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Yamanouchi Pharmaceutical Co., Ltd. Annual Report 2000

Speed with VisionHAYAI

IN JAPAN

Build on coreStep up MR communications with medical professionalsand the provision of medical information to rapidly increasemarket penetration of Lipitor®

Increase Lipitor® sales to its peak level as soon as possible

Further enhance Yamanouchi’s stature in Japan throughthe three core drugs–Gaster®, Harnal® and Lipitor®–andthe introduction of competitive new drugs

Yamanouchi’s hypercholesterolemia treatment Lipitor® went on sale in Japan on May 11,2000. Discovered by the Parke-Davis Research Division of Warner-Lambert Company,now part of Pfizer Inc., Lipitor® is an HMG-CoA reductase inhibitor.

Lipitor® has treated more than 8 million people in 80 countries, becoming the world’sbest selling statin.

The arrival of Lipitor® is certainly welcome news in Japan, which is the world’s second-largest market for cholesterol-lowering medications after the United States. The statinmarket was about ¥270 billion in the fiscal year ended March 31, 2000. It is estimatedthat there are more than 20 million patients for hypercholesterolemia in Japan, and thisnumber is expected to climb even higher. Yamanouchi expects to establish Lipitor® in themarket quickly and maximize its sales fast.

Hypercholesterolemia Patients in Japan

Annual Report 2000 1

’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04

23

24

25

22～～～～

3

54

76

Source: YamanouchiBasis of calculation: Sum of probable hypercholesterolemia patients based on

population projections and disease rate for each age

(million)

strengths,

(million)

Total

Treated with statin

IN JAPAN Hypercholesterolemia is recognized as a major risk factor for coronary arterial diseases.

This points to the need for treatments that can prevent diseases such as arterial sclerosis and cardiac infarc-

tion. In 1997, the Japan Atherosclerosis Society released its “Therapeutic Guidelines for the Treat-

ment of Hyperlipidemia.” As a result, a total cholesterol level of less than 220mg/dl and LDL-cholesterol

level of less than 140mg/dl became the therapeutic goals in the absence of other risk factors such as smoking,

obesity and hypertension. A 1999 survey of physicians in Japan revealed that existing pharmaceutical treat-

ments are not always successful in sufficiently reaching these therapeutic goals. In the survey, physicians felt

39% of their patients could not reach these goals. Furthermore, 70% of the physicians said that they wanted

to lower patients’ cholesterol levels all the way to the goals. A 10mg once-daily dose of Lipitor® has

been shown to reduce total cholesterol by 30% and LDL-cholesterol by 41% in clinical trials conducted in

Japan. Lipitor®’s success rate is 81.4% for the under 220mg/dl target for total cholesterol and 85.1% for the

LDL-cholesterol target of less than 140mg/dl. Both figures represent a dramatic improvement over the ability

of a conventional statin to achieve the therapeutic goals. Although Lipitor® is the fifth statin to reach

the market in Japan, it received a National Health Insurance (NHI) drug price premium of about 4% com-

pared with its Phase III trial comparator due to a higher effectiveness. In its first month, Lipitor® generated

sales of ¥3.1 billion on an NHI drug price basis, recording the largest first-month sales volume of any statin

in Japan in terms of daily doses. This is proof of the high level of interest in Lipitor® among medical profes-

sionals. The performances of drugs already available in Japan reveal that sales normally drop sharply

in the second month. Results then gradually return to the first month’s level and continue climbing.

Yamanouchi expects to achieve market penetration and return Lipitor® sales to their first-month level as soon

as possible. Yamanouchi worked closely with the Parke-Davis Pharmaceutical Division of Warner-

Lambert K.K. in each step from clinical development through promotion, forming a sound base for working

together in the process. Together, the MRs of the two companies represent a powerful force for copromoting

the advantages of Lipitor® among health care providers under the slogan of “Treat to Goal.” In addition,

Yamanouchi is utilizing information technology specifically developed for Lipitor® to allow MRs to work in

a timely and efficient manner. By raising awareness of Lipitor®’s superiority among hospitals and other insti-

tutions, Yamanouchi expects to make this drug the number-one statin in Japan, just as it is in Europe and the

United States. Lipitor® joins Gaster® and Harnal® to give Yamanouchi three major products to anchor

its diverse array of pharmaceuticals. Yamanouchi is now in an even more advantageous stature to reinforce its

stature in Japan, the core market for the entire Yamanouchi Group.

Yamanouchi Pharmaceutical 2

IN OVERSEAS MARKETS


Enhance presence in Europe by enlarging the productlineup and increasing sales of Harnal® (Omnic®)

Increase sales in Asia outside Japan

Move quickly to build Yamanouchi’s own independentsales network in the United States

enlarge sales n

During the past decade, Yamanouchi has been energetic in building up its overseas opera-tions. One product has played a central role in this drive: Harnal® (tamsulosin), a treat-ment for the functional symptoms of benign prostatic hyperplasia (BPH). Now available in58 countries, Harnal® is generating steady growth in sales and has earned high marksfrom health care professionals around the world.

In Europe, Yamanouchi is aiming for further gains in market share. Propelling thesegains will be Harnal® and other current products along with the introduction of drugs nowunder clinical development as soon as possible. Infrastructure growth is the main themein Asia. New bases were opened in Thailand and Indonesia in 1999, raising the Asiannetwork to six locations. Complementing this will be expansion of the product lineup toincrease sales.

Full-fledged participation in the U.S. market, the world’s largest, is a major objectiveof Yamanouchi. In this regard, efforts will be focused on speeding up the clinical studiesof five new drug candidates and rapidly establishing its own independent sales network.


networks

0

20

40

60

80

’96 ’97 ’98 ’99 ’00

Harnal® Sales(billion ¥)

IN OVERSEAS MARKETS Yamanouchi’s pharmaceutical sales outside Japan have

been rising rapidly, driven in large part by the success of Harnal®. In Europe, where this drug is sold

under the name Omnic® and other brands through Yamanouchi Europe B.V., market share gains have

been achieved consistently since its 1995 launch in the Netherlands. Today, thanks to its characteristic

of improving the functional symptoms of BPH while exerting a minimal effect on blood pressure,

Harnal® is the number-one selling alpha1-blocker in Europe for BPH treatment, including the Netherlands,

Germany, Italy, the United Kingdom, Spain and Portugal. In the United Kingdom, Harnal® is sold by

working with Glaxo Wellcome plc as a copromoter. A similar tie-up with Aventis Pharma commenced in

Germany in April 2000. Through its own marketing and copromotion partnership, Yamanouchi plans to

make further inroads in this market. In addition, to achieve more expansion of the Harnal® market,

Yamanouchi is proceeding with clinical studies to gain approval for an additional formulation.

Increasing sales of existing products and adding new drugs to Yamanouchi’s lineup will be other sources

of growth. Naturally, marketing capabilities will be upgraded as well. In this regard, the number of

MRs will be increased and steps taken to disseminate medical information faster and more effectively.

These initiatives, along with a focus on Harnal®, will be the primary impetus for future growth in

Europe. Filling out the local sales network was the primary goal in Asia. The January 1999 establish-

ment of Yamanouchi (Thailand) Co., Ltd. and the March opening of a representative office in Indonesia

completed this process. With six sales bases in place, Yamanouchi will turn its attention to expanding its

product range and stepping up marketing activities. Harnal® will be the primary drug in both respects.

For the medium term, Yamanouchi has set its sights on increasing sales in this region. Yamanouchi

is placing priority on developing a presence in the United States, the world’s largest pharmaceutical market.

The primary goal at this time for Yamanouchi is establishing its own independent sales network in the

United States. Many actions are being taken to realize this goal as soon as possible. One is making the

clinical study periods for five drug candidates shorter and more efficient. Among them are YM087, a

treatment for heart failure and hyponatremia, YM905, a treatment for urinary incontinence, and YM992,

an oral antidepressant. Presently, plans call for setting up a small sales company to market YM087 with

an indication of treating hyponatremia under copromotion with Pfizer. This sales subsidiary could then

be expanded in line with the outlook for subsequent products. By achieving its goal of commenc-

ing marketing activities in the U.S. pharmaceutical market, Yamanouchi is confident of accelerating

the pace of its expansion as a truly global enterprise.


IN RESEARCH AND DEVELOPMENT

expanding R&D Increasing emphasis on genomics-based research aimedat enhancing R&D capabilities over the long term

Forming a Genome Unit to establish a competitive edgein catching up with the latest worldwide genomic research

Entering into more cooperative agreements with otherpharmaceutical companies, bioventures, joint private/public-sector projects and universities

Yamanouchi is bolstering research capabilities to achieve its goal of becoming an R&D-oriented global enterprise. Successful internally discovered drugs like Perdipine®, Gaster®

and Harnal® have all made substantial contributions to Yamanouchi’s growth. Now, furtherrefinements to R&D processes are forming a solid base for creating a stream of new drugsthat will lead the company into its next era of expansion.

In the 21st century, the success of pharmaceutical companies will hinge to a greatextent on their ability to take advantage of genomics-based research to discover innova-tive new drugs. This is why Yamanouchi is increasing emphasis on genomics-based research.Activities will include both internal research programs and a variety of alliances withexternal partners such as other pharmaceutical companies, bioventures, universities andgovernmental agencies. Pursuing this multi-faceted approach will produce an organiza-tion best suited to rapidly seizing opportunities that will surface following completion ofhuman genome sequencing.


on a global scale

0

15

30

45

60

0

5

10

15

20

’96 ’97 ’98 ’99 ’00


R&D Expenditures(billion ¥) (% of net sales)

The Genomic Drug Discovery Process

➔GeneDiscovery ➔Gene

Function ➔Target ID ➔AssayDevelopment ➔Lead

Optimization ➔PreclinicalStudies ➔Clinical Trials ➔Launch

➔Genome Sequence

➔Transcriptome

➔Proteome

➔Polymorphism

➔Disease Biology

“Disease-to-Gene”“Gene-to-Disease”

Understanding the MolecularBasis of Diseases

New Specific Drug Targets

➔

Functional Genomics

Pharmacogenomics/Pharmacogenetics

Bioinformatics

Individualized &Mechanism-Based Therapies

Safer, More Effective Drugs

Efficient Clinical Trials

➔ ➔

IN RESEARCH AND DEVELOPMENT Yamanouchi’s drug discovery research is

centered at its research center in Tsukuba, Japan. Working in conjunction with Yamanouchi Research

Institute (U.K.) (YRI) in Oxford, England, Yamanouchi scientists are constantly taking on the challenge

of exploring innovative new drugs. Many advances have dramatically altered this research process in recent

years. For example, Yamanouchi taps such sophisticated technologies as high-throughput screening and

combinatorial chemistry to discover potential new drug candidates quickly and efficiently. Drug

candidates to succeed Yamanouchi’s blockbuster drugs Harnal® and Gaster® are moving toward late-stage

clinical development in Europe and the United States: YM087, a treatment for heart failure and hy-

ponatremia; YM905, a treatment for urinary incontinence; YM992, an oral antidepressant; and many

more. Genomics-based research will separate the winners and losers of the 21st century’s pharma-

ceutical industry. A global project to sequence the human genome, which is supposed to contain more

than 100,000 genes, is almost complete. Estimates place the number of genes that may lead to new drugs

at between 3,000 and 10,000. The message is clear. Pharmaceutical companies stand on the doorstep of

the “post-genome sequencing era.” Imperative to success will be the ability to transform gene sequence

information into new medicines. Yamanouchi has been aggressively conducting genomics-based

research. This research is rooted in the awareness that falling behind in this field would prevent Yamanouchi

from being a global competitor in the creation of new drugs. Yamanouchi is tackling this challenge from

two angles. The first approach is called “gene-to-disease,” a system whereby discovery drug targets are

identified by analyzing and determining gene function and their relationships with various diseases. This

involves the elucidation of functions of genes of interest such as GPCRs (G-protein coupled receptor),

channels and enzymes. The other approach is called “disease-to-gene.” Discovery drug targets are iden-

tified by focusing on a particular disease and then analyzing the possible related genes. Both processes

target lifestyle diseases and diseases where existing pharmaceuticals are not yet sufficiently effective. In

each case, the objective is to identify genes related to particular diseases and disorders, and then analyze

the possible related gene functions. Because the sequencing of the human genome resulted in the

need for handling massive quantities of data, making efficient use of bioinformatics technology is essential

to identifying how genes function. Yamanouchi is taking a unique approach in this regard. Researchers


draw on public databases as well as commercial genetic databases. By selecting only data that are poten-

tially useful in drug discovery research, Yamanouchi is able to build a database like no other. Adding

strength to its internal genomics-based research are tie-ups with many types of partners, relationships

that better allow Yamanouchi to remain up to date on the latest developments in the world of genomic

research. In February 2000, an agreement was signed with New York University Medical Center’s

Hospital for Joint Diseases for a cooperative research program involving the identification of genes

related to osteoarthritis. In June 2000, Yamanouchi and three partners commenced collaborative stud-

ies to identify drug target genes to find future new treatments against certain diseases. Working with

Yamanouchi on this endeavor are Glaxo Wellcome K.K., Tokyo Women’s Medical University and

Jichi Medical School. While Yamanouchi is forming strategic R&D alliances with other pharma-

ceutical companies, government agencies, bioventures, and universities, and utilizing its advanced data-

base, great importance is also placed on the experience and creativity of individual researchers. To meet

the entirely new demands of the budding genomics-based research field, a new organization called the

Genome Unit was formed. Cutting across the entire company, the unit consists primarily of young

scientists who work exclusively in this new field. These people gather information from a broad range of

sources worldwide, monitoring scientific innovation and developments at other companies, including

bioventures. Their mission is to provide proper advice based on state-of-the-art genomics-based informa-

tion that includes proposals concerning outsourcing needed to support all Yamanouchi efforts to discover

new drugs. In the United Kingdom, YRI hosts the Oxford BioBusiness Centre, a biotechnology

incubator, on its grounds to contribute to the development of bioventures. This provides opportunities

for YRI and Yamanouchi to interact with companies pursuing the latest ideas. The goal is to create

sophisticated pharmaceuticals even faster. Now is the time for Yamanouchi to apply genomic work to pre-

clinical research for pharmacology, metabolism and toxicity, and clinical trials. Yamanouchi will also conduct

R&D activities that contribute to the creation of medicines tailor-made for individual patients, distinguished

mainly by single nucleotide polymorphisms (SNPs). R&D expenditures at Yamanouchi amounted to

¥54.8 billion in the year ended March 31, 2000. Plans call for the continuation of aggressive investments in

R&D activities. This includes strengthening drug discovery research, particularly genomics-based research,

and pursuing overseas clinical development activities.


This is my first year to report to you on the performance of Yamanouchi Pharmaceutical Co., Ltd., following my appointment

on April 1, 2000 as president and chief executive officer to succeed Masayoshi Onoda. As the preceding pages of this year’s

annual report explain, I firmly believe that Yamanouchi needs to work toward concrete goals if it is to remain successful in

the next century. In Japanese, this idea is embodied in our one-word slogan: HAYAI, or speed. In English, this is translated as

simply Speed with Vision. We must move quickly in our preparations, implementation and achievement of goals.

[TO OUR SHAREHOLDERS AND FRIENDS]

Operating Environment➣Japan’s pharmaceutical market returned to growth in the fiscal year ended March 31, 2000, expanding by

6.2%. This was mainly due to the absence of National Health Insurance (NHI) drug price reductions, which had been imple-

mented in each of the prior three years. The outlook remains difficult, however. Steps to restrain drug expenses in Japan are

likely to accelerate, notably through the government’s plans to radically alter the present system for NHI drug pricing. We are

seeing fierce competition among pharmaceutical companies, including those from overseas. Companies with powerful prod-

ucts and well-entrenched overseas operations are moving farther and farther ahead of the others. Outside Japan, competition is

heating up as pharmaceutical companies turn to mergers and acquisitions to expand or complement their R&D pipelines and use

corporate assets more efficiently.

Results➣Supported by highly effective marketing activities in Japan and overseas, sales of our main pharmaceutical products

were strong. We were thus able to achieve gains in consolidated sales and earnings. Net sales rose 2.5% to ¥433.7 billion,

operating income was up 7.4% to ¥96.1 billion and net income climbed 19.1% to an all-time high of ¥57.2 billion. As a result,

net income per share amounted to ¥162.35 and cash dividends per share applicable to the year amounted to ¥25.00. The

return on equity for the year was 9.8%.

Speed With Vision➣I am well aware that creating innovative new drugs is the central mission of a pharmaceutical company. My

emphasis on HAYAI, or Speed with Vision, is rooted in the fact that the length of a patent has a greater impact on our industry

than in other business sectors. Our goal is to shorten the R&D period and make each drug’s marketing life as long as possible

within the patent period. This is the best way to maximize the benefits of a new drug.

Shortening the R&D process requires close cooperation among basic research, clinical development, application and marketing.

This is why I am constantly telling our people of the importance of seamless operation from discovery research to marketing.

We need to generate the most sales possible between a drug’s market launch and patent expiration. Doing so demands that

our marketing people work to achieve acceptance of new drugs as soon as possible, thus rapidly capturing the maximum

market share.

More Challenges➣I urge our researchers to take on new challenges without fearing failure. There are no shortcuts to discovering

innovative new drugs. Increasing the success rate demands that we tackle complex research themes, even if they are quite risky.

We must always be prepared to take on new challenges. And when our risk-taking yields a potentially viable new drug, we need

to move as fast as we can to receive approval.


President and Chief Executive Officer Toichi Takenaka ➣

Using Information Wisely➣Progress in IT makes it possible to acquire information with remarkable speed. I strongly

feel that the wise use of IT to gather information effectively will lead directly to faster

decisions. This will facilitate HAYAI, or quick, decisions by management as well as HAYAI

action by all employees.

There is a virtually unlimited volume of information about science, knowledge,

discovery and other subjects of potential interest to us. And only a small part can spark

the creation of a new drug. Translating information into pharmaceuticals requires the

ability to use information efficiently and the desire to use that information to try

to create a drug. I believe that Yamanouchi has many such talented researchers.

We also have the know-how to form these people into effective teams.

One need look no farther than our record of launching new drugs

for proof of this.

Core Strategies➣I have great respect for the powerful business

organization created by my predecessor, Mr. Onoda. I intend

to make the most of this legacy to lead Yamanouchi to still

greater accomplishments. In this vein, I plan to vigorously

implement a strategy that targets growth. We will place

priority on increasing Yamanouchi’s value, a task that

basically means bringing a steady stream of new drugs to

the market. My job is guiding this company so that we can

meet this target. For this purpose, I have set forth the fol-

lowing medium-term goals:

➣ Expand our pharmaceutical business in Asia including Japan, Europe

and the United States

➣ Increase overseas pharmaceutical sales to half of total

pharmaceutical sales

➣ Build a base capable of supporting an annual R&D budget

of ¥100 billion

To sum up these goals in a single phrase, we want to become

an R&D-oriented global enterprise. At the same time, we have

established ourselves as a comprehensive health care enterprise,

bolstering our consumer products business.

Chairman of the Board Masayoshi Onoda (Right)➣


We have further set down three concrete plans to fulfill these three goals.

As listed in the feature section of this report, they are:

➣ Increase our share of the Japanese pharmaceutical market, chiefly by expanding sales

of Lipitor ®.

➣ Maximize global sales of Harnal®. Further develop our pharmaceutical business in Europe and

Asia outside Japan. And start our own independent marketing activities in the United States.

➣ Reinforce our drug discovery research, including genomics-based research, to ensure a strong

R&D pipeline from 2010.

Ultimately, it is people who are responsible for making a business move

faster. Management is responsible for providing a work environment in which

the people who will create the Yamanouchi of the future can realize their full potential. This is why we need the ability to fully

recognize the achievements of everyone in this company.

Every member of the Yamanouchi organization is completely dedicated to making the HAYAI, or Speed with Vision, concept an

intrinsic part of our work, thereby raising Yamanouchi’s value.

In Closing➣Finally, I would like to convey my thoughts to our shareholders and friends. I am committed to making Yamanouchi a

more powerful company that can thrive in today’s extremely competitive environment. Yamanouchi needs to have the

driving force for achieving greater sales and earnings and the boundless creativity for ensuring an even more attractive R&D pipeline.

In other words, I want to take initiatives that will lead to higher profits as soon as possible through the efficient use of capital and other

resources, thereby maximizing value for shareholders. I would like to ask for your strong support and understanding.

Toichi Takenaka

President and Chief Executive Officer

July 2000


Thousands ofMillions of yen U.S. dollars

2000 1999 1998 2000

For the year:Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥433,653 ¥423,217 ¥477,356 $4,091,066Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,069 89,445 102,845 906,311Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,175 48,002 6,092 539,387Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 829,286 776,031 802,735 7,823,453Shareholders’ equity, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620,221 549,972 507,535 5,851,142Research and development expenses . . . . . . . . . . . . . . . . . . . . 54,821 54,299 43,639 517,179Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,831 51,405 57,575 281,425Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,460 29,338 18,454 221,321

Yen Dollars

Per share:Net income:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 162.35 ¥ 140.79 ¥ 18.18 $ 1.53Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155.97 129.21 17.51 1.47

Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,721.77 1,596.65 1,498.91 16.24Cash dividends applicable to the year . . . . . . . . . . . . . . . . . . . . . 25.00 23.00 25.00 0.24

Notes: 1. Yen figures have been translated into U.S. dollars at the rate of ¥106=US$1, the approximate exchange rate on March 31, 2000.2. Effective April 1, 1999, the Company changed its method of accounting for retirement allowances to recognizing the liability for retirement

allowances at the present value of the estimated retirement benefits to be paid upon the future termination of its employees’ employment, less thebalance of the plan assets at fair value.The effect of this change was to increase operating income by ¥573 million and to decrease income before income taxes and minority interests by¥12,587 million for the year ended March 31,2000.

3. Effective April, 1997, the Company changed its methods of accounting for the amortization period of excess of cost over net assets acquired and forincome taxes to adopting tax effect accounting. As a result of these changes, the effect of the change in the amortization period was to increase theamortization of excess of cost over net assets acquired by ¥72,730 million and to decrease net income by the same amount for the year ended March 31,1998. Also, the effect of adopting tax effect accounting was to decrease income tax expense by ¥24,477 million and to increase net income by the sameamount for the year ended March 31, 1998.

4. Due to a change effective the year ended March 31, 2000 in the regulations relating to the presentation of translation adjustments, the Company haspresented translation adjustments as a component of shareholders’ equity instead of as a component of assets or liabilities.Accordingly, the amounts for 1999 amd 1998 were restated in the above table.

[FINANCIAL HIGHLIGHTS]Years ended March 31, 2000, 1999, and 1998

PHARMACEUTICALS

R&D ➣ In R&D, Yamanouchi’s primary objec-

tive is to create a steady stream of innovative new

drugs. Defining this is the HAYAI concept, or

Speed with Vision. The goal is to ensure a rich

pipeline, making the R&D process shorter and

more efficient.

The rapid implementation of international

clinical development exemplifies how Speed with

Vision is being translated into action. Drug can-

didates discovered at the Tsukuba Research

Center in Japan start Phase I clinical studies in

Europe. Subsequent trials are performed in the

United States as well. When Phase II studies begin in Europe and/or the United States, clinical development in Japan will

start. The basic policy here is to use data from clinical development in Europe and the United States as a bridge to apply for

approval in Japan.

The Clinical Pharmacology Unit (CPU) at Yamanouchi Europe B.V. (YEU) in the Netherlands is a key element of this

system. R&D staff at Tsukuba and in the Netherlands work closely from the very beginning of new drug candidates’ clinical

development to quickly reach a decision on whether or not to proceed with clinical development. All R&D bases in Japan,

Europe and the United States cooperate to facilitate a continuous evaluation of drug candidates. In addition, from the early

stage of clinical development, work on a new drug takes marketing strategies into account. This leads to development strate-

gies that aim to generate the highest possible sales.

Yamanouchi currently has three new products filed for approval in Japan, four drug candidates in Phase III clinical trials

and ten drug candidates in Phase II clinical trials. Under a comprehensive agreement with Pharmacia Corporation, Yamanouchi

has exercised its right to jointly develop and market the company’s drug candidates in Japan, including the second-generation

COX-2 inhibitor valdecoxib and the injectable COX-2 inhibitor parecoxib. Other R&D agreements exist with pharmaceuti-

cal companies such as Merck KGaA, bioventures, universities, and governmental organizations in Japan and overseas.

Marketing ➣ To heighten its stature in key markets worldwide, Yamanouchi is reinforcing all

aspects of its sales capabilities in Japan, Europe and Asia. This primarily entails upgrading MR

training, increasing MR numbers, and effectively using information technologies and networks.

In April 1999, Yamanouchi opened the Yamanouchi Atami Human Resources Development

Center in Japan in order to implement intensive training for MRs in a variety of fields.

Gaster®, a treatment for peptic ulcers and gastritis, posted a sales increase of 8.4% in Japan during

the year ended March 31, 2000. On the other hand, sales of bulk Gaster® by Yamanouchi to licensees

such as Merck & Co., Inc. declined. Yamanouchi has acquired exclusive rights from Gedeon Richter

Ltd. (GR) to use its patent for famotidine polymorphism in Japan. This agreement enables Yamanouchi

to manufacture and market Gaster® in Japan until August 2007, when GR’s patent expires.

Sales of Harnal®, a treatment for the functional symptoms of benign prostatic hyperplasia (BPH), continued to grow,

[REVIEW OF OPERATIONS]


Yamanouchi U.S.A. Inc.

Yamanouchi Pharma Portugal

increasing by 9.4% in Japan. Harnal® sales under the brand name Omnic® at YEU, which operates in 13 countries,

increased 26.4%. Strong sales of Harnal® outside Japan led to a 50.6% increase in Yamanouchi’s Harnal® bulk sales to

licensees. Harnal® acts selectively on the lower urinary tract while having minimal side effects, such as lowering blood

pressure. These characteristics have made this drug the first choice for the treatment of BPH. In Europe, Harnal® is sold by

YEU under the brand name Omnic® and licensee Boehringer Ingelheim International GmbH. In the United States, the

copromotion of Harnal® began in September 1999 under the brand name Flomax® by licensees Boehringer Ingelheim

Pharmaceuticals, Inc. (BIPI) and Abbott Laboratories. Prospects for growth are excellent since these two companies are a

good match for selling Harnal®.

Other products contributing to sales growth were Farom®, including Farom® Dry Syrup, an oral penem-type antibiotic,

and Dorner®, a treatment for chronic arterial occlusion in Japan. Three new drugs went on sale in Japan during the past fiscal

year: Starsis®, a rapid onset insulin secretagogue; CHOLEBINE®, a treatment for hypercholesterolemia; and Libian®, an oral

contraceptive. Intense competition in the Japanese antihypertensive market brought down sales of the calcium antagonists

Perdipine®, Perdipine® LA and Hypoca®.

In Europe, Infergen®, a treatment for chronic hepatitis C virus infection, was launched.

In Asia, Yamanouchi has its own sales channels through Shenyang Yamanouchi Pharmaceutical Co., Ltd. in China and

other subsidiaries in Korea, Taiwan and the Philippines. In 1999, a subsidiary was opened in Thailand in January and a

representative office in Indonesia in March. This forms the basis for more growth in the highly attractive Asian market.

Production ➣ The global Yamanouchi production network is structured for maximum efficiency. Bulk pharmaceuticals are

manufactured in Takahagi in Japan and Ireland. Drug formulations are produced in Japan, Taiwan, China, the Netherlands,

Italy and the United States to provide ready access to all primary markets.

During the year ended March 31, 2000, work was completed at a new building at the Takahagi Plant in Japan. This is a

crucial step in ensuring an adequate supply of investigational drugs to handle the growing number of drug candidates under

clinical development in Europe and the United States. At the Yaizu Plant in Japan, a new facility with a sterile production line

was completed to provide an efficient supply of injectable formulations.

Yamanouchi Ireland Co., Ltd. began shipping bulk Harnal® in 1999 to Europe and the

United States. In July 2000, the Norman Manufacturing Center of Yamanouchi Pharma

Technologies, Inc. (YPT, previously Yamanouchi Shaklee Pharma) in Oklahoma begins

production of Harnal® capsules for U.S. licensee BIPI. Demand for Harnal® is climbing

sharply along with growth in sales in Europe and the United States. Yamanouchi now has a

highly efficient and reliable production system to meet future expansion in demand.

Drug Delivery Technology Business ➣ Along with the creation of new drugs, Yamanouchi is develop-

ing a drug delivery technology business in the United States. This primarily takes place at

YPT. WOWTAB® is an orally disintegrating tablet designed to be taken without water. OCAS allows a drug to be absorbed

at a constant rate throughout the digestive tract, including the colon. CODES delivers drugs solely to the intestines. All were

developed by Yamanouchi. In February 2000, the first product applying WOWTAB® went on the market in the United

States: Pfizer’s Benadryl® Allergy/Cold Fastmelt™ Tablets.


YPT’s Norman Manufacturing Center

Incadronate (YM175)

Incadronate (YM175) is an oral third-generation bisphosphonate compound that has been filed for approval in Japan for the treatment of improv-

ing bone mass associated with osteoporosis. Acting on mature osteoclasts while not disrupting the formation of new ones, incadronate power-

fully suppresses bone resorption, which leads to steadily increasing bone mass.

Interferon Alfacon-1 (YM643)

Interferon alfacon-1 (YM643) is a consensus interferon—a unique, highly active, non-naturally occurring interferon—for the treatment of

chronic hepatitis C virus infection.

Created by Amgen Inc., the drug is a next-generation of interferon designed to have increased efficacy.

The drug was launched in Europe under the brand name Infergen® and is currently filed for approval in Japan. In clinical trials conducted in the

United States and Japan, the drug has shown high efficacy in treating patients with high viral titers and providing virological responses in relaps-

ing patients as well as responding patients.

Celecoxib (YM177)

Celecoxib (YM177) is an oral nonsteroidal anti-inflammatory drug (NSAID) developed by Pharmacia Corporation that selectively inhibits

cyclooxygenase-2 (COX-2) activity induced in inflammation. Celecoxib is currently undergoing late Phase II clinical studies in Japan for the treat-

ment of chronic rheumatoid arthritis, osteoarthritis and postsurgical dental pain.

REPORT ON THE DEVELOPMENT OF NEW DRUGS


Loss of bone mass associated with osteoporosis

Benign prostatic hyperplasia

Prevention of chemotherapy-induced thrombocytopenia

Promotion of bone formation

Hyponatremia (P-II)(P-II)

Acute ischemic stroke

High-risk PTCA

Urinary incontinence

Acute myocardial infarction

Breast cancer, endometriosis, uterine myoma

Contrast medium

Therapeutic Target

Incadronate (YM175)

Filed Finasteride (YM152)

Oprelvekin (YM294)

P-IIIYM484

Conivaptan (YM087)

P-IIYM872

YM337

YM905

DepressionYM992

YM103

YM511

YM454

Generic Name/Code No.Stage

Chronic hepatitis C virus infectionInterferon alfacon-1 (YM643)

Multiple myeloma, bone metastasis with breast cancerMinodronate (YM529)

Rheumatoid arthritis, osteoarthritis, dental painCelecoxib (YM177)

Heart failureConivaptan (YM087)

Acute coronary syndromesYM028

OverseasDomestic

•••

•

••

•

•

•

•

••

(P-I)

•

•

••

•

•

•••••

R&D PIPELINE

(launched)

(As of July 2000)


Celecoxib’s mechanism of action is designed to suppress inflammation without triggering the side effects associated with currently available

NSAIDs. In clinical trials conducted in the United States, celecoxib exhibited superior gastrointestinal and renal safety compared with NSAIDs.

Conivaptan (YM087)

Conivaptan (YM087), a treatment for heart failure and hyponatremia, is currently in Phase III or II clinical studies in Europe, the United States and

Japan. Prepared in both oral and injectable formulations, conivaptan can display an antagonistic action against both vasopressin V1 and V2

receptors.

Preliminary studies suggest that conivaptan, which is designed for oral administration, has strong-acting, long-lasting effects, and, while

additional studies are needed, Yamanouchi believes that the drug has great potential as an effective treatment for congestive heart failure.

Yamanouchi entered into a licensing-out agreement with Pfizer Inc. for conivaptan as part of a cross-licensing agreement for Lipitor®.

YM992

YM992, an oral antidepressant now in Phase II clinical studies in the United States and Europe, is a selective serotonin (5-HT) reuptake inhibitor,

noradrenaline augmenting 5-HT2A antagonist with a noradrenaline releasing effect (SINAS). It is being investigated to determine whether it is

effective in treating symptoms of depression by raising serotonin concentration levels in the brain to stimulate 5-HT1A receptors. Due to its 5-HT2A

antagonistic action, YM992 may further stimulate 5-HT1A receptor-mediated neurotransmission and have a noradrenaline releasing property.

Although additional studies are needed to determine the drug’s safety and efficacy, YM992 may be able to deliver strong, fast and effective

therapeutic action while triggering low levels of 5-HT reuptake inhibitor associated adverse events, such as insomnia, anxiety and sexual dysfunction.

YM905

YM905 is a muscarinic M3 antagonist that acts selectively on the smooth muscle of the bladder. Because of its selectivity, YM905 is expected to

reduce the frequency and intensity of such adverse events as dry mouth and blurred vision, which accompany the use of existing drugs.

YM905 is being evaluated for the treatment of frequency, urgency and urinary incontinence due to overactive bladder. Phase II clinical studies

in Europe and the United States are about to be completed.

YM872

YM872, an injectable medication that may improve various symptoms associated with acute ischemic stroke, is currently being evaluated in Phase

II clinical studies in Europe and the United States. YM872 selectively antagonizes the AMPA (a-amino-3-hydroxy-5-methylisoxazole-4-propionate)

receptor, the glutamate receptor subtype responsible for regulating calcium flow into cerebral neurons.

YM337

YM337 is a platelet GPIIb/IIIa antagonist that may be useful to prevent ischemic cardiovascular events after percutaneous transluminal coronary

angioplasty (PTCA) or atherectomy. YM337 is a Fab fragment of a humanized monoclonal antibody. YM337 displayed a superior safety profile and

completed inhibition of platelet aggregation in Phase I clinical studies. YM337 is in Phase II clinical study.

NUTRITIONAL PRODUCTS

The Shaklee Companies and Shaklee Japan

K.K. develop, manufacture and distribute nu-

tritional supplements and personal care as well

as household products. The Shaklee Companies

are comprised of mature direct selling opera-

tions in a highly competitive industry. Empha-

sizing proactive, measured performance at every

level of the organization is a core objective of

the new president and CEO of the Shaklee

Companies. This accountability-based strategy

will ensure that Shaklee will satisfy the require-

ments of the company’s stakeholders and will

position it to meet or exceed the performance of its marketplace competitors. Shaklee is also proactively investigating new

strategic initiatives to promote sales force growth and foster recruitment of new distributors.

Five new health and wellness products that showcase Shaklee’s expertise in nutrition were introduced during the fiscal

year. Shaklee Basics™ is a nutrition foundation product that includes all of the necessary daily essential vitamins, critical

minerals, protective antioxidants and phytonutrients. A 30-day supply of Shaklee Basics™ is conveniently packaged in

individual daily Vita-Strip™ blister strips. A new B-Complex supplement with a patent-pending folic acid coating and

Vita-E Plus™, a powerhouse addition to the antioxidant line, are also available. A fourth new product, CarotoMax™, is

a premium blend of five carotenoids and two flavonoids, all having exceptional antioxidant properties, plus one of the

most promising vegetable sprout extracts known to science. PhytoFem™ was introduced to provide key phytoestrogens

for hormonal balance during menopause. Three new body care products were introduced as extensions to Shaklee’s ex-

tremely successful Enfuselle® skin care line, which has four patents and one patent pending. Shaklee also introduced the

popular Perfect Pitcher™ pour through water filtration system. Shaklee Japan introduced JENA VE Plamerry, a skin care

product with the fragrance of herbs, and SHAKLEE BLUEBERRY vitamins with blueberry extract in Japan.

In January 2000, Shaklee launched www.shaklee.net, a special portal designed for Shaklee Distributors. Shaklee.net

provides a personal web presence for Personal Websites and a Member Center where distributors can monitor their monthly

sales volume and get business information. Personal Website features include online applica-

tions, online ordering, and options for special product and business opportunity promotions.

Shaklee also introduced Network Builder software to help those distributors who rely on the

company to pay bonuses to their groups and ship orders directly to customers. Network Builder

helps distributors manage their organizations on a real-time basis.

INOBYS, an acronym for “Innovations by Yamanouchi and Shaklee,” is a small group of

dedicated and highly focused professionals with a goal of leveraging Shaklee’s strengths beyond

the businesses currently conducted by the Shaklee Companies. Given the substantial and

growing consumer market for health and wellness products, the INOBYS team is evaluating

opportunities that capitalize on the substantial credibility, expertise and resources of Yamanouchi and Shaklee.


Shaklee is dedicated to supporting healthy lifestyles.

Vita-C®, one of Shaklee’s best sellers

FOOD AND ROSES

Bear Creek Companies posted the sixth

straight year of record sales, which rose

11.3%, and profits, which rose 33.4%, on a

local currency basis in the fiscal year ended

March 31, 2000. These fiscal accomplish-

ments are the result of the efforts of a skilled

and highly energized management team,

strong marketing strategies, excellent finan-

cial management and substantial improve-

ment in customer satisfaction.

The year’s highlights include a record

pear crop, 26 new Harry and David stores

and an 8% reduction in negative customer service contacts. Other noteworthy milestones for the company include

100% capacity utilization of the Hopewell, Ohio, Distribution Facility, now in its third year of existence, and an

increase in Internet orders from 3.25% to 8.2% of total direct marketing orders received.

The efficiencies and marketing opportunities inherent in Internet technology will have a profound effect on the value

of those companies that embrace it. Bear Creek Corporation, which has had an award winning e-commerce site for its

catalog businesses since 1996, plans to increase the application of Internet technology in its core businesses, invest in

new Internet concepts and create new Internet businesses.

In March 2000, Bear Creek Corporation announced the formation of an Internet Division. Current annual Internet

sales for the company exceed US$25 million and are anticipated to double in the fiscal year ending on March 31, 2001

and grow tenfold within five years.

The company has also invested in two Internet companies. In 1999, the company purchased an interest in

CatalogCity.com, which provides online access to more than 16,000 catalogs. Founded in 1997 and based in California,

CatalogCity is the first catalog shopping portal, offering complete and personalized online

catalog shopping. The company allows shoppers to visit a wide range of catalog companies

but pay for their purchases at a single point. Additionally, in April 2000 the company

invested in 4YourSoul.com, a greeting-card and gift-card company.

Bear Creek Corporation, with more than 65 years of experience in order processing and

fulfillment, is uniquely positioned to capitalize on this background as it continues to increase

its focus on the Internet.


A Harry and David store

Tower of Treats®

CORPORATE CITIZENSHIP ANDENVIRONMENTAL PROTECTION

Corporate Citizenship ➣ Charitable programs and other community activities at Yamanouchi

reflect its philosophy of “Creating and Caring ... for Life.” In line with this thinking,

Yamanouchi takes part in a variety of programs that address the aging of populations and

the vital role that medicine and health care play in our lives.

Through several channels, Yamanouchi strives to make useful information about medi-

cine and health care readily available in Japan. One is a radio program that provides

advice on how to stay healthy. Another is a telephone hot line where physicians and nurses

provide advice involving diseases. Sponsorship of medical seminars is one more way to

disseminate medical information to the public. Through a Website, Yamanouchi supplies information on pharmaceuticals

to health care professionals.

Contributions to foundations and other worthy causes is another core element of corporate citizenship. Yamanouchi’s

Foundation for Research on Metabolic Disorders has been giving grants to researchers in Japan for the purpose of promoting

technical advances in health care, medicine and medical science since its establishment in 1969. During the fiscal year under

review, ¥69.5 million was given to 79 scientists. Separately, Yamanouchi has for many years given ambulances to communi-

ties in Japan. In 1999, the company received a certificate of appreciation from the Commissioner of Japan’s Fire and Disaster

Management Agency to mark the 30th anniversary of this program. Another program in Japan is the Three-Nine Fund, which

provides wheelchair-compatible vehicles through a program under which the company matches employees’ donations.

There are many programs outside Japan as well. In the United States, Yamanouchi’s foundation gave grants to univer-

sities and research institutions during the fiscal year. Yamanouchi European Foundation (YEF) awarded a Research Grant

to the Instituto di Fisiologia Clinica of the Italian National Research Council for a diabetes study as proposed by Prof. Ele

Ferrannini. In Ireland, Yamanouchi’s local subsidiary extends support to a theater group. Yamanouchi Research Institute

(U.K.) sponsors a wide variety of activities. Among them are the Oxford Playhouse Theatre, and the Buckinghamshire,

Berkshire and Oxfordshire Naturalists Trust’s annual Walk for Wildlife.

At Shaklee Corporation, the Shaklee Cares program has contributed a total of over US$1 million to help people and

communities recover from natural disasters since its founding in 1992. Shaklee annually honors ten outstanding community

volunteers chosen from throughout the United States and Canada for their leadership role as Community Caretakers and

provides four-year renewable grants to outstanding high school graduates as part of the Dr. Forrest C. Shaklee Memorial

Scholarship program. Shaklee is a recognized leader in those communities where it operates through its support of annual

employee giving campaigns, corporate contributions and the Shaklee Employee Matching Gift

Program.

Community involvement has always been a high priority for Bear Creek Corporation, and

one of the prime areas of interest is education. For example, Bear Creek contributed US$250,000

to local educational institutions during the fiscal year. One beneficiary is Southern Oregon


Bear Creek supports United Way

A research grant from YEF

University Center for the Visual Arts. The company has pledged US$165,000 over four

years to this learning center, which will provide students with an exciting array of educa-

tional opportunities in the visual arts.

The Environment ➣ Dedicated to keeping operations in step with environmental needs,

Yamanouchi is active in many areas. Current actions focus on the environmental auditing

system, energy conservation, CO2 gas emission control, air pollutant management and

PRTR, and air and water quality management. Regarding ISO 14001 certification, work at

the Yaizu and Tohoku Yamanouchi facilities is nearing completion. With regard to contributions, Yamanouchi extends

support to a variety of organizations, including the World Wildlife Foundation Japan and the nature conservation fund of

Japan’s Keidanren, a prominent business association.

Yamanouchi Ireland, which has received ISO 14001 certification, participates in the Eco-management & Audit Scheme

to ensure corporate transparency regarding environmental issues. Recently, this company designed a highly automated

plant that incorporates the treatment of waste materials. YEU is making progress with an initiative to reduce packaging and

cut down on waste and emissions from its plants. In the United States, YPT’s Research Center in Palo Alto, California,

studies wastewater treatment, air quality management and other environmental themes.

Shaklee has become the first Climate Neutral™ Certified Company in the United States by completely neutralizing

the impact of its greenhouse gas emissions. Shaklee achieved this certification by reducing energy use at its manufactur-

ing operations and incorporating energy efficient design features into its new corporate headquarters. The company also

created a highly credible portfolio of energy efficient, renewable and other investments to offset its remaining green-

house gas emissions. For its pioneering Climate Neutral commitments, Shaklee was awarded the New York – Earth Day

2000 Environmental Business Leadership Award. In addition, Shaklee Japan was a sponsor of Earth Day 2000 Tokyo in

April 2000.

Bear Creek continues to be a leader in environmen-

tally advanced agricultural practices. In April 2000,

the company unveiled a new waste-reducing compost

site at its Medford orchards. The site is designed to

reduce the organic-based waste materials produced at

Bear Creek’s manufacturing plant and orchards.


Shaklee employees at Earth Day 2000

Yamanouchi Ireland Co., Ltd.

[BOARD OF DIRECTORS]

Chairman of the Board

Masayoshi Onoda

Senior Managg Directors

President and Chief Executive Officer

Toichi Takenaka

Senior Managing Directors

Kiyoshi Kawaishi

Hidehiko Ueda

Managing Directors

Noriyoshi Inukai

Kaoru Kimura

Directors

Teruya Kashiwagi

Yohshi Kobayashi

Kiyoshi Murase

Yoshio Akiya

Hiroshi Suzuki

Yozo Noura

Masakatsu Inoue

Munetoshi Kakitani

Nobuji Takayama

Toshinari Tamura

Kunihide Ichikawa

Shigekazu Takahashi

Kazuyoshi Hatanaka

Yasuo Ishii

Corporate Auditors

Toshio Saba

Hiroyuki Himaki

Norio Sasaki

Yoichi Okamatsu *

Shiro Tachikawa*

* Outside Corporate Auditor

Chairman of the BoardMasayoshi Onoda

Senior Managing DirectorKiyoshi Kawaishi

Senior Managing DirectorHidehiko Ueda

Managing Director

Noriyoshi InukaiManaging DirectorKaoru Kimura

President and Chief Executive OfficerToichi Takenaka



Financial SectionSELECTED FINANCIAL HIGHLIGHTS 26

FINANCIAL REVIEW 27

CONSOLIDATED BALANCE SHEETS 32

CONSOLIDATED STATEMENTS OF INCOME 34

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY 35

CONSOLIDATED STATEMENTS OF CASH FLOWS 36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 37

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 50


Millions of yen, except per share amounts

2000 1999 1998 1997 1996

Results for the Year:Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 433,653 ¥ 423,217 ¥ 477,356 ¥454,740 ¥414,177Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,254 127,513 166,563 158,664 147,502Selling, general and administrative expenses(1) . . . . 212,330 206,259 207,948 194,847 178,460Operating income(1) . . . . . . . . . . . . . . . . . . . . . . . . 96,069 89,445 102,845 101,229 88,215Net income(1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,175 48,002 6,092 41,866 40,542

Research and development expenses . . . . . . . . . . . . 54,821 54,299 43,639 42,309 40,920Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . 29,831 51,405 57,575 36,112 23,704Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,460 29,338 18,454 12,748 12,720

Per Share:Net income(1)(2) (basic) . . . . . . . . . . . . . . . . . . . . . . ¥ 162.35 ¥ 140.79 ¥ 18.18 ¥ 129.12 ¥ 125.38Net income(1)(2) (diluted) . . . . . . . . . . . . . . . . . . . . 155.97 129.21 17.51 116.56 111.65Shareholders’ equity(3) . . . . . . . . . . . . . . . . . . . . . . 1,721.77 1,596.65 1,498.91 1,459.15 1,309.61Cash dividends applicable to the year . . . . . . . . . . . 25.00 23.00 25.00 25.00 23.00

Financial Position at Year-End:Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 344,937 ¥ 273,475 ¥ 346,552 ¥ 362,557 ¥ 379,668Property, plant and equipment, net . . . . . . . . . . . . 182,341 185,587 176,739 128,936 115,602Total assets(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 829,286 776,031 802,735 831,899 765,551Total long-term liabilities . . . . . . . . . . . . . . . . . . . 88,887 88,555 136,558 180,564 223,041Shareholders’ equity, net(3) . . . . . . . . . . . . . . . . . . . 620,221 549,972 507,535 473,199 423,444

Number of shares of common stock issued(in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,246 344,468 338,605 324,308 323,338

Notes: (1) Effective April 1, 1999, the Company changed its method of accounting for retirement allowances to recognizing the liability for retirementallowances at the present value of the estimated retirement benefits to be paid upon the future termination of its employees’ employment, less thebalance of the plan assets at fair value. The effect of this change was to increase operating income by ¥573 million and to decrease income beforeincome taxes and minority interests by ¥12,587 million for the year ended March 31, 2000.

(2) Effective April 1, 1997, the Company changed its methods of accounting for the amortization period of excess of cost over net assets acquiredand for income taxes to adopting tax effect accounting. As a result of these changes, the effect of the change in the amortization period was toincrease the amortization of excess of cost over net assets acquired by ¥72,730 million and to decrease net income by the same amount for theyear ended March 31, 1998. Also, the effect of adopting tax effect accounting was to decrease income tax expense by ¥24,477 million and toincrease net income by the same amount for the year ended March 31, 1998.

(3) Due to a change effective the year ended March 31, 2000 in the regulations relating to the presentation of translation adjustments, theCompany has presented translation adjustments as a component of shareholders’ equity instead of as a component of assets or liabilities.Accordingly, the amounts for 1999, 1998, 1997 and 1996 were restated in the above table.

[SELECTED FINANCIAL HIGHLIGHTS]Years ended March 31, 2000, 1999, 1998, 1997 and 1996


[FINANCIAL REVIEW]

OUTLINEDuring the fiscal year ended March 31, 2000, Japan’spharmaceutical market expanded by 6.2% due to the ab-sence of National Health Insurance drug price revisionsfollowing reductions in each of the prior three fiscal years.The outlook remains difficult, however. Steps to holddown drug expenses in Japan are likely to accelerate. Andforeign-owned companies are expanding their operationsin Japan, the world’s second largest market for pharma-ceuticals. Overseas, there were many large mergers and ac-quisitions among pharmaceutical companies to ensuresufficient funds for constantly rising R&D expenses andto expand their R&D pipelines.

Against this backdrop, during the fiscal year endedMarch 31, 2000, Yamanouchi made concerted efforts tostrengthen its R&D pipeline. The aim was to lay thegroundwork for future growth. The result was a 2.5%increase in net sales to ¥433.7 billion, 7.4% growth inoperating income to ¥96.1 billion and a 19.1% increasein net income to ¥57.2 billion.

In Japan, Yamanouchi’s primary sources of sales andearnings, the H2 antagonist Gaster® for the treatment ofpeptic ulcers and gastritis and Harnal® for the treatmentof the functional symptoms of benign prostatic hyperpla-sia (BPH), two of the company’s core products, achievedanother year of growth. There were three new drug intro-ductions during the year: CHOLEBINE® for the treat-ment of hypercholesterolemia; Starsis® for the treatmentof diabetes; and Libian®, an oral contraceptive.

In Europe, Yamanouchi began sales of Infergen® forthe treatment of chronic hepatitis C virus infection. Thisgave the company an important product to sell in thisregion. In addition, Cyress® for the treatment of hyper-tension was approved in the Netherlands.

In Asia, Yamanouchi began operations in Thailand andIndonesia, adding to existing operations in Taiwan, China,Korea and the Philippines. This forms a broad base forbusiness development in promising Asian markets.

In R&D, Yamanouchi strengthened its efforts toconsistently launch innovative drugs. This included rein-forcing drug discovery research, such as through genomics-based research, expanding international clinicaldevelopment activities and entering into strategic alliances.

One result of these activities was the March 2000receipt of approval in Japan to market Lipitor® for thetreatment of hypercholesterolemia. Sales of Lipitor®

started in May 2000 and are expected to make a contributionto growth in Yamanouchi’s domestic pharmaceutical sales.

Other drugs with much potential are awaiting final ap-proval in Japan. Among them are incadronate (YM175) forthe treatment of the loss of bone mass associated with os-teoporosis, and interferon alfacon-1 (YM643) for the treat-ment of chronic hepatitis C virus infection.

Many drug candidates are in the late stages of clinicaltrials. Included in this category are YM484, a recombinantbone morphogenetic protein-2 (BMP-2); celecoxib(YM177), a COX-2 inhibitor for the treatment of chronicrheumatoid arthritis, osteoarthritis and dental pain; andminodronate (YM529) for the treatment of bone metastasiswith breast cancer and multiple myeloma.

In Europe, Yamanouchi is conducting clinical develop-ment of nine drug candidates. During the fiscal year underreview, the Clinical Pharmacology Unit at YamanouchiEurope B.V. (YEU) was expanded. This provides a basefor conducting Phase I clinical studies for the rising num-ber of drug candidates discovered at the Tsukuba ResearchCenter in Japan.

In the United States, clinical studies are progressing forfive drug candidates. Among them are YM087 for the treat-ment of hyponatremia and heart failure, YM905 for thetreatment of urinary incontinence, and YM992, an oralantidepressant. Over the medium term, Yamanouchi’s maingoal is to establish its own independent sales network in theUnited States, the world’s largest pharmaceutical market.Formation of a network will be considered in line withprogress in the clinical studies for the five drug candidatesnow in the R&D pipeline. YM087, which is under jointdevelopment with Pfizer Inc., entered Phase III clinical trialswith the indication of hyponatremia.

Yamanouchi is also working to bolster its R&D pipelineover the long term. One example of this is a comprehensiveR&D alliance with Pharmacia Corporation that was formedin December 1997. Under this agreement, Yamanouchi hasexercised its rights to jointly develop and market drugcandidates in Japan, including the second-generation COX-2 inhibitor valdecoxib and the injectable COX-2 inhibitorparecoxib.

Aware that genomics-based research is essential to remain-ing competitive in the global race to create new drugs,Yamanouchi has been active in genomics-based research.Research targets primarily lifestyle diseases and diseases whereexisting drugs are not sufficiently effective, identifying genes


related to specific diseases and analyzing the functions ofthose genes. Using bioinformatics technology, Yamanouchiis building its own database through links to the geneticdatabases of other external sources.

In February 2000, an agreement was signed with NewYork University Medical Center’s Hospital for JointDiseases for cooperative research involving the identifica-tion of genes related to osteoarthritis. In June 2000,Yamanouchi started a joint research project to identifytarget genes related to a specific disease. Its partners areGlaxo Wellcome K.K., Tokyo Women’s Medical Univer-sity and Jichi Medical School. By forming deeper ties withother pharmaceutical companies, bioventures, universities,governmental agencies and other partners, Yamanouchiplans to ensure that it has access to the latest advances ingenomic research.

Yamanouchi is building on its expertise in drug deliverytechnology. This primarily takes place at YamanouchiPharma Technologies, Inc. (YPT: previously YamanouchiShaklee Pharma, a division of Shaklee Corporation), whichwas established in December 1999. The company is nowat work on the commercialization of internally developedtechnologies such as WOWTAB®, an orally disintegratingtablet, and OCAS, which allows a drug to be absorbed at aconstant rate throughout the digestive tract, including thecolon. In February 2000, the first product applyingWOWTAB® went on the market: Pfizer’s Benadryl®

Allergy/Cold Fastmelt™ Tablets.In the consumer products business, the nutritional prod-

ucts business of Shaklee Corporation and Shaklee JapanK.K. faced an adverse operating environment. Food androses sales at Bear Creek Corporation increased.

NET SALES

Growth in sales at the parent company lifted sales inJapan 2.7%. In Europe, rising sales of Harnal® (Omnic®)in countries where it is available led to an 8.8% increase insales. In the United States, sales fell 3.3%. The food androses business performed well but sales of nutritional prod-ucts decreased due in part to the yen’s appreciation.

Overseas sales include export sales of Yamanouchi andits domestic consolidated subsidiaries and sales, other thanexports to Japan, of its foreign consolidated subsidiaries.In the year ended March 31, 2000, sales denominated inU.S. dollars accounted for 66% of overseas sales and theexchange rate was ¥111.59=U.S.$1.00, appreciating from¥120.55 in the prior fiscal year. Exchange rate fluctuationshad the net effect of reducing net sales by ¥14.9 billion,operating income by ¥2.9 billion and net income by ¥1.6billion compared with the prior fiscal year.

Overseas Sales

Years ended March 31, (billion ¥)

2000 1999

America . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥113.5 ¥115.6Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.6 50.0Asia (except Japan) . . . . . . . . . . . . . . . . . . . 5.5 7.1Consolidated . . . . . . . . . . . . . . . . . . . . . . . ¥172.2 ¥173.4Percent of total sales . . . . . . . . . . . . . . . . . 39.7% 41.0%

Sales by Geographical Area


2000 1999

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥276.7 ¥269.5Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.5 66.6America . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82.9 85.7Asia (except Japan) . . . . . . . . . . . . . . . . . . . . 1.6 1.4Consolidated . . . . . . . . . . . . . . . . . . . . . . . . ¥433.7 ¥423.2

Consolidated Overseas Sales and Ratio of Overseas Sales to Net Sales(billion ¥, %)

’96

’97

’98

’99

’00

119.8

153.1

175.0

173.4

172.2

28.9%

33.7%

36.7%

41.0%

39.7%

28.0'96

'97

'98

'99

'00

3.7

4.8

35.8

44.2

5.7

43.9

5.7

6.2

43.6

54.5

54.3

49.9

45.3

46.0 336.4

359.6

373.1

323.7

338.6

Pharmaceuticals Nutritional Products Food and Roses Other

Net Sales Breakdown(billion ¥)


Sales of Gaster®, an H2 antagonist for the treatment ofpeptic ulcers and gastritis, increased 8.4% in Japan due tothe expansion of prescriptions and an increase in thenumber of medical institutions where it was adopted.Approval was received in Japan for Gaster® D, whichapplies second-generation WOWTAB® technology. Thisis expected to lead to further growth in Gaster® sales. How-ever, bulk Gaster® sales to and royalty revenues fromlicensees such as Merck & Co., Inc. dropped 15.9%.

Harnal® is sold in 58 countries and is Yamanouchi’ssecond largest strategic global product after Gaster®. Asan alpha1-blocker, Harnal® improves the symptoms ofBPH while exerting a minimal effect on blood pressure.These superior characteristics have earned Harnal® anexcellent reputation among health care professionals inJapan and overseas. In Japan, Harnal® sales rose 9.4% andits market share climbed to approximately 57%. InEurope, sales of Harnal®, which is sold under the brandname Omnic®, at YEU continued to increase. Harnal®

became the number-one selling alpha1-blocker in theNetherlands, Germany, Italy, the United Kingdom, Spainand Portugal. Yamanouchi will continue to build on thismomentum with the goal of making Harnal® the leadingdrug in the European BPH market.

Harnal® is also performing well at European licenseeBoehringer Ingelheim International GmbH. In the UnitedStates, Harnal® sales exceeded initial projections due to thesuccess of copromotion activities by licensees BoehringerIngelheim Pharmaceuticals, Inc. and Abbott Laboratories.The result of these factors was a 50.6% increase in revenuesfrom bulk Harnal® and royalties.

In addition, clinical trials are proceeding to obtain ap-proval for an additional formulation of Harnal® thatYamanouchi expects will lead to further expansion of thismarket.

Highly competitive antihypertensive markets led to a9.6% decline in sales of calcium antagonists, includingPerdipine®, Perdipine® LA and Hypoca®.

In Japan, sales of Dorner®, for the treatment of chronicarterial occlusion, increased 4.4%. During the fiscal yearunder review, approval was granted for the additional indi-cation of primary pulmonary hypertension.

The antibiotic Farom® posted a sales increase of 22.2%.The November 1999 introduction of a dry syrup formula-tion expanded sales for pediatric use. Sales of Frandol® forthe treatment of pectoris and Optray® contrast mediumalso increased.

Nutritional ProductsSales in this segment decreased 12.6%, primarily a reflec-tion of intensifying competition in the United States andJapan and Japan’s prolonged economic downturn. Salesmainly represent nutritional and personal care productsmanufactured and sold by Shaklee Corporation in the UnitedStates and Shaklee Japan K.K. Efforts to improve efficiencyincluded a shift to new products with higher profit marginsand steps to reduce selling and administrative expenses.

Food and RosesSales in this segment are derived from the catalog, storeand Internet sales of gift items by Bear Creek Corporationin the United States. Businesses in this segment achievedanother year of growth, posting a 3.0% increase in sales evenexcluding the effects of a stronger yen. Bear Creek contin-ued to retain an excellent reputation among customers forits experience in each step of production from orchards toprocessing and delivery as well as its use of advanced tech-nology. Contributing to growth in the fiscal year underreview were higher Internet sales and growth in thenationwide U.S. network of stores.

Sales in the pharmaceuticals business segment increased4.6% as results were favorable in Japan and overseas.

Sales by Business Segment


2000 1999

Pharmaceuticals . . . . . . . . . . . . . . . . . . . . . . ¥338.6 ¥323.7Nutritional products . . . . . . . . . . . . . . . . . . 43.6 49.9Food and roses . . . . . . . . . . . . . . . . . . . . . . . 45.3 43.9Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 5.7Consolidated . . . . . . . . . . . . . . . . . . . . . . . . ¥433.7 ¥423.2

PharmaceuticalsSales of Pharmaceuticals


2000 1999

Gaster® . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥108.7 ¥106.9Harnal® . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67.3 56.1Calcium antagonists . . . . . . . . . . . . . . . . . . . 24.4 27.0Frandol® . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9 15.6Dorner® . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.8 11.3Optiray® . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5 10.2Farom® . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 6.3


COSTS, EXPENSES AND EARNINGSThe cost of sales declined 1.2 percentage point to 28.9%of net sales. This improvement was mainly attributableto growth in sales of drugs developed by Yamanouchi,chiefly Gaster® in Japan and Harnal® in Japan and over-seas markets.

Selling, general and administrative expenses rose from48.7% to 49.0% of net sales. Expenses to expand businessinfrastructures, notably data system investments, weremainly responsible for this increase. Among major expensecomponents other than R&D, advertising and sales pro-motion expenses decreased 4.7% and personnel expensesincreased 1.4%. The number of employees rose 10.4%from 8,113 to 8,954, including temporary staffing in thefood and roses business segment, as of March 31, 2000.Together, these two items accounted for 50.7% of totalSG&A expenses.

SG&A expenses include the lump-sum amortization ofexcess cost over net assets acquired of ¥2.5 billion due toan increase in equity at a subsidiary.

R&D EXPENSES

¥2.1 billion to ¥0.6 billion due to a decrease in interest-bearing debt caused by the conversion and redemption ofconvertible bonds.

Equity in loss of unconsolidated subsidiaries and affili-ates was ¥1.7 billion. The primary reason was expenses in-curred for progress in the development of pharmaceuticalsat an overseas partnership.

Effective April 1, 1999, Yamanouchi changed its methodof accounting for retirement allowances to recognizing theliability for retirement allowances at present value of theestimated retirement benefits to be paid upon the futuretermination of its employees’ employment, less the balanceof the plan assets at fair value. Up to the year ended March31, 1999, the liability was stated at the amount that wouldbe required to be paid if all eligible employees terminatedtheir employment at the balance sheet date, less the bal-ance of funds in the pension plan. The effect of this changewas to increase operating income by ¥0.6 billion and todecrease income before income taxes and minority inter-ests by ¥12.6 billion in the year ended March 31, 2000.

There was a ¥11.1 billion gain on sales of investmentsecurities resulting from the exchange of stock. Thisexchange took place when Roberts Pharmaceutical Corpo-ration, a company in which Yamanouchi is a shareholder,merged with Shire Pharmaceuticals Group plc.

Due to these factors, income before income taxes andminority interests increased 5.2%.

The effective tax rate declined from 44.4% to 36.9% inthe fiscal year under review. This was mainly attributableto the reduction of Japan’s statutory corporate tax rate. Netdeferred income tax assets primarily consisted of deferredtax assets related to retirement allowances of ¥12.0 billion.

NET INCOME

R&D expenses, which are included in SG&A expenses,increased 1.0% to ¥54.8 billion. However, R&D expensesdeclined from 12.8% to 12.6% as a percentage of net sales.Yamanouchi places priority on investments for R&Dactivities to increase its ability to grow.

INCOME AND EXPENSES BEFORE INCOME TAXES AND MINORITY INTERESTSOperating income rose 7.4%, an increase from 21.1% to22.2% of net sales. Interest and dividend income decreasedfrom ¥7.0 billion to ¥5.6 billion. Yamanouchi invests mostcash in time deposits, money market funds and other short-term instruments. Lower interest rates in Japan were mainlyresponsible for the decline in interest and dividend incomein the fiscal year under review. Interest expense declined

Net income increased 19.1% and rose from 11.3% to13.2% of net sales. Net income per share amounted to¥162.35, diluted net income per share amounted to¥155.97 and cash dividends per share applicable to the fiscalyear amounted to ¥25.00.

R&D Expenses and Ratio of R&D Expenses to Net Sales(billion ¥, %)

40.9

42.3

43.6

54.3

54.8

'96

'97

'98

'99

'00

9.9%

9.3%

9.1%

12.8%

12.6%

40.5

41.9

6.1

48.0

57.2

'96

'97

'98

'99

'00

Net Income(billion ¥)


CASH FLOWSOperating cash flows are Yamanouchi’s primary source offunding. In the fiscal year under review, operating cashflows totaled ¥79.4 billion due to growth in sales and animprovement in profit margins.

Net cash used in investing activities was ¥78.0 billion.There was a net increase in marketable securities asYamanouchi took steps to manage excess liquidity moreeffectively. Additions to property, plant and equipmenttotaled ¥24.0 billion. In addition, there were payments of¥11.7 billion to acquire intangible fixed assets, such as aone-time payment involving an R&D agreement withPharmacia Corporation, and other acquisitions.

Net cash used in financing activities was ¥10.8 billion.Major components were ¥5.3 billion for payment of long-term debt and ¥8.0 billion for cash dividends.

As a result of these factors, cash and cash equivalentsdecreased ¥20.2 billion to ¥183.0 billion.

KEY FINANCIAL INDICATORSYamanouchi’s capital structure has improved over the pastseveral years due to the redemption and conversion of con-vertible bonds. The debt-equity ratio fell to 4.6% comparedwith 12.4% at the previous fiscal year end. In accordancewith the decrease in debt, the interest coverage ratio roseto 171.7 times compared with 35.8 times at the previousfiscal year end. The shareholders’ equity ratio climbed from70.9% to 74.8%.

Yamanouchi plans to make substantial investments toachieve its goals for the 21st century. Yamanouchi mayrequire substantial amounts of capital due to the expan-sion of drug discovery research, international clinical devel-opment and the establishment of its own independent U.S.sales network. Maintaining a sound financial position givesYamanouchi the flexibility to adapt to funding require-ments that may occur as its various businesses expand.

CAPITAL EXPENDITURES AND DEPRECIATIONCapital expenditures declined from ¥51.4 billion to ¥29.8billion. Of this amount, capital expenditures for tangiblefixed assets decreased from ¥31.2 billion to ¥18.0 billion.

In the pharmaceuticals business segment, capital expen-ditures decreased from ¥33.6 billion to ¥18.7 billion.Capital expenditures in this segment declined mainly be-cause of the completion in the previous fiscal year of aquality assurance building at a manufacturing facility.Major investments in Japan were the construction of aninjectable formulation facility at the Yaizu Plant and otherinvestments for the rationalization and renovation of pro-duction facilities.

In the nutritional products business segment, capital ex-penditures decreased from ¥10.5 billion to ¥5.5 billion. Thelargest component was the construction of a new head of-fice building by Shaklee Corporation. The decline in thissegment’s capital expenditures was mainly attributable tothe completion in the prior fiscal year of an expansion ofproduction capacity at the YPT Norman ManufacturingCenter.

In the food and roses business segment, capital expendi-tures were ¥4.5 billion. Major investments were the up-grading and expansion of orchards and other facilities andthe expansion of the retail store network.

Depreciation and amortization relating to tangible andintangible fixed assets declined from ¥29.3 billion to ¥23.5billion, mostly because of a decrease in the amortization ofpatent rights, an expense that increased sharply in the pre-vious fiscal year. Depreciation related to tangible assets was¥16.5 billion, the same as in the previous fiscal year.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKINGINFORMATIONThis annual report includes forward-looking statementsbased on a number of assumptions and beliefs in light ofthe information currently available to management andsubject to significant risks and uncertainties. Actual finan-cial results may differ materially depending on a numberof factors including adverse economic conditions, currencyexchange rate fluctuations, adverse legislative and regula-tory developments, delays in new product launches, pric-ing and product initiatives of competitors, the inability ofthe company to market existing and new products effec-tively, interruptions in production, infringements of thecompany’s intellectual property rights and the adverse out-come of material litigation.

111.7

116.6

17.5

129.2

156.0

'96

'97

'98

'99

'00

Net Income per Share (Diluted)(¥)


Thousands ofU.S. dollars

Millions of yen (Note 3)

ASSETS 2000 1999 2000

Current assets:Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥183,035 ¥203,195 $1,726,745Marketable securities and short-term investments . . . . . . . . . . . . . . . . . . . 110,515 49,679 1,042,594Notes and accounts receivable:

Unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . 225 936 2,123Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,529 98,319 976,688

103,754 99,255 978,811Allowance for doubtful receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,966) (3,080) (18,547)

101,788 96,175 960,264Inventories (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,818 39,500 385,076Deferred income taxes (Notes 4 (b) and 9) . . . . . . . . . . . . . . . . . . . . . . . . 14,825 8,869 139,859Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,138 8,548 86,208

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460,119 405,966 4,340,746

Property, plant and equipment, at cost:Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,914 29,447 301,075Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,732 141,263 1,403,132Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,612 122,377 1,194,453Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,437 7,477 126,764Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,699 23,224 100,934Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (149,053) (138,201) (1,406,160)

Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . 182,341 185,587 1,720,198

Investments and other assets:Investments in other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,040 55,770 509,811Investments in and advances to unconsolidated subsidiaries and affiliates . . . 4,000 8,072 37,736Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,650 38,347 374,056Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,461 4,206 51,519Suspense payments of income taxes (Note 13) . . . . . . . . . . . . . . . . . . . . . . 35,895 35,895 338,632Deferred income taxes (Notes 4 (b) and 9) . . . . . . . . . . . . . . . . . . . . . . . . 22,015 16,559 207,689Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,765 25,629 243,066

Total investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 186,826 184,478 1,762,509

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥829,286 ¥776,031 $7,823,453

[CONSOLIDATED BALANCE SHEETS]Yamanouchi Pharmaceutical Co., Ltd. and Consolidated SubsidiariesMarch 31, 2000 and 1999




LIABILITIES AND SHAREHOLDERS’ EQUITY 2000 1999 2000

Current liabilities:Short-term bank loans (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,930 ¥ 542 $ 18,208Current portion of long-term debt (Note 7) . . . . . . . . . . . . . . . . . . . . . . . 559 27,344 5,274Notes and accounts payable:

Unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . 812 1,355 7,660Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,627 43,297 487,047Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,309 7,224 31,217

Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,998 25,068 235,830Accrued income taxes (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,144 18,396 161,736Deferred income taxes (Notes 4 (b) and 9) . . . . . . . . . . . . . . . . . . . . . . . . 3,740 4,009 35,283Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,063 5,256 104,368

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,182 132,491 1,086,623

Long-term liabilities:Long-term debt (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,208 40,239 247,245Retirement allowances (Notes 4 (c) and 10) . . . . . . . . . . . . . . . . . . . . . . . . 42,808 33,901 403,849Deferred income taxes (Notes 4 (b) and 9) . . . . . . . . . . . . . . . . . . . . . . . . 9,796 2,695 92,415Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,075 11,720 95,047

Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,887 88,555 838,556

Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,996 5,013 47,132

Shareholders’ equity:Common stock, ¥50 par value:

Authorized — 800,000,000 sharesIssued — 360,245,961 shares in 2000 and

344,467,758 shares in 1999 . . . . . . . . . . . . . . . . . . . . . . 98,796 80,072 932,038Additional paid-in capital (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,720 93,996 1,063,396Retained earnings (Notes 8 and 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438,571 389,288 4,137,462

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650,087 563,356 6,132,896Treasury stock, at cost:

23,386 shares in 2000 and 13,946 shares in 1999 . . . . . . . . . . . . . . . . . (130) (53) (1,226)Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,736) (13,331) (280,528)

Shareholders’ equity, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620,221 549,972 5,851,142

Contingent liabilities (Note 13)

Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . ¥829,286 ¥776,031 $7,823,453

See accompanying notes to consolidated financial statements.




2000 1999 1998 2000

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥433,653 ¥423,217 ¥477,356 $4,091,066Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,254 127,513 166,563 1,181,642

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308,399 295,704 310,793 2,909,424Selling, general and administrative expenses (Note 11) . . . . 212,330 206,259 207,948 2,003,113

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,069 89,445 102,845 906,311

Other income (expenses):Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . 5,557 6,966 6,425 52,425Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (592) (2,694) (4,522) (5,585)Amortization of excess of cost over net assets acquired

(Note 4 (a)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – (72,730) –Loss on devaluation of securities . . . . . . . . . . . . . . . . . . . . . (6,565) (2,075) (6,066) (61,934)Exchange (loss) gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,167) (2,903) 2,474 (11,009)Equity in loss of unconsolidated subsidiaries and affiliates . . (1,739) (226) (1,765) (16,406)Additional provision for retirement allowances

(Note 4 (c)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,014) – – (113,340)Gain on sales of investment securities . . . . . . . . . . . . . . . . . 11,096 264 – 104,679Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 705 (1,938) 3,448 6,651

(4,719) (2,606) (72,736) (44,519)

Income before income taxes and minority interests . . . . . . . 91,350 86,839 30,109 861,792

Income taxes (Notes 4 (b) and 9):Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,707 37,294 47,660 421,764Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,996) 1,236 (23,939) (103,736)

33,711 38,530 23,721 318,028

Income before minority interests . . . . . . . . . . . . . . . . . . . 57,639 48,309 6,388 543,764Minority interests in earnings of consolidated subsidiaries . . (464) (307) (296) (4,377)

Net income (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 57,175 ¥ 48,002 ¥ 6,092 $ 539,387


[CONSOLIDATED STATEMENTS OF INCOME]Yamanouchi Pharmaceutical Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2000, 1999 and 1998




2000 1999 1998 2000

Common stock:Balance at beginning of year

(2000 — 344,467,758 shares;1999 — 338,605,140 shares;1998 — 324,308,013 shares) . . . . . . . . . . . . . . . . . . . . ¥ 80,072 ¥ 73,740 ¥ 56,949 $ 755,396

Add:Shares issued upon conversion of convertible bonds and

exercise of warrants(2000 — 15,778,203 shares;1999 — 5,862,618 shares;1998 — 14,297,127 shares) . . . . . . . . . . . . . . . . . . . . . 18,724 6,332 16,791 176,642

Balance at end of year(2000 — 360,245,961 shares;1999 — 344,467,758 shares;

1998 — 338,605,140 shares) . . . . . . . . . . . . . . . . . . . . ¥ 98,796 ¥ 80,072 ¥ 73,740 $ 932,038

Additional paid-in capital (Note 8):Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . ¥ 93,996 ¥ 87,665 ¥ 70,877 $ 886,755Add:

Conversion of convertible bonds andexercise of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,724 6,331 16,788 176,641

Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥112,720 ¥ 93,996 ¥ 87,665 $1,063,396

Retained earnings (Notes 8 and 19):Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . ¥389,288 ¥350,046 ¥352,974 $3,672,528

Adjustments to retained earnings at beginning of yearfor inclusion in or exclusion from consolidation orthe equity method of accounting . . . . . . . . . . . . . . . . . . 238 (148) (330) 2,245

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,175 48,002 6,092 539,387Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,983) (8,469) (8,544) (75,311)Bonuses to directors and corporate auditors . . . . . . . . . . . (147) (143) (146) (1,387)

Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥438,571 ¥389,288 ¥350,046 $4,137,462


[CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY]Yamanouchi Pharmaceutical Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2000, 1999 and 1998




2000 1999 1998 2000

Operating Activities:Income before income taxes and minority interests . . . . . . . ¥ 91,350 ¥ 86,839 ¥ 30,109 $ 861,792

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 25,969 30,243 93,678 244,991Provision for retirement allowances, net of payments . . . . 8,964 1,134 1,054 84,566Gain on sales of investment securities (Note 15) . . . . . . . (11,096) (264) – (104,679)Loss on devaluation of securities . . . . . . . . . . . . . . . . . . . 6,565 2,075 6,066 61,934Equity in loss of unconsolidated subsidiaries and affiliates . . 1,740 226 1,765 16,415Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592 2,694 4,522 5,585Notes and accounts receivable . . . . . . . . . . . . . . . . . . . . . (6,427) 13,920 400 (60,632)Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,541) 696 (197) (52,274)Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53) (466) 8,755 (500)Suspense payments of income taxes . . . . . . . . . . . . . . . . . – (35,895) – –Notes and accounts payable . . . . . . . . . . . . . . . . . . . . . . . 967 (14,979) (2,187) 9,123Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,859) 2,958 (1,145) (17,538)Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 3,139 (1,392) 1,246 29,613Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,812 (1,609) (4,267) 54,830

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,122 86,180 139,799 1,133,226Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,227) (1,875) (3,432) (11,575)Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39,496) (43,338) (54,063) (372,604)

Net cash provided by operating activities . . . . . . . . . . . 79,399 40,967 82,304 749,047

Investing Activities:Additions to property, plant and equipment . . . . . . . . . . . . (23,989) (29,139) (36,841) (226,311)Proceeds from sales of property, plant and equipment . . . . . 1,875 2,352 648 17,689(Increase) decrease in investments in and advances

to unconsolidated subsidiaries and affiliates . . . . . . . . . . . . (18) 3,297 (9,649) (170)(Increase) decrease in marketable securities and

short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,337) 100,350 32,854 (418,274)Decrease (increase) in investments in other securities . . . . . . 1,280 6,973 (7,107) 12,075Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,706) (18,750) (17,712) (110,434)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,117) (506) (1,057) (10,538)

Net cash (used in) provided by investing activities . . . . (78,012) 64,577 (38,864) (735,963)

Financing Activities:Proceeds from issuance of long-term debt . . . . . . . . . . . . . . 1,744 100 2,972 16,453Proceeds from exercise of warrants . . . . . . . . . . . . . . . . . . . . – – 14,750 –Increase (decrease) in short-term bank loans . . . . . . . . . . . . 1,055 388 (14,565) 9,953Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . (5,342) (39,019) (41,665) (50,396)Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,983) (8,469) (8,544) (75,311)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (267) (217) (158) (2,519)

Net cash used in financing activities . . . . . . . . . . . . . . . (10,793) (47,217) (47,210) (101,820)Effects of exchange rate changes on cash and

cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,754) (1,266) (262) (101,453)

(Decrease) increase in cash and cash equivalents . . . . (20,160) 57,061 (4,032) (190,189)Cash and cash equivalents at beginning of year . . . . 203,195 146,134 150,166 1,916,934

Cash and cash equivalents at end of year . . . . . . . . . ¥183,035 ¥203,195 ¥146,134 $1,726,745


[CONSOLIDATED STATEMENTS OF CASH FLOWS]Yamanouchi Pharmaceutical Co., Ltd. and Consolidated SubsidiariesYears ended March 31, 2000, 1999 and 1998


[NOTES TO CONSOLIDATED FINANCIAL STATEMENTS]Yamanouchi Pharmaceutical Co., Ltd. and Consolidated SubsidiariesMarch 31, 2000

1. BASIS OF PREPARATIONYamanouchi Pharmaceutical Co., Ltd. (the “Company”) and its domestic subsidiaries maintain their accounting recordsand prepare their financial statements in accordance with accounting principles and practices generally accepted andapplied in Japan, and its foreign subsidiaries maintain their books of account in conformity with those of the countries oftheir domicile. The accompanying consolidated financial statements have been compiled from the consolidated financialstatements prepared by the Company as required under the Securities and Exchange Law of Japan and, accordingly, havebeen prepared in accordance with accounting principles and practices generally accepted in Japan, which may differ insome material respects from accounting principles and practices generally accepted in countries and jurisdictions otherthan Japan.

Effective the year ended March 31, 2000, the Company was required to prepare a consolidated statement of cash flows aspart of its consolidated financial statements for the first time under the Securities and Exchange Law of Japan. Accordingly,the Company prepared its 2000 consolidated statement of cash flows in accordance with “Accounting Standards for Consoli-dated Statements of Cash Flows” and restated the previously reported consolidated statements of cash flows for 1999 and 1998.

Certain amounts in the prior years’ financial statements have been reclassified to conform to the current year’s presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of consolidation and accounting for investments in unconsolidated subsidiaries and affiliatesUntil the year ended March 31, 1999, the consolidated financial statements included the accounts of the Company and itssignificant subsidiaries, and investments in certain unconsolidated subsidiaries and significant affiliates (owned 20% to 50%)were accounted for by the equity method.

In accordance with the revised accounting standards for consolidation, the accompanying consolidated financial state-ments for the year ended March 31, 2000 include the accounts of the Company and its significant companies controlleddirectly or indirectly by the Company, and companies over which the Company exercises significant influence in terms oftheir operating and financial policies have been included in the consolidated financial statements on an equity basis. Allsignificant intercompany balances and transactions have been eliminated in consolidation. The revised accounting standardsfor consolidation became effective April 1, 1999; however, the adoption of such revised standards had no impact on the scopeof consolidation of the Company for the year ended March 31, 2000.

Investments in companies which are not consolidated or accounted for by the equity method are carried at cost.Certain foreign subsidiaries are consolidated on the basis of fiscal periods ending December 31, January 31 or the end of

February, which differ from that of the Company; however, the effect of the difference in fiscal periods is immaterial.The excess of cost over underlying net assets at fair value at the date of acquisition is amortized over a period of 5 years on

a straight-line basis. Such amortization is included in selling, general and administrative expenses except for the cumulativeeffect of the accounting change described in Note 4(a) which was presented as other expense in the consolidated statement ofincome for the year ended March 31, 1998.

(b) Foreign currency translationRevenue and expense accounts of the foreign consolidated subsidiaries are translated using the average rate during the year(the exchange rates in effect at the balance sheet date until the year ended March 31, 1999) and, except for the componentsof shareholders’ equity, the balance sheet accounts are translated into yen at the exchange rates in effect at the balance sheetdate. The components of shareholders’ equity are translated at their historical exchange rates. Due to a change effective theyear ended March 31, 2000 in the regulations relating to the presentation of translation adjustments, the Company changedthis and has presented translation adjustments as a component of shareholders’ equity (instead of as a component of assetsor liabilities) in its consolidated financial statements for the year ended March 31, 2000, and has restated the previouslyreported consolidated financial statements for 1999 and 1998.

(c) Cash equivalentsAll highly liquid investments with a maturity of three months or less when purchased are considered cash equivalents.


(d) InventoriesMerchandise is stated principally at the lower of cost or market, cost being determined by the average method. Finishedgoods are stated principally at cost by the average method. Work in process and semi-finished goods, and raw materials andsupplies are stated principally at cost by the first-in, first-out method and the average method, respectively. However,inventories of the foreign consolidated subsidiaries are stated principally at the lower of cost or market, cost being deter-mined by the first-in, first-out method.

(e) Depreciation and amortizationDepreciation of property, plant and equipment is mainly calculated by the declining-balance method at rates based on theestimated useful lives of the respective assets.

Intangible assets are amortized by the straight-line method over their estimated useful lives.

(f) LeasesNoncancelable leases of the Company and its domestic consolidated subsidiaries are accounted for as operating leases(whether such leases are classified as operating or finance leases) except that lease agreements which stipulate the transfer ofownership of the leased assets to the lessee are accounted for as finance leases. However, leases of the foreign consolidatedsubsidiaries are generally classified and accounted for as either finance or operating leases.

(g) Marketable securities and investmentsMarketable equity and bond securities are stated principally at the lower of cost or market, cost being determined by themoving average method. Investments in securities other than marketable equity and bond securities are stated at cost by themoving average method.

(h) Stock and bond issuance expenses and discounts on bondsStock and bond issuance expenses are charged to income as incurred. Discounts on bonds are amortized by the straight-linemethod over the respective terms of the bonds.

(i) Research and development expensesResearch and development expenses are charged to income as incurred.

A new accounting standard for research and development expenses became effective the fiscal year ended March 31,2000. However, the adoption of this new standard had no effect on the consolidated statement of income for the yearended March 31, 2000.

(j) Income taxesDeferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases ofthe assets and liabilities and are measured using the enacted tax rates and laws which will be in effect when the differencesare expected to reverse. See Note 4(b).

(k) Retirement allowances and pension plansThe Company’s employees are covered by an employee retirement allowances plan and an employee pension plan. Theemployee retirement allowances plan provides for a lump-sum payment, payable upon mandatory retirement or earliertermination of employment, based on the approximate rate of pay at the time of termination, years of service and certainother factors. The employee pension plan, which is noncontributory and funded, was instituted to replace one-half of thebenefits under the retirement allowances plan for employees who retire at the mandatory retirement age.

Domestic consolidated subsidiaries have unfunded employee retirement allowances plans and/or pension plans whichare noncontributory and funded and which cover substantially all their employees. These plans provide for lump-sumpayments and/or annuity payments payable upon termination of employment. The majority of the Company’s foreignconsolidated subsidiaries have noncontributory funded pension plans which cover substantially all their employees.

The liability for retirement allowances is stated at the present value of the estimated retirement benefits to be paid upon thefuture termination of the Company’s employees’ employment, less the balance of the plan assets at fair value. See Note 4 (c).


In addition, directors and corporate auditors of the Company and certain consolidated subsidiaries are customarilyentitled to lump-sum payments under their respective unfunded retirement allowances plans. The provision for retirementallowances for these officers has been made at an estimated amount.

(l) Appropriation of retained earningsUnder the Commercial Code of Japan, the appropriation of retained earnings with respect to a given financial period is madeby resolution of the shareholders at a general meeting held subsequent to the close of such financial period. The accounts forthat period do not, therefore, reflect such appropriations. See Note 19.

3. U.S. DOLLAR AMOUNTSThe translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of arithmeticcomputation only, at the rate of ¥106=U.S.$1.00, the approximate rate of exchange on March 31, 2000. The translationshould not be construed as a representation that yen have been, could have been, or could in the future be, converted intoU.S. dollars at the above or any other rate.

4. ACCOUNTING CHANGES(a) Effective April 1, 1997, the Company changed its method of accounting for the excess of cost over net assets acquired toamortizing this amount over a period of five years, which is considered a reasonable amortization period under InternationalAccounting Standards. The Company, in prior years, amortized the excess of cost over net assets acquired over a 40-yearperiod. This change, which has been retroactively applied, was made to achieve a further improvement in the Company’sconsolidated financial position in response to increasing competition in the pharmaceutical and nutritional products sectorsas well as to the growing need for global standardization of its accounting and finance areas resulting from the globalizationof its business. The effect of this change was to increase amortization of excess of cost over net assets acquired by ¥72,730million and to decrease net income by the same amount for the year ended March 31, 1998.(b) Effective April 1, 1997, the Company changed its method of accounting for income taxes and has adopted tax-effectaccounting by the liability method for the Company and all its consolidated subsidiaries. Until the year ended March 31,1997, tax-effect accounting had been adopted only by the foreign consolidated subsidiaries. This change was made in orderfor the consolidated financial statements to reflect the Company’s consolidated financial position and operating results moreaccurately, considering that the amount of temporary differences recognized at the Company and its domestic consolidatedsubsidiaries has become material and that Japanese accounting standards for consolidation, which were amended in June1997 and became effective the year ended March 31, 2000, require full adoption of tax-effect accounting by the liabilitymethod. The effect of this change was to decrease income tax expense by ¥24,477 million and to increase net income by thesame amount for the year ended March 31, 1998.(c) Effective April 1, 1999, the Company changed its method of accounting for retirement allowances to recognizing theliability for retirement allowances at the present value of the estimated retirement benefits to be paid upon the future termi-nation of its employees’ employment, less the balance of the plan assets at fair value. Up to the year ended March 31, 1999,the liability was stated at the amount that would be required to be paid if all eligible employees terminated their employmentat the balance sheet date, less the balance of the funds in the pension plan. This change was made in order to reflect theliability and expenses related to employees’ retirement allowances more accurately in the consolidated financial statementsand to establish a solid financial position, taking into account the future increase in the retirement allowances resulting fromthe increase in the compensation level and the return on the pension assets and considering the increased materiality ofretirement benefit obligations due to the lower interest rates. The effect of this change was to increase operating income by¥573 million ($5,406 thousand) and to decrease income before income taxes and minority interests by ¥12,587 million($118,745 thousand) for the year ended March 31, 2000.


5. INVENTORIESInventories at March 31, 2000 and 1999 were as follows:


2000 1999 2000

Merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 6,112 ¥ 6,421 $ 57,661Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,313 16,741 153,896Work in process and semi-finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,026 9,792 113,453Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,367 6,546 60,066

¥40,818 ¥39,500 $385,076

6. SHORT-TERM BANK LOANSShort-term bank loans consisted mainly of unsecured loans at interest rates of 0.660% and 1.375% per annum at March 31,2000 and 1999, respectively.

7. LONG-TERM DEBTLong-term debt at March 31, 2000 and 1999 consisted of the following:


2000 1999 2000

Yamanouchi Pharmaceutical Co., Ltd.:1.14% unsecured loans from banks, payable in yen, due through 2004 . . . . . ¥ 100 ¥ 100 $ 9442.75% unsecured convertible bonds, payable in U.S. dollars, due 2001 . . . . . 1 83 91.50% unsecured convertible bonds, payable in yen, due 2003 . . . . . . . . . . . 14,921 14,921 140,7642.7% unsecured convertible bonds, payable in yen, due 2000 . . . . . . . . . . . . – 1,343 –1.625% unsecured convertible bonds, payable in yen, due 2000 . . . . . . . . . . – 25,390 –1.25% unsecured convertible bonds, payable in yen, due 2014 . . . . . . . . . . . 8,390 19,040 79,151

23,412 60,877 220,868Consolidated subsidiaries:

Unsecured loans from banks and insurance companies, at rates from1.375% to 7.050%, due through 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,355 2,970 31,651

Revolving credit debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 361 –Unsecured loans from banks, payable in U.S. dollars, at 6.4375%,

due 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 3,375 –

3,355 6,706 31,651

26,767 67,583 252,519Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (559) (27,344) (5,274)

¥26,208 ¥40,239 $247,245

The conversion prices and periods of the convertible bonds are summarized as follows:Conversion price

per share at PeriodMarch 31, 2000 (up to and including)

2.75% convertible bonds due 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,635.20 December 21, 20001.5% convertible bonds due 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,620.60 December 30, 20021.25% convertible bonds due 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,979.00 March 24, 2014


At March 31, 2000, if all the outstanding convertible bonds had been converted at the then current conversion prices,8,361 thousand new shares would have been issuable.

Under the indentures and trust deeds of the convertible bonds, each conversion price is subject to adjustment in certaincases which include stock splits. A sufficient number of shares of common stock is reserved for the conversion of all outstand-ing convertible bonds.

The aggregate annual maturities of long-term debt subsequent to March 31, 2000 are summarized as follows:Thousands of

Year ending March 31, Millions of yen U.S. dollars

2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 559 $ 5,2742002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 5,7452003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,462 145,8682004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 981 9,2552005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427 4,0282006 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,729 82,349

¥26,767 $252,519

8. ADDITIONAL PAID-IN CAPITAL AND RETAINED EARNINGSIn accordance with the Commercial Code of Japan, the Company has provided a legal reserve, which is included in retainedearnings. This reserve amounted to ¥8,965 million ($84,575 thousand) and ¥8,154 million as of March 31, 2000 and 1999,respectively, as appropriations of retained earnings. The Code provides that neither additional paid-in capital nor the legalreserve is available for dividends, but both may be used to reduce or eliminate a deficit by resolution of the shareholders ormay be transferred to common stock by resolution of the Board of Directors.

9. INCOME TAXESIncome taxes applicable to the Company and its domestic consolidated subsidiaries comprise corporation tax, inhabitants’taxes and enterprise tax which, in the aggregate, resulted in statutory tax rates of approximately 42% for 2000, 47% for 1999and 51% for 1998. Income taxes of the foreign consolidated subsidiaries are based generally on the tax rates applicable intheir countries of incorporation.

The effective tax rates reflected in the consolidated statements of income for the years ended March 31, 2000, 1999 and1998 differ from the statutory tax rates for the following reasons:

2000 1999 1998

Statutory tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.7% 47.4% 51.0%Effect of:

Cumulative effect of accounting change (Note 4 (b)) . . . . . . . . . . . . . . . . . . . . . – – (86.9)Different tax rates applied to income of foreign consolidated subsidiaries . . . . . (10.6) (5.2) (17.5)Expenses not deductible for income tax purposes . . . . . . . . . . . . . . . . . . . . . . . . 2.9 2.8 13.3Amortization of excess of cost over net assets acquired . . . . . . . . . . . . . . . . . . . . 1.1 – 123.2Net effect of tax rate changes on deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . – 3.6 6.7Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 (4.2) (11.0)

Effective tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.9% 44.4% 78.8%


The significant components of the deferred tax assets and liabilities as of March 31, 2000 were as follows:


Deferred tax assets:Accrued retirement allowances and pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥13,043 $123,047Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,392 79,170Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,362 60,019Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,993 28,236Accrued enterprise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,072 28,981Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,191 77,274

Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,053 396,727Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,338) (12,623)

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,715 384,104

Deferred tax liabilities:Gain on sales of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,634 62,585Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,730 35,188Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,760 26,038Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,221 11,519Accrued pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,003 9,462Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,063 19,462

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,411 164,254

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥23,304 $219,850

Net deferred income tax assets primarily consisted of deferred tax assets related to retirement allowances, depreciation andamortization, enterprise tax and inventories as of March 31, 1999.

New legislation was enacted in 1998 which changed the aggregate statutory tax rate from approximately 51% to 47%effective the fiscal year beginning after March 31, 1998. The net effect of this tax rate change on deferred tax assets andliabilities was to increase income tax expense by ¥2,027 million for the year ended March 31, 1998. Subsequently, newlegislation was enacted in 1999 which changed the aggregate statutory tax rate from approximately 47% to 42% effective thefiscal year beginning after March 31, 1999. The net effect of this tax rate change on deferred tax assets and liabilities was toincrease income tax expense by ¥3,130 million for the year ended March 31, 1999.

10. RETIREMENT ALLOWANCES AND PENSION PLANSThe charges to income for retirement allowances and pension costs for the years ended March 31, 2000, 1999, and 1998were as follows:


2000 1999 1998 2000

Provision for retirement allowances . . . . . . . . . . . . . . . . . . . . . . . . . . ¥15,004 ¥3,866 ¥4,337 $141,547Pension costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,369 2,362 2,537 41,217

The assets of the pension plan of the Company at March 31, 2000 totaled ¥25,081 million ($236,613 thousand).Past service cost in relation to the Company’s pension plan is being funded at an annual rate of 50%.


11. RESEARCH AND DEVELOPMENT EXPENSESResearch and development expenses, all of which were included in selling, general and administrative expenses for the yearsended March 31, 2000, 1999, and 1998, were ¥54,821 million ($517,179 thousand), ¥54,299 million and ¥43,639 million,respectively.

12. LEASESThe following pro forma amounts represent the acquisition costs (including the interest portion), accumulated depreciationand net book value of leased assets as of March 31, 2000 and 1999, which would have been reflected in the consolidatedbalance sheets if finance lease accounting had been applied to the finance lease transactions currently accounted for asoperating leases:

March 31, 2000

Millions of yen Thousands of U.S. dollars

Acquisition Accumulated Net book Acquisition Accumulated Net bookcosts depreciation value costs depreciation value

Tools, furniture and fixtures . . . . . . . . . . . . . . . . ¥5,107 ¥2,877 ¥2,230 $48,179 $27,141 $21,038

March 31, 1999

Millions of yen

Acquisition Accumulated Net bookcosts depreciation value

Tools, furniture and fixtures . . . . . . . . . . . . . . . . . ¥5,762 ¥3,737 ¥2,025

Lease payments relating to finance lease transactions accounted for as operating leases amounted to ¥1,212 million($11,434 thousand), ¥1,249 million and ¥1,445 million for the years ended March 31, 2000, 1999 and 1998, respectively.Depreciation of the leased assets calculated by the straight-line method over the respective lease terms amounted to ¥1,212million ($11,434 thousand) and ¥1,249 million for the years ended March 31, 2000 and 1999, respectively.

Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2000 for finance leasetransactions accounted for as operating leases are summarized as follows:

Thousands ofYear ending March 31, Millions of yen U.S. dollars

2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 973 $ 9,1792002 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,257 11,859

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,230 $21,038

13. CONTINGENT LIABILITIESAt March 31, 2000, the Company and its consolidated subsidiaries were contingently liable as guarantors of indebtedness ofthe Company’s employees and an affiliate in the aggregate amount of ¥11,703 million ($110,406 thousand).

At June 29, 1998, the Company received a tax deficiency notice from the Tokyo Regional Taxation Bureau (“TRTB”)adjusting taxable income upwards by ¥54,158 million ($510,925 thousand) in the aggregate for the six-year period endedMarch 31, 1997. This adjustment was made because TRTB concluded that royalty received based on a license agreementwith Yamanouchi Ireland Co., Ltd. (a subsidiary) for the drug Famotidine had been understated as compared with thatcalculated based on prices derived from arm’s length transactions. The Company paid additional income taxes of ¥35,895million ($338,632 thousand) and has accounted for this amount as suspense payments in the accompanying consolidatedbalance sheets at March 31, 2000 and 1999. The Company filed an appeal with the TRTB against this deficiency assessmentin August 1998. In addition, in November 1998, the Company requested competent authority negotiations on this issuebetween the governments of Japan and the Republic of Ireland.


15. SUPPLEMENTARY CASH FLOW INFORMATIONThe conversion of convertible bonds for the years ended March 31, 2000, 1999 and 1998 amounted to ¥37,449 million($353,292 thousand), ¥12,663 million and ¥18,829 million, respectively.

Gain on sales of investment securities of ¥11,096 million ($104,679 thousand) included a non-cash gain on the exchangeof securities resulting from a merger of the investee in the amount of ¥10,696 million ($100,906 thousand) for the yearended March 31, 2000.

16. FAIR VALUE OF MARKETABLE SECURITIESThe carrying and related fair value of current and noncurrent marketable securities at March 31, 2000 were as follows:


Net NetCarrying Estimated unrealized Carrying Estimated unrealized

value fair value gain (loss) value fair value gain (loss)

(1) Current:Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥21,661 ¥ 28,685 ¥ 7,024 $204,349 $270,613 $ 66,264Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – –Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,368 1,359 (9) 12,906 12,821 (85)

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,029 30,044 7,015 217,255 283,434 66,179

(2) Noncurrent:Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,469 69,308 24,839 419,519 653,849 234,330Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – –Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,877 2,036 159 17,708 19,208 1,500

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,346 71,344 24,998 437,227 673,057 235,830

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥69,375 ¥101,388 ¥32,013 $654,482 $956,491 $302,009

14. AMOUNTS PER SHAREYen U.S. dollars

2000 1999 1998 2000

Net income:Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 162.35 ¥ 140.79 ¥ 18.18 $ 1.53Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155.97 129.21 17.51 1.47

Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.00 23.00 25.00 0.24Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,721.77 1,596.65 1,498.91 16.24

The computation of basic net income per share is based on the weighted average number of shares of common stock out-standing during each year. Diluted net income per share is computed based on the weighted average number of shares ofcommon stock outstanding each year after giving effect to the dilutive potential of common stock to be issued upon theexercise of warrants and the conversion of convertible bonds.

Cash dividends per share represent the cash dividends declared as applicable to the respective years together with theinterim cash dividends paid.

Net assets per share are based on the number of shares outstanding at the respective balance sheet dates.

17. DERIVATIVE TRANSACTIONSThe Company utilizes derivative financial instruments for the purpose of hedging its exposure to adverse fluctuations in foreigncurrency exchange rates and interest rates, but does not enter into such transactions for speculation or trading purposes.


18. SEGMENT INFORMATIONThe Company and its consolidated subsidiaries are primarily engaged in the manufacture and sale of products in Japan andoverseas, primarily in North America and Europe, in three major segments: the pharmaceuticals segment conducted princi-pally by the Company, the nutritional products segment conducted principally by the Shaklee Group, and the food and rosessegment conducted principally by the Bear Creek Group.

The business and geographical segment information for the Company and its consolidated subsidiaries for the yearsended March 31, 2000, 1999, and 1998 is outlined as follows:

Business segmentsYear ended March 31, 2000

Pharma- Nutritional Food andceuticals products roses Other Total Eliminations Consolidated

Millions of yen

I. Sales and operating incomeSales to third parties . . . . . . . . . . ¥338,563 ¥43,630 ¥45,259 ¥ 6,201 ¥ 433,653 – ¥433,653Intergroup sales and transfers . . . . 70 27 – 5,052 5,149 ¥ (5,149) –

Total sales . . . . . . . . . . . . . . . . . . 338,633 43,657 45,259 11,253 438,802 (5,149) 433,653Operating expenses . . . . . . . . . . . 250,578 40,900 40,572 10,685 342,735 (5,151) 337,584

Operating income . . . . . . . . . . . . ¥ 88,055 ¥ 2,757 ¥ 4,687 ¥ 568 ¥ 96,067 ¥ 2 ¥ 96,069

II.Assets, depreciation andcapital expendituresTotal assets . . . . . . . . . . . . . . . . . ¥869,836 ¥49,663 ¥29,910 ¥61,504 ¥1,010,913 ¥(181,627) ¥829,286Depreciation . . . . . . . . . . . . . . . . 16,250 2,307 2,125 2,778 23,460 – 23,460Capital expenditures . . . . . . . . . . 18,713 5,455 4,490 1,173 29,831 – 29,831

The Company is exposed to credit risk in the event of nonperformance by the counterparties to the derivative financialinstruments, but any such loss would not be material because the Company enters into transactions only with financialinstitutions with high credit ratings. The notional amounts of the derivative financial instruments do not necessarily repre-sent the amounts exchanged by the parties and, therefore, are not a direct measure of the Company’s risk exposure inconnection with derivative financial instruments.

Summarized below are the notional amounts and the estimated fair value of the derivative transactions outstanding atMarch 31, 2000:1) Currency related transactions


Notional Unrealized Notional Unrealizedamounts Fair value loss amounts Fair value loss

Forward exchange contracts:Buy (US$) . . . . . . . . . . . . . . . . . . . . . . . . ¥1,360 ¥1,357 ¥(3) $12,830 $12,802 $(28)

Note: The above notional amounts of the forward exchange contracts excluded those entered into to hedge receivables and payables denominated in foreigncurrencies which have been translated and reflected at the corresponding contracted rates in the accompanying balance sheets.

2) Interest related transactionsMillions of yen Thousands of U.S. dollars

Notional Unrealized Notional Unrealizedamounts Fair value gain (loss) amounts Fair value gain (loss)

Interest rate swaps:Receive/floating and pay/fixed . . . . . . . . . ¥1,486 ¥(2) ¥(2) $14,019 $(19) $(19)Receive/fixed and pay/floating . . . . . . . . . 1,486 7 7 14,019 66 66


Year ended March 31, 2000


Thousands of U.S. dollars

I. Sales and operating incomeSales to third parties . . . $3,193,990 $411,604 $426,972 $ 58,500 $4,091,066 – $4,091,066Intergroup sales and

transfers . . . . . . . . . . . . 660 255 – 47,660 48,575 $(48,575) –

Total sales . . . . . . . . . . . 3,194,650 411,859 426,972 106,160 4,139,641 (48,575) 4,091,066Operating expenses . . . . 2,363,943 385,849 382,755 100,802 3,233,349 (48,594) 3,184,755

Operating income . . . . . $ 830,707 $ 26,010 $ 44,217 $ 5,358 $ 906,292 $ 19 $ 906,311

II.Assets, depreciation andcapital expendituresTotal assets . . . . . . . . . . $8,206,000 $468,519 $282,170 $580,226 $9,536,915 $(1,713,462) $7,823,453Depreciation . . . . . . . . . 153,302 21,764 20,047 26,208 221,321 – 221,321Capital expenditures . . . 176,538 51,462 42,359 11,066 281,425 – 281,425

As a result of the change in the method of accounting for retirement allowances as explained in Note 4(c), operatingincome for “Pharmaceuticals” decreased by ¥573 million ($5,406 thousand) for the year ended March 31, 2000.



Millions of yen

I. Sales and operating incomeSales to third parties . . . . . ¥323,706 ¥49,892 ¥43,934 ¥ 5,685 ¥423,217 – ¥423,217Intergroup sales and

transfers . . . . . . . . . . . . . . 171 24 – 4,397 4,592 ¥ (4,592) –

Total sales . . . . . . . . . . . . . 323,877 49,916 43,934 10,082 427,809 (4,592) 423,217Operating expenses . . . . . . 242,235 48,248 40,101 7,780 338,364 (4,592) 333,772

Operating income . . . . . . . ¥ 81,642 ¥ 1,668 ¥ 3,833 ¥ 2,302 ¥ 89,445 ¥ – ¥ 89,445

II.Assets, depreciation andcapital expendituresTotal assets . . . . . . . . . . . . ¥828,088 ¥63,131 ¥37,760 ¥64,532 ¥993,511 ¥(217,480) ¥776,031Depreciation . . . . . . . . . . . 21,094 3,573 2,057 2,614 29,338 – 29,338Capital expenditures . . . . . 33,583 10,451 5,077 2,294 51,405 – 51,405




Millions of yen

I. Sales and operating incomeSales to third parties . . ¥373,144 ¥54,261 ¥44,216 ¥ 5,735 ¥ 477,356 – ¥477,356Intergroup sales and

transfers . . . . . . . . . . 138 241 – 3,176 3,555 ¥ (3,555) –

Total sale . . . . . . . . . . 373,282 54,502 44,216 8,911 480,911 (3,555) 477,356Operating expenses . . 276,897 53,911 40,457 7,339 378,604 (4,093) 374,511

Operating income . . . ¥ 96,385 ¥ 591 ¥ 3,759 ¥ 1,572 ¥ 102,307 ¥ 538 ¥102,845

II.Assets, depreciation andcapital expenditures

Total assets . . . . . . . . . . ¥848,493 ¥62,033 ¥35,240 ¥71,677 ¥1,017,443 ¥(214,708) ¥802,735Depreciation . . . . . . . . . 11,539 2,942 2,197 1,776 18,454 – 18,454Capital expenditures . . . 32,377 11,642 6,326 7,230 57,575 – 57,575

Geographical areasYear ended March 31, 2000

Japan Europe America Asia Total Eliminations Consolidated

Millions of yen

Sales to third parties . . ¥276,716 ¥ 72,495 ¥ 82,862 ¥1,580 ¥433,653 – ¥433,653Intergroup sales and

transfers . . . . . . . . . . 15,022 2,385 2,469 87 19,963 ¥ (19,963) –

Total sales . . . . . . . . . 291,738 74,880 85,331 1,667 453,616 (19,963) 433,653Operating expenses . . 219,060 54,435 82,371 1,613 357,479 (19,895) 337,584

Operating income . . . ¥ 72,678 ¥ 20,445 ¥ 2,960 ¥ 54 ¥ 96,137 ¥ (68) ¥ 96,069

Total assets . . . . . . . . ¥734,704 ¥134,266 ¥113,448 ¥4,735 ¥987,153 ¥(157,867) ¥829,286


Sales to third parties . . $2,610,528 $ 683,915 $ 781,717 $14,906 $4,091,066 – $4,091,066Intergroup sales and

transfers . . . . . . . . . . 141,717 22,500 23,292 821 188,330 $ (188,330) –

Total sales . . . . . . . . . 2,752,245 706,415 805,009 15,727 4,279,396 (188,330) 4,091,066Operating expenses . . 2,066,603 513,538 777,085 15,217 3,372,443 (187,688) 3,184,755

Operating income . . . $ 685,642 $ 192,877 $ 27,924 $ 510 $ 906,953 $ (642) $ 906,311

Total assets . . . . . . . . $6,931,170 $1,266,660 $1,070,264 $44,670 $9,312,764 $(1,489,311) $7,823,453

As a result of the change in the method of accounting for retirement allowances as explained in Note 4(c), operatingincome for “Japan” decreased by ¥573 million ($5,406 thousand) for the year ended March 31, 2000.



Japan Europe America Asia Total Eliminations Consolidated

Millions of yen

Sales to third parties . . ¥269,469 ¥ 66,611 ¥85,725 ¥1,412 ¥423,217 – ¥423,217Intergroup sales and

transfers . . . . . . . . . . 8,316 2,434 1,643 – 12,393 ¥ (12,393) –

Total sales . . . . . . . . . 277,785 69,045 87,368 1,412 435,610 (12,393) 423,217Operating expenses . . 211,212 48,572 84,160 2,000 345,944 (12,172) 333,772

Operating income(loss) . . . . . . . . . . . . ¥ 66,573 ¥ 20,473 ¥ 3,208 ¥ (588) ¥ 89,666 ¥ (221) ¥ 89,445

Total assets . . . . . . . . ¥676,577 ¥144,254 ¥96,329 ¥5,438 ¥922,598 ¥(146,567) ¥776,031


Japan Europe America Total Eliminations Consolidated

Millions of yen

Sales to third parties . . . . . . . . . . . . . . ¥326,809 ¥ 60,853 ¥89,694 ¥477,356 – ¥477,356Intergroup sales and transfers . . . . . . . 5,351 3,903 2,123 11,377 ¥ (11,377) –

Total sales . . . . . . . . . . . . . . . . . . . . . 332,160 64,756 91,817 488,733 (11,377) 477,356Operating expenses . . . . . . . . . . . . . . 253,983 42,882 88,449 385,314 (10,803) 374,511

Operating income . . . . . . . . . . . . . . . ¥ 78,177 ¥ 21,874 ¥ 3,368 ¥103,419 ¥ (574) ¥102,845

Total assets . . . . . . . . . . . . . . . . . . . . ¥701,786 ¥137,726 ¥94,402 ¥933,914 ¥(131,179) ¥802,735

Overseas salesOverseas sales, which include export sales of the Company and its domestic consolidated subsidiaries and sales (other thanexports to Japan) of its foreign consolidated subsidiaries, for the years ended March 31, 2000, 1999 and 1998 are summa-rized as follows:


America Europe Asia Other Total

Millions of yen

Overseas sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥113,490 ¥51,625 ¥5,453 ¥1,615 ¥172,183Consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . 433,653


Overseas sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,070,660 $487,028 $51,444 $15,236 $1,624,368Consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . 4,091,066Overseas sales as a percentage of consolidated

net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.1% 11.9% 1.3% 0.4% 39.7%




Millions of yen

Overseas sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥115,551 ¥49,982 ¥7,119 ¥757 ¥173,409Consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . 423,217Overseas sales as a percentage of consolidated

net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.3% 11.8% 1.7% 0.2% 41.0%



Millions of yen

Overseas sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥123,678 ¥43,415 ¥7,214 ¥684 ¥174,991Consolidated net sales . . . . . . . . . . . . . . . . . . . . . . . . 477,356Overseas sales as a percentage of consolidated

net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.9% 9.1% 1.5% 0.2% 36.7%

19. SUBSEQUENT EVENTThe following appropriations of retained earnings of the Company, which have not been reflected in the consolidatedfinancial statements for the year ended March 31, 2000, were approved at a shareholders’ meeting held on June 29, 2000:


Cash dividends (¥15.00 = $0.14 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,403 $50,972Bonuses to directors and corporate auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 868

¥5,495 $51,840


The Board of Directors and ShareholdersYamanouchi Pharmaceutical Co., Ltd.

We have examined the consolidated balance sheets of Yamanouchi Pharmaceutical Co., Ltd. and consolidated subsidiariesas of March 31, 2000 and 1999, and the related consolidated statements of income, shareholders’ equity, and cash flows foreach of the three years in the period ended March 31, 2000, all expressed in yen. Our examinations were made in accor-dance with auditing standards, procedures and practices generally accepted and applied in Japan and, accordingly, includedsuch tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the accompanying consolidated financial statements, expressed in yen, present fairly the consolidatedfinancial position of Yamanouchi Pharmaceutical Co., Ltd. and consolidated subsidiaries at March 31, 2000 and 1999, andthe consolidated results of their operations and their cash flows for each of the three years in the period ended March 31,2000 in conformity with accounting principles and practices generally accepted in Japan consistently applied during theperiod except for the changes, with which we concur, in the methods of accounting for excess of cost over net assetsacquired, income taxes and retirement allowances as described in Note 4 to the consolidated financial statements.

As described in Note 2 to the consolidated financial statements, Yamanouchi Pharmaceutical Co., Ltd. and consolidatedsubsidiaries have adopted new accounting standards for consolidation and for research and development expenses in thepreparation of their consolidated financial statements for the year ended March 31, 2000.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31,2000 are presented solely for convenience. Our examination also included the translation of yen amounts into U.S. dollaramounts and, in our opinion, such translation has been made on the basis described in Note 3 to the consolidated financialstatements.

Osaka, JapanJune 29, 2000

See Note 1 to the consolidated financial statements which explains the basis of preparing the consolidated financial statementsof Yamanouchi Pharmaceutical Co., Ltd. and consolidated subsidiaries under Japanese accounting principles and practices.

[REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS]


PHARMACEUTICALS

Tohoku Yamanouchi Pharmaceutical Co., Ltd.154-13, Dai-2 Chiwari, Obuke, Nishinecho,Iwate-gun, Iwate 028-7111, Japan

Yamanouchi U.K. LimitedYamanouchi House, Pyrford Road, West Byfleet,Surrey KT14 6RA, U.K.

Yamanouchi Research Institute (U.K.)Littlemore Park, Oxford OX4 4SX, U.K.

Yamanouchi U.S.A. Inc.Mack Centre IV, 4th Floor, S.61 Paramus Road,Paramus, NJ 07652, U.S.A.

Yamanouchi Ireland Co., Ltd.Damastown, Mulhuddart, Dublin 15, Ireland

Yamanouchi Europe B.V.European HeadquartersElisabethhof 19, 2353 EW Leiderdorp,The Netherlands

Yamanouchi Europe B.V.,Research & Development FacilitiesElisabethhof 1, 2353 EW Leiderdorp,The Netherlands

Yamanouchi Europe B.V.,Manufacturing MeppelHogemaat 2, 7942 JG Meppel,The Netherlands

Yamanouchi Europe B.V.,International DepartmentElisabethhof 17, 2353 EW Leiderdorp,The Netherlands

Yamanouchi Pharma B.V.Elisabethhof 17, 2353 EW Leiderdorp,The Netherlands

Yamanouchi Pharma GmbHIm Breitspiel 19, 69126 Heidelberg,Germany

Yamanouchi Pharma S.A.10, Place de La Coupole, 94223 Charenton-Le-Pont, Cedex, France

Yamanouchi Pharma Ltd.Yamanouchi House, Pyrford Road,West Byfleet, Surrey KT14 6RA, U.K.

Paines & Byrne, LimitedYamanouchi House, Pyrford Road,West Byfleet, Surrey KT14 6RA, U.K.

Yamanouchi Pharma S.p.A.Via delle Industrie, 2,20061 Carugate (MI), Italy

Yamanouchi Pharma B.V.Riverside Business Park, Internationalelaan55, 1070 Brussels, Belgium

Yamanouchi Pharma a/sNaverland 3, 2600 Glostrup, Denmark

[PRINCIPAL SUBSIDIARIES AND AFFILIATES]

Yamanouchi Pharma ABHans Michelsengatan 1B, 21120 Malmö,Sweden

Yamanouchi Pharma, S.A.Centro Empresarial, El Plantio,Calle Ochandiano 6, 28023 Madrid, Spain

Yamanouchi Pharma Lda.Rue José FontanaEdifico, Cinema, No-1,2780-605 PAÇO D’ARCOS, Portugal

Yabrofarma LDAAvenida Ferreira Godinho, 1495-690Cruz Quebrada Oeiras, Portugal

Yamanouchi Europe B.V.,Moscow Representative OfficeMarksistskaya Ulitsa 16, Moscow, Russia

Yamanouchi Pharma Sp. z o. o.ul. Poleczki 21, 02-822 Warsaw, Poland

Yamanouchi Europe B.V.,Prague Branch OfficeRadimova 36/2257, 160-00 Praha 6,Czech Republic

Yamanouchi Pharma Technologies, Inc.Stanford Research Park, 1050 ArastraderoRoad, Palo Alto, CA 94304, U.S.A.

Shenyang Yamanouchi PharmaceuticalCo., Ltd.No. 3 Jia 6 Road 10, Shenyang Economic &Technological Development Zone, Shenyang,Liaoning Province, 110141People’s Republic of China

Taiwan Yamanouchi Pharmaceutical Co., Ltd.*Shin Kong World Commercial Bldg.,6th Floor, No. 287, Sec. 3, Nanking East Road,Taipei, Taiwan

Korea Yamanouchi Pharmaceutical Co., Ltd.*Hansung Plaza Bldg., 11th Floor,#13-1, Heungin-dong, Chung-ku, Seoul 100-430Republic of Korea

Yamanouchi Philippines, Inc.*17B, Multinational Bancorporation Centre,6805 Ayala Avenue, Makati City, Metro Manila,The Philippines

Yamanouchi (Thailand) Co., Ltd.*10th Floor, Wave Place, 55 Wireless Road,Lumpini, Patumwan, Bangkok 10330, Thailand

NUTRITIONAL PRODUCTS

Shaklee Japan K.K.2-6, Nishiazabu 3-chome, Minato-ku,Tokyo 106-8601, Japan

Shaklee Corporation4747 Willow Road,Pleasanton, CA 94588, U.S.A.

Shaklee U.S.4747 Willow Road,Pleasanton, CA 94588, U.S.A.

Shaklee Research Center1992 Alpine Way, Hayward,CA 94545, U.S.A.

Shaklee Manufacturing Center3300 Marshall Avenue, P.O. Box 1550,Norman, OK 73069, U.S.A.

Shaklee Canada, Inc.952 Century Drive, Burlington,Ontario L7L 5P2, Canada

Shaklee Mexico, S.A. de C.V.Boulevard Avila Camacho No. 40,Desp. 615, Col. El Parque C.P. 53390,Naucalpan, Mexico

Shaklee Products (Malaysia) Sdn. Bhd.7 Jalan USJ 10/1, UEP Subang Jaya,47620 Petaling Jaya, Selangor,Darul Ehsan, Malaysia

FOOD AND ROSES

Bear Creek Corporation(a subsidiary of Shaklee Corporation)2518 South Pacific Highway, P.O. Box 299,Medford, OR 97501, U.S.A.

Harry and David2518 South Pacific Highway, P.O. Box712, Medford, OR 97501, U.S.A.

Jackson & Perkins2518 South Pacific Highway, P.O. Box1028, Medford, OR 97501, U.S.A.

Bear Creek Gardens, Inc.2518 South Pacific Highway, P.O. Box9100, Medford, OR 97501, U.S.A.

Bear Creek Stores, Inc.2518 South Pacific Highway, P.O. Box712, Medford, OR 97501, U.S.A.

OTHER

Lotus Estate Co., Ltd.3-11, Nihonbashi-Honcho 2-chome,Chuo-ku, Tokyo 103-8411, Japan

*Unconsolidated company(As of July 2000)


HEAD OFFICE3-11, Nihonbashi-Honcho 2-chome, Chuo-ku,Tokyo 103-8411, Japan

Seoul OfficeHansung Plaza Bldg., 11th Floor, #13-1 Heungin-dong,Chung-ku, Seoul 100-430, Republic of Korea

Beijing Office20/F, A-7-10, East Wing, Hanwei Plaza, No. 7,Guanghua Road, Chaoyang District, Beijing 100004,People’s Republic of China

Jakarta Office17th Floor, #1701, Jakarta Stock Exchange Tower 2,JI. Jend. Sudirman Kav. 52-53, Jakarta 12190, Indonesia

Taipei BranchShin Kong World Commercial Bldg., 6th Floor, No. 287,Sec. 3, Nanking East Road, Taipei, Taiwan

Domestic BranchesSapporo, Sendai, Tokyo 1, Tokyo 2, Tokyo 3, Yokohama,Nagoya, Osaka, Kyoto, Hiroshima, Takamatsu, Fukuoka

PlantsAzusawa, Yaizu, Takahagi, Nishine

Research LaboratoriesTsukuba, Azusawa, Takahagi, Yaizu

Annual MeetingThe annual meeting of shareholders was held at 10 a.m.on Thursday, June 29, 2000, at: Royal Park Hotel1-1, Nihonbashi-Kakigaracho 2-chome, Chuo-ku,Tokyo, Japan

Stock Trading InformationYamanouchi stock is listed on:Tokyo Stock Exchange (code number 4503)Osaka Securities ExchangeNagoya Stock ExchangeSapporo Stock ExchangeParis Stock Exchange

Independent Certified Public AccountantsCentury Ota Showa & Co.*Osaka Kokusai Bldg., 3-13, Azuchi-machi 2-chome, Chuo-ku,Osaka 541-0052, Japan

* Effective April 1, 2000, our independent certified public accountants, ShowaOta & Co., have merged with Century Audit Corporation and changed theirname to Century Ota Showa & Co.

Transfer AgentThe Chuo Mitsui Trust and Banking Company, Limited7-1, Kyobashi 1-chome, Chuo-ku, Tokyo 104-8345, Japan

Shareholder ServicesShareholders with questions on such stock-related matters as proxyvoting should write to:Finance & Accounting Dept.Yamanouchi Pharmaceutical Co., Ltd.3-11, Nihonbashi-Honcho 2-chome, Chuo-ku,Tokyo 103-8411, Japan

Investor RelationsSecurities analysts and investors with business-relatedquestions should write to:Investor RelationsFinance & Accounting Dept.Yamanouchi Pharmaceutical Co., Ltd.3-11, Nihonbashi-Honcho 2-chome, Chuo-ku,Tokyo 103-8411, Japan

Yamanouchi on the InternetOur home page is: http://www.yamanouchi.com

(As of July 2000)

[CORPORATE DATA] [CORPORATE INFORMATION]

0

1,000

2,000

3,000

4,000

5,000

6,000

0.5

1.0

1.5

2.0

2.5

3.0

’90.1 ’91.1 ’92.1 ’93.1 ’94.1 ’95.1 ’96.1 ’97.1 ’98.1 ’99.1 ’00.1 ’00.3

[STOCK PRICE INFORMATION]

[COMMON STOCK]

Yen

Years ended March 31 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991

Common stock price:High ¥5,990 ¥4,030 ¥3,280 ¥2,610 ¥2,410 ¥2,080 ¥2,580 ¥2,750 ¥3,170 ¥3,040Low 3,370 2,750 2,520 2,160 1,830 1,830 1,950 2,220 2,510 2,940Average for the year 4,684 3,300 2,982 2,374 2,135 1,940 2,247 2,477 2,806 2,600Year-end 5,620 3,750 3,060 2,560 2,380 1,900 2,030 2,320 2,720 2,950

(Yen)

Average Stock Price and TOPIX Relative Index

Average Stock Price (left scale)TOPIX Relative Index (right scale)

Thousands

As of March 31 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991

Number of shares outstanding 360,246 344,468 338,605 324,308 323,338 323,338 323,113 322,923 322,369 292,611

Billions of yen

As of March 31 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991

Market value ¥2,025 ¥1,292 ¥1,036 ¥830 ¥770 ¥614 ¥656 ¥749 ¥877 ¥863

Note: Market value=Number of shares outstanding x Stock price at year-end

As of March 31, 2000

Principal shareholdersNippon Life Insurance Company 5.37%The Sumitomo Bank, Limited 4.44State Street Bank and Trust Company 4.29The Mitsui Trust and Banking Company, Limited 3.97The Mitsubishi Trust and Banking Corporation 2.98

Number of shareholders 9,367


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