Summary Report of Financial Results For the Fiscal Year Ended February 20, 2010 (Non-consolidated)

Transcription

1 Summary Report of Financial Results For the Fiscal Year Ended February 20, 2010 (Non-consolidated) April 6, 2010 Listed company name: CERTO Corporation Listed exchange: JASDAQ Stock code: 3354 URL Representative (Title) President (Name) Naoto Haga Director, Member of the Board, and General Contact: (Title) Manager, Finance and Accounting Dept. (Name) Yutaka Shibayama TEL Planned date of ordinary general meeting of shareholders: May 14, 2010 Planned date for starting dividend payment: April 27, 2010 Planned date for filing of annual securities report: May 17, 2010 (Figures of less than one million yen have been rounded down) 1. Financial Results for the Year ended February 20, 2010 (from February 21, 2009 to February 20, 2010) (1) Operating Results (Percentage figures show year-on-year change.) Net Sales Operating Income Ordinary Income Net Income Millions of yen % Millions of yen % Millions of yen % Millions of yen % 68, , , , , , , , Net Income per Share Ratio of Ordinary Diluted Net Income per Share Return on Equity Income to Total Assets Ratio of Operating Income to Net Sales Yen Yen % % % (Reference) Equity in net income of affiliates : --- million yen : --- million yen (2) Financial Position Total Assets Net Assets Shareholders Equity Ratio Net Assets per Share Millions of yen Millions of yen % Yen 30,202 16, , ,144 14, , (Reference) Shareholders equity As of Feb. 20, 2010: 16,195 million yen As of Feb. 20, 2009: 14,969 million yen (3) Cash Flows Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities Cash and Cash Equivalents at End of Period Millions of yen Millions of yen Millions of yen Millions of yen 3, ,796 1, ,

2 2. Dividends Dividends per Share End of Q1 End of Q2 End of Q3 Year-end Annual Yen Yen Yen Yen Yen Total Dividends (annual) Millions of yen Payout Ratio Ratio of Dividends to Net Assets % % FY02/ (Forecast) Following the adoption of the resolutions at the Board of Directors meeting held on March 25, 2010, CERTO Corporation on the same day entered into a merger agreement with AEON DELIGHT CO., LTD. in which AEON DELIGHT CO., LTD. is the surviving entity and CERTO Corporation is the entity ceasing to exist, which will become effective as of September 1, Accordingly, forecasts for the year-end dividend for the year ending February 20, 2011 are omitted here. 3. Forecast of Non-consolidated Financial Results for the Year Ending February 20, 2011 (from February 21, 2010 to February 20, 2011) (Figures expressed as a percentage represent year-on-year changes.) Operating Net Income Net Sales Ordinary Income Net Income Income per Share Millions of yen % Millions of yen % Millions of yen % Millions of yen % Yen First Half 35, , , Full Year Following the adoption of the resolutions at the Board of Directors meeting held on March 25, 2010, CERTO Corporation on the same day entered into a merger agreement with AEON DELIGHT CO., LTD. in which AEON DELIGHT CO., LTD. is the surviving entity and CERTO Corporation is the entity ceasing to exist, which will become effective as of September 1, Accordingly, forecasts of financial results for the full year ending February 20, 2011 are omitted here. 4. Other Remarks (1) Changes in significant accounting policies 1) Change arising from revisions of accounting standards: Yes 2) Change due to reasons other than described above: Yes (2) Number of shares issued (common stock) 1) Number of shares issued at end of period (including treasury stock) As of Feb. 20, 2010: 9,900,000 shares As of Feb. 20, 2009: 9,900,000 shares 2) Number of treasury shares at end of period As of Feb. 20, 2010: 821 shares As of Feb. 20, 2009: 771 shares *Information concerning proper use of financial forecasts and other special instructions The financial forecasts provided above were made based on information currently available and, as such, may contain some uncertain elements. Accordingly, actual results may differ from such forecasts due to changes in the current situation, etc. that may arise in the future

3 1. Results of Operations (1) Analysis of Operating Results During the fiscal year ended February 20, 2010, the business environment in which CERTO Corporation (the Company ) found itself remained difficult, as consumers spending weakened on the back of a sluggish economy and a deterioration of employment conditions and the income environment throughout the year, and low corporate earnings continued. Against this backdrop, the Company concentrated its efforts on offering products that help customers to reduce their costs and diversifying the customer base in order to better cater to its customers (businesses and institutions), and also launching new businesses and services and developing eco-friendly products in a bid to expand its sources of earnings. Below are key developments for each of these initiatives. Offering products that help customers to reduce their costs: In order to help customers to drive down their costs amid the current economic doldrums, the Company has made aggressive efforts to reduce its procurement costs by purchasing directly from overseas factories and using the reverse auction system. We also significantly expanded the line of merchandise offered through our online materials ordering system CERNET, which, by reducing the labor required for ordering, inspection, and payment, serves to reduce customers indirect expenses. This enhanced service met with high acceptance among customers. Diversifying the customer base: In addition to the existing customer sectors of retail, food processing, and physical distribution, the Company has begun doing business with medical facilities by proactively offering solutions to problems that even customers themselves are not aware of, and by strengthening solution sales in general. Launching new businesses and services: At four shopping malls, we commenced employee satisfaction support services, which provide workers at commercial complexes, office buildings, and factories with various conveniences such as mini stores and repair, delivery, and copying services. Developing eco-friendly products: For the Materials / Supplies Sourcing Services segment, we expanded our eco-friendly lines by developing / changing the specifications of 98 items that help to reduce CO 2 emissions. For the Vending Machine Services segment, we carried out aggressive marketing of energy-conserving machines (CFC-free heat pump types, etc.), which can save up to 40% of power consumption per unit. Overseas, CERTO (Beijing) Corporation, our wholly-owned subsidiary established in China in 2008, began purchasing eco bags and surgical masks directly from local factories and exporting them to Japan. Utilizing this experience of developing a local procurement channel, we intend to expand the lines of merchandise thus purchased. At the same time, we will promptly address issues that have emerged due to inadequate preparations on our part to meet ever-diversifying customer demands, such as failure to offer adequate solutions to problems that customers are not aware of or to accelerate the process of making proposals up until the conclusion of contracts. As a result, the Company recorded net sales of 68,093 million yen (down 3.7% year on year), operating income of 3,059 million yen (down 15.1%), ordinary income of 3,126 million yen (down 15.8%), and net income of 1,841 million yen (down 15.2%). <Results by business segment> Materials / Supplies Sourcing Services For this business segment, in order to meet diversifying customer demands our marketing team promoted eco-friendly (CO 2 -reducing) products, as well as proposals on cost reduction. For the Store / Office Supplies sub-segment, we focused on diversifying the customer base and expanding the list of items that we source for Group companies, in response to the increase in the number of stores that stopped giving out free plastic shopping bags. We also offered greater convenience to customers by significantly expanding the line of merchandise offered through our online materials ordering system CERNET. Nevertheless, since we were unable to win new customers quickly - 3 -

4 enough to offset the drop in sales to existing customers, net sales of this sub-segment decreased by 2.7% to 22,071 million yen. For the Printing Paper / Food Products Materials sub-segment, we strove to overcome the sluggish market by attracting new customers. As existing customers cut back on their advertising expenses, however, the frequency, distributed quantity, and dimensions of flyers were also reduced, with the result that net sales of this sub-segment suffered a 26.1% drop to 2,661 million yen. For the Product Packages sub-segment, we successfully boosted sales of food packaging trays to packaging service providers and new customers (supermarkets) by developing new distribution channels and reducing prices through the reverse auction system. Meanwhile, our focus on the expansion of sales for the AEON Group s private brand TOPVALU and sales of corrugated cardboard, along with the commencement of business with national brand manufacturers, drove up our packaging materials sales. As a result, net sales of this sub-segment increased by 19.3% to 9,805 million yen. Out of our concern for the global environment, we changed the materials and specifications of our products (lighter weight, thinner walls, and different shapes) and began recycling food packaging trays and corrugated cardboard. As an increasing number of stores no longer give away plastic shopping bags to shoppers in order to reduce CO 2 emissions, we are working on the development of eco-friendly, biodegradable biomass plastic shopping bags, while at the same time promoting the My Bag and My Basket campaign. At the same time, we are recycling plastic bottles and paper materials, such as milk cartons. Because of these efforts, net sales of this business segment edged up by 0.1% to 34,538 million yen. Going forward, we will place priority on the development of our new customer group of medical facilities, while at the same time providing customers with cost reduction programs and diverse services by developing and providing eco-friendly (CO 2 -reducing) products, building a recycling system, and enhancing distribution channels. Vending Machine Services The vending machine services market in Japan saw intensifying competition as growth in installations remained sluggish due to fewer locations on account of the closure of factories and consolidation of offices amid the economic slowdown. In order to differentiate ourselves from competitors, the Company sought to develop locations for vending machines by making a composite proposal on a refreshing space that combines beverage vending machines with foliage plants and cigarette smoke control equipment. For the beverage vending machine business, we introduced machines for low-priced drinks in response to consumers tendency toward saving and developed four original products, including Water from Mt. Fuji and coffee beverages, to add to the assortment. However, partly due to unseasonable weather in the summertime and meager growth (+264) in the number of installations from 33,850 to 34,114, net sales of this sub-segment dropped by 7.9% to 28,453 million yen. The toy vending machine business, on the other hand, showed upward growth, primarily owing to the release of a new series of the popular Yu-Gi-Oh! trading cards. With hit products, the capsule toy business began to recover after a period of sluggish performance, but it has yet to show a trend toward full-scale recovery. As a result, net sales of this sub-segment registered an 8.7% decrease from the previous year to 2,811 million yen. Adding machinery sales to the above figures, the Vending Machine Services segment generated net sales of 33,555 million yen, down 7.4% year on year. Given the growing health consciousness among customers, we will work on the development of healthy beverages and foods, and deliver them via dedicated vending machines. In addition, we will install a greater number of eco-friendly (energyconserving) vending machines and promote the spread of vending machines that accept WAON electronic money, thereby further enhancing customer convenience. Another new initiative during the term under review was the building of a new vending machine management system, which should boost per-machine sales by allowing us to offer a fresher - 4 -

5 assortment. We will also make greater marketing efforts in order to increase the number of new installations. (2) Environmental Conservation and Social Contributions Regarding environmental conservation and social contributions as some of the key missions of our business enterprises, the Company has remained committed to their fulfillment through its business activities. Our initiatives for reducing CO 2 emissions cover the entire scope of our business. For the Materials / Supplies Sourcing Services segment, we made aggressive promotions of FSC-certified paper, products offered by members of the Green Purchasing Network, LED lighting, and other materials / supplies, and changed the specifications of product packages by making them lighter or thinner and using eco-friendly raw materials such as biodegradable biomass (polylatic acid) and water-based ink. For the Vending Machine Services segment, we focused on introducing energy-conserving, CFC-free machines and expanding the line of beverages offered in TULCs (Toyo Ultimate Cans). In order to achieve harmony between business activities and environmental conservation, we have had all of our offices certified to the ISO environmental management system standard, introduced an internal environmental management system for all levels from management to staff employees, and organized an all-employee EMS Committee at each branch and section. We are thereby making constant efforts to reduce the environmental load on a daily basis. As our way of contributing to society, we operate four shopping basket cleaning centers across the country, thus providing indirect support for social independence of the handicapped. Also, as a member of the AEON 1% Club we are actively involved in a project to build schools in Cambodia and provide emergency support for the victims of the Sumatra and Haiti earthquakes. We will remain committed to environmental conservation and social services for the good of the global community. (3) Forecast for the year ending February 20, 2011 We expect that the business environment in which we find ourselves will remain difficult, with customer businesses making increasingly diverse demands in terms of both products and services. In response, we will expend every possible effort to diversify the customer base through solution sales, develop competitive products, adopt eco-friendly approaches for lower CO 2 emissions, enhance the physical distribution network, and expand the overseas business. In addition, we will accelerate the early commercialization of new services, such as personnel affairs, general affairs, and accounting outsourcing services, which not only help customers to reduce their costs, but also increase gross profit per man-hour, along with employee satisfaction support services, which provide workers with convenient services within their workplaces. Following the adoption of the resolutions at the Board of Directors meeting held on March 25, 2010, the Company entered into a merger agreement with AEON DELIGHT CO., LTD., which will take effect on September 1, Under the new framework, we will expedite the development of new businesses comprehensive facility management service (FMS) that offers a broad range of services in support of customers back-office operations. Please note that our earnings forecast assumes extraordinary loss arising from the merger. Our earnings forecast for the first six months of the fiscal year ending February 20, 2011 is net sales of 35,000 million yen, operating income of 1,600 million yen, ordinary income of 1,625 million yen, and net income of 690 million yen. (4) Analysis of Financial Position 1) Assets, liabilities, and net assets Net assets at the end of the fiscal year under review saw an increase of 1,057 million yen from the end of the previous fiscal year to 30,202 million yen. This increase resulted mainly from the following factors. Under current assets, there was an increase of 2,687 million yen in cash and deposits, an increase of 445 million yen in notes and accounts receivable-trade, and an increase of 800 million yen in the current portion of long-term loans receivable. There was also a decrease of 418 million yen in merchandise, and a decrease of 344 million yen in - 5 -

6 accounts receivable-other. Under noncurrent assets, there was a decrease of 1,200 million yen in longterm deposits and a decrease of 800 million yen in long-term loans receivable. Liabilities at the end of the fiscal year under review saw a decrease of 176 million yen from the end of the previous fiscal year to 13,990 million yen. This decrease resulted mainly from the following factors. Under current liabilities, there was an increase of 77 million yen in accounts payable-trade, an increase of 152 million yen in accounts payableother, and a decrease of 359 million yen in income taxes payable. Under noncurrent liabilities, there was an increase of 59 million yen in deferred tax liabilities due to mark-to-market accounting for stock, a decrease of 16 million yen in long-term accounts payable-other, and a decrease of 44 million yen in provision for retirement benefits. Net assets at the end of the fiscal year under review saw an increase of 1,234 million yen from the end of the previous fiscal year to 16,211 million yen. This increase resulted mainly from an increase of 1,158 million yen in retained earnings and an increase of 67 million yen in valuation difference on available-forsale securities. 2) Cash flows The balance of cash and cash equivalents ( cash ) at the end of the fiscal year under review increased by 2,486 million yen from the balance at the end of the previous fiscal year to 9,796 million yen. Cash flows for the fiscal year under review and their underlying factors are summarized below. (Cash flows from operating activities) Net cash provided by operating activities came to 3,037 million yen. This was attributable mainly to posting of income before income taxes and minority interests of 3,171 million yen and depreciation and amortization of 848 million yen, a decrease in inventories of 418 million yen, an inflow resulting from a decrease in accounts receivable-other of 344 million yen, an increase in notes and accounts payabletrade of 77 million yen, outflows resulting from an increase in notes and accounts receivable-trade of 444 million yen, a decrease in provisions of 83 million yen, and income tax payments amounting to 1,639 million yen. (Cash flows from investing activities) Net cash provided by investing activities amounted to 131 million yen. The main factors behind this were an inflow of 5,000 million yen for the return of deposits with affiliates and outflows of 4,000 million yen for the payment of deposits with affiliates, 864 million yen for the acquisition of property, plant and equipment, and 3 million yen for the acquisition of investment securities. (Cash flows from financing activities) Net cash used in financing activities was 682 million yen. This owed mostly to payment of cash dividends. (Reference) Changes in cash flow indicators FY02/2007 FY02/2008 Shareholders equity ratio (%) Shareholders equity ratio at market value (%) Ratio of interest-bearing debts to cash flows (%) Interest coverage ratio Shareholders equity ratio: Shareholders equity / Total assets Shareholders equity ratio at market value: Total market capitalization / Total assets Ratio of interest-bearing debts to cash flows: Interest-bearing debts / Cash flows Interest coverage ratio: Cash flows / Interest paid Notes: 1. Since the Company does not have any interest-bearing debts or interest payments, the ratio of interest-bearing debts to cash flows and interest coverage ratio are not shown above. 2. Total market capitalization was calculated based on the number of shares outstanding, excluding treasury shares

7 (5) Basic Policy on Profit Distribution and Dividends for the Year Ended February 20, 2010 CERTO Corporation views the distribution of profits to shareholders as a key management issue. Under the basic policy of maintaining an aggressive dividend payment in accordance with business performance, we aim to achieve a target payout ratio of 30% or higher. We plan to pay an annual dividend of 70 yen per share for the year ended February 20, (6) Business Risks 1) Product development In order to expand the customer base, it is essential to have products that are competitive in terms of cost, quality, and environmental friendliness. To meet this challenge, the Company is expanding the develop-and-import scheme outside of Japan. In this development scheme, the Company takes an inventory risk. Should the market conditions or customer demands change more rapidly than anticipated, there could be an adverse impact on the Company s business performance. 2) Increase in physical distribution costs The Company delivers business-use materials that it has sold to stores, offices, and logistics centers. In a bid to further increase non-aeon Group sales, the Company is reorganizing its physical distribution network, but may need to offer diversified services because of a broader customer base. Physical distribution costs thus increased could potentially have an adverse impact on the Company s business performance. 3) Inventory risk The Company has been stepping up efforts to develop customers outside of the AEON Group, with the result that its customer base is expanding from retailers to medical facilities and other new fields. Should its product categories spread wider and its customer profile diversify more than anticipated, the level of inventory, as well as physical distribution costs, will increase, thus possibly having an adverse impact on the Company s business performance. 4) Vending machine market The Company installs its beverage vending machines at shopping malls and other places. Should the prices of beverages sold over the counter at mass merchandisers, convenience stores, drug stores, etc. be further discounted, the Company will be involved in the pricing competition. A greater-thananticipated decline of selling prices could have an adverse impact on the Company s business performance. 5) Closure of customers offices The Company s customer companies are closing / consolidating their offices and shortening their working hours. The Company is developing new locations to make up for these lost opportunities. However, closures of more offices than anticipated could have an adverse impact on the Company s business performance. 6) Changes in the market value of investment securities As of February 20, 2010, the Company holds investment securities valued at 670 million yen. Changes in this value due to future economic conditions and corporate earnings trends could have an adverse impact on the Company s business performance and financial position. 2. Corporate Group Organization Disclosures regarding the corporate group organization are omitted from this report because there have been no significant changes in the Business Organization Chart (Business Lines) and Subsidiaries and Affiliates in the most recent Annual Securities Report (filed on May 14, 2009). 3. Management Policy (1) Basic management policy Specializing in the back-office support business, the Company sources business-use materials / supplies for customers back-office / non-core operations (Materials / Supplies Sourcing Services) and provides refreshing spaces complete with vending machines selling beverages, toys, or card games, foliage plants, and cigarette smoke control equipment (Vending Machines Services)

8 Going forward, the Company will offer total support services for back-office operations by assisting its customers in reducing their costs, enhancing eco-friendliness (reducing CO 2 emissions), and improving their services through the supply of its products. At the same time, the Company will be making aggressive efforts to develop new businesses and services that will lead to greater employee satisfaction and higher gross profit per man-hour for customers. (2) Target management indicators In order to consolidate its business foundation further, the Company places an emphasis on the ratio of operating income to net sales as a target management indicator. The Company aims to achieve a double-digit number for this indicator by offering enhanced services to customer companies, strengthening its product development / procurement capabilities, enhancing its physical distribution network, and properly controlling expenses. (3) Medium- and long-term management strategies On March 25, 2010, the Company entered a merger agreement with AEON DELIGHT CO., LTD., which will take effect on September 1, Accordingly, the medium- and long-term management strategies of the Company are omitted from this report. (4) Issues to be addressed It is expected that business conditions will remain difficult. Meanwhile, customers demands are increasingly diversifying from cost reduction to include outsourcing, work process reengineering, and eco-friendliness (reducing CO 2 emissions). In response to this kind of operating environment, the Company will make greater efforts to expand its business portfolio and enhance its management quality, to gain the greater confidence of its customers and employees. <Initiatives to expand the business portfolio> 1) Strengthening of solution sales As a part of our efforts to develop customers outside of the AEON Group by way of solution sales in which we suggest improvements and offer solutions to problems that even customers themselves are not aware of, we have begun conducting business with a new customer group of medical facilities. Going forward, we will promote a total services package that includes personnel affairs, general affairs, and accounting outsourcing services, along with employee satisfaction support services, as well as materials / supplies purchasing and vending machine operations. To this end, we will encourage individual employees to improve their skills and compile customer information and sales support tools into a database for use as a shared infrastructure, thereby offering proposals that are more sophisticated and shortening the time to contract conclusion. Our goal is to establish a solution sales framework that will secure bulk orders for us. 2) Strengthening of product development Amid the deflationary economy, customers are strongly demanding cost reductions. As a way to meet such demands, we will reduce our costs by choosing purchasing schemes that best match each individual product by, for example, purchasing dispensable chopsticks, counter cloths, plastic shopping bags, etc. directly from overseas factories, conducting joint development with manufacturers, and expanding the use of the reverse auction system for food materials and paper products. 3) Efforts aimed at eco-friendliness (reducing CO 2 emissions) In response to the ever-increasing social demands for eco-friendliness (reducing CO 2 emissions), we will work together closely with manufacturers. In the materials / supplies business, we will promote the switch to raw materials that help to reduce CO 2 emissions, such as biodegradable biomass (polylactic acid) and water-based ink, and in the beverage vending machine business, we will increase installations of CFC-free heat-pump type vending machines. On the physical distribution front, we will also reduce CO 2 emissions through modal shifts (use of railway services, etc.). 4) Enhancement of the physical distribution network Physical distribution related services are assuming greater importance in meeting customer demands. In light of this, we have begun offering a series of new services, such as delivery to customers shelves, replacement / change of materials / supplies delivered, and collection of defects, waste, etc., which utilize the return journey, in an effort to create a physical distribution network capable of offering advanced services

9 5) Expansion of the overseas business Since the 2008 establishment of CERTO (Beijing) Corporation, our subsidiary in China, we have maintained our business operations in Beijing and other cities, and have been involved in exporting to Japan. Going forward, we will strengthen our operations in Tianjin and the South China region, in addition to the development of local business partners and building of a physical distribution network. 6) Initiatives for new businesses As a part of our drive to offer total services for back-office operations, we will work on the early development of new services that help customers to reduce costs, improve gross profit per manhour, increase work accuracy, and increase employee satisfaction. i) Outsourcing services We are also working to develop outsourcing services for customers non-core operations, such as personnel affairs, general affairs, and accounting and fringe benefit services. Targeting second-tier companies, we intend to distinguish ourselves from our peers in the industry by offering low-cost but quality bulk contract services utilizing overseas suppliers and subsidiaries. ii) Employee satisfaction support services We have commenced employee satisfaction support services, which provide workers at business establishments (commercial complexes, office buildings, and factories) with various conveniences such as mini stores and repair (PCs, clothing, shoes, and housing), delivery, and copying services within their premises, so that they may work comfortably. While promptly expanding these services to other sites, we will build up services to be offered at the earliest date and verify the same to develop quality services that reflect the voices of employee users. <Initiatives to improve management quality> 1) Internal control Since the application of the Japanese Sabanes-Oxley (J-SOX) Act, we have conducted inspection, review, documentation, and monitoring of the internal work process. In order to promote internal control and cooperation with the Management Audit Office further, we transferred the Internal Control Section to the Management Audit Office in September 2009 and are working to strengthen control activities. 2) Employee training To enable us to fulfill the diversifying demands of customers appropriately, it is essential that every employee improve his or her skills. It is in this belief that we place a high priority on employee training. Specifically, throughout the year, we provide our employees with OJT and OFF-JT opportunities, including hierarchical training, AEON Group manager training programs, the AEON business school, external training programs, eco-testing, presentation competitions, and overseas training, while at the same time working to create an environment that encourages their self-development. (5) Development and implementation of the internal control structure Please see the Basic Policy on the Internal Control System and its Development in the Corporate Governance Report for details

10 4. Financial Statements (1) Balance Sheets (As of February 20, 2009) (Thousands of yen) (As of February 20, 2010) Assets Current assets Cash and deposits 6,314,759 9,002,254 Notes receivable-trade *2 1,167,942 *2 1,080,058 Accounts receivable-trade 7,370,490 7,904,187 Merchandise 2,111,785 1,692,851 Supplies Advance payments-trade Prepaid expenses 100,046 31,329 Deferred tax assets 89,228 50,768 Deposits of subsidiaries and affiliates *1 5,000,000 *1 5,000,000 Accounts receivable-other 1,247, ,633 Current portion of long-term loans receivable 800,000 Consumption taxes receivable 53,812 Other 19,540 28,144 Allowance for doubtful accounts -8,410-3,628 Total current assets 23,467,559 26,490,323 Noncurrent assets Property, plant and equipment Buildings 106, ,012 Accumulated depreciation (41,406) (47,587) Buildings (net) 65,407 64,425 Vehicles 3,672 8,545 Accumulated depreciation (2,406) (4,750) Vehicles (net) 1,266 3,795 Tools, furniture and fixtures 4,990,893 4,633,014 Accumulated depreciation (2,907,595) (3,115,063) Tools, furniture and fixtures (net) 2,083,298 1,517,950 Construction in progress 35, ,408 Total property, plant and equipment 2,185,525 1,911,579 Intangible assets Goodwill 169,905 84,952 Software 115, ,205 Telephone subscription right 2,279 2,279 Total intangible assets 287, ,438 Investments and other assets Investment securities 552, ,284 Investments in capital of subsidiaries and affiliates 50,000 50,000 Long-term loans receivable 800,000 Claims provable in bankruptcy, claims provable in rehabilitation and other 18,

11 (Thousands of yen) (As of February 20, 2009) (As of February 20, 2010) Long-term prepaid expenses 1, Long-term deposits 1,700, ,000 Other 98, ,720 Allowance for doubtful accounts (17,138) (953) Total investments and other assets 3,204,259 1,324,134 Total noncurrent assets 5,677,098 3,712,152 Total assets 29,144,657 30,202,475 Liabilities Current liabilities Accounts payable-trade 11,937,693 12,015,222 Accounts payable-other 704, ,599 Accrued expenses 152, ,592 Income taxes payable 881, ,200 Accrued consumption taxes 122,592 Deposits received 73,142 72,702 Provision for bonuses 5,341 6,918 Provision for directors bonuses 51,876 Provision for directors awards for business performance 32,508 Other 175,160 44,286 Total current liabilities 13,981,620 13,806,622 Noncurrent liabilities Deferred tax liabilities 75, ,655 Provision for retirement benefits 82,446 38,134 Long-term accounts payable-other 27,950 11,280 Total noncurrent liabilities 185, ,070 Total liabilities 14,167,159 13,990,692 Net assets Shareholders equity Capital stock 1,222,500 1,222,500 Capital surplus Legal capital surplus 1,463,700 1,463,700 Total capital surpluses 1,463,700 1,463,700 Retained earnings Legal retained earnings 114, ,375 Other retained earnings General reserve 9,200,000 10,600,000 Retained earnings brought forward 2,796,836 2,555,332 Total earned surpluses 12,111,211 13,269,707 Treasury stock (1,761) (1,835) Total shareholders equity 14,795,650 15,954,071 Valuation and translation adjustments Valuation difference on available-for-sale securities 173, ,719 Total valuation and translation adjustments 173, ,719 Subscription rights to shares 7,913 15,992 Total net assets 14,977,498 16,211,783 Total liabilities and net assets 29,144,657 30,202,

12 (2) Statements of Income (Thousands of yen) Net sales 70,745,657 68,093,302 Cost of sales Opening inventory 1,462,017 2,111,785 Purchase of merchandise for the term 65,174,553 62,047,046 Total 66,636,570 64,158,831 Transfer to other accounts *2 29,299 *2 26,996 Ending inventory 2,111,785 1,692,851 Cost of goods sold 64,495,485 62,438,983 Gross profit 6,250,171 5,654,319 Selling, general and administrative expenses Advertising expenses 28,191 20,923 Miscellaneous sales expenses 40,744 28,937 Directors compensations 134, ,480 Employees salaries and bonuses 1,188,736 1,148,961 Directors reward of business performance 11,900 Provision for bonuses 5,341 6,918 Provision for directors bonuses 51,876 Provision for directors reward of business performance 32,508 Retirement benefit expenses 67,056 66,412 Legal welfare expenses 264, ,421 Rent expenses 98,597 97,544 Office supplies expenses 60,121 77,067 Depreciations 141, ,909 Traveling expenses and transportation expenses 128, ,071 Communication expenses 48,069 44,812 Provision of allowance for doubtful accounts 4,203 Brand royalties *3 104,840 *3 124,787 Other 278, ,733 Total selling, general and administrative expenses 2,646,360 2,594,391 Operating income 3,603,810 3,059,927 Non-operating income Interest income *1 87,866 *1 63,482 Dividends income 15,316 10,692 Other 8,929 9,461 Total non-operating income 112,112 83,637 Non-operating expenses Loss on adjustment of prior period accounts receivable, etc. 16,600 Other Total non-operating expenses ,753 Ordinary income 3,715,559 3,126,

13 (Thousands of yen) Extraordinary income Reversal of provision for directors bonuses 19,186 5,097 Reversal of allowance for doubtful accounts 4,709 Reversal of provision for retirement benefits *4 64,075 Total extraordinary income 19,186 73,882 Extraordinary loss Loss on retirement of non-current assets *5 15,657 *5 27,147 Loss on valuation of investment securities 2,668 Loss on valuation of golf club memberships 2,100 Total extraordinary loss 18,326 29,247 Income before income taxes and minority interests 3,716,419 3,171,447 Income taxes-current 1,560,904 1,277,689 Income taxes-deferred (15,677) 52,215 Total income taxes 1,545,227 1,329,904 Net income 2,171,192 1,841,

14 (3) Statements of Changes in Shareholders Equity (Thousands of yen) Shareholders equity Capital stock Balance at the end of previous period 1,222,500 1,222,500 Changes of items during the period Total changes of items during the period Balance at the end of current period 1,222,500 1,222,500 Capital surplus Legal capital surplus Balance at the end of previous period 1,463,700 1,463,700 Changes of items during the period Total changes of items during the period Balance at the end of current period 1,463,700 1,463,700 Total capital surplus Balance at the end of previous period 1,463,700 1,463,700 Changes of items during the period Total changes of items during the period Balance at the end of current period 1,463,700 1,463,700 Retained earnings Legal retained earnings Balance at the end of previous period 114, ,375 Changes of items during the period Total changes of items during the period Balance at the end of current period 114, ,375 Other retained earnings General reserve Balance at the end of previous period 8,000,000 9,200,000 Changes of items during the period Provision for general reserve 1,200,000 1,400,000 Total changes of items during the period 1,200,000 1,400,000 Balance at the end of current period 9,200,000 10,600,000 Retained earnings brought forward Balance at the end of previous period 2,488,898 2,796,836 Changes of items during the period Provision for general reserve (1,200,000) (1,400,000) Dividends from surplus (663,255) (683,046) Net income 2,171,192 1,841,542 Total changes of items during the period 307,937 (241,504) Balance at the end of current period 2,796,836 2,555,332 Total retained earnings Balance at the end of previous year 10,603,273 12,111,

15 (Thousands of yen) Total changes of items during the period Provision for general reserve Dividends from surplus (663,255) (683,046) Net income 2,171,192 1,841,542 Total changes of items during the period 1,507,937 1,158,495 Balance at the end of current period 12,111,211 13,269,707 Treasury stock Balance at the end of previous period (1,625) (1,761) Changes of items during the period Purchase of treasury stock (135) (74) Total changes of items during the period (135) (74) Balance at the end of current period (1,761) (1,835) Total shareholders equity Balance at the end of previous period 13,287,848 14,795,650 Changes of items during the period Dividends from surplus (663,255) (683,046) Net income 2,171,192 1,841,542 Purchase of treasury stock (135) (74) Total changes of items during the period 1,507,802 1,158,421 Balance at the end of current period 14,795,650 15,954,071 Valuation and translation adjustments Valuation difference on available-for-sale securities Balance at the end of previous period 413, ,934 Changes of items during the period Net changes of items other than shareholders equity (239,929) 67,785 Total changes of items during the period (239,929) 67,785 Balance at the end of current period 173, ,719 Total valuation and translation adjustments Balance at the end of previous period 413, ,934 Changes of items during the period Net changes of items other than shareholders equity (239,929) 67,785 Total changes of items during the period (239,929) 67,785 Balance at the end of current period 173, ,719 Subscription rights to shares Balance at the end of previous period 7,913 Changes of items during the period Net changes of items other than shareholders equity 7,913 8,078 Total changes of items during the period 7,913 8,078 Balance at the end of current period 7,913 15,992 Total net assets Balance at the end of previous period 13,701,712 14,977,498 Changes of items during the period Dividends from surplus (663,255) (683,046) Net income 2,171,192 1,841,542 Purchase of treasury stock (135) (74) Net changes of items other than shareholders equity (232,016) 75,863 Total changes of items during the period 1,275,785 1,234,284 Balance at the end of current period 14,977,498 16,211,

16 (4) Statement of Cash Flow (Thousands of yen) Net cash provided by (used in) operating activities Income before income taxes and minority interests 3,716,419 3,171,447 Depreciation and amortization 780, ,419 Increase (decrease) in allowance for doubtful accounts (2,332) (20,966) Increase (decrease) in provision for bonuses 645 1,577 Increase (decrease) in provision for directors bonuses (6,024) Increase (decrease) in provision for directors reward of business performance (19,367) Increase (decrease) in provision for retirement benefits 17,483 (44,311) Interest and dividends income (103,183) (74,175) Loss on retirement of non-current assets 15,657 27,147 Loss (gain) on valuation of investment securities 2,668 Increase (decrease) in notes and accounts receivable-trade 441,692 (444,767) Increase (decrease) in inventories (648,960) 418,796 Increase (decrease) in accounts receivable-other 168, ,066 Increase (decrease) in notes and accounts payable trade (1,107,583) 77,528 Other, net (187,650) 320,814 Subtotal 3,087,749 4,606,207 Interest and dividends income received 104,782 71,338 Income taxes paid (1,598,709) (1,639,798) Net cash provided by (used in) operating activities 1,593,823 3,037,747 Net cash provided by (used in) investing activities Payments of deposits of subsidiaries and affiliates (6,500,000) (4,000,000) Proceeds from withdrawal of deposits of subsidiaries and affiliates 6,500,000 5,000,000 Purchase of property, plant and equipment (538,851) (555,420) Purchase of intangible assets (51,465) (308,895) Purchase of investment securities (4,884) (3,939) Payments for capital investments in subsidiaries and affiliates (50,000) Payments of loans receivable (800,000) Collection of loans receivable 800,000 Net cash provided by (used in) investment activities (645,201) 131,744 Net cash provided by (used in) financing activities Purchase of treasury stock (135) (74) Cash dividends paid (660,001) (682,911) Net cash provided by (used in) financing activities (660,137) (682,985) Net increase (decrease) in cash and cash equivalents 288,484 2,486,506 Cash and cash equivalents at beginning of period 7,021,636 *1 7,310,121 Cash and cash equivalents at end of period *1 7,310,121 *1 9,796,627 Notes on Going Concern Assumption Not applicable

17 Significant Accounting Policies 1. Valuation basis and Available-for-sale securities methods for securities Those with fair values: Stated at fair value based on market prices, etc. on the closing date (Any valuation differences are reflected directly in net assets and cost of securities sold is calculated using the moving average method.) Those without fair values: Stated at cost based on the moving average method 2. Valuation basis and (1) Merchandise methods for Stated at cost based on the firstin first-out FIFO inventories method (2) Supplies Last purchase price method Available-for-sale securities Those with fair values: Same as on the left Those without fair values: Same as on the left (1) Merchandise Stated at cost based on the moving average method (with the value stated on the balance sheets being calculated by writing down the book value based on declining profitability) (2) Supplies Same as on the left (Change in accounting principles) Inventories held for sale in the ordinary course of business were previously stated at cost based on the FIFO method. From this fiscal year, however, inventories are valued mainly at cost based on the moving average method (with the value stated on the balance sheets being calculated by writing down the book value based on declining profitability). The basis for valuation has been changed from the cost basis to the cost basis (with the value stated on the balance sheets being calculated by writing down the book value based on declining profitability) because from this fiscal year the Company has applied the Accounting Standard for Measurement of Inventories (ASBJ Statement No. 9, July 5, 2006). Likewise, the valuation method has been changed from the FIFO method to the moving average method because it was decided that periodic profit and loss need to be accounted for properly, and inventories must be valued properly after the review of accounting principles made to coincide with application of the Accounting Standard for Measurement of Inventories from this fiscal year. The impact of this change on the Company s profit and loss account for this fiscal year is negligible

18 3.Depreciation methods for noncurrent assets 4. Basis of recognition for significant provision (1) Property, plant and equipment Straight-line method based on useful economic life The general useful economic life for main items is as follows: Buildings: 3 to 18 years Vehicles: 6 years Furniture and fixtures: 3 to 15 years (2) Intangible assets Straight-line method The general useful economic life for main items is as follows: Goodwill: 5 years Software: 5 years (1) Allowance for doubtful accounts To prepare for losses on doubtful accounts such as notes and accounts receivable, estimated uncollectible amounts are provided for general receivables based on actual historical bad debt rates and for specific receivables with potential losses after reviewing individual collectibility. (2) Provision for bonuses To prepare for bonus payments to part-time workers, the Company provides for the estimated amount to be recorded for this fiscal year. (3) Provision for directors bonuses To prepare for bonus payments to directors and corporate auditors, the Company provides for the estimated amount. (1) Property, plant, and equipment Same as on the left (2) Intangible assets Same as on the left (1) Allowance for doubtful accounts Same as on the left (2) Provision for bonuses Same as on the left (3) Provision for directors awards for business performance To prepare for bonus payments to directors and corporate auditors, the Company provides for the estimated amount. (Change of account title) To indicate its contents more clearly, provision for directors bonuses has been renamed as provision for directors awards for business performance from this fiscal year

19 5. Lease transaction accounting principles (4) Provision for retirement benefits To prepare for future retirement payments to employees, the Company makes a provision based on the estimated amounts of projected retirement obligations and pension assets at the end of this fiscal year. Actuarial differences are to be charged to expenses from the following fiscal year using a straight-line method based on a determined amount of years (10 years) within the average remaining service years of employees when incurred in each fiscal year. Finance lease transactions other than those involving transfer of a title to a lessee are accounted for in the same manner as for ordinary rental transactions. (4) Provision for retirement benefits To prepare for future retirement payments to employees, the Company makes a provision based on the estimated amounts of projected retirement obligations and pension assets at the end of this fiscal year. Past service costs are expensed collectively in the year in which they arise. Actuarial differences are to be charged to expenses from the following fiscal year using a straightline method based on a determined amount of years (10 years) within the average remaining service years of employees when incurred in each fiscal year. (Change in accounting principles) Previously, finance lease transactions for which ownership of the leased assets is not transferred to the lessees were not capitalized, but were rather accounted for in the same manner as ordinary rental transactions. Effective from the fiscal year ended February 20, 2010, the Company adopted the Accounting Standard for Lease Transactions (ASBJ Statement No. 13; originally issued June 17, 1993 (First Subcommittee, Business Accounting Council); final revision March 30, 2007) and the Guidance on Accounting Standard for Lease Transactions (ASBJ Guidance No. 16; originally issued January 18, 1994 (Accounting System Committee, Japanese Institute of Certified Public Accountants); final revision March 30, 2007). Consequently, the Company now accounts for such finance lease transactions in the same manner as for ordinary purchase and sale transactions. The impact of this change on the Company s profit and loss for the year under review is negligible. Notwithstanding the above, finance lease transactions other than those involving a transfer of title that began prior to February 20, 2009 are accounted for using the same method