hogy fy2012 ar
TRANSCRIPT
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For the Year ended
March 31, 2012
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Guided by the corporate credo of fostering medical progress and promoting the
health and happiness of people through its business activities, thus contributing to
social prosperity, Hogy Medical provides products and systems that contribute to the
safety of patients and medical staff as well as the streamlining and laborsaving efforts
in the management of medical institutions.
Hogy Medical was established in 1961 by founder Masao Hoki and was at first
named Hoki Recording Paper Marketing Co., Ltd. Since that time, we have continued
to lead the industry with the provision of innovative products for half a century andhave grown by developing and supplying products that contribute to the safety of
patients and medical staff and the streamlining of the management of medical insti-
tutions. Especially notable is Mekkin Bag, developed and released in 1964 as the
first step in the prevention of in-hospital infections, which has grown to become the
representative product for sterilization bags. This was followed by the development of
the major product DuPont Sontara, a non-woven fabric medical product that has
generated a revolution on the medical front lines due to its significant contribution to
prevention of in-hospital infections. Today, we have established a position as the lead-
ing company in Japans disposable medical equipment market.
The Hogy Medical Group directly conducts proposal-based marketing to medi-
cal institutions and responds meticulously to the voices of people on the medical
front. Demand for our medical kit products is rapidly growing, reflecting the needs of
customers. In these kits, the quantity of medical supplies is set in accordance with the
requirements of specific medical functions, such as surgery and medical check-ups.
Since their release, the kits have captured the attention of medical institutions, such
as from the perspective of reducing their burden of work, preventing errors in organi-
zation of medical supplies, preventing in-hospital infections and other aspects of risk
management. Over the medium to long term, the Hogy Medical Group will continue to
use the Tsukuba Plant, which features unparalleled safety standards, to spearhead a
strategy focused on Opera Master, which contributes to medical safety and improved
management of medical institutions.
Toward Another 50 Years,
Pursue Further Enhancement ofCorporate Value
CON T EN T S
1
2
8
10
16
17
Financial Highlights (Consolidated)
To Our Shareholders and Investors
Corporate Governance and Internal Control System
Summary of Business by Mainstay Product
Five-Year Financial Data Overview (Consolidated)
Financial Review (Consolidated)
18
20
36
37
38
39
Key Financial Data (Consolidated)
Consolidated Financial Statements
History
Shareholder Information
Corporate Information
Network
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2012
Years ended March 31,
2011 2012
31,3118,601
7,475
4,453
7,123
8,336
60,698
69,834
31,518
7,250
(3,888)
(2,545)
18,139
283.10
3,857.83
31,8737,750
7,822
4,624
7,123
8,336
64,013
72,522
29,585
6,278
(2,810)
(2,310)
19,239
294.01
-
4,069.17
388,04494,352
95,232
56,303
86,721
101,486
779,321
882,910
360,180
76,436
(34,219)
(28,123)
234,231
3.58
-
49.54
Income Statement Data
Net salesOperating income
Income before income taxes and
minority interests
Net income
Balance Sheet Data
Common stock
Additional paid-in capital
Net assets
Total assets
Property, plant and equipment, net
Cash Flow Data
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Cash and cash equivalents at end of year
Per Share Data
Net income (basic)
Net income (diluted)
Net assets
(Millions of yenunless indicated otherwise)
(yen) (U.S. dollars)
(Thousands ofU.S. dollars)
Notes: (1) The U.S. dollar amounts in this annual report are transl ated from Japanese yen, for convenience only,at the rate of 82.14 = U.S.$1.00, the rate of exchange on March 31, 2012.
(2) This annual report states all figure s on a consolidated basis, except where otherwise noted.
Operating Results(Unit: Millions of yen/consolidated)
62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Net sales
Ordinary income
*This annual report states all figures on a consolidated basis from FY1995.
(as of March 31,2012)Forward-looking Statements
The plans, strategies and performance forecasts in this annual report are forward-looking statements and include risks and uncertainties.
Please recognize that various factors may lead to actual results differing from the forecasted figures.
Financial Highlights (Consolidated)
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In fiscal 2011 ended March 31, 2012, the Japanese
economy showed a recovery trend, albeit moder-
ate, despite the major impact of the Great East Japan
Earthquake. However, the outlook still remained unclear
due in part to the European financial crisis and sharp for-
eign exchange fluctuations, soaring crude oil prices and
other factors. In the medical equipment industry, despite
a slight increase in overall medical treatment remunera-
tion, Japans difficult financial position was among thefactors that continued to cause companies associated
with the industry to face growing pressure to enhance
the efficiency of and streamline management.
In this environment, the Hogy Medical Group sus-
tained damage to production facilities from the Great
East Japan Earthquake, which affected business results
in the first quarter of the fiscal year. However, we gradu-
ally stepped up marketing activities, spurred by promo-
tional tours of the Surgery Management System show-
room, which extends the functions of the Opera Master
system components. Accordingly, we were able to con-
clude contracts on a par with previous years.
As a result, consolidated net sales for fiscal 2011
were up 1.8% from the previous fiscal year, to 31,873
million. Within this total, sales of surgical-use medical kit
products were up 5.9%, to 15,232 million, owing mainly
to the popularity of Opera Master, a solution-based serv-
ice for medical institutions incorporating products, logis-
tics and information management. During fiscal 2011,
A New Start for the Next 50 Years
Under the Corporate Policy ofTireless Challenge Aimed at Dramatic Progress
Fiscal 2011 Sales Growth by Major Products
0
200
400
600
800
-400
-200
1,000
(Unit: Millions of yen, rounded down)
Other
products
Opera Master
Regular kit
Mekkin BagNon-woven fabrics
Subsidiaries
and other sales
132
10
880
-222 -234
24
Other non-woven
fabrics
Fiscal 2011 sales growth
562 million
Kit total852
-28
To Our Shareholders and Investors
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although the Group signed 20 Opera Master contracts
with medical institutions, there were seven cancellations,
bringing the cumulative number of contracts to 144.
Sales of surgical-use non-woven fabric medical prod-ucts were down 2.0%, to 10,638 million, reflecting the
Groups strategic pricing policy aimed at expanding mar-
ket share. The cost of sales ratio increased compared
with the previous fiscal year, due to a rise in depreciation
associated with a sterilization center that commenced
operations in stages from May 2011. This was despite
improvements in productivity thanks to a higher produc-
tion volume.
Selling, general and administrative expenses were
up from the previous fiscal year, due to a number of fac-
tors. These included expenses arising from response
to production delays due to the Great East JapanEarthquake, as well as expenses related to the sub-
sequent rejuvenation of marketing activities. In addi-
tion, we incurred expenses related to future corporate
growth as we focused on developing the Opera Master
Surgery Management System and conducting experi-
mental research.
Consequently, consolidated operating income was
down 9.9%, to 7,750 million. Consolidated ordinary
income was down 8.6%, to 7,825 million, and consoli-
dated net income was up 3.9%, to 4,624 million.
The outlook for fiscal 2012 ending March 31, 2013
remains unclear due to sharp foreign exchange fluc-
Allow me to take this opportunity to
thank our shareholders for their loyalty.
After long taking part in manage-
ment since Hogy Medicals incep-
tion, as representative director for 46
years and as director for five yearsfor a total of 51 years, I recently
stepped down from management.
I would like to take this opportunity
to express my sincere appreciation
Anticipating Exceptional Business Performance to Follow on From theHalf a Century of Devotion to Enhancing the Efficiency of Management
Resignation Message
tuations and soaring crude oil prices, as well as expec-
tations of peak materials prices stemming from hikes in
electricity prices. In the medical equipment industry, as
described earlier, business conditions are expected toremain challenging, causing companies to face grow-
ing pressure to enhance the efficiency of and streamline
management.
Under the corporate policy of tireless challenge
aimed at dramatic progress, the Hogy Medical Group
has positioned the year ahead as a new start for our
next 50 years. To this end, we will continue assertively
promoting the Opera Master strategy and Surrem
strategy. In addition, we will launch a new product,
called IC Tracer, in which an IC tag is attached to the
gauze used in surgical procedures to permit tracing by
machine and thus prevent the gauze from ending upinside the patients body. In addition, we will step up
promotion of the Opera Master strategy, as stated ear-
lier. This will entail extending the functions of the Opera
Master system components and reinforcing sales of
the Surgery Management System, which contributes to
visualization in the operating room.
June 2012
Jun-ichi HokiPresident & CEO
to shareholders for their tremendous
support and cooperation over the
years.
In taking part in Hogy Medicals
management, I focused on eliminat-
ing the unnecessary and maximiz-ing earnings. In the accounting sec-
tion, the majority of business opera-
tions were being spent on correct-
ing errors and so I put double data
entry into practice. This eliminated
errors, which led to reduction in
accounting personnel and there was
thus no longer wasteful spending. At
distribution centers, a fully-automat-
ed warehouse was created in order
to improve personnel expenses and
productivity. Although it came at aprice at first owing to depreciation,
significant earnings have managed
to be generated in several years
time. In addition, mechanization and
automation have been pursued for
production at plants, as well.
In recent years, price cuts have
become inevitable due to requests
from hospitals. Nevertheless, our
streamlining efforts to date haveproven effective in being profitable
even in the difficult circumstances.
Hogy Medical plans to keep
releasing new products and pro-
moting further automation of plants,
along with increasing sales. Further
raising of growth potential and profit-
ability will also be pursued.
I would like to conclude this res-
ignation message by expressing my
anticipation that Hogy Medical will
continue to achieve exceptional busi-ness performance. I am truly grateful
for everything to date.
Masao Hoki Chairman Emeritus & Founder
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For Tireless Challenge Aimed at Dramatic
Progress, Continue to Promote the Opera
Master Strategy and Surrem Strategy
The Hogy Medica l Group always accords emphasis to product life
cycles, acknowledging that even superior products cannot sustain
long-term growth. With this in mind, we have implemented a strategy
of getting next-generation growth products on stream while sales of
mainstay items are expanding. We believe this strategy will enable us
to achieve ongoing sales and income growth over the medium to long
term. To this end, we are concentrating our management resources on
new product development. Going forward, we will develop products that
contribute to our further growth. Specifically, we will strive to develop
offerings that emphasize medical safety and low invasiveness based
on the concept of products that contribute to the medical front lines.
In addition, we will continue pursuing a marketing strategy focused
on Opera Master. Opera Master is a system incorporating products,
logistics and information management. The core products are full-kit
products, which are sets of sterilized medical supplies used in operat-
ing rooms. On the logistics side, we have established a system where-
by hospitals can place orders directly to Hogy Medical from dedicated
information terminals, for delivery on the day before surgery. This sys-
tem is expected to alleviate inventory burden for medical institutions.Furthermore, in the information aspect, in addition to an online
ordering system, provision takes the form of unifying the surgery
schedule, human resources and cost management systems. Use of
this system is expected to facilitate easy operating room scheduling
and boost the utilization rate. We have also simplified the management
of incoming and outgoing medical supplies to alleviate the burden of
inventory control and facilitate easy cost accounting.
To date, we have advanced the Opera Master system and con-
cept tailored to the needs of medical front lines. Specifically, launch of
the Surgery Management System, which extends the functions of the
Opera Master system components, allowed for more detailed analysis
of operating room data than before. Going forward, we will undertakerepeated development of Opera Master with the aim of expanding it as
a solution-based service that meets the needs of medical institutions.
In terms of income, we engage in management with a constant
aim to increase the ratio of direct to indirect department personnel,
where the manufacturing portion is based on facilities and systems
that enable manufacturing with few personnel in an aim for plants that
are automated as much as possible and the indirect departments are
based on a select few personnel. In addition, concerning the Kit Plant,
for which considerations are currently underway for expansion, we are
considering designs based on the concept of full automation. In this
manner, we seek to be a company that can continue to be profitable in
the long term.
1
Tireless Challenge Aimed at Dramatic Progress, and Medium- and Long-Term Strategies
To Our Shareholders and Investors
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The Hogy Medical Group will further promote the Opera Master
strategy that focuses on Opera Master, which contributes to medical
institutions management reform, as a pillar of management. Additionally,
for mainly non-woven fabric medical products, we will further reinforce
the Surrem strategy, which is based on the concept of low price, high
function and high quality. We will assertively promote these two strate-
gies in order to distinguish ourselves from the competition.
By Reinforcing Seminars,
Further Promote the Opera Master
Strategy
Medical institutions are under strong pressure to reform management.
In light of such circumstances, the Hogy Medical Group has estab-
lished techniques enabling medical institutions to visualize how Opera
Master can enhance the efficiency of hospital management. We will
step up proposals to hospitals emphasizing these techniques. The
effects of introducing Opera Master on hospital management have
been presented at various academic societies to date with specific
case examples of hospitals that have introduced Opera Master. This is
serving as a powerful backup of Opera Master marketing activities. Inaddition, in the previous fiscal year, a hospital superintendent spoke at
our luncheon seminar with a presentation on The Economic Effects of
Introducing Opera Master for the first time, in which the specific case
examples of medical cost savings resulting from introduction of Opera
Master aroused great interest of customers. Going forward, we will pur-
sue further reinforcement, such as continuously holding management
seminars for hospital directors, as well as holding seminars from the
perspective of each of managers, doctors, nurses and administration.
By Accelerating the Renewal of Products,Further Reinforce the Surrem Strategy
Regarding non-woven fabric products, we will continue to promote the
Surrem strategy, which is based on the concept of low price, high
function and high quality, to more accurately address the needs of
medical institutions and thereby expand our market share. Particularly
with drapes, while we managed to expand our market share by pur-
suing a strategic pricing policy in the previous fiscal year, we will also
focus on diversification of products going forward. Additionally, we
intend to accelerate the renewal of products for non-woven fabric prod-
ucts in general.
2
3
Sales of Opera Master
0
5
10
15
20
25
FY 11 contracts
(Unit: Hundred millions of yen, rounded down)
FY 10 contracts FY 09 contracts
FY 08 contracts FY 07 contracts
FY 05 contracts FY 04 contracts
FY 06 contracts
FY 08
1Q
FY 08
3Q
FY 09
1Q
FY 09
3Q
FY 10
1Q
FY 10
3Q
FY 11
1Q
FY 11
3Q
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New Sterilization Center
in Operation Since May 2011
The Hogy Medical Group takes great care to manufacture products that
are safe and can be used without worry. In particular, the Electron Beam
Sterilization System is an important system serving as the backbone that
supports the stable supply of our disposable medical products. In 1992,
Hogy Medical became the first medical manufacturer in Japan to install
the system. This is a safe sterilization method that can sterilize objects
that are already packaged and can sterilize a great quantity of products
in a short time for continuous and efficient sterilization processing,
without any residual toxicity or environmental pollution. At Tsukuba
Sterilization Center, which was established in 1996 and has one of
the largest and most advanced electron beam sterilization facilities
in the world, we have realized computer-controlled full automation.Furthermore, a new sterilization center, which was an expansion on the
Tsukuba Plant site, has been in operation since May 2011.
With Indonesia as a Manufacturing Base,
Reinforce Sales to Overseas Markets
Hogy Medicals local subsidiary in Indonesia, P.T. Hogy Indonesia,
conducts labor-intensive production processes as one of the world's
major non-woven fabric medical product processing plants, but we are
currently advancing automation of the production department. On the
other hand, regarding sales to overseas markets, in view of drawing onthe benefits of having a manufacturing base in Indonesia, we have been
conducting market research to date concerning medical equipment
sales in Southeast Asia. Based on the results of this research, we
established a sales company, P.T. Hogy Medical Sales Indonesia, as a
subsidiary of P.T. Hogy Indonesia on July 1, 2011. Since Indonesia hosts
a large population and has remarkable economic growth, we believe
that the country has good potential as a market for medical equipment
in the future. The sales company in Indonesia has commenced business
operations starting with sales of non-woven fabric products, but plans
are for it to engage in development and sales tailored to local hospital
needs while exploring the sales unit and services and other ways that
would facilitate sales in the future.
4
5
To Our Shareholders and Investors
New sterilization center on the Tsukuba Plant site
P.T. Hogy Indonesia Plant
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Dividend Increases This Fiscal Year With
24.00 per Quarter for Annual Total of 96.00
Our basic policy with respect to profit appropriation emphasizes pay-
ment of cash dividends, and since our foundation we have adhered to
our corporate motto of ensuring harmonious coexistence with custom-
ers, shareholders, employees and corporations. With regard to this, we
continue to reward our shareholders for their patronage. Furthermore, to
ensure that the fruits of our performance are swiftly returned to share-
holders, we started paying quarterly dividends in fiscal 2006. The con-
solidated performance forecasts for fiscal 2012 ending March 31, 2013
are net sales of 32,870 million (up 3.1% from fiscal 2011), operating
income of 8,000 million (up 3.2%), ordinary income of 8,060 million
(up 3.0%) and net income of 5,043 million (up 9.0%). In fiscal 2012, we
plan to pay quarterly dividends of 24.00 (20.00 in each of the first andsecond quarters and 23.00 in each of the third and fourth quarters in
the previous fiscal year) for total annual dividends of 96.00 (86.00 in
the previous fiscal year) per share.
CSR Activities
Hotaruno Sato Project(Activities to Restore Rice Paddies in Abandoned Fields)
As part of our CSR activities, the Hotaruno Sato Project for restor-
ing rice paddies in abandoned fields was launched in 2009. In theProject, Hogy Medical rented a 1.7-hectare piece of land adjacent to the
Tsukuba Plant from the local municipal government. On the land, we cul-
tivate and harvest rice without using agrochemicals in an effort to restore
and recreate rice fields in abandoned fields in cooperation with an NPO
and the local municipal government. Under the rice cultivation method
and other guidance of the NPO, Hogy Medical employees and their fami-
lies take part in the work. By engaging in the Project, we strive to restore
and preserve the ecosystem, as well as interact with the local commu-
nity through the agricultural experience of planting and harvesting.
Sponsoring JCMT
Hogy Medical is in agreement with the philosophy of and is sponsor-
ing the JCMT (Japanese Council for Medical Training). The JCMT is a
privately sponsored training program for doctors from developing coun-
tries. The program invites doctors from developing countries, chiefly
from Southeast Asia, to Japan, and trains them in advanced medical
equipment technology, with the dual aim of international contribution of
contributing to the betterment of medical standards in the developing
countries and international friendship of promoting better relationships
between the countries and Japan through the training.
6
7
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Hogy Medical advocates focus on customers and focus on share-
holders as fundamental policies, and recognizes that steadily achiev-
ing management targets and consistently raising corporate value are
essential to ensuring proper shareholder return. To fulfill these objec-
tives, we are reinforcing corporate governance with an emphasis on
swift decision-making and appropriate business execution, while fully
understanding the absolute importance of strengthening the manage-
ment oversight function to increase the transparency of management.
In order to accelerate the decision-making process for the execution of
business and to ensure corporate governance, Hogy Medical employsthe Financial System Councils study groups model system of elect-
ing outside directors and cooperating with the Board of Corporate
Auditors, etc. The major roles of the Board of Directors and the Board
of Corporate Auditors are as follows.
Board of Directors
Comprised of six directors (including one outside member), the Board
of Directors manages with few members to enable swift management
decision-making. In June 1999, Hogy Medical introduced an executive
officer system to clarify the distinction between the inherent functions of
the Board of Directors (management decision-making and supervision
of business execution) and the functions of executive officers and oth-ers (business execution). Therefore, we now have a system that permits
swift responses to changing business conditions.
Board of Corporate Auditors
The Board of Corporate Auditors is comprised of three corporate audi-
tors (including two outside members) and audits the execution of duties
by directors. Corporate auditors attend important meetings, receive
reports from directors and others, examine important decision docu-
ments, and monitor subsidiaries and others. All corporate auditors
belong to the Board of Corporate Auditors, which determines auditing
policies, etc., receives reports on the status, etc. of audits conducted
by corporate auditors, receives reports on audits conducted as needed
by the independent accounting auditor and, when necessary, exchang-
es information. In these and other ways, interaction between relevant
parties is maximized.
Hogy Medical has a system for ensuring the appropriate execution of
business by clarifying the authority and responsibility of each duty, while
also implementing appropriate division of business by incorporating a
mutual check-and-balance system into the business process, and at
Basic Approach
Overview of the Current Corporate
Governance System
Internal Control System BasicApproach and MaintenanceStatus
Corporate Governance and Internal Control System
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the same time recognizes the necessity of continuously conducting
reviews and improving and strengthening controls.
The Board of Di rec tors has establ ished the Committee Over
Internal Controls to operate a system for ensuring that the execu-
tion of duties by directors complies with the law and the Articles of
Incorporation (this committee is responsible for establishing a system
for internal control, compliance and risk management, and for examin-
ing, improving, etc. this system; the same applies hereinafter).
The Committee Over Internal Controls is chaired by the President
of Hogy Medical, and an Internal Control Committee and a Compliance
Committee, which each holds a regular meeting once a month, have
been set up under the Committee Over Internal Controls. All activitiesare reported to the Board of Directors.
General Meeting of Shareholders
Company Divisions and Group Companies
Board of Directors5 directors, 1 outside director
Committee Over
Internal Controls
Internal Auditing
Department
Independent
Accounting Auditor
Board of CorporateAuditors
1 auditor, 2 outside auditors
Directors,
Executive Officers
Managementmeeting
Election and
dismissal
Instruction andsupervision
Internal Auditing
Instruction andsupervision
Instruction and supervision
Aud itAud it
Aud it
Report ReportReport
Election and
dismissal
IndependentAcc oun tin g
Election and
dismissal
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Concept of the Opera Master Strategy
Opera Master is an integrated system incorporating products, logistics and information management and centers on full-
kit products that can be adjusted on a 1 surgery or 1 kit product basis in accordance with the hospitals doctor or opera-
tive procedure. It is a total solution service that provides complete support of medical institutions enhancement of the
efficiency of business operations, inventory reduction and cost control. Introducing the system has substantial benefits
for medical institutions, which are currently faced with the pressing task of improving management. These include beingable to shorten pre-surgery preparation time considerably, as the kit is packaged to contain all medical supplies required
for the surgery and so the surgery can be commenced once the kit is opened. Furthermore, the system facilitates easy
cost control, such as of the medical supplies inventory and purchase status. Hogy Medical has positioned promotion of
the Opera Master strategy as our top management strategy.
Opera Master
Total Solution Service Revolving Around Products,
Logistics and Information Management Aimed atBoosting Earnings and Efficiency at Medical Institutions
F u l l kit
managementsyst
emInformation Logisticssyste
m
H o s p i t a l
vOne-kit orders (minimum) accepted
vFour-day minimum manufacturing lead-time
vAlleviates inventory burden
vBacked by reliable logistics system
Logistics-related benefits
vFacilitates scheduling of surgeries
vAllows human resources to be allocated more appropriately
vAlleviates inventory burden
vIncludes cost-control system
Information management system
v Low indirect administrative costsv More effective medical supplies control
v Sterilized using electron beam sterilization
v Rigorous safety measures taken
Benefits of full-kit products
Summary of Business by Mainstay Product
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Opera Masters New Service Surgery Management System
Hogy Medicals Surgery Management System, continuously analyzes
burden of work and costs borne on the medical front lines using data
obtained through various information gathering tools, based on which pro-
posals that help further improve the efficiency of operating room manage-ment are made. One of these tools is the digital picking system. Through
the use of a picking list, this system assists in the recognition of medical
supplies required for an operative procedure of a scheduled surgery. It also
lights the lamp at the location where the medical supplies necessary for
the surgery are stored. As a result, preparation time is reduced and made
more accurate. Furthermore, by regularly updating this picking list, excess
medical supplies spending is kept down and optimization of inventory can
be realized. By obtaining and quantifying the surgery progress and human
resources utilization with IC tags, the flow of the work burden which may
vary according to the time, date or season is assessed and used as a
means to find points that can be improved upon.
The Surrem Strategy Based on the Concept of
Low Price, High Function and High Quality
Drawing profitable plans from accumulated data
With the Surgery Management System, plans for profitable
operating room utilization can be drawn on the system
based on the quantified information accumulated.
Concept of the Surrem Strategy
Proposing operating room man-
agement that is one step ahead
Low price
High quality
High function
Accurately addressing the needsof medical institutions
PLAN DO
ACTION CHECK
Setting goal anddrawing planExamine individual performance data
to present a best business plan
Business efficiencyimprovement through toolsProvision of site improvement tool/plan
tailored to equipment situation of each facility
Future proposalSubmission of analysis of current state
of staff with expertise
Planning
Implementationand action
Management reviewand improvement
Inspectionand evaluation
Data collection and analysisReal time comparison and analysis
of automatically collected data
Opera Master has built a four step cycled sustainable support system for improvement of hospital
management: PLAN to help plan business improvement, DO to enhance the efficiency of actual
work through kit products and a picking list, CHECK to collect and manage information on business
operations, ACTION to propose new measures for improvement based on the information obtained.
Regarding non-woven fabric products and simple kit products, Hogy
Medical will promote the Surrem strategy, which is based on the
concept of low price, high function and high quality, to more accurately
address the needs of medical institutions. In the area of non-woven fab-
ric products, in 2007 we launched two new productsK Gown and BR
Drapeboth of which have been warmly received by numerous hospi-
tals. In 2009, we unveiled a new line of drapes called Tigalyer. Regarding
simple kit products, we have been applying the basic concept of the
Surrem strategy to develop kit products for use in hospital ophthalmol-
ogy and radiology departments.
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0
5,000
10,000
15,000
20,000
25,000
30,000
Non-woven fabricsMekkin Bag Others
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011
(Unit: Millions of yen, rounded down)
Kit products
35,000
Developed from the perspective of users working on the medical front
lines, Hogy Medical proposes all kit products as full-kit products meet-
ing specific needs. We aim for stable supply of surgical-use products
in order to meet the latest needs on the medical front lines and also
support enhancement of the efficiency of hospital management. Our
kit products, which package items required in surgery and treatment in
accordance with the requirements of specific medical functions as a set
for a diverse range of medical procedures, have the potential to make
a huge contribution to the medical front lines. However, this potential
cannot be fulfilled unless they accurately reflect the singular features
and staffing situations at the frontlines of each medical institution and
the understanding of specific medical needs. In our kit products, the
quantity of medical supplies is set in accordance with the specific
medical needs or requirements of specific medical functions, such as
surgery and medical check-ups. Since their release, the kits have
captured great attention from the perspective of reducing the burden
of work, preventing human error and in-hospital infections, and other
aspects of risk management. Once a package is opened, medical per-
sonnel can immediately give medical treatment and so the burden ortime for preparation is greatly reduced, making it possible to increase
the number of surgeries and medical check-ups. Since these products
can also help medical institutions improve their earnings, it is increas-
ingly being introduced especially among high volume hospitals which
perform many surgeries.
Sales of Mainstay Products (2008-2012)
Summary of Business by Mainstay Product
Kit Products
Full-Kit Products Packaging All Medical Supplies
Meeting Specific Needs
Cesarean Kit
Orthopedic Surgery Kit
Angio Kit
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Non-Woven
Fabric Products
Non-Woven Fabric Product Line
Addressing Increasingly Advanced Medical RequirementsMeeting the Needs on the Medical Front Lines
Hogy Medicals non-woven fabric products, such as surgical-use
gowns, drapes and caps, for preventing in-hospital infections and alle-
viating business operations are designed to perform to and address the
increasingly advanced medical requirements demanded on the medi-
cal front lines. Hogy Medical launched disposable masks and caps to
support surgical-use non-woven fabric products, such as gowns and
drapes, ahead of other companies. Featuring strong barriers and excel-
lent durability, these products help prevent in-hospital infections. These
products have now grown in diversity to include sheets, pads, isolation
gowns and shoe covers and are evolving into a series which meets the
needs of customers ahead of time.
Disposable gowns and disposable drapes
Disposable gowns and disposable drapes
Disposable gowns
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Mekkin Bag and
Other Products
The History of Mekkin Bag Closely Mirrors
The History of Hogy Medicals Development
Mekkin Bag represents the start of Hogy Medicals activities to prevent
in-hospital infections, which later led to the realization of Sontara and
kit products. The material of Mekkin Bag, a sterilization pouch product,
must be permeable to facilitate transmission of high-pressure steam
and sterilizing gas, while at the same time being able to keep the pouch
contents sterile for long periods of time. Hogy Medical developed a
sterile paper with a special micro-structure as the material best suited
to these conditions. Since the release of Mekkin Bag in 1964 as the
first step in the prevention of in-hospital infections, the high steriliza-
tion characteristics and the convenience of use led to a rapid increase
in demand to now be the recognized name among sterilization pouch
products. In addition, we simultaneously advanced the development of
indicators used in verifying whether or not the item for sterilization has
indeed been sterilized and these are still used by medical institutions
today. The history of Mekkin Bag closely mirrors the history of Hogy
Medicals development.
The evaluation requirements for N95 masks for medical institu-
tions are stricter than for surgical masks and they also have high filtra-
tion efficiency. We recommend it for preventing serious infectious dis-eases, such as tuberculosis, SARS and influenza.
Mekkin Bag and indicators
N95-PR masks
Summary of Business by Mainstay Product
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New Products
Focus on Development of New Products
that Contribute to the Medical Front Lines
Hogy Medical is developing new products in the field centering on
medical safety, hospital management and business operations sup-
port and low invasiveness based on the concept of products that
contribute to the medical front lines.
The laparoscop ic surg ical sponge made of po lyurethane,
SECUREATM, is a product for the purpose of assisting in the exclusion,
liquid absorption, lavage and astriction performed during laparoscopic
surgery. It improves the efficiency and safety of laparoscopic surgery by
eliminating the need for retractors, which may damage internal organs,
and the process of placing and retrieving gauze in the abdominal cavity.
In addition, IC Tracer is a system in which an IC tag is attached
to the gauze used in surgical procedures to permit tracing by machine
and thus prevent the gauze from ending up inside the patients body.
As the accurate and fast gauze count by machine is anticipated to lead
to such effects as alleviate the burden of work on nurses and enhance
safety, we believe that it is a product that can contribute to the medical
front lines.
Hogy Medical will keep striving to develop new products aimed
at further contribution to safe medical care and hospital managementimprovement.
SECUREATM, a laparoscopic surgical sponge
In view of preventing the gauze used in surgical procedures from end-
ing up inside the patients body, we developed a gauze counting system
called IC Master that is mainly comprised of IC Gauze, which has an IC tag
attached, and IC Tracer, which is a reader that provides an instant count.
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388,04494,352
95,23256,303
86,721101,486779,321882,910360,180
76,436(34,219)
(28,123)
234,231
3.58
49.54
21,88937,3144,948
2012
Income Statement DataNet salesOperating incomeIncome before income taxes andminority interests
Net income
Balance Sheet DataCommon stockAdditional paid-in capitalNet assetsTotal assetsProperty, plant and equipment, net
Cash Flow Data
Net cash provided by operatingactivities
Net cash used in investing activitiesNet cash (used in) provided byfinancing activities
Cash and cash equivalents at end ofyear
Per Share DataNet income (basic)Net income (diluted)Net assets
Key Financial DataCapital expendituresDepreciation expensesR&D expensesEquity ratio (%)Return on equity (%)Price/earnings ratio (times)Number of shares issued (thousands)Number of employees at year-end*
31,8737,750
7,8224,624
7,1238,336
64,01372,52229,585
6,278(2,810)
(2,310)
19,239
294.01
4,069.17
1,7983,064
40688.267.42
12.5716,3411,441(516)
2012
31,3118,601
7,4754,453
7,1238,336
60,69869,83431,518
7,250(3,888)
(2,545)
18,139
283.10
3,857.83
3,9902,277
41786.907.47
12.5816,3411,453(421)
2011
31,3397,974
8,1034,921
7,1238,336
58,50668,25930,121
8,173(3,713)
750
17,405
315.74
3,718.27
3,4712,557
44385.698.95
13.6516,3411,465(653)
2010
31,0097,501
5,9963,584
7,1238,336
51,50561,94129,073
6,023(2,270)
(2,344)
12,182
238.47
3,425.71
2,6892,936
26983.137.09
22.5616,3411,485(783)
2009
29,0107,232
6,8254,054
7,1238,336
49,63161,51429,547
8,407(3,201)
(2,205)
10,838
269.73
3,300.59
1,5702,728
25980.668.31
19.0216,3411,485(472)
2008
(Millions of yenunless indicated otherwise)
(Thousands ofU.S. dollars)
Years ended March 31,
Note: The U.S. dollar amounts in this annual report are translated from Japanese yen, for convenience only,at the rate of 82.14 = U.S.$1.00, the rate of exchange on March 31, 2012.
*The number of employees is the size of the employed population. The annual average number of employees
who are on fixed-term employment contracts with consolidated subsidiaries are indicated in parentheses.
(yen) (U.S. dollars)
(Millions of yen,
unless indicated otherwise)
(Thousands of
U.S. dollars)
2008 2009 2010 2011 2012Years ended in March
2008 2009 2010 2011 2012Years ended in March
0
20
40
60
80
Total Assets
(bn)
0
2
4
6
8
Operating Income
(bn)
10
0
10
20
40
30
(bn)
Net Sales
2008 2009 2010 2011 2012Years ended in March
Five-Year Financial Data Overview (Consolidated)
16 2012A NNUAL REPORT
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Performance
Net SalesNet sales were up 1.8% from the previous consolidatedfiscal year, to 31,873 million. Within this total, sales
of surgical-use medical kit products were up 5.9%,to 15,232 million, owing mainly to Opera Master,a system incorporating products, logistics andinformation management. During the consolidatedfiscal year under review, although the Group signed20 Opera Master contracts with medical institutions,there were 7 cancellations, bringing the cumulativenumber of contracts to 144 contracts. Sales of surgical-use non-woven fabric medical products were down2.0%, to 10,638 million, reflecting the Groups strategicpricing policy aimed at expanding market share.
The Hogy Medical Group sustained damageto production facilities from the Great East JapanEarthquake, which affected business results in the firsthalf of the fiscal year. However, we gradually stepped
up marketing activities, spurred by promotional toursof the Surgery Management System showroom, whichextends the functions of the Opera Master systemcomponents. Accordingly, we were able to concludecontracts on a par with previous years and achievesales growth in terms of net sales overall as well.
Operating IncomeThe cost of sales ratio increased compared with theprevious fiscal year, due to a rise in depreciationassociated with a sterilization center that commencedoperations in stages from May 2011. This was despiteimprovements in productivity thanks to a higherproduction volume. Selling, general and administrativeexpenses were up from the previous fiscal year, due toa number of factors. These included expenses arisingfrom response to production delays due to the GreatEast Japan Earthquake, as well as expenses related tothe subsequent rejuvenation of marketing activities.In addition, we incurred expenses related to futurecorporate growth as we focused on developing theOpera Master Surgery Management System andconducting experimental research. Consequently,operating income was down 9.9%, to 7,750 million.
Ordinary IncomeIn the non-operating category, we received dividendincome and incurred foreign exchange loss on foreigncurrency assets. Consequently, ordinary income wasdown 8.6%, to 7,825 million.
Net IncomeAmong extraordinary items, while there was no largeincrease or decrease in the fiscal year under review,there was a 1,054 million extraordinary loss caused byloss on valuation of inventories and factory restorationcosts resulting from the Great East Japan Earthquake inthe previous fiscal year. Consequently, net income wasup 3.9%, to 4,624 million.
Financial PositionTotal assets at the end of the fiscal year amounted to72,522 million, up 2,688 million from the end of theprevious fiscal year. Current assets were up 2,952million, to 36,465 million. This was mainly due to a
1,265 million increase in notes and accounts receivableand a 1,104 million increase in cash and bank deposits.Fixed assets were down 264 million, to 36,056 million.Within this figure, property, plant and equipment weredown 1,933 million, to 29,585 million. Of the 6,353million in machinery, equipment and vehicles, therewas an increase of 3,556 million for manufacturingfacility expansion as an extension to the TsukubaSterilization Center. In addition, intangible assets wereup 402 million, to 1,291 million. Investments andother assets were up 1,266 million, to 5,179 million.
Total liabilities at the end of the fiscal yearamounted to 8,508 million, down 627 million fromthe end of the previous fiscal year. Current liabilitieswere down 716 million, to 7,606 million. Long-term
liabilities amounted to 902 million.Net assets at the end of the fiscal year amounted to
64,013 million, up 3,315 million from the end of theprevious fiscal year. The main factor boosting net assetswas 4,624 million in net income, while the main factorholding down net assets was 1,384 million in cashdividends paid. As a result, the equity ratio rose fromthe 86.9% at the end of the previous fiscal year to 88.3%.
Cash Flows
Cash flows during the fiscal year were as follows:Cash flows from operating activities: Net inflow of6,278 million (decrease in net inflow of 971 millionfrom the previous fiscal year)Cash flows from investing activities: Net outflowof 2,810 million (decrease in net outflow of 1,077million from the previous fiscal year)Cash flows from financing activities: Net outflowof 2,310 million (decrease in net outflow of 235million from the previous fiscal year)
As a result, cash and cash equivalents were up1,100 million, to 19,239 million.
(Cash Flow from Operating Activities)Net cash provided by operating activities amounted to6,278 million, down 971 million from the previousfiscal year. This was mainly attributable to 7,822million in income before income taxes and minorityinterests and 3,064 million in depreciation, offset by2,734 million in income taxes paid and 1,284 millionin increase in notes and accounts receivable.
(Cash Flow from Investing Activities)Net cash used in investing activities amounted to2,810 million, down 1,077 million from the previousfiscal year. This was mainly attributable to purchase ofproperty, plant and equipment primarily related to theTsukuba Sterilization Center expansion.
(Cash Flow from Financing Activities)Net cash used in financing activities amounted to2,310 million, down 235 million from the previousfiscal year. This was mainly attributable to repayment
of long-term debt and cash dividends paid.
Financial Review (Consolidated)
17
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Profitability Stability
5.0
7.5
10.0
2.5
0
(%)
Return on Equity (ROE)
50
60
70
80
90
(%)
Equity Ratio
5.0
7.5
10.0
2.5
0
(%)
Return on Assets (ROA)
0
100
200
300
500
(%)
400
Current Ratio
0
1.0
3.0
5.0
2.0
4.0
Net Income
(bn)
75
0
25
50
()
100
Fixed Ratio
2008 2009 2010 2011 2012Years ended in March
2008 2009 2010 2011 2012Years ended in March
2008 2009 2010 2011 2012Years ended in March
2008 2009 2010 2011 2012Years ended in March
2008 2009 2010 2011 2012Years ended in March
2008 2009 2010 2011 2012Years ended in March
Key Financial Data (Consolidated)
18 2012A NNUAL REPORT
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Capital Expenditures andRelated Data
Per Share Data
2008 2009 2010 2011 2012Years ended in March
2008 2009 2010 2011 2012Years ended in March
2008 2009 2010 2011 2012Years ended in March
2008 2009 2010 2011 2012Years ended in March
2008 2009 2010 2011 2012Years ended in March
2008 2009 2010 2011 2012Years ended in March
0
1.0
2.0
3.0
4.0
Capital Expenditures
(bn)
0
100
400
200
300
Earnings per Share (EPS)
(yen)
0
20
40
60
100
80
Dividends per Share
(yen)
(%)
0
10
20
30
40
Payout Ratio
0
1.0
4.0
2.0
3.0
Depreciation Expenses
(bn)
0
2.0
4.0
8.0
10.0
6.0
Cash Flow
(bn)
Note: Year ended in March 2011 includescommemorative dividend of 8
19
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Hogy Medical Co., Ltd. and SubsidiariesConsolidated Balance Sheets
18,505
9,091
4,942
621356
(4)
33,513
26,335
20,251
9,375
4,283
2,54162,786
(31,268)
31,518
2,257
888
512
167205
771
4,802
69,834
19,610
10,357
5,511
384608
(6)
36,465
26,326
24,146
9,361
982
2,66063,478
(33,892)
29,585
2,627
1,291
1,000
490
22962
769
6,471
72,522
Assets
Current assets:
Cash and bank deposits (Note 13)
Notes and accounts receivable
Inventories (Note 3)
Deferred tax assets (Note 6)Other current assets
Allowance for doubtful accounts
Total current assets
Property, plant and equipment, at cost:
Buildings and structures
Machinery, equipment and vehicles
Land
Construction in progress
Other
Less: Accumulated depreciation
Property, plant and equipment, net
Investments and other assets:
Investment securities (Note 16)
Intangible assets
Long-term time deposits
Guarantee deposits
Prepaid pension costDeferred tax assets (Note 6)
Other assets
Total investments and other assets
Total assets
$238,741
126,096
67,094
4,6807,411
(75)
443,948
320,502
293,972
113,974
11,962
32,393772,804
(412,623)
360,180
31,992
15,718
12,174
5,973
2,796762
9,363
78,780
$882,910
(Millions of yen)
As of March 31,
2012 2011 2012(Thousands ofU.S. dollars)
(Note 2)
Consolidated Financial Statements
20 2012A NNUAL REPORT
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3,715479
1,801
1,6097,606
147384370902
7,1238,336
52,750
(3,317)64,892
32625
(1,236)(884)
564,013
72,522
$ 45,2385,842
21,929
19,58992,599
1,8004,6794,509
10,989
86,721101,486642,207
(40,388)790,026
3,972304
(15,050)(10,774)
69779,321
$882,910
3,338380925
1,576691
1,4118,322
844
394366813
7,1238,336
49,510
(3,316)61,653
789
(1,055)(968)
1360,698
69,834
Liabilities and net assetsCurrent liabilities:
Notes and accounts payable:TradeConstruction
Current portion of long-term debt (Note 4)Income taxes payableProvision for loss on disasterOther current liabilities
Total current liabilities
Long-term liabilities:Deferred tax liabilities (Note 6)Accrued retirement benefits (Note 7)Long-term accounts payable otherOther long-term liabilities
Total long-term liabilities
Net assets:Shareholders equity:
Common stock:Authorized 65,000,000 shares;Issued 16,341,155 shares
Additional paid-in capital (Note 5)Retained earnings (Note 5)Treasury stock, at cost (Note 12):611,220 shares in 2012 and 610,955 shares
in 2011Total shareholders equity
Accumulated other comprehensive income:Unrealized gain (loss) on other securitiesDeferred gain (loss) on hedgesTranslation adjustments
Total accumulated other comprehensive income (loss)
Minority interestsTotal net assetsTotal liabilities and net assets
(Millions of yen)
As of March 31,
2012 2011 2012(Thousands ofU.S. dollars)
(Note 2)
See notes to consolidated financial statements.
21
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See notes to consolidated financial statements.
Hogy Medical Co., Ltd. and SubsidiariesConsolidated Statements of Income
$388,044191,277196,766
102,41494,352
38(69)670
(340)(47)
628880
95,232
35,9922,930
38,92356,309
(5)$ 56,303
31,31114,82916,482
7,8808,601
3(20)51
(152)(16)10115
(32)(10)(90)
(1,054)77
(1,126)7,475
3,192(171)
3,0204,454
(1) 4,453
31,87315,71116,162
8,4127,750
3(5)55
(27)(3)
5172
7,822
2,956240
3,1974,625
(0) 4,624
Net salesCost of sales
Gross profit
Selling, general and administrative expenses (Note 9)Operating income
Other income (expenses):Interest incomeInterest expenseDividend income
Exchange (loss) gain, netLoss on disposal of property, plant and equipmentGain on sales of investment securitiesReversal of allowance for doubtful accountsEffect of adoption of accounting standard for
asset retirement obligationsLoss on valuation of golf membershipsCommemorative event expensesLoss on disaster (Note 10)Other, net
Other income (expenses), netIncome before income taxes and minority interests
Income taxes (Note 6):CurrentDeferred
Total income taxesIncome before minority interests
Minority interestsNet income
(Millions of yen)
Years ended March 31,
2012 2011 2012(Thousands ofU.S. dollars)
(Note 2)
Hogy Medical Co., Ltd. and SubsidiariesConsolidated Statements of Comprehensive Income
$56,309
3,021194
(2,143)1,072
$57,381
$57,323
$ 58
4,454
(267)(71)
(379)(717)
3,737
3,737
(0)
Income before minority interests
Other comprehensive income:Unrealized gain (loss) on other securitiesDeferred gain (loss) on hedgesTranslation adjustments
Total other comprehensive income (loss) (Note 11)Comprehensive income
Total comprehensive income attributable to:Shareholders of Hogy Medical Co., Ltd.
Minority interests
(Millions of yen)
Years ended March 31,
2012 2011 2012
(Thousands ofU.S. dollars)
(Note 2)
4,625
24816
(176)88
4,713
4,708
4
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Unrealized
gain (loss)on othersecurities
See notes to consolidated financial statements.
Hogy Medical Co., Ltd. and SubsidiaryConsolidated Statements of Changes in Net Assets
80
(71)(71)
9
1616
25
Balance at March 31, 2010Cash dividends paidNet incomePurchases of treasury stockDisposition of treasury stockOther, net changeNet changes during the year
Balance at March 31, 2011Cash dividends paid
Net incomePurchases of treasury stockDisposition of treasury stockOther, net changeNet changes during the year
Balance at March 31, 2012
(678)
(377)(377)
(1,055)
(180)(180)
(1,236)
(252)
(716)(716)(968)
8383
(884)
345
(267)(267)
78
248248
326
14(0)(0)13
(8)(8)
5
58,506(1,541)4,453
(3)0
(716)2,191
60,698(1,384)
4,624(0)75
3,31564,013
(Millions of yen)
Totalaccumulated
othercomprehensiveincome (loss)
Translationadjustments
Deferredgain (loss)on hedges
Totalnet assets
Minorityinterests
Accumulated other comprehensive income
7,123
7,123
7,123
Balance at March 31, 2010Cash dividends paidNet incomePurchases of treasury stockDisposition of treasury stockOther, net changeNet changes during the year
Balance at March 31, 2011Cash dividends paid
Net incomePurchases of treasury stockDisposition of treasury stockOther, net changeNet changes during the year
Balance at March 31, 2012
8,336
8,336
8,336
46,598(1,541)4,453
(0)
2,91149,510(1,384)
4,624
3,24052,750
16,341,155
16,341,155
16,341,155
(3,313)(3)0
(3)
(3,316)
(0)(0)
(3,317)
58,744(1,541)4,453
(3)0
2,908
61,653(1,384)
4,624(0)
3,23964,892
(Millions of yen)
Retainedearnings
Additionalpaid-incapitalAmount
Number ofshares
Totalshareholders
equity
Treasurystock,at cost
Shareholders equityCommon stock
23
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See notes to consolidated financial statements.
$86,721
$86,721
Balance at March 31, 2011Cash dividends paidNet incomePurchases of treasury stockDisposition of treasury stock
Other, net changeNet changes during the year
Balance at March 31, 2012
$101,486
$101,486
$602,755(16,852)56,303
39,451
$642,207
(Thousands of U.S. dollars) (Note 2)
Retainedearnings
Additionalpaid-incapital
$(40,377)
(10)
(10)
$(40,388)
$750,585(16,852)56,303
(10)
39,440
$790,026
Totalshareholders
equity
Treasurystock,at cost
Shareholders equity
Commonstock
$109
194194
$304
Balance at March 31, 2011Cash dividends paidNet incomePurchases of treasury stockDisposition of treasury stockOther, net changeNet changes during the year
Balance at March 31, 2012
$(12,854)
(2,196)(2,196)
$(15,050)
$(11,793)
1,0191,019
$(10,774)
(Thousands of U.S. dollars) (Note 2)
$ 950
3,0213,021
$3,972
$168
(99)(99)
$ 69
$738,960(16,852)56,303
(10)
91940,360
$779,321
Totalaccumulated
othercomprehensiveincome (loss)
Translationadjustments
Deferredgain (loss)on hedges
Unrealizedgain (loss)on othersecurities
Totalnet assets
Minorityinterests
Accumulated other comprehensive income
24 2012A NNUAL REPORT
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Operating activitiesIncome before income taxes and minority interests
DepreciationLoss on valuation of golf membershipsEffect of adoption of accounting standard for assetretirement obligations
Retirement benefits, net of payments(Decrease) increase in allowance for doubtful accountsInterest and dividend incomeInterest expenseGain on sales of investment securitiesExchange loss
Loss on disasterLoss (gain) on sales of property, plant and equipmentLoss on disposal of property, plant and equipmentChanges in assets and liabilities:
Notes and accounts receivableInventoriesNotes and accounts payableAccrued consumption taxes and otherConsumption taxes refund receivable and otherOther current assetsOther current liabilitiesOther investmentsOther liabilities
OtherSubtotal
Interest and dividends receivedInterest paidIncome taxes paidNet cash provided by operating activities
Investing activitiesIncrease in time depositsProceeds from time depositsPurchases of investment securitiesProceeds from sales of investment securitiesPurchase of stocks of subsidiaries and affiliatesPurchase of property, plant and equipmentProceeds from sales of property, plant and equipmentPurchases of intangible assetsPayments for loans receivable
Collection of loans receivableDecrease (increase) in other investmentsNet cash used in investing activities
Financing activitiesRepayment of long-term debtProceeds from sales of treasury stockPurchases of treasury stockCash dividend paidOtherNet cash used in financing activities
Effect of exchange rate changes on cash and cashequivalents
Net increase in cash and cash equivalentsCash and cash equivalents at beginning of yearCash and cash equivalents at end of year (Note 13)
See notes to consolidated financial statements.
Hogy Medical Co., Ltd. and SubsidiariesConsolidated Statements of Cash Flows
7,8223,064
42(4)
(58)5
31
(0)3
(1,284)(612)388(64)(75)
(179)(142)
28(6)1
8,961
58(7)
(2,734)6,278
(1,010)5
(12)(1,274)
1(523)(15)
126(2,810)
(925)(0)
(1,384)0
(2,310)
(57)1,100
18,139
19,239
$ 95,23237,314
522(51)
(708)69
383
(7)46
(15,636)(7,462)4,726(789)(914)
(2,189)(1,732)
350(75)22
109,101
708(86)
(33,287)76,436
(12,298)70
(153)(15,521)
19(6,368)
(191)
14775(34,219)
(11,261)
(10)(16,852)
0(28,123)
(698)13,394
220,836
$234,231
7,4752,277
10
32(4)
(12)(55)20
(101)157
1,019015
(27)270(85)(61)
(22)(34)(89)
37
10,793
55(21)
(3,576)7,250
(58)54
(75)175
(3,501)2
(489)(10)
19(4)(3,888)
(1,000)0
(3)(1,541)
(2,545)
(83)733
17,40518,139
(Millions of yen)
Years ended March 31,
2012 2011 2012(Thousands ofU.S. dollars)
(Note 2)
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Hogy Medical Co., Ltd. and SubsidiariesNotes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
(a) Basis of presentationHogy Medical Co., Ltd. (the Company) maintainsits accounting records in accordance with accountingprinciples generally accepted in Japan, and itsoverseas subsidiaries maintain its accounting recordsin conformity with that of its country of domicile.The accompanying consolidated financial statementsare prepared on the basis of accounting principlesgenerally accepted in Japan, which are different incertain respects as to the application and disclosurerequirements of International Financial ReportingStandards, and are compiled from the consolidatedfinancial statements prepared by the Company asrequired by the Financial Instruments and ExchangeLaw of Japan. For the purposes of this document,certain reclassifications have been made to presentthe accompanying consolidated financial statementsin a format which is familiar to readers outside Japan.In addition, the notes to the consolidated financialstatements include information which is not requiredunder accounting principles generally acceptedin Japan but is presented herein as additionalinformation.
The consolidated subsidiaries of the Companyare P.T. Hogy Indonesia and P.T. Hogy Medical SalesIndonesia. P.T. Hogy Medical Sales Indonesia, whichwas established in the year ended March 31, 2012, isincluded in the consolidated financial statements.
(b) Basis of consolidationIn accordance with the accounting standard forconsolidation, consolidated financial statementsare required to include the accounts of the parentcompany and all its subsidiaries over whichsubstantial control is exerted either through majorityownership of voting stock and/or by other means.As a result, the accompanying consolidated financialstatements include the accounts of the Companyand two consolidated subsidiaries for the yearended March 31, 2012 (one in 2011). There is nonon-consolidated subsidiary or affiliated companyaccounted by equity-method.
All significant intercompany balances andtransactions have been eliminated in consolidation.
The subsidiaries are consolidated on the basis ofa fiscal period ending on December 31, which differsfrom that of the Company; however, the necessaryadjustments are made if the effect of this difference ismaterial.
(c) Foreign currency translationThe revenue and expense accounts of the overseasconsolidated subsidiaries are translated into yen atthe rate of exchange in effect at the balance sheet date.The balance sheet accounts, except for the componentsof shareholders equity, are also translated into yen atthe rate of exchange in effect at the balance sheet date.The components of shareholders equity are translatedat their historical exchange rates. Differences arising
from the translation are presented as translation
adjustments and minority interests in the consolidated
financial statements.Monetary assets and liabilities of the Company
denominated in foreign currencies are translated atthe current exchange rates in effect at each balancesheet date. All revenues and expenses denominatedin foreign currencies are translated at the rates ofexchange prevailing when such transactions weremade. The resulting exchange loss or gain is chargedor credited as other expense or income.
(d) Cash equivalentsAll highly liquid investments, with a maturity ofthree months or less when purchased and which arereadily convertible into known amounts of cash andare so close to maturity that they represent only aninsignificant risk of any change in value attributableto changes in interest rates, are considered cashequivalents.
The definition of cash and cash equivalents in theconsolidated statements of cash flows differs from thatof cash and bank deposits in the consolidated balancesheets. Reconciliation between these is presented inNote 13.
(e) SecuritiesSecurities other than those of the subsidiaries andaffiliates are classified as other securities. Marketablesecurities classified as other securities are carried atfair value with any changes in unrealized holdinggain or loss, net of the applicable income taxes,included directly in net assets. Non-marketablesecurities classified as other securities are carriedat cost. Cost of securities sold is determined by themoving average method.
(f) DerivativesDerivatives positions are stated at their respectivefair market value. The Company utilizes forwardforeign exchange contracts, currency swaps andcurrency options to hedge forecasted foreigncurrency transactions related to its foreign purchasecommitments. Forward foreign exchange contracts,currency swaps and currency options which meetcertain hedging criteria are accounted for by the
allocation method.The Company uses derivatives to reduce theirexposure to fluctuation in foreign exchange rates.
Since the substantial terms and conditions ofthe hedge instruments and the hedged forecastedtransactions are the same, the Company considers itshedging activities highly effective.
(g) InventoriesFinished goods, work in process and raw materialsare stated at cost determined by the average method.Merchandise is stated at cost determined by themoving average method. In case the profitabilityof the inventories has declined, the book value isreduced accordingly.
Supplies are stated at their most recent purchaseprices.
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(m)
3,070
303
2,137
5,511
Merchandise and finished goodsWork in processRaw materials and supplies
$37,380
3,694
26,018
$67,094
2,570288
2,0834,942
2012 2011 2012
(Millions of yen) (Thousands ofU.S. dollars)
(h) Depreciation and amortization
Depreciation of property, plant and equipment(excluding lease assets) of the Company is principallycalculated by the declining-balance method overthe estimated useful lives of the respective assets.However, buildings (excluding accessory equipment)acquired by the Company after April 1, 1998 aredepreciated by the straight-line method over theestimated useful lives of the respective assets.
Property, plant and equipment of consolidatedsubsidiaries are depreciated principally by thestraight-line method over the estimated useful livesof the respective assets.
The principal estimated useful lives used forcomputing depreciation are as follows:
Buildings and structures 3 to 50 yearsMachinery, equipment and vehicles 4 to 12 years
Intangible assets (excluding lease assets), includingcosts for computer software, are amortized by thestraight-line method over their estimated useful lives(5 years).
Long-term prepaid expenses are amortized by thestraight-line method.
(i) Allowance for doubtful accountsThe allowance for doubtful accounts is providedat an amount sufficient to cover possible losses onthe collection of receivables. For the Company, the
amount of the allowance is determined based on thehistorical rate of losses on receivables plus an estimateof the individual amounts deemed unrecoverable.
(j) Provision for employees bonusesThe provision for employees bonuses representsa provision for the future payment of employeesbonuses. The amount at each balance sheet date isincluded in other current liabilities.
(k) Provision for directors bonusesThe provision for directors bonuses represents aprovision for the future payment of directors bonuses.The amount at each balance sheet date is included inother current liabilities.
(l) Retirement and severance benefitsAccrued retirement benefits for employees areprovided at an amount calculated based on theretirement benefit obligation and the fair valueof the pension plan assets, as adjusted for the netunrecognized retirement benefit obligation attransition, unrecognized actuarial differences, andunrecognized prior service cost.
Actuarial differences are amortized in theyear following the year in which the difference isrecognized primarily by the straight-line method overa period of 10 years, which falls within the estimatedaverage remaining years of service of the eligibleemployees.
Income taxes
Deferred tax assets and liabilities are recognized inthe consolidated financial statements with respect tothe differences between financial reporting and thetax bases of the assets and liabilities and are measuredusing the enacted tax rates and laws which will be ineffect when the differences are expected to reverse.
(n) Consumption taxesTransaction subject to consumption taxes are recordedat amounts exclusive of consumption taxes.
(o) Additional informationEffective April 1, 2011, the Company has adoptedthe Accounting Standards Board of Japan (ASBJ)Statement No. 24, Accounting Standard forAccounting Changes and Error Corrections and ASBJGuidance No. 24, Guidance on Accounting Standardfor Accounting Changes and Error Correctionsissued on December 4, 2009.
2. U.S. Dollar AmountsFor the convenience of the readers, the accompanyingconsolidated financial statements with respect to the yearended March 31, 2012 have been presented in U.S. dollarsby translating all yen amounts at 82.14 = U.S.$1.00,the exchange rate prevailing on March 31, 2012. Thistranslation should not be construed as a representationthat yen have been, could have been, or could in thefuture be, converted into U.S. dollars at the above or any
other rate.3. InventoriesInventories at March 31, 2012 and 2011 were as follows:
4. Long-Term DebtLong-term debt at March 31, 2012 and 2011 are
summarized as follows:
The weighted average interest rates of long-term debtat March 31, 2011 were 1.45%.
Loans from banks and insurancecompanies, due through 2011:
UnsecuredLess: Current portion
$
$
925(925)
2012 2011 2012
(Millions of yen) (Thousands ofU.S. dollars)
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5. Shareholders EquityThe Corporation Law of Japan (the Law) provides thatamounts from additional paid-in capital and retainedearnings may be distributed to the shareholders at anytime by resolution of the shareholders or by the Board
of Directors if certain provisions are met subject to theextent of the applicable sources of such distributions.The Law further provides that amounts equal to 10% ofsuch distributions be transferred to the capital reserveincluded in additional paid-in capital or the legal reserveincluded in retained earnings based on the applicablesources of such distributions until the sum of the capitalreserve and the legal reserve equals 25% of the capitalstock account.
6. Income TaxesIncome taxes applicable to the Company comprisecorporation tax, inhabitants taxes and enterprise taxwhich, in the aggregate, resulted in a statutory tax rateof approximately 40% for 2012 and 2011. Income taxes
of the overseas consolidated subsidiaries are, in general,based on the tax rate applicable in their country ofincorporation.
The major components of deferred tax assets andliabilities at March 31, 2012 and 2011 are summarized asfollows:
Following the promulgation on December 2, 2011 ofthe Act for Partial Revision of the Income Tax Act, etc.for the Purpose of Creating Taxation System Respondingto Changes in Economic and Social Structures (ActNo. 114 of 2011) and the Act for Special Measures for
Securing Financial Resources Necessary to ImplementMeasures for Reconstruction following the Great EastJapan Earthquake (Act No. 117 of 2011), the Japanesecorporate tax rate will be reduced and a specialreconstruction corporate tax will be imposed effectivefrom the fiscal year beginning on April 1, 2012.
In accordance with this reform, the effective statutorytax rates of the Company, which are used to measureits deferred tax assets and liabilities, will be reducedto 37.18% from 39.77% for the temporary differencesthat are expected to be settled or realized during thefiscal year beginning on April 1, 2012 through the fiscalyear beginning on April 1, 2014, and to 34.8% for thetemporary differences that are expected to be settled orrealized in or after the fiscal year beginning on April 1,
2015.As a result of these changes in the effective statutory
tax rate, net deferred tax assets decreased by 33 million($410 thousand) as of March 31, 2012, and income taxes deferred, unrealized gain (loss) on other securities, anddeferred gain (loss) on hedges increased by 59 million($725 thousand), 24 million ($302 thousand), and 1million ($12 thousand) for the year ended March 31,2012, respectively.
7. Retirement Benefit PlansThe Companys policy is to pay retirement allowancesto all eligible employees who have worked for theCompany over one year. In accordance with the shiftto the defined benefit corporate pension system, theCompany has been paying retirement allowances (lump-sum or pension) from the externally contributed systemregardless of age since September 1, 2009.
There is a lump-sum retirement payment planfor executive officers in accordance with internalregulations.
The overseas subsidiaries have a lump-sumretirement payment plan in accordance with the law intheir countries of domicile.
The following table sets forth the funded andaccrued status of the plans, and the amounts recognizedin the accompanying consolidated balance sheets atMarch 31, 2012 and 2011 for the Companys definedbenefit plans:
Retirement benefit obligationPlan assets at fair valueUnfunded retirement benefit obligationUnrecognized actuarial differencesNet retirement benefit obligationLess: Prepaid pension costAccrued retirement benefits foremployees
(Millions of yen)
(2,951)
2,358
(593)
675
81
229
(147)
$(35,931)
28,707
(7,223)
8,219
996
2,796
$ (1,800)
(Thousands ofU.S. dollars)
2011
(2,654)2,152(501)624122167
(44)
2012 2012
123
183
32
28
19
387
(3)
(3)
384
45
133
125
12
11
7
335
(79)
(11)
(7)
(174)
(273)
62
Current:Deferred tax assets:
Enterprise tax payableProvision for employees bonusesUnrealized gain on inventoriesSocial insurance premium on accruedbonusesDeferred gain on hedgesProvision for loss on disasterOther
Total deferred tax assets
Deferred tax liabilities:Deferred gain on hedges
Total deferred tax liabilitiesDeferred tax assets, net
Non-current:Deferred tax assets:
Accrued retirement benefitsAllowance for retirement benefits for
directors and corporate auditorsLoss on valuation of investment
securitiesAsset retirement obligations
(Guarantee deposits)Loss on valuation of golf membershipsOther
Total deferred tax assets
Deferred tax liabilities:Accrued retirement benefitsDeferred gain on hedgesDeferred gain on property andequipment
Unrealized gain or loss on securitiesTotal deferred tax liabilitiesDeferred tax assets, net
$ 1,501
2,239
391
346
240
4,719
(39)
(39)
$ 4,680
$ 554
1,628
1,523
155
139
87
4,088
(973)
(140)
(92)
(2,120)
(3,326)
$ 762
11716130
242
2748
621
621
11
157
142
14134
343
(66)(8)
(19)(51)
(145) 197
2012 2011 2012
(Millions of yen) (Thousands ofU.S. dollars)
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The components of retirement benefit expense forthe years ended March 31, 2012 and 2011 are outlined asfollows:
Discount ratesExpected rate of return on plan assets
Actuarial cost allocation method
Amortization period for actuarialdifferences:
1.6% 1.6% 2.5% 2.5%
The retirement benefit obligationis attributed to each period bythe straight-line method over theestimated years of service of theeligible employees.
10 years (amortized by thestraight-line method over aperiod which falls within theaverage remaining years ofservice of the eligible employees,effective the year subsequent tothe period when the differenceoccurred).
2012 2011
The assumptions used in accounting for the aboveplans were as follows:
Service costInterest costExpected return on plan assetsAmortization of actuarialdifferences
Total
(Millions of yen)
267
49
(53)
90
353
$3,256
600
(655)
1,101
$4,302
(Thousands ofU.S. dollars)
2011
16545
(51)
97256
2012 2012
(Thousands of U.S. dollars)
As of March 31, 2012
Acquisition costsAccumulated depreciationNet book value
Equipment
9
9
Total(Millions of yen)
9
9
Equipment
$117
117
$
Total
$117
117
$
As of March 31, 2011
Acquisition costsAccumulated depreciationNet book value
Equipment
98
1
Total(Millions of yen)
98
1
8. Leases(a) Lessor
The following amounts represent the acquisition costs,accumulated depreciation and net book value of theleased assets at March 31, 2012 and 2011, which wouldhave been reflected in the balance sheet if finance leasesthat do not transfer ownership to the lessee and currentlyaccounted for as operating leases had been capitalized.
Lease revenues relating to finance leases accountedfor as operating leases for the years ended March 31,2012 and 2011 amounted to 1 million ($18 thousand)and 2 million respectively. The depreciation expense ofthe leased assets, which were computed by the straight-line method over the respective lease terms, for the yearsended March 31, 2012, and 2011 amounted to 1 million($18 thousand) and 1 million, respectively.
Future lease revenues (including the interest portionthereon) subsequent to March 31, 2012 for financeleases accounted for as operating leases, that do nottransfer ownership of the leased assets to the lessee, aresummarized as follows:
Due in one year or lessDue after one yearTotal
$
$
11
(Millions of yen) (Thousands ofU.S. dollars)
20112012 2012
9. Selling, General and Administrative ExpensesMajor components of selling, general and administrativeexpenses for the years ended March 31, 2012 and 2011were as follows:
Research and development costs included in selling,general and administrative expenses and manufacturing
costs for the years ended March 31, 2012 and 2011amounted to 406 million ($4,948 thousand) and 417million, respectively.
10. Loss on DisasterThe Company recorded a loss due to the Great EastJapan Earthquake for the year ended March 31, 2011.The components of loss on disaster were as follows:
FreightSample expensesAllowance for doubtful accountsSalaries, wages and bonuses foremployees
Allowance for employees bonusesAllowance for directors bonusesRetirement and severance benefitsRental expenses for real estateResearch and development expensesDepreciationTransportation
$10,1985,244
26,485
3,865
1,095
3,155
5,663
4,194
8,824
5,592
81831613
2,22926090
162475361642450
837430
2,175
317
90
259
465
344
724
459
(Millions of yen) (Thousands ofU.S. dollars)
20112012 2012
Loss on valuation of inventoriesLoss on disposal of property, plantand equipment
Removal and repair expensesSpecial payments to employees due tothe disaster
Provision for loss on disasterOthers
$
$
308
14
4
33691
31,054
(Millions of yen) (Thousands ofU.S. dollars)
20112012 2012
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For the year ended March 31, 2012, the Groupraises funds through short-time deposits, and inconsideration of the future capital investment, theGroup raises funds through long-term time deposits.
The Group uses derivatives for the purpose of
reducing risk and does not enter into derivatives forspeculative or trading purposes.
Types of financial instruments and related risk
Trade receivables trade notes and accountsreceivable are exposed to credit risk in relation tocustomers.
Investment securities are exposed to market risk.Those securities are composed of mainly the sharesof common stock of other companies with which theCompany has business relationships.
Substantially all trade payables trade notesand accounts payable mostly have payment duedates within four months. Although the Company
is exposed to foreign currency exchange risk arisingfrom those payables denominated in foreigncurrencies, forward foreign exchange contracts,currency swaps and currency options are arranged toreduce the risk.
Regarding derivatives, the Company enters intoforward foreign exchange contracts, currency swapsand currency options to reduce the foreign currencyexchange risk arising from the payables denominatedin foreign currencies.
Information regarding the method of hedgeaccounting, hedging instruments and hedgeditems, hedging policy, and the assessment of theeffectiveness of hedging activities is found in Note 1Summary of Significant Accounting Policies (f) Derivativesand Note 17 Derivative Transactions.
Risk management for financial instruments
Monitoring of credit risk (the risk that customers orcounterparties may default)In accordance with the internal policies of theCompany for managing credit risk arising fromreceivables, each related division monitors creditworthiness of their main customers periodically,and monitors due dates and outstanding balancesby individual customer. In addition, the Companyis making efforts to identify and mitigate risks ofbad debts from customers who are having financialdifficulties.
The Group also believes that the credit riskof derivatives is insignificant as it enters intoderivative transactions only with financialinstitutions which have a sound credit profile.
Monitoring of market risks (the risks arising fromfluctuations in foreign exchange rates, interest ratesand others)For trade payables denominated in foreigncurrencies, the Company identifies the foreigncurrency exchange risk for each currency on amonthly basis and enters into forward foreignexchange contracts, currency swaps and currencyoptions to hedge such risk.
(1)
(2)
13. Supplementary Cash Flow InformationThe following table represents a reconciliation of cashand bank deposits in the accompanying consolidatedbalanc