1

Annual Report 2001For the year ended March 31, 2001

TerumoAdvantageThe

Integrated development of medical supplies, systems, and equipment

34

In 1921, a group of medical scientists established Terumo Corporation. Based

on a corporate policy of “contributing to society through medicine,” the Com-

pany has broadened its business scope to include producing clinical thermom-

eters; promoting the increased use of disposable products, which contribute

to safe medical treatment; and developing medical systems and equipment to

comprehensively support advanced medical treatment. Terumo products are

reputed for their leading-edge technology in markets worldwide and are con-

tributing to the healthcare of people in more than 150 countries.

By utilizing our advantage of being able to combine product development

capabilities for medical supplies, systems, and equipment, we continue to

develop products that meet new market needs, such as risk management, cost

control, and methods for reducing the physical burden of medical treatment.

Furthermore, we are pursuing global business development, aiming to con-

tribute to the healthcare of people around the world.

P R O F I L E

C O N T E N T S

FORWARD-LOOKING STATEMENTS

This annual report includes certain “forward-looking statements.” These statements are based on management’s current expec-

tations and are subject to uncertainty and changes in circumstances. Actual results may differ due to changes in economic,

business, competitive, technological, regulatory, and other factors.

● Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

● President’s Message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

● Cardiovascular System Business—The Driving Force behind Terumo’s Future Growth . . . . . . . . . . . . . . . . . . . . . . . . . 6

● Review of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

● Management’s Discussion and Analysis of Operating Results and Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . 14

● Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

● Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

● Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

● Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

● Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

● Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

● Corporate Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

● Board of Directors and Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

35

Notes: 1. All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at ¥124=$1, the approximateexchange rate at March 31, 2001.

2. Effective from the fiscal year ended March 1999, new accounting standards for enterprise tax were adopted. The amounts of selling,general and administrative expenses, operating income and income before income taxes and translation adjustment shown in prioryears’ financial highlights have been restated to conform to the 1999 presentation.

3. Effective from the fiscal year ended March 2001, a revised accounting standard for foreign currency transactions was adopted. Theamounts of total assets shown in prior years’ financial highlights have been restated to confirm to the 2001 presentation.

Terumo Corporation and subsidiariesYears ended March 31

Financial Highlights

2000 2001

$ 303,065

150,798198,895104,694222,589291,411148,306

1,419,758

232,258

233,976134,185

1,090,298638,282

2,271,4521,389,282

312,226

$ 0.640.07

For the period:Net sales:

Pharmaceuticals ...................Transfusion and infusion

equipment.........................Injection systems .................Clinical testing systems .........Artificial organs ...................Catheter systems ..................Other products .....................

Operating income ......................Income before income taxes and

minority interests ...................Net income ...............................

At year-end:Current assets ...........................Current liabilities ......................Total assets ..............................Total stockholders’ equity ...........Common stock ..........................

Per common share:Net income—basic ....................Cash dividends ..........................

Other statistics:ROE .........................................Number of common shares

issued at year-end ...................Number of associates .................

1999

¥ 36,289

18,80126,41311,75817,20032,66317,558

160,682

30,247

29,17214,834

116,22967,066

247,195158,31938,716

¥ 71.948.50

10.4%

210,8765,849

1998

¥ 34,628

18,11727,41110,79116,00528,14913,806

148,907

27,197

26,96014,337

95,72187,294

217,998125,79328,943

¥ 72.808.50

13.0%

200,4355,556

1997

¥ 30,229

17,42726,79910,41815,50724,33912,889

137,608

25,822

24,36912,458

107,41194,877

215,89894,07119,317

¥ 65.528.50

14.0%

190,1505,111

Thousands ofU.S. dollars(Note 1)Millions of yen

Yen

¥37,580

18,69924,66312,98227,60136,13518,390

176,050

28,800

29,01316,639

135,19779,147

281,660172,27138,716

¥ 78.918.50

9.9%

210,8767,412

¥ 37,246

18,73124,77312,25224,35336,35017,474

171,179

29,151

11,2826,284

116,16969,693

263,723153,30438,716

¥ 29.808.50

3.9%

210,8766,898

2001

U.S. dollars(Note 1)

1

0

50

100

150

200

0

3

6

9

12

15

18

0

20

40

60

80

0

4

8

12

16

0100999897 0100999897 0100999897 0100999897

Billion ¥ Billion ¥ ¥ %Net Sales Net Income Net Income per Share ROE

2

President’s Message

In fiscal 2001, ended March 31, 2001, Terumo’s business environment was perhapsthe most difficult the Company has ever faced, adversely affected by the Japa-

nese government’s policy of restraining healthcare expenditures and intensifiedcompetition on a global scale. Despite these conditions, we made concerted effortsto realize the goals of PRIDE 21, our medium-term plan. As a result, Terumo postedrecord levels of net sales and net income. I would like to take this opportunity tothank our stockholders, customers, business partners, employees, and other stake-holders in the Company for their support and cooperation.

During the fiscal year under review, we proceeded with the launch of high-value-added products as part of our goal of providing “medical care that is kind topeople.” We focused our efforts on developing minimally invasive medical testingand treatment systems and supplies as well as medical equipment and pharmaceuti-cals that patients and the medical staff providing treatment can use with safety andconfidence. And, we took steps to develop these products with the environment inmind. To achieve these objectives, we worked to build the foundations for a globalresearch and development organization that spans Japan, the United States, andEurope. At the same time, we continued with our strategy of forming business alli-ances with other companies that have superior technologies.

Moreover, we have almost completed the establishment of a global productionnetwork for our future expansion. In addition to the start-up of operations at aplant in the Philippines, we expanded the production capacity of plants in China andIndia. These three plants will contribute to meeting the diversifying needs of cus-tomers through multiple product, small-lot manufacturing lines and to increasing ourcost-competitiveness.

“Terumo provides medical care that is kind to people by drawing on its uniquetechnologies” is the key concept of the Company’s new business vision. I intend toensure that Terumo moves steadily forward in accordance with this new vision tocontribute to the health of people around the world and to build a solid reputationin the global medical care market.

Takashi WachiPresident & Chief Executive Officer

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Takashi WachiPresident& Chief Executive Officer

Q. How is the Company progressing with the implementation of its PRIDE 21 plan?

A. In operating our business, we have been following our three-year, medium-term plan,PRIDE 21, which commenced in the fiscal year ended March 2000. In the fiscal year underreview, we posted net sales of ¥176.1 billion, achieving sales growth for the seventh con-secutive fiscal year. Although operating income was down slightly from the previous year,at ¥28.8 billion, net income reached ¥16.6 billion, a record high level.

Looking at performance by region, sales of catheters, home healthcare products, andinfusion solutions in Japan declined due to lower prices and heightened competition. On theother hand, sales of blood glucose monitors, cardiovascular systems, and prefilled syringesexpanded. Consequently, sales in Japan rose 1.8%, to ¥118.4 billion. Overseas, sales of suchproducts as artificial organs were firm, offsetting the effects of the weak Euro. As a result,overseas sales advanced 5.3%, to ¥58.2 billion.

In the fiscal year ending March 2002, the final year of PRIDE 21, we expect to registerrecord highs in net sales and profits. We will achieve these results by the development andintroduction of safe and effective, high-value-added products, further cost reductions, andgreater operational efficiency through the use of information technology.

Q. What is the basic concept of the Terumo New Vision?

A. In September 2001, Terumo will celebrate its 80th anniversary. After considering whatrole Terumo should play in the 21st century and in seeking to establish a clear direction forthe Company, we have based the Terumo New Vision on the concept of “Terumo providesmedical care that is kind to people by drawing on its unique technologies.” Underpinningthis basic concept is our desire to utilize the unique technological capabilities that we havenurtured over the past 80 years to contribute to improving the quality of life of all peopleneeding medical treatment.

Terumo has proprietary technologies that it has developed on its own across a broad rangeof fields, including coating, material development, and infusion systems. Fusing these tech-nologies and refining them—in other words, creating hybrid technologies—could be said to

4

be a core support technology for our product development. By utilizing this core technology,we intend to realize our corporate policy of “contributing to society through medicine” bysupplying people with products and services that match the needs of the new era worldwide.

Q. In which direction will this vision take Terumo’s business development?

A. With the aim of providing “medical care that is kind to people,” we will focus on threeareas of business and product development. The first is pursuing medical treatment that issafe and trustworthy. To this end, we are developing minimally invasive medical testing andtreatment systems and supplies. We are also developing medical equipment and pharmaceuti-cals that patients and medical staff alike can use with safety and confidence. And, of course,we keep the environment in mind when developing these products.

The second area is the development of global technologies. Over the past few years, com-petition among companies to establish businesses in such leading-edge medical technologiesas rejuvenation treatments and minimally invasive surgery has intensified. At Terumo, we areresearching these fields as well. I think that it is important to make these medical treat-ments available to all people, not just to a select group. Therefore, I believe it is Terumo’smission to make these leading-edge medical treatments easier to use and widely available toall patients.

The final area of business and product development is providing medical care that adaptsto people’s lifestyles. To allow patients to more comfortably receive medical care as part oftheir daily routines, we want to create medical treatments for individuals. Accompanying thegovernment’s curtailment of healthcare expenditures, we can expect a shift to shorter termsof hospitalization, faster discharges from hospitals, and greater home care. Moreover, thegovernment is taking a positive view of preventative medicine. Terumo, therefore, will workto develop products that meet emerging medical demand for treating patients outside medi-cal facilities.

Q. Is the Company implementing any medical liability risk management measures?

A. Medical malpractice has become a hot issue in the Japanese media of late. We areactively developing products that can contribute to the prevention of medical accidents.We already have products in our infusion and nutritional supplement lines that have func-tions to prevent mistaken use, products that prevent medical staff from pricking themselveswith needles when giving injections, and products that reduce the chances of infections frombacterial contamination. In addition, our prefilled syringes contribute to minimizing errorscaused by the on-the-spot selection of drugs and to reducing workloads. It is our goal tocontribute to the safety of medical treatment by developing and supplying products andservices that ensure that patients and medical staff can feel confident in receiving andgiving medical treatment.

Q. Can you tell us something about Terumo’s business alliance strategies?

A. In pursuing the timely development of high-value-added products, there are cases whereTerumo cannot achieve the desired results using its own technologies. It is extremely impor-tant to do your own R&D and to discover and develop new technologies; however, in an agethat demands speed, the time and costs required are sometimes so great that we would runthe risk of compromising our future. For technologies that we do not have in-house or would

5

take substantial time to learn, we usually look to business alliances with or acquisitions ofcompanies that have top-level technology in that field.

Based on this thinking, in April 2001, we formed a comprehensive business alliance withOlympus Optical Co., Ltd., in the medical treatment equipment field. By combining theindividual strengths of our two companies, we plan to develop minimally invasive diagnosticand treatment equipment that reduces the pain and suffering of patients. For the time being,our focus will be on the fields of heart surgery, gastroenterology, and urology. Our two com-panies will cooperate at all stages of the development and marketing processes. In anotheralliance, we formed a business tie-up with Takeda Chemical Industries, Ltd., and TanabeSeiyaku Co., Ltd., in which these companies will sell prefilled syringes made by Terumo.In the future, we will continue to enter into alliances with other companies to expand ourproduct lineup.

Q. What environmental protection activities is the Company involved with?

A. I believe that environmental protection activities are an important social responsibilityof companies. Based on the Environmental Policy we announced in December 1999, we aredeveloping products in consideration of their environmental impact. As part of that process,we have been converting to non-vinyl chloride plastic products and packaging. During thefiscal year under review, we almost completed converting the packaging material of mostof our products and liquid containers of peritoneal dialysis solutions to non-vinyl chloridematerials. Previously, vinyl chloride was used in many medical supplies; however, it hasrecently been suggested that when incinerated vinyl chloride produces dioxin. In addition,it has been pointed out that, in combination with certain drugs, a non-degradable substanceis formed. Consequently, there have been many requests, including those from within themedical field, to eliminate the use of vinyl chloride. We intend to work together as acompany to develop environmentally friendly products and improve production and supplymethods.

Q. What are the Company’s plans for raising corporate worth?

A. It is my intention that Terumo conducts its business in a manner that will earn it therespect of people around the world by contributing widely to society through the supply ofproducts and services that take into consideration medical care receivers and givers. Guidedby this goal, our basic management policy is to achieve strong performances, raise corporateworth, and return profits to stockholders.

Medical treatment equipment is currently a rising star in the medical field. The market isexpanding, but competition in the development of new products is intensifying. Under thesecircumstances, we will strengthen our global business development and R&D organizationand aggressively invest in rejuvenation treatments and minimally invasive surgery, aiming forcontinued expansion. To raise our business efficiency further, we are targeting sustainedprofit growth to fulfill the expectations of our stockholders and increase the value of theirshares.

6

Cardiovascular System Business—

The CardioVascular Company primarily handlesoxygenators, roller pumps, and other productsused in heart surgery as well as angiographicand PTCA dilatation catheters and otherproducts used in intravascular diagnosis andtreatment. Mainly focused on the heart, theCardioVascular Company is developing itsbusiness in a wide range of areas in circula-tory systems, with strong emphasis on speed.

Growth in the Number of PatientsRequiring Cardiovascular Treatment

Categories of patients that need cardiovascu-lar surgery include those with schema, suchas angina and myocardial infarction patients;those with congenital problems, such as atriasepal defects; and those with large arteryproblems, such as aneurysm patients. In1999, the number of people with these dis-eases was estimated at approximately 38,000in Japan and 1,000,000 overseas, and we expect these numbers to grow along with theaging of society.

Today, PTCA dilatation catheters and coronary stents (mesh or coiled metal tube) arewidely used to treat angina and myocardial infarction internally. The numbers of patientsopting for this type of surgery in Japan now exceed those that have open-heart bypasssurgery by approximately ten to one.

Terumo is dedicated to helping patients suffering from heart and other diseases

return to a healthy life as quickly as possible. Our Cardiovascular System Business leapt

into prominence in the global market when we acquired the cardiovascular system

division of Minnesota Mining & Manufacturing Company (3M) in July 1999. In April

2001, to adapt to rapid developments in the global market, we integrated our catheter

and cardiovascular Terumo Business Units (TBUs) to form the CardioVascular Company.

By leveraging the leading-edge technology that is Terumo’s trademark, we aim to ex-

pand market share and profitability in this business through an R&D organization en-

compassing Japan, the United States, and Europe that targets the global standardiza-

tion of our products and through the maximization of our competitiveness based on a

wider product lineup.

The Driving Force behind Terumo’sFuture Growth

Trends in Numbers of PTCA Cases and Facilities in JapanSource: Health and Welfare Statistics Association

0

20,000

10,000

30,000

40,000

60,000

50,000

70,000

80,000

90,000

100,000

93

0

100

200

300

400

500

600

700

800

96 99

Number of PTCA cases (left scale)Number of facilities

84

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50

100

150

200

250

300

350

400

450

500

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

87 90 93 96 99

Trends in Numbers of Open-Heart Surgery Cases and Facilities in JapanSource: Health and Welfare Statistics Association

Number of open-heart surgery cases (left scale)Number of facilities

7

Equipment Used in Cardiovascular Surgery

Overview of Terumo’s Activities in Circulatory Systems

Cardiovascular system products comprise oxygenators, roller pumps, cannulas, and a seriesof other devices related to blood circulation. This equipment is used to artificially oxygenateand circulate blood outside the body during heart surgery.

In 1982, the launch of CAPIOX II, the world’s first hollow fiber oxygenator, earned Terumoglobal recognition for its advanced technology and R&D capabilities in cardiovascular sys-tems. Since then, we have gone on to successively launch innovative products that combineour original technologies and development skills, establishing a solid reputation in themarket.

Beginning with the 1985 introduction of ourRadifocus guidewire for angiography, we havebuilt a lineup of catheters based on advancedtechnology for vascular diagnosis and interven-tion. In the process, we have gained a world-wide reputation for excellence based on thesuccessive introduction of innovative products.

PTCA dilatation cathetersand coronary stents are beingwidely used to treat anginaand myocardial infarction inorder to minimize patienttrauma. In the interventioncatheter field as well, Terumooffers products that arehighly evaluated by themarket. The use of theseproducts is growing annuallyin cranial and abdominalmedical treatment, and we also sell micro-catheters in this market.

In our R&D efforts, we are pursuing the development of minimally invasive, advancedmedical equipment and working to bring leading-edge medical treatment within the reachof patients.

Expanding Our Share of the Cardiovascular System Market

In 2000, we introduced CAPIOX RX, a new oxygenator, and a new blood line that incorporatea proprietary coating technology that greatly improves biocompatibility in blood. Moreover,with the addition of the Sarns and CDI lines, we have established a full product lineup in thecardiovascular field. We intend to optimize synergies in our operations and further expandour share of this market.

Last year, we also introduced two new PTCA dilatation catheters that utilize our proprietarycoating technology. In addition, we have further improved the thinness, material, and shapeof these products to make them substantially easier to use and to pass through veins and

Oxygenator

Blood gas monitor

Heart

Hemoconcentrator Roller pump Cannula

8

2001 2002 2003 2004 2005 2006

● Coronary stents

● PTCA dilatation catheters

● Oxygenators, Blood pumps

● Minimally invasive treatment

● Artificial blood vessels

● T-ILVAS

Terumo’s Pipeline of Cardiovascular Products (Year ended/Years ending March 31)

arteries. We plan to develop and introduce multiple new products in this field annually,aiming to expand market share through aggressive marketing activities centered on our solidcustomer base.

We also continue to launch new coronary stent products for stent therapy, which is grow-ing in popularity. In May 2001, we introduced Tsunami. This new coronary stent was mar-keted in Europe and Asia before being launched in Japan, and it has received high praisefrom doctors in both regions. In the future, coated stents are expected to become the main-stream product in the market due to progress in raising treatment efficiency through the useof drug coatings. Since coating technology is one of Terumo’s specialties, the Company iscurrently developing highly competitive products for this market.

Developing Leading-Edge Medical Fields

Terumo has been aggressively pursuing R&D in leading-edge medical fields. For example,in the near future, patients for whom heart transplants are the only option, such as manycardiac-failure patients, will benefit from progress in artificial heart development. Aiming fora market launch within the next five years, we are currently developing T-ILVAS, an im-planted artificial heart support system (left ventricular assist device: LVAD).

Among our artificial blood vessel products, in addition to products for lower extremitiesand dialysis shunts, we are developing products for use in aortic aneurisms and other areasutilizing unique Terumo technologies.

In April 2001, we reached an agreement on a comprehensive business alliance withOlympus Optical Co., Ltd., covering the development, manufacturing, and sale of medicalequipment. We took this step to ensure our survival in the increasingly competitive globalmarketplace. Olympus Optical boasts a significant share of the global endoscope market, andwe intend to use the individual strengths of our two companies to cooperate in sales andmarketing and to develop minimally invasive diagnostic and treatment equipment. Bothcompanies will not onlydevelop new products intheir existing fields but alsocultivate new markets.

In recent years, the pro-portion of minimally inva-sive cardiac surgery (MICS)used in the treatment ofheart disease patients tominimize patient trauma hasgrown annually. This typeof surgery has many advan-tages. MICS reduces the pain and suffering of patients, minimizing scars by making thesurgical opening as small as possible. Patients, therefore, have shorter periods of hospitaliza-tion and are able to quickly return to their normal lifestyles. Terumo and Olympus Optical arealso cooperating in the development of MICS-related products.

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Terumo Cardiovascular Systems Corp. (Ann Arbor, Tustin, Maryland, Ashland)Principal products: roller pumps, cannulas, blood gas measuring systems,

oxygenators, and blood lines

Terumo Cardiovascular Systems Europe GmbHSales of cardiovascular products

Terumo Medical Corporation (Maryland Factory)Principal products: syringes and catheter-introducer kits

Terumo Europe N.V.Principal products: syringes and angiographic catheters

Terumo Research & Development Center

Ashitaka FactoryPrincipal products: oxygenators, blood lines, and catheters

Principal sales officesR&D facilities or manufacturing plants of cardiovascular products

Many dreams exist in the development of leading-edge technology. However, it is impor-tant to realize such dreams in a form of medical treatment that is available to people aroundthe world. We believe that acting as the bridge between such technologies and their applica-tions is Terumo’s mission.

Establishing a Clinical Trial and R&D Organization Spanning Japan,the United States, and Europe

In March 2001, to accelerate its cardiovascular system R&D programs Terumo transferredits left ventricular assist device development team (T-ILVAS) to Terumo CardiovascularSystems Corp. (TCVS), of the United States. TCVS is a Terumo subsidiary that was formed asa result of acquiring the cardiovascular system division of 3M. Terumo now has in placea three-pronged global R&D organization. Through this organization, the Company plansto introduce new products in a constant and timely manner to establish the Terumo brandas a global standard.

Cardiovascular System Business—

The Driving Force behind Terumo’s Future Growth

TerumoAdvantageThe

Integrated development of medical supplies, systems, and equipment

10

Net Sales by Product Category (Year ended March 31, 2001)

Review of Operations

0

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0100999897

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Pharmaceuticals

Main products in this categoryare infusion solutions andother medical supplies, nutri-tional supplements, bloodbags, peritoneal dialysis solu-tions, and prefilled syringes.Sales edged up 0.9%, to ¥37.6billion. In the fiscal year underreview, the April 2000 across-the-board reduction in NationalHealth Insurance drug priceshad a dampening effect onprices of infusion solutions,peritoneal dialysis solutions, and other products. Overseas,favorable sales of blood bags in the United States contrib-

uted to overall sales growth.MID PERIC L, a close-to-

neutral peritoneal dialysissolution introduced in June2000, and TERUMEAL, a highcalorie nutritional food thatis delivered to home-carepatients, both registeredstrong sales. In December2000, we began sales of

LIDOQUICK, ATOQUICK, and other prefilled syringes contain-ing drugs used in medical emergencies. In addition, weformed sales-related business tie-ups with other pharma-ceutical companies, increasing sales of prefilled syringes,including such new products as PUREPENON and ATOQUICK.We will strengthen sales of prefilled syringes by furtherexpanding the rangeof available productsbased on allianceswith other companies.

UNICALIQ L and N, intravenoussolutions for TPN

2% LIDOQUICK FOR INTRAVENOUS INJECTION,a lidocaine hydrochloride injection

21.3%

10.6%

14.0%15.7%

20.5%

7.4%

10.4%

■ Pharmaceuticals

■ Transfusion and infusion equipment

■ Injection systems

■ Clinical testing systems

■ Artificial organs

■ Catheter systems

■ Other products

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Transfusion and Infusion Equipment Injection Systems

Our transfusion and infusionequipment principally com-prises transfusion sets andblood filters and infusion setsand intravenous needles. Salesedged down 0.2%, to ¥18.7billion. Sales of transfusionsets and three-way stopcocksrose, and sales of leukocyteremoval filters were favorablein overseas markets. Sales ofintravenous needles for infu-sion treatments declined,however, because of the impact of lower drug prices inJapan and intensified price competition overseas.

In July 2000, we launched TERUFEED ED, a feeding tubethat prevents medical staff from confusing our infusionproducts with our transfusion products by making it impos-

sible to connect them.This product was intro-duced in response to thegrowing need for riskmanagement in medicaltreatment, and we plan todevelop more products tomeet this need. Based onour concern for environ-

mental protection, we augmented our line of non-vinylchloride infusion equipment and supplies, such as infusionsets.

We expanded facilities at our Hangzhou Plant in China toadapt to multiple product, small-lot manufacturing needsand to reduce production costs. The Hangzhou Plant prima-rily produces transfusion andinfusion sets and supplies forthe Japanese market.

Our injection systems includesyringes and needles as well asinjection systems for anesthe-sia. Sales slipped 0.4%, to¥24.7 billion. Although salesof syringes rose in Japan,overseas sales were negativelyaffected by exchange rates andother factors.

Our products for the riskmanagement of mistakenneedle sticking and transfusionand infusion attachment werewell received during the fiscal year. Such products includedthe SURESHIELD series of needles for preventing accidentalneedle sticking, SUREPLUG NEEDLELESS CLOSED SYSTEM for

the prevention of acci-dental hospital-acquiredinfections and needlesticking from intravenousdrips, and TERUFEED EDto prevent confusionbetween our infusion andnutritional supplementproducts. We intend to

continue to develop and launch products that contribute torisk management in medical treatment.

In April 2000, we began operations at a plant in thePhilippines. The plantmanufactures medicalsystems and equipment,such as syringes, mainlyfor the Southeast Asianmarket and features lowcost production systems.

0

5

10

15

20

0100999897

Billion ¥Sales

0

5

10

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30

0100999897

Billion ¥Sales

SURESHIELD SV Set, a safety wingedinfusion set

TERUFEED ED, a feeding tube toprevent misconnection

SURESHIELD SYRINGE II, safetysyringes

Catheter tip syringes

12

Clinical Testing Systems Artificial Organs

Our major products in thiscategory are blood collectionsystems, blood gas measuringkits, and blood glucose moni-toring systems. Sales advanced6.0%, to ¥13.0 billion duringthe fiscal year under review.

Among the products thatcontributed to sales growthduring the year were vacuumblood sample tubes, a newvacuum blood-collectingsystem for use in testing inmedical emergencies, and MEDISAFE, a blood glucose moni-toring device for diabetics. Sales of MEDISAFE have contin-

ued to expand as patientsrecognize the convenience andease with which they cancheck blood sugar levels. Also,during the year we began salesof MEDISAFE DATA VISION, ablood sugar data managementsystem that is Internet en-

abled. In April 2001, we launched MEDISAFE ez, a bloodglucose monitoring device thathas been highly evaluated bypatients for its superior ease ofuse and quick reading ability.Sales of MEDISAFE ez beganwell and are growing.

The number of diabetics inJapan is increasing annually.We intend to continue to introduce equipment that isconvenient and easy to use and meets the full range ofneeds of diabetic patients.

This category consists ofoxygenators and HLMSs, whichfunction as heart and lungsduring open-heart surgery, anddialyzers, for patients withchronic renal failure. Sales rose13.3%, to ¥27.6 billion,mainly due to a strong perfor-mance by the cardiovascularsystem division acquired fromMinnesota Mining & Manufac-turing Company (3M) in July1999.

Domestic sales were robust during the fiscal year. Prod-ucts that contributed to growth included CAPIOX RX, a newtype of oxygenator introduced inMarch 2000, and new vitamin-E-coating blood channels. In addition,sales of dialyzers that also have avitamin E coating on the dialysismembrane expanded. In overseasmarkets, sales of Sarns and CDIproducts acquired from 3M in 1999contributed to growth.

Terumo is putting in place a globaldevelopment organization for cardio-vascular systems. Our R&D base forimplanted artificial heart supportsystems has shifted from Japan to our U.S. subsidiaryTerumo Cardiovascular Systems Corp. In the future, we will

continue to strengthen ourglobal R&D organizationcentered on Japan, theUnited States, and Europe.

0

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0100999897

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0100999897

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MEDISAFE ez, a bloodglucose monitor

VENOJECT II, vacuum blood-collectingtubes

CAPIOX RX, an oxygenator

Sarns 8000 perfusion system,a roller pump

13

Catheter Systems Other Products

The principal uses of ourcatheter systems are fortransluminal/diagnosic/interventional procedures anddrainage. In the fiscal yearunder review, sales edgeddown 0.6%, to ¥36.1 billion.

In July 2000, we commencedsales of INTRAIMAGINGSYSTEM,ultrasound diagnostic equip-ment for blood vessels. Wealso introduced PROGREAT,a micro-catheter for use inintravascular treatment and diagnosis of small blood ves-

sels; NT STENT II, a percu-taneous biliary stentsystem; and POCKET CATH-ETER, a self-insertableurinary tract catheter.Sales of these new, high-value-added products werefavorable. Overseas, com-petition was as intense as

in the domestic market, but sales rose thanks to the intro-duction of such products asangiographic catheters.

We expect the market for PTCAdilatation catheters and coronarystents to continue to be difficultbecause of intensifying competi-tion and falling prices. However, weremain committed to developingand launching products that offermore effective treatment and bettermeet customer needs.

Our other products categoryfeatures digital blood-pressuremonitors and thermometers;medical equipment, such asinfusion and syringe pumpsystems; and the medicaltreatment products of BSNMedical AG. Sales in the fiscalyear under review increased5.2%, to ¥18.4 billion.

Sales of BSN Medical’s ban-dages, taping, medical gloves,and other wound-care prod-ucts, which we began marketing in April 1998, expanded.In addition, sales of such new infusion and syringe pumpsas the TE-161 general-use infusion pump, which is compactand light and incorporates a safety design, were strong.

Among digital blood-pressure moni-tors for home use, sales of ES-P401,an easy-to-use, wrist-type model,and ES-P350, a model with a large,easy-to-read display for the elderly,were also favorable.

In the digital thermometer mar-ket, we launched MIMIPPI HIKARI,

an easy-to-use infrared ear thermometer that uses a lightto indicate that a reading has been taken. We also intro-duced the Melody thermometer,an estimation-type thermom-eter that is the first in Japanto utilize a universal design.

0

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Billion ¥Sales

ARASHI, a PTCA dilatation catheter

INTRAIMAGINGSYSTEM

Digital thermometer ET-C250P

Terufusion Infusion Pump TE-161,infusion pumps for I.V. therapy

14

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0100999897

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0100999897

Billion ¥Operating Income

OPERATING RESULTS

SummaryThrough the provision of a total solutionsystem based on the development and saleof pharmaceuticals and medical equipmentas well as entire medical systems, Terumo iscontributing to the curing of people withvarious health problems in more than 150countries. The Company holds leading posi-tions worldwide in a broad range of fields,including syringes and cardiovascular sys-tems. Among Terumo’s major products areintravenous solutions, blood bags, nonpre-scription drugs, transfusion and infusionequipment, injection systems, clinical test-ing systems, artificial organs, and cathetersystems.

In fiscal 2001, ended March 31, 2001,Terumo posted a record high in consolidatednet sales for the seventh consecutive year.Consolidated net sales amounted to¥176,050 million (US$1,419.8 million),a gain of 2.8% from the ¥171,179 millionregistered in the previous fiscal year. Theexpansion achieved in the fiscal year underreview can be attributed to the balanceddevelopment of all areas of our business.The contribution of the artificial organsbusiness segment was particularly signifi-cant due to the successful integration of theacquisition made in the previous fiscal year.

During the fiscal year under review, wemade successive launches of value-addedproducts with superior competitivenessthroughout our businesses. We also workedvigorously to improve production efficiencywith an emphasis on profitability and tofurther expand our presence in the globalhealthcare market.

Management’s Discussion and Analysis of Operating Results and Financial Condition

Consolidated net income and consolidatednet income per share also hit record highsin the fiscal year under review, reaching¥16,639 million (US$134.2 million) and¥78.91 (US$0.64), respectively; net incomeadvanced 164.8% from ¥6,284 million in theprevious fiscal year. The Company recordedan exchange gain of ¥276 million (US$2.2million) in the period under review, com-pared with a loss of ¥2,424 million in theprevious fiscal year. In addition, income of¥1,469 million (US$11.8 million) was re-corded as recognition of transition differ-ence at the time of adoption of the newaccounting standard for retirement benefit.

Net SalesConsolidated net sales increased 2.8%,to ¥176,050 million (US$1,419.8 million).Domestic sales rose 1.8%, to ¥118,378million (US$954.7 million), and overseassales advanced 5.3%, to ¥58,166 million(US$469.1 million). Overseas sales ac-counted for 33.0% of fiscal 2001 consoli-dated net sales.

Terumo’s business is classified into sevensegments: pharmaceuticals, transfusionand infusion equipment, injection systems,clinical testing systems, artificial organs,catheter systems, and other products.

Pharmaceuticals principally compriseinfusion solutions and other medical sup-plies, nutritional supplements, blood bags,peritoneal dialysis solutions, and prefilled

Year ended March 31, 1999 2000 2001 2001Pharmaceuticals ¥136,289 ¥137,246 ¥137,580 $1,303.1Transfusion andinfusion equipment 18,801 18,731 18,699 150.8Injection systems 26,413 24,773 24,663 198.9Clinical testing systems 11,758 12,252 12,982 104.7Artificial organs 17,200 24,353 27,601 222.6Catheter systems 32,663 36,350 36,135 291.4Other products 17,558 17,474 18,390 148.3

¥160,682 ¥171,179 ¥176,050 $1,419.8

Net Sales by Business Segment (Million ¥, Million $)

15

0

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6

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0100999897

Billion ¥Net Incomesyringes. Sales in this category edged up0.9%, to ¥37, 580 million (US$303.1 mil-lion). The April 2000 reduction in NationalHealth Insurance drug prices dampened salesof infusion solutions and other products inJapan. Overseas, however, sales of bloodbags were favorable. Sales of MID PERIC L,a close-to-neutral peritoneal dialysis solutionintroduced in June 2000, were strong. In otherareas, we expanded sales of prefilled syringescontaining drugs used in medical emergenciesand launched new prefilled syringes, such asPUREPENON and ATOQUICK, through tie-upswith pharmaceutical companies.

Terumo’s transfusion and infusion equip-ment product lines primarily comprise trans-fusion sets and blood filters and infusionsets and intravenous needles. Sales edgeddown 0.2%, to ¥18,699 million (US$150.8million) in fiscal 2001. This decline resultedmainly from lower sales of intravenousneedles for infusion treatments due to theimpact of lower drug prices in Japan andoverseas markets. However, sales of transfu-sion sets and three-way stopcocks rose in thedomestic market. In fiscal 2001, we contin-ued to respond to the annually growing needfor medical risk management by introducinga product that prevents medical staff frommistakenly attaching our infusion productsto our transfusion products. During the fiscalyear, we expanded our production facilitiesat our Hangzhou Plant in China to adapt tomultiple product, small-lot manufacturingneeds and to reduce production costs.

Our injection systems category includessyringes and needles as well as injectionsystems for anesthesia. During fiscal 2001,sales decreased 0.4%, to ¥24,663 million(US$198.9 million). This decline resulteddespite expansion in domestic sales ofsyringes because overseas sales of syringesand needles were negatively affected byfalling prices and intensified competition,especially in Asia. In our productionactivities, in April 2000, we began

operations at a plant in the Philippines thatmainly produces syringes for the SoutheastAsian market.

Clinical testing systems principally com-prise blood collection systems, blood gasmeasuring kits, and blood glucose monitor-ing systems. Sales in this category grew6.0%, to ¥12,982 million (US$104.7 million)in fiscal 2001. In the domestic market, salesof MEDISAFE, a blood glucose monitoringdevice, continued to increase, up approxi-mately 36% from the previous fiscal yeardue to market growth prompted by the risingnumber of diabetics in Japan.

The artificial organs category consists ofoxygenators and HLMSs, which function asheart and lungs during open-heart surgery,and dialyzers, for patients with chronic renalfailure. Artificial organ sales rose 13.3%, to¥27,601 million (US$222.6 million). Theexpansion in sales can mainly be attributedto sales contributions made by productslaunched during the period under review,including a new type of oxygenerator, newvitamin-E-coating blood channels, and adialyzer with vitamin E coating. Sales ofTCVS’s Sarns and CDI products, which wereacquired from Minnesota Mining & Manufac-turing Company (3M) in July 1999, alsocontributed significantly to sales growth.

Our catheter systems mainly comprisecatheters for transluminal/diagnosic/interventional procedures and drainage.Sales in this segment declined 0.6%, to¥36,135 million (US$291.4 million). In thedomestic market, sales of recently launchedproducts, such as INTRAIMAGINGSYSTEM,ultrasound diagnostic equipment for bloodvessels that was introduced in July 2000,and PROGREAT, a micro-catheter for use inintravascular treatment and diagnosis ofsmall blood vessels, were favorable. Salesof PTCA dilatation catheters and stentsdeclined because of lower prices andintensified competition.

0

50

100

150

200

250

300

0100999897

Billion ¥Total Assets

16

30

40

50

60

70

0100999897

％�Equity Ratio

0

5

10

15

20

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0100999897

Billion ¥Capital Expenditure

The other products category includesblood-pressure monitors and digital ther-mometers, infusion pumps, and syringepumps. Fiscal 2001 sales increased 5.2%,to ¥18,390 million (US$148.3 million). Newinfusion and syringe pumps sold well basedon their safety features.

Cost of Sales and Selling, Generaland Administrative ExpensesCost of sales increased 6.3%, to ¥89,022million (US$717.9 million), reflecting therise in net sales and higher depreciationrelated to capital investment. The ratio ofcost of sales to net sales rose 1.7 percent-age points, to 50.6%. Gross profit decreased0.4%, to ¥87,028 million (US$701.8 mil-lion).

Selling, general and administrative (SG&A)expenses edged down ¥18 million, to¥58,228 million (US$469.6 million). Theratio of SG&A expenses to net sales slipped0.9 percentage points, to 33.1%. The de-cline in SG&A expenses can be attributedto a decrease in R&D expenses and lowerdistribution expenses due to thoroughrationalization of operations. However,personnel expenses and marketing expensesfor new products rose. R&D expenses fell8.1%, to ¥8,897 million (US$71.8 million),and the ratio of R&D expenses to net salesdecreased 0.6 percentage points, to 5.1%.This decline reflects the substantial contri-bution to increased R&D efficiency of theacquisition made in the artificial organssegment in the previous fiscal year. Inaddition to developing superior technologyand improving the functionality of its exist-ing products, Terumo actively invests inresearch into products and techniques thatreduce the pain and suffering of medicaltreatment, as represented by minimallyinvasive treatment.

Operating IncomeOperating income decreased 1.2%, to¥28,800 million (US$232.3 million). Theratio of operating income to net salesdeclined to 16.4%, from 17.0% in fiscal2000.

Other Income (Expenses)Other income (expense) reversed from anexpense of ¥17,869 million in fiscal 2000to income of ¥213 million (US$1.7 million)in fiscal 2001. This improvement can bemainly attributed to the ¥1,469 million(US$11.8 million) recognition of transitiondifference at the time of adoption of thenew accounting standard for retirementbenefit. Also, in comparison to an ex-change loss of ¥2,424 million in the previ-ous fiscal year, the Company recorded anexchange gain of ¥276 million (US$2.2million). Financial income (expense),determined by subtracting interest expensefrom interest and dividend income,amounted to an expense of ¥405 million(US$3.3 million), approximately the sameas in the previous period.

Income before Income Taxesand Minority InterestsBased on the previously mentioned factors,income before income taxes and minorityinterests soared 157.2%, to ¥29,013 mil-lion (US$234.0 million).

Income TaxesIncome taxes rose 146.6%, to ¥12,367million (US$99.7 million). Japan’s statu-tory corporate income tax rate for fiscal2001 and fiscal 2000 was 41.7%. The rateapplied to income before income taxes andminority interests, or the effective corpo-rate tax rate, declined from 44.4% in theprevious fiscal year to 42.6%. The mainreason for this decrease in the effectivetax rate was a drop in the proportion ofexpenses not deductible for tax purposes,from 2.4% in fiscal 2000 to 1.3% in fiscal2001.

17

Net IncomeConsequently, net income surged 164.8%,to ¥16,639 million (US$134.2 million). Asa percentage of net sales, net income in-creased to 9.5%, from 3.7% in the previousfiscal year. Return on stockholders’ equity(the average of stockholders’ equity at theend of fiscal 2001 and fiscal 2000) improvedto 9.9%, from 3.9% in the previous fiscalyear. Net income per basic common sharerose to ¥78.91 (US$0.64), from ¥29.80 inthe previous fiscal year.

FINANCIAL CONDITION

Assets, Liabilities, and Stockholders’EquityTotal assets at March 31, 2001, amountedto ¥281,660 million (US$2,271.5 million),a gain of 6.8% from the previous fiscal year-end. This expansion resulted primarily fromincreases in machinery and equipment, cashand cash equivalents, trade accounts receiv-able, and inventories.

Current assets advanced 16.4%, to¥135,197 million (US$1,090.3 million). Thisgrowth can mainly be attributed to increasesin cash and cash equivalents, trade accountsreceivable, and inventories. Cash and cashequivalents jumped 25.4%, to ¥40,258million (US$324.7 million). Trade notes andaccounts receivable, less allowance fordoubtful accounts, expanded 11.7%, to¥58,258 million (US$469.8 million), becauseof sales growth and the fact that the end ofthe fiscal year under review fell on a bank-ing holiday, resulting in collection being putoff to the following month. Inventories rose14.7%, to ¥31,175 million (US$251.4 mil-lion).

Net property, plant and equipment edgedup 0.4%, to ¥117,214 million (US$945.3million). Machinery and equipment advanced10.2%, to ¥129,514 million (US$1,044.5million), due mainly to the expansion ofproduction facilities for prefilled syringesand syringes in the Philippines.

Net investments and other assets de-creased 4.9%, to ¥29,249 million (US$235.9million).

Total liabilities edged down 0.9%,to ¥109,334 million (US$881.7 million).Current liabilities rose 13.6%, to ¥79,147million (US$638.3 million). Long-termliabilities decreased 25.8%, to ¥30,187million (US$243.4 million).

Stockholders’ equity expanded 12.4%,to ¥172,271 million (US$1,389.3 million),mainly because of higher retained earnings.The stockholders’ equity ratio increased to61.2%, from 58.1% at the end of the previ-ous fiscal year.

Cash FlowsNet cash flow provided by operating activi-ties decreased 9.1% from the previous fiscalyear, to ¥25,222 million (US$203.4 million).Net cash flow used in investing activitiesdeclined 56.4%, to ¥14,144 million(US$114.1 million), with capital expenditureaccounting for the largest portion. Net cashflow used in financing activities rose 53.0%,to ¥3,372 million (US$27.2 million), mainlyaccounted for by dividends paid. As a result,cash and cash equivalents at the end of theyear increased 25.4%, to ¥40,258 million(US$324.7 million).

DIVIDEND POLICYAnnual cash dividends were ¥8.5 (US$0.07)per share, the same as in the previous fiscalyear. The Company’s retained earnings policyis to actively make investments essential forachieving high profitability and sustainedgrowth with an emphasis on investmentefficiency. Terumo believes that its has anobligation to return profits to its stockhold-ers by continuing to increase corporateworth.

18

Consolidated Balance SheetsTerumo Corporation and subsidiariesMarch 31, 2000 and 2001

Current assets:

Cash and cash equivalents ...............................................

Trade receivables:

Notes .......................................................................

Accounts...................................................................

Less allowance for doubtful receivables .............................

Net trade receivables ..............................................

Inventories (Note 3) .......................................................

Deferred income taxes—current .......................................

Other current assets .......................................................

Total current assets ................................................

Property, plant and equipment:

Land ............................................................................

Buildings ......................................................................

Machinery and equipment ...............................................

Construction in progress .................................................

Less accumulated depreciation .........................................

Net property, plant and equipment ...........................

Investments and other assets:

Investment securities, including affiliated companies

(Note 4) ............................................................

Goodwill and intangibles recognized in acquisitions ............

Noncurrent receivables....................................................

Deferred income taxes—noncurrent ..................................

Other assets ..................................................................

Less allowance for doubtful receivables .............................

Net investments and other assets .............................

2000

Millions of yenASSETS2001

Thousands ofU.S. dollars

(Note 2)

$ 324,661

103,299

369,669

472,968

3,145

469,823

251,411

20,613

23,791

1,090,299

198,532

757,726

1,044,468

52,919

2,053,645

1,108,371

945,274

92,250

37,661

26,387

66,799

39,169

262,266

26,387

235,879

$2,271,452

¥ 40,258

12,809

45,839

58,648

390

58,258

31,175

2,556

2,950

135,197

24,618

93,958

129,514

6,562

254,652

137,438

117,214

11,439

4,670

3,272

8,283

4,857

32,521

3,272

29,249

¥281,660

2001

See accompanying notes to consolidated financial statements.

¥ 32,103

17,696

34,998

52,694

537

52,157

27,170

1,946

2,793

116,169

24,919

90,050

117,550

8,580

241,099

124,312

116,787

12,396

4,415

3,377

8,341

5,510

34,039

3,272

30,767

¥ 263,723

19

Current liabilities:

Short-term bank loans (Note 5) ........................................

Current installments of long-term debt (Note 5) .................

Trade payables:

Notes .......................................................................

Accounts ...................................................................

Total trade payables ...............................................

Accrued income taxes (Note 7) ........................................

Accrued expenses ...........................................................

Other current liabilities ...................................................

Total current liabilities ............................................

Long-term liabilities:

Long-term debt, excluding current installments

(Note 5) ............................................................

Retirement and severance benefits (Note 6) .......................

Other long-term liabilities ...............................................

Total long-term liabilities ........................................

Total liabilities ......................................................

Minority interest

Stockholders’ equity:

Common stock, ¥50 per value

Authorized 500,000,000 shares;

issued 210,876,260 shares in 2001 and 2000 (Note 10) ...

Capital surplus (Note 10) ................................................

Retained earnings (Note 11) ............................................

Translation adjustment ...................................................

Less treasury stock, at cost ..............................................

Total stockholders’ equity ........................................

Contingencies (Note 14)

LIABILITIES AND STOCKHOLDERS’ EQUITY2000

Millions of yen

2001

Thousands ofU.S. dollars

(Note 2)

$ 169,435

81,008

24,903

135,629

160,532

67,750

62,291

97,266

638,282

81,420

149,153

12,871

243,444

881,726

444

312,226

420,194

698,669

(41,807)

1,389,282

0

1,389,282

$ 2,271,452

¥ 21,010

10,045

3,088

16,818

19,906

8,401

7,724

12,061

79,147

10,096

18,495

1,596

30,187

109,334

55

38,716

52,104

86,635

(5,184)

172,271

0

172,271

¥281,660

2001

¥ 22,338

–

4,212

16,294

20,506

6,933

7,136

12,780

69,693

20,000

19,312

1,362

40,674

110,367

52

38,716

52,104

71,897

(9,403)

153,314

10

153,304

¥ 263,723

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

20

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

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

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

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

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

Net sales

Cost of salesGross profit ....................................................

Selling, general and administrative expenses (Notes 8 and 9)

Operating income ............................................

Other income (expense):Interest and dividend income ................................Interest expense ..................................................Exchange gain (loss) ............................................Royalty income ....................................................Equity in profit of affiliated companies ...................Loss on disposal and write-down of inventories ........Loss on disposal of property, plant and equipment ...Impairment loss of investment securities ................Loss on sales and impairment of golf membership.....Recognition of transition difference at the time of adoption of the new accounting standard for retirement benefit .............................................Provision for retirement and severance benefits for prior years ........................................................Other, net ...........................................................

Income before income taxes and minority interests ......................................................

Income taxes (Note 7):Current ...............................................................Deferred .............................................................

Minority interestsNet income .............................................

Net income per common share:Basic common share ........................................Assuming dilution ...........................................

Cash dividends per common share

Terumo Corporation and subsidiariesYears ended March 31, 1999, 2000 and 2001

Consolidated Statements of Income

2000 2001

$1,419,758

717,919701,839

469,581232,258

3,863(7,129)2,226

7581,766

(6,476)(2,847)(4,903)(3,621)

11,847

–6,2341,718

233,976

104,153(4,419)99,734

57$ 134,185

$ 0.64–

0.07

¥ 176,050

89,02287,028

58,22828,800

479(884)27694

219(803)(353)(608)(449)

1,469

–773213

29,013

12,915(548)

12,3677

¥ 16,639

¥ 78.91–

8.5

2001Millions of yen

Thousands ofU.S. dollars

(Note 2)

See accompanying notes to consolidated financial statements.

¥ 160,682

78,01882,664

52,41730,247

387(701)(756)306261

–(358)

––

–

–(214)

(1,075)

29,172

13,2551,083

14,338–

¥ 14,834

¥ 71.9470.06

8.5

¥ 171,179

83,78287,397

58,24629,151

377(770)

(2,424)63

167–

(174)––

–

(15,212)104

(17,869)

11,282

11,941(6,927)5,014

(16)¥ 6,284

¥ 29.80–

8.5

1999

U.S. dollars (Note 2)Yen

21

Common stock (Note 10):

Balance at beginning of period .........................

Shares issued on conversion of debentures .........

Balance at end of period ..................................

Capital surplus (Note 10):

Balance at beginning of period .........................

Increase arising from conversion of debentures ...

Balance at end of period ..................................

Retained earnings:

Balance at beginning of period .........................

Net income ....................................................

Dividends paid (Note 11) .................................

Officers’ bonuses (Note 11) ...............................

Balance at end of period ..................................

Translation adjustment:

Balance at beginning of period .........................

Adjustments for period ....................................

Balance at end of period ..................................

Treasury stock:

Balance at beginning of period .........................

Increase during period .....................................

Balance at end of period ..................................

Total stockholders’ equity ........................

Terumo Corporation and subsidiariesYears ended March 31, 1999, 2000 and 2001

Consolidated Statements of Stockholders’ Equity

2000

Millions of yen

2001

Thousands ofU.S. dollars

(Note 2)

$ 312,226

–

312,226

420,194

–

420,194

579,815

134,185

(14,452)

(879)

698,669

(75,831)

34,024

(41,807)

(81)

81

(0)

$1,389,282

¥ 38,716

–

38,716

52,104

–

52,104

71,897

16,639

(1,792)

(109)

86,635

(9,403)

4,219

(5,184)

(10)

10

(0)

¥ 172,271

2001

See accompanying notes to consolidated financial statements.

¥ 38,716

–

38,716

52,104

–

52,104

67,506

6,284

(1,792)

(101)

71,897

(3,409)

(5,994)

(9,403)

(7)

(3)

(10)

¥ 153,304

1999

¥ 28,943

9,773

38,716

42,342

9,762

52,104

54,510

14,834

(1,748)

(90)

67,506

(1,072)

(2,337)

(3,409)

(2)

(5)

(7)

¥ 154,910

22

Cash flow from operating activities:Income before taxes and minority interests ...........................Adjustments to reconcile income before taxes and minority interests to net cash flow provided by operating activities:

Depreciation and amortization .........................................Loss on sales and disposal of property, plant and equipment ............................................................Equity in profit of affiliated companies .............................Interest and dividend income ..........................................Interest expense ............................................................Impairment loss of investment securities ...........................Loss on sales and impairment of golf membership ...............Provision for retirement and severance benefits ..................Increase in trade receivables ............................................Increase in inventories ...................................................Increase (decrease) in trade payables ................................Officers’ bonuses ............................................................Other, net .....................................................................

Subtotal ....................................................................Interest and dividend received .........................................Interest paid .................................................................Income taxes paid ..........................................................

Net cash flow provided by operating activities ................

Cash flow from investing activitiesCapital expenditure ............................................................Proceeds from sale of property, plant and equipment ..............Acquisition of Minnesota Mining & Manufacturing Company Cardiovascular Systems Department, net of cash acquired.......Acquisition of shares in consolidated subsidiaries ...................Other, net .........................................................................

Net cash flow used in investing activities ......................

Cash flow from financing activitiesDecrease in short-term bank loans ........................................Proceeds from long-term debt ..............................................Increase (decrease) in treasury stock ....................................Dividends paid ...................................................................

Net cash flow 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 yearCash and cash equivalents at end of the year

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

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

2001

Terumo Corporation and subsidiariesYears ended March 31, 2000 and 2001

Consolidated Statements of Cash Flows

Millions of yen

2001

Thousands ofU.S. dollars

(Note 2)

$ 233,976

113,468

1,129(1,766)(3,863)7,1294,9033,621

(6,589)(34,806)(21,960)(12,097)

(879)16,928

299,1943,758

(7,129)(92,419)203,404

(119,928)5,089

––

774(114,065)

(13,847)1,032

73(14,452)(27,194)

3,62165,766

258,895$ 324,661

¥ 29,013

14,070

140(219)(479)884608449

(817)(4,316)(2,723)(1,500)

(109)2,099

37,100466

(884)(11,460)25,222

(14,871)631

––

96(14,144)

(1,717)128

9(1,792)(3,372)

4498,155

32,103¥ 40,258

¥ 11,282

13,260

141(167)(377)770

––

15,677(3,510)(3,910)4,581(101)

2,62840,274

364(772)

(12,113)27,753

(19,812)42

(12,544)129

(272)(32,457)

(409)–

(3)(1,792)(2,204)

(843)(7,751)39,854

¥ 32,103

2000

See accompanying notes to consolidated financial statements.

23

Notes to Consolidated Financial StatementsTerumo Corporation and Subsidiaries

1. Summary of Significant Accounting Policies(a) Basis of Presenting Consolidated Financial StatementsTerumo Corporation (the Company) and its domestic subsidiariesmaintain their books of account in conformity with financialaccounting standards in Japan, which may differ in some materialrespects from accounting principles and practices generallyaccepted in countries and jurisdictions other than Japan. Itsforeign subsidiaries maintain their books of account in accordancewith those of the countries of their domicile. The accompanyingconsolidated financial statements have been prepared in accor-dance with generally accepted accounting principles and practicesin Japan.

Effective from the year ended March 31, 2000, the Company isrequired to disclose consolidated statements of cash flows as anintegral part of the consolidated financial statements to conformwith the revision of disclosure standards for listed companies. Aspermitted under the standard, the comparative for prior years arenot disclosed.

In preparing the consolidated financial statements, certainreclassifications have been made to the financial statements issuedin Japan in order to present them in a form that is more familiar toreaders outside Japan.

In addition, the accompanying notes include information that isnot required under generally accepted accounting principles andpractices in Japan but is presented herein as additional informa-tion.

(b) Principles of ConsolidationThe consolidated financial statements include the accounts of theCompany and its subsidiaries. All significant intercompanybalances and transactions have been eliminated in consolidation.Investments in 20% to 50% affiliates are stated at their underlyingnet equity value.

(c) Foreign Currency TranslationPrior to 2000, inventories, property, plant and equipment, invest-ment securities and long-term receivables and payables of theparent company are translated at the rates of exchange in effectwhen acquired or incurred. All other assets and liabilities aretranslated at the rate of exchange in effect at the end of theperiod. Exchange adjustments are charged or credited to currentearnings. Revenue and expense accounts are translated at theaverage rate of exchange in effect during the year. Depreciationexpenses are translated at the rates of exchange that were ineffect when the respective assets were acquired.

The assets and liabilities of the foreign subsidiaries and affiliatesare translated into yen at the rates of exchange in effect at thebalance sheet date. Revenue and expense accounts are translatedat the average exchange rates prevailing during the year. Gainsand losses resulting from foreign currency transactions areincluded in other income (expense), and those resulting fromtranslation of financial statements are generally excluded from thestatements of income and are accumulated under the balance sheetcaption “Translation adjustment”.

Effective from the year ended March 31, 2001, the Companyadopted the revised accounting standard for foreign currencytransactions (“Opinion Concerning Establishment of Accounting forForeign Currency Transactions”, the Business Accounting Delibera-tion Council, October 22, 1999). Under the revised accountingstandard, all receivables and payables of the parent companyincluding non-current receivables and payables denominated inforeign currencies at the balance sheet date, are translated at therates in effect as of the balance sheet date, and the unrealizedgain or loss is reflected in other income (expense).

As a result of translating the long-term foreign loan receivableusing the foreign exchange rate at the balance sheet date, theforeign exchange loss increased by ¥224 million ($1,806 thousand)and income before income taxes and minority interests decreasedby ¥224 million ($1,806 thousand).

Foreign currency translation adjustments, which were classifiedin “Assets” in the prior year’s consolidated financial statements arenow included in “Stockholders’ equity”. The prior year’s compara-tive financial statements have been restated to confirm to thecurrent year presentation.

(d) Cash and Cash EquivalentsThe Company considers cash and time deposits, which may bewithdrawn on demand without diminution of principal and withmaturities of three months or less at the time, to be cash and cashequivalents.

(e) InvestmentsMarketable securities included in investments are carried at cost.Realized gains or losses are determined by the average method.Investments other than marketable securities are stated at cost.

Effective from the year ended March 31, 2001, the Companyadopted the new accounting standard for financial instruments(“Opinion Concerning Establishment of Accounting for FinancialInstruments”, the Business Accounting Deliberation Council,January 22, 1999 ). To comply with the new accounting standard,the carrying value of securities and golf membership have beenreduced to their net realizable value by a charge to income forother than temporary declines in fair value. As a result, theCompany recorded an impairment loss on securities and golfmembership of ¥608 million ($4,903 thousand) and ¥352 million($2,839 thousand), respectively. The prior year financial state-ments have not been restated.

The accounting standard for financial instruments requires theCompany to classify its securities into one of the following threecategories: trading, held-to-maturity or other securities. At thebeginning of the year, the Company reviewed the classification ofall securities. Based on the classification, all securities areincluded in investments and other assets as investment securities.

24

Carrying amount of marketableother securities ...........................

Market value ..................................Other securities valuation difference ..Related deferred tax assets ..............

2001 2001

Millions ofyen

Thousands ofU.S. dollars

(Note 2)

To comply with the new accounting standard for financial instru-ments, other securities with a market value are principally carried atmarket value. The difference, net of tax, between the acquisitioncost and the carrying value of other securities, including unrealizedgains and losses, can be recognized in “Other securities valuationdifference” in “Stockholders’ equity”. However, for the year endedMarch 31, 2001, application of the cost method is acceptable,provided the related information is disclosed by footnote. TheCompany applied the cost method for the year ended March 31,2001. The required footnote disclosure is as follows.

regulations.Through the years ended March 31, 1999, it was the policy of

the Company to fund pension costs as incurred. The balance ofretirement allowance represented the unamortized liabilitypreviously provided for noncontributory retirement and severanceplans which was to be amortized against payments to the trusteefor prior year service costs over a period of approximately 14 years.In the year ended March 31, 2000, the Company changed itsaccounting for pension costs to provide retirement allowance atthe amount of net present value of the expected future paymentsto employees less the fair value of the trusteed pension assets.This change was made in order to achieve more appropriatepension cost allocation and to reflect the Company’s financialstatement position more accurately. As a result of this change,additional provision amounting to ¥15,212 million was chargedto other income (expense) in the accompanying consolidatedstatements of income to cover for the prior period pension cost.Operating income and income before income taxes and minorityinterests as of March 31, 2000 decreased by ¥921 million and¥16,133 million, respectively.

Effective from the year ended March 31, 2001, the Companyadopted the new accounting standard for retirement benefits(“Opinion Concerning Establishment of Accounting for RetirementBenefit”, the Business Accounting Deliberation Council, June 16,1998). In accordance with this standard, the allowance forretirement benefits for employees is provided based on theestimated retirement benefit obligation and the fair value of theplan assets. The transition difference of ¥1,469 million ($11,847thousand) arising from the adoption of the new accountingstandard in the year ended March 31, 2001 is included in otherincome.The prior year financial statements have not been restated.As a result of the adoption of this standard in the current year,operating income increased by ¥94 million ($758 thousand) andincome before income taxes and minority interests decreased by¥1,563 million ($12,605 thousand).

Directors and certain employees are not covered by the plansdescribed above.

Benefits paid to such persons and meritorious service awardspaid to certain other employees in excess of the prescribed formulaare charged to income as paid, since amounts vary with circum-stances, and it is not practicable to compute the liability for futurepayments.

Total charges to earnings for these benefits for the years endedMarch 31, 1999, 2000 and 2001, were ¥1,989 million, ¥18,430million and ¥1,362 million ($10,984 thousand), respectively.

(k) LeasesFinancial leases of the Company and its domestic subsidiaries,except for those where the legal title of the underlying property istransferred from the lessor to the lessee at the end of the leaseterm, are accounted for as operating leases.

(l) DerivativesThe Company and its subsidiaries do not hold derivative financialinstruments for trading purposes. Derivative financial instrumentsheld by the Company and its subsidiaries are comprised principallyof foreign exchange contracts to manage currency risk and interestrate swaps to manage interest rate risk.

Prior to 2000, hedged assets and liabilities were translated at thecontract rate. Gains and losses on the hedged derivative financialinstruments that were designated and effective as hedges of firmcommitments were not recognized until the transaction of thehedged items occurs.

Effective from the year ended March 31, 2001, the Companyadopted the new accounting standard for financial instruments asexplained in (e) above, and derivatives are, in principle, stated atmarket value.

(f) InventoriesInventories are stated at cost. Cost is determined principally by theaverage method.

(g) Property, Plant and EquipmentProperty, plant and equipment are stated at cost. Routine mainte-nance and repairs and minor replacement costs are charged toexpenses as incurred. Depreciation is computed principally by thedeclining-balance method based on the estimated useful lives.

(h) Goodwill and Intangibles Recognized in AcquisitionsGoodwill and intangibles recognized in acquisitions primarilyinclude goodwill and intangible assets recorded in connection withthe acquisition of Minnesota Mining & Manufacturing CompanyCardiovascular Systems Department on June 30, 1999. These assetsare amortized using the straight-line method over a period whichdoes not exceed 20 years.

(i) Income TaxesIncome taxes are accounted for under the asset and liabilitymethod. Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets andliabilities and their respective tax bases and operating loss and taxcredit carryforwards. Deferred tax assets and liabilities are mea-sured using enacted tax rates expected to apply to taxable incomein the years in which those temporary differences are expected tobe recovered or settled. The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in theperiod that includes the enactment date.

(j) Retirement and Severance BenefitsThe Company and certain of its subsidiaries have contributory andnoncontributory defined benefit plans that provide for pension orlump-sum benefit payments, based on length of service and certainother factors, to employees who retire or terminate their employ-ment for reasons other than dismissal for cause. The contributoryplan includes a portion of the governmental welfare pensionbenefits which would otherwise be provided by the Japanesegovernment in accordance with the Welfare Pension Insurance Lawin Japan. Management considers that a portion of the contributoryplan, which is administered by a board of trustees composed ofmanagement and labor representatives, represents a welfare pensionplan carried on behalf of the Japanese government. These con-tributory and noncontributory plans are funded in conformity withthe funding requirements of applicable Japanese governmental

$88,36377,105(6,556)4,694

¥10,9579,561(813)582

25

Interest rate swaps are accounted for using deferral hedge account-ing. Deferral hedge accounting requires unrealized gains or losses tobe deferred as liabilities or assets. The Company has also developed ahedging policy to control various aspects of derivative transactions,including authorization levels and transaction volumes. Based on thispolicy, the Company hedges, within certain scopes, risks arising fromchanges in foreign currency exchange rates and interest rates. TheCompany reviews, every six months, the effectiveness of all hedgingpolicies to take account of the cumulative cash flows and any changesin the market.

Amounts receivable or payable under derivative financial instru-ments used to manage interest rate risks arising from financial assetsand liabilities are recognized as a component of interest income orexpenses of such related underlying assets or liabilities. (See note 13.)

(m) Appropriation of Retained EarningsUnder the Commercial Code of Japan, the appropriation of retainedearnings with respect to a given financial period is made by resolution

of the stockholders at a general meeting to be held subsequent to theclose of such financial period. The accounts for that period do not,therefore, reflect such appropriation. (See note 11.)

(n) Net Income and Cash Dividends per Common ShareIn computing net income per common share, the average numberof shares outstanding during each year has been used. Net incomeper share assuming dilution has been computed on the basis thatall convertible debt was converted at the beginning of the year orat the time of debt issuance (if later). Cash dividends per commonshare are computed based on dividends declared with respect toincome for the year. (See note 11.)

(o) Prior Year PresentationCertain amounts shown in the 1999 and 2000 financial statementshave been reclassified to conform with the 2001 financial state-ment presentation.

As is customary in Japan, short-term bank loans are made undergeneral agreements which provide that security and guarantees forpresent and future indebtedness will be given upon request of the

bank, and that the bank shall have the right to offset cashdeposits against obligations that have become due or, in the eventof default, against all obligations due the bank.

2. Financial Statement TranslationThe consolidated financial statements are expressed in yen.However, solely for the convenience of the readers, the consoli-dated financial statements as of and for the year ended March 31,2001, have been translated into U.S. dollars at the rate of

¥124=US$1, the approximate exchange rate on the Tokyo ForeignExchange Market on March 31, 2001. This translation should not beconstrued as a representation that the amounts shown could beconverted into U.S. dollars at such rate.

Finished goods ..........................................................................................Work in process .........................................................................................Raw materials ...........................................................................................

3. InventoriesInventories at March 31, 2000 and 2001, are summarized as follows:

Millions of yenThousands of

U.S. dollars (Note 2)

$ 155,28233,72662,403

$ 251,411

¥ 19,2554,1827,738

¥ 31,175

20012001

¥ 17,0953,7936,282

¥ 27,170

2000

The market values of the noncurrent portfolio of marketablesecurities at March 31, 2000 and 2001, were ¥12,606 million and

¥9,561 million ($77,105 thousand), respectively.

Noncurrent:Marketable securities ...............................................................................Other ....................................................................................................

4. Investment SecuritiesInvestment securities at March 31, 2000 and 2001, are summarized as follows:

Millions of yenThousands of

U.S. dollars (Note 2)

$ 88,3633,887

$ 92,250

¥ 10,957482

¥ 11,439

2000 20012001

¥ 12,045351

¥ 12,396

Unsecured straight debentures:First series, due in 2003, interest 1.95% ....................................................Second series, due in 2002, interest 1.6% ..................................................

Loans, principally from banks:Unsecured, due 2002-2004, interest 15.0%.................................................

Total long-term debt ............................................................................Less current installments .......................................................................

5. Short-Term and Long-Term DebtLong-term debt at March 31, 2000 and 2001, is summarized as follows:

Millions of yenThousands of

U.S. dollars (Note 2)

$ 80,64580,645

1,138162,42881,008

$ 81,420

¥ 10,00010,000

14120,14110,045

¥ 10,096

¥ 10,00010,000

–20,000

–¥ 20,000

2000 20012001

26

6. Retirement and Severance BenefitsThe plan’s funded status and amounts recognized in the accompanying consolidated balance sheet at March 31, 2001 are as follows:

Net periodic cost of employee retirement and severance benefits for the year ended March 31, 2001 consisted of the following:

Net periodic cost of employee retirement and severancebenefit for the year ended March 31, 2001 consisted of the following;Service cost for benefits earned—net of employee contributions ...........................................Interest cost on projected benefit obligation ......................................................................Estimated return on plan assets ........................................................................................Amortization of transition obligation at the time

of adoption of accounting standard for retirement benefits ................................................Amortization of unrecognized actuarial gain or loss .............................................................Amortization of unrecognized prior service cost ..................................................................Net periodic cost ............................................................................................................

Millions of yenThousands of

U.S. dollars (Note 2)

¥ 2,3441,657

(1,030)

(1,469)––

¥ 1,502

2001

$ 18,90313,363(8,306)

(11,847)––

$ 12,113

2001

7. Income TaxesIn accordance with the revised accounting standards, tax rate

reconciliation and components of deferred tax assets and liabilitieswere disclosed effective from the year ended March 31, 2000. Forprior years, these are not disclosed as permitted under thestandard.

A reconciliation of the Japanese normal income tax rate and theeffective income tax rate as a percentage of income before incometaxes and minority interests for the years ended March 31, 2000and 2001, is as follows:

The Company is subject to Japanese corporate, inhabitant andenterprise taxes based on income, which in the aggregate resultedin a normal tax rate of approximately 47% in the year ended March31, 1999 and 42% in the years ended March 31, 2000 and 2001,respectively.

Amendments to Japanese tax regulations were enacted into lawon March 31, 1999. As a result of these amendments, the normalincome tax rate was reduced from 47% to 42% effective from April1, 1999. Deferred income taxes were calculated at the rate of 42% inprinciple.

2000

41.7%

1.3 (0.3) (0.1) 42.6%

2001

Japanese normal income tax rate ......................................................................................Increase (reduction) in income taxes resulting from:

Expenses not deductible for tax purposes ........................................................................Dividend income, non-taxable .......................................................................................Other .........................................................................................................................Effective income tax rate ..............................................................................................

41.7%

3.7 (0.8)

(0.2) 44.4%

Net periodic cost of employee retirement and severancebenefit for the year ended March 31, 2001 consisted of the following;Method of the benefit attribution .....................................................Discount rate .................................................................................Estimated rate of return on plan assets ..............................................Period of amortization of unrecognized prior service cost .....................Period of amortization of unrecognized actuarial gain or loss ................Period of amortization of transition obligation at

the time of adoption of accounting standard for retirement benefits ...

Mainly 3.5%–

10 Years

1 Year

2001

“Benefit/ year-of-service” approachMainly 3.5% at year-beginning and 3.0% at year-end

Actuarial assumptions and basis for the calculation of retirement and severance benefits are as follows:

Employee retirement and severance benefits:Projected benefit obligations .........................................................................................Plan assets at fair value ................................................................................................Projected benefit obligation in excess of plan assets .........................................................Unrecognized loss ........................................................................................................Unrecognized prior service cost .....................................................................................

Accrued retirement and severance benefits ...................................................................

Millions of yenThousands of

U.S. dollars (Note 2)

¥ (58,999)28,488

(30,511)12,016

–¥ (18,495)

2001

$(475,798)229,742

(246,056)96,903

–$(149,153)

2001

27

Marketing expenses .............................................................Salaries and wages ..............................................................Freight and other delivery costs .............................................Research and development costs ............................................

8. Selling, General and Administrative ExpensesSignificant components of selling, general and administrative expenses for the years ended March 31, 1999, 2000 and 2001, are as follows:

Millions of yenThousands of

U.S. dollars (Note 2)

$ 47,427100,12949,29071,750

¥ 5,88112,4166,1128,897

¥ 5,43211,9956,5959,686

¥ 5,56713,3936,451

–

2000 200120011999

10. Common StockDuring the year ended March 31, 1999, the Company issued10,441,440 shares of common stock in connection with conversionof debentures. In accordance with the applicable provisions of the

Japanese Commercial Code, the proceeds from issuance of the newshares have been accounted for by crediting the common stock andcapital surplus accounts in equal amounts.

11. Retained Earnings and DividendsThe Japanese Commercial Code provides that an amount equivalentto at least 10% of appropriations paid in cash with respect to eachfiscal period be appropriated to a legal reserve until such reserveequals 25% of stated capital. The legal reserve is not available forcash dividends, but may be used to reduce a deficit or transferredto stated capital.

Legal reserve, which was included in retained earnings,amounted to ¥2,896 million and ¥3,212 million ($25,903 thou-

sand) at March 31, 2000 and 2001, respectively.In accordance with the Commercial Code, proposed appropria-

tions of retained earnings have not been reflected in the financialstatements at the end of each fiscal year. The proposed appropria-tions of retained earnings at March 31, 2001 were cash dividendsof ¥896 million ($7,226 thousand), the related appropriation tothe legal reserve of ¥100 million ($806 thousand) and officers’bonuses of ¥103 million ($831 thousand).

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities atMarch 31, 2000 and 2001, are presented below:

The valuation allowance for deferred tax assets as of March 31,2000 and 2001, were ¥6,014 million and ¥6,048 million ($48,774thousand), respectively. Valuation allowance for deferred tax assetsis primarily for the losses sustained by overseas subsidiaries.

Based upon the level of historical taxable income and projections

for future taxable income over the periods which the net deduct-ible temporary differences are expected to reverse, managementbelieves it is more likely than not the Company realizes thebenefits of these deferred taxes assets, net of the existingvaluation allowances, at March 31, 2001.

Deferred tax assets:Allowance for doubtful receivables ............................................................Accrued expenses ...................................................................................Accrued business tax ...............................................................................Retirement and severance benefits ............................................................Losses sustained by overseas subsidiaries ...................................................Unrealized profit in inventories and property, plant and equipment ...............Other ....................................................................................................

Total gross deferred tax assets ...............................................................Less valuation allowance .......................................................................Net deferred tax assets .........................................................................

Deferred tax liabilities:Depreciation and amortization ..................................................................Other ....................................................................................................

Total gross deferred tax liabilities ...........................................................Net deferred tax assets .........................................................................

Millions of yenThousands of

U.S. dollars (Note 2)

$ 33116,4846,290

60,87944,5403,661

11,468143,653(48,774)94,879

(4,815)(2,927)(7,742)

$ 87,137

¥ 412,044

7807,5495,523

4541,422

17,813(6,048)11,765

(597)(363)(960)

¥ 10,805

2001

¥ 561,373

6398,0515,747

459914

17,239(6,014)11,225

(597)(342)(939)

¥ 10,286

2000 2001

9. Research and Development CostsResearch and development costs charged to income for the yearsended March 31, 2000 and 2001 are ¥9,686 million and ¥8,897million ($71,750 thousand), respectively.

Effective from the fiscal year ended March 31, 2000, research anddevelopment costs are disclosed in accordance with the accountingstandards of Japan under which such information for prior years isnot required to be disclosed.

28

13. Foreign Exchange Risk Management and Interest Rate Risk ManagementThe Company and its subsidiaries operate internationally whichexposes them to risk of change in foreign exchange rates andinterest rates. Derivative financial instruments are comprisedprincipally of foreign exchange contracts and interest rate swapsutilized by the Company to reduce such risks. The Company and itssubsidiaries do not hold or issue financial instruments for tradingpurposes.

The contract amounts of derivative financial instruments are nota measure of the exposure of the Company through its use ofderivative financial instruments. The Company is exposed to therisk of credit-related losses in the event of nonperformance bycounterparties to foreign exchange contracts and interest rateswaps, but it does not expect any counterparties to fail given theirhigh credit ratings.

The Company enters into foreign exchange contracts to hedge

the risk of fluctuation in foreign currency exchange rates associatedwith certain trade receivables and anticipated sales transactions(including firm commitments) denominated in foreign currencies. AtMarch 31, 2000 and 2001, the Company had no foreign exchangecurrency contracts to hedge anticipated sales transactions and alloutstanding foreign exchange currency contracts were used for thetranslation of hedged trade receivables. Interest rate swap contractsare generally used by the Company to offset changes in the ratespaid on short-term bank loans, which the Company intends andbelieves to revolve at least until the end of the term of relatedinterest rate swap contracts. Effective from the year ended March31, 2000, the Company is required to disclose certain informationwith respect to derivatives. Contract amounts and fair value ofinterest rate swaps and foreign exchange contracts at March 31,2000 and 2001, are set forth below.

12. LeasesThe Company and its subsidiaries occupy machinery and equipment under various lease arrangements.

Finance leases, except for those where the legal title of the underlying property is transferred from the lessor to the lessee at the end ofthe lease term, are accounted for similarly to operating leases.

Leased machinery and equipment under such finance leases at March 31, 2000 and 2001, are as follows:

. The lease expenses for such finance leases for the years ended March 31, 1999, 2000 and 2001, amounted to ¥942 million, ¥1,010 millionand ¥810 million ($6,532 thousand), respectively.

Within one year ........................................................................................Over one year ...........................................................................................

Millions of yenThousands of

U.S. dollars (Note 2)

¥ 7151,220

¥ 1,935

¥ 8441,624

¥ 2,468

2000 20012001

$ 5,7669,839

$ 15,605

Future minimum payments required under such finance leases at March 31, 2000 and 2001, are as follows:

Market value at inception of leases ..............................................................Less accumulated depreciation ....................................................................Assets under finance lease, net ...................................................................

Millions of yenThousands of

U.S. dollars (Note 2)

¥ 4,7982,863

¥ 1,935

¥ 5,2542,786

¥ 2,468

2000 20012001

$ 38,69423,089

$ 15,605

Swaps—pay fixed rate, receive floating rate:Contract amount .....................................................................................Estimated fair value ................................................................................Unrealized gain (loss) .............................................................................

Foreign exchange contracts:Contract amount .....................................................................................Estimated fair value ................................................................................Unrealized gain (loss) .............................................................................

Millions of yen

2001

Thousands ofU.S. dollars (Note2)

¥ 5,000(66)(66)

¥ 2,2882,356

(68)

2001

¥ 5,000(6)(6)

¥ 4,3974,368

29

2000

$ 40,323(532)(532)

$ 18,45219,000

(548)

29

14. ContingenciesAt March 31, 2000 and 2001, the Company was contingently liablewith respect to export bills of exchange discounted with banks in

the amounts of ¥18 million and ¥9 million ($73 thousand),respectively.

Industry segments include pharmaceuticals and medical supplyand equipment. Industry segment is defined as similarity inproduct, sales market and other considerations.

The main products in each industry segment include:Pharmaceuticals—intravenous solutions, blood bags, nonpre-

scription drugs.Medical supply and equipment—transfusion and infusion

equipment, injection systems, clinical testing systems, artificialorgans, catheter systems and other.

Corporate expenses consist primarily of the general and adminis-trative divisions’ expenses.

Corporate assets consist primarily of surplus money (cash andcash equivalents), long-term investment funds (investmentsecurities), deferred income taxes, translation adjustment and thegeneral and administrative divisions’ assets.

As described in note 1(j), in 2001, the Company adopted the newaccounting standard for retirement benefits. As a result of thischange, operating income for pharmaceuticals and medical supplyand equipment segments for the year ended March 31, 2001increased by ¥24 million ($194 thousand) and ¥58 million ($468thousand), respectively. Corporate expenses increased by ¥11million ($89 thousand).

Operations by business group and geographic area are summarized as follows:

15. Segment Information

(a) Industry Segments

(a) Industry SegmentsSales:

Pharmaceuticals ......................................Medical supply and equipment ...................

Operating income:Pharmaceuticals ......................................Medical supply and equipment ...................

Corporate expenses .....................................

Assets:Pharmaceuticals ......................................Medical supply and equipment ...................Corporate assets ......................................

Depreciation:Pharmaceuticals ......................................Medical supply and equipment ...................Corporate depreciation .............................

Capital expenditures:Pharmaceuticals ......................................Medical supply and equipment ...................Corporate capital expenditures ...................

Millions of yen

$ 303,0641,116,694

$ 1,419,758

$ 56,653239,726296,379(64,121)

$ 232,258

$ 447,1621,307,395

516,895$ 2,271,452

$ 42,00869,9441,516

$ 113,468

$ 30,54069,6131,186

$ 101,339

¥ 37,580138,470

¥ 176,050

¥ 7,02529,72636,751(7,951)

¥ 28,800

¥ 55,448162,11764,095

¥ 281,660

¥ 5,2098,673

188¥ 14,070

¥ 3,7878,632

147¥ 12,566

2001

Thousands ofU.S. dollars (Note 2)

¥ 36,289124,393

¥ 160,682

¥ 7,89828,30336,201(5,954)

¥ 30,247

¥ 50,620136,36660,209

¥ 247,195

¥ 3,3927,531

59¥ 10,982

¥ 7,64414,999

115¥ 22,758

2000 20011999

¥ 37,246133,933

¥ 171,179

¥ 7,70928,19435,903(6,752)

¥ 29,151

¥ 54,347149,88459,452

¥ 263,723

¥ 3,9119,277

71¥ 13,259

¥ 5,56221,375

137¥ 27,074

30

(c) Overseas SalesOverseas sales:

Europe ...................................................America ..................................................Other areas .............................................

Ratio to total sales .....................................

¥ 22,92220,5179,235

¥ 52,674

32.8%

(b) Geographic SegmentsSales:

Japan ....................................................Europe ...................................................America ..................................................Other areas .............................................

Operating income:Japan ....................................................Europe ...................................................America ..................................................Other areas .............................................

Corporate expenses and eliminations ..........

Assets:Japan ....................................................Europe ...................................................America ..................................................Other areas .............................................

Corporate assets and eliminations ..............

Each overseas geographic segment mainly consists of thefollowing:

Europe: Belgium, Germany and FranceAmerica: United States, Canada and MexicoOther areas: Australia, U.A.E. and Taiwan

As described in note 1(j), in 2001, the Company adopted the newaccounting standard for retirement benefits. As a result of thischange, operating income for the Japan segment and corporateexpenses for the year ended March 31, 2001 increased by ¥82million ($661 thousand) and ¥11 million ($89 thousand), respec-tively. The effect of this change to the overseas segment was nil.

Millions of yenThousands of

U.S. dollars (Note 2)

$ 954,661154,823227,08983,185

$ 1,419,758

$ 267,87911,4608,7585,661

293,758(61,500)

$ 232,258

$ 1,639,645178,645262,968125,274

2,206,53264,920

$ 2,271,452

¥ 118,37819,19828,15910,315

¥ 176,050

¥ 33,2171,4211,086

70236,426(7,626)

¥ 28,800

¥ 203,31622,15232,60815,534

273,6108,050

¥ 281,660

20011999

¥ 109,24822,92320,5167,995

¥ 160,682

¥ 32,9541,3662,541(228)

36,633(6,386)

¥ 30,247

¥ 166,05617,50018,4347,733

209,72340,881

¥ 250,604

¥ 116,30419,08126,0389,756

¥ 171,179

¥ 34,0441,440(597)584

35,471(6,320)

¥ 29,151

¥ 196,98916,93630,85110,388

255,16417,962

¥ 273,126

2000 2001

1999

(b) Geographic Segments

Each overseas sales destination mainly consists of the following:Europe: Germany, France and ItalyAmerica: United States, Canada and MexicoOther areas: Australia, Taiwan and Thailand

Millions of yen

2001

Thousands ofU.S. dollars (Note 2)

$ 154,823227,08987,169

$ 469,081

33.0%

¥ 19,19828,15910,809

¥ 58,166

33.0%

2001

¥ 19,08126,03810,142

¥ 55,261

32.3%

2000

(c) Overseas Sales

31

Balances and transactions as of and for the year ended March 31, 2001 with unconsolidated subsidiary and affiliated companies aresummarized as follows:

16. Balances and Transactions with Unconsolidated Subsidiary and Affiliated Companies

Trade and other receivables:Terumo Beiersdorf K.K. ............................................................................Changchun Terumo Medical Products Co., Ltd. .............................................

Trade payables:Terumo Business Support Corporation ........................................................Fuji Medic Co., Ltd. .................................................................................Terumo Beiersdorf K.K. ............................................................................

Sales of raw materials and other services:Terumo Beiersdorf K.K. ............................................................................Changchun Terumo Medical Products Co., Ltd. .............................................

Purchase:Fuji Medic Co., Ltd. .................................................................................Terumo Beiersdorf K.K. ............................................................................

Insurance premium and other expenses:Terumo Business Support Corporation ........................................................

Millions of yen

$ 7332

1452,9032,839

33189

6,87917,419

5,355

¥ 94

18360352

4111

8532,160

664

2001

¥ 71

26386270

3410

8921,174

755

Thousands ofU.S. dollars (Note 2)

2000 2001

32

The Board of DirectorsTerumo Corporation:

We have audited the accompanying consolidated balance sheets of Terumo Corporation and subsidiaries as of March 31, 2000 and 2001,the related consolidated statements of income and stockholders’ equity for each of the years in the three-year period ended March 31,2001 and the related consolidated statements of cash flows for the years ended March 31, 2000 and 2001.

Our audits were made in accordance with auditing standards, procedures and practices generally accepted and applied in Japan and,accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circum-stances.

In our opinion, the accompanying consolidated financial statements, expressed in yen, present fairly the consolidated financial positionof Terumo Corporation and subsidiaries at March 31, 2000 and 2001, and the consolidated results of their operations for each of the yearsin the three-year period ended March 31, 2001 and their cash flows for the years ended March 31, 2000 and 2001 in conformity withaccounting principles and practices generally accepted in Japan applied on a consistent basis, except for the changes, with which weconcur, as described in the following paragraph.

As described in note 1 to the consolidated financial statements, Terumo Corporation and subsidiaries have adopted the new accountingstandards for retirement benefits and financial instruments and the revised accounting standard for foreign currency transactions in thepreparation of their consolidated financial statements for the year ended March 31, 2001.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2001 arepresented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion,such translation has been made on the basis described in note 2 to the consolidated financial statements.

Tokyo, JapanJune 30, 2001

See note 1(a) to the consolidated financial statements which explains the basis of preparing the consolidated financial statements of Terumo Corporation and itsdomestic subsidiaries under Japanese accounting principles and practices.

Independent Auditors’ Report

33

Corporate DataAs of March 31, 2001

Board of Directors and Auditors

Offices/Factories

Domestic Offices/FactoriesHead Office, Shonan Head Office, Terumo Research & DevelopmentCenter, Fujinomiya Factory, Ashitaka Factory, Kofu Factory, SurugaFactory

Domestic Sales Offices

Sapporo, Morioka, Sendai, Niigata, Utsunomiya, Mito, Omiya,

Kawagoe, Chiba, Matsudo, Tokyo, Tokyo Daini, Tama, Yokohama,

Shonan, Matsumoto, Shizuoka, Nagoya, Tsu, Kanazawa, Kyoto,

Osaka, Kita Osaka, Kobe, Sakai, Okayama, Hiroshima, Takamatsu,

Matsuyama, Tokushima, Kochi, Fukuoka, Kita Kyushu, Oita,

Kumamoto, Kagoshima, Miyazaki, Okinawa

Principal Overseas Manufacturing PlantsTerumo Medical Corporation (Maryland, U.S.A.; Headquarters,

New Jersey, U.S.A.)Terumo Europe N.V. (Leuven, Belgium)Terumo Cardiovascular Systems Corp. (Michigan, California,

Maryland, and Massachusetts, U.S.A.)Terumo Medical Products (Hangzhou) CO., LTD. (Hangzhou, China)Terumo (Philippines) Corporation (Lagune, Philippines)Terumo Penpol Ltd. (Trivandrum, India)

Head Office44-1, 2-chome, Hatagaya, Shibuya-ku,Tokyo 151-0072, JapanTel: 03-3374-8111 Fax: 03-3374-8399URL: http://www.terumo.com

Date of EstablishmentSeptember 17, 1921

Common Stock¥38,716 million

Number of Shares Issued210,876,260

Number of Stockholders22,457

Number of Employees7,412

Stock Exchange ListingThe First Section of the Tokyo Stock Exchange

Principal Overseas Sales OfficesAsia and Australia: Terumo Marketing Philippines, Inc., TaipeiBranch, Hong Kong Branch, Shanghai Office, Beijing Office,Guangzhou Office, Singapore Branch, Terumo (Thailand) CO., LTD.,Hanoi Representative Office, Kuala Lumpur Branch, Jakarta Office,Chennai Branch, Dubai Branch, Australian BranchAmericas: Terumo Medical Corporation, Miami Sales Office,Terumo Cardiovascular Systems Corp., Terumo Medical De MexicoS.A. DE C.V., Terumo Medical do Brazil Ltda.Europe: Terumo Europe N.V., Laboratories Terumo France S.A.,Terumo (Deutschland) GmbH, Terumo Cardiovascular SystemsEurope GmbH, Rome Branch, Madrid Branch, UK Branch,Benelux Branch, North Europe Branch

Principal Affiliated CompaniesChangchun Terumo Medical Products CO., LTD. (Changchun, China)Terumo BSN K.K. (Tokyo, Japan)Terumo Trading CO., LTD. (Tokyo, Japan)

President & ChiefExecutive OfficerTakashi Wachi

Executive Vice PresidentAkira Takahashi, Ph.D.

Managing DirectorsTatsuro TaniTakahiro Kugo

DirectorsMitsunori SuzukiHideo FukuiYasuhiko FutamiHachiro HaraShigeru MiuraKikuo TakeKoji NakaoYoshiaki HirabayashiHiroki AkiyamaToru Nonoyama

Executive OfficersKenji TadaKenji IkedaToshiharu KamitaniHiroshi Matsumura

Senior Corporate AuditorsYasuo Yamazaki

Yuzo Kambe

Corporate AuditorEizaburo Sano

As of June 28, 2001

33

36Printed in Japan

44-1, 2-chome, Hatagaya, Shibuya-ku, Tokyo 151-0072, Japan Tel: 03-3374-8111URL: http://www.terumo.com

Terumo Corporation