Terumo 2001 Annual Report - Record Sales and Income

Annual Report 2001
For the year ended March 31, 2001
The
Integrated development of medical supplies, systems, and equipment
Terumo Advantage
PROFILE
In 1921, a group of medical scientists established Terumo Corporation. Based on a corporate policy of contributing to society through medicine, the Company has broadened its business scope to include producing clinical thermometers; promoting the increased use of disposable products, which contribute to safe medical treatment; and developing medical systems and equipment to comprehensively support advanced medical treatment. Terumo products are reputed for their leading-edge technology in markets worldwide and are contributing to the healthcare of people in more than 150 countries. By utilizing our advantage of being able to combine product development capabilities for medical supplies, systems, and equipment, we continue to develop products that meet new market needs, such as risk management, cost control, and methods for reducing the physical burden of medical treatment. Furthermore, we are pursuing global business development, aiming to contribute to the healthcare of people around the world.
CONTENTS
q Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 q Presidents Message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 q Cardiovascular System BusinessThe Driving Force behind Terumos Future Growth . . . . . . . . . . . . . . . . . . . . . . . . . 6 q Review of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 q Managements Discussion and Analysis of Operating Results and Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . 14 q Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 q Consolidated Statements of Income
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
q Consolidated Statements of Stockholders Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 q Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 q Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 q Independent Auditors Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 q Corporate Data
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
q Board of Directors and Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
FORWARD-LOOKING STATEMENTS This annual report includes certain forward-looking statements. These statements are based on managements current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ due to changes in economic, business, competitive, technological, regulatory, and other factors.
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Financial Highlights
Terumo Corporation and subsidiaries Years ended March 31
Millions of yen 1997 1998 1999 2000 2001
Thousands of U.S. dollars (Note 1) 2001
For the period: Net sales: Pharmaceuticals ................... Transfusion and infusion equipment ......................... Injection systems ................. Clinical testing systems ......... Artificial organs ................... Catheter systems .................. Other products .....................
30,229 34,628 36,289 37,246 17,427 26,799 10,418 15,507 24,339 12,889 137,608 25,822 24,369 12,458 18,117 27,411 10,791 16,005 28,149 13,806 148,907 27,197 26,960 14,337 18,801 26,413 11,758 17,200 32,663 17,558 160,682 30,247 29,172 14,834 18,731 24,773 12,252 24,353 36,350 17,474 171,179 29,151 11,282 6,284
37,580 18,699 24,663 12,982 27,601 36,135 18,390 176,050 28,800 29,013 16,639
$ 303,065 150,798 198,895 104,694 222,589 291,411 148,306 1,419,758 232,258 233,976 134,185
Operating income ...................... Income before income taxes and minority interests ................... Net income ............................... At year-end: Current assets ........................... Current liabilities ...................... Total assets .............................. Total stockholders equity ........... Common stock ..........................
107,411 94,877 215,898 94,071 19,317
95,721 87,294 217,998 125,793 28,943
116,229 67,066 247,195 158,319 38,716

Yen
116,169 69,693 263,723 153,304 38,716
135,197 79,147 281,660 172,271 38,716
1,090,298 638,282 2,271,452 1,389,282 312,226

U.S. dollars (Note 1)
Per common share: Net incomebasic .................... Cash dividends .......................... Other statistics: ROE ......................................... Number of common shares issued at year-end ................... Number of associates .................
65.52 72.80 71.94 29.80 8.50 8.50 8.50 8.50 14.0% 190,150 5,111 13.0% 200,435 5,556 10.4% 210,876 5,849
78.91 8.50
0.64 0.07
3.9% 210,876 6,898
9.9% 210,876 7,412
Notes: 1. All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at 124=$1, the approximate exchange rate at March 31, 2001. 2. Effective from the fiscal year ended March 1999, new accounting standards for enterprise tax were adopted. The amounts of selling, general and administrative expenses, operating income and income before income taxes and translation adjustment shown in prior years financial highlights have been restated to conform to the 1999 presentation. 3. Effective from the fiscal year ended March 2001, a revised accounting standard for foreign currency transactions was adopted. The amounts of total assets shown in prior years financial highlights have been restated to confirm to the 2001 presentation.
Net Sales
Billion
200
Net Income
Billion
18 15
Net Income per Share
80
ROE
%
16
150 12 100 9 6 50 3 0 0
60
12
40
20
97
98
99
00
01
97
98
99
00
01
97
98
99
00
01
97
98
99
00
01
35 1
Presidents Message
n fiscal 2001, ended March 31, 2001, Terumos business environment was perhaps the most difficult the Company has ever faced, adversely affected by the Japanese governments policy of restraining healthcare expenditures and intensified competition on a global scale. Despite these conditions, we made concerted efforts to realize the goals of PRIDE 21, our medium-term plan. As a result, Terumo posted record levels of net sales and net income. I would like to take this opportunity to thank our stockholders, customers, business partners, employees, and other stakeholders in the Company for their support and cooperation. During the fiscal year under review, we proceeded with the launch of high-valueadded products as part of our goal of providing medical care that is kind to people. We focused our efforts on developing minimally invasive medical testing and treatment systems and supplies as well as medical equipment and pharmaceuticals that patients and the medical staff providing treatment can use with safety and confidence. And, we took steps to develop these products with the environment in mind. To achieve these objectives, we worked to build the foundations for a global research and development organization that spans Japan, the United States, and Europe. At the same time, we continued with our strategy of forming business alliances with other companies that have superior technologies. Moreover, we have almost completed the establishment of a global production network for our future expansion. In addition to the start-up of operations at a plant in the Philippines, we expanded the production capacity of plants in China and India. These three plants will contribute to meeting the diversifying needs of customers through multiple product, small-lot manufacturing lines and to increasing our cost-competitiveness. Terumo provides medical care that is kind to people by drawing on its unique technologies is the key concept of the Companys new business vision. I intend to ensure that Terumo moves steadily forward in accordance with this new vision to contribute to the health of people around the world and to build a solid reputation in the global medical care market.
Takashi Wachi
President & Chief Executive Officer
Q. A.
How is the Company progressing with the implementation of its PRIDE 21 plan?
In operating our business, we have been following our three-year, medium-term plan, PRIDE 21, which commenced in the fiscal year ended March 2000. In the fiscal year under review, we posted net sales of 176.1 billion, achieving sales growth for the seventh consecutive fiscal year. Although operating income was down slightly from the previous year, at 28.8 billion, net income reached 16.6 billion, a record high level.
Takashi Wachi
President & Chief Executive Officer
Looking at performance by region, sales of catheters, home healthcare products, and infusion solutions in Japan declined due to lower prices and heightened competition. On the other hand, sales of blood glucose monitors, cardiovascular systems, and prefilled syringes expanded. Consequently, sales in Japan rose 1.8%, to 118.4 billion. Overseas, sales of such products as artificial organs were firm, offsetting the effects of the weak Euro. As a result, overseas sales advanced 5.3%, to 58.2 billion. In the fiscal year ending March 2002, the final year of PRIDE 21, we expect to register record highs in net sales and profits. We will achieve these results by the development and introduction of safe and effective, high-value-added products, further cost reductions, and greater operational efficiency through the use of information technology.
Q. A.
What is the basic concept of the Terumo New Vision?
In September 2001, Terumo will celebrate its 80th anniversary. After considering what role Terumo should play in the 21st century and in seeking to establish a clear direction for the Company, we have based the Terumo New Vision on the concept of Terumo provides medical care that is kind to people by drawing on its unique technologies. Underpinning this basic concept is our desire to utilize the unique technological capabilities that we have nurtured over the past 80 years to contribute to improving the quality of life of all people needing medical treatment. Terumo has proprietary technologies that it has developed on its own across a broad range of fields, including coating, material development, and infusion systems. Fusing these technologies and refining themin other words, creating hybrid technologiescould be said to
be a core support technology for our product development. By utilizing this core technology, we intend to realize our corporate policy of contributing to society through medicine by supplying people with products and services that match the needs of the new era worldwide.
Q. A.
In which direction will this vision take Terumos business development?
With the aim of providing medical care that is kind to people, we will focus on three areas of business and product development. The first is pursuing medical treatment that is safe and trustworthy. To this end, we are developing minimally invasive medical testing and treatment systems and supplies. We are also developing medical equipment and pharmaceuticals that patients and medical staff alike can use with safety and confidence. And, of course, we keep the environment in mind when developing these products. The second area is the development of global technologies. Over the past few years, competition among companies to establish businesses in such leading-edge medical technologies as rejuvenation treatments and minimally invasive surgery has intensified. At Terumo, we are researching these fields as well. I think that it is important to make these medical treatments available to all people, not just to a select group. Therefore, I believe it is Terumos mission to make these leading-edge medical treatments easier to use and widely available to all patients. The final area of business and product development is providing medical care that adapts to peoples lifestyles. To allow patients to more comfortably receive medical care as part of their daily routines, we want to create medical treatments for individuals. Accompanying the governments curtailment of healthcare expenditures, we can expect a shift to shorter terms of hospitalization, faster discharges from hospitals, and greater home care. Moreover, the government is taking a positive view of preventative medicine. Terumo, therefore, will work to develop products that meet emerging medical demand for treating patients outside medical facilities.
Q. A.
Is the Company implementing any medical liability risk management measures?
Medical malpractice has become a hot issue in the Japanese media of late. We are actively developing products that can contribute to the prevention of medical accidents. We already have products in our infusion and nutritional supplement lines that have functions to prevent mistaken use, products that prevent medical staff from pricking themselves with needles when giving injections, and products that reduce the chances of infections from bacterial contamination. In addition, our prefilled syringes contribute to minimizing errors caused by the on-the-spot selection of drugs and to reducing workloads. It is our goal to contribute to the safety of medical treatment by developing and supplying products and services that ensure that patients and medical staff can feel confident in receiving and giving medical treatment.
Q. A.
Can you tell us something about Terumos business alliance strategies?
In pursuing the timely development of high-value-added products, there are cases where Terumo cannot achieve the desired results using its own technologies. It is extremely important to do your own R&D and to discover and develop new technologies; however, in an age that demands speed, the time and costs required are sometimes so great that we would run the risk of compromising our future. For technologies that we do not have in-house or would
take substantial time to learn, we usually look to business alliances with or acquisitions of companies that have top-level technology in that field. Based on this thinking, in April 2001, we formed a comprehensive business alliance with Olympus Optical Co., Ltd., in the medical treatment equipment field. By combining the individual strengths of our two companies, we plan to develop minimally invasive diagnostic and treatment equipment that reduces the pain and suffering of patients. For the time being, our focus will be on the fields of heart surgery, gastroenterology, and urology. Our two companies will cooperate at all stages of the development and marketing processes. In another alliance, we formed a business tie-up with Takeda Chemical Industries, Ltd., and Tanabe Seiyaku Co., Ltd., in which these companies will sell prefilled syringes made by Terumo. In the future, we will continue to enter into alliances with other companies to expand our product lineup.
Q. A.
What environmental protection activities is the Company involved with?
I believe that environmental protection activities are an important social responsibility of companies. Based on the Environmental Policy we announced in December 1999, we are developing products in consideration of their environmental impact. As part of that process, we have been converting to non-vinyl chloride plastic products and packaging. During the fiscal year under review, we almost completed converting the packaging material of most of our products and liquid containers of peritoneal dialysis solutions to non-vinyl chloride materials. Previously, vinyl chloride was used in many medical supplies; however, it has recently been suggested that when incinerated vinyl chloride produces dioxin. In addition, it has been pointed out that, in combination with certain drugs, a non-degradable substance is formed. Consequently, there have been many requests, including those from within the medical field, to eliminate the use of vinyl chloride. We intend to work together as a company to develop environmentally friendly products and improve production and supply methods.
Q. A.
What are the Companys plans for raising corporate worth?
It is my intention that Terumo conducts its business in a manner that will earn it the respect of people around the world by contributing widely to society through the supply of products and services that take into consideration medical care receivers and givers. Guided by this goal, our basic management policy is to achieve strong performances, raise corporate worth, and return profits to stockholders. Medical treatment equipment is currently a rising star in the medical field. The market is expanding, but competition in the development of new products is intensifying. Under these circumstances, we will strengthen our global business development and R&D organization and aggressively invest in rejuvenation treatments and minimally invasive surgery, aiming for continued expansion. To raise our business efficiency further, we are targeting sustained profit growth to fulfill the expectations of our stockholders and increase the value of their shares.
Cardiovascular System Business
The Driving Force behind Terumos Future Growth T

erumo is dedicated to helping patients suffering from heart and other diseases return to a healthy life as quickly as possible. Our Cardiovascular System Business leapt into prominence in the global market when we acquired the cardiovascular system division of Minnesota Mining & Manufacturing Company (3M) in July 1999. In April 2001, to adapt to rapid developments in the global market, we integrated our catheter and cardiovascular Terumo Business Units (TBUs) to form the CardioVascular Company. By leveraging the leading-edge technology that is Terumos trademark, we aim to expand market share and profitability in this business through an R&D organization encompassing Japan, the United States, and Europe that targets the global standardization of our products and through the maximization of our competitiveness based on a wider product lineup.
The CardioVascular Company primarily handles oxygenators, roller pumps, and other products used in heart surgery as well as angiographic and PTCA dilatation catheters and other products used in intravascular diagnosis and treatment. Mainly focused on the heart, the CardioVascular Company is developing its business in a wide range of areas in circulatory systems, with strong emphasis on speed.
Trends in Numbers of Open-Heart Surgery Cases and Facilities in Japan

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

Source: Health and Welfare Statistics Association
Number of open-heart surgery cases (left scale) Number of facilities
Number of PTCA cases (left scale) Number of facilities
45,000 40,000 35,000 30,000
500 450 400 350 300
100,000 90,000 80,000
800 700 600
70,000 60,000 50,000 40,000 30,000 200 20,000 10,000 0 100 0 500 400 300
Growth in the Number of Patients Requiring Cardiovascular Treatment
25,000 250 20,000 200
Categories of patients that need cardiovascu15,000 150 lar surgery include those with schema, such 10,000 100 as angina and myocardial infarction patients; 5,000 50 those with congenital problems, such as atria sepal defects; and those with large artery 0 0 84 87 90 93 96 99 problems, such as aneurysm patients. In 1999, the number of people with these diseases was estimated at approximately 38,000 in Japan and 1,000,000 overseas, and we expect these numbers to grow along with the aging of society. Today, PTCA dilatation catheters and coronary stents (mesh or coiled metal tube) are widely used to treat angina and myocardial infarction internally. The numbers of patients opting for this type of surgery in Japan now exceed those that have open-heart bypass surgery by approximately ten to one.
6
93
96
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Overview of Terumos Activities in Circulatory Systems

Cardiovascular system products comprise oxygenators, roller pumps, cannulas, and a series of other devices related to blood circulation. This equipment is used to artificially oxygenate and circulate blood outside the body during heart surgery. In 1982, the launch of CAPIOX II, the worlds first hollow fiber oxygenator, earned Terumo global recognition for its advanced technology and R&D capabilities in cardiovascular systems. Since then, we have gone on to successively launch innovative products that combine our original technologies and development skills, establishing a solid reputation in the market. Equipment Used in Cardiovascular Surgery Beginning with the 1985 introduction of our Radifocus guidewire for angiography, we have built a lineup of catheters based on advanced technology for vascular diagnosis and intervention. In the process, we have gained a worldHeart wide reputation for excellence based on the successive introduction of innovative products. PTCA dilatation catheters Blood gas monitor and coronary stents are being widely used to treat angina and myocardial infarction in order to minimize patient trauma. In the intervention catheter field as well, Terumo offers products that are highly evaluated by the market. The use of these Cannula Roller pump Hemoconcentrator Oxygenator products is growing annually in cranial and abdominal medical treatment, and we also sell micro-catheters in this market. In our R&D efforts, we are pursuing the development of minimally invasive, advanced medical equipment and working to bring leading-edge medical treatment within the reach of patients.
Expanding Our Share of the Cardiovascular System Market

In 2000, we introduced CAPIOX RX, a new oxygenator, and a new blood line that incorporate a proprietary coating technology that greatly improves biocompatibility in blood. Moreover, with the addition of the Sarns and CDI lines, we have established a full product lineup in the cardiovascular field. We intend to optimize synergies in our operations and further expand our share of this market. Last year, we also introduced two new PTCA dilatation catheters that utilize our proprietary coating technology. In addition, we have further improved the thinness, material, and shape of these products to make them substantially easier to use and to pass through veins and
arteries. We plan to develop and introduce multiple new products in this field annually, aiming to expand market share through aggressive marketing activities centered on our solid customer base. We also continue to launch new coronary stent products for stent therapy, which is growing in popularity. In May 2001, we introduced Tsunami. This new coronary stent was marketed in Europe and Asia before being launched in Japan, and it has received high praise from doctors in both regions. In the future, coated stents are expected to become the mainstream product in the market due to progress in raising treatment efficiency through the use of drug coatings. Since coating technology is one of Terumos specialties, the Company is currently developing highly competitive products for this market.
Developing Leading-Edge Medical Fields

Terumo has been aggressively pursuing R&D in leading-edge medical fields. For example, in the near future, patients for whom heart transplants are the only option, such as many cardiac-failure patients, will benefit from progress in artificial heart development. Aiming for a market launch within the next five years, we are currently developing T-ILVAS, an implanted artificial heart support system (left ventricular assist device: LVAD). Among our artificial blood vessel products, in addition to products for lower extremities and dialysis shunts, we are developing products for use in aortic aneurisms and other areas utilizing unique Terumo technologies. In April 2001, we reached an agreement on a comprehensive business alliance with Olympus Optical Co., Ltd., covering the development, manufacturing, and sale of medical equipment. We took this step to ensure our survival in the increasingly competitive global marketplace. Olympus Optical boasts a significant share of the global endoscope market, and we intend to use the individual strengths of our two companies to cooperate in sales and marketing and to develop minimally invasive diagnostic and treatment equipment. Both companies will not only develop new products in Terumos Pipeline of Cardiovascular Products (Year ended/Years ending March 31) their existing fields but also 2001 2002 2003 cultivate new markets. q Coronary stents In recent years, the proq PTCA dilatation catheters portion of minimally invaq Oxygenators, Blood pumps sive cardiac surgery (MICS) q Minimally invasive treatment used in the treatment of heart disease patients to q Artificial blood vessels minimize patient trauma has q T-ILVAS grown annually. This type of surgery has many advantages. MICS reduces the pain and suffering of patients, minimizing scars by making the surgical opening as small as possible. Patients, therefore, have shorter periods of hospitalization and are able to quickly return to their normal lifestyles. Terumo and Olympus Optical are also cooperating in the development of MICS-related products.
2004
2005
2006
Cardiovascular System Business
The Driving Force behind Terumos Future Growth
Many dreams exist in the development of leading-edge technology. However, it is important to realize such dreams in a form of medical treatment that is available to people around the world. We believe that acting as the bridge between such technologies and their applications is Terumos mission.
Establishing a Clinical Trial and R&D Organization Spanning Japan, the United States, and Europe
In March 2001, to accelerate its cardiovascular system R&D programs Terumo transferred its left ventricular assist device development team (T-ILVAS) to Terumo Cardiovascular Systems Corp. (TCVS), of the United States. TCVS is a Terumo subsidiary that was formed as a result of acquiring the cardiovascular system division of 3M. Terumo now has in place a three-pronged global R&D organization. Through this organization, the Company plans to introduce new products in a constant and timely manner to establish the Terumo brand as a global standard.
Principal sales offices R&D facilities or manufacturing plants of cardiovascular products
Terumo Cardiovascular Systems Corp.

(Ann Arbor, Tustin, Maryland, Ashland) Principal products: roller pumps, cannulas, blood gas measuring systems, oxygenators, and blood lines
Terumo Cardiovascular Systems Europe GmbH

Sales of cardiovascular products
Terumo Research & Development Center Terumo Medical Corporation (Maryland Factory) Ashitaka Factory
Principal products: oxygenators, blood lines, and catheters Principal products: syringes and catheter-introducer kits
Terumo Europe N.V.

Principal products: syringes and angiographic catheters
The
Integrated development of medical supplies, systems, and equipment
Terumo Advantage
Review of Operations
Pharmaceuticals
Net Sales by Product Category (Year ended March 31, 2001)
10.4% 21.3% 20.5% 10.6% 15.7% 7.4%
14.0%
s Pharmaceuticals s Transfusion and infusion equipment s Injection systems s Clinical testing systems s Artificial organs s Catheter systems s Other products
Main products in this category Sales Billion are infusion solutions and 40 other medical supplies, nutritional supplements, blood 30 bags, peritoneal dialysis solutions, and prefilled syringes. 20 Sales edged up 0.9%, to 37.6 billion. In the fiscal year under 10 review, the April 2000 acrossthe-board reduction in National 0 Health Insurance drug prices 97 98 99 00 01 had a dampening effect on prices of infusion solutions, peritoneal dialysis solutions, and other products. Overseas, favorable sales of blood bags in the United States contributed to overall sales growth. MID PERIC L, a close-toneutral peritoneal dialysis solution introduced in June 2000, and TERUMEAL, a high calorie nutritional food that is delivered to home-care patients, both registered UNICALIQ L and N, intravenous strong sales. In December solutions for TPN 2000, we began sales of LIDOQUICK, ATOQUICK, and other prefilled syringes containing drugs used in medical emergencies. In addition, we formed sales-related business tie-ups with other pharmaceutical companies, increasing sales of prefilled syringes, including such new products as PUREPENON and ATOQUICK. We will strengthen sales of prefilled syringes by further expanding the range of available products based on alliances with other companies.
2% LIDOQUICK FOR INTRAVENOUS INJECTION, a lidocaine hydrochloride injection
10
Transfusion and Infusion Equipment
Injection Systems
Our transfusion and infusion Sales Billion equipment principally com20 prises transfusion sets and blood filters and infusion sets 15 and intravenous needles. Sales edged down 0.2%, to 18.7 10 billion. Sales of transfusion sets and three-way stopcocks 5 rose, and sales of leukocyte removal filters were favorable 0 in overseas markets. Sales of 97 98 99 00 01 intravenous needles for infusion treatments declined, however, because of the impact of lower drug prices in Japan and intensified price competition overseas. In July 2000, we launched TERUFEED ED, a feeding tube that prevents medical staff from confusing our infusion products with our transfusion products by making it impossible to connect them. This product was introduced in response to the growing need for risk management in medical treatment, and we plan to develop more products to SURESHIELD SV Set, a safety winged meet this need. Based on infusion set our concern for environmental protection, we augmented our line of non-vinyl chloride infusion equipment and supplies, such as infusion sets. We expanded facilities at our Hangzhou Plant in China to adapt to multiple product, small-lot manufacturing needs and to reduce production costs. The Hangzhou Plant primarily produces transfusion and infusion sets and supplies for the Japanese market.
Our injection systems include Sales Billion syringes and needles as well as 30 injection systems for anesthe25 sia. Sales slipped 0.4%, to 24.7 billion. Although sales 20 of syringes rose in Japan, 15 overseas sales were negatively 10 affected by exchange rates and other factors. 5 Our products for the risk 0 management of mistaken 97 98 99 00 01 needle sticking and transfusion and infusion attachment were well received during the fiscal year. Such products included the SURESHIELD series of needles for preventing accidental needle sticking, SUREPLUG NEEDLELESS CLOSED SYSTEM for the prevention of accidental hospital-acquired infections and needle sticking from intravenous drips, and TERUFEED ED to prevent confusion between our infusion and SURESHIELD SYRINGE II, safety nutritional supplement syringes products. We intend to continue to develop and launch products that contribute to risk management in medical treatment. In April 2000, we began operations at a plant in the Philippines. The plant manufactures medical systems and equipment, such as syringes, mainly for the Southeast Asian market and features low cost production systems.
Catheter tip syringes
TERUFEED ED, a feeding tube to prevent misconnection
11
Clinical Testing Systems
Artificial Organs
Our major products in this Sales Billion category are blood collection 15 systems, blood gas measuring kits, and blood glucose moni12 toring systems. Sales advanced 9 6.0%, to 13.0 billion during the fiscal year under review. 6 Among the products that 3 contributed to sales growth during the year were vacuum 0 blood sample tubes, a new 97 98 99 00 01 vacuum blood-collecting system for use in testing in medical emergencies, and MEDISAFE, a blood glucose monitoring device for diabetics. Sales of MEDISAFE have continued to expand as patients recognize the convenience and ease with which they can check blood sugar levels. Also, during the year we began sales of MEDISAFE DATA VISION, a blood sugar data management MEDISAFE ez, a blood glucose monitor system that is Internet enabled. In April 2001, we launched MEDISAFE ez, a blood glucose monitoring device that has been highly evaluated by patients for its superior ease of use and quick reading ability. Sales of MEDISAFE ez began well and are growing. VENOJECT II, vacuum blood-collecting The number of diabetics in tubes Japan is increasing annually. We intend to continue to introduce equipment that is convenient and easy to use and meets the full range of needs of diabetic patients.
This category consists of Sales Billion oxygenators and HLMSs, which 30 function as heart and lungs 25 during open-heart surgery, and dialyzers, for patients with 20 chronic renal failure. Sales rose 15 13.3%, to 27.6 billion, 10 mainly due to a strong performance by the cardiovascular 5 system division acquired from 0 Minnesota Mining & Manufac97 98 99 00 01 turing Company (3M) in July 1999. Domestic sales were robust during the fiscal year. Products that contributed to growth included CAPIOX RX, a new type of oxygenator introduced in March 2000, and new vitamin-Ecoating blood channels. In addition, sales of dialyzers that also have a vitamin E coating on the dialysis membrane expanded. In overseas markets, sales of Sarns and CDI products acquired from 3M in 1999 contributed to growth. Terumo is putting in place a global development organization for cardioCAPIOX RX, an oxygenator vascular systems. Our R&D base for implanted artificial heart support systems has shifted from Japan to our U.S. subsidiary Terumo Cardiovascular Systems Corp. In the future, we will continue to strengthen our global R&D organization centered on Japan, the United States, and Europe.
Sarns 8000 perfusion system, a roller pump
12
Catheter Systems
Other Products
The principal uses of our Sales Billion catheter systems are for 40 transluminal/diagnosic/ interventional procedures and 30 drainage. In the fiscal year under review, sales edged 20 down 0.6%, to 36.1 billion. In July 2000, we commenced 10 sales of INTRAIMAGINGSYSTEM, ultrasound diagnostic equip0 ment for blood vessels. We 97 98 99 00 01 also introduced PROGREAT, a micro-catheter for use in intravascular treatment and diagnosis of small blood vessels; NT STENT II, a percutaneous biliary stent system; and POCKET CATHETER, a self-insertable urinary tract catheter. Sales of these new, highvalue-added products were favorable. Overseas, comARASHI, a PTCA dilatation catheter petition was as intense as in the domestic market, but sales rose thanks to the introduction of such products as angiographic catheters. We expect the market for PTCA dilatation catheters and coronary stents to continue to be difficult because of intensifying competition and falling prices. However, we remain committed to developing and launching products that offer more effective treatment and better meet customer needs.
Our other products category Sales Billion features digital blood-pressure 20 monitors and thermometers; medical equipment, such as 15 infusion and syringe pump systems; and the medical 10 treatment products of BSN Medical AG. Sales in the fiscal 5 year under review increased 5.2%, to 18.4 billion. 0 Sales of BSN Medicals ban97 98 99 00 01 dages, taping, medical gloves, and other wound-care products, which we began marketing in April 1998, expanded. In addition, sales of such new infusion and syringe pumps as the TE-161 general-use infusion pump, which is compact and light and incorporates a safety design, were strong. Among digital blood-pressure monitors for home use, sales of ES-P401, an easy-to-use, wrist-type model, and ES-P350, a model with a large, easy-to-read display for the elderly, were also favorable. In the digital thermometer marDigital thermometer ETC250P ket, we launched MIMIPPI HIKARI, an easy-to-use infrared ear thermometer that uses a light to indicate that a reading has been taken. We also introduced the Melody thermometer, an estimation-type thermometer that is the first in Japan to utilize a universal design.
Terufusion Infusion Pump TE-161, infusion pumps for I.V. therapy
INTRAIMAGINGSYSTEM
13
Managements Discussion and Analysis of Operating Results and Financial Condition
OPERATING RESULTS Summary

Through the provision of a total solution system based on the development and sale of pharmaceuticals and medical equipment as well as entire medical systems, Terumo is contributing to the curing of people with various health problems in more than 150 countries. The Company holds leading positions worldwide in a broad range of fields, including syringes and cardiovascular systems. Among Terumos major products are intravenous solutions, blood bags, nonprescription drugs, transfusion and infusion equipment, injection systems, clinical testing systems, artificial organs, and catheter systems. In fiscal 2001, ended March 31, 2001, Terumo posted a record high in consolidated net sales for the seventh consecutive year. Consolidated net sales amounted to 176,050 million (US$1,419.8 million), a gain of 2.8% from the 171,179 million registered in the previous fiscal year. The expansion achieved in the fiscal year under review can be attributed to the balanced development of all areas of our business. The contribution of the artificial organs business segment was particularly significant due to the successful integration of the acquisition made in the previous fiscal year. During the fiscal year under review, we made successive launches of value-added products with superior competitiveness throughout our businesses. We also worked vigorously to improve production efficiency with an emphasis on profitability and to further expand our presence in the global healthcare market.
Consolidated net income and consolidated net income per share also hit record highs in the fiscal year under review, reaching 16,639 million (US$134.2 million) and 78.91 (US$0.64), respectively; net income advanced 164.8% from 6,284 million in the previous fiscal year. The Company recorded an exchange gain of 276 million (US$2.2 million) in the period under review, compared with a loss of 2,424 million in the previous fiscal year. In addition, income of 1,469 million (US$11.8 million) was recorded as recognition of transition difference at the time of adoption of the new accounting standard for retirement benefit.
Net Sales
Billion
150
100
50
97
98
99
00
01
Net Sales
Consolidated net sales increased 2.8%, to 176,050 million (US$1,419.8 million). Domestic sales rose 1.8%, to 118,378 million (US$954.7 million), and overseas sales advanced 5.3%, to 58,166 million (US$469.1 million). Overseas sales accounted for 33.0% of fiscal 2001 consolidated net sales. Terumos business is classified into seven segments: pharmaceuticals, transfusion and infusion equipment, injection systems, clinical testing systems, artificial organs, catheter systems, and other products. Pharmaceuticals principally comprise infusion solutions and other medical supplies, nutritional supplements, blood bags, peritoneal dialysis solutions, and prefilled
Operating Income
Billion 30 25 20 15 10 5 0
97
98
99
00
01
Net Sales by Business Segment

(Million , Million $)
Year ended March 31,
Pharmaceuticals Transfusion and infusion equipment Injection systems Clinical testing systems Artificial organs Catheter systems Other products
1999 2000 2001 2001 136,289 137,246 137,580 $1,303.1 18,801 18,731 18,699 150.8 26,413 24,773 24,663 198.9 11,758 12,252 12,982 104.7 17,200 24,353 27,601 222.6 32,663 36,350 36,135 291.4 17,558 17,474 18,390 148.3 160,682 171,179 176,050 $1,419.8
14
syringes. Sales in this category edged up 0.9%, to 37, 580 million (US$303.1 million). The April 2000 reduction in National Health Insurance drug prices dampened sales of infusion solutions and other products in Japan. Overseas, however, sales of blood bags were favorable. Sales of MID PERIC L, a close-to-neutral peritoneal dialysis solution introduced in June 2000, were strong. In other areas, we expanded sales of prefilled syringes containing drugs used in medical emergencies and launched new prefilled syringes, such as PUREPENON and ATOQUICK, through tie-ups with pharmaceutical companies. Terumos transfusion and infusion equipment product lines primarily comprise transfusion sets and blood filters and infusion sets and intravenous needles. Sales edged down 0.2%, to 18,699 million (US$150.8 million) in fiscal 2001. This decline resulted mainly from lower sales of intravenous needles for infusion treatments due to the impact of lower drug prices in Japan and overseas markets. However, sales of transfusion sets and three-way stopcocks rose in the domestic market. In fiscal 2001, we continued to respond to the annually growing need for medical risk management by introducing a product that prevents medical staff from mistakenly attaching our infusion products to our transfusion products. During the fiscal year, we expanded our production facilities at our Hangzhou Plant in China to adapt to multiple product, small-lot manufacturing needs and to reduce production costs. Our injection systems category includes syringes and needles as well as injection systems for anesthesia. During fiscal 2001, sales decreased 0.4%, to 24,663 million (US$198.9 million). This decline resulted despite expansion in domestic sales of syringes because overseas sales of syringes and needles were negatively affected by falling prices and intensified competition, especially in Asia. In our production activities, in April 2000, we began
operations at a plant in the Philippines that mainly produces syringes for the Southeast Asian market. Clinical testing systems principally comprise blood collection systems, blood gas measuring kits, and blood glucose monitoring systems. Sales in this category grew 6.0%, to 12,982 million (US$104.7 million) in fiscal 2001. In the domestic market, sales of MEDISAFE, a blood glucose monitoring device, continued to increase, up approximately 36% from the previous fiscal year due to market growth prompted by the rising number of diabetics in Japan. The artificial organs category consists of oxygenators and HLMSs, which function as heart and lungs during open-heart surgery, and dialyzers, for patients with chronic renal failure. Artificial organ sales rose 13.3%, to 27,601 million (US$222.6 million). The expansion in sales can mainly be attributed to sales contributions made by products launched during the period under review, including a new type of oxygenerator, new vitamin-E-coating blood channels, and a dialyzer with vitamin E coating. Sales of TCVSs Sarns and CDI products, which were acquired from Minnesota Mining & Manufacturing Company (3M) in July 1999, also contributed significantly to sales growth. Our catheter systems mainly comprise catheters for transluminal/diagnosic/ interventional procedures and drainage. Sales in this segment declined 0.6%, to 36,135 million (US$291.4 million). In the domestic market, sales of recently launched products, such as INTRAIMAGINGSYSTEM, ultrasound diagnostic equipment for blood vessels that was introduced in July 2000, and PROGREAT, a micro-catheter for use in intravascular treatment and diagnosis of small blood vessels, were favorable. Sales of PTCA dilatation catheters and stents declined because of lower prices and intensified competition.
Net Income
Billion
15 12 9 6 3 0
97
98
99
00
01
Total Assets
Billion 300 250 200 150 100 50 0
97
98
99
00
01
15
The other products category includes blood-pressure monitors and digital thermometers, infusion pumps, and syringe pumps. Fiscal 2001 sales increased 5.2%, to 18,390 million (US$148.3 million). New infusion and syringe pumps sold well based on their safety features.
Operating Income
Operating income decreased 1.2%, to 28,800 million (US$232.3 million). The ratio of operating income to net sales declined to 16.4%, from 17.0% in fiscal 2000.
Equity Ratio
70
60
50
Other Income (Expenses) Cost of Sales and Selling, General and Administrative Expenses
Cost of sales increased 6.3%, to 89,022 million (US$717.9 million), reflecting the rise in net sales and higher depreciation related to capital investment. The ratio of cost of sales to net sales rose 1.7 percentage points, to 50.6%. Gross profit decreased 0.4%, to 87,028 million (US$701.8 million). Selling, general and administrative (SG&A) expenses edged down 18 million, to 58,228 million (US$469.6 million). The ratio of SG&A expenses to net sales slipped 0.9 percentage points, to 33.1%. The decline in SG&A expenses can be attributed to a decrease in R&D expenses and lower distribution expenses due to thorough rationalization of operations. However, personnel expenses and marketing expenses for new products rose. R&D expenses fell 8.1%, to 8,897 million (US$71.8 million), and the ratio of R&D expenses to net sales decreased 0.6 percentage points, to 5.1%. This decline reflects the substantial contribution to increased R&D efficiency of the acquisition made in the artificial organs segment in the previous fiscal year. In addition to developing superior technology and improving the functionality of its existing products, Terumo actively invests in research into products and techniques that reduce the pain and suffering of medical treatment, as represented by minimally invasive treatment. Other income (expense) reversed from an expense of 17,869 million in fiscal 2000 to income of 213 million (US$1.7 million) in fiscal 2001. This improvement can be mainly attributed to the 1,469 million (US$11.8 million) recognition of transition difference at the time of adoption of the new accounting standard for retirement benefit. Also, in comparison to an exchange loss of 2,424 million in the previous fiscal year, the Company recorded an exchange gain of 276 million (US$2.2 million). Financial income (expense), determined by subtracting interest expense from interest and dividend income, amounted to an expense of 405 million (US$3.3 million), approximately the same as in the previous period.
40
30
97
98
99
00
01
Capital Expenditure
Billion 25
20
15
10
Income before Income Taxes and Minority Interests

Based on the previously mentioned factors, income before income taxes and minority interests soared 157.2%, to 29,013 million (US$234.0 million).
97
98
99
00
01
Income Taxes
Income taxes rose 146.6%, to 12,367 million (US$99.7 million). Japans statutory corporate income tax rate for fiscal 2001 and fiscal 2000 was 41.7%. The rate applied to income before income taxes and minority interests, or the effective corporate tax rate, declined from 44.4% in the previous fiscal year to 42.6%. The main reason for this decrease in the effective tax rate was a drop in the proportion of expenses not deductible for tax purposes, from 2.4% in fiscal 2000 to 1.3% in fiscal 2001.
16
Net Income
Consequently, net income surged 164.8%, to 16,639 million (US$134.2 million). As a percentage of net sales, net income increased to 9.5%, from 3.7% in the previous fiscal year. Return on stockholders equity (the average of stockholders equity at the end of fiscal 2001 and fiscal 2000) improved to 9.9%, from 3.9% in the previous fiscal year. Net income per basic common share rose to 78.91 (US$0.64), from 29.80 in the previous fiscal year.
FINANCIAL CONDITION Assets, Liabilities, and Stockholders Equity

Total assets at March 31, 2001, amounted to 281,660 million (US$2,271.5 million), a gain of 6.8% from the previous fiscal yearend. This expansion resulted primarily from increases in machinery and equipment, cash and cash equivalents, trade accounts receivable, and inventories. Current assets advanced 16.4%, to 135,197 million (US$1,090.3 million). This growth can mainly be attributed to increases in cash and cash equivalents, trade accounts receivable, and inventories. Cash and cash equivalents jumped 25.4%, to 40,258 million (US$324.7 million). Trade notes and accounts receivable, less allowance for doubtful accounts, expanded 11.7%, to 58,258 million (US$469.8 million), because of sales growth and the fact that the end of the fiscal year under review fell on a banking holiday, resulting in collection being put off to the following month. Inventories rose 14.7%, to 31,175 million (US$251.4 million). Net property, plant and equipment edged up 0.4%, to 117,214 million (US$945.3 million). Machinery and equipment advanced 10.2%, to 129,514 million (US$1,044.5 million), due mainly to the expansion of production facilities for prefilled syringes and syringes in the Philippines.
Net investments and other assets decreased 4.9%, to 29,249 million (US$235.9 million). Total liabilities edged down 0.9%, to 109,334 million (US$881.7 million). Current liabilities rose 13.6%, to 79,147 million (US$638.3 million). Long-term liabilities decreased 25.8%, to 30,187 million (US$243.4 million). Stockholders equity expanded 12.4%, to 172,271 million (US$1,389.3 million), mainly because of higher retained earnings. The stockholders equity ratio increased to 61.2%, from 58.1% at the end of the previous fiscal year.
Cash Flows
Net cash flow provided by operating activities decreased 9.1% from the previous fiscal year, to 25,222 million (US$203.4 million). Net cash flow used in investing activities declined 56.4%, to 14,144 million (US$114.1 million), with capital expenditure accounting for the largest portion. Net cash flow used in financing activities rose 53.0%, to 3,372 million (US$27.2 million), mainly accounted for by dividends paid. As a result, cash and cash equivalents at the end of the year increased 25.4%, to 40,258 million (US$324.7 million).
DIVIDEND POLICY
Annual cash dividends were 8.5 (US$0.07) per share, the same as in the previous fiscal year. The Companys retained earnings policy is to actively make investments essential for achieving high profitability and sustained growth with an emphasis on investment efficiency. Terumo believes that its has an obligation to return profits to its stockholders by continuing to increase corporate worth.
17
Consolidated Balance Sheets

Terumo Corporation and subsidiaries March 31, 2000 and 2001
ASSETS
Current assets: Cash and cash equivalents ............................................... Trade receivables: Notes ....................................................................... Accounts ................................................................... Less allowance for doubtful receivables ............................. Net trade receivables .............................................. Inventories (Note 3) ....................................................... Deferred income taxescurrent ....................................... Other current assets ....................................................... Total current assets ................................................
Millions of yen 2000 2001
32,103 17,696 34,998 52,694 537 52,157 27,170 1,946 2,793 116,169
40,258 12,809 45,839 58,648 390 58,258 31,175 2,556 2,950 135,197
$ 324,661 103,299 369,669 472,968 3,145 469,823 251,411 20,613 23,791 1,090,299
Property, plant and equipment: Land ............................................................................ Buildings ...................................................................... Machinery and equipment ............................................... Construction in progress ................................................. Less accumulated depreciation ......................................... Net property, plant and equipment ........................... 24,919 90,050 117,550 8,580 241,099 124,312 116,787 24,618 93,958 129,514 6,562 254,652 137,438 117,214 198,532 757,726 1,044,468 52,919 2,053,645 1,108,371 945,274
Investments and other assets: Investment securities, including affiliated companies (Note 4) ............................................................ Goodwill and intangibles recognized in acquisitions ............ Noncurrent receivables.................................................... Deferred income taxesnoncurrent .................................. Other assets .................................................................. Less allowance for doubtful receivables ............................. Net investments and other assets ............................. 12,396 4,415 3,377 8,341 5,510 34,039 3,272 30,767 263,723 11,439 4,670 3,272 8,283 4,857 32,521 3,272 29,249 281,660 92,250 37,661 26,387 66,799 39,169 262,266 26,387 235,879 $2,271,452
See accompanying notes to consolidated financial statements.
18
LIABILITIES AND STOCKHOLDERS EQUITY

Current liabilities: Short-term bank loans (Note 5) ........................................ Current installments of long-term debt (Note 5) ................. Trade payables: Notes ....................................................................... Accounts ................................................................... Total trade payables ............................................... Accrued income taxes (Note 7) ........................................ Accrued expenses ........................................................... Other current liabilities ................................................... Total current liabilities ............................................ Long-term liabilities: Long-term debt, excluding current installments (Note 5) ............................................................ Retirement and severance benefits (Note 6) ....................... Other long-term liabilities ............................................... Total long-term liabilities ........................................ Total liabilities ...................................................... Minority interest ....................................................................... Stockholders equity: Common stock, 50 per value Authorized 500,000,000 shares; issued 210,876,260 shares in 2001 and 2000 (Note 10) ... Capital surplus (Note 10) ................................................ Retained earnings (Note 11) ............................................ Translation adjustment ................................................... Less treasury stock, at cost .............................................. Total stockholders equity ........................................ Contingencies (Note 14)
22,338 4,212 16,294 20,506 6,933 7,136 12,780 69,693
21,010 10,045 3,088 16,818 19,906 8,401 7,724 12,061 79,147
169,435 81,008 24,903 135,629 160,532 67,750 62,291 97,266 638,282
20,000 19,312 1,362 40,674 110,367 52
10,096 18,495 1,596 30,187 109,334 55
81,420 149,153 12,871 243,444 881,726 444
38,716 52,104 71,897 (9,403) 153,314 10 153,304
38,716 52,104 86,635 (5,184) 172,271 0 172,271
312,226 420,194 698,669 (41,807) 1,389,282 0 1,389,282
263,723
281,660
$ 2,271,452
19
Consolidated Statements of Income

Terumo Corporation and subsidiaries Years ended March 31, 1999, 2000 and 2001
Millions of yen 1999 2000 2001
Net sales .................................................................... Cost of sales ............................................................... Gross profit .................................................... Selling, general and administrative expenses (Notes 8 and 9) .......................................................... Operating income ............................................ Other income (expense): Interest and dividend income ................................ Interest expense .................................................. Exchange gain (loss) ............................................ Royalty income .................................................... Equity in profit of affiliated companies ................... Loss on disposal and write-down of inventories ........ Loss on disposal of property, plant and equipment ... Impairment loss of investment securities ................ Loss on sales and impairment of golf membership ..... Recognition of transition difference at the time of adoption of the new accounting standard for retirement benefit ............................................. Provision for retirement and severance benefits for prior years ........................................................ Other, net ........................................................... Income before income taxes and minority interests ...................................................... Income taxes (Note 7): Current ............................................................... Deferred ............................................................. Minority interests ....................................................... Net income .............................................
160,682 78,018 82,664
171,179 83,782 87,397
176,050 89,022 87,028
$ 1,419,758 717,919 701,839
52,417 30,247
58,246 29,151
58,228 28,800
469,581 232,258
387 (701) (756) 306 261 (358)
377 (770) (2,424) 63 167 (174)
479 (884) 276 94 219 (803) (353) (608) (449)
3,863 (7,129) 2,226 758 1,766 (6,476) (2,847) (4,903) (3,621)
(214) (1,075) 29,172
(15,212) 104 (17,869) 11,282
1,469 773 213 29,013
11,847 6,234 1,718 233,976
13,255 1,083 14,338 14,834
11,941 (6,927) 5,014 (16) 6,284
12,915 (548) 12,367 7 16,639
104,153 (4,419) 99,734 57 $ 134,185
Yen
U.S. dollars (Note 2)
Net income per common share: Basic common share ........................................ Assuming dilution ........................................... Cash dividends per common share ................................
71.94 70.06 8.5
29.80 8.5
78.91 8.5
0.64 0.07
20
Consolidated Statements of Stockholders Equity

Terumo Corporation and subsidiaries Years ended March 31, 1999, 2000 and 2001
Millions of yen 1999 2000 2001
Common stock (Note 10): Balance at beginning of period ......................... Shares issued on conversion of debentures ......... Balance at end of period .................................. Capital surplus (Note 10): Balance at beginning of period ......................... Increase arising from conversion of debentures ... Balance at end of period .................................. Retained earnings: Balance at beginning of period ......................... Net income .................................................... Dividends paid (Note 11) ................................. Officers bonuses (Note 11) ............................... Balance at end of period .................................. Translation adjustment: Balance at beginning of period ......................... Adjustments for period .................................... Balance at end of period .................................. Treasury stock: Balance at beginning of period ......................... Increase during period ..................................... Balance at end of period .................................. Total stockholders equity ........................ (2) (5) (7) 154,910 (7) (3) (10) 153,304 (10) 10 (0) 172,271 (81) 81 (0) $1,389,282 (1,072) (2,337) (3,409) (3,409) (5,994) (9,403) (9,403) 4,219 (5,184) (75,831) 34,024 (41,807) 54,510 14,834 (1,748) (90) 67,506 67,506 6,284 (1,792) (101) 71,897 71,897 16,639 (1,792) (109) 86,635 579,815 134,185 (14,452) (879) 698,669 42,342 9,762 52,104 52,104 52,104 52,104 52,104 420,194 420,194 28,943 9,773 38,716 38,716 38,716 38,716 38,716 $ 312,226 312,226
21
Consolidated Statements of Cash Flows

Terumo Corporation and subsidiaries Years ended March 31, 2000 and 2001
Cash flow from operating activities: Income before taxes and minority interests ........................... Adjustments to reconcile income before taxes and minority interests to net cash flow provided by operating activities: Depreciation and amortization ......................................... Loss on sales and disposal of property, plant and equipment ............................................................ Equity in profit of affiliated companies ............................. Interest and dividend income .......................................... Interest expense ............................................................ Impairment loss of investment securities ........................... Loss on sales and impairment of golf membership ............... Provision for retirement and severance benefits .................. Increase in trade receivables ............................................ Increase in inventories ................................................... Increase (decrease) in trade payables ................................ Officers bonuses ............................................................ Other, net ..................................................................... Subtotal .................................................................... Interest and dividend received ......................................... Interest paid ................................................................. Income taxes paid .......................................................... Net cash flow provided by operating activities ................ Cash flow from investing activities Capital expenditure ............................................................ Proceeds from sale of property, plant and equipment .............. Acquisition of Minnesota Mining & Manufacturing Company Cardiovascular Systems Department, net of cash acquired ....... Acquisition of shares in consolidated subsidiaries ................... Other, net ......................................................................... Net cash flow used in investing activities ...................... Cash flow from financing activities Decrease in short-term bank loans ........................................ Proceeds from long-term debt .............................................. Increase (decrease) in treasury stock .................................... Dividends paid ................................................................... Net cash flow used in financing activities ...................... Effect of exchange rate changes on cash and cash equivalents ........... Net increase (decrease) in cash and cash equivalents........................ Cash and cash equivalents at beginning of the year .......................... Cash and cash equivalents at end of the year ...................................
11,282
29,013
$ 233,976
13,260 141 (167) (377) 770 15,677 (3,510) (3,910) 4,581 (101) 2,628 40,274 364 (772) (12,113) 27,753
14,070 140 (219) (479) 884 608 449 (817) (4,316) (2,723) (1,500) (109) 2,099 37,100 466 (884) (11,460) 25,222
113,468 1,129 (1,766) (3,863) 7,129 4,903 3,621 (6,589) (34,806) (21,960) (12,097) (879) 16,928 299,194 3,758 (7,129) (92,419) 203,404
(19,812) 42 (12,544) 129 (272) (32,457)
(14,871) 631 96 (14,144)
(119,928) 5,089 774 (114,065)
(409) (3) (1,792) (2,204) (843) (7,751) 39,854 32,103
(1,717) 128 9 (1,792) (3,372) 449 8,155 32,103 40,258
(13,847) 1,032 73 (14,452) (27,194) 3,621 65,766 258,895 $ 324,661
22
Notes to Consolidated Financial Statements

Terumo Corporation and Subsidiaries
1. Summary of Significant Accounting Policies

(a) Basis of Presenting Consolidated Financial Statements Terumo Corporation (the Company) and its domestic subsidiaries maintain their books of account in conformity with financial accounting standards in Japan, which may differ in some material respects from accounting principles and practices generally accepted in countries and jurisdictions other than Japan. Its foreign subsidiaries maintain their books of account in accordance with those of the countries of their domicile. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and practices in Japan. Effective from the year ended March 31, 2000, the Company is required to disclose consolidated statements of cash flows as an integral part of the consolidated financial statements to conform with the revision of disclosure standards for listed companies. As permitted under the standard, the comparative for prior years are not disclosed. In preparing the consolidated financial statements, certain reclassifications have been made to the financial statements issued in Japan in order to present them in a form that is more familiar to readers outside Japan. In addition, the accompanying notes include information that is not required under generally accepted accounting principles and practices in Japan but is presented herein as additional information. (b) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in 20% to 50% affiliates are stated at their underlying net equity value. (c) Foreign Currency Translation Prior to 2000, inventories, property, plant and equipment, investment securities and long-term receivables and payables of the parent company are translated at the rates of exchange in effect when acquired or incurred. All other assets and liabilities are translated at the rate of exchange in effect at the end of the period. Exchange adjustments are charged or credited to current earnings. Revenue and expense accounts are translated at the average rate of exchange in effect during the year. Depreciation expenses are translated at the rates of exchange that were in effect when the respective assets were acquired. The assets and liabilities of the foreign subsidiaries and affiliates are translated into yen at the rates of exchange in effect at the balance sheet date. Revenue and expense accounts are translated at the average exchange rates prevailing during the year. Gains and losses resulting from foreign currency transactions are included in other income (expense), and those resulting from translation of financial statements are generally excluded from the statements of income and are accumulated under the balance sheet caption Translation adjustment. Effective from the year ended March 31, 2001, the Company adopted the revised accounting standard for foreign currency transactions (Opinion Concerning Establishment of Accounting for Foreign Currency Transactions, the Business Accounting Deliberation Council, October 22, 1999). Under the revised accounting standard, all receivables and payables of the parent company including non-current receivables and payables denominated in foreign currencies at the balance sheet date, are translated at the rates in effect as of the balance sheet date, and the unrealized gain or loss is reflected in other income (expense). As a result of translating the long-term foreign loan receivable using the foreign exchange rate at the balance sheet date, the foreign exchange loss increased by 224 million ($1,806 thousand) and income before income taxes and minority interests decreased by 224 million ($1,806 thousand). Foreign currency translation adjustments, which were classified in Assets in the prior years consolidated financial statements are now included in Stockholders equity. The prior years comparative financial statements have been restated to confirm to the current year presentation. (d) Cash and Cash Equivalents The Company considers cash and time deposits, which may be withdrawn on demand without diminution of principal and with maturities of three months or less at the time, to be cash and cash equivalents. (e) Investments Marketable securities included in investments are carried at cost. Realized gains or losses are determined by the average method. Investments other than marketable securities are stated at cost. Effective from the year ended March 31, 2001, the Company adopted the new accounting standard for financial instruments (Opinion Concerning Establishment of Accounting for Financial Instruments, the Business Accounting Deliberation Council, January 22, 1999 ). To comply with the new accounting standard, the carrying value of securities and golf membership have been reduced to their net realizable value by a charge to income for other than temporary declines in fair value. As a result, the Company recorded an impairment loss on securities and golf membership of 608 million ($4,903 thousand) and 352 million ($2,839 thousand), respectively. The prior year financial statements have not been restated. The accounting standard for financial instruments requires the Company to classify its securities into one of the following three categories: trading, held-to-maturity or other securities. At the beginning of the year, the Company reviewed the classification of all securities. Based on the classification, all securities are included in investments and other assets as investment securities.
23
To comply with the new accounting standard for financial instruments, other securities with a market value are principally carried at market value. The difference, net of tax, between the acquisition cost and the carrying value of other securities, including unrealized gains and losses, can be recognized in Other securities valuation difference in Stockholders equity. However, for the year ended March 31, 2001, application of the cost method is acceptable, provided the related information is disclosed by footnote. The Company applied the cost method for the year ended March 31, 2001. The required footnote disclosure is as follows.
Millions of yen 2001 Thousands of U.S. dollars (Note 2) 2001
Carrying amount of marketable other securities ........................... Market value .................................. Other securities valuation difference .. Related deferred tax assets ..............
10,957 9,561 (813) 582
$88,363 77,105 (6,556) 4,694
(f) Inventories Inventories are stated at cost. Cost is determined principally by the average method. (g) Property, Plant and Equipment Property, plant and equipment are stated at cost. Routine maintenance and repairs and minor replacement costs are charged to expenses as incurred. Depreciation is computed principally by the declining-balance method based on the estimated useful lives. (h) Goodwill and Intangibles Recognized in Acquisitions Goodwill and intangibles recognized in acquisitions primarily include goodwill and intangible assets recorded in connection with the acquisition of Minnesota Mining & Manufacturing Company Cardiovascular Systems Department on June 30, 1999. These assets are amortized using the straight-line method over a period which does not exceed 20 years. (i) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (j) Retirement and Severance Benefits The Company and certain of its subsidiaries have contributory and noncontributory defined benefit plans that provide for pension or lump-sum benefit payments, based on length of service and certain other factors, to employees who retire or terminate their employment for reasons other than dismissal for cause. The contributory plan includes a portion of the governmental welfare pension benefits which would otherwise be provided by the Japanese government in accordance with the Welfare Pension Insurance Law in Japan. Management considers that a portion of the contributory plan, which is administered by a board of trustees composed of management and labor representatives, represents a welfare pension plan carried on behalf of the Japanese government. These contributory and noncontributory plans are funded in conformity with the funding requirements of applicable Japanese governmental
regulations. Through the years ended March 31, 1999, it was the policy of the Company to fund pension costs as incurred. The balance of retirement allowance represented the unamortized liability previously provided for noncontributory retirement and severance plans which was to be amortized against payments to the trustee for prior year service costs over a period of approximately 14 years. In the year ended March 31, 2000, the Company changed its accounting for pension costs to provide retirement allowance at the amount of net present value of the expected future payments to employees less the fair value of the trusteed pension assets. This change was made in order to achieve more appropriate pension cost allocation and to reflect the Companys financial statement position more accurately. As a result of this change, additional provision amounting to 15,212 million was charged to other income (expense) in the accompanying consolidated statements of income to cover for the prior period pension cost. Operating income and income before income taxes and minority interests as of March 31, 2000 decreased by 921 million and 16,133 million, respectively. Effective from the year ended March 31, 2001, the Company adopted the new accounting standard for retirement benefits (Opinion Concerning Establishment of Accounting for Retirement Benefit, the Business Accounting Deliberation Council, June 16, 1998). In accordance with this standard, the allowance for retirement benefits for employees is provided based on the estimated retirement benefit obligation and the fair value of the plan assets. The transition difference of 1,469 million ($11,847 thousand) arising from the adoption of the new accounting standard in the year ended March 31, 2001 is included in other income.The prior year financial statements have not been restated. As a result of the adoption of this standard in the current year, operating income increased by 94 million ($758 thousand) and income before income taxes and minority interests decreased by 1,563 million ($12,605 thousand). Directors and certain employees are not covered by the plans described above. Benefits paid to such persons and meritorious service awards paid to certain other employees in excess of the prescribed formula are charged to income as paid, since amounts vary with circumstances, and it is not practicable to compute the liability for future payments. Total charges to earnings for these benefits for the years ended March 31, 1999, 2000 and 2001, were 1,989 million, 18,430 million and 1,362 million ($10,984 thousand), respectively. (k) Leases Financial leases of the Company and its domestic subsidiaries, except for those where the legal title of the underlying property is transferred from the lessor to the lessee at the end of the lease term, are accounted for as operating leases. (l) Derivatives The Company and its subsidiaries do not hold derivative financial instruments for trading purposes. Derivative financial instruments held by the Company and its subsidiaries are comprised principally of foreign exchange contracts to manage currency risk and interest rate swaps to manage interest rate risk. Prior to 2000, hedged assets and liabilities were translated at the contract rate. Gains and losses on the hedged derivative financial instruments that were designated and effective as hedges of firm commitments were not recognized until the transaction of the hedged items occurs. Effective from the year ended March 31, 2001, the Company adopted the new accounting standard for financial instruments as explained in (e) above, and derivatives are, in principle, stated at market value.
24
Interest rate swaps are accounted for using deferral hedge accounting. Deferral hedge accounting requires unrealized gains or losses to be deferred as liabilities or assets. The Company has also developed a hedging policy to control various aspects of derivative transactions, including authorization levels and transaction volumes. Based on this policy, the Company hedges, within certain scopes, risks arising from changes in foreign currency exchange rates and interest rates. The Company reviews, every six months, the effectiveness of all hedging policies to take account of the cumulative cash flows and any changes in the market. Amounts receivable or payable under derivative financial instruments used to manage interest rate risks arising from financial assets and liabilities are recognized as a component of interest income or expenses of such related underlying assets or liabilities. (See note 13.) (m) Appropriation of Retained Earnings Under the Commercial Code of Japan, the appropriation of retained earnings with respect to a given financial period is made by resolution
of the stockholders at a general meeting to be held subsequent to the close of such financial period. The accounts for that period do not, therefore, reflect such appropriation. (See note 11.) (n) Net Income and Cash Dividends per Common Share In computing net income per common share, the average number of shares outstanding during each year has been used. Net income per share assuming dilution has been computed on the basis that all convertible debt was converted at the beginning of the year or at the time of debt issuance (if later). Cash dividends per common share are computed based on dividends declared with respect to income for the year. (See note 11.) (o) Prior Year Presentation Certain amounts shown in the 1999 and 2000 financial statements have been reclassified to conform with the 2001 financial statement presentation.
2. Financial Statement Translation

The consolidated financial statements are expressed in yen. However, solely for the convenience of the readers, the consolidated financial statements as of and for the year ended March 31, 2001, have been translated into U.S. dollars at the rate of 124=US$1, the approximate exchange rate on the Tokyo Foreign Exchange Market on March 31, 2001. This translation should not be construed as a representation that the amounts shown could be converted into U.S. dollars at such rate.
3. Inventories
Inventories at March 31, 2000 and 2001, are summarized as follows: Finished goods .......................................................................................... Work in process ......................................................................................... Raw materials ...........................................................................................
17,095 3,793 6,282 27,170
19,255 4,182 7,738 31,175
155,282 33,726 62,403 251,411
4. Investment Securities
Investment securities at March 31, 2000 and 2001, are summarized as follows: Noncurrent: Marketable securities ............................................................................... Other .................................................................................................... The market values of the noncurrent portfolio of marketable securities at March 31, 2000 and 2001, were 12,606 million and
2000
Millions of yen 2001
12,045 351 12,396
10,957 482 11,439
$ $
88,363 3,887 92,250
9,561 million ($77,105 thousand), respectively.
5. Short-Term and Long-Term Debt

Long-term debt at March 31, 2000 and 2001, is summarized as follows: Unsecured straight debentures: First series, due in 2003, interest 1.95% .................................................... Second series, due in 2002, interest 1.6% .................................................. Loans, principally from banks: Unsecured, due 2002-2004, interest 15.0% ................................................. Total long-term debt ............................................................................ Less current installments .......................................................................
10,000 10,000 20,000 20,000
10,000 10,000 141 20,141 10,045 10,096
80,645 80,645 1,138 162,428 81,008 81,420
As is customary in Japan, short-term bank loans are made under general agreements which provide that security and guarantees for present and future indebtedness will be given upon request of the
bank, and that the bank shall have the right to offset cash deposits against obligations that have become due or, in the event of default, against all obligations due the bank.
25
6. Retirement and Severance Benefits

The plans funded status and amounts recognized in the accompanying consolidated balance sheet at March 31, 2001 are as follows:
Millions of yen 2001 Thousands of U.S. dollars (Note 2) 2001
Employee retirement and severance benefits: Projected benefit obligations ......................................................................................... Plan assets at fair value ................................................................................................ Projected benefit obligation in excess of plan assets ......................................................... Unrecognized loss ........................................................................................................ Unrecognized prior service cost ..................................................................................... Accrued retirement and severance benefits ...................................................................
(58,999) 28,488 (30,511) 12,016 (18,495)
$(475,798) 229,742 (246,056) 96,903 $(149,153)
Net periodic cost of employee retirement and severance benefits for the year ended March 31, 2001 consisted of the following:
Millions of yen Thousands of U.S. dollars (Note 2) 2001
Net periodic cost of employee retirement and severance benefit for the year ended March 31, 2001 consisted of the following; Service cost for benefits earnednet of employee contributions ........................................... Interest cost on projected benefit obligation ...................................................................... Estimated return on plan assets ........................................................................................ Amortization of transition obligation at the time of adoption of accounting standard for retirement benefits ................................................ Amortization of unrecognized actuarial gain or loss ............................................................. Amortization of unrecognized prior service cost .................................................................. Net periodic cost ............................................................................................................
2001
2,344 1,657 (1,030)
$ 18,903 13,363 (8,306) (11,847) $ 12,113
(1,469) 1,502
Actuarial assumptions and basis for the calculation of retirement and severance benefits are as follows: Net periodic cost of employee retirement and severance benefit for the year ended March 31, 2001 consisted of the following; Method of the benefit attribution ..................................................... Discount rate ................................................................................. Estimated rate of return on plan assets .............................................. Period of amortization of unrecognized prior service cost ..................... Period of amortization of unrecognized actuarial gain or loss ................ Period of amortization of transition obligation at the time of adoption of accounting standard for retirement benefits ...
2001
Benefit/ year-of-service approach Mainly 3.5% at year-beginning and 3.0% at year-end Mainly 3.5% 10 Years 1 Year
7. Income Taxes
The Company is subject to Japanese corporate, inhabitant and enterprise taxes based on income, which in the aggregate resulted in a normal tax rate of approximately 47% in the year ended March 31, 1999 and 42% in the years ended March 31, 2000 and 2001, respectively. Amendments to Japanese tax regulations were enacted into law on March 31, 1999. As a result of these amendments, the normal income tax rate was reduced from 47% to 42% effective from April 1, 1999. Deferred income taxes were calculated at the rate of 42% in principle. In accordance with the revised accounting standards, tax rate reconciliation and components of deferred tax assets and liabilities were disclosed effective from the year ended March 31, 2000. For prior years, these are not disclosed as permitted under the standard. A reconciliation of the Japanese normal income tax rate and the effective income tax rate as a percentage of income before income taxes and minority interests for the years ended March 31, 2000 and 2001, is as follows:
2000 2001
Japanese normal income tax rate ...................................................................................... Increase (reduction) in income taxes resulting from: Expenses not deductible for tax purposes ........................................................................ Dividend income, non-taxable ....................................................................................... Other ......................................................................................................................... Effective income tax rate ..............................................................................................
41.7% 3.7 (0.8) (0.2) 44.4%
41.7% 1.3 (0.3) (0.1) 42.6%
26
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2000 and 2001, are presented below: Thousands of
Millions of yen 2000 2001 U.S. dollars (Note 2) 2001
Deferred tax assets: Allowance for doubtful receivables ............................................................ Accrued expenses ................................................................................... Accrued business tax ............................................................................... Retirement and severance benefits ............................................................ Losses sustained by overseas subsidiaries ................................................... Unrealized profit in inventories and property, plant and equipment ............... Other .................................................................................................... Total gross deferred tax assets ............................................................... Less valuation allowance ....................................................................... Net deferred tax assets ......................................................................... Deferred tax liabilities: Depreciation and amortization .................................................................. Other .................................................................................................... Total gross deferred tax liabilities ........................................................... Net deferred tax assets ......................................................................... The valuation allowance for deferred tax assets as of March 31, 2000 and 2001, were 6,014 million and 6,048 million ($48,774 thousand), respectively. Valuation allowance for deferred tax assets is primarily for the losses sustained by overseas subsidiaries. Based upon the level of historical taxable income and projections
56 1,373 639 8,051 5,747 459 914 17,239 (6,014) 11,225 (597) (342) (939) 10,286
41 2,044 780 7,549 5,523 454 1,422 17,813 (6,048) 11,765
331 16,484 6,290 60,879 44,540 3,661 11,468 143,653 (48,774) 94,879 (4,815) (2,927) (7,742) 87,137
(597) (363) (960) 10,805
for future taxable income over the periods which the net deductible temporary differences are expected to reverse, management believes it is more likely than not the Company realizes the benefits of these deferred taxes assets, net of the existing valuation allowances, at March 31, 2001.
8. Selling, General and Administrative Expenses

Significant components of selling, general and administrative expenses for the years ended March 31, 1999, 2000 and 2001, are as follows:
Millions of yen 1999 2000 2001 Thousands of U.S. dollars (Note 2) 2001
Marketing expenses ............................................................. Salaries and wages .............................................................. Freight and other delivery costs ............................................. Research and development costs ............................................
5,567 13,393 6,451
5,432 11,995 6,595 9,686
5,881 12,416 6,112 8,897
47,427 100,129 49,290 71,750
9. Research and Development Costs

Research and development costs charged to income for the years ended March 31, 2000 and 2001 are 9,686 million and 8,897 million ($71,750 thousand), respectively. Effective from the fiscal year ended March 31, 2000, research and development costs are disclosed in accordance with the accounting standards of Japan under which such information for prior years is not required to be disclosed.
10. Common Stock

During the year ended March 31, 1999, the Company issued 10,441,440 shares of common stock in connection with conversion of debentures. In accordance with the applicable provisions of the Japanese Commercial Code, the proceeds from issuance of the new shares have been accounted for by crediting the common stock and capital surplus accounts in equal amounts.
11. Retained Earnings and Dividends

The Japanese Commercial Code provides that an amount equivalent to at least 10% of appropriations paid in cash with respect to each fiscal period be appropriated to a legal reserve until such reserve equals 25% of stated capital. The legal reserve is not available for cash dividends, but may be used to reduce a deficit or transferred to stated capital. Legal reserve, which was included in retained earnings, amounted to 2,896 million and 3,212 million ($25,903 thousand) at March 31, 2000 and 2001, respectively. In accordance with the Commercial Code, proposed appropriations of retained earnings have not been reflected in the financial statements at the end of each fiscal year. The proposed appropriations of retained earnings at March 31, 2001 were cash dividends of 896 million ($7,226 thousand), the related appropriation to the legal reserve of 100 million ($806 thousand) and officers bonuses of 103 million ($831 thousand).
27
12. Leases
The Company and its subsidiaries occupy machinery and equipment under various lease arrangements. Finance leases, except for those where the legal title of the underlying property is transferred from the lessor to the lessee at the end of the lease term, are accounted for similarly to operating leases. Leased machinery and equipment under such finance leases at March 31, 2000 and 2001, are as follows:
Millions of yen 2000 2001 Thousands of U.S. dollars (Note 2) 2001
Market value at inception of leases .............................................................. Less accumulated depreciation .................................................................... Assets under finance lease, net ...................................................................
5,254 2,786 2,468
4,798 2,863 1,935
$ $
38,694 23,089 15,605
Future minimum payments required under such finance leases at March 31, 2000 and 2001, are as follows:
Within one year ........................................................................................ Over one year ...........................................................................................
844 1,624 2,468
715 1,220 1,935
$ $
5,766 9,839 15,605
. The lease expenses for such finance leases for the years ended March 31, 1999, 2000 and 2001, amounted to 942 million, 1,010 million and 810 million ($6,532 thousand), respectively.
13. Foreign Exchange Risk Management and Interest Rate Risk Management
The Company and its subsidiaries operate internationally which exposes them to risk of change in foreign exchange rates and interest rates. Derivative financial instruments are comprised principally of foreign exchange contracts and interest rate swaps utilized by the Company to reduce such risks. The Company and its subsidiaries do not hold or issue financial instruments for trading purposes. The contract amounts of derivative financial instruments are not a measure of the exposure of the Company through its use of derivative financial instruments. The Company is exposed to the risk of credit-related losses in the event of nonperformance by counterparties to foreign exchange contracts and interest rate swaps, but it does not expect any counterparties to fail given their high credit ratings. The Company enters into foreign exchange contracts to hedge the risk of fluctuation in foreign currency exchange rates associated with certain trade receivables and anticipated sales transactions (including firm commitments) denominated in foreign currencies. At March 31, 2000 and 2001, the Company had no foreign exchange currency contracts to hedge anticipated sales transactions and all outstanding foreign exchange currency contracts were used for the translation of hedged trade receivables. Interest rate swap contracts are generally used by the Company to offset changes in the rates paid on short-term bank loans, which the Company intends and believes to revolve at least until the end of the term of related interest rate swap contracts. Effective from the year ended March 31, 2000, the Company is required to disclose certain information with respect to derivatives. Contract amounts and fair value of interest rate swaps and foreign exchange contracts at March 31, 2000 and 2001, are set forth below.
Millions of yen 2000 2001 Thousands of U.S. dollars (Note2) 2001
Swapspay fixed rate, receive floating rate: Contract amount ..................................................................................... Estimated fair value ................................................................................ Unrealized gain (loss) ............................................................................. Foreign exchange contracts: Contract amount ..................................................................................... Estimated fair value ................................................................................ Unrealized gain (loss) .............................................................................
5,000 (6) (6)
5,000 (66) (66)
40,323 (532) (532)
4,397 4,368 29
2,288 2,356 (68)
18,452 19,000 (548)
28
14. Contingencies
At March 31, 2000 and 2001, the Company was contingently liable with respect to export bills of exchange discounted with banks in the amounts of 18 million and 9 million ($73 thousand), respectively.
15. Segment Information

Operations by business group and geographic area are summarized as follows: (a) Industry Segments
1999 Millions of yen 2000 2001 Thousands of U.S. dollars (Note 2) 2001
(a) Industry Segments Sales: Pharmaceuticals ...................................... Medical supply and equipment ...................
36,289 124,393 160,682
37,246 133,933 171,179
37,580 138,470 176,050
303,064 1,116,694 $ 1,419,758
Operating income: Pharmaceuticals ...................................... Medical supply and equipment ................... Corporate expenses .....................................
Assets: Pharmaceuticals ...................................... Medical supply and equipment ................... Corporate assets ......................................
7,898 28,303 36,201 (5,954) 30,247
7,709 28,194 35,903 (6,752) 29,151
7,025 29,726 36,751 (7,951) 28,800
56,653 239,726 296,379 (64,121) 232,258
50,620 136,366 60,209 247,195
54,347 149,884 59,452 263,723
55,448 162,117 64,095 281,660
447,162 1,307,395 516,895 $ 2,271,452
Depreciation: Pharmaceuticals ...................................... Medical supply and equipment ................... Corporate depreciation .............................
Capital expenditures: Pharmaceuticals ...................................... Medical supply and equipment ................... Corporate capital expenditures ...................
3,392 7,531 59 10,982
3,911 9,277 71 13,259
5,209 8,673 188 14,070
42,008 69,944 1,516 113,468
Industry segments include pharmaceuticals and medical supply and equipment. Industry segment is defined as similarity in product, sales market and other considerations. The main products in each industry segment include: Pharmaceuticalsintravenous solutions, blood bags, nonprescription drugs. Medical supply and equipmenttransfusion and infusion equipment, injection systems, clinical testing systems, artificial organs, catheter systems and other. Corporate expenses consist primarily of the general and administrative divisions expenses.
7,644 14,999 115 22,758
5,562 21,375 137 27,074
3,787 8,632 147 12,566
30,540 69,613 1,186 101,339
Corporate assets consist primarily of surplus money (cash and cash equivalents), long-term investment funds (investment securities), deferred income taxes, translation adjustment and the general and administrative divisions assets. As described in note 1(j), in 2001, the Company adopted the new accounting standard for retirement benefits. As a result of this change, operating income for pharmaceuticals and medical supply and equipment segments for the year ended March 31, 2001 increased by 24 million ($194 thousand) and 58 million ($468 thousand), respectively. Corporate expenses increased by 11 million ($89 thousand).
29
(b) Geographic Segments

1999
(b) Geographic Segments Sales: Japan .................................................... Europe ................................................... America .................................................. Other areas .............................................
109,248 22,923 20,516 7,995 160,682
116,304 19,081 26,038 9,756 171,179
118,378 19,198 28,159 10,315 176,050
954,661 154,823 227,089 83,185 $ 1,419,758
Operating income: Japan .................................................... Europe ................................................... America .................................................. Other areas ............................................. Corporate expenses and eliminations ..........
Assets: Japan .................................................... Europe ................................................... America .................................................. Other areas ............................................. Corporate assets and eliminations ..............
32,954 1,366 2,541 (228) 36,633 (6,386) 30,247
34,044 1,440 (597) 584 35,471 (6,320) 29,151
33,217 1,421 1,086 702 36,426 (7,626) 28,800
267,879 11,460 8,758 5,661 293,758 (61,500) 232,258
166,056 17,500 18,434 7,733 209,723 40,881 250,604
196,989 16,936 30,851 10,388 255,164 17,962 273,126
203,316 22,152 32,608 15,534 273,610 8,050 281,660
$ 1,639,645 178,645 262,968 125,274 2,206,532 64,920 $ 2,271,452
Each overseas geographic segment mainly consists of the following: Europe: Belgium, Germany and France America: United States, Canada and Mexico Other areas: Australia, U.A.E. and Taiwan
As described in note 1(j), in 2001, the Company adopted the new accounting standard for retirement benefits. As a result of this change, operating income for the Japan segment and corporate expenses for the year ended March 31, 2001 increased by 82 million ($661 thousand) and 11 million ($89 thousand), respectively. The effect of this change to the overseas segment was nil.
Millions of yen 1999 2000 2001 Thousands of U.S. dollars (Note 2) 2001
(c) Overseas Sales (c) Overseas Sales Overseas sales: Europe ................................................... America .................................................. Other areas .............................................
Ratio to total sales ..................................... Each overseas sales destination mainly consists of the following: Europe: Germany, France and Italy America: United States, Canada and Mexico Other areas: Australia, Taiwan and Thailand
22,922 20,517 9,235 52,674 32.8%
19,081 26,038 10,142 55,261 32.3%
19,198 28,159 10,809 58,166 33.0%
154,823 227,089 87,169 469,081 33.0%
30
16. Balances and Transactions with Unconsolidated Subsidiary and Affiliated Companies
Balances and transactions as of and for the year ended March 31, 2001 with unconsolidated subsidiary and affiliated companies are summarized as follows:
Trade and other receivables: Terumo Beiersdorf K.K. ............................................................................ Changchun Terumo Medical Products Co., Ltd. .............................................
7 1
9 4
73 32
Trade payables: Terumo Business Support Corporation ........................................................ Fuji Medic Co., Ltd. ................................................................................. Terumo Beiersdorf K.K. ............................................................................
26 386 270
18 360 352
145 2,903 2,839
Sales of raw materials and other services: Terumo Beiersdorf K.K. ............................................................................ Changchun Terumo Medical Products Co., Ltd. .............................................
34 10
41 11
331 89
Purchase: Fuji Medic Co., Ltd. ................................................................................. Terumo Beiersdorf K.K. ............................................................................
892 1,174
853 2,160
6,879 17,419
Insurance premium and other expenses: Terumo Business Support Corporation ........................................................
755
664
5,355
31
Independent Auditors Report
The Board of Directors Terumo Corporation: We have audited the accompanying consolidated balance sheets of Terumo Corporation and subsidiaries as of March 31, 2000 and 2001, the related consolidated statements of income and stockholders equity for each of the years in the three-year period ended March 31, 2001 and the related consolidated statements of cash flows for the years ended March 31, 2000 and 2001. Our audits were made in accordance with auditing standards, procedures and practices generally accepted and applied in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanying consolidated financial statements, expressed in yen, present fairly the consolidated financial position of Terumo Corporation and subsidiaries at March 31, 2000 and 2001, and the consolidated results of their operations for each of the years in the three-year period ended March 31, 2001 and their cash flows for the years ended March 31, 2000 and 2001 in conformity with accounting principles and practices generally accepted in Japan applied on a consistent basis, except for the changes, with which we concur, as described in the following paragraph. As described in note 1 to the consolidated financial statements, Terumo Corporation and subsidiaries have adopted the new accounting standards for retirement benefits and financial instruments and the revised accounting standard for foreign currency transactions in the preparation of their consolidated financial statements for the year ended March 31, 2001. The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2001 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in note 2 to the consolidated financial statements.
Tokyo, Japan June 30, 2001
See note 1(a) to the consolidated financial statements which explains the basis of preparing the consolidated financial statements of Terumo Corporation and its domestic subsidiaries under Japanese accounting principles and practices.
32
Corporate Data
As of March 31, 2001
Board of Directors and Auditors

As of June 28, 2001
Head Office 44-1, 2-chome, Hatagaya, Shibuya-ku, Tokyo 151-0072, Japan Tel: 03-3374-8111 Fax: 03-3374-8399 URL: http://www.terumo.com Date of Establishment September 17, 1921 Common Stock 38,716 million Number of Shares Issued 210,876,260 Number of Stockholders 22,457 Number of Employees 7,412 Stock Exchange Listing The First Section of the Tokyo Stock Exchange
President & Chief Executive Officer Takashi Wachi Executive Vice President Akira Takahashi, Ph.D. Managing Directors Tatsuro Tani Takahiro Kugo Directors Mitsunori Suzuki Hideo Fukui Yasuhiko Futami Hachiro Hara Shigeru Miura Kikuo Take Koji Nakao Yoshiaki Hirabayashi Hiroki Akiyama Toru Nonoyama
Executive Officers Kenji Tada Kenji Ikeda Toshiharu Kamitani Hiroshi Matsumura Senior Corporate Auditors Yasuo Yamazaki Yuzo Kambe Corporate Auditor Eizaburo Sano
Offices/Factories Domestic Offices/Factories Head Office, Shonan Head Office, Terumo Research & Development Center, Fujinomiya Factory, Ashitaka Factory, Kofu Factory, Suruga Factory Domestic Sales Offices Sapporo, Morioka, Sendai, Niigata, Utsunomiya, Mito, Omiya, Kawagoe, Chiba, Matsudo, Tokyo, Tokyo Daini, Tama, Yokohama, Shonan, Matsumoto, Shizuoka, Nagoya, Tsu, Kanazawa, Kyoto, Osaka, Kita Osaka, Kobe, Sakai, Okayama, Hiroshima, Takamatsu, Matsuyama, Tokushima, Kochi, Fukuoka, Kita Kyushu, Oita, Kumamoto, Kagoshima, Miyazaki, Okinawa Principal Overseas Manufacturing Plants Terumo Medical Corporation (Maryland, U.S.A.; Headquarters, New Jersey, U.S.A.) Terumo Europe N.V. (Leuven, Belgium) Terumo Cardiovascular Systems Corp. (Michigan, California, Maryland, and Massachusetts, U.S.A.) Terumo Medical Products (Hangzhou) CO., LTD. (Hangzhou, China) Terumo (Philippines) Corporation (Lagune, Philippines) Terumo Penpol Ltd. (Trivandrum, India)
Principal Overseas Sales Offices Asia and Australia: Terumo Marketing Philippines, Inc., Taipei Branch, Hong Kong Branch, Shanghai Office, Beijing Office, Guangzhou Office, Singapore Branch, Terumo (Thailand) CO., LTD., Hanoi Representative Office, Kuala Lumpur Branch, Jakarta Office, Chennai Branch, Dubai Branch, Australian Branch Americas: Terumo Medical Corporation, Miami Sales Office, Terumo Cardiovascular Systems Corp., Terumo Medical De Mexico S.A. DE C.V., Terumo Medical do Brazil Ltda. Europe: Terumo Europe N.V., Laboratories Terumo France S.A., Terumo (Deutschland) GmbH, Terumo Cardiovascular Systems Europe GmbH, Rome Branch, Madrid Branch, UK Branch, Benelux Branch, North Europe Branch Principal Affiliated Companies Changchun Terumo Medical Products CO., LTD. (Changchun, China) Terumo BSN K.K. (Tokyo, Japan) Terumo Trading CO., LTD. (Tokyo, Japan)
33
Terumo Corporation
36
44-1, 2-chome, Hatagaya, Shibuya-ku, Tokyo 151-0072, Japan Tel: 03-3374-8111 URL: http://www.terumo.com
Printed in Japan

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Annual Report 2001

For the year ended March 31, 2001

Integrated development of medical supplies, systems, and equipment

q Board of Directors and Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Millions of yen 1997 1998 1999 2000 2001

Thousands of U.S. dollars (Note 1) 2001

107,411 94,877 215,898 94,071 19,317

95,721 87,294 217,998 125,793 28,943

116,229 67,066 247,195 158,319 38,716

116,169 69,693 263,723 153,304 38,716

135,197 79,147 281,660 172,271 38,716

1,090,298 638,282 2,271,452 1,389,282 312,226

3.9% 210,876 6,898

9.9% 210,876 7,412

Net Income per Share

What is the basic concept of the Terumo New Vision?

In which direction will this vision take Terumos business development?

Is the Company implementing any medical liability risk management measures?

Can you tell us something about Terumos business alliance strategies?

What environmental protection activities is the Company involved with?

What are the Companys plans for raising corporate worth?

Cardiovascular System Business

The Driving Force behind Terumos Future Growth T

Trends in Numbers of Open-Heart Surgery Cases and Facilities in Japan

Trends in Numbers of PTCA Cases and Facilities in Japan

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

Number of PTCA cases (left scale) Number of facilities

45,000 40,000 35,000 30,000

500 450 400 350 300

100,000 90,000 80,000

800 700 600

Growth in the Number of Patients Requiring Cardiovascular Treatment

25,000 250 20,000 200

Overview of Terumos Activities in Circulatory Systems

Expanding Our Share of the Cardiovascular System Market

Developing Leading-Edge Medical Fields

Cardiovascular System Business

The Driving Force behind Terumos Future Growth

Principal sales offices R&D facilities or manufacturing plants of cardiovascular products

Terumo Cardiovascular Systems Corp.

Terumo Cardiovascular Systems Europe GmbH

Terumo Europe N.V.

Integrated development of medical supplies, systems, and equipment

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

10.4% 21.3% 20.5% 10.6% 15.7% 7.4%

Transfusion and Infusion Equipment

TERUFEED ED, a feeding tube to prevent misconnection

Clinical Testing Systems

Sarns 8000 perfusion system, a roller pump

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

Managements Discussion and Analysis of Operating Results and Financial Condition

OPERATING RESULTS Summary

Net Sales by Business Segment

Year ended March 31,

Billion 300 250 200 150 100 50 0

Income before Income Taxes and Minority Interests

FINANCIAL CONDITION Assets, Liabilities, and Stockholders Equity

Consolidated Balance Sheets

Millions of yen 2000 2001

Thousands of U.S. dollars (Note 2) 2001

See accompanying notes to consolidated financial statements.

LIABILITIES AND STOCKHOLDERS EQUITY