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Building A Leading Presence In Global Markets Annual Report 2006

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Annual Report 2006 For the year ended March 31, 2006 TERUMO CORPORATION ANNUAL REPORT 2006 Building a Leading Presence in Global Markets Proﬁle Kinder, Gentler Medicine with Terumo Technology T erumo contributes to society by providing unique, innovative medical products that makes medicine kinder and gentler by lessening the pain of patients. Contributing to society through health care—this is the vision Terumo has held since its establishment in 1921. To realize this vision, Terumo operates under the principles of providing lifestyle medicine, nurturing global technology, and developing people-friendly products. We continue to create new corporate value by inventing lifestyle medical products that aim to improve quality of life, by engaging in R&D on the cutting edge of medicine, and by delivering products and information that make treatment safer and more secure. Contents 1 2 4 6 11 12 14 18 20 22 30 Financial Highlights Terumo at a Glance Message from the Chairman Message from the President Board of Directors and Auditors Corporate Governance The History of Terumo’s Intellectual Asset Research and Development Close-Up Review of Operations Environmental Initiatives and Social Contributions 32 34 39 40 42 43 44 45 56 57 58 60 61 64 Consolidated Eight-year Summary Management’s Discussion and Analysis of Operating Results and Financial Condition Risk Factors Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Independent Auditors’ Report Subsidiaries and Afﬁliates Corporate Data Investor Information Topics Financial Highlights of the Fiscal Year Ended March 31, 2006 Terumo Corporation and subsidiaries Net sales, operating income, and net income reset record highs Net Sales 247 Billion ¥ 230 ● Net sales grow 7.4%, to ¥247.0 billion, for 12th straight year of increase 215 187 201 ● Gross proﬁt margin improves 1.1 percentage points, to 54.9% ● Operating income grows 2.4%, to ¥48.3 billion ● Net income jumps 19.6%, to ¥32.5 billion ● Annual dividend boosted ¥4, to ¥24 per share 02 03 04 05 Thousands of U.S. dollars (Note 1) 06 Millions of yen 2006 Years ended March 31 2005 2004 2006 For the period: Operating Income Billion ¥ 47.1 48.3 Total assets . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity. . . . . . . . . . . . . . 28.0 20.5 15.6 ¥ 247,049 48,252 32,457 18,025 14,248 15,181 ¥ 230,003 47,108 27,135 13,739 10,998 15,581 ¥ 215,196 36,653 19,792 14,700 11,456 14,881 $ 2,111,530 412,410 277,410 154,060 121,778 129,752 ¥ 354,648 273,309 ¥ 312,456 219,873 ¥ 293,866 195,075 $ 3,031,179 2,335,974 At year-end: 36.7 31.3 15.0 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income. . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . R&D expenditure . . . . . . . . . . . . . . . . . . . . Capital expenditure . . . . . . . . . . . . . . . . . . Depreciation and amortization (Note 2). . . . 19.5 17.0 Per share of common stock: 02 03 04 05 06 Operating Margin Ratio (%) Net income–basic . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . . . . . . . . ¥ 160.45 24.00 1,345.52 ¥ 136.03 20.00 1,107.88 19.5% 13.2% 9.7% 20.5% 13.1% 9.0% ¥ 98.45 16.00 982.62 $ 1.37 0.21 11.50 Other statistics: Operating margin ratio . . . . . . . . . . . . . . . . ROE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ROA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.0% 10.4% 6.8% Notes: 1. All dollar ﬁgures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at ¥117=$1, the approximate exchange rate at March 31, 2006. 2. Write-down of goodwill excluded from depreciation and amortization was ¥2,180 million in the year ended March 31, 2005. ROE and ROA % 13.1 10.0 U.S. dollars (Note 1) Yen 10.4 13.2 9.7 9.0 8.2 6.3 6.8 5.1 NOTICE REGARDING FORWARD-LOOKING STATEMENTS 02 ROE ROA 03 04 05 06 The statements made in this Annual Report are based on the Company’s current plans, outlooks, strategies and convictions. All ﬁgures and statements besides historical facts and ﬁgures are merely forward-looking statements based on the information available at the time of the printing of this report and the judgment of the management group. The Company, therefore, cannot guarantee any of the ﬁnancial or nonﬁnancial targets stated in this Annual Report. 1 Terumo at a Glance Products General hospital products • Disposable medical equipment and medical electronic products • Pharmaceuticals • Blood transfusion systems Cardiac and vascular products • Catheter systems • Cardiovascular systems • Vascular grafts Home health care products • Continuous ambulatory peritoneal dialysis (CAPD) systems • Diabetes care products • Other products 2 Revenues/ Sales Breakdown by Segments Business Description T erumo manufactures medical equipment for hospitals, pharmaceuticals and blood transfusion systems, and sells its products to hospitals, clinics, doctors’ ofﬁces and other establishments mainly through medical industry Sales and Operating Income from General Hospital Products Billion ¥ 110.4 112.6 129.9 119.9 124.1 distributors. The main general hospital products are syringes, needles, infusion sets, winged catheters, intravenous 16.3 15.2 18.9 21.2 25.4 02 03 04 05 06 Sales (IV) catheters, blood collection tubes, infusion pumps, Operating Income Ratio of General Hospital Product Sales to Net Sales syringe pumps, IV solutions, total parenteral nutrition, preﬁlled syringes, nutritional foods, blood bags, 52.6% apheresis systems and sterile tubing welders. FULCALIQ, total parenteral nutrition T erumo manufactures catheter systems, cardiovascular systems and vascular grafts, and sells its products to Sales and Operating Income from Cardiac and Vascular Products Billion ¥ hospitals, clinics, doctors’ ofﬁces and other establishments 53.1 through medical industry distributors. The main cardiac and vascular products include percutaneous transluminal coronary angioplasty (PTCA) catheters, coronary stents, guide wires, angiographic catheters, oxygenators, external circulation systems and vascular grafts. 61.8 71.0 18.0 21.1 22.8 02 03 04 Sales 80.9 88.9 29.6 25.9 05 06 Operating Income Ratio of Cardiac and Vascular Product Sales to Net Sales 36.0% CAPIOX RX25, oxygenator T erumo manufactures peritoneal dialysis systems, diabetes care systems and other types of products for sale to hospitals, clinics, doctors’ ofﬁces, Sales and Operating Income from Home Health Care Products Billion ¥ 23.6 pharmacies and other outlets through medical industry 26.3 24.3 25.0 28.2 and general consumer product distributors. The core products in this division are peritoneal 3.1 dialysis systems, diabetes monitoring equipment, 02 Sales home infusion systems, home oxygen therapy systems, digital thermometers and electronic blood 4.8 5.0 03 04 6.6 7.6 05 06 Operating Income Ratio of Home Health Care Product Sales to Net Sales pressure monitors. 11.4% ARM IN MEMO, blood pressure monitor From 2004, we changed the categorization of nutritional foods from Home health care products to General hospital products. 3 Message from the Chairman Promotion of Growth and Global Strategies medical technologies which reduce the burden of medicine on a patient’s body. Terumo’s new therapeutic devices are The March 2006 term marked the 12th straight year of higher making medicine less painful, reducing the size of surgical net sales for the Terumo Group, as well as record operating cuts and ensuring faster recovery, through the use of new and net income. The results leave no doubt about the technologies. The “Systemization and Service Enhancement” effectiveness of the global growth strategy being undertaken strategy provides a system that improves efﬁciency and by the Group. We continue to forge ahead with the medium- safety in medial institutions and training medical staff in term management plan, STeP UP 2007, which will end with the use of the technology. The strategy “Fusion between the March 2008 term. Drugs and Devices” seeks to promote the development of The Terumo Group is pursuing four major growth innovative combinations of pharmaceuticals and medical strategies. The ﬁrst, “Development of New Therapeutic technologies in this burgeoning new market of combined Devices,” aims to provide patients with minimally invasive products. Finally, “Preventive Medicine” recognizes and addresses the modern problem of higher medical costs and the particular burden on senior citizens. It’s impossible to overstate the importance of the shift in medicine from pharmaceuticals to medical devices and how this shift is changing the medical industry. Our conﬁdence in our growth strategies reﬂects our belief that progress in medical equipment technology will contribute to society from both medical economies and patient’s quality of life perspectives. The global strategy of enlarging our presence in markets worldwide necessarily means developing business in the United States, the world’s largest medical market and source of information on industry advancements. To this end, we have begun direct sales of interventinal systems in the U.S. Takashi Wachi Representative Director & Chairman 4 market, and we have acquired the U.S. ﬁrm MicroVention, Increasing Investment Value: Annual Dividends Raised Inc. in order to enter the neurovascular treatment market to ¥24.00 per Share using this company’s innovative technology. These measures will also boost our business and presence in Europe. In Asia, The Terumo Group aims to maintain both high proﬁtability we expect tremendous growth in the coming years and our and strong growth into the future. To this end, the Company goal is to grow at a even faster pace than the market to actively spends capital expenditures while striving to boost expand market share. corporate value. It is a basic policy of the Company to provide a stable dividend to investors. For the year under People-centered Management and Development of review, the Company increased the annual dividend to No. 1 Global Products ¥24.00 per common share, which includes a ¥2.00 increase in regular dividends and a special payment of ¥2.00 a share The Terumo Group promotes a philosophy of “people- in commemoration of the 85th anniversary of the Company’s centered management.” To develop cutting-edge products, establishment. we focus on nurturing a workforce with leading technical The sound execution of management strategy is earning skills and expertise. This philosophy has engendered a the Company high marks from the capital markets, leading profound level of implicit knowledge within the Company to maximization of stockholder value. and become a source of our high quality. At the same time, Terumo’s close connection to the medical institutions has July 2006 enabled us to create a product development system that starts with the needs of the market. These two advantages—people-centered management and market-based product development—are helping us to deliver products of unsurpassed quality on a global scale. Product quality will be a key lever as we continue to expand the Terumo brand with leading global products and build a market-leading presence. Takashi Wachi Representative Director & Chairman 5 Message from the President Goals of STeP UP 2007 Asia presents great opportunities for growth—-not just in terms of product sales but also in terms of low-cost The Terumo Group remains a leader in Japan’s medical production. We intend to analyze the opportunities in each equipment industry. The three-year STeP UP 2007 medium- country carefully to realize the strong growth potential. term management plan, implemented from April 2005, aims to secure a strong position for the Group in the worldwide Strategies for Each Business Area market through robust sales growth and proﬁtability. The three pillars of the plan are “Solution,” referring to In the general hospital product business, we are systemization and service enhancement; “Technology,” concentrating on products that contribute to the safety and standing for the development of new therapeutic devices; efﬁciency of medical institutions, including preﬁlled syringes and “Professional,” representing the concept of the and infusion equipment with infection-prevention features. development of an in-house company system. The plan will Sales will also be driven by new products such as total come to full fruition in the year ending March 2008, when parenteral nutrition products, along with blood- bag systems the Company targets net sales of ¥300 billion, and operating that remove white blood cells and others. income of ¥63 billion. In our cardiac and vascular product business, in April 2006 we began direct sales of our interventional products Global Strategy in the United States, ending a sales agreement with Boston Scientiﬁc Corp. Our presence in the U.S. market will grow Developing a global strategy that leverages the unique even further with the sales of coils to treat carebral aneurysms, characteristics of each region will be critical in developing produced by the U.S. ﬁrm MicroVention, Inc. In Europe, sales Terumo into a more global company. of interventional systems and stent grafts for aortic treatment In Japan, the Company holds a strong share in its key markets and aims for continued stable growth. One of the devices will be the main engines of growth. In our home health care product business, we look core functions of the Japanese operations is also to utilize its forward to robust sales of blood glucose monitors for production and quality management technologies to provide diabetes patients, highly functional body meters for women, the global markets with products of the highest quality. and home-use digital blood pressure monitors. The United States represents the largest medical equipment market in the world and the market in which we aim to boost our competitiveness. The Company has been aggressive in realizing growth by acquiring new technologies STeP UP 2007 Quantitative Targets Billion ¥ 300.0 through M&A and other means. We will continue to explore growth opportunities in the U.S. market while also carrying out business expansion in South America. 267.0 247.0 230.0 More than any other region, Europe offers the possibility for rapid introduction of new technologies. We are active in conducting clinical trials in Europe, along with marketing of new products. 2005/3 Net sales 6 48.3 47.1 2006/3 Operating Income 54.7 2007/3 63.0 2008/3 Raising Corporate Value through Continual Proﬁt on pharmaceuticals. In addition, the Japanese industry has Growth been beset by efforts to control medical spending amid the graying of Japanese society. Our primary strategies for improving proﬁtability are to In this environment, the Terumo Group increased net sales focus more intensively on sales of high-value-added by 7.4%, to ¥247.0 billion, operating income rose 2.4%, and products, strengthen overseas business, and reduce costs net income rose by 19.6%, to ¥32.5 billion. Both net sales while thoroughly managing quality, which we are doing and net income reached record levels. by leveraging Terumo’s world-class technology. These will remain our key strategies going forward. In this environment, in the second year of the STeP UP 2007 plan, Terumo targets net sales of ¥267.0 billion, with The Terumo Group is expanding its manufacturing sites operating income of ¥54.7 billion and net income of ¥33.7 to key areas of the globe to realize lower-cost production. A billion, all of which would represent record results for the new plant in Vietnam is scheduled to begin operations in the Company. year ending March 2008. Southeast Asia presents numerous advantages, including the ability to procure high-quality parts and materials at a low cost. The combination of low labor and materials costs at our Asian sites outside Japan is helping to improve proﬁtability. In addition, we are undertaking business reforms in the pursuit of continual proﬁtability improvement and higher corporate value. Progress in Achieving Goals of STeP UP 2007 Aiming for Record Net Sales and Operating Income in the Year Ending March 2007 The medical equipment industry continued to witness major change during the year ended March 2006, both in and outside Japan. Around the world, competition intensiﬁed on both the research and development and marketing fronts, with major mergers among equipment makers. In Japan, which represents about 60% of the Group’s sales, a revision to the Pharmaceutical Affairs Law imposed the same level of safety measures on medical equipment as Akira Takahashi Representative Director & President 7 General Hospital Product Business (2) Nurturing growth of promising nutrition and infusion markets • Performance in the Year Ended March 2006 We aim to grow the market for nutritional foods. The Company offers one-pack complete nutrition products, and In Asia, health standards are rising every year, creating will add to the lineup in summer 2006 with the launch of vigorous demand for medical equipment. General hospital AMIGRAND, a peripheral parenteral nutrition solution offering product sales were strong in Asia, which includes Oceania. greater safety. Sales in the United States were also higher. Altogether, (3) Expanding sales of ﬁlter-equipped blood bags syringes, intravenous needles and other blood transfusion From December 2006, the Japan Red Cross plans to have equipment sold briskly overseas during the year. its blood banks switch over to new blood bags featuring In Japan, sales of medical equipment that improves ﬁlters that eliminate white blood cells, thereby providing safer hospital safety and efﬁciency are increasing. Terumo has transfusions. Terumo is aiming to meet the need with higher responded to this need with such products as preﬁlled sales and a strong share of the market for ﬁlter-equipped syringes and infusion pumps and other infusion equipment blood bags. with safety features. Acquisition of sales rights to nutritional (4) Raising sales and production in Asia foods from Hisamitsu Pharmaceutical Co., Inc. and the In the Asian region excluding Japan, the market for hospital domestic sales rights to contrast agents from Guerbet SA of goods is climbing quickly. Sales rose in China, Southeast France also aided sales. Asia, and the Middle East in the previous year, and we As a result, overall net sales in the divisionthis business expect similar performance in the current year ending jumped 4.7%, to ¥129.9 billion, while operating income March 2007. We will increase production at our China and jumped 19.5%, to ¥25.4 billion. Philippine plants and construct a new plant in Vietnam. • Strategy for Year Ending March 2007: Supply the Market Even Safer Products Net sales target: ¥136.5 billion, up 5.1%. Strategy for General Hospital Products and Net Sales Target for the Year Ending March 2007 Billion ¥ Annual sales increase: 4.7% (1) Offering products to make medicine safer 124.1 In markets around the world, we are selling a wide range Annual sales increase: 5.1% 129.9 136.5 of medical equipment that raises the bar for safe medical treatment. In Japan, we are widening the sales of leases for pumps with accident-prevention features. In addition, demand is growing for preﬁlled syringes, which reduce the chance of infection and mistaken administration. The Company helps with risk mitigation by offering training for 2005/3 nurses in the area of IV needles and transfusions. Solution • Expand sales of HEPAFLUSH • Maintenance leases and training services Technology • Expand sales of total parenteral solutions • Begin sales of contrast agents 8 2006/3 2007/3 Cardiac and Vascular Product divisionBusiness (3) Expansion in cardiopulmonary and graft markets The Company will promote sales of cardiopulmonary • Performance in the Year Ended March 2006 systems for extracorporeal circulation, endoscopic vein harvesting (EVH) systems for cardiovascular surgeries (heart Sales of catheters and grafts were brisk in Asia and Europe. bypass), and products such as stent graft ANACONDA. In Japan, catheter systems and related equipment used to (4) Expansion of arm-entry cardiac catheter Trans-Radial treat cardiac infarction and other ailments are selling well. Coronary Intervention (TRI) to global markets In January 2005, we acquired the Japan sales rights to the The TRI treatment method reduces patients’ pain and even cardiopulmonary products of Edwards Lifesciences Corp. allows them to walk back to their hospital room after surgery. of the United States, and this had a substantial effect on the The method also shortens hospital stays for patients and full-year results. contributes to more efﬁcient surgery. We have held seminars As a result, overall sales in this business grew 9.9%, to to promote the use of Terumo products for TRI treatment. ¥88.9 billion during the year. Operating income, however, (5) Wider adoption of solution packs dipped 12.5%, to ¥25.9 billion, mainly due to a one-time We began full-scale sales of catheter kit solution packs in expense for acquiring the U.S. ﬁrm MicroVention, Inc. and for October 2005, and plan to drive sales higher in the year implementing a structure for direct sales of catheter systems ending March 2007. in the United States. • Strategy for the Year Ending March 2007: Support Minimally Invasive Medicine Net sales target: ¥99.3 billion, up 11.6%. (1) Direct sales of catheters in United States In the United States, we previously sold our catheter-related products through the U.S. ﬁrm Boston Scientiﬁc Corp. From April 2006, we implemented a direct sales organization to Strategy for Cardiac and Vascular Products and Net Sales Target for the Year Ending March 2007 Billion ¥ Annual sales increase: 9.9% expand our U.S. presence. This is expected to increase the 80.9 Terumo brand presence across the U.S. market. Annual sales increase: 11.6% 88.9 99.3 (2) Full-scale entry into neurovascular treatments The acquisition of MicroVention provides us with innovative technology and products such as expansive coated coils for neurovascular treatment. Terumo will make a full-ﬂedged entry into the market for neurovascular coils, using the global sales network of MicroVention. This will act as a new pillar of 2005/3 the business, with net sales forecast to be ¥5.0 billion in the year ending March 2007. 2006/3 2007/3 Solution • Solution packs • Popularize TRI surgical method (entry through arm) Technology • Expand sales of PTCA related products • Expand sales of surgical products (ANACONDA, EVH, etc.) • Acquisition of MicroVention (neurology) 9 Home Health Care Product Business MEDISAFE blood glucose monitor and the NANOPASS insulin syringe. Sales of these products will also begin in •Performance in the Year Ended March 2006 Europe and the United States. (2) Expand home treatment Diabetes treatment products such as blood glucose monitors Home medical treatment is expected to expand due to have shown explosive growth. We are also expanding sales changes to the national health insurance system in Japan, of such products as small home oxygen concentrators, providing opportunities for growth in this area. backlit digital thermometers, highly functional body meters (3) Develop the women’s health management market for women, and easy-to-use home blood pressure monitors Promote the WOMAN°C brand for women’s health by launching competitive products at the right time. Net sales management products. in the business rose 12.9% during the year under review, to ¥28.2 billion, with operating income growing 15.5%, July 2006 to ¥7.6 billion. • Strategy for the Year Ending March 2007: Akira Takahashi Raising QOL Representative Director & President Net sales target: ¥31.2 billion, up 10.5%. (1) Reinforce diabetes treatment products We aim for a larger share of Japan’s diabetes treatment market by capitalizing on the synergies between the Strategy for Home Health Care Products and Net Sales Target for the Year Ending March 2007 Billion ¥ Annual sales increase: 12.9% 25.0 2005/3 Annual sales increase: 10.5% 28.2 2006/3 Solution • Strengthen sales structure for home medicine • Understand importance of home blood pressure monitoring Technology • Less painful NANOPASS needle • Commercialization of WOMAN°C by female research team • ARM IN, Blood pressure monitors 10 31.2 2007/3 Board of Directors and Auditors As of June 29, 2006 Directors Corporate Auditors Takashi Wachi Shigeru Miura Representative Director & Chairman Standing Corporate Auditor Akira Takahashi Kenji Tada Representative Director & President Chief Member of Internal Control Committee Director of R&D Center Standing Corporate Auditor Takahiro Kugo Nobuyuki Takai Director & Senior Managing Executive Ofﬁcer Chief member of Investment Committee Domestic Sales Div., Asia & Middle East Business Div., Accounting & Finance Dept., Business Service Center Corporate Auditor Fumio Sugizaki Corporate Auditor Executive Ofﬁcers Hachiro Hara Kiyoshi Uesugi Director & Senior Managing Executive Ofﬁcer Production Dept., China Business Div., General Affairs Dept., Logistic Dept. Executive Ofﬁcer General Manager of Kansai Block, Branch Manager of Osaka Branch Koji Nakao Katsuhiko Miyaguchi Director & Managing Executive Ofﬁcer Chairman & President & CEO, Terumo Medical Corporation European and Americas Business Div. Executive Ofﬁcer General Manager of Kofu Factory Hiroshi Matsumura Executive Ofﬁcer General Manager of Shutoken Block, Branch Manager of Tokyo Branch Director & Managing Executive Ofﬁcer Chief member of Contract Committee, Chief member of Information Disclosure Committee, General Manager of Strategy Planning Dept., Human Resources Dept., Legal Dept., Marketing Dept., Regulatory Affairs Dept., Clinical Development Dept., Intellectual Property Dept. Takayoshi Mimura Director & Senior Executive Ofﬁcer President of General Hospital Products Group, OTC Business Div., Terumo Call Center Akira Oguma Director & Senior Executive Ofﬁcer General Manager of Quality Assurance Dept., General Manager of Environmental Management Dept., Academic Information Dept. Shogo Ninomiya Director & Executive Ofﬁcer General Manager of European & Americas Business Div. Yutaro Shintaku Director & Executive Ofﬁcer President of Cardiac & Vascular Products Group Takeshi Isayama Director Vice Chairman, Nissan Motor Co., Ltd. Tetsuo Seki Director Senior Corporate Auditor, Nippon Steel Corporation Chikao Umezu Kazuo Chiku Executive Ofﬁcer Deputy Director of R&D Center Tamotsu Takeuchi Executive Ofﬁcer General Manager of Production Dept. (Global Equipment Engineering) Chisato Nojiri Executive Ofﬁcer President & CEO of Terumo Heart, Inc., Leader of L-VAS team, R&D Center Yoshiaki Shiraishi Executive Ofﬁcer General Manager of Human Resources Dept. Kuniko Shoji Executive Ofﬁcer General Manager of Regulatory Affairs Dept., General Manager of Clinical Development Dept. Norihito Tokonami Executive Ofﬁcer President of Home Healthcare Products Group Kazuho Oishi Executive Ofﬁcer Managing Director of Terumo Medical Products (Hangzhou) Co., Ltd. Managing Director of Changchun Terumo Medical Products Co., Ltd. Managing Director of Terumo Medical (Shanghai) Co., Ltd., Managing Director of Terumo China (Hong Kong) Ltd. Kenji Sekine Executive Ofﬁcer President of General Hospital Products Company Kenichi Kida Executive Ofﬁcer General Manager of OTC Business Div., General Manager of Marketing Dept 11 Corporate Governance Basic Stance on Corporate Governance receive support from the Auditors Ofﬁce, which has a full- Terumo has established a comprehensive corporate time staff working independently of the directors. governance structure to ensure that we maintain the trust of society. The Board of Corporate Auditors meets six times a year with the independent auditor to exchange views and Based on our corporate philosophy of contributing to information. The board requests reports on the outside society through health care, Terumo seeks to continually auditing process as necessary, ensuring that there is a raise corporate value by providing products and services structure in place to carry out fair audits. In addition, the with value to the medical world. At the same time, we have Board of Corporate Auditors holds a monthly meeting set in place a Terumo Code of Ethics that aims for open with the Internal Audit Department, a ﬁve-member internal management and good corporate citizenship and ensures auditors body that maintains close relations with the board that the Company operates in a sound and transparent by submitting reports and providing other information. manner. 4. Independent Auditor Putting the Policies into Practice Terumo abides by the auditing requirements set forth in both the Corporation Law and the Securities and Exchange 1. Directors, Board of Directors, and Executive Ofﬁcers Law of Japan. The Company has appointed AZSA & Co. As of July 2006, Terumo maintains a Board of Directors as its independent auditor as part of a system to guarantee consisting of 12 directors, including two independent that independent audits are conducted appropriately and in directors. The appointment of independent directors has compliance with applicable laws. No business relationships helped to ensure better management oversight. Although the or conﬂicts of interest exist between AZSA & Co. and the independent directors do not have their own staff, they are auditors of AZSA & Co. engaged in the auditing of Terumo. supported by the Secretary Ofﬁce and the Strategy Planning Department. In 2002, we reclassiﬁed directorships into representative 5. Internal Control System Terumo maintains a number of different internal bodies directors and directors whose primary responsibility is to that together create a strong internal control structure. An determine management policies and provide oversight of the Internal Control Committee works to strengthen ethics entire Company. The executive ofﬁcer system, meanwhile, and compliance measures in the Company and reports its was subsequently improved by making executive ofﬁcers ﬁndings directly to the Board of Directors. In addition, the accountable for executing business operations under their Investment Committee provides valuable advice and analysis purview. into the disposition of assets and evaluation of investments. The Business Auditing Department has a wider purview, 2. Compensation and Nominating Committee examining the appropriateness of daily business activities. The Compensation and Nominating Committee was formed Finally, the Information Disclosure Committee ensures that with the purpose of raising the transparency of management. information is disclosed to the public in a fair and timely The committee, which is comprised of independent directors manner. The committee comprises executives from various and experts, is tasked with recommending candidates for related departments, including the president as its chair. directorships and evaluating director performance. On May 18, 2006, the Company held a Board of Directors meeting to discuss a basic policy on the establishment of 3. Board of Corporate Auditors an internal control system. The board decided to maintain The Board of Corporate Auditors comprises two internal the Terumo Code of Ethics as the standard for employee corporate auditors and two external corporate auditors. conduct, while utilizing the Internal Control Committee The primary responsibility of the auditors is to ensure the and the Internal Control Department, which will act as the appropriateness of management decisions, including the administrative body for internal control activities, to undertake management function of the Board of Directors. External initiatives in the following areas: corporate auditors do not have a full-time staff, but do 12 Corporate Governance Structure Third-Party Oversight General Meeting of Shareholders Board of Corporate Auditors Board of Directors Auditors Ofﬁce Advisory Board • Independent auditor • Outside attorney Internal Control Committee Internal Control Department Compensation and Nominating Committee Executive Management Meeting Internal Audit Department Investment Committee (1) Compliance structure Details of compensation to independent auditor: Manage employees’ signing of the Terumo Code of Ethics Compensation to independent auditor AZSA & Co. Declaration; promote usage of the ethics hotline; and Contractual payment for independent auditing thoroughly reinforce compliance activities, services ....................................¥32 million including internal auditing conducted by Business No compensation besides the above amount was Auditing Department. provided to the independent auditor. (2) Risk management Create an optimal risk management structure for the entire Company to supplement the risk management activities being conducted by individual departments. (3) Information storage and management Executive retirement beneﬁts system were abolished, and executive compensation system were reformed: In June 2006, Terumo eliminated its retirement beneﬁts system for directors and corporate auditors. Upon retirement, directors and corporate auditors will be paid a retirement Manage the storage of documents and various other beneﬁts covering the period from when they assumed their materials created by the executive ofﬁcers, in accordance executive position to the day the system was abolished. with document management standards; and create a In addition, from July 2006, a part of the monthly structure to enable board members and auditors to view compensation for directors except independeint directors will these documents. be made in Company stock, purchased through the executive (4) Group internal control system stockholding association. Directors must hold the stock until Provide reports and instructions to Group companies their retirement. The compensation plan is therefore linked to inside and outside Japan on appropriate operations the long-term performance (stock price) of the Company. management. (5) Effective structure for auditing Support corporate auditing carried out by the Auditors 7. Relationship between Terumo and Independent Directors and External Corporate Auditors Ofﬁce, overseen by an executive independent from the No business relationships or other conﬂicts of interest exist Board of Directors. between Terumo and its independent directors and external corporate auditors. 6. Compensation for Ofﬁcers and Corporate Auditors Details of compensation to ofﬁcers in the year ended 8. Other Measures to Strengthen Corporate Governance March 2006: Every two months, the Advisory Board comprised of Directors ..................... 14 .......¥277 million outside experts holds a seminar to exchange opinions with Corporate Auditors ....... 4 .........¥38 million management on a speciﬁed topic. Terumo regularly receives valuable, objective comments from the advisors. 13 Intellectual Asset The History of Terumo’s Intellectual Asset Since its establishment in 1921, Terumo has maintained its position as Japan’s leading supplier of medical equipment for 85 years. Outside of Japan, the Company has developed a strong presence by delivering top quality and unique “only one” products to customers around the world. What is the source of Terumo’s growth? Nearly a century of innovative intellectual asset. Terumo Medical Pranex, an exhibition hall 14 IA History Starts with Glass Mercury Thermometer the 1950s and started local production in the United States Terumo was established in 1921 as a manufacturer of glass mercury thermometers. The Company remained the top domestic maker of mercury thermometers until 1984, when production ceased and a full switchover was made to digital thermometers, which had debuted the previous year. in 1972. Overseas business grew steadily from there, and now comprises about 40% of all net sales. At the same stage in its history, Terumo debuted a number of revolutionary medical products, including Japan’s ﬁrst disposable plastic syringe in 1963. The disposable Although Terumo no longer relies on glass thermometer production technology, we have accumulated a wealth of technology related to body temperature measurement, including equilibrium body temperature prediction technology found in digital thermometers. This technology syringe was a signiﬁcant invention in the formation of our intellectual asset portfolio in that it signiﬁed the potential of disposable technology. Currently, nearly all of our products are disposable. The nurturing of Japan’s disposable product market will serve as the basis of various new inventions to measure the body’s vital signs, having already found its way into such mainstay products as blood pressure and blood glucose monitors. helped the Company establish close business relationships with almost all major medical institutions in Japan. These close business relationships have formed the basis of the Company’s consistently high market share and are a source Terumo began exporting glass mercury thermometers in of our competitiveness. Technology Timelines for Terumo’s Main Business Areas 1921 Business Area 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Company establishment Home health care products Glass mercury thermometer launched Digital thermometer launched Terumo offers a range of thermometers, from mercury to digital General hospital products Disposable syringe launched The disposable syringe: Single usage ensures safety All-in-one high-calorie transfusion product launched Innovative approach to transfusions: The all-in-one high-calorie transfusion is born Transfusion products Soft blood transfusion bag launched From bottle to bag: Innovative closed system launched Cardiac and vascular products Hollow-ﬁber artiﬁcial lung launched Aiming to be the world’s artiﬁcial lung leader New aqueous polymer coating guide wire launched Developing the minimally invasive guide wire market New business areas Continuous ﬂowing magnetic levitation left ventricular assist device Artiﬁcial heart: New hope in cardiac treatment (Initial launch planned for Europe) First in Japan First in the world 15 Core Technology for Disposable Medical Devices A number of basic technologies are required to develop disposable medical devices: (1) Technology for developing plastics (polymers) and technologies with pharmaceuticals. In 1973, Terumo applied the polymer technology developed originally for medical equipment to the invention of Japan’s ﬁrst soft infusion bag. Until then, glass infusion other materials with high biocompatibility (2) Technology for selecting, processing and forming these materials (3) Technology for conducting biological evaluations (4) Technology for conducting physical evaluations (5) Sterilization technology These are among the core technologies on which Terumo relies to develop new products in all its main business areas. The successful application of these technologies has delivery systems had required the injection of air pressure to drip-feed infusion liquid to the patient. Soft plastic bags rely instead on air pressure to drip the liquid. The introduction of a soft, ﬂexible and easy-to-use infusion delivery system has reduced the risk of contamination at hospitals. Unlike many other pharmaceutical companies, Terumo does not start with the development of synthesized made Terumo a market leader in a number of key product areas. In 1985, for example, the Company developed a drugs, but instead applies its core medical equipment technology to new guide wire that has maintained a large global market share since its debut. A guide wire is a thin metal device used to guide drug development. The approach has given Terumo a distinct advantage in the pharmaceutical market. catheters and other treatment devices to a speciﬁc area within the body. Terumo’s guide wire product is made of a Consider the product FULCALIQ®, which has the top share of the high-calorie transfusion agent market in Japan. super elastic metal alloy, which provides both body stiffness and ﬂexibility. A hydrophilic polymer coating with lubricant Terumo designed a three-chambered bag that contains a high-calorie transfusion liquid with all the nutrients a patient needs. Terumo has also become the domestic leader in the preﬁlled syringe market and attracted the attention of Guide Wire Patent Application Map Number in ( ) is number of applications in Japan Angiographic structure (5) Core structure (15) Coating (15) Visual mark (3) Tip structure (11) FULCALIQ, total parenteral nutrition containing multivitamins, glucose, amino acids and electrolytes Joining technology (17) pharmaceutical makers around the world. In this market as well, the Company replaced the traditional glass syringe with an innovative and safe plastic syringe. Drug delivery systems (DDS) using nanotechnology represent an exciting new ﬁeld of health care development MRI applicability (3), Extension system (4), Other (9) fusing pharmaceuticals with medical equipment. One method of treatment involves injecting drugs into a liposome, using polyethylene glycols to coat the surface of the liposome properties enables easier guiding to the treatment area. During x-ray angiography, for example, the catheter can be and then targeting the drug on a speciﬁc area of infection or cancerous tissue. Key beneﬁts of DDS are the improved smoothly guided through the body, reducing the diagnosis and treatment time and the physical burden on the patient. In addition, since the guide wire can navigate through response and the mitigation of side effects. The fusion between pharmaceuticals and medical equipment will be critical to successful development of treatment systems in the future. In the past few years, narrow vessels, in addition to angiography, the device is being utilized for cardiac infarction and various other cardiac procedures. A number of key technologies are concentrated in a diameter of 0.014 mm to 1 mm. Patent applications associated with the guide wire are shown above. Fusing Medical Equipment with Pharmaceuticals Terumo leads the world in the development of core technologies in its main business areas. In addition, the Company is taking a leading role in combining these core 16 drug-eluting stents (DES) have grown to become a major treatment for cardiac infarction. With DES, a reticulated stainless steel stent is coated with immune-suppressing drugs and other agents. Terumo has also married transfusion agents with the transfusion pumps and sets required to deliver the agents. No other health care company in Japan can provide both the agents and the delivery systems, with the result that no company can offer the same level of safety and efﬁciency in the transfusion ﬁeld. This has become a key competitive advantage for us. New Ideas from the Source Company begins quality control at the design stage, and this approach has won it a long-standing reputation For development of new products, Terumo relies heavily on its close bonds to the medical industry. The Company has close relations with doctors, nurses, pharmacologists, clinical engineers and other professionals supporting the industry, garnering information on their needs and for the development of its business. In the home care and other health care areas, Terumo often contacts patients directly. This type of business model enables the Company to monitor the true needs of treatment facilities and patients and to develop among medical professional and patients for easy-to-use and high-quality equipment. Quality is a core component of the Terumo brand. medical equipment that addresses these needs. Merging this information into new product development is keeping Terumo development, an intellectual property team draws up a patent portfolio needed to fully protect the new product. The a step ahead of the ﬁeld. One example is the need of treatment facilities to prevent accidents. Over the past several years, Terumo approach is critical to the creations of our R&D teams. During the ﬁscal year under review, Terumo ﬁled 471 patent applications worldwide: 397 applications in Japan has developed new medical equipment based on an exact understanding of the needs of medical institutions and and 74 overseas. A high percentage of the Company’s ﬁlings continued to be made in the United States and Europe, patients. Net sales and net income in the general hospital division have improved markedly as a result. but in line with the globalization of business, an increasing number of applications were ﬁled in Asia, particularly China and South Korea. Uniting Technologies to Create New Products Medical equipment represents the union of a number of In 2003, Terumo introduced a new patent evaluation system in which all patent applications undergo a 16-item different sciences, including physiology, biochemistry, pharmacology, cell technology, polymer technology, metal processing, electronics and sensor technology, to name assessment to determine their inventive value. This system helps to determine whether a foreign patent application will be ﬁled after the ﬁling of the Japanese application. The results only a few. One of Terumo’s major strengths, however, is the capability to add to the development process a number of the evaluation are also used to assess the performance of our researchers. The patent evaluation results are combined of related processes that are critical to the success of new products. These include technology to evaluate the physical, chemical and biological properties of new products, the with our incentive system, so that researchers who produce a steady stream of good inventions beneﬁt from positive personnel evaluations, which supports a high level of work implementation of clinical testing, the ability to receive approval for products in various countries with different and leads to increased salaries. Terumo is leveraging its wealth of development regulations, and the ability to conduct post-launch surveys to ensure the safety and effectiveness of products. In addition, Terumo provides unique sales know-how, including unique training mechanisms to ensure that the technology in the areas of disposable medical products, medical equipment and pharmaceuticals and its reputation for quality. The Company has formed strong bonds with medical institutions and trading partners in Japan and built doctors, nurses and other medical professionals who use our products employ them correctly. Quality control is the basis for the successful implementation of our technology and know-how. Medical equipment poses a number of risks because of the direct a high market share in key product areas. Terumo’s 13 plants and 33 sales ofﬁces overseas form the backbone of a global sales and production network. This network keeps employees close to medical professionals and patients, and enables us to build an intellectual asset portfolio that reﬂects inﬂuence it has on human life. Advanced quality control technology is critical to reducing the number of defective products. Terumo has been able to keep the level of defective products to about one out of 10 million. The their needs. Staying close to the medical world, developing new technologies and applying those technologies to the development of innovative medical equipment is one of our key competitive advantages. The Protection and Strategic Use of Intellectual Property Terumo aims to make product development as efﬁcient as possible by analyzing laid-open patent applications to collect important patent-related information and ﬁnd high-growth areas ripe for new development. During actual product 17 Research and Development A Global R&D Structure Leveraging the Strengths of Each Region Terumo promotes an R&D structure that leverages the unique characteristics of each global region. In the United States, R&D staffs are actively pursuing the acquisition of new technologies. In Europe, we have developed an environment in which clinical trials can be conducted as early as possible in the development cycle. In Japan, Terumo has developed a portfolio of strong elemental technology and is working to combine these to create new products. The goal is to rapidly develop new technology of high quality. undergoing design improvements to improve reliability as clinical trials continue. In another area, clinical trials for drugeluting (DE) stents for treatment of cardiac infanction are Japan Technological Fusion underway in comparison with a competing product. We are now preparing for the launch of a DE stent after having brought the production completely in-house to ensure competitiveness and safety. Global Development Strategy Europe Clinical Trials ANACONDA, a stent graft for the treatment of abdominal United States Pursuit of New Technologies aortic aneurysm, was launched in Europe last year after completing clinical trials there. New clinical trials have begun in the largest health market, the United States. The Research and Development Center in Japan is the focal point at Terumo for the combination of a wide range of elemental core technologies developed locally over the Advances in Development of Global R&D Structure years, and new technologies being invented primarily in At Terumo, the advancement of a global-scale R&D structure the United States. Our R&D style is to bring forth a range is critical to the expansion of therapeutic equipment with high of fusion technologies, including artiﬁcial oxygen bodies value. carrier and drug delivery systems (DDS) which are utilizing In Europe, one of our key bases for conducting clinical trials, we are nearing the completion of development of two major products. DURAHEART, a left ventricular assist device for patients with serious heart failure, has been 18 nanocapsule technology Laparoscopic manipulator and cardiac regenerative medicine. Product Improvement and Training: Key Factors R&D through Partnership in Medical Equipment Development A strategy for tie-ups with other companies will be Medical equipment development encompasses more than increasingly important in the future as we pursue the simply the innovation of cutting-edge technologies. At development of products with global competitiveness. Terumo, we continually make development improvements In August 2005, Terumo and Olympus Corp. strengthened to syringes, infusion sets and other basic products. New their strategic partnership. The aim behind the tie-up is to valuable function, like safety features to prevent the infection combine the two ﬁrms’ core technologies and know-how for and medical accsidents and which make it easier to use the joint development of innovative products. equipment, is being added to a wide variety of products. One of the unique aspects of the medical equipment In other areas, Terumo has joined with more than 10 pharmaceutical ﬁrms to jointly develop preﬁlled syringes, a business is that the success of the product treatment is often major growth products for the Company. The importance of closely linked to the skills of the medical professionals using these and other collaborative businesses is increasing as we the equipment. In 2002, we established the Terumo Medical pursue continued growth. Pranex in a new complex adjacent to the Research and Development Center. The Medical Pranex is the site of joint Status of R&D development projects between our development staff and In the ﬁscal year under review, Terumo’s R&D expenditures outside medical professionals, along with training courses on increased 31.2% over the previous year to ¥18.0 billion, the use of our equipment. which included a ¥2.3 billion charge for the acquisition of MicroVention. The ratio of R&D expenditures to net sales increased 1.3 percentage points to 7.3%. The number of employees involved in R&D activities rose 5.1%, to 696 staff. R&D Expenditure and Ratio of R&D Expenditure to Net Sales Number of R&D Personnel Billion ¥ 7.3 6.8 5.5 5.7 Terumo Medical Pranex 14.7 10.3 02 626 6.0 18.0 542 06 02 662 696 574 13.7 11.4 03 04 05 03 04 05 06 R&D Expenditure Ratio of R&D Expenditure to Net Sales (%) 19 Close-Up U.S. Firm MicroVention Wholly Acquired: Terumo Obtains Catheter Lineup to Enter Neurovascular Market Specialized Maker of Coils to Treat Brain Aneurysms MicroVention has excelled in the ﬁeld with proprietary In March 2006, Terumo wholly acquired MicroVention, Inc., coatings. Its global competitiveness has made it a leader in a U.S. manufacturer of coils to treat cerebral aneurysms that a global market worth ¥22 billion and growing at more than holds about a 15% share of the world market. 15% a year. Some 80,000 patients a year worldwide receive treatment for cerebral aneurysms, which are cause, brain hemorrhaging Treatment of Cerebral Aneurysms and other afﬂictions with a high mortality rate. Doctors currently treat the malady through two methods: open brain Cerebral aneurysms surgery and intravascular therapy using a catheter. In recent Brain blood vessel years, intravascular therapy has been the preferred method worldwide, because of the better clinical efﬁcacy minimized the burden on the patient. Intravascular surgery The coils produced by MicroVention are used during Surgical remedy intravascular therapy for aneurysms by insertion into the Platinum coils aneurysm to prevent it from rupturing. Recently, new types of coated coils have been developed to improve the clinical outcome. As the blood touches the coil, it begins to swell. Micro catheter The coated coils have superb ﬁlling volume is the aneurysm and prove far more efﬁcient than conventional types. Neuro Interventions Market Billion ¥ Trend in Cerebral Aneurysm Treatment Procedures (Worldwide) Assist Device (Stent, etc.) Other Device 100,000 Coils Catheter (Delivery) 80,000 60,000 ¥22.0 40,000 20,000 Other Embolic Material 0 04 Global market scale: ¥36 billion (Worldwide 2005) Source: Millennium Research Group 20 05 Coated Coils Bare Platinum Coils Neurosurgical Clipping Procedure 06 07 08 09 10 Clip Expanding Interventional Business to Neurovascular a surgical approach to replace the diseased vessels with Treatment artiﬁcial vascular grafts. With ANACONDA, doctors use Terumo has positioned interventional systems as a major an endovascular approach to deliver the stent graft to the growth area for the Company. diseased area. This procedure eliminates a major surgical With the acquisition of MicroVention, Terumo can add neurovascular catheter products to its current lineup ranging from angiographic catheters used in the radiology ﬁeld and incision and signiﬁcantly reduces the burden on the patient with a minimally invasive treatment. In the year ended March 2006, the abdominal aortic various cardiovascular interventional products. The Company aneurysm treatment market was worth ¥73 billion worldwide, looks forward to stronger competitiveness and higher growth and is expected to grow to ¥94 billion for the year ending with the addition of coils to treat cerebral aneurysms. March 2008. Terumo believes Anaconda will occupy a solid market share in coming years. Clinical trials are continuing in the United States for planned market launch in the area. Hydro Coil, coated coils Stent Graft ANACONDA, Used in Treatment of Abdominal Aortic Aneurysm, Hits Market In April 2005, Terumo began sales of ANACONDA, a stent graft used to treat abdominal aortic aneurysms, in Europe. In conventional treatments for the disease, doctors perform The Abdominal Aortic Aneurysm Treatment Market Billion ¥ ANACONDA, stent graft 79.0 57.0 16.0 15.0 06 08 Stent graft Artiﬁcial graft Source: Terumo estimates 21 Review of Operations General Hospital Products Business Strategy M edical equipment currently installed at hospitals often does not meet all the needs of medical professionals and patients, because such needs are constantly changing. Terumo aims to develop and supply the medical industry with top-quality equipment that Sales of General Hospital Products Billion ¥ 73.9 77.2 73.5 73.3 prevents accidents and infection. In recent years, demand has grown for total solutions to the requirements of medical safety. For instance, for infusion equipment, the demand has extended to the infusion pumps and to the infusion liquids. The Company has taken steps to respond to rising demand for total safety solutions by supplying, for example, not simply high-added-value pumps but also maintenance leases to ensure the safety of the hospital environment in which the pumps are used. In addition, 31.8 34.9 35.8 23.9 14.7 14.9 15.7 16.9 we are offering medical professionals training sites where they can build surgical, injection and other skills. The general hospital pruduct business division will seek continued growth by anticipating the needs of medical establishments with new products and services. General Hospital Product Business Highlights •Net sales grew 4.7%, to ¥129.9 billion •Operating income surged 19.5%, to ¥25.4 billion •Operating income margin rose 2.4 percentage points, to 19.5% 22 03 04 05 Disposable medical equipment and medical electronic products Pharmaceuticals Blood transfusion systems 06 Performance •Disposable medical equipment and medical electronic products Terumo is the dominant leader in the hospital syringe market in Japan, with about a 70% share. Sales of TE-161S, infusion pump syringes jumped 11.4% over the previous year, to ¥19.6 billion. Sales of needles also grew well, up 14.6%, to ¥5.6 billion. Net sales improved 5.0% over the previous year, to ¥77.2 billion. Demand was also robust for risk management products that prevent accidents and contribute to higher management efﬁciency. In the IV catheter market, sales grew 10.7%, to ¥9.1 billion, thanks largely to healthy demand for SURSHIELD SURFLO II, an IV catheter with a safety feature to prevent needlestick injuries to medical professionals, and SURSHIELD SV, a safety winged infusion set. In the infusion and syringe pump area, sales improved by 9.9%, to ¥5.9 billion. Demand was strong for both TE-161S, an infusion pump with accident-prevention features, and the syringe pump TE-331S/332S, for which the Company has begun offering a maintenance lease contract. In December 2005, Terumo launched the TE-261, an infusion pump with multiple safety features, to prevent an oversupply of ﬂuid and other accidents. •Pharmaceuticals Net sales grew 2.6%, to ¥35.8 billion. FULCALIQ, a total parenteral nutrition product developed with Tanabe Seiyaku Co., Ltd., continued to post robust sales. FULCALIQ is a unique product containing all the multivitamins, glucose, amino acids and electrolytes that patients require in a three-chambered pack. The world’s ﬁrst total nutrition product in a single pack, FULCALIQ ensures that patients receive complete nutrition, reduces the chances of mistaken combinations of solutions or infection, and eases the burden on medical professionals with simple administration. In July 2005, we expanded the lineup to include a large-sized pack that requires replacement only once a day, as opposed to the previous twice-aday replacement size. FULCALIQ is being sold with Tanabe Seiyaku, but Terumo alone claims more than 30% of the total parenteral nutrition market in Japan. Preﬁlled syringes have been well received by hospitals for their ability to prevent the administration of the wrong drugs and eliminate the need to mix drugs. Since Terumo began sales of preﬁlled syringes in 1999, sales have grown consistently, expanding in the previous year alone by 13.9%, to ¥9.0 billion. In addition, Terumo has obtained the exclusive domestic sales rights to three drugs from Guerbet SA of France. From January 2006, we began selling the MAGNESCOPE syringe, an MRI contrast medium; HEXABRIX 320, a urologic and angiographic contrast medium; and the lymphatic system and uterotubal contrast medium LIPIODOL ULTRA FLUIDE. Our lineup of nutritional foods has been augmented. In November 2005, the Company acquired three hospital-use nutritional foods from Hisamitsu Pharmaceutical Co., Inc. Tapion, Imun, F2α—to provide more comprehensive nutritional support to medical institutions. In addition, we began selling TERUMEAL PG SOFT, a high-calorie, liquid nutritional food for aged customers. In the year under review, nutritional food sales grew 23.8%, to ¥3.5 billion. Terumo now has a 13% share of the Japanese market, placing it No. 3 Preﬁlled syringe among sellers. •Blood Transfusion Systems Sales of blood transfusion equipment grew 7.9%, to ¥16.9 billion. Sales of blood bags jumped 12.4%, to ¥11.1 billion. From December 2006, the Japan Red Cross’s blood banks are expected to adopt in-line-ﬁlter blood bags that remove leukocytes during blood collection, thereby reducing sideeffects. Sales of Main General Hospital Products Sales of Peﬁlled Syringes Billion ¥ 9.0 7.9 6.1 3.6 03 04 05 06 TERUMEAL, a high-calorie liquid nutritional food 23 Cardiac and Vascular Products Business Strategy T he cardiac and vascular market is being transformed by a wave of minimally invasive therapy. Historically, major surgeries have been the standard course for many kinds Sales of Cardic and Vascular Products Billion ¥ 49.2 of ailments. More and more case, however, are treated with new interventional products 44.8 such as catheters, which allow doctors to carry out treatment via blood vessels. Terumo entered this market with development of a guide wire for vascular treatments. Currently, the main markets are cardiovascular and abdominal treatment, along with 37.7 34.7 25.0 27.3 29.9 32.3 cerebrovascular and other newer areas of treatment. In pursuit of growth in these areas, from April 2006 we began selling our interventional products directly in the United States, ending our marketing relationship with Boston Scientiﬁc Corp. The direct sales customer relationships are very important for new product development that enhances U.S. business. In addition, we acquired the U.S. ﬁrm MicroVention Inc. in March 2006 and have begun selling its coils used in the treatment of cerebral aneurysms. These moves will help to expand our presence in the U.S. interventional products market, which will be key to enlarging our position in the global market. Terumo plans to leverage its R&D structure tailored to each market to introduce a wider lineup of attractive products. 24 7.4 6.2 5.9 structure will enable us to gather more information from vanguard customers. Such 2.0 03 04 05 Catheter systems Cardiovascular systems Vascular grafts 06 Cardiac and Vascular Product Business Highlights •Net sales increased 9.9%, to ¥88.9 billion •Operating income declined 12.5%, to ¥25.9 billion •Operating income margin fell 7.5 percentage points, to 29.1% Performance •Interventional Systems Net sales of interventional products rose 9.8%, to Coronary stent TSUNAMI ¥49.2 billion. Angiographic interventional system sales expanded 7.3%, to ¥27.6 billion. Sales of percutaneous transluminal coronary angioplasty (PTCA) interventional extension systems used in the treatment of angina, cardiac infarction and other diseases, along with coronary stents, grew 9.7%, to ¥12.5 billion. Sales of other types of interventional products increased 18.1%, to ¥9.1 billion. In July 2005, we launched a SOLUTION PACK in Japan to provide physicians with a handy package of interventional products required in angiography. expand both in Japan and overseas. In January 2005, we acquired the Japan cardiopulmonary business of Edwards Lifesciences Corp. of the United States, which made a sizeable contribution to sales in this market. From September 2005, Terumo launched the CAPIOX RX15 oxygenator, which combines the function of controlling the blood ﬂow to the oxygenator and its traditional function of exchanging carbon dioxide with oxygen. The product can be adapted to a wide range of patients, from children to adults. •Vascular Grafts Net sales of vascular grafts surged 19.5%, to ¥7.4 billion. The stent graft ANACONDA, which is used to treat abdominal and thoracic aortic aneurysm was launched in Europe in April 2005. The product is undergoing clinical trials in the United States. CAPIOX RX15, oxygenator Sales of Main Cardiac and Vascular Products Sales of Catheter Systems SOLUTION PACK Achieving Top Share in the Global Cardiopulmonary Systems Market Billion ¥ 49.2 44.8 •Cardiovascular Systems Net sales of cardiovascular systems grew 8.1%, to ¥32.3 billion. Terumo enjoys the largest share of the world’s cardiopulmonary market. Sales of SPEEDPACK, a combination of oxygenator and blood lines, continued to 34.7 Terumo Others 18% 31% 37.7 Medtronic 22% 03 04 05 06 Sorin 29% Source: Terumo estimates 25 Home Health Care Products Business Strategy T he home health care business is developing primarily in Japan, where the population is aging quickly and attention is being focused on how to rein in soaring health care Sales of Home Health Care Products Billion ¥ 12.0 costs with more efﬁcient solutions. One way to control costs has been to reduce the length of hospital stays and promote home-based medicine. Terumo has responded to this trend by offering a range of products with the same safety standards as those used in hospitals. Currently, the home health care lineup includes self-monitoring equipment 10.5 10.0 9.5 8.2 8.1 6.2 9.2 8.0 7.8 7.7 6.6 such as blood pressure monitors and urine test papers to help control lifestyle diseases, along with peritoneal dialysis equipment, diabetes care equipment, nutrition and oxygen supply equipment. In the future, more patients are expected to make their own decisions about the best form of treatment to match their needs and stage of life. Terumo will meet patients’ growing needs with safe and comfortable medical solutions for the home. 03 04 05 06 CAPD systems Diabetes care products Other products Home Health Care Product Business Highlights •Net sales improved 12.9%, to ¥28.2 billion •Operating income surged 15.5%, to ¥7.6 billion •Operating income margin increased 0.6 percentage point, to 26.8% 26 From 2004, We changed the categorization of nutritious foods from Home Health Care Products to General Hospital Products. Performance •Peritoneal Dialysis Systems Net sales of peritoneal dialysis systems declined 3.5%, to ¥7.7 billion. Demand for MIDPELIQ, a close-to-neutral peritoneal dialysis solution with a light burden on a patient’s peritoneum, decreased due to a drop in the number of peritoneal dialysis patients in Japan, a trend caused by problems with the medical insurance system. •Diabetes Care Products Net sales of diabetes care systems jumped 28.6%, to ¥10.0 billion. The number of diabetics in Japan is said to have increased to about 2.28 million and is expected to rise further in NANOPASS 33, insulin the coming years. Demand has grown needle strongly for MEDISAFE MINI, a blood glucose monitoring system that enables patients to quickly and safely measure glucose levels by extracting only a trace of blood. Patients appreciate the convenience and safety of the product, as from extraction to disposal, no handling of blood is needed. In July 2005, we introduced the NANOPASS 33 insulin needle. With a tip of but 0.2 mm, the needle is the smallest in the world. Typically, with a needle this ﬁne, the resistance during injection is too strong and patients encounter problems. NANOPASS 33 features the world’s ﬁrst doubletapered structure on the inside and outside of the needle, an innovation that both reduces the pain for the patient and injection resistance. With some 900,000 patients in Japan alone self-administering their insulin injections, NANOPASS 33 represents a major step in reducing patient pain and fear. •Other Products Sales of other products in the home health care business grew 13.9%, to ¥10.5 billion. Home Transfusion and Oxygen Therapy Systems Net sales of home transfusion and oxygen therapy systems jumped 12.6%, to ¥3.9 billion. In Japan, the number of patients with chronic obstructive pulmonary disease, such as emphysema and chronic bronchitis, is rising annually. It is estimated that some 120,000 patients are receiving home-based treatment for these diseases. Terumo has widened its lineup of SHIZUNE oxygen therapy systems by introducing in August 2005 the O2 GREEN SHIZUNE IT-5L, which can supply up to ﬁve liters of oxygen per minute. Blood Pressure Monitors Net sales of electric blood pressure monitors increased 22.0%, to ¥2.8 billion. In November 2005, Terumo launched two new products ARM IN MEMO, blood pressure that built on its lineup of models monitor which patients can use simply by slipping their arm into the monitor: ARM IN MEMO, which allows patients to download their data onto portable media, and the ARM IN PLUS, which has a data recording feature. Digital Thermometers, Other Sales of digital thermometers and other home health care products grew 9.8%, to ¥3.8 billion. In September 2005, we launched the TERUMO DIGITAL THERMOMETER C220, which offers a backlit screen and other convenient features. In addition, in December 2005, the Company introduced WOMAN°C C520, a women’s health management product that meets women’s increasing demand for highly functional monitors by measuring basal body temperature in 25 to 40 seconds and making various other measurements. WOMAN°C C520, basal body thermometer Sales of Main Home Health Care Products Second Largest Share in Japanese Market for Glucose Monitors Others 19% Sanwa Kagaku Kenkyusho 39% Rosh 5% O2 GREEN SHIZUNE IT-5L, oxygen therapy systems Aventis 16% Terumo 21% Japanese market scale: ¥45 billion Source: Terumo estimates 27 Performance by Geographic Segment Business Strategy I n Japan, Terumo’s products maintain a high market share. We aim for stable growth in Japan as we shift to the development of high-value-added products. In overseas markets, the challenge is to expand sales and proﬁts. The U.S. market remains the highest priority, as it is the largest market for medical products and a source Terumo’s Overseas Sales and Production (Share of Total) % 39.5 36.6 37.3 37.7 28.0 28.8 28.9 29.7 03 04 05 06 of advanced information. Europe is also the source of high-value-added products on the cutting edge of development, and its importance for us is growing. China and other markets in Asia promise strong growth opportunities, and the challenge will be to accurately gauge the expansion opportunity in each market and realize its promise. The Company will continue to develop its global business promotion structure to execute its strategy in each country based on the characteristics of each individual market. Sales ratio Production ratio Global Business Promotion Structure Japan Highlights high quality manufacturing expertise •Net sales grew 4.3%, to ¥149.5 billion* •Operating income increased 5.7%, to ¥52.5 billion disseminating to overseas units our high quality standards North & South America Europe rich in information clinical trials acquiring and developing new treatment technologies Asia & Others expanding our business expanding our manufacturing plants Consolidated Net Sales Share by Region Production Share by Region North and South America 15.6% Asia and Others 7.9% North and South America 13.9% Asia and Others 6.3% Performance Net sales in the general hospital products business in Japan were on a par with last year, at ¥89.8 billion. Sales of pharmaceuticals grew thanks to higher demand for nutritional foods and preﬁlled syringes, but demand for hospital equipment and blood transfusion equipment declined. Sales of cardiac and vascular products increased 11.0%, to ¥32.4 billion. A major contributor to the growth was cardiopulmonary systems, sales of which jumped 35.5% thanks to the full-year contribution of income from the acquisition of the cardiopulmonary business of Edwards Lifesciences in January 2005. Domestic demand for home health care products rose 11.7%, to ¥27.2 billion thanks to higher demand for diabetes treatment products, home infusion and oxygen therapy equipment, and digital blood pressure monitors. Overseas Performance Highlights •Net sales increased 12.6%, to ¥97.5 billion* •Operating income declined by ¥1.9 billion, from ¥8.9 billion to ¥7.0 billion Europe 16.0% Japan 60.5% Europe 9.5% Japan 70.3% Performance in Japan Business Strategy Japan is Terumo’s largest market. The broad product lineup enables us to leverage synergies in each division and the strong presence we have developed at hospitals. Our operations in Japan are also responsible for disseminating to overseas units our high quality standards and product development and manufacturing expertise. 28 Performance Net sales of general hospital products in overseas rose 17.1%, to ¥40.1 billion, with hospital equipment and blood transfusion equipment performing well. Net sales of cardiac and vascular products grew 9.2%, to ¥56.6 billion, driven by robust demand for interventional products and vascular grafts. Demand for diabetes treatment products, digital thermometers, and digital blood pressure monitors rose, lifting net sales by 54.7%, to ¥1.0 billion. Highlights •Europe Business Strategy Europe is a market where the newest products reach patients quickly. In recent years, Terumo has been investing more resources into cutting-edge equipment, and the importance of clinical trials in Europe has risen. Europe will continue to play an important role in marketing products worldwide after clinical trials and government approval, in the end contributing to the Company’s rising sales and proﬁts. •Net sales jumped 7.9%, to ¥38.6 billion* •Operating loss was ¥1.2 billion, compared with operating income of ¥2.7 billion a year earlier Performance The operating loss can be attributed to expenses incurred from the change to a direct sales structure for catheter systems, along with one-time expenses linked to corporate acquisitions. Highlights •Net sales surged 13.9%, to ¥39.6 billion* •Operating income grew 41.1%, to ¥3.8 billion •Asia & Others Performance Sales of catheter systems and vascular grafts were robust. ANACONDA, a stent graft used for treatment of abdominal aortic aneurysms, has been well received since its launch in April 2005, and we are targeting sales of ¥600 million for the current year ending March 2007. •North & South America Business Strategy The United States is the largest medical market in the world. Medical equipment companies are acquiring and developing new treatment technologies there, as the United States has traditionally been rich in information and infrastructure. Terumo intends to reap the beneﬁts of this environment and thereby develop and market innovative products. As we expect large growth in this market, we are investing aggressively. Two major investments are the switchover in sales of catheter systems from indirect sales to a direct sales structure, and the acquisition in March 2006 of MicroVention Inc. Business Strategy In Asia, we are expanding our manufacturing plants. Terumo already has manufacturing plants in China and the Philippines, and we are now planning for a Vietnam plant to start operations in March 2008. With its growing demand for medical equipment, Asia also offers lowcost procurement of high-quality materials. The cost efﬁciency of both materials and labor will contribute to raising operating margins. The Company plans to focus on expanding sales of high-value-added products, such as medical equipment with safety features, catheter systems and blood sucrose monitors, while keeping tabs on the changing circumstances of each individual market in the region. Highlights •Net sales jumped 20.2%, to ¥19.3 billion* •Operating income surged 23.2%, to ¥4.4 billion Performance Sales of hospital equipment and catheter systems grew strongly during the year. * Sales to third parties Consolidated Net Sales* and Operating Income in Japan Billion ¥ 127.2 134.2 143.4 Consolidated Net Sales* and Operating Income in Europe 149.5 Consolidated Net Sales* and Operating Income in North and South America Billion ¥ Billion ¥ 39.6 32.3 33.2 33.9 35.8 38.6 49.7 19.3 13.7 14.8 16.1 52.5 38.9 2.3 1.5 03 Billion ¥ 34.8 26.5 35.6 Consolidated Net Sales* and Operating Income in Asia and Others 04 05 06 03 2.4 04 2.7 05 3.1 2.7 3.8 1.7 2.6 3.5 4.4 -1.2 06 03 04 05 06 03 04 Net sales Net sales Net sales Net sales Operating Income Operating Income Operating Income Operating Income 05 06 29 Eniviromental Initiatives and Social Contributions Environmental Initiatives Basic Policy on the Environment The Terumo Group aims to earn the trust of society by •Recycling and Energy Conservation Achievements at Terumo Europe N.V.’s Belgium Plant conducting business activities on the basis of the corporate The Terumo Group is undertaking environmental philosophy of contributing to society through health care. As conservation initiatives not just in Japan, but also in Europe, a Group, our primary mission is to supply safe and trusted the United States, Asia and other areas around the globe. medical equipment to the world. As a leading company in The Belgium plant operated by Terumo Europe N.V. has this ﬁeld, we also take seriously our responsibility to protect produced particularly and conserve the environment. impressive results from its recycling and Environmental Conservation Activities energy conservation •Mitigating Global Warming by Reducing CO2 Emissions initiatives. In the year ended March 2006, Terumo emitted 120,000 The amount of tons of CO2. Our CO2 emissions have risen 33% since 1991, waste has been compared to a 75% increase in domestic net sales. This was reduced signiﬁcantly achieved through the elimination of the use of heavy oil in Terumo Europe N.V. 1998, the promotion of gas cogeneration systems, and the of special mobile containers that collect waste from the conversion to city gas. manufacturing process for direct shipment to recyclers. In comparison with the year ended March 1991, Terumo with the introduction In addition, the plant has found ways to recycle packaged aims to reduce the emissions of CO2 per basic unit amount goods by establishing new recycling routes. As a result, by 25% by the year ending March 2011. As a result of energy the plan has been able to reduce the amount of incineration conservation activities at plants and ofﬁces, CO2 emissions waste to 34% of all waste, and has raised the amount per unit of sales in the year ended March 2006 stood at 72% of plastic, cardboard, wood materials, metals and other of the amount in the year ended March 1990. materials recycled to 507 tons. The plant is also making headway in conserving energy, setting a goal of reducing energy consumption by 10%. Efﬁciency measures include adjusting the relative humidity Emissions of Carbon Dioxide and optimizing the air circulation rate of clean rooms, along with using special care in the operation of compressor air Thousand tons of CO2, % Reduction target in terms of basic units, using March 2000 term for comparison 100 92 92 85 80 124 72 and sterilizer heating systems. The emission of wastewater at the plant is being gradually reduced, with a target of halving emissions in the year ended March 2007 to 200m . Some of the measures being used to 3 127 125 125 125 meet the target are reuse of cooling water used in extrusion 89 molding machines and for washing glass tubes, along with cutting off the ﬂow of rainwater runoff into the sewage 02 03 Total emissions Basic units (%) 30 04 05 06 system. Social Contributions Basic Policy on Social Contributions the establishment of the fund, Takashi Wachi, Terumo’s The Terumo Group is making a wide range of social Representative Director & chairman, noted that young contributions to improve the health of people around the Chinese students share the dream of discovering unique world. Our corporate philosophy of contributing to society types of medicine yet unknown to the world. through health care drives our desire to act as a good corporate citizen by supporting healthy living. •Terumo Donates ¥15 Million to the Hurricane Katrina Relief Effort Social Contributions In the aftermath of Hurricane Katrina, which struck New •Terumo Fund Established at Zhejiang University Orleans and surrounding areas in October 2005, Terumo In May 2006, Terumo established the Terumo Fund and its local U.S. subsidiary provided syringes, infusion sets at Zhejiang University to provide research grants and and other medical equipment to the relief effort, along with scholarship assistance to promising students. The fund will donations from employees and matching gift from Terumo. begin operating in 2007. Altogether, the Terumo Group provided some ¥15 million in The Terumo Group funds and equipment. began constructing a Terumo began doing business in the United States in plant in Hangzhou City, the 1970s, and currently operates production plants and Zhejiang Province, in sales ofﬁces there. The Group responded to the hurricane 1995 for production of IV quickly, with necessary medical equipment, donations from drip and blood transfusion employees and matching gifts from the Company. tubes, blood pressure monitors and other Terumo Fund signing ceremony equipment. Operations started in 1997, and currently the •Terumo Health and Weather Forecast: Providing “Healthy” News plant has about 2,000 employees and an annual production For many people, their of about ¥7.7 billion. Equipment produced by the plant has health is closely related won accolades for quality from Japanese medical institutions. to weather and climate. The Terumo Fund at the university, considered one of the top Terumo has been three universities in China, will commemorate the 10th year providing information on of operations in Zhejiang Province and the excellent relations weather forecasts, and the Group has developed with the provincial government illnesses inﬂuenced by over the past decade. changes in the weather, Under the Terumo Fund, Terumo Research Grants will be Terumo Health and Weather Forecast: Providing “healthy” news through Japanese television, radio and on the Company’s provided to encourage the innovation of new medicine that website. This activity is part of our efforts to achieve our combines the traditions of Western and Eastern medicines. corporate philosophy of contributing to society through In addition, the fund will provide three-year Terumo health care. Scholarships worth 1.5 million yuan ($187,000) to some 300 promising students. In a speech given on Terumo-sponsored weather updates include information on pollen counts, UV rays, heat exhaustion during exercise, heat exhaustion during living hoursamong the elderly, joint April 5, 2006 at Zhejiang ailments, inﬂuenza, the common cold and asthma, pollen University to announce counts and UV rays. Hangzhou plant 31 Consolidated Eight-Year Summary Terumo Corporation and subsidiaries Years ended March 31 2006 2005 2004 For the period: Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥247,049 ¥230,003 ¥ 215,196 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,252 47,108 36,653 Income before income taxes and minority interests . . . . . . . . . . . . . . . . . . 51,589 43,654 33,743 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,457 27,135 19,792 Net cash ﬂow from operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,380 43,725 41,497 Net cash ﬂow from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54,391) (15,636) (11,639) Free cash ﬂow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,011) 28,089 29,858 Net cash ﬂow from ﬁnancing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 (12,343) (19,216) R&D expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,025 13,739 14,700 Capital expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,248 10,998 11,456 Depreciation and amortization (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,181 15,581 14,881 Net income—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 160.45 ¥ 136.03 Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.00 20.00 16.00 Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,345.52 1,107.88 982.62 Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥165,487 ¥161,504 ¥ 142,560 Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,876 70,653 71,189 Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,611 90,851 71,371 Total assets (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354,648 312,456 293,866 Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273,309 219,873 195,075 Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,716 38,716 38,716 ROE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2% 13.1% 10.4% ROA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.7% 9.0% 6.8% Stockholders’ equity ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77.1% 70.4% 66.4% Number of common shares issued at year-end (in thousand shares) . . . . . 203,027 198,320 198,382 Number of associates (in persons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,825 9,624 9,094 Per share of common stock (Note 2): ¥ 98.45 At year-end: Other statistics: Notes: 1. All dollar ﬁgures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at ¥117=$1, the approximate exchange rate at March 31, 2006. 2. Effective April 1, ﬁnancial summary have not been restated. 3. Effective April 1, 2000 ﬁnancial summary have been restated to conform to the 2001 presentation. 4. Write-down of goodwill exclu March 31, 2003. 32 Thousands of U.S. dollars (Note 1) Millions of yen 2006 2003 2002 2001 2000 ¥ 200,625 ¥ 187,082 ¥ 176,050 ¥ 171,179 ¥ 160,682 $ 2,111,530 31,299 28,039 28,800 29,151 30,247 412,410 33,505 24,802 29,013 11,282 29,172 440,931 18,155 14,441 16,639 6,284 14,834 277,410 36,825 28,566 25,222 27,753 – 370,769 (31,720) (15,420) (14,144) (32,457) – (464,880) 5,105 13,146 11,078 (4,704) – (94,111) (5,977) (21,053) (3,372) (2,204) – 3,171 11,390 10,290 8,897 9,686 7,328 154,060 12,574 12,857 14,871 19,812 – 121,778 14,716 14,289 14,070 13,260 10,809 129,752 1999 U.S. dollars (Note 1) Yen ¥ 88.65 ¥ 68.88 ¥ 78.91 ¥ 29.80 ¥ 71.94 $ 1.37 11.00 11.00 8.50 8.50 8.50 0.21 917.69 873.61 816.93 771.58 750.78 11.50 Thousands of U.S. dollars (Note 1) Millions of yen ¥ 131,910 ¥ 135,978 ¥ 135,197 ¥ 116,169 ¥ 116,229 $ 1,414,419 78,653 82,422 79,147 69,693 67,066 571,590 53,257 53,556 56,050 46,476 49,163 842,829 288,184 284,736 281,660 273,126 250,604 3,031,179 184,464 179,854 172,271 162,707 158,319 2,335,974 38,716 38,716 38,716 38,716 38,716 330,906 10.0% 8.2% 9.9% 3.9% 10.4% 6.3% 5.1% 5.6% 2.4% 6.3% 64.0% 63.2% 61.2% 59.6% 63.2% 200,847 205,874 210,876 210,876 210,876 8,749 8,062 7,412 6,898 5,849 33 Management’s Discussion and Analysis of Operating Results and Financial Condition Market Trends previous year, to ¥247.0 billion (US$2,112 million), for the The business environment in the medical industry is 12th straight year of increase. undergoing major change. Outside Japan, major mergers have taken place in Europe and the United States. In Japan, Net Sales in Japan the April 2005 revision to the Pharmaceutical Affairs Law In Japan, net sales increased 4.2%, to ¥149.4 billion requires the same level of safety of medical equipment as is (US$1,277 million), thanks to robust demand for preﬁlled in place for pharmaceuticals. syringes and other general hospital products, interventional Revisions to NHI drug prices, medical treatment fees systems, cardiopulmonary systems and other cardiac and and special medical equipment in April 2006 are aimed vascular products, and a wide range of home health care at restraining medical costs and are also expected to products, including blood glucose monitors, oxygen therapy encourage greater specialization among hospitals. systems and digital blood pressure monitors. The ratio of net sales to overall net sales in Japan is to 60.5%. Operating Results From April 2005, Terumo began the STeP UP 2007 medium- Net Sales Overseas term management plan, which focuses on the themes of “safe Despite the effects of changing foreign exchange rates, net and efﬁcient medicine,” “the development of new treatment sales of general hospital products increased in the United systems” and “promotion of an in-house company system.” States and Asia, while steady growth in interventional In the ﬁrst year of the plan, the Company posted record net systems, cardiopulmonary systems and stent grafts was sales and proﬁts. seen in the cardiac and vascular products area in Europe and Asia. Altogether, net sales overseas grew 12.7%, to ¥97.7 Income and Expenses billion (US$835 million), raising the ratio of net sales overseas 1. Net Sales to total net sales by 1.8 percentage points, to 39.5%. Net sales in the year under review grew 7.4% over the Sales Results by Product Segment Years ended March 31, 2006, 2005 and 2004 Thousands of U.S. dollars Millions of yen 2006 2005 2004 2006 % •Disposable medical equipment and medical electronic products . . . . . . . . . . . . . . . . . . . . . . . •Pharmaceuticals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •Blood transfusion systems . . . . . . . . . . . . . . . . . . . . . . . . ¥ 77,156 35,814 16,913 ¥ 73,491 34,904 15,673 ¥ 73,294 31,772 14,872 $ 659,453 306,103 144,555 General hospital products. . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,883 124,068 119,938 1,110,111 52.6 •Catheter systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •Cardiovascular systems . . . . . . . . . . . . . . . . . . . . . . . . . . •Vascular grafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,227 32,279 7,425 44,845 29,867 6,215 37,728 27,348 5,891 420,743 275,889 63,462 19.9 13.1 3.0 Cardiac and vascular products. . . . . . . . . . . . . . . . . . . . . . . . 88,931 80,927 70,967 760,094 36.0 •CAPD systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . •Diabetes care products . . . . . . . . . . . . . . . . . . . . . . . . . . •Other products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,739 10,026 10,470 8,016 7,799 9,193 8,213 6,597 9,481 66,146 85,692 89,487 3.1 4.1 4.2 Home health care products . . . . . . . . . . . . . . . . . . . . . . . . . . 28,235 25,008 24,291 241,325 11.4 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 247,049 ¥ 230,003 ¥ 215,196 $ 2,111,530 34 31.2% 14.5 6.9 100.0% Net Sales by Business Net Sales Net sales of general hospital products rose 4.7%, to ¥129.9 billion (US$1,110 million), while sales of cardiac and vascular products grew 9.9%, to ¥88.9 billion (US$760 million), and sales of home health care products rose 12.9%, to ¥28.2 247 Billion ¥ 230 215 187 201 billion (US$241 million). 2. Cost of Sales, Gross Proﬁt Margin Cost of sales increased 4.8%, to ¥111.4 billion (US$952 million), and gross proﬁt rose 9.6%, to ¥135.7 billion (US$1,160 million). The gross proﬁt margin subsequently 02 03 04 05 06 improved by 1.1 percentage points, to 54.9%, reﬂecting strong sales of high-proﬁt products, and the promotion of higher-quality and lower-cost manufacturing using Terumo’s proprietary manufacturing technology. Gross Proﬁt Ratio and SGA Expenses Ratio 3. Selling, General and Administrative Expenses % Selling, general and administrative (SG&A) expenses grew 14.0%, to ¥87.4 billion (US$747 million), mainly due to costs 51.3 53.8 48.3 49.2 33.3 33.6 34.3 33.3 02 03 04 05 54.9 for the development of sales structures in the United States and Europe and ¥2.3 billion (US$19 million) in expenses 35.4 linked to the acquisition of MicroVention, Inc. of the United States. 4. Operating Income Operating income in the term rose 2.4%, to ¥48.3 billion (US$412 million), while the operating income margin fell 1.0 percentage point, to 19.5%. 5. Other Expenses The Company posted other income of ¥3.3 billion (US$29 million) compared with other expenses of ¥3.5 billion in the 06 Gross Proﬁt Ratio SGA Expenses Ratio Operating Income and Operating Margin Ratio Billion ¥ 47.1 48.3 previous term. Losses in the term under review included a 36.7 loss of ¥0.7 billion (US$6 million) on disposal of property, plant and equipment, an impairment loss of ¥0.6 billion (US$5 31.3 28.0 million) on property, plant and equipment, and a loss of ¥0.6 billion (US$5 million) on restructuring in overseas operation, 15.0 15.6 02 03 20.5 19.5 05 06 17.0 for total losses of ¥4.2 billion (US$36 million). On the other hand, the Company booked a gain of ¥5.0 billion (US$42 million) on the contribution of securities to the retirement pension trust, along with a foreign exchange gain of ¥0.8 billion (US$7 million) and other proﬁts totaling ¥7.6 billion 04 Operating Income Operating Margin Ratio (%) (US$65 million). 35 6. Income before Taxes and Minority Interests In Japan, we increased investment in the Fujinomiya and Income before taxes and minority interests rose 18.2%, to Kofu plants to expand production of pharmaceuticals and ¥51.6 billion (US$441 million). diabetes treatment products. Outside Japan, we continued to inject money into the second-stage expansion of the 7. Corporate, Residential and Other Taxes Philippines plant, an effort that started in the previous ﬁscal Corporate and other taxes increased 15.8%, to ¥19.1 billion year as part of the production shift of products with built-in (US$163 million). Minority interests totaled ¥0.014 billion safety devices to overseas plants. (US$0.12 million). Financial Position 8. Net Income 1. Total Assets Net income rose 19.6%, to ¥32.5 billion (US$277 million), the At the end of the term under review, the Company had total fourth straight term of increase and a record high. The ratio assets of ¥354.6 billion (US$3,031 million), an increase of of net income to net sales improved 1.3 percentage points, 13.5% from the previous year. to 13.1%. Return on equity rose 0.1 percentage point, to 13.2%, and return on assets increased 0.7 percentage point, Total Current Assets to 9.7%. Total current assets increased 2.5%, to ¥165.5 billion (US$1,414 million). Cash and cash equivalents declined 9. Management Targets 16.7%, to ¥48.0 billion (US$410 million), as the Company Terumo’s management aims to increase corporate value used its own funds for the acquisition of MicroVention, through consistent improvements in proﬁtability. In the Inc.. The addition of new businesses, however, increased coming years, it will be particularly important to strengthen inventories by 17.7%, to ¥40.9 billion (US$350 million), while the Company to deal with increased global competition in trade receivables (notes and accounts) grew 5.1%, to ¥63.9 the medical equipment market. In this environment, Terumo billion (US$547 million) and deferred income tax assets views double-digit growth in operating income as a key jumped 44.5%, to ¥8.6 billion (US$74 million). target. Net Property, Plant and Equipment Per Share Data Net property, plant and equipment grew 2.6%, to ¥109.8 Basic net income per share rose 18.0%, to ¥160.45 billion (US$939 million). The impairment of leisure-related (US$1.37), and stockholders’ equity per share grew 21.4%, assets reduced the value of land by 6.5%, to ¥20.4 billion to ¥1,345.52 (US$11.50). Cash dividends per common share (US$174 million). On the other hand, the value of construction for the year totaled ¥24.00 (US$0.21), including an interim- in progress jumped 44.4%, to ¥10.7 billion (US$91 million), term payout of ¥10.00 (US$0.09) per share. Dividends were due to the increased investment in the Fujinomiya and increased by ¥4.00 (US$0.03) per share above the previous Kofu plants to expand production of pharmaceuticals and term, consisting of ¥2.00 (US$0.02) in consideration of diabetes treatment products and the ongoing second-stage operating results and ¥2.00 (US$0.02) to commemorate the expansion of the Philippines plant. 85th anniversary of the Company. Investments and Other Assets Capital Investment The value of investments and other assets rose 80.7%, Capital investment was ¥15.3 billion (US$131 million). to ¥79.3 billion (US$678 million). Deferred income taxes Terumo continued to make investments aimed at adding declined 66.2%, to ¥2.8 billion (US$24 million), but new value to products, increasing the number of products investment securities, including afﬁliated companies, jumped with improved safety features, raising quality, developing 216.8%, to ¥32.2 billion (US$275 million) on account of the entirely new products and making operations more efﬁcient. capital tie-up with Olympus, the purchase of MicroVention 36 and other factors. Another cause behind the large increase was goodwill and intangibles recognized in acquisitions, up 95.8%, to ¥36.2 billion (US$309 million). Net Income and ROE Billion ¥ 32.5 27.1 2. Total Liabilities Total liabilities declined 12.2%, to ¥81.3 billion (US$695 million), improving the debt to equity ratio by 12.4 percentage 18.2 19.8 14.4 points, to 29.7%. 8.2 10.0 10.4 03 04 13.1 13.2 05 06 Total Current Liabilities Total current liabilities edged down 5.3%, to ¥66.9 billion 02 (US$572 million), mainly due to the repayment short-term Net Income ROE (%) debt. Total Long-Term Liabilities Total long-term liabilities at the end of the term were down 34.2%, to ¥14.4 billion (US$123 million), mainly as a result Total Assets and ROA Billion ¥ 354.6 of a 37.2% decline in accrued employee retirement and severance beneﬁts, to ¥12.2 billion (US$104 million). 284.7 288.2 293.9 312.5 3. Total Stockholders’ Equity Total stockholders’ equity grew 24.3% at the end of the ﬁscal year, to ¥273.3 billion (US$2,336 million). Retained earnings rose 17.9%, to ¥183.4 billion (US$1,567 million), 9.0 5.1 6.3 9.7 6.8 capital surplus increased 13.3%, to ¥59.0 billion (US$505 02 million), the other securities valuation difference rose to ¥7.4 billion (US$63 million), treasury stock declined to ¥13.5 03 04 05 06 Total Assets ROA (%) billion (US$115 million), and foreign currency translation adjustments fell to ¥1.7 billion (US$15 million). The equity ratio improved to 77.1%, up 6.7 percentage points. Cash Flows Cash Dividends per Share ¥ The amount of cash and cash equivalents declined by ¥9.6 24.0 billion (US$82 million) in the year to total ¥48.0 billion (US$410 20.0 million) at year-end. Cash Flow from Operating Activities 16.0 11.0 11.0 02 03 Net cash ﬂow provided by operating activities declined 0.8%, to ¥43.4 billion (US$371 million). On the plus side, income before taxes and minority interests grew 18.2% over the previous year, to ¥51.6 04 05 06 billion (US$441 million); and trade payables increased ¥1.5 billion (US$12 million). On the minus side, trade receivables 37 increased ¥1.8 billion (US$15 million); inventories increased ¥4.9 billion (US$42 million) due to the acquisition of other businesses; and income taxes paid rose 2.3%, to ¥18.6 Total Stockholders’ Equity and Stockholders’ Equity Ratio 273.3 Billion ¥ billion (US$159 million). The interest coverage ratio improved to 151.4 times, from 133.9 times. 219.9 195.1 179.9 184.5 63.2 64.0 66.4 02 03 04 70.4 77.1 Cash Flow from Investing Activities Net cash ﬂow used in investing activities soared 247.9%, to ¥54.4 billion (US$465 million). Acquisition of investment securities totaled ¥15.0 billion (US$128 million) as a result of the capital tie-up with 05 06 Total Stockholders’ Equity Stockholders’ Equity Ratio (%) Olympus. In addition, acquisition of shares in consolidated subsidiaries, net of cash acquired, totaled ¥23.5 billion (US$201 million) as a result of the purchase of MicroVention. Capital expenditure (purchase of tangible assets) totaled ¥14.2 billion (US$122 million), linked to the purchase of Free Cash Flow Billion ¥ equipment for the expansion of the Fujinomiya, Kofu and 29.9 28.1 Philippines plants. In addition, acquisition of intangible ﬁxed assets totaled ¥1.3 billion (US$11 million), for total 13.1 expenditures in ﬁxed assets of ¥15.5 billion (US$133 million). 5.1 Cash Flow from Financing Activities Net cash ﬂow provided by ﬁnancing activities totaled ¥0.4 -11.0 billion (US$3 million). The repayment of debt included a decrease in short-term bank loans of ¥4.8 billion (US$41 02 03 04 05 06 million) and repayment of long-term debt of ¥5.3 billion (US$46 million). Proceeds from the sale of treasury stock, sold in connection with the capital tie-up with Olympus, totaled ¥15.0 billion (US$128 million). Dividends paid rose 30.8%, to ¥4.4 billion (US$38 million). Depreciation and Amortization, Investment in Property, Plant and Equipment Billion ¥ 14.3 14.7 14.7 14.9 15.6 12.1 15.2 15.3 12.1 10.1 5.6 5.1 6.3 6.8 9.0 02 03 04 05 06 Depreciation and Amortization Investment in Property, Plant and Equipment 38 Risk Factors The following factors could affect Terumo’s operating results and ﬁnancial position. Changes in Government Health Care Policies Risks Associated with Overseas Operations In the health care industry, the Japanese government Terumo supplies products to more than 150 countries. It continues to restrain health care costs and implement other is possible that recessions in the markets Terumo serves, reforms intended to raise the quality of health care. Large and a resulting contraction in demand, or the unanticipated and unforeseen changes in government health care policy imposition of government regulations in those countries to which Terumo cannot respond could adversely affect the could negatively impact the Company’s operating results and Company’s operating results and ﬁnancial position. ﬁnancial position. Market Price Fluctuations Quality Control As part of its measures to restrain health care costs, the Terumo manufactures its products based on stringent Japanese government implements biennial revisions to quality control principles that are in accordance with good government reimbursements for drugs, medical treatment, manufacturing practice (GMP) standards for pharmaceuticals and medical equipment covered by the national health and medical equipment and with the ISO quality insurance scheme. In addition, intense competition could management system standards. serve to greatly lower prices and adversely affect the Company’s operating results and ﬁnancial position. However, it is conceivable that the quality of our products could be questioned if complications occur during the use of the products. Such occurrences could lead to a decrease Raw Material Price Fluctuations in sales or rise in costs, which would adversely affect the Many of the raw materials Terumo uses for product Company’s operating results and ﬁnancial position. manufacture are plastics and other materials derived from petrochemicals. A steep rise in the price of petrochemicals Legal Proceedings could increase the raw materials costs and adversely affect Terumo faces the risk of being involved in lawsuits, disputes, the Company’s operating results and ﬁnancial position. and other types of legal proceedings both in Japan and overseas. The Company strives to minimize legal risks Exchange Rate Fluctuations through such measures as continuous research efforts Because Terumo’s headquarters is located in Japan, all on the part of the Legal, Intellectual Property, and other ﬁnancial accounts of overseas subsidiaries are converted departments and a system of internal checks. Reports from local currencies into Japanese yen for the preparation on the risk management structure are provided to the of consolidated ﬁnancial statements and other purposes. Board of Directors and the Board of Corporate Auditors Exchange rate ﬂuctuations therefore inﬂuence the conversion as needed. However, if the Company were sued by a third of those accounts into yen and result in either a gain or a party for damages or an injunction against sales or any other loss for the Company. major legal action were taken, it could adversely affect the We are coping with these ﬂuctuations with structural Company’s operating results and ﬁnancial position. methods such as transferring production to overseas factories and importing raw materials, along with the Other Risks utilization of contracts to hedge against exchange rate Other factors that could negatively impact Terumo’s operating volatility for trade receivables. results and ﬁnancial position include changes in trade However, it is possible that unexpected exchange rate practices, terrorism, war, epidemics, and other disasters. ﬂuctuations could negatively impact the Company’s operating results and ﬁnancial position. 39 Consolidated Balance Sheets Terumo Corporation and subsidiaries March 31, 2006 and 2005 ASSETS Thousands of U.S. dollars (Note 2) Millions of yen 2006 2005 ¥ 47,964 ¥ 57,558 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,140 4,333 35,384 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,801 56,477 511,120 63,941 60,810 546,504 Less allowance for doubtful receivables . . . . . . . . . . . . . . . . . . . . . . (916) (988) (7,829) Net trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,025 59,822 538,675 Inventories (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,941 34,781 349,923 Deferred income taxes-current (Note 8) . . . . . . . . . . . . . . . . . . . . . . 8,605 5,956 73,547 Other current assets (Note 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,952 3,387 42,325 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,487 161,504 1,414,419 Land (Note 11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,385 21,802 174,231 Buildings (Note 11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,518 100,587 893,316 Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,328 149,948 1,370,325 Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,698 7,406 91,436 295,929 279,743 2,529,308 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . (186,091) (172,700) (1,590,522) Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . 109,838 107,043 938,786 Investment securities, including afﬁliated companies (Note 5). . . . . . . . 32,162 10,152 274,889 Goodwill and intangibles recognized in acquisitions (Note 3) . . . . . . 36,182 18,477 309,248 Deferred income taxes-noncurrent (Note 8) . . . . . . . . . . . . . . . . . . . 2,830 8,380 24,188 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,149 6,900 69,649 Total investments and other assets . . . . . . . . . . . . . . . . . . . . 79,323 43,909 677,974 ¥ 354,648 ¥ 312,456 $ 3,031,179 2006 Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 409,949 Trade receivables: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment: Investments and other assets: See accompanying notes to consolidated ﬁnancial statements. 40 Thousands of U.S. dollars (Note 2) Millions of yen LIABILITIES AND STOCKHOLDERS’ EQUITY 2005 2006 2006 Current liabilities: Short-term bank loans (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current installments of long-term debt (Note 6) . . . . . . . . . . . . . . . . ¥ 3,975 ¥ 8,539 $ 33,975 – 5,322 – Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750 1,733 14,957 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,108 20,078 188,957 Total trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,858 21,811 203,914 Accrued income taxes (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,398 10,414 97,419 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,137 11,349 103,735 Other current liabilities (Note 18). . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,508 13,218 132,547 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,876 70,653 571,590 Retirement and severance beneﬁts (Note 7) . . . . . . . . . . . . . . . . . . . 12,172 19,386 104,034 Other long-term liabilities (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . 2,241 2,511 19,154 Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,413 21,897 123,188 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,289 92,550 694,778 Minority interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 33 427 2005: issued 210,876,260 shares in 2006 and 2005 (Note 12) . . . 38,716 38,716 330,906 Capital surplus (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,031 52,104 504,538 Retained earnings (Note 13). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,392 155,502 1,567,453 Other securities valuation difference . . . . . . . . . . . . . . . . . . . . . . . . . 7,367 1,876 62,966 Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,747) (6,832) (14,931) 286,759 241,366 2,450,932 (13,450) (21,493) (114,958) 273,309 219,873 2,335,974 ¥354,648 ¥ 312,456 $ 3,031,179 Trade payables (Note 18): Long-term liabilities: Stockholders’ equity: Common stock, Authorized 840,000,000 shares in 2006 and 500,000,000 shares in Less treasury stock, at cost (Note 12) . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . Contingencies (Note 16) 41 Consolidated Statements of Income Terumo Corporation and subsidiaries Years ended March 31, 2006, 2005 and 2004 Thousands of U.S. dollars (Note 2) Millions of yen 2006 2006 2004 2005 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 247,049 ¥ 230,003 ¥ 215,196 $ 2,111,530 Cost of sales (Note 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross proﬁt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,378 135,671 106,238 123,765 104,903 110,293 951,949 1,159,581 Selling, general and administrative expenses (Notes 9, 10 and 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,419 48,252 76,657 47,108 73,640 36,653 747,171 412,410 539 (286) 837 80 178 (662) – (6) (575) 349 (326) 286 19 188 (229) – (10) – 213 (357) (854) 78 211 (641) 20 (2) (1,164) 4,607 (2,444) 7,154 684 1,521 (5,658) – (51) (4,915) 4,967 156 – – – – 42,453 1,333 (474) 71 – – 3 (2,180) – 295 – (4,051) 607 – (593) (1,435) – (5,069) – (895) 3,337 538 (657) (3,454) – (709) (2,910) – (7,650) 28,521 51,589 43,654 33,743 440,931 20,198 (1,080) 19,118 14 ¥ 32,457 17,372 (858) 16,514 5 ¥ 27,135 12,509 1,473 13,982 (31) ¥ 19,792 172,632 (9,231) 163,401 120 277,410 Other income (expense): Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Royalty income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in proﬁt of afﬁliated companies . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment . . . . . . . Gain (loss) on sales of investment securities. . . . . . . . . . . . . Loss on sales and impairment of golf memberships . . . . . . . Loss on restructuring in overseas operation . . . . . . . . . . . . . Gain on contribution of securities to retirement beneﬁt trust (Notes 5 and 7). . . . . . . . . . . . . . . . . . . . . . . Gain on sales of trade receivables written off . . . . . . . . . . . . Expense relating to acquisition of newly consolidated subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sales of property, plant and equipment . . . . . . . . . . Write-down of goodwill (Note 3) . . . . . . . . . . . . . . . . . . . . . . Impairment loss on property, plant and equipment (Note 11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on reversal of loss on restructuring in overseas operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net (Note 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes and minority interests . . . . Income taxes (Note 8): Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yen $ U.S. dollars (Note 2) Net income per common share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 160.45 ¥136.03 ¥98.45 $ 1.37 Cash dividends per common share . . . . . . . . . . . . . . . . . . . . 24.00 20.00 16.00 0.21 See accompanying notes to consolidated ﬁnancial statements. 42 Consolidated Statements of Stockholders’ Equity Terumo Corporation and subsidiaries Years ended March 31, 2006, 2005 and 2004 Thousands of U.S. dollars ( Note 2) Millions of yen 2006 2005 2004 2006 Common stock: Balance at beginning of period . . . . . . . . . . . . . . . . ¥ 38,716 ¥ 38,716 ¥ 38,716 $ 330,906 Balance at end of period . . . . . . . . . . . . . . . . . . . . 38,716 38,716 38,716 330,906 Balance at beginning of period . . . . . . . . . . . . . . . . 52,104 52,104 52,104 445,333 Increase (decrease) during period. . . . . . . . . . . . . . 6,927 – – 59,205 Balance at end of period . . . . . . . . . . . . . . . . . . . . 59,031 52,104 52,104 504,538 Balance at beginning of period . . . . . . . . . . . . . . . . 155,502 131,880 114,740 1,329,077 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,457 27,135 19,792 277,410 Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,410) (3,372) (2,505) (37,692) Ofﬁcers’ bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . (157) (141) (147) (1,342) Balance at end of period . . . . . . . . . . . . . . . . . . . . 183,392 155,502 131,880 1,567,453 Balance at beginning of period . . . . . . . . . . . . . . . . 1,876 1,963 (642) 16,034 Increase (decrease) during period. . . . . . . . . . . . . . 5,491 (87) 2,605 46,932 Balance at end of period . . . . . . . . . . . . . . . . . . . . 7,367 1,876 1,963 62,966 Balance at beginning of period . . . . . . . . . . . . . . . . (6,832) (8,243) (4,001) (58,393) Adjustments for period . . . . . . . . . . . . . . . . . . . . . . 5,085 1,411 (4,242) 43,462 Balance at end of period . . . . . . . . . . . . . . . . . . . . (1,747) (6,832) (8,243) (14,931) Balance at beginning of period . . . . . . . . . . . . . . . . (21,493) (21,345) (16,453) (183,701) Decrease (increase) during period . . . . . . . . . . . . . 8,043 (148) (4,892) 68,743 Balance at end of period . . . . . . . . . . . . . . . . . . . . (13,450) (21,493) (21,345) (114,958) Total stockholders’ equity . . . . . . . . . . . . . . . . . ¥ 273,309 ¥ 219,873 ¥ 195,075 $ 2,335,974 Capital surplus: Retained earnings: Other securities valuation difference: Translation adjustments: Treasury stock: See accompanying notes to consolidated ﬁnancial statements. 43 Consolidated Statements of Cash Flows Terumo Corporation and subsidiaries Years ended March 31, 2006, 2005 and 2004 Thousands of U.S. dollars (Note 2) Millions of yen 2006 2005 2004 2006 ¥ 51,589 ¥43,654 ¥ 33,743 $ 440,931 15,181 – 593 15,581 2,180 1,435 14,881 – – 129,752 – 5,069 591 (178) (539) 286 6 (7,215) 226 (188) (349) 326 10 (200) 346 (211) (213) 357 2 2,806 5,051 (1,521) (4,607) 2,444 51 (61,667) 474 – – 4,051 (4,967) 7,110 (1,753) (4,924) 1,461 (157) 3,897 61,455 788 (293) (18,570) 43,380 – – (1,783) (635) 239 (141) 1,317 61,672 534 (327) (18,154) 43,725 – – (1,992) 370 1,824 (147) 1,446 53,212 395 (361) (11,749) 41,497 (42,453) 60,769 (14,983) (42,085) 12,487 (1,342) 33,309 525,256 6,735 (2,504) (158,718) 370,769 (14,248) 987 (1,278) (15,000) (919) (10,998) 4 (1,823) (102) (956) (11,456) 797 (1,056) (13) – (121,778) 8,436 (10,923) (128,205) (7,855) (23,461) (474) 2 (54,391) (1,761) – – (15,636) (49) – 138 (11,639) (200,521) (4,051) 17 (464,880) Cash ﬂow from ﬁnancing activities: Increase (decrease) in short-term bank loans . . . . . . . . . . . . . . . . . . . Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment for acquisition of treasury stock . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash ﬂow provided by (used in) ﬁnancing activities . . . . . . (4,848) (5,340) (29) 14,998 (4,410) 371 (7,963) (860) (148) – (3,372) (12,343) (11,311) (508) (4,892) – (2,505) (19,216) (41,436) (45,641) (248) 128,188 (37,692) 3,171 Effect of exchange rate changes on cash and cash equivalents . . . . Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . Cash and cash equivalents at beginning of the year. . . . . . . . . . . . . . Cash and cash equivalents at end of the year. . . . . . . . . . . . . . . . . . . 1,046 (9,594) 57,558 ¥ 47,964 279 16,025 41,533 ¥57,558 (723) 9,919 31,614 ¥ 41,533 8,940 (82,000) 491,949 $ 409,949 Cash ﬂow from operating activities: Income before income taxes and minority interests . . . . . . . . . . . . . . Adjustments to reconcile income before income taxes and minority interests to net cash ﬂow provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-down of goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment loss on property, plant and equipment (Note 11) . . . . Loss (gain) on sales and disposal of property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in proﬁt of afﬁliated companies. . . . . . . . . . . . . . . . . . . . . . Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on sales and impairment of golf memberships . . . . . . . . . . . Increase (decrease) in retirement and severance beneﬁts . . . . . . . Expense relating to acquisition of newly consolidated subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on contribution of securities to retirement beneﬁt trust (Notes 5 and 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer of securities to retirement beneﬁt trust (Notes 5 and 7) . . . Decrease (increase) in trade receivables . . . . . . . . . . . . . . . . . . . . Decrease (increase) in inventories. . . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in trade payables. . . . . . . . . . . . . . . . . . . . . . Ofﬁcers’ bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and dividend received . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash ﬂow provided by operating activities . . . . . . . . . . . . Cash ﬂow from investing activities: Capital expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales of property, plant and equipment. . . . . . . . . . . . Acquisition of intangible ﬁxed assets . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of business (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of shares in consolidated subsidiaries net of cash acquired (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expense relating to acquisition of newly consolidated subsidiary . . . . Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash ﬂow used in investing activities. . . . . . . . . . . . . . . . . See accompanying notes to consolidated ﬁnancial statements. 44 Notes to Consolidated Financial Statements Terumo Corporation and subsidiaries 1. Summary of Signiﬁcant Accounting Policies (a) Basis of Presenting Consolidated Financial Statements Terumo Corporation (the “Company”) and its consolidated domestic subsidiaries maintain their ofﬁcial accounting records in Japanese yen and in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. The accounts of overseas subsidiaries are based on their accounting records maintained in conformity with generally accepted accounting principles and practices prevailing in the respective countries of domicile. The accompanying consolidated ﬁnancial statements have been reformatted and translated into English (with some expanded descriptions and the inclusion of consolidated statements of stockholders’ equity) from the consolidated ﬁnancial statements of the Company prepared in accordance with Japanese GAAP and ﬁled with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Securities and Exchange Law. Some supplementary information included in the statutory Japanese language consolidated ﬁnancial statements, but not required for fair presentation, is not presented in the accompanying consolidated ﬁnancial statements. (b) Principles of Consolidation The consolidated ﬁnancial statements include the accounts of the Company and its subsidiaries, except for an immaterial subsidiary. All signiﬁcant intercompany balances and transactions have been eliminated in consolidation. Investments in 20% to 50% afﬁliates and the immaterial subsidiary not consolidated are stated at their underlying net equity value. (c) Foreign Currency Translation All short-term and long-term receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from transactions are recognized in the accompanying consolidated statements of income to the extent that they are not hedged by foreign exchange derivatives. The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at exchange rates as of the balance sheet date except for stockholders’ equity, which is translated at historical rates. Differences arising from such transactions are shown as “Translation adjustments” in a separate component of stockholders’ equity. Revenue and expense accounts of the consolidated foreign subsidiaries are translated into Japanese yen at an annual average exchange rate. (e) Investments The accounting standard for ﬁnancial instruments requires the Company to classify its securities into one of the following three categories: trading, held-to-maturity or other securities. Based on the classiﬁcation, all securities are classiﬁed as other securities and included in investment securities. To comply with the accounting standard for ﬁnancial instruments, other securities with a market value are principally carried at market value. The difference, net of tax, between the acquisition cost and the carrying value of other securities, including unrealized gains and losses, is recognized in “Other securities valuation difference” in a separate component of stockholders’ equity. Other securities without a market value are principally carried at cost. The cost of other securities sold is principally computed based on the moving average method. (f) Inventories Inventories are stated at cost, determined principally by the average method, and stated at lower of cost or market value for overseas subsidiaries. (g) Property, Plant and Equipment Property, plant and equipment are stated at cost. Routine maintenance and repairs and minor replacement costs are charged to expenses as incurred. Depreciation is computed principally by the declining-balance method based on the following estimated useful lives. Buildings .................................. 5-50 years Machinery and equipment ........ 3-20 years However, buildings acquired by the Company on or after April 1, 1998 are depreciated by the straight-line method. (h) Impairment of Long-Lived Assets On August 9, 2002, the Business Council of Japan issued new accounting standard entitled “Statement of Opinion on the Establishment of Accounting Standards for Impairment of Fixed Assets”. Further, on October 31, 2003, the Accounting Standards Board of Japan issued Financial Accounting Standards Implementation Guidance No. 6 - “Application Guidance on Accounting Standards for Impairment of Fixed Assets”. Effective April 1, 2004, the Company and consolidated domestic subsidiaries have elected to early adopt these new accounting standards for impairment of ﬁxed assets. As a result of adopting the new accounting standards, property, plant and equipment at March 31, 2005 decreased by ¥1,435 million and income before income taxes and minority interests for the year ended March 31, 2005 decreased by the same amount, as compared with the amount which would have been reported if the previous standards had been applied consistently. (d) Cash and Cash Equivalents The Company considers cash and time deposits, which may be withdrawn on demand without diminution of principal and with original maturities of three months or less, to be cash and cash equivalents. 45 (i) Goodwill and Intangibles Recognized in Acquisitions Goodwill, which represents the excess cost over the book value of the net assets acquired at acquisition dates of investments in subsidiaries, is principally amortized on a straight-line basis over 5 or 20 years which is the expected period to be beneﬁted. All amount of goodwill recognized at acquisition of Mission Medical INC. on February 25, 2005, which was allocable to a research and development project of high-technology medical devices, was charged to income for the year ended March 31, 2005, since realizabilitity of its beneﬁts is not certain. (See Note 3.) A portion of assets relating to in-process research and development expense, which was recognized at acquisition of Micro Vention INC. on March 28, 2006, was charged into selling, general and administrative expense. (j) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the ﬁnancial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (See Note 8.) In accordance with Practical Guidance Report No.12, “Treatment of the Pro Forma Standard Tax Portion of Corporate Tax in the Statements of Income”, announced by the Accounting Standards Board of Japan on February 13, 2004, the amount of ¥64 million and ¥405 million levied in proportion to added value and capital as enterprise taxes were treated as a part of selling, general and administrative expenses and as a part of cost of sales, respectively, for the year ended March 31, 2005. (k) Retirement and Severance Beneﬁts The Company and certain of its subsidiaries have contributory and noncontributory deﬁned beneﬁt plans that provide for pension or lump-sum beneﬁt payments, based on length of service and certain other factors, to employees who retire or terminate their employment for reasons other than dismissal for cause. The allowance for retirement beneﬁts for employees is provided based on the estimated retirement beneﬁt obligation and the fair value of the plan assets. The contributory plan included a portion of the governmental welfare pension beneﬁts which would otherwise be provided by the Japanese government in accordance with the Welfare Pension Insurance Law in Japan. Management considered that a portion of the contributory plan, which was administered by the board of trustees composed of management and labor representatives, represented a welfare pension plan carried on behalf of the Japanese government. These contributory and noncontributory plans were funded in conformity with the funding requirements of applicable Japanese governmental regulations. The Company transferred certain marketable securities worth ¥7,110 million ($60,769 thousand) to an employee retirement beneﬁt trust during the year ended March 31, 2006. Gain on the contribution of securities to retirement beneﬁt trust was ¥4,967 million ($42,453 thousand). Directors and certain employees are not covered by the plans described above. Beneﬁts paid to such persons and meritorious service awards paid to certain other employees in excess of the prescribed formula are charged to income as paid, since amounts vary with circumstances, and it is not practicable to compute the liability for future payments. (l) Leases Financial leases of the Company and its domestic subsidiaries, except for those where the legal title of the underlying property is transferred from the lessor to the lessee at the end of the lease term, are accounted for as operating leases. (m) Derivatives The Company and its subsidiaries do not hold derivative ﬁnancial instruments for trading purposes. Derivative ﬁnancial instruments held by the Company and its subsidiaries are foreign exchange contracts to manage currency risk. Derivatives are, in principle, stated at market value. The Company has developed a hedging policy to control various aspects of derivative transactions, including authorization levels and transaction volumes. Based on this policy, the Company hedges, within certain scopes, risks arising from changes in foreign currency exchange rates. The Company reviews, every six months, the effectiveness of all hedging policies to take account of the cumulative cash ﬂows and any changes in the market. (n) Appropriation of Retained Earnings Under the Commercial Code of Japan, the appropriation of retained earnings with respect to a given ﬁnancial period is made by resolution of the stockholders at a general meeting held subsequent to the close of such ﬁnancial period. The accounts for that period do not, therefore, reﬂect such appropriation. (See Note 13.) (o) Net Income and Cash Dividends per Common Share Net income per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the year. (See Note 13.) Diluted net income per share for the years ended March 31, 2006, 2005 and 2004 is not presented since the Company had no securities with dilutive effect to net income per share. Cash dividends per share are computed based on dividends declared with respect to income for the year. (p) Research and Development Costs Research and development costs are charged to income when incurred. 2. Financial Statement Translation The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2006, which was ¥117 to 46 U.S. $1. Such translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could be, converted into U.S. dollars at this or any other rate of exchange. 3. Acquisition On March 28, 2006, the Company acquired 100% of outstanding shares of MicroVention INC. and its subsidiaries. The acquisition was accounted for as a purchase transaction, a portion of assets relating to in-process research and development expense was charged into selling, general and administrative expense for the year ended March 31, 2006. On February 25, 2005, the Company acquired additional shares of Mission Medical INC., and, as a result, Mission Medical INC. has become a wholly owned subsidiary of the Company. The acquisition was accounted for as a purchase transaction. The excess of the purchase price over the book value of the net assets acquired is recorded as goodwill. All amount of goodwill, which was allocable to a research and development project of high-technology medical devices, was charged to income for the year ended March 31, 2005. In the year ended March 31, 2004, the Company acquired 53% of the interest of Changchun Terumo Medical Products Co., Ltd., which has become a wholly owned subsidiary of the Company. The excess of the purchase price over the book value of the net assets acquired is recorded as goodwill and is principally being amortized over 20 years. Details of assets and liabilities of the newly consolidated subsidiaries for the years ended March 31, 2006, 2005 and 2004 are as follows: Thousands of U.S. dollars (Note 2) Millions of yen Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase cost of the subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents of the subsidiary . . . . . . . . . . . . . . . . . . Cash outﬂow for the purchase of the subsidiary. . . . . . . . . . . . . . . . 2006 2005 2004 2006 ¥ 1,648 4,676 (945) – 18,746 24,125 (664) ¥23,461 ¥ 167 11 (63) (398) 2,180 1,897 (136) ¥ 1,761 ¥ 255 146 (145) – (129) 127 (78) ¥ 49 $ 14,085 39,966 (8,077) – 160,222 206,196 (5,675) $ 200,521 On November 1, 2005 and January 26, 2005, the Company made acquisitions of businesses. These acquisitions were accounted for as purchase transactions. The excess of the purchase price over the book value of the net assets acquired are recorded as goodwill and are principally amortized over 5 years. Detail of assets and liabilities of the businesses acquired for the years ended March 31, 2006, 2005 and 2004 are as follows: Thousands of U.S. dollars (Note 2) Millions of yen 2005 2006 Property, plant and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash outﬂow for the purchase of the business . . . . . . . . . . . . . . . . ¥ – 221 19 240 – ¥240 ¥ 87 1,611 45 1,743 (787) ¥ 956 2004 ¥ ¥ – – – – – – 2006 $ – 1,889 162 2,051 – $ 2,051 4. Inventories Inventories at March 31, 2006 and 2005 are summarized as follows: Thousands of U.S. dollars (Note 2) Millions of yen Finished goods and merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 2005 2006 ¥ 25,376 4,298 11,267 ¥ 40,941 ¥ 20,832 4,108 9,841 ¥ 34,781 $ 216,889 36,735 96,299 $ 349,923 47 5. Investment Securities Investment securities at March 31, 2006 and 2005 consist of other securities. The original cost, carrying amount (market value) and gross unrealized holding gain (loss) for marketable other securities are summarized as follows: Millions of yen Original cost 2006: Other securities: Equity securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005: Other securities: Equity securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross unrealized holding gain Gross unrealized holding loss Carrying amount (market value) ¥ 17,796 100 ¥ 17,896 ¥12,347 – ¥12,347 ¥ (7) – ¥ (7) ¥ 30,136 100 ¥ 30,236 ¥ 4,939 100 ¥ 5,039 ¥ 3,148 – ¥ 3,148 ¥ (5) – ¥ (5) ¥ 8,082 100 ¥ 8,182 Thousands of U.S. dollars (Note 2) 2006: Other securities: Equity securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Original cost Gross unrealized holding gain Gross unrealized holding loss Carrying amount (market value) $ 152,102 855 $ 152,957 $ 105,530 – $ 105,530 $ (60) – $ (60) $ 257,572 855 $ 258,427 Proceeds from the sale of other securities during the years ended March 31, 2006 and 2004 were ¥2 million ($17 thousand) and ¥138 million respectively. There was no sale of other securities during the year ended March 31, 2005. Realized gains and losses from the sale of other securities during the year ended March 31, 2004 was ¥20 million gain. No gain nor loss occured from the sale of other securities during the years ended March 31, 2006 and 2005. The Company transferred certain marketable securities worth ¥7,110 million ($60,769 thousand) to an employee retirement beneﬁt trust during the year ended March 31, 2006. Gain on the contribution of securities to retirement beneﬁt trust was ¥4,967 million ($42,453 thousand). The carrying amount of signiﬁcant non-marketable securities is as follows: Thousands of U.S. dollars (Note 2) Millions of yen Other securities: Unlisted stocks (excluding stocks traded in OTC market) . . . . . . . . . . . . . . . . . . . . . . 2006 2005 2006 ¥1,573 ¥1,575 $13,444 Among other securities, scheduled redemption amount of bonds intended to be held to maturity and of instruments that have maturities are as follows: Millions of yen Within one year 2006: Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2005: Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . One to ﬁve years – ¥100 – – Over ﬁve years ¥ – ¥100 Thousands of U.S. dollars (Note 2) Within one year 2006: Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 $ – One to ﬁve years $855 Over ﬁve years $ – 6. Short-Term and Long-Term Debt Long-term debt at March 31, 2006 and 2005 is summarized as follows: Thousands of U.S. dollars (Note 2) Millions of yen 2005 2006 Unsecured loans, principally from banks: Second series, due 2005-2006, interest rate of 4.54% . . . . . . . . . . . . . . . . . . . . . . . Third series, due in 2005, interest rate of 0.395% . . . . . . . . . . . . . . . . . . . . . . . . . . . Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less current installments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ – – – – – ¥ Short-term debt at March 31, 2006 and 2005 were unsecured bank borrowings and were ¥3,975 million ($33,975 thousand) and ¥8,539 million, respectively. The weighted-average interest rates applicable to the bank borrowings were 4.48% and 2.77% at March 31, 2006 and 2005, respectively. ¥ 322 5,000 5,322 (5,322) ¥ – 2006 $ – – – – – $ As is customary in Japan, short-term bank loans are made under general agreements which provide that security and guarantees for present and future indebtedness will be given upon request of the bank, and that the bank shall have the right to offset cash deposits against obligations that have become due or, in the event of default, against all obligations due to the bank. 7. Retirement and Severance Beneﬁts Based on the enforcement of Deﬁned Beneﬁt Corporation Law, the Company received approval from the Minister of Health, Labour and Welfare on April 1, 2004. Concurrently, the welfare pension fund plan was changed to the deﬁned beneﬁt corporate pension fund plan. Extra payment may be added upon retirement of employees. Several consolidated subsidiaries provide deﬁned contribution plans and / or deﬁned beneﬁts plans. The Company transferred certain marketable securities worth ¥7,110 million ($60,769 thousand) to an employee retirement beneﬁt trust during the year ended March 31, 2006. Gain on the contribution of securities to retirement beneﬁt trust was ¥4,967 million ($42,453 thousand). The plan’s funded status and amounts recognized in the accompanying consolidated balance sheets at March 31, 2006 and 2005 are as follows: Thousands of U.S. dollars (Note 2) Millions of yen Employee retirement and severance beneﬁts: Projected beneﬁt obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement beneﬁt trust at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Projected beneﬁt obligation in excess of plan assets . . . . . . . . . . . . . . . . . . . . . . Unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued retirement and severance beneﬁts . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 2005 2006 ¥ (49,157) 27,134 – (22,023) 15,301 (12,664) ¥ (19,386) ¥ (54,185) 36,645 7,248 (10,292) 9,376 (11,256) ¥ (12,172) $ (463,120) 313,205 61,949 (87,966) 80,137 (96,205) $ (104,034) Net periodic cost for the employee retirement and severance beneﬁts for the years ended March 31, 2006, 2005 and 2004 consisted of the following: Thousands of U.S. dollars (Note 2) Millions of yen Service cost for beneﬁts earned, net of employee contributions. . . . . . . . . . Interest cost on projected beneﬁt obligation. . . . . . . . . . . . . . . . . . . . . . . . . Estimated return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . Net periodic cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 2005 ¥ 2,562 1,193 (771) 2,223 (1,408) ¥ 3,799 ¥ 2,339 1,032 (581) 2,168 (1,408) ¥ 3,550 2004 ¥ 2,692 1,367 (447) 1,890 (3) ¥ 5,499 2006 $ 21,897 10,197 (6,590) 19,000 (12,034) $ 32,470 49 Several consolidated subsidiaries have deﬁned contribution plans, which provide retirement beneﬁts for their employees who meet certain eligibility requirements. Expenses under the plans for the years ended March 31, 2006, 2005 and 2004 were ¥239 million ($2,043 thousand), ¥231 million and ¥191 million, respectively. Actuarial assumptions and basis for the calculation of retirement and severance beneﬁts are as follows: Net periodic cost of employee retirement and severance beneﬁt for the year ended March 31, 2001 consisted of the following; Method of the beneﬁt attribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . Period of amortization of unrecognized prior service cost . . . . . . . . . . . . . Period of amortization of unrecognized actuarial gain or loss . . . . . . . . . . . 2006 “Beneﬁt / year-of-service” approach Mainly 2.0% Mainly 2.0% 10 Years 10 Years 2005 Net periodic cost of employee retirement and severance beneﬁt for the year ended March 31, 2001 consisted of the following; Method of the beneﬁt attribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . Period of amortization of unrecognized prior service cost . . . . . . . . . . . . . Period of amortization of unrecognized actuarial gain or loss . . . . . . . . . . . “Beneﬁt / year-of-service” approach Mainly 2.0% Mainly 2.0% 10 Years 10 Years Net periodic cost of employee retirement and severance beneﬁt for the year ended March 31, 2001 consisted of the following; Method of the beneﬁt attribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . Period of amortization of unrecognized prior service cost . . . . . . . . . . . . . Period of amortization of unrecognized actuarial gain or loss . . . . . . . . . . . 2004 “Beneﬁt / year-of-service” approach Mainly 2.0% Mainly 2.0% 10 Years 10 Years 8. Income Taxes The Company is subject to Japanese corporate, inhabitant and enterprise taxes based on income, which in the aggregate resulted in a normal tax rate of approximately 40.3% during the years ended March 31, 2006 and 2005, and 41.7% during the year ended March 31, 2004. A reconciliation between the Japanese normal income tax rate and the effective income tax rate calculated as a percentage of income before income taxes and minority interests for the years ended March 31, 2006, 2005 and 2004 are as follows, which are not disclosed for the years when differences between the normal and effective tax rates are less than 5% of normal tax rate. Japanese normal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (reduction) in income taxes resulting from: Expenses not deductible for tax purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income, non-taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income of foreign subsidiaries taxed at lower rate than Japanese normal tax rate . . . Amortization of goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 2006 2005 40.3% 40.3% –%) 2.4 (0.1) (2.1) 0.6 (3.4) (0.6) 37.1%) 2.7 (0.0) (2.5) 0.8 (3.0) (0.5) 37.8% –) –) –) –) –) –) –%) 2004 The tax effects of temporary differences that give rise to signiﬁcant portions of the deferred tax assets and deferred tax liabilities at March 31, 2006 and 2005 are presented below: Thousands of U.S. dollars (Note 2) Millions of yen Deferred tax assets: Allowance for doubtful receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued business tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement and severance beneﬁts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment loss on investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Losses sustained by overseas subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized proﬁt in inventories and property, plant and equipment . . . . . . . . . . . . . . . Impairment loss on property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other securities valuation difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on contribution of securities to retirement beneﬁt trust . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax liabilities included in “Other long-term liabilities” are ¥91 million ($777 thousand) and ¥476 million as of March 31, 2006 and 2005. The valuation allowance for deferred tax assets as of March 31, 2006 and 2005, are ¥4,957 million ($42,367 thousand) and ¥4,941 million, respectively. Valuation allowance for deferred tax assets is provided primarily for the losses sustained by overseas subsidiaries. Based upon the level of historical taxable income and projections ¥ 280 4,929 939 7,324 382 5,520 1,435 471 3,164 24,444 (4,957) 19,487 (656) (4,973) (2,002) (512) (8,143) ¥ 11,344 2006 2005 2006 ¥ 295 3,600 719 7,461 382 4,701 1,119 578 2,189 21,044 (4,941) 16,103 (505) (1,267) – (471) (2,243) ¥ 13,860 $ 2,393 42,128 8,026 62,598 3,265 47,179 12,265 4,026 27,043 208,923 (42,367) 166,556 (5,607) (42,504) (17,111) (4,376) (69,598) $ 96,958 for future taxable income over the periods which the net deductible temporary differences are expected to reverse, management believes that the Company will realize the beneﬁts of these deferred tax assets, net of the existing valuation allowance, at March 31, 2006. The aggregate statutory income tax rate used for calculation of deferred income tax assets and liabilities was 40.3% for the years ended March 31, 2006 and 2005. 9. Selling, General and Administrative Expenses Signiﬁcant components of selling, general and administrative expenses for the years ended March 31, 2006, 2005 and 2004 are as follows: Thousands of U.S. dollars (Note 2) Millions of yen Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Freight and other delivery costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 2005 ¥ 9,078 19,254 7,431 18,025 ¥ 8,247 16,271 7,097 13,739 2004 ¥ 6,791 15,082 6,835 14,700 2006 $ 77,590 164,564 63,513 154,060 10. Research and Development Costs Research and development costs charged to income for the years ended March 31, 2006, 2005 and 2004 are ¥18,025 million ($154,060 thousand), ¥13,739 million and ¥14,700 million, respectively. 51 11. Impairment Loss on Property and Equipment In the years ended March 31, 2006 and 2005, the Company and its subsidiaries recognized ¥593 million ($5,069 thousand) and ¥1,435 million, respectively, of impairment loss on the following group of assets. Millions of yen 2006: Location Classiﬁcation Kanagawa Pref. Land (Idle asset) Hyogo Pref. and other 4 locations Hyogo Pref. Land (Idle asset) Buildings and structures (Idle asset) Impairment loss ¥ ¥ 593 593 2005: ¥ 1,417 18 ¥ 1,435 Thousands of U.S. dollars (Note 2) 2006: Location Classiﬁcation Impairment loss Kanagawa Pref. Land (Idle asset) $ 5,069 $ 5,069 The company and its subsidiaries group their ﬁxed assets by business groups continuously managing its income and expenditures, such as General hospital products segment, Cardiac and vascular products segment, and Home health care products segment. Idle assets are each grouped into an asset group. In addition, assets belonging to Headquarters and R&D center, company housing and dormitories are included in common assets due to the fact that they do not generate identiﬁable cash ﬂows. For idle assets not in the ordinary course of business and the asset values signiﬁcantly depreciated, the book value were reduced to recoverable amounts, and such reduced amounts were recorded as impairment loss. The Company and its subsidiaries mainly use net selling values for calculating recoverable amounts, which are mainly based on tax basis for property taxes. 12. Common Stock On March 31, 2006, the Company holds 7,848,741 shares of the Company’s common stock for an aggregate cost of ¥13,450 million ($114,958 thousand). The repurchase cost of the holding shares is deducted from stockholders’ equity as treasury stock at March 31, 2006. The Ordinary General Meeting of Stockholders held on June 29, 2004 approved that, in accordance with Japanese Commercial Code Article 211-3, the Company changed the Article of corporation so that the Company may acquire its common stock to be held in treasury based on decision on directors’ meeting. The Ordinary General Meeting of Stockholders held on June 29, 2005 approved that the Company changed the Articles of corporation so that the Company may publish up to 840 million shares of common stock. 13. Retained Earnings and Dividends Effective from October 1, 2001, the revised Japanese Commercial Code was adopted. The previous Japanese Commercial Code provided that an amount equal to at least 10% of appropriations paid in cash be appropriated as a legal reserve until such reserve equals 25% of common stock. This reserve is not available for payment of dividends but may be used to reduce a deﬁcit or may be transferred to capital. The revised Japanese Commercial Code provides that an amount equal to at least 10% of appropriations paid in cash be appropriated as a legal reserve until such reserve plus capital surplus equals 25% of stated capital. If the total of legal reserves and capital surplus exceeds 25% of stated capital, such excess amount can be reversed without limit of utilization. Legal reserves, which are included in retained earnings, amount to ¥3,946 million ($33,726 thousand) and ¥3,783 million at March 31, 2006 and 2005, respectively. 52 In accordance with the Commercial Code, proposed appropriations of retained earnings have not been reﬂected in the ﬁnancial statements at the end of each ﬁscal year. The proposed appropriations of retained earnings at March 31, 2006 are cash dividends of ¥2,842 million ($24,291 thousand) and ofﬁcers’ bonuses of ¥132 million ($1,128 thousand). The proposal was approved by the Ordinary General Meeting of Stockholders held on June 29, 2006. The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated ﬁnancial statements of the Company in accordance with the Commercial Code. 14. Leases The Company and its subsidiaries lease certain machinery and equipment under various lease arrangements. Finance leases, except for those where the legal title of the underlying property is transferred from the lessor to the lessee at the end of the lease term, are accounted for as operating leases. Leased machinery and equipment under such ﬁnance leases at March 31, 2006 and 2005 are as follows: Thousands of U.S. dollars (Note 2) Millions of yen Market value at inception of leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assets under ﬁnance leases, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 2005 2006 ¥ 2,194 1,405 ¥ 789 ¥2,291 1,377 ¥ 914 $ 18,752 12,008 $ 6,744 Future minimum payments required under such ﬁnance leases at March 31, 2006 and 2005 are as follows: Thousands of U.S. dollars (Note 2) Millions of yen Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 2005 2006 ¥ 386 403 ¥ 789 ¥ 383 531 ¥ 914 $3,299 3,445 $6,744 The lease expenses for such ﬁnance leases for the years ended March 31, 2006, 2005 and 2004 amounted to ¥449 million ($3,838 thousand), ¥487 million and ¥583 million, respectively. The minimum rental commitments under noncancellable operating leases at March 31, 2006 and 2005 are as follows: Thousands of U.S. dollars (Note 2) Millions of yen Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Over one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 2005 2006 ¥ 161 198 ¥ 359 ¥ 77 87 ¥ 164 $ 1,376 1,692 $ 3,068 15. Foreign Exchange Risk Management The Company and its subsidiaries operate internationally which expose them to the risk of a change in foreign exchange rates. Derivative ﬁnancial instruments are comprised of foreign exchange contracts utilized by the Company to reduce such risks. The Company and its subsidiaries do not hold or issue ﬁnancial instruments for trading purposes. The contract amounts of derivative ﬁnancial instruments are not a measure of the exposure of the Company through its use of derivative ﬁnancial instruments. The Company is exposed to the risk of creditrelated or debit-related losses in the event of nonperformance by counterparties to the foreign exchange contracts, but does not expect any counterparties to fail given their high credit ratings. The Company enters into foreign exchange contracts to hedge against the risk of ﬂuctuation in foreign currency exchange rates associated with certain trade receivables and payables denominated in foreign currencies. At March 31, 2006 and 2005, outstanding foreign exchange currency contracts are used for the translation of hedged trade receivables and payables. The Company is required to disclose certain information with respect to derivatives. Contract amounts and fair value of foreign exchange contracts at March 31, 2006 and 2005 are set forth below. Thousands of U.S. dollars (Note 2) Millions of yen Foreign exchange contracts: 2006 2005 2006 Trade receivables Contract amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 4,341 4,410 (69) ¥ 6,393 6,483 (90) $ 37,103 37,693 (590) Trade payables Contract amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 504 505 1 ¥ 831 800 (31) $ 4,308 4,317 9 16. Contingencies The Company and its consolidated subsidiaries had no signiﬁcant contingent liabilities at March 31, 2006 and 2005, respectively. 53 17. Segment Information Operations by business group and geographic area are summarized as follows: (a) Industry Segments Industry segment information as of and for the years ended March 31, 2006, 2005 and 2004 are as follows: Thousands of U.S. dollars (Note 2) Millions of yen Sales: General hospital products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cardiac and vascular products. . . . . . . . . . . . . . . . . . . . . . . . . . Home health care products . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income: General hospital products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cardiac and vascular products. . . . . . . . . . . . . . . . . . . . . . . . . . Home health care products . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assets: General hospital products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cardiac and vascular products. . . . . . . . . . . . . . . . . . . . . . . . . . Home health care products . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation: General hospital products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cardiac and vascular products. . . . . . . . . . . . . . . . . . . . . . . . . . Home health care products . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment loss: General hospital products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cardiac and vascular products. . . . . . . . . . . . . . . . . . . . . . . . . . Home health care products . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate impairment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures: General hospital products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cardiac and vascular products. . . . . . . . . . . . . . . . . . . . . . . . . . Home health care products . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate assets consist primarily of surplus money (cash and cash equivalents), long-term investment funds (investment securities), deferred income taxes and general and administrative division’s assets. Depreciation for the year ended March 31, 2005, includes ¥2,180 million write-down of goodwill, which is included in “General hospital 2006 2005 2004 2006 ¥ 129,883 88,931 28,235 ¥ 247,049 ¥ 124,068 80,927 25,008 ¥ 230,003 ¥ 119,938 70,967 24,291 ¥ 215,196 $ 1,110,111 760,094 241,325 $ 2,111,530 ¥ 25,382 25,923 7,574 58,879 (10,627) ¥ 48,252 ¥ 21,232 29,622 6,557 57,411 (10,303) ¥ 47,108 ¥ 18,864 22,760 5,008 46,632 (9,979) ¥ 36,653 $ ¥ 135,012 119,053 21,449 79,134 ¥ 354,648 ¥ 130,686 87,976 20,420 73,374 ¥ 312,456 ¥ 9,226 4,435 948 572 ¥ 15,181 ¥ 11,763 4,382 1,181 435 ¥ 17,761 ¥ 9,314 4,245 1,175 147 ¥ 14,881 $ ¥ – – – 593 593 ¥ – – – 1,435 1,435 ¥ – – – – – $ 9,746 27,717 2,024 235 ¥ 39,722 ¥ 8,604 3,574 1,240 509 ¥ 13,927 ¥ 9,822 2,055 989 290 ¥ 13,156 $ ¥ ¥ ¥ $ 1,153,948 1,017,547 183,325 676,359 $ 3,031,179 ¥ 2006 Corporate expenses and eliminations. . . . . . . . . . . . . . . . . . . . . 54 $ $ – – – 5,069 5,069 83,299 236,897 17,299 2,009 339,504 Thousands of U.S. dollars (Note 2) Millions of yen Operating income: Japan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North and South America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,855 37,906 8,102 4,889 129,752 products”. Capital expenditures for the year ended March 31, 2005, includes ¥2,180 million payment for acquisition of goodwill, which is included in “General hospital products”. All amount of impairment loss for the years ended March 31, 2006 and 2005 are in corporate impairment loss. (b) Geographic Segments Sales: Japan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North and South America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 216,940 221,564 64,735 503,239 (90,829) 412,410 2005 2004 2006 ¥ 149,531 39,588 38,605 19,325 ¥ 247,049 ¥ 143,390 34,764 35,771 16,078 ¥ 230,003 ¥ 134,219 32,296 33,876 14,805 ¥ 215,196 $ 1,278,043 338,359 329,957 165,171 $ 2,111,530 ¥ 52,492 3,770 (1,166) 4,373 59,469 (11,217) ¥ 48,252 ¥ 49,672 2,671 2,672 3,548 58,563 (11,455) ¥ 47,108 ¥ 38,865 2,354 3,149 2,649 47,017 (10,364) ¥ 36,653 $ $ 448,650 32,222 (9,966) 37,376 508,282 (95,872) 412,410 Thousands of U.S. dollars (Note 2) Millions of yen Assets: Japan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North and South America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate assets and eliminations . . . . . . . . . . . . . . . . . . . . . . . 2006 2005 2004 ¥ 259,004 47,871 55,965 30,060 392,900 (38,252) ¥ 354,648 ¥ 226,551 47,573 30,631 22,818 327,573 (15,117) ¥ 312,456 2006 $ 2,213,710 409,154 478,333 256,923 3,358,120 (326,941) $ 3,031,179 Each overseas geographic segment mainly consists of the following: Europe: Belgium, United Kingdom and Germany North and South America: United States of America, Canada and Mexico Asia and Others: Australia, Thailand and Taiwan (c) Overseas Sales Thousands of U.S. dollars (Note 2) Millions of yen Overseas sales: Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North and South America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia and Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 2005 2004 2006 ¥ 39,588 38,617 19,457 ¥ 97,662 ¥ 34,764 35,771 16,112 ¥ 86,647 ¥ 31,440 33,876 15,030 ¥ 80,346 $ 338,359 330,060 166,299 $ 834,718 39.5% 37.7% 37.3% Ratio to total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Each overseas sales destination mainly consists of the following: Europe: Germany, France and Italy North and South America: United States of America, Canada and Mexico Asia and Others: Australia, Thailand and Taiwan 18. Balances and Transactions with Unconsolidated Subsidiary and Afﬁliated Companies Balances as of March 31, 2006 and 2005 and transactions for the years ended March 31, 2006, 2005 and 2004 with unconsolidated subsidiary and afﬁliated companies are summarized as follows: Thousands of U.S. dollars (Note 2) Millions of yen 2006 2005 Other current assets: Terumo BSN K.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 8 ¥ 18 $ Trade payables and other current liabilities: Terumo Business Support Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Terumo BSN K.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 37 284 ¥ 21 251 $ 316 2,427 68 Thousands of U.S. dollars ( Note 2) Millions of yen 2005 2006 2006 2004 2006 Income from other services: Terumo BSN K.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ Purchase: Terumo BSN K.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,600 ¥1,940 ¥1,712 $13,675 Insurance premium and other expenses: Terumo Business Support Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,234 ¥ 910 ¥ 988 $10,547 31 ¥ 34 ¥ 33 $ 265 55 Independent Auditors’ Report To the Stockholders and Board of Directors of Terumo Corporation: We have audited the accompanying consolidated balance sheets of Terumo Corporation and subsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of income, stockholders’ equity and cash ﬂows for each of the three years in the period ended March 31, 2006, expressed in Japanese yen. These consolidated ﬁnancial statements are the responsibility of the Company’s management. Our responsibility is to independently express an opinion on these consolidated ﬁnancial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements. An audit also includes assessing the accounting principles used and signiﬁcant estimates made by management, as well as evaluating the overall ﬁnancial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated ﬁnancial statements referred to above present fairly, in all material respects, the consolidated ﬁnancial position of Terumo Corporation and subsidiaries as of March 31, 2006 and 2005, and the consolidated results of their operations and their cash ﬂows for each of the three years in the period ended March 31, 2006, in conformity with accounting principles generally accepted in Japan. Without qualifying our opinion, we draw attention to the following. As discussed in Note 1(h), effective April 1, 2004, Terumo Corporation and consolidated domestic subsidiaries adopted early the new accounting standards for impairment of ﬁxed assets. The U.S. dollar amounts in the accompanying consolidated ﬁnancial statements with respect to the year ended March 31, 2006 are pr ion, such translation has been made on the basis described in Note 2 to the consolidated ﬁnancial statements. Tokyo, Japan June 30, 2006 56 Subsidiaries and Afﬁliates As of March 31, 2006 Name of Company Japan Terumo Trading Co., Ltd.1 Terumo Medical Care K.K.1 Ikiken Co., Ltd.1 Terumo Lease Co., Ltd.1 Terumo BSN K.K.2 Capital Stock (Thousands) Percentage Owned Directly or Indirectly by the Company Principal Business ¥50,000 ¥200,000 ¥290,000 ¥10,000 ¥100,000 100.0% 100.0% 100.0% 100.0% 50.0% General hospital products Home health care products Home health care products General leasing General hospital products EUR301,195 100.0% EUR363 100.0% Laboratoires Terumo France S.A. (France)1 EUR3,775 100.0% Terumo Cardiovascular Systems Europe GmbH (Germany)1 Terumo Italia SRL (Italy)1 EUR1,503 EUR60 100.0% 100.0% EUR78 100.0% SEK100 100.0% £1 100.0% £0.1 EUR25 £15 EUR40 EUR25 100.0% 100.0% 100.0% 100.0% 100.0% General hospital products, Cardiac and vascular products General hospital products, Cardiac and vascular products General hospital products, Cardiac and vascular products Cardiac and vascular products General hospital products, Cardiac and vascular products General hospital products, Cardiac and vascular products General hospital products, Cardiac and vascular products General hospital products, Cardiac and vascular products Cardiac and vascular products Cardiac and vascular products Cardiac and vascular products Cardiac and vascular products Cardiac and vascular products US$116,868 100.0% US$40,000 MXN10,220 100.0% 100.0% US$2,000 100.0% BRL50 100.0% US$1 US$53,746 US$1 US$20,599 100.0% 100.0% 100.0% 100.0% CNY389,569 CNY61,290 PHP2,900,000 PHP30,000 PHP13,500 100.0% 100.0% 100.0% 97.0% 100.0% THB30,625 100.0% PT. Terumo Indonesia (Indonesia)1 IDR5,250,000 100.0% Terumo Korea Corporation (Korea)1 KRW885,000 100.0% HK$11,700 100.0% CNY1,655 100.0% INR128,308 US$4,326 74.0% 100.0% Europe Terumo Europe N.V. (Belgium)1 Terumo (Deutschland) GmbH (Germany)1 Terumo Europe España SL (Spain)1 Terumo Sweden Private AB (Sweden)1 Terumo UK Ltd. (U.K.)1 Vascutek Ltd. (U.K.)1 Vascutek Deutschland GmbH (Germany)1 MicroVentionUK, Ltd. (U.K.)1 MicroVention France S.A. (France)1 MicroVention Deutschland GmbH (Germany)1 North and South America Terumo Medical Corporation (U.S.A.)1 Terumo Cardiovascular Systems Corporation (U.S.A.)1 Terumo Medical de Mexico S.A. de C.V. (Mexico)1 Terumo Latin Ameica Corporation (U.S.A.)1 Terumo Medical do Brasil Ltda. (Brazil)1 Vascutek U.S.A., Inc. (U.S.A.)1 MicroVention, Inc. (U.S.A.)1 Terumo Heart, Inc. (U.S.A.)1 Mission Medical, Inc. (U.S.A.)1 Asia Terumo Medical Products (Hangzhou) Co., Ltd. (China)1 Changchun Terumo Medical Products Co., Ltd. (China)1 Terumo (Philippines) Corporation (Philippines)1 TP Estate, Inc. (Philippines)1 Terumo Marketing Philippines, Inc. (Philippines)1 Terumo (Thailand) Co., Ltd. (Thailand)1 Terumo China (Hong Kong) Ltd. (China)1 Terumo Medical (Shanghai) Co., Ltd. (China)1 Terumo Penpol Ltd. (India)1 Terumo Mauritius Holding Ltd. (Mauritius)1 General hospital products, Cardiac and vascular products Cardiac and vascular products General hospital products, Cardiac and vascular products General hospital products, Cardiac and vascular products General hospital products, Cardiac and vascular products Cardiac and vascular products Cardiac and vascular products Cardiac and vascular products General hospital products General hospital products General hospital products General hospital products Other General hospital products, Cardiac and vascular products General hospital products, Cardiac and vascular products General hospital products, Cardiac and vascular products General hospital products, Cardiac and vascular products General hospital products, Cardiac and vascular products General hospital products, Cardiac and vascular products General hospital products Other Notes: 1. Consolidated subsidiary 2. Afﬁliate accounted for by the equity method 57 Corporate Data As of March 31, 2006 Head Ofﬁce 44-1, 2-chome, Hatagaya, Shibuya-ku, Tokyo 151-0072, Japan TEL +81-3-3374-8111 R&D Date of Establishment September 17, 1921 Europe Vascutek Ltd. Paid-in Capital ¥38,716 million Americas Terumo Cardiovascular Systems Corporation Terumo Heart, Inc. MicroVention, Inc. Japan Terumo Corporation R&D Center Principal Factories Japan Terumo Corporation Fujinomiya Factory Terumo Corporation Ashitaka Factory Terumo Corporation Kofu Factory Ikiken Co., Ltd. Glasgow Liverpool Paris Madrid Goteborg Brussels Frankfult Hamburg Changchun Rome Beijing Dubai Chennai Trivandrum Seoul Tokyo Shanghai Hangzhou Taipei Guangzhou Hong Kong Hanoi Bangkok Pasig City Ho Chi Minh City Kuala Lumpur Laguna Singapore Jakarta Sydney Factory 58 Sales Office Head Office Principal Factories Europe Terumo Europe N.V. (Brussels, Liverpool) Vascutek Ltd. (Glasgow) Principal Sales Ofﬁces Japan 46 Branches Americas Terumo Medical Corporation (Maryland) Terumo Cardiovascular Systems Corporation (Michigan, Massachusetts, Maryland, California) MicroVention, Inc. China Terumo Medical Products (Hangzhou) Co., Ltd. Changchun Terumo Medical Products Co., Ltd. Asia Terumo (Philippines) Corporation Terumo Penpol Ltd. Americas Terumo Medical Corporation Terumo Latin America Corporation Terumo Medical de Mexico S.A. de C.V. Terumo Medical do Brasil Ltda. Terumo Cardiovascular Systems Corporation Vascutek U.S.A. Inc. Massachusetts Michigan California Europe Terumo Europe N.V. Terumo Italia SRL Terumo España SL Terumo UK Ltd. Terumo Sweden Private AB Laboratoires Terumo France S.A. Terumo (Deutschland) GmbH Vascutek Ltd. Vascutek Deutschland GmbH New Jersey Maryland Phoenix Florida Asia Terumo Corporation Australian Branch Terumo Corporation Taipei Branch Terumo Korea Corporation PT. Terumo Indonesia Terumo Marketing Philippines Inc. Terumo Corporation Singapore Branch Terumo (Thailand) Co., Ltd. Terumo (Thailand) Co., Ltd. Hanoi Representative Ofﬁce Terumo (Thailand) Co., Ltd. Ho Chi Minh City Representative Ofﬁce Terumo Corporation Kuala Lumpur Branch Terumo Corporation Dubai Branch Terumo Corporation Chennai Branch China Terumo China (Hong Kong) Ltd. Terumo Medical (Shanghai) Co.,Ltd Mexico City Sao Paulo 59 Investor Information As of March 31, 2006 Number of Shares Authorized . . . . . Number of Shares Issued . . . . . . . . Number of Stockholders . . . . . . . . . Stock Listing . . . . . . . . . . . . . . . . . . Security Code . . . . . . . . . . . . . . . . . Trading Unit . . . . . . . . . . . . . . . . . . . 840,000,000 shares 210,876,260 shares 26,823 First Section of Tokyo Stock Exchange 4543.t 100 shares Principal Stockholders Number of Shares Held (Thousands) Percentage of Total Shares Issued 24,842 10,877 9,806 8,271 7,258 5,611 4,715 4,675 11.8% 5.2% 4.7% 3.9% 3.4% 2.7% 2.2% 2.2% The Master Trust Bank of Japan, Ltd. (trust account). . . . . . . . . . . . Japan Trustee Services Bank, Ltd. (trust account) . . . . . . . . . . . . . . The Dai-ichi Mutual Life Insurance Company . . . . . . . . . . . . . . . . . . The Tokyo Marine & Nichido Fire Insurance Co., Ltd. . . . . . . . . . . . . Meiji Yasuda Life Insurance Company . . . . . . . . . . . . . . . . . . . . . . . The Bank of Tokyo-Mitsubishi UFJ, Ltd. . . . . . . . . . . . . . . . . . . . . . Olympus Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mizuho Corporate Bank, Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note: The Company retained 7,848 thousand shares of common stock. Composition of Issued Shares by Type of Stockholder Composition of Stockholders ■ Individuals and others— 96.7% ■ Trust and banking companies— 29.2% ■ Securities companies— 0.1% ■ Other ﬁnancial institutions— 20.4% ■ Trust and banking companies— 0.2% ■ Securities companies— 1.3% Number of Stockholders: 26,823 ■ Other ﬁnancial institutions— 0.4% Number of Shares Issued: 210,876,260 ■ Other companies— 8.5% ■ Foreign companies— 26.2% ■ Individuals and others— 10.7% ■ Foreign companies— 1.4% ■ Treasury shares— 3.7% ■ Other companies— 1.2% Stock Price (Yen) 4,000 3,500 3,000 2,500 (Yen) 12,500 (Yen) 2000 2,000 10,000 Nikkei stock average 1500 1,500 Topix 1000 1,000 500 500 0 0 (Thousands) 7,500 30,000 5,000 20,000 Traded value 2,500 10,000 04/4 5 6 7 8 9 10 11 12 05/1 2 3 4 5 6 7 8 9 10 11 12 06/1 2 3 For further information, please contact: Corporate Communication Department Email: [email protected] URL: http://www.terumo.com/ 60 0 0 Topics March 2006 October 2005 • Acquired all shares of U.S. ﬁrm MicroVention, Inc., signaling entrance into the market for Neurovasculars. • NANOPASS 33, the world’s smallest insulin injection needle, won the Good Design Award 2005. December 2005 • Donated ¥15 million in medical equipment and matching relief funds to victims of Hurricane Katrina. • Launched TERUMEAL PG SOFT, a high-calorie, liquid nutritional food ideal for older customers. • Launched WOMAN°C C520, a highly functional basal body thermometer. • Launched infusion pump TE-261, which prevents excessive amounts of infusion liquid from being supplied during infusion drips. • Christmas illumination presents were given to hospice patients. November 2005 • Acquired rights to three medical institution-use nutritional food products from Hisamitsu Pharmaceutical Co., Ltd. • Donated ¥5 million worth of blood bags and other equipment to the Pakistan earthquake victim relief effort. • Launched digital new model blood pressure monitors ARM IN MEMO and ARM IN PLUS, which can connect doctors and patients using the devices at home. • Launched Heartrail II, a PTCA guiding catheter with a ﬁne tip and powerful shaft. September 2005 • Acquired domestic sales rights to medical-use contrast media of Guerbet SA of France. • Launched C220 digital thermometer with new functions and better usability. • Launched CAPIOX RX15 oxygenator for all types of patients, from children to adults. • Introduced a new corporate recognition program, the Workplace Pride Award. August 2005 • Conducted the third annual Mt. Fuji reforestation activities through the Terumo Mt. Fuji Reforestation Project. • Formed a capital partnership with Olympus Corp. as part of a strengthened business relationship. • Introduced a new home oxygen concentrator, the ﬁve-liter SHIZUNE, the quietest concentrator in Japan. • Conducted clinical trials for DuraHeart, the world’s ﬁrst magnetically levitating, pumpmethod left ventricular assist device, completing 20 implant surgeries. • Launched CV LEGAFORCE SX catheter for central venous injection. • Added large-volume FULCALIQ, a high-calorie IV solution containing vitamins, sugars, amino acids, and electrolytes, to the product lineup. June 2005 • The Articles of Incorporation were amended at the general shareholders meeting, in line with the Company’s strengthening of corporate governance. May 2005 • Launched LinearGuide V, a gastral endoscope guide wire that reduces the burden on doctors and medical staff while helping to shorten the time needed for surgical procedures. April 2005 • All plants and the head ofﬁce in Japan achieved zero emissions by the end of ﬁscal 2004 July 2005 • Continued the development of a less painful injection needle with the launch of NANOPASS 33, the world’s smallest insulin injection needle with a tip of but 0.2 mm. 61 62 Printed on 100% recycled paper 44-1, 2-chome, Hatagaya, Shibuya-ku, Tokyo 151-0072, Japan Tel: +81-3-3374-8111 URL: http://www.terumo.com/ Printed in Japan

Building A Leading Presence In Global Markets Annual Report 2006

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