Financial Results for the First Half of the Fiscal Year Ending March 31, 2006 (Consolidated)
November 21, 2005
Name of listed company: Nichii Gakkan Company
Exchange where listed: Tokyo Stock Exchange
Company code number: 9792
Location of headquarters: Tokyo(URL: http://www.nichiigakkan.co.jp)
Representative Title: President and Representative Director Name: Takashi Mori
U.S. Accounting Standards: N/A

1. Consolidated results for the six months ended September 30, 2005 (April 1, 2005 - September 30, 2005)(1) Consolidated results

Six months ended
Sep. 30, 2005
Six months ended
Sep. 30, 2004
Year ended Mar. 31,
2005

Net Sales
Millions of yen
103,333%
3.4

Operating Income
Millions of yen
2,670

%
29.8

99,927

6.2

2,057

△69.0

2,165

△67.9

201,590

―

5,284

―

5,472

―

Net Income Per Share after
Adjusting for Latent Shares
Yen―

Net Income

Net Income Per Share

Millions of yen

%

1,458

320.0

Yen
41.37

347

△90.5

9.71

2,029

―

Six months ended
Sep. 30, 2005
Six months ended
Sep. 30, 2004
Year ended Mar. 31,
2005

Notes:1. Equity-method investment profit (loss)

2. Average number of shares during the term (consolidated)

Ordinary Income
Millions of yen
2,791

―
―

56.12
Six months ended 30th September, 2005:
Six months ended 30th September, 2004:
Year ended 31st March, 2005:
Six months ended 30th September, 2005:
Six months ended 30th September, 2004:
Year ended 31st March, 2005:%
28.9- million yen- million yen- million yen
35,243,877 shares
35,741,299 shares
35,514,999 shares

3. Changes in the method of accounting: Included
4. Percentages indicated for sales, operating income, and net income are increases (decreases) compared to the same period of the preceding fiscal year.

(2) Consolidated financial position
Millions of yen
90,37380,965

Millions of yen
51,85650,292

%
57.4
62.1

Shareholders' Equity
Per ShareYen
1,472.06
1,414.19

85,24051,24160.1

1,451.60

Total Assets
Six months ended
Sep. 30, 2005
Six months ended
Sep. 30, 2004
Year ended Mar. 31,
2005
Note:

Shareholders' Equity

Equity Ratio

Number of outstanding shares at the end of the term (consolidated) Six months ended 30th September, 2005: 35,227,367 shares
Six months ended 30th September, 2004: 35,562,597 sharesYear ended 31st March, 2005:
35,275,043 shares(3) Consolidated cash flows
Net cash provided by(used in) operating
activities
Six months ended
Millions of yen
Sep. 30, 2005
2,587
Six months ended△1,543
Sep. 30, 2004
Year ended Mar. 31,
471
2005

Cash and cash
Net cash provided by
Net cash provided by(used in) investment(used in) finance activities equivalents at end ofterm
activities
Millions of yen
Millions of yen
Millions of yen△3,981
2,311
4,789
△574
△1,4502,849△4,502

1,486

3,871

(4) Scope of consolidation and application of equity method
Number of consolidated subsidiaries: 7
Number of unconsolidated subsidiaries subject to the equity method: None
Number of affiliates subject to the equity method: None
(5) Changes in companies subject to consolidation and equity method
Newly consolidated: None
Newly unconsolidated: 1 company
Newly excluded from the equity method: None

Newly subjected to the equity method: None

2. Projected consolidated results for the Year ending 31st March, 2006 (April 1, 2005 - March 31, 2006)
Year ending Mar. 31,
2006

Net Sales
Millions of yen
208,700

Supplementary information

Ordinary Income
Millions of yen
6,410

Net Income
Millions of yen
3,390

Projected net income per share for the fiscal year: ¥95.21

Note: Fractions of one million yen are rounded off. The above projections are based on information available as of time of this announcement.
Actual results may differ due to various factors. Refer to page 12 of the Attachment for details on the projections.

1. Status of the Corporate Group
This consolidated corporate group consists of Nichii Gakkan Company, its 15 subsidiaries, and its 1 affiliate. The Group is
engaged in four businesses (Medical Support Business, Health Care Business, Education Business, and Other Businesses).
In Medical Support Business, the Group primarily provides medical practice services to medical institutions and pharmacies;
sales, disinfection, and sterilization services for medical equipment; and medical affairs consulting. In Health Care Business,
the Group provides home care services mainly under long-term care insurance (home-visit long-term care, home-visit bathing,
day care), sale and rental of welfare equipment, catering, and other services. In Education Business, the Group provides
educational programs primarily for medical office workers and home helpers. In Other Businesses, Nichii Gakkan
Company's subsidiaries take the lead in providing data processing, storage and delivery service, book publication and sale,production and sale of flowers, ornamental plants, seeds and saplings, leasing, and manpower services.
The Group's businesses and positioning of each business are as shown below. The business categories correspond to
those in the segment information by business category.
Business Category

Principal Businesses/Products

Principal Companies

Medical Support Business

Medical practice services such as reception, medical fee
claims, accounting, computer operations, and medical
Nichii Gakkan Company
record management, sell/disinfection/sterilization services Nihon Support Service Co., Ltd.
for medical equipment, medical affairs consulting

Health Care Business

Home-visit long-term care, home-visit bathing, day care,rental/sale of welfare equipment, catering, etc.

Education Business

Courses for medical office work, home helper training,babysitter training, and sign language

Other Businesses

Nichii Gakkan Company
Keihin Life Service Co., Ltd.
reha team japan Co., Ltd.
Nichii Gakkan Company

Nihon Support Service Co., Ltd.
Information processing, storage and delivery service,
Tokyo Marunouchi Publishing Co., Ltd.
publication and sale of books, production and sale of flowers, Roris Co., Ltd.
ornamental plants, seeds and saplings, leasing, manpower NIHON CREDIT LEASE Co., Ltd.
service, etc.
Power Bank Co., Ltd.

<Note>(1) Nichii Power Bank Co., Ltd. was renamed to Power Bank Co., Ltd. as of July 20, 2005.
(2) Nichii Gakkan Company transferred to Pharmaholdings Co., Ltd. all the shares of Sun Medic Co., Ltd. (which used to be its consolidated subsidiary engaged inmanagement ofdrug stores and pharmacies categorized in "other businesses") in its possessions as of September 30, 2005.

2

Nichii Gakkan Company

The functions of the corporate group described above can be illustrated as shown below.
Health Care Business- Home-visit long-term care
- Home-visit bathing- Day care
- Sale and rental of welfare equipment- Catering- Consultation and information- Welfare equipment / ASPSales ofmerchandise

Consolidated subsidiaries
Keihin Life Service Co., Ltd.
reha team japan Co., Ltd.
Unconsolidated subsidiaries
Hospica Co., Ltd. / 2 other companies
Affiliates not subject to the equity method
Life Care Partners Co., Ltd.
Other Businesses- Data processing, and storage anddelivery service- Publishing and sale of publications- Production and sale of flowers,
ornamental plants, seeds and saplings- Leasing- Manpower service

Customers
Local governments, etc.

Health Care Business
Nichii Gakkan Company

Sales of merchandise
Provision of services

Sales of merchandise
Provision of services

Local governments, etc.
Medical institutions
Customers
Member stores

Health Care Business
Nichii Gakkan Company
Nihon Support Service Co., Ltd.

Medical institutions,etc.
Provision of services

Storage and delivery service of teaching materials
and products, and computer operations service
Leasing,Manpower- service

Education Business
Consolidated subsidiaries
Nihon Support Service Co., Ltd.
Tokyo Marunouchi Publishing Co., Ltd.
Roris Co., Ltd.
NIHON CREDIT LEASE Co, Ltd.
POWER BANK Co., Ltd.
Unconsolidated subsidiaries
Yao Iryo PFI / 4 other companies

Nichii Gakkan Company
Courses and sale and lease of
educational books
Leasing
Manpower
service

Health Care Business
Nichii Gakkan Company
Keihin Life Service Co., Ltd.
reha team japan Co., Ltd.

Students

Customers
Local governments, etc.
Provision of services
Sales of merchandise

Customers
Merchandise sales and childcare
Provision of services
Leasing Manpower service

3

Nichii Gakkan Company

2. Management Principles
1. Basic Principles of Management
Ever since the establishment of the company, we have conducted business activities to improve the living standards of ourcustomers in such areas as medical service, long-term care, and education, based on our "user oriented" business concept,
and with the goal of being a “company which contributes to the public's health and welfare.”Our basic principle is to continue to develop and improve services that flexibly and properly respond to consumers' needs,
and to contribute to the advancement and development of society.
We also recognize that we must fulfill our social responsibilities as a company, comply with corporate ethics, and elevate thecorporate brand value in our activities while maintaining a trusting relationship with our shareholders and other stakeholders,in order to maximize our corporate value. To this end, we are actively working to improve the autonomy of each organizationand employee, and carrying out business activities with the Nichii brand in mind.

2.

Basic Principles of Profit Distribution
We make it a basic policy to provide our stockholders with stable and continuous profit distributions, and will continue ourefforts to be able to return profits, with due consideration for business performance trends, investment plans and payout
dividends from a mid- to long-term standpoint.
Retained earnings will be invested strategically to expand mid- and long-term businesses in anticipation of the scheduledrevision of the long-term care insurance system in April 2006. The investments include reinforcement of preventive careservices and opening of multi-functional care centers that will provide myriad long-term care services.

3.

Management goals
The medical and welfare markets in which we operate are likely to continue to grow rapidly with the quickly graying Japanese
population. Therefore, as our mid-term management goal, we aim to achieve at least double-digit sales growth andappropriate income. We also see ROE (return on equity) as an important indicator for business judgment in terms of efficientuse of stockholder equity and emphasis on stockholder value.
1) Sales growth → double-digit growth2) Operating income to sales → 8%3) ROE (return on equity) → 15%

4. Mid- to long-term strategies and issues to be handled
In the medical and welfare field, social security system benefits are expected to rise with the declining birthrate and aging
population, and the Japanese government is contemplating a fundamental review of the medical and long-term care systems,
as well as revisions and enforcement of public regulations. With the introduction of the designated manager system and PFI
schemes (to build, operate and manage public facilities, taking advantage of private sector money), private companies are
increasingly involved in public projects (such as welfare institutions operated by local governments), which indicates thebusiness field of private-sector corporations is expanding.
Having recognized the necessity to transform our organization into a company with more flexible response capabilities andstronger organizational power in order to cope with the drastically changing business environment, Nichii Gakkan group has
promoted fundamental structural reforms since 2003. In June 2005, we invited a new president from outside the company tobegin a new management setup, shifting to a new phase in our structural reforms. To maximize the corporate value of theentire group, we are also working on restructuring of subsidiaries for improved efficiency of management resources.
Along with all these fundamental structural reforms, we intend to implement business expansion strategies aggressively ineach business category, increasing the amount of services provided and developing new services with high added value.

4

Nichii Gakkan Company

【Medical Support Business】
With the long-term care insurance system to be revised in April 2006, discussions are now taking place over establishment of a
new medical care system for the elderly and overhaul of the medical service payment system. This indicates the businessenvironment of medical institutions is entering a phase of major change.
Against such a backdrop, medical institutions are facing various business challenges including operational efficiency
improvement, pursuit of medical services from the viewpoint of patients, and strengthening of regional partnerships. The Nichii
Gakkan group is making daily efforts to develop and provide outsourcing services and consulting services that offer totalsolutions for these issues.
We will designate the activities below as our mid-term strategy, promote our solution business to medical institutions
aggressively, and employ extensive cost control for reasonable profits.
① Expand and improve medical institution operation support services using hospital PFI② Expand and improve medical management analysis support services and consulting services③ Expand contractual coverage of services provided to existing users and increase market the share by promoting sales to
new users.
④ Review and improve work systems to enable the placement of proper personnel at medical institutions【Health Care Business】
The long-term care insurance system is subject to review every five years. The first revision since the enforcement of thesystem is scheduled for April 2006.
We are currently striving to shift ourselves to a “Preventive-care-focused system” (which will be the core of the revision of thelong-term care insurance system), and building up important service infrastructure, on both the hardware and software sides, toprovide preventive care services. On the “hardware” front, we are actively expanding our day-care facilities and introducing
equipment and merchandise for strength training. On the “software” side, we are advancing the development ofstrength-improvement programs in partnership with specialized institutions, while pouring efforts into providing staff capable of
instructing users.
As Japan sees the baby-boom generation of 7 million people reaching the elderly state in 2007, the service domain in thelong-term care market is expected to scale up beyond the long-term care insurance policy limits. As a leader in the long-termcare industry, the Nichii Gakkan group will spare no effort to develop the industry, taking a proactive stance in provision ofservices in collaboration with local communities, and creation of value-added services in cross-industrial partnerships, in orderto adequately respond to diversifying customer needs.
In addition, to ensure complete compliance in preparation for the full enforcement of standardization of information disclosure(third party evaluation) and the Personal Information Protection Law, we formed a “Long-term Care Standardization Committee”
composed of our field staff in April 2005, establishing a framework for appropriate service provisions.
We will promote our mid-term business strategies while focusing on the following activities:① Create "multi-functional care centers" that can offer integrated services for "visit care," "day care," "preventive care," and"overnight care."② Address comprehensive preventive care services including “body function improvement,” “nutrition improvement,” and “oralfunction improvement.”③ Address community support activities in collaboration with medical institutions and local governments.
④ Create and provide value added services not bound by the coverage of long-term care insurance.
⑤ Ensure compliance and intensify risk management through the “Long-term Care Standardization Committee.”5

Nichii Gakkan Company

【Education Business】
The social environment characterized by the declining birthrate and a graying population has created a greater demand forworkers in the medical and welfare industries and an increasing need for qualifications in these industries while diversifying theskills required on site.
In response, we offer home helper training courses and medical office work courses as our main educational programs. In
addition, we started a “preventive-care exercise instructor course” in May as a new program to train specialists to undertakepreventive care services.
We will continue to increase and improve educational programs that answer the needs of the social environment, promote ourunique “Train and Employ” business model linked with our main businesses (medical support business and health carebusiness), and contribute to employment in the medical and welfare industries.

【Other Businesses】
Other businesses focus on support operations related to medical and social welfare services, such as welfare equipment
leasing, publication of books on medicine and welfare, and manpower services.
The welfare equipment leasing business is responsible for rejuvenating product distribution in the welfare equipment market andimproving the medical and long-term care environment. The publication business is making a contribution through improving thequality of personnel by providing the latest specialized information through publication of magazines specializing in medicine
and welfare, and textbooks for the education business. The manpower service business places highly specialized personnel inthe medical and welfare industries.
We will continue to aggressively develop our businesses with the help of our group companies by taking advantage of ourmanagement resources in the medical and welfare services.

6

Nichii Gakkan Company

5.

Basic view of corporate governance and implementation status of related measures(1) Basic view
We regard enhancement of corporate governance as a high priority business challenge, and are working to establish corporate
governance that pursues transparent and efficient corporate management, expedient managerial decision-making, andcompliance and risk management.

(2) Implementation status of corporate governance measures
1) Organizational arrangement of the company
We employ an auditor system. The current management setup consists of 13 directors, 4 auditors (3 of which
are outside auditors), and 4 executive officers. As for engagement of third parties such as lawyers, we have anadvisory contract with a law firm, which allows us to seek advice on important matters in the management of
the company and daily operations, as needed.
2) Development status of internal control system
Board of Directors and Executive Officers
The Board of Directors promptly and appropriately makes decisions on important management goals,
management strategies, and other matters as required by law, and supervises the execution of duties. The
Board of Directors is composed of thirteen directors, holds a periodic meeting, once a month in principle,
and is chaired by the President and Representative Director. We have appointed and placed four executive
officers primarily among managers of business areas and competencies. Executive officers expedite theexecution of duties based on the responsibility and authority delegated by the Board of Directors.
Audit by auditors, internal audits, and accounting audit system
The Board of Auditors is composed of four auditors (3 of which are outside auditors), and monitors theperformance of duties and management by the Board of Directors. For internal audits, we have set up an“audit office” as an internal audit system under the direct control of the President and Representative
Director. The audit office checks whether management activities are performed properly and effectively,
and renders concrete advice for business improvement. Accounting audits are carried out by ChuoAoyama
PricewaterhouseCoopers under audit contract with our group, which allows us to quickly respond to any
changes in the accounting system. We will reinforce the auditing system by strengthening collaboration
between the internal audits and legal audits by the Board of Auditors and the accounting auditor, intending toenhance the internal check system, streamline management, and improve operational efficiency. The
outside auditors do not have an interest, such as capital ties and business transactions, in our Group.
Risk management system
Having positioned compliance, which is the core of the internal control system, as a top managerial priority,
we are working on developing a risk management system, installing a Compliance Committee as well as a“Compliance Hotline" to provide consultations on issues concerning corporate ethics. The Compliance
Committee is chaired by the President and Representative Director, and is composed of relevant directors,
standing auditors, the chief auditor, and an in-house counselor. The committee collaborates with relevant
departments and committees to perform its tasks. Also, to gain the trust of stakeholders in our protection of
personal information, we have followed a compliance program that sets forth the policies, planning, andimplementation system for compliance, and formed the Personal Information Protection Committee toestablish a system for properly handling personal information within the company.
IR System
For timely and fair information disclosure, we have improved the IR system for the related duties, provided
thorough instructions with operational manuals and in-house training, and built a regular inspection systemof disclosure duties for the audit office. Our IR activities include financial settlement briefings for the press
and analysts, open house at our day service centers, disclosure of financial settlement information on our
Web site, issuance of solid news releases, provision of extensive English-language tools (e.g., Investors'
Guide), and welcoming visits by overseas investors. We will continue to engage in aggressive IR activities
such as revamping IR catering to individual investors.

7

Nichii Gakkan Company

Organization structure and internal control system (as of September 2005)

General meeting of shareholders
Appointment/dismiss

Appointment/dismiss

Accounting
auditorAccounting audit

Appointment/dismiss

Board of Directors
13 directors

Board of Auditors
4 auditors(3 of which areoutside auditors)

Chairman and representative director

Audit

President and representative director

Audit office(internal audits)

Management
committee

Compliance
Committee

Executive officers
4 executive officers

Individual department

8

Nichii Gakkan Company

3. Business Results and Financial Condition
1.

Business Results1) Overview of the current interim accounting period
Japan's economy showed a gradual upturn in the current interim accounting period; corporate business
investment and consumer spending increased moderately, and the employment market was still severe, but
saw improvements beginning to widen.
As for the medical and long-term care market environment that surrounds our Group, grounds-up reforms are
moving ahead to rebuild social security into a sustainable system.
In the medical support business, various discussions are being held toward enactment of a medical insurance
system reform bill to stem the rise in medical costs, such as a revision of medical service payments and apartial increase in the self-pay burden of the elderly. Under such circumstances, the business environment
surrounding medical institutions requires further promotion of efficiency.
The health care business is accelerating the advance approach to the newly established “new preventive
benefits” and “community support activities” centered on local governments, ahead of enforcement of therevised long-term care insurance law in April 2006. Not only long-term service providers but also companies
from other industries are coming into this market, seeing the situation as a new business opportunity. The
long-term care market is now shifting to a phase of further major change,
In the education business, medical office work courses and home helper training courses are enjoying highpopularity as they lead directly to jobs. Various other certification courses are being developed to back up
resources to undertake the medical and long-term care market with potential for further growth.
Against such a backdrop, we are striving to build a flexible and solid company capable of responses to drasticchanges in the business environment. We have also made efforts to enhance our sales force and develop andprovide new services, and have extended aggressive sales activities to existing and new users.
As a result of these activities, net sales during the current interim accounting period were ¥103,333 million (up3.4% year on year), ordinary income was ¥2,791 million (up 28.9% year on year), and net interim income was¥1,458 million (up 320.0% year on year).
2) Business results by segment【Medical Support Business】
In the Medical Support Business, we have worked to tailor solutions to the various managerial issues faced byeach medical institution, providing total support for a broad range of health service management, from receipt
creation, outsourcing of medical practice services to health service management consulting, and developmentof original analysis system for management assistance. Having made attempts to intensify the sales structure
and increase sales since the beginning of the period, we still see only small effects so far, with the sales
increase in this interim accounting period at 2.9% over the same period last year.
In terms of operating expenses, operating income to sales improved as a result of our continuous efforts forhigher efficiency of field operations, such as staff shift-work management and reduction of overtime.
As a result of these activities, net sales in the Medical Support Business during the current interim accounting
period was ¥53,560 million (up 2.9% year on year) and operating income was ¥5,206 million (up 59.9% year
on year).
【Health Care Business】
In the Health Care Business, since September 2005 we have driven forward with our multi-functional carecenter plan to establish new facilities and renovate exiting facilities for day care services with preventive-carefunctions, in anticipation of the shift to a “Preventive-care-focused system” which will be the focal point of therevision of the long-term care insurance system. As of the end of the current interim accounting period, we
have 52 facilities capable of providing preventive care services and 217 day care facilities in total (year on year
increase of 32.) As for home-visit long-term care, and home care support and rental of welfare equipment, ourexpansion and increase in facilities and professional staff last year lead to a gradual increase in new users, but
the effects are still limited in some areas. The sales in this category rose by 7.6% over the same period for theprevious year.
In terms of operating expenses, we incurred prior investment costs for the multi-functional care center plan, but
the increase in users has directed the operating income to sales upward.
As a result of these activities, net sales for this segment were ¥39,159 million (up 7.6% year on year) andoperating income was ¥1,236 million (up 0.3% year on year).

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Nichii Gakkan Company

【Education Business】
In the Education Business, we started the “preventive-care exercise instructor course” in late May 2005 as a
new program to train specialists in preventive care, which is building on solid growth as a skill-enhancement
program for field staff. However, the home helper training course, as our flagship program, is still suffering froma severe market situation both in sales and number of students, and the details of changes in the qualifications
for long-term care workers have not yet been made clear by the government. In response, we are currently
working on higher efficiency of class management and reviewing the advertising strategy.
As a result, net sales for this segment amounted to ¥6,902 million (down 18.0% year on year) and ouroperating loss was ¥820 million (compared to an operating income of 493 million yen in the same period forthe previous year.)【Other Businesses】
In Other Businesses, we dedicated our efforts to improve operational efficiency by aggressively engaging insuch businesses as welfare equipment leasing, pharmacy management, storage and delivery service, andproduction and sale of flowers, ornamental plants, seeds, and saplings.
Sun Medic Co., Ltd., engaged in pharmacy management, was restored to profitability in 2003, and continued tocontribute to the balance in the current interim accounting period. Also, POWER BANK Co., Ltd., a manpower
service company, reinforced cost management and strived for early improvement of business operations.
As a result, net sales for this segment were ¥3,710 million (up 21.3% year on year) and operating income was¥57 million (compared to an operating loss of 110 million yen for the same period in the previous year.)

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Nichii Gakkan Company

2. Financial Status
Cash flow in the current interim accounting period
During the current interim accounting period, cash and cash equivalents ("funds") amounted to ¥4,789 million, up¥1,939 million from the same period the previous fiscal year. Cash flow from each activity and their factors areshown below.
【Cash flow from operating activities】
As a result of operating activities during the current interim accounting period, funds increased by ¥2,587
million (funds decreased by ¥1,543 million in the same period the previous fiscal year).
This mainly attributes to an increase in income before taxes and a decrease in the payment of income andother taxes.
【Cash flow from investing activities】
As a result of investing activities during the current interim accounting period, funds decreased by ¥3,981
million (in the same period the previous fiscal year, funds decreased by ¥574 million).
Principal investments include establishment of new facilities and expansion of existing facilities for day careservice.
【Cash flow from financial activities】
As a result of financial activities during the current interim accounting period, funds increased by ¥2,311 million(funds decreased by ¥1,450 million in the same period the previous fiscal year).
This is primarily due to short-term loans payable to the parent company.
Trends in cash flow indicators for the Group can be seen below.
Year ended March 31, 2004

Year ended March 31, 2005

First-half

Full year

First-half

Full year

Year ending March 31, 2006

First-half

Shareholders’ equity ratio (%)

60.4

62.2

62.1

60.1

57.4

Equity ratio based on present
value (%)

239.2

237.5

126.3

133.7

108.0

Debt redemption (years)

-

0.3

-

10.3

1.6

Interest coverage ratio

-

77.2

-

11.1

103.1

Notes:
Shareholders’ equity ratio: Shareholders' equity/total assets
Equity ratio based on present value: Total present value of stock/total assets
Debt redemption: Interest-bearing liabilities/operating cash flow
Interest coverage ratio: Operating cash flow/interest payments
1.
2.
3.

4.
5.

Each indicator was calculated from consolidated financial results.
Total present value of stock is the product of closing stock price at end of term and total number of outstanding
shares at the end of term (after deducting treasury stock).
Operating cash flow is equal to the cash flows from operating activities in the consolidated cash flow statement.
Interest-bearing liabilities are all the liabilities on which interest is paid, out of the liabilities in the consolidatedbalance sheet. Interest payments are the interest payments as shown in the consolidated cash flow
statement. Total present value of stock is the product of closing stock price at end of term and total numberof outstanding shares at the end of term (after deducting treasury stock).
In calculating the debt redemption for the first-half result, the operating cash flow is doubled to annualize thefigure.
The debt redemption and interest coverage ratio for the first-half of the years ended March 31, 2004 and 2005
are not shown because the cash flow from operating activities was negative.

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Nichii Gakkan Company

3. Outlook for the full year performance
In the Medical Support Business, we will aggressively provide medical institutions with seminars and study
sessions for DPC (Diagnosis Procedure Combination) and revision of medical service fees, in preparation for the
medical insurance system reform and revision of medical service fees in April 2006, intending to win short-term
undertakings and to gain recognition of our business activities. As we have begun full-scale sales activities in orderto acquire new clients and expand contracted operations with existing clients, we will make human resources
available for such demands to achieve the sales target. As for profitability, we will continue our efforts to improve
operational efficiency in the medical support business, establish a self-directed field framework, and negotiate withmedical institutions for improvement of contracts.
In the Health Care Business, we plan to develop stronger relationships based on mutual trust with users in each
community, which will lead to expansion of services. Furthermore, in order to build a system that can promptly
respond to the needs of individual local communities, we will follow through on our attempts to improve
infrastructure through the “multi-functional care center plan” (which is scheduled to establish 161 day care facilities
with preventive-care functions and 244 day care facilities in total by March 2006), accumulate know-how on
preventive care, and provide relevant services. We will also develop aggressive sales activities for long-term care
worker dispatching services and contribute to the operational efficiency at medical and welfare institutions. To
ensure higher profits, we will strive to increase the sales of each service and reinforce the high-margin sales ofstrength training equipment.
In the Education Business, the severe environment of the home helper training courses is anticipated to continue.
However, we will make attempts to achieve our sales target using various methods, such as changing the appeal
point of the programs, developing advertising activities using our brand power, diversifying the sales channels totake advantage of the web and e-mail, and promoting the programs aggressively in course-specific campaigns. For
better profitability, we will try to improve the operating rate of classrooms and arrange proper personnel for
instructors and staff.
In Other Businesses, we are centralizing our management resources by restructuring the subsidiaries. This
category will contribute to our group management by establishing a group network that can provide better
coordination and synergy effects with our core competence businesses (Medical Support, Health Care, and
Education).
In consideration of these situations and prospects, our outlook for performance in the year ending 31st March, 2006
is ¥208,700 million in net sales (up 3.5% year on year), ¥6,410 in ordinary income (up 17.1% year on year), andnet income of ¥3,390 million (up 67.1% year on year).
4. Business Risks
Presented below are matters that may be of risk to the operations of each business of the Group. Although wemitigate such risks by dispersing and acknowledging them, in the event of an unforeseeable incident, such risks
may cause serious effect on the business performance or financial conditions of the Group. The matters below
were determined to be potential risks by the Group upon preparing this data as of the end of the current interim
accounting period.
<Medical Support Business>
The Group's Medical Support Business provides, among other services, medical practice services other than
medical practice itself, medical-related duties, and health service management consultation services. Medical
institutions will see major fluctuations in their medical revenues due to the revision of the medical service fee
system approximately every two years and the medical insurance system reform (Article 2, Paragraph 2 of the
Health Insurance Law Revision Law). As we provide services to medical institutions, such fluctuations can affectour contract amounts and contract provisions.
<Health Care Business>
Approximately 90% of our Group's Health Care Business can be attributed to services that are covered by public
long-term care insurance. Therefore, a review of the long-term care insurance system or compensation can have amajor effect on net sales and profits. These services are regulated by the Long-term Care Insurance Law (Law No.
123, December 7, 1997) and various other laws and ordinances.
The entire system is subject to review every five years (Article 2 of Supplementary Provisions of the Long-term
Care Insurance Law) and long-term care compensation is subject to review every three years. The service
provision and care management is to undergo a great transformation with the revision of the Long-term Care
Insurance Law to be implemented in April 2006, which will shift the current system to a “Preventive-care-focusedsystem” with “new preventive benefits” and “community support activities,” and establish “community-based
services” to enable those who require long-term care to keep living in their home community. Detailed service
system and compensations to be determined hereafter may have an impact on the profitability of our health carebusiness.
<Education Business>
Our major educational program, the home helper training courses, is subject to the “ordinance concerninghome-visit care providers” (Health, Labor and Welfare Ministry Ordinance No. 23), and is required to obtaincertification from the prefectural government. The Japanese government plans to change the qualifications forlong-term care workers (e.g. longer training and more difficult curriculums), but have not yet disclosed detailed
information. Depending on the outcome of the revision of the qualification system and related trends, it may
significantly affect the sales and profitability of the courses.
<Other Businesses>
The welfare equipment leasing business may come under the influence of interest-rate drift, changes in theaccounting standards on leasing transactions, and tax reforms.

12

Nichii Gakkan Company

4.

Consolidated Financial Statements（1）Consolidated Balance Sheets
First half of FY 2005
(As of September 30, 2004)

Category

First half of FY 2006
(As of September 30, 2005)

Summary of consolidated
Balance Sheets for FY 2005
(As of March 31, 2005)

Note

AmountShareAmountShareAmountShare

No.

(thousands of yen)(%)(thousands of yen)(%)(thousands of yen)(%)

ASSETS
I. Current assets
1. Cash and deposits
2. Notes and accounts receivable

3,042,292
24,792,808

4,971,127
25,419,684

4,058,021
24,801,790

3. Inventories

4,561,204

3,877,947

4,698,454

561,585

1,607,030

38,066

5. Deferred tax assets

2,400,127

2,432,112

1,847,149

6. Other current assets

2,536,486

3,606,706

3,133,566

7. Allowance for doubtful accounts△21,996△121,848

4.Short-term loans receivable

Total current assets

37,872,508

46.8

41,792,760△74,974
46.2

38,502,074

45.2

28,614,744

33.5

3,910,917

4.6

14,212,400

16.7

II. Fixed assets(1) Tangible fixed assets
1. Buildings and structures

15,346,089

21,006,743

2. Land

8,002,867

7,958,054

3. Other tangible fixed assets

2,981,242

26,330,199

32.5

3,980,005

4.9

2,293,588

18,853,855
8,002,867
31,258,385

34.6

3,902,731

4.3

1,758,022(2) Intangible fixed assets
1. Consolidated adjustment account
2. Other current liabilities

3,225,086
754,918

3,005,063
897,667

3,112,075
798,842(3) Investments and other assets
1. Investment securities

1,555,066

1,783,054

2. Long-term loans receivable

4,288,015

4,959,347

1,831,087
5,089,519

3. Guarantee money deposited

4,983,087

5,022,467

4. Deferred tax assets

4,931,293
1,017,140

5. Other investments

1,107,155

6. Allowance for doubtful accounts△116,136

12,782,535

15.8

Total fixed assets

43,092,740

Total Assets

80,965,248

1,661,649

976,169

1,399,845

1,361,414△1,367,478△68,257

13,419,506

14.9

53.2

48,580,623

53.8

46,738,062

54.8

100.0

90,373,384

100.0

85,240,136

100.0

13

Nichii Gakkan Company

First half of FY 2005
(As of September 30, 2004)
Category

First half of FY 2006
(As of September 30, 2005)

Summary of consolidated
Balance Sheets for FY 2005
(As of March 31, 2005)

Note

AmountShareAmountShareAmountShare

No.

(thousands of yen)(%)(thousands of yen)(%)(thousands of yen)(%)

LIABILITIESI.

Current liabilities
1. Notes and accounts payable

2,047,441

1,640,093

2,391,017

2. Short-term loans payable

921,839

7,959,000

4,717,000

3.

72,23470,71678,734

13,398,232

14,827,968

13,866,697

830,016

1,155,931

1,205,357

6. Income taxes payable

2,735,097

2,376,850

978,1197.

4,410,686

4,010,601

3,681,227

Current installments oflong-term debt

4. Accrued expenses
5. Consumption taxes payable

Allowance for employee
bonuses

8. Other current liabilities
Total current liabilities

3,634,700
28,050,248

3,459,344
34.6

35,500,506

4,254,868
39.3

31,173,021

36.6

II. Long-term liabilities
1. Long-term loans payable2.

Allowance for employee

3.

Allowance for directors' and67,50045,677

57,8222,226,032

2,599,771

2,414,372

130,093

125,407

128,281

76,99094,133

retirement benefits

auditors' retirement benefits
4. Other long-term liabilities

87,950Total long-term liabilities

2,500,616

3.1

2,864,990

3.1

2,688,427

3.1

Total Liabilities

30,550,864

37.7

38,365,496

42.4

33,861,449

39.7

122,2630.2

151,055

0.2

137,380

0.2

I. Common stock

11,933,790

14.7

11,933,790

13.2

11,933,790

14.0

II. Capital surplus

17,354,214

21.4

19.2

17,354,214

20.4

III. Retained earnings

25,880,654

32.0

17,354,214
28,207,232

31.2

27,562,047

32.3

29,436

0.0

283,867

0.4

182,888

0.2

V. Treasury stock△4,905,975△6.0△5,922,273△6.6△5,791,633△6.8

Total shareholders' equity

50,292,120

62.1

51,856,832

57.4

51,241,307

60.1

Total liabilities, minority interests,

80,965,248

100.0

90,373,384

100.0

85,240,136

100.0

MINORITY INTERESTS
Minority interests
SHAREHOLDERS’ EQUITY

IV. Gain or loss from revaluation of marketablesecurities△and shareholders' equity

14

Nichii Gakkan Company

(2) Consolidated Statements of Income
First half of FY 2005
(April 1, 2004 throughSeptember 30, 2004)

Category

Note
No.

Amount(thousands of yen)First half of FY 2006
(April 1, 2005 throughSeptember 30, 2005)(%)

Amount(thousands of yen)

Summary of consolidated
Statements of Income for FY
2005(April 1, 2004 throughMarch 31, 2005)(%)

Amount(thousands of yen)(%)

I. Net sales

99,927,900

100.0

103,333,872

100.0

201,590,179

100.0

II. Cost of sales

79,784,320

79.8

82,662,867

80.0

160,854,542

79.8

20,143,580

20.2

20,671,005

20.0

40,735,636

20.2

35,450,954

17.6

5,284,682

2.6

303,835

0.2

115,8380.1

5,472,679

2.7

Gross profit
III. Selling, general andadministrative expenses
1. Advertising and promotion

2,320,629

2,197,949

4,475,914

expenses
2. Directors' compensation

60,024

71,245

122,785

3. Salaries and benefits

6,450,024

6,507,085

13,788,154

4. Transfer to allowance for bonuses

1,070,643

887,416

962,172

5.

Employee retirement benefits

186,963

211,720

414,845

6.

Allowance for directors' and

4,056

3,802

8,113

7. Legal welfare expenses

976,688992,101

1,970,513

8. Travel and transportation expenses

730,412734,185

1,441,280

1,668,239

1,881,477

3,427,421

68,05944,717

104,839

11. Depreciation expenses

154,213319,877

392,292

12. Amortization of consolidated

107,011

107,011220,022

auditors' retirement benefits

9. Rent
10. Transfer to allowance for doubtful
accounts

adjustment account
13. Other selling, general and

4,289,600

18,086,567

18.1

2,057,012

2.1

4,042,353

18,000,944

17.4

2,670,060

2.6

8,122,597

administrative expenses
Operating income
IV. Non-operating income
1. Interest income

48,66941,11690,4242.

17,065

19,79027,391

41,761

43,57177,809Dividend income

3. Commission on consignment for
office work
4. Income from lease of fixed assets

17,6095. Others

50,726

13,008
175,8310.2

43,032

25,215160,5180.1

82,995

V. Non-operating expenses
1. Interest expenses

18,212

24,50644,036

2. Compensation for damages

28,9693,734

42,9603. Loss on disengagement of

18,574-

21,473

guarantee money deposited
4. Others
Ordinary income

1,671

67,4270.1

2,165,416

2.2

15

11,32839,5690.0

2,791,009

2.7

7,367

Nichii Gakkan Company

First half of FY 2005
(April 1, 2004 throughSeptember 30, 2004)

Category

Note
No.

Amount(thousands of yen)First half of FY 2006
(April 1, 2005 throughSeptember 30, 2005)(%)

Amount(thousands of yen)

Summary of consolidated
Statements of Income for FY
2005(April 1, 2004 throughMarch 31, 2005)(%)

Amount(thousands of yen)(%)

VI. Extraordinary income
1. Gain on sale of fixed assets
2. Gain on sale of investment in securities

1,596

-

1,596

-

-

3,981

3. Gain on sale of shares of relatedcompany

-

1,596

0.0

1,489,112

1,489,112

1.5

-

5,577

0.0

VII. Extraordinary losses
1. Loss on retirement of fixed assets

35,28832,14371,812

2. Loss on sale of fixed assets

244,706-

244,706

2,400

-

4,849

3. Loss on revaluation of golf clubmembership
4. Loss on revaluation of shares of related--

27,494company
5. Transfer to allowance for doubtful--

1,308,488

accounts
6. Loss on closedown of offices

112,048

7. Loss on impairment-

8. Loss on revaluation of inventories-

9. Others-

Income before income taxes
Income, inhabitants and business taxes

2,355,874

Adjustments for income and other taxes△943,021

112,048--

131,098-

657,000
394,4430.4

2,156,224

2.1

1,772,570

1.8

2,123,897

2.1

1,990,087
1,412,852

1.5△1,340,306

435,167

0.2

5,043,089

2.5

3,440,687△454,261

649,7800.7

2,986,425

1.5

27,6440.0

2,029,019

1.0

Minority interest

12,5270.0

16,0750.0

Net income

347,189

0.3

1,458,041

1.4

16

1,750

Nichii Gakkan Company

(3) Consolidated Statements of Retained Earnings
First half of FY 2005
(April 1, 2004 throughSeptember 30, 2004)

Category

Note
No.

First half of FY 2006
(April 1, 2005 throughSeptember 30, 2005)

Amount(thousands of yen)

Summary of consolidated
Statements of Retained Earnings
for FY 2005
(April 1, 2004 throughMarch 31, 2005)

Amount(thousands of yen)Amount(thousands of yen)

Capital surplus
I. Capital surplus at beginning of the year

17,354,214

17,354,214

17,354,214

II. Capital surplus at end of the interim term

17,354,214

17,354,214

17,354,214

26,713,350

27,562,047

26,713,350

Retained earnings
I. Retained earnings at beginning of year
II. Increase in retained earnings
1. Net income

347,189

347,189

1,458,041

1,458,041

2,029,019

2,029,019

III. Decrease in retained earnings
1. Dividends

626,218

776,050626,218

2. Bonuses for directors and auditors

36,00036,00036,0003. Loss on liquidation of treasury stock

1,135

806

4. Decrease by consolidating additional

516,531

1,179,885-

1,571
812,857

516,531

1,180,321

subsidiaries
IV. Retained earnings at end of the interim

25,880,654

28,207,232

27,562,047

term

17

Nichii Gakkan Company

(4) Consolidated Statement of Cash FlowFirst half of FY 2005
(April 1, 2004 throughSeptember 30, 2004)

Category

Note
No.

First half of FY 2006
(April 1, 2005 throughSeptember 30, 2005)

Amount(thousands of yen)

Summary of consolidated
Statement of Cash Flow
for FY 2005
(April 1, 2004 throughMarch 31, 2005)

Amount(thousands of yen)Amount(thousands of yen)

I. Cash flow from operating activities
1,772,570

2,123,897

5,043,089

2. Depreciation expenses

607,843

833,407

1,321,095

3. Increase in allowance for doubtful

40,705

1,346,208

45,8041,225,226

367,193495,767

158,412

191,602346,751

1,558△2,847△252△117,815

1. Income before income taxes

accounts
4. Increase in allowance for employee
bonuses
5. Increase in allowance for employee
retirement benefits
6. Change in directors' and auditors'
retirement benefits△65,734△60,906

8. Interest expenses

18,212

24,50644,036

9. Amortization of consolidated adjustment

107,011

107,011220,022

7. Interest income and dividend income

account--△3,981

2,400

-

4,849

12. Loss on retirement of fixed assets

35,28832,14371,812

13. Loss on sale of fixed assets

244,706-

244,706

14. Gain on sale of fixed assets

10. Gain on sale of investment securities
11. Loss on revaluation of golf clubmemberships△1,596-△1,596

15. Loss on impairment-

131,098-

16. Gain on sale of shares of related-△1,489,112--

27,494-companies
17. Loss on revaluation of shares of relatedcompanies
18. Loss on revaluation of inventory
19. Increase in accounts receivable
20. Decrease in inventory
21. Change in other current assets-

657,000-△787,777△1,158,373△733,033

243,858

5,280

106,607△522,844

139,768△765,570

22. Decrease in other fixed assets

9,362

17,621

9,524

23. Change in accounts payable△1,622△83,250

341,953

18

Nichii Gakkan Company

First half of FY 2005
(April 1, 2004 throughSeptember 30, 2004)

Category

Note
No.

First half of FY 2006
(April 1, 2005 throughSeptember 30, 2005)

Amount(thousands of yen)

Summary of consolidated
Statement of Cash Flow
for FY 2005
(April 1, 2004 throughMarch 31, 2005)

Amount(thousands of yen)Amount(thousands of yen)

24. Change in other current liabilities△1,062,061△59,60364,487

25． Decrease in unpaid consumption△636,411△47,898△261,070

taxes, etc.
26. I ncrease in other long-term liabilities
27. Directors' bonuses paid
SubtotalInterests and dividends received
Interests paid
Income and other taxes paid

15,8504,806

26,700△36,000△36,000△36,000

1,368,957

3,071,020

6,467,892

41,57638,04096,347△18,085△25,084△42,626△2,935,524△588,401△6,050,280-

91,492-△1,543,075

2,587,068

471,333

Income and other taxes refunded
Cash flow from operating activities

19

Nichii Gakkan Company

First half of FY 2005
(April 1, 2004 throughSeptember 30, 2004)

Category

Note
No.

First half of FY 2006
(April 1, 2005 throughSeptember 30, 2005)

Amount(thousands of yen)

Summary of consolidated
Statement of Cash Flow
for FY 2005
(April 1, 2004 throughMarch 31, 2005)

Amount(thousands of yen)Amount(thousands of yen)

II. Cash flow from investing activities
1. Net increase in time deposits△192,000△188,500

2. Proceeds from time deposits

206,000

193,000

405,500

Acquisition of tangible fixed assets△470,578△3,494,577△3,561,383

4. Proceeds from sales of tangible fixed

587,626-595,733

Acquisition of intangible fixed assets△139,650△175,811△584,068

6. Purchases of investment in securities-△10,500△27,455

7. Proceeds from sales of investments-

200,000

14,150-△165,159-

3.

△385,000

assets5.

insecurities

8. Expenditure for sale of subsidiary’s
shares with changes in the scope of
consolidation
9.

Long-term prepaid expenses paid

10. Loans extended
11. Proceeds from repayment of loans
12. Deposits paid

△35,205△19,458△70,231△197,090△182,342△694,180

72,71643,351

291,820△569,661△167,936△853,273

13. Proceeds from return of deposits

179,327

80,246

371,765

14. Other investments (net)△15,563△93,712△6,363

Cash flow from investing activities△574,080△3,981,400△4,502,985

20

Nichii Gakkan Company

First half of FY 2005
(April 1, 2004 throughSeptember 30, 2004)

Category

Note
No.

First half of FY 2006
(April 1, 2005 throughSeptember 30, 2005)

Amount(thousands of yen)

Summary of consolidated
Statement of Cash Flow
for FY 2005
(April 1, 2004 throughMarch 31, 2005)

Amount(thousands of yen)Amount(thousands of yen)

III. Cash flow from financing activities
1. Proceeds from short-term loans
2.

Repayment of short-term loans

3. Proceeds from long-term loans
4.

Repayment of long-term loans

5. Proceeds from sales of treasury stock

47,523,000

84,950,000

153,091,000△47,703,000△81,708,000△149,445,000

49,752

26,611

82,316△35,809△46,773△71,550

5,133

1,250

6,052

Acquisition of treasury stock△661,251△132,696△1,548,264

7. Payment of dividends by paren△626,218△776,050△626,218△2,100△2,400△2,100△1,450,494

2,311,940

1,486,234

0

△0

0

△3,567,649

917,608△2,545,418

5,900,180

3,871,610

5,900,180

516,848-

516,848

2,849,379

4,789,218

3,871,610

6.

company
8. Payment of dividends to minority
shareholders
Cash flow from investing activities
IV. Effects of exchange rate changes oncash and cash equivalents
V. Change in cash and cash equivalents
VI. Cash and cash equivalents at
beginning of the year
VII. Cash and cash equivalents due toadditional consolidated subsidiaries
VIII. Cash and cash equivalents at end of
the interim term

21

Nichii Gakkan Company