BML, INC.az199097.vo.msecnd.net/4694/ir/12523981887649999999_c2ef...BML, INC. Year ended March 31,...

BML, INC.

Year ended March 31, 2001

Annual Report 2001

CoreBusiness

Genomics

An IntegratedNucleus

of Growth

MedicalInformatics

BML

INC

Annual Report

2001

Profile

The guiding principle of the BML Group is “to contribute to health and well-being through medical services.” Our core business is the provision of highlyprecise testing on a timely basis. Our high share in the clinical testing industrytestifies to our expertise in this area. Indeed, we have earned high marks frommany quarters as a comprehensive laboratory able to cover the completespectrum of testing, including specialized tests and investigative research.

BML has launched a new medium-term management plan that runs throughthe fiscal year ending March 2003. Designed to promote BML’s transformationinto a “bio medical informatics company,” the plan engages BML in the medicalinformatics business, including electronic patient charts, and genome-related business.

Moving forward, we remain committed to raising the quality and productiv-ity of our clinical testing services. Concurrent themes are creating new businessmodels and strengthening BML’s brand equity. These goals will be achieved bycapitalizing on reforms to Japan’s medical system and harnessing advances ininformation technology.

Contents

Financial Highlights 1

Letter to Investors 2Reinforcing Our Core Business 6

BML’s New Strategic Product 8Capturing Synergies With

Core Businesses 10Board of Directors 12

Management’s Discussion and Analysis 13

Financial Section 16Corporate Data 31

Forward-Looking Statements

This annual report contains forward-looking statements

about BML’s future plans, strategies and results that arenot historical facts. Rather, they are assumptions and beliefs

formed by management, based on currently available

information. Such statements contain risks anduncertainties, which include, but are not limited to, eco-

nomic trends, competition in the medical industry, market

supply and demand, foreign exchange rates, and tax andother systems. Readers should therefore be aware that

actual results could differ materially from BML’s forecasts.

1BML, INC. Annual Report 2001

Financial HighlightsBML, INC. and Consolidated SubsidiariesYears ended March 31, 2001 and 2000

Thousands ofMillions of yen U.S. dollars (Note)

2001 2000 2001

For the year:Net sales ¥51,082 ¥49,522 $412,284Operating income 4,239 4,674 34,213Net income 1,042 2,039 8,410Capital expenditures 3,298 3,649 26,618Depreciation and amortization 4,067 4,092 32,825

At year-end:Total assets ¥49,533 ¥48,088 $399,782Shareholders’ equity 27,225 26,498 219,734

Amounts per share (yen and dollars):Net income ¥ 49.62 ¥133.30 $ 0.40Cash dividends 15.00 15.00 0.12

Financial indicators:Operating income to net sales (%) 8.30 9.44ROE (%) 3.88 8.78

Number of employees 1,842 1,754

Note: The U.S. dollar amounts are translated from yen, for convenience only, at the rate of US$1.00=¥123.90, the approximate closing rate on the Tokyo foreign exchangemarket as of March 31, 2001.

2 An Integrated Nucleus of Growth

Letter toInvestors

The first year of the 21st century, 2001 heralds the second phase of growth for BML. In fiscal 2000, ended March 31, 2001, we launched full-

fledged sales of Medical Station® electronic patient charts, which we hope will become a second growth pillar for BML alongside clinical

testing. We also moved quickly to enter the genome business, forming a comprehensive alliance with U.S.-based Third Wave Technologies, Inc.

(TWT) to use TWT’s Invader® operating system, an epoch-making technology for the analysis of genetic information. All in all, it was a highly

significant year in which BML branched out into new businesses and paved the way forward for higher growth in the new era.

As we enter the new century, the medical industry has been engulfed in a period of dramatic transformation, as seen in the profound

effect of the progress of IT on the industry and the rapid advancement of genomic research. Keenly aware of the need to identify clearly these

winds of change and capitalize on the opportunities they present, we have formulated a new long-term vision for BML of evolving into a “bio

medical informatics company.” Our first step in November 2000 was to formulate a three-year medium-term management plan and

announce a strategic vision positioning the beginning of the 21st century as a new phase of growth for BML. As I wrote in last year’s letter to

investors, the medium-term management plan comprises three business strategies. In particular, we plan to develop new businesses focused

on medical informatics and genomics to create still more corporate value.

Overview of Fiscal 2000 Results and Progress of the Medium-Term Management Plan

The clinical testing industry encountered a severe business environment in fiscal 2000 following an approximate 7.2% cut in government

payments for clinical testing. Due to the effects of government curbs on medical expenditures, clinical testing-related medical remunera-

tion is lowered every two years. Meanwhile, the national medical expenditure continued to increase partly as a result of a surge in healthcare

costs for senior citizens—one upshot of Japan’s graying society. The clinical testing market as a whole remained at a similar size to the

previous year.

Amid this operating environment, we recorded net sales of ¥51,082 million, a year-on-year increase of 3.1%. Consignment testing within

hospital testing rooms, centered primarily on Facility Management Services (FMS), was a prime factor, as were associated outsourcing contracts

for clinical testing performed outside hospitals. We also captured new customers and posted steady growth in new businesses launched in recent

years, including food sanitation testing, environmental testing and prescription pharmacy operations. On the other hand, operating income

declined 9.3% to ¥4,239 million mainly for two reasons. First was that we were unable to reap the benefits of higher net sales because consign-

ment fees, as a percentage of sales, slipped 5.3 percentage points, reflecting the 7.2% reduction of the Japanese government’s clinical testing fees

following revisions to legislation concerning medical remuneration. Secondly, we recorded a lower gross profit margin on account of start-up costs

Evolving Into a Bio

Medical Informatics Company


for new businesses such as environmental testing and electronic patient charts. Net income fell by 48.9% to ¥1,042 million as we also took a

one-time charge for a ¥1,672 million transitional obligation arising from a change in accounting standards for employees’ retirement benefits.

Despite these exacting circumstances, we managed to achieve the initial revenue targets of our medium-term management plan. In terms

of business strategy, in our clinical testing business we pursued economies of scale to raise market share by offering hospital testing rooms on

a full consignment basis, centered primarily on FMS, and associated outsourcing contracts for clinical testing performed outside hospitals.

Growth in new customers was also evidenced. In addition, to strengthen competitiveness we made a concerted effort to substantially reduce

testing costs by reviewing the processes for colon cancer-related tests and manufacturing in-house the high-cost chemical reagents employed

in virus testing.

Environmental testing businesses, primarily dioxin tests, are boosting our consignment testing outsourced by local governments. What’s

more, we have entered into more consulting agreements with foodservice industries in light of growing interest in food sanitation. Qualitatively,

all is going according to plan.

Medical information systems form the nucleus of our primary business strategy for developing and maintaining a new earnings base. In

1989, we spun off BML’s systems operations into an autonomous subsidiary, Merits, Inc., which was mandated to build medical information

systems. In the ensuing years, we have created automated testing lines and various other medical support systems that today give us a

powerful competitive edge. Building on this foundation, we developed Medical Station®, a system for compiling electronic patient charts that

will be an important strategic product for BML.

We began selling Medical Station® in January 2000, following authorization by the then Ministry of Health and Welfare (now the Ministry of

Health, Labor and Welfare) in April 1999 for storing patient data electronically. Full-scale marketing commenced in April 2000. Medical Station®

systems are not merely computerized data of previously filed medical records. They can also display test data and medical images from computed

tomograph (CT), magnetic resonance imaging (MRI) and ultrasound scans. Adding to these systems’ broad-ranging functions are medical account-

ing (receipt computers) and management analysis features. Medical Station® thus contributes to higher management efficiency at medical

institutions. In the future, it will also bypass tangible facilities by enabling collaborative medical treatment over the Internet.

Other companies are also developing and commercializing their own electronic chart systems. However, in addition to its electronic

patient charts being more affordable and easier to use, only BML has the capacity to link them with clinical testing systems. Indeed, Medical

Station®’s greatest asset for expanding sales is that its anticipated users already form the customer base of our mainstay business. This means

we can take full advantage of our clinical testing network under a powerful support mechanism.


With regard to genomics—our second business strategy—we entered into a comprehensive agreement with TWT in December 2000 that

enables us to use TWT’s proprietary Invader® operating system. Invader® is a seminal genetic analysis technology that runs more affordably

and with higher performance than any previous technique. Genetic analysis using the Invader® system holds massive potential for BML. It will

enable us to respond to anticipated calls for personalized medicine in the post-genome era—a market estimated to reach ¥25 trillion by 2010

as genome-related business expands.

As explained above, we are well on the way to meeting the qualitative targets of our medium-term management plan. In terms of

concrete targets, we expect to generate higher revenues and earnings in the current fiscal year, ending March 2002. Since there will be no

revisions to the Japanese government’s clinical testing fees this year, we expect to derive benefits from higher sales volume. A projected

surge in revenues from electronic patient charts should also lift this business into the black. Nevertheless, profit targets for the current

fiscal year are expected to be lower than initial projections. This takes into account the fact that we have approximately tripled staff

engaged in sales, implementation and training, given the need to put in place a mechanism to support our aggressive expansion of sales

channels and business operations for Medical Station®. The lower projection is also based on the fact that we have incurred costs associ-

ated with the comprehensive agreement with TWT concerning the Invader® operating system, as well as R&D expenses related to future

joint development under the agreement.

The increase in staff has helped to decentralize our former Tokyo-based operations, presenting opportunities for more efficient business

operations. The agreement with TWT, meanwhile, is a hugely exciting business opportunity for the future. All these costs we have incurred,

however, are forward-looking investments designed to strategically expand our business in line with management plans. We firmly believe

that these expenditures will begin translating into returns from the fiscal year ending March 2003.

Enhancing Sales Capabilities Through SFA

In the current fiscal year, we have introduced Sales Force Automation (SFA) at BML in a move to reinforce our sales system by computer-

izing all sales operations. SFA is a computer-based sales management and support system that facilitates organized sales programs and

strategic use of information through the swift transmission and sharing of sales information. This includes reporting on sales activities,

pinpointing trends among rival companies and within the market, and using data on customers’ needs. Databased information and institu-

tionalized sales expertise help create a solid operating base for the future, as well as reinforce our sales capabilities and boost efficiency.

SFA is currently promoting our clinical testing operations and helping expand our sales channels for Medical Station®. The result is highly


Left: Kenji Kondo,Chairman

Right: Motoyoshi Arai,President

Motoyoshi Arai

President

Kenji Kondo

Chairman

efficient promotional activities under fluid cooperation among head

office and sales branches, salespeople and BML staff.

Formulating an Environmental Policy

BML positions the environment as a key field in its business, which includes environmental

and food sanitation testing. Addressing environmental issues is a major element of BML’s corporate

citizenship. BML has long endeavored to enhance safety in local communities and reduce the waste products we handle. To clearly set out a

path for advancing environmental initiatives, we formulated the BML Environmental Policy in December 2000. ISO 14001 certification was

subsequently obtained at the BML General Laboratory and the subsidiaries housed there in February 2001. We are dedicated to obtaining

group-wide certification as early as possible, and will proactively push ahead with environmental initiatives into the future.

In Closing

Before making a giant leap forward, it is essential to take up a position of readiness. The right level of preparedness will provide the

springboard and impetus for advancement in the future. We are embarking upon a strategy to unfold business in growth fields by

drawing on our core business base and superior technologies. Looking ahead to achieving our fiscal 2003 targets, we will strive to attain

net sales of ¥100 billion, pivoted around our hallmark clinical testing business and our new growth drivers—medical informatics and

their associated businesses.

September 2001


Clinical testing is BML’s core business. We have a strong competitive edge in this area forged around the ability to conduct low-cost, precision

testing. Our BML General Laboratory, situated in Kawagoe City, Saitama Prefecture, is the world’s largest facility of its kind. The laboratory

processes vast numbers of clinical tests, which cover over 4,000 parameters, using BML’s proprietary automated testing line. Attesting to the

precision of BML’s testing from a global perspective is the company’s 1991 acquisition of certification by the College of American Pathologists

(CAP), as well as the acquisition of ISO 9001 certification for quality assurance systems in 1999.

Backed by experience and know-how gained in more than 45 years since BML’s founding, the technologies that support our testing are

world class. Inside the BML General Laboratory is an independent R&D Division where technicians engage in a range of programs, from

fundamental research to development of new test items and methods, as well as research into genetic analysis. Superior systems technologies

are also in evidence. We have developed various testing systems, including automated, systematic testing lines, drawing on a pool of the

industry’s best system engineers. These two technologies—testing and systems expertise—constitute BML’s core competencies. And their

application is setting the stage for new businesses. Testing technologies are paving the way to food sanitation and environmental testing,

while systems technologies provide a solid platform for our electronic patient charts business.

We have also stayed ahead of the competition by putting in place a nationwide network that links our branch offices and regional laborato-

ries. Using the network, we are able to quickly conduct precision testing anywhere in Japan. This makes possible a fine-tuned response to our

customers’ demands, especially in the event that testing is required urgently. Automated testing lines allow testing to be conducted efficiently,

and we can rein in costs by centralizing operations using the network. Overall, this organic platform is enabling BML to generate high earnings.

Enhancing CompetitivenessEnhancing CompetitivenessEnhancing CompetitivenessEnhancing CompetitivenessEnhancing Competitiveness

The size of the clinical testing market has remained largely fixed in recent years. A number of factors lie behind the market’s maturity.

Outsourcing has become commonplace in the industry, there is limited scope for new consignments, and consignment fees are falling due to

a decline in clinical testing fees as the Japanese government adopts a policy of curbing medical expenditures. With limited room to maneuver,

we are implementing the following strategies to expand sales, build earnings and maintain a source of cash flows from our core businesses.

Reinforcing OurCore Business

Clinical Testing

The BML GeneralLaboratory tests tensof thousands of specimensevery day using BML’s propri-etary Symphony automatedtesting system

MedicalInformatics Genomics

CoreBusiness


Pursuing Economies of Scale to Raise Market Share

A significant development engulfing the clinical testing market is a shift away from merely sending specimens to companies like BML for

external testing. Hospital testing room operations are now being outsourced in their entirety. BML has been quick to react to this trend, taking

on outsourcing by offering Facility Management Services (FMS) and entering into System Package Laboratory (SPL) agreements. The above

charts illustrate the steady performance of BML in this area in the fiscal year ended March 31, 2001.

We are also working to raise market share and integrate operations by promoting M&As of clinical testing centers, which will serve as

footholds in regional Japan. These moves will provide BML with a regional operating base and revenue streams, as well as allow us to simulta-

neously increase regional market share and pursue economies of scale.

Automation: The Key to Higher Efficiency and Enhanced Competitiveness

Automated testing lines are an important means of lowering costs and improving productivity. A number of our biochemical, hematological

and immunological testing lines are already automated. We intend to automate the remaining immunological testing lines in the near future.

Automation of microbiological tests, meanwhile, is slated for spring 2002.

We have also developed a system for handling test specimens that combines the use of portable PCs and two-dimensional bar codes. The

system is being introduced throughout our Japanese operations during the current fiscal year, ending March 31, 2002. When the system is fully

operational company-wide, we will have in place a fully integrated, automated clinical testing mechanism from the receipt of specimens to the

provision of clinical results. Higher efficiency and enhanced competitiveness will be the end result of these initiatives.

An Integrated Nucleus of Growth

SPL and FMS sales (¥ million)

Test result data istransmitted nationwide

via a satellite system usinga host computer

01/31,540

00/31,359

99/31,405

98/31,156

1,283

746

506

307

Number of clinical tests (thousands)

01/3 280,337

00/3 260,469

99/3 245,196

98/3 244,941

SPL sales FMS sales

SPL (System Package Laboratory): Refers to commissioned clinical testing carried out inside hospitals. Through SPL, BML provides testing equipment, trial medicines andpersonnel, and presents an invoice for the commissioned work undertaken in accordance with the volume of testing.

FMS (Facility Management Service): Comprehensive agreement under which a commissioned party provides clinical testing equipment, such as automated analytical systems,and trial medicines to a hospital facility. Technicians at the hospital facility undertake testing activities using the equipment and trial medicines, while the commissioned partyinvoices the hospital facility based on various conditions, including medical remuneration, the number of tests performed and the volume of trial medicines used.


Years of experience in clinical testing have paved the way for a broad range of clinical systems and laid a solid foundation of industry expertise.

Our resources, both tangible and intangible, translate into superior system development capabilities. We have channeled these resources into

a new strategic product—Medical Station®.

Medical Station® is a system that databases electronic patient charts, a new business domain for BML that is largely unaffected by

revisions to the Japanese government’s clinical testing fees and other governmental policies. Furthermore, higher aggregate sales of electronic

patient charts translate into stable revenue streams from maintenance fees. Thus, Medical Station® contributes more to earnings than just

sales. Since the system’s target customers are the same as with clinical testing, we can take full advantage of our existing nationwide sales and

services network. Adding to the high synergistic value of this product is the fact that it also helps us win new clinical testing contracts.

Medical Station®: The Competitive Advantages

Recently, we have witnessed an influx of new companies into the electronic patient charts market. BML’s Medical Station® has the following

attributes that help maintain our leading competitive edge in this field.

• Superlative tamper-proof functions to maintain data integrity: Ensuring data integrity is probably the most challenging of the three

conditions for producing electronic patient charts. Medical Station® makes use of NTT Data Corporation’s Secure Seal™ service to guarantee

the data integrity of medical records.

• Enhanced testing-related functions: Results from testing outsourced to BML are compiled automatically using Internet connections as

soon as tests are complete. Data can also be easily collated in chronological order or in graph form.

• Ease of use demanded by doctors: A priority element in the design of Medical Station® is that it be easily operable by the doctors who

actually utilize the system. As such, users are able to customize the on-screen layout to their preference. Building on a proven track record of

more than 45 years in the medical profession, BML has a deep understanding of doctors’ on-the-job mindset and workflow. This understand-

ing has been comprehensively embedded in Medical Station®.

BML’s NewStrategic Product

Medical Station®


CoreBusiness


• Complete maintenance support: We provide a vital online support service for Medical Station® that assists users in solving problems that

arise after installation of the system and provides up-to-date information on legal revisions and new drug prices. Our clinical testing sales and

service network is also on hand to provide detailed assistance to users.

Promoting the Use of Electronic Patient Charts

With support from the Japanese government and medical associations, an infrastructure for promoting electronic patient charts has recently

begun to emerge. In December 2000, the former Japanese Ministry of International Trade and Industry (now the Ministry of Economy, Trade

and Industry – METI) approved a supplementary budget item for the construction of a medical network. In April 2001, Japan’s Medical Service

Law was amended to ease regulations on advertising by medical institutions. These and other factors provided an incentive for medical

institutions to introduce electronic patient charts. BML launched full-fledged sales of Medical Station® in April 2000, and has since seen its

operations in this area rapidly expand. Indeed, the positive effects of this business development were reflected in our solid performance in the

second half of fiscal 2000.

We sold 57 Medical Station® systems in fiscal 2000, representing net sales of ¥261 million. In fiscal 2001, we plan to sell 450 systems

totaling ¥2 billion.

Our sales expansion strategy comprises the following three initiatives:

• Strengthening our sales and support structure: To make up for a lack of employees thus far, in April 2001 we tripled the number of staff

engaged in the installation of electronic patient chart systems and instructors.

• Enhancing our alliance with Toho Pharmaceutical: We entered into an alliance with Toho Pharmaceutical Co., Ltd. in January 2001

regarding sales of electronic patient charts. Medical Station® systems have recently been linked to Toho’s LX-mate appointment system

marketed to private clinics.

• Building brand equity: We are calling widely on Japan’s 100,000 medical institutions to recognize that electronic patient charts are the

future of the medical industry, and that Medical Station® systems are the most competitive on the market. In doing so, we aim to improve

the visibility and credibility of our brand.


Screen shots fromMedical Station®

The introduction ofelectronic patient charts

is not only improvingefficiency at medical clinics,but is also playing a key role

in the informed consent process

Medical Station®:Orders received and installations (Sets)

4Q61

3Q54

2Q36

1Q19

30

16

6

5

Number of orders receivedNumber of installations


In June 2000, the U.S. company Celera Genomics announced that it had completed the first assembly of the human genome. At present,

companies around the world are engaged in applying the knowledge brought forth by this epoch-making accomplishment. Now that the

genome has been sequenced, we have entered what is known as the “post-genome” phase. This unravels a host of business opportunities. For

example, we can identify disease-related genes and their pharmacological benefits, as well as genes that can be used to determine side effects.

This will enable us to develop new medical products and personalized treatments. The burning issue involving the application of genomes,

however, is the analysis of single nucleotide polymorphisms (SNPs), DNA sequence variations that occur when a single nucleotide in the

genome sequence is altered. Such analysis requires not only a vast number of analytical techniques, but also speed and precision. Attracting

attention as the world’s leading technology in this field is the Invader® operating system designed by U.S.-based Third Wave Technologies, Inc.

(TWT). In December 2000, BML concluded an agreement with TWT, the worldwide patent holder of Invader® technology, to become Japan’s

first company to use this technology to conduct far-reaching genetic analysis.

Three factors weighed heavily in our favor in securing the alliance with TWT. First, we are a mass clinical testing company with testing

centers located throughout Japan. Second, in terms of clinical testing technology, we are one of Japan’s leading companies. And third, in the

genetic research field, we have discovered a succession of new SNPs linked to lifestyle-related diseases, for which we have acquired patents.

Accordingly, BML views itself as an important strategic partner for TWT.

Partnering With Third Wave Technologies, Inc.

The Invader® operating system is a practical technology employed by research institutions and pharmaceutical companies throughout the

world. Invader® is also being used by the University of Tokyo’s Institute of Medical Science as part of the Japanese government’s millennium

CapturingSynergies WithCore Businesses

Genome-relatedBusiness and the Invader®

Operating System

The Invader® operating systemis an epoch-making genomicstechnology that is underpin-ning the drive toward person-alized medicine


CoreBusiness


projects. BML is able not only to conduct Invader® assays, but can also cover everything from design and construction through improvements

in the Invader® operating system itself. Thanks to our agreement on joint development with TWT, no other company in the world is licensed

to conduct Invader® assays. We conduct custom-made Invader® assays at the BML General Laboratory in Kawagoe City, but exclusive BML

laboratories have also been set up at TWT, where our technicians are engaged in advanced R&D programs to help improve the Invader® system

further. Looking ahead, we are also keen on sharing the results of joint development with other companies, and making use of these results in

future business. One initiative that comes close to achieving this sort of goal is our endowment chair at the University of Tokyo’s Institute of

Medical Science. We hope that the results of our genome research will not only be of benefit to ourselves, but will also contribute widely to

medical care as a whole.

Business Targets and Sales Projections

For the present, BML will be focusing its genetic analysis on diabetes, familial hypercholesterolemia and other lifestyle-related diseases. We are

also considering the commercialization of genetic testing for cancer, infectious diseases and other illnesses. Also in the pipeline is the applica-

tion of Invader® technology to testing of genetically modified organisms (GMOs) and environmental testing as a technique to replace existing

polymerase chain reaction (PCR) methods. Furthermore, new drug development by pharmaceutical companies will require the inclusion of

genetic information in future. As such, we hope to make the most of outsourcing contracts emerging due to an increase in clinical trials that

entail genetic analysis. R&D expenditures among pharmaceutical manufacturers amount to around ¥800 billion each year, of which 10–15%

is likely to be earmarked for genetic analysis. Outsourcing in this area is projected to intensify in future. Elsewhere, BML is planning to engage

actively in joint research programs with universities and research institutions.


Third Wave Technologies, Inc.Head Office in Wisconsin, U.S.A.

Invader® technologyanalysis plate


Chairman

Kenji Kondo

President

Motoyoshi Arai

Senior Executive Director

Takeo Kumazawa

Executive Directors

Masayasu Miura

Kiyoshi Ochi

Kazuta Fukuda

Toshiyuki Koreyasu

Directors

Hisao Kawada

Akira Oya

Isamu Seto

Tadayoshi Hayama

Minoru Tanaka

Masaaki Hirose

Kensuke Kondo

Seated from left: Kenji Kondo, Chairman; Motoyoshi Arai, PresidentStanding from left: Toshiyuki Koreyasu, Executive Director; Kiyoshi Ochi, Executive Director; Takeo Kumazawa, Senior Executive Director;Masayasu Miura, Executive Director; Kazuta Fukuda, Executive Director

Standing Auditor

Naoya Kawasaki

Auditors

Yasuo Shimizu

Toshio Oishi

Board of Directors


Management’s Discussion and Analysis

The BML Group includes BML, INC., which is the parent company, nine consolidated subsidiaries and eight non-consolidated

subsidiaries. Two former non-consolidated subsidiaries, Ehime Medical Laboratories, Inc. and Allegro, Inc., were included

within the scope of consolidation effective from the year under review. The BML Group acquired an additional 3% equity

interest in Ehime Medical Laboratories on July 31, 2000, transforming the company into a wholly owned subsidiary. Idenics

Corporation, a non-consolidated subsidiary, was wound up on March 31, 2001 upon the expiry of a tie-up contract with U.S.-

based Genzyme Corporation.

Operating Environment

The clinical testing industry continued to face a difficult operating environment. One reason was the reduction of payments for

clinical testing fees following amendments to legislation concerning medical remuneration that came into force in April 2000. In

this climate, the BML Group worked to generate still more business from large-scale clients by offering Facility Management

Services (FMS), to capture new customers and to reform its earnings structure by integrating group operations. The company also

promoted sales of Medical Station®, an electronic patient charts system, through a new show room at the Head Office and by

increasing instructors and staff engaged in system installation. In the Prescription Pharmacy Division, the BML Group opened its

third and fourth stores in the Hokuriku region. Other food sanitation and environmental testing also recorded steady sales growth.

In a move to enhance its clinical testing network, the company set up three new regional laboratories: in Osaka, its second in that

city, Fukuchiyama and Matsue. These regions have shown strong demand for emergency clinical testing and provide a relatively

high volume of test specimens.

Net Sales, SGA Expenses and Operating Income

As a result of the above, consolidated sales climbed ¥1,560 million (US$12 million), or 3.1%, to ¥51,082 million (US$412 million).

By segment, sales from clinical testing, which account for more than 90% of sales, were ¥49,894 million (US$402 million),

representing a year-on-year increase of 1.5%. By seeking out new customers and promoting FMS, the company markedly increased

clinical testing volume by 10.3% and the number of patients for which tests were conducted by 8.3%, covering the reduction of

the Japanese government’s clinical testing fees following revisions to legislation concerning medical remuneration at the start of

the fiscal year. The company also views M&As as an effective strategy for raising market share. Although the company did not

conduct M&As during the fiscal year under review, it may take action on this front in the current fiscal year.

Net Sales (¥ million)

2001 51,082

2000 49,522

1999 47,019

Operating Income (¥ million)

2001 4,239

2000 4,674

1999 3,922


The gross profit ratio in the clinical testing business remained relatively steady despite falling prices, mainly owing to

higher sales volume.

The medical informatics business recorded sales of ¥552 million (US$4 million), an increase of 268.0%. Sales from environ-

mental and related businesses climbed 191.7% to ¥636 million (US$5 million). By testing category, biochemical test sales edged

up 0.7% to ¥24,514 million (US$197 million), hematological test sales rose 2.7% to ¥4,486 million (US$36 million) and immuno-

logical test sales increased 2.5% to ¥9,738 million (US$78 million). Microbiological test sales fell 3.1% to ¥4,008 million (US$32

million), while pathological test sales increased 3.9% to ¥3,235 million (US$26 million). Sales in the others category totaled

¥5,098 million (US$41 million), an increase of 25.2%.

The cost of sales ratio increased 1.2 percentage points due to the effects of amendments to legislation concerning medical remu-

neration and losses at new business divisions. The cost of sales was ¥30,544 million (US$246 million). Selling, general and administrative

(SGA) expenses were ¥16,299 million (US$131 million), bringing the ratio of SGA expenses to sales down by 0.1 of a percentage point.

The result was a ¥435 million (US$3 million), or 9.3%, decrease in operating income to ¥4,239 million (US$34 million), driving

the operating margin down 1.1 percentage points to 8.3%.

Other Income (Expense) and Net Income

Interest income declined 1.4% to ¥33 million (US$0.2 million), while miscellaneous income increased 164.8% to ¥161,273 million

(US$1,301 million). Interest expense decreased 30.8% to ¥144 million (US$1 million) as proceeds from the issuance of new shares

in the previous fiscal year were used to reduce debt. Since fiscal 1998, the year ended March 31, 1999, the BML Group has been

amortizing ¥260 million (US$2 million) in goodwill resulting from the acquisition of Daiichi Clinical Laboratories, Inc. over a period

of 5 years. Due to the inclusion of these expenses, net other expense for the year under review was ¥196 million (US$1 million). In

addition, the company recorded a ¥61 million (US$0.4 million) gain on sales of investments in securities, and booked an extraor-

dinary loss of ¥1,673 million (US$13 million) for the amortization of a transitional obligation arising from a change in accounting

standards for employees’ retirement benefits.

Income before income taxes and minority interests fell 45.7% to ¥2,184 million (US$19 million). Net income, after applying tax

effect accounting, declined 48.9% to ¥1,042 million (US$8 million) and net income per share decreased by ¥83.68 (US$0.67) to

¥49.62 (US$0.40).

Segment Information

Segment information has not been presented because clinical testing, the BML Group’s mainstay business, alone accounted for

more than 90% of sales, operating income and assets in the year under review.

Net Income (¥ million)Operating Margin (%)

2001 8.30

2000 9.44

1999 8.34

2001 1,042

2000 2,039

1999 1,371


Capital Expenditures: Capital expenditures totaled ¥2,749 million (US$22 million), mostly for increasing and updating testing

equipment. There were no major sales or disposal of property, plant or equipment that significantly affected production capacity.

Research and Development Expenses: Research and development expenses increased 14.3% to ¥631 million (US$5 million),

representing 1.2% of sales, a 0.1 percentage point increase over the previous fiscal year. Major R&D themes were clinical testing

technologies, undertaken at BML’s R&D Headquarters, and medical information systems, conducted by subsidiary Merits, Inc. The

R&D Headquarters has narrowed down R&D activities to five main themes: (1) immunology; (2) lifestyle-related diseases; (3) the

environment; (4) neurochemistry and (5) related fields of application. To address the shift toward advanced information technolo-

gies in the healthcare industry, Merits conducts research in a wide range of areas. R&D themes include the development of

automated clinical testing systems, information networks for clinical testing data, advanced security technologies, creation of

electronic patient charts and advanced technologies for managing medical imaging.

Financial Position: Total assets increased 3.0% to ¥49,533 million (US$399 million). Current assets climbed 16.0% to ¥18,522

million (US$149 million), mainly due to a temporary increase in cash on hand. Fixed assets decreased 3.5% to ¥31,011 million

(US$250 million).

Current liabilities were ¥18,397 million (US$148 million), an increase of 2.0%. The recording of accrued retirement benefits

and allowances was primarily responsible for a 9.8% increase in long-term liabilities to ¥3,911 million (US$31 million).

Shareholders’ equity increased 2.7% to ¥27,225 million (US$219 million) and the equity ratio declined by 0.1% to 55.0%.

Equity per share declined ¥343.86 (US$2) to ¥1,295.96 (US$10), reflecting the 1:1.3 stock split conducted on March 31, 2000, in

which 4,847,000 new shares were issued. ROE was 3.9%.

Cash Flows: Operating activities provided net cash of ¥5,185 million (US$41 million), a decrease of ¥924 million (US$7 million),

or 15.1%. This mainly reflected start-up costs for new businesses and a decline of ¥435 million (US$3 million), or 9.3%, in operat-

ing income to ¥4,239 million (US$34 million).

Investing activities used net cash of ¥3,619 million (US$29 million), a decline of ¥323 million (US$2 million), or 8.2%, mainly due

to a ¥551 million (US$4 million) decline in payments for purchases of property, plant and equipment such as testing equipment.

Financing activities used net cash of ¥1,077 million (US$8 million), a decline of ¥463 million (US$3 million), or 30.1%, mainly

reflecting the repayment of long-term debt.

As a result, cash and cash equivalents at the end of the year increased ¥634 million (US$5 million), or 24.7%, to ¥3,200 million

(US$25 million).

ROE (%)Net Income Per Share (¥)

2001 49.62

2000 133.30

1999 92.26

2001 3.88

2000 8.78

1999 7.07


Thousands ofU.S. dollars

Millions of yen (Note 3)

ASSETS 2001 2000 2001

Current assets:Cash and cash equivalents ¥ 3,200 ¥ 2,566 $ 25,827Short-term investments 2,483 1,290 20,040Marketable securities (Note 6) — 91 —Receivable, trade:

Notes and accounts 10,791 10,349 87,094Non-consolidated subsidiaries 69 56 557

Inventories (Note 4) 1,276 909 10,299Deferred income taxes (Note 12) 263 253 2,123Other current assets 489 492 3,947Allowance for doubtful accounts (49) (45) (395)

Total current assets 18,522 15,961 149,492

Property, plant and equipment:Land (Note 7) 10,029 9,827 80,944Buildings and structures (Note 7) 17,558 17,385 141,711Machinery and equipment 19,646 18,797 158,563Construction in progress 312 283 2,518

47,545 46,292 383,736Accumulated depreciation (23,952) (22,227) (193,317)

Total property, plant and equipment 23,593 24,065 190,419

Intangible assets:Software 1,703 1,891 13,745Goodwill 515 916 4,157Other intangible assets 440 360 3,551

Total intangible assets 2,658 3,167 21,453

Investments and other assets:Investments in securities (Note 6) 765 668 6,174Long-term loans 715 708 5,771Investments in and loans to non-consolidated subsidiaries (Note 5) 507 572 4,092Time deposits 598 2,000 4,827Deferred income taxes (Note 12) 1,015 185 8,192Other 1,202 794 9,701Allowance for doubtful accounts (42) (32) (339)

Total investments and other assets 4,760 4,895 38,418

Total assets ¥49,533 ¥48,088 $399,782

See Notes to Consolidated Financial Statements.

Consolidated Balance SheetsBML, INC. and Consolidated SubsidiariesMarch 31, 2001 and 2000




LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY 2001 2000 2001

Current liabilities:Payable, trade:

Notes and accounts ¥ 5,605 ¥ 5,318 $ 45,238Non-consolidated subsidiaries 14 60 113

Short-term bank loans (Note 7) 6,266 4,810 50,573Current portion of long-term debt (Note 7) 1,360 2,260 10,977Accrued expenses 4,142 4,281 33,430Accrued income taxes 844 1,185 6,812Deferred income taxes (Note 12) 1 4 8Other current liabilities 165 110 1,332

Total current liabilities 18,397 18,028 148,483

Long-term liabilities:Long-term debt (Note 7) 640 2,000 5,165Accrued retirement benefits and allowances (Note 9) 3,264 1,553 26,344Deferred income taxes (Note 12) — 2 —Other long-term liabilities 7 7 56

Total long-term liabilities 3,911 3,562 31,565

Minority interests — — —

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

Authorized—59,400,000 sharesIssued and outstanding:

2001—21,007,363 shares 4,685 — 37,8132000—16,159,510 shares — 4,685 —

Capital surplus 5,286 5,286 42,663Retained earnings 17,325 16,529 139,831Unrealized loss on securities (71) — (573)

27,225 26,500 219,734Treasury stock (0) (2) (0)

Total shareholders’ equity 27,225 26,498 219,734

Total liabilities, minority interests and shareholders’ equity ¥49,533 ¥48,088 $399,782




2001 2000 2001

Sales ¥51,082 ¥49,522 $412,284Cost of sales 30,544 29,014 246,521

Gross profit 20,538 20,508 165,763Selling, general and administrative expenses (Note 10) 16,299 15,834 131,550

Operating income 4,239 4,674 34,213

Other income (expenses):Interest income 33 33 266Interest expense (144) (208) (1,162)Other expenses (Note 11) (1,944) (474) (15,690)

Income before income taxes and minority interests 2,184 4,025 17,627

Income taxes (Note 12):Current 1,932 2,211 15,593Deferred (791) (225) (6,384)

1,141 1,986 9,209

Income before minority interests 1,043 2,039 8,418Minority interests 1 — 8

Net income ¥ 1,042 ¥ 2,039 $ 8,410

U.S. dollarsYen (Note 3)

Amounts per share:Net income ¥49.62 ¥133.30 $0.40Cash dividends 15.00 15.00 0.12


Consolidated Statements of IncomeBML, INC. and Consolidated SubsidiariesYears ended March 31, 2001 and 2000


Thousands Millions of yen

Number ofshares issued Unrealized

and Common Capital Retained loss on Treasuryoutstanding stock surplus earnings securities stock

Balance at April 1, 1999 14,860 ¥ 2,865 ¥ 2,536 ¥ 14,542 ¥ — ¥—Adjustment for the adoption of deferredtax accounting — — — 206 — —

Cash dividends — — — (223) — —Bonuses to directors and statutory auditors — — — (35) — —Issue of common stock 1,300 1,820 2,750 — — —Increase of treasury stock — — — — — 2Net income for the year — — — 2,039 — —

Balance at March 31, 2000 16,160 4,685 5,286 16,529 — 2Free-share distribution 4,847 — — — — —Increase resulting from consolidationof subsidiaries — — — 71 — —

Cash dividends — — — (278) — —Bonuses to directors and statutory auditors — — — (39) — —Decrease of treasury stock — — — — — (2)Net income for the year — — — 1,042 — —Net change of unrealized loss on securitiesduring the year — — — — (71) —

Balance at March 31, 2001 21,007 ¥4,685 ¥5,286 ¥17,325 ¥(71) ¥ 0

Thousands of U.S. dollars (Note 3)

UnrealizedCommon Capital Retained loss on Treasury

stock surplus earnings securities stock

Balance at March 31, 2000 $ 37,813 $ 42,663 $ 133,406 $ — $16Increase resulting from consolidationof additional subsidiaries — — 573 — —

Cash dividends — — (2,244) — —Bonuses to directors and statutory auditors — — (315) — —Decrease of treasury stock — — — — (16)Net income for the year — — 8,410 — —Net change of unrealized loss on securitiesduring the year — — — (573) —

Balance at March 31, 2001 $37,813 $42,663 $139,831 $(573) $ 0


Consolidated Statements of Shareholders’ EquityBML, INC. and Consolidated SubsidiariesYears ended March 31, 2001 and 2000




2001 2000 2001

Cash flows from operating activities:Income before income taxes ¥2,184 ¥4,025 $17,627Adjustments to reconcile income before income taxes tonet cash provided by operating activities:

Depreciation and amortization 4,067 4,092 32,825Increase (decrease) in allowance for doubtful accounts 15 (15) 121Increase (decrease) in accrued severance indemnities (728) 18 (5,876)Provision for employees’ retirement benefits 2,412 — 19,467Interest and dividend income (42) (44) (339)Revenue from rental of real estate (57) (71) (460)Revenue from rental of machinery — (22) —Interest expense 144 208 1,162Loss on disposal of property, plant and equipment — 82 —Amortization of special past service cost of the contributory funded pension plan — 145 —Gain on sales of investments in securities (61) — (492)Changes in assets and liabilities:

Increase in accounts receivable (395) (387) (3,188)Increase in inventories (358) (189) (2,889)Increase in accounts payable 224 455 1,808

Payment for bonuses to directors and statutory auditors (39) (35) (315)Other 35 (8) 283

Subtotal 7,401 8,254 59,734Interest and dividend received 32 39 258Rental of real estate received 57 72 460Rental of machinery received — 22 —Interest paid (151) (198) (1,219)Payment for special past service cost of the contributory funded pension plan — (132) —Income taxes paid (2,299) (1,952) (18,555)Other 145 4 1,170

Net cash provided by operating activities 5,185 6,109 41,848Cash flows from investing activities:Payments for purchases of time deposits (1,086) (4,242) (8,765)Proceeds from withdrawal of time deposits 1,330 3,952 10,734Payments for purchases of short-term investments — (12) —Payments for purchases of property, plant and equipment (2,746) (3,297) (22,163)Proceeds from sales of property, plant and equipment 194 75 1,566Payments for purchases of intangible assets (552) (352) (4,455)Payments for purchases of investments in securities (191) (121) (1,542)Proceeds from sales of investments in securities 117 — 944Payments for advances (200) (499) (1,614)Proceeds from withdrawal of advances 151 566 1,219Other (636) (12) (5,133)

Net cash used in investing activities (3,619) (3,942) (29,209)Cash flows from financing activities:Net increase (decrease) in short-term bank loans 1,456 (2,857) 11,751Borrowings for long-term loans — 1,000 —Repayment of long-term loans (2,260) (4,028) (18,240)Dividends paid (279) (223) (2,252)Proceeds from issuance of common stock — 4,570 —Net decrease (increase) in treasury stock 6 (2) 49Other 0 — 0

Net cash used in financing activities (1,077) (1,540) (8,692)Net increase in cash and cash equivalents 489 627 3,947Cash and cash equivalents at beginning of year 2,566 1,939 20,710Cash and cash equivalents resulting from consolidation of subsidiaries 145 — 1,170Cash and cash equivalents at end of year ¥3,200 ¥2,566 $25,827


Consolidated Statements of Cash FlowsBML, INC. and Consolidated SubsidiariesYears ended March 31, 2001 and 2000


1. Basis of PreparationThe accompanying consolidated financial statements have been prepared from the accounts maintained by BML, INC. (the“Company”) in accordance with the provisions set forth in the Japanese Commercial Code and in conformity with accountingprinciples and practices generally accepted in Japan, which may differ in some material respects from accounting principles andpractices generally accepted in countries and jurisdictions other than Japan.

In addition, the notes to the consolidated financial statements include information which is not required under accountingprinciples generally accepted in Japan but is presented herein as additional information.

2. Summary of Significant Accounting Policies(1) Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of the Company and its 9 subsidiaries (together, the“Group”) as of March 31, 2001 (7 as of March 31, 2000). All significant intercompany accounts and transactions have beeneliminated in consolidation.

Investments in non-consolidated subsidiaries, not significant in amount, are carried at cost.

(2) Cash and Cash EquivalentsCash and cash equivalents include all highly liquid debt instruments with a maturity of three months or less when purchased.

(3) Marketable Securities and Investments in SecuritiesUntil the year ended March 31, 2000, marketable securities had been valued principally at the lower of cost or market, cost beingdetermined by the moving average method, and investment securities other than marketable securities had been stated at costdetermined by the moving average method.

A new accounting standard for financial instruments, which became effective April 1, 2000, requires that securities be classifiedinto three categories: trading, held-to-maturity or other securities. Under the new standard, trading securities are carried at fairvalue and held-to-maturity securities are carried at amortized cost.

Marketable securities classified as other securities are carried at fair value with changes in unrealized holding gain or loss, net ofthe applicable income taxes, included directly in shareholders’ equity. Non-marketable securities classified as other securities arecarried at cost. Cost of securities sold is determined by the moving average method.

As of April 1, 2000, the Company and its consolidated subsidiaries assessed their intent to hold their investments in securitiesand classified their investments as “other securities” and accounted for the securities at March 31, 2001 in accordance with thenew standard referred to above. As a result, marketable securities of ¥91 million ($734 thousand), which had been included inmarketable securities, were reclassified to investments in securities as of April 1, 2000.

The effect of the adoption of this new standard for financial instruments was to increase income before income taxes andminority interests by ¥85 million ($686 thousand) for the year ended March 31, 2001.

(4) Allowance for Doubtful AccountsThe allowance for doubtful accounts is provided at an amount sufficient to cover possible losses on the collection of receivables.The amount of the allowance is determined mainly based on the past experience of bad debts and an estimate of the collectibilityof individual receivables based on the financial position of the debtors.

(5) InventoriesInventories are mainly stated at cost determined by the average method.

(6) Property, Plant and Equipment, and DepreciationProperty, plant and equipment are stated at cost. Depreciation is computed principally by the declining-balance method at ratesbased on the estimated useful lives of the respective assets, which vary according to general class, type of construction and use.Maintenance and repairs, including minor renewals and improvements, are charged to income as incurred.

(7) Software and DepreciationSoftware is carried at cost less accumulated depreciation, which is calculated by the straight-line method over the period availablein the Company (5 years).

Notes to Consolidated Financial StatementsBML, INC. and Consolidated Subsidiaries


(8) GoodwillThe excess of the purchase price over net assets acquired (“goodwill”) is amortized on the straight-line method over five years.

(9) LeasesNon-cancelable lease transactions are primarily accounted for as operating leases (whether such leases are classified as operatingleases or finance leases) except that lease agreements which stipulate the transfer of ownership of the leased assets to the Groupare accounted for as finance leases.

(10) Retirement Benefits and AllowancesUntil the year ended March 31, 2000, the liability for lump-sum payments is stated at 40% of the amount that would be requiredto be paid if all eligible employees voluntarily retired at the balance sheet date.

In accordance with a new accounting standard for retirement benefits which became effective April 1, 2000, accrued retirementbenefits for employees at March 31, 2001 have been provided mainly at an amount calculated based on the retirement benefitobligation and the fair value of the pension plan assets as of March 31, 2001, as adjusted for unrecognized net retirement benefitobligation at transition, unrecognized actuarial gain or loss, and unrecognized prior service cost. The Company expensed the netretirement benefit obligation at transition of ¥1,673 million ($13,503 thousand) in the year ended March 31, 2001. The retirementbenefit obligation is attributed to each period by the straight-line method over the estimated years of service of the eligible employees.

The effect of the adoption of the new standard for retirement benefits was to decrease income before income taxes and minorityinterests by ¥1,798 million ($14,512 thousand) for the year ended March 31, 2001.

The Company provided for retirement allowances to directors and statutory auditors determined based on their pertinent ruleswhich are calculated as the estimated amount to be paid if all directors and statutory auditors retired at the balance sheet date.

(11) Income TaxesEffective April 1, 1999, the Group adopted deferred tax accounting for income taxes in accordance with a new accounting standardissued by the Business Accounting Deliberation Council. This standard requires recognition of income taxes by the asset-liabilitymethod. Under the asset-liability method, deferred tax assets and liabilities are determined based on the differences betweenfinancial reporting and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws which willbe in effect when the differences are expected to reverse. The cumulative effect of this change is reported as “adjustment for theadoption of deferred tax accounting” in the consolidated statements of shareholders’ equity.

(12) Appropriation of Retained EarningsCash dividends, and bonuses to directors and statutory auditors are recorded in the financial year when such proposed appropriationsof retained earnings are approved by the Board of Directors and at the shareholders’ meeting.

(13) Income per ShareThe computation of non-diluted net income per share is based on the weighted average number of shares outstanding during therespective years. Presentation of fully diluted net income per share was not applicable due to no potential common shares.

3. U.S. Dollar AmountsThe Company maintains its accounting records in yen. The U.S. dollar amounts included in the accompanying consolidated financialstatements and notes thereto represent the arithmetic results of translating yen into U.S. dollars at ¥123.90=U.S.$1, the rate ofexchange prevailing on March 31, 2001. The inclusion of such dollar amounts is solely for the convenience of the reader and is notintended to imply that assets and liabilities which originated in yen have been or could readily be converted, realized or settled indollars at that or any other rate.


4. InventoriesInventories at March 31, 2001 and 2000 consisted of the following:

Thousands ofMillions of yen U.S. dollars

2001 2000 2001

Finished products ¥ 314 ¥166 $ 2,534Work in process 492 293 3,971Raw materials and supplies 470 450 3,794

¥1,276 ¥909 $10,299

5. Investments in and Loans to Non-consolidated SubsidiariesInvestments in and loans to non-consolidated subsidiaries at March 31, 2001 and 2000 consisted of the following:


2001 2000 2001

Investments ¥276 ¥326 $2,228Loans 231 246 1,864

¥507 ¥572 $4,092

6. Marketable Securities and Investments in SecuritiesInformation regarding marketable securities classified as other securities at March 31, 2001 was as follows:

Millions of yen

Acquisition cost Carrying value Unrealized gain (loss)

Securities whose carrying value exceeds their acquisition cost:Equity securities ¥ 38 ¥ 56 ¥ 18

Subtotal 38 56 18

Securities whose acquisition cost exceeds their carrying value:Equity securities 431 292 (139)

Subtotal 431 292 (139)

Total ¥469 ¥348 ¥(121)

Thousands of U.S. dollars

Acquisition cost Carrying value Unrealized gain (loss)

Securities whose carrying value exceeds their acquisition cost:Equity securities $ 307 $ 452 $ 145

Subtotal 307 452 145

Securities whose acquisition cost exceeds their carrying value:Equity securities 3,479 2,357 (1,122)

Subtotal 3,479 2,357 (1,122)

Total $3,785 $2,809 $ (977)


Sales of securities classified as other securities amounted to ¥120 million ($969 thousand) with aggregate gain and loss of ¥61million ($492 thousand) for the year ended March 31, 2001.

Information regarding securities recorded at cost at March 31, 2001 was summarized as follows:


Non-marketable equity securities ¥417 $3,365

The carrying value and market value of marketable equity securities included in marketable securities (current) and investmentsin securities (non-current) at March 31, 2000 were as follows:

Millions of yen

2000

Current:Carrying value ¥ 91Market value 171

Unrealized gain ¥ 80

Non-current:Carrying value ¥439Market value 556

Unrealized gain ¥117

7. Short-Term Bank Loans and Long-Term DebtShort-term bank loans are represented by overdraft facilities, and with interest rates of 1.4% on the average at March 31, 2001 and 2000.

Long-term debt at March 31, 2001 and 2000 consisted of the following:


2001 2000 2001

Loans from banks, due 2001 to 2005 ¥2,000 ¥4,260 $16,142Current portion of long-term debt (1,360) (2,260) (10,977)

¥ 640 ¥2,000 $ 5,165

The interest rates of the above loans are 1.7% and 1.8% on the average at March 31, 2001 and 2000, respectively.The aggregate annual maturities of long-term debt during the next five years were as follows:

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

2002 ¥1,360 $10,9772003 360 2,9052004 248 2,0022005 32 258


At March 31, 2001 and 2000, the debt with collateral consisted of the following:


2001 2000 2001

Short-term bank loans ¥3,600 ¥1,940 $29,056Current portion of long-term debt 1,000 1,900 8,071Long-term debt — 1,000 —

¥4,600 ¥4,840 $37,127

Assets pledged as collateral for short-term bank loans, current portion of long-term debt, and long-term debt at March 31, 2001and 2000 were as follows:


2001 2000 2001

Land ¥3,072 ¥3,072 $24,794Buildings and structures 4,914 5,232 39,661

¥7,986 ¥8,304 $64,455

8. LeasesProperty held under the finance leases which were not capitalized as assets outstanding at March 31, 2001 and 2000 were as follows:

At March 31, 2001

Millions of yen Thousands of U.S. dollars

Acquisition Accumulated Net carrying Acquisition Accumulated Net carryingcost depreciation amount cost depreciation amount

Machinery and equipment ¥4,459 ¥2,366 ¥2,093 $35,989 $19,096 $16,893Software 318 175 143 2,566 1,412 1,154

¥4,777 ¥2,541 ¥2,236 $38,555 $20,508 $18,047

At March 31, 2000

Millions of yen

Acquisition Accumulated Net carryingcost depreciation amount

Machinery and equipment ¥5,423 ¥2,831 ¥2,592Software 310 124 186

¥5,733 ¥2,955 ¥2,778


Future rental payments under the finance leases outstanding at March 31, 2001 and 2000 were as follows:


2001 2000 2001

Year ending March 31:2001 ¥ — ¥1,186 $ —2002 and thereafter — 1,701 —2002 1,000 — 8,0712003 and thereafter 1,326 — 10,702

¥2,326 ¥2,887 $18,773

Depreciation charges under the finance leases for the years ended March 31, 2001 and 2000 were ¥1,280 million ($10,331thousand) and ¥1,377 million, respectively.

9. Retirement BenefitsThe Group has defined benefit pension plans. The Company has a contributory pension plan to supplement the public welfare pensionplan, and 2 consolidated subsidiaries have other non-contributory pension plans. The Company and its consolidated subsidiarieshave lump-sum retirement benefit plans.

The table below sets forth the plans’ funded status and amounts recognized in the balance sheet at March 31, 2001.


Projected benefit obligation ¥(7,473) $(60,315)Plan assets at fair value 3,907 31,534

Projected benefit obligation in excess of plan assets (3,566) (28,781)Unrecognized net actuarial losses 1,154 9,314

Accrued employees’ retirement benefits ¥(2,412) $(19,467)

Pension costs related to the plans, including amortization of unfunded projected benefit obligations for the year ended March 31,2001 were as follows:


Current service cost ¥ 445 $ 3,592Interest cost 218 1,759Expected return on plan assets (60) (484)Amortization of the net retirement benefit obligation at transition 1,673 13,503

Net periodic benefit cost ¥2,276 $18,370


The Group’s assumptions as of March 31, 2001, which were used in determining pension costs and accrued employees’retirement benefits shown above were as follows:

Allocation of retirement benefit cost Flat-allocationDiscount rate 2.7% (3.5% as of April 1, 2001)Expected rate of return on plan assets 1.5%Years of allocation of actuarial losses 10 years

10. Research and Development ExpensesResearch and development expenses included in selling, general and administrative expenses for the years ended March 31, 2001and 2000 were ¥631 million ($5,093 thousand) and ¥552 million, respectively.

11. Other Income (Expenses)—Other ExpensesOther income (expenses)—other expenses for the years ended March 31, 2001 and 2000 consisted of the following:


2001 2000 2001

Rental revenue of real estate ¥ 57 ¥ 71 $ 460Rental cost of real estate (32) (55) (258)Rental revenue of machinery and equipment 14 22 113Rental cost of machinery and equipment (2) (22) (16)Amortization of goodwill (276) (480) (2,228)Gain on sales of property, plant and equipment 10 4 81Loss on disposal of property, plant and equipment (121) (82) (977)Payment for special past service cost of the contributory funded pension plan — (145) —Amortization of net retirement benefit obligation at transition (1,673) — (13,503)Gain on sales of investments in securities 61 — 492Other, net 18 213 146

¥(1,944) ¥(474) $(15,690)


12. Income TaxesThe significant components of deferred tax assets and liabilities at March 31, 2001 and 2000 were as follows:


2001 2000 2001

Deferred tax assets:Accrued bonuses ¥ 204 ¥173 $ 1,646Accrued retirement benefit 1,124 398 9,072Accrued enterprise taxes 75 103 605Unrealized gain 68 56 549Unrealized loss on securities 51 — 412Loss on valuation of investments in securities — 51 —Loss on valuation of golf club memberships 51 — 412Tax loss carryforwards — 78 —Other 63 61 508

Total gross deferred tax assets 1,636 920 13,204Valuation allowance — (77) —

Total deferred tax assets 1,636 843 13,204Deferred tax liabilities:

Reserves under Special Taxation Measures Law (357) (398) (2,881)Other (2) (13) (16)

Total deferred tax liabilities (359) (411) (2,897)

Net deferred tax assets ¥1,277 ¥432 $10,307

A reconciliation of the difference between the statutory tax rate and the Group’s effective tax rate for the years ended March 31,2001 and 2000 were as follows:

2001 2000

Statutory tax rate 41.7% 41.7%Expenses not deductible for tax purposes 3.8 1.9Non-taxable dividend income (0.6) (0.2)Tax on undistributed profits and fixed charges from inhabitants’ tax 9.3 6.4Amortization of goodwill 2.4 2.1Reduction of income taxes arising from carryforward of prior years’ opening losses (3.6) (3.0)

Other, net (0.7) 0.4

Effective tax rate 52.3% 49.3%

13. Segment InformationThe Group is primarily engaged in the business of the clinical testing segment. As sales, operating income and total assets of theclinical testing segment constituted more than 90% of the consolidated totals for the years ended March 31, 2001 and 2000, thedisclosure of business segment information has been omitted.

The Company had no consolidated subsidiary or branch in foreign countries or areas for the years ended March 31, 2001 and 2000.


14. Related Party Transactions(1) Kenji Kondo is the chairman of the Company and a main shareholder of the Company. At March 31, 2001, Kenji Kondo held

18% directly and 24% indirectly of the total outstanding shares of common stock of the Company.Main transactions with Kenji Kondo at March 31, 2001 and 2000, were as follows:


2001 2000 2001

Other current assets ¥ 8 ¥ 7 $ 65Time deposits 232 232 1,872

Purchases from Kenji Kondo for the years ended March 31, 2001 and 2000, were as follows:


2001 2000 2001

Expense for rental of real estate ¥95 ¥105 $767

(2) Kenji Kondo is the Chairman of the Company and the Vice-Chairman of Arima Memorial Medical Fund.Main transactions with Arima Memorial Medical Fund at March 31, 2001 and 2000, were as follows:


2001 2000 2001

Notes and accounts receivable—trade ¥4 ¥6 $32

Sales to Arima Memorial Medical Fund for the years ended March 31, 2001 and 2000, were as follows:


2001 2000 2001

Net sales ¥25 ¥18 $202

(3) Kensuke Kondo is a director of the Company and the president of Matoba Lease Inc. At March 31, 2001, Kensuke Kondo held7.0% directly and 1.8% indirectly of the total outstanding shares of the common stock of the Company, and 100% of the totaloutstanding shares of common stock of Matoba Lease Inc.

Main transactions with Matoba Lease Inc. at March 31, 2001 and 2000, were as follows:


2001 2000 2001

Other current assets ¥2 ¥2 $16Time deposit 8 8 65

Purchases from Matoba Lease Inc. for the years ended March 31, 2001 and 2000, were as follows:


2001 2000 2001

Expense for rental of real estate ¥29 ¥29 $234


The Board of Directors and Shareholders

BML, INC.

We have audited the consolidated balance sheets of BML, INC. and consolidated subsidiaries as of March 31, 2001 and

2000 and the related consolidated statements of income, shareholders’ equity and cash flows for the years then ended, all

expressed in yen. 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 BML, INC. and its consolidated subsidiaries at March 31, 2001 and 2000, and the consolidated results of their

operations and cash flows for the years then ended in conformity with accounting principles and practices generally accepted

in Japan applied on a consistent basis.

As described in Note 2 to the consolidated financial statements, BML, INC. and consolidated subsidiaries have adopted new

accounting standards for financial instruments and retirement benefits 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 3 to the consolidated financial statements.

June 28, 2001

See Note 1 to the consolidated financial statements which explains the basis of preparation of the consolidated financial statements of

BML, INC. and consolidated subsidiaries under Japanese accounting principles and practices.

Hibiya Kokusai Bldg.2-2-3, Uchisaiwai-choChiyoda-ku, Tokyo 100-0011C.P.O. Box 1196, Tokyo 100-8641Telephone: (03) 3503-1100Fax: (03) 3503-1197

Independent Auditors’ Report

Corporate Data

Date Founded: July 1955

Headquarters: 5-21-3 Sendagaya, Shibuya-ku, Tokyo 151-0051, Japan

Capital: ¥4,684,586,000 (Approx. U.S.$37 million)

Common Stock: Issued: 21,007,363 sharesNumber of shareholders: 1,306

The minimum trading lot for the company’s shares on the over-the-counter (OTC) market in Japan waschanged from 1,000 shares to 100 shares on August 1, 2000.

Number of Employees: 1,842 (full-time employees only)

Principal Shareholders: Kenji Kondo 18.0%BML Planning, Inc. 17.1%Kensuke Kondo 7.0%Estate Kogyo Limited Company 6.6%The Asahi Bank, Ltd. 4.1%Motoyoshi Arai 4.0%Takeo Kumazawa 3.2%Toshio Kumazawa 3.2%Japan Trustee Services Bank, Ltd. (Trust Account) 2.8%The Dai-ichi Mutual Life Insurance Company 2.8%

BML Companies: Kyodo Igaku Laboratories, Inc.*Merits, Inc.*PCL Japan, Inc.*Tokyo Koshueisei Laboratories, Inc.*Biomedical Science Laboratory, Inc.*Japan Clinical Service, Inc.*Daiichi Clinical Laboratories, Inc.*Ehime Medical Laboratories, Inc.*Allegro, Inc.*Matsudo Medical Laboratories, Inc.Kashima Clinical Laboratory, Inc.Sohgo Shoji, Inc.BML Fukushima, Inc.

* Consolidated subsidiary

(As of March 31, 2001)


BML, INC.BML, INC.BML, INC.BML, INC.BML, INC.

Printed in Japan on recycled paper.

Head Office 5-21-3, Sendagaya, Shibuya-ku, Tokyo 151-0051, Japan

Tel: 81-3-3350-0111 Fax: 81-3-3350-1180

BML General Laboratory 1361-1, Matoba, Kawagoe-shi, Saitama 350-1101, Japan

Tel: 81-49-232-3131 Fax: 81-49-232-3132

Home Page Address http://www.bml.co.jp/

BML, IN

C. A

nnual Report 2001

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