Exhibit 99.1
[Translation]
(Securities Identification Code 4505)
June 3, 2005
Notice of the 127th Annual General Meeting of Shareholders
You are hereby invited to attend the 127th Annual General Meeting of Shareholders of the Company which will be held as indicated below.
Furthermore, in the event that you are unable to attend the aforementioned meeting, please review the enclosed documentation and indicate on the Voting Card enclosed herewith your approval or disapproval of the proposals listed thereon and return the Voting Card to the Company after affixing your seal.
Yours faithfully,
Daiichi Pharmaceutical Co., Ltd.
14-10, Nihonbashi 3-chome
Chuo-ku, Tokyo
By: Kiyoshi Morita
President
Particulars
| | | | |
| 1. | | Date and Time: | | 10:00 a.m. on June 29, 2005 (Wednesday) |
| | |
| 2. | | Place: | | 9th Floor of the Company Headquarters 14-10, Nihonbashi 3-chome, Chuo-ku, Tokyo |
| | |
| 3. | | Purpose of Meeting: | | |
Matters to be reported:
| | 1. | Business Report, Consolidated Balance Sheet, Consolidated Statement of Income and Results of the Audits by the Independent Auditor and the Board of Corporate Auditors on the Consolidated Financial Statements for the 127th fiscal year (April 1, 2004 to March 31, 2005). |
| | 2. | Balance Sheet and Statement of Income for the 127th fiscal year (April 1, 2004 to March 31, 2005). |
1
Matters to be resolved:
| | |
First proposal: | | Approval of Appropriation Plan of Retained Earnings for the 127th Fiscal Year. |
| |
Second proposal: | | Establishment of a 100% Parent Company by means of Share Transfer. The substance of the proposal is described in the enclosed Reference Document Concerning Exercise of Voting Rights from page 39 to page 70. |
| |
Third proposal: | | Partial Amendment to the Articles of Incorporation. The substance of the proposal is described in the enclosed Reference Document Concerning Exercise of Voting Rights from page 71 to page 72. |
| |
Fourth proposal: | | Election of Thirteen (13) Directors. |
| |
Fifth proposal: | | Presentation of Retirement Allowances to Retiring Directors. |
| |
-End- | | |
When you attend the meeting in person, please submit the Voting Card enclosed herewith to the receptionist at the place of the meeting.
2
Business Report for the Period from April 1, 2004 to March 31, 2005
| (1) | Review and results of operations of the corporate group |
During the year, overseas pharmaceutical markets were characterized by a further intensification of global competition centered on “global-mega” companies and associated with both new drug-related R&D and marketing activities. The Japanese pharmaceutical market was affected by changes in the healthcare systems such as the growing scope of application of the comprehensive hospital therapy evaluation system and the conversion of national university hospitals and other national hospitals into independent corporations, and an average 4.2% reduction in National Health Insurance (NHI) drug reimbursement prices that was implemented in April 2004.
Against this backdrop, the Daiichi Group worked to expand the markets for its products while emphasizing the promotion of appropriate drug use through the provision of information related to drug efficacy and safety. As a result, higher revenue from domestic sales of prescription drugs and a rise inbulk levofloxacin exports more than offset a revenue decline associated with the transfer of the veterinary and livestock feed products business to another company. Consequently, net sales increased 1.8% from the previous fiscal year, to ¥328,534 million. Reflecting the reduction in cost of sales as well as cost-cutting measures with respect to R&D expenses, operating income totaled ¥56,063 million, up 21.6% from the previous fiscal year and ordinary income amounted to ¥57,320 million, up 22.7% from the previous fiscal year, both of which achieved double-digit growth. While ¥7.3 billion in extraordinary restructuring expenses associated with the spin-off of the parent Company’s manufacturing operations was recorded, this was more than offset by extraordinary gains of ¥11.7 billion on the return of the substitutional retirement portion of its Employee’s Pension Fund and ¥3.8 billion on the shift to a new retirement payment system. Thus, net income surged 39.4% from the previous fiscal year, to ¥37,175 million.
Pharmaceutical Business
<Prescription Drugs>
Although conditions in the domestic prescription drug market were negatively affected by the April 2004 revision of drug reimbursement prices, sales of the mainstay broad-spectrum oral antibacterial agentCravit were steady, and increased sales were recorded for such products asMobic, a nonsteroidal anti-inflammatory agent marketed in Japan exclusively by Daiichi since July 2004;Artist, a long-acting beta-blocker for treating high blood pressure, angina and chronic cardiac insufficiency; andZyrtec, an anti-allergy agent. As a result, total domestic prescription drug sales increased 1.9% from the previous fiscal year, to ¥205,859 million.
Overseas prescription drug sales were negatively affected by a decline in a U.S. subsidiary’s sales ofFLOXIN Otic, an antibacterial otic solution for treating ear infections, as well as by the appreciation of the Japanese yen. However, the sales oflevofloxacin and patent licensing royalty income increased in the United States. Thus, overseas sales of prescription drugs rose 6.2% from the previous fiscal year, to ¥61,318 million. In addition, the inventory adjustments for levofloxacin by the U.S. licensee have completed.
<Diagnostics and Radiopharmaceuticals>
Measures aimed at restraining medical costs kept market conditions challenging, and sales of such products as in vivo radiopharmaceuticals for cardiac imaging applications declined. However, strong sales of such in vitro diagnostics products as testing kits for influenza, which was prevalent in Japan during the year under review and the increase of exports of mainstay cholesterol measuring agents boosted total sales of diagnostics and radiopharmaceuticals products 2.1% from the previous fiscal year, to ¥32,923 million.
<OTC Drugs>
Karoyan Gush, a hair-growth accelerator launched in June 2004, made a significant contribution to performance during the year, and sales of such products asPatecs, anti-inflammatory analgesic poultices and the vitamin C productCystina C were robust. Accordingly, OTC Drug sales increased 16.3% from the previous fiscal year, to ¥10,199 million.
3
<Veterinary and Livestock Feed Products>
Reflecting the Company’s June 2004 transfer of its veterinary and livestock feed products business to Meiji Seika Kaisha, Ltd., segment sales dropped 59.1% from the previous fiscal year, to ¥1,544 million.
Other Businesses
Sales of fine chemical products decreased 10.6%, to ¥12,967 million, reflecting drops in sales of such products ascalcium pantothenate to customers in North America and Europe. Total sales in the other businesses segment, which includes fine chemicals, declined 8.3%, to ¥16,689 million.
Consolidated net sales derived from overseas rose 3.7%, to ¥68,589 million, and the export ratio of consolidated net sales was 20.9%.
R&D Activities
By conducting research programs that enable the identification of additional drug target molecules and the acquisition of innovative new drug discovery “seeds,” Daiichi is seeking to continuously generate high-quality drug development candidates. Moreover, the Company is proactively undertaking POC testing programs coordinated by Daiichi Medical Research, Inc.
Regarding collaborative research initiatives, Daiichi is collaborating with the U.S.-based UCSF Cancer Research Institute and the U.S.-based Rigel Pharmaceuticals Inc. in research aimed at developing molecularly-targeted anti-cancer agents and is conducting research related to genomic drug discovery with Japan-based Kazusa DNA Research Institute and Celestar Lexico-Sciences, Inc. All of these research programs are expected to facilitate new drug discovery.
Recognizing the importance of strategies for obtaining additional leading-edge technologies, Daiichi and MediBIC ALLIANCE jointly established a drug development venture investment fund in March 2005. The objectives of this fund are to facilitate the collection of information on drug discovery technologies as well as collaborative research activities.
With respect to drug development operations, Daiichi has applications pending in Japan forPlavix (clopidogrel sulfate), an anti-platelet agent;Sonazoid(DD-723), an ultrasonic contrast medium product; andKMD-3213 (silodosin), an agent for treating dysuria jointly developed with Kissei Pharmaceutical Co., Ltd. In addition, Aventis Pasteur-Daiichi Vaccines Co., Ltd. has an application pending in Japan forActHIB, the first haemophilus influenzae type b conjugate vaccine for pediatric use.
In May 2004, Daiichi submitted a supplemental application for the anticancer agentTopotecin(irinotecan hydrochloride), for an additional indication of pancreatic cancer. In February 2005, the Company submitted a supplemental application for the natural interferon beta agentFeron, for an additional indication of Hepatitis C-induced liver cirrhosis.
In April 2005, approval was received for the anti-spasticity agentGabalon Intrathecal Injection (continuous administration of baclofen into the intrathecal cavity) developed as an orphan drug (an agent for rare diseases). The agent is used with a programmable pump system, which was co-developed and applied for by Medtronic Japan Co., Ltd., and approval was given for the system in March 2005.
Also in April 2005, approval was received forAdenoscan (adenosine), an adjunctive agent for myocardial scintigraphy imaging for which the domestic application was submitted by Daiichi Suntory Pharma Co., Ltd.
Daiichi decided to discontinue its participation in development for anticancer agent TZT-1027, licensed from TEIKOKU HORMONE MFG. CO., LTD., as a result of its reevaluation of development plans and in line with its strategy of making selective and concentrated investments of R&D resources.
Other noteworthy products under development includeDU-6859a (Gracevit, sitafloxacin), a quinolone antibacterial agent that was discovered and developed in-house, and HGF DNA plasmid, an agent for treating peripheral artery diseases and ischemic heart disease for which exclusive marketing rights for Japan, the United States and Europe have been obtained from AnGes MG, Inc.
Daiichi Suntory Pharma is proceeding with domestic clinical trials ofSUN Y7017 (memantine hydrochloride), an agent for treating Alzheimer’s disease.
4
Manufacturing and Technologies
Aiming to realize a considerable reduction in the cost of sales, the Daiichi Group has introduced a newlevofloxacin manufacturing method involving a new synthesis technology. The switch to the new manufacturing method has been completed with respect to levofloxacin exported to the United States, which is the principal market for this product.
Daiichi Suntory Pharma began constructing a bio bulk manufacturing facility at its Chiyoda Pharma Factory that is designed to meet needs associated with growing sales ofHANP injectable 1000 as well as newly developed products. This facility is scheduled to be completed in October 2005.
Groupwide Initiatives
Daiichi has undertaken various reforms designed to increase the soundness and stability of its pension system. Along with completing the return of its Employees’ Welfare Pension Fund’s substitutional portion, the Company has undertaken fundamental reform aimed at unification of the pension plans of domestic Group companies. These companies have introduced new pension systems involving defined contributions and benefits.
Regarding moves to introduce and upgrade electronic information systems, the Company has been proceeding with the introduction of enterprise resource planning (ERP) systems at major domestic Group companies. Consolidated accounting, personnel and remuneration systems have already been inaugurated and the Company is steadily moving forward with the introduction of supply chain management systems.
During the current fiscal year the Company’s capital expenditures program totaled ¥12.2 billion, and principal projects were as follows:
| Ÿ | Bulk biopharmaceuticals manufacturing facility (Daiichi Suntory Pharma Co., Ltd.) Scheduled to be completed in October, 2005 |
| Ÿ | No. 10 building construction (Daiichi Radioisotope Laboratories, Ltd.) scheduled to be completed in October, 2005 |
During the current fiscal year no funds were raised by the Company through the issuance of bonds or new common shares.
| (4) | Matters to be dealt with by the Company |
Aiming to use new global development drug candidates to realize its corporate objectives, the Daiichi Group has designated the period through fiscal year 2006 for reforms that will create the foundation required for achievement of its corporate objectives. Accordingly, it is taking measures to attain the following management goals.
1) Expanding Global R&D Operations
Daiichi is placing strategic emphasis on the tasks of building a global R&D system able to create pharmaceutical products in line with global standards, continuously creating high-quality drug development candidates, and strengthening its system for evaluating drug development candidates in line with global standards and from both scientific and business perspectives.
Recognizing the need to transform conventional R&D operations in order to promote the smooth operation of a global R&D system, in October 2004 the Company established a new organizational system designed to integrate R&D operations. Within the R&D Division’s system, the Company is working to promote progress in domestic and overseas R&D projects through functional collaboration between its Tokyo Research and Development Center and the U.S.-based Daiichi Medical Research, Inc. Through this initiative, the Company is seeking to boost R&D productivity, integrate science and business, and firmly instill global thinking and action mechanisms.
5
Regarding drug discovery research, Daiichi has chosen four therapeutic domains: infectious diseases, cancer, thrombosis and other cardiovascular diseases, and allergies and other immune system disorders. Research advances are being promoted by augmenting the quality and efficiency of the drug discovery system’s performance. Competitively superior drug discovery technologies are being implemented by stepping up collaboration with leading-edge research institutions in Japan and overseas as well as with Daiichi Suntory Pharma Co., Ltd., and other Daiichi Group members.
In clinical development operations, the U.S.-based Daiichi Medical Research now provides more sophisticated drug candidate evaluation capabilities. Working in cooperation with the Daiichi Group’s other internal research facilities, the U.S.-based company is now undertaking comprehensive evaluation of a number of promising drug candidates including such oral antithrombotic agents asDU-176b, an oral factor-Xa inhibitor; such quinolone agents for treating drug-resistant infections asDX-619; such anti-allergy agents asDW-908e; and the anticancer chemotherapeutic agentDJ-927. In preparation for the advance of these candidates to the proof-of-concept (POC) testing stage, the Company is creating systems for performing POC studies in line with global standards.
2) Strengthening Domestic and Overseas Prescription Drug Businesses
Amid increasingly intense marketing competition, Daiichi has the policy of working to further reinforce the market positions of its domestic and overseas prescription drug businesses.
In the domestic prescription drug business, the Company is aiming to expand its current market share. To do this, it is striving to increase the number of prescriptions for established drugs such asCravit, a broad-spectrum oral antibacterial agent;Artist, a long-acting beta-blocker;Sunrythm, an anti-arrhythmic agent; andHANP, an agent for treating acute cardiac insufficiency while also expeditiously launching and developing the markets for drugs for which applications have already been made such asPlavix (clopidogrel sulfate), a new anti-platelet agent; andKMD-3213 (silodosin), an agent for treating dysuria. The Company is also strengthening its marketing operations aimed at the hospital market while taking steps to respond to such changes in the medical therapy environment as the creation of medical institution networks and the spread of diagnostic and therapeutic guidelines.
In the overseas prescription drug business, the Company is working to ensure that its licensee maintains the top share of the new quinolone market in the United States, which is the largest export market for bulk shipments of its mainstay antibacterial agentlevofloxacin, by working through the licensee to obtain approval for additional indications and taking other steps to expand sales of products containing levefloxacin in the United States.
3) Building a Resilient Corporate Structure by Resolutely Implementing Structural Reforms
To transform the entire Daiichi Group into an enterprise featuring high levels of profitability and management efficiency as well as strong overall competitiveness, the Company has established a task force, the Structural Reform Headquarters, that is working to:
| | (i) | consolidate functions within the Group and integrate and consolidate networks of research, manufacturing and distribution facilities; |
| | (ii) | optimize the size of the Group’s workforce; and |
| | (iii) | restructure ancillary businesses. |
Particularly noteworthy among functional and facility consolidation measures was the establishment of Daiichi Pharmatech Co., Ltd., which began smoothly operating in April 2005. Created through the spin-off of three factories from the Company and subsequent integration of these factories with two Group manufacturing service companies, Daiichi Pharmatech is working to further increase manufacturing efficiency and strengthen cost-competitiveness.
6
Other noteworthy measures include the shift of the Tochigi Research Center’s protein research unit and Daiichi Fine Chemical Co., Ltd.’s drug discovery units to the Tokyo Research and Development Center, in October 2004 and April 2005, respectively. A decision has been made to increase distribution efficiency and cut costs by shifting the functions of distribution centers in Sapporo and Shizuoka to the Tokyo Distribution Center, and the Company is assiduously moving ahead with measures to prepare for the implementation of this decision.
Aiming to optimize the size of the Group’s workforce, steps were taken to hire additional staff to work for Daiichi Medical Research and as the parent Company’s Medical Representatives (sales representatives in the field) in domestic prescription drug marketing. In contrast, at many other Group companies such operational reform measures as those to reevaluate operations, consolidate functions and introduce electronic information systems have enabled the right-sizing of the workforce.
Regarding the reorganization of non-core businesses, the Company sold and transferred sales and distribution rights for its veterinary and livestock feed products. This transfer was smoothly implemented in June 2004.
Corporate Governance
Recognizing that strengthening its corporate governance is an important management issue, the Daiichi Group is working to strengthen its capabilities regarding legal compliance, highly transparent management, rapid and appropriate management decision making and supervisory systems.
The Company will appoint outside directors and adopt single-year terms for directors upon approval at the coming 127th Annual General Meeting of Shareholders, and the Company is moving ahead with the introduction of a corporate officer system and functional reevaluation of the Management Committee.
Compliance
Daiichi Group companies recognize that complying with fundamental social rules is an important management issue, and the Group’s directors and employees make sustained efforts to ensure rigorous compliance with “Daiichi Conduct Guidelines.” The Company has established employee hotlines and the Ethics Committee, and it is promoting a thorough awareness of the “Daiichi Conduct Guidelines” through various measures including the organization of training seminars for each management stratum and the implementation of questionnaire-based surveys. Regarding internal control systems, Daiichi is strengthening its Internal Audit Department and other internal auditing units and also conducts audits of its compliance system risk management system, and other internal control systems.
Litigation
Regarding the issues associated with the alleged formation of a bulk vitamin marketing cartel, settlements were reached with all but a few relevant parties in the United States. In Europe, an appeal was filed in February 2002 in response to a notification of the levying of a fine received from the European Commission.
In the United States, Mylan Laboratories Inc. and other companies have filed applications for permission to manufacture generic versions of products of Daiichi’s mainstay product,levofloxacin. Having determined that such applications constitute attempts to infringe Daiichi’s patents, Daiichi and its licensee together filed suit against the Mylan Laboratories-led group in a federal district court, which decided in favor of
7
Daiichi and the licensee in December 2004. However, the Mylan Laboratories-led group was dissatisfied with the decision and has appealed it. Daiichi intends to continue vigorously defending its intellectual property assets.
Business Integration through Establishment of a Joint Holding Company with Sankyo Co., Ltd.
The Daiichi Group’s GLOBAL 10 long-term vision calls for the Group to become an “R&D-driven global pharmaceutical company” that develops products that meet global standards and provides them throughout the world. To realize this vision, the Group has proceeded with diverse business reforms and striven to improve its operations in a manner that accords with its social mission.
However, in view of such worldwide trends as progressive globalization and stepped-up cost-containment measures in the healthcare environment, we recognize that it is crucial to adopt a new corporate strategy that will enable us to build a stronger corporate foundation and management resources needed to overcome global competition.
Sharing in the recognition of the need for this strategy, Daiichi and Sankyo Co., Ltd., on February 25, 2005, signed a memorandum of understanding and on May 13, 2005, signed a definitive joint share transfer agreement subject to approval at the 127th Annual General Meeting of Shareholders scheduled to be held on June 29, 2005, in relation to the establishment of a joint holding company to be called DAIICHI SANKYO COMPANY, LIMITED and the subsequent integration of their operations in the prescription drug business. The goal of integration is to realize the philosophy and vision jointly held by the two companies.
By maximizing synergies generated by the integration, the two companies are aiming to become the Japan-based “global pharma-innovator.” Having outstanding R&D and marketing capabilities competitive in the major world markets, this company will seek to “contribute to better human health throughout the world” on a still-higher level.
| (5) | Changes in the Operating Results and Total Assets for the Corporate Group and for the Company |
1) Changes in the Operating Results and Total Assets for the Corporate Group (Consolidated)
| | | | | | | | |
| | | 2001 124th fiscal year | | 2002 125th fiscal year | | 2003 126th fiscal year | | 2004 127th fiscal year
(Consolidated fiscal
year under review) |
Net Sales (Millions of Yen) | | 332,753 | | 322,011 | | 322,767 | | 328,534 |
Net Income (Millions of Yen) | | 31,375 | | 13,567 | | 26,661 | | 37,175 |
Earnings per Share (Basic) (Yen) | | 110.18 | | 48.15 | | 97.25 | | 137.95 |
Total Assets (Millions of Yen) | | 525,511 | | 512,383 | | 521,808 | | 546,555 |
| Notes: 1. | From the consolidated fiscal year under review, the Company has prepared consolidated financial statements in accordance with Article 19-2 of the Law for Special Provisions for the Commercial Code Concerning Audits, Etc. Regarding the 124th through 126th fiscal years, the Company is presenting consolidated financial information which have not been audited by corporate auditors or independent auditors as stipulated by financial information Article 19-2-3 of that law. |
8
| | 2. | Earnings per Share (Basic) are based on the average number of shares of common stock issued and outstanding during the relevant fiscal year, and shares of the Company that are held by the Company (treasure stock) are deducted from the total number of issued shares |
| | 3. | From the 125th fiscal year, bonus allowances to company directors are deducted from Net Income, pursuant to the “Accounting Standards Regarding Net Profit per Share for the Current Period” (Corporate Accounting Standards No. 2) and “Application Guidelines for Accounting Standards Regarding Net Profit per Share for the Current Period” (Corporate Accounting Standards Application Guidelines No. 4). |
2) Changes in the Operating Results and Total Assets for the Company (Non-consolidated)
| | | | | | | | |
| | | 2001 124th fiscal year | | 2002 125th fiscal year | | 2003 126th fiscal year | | 2004 127th fiscal year (Fiscal year
under review) |
Net Sales (Millions of Yen) | | 272,214 | | 254,897 | | 253,486 | | 259,912 |
Net Income (Millions of Yen) | | 29,566 | | 24,637 | | 27,996 | | 19,303 |
Earnings per Share (Basic) (Yen) | | 103.83 | | 88.34 | | 102.29 | | 71.53 |
Total Assets (Millions of Yen) | | 465,492 | | 474,452 | | 491,534 | | 508,932 |
| Notes: 1. | Earnings per Share are based on the average number of shares of common stock issued and outstanding during the relevant fiscal year. Shares in the Company that are held by the Company (treasury stock) are deducted from the total number of issued shares. |
| | 2. | From the 125th fiscal year, bonus allowances to company directors are deducted from Net Income, pursuant to the “Accounting Standards Regarding Net Profit per Share for the Current Period” (Corporate Accounting Standards No. 2) and “Application Guidelines for Accounting Standards Regarding Net Profit per Share for the Current Period” (Corporate Accounting Standards Application Guidelines No. 4). |
| 2. | GENERAL STATE OF THE CORPORATE GROUP AND OF THE COMPANY |
(Unless otherwise noted, the descriptions below are provided as of March 31, 2005)
| (1) | Major Business Operations of the Corporate Group and of the Company |
| | Manufacture, sale, export and import of pharmaceuticals, radiopharmaceuticals, diagnostics and non-pharmaceutical products. |
9
| (2) | Main Place of Business, Factories and Research Facilities, Etc., of the Corporate Group and of the Company |
| | | | |
Daiichi Pharmaceutical Co., Ltd. | | Headquarters | | 14-10, Nihonbashi 3-chome, Chuo-ku, Tokyo, JAPAN |
| | Branch Offices | | Sapporo Branch, Sendai Branch, Tokyo Branch I, Chiba/Saitama Branch, Yokohama Branch, Tokyo Branch II, Nagoya Branch, Kyoto Branch, Osaka Branch, Kobe Branch, Hiroshima Branch, Takamatsu Branch, Fukuoka Branch |
| | Factories | | Osaka Factory, Shizuoka Factory, Akita Factory |
| | Research Institutes | | Edogawa-ku, Tokyo |
| | Training Center | | Sunto-gun, Shizuoka Prefecture |
Daiichi Pure Chemicals Co., Ltd. | | Headquarters | | Chuo-ku, Tokyo |
Daiichi Radioisotope Laboratories, Ltd. | | Headquarters | | Chuo-ku, Tokyo |
Daiichi Fine Chemical Co., Ltd. | | Headquarters | | Takaoka-City, Toyama Prefecture |
Saitama Daiichi Pharmaceutical Co., Ltd. | | Headquarters | | Kasukabe-City, Saitama Prefecture |
Daiichi Suntory Pharma Co., Ltd. | | Headquarters | | Chiyoda-ku, Tokyo |
Daiichi Pharma Holdings, Inc. | | Headquarters | | New Jersey, U.S.A. |
Daiichi Pharmaceutical (Beijing) Co., Ltd. | | Headquarters | | Beijing, China |
Daiichi Pharmaceutical (China) Co., Ltd. | | Headquarters | | Beijing, China |
| Note: | As of April 1, 2005, the Company spun-off three factories—the Osaka Factory, Shizuoka Factory, and Akita Factory—and transferred them to Daiichi Pharmatech, Co., Ltd. |
| | | | |
(i) | | Total number of shares authorized to be issued by the Company | | 789,000,000 |
| | |
(ii) | | Total number of shares issued and outstanding | | 286,453,235 |
| | |
(iii) | | Number of new shares issued during the current fiscal period | | 0 |
| | |
(iv) | | Number of shareholders | | 19,250 |
10
| | | | | | | | |
| | | |
| Name of Company | | The shareholder’s investment in
the Company | | The Company’s investment
in the major shareholders |
| | Holdings | | Shareholding
ratio | | Holdings | | Shareholding
ratio |
| | | | | |
| | | (Shares in Thousands) | | (Percentage) | | (Shares in Thousands) | | (Percentage) |
| | | | | |
Nippon Life Insurance Company | | 14,225 | | 4.97 | | - | | - |
| | | | | |
| Japan Trustee Service Bank, Ltd. (Trust account) | | 10,252 | | 3.58 | | - | | - |
| | | | | |
| The Master Trust Bank of Japan, Ltd. (Trust account) | | 9,569 | | 3.34 | | - | | - |
| | | | | |
| Sumitomo Mitsui Banking Corporation | | 8,540 | | 2.98 | | - | | - |
| | | | | |
| The Bank of Tokyo-Mitsubishi, Ltd. | | 8,169 | | 2.85 | | - | | - |
| | | | | |
| Trust & Custody Services Bank, Ltd. (Mizuho Corporate Bank, Ltd. Retirement Benefit Trust Account re-entrusted by Mizuho Trust & Banking Co., Ltd.) | | 7,331 | | 2.56 | | - | | - |
| | | | | |
| The Tokio Marine & Nichido Fire Insurance Co., Ltd. | | 6,966 | | 2.43 | | - | | - |
| | | | | |
| State Street Bank and Trust Company 505103 | | 6,660 | | 2.33 | | - | | - |
| | | | | |
Mitsui Sumitomo Insurance Co., Ltd. | | 6,479 | | 2.26 | | 2,258 | | 0.15 |
| | | | | |
Mellon Bank Treaty Clients Omnibus | | 5,806 | | 2.03 | | - | | - |
| Notes: 1. | Sumitomo Mitsui Banking Corporation is a wholly owned subsidiary of the Sumitomo Mitsui Financial Group, and the Company holds 6,944 shares (Shareholding Ratio 0.11%) of common stock of the Sumitomo Mitsui Financial Group. |
| | 2. | The Bank of Tokyo-Mitsubishi, Ltd. is a wholly owned subsidiary of the Mitsubishi Tokyo Financial Group, Inc., and the Company holds 3,427 shares (Shareholding Ratio 0.05%) of common stock of the Mitsubishi Tokyo Financial Group, Inc. |
| | 3. | The Tokio Marine & Nichido Fire Insurance Co., Ltd. is a wholly owned subsidiary of Millea Holdings, Inc., and the Company holds 1,094 shares (Shareholding Ratio 0.06%) of common stock of Millea Holdings, Inc. |
| | 4. | In addition to the shareholdings of the above-mentioned major shareholders, the Company holds 18,049,212 shares of the Company as treasury stock (6.30% of the total number of issued shares). |
| | | [Note to U.S. shareholders: The information as to major shareholders set out above is based solely on the register of the shareholders of Daiichi. Daiichi shares held in a number of trust accounts with each of Japan Trustee Service Bank, Ltd., The Master Trust Bank of Japan, Ltd. and Trust & Custody Services Bank, Ltd. have been presented separately in the table above, although these shares have been counted on an aggregate basis for each of Japan Trustee Service Bank, Ltd., The Master Trust Bank of Japan, Ltd. and Trust & Custody Services Bank, Ltd. for the purpose of the table set out in the “Major Shareholders” section of the prospectus included as part of the registration statement on Form F-4 filed with the U.S. Securities and Exchange Commission.] |
11
| (4) | Acquisition, Disposal and Holding of Treasury Stock |
| | |
Common stock | | 2,122,763 shares |
| |
Aggregate acquisition amount | | ¥4,263 million |
| | |
Common stock | | 826,560 shares |
| |
Aggregate disposal amount | | ¥1,795 million |
N.A.
| | (iv) | Stock Held during the Fiscal Term |
| | |
Common stock | | 18,049,212 shares |
| (5) | Status of Stock Acquistion Rights |
| | (i) | Currently issued stock acquisition rights |
| | | | | | | | |
| | | Date of
resolution for
the issuance | | Number of
stock acquisition
rights | | Class and
number of shares
to be acquired upon
exercise of stock
acquisition rights | | Amount to be
paid per share
(exercise price) |
First issuance of stock acquisition rights (July 1, 2002) | | June 27, 2002 | | 4,090 | | Common shares
409,000 | | 2,338 yen |
Second issuance of stock acquisition rights (July 1, 2003) | | June 27, 2003 | | 4,320 | | Common shares
432,000 | | 1,633 yen |
Third issuance of stock acquisition rights (July 1, 2004) | | June 29, 2004 | | 3,560 | | Common shares
356,000 | | 1,993 yen |
Note: | In all cases, stock acquisition rights were issued free of charge for the purpose of granting stock options. In addition, with regard to share subscription rights based on provisions of Article 280-19 of the old Commercial Code, see Notes to the Balance Sheet. |
| | (ii) | Status of stock acquisition rights issued under particularly advantageous conditions to persons other than shareholders during the current fiscal year |
| | 1) | Total number of stock acquisition rights issued |
3,560 at 100 common shares per stock acquisition right
| | 2) | Class and number of shares to be acquired upon exercise of stock acquisition rights |
| | |
Common Stock | | 356,000 shares |
| | 3) | Issue price of stock acquisition rights |
Free of charge
| | 4) | Amount to be paid per share upon exercise of stock acquisition rights |
1,993 yen
| | 5) | Exercise period for the stock acquisition rights is from July 1, 2004 to June 29, 2014 |
12
| | 6) | Conditions of exercise of the stock acquisition rights |
| | • | | A person who is granted stock acquisition rights shall retain his or her rights to exercise the stock acquisition rights in the event that such person shall lose his or her status as a Director or employee of the Company, provided that such change in status is a result of the resignation or retirement upon expiry of term or for other just causes, such as reaching mandatory retirement age, transfer to a subsidiary or resignation due to the Company’s reasons. |
| | • | | Holder of the stock acquisition rights shall not pledge or otherwise dispose of such rights for money or other consideration. |
| | • | | In addition to the two stipulations noted above, other conditions for the exercise of the stock acquisition rights shall be set out in the “Option Allowance Agreement.” |
| | 7) | Events and conditions of cancellation |
| | | In the event that the holder of the stock acquisition rights ceases to comply with the conditions for the exercise of his or her rights, the Company may cancel the stock acquisition rights without compensation to such person. |
| | 8) | Advantageous conditions |
| | | The options are issued free of charge to the directors and certain employees of the Company |
| | 9) | Names of persons who were granted the stock acquisition rights and the number of stock acquisition rights granted to each person |
Ÿ Directors of the Company
| | | | | | |
| Name | | Number of stock
acquisition rights | | Name | | Number of stock
acquisition rights |
Kiyoshi Morita | | 400 | | Tomomi Chiba | | 100 |
Hiroyuki Nagasako | | 300 | | Isao Hayakawa | | 100 |
Kenichi Mizutani | | 200 | | Ryuzo Takada | | 100 |
Hiroshi Yamamoto | | 200 | | Hiroshi Sugiyama | | 100 |
Tadao Suzuki | | 150 | | Teruo Takayanagi | | 100 |
Atsuo Inoue | | 150 | | Toru Kuroda | | 100 |
Hidetoshi Imaizumi | | 150 | | Akira Nagano | | 100 |
Tsutomu Une | | 150 | | Kyohei Nonose | | 100 |
| | | | | George Nakayama | | 100 |
| | | | | Kazunori Hirokawa | | 100 |
| | | | | 18 persons, total of 2,700 stock acquisition rights (Common stock 270,000 shares) |
Ÿ Employees of the Company (Top ten employees)
| | | | | | |
| | | | |
| Name | | Number of stock
acquisition rights | | Name | | Number of stock
acquisition rights |
Katsuro Yagawa | | 50 | | Yusuke Yukimoto | | 50 |
Yoji Yamamoto | | 50 | | Tadashi Horiuchi | | 50 |
Takashi Yokota | | 50 | | Masatoshi Sakamoto | | 50 |
Toshiro Minotani | | 50 | | Osamu Goishihara | | 50 |
Koju Ogawa | | 50 | | Shinsei Tamai | | 50 |
| | | | | 20 persons, total of 860 stock acquisition rights (Common stock 86,000 shares) |
13
| (i) | Number of Employees of the Corporate Group |
| | |
| Number of employees | | Change from previous fiscal year-end |
7,333 | | -46 |
| Note: The | number of employees represents the number of employees actually working. |
| (ii) | Number of Employees of the Company |
| | | | | | |
| Number of employees | | Change from previous
fiscal year-end | | Average age | | Average number of
years of service |
3,799 | | - 5 | | 37.9 | | 15 |
| Note: The | number of employees represents the number of employees actually working. |
| (7) | Status of Business Relationships |
| | (i) | The Status of Principal Subsidiaries |
| | | | | | |
| Company name | | Paid-in capital | | Shareholding ratio | | Principal activities |
| | | | |
Daiichi Pure Chemicals Co., Ltd. | | 1,275 million yen | | 100.0 | | Manufacture and sale of diagnostic agents and reagents, research on and testing of pharmaceuticals |
| | | | |
Daiichi Radioisotope Laboratories, Ltd. | | 1,400 million yen | | 100.0 | | Manufacture and sale of radiopharmaceuticals and radioisotope products |
| | | | |
Daiichi Fine Chemical Co., Ltd. | | 2,276 million yen | | 100.0 | | Manufacture and sale of pharmaceuticals and fine chemicals |
| | | | |
Saitama Daiichi Pharmaceutical Co., Ltd. | | 1,005 million yen | | 100.0 | | Manufacture and sale of pharmaceuticals |
| | | | |
Daiichi Suntory Pharma Co., Ltd. | | 1,000 million yen | | 66.0 | | Research, development, manufacture, and sale of pharmaceuticals |
| | | | |
Daiichi Pharma Holdings, Inc. | | US$150,000 | | 100.0 | | Unified oversight for Daiichi Medical Research, Inc. and Daiichi Pharmaceutical Corporation |
| | | | |
Daiichi Pharmaceutical (Beijing) Co., Ltd. | | US$53,800,000 | | 100.0 | | Manufacture and sale of pharmaceuticals |
| | | | |
Daiichi Pharmaceutical (China) Co., Ltd. | | US$10,000,000 | | 100.0 | | Clinical development of pharmaceuticals |
| Notes: 1. | 17.5% of the Company’s voting rights in Daiichi Radioisotope Laboratories, Ltd. are held indirectly through a subsidiary. |
| | 2. | Regarding Daiichi Pharma Holdings, Inc., as of April 1, 2004, the former Daiichi Pharmaceutical Corporation contributed its operating assets to Daiichi Medical Research, Inc., and DPC |
14
| | Newco, Inc and thereby transformed itself into a holding company, and changed its name to Daiichi Pharma Holdings, Inc. At the same time, DPC Newco, Inc., changed its name to Daiichi Pharmaceutical Corporation. |
| | (ii) | Changes in Material Business Relationships |
| | 1) | As of April 1, 2004, Saitama Daiichi Pharmaceutical Co., Ltd. became a wholly owned subsidiary of the Company by way of a share exchange arrangement. |
| | 2) | As of April 1, 2004, the former Daiichi Pharmaceutical Corporation contributed its operating assets to Daiichi Medical Research, Inc., and DPC Newco, Inc and thereby transformed itself into a holding company, and changed its name to Daiichi Pharma Holdings, Inc. At the same time, DPC Newco, Inc., changed its name to Daiichi Pharmaceutical Corporation. |
| | 3) | As of April 1, 2005, the Company spun-off three factories-the Osaka Factory, Shizuoka Factory, and Akita Factory and transferred them to Daiichi Pharmatech, Co., Ltd., a subsidiary established on October 14, 2004. At the same time, Daiichi Pharmatech Co., Ltd. merged with two other of the Company’s subsidiaries Kansai Daiichi Service Co., Ltd., and Daiichi Technos Co., Ltd. |
| | (iii) | Consolidated Financial Results |
The number of consolidated subsidiaries of the Company is 31, including the 8 principal subsidiaries listed above.
During the current fiscal year, consolidated net sales amounted to ¥328,534 million (up 1.8% from the previous fiscal year), and consolidated net income amounted to ¥37,175 million (up 39.4% from the previous fiscal year).
| | (iv) | Principal Business Partners |
| 1) | Principal Overseas Business Partners and Significant Cooperative Activities |
| | | | |
Company name | | Country | | Significant cooperative activities |
| | | |
Sanofi-Synthelabo | | France | | Alliance for manufacture and sale of finished preparations of ticlopidine hydrochloride, etc. |
| | | |
Aventis Pharma Deutschland | | Germany | | Licensee for manufacture and sale of finished preparations of ofloxacin and levofloxacin |
| | | |
Johnson & Johnson | | U.S.A. | | Same as above |
| | | |
GlaxoSmithKline S.P.A. | | Italy | | Same as above |
| | | |
Aventis Pharma | | France | | Licensee for manufacture and sale of finished preparations of ofloxacin |
| | | |
Amersham Health AS | | Norway | | Alliance for manufacture and sale of finished preparations of iohexol and finished preparations of gadodiamide, and for research and development of contrast media |
| | | |
F. Hoffmann - La Roche Ltd. | | Switzerland | | Alliance for manufacture and sale of finished preparations of carvedilol |
| | | |
Servier Laboratorios | | France | | Alliance for manufacture and sale of finished preparations of perindopril erbumine |
15
| 2) | Principal Domestic Business Partners and Significant Cooperative Activities |
| | | | |
Company name | | Country | | Significant cooperative activities |
| | | |
Toray Industries, Inc. | | Japan | | Alliance for sale of finished preparations of interferon-ß |
| | | |
The Kitasato Institute | | Japan | | Alliance for sale of vaccines |
| | | |
Santen Pharmaceutical Co., Ltd. | | Japan | | Licensee for manufacture and sale of finished preparations of ofloxacin and levofloxacin |
| | | |
Mitsubishi Pharma Corporation | | Japan | | Alliance for manufacture and sale of finished preparations of argatroban |
| | | |
UCB Japan Co., Ltd. | | Japan | | Alliance for sale of finished preparations of cetirizine hydrochloride |
| | | |
Nippon Boehringer Ingelheim Co., Ltd. | | Japan | | Alliance for sale of finished preparations of meloxicam |
| | | |
Zeria Pharmaceutical Co., Ltd. | | Japan | | Alliance for sale of finished preparations of carperitide |
| | | |
Yakult Honsha Co., Ltd. | | Japan | | Alliance for sale of finished preparations of irinotecan hydrochloride |
This item is not applicable.
| (9) | Directors and Corporate Auditors |
| | | | |
Position | | Name | | Duties or major responsibilities |
| | | |
| Representative Director & President | | Kiyoshi Morita | | |
| | | |
| Representative Director & Executive Vice President | | Hiroyuki Nagasako | | |
| | | |
| Senior Managing Director | | Kenichi Mizutani | | Domestic Pharmaceuticals Marketing |
| | | |
| Senior Managing Director | | Hiroshi Yamamoto | | Ethics, Legal, Human Resource, Production and Technology |
| | | |
| Managing Director | | Tadao Suzuki | | Head of R&D Division |
| | | |
| Managing Director | | Atsuo Inoue | | Science and Reliability Assurance |
| | | |
| Managing Director | | Hidetoshi Imaizumi | | Healthcare |
| | | |
| Managing Director | | Tsutomu Une | | Corporate Management, Administration and International Operations |
| | | |
| Director | | Tomomi Chiba | | Director of Post Marketing Surveillance Administration |
| | | |
| Director | | Isao Hayakawa | | Director of New Product Research |
16
| | | | |
Position | | Name | | Duties or major responsibilities |
| | | |
| Director | | Ryuzo Takada | | General Manager of Marketing & Sales Administration Department |
| | | |
| Director | | Hiroshi Sugiyama | | General Manager of Clinical Development Department |
| | | |
| Director | | Teruo Takayanagi | | General Manager of R&D Operations Department |
| | | |
| Director | | Toru Kuroda | | General Manager of Corporate Planning Department |
| | | |
| Director | | Akira Nagano | | General Manager of Marketing Planning & Promotion Department |
| | | |
| Director | | Kyohei Nonose | | General Manager of Human Resources Department, Business Center and Higashifuji Training Center |
| | | |
| Director | | George Nakayama | | Representative Director and President, Daiichi Suntory Pharma Co., Ltd. |
| | | |
| Director | | Kazunori Hirokawa | | General Manager of R&D Strategic Planning Department |
| | | |
Senior Corporate Auditor (Full-time) | | Yutaka Hirata | | |
| | | |
Corporate Auditor (Full-time) | | Shigemi Oda | | |
| | | |
| Corporate Auditor | | Tadashi Takauji | | Attorney |
| | | |
| Corporate Auditor | | Koukei Higuchi | | Senior Corporate Advisor of Tokio Marine & Nichido Fire Insurance Co., Ltd. |
| Notes: 1. | Among the Corporate Auditors, both Tadashi Takauji and Koukei Higuchi serve as Outside Corporate Auditors in accordance with Article 18 (1) of the Law for Special Provisions for the Commercial Code Concerning Audits, etc. |
| | 2. | The following persons accepted positions as Corporate Auditors during the current fiscal year: |
Shigemi Oda (assumed office on June 29, 2004)
Koukei Higuchi (assumed office on June 29, 2004)
| | 3. | The following persons retired from positions as Directors and Corporate Auditors during the current fiscal year: |
Tadashi Suzuki (retired from office on June 29, 2004)
Kimiaki Ohta (retired from office on June 29, 2004)
Yasumasa Araki (retired from office on June 29, 2004)
Tadayuki Otsuka (retired from office on June 29, 2004)
17
| | 4. | On April 1, 2005, the following changes were made due to organizational changes. |
Managing Director
Tsutomu Une
Corporate Management, Administration and International Sales & Marketing Department
Director
Hiroshi Sugiyama
General Manager of Clinical Development Department
Director
Kyohei Nonose
General Manager of Personnel Department, Business Center and Higashifuji Training Center
| (10) | Fee Paid to Independent Auditors |
Amounts of audit fees etc., paid to independent auditors by the Company and its subsidiaries, etc., were as follows.
| | |
Item | | Amount to be paid |
1. Total amount of fees paid to independent auditors by the Company and its subsidiaries, etc. | | ¥231 million |
2. Portion of above item “1.” constituting total amount of fee paid to independent auditors as the fee for audit certification services based on Article 2-1 of the Certified Public Accountant Law | | ¥216 million |
3. Portion of above item “2.” constituting total amount of remuneration to be paid to financial auditors by the Company | | ¥38 million |
Notes: | Because the audit contract between the Company and its independent auditors does not separately list audit fee amounts for audits based on the Law for Special Provisions for the Commercial Code Concerning Audits, etc, and for audits based on the Securities Exchange Law, the amount listed in item “3” is a total for the two types of audits. |
In addition, the amounts listed in items “1” and item “2” include ¥142 million of fees for audits based on the standards of the Public Company Accounting Oversight Board (U.S.) for fiscal years 2002 and 2003.
| 3. | IMPORTANT SUBSEQUENT EVENT PERTAINING TO THE CORPORATE GROUP |
Business Integration Through Establishment of a Joint Holding Company with Sankyo Company, Limited.
At the May 13, 2005 meeting of the Board of Directors, the Board approved a proposal calling for the establishment with Sankyo Company, Limited, of a joint holding company on September 28, 2005 and a definitive joint share transfer agreement was signed on that same day.
Regarding the establishment of a joint holding company, a resolution for the establishment thereof by means of a share transfer is scheduled to be presented for approval at the 127th Annual General Meeting of Shareholders scheduled to be held on June 29, 2005.
18
CONSOLIDATED BALANCE SHEET - ASSETS
(As of March 31, 2005)
(Unit: millions of yen)
| | |
| ACCOUNT | | AMOUNT |
| |
ASSETS | | 546,555 |
| |
Current Assets: | | 299,836 |
Cash and time deposits | | 16,395 |
Trade notes and accounts receivable | | 88,168 |
Investment securities | | 107,514 |
Mortgage-backed securities | | 20,000 |
Inventories | | 40,486 |
Deferred tax assets | | 13,826 |
Other current assets | | 13,496 |
Allowance for doubtful accounts | | (-)50 |
| |
Non-current assets: | | 246,718 |
Property, plant and equipment: | | 105,602 |
Buildings and structures | | 55,969 |
Machinery, equipment and vehicles | | 19,705 |
Land | | 17,526 |
Construction in progress | | 6,029 |
Other fixed assets | | 6,372 |
| |
Intangible assets: | | 6,796 |
Other intangible assets, net | | 6,796 |
| |
Investments and other assets: | | 134,319 |
Investment securities | | 105,461 |
Long-term loans | | 763 |
Prepaid pension costs | | 15,493 |
Deferred tax assets | | 3,167 |
Other assets | | 9,756 |
Allowance for doubtful accounts | | (-)323 |
| TOTAL ASSETS | | 546,555 |
19
CONSOLIDATED BALANCE SHEET – LIABILITIES, MINORITY
INTERESTS AND SHAREHOLDERS’ EQUITY
(As of March 31, 2005)
(Unit: millions of yen)
| | |
| ACCOUNT | | AMOUNT |
| |
LIABILITIES | | 96,409 |
| |
Current liabilities: | | 74,339 |
| |
Trade notes and accounts payable | | 17,182 |
| |
Short-term bank loans | | 18 |
| |
Income taxes payable | | 8,401 |
| |
Allowance for sales returns | | 448 |
| |
Allowance for sales discounts | | 1,421 |
| |
Accrued expenses and other current liabilities | | 46,867 |
| |
Non-current liabilities: | | 22,070 |
| |
Long-term debt | | 5 |
| |
Deferred tax liabilities | | 9,791 |
| |
Accrued retirement and severance costs | | 4,754 |
| |
Accrued directors’ retirement and severance costs | | 2,200 |
| |
Other non-current liabilities | | 5,318 |
| |
MINORITY INTERESTS | | 1,582 |
| |
Minority interests | | 1,582 |
| |
SHAREHOLDERS’ EQUITY | | 448,563 |
| |
Common stock | | 45,246 |
| |
Additional paid-in-capital | | 49,130 |
| |
Retained earnings | | 376,144 |
| |
Net unrealized gain on investment securities | | 18,215 |
| |
Foreign currency translation adjustments | | (-)1,305 |
| |
Treasury stock at cost | | (-)38,867 |
| |
| TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY | | 546,555 |
20
CONSOLIDATED STATEMENT OF INCOME
(April 1, 2004 to March 31, 2005)
(Unit: millions of yen)
| | | | |
| ACCOUNT | | | | AMOUNT |
| | |
Ordinary Income and Loss: | | | | |
| | |
Operating income and expenses: | | | | |
| | |
Operating income | | | | |
Net sales | | | | 328,534 |
| | |
Operating expenses | | | | 272,470 |
Cost of sales | | 100,834 | | |
Selling, general and administrative expenses | | 171,636 | | |
| | |
Operating income | | | | 56,063 |
| | |
Non-operating income and expenses: | | | | |
| | |
Non-operating income | | | | 2,795 |
Interest and dividends receivable | | 1,474 | | |
Other | | 1,321 | | |
| | |
Non-operating expenses | | | | 1,538 |
Loss on disposal and write-down of inventories | | 626 | | |
Equity in net losses of affiliated companies | | 399 | | |
Other | | 511 | | |
| | |
Ordinary income: | | | | 57,320 |
| | |
Extraordinary Gains and Losses: | | | | |
| | |
Extraordinary gains: | | | | 16,983 |
Gain from the return of the substitutional portion of the employees’ pension fund to the government | | 11,747 | | |
| | |
Gain from the transfer to the defined contribution pension plan | | 3,769 | | |
| | |
Gain on sale of the veterinary and livestock feed products business | | 800 | | |
| | |
Gain on sale of land | | 384 | | |
| | |
Realized gain on sale of investment securities | | 283 | | |
| | |
Extraordinary losses: | | | | 9,633 |
| | |
Restructuring charge | | 7,316 | | |
| | |
Loss on settlement of an employee pension fund plan | | 381 | | |
| | |
Loss on settlement of vitamin-related anti-trust litigations | | 111 | | |
| | |
Impairment of investment securities | | 32 | | |
| | |
Loss on disposal of fixed assets | | 1,792 | | |
| | |
Net income before income taxes and minority interests | | | | 64,670 |
Income tax expense – current | | | | 17,357 |
Income tax expense – deferred | | | | 11,486 |
Minority interests in net losses of subsidiaries | | | | 1,348 |
| | |
Net income | | | | 37,175 |
21
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Scope of Consolidation
(1) Consolidated subsidiaries: 31
Principal consolidated subsidiaries:
In Japan
Daiichi Pure Chemicals Co., Ltd.
Daiichi Radioisotope Laboratories, Ltd.
Daiichi Fine Chemical Co., Ltd.
Saitama Daiichi Pharmaceutical Co., Ltd.
Daiichi Suntory Pharma Co., Ltd.
Overseas
Daiichi Pharmaceutical Corporation
Daiichi Medical Research, Inc.
Daiichi Pharmaceutical (Beijing) Co., Ltd.
Daiichi Pharmaceutical (China) Co., Ltd.
For the fiscal year, three newly-established subsidiaries have been added to the scope of consolidation: Daiichi Pharmaceutical Corporation, Daiichi Medical Research, Inc., and Daiichi Pharmatech, Co., Ltd. Also, during the fiscal year, the former corporate name of Daiichi Pharmaceutical Corporation was changed to Daiichi Pharma Holdings, Inc.
(2) Non-consolidated subsidiaries: 3
During the fiscal year, the Company excluded one newly established subsidiary from the scope of consolidation and thereby increased the number of non-consolidated subsidiaries to three. Non-consolidated subsidiaries are small in size and are not material when measured by the amounts of assets, sales, net income (based on the Company’s ownership percentage), retained earnings (based on the Company’s ownership percentage), and other indicators. They have therefore been excluded from the scope of consolidation.
2. Application of the Equity Method
(1) Affiliated companies accounted for under the equity method: 2
Names of principal companies:
Aventis Pasteur Daiichi Vaccine Co., Ltd., plus one other company
Since the significance of these affiliates to the consolidated financial statements has increased, they have been included in the scope of companies accounted for under the equity method beginning this fiscal year.
| | (2) | For the fiscal year, net income (based on the Company’s equity percentage), retained earnings (based on the Company’s equity percentage) and other indicators of the Company’s three non-consolidated subsidiaries and three of its 20%-50% owned affiliated companies are not material or significant to the Company as a whole. Therefore, these companies have not been accounted for under the equity method but, rather, are reported in the Company’s investment accounts under the cost method. |
| | (3) | The equity method of accounting is applied on the basis of the affiliated companies’ fiscal years. One affiliated company has a fiscal year-end date that is different from the Company’s fiscal year-end. |
22
3. Fiscal Year-end of Consolidated Subsidiaries
The fiscal year-end of the following consolidated subsidiaries is December 31: Daiichi Pharmaceutical (China) Co., Ltd.; Daiichi Pharmaceutical (Beijing) Co., Ltd.; Daiichi Asubio Pharmaceuticals, Inc.; Daiichi Asubio Holdings, Inc.; Daiichi Asubio Medical Research Laboratories LLC.
In preparing the consolidated financial statements, the Company uses the financial statements of these companies as of their fiscal year-end. For major intervening transactions that occurred between the fiscal year-end of these companies and March 31, appropriate adjustments have been made in the consolidated financial statements.
4. Summary of Significant Accounting Policies
| | (1) | Methods of valuation of investment securities |
| | (a) | Held-to-maturity securities: The Company reports held-to-maturity securities at an amortized cost using the straight-line method of amortization. |
| | (b) | Available-for-sale securities |
(i) Securities with quoted market value:
The fair value method based on the quoted market value at the end of fiscal year (Unrealized holding gains/losses are reported in a component of stockholder’s equity, with costs of securities sold being calculated using the moving average method.)
(ii) Securities with no readily available market value:
Stated at cost based mainly on the moving-average method
| | (2) | Methods of valuation of Inventories |
Inventories are mainly stated at the lower of cost or market, with cost being determined by the average cost method.
| | (3) | Depreciation and amortization of depreciable assets |
| | (a) | Property, plant and equipment: The Company and its domestic consolidated subsidiaries account for depreciation of property, plant and equipment based on the declining balance method. Certain overseas consolidated subsidiaries account for depreciation of property, plant and equipment under the straight-line method. |
| | (b) | Intangible assets : The Company accounts for amortization under the straight-line method |
| | (4) | Method of Accounting for Significant Allowances |
| | (a) | Allowance for doubtful accounts |
The Company covers the risk of credit losses from potential customer defaults by providing this allowance. For normal accounts, the allowance is computed on the basis of the historical default rates. For specific over-due accounts, the allowance is based on individual account-by-account estimates of the amounts that may not be recoverable.
| | (b) | Allowance for sales returns |
To prepare for losses on potential returns of products after fiscal year-end, the Company provides for an amount equal to the sum of gross profits and inventory losses on such returned products, based on its estimates of possible sales returns.
23
For the fiscal year, the Company’s reversal of sales return provision in the amount of ¥43 million was deducted from cost of sales.
| | (c) | Allowance for sales discounts |
To prepare for future sales discounts, the Company provides for this allowance calculated by multiplying an estimated sales discount percentage for the period by the amounts of accounts receivable from and inventories held by wholesalers at fiscal year-end.
| | (d) | Accrued retirement and severance costs |
To prepare for future payments of employee retirement and severance benefits, the Company provides for an accrual based on estimated projected benefit obligations and plan assets at the end of fiscal year.
Prior service cost is amortized under the straight-line method over a period of 10 years, which is equal to or less than the estimated average remaining years of service of the eligible employees when the prior service cost was incurred.
Actuarial gain and loss are amortized based on the straight-line method, beginning in the fiscal year following the year in which such gain or loss was initially measured, over a period of 10 years, which is equal to or less than the average remaining years of service of the eligible employees when the actuarial gain or loss occurred.
(Supplementary Information)
Accompanying the enactment of the Contribute Benefit Pension Law, the Company received an approval of exemption from the Minister of Health, Labour and Welfare, on January 1, 2005, from the obligation for pension payment liabilities related to past employee service with respect to the substitutional portion of its Employees’ Pension Fund. For the fiscal year, as a result, the Company recognized an extraordinary gain of ¥11,747 million from the return of the substitutional portion of the employees’ pension fund to the government.
In addition, accompanying the enactment of the Defined Contribution Pension Plans Law, the Company and certain of its domestic consolidated subsidiaries transferred a portion of their lump-sum retirement benefit plans to a defined contribution pension plan, which was accounted for under the provisions of “Accounting for Transitions between Retirement Benefit Plans” (Corporate Accounting Guidelines No. 1).
This change in retirement benefit arrangement resulted in an extraordinary gain of ¥3,769 million for the fiscal year.
| | (e) | Directors’ retirement and severance benefits |
To prepare for payments of directors’ retirement and severance benefits, the Company and its domestic consolidated subsidiaries provide for an amount equal to the total benefits that would have been payable at the end of fiscal year, in accordance with the internal guidelines, had all directors resigned voluntarily.
| | (5) | Accounting for Significant Lease Transactions |
Finance lease transactions are accounted for using the same method applied to operating lease transactions, with an exception for those finance leases in which the legal title of the underlying property is transferred from the lessor to the lessee.
24
| | (6) | Translation of Significant Assets and Liabilities Denominated in Foreign Currencies into Yen |
Receivables and payables denominated in foreign currencies are translated into yen at the exchange rates prevailing at the end of fiscal year, with translation gains or losses currently recognized in earnings. The assets and liabilities of overseas consolidated subsidiaries are translated into yen at the exchange rates prevailing at the balance sheet dates. Income and expenses are translated into yen at the average exchange rates prevailing over the fiscal year, with translation gains or losses recorded in minority interests and foreign currency translation adjustment in the shareholders’ equity section of the balance sheet.
| | (7) | Significant Hedge Accounting Method |
| | (a) | Hedge accounting method |
The Company employs the deferral method of hedge accounting. Forward foreign exchange contracts that meet certain hedge criteria are accounted for as a hedge of underlying assets and liabilities.
| | (b) | Hedging instruments and hedged items |
Hedging Instruments: Forward foreign exchange contracts and other
Hedged Items: Assets denominated in foreign currencies
The Company hedges foreign exchange rate fluctuation risks in accordance with its internal policies.
| | (d) | Method of assessing hedge effectiveness |
Based on its internal policies, the Company evaluates the effectiveness of hedges by examining the correlations between its hedging instruments and hedged items as a result of fluctuations of foreign currency exchange rates and confirms the effectiveness of its hedge relationship.
| | (8) | Consumption Tax Accounting Method |
The tax-exclusion method is used to account for the national and local consumption taxes.
| 5. | Valuation Method for Assets and Liabilities Acquired in Business Combinations |
All assets and liabilities of an acquired business that becomes a consolidated subsidiary are valued on a full fair value basis without taking into account minority interests’ share in such assets and liabilities.
| 6. | Amortization of Goodwill |
Goodwill recorded in the consolidated financial statements is generally amortized on a straight-line basis over a period of five years.
Notes to Consolidated Balance Sheets
1. Figures less than ¥1 million, except per share amounts, have been omitted.
2. Accumulated depreciation of tangible fixed assets ¥210,631 million
25
3. Pledged assets and secured liabilities
Assets pledged as collateral and secured liabilities were as follows:
| | | | | |
| | | (Millions of yen) | |
Pledged assets: | | | | | |
Buildings and structures | | 426 | | (426 | ) |
Machinery, equipment and vehicles 264 | | 264 | | (264 | ) |
Land | | 724 | | (724 | ) |
Other fixed assets | | 26 | | (26 | ) |
| | |
|
|
Total | | 1,441 | | (1,441 | ) |
Secured liabilities: | | | | | |
Short-term bank loans | | 17 | | (17 | ) |
Figures in parentheses indicate factory foundation mortgaged assets and related secured borrowings that are included in the figures on the left.
| | |
4. Guarantees provided on loans | | ¥3,087 Million |
| |
5. Trade export notes receivable discounted | | ¥78 Million |
6. Amounts related to non-consolidated subsidiaries and affiliated companies were as follows:
| | |
| | | (Millions of yen) |
Investment securities | | 87 |
Other assets (advances) | | 600 |
| | | | |
7. Treasury stock | | Common stock | | 18,049,212 shares |
Notes to Consolidated Statements of Income
| | | |
1. Figures less than ¥1 million, except per share amounts, have been omitted. | | | |
| |
2. Basic net income per share | | | ¥137.95 |
| |
3. Total research and development costs | | ¥ | 58,605 Million |
26
[English Translation of the Auditors Report Originally Issued in Japanese Language]
Independent Auditors’ Report
| | | | |
| | | | | May 13, 2005 |
The Board of Directors | | | | |
Daiichi Pharmaceutical Co., Ltd. | | | | |
| | |
| | | | | KPMG AZSA & CO. |
| | |
| | | Hikoyuki Miwa (Seal) | | |
| | | Designated and Engagement Partner | | |
| | | Certified Public Accountant | | |
| | |
| | | Akihiro Ohtani (Seal) | | |
| | | Designated and Engagement Partner | | |
| | | Certified Public Accountant | | |
| | |
| | | Shinnosuke Yamada (Seal) | | |
| | | Designatede and Engagement Partner | | |
| | | Certified Public Accountant | | |
We have audited the consolidated statutory report, that is the consolidated balance sheet and the consolidated statement of income, of Daiichi Pharmaceutical Co., Ltd. for the 127th business year from April 1, 2004 to March 31, 2005 in accordance with Article 19-2(3) of the “Law for Special Exceptions to the Commercial Code Concerning Audit, etc. of Kabushiki Kaisha”. The consolidated statutory report is the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated statutory report based on our audit as independent auditors.
We conducted our audit in accordance with auditing standards generally accepted in Japan. Those auditing standards require us to obtain reasonable assurance about whether the consolidated statutory report is free of material misstatement. An audit is performed on a test basis, and includes assessing the accounting principles used, the method of their application and estimates made by management, as well as evaluating the overall presentation of the consolidated statutory report We believe that our audit provides a reasonable basis for our opinion. Our audit procedures also include those considered necessary for the Company’s consolidated subsidiaries.
As a result of the audit, in our opinion, the consolidated statutory report referred to above presents fairy the consolidated financial position of Daiichi Pharmaceutical Co.Ltd.and Company`s consolidated subsidiaries, and the consolidated results of their operations in conformity with related laws and regulations and the Articles of Incorporation of the Company.
The business report contains descriptions of a subsequent event concerning the business integration with Sankyo Company, Limited, through the establishment of a joint holding company.
Our firm and engagement partners have no interest in the Company which should be disclosed pursuant to the provisions of the Certified Public Accountants Law of Japan.
27
[English Translation of the Audit Report Originally Issued in Japanese Language]
AUDIT REPORT RELATED TO CONSOLIDATED FINANCIAL STATEMENTS
This Board of Corporate Auditors prepared and reported upon the following audit report regarding the consolidated financial statements (consolidated balance sheet and consolidated statement of income) for the 127th business year from April 1, 2004 to March 31, 2005, after discussions based on the reports from each Corporate Auditor regarding the methods and the results of the audit.
| | 1. | Summary of Auditing Method of Corporate Auditors |
Each Corporate Auditor, in compliance with the Corporate Auditor Auditing Rules set up by the Board of Corporate Auditors and subject to,inter alia, the audit policy and audit plan for this fiscal year, has received reports and explanations from Directors and Independent Auditors, etc., and has audited the consolidated financial statements.
We confirm that the methods and the results of the audit made by Azusa & Co., the Independent Accountants, are fair.
May 18, 2005
The Board of Corporate Auditors of
Daiichi Pharmaceutical Co., Ltd.
Senior Corporate Auditor (Full-time) Yutaka Hirata (Seal)
Corporate Auditor (Full-time) Shigemi Oda (Seal)
Corporate Auditor Tadashi Takauji (Seal)
Corporate Auditor Koukei Higuchi (Seal)
| Note: | Messrs. Tadashi Takauji and Koukei Higuchi, Corporate Auditors, are Outside Corporate Auditors as prescribed in Article 18 (1) of the Law for Special Exceptions to the Commercial Code Concerning Audit, Etc. ofKabushiki Kaisha. |
28
NON-CONSOLIDATED BALANCE SHEET - ASSETS
(As of March 31, 2005)
(Unit: millions of yen)
| | |
| ACCOUNTS | | AMOUNT |
| |
ASSETS | | 508,932 |
| |
Current Assets: | | 269,185 |
Cash and time deposits | | 6,455 |
Trade notes receivable | | 6,771 |
Accounts receivable | | 63,046 |
Investment securities | | 107,514 |
Mortgage – backed securities | | 20,000 |
Merchandises and products | | 19,272 |
Semi-finished products and work in process | | 6,066 |
Raw materials | | 6,222 |
Prepaid expenses | | 187 |
Deferred tax assets | | 10,850 |
Other receivables | | 4,277 |
Short-term loans | | 9,715 |
Other current assets | | 8,806 |
| |
Non-current Assets: | | 239,747 |
Property, plant and equipment: | | 58,133 |
Buildings and structures | | 36,357 |
Machinery and equipment | | 10,124 |
Vehicles, transportation, tools, furniture and fixtures | | 3,137 |
Land | | 7,241 |
Construction in progress | | 1,273 |
| |
Intangible assets: | | 7,915 |
Patents | | 2,975 |
Software | | 1,873 |
Other intangible assets | | 3,065 |
| |
Investments and other assets: | | 173,698 |
Investment securities | | 104,045 |
Stock and advances of affiliated companies | | 61,433 |
Long-term loans | | 5,656 |
Prepaid pension cost | | 15,385 |
Other assets | | 6,524 |
Allowance for doubtful accounts | | (-)676 |
Allowance reserve for investment losses | | (-)18,671 |
| |
| TOTAL ASSETS | | 508,932 |
29
NON-CONSOLIDATED BALANCE SHEET – LIABILITIES AND SHAREHOLDERS’ EQUITY
(As of March 31, 2005)
(Unit: millions of yen)
| | |
ACCOUNT | | AMOUNT |
| |
LIABILITIES | | 93,912 |
| |
Current Liabilities: | | 79,985 |
| |
Accounts payable | | 16,163 |
| |
Other payable | | 10,660 |
| |
Accrued expenses | | 19,445 |
| |
Income taxes payable | | 7,023 |
| |
Consumption taxes payable | | 502 |
| |
Advances receipt | | 24,320 |
| |
Allowance for sales returns | | 448 |
| |
Allowance for sales discounts | | 1,421 |
| |
Non-current liabilities: | | 13,926 |
| |
Long-term payables | | 3,467 |
| |
Deferred tax liabilities | | 9,035 |
| |
Accrued retirement and severance costs | | 213 |
| |
Accrued directors’ retirement and severance costs | | 1,208 |
| |
SHAREHOLDERS’ EQUITY | | 415,020 |
| |
Common stock | | 45,246 |
| |
Additional paid-in-capital: | | 49,130 |
| |
Capital surplus | | 48,961 |
| |
Other capital surplus | | 169 |
| |
Gain on reissuance of treasury stock | | 169 |
| |
Retained earnings: | | 341,395 |
| |
Legally appropriated retained earnings | | 7,599 |
| |
Voluntary retained earnings reserve: | | 309,353 |
| |
Reserve for reduction in fixed asset (cost basis) | | 2,591 |
| |
Special reserve | | 306,762 |
| |
Unappropriated retained earnings | | 24,442 |
| |
Net unrealized gain on investment securities | | 18,115 |
| |
Treasury stock at cost | | (-)38,867 |
| |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | 508,932 |
30
NON-CONSOLIDATED STATEMENT OF INCOME
(April 1, 2004 to March 31, 2005)
(Unit: millions of yen)
| | | | |
ACCOUNT | | | | AMOUNT |
| | |
Ordinary Income and Loss: | | | | |
| | |
Operating income and expenses: | | | | |
Operating income | | | | |
Net sales | | | | 259,912 |
Operating expenses | | | | |
Cost of sales | | 82,047 | | |
Reversal of provision for sales returns | | 43 | | |
Selling, general and administrative expenses | | 123,467 | | 205,472 |
Operating income | | | | 54,440 |
Non-operating income and expenses: | | | | |
Non-operating income | | | | |
Interest and dividends receivable | | 2,024 | | |
Other | | 904 | | 2,928 |
Non-operating expenses | | | | |
Loss on disposal and write-down of inventories | | 384 | | |
Provision for allowance for doubtful accounts | | 297 | | |
Other | | 363 | | 1,046 |
| | |
Ordinary income: | | | | 56,322 |
| | |
Extraordinary Gains and Losses: | | | | |
| | |
Extraordinary gains: | | | | 15,520 |
Gain from the return of the substitutional portion of the employees’ pension fund to the government | | 11,747 | | |
Gain from the transfer to the defined contribution pension plan | | 3,073 | | |
Gain on sale of the veterinary and livestock feed products business | | 679 | | |
Realized gain on sale of investment securities | | 20 | | |
Extraordinary losses: | | | | 26,978 |
Provision for allowance for investment losses | | 18,671 | | |
Restructuring charge | | 7,042 | | |
Loss on settlement of vitamin-related anti-trust litigations | | 111 | | |
Impairment of investment securities | | 28 | | |
Loss on disposal of fixed assets | | 1,124 | | |
| | |
Net income before income taxes | | | | 44,865 |
Income tax expense – current | | | | 15,400 |
Income tax expense – deferred | | | | 10,161 |
Net income | | | | 19,303 |
Unappropriated retained earnings, beginning of year | | | | 9,165 |
Less interim dividends | | | | 4,026 |
Unappropriated retained earnings, end of year | | | | 24,442 |
31
SIGNIFICANT ACCOUNTING POLICIES
1. Methods of Valuation of Investment Securities
(1) Held-to-maturity debt securities: Stated at amortized costs (straight-line method)
(2) Stocks of subsidiaries and affiliated companies: Accounted for at moving-average costs
(3) Available-for-sale securities:
| | 1) | With quoted market value: Stated at quoted market value at the balance sheet dates (Unrealized holding gains or losses are reported as a component of shareholders’ equity. Realized gains or losses are computed using the moving-average cost method.) |
| | 2) | With no readily available market value: Accounted for at moving-average costs |
2. Method of Valuation of Inventories:
Accounted for at the lower of cost or market, with cost being determined under the average cost method.
3. Methods of Depreciation and Amortization:
| (1) | Property, plant and equipment: Depreciation is computed using the declining-balance method. |
| (2) | Intangible assets: Amortization is computed using the straight-line method. Software that is expected to generate future revenues or to contribute to a future cost reduction is amortized over estimated number of years it will be used internally. |
4. Methods of Determining Significant Allowances:
| (1) | Allowance for Doubtful Accounts: |
The Company covers the risk of credit losses from potential customer defaults by providing this allowance. The allowance is estimated on the basis of historical default rates for normal accounts and individual account-by-account evaluation for specific over-due accounts.
| (2) | Allowance for Investment Losses: |
To cover a potential decline in value of the investments in affiliated companies, the Company provides for an allowance based on the financial condition and future prospects for recovery of the affiliated companies.
| (3) | Allowance for Sales Return: |
To prepare for losses from potential returns of products after fiscal year-end, the Company provides for an amount equal to the estimated gross profit and inventory losses on sales returns.
| (4) | Allowance for Sales Discounts: |
To prepare for future sales discounts, the Company provides for an estimated amount of discounts calculated by multiplying the sales discount percentage for the period by the amounts of accounts receivable and the wholesaler’s inventories at the end of fiscal year.
| (5) | Accrued Retirement and Severance Costs |
To prepare for future payments of retirement and severance benefits, the Company provides for an accrual based on estimated projected benefit obligations and plan assets at the end of fiscal year.
Prior service cost is amortized under the straight-line method over a period of 10 years, which is equal to or less than the estimated average remaining years of service of the eligible employees.
Actuarial gains and losses are amortized based on the straight-line method, beginning in the fiscal year following the year in which such gain or loss was initially measured, over a period of 10 years, which is equal to or less than the average remaining years of service of the eligible employees.
32
(Supplemental Information)
Accompanying the enactment of the Contributed Benefit Pension Law, the Company received an approval of exemption from the Minister of Health, Labor and Welfare, on January 1, 2005, from the obligation for pension payment liabilities related to past employee service with respect to the substitutional portion of its Employees’ Pension Fund.
For the fiscal year, as a result, the Company recognized this an extraordinary gain of ¥11,747 million from the return of the substitutional portion of the employees’ pension fund to the government.
In addition, accompanying the enactment of the Defined Contribution Pension Plan Laws, the Company transferred a portion of their lump-sum retirement benefit plans to a defined contribution plan, which was accounted for under the provisions of “applied the Accounting Principles for Transitions among Retirement Benefit Plans” (Corporate Accounting Guidelines No. 1).
This change in retirement benefit arrangement resulted in an extraordinary gain of ¥3,073 million for the fiscal year.
| (6) | Directors’ Retirement and Severance Benefits |
To prepare for payments of directors’ retirement and severance benefits, the Company provides for an amount equal to the total benefits that would have been payable at the end of fiscal year, in accordance with internal guidelines, had all directors resigned voluntarily. This amount is the allowance prescribed by the Article 43 of Enforcement Regulations to the Commercial Code.
5. Accounting for Significant Lease Transactions
Finance lease transactions are accounted for using the same method applied to operating lease transactions, with an exception for those finance leases in which the legal title of the underlying property is transferred from the lessor to the lessee.
6. Significant Hedge Accounting Method
(1) Hedge Accounting Method
The Company employs the deferral method of hedge accounting. Forward foreign exchange contracts that meet certain hedge criteria are accounted for as a hedge of underlying assets and liabilities.
| (2) | Hedging Instruments and Hedged Items |
Hedging Instruments: Foreign exchange forward contracts and other.
Hedged Items: Assets denominated in foreign currencies.
The Company hedges foreign exchange rate fluctuation risks in accordance with its internal policies.
| (4) | Method of Assessing Hedge Effectiveness |
Based on its internal policies, the Company evaluates the effectiveness of hedges by examining the correlations between its hedging instruments and hedged items as a result of fluctuations in foreign currency exchange rates and confirms the effectiveness of its hedge relationship.
| 7. | Accounting for Consumption Tax |
The tax exclusion method is used to account for the national and local consumption taxes.
33
Notes to Balance Sheet
| | |
1. Figures less than ¥1 million, except per share amounts, have been omitted. | | |
| |
2. Short-term monetary assets due from affiliated companies: | | ¥12,672 Million |
| |
3. Non-current monetary assets due from affiliated companies: | | ¥4,144 Million |
| |
4. Short-term monetary liabilities due to affiliated companies: | | ¥29,631 Million |
| |
5. Accumulated depreciation of property, plant and equipment: | | ¥135,437 Million |
|
6. In addition to the property, plant and equipment recorded in the Balance Sheet, there are computers and vehicles which are used pursuant to various lease contracts |
| |
7. Amount of guarantees | | ¥2,890 Million |
| |
8. Trade export notes receivable discounted | | ¥78 Million |
| |
9. Treasury stock Common stock | | 18,049,212 shares |
| 10. | The current status of subscription right plans with regard to new shares, pursuant to Article 280 (19) of the old Commercial Code is as follows: |
| | | | | | | | | | |
| | | | | | |
Date of resolution of General Shareholders Meeting | | Class of shares
with respect to
which
subscription
rights were
granted | | Balance
subscription
rights | | Exercise Price | | Amount to be
recorded as
common stock | | Exercise period
of subscription
rights |
June 29, 2000 | | Common shares | | 570,000 | | ¥2,755 | | ¥1,378 | | From June 30,
2002 until June
29, 2010 |
June 28, 2001 | | Common shares | | 431,000 | | ¥3,030 | | ¥1,515 | | From July 10,
2001 until June
28, 2011 |
| 11. | Amount of net assets as defined by Article 124 (3) of the Regulations promulgated under the Commercial Code: ¥18,115 Million |
Notes to Statement of Income
| | |
1. Figures less than ¥1 million, except per share amounts, have been omitted. | | |
| |
2. Transactions with subsidiaries | | |
Sales | | ¥3,895 Million |
Purchases | | ¥33,083 Million |
Non-operating transactions | | ¥158 Million |
| |
3. Net income per share (basic) | | ¥71.53 |
| |
4. Total research and development costs | | ¥43,886 Million |
34
APPROPRIATION PLAN OF RETAINED EARNINGS
(Yen)
| | | |
ITEM | | AMOUNT | |
Unappropriated retained earnings, end of year | | 24,442,776,717 | |
| |
Reversal of special reserve | | 40,000,000,000 | |
| |
Total | | 64,442,776,717 | |
| |
Proposed treatment of appropriated funds | | | |
| |
Dividends | | 6,710,100,575 | |
| |
(¥25.00 per share) | | | |
| |
Bonuses to Directors and corporate auditors | | 100,000,000 | |
| |
(Portion corresponding to bonuses to Corporate Auditors) | | (- | ) |
| |
Reserve for reduction in fixed asset (cost basis) | | 48,129,251 | |
| |
Retained earnings carried forward to the next fiscal year | | 57,584,546,891 | |
| |
Other capital surplus allocation Other capital surplus | | 169,026,237 | |
| |
Allocated as follows | | | |
| |
Other capital surplus carried forward to the subsequent fiscal period | | 169,026,237 | |
| Note: | Interim dividends (¥15.00 per share) in the aggregate amount of ¥4,026,308,385 were paid on December 1, 2004. |
35
[English Translation of the Auditors Report Originally Issue in Japanese Language]
Independent Auditors’ Report
May 13, 2005
The Board of Directors
Daiichi Pharmaceutical Co., Ltd.
| | | | |
| | | KPMG AZSA & CO. |
| | |
| | | Hikoyuki Miwa (Seal) | | |
| | | Designated and Engagement Partner | | |
| | | Certified Public Accountant | | |
| | |
| | | Akihiro Ohtani (Seal) | | |
| | | Designated and Engagement Partner | | |
| | | Certified Public Accountant | | |
| | |
| | | Shinnosuke Yamada (Seal) | | |
| | | Designatede and Engagement Partner | | |
| | | Certified Public Accountant | | |
We have audited the statutory report, that is the balance sheet, the statement of income, the business report (limited to accounting matters) and the proposal for appropriation of unappropriated retained earnings, and its supporting schedules (limited to accounting matters) of Daiichi Pharmaceutical Co., Ltd. for the 127th business year from April 1, 2004 to March 31, 2005 in accordance with Article 2(1)of the “Law for Special Exceptions to the Commercial Code Concerning Audit, etc. of Kabushiki Kaisha”. With respect to the aforementioned business report and supporting schedules, our audit was limited to those matters derived from the accounting books and records. The statutory report and supporting schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the statutory report and supporting schedules based on our audit as independent auditors.
We conducted our audit in accordance with auditing standards generally accepted in Japan. Those auditing standards require us to obtain reasonable assurance about whether the statutory report and supporting schedules are free of material misstatement. An audit is performed on a test basis, and includes assessing the accounting principles used, the method of their application and estimates made by management, as well as evaluating the overall presentation of the statutory report and supporting schedules. We believe that our audit provides a reasonable basis for our opinion. Our audit procedures also include those considered necessary for the Company’s subsidiaries.
As a result of the audit, our opinion is as follows:
| (1) | The balance sheet and the statement of income present fairly the financial position and the results of operations of the Company in conformity with related laws and regulations and the Articles of Incorporation of the Company. |
| (2) | The business report (limited to accounting matters) presents fairly the status of the Company in conformity with related laws and regulations and the Articles of Incorporation of the Company. |
| (3) | The proposal for appropriation of unappropriated retained earnings has been prepared in conformity with related laws and regulations and the Articles of Incorporation of the Company. |
| (4) | With respect to the supporting schedules (limited to accounting matters) there are no items to be noted that are not in conformity with the provisions of the Commercial Code. |
The business report contains descriptions of a subsequent event concerning the business integration with Sankyo Company, Limited, through the establishment of a joint holding company.
Our firm and engagement partners have no interest in the Company which should be disclosed pursuant to the provisions of the Certified Public Accountants Law of Japan.
36
[English Translation of the Audit Report Originally Issued in Japanese Language]
AUDIT REPORT
This Board of Corporate Auditors prepared and reported upon the following audit report regarding the performance of duties of the Directors of the Company during the 127th business year from April 1, 2004 to March 31, 2005, after discussions based on the reports from each Corporate Auditor regarding the methods and the results of the audit.
| 1. | Summary of Auditing Method of Corporate Auditors |
Each Corporate Auditor, in compliance with the Corporate Auditor Auditing Rules set up by the Board of Corporate Auditors and subject to,inter alia, the audit policy and audit plan for this fiscal year, has; attended meetings of the Board of Directors and other meetings as deemed important; listened to the execution status of duties from the Directors and the Internal Auditing Department, etc.; perused documents whereby important decisions were made; examined business and financial conditions at the head office and the principal offices; and requested business reports from the subsidiaries as necessary. In addition, we received from the Independent Accountants, reports and explanations on audits and examined the financial statements and supplementary statement.
In addition to the auditing method mentioned above, we also each examined in detail, requesting reports from the Directors, as necessary, with reference to transactions by Directors which are competitive with the Company; transactions between Directors and the Company in which there may be a conflict of interest; the provision, free of charge, of a benefit by the Company; transactions not in the ordinary course of business with subsidiaries or with shareholders; and acquisition and disposal, etc., of treasury stock.
| | (1) | We confirm that the methods and the results of the audit made by Azusa & Co., the Independent Accountants, are fair. |
| | (2) | We confirm that the business report is in conformity with the relevant laws and regulations as well as the Articles of Incorporation of the Company and indicates fairly the position of the Company. |
| | (3) | We do not have any items to point out in the proposal concerning the appropriation of retained earnings, in consideration of the Company’s assets and other circumstances. |
| | (4) | We confirm that the supplementary statement indicates fairly the matters to be stated and that there is nothing to be pointed out. |
| | (5) | We confirm that there are no material facts to be pointed out concerning improper acts or facts which violate any laws or the Articles of Incorporation in the course of the performance by the Directors of their duties, including the performance of their duties for subsidiaries. |
37
In addition, we found no violation of obligations by Directors in relation to transactions by Directors which are competitive with the Company; transactions between Directors and the Company in which there may be a conflict of interest; the provision, free of charge, of a benefit by the Company; transactions not in the ordinary course of business with subsidiaries or with shareholders; and acquisition and disposal, etc., of treasury stock.
| | | | |
| May 18, 2005 | | | | |
| | | The Board of Corporate Auditors of Daiichi Pharmaceutical Co., Ltd. | | |
| | | Senior Corporate Auditor (Full-time) | | Yutaka Hirata (Seal) |
| | | Corporate Auditor (Full-time) | | Shigemi Oda (Seal) |
| | | Corporate Auditor | | Tadashi Takauji (Seal) |
| | | Corporate Auditor | | Koukei Higuchi (Seal) |
| Note: | Messrs. Tadashi Takauji and Koukei Higuchi, Corporate Auditors, are Outside Corporate Auditors as prescribed in Article 18 (1) of the Law for Special Exceptions to the Commercial Code Concerning Audit, Etc. ofKabushiki Kaisha. |
38
REFERENCE DOCUMENT
CONCERNING EXERCISE OF VOTING RIGHTS
| 1. | Number of Voting Rights Held by All Shareholders: 2,680,406 |
| 2. | Proposals and Reference Matters with respect thereto: |
First proposal: Approval of Appropriation Plan of Retained Earnings for the 127th Fiscal Year
The contents of the proposal are as described on page 35.
With respect to the appropriation plan of retained earnings for current fiscal year, the Company proposes, from the viewpoint of returning its profits to each shareholder as well as taking into account the reinforcement of its financial position and future development of its business, that the amount of year-end dividend is to be increased by ten yen (¥10.00) to twenty-five yen (¥25.00) per share of common stock.
As the Company has already distributed an interim dividend of fifteen yen (¥15.00) per share, the total amount of dividend for the fiscal year is to be forty yen (¥40.00) per share representing an increase in dividend by ten yen (¥10.00) per share compared with the previous fiscal year.
Second proposal: Establishment of a 100% Parent Company by means of Share Transfer
| 1. | Reason for the Necessity of the Share Transfer |
The Company and Sankyo Company, Limited (“Sankyo”) have agreed to integrate their businesses with the intention of making a leap forward in a new dimension that is beyond the framework of an individual company to further enhance their corporate value and fulfill their mission as leading pharmaceutical companies in Japan continuously in the 21st century in circumstances where globalization and structural change in the business environment of the pharmaceutical industry are in progress.
The purpose of this business integration is to form a Japan based “global pharma-innovator company,” which continuously provides innovative products and services and is independently competitive in the world’s major markets in order to meet the unmet medical needs of patients and healthcare professionals.
For the above purpose, the Company hereby asks its shareholders to approve the establishment jointly by the Company and Sankyo of “DAIICHI SANKYO COMPANY, LIMITED” that will wholly own the Company and Sankyo (the “Holding Company”), and that the Company will become wholly owned subsidiary of the Holding Company, by means of a joint share transfer [kyoudo-kabushiki iten] (the “Share Transfer”), as provided for in Article 364 of the Commercial Code.
Incidentally, it is planed after the establishment of the Holding Company to integrate prescription pharmaceuticals businesses of the Company and Sankyo under the control of the Holding Company into the Holding Company in or around April of 2007.
We would appreciate it if you would agree to the above and approve this agenda as the Company’s shareholder.
| 2. | Terms of the Share Transfer |
| (1) | Articles of Incorporation of the Holding Company to be Established |
| | The contents of the provisions of the Articles of Incorporation of the Holding Company are as set forth below in the section “Articles of Incorporation of DAIICHI SANKYO COMPANY, LIMITED” (from page 52 to page 57). |
39
| (2) | Type and Number of Shares to be Issued by the Holding Company to be Established |
| | The type of shares to be issued by the Holding Company upon the Share Transfer shall be common stock and the number thereof shall be seven hundred seventy-one million, four hundred ninety-eight thousand, and sixty-four (771,498,064); provided, however, that, as such number of shares is calculated based on the total number of issued and outstanding shares of the Company and Sankyo as of March 31, 2005 (the “ Calculation Date”), if the Company and Sankyo cancel their treasury shares respectively and if the Company and Sankyo has newly issued shares of common stock respectively upon exercise of stock subscription rights and stock acquisition rights respectively issued by the Company and Sankyo, from the day immediately following the Calculation Date to the day immediately preceding the scheduled share transfer date, the number of shares to be issued upon the Share Transfer shall be the sum of (a) and (b) below with fractional shares less than one (1) share rounded downwards. |
| | (a) | The total number of issued and outstanding shares of the Company as of the Calculation Date (286,453,235 shares) minus the number of treasury shares that the Company has canceled since the day immediately following the Calculation Date plus the number of shares of common stock of the Company newly issued after the day immediately following the Calculation Date upon exercise of stock subscription rights and stock acquisition rights issued by the Company, multiplied by one point one five nine (1.159). |
| | (b) | The total number of issued and outstanding shares of Sankyo as of the Calculation Date (439,498,765 shares) minus the number of treasury shares that Sankyo has canceled since the day immediately following the Calculation Date plus the number of shares of common stock of Sankyo newly issued after the day immediately following the Calculation Date upon exercise of stock acquisition rights issued by Sankyo. |
| (3) | Allotment of Shares to the Shareholders of the Company and Sankyo |
| | Upon the Share Transfer, the Holding Company shall allot the shares of the Holding Company to shareholders of the Company and Sankyo (including beneficial shareholders; the same shall apply hereinafter) whose names appear on the latest register of shareholders (including the register of beneficial shareholders; the same shall apply hereinafter) as of the day immediately preceding the scheduled share transfer date at the ratios set forth below, respectively. |
| | (a) | Shareholders of the Company: |
| | | One point one five nine (1.159) shares of common stock of the Holding Company to one (1) share of common stock of the Company |
| | (b) | Shareholders of Sankyo: |
| | | One (1) share of common stock of the Holding Company to one (1) share of common stock of Sankyo. |
| (4) | Cancellation of Treasury Shares and Treatment of the Stock Subscription Rights and the Stock Acquisition Rights |
| | Each of the Company and Sankyo shall hold a meeting of the Board of Directors during the period from August 1, 2005 to September 26, 2005, and cancel all of its own treasury shares owned at the time of the meeting. Also, each of the Company and Sankyo shall terminate all stock subscription rights and stock acquisition rights by September 26, 2005 that it has issued by means of canceling such rights, having the holders surrender such rights or taking other appropriate measures on its own responsibility. The Company and Sankyo shall ensure that no stock acquisition rights or other options or rights to acquire shares of the respective parties are outstanding as of the effective date of the Share Transfer. If the Company or Sankyo makes any payment to terminate the stock subscription rights and stock acquisition rights, the amount of such payment shall not exceed the amount of the value of the stock subscription rights and stock acquisition rights evaluated by reasonable measures. |
40
| (5) | Amount of Capital and Additional Paid-in Capital of the Holding Company to be Established |
| | (a) | Amount of capital: Fifty billion yen (JPY 50,000,000,000) |
| | (b) | Amount of additional paid-in capital: |
| | | (i) The aggregate amount of existing net assets of the Company and Sankyo as of the effective date of the Share Transfer less (ii) the aggregate amount of capital provided above and the amount to be paid for the Share Transfer provided for in the immediately following section. |
| (6) | Amount to Be Paid for the Share Transfer [kabushikiiten koufukin] |
| | Upon the Share Transfer, the Holding Company shall, within three (3) months after the scheduled share transfer date, make a payment of the amount to be paid for the Share Transfer, as specified below, as a substitute for interim dividends to be respectively paid by the Company and Sankyo, to shareholders and the registered pledgees of each of the Company and Sankyo whose names appear on the latest register of shareholders as of the day immediately preceding the scheduled share transfer date. |
| | (a) | Shareholders and registered pledgees of the Company: |
| | | Twenty-five (25) yen per one (1) share of common stock of the Company |
| | (b) | Shareholders and registered pledgees of Sankyo: |
| | | Twenty-five (25) yen per one (1) share of common stock of Sankyo. |
| (7) | The Scheduled Share Transfer Date |
| | The scheduled share transfer date shall be September 28, 2005, and registration of incorporation of the Holding Company shall be scheduled to be made on the same day; provided, however, that the Company and Sankyo may change such date, by consultation between the Company and Sankyo, if necessary for the procedure of the Share Transfer or other reason. |
| (8) | The Maximum Amount of Dividends to be Paid by the Effective Date of the Share Transfer |
| | Each of the Company and Sankyo may make a payment of dividends, within the limits of the following amounts respectively, to its respective shareholders and registered pledgees whose names appear on the latest register of shareholders as of March 31, 2005. |
| | (a) | Shareholders and registered pledgees of the Company: |
| | | Twenty-five (25) yen per one (1) share of common stock of the Company; and six billion, seven hundred ten million, one hundred thousand, five hundred seventy-five yen (JPY 6,710,100,575) in total |
| | (b) | Shareholders and registered pledgees of Sankyo: |
| | | Twenty-five (25) yen per one (1) share of common stock of Sankyo; and ten billion, seven hundred thirty-seven million, seven hundred twelve thousand, seven hundred twenty-five yen (JPY 10,737,712,725) in total |
41
| (9) | Directors of the Holding Company to be Established |
| | The candidates for Directors of the Holding Company are as follows: |
| | | | |
| | | |
Name (Date of Birth) | | Biographical Data and Positions as Representatives of Other Companies | | Number of Shares of Daiichi Pharmaceutical Co., Ltd. and that of Sankyo Company, Limited Owned |
Kiyoshi Morita (March 29, 1939) | | April, 1962 - Entered Daiichi Pharmaceutical Co., Ltd. April, 1988 - General Manager of Medical Sales & Market Information Department of the company April, 1991 - General Manager of Marketing & Sales Administration Department of the company June, 1991 - Director of the company October, 1993 - Board Director responsible for Medical Products of the company June, 1995 - Managing Director of the company June, 1997 - Senior Managing Director of the company June, 1999 - President and Representative Director of the company to present Positions as representative of other companies President and Representative Director of Daiichi Pharmaceutical Co., Ltd. President and Representative Director of Laboratories Daiichi Sanofi-Synthelabo Executive Vice President and Representative Director of Sanofi-Synthelabo Daiichi Pharmaceuticals Co., Ltd. | | Daiichi Pharmaceutical
Co., Ltd.
24,675 shares Sankyo Company,
Limited
0 shares |
Takashi Shoda (June 21, 1948) | | April, 1972 - Entered Sankyo Company, Limited January, 1999 - Director, Europe Department of the company June, 1999 - General Manager, International Pharmaceutical Division & Director, Europe Department of the company June, 2001 - Member of the Board of the company June, 2002 - Managing Director of the company June, 2003 - President and Representative Director of the company to present Positions as representative of other companies President and Representative Director of Sankyo Company, Limited | | Daiichi Pharmaceutical
Co., Ltd.
0 shares Sankyo Company,
Limited
12,000 shares |
42
| | | | |
| | | |
Name (Date of Birth) | | Biographical Data and Positions as Representatives of Other Companies | | Number of Shares of Daiichi Pharmaceutical Co., Ltd. and that of Sankyo Company, Limited Owned |
Hiroyuki Nagasako (May 17, 1939) | | April, 1962 - Entered Daiichi Pharmaceutical Co., Ltd. April, 1988 - General Manager of Corporate Planning & Administration Department of the company April, 1991 - General Manager responsible for Corporate Planning & Administration of the company June, 1991 - Director of the company June, 1993 - Board Director responsible for Corporate Planning & Administration, Publishing of the company June, 1995 - Managing Director of the company June, 1999 - Senior Managing Director of the company June, 2003 - Executive Vice President and Director of the company to present Positions as representative of other companies Executive Vice President and Representative Director of Daiichi Pharmaceutical Co., Ltd. | | Daiichi Pharmaceutical
Co., Ltd.
13,720 shares Sankyo Company,
Limited
0 shares |
Hideho Kawamura (January 9, 1941) | | April, 1963 - Entered Sankyo Company, Limited October, 1991 - Director, Corporate Planning Department of the company June, 1995- Member of the Board of the company July, 2000 - Managing Director of the company June, 2001 - Executive Managing Director of the company June, 2002 -Executive Vice President and Representative Director of the company to present Positions as representative of other companies Executive Vice President and Representative Director of Sankyo Company, Limited | | Daiichi Pharmaceutical
Co., Ltd.
0 shares Sankyo Company,
Limited
19,100 shares |
Yasuhiro Ikegami (December 24, 1939) | | April, 1962 - Entered Sankyo Company, Limited September, 1994 - Manager, Fukuoka Branch of the company September, 2000 - Director, Marketing Development Department of the company June, 2001 - Member of the Board of the company June, 2002 - Executive Managing Director of the company June, 2003 - Executive Vice President and Representative Director of the company to present Positions as representative of other companies Executive Vice President and Representative Director of Sankyo Company, Limited | | Daiichi Pharmaceutical
Co., Ltd.
0 shares Sankyo Company,
Limited
12,200 shares |
43
| | | | |
| | | |
Name (Date of Birth) | | Biographical Data and Positions as Representatives of Other Companies | | Number of Shares of Daiichi Pharmaceutical Co., Ltd. and that of Sankyo Company, Limited Owned |
Tsutomu Une (December 11, 1947) | | April, 1970 - Entered Daiichi Pharmaceutical Co., Ltd. October, 1997 - General Manager of Corporate R&D Planning Department of the company June, 1998 - General Manager of Corporate Development & Licensing Department of the company June, 1999 - Director of the company October, 1999 - General Manager of Corporate R&D Strategic Planning Department of the company June, 2001 - Board Director responsible for Corporate R&D Strategic Planning Department of the company October, 2002 - Managing Director of the company to present Positions as representative of other companies President and Representative Director of Daiichi Pharmaceutical (Beijing) Co., Ltd. Representative Director of Daiichi Pharmaceutical Korea Co., Ltd. | | Daiichi Pharmaceutical
Co., Ltd.
3,600 shares Sankyo Company,
Limited
0 shares |
Kunio Nihira (April 6, 1933) | | April, 1957 - Entered the National Police Agency June, 1989 - Chief of Police Administration, National Police Agency December, 1990 - Tokyo Metropolitan Police Commissioner June, 1999 - Chairman of the Japan Automobile Federation June, 2003 - Member of the Board of Sankyo Company, Limited to present | | Daiichi Pharmaceutical
Co., Ltd.
0 shares Sankyo Company,
Limited
4,500 shares |
Yoshifumi Nishikawa (August 3, 1938) | | April, 1961 - Entered Sumitomo Banking Corporation June, 1986 - Director of the company June, 1989 - Managing Director of the company November, 1991 - Senior Managing Director of the company May, 1996 - Vice President of the company June, 1997 - President of the company April, 2001 - President of Sumitomo Mitsui Banking Corporation (present post) December, 2002 - President and Director of Sumitomo Mitsui Financial Group, Inc. to present Positions as representative of other companies President of Sumitomo Mitsui Banking Corporation President and Director of Sumitomo Mitsui Financial Group, Inc. | | Daiichi Pharmaceutical
Co., Ltd.
0 shares Sankyo Company,
Limited
0 shares |
44
| | | | |
| | | |
Name (Date of Birth) | | Biographical Data and Positions as Representatives of Other Companies | | Number of Shares of Daiichi Pharmaceutical Co., Ltd. and that of Sankyo Company, Limited Owned |
Jotaro Yabe (January 8, 1939) | | April, 1963 - Entered Fair Trade Commission June, 1991 - Manager of Trade Department of the Commission July, 1992 - Manager of Economics Department of the Commission July, 1994 - Manager of Investigation Department of the Commission June, 1996 - Investigation Commissioner of the Commission June, 1997 - Secretary General of the Commission April, 1999 - Professor of Graduate School of Law and Politics of Osaka University April, 2004 - Professor of Faculty of Humanities and Social Sciences of Jissen Women’s University to present | | Daiichi
Pharmaceutical
Co., Ltd.
0 shares Sankyo
Company,
Limited
0 shares |
Katsuyuki Sugita (October 13, 1942) | | April, 1966 - Entered Nihon Kangyo Bank June, 1994 - Director, General Manager, Administration of the Dai-ichi Kangyo Bank Ltd. June, 1997 - President and Representative Director of the Dai-ichi Kangyo Bank Ltd. September, 2000 - President of Mizuho Holdings, Inc. June, 2002 - Honorary Advisor of the Mizuho Financial Group, Inc. June, 2003 - Member of the Board of Sankyo Company, Limited to present | | Daiichi
Pharmaceutical
Co., Ltd.
0 shares Sankyo
Company,
Limited
1,700 shares |
| 1: | Mr. Kunio Nihira, Mr. Yoshifumi Nishikawa, Mr. Jotaro Yabe and Mr. Katsuyuki Sugita, who are the candidates for Directors, satisfy the requirements of Outside Directors as set forth in Article 188, Paragraph 2, Item 7-2 of the Commercial Code. |
| 2: | Any of the above candidates for Directors has no special interest in the Company or Sankyo, and will have no special interest in the Holding Company. |
45
| (10) | Corporate Auditors of the Holding Company to be Established |
| | The candidates for Corporate Auditors of the Holding Company are as follows: |
| | | | |
| | | |
Name (Date of Birth) | | Biographical Data and Positions as Representatives of Other Company | | Number of Shares of Daiichi Pharmaceutical Co., Ltd. and that of Sankyo Company, Limited Owned |
Kozo Wada (January 6, 1939) | | April, 1962 - Entered Sankyo Company, Limited July, 1989 - Vice Director, Accounting Department of the company June, 1991 - Director, Audit Department of the company June, 1998 - Corporate Auditor (full-time) of the company to present | | Daiichi Pharmaceutical
Co., Ltd.
0 shares Sankyo Company,
Limited
14,871 shares |
Atsuo Inoue (April 11, 1940) | | April, 1965 - Entered Daiichi Pharmaceutical Co., Ltd. April, 1991 - General Manager of International Medical Development Department of the company June, 1995 - Director of the company October, 1995 - General Manager of Global Medical Planning Department of the company October, 1997 - General Manager of International Division of the company May, 1999 - Board Director and General Manager of International Division of the company June, 1999 - Managing Director of the company to present | | Daiichi Pharmaceutical
Co., Ltd.
13,860 shares Sankyo Company,
Limited
0 shares |
Kaoru Shimada (March 16, 1934) | | April 1960 - Entered Faculty of Medicine, The University of Tokyo, Department of Internal Medicine April 1972 - Appointed Director of Microbiology, Tokyo Welfare Institute Hospital August 1984 - Appointed Professor for Infectious Diseases, Institute of Medical Science, The University of Tokyo April 1991 - Appointed Director of Research Hospital, The Institute of Medical Science, The University of Tokyo April 1996 - Appointed Director of Tokyo Senbai Hospital June 2003 - Corporate Auditor of Sankyo Company, Limited to present | | Daiichi Pharmaceutical
Co., Ltd.
0 shares Sankyo Company,
Limited
2,110 shares |
Koukei Higuchi (March 14, 1936) | | April, 1960 - Entered the Tokio Marine & Fire Insurance Co., Ltd. June, 1989 - Director of the company August, 1991 - Managing Director of the company June, 1995 - Senior Managing Director of the company June, 1996 - President of the company June, 2001 - Chairman of the company June, 2003 - Senior Corporate Advisor of the company to present June, 2004 - Corporate Auditor of Daiichi Pharmaceutical Co., Ltd. to present | | Daiichi Pharmaceutical
Co., Ltd.
0 shares Sankyo Company,
Limited
0 shares |
46
| 1: | Both Mr. Kaoru Shimada and Mr. Koukei Higuchi, who are the candidates for Corporate Auditors, are candidates for Outside Corporate Auditors as set forth in Article 18, Paragraph 1 of the Law for Special Provisions for the Commercial Code Concerning Audit, etc. |
| 2: | Any of the above candidates for Corporate Auditors has no special interest in the Company or Sankyo, and will have no special interest in the Holding Company. |
| (11) | Remuneration for Directors and Corporate Auditors of the Holding Company to be Established |
| | Taking into account the amount of remunerations of each of the Company and Sankyo and other factors, the total amount of remuneration for Directors of the Holding Company shall be not more than four hundred fifty million yen (¥450,000,000) per fiscal year and that of Corporate Auditors shall be not more than one hundred twenty million yen (¥120,000,000) per fiscal year. |
| | Incidentally, the number of Directors of the Holding Company is planed to be ten (10) and the number of Corporate Auditors is planed to be four (4) at the time of its establishment. Salaries for employee’s portion of Directors having duties in the capacity as employees shall not be included in the amount above. |
| (12) | Independent Auditors of the Holding Company to be Established |
| | A candidate for Independent Auditors of the Holding Company is as follows: |
(As of March 31, 2005)
| | |
| Name | | KPMG AZSA & Co. |
| Office | | Principal Office : Tsukuto-cho 1-2, Shinjuku-ku, Tokyo |
| History | | July, 1985: Established as Asahi Shinwa & Co. October, 1993: Merged with Inoue Saito Eiwa Audit Corporation (established on April 5, 1978) and changed its name to Asahi Audit Corp. January, 2004: Merged with KPMG AZSA & Co. (established on February 26, 2003) and changed its name to KPMG AZSA & Co. |
| Outlines | | Ÿ 1,753 certified public accountants, 742 junior certified public accountants and 678 other staffs Ÿ 34 domestic offices Ÿ 3,957 audit clients |
| (13) | Implementation of a Joint Share Transfer |
| | The Company and Sankyo shall jointly incorporate the Holding Company that will wholly own the Company and Sankyo. |
Outline of Sankyo is as follows:
(As of March 31, 2005)
| | |
| Name | | Sankyo Company, Limited |
| Principal Office | | 5-1, Nihonbashi Honcho 3-chome, Chuo-ku, Tokyo |
| Establishment | | March 1, 1927 |
| Paid-in Capital | | ¥68,793 million |
| Operations | | Manufacture and sale of pharmaceutical drugs, quasi-drugs and other products |
| Number of Employees | | 5,330 |
47
| 3. | Explanations for the Allocation of Shares Pursuant to Article 366, Paragraph 1, Item 2 of the Commercial Code of Japan |
As of May 13, 2005, in connection with the incorporation of the Holding Company by means of joint share transfer with Sankyo scheduled for September 28, 2005, the Company resolved to fix as follows the ratio of the number of shares of common stock of the Holding Company to be issued to the respective shareholders of the Company and Sankyo (collectively referred to as the “Parties”) (the “Exchange Ratio”). Each of the Company and Sankyo shall become wholly-owned subsidiaries of the Holding Company.
The Company and Sankyo decided that an independent examination of the fair Exchange Ratio will lead to securing the interests of their respective shareholders and decided to each retain a financial advisor.
The Company retained Merrill Lynch, Japan Securities Co., Ltd. (“Merrill Lynch”) as its financial advisor and requested their analyses and opinion concerning the Exchange Ratio.
In determining the Exchange Ratio, the Company discussed internally from various points of view and considered the advice of Merrill Lynch, and taking these into account as a whole, the Company discussed and negotiated the Exchange Ratio with Sankyo. As a result, the Company executed the Memorandum of Understanding (the “Memorandum”) with Sankyo on February 25, 2005, upon the approval of the Company’s Board of Directors at the meeting of the Board of Directors held on the same day. The Memorandum prescribes that each share of common stock of the Company will be exchanged for one point one five nine (1.159) shares of common stock of the Holding Company, and each share of common stock of Sankyo will be exchanged for one (1) share of common stock of the Holding Company, respectively.
Thereafter, the Company confirmed that no material change had occurred since February 25, 2005 as to the conditions that determined the Exchange Ratio and that accordingly, it was not necessary to revise the Exchange Ratio. Consequently, on May 13, 2005, the Company executed the Business Integration Agreement (Joint Share Transfer Agreement) (the “Agreement”) with Sankyo prescribing the same Exchange Ratio as the one set forth in the Memorandum, upon the approval of the Company’s Board of Directors at the meeting of the Board of Directors held on the same day.
On May 13, 2005, Merrill Lynch delivered to the Company the results of its analyses of the Exchange Ratio, which analyses included the analysis of historical stock price, comparable companies analysis and discounted cash flow analysis and other methods deemed to be relevant by Merrill Lynch and delivered to the Company its written opinion that, as of that date, the Exchange Ratio prescribed in the Agreement is fair from a financial point of view to the shareholders of the Company, other than Sankyo and its subsidiaries and affiliates. (Note)
Sankyo has received from Nomura Securities Co., Ltd., its financial advisor, a written opinion that the Exchange Ratio is fair from a financial point of view to the shareholders of Sankyo.
(Note) Please note that the written opinion of Merrill Lynch was prepared based upon and subject to certain assumptions, considerations and limitations, and the procedures taken and the assumptions, considerations and limitations used by Merrill Lynch in its delivery of the written opinion are set forth in the written opinion dated as of May 13, 2005, a copy of which is attached hereto. [Note to US shareholders: A copy of the written opinion of Merrill Lynch is also attached to the Form F-4 to be filed with the United States Securities and Exchange Commission by the Company and Sankyo in connection with the joint share transfer. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. The Company’s shareholders are therefore urged to read the written opinion carefully and in its entirety.]
48
[The Written Opinion of Merrill Lynch Japan Securities Co., Ltd. (copy)]
Merrill Lynch Japan Securities Co., Ltd.
1-4-1 Nihonbashi
Chuo-ku, Tokyo 103-8230, Japan
May 13, 2005
Board of Directors
Daiichi Pharmaceutical Co., Ltd.
14-10, Nihonbashi 3 chome
Chuo-ku, Tokyo 103-8234, Japan
Members of the Board of Directors:
Daiichi Pharmaceutical Co., Ltd. (“Daiichi”) and Sankyo Company, Limited (“Sankyo”) propose to enter into a definitive joint share transfer agreement (the “Agreement”) as of May 13, 2005 pursuant to which Daiichi and Sankyo will jointly establish Daiichi Sankyo Company Limited (the “Holding Company”) as a parent company that owns one hundred percent of each of Daiichi and Sankyo through a share transfer (the “Joint Share Transfer”) in which each outstanding share of common stock of Daiichi (the “Daiichi Shares”) will be converted into the right to receive 1.159 shares of the common stock of the Holding Company (the “Holding Company Shares”) and each outstanding share of common stock of Sankyo (the “Sankyo Shares”) will be converted into the right to receive one Holding Company Share (the “Exchange Ratio”).
You have asked us whether, in our opinion, the Exchange Ratio is fair from a financial point of view to the holders of Daiichi Shares, other than Sankyo and its subsidiaries and affiliates (the “Related Companies”).
In arriving at the opinion set forth below, we have, among other things:
| | (1) | Reviewed certain publicly available business and financial information relating to Daiichi and Sankyo that we deemed to be relevant; |
| | (2) | Reviewed certain information, including financial forecasts, relating to the businesses, earnings, cash flow, assets, liabilities, capital and prospects of Daiichi and Sankyo furnished to us by the senior management of Daiichi and Sankyo, as well as the amount and timing of the cost savings, related expenses and synergies expected to result from the Joint Share Transfer (the “Expected Synergies”) furnished to us by the senior management of Daiichi and Sankyo; |
| | (3) | Conducted discussions with members of the senior management of Daiichi and Sankyo concerning the matters described in clauses 1 and 2 above, as well as their respective businesses and prospects before and after giving effect to the Joint Share Transfer and the Expected Synergies; |
| | (4) | Reviewed the market prices and valuation multiples for Daiichi Shares and Sankyo Shares and compared them with those of certain publicly traded companies that we deemed to be relevant; |
| | (5) | Reviewed the results of operations of Daiichi and Sankyo and compared them with those of certain publicly traded companies that we deemed to be relevant; |
| | (6) | Compared the proposed financial terms of the Joint Share Transfer with the financial terms of certain other transactions that we deemed to be relevant; |
| | (7) | Participated in certain discussions and negotiations among representatives of Daiichi and Sankyo and their financial and legal advisors; |
49
| | (8) | Reviewed the potential pro forma impact of the Joint Share Transfer; |
| | (9) | Reviewed the Memorandum of Understanding between Daiichi and Sankyo, dated February 25, 2005, and a draft of the Agreement, dated May 11, 2005; and |
| | (10) | Reviewed such other financial studies and analyses and took into account such other matters as we deemed necessary, including our assessment of general economic, market and monetary conditions. |
In preparing our opinion, we have assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to us, discussed with or reviewed by or for us, or publicly available, and we have not assumed any responsibility for independently verifying such information or undertaken an independent evaluation or appraisal of any of the assets or liabilities of Daiichi or Sankyo or their Related Companies or been furnished with any such evaluation or appraisal, nor have we evaluated the solvency or fair value of Daiichi or Sankyo or their Related Companies upon bankruptcy, insolvency or similar matters (“Bankruptcy”) under any laws in any jurisdictions relating to Bankruptcy. In addition, we have not assumed any obligation to conduct any physical inspection of the properties or facilities of Daiichi or Sankyo or their Related Companies. With respect to the financial forecast information and the Expected Synergies furnished to or discussed with us by Daiichi or Sankyo, we have assumed that they have been reasonably prepared and reflect the best currently available estimates and judgment of Daiichi’s or Sankyo’s management as to the expected future financial performance of Daiichi, Sankyo or the Related Companies, as the case may be, and the Expected Synergies. With Daiichi’s consent, We have further assumed that the Joint Share Transfer will be accounted for as a pooling of interests under generally accepted accounting principles in Japan (“Japanese GAAP”), which differ in certain respects from accounting principles generally accepted in other countries, and that it will qualify as a tax-free reorganization for Japanese income tax and Japanese corporate tax purposes for both companies and their respective shareholders. Our opinion is based upon financial information in accordance with Japanese GAAP which is supplied or otherwise made available to us, discussed with or reviewed by or for us, or publicly available. We have not reviewed any financial information prepared by Daiichi or Sankyo under generally accepted accounting principles in the United States (“US GAAP”) and have not taken account of any differences between Japanese GAAP and US GAAP. We have also assumed that the final form of the Agreement will be substantially identical to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions as they exist and can be evaluated on, and on the information made available to us as of, the date hereof. We have assumed that in the course of obtaining the necessary regulatory or other consents or approvals (contractual or otherwise) for the Joint Share Transfer, no restrictions, including any divestiture requirements or amendments or modifications, will be imposed that will have an adverse effect on the contemplated benefits of the Joint Share Transfer.
In connection with the preparation of this opinion, we have not been authorized by Daiichi or the Board of Directors to solicit, nor have we solicited, third-party indications of interest for the acquisition of all or any part of Daiichi.
We are acting as financial advisor to Daiichi in connection with the Joint Share Transfer, and Daiichi has agreed to pay us a fee for our services. We have been paid a significant portion of our fee prior to the date hereof, and a significant portion of the fee is contingent upon the consummation of the Joint Share Transfer. In addition, Daiichi has agreed to indemnify us for certain liabilities arising out of our engagement. We have, in the past, provided investment banking services including financing services to Daiichi and Sankyo and may continue to do so and have received, and may receive, fees for the rendering of such services. In addition, in the ordinary course of our business, we may actively trade or hold Daiichi Shares and other securities of Daiichi, as well as Sankyo Shares and other securities of Sankyo, for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of Daiichi. If reference to this opinion is required by law or regulation in any jurisdictions other than Japan, or by the Board of Directors of Daiichi, to be
50
made in a registration statement or a proxy statement, we will not unreasonably withhold our consent thereto so long as the full text of our opinion is reproduced therein and we approve in advance the text of any accompanying disclosure. Except as permitted by the preceding sentence, our opinion may not be reproduced, summarized, described or referred to or given to any person without our prior written consent. Our opinion does not address the merits of the underlying decision by Daiichi to engage in the Joint Share Transfer and does not constitute a recommendation to any shareholder as to how such shareholder should vote on the proposed Joint Share Transfer or any matter related thereto. In addition, you have not asked us to address, and this opinion does not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of Daiichi, other than the holders of Daiichi Shares.
We are not expressing any opinion herein as to either the price at which the Daiichi Shares or the Sankyo Shares will trade following the announcement of the Agreement or the price at which the Holding Company Shares will trade following consummation of the Joint Share Transfer.
On the basis of and subject to the foregoing, we are of the opinion that, as of the date hereof, the Exchange Ratio is fair from a financial point of view to the holders of Daiichi Shares, other than Sankyo and its Related Companies.
Very truly yours,
MERRILL LYNCH, JAPAN SECURITIES CO., LTD.
4. Contents of the Balance Sheet and the Statement of Income of Article 366, Paragraph 1, Items 3 and 5 of the Commercial Code of Japan
The contents of the Balance Sheet and the Statement of Income of the Company are as described from page 19 to page 26 and page 29 to page 34.
The contents of the Balance Sheet and the Statement of Income of Sankyo are as set forth below from page 58 to page 70.
| 5. | Matters Concerning the Resolution of This Agenda |
With regard to this agenda, the resolution shall take effect upon the condition that approvals of the general meetings of shareholders concerning the Share Transfer of the Company and Sankyo and approvals of the relevant authorities, as provided for in laws and ordinances, have been obtained.
The resolution described in this agenda shall be automatically voided if any significantly material change has occurred or any significantly material issue has been discovered in the financial or business conditions of the Company or Sankyo or any other material event which will interfere with the Share Transfer has occurred, and the agreement as to the Share Transfer is terminated as a result thereof on or before the day immediately preceding the scheduled share transfer date.
51
ARTICLES OF INCORPORATION
OF
DAIICHI SANKYO COMPANY, LIMITED
Chapter 1 General Rules
Article 1 (Corporate Name)
The corporate name of the Company shall be Daiichi Sankyo Kabushiki Kaisha and in English DAIICHI SANKYO COMPANY, LIMITED.
Article 2 (Purpose)
The business purposes of the Company shall be as follows:
| | (1) | Manufacture, sale & purchase and export & import of drugs, quasi-drugs, medical devices such as equipments and instruments, medical supplies, dental materials and sanitary materials, veterinary drugs, cosmetics, agrochemicals, reagents, fragrant materials, dietary supplemental foods and beverages made from vitamins, minerals, enzymes and other materials, nursery foods, food additives, yeasts for bread, seasonings, livestock foods, livestock food additives, chemicals, industrial chemicals, radiopharmaceuticals and other kinds of chemicals; |
| | (2) | Sale & purchase and export & import of foods and daily necessities; |
| | (3) | Sale & purchase and export & import of products relating to those set forth in the foregoing clauses, and other machines and equipments; |
| | (4) | Manufacture and wholesale of alcoholic liquor, refreshing beverage and drinking water; |
| | (5) | Undertaking of test and research concerning safety of chemicals; |
| | (6) | Sale & purchase, lease, management and brokerage of real estate; |
| | (8) | Motor vehicle carrier business; |
| | (9) | Casualty insurance agency business and business relating to offering of life insurance; |
| | (10) | Control and management of the business activities of the companies carrying out the businesses set forth in the foregoing clauses by owning the shares of such companies; and |
| | (11) | Any business and investment incidental to or related with the foregoing clauses. |
Article 3 (Location of Principal Office)
The principal office of the Company shall be located in Chuo-ku, Tokyo.
Article 4 (Method of Public Notice)
Public notice of the Company shall be inserted in The Nihon Keizai Shinbun.
Chapter 2 Shares
Article 5 (Total Number of Shares)
The total number of shares authorized to be issued by the Company shall be two billion and eight hundred million (2,800,000,000). If shares are retired, the number of such shares shall be decreased.
Article 6 (Acquisition of Treasury Stock)
The Company may purchase treasury stock by resolution of the Board of Directors in accordance with Item 2, Paragraph 1, Article 211-3 of the Commercial Code.
Article 7 (Number of Shares constituting One Unit)
The number of shares constituting one unit of the Company shall be one hundred (100).
52
Article 8 (Non Issuance of Share Certificates for Shares Less Than One Unit)
The Company shall not issue share certificates for any shares less than one unit (“Shares Less Than One Unit”). Provided, however, that if Share Handling Regulation provides otherwise, this Article shall not be applied.
Article 9 (Additional Purchase of Shares Less Than One Unit)
Shareholders who hold the Shares Less Than One Unit of the Company (including beneficial shareholders. Same shall apply hereinafter.) may request, as set forth in the Share Handling Regulations, the Company to sell the number of shares that will constitute one unit when combined with the Shares Less Than One Unit held by such shareholder.
Article 10 (Transfer Agent)
10.1 The Company shall have a transfer agent for its shares.
10.2 The transfer agent and its business place shall be determined by the resolution of the Board of Directors, and shall be placed for the public notice.
10.3 The register of shareholders and the register of beneficial shareholders of the Company (collectively, “Register of Shareholders, etc.”) and the register of lost-share-certificate shall be maintained at the business place of the transfer agent, and the Company shall have the transfer agent undertake, and the Company shall not undertake, all business relating to shares such as entry of name change of shareholders in the Register of Shareholders, etc., purchase and additional purchase of Shares Less Than One Unit, and procedures for invalidating share certificates.
Article 11 (Share Handling Regulation)
Matters relating to shares such as denominations of share certificates, entry of name change of shareholders in the Register of Shareholders, etc., purchase and additional purchase of Shares Less Than One Unit, and procedures for invalidating share certificates shall be governed by the Share Handling Regulation established by the resolution of the Board of Directors.
Article 12 (Record Date)
12.1 The Company shall deem the shareholders having voting rights who are registered or recorded on the final Register of Shareholders, etc., as of March 31 each year to be the shareholders eligible to exercise voting rights at the Ordinary General Meeting of Shareholders for the accounting period.
12.2 The Company may set a record date by the resolution of the Board of Directors upon giving prior public notice thereof for determination of the shareholders eligible to receive Interim Dividends provided for in Article 39 hereof or for other necessities.
Chapter 3 General Meeting of Shareholders
Article 13 (Convocation)
13.1 The Ordinary General Meeting of Shareholders shall be convened in June every year, and an Extraordinary General Meeting of Shareholders shall be convened at any time as necessary.
13.2 The General Meetings of Shareholders shall be held at the place where the principal office is located or other places in the wards within Tokyo.
Article 14 (Person to Convene and Chairperson)
A President and Representative Director shall convene the General Meeting of Shareholders pursuant to the resolution of the Board of Directors and act as chairperson thereof. If the President and Representative Director is unable to so act, one of the other Representative Directors shall act as chairperson pursuant to the resolution of the Board of Directors.
Article 15 (Exercise of Voting Rights by Proxy)
15.1 Shareholders or their legal representative may appoint another shareholder having voting rights of the Company as their proxy and exercise their voting rights through the proxy. Provided, however, that the number of the proxy shall be limited to one (1).
53
15.2 In the event of Clause 15.1, the shareholders or the proxy must submit to the Company a document establishing power of representation for each General Meeting of Shareholders.
Article 16 (Method of Resolution)
16.1 Resolutions at the General Meeting of Shareholders shall be adopted by a majority of voting rights of shareholders present, unless otherwise provided by laws and ordinances or by these Articles of Incorporation.
16.2 For the special resolution provided for in Article 343 of the Commercial Code, shareholders representing at least one-third (1/3) of voting rights of all shareholders shall be present, and the special resolution shall be adopted by at least two-thirds (2/3) of the voting rights represented by such shareholders present.
Article 17 (Minutes of General Meeting of Shareholders)
The proceedings of the General Meeting of Shareholders shall be registered or recorded in the minutes with printed name and seal affixed or electronic signature affixed by the chairperson and Directors present, and the minutes shall be maintained at the Company.
Chapter 4 Director and Board of Directors
Article 18 (Number)
The number of Directors shall be fourteen (14) or less.
Article 19 (Election)
19.1 Directors shall be elected at the General Meeting of Shareholders.
19.2 Directors shall be elected by a majority of the voting rights represented by the shareholders present who shall have no less than one-third (1/3) of the voting rights of all shareholders at the General Meeting of Shareholders.
19.3 No cumulative voting shall be used for the resolution of the election of Directors.
Article 20 (Term of Office)
20.1 The term of office of each Director shall expire at the close of the Ordinary General Meeting of Shareholders held for the accounting period last to expire within one (1) year subsequent to his/her assumption of office.
20.2 The term of office of a Director who was appointed for increasing the number of Directors or filling a vacancy of the Director having retired from office before expiration of his/her office shall expire upon the expiration of the term of office of other Directors in service.
Article 21 (Convocation of the Board of Directors)
21.1 A notice to convene the Board of Directors shall be dispatched to each Director and Corporate Auditor at least three (3) days before the meeting date; provided, however, that such period may be shortened in cases of emergency.
21.2 A meeting of the Board of Directors may be held without the procedures of convocation, if consented to by all the Directors and Corporate Auditors.
Article 22 (Method of Resolution)
The resolution of the Board of Directors shall be adopted by majority of votes of Directors present who constitute majority in number of all Directors.
Article 23 (Authority of Board of Directors)
The Board of Directors of the Company shall determine administration of affairs of the Company and supervise the performance of duties by the Directors.
Article 24 (Representative Director and Executive Director)
24.1 Directors to represent the Company shall be appointed by the resolution of the Board of Directors.
54
24.2 The Board of Directors may appoint Chairman, President, Executive Vice-president, Executive Managing Director and Managing Director.
Article 25 (Minutes of Board of Directors)
An outline of the course of proceedings at each Board of Directors’ meeting and results thereof shall be registered or recorded in the minutes with printed name and seal affixed or electronic signature affixed by Directors and Corporate Auditors present.
Article 26 (Release of Liability of Outside Directors)
The Company may enter into an agreement with an Outside Director for limitation of liabilities for damages due to acts set forth in Item 5, Paragraph 1, Article 266 of the Commercial Code in accordance with the provisions of Paragraph 19, Article 266 of the Commercial Code; provided, however, that the maximum amount of liabilities for damages under such agreement shall be as provided by laws and ordinances.
Article 27 (Regulation of the Board of Directors)
Matters other than those provided in this Chapter shall be governed by the Regulation of the Board of Directors established by the Board of Directors.
Chapter 5 Corporate Auditor and Board of Corporate Auditors
Article 28 (Number)
The number of Corporate Auditors shall be four (4) or less.
Article 29 (Election)
29.1 Corporate Auditors shall be elected at the General Meeting of Shareholders.
29.2 Corporate Auditors shall be elected by a majority of the voting rights represented by the shareholders present who shall have no less than one-third (1/3) of the voting rights of all shareholders at the General Meeting of Shareholders.
Article 30 (Supplemental Corporate Auditor)
30.1 The Company may elect a supplemental Corporate Auditor in advance at the Ordinary General Meeting of Shareholders to prepare for an event where the number of Corporate Auditors falls below the number required by laws and ordinances.
30.2 A supplemental Corporate Auditor shall be elected by a majority of the voting rights represented by the shareholders present who shall have no less than one-third (1/3) of the voting rights of all shareholders at the General Meeting of Shareholders.
30.3 Election of a supplemental Corporate Auditor provided for in Clause 30.1 shall be effective until the opening of the Ordinary General Meeting of Shareholders to be held immediately following such election.
Article 31 (Term of Office)
31.1 The term of office of each Corporate Auditor shall expire at the close of the Ordinary General Meeting of Shareholders held for the accounting period last to expire within four (4) years subsequent to his/her assumption of office.
31.2 The term of office of a Corporate Auditor who was appointed for filling a vacancy of the Corporate Auditor having retired from office before expiration of his/her office shall expire at the time of expiration of the term of office of the retired Corporate Auditor.
31.3 The term of office of a supplemental Corporate Auditor who was appointed in advance as provided for in Clause 30.1 shall expire at the time of expiration of the term of office of the retired Corporate Auditor.
Article 32 (Convocation of the Board of Corporate Auditors)
32.1 A notice to convene the Board of Corporate Auditors shall be dispatched to each Corporate Auditor at least three (3) days before the meeting date; provided, however, that such period may be shortened in cases of emergency.
55
32.2 A meeting of the Board of Corporate Auditors may be held without the procedures of convocation, if consented to by all the Corporate Auditors.
Article 33 (Method of Resolution)
The resolution of the Board of Corporate Auditors shall be adopted by majority of votes of Corporate Auditors unless otherwise provided by laws and ordinances.
Article 34 (Minutes of Board of Corporate Auditors)
An outline of the course of proceedings at each Board of Corporate Auditors’ meeting and results thereof shall be registered or recorded in the minutes with printed name and seal affixed or electronic signature affixed by Corporate Auditors present.
Article 35 (Full-time Corporate Auditor)
Corporate Auditors shall by mutual agreement appoint Full-time Corporate Auditors from among themselves.
Article 36 (Regulation of Board of Corporate Auditors)
Matters other than those provided in this Chapter shall be governed by the Regulation of Board of Corporate Auditors established by the Board of Corporate Auditors.
Chapter 6 Accounts
Article 37 (Business Year and Settlement of Accounts)
37.1 The business year of the Company shall commence on April 1 every year and end on March 31 of the following year.
37.2 The accounts shall be settled at the final day of each business year.
Article 38 (Dividend)
The dividend shall be paid to shareholders or registered pledgees registered or recorded in the final Register of Shareholders, etc., as of the last day of each business year.
Article 39 (Interim Dividend)
The Company may declare distribution of money (“Interim Dividend”) provided for in Article 293-5 of the Commercial Code by the resolution of the Board of Directors to the shareholders and registered pledgees registered or recorded in the final Register of Shareholders, etc., as of September 30 every year.
Article 40 (Annulment Term)
The Company is exempted from liability for paying dividend and Interim Dividend if the same remains uncollected after three (3) years have elapsed from the first date on which such dividend and Interim Dividend became payable.
Supplemental Provisions
Article 1 (Shares to be Issued upon Incorporation)
1.1 The Company shall be incorporated by way of share transfer pursuant to Article 364 of the Commercial Code.
1.2 The class of shares to be issued upon incorporation of the Company shall be common stock and the number of shares thereof shall be 771,498,064 shares.
1.3 Notwithstanding the immediately preceding paragraph, if Daiichi Pharmaceutical Co., Ltd. (“Daiichi”) and Sankyo Company, Limited (“Sankyo”) cancel their treasury shares respectively and if Daiichi and Sankyo have newly issued shares of common stock respectively upon exercise of stock subscription rights and stock acquisition rights respectively issued by Daiichi and Sankyo, from the day immediately following March 31, 2005 (the “Calculation Date”) to the day immediately preceding the scheduled share transfer date, the number of
56
shares to be issued upon the Share Transfer shall be the sum of Items 1 and 2 below with fractional shares less than one (1) share rounded downwards.
| | (1) | 286,453,235 minus the number of treasury shares that Daiichi has canceled since the day immediately following the Calculation Date plus the number of shares of common stock of Daiichi newly issued after the day immediately following the Calculation Date upon exercise of stock subscription rights and stock acquisition rights issued by Daiichi, multiplied by one point one five nine (1.159). |
| | (2) | 439,498,765 minus the number of treasury shares that Sankyo has canceled since the day immediately following the Calculation Date plus the number of shares of common stock of Sankyo newly issued after the day immediately following the Calculation Date upon exercise of stock acquisition rights issued by Sankyo. |
Article 2 (First Business Year)
Notwithstanding the provisions of Clause 37, the first business year of the Company shall commence on the date of incorporation of the Company and end on March 31, 2006.
Article 3 (Term of Office of First Corporate Auditors)
Notwithstanding the provision of Clause 31.1, the term of office of first Corporate Auditors of the Company shall expire at the close of the Ordinary General Meeting of Shareholders held for the accounting period last to expire within one (1) year subsequent to his/her assumption of office.
57
Sankyo Company, Limited
CONSOLIDATED BALANCE SHEET
(As of March 31, 2005)
| | | | | | | | |
| | | Millions of
yen |
| | | | Millions of
yen |
|
| | | | |
[ASSETS] | | [976,230 | ] | | [LIABILITIES] | | [250,208 | ] |
| | | | |
Current assets | | 606,067 | | | Current liabilities | | 173,712 | |
| | | | |
Cash and deposits | | 175,960 | | | Trade notes and accounts payable | | 54,435 | |
| | | | |
Trade notes and accounts receivable | | 162,442 | | | Short-term bank loans | | 16,699 | |
| | | | |
Marketable securities | | 146,632 | | | Income taxes payable | | 16,904 | |
| | | | |
Inventories | | 89,979 | | | Deferred tax liabilities | | 689 | |
| | | | |
Deferred tax assets | | 21,832 | | | Accrued bonuses | | 13,481 | |
| | | | |
Other | | 9,704 | | | Allowance for sales returns | | 476 | |
| | | | |
Allowance for doubtful accounts | | (483 | ) | | Allowance for sales rebates | | 1,022 | |
| | | | |
| | | | | | Other | | 70,002 | |
| | | | |
Fixed assets | | 370,163 | | | Long-term liabilities | | 76,495 | |
| | | | |
Tangible fixed assets | | 196,439 | | | Long-term debt | | 3,373 | |
| | | | |
Buildings and structures | | 111,966 | | | Deferred tax liabilities | | 441 | |
| | | | |
Machinery, equipment and vehicles | | 31,831 | | | Retirement and severance benefits | | 66,843 | |
| | | | |
Land | | 30,655 | | | Directors’ and auditors’ retirement and severance benefits | | 1,830 | |
| | | | |
Construction in progress | | 10,005 | | | Other | | 4,006 | |
| | | | |
Other | | 11,980 | | | [MINORITY INTERESTS] | | [9,434 | ] |
| | | | |
Intangible fixed assets | | 25,026 | | | Minority interests | | 9,434 | |
| | | | |
Consolidation goodwill | | 845 | | | | | | |
| | | | |
Other | | 24,181 | | | [SHAREHOLDERS’ EQUITY] | | [716,587 | ] |
| | | | |
Investments and other assets | | 148,696 | | | Common stock | | 68,793 | |
| | | | |
Investment securities | | 114,480 | | | Additional paid-in-capital | | 66,862 | |
| | | | |
Long-term loans | | 5,876 | | | Retained earnings | | 580,514 | |
| | | | |
Deferred tax assets | | 14,967 | | | Valuation difference on other securities | | 27,857 | |
| | | | |
Other | | 13,702 | | | Foreign currency translation adjustments | | (7,026 | ) |
| | | | |
Allowance for doubtful accounts | | (329 | ) | | Treasury stock | | (20,412 | ) |
| | | | |
Total assets | | 976,230 | | | Total liabilities, minority interests and shareholders’ equity | | 976,230 | |
58
Notes:
| | | | |
| | | (Millions of yen) |
| | |
| 1. | | Amounts less than one million yen have been omitted. | | |
| | |
| 2. | | Accumulated depreciation on tangible assets | | 322,172 |
| | |
| 3. | | Pledged assets | | 4,727 |
| | |
| 4. | | Contingent liabilities | | 496 |
| | |
| 5. | | Trade note discounted | | 561 |
| |
| 6. | | For purchased goods with a minimum volume purchase commitment, the Company may be exposed to the risk of evaluation loss due to excess inventory. |
| | |
| 7. | | Overdraft contracts and commitment line contracts. | | |
| | |
| | | Overdrafts and commitments unused | | 72,643 |
59
Sankyo Company, Limited
CONSOLIDATED STATEMENT OF INCOME
(From April 1, 2004 to March 31, 2005)
(Millions of yen)
| | | | | | | |
| I. Net sales | | | | | 587,830 |
| | | |
| II. Cost of sales | | | | | 213,874 |
| | | |
| Gross profit | | | | | 373,956 |
| | | |
| Provision for sales returns | | | | | 15 |
| | | |
| Gross profit, less provision for sales returns | | | | | 373,940 |
| | | |
| III. Selling, general and administrative expenses | | | | | 289,015 |
| | | |
| Operating income | | | | | 84,925 |
| | | |
| IV. Non-operating income | | | | | |
| | | |
| Interest income | | 1,178 | | | |
| | | |
| Dividend income | | 2,126 | | | |
| | | |
| Amortization of consolidation goodwill | | 11 | | | |
| | | |
| Rent received | | 889 | | | |
| | | |
| Other | | 2,219 | | | 6,425 |
| | | |
| V. Non-operating expenses | | | | | |
| | | |
| Interest expense | | 358 | | | |
| | | |
| Loss on disposal of inventories | | 3,983 | | | |
| | | |
| Charitable donations | | 737 | | | |
| | | |
| Other | | 3,765 | | | 8,844 |
| | | |
| Ordinary income | | | | | 82,506 |
| | | |
| VI. Extraordinary profit | | | | | |
| | | |
| Gain from sale of fixed assets | | 12,179 | | | |
| | | |
| Reversal of allowance for doubtful accounts | | 2,026 | | | |
| | | |
| Gain from sale of investment securities | | 983 | | | |
| | | |
| Gain from sale of investments in affiliates | | 544 | | | |
| | | |
| Reversal of allowance for directors’ and auditors’ retirement and severance | | 41 | | | 15,775 |
| | | |
| VII. Extraordinary loss | | | | | |
| | | |
| Loss on disposal of fixed assets | | 2,333 | | | |
| | | |
| Loss on impairment of fixed assets | | 15,865 | | | |
| | | |
| Loss on valuation of investments in affiliates | | 1,483 | | | |
| | | |
| Additional retirement payment | | 662 | | | |
| | | |
| Loss on valuation of investments | | 249 | | | |
| | | |
| Loss on sales of investment securities | | 5 | | | |
| | | |
| Loss on valuation of investment securities | | 4 | | | 20,603 |
| | | |
| Income before income taxes and minority interests | | | | | 77,678 |
| | | |
| Income taxes | | 33,224 | | | |
| | | |
| Income tax adjustment | | (4,550 | ) | | 28,674 |
| | | |
| Minority interests | | | | | 722 |
| | | |
| Net income | | | | | 48,282 |
60
Notes:
| | | | | |
| 1. | | Amounts less than one million yen have been omitted. |
| 2. | | Net income per share | | ¥ | 111.78 |
| | | Note: Net income per share calculations are based on the following: Net income for the fiscal year under review: 48,282 million yen Amount not distributed to ordinary shareholders: 269 million yen (Of this amount, profit distributed as bonuses paid to Directors and Corporate Auditors: 269 million yen) Net income for common stock: 48,012 million yen Average number of shares outstanding during the fiscal year under review: 429,527,836 |
Significant Items for the Preparation of the Consolidated Financial Statements
Scope of Consolidation
Consolidated subsidiaries: 37
The names of major consolidated subsidiaries are included in the “1) The Status of Major Subsidiaries, (5) Corporate Consolidation, 2. Outline of the Group’s Business’’ of the Business Report. In addition, Sankyo Trading Co., Ltd., which had been a consolidated subsidiary of the Company until the year ended March 31, 2004, has been excluded from the scope of consolidation effective the current period due to the Company’s sale of all of the shares it owns in this company held by the Company.
Since the respective totals of total assets, sales, net income (losses) in proportion to the Company’s share, and retained earnings in proportion to the Company’s share of non-consolidated subsidiaries are relatively small and thus do not have a material impact as a whole on Sankyo’s consolidated financial statements such subsidiaries are excluded from the scope of consolidation. Major non-consolidated subsidiaries include Sankyo Insurance Agency Co., Ltd., Godo Real Estate Co., Ltd., and Shanghai Sankyo Pharmaceuticals Co., Ltd.
Application of the Equity Method
The equity method is not applied to non-consolidated subsidiaries or affiliates.
Since the net income (losses) and retained earnings of the non-consolidated subsidiaries and affiliates not accounted for by the equity method are relatively small and thus do not have a material impact as a whole on the consolidated net income (losses) and consolidated retained earnings, such companies are not accounted for by the equity method. Major non-consolidated subsidiaries not accounted for by the equity method include Sankyo Insurance Agency Co., Ltd., Godo Real Estate Co., Ltd., and Shanghai Sankyo Pharmaceuticals Co., Ltd., and a major affiliate not accounted for by the equity method is Tokyo Yakugyo Kaikan Co., Ltd.
Fiscal Year-End of Consolidated Subsidiaries
The fiscal years for 18 of the Company’s overseas consolidated subsidiaries ended on December 31, 2004. Financial statements as of this date were used in the preparation of the consolidated financial statements. However, necessary adjustments for consolidation were made in those cases where important transactions took place between this date and March 31, 2005.
Matters Relating to Accounting Principles and Methods
| 1. | Principles and Methods of Valuation of Important Assets |
(1) Securities:
Held-to-maturity securities
Mainly the amortized cost method (straight-line method)
Other securities
Securities with determinable market value:
| | | Mainly the market value method based on the market value at the end of the fiscal year. Valuation differences are dealt with by means of the direct capital influx method, with the cost of securities sold calculated by the moving average method. |
61
Securities without determinable market value:
| | | Mainly stated at cost based on the moving average method |
| | |
(2) Derivatives: | | Market value method |
(3) Inventories: | | Mainly stated at cost determined by the weighted average method at the Company and its domestic consolidated subsidiaries. Mainly stated at the lower of cost or market determined by the weighted average method at overseas consolidated subsidiaries. |
| 2. | Depreciation of Important Depreciable Assets |
(1) Tangible Fixed Assets
The Company and its domestic consolidated subsidiaries account for property, plant and equipment by the declining balance method. However, buildings (excluding annexes) acquired on or after April 1, 1998, have been accounted for by the straight-line method. Overseas consolidated subsidiaries account for property, plant and equipment mainly by the straight-line method. The estimated useful lives of major assets are as follows:
| | |
Buildings and structures: | | 2~60 years |
Machinery, equipment and vehicles: | | 2~17 years |
(2) Intangible Fixed Assets
Computed by the straight-line method. Software for in-house use is amortized over the estimated useful lives (a five-year period) by the straight-line method.
| 3. | Recording Principles for Important Allowances |
(1) Allowance for Doubtful Accounts
The Company and its consolidated subsidiaries cover the risk of credit losses by making additions to this allowance on the basis of the actual default rates for standard loans, and on an individual basis for loans considered unlikely to be repaid in full.
(2) Accrued Bonuses
To prepare mainly for the payment of employees’ bonuses, the Company and the majority of its consolidated subsidiaries make provisions based on a portion of the estimated total amount payable for the fiscal year.
(3) Allowance for Sales Returns
To prepare for sales return losses incurred after the end of the fiscal year, the Company and four of its domestic consolidated subsidiaries make the maximum possible provision calculated by the accounts receivable method as regulated by the Corporate Tax Law in Japan.
(4) Allowance for Sales Rebates
To prepare for future sales rebates, the Company records an amount calculated by multiplying the sales rebate rate for the fiscal year by the wholesaler’s inventory amounts or the accounts receivable at the end of the fiscal year.
(5) Retirement and Severance Benefits
To prepare for the payment of employees’ retirement and severance benefits, the Company and its domestic consolidated subsidiaries make provisions for an amount based on projected benefit obligation and plan assets at the end of the fiscal year. Provisions are made for six of the Company’s overseas consolidated subsidiaries in accordance with generally accepted accounting principles in the countries in question.
Prior service cost is amortized by the straight-line method over a set time period (five years), which is less than the estimated average remaining years of service of the eligible employees when the prior service cost was recognized.
62
At the Company itself, actuarial gain and loss are recorded when they occur. At the domestic consolidated subsidiaries, the straight-line method is used to calculate an amount to be treated as an expense during the fiscal year after the gain or loss was initially recorded. This calculation is, in turn, based upon a set time period (five years) which is less than the average remaining years of service of the eligible employees when the actuarial gain or loss was recorded.
(6) Directors’ and Auditors’ Retirement and Severance Benefits
To prepare for directors’ and auditors’ retirement and severance benefits, the Company and its domestic consolidated subsidiaries make provisions for an amount based on the total benefits required to be paid at the end of the fiscal year in accordance with internal regulations. Two overseas consolidated subsidiaries make provisions for the amount generated by the end of the fiscal year.
| 4. | Translation of Important Assets and Liabilities Denominated in Foreign Currencies into Yen |
Monetary receivables and payables denominated in foreign currencies are converted into yen at the rates of exchange in effect at the end of the fiscal year, with translation differences treated as gains or losses. The assets and liabilities of overseas consolidated subsidiaries are converted into yen at the rates of exchange in effect at their balance sheet dates. Profits and expenses are converted into yen at the average exchange rates in effect over the period in question, with translation differences recorded under translation adjustments in the minority interests and shareholders’ equity sections of the balance sheets.
| 5. | Accounting Methods Pertaining to Important Lease Transactions |
The same accounting treatment applied to operating leases is used for financial leases, except for those where the legal title to the underlying property is transferred from the lessor to the lessee.
| 6. | Important Hedge Accounting Methods |
(1) Hedge Accounting Methods
Deferral hedge accounting has been adopted. Forward foreign exchange contracts that meet the criteria are accounted for by the allocation method. Interest rate swaps that meet the criteria are accounted for by the special method, as regulated in the accounting standard, as if the interest rates of the interest rate swaps were originally applied to the underlying borrowings.
(2) Hedging Methods and Hedge Accounts
Hedging methods: Forward foreign exchange contracts, interest rate swaps and call options on the Company’s common stock
Hedge accounts: Accounts payable and receivable and anticipated transactions denominated in a foreign currency, loans and stock appreciation rights (SAR)
(3) Hedging Policy
Certain consolidated subsidiaries hedge against foreign exchange rate fluctuations relating to imports and exports, interest rate risks relating to loans and fluctuations in stock prices relating to SAR. The Company and its consolidated subsidiaries do not enter into speculative derivative transactions.
(4) Methods of Assessing the Effectiveness of Hedges
Assessment of the effectiveness of hedges is conducted on the basis of the relationship between cumulative changes in the hedging methods and cumulative changes in the hedge accounts. However, with the important conditions for forward foreign exchange contracts transactions being identical, and interest rate swaps being handled by special methods, the effectiveness of the hedges is extremely high. Thus, an assessment of the effectiveness of these hedges has been omitted.
63
| 7. | Other Important Items Pertaining to the Consolidated Financial Statements |
Consumption Tax Accounting Methods
Tax-excluded method has been applied to account for consumption taxes.
Valuation Methods for Assets and Liabilities at Consolidated Subsidiaries
The mark-to-market method is used to evaluate the assets and liabilities of consolidated subsidiaries.
Amortization of Consolidation Goodwill
As a general rule, consolidation goodwill is amortized over a period of five years. However, if the amount in question is minor, it is accounted for currently as a gain or loss.
Changes in Basic Policies for the Preparation of the Consolidated Financial Statements
Effective April 1, 2004, the Sankyo Group has adopted accounting standards for impairment of fixed assets (“Opinion Concerning Establishment of Accounting Standards for Impairment of Fixed Assets” issued by the Business Accounting Council of Japan on August 9, 2002) and “Implementation Guidelines for Accounting Standards for Impairment of Fixed Assets” (Financial Accounting Standards Implementation Guidelines No. 6, issued by the Accounting Standards Board of Japan on October 31, 2003), since these standards and guidelines became applicable to the consolidated financial statements for the fiscal year ended March 31, 2004. The effect of this application was to decrease income before income taxes and minority interests by 15,865 million yen. In accordance with the modification of the Regulations Concerning Consolidated Financial Statements, the accumulated impairment losses are directly deducted from the balances of related fixed assets.
In line with announcement of Practice Report No. 12 “Practical Treatment Concerning Presentation of Pro Forma Standard Taxation Portion of Enterprise Tax in Statements of Income” issued by the Accounting Standards Board of Japan on February 13, 2004, enterprise taxes levied in proportion to added value and capital, amounting to 971 million yen, were recognized as ‘‘Selling, general and administrative expenses’’ effective this period under this report.
64
Sankyo Company, Limited
NON-CONSOLIDATED BALANCE SHEET
(As of March 31, 2005)
(Millions of yen)
| | | | | | | | |
[Assets] | | [869,575] | | | [Liabilities] | | [141,581] | |
Current assets | | 411,705 | | | Current liabilities | | 87,276 | |
Cash and deposits | | 133,346 | | | | | | |
Trade notes receivable | | 2,813 | | | Accounts payable | | 25,891 | |
Accounts receivable | | 101,292 | | | | | | |
Marketable securities | | 98,697 | | | Accrued accounts | | 30,976 | |
Finished goods | | 19,307 | | | Accrued expenses | | 2,460 | |
Work in process | | 25,846 | | | Income taxes payable | | 14,802 | |
Raw materials | | 8,201 | | | Consumption tax payable | | 1,037 | |
Prepaid expenses | | 341 | | | Deposits received | | 740 | |
Deferred tax assets | | 18,158 | | | Accrued bonuses | | 7,908 | |
Other receivable | | 2,360 | | | Allowance for sales returns | | 362 | |
Other | | 1,372 | | | Allowance for sales rebates | | 1,022 | |
Allowance for doubtful accounts | | (34 | ) | | Other | | 2,074 | |
| | | | |
Fixed assets | | 457,869 | | | | | | |
Tangible fixed assets | | 146,765 | | | Long-term liabilities | | 54,305 | |
Buildings | | 85,312 | | | Retirement and severance benefits | | 53,573 | |
Structures | | 7,007 | | | Directors’ and auditors’ retirement and severance benefits | | 732 | |
Machinery and equipment | | 17,893 | | | | | | |
Vehicles and equipment | | 41 | | | [Shareholders’ equity] | | [727,993 | ] |
Tools, furniture and fixtures | | 7,814 | | | Common Stock | | 68,793 | |
Land | | 21,177 | | | | | | |
Construction in progress | | 7,518 | | | Capital Surplus | | 66,856 | |
| | | | | | Additional paid-in capital | | 66,856 | |
Intangible fixed assets | | 10,430 | | | | | | |
Licenses, etc. | | 10,430 | | | Retained Surplus | | 585,580 | |
| | | | | | Legally appropriated retained earnings | | 13,214 | |
Investments and other assets | | 300,673 | | | Voluntary reserves | | 490,418 | |
Investment securities | | 109,720 | | | Reserve for special depreciation | | 2,536 | |
Investment securities in subsidiaries and affiliates | | 116,744 | | | Reserve for reduction in fixed assets | | 2,281 | |
Investments | | 923 | | | General reserve | | 485,600 | |
Investments in subsidiaries and affiliates | | 47,751 | | | | | | |
Long-term loans receivable | | 10,317 | | | Unappropriated retained earnings for the fiscal year | | 81,947 | |
Long-term prepaid expenses | | 263 | | | | | | |
Deferred tax assets | | 12,485 | | | Valuation difference on other securities | | 27,176 | |
Insurance reserves | | 167 | | | | | | |
Security deposits | | 2,540 | | | Treasury stock | | (20,412 | ) |
Allowance for doubtful accounts | | (240 | ) | | | | | |
Total | | 869,575 | | | Total | | 869,575 | |
65
Notes:
(Millions of yen)
| | | | |
1. | | Amounts less than one million yen have been omitted. | | |
2. | | Short-term credits to subsidiaries and affiliates | | 4,241 |
3. | | Long-term credits to subsidiaries and affiliates | | 7,182 |
4. | | Short-term debts to subsidiaries and affiliates | | 4,811 |
5. | | Accumulated depreciation on tangible assets | | 239,338 |
6. | | Other than fixed assets booked in the balance sheet, there are important fixed assets such as vehicles and computers used on lease contracts. | | |
7. | | Contingent liabilities | | 6,707 |
8. | | For purchased goods with a minimum volume purchase commitment, the Company may be exposed to the risk of evaluation loss due to excess inventory. | | |
9. | | Commitment line agreement | | |
| | | Commitment unused | | 60,000 |
10. | | Net assets, as stipulated in Article 124, Paragraph 3, of the Enforcement Regulations of the Commercial Code of Japan, amounted to 27,176 million yen. | | |
66
Sankyo Company, Limited
NON-CONSOLIDATED STATEMENT OF INCOME
(From April 1, 2004 to March 31, 2005)
(Millions of yen)
| | | | | |
I. Net sales | | | | | 340,091 |
II. Cost of sales | | | | | 94,324 |
Gross profit | | | | | 245,766 |
Provision for sales returns | | | | | 22 |
Gross profit, less provision for sales returns | | | | | 245,744 |
III. Selling, general and administrative expenses | | | | | 181,303 |
Operating income | | | | | 64,441 |
IV. Non-operating income | | | | | |
Interest and dividend income | | 3,810 | | | |
Rent received | | 1,533 | | | |
Other | | 1,211 | | | 6,555 |
V. Non-operating expenses | | | | | |
Loss on disposal of inventories | | 3,610 | | | |
Charitable donations | | 728 | | | |
Other | | 2,532 | | | 6,871 |
Ordinary income | | | | | 64,124 |
VI. Extraordinary profit | | | | | |
Gain from sale of fixed assets | | 12,046 | | | |
Reversal of allowance for doubtful accounts | | 2,040 | | | |
Gain from sale of investment securities in subsidiaries and affiliates | | 1,788 | | | |
Gain from sale of investment securities | | 957 | | | |
Reversal of allowance for directors’ and auditors’ retirement and severance | | 40 | | | 16,872 |
VII. Extraordinary loss | | | | | |
Loss on disposal of fixed assets | | 1,933 | | | |
Loss on impairment of fixed assets | | 15,879 | | | |
Loss on valuation of investment securities in subsidiaries and affiliates | | 1,483 | | | |
Additional retirement payments | | 348 | | | |
Loss on valuation of investments | | 249 | | | |
Loss on sale of investment securities | | 5 | | | 19,899 |
Income before income taxes | | | | | 61,098 |
Income taxes | | 29,130 | | | |
Income tax adjustment | | (5,580 | ) | | 23,549 |
Net income | | | | | 37,548 |
Retained earnings carried over from the previous fiscal year | | | | | 50,841 |
Interim dividend | | | | | 6,442 |
Unappropriated retained earnings for the fiscal year | | | | | 81,947 |
67
Notes:
(Millions of yen, unless otherwise noted)
| | | | |
1. | | Amounts less than one million yen have been omitted. | | |
2. | | Sales to subsidiaries and affiliates | | 12,521 |
3. | | Purchases from subsidiaries and affiliates | | 13,221 |
4. | | Non-operating transactions with subsidiaries and affiliates | | 25,499 |
5. | | Net income per share | | ¥87.23 |
Note:
Net income per share calculations are based on the following.
Net income for the fiscal year under review: 37,548 million yen
Amount not distributed to ordinary shareholders: 82 million yen
(Of this amount, profit distributed as bonuses paid to Directors and Corporate Auditors: 82 million yen)
Net income for common stock: 37,466 million yen
Average number of shares outstanding during the fiscal year under review: 429,527,836 shares
68
Significant Accounting Policies
| 1. | Held-to-maturity securities are amortized or accumulated to face value. Investment securities in subsidiaries and affiliated companies are stated at cost based upon the moving-average method. Other securities with a determinable market value are carried at market value at the end of the fiscal year (unrealized gains and losses, net of taxes, are recognized in shareholders’ equity, and the cost of securities sold is computed based upon the moving-average method). Other securities without a determinable market value are carried at cost based on the moving-average method. |
| 2. | Inventories are stated at cost. Cost is determined by the average method. |
| 3. | The depreciation of tangible fixed assets is calculated by the declining-balance method based on the estimated useful lives of the respective assets. However, the straight-line method is used for buildings (excluding annexes) acquired on or after April 1, 1998. |
Estimated useful lives of major assets are as follows:
Buildings: 2-50 years
Machinery and equipment: 2-17 years
The depreciation of intangible fixed assets is calculated by the straight-line method.
Software for in-house use is amortized over the estimated useful life (a five-year period) by the straight-line method.
| 4. | Monetary receivables and payables denominated in foreign currencies are translated into yen at the rates of exchange in effect at the end of the fiscal year, with translation differences treated as gains or losses. |
| 5. | The methods for accounting for significant allowances are as follows: |
Allowance for doubtful accounts:
The Company covers the risk of credit losses by making additions to this allowance on the basis of the actual default rates for standard loans, and on an individual basis for loans considered unlikely to be repaid in full.
Accrued bonuses:
To prepare for the payment of employees’ bonuses, the Company makes provisions based on a portion of the estimated total amount payable for the fiscal year.
Allowance for sales returns:
To prepare for sales return losses incurred after the end of the fiscal year, the Company makes the maximum possible provision calculated by the accounts receivable method as regulated by the Corporate Tax Law in Japan.
Allowance for sales rebates:
To prepare for future sales rebates, the Company records an amount calculated by multiplying the sales rebate rate for the fiscal year by the wholesaler’s inventory amounts or the accounts receivable at the end of the fiscal year.
Retirement and severance benefits:
To prepare for employees’ retirement and severance benefits, the Company makes provisions for an amount based on projected benefit obligation and plan assets at the end of the fiscal year.
Prior service cost is amortized by the straight-line method over a set time period (five years), which is less than the estimated average remaining years of service of the eligible employees when the prior service cost was recognized.
Actuarial gains and loss are recorded when they occur.
Directors’ and auditors’ retirement and severance benefits:
To prepare for directors’ and auditors’ retirement and severance benefits, the Company makes provisions for an amount based on the total benefits required to be paid at the end of the fiscal year in accordance with its internal regulations. This allowance is provided for under Article 43 of the Enforcement Regulations of the Commercial Code of Japan.
| 6. | The same accounting treatment applied to operating leases is used for financial leases, except for those where the legal title to the underlying property is transferred from the lessor to the lessee. |
| 7. | Tax-excluded method has been applied to consumption taxes. |
69
Change in Accounting Policy
Effective April 1, 2004, the Company has adopted accounting standards for impairment of fixed assets (“Opinion Concerning Establishment of Accounting Standards for Impairment of Fixed Assets” issued by the Business Accounting Council of Japan on August 9, 2002) and “Implementation Guidelines for Accounting Standards for Impairment of Fixed Assets” (Financial Accounting Standards Implementation Guidelines No. 6, issued by the Accounting Standards Board of Japan on October 31, 2003). The effect of this application was to decrease income before income taxes by 15,879 million yen.
In addition, the accumulated impairment losses are directly deducted from the balances of related fixed assets.
Supplemental Information
In line with Practice Report No. 12 “Practical Treatment Concerning Presentation of Pro Forma Standard Taxation Portion of Enterprise Tax in Statements of Income” issued by the Accounting Standards Board of Japan on February 13, 2004, enterprise taxes levied in proportion to added value and capital, amounting to 809 million yen, were recognized as ‘Selling, general and administrative expenses’ effective this period under this report.
70
Third proposal: Partial Amendment to the Articles of Incorporation
| (1) | The amendment is to change a part of the business purposes of the Company in accordance with the full enforcement of the Law for Partial Amendment to the Pharmaceutical Affairs Laws and Blood Collection and Donation Services Control Law (Law No. 96 of 2002) as of April 1, 2005. |
| (2) | The amendment is to shorten the term of office of Directors from within two (2) years to within one (1) year from the assumption of office in order to appropriately and promptly cope with the harsh management environment, along with the reorganization of the management structure including strengthening of the function of the Board of Directors and the introduction of the executive officer system. In addition, the amendment is to introduce the release system of the liability of Outside Directors and to make a new provision in the Articles of Incorporation therefor in order to enable Outside Directors to fully perform their expected function. |
With regard to making a new provision concerning the release of the liability of Outside Directors, an agreement of the Board of Corporate Auditors with the unanimous consent of all Corporate Auditors has been obtained.
Contents of the amendment are as follows.
(Changes are underlined)
| | |
| Current Articles of Incorporation | | Proposed Amendment |
Chapter 1. General Provisions (Purpose) Article 3 The purpose of the Company shall be to engage in the following businesses: (1) (omitted); (2) Manufacture, sale and purchase of medicaldevices, and sale, purchase, exportation and importation of miscellaneous goods for daily necessities; (3) (subsequent items omitted); | | Chapter 1. General Provisions (Purpose) Article 3 The purpose of the Company shall be to engage in the following businesses: (1) (unchanged); (2) Manufacture, sale and purchase of medicalequipment, and sale, purchase, exportation and importation of miscellaneous goods for daily necessities; (3) (subsequent items unchanged); |
Chapter 4. Directors and Board of Directors (Term of office) Article 17 The term of office of Directors shall expire at the close of the annual shareholders’ meeting relating to the last closing of accounts to occur withintwo (2)years from their assumption of office. | | Chapter 4. Directors and Board of Directors (Term of office) Article 17 The term of office of Directors shall expire at the close of the annual shareholders’ meeting relating to the last closing of accounts to occur withinone (1)year from their assumption of office. |
71
| | |
| Current Articles of Incorporation | | Proposed Amendment |
| (Newly made) | | (Release of the Liability of Outside Directors) Article 23 The Company may enter into an agreement with an Outside Director for limitation of liabilities for damages due to acts set forth in Item 5, Paragraph 1, Article 266 of the Commercial Code in accordance with the provisions of Paragraph 19, Article 266 of the Commercial Code; provided, however, that the maximum amount of liabilities for damages under such agreement shall be as provided by laws and regulations. (The numbering of each of the subsequent articles of the current Articles of Incorporation is to be adjusted by increase of one number.) |
Fourth proposal: Election of Thirteen (13) Directors
The term of office of all eighteen (18) Directors will expire at the close of this general meeting of shareholders. In order to increase the transparency and strengthen the supervisory function of the Board of Directors, the Company intends to invite Outside Directors. Thus, the Company proposes election of thirteen (13) Directors including two (2) Outside Directors.
Candidates for Directors are as follows:
| | | | | | |
Candidate No. | | Name (Date of birth) | | Professional History and Positions as Representatives of Other Companies | | Number of
Shares of the
Company Owned |
1. | | Kiyoshi Morita (March 29, 1939) | | April, 1962 — Entered the Company April, 1988 — General Manager of Medical Sales & Market Information Department of the Company April, 1991 — General Manager of Marketing & Sales Administration Department of the Company June, 1991 — Director of the Company October, 1993 — Board Director responsible for Medical Products of the Company June, 1995 — Managing Director of the Company June, 1997 — Senior Managing Director of the Company June, 1999 — President and Representative Director of the Company to present Positions as representative of other companies: President and Representative Director of Laboratories Daiichi Sanofi-Synthelabo Executive Vice President and Representative Director of Sanofi-Synthelabo Daiichi Pharmaceutical Co., Ltd. | | 24,675 shares |
72
| | | | | | |
Candidate No. | | Name (Date of birth) | | Professional History and Positions as Representatives of Other Companies | | Number of
Shares of the
Company
Owned |
2. | | Kenichi Mizutani (February 12, 1941) | | April, 1963 — Entered the Company April, 1990 — General Manager of Medical Sales & Marketing Department II of the Company October, 1994 — General Manager of Market Planning & Promotion Department of the Company June, 1995 — Director, General Manager of Tokyo Branch I of the Company October, 1998 — Board Director responsible for Medical Planning, Medical Information of the Company June, 1999 — Managing Director of the Company October, 2002 — Senior Managing Director of the Company to present | | 23,780 shares |
3. | | Tadao Suzuki (March 9, 1941) | | September, 1964 — Entered the Company December, 1987 — General Manager of Research Planning & Administration Department of the Company April, 1990 — General Manager of Corporate Development & Licensing Department of the Company June, 1993 — Director of the Company April, 1995 — Board Director responsible for Corporate Development & Licensing of the Company June, 1995 — Board Director responsible for Corporate Development & Licensing and General Manager of Corporate R&D Planning Department of the Company June, 1997 — Board Director responsible for Corporate Development & Licensing and Medical Information and General Manager of Corporate R&D Planning Department of the Company October, 1997 — Board Director responsible for Corporate R&D Planning, Corporate Development & Licensing and Medical Information of the Company June, 1999 — Managing Director of the Company (present post) June, 2004 — Head of R&D Division of the Company to present Positions as representative of other companies: President and Representative Director of Aventis Pasteu Daiichi Vaccines Co., Ltd. | | 11,733 shares |
73
| | | | | | |
Candidate No. | | Name (Date of birth) | | Professional History and Positions as Representatives of Other Companies | | Number of
Shares of the
Company
Owned |
4. | | Hidetoshi Imaizumi (February 22, 1944) | | April, 1966 — Entered the Company October, 1992 — General Manager of Hiroshima Branch of the Company June, 1997 — Director, General Manager of Osaka Branch of the Company June, 2001 — Managing Director of the Company to present | | 5,300 shares |
5. | | Tsutomu Une (December 11, 1947) | | April, 1970 — Entered the Company October, 1997 — General Manager of Corporate R&D Planning Department of the Company June, 1998 — General Manager of Corporate Development & Licensing Department of the Company June, 1999 — Director of the Company October, 1999 — General Manager of Corporate R&D Strategic Planning Department of the Company June, 2001 — Board Director responsible for Corporate R&D Strategic Planning Department of the Company October, 2002 — Managing Director of the Company to present Positions as representative of other companies: President and Representative Director of Daiichi Pharmaceutical (Beijing) Co., Ltd., Representative Director of Daiichi Pharmaceutical Korea Co., Ltd. | | 3,600 shares |
6. | | Ryuzo Takada (December 22, 1945) | | April, 1969 — Entered the Company October, 1996 — General Manager of Takamatsu Branch of the Company June, 1999 — General Manager of Marketing & Sales Administration Department of the Company June, 2001 — Director of the Company to present | | 5,000 shares |
7. | | Hiroshi Sugiyama (April 6, 1947) | | April, 1970 — Entered the Company April, 1997 — General Manager of Medical Information Department of the Company June, 2001 — Director (present post), General Manager of Medical Development Department of the Company October, 2002 — General Manager of Clinical Development Department of the Company April, 2005 — General Manager of Clinical Development Department I of the Company to present | | 6,000 shares |
74
| | | | | | |
Candidate No. | | Name (Date of birth) | | Professional History and Positions as Representatives of Other Companies | | Number of
Shares of the
Company
Owned |
8. | | Teruo Takayanagi (October 4, 1946) | | April, 1975 — Entered the Company October, 1997 — General Manager of Post Marketing Surveillance Administration Department of the Company October, 2000 — General Manager of Research Planning & Administration Department of the Company June, 2001 — Director of the Company (present post) October, 2001 — General Manager of Research Planning & Administration Department and General Manager of Proteome Research Laboratory of the Company October, 2002 — General Manager of Research Planning & Administration Department of the Company October, 2004 — General Manager of R&D Operations Department of the Company to present | | 3,000 shares |
9. | | Toru Kuroda (January 27, 1948) | | April, 1971 — Entered the Company October, 1997 — General Manager of Secretary Department of the Company October, 2000 — General Manager of Corporate Planning & Administration Department of the Company June, 2001 — Director of the Company (present post) June, 2003 — General Manager of Corporate Planning Department of the Company to present | | 4,170 shares |
10. | | Akira Nagano (June 27, 1948) | | April, 1972 — Entered the Company October, 1998 — General Manager of Medical External Relations Department of the Company June, 2001 — Director of the Company (present post) June, 2003 — General Manager of Marketing Planning & Promotion Department of the Company to present | | 3,400 shares |
11. | | George Nakayama (May 11, 1950) | | April, 1979 — Entered Suntory Limited March, 2000 — Director, General Manager of Pharmaceutical Division, Planning & Administration Department of Suntory Limited March, 2001 — Chief Operating Officer of Pharmaceutical Division and General Manager of Pharmaceutical Division of Suntory Limited (March, 2003 — Retired at the expiration of his term as the Director of Suntory Limited) June, 2003 — Director of the Company to present Positions as representative of other companies: President and Representative Director of Daiichi Suntory Pharma Co., Ltd. | | 2,200 shares |
75
| | | | | | |
Candidate No. | | Name (Date of birth) | | Professional History and Positions as Representatives of Other Companies | | Number of
Shares of the
Company
Owned |
12. | | Yoshifumi Nishikawa (August 3, 1938) | | April, 1961 — Entered Sumitomo Banking Corporation June, 1986 — Director of Sumitomo Banking Corporation June, 1989 — Managing Director of Sumitomo Banking Corporation November, 1991 — Senior Managing Director of Sumitomo Banking Corporation May, 1996 — Vice President of Sumitomo Banking Corporation June, 1997 — President of Sumitomo Banking Corporation April, 2001 — President of Sumitomo Mitsui Banking Corporation (present post) December, 2002 — President and Director of Sumitomo Mitsui Financial Group, Inc. to present
Positions as representative of other companies: President of Sumitomo Mitsui Banking Corporation
President and Director of Sumitomo Mitsui Financial Group, Inc. | | 0 shares |
13. | | Jotaro Yabe (January 8, 1939) | | April, 1963 - Entered Fair Trade Commission June, 1991 - Manager of Trade Department of the Commission July, 1992 - Manager of Economics Department of the Commission July, 1994 - Manager of Investigation Department of the Commission June, 1996 - Investigation Commissioner of the Commission June, 1997 - Secretary General of the Commission April, 1999 - Professor of Graduate School of Law and Politics of Osaka University April, 2004 - Professor of Faculty of Humanities and Social Sciences of Jissen Women’s University to present | | 0 shares |
| | | | |
| Notes: | | 1. | | Of the candidates for directorships, both Messrs. Yoshifumi Nishikawa and Jotaro Yabe satisfy the requirements of Outside Directors as set forth in Article 188, Paragraph 2, Item 7-2 of the Commercial Code. |
| | | 2. | | None of the above candidates has any special interest in the Company. |
76
Fifth Proposal: Presentation of Retirement Allowances to Retiring Directors
The Company proposes that, in appreciation of their meritorious services to the Company during their terms of office, retirement allowances should be made to Messrs. Hiroyuki Nagasako, Hiroshi Yamamoto, Atsuo Inoue, Tomomi Chiba, Isao Hayakawa, Kyohei Nonose and Kazunori Hirokawa, who will retire at the close of this general meeting of shareholders due to expiration of their terms of office, within the range of a suitable amount, in accordance with the specified standards of the Company. Determination of the specific amount, date, procedure and other details of payment of the retirement allowances is to be fully delegated to the Board of Directors.
A brief biographical data of each retiring Director is as follows:
| | |
Name | | Biographical Data |
| Hiroyuki Nagasako | | June, 1991 – Director of the Company June, 1995 – Managing Director of the Company June, 1999 – Senior Managing Director of the Company June, 2003 – Executive Vice President of the Company to present |
| Hiroshi Yamamoto | | June, 1993 – Director of the Company June, 1999 – Managing Director of the Company June, 2003 – Senior Managing Director of the Company to present |
| Atsuo Inoue | | June, 1995 – Director of the Company June, 1999 – Managing Director of the Company to present |
| Tomomi Chiba | | June, 1999 – Director of the Company to present |
| Isao Hayakawa | | June, 2001 – Director of the Company to present |
| Kyohei Nonose | | June, 2003 – Director of the Company to present |
| Kazunori Hirokawa | | June, 2003 – Director of the Company to present |
End
77
