Combinationtokyohotn0717

ANNUALREPORT2005ProfileFINANCIALHIGHLIGHTSKisseiPharmaceuticalCo.
,Ltd.
anditssubsidiariesYearsendedMarch31ThousandsofMillionsofYenU.
S.
DollarsExceptExceptPerShareDataPerShareData200420052005NetSales.
58,22660,933$569,467OperatingIncome6,2105,51751,561NetIncome5,6004,73544,252TotalAssets162,842164,9441,541,533TotalShareholders'Equity116,266120,0861,122,299PerShare(YenandDollars):NetIncomePrimary101.
886.
5$0.
808Fully-Diluted88.
775.
50.
706CashDividends17.
020.
00.
187R&DExpenses9,8269,893$92,458CapitalInvestment1,8181,66015,514Notes:1.
U.
S.
dollaramountsaretranslatedattherateof107=U.
S.
$1,theapproximateeffectiverateofexchangeatMarch31,2005.
2.
Netincomepershareiscomputedbasedontheweightedaveragenumberofsharesofcommonstockaftersubstractingtheweightedaveragenumberofsharesoftreasurystockfortheyear.
TheKisseiGroupoperatesunderthemanagementphilosophyofcontributingtosocietiesevery-where.
Wepromotemanagementpoliciesthatemphasizetheimportanceofsharehold-ers,employees,localcommunities,historyandculture,andtheenvironment.
ThemanagementvisionunderpinningourcorepharmaceuticalbusinessisforKisseiPhar-maceuticalCo.
,Ltd.
,tobeanR&D-orientedpharmaceuticalcompanycontributingtohumanhealthcarewithinnovativedrugs.
Tothisend,wepromoteresearchanddevelop-mentactivitiesfromthepatient'sperspective,strivingtomanufacturethehighestqualitypharmaceuticalswhileprovidinginformationnecessarytousetheproductsproperly.
Atthesametime,theCompanyhasbuiltatotalmarketingstructureandundertakenotheractivitiestomakeitsoperationsefficient.
Kisseilauncheditsfive-yearmedium-termmanagementplan"EvolutionPlan"inApril2003withtheslogans"Reformingourprofitstructure"and"Shiftingtowardagrowthphase.
"WeareforgingaheadwiththisplaninordertorealizegrowthasanR&D-orientedpharmaceuticalcompanywithameaningfulobjectiveandsignificantcorporatevalue.
1AMessagefromthePresidentAMessagefromthePresidentReviewofOperationsMarketConditionsduringTermUnderReviewTheJapaneseeconomyinthefiscalyearendedMarch31,2005,beganrobustlywithstrongexports,capitalinvestmentgrowth,andfirmconsumerspending.
Therecoverytrend,however,wasupsetbyskyrocketingoilprices,theweakeningofexports,andahostofotherfactorspreventingtheeconomyfromfullymaintainingarecoverytrack.
ThepharmaceuticalsindustrycontinuedtobeaffectedbytheJapanesegovernment'spolicyofrestrainingmed-icaltreatmentfeesanddrugprices.
Inparticular,thegovernment'sreductionofNationalHeathInsurance(NHI)drugpricesinApril2004createdamoresevereenvironmentforKisseiandothersintheindustry.
Intheinformationservicesandmerchandisingbusinesses,meanwhile,thedemandforgreaterITefficienciesandthepersistenteconomicslumphavecombinedtocreateintensepricecompetition.
Amidthisenvironment,Kisseiexecutedanaggressivedevelopmentandmarketingstrategy.
WefullyrolledoutGlufastTab.
,arapidonsetandshortactinginsulinsecre-tagoguelaunchedinMay2004inconjunctionwithTakedaPharmaceuticalCo.
,Ltd.
FromJanuary2005,wetookoverthemarketingoftheantihypertensionagentCinalongfromUCBJapanCo.
,Ltd.
Inaddition,wehaveengagedinproactiveinformationalactivitieswithallofourexistingdrugs.
Further,weacquiredthemarketingrightsfromBanyuPharmaceuticalCo.
,Ltd.
'sspecialtyfoodsforrenalailmentsandbeganfull-scalesalesinMarch2005.
Inotherbusinessareas,theCompanyfocusedonimprovingthesynergisticeffectswithintheKisseiGroupbyinstitutingvariousrestructuringinitiatives.
Netsalesintheyearunderreviewtotaled60.
93billion,anincreaseof4.
6%fromthepreviousyear.
Operatingincome,however,declined11.
2%,to5.
52billion,duetoanincreaseinselling,generalandadministrativeexpenses,mostofwhichwerelinkedtothelaunchofGlufastTab.
Netincomedeclined15.
4%,to4.
73billion.
Kisseialsorecordedaprofitof1.
57billionfromthereturnofpensionassetsandthecreationofanewpen-sionfundsystem,forwhichtheCompanyreceivedapprovalonAugust1,2004.
NetSalesbySegmentInthepharmaceuticalssector,theCompanywasnega-tivelyaffectedbytherevisionofNHIdrugpricesandtheappearanceofcompetingdrugs.
However,thestrongdebutofGlufastTab.
andtheincreaseinR&Dlicensingincomehelpedincreasenetsalesofpharmaceuticalsby3.
7%overthepreviousyear,to57.
24billion.
Netsalesfromotherbusinessesjumped21.
3%,to3.
70billion,despiteanincreasinglycompetitiveenvironment.
ResearchandDevelopmentandGlobalExpansionTheKisseiGroupispromotingthedevelopmentofnewdrugsinitscorepharmaceuticalsbusinessinordertoreal-izethemanagementvisionofbeinganR&D-orientedpharmaceuticalcompanycontributingtohumanhealthcarewithinnovativedrugproducts.
Kisseiisalsopursuinganexpansionofoverseassalesbyaggressivelylicensingoutitstechnologytoglobalpartners.
Duringthetermunderreview,wefiledanewdrugapplication(NDA)asplannedinJune2004inJapantoreceivemanufacturingapprovalforsilodosin(genericname;phaseIIIclinicaltrialsconductedwithDaiichiPharmaceuticalCo.
,Ltd.
),whichisusedforthetreatmentofdysuriaassociatedwithbenignprostatichyperplasia(BPH).
Atthesametime,weconductedfollow-upproce-durestotheMay2003filingoftheNDAforpilocarpine(genericname),atherapeuticagentfordrymouthinducedbyradiationtherapyforheadandneckcancer,andmadesignificantprogressonthedevelopmentofaddedindicationsofbothGlufastTab.
andpilocarpine.
PhaseIIandIIIclinicaltrialsontheadditionalindicationsofcombinationtherapyusing-glucosidaseinhibitorandGlufastTab.
confirmeditshighbenefit,andthereforetheCompanywillfileanNDAinJapanasplannedinthesec-ondhalfoffiscal2006,endingMarch31,2006.
Inaddition,thephaseIIIclinicaltrialstoconfirmtheadditionalindica-tionsofpilocarpinefordrymouthduetoSjgren'ssyndromehaveprogressed,enablingtheCompanytofileanNDAinJapanasscheduledinthelatterhalfoffiscal2006.
PhaseIclinicaltrialsforKUC-7483(developmentcode),atherapeuticagentdesignedtoalleviateurinaryincon-tinenceandoveractivebladder,beganinJapaninsummer2004.
Intheareaoflicensing,LesLaboratoiresServierendeddevelopmentofmitiglinide(genericname)inJuly20042afterhavingreceivedthelicensingrightstothedrugforEurope,Chinaandothermarkets.
Silodosin,however,hasbeenlicensedouttoWatsonPharmaceuticals,Inc.
,oftheUnitedStates,fortheNorthAmericanmarket,andmorerecentlythedevelopmentandmarketingrightswerelicensedtoItaly'sRecordatiSpAfortheEuropeanmarket.
WatsonPharmaceuticalshasbegunphaseIIIclinicaltrialsforsilodosin,whileRecordatihasbegunclinicaltrialpreparations.
WealsosignedalicensingagreementtograntDainipponPharmaceuticalCo.
,Ltd.
,theJapanesemarketdevelop-mentandmarketingrightstosodium-dependentrenalglucosetransportertype1(SGLT1)inhibitor:diabetesdrugKGA-2727(developmentcode).
In2002,theU.
K'sGlaxoSmithKlinePLC(GSK)wasgrant-edworldwidedevelopmentandmarketingrights,excludingJapan,Korea,ChinaandTaiwan,forKGT(developmentcode),abloodsugar-loweringSGLT2inhibitor.
GSKhasbegunphaseIIclinicaltrials.
Alsoin2002,Germany'sBoehringerIngelheimGmbHwasgrant-edworldwidedevelopmentandmarketingrights,exclud-ingJapan,Korea,ChinaandTaiwan,forKUC-7483,theselective3receptoragonistunderdevelopmentasatherapeuticagentforurinaryincontinenceandoverac-tivebladder.
PhaseIclinicaltrialsarecurrentlyunderway.
InFebruary2004,KisseienteredanagreementwithU.
S.
pharmaceuticalcompanyMediciNovaInc.
,grantingworldwidedevelopmentandmarketingrights,excludingJapan,forKUR-1246(developmentcode),aselective2receptoragonistunderdevelopmentasatreatmentforthreatenedprematurelabor.
MediciNovaisconductingphaseIclinicaltrialsintheUnitedStatesandispreparingforphaseIItrials.
Kisseiwillcontinuetoactivelyseeklicensingdealswithpharmaceuticalcompaniesaroundtheworldformitiglin-ideandothernewdrugs.
OutlookTherevisedPharmaceuticalAffairsLawofJapanwentintofullforceinApril2005,andothergovernmentmea-suresarealsoexpectedtocreateamorechallengingenvironmentintheJapanesepharmaceuticalsindustry,includinganexpectedoverhaulofthemedicalinsur-ancesystem,anotherroundofregularNHIdrugpricereductions,andvariousinitiativestorestrainmedicaltreatmentandotherfees.
Concernsremaininotherbusinessareasaswell,duelargelytodeflationarypressuresandthelackofacleareconomicrecovery.
Despitetheunfavorablecircumstances,theCompanyaimstocreateacorporatestructurewhichencouragessynergieswithintheKisseiGroupandleadstocontinuedgrowthbasedonthecurrentmedium-termmanagementplan.
NetsalesKisseiforecastsanincreaseinnetsalesonexpectationsofgrowthinnewdrugsGlufastTab.
andCinalong,alongwithsteadydemandforexistingdrugs.
IncomeThoughnetsalesareseenrising,weexpectoperatingincomeandnetincometodeclinecomparedwithfiscal2005duetohighersalescosts,increasedexpenditurestolaunchnewproductsintothemarket,andthebookingofaprofitinfiscal2005fromareturnofpensionassets.
DistributionofProfitsKisseiplanstopayacashdividendof24.
0pershareinthecurrentterm(includingamid-termpayoutof12.
0ashare),inkeepingwiththeCompany'spolicyofreturningprofitstoshareholdersthroughdividendsandimprovingcapitalefficiency.
StrategyTheCompanybeganitscurrentfive-yearmedium-termmanagementplan"EvolutionPlan"inApril2003.
Underthisplan,wearetakingonthechallengesofreformingourprofitstructureandshiftingtowardagrowthphase.
KisseiaimstorealizeitsvisionofbeinganR&D-orientedpharmaceuticalcompanywithanimportantobjectiveandsignificantcorporatevaluebybolsteringitstotalmarketingsystemandthoroughlyimplementingthefol-lowingmanagementstrategies.
CONSOLIDATEDOUTLOOK(Unit:MillionsofYen)March2006March2005March2005resultsvs.
outlookresultsMarch2004results%changeNetsales62,20060,9331,2672.
1%Operatingincome4,2505,516-1,266-23.
0%Netincome2,8004,734-1,934-40.
9%3(1)ReceiveapprovalinJapanforandlaunchthreedrugscoveringfiveindications,includingthetop-prioritydiabetesdrugmitiglinide,andquicklyexpandtheirmarketshares(2)Enhancemarketsharesofexistingproductsandincreasenetsalesandincome(3)Activelypursueopportunitiestolicenseoutdrugcan-didatesforglobaldevelopment,predominantlyinEuropeandtheUnitedStates,toraiseoverseassales(4)ConsistentlydiscoveranddevelopnewdrugsthataremarketablearoundtheworldandenrichourR&Dpipelinebybolsteringournewdrugresearchinfrastructure(5)Develophighlyefficientproductionanddistributionsystemsbasedonpatientandmarketneeds,inaccordancewithrevisionsinthePharmaceuticalAffairsLaw(6)Comprehensivelyrevieweveryaspectofouropera-tionsandstrivetoenhanceproductivityandgeneratesynergiesbypromotingthemoreeffectiveuseofmanagementresourcesacrosstheKisseiGroup(7)ContributetosocietyasagoodcorporatecitizenbythoroughlyimplementingourcomplianceprogramandactivelycontributingtothepreservationoftheglobalenvironmentThroughthesuccessfulimplementationofourmedium-termmanagementplan,weaimtoevolveuniquelyasanR&D-orientedpharmaceuticalcompany.
Iwouldliketoaskforyourcontinuedsupportaswefacethechallengesthatlieahead.
June2005MutsuoKanzawaPresidentandChiefExecutiveOfficerNotes:KUR-1246,licensedouttoMediciNova,isinpreparationforphaseIIclinicaltrialsandisinphaseItrialsintheU.
S.
Silodosin,licensedouttoRecordati,isinpreparationforclinicaltrials.
DevelopmentPortfolioinJapan(AsofMay,2005)DevelopmentDevelopmentProductOriginDevelopmentTherapeuticTargetStageCodeCompany(GenericName)NDAKSS-694MGIPharmaKisseiDrymouthduetoradiationtherapy(Pilocarpine)(U.
S.
)forheadandneckcancerKMD-3213KisseiKissei/DaiichiDysuriaassociatedwithbenign(Silodosin)PharmaceuticalprostatichyperplasiaPhaseIIIKSS-694MGIPharmaKisseiDrymouthduetoSjgren'ssyndrome(Pilocarpine)(U.
S.
)(additionalindication)PhaseII/IIIKAD-1229KisseiKisseiImprovementofpostprandialplasmaglucosetransitionin(Mitiglinide)patientswithtype2diabetesmellitusCombinationtherapywith-glucosidaseinhibitor(additionalindication)PhaseIKUC-7483KisseiKisseiUrinaryincontinenceassociatedwithoveractivebladderKUR-1246KisseiKissei/TeikokuThreatenedprematurelaborHormoneMfg.
KUL-7211KisseiKisseiPainreliefandexcretionofurinarytractstoneR&DPipelineOverseasDevelopmentGenericName/DevelopmentTerritoryTherapeuticTargetStageDevelopmentCompany/CodeLicenseePhaseIIISilodosinWatsonU.
S.
,CanadaDysuriaassociatedwithbenignprostatichyperplasia(KMD-3213)andMexicoPhaseIIMitiglinideKisseiType2diabetes(KAD-1229)KGTGlaxoSmithKlineWorldwide,excludingType2diabetesJapan,Korea,ChinaandTaiwanKUR-1246MediciNovaWorldwide,excludingThreatenedprematurelaborJapanSilodosinRecordatiEuropeDysuriaassociatedwithbenignprostatichyperplasia(KMD-3213)(45countries)VX-702VertexRheumatoidarthritis(KVK-702)(jointdevelopment)PhaseIKUC-7483BoehringerIngelheimWorldwide,excludingUrinaryincontinence/OveractivebladderJapan,Korea,ChinaandTaiwanKFA-1982KisseiDeepveinthrombosis,etc.
(oralanticoagulant)DevelopmentPortfolioinJapanR&DPipelineOverseasNetsalesinfiscal2005,endedMarch31,2005,grew4.
6%overthepreviousterm.
SalesofBezatolSRTab.
,athera-peuticagentforhyperlipidemia;Xanbon,acerebralcir-culationameliorator;andUtemerin,adrugforthreatenedprematurelaborandthreatenedabortion,declinedduetotheadverseeffectsofNHIdrugpricerevisionsandcompetition.
Ontheotherhand,salesgainedmomentumfornewantidiabeticdrugGlufastTab.
andforCabaserTab.
,atherapeuticagentforParkinson'sdisease.
Inaddition,demandforRizabeneyedropsforthetreatmentofallergicconjunctivitisrosesharplyduetohighcedarpollenlevelsintheyearunderreview.
Revenuefromlicensingfeesandothertechno-logicaltie-upsalsoincreasedthankstohigherlicensingfeesforsilodosinandKUR-1246,alongwithstrongincomefromcollaborativesalesandjointmarketing.
Thecostofsales,meanwhile,rose1.
9pointsfromthepreviousyear,to38.
6%ofnetsales.
ThoughthelaunchofGlufastTab.
andtheincreaseintechnicalfeeincomewerefactorsreducingthemanufacturingcostratio,theNHIdrugpricerevisionsandincreaseofstockofCabaserTab.
andotherproductsservedtoincreasetheratio.
Selling,generalandadministrativeexpensesrose4.
0%duetopromotionalcostsforGlufastTab.
andthelaunchofantihypertensiondrugCinalongandexpensesincurredinpreparingtomarketsilodosinandpilocarpine,alongwithhigheradvertisingcosts.
Asaresultofthehighercosts,operatingincomedeclined11.
2%,to5.
52billion.
TheCompanybookedagainofabout1.
57billionrelatedtothegainfromtransferofpension,andnetincometotaled4.
73billion.
Kisseimaintainedastablefinancialposition,withanequityratioof72.
8%fortheterm.
BasicPolicyonCorporateGovernanceandImplementationStatusKissei'sBoardofDirectorssetsthebasicstrategyfortheCompanyandmakesfinaldecisionsonallimportantmatterswhileprovidingoversightofbusinessexecution.
Inprinciple,thebodyconvenesonceamonthtoengageinactivedebateoveroperations,withapriorityonmak-ingpromptbusinessdecisionsandincreasingthetrans-parencyofmanagement.
TheCompanyalsohasacorporateauditorsystemcomprisedoftwoin-houseandtwoexternalauditors.
Thecorporateauditorsjointhemeet-ingoftheBoardofDirectorsandfreelysharetheiropin-ions.
Oneofthecorporateauditorsisalsolicensedasanattorneytoprovideaspecialperspectiveonoperations.
Kisseiregularlyundergoesoutsideauditingbyaninde-pendentauditor(ChuoAoyamaPricewaterhouseCoopers).
Theindependentauditorengagesindiscussionswithcor-poratemanagement,financeofficials,andcorporateauditors,whichaidsthestrengtheningofthecorporategovernancestructure.
Intermsofinternalcontrols,KisseihasanindependentAuditingDepartmentthatreportsdirectlytothepresi-dent,conductinginternalauditsacrossalldepartmentsintheCompanyandfollowingupontheresults.
Asacompanydirectlyinvolvedinlifescience,Kisseiconductsitsbusinesswithanemphasisonethics.
WesetforththeCodeofConductin1999tocomplementthemanagementphilosophywehaveheldsinceourfound-ing.
TheCodeofConductcompelsouremployeestoabidebytheletterandspiritofalllawsandregulationsathomeandoverseas.
TheComplianceProgramfurtheringtheidealsoftheCodeofConductwasinstitutedin2001,providingamanualbywhichtoguidethepracticalapplicationofcomplianceinworkplaceconduct.
Inthesameyear,theComplianceCommitteecomprisingdirectorsandotherexecutiveswasestablished.
Underthiscompliancestructure,Kisseihasbeencarryingoutcontinualcompliancetrainingandeducationtoraiseawareness.
InApril2004,wesetuptheCSRDepartmentasawaytofulfillourcorporatesocialresponsibilityasagoodcor-poratecitizenthroughcompliancewithlawsandcontri-butionstoglobalenvironmentalconservation.
4FinancialReviewFinancialReview5RiskFactorsThefollowingriskfactorscouldaffecttheKisseiGroup'soperatingresultsandfinancialposition.
1.
R&DRisksTheprocessofdevelopingpharmaceuticals—fromtheR&Dstagetoapprovalandsales—requiresalargeinvest-mentofbothtimeandfunds.
Whendevelopingnewdrugs,thechancesofdiscoveringaneffectiveindicationarenothigh.
TheCompanycanneitherguaranteethatanewdrugundergoingresearchoranadditionalindicationwillhavetheirintendedefficacynorpredictwhenthedrugswillbeapproved.
2.
GovernmentPolicyRisksThepricesofpharmaceuticalsinJapanaresetbasedonthegovernment'sNHIdrugpricestandards.
Generally,thepricesarerevisedbiennially,andtotheextentpossi-ble,theCompanyfactorstheimpactoftherevisionsintoitsoperatingresultsforecast.
TheremayberevisionsorotherchangestothemedicalinsurancesysteminJapanthatgobeyondtheCompany'sforecast,whichwouldnegativelyimpacttheCompany'soperatingresultsandfinancialposition.
3.
UnexpectedSideEffectRisksThereisariskthatapharmaceuticalmayproduceanunexpectedsideeffectthatwentundiscoveredattheR&Dstage.
Ifunforeseenorserioussideeffectsoccur,theuseofadrugmaybelimited,orsalesofthedrugmaybeterminatedcompletely.
4.
IntellectualPropertyRisksIntheeventthattheKisseiGroupisunabletofullyprotectitsintellectualproperty,athird-partymaybeabletousetheKisseiGroup'stechnology,whichwouldundermineitscompetitivenessinthemarket.
5.
LegalRisksAtpresent,therearenooutstandinglegalproblemsaffectingtheKisseiGroup'smanagement.
Thereisthepossibility,however,thatinthecourseofitsbusinessactiv-ities,theKisseiGroupcouldfacelawsuitsinthefuturebothathomeandabroadregardingproductliability,theenvironment,andlabormatters.
Besidestheriskfactorsmentionedabove,therearevari-ousotherrisksthatcouldaffecttheKisseiGroup'soperat-ingresultsandfinancialposition.
KisseiCorporateGovernanceandComplianceStructureGeneralMeetingofShareholdersElection/RetirementElection/RetirementBoardofCorporateAuditors4CorporateAuditors(2external)BoardofManagingDirectorsIndependentAuditorManagementCommitteeComplianceCommitteeEthics/EnvironmentExecutivesElection/RetirementBoardofDirectors13DirectorsElection/RetirementAuditCEOAuditingDepartmentBusinessDepartmentsAuditAuditAuditReportAudit6CONSOLIDATEDBALANCESHEETSKisseiPharmaceuticalCo.
,Ltd.
anditssubsidiariesAtMarch31,2004and2005ThousandsofU.
S.
DollarsMillionsofYen(Note3)ASSETS200420052005CurrentAssets:Cashonhandandinbanks(Note4)38,22035,858$335,121Short-terminvestmentsinspecifiedtrusts3,5213,09228,897Marketablesecurities(Notes4and5)13,20214,584136,299Notesandaccountsreceivable24,59526,151244,402Less:allowancefordoubtfulaccounts4)(4)(37)24,59126,147244,365Inventories(Note6)8,7289,79891,570Deferredtaxassets–current(Note9)1,9041,83017,103Othercurrentassets3,4752,43522,757Totalcurrentassets93,64193,744876,112InvestmentsandAdvances:Investmentsinsecurities(Note5)30,89033,829316,159Investmentsinunconsolidatedsubsidiaries1,1181,08810,168Leaseholddepositsandguaranteedeposits4474364,075Otherinvestmentsandadvances3,3522,59524,25235,80737,948354,654Property,PlantandEquipment(Note7):Buildingsandstructures30,55030,879288,589Machineryandequipment10,08410,50298,14940,63441,381386,738Less:accumulateddepreciation25,395)(26,601)(248,607)15,23914,780138,131Land12,91812,918120,729Constructioninprogress179790628,17427,795259,766OtherAssets:Deferredtaxassets–non-current(Note9)1,2113012,813Deferredchargesandother4,0095,15648,188162,842164,944$1,541,533Theaccompanyingnotesareanintegralpartofthesestatements.
7ThousandsofU.
S.
DollarsMillionsofYen(Note3)LIABILITIESANDSHAREHOLDERS'EQUITY200420052005CurrentLiabilities:Short-termbankloans(Note7)2,2102,240$20,935Currentportionoflong-termdebt(Note7)6035327Notesandpayables:Trade7,2068,43878,860Other2,9063,24930,36410,11211,687109,224Incometaxespayable(Note9)3,2949669,028Accruedexpensesandbonusestoemployees2,1062,31421,626Reserveforsalesreturns2824224Reserveforsalesrebates5856506,075Reserveforsalespromotionexpenses2642382,224Othercurrentliabilities1391421,328Totalcurrentliabilities18,79818,296170,991Long-TermDebt(Note7)21,95821,916204,822AccruedRetirementBenefitstoEmployees(Note10)4,4173,25830,449AccruedRetirementBenefitstoDirectorsandCorporateAuditors1,3111,29612,112Totalliabilities46,48444,766418,374MinorityInterestsinConsolidatedSubsidiaries9292860CommitmentsandContingentLiabilities(Note11)Shareholders'Equity:Commonstock:Authorised:128,516,000sharesIssued:56,795,185sharesand56,795,185sharesatMarch31,2004and2005,respectively24,22024,220226,355Additionalpaid-incapital24,11124,112225,346Unappropriatedretainedearnings(Note15)67,81271,344666,766Unrealizedholdinggainsonsecurities4,0014,39141,037Treasurystock(2,427,243sharesand2,473,995sharesatMarch31,2004and2005)3,878)(3,981)(37,205)Totalshareholders'equity116,266120,0861,122,299162,842164,944$1,541,5338CONSOLIDATEDSTATEMENTSOFINCOMEKisseiPharmaceuticalCo.
,Ltd.
anditssubsidiariesFortheyearsendedMarch31,2003,2004and2005ThousandsofU.
S.
DollarsMillionsofYen(Note3)2003200420052005NetSales59,52958,22660,933$569,467CostofSales19,89321,35723,526219,869Grossprofit39,63636,86937,407349,598Selling,GeneralandAdministrativeExpenses(Notes10,11and14)33,56330,65931,890298,037Operatingincome6,0736,2105,51751,561OtherIncome(Expenses):Interestanddividendincome3693223162,953Interestexpense203)(204)(203)(1,897)Lossonsaleordisposalofproperties114)(27)(77)(720)Gain(loss)onsaleofmarketablesecurities78)20100Gain(loss)onsaleofinvestmentsinsecurities414(22)5044,710Write-up(write-down)ofmarketablesecuritiesandshort-terminvestmentsinspecifiedtrusts266)8602532,364Write-downofinvestmentsinsecurities1,509)–(22)(206)Gainfromtransferofpension1,57014,673Legalsettlementandrecoveries2,2821911,785Other,net183)0(69)(644)(1,570)3,4122,46323,018Incomebeforeincometaxesandminorityinterests4,5039,6227,98074,579IncomeTaxes(Note9):Current1,4493,8482,51023,458Deferred8471357206,7292,2963,9833,23030,187MinorityInterests24(39)(15)(140)Netincome2,2315,6004,735$44,252U.
S.
DollarsYen(Note3)PerShare(Note2):Netincome:Primary39.
4101.
886.
5$0.
808Fully-diluted35.
888.
775.
50.
706Cashdividends14.
017.
020.
00.
187Theaccompanyingnotesareanintegralpartofthesestatements.
9CONSOLIDATEDSTATEMENTSOFSHAREHOLDERS'EQUITYKisseiPharmaceuticalCo.
,Ltd.
anditssubsidiariesFortheyearsendedMarch31,2003,2004and2005MillionsofYenUnrealizedNumberofAdditionalUnappropriatedholdingsharesofCommonpaid-inretainedgainsonTreasurycommonstockstockcapitalearningssecuritiesstockBalanceatMarch31,200256,795,18524,22024,11061,596346(440)Netincomefortheyear2,231––Cashdividendspaid787)––Bonusestodirectorsandcorporateauditors36)––Treasurystockpurchased(1,641,519shares)2,560)Unrealizedholdinggainsonsecurities44)–BalanceatMarch31,200356,795,18524,22024,11063,004302(3,000)Netincomefortheyear5,600––Cashdividendspaid765)––Bonusestodirectorsandcorporateauditors27)––Treasurystockpurchased(532,958shares)878)Unrealizedholdinggainsonsecurities3,699–Gainonsaleoftreasurystock(2,357shares)1–––BalanceatMarch31,200456,795,18524,22024,11167,8124,001(3,878)Netincomefortheyear4,735––Cashdividendspaid1,087)––Bonusestodirectorsandcorporateauditors40)––Reductionduetomerger76)––Treasurystockpurchased(46,752shares)103)Unrealizedholdinggainsonsecurities390–Gainonsaleoftreasurystock(1,233shares)1–––BalanceatMarch31,200556,795,18524,22024,11271,3444,391(3,981)ThousandsofU.
S.
Dollars(Note3)UnrealizedNumberofAdditionalUnappropriatedholdingsharesofCommonpaid-inretainedgainsonTreasurycommonstockstockcapitalearningssecuritiesstockBalanceatMarch31,200456,795,185$226,355$225,336$633,757$37,393$(36,243)Netincomefortheyear44,252––Cashdividendspaid10,159)––Bonusestodirectorsandcorporateauditors374)––Reductionduetomerger710)––Treasurystockpurchased963)Unrealizedholdinggainsonsecurities3,645–Gainonsaleoftreasurystock9–––BalanceatMarch31,200556,795,185$226,355$225,346$666,766$41,037$(37,205)Theaccompanyingnotesareanintegralpartofthesestatements.
10CONSOLIDATEDSTATEMENTSOFCASHFLOWSKisseiPharmaceuticalCo.
,Ltd.
anditssubsidiariesFortheyearsendedMarch31,2003,2004and2005ThousandsofU.
S.
DollarsMillionsofYen(Note3)2003200420052005CashFlowsfromOperatingActivities:Incomebeforeincometaxesandminorityinterests4,5039,6227,980$74,579Depreciationandamortization3,0832,8683,01228,150Decreaseinallowancefordoubtfulaccounts44)(24)(1)(9)Increase(decrease)inaccruedbonusestoemployees473(289)2482,318Increaseinotheraccruedexpenses2388614344,056Interestanddividendincome369)(322)(315)(2,944)Foreignexchangeloss4313121Interestexpense2032042031,897Gainfromtransferofpension1,570)(14,673)Gainonsaleofmarketablesecurities7)––(Gain)lossonsaleofinvestmentsinsecurities414)22(504)(4,710)(Gain)lossonsaleofmarketablesecuritiesincludedinshort-terminvestmentsinspecifiedtrust78(193)––(Write-up)write-downofmarketablesecurities,investmentsinspecifiedtrustsandinvestmentsinsecurities1,775(858)(231)(2,159)Lossonsaleordisposalofproperties1081859551Increase(decrease)innotesandaccountsreceivable3,654(558)(1,513)(14,140)Decreaseininventories1,179)(351)(1,055)(9,860)Decreaseinothercurrentassets4688261,0329,645Increase(decrease)innotesandaccountspayable817)(289)1,23711,561Increaseinothercurrentliabilities6351952682,505Bonusestodirectorsandcorporateauditors.
36)(27)(40)(374)Othercashflowsfromoperatingactivities,net136169645Subtotal12,49511,7429,32687,159Receiptofinterestanddividends3272592772,589Paymentofinterest203)(204)(203)(1,897)Paymentofincometaxes4,778)(754)(4,837)(45,206)Netcashprovidedbyoperatingactivities7,84111,0434,56342,645CashFlowsfromInvestingActivities:Increaseintimedeposits76)(50)(58)(542)Decreaseintimedeposits1157650467Reductionofinvestmentsinspecifiedtrusts1,27116––Proceedsfromsalesofmarketablesecurities7551,5811,18811,103Acquisitionofpropertyandequipment1,292)(1,818)(1,658)(15,495)Proceedsfromsalesofpropertyandequipment371112112Acquisitionofinvestmentsinsecurities6,992)(5,005)(2,156)(20,150)Proceedsfromsalesofinvestmentsinsecurities7,7424586345,925Paymentofotherassets(long-termprepaidexpenses)878)(616)(2,196)(20,523)Othercashflowsfrominvestingactivities,net.
1,754)(711)(373)(3,486)Netcashusedininvestingactivities1,072)(6,058)(4,549)(42,514)CashFlowsfromFinancingActivities:Increaseinshort-termbankloans3804504704,392Repaymentofshort-termbankloans100)(290)(440)(4,112)Repaymentoflong-termdebt80)(75)(66)(617)Redemptionofconvertiblenotes256)–––CashdividendspaidbytheCompany787)(765)(1,087)(10,159)Acquisitionoftreasurystock2,560)(877)(102)(953)Netcashusedinfinancingactivities3,403)(1,557)(1,225)(11,449)EffectofExchangeRateChangesonCashandCashEquivalents.
.
.
.
–(43)(13)(121)Increase(Decrease)inCashandCashEquivalents3,3663,385(1,224)(11,439)CashandCashEquivalentsatBeginningofYear(Note4)43,42046,78650,171468,888ReceiptsofCashandCashEquivalentsfromMerger36336CashandCashEquivalentsatEndofYear(Note4)46,78650,17148,983$457,785Theaccompanyingnotesareanintegralpartofthesestatements.
11NOTESTOTHECONSOLIDATEDFINANCIALSTATEMENTSKisseiPharmaceuticalCo.
,Ltd.
anditssubsidiaries1BasisofPresentingtheConsolidatedFinancialStatementsTheaccompanyingconsolidatedfinancialstatementsofKisseiPharmaceuticalCo.
,Ltd.
(the"Company")anditssubsidiaries(the"Companies")arepreparedonthebasisofaccountingprinciplesgenerallyacceptedinJapan,whicharedifferentincertainrespectsastoapplicationanddisclosurerequirementsofInternationalFinancialReportingStandards,andarecompiledfromtheconsolidatedfinancialstatementspreparedbytheCompanyasrequiredbytheSecuritiesandExchangeLawofJapan.
2SummaryofSignificantAccountingPolicies(1)ScopeofConsolidationThenumberofsubsidiariestheCompanyhadfortheyearendedMarch31,2004and2005weretwelveandnine,respectively,ofwhichtwowereconsolidatedintherespectiveyears.
ThesignificantsubsidiarieswhichhavebeenconsolidatedwiththeCompanyarelistedbelow:EquityownershipNameofsubsidiariespercentagePaid-incapitalKISSEISHOJICO.
,LTD.
100%50millionKISSEICOMTECCO.
,LTD.
84334million(2)ConsolidationandEliminationInpreparingtheaccompanyingconsolidatedfinancialstatements,allsignificantinter-companytransactions,accountbalancesandunrealizedprofitsbetweentheCompanieshavebeeneliminated,andtheportionthereofattributabletominorityinterestsischargedtominorityinterests.
Ineliminatinginvestmentsinthecommonstockoftheconsolidatedsubsidiariesagainsttheunderlyingequityinthenetassetsofthesubsidiaries,differencesbetweenthecostoftheinvestmentsandtheunderlyingequityinnetassetswerenotrecognizedforthethreeyearsendedMarch31,2005.
(3)InvestmentsinUnconsolidatedSubsidiariesandAffiliatesInvestmentsinunconsolidatedsubsidiariesandaffiliatesarecarriedatcost,costbeingdeterminedbythemovingaveragemethod,astherewouldbenosignificanteffectonconsolidatednetincomeiftheywereaccountedforbytheequitymethod.
(4)ValuationofSecuritiesHeld-to-maturitydebtsecuritiesarecarriedatamortizedcost.
Marketablesecuritiesclassifiedasothersecuritiesarecarriedatfairvalueasofthebalancesheetdatewithchangesinunrealizedholdinggainorloss,netoftheapplicableincometaxes,includeddirectlyinshareholders'equity.
Thecostofsecuritiessoldisprimarilycalculatedbythemovingaveragemethod.
Non-marketablesecuritiesclassifiedasothersecuritiesarestatedatcostprimarilydeterminedbythemovingaveragemethod.
(5)InventoryValuationInventoriesarestatedatcost,costbeingdeterminedbytheaveragemethod.
(6)Property,PlantandEquipmentDepreciationiscomputedonthedeclining-balancemethodatratesbasedontheestimatedusefullivesofassets,whichareprescribedbyJapanesetaxlaws.
Therangeofusefullivesisprincipallyfrom3to50yearsforbuildingsandstructuresandfrom2to20yearsformachineryandequipment.
Depreciationforbuildings(excludingleaseholdimprovementsandauxiliaryfacilitiesattachedtobuildings)acquiredonorafterApril1,1998iscomputedonthestraight-linemethod.
Thecostofpropertyandequipmentretiredorotherwisedisposedofandaccumulateddepreciationinrespectthereofareeliminatedfromtherelatedaccounts,andtheresultinggainorlossischargedtoincome.
Normalrepairsandmaintenance,includingminorrenewalsandimprovements,arechargedtoincomeasincurred.
(7)AmortizationAmortizationofintangibleassetsandlong-termprepaidexpensesincludedin"OtherAssets"iscomputedonthestraight-linemethodoverrespectiveperiodsasprescribedbyJapanesetaxlaws.
Softwarecostsforinternaluseareamortizedovertheirexpectedusefullives(lessthan5years)onastraight-linebasis.
Researchanddevelopmentcostsincurredforspecificprojects,insearchofnewproductsandnewtechnology,arechargedtoincomeasincurred.
(8)AccountingforConsumptionTaxConsumptiontaxisimposedattheflatrateof5%onalldomesticconsumptionofgoodsandservices(withcertainexemptions).
ConsumptiontaxwithhelduponsaleandconsumptiontaxpaidbytheCompaniesontheirpurchasesofgoodsandservicesarenotincludedintherespectiverevenue,costorexpensesintheaccompanyingconsolidatedstatementsofincome.
Consumptiontaxwithheldandconsumptiontaxpaidarerecordedasassetsorliabilitiesandthenetbalanceisincludedin"Notesandpayables—Other"onthebalancesheetsatMarch31,2004and2005.
(9)ForeignCurrencyTranslationReceivablesandpayablesdenominatedinforeigncurrenciesaretranslatedatthecurrentexchangerateprevailingontherespectivebalancesheetdatesandtheresultingexchangegainsorlossesarerecognizedinthedeterminationofnetincomefortherelevantperiod.
Investmentsinunconsolidatedsubsidiariesdenominatedinforeigncurrenciesaretranslatedatthehistoricalexchangeratesprevailingatthetimesuchtransactionsweremade.
(10)IncomeTaxesIncometaxesoftheCompaniesconsistofcorporateincometaxes,localinhabitantstaxesandenterprisetaxes.
Theassetandliabilityapproachisusedtorecognizedeferredtaxassetsandliabilitiesinrespectoftemporarydifferencesbetweenthecarryingamountsandthebasisofassetsandliabilities.
(11)Allowances,AccruedBonusestoEmployeesandReservesforCertainExpenses(i)AllowancefordoubtfulaccountsTheCompaniesprovideanallowancefordoubtfulaccountsbasedonthepercentageoftheirownactualbaddebtlosshistoryagainstthebalanceoftotalreceivablesinadditiontotheamountofuncollectiblereceivablesestimatedonanindividualbasis.
(ii)Accruedbonusestoemployees"Accruedbonusestoemployees"isprovidedforbasedonestimatedamountswhichtheCompaniesshouldpaytoemployeesinsummer,fortheirservicesrenderedduringthesix-monthperiodendedonthebalancesheetdates.
12(iii)Reserveforsalesreturns"Reserveforsalesreturns"iscomputedbasedonthepercentageoftheCompanies'ownactualreturnhistoryintheprecedingtwoyears.
(iv)Reserveforsalesrebates"Reserveforsalesrebates"isprovidedforinanamountequiv-alenttotheexpectedamountpayablebytheCompanytodealersinrespectofthebalanceofaccountsreceivableatthebalancesheetdate.
Inestimatingtheamountofrebates,theCompanyappliestheactualrebateratesallowedinthesix-monthperiodprecedingthebalancesheetdates.
Thereserveforsalesrebatesisnotdeductiblefortaxpurposesuntilpaid.
(v)Reserveforsalespromotionexpenses"Reserveforsalespromotionexpenses"isprovidedforinanamountwhichtheCompanyexpectstopayinrelationtodealers'inventoriesatthebalancesheetdates.
Inestimatingtheamountofsalespromotionexpenses,theCompanyappliestherateofsuchexpensesagainstdealers'inventoriesbasedontheexperienceinthesix-monthperiodprecedingthebalancesheetdates.
Thereserveforsalespromotionexpensesisnotdeductiblefortaxpurposesuntilpaid.
(vi)AccruedretirementbenefitstoemployeesToaccountforretirementbenefitstoemployees,theCompanyrecognizesaccruedbenefitsonaconsolidatedbasisattheendofthefiscalyearbasedonthevalueoftheprojectedbenefitobligationandtheestimatedfairvalueoftheplanassets.
Previouslyrecognizedliabilitiesareamortizedonastraight-linebasisoveratermthatdoesnotexceedtheaverageremainingserviceperiodofemployeeswhoareexpectedtoreceivebenefitsundertheplans(10years).
Unrecognizednetactuarialgainsorlossesareamortizedfromthefollowingyearonastraight-linebasisoveratermthatdoesnotexceedtheaverageremainingserviceperiodofemployeeswhoareexpectedtoreceivebenefitsundertheplans(10years).
FollowingtheenactmentoftheWelfarePensionInsuranceLawinJapan,theCompanyobtainedapprovalfromJapan'sMinistryofHealth,LabourandWelfareonAugust1,2004forthereturnofpastobligationswithrespecttotheportionofthepensionfundthattheCompanyoperatesonbehalfofthegovernment(theso-calledsubstitutionalportion).
TheCompanytransferedthisportiononJanuary5,2005,andconsequentlyhasbookedextraordinaryincomeof1,570millioninthecurrentyear.
(vii)Accruedretirementbenefitstodirectorsandcorporateauditors"Accruedretirementbenefitstodirectorsandcorporateauditors"areprovidedforatanamountequaltotheliabilitytheCompanywouldhavetopayifalldirectorsandcorporateauditorsresignedatthebalancesheetdates.
Provisionsforaccruedretirementbenefitstodirectorsandcorporateauditorsarenotdeductiblefortaxpurposesuntilpaid.
(12)AppropriationofRetainedEarningsUndertheJapaneseCommercialCodeandtheArticlesofIncorporationoftheCompany,theappropriationofretainedearningsproposedbytheBoardofDirectorsissubjecttoapprovalbytheshareholdersatameetingwhichmustbeheldwithinthreemonthsaftertheendofeachfinancialyear.
Theappropriationsofretainedearningsreflectedintheaccompanyingconsolidatedfinancialstatementsincludetheresultsofsuchappropriationsapplicabletotheimmediatelyprecedingfinancialyearasapprovedattheshareholders'meeting,andeffected,duringtherelevantyear.
Dividendsarepaidtoshareholdersontheshareholders'registerasattheendofeachfinancialyear.
AsiscustomarypracticeinJapan,thepaymentofbonusestodirectorsandcorporateauditorsismadeoutofretainedearningsthroughappropriation,insteadofbeingchargedtoincomefortheyear.
TheJapaneseCommercialCodeprovidesthatinterimcashdividendsmaybepaidasapartoftheannualdividenduponapprovalbytheBoardofDirectors.
TheCompanypayssuchinterimdividendstotheshareholdersonitsshareholders'registeratSeptember30.
(13)NetIncomeandDividendsperShareNetincomepershareofcommonstockisbasedupontheweightedaveragenumberofsharesofcommonstockoutstandingduringeachfiscalyearappropriatelyadjustedforsubsequentfreedistributionofshares(stocksplits).
Cashdividendspershareshownforeachyearintheaccom-panyingconsolidatedstatementsofincomerepresentdividendsapprovedordeclaredasapplicabletotherespectiveyears.
Fully-dilutednetincomepershareiscomputedbasedontheassumptionthattheconvertiblenoteswerefullyconvertedintocommonstockonthedateofissueoratthebeginningoftherespectiveyearssubsequenttotheissue,withappropriateadjustmentsforrelatedinterestexpenses(netoftax).
EffectivefromtheyearendedMarch31,2003,theCompanyadoptedtheStatementofFinancialAccountingStandardNo.
2"EarningsperShare"issuedbytheAccountingStandardsBoardofJapan.
Priortoadoptingthenewstatement,earningspersharewerecalculatedbasedonthenetincomeshownontheincomestatement.
Theearningspersharecalculationthereforeexcludedbonusestodirectorsandstatutoryauditors,sinceundertheJapaneseCommercialCode,thesearerecognizedasanappropriationofretainedearningsinthestatementofshareholders'equity,ratherthanasexpensesintheincomestatement.
However,thenewstatementrequiresthatnetincomeshouldbeadjustedbydeductingbonusespaidtodirectorsandstatutoryauditorsaswellasthepaymentofdividendstoshareholdersofpreferredstockstoberecognizedasanappropriationofretainedearningsfromnetincomeshownintheincomestatement,andthecalculationofearningspersharebemadeonthatadjustednetincomebasis.
Theeffectofadoptingthisnewstatementwasimmaterial.
(14)ReclassificationofAccountsPrioryears'amountshavebeenreclassifiedtoconformwiththecurrentyear'spresentation.
(15)ResearchandDevelopmentExpensesResearchanddevelopmentexpensesarechargedtoincomeasincurredinaccordancewiththeJapaneseaccountingstandards.
3UnitedStatesDollarAmountsTheCompaniesmaintaintheiraccountingrecordsinyen.
Thedollaramountsincludedintheconsolidatedfinancialstatementsandnotestheretorepresentthearithmeticalresultoftranslatingyentodollarsonthebasisof107=U.
S.
$1,theapproximateeffectiverateofexchangeatMarch31,2005.
Theinclusionofsuchdollaramountsissolelyforconvenienceandisnotintendedtoimplythatyenamountshavebeenorcouldbeconverted,realisedorsettledindollarsat107=U.
S.
$1oratanyotherrate.
4CashandCashEquivalentsCashandcashequivalentsatMarch31,2004and2005areasfollows:ThousandsofMillionsofYenU.
S.
Dollars200420052005Cashonhandandinbanks38,22035,858$335,121Marketablesecurities13,20214,584136,299Timedepositswithoriginalmaturitiesofoverthreemonths50)(58)(542)Marketablesecuritieswithmaturitiesofmorethanthreemonths1,201)(1,401)(13,093)Cashandcashequivalents.
50,17148,983$457,7855SecuritiesTheacquisitioncost,carryingamount,grossunrealizedholdinggainsandlossesforsecuritieswithfairvaluebysecuritytypeatMarch31,2004and2005areasfollows:Available-for-salesecurities:MillionsofYen2004GrossGrossCarryingunrealizedunrealizedCostamountholdinggainsholdinglossesEquitysecurities8,87915,2236,536192Corporatedebtsecurities12,08512,0811418Others2,0892,4634032823,05329,7676,953238MillionsofYen2005GrossGrossCarryingunrealizedunrealizedCostamountholdinggainsholdinglossesEquitysecurities10,67617,7197,194151Corporatedebtsecurities11,99711,988110Others3,2563,5883724025,92933,2957,567201ThousandsofU.
S.
Dollars2005GrossGrossCarryingunrealizedunrealizedCostamountholdinggainsholdinglossesEquitysecurities99,773$165,597$67,233$1,408Corporatedebtsecurities112,118112,0411290Others30,43433,5363,478377$242,325$311,174$70,723$1,87513(16)AccountingStandardforImpairmentofFixedAssetsOnAugust9,2002,theBusinessAccountingCouncilinJapanissued"AccountingStandardforImpairmentofFixedAssets".
Thestandardrequiresthatfixedassetsbereviewedforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamountofanassetmaynotberecoverable.
Animpairmentlossshallberecognizedintheincomestatementbyreducingthecarryingamountofimpairedassetsoragroupofassetstotherecoverableamounttobemeasuredasthehigherofnetsellingpriceandvalueinuse.
ThestandardshallbeeffectiveforfiscalyearsbeginningApril1,2005.
However,anearlieradoptionispermittedforfiscalyearsbeginningApril1,2004andforfiscalyearsendingbetweenMarch31,2004andMarch31,2005.
TheCompanyhasnotyetappliedthisnewstandardnorhasdeterminedtheeffectofapplyingitontheCompany'sconsolidatedfinancialstatements.
14ThecarryingamountofsecuritieswherenomarketvalueisavailableatMarch31,2004and2005issummarizedasfollows:Othersecurities:CarryingamountThousandsofMillionsofYenU.
S.
Dollars200420052005Unlistedstocks(exceptforover-the-countersecurities)2,3231,934$18,074Others12,00013,183123,20514,32315,117$141,279Proceedsandgrossrealizedgainsfromthesaleofavailable-for-salesecuritiesinrespectoftheyearendedMarch31,2005were630million($5,888thousand)and504million($4,710thousand),respectively.
6InventoriesInventoriesatMarch31,2004and2005consistedofthefollowing:ThousandsofMillionsofYenU.
S.
Dollars200420052005Merchandise3,3843,996$37,346Finishedgoods1,7001,46513,691Work-in-process1,8861,64515,374Rawmaterials9421,41913,262Supplies8161,27311,8978,7289,798$91,5707Short-TermBankLoansandLong-TermDebtShort-termbankloansoutstandingatMarch31,2004and2005representone-yearnotesissuedbytheCompaniestobanks.
Short-termbankloansmadeduringtheyearsendedMarch31,2004and2005boreinterestatanaverageannualrateof1.
31%and1.
30%,respectively.
Maximummonth-endbalanceandaveragemonth-endbalanceofshort-termbankloansoutstandingfortheyearsendedMarch31,2004and2005isasfollows:ThousandsofMillionsofYenU.
S.
Dollars200420052005Maximummonth-endbalance2,9803,090$28,879Averagemonth-endbalance2,6532,700$25,234AsiscustomaryinJapan,substantiallyallofthenotesarewithbanks,eachofwhichhasbasicagreementswiththeCompaniestotheeffectthat,withrespecttoallpresentorfutureloanswiththebanks,theCompaniesshall,undercertaincircumstances,providecollateral(includingsumsondepositwiththebanks),orguarantors,immediatelyuponthebanks'request,andthatanycollateralfurnishedpursuanttosuchagreementsorotherwisewillbeapplicabletoallindebtednesstothebanks.
TheCompanieshavenotreceivedanysuchrequeststodate.
Long-termdebtoftheCompaniesatMarch31,2004and2005consistedofthefollowing:ThousandsofMillionsofYenU.
S.
Dollars200420052005Non-securedloanswithfinancialinstitution,bearinginterestatratesrangingfrom1.
20%to6.
00%duefrom2002to2027241174$1,6260.
7%convertiblenotesdue20069,5869,58689,5890.
8%convertiblenotesdue200812,19112,191113,93422,01821,951205,149Less:currentmaturitiesduewithinoneyear60)(35)(327)21,95821,916$204,82215Theaggregateannualmaturitiesoflong-termloansoutstandingatMarch31,2005areasfollows:MillionsThousandsofofYenU.
S.
DollarsYearendingMarch31200535$32720069,61289,8312007252342008andthereafter12,279114,75721,951$205,1498ResearchandDevelopmentExpensesResearchanddevelopmentexpenseswereincludedinselling,generalandadministrativeexpensesfortheyearsendedMarch31,2003,2004and2005amountingto13,074million,9,826millionand9,893million($92,458thousand),respectively.
9IncomeTaxesIncometaxesinJapanapplicabletotheCompaniesfortheyearsendedMarch31,2003,2004and2005consistedofcorporateincometax(national),enterprisetax(local)andresidentincometaxes(local)attheapproximaterateswereasfollows:Ratesontaxableincome200320042005Corporateincometax30.
0%30.
0%30.
0%Enterprisetax9.
79.
77.
2Residentincometaxes6.
16.
16.
145.
8%45.
8%43.
3%Statutorytaxrateineffecttoreflectthedeductibilityofenterprisetaxwhenpaid41.
7%41.
7%40.
4%Effectiveincometaxratesapplicableintheaccompanyingconsolidatedstatementsofincomedifferfromtheabove-mentionedstatutorytaxrates.
Theprincipalreasonsuchdifferencesisthatentertainmentexpensesofthepurposesofsalespromotion,etc.
,asdefinedbyJapanesetaxlawarenottaxdeductible.
FortheyearendingMarch31,2005,acorporation-sizebasedenterprisetaxwasintroducedwhichsupersededthecurrententerprisetax.
Asaresult,thestatutorytaxratefortheyearendingMarch31,2005wasapproximately40.
4%effectiveApril1,2004.
Therespectivenewlyenactedrateswereusedincalculatingthefutureexpectedtaxeffectsoftemporarydifferences.
EffectivefromApril1,2004,enterprisetaxregulationsinJapanwereamended.
Underthenewenterprisetaxregulations,enterprisetaxwillbebasedonthesumofthreetaxcomponents,namely;incometaxbasedcomponent,valueaddedcomponentandcapitalbasedcomponent.
InaccordancewiththenewaccountingstandardissuedbytheAccountingStandardsBoardofJapan,enterprisetaxrelatingtothevalueaddedcomponentandcapitalbasedcomponentarerequiredtobeclassifiedasselling,generalandadministrativeexpensesinthestatementofincome.
Asaresultofthisnewrequirement,selling,generalandadministrativeexpenseincreasedby188million($1,757thousand)fortheyearendedMarch31,2005.
The0.
7%convertiblenotesdueSeptember29,2006wereissuedonAugust23,1996withaprincipalamountof10,000million.
ThenotescanberepurchasedatanytimeintheirentiretyattheoptionoftheCompanyandmayberedeemedatthediscretionoftheCompanyatapriceof104fromOctober1,2001toSeptember30,2002,103fromOctober1,2002toSeptember30,2003,102fromOctober1,2003toSeptember30,2004,101fromOctober1,2004toSeptember30,2005and100fromOctober1,2005toSeptember28,2006.
Theholderoftheconvertiblenotesisentitledtoconvert1,000,000forsharesatacurrentconversionpriceof2,362pershare.
Theconversionpriceissubjecttoadjustmentforsubsequentstocksplitsandothercircumstances.
ThenotesareconvertibleatanytimepriortoSeptember28,2006.
ThenumberofshareswhichwouldbeissueduponconversionofthenotesoutstandingatMarch31,2005was4,058thousandshares.
The0.
8%convertiblenotesdueSeptember30,2008wereissuedonAugust23,1996withaprincipalamountof15,000million.
ThenotescanberepurchasedatanytimeintheirentiretyattheoptionoftheCompanyandmayberedeemedatthediscretionoftheCompanyatapriceof105fromOctober1,2002toSeptember30,2003,104fromOctober1,2003toSeptember30,2004,103fromOctober1,2004toSeptember30,2005,102fromOctober1,2005toSeptember30,2006,101fromOctober1,2006toSeptember30,2007and100fromOctober1,2007toSeptember29,2008.
Theholderoftheconvertiblenotesisentitledtoconvert1,000,000forsharesatacurrentconversionpriceof2,362pershare.
Theconversionpriceissubjecttoadjustmentforsubsequentstocksplitsandothercircumstances.
ThenotesareconvertibleatanytimepriortoSeptember29,2008.
ThenumberofshareswhichwouldbeissueduponconversionofthenotesoutstandingatMarch31,2005is5,161thousandshares.
16Deferredtaxassets(bothcurrentandnon-current)consistedofthefollowingelements:ThousandsofMillionsofYenU.
S.
Dollars200420052005Deferredtaxassets:Write-downofsecurities1,1511,079$10,084Prepaidresearchanddevelopmentexpenses5925044,710Accruedretirementbenefitstodirectorsandcorporateauditors5305234,888Accruedenterprisetax3491181,103Accruedbonusestoemployees7068087,551Reserveforsalesrebates2362622,448Accruedretirementbenefitstoemployees1,7851,31612,299Royaltiesreceivable145––Other7599278,6646,2535,53751,747Valuationallowance425)(429)(4,009)5,8285,108$47,738Deferredtaxliabilities:Unrealizedgainsonavailable-for-salesecurities2,712)(2,976)$(27,813)Deferredtaxassets,net3,1162,132$19,925Reconciliationoftheactualtaxrateisshownbelow:DuringtheyearendedMarch31,2005,thedifferencebetweentheeffectivestatutorytaxrateandtheactualtaxrateafteradjustmentsiswithin5percentagepointsoftheeffectivestatutorytaxrate.
Explanatorynotesarethereforeomitted.
20032004Effectivestatutorytaxrate41.
7%41.
7%Adjustments:Entertainmentexpensesandothernondeductibles9.
94.
8Dividendincomenottaxable2.
3)(0.
3)Taxbenefitsduetoincreaseofresearchanddevelopmentexpenses2.
6)–Taxbenefitsduetoresearchanddevelopmentexpenses6.
5)Percapitallevyoflocalresidentincometaxes1.
30.
7Cutadjustmentdeferredtaxassetscausedbychangeoftaxrate2.
80.
6Otherfactors0.
20.
4Actualtaxrate51.
0%41.
4%10RetirementBenefitPlansEmployeesoftheCompaniesare,undermostcircumstances,entitledtoreceiveeitheralump-sumpayment,apensionoracombinationthereof,atamountswhicharedeterminedbyreferencetocurrentbasicratesofpay,lengthofserviceandconditionsunderwhichtheterminationsoccur.
Thefollowingtablesetsforthareconciliationofprojectedbenefitobligations,planassets,fundedstatusoftheretirementbenefitplansandnetliabilityrecognizedintheaccompanyingbalancesheetsatMarch31,2004and2005:ThousandsofMillionsofYenU.
S.
Dollars200420052005Projectedbenefitobligations16,74811,723$109,561Fairvalueofplanassets9,611)(7,237)(67,636)Fundedstatusoftheplans7,1364,48641,925Unrecognizednetactuarialdifference2,982)(1,524)(14,243)Unamortizedpriorservicecost2632962,766Netliabilityrecognized4,4173,258$30,44917ThenetperiodicretirementbenefitcostfortheyearsendedMarch31,2003,2004and2005includedthefollowingcomponents:ThousandsofMillionsofYenU.
S.
Dollars2003200420052005Servicecost774670581$5,430Interestcost3913923353,130Expectedreturnonplanassets292)(207)(192)(1,794)Amortizationofpriorservicecost33)(33)(33)(308)Additionalpaymentofretirementcosts1179426243Amortizationofdifferencecausedfromactuarialcalculation1584112892,7011,1151,3271,006$9,402ThediscountrateusedtodeterminetheactuarialpresentvalueofprojectedbenefitobligationsundertheplanthatcoverstheemployeesoftheCompanyanditssubsidiarieswas2.
5%and2.
5%asofMarch31,2004and2005,respectively.
Therateofexpectedreturnonplanassetswas2.
5%and2.
5%asofMarch31,2004and2005,respectively.
Attributionofretirementbenefitstoeachyearofserviceoftheemployeesisbasedonthe"benefit/years-of-service"approach,wherebythesameamountofbenefitsisattributedtoeachyear.
11CommitmentsandContingentLiabilities(1)FinanceLeasesAllfinanceleasecontracts,otherthanthosebywhichtheownershipoftheleasedassetsistransferredtolessees,areaccountedforusingamethodsimilartothatforoperatingleases.
LeaserentalexpensesonfinanceleasecontractswithoutownershiptransferfortheyearsendedMarch31,2003,2004and2005aresummarizedasfollows:ThousandsofMillionsofYenU.
S.
Dollars2003200420052005Leaserentalexpenses618585454$4,243Assumeddatainrespectoftheacquisitioncost,accumulateddepreciation,netbookvalueanddepreciationexpenseoftheleasedassets(machineryandequipment),includingtheportionofinterestthereon,fortheyearendedMarch31,2005issummarizedasfollows:MillionsThousandsofofYenU.
S.
DollarsAcquisitioncost2,185$20,420Accumulateddepreciation1,43013,364Netbookvalue755$7,056Depreciation454$4,243Depreciationiscomputedusingthestraight-linemethodovertheleasetermoftheleasedassetswithnoresidualvalue.
TheamountofoutstandingfutureleasepaymentsdueatMarch31,2004and2005,includingtheportionofinterestthereon,issummarizedasfollows:ThousandsofMillionsofYenU.
S.
Dollars200420052005Futureleasepayments:Withinoneyear462364$3,402Aftermorethanoneyear6803913,654Total1,142755$7,056(2)ContingentLiabilitiesTheCompanyhadcontingentliabilitiesarisingfromnotesdiscountedbybanksintheordinarycourseofbusinessintheamountof400million($3,738thousand)atMarch31,2005.
Inaddition,theCompanywascontingentlyliableforguaranteesinrespectofloansborrowedbyitsunconsolidatedsubsidiariesforanamountof176million($1,645thousand)atMarch31,2005.
1812SegmentInformation(1)IndustrySegmentInformationTheCompanyanditssubsidiariesoperateprincipallyinthefollowingtwoindustrialsegments:PharmaceuticalsEthicalpharmaceuticalsOtherInformationsolutionserviceSaleofmaterialsandothergoodsTheindustrysegmentinformationoftheCompanyanditsconsolidatedsubsidiariesforthethreeyearsendedMarch31,2005ispresentedbelow:MillionsofYenFortheyearendedMarch31,2003IndustrySegmentEliminationofInter-segmentConsolidatedPharmaceuticalsOtherTotalSalesTotalSales:Salestooutsidecustomers56,2413,28859,529–59,529Inter-segmentsales03,4863,486(3,486)–Totalsales56,2416,77463,015(3,486)59,529Operatingexpenses50,1766,76256,938(3,482)53,456Operatingincome6,065126,077(4)6,073Assets147,2775,109152,386(804)151,582Depreciation2,7504173,167(84)3,083Capitalexpenditure2,0064082,414(244)2,170MillionsofYenFortheyearendedMarch31,2004IndustrySegmentEliminationofInter-segmentConsolidatedPharmaceuticalsOtherTotalSalesTotalSales:Salestooutsidecustomers55,1783,04858,226–58,226Inter-segmentsales04,0914,091(4,091)–Totalsales55,1787,13962,317(4,091)58,226Operatingexpenses49,0037,13956,142(4,126)52,016Operatingincome6,17506,175356,210Assets158,8615,436164,297(1,455)162,842Depreciation2,5633952,958(90)2,868Capitalexpenditure2,3782982,676(242)2,43419MillionsofYenFortheyearendedMarch31,2005IndustrySegmentEliminationofInter-segmentConsolidatedPharmaceuticalsOtherTotalSalesTotalSales:Salestooutsidecustomers57,2363,69760,933–60,933Inter-segmentsales04,0934,093(4,093)–Totalsales57,2367,79065,026(4,093)60,933Operatingexpenses51,7117,74259,453(4,037)55,416Operatingincome5,525485,573(56)5,517Assets160,6885,428166,116(1,173)164,943Depreciation2,7533563,109(97)3,012Capitalexpenditure3,6023653,967(110)3,857ThousandsofU.
S.
DollarsFortheyearendedMarch31,2005IndustrySegmentEliminationofInter-segmentConsolidatedPharmaceuticalsOtherTotalSalesTotalSales:Salestooutsidecustomers534,916$34,551$569,467$–$569,467Inter-segmentsales038,25238,252(38,252)–Totalsales534,91672,804607,720(38,252)569,467Operatingexpenses483,28072,355555,636(37,729)517,906Operatingincome51,636$449$52,084$(523)$51,561Assets1,501,757$50,729$1,552,486$(10,963)$1,541,523Depreciation25,729$3,327$29,056$(906)$28,150Capitalexpenditure33,664$3,411$37,075$(1,028)$36,047(2)InformationbyGeographicSegmentAstheCompaniesareallincorporatedinJapan,informationbygeographicsegmentisnotapplicable.
(3)ExportSalesExportsalesinformationoftheCompaniesforthethreeyearsendedMarch31,2005isomittedbecauseexportsalesaccountforlessthan10%oftotalsales.
13BusinessTransactionswithPartiesRelatedtotheCompanyFiscal2004(April1,2003—March31,2004)Executives,mainindividualstockholders,etc.
PositionExecutiveExecutiveNameKunioKanzawaMutsuoKanzawaAddress——CapitalorInvestmentAmount(millionyen)——TypeofBusiness/WorkChairmanoftheCompany,PresidentandChiefExecutiveOfficerDirectorofKanzawaMedicaloftheCompanyResearchFoundation%ofVotingRightsOwned(Ownership)Direct6.
9(Ownership)Direct0.
8RelationshipConcurrentPostsHeld,etc.
——RelationshipwithPlaceofBusiness——TypeofBusinessTransactionDonationpaidtoKanzawaPurchasedstockinrelatedcompanyMedicalResearchFoundationAmount(millionyen)207Item——Year-EndBalance(millionyen)——Notes:1.
Theaboveamountsdonotincludeconsumptiontax.
2.
ThebusinesstransactionswiththeKanzawaMedicalResearchFoundationarethird-partytransactions.
3.
Conditionsforbusinesstransactionsandmethodsfordecidingconditionsfortransactions,etc.
Thepurchaseamountwasdecidedbasedonthecurrentmarketvalue.
20Fiscal2005(April1,2004—March31,2005)Executives,mainindividualstockholders,etc.
PositionExecutiveNameKunioKanzawaAddress—CapitalorInvestmentAmount(millionyen)—TypeofBusiness/WorkChairmanoftheCompany,DirectorofKanzawaMedicalResearchFoundation%ofVotingRightsOwned(Ownership)Direct6.
9RelationshipConcurrentPostsHeld,etc.
—RelationshipwithPlaceofBusiness—TypeofBusinessTransactionDonationpaidtoKanzawaMedicalResearchFoundationAmount(millionyen)25Item—Year-EndBalance(millionyen)—Notes:1.
Theaboveamountsdonotincludeconsumptiontax.
2.
ThebusinesstransactionswiththeKanzawaMedicalResearchFoundationarethird-partytransactions.
14Selling,GeneralandAdministrativeExpensesAsummaryofselling,generalandadministrativeexpensesforeachofthethreeyearsintheperiodendedMarch31,2005isasfollows:ThousandsofMillionsofYenU.
S.
Dollars2003200420052005Advertisingandsalespromotionexpenses3,3673,8224,360$40,748Payrollcosts7,8857,8398,13974,065Researchanddevelopmentexpenses13,0749,8269,89392,458Travelingexpenses1,5201,6061,70215,907Depreciation1,1721,1741,27911,953Other6,5456,3926,51760,90633,56330,65931,890$298,03715SubsequentEventThefollowingappropriationsofunappropriatedretainedearningswereapprovedattheshareholders'meetingheldonJune29,2005:MillionsThousandsofofYenU.
S.
DollarsRetainedearnings:BalanceatMarch31,200571,344$666,766Appropriations:Cashdividends(10pershare)543)(5,075)Bonusestodirectorsandcorporateauditors35)(327)Balancetobecarriedforward70,766$661,36421REPORTOFINDEPENDENTAUDITORSTotheBoardofDirectorsandShareholdersofKisseiPharmaceuticalCo.
,Ltd.
WehaveauditedtheaccompanyingconsolidatedbalancesheetsofKisseiPharmaceuticalCo.
,Ltd.
anditssubsidiariesasofMarch31,2005and2004,andtherelatedconsolidatedstatementsofincome,shareholders'equity,andcashflowsforeachofthethreeyearsintheperiodendedMarch31,2005,allexpressedinJapaneseYen.
TheseconsolidatedfinancialstatementsaretheresponsibilityoftheCompany'smanagement.
Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudits.
WeconductedourauditsinaccordancewithauditingstandardsgenerallyacceptedinJapan.
Thesestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreeofmaterialmisstatement.
Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresintheconsolidatedfinancialstatements.
Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallconsolidatedfinancialstatementpresentation.
Webelievethatourauditsprovideareasonablebasisforouropinion.
Inouropinion,theconsolidatedfinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,theconsolidatedfinancialpositionofKisseiPharmaceuticalCo.
,Ltd.
anditssubsidiariesasofMarch31,2005and2004,andtheconsolidatedresultsoftheiroperationsandtheircashflowsforeachofthethreeyearsintheperiodendedMarch31,2005,inconformitywithaccountingprinciplesgenerallyacceptedinJapan.
TheamountsexpressedinU.
S.
dollars,whichareprovidedsolelyfortheconvenienceofthereader,havebeentranslatedonthebasissetforthinNote3totheaccompanyingconsolidatedfinancialstatements.
ChuoAoyamaPricewaterhouseCoopersTokyo,JapanJune29,2005KasumigasekiBldg.
32ndFloor3-2-5,Kasumigaseki,Chiyoda-ku,Tokyo100-6088,Japan22'05'04'03'02'01(BillionsofYen)NETSALES01020304050607003691215'05'04'03'02'01(BillionsofYen)(%)OPERATINGINCOMEANDOPERATINGINCOMEMARGINOPERATINGINCOMEOPERATINGINCOMEMARGIN048121620'05'04'03'02'01(BillionsofYen)(%)NETINCOMEANDRETURNONSALESNETINCOMERETURNONSALES024681001234560255075100125'05'04'03'02'01(Yen)(Yen)NETINCOMEPERSHAREANDNETASSETSPERSHARENETINCOMEPERSHARENETASSETSPERSHARE05001,0001,5002,0002,5001995199619971998NetSales56,23457,92659,10856,687GrossProfit42,39542,93140,94040,786OperatingIncome16,56816,61914,42713,038NetIncome6,4346,9316,0705,439TotalAssets119,298126,891142,627137,353TotalShareholders'Equity76,42382,69688,27092,778PerShare(YenandDollars):NetIncomePrimary135.
7132.
9105.
693.
3Fully-Diluted97.
983.
0CashDividends14.
016.
015.
014.
0R&DExpenses6,8097,2717,4608,873(%ofNetSales)12.
1%12.
6%12.
6%15.
7%CapitalInvestment.
5,6051,9823,5891,244(%ofNetSales)10.
0%3.
4%6.
1%2.
2%CurrentRatio426.
3%267.
7%364.
1%514.
0%ReturnonEquity8.
75%8.
71%7.
10%6.
00%ReturnonAssets5.
54%5.
63%4.
50%3.
89%NumberofSharesIssued(Thousands)47,99252,83958,27958,279NumberofEmployees1,5921,6961,6931,697Notes:1.
U.
S.
dollaramountsaretranslatedattherateof107=U.
S.
$1,theapproximateeffectiverateofexchangeatMarch31,2005.
2.
Netincomepershareiscomputedbasedontheweightedaveragenumberofsharesofcommonstockaftersubstractingtheweightedaveragenumberofsharesoftreasurystockfortheyear.
3.
Figuresshownabovewereextractedfromfinancialstatementspublishedintherespectiveyearsandtheretrospectiveadjustmentsforthechangesinaccountingpoliciesandadoptionofnewaccountingstandardsincurredinthelateryearshavenotbeenreflected.
FINANCIALSUMMARYKisseiPharmaceuticalCo.
,Ltd.
anditssubsidiariesYearsendedMarch312303691215'05'04'03'02'01(BillionsofYen)(%)R&DEXPENSESR&DEXPENSES%OFNETSALES051015202504080120160200'05'04'03'02'01(Yen)TOTALASSETSANDTOTALSHAREHOLDERS'EQUITYTOTALASSETSTOTALSHAREHOLDERS'EQUITY0246'05'04'03'02'01(%)RETURNONEQUITY065707580'05'04'03'02'01(%)EQUITYRATIOThousandsofU.
S.
DollarsExceptMillionsofYenExceptPerShareDataPerShareData1999200020012002200320042005200555,97457,02958,93759,92959,52958,22660,933$569,46739,85441,14741,84740,53439,63636,86937,407349,59811,54512,5719,7866,9586,0736,2105,51751,5615,3345,7244,3834,8372,2315,6004,73544,252138,934146,649149,189155,740151,582162,842164,9441,541,53397,234105,437108,017109,832108,636116,266120,0861,122,29991.
598.
276.
084.
939.
4101.
886.
5$0.
80882.
088.
468.
876.
535.
888.
775.
50.
70615.
014.
014.
014.
014.
017.
020.
00.
1879,2849,23111,51713,04513,0749,8269,893$92,45816.
6%16.
2%19.
5%21.
8%22.
0%16.
9%16.
2%1,3411,4742,0811,2161,2921,8181,66015,5142.
4%2.
6%3.
5%2.
0%2.
2%3.
1%2.
7%561.
2%589.
1%653.
8%488.
2%567.
3%498.
1%512.
4%5.
61%5.
65%4.
11%4.
44%2.
04%4.
98%4.
01%3.
86%4.
01%2.
96%3.
17%1.
45%3.
56%2.
89%58,27958,27957,29556,79556,79556,79556,7951,6631,6301,6161,6321,6651,6771,68624BOARDOFDIRECTORSAsofJune29,2005Chairman:KunioKanzawaPresidentandChiefExecutiveOfficer:MutsuoKanzawaExecutiveVicePresident:MasanoriIwadareExecutiveManagingDirector:HiroshiSaitoManagingDirector:YukiyoshiAjisawaDirectors:ToshiakiUsudaMasayukiTakeuchiKeiichiroYanagisawaSeiichiroFurihataKiyoshiKumazawaSukioAdachiMasuoAkahaneTeruoTomizawaAuditors:TetsuoYabanaYoshinobuKubotaHidenagaKitazawaHajimeKoikeCORPORATEDATA(Non-consolidated)AsofJune29,2005HeadOffice:19-48,Yoshino,MatsumotoCity,Nagano399-8710,JapanTelephone:(0263)25-9081TokyoHeadOffice:8-9,Nihonbashi-Muromachi1-chome,Chuo-ku,Tokyo103-0022,JapanTelephone:(03)3279-2761TokyoHeadOffice(Koishikawa):1-3,Koishikawa3-chome,Bunkyo-ku,Tokyo112-0002,JapanTelephone:(03)5684-3530DateofEstablishment:August9,1946Capital:24,220millionNumberofEmployees:1,530CentralResearchLaboratories:HotakaToxicologicalLaboratories:HotakaPharmaceuticalLaboratories:HotakaPlants:Matsumoto,ShiojiriDistributionCenters:Shiojiri,Sapporo,FukuokaInformationCenter:MatsumotoNutritionalBusinessCenter:ShiojiriBranches:Sapporo,Sendai,Kan-etsu,Tokyo,Yokohama,Matsumoto,Nagoya,Kyoto,Osaka,Takamatsu,Hiroshima,FukuokaOffices:Sendai-daini,Koriyama,Takasaki,Utsunomiya,Mito,Niigata,Tama,Chiba,Atsugi,Gifu,Mie,Shizuoka,Kanazawa,KitaOsaka,Sakai,Kobe,Himeji,Yamaguchi,Okayama,Kitakyushu,Nagasaki,Kumamoto,Kagoshima,OkinawaSubsidiaryCompanies:KisseiPharmaEuropeLtdKisseiAmerica,Inc.
KisseiShojiCo.
,Ltd.
KisseiComtecCo.
,Ltd.
KisseiTechnosCo.
,Ltd.
MitsuiKankoCo.
,Ltd.
Hashiba920Co.
,Ltd.
KisseiWellcomCo.
,Ltd.
PlanetComputerTechnology(Beijing)Co.
,Ltd.
25INVESTORINFORMATIONCommonStock:Authorized:128,516,000sharesIssued:56,795,185sharesNumberofShareholders:3,507(decreaseof64frompreviousfiscalyear-end)PrincipalShareholders:NumberofsharesheldVotingright(thousand)(%)TheMasterTrustBankofJapan,Ltd.
(Trustaccount)4,2477.
5KunioKanzawa3,6996.
5KanzawaLimited3,1785.
6JapanTrusteeServicesBank,Ltd.
(Trustaccount)2,8315.
0TheHachijuniBank,Ltd.
2,6704.
7MizuhoBank,Ltd.
2,6704.
7TheDai-ichiMutualLifeInsuranceCompany2,4184.
3NipponLifeInsuranceCompany(SeparatePensionAccount)1,2352.
2NabelinCo.
,Ltd.
1,2192.
2TheNaganoBank,Ltd.
1,1262.
0Note:Kisseiholds2,473,995sharesoftreasurystock.
StockPriceRanges:AnalysisofShareholders:'04/4'04/6'04/8'04/10'04/12'05/2(Yen)NikkeiAverageKISSEI(Yen)01,4002,0002,6003,20005,0007,50010,00012,500(%)1,000-4,999shares:2,005(3,410thousandshares)6.
01-999shares:1,108(357thousandshares)0.
65,000-9,999shares:150(995thousandshares)1.
710,000-49,999shares:143(3,191thousandshares)5.
6100,000-499,999shares:45(11,004thousandshares)19.
450,000-99,999shares:34(2,436thousandshares)4.
3500,000-999,999shares:10(6,561thousandshares)11.
61,000,000andovershares:12(28,837thousandshares)50.
8ByCategory:ByNumberofSharesHeld:(%)Financialinstitutions:73(25,149thousandshares)Securitiescompanies:22(478thousandshares)Non-Japaneseinstitutionsandindividuals:100(5,088thousandshares)Individualsandothers:3,023(14,901thousandshares)44.
30.
8Othercompanies:289(11,177thousandshares)19.
79.
026.
2AsofMarch31,2005Thisreportisprintedonrecycledpaperusingsoyink.
PrintedinJapanTM