RISA Partners, Inc. Consolidated Third-Quarter Results. First nine months of the fiscal year ending December 31, 2010

Transcription

1 RISA Partners, Inc. Consolidated Third-Quarter Results First nine months of the fiscal year ending December 31, 2010 This document has been translated from the original Japanese as a guide for non-japanese investors. It contains forward-looking statements based on a number of assumptions and beliefs made by management in light of information currently available. Actual financial results may differ materially depending on a number of factors, including changing economic conditions, legislative and regulatory developments, delay in new product launches, and pricing and product initiatives of competitors. 1

2 SUMMARY OF FINANCIAL STATEMENTS (Consolidated) For the nine-month period ended September 30, 2010 RISA Partners, Inc. November 10, 2010 Stock Code: 8924 Listed exchanges: Tokyo, 1st Section URL: Inquiries: Akihiko Haruyama Executive Director, Corporate Planning Department President: Toshiaki Tanaka Scheduled date of submission of Interim Securities Report: November 15, 2010 Telephone: Consolidated Financial Results for the Nine Months Ended September 30, ) Consolidated Operating Results Millions of yen, rounded down; change compared to previous period Nine months ended September 30, 2010 Nine months ended September 30, 2009 Change % Change % Net sales... 7,425 (8.6) 8,120 (60.4) Operating income... 2, ,922 (73.4) Ordinary income (88.9) Net income (loss)... (8,352) 356 (91.3) Net income per share ( )... (27,562.70) 1, Fully diluted earnings per share ( ) ) Financial Position Millions of yen, rounded down As of September 30, 2010 As of December 31, 2009 Total assets , ,783 Net assets... 30,383 38,668 Shareholders equity ratio (%) Net assets per share ( )... 44, , Note: Shareholders equity as of: September 30, 2010: 17,943 million December 31, 2009: 25,836 million 2. Dividends FY ended December 31, 2009 FY ending December 31, 2010 (forecast) Dividends per share (Record date) End of first quarter... End of second quarter End of third quarter... End of fourth quarter... 1, Annual... 1, Note 1: There has been no change to the dividend forecast during the period under review. Note 2: The above dividend forecast refers to the ordinary share dividend. See Preferred share dividends on page 3 for the dividend on preferred shares. 3. Forecasts for the Fiscal Year Ending December 31, 2010 Millions of yen, rounded down; change compared to previous comparable period Full year Change in % Net sales... 15,600 (21.4) Operating income... 4,400 (13.6) Ordinary income... 2,200 (31.3) Net income... Net income per share ( )... (7,800) (25,739.52) Note: There has been no change to the consolidated full-year forecasts during the period under review 2

3 4. Other 1) Transfer of important subsidiaries during the period (Transfers of certain subsidiaries resulting in changes in the scope of consolidation): No 2) Changes in accounting methods, procedures and presentation in the making of these financial statements: Yes (Note: Details are available in Performance on page 7, 4. Other ) 3) (i) Changes to preparation of quarterly statements in line with revision to accounting standards: No (ii) Changes other than those in (i) above: No (Note: Details are available in Performance on page 7, 4. Other ) 4) Number of shares outstanding (ordinary shares) (1) Number of shares outstanding (including treasury shares): As of September 30, 2010: As of December 31, 2009: 313,963 shares 296,461 shares (2) Number of treasury shares: As of September 30, 2010: As of December 31, 2009: 4,046 shares 4,046 shares (3) Average number of shares outstanding (during fiscal year): As of September 30, 2010: As of December 31, 2009: 303,036 shares 292,415 shares Disclosure of status of quarterly report review procedures This quarterly financial report is outside the scope of the review procedures for quarterly securities reports as stipulated under the Financial Instruments and Exchange Law. Under the Financial Instruments and Exchange Law, the review procedure for the quarterly securities report will be implemented at the time of disclosure of this quarterly financial report. Notice regarding appropriate use of financial forecasts 1. The forecasts announced by RISA Partners on February 15, 2010 have been revised. The dividend forecasts have also been revised. For details please refer to the October 29, 2010 release Extraordinary loss and revision of full-year forecasts and dividend forecast. 2. The forecasts recorded above are based on information available at the time of publication. A number of factors could cause actual results to differ materially from expectations. Preferred share dividends FY ended December 31, 2009 FY ending December 31, 2010 (forecast) Dividend per Class 1 preferred share (Record date) End of first quarter... End of second quarter... End of third quarter... End of fourth quarter... 1, Annual... 1,

4 Performance (1) ANALYSIS OF BUSINESS PERFORMANCE 1) Overall Performance The Japanese economy saw corporate earnings continue to improve during the period under review (the period January 1, 2010 to September 30, 2010), but the employment situation remained severe. Significant downside risks persist, with concerns of a further deterioration in the global economic situation, volatility in capital markets and the impact of deflation, and the recovery still lacks self-sustaining momentum. In the financial markets in which RISA Partners operates, while the financial market in Japan is returning to relative stability, in the U.S. and Europe there is continued risk of market volatility. In the real estate market, another area in which RISA Partners operates, financial institutions continued to place restrictions on financing of real estate. However, a trend has emerged in which some individual investors and corporations are making real estate purchases as part of a long-term holding strategy aimed at securing stable earnings. The overall real estate market has shown a trend toward selectivity according to each property. Amid these conditions, RISA Partners continued to pursue business in its three business segments principal investment business, fund business, and investment banking business. Of our three business segments in the principal investment business and fund business we secured stable revenues and earnings from collection on loan assets as well as from rental income, while in the fund business management fees provided stable revenue and earnings. In investment banking we recorded a profit due to an accumulation of financial advisory mandates. In preparation for the redemption at maturity (in March 2010) and early redemption (in April 2010) of RISA Partners-issued convertible bonds, in March 2010 we issued convertible bonds with NEC Capital Solutions Limited ( NEC Capital Solutions ) and Deutsche Bank as the allottees and also took measures to procure a syndicated loan with Sumitomo Mitsui Banking Corporation as the lead arranger. On October 29, 2010 a tender offer by NEC Capital Solutions for shares of RISA Partners was announced and RISA Partners announced its support for the tender offer. An extraordinary loss was recorded mainly due to withdrawal from real estate investment-related business. In February 2009, we concluded an operational and capital alliance with NEC Capital Solutions, and have been pursuing collaborative investments in the formation of new areas of financial solutions. We have already implemented more than 20 collaborative projects with NEC Capital Solutions. For the nine-month period ended September 30, 2010, RISA Partners net sales declined 8.6% to 7,425 million, operating income increased 20.3% to 2,313 million, and ordinary income increased 14.9% to 702 million. A net loss of 8,352 million was recorded, compared with net income of 356 million during the previous comparable period. 2) Performance by Segment Principal Investment RISA Partners principal investment business conducts proprietary investment in corporate equities, loan assets and real estate. In corporate (equity) investment, we recorded steady earnings from existing investments. In particular, our May 2008 acquisition of Hotel JAL City Naha maintained a high occupancy ratio and contributed to revenues in accordance with plans. In the area of loan asset investment, RISA Partners continued to purchase loan assets from financial 4

5 institutions around the country, as a recovery trend emerged in loan asset sales and also pursued purchases of loan assets on the secondary market. Loan collection on previously acquired loan assets continued steadily, generating stable revenues. In real estate investment, we took measures to increase the value of real estate holdings with a view to increasing sale value, and we recorded steady revenue from the stable flow of rental fees provided by invested properties. Net sales in the principal investment business for the nine-month period declined 11.9% to 5,009 million, and operating income increased 9.7% to 1,997 million. Fund RISA Partners fund business manages corporate investment funds (primarily equity investment, nationwide), regional corporate revitalization funds (primarily loan asset investment, in various regions), and real estate co-investment (targeting medium- and large-scale real estate assets, nationwide). Our nationwide corporate investment fund, the RISA Corporate Solution Fund, was launched in September 2006 and consists of two funds: the No.1 fund and the No.2 fund, the combined total commitment amount of which is approximately 43.6 billion. The number of investment projects is currently at 12. In August, we achieved an exit from our No.1 fund investment in Keitech, Inc. in the form of a management buyout at that company, and also exited another investment made as part of the No.2 fund, securing capital gains as a result. In our corporate revitalization fund activities we associate with regional financial institutions throughout Japan. We currently operate 20 funds. In our real estate co-investment program, targeting medium- to large-sized real estate investments, we continue to conduct operations in cooperation with Grove International Partners. RISA Partners itself provides asset management services for investment properties. Net sales in the fund business for the nine-month period increased 24.0% to 1,856 million, and operating income increased 15.2% to 995 million. Investment Banking RISA Partners investment banking business provides financial advisory services including M&A and corporate revitalization consulting services, loan servicing (management and collection of loans) and due diligence services, along with a corporate solutions business that utilizes our extensive investment and advisory expertise in the areas of finance and real estate. During the nine-month period under review, we used our network of leading regional financial institutions to obtain advisory mandates in corporate restructuring. Net sales in the investment banking business for the first half declined 31.9% to 835 million, and operating income decreased 37.7% to 182 million. 5

6 (2) ANALYSIS OF FINANCIAL POSITION (1) Total assets, liabilities and net assets Total assets as of September 30, 2010 were 118,651 million, a decrease of 16,131 million compared to the end of the previous fiscal year. This decrease was chiefly attributable to a decrease of 4,468 million in loan assets, a decrease of 2,269 million in real estate assets for sale and a decrease of 2,771 million in cash and cash equivalents ( net cash ). Total liabilities as of September 30, 2010 were 88,267 million, a decrease of 7,846 million compared to the end of the previous fiscal year. Key factors contributing to this outcome included a decrease in current portion of bonds of 14,618 million and an increase in corporate bonds of 8,100 million. Net assets as of September 30, 2010 were 30,383 million, a decrease of 8,284 million compared to the end of the previous year. This was mainly due to business structure improvement costs of 8,240 million and other factors, which resulted in a decrease of 8,857 million in retained earnings. (2) Consolidated cash flows Consolidated cash and cash equivalents ( net cash ) at September 30, 2010 decreased by 2,771 million compared to the end of fiscal 2009 to 6,920 million. Cash flows and their main components during the nine-month period were as follows. Operating activity cash flows Net cash provided by operating activities was 4,451 million, compared to net cash provided of 4,406 million in the previous comparable period. The main factors contributing to this were a decrease of 4,468 million in loan assets. Investing activity cash flows Net cash provided by investing activities was 62 million, compared to net cash used of 4,022 million in the previous comparable period. This was primarily due to an outflow of 1,655 million for payments of loans receivable, an inflow 1,328 million in collection of loans receivable, an inflow of 246 million due to the sale of investment securities and an inflow of 137 million in proceeds from investment in silent partnerships concomitant with a change in the scope of consolidation. Financing activity cash flows Net cash used in financing activities was 7,285 million, compared to 963 million used in the previous comparable period. This was mainly due to an outflow of 13,065 million in payments for the redemption of convertible bonds, and proceeds of 8,973 million for the issuance of bonds. (3) OUTLOOK FOR FY2010 Revisions have been made to the results forecast announced on February 15, For details please refer to the October 29, 2010 release Extraordinary loss and revision of full-year forecasts and dividend forecast. 6

7 (4) OTHER 1) Transfer of important subsidiaries during the period (Transfers of certain subsidiaries resulting in changes in the scope of consolidation): None 2) Adoption of simplified accounting methods or special accounting methods in preparation of quarterly financial statements: (1) Accounting standard for measurement of inventories In cases where the profitability of assets held in inventory has clearly declined, the book value is reduced accordingly. (2) Changes to preparation of quarterly statements: None 3) Changes in accounting principles, procedures and method of presentation associated with preparation of these consolidated financial statements: None 4) Items related to the company as a going concern: None 7

8 1. Consolidated Balance Sheets ASSETS Millions of yen, rounded down As of September 30, 2010 As of December 31, 2009 Current assets Cash and bank deposits... 7,020 9,792 Notes & accounts receivable, trade inventories... 2,048 2,011 Real estate for sale... 33,135 35,404 Operating investment securities... 15,601 15,928 Purchased loans receivable... 24,531 29,000 Other... 8,924 10,672 Allowance for doubtful accounts... (1,995) (2,017) Total current assets... 89, ,791 Fixed assets Property and equipment... 15,438 15,122 Intangible assets Other Total intangible assets Investments and other assets Investments in securities... 10,866 12,653 Other... 4,153 7,177 Allowance for doubtful accounts... (1,176) (1,088) Total investments and other assets... 13,843 18,741 Total fixed assets... 29,385 33,991 Total assets , ,783 8

9 Consolidated Balance Sheets (contd.) LIABILITIES Millions of yen, rounded down As of September 30, 2010 As of December 31, 2009 Current liabilities Notes & accounts payable, trade Short-term borrowings... 10,162 4,558 Current portion of bonds... 34,003 34,905 Current portion of long-term debt... 14,618 Income taxes payable Accrued bonuses Other... 2,286 2,773 Total current liabilities... 46,890 57,025 Non-current liabilities Corporate bonds... 8,100 Long-term borrowings... 30,936 36,851 Reserve for employees retirement benefits Negative goodwill Other... 2,303 2,209 Total non-current liabilities... 41,377 39,089 Total liabilities... 88,267 96,114 NET ASSETS Shareholders equity Capital... 10,911 10,461 Capital surplus... 11,048 10,598 Retained earnings... (3,188) 5,668 Treasury stock... (821) (821) Total shareholders equity... 17,948 25,906 Valuation and translation adjustments Net realized gain on other securities... (5) (69) Total valuation and translation adjustments.. (5) (69) Stock warrants Minority interests... 12,368 12,758 Total net assets... 30,383 38,668 Total liabilities and net assets , ,783 9

10 2. Consolidated Statements of Income (abbreviated) Nine months to September 30, 2010 Nine months ended September 30, 2010 Millions of yen, rounded down Nine months ended September 30, 2009 Net sales... 7,425 8,120 Cost of sales... 1,758 2,358 Gross profit... 5,667 5,762 Selling, general and administrative expenses... 3,354 3,839 Operating income... 2,313 1,922 Non-operating income... Interest income Dividend income Equity in earnings of affiliated companies Reversal of allowance for doubtful accounts Other Total non-operating income Non-operating expenses... Interest expenses... 1,350 1,216 Loan commissions Other Total non-operating expenses... 1,696 1,597 Ordinary income Extraordinary income... Gain on sale of investment securities Gain on redemption of corporate bonds Other... 4 Total extraordinary income Extraordinary losses... Impairment loss Loss on sale of investment securities... 3 Loss on revaluation of securities Provision of allowance for doubtful accounts structure improvement... 8,240 Other Total extraordinary losses... 9, Net income (losses) before distribution of profit/loss from silent partnerships, income taxes and minority interests... (8,082) 415 Distribution of profit/loss from silent partnerships Net income (losses) before income taxes and minority interests... (8,110) 387 Income taxes current Income tax adjustment Total income tax Loss in minority interests... (131) (241) Net income... (8,352)

11 2. Consolidated Statements of Income (abbreviated) Three months to September 30, 2010 Three months ended September 30, 2010 Millions of yen, rounded down Three months ended September 30, 2009 Net sales... 3,110 2,399 Cost of sales Gross profit... 2,123 1,752 Selling, general and administrative expenses... 1,182 1,061 Operating income Non-operating income... Interest income Dividend income Equity in earnings of affiliated companies... 3 Other Total non-operating income Non-operating expenses... Interest expenses Loan commissions Equity in losses of affiliated companies Other Total non-operating expenses Ordinary income Extraordinary income... Other... 3 Total extraordinary income... 3 Extraordinary losses... Impairment loss Loss on revaluation of securities 77 6 Provision of allowance for doubtful accounts structure improvement... 8,240 Other Total extraordinary losses... 9,034 6 Net income (losses) before distribution of profit/loss from silent partnerships, income taxes and minority interests... (8,679) 113 Distribution of profit/loss from silent partnerships Net income (losses) before income taxes and minority interests... (8,689) 103 Income taxes current Income tax adjustment... (70) 26 Total income tax Loss in minority interests... (42) (138) Net income (losses)... (8,664)

12 3. Consolidated Statements of Cash Flows I. Cash flows from operating activities Nine months ended September 30, 2010 Millions of yen, rounded down Nine months ended September 30, 2009 Net income before income taxes and minority interests... (8,110) 387 Depreciation and amortization Amortization of goodwill Impairment loss Loss on sale of investment securities... (49) Valuation loss on investment securities Silent partnership contributions received (paid)... (42) 59 Equity in earnings of affiliated companies... (13) (156) Increase (decrease) in allowance for doubtful accounts (64) Increase (decrease) in accrued bonuses structure improvement... 8,240 Interest income and dividend income... (21) (62) Interest expense... 1,350 1,216 (Increase) decrease in notes and accounts receivable... (408) 175 (Increase) decrease in inventories... (985) 121 (Increase) decrease in purchased loans receivable... 4,468 4,248 Increase (decrease) in notes and accounts payable... (3) (8) Other (140) Sub-total... 5,763 6,451 Interest and dividends received Interest paid... (1,407) (1,230) Income taxes paid (848) Net cash provided by (used in) operating activities.. 4,451 4,406 II. Cash flows from investing activities Payments for time deposits... (666) Proceeds from withdrawals of time deposits Payments for purchase of property and equipment (4) (1,432) Gain on sale of property and equipment... 1 Payments for purchase of investment securities... (74) (32) Proceeds from sale of investment securities Payments on sale of shares of subsidiaries entailing a change in the scope of consolidation... (53) Proceeds from sale of shares of subsidiaries entailing a change in the scope of consolidation Payments for loans... (1,655) (2,815) Proceeds from loan collections... 1, Other (1) Net cash used in investing activities (4,022) 12

13 4. Consolidated Statements of Cash Flows (contd.) Millions of yen, rounded down Nine months ended September 30, 2010 Nine months ended September 30, 2009 III. Cash flows from financing activities Net increase (decrease) in short-term borrowings... 4,372 (4,407) Proceeds from long-term borrowings... 16,083 17,120 Repayment of long-term borrowings... (22,901) (18,552) Proceeds from issuance of bonds... 8,973 Payments for bonds redeemable... (13,065) (170) Proceeds from issuance of capital stock... 4,000 Cash dividends paid... (496) (434) Proceeds from minority interests ,546 Other... (797) (65) Net cash provided by financing activities... (7,285) (963) IV. (Decrease) increase in cash and cash equivalents... (2,771) (579) V. Cash and cash equivalents at beginning of period... VI. Increase in cash and cash equivalents from new consolidation... 9,692 8,443 0 (221) VII. Cash and cash equivalents at end of period... 6,920 7,642 13

14 (4) Items related to the company as a going concern: None (5) Segment information Three-month period from July 1, 2010 to September 30, 2010 (Millions of yen) Principal Investment Fund Investment Banking Total Eliminations or Corporate Consolidated Sales (1) Sales to external customers (2) Inter-segment sales or transfers 2, ,110 3, (112) Total sales 2, ,222 (112) 3,110 Operating income ,235 (295) 940 Three-month period from July 1, 2009 to September 30, 2009 (Millions of yen) Principal Investment Fund Investment Banking Total Eliminations or Corporate Consolidated Sales (1) Sales to external customers (2) Inter-segment sales or transfers 1, ,399 2, (92) Total sales 1, ,491 (92) 2,399 Operating income (219) 691 Notes: 1. Segmentation is based on business type. 2. Segment operations are as follows: Principal Investment Loan asset investment, equity investment, proprietary real estate investment, other corporate investment Fund Corporate revitalization fund investment, corporate revitalization fund asset management, solution fund investment, solution fund asset management, real estate fund investment, real estate fund asset management Investment Banking Solutions, financial advisory service, due diligence, servicing, real estate intermediation 14

15 Nine-month period from January 1, 2010 to September 30, 2010 (Millions of yen) Principal Investment Fund Investment Banking Total Eliminations or Corporate Consolidated Sales (1) Sales to external customers (2) Inter-segment sales or transfers 5,009 1, ,425 7, (276) Total sales 5,009 1, ,701 (276) 7,425 Operating income 1, ,175 (862) 2,313 Nine-month period from January 1, 2009 to September 30, 2009 (Millions of yen) Principal Investment Fund Investment Banking Total Eliminations or Corporate Consolidated Sales (1) Sales to external customers (2) Inter-segment sales or transfers 5,685 1, ,120 8, (289) Total sales 5,685 1,497 1,226 8,410 (289) 8,120 Operating income 1, ,978 (1,055) 1,922 Notes: 1. Segmentation is based on business type. 2. Segment operations are as follows: Principal Investment Loan asset investment, equity investment, proprietary real estate investment, other corporate investment Fund Corporate revitalization fund investment, corporate revitalization fund asset management, solution fund investment, solution fund asset management, real estate fund investment, real estate fund asset management Investment Banking Solutions, financial advisory service, due diligence, servicing, real estate intermediation Segment information by area: Nine-month period of the fiscal year ending September 30, 2009 (January 1, 2009 to September 30, 2009) and nine-month period of the fiscal year ending September 30, 2010 (January 1, 2010 to September 30, 2010) Since RISA Partners does not have any consolidated subsidiaries with operations overseas or important branch offices overseas, segment information by area has been omitted. Third quarter of the fiscal year ending September 30, 2009 (July 1, 2009 to September 30, 2009) and third quarter of the fiscal year ending September 30, 2010 (July 1, 2010 to September 30, 2010) Since RISA Partners does not have any consolidated subsidiaries with operations overseas or important branch offices overseas, segment information by area has been omitted. 15

16 Overseas sales: Nine-month period of the fiscal year ending September 30, 2009 (January 1, 2009 to September 30, 2009) and nine-month period of the fiscal year ending September 30, 2010 (January 1, 2010 to September 30, 2010) Since overseas sales are less than 10% of consolidated sales, overseas sales information has been omitted. Third quarter of the fiscal year ending September 30, 2009 (July 1, 2009 to September 30, 2009) and third quarter of the fiscal year ending September 30, 2010 (July 1, 2010 to September 30, 2010) Since overseas sales are less than 10% of consolidated sales, overseas sales information has been omitted. (6) Changes to shareholders equity RISA Partners has recorded an extraordinary loss as a result of withdrawal from real estate investment-related business. As a result, a net loss of 8,352 million was recorded for the third quarter, shareholders equity decreased by 7,957 million compared to the end of fiscal

17 (7) Significant subsequent events I. Tender offer by NEC Capital Solutions Limited At a meeting of the board of directors convened October 29, 2010, an Agreement Concerning Integration was concluded between RISA Partners and NEC Capital Solutions Limited (hereafter referred to as the tender offerer ) with regard to the full subsidiarization of RISA Partners (hereafter referred to as the Company ) by the tender offerer, and the Company decided to express a supporting opinion for the tender offer. 1. Overview of the tender offerer (As of October 29, 2010) Company name NEC Capital Solutions Limited Head office Shiba 5-chome, Minato-ku, Tokyo Representative Shigeho Tanaka, Representative Director and President description Leasing business, business loans, etc. Capital 3,776 million (As of March 31, 2010) Date of establishment November 30, 1978 Principal shareholders and shareholding ratio (As of March 31, 2010) Relationship between the listed company and the tender offerer Capital ties Personnel ties NEC Corporation Sumitomo Mitsui Finance & Leasing Company Limited Japan Trustee Services Bank, Ltd. The Master Trust Bank of Japan, Ltd. (Trust Account) Northern trust Co. (AVFC) SUB A/C AMERICAN CLIENTS NCT Trust and Banking Corporation (Trust Account) INDUS JAPAN MASTER FUND.LTD Trust & Custody Services Bank, Ltd. The Sumitomo Trust & Banking Company Ltd. Sumitomo Life Insurance Company Mitsui Sumitomo Insurance Co., Ltd 37.66% 25.03% 6.39% 6.01% 1.21% 1.20% 1.09% 1.03% 0.93% 0.93% 0.93% The tender offerer concluded a business and capital collaboration agreement on February 9, 2009, and on the same day underwrote 40,000 units (total amount paid 4.0 billion Yen) of Class 1 preferred shares (with put options in consideration of ordinary stock) issued by the Company as a third party allotment with the tender offerer as the allottee. If tender offerer exercises all put options rights regarding the said Class 1 preferred shares, it would acquire approximately 26% of voting rights the Company (however, this assumes that convertible bonds are not converted into shares,) in this instance, the Company would be expected to become an equity method affiliate of the tender offerer (as of October 29, 2010). Tomoyuki Kato, and adviser to the tender offerer, has assumed the post of external director of the Company. Soichiro Matsuyama, a director of the tender offerer also serves as an external auditor to the Company. Apart from this, in addition to a staff member from the tender offerer being seconded to the Company, a staff member from the Company has been seconded to the tender offerer (as of October 29, 2010). relationships In line with the aforementioned business and capital tie up, the Company is conducting joint sales to financial institutions with which it has ties and joint investment in the non-performing loan area, mainly through the collaboration committee established by the tender offerer and the Company. 17

18 Conditions applicable to related parties The tender offerer does not correspond to a related party of the Company. Nor do parties or affiliates of the tender correspond to related parties of the Company. 2. Overview of the tender offer (1) Purchase period November 1, 2010 (Monday) to December 14, 2010 (Tuesday) (thirty business days) (2) Type of shares to be acquired 1 Common stock 2 Stock options 1. Stock options issued based on resolutions of extraordinary shareholders meetings of the Company held November 25, 2004 and the Company board of directors meetings convened on November 25, Stock options issued based on resolutions of extraordinary shareholders meetings of the Company held November 25, 2004 and the Company board of directors meetings convened on November 25, 2004 (hereafter, referred to as No. 4 options combining 1, and 2). 3. Stock options issued based on resolutions of Annual General Meetings of Shareholders of the Company held March 30, 2005 and the Company board of directors meetings convened on April 1, 2005 (hereafter, referred to as No. 5 options ). 4. Stock options issued based on resolutions of Annual General Meetings of Shareholders of the Company held March 30, 2006 and the Company board of directors meetings convened on April 3, (hereafter, referred to as No. 6 options. ) 5. Stock options issued based on resolutions of the Company board of directors meetings convened on April 11, (hereafter, referred to as No. 8 options, ) with No. 5 options, No. 6 options and No. 8 options referred to as the stock options. 3 Convertible Bonds Uncollateralized corporate convertible bonds with an attached call option maturing in 2013 and issued based on a resolution of the Company board of directors meetings convened on February 15, 2010 (hereafter referred to as the convertible bonds ). Note: As the execution period of the No. 4 stock option expires during the tender offer period, subscriptions for the No. 4 stock option will not be accepted during the tender offer. (3) Tender offer price 1 Price per ordinary share: 36,000 2 Price per stock option: 1 3 Price per convertible bond: 70 (4) Number of shares, etc. to be purchased 1 Number of shares to be purchased: 440,657 shares 2 Minimum number of shares to be purchased: 170,764 shares 3 Maximum number of shares to be purchased: not applicable 3. Our opinion regarding tender offer; basis and rationale for same (1) Our opinion regarding tender offer At a board of directors meeting of October 29, 2010, the Company, on the basis and under the rationale explained below resolved to express a favorable opinion regarding the tender offer. (2) Rationale and premises for opinion regarding tender offer We have decided it necessary to take prompt action to improve our business environment and fund procurement environment by implementing, in cooperation with the tender offerer, thoroughgoing measures for managerial reform, including an improvement in financial soundness and, as contained within measures (i) to (vi) below, a transformation in business portfolio along with a recasting of business structure. 1 A transformation in emphasis within our business portfolio from various investment businesses under our own account to fund management businesses (excluding those pertaining to real estate 18

19 related assets) and investment management businesses 2 A complete withdrawal from investment in real estate related assets 3 A furtherance of a financial reform program as necessary until the completion of efforts to improve the current cash flow situation and transform the business portfolio 4 A strengthening of the risk management system through a reconfiguration of the managerial control system 5 A furtherance of collaborative relations with the tender offerer and a maximization of synergies through an expansion of cross sales 6 An intensification of efforts to achieve the operational alliance objectives contained within Operational and capital alliance, issue of preferred shares by third-party allotment and partial amendment to articles of incorporation, released February 9, 2009 From the point of view of the Company, we have resolved that in order to quickly and effectively advance such measures, it is necessary for us to build a strong cooperative arrangement with the tender offerer and, in addition, to formulate and execute a medium-to long-term business strategy that is not fixated on a short-term pursuit of profit, and to establish a system of decision-making as necessary for the attainment of these measures in a manner that provides legal and administrative flexible. To this end, we have determined that the best way to raise medium- to long-term corporate value would be for the tender offerer, after having turned the Company into a full subsidiary through the tender offer and subsequent procedures, to make fundamental improvements within a business strategy for the tender offerer's group. Thus, on October 29, 2010 and in addition to entering into a business merger agreement, we expressed our favorable opinion on the tender offer. II. Withdrawal from real estate investment business The credit contraction and tightening of conditions for real estate-related financing by financial institutions triggered by the 2008 subprime loan crisis resulted in a decline in liquidity in the property market and a fall in property prices, which had a substantial impact on RISA Partners real estate investment business. As the property market has yet to recover, it is not expected that we will be unable achieve a sale of any large-scale properties during the current fiscal year. In light of these conditions, RISA Partners has decided it necessary to take prompt action to improve our business environment and fund procurement environment by implementing, in cooperation with the tender offerer, thoroughgoing measures for managerial reform, including an improvement in financial soundness and, a transformation in business portfolio along with a recasting of business structure. On this basis, we decided on October 29, 2010 to undertake a complete withdrawal from real estate investment-related business. 1. Outline and scale of business subject to withdrawal : Real estate-related investment Scale: Consolidated net sales (FY2009): 4,699 million (ratio: 23.7%) 2. Schedule for withdrawal Sell existing property holdings on a continuous basis toward achieving disposal at an early date. 3. Material impact on business activities of withdrawal Following this business withdrawal, RISA Partners business portfolio be centered on funds, excluding real estate-related investment funds, and investment banking business. 19