Consolidated Financial Statements for the First Three Months of the March 31, 2011 Fiscal Year <under Japanese GAAP> July 30, 2010 Listed Company Name: TAISHO PHARMACEUTICAL CO., LTD. Stock Listing: TSE Security Code: 4535 (URL http://www.taisho.co.jp/) Representative: Akira Uehara, CEO Contact: Masaki Tsuboi, General Manager of Public Relations Section TEL: +81-3-3985-1111 Scheduled date for filing Quarterly Securities Report: August 11, 2010 Scheduled date of dividend payments: Supplementary material on quarterly financial results: Yes Quarterly financial results briefing: Yes * All amounts in this report are rounded down to the nearest million yen. 1. Consolidated Financial Results for the First Three Months of Fiscal 2010 (cumulative: April 1, 2010 to June 30, 2010) (1) Consolidated Operating Results Note: Percentages indicate changes over the same period in the previous fiscal year. Net sales Operating income Ordinary income Net income For three months ended Millions of yen % Millions of yen % Millions of yen % Millions of yen % June 30, 2010 64,557 1.6 11,923 90.6 12,930 82.8 7,708 115.3 June 30, 2009 63,563 2.8 6,256 (46.3) 7,074 (42.8) 3,580 (53.5) Net income per share Net income per share, diluted For three months ended Yen Yen June 30, 2010 27.41 June 30, 2009 12.48 (2) Consolidated Financial Position Total assets Net assets Equity ratio Net assets per share As of Millions of yen Millions of yen % Yen June 30, 2010 597,632 522,296 85.7 1,822.60 March 31, 2010 606,443 527,760 85.3 1,816.68 Reference: Equity As of June 30, 2010: 511,888 million yen As of March 31, 2010: 517,550 million yen 2. Cash Dividends Annual dividends First quarter Second quarter Third quarter Fiscal year-end Total Yen Yen Yen Yen Yen Fiscal 2009 12.00 15.00 27.00 Fiscal 2010 Fiscal 2010 (Forecast) 12.00 15.00 27.00 Note: Revision of the forecasts in the first quarter of Fiscal 2010: No
3. Forecasts of Consolidated Operating Results for Fiscal 2010 (April 1, 2010 to March 31, 2011) Note: Percentages indicate changes over the same period in the previous fiscal year. Net sales Operating income Ordinary income Net income Net income per share Millions of yen % Millions of yen % Millions of yen % Millions of yen % Yen Half year 129,500 (0.2) 16,500 (9.3) 18,000 (4.5) 10,500 1.3 37.38 Full year 262,000 1.4 36,000 3.8 40,500 10.4 24,500 25.7 87.23 Note: Revision of the forecasts in the first quarter of Fiscal 2010: No 4. Other (For details, please refer to Other Information on page 4 of the Attached Material) (1) Changes in significant subsidiaries during the current quarter: No Note: Changes in specified subsidiaries resulting in changes in scope of consolidation during the current quarter (2) Application of simplified accounting as well as specific accounting: Yes Note: Application of simplified accounting as well as specific accounting for preparing the quarterly consolidated financial statements (3) Changes in accounting policies, procedures, and methods of presentation a. Changes due to revisions to accounting standards: Yes b. Changes due to other reasons: No Note: Changes in accounting policies, procedures, and methods of presentation for preparing the quarterly consolidated financial statements described in the section of Summary of changes in accounting policies, procedures, and methods of presentation (4) Number of issued shares (common stock) a. Total number of issued shares at the end of the period (including treasury stock) As of June 30, 2010 300,465,510 shares As of March 31, 2010 300,465,510 shares b. Number of shares of treasury stock at the end of the period As of June 30, 2010 19,609,430 shares As of March 31, 2010 15,577,100 shares c. Average number of shares during the period (cumulative from the beginning of the fiscal year) For three months ended June 30, 2010 281,242,093 shares For three months ended June 30, 2009 286,823,233 shares * Indication regarding execution of quarterly review procedures This quarterly financial results report is not subject to the quarterly review procedures in accordance with the Financial Instruments and Exchange Act. At the time of disclosure of this quarterly financial results report, the quarterly review procedures are in progress. * Disclaimer regarding appropriate use of forecasts and related points of note The forecast statements shown in these materials are based on the information available at the time of preparation and certain assumptions that Taisho deems rational. Actual performance and other factors may differ materially from these forecasts due to various factors.
Attached Material Index 1. Qualitative Information Regarding Financial Results for the First Three Months... 2 (1) Qualitative Information Regarding Consolidated Operating Results... 2 (2) Qualitative Information Regarding Consolidated Financial Position... 3 (3) Qualitative Information Related to Forecasts of Consolidated Operating Results... 3 2. Other Information... 4 (1) Summary of changes in significant subsidiaries:... 4 (2) Summary of application of simplified accounting as well as specific accounting:... 4 (3) Summary of changes in accounting policies, procedures, and methods of presentation... 4 3. Consolidated Financial Statements... 5 (1) Consolidated Balance Sheets... 5 (2) Consolidated Statements of Income (cumulative)... 7 (3) Consolidated Statements of Cash Flows... 8 (4) Notes on Premise of Going Concern... 10 (5) Segment Information (cumulative)... 10 (6) Notes on Substantial Changes in the Amount of Shareholders Equity... 11 1
1. Qualitative Information Regarding Financial Results for the First Three Months (1) Qualitative Information Regarding Consolidated Operating Results During this first quarter, sales were sluggish in the over-the-counter (OTC) drug market which mostly consists of the business field of the Self-Medication Operation Group. This was mainly because of a slump in nasal inflammation related products due to fewer quantities of airborne pollens and the lower sales of cold prevention related products resulting from a reactive lull from the sharp demand spike for these products last year that accompanied the commotion surrounding the new strain of influenza. The difficult business environment continued also for the Prescription Pharmaceutical Operation Group as a result of the huge impact from the revision to NHI drug prices that took effect in April this year. Under these circumstances, the Self-Medication Operation Group focused on the provision of information on drugs, etc. particularly category 1 in addition to highlighting our product value in order to strengthen in-store sales promotion as well as enhance solution proposals, striving to build No. 1 brands in the fields with marketability and growth potential. The Prescription Pharmaceutical Operation Group also, while strengthening marketing strength by focusing on the provision of information, dedicated itself to the ongoing development of its original development substances and the acceleration of research and development efforts. As a result of these business activities, net sales during this first quarter increased by 0.994 billion, or 1.6% from the same period a year earlier, to 64.557 billion. Performance by segment is provided below. (Billions of yen) Segment / Category Amount Increase (Decrease) Amount % Self-Medication Operation Group 39.9 1.3 3.5 Over-the-counter drugs, etc. 36.1 0.8 2.3 Foods for Specified Health Use and foods, etc. 3.0 0.6 25.5 Others 0.6 (0.1) (13.6) Prescription Pharmaceutical Operation Group 24.6 (0.3) (1.5) Ethical drugs 22.8 0.003 0.01 Intermediate products, etc. 1.7 (0.2) (12.6) Royalty income 0.02 (0.1) (83.1) Included in consolidated net sales are sales of 2.1 billion from consolidated subsidiary Biofermin Pharmaceutical Co., Ltd. and sales of 1.0 billion from Taisho Pharmaceutical Singapore Private Limited, which manages the OTC business in Asia, and PT. Taisho Pharmaceutical Indonesia Tbk (Note). Note: In October last year, Taisho acquired the OTC business from Bristol-Myers Squibb Company (U.S.A.). Sales by segment were as follows: < Self-Medication Operation Group > Net sales in this first quarter increased by 1.3 billion, or 3.5% year on year, to 39.9 billion. With regard to the Lipovitan series of energy drinks, although sales of our mainstay Lipovitan D were a little slow due in part to unseasonal weather in early spring, we achieved growth in sales of products such as Lipovitan Fine and Lipovitan Half which appealed to consumers who prefer low-calorie drinks, and Lipovitan FB, which was launched in March this year, got off to a good start. Sales for the Lipovitan series overall were about level at 18.4 billion (down 0.4%). Regarding sales of the Pabron series of cold remedies, although the mainstay general cold remedies performed robustly, there was a reactive lull from the sharp demand spike for cold prevention related products due to the outbreak of the new strain of influenza last year. Overall sales for the Pabron series declined 3.1% to 4.5 billion. The RiUP series of hair regrowth treatments grew 12.0% to 3.6 billion. A contributing factor behind this was the continued strong sales of the new product RiUP X5 released in June last year despite category 1 drugs generally struggling in the OTC drug market. With regard to other brands, sales for ZENA series of mini-drinks fell 7.6 % to 0.8 billion and other series showed slight decrease in sales: the Gastrointestinal Treatment series fell 3.0% to 0.9 billion, the NARON series fell 2.8% to 1.0 billion, and the Colac series fell 0.6% to 0.9 billion. 2
In Foods for Specified Health Use and foods, etc., sales of the Livita series rose 25.0% to 0.8 billion. Note that Biofermin Pharmaceutical Co., Ltd. contributed 1.3 billion and the Asian OTC business contributed 1.0 billion to consolidated net sales. < Prescription Pharmaceutical Operation Group > Net sales in this first quarter decreased by 0.3 billion, or 1.5% year on year, to 24.6 billion. While being affected by the NHI drug price revisions that took effect in April this year, there were strong sales from beta-lactamase inhibitor-penicillin antibacterial agent ZOSYN released in October 2008, which rose 34.5% to 3.4 billion and the new quinolone antibacterial agent OZEX which rose 53.3% to 0.9 billion due to the contribution by OZEX fine granules for pediatric use that was launched in January this year. On the other hand, our mainstay macrolide antibiotic Clarith fell slightly by 1.2% to 5.3 billion despite an increase in the number of units sold. Sales of peripheral vasodilator Palux was down 7.8% to 2.6 billion, quinolone antibacterial agent Geninax was down 38.3% to 0.9 billion, nonsteroidal anti-inflammatory drug Lorcam dropped 8.4% to 0.9 billion, injectable penicillin antibiotic PENTCILLIN fell 17.1% to 0.9 billion, and cephem antibiotic TOMIRON was down 2.1% to 0.6 billion. Sales of intermediate products decreased by 12.6% to 1.7 billion. Elsewhere, royalty income decreased by 83.1% to 0.02 billion. Biofermin Pharmaceutical Co., Ltd. contributed 0.8 billion to consolidated net sales. On the cost front, because of a large drop in costs due to the lack of temporary hike in costs from the same period of the previous year which included payment of a major milestone fee related to the introduction of development substances and a temporary increase in advertising expenses accompanying the large-scale launches of new products such as RiUP X5, as well as conscious effort to constrain costs, selling general & administrative expenses were considerably reduced. Operating income increased 90.6% to 11.923 billion, ordinary income increased 82.8% to 12.93 billion and net income increased by 115.3% to 7.708 billion. (2) Qualitative Information Regarding Consolidated Financial Position Total assets as of June 30, 2010, stood at 597.6 billion, down 8.8 billion from the previous fiscal year-end. The main factors of decrease were an increase in evaluation losses on stocks and a 5.1 billion decrease in investment securities due to redemption of bonds, etc. Liabilities amounted to 75.3 billion, a decrease of 3.3 billion from the previous year-end. The main factor of increase was accrued expenses of 5.7 billion and the main factors of decrease were accrued income taxes of 5.4 billion and allowance for bonuses of 2.9 billion. Net assets amounted to 522.2 billion, a decrease of 5.4 billion from the previous year-end. Net income of 7.7 billion was the main factor of increase and the main factors of decrease were decrease in surplus of 4.2 billion due to dividends payment and purchase of treasury stock (which is counted as a deduction in net assets) of 6.8 billion. (3) Qualitative Information Related to Forecasts of Consolidated Operating Results Concerning forecasts of operating results for Fiscal 2010, Taisho has made no changes to the forecasts of consolidated operating results that were announced on May 14, 2010. 3
2. Other Information (1) Summary of changes in significant subsidiaries: No items to report (2) Summary of application of simplified accounting as well as specific accounting: a. Simplified accounting - Depreciation of fixed assets Depreciation expense for assets that are depreciated using the declining-balance method is calculated by dividing on a pro-rata basis the annual depreciation expense. - Calculation of deferred and accrued account items Deferred and accrued account items are booked at approximate amounts resulting from the application of a reasonable calculating method. - Calculation of income taxes and deferred tax assets and liabilities The calculation of the payment amount of income taxes is based on the method in which the addition and subtraction items and tax credit items are limited to important items only. In judging the recoverability of deferred tax assets, if it is found that business circumstances as well as occurrences of temporary differences have not materially changed since the previous fiscal year-end, the calculation of income taxes and deferred tax assets and liabilities is made employing the future forecasts of operating results and the tax planning used at the previous fiscal year-end. b. Specific accounting No items to report (3) Summary of changes in accounting policies, procedures, and methods of presentation a. Application of accounting standard for asset retirement obligations Effective from this first quarter, the Company adopted the Accounting Standard for Asset Retirement Obligations (ASBJ Statement No. 18, March 31, 2008) and the Guidance on Accounting Standards for Asset Retirement Obligations (ASBJ Guidance No. 21, March 31, 2008). There was no impact from this change on operating income, ordinary income or income before income taxes and minority interests. b. Application of Accounting Standard for Equity Method of Accounting for Investments and Practical Solution on Unification of Accounting Policies Applied to Associates Accounted for Using the Equity Method Effective from this first quarter, the Company adopted the Accounting Standard for Equity Method of Accounting for Investments (ASBJ Statement No. 16, released on March 10, 2008) and the Practical Solution on Unification of Accounting Policies Applied to Associates Accounted for Using the Equity Method (PITF No. 24, March 10, 2008). There was no impact from this change on ordinary income or income before income taxes and minority interests. c. Changes in methods of presentation (quarterly consolidated statements of income) Following the adoption of the Cabinet Office Ordinance Partially Revising Regulation on Terminology, Forms and Preparation of Financial Statements (Cabinet Office Ordinance No. 5, March 24, 2009) based on the Accounting Standard for Consolidated Financial Statements (ASBJ Statement No. 22, December 26, 2008), income before minority interests is included in the consolidated statements of income for the three months ended June 30, 2010. 4
3. Consolidated Financial Statements (1) Consolidated Balance Sheets (Millions of yen) As of June 30, 2010 As of March 31, 2010 (Summary) ASSETS Current assets Cash and deposits 112,046 105,625 Notes and accounts receivable trade 63,915 60,379 Marketable securities 6,602 7,598 Merchandise and finished goods 14,009 14,190 Work in process 1,790 2,173 Raw materials and supplies 7,406 7,298 Deferred tax assets 6,104 7,711 Other 4,032 10,858 Allowance for doubtful accounts (149) (149) Total current assets 215,757 215,686 Fixed assets Tangible fixed assets Buildings and structures, net 46,494 47,136 Machinery, equipment and vehicles, net 8,165 8,508 Land 30,829 30,828 Construction in progress 300 292 Other, net 3,793 3,979 Total tangible fixed assets 89,584 90,746 Intangible fixed assets Goodwill 14,063 14,254 Sales rights 10,956 11,252 Trademarks 3,948 4,202 Software 3,934 4,210 Other 377 376 Total intangible fixed assets 33,280 34,296 Investments and other assets Investment securities 197,684 202,814 Stocks of subsidiaries and affiliates 45,803 47,057 Long-term prepaid expenses 1,009 996 Deferred tax assets 11,034 10,130 Other 3,683 4,939 Allowance for doubtful receivable long term (206) (225) Total investments and other assets 259,009 265,714 Total fixed assets 381,874 390,756 Total assets 597,632 606,443 5
(Millions of yen) As of June 30, 2010 As of March 31, 2010 (Summary) LIABILITIES Current liabilities Notes and accounts payable trade 22,949 22,689 Short-term loans 1,250 1,275 Accounts payable 9,045 10,228 Accrued income taxes 2,498 7,972 Accrued expenses 13,352 7,578 Adjustment allowance for returns 510 545 Allowance for bonuses 1,519 4,433 Other 1,209 957 Total current liabilities 52,335 55,680 Long-term liabilities Reserves for retirement benefits 17,024 16,911 Reserves for directors' retirement payments 1,383 1,385 Deferred tax liabilities 495 529 Other 4,096 4,175 Total long-term liabilities 23,000 23,002 Total liabilities 75,335 78,682 NET ASSETS Shareholders' equity Common stock 29,804 29,804 Additional paid-in capital 14,935 14,935 Retained earnings 510,158 506,725 Treasury stock (37,666) (30,767) Total shareholders' equity 517,230 520,697 Valuation, translation adjustments and others Unrealized gain (loss) on securities 1,847 4,176 Foreign currency adjustment accounts (7,189) (7,323) Total valuation, translation adjustments and others (5,342) (3,147) Minority interests 10,408 10,210 Total net assets 522,296 527,760 Total liabilities and net assets 597,632 606,443 6
(2) Consolidated Statements of Income (cumulative) (Millions of yen) For three months ended June 30, 2009 For three months ended June 30, 2010 Net sales 63,563 64,557 Cost of sales 22,146 23,108 Gross profit on sales 41,416 41,448 Reversal of provision for sales returns 613 535 Provision for sales returns 564 500 Gross profit 41,465 41,483 Selling, general & administrative expenses 35,209 29,560 Operating income 6,256 11,923 Non-operating income Interest income 1,316 1,277 Dividend income 479 597 Rental income on real estate 6 8 Other 93 136 Total non-operating income 1,895 2,019 Non-operating expenses Interest expenses 7 4 Investment loss in affiliates using the equity accounting method 994 943 Other 75 65 Total non-operating expenses 1,077 1,013 Ordinary income 7,074 12,930 Extraordinary gains Gain on sales of fixed assets 3 Total extraordinary gains 3 Extraordinary losses Loss on disposal of fixed assets 26 6 Evaluation loss on investment securities 7 Total extraordinary losses 26 13 Income before income taxes and minority interests 7,051 12,916 Income taxes 3,041 4,823 Income before minority interests 8,092 Minority interest gain (loss) of consolidated subsidiaries 429 383 Net income 3,580 7,708 7
(3) Consolidated Statements of Cash Flows For three months ended June 30, 2009 (Millions of yen) For three months ended June 30, 2010 Cash flows from operating activities Income before income taxes and minority interests 7,051 12,916 Depreciation and amortization 2,557 2,850 Amortization of goodwill 32 183 Loss (gain) on sales of fixed assets (3) Loss (gain) on disposal of fixed assets 26 6 Evaluation loss (gain) on investment securities 7 Interest and dividend income (1,796) (1,875) Interest expenses 7 4 Investment loss (gain) in affiliates using the equity accounting method 994 943 Gain (loss) in allowance for doubtful accounts (35) (19) Increase (decrease) in reserves for retirement benefits 243 108 Decrease (increase) in prepaid pension costs 9 (143) Increase (decrease) in reserves for directors' retirement payments (7) (1) Increase (decrease) in allowance for bonuses (2,793) (2,913) Decrease (increase) in notes and accounts receivable trade (878) (3,460) Decrease (increase) in inventories (1,514) 479 Increase (decrease) in notes and accounts payable trade 2,749 235 Increase (decrease) in accounts payable other and accrued expenses 5,897 5,498 Increase (decrease) in long-term accounts payable other (4) (16) Other 799 953 Subtotal 13,336 15,757 Interest and dividends income received 1,746 1,258 Interest paid (7) (4) Income taxes paid (9,183) (8,137) Net cash provided by operating activities 5,892 8,873 Cash flows from investing activities Decrease (increase) in time deposits 7,909 (29) Proceeds from sales/redemption of marketable securities 1,000 Payments for purchases of tangible fixed assets (2,304) (1,870) Proceeds from sales of tangible fixed assets 10 Payments for purchases of intangible fixed assets (232) (83) Payments for purchases of investment securities (5,000) (58) Proceeds from sales/redemption of investment securities 30,000 1,500 Proceeds from sales of investments in subsidiaries 2 Payments for purchases of long-term prepaid expenses (125) (152) Other 5 18 Net cash provided by investing activities 30,264 325 8
For three months ended June 30, 2009 (Millions of yen) For three months ended June 30, 2010 Cash flows from financing activities Increase in short-term loans payable 55 55 Decrease in short-term loans payable - (80) Repayments of finance lease obligations (50) (66) Payments for acquiring treasury stock (4,746) (6,899) Decrease (increase) in money held in trust for acquiring treasury stock 4,713 6,886 Payments for dividends (4,034) (4,001) Cash dividends paid to minority shareholders (113) (93) Net cash used in financing activities (4,176) (4,200) Effect of exchange rate changes on cash and cash equivalents 193 72 Net increase (decrease) in cash and cash equivalents 32,173 5,071 Cash and cash equivalents at the beginning of period 64,862 96,956 Cash and cash equivalents at the end of period 97,036 102,028 9
(4) Notes on Premise of Going Concern No items to report (5) Segment Information (cumulative) Segment information by business category For three months ended June 30, 2009 Self-Medication Operation Group Prescription Pharmaceutical Operation Group Total Elimination or corporate (Millions of yen) Consolidated Sales (1) Sales to outside customers 38,563 24,999 63,563 63,563 (2) Sales or transfers between segments Total 38,563 24,999 63,563 63,563 Operating income (loss) 6,516 (259) 6,256 6,256 Segment information by geographical category For three months ended June 30, 2009 The description of segment information by geographical category is omitted because the amount of sales in Japan among the total sales of all the segments exceeds 90%. Overseas sales For three months ended June 30, 2009 The description of overseas sales is omitted because the overseas sales total is less than 10% of consolidated net sales. [ Segment information ] 1. Overview of reportable segments The reportable segments of Taisho are constituent units of the Company whose separate financial information is obtainable. These segments are periodically examined by the Board of Directors for the purpose of deciding the allocation of business resources and evaluating the operating results. In light of the difference in sales format between OTC drugs and ethical drugs, and the difference in management risk associated with the burden of research and development expenses, Taisho separates these operations into the Self-Medication Operation Group and the Prescription Pharmaceutical Operation Group. The business activities conducted under the Self-Medication Operation Group are research, development manufacturing and sales of OTC drugs, Foods for Specified Health Use, foods, healthcare products and sanitary products. The business activities conducted under the Prescription Pharmaceutical Operation Group are research, development, manufacturing and sales of ethical drugs. Taisho s business activities related to leasing and management of real estate and hotel management are extremely immaterial in terms of monetary amounts, therefore they are included in the Self-Medication Operation Group. 10
2. Information concerning net sales and income/loss by reportable segment For three months ended June 30, 2010 Self-Medication Operation Group Prescription Pharmaceutical Operation Group (Millions of yen) Sales Sales to outside customers 39,920 24,636 64,557 Sales or transfers between segments Total 39,920 24,636 64,557 Segment income 9,378 2,545 11,923 Note: Segment income matches operating income on the consolidated statements of income and there exists no variance. 3. Information regarding impairment loss of fixed assets, goodwill and negative goodwill, etc. by reportable segment There was no material impairment loss of fixed assets, material change in goodwill amount, or material negative goodwill arisen during the three months ended June 30, 2010. (Additional information) Effective from this first quarter, the Company adopted the Accounting Standard for Disclosures about Segments of an Enterprise and Related information (ASBJ Statement No. 17, March 27, 2009) and Guidance on Accounting Standard for Disclosures about Segments of an Enterprise and Related information (ASBJ Guidance No. 20, March 21, 2008). Total (6) Notes on Substantial Changes in the Amount of Shareholders Equity Based on the resolution at a meeting of the Board of Directors held on March 1, 2010, Taisho executed an acquisition of treasury stock of 4,020,000 shares during this first quarter, which added 6,899 million to treasury stock making the total amount of treasury stock at the end of this first quarter 37,666 million. Moreover, Taisho paid dividends of 4,276 million on June 30, 2010, and as a result, retained earnings stood at 510,158 million as of June 30, 2010. 11