Financial Results for the Fiscal Year Ended March 31, 2005 (Consolidated)
May 23, 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: Akihiko Terada
U.S. Accounting Standards: N/A

1. Consolidated results for the year ended March 31, 2005 (April 1, 2004 - March 31, 2005)(1) Consolidated results
Net SalesYear ended March 31, 2005
Year ended March 31, 2004

Operating Income

Millions of yen%

Millions of yen

201,590
189,987

6.1
10.9

5,284
13,869Net Income
Per Share

Net Income
Millions of yen

2,029
7,762

Year ended March 31, 2005
Year ended March 31, 2004
Notes:1.

Ordinary Income%

Millions of yen

△61.9
7.4

%

△61.0
8.9

5,472
14,045Net Income Per Shareafter Adjustingfor Latent Shares

ROE

ROA

Operating
Income to
Sales

%

Yen

Yen

%

%

%

△73.9

56.12
215.25―215.09

3.9
16.1

6.5
17.3

2.7
7.4

11.1

Equity-method investment profit (loss)

Year ended March 31, 2005: - million yen
Year ended March 31, 2004: - million yen
2. Average number of shares during the term (consolidated)Year ended March 31, 2005: 35,514,999 sharesYear ended March 31, 2004: 35,894,227 shares
3. Changes in the method of accounting: None
4. Percentages indicated for sales, operating income, and net income are increases (decreases) compared to the preceding fiscal year.

(2) Consolidated financial position
Total Assets

Shareholders' Equity
Per Share

Equity Ratio

Millions of yen

Millions of yen%

Yen

85,24083,33351,241
51,79160.1
62.2

1,451.60
1,446.33

Year ended March 31, 2005
Year ended March 31, 2004
Note:

Shareholders' Equity

Number of outstanding shares at the end of the term (consolidated)Year ended March 31, 2005: 35,275,043 sharesYear ended March 31, 2004: 35,783,941 shares(3) Consolidated cash flows
Net cash provided byoperating activities

Net cash used ininvesting activities

Net cash used infinancing activities

Cash and cash equivalents
at end of year

Millions of yen

Millions of yen

Millions of yen

Millions of yen

471
2,839

△4,502△3,748

1,486△4,233

3,871
5,900

Year ended March 31, 2005
Year ended March 31, 2004

(4) Scope of consolidation and application of equity method
Number of consolidated subsidiaries: 8
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: 1 company
Newly unconsolidated: None
Newly excluded from the equity method: None

Newly subjected to the equity method: None

2. Projected consolidated results for the Year ended March 31, 2006 (April 1, 2005 - March 31, 2006)
Net Sales

Ordinary Income

Net Income

Millions of yen

Millions of yen

Millions of yen

106,900
223,700

3,680
11,230

1,900
6,230

InterimYear ended March 31, 2006
Supplementary information
Projected net income per share for the fiscal year: ¥175.59

Note: Fractions of 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.

1

Nichii Gakkan Company

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, andOther 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; andmedical affairs consulting. In Health Care Business, the Group provides home care services under long-term careinsurance (home-visit nursing 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, drugstore and pharmacy management, leasing, and manpower services.
The Group's businesses and positioning of each business are as shown below.
correspond to those in the segment information by business category.
Business Category

Principal Businesses/Products

The business categories

Principal Companies

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

Health Care Business

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

Education BusinessCorrespondence courses for medical office work, home helper
Nichii Gakkan Company
training, babysitter training, and sign language

Other Businesses

Nihon Support Service Co., Ltd.
Tokyo Marunouchi Publishing Co, Ltd.
Information processing, storage and delivery service,
Roris Co., Ltd.
publication and sale of books, production and sale of flowers,
Sun Medic Co., Ltd.
ornamental plants, seeds, and saplings, management of drug
Nihon Credit Lease Co., Ltd.
stores and pharmacies, leasing, manpower service, etc.
Keihin Life Service Co., Ltd.
Nichii Power Bank Co., Ltd.

2

Nichii Gakkan Company

The functions of the corporate group described above can be illustrated as shown below.
Health Care Business- Health Care Business- Home-visit nursing care
- Home-visit bathing (day care)- Sale and rental of welfare equipment- Catering- Consultation and information- Welfare equipment / ASP

Health Care Business

Local governments, etc.
Nichii Gakkan Company
Sales of merchandise

Consolidated subsidiaries
Keihin Life Service Co., Ltd.
Reha team japan Co., Ltd
Unconsolidated subsidiaries
Hospica Co., Ltd
Affiliates not subject to the equity
methodLife Care Partners Co., Ltd.

Other Businesses- Data processing, and storage..and delivery service- Publishing and sale of publications- Production and sale of flowers,
ornamental plants, seeds and saplings- Drug store management- Pharmacy management- Leasing- Manpower service
Consolidated subsidiaries
Nihon Support Service Co., Ltd.
Tokyo Marunouchi Publishing Co.,Ltd.
Roris Co., Ltd.
Sun Medic Co., Ltd.
Nihon Credit Lease Co, Ltd.
Keihin Life Service Co., Ltd.
Nichii Power Bank Co., Ltd.
Unconsolidated subsidiaries
Yao Iryo PFI
5 other companies

Customers

Sales of merchandise
Provision of services

Sales of merchandise
Provision of services

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

Local governments, etc.
Medical institutions
Customers
Member stores

Medical institutions, etc.
Sales of merchandise

storage and delivery service of teachingmaterials and products, and computer
operations service
Leasing
Manpower- service

Education Business
Students
Nichii Gakkan Company
Courses and sale andleaseofeducational
books

Health Care BusinessLeasingNichii Gakkan Company

Manpower- Keihin Life Service Co., Ltd.
servicereha team japan Co., Ltd
Merchandise sales and nursery service
Provision of services
Leasing
Manpower service

3

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

Customers

Nichii Gakkan Company

2. Management Principles
1. Basic Principles
Based on our business concept of "user orientation," we are constantly striving to improve the living standards ofthe people by establishing unique business models in such areas as medical service, nursing care, and educationthat are closely tied to the lives of the people. We also recognize that we must fulfill our social responsibilities as acompany and comply with corporate ethics in our corporate activities to win the trust of all stakeholders such as
stockholders, customers, suppliers, employees, and local community and also to maximize our corporate value.
To this end, we are actively working to improve the autonomy of each organization and employee.
As the Japanese population grays at an unprecedented pace, the social environment and economic conditions will
also undergo dramatic changes. We intend to become a company that can promptly and properly respond to
consumers' needs and one that can achieve sustainable growth. At the same time, we will contribute to thedevelopment of the medical and welfare industry as a whole.

2. Basic Principles on Profit Distribution
We are working to improve our corporate value by providing our stockholders with stable and yet aggressive profit
distribution.
During the year ended March 31, 2005, we experienced a temporary setback in performance. As there are signsof recovery in performance from the next fiscal year, however, we would like to increase the return of profits to ourstockholders and improve our corporate value. Therefore, we plan to increase the dividend paid at the end of last
fiscal year (¥17.50) by ¥4.50 and pay a common dividend of ¥22 at the end of this fiscal year.
Marketing buying of treasury stock amounted to 503,800 shares of common stock, or ¥1,522,415,000, by March 31,
2005. The acquisition is 72% of the scheduled acquisition of 700,000 shares (announced on August 13, 2004).
Retained earnings will be invested strategically to expand mid- and long-term businesses in anticipation of thescheduled revision of the long-term care insurance system in April 2006. The investments include reinforcementof preventive care services and opening of multi-functional care centers that will provide a myriad of nursing careservices.

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 a double-digit
sales growth and appropriate income. We also see ROE (return on equity) as an important business indicator interms of efficient use of stockholders' equity and emphasis on stockholders' value.
① Sales growth → double-digit growth② Operating income to sales → 8%
③ ROE (return on equity) → 15%

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Nichii Gakkan Company

4. Mid- to long-term strategies and issues
We have continued our effort to turn ourselves into a solid company that can promptly and accurately
accommodate social changes. As a facet of this effort, we have aimed to improve the autonomy of our frontline
operations by restructuring and improving the frontline organizations. The investments required for the
grounds-up organizational reform and the marketing system, whose restructuring had not been completed, affected
the performance in the year ended March 31, 2005. Through the reform, however, management strategy ismaking progress and cost awareness is taking root throughout the company. Furthermore, to rejuvenate
marketing, we will focus on reinforcing the marketing system in fiscal year 2005, and hold periodic marketingstrategy meetings at all branch stores, branch offices, and head office to confirm the progress in achieving targets
and to plan the necessary measures. This will allow us to form a system for sharing information among all thecompanies in a timely fashion to achieve higher profitability and greater market shares.
As Japanese society grays to an unprecedented age, the Japanese government is considering revisions andenforcement of public regulations, including a review of the medical and long-term care insurance systems. We
will aggressively take various measures to remain the leader and grow further in the environment of dramaticchanges in public systems.
We are scheduling the grand opening of Kobe Port Island Center, a facility constructed under Kobe's Medical
Industry Development Project, in the spring of 2006 to coincide with the opening of Kobe Airport. As a center for
research and development and source for new information, Kobe Port Island Center will materialize our company's
future vision of "corporate philosophy and social contribution from the consumers' point of view." To this end, thecenter will provide meaningful services and information to improve medical care and welfare services.

【Medical Support Business】
With the declining birthrate and graying population, people have increasingly greater expectations of lower medical
fees, more efficient medical provider systems, and better patient services. At the same time, the government is
attempting to renovate the medical system into a sustainable system by considering grounds-up reform proposals
on medical system, such as by integrating the medical insurance plans, creating a new medical system for theelderly, and reviewing the medical service fee system.
Against such a backdrop, medical institutions increasingly rely on outsourcing to private businesses to help them
improve the quality of medical care and to make hospital management more efficient.
To help medical institutions meet such severe changes in operating environment, we will develop and improve
services that meet the needs of medical institutions, and boost the support system for medical institutions. We will
designate the activities below as our mid- to long-term strategy, promote the improvement of service quality anddevelopment of new services, and employ more extensive cost control.
① Expand medical institution operation support services by using hospital PFI② Provide medical management consulting service and medical management analysis system at Kobe Port Island
Center
③ Provide existing users with more extensive operational services and rectify contractual provisions④ Review and improve work systems to enable the placement of proper personnel to medical institutions【Health Care Business】
Long-term care insurance system is subject to review every five years.
the system is scheduled In April 2006.

The first revision since the enforcement of

We feel that the proposed revisions such as the creation of community-based services and the establishment ofpreventive care system present us with an opportunity to launch new services. We are therefore maintaining
speed and flexibility in our businesses. On the other hand, in the rapidly growing nursing care market, increasing
competition between companies and market saturation can be expected. By providing high-quality services
catering to users' needs and a more extensive nursing care service menu, we intend to stay ahead of thecompetition. In addition, we formed Nursing Care Standardization Committee in the company in April 2005 toensure complete compliance in preparation for the full enforcement of standardization of information disclosure(third party evaluation) and Personal Information Protection Law.
We will promote the activities below in an effort to improve the quality of our services and increase our market
shares.
① Create "multi-functional care centers" that can offer "visit care," "day care," "preventive care," and "overnight5

Nichii Gakkan Company

care." Day service center will be the core of each multi-functional care center.
② Improve the recognition of our nursing care services at the some 800 visit care facilities across the nation.
③ Create a service network by reinforcing the collaboration between medical institutions and our nursing careservices.
④ Create high value added products by expanding services that are not covered by long-term care insurance.
⑤ Ensure compliance by installing Nursing Care Standardization Committee.

【Education Business】
The social environment characterized by declining birthrate and graying population has created a greater demand
for workers in medical and welfare industries and an increasing need for qualifications in these industries. In
response, we will further improve our existing correspondence courses such as medical office work course andhome helper training course. In addition, we will start a preventive exercise instructor course to train students inpreventive care service, which is scheduled for implementation under the revised long-term insurance system.
We will continue to develop new courses for trainees to acquire the necessary service skills catering to the needs inthe field, and thereby contribute to the creation of employment in the medical and welfare industries.

【Other Businesses】
Other businesses include support operations related to medical and welfare services such as welfare equipment
leasing, publication of books on medicine or welfare, manpower service, and management of pharmacies.
The welfare equipment leasing business is responsible for rejuvenating product distribution in the welfare
equipment market and to improve the medical and nursing care environment.
The publication business is making a contribution in improving the quality of personnel by providing the latest
specialized information by publishing magazines specializing in medicine or welfare and textbooks for theeducation business.
The manpower service business places highly specialized personnel in the medical and welfare industries to help
alleviate the difficult employment situation.
We will continue to aggressively develop our businesses with the help of our group companies by taking advantage
of our core competence in medical and welfare services.

5. Basic view of corporate governance and implementation status of related measures(Basic view of corporate governance)
Our goal is to become a company that is trusted by all the stakeholders, including stockholders, investors, andusers, and that can further contribute to the development of the local community. We are aggressively working toachieve this goal by designating as a high priority management issue the establishment of corporate governancethat pursues transparent and efficient corporate management, expedient managerial decision-making, andcompliance and risk management.
(Implementation status of corporate governance measures)
We employ the auditor system. The functions of the company are described below.
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 fifteen directors, holds a periodic meeting, in principle, once a month, and ischaired by the President and Representative Director.
•
Executive officers expedite the execution of duties based on the responsibility and authority delegated by the
Board of Directors.
We have appointed and placed four executive officers primarily among managers of business areas andcompetencies.
Appointment of outside auditors•
Auditors monitor the performance of duties and management by the Board of Directors. The Board ofAuditors is composed of four auditors, of which two are outside auditors to reinforce auditing of management.
The outside auditors do not have an interest, such as business transaction, in our Group.

6

Nichii Gakkan Company

Group management•
Group Company Management Section meets regularly with top management of group companies to provide
guidance and supervise their operations to ensure the efficient operations and supervisory functions of ourgroup companies.

Compliance and risk management
Our Group's operations are expected to be carried out under the most stringent compliance system due to theeffect of the operations on the public and society. In response, we have designated compliance, which is the coreof the infernal control system, as a top managerial priority, and have begun to develop a system with a focus on the
Compliance Committee. The Compliance Committee is chaired by the President and Representative Director, andis composed of relevant directors, standing auditors, chief auditor, and in-house counselor. The committee
collaborates with relevant departments and committees to perform its tasks. In addition, we have installed a"Compliance Hotline" to ensure that issues concerning corporate ethics and information from the field reach theCompliance Committee.
••

To gain the trust of stakeholders in our protection of personal information, we have followed a complianceprogram that sets forth the policies, planning, and implementation system for compliance, and formed the
Personal Information Protection Committee in September 2004 to establish a system for properly handlingpersonal information within the company.
The Nursing Care Standardization Committee was formed in April 2005 so Health Care Business can provide
services of the best possible quality and properly manage its operations. The committee ensures that HealthCare Business is prepared for risks and complies with bills concerning nursing care business.

IR activities•
We practice fair disclosure to ensure transparency of management. Besides holding financial settlement
briefings for the press and analysts, we hold open house at our day service centers, disclose accountsettlement information on our Web site, and issue news releases according to our policy of timely and fair
information disclosure.
•issue news releases to disclose timely and fair information. As IR activity catering to overseas investors, we
provide an extensive English-language tool (e.g., Investors' Guide) and welcome visits by overseas investors.
We will continue to engage in aggressive IR activities such as by revamping IR catering to individual investors.

7

Nichii Gakkan Company

3. Business Results and Financial Condition
1. Business Results① Overview
Consolidated business results(Millions of yen)
Net Sales
Operating Income
Ordinary Income
Net Income

FY3/04
189,987
13,86914,045
7,762

FY3/05201,590
5,284
5,472
2,029

YoY (%)
106.1△ 61.9%△ 61.0%△ 73.9%In the year ended March 31, 2005, the Japanese economy began to make a turnaround, as corporate profits
improved and businesses, particularly those in manufacturing, resumed capital investment. On the other hand,
Japan saw one of the worst heat waves in recent years, landing of several typhoons, and earthquakes. Thesenatural disasters, combined with the cloud cast over the future by the fall in personal income and increasing burdenof social security expenses by individuals, dampened personal consumption, and made the future uncertain formany people.
As for the environment that surrounds our Group, grounds-up reforms are being implemented and discussed torebuild the social security system for medicine and nursing care into a sustainable system under the rapid aging of
the population.
In the area of medical insurance system, the government is promoting a reform to modernize and improve theefficiency of medical management by reviewing the medical service fee system and promoting the implementationof IT medical charts to rectify medical expenses and improve the efficiency of medical service system. Moremedical institutions are seeking the help of reliable partners (contractors) to improve management and promptly
solve managerial issues.
The long-term insurance system is scheduled for a major revision in April 2006. Noteworthy points of the revision
are the creation of community-based services and the establishment of preventive care system to improve living
functions and to slow down the deterioration of patients who require nursing care. Nursing care fee system is alsoscheduled for a review at the same time. These changes will mean a major turning point for businesses thatprovide nursing care services.

Against such a backdrop, we have made grounds-up organizational restructuring, and reinforced and improved theservice field system to establish a strong corporate organization that can quickly and flexibly meet major changes in
the market environment. On the other hand, the temporary delay in organizational system improvement from thestructural reforms of the head office, branch offices, and branch stores at the beginning of the fiscal year and theinvestment for changes to the work system have affected the performance of each business field. In service fieldsystem, too, a delay in training field supervisors hindered aggressive and efficient business activities. In the latter
half of the fiscal year, organizational structure and service field structure were gradually completed so we could
focus on restoring business performance and making field activities more efficient. We also launched in October
2004 the multi-functional care center plan, which is our mid-term plan, to promote a business strategy for the future.
As a result of these activities, net sales during the year ended March 31, 2005 was ¥201,590 million (up 6.1% year
on year), ordinary income was ¥5,472 million (down 61.0% year on year), and net income was ¥2,029 million (down
73.9% year on year).

② Business results by segment【Medical Support Business】
In Medical Support Business, we aggressively entered new businesses and diversified services to tailor solutions to
the various managerial issues faced by each medical institution. Our forays include Japan's first hospital PFI
business at Yao City Hospital in May 2004 and a comprehensive medical and nursing care service system thatcaters to the local community in a business alliance with Kitakyushu Hospital Group in November 2004. As aresult of these activities, net sales increase exceeded that of last fiscal year (7.3%).
In terms of operating expenses, the additional control costs of the substantially changed work system have greatly
affected income. As a solid field control system has been gradually established, however, we are beginning to see
such benefits as more extensive cost control by user and improvement in service quality.
As a result of these activities, net sales in Medical Support Business during year ended March 31, 2005 was

8Nichii Gakkan Company

¥104,672 million (up 7.9% year on year) and operating income was ¥8,876 million (down 16.6% year on year).

【Health Care Business】
In Health Care Business, we have increased nursing care service facilities to accommodate the rise in demand forservices and improved the service menu as the number of elderly persons and others who require nursing carereached some 4 million in Japan and will continue to increase. As of March 31, 2005, we have 889 facilities forhome-visit nursing care (year on year increase of 217), 669 home care support offices (increase of 149), 191 day
care centers (increase of 7), and 223 welfare equipment offices (increase of 59), thus exceeding the initial plan for
the number of facilities. In addition, we launched the multi-functional care center plan in October 2004, and havebegun two new services -- preventive care service and overnight care service -- at some locations. As theseexamples illustrate, we aggressively increased the number of facilities this fiscal year. Due to the delay in training
the staff at the new facilities, however, we did not achieve the anticipated sales effect, and could not accelerate theincrease in the number of users. This fiscal year was also plagued by such natural disasters as heat wave,
typhoons, and earthquake.
In terms of operating expenses, the increase in miscellaneous expenses
accompanying the increase in the number of facilities temporarily diluted the income per facility. In addition, we
incurred an unexpected increase in the expenses for hiring and training nursing care specialists.
As a result of these activities, net sales of this segment was ¥73,973 million (up 6.3% year on year) and operating
income was ¥2,213 million (down 51.6% year on year).

【Education Business】
In Education Business, we strove to training human resources suited to the needs of the times through suchcourses as medical office work course, home helper training course, and baby sitter training course. We also
founded Manabi Net, a Web site specializing in medical and nursing care education curriculums, that provides brief
descriptions of courses and accepts enrollment applications on-line, to add another channel for attracting students.
Due to the effect of the press report that the government is contemplating a review of the qualifications for nursing
care workers (e.g., longer training and more difficult curriculums), however, both sales and number of students fell
short of forecasts.
As for operating expenses, due to the difficulty in signing up students, increase in advertising and promotion
expenses, and smaller than anticipated class sizes, the cost to sign up each student has increased.
As a result, net sales of this segment amounted to ¥15,446 million (down 11.4% year on year) and operating
income was ¥83 million (down 97.3% year on year).

【Other Businesses】
In Other Businesses, we dedicated our efforts to achieve profitability and improve operational efficiency byaggressively engaging in such businesses as welfare equipment leasing, publishing in medical and welfare field,
manpower service, pharmacy management, storage and delivery service, and production and sale of flowers,
ornamental plants, seeds, and saplings. The inability of Nichii Power Bank, a manpower service company that
had increased the number of sales facilities at the beginning of the fiscal year, to achieve its targets had a large
impact on operating expenses.
As a result, net sales of this segment was ¥7,498 million (up 24.9% year on year) and operating loss was ¥355
million (operating income was ¥307 million last fiscal year).

9

Nichii Gakkan Company

2. Financial Status① Overview
During the year ended March 31, 2005, cash and cash equivalents ("funds") amounted to ¥3,871 million, down
¥2,028 million from the last fiscal year. Cash flows and factors of the cash flows are shown below.
【Cash flows from operating activities】
As a result of operating activities during the year ended March 31, 2005, funds increased by ¥471 million (down¥2,368 million from the previous fiscal year).
This result can be attributed to a number of reasons. In Medical Support Business, although net sales increase
exceeded that in the previous fiscal year, the increase in operating expenses, namely the large increase in control
costs of the revamped work system, dampened profits. In Health Care Business, the number of our nursing careservice facilities exceeded our projection as we aggressively expanded our business. Due to the delay in training
the staff at the new facilities, sales efficiency deteriorated, and the number of users failed to meet our expectations.
In terms of operating expenses, the increase in miscellaneous expenses from the increase in the number offacilities temporarily diluted profit per facility. In addition, the increase in the expenses for hiring and training
nursing care specialists was more than we had anticipated. Furthermore, in Education Business, the press reportthat the government is considering a review of the qualifications for home helpers is partly to blame for the shortfall
in net sales and the number of students from the projected figures. In terms of operating expenses, the cost to
sign up each student increased due to the higher advertising and promotion expenses and the need to hold classes
with fewer students than had been planned. As a result, income before income taxes was ¥5,043 million, or down
¥9,055 million from the previous fiscal year.

【Cash flows from investing activities】
As a result of investing activities during the year ended 31st March, 2005, funds decreased by ¥4,502 million (in theprevious fiscal year, funds decreased by ¥3,748 million).
Principal investments include ¥1,476 million for Kobe Port Island Center, ¥2,036 million for day service centers, etc.
(27 new facilities and 2 existing facilities), and acquisition of software.

【Cash flows from financial activities】
As a result of financial activities during the year ended 31st March, 2005, funds increased by ¥1,486 million (funds
decreased by ¥4,233 million in the previous fiscal year).
This is primarily due to an increase in short-term loans.
Trends in cash flow indicators of the Group can be seen below.
Year ended March 31, 2004
Equity ratio (%)
62.2
Equity ratio based on present value (%)
237.5
Debt redemption (years)
0.3
Interest coverage ratio
77.2

Year ended March 31, 2005
60.1
133.7
10.3
11.1

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.
2.
3.

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.

10

Nichii Gakkan Company

3. Outlook for Next Term
In Medical Support Business, we will use as new business models the hospital PFI business, which we started thisfiscal year, and alliances with medical institutions, and develop services to provide comprehensive support for
medical management. In addition, next fiscal year, we will reinforce our marketing to aggressively call on private
hospitals and clinics, learn the needs of users, and address these needs with product development and service
provision in the future. Furthermore, based on the reinforcement of the field management system that we started
last year, we will review contracts and improve operational efficiency to develop the foundation for consistentearnings.
In Health Care Business, we will add more day service centers that also offer preventive care service and overnightcare service to promote the multi-functional care center plan, which is our mid-term plan, and to improve ourservice system. By accurately addressing the needs of users and their families, and effectively communicatingwith the local communities and governments, we will aim to become the top service provider in each community.
As for profitability, we will reinforce marketing through the greatly expanded facility network to increase the numberof uses and improve profits per facility at an early stage.
In Education Business, we plan to open a preventive exercise instructor course, a new course that will train
specialized staff for preventive care service, in late May 2005. We anticipate the demand for the course will
increase as it is designed to improve the skills of helpers. We will review existing courses for their curriculum andprices to attract more students, launch more efficient advertising and promotion, and review classroom operations
to promptly improve profitability.
In Other Businesses, we will launch services that support our core businesses (Medical Support Business, HealthCare Business, and Education Business) and that can achieve maximum synergy to improve managerial efficiency.
As a result of these activities, our outlook for performance in the year ending March 31, 2006 is ¥223,700 million in
net sales (up 11% year on year), ¥11,230 in ordinary income (up 105.2% year on year), and net income of ¥6,230
million (up 207.0% 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 such risks, in the event of an unforeseeable incident, suchrisks may cause serious effect on the business performance or financial conditions of the Group. The mattersbelow were determined to be potential risks by the Group upon preparing this data.

【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 medical consultation service. 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 affect contract amounts and contract
provisions.

【Health Care Business】
Approximately 90% of the net sales of our Group's Health Care Business can be attributed to services that arecovered by public long-term care insurance. Therefore, a review of the system or compensation can have a major
effect on net sales and profits. These services are regulated by the Nursing 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 Nursing Care
Law) and nursing care compensation is subject to review every three years. Both are scheduled for revision in
April 2006.
The bill to revise the Nursing Care Law, which has been submitted to the current diet session, proposes benefits
and compensations for services to prevent individuals who are in need of minor nursing care and those inequivalent conditions from deteriorating. Depending on the outcome of the bill, it may have an impact on theGroup's mid- to long-term business profitability.

11

Nichii Gakkan Company

【Education Business】
Due to the effect of the press report that the bill to revise the long-term care insurance proposes a review of thequalifications for nursing care workers (e.g., longer training and more difficult curriculums), net sales of the homehelper training course rank 2 curriculum in our Education Business has suffered. Depending on the outcome of
the revision of the system, it may affect the profitability of the course.

The Group is working to improve CS by providing services in each business field while maintaining high degree ofexpertise. At the same time, we will promptly and accurately respond to fluctuations in the business environmentand systems and make our operations more efficient to lay a solid foundation for earnings.

12

Nichii Gakkan Company

4. Consolidated Financial Statements(1) Consolidated Balance Sheets(unit: thousands of yen)
FY 2004(As of March 31, 2004)

Category

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

Total current assets

39,161,273

II. Fixed assets(1) Tangible fixed assets
1. Buildings and structures
Less: cumulative depreciation

19,805,872
4,101,539

2. Machinery and vehicles

397,062

3. Tools, furniture and fixtures
Less: cumulative depreciation
4. Land
5. Construction in progress(%)

Amount6,107,096
24,038,050
4,480,062
1,831,407
364,715
2,371,275? 31,333

3. Inventories
4. Deferred tax assets
5. Short-term loans receivable
6. Other current assets
7. Allowance for doubtful accounts

Less: cumulative depreciation

FY 2005(As of March 31, 2005)

336,555(%)

47.0

38,502,074

23,763,739
4,909,884

15,704,332

Change△2,049,075

4,058,021
24,801,790
4,698,454
1,847,149
38,066
3,133,566△74,974

763,739
218,392
15,742△326,648
762,290△43,64045.2△659,199

18,853,855

3,149,522

39,467△21,039

482,582
8,002,867
1,235,972

60,947△704,198△988,120

152,863
60,507

113,395

1,570,158
1,148,524

YoY

1,522,839
421,634

1,040,257

8,707,065
2,224,092

Total tangible fixed assets(2) Intangible fixed assets
1. Consolidated adjustment account
2. Software
3. Other current assets

27,117,632

Total intangible fixed assets

3,597,950

32.5

3,317,097
120,736
160,116

13

28,614,744

33.5△205,022
521,599△3,6103,112,075
642,336
156,505
4.3

3,910,917

1,497,112

4.6

312,966

Nichii Gakkan Company

(unit: thousands of yen)
FY 2004(As of March 31, 2004)
Category

Amount(%)(3) Investments and other.assets
1. Investment securities
2. Long-term loans receivable
3. Long-term prepaid expenses
4. Guarantee money deposited
5. Other investments
6. Deferred tax assets
7. Allowance for doubtful accounts

2,889,764
4,239,511
92,796
4,483,854
920,635
895,977△66,093

Total investments and other assets

13,456,445

Total fixed assets
Total Assets

FY 2005(As of March 31, 2005)
AmountYoY(%)△1,058,677

1,831,087
5,089,519
104,898
5,022,467
1,256,516
976,169△68,257
16.2

14,212,400

44,172,028

53.0

83,333,302

100.0

34.6

2,391,017
4,717,000
78,734
978,119
1,205,357
13,866,697
3,681,227
4,254,868
31,173,021

Change850,008
12,102538,613335,880
80,192△2,16416.7

755,954

46,738,062

54.8

2,566,034

85,240,136

100.0

1,906,834(Liabilities)
I. Current liabilities
1. Notes and accounts payable
2. Short-term loans payable
3. Current installments of long-term debt
4. Income taxes payable
5. Consumption taxes payable
6. Accrued expenses
7. Allowance for employee bonuses
8. Other current liabilities

2,049,063
853,839
58,8893,035,910
1,466,427
13,406,554
3,163,864
4,810,068

Total current liabilities

28,844,620

Long-term liabilities
1. Long-term loans payable
2. Deferred tax liabilities
3. Allowance for employee retirement benefits
4. Allowance for.directors' and auditors'.
retirement benefits
5. Other long-term liabilities

341,953
3,863,160
19,844△2,057,791△261,070
460,142
517,363△555,20036.6

2,328,401

II.

Total long-term liabilities
Total Liabilities

66,901
261,791
2,067,620

57,822735
2,414,372△9,078△261,056
346,751

128,534

128,281△252

2,585,363

60,515
3.1

87,2152,688,427

3.1

103,064

31,429,983

37.7

33,861,449

39.7

2,431,465

14

26,700Nichii Gakkan Company

(unit: thousands of yen)
FY 2004(As of March 31, 2004)
AmountCategory

FY 2005(As of March 31, 2005)(%)

AmountYoY(%)

Change(Minority interests)
Minority interests

111,8350.1

137,380

0.2

25,544

11,933,790
17,354,214
26,713,350

14.3
20.8
32.1

11,933,790
17,354,214
27,562,047

14.0
20.4
32.3

848,697

41,1190.1

182,8880.2

141,768△4,250,992△5.1△5,791,633△6.8△1,540,641

51,791,482

62.2

51,241,307

60.1△550,175

83,333,302

100.0

85,240,136

100.0

1,960,834(Shareholders' equity)
I. ..Common stock
II.. Capital surplus
III. Retained earnings
IV. Gain or loss from revaluation.
..of marketable securities
V. Treasury stock
Total shareholders' equity
Total liabilities, minority interests,
and shareholders' equity

15

Nichii Gakkan Company

(2) Consolidated Statements of Income(unit: thousands of yen)
FY 2004(April 1, 2003 to March 31, 2004)

Category
I.

Amount(%)

FY 2005(April 1, 2004 to March 31, 2005)
Amount(%)

YoY
ChangeNet sales

189,987,711

100.0

201,590,179

100.0

11,602,467

II. Cost of sales

146,196,298

77.0

160,854,542

79.8

14,658,244

Gross profit

43,791,413

23.0

40,735,636

20.2△3,055,776

35,450,954

17.6

5,529,132

5,284,682

2.6△8,584,908

303,8350.2

28,879III. Selling, general..and.administrative expenses
1.
2.
3.
4.
5.

Advertising and promotion expenses
Directors'..compensation
Salaries and.benefits
Transfer to allowance for bonuses
Allowance for directors'.and auditors'
retirement benefits amount of transfer
6. Directors' and auditors' retirement benefits
7. Employee retirement.benefits
8. Legal welfare expenses
9. ..Travel and.transportation expenses. ..10. Rent
11..Transfer to allowance for doubtful accounts. ..12. Depreciation expenses…13..Consolidated adjustment
14..Other selling,
general and administrative..expenses
Operating income
IV. .Non-operating income
1. Interest income
2. Dividend income
3. Commission on consignment .for office work
4. Income from lease of fixed assets
5. OthersV.

Non-operating expenses
1. Interest expenses
2. New share issue expenses
3. Compensation.damages
4. Loss on disengagementof guarantee money deposited
5. Others

3,614,119
127,655
12,188,386
761,059

4,475,914
122,785
13,788,154
962,172

7,997

8,113

296,057
1,647,735
1,393,516
2,620,788
24,806
291,874
153,201874
414,845
1,970,513
1,441,280
3,427,421
104,839392,292
220,0226,794,623

29,921,821

15.7

13,869,591

7.3

90,96530,40548,571
36,98081,506

288,4280.2

8,121,723

90,42477,80925,215
110,386

37,0852,204
17,88644,03642,96038,625

21,473

16,519Ordinary income

112,3210.1

14,045,699

7.4

137,926

0.1

7,367

115,838

0.1

3,517

5,472,679

2.7△8,573,019

5,577

0.0

△132,348

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

3,229
134,697

16

1,596
3,981

Nichii Gakkan Company

(unit: thousands of yen)
FY 2004(April 1, 2003 to March 31, 2004)
Category
VII. Extraordinary losses
1. Loss on retirement of fixed assets
2. Loss on sale of fixed assets
3. Loss on revaluation of golf club membership
4. Loss on closedown of offices
5. Loss on closedown of stores
6. Others
Income before income taxes
Income, inhabitants and business taxes
Adjustments for income and other taxes

Amount(%)

55,053
167
16,46013,2136,265,957
40,911

84,8940.1

14,098,730

7.4

6,306,868

3.3

29,5370.0

7,762,324

4.1

Minority interest
Net income

17

FY 2005(April 1, 2004 to March 31, 2005)
Amount

71,812
244,706
4,849
112,0481,750
3,440,687△454,261(%)

YoY
Change435,1670.2

350,273

5,043,089

2.5△9,055,641

2,986,425

1.5△3,320,442

27,6440.0△1,8932,029,019

1.0△5,733,305

Nichii Gakkan Company

(3) Consolidated Statements of Retained Earnings(unit: thousands of yen)

FY 2004

Category(Capital surplus)
I. Capital surplus at beginning of the year
II. Increase in capital surplus
1. New issue of stock by capital surplus
III. Capital surplus at end of term
(Retained earnings)
I. Retained earnings at beginning of year
II. ..Increase in retained earnings
1. Net income
III. Decrease in retained earnings
1. Dividends
2. Bonuses for directors and auditors
3. Decrease in additional consolidated
subsidiaries
4. Loss on liquidation of treasury stock
IV. Retained earnings at end of the year

(April 1, 2003 to March 31, 2004)

FY 2005(April 1, 2004 to March 31, 2005)

YoY

AmountAmountChange14,361,414
2,992,800

2,992,800
17,354,214-

19,559,999
7,762,324

7,762,324

569,889
36,0003,083

2,029,019

17,354,214

2,992,800

17,354,214△2,992,800

26,713,350

7,153,351

2,029,019△5,733,305

1,180,321
27,562,047

571,348
848,697626,218
36,000516,531608,973
26,713,350

18

1,571

Nichii Gakkan Company

(4) Consolidated Statements of Cash Flows(unit: thousands of yen)
FY 2004

FY 2005(April 1, 2003 to March 31, 2004)(April 1, 2004 to March 31, 2005)

AmountAmountCategory
I. Cash flows from operating activities
Income before income taxes
Depreciation expenses
Change in allowance for doubtful accounts
Change in allowance for employee bonuses
Increase in allowance for employee retirement benefits
Change in directors' and auditors' retirement benefits
Interest income and dividend income
Interest expenses
Foreign exchange rate loss
Amortization of consolidated adjustment accountLoss on sale of investment securities
Other income
Loss on revaluation of golf club membership
Loss on retirement of fixed assets
Loss on sale of fixed assets
Gain on sale of fixed assets
Increase in accounts receivable
Change in inventory
Increase in other current assets
Increase in accounts payable
Increase in other current liabilities

14,098,730
1,218,075△90,641△171,908
282,963
7,997△121,370
37,085
10
153,201△134,697
16,46055,053167△3,229△2,428,274△1,750,252△223,092
87,132
1,891,507

19

YoY
Change5,043,089
1,321,095
45,804
495,767
346,751△252△117,815
44,0360
220,022△3,981
0
9,549
71,812
244,706△1,596△733,033
106,607△770,270
341,953
64,487△9,055,641
103,020
136,446
667,675
63,788△8,250
3,555
6,951
△9
66,820130,716
0△6,91016,758244,539
1,632
1,695,241
1,856,860△547,178
254,821△1,827,019

Nichii Gakkan Company

(unite: thousands of yen)

Category
Decrease in unpaid consumption taxes, etc.
Decrease in other fixed assets
Increase in other long-term liabilities
Directors' bonuses paid

FY 2004

FY 2005(April 1, 2003 to March 31, 2004)(April 1, 2004 to March 31, 2005)

AmountAmount△379,061
3,954
15,967△36,000
12,529,780
76,099△36,770△9,729,565

SubtotalInterests and dividends received
Interests paid
Income and other taxes paid
Cash flows from operating activities
II. Cash flows from investing activities
Net increase in time deposits
Proceeds from time deposits
Acquisition of stock in consolidated subsidiary
Acquisition of tangible fixed assets
Proceeds from sale of tangible fixed assets
Acquisition of intangible fixed assets
Purchases of investment in securities
Proceeds from sale of investments in securities
Long-term prepaid expenses paid
Loans extended
Proceeds from repayment of loans
Deposits paid

20

YoY
Change2,839,543△261,070
9,524
26,700△36,000
6,467,892
96,347△42,626△6,050,280
471,333

117,991
5,570
10,732△6,061,887
20,247△5,855
3,679,285△2,368,210△351,380
263,521△4,000△3,444,380
6,250△39,478△1,173,000
770,234△64,439△554,735
1,135,194△672,701△385,000
405,500△3,561,383
595,733△584,068△27,455
14,150△70,231△694,180
291,820△853,273△33,619
141,978
4,000△117,002
589,483△544,590
1,145,544△756,084△5,791△139,444△843,373△180,571

Nichii Gakkan Company

(unit: thousands of yen)
Category

FY 2004

FY 2005(April 1, 2003 to March 31, 2004)(April 1, 2004 to March 31, 2005)

AmountAmountProceeds from return of deposits
Other investments (net)Cash flows from investing activities
III. Cash flows from financing activities
Proceeds from short-term loans
Repayments of short-term loans
Proceeds from long-term loans
Repayment of long-term loans
Proceeds from sale of treasury stock
Acquisition of treasury stock
Payment of dividends by parent company
Payment of dividends to minority shareholders
Cash flows from investing activities
IV. .Effects of exchange rate changes on cash and cash.equivalents
V. Decrease in cash and cash equivalents
VI. .Cash and cash equivalents at beginning of the year
VII..Cash and cash equivalents due to additional
consolidated subsidiaries
VIII.Cash and cash equivalents at end of the year

21

YoY
Change394,534△13,658

371,765△6,363△22,769
7,294△3,748,040△4,502,985△754,945

73,345,531△73,805,000△86,257

153,091,000△149,445,000
82,316△71,550

79,745,468△75,640,000
82,316
14,707

16,269△3,132,717△569,889△1,500△4,233,563

6,052△1,548,264△626,218△2,1001,486,234△10,216
1,584,453△56,329△600
5,719,798

△10

0

9

△5,142,070
11,042,251

2,545,418
5,900,180

2,596,652△5,142,070-

516,848

516,8485,900,180

3,871,610△2,028,570

Nichii Gakkan Company