brief report of interim consolidated financial results · brief report of interim consolidated...

BRIEF REPORT OF INTERIM CONSOLIDATED FINANCIAL RESULTSNovember 10, 2003

Listed Company Name: TAISHO PHARMACEUTICAL CO., LTD. Stock Listing: Tokyo Security Code: 4535 Headquarters: Tokyo (URL http://www.taisho.co.jp) Representative: Akira Uehara, President Contact: Takayuki Kagami

Senior Director―Accounting Tel.: +81-3-3985-1111

Board of Directors Meeting: November 10, 2003 U.S. GAAP not applied

1. Financial Results for First Half of Fiscal 2003 (April 1, 2003 to September 30, 2003) (1) Consolidated Operating Results

(Millions of yen unless otherwise stated, amounts less than ¥1 million have been omitted)

Net sales (% change from previous period)

Operating income (% change from previous period)

Ordinary income (% change from previous period)

Fiscal 2003 1H 146,288 (+4.3%) 31,733 (- 5.9%) 33,771 (-8.5%)

Fiscal 2002 1H 140,247 (+0.1%) 33,723 (- 4.2%) 36,923 (-4.4%)

Fiscal 2002 274,077 (+1.0%) 54,394 (-10.4%) 60,857 (-9.8%)

Net income (% change from previous period)

EPS (yen)

EPS (diluted) (yen)

Fiscal 2003 1H 19,664 (-8.9%) 60.98 ―

Fiscal 2002 1H 21,593 (-0.5%) 64.20 ―

Fiscal 2002 35,392 (-5.3%) 105.81 ― Notes: 1. Investment profit (loss) in affiliates accounted for using the equity accounting method: Fiscal 2003 1H - ¥976 million Fiscal 2002 1H ¥120 million Fiscal 2003 ¥140 million 2. Average number of shares issued and outstanding during the period (consolidated) Fiscal 2003 1H 322,504,116 shares Fiscal 2002 1H 336,353,886 shares Fiscal 2003 333,656,072 shares 3. Changes in accounting procedures: Yes 4. Percentages under net sales, operating income, ordinary income, and net income indicate percentage change

from corresponding period of previous fiscal year.

(2) Consolidated Financial Position (Millions of yen unless otherwise stated, amounts less than ¥1 million have been omitted)

Total assets Shareholders’ equity Shareholders’ equity ratio (%)

Shareholders’ equity per share (yen)

Sept. 30, 2003 595,591 485,556 81.5 1,516.84

Sept. 30, 2002 594,251 492,083 82.8 1,466.96

March 31, 2003 577,706 485,717 84.1 1,474.65

Note: Total shares issued and outstanding (consolidated) as of: September 30, 2003 320,110,961 shares September 30, 2002 335,443,409 shares March 31, 2003 329,318,591 shares

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(3) Consolidated Cash Flows (Millions of yen unless otherwise stated, amounts less than ¥1 million have been omitted)

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

Cash and cash equivalents at end of

period

Fiscal 2003 1H 27,767 36,166 -25,703 100,364

Fiscal 2002 1H 32,082 9,262 -16,555 50,585

Fiscal 2002 53,420 10,419 -27,613 62,125

(4) Notes Regarding the Scope of Consolidation and Application of the Equity Accounting Method

Consolidated subsidiaries: 22 Non-consolidated subsidiaries accounted for under the equity accounting method: None Affiliated companies accounted for under the equity accounting method: 3

(5) Changes in the Scope of Consolidation and Application of the Equity Accounting Method Consolidated subsidiaries

(new additions) 1 (new exclusions) None

Equity accounting method affiliates (new additions) None (new exclusions) None

2. Forecasts of Consolidated Operating Results for Fiscal 2003 (April 1, 2003 to March 31, 2004)

(Millions of yen unless otherwise stated, amounts less than ¥1 million have been omitted) Net sales Ordinary income Net income Full-year 298,000 60,200 34,800

Reference: Forecast net income per share for the year: ¥108.71 ＊The forecasts presented in this brief financial report reflect the Company's current analysis of

data available and the Company's assumptions as of November 10, 2003. Certain risks and uncertainties could cause the Company's actual results to differ materially from any projections presented in this report. Please refer to the attached documents for further details.

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1. Group Organization (1) Group Overview The Taisho Group is made up of Taisho Pharmaceutical Co., Ltd., 22 subsidiaries, 3 affiliated companies, and 2 other related companies. The Group’s principal areas of business include the manufacture and sale of over-the-counter medications, food, and other goods, which are handled by the Self-Medication Operation Group, and the manufacture and sale of prescription pharmaceuticals, which is handled by the Prescription Pharmaceutical Operation Group.

The principal operations of Taisho and its affiliated companies are listed by segment below. Self-Medication Operation Group Taisho Pharmaceutical Co., Ltd. Manufacture and sale of over-the-counter

medications, quasi-drugs, food, and other productsDomestic subsidiaries Taisho Kosei Service Co., Ltd. Sale of Taisho Pharmaceutical products, insurance

agency services, procurement and sale of all product types

Taisho Okinawa Co., Ltd. Sale of Taisho Pharmaceutical products in Okinawa

Taisho M.T.C. Co., Ltd. Manufacture of raw materials for medicines and quasi-drugs in Fukuoka Prefecture

Taisho Pharmaceutical Logistics Co., Ltd. Management and operation of transport services for the Taisho Group

Taisho Business Research Institute Co., Ltd. Information processing services Mejiro Real Estate Co., Ltd. Real estate investment, leasing, and management

services Overseas subsidiaries Taisho Pharmaceutical (Taiwan) Co., Ltd. Manufacture and sale of Taisho Pharmaceutical

products in Taiwan Taisho Pharmaceutical California Inc. Sale of Taisho Pharmaceutical products in the

United States Taisho Pharmaceutical (M) SDN. BHD. Manufacture and sale of Taisho Pharmaceutical

products in Malaysia Taisho Pharmaceuticals (Philippines), Inc. Manufacture (commissioned) and sale of Taisho

Pharmaceutical products in the Philippines PT. Taisho Indonesia Manufacture and sale of Taisho Pharmaceutical

products in Indonesia Taisho Foods Deutschland GmbH Manufacture (commissioned) and sale of Taisho

Pharmaceutical products in Germany Taisho Co., Ltd. Shanghai Manufacture and sale of Taisho Pharmaceutical

products in China Taisho Pharmaceutical Asia (M) SDN. BHD. ASEAN region headquarters, responsible for

market development, business guidance, and sale of food products

Taisho Pharmaceutical (Europe) Ltd. Manufacture (commissioned) and sale of Taisho Pharmaceutical products in the U.K.

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Taisho Vietnam Co., Ltd. Manufacture and sale of Taisho Pharmaceutical products in Vietnam

Taisho Pharmaceutical (H.K.) Ltd. Sale of Taisho Pharmaceutical products in Hong Kong

Osotspa Taisho Co., Ltd. Sale of Taisho Pharmaceutical products in Thailand

Taisho (Australia) Pty. Ltd. Sale of Taisho Pharmaceutical products in Australia

Overseas affiliated company Taisho Hizon Manufacturing Inc. Commissioned manufacture of products for Taisho

Pharmaceuticals (Philippines), Inc. Prescription Pharmaceutical Operation Group Taisho Pharmaceutical Co., Ltd. Development, manufacture and sale of

prescription pharmaceuticals Domestic subsidiaries Taisho Toyama Pharmaceutical Co., Ltd. Sale of prescription pharmaceuticals Medwell Taisho Co., Ltd. Sale of prescription pharmaceuticals Taisho Business Research Institute Co., Ltd. Information processing services Overseas subsidiary Taisho Pharmaceutical R&D Inc. Development of prescription pharmaceuticals in

the United States Domestic affiliated companies Toyama Chemical Co., Ltd. Development, manufacture and sales of

prescription pharmaceuticals Sanofi-Synthelabo-Taisho Pharmaceuticals Co., Ltd.

Sales of products developed under joint agreement

Related Companies Domestic related companies Taisho Service Sangyo Co., Ltd. Hotel management Taisho Yakuhin Co., Ltd. Sale of over-the-counter medications and

quasi-drugs

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Self-M edication O peration Group Self-M edication Operation G roup

(D omestic subsidiaries) (O verseas subsidiaries) (Parent Company)

Taisho Pharmaceutical Co., Ltd.

Insurance agencyservices, printingservices

Prescription Pharm aceutical Operation G roup

◎Taisho Kosei Service Co., Ltd.Supply of products

◎ Taisho Okinawa Co ., Ltd.Supply of products

◎ Taisho M .T .C. Co., Ltd.Supply of rawmaterials

◎ Taisho Pharmaceutical Logistics Co., Ltd.

M anagement andoperation oftransport services

(D omestic subsidiaries)

◎ M edwell Taisho Co ., Ltd.Supply of products

△Sanofi-Synthelabo-TaishoPharmaceuticals Co., Ltd.

Supply of products

(Domestic affiliated companies)

△ Toyama Chemical Co ., Ltd.

(Domestic related companies)

◆Taisho Service Sangyo Co., Ltd.Real estate leasing

◆Taisho Yakuhin Co., Ltd.

Supply o f products

◎ Taisho Business Research Institute Co., Ltd.

(D omestic subsidiary)Provision ofinformation

Supply of raw materialsand products



Supply o f raw materials

Supply of raw materials

Licensing ofmanufacturingtechnologies

◎台湾大正製薬股ｲ分有限公司

◎ Taisho Pharmaceutical California Inc.

◎Taisho Pharmaceutical (M ) SDN. BHD.

Supply of products

◎Taisho Pharmaceuticals (Philippines), Inc.

◎PT. Taisho Indonesia

◎Taisho Foods Deutschland GmbH

◎Taisho Co., Ltd. Shanghai

◎Taisho Pharmaceutical Asia (M ) SDN.

BHD.

◎Taisho Pharmaceutical (Europe) Ltd.

◎Taisho Vietnam Co., Ltd.

◎Taisho (Australia) Pty. Ltd.

◎Taisho Pharmaceutical (H .K.) Ltd.

Supply of products

◎ Osotspa Taisho Co., Ltd.

◎ Consolidated subsidiary△ Accounted for under the equity method◆ Related company

◎ Taisho Toyama Pharmaceutical Co., Ltd.Supply of products

Supply ofproducts

◎ Taisho Pharmaceutical (Taiwan) Co., Ltd.

◎ M ejiro Real Estate Co ., Ltd. Real estateinvestment,leasing, andmanagement

Prescription Pharm aceutical Operation G roup(Overseas subsidiary)

. ◎ Taisho Pharmaceutical R&D Inc.

Development ofprescriptionpharmaceuticals

Notes: 1.Raw materials from Taisho M.T.C. Co., Ltd. are supplied through Mitsui Chemicals, Inc. 2.Taisho Hizon Manufacturing Inc. is an affiliate with an interest in Taisho Pharmaceuticals (Philippines), Inc. that is accounted for under the equity method and is omitted from the above chart. 3.The Company established Mejiro Real Estate Co., Ltd. in July 2003.

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2. Management Policies (1) Basic Management Policies Taisho’s mission is to create and offer superior pharmaceuticals and health-related products as well as health-care-related information and services that contribute to the enrichment of people’s lives through the improvement of health. To fulfill this mission, we are making persistent efforts to strengthen our management bases to ensure that we will continue to exhibit steady growth and expansion amid global competition.

（2）Basic Earnings Distribution Policy To be able to maintain long-term and stable dividends at a high level while strengthening the Company’s corporate culture, Taisho is also working to increase its retained earnings. Retained earnings will be appropriated for investment that will strengthen the Company’s foundations, including R&D, capital, and new business development investment. During the six months ended September 30, 2003, the Company acquired 9,175,000 shares of treasury stock for a total acquisition cost of ¥15,730 million as part of its profit-sharing policy. Moreover, Taisho raised the ordinary dividend in the fiscal year ended March 31, 2001, and since then has paid an annual cash dividend of ¥25 per share. (3) Policy Regarding Reduction of Investment Unit Taisho maintains a policy of reviewing its share-trading unit in line with market movements with the aim of enhancing liquidity and to broaden the Company’s shareholder base. Taisho considers current liquidity levels to be adequate and will continue to monitor its share-trading unit in line with securities market requirements and the significant costs to be incurred. (4) Medium-Term Management Strategies Taisho is working to expand its Self-Medication Operation Group, which handles OTC medications and health-related products, and strengthen its Prescription Pharmaceutical Operation Group. In the field of self-medication—which includes not only health and nutritional agents but also products for the prevention, early detection, and early treatment of light ailments—Taisho is endeavoring to upgrade its product lines in response to customer needs. Moreover, drawing on the research capabilities and experience it has developed through its prescription pharmaceutical operations, the Company is working to develop products that are both safe and effective. Specifically, Taisho is promoting switch-to-OTC products and foods for specified health use in an effort to nurture and strengthen brand awareness and to deliver products of value and appeal to customers. To this end, Taisho executed a sole distributorship contract with Procter & Gamble Far East, Inc. (P&G) in October 2003 for the sale of P&G’s “VICKS VapoRub” in Japan. After a short transition period, Taisho expects to commence full-fledged sales of this product in the fourth quarter of fiscal 2003, reinforcing the Company’s efforts for greater brand awareness. In prescription pharmaceuticals, the Company is concentrating on expanding its product lineup, particularly through the development of new, highly original products that will win worldwide acceptance. We are also looking to make optimum use of a diversity of distribution channels, adopt innovative procedures, and to enhance our marketing structure in an effort to achieve greater efficiency. (5) Corporate Governance Confronted by the challenge of an ever-changing operating environment, Taisho has positioned corporate governance as a key management issue. In fiscal 1999, the Company introduced an executive officer system and limited the number of directors that comprise its Board with the aim of enhancing efficiency and promoting prompt and precise decision making. In addition, Taisho has adopted an audit structure that stipulates that two of its four corporate auditors must be from outside the Company, thereby enhancing management transparency.

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Taisho established a central compliance office in fiscal 2000 to ensure that the Group is engaged in corporate activities consistent with the highest ethical standards and statutory requirements. The Company also formulated a Corporate Code of Conduct, and provides guidelines and training for appropriate employee behavior. Moreover, a help-line network covering a broad spectrum of corporate ethics issues has been set up as a contact for employee inquiries. To fulfill its corporate mission, Taisho is committed to fostering a culture in which compliance remains a key priority. (6) Issues Facing the Company Taisho expects the operating environment to become more challenging in the future. The Company will strategically and proactively adapt to changes in its operating environment. In order to strengthen its ethical drugs business, Taisho jointly established Taisho Toyama Pharmaceutical Co., Ltd. with Toyama Chemical Co., Ltd. in October 2002, creating a new domestic sales company that is 55%-owned by Taisho. The new company initiated operations in April 2003 after spending approximately six months in preparations. As a result, the Company now has approximately 1,000 medical representatives covering Japan, working to increase sales efficiency. In addition, Taisho has formed a strategic partnership with Toyama Chemical Co., Ltd., an equity method affiliate, in the research and development of ethical drugs. We are concentrating efforts on leveraging this partnership to produce results. In 2000, Taisho placed priority on the rebuilding of core management systems, and focused Companywide efforts on reviewing business processes and upgrading information systems. New systems are progressively coming online as preparations are completed. In the second half of fiscal 2003, Taisho plans to bring online new business systems in the Self-Medication Operation Group as the final stage of this initiative.

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3. Operating Results and Financial Position

(1) Overview of the First Half of Fiscal 2003 Performance Overview In the six months ended September 30, 2003, the over-the-counter medications business faced adverse operating conditions compounded by stagnant consumer spending stemming from cool summer temperatures and a long rainy season. The ethical drugs business also met with a challenging operating environment amid government measures to reform medical expenditures. Under these circumstances, Taisho strove to expand aggressive sales activities, endeavoring to launch new products and tap into new markets. As a result, consolidated net sales in the first half of fiscal 2003 totaled ¥146,288 million, an increase of 4.3%, or ¥6,042 million, compared with the same period of the previous fiscal year. Sales by segment were as follows. Sales in First Half of Fiscal 2003 (Billions of yen)

Increase (Decrease) Segment/Category Amount

Amount % Self-Medication Operation Group 99.3 (3.9) (3.8) Over-the-counter medications 94.1 (4.0) (4.1) Foods for specified health use and others 4.4 (0.00) (0.2) Other 0.7 0.06 9.5 Prescription Pharmaceutical Operation Group 46.9 10.0 27.1 Prescription drugs 39.5 9.4 31.4 Other 4.8 0.5 11.6 Royalty income 2.5 0.04 2.0 Sales in Japan were as follows. Overall sales in the Self-Medication Operation Group decreased ¥3.0 billion, or 5.0%, from the corresponding period of the previous fiscal year. In the Lipovitan series of nutrient drinks, the release of Lipovitan 8II in the previous fiscal year and Lipovitan Wins this year contributed approximately ¥0.8 billion and ¥0.2 billion, respectively, to sales. Sales of the mainstay Lipovitan D nutrient drink fell ¥2.9 billion due to cool summer weather. Sales of the Pabron series of cold remedies rose 0.4%, or ¥0.05 billion, sales of digestive medicines increased 4.2%, or ¥0.1 billion, and sales of Vicks Medicated Drops, a sore throat remedy in lozenge form, climbed 101.7%, or ¥0.2 billion. Taisho began direct sales of Vicks Medicated Drops in January 2003. Sales of RiUP, a hair-growth product for male-pattern baldness, fell 8.2%, or ¥0.7 billion, due partly to the introduction of a new 120 ml size product in September 2002. Looking overseas, sales of tonic and nutrient drinks showed growth in Thailand, Taiwan and Malaysia, but declined slightly in total. Prescription Pharmaceutical Operation Group sales grew 27.1%, or ¥10.0 billion. The main reason behind this considerable increase was contributions of approximately ¥9.7 billion from products made by Toyama Chemical Co., Ltd. and sold through our 55%-owned consolidated subsidiary Taisho Toyama Pharmaceutical Co., Ltd. A sales breakdown of Toyama Chemical products is found in the attached reference materials. Sales of the Company’s mainstay Clarith product, a macrolide antibiotic, increased ¥0.8 billion, or 7.6%. However, sales of Palux injection, a peripheral vasodilator, fell 14.6%, or ¥1.1 billion. On a brighter note, sales of Lorcam, a non-steroidal anti-inflammatory drug, continued to grow, increasing 11.0%, or ¥0.2 billion. Sales of Ancaron, a tablet for the treatment of cardiac arrhythmia, rose 18.1%, or ¥0.3 billion. Overseas royalty income included in the Prescription Pharmaceutical Operation Group increased ¥0.04 billion.

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In the area of costs, Taisho reduced R&D and advertising expenses. The cost of sales ratio, personnel expenses and sales and promotion expenses, however, increased due to the launch of Taisho Toyama Pharmaceutical. Accordingly, ordinary income decreased 8.5%, or ¥3,152 million, to ¥33,771 million, and net income declined 8.9%, or ¥1,928 million, to ¥19,664 million. Cash Flows Cash and cash equivalents as of September 30, 2003, amounted to ¥100,364 million, an increase of ¥49,779 million compared with a year ago. Cash flows from operating activities Net cash provided by operating activities decreased ¥4,314 million, to ¥27,767 million. Major components were income before income taxes and minority interests, which fell ¥3,759 million to ¥32,891 million, and a decrease in notes and accounts receivable of ¥14,922 million, compared with a decrease of ¥629 million a year earlier. This was partially offset by a decline in income taxes paid of ¥9,395 million, to ¥6,840 million, and an increase in notes and accounts payable of ¥8,640 million, compared with a decrease of ¥180 million a year earlier. Depreciation and amortization was ¥7,565 million, a decrease of ¥310 million. Cash flows from investing activities Net cash provided by investing activities was ¥36,166 million, an increase of ¥26,903 million. The main sources of cash were proceeds from sales of marketable securities totaling ¥21,000 million, an increase of ¥1,899 million, and transfers from time deposits exceeding three months contributed to an increase in time deposits of ¥33,723 million, compared with an increase of ¥36,940 million a year earlier. Payments for purchases of investment securities were ¥22,116 million, up from ¥13,830 million in the year-ago period. Payment for purchases of property, plant and equipment fell ¥6,818 million to ¥2,820 million, as the year-ago figure included capital investments for completing the redevelopment of the Omiya Plant and the construction of the No. 2 Annex at Headquarters. Similarly, minus such special factors in the year-ago period as the acquisition of shares in Toyama Chemical Co., Ltd. and the purchase of trademark rights to Vicks Medicated Drops, payment for acquisition of affiliates’ stocks was reduced to zero from ¥18,662 million, and payment for purchases of intangible fixed assets declined to ¥1,400 million from ¥7,603 million. Cash flows from financing activities Net cash used in financing activities was ¥25,703 million, up ¥9,147 million from the corresponding period of the previous fiscal year. The major component was payments for acquisition of treasury stock totaling ¥15,787 million, an increase of ¥7,720 million. Payments for dividends amounted to ¥9,912 million, up ¥1,454 million due to the payment of a dividend to commemorate the 90th anniversary of the Company’s foundation. Cash Flow Benchmarks

Fiscal 2001 Fiscal 2002 Fiscal 2003

Year-End End of First Half Year-End End of

First Half Shareholders’ equity ratio (%) 82.5 82.8 84.1 81.5Shareholders’ equity ratio (market basis) (%) 111.9 107.9 96.3 94.4

Years to service debt (years) 0.0 0.0 0.0 0.0Interest coverage ratio (times) 2,232.7 8,020.5 4,109.2 13,883.5

Notes: Shareholders’ equity ratio = shareholders’ equity / total assets Shareholders’ equity ratio (market basis) = Market capitalization / total assets Years to service debt = interest-bearing debt / operating cash flow Interest coverage ratio = operating cash flow / interest expense

These benchmarks are calculated using consolidated financial data. Market capitalization is calculated by multiplying the closing share price at period-end by the number of outstanding shares at period-end (excluding treasury stock). Operating cash flow is the net cash provided by operating activities stated in the consolidated statements of cash flows. Interest-bearing debt consists of debt on the consolidated balance sheets that incurs interest payments. Interest expense is the amount shown on the consolidated statements of cash flows.

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(2) Outlook for Fiscal 2003 Although the business environment is expected to remain weak in the second half of fiscal 2003, Taisho will push forward with aggressive marketing activities and efforts to increase management efficiency. Forecasts for consolidated performance for fiscal 2003 are as follows:

(Billions of yen) Amount Change (%) Net sales 298.0 +8.7% Ordinary income 60.2 -1.1% Net income 34.8 -1.7%

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4. Interim Consolidated Financial Statements (1) Consolidated Balance Sheets

September 30, 2003 and 2002, and March 31, 2003 (Millions of yen)

September 30, 2003 September 30, 2002 March 31, 2003

Amount Comp. Amount Comp. Amount Comp.Assets % % %

Current assets: Cash and deposits 120,783 103,571 116,267Notes and accounts receivable―trade 81,959 74,145 67,025Marketable securities 13,029 30,958 34,035Inventories 21,729 20,539 18,580Deferred tax assets 9,618 12,303 7,886Other current assets 4,744 3,786 4,540

Subtotal 251,865 245,304 248,335Allowance for doubtful accounts -731 -606 -746

Total current assets 251,134 42.2 244,697 41.2 247,588 42.9Fixed assets Tangible fixed assets: Buildings and structures 53,776 57,650 55,754Machinery and equipment 15,733 19,526 17,328Land 23,550 23,295 23,471Construction in progress 114 59 59Others 5,610 6,159 6,106

Total tangible fixed assets 98,786 (16.6) 106,690 (18.0) 102,719 (17.8)Intangible fixed assets: 16,479 (2.8) 18,617 (3.1) 17,838 (3.1)Investments and other assets: Investments in securities 203,142 204,313 179,101Deferred tax assets 16,912 9,861 20,707Other investments 9,306 10,130 9,820

Subtotal 229,360 224,306 209,630Allowance for doubtful receivables ―long term -168 -60 -70

Total investments and other assets 229,192 (38.5) 224,245 (37.7) 209,559 (36.2)Total fixed assets 344,457 57.8 349,553 58.8 330,118 57.1

Total assets 595,591 100.0 594,251 100.0 577,706 100.0

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(Millions of yen)


Amount Comp. Amount Comp. Amount Comp.Liabilities % % %

Current liabilities: Notes and accounts payable―trade 22,223 16,100 13,575Short-term loans 305 548 340Accounts payable 13,702 8,674 8,300Accrued enterprise tax 15,109 14,718 6,510Accrued expenses 6,708 12,150 12,160Allowance for returns 530 687 609Allowance for bonuses 3,197 3,290 3,653Other current liabilities 1,846 1,244 1,196

Total current liabilities 63,623 10.7 57,415 9.7 46,346 8.0Long-term liabilities: Long-term debt ― ― 5Reserves for retirement wages 41,785 40,712 41,010Reserves for retirement benefits 1,448 1,335 1,380Deferred tax liabilities 18 18 18Other long-term liabilities 2,629 2,256 2,357

Total long-term liabilities 45,881 7.7 44,322 7.5 44,772 7.7Total liabilities 109,504 18.4 101,738 17.1 91,119 15.8

Minority interest 530 0.1 429 0.1 870 0.2

Shareholders’ equity Common stock 29,804 5.0 29,804 5.0 29,804 5.1Additional paid-in capital 14,935 2.5 14,935 2.5 14,935 2.6Retained earnings 476,927 80.1 453,430 76.3 467,229 80.9Unrealized gains and losses on securities 5,523 0.9 8,987 1.5 -165 -0.0

Foreign currency adjustment account -3,090 -0.5 -3,559 -0.6 -3,330 -0.6Treasury stock -38,543 -6.4 -11,514 -1.9 -22,755 -3.9

Total shareholders’ equity 485,556 81.5 492,083 82.8 485,717 84.1

Total liabilities and shareholders’ equity 595,591 100.0 594,251 100.0 577,706 100.0

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(2) Consolidated Statements of Income Six-Month Periods Ended September 30, 2003 and 2002, and Fiscal Year Ended March 31, 2003

(Millions of yen)

Apr. 1-Sept. 30, 2003 Apr. 1-Sept. 30, 2002 Apr. 1, 2002- Mar. 31, 2003

Amount Comp. Amount Comp. Amount Comp. % % %Net sales 146,288 100.0 140,247 100.0 274,077 100.0Cost of sales 42,547 29.1 36,998 26.4 73,462 26.8

Gross profit on sales 103,741 70.9 103,249 73.6 200,615 73.2

Reversal of provision for sales returns 78 45 115Provision for sales returns ― ― ―

Gross profit 103,819 71.0 103,294 73.7 200,731 73.2

Selling, general & administrative expenses 72,085 49.3 69,571 49.6 146,336 53.4

Operating income 31,733 21.7 33,723 24.1 54,394 19.8

Non-operating income Interest income 1,949 2,224 4,290Dividend income 185 220 290Rental income on real estate 172 249 518Investment gain by the equity method ― 120 140Other 1,088 746 1,720

Total non-operating income 3,395 2.3 3,562 2.5 6,960 2.5Non-operating expenses

Interest and discount expenses 2 4 13Investment losses in affiliates using the equity accounting method 976 ― ―Other 378 357 483

Total non-operating expenses 1,358 0.9 362 0.3 496 0.2

Ordinary income 33,771 23.1 36,923 26.3 60,857 22.2

Extraordinary gains Profit on sales of investment securities ― 1,633 1,633Profit on sales of fixed assets 1 3 35Other ― 14 ―

Total extraordinary gains 1 0.0 1,650 1.2 1,668 0.6Extraordinary losses

Evaluation loss on investment securities 800 499 665Loss on reimbursement of investment Securities ― 24 24Loss on disposal of fixed assets 80 108 270Reserves for directors’ retirement payments for the past year ― 1,291 1,296

Total extraordinary losses 881 0.6 1,923 1.4 2,257 0.8Income before income taxes and minority interests 32,891 22.5 36,650 26.1 60,269 22.0

Corporate and inhabitants’ taxes 15,438 10.6 15,079 10.8 24,707 9.0Enterprise tax adjustment -1,871 -1.3 -14 -0.0 184 0.1Minority interests in losses of consolidated subsidiaries 340 0.2 8 0.0 15 0.0

Net income 19,664 13. 21,593 15.4 35,392 12.94

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(3) Consolidated Statements of Retained Earnings Six-Month Periods Ended September 30, 2003 and 2002, and Fiscal Year Ended March 31, 2003

(Millions of yen)

Apr. 1-Sept. 30, 2003

Apr. 1-Sept. 30, 2002

Apr. 1, 2002- Mar. 31, 2003

(Additional paid-in capital)

Additional paid-in capital, beginning balance 14,935 14,935 14,935

Additional paid-in capital, ending balance 14,935 14,935 14,935

(Retained earnings)

Consolidated retained earnings, beginning balance 467,229 440,408 440,408

Increase in retained earnings

Net income for the period 19,664 21,593 35,392

Decrease in retained earnings

Dividend 9,879 8,485 8,485

Bonuses to directors 87 87 87

Consolidated retained earnings for the term, ending balance 476,927 453,430 467,229

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(4) Consolidated Statements of Cash Flows

Six-Month Periods Ended September 30, 2003 and 2002, and Fiscal Year Ended March 31, 2003 (Millions of yen)

Apr. 1-Sept. 30, 2003

Apr. 1-Sept. 30, 2002

Apr. 1, 2002- Mar. 31, 2003

Cash flows from operating activities: Income before income taxes and minority interests 32,891 36,650 60,269Depreciation and amortization 7,565 7,875 16,832Interest and dividend income -2,134 -2,445 -4,580Interest expenses 2 4 13Loss on sales of investment securities ― -1,633 -1,633Loss on reimbursement of investment securities ― 24 24Evaluation loss on investment securities 800 499 665Loss on sales of fixed assets -1 -3 -1Disposal loss on fixed assets 80 108 270Adjustment expenses for consolidated elimination 11 11 22Equity in earnings of affiliates 976 -120 -140Increase (decrease) in allowance for doubtful accounts 81 -10 139Increase (decrease) in reserves for retirement payment 774 343 641Increase (decrease) in reserves for bonuses 67 1,335 1,380Increase (decrease) in reserves for directors’ retirement payments -456 -415 -53Increase (decrease) in notes and accounts receivable -14,922 -629 6,481Increase in inventories -3,144 -1,270 680Increase (decrease) in notes and accounts payable 8,640 -180 -2,693Others 444 5,173 4,597

Subtotal 31,677 45,315 82,914Interest and dividend income received 2,934 3,007 4,591Interest paid -2 -4 -1Income taxes paid -6,840 -16,235 -34,072

Net cash provided by operating activities 27,767 32,082 53,420Cash flows from investing activities:

Increase in time deposits 33,723 36,940 35,784Proceeds from sales of marketable securities 21,000 19,100 25,100Payments for purchases of property, plant and equipment -2,820 -9,638 -13,418Proceeds from sales of property, plant and equipment 6 5 39Payments for purchases of intangible fixed assets -1,400 -7,603 -8,976Payments for purchases of investment securities -22,116 -13,830 -26,350Proceeds from sales of investment securities 6,000 3,970 17,781Payments for acquisition of affiliates’ stocks ― -18,662 -19,012Payments for acquisition of long-term prepaid expenses -171 -278 -442(Increase) decrease in other assets 1,946 -741 -86

Net cash provided by investing activities 36,166 9,262 10,419Cash flows from financing activities:

Proceeds from short-term borrowings 245 130 443Repayment of short-term borrowings -280 -160 -462Repayment of long-term debt ― ― 5Payments for dividends -9,912 -8,458 -8,467Payments for acquiring treasury stock -15,787 -8,066 -19,307Cash flows from financing activities 31 ― 176

Net cash used in financing activities -25,703 -16,555 -27,613Effect of exchange rate changes on cash and cash equivalents 7 -268 -164Net increase in cash and cash equivalents 38,238 24,520 36,061Cash and cash equivalents at the beginning of the period 62,125 26,064 26,064Cash and cash equivalents at the end of the period 100,364 50,585 62,125

15

5. Summary of Significant Accounting Policies used in Preparation of Interim Consolidated Financial Statements

1. Scope of Consolidation Number of consolidated subsidiaries: 22 Overseas consolidated subsidiaries: 14

- Taisho Pharmaceutical (Taiwan) Co., Ltd. - Taisho Pharmaceutical California Inc. - Taisho Pharmaceutical (M) SDN.BHD. - Taisho Pharmaceuticals (Philippines), Inc. - P.T. Taisho Indonesia - Taisho Foods Deutschland GmbH - Taisho Co., Ltd. Shanghai - Taisho Pharmaceutical Asia (M) SDN. BHD. - Taisho Pharmaceutical (Europe) Ltd. - Taisho Vietnam Co., Ltd. - Taisho Pharmaceutical (H.K.) Ltd. - Osotspa Taisho Co., Ltd. - Taisho (Australia) Pty. Ltd. - Taisho Pharmaceutical R&D Inc.

Domestic consolidated subsidiaries: 8 - Taisho Toyama Pharmaceutical Co., Ltd. - Taisho Kosei Service Co., Ltd. - Taisho Okinawa Co., Ltd. - Taisho M.T.C. Co., Ltd. - Taisho Pharmaceutical Logistics Co., Ltd. - Medwell Taisho Co., Ltd. - Taisho Business Research Institute Co., Ltd. - Mejiro Real Estate Co., Ltd.

There are no non-consolidated subsidiaries. 2. Application of the Equity Method Number of affiliated companies accounted for under the equity method: 3 Overseas affiliate accounted for under the equity method: 1

- Taisho Hizon Manufacturing Inc. Domestic affiliated companies accounted for under the equity method: 2

- Toyama Chemical Co., Ltd. - Sanofi-Synthelabo-Taisho Pharmaceuticals Co., Ltd.

3. Fiscal Year of Consolidated Subsidiaries Excluding Taisho Toyama Pharmaceutical Co., Ltd. and Mejiro Real Estate Co., Ltd., 20 of the Company’s consolidated subsidiaries maintain an interim balance date of June 30 annually. In preparing the interim consolidated financial statements, a June 30, 2003 balance date for consolidated subsidiaries was used. However, in the event a major transaction took place between the period July 1, 2003 and the Company’s interim consolidated balance date of September 30, 2003, necessary adjustments have been made to the interim consolidated financial statements. 4. Summary of Significant Accounting Procedures (1) Standards and evaluation methods for major assets

(a) Marketable securities Held-to-maturity debt securities: Amortized cost method, amortized on a straight-line basis Other marketable securities, securities for which market quotations are available:

Market value, determined by the market price as of the interim balance sheet date, with unrealized gains and losses reported in shareholders’ equity and the selling price determined by the moving-average method

Other marketable securities, securities for which market quotations are unavailable: Stated at cost determined by the moving-average method

(b) Inventories Manufactured goods, merchandise, semi-finished goods, and unfinished goods: Stated at cost determined by the average method

16

Raw materials: Stated at cost determined by the moving-average method Inventories:

Stated at last purchase price (however, promotional goods sated at cost determined by the moving-average method)

(2) Method for depreciating and amortizing major assets (a) Tangible fixed assets

For the parent company and domestic consolidated subsidiaries, depreciation is computed using the declining balance method. In the case of overseas subsidiaries, depreciation is computed using the straight-line method in accordance with the regulations of the country in which the subsidiary is located. For property (excluding additions to property) acquired by the parent company or domestic subsidiaries after April 1, 1998, depreciation is computed using the straight-line method.

(b) Intangible fixed assets Depreciation is computed using the straight-line method. For the parent company and domestic subsidiaries, depreciation of software for in-house use is computed using the straight-line method based on an estimated useful life of 5 years.

(3) Accounting treatment for deferred assets The amount of deferred assets is charged to income at the time of payment. (4) Accounting for allowances and reserves

(a) Allowance for doubtful accounts The allowance for doubtful accounts provides for possible losses arising from default on accounts receivable. Based on the default ratio of general loans, the likelihood of repayment of certain loans about which there is concern regarding default is determined, and the anticipated unrecoverable amount is recorded.

(b) Allowance for returned merchandise To allow for losses due to returned merchandise, an amount of losses that is a portion of anticipated future losses from returned merchandise is recorded.

(c) Reserve for bonuses To allow for the payment of employee bonuses, an amount of bonuses that is a portion of anticipated future payment of bonuses is recorded.

(d) Reserve for retirement benefits To cover projected employees’ retirement benefits, the Company provides the estimated amount of benefit obligation and pension plan assets at the end of the interim period. Employees’ past service costs are stated at cost by the straight-line method, based on certain years within the average remaining service length, when employees’ past service costs are generated. From the following fiscal year, the differential amount in the computation is to be stated at cost by the straight-line method, based on certain years within the average remaining service length, when employees’ past service costs are generated.

(e) Reserve for directors’ retirement benefits A reserve for directors’ and executive officers’ retirement benefits is provided to adequately cover the costs of directors’ and executive officers’ retirement benefits, which are accounted for on an accrual basis in accordance with in-house regulations.

(5) Translation of foreign currency transactions and accounts Receivables and payables denominated in foreign currencies are translated as of the interim balance sheet date using current exchange rates, with discrepancies recorded as gains or losses. All the assets and liabilities of foreign subsidiaries and affiliates are translated as of the interim balance sheet date using current exchange rates and all income and expense accounts are translated at average rates for their respective periods, with discrepancies recorded under shareholders’ equity as foreign currency translation adjustment. (6) Accounting for leases Finance leases, other than those in which ownership of the leased assets is transferred to the lessee, are accounted for as operating leases. (7) Accounting for hedges 1. Hedge accounting method

Hedging is principally computed under deferred processing. 2. Hedging method, hedge targets

Hedging method: Derivative transactions (foreign exchange contract transactions and interest rate swap transactions) Hedge targets: Although it is possible that losses may result from rate fluctuations, such fluctuations are avoided by targeting products that do not reflect rate fluctuations and those that provide a fixed cash flow.

(8) Other 1. Consumption tax

17

Financial statements are prepared exclusive of consumption tax.

5. Scope of Cash and Cash Equivalents in the Statement of Cash Flows Cash and cash equivalents in the consolidated statements of cash flows comprise cash on hand, demand deposits, and highly liquid short-term investments with maturities of less than 3 months that can be readily converted into cash and carry little risk of fluctuation in value.

18

Notes

(Millions of yen)

(Consolidated Balance Sheets)

Sept. 30, 2003 Sept. 30, 2002 Mar. 31, 2003

1. Depreciation of property, plant and equipment 134,923 125,493 130,9362. Contingent liabilities

The Company has guaranteed the debt of affiliated companies to financial institutions. Sanofi-Sythelabo-Taisho Pharmaceuticals Co., Ltd. 98 98 98Taisho M.T.C. Co., Ltd. 300 ― 300

(Consolidated Statement of Income)

Apr. 1-Sept. 30, 2003

Apr. 1-Sept. 30, 2002

Apr. 1, 2002- Mar. 31, 2003

1. R&D expenses included in selling, general and administrative expenses

12,140 14,424 29,526

(Consolidated Statements of Cash Flows)

1. Cash and cash equivalents at the end of the period and items related to the consolidated balance sheets were as follows:

Sept. 30, 2003 Sept. 30, 2002 Mar. 31, 2003

Cash and deposits 120,783 103,571 116,267

Marketable securities 13,029 30,958 34,035

Subtotal 133,812 134,529 150,303

Time deposits (over three months) -20,418 -52,986 -54,142Bonds and notes with a redemption period of over three months

-13,029 -30,958 -34,035

Total cash and cash equivalents at the end of the period

100,364 50,585 62,125

(Lease Transactions) Finance leases, other than those in which ownership of the leased assets is transferred to the lessee, were as follows:

(Tangible and Intangible Fixed Assets)

Sept. 30, 2003 Sept. 30, 2002 Mar. 31, 2003

1. Acquisition cost equivalents 22,598 16,122 20,637

Accumulated depreciation 7,632 4,422 6,283

Period-end balance equivalents 14,966 11,699 14,353

2. Future lease payment

Within one year 3,957 1,965 3,590

Over one year 11,008 9,734 10,763

Total 14,966 11,699 14,353

3. Leases paid (depreciation) 2,120 1,113 3,0114. Depreciation is computed using the straight-line method, assuming the lease period to be the useful life and residual value to be zero. 5. Regarding the previous note, because of the relatively low proportion of the period-end balance of the present value to future lease payments, which are included in the period-end balance of the present value of future lease payments and tangible fixed assets, the interest payment inclusion method has been used.

19

Segment Information

1. Industry segment information

Six-month period ended September 30, 2003

(Millions of yen)

Self-medication operation group

Prescription pharmaceutical operation group

Total Elimination or corporate Consolidated

Sales and operating income Sales

(1) Sales to outside customers 99,303 46,985 146,288 ― 146,288(2) Sales or transfers between segments ― ― ― ― ―

Total 99,303 46,985 146,288 ― 146,288Operating expenses 73,381 41,173 114,555 ― 114,555Operating income 25,922 5,811 31,733 ― 31,733

Six-month period ended September 30, 2002

(Millions of yen)




Sales and operating income

Sales



Fiscal year ended March 31, 2003

(Millions of yen)




Sales and operating income Sales



Notes:

1. Products are categorized as belonging to the Self-Medication Operation Group or the Prescription Pharmaceutical

Operation Group according to type of product, market, and sales method.

2. Principal products by segment:

Self-Medication Operation Group

Over-the counter medications, nutritional foods, foods, medical supplies, sanitary supplies, and gardening supplies

Prescription Pharmaceutical Operation Group

Ethical drugs

20

2. Geographic segment information Six-month periods ended September 30, 2003 and 2002, and fiscal year ended March 31, 2003:

As domestic sales and domestic assets as a proportion of total sales and total assets, respectively, exceed 90%, information

relating to geographic area has been omitted.

3. Overseas sales information

Six-month periods ended September 30, 2003 and 2002, and fiscal year ended March 31, 2003:

As total overseas sales constituted less than 10% of consolidated net sales, information relating to overseas sales has been

omitted.

21

Marketable Securities

As of September 30, 2003 1. Marketable securities with market values

(Millions of yen) Type Book value Market value Unrealized gain

(loss) (1) Bonds held to maturity

Corporate bonds 8,759 9,113 354

Subtotal 8,759 9,113 354

(2) Other marketable securities Acquisition cost Book value Unrealized gain (loss)

Stocks 17,171 27,558 10,386

Bonds

Government, municipal bonds, etc. 35,947 35,294 -653


Other 32,000 31,321 -678

Total 167,616 176,896 9,279Note: A loss on securities of ¥800 million was incurred for the six months ended September 30, 2003. Loss on securities is posted to income when the market price at the end of the fiscal year falls below 50% of the acquisition cost.

2. Marketable securities that have not been valued to market as of September 30, 2003 (excluding bonds held to

maturity included in marketable securities with a market value)

(Millions of yen)

Book value

Other marketable securities

Unlisted shares (excluding OTC securities) 539

Domestic ordinary corporate bonds 12,000

Total 12,539

22

As of September 30, 2002 1. Marketable securities with market values




Subtotal 9,008 9,410 401


Stocks 15,274 31,887 16,612

Bonds

Government, municipal bonds, etc. 31,225 31,400 174


Other 32,000 30,300 -1,699

Total 172,999 188,511 15,511Note: A loss on securities of ¥59 million was incurred for the six months ended September 30, 2002. Loss on securities is posted to income when the market price at the end of the fiscal year falls below 50% of the acquisition cost.

2. Marketable securities that have not been valued to market as of September 30, 2002 (excluding bonds held to

maturity included in marketable securities with a market value)

(Millions of yen)

Book value


Unlisted shares (excluding OTC securities) 1,462


Total 19,462

23

As of March 31, 2003 1. Marketable securities with market values




Subtotal 8,650 9,021 370


Stocks 17,177 18,335 1,157

Bonds

Government, municipal bonds, etc. 28,771 29,055 283


Other 32,000 29,995 -2,005

Total 166,449 166,207 -242Note: A loss on securities of ¥665 million was incurred for the fiscal year ended March 31, 2003. Loss on securities is posted to income when the market price at the end of the fiscal year falls below 50% of the acquisition cost.

2. Marketable securities that have not been valued to market as of March 31, 2003 (excluding bonds held to maturity

included in marketable securities with a market value)

(Millions of yen)

Book value


Unlisted shares (excluding OTC securities) 1,324


Total 19,324

24

6. Production, Orders, and Sales

1. Production

Performance

(Millions of yen)

Apr. 1-Sept. 30, 2003

Apr. 1-Sept. 30, 2002

Apr. 1, 2002- Mar. 31, 2003

Over-the-counter medications Foods for specified health use, etc.Other

96,571 871 187

97,619 939 118

184,611 1,953

269 Self-Medication Operation Group

Subtotal 97,630 98,676 186,835

Prescription drugs Other

28,054 4,542

28,060 4,353

57,820 9,355 Prescription Pharmaceutical

Operation Group Subtotal 32,597 32,414 67,155

Total 130,227 131,090 253,990 Note: Overseas sales of Lipovitan are included in household goods and nutritional foods in the Self-Medication Operation Group. 2. Orders

The Taisho Group bases production on sales planning, and does not carry out production to order. 3. Sales Results

(Millions of yen)

Apr. 1-Sept. 30, 2003

Apr. 1-Sept. 30, 2002

Apr. 1, 2002- Mar. 31, 2003

Over-the-counter medications Foods for specified health use, etc.Other

94,126 4,418

759

98,161 4,427

693

185,233 8,535 1,357

Self-Medication Operation Group

Subtotal 99,303 103,281 195,125 Prescription drugs Other Royalty income

39,566 4,855 2,534

30,102 4,379 2,485

10,994 6,321

Prescription Pharmaceutical Operation Group

Subtotal 46,985 36,966 78,952 Total 146,288 140,247 274,077

61,637

Note: Sales of Lipovitan at overseas subsidiaries are included in Foods for specified health use, etc in the Self-Medication Operation Group.

25

6. Non-Consolidated Interim Financial Statements for the Six Months Ended September 30, 2003 November 10, 2003

Listed Company Name: Taisho Pharmaceutical Co., Ltd. Stock Listing: Tokyo Security Code: 4535 Headquarters: Tokyo (URL http://www.taisho.co.jp/) Representative: Akira Uehara, President Inquiries: Takayuki Kagami

Senior Director—Accounting Tel.: +81-3-3985-1111

Board of Directors Meeting: November 10, 2003 Interim Dividend System: No Tangen unit stock system: Yes (1 tangen unit = 1,000 shares) 1. Financial Results for First Half of Fiscal 2003 (April 1, 2003 to September 30, 2003) (1) Operating Results

(Millions of yen unless otherwise stated, amounts less than ¥1 million have been omitted)

Net sales (% change from previous period)

Operating income (% change from previous period)

Ordinary income (% change from previous period)

Fiscal 2003 1H 124,658 (-9.4) 33,000 ( -2.3) 35,654 ( -2.2)

Fiscal 2002 1H 137,611 (+0.2) 33,763 ( -4.8) 36,451 ( -5.0)

Fiscal 2002 268,920 (+1.0) 54,494 (-10.8) 60,405 (-10.0)

Net income (% change from previous period)

EPS (yen)

Fiscal 2003 1H 21,306 (+0.1) 66.07

Fiscal 2002 1H 21,282 (-1.4) 63.27

Fiscal 2002 35,136 (-5.7) 105.05

Notes:

1. Average number of shares outstanding during the period:

Fiscal 2003 1H: 322,504,116 shares Fiscal 2002 1H: 336,353,886 shares Fiscal 2002: 333,656,072 shares

2. Changes in accounting methods: Yes

3. Percentage change for net sales, operating income, ordinary income and net income indicate percentage change from corresponding period of previous fiscal year.

(2) Dividends

Interim dividends Fiscal year dividends

Fiscal 2003 1H —

Fiscal 2002 1H —

Fiscal 2002 30.00

26

(3) Financial Position (Millions of yen unless otherwise stated, amounts less than ¥1 million have been omitted)

Total assets Shareholders’ equity Shareholders’ equity ratio (%)

Shareholders’ equity per share (yen)

Sept. 30, 2003 584,146 489,343 83.8 1,528.67

Sept. 30, 2002 594,328 494,640 83.2 1.474.59

March 31, 2003 577,634 488,101 84.5 1,481.89 Note: Total shares issued and outstanding as of:

September 30, 2003 320,110,961 shares September 30, 2002 335,443,409 shares March 31, 2003 329,318,591 shares Number of shares of treasury stock: September 30, 2003 20,854,549 shares September 30, 2002 5,522,101 shares March 31, 2003 11,646,919 shares

2. Forecasts of Operating Results for Fiscal 2003 (April 1, 2003 to March 31, 2004)

(Millions of yen unless otherwise stated, amounts less than ¥1 million have been omitted) Net sales Ordinary income Net income Year-end dividend

(yen) Total dividends

(yen) Full-year 247,000 60,500 35,300 25.00 25.00

Reference: Forecast net income per share for the year: ¥103.71 ＊The forecasts presented in this brief financial report reflect the Company's current analysis of data

available and the Company's assumptions as of November 10, 2003. Certain risks and uncertainties could cause the Company's actual results to differ materially from any projections presented in this report. Please refer to the attached documents for further details.

27

Non-Consolidated Financial Statements

(1) Balance Sheets

(Millions of yen)


Amount Comp. Amount Comp. Amount Comp.Assets % % %

Current assets: 229,278 39.3 232,647 39.1 237,941 41.2Cash, including time deposits 110,449 97,473 108,302Notes receivable—trade 563 1,834 2,116Accounts receivable—trade 69,549 71,334 64,147Marketable securities 13,029 27,106 34,035Inventories 21,013 19,954 17,857Deferred tax assets 7,799 12,200 7,783Other current assets 7,586 3,315 4,416Allowance for doubtful accounts -711 -570 -718

Fixed assets 354,867 60.7 361,681 60.9 339,693 58.8Tangible fixed assets: 95,231 16.3 104,093 17.5 100,287 17.4

Buildings 49,514 53,111 51,516Land 22,567 23,262 23,440Construction in progress 113 55 58Other 23,035 27,664 25,272

Intangible fixed assets 16,349 2.8 18,379 3.1 17,635 3.0

Investments and other assets: 243,286 41.6 239,208 40.3 221,770 38.4Investment in securities 176,406 180,866 151,493Shares in affiliated companies 39,508 37,410 38,351Deferred tax assets 16,818 9,918 20,769Other investments 10,722 11,073 11,226Allowance for doubtful receivables—long term -168 -60 -70

Total assets 584,146 100.0 594,328 100.0 577,634 100.0

28

(Millions of yen)


Amount Comp. Amount Comp. Amount Comp.Liabilities % % %

Current liabilities: 49,529 8.5 55,534 9.3 44,947 7.8Accounts payable 16,394 15,757 13,442Accrued taxes 13,173 14,558 6,315Allowance for bonuses 2,867 3,185 3,545Other reserves 515 686 606Other current liabilities 16,577 21,346 21,037

Long-term liabilities: 45,274 7.7 44,153 7.5 44,585 7.7Guarantee deposits held 2,411 2,243 2,339Reserves for retirement benefits 41,414 40,574 40,864Reserves for directors’ retirement payments 1,448 1,335 1,380

Total liabilities 94,803 16.2 99,687 16.8 89,532 15.5

Shareholders’ equity Common stock 29,804 5.1 29,804 5.0 29,804 5.1Additional paid-in capital: 14,935 2.6 14,935 2.5 14,935 2.6

Capital reserves 14,935 14,935 14,935Retained earnings: 477,623 81.8 452,428 76.1 466,283 80.7

Profit reserves 7,451 7,451 7,451Voluntary reserves 448,865 423,695 423,695Unappropriated retained earnings for the period 21,306 21,282 35,136

Realized difference amount of other marketable securities 5,523 0.9 8,987 1.5 -165 -0.0

Treasury stock -38,543 6.6 -11,514 -1.9 -22,755 -3.9Total shareholders’ equity 489,343 83.8 494,640 83.2 488,101 84.5Total liabilities and shareholders’ equity 584,146 100.0 594,328 100.0 577,634 100.0

29

Statements of Income (Millions of yen)


Amount Comp. Amount Comp. Amount Comp. % % %Net sales 124,658 100.0 137,611 100.0 268,920 100.0Cost of sales 35,044 28.1 35,001 25.4 69,641 25.9

Gross profit 89,614 71.9 102,610 74.6 199,278 74.1

Allowances for adjustment of reimbursement for returned goods

606 731 731

Allowances for adjustment of transfer for returned goods 515 686 606

Selling, general and administrative expenses 56,704 45.5 68,891 50.1 144,909 53.9

Operating income 33,000 26.5 33,763 24.5 54,494 20.2

Non-operating income 2,870 2.3 3,024 2.2 6,318 2.4Non-operating expenses 216 0.2 336 0.2 407 0.1

Ordinary income 35,654 28.6 36,451 26.5 60,405 22.5

Extraordinary gains — — 1,649 1.2 1,667 0.6Extraordinary losses 877 0.7 1,917 1.4 2,384 0.9

Income before income taxes 34,777 27.9 36,183 26.3 59,688 22.2

Corporate and inhabitants’ taxes 13,470 10.8 14,901 10.8 24,364 9.0Enterprise tax adjustment — — — — 187 0.1

Net income 21,306 17.1 21,282 15.5 35,136 13.1

Unappropriated retained earnings brought forward — — — — — —

Total unappropriated retained earnings 21,306 17.1 21,282 15.5 35,136 13.1

30

Summary of Significant Accounting Policies used in Preparation of

Non-Consolidated Financial Statements

1. Standards and evaluation methods for assets (1) Marketable securities

Held-to-maturity debt securities: Amortized cost method Shares in subsidiaries and affiliated companies Stated at cost determined by the moving-average method Other marketable securities, securities for which market quotations are available:

Market value, determined by the market price as of the balance sheet date, with unrealized gains and losses reported in shareholders’ equity and the selling price determined by the moving-average method

Other marketable securities, securities for which market quotations are unavailable: Stated at cost determined by the moving-average method

(2) Inventories Manufactured goods, merchandise, semi-finished goods, and unfinished goods: Stated at cost determined by the average method Materials: Stated at cost determined by the moving-average method Inventories: Stated at last purchase price (promotional goods stated at cost using moving-average method)

(Change in accounting method) Materials had been stated at cost determined by the average method, and promotional goods were stated at last purchase price. In accordance with the introduction of a new accounting system in the fiscal period under review, the Company changed the standards and evaluation methods in accounting for materials and promotional goods to stated at cost determined by the moving-average method in order to evaluate inventories on a timely basis. The effect of this change in accounting method on the interim financial statements is immaterial.

2. Method for depreciating and amortizing fixed assets

(1) Tangible fixed assets Depreciation is computed using the declining-balance method. For buildings acquired after April 1, 1998, depreciation is computed using the straight-line method.

(2) Intangible fixed assets Depreciation is computed using the straight-line method. However depreciation of software for in-house use is computed using the straight-line method based on an estimated useful life of 5 years.

3. Accounting for allowances and reserves

(1) Allowance for doubtful accounts The allowance for doubtful accounts provides for possible losses arising from default on accounts receivable. Based on the default ratio of general loans, the likelihood of repayment of certain loans about which there is concern regarding default is determined, and the anticipated unrecoverable amount is recorded.

(2) Allowance for returned merchandise To allow for losses due to returned merchandise, an amount of losses that is a portion of anticipated future losses from returned merchandise is recorded.

(3) Reserve for bonuses To allow for the payment of employee bonuses, an amount of bonuses that is a portion of anticipated future payment of bonuses is recorded.

(4) Reserve for retirement benefits To cover projected employees’ retirement benefits, the Company provides the estimated amount of benefit obligation and pension plan assets at the end of the fiscal year. Employees’ past service costs are stated at cost by the straight-line method, based on certain years within the average remaining service length, when employees’ past service costs are generated. From the following fiscal year, the differential amount in the computation is to be stated at cost by the straight-line method, based on certain years within the average remaining service length, when employees’ past service costs are generated.

31

(5) Reserve for directors’ retirement benefits

A reserve for directors’ and executive officers’ retirement benefits is provided to adequately cover the costs of directors’ and executive officers’ retirement benefits, which are accounted for on an accrual basis in accordance with in-house regulations.

4. Translation of foreign currency assets and liabilities Receivables and payables denominated in foreign currencies are translated as of the balance sheet date using current exchange rates, with discrepancies recorded as gains or losses. 5. Accounting for leases Finance leases, other than those in which ownership of the leased assets is transferred to the lessee, are accounted for as operating leases. 6. Accounting for hedges

(1) Hedge accounting method Hedging is principally computed under deferred processing. (2) Hedging method, hedge targets

Hedging method Derivative transactions (foreign exchange contract transactions and interest rate swap transactions)

Hedge targets Although it is possible that losses may result from rate fluctuations, such fluctuations are avoided by targeting products that do not reflect rate fluctuations and those that provide a fixed cash flow.

7. Other

(1) Consumption tax Financial statements are prepared exclusive of consumption tax.

32

Notes Related to Balance Sheets

(Millions of yen)


1. Cumulative depreciation of tangible fixed assets

132,106 122,897 128,244

2. Warranty obligations 398 993 398

Notes Related to Income Statements

(Millions of yen)


1. Depreciation Tangible fixed assets Intangible fixed assets

5,148 1,692

5,571 1,409

11,923 3,103

2. Tax expenses during the fiscal period Tax-effect accounting using the simple method was applied to tax expenses during the fiscal period under

review. As a result, enterprise tax adjustments are included in corporate and inhabitants’ taxes.

Notes Related to Lease Transactions

Finance leases, other than those where ownership of the leased assets is transferred to the lessee, were as follows.

(Tangible and Intangible Fixed Assets)

(Millions of yen)

Sept. 30, 2003 Sept. 30, 2002 Mar. 31, 2003

1. Acquisition cost equivalents

Accumulated depreciation Period-end balance equivalents

22,564

7,617 14,946

16,088 4,411

11,676

20,609

6,271 14,338

2. Future lease payments

Within one year Over one year

3,951 10,995

1,953 9,723

3,584 10,754

Total 14,946 11,676 14,338

3. Leases paid (depreciation) 2,117 1,106 3,003

4. Depreciation is computed using the straight-line method, assuming the lease period to be the useful life and residual value to be zero.

5. Regarding the previous note, because of the relatively low proportion of the period-end balance of the present value to future lease payments, which are included in the period-end balance of the present value of future lease payments and tangible fixed assets, the interest payment inclusion method has been used.

33

Notes Related to Marketable Securities

Shares in subsidiaries and affiliated companies with market value as of September 30, 2003

(Millions of yen)

Book value Market value Unrealized gain (loss)

Shares in subsidiary companies ― ― ―

Shares in affiliated companies 19,012 15,738 -3,274

Total 19,012 15,738 -3,274

Shares in subsidiaries and affiliated companies with market value as of September 30, 2002

(Millions of yen)



Shares in affiliated companies 18,662 20,855 2,193

Total 18,662 20,855 2,193

Shares in subsidiaries and affiliated companies with market value as of March 31, 2003

(Millions of yen)



Shares in affiliated companies 19,012 18,619 -393

Total 19,012 18,619 -393

34

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