(Translation)

Stock code: 8165
March 7, 2012

NOTICE OF THE
67 ORDINARY GENERAL MEETING OF SHAREHOLDERSthDear Shareholder
You are cordially invited to attend the 67th Ordinary General Meeting of Shareholders of
Senshukai Co., Ltd. (“the Company”), which will be held as described hereunder.
If you are unable to attend the meeting, you may exercise your voting rights in writing or via
electromagnetic methods such as the Internet. Please review the attached Reference Material
for Ordinary General Meeting of Shareholders and exercise your voting rights following the“Procedure for Exercising Voting Rights” on page 3.
Sincerely yours,
Michio Tanabe
President and Representative Director
Senshukai Co., Ltd.
1-8-9 Doshin, Kita-ku, Osaka
MEETING AGENDA
1. Date and Time:
2. Venue:
3. Agenda:
Items to be reported:

10:00 a.m., Thursday, March 29, 2012
Hall on the second floor of Senshukai Head Office,1-8-9 Doshin, Kita-ku, Osaka
1.

2.
Items to be proposed:
Proposal 1
Proposal 2
Proposal 3

Business Report, Consolidated Financial Statements for the 67th
fiscal year (January 1 to December 31, 2011); and Audit Reports of
the Accounting Auditors and the Board of Auditors regarding
Consolidated Financial Statements for the 67th fiscal year
Non-consolidated Financial Statements for the 67th fiscal year
(January 1 to December 31, 2011)

Appropriation of surplus
Election of nine (9) Directors
Election of one (1) substitute Auditor-1-

If attending the meeting in person, please present the enclosed voting form at the reception desk.
We will post any corrections to the Reference Material for Ordinary General Meeting of Shareholders, business
report, consolidated financial statements, or non-consolidated financial statements on the Company’s website(http://www.senshukai.co.jp/soukai).

[This is an English translation prepared for the convenience of non-resident shareholders.
Should there be any inconsistency between the translation and the official Japanese text, the latter shall prevail.]-2-

Procedure for Exercising Voting Rights
1. Voting by mailPlease indicate your approval or disapproval of the proposals on the enclosed voting form
and return it to us. All forms must be received by no later than 5:30 p.m., Wednesday,
March 28, 2012, the day before the Ordinary General Meeting of Shareholders.
2. Voting by electromagnetic methods such as the Internet(1) Please access the dedicated voting website at http://www.webdk.net, input the voting
right exercise code and provisional password written in the enclosed voting form, andregister your approval or disapproval of the proposals by following the on-screen
instructions.
(2) Online votes will be accepted until 5:30 p.m., Wednesday, March 28, 2012, the day
before the Ordinary General Meeting of Shareholders. However, shareholders arekindly requested to register their online votes as early as possible to facilitate thecounting of online votes.
(3) If shareholders duplicate the vote, such as by exercising the voting rights both by mailand via the Internet, we will consider only the Internet vote to be valid.
(4) If you vote more than once over the Internet, or vote both using a PC and using acellular phone, we will consider the latest vote to be valid.
(5) Any fees, such as connection fees to Internet providers or any telecommunication feesto the telecommunication companies incurred by shareholders in using the dedicatedvoting website, are to be borne by the shareholders.
(6) The following system requirements are necessary to access the dedicated voting
website:(i)Internet access; and(ii)

Shareholders choosing to exercise their voting rights using a PC should notethat the website only supports the following browser software: Microsoft®
Internet Explorer 6.0 or above.

The website supports any hardware platformrunning the browser software specified above.
(Microsoft® is a registered trademark in the United States and other countries of Microsoft Corporation.)
For more information about the foregoing items 1 and 2, please contact the Stock Transfer Agency Department of
The Sumitomo Trust & Banking Co., Ltd.
Tel: 0120-186-417 (toll-free and available from 9:00 a.m. to 9:00 p.m., only in Japan)<For other inquiries, including requests for forms>
Tel: 0120-176-417 (toll-free and available from 9:00 a.m. to 5:00 p.m. on weekdays, only in Japan)-3-3. To institutional investors
You can exercise your voting rights through electronic voting platforms (TSE platforms) asa means of exercising voting rights by electromagnetic means at the General Meeting of
Shareholders.

-4-[Appendix]

Business Report(January 1 to December 31, 2011)

1. Summary of operations(1) The Senshukai Group operating progress and results
Overview
During the fiscal year ended December 31, 2011, economic conditions in Japan recovered
gradually from the impact of the Great East Japan Earthquake.

However, the future of theeconomy remained uncertain due to factors including financial instability caused by the debt
crisis in Europe and the yen’s continued appreciation.

In the retail industry, there was anincrease in demand for reconstruction in the aftermath of the earthquake and a moderate
improvement in consumer confidence, but the business environment remained difficult on thewhole.

In the mail-order industry, while sales are on the increase year after year due in part to

the rapid expansion of consumption over the Internet, competition across industries has become
increasingly fierce.
Under such a business environment, the Senshukai Group promoted the growth strategies
in the fiscal year under review as the first year of the Medium-Term Management Plan, which
will end in the fiscal year ending December 31, 2013 (the 69th fiscal year), and madeGroup-wide efforts to achieve the targets defined in the plan.
As part of such endeavors, we established a corporate vision of “Woman Smile Company”
in November 2011, and will conduct business activities based on it in the future.
As a result of these activities, the Senshukai Group’s consolidated net sales increasedslightly by 0.3% year on year to 137,261 million yen.
On the profit front, operating income decreased by 9.2% year on year to 3,107 million yen.
This was due to a rise in the cost-to-sales ratio as a result of increases in sales at bargain prices
and loss on valuation of goods caused by an increase in inventories despite our efforts for
cutting down on catalogue-related expenses and an across-the-board reduction of general andadministrative expenses. Ordinary income increased by 2.1% year on year to 3,233 million
yen due to foreign exchange gains and equity in earnings of affiliates.

Net income declined by

22.3% year on year to 1,583 million yen due to an increase in loss on valuation of investment
securities and loss on adjustment for changes of accounting standard for asset retirement
obligations.

-5-Business results by segment[Mail-order Business]
The mail-order business, which consists of catalogue and buyer’s club businesses, posted net
sales of 122,946 million yen (a year-on-year increase of 3.2%).

On the profit front, wereduced print expenses and production expenses for catalogues by reorganizing andconsolidating media.

However, the cost-to-sales ratio rose as a result of increases in sales atbargain prices and loss on valuation of goods caused by an increase in inventories.
Consequently, operating income declined by 19.5% year on year to 2,226 million yen.
(1) Catalogue BusinessIn the catalogue business, we deliver various lifestyle proposals and products that are unique toSenshukai through 18 kinds of catalogues.
During the fiscal year under review, sales fell temporarily due to the effects of the Great
East Japan Earthquake and bad weather. However, they rebounded steadily, supported by ourcross-media promotion efforts including TV commercials. On the Internet market, online sales
and net online sales* grew due to our sales promotional measures including a free-shipping
campaign, delivering applications for smartphones and opening a video site. Consequently, thecatalog business posted consolidated net sales of 112,879 million yen (a year-on-year increaseof 4.3%).

(*Net online sales refers to sales of merchandise recognized when consumers place

items in the shopping cart to order them on the Internet.)(2) Buyer’s Club BusinessIn the buyer’s club business, each month we deliver merchandise to group and individual
members, mainly women working in offices, under an original sales system which is different
from those of other mail-order sales companies.
During the fiscal year under review, the buyer’s club business posted consolidated net salesof 10,067 million yen (a year-on-year decrease of 8.3%) due to a decline in membershipalthough sales of new merchandise were robust.
[Bridal Business]
Consolidated net sales in the bridal business, centered on the subsidiary Dears Brain Inc. which
operates the house wedding business, increased by 3.2% year on year to 8,407 million yen.
This was because the business recovered steadily after the temporary impact of the earthquakewith increases in the number of wedding ceremonies and the unit price of wedding banquetscompared with those in the previous fiscal year.
year to 482 million yen.

-6-

Operating income grew by 11.6% year on

[Corporate Business]
In the fiscal year under review, consolidated net sales in the corporate business that provides
products and services to corporations declined by 45.6% year on year to 4,159 million yen due
in part to the termination of a contract with a large-volume customer.

In the meantime,

operating income surged by 259.5% year on year to 448 million yen.
[Other Businesses]
In the fiscal year under review, consolidated net sales in other businesses that consist of theservice business (with travel services and credit-card services as the core fields) and the petbusiness, centering on sales of pet supplies mainly through pet shops, decreased by 7.4% year
on year to 1,748 million yen.

As a result, operating loss amounted to 57 million yen (against

an operating income of 31 million yen in the previous fiscal year).
Net sales by business segment
Name of the segment
and product
Mail-order Business:
ApparelInterior goods
Householdsundries
Clothing sundries
Foodstuffs
OthersSubtotal
Bridal BusinessCorporate Business
Other Businesses
Total(Millions of yen)

66th fiscal year
(Jan. 1 to Dec. 31, 2010)
Amount% of total

67th fiscal year
(Jan. 1 to Dec. 31, 2011)
Amount% of total

Change fromthe previous
fiscal year

Year-on-Year(%)

51,78827,501
19,426

37.8
20.1
14.2

54,64829,50918,706

39.8
21.5
13.7

2,860
2,007
-720

5.5
7.3
-3.7

13,781
5,378
1,294
119,170
8,149
7,651
1,888
136,859

10.1
3.9
1.0
87.1
5.9
5.6
1.4
100.0

14,0104,547
1,523
122,946
8,407
4,159
1,748
137,261

10.2
3.3
1.1
89.6
6.1
3.0
1.3
100.0

229
-830
229
3,775
258
-3,492
-139
402

1.7
-15.4
17.7
3.2
3.2
-45.6
-7.4
0.3

Note: Effective from the fiscal year under review, the Senshukai Group has applied the “Accounting Standard forDisclosures about Segments of an Enterprise and Related Information” (ASBJ Statement No. 17, issued on
March 27, 2009) and the “Guidance on Accounting Standard for Disclosures about Segments of an Enterpriseand Related Information” (ASBJ Guidance No. 20, issued on March 21, 2008).

In accordance with this, wechanged the reportable segment from the conventional one that consists of the mail-order business and otherbusinesses to one that consists of the mail-order business, bridal business, corporate business and otherbusinesses.

To make comparisons with the results of the previous fiscal year, results by business segment in

the previous fiscal year are shown by reclassifying them according to the new business segment.

(2) Capital expenditures
In the fiscal year under review, the Senshukai Group invested a total of 961 million yen incapital expenditures, and 2,085 million yen to develop computer systems, etc.

-7-

(3) Fund procurement
In the fiscal year under review, the Senshukai Group procured funds through borrowings as well
as funds on hand.
The Company has also concluded commitment line contracts totaling 15,300 million yen
with its correspondent financial institutions, and the balance of borrowings outstanding at theend of the fiscal year under review is 2,500 million yen.
(4) Issues to be handled
The Senshukai Group has formulated a three-year Medium-Term Management Plan that began
in the fiscal year ended December 31, 2011 (the 67th fiscal year) and it will end in the fiscal year
ending December 31, 2013 (the 69th fiscal year).
1) “Basic Policies of the Medium-Term Management Plan”
i) Creating a “new Belle Maison”- We will view the “Belle Maison” as a single strategic unit and create a new Belle
Maison that is needed by customers.

In order to achieve this, we will separate theproduct development function and sales function, take action ahead of ourcompetitors by quickly detecting changes in the market, and enhance thedevelopment of original products by ensuring our products are “available only at
Belle Maison.”- We will leverage our strengths of operating an Internet site on our own and having
capabilities for in-house product development, and strive to expand the Belle Maison
Net by transforming our infrastructure of the mail-order business to allow us toremain competitive in the Internet business.
ii) Strengthening Internet business- We will strengthen collaboration between Belle Maison Net and other Internet
businesses to promote strategic sharing of customer assets, expand selection ofmerchandise, enhance marketability of merchandise, and develop appropriate
systems, in order to make the most of synergistic effects of businesses and strengthen
the Internet business throughout the entire Group.
- We will cultivate two or more EC sites of specialized shops which are different
from Belle Maison Net through our subsidiaries to boost sales profit on a Grouplevel.
iii) Expanding bridal business- We will continue to make investment in Dears Brain Inc., which owns and operates
wedding places, to expand the bridal business. In addition, we will strategically-8-embrace marriages as events that provide important information for our existing
businesses, and make it easier to increase cooperation within the Group to expand theentire Group’s customer base.
iv) Ensuring high-quality and low-cost business operations- Getting back to the starting point on a Group level, we will ensure high-quality
business operations in which we assign top priority to providing products andservices that give satisfaction to customers.
- We will ensure low-cost business operations that will allow us to respond flexibly tomarket changes on a Group level.
2) Status of initiatives in the fiscal year under reviewi) Creating a “new Belle Maison”- Expanding Belle Maison Net
We redesigned websites in April 2011 and continued to expand our Internet businessthereafter by opening “Belle Maison On-Line Video Shopping Site” and optimizing
the Internet site and delivering various applications for smartphones.

As a result,online sales increased sharply from the previous fiscal year to 72,600 million yen.
- Enhancing marketability of merchandise
Starting from the fiscal year under review, we developed clothing and interior goods as
strategic merchandise while incorporating in such development the opinions ofcustomers and aiming to give products a comfortable feel of texture and highfunctionality.

As a result, we had various hit products such as the “Hotcott” cotton

blended warm underwear.
- Reviewing strategies for enticing customers
We reviewed our conventional strategies for enticing customers including sales
promotion via newspaper clippings and catalogues made available at convenience
stores or on online shopping sites, and started to conduct cross-media promotion byusing TV commercials from the fiscal year under review. This helped us to acquire
new membership.
- Reorganizing catalogues
In January 2012, we reorganized our main fashion catalogue “kurasufuku” andlaunched four types of “watashino kitaifuku” to suit the different lifestyles ofcustomers.

In addition, we published “bellenurse,” a catalogue for nurses as acatalogue targeting people working in specific occupational fields.
successively reorganize our catalogues.
- Enhancing added values of customer services-9-

We willWe terminated “Club Belle Maison,” which is a policy for loyal customers, at the endof the fiscal year ended December 31, 2011 and plan to start a new policy called “Star
Belle Maison.” We will continue to review our customer services.
ii) Strengthening Internet business
Our subsidiary Mobakore Co., Ltd. opened a new online shopping site called “minicolle” and shared site called “Okaimono with.”
Our subsidiaries will successively open new online shopping sites.
iii) Expanding bridal businessIn the bridal business, we opened a new guesthouse wedding place “THE MEETSMARINA TERRACE” in Chiba-shi, Chiba, in January 2011.

As a result, the numberof guesthouse wedding places the Group operates increased to 13.

Although sales inthe bridal business declined temporarily due to the effects of the Great East Japan
Earthquake that occurred in March 2011, they recovered thereafter and exceeded theresult in the previous fiscal year to reach 8,400 million yen. The Senshukai Groupwill successively open new wedding places to further expand the business.
iv) Ensuring high-quality and low-cost business operations
We introduced a new business management system in December 2011 as part of areform of our business management process. We will use the system to expedite
budget formulation and analyze management data. We will study how to implement
various measures to ensure high-quality and low-cost business operations.
The Senshukai Group also places importance on the creation of highly transparent
management system and its effective operation as well as the establishment of an internal
control system, being fully aware of the significance of “corporate governance” in businessactivities as an essential factor to improve its corporate value by establishing balanced
relationships with our stakeholders, including shareholders, customers, employees, business
partners and local communities.
Accordingly, we will strengthen our corporate governance through improvement andenhancement of our internal control system by clarifying the scope of supervisory roles of
Directors, strengthening our compliance system, and promoting quick and accurate information
disclosure.
Looking ahead, the Senshukai Group will endeavor to realize further improvement in thecorporate value.
We look forward to your continuous support and encouragement.

- 10 -

(5) Trends in financial position and gain and loss
(Millions of yen)
Fiscal year
Items
Net sales
Ordinary income (loss)
Net income (loss)
Net income (loss) per share(Yen)
Total assets
Net assets
Net assets per share (Yen)

th

th

th

64 fiscal year
(ended Dec. 2008)
158,285-4,553-6,83365 fiscal year
(ended Dec. 2009)
147,292-1,410-3,811

66 fiscal year
(ended Dec. 2010)
136,859
3,167
2,037

67th fiscal year
(ended Dec. 2011)
137,261
3,233
1,583

-146.29
104,059
44,274947.19-84.1891,83737,906874.8947.04
90,086
39,411
909.9936.56
90,441
41,444956.94(6) Status of important parent company and subsidiaries
1)

Relationship with the parent company
No applicable items

2)

Major subsidiaries
Company name

Capital(Millions of yen)

Percentage of voting
rights of theCompany(%)

Major business

Dears Brain Inc.

350

100.0

Bridal business

Mobakore Co., Ltd.

200

100.0

Mail-order business

Senshu Logisuko Co., Ltd.

95

100.0

Packing and wrapping business

Senshukai Call Center Co., Ltd.

60

100.0

Telephone marketing

Senshukai General Services Co., Ltd.

50

100.0

Senshukai Service Hanbai Co., Ltd.

50

100.0

Travel services, information
services
Customer service and area
marketing business

The Company owns a total of 11 consolidated subsidiaries, including the six major subsidiaries
described above.
(7) Major business
The Senshukai Group operates a mail-order business as its core business, and is also engaged in
the bridal business, corporate business for providing products and services for corporations, andother businesses that include the service business with travel services and credit-card services as
the core fields and the pet business for selling pet supplies mainly through pet shops.

- 11 -

(8) Principal offices
Senshukai Co., Ltd.

Head Office:Kita-ku, Osaka

Tokyo Headquarters:

Shinagawa-ku, Tokyo

Dears Brain Inc.

Head Office:Chiyoda-ku, Tokyo

Mobakore Co., Ltd.

Head Office:Shinagawa-ku, Tokyo

Senshu Logisuko Co., Ltd.

Head Office:Kita-ku, Osaka

Kanuma branch office:Kanuma-shi, Tochigi

Chubu branch office:Kani-shi, Gifu

Koshien branch office:Nishinomiya-shi, Hyogo

Senshukai Call Center Co., Ltd.

Head Office:Kita-ku, Osaka

Senshukai General Services Co., Ltd.

Head Office:Kita-ku, Osaka

Senshukai Service Hanbai Co., Ltd.

Head Office:Kita-ku, Osaka(9) Employees of the Senshukai Group
1) Consolidated basis
Segment
Mail-order Business
Bridal BusinessCorporate Business
Other Businesses
Other staff (consolidated basis)
Total

Number of employees
1,127
242
33
74
102
1,578

Change from the previous fiscal year
14
31
-12
-2
-9
22

Note: The number of employees includes regular and contract staff.

2) The Company
Number of employees
802

Change from the previous
fiscal year
17

Average age

Average service years
40.1

13.3

Notes:
1. The number of employees includes regular and contract staff, but does not include (65) employees seconded tosubsidiaries.
2. The retirement age of employees is 60.

(10) Major creditors
Borrowings outstanding(Millions of yen)
3,150
2,005
1,293
700

Creditors
Sumitomo Mitsui Banking Corp.
Mizuho Bank, Ltd.
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
The Sumitomo Trust & Banking Co., Ltd.

- 12 -

2. Items regarding shares of the Company(1)

Total number of shares authorized to be issued:

180,000,000(2)Total number of shares issued:

47,630,393(3)

Number of shareholders:(4)

Major shareholders (Top 10 shareholders)Name

16,342

No. of shares held (Thousands)

Brestsheave Co., Ltd.
Toppan Printing Co., Ltd.
Sawzan, Ltd.
Sumitomo Mitsui Banking Corp.
Dai Nippon Printing Co., Ltd.
Mizuho Bank, Ltd.
Japan Trustee Services Bank, Ltd. (Trust account)Senshukai Group Employee Stock Ownership Plan
Nippon Life Insurance Company
The Bank of Tokyo-Mitsubishi UFJ, Ltd.

3,650
1,838
1,792
1,665
1,509
1,319
1,146
1,117
988
752

Notes:
1. Amounts less than one thousand shares have been omitted.
2. The shareholding ratio is calculated by subtracting treasury stock (4,321,035 shares).

3. Items regarding subscription rights to shares of the Company
No applicable items- 13 -

Shareholding ratio (%)
8.43
4.24
4.14
3.85
3.49
3.05
2.65
2.58
2.28
1.74

4. Directors and Auditors(1)

Name of Directors and Auditors (As of December 31, 2011)
Title

Chairman and
Representative
Director
President andRepresentative
Director
SeniorManaging
Director andExecutive
Officer
SeniorManaging
Director andExecutive
OfficerManaging
Director andExecutive
Officer
Director andExecutive
Officer
Director andExecutive
OfficerName
Yasuhiro
Yukimachi
Michio Tanabe

Kiichi Tagawa

In charge of Administration Division and Tokyo Headquarters (General Affairs
Division, Operation Division, Business Development Division)

Shohachi
Sawamoto

In charge of Belle Maison Business Division (EC Business Division,
Catalogue Business Division, Product Development Division, Belle Maison
Business Planning Department)

Mamoru Asada

Division Director of Project Division, in charge of Monthly Business Division,
Project Division (Monthly Business Division, Project Division)

Shigemitsu
Mineoka
Hiroyuki Hoshino

Director

Tomoko Oishi

Director

Toshikatsu Sano

Standing
AuditorStanding
AuditorYoshihiro
Nakabayashi
MakotoYamamoto
Hideyuki
KoizumiAuditor
AuditorResponsibilities at the Company and important concurrent occupations or
positions at other organizations

Hiroshi Morimoto

Division Director of EC Business Division
Division Director of Business Development Division, President andRepresentative Director of Mobakore Co., Ltd.
Professor of Kyoto Gakuen University, Faculty of Business Administration,
Dean of Kyoto Gakuen University, Faculty of Business Administration

Certified Public Accountant (Representative of Koizumi C.P.A. Office),
External Corporate Auditor of Japan Cash Machine Co., Ltd.
Attorney (Representative member of Kitahama Partners L.P.C.), External
Corporate Auditor of Japan Cash Machine Co., Ltd.

Notes:
1. Directors Tomoko Oishi and Toshikatsu Sano are External Directors.
2. Auditors Hideyuki Koizumi and Hiroshi Morimoto are External Auditors.
3. External Director Tomoko Oishi and External Auditors Hideyuki Koizumi and Hiroshi Morimoto are Independent
Director / Auditors who are notified as prescribed by the Financial Instruments Exchange.
4. External Auditor Hideyuki Koizumi is qualified as certified public accountant and has considerable knowledge
regarding finance and accounting.

- 14 -

(2)Retired Auditors during the fiscal year under review
Name

Date of retirement

Reason for retirement

Shoji Tottori
Yoshihiro Inoda

March 30, 2011
March 30, 2011

termination of a term
termination of a term

(3)

Positions at the Company
and important concurrent
occupations or positions atother organizations at thetime of retirement
Standing Auditor
Standing Auditor

Total amount of remuneration to Directors and Auditors
Number of Directors and Auditors

Amount(Millions of yen)

9
[2]
6
[2]
15
[4]

269
[16]
42
[10]
312
[27]

Directors[of which External Directors]
Auditors[of which External Auditors]
Total[of which External Directors andExternal Auditors]
Notes:

1. The above numbers and amounts include two Auditors who retired from their offices at the conclusion of the 66th
Ordinary General Meeting of Shareholders, held on March 30, 2011.
2. The amount of remuneration paid to Directors does not include salaries for employees paid to Directors who
concurrently serve as employees.
3. It was resolved at the 62nd Ordinary General Meeting of Shareholders, held on March 29, 2007, that the maximum
amount of remuneration to be paid to Directors in total per year shall not exceed 400 million yen (however, notincluding salaries for employees).
4. It was resolved at the 62nd Ordinary General Meeting of Shareholders, held on March 29, 2007, that the maximum
amount of remuneration to be paid to Auditors in total per year shall not exceed 70 million yen.
5. The above amounts include provision for directors’ bonuses of 29 million yen for the fiscal year under review.

(4)

Items regarding External Directors and External Auditors
A. Important concurrent occupations or positions at other organizations andrelationships between the Company and the relevant organizations- Director Tomoko Oishi is Professor and Dean of Kyoto Gakuen University, and there
is no special relationship between the Company and that organization.
- Auditor Hideyuki Koizumi is Representative of Koizumi C.P.A. Office, and there is no
special relationship between the Company and that organization. Hideyuki Koizumi
concurrently serves as External Corporate Auditor of Japan Cash Machine Co., Ltd.,and there is no special relationship between the Company and that organization.
- Auditor Hiroshi Morimoto is representative member of Kitahama Partners L.P.C., andthe Company has concluded legal advisory contracts individually with other attorneys
who belong to that organization.

Hiroshi Morimoto concurrently serves as External

Corporate Auditor of Japan Cash Machine Co., Ltd., and there is no special
relationship between the Company and that organization.

- 15 -

B. Major activities in the fiscal year under review
Major activities
Director
Tomoko Oishi

Director
Toshikatsu Sano

AuditorHideyuki Koizumi

AuditorHiroshi Morimoto

She attended 15 of the 17 meetings of the Board of Directors held in the fiscal year
under review.
She gives advice and proposals for ensuring validity andappropriateness of decision-making of the Board of Directors, offering opinions
mainly based on her insight and experience on working women, our main customers,
as a professor acquired familiarity with labor issues for women over many years.
He attended all of the 17 meetings of the Board of Directors held in the fiscal year
under review. He has successively served as Director mainly at financial-relatedcompanies, and gives advice and proposals for ensuring validity and appropriatenessof decision-making of the Board of Directors, offering opinions from the perspectiveof corporate manager based on his wealth of knowledge, experience, etc.
He attended all of the 17 meetings of the Board of Directors and all of the 13 meetingsof the Board of Auditors held in the fiscal year under review. He gives opinions for
ensuring validity and appropriateness of decision-making of the Board of Directors at
the meetings of the Board of Directors from the professional standpoint as a certified
public accountant. Also, he properly offers necessary views about the accounting
procedure of the Company at the meetings of the Board of Auditors.
He attended all of the 17 meetings of the Board of Directors and all of the 13 meetingsof the Board of Auditors held in the fiscal year under review. He gives opinions for
ensuring validity and appropriateness of decision-making of the Board of Directors at
the meetings of the Board of Directors from the professional standpoint as an attorney.
Also, he properly offers necessary views about compliance of the Company at themeetings of the Board of Auditors.

C. Outline of the agreement to limit liability
Pursuant to Article 427, Paragraph 1 of the Corporation Act, the Company concludes anagreement with each External Director and External Auditor to limit their liability forcompensation as stipulated in Article 423, Paragraph 1 of the said act. The limit ofliabilities for compensation under the relevant agreement is the minimum amountstipulated in laws and regulations.

- 16 -

5. Item regarding accounting auditors(1) Name of the accounting auditor:

Ernst & Young ShinNihon LLC(2) Compensation for the accounting auditor:
1) Compensation, etc. for the accounting auditors for the fiscal year under review
48 million yen
2) The total fiscal benefit that should be paid by the Company and its subsidiaries
52 million yen
Note: Compensation, etc. in 1) is written in total amount, because in agreement withaccounting auditors, clear classification of compensation amounts based on the
Corporation Act and those based on the Financial Instruments and Exchange Act isdifficult.
(3) Details of non-auditing services
The Company entrusts the accounting auditor to provide investigative services related to the“Royalty Report” and advisory services on responding to the International Financial
Reporting Standards (IFRS), which are non-auditing services not included in the services of
Article 2, Paragraph 1 of the Certified Public Accountant Act of Japan.
(4) Policy on decision for dismissal or non-reappointment of accounting auditor
The Board of Directors shall make dismissal or non-reappointment of the accounting
auditor the purpose of a General Meeting of Shareholders after obtaining the consent of theBoard of Auditors, or based on the demand of the Board of Auditors, mentioned below,
when it recognizes necessity for doing so, including a case in which performance of duties
by the accounting auditor is hindered.
When the accounting auditor falls under any of the items stipulated in Article 340,
Paragraph 1 of the Corporation Act, the Board of Auditors shall dismiss the accounting
auditor based on the consent of all Auditors.

In this case, an Auditor selected by the Board

of Auditors shall report the dismissal of the accounting auditor and the reason for dismissal
at the first General Meeting of Shareholders to be held after the dismissal.

6. The system to assure appropriateness of the business activities
The Company made a resolution on the basic policy for the internal control system, andprovision of it, as follows, at the meeting of the Board of Directors based on the provisionsof Article 362, Paragraph 4, Item 6 and Paragraph 5 of the Corporation Act and has been
executing it.

- 17 -

(1) Basic ideas on the internal control system
The Senshukai Group acknowledges that “corporate governance” is essential in its
corporate activities as stated in 1. Summary of operations (4) Issues to be handled andaims to prepare the internal control system for it to strengthen compliance, improve
efficiency in business execution and establish a risk control system.

The Senshukai

Group will review the internal control system according to demand of society or change
in the environment, as required, to improve and enrich it.
(2) Specifics of the internal control system
1. A system to assure that execution of duties of the Directors and employees complies
with the laws, regulations and the Articles of Incorporation
1) To ensure compliance, the Senshukai Group has established the “Senshukai Group
Compliance Policies.”

In addition, the Senshukai Group shall provide the“Corporate Ethics Helpline” as an internal reporting system for promptly responding
to potential risks such as violations of laws, regulations and internal regulations.
2) If any compliance issues arise with any directors (Directors, Auditors and Executive
Officers) and employees, each one shall be discussed and examined in the Audit
Committee in the case of directors and the Corporate Ethics Compliance Committee
in the case of employees through the internal liaison or the Corporate Ethics Helpline
as an external liaison based on regulations.
3) For directors and employees, we shall distribute the “Senshukai Personal Conduct
Principles” and “Senshukai Corporate Behavior CaseBook” for use as guidelines indaily life at work.

In addition, we shall provide compliance education on an

as-needed basis through e-learning and Intranet programs.
4) To ensure internal control in the Company, the Internal Auditing Department, whichis under the direct control of the President, shall conduct internal audits based on
regulations to grasp and improve the status of business operations and report theresults to the President.
5) Responsibilities for intellectual property shall be checked preliminarily by the Legal& Credit Department.

To fulfill product liability requirements, the Quality

Management Committee shall review and determine sales of restricted products.
2. The system for storage and management of information related to execution of dutiesof the Directors
1) Documents shall be stored and managed fully based on the “Document HandlingRules” and “Data Management Regulations.”
2) Important confidential items of the Company shall be strictly managed according to- 18 -

the “Confidential Document Handling Rules” separately.
3) Also, any revision of important rules shall be made with the approval of the Board of
Directors.
4) The information related to execution of duties by the Directors shall be madeaccessible by the Directors and Auditors at all times on the Intranet.
3. The rules for management of risk of loss and other systems
1) We shall classify risks concerning the basis of management into ten categories, andclarify the control system by establishing a division or a committee for each risk
category, so that responses can be made quickly when problems occur. The statusof management of each risk shall be reported to the “Administrative Office of Risk
Management Control Committee” on a monthly basis.
The Administrative Office shall summarize monthly reports and report monthly,or in emergency situations, a division or a committee for each risk category shallreport promptly to the Risk Management Control Committee, which is comprised ofmembers of the Management Council.
2) To ensure implementation of concrete measures for risk management, we shallprepare a manual for each risk category on an as-needed basis and establish a system
to take actions promptly.
3) For the system against unexpected situations of any Directors, we shall establish
rules and a system to execute operations smoothly on their behalf.
4. A system to assure efficient execution of duties of the Directors
1) We shall establish “Company Rules” and “Rules for Application for Liquidation
Items” to realize the efficiency of business activities by clarifying the roles of theBoard of Directors, Management Council, Board of Auditors or other parties, duty
positions of the employees, duty allotment, official authority, roles and decisionauthority, etc.
2) In order to improve the transparency of the Board of Directors and strengthen the
supervisory function, an External Director (part-time service) system shall be
implemented.
3) We shall introduce the “Executive Officer System” and “Business Division System”
and clarify the decision-making process of the management and authorities andresponsibilities of business execution to speed up the management process.
4) A “Management Council” mainly made up of full-time Directors and Auditors shallbe established separate from the Board of Directors to enable resolutions to bepassed on important business activities commissioned by the Board of Directors toensure quick decision-making.

- 19 -

5) We shall implement a technique that utilizes “BSC (Balance Score Cards)”
effectively supporting organization performance monitoring and evaluation indexes,
and we shall conduct reviews and gather feedback of results in the Management
Council.
5. System to assure appropriateness of business activities in the corporate groupconsisting of the Company, the parent company and the subsidiaries
1) The Company and the group companies shall formulate and implement “Regulationsfor Management of Subsidiaries and Affiliated Companies” to enhance the corporate
value of the entire group and fulfill social responsibilities. In addition, we shallestablish a system of having the parent company approve important items of thesubsidiaries for which it holds a stake of over 50%.
2) By establishing a system of having each lead office supervise the subsidiaries, weshall facilitate close cooperation in directions, instructions and communication
between the parent company and the subsidiaries, while each lead office gives
guidance, advice and evaluation, in an effort to rationalize the business activities as agroup.
3) We shall hold regular meetings between the incorporated auditing firm and the
Directors of the parent company to exchange opinions about the entire group’s
situation.
4) We shall formulate insider trading regulations and regulations related to internalreporting, which will be implemented in common throughout the group, andcommon compliance education will be provided to directors and employees of thegroup companies.
6. Item regarding employees in case that Auditors request employees who are to assist
their duties and item regarding independency of the relevant employees from the
Directors
1) Dedicated a full-time staff for the Auditor is in place according to the request of theBoard of Auditors.
2) Appointment, personnel change, personnel evaluation and disciplinary punishmentof a full-time staff for the Auditor, opinions of the Board of Auditors are to be fully
respected.
7. The system for the Directors and the employees to report to the Auditors, the system
regarding report to Auditors and the system to assure that audits are effectively
conducted by the Auditors
1) The Standing Auditors shall attend major meetings if necessary, and receive
important information including the management status.

- 20 -

2) The Standing Auditors shall attend meetings of the “Risk Management Control
Committee,” and in cases where any important item in the “Corporate Ethics
Helpline” or any fact that could cause substantial damage to the Company is detectedfrom one of the risk management committees or divisions, Standing Auditors are
required to immediately report such items or facts to the Board of Auditors.
3) Materials required by Auditors for inspection shall be available for inspection uponrequest at any time.
4) Results of audits conducted by the Internal Auditing Department shall be reported.
5) The Auditors shall regularly hold opinion exchange meetings with President and theauditing firm, respectively.
6) The Auditors shall conduct an auditor’s audit regularly and interview the Executive
Officers and important employees.
7) The Board of Auditors shall be also able to take professional advice if they sorequest.
8. System to assure reliability of financial reporting1) The Senshukai Group shall evaluate and conduct external reporting on reliability ofinternal control over financial reporting pursuant to the provisions of relevant laws
and regulations including the Financial Instruments and Exchange Act.
2) In evaluating the effectiveness of internal control over financial reporting, we shallestablish procedures in accordance with standards of evaluation that are deemed fair
and appropriate in general, and comply with such procedures.
3) In order to assure the effectiveness of internal control over financial reporting, weshall perform internal audits targeting all the group companies on a regular basis,
detect and correct deficiencies and material defects, if there are any, and strive to
make improvements continuously.
4) In order to assist in the development and operation of effective internal control, as
well as evaluation and external reporting of internal control over financial reporting,which are required of the President, the Internal Auditing Department shall perform
internal audits based on the “Regulations for the Development and Operation ofInternal Control over Financial Reporting” and report the results of audit to the
President.
9. System for exclusion of antisocial forces
The Company shall establish the “Compliance Policies” and the “Guidelines forPreventing Damage by Antisocial Forces,” and it will take a resolute stance against
antisocial forces that pose a threat to social order and safety.

In addition, it declares toall the directors and employees that it will have nothing to do with such antisocial- 21 -

forces and will thoroughly ensure that.

7. Basic policy on control of the company
I. Basic policy on the person who controls decisions on financial and operational policies of
the Company
We do not reject large-scale purchase of shares if it contributes to the increase of ourcorporate value and common interests of shareholders.

In addition, we believe that thedecision whether to agree to the proposal of large-scale purchases of shares that
accompanies transfer of control of the Company should ultimately be made based on theconsensus of shareholders.
However, many large-scale purchases of shares do not contribute to the increaseof corporate value and common interests of shareholders.

For example, sometimes such

purchases target only specific assets and technology, which is clearly detrimental to thecorporate value and common interests of shareholders.

At other times, such purchases

may effectively force shareholders to sell their shares; may provide insufficient time andinformation to be given for the Board of Directors and shareholders of the target company
to examine the large-scale purchase of shares, or for the Board of Directors of the target
company to present alternative proposals; and may require the target company tonegotiate with the purchaser to obtain more favorable terms than the purchaser hasoffered.
The Company considers a person or a company that intends to make such
improper large-scale purchases of shares to be inappropriate as a person who controls
decisions on financial and operational policies of the Company, and believes that theincrease of the corporate value of the Company and by extension, common interests ofshareholders need to be ensured by taking necessary and considerable measures against
large-scale purchases by such purchasers.
II. Special efforts for realizing the basic policy
In order to increase corporate value, the Company has developed and is implementing
new Medium-Term Management Plan, covering three fiscal years from January 2011 to
December 2013, following the previous Medium-Term Management Plan.

We areconfident that we will be able to increase our corporate value and by extension, meet the
expectations of shareholders by steadily implementing the Medium-Term ManagementPlan.

- 22 -

III. Efforts for preventing decisions on financial and operational policies of the Company
from being controlled by inappropriate persons in light of the basic policy
The Board of Directors of the Company considers that a framework is indispensable inorder to prevent large-scale purchases that are against the corporate value of the Company
and by extension, common interests of shareholders.

When a large-scale purchase ofshares of the Company is to be made, the framework allows us to request that thepurchaser and proponent of purchase (hereafter, referred to collectively as the “purchaser
or similar party”) provides information prior to such purchase, thereby shareholders
decide whether to accede to the purchase or not, or ensure necessary information and time
for the Board of Directors of the Company to make alternative proposals or negotiate withthe purchaser or similar party on behalf of the shareholders.
The Company introduced a “Policy toward Large-scale Purchases of Shares of theCompany” (hereinafter referred to as the “previous plan”) at the 63rd Ordinary General
Meeting of Shareholders, held on March 28, 2008, as a countermeasure against takeovers
in ordinary times with an effective period up to the conclusion of the Ordinary General
Meeting of Shareholders for the fiscal year ended December 31, 2010.

In considerationof various developments surrounding countermeasures against takeovers, the Company
thereafter continued to examine the appropriate countermeasures against takeovers inordinary times.

Accordingly, the Company decided to continue with the previous plan,

after making partial revision, (hereinafter, the revised plan shall be referred to as “theplan”) as part of our efforts for ensuring and increasing the corporate value of theCompany and common interests of shareholders, to prevent any attempts at abusive
acquisitions targeting the Company, with the approval of shareholders at the 66th Ordinary
General Meeting of Shareholders held on March 30, 2011 to continue with the prevailingplan until the conclusion of the Ordinary General Meeting of Shareholders covering the
fiscal year ending December 31, 2013.
IV. Judgment of the Company’s Board of Directors on the aforementioned efforts andreasons for the judgment
1. About special efforts for realizing the basic policy (efforts specified in II. above)
Each effort stated in II. above has been worked out as a measure to continuously andpersistently increase the corporate value of the Company and common interests ofshareholders, and contributes to the realization of the basic policy.
Therefore, these efforts are in line with the basic policy and in accord with
common interests of shareholders of the Company, and not aimed at maintaining thestatus of Directors and Auditors of the Company.

- 23 -

2. About efforts for preventing decisions on financial and operational policies of theCompany from being controlled by inappropriate persons in light of the basic policy(efforts specified in III. above)(1) The plan is in line with the basic policy
The plan is a framework for ensuring the corporate value of the Company and byextension, common interests of shareholders. When a large-scale purchase of shares of
the Company is to be made, the plan allows us to request that the purchaser or similar
party provides information prior to such purchase, thereby shareholders decide whether toaccede to the purchase or not, or ensure necessary information and time for the Board of
Directors of the Company to make alternative proposals or negotiate with the purchaser orsimilar party on behalf of the shareholders. It is in line with the basic policy.
(2) The relevant efforts neither damage common interests of shareholders nor are aimed
at maintaining the status of Directors and Auditors of the Company
We believe that efforts for preventing control by inappropriate persons in light of the basic
policy neither damage common interests of shareholders nor are aimed at maintaining thestatus of Directors and Auditors of the Company, since 1) they comply thoroughly withthe “Guidelines on takeover defense for ensuring and/or increasing corporate value andstakeholder profits,” released by the Ministry of Economy, Trade and Industry and theMinistry of Justice on May 27, 2005 and also satisfy the “Takeover Defense Measures inLight of Recent Environmental Changes,” released by the Corporate Value Study Groupof the Ministry of Economy, Trade and Industry on June 30, 2008; 2) they attach
importance to the intention of shareholders in various ways: they will be continued on
condition that amendments to the Articles of Incorporation made based on the prescribed
procedure are approved by shareholders in the General Meeting of Shareholders inaccordance with provisions of the Articles of Incorporation and the so-called sunset clauseis established; 3) a Special Committee has been established; and 4) they are not adead-hand type of countermeasure against takeovers.

- 24 -

Consolidated Balance Sheet
As of December 31, 2011
Millions of yen
As of December 31, 2011ASSETS
Current Assets
Cash and deposits
Notes and accounts receivable-trade
Short-term investment securities
Merchandise and finished goods
Raw materials and supplies
Deferred tax assets
Accounts receivable-other
Other
Allowance for doubtful accounts
Total Current Assets

7,500
6,589
31
17,022
118
1,051
8,802
3,644
-278
44,482

Noncurrent Assets
Property, Plant and Equipment:
Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures
Land
Construction in progress
Other
Total Property, Plant and Equipment

13,513869
719
10,880326
140
26,449Intangible Assets:
Goodwill
Other
Total Intangible Assets

2,429
4,506
6,935

Investments and Other Assets
Investment securities
Long-term loans receivable
Lease and guarantee deposits
Deferred tax assets
Other
Allowance for doubtful accounts
Total Investments and Other Assets
Total Noncurrent Assets

5,996
943
1,690
60
4,226
-343
12,57445,959Total Assets

90,441- 25 -

Millions of yen
As of December 31, 2011
LIABILITIESCurrent Liabilities
Notes and accounts payable-trade
Short-term loans payable
Current portion of bonds
Accounts payable-otherAccounts payable-factoring
Accrued expenses
Income taxes payable
Accrued consumption taxes
Provision for directors’ bonuses
Provision for sales promotion expenses
Forward exchange contracts
Other
Total Current Liabilities

9,282
3,843
736
6,852
13,710
2,464
146
124
31
613
1,941
1,497
41,244

Noncurrent Liabilities
Bonds payable
Long-term loans payable
Deferred tax liabilities for land revaluation
Provision for retirement benefits
Asset retirement obligations
Other
Total Noncurrent Liabilities

2,550
3,971
631
31
364
203
7,753

Total Liabilities

48,997NET ASSETS
Shareholders’ Equity
Capital stock
Capital surplus
Retained earnings
Treasury stock
Total Shareholders’ Equity

20,35921,03812,288-2,77550,910

Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Revaluation reserve for land
Foreign currency translation adjustment
Total accumulated other comprehensive income-1,008-1,237-7,041-177-9,465

Total Net Assets
Total Liabilities and Net Assets

41,44490,441- 26 -

Consolidated Statement of Income
For fiscal year ended December 31, 2011

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Non-operating income
Interest and dividends income
Foreign exchange gains
Co-sponsor fee
Equity in earnings of affiliates
Gain on adjustment of account payable
Other
Non-operating expenses
Interest expenses
Loss on valuation of compound financial instruments
Relief aid expenses
Other
Ordinary income
Extraordinary income
Gain on sales of noncurrent assets
Gain on sales of investment securities
Gain on forgiveness of debts
Extraordinary loss
Loss on sales and retirement of noncurrent assets
Loss on valuation of investment securities
Impairment loss
Provision of allowance for doubtful accounts
Loss on adjustment for changes of accounting standard
for asset retirement obligations
Loss on disaster
Other
Income before income taxes and minority interests
Income taxes-current
Income taxes-deferred
Income before minority interests
Net income- 27 -

Millions of yen
For fiscal year ended
December 31, 2011
137,261
71,311
65,95062,842
3,107
801
148
191
28
110
142
179
675
228
208
108
129
3,233
210
1
139
70
1,455
166
514
203
183
111
108
167
1,988
148
256
1,583
1,583

Consolidated Statement of Changes in Shareholders’ Equity
For fiscal year ended December 31, 2011
(Millions of yen)
Shareholders’ Equity
Capital Stock
Balance as of December 31,
2010

20,359

Capital Surplus

Retained Earnings

Treasury Stock

Total Shareholders’Equity21,038

11,344-2,77549,966

Changes of items during the
fiscal year under review
Dividends from surplus

-649

-649

Net income

1,583

1,583

Purchase of treasury stock-0

Disposal of treasury stockReversal of revaluation
reserve for land

-0

-0

0

0

9

9

Net changes of items otherthan shareholders’ equity
Total changes of items during
the fiscal year under review

―

-0

943

-0

943

Balance as of December 31,
2011

20,35921,03812,288-2,77550,910- 28 -

(Millions of yen)
Accumulated Other Comprehensive Income

Balance as of December 31,
2010

Valuation
Difference on
Available-forsale Securities

Deferred Gains
or Losses on
Hedges

Revaluation
Reserve for
Land

-928

-2,342-7,117

Foreign
Currency
Translation
Adjustment

-167

Total
Accumulated
Other
Comprehensive
Income-10,555

Total Net
Assets39,411

Changes of items during the
fiscal year under review
Dividends from surplus-649

Net income

1,583

Purchase of treasury stock-0

Disposal of treasury stock0

Reversal of revaluation
reserve for land9

Net changes of items otherthan shareholders’ equity

-80

1,104

75

-9

1,089

1,089

Total changes of items
during the fiscal year underreview

-80

1,104

75

-9

1,089

2,033

Balance as of December 31,
2011-1,008-1,237-7,041-177-9,46541,444- 29 -

Notes to Consolidated Financial Statements
Basis for Preparing Consolidated Financial Statements
1. Scope of consolidation(1)

Number of consolidated subsidiaries: 11
Names of major consolidated subsidiaries:
Dears Brain Inc., Mobakore Co., Ltd., Senshu Logisuko Co., Ltd.,Senshukai Call Center Co., Ltd., Senshukai General Services Co., Ltd.,Senshukai Service Hanbai Co., Ltd.
AIMER Co., Ltd. and RG Marketing Co., Ltd. have been excluded from the scope of
consolidation following the completion of their liquidation in June 2011 and December
2011, respectively.

(2)

Number of unconsolidated subsidiaries: 4Names of major unconsolidated subsidiaries: Senshukai Hong Kong Limited[Reason for exclusion from the scope of consolidation]
None of the factors of the unconsolidated subsidiaries mentioned above, including total
assets, net sales, net income/loss (amount appropriate for relevant shareholdings), andretained earnings (amount appropriate for relevant shareholdings), have any significant
effects on the consolidated financial statements.

2. Scope of equity method(1)

Number of unconsolidated subsidiaries under the equity method: 2Names of major unconsolidated subsidiaries under the equity method:
Senshukai Hong Kong Limited(2)

Number of affiliates under the equity method: 2Names of affiliates under the equity method:
SENTENs Co., Ltd., K.SENSE, Inc.

(3)

With regard to companies under the equity method whose balance sheet dates are morethan six months apart from the consolidated balance sheet date, we use the financial
statements of the relevant companies as of the end of their second quarter immediately
before the consolidated balance sheet date.
We make necessary consolidation adjustments regarding material transactions
conducted between the consolidated balance sheet date and balance sheet dates of therelevant companies.

(4)

Names of major unconsolidated subsidiaries and affiliates excluded from the scope ofequity method:
Senshukai Marketing Support Co., Ltd.

- 30 -

[Reason for exclusion from the scope of equity method]
None of the factors of the unconsolidated company excluded from the scope of equity
method mentioned above, including net income/loss (amount appropriate for relevant
shareholdings) and retained earnings (amount appropriate for relevant shareholdings),
have any significant effects on the consolidated financial statements.
3. Fiscal year-ends of consolidated subsidiaries
The balance sheet dates of all the consolidated subsidiaries are the same as the consolidatedbalance sheet date.
4. Accounting policies(1)

Valuation criteria and methods of significant assets
1)

Securities

Securities classified as other securities with available fair market prices are stated atmarket price based on the market prices at the end of the fiscal year (Net unrealized gains
and losses are included in net assets; cost of securities sold is determined by themoving-average method). Securities classified as such without available fair market
prices are stated at moving-average cost.
2)

Derivatives

Stated at fair value.
3)

Inventories

Mainly stated at cost based on the monthly gross average method (with carrying value inthe consolidated balance sheet written down in accordance with the declining of
profitability of assets).
(2)

Depreciation method of significant depreciable assets
1)

Property, plant and equipment (excluding lease assets):

Depreciation of property, plant and equipment is computed using the declining-balancemethod, except for buildings (excluding fixtures) acquired on or after April 1, 1998,
which are depreciated using the straight-line method.
The main useful lives are as follows:
Buildings and structures:

38–50 years

Machinery, equipment and vehicles: 12 years
2)

Intangible assets (excluding lease assets):

Amortization of intangible assets is computed using the straight-line method. Software
for internal use is amortized based on a useful life of five years decided by internal
regulations.

- 31 -

3)

Lease assets:

Depreciation of lease assets is computed using the straight-line method with zero residual
value assuming the lease periods as useful lives. Finance leases that do not transfer
ownership to the lessee and that commenced on or before December 31, 2008 are
accounted for using a method that is applicable to ordinary rental leases.
(3)

Basis for provision of significant reserves
1)

Allowance for doubtful accounts
The allowance for doubtful accounts is provided to cover possible losses from bad
debts. The amount for normal debtors is determined by the credit loss ratio basedon past experience, and that for special debtors, such as debtors at risk ofbankruptcy, is determined based on the expected probability of those accounts being
collectable on an individual basis.

2)

Provision for directors’ bonuses
Expected amount to be paid is recorded to cover expenditure of bonuses to directors
and auditors of the Company and its consolidated subsidiaries.

3)

Provision for sales promotion expenses
To cover the projected sales promotion expenses due to our mileage point system,
the Company posts a provision for sales promotion expenses, which is calculated bymultiplying the amount payable, which is based on the number of issued andunclaimed points, by the past claim ratio.

4)

Provision for retirement benefits
To cover projected employees’ retirement benefits in part of our consolidated
subsidiaries, the Company posts the deemed obligations at the end of fiscal year,
based on the estimated amount of retirement benefit liabilities and pension assets.
The amount of retirement benefit liabilities is calculated using the simplified
method.

(4)

Basis for recognizing important revenues and expenses
Basis for recognition of revenues relating to finance leases
Revenues relating to finance leases are accounted for by allocating the total of theamount equivalent to interest over the lease period without recognizing sales.

(5)

Criteria for converting significant assets or liabilities denominated in foreign currencies
into Japanese currency
Assets or liabilities denominated in foreign currencies are converted into Japanese yen
using the spot exchange rate on the consolidated balance sheet date, and any differences
generated by this conversion are included in gains or losses.

- 32 -

(6)Promotion expenses
As for the Company’s promotion expenses in the mail-order business, catalogue-related
expenses corresponding to the expected sales in the next fiscal year are posted as prepaid
expenses and included in “Other” under current assets.

(7)

Hedge accounting method
The Company adopts deferral hedge accounting.

(8)

Amortization and amortization period of goodwill
Goodwill is equally amortized within a period decided based on individual estimate of theperiod during which respective effects will be expected.

(9)Consumption taxes
Consumption and local consumption taxes are excluded from revenues and expenses.

(10) Application of the consolidated tax payment system
Effective from the fiscal year under review, the Company has applied the consolidated tax
payment system.

Changes in Significant Matters That Form the Basis for Preparing Consolidated
Financial Statements(Application of “Accounting Standard for Equity Method of Accounting for Investments” and“Practical Solution on Unification of Accounting Policies Applied to Associates Accounted for
Using the Equity Method”)
Effective from the fiscal year under review, the Company has applied the “Accounting Standard
for Equity Method of Accounting for Investments” (ASBJ Statement No. 16, issued on March
10, 2008) and the “Practical Solution on Unification of Accounting Policies Applied to
Associates Accounted for Using the Equity Method” (ASBJ PITF No. 24, issued on March 10,2008).
This change will have no impact on profit and loss.
(Application of “Accounting Standard for Asset Retirement Obligations”)
Effective from the fiscal year under review, the Company has applied the “Accounting Standard
for Asset Retirement Obligations” (ASBJ Statement No. 18, issued on March 31, 2008) and the“Guidance on Accounting Standard for Asset Retirement Obligations” (ASBJ Guidance No. 21,
issued on March 31, 2008).
As a result of this change, operating income decreased by 23 million yen, ordinary income
decreased by 28 million yen and income before income taxes and minority interests decreasedby 147 million yen.

- 33 -

Changes in Method of Presentation(Matters related to consolidated statement of income)
1. Effective from the fiscal year under review, the item “Income before minority interests” ispresented in accordance with the “Ministerial Ordinance for Partial Revision of theOrdinance for Enforcement of the Companies Act, the Corporate Accounting Rules, etc.”(Ordinance of the Ministry of Justice No. 7 of 2009, issued on March 27, 2009), which isbased on the “Accounting Standard for Consolidated Financial Statements” (ASBJ
Statement No. 22, issued on December 26, 2008).
2. “Gain on adjustment of account payable,” which was included in “Other” under
non-operating income until the previous fiscal year, is separately presented from the fiscal
year under review due to its increased materiality.
The amount of “Gain on adjustment of account payable,” included in “Other” under
non-operating income in the previous fiscal year, is 62 million yen.
3. “Loss on sales of investment securities,” which was separately presented until the previous
fiscal year, is included in “Other” under extraordinary loss due to lack of materiality.
The amount of “Loss on sales of investment securities,” included in “Other” under
extraordinary loss in the fiscal year under review, is 0 million yen.

Additional Information
Effective from the fiscal year under review, the Company has applied the “Accounting Standard
for Presentation of Comprehensive Income” (ASBJ Statement No. 25, issued on June 30, 2010).
However, for the previous fiscal year, amount of “Valuation and translation adjustments” and“Total valuation and translation adjustments” were presented instead of “Accumulated othercomprehensive income” and “Total accumulated other comprehensive income.”- 34 -

Notes to Consolidated Balance Sheet
1. Amounts less than one million yen have been omitted.
2. Accumulated depreciation on property, plant and equipment
32,335 million yen
3. Breakdown of assets pledged as collateral(1) Pledged assets
Cash and deposits (time deposits)

15 million yen

Buildings and structures

981 million yen

Total

997 million yen(2) Liabilities corresponding to the aforementioned assets
Short-term loans payable

213 million yen

Current portion of bonds

36 million yen

Long-term loans payable

200 million yen

Total

449 million yen

4. Guarantee obligation:
Guarantee for bank borrowings

13 million yen

Utilizers of employee housing loan

5. The land for business use owned by the Company was revaluated under the “Act on
Revaluation of Land” (Act No. 34 of March 31, 1998), and the “Act for Partial Revision of
the Act on Revaluation of Land” (amended on March 31, 1999), and unrealized losses
resulting from the revaluation were posted as “Revaluation reserve for land” in net assets,
after deducting the related deferred tax liabilities.
The method of revaluation stipulated in Article 3, Paragraph 3 of the Act on Revaluationof Land:
The Director-General of the National Tax Administration Agency decided andannounced a calculation method to determine the land value that will be the basis oftax value calculations for the land value tax, under Article 2, Item 4 of the “Order for
Enforcement of the Act on Revaluation of Land” (Cabinet Order No. 119 of March 31,
1998), and Article 16 of the “Land Value Tax Act” (Act No. 69 of 1991). The
Company

executed

calculation

andreasonableadjustments

using

the

above-mentioned method.
Date of revaluation:

March 31, 2000

The difference between the fair value of land at the end of fiscal year under review and its
book value after revaluation:-2,734 million yen- 35 -

6. The Company has concluded commitment line contracts with its correspondent financial

institutions to finance working capital efficiently.
The balance of unexecuted borrowings based on the commitment line contracts at the endof the fiscal year under review is as follows:
Total amount of commitment line contracts:

15,300 million yen

Balance of borrowings outstanding:

2,500 million yen

Balance:

12,800 million yen

7. Financial covenants
Financial covenants are attached to the above-mentioned commitment line contracts, and theCompany may forfeit the benefit of term for all the borrowings provided based on thesecontracts if the Company should infringe any of the following clauses.
(1) The Company shall maintain the amount calculated by deducting the total ofsubscription rights to shares, minority interests and deferred gains or losses on hedges
from the total of net assets in the balance sheet (both on a consolidated andnon-consolidated basis) at the end of each fiscal year at 75% or above of the larger of
the amount calculated by deducting the total of subscription rights to shares, minority
interests and deferred gains or losses on hedges from the total of net assets in thebalance sheet at the end of fiscal year ended December 31, 2008 or the said amount at
the end of the immediately preceding fiscal year.
(2) The Company shall maintain the ratio of total amount of liabilities in the balance sheet(both on a consolidated and non-consolidated basis) at the end of each fiscal year to
the amount calculated by deducting the total of subscription rights to shares, minority
interests and deferred gains or losses on hedges from the total of net assets in therelevant balance sheet, at 150% or below.
(3) The Company shall not post operating loss in the statement of income (both on aconsolidated and non-consolidated basis) for each fiscal year for two consecutive
periods.
(4) The Company shall hold the amount calculated by deducting cash and deposits fromthe total of interest-bearing debt in the balance sheet (both on a consolidated andnon-consolidated basis) at the end of each fiscal year so that the amount will not
exceed the amount equivalent to five times as much as the total amount of net income
or loss and depreciation expenses in the statement of income (both on a consolidated
and non-consolidated basis) for two consecutive periods.

- 36 -

Notes to Consolidated Statement of Changes in Shareholders’ Equity
1. Amounts less than one million yen have been omitted.
2. Total number of shares issued as of the end of the fiscal year under review
47,630,393 shares
3. Matters on dividends from surplus(1) Dividends paid
Resolution
Ordinary General
Meeting of
Shareholders heldon March 30,
2011
Meeting of theBoard ofDirectors held on
July 28, 2011

Class of stock

Total amount ofdividends(Millions of yen)

Common stock

346

Common stock

303

Dividends per
share (Yen)Record date

Effective date8

December 31,
2010

March 31, 20117

June 30, 2011

September 1,
2011(2) Of dividends whose record date belongs to the fiscal year under review, dividends thattake effect in the next fiscal year
Proposal for
Resolution
Ordinary
GeneralMeeting of
Shareholders
to be held on
March 29,2012

Class of stock

Financialfunds ofdividends

Total amountof dividends(Millions ofyen)

Dividend pershare (Yen)Record date

Effective dateCommonstock

Retainedearnings

303

7

December 31,
2011

March 30,
2012

- 37 -

Notes on Financial Instruments
1. Policy on financial instruments(1) Notes on the status of financial instruments
The Senshukai Group invests in safer financial assets centering on short-term deposits inmanagement of its funds, and the Group finances short-term working capital mainly throughborrowing from banks.
The Group also procures the necessary funds based on facility planning throughborrowing from banks or issuing bonds. We conduct derivative transactions to avoid therisks described below and will not engage in speculative transactions.
(2) The details and risks of financial instruments and the risk control system
Notes and accounts receivable–trade and accounts receivable–other, which are operatingreceivables, are exposed to credit risk associated with nonperformance by customers. To
manage this risk, the Company conducts due date control and balance management for eachcustomer in accordance with the internal criteria for examination, and has established andnow operates a system for credit management. The Company also carries out similar
credit management for consolidated subsidiaries.
Short-term investment securities and investment securities are mainly securities ofcompanies that have business relationships with the Company and are exposed to the risk ofmarket price fluctuations and credit risk of issuers. However, the Company regularly
keeps track of the share prices and financial conditions of the issuers, and intermittently
reviews the shareholdings in consideration of its relationships with the business partners.
Notes and accounts payable–trade are operating debt with payment due within one year.
Part of these notes and accounts payable–trade are associated with import of merchandise
and the like, and are denominated in foreign currency, which exposes them to the risk offoreign exchange fluctuations.

Therefore, we use derivative transactions (forward

exchange contracts) as hedging instruments.
Bonds payable and long-term loans payable are for financing funds necessary forworking capital and capital expenditures, and their redemption dates are a maximum of four
years and two months after the balance sheet date for bonds payable and five years after thebalance sheet date for long-term loans payable.
We conduct forward exchange contracts as derivative transactions with the aim ofhedging against exchange rate fluctuations of foreign-currency-denominated operating debt
in principle.
Operating debt and loans payable are exposed to liquidity risk, but the Senshukai
Group is controlling liquidity risk by taking actions such as creating cash management
plans.

- 38 -

2. Matters on fair values, etc. of financial instruments
Consolidated balance sheet amounts, fair values as of December 31, 2011, and their differences
are as follows. The amounts shown in the following table do not include financial instruments
whose fair values are extremely difficult to determine (see Note 2).

(1)
(2)
(3)
(4)

Consolidatedbalance sheet
amount(Millions ofyen)

Fair value(Millions ofyen)

Difference(Millions of
yen)

7,500
6,589

7,500
6,589

8,802

8,802

–
–
–

5,050

5,050

–

27,942

27,942

–

9,282
2,500

9,282
2,500

6,852

6,852

13,71013,710

–
–
–
–

3,286

3,331

45

5,315

5,362

47

40,94641,039

92

(696)

(696)

(1,244)(1,244)(1,941)(1,941)–––

Cash and deposits
Notes and accounts receivable–trade
Accounts receivable–other
Short-term investment securities andinvestment securities

Total assets(5) Notes and accounts payable–trade(6) Short-term loans payable(7) Accounts payable–other(8) Accounts payable–factoring(9) Bonds payable (*1)(10) Long-term loans payable (*2)
Total liabilities(11) Derivative transactions
Hedge accounting not adopted
Hedge accounting adopted
Derivative transactions (*3)

*1. Bonds payable includes current portion of bonds (whose consolidated balance sheet amountis 736 million yen).
*2. Current portion of long-term loans payable, which is included in short-term loans payable inthe consolidated balance sheet (whose consolidated balance sheet amount is 1,343 millionyen), is included in long-term loans payable.
*3. The derivatives positions shown are net amounts. If the total net position of an item resultsin obligations, the amounts are shown in parentheses.
(Note 1) The measurement methods of fair values of financial instruments and notes on
securities and derivative transactions(1) Cash and deposits, (2) Notes and accounts receivable–trade, and (3) Accounts
receivable–other
The book values are used as the fair values since these are settled in a short period of time
and their fair values are almost equal to their book values.

- 39 -

(4) Short-term investment securities and investment securities
To measure fair values of short-term investment securities and investment securities, prices
at the exchange are used for stocks or the like and prices at the exchange as well as prices
presented by the counterparty financial institutions or the like are used for debt securities.
(5) Notes and accounts payable–trade, (6) Short-term loans payable, (7) Accounts
payable–other, and (8) Accounts payable–factoring
The book values are used as the fair values since these are settled in a short period of time
and their fair values are almost equal to their book values.
(9) Bonds payable
The fair values of fixed-rate bonds are measured using the present values of the total ofprincipal and interest, discounted by the rate based on the remaining years and the credit
risk of the bonds payable. The fair values of floating-rate bonds are measured using theirbook values as they reflect the market interest rate in a short period of time and their fairvalues are deemed to be almost equivalent to their book values.
(10) Long-term loans payable
The fair values of long-term fixed-rate loans are measured using the present values of thetotal of principal and interest, discounted by the rate assumed to be applied if new
borrowings were taken out under the same conditions.

The fair values of long-term

floating-rate loans are measured using their book values as they reflect the market interest
rate in a short period of time and their fair values are deemed to be almost equivalent totheir book values.
(11) Derivative transactions
The fair values of derivatives are measured using the prices presented by the counterparty
financial institutions.
(Note 2) Stocks of unconsolidated subsidiaries and affiliates (whose consolidated balance sheet
amount is 485 million yen), unlisted stocks (whose consolidated balance sheet amount is
469 million yen), and investments in investment partnership (whose consolidated balance
sheet amount is 21 million yen) are excluded from “(4) Short-term investment securities andinvestment securities” described above because they do not have market prices and it isdeemed extremely difficult to determine the fair values.

- 40 -

Per Share Information
1. Net assets per share:
2. Net income per share:

956.94 yen
36.56 yen

Significant Subsequent Events
No applicable items- 41 -

Non-consolidated Balance Sheet
As of December 31, 2011
Millions of yen
As of December 31, 2011ASSETS
Current Assets
Cash and deposits
Notes receivable-trade
Accounts receivable-trade
Short-term investment securities
Merchandise and finished goods
Raw materials and supplies
Prepaid expenses
Deferred tax assets
Short-term loans receivable
Accounts receivable-other
Other
Allowance for doubtful accounts
Total Current Assets

5,316
235
5,899
31
16,638
100
2,324
876
418
9,149
1,146
-272
41,865

Noncurrent Assets
Property, Plant and Equipment:
Buildings
Structures
Machinery and equipment
VehiclesTools, furniture and fixtures
Land
Total Property, Plant and Equipment

9,326
281
851
0
540
10,827
21,829Intangible Assets:
Software
Other
Total Intangible Assets

1,847
2,477
4,324

Investments and Other Assets
Investment securities
Stocks of subsidiaries and affiliates
Long-term loans receivable
Deferred tax assets
Lease and guarantee deposits
Long-term prepaid expenses
Other
Allowance for doubtful accounts
Allowance for investment loss
Total Investments and Other Assets
Total Noncurrent Assets

5,510
6,817
2,052
28
825
46
4,000
-1,010-568
17,70443,859Total Assets

85,724- 42 -

Millions of yen
As of December 31, 2011
LIABILITIESCurrent Liabilities
Notes payable-trade
Accounts payable-trade
Short-term loans payable
Current portion of long-term loans payable
Current portion of bonds
Accounts payable-otherAccounts payable-factoring
Accrued expenses
Income taxes payable
Deposits received
Provision for directors’ bonuses
Provision for sales promotion expenses
Forward exchange contracts
Other
Total Current Liabilities

1,371
7,071
2,500
1,000
700
6,290
13,710
1,432
76
834
29
602
1,940
364
37,923

Noncurrent Liabilities
Bonds payable
Long-term loans payable
Deferred tax liabilities for land revaluation
Asset retirement obligations
Other
Total Noncurrent Liabilities

2,550
3,365
631
38
4
6,589

Total Liabilities

44,513

NET ASSETS
Shareholders’ Equity
Capital stock
Capital surplus
Legal capital surplus
Other capital surplus
Total capital surplus
Retained earnings
Legal retained earnings
Other retained earnings
Reserve for advanced depreciation of noncurrent assets
Reserve for overseas investment loss
Retained earnings brought forward
Total other retained earnings
Total retained earnings
Treasury stock
Total Shareholders’ Equity

20,35912,864
8,174
21,0381,118
65
41
10,65910,765
11,884-2,77550,506

Valuation and Translation Adjustments
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Revaluation reserve for land
Total Valuation and Translation Adjustments
Total Net Assets-1,008-1,244-7,041-9,294
41,211

Total Liabilities and Net Assets

85,724- 43 -

Non-consolidated Statement of Income
For fiscal year ended December 31, 2011

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Non-operating income
Interest and dividends income
Foreign exchange gains
Gain on adjustment of account payable
Other
Non-operating expenses
Interest expenses
Loss on valuation of compound financial instruments
Relief aid expenses
Other
Ordinary income
Extraordinary income
Gain on sales of noncurrent assets
Gain on sales of investment securities
Reversal of allowance for doubtful accounts
Extraordinary loss
Loss on sales and retirement of noncurrent assets
Loss on valuation of investment securities
Provision of allowance for doubtful accounts
Impairment loss
Loss on adjustment for changes of accounting standard
for asset retirement obligations
Loss on disaster
Other
Income before income taxes
Income taxes-current
Income taxes-deferred
Net income- 44 -

Millions of yen
For fiscal year ended
December 31, 2011
124,083
66,10857,97554,755
3,219
934
470
201
142
119
641
209
208
106
116
3,513
163
0
139
23
1,561
140
514
583
201
29
59
32
2,115
6
175
1,932

Non-consolidated Statement of Changes in Shareholders’ Equity
For fiscal year ended December 31, 2011
(Millions of yen)
Shareholders’ Equity
Retained Earnings

Capital Surplus

Other Retained Earnings
CapitalStock

Balance as ofDecember 31,
2010

20,359

Legal
CapitalSurplus

Other
CapitalSurplus

Total
CapitalSurplus12,864

8,174

21,038Legal
Retained
Earnings

Reserve forAdvanced Reserve forOverseas
DepreciaInvestment
tion ofNoncurrent
Loss
Assets

1,118

63

40

Retained
Earnings
Brought
Forward

Total
Retained
Earnings

9,368

10,591

Treasury
Stock

Total
Shareholders’Equity-2,77549,213

Changes of
items during the
fiscal year underreview
Provision ofreserve foradvanceddepreciation of
noncurrent
assets

4

-4

―

―

Reversal ofreserve foradvanceddepreciation of
noncurrent
assets

-2

2

―

―

Provision ofreserve foroverseas
investment loss

2

-2

―

―

Reversal ofreserve foroverseas
investment loss

-1

1

―

―

Dividends fromsurplus

-649

-649

-649

Net income

1,932

1,932

1,932

Purchase oftreasury stock
Disposal oftreasury stock-0-0

Reversal ofrevaluation
reserve for land

9

9

-0

-0

0

0
9

Net changes of
items otherthanshareholders’equityTotal changes of
items during the
fiscal year underreview
Balance as ofDecember 31,
2011

―

―

-0

-0

―

1

0

1,291

1,292

-0

1,292

20,35912,864

8,174

21,038

1,118

65

41

10,65911,884-2,77550,506- 45 -

(Millions of yen)
Valuation and Translation Adjustments
Valuation Difference
Deferred Gains or Revaluation Reserve
on Available-for-saleLosses on Hedges
for Land
Securities
Balance as of December 31,
2010

-928

-2,347-7,117

Total Valuation
and Translation
Adjustments-10,393

Total Net Assets

38,820Changes of items during the
fiscal year under review
Provision of reserve foradvanced depreciation of
noncurrent assets―

Reversal of reserve foradvanced depreciation of
noncurrent asset―

Provision of reserve foroverseas investment loss―

Reversal of reserve foroverseas investment loss―

Dividends from surplus-649

Net income

1,932

Purchase of treasury stock-0

Disposal of treasury stock0

Reversal of revaluation
reserve for land9

Net changes of items otherthan shareholders’ equity

-80

1,103

75

1,098

1,098

Total changes of items during
the fiscal year under review

-80

1,103

75

1,098

2,391

Balance as of December 31,
2011-1,008-1,244-7,041-9,294

41,211- 46 -

Notes to Non-consolidated Financial Statements
Principal accounting policies
1. Valuation criteria and methods of assets(1)

Securities
Stocks of subsidiaries and affiliates are stated at moving-average cost.

Securities

classified as other securities with available fair market prices are stated at market pricebased on the market prices at the end of the fiscal year (Net unrealized gains and losses
are included in net assets; cost of securities sold is determined by the moving-averagemethod).

Securities classified as such without available fair market prices are stated atmoving-average cost.
(2)

Derivatives
Stated at fair value.

(3)

Inventories
Mainly stated at cost based on the monthly gross average method (with carrying value inthe non-consolidated balance sheet written down in accordance with the declining of
profitability of assets).

2. Depreciation method of noncurrent assets(1)

Property, plant and equipment (excluding lease assets):
Depreciation of property, plant and equipment is computed using the declining-balancemethod, except for buildings (excluding fixtures) acquired on or after April 1, 1998,
which are depreciated using the straight-line method.
The main useful lives are as follows:
Buildings:

38–50 years

Machinery and equipment:(2)

12 years

Intangible assets (excluding lease assets):
Amortization of intangible assets is computed using the straight-line method. Software
for internal use is amortized based on a useful life of five years decided by internal
regulations.

(3)

Lease assets:
Depreciation of lease assets is computed using the straight-line method with zero residual
value assuming the lease periods as useful lives. Finance leases that do not transfer
ownership to the lessee and that commenced on or before December 31, 2008 are
accounted for using a method that is applicable to ordinary rental leases.

3. Basis for provision of reserves(1)

Allowance for doubtful accounts
The allowance for doubtful accounts is provided to cover possible losses from bad debts.

- 47 -

The amount for normal debtors is determined by the credit loss ratio based on pastexperience, and that for special debtors, such as debtors at risk of bankruptcy, isdetermined based on the expected probability of those accounts being collectable on an
individual basis.
(2)

Allowance for investment loss
The allowance for investment loss is provided to cover losses on investments in
subsidiaries and affiliates.

The amount required is determined in consideration offinancial conditions and collectability of the relevant subsidiaries and affiliates.
(3)

Provision for directors’ bonuses
Expected amount to be paid is recorded to cover expenditure of bonuses to directors andauditors.

(4)

Provision for sales promotion expenses
To cover the projected sales promotion expenses due to our mileage point system, theCompany posts a provision for sales promotion expenses, which is calculated bymultiplying the amount payable, which is based on the number of issued and unclaimed
points, by the past claim ratio.

4. Basis for recognizing revenues and expenses
Basis for recognition of revenues relating to finance leases
Revenues relating to finance leases are accounted for by allocating the total of the amountequivalent to interest over the lease period without recognizing sales.
5. Criteria for converting assets or liabilities denominated in foreign currencies into
Japanese currency
Assets or liabilities denominated in foreign currencies are converted into Japanese yen
using the spot exchange rate on the non-consolidated balance sheet date, and any
differences generated by this conversion are included in gains or losses.
6. Promotion expenses
As for the Company’s promotion expenses in the mail-order business, catalogue-related
expenses corresponding to the expected sales in the next fiscal year are included in
prepaid expenses.
7. Hedge accounting method
The Company adopts deferral hedge accounting.
8. Consumption taxes
Consumption and local consumption taxes are excluded from revenues and expenses.
9. Application of the consolidated tax payment system
Effective from the fiscal year under review, the Company has applied the consolidated tax
payment system.

- 48 -

Changes in Accounting Policies(Application of “Accounting Standard for Asset Retirement Obligations”)
Effective from the fiscal year under review, the Company has applied the “Accounting Standard
for Asset Retirement Obligations” (ASBJ Statement No. 18, issued on March 31, 2008) and the“Guidance on Accounting Standard for Asset Retirement Obligations” (ASBJ Guidance No. 21,
issued on March 31, 2008).
As a result of this change, operating income decreased by 6 million yen, ordinary income
decreased by 10 million yen and income before income taxes decreased by 45 million yen.

Changes in Method of Presentation(Matters related to non-consolidated balance sheet)“Leasehold right,” which was separately presented until the previous fiscal year, is included in“Other” under intangible assets due to lack of materiality.
The amount of “Leasehold right,” included in “Other” under intangible assets in the fiscal
year under review, is 0 million yen.
(Matters related to non-consolidated statement of income)1.

“Gain on adjustment of account payable,” which was included in “Other” under
non-operating income until the previous fiscal year, is separately presented from the fiscal
year under review due to its increased materiality.
The amount of “Gain on adjustment of account payable,” included in “Other” under
non-operating income in the previous fiscal year, is 62 million yen.

2.

“Loss on sales of investment securities,” which was separately presented until theprevious fiscal year, is included in “Other” under extraordinary loss due to lack ofmateriality.
The amount of “Loss on sales of investment securities,” included in “Other” under
extraordinary loss in the fiscal year under review, is 0 million yen.

- 49 -

Notes to Non-consolidated Balance Sheet
1. Amounts less than one million yen have been omitted.
2. Accumulated depreciation on property, plant and equipment
29,901 million yen
3. Guarantee obligation:
Guarantee for bank borrowings
Utilizers of employee housing loan

13 million yen

Guarantees on notes and accounts payable–trade
Pet First Co., Ltd.

25 million yen

4. Short-term cash credit for subsidiaries and affiliates

1,097 million yen

Long-term cash credit for subsidiaries and affiliates

1,687 million yen

Short-term cash debt for subsidiaries and affiliates

260 million yen

5. The land for business use owned by the Company was revaluated under the “Act on
Revaluation of Land” (Act No. 34 of March 31, 1998), and the “Act for Partial Revision of
the Act on Revaluation of Land” (amended on March 31, 1999), and unrealized losses
resulting from the revaluation were posted as “Revaluation reserve for land” in net assets,
after deducting the related deferred tax liabilities.
The method of revaluation stipulated in Article 3, Paragraph 3 of the Act on Revaluationof Land:
The Director-General of the National Tax Administration Agency decided andannounced a calculation method to determine the land value that will be the basis oftax value calculations for the land value tax, under Article 2, Item 4 of the “Order for
Enforcement of the Act on Revaluation of Land” (Cabinet Order No. 119 of March 31,
1998), and Article 16 of the “Land Value Tax Act” (Act No. 69 of 1991). The
Company executed calculation and reasonable adjustments using the above-mentioned
method.
Date of revaluation:

March 31, 2000

The difference between the fair value of land at the end of fiscal year under review and its
book value after revaluation:-2,734 million yen

6. The Company has concluded commitment line contracts with its correspondent financial

institutions to finance working capital efficiently.
The balance of unexecuted borrowings based on the commitment line contracts at the end of
the fiscal year under review is as follows:

Total amount of commitment line contracts:

15,300 million yen

Balance of borrowings outstanding:

2,500 million yen

Balance:

12,800 million yen- 50 -

7. Financial covenants
Financial covenants are attached to the above-mentioned commitment line contracts, and theCompany may forfeit the benefit of term for all the borrowings provided based on thesecontracts if the Company should infringe any of the following clauses.
(1) The Company shall maintain the amount calculated by deducting the total ofsubscription rights to shares, minority interests and deferred gains or losses on hedges
from the total of net assets in the balance sheet (both on a consolidated andnon-consolidated basis) at the end of each fiscal year at 75% or above of the larger of
the amount calculated by deducting the total of subscription rights to shares, minority
interests and deferred gains or losses on hedges from the total of net assets in thebalance sheet at the end of fiscal year ended December 31, 2008 or the said amount at
the end of the immediately preceding fiscal year.
(2) The Company shall maintain the ratio of total amount of liabilities in the balance sheet(both on a consolidated and non-consolidated basis) at the end of each fiscal year to
the amount calculated by deducting the total of subscription rights to shares, minority
interests and deferred gains or losses on hedges from the total of net assets in therelevant balance sheet, at 150% or below.
(3) The Company shall not post operating loss in the statement of income (both on aconsolidated and non-consolidated basis) for each fiscal year for two consecutive
periods.
(4) The Company shall hold the amount calculated by deducting cash and deposits fromthe total of interest-bearing debt in the balance sheet (both on a consolidated andnon-consolidated basis) at the end of each fiscal year so that the amount will not
exceed the amount equivalent to five times as much as the total amount of net income
or loss and depreciation expenses in the statement of income (both on a consolidated
and non-consolidated basis) for two consecutive periods.

- 51 -

Notes to Non-consolidated Statement of Income
1. Amounts less than one million yen have been omitted.
2. Transaction with subsidiaries and affiliates
Sales:

303 million yen

Operating expense:

8,111 million yen

Non-operating transaction:

348 million yen

Notes to Non-consolidated Statement of Changes in Shareholders’ Equity
1. Amounts less than one million yen have been omitted.
2. Number of treasury shares as of the end of the fiscal year under review:
4,321,035 common shares- 52 -Tax Effect Accounting
1. Breakdown of deferred tax assets and deferred tax liabilities by major causes(Millions of yen)
(1) Current
Deferred tax assets
Loss brought forward
Deferred gains or losses onhedges
Accrued bonuses(2) Noncurrent
Deferred tax assets
Valuation difference on
available-for-sale securities
Loss on valuation of stocks ofsubsidiaries and affiliates
Allowance for doubtful
accounts
Loss on valuation of compound
financial instruments
Amount exceeding the limit oftax depreciation
Loss on valuation of
investment securities
Allowance for investment loss

1,509
323
267

Provision for sales promotion
expenses
Loss on valuation of
inventories

234

Other

144

Sub-total deferred tax assets
Valuation allowance
Total deferred tax assets

243

2,723

878

Deferred tax liabilities
1

Total deferred tax liabilities

1

Net deferred tax assets

371
312
264
240
211
202

1,844

Accrued consumption taxes

414

876

- 53 -

Deferred gains or losses onhedges

168

Other

353

Sub-total deferred tax assets

2,539

Valuation allowance

2,355

Total deferred tax assets

184

Deferred tax liabilities
Valuation difference on
available-for-sale securities

85

Other

69

Total deferred tax liabilities

155

Net deferred tax assets

28

2. Details of deferred tax liabilities for land revaluation(Millions of yen)
Deferred tax assets
Deferred tax assets for land revaluation
Valuation allowance
Total deferred tax assets for land revaluation

2,913
2,913
―

Deferred tax liabilities
Deferred tax liabilities for land revaluation
Net deferred tax liabilities for land revaluation

631
631

Noncurrent Assets Used Through Leases
In addition to noncurrent assets posted in the non-consolidated balance sheet, some furnitureand fixtures, etc. are used under finance lease contracts without transfer of ownership of theleased assets to the lessee.

Related Party Transactions
Type

Subsidiary

Company
nameDears Brain
Inc.

Ownership
percentage ofRelationshipvoting rights,
etc.

Directly
100.0%

Interlockingof Directors,
etc.

Nature oftransactions(Note)

Transaction
amount(Millions ofyen)

Loan offunds (Note)

850

Collection of
loans

670

Receipt ofinterests

22

Account
items
Short-term
loans
receivable
Long-term
loans
receivable–

Note: Transaction condition or policy for deciding transaction condition
The interest rates of loans are rationally decided by taking into account market interest rates.

Per Share Information
1. Net assets per share:

951.56 yen

2. Net income per share:

44.62 yen

Significant Subsequent Events
No applicable items- 54 -

Balance at
end offiscal year
(Millionsof yen)
414

1,076
–

Audit Report of Accounting Auditor on Consolidated Financial Statements (Certified Copy)[English Translation of the Audit Report Originally Issued in the Japanese Language]

Audit Report of Independent Auditor
February 15, 2012
To the Board of Directors of Senshukai Co., Ltd.
Ernst & Young ShinNihon LLC
Mario Shimizu(Seal)
Certified Public Accountant, Designated, Limited Liability andOperating Partner
Kazuki Wadabayashi(Seal)
Certified Public Accountant, Designated, Limited Liability andOperating Partner
We have examined the consolidated financial statements of Senshukai Co., Ltd. for the fiscal year fromJanuary 1, 2011 to December 31, 2011, comprising the consolidated balance sheet, the consolidated
statement of income, the consolidated statement of changes in shareholders’ equity and notes toconsolidated financial statements for the purpose of reporting under the provisions of Article 444,
Paragraph 4 of the Corporation Act.

Responsibility as to the preparation of such consolidated financial

statements lies with the management of the Company, and the responsibility of the audit corporation is toexpress our opinion on the consolidated financial statements from an independent position.
We conducted our audit in accordance with the auditing standards generally accepted in Japan.

The

auditing standards require that our audit corporation obtain reasonable assurance that there are no material
false representations in the consolidated financial statements.

The audit is conducted on a test basis andincludes the examination of representations in the consolidated financial statements as a whole, including
the examination of the accounting principles adopted by the management and the method of application
thereof and the evaluation of the estimate by the management.

Our audit corporation has determined

that, as a result of the audit, we have obtained a reasonable basis for giving an opinion.
Our opinion is that the above-mentioned consolidated financial statements present fairly the status ofassets and earnings during the period relating to the relevant consolidated financial statements of thecorporate group consisting of Senshukai Co., Ltd. and its consolidated subsidiaries in every important
point in accordance with the corporate accounting standards generally accepted in Japan.
Our audit corporation or operating partner has no financial or other interest in the Company required
to be stated by the provisions of the Certified Public Accountant Act of Japan.

- 55 -

Audit Report of Accounting Auditor on Non-consolidated Financial Statements andAccompanying Financial Schedule (Certified Copy)[English Translation of the Audit Report Originally Issued in the Japanese Language]

Audit Report of Independent Auditor
February 15, 2012
To the Board of Directors of Senshukai Co., Ltd.
Ernst & Young ShinNihon LLC
Mario Shimizu(Seal)
Certified Public Accountant, Designated, Limited Liability andOperating Partner
Kazuki Wadabayashi(Seal)
Certified Public Accountant, Designated, Limited Liability andOperating Partner
We have examined the non-consolidated financial statements of Senshukai Co., Ltd. for the 67th fiscal
year from January 1, 2011 to December 31, 2011, comprising the non-consolidated balance sheet, thenon-consolidated statement of income, the non-consolidated statement of changes in shareholders’ equity
and notes to non-consolidated financial statements and the accompanying financial schedule for the
purpose of reporting under the provisions of Article 436, Paragraph 2, Item 1 of the Corporation Act.
Responsibility as to the preparation of such non-consolidated financial statements and the accompanying
financial schedule lies with the management of the Company, and the responsibility of the audit
corporation is to express our opinion on the non-consolidated financial statements and accompanying
financial schedule from an independent position.
We conducted our audit in accordance with the auditing standards generally accepted in Japan. The
auditing standards require that our audit corporation obtain reasonable assurance that there are no material
false representations in the non-consolidated financial statements and the accompanying financial
schedule. The audit is conducted on a test basis and includes the examination of representations in the
non-consolidated financial statements and the accompanying financial schedule as a whole, including theexamination of the accounting principles adopted by the management and the method of application
thereof and the evaluation of the estimate by the management. Our audit corporation has determined
that, as a result of the audit, we have obtained a reasonable basis for giving an opinion.
Our opinion is that the above-mentioned non-consolidated financial statements and theaccompanying financial schedule present fairly the status of assets and earnings during the period relating
to the relevant non-consolidated financial statements and the accompanying financial schedule in every
important point in accordance with the corporate accounting standards generally accepted in Japan.
Our audit corporation or operating partner has no financial or other interest in the Company required
to be stated by the provisions of the Certified Public Accountant Act of Japan.

- 56 -

Audit Report of Board of Auditors (Certified Copy)[English Translation of the Audit Report Originally Issued in the Japanese Language]

Audit Report
The Board of Auditors has prepared this Audit Report upon deliberation based on the Audit Report created by each
Auditor regarding the performance by the Directors of their duties during the 67th fiscal year from January 1, 2011 to
December 31, 2011, and hereby reports as follows:1.

Auditors’ and Board of Auditors’ Auditing Methods and Contents
The Board of Auditors stipulated the auditing policies, share of assignment, etc., received reports from each
Auditor on the auditing status and the auditing results; received reports of execution of duty from Directors, etc.
and the accounting auditor and demanded explanations, as the occasion demanded.
In accordance with the Auditors’ auditing standards, auditing policies, share of assignment, and othermatters stipulated by the Board of Auditors, each Auditor communicated with the Directors, the Internal
Auditing Department and other employees, and strived to maintain an environment for information gatheringand auditing; attended meetings of the Board of Directors and other important meetings; received reports ofexecution of duty from Directors and employees; demanded explanations, as the occasion demanded; inspected
important documents; and investigated the activities and assets of the head office and of other principal places ofbusiness. We verified the resolutions adopted by the Board of Directors regarding the maintenance of a system
to assure that execution of duty by the Directors, as stated in the business report, complies with the laws,
regulations and the Articles of Incorporation, and the maintenance of a system necessary to assure theappropriateness of other business activities of the corporation stipulated in Article 100, Paragraphs 1 and 3 of theOrdinance for Enforcement of the Corporation Act. We also regularly received reports from Directors andemployees on the status of the establishment and operation of the system (internal control system) established inaccordance with such resolutions adopted by the Board of Directors, demanded explanations, as the occasion
demanded, and expressed our opinions.
Regarding internal control over financial reporting based on the Financial Instrument and Exchange Act, we
received reports from the Directors of the Senshukai Group and Ernst & Young ShinNihon LLC about anevaluation of the relevant internal control and the status of audit, and requested an explanation thereby whenevernecessary.
We examined the contents of the basic policy, specified in Item 3(a) of Article 118 of the Ordinance for
Enforcement of the Corporation Act, and each effort in accordance with Item 3(b) of the same Article, which arestated in the Business Report, in consideration of the status of deliberations at the meetings of the Board of
Directors and other meetings.
As for the subsidiaries, we communicated and exchanged information with the Directors and Auditors, etc.
of the subsidiaries and received reports on their business operations as the occasion demanded. Based on theabove-mentioned methods, we examined the business reports and accompanying financial schedule for the
relevant fiscal year.
In addition, we monitored and verified whether or not the accounting auditor had maintained their
independent positions and had conducted appropriate audits and received reports on activities of execution of
duty from the accounting auditor and received explanation as the occasion demanded. Also, we received noticethat the “system to assure that duty is executed appropriately” (the matters listed in the items of Article 131 of
the Corporate Accounting Rules) has been maintained in accordance with the “Quality Control Standards for
Audits” (October 28, 2005, the Business Accounting Council) from the Accounting Auditors and demanded
explanation as the occasion demanded. Based on the above methods, we examined the non-consolidated
financial statements (non-consolidated balance sheet, non-consolidated statement of income, non-consolidated
statement of changes in shareholders’ equity and notes for non-consolidated financial statements) andaccompanying financial schedule as well as the consolidated financial statements (consolidated balance sheet,consolidated statement of income, consolidated statement of changes in shareholders’ equity and the notes forconsolidated financial statements).

- 57 -

2.

Results of Audit(1) Results of audit on the business report
1) The business report and accompanying financial schedule are found to accurately present the statusof the Company in conformity with the laws and regulations and Articles of Incorporation.
2) In connection with the performance by the Directors of their duties, no dishonest act or significant
fact of a violation of laws, regulations, or the Articles of Incorporation is found to exist.
3) The contents of the resolutions of the Board of Directors regarding the internal control systems arefound to be proper. Also, the descriptions in the business report and execution of duty by the
Directors regarding the relevant internal control system are found to accurately present the mattersto be stated therein and have nothing to be pointed out including the internal control system
regarding financial reporting.
4) Basic policy on the person who controls decisions on financial and operational policies of theCompany, which is stated in the business report, has nothing to be pointed out. The efforts inaccordance with Item 3(b) of Article 118 of the enforcement rules of the Corporation Act, which arestated in the business report, are found to be in line with the relevant basic policy and at the sametime to neither damage common interests of shareholders of the Company nor be aimed atmaintaining the status of Directors and Auditors of the Company.
(2) Results of audit on the non-consolidated financial statements and accompanying financial schedule
The methods and results of the audit made by the Accounting Auditor, Ernst & Young ShinNihon LLC,
an incorporated auditing firm, are found to be proper.
(3) Results of audit on the consolidated financial statements
The methods and results of the audit made by the Accounting Auditor, Ernst & Young ShinNihon LLC,
an incorporated auditing firm, are found to be proper.

February 16, 2012
Board of Auditors, Senshukai Co., Ltd.
Standing Auditor
Yoshihiro Nakabayashi (Seal)
Standing Auditor
Makoto Yamamoto(Seal)
External Auditor
Hideyuki Koizumi(Seal)
External Auditor
Hiroshi Morimoto(Seal)- 58 -

Reference Material for Ordinary General Meeting of Shareholders

Proposal 1: Appropriation of surplus
The Company’s basic policy concerning the appropriation of surplus is to provide distribution of
profit to shareholders, setting a dividend payout ratio of 30% as a target; provided, however, thisis consistent with reinforcing the management base and at the same time maintaining stabledividend and distributing appropriate profit.
Under this policy, the year-end dividend for the fiscal year under review was set as follows.

(1) Type of dividend property
Cash(2) Items concerning allocation of dividend property to shareholders and its amount of total
thereof7 yen per share of common stock of the Company; the total amount of 303,165,506 yen(3) Effective date of dividends from surplus:
March 30, 2012
The annual dividend will amount to 14 yen per share, including an interim dividend of 7 yen per
share.

- 59 -

Proposal 2: Election of nine (9) Directors
The terms of office of nine (9) Directors will expire at the conclusion of this meeting. We
would like you to elect a total of nine (9) Directors.
The candidates for Directors are as follows.
No.

Name
(Date of birth)

1

Yasuhiro Yukimachi(January 30, 1932)

2

3

4

Michio Tanabe(July 23, 1946)

Kiichi Tagawa(September 25, 1947)

Shohachi Sawamoto(February 9, 1948)

Brief personal profile, positions and responsibilities at theCompany and important concurrent occupations or positionsat other organizations
Oct. 1953
Joined Mirakukai
Nov. 1955 Founded the Company, Director of theCompany
Oct. 1976
Managing Director of the Company
Jan. 1985
Senior Managing Director of the Company
Oct. 1991
Executive Vice-president and Director of theCompany
Apr. 1999 Executive Vice-president and Representative
Director of the Company
Apr. 2000 President and Representative Director of theCompany
Jan. 2011
Chairman and Representative Director of theCompany (present position)
Apr. 1967 Joined the Company
Jun. 1997
Director of the Company
Mar. 2001 Director and Executive Officer of theCompany
Mar. 2005 Managing Director of the Company
Mar. 2008 Senior Managing Director of the Company
Jan. 2011
President and Representative Director of theCompany (present position)
Mar. 1966 Joined the Company
Jun. 1997
Director of the Company
Mar. 2001 Director and Executive Officer of theCompany
Mar. 2005 Managing Director of the Company
Mar. 2008 Senior Managing Director of the Company
Jan. 2011
Senior Managing Director and Executive
Officer of the Company (present position)
In charge of Administration Division andTokyo Headquarters (General Affairs Division,Operation Division, Business Development
Division) of the Company
Jan. 2012
In charge of Administration Division andTokyo Headquarters (General Affairs Division,
Business Development Division, Public
Relations Department) of the Company(present position)
Mar. 1972 Joined the Company
Jun. 1997
Director of the Company
Mar. 2001 Director and Executive Officer of theCompany
Mar. 2005 Managing Director of the Company
Jan. 2011
Senior Managing Director and Executive
Officer of the Company (present position)
In charge of Belle Maison Business Division(EC Business Division, Catalogue Business
Division, Product Development Division,
Belle Maison Business Planning Department)of the Company (present position)- 60 -(1) No. of the Company’s
shares held
(2) Any conflict of interests
between the candidate andthe Company(1) 495,036(2) None(1) 10,900(2) None(1) 27,200(2) None(1) 18,230(2) None

No.

Name
(Date of birth)5

Mamoru Asada(April 1, 1954)

6

7

8

Shigemitsu Mineoka(October 17, 1951)

Hiroyuki Hoshino(December 10, 1959)

Tomoko Oishi(November 8, 1954)

Brief personal profile, positions and responsibilities at theCompany and important concurrent occupations or positionsat other organizations
Mar. 1982 Joined the Company
Mar. 2005 Executive Officer of the Company
Mar. 2006 Director and Executive Officer of theCompany
Mar. 2008 Director and Managing Executive Officer of
the Company
Jan. 2009
Division Director of Project Division of theCompany (present position)
Jan. 2011
Managing Director and Executive Officer of
the Company (present position)
In charge of Monthly Business Division,
Project Division (Monthly Business Division,
Project Division) of the Company (present
position)Jul. 1977
Joined the Company
Mar. 2005 Executive Officer of the Company
Mar. 2008 Managing Executive Officer of the Company
Mar. 2009 Director and Managing Executive Officer of
the Company
Jan. 2011
Director and Executive Officer of theCompany (present position)
Division Director of EC Business Division of
the Company
Jan. 2012
Deputy in charge of Belle Maison Business
Division, in charge of Operation Division of
the Company (present position)
Sep. 1982 Joined the Company
Mar. 2006 Executive Officer of the Company
Jan. 2008
Division Director of Tokyo Business Divisionof the Company
Mar. 2009 Director and Executive Officer of theCompany (present position)
Jul. 2009
President and Representative Director of Pet
First Co., Ltd.
Dec. 2010 President and Representative Director of
Mobakore Co., Ltd.
Jan. 2011
Division Director of Business Development
Division of the Company (present position)
Apr. 1977 Joined Yamaha Music Foundation
Feb. 1988 Joined Yokohama Women’s Association forCommunication and Networking
Jun. 1997
Joined Japan Association for The
Advancement of Working Women
Apr. 2001 Professor of Kyoto Gakuen University, Facultyof Business Administration (present position)
Mar. 2006 Director of the Company (present position)
Apr. 2011
Dean of Kyoto Gakuen University, Faculty ofBusiness Administration (present position)- 61 -(1) No. of the Company’s
shares held
(2) Any conflict of interests
between the candidate andthe Company(1) 9,900(2) None(1) 10,300(2) None(1) 3,200(2) None(1) 0(2) None

No.

Name
(Date of birth)9

Toshikatsu Sano
(July 12, 1945)

Brief personal profile, positions and responsibilities at theCompany and important concurrent occupations or positionsat other organizations
Jun. 1969
Joined Mitsui Bank (presently, Sumitomo
Mitsui Banking Corporation)
Jun. 1997
Director and General Manager of Fund andSecurities Planning Department of Sakura
Bank (presently, Sumitomo Mitsui Banking
Corporation)
Apr. 2000 Managing Executive Officer and General
Manager of Nagoya Branch of Sakura Bank(presently, Sumitomo Mitsui Banking
Corporation)
Apr. 2001 Managing Executive Officer of Mitsui MutualLife Insurance Company (presently, MITSUI
LIFE INSURANCE COMPANY LIMITED)Jul. 2001
Director and Managing Executive Officer of
Mitsui Mutual Life Insurance Company(presently, MITSUI LIFE INSURANCECOMPANY LIMITED)
Jun. 2005
President of SMBC Consulting Co., Ltd.
Mar. 2008 Director of the Company (present position)(1) No. of the Company’s
shares held
(2) Any conflict of interests
between the candidate andthe Company(1) 0(2) None

Notes:
1. Tomoko Oishi and Toshikatsu Sano are the candidates for External Directors.
2. We believe that Tomoko Oishi will properly perform her duties as External Director concerning working women
who are principle customers of the Company, by making the most of her thorough knowledge about labor issues ofwomen, acquired through her long experience as a university professor, as well as her insight and experience
although she has not directly taken part in corporate management.

We nominated Toshikatsu Sano, who has

successively served as Director mainly at financial-related companies, since we want him to reflect his wealth ofknowledge, experience, etc. in management.
3. Tomoko Oishi and Toshikatsu Sano are currently External Directors of the Company, and their terms of office as
External Directors will reach six (6) years and four (4) years, respectively at the conclusion of this meeting.
4. The Company has concluded agreements with Tomoko Oishi and Toshikatsu Sano to limit their liabilities forcompensation as stipulated in Article 427, Paragraph 1 of the Corporation Act, based on the provisions of the
Articles of Incorporation.

If they are reelected, we plan to continue the agreements.

The limit of liabilities forcompensation under the relevant agreement is the minimum amount stipulated in laws and regulations.
5. The Company has notified Tomoko Oishi as an Independent Director as prescribed by the Financial Instruments
Exchange.

If she is reelected, we plan to maintain her position as Independent Director.

- 62 -

Proposal 3: Election of one (1) substitute Auditor
To provide for a case in which the number of Auditors falls short of the number stipulated bylaws and regulations, we would like you to elect one (1) substitute Auditor in advance pursuant
to Article 329, Paragraph 2 of the Corporation Act.
Prior to our proposal of this item, we have already obtained the consent of the Board ofAuditors.
The candidate for substitute Auditor is as follows.
Name(Date of birth)

Kouichi Masui(November 17, 1950)

Brief personal profile and important concurrent occupations
or positions at other organizations
Mar. 1986
Jul. 1986
Jul. 1987
Jan. 1989(1) No. of the Company’s
shares held
(2) Any conflict of interests
between the candidate andthe Company

Registered as a certified public accountant
Registered as a certified tax accountant
Established Masui Kouichi Office,Representative of the Office (present position)
Established Mass Management Co., Ltd.,
President of Mass Management Co., Ltd.
(present position)(1) 0(2) None

Notes:
1. Kouichi Masui is a candidate for substitute External Auditor.
2. We nominated Kouichi Masui as substitute External Auditor as we expect that he will make the best use of his
financial and accounting knowledge he has cultivated through his long experience as a certified public accountant
and a certified tax accountant for the audit system of the Company if he takes office as an Auditor.
3. We may cancel this election by a resolution of the Board of Directors after obtaining the consent of the Board ofAuditors, if the cancellation is before he takes office.
4. If Kouichi Masui is elected as proposed and takes his office, we plan to conclude an agreement with him to limit
his liability for compensation as stipulated in Article 427, Paragraph 1 of the Corporation Act, based on theprovisions of the Articles of Incorporation.

The limit of liability for compensation under the relevant agreement

is the minimum amount stipulated in laws and regulations.

- 63 -