Heian Ceremony Service Co., Ltd.

Transcription

1 Financial Results For the Year Ended March 31, Consolidated May 10, 2006 Heian Ceremony Service Co., Ltd. Company name: Listings: JASDAQ Security code: 2344 URL: Head office: Kanagawa, Japan Representative: Masataka Yamada, President Contact: Hideyuki Souma, Senior Managing Director and General Manager of Administration Division Tel: Date of board of directors meeting: May 10, 2006 Basis of presentation: Japanese GAAP 1. Consolidated Financial Results for the Year Ended March 31, 2006 (April 1, 2005 to March 31, 2006) (1) Operating Results (Amounts rounded down to the nearest million yen) Net sales Operating income Ordinary income Net income million yen % million yen % million yen % million yen % Year ended March 31, , , , Year ended March 31, , , , Net income per share Net income per sharefully diluted Return on equity Ordinary income/ Total assets Ordinary income/ Net sales yen yen % % % Year ended March 31, Year ended March 31, Notes: 1. Investment gains or losses under the equity method: Year ended March 31, 2006: - million yen Year ended March 31, 2005: - million yen 2. Average number of shares issued and outstanding during the period (on a consolidated basis): Year ended March 31, 2006: 14,632,640 shares Year ended March 31, 2005: 14,634,836 shares 3. Changes in accounting method: Yes 4. Percentage figures shown in the net sales, operating income, ordinary income and net income columns represent year-on-year changes.

2 (2) Financial Position Total assets Shareholders equity Shareholders equity ratio Shareholders equity per share million yen million yen % yen Year ended March 31, ,235 9, Year ended March 31, ,039 8, Note: Number of shares issued and outstanding at the end of the period (on a consolidated basis): Year ended March 31, 2006: 14,631,220 shares Year ended March 31, 2005: 14,628,400 shares (3) Cash Flow Position Cash flows from operating activities Cash flows from investment activities Cash flows from financial activities Cash and cash equivalents at end of period million yen million yen million yen million yen Year ended March 31, , ,657 Year ended March 31, ,343-1, ,398 (4) Scope of consolidation and application of the equity method: Number of consolidated subsidiaries: 2 Number of non-consolidated subsidiaries to which the equity method is applicable: None Number of affiliated companies to which the equity method is applicable: None (5) Changes in the scope of consolidation or application of the equity method. Consolidated subsidiaries: Newly included: None Newly excluded: None Affiliated companies to which the equity method is applicable: Newly included: None Newly excluded: None 2. Forecast of Consolidated Earnings for the Year Ending March 31, 2007 (April 1, 2006 to March 31, 2007) Net sales Ordinary income Net income million yen million yen million yen Interim 4, Full year 9,364 1, Note: Projected net income per share for full year: * The above forecast incorporates certain projections based upon assumptions, the outlook and plans for the future by the Company at the time of this document s publication. Actual results may differ from the above figures depending on various unpredictable factors.

3 1. Heian Service Co., Ltd. The Heian Ceremony Service Group (Heian Ceremony Service Co., Ltd. and related companies) comprises Heian Ceremony Service Co., Ltd. (hereafter the Company ), two consolidated subsidiaries (Heian Co. and Yamadai Shoji Co.) and a non-consolidated subsidiary (Hanaichirin Co.). The Group owns two wedding halls in Kanagawa prefecture and 12 funeral halls in Kanagawa prefecture and Tokyo. The Group s principal business activity is to provide ceremonial function management services and ancillary services for individuals, members of the mutual aid society operated by the Group, and corporate customers. The Group s business comprises four segments as outlined below. The segment classification is in line with the classification of business segments presented in 4. Consolidated Financial Statements [Segment Information]. Wedding and Celebration Services The Company owns two wedding halls: Cortile Chigasaki, located in Chigasaki city, and Royal Manner Fort Belle Jour, located in Odawara city, both in Kanagawa prefecture, where the Company provides wedding ceremony services for individuals and mutual aid society members. The Company also operates Salon de Prie in Hiratsuka city, Kanagawa prefecture, where services including costume rental, photo studio and costume fitting services are provided for wedding ceremonies and celebration ceremonies such as Coming-of-Age Day celebrations and the traditional Seven-Five-Three ceremony celebrating children aged seven, five and three. The Company purchases food served at wedding ceremonies through Yamadai Shoji Co., a consolidated subsidiary. Funeral Related Services The Company owns eight Showa Kaido funeral halls in Kanagawa and Tokyo, three Culture BONDS funeral halls in Kanagawa, and one Showa Reihinkan funeral hall, through which it provides funeral and related services including private and corporate funeral services for individuals, mutual aid society members and corporate customers. In addition, the Company provides funeral services held at customers homes, temples and community halls as well as ancillary services including sales of Buddhist altars and other religious items. The Company also concludes franchise agreements with other funeral service companies in Kanagawa and surrounding prefectures. This franchise agreement involves provision of a franchise package mainly comprising an education system and management advice for improved service quality but does not involve the lending of trademarks including the Company s single-brand logo and signboard. The Company also concludes partnership agreements with other funeral service companies, which involves the provision of an education system and advice for higher service quality. The Company purchases food served at vigils and post-funeral ceremonies and gifts to those who attended funeral services from Yamadai Shoji Co., a consolidated subsidiary. Hanaichirin Co., the Company s non-consolidated subsidiary, offers funeral services to customers outside the service coverage of the Company. Mutual Aid Society Heian Co., the Company s subsidiary, operates a mutual aid society for wedding/celebration and funeral services based in the Shonan area of Kanagawa prefecture, which is its main business. It solicits membership subscription and manages information on members of the mutual aid society. Based on the service solicitation guarantee agreement between the Company and Heian Co., the latter markets wedding ceremony and funeral services, mainly provided by the former, to mutual aid society members, and contracts the Company to provide the services.

4 Other Services In June 1998, the Company s subsidiary Heian Co. concluded a franchise system agreement with SAINT-CARE CORPORATION, the franchiser. As the company s franchisee, Heian Co. operates nursing and care services in cities of Fujisawa, Chigasaki, Hiratsuka and Odawara in Kanagawa prefecture. The main services include home-visit care services, a category of home care services, home-visit nursing care services, home-visit mobile bath services, administration services for application for care services, sales and rental of care products, and housing improvement services. When the public nursing care insurance system was implemented in April 2000, Heian Co. was licensed by the governor of Kanagawa prefecture as a provider of administration services for application for care services under the provisions set forth in the Nursing Care Insurance Law (Law No.123, 1997). However, based on this franchise system agreement, Heian Co. returned the license effective March 2001 to the prefecture and SAINT-CARE CORPORATION was licensed by the governor to provide the services. Heian Co., directly designated by the governor of Kanagawa prefecture, operates With Living Heian Yahagi, a leasehold condominium exclusively dedicated for elderly people with day care service functions, and two group homes. Besides these businesses, Yamadai Shoji Co., the Company s subsidiary, operates food catering services (provision of food catering outsourcing service with facilities).

5 Business Structure Food services for nursing care facilities Customer Wedding ceremony services The Company (Individuals, Mutual aid society members, Corporations, Groups) Funeral Service Companies (Franchisees, Partnership Companies) Heian Ceremony Service Co., Ltd. Wedding ceremony services Funeral services Food Management advice Marketing of wedding celebration and funeral related Heian Co. Mutual Aid Society business Funeral services Food Gifts to funeral attendants Solicit mutual aid society member ship Home nursing care services Small-sized funeral services Other businesses (Nursing care services) Yamadai Shoji Co. Hanaichirin Co. Other businesses (Food catering services) (Funeral related services) (Reference) The Group s business is governed by the following laws and regulations: (a) Restrictions under the Installment Sales Law and related regulations Heian Co., the Company s consolidated subsidiary, operates a mutual aid society for wedding/celebration and funeral services as its main business. Provision of such services by a mutual aid society for its members is classified as a prepaid-style specific business transaction as specified under the Installment Sales Law. Under the Law, a license issued by the Minister of Economy, Trade and Industry is required to engage in certain types of prepaid transactions. The Law also requires businesses to deposit service guarantee deposits, to secure advances received on prepaid transactions, to submit reports regarding its assets and revenue/expenditure conditions, and to submit notification in case of any changes to terms of the related contracts. (b) Restrictions concerning hearse transport Hearse transport, which forms part of the Company s funeral service, is subject to restrictions under the Law Concerning Trucking Transport Business and is classified in the general trucking transport business (hearse transport). As hearse transport differs from other trucking transport in terms of the object being transported and methods of transport, etc., it is subject to restrictions in geographical coverage and the number of hearses permitted to be owned, etc. The Company is permitted to operate hearse transport business within Tokyo and Kanagawa prefectures.

6 [Consolidated Subsidiaries] Consolidated subsidiary Heian Co. Address Hiratsuka, Kanagawa Paid-in Capital 80,000,000 Major lines of businesses Operation of mutual aid society; nursing and care services Ownership of voting rights 100% Relationship with the Under the service guarantee and solicitation contract entered between the Company subsidiary and the Company, the subsidiary sells the Company s wedding/celebration and funeral services to members of the mutual aid society. Number of interlocking directors: 5 The subsidiary engages in facilities rental business. The Company provides management advice with the subsidiary regarding its overall business operations. The subsidiary outsources part of its personnel management operations to the Company. The Company receives service guarantee deposits from the subsidiary. The Company is the guarantor of the subsidiary s guaranteed liabilities. Consolidated subsidiary Yamadai Shoji Co. Address Hiratsuka, Knagawa Paid-in Capital 100,000,000 Major lines of businesses Food catering (incl. cooking, food processing and sales); sales of gifts to people who attended funeral ceremonies Ownership of voting rights 100% (40%) Relationship with the The subsidiary provides cooking and food catering service to the Company Company for its wedding/celebration ceremonies and funeral services. The subsidiary also sells to the Company gifts for those who attended funeral services. Number of interlocking directors: 5 The subsidiary engages in facilities rental business. The subsidiary outsources part of its personnel management operation to the Company. Note: The figures in (parentheses) represent the percentage of indirect holding through subsidiaries. 2. Management Policy (1) Basic Management Policy The Heian Ceremony Service Group s business activity is centered on the management policy of serving our customers with a cordial attitude. The Group s corporate philosophy is to contribute to the local community and realize customer satisfaction through the provision of wedding ceremonies, funeral services and healthcare services. Founded to provide wedding and celebration services, the Company expanded into funeral and funeral related services as the country s demography and customer needs changed. Moreover, moving a step ahead of social changes, the Company started franchising funeral services. In the funeral related services, the Company proposes a business model it calls unit management, which is aimed at improving management efficiency, profitability and service quality through co-existence by sharing management resources, such as personnel, goods, and facilities with partner funeral service companies within the local market area. Going forward, the Company bases its future growth on (a) opening new funeral halls that will play a central role in the expansion of its franchising business, and (b) expanding its geographical coverage beyond Kanagawa prefecture into Tokyo and surrounding prefectures along with expansion of the unit business model. To achieve this aim, the Company considers establishing a new distribution center for each unit and enhancing the distribution system as priority issues in capital investment. Also, to clarify its customer segments, the Company will provide services to accommodate the needs of each customer segment. Specifically, the Company will provide formal funeral

7 services at funeral halls under the Culture BONDS brand, more at-home and casual services with the Showa Kaido brand. Under the sub-brand of Showa Reihinkan, Showa Reihinkan is a ceremony hall modeled on an estate house and the entire facility can be rented for a single funeral service. Going forward, the Company will respond to the trends of the times under its basic management policy to reflect customers feedback in becoming a good corporate citizen supported by customers and society.. (2) Dividend Policy Heian Ceremony Service is aware that returning profit to shareholders is the highest priority management issue in light of its basic policy for profit distribution, and in order to achieve shareholder oriented business management. First and foremost, the Company aims to maximize its profit distribution to its shareholders through appropriate and stable dividend payments in accordance with its business performance, while taking into consideration the needs to strengthen corporate structure and improve return on equity (ROE). Our basic policy for retained earnings calls for effective investment aimed at strengthening the Company s business fundamentals, conducting proactive business operations, and improving corporate value in order to seek greater efficiency from the long-term perspectives and to cope with intensified competition. Based on the basic dividend policy outlined above, the Company plans to pay an annual dividend of 13.00, with a targeted dividend payout ratio of 25% or greater, for the fiscal year ended March 31, (3) Philosophy and Policy Regarding a Lowering of Minimum Trading Unit Policy Regarding Lowering of Minimum Trading Unit The Company is keenly aware that increasing the liquidity of its shares and increasing its shareholders are major priority issues. In a meeting held on March 7, 2005, the Company s Board of Directors resolved to reduce the minimum trading unit from 1,000 shares to 100 shares, effective May 2, (4) Business Performance Targets The Group aims to achieve double digit growth in consolidated ordinary income on an annual basis and has set a target for consolidated ordinary income of 1,732 million for the fiscal year ending March To achieve this target, the Group strives to increase profitability in the funeral services, its core business, by promoting plans to open funeral halls, which yield a high return on investment, and by promoting low-cost operation of halls, as were pursued in the year under review. (5) Medium- and Long-Term Management Strategies -Improve profitability -Broaden geographical coverage of funeral services (a) In expanding its business in Tokyo and surrounding prefectures, as was done in the previous fiscal year, the Company will open new halls aimed at establishing geographical dominance in each local area. Along with this, in expanding its geographical coverage, the Company will not only rely on opening directly operated halls but also will pursue franchising, business tie-up, and business partnership (through facilities rental agreement for peer funeral service companies in surrounding areas) with industry peers as well as local companies in other industries. (b) Develop corporate brand for funeral service Responding to the trend of the decreasing number of funeral attendance and to customer needs, the Company will develop the brand of Showa Reihinkan, a rental funeral hall modeled on a large estate house, as the Company s core brand in the future.

8 (c) Promote nursing and care services (d) The Company will shift its strategic focus from home-visit nursing care service to operation of nursing care facilities and will expand operation of such facilities specializing in different levels of care needs, in order to establish its geographical dominance. - Improve productivity (a) Efficient capital investment The Company will shift is weight of investment from large-sized funeral halls to smaller-sized ones in order to reduce construction costs as well as to achieve systematic low-cost operation. As a result, the Company will drive forward capital investment plans with greater emphasis on profitability and return on investment (ROI). (b) Revision of operation unit In light of its efforts to increase the openings of new ceremony halls and in order to seek efficient operation of each unit at respective business branches, the Company will restructure each process based on its business characteristics and streamline as well as centralize processes. During the fiscal year ending March 2007, the Company seeks to further improve operational efficiency of the flower arrangement production group by streamlining and centralizing processes. (6) Issues that Need to be Addressed The Company considers the following as its major management issues: (1) solidify a funeral service foothold in Tokyo and surrounding prefectures, (2) generate synergies between wedding/celebration services and funeral services and (3) improve service quality. (a) Solidifying a funeral service foothold in Tokyo and the surrounding prefectures In an effort to continue its drive from the previous fiscal year to expand and strengthen its operational fundamentals in Tokyo and surrounding prefectures, the Company will first seek to increase the number of funeral services in Machida city, Tokyo. To achieve this aim, the Company will improve Showa Kaido Machida into the flagship funeral hall by actively conducting advertising and holding events to attract potential customers in addition to further strengthening home visit sales to potential individual and institutional customers. (b) Generate synergies between wedding/celebration services and funeral services The Company has further enhanced its concept making capabilities and operation systems for a banquet hall modeled on an estate house for the wedding and celebration service business, and transferred expertise thus developed to the funeral service business at Showa Reihinkan. Through these efforts, the Company will continue to evolve its service style in the wedding and celebration services, which is facing further intensified competition. In the funeral related service business, the Company will employ the service style developed in the wedding and celebration services to establish funeral service to keep the Company ahead of the market. These initiatives should help the Company further generate synergies between the two services. (c) Improve service quality The Company will further improve effectiveness of the professional qualification system, and the internal employee performance evaluation and certification system initiated in the previous fiscal year, which classifies job types into different ranks primarily based on levels of difficulty with job descriptions and sets out achievement targets. Also, the Company will broaden its focus of service delivered to customers. In funeral services, the Company will also focus on services provided prior to and after the funeral service itself. Specifically, the Company will further strengthen its meticulous service and dedication for potential customers consulting for future funeral ceremonies. In post-funeral services, the Company will strengthen mental health care services to take care of families who have lost their loved ones. Going forward, the Company strives to provide services that deeply touch customer hearts by providing a comprehensive coverage of services.

9 (7) Basic Corporate Governance Philosophy and Corporate Governance Measures Introduced (a) An internal cross checking structure, an organizational structure including Operations Division and Administration Division, and development of internal regulations and other measures have been introduced to strengthen the internal control structure The Company s internal control structure places administrative functions under the Administration Division and operational functions under the Operations Division, thus clearly separating the two to effectively enhance cross checking functions. Moreover, the duty of the General Manager of the Administration Division and that of the General Manager of Operations Division are completely separated from each other, and the two positions are not assumed by a single person to ensure this separation. The Administration Division, which comprises the Management Promotion Office, Treasury Department, General Affairs Department and Business Management Department, controls budgeting and manages administrative work. The Purchase Department, which is in charge of purchasing merchandise, is operated as an independent division managed under the Merchandise Division. Separately, the Company has the President s Office which directly reports to the President and is charged with ensuring timely disclosure, and the Internal Audit Office which is in charge of risk control activity. In addition, in order to promote internal control systems and compliance, the Company established the Compliance Promotion Committee chaired by the President and Representative Director. The Internal Audit Office reports the results of audits directly to the President and corporate auditors. The Office also reports on how issues they have pointed out have improved. In terms of internal control at consolidated subsidiaries, the General Manager of the Management Promotion Office has a supervisory function and works with the Company s Internal Audit Office to audit whether risk related information exists at the subsidiaries. Also, the Company has a system in place where the General Manager of the Management Promotion Office reports to the Company s Board of Directors regarding any risks that may cause losses at the consolidated subsidiaries that are known to the General Manager.

10 The organizational structure of the departments/offices and cross checking relations are as follows: Heian Ceremony Service Co., Ltd. Consolidated subsidiaries Board of Directors Supervision Board of Auditors Reporting Independent auditors (Accounting audit) Compliance Promotion Committee (Monitor internal control) Reporting General Manager, Administration Division (Director in charge of disclosure) Directions for improvement (Administration Division) General Manager, Management Promotion Office Management Promotion Office (Control of management plans) Treasury Department (Budget control) General Affairs Department (Management of legal affairs) Business Management Department (Control of operations) Reporting and making proposals Directions Monitoring and approval Reporting and deliberation Directions for improvement Report improvement Audit Internal checking Internal checking Directions for improvement Directions President's Office (Timelydisclosure) Audit reporting Audit directions President Management Committee Audit directions Internal Audit Office (Risk management) Audi Audit reporting Report improvements Merchandise Division / Purchase Department Operations audit Directions for improvement Audit Internal checking Audit reporting Internal checking General Manager, Operations Division (Supervision of operations) Directions for improvement Audit Report improvements Report improvements Checking (Operations Division) Report improvements Western Kanagawa Operations Department Central Kanagawa Operations Department Shonan Area Operations Department Eastern Kanagawa Operations Department Western Tokyo Operations Department (Consolidated subsidiaries) Heian Co. Yamadai shoji Co. (b) Internal control measures introduced during the fiscal year ended March 2006 (i)in March 2006, the Company established the Compliance Promotion Committee, chaired by the President and Representative Director, to promote internal control and compliance systems. The Committee plans to meet regularly on a monthly basis. (ii)during the fiscal year under review, the Company conducted at least two internal audits of 32 sections of four Operations Departments in the Operations Division, nine sections of the Administration Division, and 20 sections of the two consolidated subsidiaries, and issued 191 directions for improvement. (iii)other efforts conducted by the Company to promote internal control are described in the Company s Corporate Governance Report submitted to the JASDAQ Securities Exchange under the Partial Revision of Securities Listing Regulations, etc., for Enhancement of Corporate Governance.

11 (8). Items Pertaining to Parent Companies and Major Stakeholders None. (9). Other Significant Issues Related to Management of the Company None.

12 3. Operating Results and Financial Position (1) Operating Results (a) Overview of the Year Ended March 31, 2006 During the consolidated fiscal year under review, the Japanese economy recovered, albeit modestly, on the back of improved corporate earnings and household income despite continuing weakness in some parts of the economy. Also, according to the Cabinet Office s monthly economic report for March, strong corporate earnings were feeding through to households and the economic recovery was expected to continue supported by domestic demand. On the other hand, concerns remained regarding the possible impact of crude oil price movements on domestic and global economies. Under these circumstances, the preliminary report on the Specific Service Industry Survey (based on a sample survey), issued by the Ministry of Economy, Trade and Industry described the industry s main trends that total revenue of the wedding and celebration service industry for 2005 decreased 2.6% from the previous year to 185,953 million with 70,341 wedding ceremonies held, a 4.3% decrease from a year earlier, while total revenue of the funeral services industry for the year grew 4.8% to 444,485 million with 295,127 funerals, increasing 4.1% from a year earlier. A difficult environment continued in the wedding and celebration services industry as customers are becoming less responsive to mass marketing reflecting diversifying styles of wedding ceremonies. In the funeral related services industry, although the number of people who attended funeral services declined and there was a tendency towards downsized funeral ceremonies, demand itself was on the increase due to demographic trends of the country. Under this economic environment, the Group focused on expanding revenues and improving productivity. For the fiscal year under review, consolidated revenue increased 2.6% from a year earlier to 9,018,815 thousand, ordinary income grew 13.8% to 1,463,459 thousand, which representing both revenue and ordinary income increases from the previous fiscal year. Income before income taxes decreased 5.3% from a year earlier to 1,134,687 thousand as the Group recognized an extraordinary loss of 452,012 thousand on asset impairment loss associated with Belle Jour Odawara. As a result, net income for the year declined 7.2% to 618,068 thousand. Segment Overview (i) Wedding and Celebration Services The segment s revenue declined 16.1% from a year earlier to 1,154,149 thousand as the number of wedding ceremonies held at Cortile Chigasaki declined. On the other hand, a decrease in operating expenses of 13.4% to 1,020,425 thousand resulted in operating income of 133,724 thousand, representing a 32.4% decrease from the previous fiscal year. (ii) Funeral Related Services Besides the increase in funeral ceremonies serviced at existing funeral halls in the Shonan area, an increase in funeral services at Showa Kaido Machida contributed to the overall growth in funeral services from the previous fiscal year. However, the unit price per service decreased year-on-year as attendance declined. In October 2005, the Company opened Showa Reihinkan Nishikubo, a funeral hall modeled on a large estate house and whose entire facility can be rented for a single service. To establish this new brand, the Company will continue advertising and sales activities targeting end users and thereby will raise recognition of the hall.

13 As a result, revenue increased 5.9% from a year earlier to 7,067,584 thousand. Operating income grew 5.7% to 1,823,417 thousand, despite an increase in operating expenses of 6.0% to 5,244,166 thousand due primarily to increased outsourcing expenses that reflected the increased number of funeral services. (iii) Mutual Aid Society The segment s revenue increased 5.5% to 317,254 thousand due primarily to increased commission revenue. Reflecting a decrease in operating expenses by 15,801 thousand from a year earlier due to lower labor cost and other expenses, operating income jumped 42.8% to 108,296 thousand. (iv) Other Businesses In this segment, revenue from care service business increased 8.1% to 718,205 thousand, as With Living Heian Yahagi, a condominium for the elderly that provides nursing care service, opened in October 2004, began full-year operations and the Heian Kamonomiya group home was opened in March Operating income grew 9.3% to 673,699 thousand, reflecting an increase in labor cost at the Heian Yahagi group home which also began full-year operation, as well as increased labor cost and other expenses related to start-up investment in the Heian Kamonomiya group home. As a result, operating income decreased 7.1% to 44,506 thousand. (b) Outlook for the Year Ending March 2007 For the fiscal year ending March 2007, the Group will particularly focus on (b) Developing the corporate brand for funeral services as part of the strategy to Improve profitability, and (b) Revision of operating unit as part of the strategy to Improve productivity, both as outlined in (5) Medium- and Long-Term Management Strategies of 2. Management Policy as well as the three issues outlined in (6) Management Issues to be Addressed. The Group forecasts consolidated revenue of 9,364 million, ordinary income of 1,416 million and net income of 749 million. (2) Cash Flow Position (Cash flows from operating activities) Net cash provided by operating activities was 1,270,733 thousand, decreasing 5.4% from the previous fiscal year. This was primarily due to income before income taxes of 1,134,687 thousand, depreciation expenses of 549,269 thousand and asset impairment loss of 452,012 thousand, versus 626,929 thousand in payment of income taxes. (Cash flows from investing activities) Net cash used in investing activities was 819,446 thousand, decreasing 40.5% from the previous fiscal year. Cash inflows and outflows related to cash, savings deposits, time deposits, bonds, etc. are caused by additions to, withdrawals from or exhcnages of financial assets that was required in relation to the Company s obligation to deposit certain amount of funds, marketable securities, etc. as collateral to back up its obligations arising from the receipt of an advance on certain specified transactions where prepayments are required under the Instalment Sales Law. The net amount of such cash during the fiscal year resulted in an outlay of 332,155,000, compared with an outlay of 795,473,000a year earlier. Cash used in capital investment was 382,344 thousand and was related to the purchase of fixed assets and mainly included 156,869,000 for construction of a new funeral ceremony hall Showa Reihinkan Nishikubo, 13,500,000 for improvement work of air conditioning facility at the Bell Jour wedding ceremony hall, and 37,079,000associated with purchase of vehicles.

14 (Cash flows from financing activities) Net cash used in financing activities was 192,492 thousand, compared with 171,076 thousand used in the previous fiscal year. This was due primarily to dividend payment of 175,706 thousand and payment for purchase of treasury stock in preparation for the exercise of stock options. As a result, consolidated cash and cash equivalents increased 258,794 thousand from a year earlier to 4,657,027 thousand, reflecting income before income taxes of 1,134,687 thousand, which decreased 5.3% from a year earlier. This was partly offset by outlays primarily for the purpose of preserving advances received on prepaid transactions and facilities improvements and other capital expenditures. Recent trends in the Company s cash flow indicators are as follows: Year ended March 31, 2005 Year ended March 31, 2006 Shareholders equity ratio (%) Equity ratio based on market value (%) * Each of these indicators are calculated based on consolidated statements. * Since the Group does not have interest-bearing debt, the number of years to repay debt and interest coverage ratio are not presented here

15 4. Consolidated Financial Statements (1) Consolidated Balance Sheets As of March 31, 2005 (A) As of March 31, 2006 (B) Amount % Amount % (B) (A) (Assets) I Current assets 1. Cash and deposits 4,499,338 4,724, , Accounts receivable 213, ,179-25, Marketable securities *3 348, , , Inventories 135, ,717 12, Deferred tax assets 93,497 79,812-13, Deposits pledged *3 3,778,200 4,086, , Other 67, ,539 43, Allowance for doubtful accounts -1, Total current assets 9,135, ,138, ,002,401 II Fixed assets 1. Tangible fixed assets (1) Buildings and structures *3 5,878,926 5,266, ,139 (2) Machinery, equipment and vehicles 86,219 92,976 6,757 (3) Furniture and fixtures 214, ,368-23,905 (4) Land *3 6,545,471 6,548,141 2,670 (5) Construction in progress - 4,654 4,654 Total tangible fixed assets *1 12,724, ,102, , Intangible fixed assets 37, , , Investments and other assets (1) Investment securities *2,3 2,670,660 1,692, ,095 (2) Long-term loans 50,016 49, (3) Long-term deposits - 600, ,000 (4) Deferred income taxes 163, ,079 97,062 (5) Other *3 1,266,769 1,364,900 98,131 (6) Allowance for doubtful accounts -9,300-9,300 - Total investments and other assets 4,141, ,958, ,036 Total fixed assets 16,904, ,097, ,135 Total assets 26,039, ,235, ,266

16 As of March 31, 2005 (A) As of March 31, 2006 (B) (B) (A) Amount % Amount % (Liabilities) I Current liabilities 1. Accounts payable, trade 316, ,174-26, Income taxes payable 436, ,102-11, Consumption tax payable 62,701 51,743-10, Other 493, ,675 5,910 Total current liabilities 1,309, ,265, ,563 II Fixed liabilities 1. Deferred tax liabilities 52,922 46,671-6, Reserve for employees retirement benefits 25, , Reserve for directors retirement benefits 308, , , Consolidated goodwill 1, , Advance received on prepaid transactions *3,4 15,505,185 15,492,189-12, Other Total fixed liabilities 15,894, ,707, ,431 Total liabilities 17,203, ,972, ,994 (Shareholders equity) I Common stock *5 785, , II Additional paid-in capital 2,838, ,838, III Retained earnings 5,219, ,635, ,635 IV Net unrealized gains/losses on other securities 19, , ,294 V Treasury stock *6-27, , Total shareholders equity 8,835, ,263, ,260 Total liabilities and shareholders equity 26,039, ,235, ,266

17 (2) Consolidated Statements of Operations Year ended March 31, 2005 Year ended March 31, 2006 (A) (B) (B) (A) Amount % Amount % I Net sales 8,794, ,018, ,385 II Cost of sales 6,371, ,516, ,938 Gross profit 2,423, ,502, ,447 III Selling, general and administrative expenses *1 1,307, ,196, ,027 Operating income 1,115, ,305, ,474 IV Non-operating income 182, , , Interest income 8,372 11,019 2, Dividend income 961 1, Interest income on marketable securities 25,788 21,444-4, Amortization of consolidation goodwill 6,512 1,682-4, Commission on cancellation of deposit *2 83,325 78,470-4, Other 57,168 62,152 4,984 V Non-operating expense 11, , , Guarantee fee 8,779 12,497 3, Amortization of share issuance expense Provision for allowance for doubtful accounts Valuation loss on merchandise inventories - 4,486 4, Other 1,251 1, Ordinary income 1,286, ,463, ,137 VI Extraordinary gains , , Gain on sale of fixed assets * Reversal of allowance for doubtful accounts Reversal of reserve for directors retirement benefits *6-150, ,000 VII Extraordinary losses 88, , , Loss on disposal of fixed assets *4 8,136 27,693 19, Impairment losses *7-452, , Valuation loss on fixed assets *5 39, , Valuation loss on investment securities 41, ,250 Net income before income taxes 1,197, ,134, ,048 Income taxes, inhabitants tax, and enterprise taxes 587, , ,413 Income taxes adjustments -55, , ,430 Net income 666, , ,032

18 (3) Consolidated Statements of Additional Paid-in Capital and Retained Earnings Year ended March 31, 2005 (A) Amount Year ended March 31, 2006 (B) Amount (Additional Paid-in Capital) I Balance, at beginning of period 2,833,556 2,838,393 II Increase in additional paid-in capital 1. Issuance of new shares for capital increase 4,837 4, III Balance, at end of period 2,838,393 2,838,393 (Retained Earnings) I Balance, at beginning of period 4,719,593 5,219,973 II Increase in retained earnings 1. Net income 666, , , ,068 III Decrease in retained earnings 1. Dividend 146, , Directors bonuses 11,830 10, Loss on disposal of treasury stock 7, ,720 16, ,432 IV Balance, at end of period 5,219,973 5,635,608

19 (4) Consolidated Statements of Cash Flows Year ended Year ended March 31, 2005 (A) March 31, 2006 (B) (B) (A) Amount Amount Amount I Cash flows from operating activities: Net income before income taxes 1,197,736 1,134,687-63,048 Depreciation and amortization 620, ,269-71,402 Impairment losses - 452, ,012 Amortization of consolidation goodwill -6,512-1,682 4,830 Foreign exchange loss -1,400-1,400 Increase/decrease in allowance for doubtful accounts Increase/decrease in reserve for employees retirement benefits -9,346-25,340-15,994 Increase/decrease in reserve for directors retirement benefits 14, , ,704 Interest and dividend income, and interest on securities -35,122-33,520 1,601 Valuation loss on investment securities 41, ,250 Gain/loss on disposal and sale of tangible fixed assets 7,066 19,771 12,705 Loss on disposal and sale of intangible fixed assets - 7,321 7,321 Valuation loss on tangible fixed assets 39, ,518 Decrease/increase in accounts receivable, trade -48,139 25,377 73,516 Decrease/increase in inventories 26,157-12,744-38,902 Increase/decrease in accounts receivable, trade -1,976-26,842-24,865 Increase/decrease in advances received on prepaid transactions -42,152-12,995 29,156 Other 13,069-64,276-77,346 Subtotal 1,815,923 1,869,540 53,617 Interest and dividend received 40,374 28,122-12,252 Income taxes paid -513, , ,867 Net cash provided by operating activities 1,343,235 1,270,733-72,502 II Cash flows from investing activities: Deposits into time deposit accounts -102, , ,830 Withdrawals from time deposits 145,955 96,580-49,375 Proceeds from redemption of investment securities 1,358, , ,000 Purchase of tangible fixed assets -531, , ,181 Proceeds from sale of tangible fixed assets 403 3,172 2,769 Purchase of intangible fixed assets ,478-13,555 Purchase of investment securities -306, ,973 Placement of deposits in trust fund -1,890, ,800 1,487,550 Withdrawal of deposits from trust fund - 95,000 95,000 Purchase of other investment -59, ,724-45,328 Proceeds from collection of other investment 8,627 11,082 2,455 Net cash used in investing activities -1,378, , ,840 III Cash flows from financing activities Proceeds from share issuance -146, ,706-29,182 Payment for purchase of treasury stock -42,352-34,634 7,717 Proceeds from disposition of treasury stock 8,105 17,849 9,744 Proceeds from share issuance 9, ,695 Cash flows used in financing activities -171, ,492-21,415 IV Effect of exchange rate changes on cash and cash equivalents V Increase/decrease in cash and cash equivalents -206, , ,922 VI Cash and cash equivalents at beginning of period 4,604,360 4,398, ,127 VII Cash and cash equivalents at end of period *1 4,398,233 4,657, ,794

20 Significant information regarding the preparation of consolidated financial statements Year ended March 31, 2005 Year ended March 31, Scope of consolidation 1. Scope of consolidation (1) Number of consolidated subsidiaries: 2 (1) Number of consolidated subsidiaries: Name of consolidated subsidiary: Same as on the left Heian Co. Yamadai Shoji Co. (2) Name of non-consolidated subsidiaries: (2) Name of non-consolidated subsidiaries: Hanaichirin Co. (3) [Reason for exclusion from consolidation] The size of the above non-consolidated subsidiary is small and its total assets, net sales, net income/loss (amount corresponding to equity ownership) and retained earnings (amount corresponding to equity ownership) of the company do not have a significant impact on the consolidated financial results. Hanaichirin Co. Same as on the left. 2. Application of equity method 2. Application of equity method The Company s non-consolidated Same as on the left. subsidiary (Hanaichirin Co.) is not accounted for under the equity method as its impact on the Company s net income and retained earnings for the fiscal period under review is considered minimal. 3. Accounting period of consolidated subsidiaries The consolidated subsidiaries accounting periods all fall on the same day as the date of the consolidated financial statements. 3. Accounting period of consolidated subsidiaries Same as on the left. 4. Accounting standards 4. Accounting standards (1) Valuation standards/methods for principal (1) Valuation standards/methods for principal assets assets (a) Securities (a) Securities a. Other securities Same as on the left. - For which market price is available: Stated at market value as of the end of the accounting period (Unrealized holding gains/losses are reported as a net amount in a separate component of shareholders equity. Cost of sale is determined by the moving average cost method.) - For which market price is not available: Stated at the cost based on the moving average method. b. Shares of subsidiaries - Stated at cost based on the moving average method. (b) Inventories (b) Inventories

21 Family altars and Buddha statues - stated at cost using the specific identification method Merchandise besides the above and materials other than foodstuff stated at cost based on the moving average method Foodstuff and supplies stated at cost using the last purchased price method (2) Depreciation/amortization of principal depreciable/amortizable assets (a) Tangible fixed assets Declining balance method However, straight-line method is used for buildings (excluding ancillary facilities) acquired on or after April 1, Depreciable/amortizable assets with acquisition cost of between 100,000 and 200,000 are stated at cost using three-year straight-line method. Useful life of major items: Buildings and structures: 3-50 years Machinery, equipment and vehicles: 2-6 years. Furniture and fixture: 2-29 years (b) Intangible fixed assets The Company and its subsidiaries: Straight-line method Software for internal use is depreciated using straight-line method over its useful life (5 years). (c) Long-term prepaid expense The Company and its subsidiaries: Straight line method Useful life is mainly 5 years. (3)Accounting standards for principal allowances/reserves (a) Allowance for doubtful accounts Allowance for doubtful accounts is provided to cover possible losses from bad debts. Allowance with respect to non-classified loans/receivables is calculated based on historical default rates. For classified loans/receivables the Company states an amount deemed to be unrecoverable based on the prospect of recovery of individual loans/receivables. (b) Reserve for employees retirement benefits Same as on the left. (2) Depreciation/amortization of principal depreciable/amortizable assets (a) Tangible fixed assets Same as on the left. (b) Intangible fixed assets The Company and its subsidiaries: Straight-line method Software for internal use is depreciated using straight-line method over its useful life (5 years). Depreciable/amortizable assets with acquisition cost of between 100,000 and 200,000 are stated at cost using three-year straight-line method. (c) Long-term prepaid expense Same as on the left. (3) Accounting standards for principal allowances/reserves (a) Allowance for doubtful accounts Same as on the left. (b) Reserve for employees retirement benefits

22 The Company provides reserve for employees retirement benefits in the amount that is deemed to have accrued as of the end of the accounting period based on projected year-end benefit obligations and outstanding amount of plan assets. The difference at the time the accounting standard was changed was 111,631,000 and is posted as expense on a 5-year straight-line basis. (c) Reserve for directors retirement benefits The Company provides reserve for directors retirement benefits based on the amount of retirement payable at the end of the accounting period in accordance with the Company s internal regulations. The Company provides reserve for employees retirement benefits in the amount that is deemed to have accrued as of the end of the accounting period based on projected year-end benefit obligations and outstanding amount of plan assets. As of the end of the fiscal year under review, the amount of pension plan assets for the qualified retirement pension plan exceeded that of projected benefit obligations. The excess amount is included in Other of Current assets. (c) Reserve for directors retirement benefits The Company provides reserve for directors retirement benefits based on the amount of retirement payable at the end of the accounting period in accordance with the Company s internal regulations. Based on a resolution adopted by the extraordinary meeting of the Board of Directors held on October 28, 2005, the Company and its consolidated subsidiaries decided to discontinue the retirement benefit allowance scheme for directors and pay the amount reserved to the directors at their retirement. Therefore, the Company has not reserved allowances for directors retirement benefits since April 1, (4) Other material information regarding the preparation of the financial statements (a) Accounting treatment of consumption taxes, etc. Same as on the left (4) Other material information regarding the preparation of the financial statements (a) Accounting treatment of consumption taxes, etc. Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes. 5. Evaluation of assets and liabilities of 5. Evaluation of assets and liabilities of consolidated subsidiaries consolidated subsidiaries The entire assets and liabilities of Same as on the left consolidated subsidiaries are evaluated at market. 6. Amortization of consolidated goodwill 6. Amortization of consolidated goodwill The consolidated good will is amortized on Same as on the left strait-line basis over 5 years. 7. Appropriations of retained earnings 7. Appropriations of retained earnings The consolidated statement of retained Same as on the left earnings is prepared based on appropriations determined during the fiscal year concerned. 8. Scope of cash and cash equivalents in the consolidated statements of cash flows Included in Cash (cash and cash equivalents) in the Statements of Cash Flows are cash in hand, demand deposits, and short-term investments with maturity arriving in three months from the date of acquisition, that are readily convertible to cash and are subject to minimum risk of price fluctuations. 8. Scope of cash and cash equivalents in the consolidated statements of cash flows Same as on the left.