Aderans Holdings Co., Ltd.

Annual Report 2009Year ended February 28, 2009

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T he Aderans Group, headquar tered in Tokyo, Japan, of fers a comprehensive lineup of hair-related products and services that

enhance the appearance—and mindset—of men and women. Whether it is from a concern perspective, such as hair loss,

or a fashion-conscious perspective, emphasizing style, the Group’s star t ing point in the custom-made wig business and the

exper t ise it has acquired over 40 years in this business are keys to “new-you” looks. The abili t y to help people reach their

goals underpins Aderans’ No. 1 share of the domestic market.

Today, the Group’s act ivit ies cover a variety of hair-related businesses targeting men and women in markets around the

world. Mainstay manufacturing and sales of custom- and ready-made wigs and hair-replacement products are complemented

by healthy hair-growth services, hair transplants and other hair-related products and services. The Group also includes

research and development facili t ies, which are current ly engaged in the study of new technology related to custom- and

ready-made wigs, hair-replacement products and services, and hair regenerat ion.

On September 1, 2007, the Group embraced a holding structure under Aderans Holdings Co., Ltd., to bet ter capitalize

on growth oppor tunit ies and enhance corporate value. The Group maintains a presence in 16 countr ies, primarily in Nor th

America, Europe and Asia. To promote fur ther growth, the Group is marshalling all i ts resources to establish itself as a

provider of total hair solut ions.

Profile

Cautionary Statement with Respect to Forward-Looking Statements

This annual report has been prepared for non-Japanese investors and contains forward-looking statements that are based on manage-

ment est imates, assumptions and project ions at the t ime of publ icat ion. Aderans Holdings caut ions you that a number of factors could

cause actual resul ts to di f fer mater ia l ly from expectat ions.

Contents

1 Consol idated Financial Highl ights

2 Message from the President

4 Out l ine of Management Reforms

6 New Management of Aderans Holdings

7 The Aderans Group: Providing Total Solut ions that Address Hair-Related Concerns

8 Domest ic Core Business

12 Fontaine Business

14 Overseas Core Business

16 Hair-Transplant Business

18 Corporate Governance

23 The Aderans Group in Society

24 Consol idated Five-Year Summary

25 Consol idated Financial Review

34 Consol idated Balance Sheets

36 Consol idated Statements of Income

37 Consol idated Statements of Shareholders’ Equity

38 Consol idated Statements of Cash Flows

39 Notes to the Consol idated Financial Statements

48 Report of Independent Auditors

49 Subsidiar ies (Consol idated Companies)

50 Corporate Data

1

Net Income (Loss) and Net Income (Loss) per Share

Net Sa les and Net Income (Loss) to Net Sa les Rat io

–10

0

5

10

15

20

–5

Net Sales (left scale)Net Income (Loss) to Net Sales Ratio (right scale)

–40

0

40

60

80

–20

20

Return on Assets and Return on Equi ty

Return on Equity

Return on Assets

Sales by Bus iness Segment 2009(Bill ions of yen) (Bill ions of yen)

Note: The above figures exclude intersegment transactions. Note: The above figures exclude intersegment transactions.

(%)(Bill ions of yen)

–120

0

60

120

180

–60

Net Income (Loss) (left scale)Net Income (Loss) per Share (right scale)

–5.0

0

5.0

7.5

24010.0

–2.5

2.5

(Yen)(Bill ions of yen)

–10

0

10

15

20

–5

5

(%)

2008 2009200720062005 2008 2009200720062005 2008 2009200720062005

Total ¥70.4 bill ion Total ¥70.4 bill ion

Sales by Region 2009

Overseas Core Business 11.3% (¥7.9)

Fontaine Business15.2% (¥10.6)

Other 3.3% (¥2.3)

Domestic Core Business51.0% (¥35.9)

Hair-Transplant Business19.1% (¥13.4)

Manufacturing0.1% (¥0.0)

Europe 5.6% (¥3.9)Asia excluding Japan 0.6% (¥0.4)

Japan 69.5% (¥48.9)

North America24.3% (¥17.0)

Thousands of

Mil l ions of yen U.S. dol lars

2009 2008 % change 2009

Net sales ¥70,463 ¥74,998 – 6.0% $720,413

Operat ing income 2,508 4,066 – 38.3 25,644

Net income ( loss) (2,172) 590 — (22,211)

PER COMMON SHARE AMOUNTS (yen and dol lars):

Net income ( loss) ¥ (56.11) ¥ 15.25 —.% $ 0.57

Cash div idends appl icable to the year 20.00 80.00 – 75.0 0.20

Tota l assets ¥76,102 ¥90,352 – 15.8% $778,063

Net assets 61,344 70,426 – 12.9 627,177

Net cash provided by operat ing act iv i t ies 1,963 5,512 – 64.4 20,069

Depreciat ion and amort izat ion 2,836 2,678 + 5.9 28,997

Capi ta l expendi tures 2,375 3,125 – 24.0 24,288

OTHER YEAR-END DATA:

Number of shares outstanding ( thousand) 38,718 38,720

Number of employees 5,892 6,062

Note: The U.S. dol lar amounts represent the ar i thmet ica l resul ts of t ranslat ing yen into U.S. dol lars at the rate of ¥97.81 to US$1.

2. Net income per share is calculated based on the new account ing standard descr ibed in Note 13 on page 39.

Consolidated Financial HighlightsAderans Holdings Co., Ltd., and Consolidated Subsidiaries For the years ended February 28, 2009 and February 29, 2008

2

Message from the President

New Management Structure M y name is Nobuo Watabe, and I stepped into the role of

president at Aderans Holdings on May 28, 2009. I over-

see a new management structure, which ref lects the

resul ts of vot ing at the 40th Ordinary General

Shareholders’ Meet ing on May 28, 2009, and the f i rst

meet ing of the new Board of Directors thereafter. This

structure comprises 10 newly appointed directors, includ-

ing myself, and six execut ive off icers.

Changes also occurred at Aderans Co., Ltd., and

Fontaine Co., Ltd., our two core domest ic subsidiar ies,

with two br i l l iant indiv iduals, Senkichi Yagi and Kunio Ie,

fast-tracked to the posi t ion of president of each company,

respect ively.

Group employees are already aware of the promise

made by the new management teams—that directors wi l l

work with employees, pool ing indiv idual efforts into a

cohesive unit to sustain the spir i t of “Wel lness,” a corpo-

rate concept that embodies al l-round efforts to enhance

l i festy les and encourage a healthy, happy state of mind in

people who are concerned about their appearance from a

hair perspect ive. We must never forget that “Wel lness”

underpins our corporate mission to epitomize the “good

company” ideal, a status that supports our posi t ion as a

trustworthy corporate group forever needed and always

wanted by cl ients and society in general.

These words exempl i fy our unfai l ing commitment to al l

stakeholders, including but not l imited to shareholders.

A Three-Objective MissionO ur mission has three object ives, each of which must be

real ized as quickly as possible.

First, we need to restore cl ient loyal ty, that is, br ing

cl ients back i f they have gone elsewhere and encourage

new cl ients to become repeat cl ients. We can do this by

keeping the preferences and requirements of the market

front of mind at al l t imes. Comprehensive tra ining for

salon staff, who represent front l ine access to cl ients, and

for other employees, including market ing staff, wi l l be

integral to any strategy aimed at foster ing greater cl ient

sat isfact ion. Higher cl ient sat isfact ion wi l l in turn pol ish

our corporate image.

Second, we need to return to our start ing point—that

is, hair-related products and services—and execute

growth-or iented investments that underpin core opera-

We will return to our starting point—the hair-related prod-ucts and services of today’s core operations—and emphasize growth-oriented investment to boost corporate value and achieve overall growth for the Aderans Group.

Nobuo Watabe, Pres ident

t ions. Toward this end, we wi l l concentrate management

resources into core operat ions—custom-made wigs,

ready-made wigs, healthy hair-growth services and hair

t ransplants—aggressively reformulate strategies, including

R&D plans and market ing processes, and pursue invest-

ment opportuni t ies that expand core operat ions.

Third, we need to achieve a sharp recovery in f iscal

performance. Del iver ing a speedy and sustainable ral ly in

business resul ts wi l l re inforce corporate value and, by

extension, boost shareholder value as wel l . But this objec-

t ive is l ike the ic ing on a cake, with the other two objec-

t ives being the layers. Reaching that stage wi l l be my

biggest chal lenge as president and ul t imately the most

crucial to our success.

Embarking on Management ReformsT o promote swif t and bold management reforms, four

advisory committees—Personnel/Compensat ion

Committee, Finance/Capita l Committee, Market ing

Committee, and Compl iance/Governance Committee—

were establ ished this past June with most seats f i l led by

outside directors. These committees offer the Board of

Directors insight from respect ive expert perspect ives.

In addit ion, having tapped the women’s market as a

growth segment and keen to address past cr i t ic ism of a

corporate structure that precluded suff icient input from a

female perspective, the new management team has

assumed a more progressive view of women and the mar-

keting process. Specif ical ly, Junko Miwa, an executive off i-

cer, has been assigned to the newly created Corporate

Marketing Off ice, and women are an important presence on

Team DIO, a “do-it-ourselves” management reform project

team bui l t on the part icipat ion of young employees.

As the name suggests, Team DIO embodies the desire

of i ts members “to accompl ish business reform by our-

selves.” The team has already put together a nine-point

agenda, which is detai led on pages 4 and 5.

No. 1 Provider of Total Hair-Related SolutionsT he decl ine in the Group’s performance over the past few

years is obvious, and corporate value has suffered signi f i-

cant ly as a resul t. I t is certainly true that the operat ing

environment was and remains extremely chal lenging, but

from my perspect ive as an intensely loyal member of the

Aderans fami ly going way back to my years as an employ-

ee r ight through to the present as president of Aderans

Holdings, I s imply cannot al low deter iorat ion of the

Group’s performance to persist.

The new management team wi l l work with employees

as a cohesive unit to move the Group beyond these trou-

bl ing circumstances and cement i ts posi t ion as the world’s

No. 1 provider of total hair-related solut ions. Together, we

wi l l str ive to meet the expectat ions of shareholders and al l

those who have a stake in the Company and the Group i t

leads.

On behalf of the Board of Directors, I ask al l stake-

holders for their cont inued support and understanding as

we str ive to bui ld a br ighter corporate future together.

July 2009

Nobuo Watabe

President, Aderans Holdings Co., Ltd.

3

4

Causes of the Performance Slump

Management ident i f ied the pr imary causes of the Group’s

persistent ly lackluster net sales, prof i ts and stock pr ice

over the past few years.

1. Fai led market ing strategy, including methods appl ied

to advert is ing and promotions, product development,

pr ic ing, and salon and sales routes.

2. Fai led diversi f icat ion outside core operat ions.

3. Overemphasis on sales in the personnel system and

spread of the malaise that often affects large corporations.

Despite these issues, the Group stands at the forefront of

the industry in terms of a broad choice of high-quality prod-

ucts and services, backed by solid technological capabilities

and know-how, and its large market share, established through

domestic and overseas sales channels. Obviously, then, the

only practical course of action to promote higher corporate

and shareholder values is to concentrate management

resources into the core operations of hair-related products

and services, namely, custom-made wigs, ready-made wigs,

healthy hair-growth services and hair transplants.

DIO Management Reform Agenda

1. Improve customer satisfaction by revamping marketing

strategy and pursuing growth-oriented investment

R eal iz ing that a major cause of the Group’s performance

slump over the past few years was due to the lack of a

successful market ing strategy, management wi l l def ine an

effect ive strategy to reinforce the salabi l i ty and branding

of products and services. This effort wi l l h inge on the

Corporate Market ing Off ice.

Concurrent ly, management wi l l review the advert is ing

budget—an extremely large part of which is al located to

sel l ing, general and administrat ive expenses—to achieve

greater eff ic iency in this act iv i ty and enhance the appeal

of advert is ing and promotional mater ia ls to attract wider

market interest.

2. Take a scrap-and-build approach to salons and

execute thorough salon management practices

I n the Domestic Core Business—essential ly, the activit ies

of Aderans—and the Fontaine Business as well as the salon

business, about 30 unprofitable locations wil l be closed,

streamlined or integrated. At the same time, new locations

wil l be opened and underperforming salons wil l be encour-

aged to embrace the practices that have made highly eff i-

cient salons so successful. These efforts should lead to a

reduction of about ¥600 mil l ion in total annual operating

expenses by February 28, 2011, compared with the

amount booked in f iscal 2009, ended February 28, 2009.

3. Build a solid management structure by improving

operating and administration practices

T hree steps to a sol id management structures: 1) cut

f ixed expenses; 2) integrate about 43 Group companies at

home and abroad; and 3) maximize the Group’s supply

chain—from raw mater ia l procurement through product ion

at factor ies in Thai land and the Phi l ippines to domest ic

sales—to reduce cost of sales, tr im inventor ies and short-

en lead t ime to del ivery of custom-made products.

Through these three steps, the Company expects to see

total annual expenses drop by about ¥1.5 bi l l ion and a

decrease in the amount of working capita l required to

operate.

Through addit ional measures, such as ear ly implemen-

tat ion of a consol idated tax return system, corporate taxes

could shr ink as much as ¥1.0 bi l l ion in the f iscal year that

such a system is introduced.

4. Disposal of noncore operations and associated assets

T he noncore assets—those that are used in or associat-

ed with business areas outside core operat ions—wil l be

Outline of Management Reforms

We will put management reforms to work, based on this nine-point agenda.

5

8. Enhanced compliance structure

T he Company wi l l endeavor to el ic i t greater awareness of

compl iance issues among employees and create a stron-

ger compl iance structure by emphasiz ing efforts to

improve the internal communicat ion structure and enforce

respect for the Group’s code of conduct through employee

training.

9. Stronger corporate governance and efforts to build

shareholder value

T he Board of Directors is looking to i ts advisory struc-

ture, the Compl iance/Governance Committee, for mea-

sures to strengthen corporate governance.

In regard to shareholder value, in June 2009, manage-

ment abol ished the Company’s measures for counter ing

large-scale acquis i t ions of i ts own shares, conf ident that

the best defense against a takeover bid is enhanced

shareholder value. In addit ion, management closely exam-

ined such factors as the amount of f inancial assets held

by the Group, the current consol idated equity rat io, and

the need for funds to pursue such strategies as growth-

or iented investment, and decided to purchase up to two

mi l l ion shares of i ts own stock—approximately 5% of total

outstanding shares—at a maximum payout of ¥2.5 bi l l ion

from the market. Then, except for a port ion of treasury

stock to be used as management incent ives, these shares

along with treasury stock already held by the Company,

wi l l be promptly cancel led.

Putt ing this agenda of management reforms to work wi l l

set the Group back on track for growth, which will enhance

corporate value as wel l as shareholder value and lead to

better returns for al l shareholders.

sold or otherwise disposed of. This wi l l cut total annual

expenses by about ¥300 mil l ion by February 28, 2011,

compared with the amount booked in f iscal 2009, ended

February 28, 2009, and generate cash for the Company.

The proceeds wi l l be earmarked for more aggressive,

growth-or iented investment.

5. Pursuing synergies within the Group

T o reinforce the holding company funct ion, the Company

created the posi t ion of Group Chief Financial Off icer, set

up the Corporate Market ing Off ice and plans to put in

place i ts own personnel off ice. These structures wi l l maxi-

mize opportuni t ies to generate synergies among Group

companies, especial ly in shar ing salon-development

know-how and operat ing expert ise in f inance, market ing,

personnel, informat ion systems and overal l supply chain

opt imizat ion.

6. Efficient use of capital through group cash

management

L iquid deposits scattered among subsidiar ies in countr ies

al l over the world wi l l be col lect ively managed by the

Company and ut i l ized for growth-or iented investment and

return to shareholders.

7. Revamped personnel system and thorough employee

training

T he execut ive team is whol ly committed to restor ing cl i-

ent loyal ty to the Aderans brand. The sales-f i rst pr inciple

that tended to take precedence in the past has led us to

real ize that the personnel evaluat ion system should be

reformulated to ensure that a customer-f i rst pr inciple

takes precedence in the future.

Because employee att i tudes can have a considerable

impact on customer sat isfact ion, in that happy employees

are more l ikely to go the extra mi le to see a cl ient smi le,

the Company wi l l str ive to create workplace environments

that motivate employees to do wel l in their assigned tasks.

At the same t ime, the Company wi l l oversee retraining

programs for employees at al l career levels, from

execut ives to salon technicians and counselors.

Board of Directors

President

Nobuo Watabe Director and Vice President

Shigeru Ishiko Director

Senkichi Yagi

Director

Kunio Ie Director

Kiyoshi Hayakawa

Outside Director

Tadao Otsuki

Outside Director

Hironori Aihara

Outside Director

Hiroko Wada

Outside Director

Seitaro Ishi i

Outside Director

Joshua Schechter

(As of August 1, 2009)

Corporate Auditors

Standing Corporate Auditor

Fumio Arai

Corporate Auditor

Yoshiko Shirata

Outside Corporate Auditor

Masaaki Katagir i

Outside Corporate Auditor

Iwao Toigawa

Executive Officers

Execut ive Off icer

in charge of Legal Affa irs

Kosuke Mochizuki

Execut ive Off icer

in charge of Corporate Planning, General

Affa irs, Corporate Communicat ions,

IT and Secretary Off ice

Atsushi Yamaguchi

Execut ive Off icer

in charge of Group Management Off ice

Mutsuo Minowa

Execut ive Off icer

in charge of Branding and Advert is ing

Yuj i Hirahara

Execut ive Off icer

in charge of the Men’s Market

Yoshihiro Tsumura

Execut ive Off icer

in charge of the Women’s Market

Junko Miwa

Execut ive Off icer

in charge of Personnel Affa irs Off ice

Hirotsugu Wada

6

New Management of Aderans Holdings

The Aderans Group takes a global perspective in developing its hair-related businesses, seeking to provide total solutions that address everything from concerns, such as hair loss, to the desire for a more fashionable look. The Group offers top-level products and excellent services in four business segments.

Wig

s an

d ot

her

hair-

volu

miz

ing

prod

ucts

and

ser

vice

sO

ther

Domestic Core Business (Aderans)Through 233 directly operated salons, Aderans promotes hair-related products and services, including hair-volumizing products, particularly high-quality custom-made wigs, and healthy hair-growth services, to men and women in the domestic market. The company holds the No. 1 share of the market.

Domestic Business Overseas Business

Fontaine Business Fontaine offers ladies’ ready-made wigs

through directly operated salons, department

stores and beauty salons across Japan. The

company also works with Aderans to create

synergies that underpin responses to wide-

ranging market needs. Fontaine enjoys the

leading share of the domestic ready-made

wig market.

Overseas Core Business (Wigs)In North America and Europe, most of the companies involved in the Group’s wig business sell ready-made wigs and other hair-related products and services, but some offer custom-made wigs, as well.

In Asia, excluding Japan, the Group’s principal retailing subsidiary is located in Taiwan, and efforts are being directed toward raising the profile of hair-related products and services, especially custom-made wigs and healthy hair-growth services, through enhanced advertising activities.

Hair-Transplant BusinessU.S.-based Bosley and MHR are the core companies of the Hair-Transplant Business. Their combined market shares give the Group the No. 1 position in the North American market.

The Aderans Group:Providing Total Solutions that Address Hair-Related Concerns

7

8

Domestic Core Business

BackgroundNo. 1 Brand in Japan

A derans, representing the Group’s Domestic Core Business,

focuses on custom-made wigs, hair-volumizing products and

healthy hair-growth services for men and women. Based on

data gathered in 2006, the company estimates the size of the

domestic market at about ¥112 billion, with the men’s seg-

ment worth about ¥76 billion and the women’s segment about

¥36 billion. Aderans has captured the No. 1 share overall.

The Best Artificial Hair in the World

A derans’ custom-made wigs boast excellent qualit y and the

world’s most innovative ar t if icial hair technology. A per fect

example is Aderans Vital Hair, an ar t if icial hair of superior

qualit y that features a proprietary two-layer structure and

advanced biomimetic technology.

For Aderans, wigs are not only high-prof it but also a

precursor to stable repeat business, because init ial pur-

chases inevitably lead to replacement demand. This trend is

especially noticeable among men who routinely wear a wig.

Priorities

T he market-shrinking impact of a falling birthrate as well as

heightened competition for the attention of a smaller demand

segment have eroded Aderans’ sales to men. Indeed, the

men’s market represented the company’s core client group

from its early days, but the emphasis is shifting. Demand

from women is growing, and sales to women have actually

surpassed sales to men.

To attract new male and female clients, Aderans is work-

ing on strategic advertising that links new products and

services, and designed to get results.

At the salon level, the company is emphasizing numerical

targets, such as the number of inquiries that turn into coun-

seling sessions and the number of sessions that result in con-

tracts, to encourage salons to bring in more new and repeat

business. In addition, to eliminate the disparity in business

results among salons, the company is promoting widespread

adherence to a PDCA—Plan, Do, Check, Act—program as

well as network-wide introduction of practices proven effec-

tive at top-performing salons to raise the level of service

excellence to a uniformly high level.

As far as salon strategy is concerned, the goal is to

create comfortable settings for clients.

Men’s MarketTrends in the Domestic Market

U p until f iscal 2007, more than 40% of Aderans’ new male

clients were men in their 20s, who were par t icular ly keen on

healthy hair-growth services. By f iscal 2009, less than 30%

of the company’s new male clients were men in their 20s.

This trend paralleled a redirect ion in adver t ising strategy

back to wigs.

As the bir thrate in Japan continues to decline, it is all the

more impor tant for Aderans to secure stable repeat business

by at tract ing new clients in their 30s and older—men to

whom the company can sell the advantages of wigs and

hair-volumizing products.

Emphasis on Wigs and Hair-Volumizing Products

A derans is in the process of shif t ing the focus of i ts adver-

t ising strategy from healthy hair-growth services to refocus

on wigs and hair-volumizing products, on which the compa-

ny's init ial success was based. The main reasons for this

shif t are twofold. First, Aderans’ main customers for healthy

hair-growth services are in their 20s, which is a shr inking

demographic due to Japan’s low bir thrate. On the other

hand, wigs and hair-volumizing products, with their high

02008 2009

60

100

61.1%

6.8%

30.0%

30.1%

26.6%

36.5%38.9%

73.4%

2.1%

6.8%80

20

40

Number of New Order from Male Clients

Custom-made wigs other than AHC

Aderans Hair Club (AHC)

(%)

3 4 5 6 7 8 9 10 11 12 1 2

Healthy Hair-Growth Services

Hair-Volumizing Products

Net Sales of Domestic Core Business by Segment (including internal transactions) Year ended February 28, 2009

Male: new clients ¥1,451 million

Male: repeat clients ¥10,471 million

Female: new clients ¥6,284 million

Female: repeat clients ¥11,942 million

Other ¥6,003 million

Total: ¥36,155 million

Aderans’ New Female Clients by Age

Year ended February 28, 2009

Under 20 0.9%20s 0.6%30s 1.5%40s 3.5%

50s 13.3%

60s 35.3%

70 and over44.9%

Custom-made wigs Cyberhair CA30: Obviates the need to remove and reattach a hair-replacement product. Technicians use a proprietary technique to attach the wig.

Men’s Aderans: Ful ly bespoke custom-made wigs designed to look as natural as possible.

Men’s Aderans Flex Hair Augmentation System: Offers the cl ient a series of custom-made wigs with progressively more hair, enabl ing a gradual transformation similar to natural hair growth.

Hair-volumizing Pinpoint Fix: Increases hair volume by knott ing several art i f ic ial hairs to each natural hair. products Hair Fix: Augments thinning hair in a specif ic area, such as along the part ing.

Hair Skin: Augments the hair l ine—an awkward area to deal with—by aff ix ing art i f ic ial hair to an ultrathin base of art i f ic ial skin.

Hairceda: Volumizes individual strands of hair by infusing protein.

Healthy hair-growth Physical Esthé: Restores the health of damaged hair. services Hair ACT: Creates optimum scalp condit ions for healthy hair growth.

Aderans launched a flat-fee membership system under the Aderans

Hair Club banner to stimulate new interest in custom-made wigs.

Product List

9

Before

After

Strategy for the Men’s Market

Aderans

HAIR CLUB

Before

After

Seeking stable growth over

the medium term,

Aderans is returning to

its business roots,

shifting its focus from

healthy hair-growth services

for men in their 20s

back to wigs for men between

the ages of 30 and 50.

10

repeat customer rat io, are expected to be a highly prof i table

market segment in the future.

As par t of this shif t, the company has been promoting

a f lat-rate service under the Aderans Hair Club banner since

June 2008. Wigs and hair-volumizing products are now front

and center in Aderans’ television commercials, and up-front

information disclosure, such as pricing details and client

test imonials, form the pillar of the company’s adver t ising

strategy. The company also redesigned its website and

established a cross-media structure with television to boost

adver t ising ef f iciency.

These measures yielded solid results in f iscal 2009,

substant iated by a 4.3% year-on-year increase in sales of

custom-made wigs to new male clients and a jump from

38.9% to 73.4% in the rat io of wigs and hair-volumizing

products in the overall new-order mix.

Women’s MarketTrends in the Domestic Market

T he market for women’s hair-related products and services

is driven by two types of clients: women who are concerned

about their hair and women who see wigs and hair accesso-

ries as an extension of fashion. The women’s market is a

signif icant demand segment that will underpin growth of the

Aderans Group.

More than 90% of the women who purchase a custom-

made wig from Aderans are in their 50s and older. To address

the needs of this client base, the company maintained a

two-brand strategy, with the eve series for women in their

60s and up and, in an ef for t to cult ivate interest from young-

er women, the Sifore series for women in their 40s and 50s.

In Japan, the name “Aderans” is extremely well known.

Capitalizing on name value to boost product recognit ion, the

company began to launch products with "Aderans" in their

name from March 2009.

Utilize Ties with Fontaine and Diversified Marketing

Channels

S eeking to at tract more new female clients, Aderans ut ilizes

its connection to Fontaine to turn untapped interest in wigs

into real demand that underpins Group results.

Specif ically, staf f at Aderans’ counseling of f ices will

suggest a fashion wig from Fontaine to women whose visits

indicate interest but whose budgets prevent the purchase of

a custom-made wig. Aderans also benefits from Fontaine's

presence in depar tment stores—a key marketing route for

Fontaine—and arranges wig fairs and try-on events high-

light ing its brands at these retail locat ions.

Through an alliance with HairDX LLC, Aderans is

able to offer the HairDX Genetic Test for Hair Loss,

which identifies the risk of future hair loss among

men and women.

The HairDX

GENETIC TESTHAIR LOSSfor

Aderans’ Marketing System

Inquiries from men and women about Aderans’ products and

services start the business ball rolling. To prompt interest from

consumers, the company uses conventional mass media,

which attract the attention of many people in the target

markets, as well as combined use of several media, including

the Internet, to make information more easily accessible.

Potential clients can drop by a salon or a representative

can pay a home visit. Either way, face-to-face contact allows

men and women to get professional advice on hair-related

issues and presents a good atmosphere in which to ask

questions about products. These sessions also provide an

opportunity for Aderans’ representatives to suggest products

ideally suited to the individual, since head shape and hair

growth patterns are unique to each person. A contract is drawn

up only when a potential client is satisfied that the product

and/or service he or she is signing up for is just right.

Strategic Advertising

● T V ● Web s i te● Te lephone ● Maga z ines ● Pos tca rd

Group Synergy

Promot ion t h rough ● Font a ine, Beau t y and

ha i rd ress ing sa lons, and Samson group companies

Consu l t a t ions + Ha i r Check(Free)

Custom-made w igs,ready-made w igs, and

hea l t hy ha i r-re la ted ser v ices

Services via Nationwide Network

Aderans’ Sales Network

(As of February 28, 2009)

Counse l ing O f f ices 9

Regu la r Sa lons 140

Lad ies’ Sa lons 24

Sate l l i te Sa lons 43

New-Concept Sa lons 12

PN Sa lons 5

Tot a l 233

After-sales services

Aderans eve

11

eve series

Targets women in their 60s and 70s, offer ing enhanced volume in addit ion to conceal ing gray hair.

Sifore series

Targets women in their 40s and 50s, offer ing enhanced volume in fashionable hairstyles.

Reage – Total Care Course

Treats hair from the roots to the ends and improves scalp condit ion to promote vigorous hair growth.

Reage – Damage Care Course

Thoroughly repairs damaged hair, restoring i ts natural beauty.

Product List

Strategy for the Women’s Market

The logos for ladies’ wigs marketed in Japan were designed around

brand names, such as eve series. These logos will be

modified to include “Aderans” to draw on the high profile

that the company name has acquired.

Custom-made wigs

Healthy hair-growth services

11

Aderans eve

SOFTWIGAderans eve Softwig, which debuted in March

2009, features two new materials in the

foundation—Fit Liner and a fan-patterned net—

which make the wig easy to put on and

comfortable to wear.

Stretchy, s ide-to-s ide and up-and-down

Reacts to body tem-peratu re, becoming f lex ib le and ensur-ing a natu ra l f i t

12

Fontaine Business

BackgroundF ontaine specializes in the ready-made wig market. The

company caters to women of all ages, from young to middle-

aged and older, in Japan and of fers its products over three

key marketing channels—depar tment store chains with

nat ional coverage, direct ly operated salons, and a cross-

country network of beauty salons and f ine cosmetics stores

supplied under the company’s wholesale program.

Fontaine maintains its status as the pioneering force

behind Japan’s fashion wig market through the industry’s

product planning and development group. The company

str ives to stay ahead of the competit ion by creat ing innova-

t ive products in three categories: full-coverage wigs,

TopPiece (hairpieces) and

Poste (post iches, or small

hairpieces). Overseas brands

handled by other members of

the Aderans Group round out

a r ich assor tment of products

that has earned Fontaine a

solid reputation in the market.

In 2006, Fontaine assumed

the custom-made wig whole-

saling business of Aderans

and has successfully inte-

grated these act ivit ies into

its beauty salon marketing

channel to promote

ef f iciency.

PrioritiesReinforcing Profitability

A worsening economy caused consumer sentiment to cool,

dampening interest in ladies’ ready-made wigs, which in turn

led to lower net sales and income for the Fontaine Business.

Fontaine used to focus on at tract ing new clients to

expand sales, but this perspective is too narrow these days.

To reinforce prof itabili t y, the company decided to comple-

ment its ongoing approach to new clients with ef for ts aimed

at renewing interest from f irst-t ime clients who have not

commit ted to a second purchase yet. In f iscal 2009, salon-

collected client information was reexamined and clients were

contacted, primarily by phone and direct mail, to encourage

repeat visits.

Create New Business Opportunities with Aderans

R eage, a new-concept salon opened in Tokyo in November

2007, represents a new business format that combines the

products and services of both Aderans and Fontaine with a

varied menu of hair-related services, such as Head Spa, a

relaxing scalp treatment using private-brand products with

natural ingredients, and Hair Esthé, a treatment that

improves hair qualit y.

This salon also functions as an information por tal, gath-

ering comments from clients that Fontaine and Aderans can

apply to future collaborat ive ef for ts and that will help both

companies cult ivate new demand in the women’s market.

Another area of joint act ivit y with Aderans is the promo-

tion of custom-made wigs at depar tment stores, primarily

through wig fairs and try-on events, and access to Aderans-

brand products for sale through Fontaine’s depar tment store

corners.

Fostering Interest among Teens

When it comes to ready-made wigs, those from Fontaine are considered high on the qualit y scale. The

products are, however, rather expensive, and older women are of ten the only ones who can af ford

them. But market analysis indicates that younger women are also interested in ready-made wigs—

viewing them as fashion accessories—and would gladly make a purchase if the prices were more within their budgets.

Seeking to capitalize on this latent demand over the medium term, Fontaine launched a new salon network—Loves

Change—in f iscal 2008. So far, three locat ions are in operat ion, in Tokyo, Osaka and Fukuoka. They carry

lower-priced items—mainly Poste (post iches, or small hairpieces)—and cater specif ically to young women,

including teenagers.

By targeting a market that includes teenagers, Fontaine hopes to nur ture a signif icant potential client base

that perceives Poste and full-coverage wigs as fashion accessories. If comfor table with such products from an

early age, women will be more receptive to the idea of long-term use of wigs as they grow older.

LOVES CHANGE

Fontaine Business Net Sales by Marketing Channel(including internal transactions)

Year ended February 28, 2009

Total: ¥10,830 million

Department stores: ¥5,840 million

Directly operated salons: ¥1,708 million

Beauty salons: ¥1,606 million

Others: ¥1,674 million

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13

Reage, new-concept salon In November 2007, the new-concept salon

Reage opened in Tokyo. Reage provides a

varied menu of hair-related products and

services of both Aderans and Fontaine.

Group Strategy for the Women’s Market

in JapanCollaborative efforts by Aderans and Fontaine should expand the

domestic women’s market, where latent demand is estimated to be

quite high, giving Fontaine tremendous growth potential.

Source: Aderans (2006)

Fontaine

Ready-made Wigs Market in Japan: about ¥4.7 billion

Company A

Company B

Other companies 34%

11%

6%

49%Aderans

Female Custom-made Wig and Healthy Hair-Growth Service Market in Japan: about ¥3.4 billion

Company A

Other companies

70%

15%

15%

Ready-made wigs Wigs/TopPiece/Poste

H igh-fashion ready-made wigs designed with the latest t rends in mind.

Product List

14

Overseas Core Business

Background

United States Bigger Share of Wholesale Market

T he Group’s U.S. operat ions encompass six companies:

Aderans America Holdings—the holding company for group

companies in this country—as well as four wholesalers and

one retailer of men’s and ladies’ wigs.

The group companies involved in the local wig business

draw on the composite strengths of the Group to raise the

quality and product power of Aderans-brand wigs and enhance

the Group’s ability to ensure stable supply to the market.

This should lead to a bigger share of the wholesale market.

The Group wrapped up preparations to enter the ethnic—

or nonwhite—market, an unchar ted area of Aderans’ whole-

sale operat ions in the United States, through the sale of

Revlon-brand wigs. Shipments have already star ted.

In January 2008, the Paris Hilton Collect ion, inspired

by socialite Paris Hilton, began shipping through Group

channels. The collect ion has drawn considerable market

at tent ion.

Europe Entering New Markets

I n Europe, the Group is represented by 10 companies,

including Aderans Europe, the Netherlands-based holding

company for the Group’s wig-wholesaling operat ions in

France, Germany, Belgium,

Sweden, the Netherlands

and the United Kingdom.

The marketing spot-

light was trained on the

Sentoo Collection, a collec-

t ion of ready-made wigs with

high-fashion f lair created as

an integrated brand just for

Europe. Unfor tunately, the

f inancial cr isis dampened

consumer spending, which

eroded demand for non-essential items, including fashion

wigs.

But demand for medical-use wigs remained stable,

generat ing steady sales and prof its throughout the Group’s

European network.

Asia excluding Japan Steadily Higher Earning Capabilities

T he Group’s presence in Asia, excluding Japan, hinges on

retailing operat ions under taken by one consolidated subsid-

iary and f ive unconsolidated subsidiar ies.

Ef for ts to reinforce the regional marketing structure cen-

ter on operat ions in Taiwan, but Aderans Holdings would like

to see the creat ion of a complementary network for the

future that encompasses other countr ies and regions, includ-

ing South Korea, par ts of Southeast Asia, including Thailand,

Malaysia and Singapore, and major cit ies in China, such as

Shanghai.

The Company aims to hone the competit ive edge of its

Taiwanese subsidiary by promoting a conscient ious training

program to upgrade the skills of local staf f. This should

boost the number of inquir ies leading to consultat ion ses-

sions, as well as the number of sessions leading to signed

contracts. Ef for ts to develop an adver t ising strategy ut ilizing

ideas from Japan should also at tract more interest—and

higher sales—from new clients.

Group Production Bases: Aderans Thai. Ltd., World Qualit y Co., Ltd., and Aderans

Philippines, Inc., are world-class wig facili t ies, with

annual production volume of 1,085,428 units and a

combined workforce of about 7,300 people, including

outsourcing contractors, as of February 28, 2009.Net Sales of Overseas Core Business

Year ended February 28, 2009

Total: ¥7,935 million

North America: ¥3,614 millionEurope:

¥3,950 million

Asia: ¥369 million

15

Ready-made wigs Noriko, Valan, Amore, René of Paris, Sentoo, Adolfo, Tressallure, Roloc, and others

Wholesale and retail marketing of ready-made wigs.

Custom-made wigs and healthy hair-growth ser vices available in cer tain regions.

Product List

Global Brands of the Group

The Sentoo Co l lec t ion i s a b rand ava i lab le th rough-out Europe. The word “sentoo” comes f rom the Japanese—pronounced “sen-toh”—mean ing “lead” and “top”.

Research on Hair-Regeneration Technology The Group also includes Aderans Research Inst i tute, Inc. (ARI), a Cali fornia-based company that researches hair-

regenerat ion technology at two laborator ies, one in Philadelphia and the other in At lanta. These laborator ies are the

world’s only facili t ies dedicated to this research theme.

Unlike hair t ransplants, a surgical procedure whereby a doctor removes thin st r ips of the pat ient ’s scalp wi th heal thy

hair roots and relocates the fol l ic le-bear ing sk in to areas of hair loss, hair regenerat ion is recognized as a medical tech-

nique that involves the cul t ivat ion of a small quant i t y of hair fol l ic le cells—the cells that produce hair roots—for scalp

inject ion.

In Apr i l 2009, ARI entered Phase 2 of cl inical t r ia ls on cell-based hair regenerat ion for men and women. In this

second stage of research, the company wil l apply the f indings gathered in the recent ly completed Phase 1 to fur ther i t s

pursui t of revolut ionar y cell therapy on pat tern hair loss, known in medical

terms as androgenet ic a lopecia.Cu l tu r i ng In jec t ion

Ha i r reg rowth

Hair Regeneration

16

Hair-Transplant Business

Basic BackgroundTwo-Company Structure

E xpansion of the Group’s Hair-Transplant Business hinges

on two companies: Bosley, which enjoys the top share of

the hair-t ransplant market in

Nor th America, and No.

2–ranked MHR, which came

under the Aderans umbrella

on August 31, 2007.

Even in this economic

slump, the Bosley name is

st i l l regarded as a premium

brand, backed by high stan-

dards in technology and cli-

ent services. Meanwhile,

MHR has excellent market ing capabil i t ies, especially in the

development of hair salons that funct ion as a f ront l ine to

potent ia l hair-t ransplant cl ients, as well as solid sell ing

techniques to secure prof i ts on hair-related products. In f is-

cal 2009, both companies worked to improve prof i tabil i t y

by reducing personnel expenses and lower ing respect ive

breakeven points.

U.S. Hair-Transplant Market

I n the U.S. hair-t ransplant market, Bosley and MHR hold

the No. 1 and No. 2 spots, with shares of roughly 10% and

5%, respect ively, for a combined market share of about

15%. Of the remaining 85% plus, only about 5% has been

captured by r ival companies specializ ing in this business. A

few small-sized medical groups and a large number of phy-

sicians in pr ivate pract ice account for approximately 80%.

Long-term approaches to boost market share include

M&As and business all iances with pr ivate-pract ice clinics,

and both Bosley and MHR will watch for the r ight

oppor tunit ies.

Net Sales of Hair-Transplant Business

Year ended February 28, 2009

Total: ¥13,482 million

Bosley: ¥9,516 million

MHR: ¥3,965 million

MHR

17

Hair-Transplant Business of the Group

Bosley, the core operation of the Group’s Hair-

Transplant Business, enjoys the top share of the

hair-transplant market in North America.

MHR, the No. 2 provider in the North

American hair-transplant market,

came under the Aderans Holdings

umbrella in August 2007.

18

Corporate Governance

Of f ice, which is cur rent l y s t a f fed by three people, and

data obta ined at va r ious meet ings, inc lud ing sa les meet-

ings. As a group, t he Board of Audi tors d iscusses the

in format ion brought to the t ab le by the fu l l-t ime audi tor.

Reporting sessions

In addi t ion to the Board of D i rec tors and the Board of

Audi tors, t he Company ma int a ins another meet ing s t ruc-

ture that suppor t s mul t i faceted inves t igat ion of i s sues

re levant to the execu t ion of operat ions.

Cha i red by the pres ident, t hese sess ions a re at tend-

ed by d i rec tors respons ib le for execu t ing operat ions and

the fu l l-t ime audi tor. Sess ions t ake p lace tw ice a month

and prov ide oppor tun i t ies for d i rec tors to get regu la r

updates on ac tua l bus iness ac t i v i t ies and to conf i rm the

content of repor t s w i t h other members. When necessar y,

genera l managers w i l l be inv i ted to prov ide progress on

ac t i v i t ies in t he i r respect i ve d iv is ions. Genera l managers

may a lso be asked to c la r i f y new bus iness proposa ls,

which sess ion par t ic ipant s w i l l eva luate in terms of fea-

s ib i l i t y and lega l i t y as wel l as potent ia l in teres t to c l ient s

and acceptance to soc iet y in genera l. These sess ions

func t ion as a barometer, gauging the leve l of consensus

among d i rec tors in a t tendance on management

dec is ions.

Repor t ing sess ions a lso t ake place a week before

Board of Directors’ meet ings to se lect the agenda for

d iscuss ion at those meet ings and to engage in pre l imi-

nar y discuss ions of se lected agenda i tems to conf i rm

the ir va l id i t y under preva i l ing laws and Ar t ic les of

Incorporat ion and to ensure that the Group’s act iv i t ies

are not of an ant isoc ia l inc l inat ion.

Ou t s ide exper t s w i l l be ca l led for t he i r op in ions,

when spec ia l i zed knowledge is requ i red.

Internal Controls

The Board of D i rec tors determines bas ic po l icy for in ter-

na l cont ro ls, in accordance w i th t he Company ’s s t a ted

bus iness ph i losophy and bus iness d i rec t ion. Po l icy con-

tent is presented be low.

Ensuring that the activities of directors and staff conform to

prevailing laws and the Company’s Articles of Incorporation

Act i v i t ies w i l l be gu ided by a leve l of eth ics and va lues

demanded by soc iet y, based on respect for t he law, of

course, as wel l as corporate ph i losophy and the bus i-

ness parameters of t he Group.

Dec is ions on impor t ant mat ters of subs id ia r ies that

impact t he Company or t he Group as a whole w i l l be

Aderans Hold ings ac t i ve ly works to enhance corporate

governance. Therefore, par t icu la r ef for t has been d i rec t-

ed toward the es t ab l i shment of a f lex ib le organizat ion

pr imed for speedy dec is ions on bus iness s t ra teg ies and

the i r implementat ion, and the execu t ion of c lea r, t imely

and impar t ia l d isc losure of corporate in format ion on

bus iness ac t i v i t ies to a l l s t akeholders.

In terna l s t ruc tures per t a in ing to the format ion, execu t ion

and super v is ion of dec is ions by the execu t i ve team are

descr ibed be low.

Corporate Structure

Aderans Hold ings ma int a ins a corporate audi tor sys tem.

Under t h is sys tem, three execu t i ve teams a re respons i-

b le for ensur ing that bus iness ac t i v i t ies a re under t aken

in accordance w i th preva i l ing laws and the Company ’s

A r t ic les of Incorporat ion.

The t rans i t ion to a ho ld ing company s t ruc ture in

September 2007 has c la r i f ied respons ib i l i t y for mak ing

dec is ions and implement ing them.

Board of Directors

Cha i red by the pres ident, t h is h ighes t dec is ion-mak ing

au thor i t y on bus iness s t ra teg ies meet s once a month to

d iscuss key mat ters of bus iness and determine respons-

es necessar y to move ahead.

The pres ident or t he d i rec tor respons ib le for t he

bus iness ac t i v i t y in ques t ion w i l l ensure that appropr ia te

s teps a re t aken to execu te proposed measures.

Board of Corporate Auditors

The Board of Audi tors compr ises four corporate audi tors

inc lud ing one fu l l-t ime audi tor and two ou t s ide audi tors,

who get together on the days the Board of D i rec tors has

met to exchange opin ions on the appropr ia teness of

dec is ions formed by the Board of D i rec tors. The fu l l-t ime

audi tor present s at t he Board of Audi tors’ meet ing va r i-

ous updates, inc lud ing a repor t on the content of top ics

exp lored in t he repor t ing sess ions, updates on progress

made by d i rec tors and managers of operat ing d iv is ions,

t he resu l t s of audi t s execu ted by the In terna l Audi t

Basic Policy

Status

19

fo rmed through d iscuss ions in repor t ing sess ions, in l ine

w i t h es t ab l i shed ru les govern ing du t ies and powers.

The Company re l ies on i t s d i rec tors to under t ake

the i r respect i ve du t ies in a l l s incer i t y, bu t audi t s by cor-

porate audi tors w i l l ver i f y t hat sa id du t ies have been

executed law fu l l y.

Custody and management of information related to directors’

duties

In format ion re la t ing to the execu t ion of du t ies w i l l be

s tored and ma int a ined in l ine w i t h ru les govern ing the

handl ing of in format ion asset s. The paper or e lec t ron ic

documents to be kept a re l i s ted be low, and the cus tody

per iod w i l l be based on t imes set for th in t he Company ’s

ru les for document management.

• Minu tes f rom the genera l shareholders’ meet ing and

re la ted mater ia ls

• Minu tes f rom Board of D i rec tors’ meet ings and re la ted

mater ia ls

• Minu tes f rom meet ings cha i red by d i rec tors and

re la ted mater ia ls

• Key documents re la t ing to other execu t i ve du t ies

• In terna l memos passed a round to d i rec tors to obta in

overa l l approva l of a dec is ion

D i rec tors and genera l managers w i l l prov ide these

documents whenever an audi tor, or someone work ing on

an audi t a t t he ins t ruc t ion of an audi tor, asks to look at

or copy a document deemed necessar y to the audi t .

Ensuring efficient execution of directors’ duties

The pres ident w i l l requ i re a l l d i rec tors to execu te the i r

du t ies, based on a d iv is ion of du t ies and in l ine w i t h t he

au thor i t y a l located to d i rec tors to under t ake sa id du t ies.

Impor tant mat ters that impact the operat ions of the

Company or the Group as a whole wi l l be c lar i f ied by

directors or genera l managers at regular ly scheduled

repor t ing sessions wi th directors in at tendance. I f an

obstacle to the ef f ic ient execut ion of dut ies ex is t s, a solu-

t ion wi l l be presented to the appropr iate execut ive forum.

Other measures to control risk leading to losses

To preempt the appearance of r i sk leading to losses that

would impede sus t a inab le corporate deve lopment, t he

Company has es t ab l i shed a s t ruc ture to prevent r i sks

f rom turn ing in to cr ises. Th is s t ruc ture centers on the

In-House Improvement Commi t tee and an in-house

hot l ine for repor t ing a l leged i l lega l ac t i v i t ies or soc ia l l y

unacceptab le behav ior by d i rec tors or employees.

Directors ascer ta in the status of r isk management

ef for ts in their respect ive areas of responsibi l i t y and pro-

vide updates at regular ly scheduled repor t ing sessions.

The r isk of losses and measures to cont rol such r isk are

a lways under the direct rev iew of members of repor t ing

sessions.

I f informat ion were to leak out or an emergency, such

as an accident or natura l disaster, were to ar ise, an emer-

gency response team would convene immediately under

the direct ion of the president to ensure a swif t and accu-

rate response to the si tuat ion.

Companies under t he Group umbre l la w i l l on ly enter

in to bus iness t ransac t ions w i t h suppl ie rs who have been

screened and su i t ab ly sat is f y es t ab l i shed requi rement s.

I f an approved suppl ie r i s la ter found to be invo lved in

ant isoc ia l ac t i v i t ies, t he bus iness re la t ionsh ip w i l l be ter-

minated at once to ensure tot a l d isengagement f rom any

and a l l t ransac t ions, now and in t he fu ture, w i t h ant iso-

c ia l groups in tent on pursu ing economic ga ins through

unsavor y methods, such as v io lence, coerc ion or f raudu-

lent means.

Ensuring fair business practices of listed companies and the

Aderans Group (parent company and subsidiaries)

Transact ions between companies under the Group umbrella

must be appropriate and comply with prevailing laws,

account ing pr inciples, tax requirements, and social stan-

dards, as well as in-house management rules for af f i l iated

companies.

At meet ings of the Group execut ive and at meet ings

for af f i l ia tes, the pres ident w i l l indicate the di rect ion of

Group pol icy and the path that should be taken in exe-

cut ing operat ions. Loca l execut ives w i l l implement sa id

pol icy and ensure that operat ions fo l low the des ignated

path.

Whi le respect ing the au tonomy of each company, t he

Treasur y O f f ice and the Group Management O f f ice at

Aderans Hold ings’ headquar ters w i l l ver i f y budget s and

the success of bus iness p lans on a quar ter l y bas is.

To promote ef f ic ient and appropr ia te bus iness ac t i v i-

t ies at core companies, a hor i zonta l s t ruc ture is in p lace

to ver i f y t he s t a tus of bus iness ac t i v i t ies and the su i t-

ab i l i t y of such ac t i v i t ies to Group d i rec t ion and the s t an-

dards in respect i ve market s.

To expedi te ef fec t i ve, accurate audi t s of t he Group’s

consol idated bus inesses, s t anding corporate audi tors,

who were se lec ted as corporate audi tors of t he core

companies, w i l l ma in t a in a c lose re la t ionsh ip w i t h t he

Company ’s account ing f i rm, as wel l t he Treasur y O f f ice,

and the Group Management O f f ice at Aderans Hold ings’

headquar ters.

20

Matters related to the system for employees asked by audi-

tors to assist in directors’ audits and these employees’ neu-

trality vis-à-vis directors

Audi tors may ask the In terna l Audi t O f f ice to prov ide

i tems per t inent to the execu t ion of an audi t . In addi t ion,

depending on the impor t ance of a spec i f ic audi t , audi-

tors may requi re the ass is t ance of employees to fac i l i-

t a te the process, and in such cases, d i rec tors must

cooperate w i t h audi tors’ ass is t ant s.

Employees asked by corporate audi tors to prov ide

i tems per t inent to the execu t ion of an audi t sha l l accept

ne i t her gu idance nor orders f rom di rec tors or t he man-

ager of t he In terna l Audi t O f f ice that per t a in to the exe-

cu t ion of sa id audi t .

Audi tors w i l l prov ide d i rec tors w i t h repor t s on the

bus iness sk i l l s and work at t i t udes of t he employees who

ass is t t hem, and d i rec tors w i l l inc lude these repor t s in

t he i r eva luat ion of t he employees.

System for directors and employees to report to auditors or

the Board; other systems for reporting to auditors

Repor t s to audi tors cover t he fo l low ing i tems:

• Repor t s on handl ing responses in t he event r i sks,

such as acc ident s or natura l d isas ters, a r ise.

• S tatus repor t s on audi t s by the In terna l Audi t O f f ice

• Repor t s conta in ing ques t ions f rom audi tors and con-

f i rmed answers.

• O ther i tems that requ i re repor t s f rom di rec tors and

genera l managers.

Ensuring effective execution of other audits

The Company ass igns i t s fu l l-t ime corporate audi tor to a

concur rent pos i t ion as audi tor a t core companies to

fac i l i t a te ef fec t i ve execu t ion of audi t s—that is, audi t s of

t he ho ld ing company.

The Counc i l of Audi tors, which compr ises corporate

audi tors f rom core companies, ensures a common,

groupwide d i rec t ion for under t ak ing audi t s.

Basic concept and status of measures to eliminate

antisocial forces

Management is reso lu te in i t s s t and aga ins t dea l ings

w i t h ant isoc ia l forces and f i rmly be l ieves that conf ront-

ing a s i t uat ion hones t l y, w i t hou t secret dea ls to concea l

t he t ru th—even i f t he t ru th is det r imenta l to t he

Company—wil l ac tua l l y benef i t both the Company and

i t s s t akeholders.

Therefore, i f such a s i t uat ion a r ises, t he Company

and/or t he companies under i t s umbre l la w i l l t ake s teps

to break of f any and a l l bus iness re la t ionsh ips w i t h sup-

p l ie rs who a re found to engage in ant isoc ia l ac t i v i t ies to

obta in economic ga ins through unsavor y methods, such

as v io lence, coerc ion or f raudulent schemes.

The Company a lso co l lec t s in format ion on ant isoc ia l

forces f rom re levant government agenc ies as wel l as

reg iona l au thor i t ies and bus iness assoc ia t ions, and

makes the in format ion ava i lab le to a l l Group companies

to ensure w idespread awareness of ant isoc ia l ac t i v i t ies.

Before cer t a in t ransac t ions, such as f i r s t-t ime pur-

chas ing, may commence, t he Company screens potent ia l

suppl ie rs in l ine w i t h in terna l ru les and w i l l t hen l imi t i t s

dea l ings to those suppl ie rs whose s t a tus has been ver i-

f ied through the in terna l screening process. I f, a f te r t he

bus iness re la t ionsh ip commences, an approved suppl ie r

i s found to be invo lved in ant isoc ia l ac t i v i t ies, t he bus i-

ness re la t ionsh ip w i l l be terminated at once. The

Company w i l l a lso contac t t he re levant au thor i t ies and

implement an appropr ia te course of ac t ion.

Dur ing or ientat ion t ra ining, par t icular ly for new recrui ts

or recent ly promoted indiv iduals, the Company draws on

examples of actual contact s i tuat ions to highlight the dan-

ger of deal ing direct ly wi th ant isocia l elements, points out

act ions taken by the response consul tat ion uni t responsi-

ble for handling such si tuat ions, and under l ines the impor-

tance of quick ly repor t ing any contact by an ant isocia l

element, should such an event take place.

I f an execu t i ve or employee is approached by an

ant isoc ia l e lement w i t h an inappropr ia te reques t, a com-

panyw ide response w i l l be in i t ia ted and the response

consu l t a t ion un i t w i l l immediate ly ca l l upon ou t s ide pro-

fess iona ls and lega l adv isors to prepare for poss ib le

t hreat s to the safet y and wel l-be ing of t he employees

who a re address ing or w i l l address the s i t uat ion. In addi-

t ion, when the s i t uat ion requi res i t , an a ler t w i l l be

is sued in-house and to Group companies.

Risk Management—Information Monitoring and Disclosure

Monitoring information

At one t ime, d i rec tors and depar tment s respons ib le for

d isc losure s i f ted through r isks and h igh l ighted per t inent

dat a for d is t r ibu t ion. Now, however, r i sks faced by oper-

at ing d iv is ions a re examined in deta i l. A l i s t of re levant

in format ion is prepared and each r isk is graded accord-

ing to impor t ance and then moni tored.

At Aderans Hold ings, t he In format ion Protec t ion

Commi t tee safeguards in format ion asset s, inc lud ing

persona l dat a.

21

As i t s name impl ies, t h is commi t tee has a mandate

to protec t in format ion co l lec ted by the Company. I t i s

respons ib le for prevent ing leaks and, in t he un l ike ly

event t hat dat a is er rant l y d isc losed, i t w i l l p inpoin t t he

breach and in i t ia te improvement s to prec lude a second

inc ident.

The ac t i v i t ies of t he commi t tee a re suppor ted by an

in format ion protec t ion d iscuss ion group, which u t i l i zes

cross-sec t iona l representat ion to ident i f y key in forma-

t ion in each d iv is ion for safeguard ing and under t akes

awareness programs to prevent leaks.

I f in format ion were to leak ou t or an unforeseen

acc ident or a scanda l were to a r ise, an emergency

response team, headed by the pres ident, would convene

immediate ly to dea l w i t h t he s i t uat ion and execu te

appropr ia te r i sk management responses. Depending on

the c i rcumstances, inves tors and the market a t la rge

may requi re exp lanat ions, and a sys tem is in p lace to

handle th is as wel l.

Another pr ior i t y is to enhance in-house t ra in ing pro-

grams to promote greater unders t anding of compl iance

among d i rec tors and employees and make management

and s t a f f consc ious of behav ior conforming to a l l app l i-

cab le laws and soc ia l s t andards.

Disclosing information

Aderans Hold ings ac t i ve ly d isc loses bus iness in format ion

essent ia l to a so l id repu tat ion for management t ranspar-

ency. The process h inges on c lose t ies among the

Corporate Communicat ions O f f ice, which is respons ib le

for d isc los ing in format ion, t he Lega l O f f ice, which con-

f i rms pr ior to d isc losure that t he content of bus iness

ac t i v i t ies under t aken by the Company conforms to pre-

va i l ing laws and the Company ’s A r t ic les of Incorporat ion,

and the Treasur y O f f ice, which moni tors f inanc ia l dat a

for t he Company and i t s subs id ia r ies.

Remuneration for Directors and Auditors

Tota l annua l remunerat ion for d i rec tors ¥230 mi l l ion

(Por t ion pa id to ou t s ide d i rec tors ¥37 mi l l ion)

Tota l annua l remunerat ion for audi tors ¥36 mi l l ion

(Por t ion pa id to ou t s ide audi tors ¥10 mi l l ion)

In accordance with Ar t ic le 427, Paragraph 1 of the

Corporat ion Law, the Company has concluded agreements

wi th outside directors and outside audi tors that l imi t i t s

l iabi l i t y for compensat ion, as set for th in Ar t ic le 423,

Paragraph 1 of the Corporat ion Law, to the greater of

ei ther a predetermined amount, which wil l not be less than

¥3 mil l ion, or an amount establ ished under the provis ions

of Ar t ic le 425, Paragraph 1 of the Corporat ion Law, pro-

v ided that the outside director or outside audi tor acted in

good fa i th in execut ing his or her dut ies and provided that

such compensat ion does not lead to signi f icant losses for

the Company.

Remunerat ion based on ser v ices descr ibed in Ar t ic le 2,

Paragraph 1 of the Cer t i f ied Public Accountants Law

¥12 mil l ion

No remunerat ion was pa id for ser v ices other t han those

noted under t he aforement ioned law.

Structure to Ensure Efficient Execution of Other Audits by Corporate Auditors

Cooperation with accounting firm

Corporate audi tors rece ive s t a tus updates f rom the

Company ’s account ing f i rm at t he end of t he in ter im and

year-end audi t of account s and may ask ques t ions of

account ing f i rm audi tors. In addi t ion, in s i t uat ions where

the par t ic ipat ion of both the account ing f i rm and corpo-

rate audi tors is deemed necessar y, t hey may work

together.

Cooperation with Group Internal Audit Office

The In terna l Audi t O f f ice is an in-house audi t ing depar t-

ment under t he d i rec t super v is ion of t he pres ident, and

as such, i t does not fa l l w i t h in t he corporate audi tors’

cha in of command and is not subjec t to d i rec t reques t s

f rom corporate audi tors. The resu l t s of bus iness audi t s

under t aken by the In terna l Audi t O f f ice a re prov ided to

the pres ident and the fu l l-t ime audi tor and may be of

he lp to corporate audi tors in t he i r own bus iness audi t s.

Corporate audi tors may conf i rm interna l cont ro l-re lat-

ed issues and ambigui t ies w i th the Interna l Audi t O f f ice

and, when necessar y, ask for adv ice. Corporate audi tors’

audi t s para l le l those of the Interna l Audi t O f f ice, which

occur at i r regula r in ter va ls, based on a year ly d iv is ion

schedule, to ascer ta in rout ine audi t s t atus.

Appointment of outside auditors

Of the four corporate audi tors, two—a lawyer and a cer t i-

f ied public accountant—have been appointed f rom outside

the Company. From their respect ive professional perspec-

t ives, they conf irm that the Company is adher ing to estab-

l ished laws and i ts Ar t ic les of Incorporat ion, and they

careful ly watch to make sure that the Company mainta ins

business act iv i t ies and st rategies based on the premise

that a company exists only as long as i t has cl ients.

22

Private, Capital and Business Relationships or Conflict of Interest Between the Company and Its Outside Directors and Outside Auditors

Aderans Hold ings does not ma int a in pr i vate, cap i t a l or

bus iness re la t ionsh ips w i t h i t s f i ve ou t s ide d i rec tors or

i t s t wo ou t s ide audi tors nor does any other potent ia l

conf l ic t of in teres t ex is t between the Company and these

ou t s ide d i rec tors and audi tors.

Accounting Firm for Aderans Holdings

Aderans Hold ings ma int a ins an audi t cont rac t w i t h

Kyobashi & Co., which under t akes audi t s of t he

Company as requi red under t he Corporat ion Law and the

F inanc ia l Ins t rument s and Exchange Law. The names of

t he cer t i f ied publ ic accountant s who par t ic ipated in t he

audi t of Aderans Hold ings’ books for f i sca l 2009 and the

number of consecu t i ve years these accountant s have

audi ted Aderans Hold ings’ books as wel l as the compo-

s i t ion of t he team ass is t ing these accountant s in t he

audi t a re l i s ted be low.

Names of certified public accountants who undertook fiscal

2009 audit and number of consecutive years auditing

Aderans and/or Aderans Holdings

Yutaka Ish iha ra,

representat i ve and managing par tner 7 years

Tosh i fumi Kawamura,

representat i ve and managing par tner 2 year

Tsukasa Komiyama,

representat i ve and managing par tner 6 years

Composition of team assisting accounting auditors

7 cer t i f ied publ ic accountant s

One ass is t ant accountant has passed the exam to

become a cer t i f ied publ ic accountant.

Number of Directors and Appointment Criteria Set Forth in Articles of Incorporation

The number of d i rec tors is no more than 12. In i t s

A r t ic les of Incorporat ion, t he Company set s for th a

c lause s t a t ing that approva l of a candidate for t he Board

of D i rec tors requi res a ma jor i t y vote by shareholders in

at tendance and whose combined sharehold ings repre-

sent more than one-th i rd of tot a l vot ing r ight s he ld by

shareholders w i t h t he ab i l i t y to exerc ise such r ight s.

Purchase of Treasury Stock

To fac i l i t a te t he implementat ion of a f lex ib le cap i t a l po l i-

cy that ref lec t s changes in t he economic env i ronment,

t he Company prov ides in i t s A r t ic les of Incorporat ion a

c lause a l low ing the Board of D i rec tors to approve the

purchase of t reasur y s tock f rom the market, in accor-

dance w i th A r t ic le 165, Paragraph 2 of t he Corporat ion

Law.

Interim Dividends

To promote the f lex ib le return of prof i t s to shareholders,

t he Company has es t ab l ished a prov is ion in i t s A r t ic les

of Incorporat ion that, in accordance w i th A r t ic le 454,

Paragraph 5 of t he Corporat ion Law, grant s t he Board of

D i rec tors t he au thor i t y to approve payment of an in ter im

d iv idend to reg is tered shareholders as of Augus t 31

each year.

Approval Criteria for Special Resolutions at the General Shareholders’ Meeting

To fac i l i t a te execu t ion of t he genera l shareholders’

meet ing, t he Company has es t ab l ished a prov is ion in i t s

A r t ic les of Incorporat ion that a l lows spec ia l reso lu t ions,

as def ined in A r t ic le 309, Paragraph 2 of t he

Corporat ion Law and pu t forward at a genera l sharehold-

ers’ meet ing, to be passed w i th a number of votes cor-

responding to more than two-th i rds of t he vot ing r ight s

he ld by shareholders in at tendance, whose combined

sharehold ings represent no less than one-th i rd of tot a l

vot ing r ight s he ld by shareholders w i t h t he power to

exerc ise such r ight s.

Exemption of Directors’ Liabilities

To g ive execu t i ves the ab i l i t y to fu l l y demonst ra te the

respect i ve ro les they a re expected to p lay in execu t ing

the i r du t ies, t he Company has es t ab l ished a prov is ion in

i t s A r t ic les of Incorporat ion that exempts, t hrough a res-

o lu t ion by the Board of D i rec tors, d i rec tors ( inc lud ing

former d i rec tors) and corporate audi tors ( inc lud ing for-

mer corporate audi tors) f rom l iab i l i t y a r is ing through a

fa i lu re to per form du t ies, as def ined in A r t ic le 426,

Paragraph 1 of t he Corporat ion Law, where in the l imi t i s

t he amount s t ipu la ted by laws or regula t ions.

23

The Aderans Group in Society

A common thread that runs through our corporate fabric as

a globally act ive provider of comprehensive hair-related

products and services is the return of corporate value back

to society. An obvious example of this commitment is the gif t

of Aderans’ custom-made wigs to children who have lost hair

due to sickness or injury.

But we also contr ibute to society through the Tokyo Hair

Beauty College, where tomorrow’s hair stylists learn the

skills required to meet the haircare needs of society.

In addit ion, we str ive to be a good employer by ensuring

a healthy work environment for our employees, and we sup-

por t regional communit ies overseas, par t icular ly in Asia,

through the creat ion of jobs.

At our production facili t ies in Thailand and the

Philippines, we par t icipate in a range of environmental

protect ion act ivit ies, such as those outlined below.

In 2001, we worked with Japan’s Ministry of Economy,

Trade and Industry to establish the Japan Hair Industry

Associat ion as a regulatory body advocating stabili t y and

transparency in the disclosure pract ices of domestic compa-

nies providing wigs, products to create the illusion of greater

hair volume and products and services to promote healthy

hair growth.

The formation of this associat ion highlights the fact that

the industry has developed to a point where providers of

hair-related products and services have a signif icant impact

on society.

Major community activities in fiscal 2009

August Sponsored the 14th Aderans Boys & Gir ls

Soccer Fest ival

Sponsored the 12th Aderans Summer Holidays

Children’s Golf Event

October Sponsored the 24th Aderans Love Charity

Campaign

November Sponsored the 24th Aderans Human Forum

Environmental protection and quality control at

Aderans Thai and World Quality

A derans Thai and World Qualit y were quick to tackle envi-

ronmental protect ion and qualit y control issues. In 1999, the

Internat ional Standards Organizat ion cer t if ied both produc-

t ion facili t ies with ISO 14001 for environmental protect ion

systems and ISO 9002 for qualit y control.

Major environmental protection efforts at Aderans

Thai and World Quality

• Prevention of water pollut ion by factory wastewater

• Prevention of air pollut ion within the facili t y

• Ensuring safe processing of industr ial waste

• Promoting ef fect ive use of available resources

• Improving working condit ions within the facili t y

Aderans Boys & G i r l s Soccer Fest iva l

Aderans Summer Ho l idays Ch i ld ren’s Go l f Event

Aderans Love Chari t y Campa ign

24

Mill ions of yen

2009 2008 2007 2006 2005

Net sales ¥ 70,463 ¥ 74,998 ¥ 73,498 ¥ 72,690 ¥ 70,625

Cost of sales 14,881 15,465 13,726 12,690 12,326

Gross profit 55,582 59,533 59,772 60,000 58,299

Selling, general and administrative expenses 53,074 55,467 51,560 49,680 49,830

Operating income 2,508 4,066 8,212 10,319 8,468

Income before income taxes and minority interests (1,634) 2,944 7,878 10,889 (192)

Net income (loss) (2,172) 590 6,091 6,149 (3,568)

Capital expenditures 2,375 3,125 3,701 2,565 2,704

Research and development costs 1,335 1,664 1,557 977 703

Depreciation and amortization 2,836 2,678 2,084 2,012 2,322

Net income (loss) ¥ (56.11) ¥ 15.25 ¥ 156.26 ¥ 150.51 ¥ (88.02)

Net assets 1,582.09 1,816.84 1,877.95 1,760.45 1,671.40

Cash dividends applicable to the year 20.00 80.00 75.00 44.00 38.00

Current assets ¥ 27,700 ¥ 33,288 ¥ 35,985 ¥ 35,257 ¥ 36,492

Current liabilities 9,955 13,258 11,281 12,546 10,214

Interest-bearing debt 1,152 1,165 2,035 — —

Shareholders’ equity 61,255 70,348 72,700 69,239 67,477

Total assets 76,102 90,352 91,658 87,490 83,140

Operating income to net sales 3.6 5.4 11.2 14.1 12.0

Net income (loss) to net sales (3.1) 0.8 8.3 8.4 (5.1)

Shareholders’ equity to total assets 80.5 77.9 79.3 79.1 81.2

Return on equity (3.3) 0.8 8.6 8.9 (5.0)

Return on assets (2.6) 0.6 6.8 7.2 (4.1)

Interest-bearing debt ratio 1.5 1.3 2.2 — —

Number of shares outstanding (thousand) 38,718 38,720 38,712 39,256 40,371

Number of employees 5,892 6,062 5,787 5,418 5,457

Consolidated Five-Year SummaryAderans Holdings Co., Ltd. and Consolidated SubsidiariesYears ended the last day of February

Results of Operations

Financial Position

Key Ratios (%)

Other Year-end Data

Amounts per Share

of Common Stock

(in yen)

25

Consolidated Financial Review

On September 1, 2007, the Aderans Group shi f ted into a hold ing company structure. The old Aderans became a hold ing company, renamed Aderans Holdings Co., Ltd., (hereaf ter, “ the Holding Company”), which t ransferred i ts hai r-re lated businesses to a separate ent i ty—the new Aderans (hereaf ter, “ the Operat ing Company”)—on September 3, 2007. The Operat ing Company funct ions as a whol ly owned subsid iary of the Holding Company and is responsib le for execut ing domest ic core operat ions. As of February 28, 2009, the consol idated umbrel la of the Aderans Group covered the Holding Company, as parent, and 35 subsid iar ies, compris ing s ix domest ic companies, inc luding the Operat ing Company, and 29 overseas companies.

Chal lenging market condi t ions at home and abroad eroded sales and income. Millions of yenOperating Data 2009 2008 % Change

Net sales ¥70,463 ¥74,998 –6.0%Operating income 2,508 4,066 –38.3Net income (loss) (2,172) 590 —Net sales per employee 12.0 12.4 –3.2Net income per employee (0.37) 0.10 —Number of employees 5,892 6,062 –2.8

MHR, Inc., which came under consol idat ion in September 2007, contr ibuted to h igher serv ice reve-nues f rom the Hair-Transplant Business. But the achievement was tarn ished by fa l ter ing sales by the Domest ic Core Business, the Fonta ine Business and the Overseas Core Business. Consequent ly, net sa les fe l l 6.0%, over f iscal 2008, to ¥70,463 mi l l ion ($720 mi l l ion). Cost of sa les decreased 3.8%, to ¥14,881 mi l l ion ($152 mi l l ion). This reduct ion is largely due to lower sales of wigs, which represent the main cost incurred by the Domest ic Core Business.

Cost of Sales and Selling, General Millions of yen

and Administrative Expenses 2009 2008 % Change

Cost of sales ¥14,881 ¥15,465 –3.8%Selling, general and administrative expenses 53,074 55,467 –4.3 Advertising expenses 11,456 13,159 –12.9 Personnel expenses 21,320 21,423 –0.5 Other 20,296 20,884 –2.8

Sel l ing, general and administ rat ive expenses set t led at ¥53,074 mi l l ion ($542 mi l l ion), down 4.3% from f iscal 2008. The drop ref lects a 12.9% year-on-year decrease in advert is ing expenses,

0

15

30

45

60

75

90

–5.0

–2.5

2.5

0

5.0

7.5

10.0

–10

–5

0

5

10

15

20

(%) (%)

Cost of Sales, SGA Expenses and Operating Income to Net Sales Ratios

Net Income (Loss), and Net Income (Loss) to Net Sales Ratio

17.5 17.5 18.7 20.6 21.1 70.5 68.3 70.1 74.0 75.3 12.0 14.1 11.2 5.4 3.6

Cost of sales ratio SGA expenses ratio Operating income ratio Net income (loss) to

net sales ratio (%)

(3.5) 6.1 6.0 0.5 (2.1)

(5.1) 8.4 8.3 0.8 (3.1)

(Bill ions of yen)

2008 2009200720062005 2008 2009200720062005

Net income (loss) (Bill ions of yen)

Fiscal 2009

Summary

26

to ¥11,456 mi l l ion, para l le l ing curta i led spending in the Domest ic Core Business. Personnel expenses dipped 0.5%, to ¥21,320 mi l l ion, nudged downward by yen appreciat ion, which reduced local currency amounts recorded by the Overseas Core Business when converted into yen, and by the impact of personnel st reaml in ing wi th in the Samson Group, a salon operator. Amort izat ion of goodwi l l grew 8.2%, to ¥675 mi l l ion, whi le research and development costs retreated 19.8%, to ¥1,335 mi l l ion ($13 mi l l ion), owing to a drop in the out lay of funds for research on hair regenerat ion techniques in the Uni ted States. In addi t ion, lower payment commissions helped to t r im other expenses, which edged down 1.7% over f iscal 2008, to ¥18,285 mi l l ion. Consequent ly, operat ing income tumbled 38.3%, to ¥2,508 mi l l ion ($25 mi l l ion). Under other expenses, the Holding Company booked ¥2,138 mi l l ion ($21 mi l l ion) in impairment losses, inc luding goodwi l l in MHR, and ¥1,504 mi l l ion ($15 mi l l ion) in va luat ion losses on invest-ment secur i t ies connected to the col lapse of Yamato Li fe Insurance. These f iscal events led to a net loss of ¥2,172 mi l l ion ($22 mi l l ion), compared wi th net income of ¥590 mi l l ion a year ear l ier. YenPer Share Data 2009 2008 % Change

Net income ¥ (56.11) ¥ 15.25 —%Net assets 1,582.09 1,816.84 –12.9Cash dividends 20.00 80.00 –75.0

From September 2007, the Group has pursued business act iv i t ies in four business segments.

The Domest ic Core Business, which is the responsib i l i ty of the Operat ing Company, showed mixed resul ts. In the men’s market, sa les to new cl ients charted an upward path, dr iven by success-fu l ef for ts to shi f t advert is ing strategy toward hair-volumiz ing products, part icu lar ly custom-made wigs. But in the women’s market, sa les to new cl ients fa l tered, para l le l ing a dramat ic year-on-year drop in inquir ies and thus fewer opportuni t ies to at t ract new orders. The two cata lysts of th is t rend were smal ler audiences for the te lev is ion programs that run the Operat ing Company’s commercia ls, which narrowed the scope of potent ia l c l ients, and greater re luctance among women to spend on discret ionary purchases. In the end, the Domest ic Core Business posted a 9.8% drop in sales over f iscal 2008. Al though the Operat ing Company cut advert is ing costs and carr ied a l ighter expense burden—a benef i t of the hold ing company structure—it was unable to make up for s luggish sales. Consequent ly, operat ing income for the Domest ic Core Business s l ipped 2.5% from f iscal 2008.

Outline of Key

Business Segments Millions of yen

Net Sales Operating Income

2009 2008 % Change 2009 2008 % Change

Domestic Core (Aderans) Business ¥36,155 ¥40,067 –9.8% ¥3,195 ¥3,277 –2.5%

Fontaine Business 10,830 11,801 –8.2 682 1,412 –51.7

Overseas Core (Wigs) Business 7,935 8,273 –4.1 789 845 –6.6

Hair Transplant Business 13,482 12,839 +5.0 (695) (408) —

Notes: 1. The above net sales figures include intersegment transactions. 2. Fiscal 2008 net sales and operating income for the Domestic Core Business are, respectively, the combined first-half

nonconsolidated amounts of the old Aderans and second-half results achieved by the Operating Company. A simple year-on-year comparison is not possible.

27

Net Sales by Region

The Fonta ine Business hinges on Fonta ine Co., Ltd., and the sale of ladies’ ready-made wigs through three key routes—department stores, d i rect ly operated salons and beauty salons—in Japan. The restr icted spending pat tern that dampened sales for the Operat ing Company a lso impacted Fonta ine, causing demand to weaken on al l market ing routes, inc luding the mainstay department store route. As a resul t , segment sales dropped 8.2%. Compounded by higher sel l ing, general and administ rat ive expenses, the Fonta ine Business saw operat ing income plummet 51.7%. The Overseas Core Business is essent ia l ly the wig business handled by Group companies out-s ide Japan. This segment del ivered sol id resul ts, supported by a favorable recept ion to new products launched in Europe and Asia, excluding Japan. In thei r respect ive local currencies, the companies involved in the Overseas Core Business real ized higher sa les and income. Unfortunate ly, yen appreciat ion tarn ished the luster of th is achievement, causing a 4.1% decrease in sales and a 6.6% decrease in operat ing income. Please refer to the regional breakdown for more deta i ls on segment performance. North Amer ica is the geographical hub of the Group’s Hair-Transplant Business, and negat ive developments in th is market—most notably, the a i l ing U.S. economy—hindered segment growth. Despi te the chal lenges of th is envi ronment, serv ice revenues f rom the Hair-Transplant Business expanded 5.0% over f iscal 2008, supported by the inclus ion of fu l l-year resul ts f rom MHR. In f iscal 2008, MHR added only four months’ worth of revenues to the consol idated tota l because the com-pany did not jo in the Group unt i l September 2007. Fiscal 2009 marked the company’s f i rs t fu l l-year contr ibut ion, complement ing revenues by Bosley, Inc., the or ig inal p i l lar of th is segment. Al though segment revenues were up, nei ther Bosley nor MHR reached their respect ive targets. The two companies were successfu l in cut t ing sel l ing, general and administ rat ive expenses through reduced personnel spending, but because they were unable to real ize a level of revenues necessary to ef fect ive ly of fset expenses, the Hair-Transplant Business saw i ts operat ing loss widen.

0

15

30

45

60

75

100

(Bill ions of yen)

Net Sales by Region

Japan Asia North America Europe Total

55.8 56.2 54.7 53.7 48.9 0.4 0.4 0.4 0.4 0.4 11.7 12.6 14.5 16.5 17.0 2.6 3.3 3.7 4.2 3.9 70.6 72.6 73.4 74.9 70.4

–5,000

0

5,000

10,000

20,000

25,000

15,000

(Mill ions of yen)

Operating Income (Loss)

Japan Asia North America Europe EliminationsTotal

12,266 793 (688)107

(4,010)8,468

12,768 1,000

(75)218

(3,591)10,319

9,939 728 528 286

(3,271)8,212

6,445 547 (557)291

(2,660)4,066

4,177 258 (934)240

(1,233)2,508

2007 200820062005 2009 2007 200820062005 2009

Note: The above figures exclude intersegment transactions.

28

Japan Domest ic sa les are generated by the Operat ing Company, which specia l izes in custom-made wigs,

Fonta ine, which caters to the ready-made wig markets, and four consol idated subsid iar ies involved in other business act iv i t ies. Aggregate net sa les f rom operat ions in Japan, inc luding intersegment sales, amounted to ¥49,260 mi l l ion ($503 mi l l ion), down 8.6% from f iscal 2008. Measures, pr i-mar i ly a rev iew of sel l ing, general and administ rat ive expenses geared toward reduced advert is ing and promot ional costs, fa i led to of fset the drop in net sa les, and the lower star t ing point inevi tably led to operat ing income of ¥4,177 mi l l ion ($42 mi l l ion), down 35.2%, compared wi th f iscal 2008. A breakdown by product reveals that sa les of custom-made wigs—the Operat ing Company’s mainstay product category—fel l 12.6% year-on-year, to ¥25,102 mi l l ion ($256 mi l l ion). In the men’s market, sa les to both new and repeat c l ients were down, despi te concerted ef for ts to pro-mote a f la t-rate serv ice under the Aderans Hair Club banner. Meanwhi le, in the women’s market, sa les were s igni f icant ly lower, largely because no new products were launched dur ing f iscal 2009. Sales of ready-made wigs, by Fonta ine, had been steady up unt i l f iscal 2008 but reversed course in f iscal 2009, retreat ing 8.3%, to ¥9,630 mi l l ion ($98 mi l l ion), due to the aforement ioned trend among women to cut back on nonessent ia l purchases. Revenue from other hai r-re lated businesses decreased 5.6%, to ¥4,029 mi l l ion ($41 mi l l ion). Serv ice revenues edged down 0.4%, to ¥9,750 mi l l ion ($99 mi l l ion). Revenue from other business was down 3.5%, to ¥468 mi l l ion ($4 mi l l ion). Intersegment sales soared 137.6%, to ¥278 mi l l ion ($2 mi l l ion).

As ia Excluding Japan

In Asia, outs ide the Operat ing Company’s home base of Japan, the Group cont inues to develop i ts prof i le in Taiwan, Singapore, Thai land, South Korea and the Phi l ippines. The Holding Company main-ta ins four consol idated subsid iar ies in th is region: wig reta i ler Aderans Inc. in Taiwan and product ion points Aderans Thai. , Ltd., and World Qual i ty Co., Ltd., in Thai land, and Aderans Phi l ippines, Inc., which manufacture wigs and other hai r-replacement products. In Taiwan, where demand from cl ients outs ide the Group is key, sa les began to r ise f rom the second quarter, fo l lowing an increase in the local advert is ing budget. But as in f iscal 2008, af ter a s imi lar budget boost, the improvement was not enough to compensate for a poor beginning, and operat ions in Taiwan ended the term with lower sales and lower prof i ts. Aggregate net sa les f rom operat ions in Asia, excluding Japan, fe l l 14.4%, to ¥4,790 mi l l ion ($48 mi l l ion). This inc ludes intersegment sales. Operat ing income tumbled 52.8%, to ¥258 mi l l ion ($2 mi l l ion). In a breakdown of regional sa les by product category, sa les of custom-made wigs represented ¥232 mi l l ion ($2 mi l l ion), down 2.1%; sales of ready-made wigs, ¥57 mi l l ion ($0 mi l l ion), down 19.7%; sales of other hai r-re lated products, ¥40 mi l l ion ($0 mi l l ion), down 18.4%; serv ice reve-nues, ¥100 mi l l ion ($1 mi l l ion), down 12.3%; and intersegment sales, ¥4,359 mi l l ion ($44 mi l l ion), down 14.9%.

29

North Amer ica

The Holding Company has 15 consol idated subsid iar ies in North Amer ica. This regional network includes four companies that wholesale men’s and women’s wigs; Aderans Reta i l ing Company, Inc., which handles wig reta i l ing; Bosley, a major provider of hai r t ransplant serv ices; and Aderans Research Inst i tute, Inc., which pursues R&D on hair regenerat ion technology. Aggregate net sa les f rom North Amer ican operat ions edged up 1.4%, to ¥18,554 mi l l ion ($189 mi l l ion). On the operat ing income front, the wig business remained in the black. Unfortunate ly, the hair t ransplant business could not escape the red zone, even wi th concerted second-hal f ef for ts to curb sel l ing, general and administ rat ive expenses, because the inabi l i ty of the key players in th is segment to reach their sa les goals l imi ted the wiggle room to cover expenses. Consequent ly, the operat ing loss grew ¥377 mi l l ion, to ¥934 mi l l ion ($9 mi l l ion). Looking at resul ts by product and serv ice, members of the Group involved in the wig business secured higher sa les of ready-made wigs by cul t ivat ing demand through the introduct ion of new products. However, the impact of yen appreciat ion caused sales on a yen basis to decrease 17.4% over f iscal 2008, to ¥2,414 mi l l ion ($24 mi l l ion). Simi lar ly, on a yen basis, sa les of custom-made wigs dropped 22.5%, to ¥282 mi l l ion ($2 mi l l ion). Serv ice revenues f rom hair- t ransplant procedures edged up 1.6%, to ¥12,749 mi l l ion ($130 mi l l ion), ref lect ing enhanced advert is ing campaigns, a rev iew of pr ices, and the appeal of bet ter surgical techniques. Sales of other hai r-re lated products jumped 128.6%, to ¥1,653 mi l l ion ($16 mi l l ion), thanks to favorable interest in new products. Intersegment sales decreased 16.2%, to ¥1,454 mi l l ion ($14 mi l l ion).

Europe The Group mainta ins a presence in France, Germany, Belg ium, Sweden, the Nether lands and the

Uni ted Kingdom through 10 subsid iar ies of the Holding Company. The number of European subsid-iar ies is one less than a year ago, owing to the merger of two companies in the Uni ted Kingdom. A pr ior i ty for subsid iar ies in Europe from ear ly on in f iscal 2009 was to promote integrated brands designed speci f ica l ly for th is region, and the ef for t was rewarded wi th steady sales. On a local currency basis, sa les were up, but yen appreciat ion eroded the improvement, causing aggre-gate net sa les to s ink 6.0%, to ¥3,951 mi l l ion ($40 mi l l ion). On the income front, resul ts were down on both local and yen-translated bases, and operat ing income dropped 17.5%, to ¥240 mi l l ion ($2 mi l l ion). By product and serv ice, sa les of custom-made wigs grew 10.3%, to ¥512 mi l l ion ($5 mi l l ion), whi le sa les of ready-made wigs fe l l 7.0%, to ¥2,627 mi l l ion ($26 mi l l ion). Sales of other hai r- re lated products dropped 12.9%, to ¥685 mi l l ion ($7 mi l l ion), and serv ice revenues dipped 0.8%, to ¥125 mi l l ion ($1 mi l l ion).

30

As of February 28, 2009, cash and cash equiva lents stood at ¥11,873 mi l l ion ($121 mi l l ion), down 20.7%, or ¥3,105 mi l l ion, f rom a year ear l ier. The status of cash f lows from operat ing act iv i t ies, invest ing act iv i t ies and f inancing act iv i t ies and the reasons for changes in respect ive status are presented below. Net cash provided by operat ing act iv i t ies in f iscal 2009 reached ¥1,963 mi l l ion ($20 mi l l ion), down ¥3,549 mi l l ion, or 64.4%, from f iscal 2008. This decrease ref lects a ¥1,634 mi l l ion loss before income taxes and minor i ty interests, as wel l as ¥2,836 mi l l ion in depreciat ion and amort iza-t ion, ¥2,138 mi l l ion in impairment losses, and ¥1,504 mi l l ion in loss on valuat ion of investment secur i t ies, on the assets s ide, and ¥3,831 mi l l ion in payment of income taxes on the l iabi l i t ies s ide. Net cash used in invest ing act iv i t ies in f iscal 2009 reached ¥335 mi l l ion ($3 mi l l ion), down ¥4,867 mi l l ion, or 93.6%, from f iscal 2008. Key components of th is change include ¥4,489 in proceeds f rom the sale of marketable secur i t ies, ¥1,993 mi l l ion in payments for the purchase of marketable secur i t ies, ¥3,681 mi l l ion in payments to purchase property, p lant and equipment, and ¥1,003 mi l l ion in proceeds f rom the sale of investment secur i t ies. Net cash used in f inancing act iv i t ies in f iscal 2009 amounted to ¥2,177 mi l l ion ($22 mi l l ion), down ¥1,766 mi l l ion, or ¥44.8%, from f iscal 2008. This change is largely due to ¥2,130 mi l l ion appl ied to payment of cash div idends. Millions of yen

Summary of Cash Flows Statements 2009 2008 % Change

Net cash provided by operating activities ¥ 1,963 ¥ 5,512 –64.4%Net cash used in investing activities (335) (5,203) —Net cash used in financing activities (2,177) (3,944) —Net change in cash and cash equivalents (3,105) (2,977) —Cash and cash equivalents at the beginning of year 14,979 17,956 –16.6Cash and cash equivalents at the end of year 11,873 14,979 –20.7

Net cash flows provided by operating activities Net cash flows used in (provided by) investing activities Free cash flows

7.8 10.3 5.0 5.5 1.9

(8.3) (2.5) 0.2 (5.2) (0.3) (0.4) 7.8 5.2 0.3 1.6

Free cash flows = Net cash flows provided by operating activities + Net cash flows used in investing activities

–10

–5

0

5

15

20

10

Free Cash Flows

(Bill ions of yen)

2007 200820062005 2009

Cash Flow Status

31

As of February 28, 2009, tota l assets stood at ¥ 76,102 mi l l ion ($778 mi l l ion), down 15.8% from a year earlier. Total liabilities, as of the same date, were ¥14,758 million ($150 million), down 25.9%. Current assets decreased 16.8%, to ¥27,700 mi l l ion ($283 mi l l ion), owing to a drop in cash and cash equiva lents. F ixed assets fe l l 15.2%, to ¥48,402 mi l l ion ($494 mi l l ion), pr imar i ly due to lower amounts under goodwi l l and under investment secur i t ies. Current l iabi l i t ies shrank 24.6%, to ¥9,995 mi l l ion ($102 mi l l ion), ref lect ing a substant ia l change in accrued income taxes. As a resul t , the current rat io ( rat io of current assets to current l iabi l i t ies) rose 26 percentage points, to 277%. Net assets set t led at ¥61,344 mi l l ion ($627 mi l l ion), down 12.9%. Tota l shareholders’ equi ty reached ¥61,255 mi l l ion ($626 mi l l ion), a lso down 12.9%. The equi ty rat io rebounded 2.6 percentage points, to 80.5%.

Notes: 1. Total shareholders’ equity = Net assets - Minority interests 2. Equity ratio = Shareholders’ equity / Total assets Millions of yen

Summary of Financial Position 2009 2008 % Change

Total assets ¥76,102 ¥90,352 –15.8%Total liabilities 14,758 19,925 –25.9Shareholders’ equity 61,255 70,348 –12.9Shareholders’ equity to total assets (%) 80.5 77.9 2.6 points

Financial Position

(Times)

0

5

10

15

20

25

0

0.2

0.4

0.6

0.8

1.0

1.2

0

60

120

180

240

300

30 360

36.4 35.2 35.9 33.2 27.7 10.2 12.5 11.2 13.2 9.9 26.2 22.7 24.7 20.0 17.7 357.3 281.0 319.0 251.1 277.1

0.81 0.85 0.82 0.84 0.84Asset turnover ratio

Working capita lCurrent rat io (%)

(Bill ions of yen)

(Millions of yen)

(%)

Asset Turnover RatioWorking Capital and Current Ratio

(5.0) 8.9 8.6 0.8 (3.3) (4.1) 7.2 6.8 0.6 (2.6)

Current assetsCurrent l iabi l i t ies

–10

–5

0

5

10

15

0

400

1,200

800

1,600

2,000

20 2,400

0

0.5

1.5

1.0

2.0

2.5

3.0

(%)

Return on Equity and Return on Assets

Interest-Bearing Debt Ratio

Return on equityReturn on assets

Interest-bearing debt ratio

— — 2,035 1,165 1,152

— — 2.2 1.3 1.5

(%)

2007 200820062005 2009 2007 200820062005 2009

2007 200820062005 2009 2007 200820062005 2009

Interest-bearing debt (Mill ions of yen)

32

1. Products

In i ts ef for ts to address concerns that c l ients have about thei r hai r, the Aderans Group concen-trates i ts act iv i t ies into two pr incipal segments of the comprehensive hair-re lated products and serv ices industr y: the wig business, which encompasses two core companies in Japan and a sol id presence in the Uni ted States, Europe and Asia, excluding Japan; and the hair- t ransplant business, which hinges on Bosley and MHR in the Uni ted States.

Therefore, the Group’s f iscal resul ts could be severely eroded i f other companies were to discover hai r loss t reatments, such as a revolut ionary hai r-growth wonder drug or an innovat ive hai r-volumiz ing technique, which el iminate the need for wigs, and br ing these approaches to market, or i f other companies were to engineer and commercia l ize medical techniques super ior to ex ist ing hair t ransplant procedures.

In addi t ion, demographic t rends in Japan st i l l indicate a shr inking level of young people wi th in the nat ional populat ion. This is of part icu lar consequence to the Operat ing Company because men in thei r 20s and 30s represent a key segment of i ts target c l ient base in the domest ic men’s market, and fewer potent ia l c l ients could streaml ine demand for i ts products and serv ices. This s i tuat ion could have a mater ia l impact that t ranscends the f iscal resul ts of the Operat ing Company and af fect the Group as a whole.

2. Production and distribution bases

i ) The product ion of wigs is executed at the Holding Company’s subsid iar ies in Thai land and the Phi l ippines. These faci l i t ies ut i l i ze propr ietary know-how in manufactur ing the Group’s products, so i t would be di f f icu l t for them to complete orders for wigs and other hai r-replacement products wi th a l ternat ive mater ia ls and components, such as those used in compet i tors’ products.

Consequent ly, certa in events—primar i ly, the two scenar ios descr ibed below—could prevent the del ivery of products to c l ients and ser iously erode f iscal resul ts.a) I f f i re, natura l d isaster, labor unrest, outbreak of d isease or some other obstacle to

normal operat ions undermines product ion capabi l i t ies.b) I f a change in the pol i t ica l or economic envi ronment in Thai land or the Phi l ippines inter-

rupts the procurement of necessary mater ia ls or d isrupts the supply of f in ished products.

i i ) To enhance the ef f ic iency of domest ic d ist r ibut ion, Aderans and Fonta ine share a s ingle dis-t r ibut ion center in Tainai , Ni igata Prefecture. I f a large-scale natura l d isaster or some other catastrophic event were to sever t ransportat ion routes and/or complete ly destroy the dist r i-but ion center, the s i tuat ion could h inder the receipt and shipment of wigs and other hai r-replacement products as wel l as upset d ist r ibut ion processes l ink ing domest ic sa lons and product ion subsid iar ies. Such s i tuat ions could hurt the Group’s f iscal resul ts.

One of the Holding Company’s top management pr ior i t ies is the return of prof i ts to shareholders. I ts pr imary object ive is, of course, to susta in div idends at a h igh level as wel l as to return prof i ts to shareholders through the repurchase of t reasury stock. Targets are a payout rat io of 50%, and a shareholder return rat io of 100%, both based on consol idated net income. The year-end div idend for f iscal 2009 has been set at ¥15 per share. I f approved by shareholders, th is amount wi l l be added to the inter im div idend of ¥5 per share for an annual d iv idend of ¥20 per share. The annual d iv idend for f iscal 2010 wi l l be set at ¥10 per share, compris ing inter im and year-end div idends of ¥5 per share, respect ive ly.

* Shareholder return rat io (%) = [Tota l shareholder returns ( t reasury stock buybacks + div idends) / Consol idated net income] x 100

** Treasury stock buybacks = Acquis i t ion of t reasury stock - Disposal of t reasury stock

Dividend Policy

Risk Information

33

3. Impact of legal regulations and ability to secure talented staff

i ) The operat ions of the Operat ing Company are subject to severa l laws, inc luding the Barbers Law and the Beaut ic ians Law—both re lated to the Envi ronmental Sani tat ion Law—as wel l as the Consumer Contract Law, the Speci f ied Products Trading Law, the Insta l lment Sales Law, and the Law for Prevent ing Unjust i f iable Lagniappes and Mis leading Representat ion.

Legis lat ive rev is ions to the aforement ioned laws or the creat ion of new laws and ordinances might have an impact on Group resul ts, depending on the content of such amendments and addi t ions.

Of note, in the course of i ts business act iv i t ies, the Operat ing Company employs approxi-mately 1,200 barbers and hair sty l is ts l icensed according to the Barbers Law and the Beaut ic ians Law to provide serv ices at i ts sa lons. I f the Operat ing Company’s abi l i ty to h i re and reta in qual i f ied staf f is restr ic ted by the introduct ion and/or enforcement of new ru les, the resul t ing shortage of essent ia l personnel could undercut the provis ion of serv ices to c l ients and create operat ing di f f icu l t ies at sa lons. This could erode business performance.

i i ) The hair- t ransplant business in the Uni ted States requires that the two Group companies engaged in th is business secure the serv ices of physic ians to perform the necessary procedures.

However, in the Uni ted States, each state grants l icenses to e l ig ib le physic ians to prac-t ice in that state, so v is i t ing physic ians must acquire the requis i te medical l icense(s) f rom the state(s) in which they plan to provide t reatment. I f regulat ions were to be newly estab-l ished that h inder the ass ignment of physic ians across state l ines, the f iscal resul ts of the two Group companies involved in the hair- t ransplant business might be adversely af fected.

4. Information management (personal information leaks)

i ) The business act iv i t ies of the Operat ing Company and Fonta ine—the two core domest ic companies under the Group umbrel la—address the hair-re lated concerns of ordinary people. I f c l ient informat ion were to leak outs ide corporate systems, the disc losure could cause the af fected c l ients s igni f icant psychological or emot ional d ist ress. Cl ient d issat is fact ion could impair the companies’ future market ing resul ts.

The two companies are h ighly re l iant upon computer network systems for mainta in ing and ut i l i z ing c l ient informat ion. The loss of server-stored data, through ei ther manmade or natura l d isaster, could a lso adversely impact business resul ts.

i i ) Unauthor ized disc losure of personal informat ion about c l ients who undergo hair- t ransplant procedures in the United States could hamper the business act iv i t ies of subsidiar ies providing medical serv ices. This could hurt the Group’s f iscal resul ts.

5. Research and development

A considerable amount of money has been invested in the study of hai r-regenerat ion at Aderans Research Inst i tute, Inc., in the quest to e l iminate concerns that c l ients have about hai r loss.

However, th is study carr ies e lements of uncerta inty, namely the potent ia l of research resul ts to contr ibute to future prof i t , because i t is impossib le at the current t ime to predict how much t ime wi l l be spent in th is pursui t .

34

Consolidated Balance SheetsAderans Holdings Co., Ltd. and Consolidated SubsidiariesFor the years ended February 28, 2009, and February 29, 2008

Assets

Mill ions of yen

Thousands ofU.S. dollars

2009 2008 2009

Current assets:

Cash and time deposits (Note 4) ¥ 9,941 ¥ 14,138 $ 101,635

Marketable securities (Note 6) 4,392 3,905 44,904

Notes and accounts receivable 5,471 5,944 55,943

Allowance for doubtful accounts (48) (139) (491)

Inventories (Note 5) 4,513 4,903 46,141

Deferred tax assets (Note 8) 1,268 1,619 12,970

Other current assets 2,161 2,916 22,098

Total current assets 27,700 33,288 283,202

Investments and long-term loans:

Long-term loans receivable 213 1,326 2,181

Allowance for doubtful accounts (107) (1,226) (1,101)

Investment securities (Note 6) 5,493 9,783 56,160

Total investments and long-term loans 5,598 9,883 57,239

Property, plant and equipment, at cost:

Land 11,133 11,291 113,824

Buildings and structures 30,936 32,072 316,296

Machinery and equipment 7,630 8,309 78,008

Construction in progress 37 271 380

Other 219 219 2,247

Total 49,957 52,164 510,758

Less accumulated depreciation (23,991) (24,564) (245,284)

Property, plant and equipment, net 25,966 27,600 265,474

Intangible assets 4,932 8,825 50,432

Security deposits 3,982 4,012 40,713

Deferred tax assets (Note 8) 4,458 2,958 45,578

Other assets 3,514 3,858 35,935

Allowance for doubtful accounts (50) (75) (513)

Total assets ¥ 76,102 ¥ 90,352 $ 778,063

See Notes to the Consolidated Financial Statements.

35

Liabilities and

Net Assets

Mill ions of yen

Thousands ofU.S. dollars

2009 2008 2009

Current liabilities:

Short-term bank borrowings ¥ 977 ¥ 369 $ 9,993

Long-term debt due within one year 130 20 1,329

Notes and accounts payable 1,236 1,224 12,640

Accrued income taxes (Note 8) 406 2,168 4,159

Accrued expenses 1,102 1,422 11,267

Deferred tax liabilities (Note 8) 2 — 23

Other current liabilities 6,140 8,053 62,776

Total current liabilities 9,995 13,258 102,189

Long-term liabilities:

Long-term bank borrowings 44 605 457

Long-term debt — 170 —

Accrued severance and retirement benefits—employees (Note 7) 3,058 3,347 31,269

Accrued severance and retirement benefits—directors and corporate auditors 57 781 589

Deferred tax liabilities 6 9 63

Other long-term liabilities 1,595 1,752 16,317

Total long-term liabilities 4,763 6,667 48,696

Total liabilities 14,758 19,925 150,886

Net assets:

Common stock, no par value

Authorized—138,000 thousand shares for 2009 and 2008

Issued—41,713 thousand shares for 2009 and 2008 12,944 12,944 132,338

Additional paid-in capital 13,157 13,157 134,519

Retained earnings 48,225 52,528 493,051

Unrealized gain on available-for-sale securities (145) 9 (1,490)

Foreign currency translation adjustments (3,891) 740 (39,783)

Treasury stock, at cost (9,034) (9,030) (92,364)

Stock acquisition rights — 0 —

Minority interests 88 77 905

Total net assets 61,344 70,426 627,177

Total liabilities and net assets ¥76,102 ¥90,352 $778,063

See Notes to the Consolidated Financial Statements.

36

Consolidated Statements of IncomeAderans Holdings Co., Ltd. and Consolidated Subsidiaries For the years ended February 28, 2009, and February 29, 2008

Mill ions of yenThousands ofU.S. dollars

2009 2008 2009

Net sales ¥70,463 ¥74,998 $720,413

Cost of sales 14,881 15,465 152,145

Gross profit 55,582 59,533 568,268

Selling, general and administrative expenses (Note 10) 53,074 55,467 542,623

Operating income 2,508 4,066 25,644

Other income (expenses):

Interest and dividend income 295 336 3,021

Interest expenses (81) (98) (835)

Impairment losses (2,138) (393) (21,868)

Unrealized loss on investment securities (1,504) (109) (15,379)

Exchange loss on foreign currency translation (220) (87) (2,251)

Loss on disposal of property, plant and equipment (330) (188) (3,383)

Other income and expenses, net (162) (580) (1,657)

Total other income (expenses) (4,142) (1,122) (42,353)

Income before income taxes and minority interests (1,634) 2,944 (16,709)

Income taxes (Note 8):

Current 2,069 2,519 21,160

Deferred (1,514) 79 (15,487)

Minority interests 16 244 170

Net income (loss) ¥ (2,172) ¥ 590 $ (22,211)

Net income (loss) per common share (Note 11) (in yen) ¥ (56.11) ¥ 15.25 $ (0.57)

See Notes to the Consolidated Financial Statements.

37

Consolidated Statements of Shareholders’ EquityAderans Holdings Co., Ltd. and Consolidated Subsidiaries For the years ended February 28, 2009, and February 29, 2008

Mill ions of yenThousands ofU.S. dollars

2009 2008 2009

Common stock:

Balance, beginning of year ¥12,944 ¥12,944 $132,338

Balance, end of year

(2009—41,713,388 shares; 2008—41,713,388 shares) ¥12,944 ¥12,944 $132,338

Additional paid-in capital:

Balance, beginning of year ¥13,157 ¥13,157 $134,519

Balance, end of year ¥13,157 ¥13,157 $134,519

Retained earnings:

Balance, beginning of year ¥52,528 ¥55,042 $537,044

Increase in retained earnings:

Net income (2,172) 590 (22,211)

Decrease in retained earnings:

Cash dividends 2,129 3,097 21,772

Loss on exchange of treasury stock 0 7 7

Balance, end of year ¥48,225 ¥52,528 $493,053

Unrealized gain (loss) on available-for-sale securities:

Balance, beginning of year ¥ 9 ¥ 602 $ 98

Net change (155) (593) (1,588)

Balance, end of year ¥ (145) ¥ 9 $ (1,490)

Foreign currency translation adjustments:

Balance, beginning of year ¥ 740 ¥ 10 $ 7,567

Net change (4,631) 729 (47,350)

Balance, end of year ¥ (3,891) ¥ 740 $ (39,783)

Treasury stock:

Balance, beginning of year ¥ (9,030) ¥ (9,057) $ (92,330)

Net change (3) 26 (34)

Balance, end of year

(2009—41,713,388 shares; 2008—41,713,388 shares) ¥ (9,034) ¥ (9,030) $ (92,364)

Stock acquisition rights:

Balance, beginning of year ¥ 0 ¥ 0 $ 1

Net change (0) — (1)

Balance, end of year ¥ — ¥ 0 $ —

See Notes to the Consolidated Financial Statements.

38

Consolidated Statements of Cash FlowsAderans Holdings Co., Ltd. and Consolidated Subsidiaries For the years ended February 28, 2009, and February 29, 2008

Mill ions of yenThousands ofU.S. dollars

2009 2008 2009

Cash flows from operating activities:

Income before income taxes and minority interests ¥ (1,634) ¥ 2,944 $ (16,709)

Depreciation and amortization 2,836 2,678 28,997

Impairment losses 2,138 393 21,868

Loss on retirement of fixed assets 469 240 4,802

Amortization for consolidation difference 646 593 6,613

Change in allowance for employees’ bonuses (197) 11 (2,022)

Change in allowance for directors’ and corporate auditors’ bonuses (10) (101) (103)

Change in accrued severance benefits for employees (218) (202) (2,237)

Unrealized loss on investment securities 1,504 109 15,379

Interest and dividend income (295) (336) (3,021)

Interest expenses 81 98 835

Change in notes and accounts receivable 162 (348) 1,662

Change in inventories (260) (366) (2,663)

Change in notes and accounts payable 109 (456) 1,122

Change in guarantee deposits 1 (99) 12

Other 222 1,333 2,274

Subtotal 5,556 6,493 56,810

Proceeds from interest and dividend income 319 331 3,265

Payment of interest (81) (98) (835)

Payment of income taxes (3,831) (1,213) (39,171)

Net cash provided by operating activities 1,963 5,512 20,069

Cash flows from investing activities:

Change in time deposits (103) (0) (1,056)

Payment for purchase of marketable securities (1,993) (6,982) (20,383)

Proceeds from sales of marketable securities 4,489 9,183 45,901

Payment for purchase of property, plant and equipment (3,681) (2,263) (37,636)

Payment for purchase of intangible assets (181) (291) (1,855)

Payment for purchase of investment securities (303) (2,080) (3,100)

Proceeds from sales of investment securities 1,003 8 10,255

Payment for purchase of investment in subsidiaries — (3,367) —

Other 434 590 4,441

Net cash used in investing activities (335) (5,203) (3,433)

Cash flows from financing activities:

Payment to acquire treasury stock (4) (5) (49)

Proceeds from sales of treasury stock upon exercise of stock options 0 24 7

Cash dividends paid (2,130) (3,094) (21,783)

Other (43) (869) (440)

Net cash used in financing activities (2,177) (3,944) (22,265)

Effects of exchange rate changes on cash and cash equivalents (2,555) 657 (26,123)

Net change in cash and cash equivalents (3,105) (2,977) (31,753)

Cash and cash equivalents at the beginning of year 14,979 17,956 153,148

Cash and cash equivalents held by newly consolidated subsidiary at beginning of year — — —

Cash and cash equivalents at the end of year ¥11,873 ¥14,979 $121,394

See Notes to the Consolidated Financial Statements.

39

The accompanying consolidated financial statements of Aderans Holdings Co., Ltd. (the “Company”), and its consolidated subsidiaries have been prepared in accordance with accounting principles generally accepted in Japan, and from consolidated financial statements filed with the Minister of Finance, as required by the Financial Instruments and Exchange Law of Japan. Certain items presented in the original financial statements have been reclassified for the convenience of readers outside Japan. As permitted under the Securities and Exchange Law of Japan, amounts of less than one million yen have been omitted. As a result, the totals shown in the accompanying financial statements (both in yen and in dollars) do not necessarily agree with the sum of the individual amounts. The accompanying consolidated financial statements include the accounts of the Company and its significant subsidiaries.

(a) Principles of consolidation

The accompanying consolidated financial statements include the accounts of the Company and its significant subsidiaries (the “Companies”). All significant intercompany transactions and unrealized profits among the Companies have been eliminated in consolidation. The difference between the cost and underlying net equity of investments in consolidated subsidiaries is deferred and amortized within 10 years. Investments in remaining non-consolidated subsidiaries are not accounted for by the equity method because of the immaterial effect on the consolidated financial statements. The fiscal year end of four domestic consolidated subsidiaries and all overseas consolidated sub sidiaries is December 31, which differs from that of the Company; however, the accounts of these subsidiaries have been consolidated with appropriate adjustments for the intercompany transactions and events to the end of the fiscal year.

(b) Cash and cash equivalents

For the purpose of consolidated statements of cash flows, the Companies consider all highly liquid low-risk investments with maturities of three months or less when purchased to be cash equivalents.

(c) Marketable and investment securities

Marketable and investment securities are classified and accounted for, depending on management intent. Based on the examination of the intent of holding, the Company classified those securities as held-to- maturity debt securities, equity securities issued by non-consolidated subsidiaries and available-for-sale securities. Held-to-maturity debt securities are stated at amortized cost. Equity securities issued by non-consolidated subsidiaries are stated at cost by the moving-average method. Available-for-sale securities with available fair market values are stated at market value. Unrealized gains or losses on those securities are reported, net of applicable income taxes, as a separate component of shareholders’ equity. Realized gains and losses on sale of such securities are computed by the moving-average method. Available-for-sale securities without available fair market value are stated at cost by the moving-average method.

(d) Allowance for doubtful accounts

Allowances for doubtful accounts are stated at an amount considered to be appropriate based on the Companies’ past credit loss experience and an evaluation of potential losses from the receivables out-standing. Overseas consolidated subsidiaries provide for doubtful accounts at the estimated amount of uncollectible receivables.

(e) Inventories

Custom-made goods are stated at cost according to the specific identification method. Ready-made goods are stated at cost according to the average method. Raw materials and work in process are stated at lower of cost (first-in, first-out) or market, or lower of moving-average cost or market. Supplies are principally stated at cost according to the specific identification method.

Note 1.

Basis of Presenting

Consolidated

Financial Statements

Note 2.

Summary of

Significant

Accounting Policies

Notes to the Consolidated Financial StatementsAderans Holdings Co., Ltd. and Consolidated Subsidiaries For the years ended February 28, 2009, and February 29, 2008

40

(f) Property, plant and equipment (except for leased properties)

Property, plant and equipment of the Companies’ have been depreciated principally by the declining- balance method, at rates based on the estimated useful lives of the assets. However, the straight-line method has been applied to buildings, excluding building fixtures, acquired after April 1, 1998, at rates based on the estimated useful lives of assets. The straight-line method is used for some domestic consolidated subsidiaries. The straight-line method is used principally for overseas consolidated subsidiaries. Expenditures for maintenance and repairs are charged to operating expenses as incurred. Upon the disposal of property, plant and equipment, the cost and accumulated depreciation are removed from the accounts and any gain or loss is recorded as income or expenses.

(g) Intangible assets (except for leased properties)

Intangible assets are carried at cost less accumulated amortization, which is calculated by the straight-line method over the estimated useful lives (five years for software).

(h) Lease properties

Lease assets relate to finance lease transactions other than those deemed to transfer ownership ownership. The lease period shall be the period of asset depreciation and will be determined under a method with zero residual value over the lease period. Lease transactions for which start dates preceded the application of “Accounting Standard for Lease Transactions” (ASBJ Statement No.13, March 30, 2007) and “Implementation Guidance on the Accounting Standard for Lease Transaction” (ASBJ Guidance No.16, March 30, 2007) will be accounted for in accordance with the method for operating leases.

(i) Allowance for employees’ bonuses

The Company and its domestic consolidated subsidiaries provide allowance for employees’ bonuses using the estimated-amount method based on the bonuses to be paid subsequent to the balance sheet dates. This allowance amounted to ¥1,252 million ($12,800 thousand) at February 28, 2009, and ¥1,458 mil-lion at February 29, 2008, and was included in other current liabilities in the consolidated balance sheets.

(j) Allowance for directors’ and corporate auditors’ bonuses

Directors and corporate auditors’ bonuses are accounted for as an expense of the accounting period in which such bonuses were accrued. As a result, the Company and its domestic consolidated subsidiaries provide allowance for directors and corporate auditors’ bonuses using the estimated-amount method based on the bonuses to be paid subsequent to the balance sheet dates. This allowance amounted to ¥— million ($— thousand) at February 28, 2009, and ¥10 million at February 29, 2008, and was included in other current liabilities in the consolidated balance sheets.

(k) Warranty reserve

A warranty reserve is provided based upon prior actual experience, while the Companies provide warranty on their goods. This reserve amounted to ¥145 million ($1,485 thousand) at February 28, 2009, and ¥165 million at February 29, 2008, and was included in other current liabilities in the consolidated balance sheets.

(l) Allowance for returned goods

One of the Japanese subsidiaries, Fontaine Co., Ltd., sets aside an allowance for returned goods. This allowance is provided based on accounts receivable multiplied by an average of the sales returns rate referring to the current and previous year and the gross profit rate of the current year, and amounted to ¥91 million ($935 thousand) at February 28, 2009, and ¥119 million at February 29, 2008, and was included in other current liabilities in the consolidated balance sheets.

m) Accrued severance and retirement benefits—employees

The Company and some of its consolidated subsidiaries accounted for retirement benefit liabilities based on the projected benefit obligations and plan assets at the balance sheet date.

41

Past benefit liabilities are amortized from the time they accrue by the straight-line method for a given number of years (five years) within employees’ average remaining years of service. The actuarial difference is amortized using the straight-line method from the fiscal year subsequent to that in which the cost was incurred for the average remaining service periods of employees at the time the cost was incurred, which is five years in the case of the Group.

(n) Allowance for losses on liquidation of affiliates

Allowance for losses on liquidation of affil iates is provided by one of the Japanese subsidiaries, Samson Co., Ltd., to discontinue business. This allowance amounted to ¥0 million ($8 thousand) at February 28, 2009, and ¥151million at February 29, 2008, and was included in other current liabilities in the consolidated balance sheets.

(o) Allowance for losses on debt guarantees of affiliates

Samson Co., Ltd. records allowance for an estimated amount of loss based on financial conditions of the affil iates to provide for loss on guarantees to its affil iates This allowance amounted to ¥24 million ($247 thousand) at February 28, 2009, and ¥— million at February 29, 2008, and was included in other current liabilities in the consolidated balance sheets.

(p) Translation of foreign currency accounts

Balance sheets of consolidated overseas subsidiaries are translated into Japanese yen at the current rate at the end of year except for shareholders’ equity accounts, which are translated at historical rates. Statements of income of consolidated overseas subsidiaries are translated at the average rate. Differences arising from such translation are disclosed under “Foreign currency translation adjustments” on the state-ment of consolidated shareholders’ equity and accumulated in the shareholders’ equity section of the consolidated balance sheet.

(q) Research and development costs

Research and development costs are charged to income when incurred.

The financial statements are stated in Japanese yen. The U.S. dollar amounts included in the financial statements and notes thereto represent the arithmetical results of translating yen into U.S. dollars at the rate of ¥97.81 to US$1. This is the approximate rate of exchange in effect on February 28, 2009.

Reconciliation of cash and time deposits in the consolidated balance sheets and cash and cash equiva-lents shown in the consolidated statements of cash flows at February 28, 2009, and February 29, 2008, were as follows:

Millions of yen

Thousands ofU.S. dollars

2009 2008 2009

Cash and time deposits ¥ 9,941 ¥14,138 $101,635

Cash equivalents included in marketable securities 2,093 911 21,400

Time deposits with maturities more than three months (160) (70) (1,641)

Cash and cash equivalents ¥11,873 ¥14,979 $121,394

At February 28, 2009, and February 29, 2008, inventories consisted of the following:

Millions of yenThousands ofU.S. dollars

2009 2008 2009

Finished goods ¥3,103 ¥3,293 $31,725

Work in process 174 257 1,781

Raw materials and supplies 1,235 1,353 12,634

Total ¥4,513 ¥4,903 $46,141

Note 4.

Cash and Cash

Equivalents

Note 3.

U.S. Dollar Amounts

Note 5.

Inventories

42

(1) The following tables summarize acquisition costs, book values and fair value of securities at February 28, 2009, and February 29, 2008.

(a) Held-to-maturity debt securitiesMillions of yen Thousands of U.S. dollars

February 28, 2009 Book value Fair value Difference Book value Fair value Difference

Securities with available fair values exceeding book values

Bonds ¥ — ¥ — ¥ — $ — $ — $ —

Subtotal — — — — — —

Securities other than the above Bonds 4,300 4,261 (39) 43,966 43,566 (399)

Subtotal 4,300 4,261 (39) 43,966 43,566 (399)

Total ¥4,300 ¥4,261 ¥(39) $43,966 $43,566 $(399)

Millions of yen

February 29, 2008 Book value Fair value Difference

Securities with available fair values exceeding book values

Bonds ¥ — ¥ — ¥ — Subtotal — — —Securities other than the above Bonds 6,300 6,260 (39) Subtotal 6,300 6,260 (39)Total ¥6,300 ¥6,260 ¥(39)

(b) Available-for-sale securitiesMillions of yen Thousands of U.S. dollars

February 28, 2009Acquisition

cost

Book value Difference Acquisition

cost

Book value Difference

Securities with book values exceeding acquisition costs

Equity securities ¥ 533 ¥ 633 ¥ 100 $ 5,458 $ 6,480 $ 1,022

Subtotal 533 633 100 5,458 6,480 1,022

Securities other than the above Equity securities 2,282 1,936 (345) 23,335 19,798 (3,536)

Subtotal 2,282 1,936 (345) 23,335 19,798 (3,536)

Total ¥2,816 ¥2,570 ¥(245) $28,793 $26,279 $(2,514)

Millions of yen

February 29, 2008Acquisition

cost

Book value Difference

Securities with book values exceeding acquisition costs

Equity securities ¥ 902 ¥1,336 ¥ 433 Subtotal 902 1,336 433 Securities other than the above Equity securities 2,310 1,892 (417) Subtotal 2,310 1,892 (417)Total ¥3,213 ¥3,229 ¥ 16

Note 6.

Marketable and

Investment Securities

43

(2) The following tables summarize book values of securities with no available fair values at February 28, 2009, and February 29, 2008.

Millions of yen

Thousands ofU.S. dollars

2009 2008 2009

Held-to-maturity debt securities

Commercial paper ¥1,497 ¥1,994 $15,312 Available-for-sale securities Unlisted stocks 193 894 1,976 Other securities ¥1,001 ¥ 911 $10,237

(3) Available-for-sale securities with maturities and held-to-maturity debt securities were as follows:Millions of yen Thousands of U.S. dollars

February 28, 2009Within

one yearWithin

five yearsWithin

ten yearsOver

ten yearsWithin

one yearWithin

five yearsWithin

ten yearsOver

ten years

Bonds ¥1,800 ¥— ¥2,000 ¥500 $18,403 $— $20,447 $5,115

Others 1,497 — — — 15,312 — — —

Total ¥3,297 ¥— ¥2,000 ¥500 $33,715 $— $20,447 $5,115

Millions of yen

February 29, 2008Within

one yearWithin

five yearsWithin

ten yearsOver

ten years

Bonds ¥1,000 ¥2,800 ¥2,000 ¥500 Others 1,994 — — —Total ¥2,994 ¥2,800 ¥2,000 ¥500

Employees who terminate their service with the Company or one of the domestic consolidated subsidiaries are entitled to defined benefit pension plans, i.e., tax-qualified pension plans and lump-sum payment plans determined by reference to basic rates of pay, length of service and conditions under which the termination occurs. Other domestic subsidiaries have maintained unfunded lump-sum payment plans, whereas certain overseas subsidiaries have defined contribution pension plans or nonfunded lump-sum payment plans. The following table sets forth the founded and accrued status of the retirement benefits, and the amounts recognized in the consolidated balance sheets as of February 28, 2009, and February 29, 2008:

Millions of yen

Thousands ofU.S. dollars

2009 2008 2009

(a) Projected retirement benefit obligation ¥(5,727) ¥(5,630) $(58,555)

(b) Pension assets at fair value 2,998 2,805 30,660

(c) Unfunded retirement benefit obligation (a)+(b) (2,728) (2,825) (27,895)

(d) Unrecognized actuarial differences (218) (298) (2,237)

(e) Unrecognized past benefit liabilities (111) (222) (1,137)

(f) Accrued employees’ severance and retirement benefits (c)+(d)+(e) ¥(3,058) ¥(3,347) $(31,269)

The components of retirement benefit costs for the years ended February 28, 2009, and February 29, 2008, were as follows:

Millions of yen

Thousands ofU.S. dollars

2009 2008 2009

(a) Service cost ¥ 401 ¥ 339 $ 4,104

(b) Interest cost 106 103 1,092

(c) Expected return on plan assets (28) (25) (286)

(d) Amortization for actuarial difference (104) (43) (1,072)

(e) Amortization for past benefit liabilities (111) (111) (1,137)

Total ¥ 264 ¥ 262 $ 2,699

Note 7.

Accrued Severance

and Retirement

Benefits—Employees

44

The assumptions used to calculate amounts relating to retirement benefit liabilities are as follows:

(a) Method of allocation of estimated retirement benefits straight-line method

(b) Discount rate 2%

(c) Expected rate of return on pension assets 1%

(d) Amortization period of actuarial difference 5 years

(e) Amortization period of past benefit liabilities 5 years

The Company and domestic consolidated subsidiaries are subject to a number of taxes based on income, which in the aggregate amount to statutory tax rates of approximately 40.7% for the year of 2009 and 2008. Foreign consolidated subsidiaries are subject to income taxes of countries in which they operate. However, income taxes as shown in the accompanying consolidated statements of income differ from the amounts computed by applying the above-mentioned statutory tax rates to “income before income taxes”. The principal reason for this difference is the effect of timing differences in the recognition of certain expenses for tax and financial reporting purposes and the effect of permanent nondeductible expenses. Significant components of the deferred tax assets and liabilities held by the Company and its consoli-dated subsidiaries as of February 28, 2009, and February 29, 2008, are summarized as follows:

Millions of yen

Thousands ofU.S. dollars

2009 2008 2009

Deferred tax assets:

Unrealized profits on inventories ¥ 108 ¥ 105 $ 1,110

Excess of retirement allowance 1,204 1,314 12,314

Accrued severance benefits for directors 23 318 239

Excess of allowance for employees’ bonuses 506 561 5,183

Warranty reserve 59 67 604

Allowance for returned goods 37 48 381

Excess of depreciation 848 612 8,677

Unrealized loss on golf club memberships 115 115 1,175

Accumulated impairment losses 1,585 972 16,214

Net loss carried forward 2,768 1,217 28,300

Devaluation of securities 520 — 5,322

Other 928 1,754 9,497

Total deferred tax assets 8,707 7,087 89,021

Valuation allowance (2,953) (2,452) (30,197)

Net deferred tax assets 5,753 4,634 58,824

Deferred tax liabilities:

Reserve for special depreciation 14 15 148

Other 20 51 213

Total deferred tax liabilities 35 66 362

Net deferred tax assets ¥5,718 ¥4,568 $58,462

An analysis of the difference between the statutory tax rate and the Company’s effective tax rate for the year ended February 28, 2009, has been omitted as a loss before income taxes and minority interests was recorded. The analysis for the year ended February 29, 2008, was as follows:

2009 2008

Statutory tax rate — 40.7Permanently nondeductible expenses — 1.9Inhabitant tax on a per capital basis — 4.8Changes in valuation allowance for deferred tax assets — 37.1Others — 3.8The Company’s effective income tax rate — 88.3

Note 8.

Income Taxes

45

(1) Finance LeasesFuture lease payments and lease payments under finance lease at February 28, 2009, and February 29, 2008, were as follows:

Millions of yen

Thousands ofU.S. dollars

2009 2008 2009

Outstanding finance lease payments

Within one year ¥182 ¥144 $1,864

Over one year 164 347 1,683

Total 347 492 3,548

Lease payments ¥144 ¥158 $1,472

A summary of assumed amounts of acquisition cost, accumulated depreciation and net book value at February 28, 2009, and February 29, 2008, is as follows:

Millions of yen

February 28, 2009Acquisition

costAccumulateddepreciation

Accumulatedderogation

Net book value

Building ¥ 99 ¥ 32 ¥— ¥ 67

Equipment 493 262 40 191

Vehicle 6 4 — 1

Software 157 82 13 62

Total ¥757 ¥381 ¥53 ¥322

Thousands of U.S. dollars

February 28, 2009Acquisition

costAccumulateddepreciation

Accumulatedderogation

Net book value

Building $1,017 $ 331 $ — $ 685

Equipment 5,045 2,680 411 1,953

Vehicle 65 46 — 18

Software 1,613 841 136 636

Total $7,741 $3,899 $548 $3,293

Millions of yen

February 29, 2008Acquisition

costAccumulateddepreciation

Accumulatedderogation

Net book value

Building ¥ 99 ¥ 20 ¥— ¥ 78

Equipment 570 253 38 278

Vehicle 17 14 — 3

Software 172 68 13 90

Total ¥859 ¥357 ¥51 ¥450

(2) Operating LeasesFuture lease payments under operating lease at February 28, 2009, and February 29, 2008, were as follows:

Millions of yen

Thousands ofU.S. dollars

2009 2008 2009

Outstanding lease payments

Within one year ¥ 816 ¥1,009 $ 8,352

Over one year 2,948 4,180 30,140

Total ¥3,764 ¥5,189 $38,492

Note 9.

Leases

46

Research and development costs included in selling, general and administrative expenses for the years ended February 28, 2009, and February 29, 2008, amounted to ¥1,335 million ($13,653 thousand) and ¥1,664 million, respectively.

Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common stock shares outstanding for the period. The Company did not have securities or contingent stock agreements that could potentially dilute net income per common share in the year ended February 28, 2009 and February 29, 2008.

(1) Business SegmentsAs the ratios of “Hair-related business” against the total sales, operating income and assets of all seg-ment exceed 90%, information by business segment is not prepared or disclosed.

(2) Geographical Segments

Millions of yen

Year ended February 28, 2009 Japan North America Europe Asia Total Elimination Consolidated

Sales

Outside customers ¥48,981 ¥17,099 ¥3,950 ¥ 431 ¥70,463 ¥ — ¥70,463

Intersegment 278 1,454 0 4,359 6,093 (6,093) —

Total 49,260 18,554 3,951 4,790 76,557 (6,093) 70,463

Operating expenses 45,082 19,488 3,711 4,532 72,815 (4,859) 67,955

Operating income 4,177 (934) 240 258 3,741 (1,233) 2,508

Total assets ¥53,170 ¥ 7,338 ¥3,315 ¥5,373 ¥69,198 ¥ 6,903 ¥76,102

Thousands of U.S. dollars

Year ended February 28, 2009 Japan North America Europe Asia Total Elimination Consolidated

Sales

Outside customers $500,783 $174,828 $40,393 $ 4,408 $720,413 $ — $720,413

Intersegment 2,850 14,871 7 44,570 62,299 (62,299) —

Total 503,634 189,699 40,401 48,978 782,713 (62,299) 720,413

Operating expenses 460,923 199,252 37,942 46,338 744,455 (49,686) 694,769

Operating income 42,711 (9,552) 2,459 2,640 38,257 (12,613) 25,644

Total assets $543,615 $ 75,029 $33,898 $54,940 $707,483 $ 70,580 $778,063

Millions of yen

Year ended February 29, 2008 Japan North America Europe Asia Total Elimination Consolidated

Sales

Outside customers ¥53,763 ¥16,560 ¥4,202 ¥ 472 ¥74,998 ¥ — ¥74,998

Intersegment 117 1,734 1 5,122 6,975 (6,975) —

Total 53,880 18,295 4,203 5,594 81,974 (6,975) 74,998

Operating expenses 47,434 18,853 3,912 5,046 75,247 (4,315) 70,932

Operating income 6,445 (557) 291 547 6,727 (2,660) 4,066

Total assets ¥56,745 ¥11,416 ¥4,337 ¥8,590 ¥81,090 ¥ 9,262 ¥90,352

Note 12.

Segment Information

Note 11.

Net Income per

Common Share

Note 10.

Research and

Development Costs

47

(3) Overseas Sales

Millions of yen

Year ended February 28, 2009 North America Europe Asia Others Total

Overseas sales ¥16,856 ¥3,949 ¥446 ¥114 ¥21,367

Consolidated net sales — — — — ¥70,463

Share of overseas sales 23.9% 5.6% 0.6% 0.2% 30.3%

Thousands of U.S. dollars

Year ended February 28, 2009 North America Europe Asia Others Total

Overseas sales $172,339 $40,375 $4,567 $1,173 $218,455

Consolidated net sales — — — — $720,413

Share of overseas sales 23.9% 5.6% 0.6% 0.2% 30.3%

Millions of yen

Year ended February 29, 2008 North America Europe Asia Others Total

Overseas sales ¥16,293 ¥4,233 ¥461 ¥112 ¥21,100

Consolidated net sales — — — — ¥74,998

Share of overseas sales 21.7% 5.6% 0.6% 0.1% 28.1%

On May 28, 2009, the shareholders of the Company approved payment of a year-end cash dividend of ¥15.00 ($0.15) per share to holders of record at February 28, 2009, totaling ¥580 million ($5,937 thousand).

Note 13.

Subsequent Events

48

To the Board of Directors ofAderans Holdings Co., Ltd.:

We have audited the accompanying consolidated balance sheets of Aderans Holdings Co., Ltd. (the “Company”), and its consolidated subsidiaries as of February 28, 2009 and February 29, 2008, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended, all expressed in yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to independently express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and applied in Japan. Those standards, procedures and practices require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aderans Holdings Co., Ltd. and its consolidated subsidiaries at February 28, 2009 and February 29, 2008, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles and practices generally accepted in Japan.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended February 28, 2009 are presented solely for convenience. Our audit also included the transla-tion of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 3 to the consolidated financial statements.

Tokyo, JapanMay 12, 2009

Report of Independent Auditors

49

Subsidiaries (Consol idated Companies)

As of February 28, 2009

(a) Established

(b) Percentage of parent company’s ownership

Japan● Aderans Co., Ltd.

(a) September 3, 2007 (Newly established through holding structure)(b) 100%

● FONTAINE Co., Ltd.

(a) January 5, 1979 (Became a wholly owned subsidiary as of December 1, 2003)(b) 100%

▼ ADN Co., Ltd.

(a) May 1, 1985 (Acquired December 4, 1998)(b) 83.2%

■ Hair Trust Holdings Co., Ltd.

(a) September 15, 2006(b) 100%

▼ SAMSON Co., Ltd.

(a) July 5, 1979 (Acquired September 27, 2006)(b) 100%

North America■ Aderans America Holding, Inc.

(a) November 23, 1994(b) 100%

Europe■ Aderans Europe B.V. (The Netherlands)

(a) January 9, 1992(b) 100%

Asia (excluding Japan)▼ Aderans Inc. (Taiwan)

(a) January 12, 1990(b) 100%

■ Aderans Thai. Ltd. (Thailand)

(a) October 17, 1986(b) 100%

■ Aderans Philippines, Inc. (Philippines)

(a) January 31, 2002 (b) 100%

■ Aderans Medical Holdings, Inc.

(a) July 23, 2007(b) 100% (Indirect)

▼ International Hairgoods, Inc.

(a) October 31, 1968 (Acquired June 29, 1987)(b) 100% (Indirect)

▼ René of Paris

(a) November 1, 1976 (Acquired March 1, 1989)(b) 100% (Indirect)

▼ General Wig Manufacturers, Inc.

(a) June 14, 1963 (Acquired September 28, 1998)(b) 100% (Indirect)

▼ New Concepts Hair Goods, Inc.

(a) February 13, 1991 (Acquired March 5, 1998)

▼ Aderans Retailing Company, Inc.

(a) April 19, 2001

▼ Aderans Research Institute, Inc.

(a) June 25, 2002

Aderans Holdings Co., Ltd.

■ Aderans France SAS (France)

(a) March 1, 1980 (Acquired March 1, 1992) (b) 100% (Indirect)

▼ Création de Paris Camaflex Vertriebs G.m.b.H. (Germany)

(a) July 26, 1966 (Acquired March 1, 1992) (b) 100% (Indirect)

▼ Camaflex S.A. (Belgium)

(a) September 25, 1962 (Acquired March 1, 1992)(b) 100% (Indirect)

▼ D. van Nooijen B.V. (The Netherlands)

(a) January 1, 1984 (Acquired March 1, 1994) (b) 100% (Indirect)

▼ Trend Hair Supplies Co., Ltd. (United Kingdom)

(a) March 26, 1973 (Acquired May 13, 2002) (b) 100% (Indirect)

▼ Carl M Lundh AB (Sweden)

(a) 1852 (Acquired January 7, 2005) (b) 100% (Indirect)

■ World Quality Co., Ltd. (Thailand)

(a) September 3, 1992(b) 100% (Indirect)

▼ Camaflex Societe Europeenne de Distribution S.A. (France)

(a) December 5, 1956 (Acquired March 1, 1992)(b) 100% (Indirect)

▼ Monfair Mode S.A.R.L. (France)

(a) February 16, 1987 (Acquired March 1, 1992)

▼ Monfair Moden Vertriebs G.m.b.H. (Germany)

(a) December 11, 1985 (Acquired March 1, 1992)

▼ Bosley, Inc.

(a) August 3, 1989 (Acquired August 1, 2001)(b) 96.2% (Indirect)

■ Bosley International Holdings, LLC.

(a) March 15, 2007

▼ Bosley Mexico, S.R.L.

(a) May 14, 2007

▼ HT Support Services S.R.L.

(a) February 1, 2008

▼ MHR, Inc.

(a) July 10, 2007 (Acquired August 31, 2007)(b) 100% (Indirect)

▼ Bosley Medical Institute Canada, Inc.

(a) March 25, 1997 (Acquired August 1, 2001)

▼ Sterling Accommodations, Inc.

(a) November 8, 1990 (Acquired August 1, 2001)

■ Regional Holding Company

● Domestic Core Business

● Fontaine Business

▼ Overseas Core Business

▼ Hair-Transplant Business

▼ Other Business

■ Manufacturing Company

▼ Noddin Co., Ltd.

(a) November 21, 2005 (Acquired September 27, 2006)

50

Aderans Ho ld ings Co., Ltd. As of February 28, 2009

Corporate Data

Head Office

6-3, Shin juku 1-chome, Shin juku-ku, Tokyo 160-8429

Founded

March 1, 1969

Paid-in Capital

¥12,944 mi l l ion

Number of Shares Authorized

138,000,000

Number of Shares Issued

41,713,388

Number of Shareholders

8,423

Principal Shareholders Number of Shares and Percentage of Vot ing Rights

Thousands of Name Shares %

Steel Partners Japan Strategic Fund (Offshore) LP 11,155 28.9

State Street Bank and Trust Company 4,714 12.2

Nobuo Nemoto 3,871 10.0

Goldman Sachs and Company Regular Account 1,310 3.4

Japan Trustee Serv ices Bank, Limited(Trust Account 4G) 1,170 3.0

The Master Trust Bank of Japan, Limited (Trust Account) 816 2.1

Japan Trustee Serv ices Bank, Limited(Trust Account) 785 2.0

The Dai- Ichi Mutual L i fe Insurance Company 726 1.9

State Street Bank and Trust Company 505019 557 1.4

The Hokur iku Bank, Ltd. 415 1.1

Stock Listings

F i r s t Sec t ion of Tokyo S tock ExchangeF i r s t Sec t ion of Osaka Secur i t ies E xchange

Transfer Agent and Registrar

The Chuo Mi t su i Trus t and Bank ing Company, L imi ted,Secur i t ies Depar tment8-4, I zumi 2-chome, Suginami-ku, Tokyo 168-0063

Number of Employees (Consolidated Basis)5,892

Stock Price Range

Note: The Company holds 2,995 thousand shares of its own shares in treasury stock.

0

2,500

5,000

7,500

10,000

12,500

17,500

15,000

0

350

700

1,050

1,400

1,750

2,450

2,100

Trading Volume (Thousands of shares)

2008 2009

3 4 5 6 7 8 9 10 11 112 2

Stock Price (¥)

For further information contact:

Corporate Communications Office, Aderans Holdings, Co., Ltd.

6-3, Shinjuku 1-chome, Shinjuku-ku,

Tokyo 160-8429, Japan

Tel: 81-3-3350-3268

Fax: 81-3-3352-9628

E-mail: ir_div@aderans.co.jp

Pr i n ted i n Japan on recyc led pape r

Uses soybean ink in consideration of the environment