annual report - 株式会社ホギメディカル · hogy medical directly conducts proposal-based...
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2 0 0 3ANNUAL REPORTFor the year ended March 31, 2003
HOGY MEDICAL
Hogy Medical has grown since its inception through developing and supplyingproducts that contribute to the rationalization of management at medical insti-tutions as well as the safety of patients and medical staff. We have solidifiedour position as the leading firm with the greatest share in the disposable med-ical instruments market of Japan.
Hogy Medical was established by Masao Hoki, our current president, in1961. Since then, we have led the industry through innovative products. TheMekkin Bag developed and released in 1964 as the first step in the preventionof in-hospital infection has grown to become the representative product forsterilization bags. This was followed by the development of Sontara®, a non-woven fabric medical product that has been a great success and generated arevolution in the prevention of hospital infections.
Hogy Medical directly conducts proposal-based marketing to medicalinstitutions and responds to the voices of people on the medical front with careand precision. Presently, our medical kit product is posting rapid growth as itmeets the needs of our customers. This is a kit in which the quantity of medicalinstruments is set in accordance with the needs of each medical function suchas surgery and medical check-ups. Since its release, the kits have drawn theattention of medical institutions from the perspective of reducing work burden,preventing human mistakes and hospital infections, as well as other aspects ofrisk management.
Over the medium to long term, Hogy Medical will use the start of theoperations of its Tsukuba Plant – a signature plant for safety measures – as anopportunity to strive for implementing a strategy based on the “HOGY FullKIT System,” which contributes to medical safety and heightened efficiency ofhospital operations.
Sontara is a registered trademark of E.I.du Pont de Nemours & Company (Inc.).
ContentsFinancial Highlights .................................................................................1To Our Shareholders ................................................................................2Promotion of the “HOGY Full KIT System”..............................................5Intoroduction of Product Lines.............................................................10Financial Review.....................................................................................12Key Financial Data..................................................................................14Consolidated Financial StatementsConsolidated Balance Sheets...............................................................16Consolidated Statements of Income...................................................18Consolidated Statements of Shareholders’ Equity...........................19Consolidated Statements of Cash Flows............................................20Notes to Consolidated Financial Statements ....................................21Report of Independent Auditors........................................................27
Non-Consolidated Financial StatementsNon-Consolidated Balance Sheets......................................................28Non-Consolidated Statements of Income..........................................30Non-Consolidated Statements of Shareholders’ Equity..................31Notes to Non-Consolidated Financial Statements ...........................32Report of Independent Auditors........................................................33
Shareholder Information........................................................................34Corporate Information ...........................................................................35Network....................................................................................................36
Front cover photo: Tsukuba Plant — An integrated production to shipping process
Profile
Speed & Product Quality
1
Financial Highlights
59,26069,351
326,739477,013
—
7,1238,336
39,27457,337
68.5
23,8876,2666,0113,506
7,1238,336
37,39456,251
66.5
(Millions of yenunless indicated otherwise)
Years ended March 31
2003
22,8926,4075,9783,502
2002 2003(Thousands ofU.S. dollars)
PerformanceNet salesOperating incomeIncome before income taxes and minority interestsNet income
Financial positionCommon stockAdditional paid-in capitalTotal shareholders’ equityTotal assetsEquity ratio (%)
198,72752,13050,00829,168
—1,498 1,528Number of employees at year-end
Notes: (1) The U.S. dollar amounts in this annual report are translated from Japanese yen, for convenience only, at the rate of ¥120.20 = $1, the rate of exchange on March 31, 2003.
(2) This annual report states all figures on a consolidated basis, except where otherwise noted.
Consolidated Financial Highlights
—59,26069,351
318,153465,141
—
16,3417,1238,336
38,24255,910
68.4
23,8745,8355,6713,294
16,3417,1238,336
36,39954,768
66.5
(Millions of yenunless indicated otherwise)
Years ended March 31
2003
22,8805,7535,4143,144
2002 2003(Thousands ofU.S. dollars)
PerformanceNet salesOperating incomeIncome before income taxesNet income
Financial positionNumber of shares issued (thousands)Common stockAdditional paid-in capitalTotal shareholders’ equityTotal assetsEquity ratio (%)
198,61948,54447,18027,404
—658 653Number of employees at year-end
Non-Consolidated Financial Highlights
2
To Our Shareholders
Masao Hoki, President & CEO
3
Industry Environment: Health CareReform in 2002
It brings me great delight to be able to report toyou, our shareholders and stakeholders, on HogyMedical Co., Ltd.’s accounts for the year ended inMarch 31, 2003.
The Japanese economy during the year underreview increased in its lack of transparency due tosuch factors as the non-performing loan problemof financial institutions, the severe employmentconditions, the post war handling of Iraq and theimpact of SARS. On the other hand, the govern-ment is being forced to rebuild the medical insur-ance system shaken by the rapid decline in thenumber of children and the aging society inJapan. Consequently, the present administrationintroduced a number of policies over the yearunder review to suppress medical costs. Thedevelopment of these medical system reforms hasthrust medical institutions and the medicine relat-ed industry into an era of dramatic change.
For example, for the first time ever the gov-ernment revised downward the medical compen-sation standard by an average of 1.3% in April2002. Consequently, many hospitals have beenforced to reduce their medical earnings.
In the same manner, new standards for surgi-cal facilities (the required number of surgeries peryear, number of doctors, experience of doctors,etc.) were introduced in April 2002, and medicalinstitutions that do not meet these standardsmust now suffer a major reduction in surgeryfees. However, only 2 out of about 9,600 medicalinstitutions nationwide have been able to clearthese surgical standards for all types of surgeries,and these standards are now being revised at thebehest of medical associations.
Furthermore, in October 2002 the method fordetermining the portion of costs shouldered bythe elderly when receiving health care waschanged from a fixed amount to a fixed percent-age. This has led to a distinct drop in patientsamong small and medium-sized hospitals center-
ing on those between the ages of 70 and 75.Medical institutions have been directly hit by
this series of measures to reduce health careexpenses resulting in an overall deterioration oftheir revenues. Hospitals placed in dire businessconditions have been refraining from makingpurchases and have even been requesting dis-counts, which has also led to further gravity inthe business environment of the medical devicesindustry.
Overview of Performance
Hogy Medical manufactures and sells productsthat contribute to the safety of patients and healthcare professionals along with the rationalizationand reduction of the workload at medical institu-tions. These activities are carried out under thetheme of “preventing hospital infection.” In theyear under review, we perceived potential withinthe severe environment and focused efforts onexpanding the sale of products that contribute toimproving hospital management centering onmedical kit products, which are a collection ofsurgical products.
As a result, these medical kits experienced acontinued and rapid growth, with sales of 28.0%year-on-year (all comparisons hereafter are thesame unless otherwise noted). Additionally, ourother products, such as the non-woven fabric-based Sontara series of products, were generallyable to achieve sales as budgeted. As a result,consolidated sales reached 23,887 million yen(4.3% increase) and extended our record of con-tinued revenue growth since our inception, aspan of 42 business terms.
In terms of profits, we posted increased per-sonnel costs accompanying the increase in per-sonnel to reinforce sales, increased sampleproduct costs for sales promotions, the genera-tion of foreign exchange losses in non-operatinglosses and the extraordinary loss of a revaluationloss related to bank shares held. As a result,Hogy Medical’s consolidated operating income
4
was 6,266 million yen (2.2% decrease), consolidat-ed ordinary income 6,144 million yen (2.5%decrease) and consolidated net income 3,506 mil-lion yen (0.1% increase).
We have decided on a shareholder dividendequivalent to last fiscal year of 24 yen per share(of which, the interim dividend accounts for 12yen) after considering the matter from the per-spective of securing liquidity that allows us toquickly respond to the drastically changing med-ical business environment. We intend to returndividends to our shareholders through increasedearnings generated by assigning retained earn-ings for reinforcing growth products and otheradvance investments.
Implementation of a New BusinessStrategy
Hogy Medical completed construction of theTsukuba Plant in November 2002, our greatestproject of the early 21st century. This plant, whichproduces medical kits, began full-scale operationsin May 2003. We will take full advantage of thisopportunity presented by the completion of theplant to promote our new business strategy,termed the “HOGY Full KIT System Strategy.”
Our medical kit products are tailor made setsof medical supplies used at the medical site suchas in surgery (sanitation supplies, trays, dispos-able medical instruments, etc.). With the comingon line of the Tsukuba Plant, Hogy Medical hascompiled a supply system with even greater sta-bility. Traditionally, the production of medicalkits involved the handling of medical suppliesvia manual labor and thus there was a limit to theproduction quantity. However, total automationat the new plant has dramatically expanded ourproduction capabilities and it is now possible toconduct production that is highly responsive tothe desires and needs of our customers.
The “HOGY Full KIT System” is a systemthat comprehensively reforms the administrationof hospitals, which are presently in engulfed in
an environment of intense change. Specifically,the system contributes to the securing of safety atthe medical site and heightening the efficiency ofmanagement. This is accomplished by facilitat-ing “logistics management” that realizes timelydelivery of products via the provision of full kitproducts, and “information management,” whichfacilitates improvements in management.
The significance of the Tsukuba Plant, as anintegral part of our business strategy, and the“HOGY Full KIT System Strategy” are describedin further detail later.
Performance Projections
We expect the period of stagnation richly coloredby deflation to continue in the Japanese economyhereafter. In the medical industry, the govern-ment’s policy to suppress medical costs will con-tinue, and medical institutions will be forced toseek heightened business efficiency even more.
Within these conditions, Hogy Medical willdevote itself to expanding the sales of full kitproducts, which contribute to medical safety andimproved management efficiency at medicalinstitutions. The expansion of new products cen-tered around full kit products is expected to gen-erate consolidated sales of 26,100 million yen inthe year ending in March 2004 (9.3% increase).However, depreciation centered on TsukubaPlant related areas is expected to peak at 2,452million yen (1,458 million yen in the fiscal yearunder review). Therefore, we project consolidat-ed operating income of 5,707 million yen (8.9%decrease), consolidated ordinary income of 5,744million yen (6.5% decrease) and consolidated netincome of 3,415 million yen (2.6% decrease).
June 2003
Masao HokiPresident & CEO
5
Reforming the Management of Hospitals is an Absolute within Medical System Reforms
As Hogy Medical seeks to project the future busi-ness climate, it is predicted that two policies ofthe Ministry of Health, Labour and Welfare willhave a very large impact on medical institutionsand the medical device industry. The first policyis medical system reforms that seek to suppressmedical costs. The impact of these reforms hasresolutely forced the improvement of manage-ment efficiency on medical institutions. Theother policy is the reinforcing of regulations relat-ed to the safety of pharmaceutical products andmedical devices. Thus, the response to these reg-ulations has become a vital management themefor the medical devices industry.
The first system reform that had a materialimpact on hospital operations was the introduc-tion of the comprehensive payment system foruniversity hospitals and other advanced treat-ment hospitals implemented from April 2003.This is a system also known as daily hospital pay-ment (DHP), which pays a fixed daily amount forhospitalization during acute periods according to
the type of diagnosis and medical institution. Inthis system, a greater number of points is award-ed for shortened hospital stays and so it is expect-ed that hospitals covered by this system willstrive to reduce the hospitalization period andincrease the number of surgeries.
In addition, one of the steps in the reforms ofthe health care system requires hospitals to defineand report whether they provide beds for generalpatients (acute period) or beds for medical care(chronic period) by August 2003. This will accel-erate the separation of functions at medical insti-tutions and it is predicted that this willstrengthen the trend of concentrating surgeries(previously spread out at various medical institu-tions) at major hospitals.
Adding to this, the privatization of nationaluniversity hospitals, national hospitals and otherinstitutions along with the introduction of corpo-rate accounting at hospitals based on new stan-dards are expected in April 2004. Medicalinstitutions will be forced to compile more tabula-tions in greater detail with the introduction offinancial accounting standards for business enter-prises. As hospitals are confronted by these seriesof measures, they must tackle reformation of their
management practices.
Promotion ofSafety Measuresby Providing TotalAdherence to Safety Standards
In response to thebreakout of noncon-forming medicaldevices and their recall,the Ministry of Health,Labour and Welfare isseeking organizationalcollection and manage-ment of nonconformityinformation by the
Promotion of the “HOGY Full KIT System”
— New Business Strategy in the Era of Hospital Management Reform —
Most Recent and Near Future Medical System Revisions
● April 2002: Medical service fee drops 1.3% (first negative revision)● April 2002: Facility standards for surgery newly established● October 2002: Personal share for expenses in medicine for the elderly
raised
● April 2003: Comprehensive payment system in advanced treatment hospitals introduced
● April 2003: Share of expenses paid by insured raised to 30%● August 2003: Complete reporting of divisions for hospital bed functions
established
● April 2004: Privatization of national university hospitals● April 2004: Privatization of national hospitals and worker’s compensation
hospitals● April 2004: Introduction of corporate accounting among hospitals
6
medical devices industry. In addition, said min-istry is also reinforcing the “Good ManufacturingPractice” (GMP) standards that are regulations forthe manufacturing control and quality control ofmedical devices. This stance has led to the obliga-tion for guaranteeing sterilization by sterile devicemakers through scientific verification of steriliza-tion processes, known as sterilization validation.
Hogy Medical has set out to fully complywith these regulations and is promoting productsafety measures including the establishment ofinternal sections to “gather safety information”and “manage quality” of products. In regards tosterilization, we are guaranteeing the sterilizationof all products by conforming to the GMP regula-tions and are comprehensively implementing thevalidation of sterilization. Particularly with eth-ylene oxide gas (EOG) sterilization, there is aneed to satisfy standards concerning the concen-tration of residual gasses. We implement verystringent removal of residual gasses and haveestablished a system in which shipments of prod-ucts are restricted until figures are below the con-centrations regulated by the standards.
Furthermore, the Ministry of Health, Labourand Welfare has introduced procedures for mak-ing unified entries in attached documents to pre-vent the mistaken use of medical devices andmade this mandatory for all medical devices formedical professionals. This regulation had beenenforced partially since January 2002 and hasbeen fully enforced since January 2003.
The difficulty of meeting this regulation liesin the fact that documents corresponding to eachproduct must be attached to each individualproduct. We decided to meet this requirementby utilizing a computer system and have fullyautomated these processes by developing ourown software for preparing and attachingdocuments. Safety measures for medical deviceswill be strengthened hereafter and we areconfident that our responses to these regulationswill greatly increase our competi-tiveness in themedium to long-term.
Tsukuba Plant – A Testament to the Pursuit of Customer Safety
The Tsukuba Plant, our new production basefor medical kits, has been operating since May2003. The new plant is linked to an adjacentsterilization center and delivery center, and allsteps, from packaging to sterilization and ship-ment, are handled in a single comprehensivelocation. The building itself is five stories highand boasts a total floor space of about 52,000square meters.
The greatest characteristic of this plant isthat every feasible step and measure has beentaken to pursue “customer safety” in order tosecure the reliability of our products. A strictchecking system has been established that com-pletely eliminates the inclusion of foreign arti-cles, and prevents mistakes concerning thequantities and contents of medical supplies inour medical kits.
A detailed breakdown of the productionprocess begins with medical supplies being deliv-ered to the reception space on the first floor. Thequality and safety of supplies are inspected hereand only those supplies that pass the inspectionare sent to the production line. For example, non-woven fabric based products delivered in card-board boxes are transferred to dedicated bucketson the fully automated line. An air shower thenremoves any foreign articles and then they areautomatically delivered to the medical kit assem-bly area. This process eliminates the danger ofcardboard particles from being mixed with theproducts.
In addition, other medical supplies are alsomanaged from the moment that they are receivedthrough the utilization of ID tags and sent to theirrespective picking areas. All of the dedicatedbuckets that transport medical supplies are con-trolled using ID tags and a system is in place tocompletely trace supplies, from their origin tofinal delivery, even after they are assembled intoproducts.
7
5F/Showroom and R&D
4F/Preliminary set assembly
3F/Set assembly
2F/Boxing
1F/Receiving and inspecting
KIT Plant
Floor 1: Receiving and repackaging
Floors 2-4: Clean room
Floor 2: Automatic packaging Floors 3-4: Monitor checking
Clean Room and Other Facilities Worthy of a Pharmaceuticals Plant
The picking area on the fourth floor is at anadvanced clean level. Syringes, threads, needlesand other medical devices are picked in a class10,000 clean room, and gauze, plastic moldedproducts and other sanitation supplies are pickedin a class 100,000 clean room.
In this area, work instructions for each kit aredisplayed on a line of multiple monitors accord-ing to which the picking proceeds. However, weat Hogy Medical have established our ownunique safety measures that will not allow theproduction process to proceed to the next step if amistake occurs.
The third floor is where the kits are actuallyassembled into their respective sets. Here, the
medical supplies and non-woven fabric basedproducts selected for custom kits are assembledunder computerized control in accordance withthe specifications of the respective medical insti-tutions. Since the medical supplies are managedvia ID tags, the system prevents mistakes fromoccurring during this kit assembly process.
The second floor hosts the packaging area,the final process. Here, the automated packagingand attachment of documents to the kits takeplace followed by the printing of instructionsaccording to the ID tags before being sent on tothe sterilization center.
Advanced sanitation, maintenance and man-agement are conducted at the Tsukuba Plant inaccordance with the GMP of medical devices.The control within the facility beginning with theclean rooms on the second through fourth floors
8
is equivalent to that of a pharmaceutical manu-facturing plant. There is no plant in the worldthat is as dedicated to process and quality man-agement in this industry.
Realizing Reductions in WorkloadThrough Optimal Automation
The second characteristic of this plant is that pro-duction efficiency and reductions in workloadhave been heightened through optimal automa-tion. In particular, the picking process has beentotally automated using world leading cutting-edge technology. This process involves accurateselecting of an enormous amount of medical sup-plies, projected to be comprised of about 50,000items during full-scale operations, and suppliesthem to the kit assembly process.
This automation enables the new plant toproduct 5.4 million medical kitsannually despite the fact thatkits are comprised of fifty ormore types of medical supplies.In addition, the plant’s automat-ed warehouse can store about50,000 types of medical suppliesand a system that enables infor-mation on about 200,000 typesof medical supplies to be regis-tered is in place.
“HOGY Full KIT System”Contributes to MedicalSafety and Management Efficiency
Medical system reforms haveincreased the severity of themanagement environment fac-ing medical institutions and thesecuring of revenues throughincreased numbers of surgeriesand other measures has becomean urgent theme. Within this
environment, Hogy Medical is implementing abusiness strategy built around the “HOGY FullKIT System.” This system, established in conjunc-tion with the completion of the Tsukuba Plant andits dedicated operational safety measures, con-tributes to medical safety and heightened hospitalmanagement efficiency in response to this envi-ronment surrounding medical institutions.
Full kit products are comprised of suppliesused before, during and after surgery. Somemedical kits contain over 100 medical suppliesand some kits are expected to have a unit price ofat least 100,000 yen.
Introduction of the full kit product enables adramatic increase in the number of surgeries thatcan be conducted at hospitals. Traditionally,medical kits have contributed to the efficiency ofnurses. In addition to this, customized full kitproducts that include medical supplies that meet
HOGY Full KIT System
Safety
Full Kit
Medical institution
•Surgery scheduling management •Ordering system •Cost calculation by patient
Logistics control
Improved earnings Efficiency
Information control
9
the specific demands of doctors eliminate theneed for surgery preparation by senior nursesand greatly reduce the preparatory time forsurgery. In addition, the kit also reduces the pos-sibility for sterilized supplies to be contaminatedand eliminates the need to manage inventories byitem.
Reforming Hospital ManagementThrough Logistics and InformationManagement
The “HOGY Full KIT System” comprehensivelyreforms hospital management by providing threeelements: full medical kits, logistics managementand information management. In regards tologistics management, Hogy Medical has estab-lished a delivery system that realizes expedientdelivery with the start of operations at the Tsuku-ba Plant.
Previously, approximately two weeks wereneeded from receipt of order to shipment andmade it necessary for hospitals to keep an inven-tory of reserve medical kits. In contrast, theTsukuba Plant produces these medical kits in asfew as four days and has created a system inwhich custom kits are delivered the day beforesurgery. Since custom medical kits are producedin units as small as a single kit, the inventory bur-
den placed on hospitals has been reducedtremendously.
Information management is comprised ofthe “ordering system,” “surgery schedulingmanagement system” and “cost control sys-tem.” In the first system the hospital places anorder for the full kit product comprised of med-ical supplies required by a doctor when thescheduled surgery is inputted into the comput-erized surgery scheduling management system.We then produce the medical kit on our auto-mated production line based on the order infor-mation.
In addition, by using the cost control sys-tem, hospitals are able to conduct analyses andverifications for management reforms includ-ing cost calculations by division, doctor andpatient.
Embarking on the Path to Double-Digit Increases in Sales and Income in the Year Ending In March 2005
Future performance will be driven by salesgrowth in medical kits generated by the“HOGY Full KIT System.” Hogy Medicalanticipates sales of 8,207 million yen (47.2%increase) for medical kits in the year ending inMarch 2004. Of these, full kit product sales areprojected to reach 800 million yen. We believethat, due to contribution from the “HOGY FullKIT System” and Tsukuba Plant, we willembark on a new growth path from in the yearending in March 2005. The medium-termbusiness plan announced in April 2003 callsfor consolidated sales in the year ending inMarch 2005 totaling 29,398 million yen (a pro-jected year-on-year increase of 12.6%) andconsolidated ordinary income reaching 7,271million yen (a projected year-on-year increaseof 26.6%). Thus we anticipate a double-digitincrease in sales and income.
Full Kit Products (for cardiac surgery kit)
10
Sterilization Products
As the first step in preventing hospital infections,Hogy Medical released the Mekkin Bag in 1964.Since then, we have developed products that arecompatible with a variety of sterilization methodsand usages. The Mekkin Bag presently holds an80% market share and is the recognized nameamong sterilization pouch products. We alsohandle bag sealers and other auxiliary equipmentand supplies.
• Sterilization bags (Mekkin Bags)
• Chemical indicators
• Various sterilization related auxiliary equipment
• Various sterilization related auxiliary materials
Surgical Products
Demand for medical kits, which are packages ofmedical supplies used at the medical site, isexpanding centering on advanced function hospi-tals that conduct numerous surgeries. In addi-tion, our surgical gowns and other non-wovenfabric based products (Sontara series) have creat-ed a revolution in the prevention of hospitalinfections, and our high quality steel devices andsterile containers are also popular.
• Non-woven fabrics for medicine (Sontara)
• Medical kits and trays
• Steel instruments
• Sterilized containers
Introduction of Product Lines
3,911 3,9454,071 4,145
2000 2001 2002 2003Years ended in March
Sterilization products
(¥million)
Share of net sales 17.3%
Share of net sales 77.2%
15,92816,660
17,45918,433
Surgical products
2000 2001 2002 2003Years ended in March
(¥million)
11
Treatment Products
Hogy Medical boasts many mainstay productsincluding our germ-free storage facility for stor-ing medical supplies and devices that have beensterilized (Mukinlock), residual EOG removalsystem that completely removes residual EOG toa germ-free state within a Mekkin Bag (Mukinio-later), our clean mats placed at entries and exitsto operating rooms and other clean areas.
• Dust removal adhesive mats (Green Mat)
• Bacteria free storage locker (Mukin Lock)
• Residual EOG removal device (Mukin Iolater)
Nursing Care and Welfare Products
Hogy Medical has entered into a business tie-upwith DeRoyal Industries, Inc. (U.S.A.), a leader inpatient care products (orthopedic, sports medi-cine, rehabilitation and other medical related sup-plies and nursingcare supplies) andwe are sellingDeRoyal products inJapan.
• Patient care products
Others
The advance function disinfection sponge called“Toughponge” was developed for the rapidrecovery from surgical wounds and preventionof infection. This product uses a new materialwith excellent liquid absorption and maintenancecharacteristics and it is drawing much attentionfrom medical institutions due to its ability toenable safe and economical use of disinfectants.Hogy Medical also handles rubber surgerygloves and instruments for sewing up surgicalincisions.
• Advance function sterilization sponge (Toughponge)
• Medical sewing instruments
Share of net sales 2.2%
1,059
840
652
527
Treatment products
2000 2001 2002 2003Years ended in March
(¥million)
36
89
110 113
Care and welfare products
2000 2001 2002 2003Years ended in March
(¥million)
Share of net sales 0.5%
173
267
600
669
Other
2000 2001 2002 2003Years ended in March
(¥million)
Share of net sales 2.8%
Sales by product linefor 2000 - 2003
12
Operating Results
Consolidated net sales in the year ended in March2003 increased 4.3% year-on-year (hereafter allcomparisons year-on-year unless otherwise noted)to 23,887 million yen. The year-on-year rate ofincreased sales revenue declined by 0.7 percentagepoints compared to the 5.0% of the previous year.The gross profit margin was 55.1%, roughly thesame the previous year. This figure was a resultof foreign exchange contracts and other hedgesstabilizing the purchase price of foreign-denomi-nated purchases and efficient production at HogyMedical and our subsidiaries.
Selling, general and administrative expensestotaled 6,888 million yen. This was an increase of683 million yen (11.0%) and as a percentage of netsales climbed 1.7 percentage points from 27.1%the previous year to 28.8%. When broken downby category, employee salaries and bonusesincreased 181 million yen (9.9%) due to anincrease in the number of sales representativesand sample product costs for sales promotionsincreased 161 million yen (36.7%). Furthermore,depreciation expenses increased 145 million yen(29.5%) due to the depreciation of the newly-builthead office building and other factors.
Therefore, the consolidated operating income
was 6,266 million yen, a decrease of 141 millionyen (2.2%) and the operating income margin was26.2%, a decrease of 1.8 percentage points.
The main reason is that other expensestotaled 255 million yen, which is 174 million yenless than last year. Although 95 million yen inforeign exchange gains were posted the previ-ous year, there were foreign exchange losses of155 million yen for the year under review.There was also an extraordinary expense in theprevious year totaling 231 million yen that wasincurred due to issuing corporate bonds.
In addition, a 77 million yen loss was incurreddue to a valuation loss of bank and other sharesheld, compared with 242 million yen for theprevious year.
Due to the above, the income before incometaxes and minority interests was 6,011 millionyen and increased 33 million yen (0.5%).
Net income was 3,506 million yen, an increaseof 4 million yen (0.1%), and net income margin forthe year under review was 14.7%, a decrease of0.6 percentage points.
Financial Position
The consolidated total assets for the year endedin March 2003 were 57,337 million yen, an
200220012000 2003
Net sales
0
5
10
15
20
25(¥bn)
Yearsended
in March
0
2.0
4.0
6.0
8.0(¥bn)
200220012000 2003
Operating income
Yearsended
in March
Financial Review
13
increase of 1,086 million yen (1.9%). Of this, cur-rent assets totaled 26,905 million yen, a decreaseof 2,770 million yen (9.3%). Marketable securitiesdecreased by 3,076 million yen (33.5%) to pay forthe construction of the Tsukuba Plant and notesand accounts receivable decreased by 969 millionyen (12.5%) due to the relation of notes receivablenot being settled due to holidays at the end of theprevious term. On the other hand, increases inoperating income led cash and bank deposits toincrease 1,541 million yen (24.5%).
Tangible fixed assets (property, plant andequipment) totaled 27,749 million yen, anincrease of 4,559 million yen (19.7%). This wasprimarily due to an increase in facilities totaling6,155 million yen that was comprised of 3,857million yen in buildings and others in relation tothe Tsukuba Plant, and 1,181 million yen in con-struction in progress and such.
Investments and other assets totaled 2,683million yen, a decrease of 703 million yen. Thisdrop was due to evaluation changes of exchangecontracts and exchange swaps decreasing by 526million yen, and a 69 million yen decrease ininvestment securities caused by 77 million yen inlosses due to revaluating bank shares.
Consolidated liabilities for the year ended inMarch 2003 totaled 18,054 million yen, a decrease
of 795 million yen (4.2%). Current liabilities were6,397 million yen, a decrease of 271 million yen(4.1%). Of these, borrowings reached zero, adecrease of 850 million yen brought on by repay-ing short-term bank borrowings. In addition,notes and accounts payable (including accruedoperating costs) increased 185 million yen (6.3%).Other liabilities increased 394 million yen due toaccrued accounts payable of the Tsukuba Plant,accrued payable income taxes and the like.
Long-term liabilities reached 11,657 millionyen, a decrease of 524 million yen (4.3%). Theprimary cause was the 526 million yen decreaseresulting from an evaluation change in the forexhedging profits carried forward.
Shareholders’ equity totaled 39,274 millionyen, an increase of 1,880 million yen (5.0%). Thiswas a result of dividends and director bonuses of447 million yen, foreign exchange adjustmentaccounts decrease of 176 million yen and loss of1,008 million yen resulting from the acquisition oftreasury shares being subtracted from the netincome of 3,506 million yen.
Key Financial Ratios
The current ratio dropped 24.5 percentage pointsfrom 445.1% to 420.6%. This was because currentliabilities remained relatively flat while currentassets decreased 2,770 million yen.
The ratio of fixed assets to long-term capitalincreased 6.2 percentage points from 53.6% to59.8% due to an increase of 3,857 million yen infixed assets.
The equity ratio increased 2.0 percentagepoints from 66.5% to 68.5% due to the increase incapital centering on earned surplus.
The asset turnover ratio (net sales divided byaverage assets) dropped from 0.46 to 0.42 as aresult of the increase in assets.
Total assets
0
15
30
45
60(¥bn)
200220012000 2003 At endof March
14
5.0
7.5
10.0
2.5
0
(%)
Return on equity (RoE) andreturn on assets (RoA)
RoE
RoA
Yearsended
in March20032000 2001 2002
0
1.0
3.0
4.0(¥bn)
Net income
20032000 2001
2.0
2002 Yearsended
in March
1,500
0
500
1,000
(Times)
Interest coverage ratio
20032000 2001 2002
2,000
Yearsended
in March
0
100
200
300
500
Current ratio
(%)
20032000 2001 2002 At endof March
400
Equity ratio
50
60
70
80
90(%)
20032000 2001 2002 At endof March
(¥bn)
Capital expenditure
0
2.0
4.0
6.0
20032000 2001 2002
8.0
Yearsended
in March
Key Financial Data
(Operating income + Interest income) / Interest expenses
(Times)
P/E
0
10
30
40
50
At endof March20032000 2001
20
2002
15
Depreciation expense
0
0.5
1.0
1.5
2.0(¥bn)
20032000 2001 2002 Yearsended
in March
(¥bn)
Cash flow
0
1.0
2.0
3.0
4.0
20032000 2001 2002
5.0
Yearsended
in March
(Yen)
Dividends per share
0
10
20
30
40
20032000 2001 2002 Yearsended
in March
EPS
0
50
100
150
250(Yen)
20032000 2001 2002
200
Yearsended
in March
Payout ratio(%)
0
5
10
15
20
20032000 2001 2002 Yearsended
in MarchNet income + Depreciation expenses – Cash dividend– Directors’ bonuses
Figures are calculated according to the new accounting standards for the year ended March 2003.
(Interim dividend + Year-end dividend) / Net income
Closing share price / EPSFigures are calculated according to the new accounting standards for the year ended March 2003.
¥ 6,2797,7259,1745,769
273474(19)
29,675
14,7959,0646,6104,0391,754
36,262(13,072)23,190
464198553
2,1713,386
¥56,251
16
Hogy Medical Co., Ltd. and SubsidiaryConsolidated Balance Sheets
¥ 7,8206,7566,0985,547
356340(12)
26,905
21,7589,1516,5872,4302,027
41,953(14,204)27,749
395224479
1,5852,683
¥57,337
AssetsCurrent assets:
Cash and bank deposits (Note 12)Notes and accounts receivableShort-term investments (Notes 12 and 13)InventoriesDeferred income taxes (Note 6)Other current assetsAllowance for doubtful accounts
Total current assets
Property, plant and equipment, at cost:Buildings and structuresMachinery, equipment and vehiclesLandConstruction in progressOther
Less: Accumulated depreciationProperty, plant and equipment, net
Investments and other assets:Investment securities (Note 13)Deferred income taxes (Note 6)Guarantee depositsOther assets
Total investments and other assets
Total assets
$ 65,05856,20650,73246,1482,9622,829(100)
223,835
181,01576,13154,80020,21616,865
349,027(118,170)230,857
3,2861,8643,985
13,18622,321
$477,013
(Millions of yen)
March 31,
2003 2002 2003(Thousands ofU.S. dollars)
(Note 2)
Consolidated Financial Statements
¥ —
3,1271,2091,347
7146,397
10,000203592862
11,657
9
7,1238,336
27,4446
4342,952
(3,678)39,274
¥57,337
$ —
26,01510,05811,2075,940
53,220
83,1951,6894,9257,171
96,980
74
59,26069,351
228,31950
358357,338
(30,599)326,739
$477,013
¥ 850
2,942864
1,175837
6,668
10,000245571
1,36512,181
8
7,1238,336
24,3851
21940,064
(2,670)37,394
¥56,251
17
See notes to consolidated financial statements.
Liabilities and shareholders’ equityCurrent liabilities:
Short-term bank borrowings (Note 3)Notes and accounts payable:
Trade Construction
Income taxes Other current liabilities
Total current liabilities
Long-term liabilities:Convertible bonds (Note 4)Deferred income taxes (Note 6)Accrued retirement benefits (Note 7) Other long-term liabilities
Total long-term liabilities
Minority interests
Shareholders’ equity:Common stock:
Authorized — 65,000,000 shares;Issued — 16,341,155 shares
Additional paid-in capital (Note 5)Retained earnings (Note 5)Net unrealized gain on securities (Note 13)Translation adjustments
Treasury stock, at cost (Note 10):575,593 shares in 2003 and 397,433 shares in 2002
Total shareholders’ equity, net
Total liabilities and shareholders’ equity
(Millions of yen)
March 31,
2003 2002 2003(Thousands ofU.S. dollars)
(Note 2)
$198,72789,293
109,434
57,30452,130
166(25)
(1,290)—
(641)(332)
(2,122)
50,008
21,963(1,131)20,83229,176
(8)$ 29,168
¥21,80110,00611,795
6,0705,725
50(14)120—
—(44)112
5,837
2,529(102)
2,4273,410
(1)¥ 3,409
¥22,89210,28012,612
6,2056,407
31(13)95
(231)
(242)(69)
(429)
5,978
2,520(46)
2,4743,504
(2)¥ 3,502
18
Hogy Medical Co., Ltd. and SubsidiaryConsolidated Statements of Income
¥23,88710,73313,154
6,8886,266
20(3)
(155)—
(77)(40)
(255)
6,011
2,640(136)
2,5043,507
(1)¥ 3,506
Net sales Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Other income (expenses):Interest incomeInterest expenseExchange (loss) gain, netBond issuance expensesUnrealized loss on investment securities
Other, net
Income before income taxes and minority interests
Income taxes (Note 6):CurrentDeferred
Income before minority interests
Minority interests Net income
See notes to consolidated financial statements.
(Millions of yen)
Year ended March 31,
2003 2002 2001 2003(Thousands ofU.S. dollars)
(Note 2)
19
Hogy Medical Co., Ltd. and SubsidiaryConsolidated Statements of Shareholders’ Equity
¥ 7,123
¥ 7,123
¥ 8,336¥ 8,336
¥24,385
3,506
38067
¥27,444
¥ 15
¥ 6
¥ 219(176)
¥ 43
¥(2,670)
(19)(989)
—
—¥(3,678)
Common stockBalance at beginning of year
(2003, 2002 and 2001 — 16,341,155 shares)Balance at end of year
(2003, 2002 and 2001 — 16,341,155 shares)
Additional paid-in capital (Note 5)Balance at beginning of yearBalance at end of year
Retained earnings (Note 5)Balance at beginning of yearAdd:
Net incomeDeduct:
Cash dividends paid (Note 11)Bonuses to directors
Balance at end of year
Net unrealized gain on securities (Note 13)Balance at beginning of year
Net change during the yearBalance at end of year
Translation adjustmentsBalance at beginning of year
Net change during the yearBalance at end of year
Treasury stockBalance at beginning of yearAdd:
Purchased from shareholdersPurchased from market
Deduct:Sold to marketGranted to directors and employees under
stock option programsBalance at end of year
See notes to consolidated financial statements.
¥ 7,123
¥ 7,123
¥ 8,336¥ 8,336
¥21,491
3,502
54662
¥24,385
¥ —1
¥ 1
¥ (37)256
¥ 219
¥(1,385)
(10)(1,281)
6
—¥(2,670)
¥ 7,123
¥ 7,123
¥ 8,336¥ 8,336
¥18,532
3,409
38862
¥21,491
¥ ——
¥ —
¥ —(37)
¥ (37)
¥ (231)
(20)(1,384)
21
229¥(1,385)
$ 59,260
$ 59,260
$ 69,351$ 69,351
$202,870
29,168
3,162557
$228,319
$ 842
$ 50
$ 1,822(1,464)
$ 358
$(22,213)
(158)(8,228)
—
—$(30,599)
(Millions of yen)
Year ended March 31,
2003 2002 2001 2003(Thousands ofU.S. dollars)
(Note 2)
20
Hogy Medical Co., Ltd. and SubsidiaryConsolidated Statements of Cash Flows
Operating activitiesIncome before income taxes and minority interestsAdjustments to reconcile income before income taxes and minority interests to net cash provided by operating activities:
DepreciationWrite-downs of golf membershipsUnrealized loss on investment securitiesRetirement benefits, net of payments(Decrease) increase in allowance for doubtful accountsInterest and dividend incomeGain on sale of marketable securitiesLoss on sale of marketable securitiesGain on sale of investment securitiesInterest expenseExchange loss (gain) Loss on disposal of property, plant and equipmentLoss on disposal of intangible assetsChanges in assets and liabilities:
Notes and accounts receivableInventoriesNotes and accounts payableAccrued consumption tax and otherOther current assetsOther current liabilitiesOther investmentsOther liabilities
Bonuses paid to directorsSubtotal
Interest and dividends receivedInterest paidIncome taxes paidNet cash provided by operating activitiesInvesting activitiesIncrease in time depositsPurchases of marketable securitiesProceeds from sale of marketable securitiesPurchases of investment securitiesProceeds from sale of investment securitiesCapital expendituresProceeds from sale of property, plant and equipmentPurchases of intangible assetsExpenditures by loans receivableCollection of loans receivable(Increase) decrease in other investmentsNet cash used in investing activitiesFinancing activitiesNet decrease in short-term bank borrowingsProceeds from issuance of convertible bondsRepayment of long-term debtPurchases of treasury stockProceeds from sale of treasury stockCash dividends paidNet cash (used in) provided by financing activitiesEffect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalentsCash and cash equivalents at beginning of year Cash and cash equivalents at end of year (Notes 1(d) and 12)See notes to consolidated financial statements.
¥ 6,011
1,458—7721
(19)(22)———3
1612635
933144222—
(49)709824
(67)9,126
22(6)
(2,459)6,683
(18)—50——
(5,772)2
(8)(4)2
(72)(5,820)
(850)——
(1,008)—
(392)(2,250)
(116)(1,503)15,221
¥13,718
$ 50,008
12,130—
641175
(158)(183)
———25
1,339216291
7,7621,1981,847
—(408)582815200
(557)75,923
183(50)
(20,457)55,599
(150)—
416——
(48,020)17
(67)(33)17
(599)(48,419)
(7,072)——
(8,386)—
(3,261)(18,719)
(965)(12,504)126,630
$114,126
(Millions of yen)
Year ended March 31,
2003 2002 2003(Thousands ofU.S. dollars)
(Note 2)
¥ 5,978
1,337—
2421
(23)(33)(0)—3313
(102)54—
(452)(588)(258)(114)
0(36)1326
(62)6,029
33(14)
(2,840)3,208
(26)———21
(5,740)254(61)—2
47(5,503)
(430)10,000
(100)(1,291)
25(560)
7,644
635,4129,809
¥15,221
¥5,837
1,5193238
(24)30
(54)(42)
0—14
(116)10—
(755)(336)274(51)(18)35
(52)15
(62)6,294
54(16)
(1,978)4,354
(14)(50)150
(4)221
(1,540)16
(15)—6
(43)(1,273)
(1,000)—
(35)(1,404)
274(397)
(2,562)
17536
9,273¥9,809
2001
21
Hogy Medical Co., Ltd. and SubsidiaryNotes to Consolidated Financial StatementsMarch 31, 2003
1. Summary of Significant Accounting Policies(a) Basis of preparation
Hogy Medical Co., Ltd. (the “Company”) maintainsits accounting records and prepares its consolidatedfinancial statements in accordance with accountingprinciples and practices generally accepted andapplied in Japan, and its one foreign subsidiary main-tains its accounting records in conformity with that ofits country of domicile. The accompanying consoli-dated financial statements have been prepared fromthe financial statements prepared by the Company asrequired by the Securities and Exchange Law of Japan.Accordingly, the financial position, results of opera-tions and cash flows presented in the accompanyingfinancial statements may differ in certain materialrespects from accounting principles and practices gen-erally accepted in countries and jurisdictions otherthan Japan. For the purposes of this document, certainreclassifications have been made to present the accom-panying consolidated financial statements in a formatwhich is familiar to readers outside Japan. In addi-tion, the notes to the consolidated financial statementsinclude information which is not required underaccounting principles generally accepted in Japan butis presented herein as additional information.
(b) Basis of consolidation and accounting for investments in affiliatesIn accordance with the accounting standards forconsolidation, consolidated financial statements arerequired to include the accounts of the parent compa-ny and all its subsidiaries over which substantialcontrol is exerted either through majority ownershipof voting stock and/or by other means. As a result,the accompanying consolidated financial statementsinclude the accounts of the Company and its oneconsolidated subsidiary. All significant intercompanybalances and transactions have been eliminated inconsolidation.
The subsidiary is consolidated on the basis of afiscal period ending on December 31, which differsfrom that of the Company; however, the necessaryadjustments have been made if the effect of thedifference is material.
(c) Foreign currency translationThe revenue and expense accounts of the foreign con-solidated subsidiary are translated into yen at the rateof exchange in effect at the balance sheet date. Thebalance sheet accounts, except for the components ofshareholders’ equity, are also translated into yen at therate of exchange in effect at the balance sheet date.The components of shareholders’ equity are translatedat their historical exchange rates.
Monetary assets and liabilities of the Companydenominated in foreign currencies are translated atthe current exchange rates in effect at each balancesheet date. All revenues and expenses denominatedin foreign currencies are translated at the rates ofexchange prevailing when such transactions weremade. The resulting exchange loss or gain is chargedor credited to income.
(d) Cash equivalentsAll highly liquid investments, with a maturity ofthree months or less when purchased, which arereadily convertible into known amounts of cash andare so close to maturity that they represent only aninsignificant risk of any change in value attributableto changes in interest rates, are considered cashequivalents.
The definition of cash and cash equivalents in theconsolidated statements of cash flows differs fromthat of cash and bank deposits in the balance sheets.A reconciliation between these is presented in Note12.
(e) SecuritiesSecurities other than those of subsidiaries and affili-ates are classified into three categories: trading, held-to-maturity or other securities. Trading securities arecarried at fair value and held-to-maturity securitiesare carried at amortized cost. Marketable securitiesclassified as other securities are carried at fair valuewith any changes in unrealized holding gain or loss,net of the applicable income taxes, included directlyin shareholders’ equity. Non-marketable securitiesclassified as other securities are carried at cost. Costof securities sold is determined by the moving aver-age method.
(f) DerivativesDerivatives positions are stated at their respective fairmarket value.
(g) InventoriesFinished goods, semifinished goods, work in processand raw materials are stated at cost determined bythe average method. Merchandise is stated at costdetermined by the moving average method. Suppliesare stated at their most recent purchase prices.
(h) Depreciation and amortizationDepreciation of property, plant and equipment of theCompany is principally calculated by the declining-balance method over the estimated useful lives of therespective assets. However, buildings (excludingleasehold improvements) acquired by the Companyafter April 1, 1998 are depreciated by the straight-linemethod over the estimated useful lives of the respec-tive assets.
Property, plant and equipment of the consolidat-ed subsidiary is depreciated principally by thestraight-line method over the estimated useful lives ofthe respective assets.
The principal estimated useful lives used for com-puting depreciation are as follows:
Buildings and structures 3 to 50 yearsMachinery, equipment and vehicles 4 to 15 years
Intangible assets including costs for computersoftware are amortized by the straight-line methodover their estimated useful lives.
22
HOGY MEDICAL CO., LTD.:Unsecured convertible bonds, non-interest-bearing, due 2006
2003
¥ 10,000¥ 10,000
$83,195$83,195
2002 2003(Millions of yen) (Thousands of
U.S. dollars)
¥ 10,000¥ 10,000
(m)Income taxesDeferred tax assets and liabilities have been recog-nized in the consolidated financial statements withrespect to the differences between financial reportingand the tax bases of the assets and liabilities and aremeasured using the enacted tax rates and laws whichwill be in effect when the differences are expected toreverse.
(n) Treasury stock and reduction of legal reservesEffective April 1, 2002 the Company adopted a newaccounting standard for treasury stock and reductionof legal reserves. The effect of the adoption of thisnew accounting standard on the consolidated operat-ing results was immaterial for the year ended March31, 2003.
(o) Appropriation of retained earningsUnder the Commercial Code of Japan, the appro-priation of retained earnings with respect to a givenfinancial period is made by resolution at the annualgeneral meeting of the shareholders held subsequentto the close of such financial period. The accounts forthat period do not, therefore, reflect such appropria-tions.
(p) Change in presentationCertain items presented in prior years have beenchanged to conform to the fiscal 2003 presentation.
2. U.S. Dollar AmountsFor the convenience of the readers, the accompanyingconsolidated financial statements with respect to the yearended March 31, 2003 have been presented in U.S. dol-lars by translating all yen amounts at ¥120.20 = U.S.$1.00,the exchange rate prevailing on March 31, 2003. Thistranslation should not be construed as a representationthat yen have been, could have been, or could in thefuture be, converted into U.S. dollars at the above or anyother rate.
3. Short-Term Bank BorrowingsShort-term bank borrowings were repaid fully duringthe year ended March 31, 2003. They consisted mainly ofunsecured and secured loans payable to banks at interestrates ranging from 0.4% to 0.8%.
4. Long-Term DebtLong-term debt at March 31, 2003 and 2002 consisted ofthe following:
(i) LeasesNoncancelable lease transactions are primarilyaccounted for as operating leases (whether such leasesare classified as operating or finance leases) exceptthat lease agreements which stipulate the transfer ofownership of the leased assets to the lessee areaccounted for as finance leases.
(j) Allowance for doubtful accountsThe allowance for doubtful accounts is provided at anamount sufficient to cover possible losses on the col-lection of receivables. For the Company, the amountof the allowance is determined based on the historicalrate of losses on receivables plus an estimate of theindividual amounts deemed unrecoverable.
(k) Allowance for employees’ bonusesThe allowance for employees’ bonuses represents aprovision for the future payment of employees’bonuses.
(l) Retirement and severance benefitsThe Company’s employees are covered by an employ-ee retirement allowances plan and by an employeepension plan. The employee retirement allowancesplan provides for a lump-sum payment, payable uponmandatory retirement or upon earlier termination ofemployment, based on the approximate basic salary atthe time of termination, years of service and certainother factors. The employee pension plan, which isnoncontributory and funded, was instituted to pro-vide for retirement allowances for employees whoretire at the mandatory retirement age.
Accrued retirement benefits for employees havebeen provided at an amount calculated based on theretirement benefit obligation and the fair value of thepension plan assets, as adjusted for the net unrecog-nized retirement benefit obligation at transition,unrecognized actuarial gain or loss, and unrecognizedprior service cost. The retirement benefit obligation isattributed to each period by the straight-line methodover the estimated years of service of the eligibleemployees. The net retirement benefit obligation attransition is being amortized principally over a periodof 10 years by the straight-line method.
Actuarial gain and loss are amortized in the yearfollowing the year in which the gain or loss is recog-nized primarily by the straight-line method over aperiod of 10 years which is shorter than the estimatedaverage remaining years of service of the eligibleemployees.
In addition, directors and statutory auditors of theCompany are entitled to lump-sum payments underthe unfunded retirement allowances plan in accord-ance with an internal regulation. Provisions forretirement allowances for these officers have beenmade at estimated amounts and are included inaccrued retirement benefits.
On October 26, 2001, the Company issued Japanese¥10,000 million non-interest-bearing convertible bondsdue 2006 without security.
23
The convertible bonds are convertible into shares ofcommon stock of the Company at ¥7,040 per share duringthe period from December 3, 2001 to March 30, 2006.
5. Legal Reserve and Additional Paid-in CapitalThe Code provide that an amount equal to at least 10% ofthe amounts to be disbursed as distributions of earningsbe appropriated to the legal reserve until the sum of thelegal reserve and additional paid-in capital equals 25% ofthe common stock account. The Code also stipulates that,to the extent that the sum of the additional paid-in capitalaccount and the legal reserve exceeds 25% of the commonstock account, the amount of any such excess is availablefor appropriation by resolution of the shareholders.
Retained earnings in the accompanying financialstatements include the legal reserve of ¥564 million($4,692 thousand) at March 31, 2003.
6. Income TaxesIncome taxes applicable to the Company comprise corpo-ration tax, inhabitants’ taxes and enterprise tax which, inthe aggregate, resulted in a statutory tax rate of approxi-mately 41% for 2002, 2001 and 2000. Income taxes of theforeign consolidated subsidiary are generally based onthe tax rate applicable in its country of incorporation.
New legislation was enacted in March 2003 whichwill change the aggregate statutory tax rate from 41% to40% effective fiscal years beginning after March 31, 2004.The effect of this tax rate change was to decrease deferredtax assets (net of deferred tax liabilities) by ¥7 million ($58thousand) at March 31, 2003.
The major components of deferred tax assets andliabilities at March 31, 2003 and 2002 are summarized asfollows:
7. Retirement Benefit PlansThe Company’s policy is to fund amounts from a lump-sum retirement payment plan for employees who areunder 55 years old and from a tax-qualified pensionplan for employees who have reached 55 years old,respectively.
The following table sets forth the funded and accruedstatus of the plans, and the amounts recognized in theconsolidated balance sheets at March 31, 2003 and 2002for the Company’s defined benefit plans:
¥ 11714693
356
31
155
1527
228
(4)(0)
(4)
224
(203)
¥(203)
Deferred tax assets (current):Enterprise tax payableAllowance for employees’ bonusesUnrealized gain on inventories
Total deferred tax assets (current)
Deferred tax assets (non-current):Accrued retirement benefitsAllowance for retirement benefits
for directors and corporate auditorsUnrealized loss on investment
securitiesWrite-down of golf memberships
Total deferred tax assets (non-current)
Deferred tax liabilities (non-current):Unrealized holding gain on securitiesAllowance for doubtful accounts
Total deferred tax liabilities (non-current)
Deferred tax assets (non-current), net
Deferred tax liabilities (non-current):Deferred gains on property and
equipmentTotal deferred tax liabilities
(non-current)
$ 9731,215
7742,962
258
1,290
125224
1,897
(33)(0)
(33)
1,864
(1,689)
$(1,689)
¥ 949980
273
—
156
1627
199
(0)(1)
(1)
198
(245)
¥(245)
2003 2002 2003(Millions of yen) (Thousands of
U.S. dollars)
Retirement benefit obligationPlan assets at fair valueUnfunded retirement benefit obligationNet unrecognized retirement benefit obligation at transition
Unrecognized actuarial gainNet retirement benefit obligationAccrued retirement benefits for employees
(Millions of yen)
¥(1,351)894
(457)
(196)453
(200)
¥ (200)
$(11,240)7,438(3,802)
(1,631)3,769(1,664)
$ (1,664)
(Thousands ofU.S. dollars)
2002
¥(1,122)944
(178)
(225)213
(190)
¥ (190)
2003 2003
Service costInterest costExpected return on plan assetsAmortization of net retirement benefit obligation at transition
Amortization of actuarial lossTotal
(Millions of yen)
¥10134
(42)
(28)46
¥111
$840283
(349)
(233)382
$923
(Thousands ofU.S. dollars)
2003
¥10134
(43)
(28)21
¥ 85
2002 2003
The components of retirement benefit expense forthe years ended March 31, 2003 and 2002 are outlined asfollows:
The assumptions used in accounting for the aboveplans were as follows:
Discount ratesExpected rate of return on plan assets
Actuarial cost allocation method
Amortization period for actuarial difference:
Amortization period for retirement benefit obligation at transition from the initial adoption of new accounting method:
2.5% 3.0%4.5% 4.5%
Unit credit method
10 years (amortized by thestraight-line method over aperiod which fall within theaverage remaining years ofservice of the eligible employees,effective the year subsequent tothe period when the differenceoccurred).
10 years (amortized by thestraight-line method as a certainperiod within the employees’average remaining service years,effective the year when thedifference occurred).
2003 2002
24
Acquisition costsAccumulated depreciationNet book value
Equipment
¥2013
¥ 7
Total(Millions of yen)
¥2013
¥ 7
Equipment
$166108
$ 58
Total(Thousands of U.S. dollars)
$166108
$ 58
March 31, 2003
Acquisition costsAccumulated depreciationNet book value
Equipment
¥208
¥12
Total(Millions of yen)
¥208
¥12
March 31, 2002
8. LeasesThe following pro forma amounts represent the acquisi-tion costs, accumulated depreciation and net book valueof the leased assets at March 31, 2003 and 2002, whichwould have been reflected in the balance sheets iffinance leases currently accounted for as operating leas-es had been capitalized.
Lease expenses relating to finance leases accounted foras operating leases for the years ended March 31, 2003,2002 and 2001 amounted to ¥4 million ($33 thousand), ¥3million and ¥2 million, respectively, which are equivalentto the depreciation expense of the leased assets computedby the straight-line method over the lease periods.
Future minimum lease payments (including the inter-est portion thereon) subsequent to March 31, 2003 and2002 for finance leases accounted for as operating leases,except for lease agreements which stipulate the transfer ofownership of the leased property to the Company and itsconsolidated subsidiary, are summarized as follows:
9. Segment InformationBusiness segmentsThe Company and its consolidated subsidiary areengaged principally in manufacturing and sellingnonwoven fabric, and sterilized medical goods, whichare considered to be a single business segment.Accordingly, the presentation of information by busi-ness segment has been omitted.
Geographical segments
Due in one year or lessDue after one yearTotal
2003
¥34
¥7
2002(Millions of yen)
¥ 47
¥11
2003
$2533
$58
(Thousands ofU.S. dollars) Overseas sales
Since overseas sales were less than 10% of consolidatedsales for the years ended March 31, 2003 and 2002, nodisclosure of overseas sales has been presented.
10. Stock Option PlansThe shareholders of the Company approved stockoption plans which, in accordance with the CommercialCode, entitle the directors and employees to purchaseshares of the Company’s common stock which had beenpurchased by the Company on stock exchanges. Underthese plans, the maximum number of shares granted tothe vested directors and employees were as follows:
Sales to third partiesInter-area sales and transfers
Total salesOperating expensesOperating income
Total assets
JapanIndo-nesia
¥ 13
3,0873,1002,626
¥ 474
¥3,154
Total
¥23,887
3,08726,97420,665
¥ 6,309
¥59,064
Elimina-tions
¥ —
(3,087)(3,087)(3,044)
¥ (43)
¥(1,727)
Consoli-dated
¥23,887
—23,88717,621
¥ 6,266
¥57,337
Year ended March 31, 2003
(Millions of yen)
¥23,874
—23,87418,039
¥ 5,835
¥55,910
Sales to third partiesInter-area sales and transfers
Total salesOperating expensesOperating income
Total assets
JapanIndo-nesia
$ 108
25,68225,79021,847
$ 3,943
$26,240
Total
$198,727
25,682224,409171,922
$ 52,487
$491,381
Elimina-tions
$ —
(25,682)(25,682)(25,325)
$ (357)
$(14,368)
Consoli-dated
$198,727
—198,727146,597
$ 52,130
$477,013
Year ended March 31, 2003
(Thousands of U.S. dollars)
$198,619
—198,619150,075
$ 48,544
$465,141
Plan approvedon June 27, 2000
Plan approvedon June 26, 2001
For directors
18,500
46,300
Exercisable
From July 1, 2002to March 31, 2004
From July 1, 2003to March 31, 2005
Number of sharesFor employees
181,500
153,700
Sales to third partiesInter-area sales and transfers
Total salesOperating expensesOperating income
Total assets
JapanIndo-nesia
¥ 12
4,2974,3093,531
¥ 778
¥3,574
Total
¥22,892
4,29727,18920,658
¥ 6,531
¥58,342
Elimina-tions
¥ —
(4,297)(4,297)(4,173)
¥ (124)
¥(2,091)
Consoli-dated
¥22,892
—22,89216,485
¥ 6,407
¥56,251
Year ended March 31, 2002
(Millions of yen)
¥22,880
—22,88017,127
¥ 5,753
¥54,768
25
The stock option price is calculated by the followingformula:
Total acquisition cost of treasury stockTotal number of shares of treasury stock
Stock option price = × 1.03
The stock option price is subject to change if newshares are issued at a price lower than fair market value.
On June 26, 2003, and June 27, 2002, the shareholdersapproved a stock option plan to grant warrants for pur-chasing shares of the Company’s common stock to thedirectors and employees, respectively, in accordancewith Article 280 – 20 & 21 of the Commercial Code.Under this plan, a maximum of 200,000 shares weregranted to the vested directors and employees.
The stock option price is determined, subject toadjustment, as the higher of the average final price of theCompany’s common stock traded on the Tokyo StockExchange in the month prior to the date of the grantingof the options multiplied by a factor of 1.03 or the corre-sponding final price on the day of the granting of theoptions. The stock options granted on June 26, 2003, andJune 27, 2002 will become exercisable during the periodfrom July 1, 2005 to March 31, 2007 and from July 1, 2004to March 31, 2006, respectively.
11. Amounts per ShareUntil the year ended March 31, 2002, basic net incomeper share was computed based on the net income report-ed in the consolidated statements of income and theweighted average number of shares of common stockoutstanding during each year, and diluted net incomeper share was computed based on the net income report-ed and the weighted average number of shares of com-mon stock outstanding during each year after givingeffect to the dilutive potential of shares of common stockto be issued upon the conversion of convertible bondsand the exercise of warrants. Amounts per share of netassets were computed based on the net assets reported inthe consolidated balance sheets and the number of sharesof common stock outstanding at each balance sheet date.
In accordance with a new accounting standard forearnings per share which became effective April 1, 2002,basic net income per share was computed based on thenet income available for distribution to shareholders ofcommon stock and the weighted average number ofshares of common stock outstanding during the year,and diluted net income per share was computed basedon the net income available for distribution to the share-holders and the weighted average number of shares ofcommon stock outstanding during each year after givingeffect to the dilutive potential of shares of common stockto be issued upon the conversion of convertible bondsand the exercise of warrants for the year ended March 31,2003. Amounts per share of net assets at March 31, 2003were computed based on the net assets available for dis-tribution to the shareholders and the number of shares ofcommon stock outstanding at the year end.
The per share information only for the year ended2002 has been recomputed and restated based on thenew method of computation.
Cash dividends per share represent the cash divi-dends declared as applicable to the respective yearstogether with the interim cash dividends paid.
12. Supplementary Cash Flow InformationThe following table represents a reconciliation of cashand cash equivalents at March 31, 2003 and 2002:
13. Short-Term Investments and Investment SecuritiesNo sales of securities classified as other securities weremade in the year ended March 31, 2003, and such salesamounted to ¥54 million with an aggregate loss of ¥33million for the year ended March 31, 2002.
Investment securities, except for those of affiliates, atMarch 31, 2003 and 2002 consisted of the following:
Net income:BasicDiluted(*11)
Net assetsCash dividends applicable in the year
(Yen)2003
(U.S. dollars)
$ 1.8071.659
20.690
0.200
¥ 210.97—
2,200.71
34.00
¥ 214.69—
2,341.14
24.00
¥ 217.20199.47
2,486.89
24.00
200120022003
(*11) No diluted net income per share is presented since (1) the full dilution by common stock equivalents including conversion of convertible bonds would have had no dilutive effect for the year ended March 31, 2002 and (2) there were no potentially dilutive common stock equivalents outstanding as of March 31, 2001.
¥ 7,8206,098
(200)
—¥13,718
Cash and bank depositsSecuritiesTime deposits with original maturities
of more than three monthsEquity and debt securities with original
maturities of more than three monthsCash and cash equivalents
$ 65,05850,732
(1,664)
—$114,126
¥ 6,2799,174
(182)
(50)¥15,221
2003 2002 2003(Millions of yen) (Thousands of
U.S. dollars)
¥ 40200240
46—46
¥286
Securities whose carrying value exceeds their acquisition cost:Equity securitiesOthersSubtotal
Securities whose acquisition cost exceeds their carrying value:Equity securitiesOthersSubtotal
Total
¥101
11
(1)—(1)
¥10
¥ 50201251
45—45
¥296
Acquisition cost
Carryingvalue
Unrealizedgain (loss)
(Millions of yen)
March 31, 2003
26
Corporate bondsOther debt securities
Total
Due inone yearor less
¥—
—¥—
Due afterone yearthrough
five years
Due afterfive yearsthroughten years
¥100
—¥100
Due inone yearor less
$—
—$—
Due afterone yearthrough
five years
$—
—$—
Due afterfive yearsthroughten years
$832
—$832
March 31, 2003
(Millions of yen) (Thousands of U.S. dollars)
¥—
—¥—
14. DerivativesThe Company has utilized forward foreign exchangecontracts and currency swaps to hedge certain foreigncurrency transactions related to its foreign purchase com-mitments. The purpose of the Company’s hedging activ-ities in the form of forward foreign exchange contractsand currency swaps is to protect the Company from therelated market risks.
The accounting standard for financial instrumentsrequires that derivative financial instruments be stated atfair value and that any changes in fair value be recog-nized as gain or loss unless the derivatives qualify ashedges. Valuation gain or loss on hedging instruments isdeferred as an asset or a liability until gain or loss on theunderlying hedged instruments is realized. Premiums ordiscounts on forward foreign exchange contracts andcurrency swaps utilized for hedging purposes are allocat-ed to each fiscal term without being marked-to-market.
The Company and its consolidated subsidiary areexposed to certain market risks arising from the forwardforeign exchange contracts and swap agreementsreferred to above. The Company is also exposed to therisk of credit loss in the event of non-performance by thecounterparties to the currency and interest derivatives;however, the Company does not anticipate non-performance by any of these counterparties, all of whomare financial institutions with high credit ratings.
Hedging transactions are entered into in accordancewith the strategies established by the Company’s man-agement. The operations of the department which isresponsible for hedging transactions is routinely exam-ined by the Company’s management.
15. Subsequent Eventsa) The following appropriations of retained earnings of
the Company, which have not been reflected in the consolidated financial statements for the year ended March 31, 2003, were approved at a shareholders’ meeting held on June 26, 2003:
Cash dividends (¥12 = U.S.$0.1 per share)
Bonuses to directors
(Millions of yen)
¥18967
¥256
$1,573557
$2,130
(Thousands ofU.S. dollars)
b) On June 26, 2003, the shareholders approved a stock option plan to grant warrants for purchasing shares of the Company’s common stock to directors and employees. See Note 10, “Stock Option Plans.”
The redemption schedule for debt securities withmaturity dates classified as other securities and held-to-maturity debt securities at March 31, 2003 and 2002 aresummarized as follows:
(Thousands of U.S. dollars)
$ 3331,6641,997
382—
382$2,379
Securities whose carrying value exceeds their acquisition cost:Equity securitiesOthersSubtotal
Securities whose acquisition cost exceeds their carrying value:Equity securitiesOthersSubtotal
Total
$838
91
(8)—(8)
$83
$ 4161,6722,088
374—
374$2,462
Acquisition cost
Carryingvalue
Unrealizedgain (loss)
March 31, 2003
Corporate bondsOther debt securities
Total
Due inone yearor less
¥—
50¥50
Due afterone yearthrough
five years
Due afterfive yearsthroughten years
¥100
—¥100
March 31, 2002
(Millions of yen)
¥—
—¥—
¥ 41100141
122100222
¥363
Securities whose carrying value exceeds their acquisition cost:Equity securitiesOthersSubtotal
Securities whose acquisition cost exceeds their carrying value:Equity securitiesOthersSubtotal
Total
¥ 404
(1)(2)(3)
¥ 1
¥ 45100145
12198
219¥364
Acquisition cost
Carryingvalue
Unrealizedgain (loss)
(Millions of yen)
March 31, 2002
27
REPORT OF INDEPENDENT AUDITORS
The Board of DirectorsHogy Medical Co., Ltd.
We have audited the accompanying consolidated balance sheets of Hogy Medical Co., Ltd. andconsolidated subsidiary as of March 31, 2003 and 2002, and the related consolidated statements of income,shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2003, allexpressed in yen. These financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion independently on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generallyaccepted and applied in Japan. Those standards, procedures and practices require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial 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 statementpresentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, theconsolidated financial position of Hogy Medical Co., Ltd. and consolidated subsidiary at March 31, 2003and 2002, and the consolidated results of their operations and their cash flows for each of the three years inthe period ended March 31, 2003 in conformity with accounting principles and practices generally acceptedin Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the yearended March 31, 2003 are presented solely for convenience. Our audit also included the translation of yenamounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basisdescribed in Note 2 to the consolidated financial statements.
Shin Nihon & Co.
June 27, 2003
See Note 1 to the consolidated financial statements which explains the basis of preparation of the consolidated financialstatements of Hogy Medical Co., Ltd. and consolidated subsidiary under Japanese accounting principles and practices.
¥ 5,9539,1747,603
(19)7,5845,183
193147216121
28,571
28
Non-Consolidated Financial Statements
Hogy Medical Co., Ltd.Non-Consolidated Balance Sheets
¥ 7,4246,0986,773
(12)6,7615,073
2637895
17425,966
AssetsCurrent assets:
Cash and bank depositsMarketable securitiesTrade notes and accounts receivableAllowance for doubtful receivables
Inventories (Note 3)Deferred income taxesCurrency swapsForward foreign exchange contractsOther current assets
Total current assets
Property, plant and equipment, at cost:LandBuildingsMachinery and equipmentConstruction in progressAccumulated depreciation
Property, plant and equipment, net
Investments and other assets:Investment securitiesInvestment in and advances to a subsidiaryDeferred income taxesGuarantee depositsInsurance premiums paidCurrency swapsForward foreign exchange contractsOther assets
Total investments and other assets
Total assets
6,35419,94410,7272,430
(13,297)26,158
3951,104
225479601181477324
3,786
¥55,910
$ 61,76450,73256,348
(100)56,24842,2052,188
649790
1,447216,023
52,861165,92489,24320,216
(110,623)217,621
3,2869,1851,8723,9855,0001,5063,9682,695
31,497
$465,141
(Millions of yen)
March 31,
2003 2002 2003
(Thousands of U.S.dollars) (Note 2)
6,35412,85710,3384,039
(12,230)21,358
4641,454
199553578499684408
4,839
¥54,768
29
See notes to non-consolidated financial statements.
¥ —
2,9811,209
498174
1,33814
6,214
Liabilities and shareholders’ equityCurrent liabilities:
Short-term bank borrowingsNotes and accounts payable:
TradeConstruction
Accrued expensesDeferred gain on derivativesAccrued income taxesOther current liabilities
Total current liabilities
Long-term liabilities:Convertible bondsDeferred gain on derivativesAccrued retirement benefitsOther long-term liabilities
Total long-term liabilities
Shareholders’ equity:Common stock:
Authorized — 65,000,000 sharesIssued — 16,341,155 shares
Additional paid-in capitalLegal reserveRetained earningsNet unrealized gain on securitiesTreasury stock
Total shareholders’ equity
Total liabilities and shareholders’ equity
10,000658592204
11,454
83,1955,4744,9251,697
95,291
7,1238,336
—26,455
6(3,678)38,242
¥55,910
$ —
24,80010,0584,1431,448
11,131117
51,697
59,26069,351
—220,091
50(30,599)318,153
$465,141
(Millions of yen)
March 31,
2003 2002 2003(Thousands ofU.S. dollars)
(Note 2)
¥ 850
2,837864430362
1,07515
6,433
10,0001,183
571182
11,936
7,1238,336
56423,045
1(2,670)36,399
¥54,768
30
907(17)
(641)(1,273)
—(340)
(1,364)47,180
20,607(831)
19,776$ 27,404
150(13)
—116—
(46)207
5,456
2,366(73)
2,293¥ 3,163
Hogy Medical Co., Ltd.Non-Consolidated Statements of Income
¥23,87411,15112,723
Net salesCost of sales
Gross profit
Selling, general and administrativeexpenses
Operating income
Other income (expenses):Interest and dividend income Interest expenseWrite-downs of investment securities
Exchange (loss) gainBond issuance expensesOther, net
Income before income taxes
Income taxes:CurrentDeferred
Net income
See notes to non-consolidated financial statements.
6,8885,835
109(2)
(77)(153)
—(41)
(164)5,671
2,477(100)
2,377¥ 3,294
57,30548,544
$198,61992,770
105,849
¥21,79410,47511,319
6,0705,249
(Millions of yen)
Year ended March 31,
2003 2002 2001 2003(Thousands ofU.S. dollars)
(Note 2)
¥22,88010,92211,958
6,2055,753
123(10)
(242)91
(230)(71)
(339)5,414
2,2619
2,270¥ 3,144
31
Hogy Medical Co., Ltd.Non-Consolidated Statements of Shareholders’ Equity
¥ 7,123
¥ 7,123
Common stockBalance at beginning of year
(2003, 2002 and 2001 — 16,341,155 shares)Balance at end of year
(2003, 2002 and 2001 — 16,341,155 shares)
Additional paid-in capitalBalance at beginning of yearBalance at end of year
Legal reserveBalance at beginning of yearAdd:
Transfer from retained earningsDeduct:
Transfer to retained earnings (Note 1)Balance at end of year
Retained earningsBalance at beginning of yearAdd:
Net incomeTransfer from legal reserve (Note 1)
Deduct:Cash dividends paid (Note 4)Bonuses to directorsTransfer to legal reserve
Balance at end of year
See notes to non-consolidated financial statements.
¥ 8,336¥ 8,336
¥ 564
—
(564)¥ —
¥23,045
3,294564
38167—
¥26,455
¥ 7,123
¥ 7,123
¥ 8,336¥ 8,336
¥ 495
69
—¥ 564
¥20,578
3,144—
5466269
¥23,045
¥ 7,123
¥ 7,123
¥ 8,336¥ 8,336
¥ 446
49
—¥ 495
¥17,915
3,163—
3886349
¥20,578
$ 59,260
$ 59,260
$ 69,351$ 69,351
$ 4,692
—
(4,692)$ —
$191,722
27,4044,692
3,170557—
$220,091
(Millions of yen)
Year ended March 31,
2003 2002 2001 2003(Thousands ofU.S. dollars)
(Note 2)
Net unrealized gain on securitiesBalance at beginning of year
Net change during the yearBalance at end of year
¥ 15
¥ 6
¥ —1
¥ 1
¥ ——
¥ —
$ 842
$ 50
32
4. Amounts per ShareUntil the year ended March 31, 2002, basic net income pershare was computed based on the net income reported inthe non-consolidated statements of income and theweighted average number of shares of common stockoutstanding during each year, and diluted net income pershare was computed based on the net income reportedand the weighted average number of shares of commonstock outstanding during each year after giving effect tothe dilutive potential of shares of common stock to beissued upon the conversion of convertible bonds and theexercise of warrants. Amounts per share of net assetswere computed based on the net assets reported in thenon-consolidated balance sheets and the number ofshares of common stock outstanding at each balance sheetdate.
In accordance with a new accounting standard forearnings per share which became effective April 1, 2002,basic net income per share was computed based on thenet income available for distribution to shareholders ofcommon stock and the weighted average number ofshares of common stock outstanding during the year, anddiluted net income per share was computed based on thenet income available for distribution to the shareholdersand the weighted average number of shares of commonstock outstanding during each year after giving effect tothe dilutive potential of shares of common stock to beissued upon the conversion of convertible bonds and theexercise of warrants for the year ended March 31, 2003.Amounts per share of net assets at March 31, 2003 werecomputed based on the net assets available for distribu-tion to the shareholders and the number of shares of com-mon stock outstanding at the year end.
The per share information only for the year ended2002 has been recomputed and restated based on the newmethod of computation.
Cash dividends per share represent the cash divi-dends declared as applicable to the respective yearstogether with the interim cash dividends paid.
Hogy Medical Co., Ltd.Notes to Non-Consolidated Financial StatementsMarch 31, 2003
1. Summary of Significant Accounting Policies(a) Basis of preparation
Hogy Medical Co., Ltd. (the “Company”) maintains itsaccounting records and prepares its non-consolidatedfinancial statements in accordance with accountingprinciples and practices generally accepted andapplied in Japan. The accompanying non-consolidatedfinancial statements have been compiled from thefinancial statements prepared by the Company asrequired by the Securities and Exchange Law of Japanand include certain additional financial information forthe convenience of readers outside Japan. According-ly, the financial position and results of operations pre-sented in the accompanying financial statements maydiffer in certain material respects from accountingprinciples and practices generally accepted in countriesand jurisdictions other than Japan. Certain notes to thenon-consolidated financial statements have been omit-ted to avoid duplication with the notes to consolidatedfinancial statements. Accordingly, all information inthe non-consolidated financial statements should beread in conjunction with the accompanying consolidat-ed financial statements.
Effective April 1, 2002 the Company adopted anew accounting standard for treasury stock and reduc-tion of legal reserves. The effect of the adoption of thisnew accounting standard on its operating results forthe year ended March 31, 2003 was immaterial.
In addition, effective the year ended March 31,2002, the Company changed its method of presenta-tion of stockholders’ equity in the non-consolidatedbalance sheets in accordance with the ImplementingRegulation of the Japanese Commercial Code issuedby the Ministry of Justice in 2002. As a result, the legalreserve has been included in retained earnings in 2003.
(b) Investment in a subsidiaryInvestment in a subsidiary is stated at cost determinedby the moving average method.
2. U.S. Dollar AmountsThe translation of yen amounts into U.S. dollar amounts isincluded solely for convenience, as a matter of arithmeticcomputation only, at ¥120.20 = U.S.$1.00, the approximaterate of exchange in effect on March 31, 2003. This transla-tion should not be construed as a representation that yenhave been, could have been, or could in the future be,converted into U.S. dollars at the above or any other rate.
3. InventoriesInventories at March 31, 2003 and 2002 consisted of thefollowing:
MerchandiseFinished andsemifinished goods
Work in process andraw materials
Supplies
¥ 928
2,757
1,236152
¥5,073
$ 7,720
22,937
10,2831,265
$42,205
2003 2002 2003(Millions of yen) (Thousands of
U.S. dollars)
¥1,017
2,823
1,191152
¥5,183
2003
Net income:BasicDiluted(*11)
Net assetsCash dividends
applicable to the year
(Yen)
2003
¥ 203.76187.14
2,421.42
24.00
¥ 193.59—
2,235.62
34.00
$ 1.6951.557
20.145
0.200
(U.S. dollars)
2002 2001
¥ 192.32—
2,278.77
24.00
(*11) No diluted net income per share is presented since (1) the full dilution by common stock equivalents including conversion of convertible bonds would have had no dilutive effect for the year ended March 31, 2002 and (2) there were no potentially dilutive common stock equivalents outstanding as of March 31, 2001.
33
REPORT OF INDEPENDENT AUDITORS
The Board of DirectorsHogy Medical Co., Ltd.
We have audited the accompanying non-consolidated balance sheets of Hogy Medical Co., Ltd. as of March 31,2003 and 2002, and the related non-consolidated statements of income and shareholders’ equity for each ofthe three years in the period ended March 31, 2003, all expressed in yen. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion independently onthese financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally acceptedand applied in Japan. Those standards, procedures and practices 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 financialstatements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the non-consolidated financial position of Hogy Medical Co., Ltd. at March 31, 2003 and 2002, and the non-consolidated results of its operations for each of the three years in the period ended March 31, 2003 inconformity with accounting principles and practices generally accepted in Japan.
The U.S. dollar amounts in the accompanying non-consolidated financial statements with respect to the yearended March 31, 2003 are presented solely for convenience. Our audit also included the translation of yenamounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis describedin Note 2 to the consolidated financial statements.
Shin Nihon & Co.
June 27, 2003
See Note 1 to the non-consolidated financial statements which explains the basis of preparation of the non-consolidatedfinancial statements of Hogy Medical Co., Ltd. under Japanese accounting principles and practices.
34
3,000
4,000
5,000
6,000
(¥)
7,000
2,000
8,0008,500
1998/99 1999/00 2000/01 2001/02 2002/03
2,280
8,520
0
1
(Million� shares)2
6.051~~
Number of shareholders
6,61169258467
6,856
Number of shares(thousands)
5,544.36,549.5
132.81,636.82,477.8
16,341.2
Proportion(%)
33.9340.080.81
10.0215.16
100.00
IndividualsFinancial institutionsSecurities companiesForeign investors and othersOthersTotal
Shareholder composition
Common stock price range
High (yen)
Low (yen)
Number of shares(thousands)
2,725.21,819.71,576.61,300.9
575.6525.2
409.0
362.9283.0
257.09,835.3
Percentage of total(%)
16.6711.139.647.963.523.21
2.50
2.221.73
1.5760.19
Major shareholders
1999/00
8,520
3,700
2001/02
6,810
4,940
1998/99
4,560
2,280
2000/01
7,800
5,600
2002/03
6,200
4,540
Highest(upper whisker)
Opening
Closing
Closing
Opening(lower whisker)
Lowest
→
→
→→
→→←
←←
←←←
Unique to Japan, the "box-and-whisker" chart shows monthlyprice movements and turnover. Asingle box contains opening, clos-ing, high and low quotations on amonthly basis which enables thereader to quickly see price move-ments.
If the box is white, it meansthat the closing price of the monthis higher than the opening priceand if the box is blue, the oppo-site has occurred. The box alsochanges shape. If the openingquotation is the same as the lowfor the month and the closingquotation is the same as the highfor the month, a whisker does notappear from the white box. Theseare but two examples of thisexcellent charting method.
Numbers shown in the chartrepresent the highest and thelowest prices throughout the peri-od. A bar graph at the foot of thechart indicates the monthlyturnover in units of one millionshares.
Shareholder Information
Masao HokiHoki Business LimitedThe Master Trust Bank of Japan, Ltd. (Trust Account)Japan Trustee Services Bank, Ltd. (Trust Account)Hogy Medical Co., Ltd.UFJ Trust Bank Limited (Trust Account A)National Mutual Insurance Federation of
Agricultural CooperativesMitsui Asset Trust and Banking Company, Limited
(2 Pension Accounts)Jun-ichi HokiTrust & Custody Services Bank, Ltd. (Standing Proxy
for the Yasuda Mutual Life Insurance Company)Total
35
Incorporated:April 3, 1961
Paid-in capital:¥7,123 million (U.S.$59 million)
Number of employees:1,498
Number of sales offices:22
Listing:The Tokyo Stock ExchangeFirst Section
Code number:3593
Number of shareholders:6,856
Shares of common stockissued and outstanding: 16,341,155
Financial year:April 1 to March 31
Annual general meeting:June
Transfer agent:UFJ Trust Bank Limited4-3, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005Tel: 03-3287-2211
External auditor:Shin Nihon & Co.Hibiya Kokusai Building, 2-3, Uchisaiwai-cho 2-chome, Chiyoda-ku, Tokyo 100-0011Tel: 03-3503-1100
(as of March 31, 2003)
President & CEO Masao Hoki
Senior Managing Director Jun-ichi Hoki
Managing DirectorMitsunori Suzuki
Senior Executive Advisor and DirectorJun-ichi Hiroya
Director Kazuo Hirose
Full-time Corporate Auditors Mizuki Shinozaki Yukikazu Mishima
Outside Corporate Auditor Katsumi Uchida
Executive Officers Ikuo Fuse (Head of Sales Dept. 1)
Shoji Kusatsu (Head of Sales Dept. 2)
Yukio Yamamoto (Head of Sales Dept. 3)
Toshimasa Araki (Head of Production Dept.)
Yoshio Jo (Head of Research & Development Dept.)
Kazutaka Itoh (Head of Administration Dept.)
(as of June 26, 2003)
Corporate Information
Board of Directors and Corporate Auditors Corporate Data
36
Head Office7-7, Akasaka 2-chome, Minato-ku,Tokyo 107-8615Phone: +(81)3-6229-1300Fax: +(81)3-6229-1350http://www.hogy.co.jp
[Sales Offices]Sapporo Sales Office1-1, Higashi 19-chome, Kita 26-jo,Higashi-ku, Sapporo-shi, Hokkaido065-0026Phone: +(81)11-783-2401Fax: +(81)11-783-2460Morioka Sales Office14-50, Mitake 4-chome, Morioka-shi,Iwate 020-0122Phone: +(81)19-641-1221Fax: +(81)19-641-1383Sendai Sales Office1, Okadanishimachi 3-chome,Miyagino-ku, Sendai-shi, Miyagi 983-0004Phone: +(81)22-287-5333Fax: +(81)22-287-5335Omiya Sales Office8-9, Higashi-omiya 6-chome,Minuma-ku, Saitama-shi, Saitama 337-0051Phone: +(81)48-684-8591Fax: +(81)48-684-8590Chiba Sales Office12-12, Tsuga 2-chome, Wakaba-ku,Chiba-shi, Chiba 264-0025Phone: +(81)43-232-1411Fax: +(81)43-232-1285Tokyo Sales Office20-9, Hongo 3-chome, Bunkyo-ku,Tokyo 113-0033Phone: +(81)3-3813-8141Fax: +(81)3-3813-8140Tama Sales Office49-16, Tokura 4-chome, Kokubunji-shi, Tokyo 185-0003Phone: +(81)42-320-5511Fax: +(81)42-320-5513Yokohama Sales Office482-1, Toriyama-cho, Kohoku-ku,Yokohama-shi, Kanagawa 222-0035Phone: +(81)45-471-7701Fax: +(81)45-471-7704Niigata Sales Office9-3, Bentenbashi-dori 3-chome,Niigata-shi, Niigata 950-0925Phone: +(81)25-287-7110Fax: +(81)25-287-7116
Kanazawa Sales Office32-12, Sainen 3-chome, Kanazawa-shi, Ishikawa 920-0024Phone: +(81)76-223-2351Fax: +(81)76-223-5505Shizuoka Sales Office241 Mise, Shizuoka-shi, Shizuoka 422-8057Phone: +(81)54-284-6688Fax: +(81)54-284-6855Nagoya Sales Office1-508, Bunkyodai, Meito-ku, Nagoya-shi, Aichi 465-0012Phone: +(81)52-778-2711Fax: +(81)52-778-2720Kyoto Sales Office20-2, Kamitoba-waranden, Minami-ku, Kyoto-shi,Kyoto 601-8133Phone: +(81)75-672-l441Fax: +(81)75-671-9330Osaka Kita Sales Office14-17, Nishiawaji 1-chome,Higashiyodogawa-ku,Osaka-shi, Osaka 533-0031Phone: +(81)6-6320-7211Fax: +(81)6-6320-7216Osaka Minami Sales Office58, Hamaderafunao-cho, Nishi3-cho, Sakai-shi, Osaka 592-8342Phone: +(81)72-268-8051Fax: +(81)72-268-8052Nara Sales Office70-1, Hokkeji-cho, Nara-shi, Nara 630-8001Phone: +(81)742-32-2811Fax: +(81)742-32-2812Kobe Sales Office2-15, Ekimae-dori, 2-chome, Hyogo-ku, Kobe-shi, Hyogo 652-0898Phone: +(81)78-579-8611Fax: +(81)78-579-8612Okayama Sales Office25-105, Tatsumi, Okayama-shi,Okayama 700-0976Phone: +(81)86-246-2727Fax: +(81)86-246-3255Hiroshima Sales Office10-4, Ochiai 1-chome, Asakita-ku,Hiroshima-shi,Hiroshima 739-1731Phone: +(81)82-842-3957Fax: +(81)82-842-6317
Matsuyama Sales Office1188-1, Kishimachi, Matsuyama-shi,Ehime 791-1102Phone: +(81)89-976-2021Fax: +(81)89-976-1822Fukuoka Sales Office22-22, Toko 2-chome, Hakata-ku,Fukuoka-shi,Fukuoka 812-0008Phone: +(81)92-475-1861Fax: +(81)92-475-1864Kumamoto Sales Office107-12 Koga, Mashikimachi,Kamimashiki-gun,Kumamoto 861-2234Phone: +(81)96-286-1331Fax: +(81)96-286-1425
[R & D]Research & DevelopmentDepartment1650-30, Okubara-cho, Ushiku-shi,Ibaraki 300-1283Phone: +(81)29-830-9720Fax: +(81)29-830-9721
[Facilities]Tsukuba Plant 1650-30, Okubara-cho, Ushiku-shi,Ibaraki 300-1283
Kit Plant Phone: +(81)29-830-9700Fax: +(81)29-830-9710Tsukuba Sterilization CenterPhone: +(81)29-830-9725Fax: +(81)29-830-9726Tsukuba Distribution CenterPhone: +(81)29-830-9100Fax: +(81)29-830-9101
Miho Plant (No.1/No.2)1776-1 Fusa, Miho-mura,Inashiki-gun, Ibaraki 300-0427Phone: +(81)29-885-6611Fax: +(81)29-885-6800Edosaki
Distribution CenterSterilization Center
2726-1, Tatenodai, Sakura, Edosaki-machi, Inashiki-gun,Ibaraki 300-0508Phone: +(81)29-892-2381Fax: +(81)29-892-0891
[Overseas Subsidiary]P.T. HOGY INDONESIAMM2100 Industrial Town, EPZ,Blok, M3-1 Cibitung, Bekasi 17520,West Java, Indonesia
(as of August 30, 2003)
Network
HOGY MEDICAL Co., Ltd.
Printed in Japan
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