april 14, 2005 aderans co., ltd.pdf.irpocket.com/c8170/kzoo/r52z/slre.pdf · [belgium] camaflex...

Consolidated

(Unaudited) 1

April 14, 2005 ADERANS CO., LTD.

Consolidated Financial Statements (Unaudited) for the Fiscal Year Ended February 28, 2005

(Translated from the Japanese original) Corporate information Code: 8170 Listing: Tokyo Stock Exchange, Osaka Securities Exchanges (URL http://aderans.co.jp) Head Office: Metropolis of Tokyo Representative: Katsuji Tokumaru President and Representative Director Contact: Michiyoshi Takahashi General Manager, Investor Relations Div. Telephone: 81-3-3350-3268 Date of Board Meeting for Settlement of Accounts: April 14, 2005 Applicability of U.S. GAAP: Not applicable

1. Consolidated Results for Fiscal 2005 (from March 1, 2004 to February 28, 2005) (1) Consolidated results Millions of yen (amounts rounded down)

Fiscal 2005 Fiscal 2004 YOY change (%) YOY change (%)

Net sales 70,625 (4.4) 73,881 (4.2) Operating income 8,468 (21.6) 10,796 (16.8) Recurring profit 8,756 (21.1) 11,093 (14.5) Net income （3,568） ― 5,001 (19.0) Net income per share (yen) （88.02） 120.46

Diluted Net Income per share ― ― Return on shareholders’ equity (%) （5.0） 6.9 Recurring profit to assets (%) 10.1 12.1 Recurring profit to sales (%) 12.4 15.0 (Notes) 1) Equity in earnings or losses of affiliates: ― million yen (Fiscal 2005)

― million yen (Fiscal 2004)

2) Average number of outstanding shares during the fiscal year (consolidated): 40,536,343 shares (Fiscal 2005) 40,034,440 shares (Fiscal 2004) 3) Changes to accounting methods: none

4) Percentage shown in rows for net sales, operating income, recurring profit and net income are year-on-year changes.

(2) Consolidated financial position Millions of yen

Fiscal 2005 Fiscal 2004

Total assets 83,140 91,048 Shareholders’ equity 67,477 73,884 Shareholders’ equity ratio (%) 81.2 81.2 Shareholders’ equity per share (yen) 1,671.40 1,798.67 (Note) Number of outstanding shares at fiscal year-end (consolidated): 40,371,833 shares (Fiscal 2005) 40,977,986 shares (Fiscal 2004)

Consolidated

(Unaudited) 2

(3) Consolidated cash flows Millions of yen


Cash flow from operating activities 7,868 7,558 Cash flow used in investing activities (8,354) (6,309) Cash flow used in financing activities (2,825) (3,458) Cash and cash equivalents at fiscal year-end 13,356 16,819

(4) Scope of consolidation and application of the equity method

Consolidated subsidiaries 27 Non-consolidated subsidiaries accounted for using the equity method ― Affiliates accounted for using the equity method ―

(5) Changes in the scope of consolidation and the application of the equity method

Consolidated subsidiaries (added) ― (excluded) 1 Companies under the equity method (added) ― (excluded) ―

2. Anticipated Consolidated Results for Fiscal 2006 (March 1, 2005 to February 28, 2006)

Millions of yen

6 months ending 12 months ending August 31, 2005 February 28, 2006

Net sales 35,700 74,400 Recurring profit 3,500 10,100 Net income 2,000 6,000

cf. Anticipated net income per share (12 months): 148.62 yen (Note) The figures in the table above are estimates based on management’s assump tions and beliefs in light of information available

as of the date on which these performance-related figures were disclosed. Please understand that actual results may differ substantially from estimates due to factors unforeseen at this time.

Consolidated

(Unaudited) 3

1. Aderans Co., Ltd. and its Subsidiaries (The Aderans Group) The Aderans Group consists of Aderans Co., Ltd. and its 33 subsidiaries (27 consolidated and six non-consolidated subsidiaries). The Group is engaged in hair-related businesses, including the manufacturing and sales of wigs, beauty, hairdressing and hair-care services, hair-transplant services, and related businesses. The organization and major activity Group companies, including Aderans Co., Ltd. are as follow:

Business Segment Major Business Major Companies in the Group

- Sales of custom-made wigs, beauty, hairdressing and hair-care services. Aderans Co., Ltd. (reporting company for the consolidated financial statements)

Japan

- Sales of ready-made wigs FONTAINE Co., Ltd.

- Manufacturing of wigs Aderans Thai Ltd. World Quality Co., Ltd. Aderans Philippines, Inc.

Asia (excluding Japan)

- Sales of custom-made wigs, beauty, hairdressing and hair-care services Aderans Inc. (Taiwan)

- Sales of ready-made wigs General Wig Manufacturers, Inc. Rene of Paris

- Hair-transplant services Bosley, Inc.

North America

- Research and development on hair-regeneration treatments

Aderans Research Institute, Inc.

Hair-related businesses

- - - - -

Manufacturing and sales of wigs Beauty, hairdressing and hair-care

services Sales of cosmetics and non-medical

products Hair-transplant services Research and development on

hair-regeneration treatments

Europe - Sales of ready-made wigs Camaflex S.A.S. Trend Hair Supplies Co., Ltd.

- Advertising and golf course management ADN Co., Ltd.

Japan

- Real estate agency ADE Co., Ltd.

Other businesses - - - -

Advertising Golf course management Real estate agency Holding company operation

Overseas - Holding company Aderans Holding Co., Inc. Aderans Europe B.V.

Non-consolidated subsidiaries - Six non-consolidated subsidiaries

Consolidated

(Unaudited) 4

The above-named companies in the ADERANS Group are shown in the following diagram:

Notes:

consolidated subsidiaries flow of products (wigs)

Aderans Co., Ltd. (reporting company for the consolidated financial

statements)

Sales of wigs (17 companies）

[Japan] FONTAINE Co., Ltd.

[U.S.A.] Rene of Paris, and four others

[France] Camaflex S.A.S., and 1 other

[Germany] Creation de Paris Camaflex

Vertriebs G..m.b.H. and 1 other

[The Netherlands] D. Van Nooijen B.V.

[Belgium] Camaflex S.A.

[U.K.] Trend Hair Supplies Co., Ltd.

[Taiwan] Aderans Inc. (Taiwan)

[Thailand] Aderans Siam Co., Ltd.

[Republic of Korea] Aderans Korea Inc.

[Singapore] Aderans Singapore Pte, Ltd.

Manufacturing of wigs

(Five companies)

[Thailand] Aderans Thai Ltd.

[Thailand] World Quality Co., Ltd.

[The Philippines]

Aderans Philippines, Inc.

(Two other non-consolidated subsidiaries)

Hair-transplant related (Three companies)

Bosley Medical Institute, Inc.

[U.S.A.]

(Two other consolidated subsidiaries)

Research and development on

hair-regeneration treatments

Aderans Research Institute, Inc. <Hair-related business>

[Japan] ADN Co., Ltd. (Advertising agency

and golf course management)

[Japan] ADE Co., Ltd. (Real estate agency

and sales of custom-made wigs)

[U.S.A.] Aderans Holding Co., Inc.

(Holding Company)

[The Netherlands] Aderans Europe B.V.

(Holding Company)

[France] Gesmofra S.A.S. (Holding Company)

(One other consolidated subsidiary and

one other non-consolidated subsidiary)

<Other businesses>

Aderans Research Institute, Inc

<Hair-related businesses>

[U.S.A.]

Fontaine Co. Ltd., U.S.A., Europe, Taiwan, Korea

Consolidated

(Unaudited) 5

1. Aderans Co., Ltd. and its Subsidiaries (The Group) (1) Management policy of the Aderans Group

The Aderarns Group strives to provide a comprehensive range of products and services, from wigs to hairdressing, haircare and hair transplant services, that alleviates whatever concerns people may have about their hair. We are a global group of companies involved in hair-related businesses. We pursue activities from a client-oriented perspective and work to elicit a higher level of satisfaction not only from clients but also from shareholders and employees. Our efforts are based on a mission statement that emphasizes our development into a trustworthy organization with products and services in constant demand from clients and society as a whole. Indeed, we seek to epitomize the “good company” ideal. (2) Basic policy on distributing profit

One of the Company’s most important policies is the return of profits to shareholders. Our primary objective is, of course, to

maintain stable dividends, but we also aim to raise the payout ratio. In addition, while we seek to return profits to shareholders through the buyback of treasury stock, we promote growth through the implementation of investment strategies, such as the expansion of retained earnings to foster business development that will reinforce management capabilities and financial position in the medium to long term.

Our goal is to achieve a shareholder return ratio of 50% or higher on non-consolidated net income.

(3) Medium- to long-term management goals and strategies, and pertinent issues The operating environment for companies in hair-related businesses has undergone considerable change at home and abroad. In Japan, we have faced persistently difficult conditions. The men’s market continues to be intensely competitive, paralleling

diversification of products and services and compounded by slow growth in target age groups because of years of low birthrates has narrowed latent demand. Meanwhile, in the women’s market, demand from outside our main target age group has stalled.

The situation in Japan could become even more challenging with the launch of oral hair-growth treatments and the participation of new entries into hair-related businesses from outside the industry.

Overseas markets are also characterized by heightened competition, as market expansion prompts companies to advance techniques and products and carve out complementary marketing channels to attract more clients.

To get profits back on track after two years of sluggish results, Aderans decided to formulate a new medium-term management plan better geared to the times. Through this plan, which began March 1, 2005, the Company will utilize the comprehensive business capabilities of the Aderans Group to create enhanced corporate value in the market for hair-related products and services.

We are confident that the new plan will be a springboard for constructive business development and lead to a recovery in profits.

i) Expand demand base in domestic men’s market as a total hair solution organization by utilizing full range of products, from wigs and medical care

Our priority in the domestic men’s market is to expand our base of new male clients. We will achieve the desired results through energetic promotional activities, including greater application of funds toward advertising. In addition, we will create new markets through the development of products and services geared to market needs and through tie-ups with hair-transplant clinics.

ii) Widen demand base in domestic women’s market through joint projects with Fontaine, a leader in the fashion wig market

In the custom-made wig market, we will enhance recognition of two brands — Eve and Sifore — in Japan among women in our main target age group through increased promotional activities and the launch of new products.

In the ready-made wig market, we have taken a stronger group perspective to growth. We are working with Fontaine to boost demand for fashion wigs and accessories through such approaches as a joint sales system and market development spotlighting young women and middle-aged women.

iii) Strengthen high-value-added salon network, particularly new-concept salons handling wigs and hairpieces

To address diversifying market needs, we will strive to expand the group wide sales network and develop new markets. Toward this end, we will promote service-oriented salons, which are different to the directly operated salons currently

used to sell products. We will also formulate a new business model utilizing regular distribution channels as well as business alliances and mergers and acquisitions (M&A).

Consolidated

(Unaudited) 6

iv) Improve overseas market share and profitability by reinforcing wig sales and promoting the hair transplant business Business results are growing steadily in regions where we have already established a presence through Group companies.

Wider market shares in these areas will be the building blocks of a stronger overall business foundation that supports higher profitability from operations abroad.

To complement these results, we will pursue M&A opportunities and set up local representative offices in regions where we have yet to achieve a prominent foothold. These efforts will strengthen Group sales capabilities.

(4) Basic policy on corporate governance

Aderans actively works to enhance corporate governance. Toward this end, we have applied particular effort to the establishment of a flexible organization primed for speedy decisions on business strategies and their implementation and the execution of clear, timely and impartial disclosure of corporate information on business activities to all stakeholders.

i) Corporate structure and internal controls (Basic description) Aderans maintains a corporate auditor system, and internal controls have been set up according to the positions described below.

In addition, we have clearly defined the responsibility for making decisions and implementing them, with the Chief Executive Officer (CEO) accountable for long-term business strategies and the Chief Operating Officer (COO) responsible for executing measures aimed at achieving the goals of stated strategies.

Board of Directors: Highest decision-making authority on business strategies; meets at least once a month; chaired by COO. Board of Auditors: Compris es one full-time auditor and three external auditors; meets at least once a month Executive Committee: Comprises managing directors and full-time auditor; meets at least once a month Reporting Sessions: Comprises directors and general managers; meets twice a month.

(Status) Internal controls are undertaken through Board of Directors’ meetings, which are held at least once a month. The Board functions as the highest decision-making authority and discusses and prioritizes topics of particular importance to operations.

The Board of Auditors also meets at least once a month. Corporate auditors attend Board of Directors’ meetings and contribute to sound business practices at Aderans by strictly monitoring the performance of directors. The Executive Committee discusses topics already tapped as priority issues by the Board of Directors, while reporting sessions provide opportunities for directors to get timely updates on activities in each division and discuss topics with general managers. Both groups meet regularly.

(Disclosure) Aderans believes the disclosure of business information must be a committed and timely effort to ensure management transparency. Relevant investor relations materials and news releases are provided through the Investor Relations Divis ion.

ii) Risk management

Aderans has established a structure to ensure appropriate responses to risk-management issues. For example, if a scandal or an unforeseen situation arises, an emergency response headquarters will be set up immediately with the president in charge. We are building a system to deliver quick explanations to investors and the market at large in the event a problem appears.

As for compliance, we encourage each and every d irector and employee of the Company to improve his or her understanding

of compliance, and we have established a systems featuring educational seminars and other awareness measures to make management and staff conscious of behavior conforming to all applicable laws and social standards.

(5) Business targets

As a measurement of medium- to long-term management efficiency, we endeavor to uphold a ratio of 20% or more on recurring profit to sales on Consolidated basis. We also strive to uphold a consolidated return on equity (ROE) of 10% or higher by implementing strategies that utilize group strengths to further enhance capital efficiency.

Consolidated

(Unaudited) 7

3. Business Results and Financial Position (1) Business results for fiscal 2005

(i) Business environment in fiscal 2005 During fiscal 2005, the fiscal year ended February 28, 2005, the domestic economy was dealt several psychological blows, the

ones of greatest impact being second-half yen appreciation and subsequent skyrocketing prices on raw materials and an incredible frequency of natural disasters generating wide-scale destruction at home and abroad. Nevertheless, signs of gradual recovery appeared amid the gloom, as exports grew and capital spending increased as corporate earnings improved.

In the hair-related business, competition intensified with industrywide development of products and services geared to changing consumer needs and the implementation of marketing methods aimed at distinguishing one company from the others.

In response, Aderans executed strategies appropriate to the business situations prevailing in each country where the Company maintains a presence, and endeavored to boost operating efficiency while improving corporate value.

In Japan, our top priority was to cultivate demand from new clients. In the men’s market, we reviewed advertising activities and increased our advertising budget accordingly, and in the women’s market, we introduced a new series — Eve Queen — in March 2004 while continuing to elevate recognition of both the Eve and Sifore series.

Turning overseas, in Europe, we strengthened the marketing base of our wig sales company by adding directly operated salons to the network and were rewarded with higher profits. In the United States, our activities were directed toward expansion of the hair transplant business and the establishment of a profitability-driven office network to secure new demand.

With regard to our manufacturing facilities, we steadily raised output at Aderans Philippines, Inc., and unveiled a comprehensive production system to complement operations in Thailand.

Despite these efforts, net sales for fiscal 2005 fell 4.4% year-on-year, to ¥70.6 billion. On the profit front, operating income tumbled 21.6%, to ¥8.4 billion, and recurring profit dropped 21.1%, to ¥ 8.7 billion. We recorded a net loss of ¥3.5 billion, owing to an impairment losses of ¥6.8 billion caused by the early adoption of “Accounting Standard for Impairment of Fixed Assets,” effective from fiscal 2005. This amount was recorded as an extraordinary loss for fiscal 2005.

The year-end dividend for fiscal 2005 will be ¥19 per share, up ¥3 from fiscal 2004. Results by geographical segment are as follows:

<Japan> Demand for custom-made wigs, our key product group, remained sluggish despite the March 2004 introduction of Eve Queen

for women and concerted efforts to promote the Aderans’ Hair Club to men. We noticed a slight improvement in the second half of the year, as our revised advertising strategy bore fruit and new products permeated market consciousness. Nevertheless, sales of custom-made wigs in Japan decreased 7.0%, to ¥31.4 billion. Sales of ready-made wigs bucked the downward trend, rising 2.1%, to ¥9.4 billion, thanks in part to greater access to clients through the opening of more directly operated salons and new locations inside department stores as well as a long-awaited rebound in sales through beauty salons. Sales of other hair-related products reached ¥5.0billion, down 9.4%. Service revenues amounted to ¥9.3 billion, down slightly because of reduced demand for hair-growth services aimed at young men. Revenue from other operations came to ¥ 511 million, up 15.1% while intersegment sales contributed ¥56 million, down 28.4%. Consequently, aggregate net sales from operations in Japan slipped 4.6%, to ¥55.8 billion. Operating income fell 15.8%, to

¥12.2 billion. <Asia, excluding Japan> In Taiwan, where the impact of Severe Acute Respiratory Syndrome—the SARS virus—caused sales to falter in fiscal 2004,

Aderans tried, without much luck, to rekindle interest from new clients. Sales of custom-made wigs were ¥258 million, down 11.3%. We also encountered shrinking demand for ready-made wigs, which led to sales of just ¥73 million, down 32.4%. Sales of other hair-related products generated ¥56 million down 5.9%, while service revenues reached ¥88 million, down 17.5% and intersegment sales settled at ¥3.7 billion, down13.8%. As a result, aggregate net sales from operations in Asia outside of Japan dropped 14.0%, to ¥4.2 billion. Operating income

decreased 19.7%, to ¥793 million.

<North America> In the hair transplant business, the establishment of new satellite offices and enhanced call center activities had a positive

impact on sales, fostering steady demand from existing clients. Sales of ready-made wigs were solid, supported particularly well by mail order and wholesale operations. Unfortunately, sales to large-scale retailing chains remained sluggish. In the end,

Consolidated

(Unaudited) 8

sales of ready-made wigs brought in ¥2.8 billion, down 11.7%, while sales of custom-made wigs contributed ¥371 million, down 6.7%. Sales of other hair-related products provided ¥250 million, down 5.5%. Service revenues hit ¥8.2 billion, down 0.6%, and intersegment sales reached ¥592 million, up 10.8%. Overall, aggregate net sales from North American operations edged down 3.2%, to ¥12.3 billion. The operating loss, after

deducting the consolidation difference, decreased 34.2%, to ¥688 million. <Europe> Sales in France and the United Kingdom steadily improved, but sales in Germany were streamlined by heightened

competition. As a result, sales of custom-made wigs amounted to ¥213 million, up 23.9%, and ready-made wigs, just ¥2.0 billion, down 4.7%. Sales of hair-related products reached ¥297 million, up 1.5%, while service revenues came to ¥55 million, up 27.4%. Consequently, aggregate net sales from European operations fell 1.7%, to ¥2.6 billion. Operating income, after deducting the

consolidation difference, increased, to ¥107 million.

(ii) Outlook for Fiscal 2006 Our outlook for the fiscal year ending February 28, 2006, on a consolidated basis, calls for net sales of ¥74.4 billion, up 5.3%,

recurring profit of ¥10.1 billion, up 15.3% and net income of ¥6.0 billion. (2) Financial Position

As of February28, 2005, consolidated cash and cash equivalents stood at ¥13.3 billion, down 20.6% from the beginning of the period.

The status of cash flows from operating, investing and financing activities and their respective factors at the end of fiscal 2005 were as follows:

Net cash provided by operating activities amounted to ¥7.8 billion, up 4.1%. Positive factors in this result included ¥192 million in loss before income taxes, ¥6.8 in impairment loss, ¥2.5 billion in depreciation and amortization, which outweighed such uses funds as ¥5.8 billion for income taxes.

Net cash used in investing activities increased 32.4%, to ¥20.4 billion. Proceed from sales of marketable securities amounted to

¥10.5 billion, while payment was ¥9.9 billion for purchase of marketable securities, ¥4.1 billions for increase of time deposit, ¥2.4 billion for purchase of fixed assets and ¥2.1 billion for purchase of investment securities.

Net cash used in financing activities fell down 18.3%, to ¥633 million. Cash dividend paid was ¥1.4 billion, and payment for buyback of treasury stock was ¥1.4 billion.

Consolidated

(Unaudited) 9

4. State of Sales (Sales Results) Millions of yen


(from March 1, 2004 to February 28, 2005)

(from March 1, 2003 to February 29, 2004) Product Category

Amount Composition (%)


YoY Change

(%)

Custom-made wigs 32,259 45.7 34,632 46.9 (6.9)

Ready-made wigs 14,452 20.5 14,776 20.0 (2.2)

Other merchandise 5,665 8.0 6,205 8.4 (8.7)

Service revenue 17,736 25.1 17,822 24.1 (0.5)

Hair-related business

Total 70,113 99.3 73,436 99.4 (4.5)

Other operations 511 0.7 444 0.6 15.1

Grand Total 70,625 100 73,881 100 (4.4) (Notes) 1) Above amounts do not include consumption tax.

Consolidated

(Unaudited) 10

5. Consolidated Financial Statements

(1) Consolidated Balance Sheets Millions of yen

Fiscal 2005 (as of February 28, 2005)




Change

Assets Current assets 36,492 43.9 35,029 38.5 1,463 Cash and deposits 13,626 12,965 661 Notes and accounts receivable - trade 4,815 5,617 (802)

Marketable securities 12,199 10,111 2,088 Inventories 3,787 3,966 (179) Deferred tax assets 984 1,213 (229) Other current assets 1,134 1,222 (88) Allowance for doubtful accounts (54) (67) 13 Fixed assets 46,648 56.1 56,018 61.5 (9,370) Tangible fixed assets 26,955 32.4 31,837 34.9 (4,882) Buildings and structures 13,440 14,751 (1,311) Land 11,616 13,996 (2,380) Other tangible fixed assets 1,897 3,090 (1,193) Intangible fixed assets 4,897 5.9 9,713 10.7 (4,816) Goodwill 112 830 (718) Consolidation difference 2,570 6,222 (3,652) Other intangible fixed assets 2,214 2,659 (445)

Investments and other fixed assets 14,795 17.8 14,467 15.9 328 Investment securities 5,082 7,458 (2,376) Guarantee deposits 3,788 3,933 (145) Deferred tax assets 2,780 1,852 928 Other fixed assets 3,221 1,242 1,979 Allowance for doubtful accounts (77) (19) (58)

Total assets 83,140 100.0 91,048 100.0 (7,908)

Consolidated

(Unaudited) 11

Millions of yen





Change

Liabilities Current liabilities 10,214 12.3 11,778 12.9 (1,564) Notes and accounts payable - trade 1,253 985 268 Accrued corporate and other taxes 1,281 2,774 (1,493) Deferred tax liabilities 5 3 2 Allowance for employees’ bonus 1,283 1,405 (122) Warranty reserve 126 124 2

Allowance for returned goods 96 124 (28) Advances received 3,066 3,075 (9) Other current liabilities 3,101 3,284 (183) Long-term liabilities 5,362 6.4 5,270 5.8 92 Employees’ severance and retirement

benefits 3,362 3,081 281

Allowance for retirement gratuities to officers

855 863 (8)

Other long-term liabilities 1,144 1,325 (181)

Total liabilities 15,577 18.7 17,048 18.7 (1,471)

Minority Interests Minority interests 85 114 (29)

Minority interests 85 0.1 114 0.1 (29)

Shareholders’ Equity Common stock 12,944 15.6 12,944 14.2 ―

Capital surplus 13,157 15.8 13,157 14.5 ―

Earned surplus 46,905 56.4 52,265 57.4 (5,360)

Unrealized gains (losses) on investment securities

230 0.3 16 0.0 214

Foreign currency translation adjustments

(2,140) (2.6) (2,279) (2.5) 139

Treasury stock (3,618) (4.3) (2,218) (2.4) (1,400)

Total shareholders’ equity 67,477 81.2 73,884 81.2 (6,407)

83,140 100.0 91,048 100.0 (7,908) Total liabilities, minority interests and shareholders' equity

Consolidated

(Unaudited) 12

(2) Consolidated Statements of Income Millions of yen

Fiscal 2005 (from March 1 2004 to February 28, 2005)

Fiscal 2004 (from March 1 2003

to February 29, 2004)

Amount (%) Amount (%)

Change

Net sales 70,625 100.0 73,881 100.0 (3,256) Cost of sales 12,326 17.5 13,146 17.8 (820)

Gross profit 58,299 82.5 60,734 82.2 (2,435)

Selling, general and administrative expanses 49,830 70.5 49,938 67.6 (108)

Operating income 8,468 12.0 10,796 14.6 (2,328) Non-operating income 841 1.2 984 1.3 (143) Interest received 87 87 0 Dividends received 10 8 2 Rent on real estates 343 255 88 Gains on sales of investment securities 61 340 (279) Other non-operating income 339 293 46

Non-operating expenses 553 0.8 687 0.9 (134) Interest paid 11 7 4 Rent on real estates 99 77 22 Foreign exchange losses, net 203 201 2 Taxation 75 ― 75 Loss on disposal of inventory 55 ― 55 Loss on valuation of inventory ― 182 (182) Other non-operating expenses 108 218 (110)

Recurring profit 8,756 12.4 11,093 15.0 (2,337)

Extraordinary income 2 0.0 22 0.0 (20) Gains on sale of fixed assets 2 0 2 Gains on reversal of allowance for doubtful

accounts

― 11 (11)

Gains of purchase of memberships with deposits

― 6 (6)

Other extraordinary income ― 3 (3) Extraordinary expenses 8,951 12.7 886 1.2 8,065 Losses on sale of fixed assets 33 1 32 Losses on disposal of fixed assets 83 58 25 Unrealized loss on land 1,755 825 930 Impairment loss 6,889 ― 6,889 Unrealized loss on investment securities 190 ― 190

Income before income taxes (192) (0.3) 10,229 13.8 (10,421)

Corporate, inhabitant and business taxes 4,373 6.2 5,728 7.7 (1,355) Adjustments to corporate and other taxes (873) (1.2) (641) (0.9) (232) Minority interests (124) (0.2) 141 0.2 (265)

Net income 3,568 (5.1) 5,001 6.8 (8,569)

Consolidated

(Unaudited) 13

(3) Consolidated Statements of Surplus Millions of yen




Amount Amount

Change

Capital surplus Capital surplus at the beginning of fiscal year 13,157 13,157 ―

Capital surplus at fiscal year-end 13,157 13,157 ―

Earned surplus Earned surplus at the beginning of fiscal year 52,265 50,974 1,291 Increase in earned surplus Net income ― 5,001 (5,001) Decrease in earned surplus Net loss 3,568 ― 3,568 Cash dividends 1,424 1,235 189 Bonus to officers 178 173 5 Decrease by consolidation (Exclusion) 188 ― 188 Decrease by consolidation (Addition) ― 14 (14)

Loss on disposal of treasury stock 0 2,287 (2,287)

Earned surplus at fiscal year-end 46,905 52,265 (5,360)

Consolidated

(Unaudited) 14

(4) Consolidated Statements of Cash Flows Millions of yen





Amount Amount

Change

Cash flows from operating activities Income before income taxes (loss) (192) 10,229 (10,421) Depreciation and amortization 2,510 2,596 (86) Impairment loss 6,889 ― 6,889 Loss on retirement f fixed assets 226 155 71 Unrealized loss on land 1,755 825 930

Unrealized loss on investment securities 190 ― 190 Amortization of consolidation difference 838 992 (154) Change in allowance for employees’ bonuses (122) (2) (120) Increase in employees’ severance and

retirement benefits 349 224 125

Interest and dividends received (97) (95) (2) Interest paid 11 7 4 Change in notes and accounts receivable 801 18 783 Increase in inventories 51 589 (538) Change in notes and accounts payable 275 (245) 520 Change in guarantee deposits 139 (281) 420 Bonuses to officers (178) (185) 7 Other 222 (1,121) 1,343

Sub total 13,670 13,708 (38)

Proceeds from interest and dividend income 76 95 (19) Payment of interest (11) (7) (4) Payment of income taxes (5,866) (6,237) 371

Net cash provided by operating activities 7,868 7,558 310 Cash flows from investing activities Payment for purchase of time deposit (4,131) ― (4,131) Payment for purchase of marketable securities (9,996) (7,999) (1,997) Proceeds from sales of marketable securities 10,596 10,994 (398) Payment for purchase of property, plant and equipment (2,453) (4,734) 2,281 Payment for purchase of intangible fixed assets (580) (561) (19) Payment for purchase of investment securities (2,144) (5,389) 3,245 Proceeds from sales of investment securities 245 1,084 (839) Other 111 295 (184)

Net cash used in investment activities (8,354) (6,309) (2,045)

Consolidated

(Unaudited) 15

Fiscal 2005

(from March 1 2004 to February 28, 2005)



Amount Amount

Change

Cash flows from financing activities Payment to acquire treasury stock (1,401) (2,163) 762 Payment to acquire treasury stock made by

consolidated subsidiary

― 0 0

Cash dividends paid (1,424) (1,235) (189) Other 0 (59) 59

Net cash used in financing activities (2,825) (3,458) 633 Effects of exchange rate on cash and cash equivalents (13) (181) 168 Net increase in cash and cash equivalents (3,324) (2,390) (934) Cash and cash equivalents at the beginning of fiscal year

16,819 18,921 (2,102)

Decrease by exclusion from consolidation (139) ― (139)

Cash and cash equivalents of newly consolidated subsidiaries at the beginning of fiscal year

― 288 (288)

Cash and cash equivalents at the fiscal year-end 13,356 16,819 (3,463)

Consolidated

(Unaudited) 16

Basis for Preparation of Consolidated Financial Statements 1. Scope of consolidation

(i) There are 27 consolidated subsidiaries in the Aderans Group. Major consolidated subsidiaries are listed below. FONTAINE Co., Ltd. ADN Co., Ltd. ADE Co., Ltd. Aderans Holding Co., Inc. (overseas subsidiary) Aderans Europe B.V. (overseas subsidiary) Aderans Thai Ltd. (overseas subsidiary)

Allen Arthur (Manila), Inc., excluded from consolidated subsidiaries during this fiscal year under review, because they started the procedure of dissolution

(ii) There are no important non-consolidated subsidiaries.

The effects of non-consolidated subsidiaries’ accounts on consolidated results would be negligible, hence their result excluded from the scope of consolidation.

2. Application of equity method

The equity method has not been adopted for non-consolidated subsidiaries, as their effects on the consolidated financial statements would be negligible.

3. Fiscal terms of consolidated subsidiaries

Among the consolidated subsidiaries, ADN Co., Ltd., ADE Co., Ltd. and the 24 overseas subsidiaries close their fiscal years on December 31. However, as the gaps between the fiscal year end of each company do not exceed a period of three months, the financial statements of these companies as of their respective fiscal year end are handled on a consolidated basis as a general rule. Any major transactions happening between these dates and the consolidated fiscal year end are adjusted for as required by consolidated accounting practices.

4. Accounting Principles and Methods

(i) Principles and methods of valuation of important assets ① Securities

Bonds to be held until maturity: Amortized cost method (straight line method) Stocks of subsidiaries: Cost recorded using the moving-average method Other securities: Securities quoted on exchanges: Market value method based on market value at fiscal year end.

Appraisal differences are dealt with by means of the direct capital influx method, with cost of securities sold calculated with the moving average method.

Securities not quoted on exchanges: Cost recorded using the moving average method

② Derivatives Derivatives are stated at market value.

③ Inventories Goods and products : With respect to the reporting company, custom-made wigs are accounted for by

the unit cost method, ready-made wigs by the weighted average cost method, and other goods and products by the last invoice method. At domestic consolidated subsidiaries, the moving average cost method is most commonly used. Overseas consolidated subsidiaries use either the first-in first-out (FIFO) cost method or the moving-average cost method.

Raw materials and work in process: Consolidated subsidiaries use either the first-in first-out cost method or the moving-average cost method.

Supplies: The unit cost method is applied to supply materials, with other supplies mainly being accounted for with the last invoice cost method. However, overseas consolidated subsidiaries use the first-in first-out cost method.

Consolidated

(Unaudited) 17

(ii) Depreciation of important fixed assets Tangible fixed assets: These assets are primarily accounted for with the declining-balance method,

although buildings (excluding annexes) acquired since April 1, 1998, are accounted for with the straight-line depreciation method. The straight-line method is also applied to certain domestic consolidated subsidiaries. The tangible fixed assets of overseas consolidated subsidiaries are primarily accounted for with the straight-line method.

Estimated useful life of principal items are as follows: Buildings and structures: 13-47 years Intangible fixed assets: The straight-line method is applied. Software for in-house use is accounted for with the straight-line method over the

estimated useful life (five years). Long-term prepaid expenses: Equal depreciation

(iii) Standards for important allowances ① Allowance for doubtful accounts:

To prepare against credit losses, Aderans makes additions to this allowance on the basis of loan loss ratios for standard loans, and on an individual basis for loans considered unlikely to be repaid in full. For overseas consolidated subsidiaries, the estimated uncollectable amount for individual accounts is added.

② Allowance for bonus to employees: To prepare for bonus payments to employees, the reporting company and its domestic consolidated subsidiaries make additions to the allowance in accordance with the estimated amounts payable.

③ Allowance for product warranties: To prepare for expenses arising from free warranties on goods and products sold, the consolidated financial statements reporting company adds an appropriate amount based on past experience.

④ Allowance for returned goods: Consolidated subsidiary FONTAINE Co., Ltd., makes provisions in order to account for losses due to returns of sold products. Amounts of the allowance for returned goods are calculated by multiplying the average returned goods ratios of the current period and previous fiscal year by the gross profit margin of the current period, and

adding this total to the balance of accounts receivable. ⑤ Emp loyees’ severance and retirement benefits:

To prepare for retirement benefits to employees, Aderans and its domestic consolidated subsidiaries make provisions for an amount based on existing retirement benefit liabilities and pension assets. The numerical difference will be booked as costs from the next consolidated fiscal year, within a set time period (five years) of less than the average remaining working period at the time when the difference was recorded.

⑥ Allowance for retirement gratuities to officers:

To prepare for retirement benefits to directors, Aderans, its consolidated subsidiary FONTAINE Co., Ltd. and certain overseas consolidated subsidiaries make provisions for an amount based on the total benefits required at the end of the current fiscal year.

(iv) Translation of assets and liabilities denominated in foreign currencies into yen

Assets and liabilities denominated in foreign currencies are converted into yen at the rates of exchange in effect at the end of the consolidated period, with translation differences treated as gains or losses. The assets and liabilities of overseas consolidated subsidiaries are also converted into yen at the rates of exchange in effect at the end of the current fiscal year. Income, losses, and expenses are converted into yen using average exchange rates over the period in question, and translation differences are recorded in the shareholders’ equity section of the balance sheets under foreign currency translation adjustments.

(v) Accounting methods pertaining to important lease transactions

Aderans accounts for finance lease transactions using the same method as ordinary rent transactions, except for those transactions where ownership of the leased property is considered to be transferred to the lessee.

(vi) Consumption and other taxes

Aderans applies the tax-exclusion accounting method to national and local consumption taxes.

Consolidated

(Unaudited) 18

5. Valuation of assets and liabilities of consolidated subsidiaries The assets and liabilities of the consolidated subsidiaries are valued using the full mark-to-market method.

6. Amortization of consolidation difference Consolidation difference is amortized equally over either 5 years or 10 years starting from its accrual. In the event that the accrued amount is insignificant, it is accounted for as profit or loss at the time of accrual.

7. Standards for items of the appropriation of retained earnings The consolidated statements of surplus are prepared based on the appropriation of retained earnings of the companies under consolidation that was finalized during Fis cal 2004.

8. Scope of funds in the consolidated statements of cash flows

Funds (cash and cash equivalents) in the consolidated statements of cash flows comprise cash in hand, demand deposits that can be withdrawn at any time, and short-term investments that are highly liquid, easily convertible into cash, have little risk of fluctuation in value, and that mature within three months or less of the date of acquisition.

[Major changes in the rules for the preparation of consolidated financial statements]

In accordance with “Opinion Concerning Establishment of Accounting Standard for impairment of Fixed Assets”, issued by the Japanese Institute of Certified Public Accountants ’ Business Accounting Council on August 9, 2002, and “Guideline No.6 for Accounting Standard for Impairment of Fixed Assets ”, issued by the same council on October 31, 2003, which allows early adoption of the standard to consolidated financial statements pertaining to financial years ending on or after March 31, 2004, Aderans has applied the standard and pursuant guidelines to consolidated statements as of fiscal 2005, the financial year ended

February 28, 2005. As a result, income before income taxes and minority interest fell ¥6.8 billion. The aggregate impairment loss was deducted directly from the assets in question, based on revised rules for the preparation of consolidated financial statements. Effect on segment information was described in the “[Segment Information] 2. Geographical segments”.

〔Changes in the method of presentation〕

(Consolidated Balance Sheet) Based on legislation for partial revision of the Securities and Exchange Law (Law No. 97, June9, 2004), Article 2-2 of said law regards as marketable securities any funds applied to investment limited partnerships and similar investment business limited liability partnerships. Therefore, funds in investment business partnerships, which were included in “Other fixed assets ” under “Investments and other fixed assets ” in previous consolidated fiscal years is from this fiscal year recorded in “Investment securities”. Because of this change, “Investment securities increased ¥56 million and “Other fixed assets” under “Investments and other fixed assets ” decreased by the same amount. (Consolidated Statements of Income)

Loss on disposal of inventory, which amounted to ¥31 million in the previous consolidated fiscal year and was included under “Other non-operating expenses ”, is from this consolidated period presented under a specific line item because the amount exceeds 10% of total non-operating expenses. (Consolidated Statements of Cash Flows) “Changes in time deposits”, which amounted to ¥184 million in the previous consolidated financial year and included in “Other” under “Cash flows from investing activities”, is from this consolidated fis cal year presented under a specific line item because of its greater importance as an investment category.

Consolidated

(Unaudited) 19

Notes [Consolidated Balance Sheets] Millions of yen


1. Accumulated depreciation of tangible fixed assets 21,520 20,414 2. Major items of interests in non-consolidated subsidiaries

Investment securities (shares) 349 376 3. Total number of outstanding shares at the fiscal year end of the reporting

company in common stock. 41,713,388

41,713,388

4. Number of treasury stock in common stock at the fiscal year end 1,341,555 735,402 5. The Company accounts for bills that mature as of the fiscal year end on

clearing date. Because the last day of this consolidated fiscal year fell on a bank holiday, bills that mature in this consolidated fiscal year are included under the following heading. Bills receivable

― 187

[Consolidated Statements of Income] Millions of yen


1. Cost of sales includes amounts related to allowances Transfer to allowance for product warranties Transfer from allowance for returned goods

126

27

124

58 2. Major items and amounts under selling, general and administrative

expenses

Advertising expenses 12,440 12,109 Salaries and wages 14,008 14,251 Addition to allowance for bonus to employees 1,589 1,412 Severance and retirement benefit expenses 640 635 Addition to allowance for retirement gratuities to directors 62 67 Depreciation expenses 2,335 2,435 Amortization of consolidation difference 838 994 3. Research and development costs included in

selling, general and administrative expenses 703 591

4. Gain on sales of fixed assets Sales of vehicles mainly ―

5. Loss on sales of fixed assets Sales of company

house including land and building

Sales of land and furniture

mainly

6. Loss on retirement of fixed assets Retirement of buildings and structures mainly

Retirement of buildings and structures mainly

Consolidated

(Unaudited) 20

7. Unrealized loss on land Unrealized loss on land results when a revised book value, based on the consolidated market value recorded in the land account for consolidated subsidiaries, is deducted during capital consolidation procedures in the previous year,

following impairment loss processing of equity in consolidated subsidiaries for presentation.

Such a loss appreas when the unrealized loss related to land transactions amoung consolidated subsidiaries is not eliminated.

8. Impairment losses The Aderans Group recorded impairment losses for fiscal 2005 under the following asset group: (1) Major assets with impairment losses

Company (Location) Application Type

Aderans (Tokyo and for prefectures) Business assets (8 New Concept salons)

Buildings and structures

ADE (Osaka and for prefectures) Business assets (5 offices)

Buildings and structures

ADN (Niigata Prefecture) Business assets (Golf facilities)

Buildings, structures and land

Bosley, Inc. and three other companies (U.S.) Business assets (Goodwill)

Consolidation difference account, goodwill

(2) Dealing with impairment losses Because of the continued operating losses and fall down in aggregated future cash flows to net book value of each asset group,

Aderans reduced the carrying amount of each asset group to the recoverable amount and recorded the aggregate amount of decrease as an impairment loss under extraordinary losses.

(3) Impairment loss amounts Millions of yen

Type Amount

Buildings and structures 1,577 Land 612

Other tangible fixed assets 954

Goodwill 573

Consolidation difference account 2,826 Other intangible fixed assets 343

Total 6,889

(4) Asset-grouping method In principle, Aderans and its domestic consolidated subsidiaries consider location as well as type of operations in grouping assets.

The assets of overseas consolidated subsidiaries are grouped by company. (5) Calculating recoverable amounts A recoverable amount is the net selling price of the asset in question. For golf facilities, the recoverable amount is based on the

appraisal amount determined by a real estate appraiser. For goodwill, including any amounts in the consolidation difference account, the recoverable amount is based on an amount determined by an external third party. All other assets are viewed with zero recoverable amount.

Consolidated

(Unaudited) 21

[Consolidated Statements of Cash Flows] 1. The relation between "Cash and cash equivalents at fiscal year-end" and the amount and items listed on the Consolidated Balance Sheets: Millions of yen


Cash and deposits 13,262 12,965 Money management funds and others included under marketable

securities

2,502 4,501

Time deposits with maturities over three months (2,772) (647)

Cash and cash equivalents 13,356 16,819 2. Major non-financial transaction: Millions of yen


Aderans Co., Ltd. made Fontaine Co., Ltd. a wholly owned subsidiary through share exchange

Acquisition cost of Fontaine shares acquired ― 3,260 Book value of treasury stock issued for exchange ― 5,547

Decrease in earned surplus ― 2,287

Consolidated

(Unaudited) 22

[Lease transaction] Millions of yen


1. Finance lease transactions, other than those where ownership of the lease assets is transferred to lessees (1) Amount equivalent to acquisition costs, accumulated depreciation and net book value at fiscal year-end Acquisition costs Vehicle 44 44

Equipment 98 749

Total 142 793 Accumulated depreciation Vehicle 35 26

Equipment 54 616

Total 89 643 Net book value at fiscal year-end Vehicle 8 17

Equipment 44 132

Total 53 150 (Note) Amount equivalent to acquisition costs is calculated using paid-interest-inclusion method, as the proportion of tangible

fixed assets taken up by the balance of outstanding lease fees at the fis cal year end is minor.

(2) Amount equivalent to the net book value of outstanding lease fees Due within one year 21 96 Due over one year 32 53

Total 53 150 (Note) Amount equivalent to the net book value of outstanding lease fees is calculated using the paid-interest-inclusion method, as the

proportion of tangible fixed assets taken up by this value at the end of the period is minor. (3) Lease fees paid and amount equivalent to depreciation Lease fee paid 96 159 Amount equivalent to depreciation 96 159 (4) Calculation of the amount equivalent to depreciation This calculation is made with straight-line method, assuming the leasing period of each leased item to be its durability and the

scrap value of each item to be nil. 2. Operating lease transaction

Outstanding lease fees at fiscal year-end Due within one year 475 490 Due over one year 2,907 1,162

Total 3,382 1,652

Consolidated

(Unaudited) 23

[Marketable Securities] 1. Held-to-maturity bonds and debentures quoted on exchanges Millions of yen


Amount posted on the

Consolidated Balance Sheets

Fair Value

Difference Amount posted on the


Fair Value

Difference

With fair value more than the balance sheet amount

Corporate bonds 7,503 7,511 8 5,795 5,801 5

Sub-total 7,503 7,511 8 5,795 5,801 5

With fair value not more than the balance sheet amount

Corporate bonds 1,700 1,697 (2) 2,896 2,895 (1)

Sub-total 1,700 1,697 (2) 2,896 2,895 (1)

Total 9,203 9,209 5 8,692 8,696 4 2. Other marketable securities quoted on exchanges Millions of yen

Fiscal 2005 Fiscal 2004 Acquisition

cost Amount

posted on the


Difference Acquisition cost

Amount posted on the


Difference

With fair value more than the balance sheet amount

Share equities 755 1,143 387 277 491 214

Sub-total 755 1,143 387 277 491 214

With fair value not more than the balance sheet amount

Share equities 2 2 (0) 662 471 (190)

Sub-total 2 2 (0) 662 471 (190)

Total 757 1,145 387 939 963 23 (Note) “Acquisition cost” in the above table is the book value after impairment.

Impairment is accounted for whenever the fair value at fiscal year-end falls 50% or more compared to the acquisition cost.

3. Other marketable securities sold out during fiscal year Million of yen

Fiscal 2005 Fiscal 2004 Amount sold 183 542

Gains on sale 61 370

Losses from sale ― 30

Consolidated

(Unaudited) 24

4. Major marketable securities not evaluated at fair value Millions of yen


Amounts posted on the Consolidated Balance

Sheets

Amounts posted on the Consolidated Balance

Sheets (1) Bonds and debentures being held to maturity i) Commercial papers

4,998 5,997

(2) Other marketable securities i) Money management funds

1,502 1,502

5. Expected redemption amount of marketable securities with maturities and held-to-maturity bonds Fiscal 2005

Millions of yen

Within 1 year From 1 to 5 years From 5 to 10 years Over 10 years

Bonds and debentures Corporate bonds 5,698 3,505 ― ―

Commercial papers 4,998 ― ― ―

Total 10,696 3,505 ― ―

Fiscal 2004

Millions of yen

Within 1 year From 1 to 5 years From 5 to 10 years Over 10 years

Bonds and debentures Corporate bonds 2,600 6,092 ― ―

Commercial papers 5,997 ― ― ―

Total 8,597 6,092 ― ―

Consolidated

(Unaudited) 25

[Derivative Transactions] 1. Situation of transactions

Fiscal 2005 (from March 1, 2004 to February 28, 2005) (1) Type of transactions

The derivative transactions the company engages in are currency options. (2) Policy on derivative transactions

The purpose of derivative transactions is to avoid the risk of fluctuations in future exchange rates and the company makes it its policy not to engage in speculative transactions.

(3) Purpose of transactions Currency options are employed for the purpose of avoiding exchange rate risks on pecuniary claims and obligations denominated in foreign currencies and to secure stable earnings.

(4) Risks relating to transactions Currency options involve fluctuation risks on exchange rates as well as that of interest rates for both Japanese yen and foreign currencies. The Company contracts banks with high creditworthiness to handle derivative transactions, and thus deems the credit risk for nonfulfillment of a contract to be minimal.

(5) System of risk management relating to transactions Execution and management of derivative transactions are made with prescribed approval to abide by the internal regulations that define the authority to undertake transactions and limit the transaction amounts, etc.

(6) Supplementary explanation on fair value, etc. of transactions Contract amounts concerning fair value, etc. of transactions are nothing more than calculated notional amounts of options and the amounts themselves do not represent the size of risks of those derivative transactions.

Fiscal 2004 (from March 1, 2003 to February 29, 2004) (1) Type of transactions

Derivative transactions the company engages in are currency options. (2) Policy on derivative transactions

Derivative transactions are meant to avoid the risk of fluctuations in future exchange rates and the company makes it its policy not to engage in speculative transactions.

(3) Purpose of transactions Currency options are utilized for the purpose of avoiding exchange rate risks on pecuniary claims and obligations denominated in foreign currencies and to secure stable earnings.

(4) Risks relating to transactions Currency options involve fluctuation risks on exchange rates as well as that of interest rates for both Japanese yen and foreign currencies. The Company contracts banks with high creditworthiness to handle derivative transactions, and thus deems the credit risk for nonfulfillment of a contract to be minimal.

(5) System of risk management relating to transactions Execution and management of derivative transactions are made with prescribed approval to abide by the internal regulations that define the authority to undertake transactions and limit the transaction amounts, etc.

(6) Supplementary explanation on fair value, etc. of transactions Contract amounts concerning fair value, etc. of transactions are nothing more than calculated notional amounts of options and the amounts themselves do not represent the size of risks of those derivative transactions.

Consolidated

(Unaudited) 26

2. Fair value of transactions Fiscal 2005 Millions of yen

Type of the underlying Type of transaction Contract amount Fair value Unrealized profit (loss)

[over 1 year] Currencies Transaction other than those of

market trading

Currency options

Short: buy Yen/sell US Dollar 314 ― (29) (29) Long: sell Yen/buy US Dollar 104 ― 0 0

Total 418 ― (29) (29)

(Note) Calculation of fair value: Fair value is based on the prices that are indicated by the financial institutions with which the company enters in the currency option contracts.

Fiscal 2004 Millions of yen

Type of the underlying Type of transaction Contract amount Fair value Unrealized profit (loss)

[over 1 year]

Currencies Currency options Short: buy Yen/sell US Dollar 1,644 [328] (97) (97) Long: sell Yen/buy US Dollar 548 [109] 4 4

Total 2,192 [438] (92) (92)

(Note) Calculation of fair value: Fair value is based on the prices that are indicated by the financial institutions with which the company enters in the currency option contracts.

Consolidated

(Unaudited) 27

[Retirement Benefits] 1. Outline of the adopted plans for retirement benefits

The reporting company and FONTAINE Co., Ltd. have retirement lump sums and tax-qualified pension plans as defined benefit pension plans. ADN Co., Ltd. has a retirement lump sum. Some of the overseas consolidated subsidiaries have defined contribution pension plans and retirement lump sums.

2. Projected retirement benefit obligation Millions of yen



(1) Projected retirement benefit obligation (5,641) (5,399) (2) Pension assets 2,108 1,954

(3) Unfunded retirement benefit obligation (1) + (2) (3,553) (3,444) (4) Unrecognized actuarial differences 170 363

(5) Employees’ severance and retirement benefits (3) + (4) (3,362) (3,081) 3. Severance and retirement benefit expenses Millions of yen

Fiscal 2005


Fiscal 2004


(1) Service cost 441 424 (2) Interest cost 106 101 (3) Expected return on plan asserts (19) (17) (4) Expensed amount of actuarial differences 112 127

Total 640 635

4. Calculations relating to projected retirement benefit obligation Millions of yen



(1) Discount rate 2.00% 2.00% (2) Expected rate of return on plan assets 1.00% 1.00% (3) Attribution method of expected amount of retirement benefits Years-of-service approach Years-of-service approach (4) Expensing period of actuarial differences 5 years

(The numerical difference will be booked as costs from the next consolidated fiscal year, within a set time period of less than the average remaining working period at the time when the difference was recorded)

5 years (The numerical difference will be booked as costs from the next consolidated fiscal year, within a set time period of less than the average remaining working period at the time when the difference was recorded)

(5) Expensing period of unrecognized net obligation existing at the initial application of the new accounting standard

1 year 1 year

Consolidated

(Unaudited) 28

[Tax Allocation] 1. Major factors for the accrual of deferred tax assets and deferred tax liabilities Millions of yen



Deferred tax assets Unrealized profits on inventories 141 137 Excess of provision for employees’ severance

and retirement benefits 1,220 997

Excess of allowance for retirement gratuities to officers 347 349 Enterprise tax payable 126 237 Excess of provision for allowance for employees’ bonus 517 492 Excess of warranty reserve 51 52 Excess of allowance for returned goods 39 52 Excess of depreciation 227 651 Unrealized loss on golf club memberships 126 126 Accumulated impairment losses 1,690 ―

Unrealized loss on land 714 ―

Carry forward of deficit 1,089 949 Others 602 773

Sub-total – deferred tax assets 6,895 4,820 Valuation allowance (3,095) (1,713)

Total – deferred tax assets 3,799 3,106 Deferred tax liabilities Reserve for compressed entries 18 29 Others 21 14

Total – deferred tax liabilities 40 44

Net deferred tax assets 3,759 3,062

Net deferred tax assets are included in the following items of the consolidated balance sheets: Current assets ? deferred tax assets 984 1,213 Fixed assets ? deferred tax assets 2,780 1,852 Current liabilities ? deferred tax liabilities 5 3 2. Major factors for the difference between the statutory tax rate and the effective income tax rate after tax allocation (%)



Statutory tax rate 42.1 (Adjustments) Permanently non-deductible expenses – entertainment

and social expenses, etc. Inhabitant tax per capita

0.6

Elimination on consolidating the deficits related to the restructuring of organization in the United States

As the company result was loss before tax, the statement of major factors for the difference is omitted.

1.4

Change in valuation allowance for deferred tax assets 1.4 Excess of provision for allowance for employees’ bonus 2.9 Others 1.3

Effective income tax rate after tax allocation 49.7

Consolidated

(Unaudited) 29

[Segment Information] 1. Business segments

Fiscal 2005 (from March 1, 2004 to February 28, 2005) Information by business segment is omitted as the share of “Hair-related business” in the total sales, operating income, and assets of all the segments exceeds 90% respectively.

Fiscal 2004 (from March 1, 2003 to February 29, 2004)

Information by business segment is omitted as the share of “Hair-related business” in the total sales, operating income, and assets of all the segments exceeds 90% respectively.

2. Geographical segments

Fiscal 2005 (from March 1, 2004 to February 28, 2005)

Millions of yen

Japan Asia North America Europe Total Eliminations Consolidated I. Sales and operating profits and losses

Sales External customers 55,800 476 11,724 2,624 70,625 ― 70,625 Inter-segment 56 3,767 592 ― 4,416 (4,416) ―

Total 55,856 4,243 12,316 2,624 75,041 (4,416) 70,625

Operating expenses 43,590 3,450 13,004 2,517 62,562 (405) 62,156 Operating profit (loss) 12,266 793 (688) 107 12,479 (4,010) 8,468

II. Total assets 55,251 6,108 5,214 3,252 69,826 13,314 83,140

Fiscal 2004 (from March 1, 2003 to February 29, 2004) Millions of yen

Japan Asia North America Europe Total Eliminations Consolidated I. Sales and operating profits and losses

Sales External customers 58,453 566 12,191 2,670 73,881 ― 73,881 Inter-segment 79 4,370 534 ― 4,983 (4,983) ―

Total 58,532 4,936 12,725 2,670 78,865 (4,983) 73,881

Operating expenses 43,972 3,947 13,770 2,665 64,356 (1,271) 63,084

Operating profit (loss) 14,560 988 (1,045) 4 14,508 (3,721) 10,796 II. Total assets 67,502 6,186 10,178 2,492 86,360 4,687 91,048

(Notes) 1. Countries and/or regions are classified by geographical proximity. 2. Major countries and areas classified in the regions other than Japan: (i) Asia -------------------- Thailand, Philippines, Taiwan

(ii) North America ------- United States (iii) Europe ---------------- France, Germany, The Netherlands, Belgium, United Kingdom 3. Operating expenses under “Elimination” included unallocable expenses, which primarily consist of costs relating to the administrative

division, including the general affairs division of the parent company and to the assets of the entire company as follows: Year ended February 28, 2005: ¥4,085 million, Year ended February 29, 2004: ¥3,722 million

4. Total assets under “Elimination” included the assets of the entire company, which primarily consist of surplus funds managed by the parent company (cash and time deposits), funds for long-term investment (investment securities), and assets related to the administrative divisions as follows; Year ended February 28, 2005: ¥23,361 million, Year ended February 29, 2004: ¥23,890 million

5. As mentioned in 【Major changes in the rules for the preparation of consolidated financial statements】, Aderans adopted accounting standard for impairment of fixed assets for the fiscal year under review. As a result, total assets in Japan decreased ¥3,099 million and ¥3,653 in North America.

Consolidated

(Unaudited) 30

3. Overseas sales Fiscal 2005(from March 1, 2004to February 28, 2005)

Millions of yen

Asia North America Europe Other regions Total

1. Overseas sales 432 11,484 2,889 35 14,841 2. Consolidated net sales 70,625

3. Share of overseas sales 0.6% 16.3% 4.1% 0.0% 21.0%

Fiscal 2004 (from March 1, 2003 to February 29, 2004) Millions of yen

Asia North America Europe Other regions Total

1. Overseas sales 494 12,067 2,941 38 15,541 2. Consolidated net sales 73,881

3. Share of overseas sales 0.7% 16.3% 4.0% 0.0% 21.0% (Notes) 1. Countries and/or regions are classified by geographical proximity. 2. Major countries and areas classified in the regions other than Japan: (i) Asia -------------------- Thailand, Philippines, Taiwan, Korea

(ii) North America ------- United States

(iii) Europe ---------------- France, Germany, The Netherlands, Belgium, United Kingdom (iv) Other regions --------- Australia, Central & South America

3. Overseas sales are sales of the reporting company and its consolidated subsidiaries in the countries and areas outside of Japan.

[Related Party Transactions]

Fiscal 2005 Transactions related to the directors and major shareholders

(Note) 1. Transactions executed by Kunihiko Hirakawa as representative director of third party, KK Keiho Shoji. Price and other terms have been fixed in accordance with the general conditions and rules.

2. Transactions executed by Okio Akitsu as representative director of third party, Kowa Shoji KK. The rent shall be decided every two years taking the current fix rate of vicinity into consideration.

3. Amounts excluded consumption tax and other tax, while the balance at fiscal year-end included consumption tax.

Relation Name Domici

le

Capi

tal

Occupation Voting right

ratio Concurren

tly holding

post

Busi

ness

Transaction Amounts Account Balance at

fiscal

year-end

Kunihiko

Hirakawa

― ― Aderans’ Director

and Representative

director of KK

Keiho Shoji

Direct 0.0

Indirect 0.5

― ― Payment of

accommodati

on fee to KK

Keiho Shoji

(Note1)

1

― ―

Directors

and/or

Propinquity Okio

Akutsu

― ― Aderans’ auditor

and Representative

director and

president of Kowa

Shoji KK

Direct 0.4

Indirect 0.0

― ― Rent

received

from Kowa

Shoji KK

(Note2)

2 Accrued

revenue

Income in

advance

0

0

Terms of transactions and way of determination of transactions

Consolidated

(Unaudited) 31

Fiscal 2004

1.Transactions related to the directors and major shareholders

Terms of transactions and way of determination of transactions (Note) 1. Transactions executed by Kunihiko Hirakawa as representative director of third party, KK Keiho Shoji. Price and other

terms have been fixed in accordance with the general conditions and rules. 2. Transactions executed by Okio Akitsu as representative director of third party, Kowa Shoji KK. The rent shall be decided

every two years taking the current fix rate of vicinity into consideration. 3. Amounts excluded consumption tax and other tax, while the balance at fiscal year-end included consumption tax. 2. Subsidiaries

(Note) 1. Amounts is based on the appraisal amount determined by a real estate adviser. 2. Amounts do not include consumption tax.

============================================================

(END)


le

Capi

tal

Occupation Voting right

ratio Concurren

tly holdin g

post

Busi

ness

Transaction Amounts Account Balance at

fiscal

year-end

Kunihiko

Hirakawa

― ― Aderans’ Director

and Representative

director of KK

Keiho Shoji

Direct 0.0

Indirect 0.5

― ― Payment of

accommodati

on fee to KK

Keiho Shoji

(Note1)

1

― ―

Directors

and/or

Propinquity Okio

Akutsu

― ― Aderans’ auditor

and Representative

director and

president of Kowa

Shoji KK

Direct 0.4

Indirect 0.0

― ― Rent

received

from Kowa

Shoji KK

(Note2)

2 Accrued

revenue

Income in

advance

0

0


le

Capital

（Millions

of yen）

Business Voting

right

ratio Concurrently

holding post

Business

Transaction Amounts

(Millions

of yen)

Account Balance at

fiscal

year-end

Subsidiary Fontaine

Co., Ltd.

Tokyo 1,539 ‘Sales of

wigs

100 1 Purchase

of goods

Land and

equipment

1,559

― ―

Terms of transactions and way of determination of transactions

Non-consolidated

(Unaudited) 32

April 14 2005

ADERANS CO., LTD. Summary of Non-consolidated Financial Statements

for the fiscal year ended February 28, 2005 (Translated from the Japanese original)

Corporate information Code: 8170 Listing: Tokyo Stock Exchange, Osaka Securities Exchanges (URL http://aderans.co.jp) Head Office: Metropolis of Tokyo

Representative: Katsuji Tokumaru President and Representative Director Contact: Michiyoshi Takahashi General Manager, Investor Relations Div. Telephone: 81-3-3350-3268 System of interim dividend: adopted Unit stock (tangen kabu) system: adopted (100 shares per unit) Date of Board Meeting for Settlement of Accounts: April 14, 2005 Date of the Ordinary General Meeting of Shareholders: May 26, 2005 1. Operating results for Fiscal 2005 (from March 1, 2004 to February 28, 2005) (1) Operating results Millions of yen (Rounded down)

Fiscal 2005 Fiscal 2004 YoY change (%) YoY change (%)

Net sales 44,883 (6.0) 47,757 (6.2) Operating income 6,620 (28.1) 9,205 (16.2) Recurring profit 9,325 (6.3) 9,948 (13.7) Net income (6,813) ― 5,671 (12.4) Net income per share (yen) （168.03） 137.85 Net income per share / diluted ― ― Return on shareholders’ equity (%) (10.2) 8.2 Recurring profit to assets (%) 11.8 12.2 Recurring profit to sales (%) 20.8 20.8

(Notes) 1) Average number of outstanding shares during the fiscal year: 40,549,366 shares (Fiscal 2005) 40,060,114 shares (Fiscal 2004) 2) Changes to accounting methods: none

3) Percentile figures represented in rows of net sales, operating income, recurring profit and net income are year-on-year changes.

(2) Payment of dividends


Annual dividends per share ¥38.00 ¥32.00

Interim dividends ¥19.00 ¥16.00 Year-end dividends ¥19.00 ¥16.00

Total dividends for the year (millions of yen) 1,534 1,287 Payout ratio ― 22.7% Dividends-on-equity 2.5% 1.8%

Non-consolidated

(Unaudited) 33

(3) Financial position Millions of yen


Total assets 73,098 84,606 Shareholders’ equity 62,062 71,880 Shareholders’ equity ratio (%) 84.9 85.0 Shareholders’ equity ratio per share (yen) 1,537.28 1,746.10

(Notes) Number of outstanding shares at fiscal year-end: 40,371,833 shares (Fiscal 2005) 41,081,247 shares (Fiscal 2004) Number of treasury stock at fiscal year-end: 1,341,555 shares (Fiscal 2005) 632,141 shares (Fiscal 2004)

2. Forecast operating results for Fiscal 2006 (from March 1, 2005 to February 28, 2006) Millions of yen

6 months ending 12 months ending August 31, 2005 February 28, 2006

Net sales 22,700 46,200 Recurring profit 4,600 8,800 Net income 3,400 5,800

Annual dividends per share ¥40.0

Interim dividends ¥20.0 ―

Year-end dividends ― ¥20.0

cf. Forecast net income per share (12 months): 143.66 yen (Note) Forecast figures quoted above presuppose an estimation, based on the information available as of the date of announcement

of this material. Please acknowledge in advance that actual results may differ from the forecast figures due to certain unforeseen factors.

Non-consolidated

(Unaudited) 34

1. Non-consolidated Financial Statements

(1) Non-consolidated Balance Sheets Millions of yen





Change

Assets Current assets 20,087 27.5 19,586 23.1 501 Cash and cash equivalents 2,954 3,290 (336) Notes receivable 606 679 (73)

Accounts receivable – trade 1,806 2,190 (384) Marketable securities 12,199 10,100 2,099 Merchandise 833 871 (38) Store 412 427 (15) Prepaid expenses 328 357 (29) Deferred tax assets 591 898 (307) Short-term loans to affiliates ― 328 (328) Other current assets 356 446 (90) Allowance for doubtful accounts (2) (5) 3 Fixed assets 53,010 72.5 65,020 76.9 (12,010) Tangible fixed assets 23,024 31.5 23,009 27.2 15 Buildings 11,089 10,929 160 Structures 258 232 26 Machinery 15 18 (3)

Vehicle 13 19 (6) Equipment 892 984 (92) Land 10,693 10,671 22 Construction in process 62 151 (89) Intangible fixed assets 2,109 2.9 2,126 2.5 (17) Patent right 4 4 0 Leasehold 1,812 1,812 ? Trade name 17 20 (3) Software 123 136 (13) Other intangible fixed assets 152 151 1 Investments and other fixed assets 27,876 38.1 39,884 47.2 (12,008) Time deposit 2,000 ― 2,000 Investment securities 4,650 7,011 (2,361) Investments in affiliates 10,766 22,562 (11,796) Equity funds 23 70 (47)

Long-term loans to affiliates 4,945 4,620 325 Long-term prepaid expenses 42 31 11 Deferred tax assets 2,175 1,595 580 Guarantee deposits 2,913 3,070 (157) Insurance reserve 613 763 (150) Other investments 305 172 133 Allowance for doubtful accounts (560) (14) (546)

Total assets 73,098 100.0 84,606 100.0 (11,508)

Non-consolidated

(Unaudited) 35

Millions of yen





Change

Liabilities Current liabilities 7,084 9.7 9,072 10.7 (1,988) Accounts payable – trade 248 204 44 Other accounts payable 1,453 1,358 95 Accrued expenses 335 345 (10) Accrued corporate taxes 546 2,426 (1,880)

Accrued consumption taxes 182 176 6 Advances received 3,023 3,060 (37) Deposits received 164 175 (11) Income in advance 17 18 (1) Allowance for employees’ bonus 946 1,081 (135) Warranty reserve 126 124 2 Other current liabilities 41 102 (61) Long-term liabilities 3,950 5.4 3,653 4.3 297 Employees’ severance and retirement

benefits 2,945 2,628 317

Allowance for retirement gratuities to officers

739 755 (16)

Other long-term liabilities 266 269 (3)

Total liabilities 11,035 15.0 12,726 15.0 (1,691) Shareholders’ Equity Common stock 12,944 17.7 12,944 15.3 ―

Capital surplus 13,157 18.0 13,157 15.6 ―

Additional paid-in capital 13,157 13,157 ―

Earned surplus 39,415 53.9 47,802 56.5 (8,387) Earned reserve 1,022 1,022 ―

Voluntary reserve Reserve for deferred income tax on

buildings

16 16 (0)

General reserve 25,000 25,000 ―

Unappropriated retained earnings 13,377 21,763 (8,386) Unrealized gains (losses) on investment

securities 213 0.3 5 0.0 208

Treasury s tock (3,667) (5.0) (2,027) (2.4) (1,640)

Total shareholders’ equity 62,062 84.9 71,880 85.0 (9,818)

73,098 100.0 84,606 100.0 (11,508) Total liabilities and shareholders' equity

Non-consolidated

(Unaudited) 36

(2) Non-consolidated Statements of Income Millions of yen




Amount (%) Amount (%)

Change

Net sales 44,883 100.0 47,757 100.0 (2,874) Cost of sales 7,475 16.7 7,998 16.7 (523)

Gross profit 37,408 83.3 39,758 83.3 (2,350)

Selling, general and administrative expanses 30,787 68.5 30,553 64.0 234

Operating income 6,620 14.8 9,205 19.3 (2,585) Non-operating income 3,223 7.2 1,381 2.9 1,842 Interest received 169 152 17 Interest on securities received 44 49 (5) Dividends received 2,350 476 1,874 Rent on real estates 330 188 142 Profit on sales of marketable securities 61 341 (280)

Other non-operating income 266 173 93 Non-operating expenses 519 1.2 638 1.4 (120) Rent on real estates 148 117 31 Foreign exchange losses, net 211 204 7 Allowance for doubtful account 42 ― 42 Taxation 75 ― 75 Loss on valuation of inventory ― 182 (182) Other non-operating expenses 41 134 (93)

Recurring profit 9,325 20.8 9,948 20.8 (623)

Extraordinary income ― ― 9 0.0 (9) Gains on reversal of allowance for doubtful

accounts

― 9 (9)

Extraordinary expenses 13,245 29.5 0 0 0.0 13,245 Losses on sales of fixed assets 0 ― 0 Losses on retirement of fixed assets 26 0 26 Impairment loss 224 ― 224 Unrealized loss on investment in affiliates 12,493 ― 12,493 Allowance for doubtful account 500 ― 500

Income before income taxes (3,920) (8.7) 9,957 20.8 (13,877)

Corporate, inhabitant and business taxes 3,309 7.4 4,980 10.4 (1,671) Adjustments to corporate and other taxes (416) (0.9) (694) (1.5) 278

Net income (6,813) (15.2) 5,671 11.9 (12,484) Unappropriated retained earnings brought

forward from the previous fiscal year 20,957 19,009 1,948

Loss on disposal of treasury stock 0 2,287 (2,287)

Interim dividends 767 629 138

Unappropriated retained earnings for the fiscal year

13,377 21,763 (8,386)

Non-consolidated

(Unaudited) 37

(3) Proposed Appropriation of Retained Earnings Millions of yen




Amount Amount

Change

Unappropriated retained earnings for the

fiscal year 13,377 21,763 (8,386)

Reversal of voluntary reserve 1 0 1

Reversal of reserve for deferred income tax on buildings

1 0 1

Amount to be appropriated 767 806 (39) Cash dividends 767 657 110 Bonus to officers ― 148 (148) [bonuses to statutory auditors] [―] [6] ([6])

Unappropriated retained earnings carried forward to the next fiscal year

12,611 20,957 (8,346)

(Notes) 1. Payment of interim dividends of ¥767,110,845 (¥19per share) was made on November 17, 2004.

2. Reversal of reserve for deferred income tax on buildings is the amount equivalent to the excess of depreciation based on the

Special Taxation Measures Law.

Non-consolidated

(Unaudited) 38

Significant Accounting Standards 1. Valuation standards and methods of marketable securities

Shares of subsidiaries: Cost determined by the moving-average method Held-to-maturity securities: Amortized cost method (straight-line method) Other marketable securities:

Securities quoted on exchanges: Fair value based on the quoted market price as of the fiscal year-end (The related unrealized gains or losses are reported as a separate component of

shareholders’ equity; cost of securities sold is determined by the mo ving average method.)

Securities not quoted on exchanges: Cost determined by the moving average method

2. Valuation standards and methods of derivatives Fair value

3. Valuation standards and methods of inventories

Goods and products: Wigs (custom-made): Cost on the basis of the specific identification method Wigs (ready-made): Cost on the basis of periodic average method other goods: Cost on the basis of last invoice method

Supplies: Supply materials: Cost on the basis of the specific identification method Other supplies: Cost on the basis of last invoice method

4. Depreciation method of fixed assets

Tangible fixed assets: Declining balance method. For buildings (excluding building fixtures) acquired after April 1, 1998, straight-line method applies.

Main useful lives are as follows: Buildings: 13 to 47 years Structures: 7 to 20 years Equipments: 5 to 8 years Intangible fixed assets: Straight-line method. Software for own use is depreciated by the straight-line method over the

estimated useful lives (5 years). Long-term prepaid expenses: Equal-installment depreciation

5. Standards for translation of foreign currency assets and liabilities

Pecuniary claims and obligations denominated in foreign currencies are translated into Japanese yen at the spot rates at the fiscal year-end and the translation differences are treated as profits or losses.

6. Standards for allowances

(i) Allowance for doubtful accounts: To prepare against credit losses, allowance for doubtful accounts are stated at an amount considered appropriate based on the

company’s past credit loss experience for ordinary receivables. For receivables such as those threatened with bankruptcy, allowance is provided for the estimated amount of uncollectable receivables by examining collectible amounts individually.

(ii)Allowance for employees’ bonuses: To prepare for bonus payments to employees, allowance is provided in accordance with the estimated amounts payable.

(iii)Warranty reserve: An estimated necessary amount is provided based upon prior actual experience of repairs, in order to prepare against repair expenses arising from free warranties on the goods sold.

Non-consolidated

(Unaudited) 39

(iv)Employees’ severance and retirement benefits: To prepare for retirement benefits to employees, allowance is provided based on the estimated amounts of projected retirement benefit obligation and pension assets at fiscal year-end. Actuarial difference is and treated as expenses by the straight-line method over a certain number of years within the period of average remaining years of service of employees at the time of accrual (5 years) and accounted for starting in the following fiscal year.

(v)Allowance for retirement gratuities to officers: Necessary amounts payable at fiscal year-end as retirement gratuities to officers are provided in accordance with the established standards of the company.

7. Finance leases

Finance leases which do not transfer ownership to lessees are accounted for in the same manner as operating leases under

accounting principles generally accepted in Japan.

8. Consumption and other taxes Consumption taxes and local taxes are accounted for by the tax-excluded method.

〔Changes in the rules for the preparation of non-consolidated financial statements〕

In accordance with “Opinion Concerning Establishment of Accounting Standard for impairment of Fixed Assets”, issued by the Japanese Institute of Certified Public Accountants’ Business Accounting Council on August 9, 2002, and “Guideline No.6 for Accounting Standard for Impairment of Fixed Assets ”, issued by the same council on October 31, 2003, which allows early adoption of the standard to consolidated financial statements pertaining to financial years ending on or after March 31, 2004,

Aderans has applied the standard and pursuant guidelines to consolidated statements as of fiscal 2005, the financial year ended February 28, 2005. As a result, income before income taxes fell down ¥224 million. The aggregate impairment loss was deducted directly from the assets in question, based on revised rules for the preparation of consolidated financial statements.

〔Changes in the method of presentation〕

Based on legislation for partial revision of the Securities and Exchange Law (Law No. 97, June 9, 2004), Article 2-2 of said Law regards as marketable securities any funds applied to investment limited partherships and similar investment business limited liability partnerships. Therefore, funds in investment business partnerships, which were included in “Equity funds” in the previous fiscal year is from this fiscal year recorded in “Investment securities”. Because of this change, “Investment securities” increased ¥56 million and “Equity funds” decreased by the same amount.

Non-consolidated

(Unaudited) 40

Notes [Balance Sheets] Millions of yen


1. Notes on affiliated companies Major amounts for affiliated companies included in categories other than those presented are provided below. Accounts receivable Other current assets Accounts payable Accrued expenses

11 161

41 905

7 150

46 615

2. Accumulated depreciation of tangible fixed assets 16,377 15,609 3. Total number of shares authorized to be issued by the company 138,033,400 shares 138,033,400 shares Total number of issued shares 41,713,388 shares 41,713,388 shares 4. On the last day of the fiscal year, bills are settled and processed using

clearing dates. Consequently, since the last day of the fiscal year under review was a bank holiday, bills at fiscal year-end were listed as follows. Notes receivable

0

0 5. Dividend limitation Net assets were ¥213

million, rising through the application of

current prices to assets as stipulated in Article 124-3 of implementation rules for the Commercial Code.

Net assets were ¥5 million, rising through the application of current

prices to assets as stipulated in Article 124-3 of implementation rules for the Commercial Code.

[Statements of Income] Millions of yen


1. Major items and amounts of selling, general and administrative expenses Advertising expenses 9,842 9,243 Salary and wages 6,481 6,570 Addition to allowance for bonus to employees 946 1,081 Severance and retire ment benefit expenses 558 566

Addition to allowance for retirement gratuities to directors 43 48 Depreciation expenses 1,525 1,624 Rents 2,728 2,751 2. Research and development costs included in

selling, general and administrative expenses 735 620

3. Losses on retirement of fixed assets Mainly the retirement of building because of the renovation of rest house for employees

―

4. Impairment losses The Company recorded impairment losses for fiscal 2005 under the following group: (1) Major assets with impairment losses

Location Application Type

Tokyo and four prefectures Business Assets (8 New Concept Salons) Building, tools and furnitures

Non-consolidated

(Unaudited) 41

(2) Dealing with impairment losses Because of the continued operating losses and fall down in aggregated future cash flows to net book value of each asset

group, the Company reduced the carrying amount of each asset group to the recoverable amount and recorded the aggregate amount of decrease as an impairment loss under extraordinary losses.

(3) Impairment loss amounts Millions of yen

Type Amount

Building 199

Tools and furnitures 24 Total 224

(4) Asset-grouping method In principle, the Company considers location as well as type of operations in grouping assets. (5) Calculating recoverable amounts A recoverable amount is the net selling price of the asset in question, and disposal price are viewed with a zero. Millions of yen 5. Major transactions with affiliates Fiscal 2005 Fiscal 2004

Advertising expenses 9,288 8,831 Dividends received 2,342 469 Interest received 147 151

Non-consolidated

(Unaudited) 42

[Leases] Millions of yen


1. Finance leases which do not transfer ownership to lessees (1) Assumed amounts of acquisition costs, accumulated depreciation and net book value at fiscal year-end Assumed amount of acquisition costs Vehicle 20 20

Equipment 39 671

Total 59 692 Assumed amount of accumulated depreciation Vehicle 19 15

Equipment 14 569

Total 33 584 Assumed amount of net book value at fiscal year-end Vehicle 1 5

Equipment 24 102

Total 25 107 (Note) Assumed amount of acquisition costs includes interest expenses as the burden of the year-end balance of future

lease payments included in the year-end balance of tangible fixed assets is small.

(2) Assumed amounts of future lease payment at fiscal year-end Due within one year 8 81 Due after one year 17 25

Total 25 107 (Note) Assumed amount of future lease payments at fiscal year-end includes interest expenses as the burden of the

year-end balance of future lease payments included in the year-end balance of tangible fixed assets is small. (3) Lease payments and assumed amount of depreciation expenses Lease payments 81 139 Assumed amount of depreciation expenses 81 139 (4) Calculation of assumed amount of depreciation expenses Straight-line method in which the leasing period of the leased asset is assumed to be its useful life and residual amount

is assumed to be nil. 2. Operating leases

Future lease payment at fiscal year-end Due within one year ― 2 Due after one year ― ―

Total ― 2

Non-consolidated

(Unaudited) 43

[Marketable Securities] Fiscal 2005 (as of February 28, 2005)

There is nothing to be accounted for. [Tax Allocation] 1. Major factors for the accrual of deferred tax assets and deferred tax liabilities Millions of yen

Fiscal 2005 (as of February 28, 2005.)


Deferred tax assets ―

Unrealized loss on investment in affiliates 5,084 Excess of provision for employees’ severance

and retirement benefits 1,071 847

Excess of provision for allowance for employees’ bonus 385 383 Deferred research and development expenses 320 166 Excess of allowance for retirement gratuities to officers 300 307 Excess of allowance for doubtful account 227 ―

Excess of depreciation 189 163 Accumulated impairment losses 91 ―

Unrealized loss on golf club memberships 87 87 Enterprise tax payable 76 222

Deferred unrealized loss of inventories 54 73 Warranty reserve 51 52 Deferred exchange loss ― 127 Others 69 79

Sub-total deferred tax assets 8,009 2,508 Valuation reserve (5,084) ―

Total deferred tax assets 2,924 2,508 Deferred tax liabilities Reserve for deferred income tax on buildings (10) (11)

Unrealized loss on marketable securities (146) (3)

Total deferred tax liabilities (156) (14) Net deferred tax assets 2,767 2,494

2. Major factors for the difference between the statutory tax rate and the effective income tax rate after tax allocation (%)



As the company result was loss before tax, the statement of major factors for the difference is omitted.

As the difference between the statutory tax rate and the effective income tax rate after tax allocation is not more than 5% of the statutory tax rate, statement of major factors for

the difference is omitted.

============================================================

(END)

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