Summary of Consolidated Financial Results for Six Months Ended July 31, 2006
Company name:

September 13, 2006
Listings: Tokyo Stock Exchange (First Section)

Pigeon Corporation

Stock code:
7956(URL http://www.pigeon.co.jp)
President:
Seiichi Matsumura
Contact:
Katsumi Oyabu, Managing Officer IR & PR related
BOD meeting for approving interim financial results: September 11, 2006
U.S. accounting standards:
Not applicable

Headquarters: Tokyo

TEL ++81-3-3661-4188

１. Consolidated Financial Results (Six months ended July 31, 2006 and 2005)(¥ millions, rounded down)(1) Performance (Six months ended July 31)
Net sales

Operating income

Change (%)

2006
2005

22,092
21,100Year ended
January 31,

41,747

(
(

4.7)
6.8)

Ordinary income

Change (%)

1,393
1,339

(
(

4.0)
1.4)

2,215

Net income

Change (%)

1,350 (
1,309 (

3.1)
△0.5)

2,200

Net income per share (¥)

Net income per share (fully
diluted) (\)

Change (%)

2006
2005
Year ended
January 31,

1,052 ( 31.8 )
798 ( △5.7 )

53.31
40.22

－
40.21

1,342

67.84

67.83

Notes: 1. Equity in earnings of affiliates:
2. Average shares outstanding (cons.):¥19 million (July 2006); ¥22 million (July 2005); ¥44 million (Jan. 2006)
19,732,178 (6 months ended July 2006); 19,847,330 (6 months ended July 2005);
19,790,146 (Year ended Jan. 2006)
3. Changes in accounting principles:
Not applicable
4. Figures in parenthesis represent year-on-year percentage change.

(2) Financial Position (at July 31)
Total assets

2006
2005

35,37435,496(¥ millions, rounded down)
Shareholders' equity

21,69919,682Equity-assets ratio (%)

60.0
55.4

Equity per share (¥)

1,076.10
997.43

At January 31,
33,937
20,31259.9
1,029.41
2005
Note: Shares outstanding at term-end (consolidated): 19,731,963 (July 2006); 19,732,925 (July 2005); 19,732,372 (Jan. 2006)(3) Cash Flows (year ended July 31)(¥ millions, rounded down)

Cash flows fromoperating activities

Cash flows frominvesting activities

Cash flows fromfinancing activities

Cash and cash equivalents
at year-end

2006
2005

412
317

782
(790)

(798)
(161)

2,315
2,146

Year ended
January 31, 2006

1,765

(1,668)(1,018)

1,903(4) Scope of Consolidation and Equity-Method Application
Consolidated subsidiaries: 13; Nonconsolidated subsidiaries (equity method): 0; Affiliates (equity method): 2(5) Changes in Scope of Consolidation and Equity-Method Application
Consolidated: 1 (newly included); 0 (excluded)
Equity method application: 0 (newly included); 0 (excluded)
２. Forecast for Fiscal Year Ending January 31, 2007(¥ millions, rounded down)

Net sales

Net income

Full year

44,500Ordinary income

2,700

1,800

(Reference) Forecast net income per share (full year): ¥91.22
Please refer to pages 7-9 of this report for preconditions related to forward-looking statements and related items.

Consolidated Interim Balance Sheets(Figures rounded down to nearest thousand yen)
At July 31, 2006

At July 31, 2005

At January 31, 2006

Thousands of yen % of total Thousands of yen % of total Thousands of yen % of total
ASSETS％％％Ⅰ Current Assets
Cash and time deposits

2,315,222

2,146,280

1,903,361

Notes and accounts receivable

9,406,459

9,529,666

7,643,258

Inventories

4,407,128

3,964,666

4,437,556

Deferred tax assets

612,179

590,478

752,275

Other receivables

320,887

273,870

385,309

Other current assets

193,864

225,698

150,450

Allowance for doubtful accounts
Total Current Assets(21,845)
17,233,894(11,528)48.7

16,719,132

12,15547.1

15,260,057

45.0

Ⅱ Fixed Assets
1. Tangible Fixed Assets
Buildings and structures

4,243,530

4,357,879

4,237,705

Machinery and transportation equipment

2,116,611

2,188,549

2,222,610

722,583

641,883

632,669

5,908,912

6,102,501

6,123,907

Tools, furniture and fixtures
Land
Construction in progress
Total Tangible Fixed Assets

145,625
13,137,264

125,843
37.1

13,416,656

141,234
37.8

13,358,127

39.4

2. Intangible Fixed Assets
Consolidation adjustment acounts

1,823,091

2,197,411

2,011,458

Software890,225

933,147

972,033

Other intangible fixed assets

48,29953,67051,902

Total Intangible Fixed Assets

2,761,616

7.8

3,184,229

9.0

3,035,393

8.9

3.Investments and Other Assets
Investment securities

1,233,198

1,091,364

1,214,238

Insurance reserve472,907516,181487,241

Deferred tax assets

219,190

260,579

242,278

Other

330,168

331,153

357,440

Allowance for doubtful accounts(13,315)(22,720)(17,031)

Total Investments and Other Assets

2,242,149

6.3

2,176,558

6.1

2,284,166

6.7

Total Fixed Assets

18,141,030

51.3

18,777,444

52.9

18,677,687

55.0

Total Assets

35,374,924

100.0

35,496,577

100.0

33,937,744

100.0- 10 -

Consolidated Interim Balance Sheets(Figures rounded down to nearest thousand yen)
At July 31, 2006

At January 31, 2006

At July 31, 2005

Thousands of yen % of total Thousands of yen % of total Thousands of yen % of total
LIABILITIES

％

％

％

Ⅰ Current Liabilities
Notes and accounts payable

4,813,420

6,602,930

4,627,960

Short-term borrowings

1,571,408

2,224,094

1,874,178

146,264

1,556,182

1,351,442

Accrued amount payable

2,284,834

1,210,540

1,840,129

Income taxes payable

540,684

343,222439,096

Accrued bonuses to employees

520,447

513,990484,924

Current portion of long-term debt

Returned goods adjustment reserve

28,70034,30026,900

Other current liabilities

1,177,726

1,254,926

930,139

Total Current Liabilities

11,083,486

31.4

13,740,187

38.7

11,574,770

34.1

Ⅱ Long-Term Liabilities
Long-term borrowings

1,060,000

206,264

121,770

Deferred tax liabilities

815,546

566,994

672,603

Employees' retirement benefits

186,229

176,007

170,113Retirement benefits for directors andcorporate auditors

317,904

330,980

338,655

Other long-term liabilities

212,461

407,246

303,342

Total Long-Term Liabilities

2,592,141

7.3

1,687,492

4.8

1,606,485

4.7

Total Liabilities

13,675,627

38.7

15,427,680

43.5

13,181,255

38.8

－

386,5071.1

443,656

1.3

Ⅰ Capital stock－

5,199,597

14.7

5,199,597

15.3

Ⅱ Additional paid-in capital－

5,146,690

14.5

5,146,690

15.2

Ⅲ Consolidated retained earnings－

10,705,687

30.2

11,052,496

32.6

MINORITY INTERESTS
Minority Interests
SHAREHOLDERS' EQUITYⅣ Net unrealized gains (losses) on securities－(6,052)(0.0)

38,2180.1

Ⅴ Foreign currency translation adjustment－(444,294)(1.3)(204,080)(0.6)

Ⅵ Treasury stock, at cost－

(919,238)(2.6)(920,087)(2.7)

Total Shareholders' Equity－

19,682,389

55.4

20,312,833

59.9

Total Liabilities, Minority Interests andShareholders' Equity－

35,496,577

100.0

33,937,744

100.0

SHAREHOLDERS' EQUITY
Ⅰ

Shareholder's equity

1 Capital stock

5,199,597

14.7

－

－

－

－

2 Additional paid-in capital

5,146,690

14.5

－

－

－

－

3 Consolidated retained earnings

11,907,175

33.7

－

－

－

－

(920,796)

△2.6

－

－

－

－

21,332,665

60.3

－

－

－

－

4 Treasury stock, at cost
Total Shareholders' Equity
Ⅱ Deffered valuation and exchange
1 Net unrealized gains (losses) on securities

31,884

0.1

－

－

－

－

2 Foreign currency translation adjustment(130,912)

△0.4

－

－

－

－

Total Deffered valuation and exchange(99,027)

△0.3

－

－

－

－

Ⅲ Minority Interests

465,658

1.3

－

－

－

－

Total Net Assets

21,699,297

61.3

－

－

－

－

Total Liablities and Net Assets

35,374,924

100.0

－

－

－

－

- 11 -

Consolidated Interim Statements of Income
Six months ended July 31,
2006(Figures rounded down to nearest thousand yen)Six months ended July 31,
Year ended January 31, 2006
2005

Thousands of yen % of total

Thousands of yen % of total

Thousands of yen % of total

％

％

％

Ⅰ Net Sales

22,092,449

100.0

21,100,511

100.0

41,747,212

Ⅱ Cost of Sales

13,726,97862.1

13,110,274

62.1

26,116,655

62.6

Gross profit

863,4703.9

7,990,236

37.9

15,630,556

37.4

Reversal of reserve for returned products

26,90031,200Transfer to reserve for returned products

28,70034,30026,9008,363,470

7,987,136

15,634,856

Adjusted gross profit
Ⅲ Selling, General and Administrative Expenses
Operating Income

100.0

31,2006,970,471

31.6

6,647,211

31.5

13,419,853

32.1

1,393,198

6.3

1,339,925

6.4

2,215,002

5.3

Ⅳ Other Income

145,699

0.7

156,4180.7

364,3440.9Interest

8,823

2,318

9,518
12,953

Dividend income

814

932

Currency exchange income－

17,193－

Rental income

56,064

71,184

138,711Equity in earnings of nonconsolidated
subsidiaries and affiliates

19,051

22,54844,333

Other

60,945

Ⅴ Other Expenses

187,996

42,2400.9

186,463

158,8260.9

378,870

Interest expense

23,00827,294

51,617

Sales discounts

88,58099,271

213,673

Currency exchange loss

31,598－0

Rental income-related costs

35,04752,15098,644

Other

9,761

7,747

Ordinary Income
Ⅵ Extraordinary Income
Gain on sales of property

14,9341,350,901

6.1

1,309,879

6.2

2,200,476

5.3

1,272,833

5.8

52,5560.2

56,5930.1

1,251,506－0Gain on sale of investment securities

20,000－0

Reversal of allowance for doubtful accounts

1,326

51,31653,750Other
Ⅶ Extraordinary Loss
Loss on disposal of property－
638,867

1,239
2.9

47,6542,843
0.2

72,912205,222

5,518

0

Loss on sale/disposal of property

86,92537,684

61,418

Impairment loss

120,182－

0Expenses for headquarter relocation

207,440

－

0

Other
Income before Income Taxes

0.9

19,096

4,452

0.2

11,494

1,984,867

9.0

1,314,781

6.2

21,184,156

50.7

Income Taxes

582,857

2.6

337,352

1.6

682,451

1.6

Adjustment for Corporate Tax

307,4451.4

151,2140.7

92,9420.2

Less: Minority Interest in Net Income ofConsolidated Subsidiaries

42,561

0.2

27,7730.1

66,1830.2

1,052,003

4.8

798,4413.8

1,342,579

3.2

Net Income- 12 -

Consolidated Interim Retained Earnings(Figures rounded down to nearest thousand yen)

CAPITAL SURPLUS
Ⅰ．Balance at beginning of term
Ⅱ．Increase in capital surplus
Profit from disposal of treasury stock
Ⅱ．Balance at end of term
EARNED SURPLUS
Ⅰ．Balance at beginning of term
Ⅱ．Increase in earned surplus
Interim (annual) net income
Ⅲ．Decrease in earned surplus
Cash dividends
Ⅳ．Balance at end of term

- 13 -

Six months ended
July 31, 2005

Year ended January
31, 2006

Thousands of yen

Thousands of yen

5,145,608

5,145,608

1,081
5,146,690

1,081
5,134,837

10,149,781

10,149,781

642,814
798,441
242,535
10,705,687

1,270,955
1,342,579
439,864
11,052,496

Consolidated Statement of Shareholders' Equity
Six months ended July 31, 2006

(Figures rounded down to nearest thousand yen)

Shareholders' Equity

Balance as of January 31, 2006 (in yen
thousand)

CapitalCapitalSurplusRetainedearnings

Treasury
stock

Total
shareholders' equity

5,199,597

5,146,690

11,052,496△ 920,087

20,478,696

Amount of change during theconsolidated interim fiscal year
Dividends of surplus
Interim net income△ 197,323△ 197,323

1,052,003

1,052,003

Acquisition of treasury stocks

△ 709

△ 709

(Net) amount of change during theconsolidated interim fiscal year interms other than those undershareholders' equity
Total amount of change during theconsolidated interim fiscal year (inyen thousand)－－

854,679△ 709

853,969

Balance as of July 31, 2006 (in yen
thousand)

5,199,597

5,146,690

11,907,175△ 920,796

21,332,665(Figures rounded down to nearest thousand yen)

Valuation and exchange differences
etc.
Profit/loss
Total
on deferred Profit/loss Valuation
valuation on deferredandof otherexchangeexchange
securities
difference
Balance as of January 31, 2006 (in yen
thousand)

38,218△ 204,080△ 165,862

Minority
Intersets

443,656

Total net
assets

20,756,489

Amount of change during theconsolidated interim fiscal year
Dividends of surplus△ 197,323

Interim net income

1,052,003

Acquisition of treasury stocks△ 709(Net) amount of change during theconsolidated interim fiscal year interms other than those undershareholders' equity△ 6,333

73,16866,83522,002

88,837

Total amount of change during theconsolidated interim fiscal year (inyen thousand)△ 6,333

73,16866,83522,002

942,807

Balance as of July 31, 2006 (in yen
thousand)

31,884△ 130,912△ 99,027

465,658

21,699,297- 14 -

Consolidated Interim Statements of Cash Flows(Figures rounded down to nearest thousand yen)

Ⅰ．Cash Flows from Operating Activities
Income before income taxes
Depreciation

Six months ended
July 31, 2006

Six months ended
July 31, 2005

Year ended January
31, 2006

Thousands of yen

Thousands of yen

Thousands of yen

1,314,781
616,959

2,184,156
1,372,632

1,984,867
686,247

Amortization of difference between investment
costs and equity in net assets acquired

120,182--

Amortization of goodwill
Increase/decrease in allowance for doubtful accounts
Change in accrued bonuses to employees
Change in employees' retirement benefits

188,367
6,255
35,513
16,115

187,191(606,969)(3,792)
8,854

375,386(612,945)(32,778)
2,961

Increase/decrease in reserve for retirement
benefits to directors and corporate auditors(20,751)

1,641

9,316

(9,637)(3,251)(22,472)(19,051)(22,548)(44,333)

23,008(1,251,506)(20,000)
205,22286,925(1,739,965)
34,734
178,166
336,051
64,316－(99,985)(2,938)66,414(23,389)(432,580)
412,583
412,583

27,294

51,617

5,518
37,684(887,215)(509,901)
414,874(126,118)
626,427(96,616)
130,710
1,115,523
4,452(26,641)(775,902)
317,431

61,4181,106,195(909,408)(1,621,029)
576,320(135,748)
632,399(198,518)
34,08021,922(49,680)(1,036,073)
1,765,419
1,765,419(472,661)
1,365,006(74,103)(8,000)25,000(23,814)
41,437(1,253)679
29,292(98,657)
782,925(386,972)
4,972(378,184)(25,166)
10,003(28,115)
(492)
2,958
13,288(3,191)(790,897)(1,047,788)
8,255(569,769)(17,760)510(54,587)
65,313(29,765)(1,017)
3,642－(25,568)(1,668,535)

5,594,910(5,892,319)
1,000,000(1,266,948)(197,021)(36,059)(709)(798,147)
14,499411,860
1,903,361
2,315,222

5,924,816(4,583,852)(368,712)(243,120)(32,695)
22,748(880,607)(161,422)
12,876(622,011)
2,768,291
2,146,280

14,282,168(13,307,509)(657,946)(441,703)(34,787)
22,748(881,456)(1,018,487)
56,673(864,930)
2,768,291
1,903,361

Interest and dividend income
Gain on sale of securities
Equity in earnings (losses) of nonconsolidated
subsidiaries and affiliates
Interest expense
Gain on fixed assets disposal
Gain on sales of investment securities
Loss on fixed assets disposal
Loss on fixed assets sales
Decrease (increase) in trade receivables
Decrease (increase) in inventories(Decrease) increase in trade payables(Decrease) increase in account payables
Decrease (increase) in consumption tax payable
Increase/decrease in bankruptcy claims
Increase in employees’accrued retirement benefits
Other
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net Cash Provided by (Used in) Operating Activities
Ⅱ．Cash Flows from investing Activies
Acquisition of property, plant and equipment
Proceeds from sales of property, plant and equipment
Acquisition of intangible assets
Acquisition of investments in securities
Proceeds from sales of investments in securities
Payment to life insurance fund for directors
Proceeds due to maturity/cancellation of insurance reserve
Acquisition of shares in subsidiaries
Loans advanced
Collection of loan receivables
Proceeds from recovery of lease deposits
Other
Net Cash Provided by (Used in) Investing Activities
Ⅲ．Cash Flows from Financing Activities
Net increase in short-term bank loans
Repayment of short-term debt
Proceeds from long-term debt
Repayment of long-term debt
Payment of cash dividends
Payment of cash dividends to minority shareholders
Proceeds from sale of treasury stock
Acqisition of treasury stock
Net Cah Provided by (Used in) Financing Activities
Ⅳ．Translation Gain (Loss) Related to Cash and Cash Equivalents
Ⅴ．Net Change in Cash and Cash Equivalents
Ⅵ．Cash and Cash Equivalents at Beginning of Term
Ⅶ. Cash and Cash Equivalents at End of Term

- 15 ---

Corporate Group
The Pigeon Group consists of the Pigeon Corporation (the parent company), 13
consolidated subsidiaries, and two equity-method affiliates. The Group is engaged
mainly in the manufacture, purchase, and sale of baby care, child care, and healthcare
products, as well as in the provision of child-rearing and healthcare support services.
In May 2006, Tahira Co., Ltd., a consolidated subsidiary, changed its name to Pigeon
Tahira Co., Ltd.

Management Policies
Basic Policies
Based on its corporate commitment, “providing the gift of love to all,” the PigeonGroup is dedicated to helping those in need—while pregnant, giving birth, and rearing
children, as well as in old age. Our policy is to develop our business by delivering
products and services that address the needs of these people. Fulfilling our role as a“lifestyle support company focusing on child rearing,” we are leveraging the Pigeon
brand and the quality of our management to build a high corporate profile that isrecognized worldwide. This is our medium-term corporate vision.
The current fiscal period under review is the second year of our second
medium-term management plan for the 21st century. Entitled “Global 500,” the plan
covers the three-year period from February 2005 to January 2008. During the interim
period under review, we steadily implemented top-priority business initiatives andmaximized synergies derived from the Group’s comprehensive strengths.

Profit Appropriation Policy
The Pigeon Group regards the return of profits to shareholders—made possible byongoing improvements to Groupwide profitability—as an important management
priority. Our policy is to make the most effective use of retained earnings. We actively
invest these funds in growth areas, new businesses, and research and development, as
well as in reinforcing our operating foundation by streamlining production facilities tolower costs and raise product quality. With respect to appropriating earnings, ourpolicy is to actively return profits to shareholders. We do this by paying stable andongoing cash dividends, with the emphasis on raising dividend levels where possible.
Based on this policy, we are targeting a consolidated dividend payout ratio of 30%
and a dividends-on-equity ratio of 2%. For the interim period under review, we plan
to pay a regular dividend of ¥10.00 per share, plus a commemorative dividend of¥5.00 to celebrate our 50th anniversary (as announced on March 13, 2006), for total
cash dividends of ¥15.00 per share.

Medium-Term Strategies
Building on the achievements of Corporate Value Creation 21, our previous mediumterm business plan, we are now implementing Global 500, our second business planfor the 21st century. The theme of the current plan, covering the three-year period toJanuary 2008, is to maximize corporate value on a global scale. Under the plan, weare seeking achieve annual consolidated net sales of ¥50 billion. Below is an outlineof the plan.

1

Global 500: Second Medium-Term Plan for the 21st Century(February 2005–January 2008)
Basic Policies
Through relentless market penetration, the Group will reinforce its unique positionand competitive edge in the baby and child care segment, its core business. At thesame time, we will actively mobilize Groupwide synergies and “drawing power” tobuild a strong presence in growth areas. Through these actions, we will seek tomaximize corporate value on a global scale. Specific initiatives are listed below.
(1) Our domestic business in baby and child care products forms the core of theGroup’s operations and is a key determinant of our overall corporate value. Our basic
strategy for this business is to “create value.”(2) We will position our child-rearing support, overseas, and healthcare businesses as
growth areas.
(3) Addressing changes in the earnings structure of our overall business, we willreform internal systems and redistribute managerial resources.
Key Performance Targets (Consolidated)
Our consolidated performance targets for the year ending January 2008, the final termof the plan, are as follows.
Net sales: ¥50 billion
Gross profit ratio: 39.5%
Operating income ratio: 8%
Ordinary income ratio: 7.5%
ROA (ratio of ordinary income to total assets): 10.0%

Issues to Address
According to statistics released by the Ministry of Health, Labour and Welfare inAugust 2006, the first half of calendar 2006 saw a year-on-year upturn in the numberof births for the first time in six years. This can be attributed to child-rearing support
measures adopted by the government and corporations, as well as economic recovery.
While one reason for the upturn is the fact that second-generation female babyboomers are now reaching childbearing age, we cannot expect this upward trend tocontinue. Despite such challenges, the Group will unite in a concerted effort to meetthe performance objectives of Global 500 and satisfy the expectations of allshareholders.

Items Related to Parent Company
Not applicable, as Pigeon Corporation does not have a parent company.

Other Important ItemAs announced previously, in June 2006 Pigeon Corporation and some consolidated
subsidiaries centralized their operations under a single roof, by moving to a rental
office building in Nihonbashi-Hisamatsucho, Tokyo. The decision to move reflected
the Group’s expanding business in recent years and is aimed at further raising2

business efficiency and maximizing synergies, with a view to improving the Group’s
performance.

Performance and Financial Position
Performance(1) Environment and Interim Results
In the domestic baby and child care segment, the Pigeon Group’s main business, we
introduced products that reflect our commitment to sharing with all of our customers
the emotion and joy of giving birth and raising children. We also undertook proactive
marketing aimed at restoring market share for our mainstay baby wipes, following asubstantial year-on-year decline in market share in the previous fiscal period.
In our overseas business, we achieved improved year-on-year results thanks tothe success of our sales strategy, which emphasizes introduction of new products andbuilding brand image, with the focus on East Asia, especially China, as well as North
America and Europe. In China, we continued increasing the number of sales offices inlarge cities—mainly Beijing, Shanghai, and Guangzhou—while expanding ourpresence in regional cities, generating a steady improvement in performance.
In the child-rearing support segment, there was concern about a slowdown in
the pace of privatization of public child-minding facilities in some areas. With respect
to operation of in-company child-minding facilities, however, we made solid progress,
taking advantage of our competitive edge in the terms of service content.
By contrast, our healthcare business faced difficult conditions following anamendment to the Nursing Care Insurance System in April 2006.
Consolidated net sales for the interim period totaled ¥22,092 million, up 4.7%
from the previous corresponding period. Ordinary income grew 3.1%, to ¥1,350
million, and net income climbed 31.8%, to ¥1,052 million.

Segment Review
Baby and Child Care
Interim sales in this segment amounted to ¥17,215 million, up 6.5% from the previous
corresponding period. Operating income increased 5.6%, to ¥2,549 million. This
segment is classified into three categories: domestic baby and child care products,
overseas business, and child-rearing support services.

3

Domestic Baby and Child Care Products: The first half of calendar 2006 saw a yearon-year upturn in the number of births for the first time in six years. Despite such
positive news, however, market conditions remained difficult. Facing these challenges,
we actively promoted direct communications with our business partners—from
distributors to customers—to ensure a full understanding of the high quality of our
products. These efforts were well received. As a result, we reported healthy sales of
items that contribute strongly to our performance, including baby bottles and nipples,
pacifiers, and breast pads.
Overseas Business: The Group achieved increased year-on-year sales in overseas
regions, including China, Taiwan, and the Middle East. During the period, we
expanded sales of mainstay items and introduced new products, achieving higher
sales in our various markets. Particularly strong performers were baby wipes in China,
baby bottles and nipples in the Middle East, and a mild detergent for washing baby
bottles and vegetables in Hong Kong. Main consolidated subsidiaries— Pigeon
Singapore Pte. Ltd., Pigeon Industries (Thailand) Co., Ltd., Thai Pigeon Co., Ltd.,
Pigeon (Shanghai) Co., Ltd., and Lansinoh Laboratories, Inc.—all reported improved
performances, owing to synergies derived from our overseas subsidiaries in the areasof production and sales.
Child-Rearing Support Services: During the period, Pigeon sought aggressively totake over the operation of newly privatized child-minding facilities. In April 2006, forexample, we were entrusted with the operation of a daycare center run by the Nakano
Ward government. We also performed according to plan in the area of in-company
child-minding operations, opening our third center within Toyota Motor Corporation.
Drawing on our expertise in the child-rearing support business, where we are thedomestic leader, we have been preparing to open our first overseas facility, inShanghai. At this stage, we hope to commence operations in November 2006. Goingforward, we plan to further expand our business in China by exploiting synergies
between our businesses in baby and child care products and child-rearing support
services.
Healthcare
Interim sales in this segment slipped 5.2%, to ¥3,211 million, and operating income
declined 9.1%, to ¥175 million.
During the period, we sought to expand our business by aggressively
maximizing synergies between Pigeon Corporation and two consolidated subsidiaries
in the areas of product development, sales, distribution, and services. Thosesubsidiaries are Pigeon Tahira Co., Ltd., which makes lifestyle-enhancement products
for the elderly, and Pigeon Manaka Co., Ltd., which provides healthcare dispatch
services for the elderly in Tochigi Prefecture. An amendment to the Nursing Care
Insurance System in April 2006, however, led to severe business conditions.
OthersInterim sales from other operations totaled ¥1,665 million, up 7.9%. Operating
income grew 27.2%, to ¥178 million.
Pigeon Will Co., Ltd., a consolidated subsidiary that sells maternity
undergarments, expanded its operations in the year under review. During the year, we
reported increased sales of Folic Acid Plus (food with health claims), an easy-to-drink
vitamin supplement combining all of the nutritional elements essential during

4

pregnancy and breastfeeding into one tablet. We also launched a line of skincare
products for women in China. This segment’s overall performance improved as aresult.

Interim Sales by Segment (Consolidated)
6 months to July
2005
16,1696 months to July
2006
17,215

Healthcare

3,386

OthersTotal

Baby & child care(¥ millions)
Change (%)

Change
1,046

6.5

3,211

–175

–5.2

1,544

1,665

121

7.9

21,10022,092991

4.7

Full-Year Outlook
The fiscal period to January 2007 is the second year of Global 500, our second
medium-term business plan for the 21st century. During the remainder of the year, we
will step up efforts to harness synergies among Group companies, in order to achieve
continues increases in revenues and earnings and further raise our corporate value on
a global basis.
For the entire fiscal year, we forecast consolidated net sales of ¥44.5 billion(up 6.6%), ordinary income of ¥2.7 billion (up 22.7%), and net income of ¥1.8 billion(up 34.1%).

Financial Position
Assets
As of July 31, 2006, Pigeon had consolidated total assets of ¥35,374 million, up¥1,437 million (or 4.2%) from January 31, 2006. Within this amount, total current
assets rose ¥1,973 million (12.9%), and total fixed assets declined ¥536 million(2.9%).
Major factors boosting current assets were a ¥411 million (21.6%) increase in
cash and time deposits and a ¥1,763 million (23.1%) rise in notes and accounts
receivable.
Principal reasons for the fall in fixed assets were a ¥214 million (3.5%) decline
in land and a ¥188 million (9.4%) decrease in the consolidation adjustment account.
Liabilities
Total liabilities at interim term-end stood at ¥13,675 million, up ¥494 million (3.8%)
over the period. Current liabilities declined ¥491 million (4.2%), while long-term
liabilities jumped ¥985 million (61.4%).
Main factors causing current liabilities to decline were a ¥302 million (16.2%
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fall in short-term bank loans and a ¥125 million (89.2%) drop in current portion of
long-term debt, which outweighed a ¥444 million (24.2%) rise in accrued amountpayable.
The increase in long-term liabilities stemmed mainly from a ¥938 million(770.5%) surge in long-term debt.
Net assets
At July 31, 2006, consolidated net assets amounted to ¥21,699 million, equivalent to¥942 million (4.5%) more than the sum of minority interests and total shareholders’equity at January 31, 2006. In addition to interim net income, the increase in net
assets resulted primarily from an ¥854 million (7.7%) rise in retained earnings.

Cash Flows
Cash and cash equivalents at July 31, 2006, stood at ¥2,315 million, up ¥411 million
compared with the beginning of the period (but down ¥622 million year-on-year).
Factors boosting cash and cash equivalents included ¥1,984 million in income
before income taxes (up 51.0% year-on-year), ¥686 million in depreciation (up¥11.2%), and ¥1,365 million in proceeds from sales of property, plant, and equipment(up from ¥4 million). Contrasting factors included a ¥1,251 million gain on sales ofproperty, plant, and equipment (up from ¥1 million in the previous corresponding
period) and a ¥1,739 million increase in notes and accounts receivable (up 96.1%).
There was also a ¥564 million net decline in four loan-related items: increase(decrease) in short-term bank loans, increase (decrease) in long-term debt, repaymentof short-term bank loans, and repayment of long-term debt (compared with a ¥972
million net increase in the same items in the previous corresponding period).
Net cash provided by operating activities amounted to ¥412 million, up 30.0%
from the previous corresponding period. Factors boosting operating cash flows
included ¥1,984 million in income before income taxes (up 51.0% year-on-year) and¥686 million in depreciation (up 11.2%). Contrasting factors included a ¥1,251
million gain on sales of property, plant, and equipment (up from ¥1 million in theprevious corresponding period), a ¥1,739 million increase in notes and accounts
receivable (up 96.1%), and ¥432 million in income taxes paid (down 44.2%).
Net cash provided by investing activities totaled ¥782 million, compared with
¥790 million used in investing activities in the previous corresponding period. Factors
boosting investing cash flows included ¥1,365 million in proceeds from sales ofproperty, plant, and equipment (up from ¥4 million in the previous corresponding
period), which outweighed such factors as ¥546 million in acquisition of property,
plant, and equipment (down 28.5% year-on-year).
Net cash used in financing activities was ¥798 million, up 394.4%. This
stemmed mainly from a ¥564 million net decline in four loan-related items: increase(decrease) in short-term bank loans, increase (decrease) in long-term debt, repaymentof short-term bank loans, and repayment of long-term debt (compared with a ¥972
million net increase in the same items in the previous corresponding period).

6

Cash Flow Indexes
6 months toJuly 2005
55.4
90.6
6.4
11.9

Equity ratio (%)
Equity ratio based on market price (%)
Debt repayment term (years)
Interest coverage ratio (%)

6 months toJuly 2006
60.0
99.6
3.4
17.6

Year to Jan.
2006
59.9
97.9
1.9
35.5

Notes:
1. Equity ratio based on market price: Market value of total stock ÷ Total assets
2. Debt repayment term: Interest-bearing debt ÷ Operating cash flows
3. Interest coverage ratio: Operating cash flows ÷ Interest paid
- Each index is calculated based on consolidated financial figures.
- Market value of total stock is calculated by multiplying the stock price (closing price at the end of
the term) by the number of shares outstanding at the end of the term (after deduction of treasury
stock).
- Operating cash flow figures are taken from the Cash Flows from Operating Activities section of
the Consolidated Statements of Cash Flows. Interest-bearing debt refers to all debt that incurs
interest (listed in Consolidated Balance Sheets). For interest paid, interest expenses (listed in
Consolidated Statements of Cash Flows) are used.

Business Risks
The operating results of the Pigeon Group may be potentially and significantly
affected by various factors that could occur in the future. The Group has identified the
major risks that could affect its business development. Details are given below.
Information contained within related to the future is based on the Group’s judgment
as of the end of the interim period under review.
Declining Birthrate
We predict that overall (quantitative) demand in the domestic market for baby andchild care products, the Group’s main business, will be influenced by the fallingbirthrate, and sales in this segment may decline as a result.
Overseas Business Risk
At present, the Group makes products in Thailand, China, and Indonesia, and also hasbusiness activities elsewhere in Asia, as well as in the Middle East, North America,
and Europe. Risks associated with our overseas business are described below. We will
hedge against such risks to the extent possible, but various unforeseen factors could
potentially affect our business performance.
- Legal revisions or tightening regulations that have a negative impact on the Group- Socioeconomic upheaval caused by terrorist acts, war, or the outbreak of infectious
diseases, such as SARS and avian influenza- Earthquakes and other natural disasters- Unforeseen foreign exchange fluctuations
Climactic and Natural Disasters
The markets for baby and child care products and healthcare products, the Group’s
mainstay businesses, are relatively impervious to weather-related factors. However,7the sudden occurrence of natural and other disasters, as well as unforeseen accidents,
could potentially damage our manufacturing facilities, causing loss of assets,
accumulation of products, and other factors leading to financial losses. The Group’sbusiness results could be affected as s result.
Changes in Raw Materials Prices
Major raw materials used by the Group include some that are affected by the market
prices of crude oil and pulp. If the prices of such materials rise, our manufacturingcosts will also increase, and market conditions may prevent us from reflecting suchrises in our sales prices, potentially affecting the Group’s business results.

Problems with Manufacturing Subcontractors
The Group subcontracts part of the production of baby and child care products andhealthcare products to outside manufacturers. While all due care is taken to ensure top
quality, there is a risk that quality could be compromised by an unforeseen event,potentially affecting the Group’s business results.
Changes in Laws and Regulations
In the course of developing its domestic business, the Group is subject to a variety oflegal regulations, including the Pharmaceutical Affairs Law, Food Sanitation Law,
and Product Liability Law. If such laws and regulations are revised, or unexpected
ones introduced, the Group’s business performance could be affected as a result.
Risks Related to the Child-Rearing Support BusinessTo assist families in which both parents are working, the Group offers a number ofservices, including operation of child-minding and daycare centers and provision ofbabysitter dispatch services. It also has its own Kids World chain of child-minding
centers. Through these activities, the Group is entrusted with the care of numerous
babies and toddlers. The Group takes every precaution to ensure maximum safety, but
acknowledges the possibility that an accident could cause injury to a baby or toddler.
To date, there have been no accidents or compensation claims that could affect theGroup’s business operations. However, there is no guarantee that such events will notoccur in the future. If such an event does occur, the Group’s business performance
may be affected as a result.
Litigation
As a manufacturer of products for consumers, the Group understands the extreme
importance of product quality and safety, as well as the quality of materials used in its
products. Any claims against the reliability or safety of our products could cause asudden decline in sales, which could potentially affect the Group’s businessperformance. Since our establishment, we have not been the target of large-sum
compensation claims or lawsuits. In our business, however, there is a constantinherent risk of being sued, either in Japan or overseas. Therefore, the Group’sbusiness results could potentially be affected if it is subject to a compensation claim,
the extent of impact being determined by the outcome of such legal action.
Information System Risk
The Group has in its possession personal information about numerous customers,
acquired via sales promotion campaigns, the annual “Newborn Baby Commemorative

8

Tree-Planting Campaign,” and other events. To prevent loss, mistaken use, andfalsification of such important information, the Group undertakes security measures
for managing its systems and information. However, unforeseen events could cause
our information systems to break down, stop, or undergo temporary disruption,
resulting in potential loss, leakage, or falsification of personal and other internal
information. Such events, which include power outages, major disasters, software andhardware defects, computer viruses, and illegal access, could have a negative impact
on the Group’s operating activities and potentially affect its performance and financial
position.
Protection of Personal Information
In the course of providing products and services to consumers, the Group handles alarge volume of personal information. For some time, we have sought to ensure that
all employees understand the importance of protecting personal information, provide
mandatory in-house education forums, and reinforce our systems for managing
customer information. Due to unforeseen circumstances, however, there is a risk that
personal information could be leaked to a third party, which could potentially affect
the Group’s business performance.

Cautionary Note on Forward-Looking Statements
In this document, statements other than historical facts related to plans, forecasts, andstrategies are based on information available at the time of writing. The Corporation
cannot provide guarantees or commitments for these forward-looking statements. Due
to various factors, actual results may differ significantly from those anticipated in thisdocument.

9