supplier in the diagnostics market in theshare leadership in both hematology and hemostasis. We also enteredregion. In July 2002, we established PT. Sysmex Indonesia. We oper-

the clinical chemistry business in March 2003. In August 2003, we

ate sales and support units in Taiwan, India, Singapore, Malaysia,

strengthened our local production structure by establishing Sysmex

Thailand, the Philippines, Vietnam, New Zealand and Indonesia. We

Wuxi as our second reagent production base inalso operate reagent factories in Singapore andChina. We have built a solid sales and support

India to engage in business activities closely

network to cover this geographically enormousaligned with the requirements of local markets.

market together with local distributors, and we
maintain sales offices in Shanghai, Beijing,
Shenyang, Xian, Chengdu, and Guangzhou.
SYSMEX SHANGHAI LTD.

SYSMEX ASIA PACIFIC PTE LTD.

62
Sysmex Annual Report 2006

Investor Information
Composition of Shareholders

SYSMEX CORPORATION (As of March 31, 2006)
EstablishedFebruary 20, 1968

Number of Employees

3,333 (consolidated basis)
1,650 (non-consolidated basis)* Including part-time employees

Fiscal Year

April 1 - March 31
Annual meeting held in June

(As of March 31, 2006)
Financial Institutions
24.57%

Individuals and Others
42.53%

Securities Companies
0.55%
Other Japanese Companies
10.41%

Common Stock
Authorized:

Foreign Investors
21.94%

149,672,000 shares

Issued:50,005,596 shares

Paid-in Capital:¥7,954 million

Listings:

Tokyo Stock Exchange,
First Section
Osaka Securities Exchange,
First Section

Stock Price Range & Trading Volume
12,000Common stock price range (¥)
10,0008,000

November 1995:

Listed on Osaka Securities Exchange,
Second Section

July 1996:

Listed on Tokyo Stock Exchange,
Second Section

March 2000:

Listed on Tokyo Stock Exchange, First
Section and Osaka Securities Exchange,
First Section

Ticker Code:Transfer Agent:

6,000
4,000
2,000
0

6869

*Two-for-one stock split in Nov. 2005

Tokyo Price Index close

4/’05 5

6

7

8

9

10

11

12 1/’06 2

3

4

5

6 (Month)

1011

12 1/’06 2

3

4

5

6 (Month)

6,000,000

Mitsubishi UFJ Trust andBanking Corporation

Monthly trading volume
5,000,000

Independent Auditor: Deloitte Touche Tohmatsu

4,000,000

Rating:A (Rating and Investment Information, Inc (R&I))

3,000,000

Indexes:

Russell/Nomura Japan Equity Indexes

2,000,000

FTSE Japan Index

1,000,000
04/’05 5

6

7

8

9

OFFICES (As of June 30, 2006)
Head Office:Solution Center:

Techno Center:

R&D Center:

Kakogawa Factory:

Sendai Branch

Kitakanto Branch:

4-261-1, Kishiki-cho, Oomiya-ku,
Saitama 330-0843, Japan
Tel: (+81) 48-600-3888

Tokyo Branch:

1-3-2, Murotani, Nishi-ku,
Kobe, Hyogo 651-2241,Japan
Tel: (+81) 78-992-5860

1-24-1, Hongo, Bunkyo-ku,
Tokyo 113-0033, Japan
Tel: (+81) 3-3814-5046

Nagoya Branch:

4-4-4, Takatsukadai, Nishi-ku,
Kobe, Hyogo 651-2271, Japan
Tel: (+81) 78-991-1911

1-603, Kamiyashiro, Meito-ku,
Nagoya 465-0025, Japan
Tel: (+81) 52-775-8101

Osaka Branch:

1-1-2, Murotani, Nishi-ku,
Kobe, Hyogo 651-2241, Japan
Tel: (+81) 78-991-2212

17-1, Enoki-cho, Suita,
Osaka 564-0053, Japan
Tel: (+81) 6-6337-8300

Hiroshima Branch:314-2, Kitano, Noguchi-cho,
Kakogawa,
Hyogo 675-0011, Japan
Tel: (+81) 79-424-1171

3-17, Fukuro-machi, Naka-ku,
Hiroshima 730-0036, Japan
Tel: (+81) 82-248-9070

Fukuoka Branch:

4-9-24, Hakata Eki Minami, Hakata-ku,
Fukuoka 812-0016, Japan
Tel: (+81) 92-411-4314

1-5-1, Wakinohama-kaigandori,Chuo-ku, Kobe,
Hyogo 651-0073, Japan
Tel: (+81) 78-265-0500
Fax: (+81) 78-265-0524

4-6-1, Chuo, Aoba-ku,
Sendai 980-6024, Japan
Tel: (+81) 22-722-1710

Japanese Sales Offices: Sapporo, Morioka, Nagano,Niigata, Chiba,Yokohama, Shizuoka,
Kanazawa, Kyoto, Kobe, Takamatsu,
Okayama, Kagoshima

63
Sysmex Annual Report 2006

Consolidated Subsidiaries and Affiliates
Japan

Americas

SYSMEX INTERNATIONAL
REAGENTS CO., LTD.
HEAD OFFICE/SEISHIN FACTORY
4-3-2, Takatsukadai, Nishi-ku, Kobe, Hyogo
651-2271, JapanTe l : (+81) 78-991-2211
Fax: (+81) 78-991-1311

SYSMEX AMERICA, INC.
1 Nelson C. White Parkway,
Mundelein, IL 60060, U.S.A.
Te l : (+1) 847-996-4500
Fax: (+1) 847-996-4505

ONO FACTORY
17 Takumidai, Ono, Hyogo 675-1322, JapanTe l : (+81) 794-62-7001
Fax: (+81) 794-62-7005
Equity Ownership by Group: 100%
Established: December 1969

Equity Ownership by Group: 100%
Established: June 2003

SYSMEX REAGENTS AMERICA, INC.
10716 Reagan Street, Los Alamitos,
CA 90720, U.S.A.
Te l : (+1) 562-799-4001
Fax: (+1) 562-799-9702
Equity Ownership by Group: 100%
Established: December 1993

SYSMEX MEDICA CO., LTD.
323-3 Miyaoki, Yumesaki-cho, Himeji, Hyogo
671-2121, JapanTe l : (+81) 79-335-2080
Fax: (+81) 79-337-2806
Equity Ownership by Group: 100%
Established: March 1978

TOA MEDICAL CO., LTD.
1-3-2, Murotani, Nishi-ku, Kobe, Hyogo
651-2241, JapanTe l : (+81) 78-992-5883
Fax: (+81) 78-992-5884
Equity Ownership by Group: 100%
Established: July 1992

SYSMEX LOGISTICS CO., LTD.
17 Takumidai, Ono, Hyogo 675-1322, JapanTe l : (+81) 794-64-2326
Fax: (+81) 794-64-2310
Equity Ownership by Group: 100%
Established: December 1997

SYSMEX RA CO., LTD.
1850-3 Hirookanomura, Shiojiri, Nagano
399-0702, JapanTe l : (+81) 263-54-2251
Fax: (+81) 263-54-2254
Equity Ownership by Group: 96.4%
Established: March 1978

CNA CO., LTD.
2-3-7, Hakata Eki Mae, Hakata-ku, Fukuoka
812-0011, JapanTe l : (+81) 92-476-1121
Fax: (+81) 92-476-1131

SYSMEX DO BRASIL INDUSTRIAE COMERCIO LTDA.
Rua Joaquin Nabuco, 615 Sao Jose dos
Pinhais, Parana, CEP, 83040210, Brasil
Te l : (+55) 41-2104-1314
Fax: (+55) 41-2104-1300
Equity Ownership by Group: 100%
Established: December 1998

EuropeSYSMEX EUROPE GMBH
Bornbarch 1, 22848 Norderstedt, Germany
Te l : (+49) 40-527260
Fax: (+49) 40-52726100
Equity Ownership by Group: 100%
Established: October 1980

SYSMEX DEUTSCHLAND GMBH
Bornbarch 1, 22848 Norderstedt, Germany
Te l : (+49) 40-5341020
Fax: (+49) 40-5232302
Equity Ownership by Group: 100%
Established: March 1995

WELLTEC GMBH
Rheingaustrasse 190-196, 65203 Wiesbaden,
Germany
Te l : (+49) 6119-628-823
Fax: (+49) 6119-628-824
Equity Ownership by Group: 75.2%
Established: March 2002

Equity Ownership by Group: 50.8%
Established: February 1996

64
Sysmex Annual Report 2006

SYSMEX UK LIMITED
Sysmex House, Garamonde Drive, Wymbush,
Milton Keynes, MK8 8DF, U.K.
Te l : (+44) (0) 870-902-9210
Fax: (+44) (0) 870-902-9211
Equity Ownership by Group: 100%
Established: May 1991

SYSMEX LOGISTICS UK LTD.
Unit 4 IO Centre, Fingle Drive, Stonebridge, Milton
Keynes, MK13 0AT, Buckinghamshire, U.K.
Te l : (+44) (0) 870-902-9230
Fax: (+44) (0) 870-902-9231
Equity Ownership by Group: 100%
Established: December 2003

SYSMEX BELGIUM S.A.
Rue Pres Champs 25B, 4671 Barchon, Belgium
Te l : (+32) 4-387-9393
Fax: (+32) 4-387-9394
Equity Ownership by Group: 100%
Established: September 1997

SYSMEX FRANCE S.A.S.
Paris Nord II, 22, avenue des Nations, B.P.
50414 Villepinte, 95944 ROISSY-CDG Cedex,
FranceTe l : (+33) 1-48-170190
Fax: (+33) 1-48-632350
Equity Ownership by Group: 100%
Established: February 2000

SYSMEX BELGIUM IT SLOVAKIA, S.R.O.
Drobneho 27, 841-01 Bratislava, Slovakia
Te l : (+42) 126-453-3201
Fax: (+42) 126-428-1651
Equity Ownership by Group: 76%
Established: March 2001

SYSMEX POLSKA S.P.Z O.O.
Kopernik Office Building, Al. Jerozolimskie 176,
02-486 Warszawa, Poland
Te l : (+48) 22-57284-00
Fax: (+48) 22-57284-10
Equity Ownership by Group: 100%
Established: May 2005
SYSMEX SOUTH AFRICA (PTY) LTD.
Fernridge Office Park,Block 2; 5 Hunter
Avenue;Ferndale;Randburg 2194 RSA
Equity Ownership by Group: 100%
Established: April 2006

ChinaAsia Pacific

JINAN SYSMEX MEDICAL ELECTRONICS
CO., LTD.
7493 Airport Road, Yaoqiang Town, Licheng
District, Jinan City, Shandong Province, China;
PC.250107
Te l : (+86) 531-8873-4440
Fax: (+86) 531-8873-4442

SYSMEX ASIA PACIFIC PTE LTD.
2 Woodlands Sector 1,#01-06 Woodlands Spectrum,
Singapore 738068
Te l : (+65) 6221-3629
Fax: (+65) 6221-3687

Equity Ownership by Group: 100%
Established: June 1995

SYSMEX HONG KONG LIMITED
Rm. 1509, 15/F., Tower 1, Silvercord, 30
Canton Road, Tsimshatsui, Kowloon, Hong
Kong
Te l : (+852) 2543-5123
Fax: (+852) 2543-5181
Equity Ownership by Group: 100%
Established: December 1999

SYSMEX SHANGHAI LTD.
9th Floor, Azia Center, 1233 Lujiazui Ring Road,
Shanghai, 200120, China
Te l : (+86) 21-6888-2626
Fax: (+86) 21-6888-2625
Equity Ownership by Group: 100%
Established: January 2000

SYSMEX INFOSYSTEMS CHINA, LTD.
9th Floor, Azia Center, 1233 Lujiazui Ring Road,
Shanghai, 200120, China
Te l : (+86) 21-6888-2606
Fax: (+86) 21-6888-2605
Equity Ownership by Group: 100%
Established: July 2000

Equity Ownership by Group: 100%
Established: February 1998

SYSMEX (MALAYSIA) SDN BHD
Lot 928, Block A, Kelana Centre Point, Jln SS
7/19 Kelana Jaya, 47301 Petaling Jaya,
Selangor, Malaysia
Te l : (+60) 3-78041799
Fax: (+60) 3-78047821

SYSMEX NEW ZEALAND LIMITED382-386 Manukau Road, Epsom,
Auckland 1030, New Zealand
Te l : (+64) 9-630-3554
Fax: (+64) 9-630-8135
Equity Ownership by Group: 100%
Established: October 2001
PT. SYSMEX INDONESIA
Menara Hijau, Suite 1005 JI. MT. Haryono Kav. 33,
South Jakarta, 12770 Indonesia
Te l : (+62) 21-7986005
Fax: (+62) 21-7986007
Equity Ownership by Group: 100%
Established: March 2002

Equity Ownership by Group: 100%
Established: April 1998

SYSMEX TRANSASIA BIO-MEDICALSPRIVATE LTD.
308, ASCOT Centre, 3rd Floor, Next to Hotel Le
Royal Meridian Sahar Airport Road, Andheri(East) MUMBAI 400 099, India
Te l : (+91) 22-2822-4040
Fax: (+91) 22-2836-5068*Company under the application of the equity
method(As of June 30, 2006)

Equity Ownership by Group: 51%
Established: July 1998

SYSMEX (THAILAND) CO., LTD.
14 Soi Ramkamhaeng 43/1, Ramkamhaeng
Road, Wangthonglang, Bangkok 10310,
ThailandTe l : (+66) (0)-2949-0899
Fax: (+66) (0)-2949-0808
Equity Ownership by Group: 51%
Established: May 1999

SYSMEX WUXI CO., LTD.
#8-9, No.93, Science Technology Stand-up
Park, Wuxi National Hi-Tech. District
Development Zone, Wuxi City, Jiangsu
Province, 214028, China
Te l : (+86) 510-8534-5837
Fax: (+86) 510-8534-3896
Equity Ownership by Group: 100%
Established: August 2003

MED-ONE CO., LTD.*
14 Soi Ramkamhaeng 43/1, Ramkamhaeng
Road, Wangthonglang, Bangkok 10310,
ThailandTe l : (+66) (0)-2949-0899
Fax: (+66) (0)-2949-0808
Equity Ownership by Group: 49%
Established: May 1999

SYSMEX SAN TUNG CO., LTD.
1ST Fl., 11, Lane 6, Sec. 1, Hangchow S. Rd.,
Taipei, Taiwan R.O.C.
Te l : (+886) 2-2341-9290
Fax: (+886) 2-2341-9275
Equity Ownership by Group: 51%
Established: May 2000

65
Sysmex Annual Report 2006

Topics• SYSMEX HOLDING BELGIUM S.A.
Dissolved and liquidated in August 2005.
• SYSMEX INTERNATIONAL REAGENTS
CO., LTD.
The reagent production unit transferredfrom Sysmex Corporation in a corporate
separation in April 2006.
• SYSMEX SOUTH AFRICA (PTY) LTD.
Established in April 2006.