ANNUAL REPORT 2007 P012-E407

Transcription

1 ANNUAL REPORT 2007 P012-E407

2 Contents Share Price Information Consolidated Financial Highlights To Our Shareholders Business Segment Information Environmental Preservation Activities Board of Directors Financial Section Cautionary Statement Regarding Forward-Looking Information Projections of future business performance contained in this report are made by the Company management based on information available at the time of its publication and do not preclude potential risks and uncertainties. Actual results may differ materially from those described in this report due to various factors. Share Price ( Tokyo Stock Exchange ) Yen Shimadzu TOPIX TOPIX 1,300 2,000 1,000 1, , Month 800 Unit: yen FY2005 FY2006 Share price range High Low Fiscal year-end Number of shares outstanding (as of fiscal year-end; unit: million shares) Market capitalization (as of fiscal year-end; unit: million yen) Earnings per share Earnings per share (diluted) Dividend , , , , Shimadzu Annual Report 2007

3 Consolidated Financial Highlights Year ended March 31 Net sales Domestic sales Overseas sales Operating income Net income Unit: million yen , , , , , , , , , ,983 62,186 64,600 73,321 79,129 94,449 10,944 16,898 20,587 21,076 25,281 3,518 5,912 11,902 11,316 13,379 Capital expenditures Depreciation 3,947 11,525 4,416 4,420 6,350 7,059 11,050 4,678 4,866 5,156 Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents as of the end of fiscal year 23,955 14,793 (3,754) (4,068) (4,223) (11,208) 32,762 31,180 18,139 12,941 13,991 (11,896) (6,342) (9,797) (7,520) (5,330) (9,728) 29,860 31,927 26,907 Total assets 244, ,399 Net assets 80,528 85,676 Equity capital ratio (%) , , ,084 96, ,659 *142, Return on equity (%) Return on assets (%) Earnings per share (yen) Dividend per share (yen) Net assets per share (yen) Number of group employees (people) ,879 7, ,246 8,512 8,954 * Equity for the year ended March 31, 2007 includes minority interests due to introduction of a new accounting standard. Net sales Net income Earnings per share Net assets per share millions 250, , , , , , ,638 millions 25,000 20, , ,000 15,000 10,000 11,902 11,316 13, ,000 5,000 3,518 5, Shimadzu Annual Report

4 Shigehiko Hattori President and Chief Executive Officer 3 Shimadzu Annual Report 2007

5 To Our Shareholders In fiscal 2006, Shimadzu posted record net sales for the fifth consecutive year, record operating income for the fourth straight year and record ordinary income for the third consecutive year. We also registered record net income. Strong domestic business and robust overseas sales are enabling continued dynamic growth at our company. Business Overview In fiscal 2006, the Japanese economy trended along a recovery path, supported by improved corporate earnings and the subsequent recovery in capital expenditures, despite rising crude oil and raw material prices. Overseas, the U.S. economy as a whole remained firm on the back of consumer spending and capital expenditures in the private sector, while facing concerns of economic slowdown such as stagnation of the housing market. European economies saw a steady recovery while Asia experienced continued growth in China and other economies. Given such economic conditions and under its medium term management plan set out for the period starting from April 2005 through March 2008, the Shimadzu Group pursued further globalization and drove forward structural reform of business operations. As a result, the Group achieved record earnings with its consolidated net sales for the year increasing 8.2% from the previous fiscal year to 262,432 million, operating income expanding 20.0% to 25,281 million, ordinary income growing 26.7% to 23,206 million and net income up 18.2% to 13,379 million. Earnings Highlights 1. Consolidated net sales rose 8.2% from the previous fiscal year to 262,432 million and operating income increased 20.0% to 25,281 million. Ordinary income increased 26.7% to 23,206 million while net income totaled 13,379 million, up 18.2%, which are all record figures. 2. Domestic sales rose 2.7% from the previous fiscal year to 167,983 million. Overseas sales increased 19.4% to 94,449 million and overseas sales ratio rose 3.4 percentage points to 36.0%. The Company recorded double-digit sales growth in all of North and South America, Europe and Asia-Oceania. 3. As of March 31, 2007, total assets stood at 295,084 million, up 18,032 million from the end of the previous fiscal year. Net assets stood at 142,204 million, up 12,037million. Equity capital ratio was 48.0%, an improvement of 1.2 percentage points from the end of the previous fiscal year. 4. For fiscal year 2006, the Company paid an annual dividend of 8.0 per share of common stock (an interim dividend of 3.5 per share and an year-end dividend of 4.5 per share), up 1.0 per share from the previous term. 5. For the fiscal year ending March 31, 2008, the Company expects consolidated net sales of 270,000 million, up 2.9% from a year earlier, operating income of 27,000 million, up 6.8%, ordinary income of 24,000 million, up 3.4%, and net income of 14,400 million, up 7.6%. Shimadzu Annual Report

6 Business Segment Overview During fiscal year 2006, the Company posted approximately 8% increase in sales in all business segments, reflecting significant expansion in overseas business. Analytical and Measuring Instruments Aircraft Equipment and Industrial Machinery Sales Operating income 149,402 million (up 7.9% compared with the previous fiscal year) 26,120 million (up 19.3%) Sales Aircraft equipment 57,042 million (up 8.7% compared with the previous fiscal year) 28,219 million (up 9.4%) Operating margin 17.4% (up 1.6 percentage points) Industrial machinery 28,823 million (up 8.1%) In the Japanese market, spectrometers and testing machines for measuring the strength of materials posted solid performance, reflecting growing private sector capital expenditures. Overseas performance was robust primarily in regions such as Asia, particularly China, and Europe, on growing demand for chromatographs and X- ray fluorescence spectrometers related to WEEE and RoHS (European Union regulations on hazardous substances). The expansion in sales of these products boosted operating margin for the period to 17.4%, an improvement of 1.6 percentage points compared with the previous fiscal year. Overseas sales for the segment rose 20.7% to 62,139 million for the year with overseas sales ratio increasing 4.4 percentage points from a year ago to 41.6%. Medical Systems Sales Operating income Operating margin 50,112 million (up 8.3% compared with the previous fiscal year) 2,138 million (down 0.1%) 4.3% (down 0.3 percentage points) In the domestic market, X-ray equipment including X-ray TV systems delivered strong performance. Elsewhere, medical systems showed particularly robust performance in Asia and North and Sourth America. As selling, general and administrative expenses of the segment including research and development expenses increased, operating income slightly declined and operating margin worsened by 0.3 percentage points to 4.3%. Overseas sales for the segment rose 14.9% to 20,786 million with overseas sales ratio increasing 2.4 percentage points from a year earlier to 41.5%. Operating income Operating margin 4,210 million (up 7.7%) 7.4% (unchanged) Aircraft equipment In the domestic market, the Ministry of Defense-related sales of spare parts for military aircrafts mainly increased, while in the overseas markets sales of passenger aircraft components to the Boeing Company of the U.S. also expanded. The Company also supplied prototype parts for a new transport aircraft and patrol aircraft being developed by the Ministry of Defense. Industrial machinery Sales of turbomolecular pumps for semiconductor manufacturing equipment and hydraulic equipment for forklifts expanded. Operating margin for the aircraft equipment and industrial machinery segment was unchanged from the previous fiscal year. Overseas sales for the segment rose 20.5% from a year earlier to 11,525 million, with overseas sales ratio increasing 2.0 percentage points to 20.2%. Other Sales Operating income Operating margin 5,876 million (up 7.9% compared with the previous fiscal year) 1,828 million (up 22.4%) 26.5% (up 3.5 percentage points) Income from rent is the primary component of revenue in this segment. millions 300, ,000 Sales Breakdown by Business Segment 204, , , , , % 21.7% 180, % 120,000 60, % 5 Shimadzu Annual Report Analytical and Measuring Instruments Medical Systems Year ended March 31 Aircraft Equipment and Industrial Machinery Other Figures in % denote share of each segment to total sales for fiscal year 2006.

7 Overseas Sales In fiscal 2006, the Company s domestic sales rose 2.7 percent from a year earlier to 167,983 million. Meanwhile, overseas sales expanded significantly, posting double-digit growth in North and South America, Europe and Asia-Oceania. Overall overseas sales rose 19.4% to 94,449 million, with overseas sales ratio rising 3.4 percentage points to 36.0%. North and South America Asia and Oceania Sales 25,738 million (up 27.6% compared with the previous fiscal year) Sales 50,777 million (up 16.4% compared with the previous fiscal year) North America alone 19,667 million (up 19.0%) China alone 23,178 million (up 21.5%) Ratio to total sales 9.8% (up 1.5 percentage points) Ratio to total sales 19.4% (up 1.4 percentage points) In North and South America, sales of analytical and measuring instruments and medical systems expanded steadily. Sales for the aircraft equipment and industrial machinery segment grew particularly in North America, reflecting strong sales of parts for passenger aircraft supplied to Boeing Company in the aircraft equipment business and turbomolecular pumps for semiconductor manufacturing equipment in the industrial machinery business. Europe In China, sales of X-ray fluorescence spectrometers related to WEEE and RoHS (European Union regulations on hazardous substances) increased significantly. Sales of analytical and measuring instruments also expanded steadily, against the backdrop of economic expansion in the ASEAN nations as well as India. Sales Ratio to total sales 17,934 million (up 16.9% compared with the previous fiscal year) 6.8% (up 0.5 percentage points) Sales of analytical and measuring instruments including the Company s mainstay of chromatographs significantly expanded on the back of robust European economy. Participated in the world s largest analytical instrument exhibition (February 2007, Illinois, U.S.) millions 300, , ,283 Overseas Sales 217, , , , % 9.8% 180, % 120,000 60, % Japan North & South America Year ended March 31 Europe Asia & Oceania Figures in % denote share of each segment to total sales for fiscal year Shimadzu Annual Report

8 Financial Condition Overview Total assets at the end of the fiscal year stood at 295,084 million, representing an increase of 18,032 million from the end of the previous fiscal year, as trade notes and accounts receivable increased by 9,743 million, inventories by 3,936 million and buildings and structures increased by 4,920 million. Net assets increased 12,037 million to 142,204 million, mainly as retained earnings grew by 11,074 million. At the end of the fiscal year, equity ratio improved 1.2 percentage points compared with a year earlier to 48.0%. Medium-Term Management Plan and Outlook for Fiscal Year 2007 Shimadzu is currently in the process of implementing the initiatives under its three-year Medium-Term Management Plan launched in fiscal year 2005 with the main objectives of Global Growth and Structural Reform of Business Operations. Fiscal year 2006 marked the second year of this plan and we were able to achieve the goal of overseas business expansion one year earlier than the original plan, largely owing to stronger-than-expected sales growth outside Japan. Fiscal 2007 is an important year for Shimadzu, as it is the final year of the Medium-Term Management Plan. We are committed to make every effort to accomplish the objectives of the plan and achieve sustained growth of the business under the next growth plan. For the year ending March 31, 2008, Shimadzu expects consolidated sales of 270,000 million, up 2.9% compared with a year earlier, operating income of 27,000 million, up 6.8%, ordinary income of 24,000 million, up 3.4%, and net income of 14,400 million, up 7.6%. Net sales Operating income Operating margin Overseas sales Overseas sales ratio FY2004 FY2005 FY2006 FY2007* % 8.7% 9.6% 10.0% % 32.6% 36.0% 37.0% Medium-Term Management Plan above 10% 94.0 above 35% * Forecast, Unit: billion yen 7 Shimadzu Annual Report 2007 Construction of new plant for integrated production of turbomolecular pumps (June 2007, Kyoto)

9 Global Growth Under the Global Growth objective, we have established new sales subsidiaries in the U.K., France, Netherlands and India. In China, we newly established a company to offer contract-based analytical service in Guangzhou (Guandong) and expanded capacity of our analytical and measuring instrument plant in Suzhou (Jiangsu) to accelerate globalization of our operation. Dividend Policy Shimadzu believes that its profit distribution policy is a matter of vital importance to the Company and our policy is to make stable and continued dividend payments reflecting our earnings performance. We are fully committed to improving business performance to reinforce our profitability and financial standings and boost return on equity. We plan to invest retained earnings effectively in new facilities as well as research and development to ensure future growth and business expansion. We have set the annual dividend for fiscal year 2006 at 8.0 per share of common stock (interim dividend of 3.5 per share and year-end dividend of 4.5 per share). For fiscal year 2007, we expect to offer an annual dividend of 8.0 per share of common stock (interim dividend of 4.0 per share and year-end dividend of 4.0 per share). We would like to thank our shareholders and look forward to their continued support. Shimadzu (Guangzhou) Analysis & Technology Service co., Ltd Structural Reform of Business Operations In November 2006, our new analytical and measuring instrument assembling plant commenced its operations with an aim to shift from the existing make-to-stock production system to a build-to-order production system. By maintaining only a limited stock of parts constantly by employing the just-in-time method, we are able to assemble products after receiving an order and supply them to the customer in a short period of time. The move is part of our active efforts to reduce costs through lowering of inventory levels and stable product quality. Shigehiko Hattori President and Chief Executive Officer June 28, 2007 New build-to-order production system Backbone network system Inventory line Parts Order details Procurement of parts and materials Procurement of processed parts from suppliers Parts Parts Parts Parts PULL Assembly (5 to 20 days) Shipment Customers Keeping appropriate inventory levels for parts and units. Assembling only required volumes based on order details. Shimadzu Annual Report

10 Business Segment Information We are committed to offering strong support to our customers in their businesses and research and development activities by supplying a wide range of products and services based on our cutting-edge technologies for a multitude of industrial and academic applications. Currently, our core businesses are Analytical and Measuring Instruments such as chromatographs widely used in research and development in the pharmaceutical and chemical industries, Medical Systems such as X-ray imaging systems, Aircraft Equipment such as flight control systems and airconditioning equipment and Industrial Machinery including turbomolecular pumps for semiconductor manufacturing equipment and hydraulic equipment for forklifts. Analytical and Measuring Instruments In this segment, Shimadzu offers a number of highly competitive products both in Japan and abroad, including chromatographs, mass spectrometers, X-ray/surface analysis instruments, material testing machines, nondestructive inspection machines and environment-related measuring instruments. These instruments are used in research and development and quality control by businesses and universities in wide-ranging fields such as pharmaceuticals, chemicals, food, iron and steel, and semiconductors. In recent years, these products are also being used in environmental monitoring. Currently, in addition to the products high market share in Japan, we are accelerating our efforts to expand globally, especially in the biggest markets such as the U.S. and Europe as well as in fast-growing China and India. Furthermore, we are committed to expanding the business in the life science field and have been focusing on the development of instruments for DNA and protein analysis as well as related laboratory reagents. We are also involved in the joint development with a number of research institutes of next generation diagnosis technologies such as analysis of SNPs and disease biomarkers. 112,198 Sales by Geographical Segment (FY2006) North & South America 8.8% Europe 10.0% Asia-Oceania 22.7% Sales and Operating Income millions Net sales Operating income 150, , ,000 90,000 60,000 30, , , , ,453 19,634 22,705 21,891 26, Year ended March31 Japan 58.4% 9 Shimadzu Annual Report 2007

11 Shimadzu s liquid chromatograph mass spectrometer plays an important role in research and development at a major Japanese beverage manufacturer The latest ultra fast liquid chromatograph Outlook In fiscal 2006, net sales for the segment grew 7.9% compared with the previous fiscal year to 149,402 million, while operating income jumped 19.3% to 26,120 million. In fiscal year 2007, Shimadzu expects the segment to post net sales of 156,400 million, up 4.7% compared with the previous fiscal year, and operating income of 27,200 million, up 4.1%. We aim to achieve continuous expansion of the business across the globe, with chromatographs as the segment s mainstay product, through measures including establishment of a company that sells supplies for chromatographs in China jointly with GL Sciences Inc., a company in which Shimadzu has invested, as well as reinforcement of sales efforts for strategic products including ultra fast liquid chromatograph (UFLC) and liquid chromatograph mass spectrometer (LCMS-IT-TOF). Chromatographs A chromatograph is an instrument that isolates chemical components of a sample in a column and analyzes those components and their quantity. There are two types of chromatographs: gas chromatographs and liquid chromatographs. Gas chromatographs heat samples and separate and analyze them in gas form while liquid chromatographs separate the components of samples and analyze them in liquid form at room temperature. They are commonly used for research and development and quality control in a wide range of industries such as pharmaceuticals, petrochemicals, food, and environmental analysis. Shimadzu enjoys the biggest market share for both gas and liquid chromatographs in Japan and is currently striving to expand sales globally in the U.S., Europe, China and India. In fiscal 2006, sales of chromatographs rose 7% from a year earlier to 57,300 million, of which domestic sales declined 3% to 26,100 million while overseas sales increased 16% to 31,100 million. Column for liquid chromatograph Carrier gas Injection of sample Column Column oven Detector Data system Basic mechanism of chromatograph for gas chromatograph 10 Shimadzu Annual Report 2007

12 Medical Systems The Medical Systems segment offers diagnostic imaging systems, which create images of internal organs and bones and active status of tissues, and the current core products of the segment include X-ray systems and PET/CT scanners. Our focus in this segment is on sales expansion of X-ray systems equipped with flat panel detectors (FPD), a cutting-edge digital device graually replacing conventional films and analog devices. FPDs employing our direct conversion method have been winning high acclaim from hospitals and clinics for its clear and highly detailed images. Sales and Operating Income Net sales Operating income millions 50,112 50,000 44,291 46,277 40,000 40,864 41,471 30,000 20,000 10,000 1,340 2,300 2,140 2, Year ended March31 FPD equipped digital X-ray diagnostic system for cardiovescular diseases Outlook In fiscal 2006, net sales of the segment rose 8.3% compared with the previous fiscal year to 50,112 million, while operating income declined 0.1% to 2,138 million. For fiscal 2007, we expect net sales of 52,200, up 4.2%, and operating income of 2,700 million, up 26.3%, for the segment. Shimadzu has reached OEM agreements with FUJIFILM Corp. and Hitachi Medical Corp. to supply FPD equipped digital X-ray systems, a move which is expected to steadily expand the sales of the strategic product. We are also currently developing a new product of PET/CT scanners with multislice CT scanners supplied by Toshiba Medical Systems Corp. Sales by Geographic Segment (FY2006) Europe 5.0% North & South America 14.5% Asia-Oceania 22.0% Japan 58.5% Flat Panel Detectors (FPDs) FPDs (shown in the picture) in the product to replace the conventional films and analog image intensifiers used in conventional fluoroscopy. This highly innovative digital technology enables the digital capturing of still and moving images on one FDP panel. The detectors employing Shimadzu s unique direct conversion method provide clearer images. Ever since the introduction of our first FPD-equipped digital X-ray system for diagnosis of cardiovascular diseases in October 2003, we have been steadily broadening the product lineup to include models for digestive system and general radiography. Sales of FPDequipped X-ray systems totaled 5,900 million in fiscal 2006, up 2% from a year earlier. 11 Shimadzu Annual Report 2007

13 Aircraft Equipment and Industrial Machinery In fiscal 2006, net sales for the Aircraft Equipment and Industrial Machinery segment increased 8.7% from a year earlier to 57,042 million and operating income rose 7.7% to 4,210 million. In fiscal 2007, we expect the segment to post net sales of 55,800 million, down 2.2% from a year earlier, and operating income of 4,400 million, up 4.5%. Aircraft Equipment In the aircraft equipment business, Shimadzu offers aircraft components. The Company has an extensive track record of supplying aircraft control systems, air conditioning systems and head-up displays (HUD) in Japan primarily to the Ministry of Defense. Outlook Net sales for the segment rose 9.4% in fiscal 2006 compared with a year ago to 28,219 million. In fiscal 2007, we expect the business to post net sales of 27,000 million, down 4.3% compared with the previous fiscal year. We are expecting to win orders to supply parts for the next generation transport aircraft C-X and next generation patrol aircraft P-X being developed by the Ministry of Defense as well as for Boeing passenger aircraft from fiscal year 2008 onwards. We have started making prior investments in machinery in preparation for these orders. Net Sales and Operating Income Aircraft equipment net sales Industrial machinery net sales millions Operating income 60,000 50,000 40,000 30,000 20,000 10, ,804 29,416 49,251 27,673 52,306 52,460 24,729 25,786 27,577 26,674 21,578 18,388 2,340 3,056 2,846 3,909 57,042 28,219 28,823 4, Year ended March31 Industrial Machinery In the industrial machinery segment Shimadzu supplies equipment for semiconductor- and liquid crystal manufacturing and hydraulic equipment. Among our semiconductor and liquid crystal manufacturing-related equipment, sales of turbomolecular pumps, which are mounted on semiconductor manufacturing equipment and are used for creating vacuums, have been strongly expanding. Other core products include LCD array inspection devices and solar panel film deposition system. Sales of hydraulic equipment have been also growing in applications such as forklift and construction machinery. Outlook In fiscal year 2006, net sales of industrial machinery rose 8.1% from a year earlier to 28,823 million. For fiscal year 2007, we expect the business to post net sales of 28,800 million, down 0.1%. With the aim of further reinforcing turbomolecular pumps business, whose sales have been expanding steadily, Shimadzu entered into an agreement with Mitsubishi Heavy Industries, Ltd. (MHI) to purchase MHI s turbomolecular pumps business in November 2007 to ensure continued growth. Aircraft Equipment Sales by Geographic Segment (FY2006) Other 0.7% North & South America 7.7% Japan 91.6% Industrial Machinery Sales by Geographic Segment (FY2006) North & South America 10.8% Europe 1.2% Japan 68.2% Asia-Oceania 19.7% Turbomolecular pumps A turbomolecular pump (Shown in the picture) is a high-efficiency vacuum pump which spins turbine blades inside at high speed to hit gas molecules on the surface of the blades and push them through the exhaust. They are used widely in manufacturing equipment for semiconductors and flat panel displays (etching, CVD, PVD, ion implantation and vapor deposition). With high technological capabilities underpinned by precision processing technique that ensure stable quality, Shimadzu s turbomolecular pumps have been rated highly by our customers and sales have been expanding every year. Sales of the turbomolecular pumps in fiscal year 2006 totaled 6,200 million, up 41% compared with the previous fiscal year. 12 Shimadzu Annual Report 2007

14 Environmental Conservation Activities Shimadzu has been actively implementing environmental conservation initiatives across its business operations and providing support for academic projects. In keeping with our management principle of Realizing the Well-being of Mankind and the Earth, the Shimadzu Group is committed to making steady efforts to tackle these important Environmental Management Systems Majority of Shimadzu s domestic plants are ISO certified and implementing an integrated environmental management system. Shimadzu also works hard to reduce environmental burden in operating activities on segment levels, such as reducing energy consumption and CO2 emissions, reducing and recycling waste, eliminating the use of substances that damage the ozone layer and decreasing the amount of packaging used. Promotion of Greening With the aim of creating a plant surrounded by green spaces, Shimadzu has been actively increasing planted areas at Sanjo Works in Kyoto, which plays the central role in our production. The new plant building for analytical and measuring instruments, which started operation in 2006, is equipped with a solar power system that supplies part of the electric power consumed at the plant. These initiatives are part of the plant construction and relocation plan being implemented at the Sanjo Works and we will promote environment-friendly, clean plant operation in consideration of the global environment. We are fully committed to further promoting activities that would help prevent global warming, the acceleration of which is of great concern. Support for Academic Projects Since 1996, Shimadzu has been continuously supporting the environmental management project at the United Nations University. The project is aimed at monitoring environmental pollution and accumulating environmental data in Asia with 11 Asian countries participating in the fourth phase of the project, Environmental Monitoring and Governance in the East Asian Hydrosphere Monitoring of Persistent Organic Compounds in Asia, which started in We have been supporting the project in various forms including provision of funds, lending of analysis equipment, provision of analysis method training. We are committed in our support to ensure the success of the projects. 13 Shimadzu Annual Report 2007

15 Board of Directors Managing Director Yasumitsu Takagi Senior Managing Director Takayuki Kato Senior Managing Director Akira Nakamoto Chairman of the Board Hidetoshi Yajima President and Chief Executive Officer Shigehiko Hattori Chairman of the Board Hidetoshi Yajima President and Chief Executive Officer Shigehiko Hattori Senior Managing Director Akira Nakamoto Senior Managing Director Takayuki Kato Managing Director Yasumitsu Takagi Director Soju Onose Director Yukio Yoshida Director Tamio Yoshida Director Ichiro Kowaki Director Yutaka Nakamura Director Satoru Suzuki Director Osamu Ando 14 Shimadzu Annual Report 2007

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17 Financial Section Consolidated Balance Sheets...17 Consolidated Statements of Income...19 Consolidated Statements of Changes in Equity...20 Consolidated Statements of Cash Flows...22 Notes to Consolidated Financial Statements...24 Independent Auditor's Report

18 Shimadzu Corporation and Consolidated Subsidiaries Consolidated Balance Sheets March 31, 2007 and 2006 Thousands of U.S. dollars Millions of yen (Note 3) ASSETS Current assets: Cash and cash equivalents... 26,907 31,927 $ 228,025 Time deposits ,102 Marketable securities (Note 4) Trade receivables: Notes and accounts (Note 9)... 89,152 79, ,525 Allowance for doubtful receivables... (881) (1,246) (7,466) Net trade receivables... 88,271 78, ,059 Inventories (Note 5)... 64,017 60, ,517 Deferred tax assets (Note 11)... 7,020 7,179 59,492 Prepaid expenses and other current assets... 4,238 2,924 35,915 Total current assets , ,046 1,621,042 Property, plant and equipment (Note 6): Land... 18,908 19, ,237 Buildings and structures... 63,045 58, ,280 Machinery, equipment and vehicles... 18,834 17, ,610 Tools, furniture and fixtures... 25,032 23, ,135 Construction in progress , Total , ,813 1,067,237 Accumulated depreciation... (62,265) (60,221) (527,669) Net property, plant and equipment... 63,669 59, ,568 Investments and other assets: Investment securities (Note 4)... 15,213 14, ,924 Investments in unconsolidated subsidiaries and associated companies ,737 Long-term receivables ,997 4,568 Deferred tax assets (Note 11)... 13,598 13, ,237 Other assets... 10,459 5,766 88,636 Total investments and other assets... 40,132 36, ,102 Total , ,052 $2,500,712 See notes to consolidated financial statements. 17

19 Thousands of U.S. dollars Millions of yen (Note 3) Liabilities and equity Current liabilities: Short-term loans (Note 6)... 6,652 9,827 $ 56,373 Current portion of long-term debt (Note 6) ,766 6,847 Trade notes and accounts payable... 55,726 49, ,254 Other payables (Note 9)... 10,618 8,418 89,983 Advances from customers... 4,180 4,220 35,424 Income taxes payable... 5,184 3,951 43,932 Accrued expenses and other current liabilities (Notes 6)... 13,312 9, ,814 Total current liabilities... 96,480 91, ,627 Long-term liabilities: Long-term debt (Note 6)... 28,093 27, ,076 Liability for retirement benefits (Note 7)... 21,399 21, ,347 Long-term deposit (Note 6)... 6,637 7,069 56,246 Other long-term liabilities (Note 11) ,297 Total long-term liabilities... 56,400 55, ,966 Minority interests Commitments and contingent liabilities (Notes 12, 13 and 14) Equity (Notes 8 and 16): Common stock authorized, 800,000,000 shares; issued, 296,070,227 shares... 26,649 26, ,839 Additional paid-in capital... 35,188 35, ,203 Retained earnings... 76,396 65, ,424 Net unrealized gain on available-for-sale securities... 5,465 5,751 46,314 Foreign currency translation adjustments... (1,649) (2,947) (13,975) Treasury stock, at cost 764,999 shares in 2007 and 643,251 shares in (419) (304) (3,551) Total , ,659 1,200,254 Minority interests ,865 Total equity , ,659 1,205,119 Total , ,052 $2,500,712 18

20 Shimadzu Corporation and Consolidated Subsidiaries Consolidated Statements of Income Years Ended March 31, 2007 and 2006 Thousands of U.S. dollars Millions of yen (Note 3) Net sales (Notes 9 and 17) , ,638 $2,224,000 Operating costs and expenses: Cost of sales (Notes 9 and 12) , ,062 1,348,373 Selling, general and administrative expenses (Notes 10 and 12)... 78,043 70, ,381 Total operating costs and expenses (Note 17) , ,562 2,009,754 Operating income (Note 17)... 25,281 21, ,246 Other income (expenses): Interest and dividend income ,432 Interest expense... (718) (700) (6,085) Foreign exchange (loss) gain, net... (316) 271 (2,678) Loss on disposals of inventories... (1,353) (1,573) (11,466) Gain on sales of investment securities Loss on sales of investment securities... (5) Loss on write-down of investment securities... (121) (189) (1,025) Gain on sales of property, plant and equipment Loss on disposals of property, plant and equipment... (439) (232) (3,720) Loss on adoption of FRS17 by British subsidiaries (Note 7)... (498) Patent fee for prior years... (535) (4,534) Other, net (997) 966 Other expenses, net... (2,865) (3,323) (24,280) Income before income taxes and minority interests... 22,416 17, ,966 Income taxes (Note 11): Current... 8,685 7,840 73,602 Deferred (1,449) 2,517 Total income taxes... 8,982 6,391 76,119 Minority interests in net income Net income... 13,379 11,316 $ 113,381 Yen U.S. dollars Amounts per share (Notes 2.r and 15): Basic net income $ 0.38 Diluted net income Cash dividends applicable to the year See notes to consolidated financial statements. 19

21 Shimadzu Corporation and Consolidated Subsidiaries Consolidated Statements of Changes in Equity Years Ended March 31, 2007 and 2006 Millions of yen Outstanding Net unrealized number of Additional gain on shares of Common Paid-in Retained Available-for-sale common stock stock Capital earnings securities Balance, April 1, ,575,118 16,826 25,394 56,476 2,720 Net income... 11,316 Appropriations: Cash dividends paid, 8.0 per share... (2,234) Directors and corporate auditors bonuses... (214) Net increase in unrealized gain on available-for-sale securities... 3,031 Foreign currency translation adjustments... Adjustment of retained earnings for exclusion of consolidated subsidiaries... (22) Net increase in treasury stock... (124,463) Conversion of convertible bonds... 28,976,321 9,823 9,794 Balance, March 31, ,426,976 26,649 35,188 65,322 5,751 Reclassified balance as of March 31, 2006 (Note 2.h)... Net income... 13,379 Appropriations: Cash dividends paid, 7.0 per share... (2,068) Directors and corporate auditors bonuses... (228) Adjustment of retained earnings for newly consolidated subsidiaries... (9) Net change in the year... (286) Net increase in treasury stock... (121,748) Balance, March 31, ,305,228 26,649 35,188 76,396 5,465 Thousands of U.S. dollars (Note 3) Net unrealized Additional gain on Common Paid-in Retained Available-for-sale stock Capital earnings securities Balance, April 1, $225,839 $298,203 $553,576 $48,737 Reclassified balance as of March 31, 2006 (Note 2.h)... Net income ,381 Appropriations: Cash dividends paid, $0.06 per share... (17,525) Directors and corporate auditors bonuses... (1,932) Adjustment of retained earnings for newly consolidated subsidiaries... (76) Net change in the year... (2,423) Net increase in treasury stock... Balance, March 31, $225,839 $298,203 $647,424 $46,314 See notes to consolidated financial statements. 20

22 Millions of yen Foreign currency translation Treasury Minority Total adjustments stock Total interests equity Balance, April 1, (4,819) (210) 96,387 96,387 Net income... 11,316 11,316 Appropriations: Cash dividends paid, 8.0 per share... (2,234) (2,234) Directors and corporate auditors bonuses... (214) (214) Net increase in unrealized gain on available-for-sale securities... 3,031 3,031 Foreign currency translation adjustments... 1,872 1,872 1,872 Adjustment of retained earnings for exclusion of consolidated subsidiaries... (22) (22) Net increase in treasury stock... (94) (94) (94) Conversion of convertible bonds... 19,617 19,617 Balance, March 31, (2,947) (304) 129, ,659 Reclassified balance as of March 31, 2006 (Note 2.h) Net income... 13,379 13,379 Appropriations: Cash dividends paid, 7.0 per share... (2,068) (2,068) Directors and corporate auditors bonuses... (228) (228) Adjustment of retained earnings for newly consolidated subsidiaries... (9) (9) Net change in the year... 1,298 1, ,079 Net increase in treasury stock... (115) (115) (115) Balance, March 31, (1,649) (419) 141, ,204 Thousands of U.S. dollars (Note 3) Foreign currency translation Treasury Minority Total adjustments stock Total interests equity Balance, April 1, $(24,975) $(2,576) $1,098,804 $1,098,804 Reclassified balance as of March 31, 2006 (Note 2.h)... $4,297 4,297 Net income , ,381 Appropriations: Cash dividends paid, $0.06 per share... (17,525) (17,525) Directors and corporate auditors bonuses... (1,932) (1,932) Adjustment of retained earnings for newly consolidated subsidiaries... (76) (76) Net change in the year... 11,000 8, ,145 Net increase in treasury stock... (975) (975) (975) Balance, March 31, $(13,975) $(3,551) $1,200,254 $4,865 $1,205,119 See notes to consolidated financial statements. 21

23 Shimadzu Corporation and Consolidated Subsidiaries Consolidated Statements of Cash Flows Years Ended March 31, 2007 and 2006 Thousands of U.S. dollars Millions of yen (Note 3) Operating activities: Income before income taxes and minority interests... 22,416 17,753 $189,966 Adjustments for: Income taxes paid... (7,575) (10,950) (64,195) Depreciation and amortization... 5,156 4,866 43,695 Increase in accrued bonuses ,924 Provision for retirement benefits for directors and corporate auditors ,297 Provision for retirement benefits for employees , Net loss on sales and write-down of investment securities Net loss (gain) on sales and disposals of property, plant and equipment (119) 3,466 Foreign exchange gain, net... (12) (23) (102) Allowance for doubtful receivables... (347) (240) (2,941) Changes in assets and liabilities, net of effects from newly consolidated subsidiaries: Increase in trade receivables... (8,057) (1,698) (68,279) Increase in inventories... (2,840) (2,180) (24,068) Increase in trade payables... 3,984 1,776 33,763 Other, net ,811 1,449 Total adjustments... (8,425) (4,812) 71,398 Net cash provided by operating activities... 13,991 12, ,568 Investing activities: Proceeds from sales of property, plant and equipment and other assets ,712 Purchases of property, plant and equipment and other assets... (9,342) (6,812) (79,170) Proceeds from sales of marketable securities Proceeds from sales of investment securities ,136 Purchases of investment securities... (1,291) (495) (10,941) Acquisition of business, net cash acquired ,313 Increase in long-term receivables... (30) (22) (254) Decrease in long-term receivables ,229 Other, net... (333) 52 (2,822) Net cash used in investing activities... (9,797) (6,342) (83,026) Forword... 4,194 6,599 35,542 22

24 Thousands of U.S. dollars Millions of yen (Note 3) Financing activities: Net decrease in short-term loans... (3,435) (2,456) (29,110) Borrowing of long-term debt... 1,901 1,240 16,110 Repayments of long-term debt... (5,894) (899) 49,949 Issuance of commercial paper... 7,000 23,000 59,322 Redemption of commercial paper... (7,000) (23,000) (59,322) Redemption of unsecured bonds... (381) Deposit of cash for redemption of unsecured bonds... (16,335) Withdrawal of cash for redemption of unsecured bonds... 16,335 Cash dividends paid... (2,086) (2,242) (17,678) Redemption of construction cooperation fund... (99) (428) (839) Other, net... (115) (164) (975) Net cash used in financing activities... (9,728) (5,330) (82,441) Foreign currency translation adjustments on cash and cash equivalents ,424 Net increase (decrease) in cash and cash equivalents... (5,130) 2,159 (43,475) Cash and cash equivalents of newly consolidated subsidiaries, beginning of year Decrease due to exclusion of subsidiaries from consolidation, beginning of year... (92) Cash and cash equivalents, beginning of year... 31,927 29, ,568 Cash and cash equivalents, end of year... 26,907 31,927 $228,025 Additional information: Assets acquired and liabilities assumed from acquisition of business Current assets... 1,082 $ 9,170 Fixed assets ,627 Current liabilities... (1,295) (10,975) Fixed liabilities... (215) (1,822) Consideration in acquisition of business... Nil Nil Cash and cash equivalents contained in above current assets $ 4,313 Convertible bonds converted into common stock and additional paid-in capital... 19,617 See notes to consolidated financial statements. 23

25 Shimadzu Corporation and Consolidated Subsidiaries Notes to Consolidated Financial Statements Years Ended March 31, 2007 and Basis of presenting consolidated financial statements The accompanying consolidated financial statements of Shimadzu Corporation (the Company ) and its significant subsidiaries (together, the Companies ) have been prepared 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, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. On December 27, 2005, the Accounting Standards Board of Japan (the ASBJ ) published a new accounting standard for the statement of changes in equity, which is effective for fiscal years ending on or after May 1, The consolidated statement of shareholders equity, which was previously voluntarily prepared in line with the international accounting practices, is now required under generally accepted accounting principles in Japan and has been renamed the consolidated statement of changes in equity in the current fiscal year. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2006 financial statements to conform to the classification used in Summary of significant accounting policies a. Consolidation The consolidated financial statements as of March 31, 2007 include the accounts of the Company and its 32 (30 in 2006) domestic subsidiaries and 37 (30 in 2006) overseas subsidiaries. Consolidation of the remaining subsidiaries would not have a material effect on the accompanying consolidated financial statements. Under the control concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated. Investments in seven (nine in 2006) unconsolidated subsidiaries and three (three in 2006) associated companies are accounted for on the cost basis. The effect on the consolidated financial statements of not applying the equity method is immaterial. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is amortized using the straight-line method over 20 years while immaterial amounts of goodwill are charged to income as incurred. All significant intercompany transactions and accounts have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Companies is eliminated. b. Cash Equivalents Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits which mature or become due within three months of the date of acquisition. c. Marketable and Investment Securities Marketable and investment securities are classified and accounted for, depending on management s intent, as follows: i) held-to-maturity debt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity are reported at amortized cost. ii) available-for-sale securities, which represent securities not classified as either trading securities or held-to-maturity debt securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For other than temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income. d. Inventories Finished products of the Company are stated at moving average cost. Those held by domestic subsidiaries are stated principally at the most recent purchase price which approximates cost using the first-in, first-out method, while those held by overseas subsidiaries are stated principally at the lower of cost or market using the first-in, first-out method. Work in process is stated principally at the specifically identified cost. Other inventories are stated principally at moving average cost. e. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment of the Company and its domestic subsidiaries is computed substantially by the declining-balance method at rates based on the estimated useful lives of the assets, except that the straight-line method is applied to the buildings of the Company and its domestic subsidiaries. Overseas subsidiaries compute depreciation by the straight-line method at rates based on the estimated useful lives of the assets. The range of useful lives is principally from three 24

26 to 75 years for buildings and structures, from four to 17 years for machinery, equipment and vehicles and from two to 15 years for tools, furniture and fixtures. f. Long-Lived Assets In August 2002, the Business Accounting Council (BAC) issued a Statement of Opinion, Accounting for Impairment of Fixed Assets, and in October 2003 the ASBJ issued ASBJ Guidance No. 6, Guidance for Accounting Standard for Impairment of Fixed Assets. These new pronouncements were effective for fiscal years beginning on or after April 1, 2005 with early adoption permitted for fiscal years ending on or after March 31, The Companies adopted the new accounting standard for impairment of fixed assets as of April 1, The Company and the domestic subsidiaries review their long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition. g. Retirement and Pension Plans Employees whose service with the Company is terminated are, under most circumstances, entitled to lump-sum indemnities determined by reference to the basic rate of pay at the time of termination, length of service and conditions under which the termination occurs. If the termination is involuntary, caused by retirement at the mandatory retirement age, or certain other conditions, the employee is entitled to greater payments than in the case of voluntary termination. In addition, the Company, certain domestic subsidiaries and British subsidiaries have non-contributory funded pension plans covering most employees. The Company, certain domestic subsidiaries and British subsidiaries accounted for the liabilities for retirement benefits based on projected benefit obligations and plan assets at the balance sheet date. Effective January 1, 2005, the British subsidiaries adopted FRS17, a new accounting standard for employees retirement benefits and accounted for the liability for retirement benefits based on projected benefit obligations and plan assets at the balance sheet date. Effective April 1, 2007, the Company amended the above plans, introducing the cash balance pension plan, severance lump-sum payment plan and option plan, consisting of a defined contribution pension plan and a prepaid retirement benefit plan, among which employees can adopt whichever they consider more preferable. The Company has an employees retirement benefit trust for payments of retirement benefits. The securities which were previously contributed to and are held in this trust are qualified as plan assets. Directors and corporate auditors are not covered by these plans. However, the Company and 12 (eight in 2006) domestic subsidiaries provide for the liability at the amount which would be required, if all directors and corporate auditors terminated their offices at the end of each financial period. The accrued provisions are not funded and any amounts payable to directors and corporate auditors upon retirement are subject to the approval of the shareholders. h. Presentation of Equity On December 9, 2005, the ASBJ published a new accounting standard for presentation of equity. Under this accounting standard, certain items which were previously presented as liabilities are now presented as components of equity. Such items include stock acquisition rights, minority interests, and any deferred gain or loss on derivatives accounted for under hedge accounting. This standard is effective for fiscal years ending on or after May 1, The consolidated balance sheet as of March 31, 2007 is presented in line with this new accounting standard. i. Research and Development Costs Research and development costs are charged to income as incurred. j. Allowance for Doubtful Receivables The allowance for doubtful receivables is stated in amounts considered to be appropriate based on the Companies past credit loss experience and an evaluation of potential losses in the receivables outstanding. k. Leases Leases are principally accounted for as operating leases. Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions if certain as if capitalized information is disclosed in the notes to the lessee s consolidated financial statements. 25