Financial Results for the Year Ended March 31, 2008

May 22, 2008

Name of listed company: Nichii Gakkan Company
Location of headquarters: Tokyo
Exchange where listed: Tokyo Stock Exchange
Company code number: 9792
(URL: http://www.nichiigakkan.co.jp/)
Representative: President and Representative Director Takashi Mori
Contact: Director, Vice President of Accounting Division and General Manager of Accounting Department Koichi Terada
Telephone: 03-3291-2121
Scheduled date of the ordinary general meeting of shareholders: June 26, 2008 Scheduled date of dividend payments: June 27, 2008
Scheduled date of filing securities report: June 27, 2008
Amounts less than one million yen have been rounded down.

1. Consolidated results for the year ended March 2008 (April 1, 2007-March 31, 2008)(1) Consolidated operating results
Percentage figures represent changes from previous year.
Net Sales

Operating Income

Millions of yen%

Millions of yen

Ordinary Income

Net Income%

Millions of yen%

Millions of yen%

Year ended March 31, 2008

199,797

(1.4)

2,171

(17.6)

2,042(24.6)(834)-

Year ended March 31, 2007

202,549

(1.8)

2,635

(47.2)

2,709(47.7)

774(60.8)

Return on Equity

Ordinary Income toTotal Assets

Net Income per
Share after
Adjusting for
Latent Shares

Net Income per
Share
Yen
Year ended March 31, 2008
Year ended March 31, 2007
Notes: Equity-method investment profit (loss)

Yen(23.69)22.00

Year ended March 31, 2008: - million yen

Operating Income
to Net Sales

%

%

%

(1.6)
1.5

1.9
2.9

1.1
1.3

Year ended March 31, 2007: - million yen(2) Consolidated financial position
Total Assets

Net Assets

Equity Ratio

Net Assets per Share

Millions of yen

Millions of yen%

Yen

121,284

50,60952,24741.6
56.6

1,432.54
1,479.10

Year ended March 31, 2008

Year ended March 31, 2007
92,115
Notes: Shareholders’ Equity : Year ended March 31, 2008: 50,454 million yen

Year ended March 31, 2007: 52,096 million yen(3) Consolidated cash flows
Net Cash Provided by(used in) Investment
Activities

Net Cash Provided by(used in) Operating
Activities

Cash and Cash
Equivalents
at End of YearNet Cash Provided by(used in) Finance
Activities

Millions of yen

Millions of yen

Millions of yen

Millions of yen

(289)
2,656

(29,162)(1,090)23,316(4,386)

3,434
9,570

Year ended March 31, 2008
Year ended March 31, 2007

2. Dividends
Dividends per Share (Yen)InterimYear ended March 31, 2007
Year ended March 31, 2008
Year ended March 31, 2009
(Forecast)Year-end

Full Year

Total Amount of
Cash Dividends(Annual)Ratio of
Dividends to
Net Assets(Consolidated)

Dividends
Payout Ratio(Consolidated)

Yen

Yen

Yen

Millions of yen

%

%

0.00
0.00

22.00
22.00

22.00
22.00

774
774

100.0
-

1.5
1.5

11.00

11.00

22.00

1

-

3. Forecast of consolidated results for the year ended March 2008 (April 1, 2008-March 31, 2009)
Percentage figures represent changes from previous year for full year figures and from same period of previous year for interim period figures.

Net Sales

Operating Income

Ordinary Income

Millions of yen%

Millions of yen%

108,400
222,000

12.1
11.1

17
3,140

(98.1)
44.6

First six months
Full year

Millions of yen

(138)
2,720

Net Income
per Share

Net Income%

Millions of yen

%

Yen

33.2

(960)
50

-

(27.26)
1.42

4. Others(1) Significant changes in subsidiaries during the fiscal year
(Changes in specified subsidiaries resulting in changes in scope of consolidation): None
(2) Changes in accounting principles, procedures and method of presentation associated with preparation of theconsolidated financial statements (the matters to be included in the section, changes in basic important matters for
preparation of consolidated financial statements)
1) Changes due to revisions of accounting standards: Yes
2) Changes other than 1): None
(3) Number of shares outstanding (common stock)1) Number of shares outstanding at fiscal year end (including treasury stock):
The year ended March 31, 2008 36,508,976 shares; The year ended March 31, 2007
2) Number of shares of treasury stock at fiscal year end:
The year ended March 31, 2008 1,288,636 shares; The year ended March 31, 2007

36,508,976 shares
1,287,351 shares(Reference) Overview of the non-consolidated business results
1. Non-consolidated results for the year ended March 31, 2008 (April 1, 2007 - March 31, 2008)(1) Non-consolidated operating results
Percentage figures represent changes from previous year.

Year ended March 31, 2008
Year ended March 31, 2007

Net Sales
Millions of yen
185,557
198,099
Net Income per
Share
Yen
27.10
24.30

Year ended March 31, 2008
Year ended March 31, 2007

Operating Income
Millions of yen
%
2,660
6.2
2,506
(49.4)

%
(6.3)
0.2

Ordinary Income
Millions of yen
%
2,983
11.2
2,682
(49.0)Net Income
Millions of yen
954
856

%
11.5
-

Net Income per
Share after Adjustingfor Latent Shares
Yen-(2) Non-consolidated financial position
Total Assets
Year ended March 31, 2008
Year ended March 31, 2007
Notes: Shareholders’ Equity:

Net Assets

Millions of yen
107,363
86,811Equity Ratio

Millions of yen
48,51648,369Year ended March 31, 2008: 48,516 million yen

Net Assets per Share
%
45.2
55.7

Yen
1,377.52
1,373.29

Year ended March 31, 2007: 48,369 million yen

2. Forecast of non-consolidated results for the year ended March 31, 2009 (April 1, 2008-March 31, 2009)
Percentage figures represent changes from previous year for full year figures and from same period of previous year for interim period figures.
Net SalesFirst six months
Full year

Operating Income

Ordinary Income

Net Income Per

Net Income

Share

Millions of yen%

Millions of yen%

Millions of yen%

Millions of yen%

Yen

91,000185,500

(3.0)
0.0

1,350
4,700

78.3
76.6

1,600
5,140

80.0
72.3

900
2,730

180.1
186.0

25.55
77.51

The amounts as above are rounded down to the nearest million yen. The above forecasts are based on information available as of time of this announcement.
Actual results may differ due to various factors. Please refer page 4 of the attached materials for the forecasts.

2

1. Business results(1) Analysis of business results1) Overview of business results
During the year ended March 31, 2008, Nichii Group has expanded the service menus toward mid- to long-term businessgrowth for each business category.
For the Health Care Business, we established a total long-term care service system that covers a broad range of user needsfrom preventive care to home care and facility care. Specifically in September 2007, we made Nichii Care Palace, Co., Ltd.
(renamed from Nihon Silver Service Corporation) a wholly-owned subsidiary to promote the pay nursing home business, andduring November through December of 2007, we took over COMSN’s long-term care business.
In addition, we have aggressively worked for developing and providing new services. In the Medical Support Business, wedeveloped the Receipt Check Eye which systematizes the know-how of medical service payment system, and the Marketing
Eye which analyzes the ability of local medical institutions to attract customers. In the Education Business, we developed the
Nurse Assistant Training Course and the Mental Training Course.
The group’s earning environment was very challenging for the fiscal year. The Health Care Business suffered a decrease
both in revenue and profit because mild care patients changed their service to preventive care service, which caused a decreasein the number of users of our services, and because home-care service fee fell influenced by the revision of long-term careinsurance. The Education Business also faced a subsequent decrease in revenue from the Medical Office Work Course and theHome Helper Training Course.
As a result, net sales during the fiscal year decreased by 1.4% year on year to 199,797 million yen, the ordinary income
decreased by 24.6% year on year to 2,042 million yen, and net loss became 834 million yen from the previous fiscal year’s net
income of 774 million yen.

2) Business results by segment【Medical Support Business】
An imbalance of supply and demand in metropolitan areas has continued in the Medical Support Business. Therefore, wehave worked on to improve the cost of contracted business and revise the contract with medical institutions. We have also
promoted efficient allocation of human resources by increasing the amount of sales per hospital.
Regarding an investment strategy to human resources, it is essential to fortify the career-enhancement system andefficiently improve the skills of all staff. Therefore, we established a conscientious follow-up system for educating and training
staff by placing senior professionals who are responsible for training medical office workers in each area-based management
operations.
In March 2008, we started the recruitment information Web site Career Net for trainees who have completed our education
courses to access human resources through a Web site.
As a result, the net sales of the Medical Support Business decreased by 1.6% year on year to 109,217 million yen, and theoperating income decreased by 1.1% year on year to 10,700 million yen.

【Health Care Business】
Followed by the revision of long-term care insurance system in April 2006, our revenue decreased due to a fall in the service
fee of mild care patients as well as a decrease of welfare equipment leasing through long-term care insurance benefits. In
addition, a nationwide simultaneous audit of care service providers was conducted after a series of illegal transaction by
long-term care service providers. These factors brought Health Care Business severe business results.
3

Although the business transferred from COMSN Inc. contributed to the increase of net sales, the rent for 21 in-progressfacilities (group home: 4, pay nursing home: 15, rental housing for elderly: 2) and amortization of goodwill affected therevenue of the transferred subsidiaries with severe consequences. As a result, the net sales increased by 2.1% year on year to
79,631 million yen and the operating income decreased by 89.5% year on year to 190 million yen.

【Education Business】
In the Education Business, we fortified the advertising to the highly responded media and provided the courses pursuing
student convenience under a branch management system specialized for each business segment. However, the decrease ofqualification needs due to the improvement of employment environment and an uncertainty of market environment in medical
and long-term care fields continuously affected the enrollment of students in the main courses such as the Medical OfficeWork Course and the Home Helper Training Course. As a result, the net sale decreased by 18.5% year on year to 10,157
million yen, and the operating loss was 1,793 million yen from the previous fiscal year’s operating loss of 1,709 million yen.

【Other Businesses】
Because we are concentrating on strengthening our core businesses, the net sales for the Other Businesses decreased by
27.8% year on year to 790 million yen, and the operating income decreased by 15.7% year on year to 215 million yen.

3) Outlook for the year ending March 2009
As of April 1, 2008, in order to configure the organizational structure for further exertion of the group ability, Nichii Grouptransformed its three-business structure (Medical Support Business, Health Care Business, and Education Business) into twobusiness integrated headquarters of Medical Support Business Headquarters and Health Care Business Headquarters, and one
business headquarters of Education Business. We also incorporated Information and Strategy Headquarters in charge ofdeveloping new products and services into each headquarters.
Our new Mid-Term Business Plan has started from April 2008. Under the new organizational structure, we will fortify thecooperation among the group companies and the relationship between businesses and services, and develop new products andservices adapting to the system changes and the customer needs, to enhance the competitive superiority of our group.

【Medical Support Business】
The revision of medical service payment system implemented from April 2008 includes new approaches to reduce burdens ofdoctors working in hospitals and to create the medical care system for 'late elderly' people (long life medical system).
According to the revision, we will expand management support services for medical institutions.
Towards mid- to long-term sustainable growth, we will continuously proceed with the income-oriented business strategy by
responding to diversified needs of medical institutions, promote the expansion of contracted business for each medical
institution, and fortifying the negotiation and review of the contract towards the improvement of contract rates.
In order to deal with the medical office workers’ shortage in the metropolitan districts, stabilizing human resources isnecessary. We will attract and develop skilled human resources by enhancing the recruitment Web site Career Net for trainees
who completed our education courses and fortifying the career-enhancement system accompanied by the improvement of labor
conditions.

4

【Health Care Business】
The market of the Health Care Business is expected to remain harsh, because a major long-term care service provider
conducted the business transfer and subsequently the care service providers are expected to be bipolarized.
In order to respond to the varied user needs, Nichii Group will expand the total long-term care service system ranging frompreventive care to home care and facility care.
In addition, we will promote the Disabled Independence Support Services throughout the nation and develop and promote
the Homemaker Services.
All in-progress facilities of Nichii no Hohoemi Co, Ltd., Nichii no Kirameki Co, Ltd., and Nichii Home Co, Ltd., andNichii Care Palace Co., Ltd. will be opened and the operating results of 12 months will be incorporated in the income
statement, so the net sales of the Health Care Business are expected to increase significantly.
As for the compliance with laws and social norms, we will train and instruct the staff in all offices and thoroughly proceedwith the proper office management.
We will fulfill our responsibility as a leading company by continuously providing community-based and high quality
services in a stable manner and contributing to the sound development of the long-term care service industry.

【Education Business】
The Health, Labor and Welfare Ministry announced regarding the qualification requirements for care workers that, Home
Helper Level 1 Course and the Care Worker Basic Training will be integrated by 2012, while the Home Helper Level 2 Course
will be maintained at the moment due to the present difficult situation to secure human resources for care workers.
The positioning and importance of Home Helper Level 2 qualification in the long-term care field has not changed;
therefore, we will continue to enrich the long-term care field courses, such as the Care Worker Examination Course and theCare Worker Basic Training Course.
In the medical field course, to address the changes in medical management environment due to medical system reforms, wewill promote the development and provision of practical courses in medical field such as the Medical Office Work Course andthe Nurse Assistant Training Course responding to the computerization in medical institutions.
During the year ending March 2009, our profitability is expected to improve by effective business development such as
carrying out the development of new courses or effective sales promotion activities in headquarters and effectively developing
the courses and classes under the branch management system specialized for each business segment.

【Other Businesses】
Nichii Group will proceed with business development taking advantage of our management resources in medical and welfare
services to realize the group strategy based on the most suitable organizational structure.
In consideration of these environments and prospects, our outlook for the performance in the year ending March 31, 2009 is
222,000 million yen for net sales (an increase by 11.1% year on year), 3,140 million yen for operating income (an increase by
44.6% year on year), 2,720 million yen for ordinary income (an increase by 33.2% year on year) and 50 million yen in net
income (net loss of 834 million yen for the current fiscal year).

5(2) Analysis of financial position
1) Overview of financial position
During the fiscal year, cash and cash equivalents ("cash") decreased by 6,135 million yen year on year to 3,434 million yen.
Cash flows from each activity and their factors are shown below.

【Cash flows from operating activities】
As a result of operating activities during the fiscal year, cash decreased by 289 million yen (cash increased by 2,656 million
yen during the previous fiscal year).
Especially in the Health Care Business, a decrease in revenue continued since the revision of long-term care insurance inApril 2006 due to the fall in the service fee of mild care users, and the decrease of welfare equipment leasing throughlong-term care insurance benefit, which brought us a severe business result. Although the business transferred from COMSN
Inc. contributed to the increase of net sales, the rent for 21 in-progress facilities (group home: 4, pay nursing home: 15, rental
housing for the elderly: 2) and amortization of goodwill affected the revenues of transferred subsidiaries with severe results of
2,171 million yen for operating income (2,635 million yen for the previous fiscal year) and 1,093 million yen for income
before income taxes.

【Cash flows from investing activities】
As a result of investing activities during the fiscal year, cash decreased by 29,162 million yen (cash decreased by 1,090 million
yen for the previous fiscal year).
This is primarily due to the 21,000 million yen for the business transfer and 4,591 million yen for acquisition of newly
consolidated subsidiaries.

【Cash flows from financing activities】
Cash from financing activities during the fiscal year increased by 23,316 million yen (cash decreased by 4,386 million yen forthe previous fiscal year.).
This is mainly because long-term loan (syndicated loan) payable of 28,000 million yen was implemented.
Trends in cash flow indicators for the group can be seen below.
Year ended March 31, 2007

Year ended March 31, 2008

Equity ratio (%)

56.6

41.6

Equity ratio based on present value (%)

81.3

41.7

Debt redemption (years)

3.6-

Interest coverage ratio

31.1

-

Notes:

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. Each indicator was calculated from consolidated financial results.
2. Total present value of stock is the product of closing stock price at the end of period and the total number of outstanding shares at the end of
period (after deducting treasury stock).
3. 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 consolidated balance sheet. Interest payments
are the interest payments as shown in the consolidated cash flow statement.

6

(3) Basic principles of profit distribution and dividends for the current and next fiscal year
Our basic policy is to provide our shareholders with stable and continuous profit distributions. Considering businessperformance trends from a mid- to long-term standpoint, we will promote a consolidated dividend policy.
Under this policy, we decided to pay 22 yen per share for the year-end dividend, which is the same as the previous fiscal
year.
From the year ending March 31, 2009, we will start to pay interim dividends to make more opportunity for ourshareholders to have profit distributions. Retained earnings will be invested to develop new businesses, backbone
systems/software and M&A activities in order to continue our business growth and increase our corporate value.

(4) Business and other risks
Presented below are the potential risks to the operations of each business of Nichii Group. We work on to mitigate such risks
by dispersing and acknowledging them. However, in the event of an unforeseeable incident, such risks may cause serious
effect on our business performance and financial conditions of the group.
External factors and risk factors with low possibilities are also disclosed here from the standpoint of positive information
disclosure on the matters deemed important for those making investment decisions.
The following matters were determined to be potential risks by the group upon preparing this data as of the last day of the
fiscal year, and may not cover all the risks when making an investment decision on our stocks.

1) Business risks【Medical Support Business】
Nichii Group's Medical Support Business provides, among other services, medical practice services other than medical practiceitself, medical-related duties, and medical service management consultation services.
Medical institutions will see major fluctuations in their medical revenues due to the biennial revision of the medical service
payment system and the medical insurance system reform (Article 2, Paragraph 2 of the Health Insurance Law Revision Law).
The group provides services to medical institutions, so the contents of revision rate for medical treatment fees and medical
insurance system reform may affect our contract fees and the contents.

【Health Care Business】
The group's Health Care Business is mainly attributed to services that are covered by Long-Term Care Insurance Law.
Therefore, reviewing the long-term care insurance system and payment can have a major effect on the net sales and profits ofthe business. These services are regulated by the Long-term Care Insurance Law (Law No. 123, December 7, 1997) andvarious 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 payment is subject to review every three years, so the decisions hereafter may have an
impact on the profitability of our Health Care Business. In the future also, revision of long-term care payment or review of thesystem may affect the revenue of the business.
In addition, we are promoting the community-based business by lease contract in our long-term care facilities such asgroup homes, pay nursing homes, and day care facilities. Since the contract term is 20 years in general, lowering in availabilityof facility due to the decrease of residents or the fall of average residential charge may affect the revenue of the business.
7

【Education Business】
The Home Helper Training Course, our major educational program, is subject to the “ordinance concerning home-visit careproviders” (Health, Labor and Welfare Ministry Ordinance No. 23), and is required to obtain certification from the prefectural
government.
The requirements for care workers (i.e. increase in training hours and curriculums that workers must take) are scheduled tochange on April 1, 2012. The qualification of the Home Helper Training Level 2 Course is going to be maintained due to thenecessity of securing home helpers, but the future revision of various systems in terms of such qualifications may affect the net
sales and revenue of this course.

2) Risks due to the internal management system
The Nichii Group is working to strengthen the self-directed operational management framework as well as internal check
functions, to prevent human errors and dishonesty of employees. However, future operational management problems could
cause a loss of trust by stakeholders, and could affect our business performance.

【Risks due to personal information】
Each business segment of the group handles personal information specified in the Personal Information Protection Law.
We recognize the protection of personal information as an extremely important business issue. Therefore, we haveestablished the Information Protection Committee to ensure appropriate acquisition and handling of information, and areworking to prevent leakage of personal information and reoccurrence of such problems through setting up privacy policies andproviding in-house training.
However, a personal information leak could cause loss of confidence, claims for damage, etc. to affect our businessperformance.

3) Official license and legal regulation in personnel business
For the personnel business carried out for Medical Support Business and Health Care Business, we already acquired thepermission of general workers dispatching business based on the “Law for securing the proper operation of worker dispatchingundertakings as well as for securing improved working conditions for dispatched workers (Labor Dispatch Law)”.
As for “Labor Dispatch Law”, if a personnel service company is found to be disqualified or conducted illegal behaviors, it
may be deprived of the permission of personnel business or ordered to suspend the business.
Nichii Group continues to thoroughly implement the compliance. However, violating the law, if it should occur in ourgroup, may affect our group performance.

4) Risks due to natural disasters and accidents
Large-scale natural disasters such as earthquakes or tsunami might impede staff and facilities from operating properly. If thiscauses unavailability of our services to users, it could reduce sales and incur extraordinary expenses.

8

2. Overview of Nichii Group
Nichii Group consists of Nichii Gakkan Company, its 22 subsidiaries, and its one affiliate. Nichii Group is engaged in fourbusinesses (Medical Support Business, Health Care Business, Education Business, and Other Businesses). In the 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 the Health Care Business, thegroup provides home care services mainly under long-term care services (home-visit care, home-visit bathing, day care), careservice for specified facility residents, care service for group home residents with dementia, sale and rental of welfare
equipment, catering, and other services. In the 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 inproviding data processing, storage and delivery service, book publication and sale, production and sale of flowers, ornamental
plants, seeds and saplings, leasing, and personnel services.
Nichii Group's businesses and positioning of each business are shown below. The business categories correspond to thosein the segment information by business category.
Business Category

Medical Support Business

Principal Businesses/Products

Principal Companies

Medical practice services such as reception, medical fee claims,

Nichii Gakkan Company

accounting, computer operations, and medical record

Nihon Support Service Co., Ltd.

management, sale/disinfection/sterilization services (Inside thehospital) for medical equipment, medical affairs consulting
Nichii Gakkan Company
Keihin Life Service Co., Ltd.

Health Care Business

Home-visit long-term care, home-visit bathing, day care, care

Nichii Carenet Co., Ltd.

service for specified facility residents, care service for group

Nihon Support Service Co., Ltd.

home residents with dementia, rental/sale of welfare equipment,

Nichii Care Palace Co., Ltd.

catering, etc.

Nichii no Hohoemi Co, Ltd.
Nichii no Kirameki Co, Ltd.
Nichii Home Co, Ltd.

Education Business

Courses for medical office work, home helper training, babysitter
training, and sign language
Information processing, storage and delivery service, publication

Other Businesses

Nichii Gakkan Company

and sale of books, production and sale of flowers, ornamental
plants, seeds and saplings, leasing, personnel service, etc.

9Nihon Support Service Co., Ltd.
Tokyo Marunouchi Publishing Co., Ltd.
Roris Co., Ltd.
Nihon Credit Lease Corp.

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
Sales ofmerchandise- Care service for specified facility residents- Care service for group home residents withdementia- Sale and rental of welfare equipment- Catering- Consultation and information- Welfare equipment / ASP
Consolidated subsidiaries
Keihin Life Service Co., Ltd.
Nichii Carenet Co., Ltd.
Nihon Support Service Co., Ltd.
Nichii Care Palace Co., Ltd.
Nichii no Hohoemi Co, Ltd.
Nichii no Kirameki Co, Ltd.
Nichii Home Co, Ltd.
Unconsolidated subsidiaries
Hospica Co., Ltd. / 9 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- Personnel service

Nichii Gakkan Company

Sales of merchandise
Provision of services

Sales of merchandise
Provision of services

Local governments
Medical institutions
Customers
Member stores

Medical Support Business
Medical institutions, etc.

Nichii Gakkan Company
Nihon Support Service Co., Ltd.

Provision of services
Storage and delivery service of teaching materials andproducts, and computer operations service
Leasing, Personnel service

Education Business
Consolidated subsidiaries
Nihon Support Service Co., Ltd.
Tokyo Marunouchi Publishing Co., Ltd.
Roris Co., Ltd.
Nihon Credit Lease Corp.
Unconsolidated subsidiaries
Yao Iryo PFI / 1 other company

Customers
Local governments, etc.

Health Care Business

Students

Nichii Gakkan Company
Courses and sale and lease of
educational books

Health Care Business
Nichii Gakkan Company
Keihin Life Service Co., Ltd.
Nichii Carenet Co., Ltd.
Nichii Care Palace Co., Ltd.
Nichii no Hohoemi Co, Ltd.
Nichii no Kirameki Co, Ltd.
Nichii Home Co, Ltd.

Merchandise sales and Childcare
Provision of services
Leasing
Personnel service

10

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

Sales of merchandise
Provision of services

Customers

3. Management principles(1) Basic principles of management
Based upon the management philosophy of “Contributing to the health and welfare of society”, Nichii Group aims to berecognized as a trusted and appealing corporate group by contributing to improve the quality of life and society in the threefields; the medical support business, long-term care and education for daily living.
Nichii Group’s mission
1) Assist stable management of health care institutions in health care related fields.
2) Create an environment where people can live a full life through long-term care without worries.
3) Encourage self-improvement through supporting educational activities.
We also recognize that we must fulfill our social responsibilities as a corporate group, comply with corporate ethics, andincrease the corporate brand value in our activities while deepening our trusting relationship with our shareholders and otherstakeholders. In order to achieve this goal, we wish to share the idea of self-improvement to each organizational structure andemployee as well as aggressively maximizing our corporate value based on the slogan, “Strength through kindness.”(2) Management goals
Nichii Group set the three long-term goals while taking the following points into consideration: a) The group is providing
personnel service. b) Medical support and welfare businesses are expected to expand in the future. c) The group focuses onshareholder value.
1) Net sales growth→ double-digit growth2) Operating income to net sales→ 7% or higher

3) ROE (return on equity)→ 15% or higher(3) Mid- to long-term strategies
In order to realize the sustainable growth and contribute to the improvement and development of social infrastructure in
medical support, long-term care, and education fields, Nichii Group formulated the three-year Mid-Term Business Plan startingfrom April 2008 until March 2011. Based on the goal “Establishing the Nichii Health Care Network”, we will form the nucleusof branches specialized for each business segment throughout the nation.
In April 2008, we started new organizational structure responding to the expansion of business field and scale as theintegration of organizational reform addressed since 2006.By working on “Business expansion”, “Ensuring fair profits”,“Fortifying the business model”, and “Compliance with laws and social norms”, we will establish the stout organization andbusiness structure towards upgrading the service quality and improving the profitability.
We will continue to fortify the relationship among the service know-how, service network, and facility care service
accumulated from existing business under new organizational structure, and promote the development and provision ofhigh-value added service adapting to customer needs. Through these measures, we will exert our competitive superiority in thelocal care field and achieve the Mid-Term Business Plan and the group’s social responsibility.

【Business Expansion】
Nichii Group has established a total long-term care service system that covers all care services ranging from preventive care tofacility care service including pay nursing home. Specifically, we started the rental housing business for elderly in May 2007
and taking over COMSN’s facility care service business in November 2007.
11

In order to respond the diversified user needs, we will work on to provide services that are not covered by the long-termcare insurance. Through these measures to stabilize the business revenue, we will develop and provide the service pursuing thesynergy between business fields and high-value added services adequately responding to the system trend and customer needs.

【Ensuring Fair Profits】
Under the new organizational structure, we will drive to fortify the management and operation system flexibly responding to
the changing business environment and business expansion through united corporation of each group company headquarters,
area-based management of operations, branch specialized for each business segment, and service providing fields.
By strengthening the income and expenditure management for each business field, we will work to improve the contract
contents, efficient business operation, and service quality, to ensure the fair profits.

【Fortifying Business Model】
The progressing of declining birthrate and aging population is expected to cause the decrease of labor population. Therefore,
securing the high-quality human resources is essential for personnel business.
Since its inception, Nichii Group has operated the business based on the “Train and Employ” core business model andconsiders the investment to human resources as the most important theme to achieve mid- to long-term sustainable growth.
We will enrich the career-enhancement system including employing workers as official staff, improve the labor conditions,and foster the human resources who would be able to supply high-value added services. We will work on to foster humanresources of potential ability who can be adaptable to various needs in medical and long-term care service fields.

【Compliance with Laws and Social Norms】
The improvement of various laws related to long-term care insurance system is being progressed, including the enactmentof revised Long-Term Care Insurance Law in April 2008 for the purpose to oblige the improvement of service management
system for long-term care service providers.
We established the Long-Term Care Service Audit Room to adequately operate the long-term care business. We will further
improve the compliance system.

(4) Issues to be addressed【Medical Support Business】
Since this spring, a medical care system reform started based on the three pillars of “moderation in health care costs”,“community care system improvement” and “the medical care system for 'late elderly' people”. Accordingly, a concrete reform
including stronger coordination between medical and long-term care is being progressed.
The revision of medical service payment which was executed in April is the main content with plus-revised for the firsttime in 8 years, and includes the payment to the doctor assistant office worker arranged for reducing the burden of doctors
working in hospitals.
In order to support the medical institutions as our partners, we will work on to improve the system services towards
computerization in medical institutions by adapting to the changing medical environment and customers’ needs. Specifically,
we will structure the interconnection scheme of medical field and care service field utilizing the home care and facility carebusiness, make online receipts processing obligatory, and promote electronic medical charts.
In addition, we will secure the human resources and improve the stability of the workforce to perform the stable supply of
12human resources, and aggressively develop and provide the high-value-added Medical Management Support Service throughproviding human resources with improved skills.

【Health Care Business】
The long-term care payment is scheduled to be revised in 2009, and the long-term insurance system will be reviewed in 2011.
Furthermore, with a view of rapidly progressing aging society, the reform of various systems such as the enactment of revised
long-term care insurance law concerning the protection of illegal behaviors of long-term care service providers and full-scale
discussion about the improvement of labor conditions to secure the care workers, are being progressed.
In 2025, the ratio of “Only aged household” occupied among the all households is expected to be 70%. To be prepared forthe coming unprecedented aging society, the improvement of total social infrastructure for medical, long-term care, andresidential facilities is called for urgent attention.
Nichii Group provides various services line up widely ranging from preventive care to facility care, and will endeavor to
improve the service quality to provide long-term services to all of our customers.
We will also promote the services or develop products flexibly adapting to the system trend or community needs, expand
the services for the handicapped, and raise the ratio of the revenue of the services not covered by long-term care insurance suchas rental housing for the elderly and homemaker services, to configure the stable profit-earning system.
To secure and foster care workers, we will strengthen the staff support system by improving the career-enhancement
system and training system, and fortifying the management system centering on respective service offices and branches
specialized for each business segment.

【Education Business】
The number of students for our main courses Medical Office Work Course and Home Helper Level 2 Course is decreasing
because the qualification needs was temporarily lowered due to the improvement of employment environment and theuncertainty about existence of home helper qualification. Nevertheless, we will improve the course quality by utilizing theknow-how acquired by providing services in medical or long-term care field into the course curriculum, develop the courses
considering the availability for students and pursuing the balanced earnings, and promote the effective advertising in media
with high responsiveness.
We will develop and provide new courses adapting to various needs in medical and long-term care service fields or sub
courses such as health care-related courses with high social needs. In addition, we will expand learning methods such asutilizing the Web site, to activate supplying the personnel into our business.

【Other Businesses】
Other Businesses take advantage of our management resources in the medical and welfare services to support operations.
In the future also, we will continue to implement our group strategies with the ideal form of organization in order toincrease the value of the Nichii Group and develop efficiency of our business.

(5) Other significant matters for management
There are no applicable matters.

13

4. Consolidated Financial Statements(1) Consolidated Balance Sheets

Category

Year ended March 31, 2007
(As of March 31, 2007)

Year ended March 31, 2008
(As of March 31, 2008)

YoY (%)

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

Change(thousandsof yen)

Share
(%)

Share
(%)

(ASSETS)I

Current assets
1. Cash and deposits

9,872,547

3,725,993(6,146,553)

2. Notes and accounts receivable

24,124,838

25,666,006

1,541,168

3. Inventories

1,475,298

637,736(837,562)

4. Deferred income tax assets

3,766,302

2,829,175(937,127)

5. Other current assets

3,330,480

6,150,739

2,820,258

6. Allowance for doubtful accounts(105,039)(159,089)(54,049)

Total current assets
II

42,464,428

46.1

38,850,562

32.0(3,613,865)

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

33,741,425

Less: cumulative depreciation

7,389,680

2. Machinery and vehicles

138,853

Less: cumulative depreciation

109,775

3. Tools, furniture and fixtures

1,532,729

Less: cumulative depreciation

1,121,650

39,605,167
26,351,745

11,090,332

28,514,834

2,163,089

37,9858,906

727,069

315,991

8,140,738

458,741

127,520
29,07889,5352,525,249

411,078

4. Land7,681,997

Total tangible fixed assets

34,473,899

1,798,179

37.4

37,420,628

30.9

2,946,729(2) Intangible fixed assets
1. Goodwill

2,670,896

20,824,684

18,153,788

2. Software

735,451

886,082

150,630

3. Other intangible fixed assets

398,157

869,982

471,824

Total intangible fixed assets

3,804,505

4.1

22,580,749

18.6

18,776,243(3) Investments and other assets
1. Investment securities

1,201,807

1,076,664(125,142)

2. Long-term loans receivable

2,444,542

8,589,315

6,144,772

3. Long-term prepaid expense

145,539826,328

680,789

4. Guarantee deposit

4,763,833

8,785,984

4,022,150

5. Deferred income tax assets

1,525,228

1,561,377

36,148

6. Other investments and other assets

2,024,097

2,284,143

260,046

7. Allowance for doubtful accounts(732,681)(690,939)

41,741

Total investments and other assets

11,372,368

12.4

22,432,875

18.5

11,060,506

Total fixed assets

49,650,772

53.9

82,434,252

68.0

32,783,479

Total assets

92,115,200

100.0

121,284,814

100.0

29,169,613

14

CategoryYear ended March 31, 2007
(As of March 31, 2007)

Year ended March 31, 2008
(As of March 31, 2008)

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

Share
(%)

YoY (%)

Share(%)

Change(thousands ofyen)(LIABILITIES)I

Current liabilities
1. Notes and accounts payable

1,144,987

1,751,233

606,246

2. Short-term loans payable

402,000

313,000(89,000)

3. Current installments of long-term
debt

33,17820,960(12,218)

3,808,000

3,808,000-

154,193

690,768

536,575

6. Consumption tax payable

1,574,166

772,838(801,327)

7. Accrued expense

16,011,429

16,199,170

187,740

8. Allowance for employee bonus

3,320,330

3,019,660(300,669)

9. Allowance for directors’ bonus

36,00036,000-4,891,422

4,396,997(494,424)

4. Current redemption of bonds
5. Income taxes payable

10. Other current liabilities
Total current liabilities
II

31,375,708

34.1

31,008,630

25.6(367,077)

Long-term liabilities
1. Bonds
2. Long-term loan payable

5,288,000

1,480,000(3,808,000)

19,11828,025,416

28,006,297-

4,289,627

4,289,627

2,941,991

3,384,767

442,775

132,243

143,208

10,964110,927

2,343,900

2,232,972

3. Long-term advances received
4. Allowance for employee retirement
benefits
5. Allowance for directors' retirement
benefits
6. Other long-term liabilities
Total long-term liabilities

8,492,282

9.2

39,666,919

32.7

31,174,637

39,867,990

43.3

70,675,550

58.3

30,807,560

1. Common stock

11,933,790

13.0

11,933,790

9.9-

2. Capital surplus

17,354,214

18.8

17,354,214

14.3

-

3. Retained earnings

28,686,400

31.1

27,075,682

22.3(1,610,717)

4. Treasury stock(5,934,751)(6.4)(5,935,860)(4.9)(1,109)Total shareholders' equity

52,039,654

56.5

50,427,827

41.6(1,611,826)

56,8260.0

26,7610.0(30,065)

Total unrealized gains and adjustments

56,8260.0

26,7610.0(30,065)

Minority interests

150,7290.2

154,675

0.1

3,946

Total net assets

52,247,210

56.7

50,609,264

41.7(1,637,946)

Total liabilities and net assets

92,115,200

100.0

121,284,814

100.0

29,169,613

Total liabilities(NET ASSETS)
I

II

Shareholders' equity

Unrealized gains and adjustments
1. Unrealized gains
marketable securities

III

on

other

15

(2) Consolidated statements of income
Year ended March 31, 2007
(April 1, 2006 to March 31, 2007)
Category
I

Amount(thousands of yen)(%)

Year ended March 31, 2008
(April 1, 2007 to March 31, 2008)
Amount(thousands of yen)

YoY (%)(%)

Change(thousands ofyen)

Net sales

202,549,097

100.0

199,797,256

100.0(2,751,840)

II Cost of sales

163,310,893

80.6

163,719,486

81.9

408,592

Gross profit

39,238,203

19.4

36,077,769

18.1(3,160,433)

33,905,776

17.0(2,696,611)

2,171,993

1.1(463,822)

349,5100.2

50,748478,9350.2

254,308

2,042,568

1.1(667,382)

III Selling, general and administrative
expenses
1. Advertising and promotion expenses

6,938,565

4,883,789

152,406

155,823

12,621,856

12,455,897

808,351

737,933

36,00036,0008,501

10,964

7. Directors' retirement benefits

86-

8. Employee retirement benefits

326,118

331,290

9. Legal welfare expense

1,857,519

1,891,062

10. Travel and transportation expenses

1,362,105

1,302,954

11. Rent

2. Directors' compensation
3. Salaries and benefits
4. Transfer to allowance for bonus
5. Transfer to allowance for directors'bonus
6. Transfer to allowance for directors'
retirement benefits

3,439,362

3,010,022

12. Transfer to allowance for doubtful
accounts

29,184-

13. Depreciation expense

662,828

646,903

15. Amortization of goodwill

207,389

421,574

16. Others

8,152,111

Operating income

36,602,387

18.1

2,635,815

1.3

8,021,560

IV Non-operating income
1. Interest income

26,342

33,647

2. Commission on consignment for
office work

90,904

88,761

3. Income from lease of fixed assets

30,98546,406-50,747

4. Income from lease of facilities
4. Others

150,529298,7620.1

129,946

V Non-operating expenses
1. Interest expense

40,451

214,690

2. Bond interest

57,40972,381

3. Compensation for damages

27,262

26,333

4. Bond issue cost

32,940-5. Loss on disengagement of guarantee
deposit

41,06333,012

6. Others

25,500Ordinary income

224,6270.1

2,709,950

1.3

16132,517

Year ended March 31, 2007
(April 1, 2006 to March 31, 2007)
Category
VI Extraordinary income
1. Gain on sale of fixed assets
2. Gain on sale of shares of relatedcompany
3. Gain on sale of investment securities
4. Gain on donation of fixed assets
5. Gain on reversal of allowance for
doubtful accounts
6. Others
VI Extraordinary losses
1. Loss on retirement of fixed assets
2. Loss on sale of fixed assets
3. Loss on revaluation of inventories
4. Impairment loss
5. Loss on disengagement of lease
6. Litigation settlement
7. Expense for changing brand9. Others
Income before income taxes
Income, inhabitants and business taxes
Adjustments for income and other taxes
Minority interests
Net income (Net loss)

Amount(thousands of yen)(%)

Year ended March 31, 2008
(April 1, 2007 to March 31, 2008)

489-

20,9992,850

21,000-218,130-

66,565634
59,472
22,147
274,665
52,560103,395
510,409912,72232,8040.1

512,2422,230,512

0.3
1.1

1,423,132
32,612774,768

0.7
0.0
0.4

17

(%)

Change(thousandsof yen)327,1850.1

294,380

1,275,796
1,093,957

0.7
0.5

763,553(1,136,555)

1,897,836
30,652(834,531)

0.9
0.0
(0.4)

474,704(1,959)(1,609,299)

Amount(thousands of yen)

29,32043,400694,157
93,739180,000
246,651
17,846491,383
1,406,452

YoY (%)

(3) Consolidated statements of changes in shareholders’ equity
Consolidated statements of changes in shareholders’ equity(Thousands of yen)

The year ended March 31, 2007 (April 1, 2006 - March 31, 2007)

Shareholders' equity

Balance as of March 31, 2006

Common stock

Capital surplus

11,933,790

17,354,214(5,930,226)

Total
shareholders'equity52,081,385(1,037)(6,370)1,845(774,937)(36,000)
774,768(6,370)808

Retainedearnings

Treasury stock

28,723,606

Changes of items during the period
Dividends from retained earnings*
Directors' and auditors' bonus*
Net income
Purchase of treasury stock
Retirement of treasury stock(774,937)(36,000)
774,768

Changes other than shareholders'equity during the period
Total changes during the period
Balance as of March 31, 2007--

(37,206)(4,524)(41,731)

11,933,790

17,354,214

28,686,400(5,934,751)

52,039,654

Minority
interests

Total net
assets

Unrealized gains andadjustments
Total
unrealized
gains andadjustments
77,628

Unrealized
gains on othersecurities
Balance as of March 31, 2006

77,628132,488

52,291,502

Changes of items during the period
Dividends from retained earnings*
Directors' and auditors' bonus*
Net income
Purchase of treasury stock
Retirement of treasury stock
Changes other than shareholders'equity during the period
Total changes during the period(774,937)(36,000)
774,768(6,370)808(20,801)(20,801)

18,240(2,560)(20,801)(20,801)

18,240(44,291)

Balance as of March 31, 2007
56,82656,826
150,729*Appropriation of retained earnings approved at the general meeting of shareholders in June 2006.

18

52,247,210

(Thousands of yen)

The year ended March 31, 2008 (April 1, 2007 - March 31, 2008)

Shareholders' equity

Balance as of March 31, 2007

Common stock

Capital surplus

11,933,790

17,354,214(5,934,751)

Total
shareholders'equity52,039,654(1,310)(3,215)2,105(774,875)(834,531)(3,215)795

Retainedearnings
28,686,400

Treasury stock

Changes of items during the period
Dividends from retained earnings
Net income
Purchase of treasury stock
Retirement of treasury stock
Changes other than shareholders'equity during the consolidated fiscal
year
Total changes during the period
Balance as of March 31, 2008

(774,875)(834,531)--(1,610,717)(1,109)(1,611,826)

11,933,790

17,354,214

27,075,682(5,935,860)

50,427,827

Minority
interests

Total net
assets

Unrealized gains andadjustments
Total
unrealized
gains andadjustments
56,826

Unrealized
gains on othersecurities
Balance as of March 31, 2007

56,826

150,729

52,247,210

Changes of items during the period
Dividends from retained earnings
Net income
Purchase of treasury stock
Retirement of treasury stock
Changes other than shareholders'equity during the consolidated fiscal
year(774,875)(834,531)(3,215)795(30,065)(30,065)

3,946(26,119)

Total changes during the period(30,065)(30,065)

3,946(1,637,946)

Balance as of March 31, 2008

26,761

26,761

154,675

50,609,264

19

(4) Consolidated statements of cash flows

Category

Year ended March 31,2007(April 1, 2006 - March 31,
2007)
Amount(thousands of yen)

Year ended March 31,2008(April 1, 2007 - March 31,
2008)
Amount(thousands of yen)

2,230,512
2,021,741

1,093,957
2,291,512(1,136,555)
269,770(1,836,397)(81,141)

1,755,255(155,563)(334,669)(179,106)

36,000-(36,000)

174,129

277,825

103,696

3,034

10,964

7,930(39,181)
97,860207,389(2,850)(8,148)59,472
22,147(29,320)
52,560-(39,377)
287,072
33,012
421,574(21,000)
43,400(489)
93,739180,000
246,651(196)
189,21133,012
214,184(18,149)
8,148(16,071)(22,147)
28,83041,179180,000
246,651-(20,999)(20,999)274,665
1,135,841
193,928(718,806)(218,130)694,157
1,402,522
147,064(1,883,515)(218,130)
419,491
266,680(46,863)(1,164,708)

1,842,880

39,903(1,802,976)(591,739)(289,753)

301,985

513,686(3,715,182)(4,228,868)(168,499)(925,020)(756,520)

73
8,593(27,850)
5,296,163
38,253(85,398)(2,592,692)
2,656,325

431(592,149)(857,639)
35,702(288,918)(222,218)
1,223,751(180,000)(289,322)

357(600,743)
27,850(6,153,803)(2,551)(203,520)
2,370,474
1,223,751(180,000)(2,945,648)

I Cash flows from operating activities
Income before income taxes
Depreciation expense
Increase (decrease） in allowance for
doubtful accounts
Decrease in allowance for employee
bonus
Increase in allowance for directors' andauditors' bonus
Increase in allowance for employee
retirement benefits
Increase in allowance for directors' andauditors' retirement benefits
Interest and dividends income
Interest expense
Loss on cancellation of guarantee deposit
Amortization of goodwill
Gain on sale of investment securities
Other income
Loss on retirement of fixed assets
Loss on sale of fixed assets
Gain on sale of fixed assets
Impairment loss
Litigation settlement
Expense for changing brandGain on sale of shares of relatedcompanies
Gain on donation of fixed assets
Loss on revaluation of inventories(Increase) decrease in accounts receivable
Decrease in inventories
Increase in other current assets
Decrease in claims provable inbankruptcies
decrease in accounts payable
Increase (decrease) in other current
liabilities
Increase (decrease) in consumption tax
payableDecrease in other fixed assets
Increase in other long-term liabilities
Directors' and auditors' bonus paid
SubtotalInterest and dividends received
Interest paid
Income and other taxes paid
Income tax refund
Loss on litigation settlement
Cash flows from operating activities

20

YoY (%)
Change(thousands of yen)Category
II Cash flows from investing activities
Payments for time deposits
Proceeds from time deposits
Acquisition of shares of newly
consolidated subsidiary
Expenditure for business transfer
Acquisition of shares of consolidated
subsidiaries
Acquisition of tangible fixed assets
Proceeds from sale of tangible fixed
assetsAcquisition of intangible fixed assets
Purchases of investment securities
Proceeds from sale of investment
securities
Acquisition of shares of relatedcompanies
Proceeds from sale of shares of relatedcompanies
Long-term prepaid expense paid
Loans payable
Proceeds from return of loans
Payments for guarantee deposit
Proceeds from collection of guarantee
deposit
Other investments (net)Cash flows from investing activities
III Cash flows from financial activities
Proceeds from short-term loans
Repayments of short-term loans
Proceeds from bond issued
Payments for redemption of bonds
Proceeds from long-term loans
Repayments for long-term loans
Proceeds from sale of treasury stock
Acquisition of treasury stock
Payments for dividends by parent
company
Payments for dividends to minority
shareholders
Cash flows from financing activities
IV Effect of exchange rate changes on cash
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 at end of theyear

Year ended March 31,2007(April 1, 2006 to March 31,
2007)
Amount(thousands of yen)

Year ended March 31,2008(396,000)
300,000(286,500)
297,500

109,500(2,500)-(4,591,675)(4,591,675)-(21,000,000)(21,000,000)(7,000)(15,000)(8,000)(1,340,623)(706,771)

633,851

160,977

88,983(71,993)(132,451)(300,000)(603,990)-(471,539)
300,000

305,000

221,000(84,000)-(144,000)(144,000)-

41,00041,000(47,022)(61,400)
173,355(210,196)(69,786)(778,566)
184,289(2,089,663)(22,764)(717,166)
10,934(1,879,466)

423,594

347,653(75,941)

41,359(1,090,406)(57,007)(29,162,534)(98,366)(28,072,127)

170,540,000(183,201,000)
11,000,000(1,904,000)
15,689(57,909)808(6,370)1,226,060,000(1,226,149,000)(3,808,000)
28,028,091(34,011)795(3,215)

1,055,520,000(1,042,948,000)(11,000,000)(1,904,000)
28,012,401
23,897(12)
3,155(769,594)(774,017)(4,422)(4,500)(4,500)-(4,386,876)

23,316,142

27,703,019

(1)

-

1

(2,820,958)(6,135,713)(3,314,755)

12,391,506

9,570,547(2,820,958)

9,570,547

3,434,833(6,135,713)

21(April 1, 2007 to March
31, 2008)
Amount(thousands of yen)

YoY (%)
Change(thousands of yen)