annual report 2012 - kobayashi.co.jp€¦ · annual report 2012 year ended march 31, 2012....

Creativity and Innovation

Annual Report 2012Year Ended March 31, 2012

Continually Providing Innovative Healthcare and Lifestyle Solutions

Company Profile

Discovering, creating and providing solutions that meet the latent needs of our customers

The Kobayashi Pharmaceutical Group has produced a series of “products that lead to new markets” which greatly contribute to the health, comfort and convenience of people and society, under the brand slogan of “You Make a Wish and We Make it Happen.”

Moving forward, we will continue to display the spirit of “Creativity and Innovation” in our work processes and develop products from a customer-centric perspective. This, coupled with our pursuit of manufacturing high quality products that fulfill the high expectations of our customers, will enable the Kobayashi Pharmaceutical Group to continue to create and cultivate new markets.

Other

¥1.1 billion

Consumer Products Business

¥109.2 billion

Health Care Division

¥45.0 billion

Household Division

¥64.1 billion

Medical Devices Business

¥10.4 billion

Mail Order Business

¥10.3 billion

Fiscal year endedMarch 2012

Net Sales

¥131.1 billion


The Consumer Products Business is the Group's mainstay business involving the planning, research and development, manufacturing and sales of proprietary products both in Japan and overseas. The business entails seven categories and 150 brands.

Household Division


The Medical Devices Business is operated by Kobayashi Medical Co., Ltd.1, an equity-method affiliate that imports and sells medical devices sourced overseas in Japan and Medicon Inc.2, an equity-method affiliate that imports and sells medical devices sourced from US firm C. R. Bard, Inc. in Japan.

1 80% of the shares in Kobayashi Medical Co., Ltd., were transferred to Mitsubishi Corporation on May 31, 2012.

2 A joint venture with US firm C. R. Bard, Inc.

Mail Order Business

The Mail Order Business involves sales of products such as nutritional supplements and skincare products via telephone and the internet. The business was established as a new business segment in the fiscal year ended March 31, 2011 because of its growth to near ¥10 billion in net sales.

The Household Division supports new lifestyle

habits and is pushing ahead with the creation

and expansion of new markets through

development, production, and sales in four

categories including deodorizing air

fresheners, sanitary products, household

sundries, and body warmers.

The Health Care Division addresses the

need for improved quality of life through

development, production, and sales in three

categories including OTC pharmaceuticals,

oral hygiene products, and food products. In

recent years, the division has focused on new

product development using kampo medicines.

Ekitai BlueletOkudake

Glucosamine& Collagen Set

AloeIkumo Eki

Bard I.C.Silver Foley Tray

Acu-Loc

Eyebon

NetsusamaSheet

Breathcare

Breakdown of Net Sales


Note: Intra-company transactions excluded.

KOBAYASHI Pharmaceutical Co., Ltd. Annual Report 20121

Kobayashi Pharmaceutical was established in

1886 as a wholesaler of Western liquors,

cosmetics and general merchandise. Two

years later, the company launched its

Pharmaceuticals Division. In 1895, the

company established the Proprietary

Pharmaceutical Sales and Manufacturing

Division with the purpose of creating medicines

that would contribute to society’s overall health.

The division commenced the development

and manufacture of 10 proprietary

pharmaceuticals that included “Tamushichinki,”

a medicine for athlete’s foot.

This marked the beginning of Kobayashi

Pharmaceutical’s unwavering

ambition to continually meet the

challenge of developing

products that provide people

and society with comfort.

Founded as a Wholesaler and Transformed into a Developer as well as Manufacturer of ProprietaryMedicine

Plans, strategies, beliefs and other statements concerning future business

operations of the Kobayashi Pharmaceutical Group included in this annual

report are forward-looking statements based not on historical facts but on

management’s assumptions and beliefs in light of information currently

available. These forward-looking statements include risks, known and

unknown, and uncertainties.

Actual management achievements and business results may therefore

differ significantly from forecasts in this annual report.

Forward-looking Statements

1

3

5

7

9

13

17

19

21

22

23

24

26

27

31

37

63

64

65

66

..........................................................

...........

......................................................

.........

........................................

........................

...............................................

................................................

.................................................

..................................................

........................................

................................................

...

..............................................................

....................

............................

.................................

..........................................................................

........................................................

.......................

Originally founded asKobayashi Seidaido, an unlimitedpartnership company

10 pharmaceuticalsreleased in 1894

FounderChubei Kobayashi

Company Profile

Kobayashi Pharmaceutical’s Business Model

Financial Highlights

A Message to Our Shareholders and Investors

Interview with the President

Special Feature Overseas Business

Business Overview



Household Division

Overseas Business

Mail Order Business


Corporate Governance

Directors, Corporate Auditors and Executive Officers

CSR Initiatives

Management’s Discussion and Analysis

Consolidated Financial Statements

Report of Independent Auditors

History

Group Companies

Corporate Data / Investor Information

Table of Contents

Overseas BusinessThe Overseas Business

sells body warmers and

cooling gel sheets in

over 20 countries

around the world.

Net Sales Operating Income

2008

110.9

18.0

2009

112.6

15.9

2010

115.5

16.5

2011

50.0

0

150.0

100.0110.7

18.9

2012

112.4

18.3

2008 2009 2010

7.6

2011

8.8

2012

9.810.0

5.0

0

–5.0

15.0

–0.2–0.4 –0.40.3

10.3

0.1

2008 2009

–0.4

2010

–0.5

2011

12.1

0.1

2012

0.2

12.1

0.2

10.410.7 11.310.0

5.0

0

–5.0

15.0

6.2

(¥ Billion)

(¥ Billion)

(¥ Billion)



Net Sales / Operating Income

Nuan Bao Bao KOOLFEVER



2KOBAYASHI Pharmaceutical Co., Ltd. Annual Report 2012

1Products that lead to new market

2Product that stimulates consumer demand

3Product that expands and strengthens the brand


Market C

(old market)

Market A

(old market)

Market D

(old market)

Market B

(old market)

First, prominent markets initially created by Kobayashi Pharmaceutical expand with the entrance of various competitors.In response to this, we expand our existing product lineup by releasing a new novel product(s) that outperforms competitors’ offerings and helps to further expand demand.

First, we discover a niche located between existing market segments where we see a clear latent need.

Next, we go about developing “products that lead to new markets” to transform the dreams of our customers into reality.

Generating New Markets

Expanding Markets

To increase market share and activate mature markets we introduce a variety of products that offer further value-added features, helping to expand and strengthen the brand.

Market Maturity

Market launch

Market launch

Market launch

Market launch

100%Share

NewMarket

1969

Bluelet

Novel concept product

Enhance convenience

and user experience

Expand selection

Further improve

the brand’s

lineup

A novel toilet bowl cleaner hung from the tank of a flush-toilet. We released Bluelet in anticipation of future demand during a time when less than 30% of Japanese households had a flush toilet.The novelty of this product’s pleasant fragrance and blue colored water helped it to garner much attention.

1986

Bluelet OkudakeIn order to eliminate the hassle of removing the toilet tank lid to hang Bluelet, we launched a novel product featuring the same cleaning capabilities but in a package that can simply be placed in the sink of the toilet tank lid (a toilet design unique to Japan).Bluelet Okudake instantly became an essential item in every Japanese household.

1991

Bluelet DobonAmid growing diversification in toilet function and performance, Kobayashi Pharmaceutical developed Bluelet Dobon, a new addition to the successful Bluelet franchise placed inside the toilet tank. A colorless cleaner type was also added to the lineup to broaden the range of products on offer to customers.

2001

Ekitai Bluelet Okudake

We developed a novel liquid-type Bluelet that cleans more effectively and with more foaming action. The product lineup was then expanded to include Bluelets featuring bleach cleaning power as well as Bluelets that come in a variety of different exciting fragrances, enabling consumers to customize their bathroom environment to their liking.

Continuing to Maintain a High Market Share and High Profitability by Creating and Expanding New Markets

Kobayashi Pharmaceutical’s Business Model

Competitorproduct

Competitorproduct

Competitorproduct

Competitorproduct

Competitorproduct

Competitorproduct


Kutsu CoolAttonon

Resveratrol

Tomarina

Kobayashi Pharmaceutical’s “Idea Development”—Creating New Markets

1. Speed in Development (Concurrent Development) Speed in development refers to the commercialization of products at a faster pace by performing the normally sequential procedures of product planning, research and development, trial production, quality assurance, and production preparation in parallel. In addition, we are also examining collaboration with other companies as well as M&A for the necessary seeds of product development, including raw materials and production systems.

2. Idea Meetings Involving Senior Management Persons in charge of development in each category give a presentation on ideas to senior management on a monthly basis. This is where ideas are narrowed and decisions are made on whether a new idea will proceed on to product development.

3. Employee Proposal System This system allows any employee to make a proposal on new product ideas and ideas for enhancing an existing product. First instituted in 1982, this system generates over 10,000 proposals each year.

Product planning

Product planning

Trial produc-tion

Pro-duction prepa-ration

Quality assur-ance

Research and development

Research and development

Trial production

Quality assurance

Production preparation

Shortened time frame

Com-mer-

cializa-tion

Com-mer-

cializa-tion

Average time for development around 13 months

Cold spray for the inside of shoes

External medicine for scars

Nutritional supplement for consumers looking to maintain their healthy appearance for long periods of time

Medicated toothpaste for customers bothered by gingival recession

Conventional development process

Kobayashi Pharmaceutical’s development process

(excluding OTC pharmaceuticals)

P17P17

P19

Hifmid (Moisture Foundation)

Hifmid (Face powder)

Skin moisturizing cosmetics

P22

P22

Some of our new products launched in the fiscal year ended March 2012

Kobayashi Pharmaceutical's Speed in Development (Concurrent Development)

For the Year

Net Sales

Cost of sales

Gross profit

Selling, General and Administrative Expenses

Operating Income

Income before Income Taxes and Minority Interests

Net Income

Cash Flows from Operating Activities

Free Cash Flows 1

Depreciation and Amortization

Capital Expenditures 2

Research and Development Costs

At Year-end

Current Assets

Property, Plant and Equipment, Net

Current Liabilities

Long-term Liabilities

Total Net Assets 3

Total Assets

Working Capital 4

Interest-bearing Debt

Per Share Data

Net Income

Cash Dividends

Net Assets

Financial Ratios

Gross Profit to Net Sales Ratio

Operating Income to Net Sales Ratio

Net Income to Net Sales Ratio

Current Ratio

ROA

ROE

Equity Ratio

Debt-equity Ratio (times) 5

2003 2007200620052004

210,922141,67569,24753,39415,85212,8396,605

12,04611,770

3,4802,6311,785

77,31527,75865,9259,936

49,267125,67911,3907,859

231.2521.0

1,747.98

32.87.53.1

117.310.514.139.20.16

215,708143,91271,79556,09615,69812,7696,730

8,3644,428

3,2395,0202,115

86,70425,00365,0078,959

60,116134,62921,6973,034

160.6433.0

1,443.30

33.37.33.1

133.410.811.744.70.05

246,852167,23979,61362,73416,87914,0097,474

13,1596,745

3,4142,7972,377

98,90622,78872,04010,17566,811

151,94526,8661,633

179.1738.0

1,617.10

32.36.83.0

137.310.611.844.00.02

211,670141,38870,28254,15916,12311,8256,677

6,9714,613

3,3502,4412,010

80,03024,56764,2979,093

54,454128,32615,7335,417

157.2521.0

1,307.16

33.27.63.2

124.511.112.942.40.10

257,022172,30484,71766,68818,02916,0388,297

8,833(2,970)

3,3752,2292,476

102,10222,27977,02810,29177,236

164,55525,0743,414

200.7750.0

1,799.87

33.07.03.2

132.69.5

11.745.20.05

Millions of yen

Millions of yen

Yen

%

1 Free cash flows = Cash flows from operating activities + Cash flows from investing activities. 2 Capital expenditures as shown in Segment Information in the Notes to Consolidated Financial Statements .

3 Total Net Assets in 2006 and preceding years does not include minority interests. 4 Working capital: Current assets at the fiscal year-end minus Current liabilities.

5 Debt-equity ratio: Interest-bearing debt at the fiscal year-end divided by Shareholders’ equity.

Financial Highlights

(¥ Billion)

12.0

9.0

6.0

3.0

0

(¥ Billion)

20.0

15.0

10.0

5.0

0

(¥ Billion)

20102008 2009

228.8

125.6 129.1

300.0

200.0

100.0

0

201020092008 201020092008

18.515.8 17.0

9.2

2011 2012

131.1130.8

(%)

20

15

10

5

0

(%)

10.0

7.5

5.0

2.5

0

20122011

11.7

9.3

2011 2012

19.218.6

Net Income to Net Sales RatioNet Income

Operating Income to Net Sales Ratio

Operating Income

8.5 8.8

8.1

12.613.2 14.2 14.7

3.7

7.07.2 7.1

8.9

Note 1. The removal of the Wholesale Business from the scope of consolidation in a stock swap in January 2008 resulted in a significant drop in sales, however the impact on income was minimal.

Note 2. “Accounting Standards for Measurement of Inventories” has been applied since fiscal 2009. As a result, the valuation of inventory and the valuation/disposal loss have been booked as cost of sales rather than as non-operating expenses and extraordinary losses, which led to a decline in operating income.

Net Sales Operating Income / Operating Income to Net Sales Ratio

Net Income / Net Income to Net Sales Ratio

Note 1 Note 2


201220122010 201120092008

228,826147,63881,18762,61118,57615,8008,504

12,1925,767

3,7652,8952,813

66,06915,23637,9407,286

77,182122,40928,128

726

205.6254.0

1,863.24

35.58.13.7

174.110.911.263.00.01

129,18457,29571,88954,84817,04114,5539,250

15,31910,618

4,2573,5623,962

85,20914,77939,0258,344

84,603131,97246,1841,708

225.8862.0

2,061.79

55.613.27.2

218.313.311.564.00.02

130,82456,18474,64056,01918,62113,1789,336

13,1684,789

4,1552,3474,069

88,83714,15634,5258,488

91,343134,35654,312

26

227.9866.0

2,226.42

57.114.27.1

257.314.310.667.9

0.0003

125,69357,01368,67952,86115,81816,2708,853

12,84911,467

4,2143,4683,361

73,17217,61839,8349,011

76,364125,21033,337

645

215.8958.0

1,861.14

54.612.67.0

183.712.411.560.90.01

131,167

54,636

76,531

57,233

19,298

19,822

11,726

17,250

14,321

3,232

2,213

4,386

102,538

13,628

37,791

8,221

101,879

147,891

64,747

5

286.36

78.0

2,484.08

58.3

14.7

8.9

271.3

14.2

12.2

68.8

0.00005

Millions of yen % Thousands of U.S. dollars

% Thousands of U.S. dollars

% U.S. dollars

Millions of yen

Yen

%

% Change

0.3(2.8)2.52.23.6

50.425.6

31.0199.0

(22.2)(5.7)7.8

15.4(3.7)9.5(3.2)

11.510.119.2(79.6)

25.618.211.6

1,595,900

664,753

931,147

696,350

234,797

241,173

142,669

209,880

174,243

39,324

26,925

53,364

1,247,572

165,811

459,800

100,024

1,239,555

1,799,379

787,772

61

3.48

0.95

30.22

Years ended March 31

150.0

100.0

50.0

0

100

75

50

25

0

20

15

10

5

0

(%)

201020092008

(¥ Billion)

201020092008

77.1 76.3 84.6122.4 125.2 131.9

(%)

100

75

50

25

0

30.0

22.5

15.0

7.5

0

(Yen)

201020092008

54 58 62

2012

78

(%)

2012

101.8147.8

2011

91.3134.3

ROEPayout Ratio ROACash Dividends per ShareEquity RatioTotal Assets Total Net Assets

201220112011

66

63.0 60.9 64.067.9 68.8

26.3 26.9 27.4 28.927.2

11.2

11.5 11.5 10.612.2

10.9

12.4 13.314.3 14.2

Total Assets / Total Net Assets / Equity Ratio Cash Dividends per Share / Payout Ratio ROE / ROA


A Message to Our Shareholders and Investors


As a development-based company, we will establish a solid operating base and continue to enhance our corporate value.

In the fiscal year under review, Japan’s economic future remained one

of uncertainty due to the downturn in business activities and consumers’

conservative spending habits resulting from the Great East Japan

Earthquake that occurred on March 11, 2011 as well as the ensuing

nuclear accident at the Fukushima Daiichi Nuclear Power Plant and

power supply shortages.

We believe now is the time to put our management philosophy

of “providing people and society with comfort” into greater practice.

In the aftermath of these disasters, we focused all of our efforts on

restoring operations at Sendai Kobayashi Pharmaceutical Co., Ltd., a

manufacturing base of the Group damaged in the quake, as well as

strived to maintain a stable supply of our products by manufacturing

products at alternative production sites to make up for the shortage

from the Sendai location. As a result of the Group’s collective efforts,

our production system returned to pre-quake levels in June 2011. In

addition, we also strived to activate the market by providing products

and services that create new markets in awakening potential needs

in customers.

Now is the time to demonstrate the spirit found in our management philosophy of “Providing People and Society with Comfort”

Kazumasa Kobayashi

Chairman and

Chief Executive Officer

Yutaka KobayashiPresident and

Chief Operating Officer


Under the slogan of “You Make a Wish and We Make it Happen,” the

Kobayashi Pharmaceutical Group is a development-based company

that creates new markets through the development of new products

that meet consumer needs. Our fundamental approach to developing

new products begins with needs (customers) rather than seeds

(technology). Over the years, the Group has grown by searching for

potential needs that even our customers themselves sometimes are

not aware of, and turning these into products. Our greatest strength

lies in the creation of a one-of-a-kind new market, also known as a

niche market, and the expansion of these markets.

At the same time, as the Group provides products and services,

it must not forget about advancements in quality. Once a product

does not live up to the customer’s expectations, the company may

lose the loyalty of that customer, which could result in that customer

avoiding the company’s other products in the future. To prevent this

scenario, we have established a corporate culture that is absolutely

devoted to quality under the credo that quality is the life of a

company, and have asked all employees to adopt a sense of

thorough persistence towards quality in their provision of products

and services. Accordingly, we strive to win customers’ trust and build

strong reputations for our products where customers will see the

Kobayashi brand itself as a seal of safety.

In order to achieve continued growth, it is essential to expand

the Overseas Business and the Mail Order Business. As such, we will

aggressively invest in these businesses in aiming to raise sales.

Through implementing the above measures, we hope to expand

our business globally and further elevate our corporate value.

Aspiring to further maximize corporate value

In order to take a major leap forward in our growth businesses,

namely the Overseas Business and the Mail Order Business, we have

continued to operate under the mantra “Jikko Ketsujitsu” following

efforts in the fiscal year ended March 31, 2012.

The concept of “Jikko Ketsujitsu” refers to the determination to

tenaciously produce and achieve results while remaining aware of our

goals and targets. This also embodies the continual implementation

of the Plan-Do-Check-Act (PDCA) cycle, which includes stringent

inspections and improvements. By building on this “Jikko Ketsujitsu”

process, we are committed to establishing a solid business structure

capable of continuous growth.

Under the basic policy of “Jikko Ketsujitsu,” we have developed

the following four pillars of management for the fiscal year ending

March 31, 2013.

1. Strengthen operating base

2. Invest in growth businesses

3. Foster a corporate culture of Jikko Ketsujitsu

4. Enhance the Kobayashi Pharmaceutical Group’s brand

Strengthening our operating base involves establishing a solid

operating framework through maximizing efforts in the development

of new products, which form the basis of business growth, and

enhancing existing brands, which form the foundation of our

business. In terms of investing in growth businesses, we will take a

proactive stance to invest in our growth businesses, which include

the Overseas Business as well as the Mail Order Business, to achieve

a giant leap forward. The corporate culture of Jikko Ketsujitsu

involves steadfast implementation of the PDCA cycle to reach all of

our goals in becoming a Group with true tenacity in producing and

achieving results. Enhancing the Kobayashi Pharmaceutical Group’s

brand entails thorough compliance from all employees and pursuit of

quality from a customer-centric standpoint and social contribution

activities, as part of our efforts to enhance our corporate value.

Thank you for your understanding and continued support of the

Kobayashi Pharmaceutical Group.

August 2012

Building upon “Jikko Ketsujitsu” and evolving into a company capable of continuous growth

As a result, net sales increased to ¥131,167 million, up 0.3% year

on year, while net income totaled ¥11,726 million, a 25.6% increase

over fiscal 2011, marking our fourteenth consecutive fiscal year of an

increase in net income.

President and Chief Operating Officer

Chairman and Chief Executive Officer

Interview with the President

Overview of fiscal 2012 and Outlook for fiscal 2013

In the fiscal year ended March 31, 2012, we achieved an increase in

income and sales, despite the ongoing difficult operating environment.

While our production site at Sendai Kobayashi Pharmaceutical

Co., Ltd., suffered damage in the Great East Japan Earthquake that

occurred on March 11, 2011, our production system returned to

pre-quake levels by June 2011. However, as a portion of the deodorizing

air fresheners produced by the company was subjected to a shipping

quota that restricted the amount shipped in one day, sales of

deodorizing air fresheners in the first half decreased by 6.6%

compared to the previous fiscal year. This also lowered our market

share. In order to recover from this downturn, we strengthened our

sales and promotional activities in the latter half of the fiscal year,

nearly regaining our pre-quake market share by the end of the fiscal

year under review. On the other hand, as a result of power supply

shortages and increased consumer awareness toward energy

conservation, sales of our heat relief remedies and body warmers

increased to ¥131,167 million, up 0.3% year on year. Operating

income also rose 3.6% over fiscal 2011 to ¥19,298 million, and net

income totaled ¥11,726 million, a 25.6% increase over fiscal 2011,

marking a record high and our fourteenth consecutive fiscal year of

an increase in net income.

In addition, we increased our dividend per share* for the

thirteenth consecutive fiscal year, to ¥78 per share, consisting of a

¥35 second quarter dividend and ¥43 year-end dividend.

We recorded our highest ever net income and achieved an increase in income and sales, despite a challenging operating environment.

We will focus on increasing sales of our Overseas and Mail Order businesses in order to achieve further growth.

QA

What were the results for the fiscal year ended March 31, 2012?

In our mainstay Consumer Products Business, comprised of the

Health Care and Household divisions, we saw significant growth in

the health care area including OTC pharmaceuticals and oral hygiene

products in Japan. In particular, sales of new products such as Attonon,

an external medicine for scars, and Tomarina, a medicated toothpaste

for customers bothered by gingival recession, grew steadily. In

addition, existing products also contributed to net sales, including

women’s health medicine Inochi No Haha A, and Shouyou, a medicated

toothpaste that helps prevent gingivitis and periodontitis. Furthermore,

as the need for energy conserving measures increases, heat relief

remedies such as Netsusama Sheet, a cooling gel sheet,

Natsusama Hinyari Gel Mat, a cooling gel mat, and Shirt Cool, a long-lasting cool spray for clothes, as well as body warmers for

the winter have seen solid sales growth. While sales of body

warmers in the United States decreased due to a warm winter,

sales in China increased significantly as a result of focused

marketing activities aimed at enhancing the product’s visibility.

Moreover, sales of Netsusama Sheet and Ammeltz, an external

anti-inflammatory, increased in Hong Kong and the Southeast Asia

region. As a result, net sales for the Consumer Products Business

rose 1.5% year-on-year to ¥112,424 million for both domestic and

international markets. Of this, growth of net sales in the Overseas

Business rose 4.8% to ¥8,100 million. Due in part to aggressive

domestic marketing, including advertising and sales promotion

Greater profits realized in our Mail Order and Consumer Products businesses.

QA

How did each business segment perform?

Yutaka KobayashiPresident and Chief Operating Officer

* A 1:1.5 share split was executed in the fiscal year ended March 31, 2004.


First Year First Four YearsLoss on Disposal Rate of Goods Returned

18.0

(%)

5

4

3

2

1

0

(%)(¥100 million)

40

30

20

10

0

Net Sales

Operating Income

Net Income

29.4 29.5

7.4 8.3

2008 2009 2010 2011

(¥100 million)

100

80

60

40

20

0

2008 2009

42

4.2

2010

22

3.2

2011

29

3.3

Fiscal yearended

March 31, 2012Actual

Fiscal yearending

March 31, 2013Forecast

9.0

1,308

186

93

1,311

192

117

1,320

200

125

20

26.7

5.3

2.6

15.3

20122012

18 5.1

2.5

activities in the second half of the fiscal year, operating income

decreased 3.4% to ¥18,317 million.

The Mail Order Business, which entails the sale of nutritional

supplements and skin care products in Japan, saw its net sales

exceed the ¥10,000 million mark for the first time ever, achieving a

5.1% increase year-on-year to ¥10,381 million. On the other hand, as

a result of aggressive sales promotion activities involving mainly

advertising and direct mailing to gain new customers and prompt

existing customers to continue buying, operating income fell to ¥132

million, a 57.4% year-on-year decrease. However, we continued to

remain in the black since the fiscal year ended March 31, 2011.

In our Medical Devices Business, we decided to adopt a

selection-and-concentration approach to focus on areas related to

operating rooms and orthopedics, which are expected to grow in the

Japan market. In addition, as of July 31, 2011, the Kobayashi

Pharmaceutical Group sold 100% of its shares in eVent Medical, Inc.

of the United States, a company engaged in the production of artificial

ventilators, in a management buyout deal. As a result, eVent Medical,

Inc. is no longer a consolidated subsidiary. Due to this change, net

sales decreased 14.0% year-on-year to ¥10,476 million, but

operating income increased 16.0% to ¥292 million.

In addition, in order to reduce product disposal costs and the

return rate, we controlled volumes and carefully analyzed previous

results and sales forecasts for new products, seasonal products,

and exclusive products. As a result, product disposal costs were

reduced by ¥200 million to ¥1,800 million, while the product return rate

improved 0.1 percentage points over the previous fiscal year to 2.5%.

Specialized team for new product development established within the Health Care and Household divisions.

QA

What measures will you take to enhance the new product contribution rate?

As a market-creating, development-based company, the Kobayashi

Pharmaceutical Group is committed to constantly developing new

products under the brand slogan “You Make a Wish and We Make it

Happen.”

Unfortunately, however, the new product contribution rate (net

sales of new products as a percentage of total net sales) in this fiscal

year under review is the lowest we have ever seen at 5.1%. This is

due to the increase in total net sales of products, including existing

products, which caused a relative decrease in the new product

contribution rate. Furthermore, it is becoming more difficult to

generate ideas from an entirely novel perspective at the idea meeting

involving each category’s brand manager, those from development,

research and development, and technical development, and the

executive team. This is because at meetings members only review

ideas separately for each existing category. In addition, as members

involved in product development departments are also responsible for

revamping and adding to existing products, we lacked a specialized

team focused on new product development.

Consequently, in April 2010 we created the New Product

Development Group within the Health Care Division. This organization

is not confined to the categories of OTC pharmaceuticals or oral

hygiene products, but is responsible solely for the development of new

health care products, including those in new categories. Following

this, as revolutionary ideas are gradually being generated within this

group, we also established the New Product Development Group

within the Household Division in April 2012.

Going forward, we will continue to develop new products that

will create new markets under this system in aiming to enhance our

new product contribution rate.

We will strengthen our operating base as a development-based company and expect to increase net income for the fifteenth consecutive term.

QA

What is the management environment in the fiscal year ending on March 31, 2013 and what are your earnings forecasts?

Since Japan’s economic future remains uncertain and consumers

remain conservative in their spending habits or seek out low-priced

items, we expect a challenging environment to persist. From a global

standpoint, while the European debt crisis remains unpredictable, the

economy in China and the rest of Asia is expected to continue to grow.

Against this backdrop, the Kobayashi Pharmaceutical Group

will focus its efforts on developing new products with added value

that will provide joy to customers by uncovering their potential needs.

In addition, we will further reinforce our operating base by developing

and steadily implementing a marketing plan aimed at further growth

for our existing brands.

For the domestic market in particular, we will expand the

product lineup for heat relief remedies and body warmers in response

to growing awareness toward energy conservation. We will also step

up our interaction with customers such as through aggressive sales

promotion activities at storefronts.

New Product Contribution Rate

Fiscal yearended

March 31, 2011Actual

Consolidated Earnings Trends Loss on Disposal / Rate of Goods Returned


6276

8898 103

(¥100 million)

120

0

2008 2009 2010 2011 2012

62 65 65

78 81

(¥100 million)

0

2008 2009 2010 2011 2012

80

60

20

40

100

80

60

20

40

28.927.4 27.226.926.3

Cash Dividends per Share Payout Ratio

(%)

30

24

18

12

6

0

54 58 62 6678

(¥)

100

80

60

20

40

0

2008 2009 2010 2011 2012

100

Furthermore, we aim to enhance sales of products including

body warmers and Netsusama Sheet in Asia, which continues to see

robust economic growth. We will accurately identify the needs of

local customers to develop, improve, and actively promote products

that suit the needs of each local region or country.

Meanwhile, in the Medical Devices Business, as of May 31,

2012, 80% of Kobayashi Medical Co., Ltd.’s shares have been

transferred to Mitsubishi Corporation. As a result, this consolidated

subsidiary is now an affiliate accounted for by the equity method.

Following these initiatives, we expect our net sales for the next

fiscal year to rise 0.6% year-on-year to ¥132,000 million, operating

income to increase 3.6% to ¥20,000 million, and net income for the

fiscal year to increase 6.6% to ¥12,500 million, marking our fifteenth

consecutive term of an increase in net income.

We expect our dividend per share to remain the same as the

current fiscal year under review at ¥78 per share.

We are committed to expanding our operations with proactive investments in our Overseas and Mail Order businesses.

QA

What business will grow and what areas will the Group focus on in terms of investment allocation?

As it has already reached a mature stage, the Japan market will likely

not see dramatic growth going forward. As such, for many Japanese

companies, bringing their business to the world stage will be the key

to their future expansion.

The Kobayashi Pharmaceutical Group also places the Overseas

Business as one of its growth businesses. With a goal of reaching

the ¥20,000 million mark in net sales in our Overseas Business by

the fiscal year ending March 31, 2015, we are taking a proactive

stance in investment in order to increase our net sales.

As one of the strategies for our global expansion, we aim to

establish a global brand in each of the six categories that include

Heat, Cool, Wipe, Oral, Scent, and Medicine, in cultivating new

lifestyle trends in international markets.

Another strategy we will employ is to promote localization. We

perceive the growth of emerging markets, such as those in the

Southeast Asia region, as an immense business opportunity, and

have set up a framework within the Asia region by establishing local

subsidiaries in Malaysia in October 2011, in Taiwan in November

2011, and in Indonesia in April 2012. The staff at these local

subsidiaries can and will accurately identify the needs of local

customers, conduct development and improve products to suit that

country or region’s needs, as well as implement locally-rooted sales

strategies. Furthermore, we aim to invest proactively in marketing

that will enhance the visibility of our products, such as through

television commercials, in order to increase sales.

In addressing growing demand in China, where the market is

expected to expand further, we established Hefei Kobayashi Daily

Products Co., Ltd. in Anhui Province in April 2012, with a new factory

under construction that is expected to be completed in September

2013. In addition, in January 2012, we completed the acquisition of

Grabber, Inc., a body warmer manufacturer in the United States that

has strong distribution ties with hunting and sporting goods specialty

stores. Following this, we aim to further increase our sales of body

warmers in the United States.

By steadily implementing the above plans, we aim to push our

net sales in the Overseas Business over the ¥20,000 million mark in

the fiscal year ending March 31, 2015.

Meanwhile, in the Japan market, we expect to see continued

growth by exploring new channels, such as our Mail Order Business.

The Group considers the Mail Order Business as another one of its

growth businesses and is striving to boost its sales.

In order to expand the Mail Order Business, it is imperative to

win over new customers as well as promote continued purchases of

our products among existing customers. With that in mind, starting in

fiscal 2013, we will shift our marketing focus from conventional

advertisements in newspapers and flyers to television commercials

and Internet ads. While our current customer base in the Mail Order

Business consists mainly of consumers over the age of 50, through

this shift, we can expect to see an expansion in our customer base.

Furthermore, we will proceed with the development and sales of

Category 3 OTC pharmaceuticals as a new product category, in

addition to stepping up the development of new products, focused

on nutritional supplements and skin care products. From there, we

Management Plan for Overseas Business and Mail Order Business

Overseas Business

Establish a global brand within each of the six categories

Promote localization

Aggressive M&A

Mail Order Business

Enhance advertisements using television and the web

Develop and release Category 3 OTC pharmaceuticals

Aggressive M&A

Cash Dividends per Share / Payout Ratio Overseas Business Net Sales Mail Order Business Net Sales


aim to create stories to associate with our products to further appeal

to customers.

In addition, we will take advantage of the inherent feature of the

Mail Order Business to communicate directly with consumers and

deepen our relationship of trust with customers. With that, we hope

to achieve net sales of over ¥20,000 million by the fiscal year ending

March 31, 2015.

Furthermore, we will also continue to enhance our capabilities

in the field of kampo (Chinese herbal medicines). In April 2012, the

Kampo Technical Development Department was established to

stabilize the supply of kampo and reduce costs by cultivating direct

procurement channels for raw ingredients and developing in-house

herbal extract distillation capabilities.

As for M&A aimed at accelerating our growth, we are looking to

take an aggressive approach, while conducting risk analysis and

validating the effectiveness of potential deals.

We are striving to enhance our quality, ties with the customer, and compliance.

QA

What types of CSR initiatives are you taking?

In the fiscal year under review, we focused our CSR efforts on pursuing

quality, deepening ties with customers, and strengthening compliance.

As the pursuit of quality embodies the essence that quality is

the life of a company, we persistently strive to improve our product

quality from a customer-centric viewpoint. In particular, in recent

years demand is on the rise for so-called “easy to use and dispose of

products,” such as products with a universal design that is easy and

safe for all consumers to handle, and container designs that allow

easy separation during waste disposal. As such, in addition to the

quality of the product itself, we believe it is important to develop

products that will meet consumer needs throughout all stages of use,

from purchase to disposal. Furthermore, we have established a

Quality Assurance Policy which provides guidelines on quality that all

employees must follow. We will steadily implement this policy to

inspire ownership in our product quality in providing products and

services to our customers.

In our effort to deepen ties with customers, we held the 1 yen no Omoi Campaign from June 1, 2011 to March 31, 2012 in support

of the earthquake recovery effort. In this campaign one yen will be

contributed to the Kobayashi Pharmaceutical Group Aoitori Fund for

every one of our products purchased. Thanks to the support and

cooperation of customers, the campaign collected a total of

¥290,564,930. This amount was then topped off with a contribution

from the Group for a total of ¥300 million, which was donated to ten

towns and cities affected by the disaster. In addition, employees

conducted volunteer activities as another one of our initiatives to

support the recovery effort. Volunteer events included cleaning of

restrooms in evacuation centers, hosting community fairs for children

in disaster-affected areas, and hosting of a Christmas party at local

nurseries and kindergartens. Through such efforts reflective of the

Kobayashi Pharmaceutical Group, we sent out our regards to people

in the area hoping to put a smile back on their face. As the

disaster-affected areas still require further assistance, we are

committed to continuing with these efforts going forward.

As for strengthening compliance, we aimed to increase

awareness of compliance among all Group employees through

regular compliance training for all executive officers and all

We will achieve future growth with management that “thinks ten steps ahead.”

QA

Do you have a message for shareholders and investors?

Time is now progressing so fast that we are using the word “super”

to describe the speed of things. We are in a time when “thinking one

step ahead” alone will not get you far. That is, we must have a

management that “thinks ten steps ahead” to constantly forecast

changes in market trends. With this new perspective, we will firmly

execute our plans and strategies and steadily achieve results with

tenacity in achieving future growth.

We look forward to your continued support of the Kobayashi

Pharmaceutical Group.

management level employees as well as monthly Compliance

e-Learning Sessions for all employees. In the fiscal year ended March

31, 2012, several Japanese companies faced management crises

due to scandals related to their corporate governance. At the

Kobayashi Pharmaceutical Group, each executive officer’s role is

clearly defined. As the President, my role is to carry out business

operations, while the chairman is to fulfill a supervisory role as a

management auditor. Furthermore, one outside director and two

outside auditors actively provide comments to the board of directors

and board of corporate auditors.

Going forward, we will continue to strive to gain the trust of our

stakeholders, which forms the basis for maximizing the Kobayashi

Pharmaceutical Group’s corporate value.

1212KOBAYASHI Pharmaceutical Co., Ltd. Annual Report 2012KOBAYASHI Pharmaceutical Co., Ltd. Annual Report 2012 12KOBAYASHI Pharmaceutical Co., Ltd. Annual Report 2012

Overseas Business

Offering Products to Overseas Consumers Delivering our“You Make a Wish and We Make it Happen” Philosophy

¥8,100 million

¥20,000million

Special Feature

2012 2015

¥12,000 million

2013 2014(Forecast) (Target)

In Malaysia, the same TV commercial is aired

in English, Mandarin Chinese, and Malay, while

in Singapore these commercials are aired in

English and Mandarin Chinese.

For many Japanese companies overseas markets represent the key to unlocking future growth. The Kobayashi Pharmaceutical Group has also positioned its Overseas Business as a key growth business, and going forward, we plan to aggressively invest in this business in order to reach the target of ¥20,000 million in net sales by the fiscal year ending March 31, 2015.

China

Malaysia and Singapore

In Hong Kong, we are airing TV commercials that market

the product as a heat relief remedy, in addition to its

primary use against fevers.

Hong Kong

United Kingdom

Thailand

Indonesia

Taiwan

Growth in the Overseas Business – Important Issues Facing Mid-term Growth Strategies

Netsusama Sheet TV Commercials Aired Around the World


The Kobayashi Pharmaceutical Group’s Overseas Business can be

traced back to the 1970s when products were first exported to

Southeast Asia.

In 1998, we established subsidiaries in China and the United

States, which marked the full-fledged start of the Overseas Business.

The following year in 1999 we launched Shuang Hua Lei (Sawaday), a toilet air freshener, in China, and Be KOOOL (Netsusama Sheet), a cooling gel sheet, in the United States. Later we set up subsidiaries

in the United Kingdom, Hong Kong and Singapore as part of our

efforts to strengthen our sales structure in each region.

Body warmer products, which represent our core products

today, were released in the United States under the name Cura-Heat in 2002, and in China as Nuan Bao Bao in 2003. Later in 2006 we

acquired HeatMax Co., Ltd., a major body warmer manufacturer

located in the United States, and began to significantly increase our

market share for body warmer products in the United States market.

Growth Centered on the United States, China and the United Kingdom

Tracing the History and Development of Our Overseas Business

The Kobayashi Pharmaceutical Group has commercialized products

under the philosophy “You Make a Wish and We Make it Happen,” and

created new markets through sales promotion activities and

Overseas Marketing Strategy

History of Our Overseas Business

Launched sales of cooling gel sheet Toirotie (Netsusama Sheet) in

Hong Kong

Established joint venture company Shanghai Kobayashi Friendship

Daily Chemicals Co., Ltd. in China

Established Kobayashi Healthcare, Inc. in the United States

Launched sales of toilet air freshener Shuang Hua Lei (Sawaday)

in China

Launched sales of cooling gel sheet Be KOOOL (Netsusama Sheet) in the United States

Launched sales of cooling gel sheet KOOL’n’SOOTHE (Netsusama Sheet) in the United Kingdom

Established Kobayashi Healthcare Europe, Ltd. in the United

Kingdom

Established Kobayashi Pharmaceutical (Hong Kong) Co., Ltd. in

Hong Kong

Launched sales of deodorizing air freshener Xiang Ju Yuan (Oheya no Shoshugen) in China

Launched sales of body warmer Cura-Heat in the United States

December 1996

September 1998

September 1998January 1999

January 1999

July 2001

August 2001

June 2002

August 2002

August 2002

December 2002

October 2003January 2004October 2005

November 2006

October 2009

June 2010October 2011November 2011January 2012

April 2012April 2012

Made Shanghai Kobayashi Friendship Daily Chemicals Co., Ltd. a

wholly-owned subsidiary and changed its name to Shanghai

Kobayashi Daily Chemicals Co., Ltd.

Launched sales of body warmer Nuan Bao Bao in China

Launched sales of body warmer Cura-Heat in the United Kingdom

Launched sales of cooling gel sheet Bin Bao Tie (Netsusama Sheet) in China

Made HeatMax, Inc., a body warmer manufacturer in the United

States, a consolidated subsidiary

Established Kobayashi Pharmaceutical (Singapore) Pte. Ltd. in

Singapore

Launched sales of denture cleanser Taifuchin (Toughdent) in China

Established Kobayashi Healthcare (Malaysia) Sdn. Bhd. in Malaysia

Established Kobayashi Pharmaceutical (Taiwan) Co., Ltd. in Taiwan

Made Grabber, Inc., a body warmer manufacturer in the United

States, a consolidated subsidiary

Established Hefei Kobayashi Daily Products Co., Ltd. in China

Established PT. Kobayashi Pharmaceutical Indonesia in Indonesia

United States38%

Other19%

Asia21%

China16%

United Kingdom6% Body warmers

65%

Other9%

Cooling gel sheets17%

External anti-inflammatory9%

developing product names that easily convey the inherent value

found in each. In our Overseas Business, we carefully select

products sold in Japan that will fulfill the philosophy “You Make a

Wish and We Make it Happen” for consumers outside of Japan. We

then aptly convey the value of these products in a format that

captures the interest of consumers in each geographic location.

These process has formed our approach to cultivating new markets

around the world.

For example, in the United States body warmers were generally

used during the wintertime for outdoor activities such as hunting and

sports, but we recognized there was untapped demand for body

warmers to be used as a type of warm compress for shoulder and

lower back pain. As a result, we released Cura-Heat and helped

expand the market by appealing its uses in everyday life.

In contrast, body warmers represented an entirely new concept

in China. Yet, people around the world share the common desire to

warm up their body during cold weather. As a result, we launched a

body warmer product called Nuan Bao Bao in 2003. Our TV

commercial campaign reached many consumers and raised the

profile of our body warmer product immensely, which helped us to

establish an entirely new market for body warmers in China.

We also released a single sheet version of our popular

Netsusama Sheet, which is sold in six-sheet packs in Japan, to

markets in Southeast Asia under the name KOOL FEVER. The

product’s unique name and inexpensive single sheet format has

made it quite popular among consumers in the region.

Ratio of Sales by Region for Overseas Business Ratio of Sales by Product Type for Overseas Business

Total forFiscal 2012

¥8,100million

Total forFiscal 2012

¥8,100million


Cura-Heat body warmer soldin the United Kingdom

Nuan Bao Bao body warmerssold in China

The Six Global BrandsBy the year 2050, Asia will account for more than half of the entire

world’s gross domestic product (GDP), ushering in the “century of

Asia.” This is why the Kobayashi Pharmaceutical Group recognizes

that expanding the presence of its Overseas Business in Asia and

capitalizing on robust economic growth taking place there will be keys

to its future growth.

In the fiscal year ended March 31, 2012, the Kobayashi

Pharmaceutical Group’s net sales from its Overseas Business stood at

¥8,100 million. Going forward, we will strive to expand our sales primarily

in the Asia region with the ultimate goal of reaching ¥20,000 million in

net sales by the fiscal year ending March 2015. In order to achieve

this ambitious target, we have established two key strategies that

consist of creating six global brands and promoting greater localization.

Establishing Six Global Brands

We plan on establishing powerful global brands in the six categories of

Heat, Cool, Wipe, Oral, Scent and Medicine in order to offer products

to consumers around the world that deliver on the slogan of “You

Make a Wish and We Make it Happen.” These six brands consist of

body warmers for Heat, Netsusama Sheet for Cool, Megane Cleaner Fukifuki, a wet tissue for cleaning eye glasses, for Wipe, Toughdent for

Oral, Sawaday for Scent, and Ammeltz, an external anti-inflammatory,

for Medicine. Each of these brands will enable us to help create new

lifestyle habits throughout the world.

The fundamental brand concept of each will be shared around

the world, while the main catch copy conveying how to use each

product will be developed based on the needs of each country and

region. This will enable us to more effectively communicate with our

customers locally.

For example, the fundamental brand concept for Netsusama Sheet, or cooling, is the same around the world, but consumers in

Promoting Localization

Localization is essential for correctly understanding the needs of

consumers in each country and region. We believe that by establishing

locally incorporated subsidiaries and pursuing a localized marketing

strategy led by staff of incorporated subsidiaries well versed in the market

we will be able to boost our sales in that particular country or region.

The Kobayashi Pharmaceutical Group has established new

locally incorporated subsidiaries in Malaysia, Taiwan and Indonesia

since October 2011 as part of its goal to expand sales in Asia. Until

now the United States accounted for about 40% of sales from our

Overseas Business, but going forward we will look to expand sales

in China and Asia so that these markets combined provide about

half of our Overseas Business sales by the fiscal year ending March

31, 2015.

In January 2012 we acquired Grabber, Inc., a body warmer

manufacturer in the United States, in order to further expand our

sales of body warmer products in the United States. Grabber

Aspiring to Reach ¥20,000 Million in Net Salesby 2015

Future our Overseas Business – Strategic Targets and Measures

Heat Medicine

Scent

OralWipe

Cool

Single wipe cleaningpower

Used to benefitoral health

Be KOOOL sold in the United States

different markets will use this product differently. Some will use it to

cool the forehead during a fever, while others will use it to cool the

body during hot weather or to cool off a warm sensation felt by the

body or to treat light-headedness. We will aim to boost sales by

modifying products to suit the needs of each culture and customs and

by developing a main catch copy based on the needs of each market.

CreatingWorldwide

Lifestyle Trendsin Six

Categories

Used to heat cold parts of the body and treat physical

ailments

Used to coolfevers and warm

sensations

Enriching one’s daily life with fragrances

Pharmaceuticals used to treat

physicalailments


Sawaday, a deodorizingair freshener sold

in China

Anmeiru soldin Hong Kong

Ratio of Sales by Region for Overseas Business in Fiscal 2015 (Target)

Over the next three years we will embark on an aggressive investment program aimed at accelerating the growth of our Overseas Business and achieving ¥20,000 million in net sales by the fiscal year ending March 31, 2015. While ensuring profitability, we will first focus on boosting sales and expanding our business presence internationally.

Specifically, we will actively roll out TV commercials and sales promotion activities in each country and region centered on our body warmers which currently account for more than 60% of the sales in our Overseas Business, and cooling gel sheet. Toirotie (Netsusama Sheet) sold in Hong Kong also has shown demand exists for use as a heat relief remedy, and we are actively airing TV commercials in order to encourage this type of use more. Also, in Taiwan we have begun a TV commercial campaign for body warmer Xiao Bai Tu in order to boost sales in the market.

The Overseas Business represents one of the Kobayashi Pharmaceutical Group’s growth businesses. Going forward, we will continue to grow the business by offering products to consumers around the world that deliver on the slogan of “You Make a Wish and We Make it Happen” and continually provide people and society with comfort.

Continuing with an Aggressive Investment Program for the Following 3 Years with a Focus on Sales Growth

maintains strong sales channels with hunting and sports specialty stores in the United States. On the other hand, HeatMax, Inc., acquired in 2006, also retains strong sales channels with general mass market retailers. Going forward, we plan to leverage both companies’ sales channels to grow our business presence in the United States even further.

In April 2012, we established Hefei Kobayashi Daily Products Co., Ltd. in China’s Anhui Province and began construction on a new factory set to open in September 2013. This new factory will manufacture body warmers, cooling gel sheets and deodorizing air fresheners, among other products, which will be shipped to China and Southeast Asia, where demand is expected to grow going forward.


China /Asia48%

United StatesUnited Kingdom

Other

Total forFiscal 2015¥20,000

million

United States

United Kingdom C h i n a

A s i a

Kobayashi Healthcare, LLC

Sales Base

Shanghai Kobayashi Daily Chemicals Co., Ltd.

Kobayashi Pharmaceutical(Hong Kong) Co., Ltd.

HeatMax, Inc.

Kobayashi HealthcareEurope, Ltd.

Manufacturing Base

Kobayashi Healthcare (Malaysia) Sdn. Bhd.

New Site

New Site

New Site

New Site

New Site

PT. Kobayashi Pharmaceutical Indonesia

Kobayashi Pharmaceutical(Singapore) Pte., Ltd.

Hefei Kobayashi Daily Products Co., Ltd.

Grabber, Inc.

Kobayashi Pharmaceutical (Taiwan) Co., Ltd.

Kobayashi Pharmaceutical Group’s Overseas Subsidiaries

With the aim of enhancing quality of life, we are focusing on new product development that achieves our “You make a wish and we make it happen” philosophy, including kampo (Chinese herbal medicine).

399 400 418 432 450500

400

300

200

100

0

2008 2009 2010 2011 2012

Business Overview

Health Care Division Net Sales(¥100 million)

OTC Pharmaceuticals, Oral Hygiene and Food Products

Consumer Products BusinessHealth Care Division

Total of domestic and overseas sales for three categories including OTC pharmaceuticals, oral hygiene and food products.Intra-company transactions excluded.


**

An eye wash solution that flushes out dirt and foreign particles from the eye

Eyebon

A Chinese herbal medicine that promotes the breakdown and metabolism of fat

Naicitol 85

A medicated toothpaste containing five types of completely natural plant extracts that help prevent gingivitis and periodontitis

Shouyou

An oral breath freshener capsule that refreshes the breath from the stomach

Breathcare

Consumers in Japan are growing more

aware of preventive medicine and

self-medication on the back of the

growing importance of quality of life as

well as government requirements for

specific health screening programs and

specific health guidance. As a result,

healthcare-related markets will grow

further going forward.

In particular, kampo (Chinese herbal

medicine), which has proven effective at

Market Trends preventing illness, represents one such

market that we expect will see solid

growth thanks to more health conscious

consumers and the need to curb medical

expenses.

Attonon, an external medicine for scars

released in March 2011, broke through

¥1 billion in sales after only eight months

thanks to the strong support it has

received from female consumers troubled

by blemishes. Tomarina, a medicated

toothpaste for customers bothered by

gingival recession launched in September

2011, has also seen strong sales,

contributing to our overall sales and profits.

By category, net sales of OTC

pharmaceuticals rose firmly 4.5% year

over year to ¥22,900 million, as sales of

core products Eyebon, women’s health

medicine Inochi no Haha A and kampo

medicine for obesity Bisrat Gold a rose

6.7%, 11.1% and 3.0%, respectively,

making a positive contribution to sales.

However, sales and the market share of

Naicitol, an OTC pharmaceutical for

Healthcare Market Expanding with the Growing Importance of Quality of Life

Review for the Fiscal Year Ended March 2012

Products Creating New Markets and Core Products See Solid Performance

New Products

35.1%62.1% 81.4%

Attonon is an external medicine for scars that has received strong support from many female consumers that want to treat blemishes.

Attonon

Tomarina is a medicated toothpaste to meet the needs of consumers bothered by gingival recession. The toothpaste is a compound featuring four medicinal ingredients, including an ingredient that promotes blood circulation, a tissue repairing ingredient, an anti-inflammatory ingredient and an anti-bacterial ingredient.

Tomarina

The number of people in Japan troubled by intestinal issues is on the rise due to lifestyle changes and a shift to Western dietary habits. This is why we decided to develop a novel intestinal remedy that helps normalize the digestive system functions.

Cleansil

Released in March 2011


Released in September 2011

Obesity alleviating medicine

Eye washOral breathfreshener


obesity, which has been on sale for six

years, declined. The market for obesity

related products has continued to see

growth amid rising consumer awareness

toward metabolic syndrome, but the

market shrunk temporarily due to

increasingly intense competition and

price reductions. Nevertheless, because

of needs for a greater sense of

effectiveness, we plan to continue with

marketing activities aimed at cultivating

new demand going forward.

Net sales of oral hygiene products

rose solidly 4.7% year on year to

¥16,200 million, underpinned by

heightened consumer awareness toward

oral health care in recent years. Among

these, sales of Toughdent, a denture

cleanser, and denture adhesive Tough Grip grew significantly by 7.0% and

7.3%, respectively, while sales of

medicated toothpaste Shouyou and

interdental cleaning tool Ito Yoji also saw

solid growth at 3.7% and 6.7%,

respectively.

Net sales in the food segment where

we sell nutritional supplements and foods

for specified health uses predominantly

through the drug store channel increased

steadily 2.4% to ¥5,800 million.

As a result, overall net sales of this

division rose 4.3% year on year to

¥45,000 million.

The approaches of self-medication and

preventive medicine are widely practiced

today, and going forward we expect that

consumers will continue to increase their

inclination toward higher quality and

healthier lifestyles. In addition, there is

growing demand for products that

alleviate discomfort and problematic

symptoms not defined as any specific

illness. Attonon and Tomarina represent

proprietary products developed with

these needs in mind, and both have won

over many female consumers in Japan.

In order to respond to this demand,

we will continue to focus on new product

development that emphasizes our quality

made possible only by a pharmaceutical

company under an exceptionally

customer-focused vision that aspires to

enhance our customers’ quality of life.

Specifically, we will continue to focus on

identifying and commercializing kampo that remain largely unknown.

Released in spring 2012, Cleansil is

a novel intestinal remedy that works to

normalize the digestive system using

medicinal carbon to absorb waste

matter1 and discharging this together

with the stool by means of four different

herb medicines. This product was

created to meet the needs of customers

wanting to improve the health of their

digestive system and help improve quality

of life.

Going forward, we will strive to

create new markets by proposing new

lifestyle trends and capturing the latent

needs of our customers.

1 Human waste including retained feces and

intestinal gas.

Market Share (Kobayashi Pharmaceutical Research)

Focusing Efforts on Kampo Medicines and the Development of Products that Create New Markets

Outlook for the Fiscal Year Ending March 2013

646 649 648 644 641

800

600

400

200

0

2008 2009 2010 2011 2012

In order to appeal to the discerning eye of consumers, we will seek out exceptionally customer-focused ideas that will enable us to develop products with an even greater added value as well as focus on sales strategy planning and marketing activities.

Business Overview

Consumer Products BusinessHousehold Division

Household Division Net Sales(¥100 million)

*Total sales for the four categories of deodorizing air fresheners, sanitary products, household sundries and body warmers in Japan and overseas.

*Intra-company transactions excluded.

Deodorizing Air Fresheners, Sanitary Products,

Household Sundries and Body Warmers


Consumer values are seeing major changes,

as evidenced by a stronger inclination to buy

consumables based on price as well as

select inexpensive items and only those that

are really needed. Private brands and

low-priced products have emerged out of

this trend.

On the other hand, items with simple

packaging and refillable products have

gained support out of concern for the

environment. Moreover, products that are

reputed to relieve the effects of hot or cold

Market Trends

Ekitai Bluelet Okudake is a toilet bowl cleaner that is

placed in the toilet tank lid sink

EkitaiBlueletOkudake

Kiribai Haru is abody warmer

applied to clothing

Kiribai Haru

Significant Changes in Consumer Values Seen Amid Push for Lower Priced Daily Sundries

temperatures during the summer and

winter have been gaining attention as

consumers become more conscious of

energy conservation.

In the fiscal year under review, the

Kobayashi Pharmaceutical Group

launched new products that create new

and expand existing markets. Among

these, we released Kutsu Cool, a spray

used to cool the inside of shoes, and

Shirt Cool Mild Mint, a long-lasting cool

spray for coating clothing that features

floral scents, as part of our efforts to

expand our lineup of heat relief remedies.

By category, net sales of deodorizing

air fresheners declined 3.3% year on

year to ¥29,700 million. This was

because we were forced to restrict the

daily shipment volume for some of our

deodorizing air fresheners for several

months due to damages incurred at

Sendai Kobayashi Pharmaceutical Co.,

Ltd. in the wake of the Great East Japan

Earthquake.

However, sales of sanitary products

were firm, rising 1.9% to ¥14,300 million,

Netsusama Sheet is a cooling gel sheet that contains cooling beads

Netsu-sama Sheet

Oheya no Shoshugen is a large-capacity deodorizing air freshener which is activated by lifting the filter paper

Oheya no Shoshugen

Review of the Fiscal Year Ended March 2012

Sales of Heat Relief Remedies and Body Warmers Strong Amid Growing Demand for Electricity Conservation Measures

76.0% 32.3% 50.4%

Deodorizing cleaner for toilets

Deodorizing air freshener

Cooling gel sheet

Market Share (Kobayashi Pharmaceutical Research)


given heightened demand for electricity

conservation measures in the summer

and winter. The summer months saw

strong sales of heat relief remedies like

the Netsusama brand (up 6.2%),

including Netsusama Sheet, a cooling

gel sheet, and Netsusama Hinyari Gel Mat, a cooling gel mat, while the winter

months also saw steady sales of body

warmers (up 4.4%). As such, sales from

both seasons made positive

contributions to overall sales and profits.

As a result, overall net sales of this

division declined slightly 0.5% to

¥64,100 million due to the impact of a

downturn in sales of deodorizing air

fresheners.

As consumers’ mindsets deteriorate and

they have a stronger inclination toward

low-priced products, we will focus on

new product development, the

underlying source of growth in the

Household Division, in order to unearth

new demand and identify the latent

needs of consumers. In April 2012, we

established the New Product Development

Group within the Household Division’s

Marketing Department to create new

development themes that transcend

existing categories. Going forward, we

will quickly respond to changes in the

market to meet the needs of our

customers in real time.

For existing brands, we will engage

in proactive sales activities based on

marketing plans formulated for each

brand. Among these, for deodorizing air

fresheners, which account for a large

share of the Household Division’s sales,

we will develop new products that

capture the needs of consumers and

align our long-standing brand names

with Shoshugen and Sawaday to

engage in more effective advertising

campaigns. This will help us raise the

visibility of our brands among

consumers. As part of this effort, in

spring 2012 we released Sawaday

Happy, a toilet air freshener with an

all-new fragrance, and Shoshugen

Aroma Pot, a deodorizing air freshener

with a genuine aromatherapy fragrance.

With demand for electricity

conservation measures set to continue,

we have released products that provide

new value, such as Head Cool, a

cooling spray for the head intended for

use in the summer, and in the process

enhanced our lineup of heat relief

remedies. We will also promote

thorough cost reduction activities in

order to accommodate demand for

low-priced daily sundries, given the

emergence of private brand products

and low-priced products.

Going forward, as a development-

based company, we plan to create new

products with greater value that achieve

our philosophy of “You make a wish and

we make it happen,” and pursue

thorough cost reduction activities as

part of our efforts to boost sales and

secure profits.

Kutsu Cool, a cooling spray for inside of shoes, and Head Cool, a cooling spray for the head, were released as part of our heat relief remedies. Kutsu Cool uses a cooling ingredient sprayed on the inside of shoes to provide a long-lasting cool sensation because the ingredient is water-soluble and activated whenever the feet perspire. Head Cool offers a direct spray nozzle that can be used as needed to cool the head, which is one of the most sensitive body parts to heat, during hot weather.

Kutsu Cool and Head Cool

Sawaday Happy is a room deodorizing air freshener that comes in four new fragrances: blackberry, baby powder, French vanilla and fresh laundry.

Sawaday Happy



Released inMarch 2012

New Products


Strengthening Development of Products that Create New Markets and Promoting Thorough Cost Reduction Activities

Business Overview

62 65 6578 81

100

60

80

40

20

0

2008 2009 2010 2011 2012


Overseas BusinessWe will define strategic brands and actively invest to reach ¥20,000 million in net sales for the fiscal year ending march 2015.

The Kobayashi Pharmaceutical Group’s

Overseas Business first began with

exports to Southeast Asia in the 1970s.

In addition to our business in China, the

United States, the United Kingdom,

Hong Kong and Singapore, since

October 2011, we have established

locally incorporated subsidiaries in

Malaysia, Taiwan, and Indonesia as part

of an effort to expand our presence

overseas. Today, exports also continues

to occupy an important part of our

operations as we currently sell

Kobayashi Pharmaceutical branded

products in more than 20 countries

around the world.

The business has six clearly

defined strategic brands; namely, body

warmers, cooling gel sheet Netsusama Sheet, glasses cleaning wet towelettes

Megane Cleaner FukiFuki, denture

cleanser Toughdent, toilet air freshener

Sawaday, and Ammeltz, an externalanti-

inflammatory. Each of these brands is

primarily promoted at our overseas

subsidiaries. Among these, body

warmers stand as our core product,

comprising more than 60% of net sales

in the Overseas Business.

As a result of focusing our efforts toward

expanding sales of body warmers and

Netsusama Sheet, net sales of our

Overseas Business grew 4.8% year over

year to ¥8,100 million. The segment

remained profitable, continuing on with

success seen in the previous fiscal year,

as operating income stood at ¥190

million after the amortization of goodwill.

In the United States, in which body

warmers account for nearly 90% of

sales, net sales decreased year on year

by 13.9% to ¥3,100 million, due in part

to the unusually warm winter weather.

Meanwhile, in January 2012, we

completed the acquisition of Grabber,

Inc., a U.S.-based body warmer

manufacturer that specializes in sales

to sporting equipment specialty

stores. Consequently, significant

growth in our body warmer sales is

also anticipated in the North America

market.

In Asian markets including China,

sales of Netsusama Sheet performed

solidly, with an increase of 26.9% year

over year to ¥2,900 million. In

particular, as a result of proactive

marketing activities, such as

advertising and sales promotions, body

warmer sales in China grew by 18.9%

year on year, reaching ¥1,000 million.

The Group aims to reach net sales of

¥20,000 million in the fiscal year

ending March 2015 by boosting sales

of its six strategic brands including

body warmers.

We will promote localization as a

means to expanding net sales. Each

country and region has their own

culture and lifestyle habits, and so

products in demand and the use of

these products is different for each

market. In order to precisely capture

local customer needs and implement

product development and sales

strategies that suit a particular country

or region, we will establish local

subsidiaries to more ahead with

business localization that cannot be

accomplished through exports alone.

While we have already invested in

television commercials in countries such as

China and Hong Kong, we will further

accelerate our marketing efforts through

advertisements and sales promotions in

order to boost product sales even further in

the United States and Asia, including the

Chinese market. In addition, we aim to

proactively seize investment opportunities,

including M&A and capital tie-ups with

local businesses.

We hope to expand our footprint

under the goal of increasing sales by

48.1% to ¥12,000 million in fiscal

2013 in order to reach the ¥20,000

million mark in the fiscal year ending

March 2015.

Business Overview

Strengthening Sales with Clearly Defined Strategic Brands


Proactively Undertaking M&A and Marketing Activities Aimed at Growing Sales


Promoting Localization and Accelerating Investment Aimed at Reaching Net Sales of ¥20,000 million in 2015

(¥100 million)

Overseas Business Net Sales


62

7688

98 103120

100

80

60

40

20

0

2008 2009 2010 2011 2012

Mail Order Business (¥100 million)

Leveraging our proprietary expertise and “quality made possible only by a pharmaceutical company” to ensure our dominance in the mail order market, which is faced with more intense competition.


The mail order market has grown beyond

the size of the department store and

convenience store markets. Because of its

robust growth, however, competition has

grown more intense due to the nonstop

influx of newcomers to the market. In

addition, as a result of the widespread

penetration of smartphones and tablet

computers, mail order sales via mobile

phone sites and the Internet are also on

the rise.

Kobayashi Pharmaceutical has been

committed to developing its proprietary

expertise and expanding its business

presence since it began selling nutritional

supplements through the mail order sales

channel in 1999. With an emphasis on

“quality made possible only by a

pharmaceutical company,” today we sell

around 150 products in the Mail Order

Business, including nutritional

supplements, skincare products, and

hair-restorer products.

In the fiscal year under review, new

products such as cosmetics Hifmid (moisture foundation) were brought to

market, while sales of existing products

also rose, resulting in a 5.1% year on year

increase in net sales to ¥10,381 million.

We continued to maintain positive

operating income. However, due to our

continuous efforts in sales promotions

targeting both new and existing customers

Market Trends

Competition Heating Up in the Growing Mail Order Market


Expanding Sales Through Proactive Advertisements and Sales Promotion Activities


New Product Development and Proactive Advertising Aimed at Reaching the ¥20,000 Million Mark in Sales in 2015

Mail Order Business Net Sales

Items have been added to the Hifmid series, including a moisture foundation containing type II natural ceramide, which gives a natural, smooth finish, while moisturizing the skin, and face powder that prevents foundation wear off.

Hifmid (Moisture Foundation)Hifmid (Face powder)

Released in February 2012

New Productsthrough proactive advertisements and

dissemination of direct mail, operating

income decreased by 57.4% from the

previous fiscal year to ¥132 million.

The Kobayashi Pharmaceutical Group’s

primary customer base for mail order sales

is people aged 50 and older. Since this

consumer segment tends to be more

health-conscious, we will focus new

product development initiatives on

nutritional supplements and skincare

products. In addition, we will also release

Category 3 OTC pharmaceuticals, which

has emerged as a new category.

We aim to expand our customer base

and increase sales through television

commercial and advertising in new media

such as the internet, in addition to

conventional advertisements in

newspapers. Moreover, in response to

customer requests for making online

purchases available through mobile

phones in addition to computers, we

launched a mobile website in May 2012.

Going forward, we also plan to launch a

smartphone compatible website.

Emphasizing our “quality made

possible only by a pharmaceutical

company” and utilizing our Customer

Service Center, we aim to build a

relationship of trust with our customers to

further expand our Mail Order Business.

Our ultimate goal is to achieve net sales of

¥20,000 million in the fiscal year ending

March 2015.

Resveratrol is a nutritional supplement containing resveratrol, a world renowned substance derived from grape stems, in combination with Peucedanum japonicum and astaxanthin. This product is recommended for consumers that wish to maintain their health and achieve longevity.

Resveratrol


107 113121 121

104

150

120

90

60

30

0

2008 2009 2010 2011 2012

(¥100 million)

The Medical Devices Business is operated by Kobayashi Medical Co., Ltd.1, an equity-method affiliate that imports and sells medical devices sourced overseas in Japan and Medicon Inc.2, an equity-method affiliate that imports and sells medical devices sourced from US firm C. R. Bard, Inc. in Japan.1 80% of the shares in Kobayashi Medical Co., Ltd., were

transferred to Mitsubishi Corporation on May 31, 2012. 2 A joint venture with US firm C. R. Bard, Inc.

NoticeAs of May 31, 2012, 80% of the shares

of our consolidated subsidiary,

Kobayashi Medical Co., Ltd., have been

transferred to Mitsubishi Corporation.

As a result, this consolidated subsidiary

is now an affiliate accounted for by the

equity method.

Bard I.C. Silver Foley Tray

Bard X-Port isp(Groshong Catheter Type)

Bard Vascular Stent(E-LUMINEXX)

Bard Mesh(Light PerFix Plug)

Business Overview


As populations age around the world the

medical devices market continues to grow

in both developed and emerging nations.

In Japan, the national government has

established a new growth strategy called

the “Healthy Nation Strategy Through

Life-Innovation” and set up the Medical

Innovation Promotion Office within the

Cabinet Secretariat in January 2011 as

part of its focus on promoting medical

innovations through the commercialization

of cutting edge technologies in the fields

of medical devices, pharmaceuticals and

regenerative medicine.

As demand rises for the quick

detection of illnesses and reduced burden

on patients during diagnosis, the number

of mechatronics and electronics

manufacturing companies moving into the

market has increased, indicating that the

medical device industry is quickly

expanding its reach.

Kobayashi Medical Co., Ltd. focused on

improving product quality based on the

corporate philosophy of “delivering safe

and secure medical devices to patients.”

At the same time, the Company moved

forward with a selection-and-concentration

approach to focus on orthopedic and

operating room-related products, which

are expected to see greater demand in the

Japan market.

In addition, as of July 31, 2011, the

Kobayashi Pharmaceutical Group sold

Market Trends


Increased Profits Through a Selection-and-Concentration Approach Focused on Key Domains

100% of its shares in eVent Medical, Inc.

of the United States in a management

buyout deal. As a result, eVent Medical

Inc. is no longer a consolidated subsidiary

of the Kobayashi Pharmaceutical Group.

As a result, net sales decreased

14.0% year on year to ¥10,476 million, but

operating income increased 16.0% to

¥292 million.

Medical Devices Business Net Sales

(Manufactured by

Acumed LLC)

Acu-Loc

(Manufactured by

Kobayashi Medical

Co., Ltd.)

Kobamed Acrofix

(Manufactured by

Conmed Corporation)

System 5000™

(Manufactured by

Parker Medical, Inc.)

Parker Flex-Tip™ Tracheal Tube

Major Products Distributed by Kobayashi Medical Co., Ltd.

Major Products Distributed by Medicon, Inc.



Building Stakeholder Confidence Aimed at Maximizing Corporate Value

The maximization of corporate value is a fundamental management policy of the Kobayashi Pharmaceutical Group. In executing this policy, it is of major importance to earn the trust of our stakeholders, including shareholders and investors.Therefore, we are committed to enhancing our corporate governance through developing a system that ensures transparent management practices and undertaking the appropriate disclosure of information.

Indep

endent A

udito

rs

Law

yers

and

Oth

er

Outs

ide S

pecia

listsAudit

Audit

Audit

Audit

Advice

Advice

Operating Divisions, etc.

Board of Corporate Auditors

Independent Auditors Group Officers MeetingExecutive Officers

Advisory Board(External experts and Outside Directors)

Internal Control CommitteeParticipation from External Lawyers

Compensation Advisory Committee(External experts and Outside Directors)

Advice

Shareholders’ Meeting

Board of Directors


Monitoring Management From Multiple Viewpoints

Ensuring Management Transparency

The Kobayashi Pharmaceutical Group has adopted an executive officer

system to separate management from business operations, and implements

a wide range of measures in order to ensure transparency in management.

Group Officers MeetingThe Group Officers Meeting (GOM) consists of executive officers and

statutory auditors that meet twice monthly to review significant matters

relating to business operations. Advice is occasionally sought from

professionals such as corporate lawyers regarding matters relating to

material management challenges in order to enable appropriate and quick

decision making.

Board of DirectorsWe have selected outside directors since 2008 with the purpose of

strengthening the board of directors’ supervisory function. The board of

directors consists of six directors, including one outside director, and

constantly monitors the status of business operations by meeting monthly or

when necessary to determine important matters concerning the

management of the company and to check deliberations made at the GOM.

Board of directors meetings are also attended by all four corporate auditors,

including two outside auditors to ensure that Kobayashi Pharmaceutical

Group’s internal system of checks and balances is operating sufficiently.

Board of Corporate AuditorsKobayashi Pharmaceutical has a board of corporate auditors, and has

appointed two outside auditors that do not maintain a capital or business

relationship with the Group as part of its four-member board of corporate

auditors to ensure management transparency. Statutory auditors attend

Corporate Governance Organization

principal meetings, have access to required records, and conduct interviews

of operating divisions in order to monitor management to identify business

risk as early as possible.

Advisory BoardAs a supporting arm to the board of directors and GOM, the Advisory

Board, consisting of external experts, outside directors, the Chairman, the

President and relevant directors, meets half-yearly. The Advisory Board

provides guidance on significant business issues and management policy,

which is in turn reflected in the daily management of the Group.

Compensation Advisory CommitteeThe Compensation Advisory Committee was established in order to ensure

the transparency of processes for determining director compensation. The

Committee consists of external experts, outside directors, the Chairman,

President and relevant directors.

Internal Control CommitteeThe Internal Control Committee consists of principal directors, which

deliberate primarily on basic issues relating to compliance and the

development of internal control systems. The committee also engages in the

monitoring of the internal control system and the formulation of basic policy

relating to internal controls.

“LA & LA” – Utilizing Employee FeedbackWe actively provide opportunities referred to internally as “LA & LA” (Looking

Around & Listening Around) for employees to convey their views and

opinions directly to management to fulfill our commitment to developing an

organizational climate in which all employees can openly share their opinion.

Kobayashi Pharmaceutical believes this culture is a significant part of

corporate governance.

Pursuing Timely and Easy-to-Understand Disclosure

Information Disclosure

Kobayashi Pharmaceutical strives to provide timely disclosure of corporate

data and information in order for shareholders and investors to form an

accurate assessment of the company. Our corporate website is also

extensively used to disseminate the latest information, provide commentary

on business strategy and product lineups, and the timely disclosure of

important information related to financial filings.

Furthermore, the Aoitori Report, which is distributed to retail investors

twice a year, summarizes our business operations and various business

activities, indicating our commitment to disclose effective and useful information.


The Kobayashi Pharmaceutical Group

established the Employee Consulting Center in

January 2003 both internally and externally in a

law office as a special hotline for employees to

anonymously report compliance violations or

ask general questions on compliance issues.

Open to consultation via telephone and emails,

this service contributes to gaining an early

insight on matters and issues and resolving

problematic situations. We are currently working

to raise the visibility of this consulting center by

setting up a toll free number for employees and

other means such as posters. The hot line is

operated in full compliance with the

Whistle-blower Protection Act.

Poster for the Employee Consulting Center

The Kobayashi Pharmaceutical Group is actively building internal frameworks to adhere to relevant laws and regulations, such as ensuring that appropriate financial statements are prepared and that operations comply with stipulations of the Companies Act and Financial Instrument and Exchange Act of Japan. In addition, we conduct a variety of educational training programs to ensure that all executive officers and employees comply with laws and regulations as well as follow a strict code of corporate conduct and ethics.

Internal Control Systems and Compliance


Pursuing Best Practices in Operations and Financial Statements and Developing a System to Reduce Risk

Internal Control System

The Employee Consulting Center

In April 2003, Kobayashi Pharmaceutical established its Compliance

Committee as an organization under the direct control of the board of

directors that ensures group-wide compliance with laws and regulations.

Following this, in September 2003, we created and enacted our Basic Policy

on Corporate Behavior and the Executive Officer and Employee Code of

Conduct to improve corporate ethics and compliance awareness.

Starting in 2006, we launched the Basic Policy for Internal Control

System in order to ensure appropriate work processes required by the

Companies Act and other laws and regulations. Based on this basic policy,

we have established the necessary framework for internal controls, including

a review process for internal rules and regulations and the re-evaluation of

business and operational risk. In 2007, the Compliance Committee was

renamed the Internal Control Committee, and its scope of responsibility was

expanded to include the review of the effectiveness of internal controls,

including its role in ensuring that financial statements comply with the

Financial Instrument and Exchange Act of Japan.

The Internal Control Committee is run under the leadership of the

President, who acts as Chairperson, and consists of the four lower

organizations of the Committee on the Protection of Personal Information,

the Group Health and Safety Committee, the Pharmaceutical Subcommittee

and the Labor Subcommittee. In addition, the committee is supported by

external legal advisors who, by providing objective advice and

recommendations, contribute to enhancing the transparency and reducing

risk in the Company’s operations.

In the fiscal year ended March 31, 2012, challenges and measures

related to operational risk management were discussed in response to the

issues raised by the lower organizations.

Business management requires the identification and mitigation of, as well as countermeasures against potential risks. As such, the Kobayashi Pharmaceutical Group has categorized principal business risks into 13 categories and established an action plan to address these risks, with the execution of this action plan, in turn, being audited.

Risk Management Framework

Defining and Implementing Action Plans in 13 categories

Researching and Managing Business Risk

In autumn 2007, the General Affairs Department took the lead in investigating

the current and potential risks that each department faces. The results of

this study were used to sort Group business risk management into 13

categories, with an action plan established to address each set of risks in

April 2008. Following this structure, the challenges and action plans in each

of the 13 categories are periodically reviewed to implement measures to

address management risks. We enacted the Business Risk Management

Rules, which stipulate methods for consolidating and handling risk

information. In addition, information on risk is also shared with independent

auditors, while external lawyers and other outside specialists provide advice

on risk management practices and systems, enabling us to respond properly

to a variety of business risks.

We will further strengthen the process for checking the progress of each

category of risks by working collaboratively with the Internal Audit Office.

Raising Awareness Toward Compliance Through Monthly e-Learning Sessions

Compliance

Kobayashi Pharmaceutical holds various compliance education programs for

both employees and executive officers tailored to their job title.

During the fiscal year ended March 31, 2012, training programs led by

a lawyer were held for executive officers covering Japan’s Antimonopoly Act

and other topics, while management level employees participated in training

programs on general compliance matters, labor affairs, contract

management and insider trading. New employees took part in the usual

group training program to enhance their awareness of compliance.

In addition, we have held compliance tests over the intranet for all

* Basic Policy on Internal Control Systemshttp://www.kobayashi.co.jp/corporate/governance/policy/index.html

employees on average four times per year since the fiscal year ended March

31, 2010. For the fiscal year ended March 31, 2012, we implemented

monthly compliance testing called Compliance e-Learning Sessions for all

employees, including the President, starting in July 2011, in order to further

enhance all employees’ awareness of compliance. These tests are comprised

of a wide range of questions, covering subjects from fundamental compliance

matters to harassment and personal information. In October 2011 and all

subsequent months 100% of all employees took these tests. In the fiscal

year ending March 31, 2013, we will continue to hold monthly Compliance

e-Learning Sessions as part of our initiative to strengthen compliance.


Directors, Corporate Auditors and Executive Officers

Masahiro HiraokaStatutory Auditor

Hiroshi GotoStatutory Auditor

Kazumasa KobayashiChairman and Chief Executive Officer

Yutaka KobayashiPresident and Chief Operating Officer

Akihiro KobayashiSenior Executive DirectorSenior General ManagerProduct Business Headquarters

Satoshi YamaneExecutive DirectorSenior General ManagerGroup Corporate Business Headquarters

Haruo TsujiOutside DirectorCorporate Advisor, Sharp Corporation

Hiroshi HayashiOutside AuditorHayashi Certified Tax Accountant Office

Ryuji SakaiOutside AuditorPartner, Nagashima, Ohno & Tsunematsu

Takashi TsujinoSenior Executive DirectorGeneral ManagerHealth Care DivisionProduct Business Headquarters

Susumu HoriuchiSenior Executive OfficerGeneral ManagerSales DivisionProduct Business Headquarters

Hidetsugu YamamotoExecutive OfficerGeneral ManagerBusiness System CenterGroup Corporate Business Headquarters

Toshio NanbaExecutive OfficerGeneral ManagerResearch and Development Division

Kazuyuki KatsukiExecutive Officer General ManagerQuality Assurance Division

Hiroshi NomotoSenior Executive OfficerGeneral ManagerHousehold DivisionProduct Business Headquarters

Kunio MoriyaExecutive Officer Deputy General ManagerSales DivisionProduct Business Headquarters

Tetsushi NishiokaExecutive OfficerGeneral ManagerManufacturing DivisionProduct Business Headquarters

Kenichiro TanakaExecutive OfficerGeneral Manager of the Regional AreaSales Division Product Business Headquarters

1 The Company uses the executive officer system. Four directors—Yutaka Kobayashi, Akihiro Kobayashi, Takashi Tsujino, and Satoshi Yamane—each concurrently serve as executive officers.

Directors

Corporate Auditors

Executive Officers

Kazuhito MiyanishiExecutive OfficerGeneral ManagerInternational Division

As of June 28, 2012


With the hope of helping the disaster-affected areas in their

recovery from the Great East Japan Earthquake, we held the 1 yen no Omoi Campaign from June 1, 2011 to March 31, 2012,

in which one yen was contributed to the Kobayashi

Pharmaceutical Group Aoitori Fund for every one of our

products purchased (including mail order sales).

Thanks to our customers’ kind support, the campaign

collected a total of ¥290,564,930. This amount was then

topped off with a contribution from the Group for a total of

¥300 million, which was donated to ten towns and cities most

affected by the disaster, including Ishinomaki City,

Rikuzentakata City, Otsuchi Town, Kesennuma City, Kamaishi

City, Higashimatsushima City, Minamisanriku Town, Onagawa

Town, Yamada Town, and Yamamoto Town, depending on the

severity of damages.

“1 yen no Omoi Campaign”

Usage for the donations was discussed and determined

together with the local authorities based on two principles: the

money shall put liveliness back into the children and smiles on

their faces, and the money shall be used on something that

best addresses the needs of each location.

Through this support activity, we hope to contribute to

brightening the day for everyone in the disaster-affected areas.

CSR Initiatives

Campaign

Social Contribution Activities Supporting the Great East Japan Earthquake Recovery Effort

The Kobayashi Pharmaceutical

Group Aoitori Fund was

established with the aim of

contributing to the development of

a more enriched society.

Donations from this campaign

were made through the fund.


We are focused on quality improvement, reduction of our environmental impact, and social contribution activities.

School food truck purchased using the donations

Otsuchi Town ¥29,408,000 donated Used for: Reconstruction of nurseries and elementary schools

Rikuzentakata City ¥36,790,000 donated Used for: Purchase of five school food trucks and

supplies

Yamada Town ¥14,849,000 donated Used for: Purchase of supplies for the reconstruction

of Funakoshi Elementary School

Kamaishi City ¥22,265,000 donated Used for: Renovation of Heita Kindergarten

Kesennuma City ¥25,487,000 donated Used for: Relocation and reconstruction of

Hajikami Nursery

Minamisanriku Town ¥20,168,000 donated Used for: Reconstruction of nurseries and

elementary schools

Ishinomaki City ¥98,795,000 donatedUsed for: Purchase of play equipment for 23 nurseries

and kindergartens in the city

Yamamoto Town ¥12,532,000 donatedUsed for: Purchase of musical instruments for

two junior high schools in the town

Onagawa Town ¥17,628,000 donated Used for: Reconstruction of nurseries and

elementary schools

Higashimatsushima City ¥22,078,000 donated Used for: Construction of temporary swimming pool

10 Towns and Cities Receiving Donations

Presentation of list of donations to Mayor of Ishinomaki City (at left)

A total of 130 Group employees conducted volunteer activities with the hope of helping to bring some of the joy back into the lives of those affected by the earthquake disaster.

The Kobayashi Pharmaceutical Group aims to maximize its corporate value from a long term perspective. To achieve

this, the Group believes the key lies in earning the trust of all stakeholders. In addition to ensuring the quality of our

products, we are also promoting the reduction of our environmental impact and social contribution activities.

Nursery Support Project

Employee Volunteer Activities

Support at Evacuation Centers and Temporary Housing

One of the problems facing evacuation centers was the

deteriorating conditions of public restrooms.

Kobayashi Pharmaceutical, which sells toilet deodorizing

air fresheners, together with the NPO Japan Toilet Labo

helped clean restrooms in all 21 evacuation centers in

Higashimatsushima City in July 2011. To provide an improved

level of comfort, the teams cleaned not only the toilets and

floors, but also windows, walls, and ventilation fans.

In addition, in November 2011, we delivered daily

necessity sets containing products from the Kobayashi

Pharmaceutical Group and blankets to approximately 1,000

temporary housing units in five locations in Ishinomaki City.

In July 2011, we donated a temporary swimming pool to the

Yamotohigashi Nursery Center in Higashimatsushima City as

well as hosted the Minna de Asobo! Netsusama Community Fair event. Around 1,100 visitors including children and their

guardians participated in the event, and enjoyed games such

as yo-yo fishing and ring toss.

In December 2011, we hosted Minna de Issho ni Netsusama Christmas Party at 14 nurseries and kindergartens

in Ishinomaki City. During the event, our employees dressed

up as Santa Claus to give out presents, and conducted

activities such as make-your-own original air freshener and a

kairo fishing game.


Donation of temporary swimming pool (Yamotohigashi Nursery Center in Higashimatsushima City)

Delivering daily necessity sets (5 locations, Ishinomaki City)

Contents of daily necessity sets

Restroom cleaning(21 locations, Higashimatsushima City)

Minna de Asobo! Netsusama Community Fair(Higashimatsushima City)

Minna de Issho ni Netsusama Christmas Party (14 locations, Ishinomaki City)

After releasing a product, customer inquiries and suggestions are received

and compiled at our customer service center. As customer inquiries and

suggestions have grown more complex and advanced in recent years, we

have developed a system in which our customer service representatives call

our customers back in order to spend more time discussing their feedback

and concerns. Our response to customer feedback overlaps with the

emotions of each individual customer. This is because true understanding is

made possible only after recognizing each individual situation and emotion

rather than simply understanding the usage scenario, which in turn greatly

improves our services and product quality.

Customer inquiries and suggestions are also forwarded to our

development and manufacturing divisions, where they are reflected in product

improvements and new product development. During trial production of an

improved product, we carefully verify if customer expectations are met.

Furthermore, after the improved product is released, we continually analyze

customer feedback to ascertain whether the improvement was adequate or

whether additional modifications are necessary.

Kobayashi Pharmaceutical Group’s Quality Assurance Policy

Everyone at Kobayashi Pharmaceutical Group is committed to improving product and service quality under the mantra “quality is the life of a company”

in providing people and society with comfort.

Further Quality Improvements from a Customer-centric Standpoint

Acknowledging Customer Concerns in Quality Improvement of Products and Services

Many decisions are made throughout the life cycle of product manufacturing,

including development, production, and launch. If any one of these decisions

is not made appropriately, than the adequacy of the final decision and

product quality cannot be guaranteed. In order to launch a product, our

employees need to rally together to pass on the right message about quality.

In other words, every employee has to recognize that they are responsible

for the final quality of a product. In order to promote a widespread

understanding of this principle and properly implement the Quality

Assurance Policy, we also established Quality Assurance Management Rules

and Quality Assurance Implementation Rules to clearly define the

responsibilities and authority of each office and position.

Together with each

and every employee, who is

fully aware that “Quality is

the life of a company” and

committed to the steadfast

pursuit of quality, the

Kobayashi Pharmaceutical

Group will continue with its

dedication to improve quality

from a customer-centric

standpoint.

3. Provision of safe and secure products and information

We will carefully monitor changes in society in order to provide

products that are safe to use by our customers and information that

is easy to understand to ensure our customers’ peace of mind.

4. Corporate activities that fulfill customer trust

We will comply with relevant laws and regulations, implement business

activities in a fair and transparent manner, and fulfill our accountability

to society in order to ensure the trust of our customers.

1. Quality from a customer-centric standpoint

We value our ties to the customer, and are committed to listening to

the voice of customers and pursuing quality from a

customer-centric standpoint.

2. Pursuit of truly tangible quality

We pursue “You Make a Wish and We Make it Happen” in

developing quality products with a focus on customer satisfaction

and continuous loyalty in our products.

OTC Pharmaceuticals

32%

Food and Oral Hygiene Products

25%

(Inquiries)

80,000

70,000

60,000

50,000

2008 2009 2010 2011 2012

Discontinued Products and Others

7%

Deodorizing Air Fresheners

7%

Sanitary Products and Skin Care products

15%

Household Sundries and Cleaning Products

11%

Quality AssuranceImplementation Rules

Quality AssuranceManagement Rules

Quality AssurancePolicy

ManagementPhilosophy

Group Brand Charter

CSR Initiatives

Quality Assurance Policy Established to Ensure Safe and Secure Quality

Improving Quality

The Kobayashi Pharmaceutical Group believes the most important aspect of

product development is ensuring safe and secure quality. We established the

Quality Assurance Department in June 2010 as an organization directly

headed by the President in order to strengthen our quality assurance

framework. Under this framework, each and every employee is fully aware

that “Quality is the life of a company” and strives to maintain and improve

product quality in every way possible.

Our stakeholders are becoming increasingly more conscious of product

quality. In November 2011, the Group established a Quality Assurance Policy

as a guideline on quality that all employees must adhere to in their provision

of products and services. In order to become a company that customers

trust, we are promoting a company culture that has zero tolerance for leniency

in terms of quality. All employees follow this policy in their daily operations.

Hierarchy of Rules Concerning Quality Assurance

Annual Number of Inquiries Received at the Customer Service Center

Ratio of Inquiries by Category (The fiscal year ended March 31, 2012)


Reducing CO2 Emissions by Improving the Outer

Packing for Replacement for Ekitai Bluelet Okudake

The outer packing once used to ship Replacement for Ekitai Bluelet Okudake from our factories contained six products per box and had

excess space between each product. We decided to stack products inside

the box, which doubled the capacity to 12 products. This also helped reduce

the use of cardboard and cut our CO2 emissions by 36%. At the same time,

we were also able to improve the efficiency of our shipments. However,

simply stacking products atop one another resulted in instability. We made a

slit in the cardboard to be used as a stopper, which made it possible for the

entire outer packing to be used when displaying the product on store shelves.

This outer packing was named the Replacement for Ekitai Bluelet Okudake Stack and Separate Pack and received the Director of General,

Manufacturing Industries Bureau, Ministry of Economy, Trade and Industry

Award as part of the Japan Star Award in the Japan Packaging Contest

2011 organized by the Japan Packaging Institute. This packaging also

won a WorldStar Award at the WorldStar Competition hosted by the

World Packaging Organization to evaluate packaging technologies from

around the world. Thus, our eco-friendly packaging technologies have

received recognition not only in Japan, but internationally as well.

One of the immediate environmental problems facing our customers is the

issue of garbage disposal. In recent years, public awareness about the

problems of bulky containers and packaging has also been growing, partly

because more local authorities have begun to charge a fee for garbage

disposal. In particular, so-called blister packages, or plastic cups, have been

criticized for generating extra waste as well as being uncompressible and

bulky, despite their superior quality as a protective layer and design.

The Kobayashi Pharmaceutical Group recently improved the

packaging for Shirt Cool, a product that used the largest blister pack among

all of our products, in order to address customer demand for cutting down

on waste while still taking advantage of the current design. The new design

changes from a plastic blister pack to a cylindrical plastic film mounted to a

cardboard backing. Consequently, the amount of plastic resin used was

reduced by 90%, while the volume of waste generated when disposing of

the packaging was reduced by 95%.

(t-CO2)

(t) (%)

2008 2009 2010 2011 2012

2008 2009 2010 2011 2012

15,000

12,000

9,000

6,000

3,000

0

100

80

60

40

20

0

5,000

4,000

3,000

2,000

1,000

0

Recycling RateRecycling Volume

13,127 13,888 13,689 14,061 13,903

2,059

3,023 4,2004,2004,2003,660 3,756

Improving the Packaging for Shirt Cool while

Reducing Waste

Improved Packaging for Shirt Cool Series

99.8 99.8 99.885.5

99.8

Developing Packaging that Helps Reduce Our Environmental Impact

Initiatives to Reduce Environmental Impact

As our stakeholders are becoming more conscious of the environment, we

need to exercise a number of considerations during the development stage

of our products.

In particular, we direct our efforts on reducing the environmental

impact caused by containers and packaging, which play an integral role in

conveying product information at the time of use as well as protecting the

product during shipment. The Kobayashi Pharmaceutical Group is actively

promoting the 3Rs (reduce, reuse, recycle) through the development of

containers and packaging that meet our requirements using the minimum

amount of materials possible and recycled materials.

Focus on Cutting CO2 and Waste Emissions

For the fiscal year ended March 31, 2012, CO2 emissions from all manufacturing

divisions totaled 13,903 tons, or 98.9% compared to the previous fiscal year.

This represents a 158-ton year-on-year decrease, due to lowered production

volume at some factories following the Great East Japan Earthquake.

In addition, recycling volume totaled 4,200 tons, reaching a recycling

rate of 99.8%, marking the third consecutive year in which we achieved our

goal of zero waste emissions.

In the future, we will switch from thermal recycling, which recovers and

reuses the energy generated during waste incineration, to material recycling,

which involves collection of waste materials generated from used products

or production processes to be reused as raw material or ingredients for new

products.

Case Example

Replacement for Ekitai Bluelet Okudake Stack and Separate Pack

CO2 Emissions (Manufacturing Division)

Recycling Volume and Rate


The Kobayashi Pharmaceutical Group follows a management policy that

defines the company’s mission as “providing people and society with comfort”

through continuous “Creativity and Innovation.” Based on this policy,

the Group discovers, creates and provides products that our customers

didn’t even realize could improve their health, comfort and happiness.

This endeavor is summed up in our brand slogan, “You Make a Wish and

We Make it Happen,” which is the core focus of our business activities.

We find ourselves in a period in which the speed of change has

accelerated and competition has grown more intense. As such, the

Scope of Consolidation and Application of the Equity Method

In the fiscal year ended March 31, 2012, the Kobayashi

Pharmaceutical Group had 27 consolidated subsidiaries (12 in Japan

and 15 overseas), and one affiliate in Japan accounted for by the

equity method.

Net SalesThe Consumer Products Business saw solid performance from new

product releases, health care products, and cold and heat relief

remedies thanks to greater demand for energy conservation, while

the Mail Order Business also grew significantly.

As a result, net sales for this fiscal year rose 0.3% year-on-year

to ¥131,167 million.


Operating Income Operating Income to Net Sales

15

12

9

6

3

0

18,57615,818 17,041

18,621 19,298

25,000

20,000

5,000

10,000

15,000

0

2008 2009 2010 2011 2012

8.1

12.6 13.214.2 14.7

SG&A Expenses SG&A Expenses to Net Sales

(%)

50

40

30

20

10

0

62,61152,861 54,847 56,019 57,233

(Millions of yen)

100,000

80,000

20,000

40,000

60,000

0

2008 2009 2010 2011 2012

27.4

42.1 42.5 42.8 43.6

Gross Profit Gross Profit to Net Sales

(%)

100

80

60

40

20

0

81,18768,679 71,888 74,640 76,531

(Millions of yen)

(Yen)(Millions of yen)

(%)(Millions of yen)

100,000

80,000

20,000

40,000

60,000

0

2008 2009 2010 2011 2012

35.5

54.6 55.6 57.1 58.3

Net Income Net Income per Share

500

400

300

200

100

0

8,504 8,853 9,250 9,336

11,726

15,000

12,000

3,000

6,000

9,000

0

2008 2009 2010 2011 2012

205.62 215.89 225.88 227.98286.36

source of the Group’s growth is to constantly pursue “Something

New, Something Different,” and continue to develop new products

and services that fulfill the needs of our customers. At the same

time, we are also constantly revamping and developing our existing

brands to meet the needs of our customers now.

We stand committed to enhancing corporate value and achieving

greater satisfaction from all of our stakeholders by capturing a solid

sense of trust in all of our products and services where the Kobayashi

Pharmaceutical brand stands as a testament to satisfaction.

By reportable segment, the Group has 19 consolidated

subsidiaries in Consumer Products, 2 consolidated subsidiaries and

1 equity-method affiliate in Medical Devices, and 6 consolidated

subsidiaries in Other Business.

Overview of Consolidated Business Results

During the fiscal year ended March 31, 2012, the global economy saw

stagnation due to financial concerns in Europe and major flooding that

occurred in Thailand, while Japan’s economy witnessed a downturn in

corporate activities and changes in consumer mindsets following the

Great East Japan Earthquake that struck on March 11, 2011 as well as

the sharp appreciation of the yen. Japan also faced power supply

shortages following the accident at the Fukushima Daiichi Nuclear

Power Plant, which led to further uncertainty toward the future.

Amidst these conditions, the Kobayashi Pharmaceutical Group

focused even greater effort on “providing people and society with

comfort,” which stands as a pillar of its management philosophy. These

efforts included fully committing ourselves to restoring operations at

manufacturing base Sendai Kobayashi Pharmaceutical Co., Ltd.,

which was damaged in the quake, and shifting production of products

made at Sendai Kobayashi Pharmaceutical to other alternative sites to

ensure a stable supply was provided to the market.

In addition, we also strived to revitalize the market by identifying

our customers’ latent needs through continued efforts to deliver

services and products that create new markets.

Enhancing Corporate Value by Delivering Trust and Satisfaction to All Stakeholders

Gross Profit / Gross Profit to Net Sales

SG&A Expenses / SG&A Expenses to Net Sales

Operating Income / Operating Income to Net Sales

Net Income / Net Income per Share


Income before Income Taxes and Minority Interests and Net IncomeWe recorded ¥5,143 million in losses on the devaluation of

investments in securities in the previous fiscal year. In the fiscal

year ended March 31, 2012, equity in earnings of affiliates rose

6.5% year on year to ¥408 million due to an increase in profits

from Medion, Inc., an affiliate accounted for by the equity method.

Moreover, a ¥641 million loss was posted on the sale of shares of

an affiliate.

As a result, net income before income taxes and minority

interests rose 50.4% over the previous year to ¥19,822 million. Net

income increased 25.6% to ¥11,726 million.

Net income per share grew 25.6% from ¥227.98 in the previous

fiscal year to 286.36.

Gross Profit and Operating IncomeCost of sales decreased 2.8% year on year to ¥54,636 million in

fiscal 2012, but gross profit (after provisions for returned products)

increased 2.5% year on year to ¥76,531 million. Selling, general

and administrative expenses rose 2.2% over the previous fiscal year

to ¥57,233 million due to an increase in advertising and sales

promotions. As a result, operating income increased 3.6%

year-over-year to ¥19,298 million.

The gross profit to net sales ratio improved 1.2 percentage

points from the previous fiscal year’s 57.1% to 58.3%, and the

selling, general and administrative expenses to net sales ratio

improved by 0.8 percentage points, from 42.8% to 43.6%, while

the operating income to net sales ratio improved 0.5 percentage

points from 14.2% to 14.7%.

(Millions of yen)

84,70726,213

110,920

112,59426

112,620

109,203

3,221

112,424

131,602359

131,962

—

—

—

—

—

—

10,728 11,325 10,476

1,7886,3068,094

1,7735,5077,281

1,107

5,147

6,254

200818,005

—

(131)(418)431

200915,910

—

—

(554)473

2012

18,317

132

—

292

554

Net Sales

Operating Income (Loss)

(Millions of yen)

2008 2009 2010 2012

115,47837

115,515

—

—

—

— — 10,381

107,6573,136

110,793

—

—

—

12,184

1,1115,1506,261

201118,966

311—

251171

2011

9,872—

12,111

1,5955,4857,080

201016,507

—

—

143400

Summary of Reportable Segments

The Kobayashi Pharmaceutical Group classifies its business activities

into four segments: Consumer Products, Mail Order, Medical Devices

and Other Business.

Net sales by segment include inter-group sales and transfers,

which amounted to ¥8,286 million in fiscal 2011 and ¥8,368 million in

fiscal 2012.

Net Sales and Operating Income (Loss) by Segment


Sales to third parties

Inter-group sales and transfers

Total

Mail Order Business


Wholesale Business



Total



Other Business



Total


Mail Order Business

Wholesale Business


Other Business


(%)

First year

First Four years

2008

9.0

29.4

2009

7.4

29.5

2010

8.3

26.7

2012

5.1

15.3

2011

5.3

18.0

First Year First Four Years

(%)

30

10

5

15

20

25

0

2008 2009 2010 2011 2012

15.318.0

26.729.529.4

5.15.38.37.4

9.0

8980

6249 50

95 94 96 98

48

(Number)

100

20

60

40

80

0

2008 2009 2010 2011 2012


Profitable brands

Unprofitable brands

2008

89

80

2009

95

62

2010

94

49

2012

98

48

2011

96

50

Profitable Brands Unprofitable Brands

OTC pharmaceuticals

Oral hygiene products

Sanitary products

Deodorizing air fresheners

Household sundries

Food products

Body warmers

Total

2011 2012

22,929

16,234

14,309

29,720

4,585

9,101

15,543

112,424

20.4

14.5

12.7

26.4

4.1

8.1

13.8

100.0

21,941

15,510

14,042

30,733

4,791

8,881

14,890

110,793

19.8

14.0

12.7

27.8

4.3

8.0

13.4

100

Changes

4.5

4.7

1.9

(3.3)

(4.3)

2.5

4.4

1.5

987

723

267

(1,012)

(206)

219

653

1,631



In the fiscal year under review, we launched a total of 17 new products

in this segment in order to create new markets and expand existing

markets. Several of these recorded solid sales and made a particular

positive contribution to our earnings, including Attonon, an external

medicine for scars, and Tomarina, a medicated toothpaste for

consumers bothered by gingival recession.

Existing products such as OTC pharmaceuticals Eyebon (an eye

wash) and Inochi No Haha A (a medicine for women’s health) as well

as oral care product Shouyou (a medicated toothpaste that prevents

gingivitis and periodontitis) also grew steadily and contributed to earnings.

In addition, given growing demand for measures to conserve electricity,

heat relief remedies saw robust sales during the summer, including

cooling gel sheet Netsusama Sheet, cooling gel mat Netsusama

Hinyari Gel Mat, and Shirt Cool, a long-lasting cool spray for coating

clothing. During the winter months body warmers recorded firm sales,

as sales from both seasons helped boost overall net sales.

On the other hand, damage incurred by Sendai Kobayashi

Pharmaceutical Co., Ltd. in the Great East Japan Earthquake caused

us to implement shipment quotas to restrict the daily shipment volume

of certain deodorizing air fresheners manufactured there, which

caused sales of deodorizing air fresheners to fall. Furthermore, we

actively implemented marketing activities such as sales promotions

and advertisements.

As a result, net sales for the Consumer Products Business rose

1.5% year-on-year to ¥112,424 million, while operating income

declined 3.4% year-on-year to ¥18,317 million.

Trends in Number of Profitable and Unprofitable BrandsWe thoroughly followed our own strict market launch standards for

new products, taking measures such as conducting test marketing to

improve our hit ratio.

In addition, we have tightened profitability control for existing

brands while withdrawing brands which failed to become profitable.

New Product Contribution RateWe refer to the percentage of net sales accounted for by new products

as the new product contribution rate. We have established the target to

achieve a new product contribution rate of greater than 10% in the initial

year, and a new product contribution rate of greater than 35% for

products released within the previous four years. In the fiscal year

under review we launched 17 new products, with new products in their

first year accounting for 5.1% of net sales, while new products released

during the previous four years accounted for 15.3% of net sales.

Trends in Number of Profitable and Unprofitable Brands


Trends in Number of Profitable and Unprofitable Brands


Net Sales by Category

Sales(Millions of yen)

% of Total SalesSales

(Millions of yen) % of Total Sales Sales(Millions of yen)

Changes(%)

This segment engages in mail order sales of nutritional supplements

and skincare products. In the fiscal year under review, we strived to

cultivate new customers and promote regular purchases from our

existing customers by implementing sales promotion activities

focused on direct mail and proactive advertisements.

As a result, net sales for this segment increased 5.1% year on

year to ¥10,381 million, while operating income declined 57.4% to

¥132 million.

Kobayashi Medical Co., Ltd.

eVent Medical Inc.

Others

Total

2011

10,213

915

1,055

12,184

83.8

7.5

8.7

100.0



Sales(Millions of yen)% of Total Sales

2012

8,965

427

1,083

10,476

85.6

4.1

10.3

100.0

% of Total Sales

Changes

(12.2)

(53.3)

2.6

(14.0)

Changes(%)

(1,247)

(487)

27

(1,707)

Mail Order Business

The Medical Devices Business followed a selection-and-concentration

approach with a focus on the anticipated growth fields of orthopedics

and operation room-related products. In addition, all of the U.S.-based

eVent Medical Inc.’s stock was transferred in a management buyout

deal executed on July 31, 2011.

As a result, net sales in this segment fell 14.0% year-on-year

to ¥10,476 million, but operating income rose 16.0% over the

previous fiscal year to ¥292 million.


Businesses in this segment, which includes activities such as

transportation, the manufacture and distribution of synthetic resin

containers, insurance agency operations, real estate management,

and advertising planning and production, support the three segments

above. Although each affiliated company conducts business on a

financially independent basis, one of the objectives is to contribute to

the profit of the above three segments. Therefore, the Group revised

the delivery price of the materials and services provided by companies

in this segment as required.

As a result, this segment recorded net sales of ¥6,254 million,

down 0.1% year-on-year, and operating income of ¥554 million, up

223.9%.

Other Business

726 645

1,708

26 5

(Millions of yen)

2,000

500

1,000

1,500

0

2008 2009 2010 2011 2012


Analysis of Financial Position

Assets

Total assets were ¥147,891 million as of the end of this fiscal year, an

increase of 10.1% compared with the end of the previous fiscal year.

Current assets increased 15.4% year over year to total ¥102,538 million. The main reason for this was an increase in cash and time deposits of ¥10,873 million and a rise in trade notes and accounts receivable of ¥2,234 million.

Property, plant and equipment, net, decreased 3.7% over the previous fiscal year to ¥13,628 million. This was primarily due to a decrease in leased assets (on a net basis) of ¥357 million.

Investments and other assets increased 1.2% over the previous fiscal year to ¥31,725 million. This was primarily attributable to an increase in investment securities of ¥1,880 million.

Liabilities

Total liabilities as of the end of this fiscal year were ¥46,012 million,

up 7.0% from the end of the previous fiscal year.

Current liabilities increased 9.5% to ¥37,791 million. The main

factors for this increase included a ¥1,811 million increase in other

accounts payable from a rise in advertising expenses and a ¥2,320

million rise in accrued income tax. As a result, the current ratio

improved 14.0 percentage points to 271.3%.

Long-term liabilities declined 3.2% to ¥8,221 million.

Net Sales by Category

Interest-bearing Debt

(%)

15

3

6

9

12

02008 2009 2010 2011 2012

(%)

15

3

6

9

12

0

2008 2009 2010 2011 2012

17,16423,813

32,624 31,963

42,836

(Millions of yen)

50,000

10,000

30,000

20,000

40,000

0

2008 2009 2010 2011 2012

2,8133,361

3,962 4,069 4,386

(Millions of yen)5,000

1,000

3,000

2,000

4,000

0

2008 2009 2010 2011 2012

R&D Expenses

Cash Flows

Cash and Cash Equivalents at End of Year

ROAROE

* Free cash flow: Cash flows from operating activities + Cash flows from investing activities

2011 Changes2012

13,168

(8,379)

4,789

(5,154)

31,963

17,250

(2,929)

14,321

(3,292)

42,836

Amount(Millions of yen)



Change(%)

4,082

5,450

9,531

1,862

10,873

31.0

(65.0)

199.0

(36.1)

34.0

Cash flows from operating activities

Cash flows from investing activities

Free cash flows*

Cash flows from financing activities

Cash and cash equivalents at end of the year

12.210.611.511.511.2

14.214.313.312.410.9

Net AssetsNet assets including minority interests at the end of the fiscal year

under review rose 11.5% year over year to ¥101,879 million. The

primary reason for this increase was an increase in retained

earnings of ¥8,942 million as well as an increase in the unrealized

holding gain on securities of ¥1,508 million.

As a result, the equity ratio rose 0.9 percentage points from

67.9% to 68.8%. Return on equity (ROE) rose 1.6 percentage

points compared to the previous fiscal year end, from 10.6% to

12.2%. Return on assets (ROA) declined 0.1 percentage point from

14.3% to 14.2%.

Cash Flow Analysis

Cash Flows from Operating ActivitiesNet cash provided by operating activities was ¥17,250 million, a

31.0% increase compared with the previous fiscal year. The main

factors were ¥19,822 million in income before income taxes and

minority interests, ¥3,232 million in depreciation and amortization,

¥2,060 million increase in trade notes and accounts receivable,

¥1,019 million increase in inventories, ¥1,036 million in interest and

dividends received, and ¥4,762 million in income tax paid.

Cash Flows from Investing ActivitiesNet cash used in investing activities totaled ¥2,929 million, down

65.0% year on year. Major factors affecting this cash flow were

¥39,990 million in the purchases of securities, ¥41,000 million in

proceeds from sales and redemption of securities, ¥1,748 million in

payments for the purchases of property, plant and equipment, and

¥1,249 million in purchases of investments in securities.

R&D ExpensesWe believe that R&D underpins new product development, which is

one of the core strengths of the Kobayashi Pharmaceutical Group.

In the fiscal year under review, the Consumer Products

Business developed 17 new products, while the Mail Order

Business developed four.

Consequently, R&D costs increased 7.8% over the previous

fiscal year to ¥4,386 million.

Cash Flows from Financing ActivitiesNet cash used in financing activities totaled ¥3,292 million, down

36.1% year-on-year. This was primarily due to ¥2,784 million in

dividends paid.

As a result, cash and cash equivalents as of March 31, 2012

totaled ¥42,836 million, an increase of ¥10,873 million from the end

of the previous fiscal year.



Risk Factors

(1) Highly Competitive Business Environment

The Kobayashi Pharmaceutical Group aims to differentiate itself

from rival companies by developing new products and services that

satisfy customer needs. This is crucial as the Group’s main

products target retail consumers. However, we are susceptible to

intensifying price-based competition triggered by the launch of

competing products by rivals. In response, we may have to increase

development costs for new products, or advertising and sales

promotion expenses to stimulate demand. These and other factors

could affect the Group’s operating results and financial position.

(2) Highly Susceptible to Sales of New Products

The Group pursues aggressive product development activities as

part of its strategy for spurring growth and launching new products

every year in the spring and fall. However, delays in developing or

bringing new products to market, sales of competing products, and

other factors may have an impact on sales of the Group’s new

products, which could in turn affect the Group’s operating results

and financial position.

(3) Risk Concerning Inability to Reap Anticipated Benefits of

Mergers and Alliances

While enhancing product lineups through mergers and acquisitions

(M&A) and business alliances, the Group is also striving to expand

its sales regions in pursuit of a broader range of new markets both

in Japan and overseas. However, these M&As and alliances are

subject to uncertainties. The Group may be unable to reap the

anticipated benefits of M&As and alliances or may be forced to

change its business strategies due to unforeseen post-merger or

alliance events. This could affect the Group’s operating results and

financial position.

(4) Legal Constraints

The Group’s products include OTC pharmaceuticals,

quasi-pharmaceuticals, cosmetics, medical devices, and more. The

Group’s operating results and financial position could be affected if

the development or launch of products is subject to sanctions or

other measures under Japan’s Pharmaceutical Affairs Act or other

relevant laws and regulations.

(5) Product Liability Risk

The Group’s products include OTC pharmaceuticals,

quasi-pharmaceuticals, cosmetics, medical devices, foods, and

more. Any health problems caused to consumers or patients as a

result of quality defects in these products may result in significant

damage to the Group, which could affect the Group’s operating

results and financial position.

(6) Changes in Raw Material Prices

The Group’s Consumer Products Business and Mail Order Business

are exposed to the risk of changes in raw material prices. Despite

ongoing cost reductions, the Group’s operating results and financial

condition may be affected by a sharp rise in raw material prices

triggered by surging crude oil prices and other factors.

(7) Impact of Inclement Weather

Sales of some of the Group’s products, such as body warmers, hay

fever-related products, and cold remedies, are highly susceptible to

and prone to be impacted by seasonal factors such as

temperatures and airborne pollen counts. Trends in sales of these

products could therefore affect the Group’s operating results and

financial position.

(8) Impact from Natural Disasters

The Group’s manufacturing bases are located throughout Japan. As

such, if a natural disaster such as an earthquake or a large typhoon

should strike an area or areas in which these bases are located, the

Group’s management and financial performance could be affected.

(9) Overseas Business Risk

The Group’s trading transactions involving products and raw

materials are subject to fluctuations in exchange rates. However,

the Group reduces their impact on operating results mainly by

hedging foreign currency risk through forward exchange

transactions. The Group does not engage in derivative transactions

for speculative purposes. Line items denominated in foreign

currencies, including the net sales, expenses, assets and liabilities

of consolidated overseas subsidiaries, are converted into yen for

the purpose of preparing consolidated financial statements. In the

event of a large change in the prevailing exchange rate on the

conversion date, there will be a substantial corresponding change in

the yen value of such line items. The Group is also exposed to the

risk of changes in regulations by foreign governments, as well as

economic conditions. These and other factors could affect the

Group’s operating results and financial position.

(10) Information Management and System Risk

The Group holds large volumes of information mainly as part of its

Mail Order Business, including personal information. For this

reason, the Group has established an internal information

management system in conjunction with enhancing in-house

training programs and information management. However, the

Group’s operating results and financial position could be affected by

a loss of public trust caused by a leak of information.

(11) Intellectual Property Risk

Third-party infringement of intellectual property rights, including the

Group’s brands and related trademarks, may result in large

damages to the Group. Furthermore, the inadvertent infringement of

the intellectual property rights of a third party by the Group may also

have adverse consequences. These and other factors could impact

the Group’s operating results and financial position.

(12) Share Price Fluctuation

Most of the investment securities owned by the Kobayashi

Pharmaceutical Group are listed, and therefore have a risk of share

price fluctuation. Any losses or declines in valuation gains for

securities, based on the market prices of the fiscal year ends, may

impact the business results and financial status of the Kobayashi

Pharmaceutical Group.


Assets

Current assets:

Cash and time deposits (Notes 3 and 15)

Trade notes and accounts receivable (Notes 4 and 15)

Securities (Notes 5 and 15)

Inventories:

Commodities and finished goods

Work in process

Raw materials and supplies

Total inventories

Deferred income taxes (Note 12)

Other current assets

Allowance for doubtful accounts

Total current assets

Property, plant and equipment:

Buildings and structures (Note 6)

Machinery, equipment and vehicles (Note 6)

Tools, furniture and fixtures (Note 6)

Land

Construction in progress

Leased assets (Notes 6 and 9)

Total property, plant and equipment

Accumulated depreciation

Property, plant and equipment, net

Investments and other assets:

Investments in securities (Notes 5 and 15):

Unconsolidated subsidiaries and affiliates

Other

Total investments in securities

Deferred income taxes (Note 12)

Goodwill (Note 6)

Software

Other intangible assets

Investment properties, net (Note 7)

Other assets (Notes 6 and 15)


Total investments and other assets

Total assets (Note 19)

¥ 31,963

29,880

11,006

8,402

477

2,016

10,895

4,170

1,285

(362)

88,837

15,519

6,416

1,017

3,471

107

2,431

28,961

(14,805)

14,156

1,863

15,388

17,251

2,335

4,022

898

1,003

3,114

2,931

(191)

31,363

¥134,356

$ 521,183

390,729

133,885

115,659

5,572

24,942

146,173

40,005

16,437

(840)

1,247,572

194,415

81,701

12,776

42,207

1,192

25,234

357,525

(191,714)

165,811

21,633

211,133

232,766

15,841

43,704

10,756

9,855

37,754

37,206

(1,886)

385,996

$1,799,379

Millions of yen

Thousands of U.S. dollars

(Note 1)

2011 2012

¥ 42,836

32,114

11,004

9,506

458

2,050

12,014

3,288

1,351

(69)

102,538

15,979

6,715

1,050

3,469

98

2,074

29,385

(15,757)

13,628

1,778

17,353

19,131

1,302

3,592

884

810

3,103

3,058

(155)

31,725

¥147,891

2012

See accompanying notes to consolidated financial statements.

Kobayashi Pharmaceutical Co., Ltd. and Consolidated SubsidiariesMarch 31, 2012 and 2011


Consolidated Balance Sheets


¥ 26

12,881

462

2,178

12,859

1,661

2,086

13

2,359

34,525

874

5,159

15

73

2,367

8,488

43,013

3,450

4,219

92,186

(4,701)

95,154

490

(599)

(3,875)

(3,984)

160

13

91,343

¥134,356

$ 61

156,029

4,769

54,727

178,489

12,641

25,490

158

27,436

459,800

5,889

64,643

219

1,059

28,214

100,024

559,824

41,976

51,332

1,230,417

(57,209)

1,266,516

24,310

(3,930)

(49,276)

(28,896)

1,935

—

1,239,555

$1,799,379

Millions of yen


(Note 1)

2011 2012

¥ 5

12,824

392

4,498

14,670

1,039

2,095

13

2,255

37,791

484

5,313

18

87

2,319

8,221

46,012

3,450

4,219

101,128

(4,702)

104,095

1,998

(323)

(4,050)

(2,375)

159

—

101,879

¥147,891

2012

Liabilities and Net Assets

Current liabilities:

Short-term loans (Notes 8 and 15)

Trade notes and accounts payable (Notes 4 and 15)

Lease obligations (Notes 9 and 15)

Accrued income taxes (Notes 12 and 15)

Other accounts payable (Note 15)

Reserve for sales returns

Accrued bonuses

Asset retirement obligations (Note 11)

Other current liabilities (Note 15)

Total current liabilities

Long-term liabilities:

Lease obligations (Notes 9 and 15)

Accrued retirement benefits for employees (Note 10)

Accrued retirement benefits for directors and corporate

auditors

Asset retirement obligations (Note 11)

Other liabilities

Total long-term liabilities

Total liabilities

Contingent liabilities (Note 14)

Net Assets

Shareholders’ equity (Note 13):

Common stock:

Authorized – 170,100,000 shares

Issued – 42,525,000 shares in 2012 and 2011

Capital surplus

Retained earnings

Treasury stock, at cost

Total shareholders’ equity

Accumulated other comprehensive income (loss):

Unrealized holding gain on securities

Unrealized loss on deferred hedges (Note 16)

Translation adjustments

Total accumulated other comprehensive loss, net

Stock acquisition rights

Minority interests

Total net assets

Total liabilities and net assets


Kobayashi Pharmaceutical Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2012 and 2011

Net sales (Note 19)Cost of sales

Gross profit

Selling, general and administrative expenses:

Sales promotions

Freight and storage

Advertising

Provision for allowance for doubtful accounts

Salaries and bonuses

Net pension cost

Provision for accrued retirement benefits for directors and corporate auditors

Taxes and dues other than income taxes

Depreciation and amortization (Note 19)Amortization of goodwill (Note 19)Office rent and other rental charges

External service fees

Research and development costs

Other

Total selling, general and administrative expenses

Operating income

Other income (expenses):

Interest and dividend income (Note 19)Equity in earnings of affiliates (Note 19)Interest expense (Note 19)Sales discounts

Foreign currency exchange gain (loss), net

Royalty income

Loss on disposal or sales of property, plant and equipment, net

Loss on impairment of fixed assets (Notes 6 and 19)Loss on sales of shares of an affiliate

Loss on devaluation of shares of affiliates

Gain on sales of investments in securities

Loss on devaluation of investments in securities (Note5)

Cumulative effect of change in method of accounting for asset retirement obligations

Loss on disaster

Other, net

Income before income taxes and minority interests

Income taxes (Note 12):Current

Deferred

Income before minority interests

Minority interests

Net income

¥130,824

56,184

74,640

6,992

5,134

13,489

341

9,951

837

3

230

822

1,223

1,633

4,776

4,069

6,519

56,019

18,621

336

383

(61)

(1,158)

(173)

660

(76)

(637)

—

(37)

53

(5,143)

(25)

(259)

694

13,178

4,917

(1,075)

3,842

9,336

0

¥ 9,336

$1,595,900

664,753

931,147

87,614

61,893

182,492

—

120,343

9,782

49

3,188

9,004

6,144

21,146

57,513

53,364

83,818

696,350

234,797

4,636

4,964

(523)

(13,980)

633

8,067

(1,046)

(377)

(7,799)

(37)

2,713

—

—

(475)

9,600

241,173

84,390

14,114

98,504

142,669

(0)

$ 142,669

Millions of yen


(Note 1)

2011 2012

¥131,167

54,636

76,531

7,201

5,087

14,999

—

9,891

804

4

262

740

505

1,738

4,727

4,386

6,889

57,233

19,298

381

408

(43)

(1,149)

52

663

(86)

(31)

(641)

(3)

223

—

—

(39)

789

19,822

6,936

1,160

8,096

11,726

(0)

¥ 11,726

2012



Consolidated Statements of Income


Income before minority interests

Other comprehensive income (loss):


Unrealized gain (loss) on deferred hedges


Share of other comprehensive income (loss) of an affiliate

accounted for by the equity method

Other comprehensive income, net (Note 18)Comprehensive income

Comprehensive income attributable to:

Shareholders of Kobayashi Pharmaceutical Co., Ltd.

Minority interests

$142,669

18,348

1,545

(2,129)

1,813

19,577

$162,246

$162,246

$(0)


Balance at April 1, 2010

Net income for the year

Cash dividends

Purchases of treasury stock

Other changes



Cash dividends


Disposal of treasury stock

Other changes

Balance at March 31, 2012



Cash dividends


Disposal of treasury stock

Other changes

Balance at March 31, 2012

Number ofsharesissued

(Thousands)Common

stockCapitalsurplus

Retainedearnings

Treasurystock, at

cost

Unrealizedholding

gainon

securities

Millions of yen

Unrealizedlosson

deferredhedges

Translationadjustments

Stockacquisition

rightsMinorityinterests

Totalnet

assets

Commonstock


Capitalsurplus

Retainedearnings

Treasurystock, at

cost

Unrealizedholding

gainon

securities

Thousands of U.S. dollars (Note 1)

Unrealizedlosson

deferredhedges

Translationadjustments

Stockacquisition

rightsMinorityinterests

Totalnet

assets

42,525

—

—

—

—

42,525

—

—

—

—

—

42,525

¥3,450

—

—

—

—

3,450

—

—

—

—

—

¥3,450

¥4,219

—

—

—

—

4,219

—

—

—

—

—

¥4,219

¥ 85,553

9,336

(2,703)

—

—

92,186

11,726

(2,784)

—

—

—

¥101,128

¥(4,701)

—

—

(0)

—

(4,701)

—

—

(1)

0

—

¥(4,702)

¥ (961)

—

—

—

1,451

490

—

—

—

—

1,508

¥1,998

¥(323)

—

—

—

(276)

(599)

—

—

—

—

276

¥(323)

¥(2,809)

—

—

—

(1,066)

(3,875)

—

—

—

—

(175)

¥(4,050)

¥163

—

—

—

(3)

160

—

—

—

—

(1)

¥159

¥12

—

—

—

1

13

—

—

—

—

(13)

¥—

¥ 84,603

9,336

(2,703)

(0)

107

91,343

11,726

(2,784)

(1)

0

1,595

¥101,879

$41,976

—

—

—

—

—

$41,976

$51,332

—

—

—

—

—

$51,332

$1,121,621

142,669

(33,873)

—

—

—

$1,230,417

$(57,197)

—

—

(12)

0

—

$(57,209)

$ 5,962

—

—

—

—

18,348

$24,310

$(7,288)

—

—

—

—

3,358

$(3,930)

$(47,147)

—

—

—

—

(2,129)

$(49,276)

$1,947

—

—

—

—

(12)

$1,935

$158

—

—

—

—

(158)

$ —

$1,111,364

142,669

(33,873)

(12)

0

19,407

$1,239,555


¥9,336

1,451

(114)

(1,066)

(162)

109

¥9,445

¥9,445

¥0

Millions of yen


(Note 1)

2011 2012

¥11,726

1,508

127

(175)

149

1,609

¥13,335

¥13,335

¥(0)

2012

Consolidated Statements of Changes in Net Assets


Consolidated Statements of Comprehensive Income


Millions of yen


(Note 1)

2011 20122012



Cash flows from operating activities:Income before income taxes and minority interests Adjustments for:

Depreciation and amortizationLoss on impairment of fixed assets(Decrease) increase in allowance for doubtful accountsIncrease in accrued retirement benefitsInterest and dividend incomeInterest expenseEquity in earnings of affiliatesLoss on sales of shares of an affiliateGain on sales of investments in securitiesLoss on devaluation of investments in securitiesLoss on disposal or sales of property, plant and equipment, netLoss on devaluation of shares of affiliatesChanges in operating assets and liabilities:

Increase in trade notes and accounts receivable(Increase) decrease in inventoriesDecrease in trade notes and accounts payableIncrease in other accounts payableDecrease in consumption taxes payable

OtherSubtotal

Interest and dividends receivedInterest paidIncome taxes paidNet cash provided by operating activities

Cash flows from investing activities:Decrease in time depositsPurchases of securitiesProceeds from sales and redemption of securitiesPayments for purchases of property, plant and equipmentProceeds from sales of property, plant and equipmentPayments for purchases of intangible assetsPurchases of investments in securitiesProceeds from sales of investments in securitiesIncrease in other assets

Purchases of investments in subsidiaries resulting in change in scope of consolidation

OtherNet cash used in investing activities

Cash flows from financing activities:Decrease in short-term loans, netRepayment of long-term debtDividends paidIncrease in treasury stockDecrease in lease obligationsLiquidating dividend of a subsidiary paid to minority interestsNet cash used in financing activities

Effect of exchange rate changes on cash and cash equivalentsNet increase (decrease) in cash and cash equivalentsCash and cash equivalents at beginning of the year

Decrease in cash and cash equivalents due to exclusion of consolidated subsidiary from scope of consolidation

Cash and cash equivalents at end of the year (Note 3)

¥13,178

4,155637345342(336)

61(383)

—(53)

5,1437637

(3,716)430

(1,599)252(17)

32618,878

479(47)

(6,142)¥13,168

¥ 44 (36,989)37,000(1,868)

2(299)

(6,084)53

(122)

—

(116)(8,379)

(1,673)(176)

(2,703)(0)

(602)—

(5,154)

(296)(661)

32,624

—

¥31,963

$241,173

39,324377

(3,979)1,825

(4,636)523

(4,964)7,799

(2,713)—

1,04637

(25,064)(12,398)

(73)23,507(2,008)(4,222)

255,55412,605

(340)(57,939)

$209,880

$ —(486,556)498,844(21,268)

183(4,198)

(15,196)8,663

(2,117)

(11,911)

(2,081)(35,637)

(365)—

(33,873)(12)

(5,633)(171)

(40,054)

(1,874)132,315388,892

(24)

$521,183

¥19,822

3,23231

(327)150

(381)43

(408)641

(223)—863

(2,060)(1,019)

(6)1,932(165)(347)

21,0041,036

(28)(4,762)

¥17,250

¥ —(39,990)41,000(1,748)

15(345)

(1,249)712

(174)

(979)

(171)(2,929)

(30)—

(2,784)(1)

(463)(14)

(3,292)

(154)10,87531,963

(2)

¥42,836



Consolidated Statements of Cash Flows

The accompanying consolidated financial statements of Kobayashi Pharmaceutical Co., Ltd. (the “Company”) and its consolidated subsidiaries

(collectively, the “Group”) have been prepared on the basis of accounting principles generally accepted in Japan, which are different in certain

respects as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated

financial statements prepared by the Company as required by the Financial Instruments and Exchange Act of Japan.

In preparing the accompanying consolidated financial statements, certain reclassifications and rearrangements have been made to the

consolidated financial statements issued domestically in order to present them in a format which is more familiar to readers outside Japan. In

addition, certain notes included herein are not required under accounting principles generally accepted in Japan but are presented as additional

information.

Certain reclassifications of previously reported amounts have been made to conform the consolidated financial statements for the year ended

March 31, 2011 to the 2012 presentation. Such reclassifications had no effect on consolidated net income or net assets.

The U.S. dollar amounts included in the accompanying consolidated financial statements and the notes are presented solely for convenience

and are translated, as a matter of arithmetic computation only, at ¥82.19 = U.S.$1.00, the approximate exchange rate in effect on March 31, 2012.

This translation should not be construed as a representation that Japanese yen amounts have been, could have been, or could in the future be,

converted into U.S. dollars at the above or any other rate.

1. Basis of Presentation of Consolidated Financial Statements

2. Summary of Significant Accounting Policies

Notes to Consolidated Financial StatementsKobayashi Pharmaceutical Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2012 and 2011

(a) Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its significant subsidiaries. All significant

intercompany transactions and accounts have been eliminated in consolidation. Investments in an affiliate (company over which the Company has

the ability to exercise significant influence) are, with certain minor exceptions, accounted for by the equity method.

Goodwill is amortized principally by the straight-line method over a twenty-year period. Minor differences are charged or credited to income in

the year of acquisition.

The balance sheet date of certain consolidated subsidiaries is December 31. Any significant differences in intercompany accounts and

transactions arising from intervening intercompany transactions during the period from January 1 through March 31 have been adjusted, if

necessary.

In addition, the balance sheet date of one domestic consolidated subsidiary is June 30. For consolidation purposes, the financial statement of

the subsidiary was prepared as of and for the year ended March 31.

(b) Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain

estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the

year-end date of the financial statements and the reported amounts of revenues and expenses for the reporting period. The actual results could

differ from these estimates.

(c) Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits with banks withdrawable on demand, and short-term investments which are readily

convertible to cash subject to an insignificant risk of any change in their value and which were purchased with an original maturity of three months

or less.

(d) Foreign currency translation

Revenue and expenses denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing at the respective

transaction dates. All monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen at the rates of exchange in

effect at the balance sheet date except for those items covered by forward foreign exchange contracts and currency options.

The balance sheet accounts of the overseas consolidated subsidiaries are translated into Japanese yen at the rates of exchange in effect at

the balance sheet date except that the components of net assets excluding minority interests are translated at their historical exchange rates.

Revenue and expense accounts are translated at the average rates of exchange in effect during the year. Differences resulting from translating the

financial statements of the overseas subsidiaries have not been included in the determination of net income, but are presented as “Translation

adjustments” in the consolidated financial statements.

(e) Investments in securities

Securities are classified into three categories: trading securities, held-to-maturity debt securities, or other securities. Trading securities, consisting

of debt and marketable equity securities, are stated at fair value. Gain or loss, both realized and unrealized, is credited or charged to income.

Held-to-maturity debt securities are stated at amortized cost. Marketable securities classified as other securities are carried at fair value with any

changes in unrealized holding gain or loss, net of the applicable income taxes, reported as a separate component of accumulated other

comprehensive income (loss). Non-marketable securities classified as other securities are carried at cost.

If the fair value of other securities has declined significantly and the impairment in value is not deemed temporary, these securities are written

down to fair value and the resulting loss is charged to income as incurred.


(f) Inventories

Commodities and raw materials are stated principally at the lower of cost, determined by the moving average method, or net selling value. Finished

goods, work in process and supplies are principally stated at the lower of cost, determined by the weighted-average method, or net selling value.

(g) Property, plant and equipment (excluding leased assets)

Property, plant and equipment are stated at cost. The Company and its domestic consolidated subsidiaries calculate depreciation by the

declining-balance method except for buildings (other than structures attached to the buildings) acquired after March 31, 1998, to which the

straight-line method is applied. The overseas consolidated subsidiaries calculate depreciation by the straight-line method.

(h) Leased assets

Leased assets under finance lease transactions which do not transfer ownership to the lessee are capitalized and depreciated over the respective

lease terms by the straight-line method assuming a nil residual value.

(i) Allowance for doubtful accounts

The Company and its domestic consolidated subsidiaries provide an allowance for doubtful accounts principally at an amount based on their

historical bad debt ratio. In addition, an additional allowance is provided at an estimate of uncollectible amounts with respect to certain specific

doubtful receivables. Overseas consolidated subsidiaries provide an allowance for doubtful accounts based on estimate of uncollectible amounts

with the current status.

(j) Reserve for sales returns

The Company and certain domestic consolidated subsidiaries provide a reserve for sales returns based on the historical sales return ratio.

(k) Accrued bonuses

The Company and its domestic consolidated subsidiaries provide accrued bonuses for the future payment of employees’ bonuses based on the

estimated amount of bonus payments.

(l) Accrued retirement benefits

Pension plans of the Company and certain consolidated subsidiaries include an unfunded defined retirement benefit plan, a non-contributory

funded pension plan, and defined contribution pension plans. The unfunded defined retirement benefit plans provide for lump-sum payments to

eligible employees who terminate their services which are determined by reference to their current rate of pay, length of service and the conditions

under which termination occurs.

Accrued retirement benefits for employees of the Company and two domestic consolidated subsidiaries represent the estimated present

value of the projected benefit obligation in excess of the fair value of the pension plan assets.

All other domestic consolidated subsidiaries and certain overseas consolidated subsidiaries have adopted a simplified method of calculation.

Under this simplified method, accrued retirement benefits for employees are stated at 100% of the amount which would be required to be paid if all

eligible employees voluntarily retired at the balance sheet date.

Prior service cost is being amortized by the straight-line method over ten years which is a shorter period than the average remaining years of

service of the participants.

Actuarial differences are amortized in the year following the year in which differences are recognized by the straight-line method over ten

years which is a shorter period than the average remaining years of service of the participants.

Directors and corporate auditors of certain domestic consolidated subsidiaries (collectively, “officers”) are customarily entitled, subject to

shareholders’ approval, to lump-sum payments under an unfunded retirement allowances plan. Accrued retirement benefits for officers have been

made at an estimated amount based on the consolidated subsidiaries’ internal regulations.

The Company decided to abolish the retirement allowances plan for officers at the Board of Directors meeting held on February 12, 2009. At

the annual general shareholders’ meeting held on June 26, 2009, a proposal was then subsequently approved to provide retirement allowances for

these officers when they retire.

(m) Income taxes

Deferred income taxes have been recognized with respect to the differences between financial reporting and the tax bases of the assets and

liabilities. Deferred income taxes are measured at the rates expected to apply to the period when each asset or liability is realized, based on the tax

rates that will be in effect as of the balance sheet date or are to be subsequently effective.

(n) Research and development costs and computer software

Research and development costs are charged to income when incurred.

Expenditures relating to computer software developed for internal use are charged to income when incurred, except if they contribute to the

generation of future income or cost savings. Such expenditures are capitalized as assets and are amortized over their respective estimated useful

lives, customarily 5 years.

(o) Distribution of retained earnings

Under the Corporation Law, the distribution of retained earnings with respect to a given financial period can be made by resolution of the Board of

Directors meeting held subsequent to the close of the financial period. The accounts for that period do not, therefore, reflect such appropriations

(see Note 20).


A reconciliation between the balances of cash and time deposits in the accompanying consolidated balance sheets at March 31, 2012 and 2011

and the balances of cash and cash equivalents as presented in the accompanying consolidated statements of cash flows for the years then ended

have been omitted since there were no reconciliation items.

3. Cash and Cash Equivalents

Although the balance sheet date for the year ended March 31, 2012 fell on a bank holiday, trade notes receivable of ¥125 million ($1,521

thousand), trade notes payable of ¥733 million ($8,918 thousand) and factoring accounts payable of ¥829 million ($10,086 thousand) with due

date of March 31, 2012 were accounted for as settlement on that date and were excluded from the respective balances in the consolidated

balance sheet at March 31, 2012.

4. Trade Notes Receivable and Trade Notes and Accounts Payable

(p) Derivatives and hedging activities

Derivative financial instruments, which include forward foreign exchange contracts and currency options, are used to offset the Group’s risk of

exposure to fluctuation in currency exchange rates.

Derivatives are carried at fair value with any changes in unrealized gain or loss credited or charged to income, except for those which meet

the criteria for deferral hedge accounting under which unrealized gain or loss is deferred as a separate component of accumulated other

comprehensive income (loss). When forward foreign exchange contracts or currency options meet certain criteria, receivables and payables

covered by the contract are translated at the contracted rates.

The Company and domestic consolidated subsidiaries evaluate the effectiveness of their hedging activities by reference to the accumulated

gain or loss on each hedging instrument and on the related underlying hedged item from the commencement of the hedge.

(Additional Information)

Accounting changes and error corrections

Effective April 1, 2011, the Company and its domestic consolidated subsidiaries adopted the “Accounting Standard for Accounting Changes

and Error Corrections” (Accounting Standards Board of Japan (“ASBJ”) Statement No. 24 issued on December 4, 2009) and the “Guidance

on Accounting Standard for Accounting Changes and Error Corrections” (ASBJ Guidance No. 24 issued on December 4, 2009).


(a) Securities classified as “Other securities” at March 31, 2012 and 2011 are summarized as follows:

( I ) Securities whose carrying value exceeds their acquisition cost

5. Securities and Investments in Securities

2012

Acquisition cost Carrying value Unrealized gain Acquisition cost Carrying value Unrealized gain

2011

Millions of yen

Equity securities

Debt securities

2012

Acquisition cost Carrying value Unrealized gain



Equity securities

Debt securities

2012 2011 2012

Thousands of U.S. dollarsMillions of yen

2012 2011 2012


Proceeds from sales

Gross realized gain

¥—

—

¥53

53

$—

—

¥295 ¥811 $3,589

2012

Acquisition cost Carrying value Unrealized loss Acquisition cost Carrying value Unrealized loss

2011

Millions of yen

( II ) Securities whose acquisition cost exceeds their carrying value

Equity securities

Debt securities

(IV) Proceeds from sales, and gross realized gain on other securities

(III) Securities whose market value is not determinable

Unlisted equity securities

2012

Acquisition cost Carrying value Unrealized loss

Equity securities

Debt securities

¥ 4,647

12,531

¥17,178

¥ 8,369

12,644

¥21,013

¥3,722

113

¥3,835

$ 56,540

152,464

$209,004

$101,825

153,839

$255,664

$45,285

1,375

$46,660

¥ 728

8,034

¥8,762

¥ 2,396

8,040

¥10,436

¥2,310

5,505

¥7,815

¥1,545

5,504

¥7,049

¥(765)

(1)

¥(766)

$28,106

66,979

$95,085

$18,798

66,967

$85,765

$(9,308)

(12)

$(9,320)

¥ 5,995

10,009

¥16,004

¥ 5,189

9,958

¥15,147

¥1,668

6

¥1,674

¥(806)

(51)

¥(857)


(b) Loss on devaluation of investments in securities for the years ended March 31, 2012 and 2011

For the year ended March 31, 2011, loss on devaluation of investments in securities of ¥5,143 million was recognized in the consolidated

statement of income. If the fair value of other securities has declined by more than 30% from their acquisition costs, loss on devaluation is

recognized on those securities, considering their recoverability. If the fair value of other securities has declined by more than 50% from their

acquisition costs, loss on devaluation is fully recognized on those securities.

There is no loss on devaluation of investments in securities for the year ended March 31, 2012.

The Company and its consolidated subsidiaries group their property, plant and equipment and intangible assets for business use at each

business segment unit and these are defined as the smallest identifiable group of assets generating cash inflows. The head office building, central

laboratories and certain other assets are grouped as one common asset group.

For the years ended March 31, 2012 and 2011, the carrying value of production facilities and other, which are not anticipated to be utilized

in the future, have been reduced to their respective recoverable amounts and a loss on impairment of fixed assets was recognized in the

accompanying consolidated statements of income.

The recoverable amounts of production facilities and medical devices are based on the value in use. For the years ended March 31, 2012

and 2011, the value in use of the production facilities is measured at zero because future cash flow is not expected.

The Company reviewed the fair value, including the consolidated goodwill, of an acquired subsidiary since expected earnings from the

acquired subsidiary have not materialized. As a result, the Company reduced the carrying value of the goodwill to the recoverable amount and

loss on impairment was recognized in the consolidated statement of income for the year ended March 31, 2011.

Loss on impairment of fixed assets for the years ended March 31, 2012 and 2011 are summarized as follows:

6. Loss on Impairment of Fixed Assets

2012

Location Description Classification Millions of yen Thousands of U.S. dollars

Osaka and other

Osaka and other

Production facilities and other

Production facilities

Machinery, equipment and other

Leased assets

¥28

3

¥31

$340

37

$377

2011

Location Description Classification Millions of yen

Osaka and other

Osaka

Osaka and other

United States

Osaka

Production facilities and other

Medical devices

Production facilities

Other

Other

Machinery, equipment and other

Tools, furniture and fixtures

Leased assets

Goodwill

Long-term prepaid expenses

included in other assets

¥ 19

20

21

573

4

¥637


The Company and certain consolidated subsidiaries own rental properties (including land) in Osaka prefecture and other areas.

Rental income from these properties amounted to ¥275 million ($3,346 thousand) and ¥274 million, and related costs amounted to ¥77

million ($937 thousand) and ¥80 million for the years ended March 31, 2012 and 2011, respectively.

The carrying value on the consolidated balance sheets at March 31, 2012 and 2011, and corresponding fair value of those properties are as

follows:

The average interest rates on short-term bank loans at March 31, 2012 and 2011 were 1.07% and 1.58%, respectively.

In order to achieve more efficient and flexible financing, the Company and certain consolidated subsidiaries have concluded line-of-credit

agreements with certain financial institutions. The status of these at March 31, 2012 and 2011 is summarized as follows:

The carrying value represents the acquisition cost less accumulated depreciation and cumulative impairment loss.

The significant components of net changes in carrying value for the years ended March 31, 2012 and 2011 were due to net effect of

increases related to repair work on real estate properties in the amount of ¥26 million ($316 thousand) and acquisition of real estate properties in

the amount of ¥5 million, and decreases related to depreciation in the amount of ¥37 million ($450 thousand) and ¥38 million for the years ended

March 31, 2012 and 2011, respectively.

The fair value of the main properties is estimated based on a real estate appraisal report issued by independent real estate appraisers.

8. Short-Term Loans

As of April 1, 2011 Net change

Carrying value Fair value

As of March 31, 2012 As of March 31, 2012

Millions of yen

¥3,775 ¥ (13) ¥3,762 ¥4,098





$45,930 $ (158) $45,772 $49,860




Millions of yen

¥3,810 ¥ (35) ¥3,775 ¥4,197

2012 2011 2012


Lines-of-credit

Credit used

Available credit

¥26,424

—

¥26,424

¥26,401

(26)

¥26,375

$321,499

—

$321,499

(a) Finance lease transactions

The Group principally leases production facilities, consisting of machinery, equipment, vehicles, furniture and fixtures, which are used in the

consumer products division and facilities, consisting of furniture and fixtures, which are used in the medical devices division. The Group also leases

software.

Lease obligations related to finance lease transactions at March 31, 2012 are summarized as follows:

9. Lease Transactions

2012 2012


Finance lease obligations due in installments from 2013 through 2019

Less current portion

¥876

(392)

¥484

$10,658

(4,769)

$ 5,889

7. Investment Properties


The aggregate annual maturities of finance lease obligations subsequent to March 31, 2012 are summarized as follows:

(b) Operating lease transactions

Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2012 for non-cancelable operating leases are

summarized as follows:

The following table sets forth the funded and accrued status of the plans, and the amounts recognized in the accompanying consolidated balance

sheets at March 31, 2012 and 2011 for the Group’s defined benefit plans:

10. Accrued Retirement Benefits for Employees

2012 2011 2012


Projected benefit obligation

Fair value of pension plan assets

Unfunded retirement benefit obligation

Unrecognized prior service cost

Unrecognized actuarial differences

Net retirement benefit obligation

Prepaid pension cost

Accrued retirement benefits for employees

Thousands of U.S. dollarsMillions of yenYear ending March 31,

2013

2014

2015

2016

2017

2018 and thereafter

Total

¥392

287

123

44

17

13

¥876

$ 4,769

3,492

1,497

535

207

158

$10,658

Thousands of U.S. dollarsMillions of yenYear ending March 31,

2013

2014 and thereafter

Total

¥114

49

¥163

$1,387

596

$1,983

¥(10,124)

5,164

(4,960)

68

406

(4,486)

(827)

¥ (5,313)

¥(9,861)

4,884

(4,977)

137

505

(4,335)

(824)

¥(5,159)

$(123,178)

62,830

(60,348)

827

4,940

(54,581)

(10,062)

$ (64,643)

The components of net pension cost for the years ended March 31, 2012 and 2011 were as follows:

2012 2011 2012


Service cost

Interest cost

Expected return on pension plan assets

Amortization:

Prior service cost

Actuarial differences

Cost of contribution pension plan

Net pension cost

¥ 605

182

(98)

68

139

170

¥1,066

¥ 621

175

(92)

68

143

173

¥1,088

$ 7,361

2,215

(1,192)

827

1,691

2,068

$12,970


The Company and its domestic subsidiaries are subject to several taxes based on income which, in the aggregate, resulted in a statutory tax rate

of approximately 40.6% for the years ended March 31, 2012 and 2011. The overseas subsidiaries are subject to the income taxes of their

respective countries of domicile.

A reconciliation of the differences between the statutory tax rate and the effective tax rate in the accompanying consolidated statement of

income for the year ended March 31, 2011 is as follows:

Asset retirement obligations are the result of legal obligations for the removal of leasehold improvements and the restoration of premises to their

original conditions upon termination of leases.

Asset retirement obligations are measured based on the estimated useful life of 10 years and the discount rate of a 10-year Japanese

government bond at the commencement of the lease contract.

Changes in the balance of asset retirement obligations for the years ended March 31, 2012 and 2011 are as follows:

A reconciliation of the statutory tax rate and the effective tax rate for the year ended March 31, 2012 has been omitted as the difference was

less than 5% of the statutory tax rate.

12. Income Taxes

2011

Statutory tax rate

Tax loss carryforwards of consolidated subsidiaries

Valuation allowances

Utilization of tax loss carryforwards

Tax credits on research and development costs

Amortization of goodwill

Expenses not deductible for tax purposes

Equity in earnings of affiliates

Nontaxable dividend Income

Other

Effective tax rate

40.6

2.8

(12.8)

(0.8)

(2.3)

2.1

1.4

(1.2)

(0.4)

(0.2)

29.2

%

%

Balance at beginning of the year ended March 31, 2011 was calculated after the adoption of “Accounting Standard for Asset Retirement

Obligations” (ASBJ Statement No.18 issued on March 31, 2008) and “Guidance on Accounting Standard for Asset Retirement Obligations” (ASBJ

Guidance No.21 issued on March 31, 2008).

The assumptions used in accounting for the above plans for the years ended March 31, 2012 and 2011 were as follows:

2012 2011

Discount rate

Expected rate of return on plan assets

2.0%

2.0%

2.0%

2.0%

2012 2011 2012


¥ 86

13

1

¥100

¥ 85

—

1

¥ 86

$1,047

158

12

$1,217

11. Asset Retirement Obligations

Asset retirement obligations at beginning of year

Liabilities incurred for a leased buildings

Accretion expense

Asset retirement obligations at end of year


The tax effects of the temporary differences which gave rise to a significant portion of the deferred tax assets and liabilities at March 31,

2012 and 2011 are presented below:

2012 2011 2012


Deferred tax assets:

Accrued retirement benefits for employees

Net operating loss carryforwards

Accrued bonuses

Accrued retirement benefits for directors and statutory auditors

Accrued expenses

Accrued enterprise tax

Unrealized intercompany profits

Loss on impairment of fixed assets

Loss on disposal or write-offs of inventories


Other

Gross deferred tax assets

Valuation allowance

Total deferred tax assets

Deferred tax liabilities:


Other

Total deferred tax liabilities

Net deferred tax assets

¥1,578

433

782

7

1,697

369

173

557

324

94

1,741

7,755

(2,099)

5,656

(1,072)

(118)

(1,190)

¥4,466

¥1,730

1,289

826

6

1,606

178

162

639

602

576

1,701

9,315

(2,489)

6,826

(328)

(69)

(397)

¥6,429

$19,199

5,268

9,515

85

20,647

4,490

2,105

6,777

3,942

1,144

21,182

94,354

(25,538)

68,816

(13,043)

(1,435)

(14,478)

$54,338

The “Act for Partial Revision of the Income Tax Act etc. for the Purpose of Creating Taxation System Responding to Changes in Economic

and Social Structures” (Act No. 114 of 2011) and the “Act for Special Measures for Securing Financial Resources Necessary to Implement

Measures for Reconstruction following the Great East Japan Earthquake” (Act No. 117 of 2011) were promulgated on December 2, 2011

and the staged reduction of the national corporate tax rate and a special reconstruction corporate tax will apply to corporate taxes effective

fiscal years beginning on or after April 1, 2012.

As a result, the effective statutory tax rate used to measure the Company’s deferred tax assets and liabilities was changed from 40.63%

to 37.96% for the temporary differences expected to be realized or settled in the period from April 1, 2012 to March 31, 2015 and from

40.63% to 35.59% for temporary differences expected to be realized or settled from fiscal years beginning April 1, 2015. The effect of the

announced reduction of the effective statutory tax rate was to decrease deferred tax assets, net of deferred tax liabilities, by ¥377 million

(U.S. $4,587 thousand), and increase income taxes-deferred by ¥524 million (U.S. $6,375 thousand), unrealized holding gain on securities by

¥151 million (U.S. $1,837 thousand) and unrealized loss on deferred hedges by ¥4 million (U.S. $49 thousand) as of and for the year ended

March 31, 2012.

Net deferred tax assets in the above table are analyzed as follows:

2012 2011 2012


Current assets – deferred tax assets

Investments and other assets – deferred tax assets

Long-term liabilities – deferred tax liabilities

¥3,288

1,302

(124)

¥4,466

¥4,170

2,335

(76)

¥6,429

$40,005

15,841

(1,508)

$54,338


Treasury stock

Movements in treasury stock for the years ended March 31, 2012 and 2011 are summarized as follows:

2012

April 1, 2011 Increase Decrease March 31, 2012

Number of shares

Treasury stock 1,575,987 350 50 1,576,287

2011

April 1, 2010 Increase Decrease April 1, 2011

Number of shares

Treasury stock 1,575,862 125 — 1,575,987

The Corporation Law of Japan (the “Law”) provides that an amount equal to 10% of the amount to be disbursed as distributions of capital surplus

(other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve and the legal reserve,

respectively, until the sum of the capital reserve and the legal reserve equals 25% of the capital stock account. Such distributions can be made at

any time by resolution of the shareholders, or by the Board of Directors meeting if certain conditions are met.

Retained earnings include the legal reserve provided in accordance with the provisions of the Law. The legal reserve of the Company included

in retained earnings amounted to ¥340 million ($4,137 thousand) at March 31, 2012 and 2011.

Stock-based compensation plan

As of March 31, 2012, the Company had one stock option plan: 2007 stock option plan. The 2007 stock option plan (the 2007 plan) was

approved at the annual general meeting of shareholders of the Company held on June 28, 2007. The 2007 plan provides for granting options to

purchase 260,800 shares of common stock to directors, corporate auditors and certain key employees of the Company, and directors and

certain key employees of certain consolidated subsidiaries. The exercise price was ¥4,329 ($53) per share at March 31, 2012. This exercise price is

subject to adjustment in certain cases which include stock splits. The options became exercisable on July 1, 2009 and are scheduled to expire on

June 30, 2012.

13. Shareholders’ Equity

Information regarding the Company’s stock option plan was as follows:

The 2007 plan

Number of options:

Outstanding at March 31, 2011

Granted

Cancelled

Exercised

Outstanding at March 31, 2012

242,600

—

1,700

—

240,900

Yen

Fair value of options as of the grant date ¥ 645

U.S. dollars

Fair value of options as of the grant date & 7.85


At March 31, 2012, the Company had the following contingent liability:

14. Contingent Liabilities

(a) Overview

(I) Policy for financial instrumentsIn consideration of plans for capital investment, the Group raises the required funds. The Group manages temporary fund surpluses

principally through financial assets with high liquidity. Further, the Group raises short-term working capital through bank borrowings. The

Group uses derivatives for the purpose of reducing risk and does not enter into derivatives for speculative or trading purposes.

(II) Types of financial instruments and related riskTrade receivables, notes and accounts receivable, are exposed to credit risk in relation to customers. In addition, the Group is exposed to foreign

currency exchange risk arising from trade receivables denominated in foreign currencies.

Securities and investments in securities are exposed to market risk. Those securities are mainly composed of treasury discount bills,

interest-bearing government bonds and the shares of common stock of other companies with which the Group has business relationships.

Trade payables, notes and accounts payable, have payment due dates within 4 months. Although the Group is exposed to foreign

currency exchange risk arising from those payables denominated in foreign currencies, forward foreign currency exchange contracts are

arranged to hedge the risk.

Borrowings and lease obligations are raised principally for the purpose of making capital investments or working capital.

Regarding derivatives, the Group enters into foreign exchange forward and currency option contracts to reduce the foreign currency exchange

risk arising from the trade payables denominated in foreign currencies. Further information regarding the method of hedge accounting, hedging

instruments and hedged items, hedging policy, and the assessment of the effectiveness of hedging activities can be found in Note 2(p).

(III) Risk management for financial instruments

15. Financial Instruments

(i) Monitoring of credit risk (the risk that customers or counterparties may default)

In accordance with the internal policies of the Group for managing credit risk arising from receivables, each related division monitors the credit

worthiness of their main customers periodically, and monitors due dates and outstanding balances by customer. In addition, the Group makes

efforts to identify and mitigate risks of bad debt from customers experiencing financial difficulties.

The Group also believes that the credit risk of derivatives is insignificant as the Group enters into derivative transactions only with

financial institutions with high credit rating.

(ii) Monitoring of market risks (the risks arising from fluctuations in foreign exchange rates, interest rates and others)

For trade payables denominated in foreign currencies, the Group identifies the foreign currency exchange risk by each currency on a monthly

basis and enters into forward foreign exchange contracts to hedge such risk.

For securities and investments in securities, the Group periodically reviews the fair values of such financial instruments and the financial

position of the issuers. In addition, the Group continuously reviews market conditions and our business relations with those companies to

decide whether the shares should be retained or disposed of.

In conducting derivative transactions, the division in charge of each derivative transaction follows the internal policies, which set forth

delegation of authority and maximum upper limit on positions, and obtains approval from the finance director.

(iii) Monitoring of liquidity risk (the risk that the Group may not be able to meet its obligations on the scheduled due dates)

Based on reports from each division, the Group prepares and updates its cash flow plans on a timely basis to manage liquidity risk.

2012 2012


Recourse obligation under factoring transactions ¥587 $7,142

(IV) Supplementary explanation of the estimated fair value of financial instrumentsThe fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available,

fair value is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value, different assumptions

and factors could result in different fair value. In addition, the notional amounts of derivatives in Note 16. “Derivatives and Hedging

Activities” are not necessarily indicative of the actual market risk involved in derivative transactions.


2012


Assets

(i) Cash and time deposits

(ii) Trade notes and accounts receivable

(iii) Securities and investments in securities

(iv) Long-term loans receivable included in other assets

Allowance for doubtful accounts (*1)

Total assets

$521,183

390,729

341,441

7,300

(195)

7,105

$1,260,458

$521,183

390,729

341,441

6,728

$1,260,081

$ —

—

—

(377)

$(377)

2012

Carrying value

Estimated fair value

DifferenceCarrying

valueEstimated fair value

Difference

2011

Carrying value


Difference

Millions of yen

Assets

(i) Cash and time deposits

(ii) Trade notes and accounts receivable

(iii) Securities and investments in securities

(iv) Long-term loans receivable included in other assets

Allowance for doubtful accounts (*1)

Total assets

¥42,836

32,114

28,063

600

(16)

584

¥103,597

¥42,836

32,114

28,063

553

¥103,566

¥ —

—

—

(31)

¥(31)

¥31,963

29,880

25,583

500

(15)

485

¥87,911

¥31,963

29,880

25,583

448

¥87,874

¥ —

—

—

(37)

¥(37)

Liabilities

(i) Trade notes and accounts payable

(ii) Short-term loans

(iii) Other accounts payable

(iv) Current portion of lease obligations

(v) Accrued Income taxes

(vi) Accrued consumption taxes, included in other

current liabilities

(vii) Lease obligations

Total liabilities

Total derivatives (*2)

¥12,824

5

14,670

392

4,498

382

484

¥33,255

¥(164)

¥12,824

5

14,670

396

4,498

382

486

¥33,261

¥(164)

¥ —

—

—

4

—

—

2

¥ 6

¥ —

¥12,881

26

12,859

462

2,178

568

874

¥29,848

¥(373)

¥12,881

26

12,859

466

2,178

568

876

¥29,854

¥(373)

¥ —

—

—

4

—

—

2

¥ 6

¥ —

(b) Estimated Fair Value of Financial Instruments

The carrying value of financial instruments on the consolidated balance sheets as of March 31, 2012 and 2011, the estimated fair value and

difference are shown in the following table. The following table does not include financial instruments for which it is extremely difficult to

determine the fair value. (Please refer to Note II below).


Liabilities

(i) Trade notes and accounts payable

(ii) Short-term loans

(iii) Other accounts payable

(iv) Current portion of lease obligations

(v) Accrued Income taxes

(vi) Accrued consumption taxes, included in other

current liabilities

(vii) Lease obligations

Total liabilities

Total derivatives (*2)

II. Financial instruments for which it is extremely difficult to determine the fair value.


Type

Unlisted equity securities:

$156,029

61

178,489

4,769

54,727

4,647

5,889

$404,611

$(1,995)

$156,029

61

178,489

4,818

54,727

4,647

5,913

$404,684

$(1,995)

$ —

—

—

49

—

—

24

$ 73

—

Carrying value


Difference

2012 2011 2012

¥2,072 ¥2,674 $25,210

Because no quoted market price is available and it is extremely difficult to determine the fair value, the above financial instruments are not included

in the preceding table on estimated fair value.

(*1) Excluding allowances for doubtful accounts recorded individually for long-term loans receivable.

(*2) Assets and liabilities arising from derivatives are shown at net value, and an amount in parentheses represents net liability position.

I. Method to determine the estimated fair value of financial instruments and other matters related to derivative transactions.

Assets(i) Cash and time deposits and (ii) trade notes and accounts receivable

Since these items are settled in a short period of time, their carrying values approximate the fair value.

(iii) Securities and investments in securitiesThe fair values of equity securities are based on quoted market prices. The fair value of debt securities is based on either quoted market price

or the price provided by the financial institutions making markets in these securities. For information on securities classified by holding purpose,

please refer to Note 5.

(iv) Long-term loans receivableThe fair value of long-term loans receivable is based on the present value of the future cash flows discounted by the interest rate which is

determined using an appropriate index including interest rates of government bonds plus a credit spread premium, classifying long-term loans

receivable by credit risk status based on credit risk management and a certain remaining period. The fair value of probable specific bad debt is

based on the present value of the estimated cash flows discounted by an interest rate described above or the estimated amounts collectable

by the collaterals and guarantees.

Liabilities(i) Trade notes and accounts payable, (iii) other accounts payable, (v) accrued income taxes and (vi) accrued consumption taxes

Since these items are settled in a short period of time, their carrying values approximate the fair value.

(ii) Short-term loans, (iv) current portion of lease obligations and (vii) lease obligationsThe fair value is based on the present value of the total of principal and interest discounted by the interest rate to be applied if a similar new

borrowings or lease agreements were entered into.

DerivativesRefer to Note 16. “Derivatives and Hedging Activities”.

2012



IV. The redemption schedule for lease obligations is disclosed in Note 9.

III. The redemption schedule for monetary assets and debt securities with maturity dates at March 31, 2012 and 2011 is summarized as follows:

2012 2011

Due in1 yearor less

Millions of yen

(i) Time deposits

(ii) Trade notes and

accounts receivable

(iii) Securities and

investments in securities:

Government bonds

(national and local)

(iv) Long-term loans receivable


Total assets

¥42,826

32,114

11,000

6

¥85,946

Due after1 year

through5 years

¥ —

—

2,000

575

¥ 2,575

Due after5 yearsthrough10 years

¥ —

—

5,000

3

¥ 5,003

Due after10 years

Due in1 yearor less

Due after1 year

through5 years


Due after10 years

¥ —

—

—

—

¥ —

¥31,953

29,880

11,000

6

¥72,839

¥ —

—

2,000

473

¥ 2,473

¥ —

—

5,000

5

¥ 5,005

¥ —

—

—

16

¥ 16

2012

Due in1 yearor less


(i) Time deposits

(ii) Trade notes and

accounts receivable

(iii) Securities and

investments in securities:

Government bonds

(national and local)

(iv) Long-term loans receivable


Total assets

$521,061

390,729

133,836

73

$1,045,699

Due after1 year

through5 years

$ —

—

24,334

6,996

$31,330


$ —

—

60,835

36

$60,871

Due after10 years

$ —

—

—

—

$ —

The notional amounts and the estimated fair value of the derivative instruments outstanding at March 31, 2012 and 2011 were as follows:

16. Derivatives and Hedging Activities

¥(17)¥ —¥ 466

Currency-related transactions

1. Derivatives for which hedge accounting is not applied

Notional amountDescription of

transactionType

2012

Millions of yen

Over-the-counter

transactions

Forward foreign

exchange contracts

Purchase:

U.S. dollars

Notional amount(over 1 year)

Unrealized loss

¥(17)

Estimatedfair value


¥(146)

(8)

(11)

17

¥2,072

155

—

—

¥6,209

562

274

529

¥(400)

10

17

—

¥1,825

115

—

—

¥5,863

508

313

—

Currency-related transactions

2. Derivatives for which hedge accounting is applied

NotionalamountHedged items

Description oftransaction

Method of hedgeaccounting

2012 2011

Millions of yen

Deferral hedge

accounting

Forward foreign

exchange contracts

Purchase:

U.S. dollars

British pounds

Euros

Thai bahts

Trade accounts

payable

Trade accounts

payable

Trade accounts

payable

Trade accounts

payable

Notionalamount

(over 1 year)

Estimatedfair value

Notionalamount

Notionalamount

(over 1 year)

Estimatedfair value

There were no derivative transactions which did not qualify for deferral hedge accounting at March 31, 2011.

$(207)$ —$ 5,670

Notional amountDescription of

transactionType

2012


Over-the-counter

transactions

Forward foreign

exchange contracts

Purchase:

U.S. dollars

Notional amount(over 1 year)

Unrealized loss

$(207)

Estimatedfair value

The fair value of derivatives are based on the prices provided by financial institutions.

$(1,776)

(97)

(134)

207

$25,210

1,886

—

—

$75,544

6,838

3,334

6,436

NotionalamountHedged items

Description oftransaction

Method of hedgeaccounting

2012


Deferral hedge

accounting

Forward foreign

exchange contracts

Purchase:

U.S. dollars

British pounds

Euros

Thai bahts

Trade accounts

payable

Trade accounts

payable

Trade accounts

payable

Trade accounts

payable

Notionalamount

(over 1 year)

Estimatedfair value


Basic net income per share has been computed based on the net income available for distribution to shareholders of common stock and the

weighted-average number of shares of common stock outstanding during the year. The amounts per share of net assets have been computed

based on the net assets available for distribution to the shareholders of common stock and the number of shares of common stock outstanding

at the year end.

Cash dividends per share represent the cash dividends proposed by the Board of Directors meeting as applicable to the respective years

together with the interim cash dividends paid.

17. Amounts per Share

2012 2011 2012

U.S. dollarsYen

Net income:

Basic

Cash dividends

Net assets

¥ 286.36

78.00

2,484.08

¥ 227.98

66.00

2,226.42

$ 3.48

0.95

30.22

The following table presents reclassification adjustments and tax effects allocated to each component of other comprehensive income for the year

ended March 31, 2012:

18. Other Comprehensive Income

Thousands ofU.S. dollars

Unrealized holding gain on securities:

Amount arising during the year

Amount before tax effect

Tax effect


Unrealized gain on deferred hedges:


Reclassification adjustments for losses included in net income

Amount before tax effect

Tax effect

Unrealized gain on deferred hedges

Translation adjustments:




Share of other comprehensive income of an affiliate accounted for by the equity method:



Share of other comprehensive income of an affiliate accounted for by the equity method

Total other comprehensive income

$ 27,412

27,412

(9,064)

18,348

(4,027)

6,765

2,738

(1,193)

1,545

(4,599)

2,470

(2,129)

(2,701)

4,514

1,813

$ 19,577

Millions of yen

¥ 2,253

2,253

(745)

1,508

(331)

556

225

(98)

127

(378)

203

(175)

(222)

371

149

¥ 1,609


19. Segment Information(a) Business Segment Information

1. Outline of reportable segmentsThe Company’s reportable segments are its structural units, for which separate financial information is available. These segments are

subject to periodic review by the Board of Directors in order to assist decision making on the allocation and assessment of business

performance.

The Company sets up divisions by product and service under an operational headquarters. Each division formulates comprehensive

domestic and overseas strategies for its products and services and conducts business activities according to these strategies.

The Company’s segments are classified by product and service on the basis of its operational headquarters. There are three

reportable segments, which are the consumer products division, the mail-order division, and the medical devices division.

The consumer products division manufactures and sells pharmaceuticals, oral hygiene products, sanitary products, deodorizing air

fresheners, household sundries, food products and body warmers. The mail-order division sells dietary supplement products and skin care

products and similar items. The medical devices division sells medical equipment.

2. Calculation methods used for sales, income or loss, assets, and other items on each reportable segment.The accounting policies of the segments are substantially the same as those described in the significant accounting policies in Note 2.

Reportable segment income represents ordinary income, which consists of operating income and nonoperating income/expenses.

Intersegment sales are recorded at the same prices used in transactions with third parties.

3. Information as to sales, income or loss, assets, and other items for each reportable segment for the years ended March 31, 2012 and 2011 were as follows:

2012

ConsumerProducts

Millions of yen

Reportable segments

Net sales


Inter-segment sales and transfers

Total

Segment income

Segment assets

Other items

Depreciation and amortization


Interest income

Interest expenses


Investment in equity method affiliate

Increase in property, plant, and

equipment and intangible assets

Mail-orderMedicalDevices

Total Other TotalAdjustments

andeliminations

Consolidated

¥109,203

3,221

¥112,424

¥ 17,546

¥ 64,334

¥ 2,277

497

40

—

—

—

1,676

¥10,381

—

¥10,381

¥ 138

¥ 1,501

¥ 34

—

3

—

—

—

57

¥10,476

—

¥10,476

¥ 1,334

¥ 8,182

¥ 144

8

8

19

407

1,684

109

¥130,060

3,221

¥133,281

¥ 19,018

¥ 74,017

¥ 2,455

505

51

19

407

1,684

1,842

¥1,107

5,147

¥6,254

¥1,233

¥4,551

¥ 124

—

95

43

—

—

172

¥131,167

8,368

¥139,535

¥ 20,251

¥ 78,568

¥ 2,579

505

146

62

407

1,684

2,014

¥ —

(8,368)

¥ (8,368)

¥ (158)

¥69,323

¥ 148

—

(19)

(19)

1

—

199

¥131,167

—

¥131,167

¥ 20,093

¥147,891

¥ 2,727

505

127

43

408

1,684

2,213

Notes:

1. “Other” consists of business segments that are not included in reportable segments, such as transportation, plastic container manufacture and

sale, insurance agency, real estate management, and advertisement planning and creation.

2. Details of adjustments and eliminations are as follows:

(i) Segment income of ¥158 million ($1,922 thousand), interest income of ¥19 million ($231 thousand), and interest expenses of ¥19 million

($231 thousand) are categorized as eliminations between inter segment transactions.

(ii) Corporate assets included in the adjustments and eliminations of segment assets amount to ¥73,253 million ($891,264 thousand) and

mainly consists of extra funds for investment by the parent company (cash and securities), funds for long-term investment (investment

securities), and assets related to administrative departments.

(iii) Adjustments and eliminations of equity in earnings of affiliates of ¥1 million ($12 thousand) correspond to adjustment of inventories.

3. Segment income is adjusted for the ordinary income as described in 2. Calculation method of reportable segment income or loss.

4. Increase in depreciation, property, plant and equipment and intangible assets includes an increase in long-term prepaid expenses and

amortization of long-term prepaid expenses.


2011

ConsumerProducts

Millions of yen

Reportable segments

Net sales



Total

Segment income

Segment assets

Other items

Depreciation and amortization


Interest income

Interest expenses







andeliminations

Consolidated

¥107,657

3,136

¥110,793

¥ 17,944

¥ 61,970

¥ 2,388

1,044

10

25

—

—

1,796

¥9,872

—

¥9,872

¥ 317

¥1,237

¥ 29

—

3

—

—

—

20

¥12,184

—

¥12,184

¥ 1,189

¥10,416

¥ 213

179

12

31

384

1,776

289

¥129,713

3,136

¥132,849

¥ 19,450

¥ 73,623

¥ 2,630

1,223

25

56

384

1,776

2,105

¥1,111

5,150

¥6,261

¥ 664

¥4,486

¥ 139

—

70

18

—

—

158

¥130,824

8,286

¥139,110

¥ 20,114

¥ 78,109

¥ 2,769

1,223

95

74

384

1,776

2,263

¥ —

(8,286)

¥ (8,286)

¥ (1,104)

¥56,247

¥ 163

—

(13)

(13)

(1)

—

84

¥130,824

—

¥130,824

¥ 19,010

¥134,356

¥ 2,932

1,223

82

61

383

1,776

2,347

Notes:

1. “Other” consists of business segments that are not included in reportable segments, such as transportation, plastic container manufacture and

sale, insurance agency, real estate management, and advertisement planning and creation.

2. Details of adjustments and eliminations are as follows:

(i) Segment income of ¥1,104 million, interest income of ¥13 million, and interest expenses of ¥13 million are categorized as eliminations

between inter segment transactions.

(ii) Corporate assets included in the adjustments and eliminations of segment assets amount to ¥59,501 million and mainly consists of extra

funds for investment by the parent company (cash and securities), funds for long-term investment (investment securities), and assets related

to administrative departments.

(iii) Adjustments and eliminations of equity in earnings of affiliates of ¥1 million correspond to adjustment of inventories.

3. Segment income is adjusted for the ordinary income as described in 2. Calculation method of reportable segment income or loss.

4. Increase in depreciation, property, plant and equipment and intangible assets includes an increase in long-term prepaid expenses and

amortization of long-term prepaid expenses.


4. Related information(1) Geographical information

(a) Sales

As domestic sales in Japan amounted to more than 90% of net consolidated sales, the disclosure of regional sales information has

been omitted.

(b) Property, plant and equipment

As the consolidated balance of property, plant and equipment located in Japan amounted to more than 90% of consolidated balance

of property, plant and equipment, the disclosure of regional information for property, plant and equipment has been omitted.

(2) Information by major customers

2012

ConsumerProducts


Reportable segments

Net sales



Total

Segment income

Segment assets

Other items

Depreciation and amortizations


Interest income

Interest expenses







andeliminations

Consolidated

$1,328,665

39,190

$1,367,855

$ 213,481

$ 782,747

$ 27,704

6,047

487

—

—

—

20,391

$126,305

—

$126,305

$ 1,679

$ 18,263

$ 414

—

37

—

—

—

694

$127,461

—

$127,461

$ 16,231

$ 99,550

$ 1,752

97

97

231

4,952

20,489

1,326

$1,582,431

39,190

$1,621,621

$ 231,391

$ 900,560

$ 29,870

6,144

621

231

4,952

20,489

22,411

$13,469

62,623

$76,092

$15,001

$55,371

$ 1,509

—

1,155

523

—

—

2,093

$1,595,900

101,813

$1,697,713

$ 246,392

$ 955,931

$ 31,379

6,144

1,776

754

4,952

20,489

24,504

$ —

(101,813)

$ (101,813)

$ (1,922)

$ 843,448

$ 1,801

—

(231)

(231)

12

—

2,421

$1,595,900

—

$1,595,900

$ 244,470

$1,799,379

$ 33,180

6,144

1,545

523

4,964

20,489

26,925

Paltac Corporation

Arata Corporation

Sales

2011

¥51,204

¥13,970

Related segment

Consumer Products

Consumer Products

Sales

2012

Millions of yen

¥53,433

¥14,143

Related segment

Consumer Products

Consumer Products

Sales

2012


Paltac Corporation

Arata Corporation

$650,116

$172,077

Related segment

Consumer Products

Consumer Products


2011

ConsumerProducts

Millions of yen

Loss on impairment of fixed assets ¥44 ¥ — ¥593 ¥ — ¥637


Other Total

6. Amortization of goodwill and remaining balance by reportable segmentInformation of amortization and balance of goodwill by reportable segment as of and for the years ended at March 31, 2012 and 2011 are as follows:

2012

ConsumerProducts

Millions of yen

Amortization for the year

Balance at the end of year

¥ 497

3,582

¥ —

—

¥ 8

10

¥ —

—

¥ 505

3,592


Other Total

2011

ConsumerProducts

Millions of yen



¥1,044

4,003

¥ —

—

¥179

19

¥ —

—

¥1,223

4,022


Other Total

2012

ConsumerProducts




$ 6,047

43,582

$ —

—

$ 97

122

$ —

—

$ 6,144

43,704


Other Total

2012

ConsumerProducts


Loss on impairment of fixed assets $316 $ — $ — $61 $377


Other Total

5. Loss on impairment of fixed assets by reportable segmentInformation on loss on impairment of fixed assets by reportable segment for the years ended at March 31, 2012 and 2011 is as follows:

2012

ConsumerProducts

Millions of yen

Loss on impairment of fixed assets ¥26 ¥ — ¥ — ¥5 ¥31


Other Total


(a) Appropriation of retained earnings

The following appropriation of retained earnings of the Company, which has not been reflected in the consolidated financial statements for the

year ended March 31, 2012, was approved at the Board of Directors meeting held on May 25, 2012:

(b) Sale of shares of consolidated subsidiary

At the meeting of the Board of Directors held on April 24, 2012, the Board passed a resolution approving the sale of 80% (80,000 shares) of the

outstanding shares of Kobayashi Medical Co., Ltd., a consolidated subsidiary, to Mitsubishi Corporation. The share transfer was completed on

May 31, 2012.

Since 1992, the Company has operated its medical devices business as a division involving the import and sales of medical equipment and

developed the business under a vision of offering increased safety and security to the medical field. This division was subsequently named to

Kobayashi Medical Co., Ltd. The Company spun off Kobayashi Medical Co., Ltd., on April 1, 2010 in order to enhance competitiveness, product

specialization capabilities and improve productivity in response to significant changes in the market environment.

Kobayashi Medical Co., Ltd. is involved in highly specialized areas, applying its expertise to develop medical devices used for surgery,

respiration, ventilation and anesthesia, and orthopedics.

Mitsubishi Corporation Group, which started operating in medical field in the 1970s, has focused on healthcare related business, often in

collaboration with medical or nursing care business firms in which the Company has invested, and expanded its business from sales and

procurement support of medical devices and materials to medical equipment rentals in domestic and overseas markets experiencing deregulation

in the medical and nursing care industries.

It is anticipated that this transaction will be beneficial in growing the medical device market further as it is possible to integrate the “Total

Solution” in the medical device field by Mitsubishi Corporation Group with the advanced expertise of Kobayashi Medical Co., Ltd.

20. Subsequent Events


Cash dividends (¥43.00 = $0.52 per share) ¥1,761 $21,426



Report of Independent Auditors

1886

1894

1912

1919

1939

1940

1948

1956

1958

1967

1969

1972

1975

1976

1983

1988

1992

1993

1996

1998

1999

2000

2001

2002

2003

2004

2005

2006

2008

2009

2010

2011

2012

Founder Chubei Kobayashi established Kobayashi Seidaido, an unlimited partnership company, in Monzen-cho, Naka-ku, NagoyaThe Company sold general merchandise, cosmetics

Launched 10 types of proprietary pharmaceuticals including Daikomaru, Ichinichimaru and Tamushichinki

Established Kobayashi Daiyakubou, a limited partnership company, in Hiranomachi, Higashi-ku, Osaka

Incorporated as Kobayashi Daiyakubou, Co., Ltd. in Kyomachibori, Nishi-ku, Osaka through a merger involving unlimited partnership company Kobayashi Seidaido and limited partnership company Kobayashi DaiyakubouKichitaro Kobayashi is appointed as the first president

Launched Hakkiri, a headache medicine

Spun off the manufacturing unit of Kobayashi Daiyakubo, to establish Kobayashi Pharmaceutical Co., Ltd.Juso Plant began operations in Higashi-yodogawa-ku, Osaka (currently Yodogawa-ku)

Saburo Kobayashi is appointed as the second president

Kobayashi Daiyakubo Co., Ltd. and Kobayashi Pharmaceutical Co., Ltd. were merged and renamed Kobayashi Pharmaceutical Co., Ltd.Relocated the Head Office to Dosho-machi, Higashi-ku, Osaka (currently Dosho-machi, Chuo-ku)

Teruko Kobayashi is appointed as the third president

Launched Ammeltz, an external anti-inflammatory

Launched Bluelet, a toilet bowl cleaner, and entered the household products market

Formed partnership with C.R. Bard, Inc. of the U.S. to establish medical devices importer—Japan Medico, Inc. and enter the medical devices market

Launched Sawaday, a toilet air freshener, and entered the deodorizing air fresheners market

Kazumasa Kobayashi is appointed as the fourth president Japan Medico, Inc. became Medicon, Inc., a joint venture company with C.R. Bard, Inc.

Established Toyama Kobayashi Pharmaceutical Co., Ltd. (Toyama City, Toyama Prefecture)

Angel Ltd. made a consolidated subsidiary of Kobayashi Pharmaceutical Co., Ltd. to gain a manufacturing site (Niihama City, Ehime Prefecture)

Established Kobayashi Medical, as part of the Medical Devices Business

Established Sendai Kobayashi Pharmaceutical Co., Ltd. (Kurokawa-gun, Miyagi Prefecture)

Launched Toughdent, denture cleanser

Established Shanghai Kobayashi Friendship Daily Chemicals Co., Ltd., a joint venture company in ChinaEstablished Kobayashi Healthcare, Inc. in the U.S.

Listed on the Second Section of the Osaka Securities Exchange Launched nutritional supplements through the mail order sales channel

Listed on the First Section of the Tokyo Stock Exchange and Osaka Securities ExchangeEstablished the Central R&D Laboratory in Ibaraki City, Osaka PrefectureSpun-off the Trade Company to form Kobashou Co., Ltd.

Acquired Kiribai Chemical Co., Ltd., a body warmer manufacturer, as a subsidiary (Yodogawa-ku, Osaka)Established Kobayashi Healthcare Europe, Ltd. in the United Kingdom

Established Kobayashi Pharmaceutical (Hong Kong) Co., Ltd. in Hong KongMade Shanghai Kobayashi Friendship Daily Chemicals Co., Ltd. into a wholly owned subsidiary and changed its name to Shanghai Kobayashi Daily Chemicals Co., Ltd.Took over the health food business, mainly for Tochucha (Eucommia leaf tea), from Hitachi Zosen Corporation

Angel Ltd. renamed Ehime Kobayashi Pharmaceutical Co., Ltd.

Yutaka Kobayashi is appointed as the fifth president

Obtained exclusive distribution rights for women’s health medicine Inochi No Haha A from Sasaokayakuhin Corporation

Made eVent Medical Ltd., a medical device manufacturer, into a subsidiary in IrelandMade HeatMax, Inc., a body warmer manufacturer in the U.S., into a subsidiary

Kobashou Co., Ltd. and Mediceo Paltac Holdings Co., Ltd. conducted share exchange.Spun off the manufacturing division of Kiribai Chemical Co., Ltd. to establish Kiribai Kobayashi Pharmaceutical Co., Ltd.Obtained trademark right for Bisrat Gold from Ishihara Chemical Co., Ltd.

Established Kobayashi Pharmaceutical (Singapore) Pte. Ltd. in Singapore

Spun off medical device division into Kobayashi Medical Co., Ltd.

Transferred all eVent Medical INC. shares in a management buy-out Established Kobayashi Healthcare (Malaysia) Sdn. Bhd. in Malaysia Established Kobayashi Pharmaceutical (Taiwan) Co., Ltd. in Taiwan

Made Grabber, Inc., a body warmer manufacturer in the U.S., a subsidiary Established PT. Kobayashi Pharmaceutical Indonesia in Indonesia Transferred 80% of Kobayashi Medical Co., Ltd. shares to Mitsubishi Corporation


History

As of March 31, 2012

Toyama Kobayashi Pharmaceutical Co., Ltd.

Sendai Kobayashi Pharmaceutical Co., Ltd.

Ehime Kobayashi Pharmaceutical Co., Ltd.

Kiribai Chemical Co., Ltd.

Kiribai Kobayashi Pharmaceutical Co., Ltd.

Kobayashi Medical Co., Ltd.

Kobayashi Pharmaceutical Plax Co., Ltd.

SP-Planning, Inc.

Archer Corporation

Suehiro Sangyo Co., Ltd.

Kobayashi Pharmaceutical Life Service Co., Ltd.

Kobayashi Pharmaceutical Distribution Co., Ltd.

Manufacturing of pharmaceuticals and other products

Manufacturing of pharmaceuticals and other products

Hygienic and paper goods manufacturing

Disposable body warmer sales

Disposable body warmer manufacturing

Medical equipment and device import and sales

Synthetic resin products manufacturing

Displays and model production

Advertising, planning and creation

Daily goods sales

Insurance agency and real estate management

Transportation Services

Toyama, Japan

Niihama, Ehime, Japan

Yodogawa-ku, Osaka, Japan

Sanda, Hyogo, Japan

Chuo-ku, Osaka, Japan

Toyama, Japan


Chuo-ku, Tokyo




¥100 million

¥200 million

¥77 million

¥49 million

¥49 million

¥50 million

¥95 million

¥10 million

¥10 million

¥15 million

¥10 million

¥10 million

Taiwa-cho, Kurokawa-gun, Miyagi, Japan

Kobayashi Healthcare, LLC.

Kobayashi Healthcare Europe, Ltd.

Shanghai Kobayashi Daily Chemicals Co., Ltd.

Shanghai Kobayashi Pharmaceutical Business Co., Ltd.

Kobayashi Pharmaceutical (Hong Kong) Co., Ltd.

Kobayashi Pharmaceutical (Singapore) Pte. Ltd.

HeatMax, Inc.

Mediheat, Inc.

Thermomax, Inc.

Kobayashi Healthcare of America, Inc.

Kobayashi Pharmaceutical (Taiwan) Co., Ltd.

Kobayashi Healthcare (Malaysia) Sdn. Bhd.

Grabber, Inc.

YSC, Inc.

Kobayashi Pharmaceutical of America, Inc.

Daily goods sales

Daily goods sales

Daily goods manufacturing and sales

Information Collection and Quality Management

Daily goods sales

Daily goods sales

Disposable body warmer manufacturing and sales



Holding company

Daily goods sales

Daily goods sales

Disposable body warmer sales

Mail order sales of daily goods

Asset management

Georgia, U.S.A.

London, U.K.

Shanghai, China

Shanghai, China

Hong Kong, China

Singapore

Georgia, U.S.A.

Georgia, U.S.A.

Georgia, U.S.A.

Georgia, U.S.A.

Taipei, Taiwan

Kuala Lumpur, Malaysia

Michigan, U.S.A.

Michigan, U.S.A.

California, U.S.A.

US$ 5,110,000

UK£ 14,081

RMB160,326,485

RMB25,648,850

HK$ 1,570,000

S$ 300,000

US$ 1,230,001

US$ 10

US$ 0

US$ 6,200

NT$ 8,000,000

RM 1,000,000

US$ 323

US$ 1,000

US$ 1

Medicon, Inc. Medical equipment and device import and salesChuo-ku, Osaka, Japan ¥160 million

Consumer Products Business Medical Devices Business Other Business

LocationCompany

Domestic Consolidated Subsidiaries

Overseas Consolidated Companies

Equity-Methed Affiliates

Capital Main Business

Group Companies


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 (month)

(Yen)(Shares)

2010 2011 2012

Stock Price and Trading Volume

Treasury Stock

3.71%

Banks

1.18%

Other FinancialInstitutions

2.78%

Individuals and Other

42.96%

10.87%

Trust Banks(Incl. trust accounts)

Other Corporations

16.73%

Foreign Corporations

21.77%

Name Percentage of Total Shares Held (%)

As of March 31, 2012

Corporate Name:

Foundation:

Head Office:

Representative Director:

Number of Employees:

Consolidated Subsidiaries:

Equity-Methed Affiliates:

KOBAYASHI PHARMACEUTICAL CO., LTD.

August 22, 1919

27

1

Corporate Data Investor InformationCommon Stock:

Number of Shares Authorized:

Number of Shares Issued:

Number of Shareholders:

Stock Exchange Listing:

Annual Shareholders’ Meeting:

Investor Relations:

E-mail

U R L

F A X

Phone

Major Shareholders Shareholder Composition

10.9

7.1

6.1

3.5

3.0

2.9

2.8

2.6

2.6

2.4

Akihiro Kobayashi

Kobayashi International Scholarship Foundation

Yukako Iue

State Street Bank and Trust Company

Ikuko Watanabe

The Master Trust Bank of Japan, Ltd. (trust accounts)

Teruhisa Miyata

The Chase Manhattan Bank N.A. London S.L. Omnibus Account

Ohtori Co., Ltd.

Forum Co.,Ltd.

1 The percentage of total shares held is calculated by deducting 1,575,862 shares

of treasury stock.

KDX Kobayashi Doshomachi Bldg., 4-10, Doshomachi 4-chome, Chuo-ku, Osaka 541-0045, Japan

Tokyo Stock Exchange 1st Section, Osaka Securities Exchange 1st Section

Mitsubishi UFJ Trust and Banking Corporation

Yutaka Kobayashi, President (Appointed president on June 29, 2004)

2,414 (Consolidated) 1,062 (Unconsolidated)

Transfer Agent / InstitutionManaging Designated:

¥3,450 million

170,100,000

42,525,000

12,148

June

KOBAYASHI PHARMACEUTICAL CO., LTD.

Corporate Communication Department

+81-6-6222-0142

+81-6-6222-4261

[email protected]

http://www.kobayashi.co.jp/english/index.shtml

Stock Price(Right Axis)

Trading Volume(Left Axis)

Corporate Data / Investor Information


Printed in Japan

Head Office: KDX Kobayashi Doshomachi Bldg., 4-10, Doshomachi 4-chome, Chuo-ku, Osaka 541-0045, Japan

Phone: +81-6-6222-0142

URL: http://www.kobayashi.co.jp/english/index.shtml

annual report 2012 - kobayashi.co.jp€¦ · annual report 2012 year ended march 31, 2012....

Documents