2005pdf.irpocket.com/c4326/owm7/jmxt/wxhq.pdf · nesses around the common axis of intelligence and...

Annual Report 2005The Year ended March 31, 2005

INTA

GE

Inc

An

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alRep

ort

2005

FORWARD-LOOKING STATEMENTSThis Annual Report contains forward-looking statements concerning future strategies of INTAGE. These forward-looking state-ments are not historical facts. They are expectations and projections based on information currently available to the Company andare subject to a number of risks, uncertainties and assumptions. As such, actual results may differ materially from those projected.

March 1960: Marketing Intelligence Corporation established

March 1973: Head office building completed (current Head Office)

1981: POS data serviceproject launched

April 2001: Company name changed to INTAGE Inc.November 2001: Shares listed on JASDAQ

November 2005: INTAGE Akihabara Building opened

Marketing Research and Consulting Global Operations System Solutions Medical Solutions

Internet-based research launched

60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

SDI launched

SCI launched

SLI launched

Company name changed to ASKLEP Inc.

Shanghai Office opened

INTAGE Marketing Consulting (Shanghai) Co., Ltd. established

INTAGE INTERACTIVE Inc. established �� ▲▲

Custom research launched

SCI scanning system introduced

CRO business launched

IBRD JAPAN CORPORATION becomes a subsidiary through acquisition

Integrated SRI launchedSRI launched

System Solutions business launched

➔ HISTORY

CONTENTS01 Consolidated Financial Highlights

02 To Our Shareholders and Investors

05 Feature

06 Summary of the Seventh Medium-TermBusiness Plan

08 Eighth Medium-Term Business Plan

10 Pursuit of the Intelligence Provider Businessby Means of a New Business Structure

12 Priority Investment Areas

14 Review of Operations

16 Corporate Governance

17 Board of Directors and Corporate Auditors

18 Financial Section

18 Management’s Discussion and Analysis

20 Consolidated Balance Sheets

22 Consolidated Statements of Income

23 Consolidated Statements ofShareholders’ Equity

24 Consolidated Statements of Cash flows

25 Notes to Consolidated FinancialStatements

33 Independent Auditors’ Report

34 Corporate Information

➔

01INTAGE Inc. Annual Report 2005

CONSOLIDATED FINANCIAL HIGHLIGHTSINTAGE Inc. and Consolidated SubsidiariesYears ended March 31, 2005, 2004 and 2003

Thousands ofMillions of yen U.S. dollars

2005 2004 2003 2005

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥26,619 ¥23,899 ¥23,494 $248,034

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,186 1,708 1,821 20,369

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,770 1,267 1,385 16,493

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 997 666 721 9,290

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,365 15,191 14,638 161,806

Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,238 5,367 4,835 58,125

Yen U.S. dollars

Amounts per share of common stock:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 94.13 ¥ 63.33 ¥ 68.39 $ 0.88

Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.00 12.00 12.00 0.13

Note: U.S. dollar amounts have been translated, for convenience only, at the rate of ¥107.32 to US$1 prevailing on March 31, 2005.

Net Sales (Millions of yen)

01/3

02/3

03/3

04/3

05/3

23,494

23,352

22,786

26,619

23,899

Operating Income (Millions of yen)

01/3

02/3

03/3

04/3

05/3

1,821

1,581

1,284

2,186

1,708

Net Income (Millions of yen)

01/3

02/3

03/3

04/3

05/3

721

408

401

997

666

Amounts per Share of Common Stock (Yen)

01/3

02/3

03/3

04/3

05/3

68.3

42.2

214.7

94.1

63.3

➔

INTAGE Inc. Annual Report 200502

TO OUR SHAREHOLDERS AND INVESTORS

IN APRIL 2005, INTAGE LAUNCHED ITS EIGHTH MEDIUM-TERM BUSINESS PLAN,

SETTING FORTH A BASIC OBJECTIVE OF REALIZING THE INTELLIGENCE PROVIDER BUSINESS

BY MEANS OF CONCERTED ACTION AS “TEAM INTAGE.”

ACHIEVEMENT OF RECORD HIGH EARNINGS IN THE YEAR ENDED MARCH 31, 2005

The INTAGE Group is a unique corporate group that operates in three business sectors: Marketing Research

and Consulting, System Solutions, and Medical Solutions. Our corporate mission is to integrate these busi-

nesses around the common axis of intelligence and serve as an intelligence provider that renders compre-

hensive support for clients’ marketing and other business activities.

Market conditions in the year under review, the fiscal year ended March 31, 2005, developed favorably for

each of our businesses. According to Ministry of Economy, Trade and Industry statistics, sales in the informa-

tion services industry exceeded prior-year levels for most months of the fiscal year. Expansion of Internet

research fueled strong growth in the marketing research industry. Also, against a backdrop of robust new

drug development demand from pharmaceutical companies, expansion continued in the contract research

organization (CRO) market, which is the central focus of INTAGE’s activities in the medical sector.

In this business environment, in the year under review, INTAGE put forward a basic policy of maximizing

client value in every business process and set ourselves priority tasks, including increasing the product

appeal of our mainstay panel research services, securing growth potential for the custom research busi-

ness, and pursuing a new business by means of the development of personal eye (an individual consumer

panel survey).

As a result of these activities, INTAGE achieved record high revenues and earnings in the fiscal year

ended March 31, 2005, posting consolidated net sales of ¥26,619 million (an increase of 11.4% year on

year), operating income of ¥2,186 million (an increase of 28.0%), ordinary income of ¥2,165 million (an

increase of 31.1%), and net income of ¥997 million (an increase of 49.8%).

According to figures published by the American Marketing Association, the INTAGE Group ranks first in

Japan and twelfth worldwide in sales among marketing research firms.

Norio TaoriPresident andRepresentative Director


SUMMARY OF THE SEVENTH MEDIUM-TERM BUSINESS PLAN

The fiscal year ended March 31, 2005 was the final year of the Seventh Medium-Term Business Plan, which

INTAGE formulated and implemented with the aim of “Evolving into an intelligence provider.” Although,

as I mentioned previously, we achieved record high revenues and earnings during the year, we were un-

able to reach the numerical targets set at the time the business plan was formulated. The principal reasons

for the shortfall against the targets included a review of the expansion strategy for the System Solutions

business and the discontinuation of the SSJ project which was launched to make inroads with the media

strategy, a project that did not produce the expected results.

These setbacks notwithstanding, we delivered the following results with respect to the high-priority

tasks in the Seventh Medium-Term Business Plan.

1. FORMATION OF THE ESSENCE OF AN INTELLIGENCE PROVIDER

For INTAGE, a company that operates in unique business domains, the development of services that com-

bine research and systems is a means of creating new markets. We are already involved in the provision of

high-value-added integrated solutions in the areas of Customer Relationship Management (CRM), Supply

Chain Management (SCM), and Sales Force Automation (SFA) and are confident that the groundwork to

support future growth has been laid.

2. ACTIVE INVESTMENT IN NEW BUSINESSES

INTAGE has actively invested in growth sectors. With regard to investment in Group companies, in March

2002, we established the subsidiary INTAGE Marketing Consulting (Shanghai) Co., Ltd. in China. In October

2002 we established INTAGE Interactive Inc., a joint venture with Yahoo Japan Corporation, and in April 2003,

we integrated the INTAGE CRO operation with subsidiary IBRD JAPAN CORPORATION, which changed its

name to ASKLEP Inc. Even as we have invested heavily in growth from existing businesses, notably the renewal

of mainstay panel services SCI (a nationwide consumer household syndicated panel survey) and SRI (a nation-

wide retailer panel survey), we have released personal eye, a new panel survey of individual consumers.

3. INCREASE IN COST COMPETITIVENESS

INTAGE has rigorously engaged in Group-level management, practiced outsourcing and business special-

ization, and put in place an enhanced performance-based personnel system.

4. ESTABLISHMENT OF COMPETITIVE ADVANTAGE BY MEANS OF MANAGEMENT SYSTEMS

INTAGE has actively and successfully pursued ISO certification and introduction of the Information Security

Management System (ISMS) and other management systems.

I am confident that engaging in the high-priority tasks described above has produced results that will

open the way to future growth. In the Eighth Medium-Term Business Plan we intend to build on the

groundwork that has been laid to ensure further growth and profitability.


BASIC POLICIES IN THE EIGHTH MEDIUM-TERM BUSINESS PLAN

Our objective for the Eighth Medium-Term Business Plan, which starts in the fiscal year ending March 31,

2006, is to provide clients with new high-value-added solutions that take full advantage of the manage-

ment resources of the INTAGE Group under the banner “Team INTAGE.”

To fully realize the Intelligence Provider Business, INTAGE’s unique business model, in April 2005, we

dissolved the business unit structure in place since INTAGE was first established and introduced an organi-

zation consisting of functionally specialized divisions — the Marketing Division, Solutions Division, and

Technology Division — and corporate administrative departments. The purpose of the new organizational

structure is to support the organizational fusion of research and systems and to bolster integrated solu-

tions proposal capabilities that leverage the strengths of the INTAGE Group.

In November 2005, the INTAGE Group will open new corporate offices in the Akihabara district of Tokyo

to accommodate the new organizational structure. Relocating the base of operations to central Tokyo will

support an integrated sales effort and the provision of total solutions by reducing physical distance to and

from clients. Another objective for the relocation is to engage in workstyle innovation and increase the

productivity of intellectual labor by taking full advantage of information technology. We also seek to

enhance INTAGE’s name recognition and build the corporate brand, and to that end have acquired the

naming rights to the office building.

SETTING OUR SIGHTS ON FURTHER DRAMATIC GROWTH

The strengths of the INTAGE Group are high-quality data obtained from research, large-scale, excellent

research systems for data tabulation and analysis, the operation of the System Solutions business, and

specialized expertise in the medical sector. The core competence that supports these businesses is research

data and business data evaluation, analysis, and handling capabilities. INTAGE aims to contribute to

clients’ business success through the design of appropriate information gathering, the provision of

actionable insights found beyond research, and the construction of a framework for the effective utili-

zation of this information.

In recent years the rapid spread of broadband has ushered in an era in which anyone can easily access

the Internet. The INTAGE Group will invest in the development of infrastructure for research using the

Internet to effectively exploit this tremendous business opportunity and will nurture Internet research into

a new driver of growth for the Group.

The future to which the INTAGE Group aspires holds in store many numerous business opportunities. I

invite you to look forward with high expectations to the continued efforts of “Team INTAGE” to create the

Intelligence Provider Business.

Norio Taori

President and Representative Director


➔

THE INTAGE GROUP HAS LAUNCHED THE EIGHTH MEDIUM-TERM BUSINESS PLAN

TO AGGRESSIVELY BUILD ON THE GROUNDWORK LAID WITH THE SEVENTH MEDIUM-TERM

BUSINESS PLAN. IN IMPLEMENTING THE NEW BUSINESS PLAN, INTAGE WILL SPEED UP

THE PACE OF ITS EVOLUTION ON THE BASIS OF A NEW GROWTH SCENARIO.

FEATURE


➔

KEY POINTS IN THE SEVENTH MEDIUM-TERM BUSINESS PLAN

FEATURE: Summary of the Seventh Medium-term Business Plan

ALTHOUGH INTAGE WAS UNABLE TO ACHIEVE THE INITIAL NUMERICAL TARGETS SET FORTH IN

THE SEVENTH MEDIUM-TERM BUSINESS PLAN, WE ARE CONFIDENT THAT WE MADE GREAT

PROGRESS TOWARD ACHIEVING OUR OBJECTIVE OF EVOLVING INTO AN INTELLIGENCE PROVIDER.

HIGH-PRIORITY TASKS AND THEIR ACHIEVEMENT

INTAGE established two basic policies in the Seventh Medium-Term Business Plan,

which covered the three-year period ending with the fiscal year ended March

31, 2005:

➔ Evolving into an intelligence provider.➔ Realizing growth and profitability appropriate

to a listed company.We established as targets for the final year of the plan annual sales growth of 5%

or higher and a ratio of operating income to sales of 10% or higher. Four high-

priority tasks were set forth in the plan.

1. FORMATION OF THE ESSENCE OF ANINTELLIGENCE PROVIDER

As a result of focused efforts to leverage the INTAGE

Group’s unique strengths to open up new business

sectors that combine marketing research and system

solution, we were able to achieve many successes in

the areas of Customer Relationship Management

(CRM), Supply Chain Management (SCM), and Sales

Force Automation (SFA) during the term of the Seventh

Medium-Term Business Plan. The objective for the

Eighth Medium-Term Business Plan is to build on the

successes and further develop these business fields.

2. ACTIVE INVESTMENT IN NEW BUSINESSESINTAGE stepped up its Group development strategy by

investing in growth markets, establishing the Group’s

first overseas subsidiary INTAGE Marketing Consulting

(Shanghai) Co., Ltd., establishing INTAGE Interactive Inc.

in a joint venture with Yahoo Japan Corporation, and

integrating the INTAGE CRO operation with a subsid-

iary, which changed its name to ASKLEP Inc.

We actively invested in further growth from exist-

ing businesses by renewing the SRI and SCI panel research

services. In addition, to open up new demand for panel

research services, in January 2005 INTAGE released per-

sonal eye, a new panel survey of individual consumers.

In December 2004, due to unfavorable prospects for

profitability INTAGE discontinued Single Source Japan

(SSJ), a television commercial effectiveness measure-

ment service provided since January 2003.

3. INCREASE IN COST COMPETITIVENESSINTAGE has rigorously engaged in Group-level manage-

ment, practiced outsourcing and business specialization,

and put in place a performance-based personnel system

as a means of optimizing employment costs.

4. ESTABLISHMENT OF COMPETITIVEADVANTAGE IN MANAGEMENT SYSTEMS

INTAGE has actively pursued ISO certification, the in-

troduction of the Information Security Management

System (ISMS), management information systems, and

put in practice knowledge management. The Eighth

Medium-Term Business Plan includes measures to move

forward with an integrated management system based

on these systems and practices.


Operating Income (100 millions of yen)

17.1

18.2

22.020.1

17.0

28.026.6

21.8

■ Targets (announced May 22, 2002)■ Revised targets (announced May 21, 2003)■ Actual results

03/3

04/3

05/3

SALES AND OPERATING INCOME

PERFORMANCE AND ISSUES BY BUSINESS SEGMENT

Targets for sales and operating income in the business

plan and actual results are as follows.

Owing to a review of the expansion policy for the

System Solutions business, management revised the tar-

gets downward in May 2003. Although for the fiscal

year ended March 31, 2005, the final year of the plan,

net sales exceeded the revised target, operating income

fell short of the target. The expansion of Internet

■ MARKETING RESEARCH AND CONSULTINGSince 1992 INTAGE has continuously worked to trans-

form the Marketing Research and Consulting business

from a marketing research operation to a comprehen-

sive marketing information service operation grounded

in POS system and scanning system support capabili-

ties. During the period covered by the Seventh Medium-

Term Business Plan we reached a certain end point in

this business: that is to say, while INTAGE has achieved

an overwhelming competitive advantage in panel sur-

veys, we are approaching the limits of expansion for

panel services, especially SRI, which has driven the

growth of the INTAGE Group. Accordingly, the Group

recognizes that a new growth driver for the Marketing

Research and Consulting business is necessary.

■ SYSTEM SOLUTIONSAs competition with other system integrators contin-

ues to intensify, during the course of the Seventh

Medium-Term Business Plan we decided to abandon

competition with other companies based on homog-

enized services and price in favor of pursuing a course

of realizing differentiated, high-value-added services.

In keeping with this decision, we have begun to pursue

unique, high-value-added business intelligence services.

Through this effort it became evident that we could

not break down the barriers posed by partial

optimization and the pursuit of short-term profit within

the framework of the previous business unit structure,

and we became keenly aware of the need for large-

scale organizational reform.

■ MEDICAL SOLUTIONSIn April 2003, INTAGE integrated its CRO unit with sub-

sidiary IBRD JAPAN CORPORATION and launched

ASKLEP Inc. In the medical and healthcare sector

INTAGE can provide unique, comprehensive solutions

unavailable from other companies in the industry, such

as medical research that contributes to ethical drug

marketing, and is continuing to grow this business in

line with the scenario set forth in the medium-term

business plan. However, we recognize the need for fur-

ther effort in view of the high growth potential of well-

entrenched major players in the CRO business. Also,

issues remain with respect to the performance of the

SMO business, which we judge will require time to put

on a growth trajectory.

Net Sales (100 millions of yen)

242.2

234.9

260.0249.8

238.9

280.0265.0266.1

■ Targets (announced May 22, 2002)■ Revised targets (announced May 21, 2003)■ Actual results

research was a particularly important contributing fac-

tor to the achievement of the sales target. Operating

income fell short of the revised target owing to the

occurrence of up-front investments for projects includ-

ing personal eye, a new panel research of individual

consumers, (despite results that exceeded the sales

target for custom research.)

03/3

04/3

05/3


➔

IN IMPLEMENTING THE EIGHTH MEDIUM-TERM BUSINESS PLAN, INTAGE AIMS TO SECURE

FURTHER BUSINESS GROWTH BY BUILDING ON THE GROUNDWORK LAID FOR EVOLVING

INTO AN INTELLIGENCE PROVIDER AND ADDRESSING THE PROBLEM AREAS IDENTIFIED

DURING THE COURSE OF THE SEVENTH MEDIUM-TERM BUSINESS PLAN.

FEATURE: Eighth Medium-term Business Plan

BASIC POLICY

➔ Realization of the Intelligence Provider BusinessThrough Concerted Action as “Team INTAGE”— Aspiring to Increase Client Satisfaction as a Business Partner —

Among the businesses INTAGE has pursued over the years, the research and systems

business domains have been developed and expanded by means of organization and

administration grounded in the business unit structure. As society undertakes and

accomplishes remarkable changes, client needs are also greatly changing. To respond

to these changing needs, we will pursue the unique Intelligence Provider business

through concerted group-wide effort as “Team INTAGE” on the basis of a new

organizational structure designed to enhance proposal and solutions capabilities.

Net Sales (100 millions of yen)

349.8

311.5

283.006/3

07/3

08/3

Operating Income (100 millions of yen)

32.5

27.7

23.806/3

07/3

08/3

Numerical Targets (Consolidated)


BASIC STRATEGIES AND SPECIFIC MEASURES

1. PURSUIT OF THE INTELLIGENCE PROVIDERBUSINESS BY MEANS OF A NEW BUSINESSSTRUCTURE

To pave the way for a new growth scenario, in April

2005, INTAGE dissolved the previous business unit

organizational structure centered on the research and

systems business domains and changed to a business

division structure comprising the Marketing Division,

Solutions Division, Technology Division, and corporate

administrative departments. In this way, we will further

integrate research and systems to reliably meet chang-

ing client needs by providing as the INTAGE Group total

solutions grounded in the Intelligence Provider busi-

ness concept.

2. REALIZATION OF A NEW WORKSTYLETHROUGH OFFICE INTEGRATION ANDRELOCATION

Attendant on the transition to the new business struc-

ture, INTAGE will open new business offices to accom-

modate the new structure and provide the optimal office

environment to exhibit business intelligence capabilities.

To reduce physical distance to and from clients, we

selected a location near Akihabara Station (in Chiyoda-

ku, Tokyo). We acquired the naming rights to the build-

ing and named it the INTAGE Akihabara Building.

INTAGE will bring to-

gether in the INTAGE

Akihabara Building the

Marketing Division,

Solutions Division, cor-

porate administrative

departments, ASKLEP

Inc., and INTAGE Inter-

active Inc. and launch on

a full-scale basis an inte-

grated sales effort and

the provision of total

solutions.

3. ACTIVE INVESTMENT IN NEW BUSINESSSECTORS

INTAGE is already deeply involved in many growth sec-

tors, including Internet research, healthcare, inte-

grated solutions, and globalization and business in

China. In the coming years, we will invest even more

actively in these new business sectors to increase

growth potential.

4. RECRUITMENT AND DEVELOPMENT OFPERSONNEL SUITED TO THE INTELLIGENCEPROVIDER BUSINESS

One major near-term issue to be addressed in the pur-

suit of the Intelligence Provider business is the creation

of a framework for recruiting, developing, evaluating,

and retaining personnel to support integrated sales and

total solutions. We believe that combining head office

and marketing activities in the INTAGE Akihabara Build-

ing will be beneficial from the standpoint of personnel

recruitment and plan to take advantage of the opportu-

nity presented by the relocation to introduce programs

to develop and nurture personnel with specialized ex-

pertise in a variety of fields in addition to the research

and systems expertise we have sought to date.

5. FURTHER IMPLEMENTATION OF GROUP-LEVEL MANAGEMENT AND MANAGEMENTREINFORCEMENT

The attainment of future growth for INTAGE will re-

quire putting in place an environment in which each

Group company can grow by bringing to bear its own

strengths and in which we can demonstrate the com-

bined strength of the entire INTAGE Group. Conse-

quently, INTAGE aims to further implement and

reinforce group-level management. By relocating to the

new office building ASKLEP Inc. and INTAGE Interac-

tive Inc., which previously occupied separate offices,

we aim to build closer relationships between the Com-

pany and these affiliates.

Also, attendant on the transformation to the divi-

sion structure, we will review the previous management

approach that emphasized business performance con-

trol and partial optimization based on the previous

business unit structure, move forward with manage-

ment integration, and construct a framework for the

smooth implementation of business strategy.

The INTAGE Akihabara Building


➔ FEATURE: Pursuit of the Intelligence Provider Business by Means of a New Business Structure

BY MEANS OF THE CHANGE TO THE NEW ORGANIZATIONAL STRUCTURE

WE WILL DEMONSTRATE THE COMBINED STRENGTH OF TEAM INTAGE

AND ENGAGE IN THE INTELLIGENCE PROVIDER BUSINESS.

DEVELOPMENTAL DISSOLUTION OF THE BUSINESS UNIT SYSTEMAND IMPLEMENTATION OF ORGANIZATIONAL REFORM

Years ago INTAGE, a company that started out as a spe-

cialized marketing research firm, introduced computers

for the purpose of processing research data and launched

a contract computing and data processing business to

take advantage of those computer resources. Over the

course of more than forty years INTAGE developed the

two businesses, research and systems, by means of a dual

business unit structure: the Marketing Research and

Consulting business involved panel research and custom

research, and the System Solutions business principally

involved the development and operation of clients’ com-

puter systems. However, from the perspective of clients,

the existence of two separate business units and the need

to deal with different sales representatives for research

TAKING ADVANTAGE OF THE TRANSITION TO THE BUSINESS DIVISION STRUCTURETO CREATE UNIQUE BUSINESS DOMAINS

Consequently, in April 2005 INTAGE removed the previ-

ous business unit structure and changed to a new orga-

nizational structure comprising a Marketing Division,

Solutions Division, Technology Division, and corporate

administrative departments. The Marketing Division takes

the client’s perspective and proposes solutions necessary

for the client’s business without preconceptions concern-

ing the products and services offered heretofore. The

Solutions Division realizes the client solutions requested

through the Marketing Division. The Technology Division

and systems was in many ways like dealing with two

different companies.

Also, in the System Solutions business INTAGE has

de-emphasized contract computing services and soft-

ware development, operation, and maintenance ser-

vices — areas in which there are many competitors

and price competition is severe — and shifted to high-

value-added business intelligence services. We have

expanded integrated solutions, business intelligence

services in which we apply analysis expertise devel-

oped in the research business to system solutions. To

create these new solutions it became necessary to tear

down the barrier between research and systems and

realign the organization.

Research needs

Integrated solutions needs

Systems needs

Clients

Unification of the Client Needs Response Interface

optimizes systems that were previously operated by

division, by business process, and by client.

To the INTAGE Group, the transformation to the

division structure is no more than the starting point

for the creation of new businesses. Going forward, we

will seek to realize the unique Intelligence Provider

business model and ensure continuous growth and prof-

its by demonstrating the combined strength of “Team

INTAGE,” even as we respect individual characteristics

and autonomy in each business sector.


BUSINESS MISSION BY DIVISION■ MARKETING DIVISIONThe mission of the Marketing Division with respect to

sales is to stand at the forefront of the INTAGE Group

and contribute to our clients’ business success by en-

gaging in proposal-based selling of solutions available

only from INTAGE. In its internal role, the division is

responsible for the sales objectives of the entire Group

and has the mission of formulating and implementing

business growth scenarios.

We believe that while in the Marketing Research

and Consulting business INTAGE enjoys an extremely

powerful competitive advantage in research techniques

and computer systems, issues remain in the area of

“actionable insights” that lie beyond research. To

address these issues, the division will engage in

proposal-based selling of solutions grounded in the

client’s point of view without being bound by prod-

ucts and services offered heretofore, adding value in

existing businesses and opening up business domains.

■ SOLUTIONS DIVISIONThe mission of the Solutions Division is to make maxi-

mum use of specialized expertise such as research and

systems techniques, data handling techniques, and

research data and business data integration techniques

to realize the solutions clients request through the

Marketing Division. The division also bears responsi-

bility as a profit center for the quality (customer

satisfaction), profitability, and growth potential of

index products.

■ TECHNOLOGY DIVISIONIn the transition to the new organizational structure,

the Technology Division has the mission of taking a

group-wide view in optimizing systems that heretofore

were designed and operated by division, by business

process, or by client, increasing customer satisfaction,

and improving operating efficiency. The establishment

of the Technology Division is a new experiment con-

ducted from the perspective of the “Team INTAGE”

concept, and the division plays an important role in

group-wide risk management.

■ CORPORATE ADMINISTRATIVE DEPARTMENTSINTAGE aspires to maintain strong corporate admin-

istrative departments that contribute to smooth busi-

ness execution in the divisions. Specifically, we will

create a corporate culture by which the corporate

administrative departments proactively identify prob-

lems faced by INTAGE business units, actively involve

themselves in addressing those problems, and contrib-

ute to solutions.

Corporate administrative departments

Marketing DivisionClient creation and acquisition,

solutions proposals

Solutions DivisionIntegration of INTAGE products,

realization of value

Marketing Information Division

Business Intelligence Division

Technology DivisionOverall optimization and standardization,

quality maintenance and low cost

Corporate administrative departments

From a business unit structure to a division structure

Clients

Clients

Transition From a Divisional Organization to a Headquarters Organization


➔ FEATURE: Priority Investment Areas

1. SHIFT TO INTERNET RESEARCH

The highest-priority task with respect to investment in

new business sectors is to drive the shift to Internet

research. According to the Communications Usage

Trend Survey issued by the Ministry of Internal Affairs

and Communications, in 2004, the number of Internet

users in Japan reached 79.48 million, fully 62.3% of the

population. Against the background of this recent in-

crease in the number of Internet users, needs for Inter-

net research that offers the speed and low cost

characteristics of the Internet are rapidly heightening.

Reflecting this trend, Internet research has assumed

greater prominence in the INTAGE Group’s custom re-

search, accounting for about 25% of the total in the

fiscal year ended March 31, 2005. Growth in sales of

Internet research was particularly strong during the

two-year period up to March 2005, when sales more

than doubled each year.

The shift to Internet research is significant to INTAGE

in three ways.

(1) In the custom research sector, not only will INTAGE

convert from conventional research methods such

as door-to-door surveys and mail surveys to online

research, we will also take advantage of the speed

and low cost characteristic of the Internet to enter

newly opened markets in earnest.

(2) INTAGE expects the framework of Internet research

to become a lever for building competitive advan-

tage in customer relationship management, data-

base marketing, and other integrated solutions.

(3) Internet research infrastructure will be an essential

requirement in the medical and financial research

markets, which are expected to show strong growth

in the coming years. Accordingly, INTAGE will ex-

pand its monitor network and build panels of spe-

cialists through business alliances.

2. HEALTHCARE SECTOR

Stable growth is expected in the healthcare sector

(including the medical business) as the aging of society

progresses. The INTAGE Group will provide total solu-

tions in this sector by demonstrating further synergy in

contract research organization (CRO) services, site man-

agement organization (SMO) services, medical market-

ing research, systems for pharmaceutical companies,

and SDI. In addition, we will strengthen our response

to the introduction of IT in the healthcare sector by

providing Rep Track MR (marketing representative)

activities monitoring data based on the enhancement

of Internet-based medical systems infrastructure and

moving forward with support for electronic data cap-

turing (EDC) in post-marketing clinical studies.

INTAGE HAS SET FORTH THE FOLLOWING FIVE PRIORITY

INVESTMENT AREAS IN THE EIGHTH MEDIUM-TERM BUSINESS PLAN.

Internet Research Sales — Three-Year Actual Results andthe Medium-Term Business Plan Forecast (100 millions of yen)

200 40 60

03/3 Actual

04/3 Actual

05/3 Actual

06/3 Forecast

07/3 Forecast

08/3 Forecast


3. CRM, SCM, SFA, DBM AND OTHER INTEGRATED SOLUTIONSDatabase marketing (DBM) is the business sector in

which INTAGE can most effectively apply its unique

characteristics and strengths to link research results to

actual marketing action by providing services that take

full advantage of the Group’s research assets and sys-

tems construction capabilities. Services that combine

research capabilities and systems capabilities in this way

are integrated solutions, and INTAGE will step up the

provision of these services, including customer relation-

ship management (CRM), supply chain management

(SCM), sales force automation (SFA) and DBM.

4. THE LAUNCH OF PERSONAL EYE AND RENEWAL OF CONSUMER PANELSReleased in January 2005, the personal eye panel sur-

vey of individual consumers makes it possible to supple-

ment data on consumption within the home by using a

compact barcode scanner developed by INTAGE to fol-

low purchase behavior at the office, school, and other

locations away from the home. Future plans call for

increasing data accuracy and added value by further

expanding the monitor panel, which currently consists

of about 2,000 monitors in the Greater Tokyo area.

With regard to consumer panel surveys, for which

growth has been notably sluggish, we are considering

a renewal program that will go beyond the conven-

tional concept of providing market surveillance data

with the aim of providing data for the purpose of un-

derstanding consumer behavior.

5. ADVANCEMENT OF GLOBALIZATION AND INTAGE’S BUSINESS IN CHINA

At INTAGE Marketing Consulting (Shanghai) Co., Ltd.,

INTAGE aims to develop its business in China by expand-

ing beyond the current services centered on custom

research to offer panel surveys and Internet research.

Through this and other initiatives, we plan to strengthen

the global network and further advance the globaliza-

tion of the INTAGE Group.

Post-launchLaunchManufacturing/DistributionResearch and Development

Marketing Intelligence● Sales data provision/checking● Performance management● Formulation of sales plans, etc. ● Master management

MR Activity-related Services● Customer targeting (incaster)● Area analysis/strategy formulation (Area Manager)● Integrated MR activity-related services (SFA)

GPSP/GVP Response● Initial post-launch surveys● Subsequent post-launch surveys● Post-launch survey EDC (CapToolA-sol.)● Collection and distribution of safety-related information

Market Analysis/Product Databases● MR activity evaluation tools(Rep Track)

● Diabetes Web panel surveys● OTC sales trend indicators (SDI)● In-store shelf allocation data(INTAGE real POS)

● OTC product databases (OTC-DI,JSM-DB)

Health Promotion● Employee healthpromotion (SukoyakaSupport 21)

SCM● Demand Planning System● Logistics Planning System● Manufacturing plansimulation

● Investigation of potentialdistributors

Planning-related Services● Formulation ofmanufacturing plans

CRO● Monitoring● DM/BS● EDC● Establishment of protocols

SMO● Clinical trials office operation● Clinical Research Coordinator(CRC) placement

● Clinical trials system support

Medical Research● Market surveys● Concept research surveys● Sales projections● Review of promotional tools

The INTAGE Group’s Healthcare Business Strategy

➔


REVIEW OF OPERATIONS

Marketing Research and Consulting is the INTAGE

Group’s core business, accounting for 60% of consoli-

dated net sales. The mainstay products in the Market-

ing Research and Consulting business are panel surveys.

The conduct of continuous panel surveys of respondents

(individuals, households, retailers, and so forth) for

long, fixed periods of time makes it possible to evalu-

ate data captured in time series. INTAGE also provides

custom research, which is conducted on an ad hoc basis

to resolve specific marketing issues.

■ TRENDS IN THE YEAR UNDER REVIEWIn the fiscal year under review, the Company strength-

ened collaboration with consolidated subsidiary INTAGE

Interactive Inc., and sales in the custom research sector,

which includes Internet research, increased sharply. In

results from mainstay panel surveys, sales of SCI, a mature

product, decreased. On the other hand, new client

acquisition led to the second consecutive year-on-year

increase in sales of SRI. With regard to profit, higher prof-

its attendant on the increase in sales of custom research

and SRI brought an increase in operating income even

as investment in personal eye was absorbed. As a result

of these developments, net sales from the Marketing

Research and Consulting segment increased by 12.4%

year on year to ¥15,938 million, and operating income

increased by 14.3% to ¥1,716 million.

■ FUTURE STRATEGIESIn the custom research sector, the Company will fur-

ther strengthen collaboration with INTAGE Interactive

with a view to further business scale expansion. In the

consumer panel survey sector, the Company will nur-

ture newly launched personal eye and bolster the prod-

uct power of SCI, the core consumer panel. In the retail

panel survey sector, the Company will seek to create

new value-added services by enhancing data quality,

for which INTAGE sets the industry standard.

MARKETING RESEARCH AND CONSULTING

Consolidated Net Sales for Market Researchand Consulting (Millions of yen)

14,180

13,195

13,197

15,938

02/3

03/3

04/3

05/3

Contribution toConsolidated Net Sales

60%

00/3 01/3 02/3 03/3 04/3 05/3

SRI Net Sales ¥32.3 ¥35.7 ¥40.3 ¥41.8 ¥48.1 ¥50.4

Syndicated POS Retail Panel Services No. of Clients 138 146 165 165 186 182

SDI Net Sales ¥11.0 ¥11.7 ¥12.1 ¥12.1 ¥12.3 ¥12.7

Syndicated OTC Drug Panel Services No. of Clients 75 78 74 75 69 72

SCI Net Sales ¥30.1 ¥30.9 ¥30.5 ¥30.4 ¥30.2 ¥29.2

Syndicated Consumer Panel Services No. of Clients 135 137 139 147 141 146

SLI Net Sales ¥ 4.6 ¥ 5.1 ¥ 7.3 ¥ 6.5 ¥ 6.4 ¥ 7.0

Syndicated Ladies Panel Services No. of Clients 25 29 38 34 31 32

Custom Research Business*1Net Sales ¥31.4 ¥34.0 ¥45.0

No. of Clients*2 (240) (290) (470)

Notes: 1. “Net Sales” and “No. of clients” for Custom Research Business for the fiscal years ended March 31, 2000, 2001 and 2002are not disclosed.

2. The number of Internet surveys, etc. is approximate because there are duplications with subsidiaries.

(100 millions of yen, company)Sales Comparison of Principal Research Businesses


SYSTEM SOLUTIONS

The System Solutions business accounts for 28% of the

INTAGE Group’s consolidated net sales. In this segment,

INTAGE applies leading-edge information technology

and marketing expertise in a new business model for

providing business solutions involving evaluation, analy-

sis, and consultation concerning the vast amount of data

involved in clients’ business activities.

■ TRENDS IN THE YEAR UNDER REVIEWIn the fiscal year under review, INTAGE increased Sys-

tem Solutions sales by progressing the transition to

high-value-added business intelligence services and

strengthening linkage with the Marketing Research and

Consulting business. A reinforced sales effort also

brought higher sales of existing services, notably large

orders for data center services. Operating income

MEDICAL SOLUTIONS

The Medical Solutions business accounts for 12% of the

INTAGE Group’s consolidated net sales. The mainstay

services in this business are CRO monitoring and data

management and analysis. The INTAGE Group provides

a total CRO solution involving education, systems, and

services related to pharmaceuticals clinical develop-

ment. INTAGE also offers SMO services, including the

contract provision of clinical research coordination and

clinical trials office services.

■ TRENDS IN THE YEAR UNDER REVIEWIn the fiscal year under review, sales from the CRO

operation increased sharply owing to higher sales of

monitoring services and data management and analy-

sis services. Operating income surged due to factors

increased due to the shift to high-value-added busi-

ness intelligence services and the efficient operation

of existing services. As a result, net sales from the Sys-

tem Solutions segment increased by 4.2% year on year

to ¥7,542 million, and operating income increased by

52.6% to ¥212 million.

■ FUTURE STRATEGIESINTAGE will move forward with the transition to high-

value-added business intelligence services. Also, hav-

ing eliminated the business unit structure and adopted

the new organizational structure, the Company will

strengthen the linkage with the Marketing Research

and Consulting business and expand integrated solu-

tions that leverage the combined strength of the

INTAGE Group.

including the increase in CRO sales. On the other hand,

SMO sales fell, and the operating loss from this busi-

ness increased. As a result, net sales from the Medical

Solutions segment increased by 26.4% year on year to

¥3,139 million, and operating income increased by

290.6% to ¥258 million.

■ FUTURE STRATEGIESPositioning consolidated subsidiary ASKLEP Inc. at the

core of the segment strategy, INTAGE will establish a

business structure, optimize business processes, and

seek competitive advantage in the CRO industry as a

total solutions provider in the area of pharmaceuticals

clinical testing services. INTAGE will also seek to estab-

lish a solid business base in SMO services.

Consolidated Net Sales for System Solutions(Millions of yen)

02/3

03/3

04/3

05/3

7,236

8,142

8,497

7,542


28%

Consolidated Net Sales for Medical Solutions(Millions of yen)

02/3

03/3

04/3

05/3

2,483

2,156

1,656

3,139


12%

➔


CORPORATE GOVERNANCE

BASIC POLICY ON CORPORATE GOVERNANCEAs a company supported by numerous stakeholders, INTAGE recog-

nizes that its responsibilities go beyond improving business perfor-

mance and extend to ensuring soundness, fairness, and transparency

in management.

In the belief that proactive information disclosure is necessary to

ensure management transparency, INTAGE has established the Cor-

porate Communications Group within the Corporate Planning

Department and strives to appropriately disclose management infor-

mation. INTAGE works to ensure the timely provision of news releases,

STATE OF IMPLEMENTATION OF CORPORATE GOVERNANCE MEASURES■ DESCRIPTION OF MANAGEMENT ORGANIZATIONThe Company has adopted the statutory auditor system, not the com-

mittee system. To introduce objective opinions about management

in general, the Company has appointed one outside director to the

Board of Directors. The outside director expresses opinions about

management in general at board meetings, and the Board reflects

those opinions in its deliberations and decisions. The Company also

has appointed two outside auditors among its four corporate audi-

tors. The outside auditors, along with the standing auditors, attend

meetings of the Board of Directors, auditing and serving as a check

on business execution by the directors. The outside director and out-

side corporate auditors are not full-time employees of the Company

and have no particular vested interest in the Company.

■ STATE OF DEVELOPMENT OF INTERNAL CONTROL SYSTEMSIn order to ensure rapid decision making, the Company convenes the

Board of Directors at least once monthly and holds management

meetings at least twice monthly. Participants designated by the Presi-

dent and CEO (standing directors, standing corporate auditors, and

key line managers) attend the management meetings and, in accor-

dance with the Company’s Regulations Concerning the Division of

Duties and Authority, deliberate and decide on important manage-

ment and business execution matters and management policies. To

strengthen group-level management, the representative directors of

principal subsidiaries attend the management meetings as observers.

In addition, all standing directors and standing corporate auditors

attend a regular weekly management liaison meeting.

■ STATE OF INTERNAL AUDITS AND STATUTORY AUDITSThe Internal Audit Office, an organization of four full-time employ-

ees responsible for internal audits, reports directly to the President

and CEO. Based on The Company’s management philosophy, man-

agement policies, and regulations, the office conducts as necessary

internal audits from the standpoint of organizational management

and the fairness, accuracy, and effectiveness of the conduct of busi-

ness. On the basis of the Company’s Internal Audit Regulations and

Procedures, the audit procedures involve preparation of an audit plan,

conduct of the audit, reporting on audit results, and confirmation of

post-audit improvement.

The Company’s Board of Auditors comprises two standing corpo-

rate auditors and two outside corporate auditors. In accordance with

the audit policies determined by the Board of Auditors, the corpo-

rate auditors attend meetings of the Board of Directors and other

important meetings to monitor the management decision making

process, express appropriate opinions, ascertain the timely execution

of business, and audit legality.

To improve the effectiveness and efficiency of each other’s audits,

the Internal Audit Office and Board of Auditors engage in mutual

cooperation through such means as holding a monthly audit liaison

meeting to exchange information related to auditing of the INTAGE

Group as a whole.

The Internal Audit Office and Board of Auditors maintain close

cooperation with the independent auditors, exchanging opinions and

information concerning audits.

■ STATE OF DEVELOPMENT OF RISK MANAGEMENT SYSTEMSINTAGE has appointed the board director with responsibility for risk

management as Chief Risk Officer and established the Risk Manage-

ment Committee made up of representatives from Group business units.

The Corporate Affairs Department and Corporate Planning Depart-

ment collaborate and engage in cross-sectional supervision and regu-

lation of risk management and work to strengthen preparedness. The

Company undergoes periodic outside audits of quality management

in accordance with the ISO9001 system, in which it has obtained certi-

fication. The Company applies and operates group-wide a personal

information protection system based on Privacy Mark certification and

has established an organization within the Corporate Affairs Depart-

ment that is proceeding with the construction of an Information Secu-

rity Management System and a risk management system. We have

distributed to employees a compliance handbook that summarizes the

Group’s ethical charter, corporate philosophy, and employee conduct

guidelines and work to ensure compliance. As part of the effort to

ensure that operations adhere to the corporate ethics charter and

employee conduct guidelines, the Company has established a dedi-

cated compliance hotline that connects to the Company’s law firm.

■ OTHER THIRD-PARTY INVOLVEMENT IN CORPORATEGOVERNANCE

The Company engages the services of KPMG Azsa & Company to per-

form financial audits and strives to accurately report financial infor-

mation. Three certified public accountants, eight assistant certified

public accountants, and one other person assist with the Company’s

financial auditing.

The Company contracts with three law firms, including Miyakezaka

Sogo Law Offices, to provide monthly legal consultation and other

suggestions and guidance as necessary.

the holding of business results briefings, and the timely posting of

quarterly, half-year, and full-year financial statements, annual secu-

rities reports, and other investor information on its corporate web-

site. Believing that it is important to provide full and complete

explanations to shareholders, INTAGE avoids the practice of holding

its general meeting of shareholders on the same day as other compa-

nies and holds a shareholder briefing session and shareholder get-

together after the general meeting of shareholders.


➔

DETAILS OF EXECUTIVE COMPENSATIONThe details of executive compensation are as follows.

(Millions of yen)

Standing OutsideStanding Outside corporate corporate

Category directors directors auditors auditors

Compensation based on theArticles of Incorporation and aresolution of the generalmeeting of shareholders

72 3 28 7

Executive bonuses throughdistribution of earnings 12 – – –

Retirement benefits approved bya resolution of the generalmeeting of shareholders

– 0 2 –

Total 84 4 30 7

Note: The above amount does not include ¥96 million of employee salaries(including bonuses) of standing directors who have duties in an em-ployee capacity.

DETAILS OF AUDITOR COMPENSATIONCompensation for services stipulated in Article 2, Paragraph 1 of the

Certified Public Accountant Law was ¥23 million. Compensation for

other work was ¥2 million.

BOARD OF DIRECTORS AND CORPORATE AUDITORS

Front row (from left): Director, Hiroyuki Ichinose; Director, Tsuneo Suzuki; Director and Chairman of the Board,Keiji Tanaka; President and Representative Director, Norio Taori; Executive ManagingDirector, Koshiro Uezumi; Director, Osamu Kudo; Director, Kozaburo Inoue

Back row (from left): Director, Ko Miyazaki; Director, Itaru Nango; Senior Corporate Auditor, Takeshi Kurosu;Corporate Auditor, Akira Shiga; Corporate Auditor, Masaru Takagi; Senior CorporateAuditor, Kiyoji Ito

DIRECTOR AND

CHAIRMAN OF THE BOARD

Keiji Tanaka

PRESIDENT AND

REPRESENTATIVE DIRECTOR

Norio Taori

EXECUTIVE MANAGING

DIRECTOR

Koshiro Uezumi

DIRECTORS

Tsuneo Suzuki

Osamu Kudo

Hiroyuki Ichinose

Itaru Nango

Ko Miyazaki

Kozaburo Inoue

SENIOR CORPORATE AUDITORS

Takeshi Kurosu

Kiyoji Ito

CORPORATE AUDITORS

Akira Shiga

Masaru Takagi

(As of June 24, 2005)

➔


MANAGEMENT’S DISCUSSION AND ANALYSIS

SCOPE OF CONSOLIDATIONThe consolidated financial statements include the accounts of the

Company and its six subsidiaries in 2005 and 2004 which are con-

trolled through substantial ownership of majority voting rights or by

the existence of certain conditions. Consolidated subsidiaries in the

fiscal year under review, the year ended March 31, 2005, were: ASKLEP

Inc., INTAGE NAGANO Inc., INTAGE RESEARCH Inc., INTAGE LINKS,

Inc., INTAGE Marketing Consulting (Shanghai) Co., Ltd. and INTAGE

INTERACTIVE Inc.

OVERVIEW OF OPERATIONSBUSINESS ENVIRONMENTIn economic developments in Japan, the year under review brought

an expansion trend in capital expenditure that reflected solid growth

in corporate profits. Although the slump in personal consumption

continued during the year, the employment situation has gradually

improved and the economy is on a course of gradual recovery.

In this operating environment, the INTAGE Group, guided by its

goal of “Evolving into an intelligence provider,” strove to balance

growth and profitability. INTAGE set forth a basic policy for the year

under review of maximizing client value in every business process

and priority tasks including increasing the product power of main-

stay panel research services, securing growth potential for the cus-

tom research business, and pursuing new businesses through

initiatives such as the development of personal eye (an individual

consumer panel survey).

BUSINESS PERFORMANCENET SALES AND OPERATING INCOMEConsolidated net sales in the fiscal year ended March 31, 2005 in-

creased by 11.4% year on year to ¥26,619 million. Although the cost

of sales increased by 9.4% to ¥19,285 million and selling, general

and administrative (SG&A) expenses increased by 12.8% to ¥5,148

million, operating income rose by 28.0% to ¥2,186 million.

Although the year brought lower sales of SCI (a nationwide con-

sumer household panel survey), a product that has reached maturity,

sales of custom research rose sharply. Large orders for data center

services and higher revenues from CRO services also contributed to

the solid sales performance. The increase in operating income

exceeded the increase in sales owing to the contribution from high-

value-added businesses in addition to the effect of higher revenues.

NET INCOMENet income increased by 49.8% year on year from ¥666 million to

¥997 million, primarily as a result of the increase in operating in-

come. Net income per share rose from ¥63.33 to ¥94.13, and ROE

improved by 4.1 percentage points to 17.2%.

SEGMENT INFORMATIONINTAGE’s operations comprise the following three business segments.

Marketing Research and Consulting — Segment sales increased by

12.4% to ¥15,938 million, and operating income rose by 14.3% to

¥1,716 million. This segment accounted for 59.9% of consolidated

net sales, an increase of 0.6 percentage points from the previous year,

and 78.5% of consolidated operating income.

System Solutions — Segment sales increased by 4.2% to ¥7,542

million, and operating income rose by 52.6% to ¥212 million. This

segment accounted for 28.3% of consolidated net sales, a decrease

of 2.0 percentage points from the previous year, and 9.7% of con-

solidated operating income.

Medical Solutions — Segment sales increased by 26.4% to ¥3,139

million, and operating income rose by 290.6% to ¥258 million. This

segment accounted for 11.8% of consolidated net sales, an increase

of 1.4 percentage points from the previous year, and 11.8% of con-

solidated operating income.

FINANCIAL POSITIONTotal assets at the fiscal year-end were ¥17,365 million (current assets

of ¥10,643 million and fixed assets of ¥6,722 million), an increase of

¥2,174 million year on year. The principal reasons for the increase were

higher trade notes and accounts receivable and an increase in build-

ings and structures due to the acquisition of data center facilities.

Total liabilities were ¥11,020 million (current liabilities of ¥7,607

million and fixed liabilities of ¥3,413 million), an increase of ¥1,251

million from the previous year. The principal reasons for the increase

were higher short-term bank loans and long-term bank loans. In

financing, the Company concluded a syndicated commitment line con-

tract in the amount of ¥5,000 million with the objective of stably and

flexibly procuring the capital necessary for business activities.

Shareholders’ equity at the fiscal year-end was ¥6,238 million, an

increase of ¥871 million from the previous year. The principal reason

for the change was an increase in retained earnings due to the

recording of a net profit. The shareholders’ equity ratio increased by

0.6 percentage points to 35.9%.

CASH FLOWSCash and cash equivalents at March 31, 2005 were ¥2,595 million, an

increase of ¥246 million from the previous fiscal year-end.

Net cash provided by operating activities was ¥1,230 million, an

increase of ¥262 million from the previous year. The increase is pri-

marily attributable to higher income before income taxes, trade

accounts payable, and depreciation, which more than offset higher

trade notes and accounts receivable attendant on the increase in sales

and a decrease in employees’ retirement benefits.

Net cash used in investing activities was ¥1,652 million, an increase

of ¥1,275 million from the previous year. The increase is attributable

to higher payments for purchases of property and equipment due to

the acquisition of data center facilities, payments for purchases of

intangible assets due to software development, and payments for

time deposits.

Net cash provided by financing activities was ¥668 million, an

increase of ¥571 million from the previous year. The increase is mainly

attributable to an increase in proceeds from short-term bank loans

and in proceeds from long-term bank loans for the purpose of

appropriation as funds for the acquisition of facilities, which more

than offset higher repayments of long-term bank loans.

FINANCIAL SECTION


OPERATIONAL RISKSThe Company faces the following operational risks that could have a

significant impact on the decisions of investors. Forward-looking state-

ments in this section are based on the assumptions and beliefs of the

management of INTAGE Group as of March 31, 2005.

(1) INFORMATION MANAGEMENTOwing to the nature of the business of the information services

industry in which the INTAGE Group operates, companies handle large

volumes of diverse information relating to companies and individuals.

Although the Personal Information Protection Law went into effect

in April 2005, the INTAGE Group has long exercised adequate care in

information management, including application of the Privacy Mark

personal information protection system and the ongoing construc-

tion of an Information Security Management System (ISMS). Never-

theless, the unauthorized disclosure of such information would result

in the loss of public trust in the INTAGE Group and could adversely

affect the Company’s business performance.

(2) DISPROPORTIONATE DEPENDENCE ON SECOND-HALFPERFORMANCE

The business performance of the INTAGE Group is disproportionately

weighted toward the second half of the fiscal year. This imbalance is

attributable to three main factors: in the Marketing Research and

Consulting business, research required by corporations for the prepa-

ration of the following year’s marketing plans is concentrated to-

ward the end of the fiscal year; completion and delivery periods for

reports commissioned by governmental agencies are concentrated

toward the end of the fiscal year; and in the System Solutions busi-

ness, a high proportion of systems development contracts stipulate

delivery at the fiscal year-end. Consequently, the slippage of fiscal

year-end sales into the following fiscal year could adversely affect

the Company’s business performance.

(3) INVESTMENT IN NEW PRODUCTSThe INTAGE Group aggressively makes up-front investments in new

products necessary to tap potential demand from clients and secure

growth. However, it is difficult to accurately forecast results and prof-

its commensurate with those up-front investments, and demand

might fail to develop in line with forecasts. For this reason, the

inability to achieve results and profits commensurate with invest-

ment within a certain period of time could adversely affect the

Company’s business performance.

(4) BUSINESS RISK1. In the INTAGE Group’s mainstay Marketing Research and Consult-

ing operation, the panel surveys that heretofore have supported

growth and profits are approaching the limits of market share

potential. Although the Company is introducing new products to

secure further growth potential, it is possible that the market will

not expand as anticipated and that new products might cannibal-

ize existing products, and this could adversely affect the Company’s

business performance.

The Company is investing to achieve further growth in custom

research, with an emphasis on Internet research. However, should

demand expansion for Internet research reach only the point of

conversion from conventional research methods or should INTAGE

be unsuccessful in competition with competitors, this could

adversely affect the Company’s business performance.

2. In the System Solutions operation, the integrated solutions busi-

ness involving the integration of research and solutions is gradu-

ally delivering results, and INTAGE plans to greatly expand this

business. However, should this effort not meet with client under-

standing and support and this strategic concept fail to develop as

expected, inability to establish the INTAGE Group’s position in the

systems industry could adversely affect the Company’s business

performance.

3. The Medical Solutions operation is at times greatly affected by

trends in the pharmaceuticals industry. Should the market con-

tract as a result of factors such as a reduction in the number of

customers due to mergers between pharmaceutical companies or

a decrease in new drug development of clinical testing in Japan,

this could adversely affect the Company’s business performance.

Also, as this is a business that could be affected by regulations

such as the Pharmaceutical Affairs Law, regulatory trends could

adversely affect the Group’s business performance.

(5) OFFICE INTEGRATION AND RELOCATIONThe INTAGE Group has decided to open new offices in the Akihabara

district of Tokyo in November 2005 for the purpose of realizing an

office environment to support future growth and activating commu-

nications by reducing physical distance from clients. Although the

Group expects to maintain the trend of higher revenue and earnings

and to be able to absorb the expenses associated with opening the

new offices, should business performance turn sluggish and the Group

fail to absorb the cost of opening the offices, this could adversely

affect the Company’s business performance.

Should the relocation or related circumstances cause disruption

of internal controls and give rise to an incident that reduces cus-

tomer satisfaction, this could adversely affect the Company’s busi-

ness performance.

(6) PERSONNEL RECRUITMENTAs the INTAGE Group engages in many highly specialized business

processes, the recruitment and development of personnel is an

important matter. Should personnel development fail to progress sat-

isfactorily, human resource capabilities will gradually deteriorate, and

this could adversely affect the Company’s business performance.

(7) STATUS OF CHINAThe INTAGE Group carries out market surveys in China through

INTAGE Marketing Consulting (Shanghai) Co., Ltd., a local consoli-

dated subsidiary.

At present, there has been no drop in demand for market surveys

in response to anti-Japan sentiment. Looking ahead, however, if anti-

Japan sentiment increases and hinders the business operations of

INTAGE Marketing Consulting (Shanghai) Co., Ltd., this may impact

adversely on the business results of the INTAGE Group.

➔


Thousands ofU.S. dollars

Millions of yen (Note 1)

Assets 2005 2004 2005

Current assets:

Cash and deposits (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,927 ¥ 2,375 $ 27,274

Notes and accounts receivable — trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,440 4,707 50,689

Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (3) (28)

Inventories (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,465 1,400 13,651

Deferred tax assets (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613 558 5,712

Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 216 1,873

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,643 9,253 99,171

Property and equipment:

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,108 2,108 19,642

Buildings and structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,081 3,673 38,027

Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431 379 4,016

Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 42 475

Total property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,671 6,202 62,160

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,714) (2,689) (25,289)

Net property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,957 3,513 36,871

Investments and other assets:

Investments in securities (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 119 1,603

Deferred tax assets (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,231 1,170 11,470

Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453 518 4,221

Consolidation difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 66 149

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 896 558 8,349

Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (6) (28)

Total investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,765 2,425 25,764

¥17,365 ¥15,191 $161,806

See accompanying notes.

CONSOLIDATED BALANCE SHEETSINTAGE Inc.As of March 31, 2005 and 2004




Liabilities and shareholders’ equity 2005 2004 2005

Current liabilities:

Short-term bank loans (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,671 ¥ 2,264 $ 24,888

Long-term debt due within one year (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 722 200 6,728

Accounts payable — trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,482 1,187 13,809

Accrued income taxes (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 572 420 5,330

Accrued employees’ bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,122 1,064 10,455

Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,038 909 9,672

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,607 6,044 70,882

Long-term debt (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360 500 3,354

Retirement benefits:

Employees (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,990 3,159 27,861

Directors and corporate statutory auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 66 587

Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 55 997

Shareholders’ equity (Note 10):

Common stock Authorized — 37,000,000 shares

Issued — 10,330,000 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,681 1,681 15,663

Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,126 1,126 10,492

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,424 2,563 31,905

Net unrealized holding gains on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 13 233

Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) (9) (103)

Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) (7) (65)

Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,238 5,367 58,125

¥17,365 ¥15,191 $161,806

➔




2005 2004 2005

Net sales (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥26,619 ¥23,899 $248,034

Cost of sales (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,285 17,626 179,696

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,334 6,273 68,338

Selling, general and administrative expenses (Notes 11 and 12) . . . . . . . . . . . . . . 5,148 4,565 47,969

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,186 1,708 20,369

Other income (expenses):

Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4 56

Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25) (29) (233)

Commission fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14) (16) (130)

Gain on sales of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 23 –

Loss on disposal of property and equipment, and other assets . . . . . . . . . . . . . . (24) (39) (224)

Amortization of net transition obligation of retirement benefits (Note 8) . . . . . (394) (394) (3,671)

Loss on sales of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (13) –

Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 23 326

(416) (441) (3,876)

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,770 1,267 16,493

Income taxes (Note 9):

Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845 898 7,874

Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (123) (325) (1,146)

722 573 6,728

Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 28 475

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 997 ¥ 666 $ 9,290

U.S. dollarsYen (Note 1)

2005 2004 2005

Amounts per share of common stock:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 94.13 ¥ 63.33 $ 0.88

Cash dividends applicable to the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.00 12.00 0.13


CONSOLIDATED STATEMENTS OF INCOMEINTAGE Inc.Years ended March 31, 2005 and 2004


➔ CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYINTAGE Inc.Years ended March 31, 2005 and 2004

Millions of yen

Net ForeignNumber of unrealized currency

shares Common Capital Retained holding gains translation Treasuryissued stock surplus earnings on securities adjustments stock

Balance at March 31, 2003 . . . . . . . 10,330,000 ¥ 1,681 ¥ 1,126 ¥ 2,036 ¥ 2 ¥ (3) ¥ (7)

Net income . . . . . . . . . . . . . . . . . . – – – 666 – – –

Adjustments from translation

of foreign currency financial

statements . . . . . . . . . . . . . . . . . – – – – – (6) –

Increase in unrealized holding

gains on securities,

net of income taxes . . . . . . . . . . – – – – 11 – –

Cash dividends paid

(¥12 per share) . . . . . . . . . . . . . . – – – (124) – – –

Bonuses to directors . . . . . . . . . . . – – – (15) – – –

Balance at March 31, 2004 . . . . . . . 10,330,000 1,681 1,126 2,563 13 (9) (7)

Net income . . . . . . . . . . . . . . . . . . – – – 997 – – –

Adjustments from translation of

foreign currency financial

statements . . . . . . . . . . . . . . . . . – – – – – (2) –

Increase in unrealized holding

gains on securities,

net of income taxes . . . . . . . . . . – – – – 12 – –

Cash dividends paid

(¥12 per share) . . . . . . . . . . . . . . – – – (124) – – –

Bonuses to directors . . . . . . . . . . . – – – (12) – – –

Balance at March 31, 2005 . . . . . . . 10,330,000 ¥ 1,681 ¥ 1,126 ¥ 3,424 ¥ 25 ¥ (11) ¥ (7)

Thousands of U.S. dollars (Note 1)

Net Foreignunrealized currency

Common Capital Retained holding gains translation Treasurystock surplus earnings on securities adjustments stock

Balance at March 31, 2004 . . . . . . . . . . . . . . . . . . $15,663 $10,492 $23,882 $121 $ (84) $(65)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 9,290 – – –

Adjustments from translation of foreign

currency financial statements . . . . . . . . . . . . . – – – – (19) –

Increase in unrealized holding gains

on securities, net of income taxes . . . . . . . . . . – – – 112 – –

Cash dividends paid ($0.11 per share) . . . . . . . – – (1,155) – – –

Bonuses to directors . . . . . . . . . . . . . . . . . . . . . . – – (112) – – –

Balance at March 31, 2005 . . . . . . . . . . . . . . . . . . $15,663 $10,492 $31,905 $233 $(103) $(65)


➔


CONSOLIDATED STATEMENTS OF CASH FLOWSINTAGE Inc.Years ended March 31, 2005 and 2004



2005 2004 2005

Cash flows from operating activities:Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,770 ¥ 1,267 $ 16,493Adjustments to reconcile income before income taxesto net cash provided by operating activities:Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 506 342 4,715Amortization of consolidation difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 49 456Increase (decrease) in employees’ retirement benefits . . . . . . . . . . . . . . . . . . . (169) 159 (1,575)Increase (decrease) in directors’ and statutory auditors’ retirement benefits . . (3) 2 (28)Increase in accrued employees’ bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 12 540Increase (decrease) in allowance for doubtful accounts . . . . . . . . . . . . . . . . . . (1) 7 (9)Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) (4) (56)Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 29 233Loss on disposal of property and equipment, and other assets . . . . . . . . . . . . 24 39 224Gain on sales of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (23) –Loss on sales of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 13 –Decrease (increase) in notes and accounts receivable — trade . . . . . . . . . . . . . (529) 513 (4,929)Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (82) (103) (764)Increase (decrease) in accounts payable — trade . . . . . . . . . . . . . . . . . . . . . . . . 294 (350) 2,739Increase (decrease) in accrued consumption taxes payable . . . . . . . . . . . . . . . . (23) 10 (214)Bonuses to directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12) (15) (112)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 35 652

Sub total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,971 1,982 18,365Interest and dividend received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5 56Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23) (24) (214)Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (724) (995) (6,746)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,230 968 11,461Cash flows from investing activities:

Payments for time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (359) (29) (3,345)Proceeds from time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 42 503Payments for purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . (688) (136) (6,411)Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . – 100 –Payments for purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . (34) (2) (317)Payments for loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (1) (19)Collection of loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 28Payments for purchases of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (460) (338) (4,286)Payments for security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (171) (24) (1,593)Refund of security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 7 112Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7) (1) (65)

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,652) (377) (15,393)Cash flows from financing activities:

Proceeds from short-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,794 6,482 63,306Repayments of short-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,387) (6,173) (59,514)Proceeds from long-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 680 – 6,336Repayments of long-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (298) (88) (2,777)Payments of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (121) (124) (1,127)

Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668 97 6,224Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . 0 (6) 0

Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 682 2,292Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,349 1,667 21,888

Cash and cash equivalents at end of year (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,595 ¥ 2,349 $ 24,180



➔ NOTES TO CONSOLIDATED FINANCIAL STATEMENTSINTAGE Inc.At March 31, 2005 and 2004

01 Basis of Presenting Consolidated Financial Statements

The accompanying consolidated financial statements have been pre-pared in accordance with the provisions set forth in the JapaneseSecurities and Exchange Law and its related accounting regulations,and in conformity with accounting principles generally accepted inJapan (“Japanese GAAP”), which are different in certain respects as toapplication and disclosure requirements of International FinancialReporting Standards.

The accounts of an overseas subsidiary are based on the accountingrecords maintained in conformity with generally accepted accountingprinciples prevailing in the country of domicile. The accompanying con-solidated financial statements have been restructured and translatedinto English (with some expanded descriptions and the inclusion ofconsolidated statements of shareholders’ equity) from the consolidatedfinancial statements of the Company prepared in accordance with

Japanese GAAP and filed with the appropriate Local Finance Bureauof the Ministry of Finance as required by the Securities and ExchangeLaw. Some supplementary information included in the statutoryJapanese language consolidated financial statements, but not requiredfor fair presentation, is not presented in the accompanying consoli-dated financial statements.

The translation of the Japanese yen amounts into U.S. dollars areincluded solely for the convenience of readers outside Japan, usingthe prevailing exchange rate at March 31, 2005, which was ¥107.32 toU.S.$1. The convenience translations should not be construed as rep-resentations that the Japanese yen amounts have been, could havebeen, or could in the future be, converted into U.S. dollars at this orany other rate of exchange.

02 Summary of Significant Accounting Policies

(1) ConsolidationThe consolidated financial statements include the accounts of INTAGEInc. (the “Company”) and its six subsidiaries in 2005 and 2004 whichare controlled through substantial ownership of majority voting rightsor the existence of certain conditions. All significant intercompanybalances and transactions have been eliminated.

In the elimination of investments in subsidiaries, the assets andliabilities of the subsidiaries, including the portion attributable tominority shareholders, are valued using the fair value at the time theCompany acquired control of the respective subsidiaries.

The excess of the cost over underlying net equity of investments inconsolidated subsidiaries at the date of acquisition (consolidation dif-ference) is deferred and amortized on a straight-line basis over a periodof five years from the date of acquisition. However, when it is notsignificant, it is charged to income as incurred.

(2) Cash and cash equivalentsIn preparing the consolidated statements of cash flows, cash on hand,readily-available deposits and short-term highly liquid investments withmaturity of not exceeding three months at the time of purchase areconsidered to be cash and cash equivalents.

(3) SecuritiesThe Company and its consolidated subsidiaries (the “Companies”) hadno trading securities or held-to-maturity bonds. Available-for-salesecurities with available fair market value are stated at fair marketvalue. Unrealized holding gains and losses on these securities arereported, net of applicable income taxes, as a separate component ofthe shareholders’ equity. Realized gains and losses on sale of suchsecurities are computed using the moving-average cost. Available-for-sale securities with no available fair market value are stated at cost bythe moving-average method.

If the market value of available-for-sale securities declines signifi-cantly, such securities are stated at fair market value and the differ-ence between the fair market value and the carrying amount isrecognized as loss in the period of the decline and reported in theconsolidated statements of income.

(4) Derivatives and hedge accountingThe Company states derivative financial instruments at fair value, andrecognizes changes in the fair value as gains or losses unless derivativefinancial instruments are used for hedging purposes.

If derivative financial instruments are used as hedges and meet certainhedging criteria, the Company defers recognition of gains or losses re-sulting from changes in fair value of derivative financial instruments untilthe corresponding losses or gains on the hedged items are recognized.

However, in cases where foreign exchange option contracts are usedas hedges and meet certain hedging criteria, foreign exchange optioncontracts and hedged items are accounted for in the following manner:

1. If a foreign exchange option contract is executed to hedge an exist-ing foreign currency payable,

(a) the difference, if any, between the Japanese yen amount of thehedged foreign currency payable translated using the spot rateat the inception date of the contract and the book value of thecontract and the book value of the payable is recognized in theconsolidated statements of income in the period which includesthe inception date, and

(b) the discount or premium on the contract (that is, the differencebetween the Japanese yen amount of the contract translatedusing the contracted forward rate and that translated using thespot rate at the inception date of the contract) is recognizedover the term of the contract.

2. If a foreign exchange option contract is executed to hedge a futuretransaction denominated in a foreign currency, the future transac-tion will be recorded using the contracted forward rate, and no gainsor losses on the foreign exchange option contract are recognized.

(5) InventoriesWork in process held by the Companies is stated at cost determined bythe specific identification method.


(6) Property and equipment, and depreciationProperty and equipment are stated at cost. The Company and its con-solidated domestic subsidiaries compute depreciation of property andequipment, except for buildings acquired after March 31, 1998 whichare depreciated by the straight-line method, using the declining-balance method at rates based on the useful lives prescribed by theJapanese tax regulations. The overseas consolidated subsidiary usesthe straight-line method over the estimated useful lives.

(7) SoftwareSoftware is amortized using the straight-line method over the esti-mated useful lives (3 years).

(8) Allowance for doubtful accountsAllowance for doubtful accounts is provided at an amount consideredto be sufficient to cover possible losses. Uncollectible amounts are cal-culated by estimating amounts for certain identified accounts andapplying a percentage based on the rate of actual losses in the past.

(9) Accrued employees’ bonusesAccrued employees’ bonuses are provided based on the estimate ofthe amounts to be paid in the future by the Company and its consoli-dated domestic subsidiaries.

(10) Employees’ retirement benefitsThe Company and its consolidated domestic subsidiaries provide twotypes of post-employment benefit plans, unfunded lump-sum paymentplans and funded non-contributory pension plans, under which all eli-gible employees are entitled to benefits based on the level of wagesand salaries at the time of retirement or termination, length of serviceand certain other factors. In addition, the Company pays additionalretirement benefits to eligible employees who elect early retirement.Also, certain consolidated subsidiaries have a contributory funded pen-sion plan and a defined-contribution benefit plan.

The liabilities and expenses for employees’ severance and retire-ment benefits are determined based on the amounts actuarially calcu-lated using certain assumptions. The Company and its consolidateddomestic subsidiaries provide liabilities for employees’ severance andretirement benefits based on the estimated amounts of projected ben-efit obligation at the balance sheet date and the fair value of the planassets at that date.

The unrecognized transitional obligation has been amortized asexpenses in equal amounts over five years. Actuarial gains and lossesare recognized in the consolidated statements of income using thestraight-line method over the average of the estimated remainingservice lives (15 years) commencing with the following period.

(11) Retirement benefits for directors and corporatestatutory auditors

Directors and corporate statutory auditors of the Company are cus-tomarily entitled to lump-sum payments under unfunded retirementbenefits plans, subject to the shareholders’ approval.

The Company accrues 100% of obligations based on the internalrules required under the assumption that all directors and corporatestatutory auditors terminate their services at the fiscal year-end.

The Company abolished the retirement benefits plan on June 2003and, accordingly, retirement benefits have not been increased sincethen, but the balance of the retirement benefits at that time wouldremain as liabilities until their retirement.

(12) Lease transactionsFinance leases, which do not transfer the ownership of the leased assetsto the lessee, are accounted for in the same manner as operating leasesin accordance with Japanese GAAP.

(13) Income taxesIncome taxes of the Company and its consolidated domestic subsidiar-ies consist of corporate, enterprise and inhabitants taxes.

Income taxes based on temporary differences between tax andfinancial reporting purposes are reflected as deferred income taxesin the consolidated financial statements using the asset and liabil-ity method.

(14) Translation of foreign currenciesMonetary assets and liabilities denominated in foreign currencies aretranslated into Japanese yen at the year-end exchange rates.

Assets and liabilities of a consolidated foreign subsidiary are trans-lated into Japanese yen at the year-end exchange rate, and share-holders’ equity accounts are translated at historical rates. Incomestatement items are translated into Japanese yen at the average ratefor the periods, except those resulting from transactions with theCompany. The Company reports foreign currency translation adjust-ments in shareholders’ equity.

(15) Amounts per share of common stockComputations of net income per share of common stock are based onthe weighted-average number of shares of common stock outstand-ing during each year.

Diluted net income per share is not shown, since the Company hadno securities with dilutive effect.

Cash dividends per share presented in the consolidated statementsof income represent actual amounts applicable to the respective years.

(16) Impairment of fixed assetsIn the year ended March 31, 2005, the Company did not adopt earlythe new accounting standard for impairment of fixed Assets (“Opin-ion Concerning Establishment of Accounting Standard for Impair-ment of Fixed Assets” issued by the Business Accounting DeliberationCouncil on August 9, 2002) and the implementation guidance forthe accounting standard for impairment of fixed assets (the Finan-cial Accounting Standard Implementation Guidance No. 6 issued bythe Accounting Standards Board of Japan on October 31, 2003). Thenew accounting standard is required to be adopted in periods begin-ning on or after April 1, 2005, but the standard does not prohibitearlier adoption.

The Company cannot currently estimate the effect of adopting thenew accounting standard, because the Company has not yet completedits analysis.

(17) ReclassificationsCertain prior year amounts have been reclassified to conform to thepresentation of the fiscal year of 2005. These changes have no impacton previously reported results of operations or shareholders’ equity.


03 Cash and Cash Equivalents

Cash and cash equivalents reported in the consolidated statements of cash flows at March 31, 2005 and 2004 are reconciled with cash anddeposits reported in the consolidated balance sheets as follows:


2005 2004 2005

Cash and deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,927 ¥2,375 $27,274Time deposits with maturities of exceeding three months from the date of acquisition . . . . . . . . . . . . . (332) (26) (3,094)

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,595 ¥2,349 $24,180

04 Inventories

Inventories at March 31, 2005 and 2004 comprised the following:Thousands of

Millions of yen U.S. dollars

2005 2004 2005

Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,382 ¥1,304 $12,877Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 96 774

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,465 ¥1,400 $13,651

05 Securities

Acquisition cost, book value and the related unrealized gains or losses of the available-for-sale securities with available fair values as of March31, 2005 and 2004, are as follows:

Millions of yen

AcquisitionAt March 31, 2005 cost Book value Difference

Securities with book values exceeding acquisition costs:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥34 ¥ 76 ¥42Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 30 0

Sub total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 106 42

Other securities:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 (0)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥65 ¥107 ¥42

At March 31, 2004

Securities with book values exceeding acquisition costs:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥29 ¥52 ¥23


Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥33 ¥55 ¥22

Thousands of U.S. dollars

AcquisitionAt March 31, 2005 cost Book value Difference

Securities with book values exceeding acquisition costs:Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $317 $708 $391Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 280 0

Sub total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 597 988 391


Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $606 $997 $391


06 Lease Information

At March 31, 2005 and 2004, the equivalent amounts of purchase price, accumulated depreciation and book value of leased properties areas follows:

Millions of yen

March 31, 2005 Equipment Software Total

Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,486 ¥175 ¥1,661Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640 90 730

Net balance at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 846 ¥ 85 ¥ 931

March 31, 2004

Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,935 ¥305 ¥2,240Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 975 188 1,163

Net balance at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 960 ¥117 ¥1,077


March 31, 2005 Equipment Software Total

Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,846 $1,631 $15,477Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,963 839 6,802

Net balance at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,883 $ 792 $ 8,675

The future minimum lease payments excluding interest expense under finance leases at March 31, 2005 and 2004 are as follows:


2005 2004 2005

Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥359 ¥ 495 $3,345Non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 616 630 5,740

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥975 ¥1,125 $9,085

Lease payments, depreciation equivalent and interest expense equivalent for the years ended March 31, 2005 and 2004 are as follows:


2005 2004 2005

Lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥556 ¥581 $5,181Depreciation equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 529 546 4,929Interest expense equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 30 242

Securities not stated at fair value as of March 31, 2005, and 2004, are as follows:Thousands of


2005 2004 2005

Available-for-sale securities:Non-listed equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥65 ¥64 $606

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥65 ¥64 $606

Maturities of available-for-sale securities with maturities as March 31, 2005 are as follows:Thousands of


Over 1 year Over 5 years Over 1 year Over 5 yearsWithin but within but within Over Within but within but within Over

Year ended March 31, 2005 1 year 5 years 10 years 10 years 1 year 5 years 10 years 10 years

Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ – ¥ – ¥ – ¥ – $ – $ – $ – $ –Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 30 – – – 280 – –

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ – ¥30 ¥ – ¥ – $ – $280 $ – $ –


07 Short-term Bank Loans and Long-term Debt

Short-term bank loans generally consisted of line of credit and over-drafts from banks with interest rates ranging from 0.84% to 0.85%per annum at March 31, 2005, and from 0.84% to 1.38% per annum atMarch 31, 2004.

The Company contracts commitment lines of credit with financial

institutions for the purpose of efficient financing arrangements. Thecommitment line amount is ¥5,000 million ($46,590 thousand) and theamount of commitment line unused is ¥2,500 million ($23,295 thou-sand) as of March 31, 2005.

Long-term debt at March 31, 2005 and 2004, consisted of the following:


2005 2004 2005

Unsecured loans from a bank and an insurance company due through 2008 with interest ratesranging from 0.43% to 0.85% at March 31, 2005 and from 1.53% to 1.57% at March 31, 2004 . . . . . . ¥ 582 ¥ 200 $ 5,423

0.5% unsecured bond due September 5, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 500 4,659

1,082 700 10,082Less amount due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (722) (200) (6,728)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 360 ¥ 500 $ 3,354

The annual maturities of long-term debt at March 31, 2005 are as follows:Thousands of

Year ending March 31 Millions of yen U.S. dollars

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥722 $6,7282007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 1,3982008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 1,1182009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 838

08 Employees’ Retirement Benefits

Employees’ severance and retirement benefits included in the liabilities section in the consolidated balance sheets and the related expenses for2005 and 2004 were as follows:


2005 2004 2005

Employees’ severance and retirement benefits:Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,259 ¥ 5,223 $ 49,003Fair value of pension assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,826) (1,171) (17,014)Unrecognized net transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (394) –Unrecognized actuarial differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (443) (499) (4,128)

Employees’ severance and retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,990 ¥ 3,159 $ 27,861

Severance and retirement benefit expenses:Service costs — Benefits earned during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 372 ¥ 370 $ 3,467Additional severance payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 – 1,006Interest costs on projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 122 1,183Expected return on pension assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23) (5) (214)Amortization of net transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394 394 3,671Amortization of actuarial differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 41 354Contribution to the funded pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 19 280

Severance and retirement benefit expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,046 ¥ 941 $ 9,747

Depreciation for the leased property is calculated using the straight-line method over the estimated useful lives. The difference between totallease payments and acquisition costs of leased assets is recognized as interest expense, which is allocated to relevant accounting periods basedon the interest method.


Assumptions used for the years ended March 31, 2005 and 2004, were set forth as follows:2005 2004

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5% 2.5%Expected rate of return on pension assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0% 0.75%

09 Income Taxes

The Companies are subject to several taxes based on income, which, in the aggregate, indicate statutory rates in Japan of approximately40.69% and 42.05% for the years ended March 31, 2005 and 2004.

The following table summarizes the significant differences between the statutory tax rate and the effective tax rate for financial statementpurposes for the year ended March 31, 2004:

2004

Statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.05%Permanent difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.55Amortization of consolidation difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.63Per capita inhabitant tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.66Adjustment of deferred tax assets at year-end due to the change of statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.64Special corporation tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.23)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.05)

Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45.25%

Difference between the statutory tax rate and the effective tax rate for the year ended March 31, 2005 is not disclosed as difference are immaterial.

Significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2005 and 2004, are as follows:Thousands of


2005 2004 2005

Deferred tax assets:Accrued enterprise tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 53 ¥ 39 $ 494Accrued employees’ bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455 431 4,240Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 20 280Allowance for employees’ retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,102 1,060 10,268Allowance for directors’ and statutory auditors’ retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 27 242Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 33 205Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 53 531Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 83 922Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 39 522

1,900 1,785 17,704Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38) (46) (355)

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,862 1,739 17,349

Deferred tax liabilities:Net unrealized holding gains on securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17) (9) (158)Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (2) (9)

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18) (11) (167)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,844 ¥1,728 $17,182

According to the revision of tax regulations proclaimed for the yearsended March 31, 2004, the amended statutory effective tax rate forcalculation of deferred tax assets and liabilities relating to temporarydifferences is applied in the year. Based on the change of income tax

rates, the Company and consolidated domestic subsidiaries used thestatutory income tax rate of 40.69% at March 31, 2004.

Consequently, for the year ended March 31, 2004, the effect of thechange is immaterial.


10 Shareholders’ Equity

11 Segment Information

(1) Industry segmentsThe Companies operate principally in three segments: Marketing Research and Consulting, System Solutions and Medical Solutions.

In the year ended March 31, 2005, the Company changed its segmentation of consolidated subsidiaries from a single segment to several segments.This change was made due to increase of materiality of consolidated subsidiaries. The effect of the change of segmentation was immaterial.

Information by industry segment for the years ended March 31, 2005 and 2004 is as follows:

Millions of yen

Marketing EliminationsResearch and System Medical and/or

Consulting Solutions Solutions Total corporate Consolidated

Year ended March 31, 2005:Net sales;

Outside customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥15,938 ¥7,542 ¥3,139 ¥26,619 ¥ – ¥26,619Inter-segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – –

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,938 7,542 3,139 26,619 (–) 26,619Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,222 7,330 2,881 24,433 (–) 24,433

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,716 ¥ 212 ¥ 258 ¥ 2,186 ¥ – ¥ 2,186

At March 31, 2005:Identifiable assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 6,378 ¥4,782 ¥1,598 ¥12,758 ¥4,607 ¥17,365Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283 201 20 504 – 504Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362 707 21 1,090 – 1,090


Outside customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥14,180 ¥7,236 ¥2,483 ¥23,899 ¥ – ¥23,899Inter-segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 797 4 842 (842) –

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,221 8,033 2,487 24,741 (842) 23,899Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,720 7,894 2,421 23,035 (844) 22,191

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,501 ¥ 139 ¥ 66 ¥ 1,706 ¥ 2 ¥ 1,708

At March 31, 2004:Identifiable assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,631 ¥4,206 ¥1,033 ¥10,870 ¥4,321 ¥15,191Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 115 30 339 (0) 339Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 230 19 520 – 520

Under the Commercial Code of Japan (the “Code”), the entire amount ofthe issue price of shares is required to be accounted for as capital, al-though a company may, by resolution of its Board of Directors, accountfor an amount not exceeding one-half of the issue price of the new sharesas additional paid-in capital, which is included in capital surplus.

Effective October 1, 2001, the Code provides that an amount equalto at least 10% of cash dividends and other cash appropriations shall beappropriated and set aside as a legal earnings reserve until the totalamount of legal earnings reserve and additional paid-in capital equals25% of common stock. The total amount of legal earnings reserve andadditional paid-in capital of the Company has been reached 25% ofcommon stock, and therefore the Company is not required to provide

legal earnings reserve any more. The legal earnings reserve and addi-tional paid-in capital may be used to eliminate or reduce a deficit byresolution of the shareholders’ meeting or may be capitalized by reso-lution of the Board of Directors. On condition that the total amount oflegal earnings reserve and additional paid-in capital remains being equalto or exceeding 25% of common stock, they are available for distribu-tion by resolution of the shareholders’ meeting. Legal earnings reserve isincluded in retained earnings in the accompanying financial statements.

The maximum amount that the Company can distribute as dividendsis calculated based on the non-consolidated financial statements ofthe Company in accordance with the Code.



Marketing EliminationsResearch and System Medical and/or

Consulting Solutions Solutions Total corporate Consolidated


Outside customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $148,509 $70,276 $29,249 $248,034 $ – $248,034Inter-segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – –

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,509 70,276 29,249 248,034 (–) 248,034Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132,519 68,301 26,845 227,665 (–) 227,665

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,990 $ 1,975 $ 2,404 $ 20,369 $ – $ 20,369

At March 31, 2005:Identifiable assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,430 $44,558 $14,890 $118,878 $42,928 $161,806Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,637 1,873 186 4,696 – 4,696Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,373 6,588 196 10,157 – 10,157

“Eliminations and/or corporate” in the “Identifiable assets” column of the above information included corporate assets of ¥4,607 million($42,928 thousand) and ¥4,409 million at March 31, 2005 and 2004, respectively, which consisted principally of cash and deposits, investments insecurities and administrative assets held by the Company.

(2) Geographic segmentsGeographic segment information is not shown, due to sales and total assets of the overseas subsidiary not being material compared to consoli-dated sales and consolidated total assets, respectively.

(3) Information for overseas salesInformation for overseas sales is not disclosed, due to overseas sales not being material compared to consolidated sales.

12 Research and Development Expenses

Research and development expenses are charged to income as incurred. The amount charged to income for the year ended March 31, 2005 was¥258 million ($2,404 thousand).

13 Subsequent Events

At the general meeting of shareholders of the Company held on June 24, 2005, retained earnings at March 31, 2005, were appropriated as follows:


Year-end cash dividends ¥14 ($0.13) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥145 $1,351Bonuses to directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 168


➔ INDEPENDENT AUDITORS’ REPORT

To the Shareholders and Board of Directors of INTAGE Inc.:

We have audited the accompanying consolidated balance sheets of INTAGE Inc. and consolidated sub-

sidiaries as of March 31, 2005 and 2004, and the related consolidated statements of income, sharehold-

ers’ equity and cash flows for the years then ended, expressed in Japanese yen. These consolidated

financial statements are the responsibility of the Company’s management. Our responsibility is to inde-

pendently express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those

standards 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 consolidated financial position of INTAGE Inc. and consolidated subsidiaries as of March 31,

2005 and 2004, and the consolidated results of their operations and their cash flows for the years then

ended, in conformity with accounting principles generally accepted in Japan.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year

ended March 31, 2005 are presented solely for convenience. Our audit also included the translation of

yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis

described in Note 1 to the consolidated financial statements.

Tokyo, Japan

June 25, 2005


➔ CORPORATE INFORMATION(As of March 31, 2005)

➔

Corporate Name: INTAGE Inc.

Address: 2-14-11 Yatocho, Nishitokyo-shi, Tokyo 188-8701, Japan

Founded: March 1, 1960

Capital: ¥1,681.40 million

Number of Employees: 844 (consolidated: 1,411)

Offices: Higashikurume Office1-4-1 Honcho, Higashikurume-shi, Tokyo 203-8601, JapanTel. +81-424-76-5111 Fax. +81-424-76-5193

Osaka OfficeOsaka Chowa Bldg., 3-5-7 Kawaramachi, Chuo-ku, Osaka-shi, Osaka 541-0048, JapanTel. +81-6-6228-0311 Fax. +81-6-6228-1940

Ikebukuro OfficeOak Ikebukuro Bldg., 1-21-11, Higashiikebukuro, Toshima-ku, Tokyo 170-0013, JapanTel. +81-3-3981-5941 Fax. +81-3-3981-7408

INTAGE Shanghai OfficeRoom No. 8003 Novel Building 887, Huai Hai Road (M), Shanghai 200020, P.R. ChinaTel. +86-21-6431-1515 Fax. +86-21-6431-0537

(As of June 24, 2005)

Group Companies: ASKLEP Inc.Oak Ikebukuro Bldg., 1-21-11 Higashiikebukuro, Toshima-ku, Tokyo 170-0013, JapanTel. +81-3-5955-7370 Fax. +81-3-5955-7378 URL: http://www.asklep.co.jp/

INTAGE NAGANO Inc.318 Kamisendaoki, Inaba, Nagano-shi, Nagano 380-8581, JapanTel. +81-26-227-5111 Fax. +81-26-223-3090 URL: http://www.intage-nagano.co.jp/

INTAGE RESEARCH Inc.River West Square, 1-5-21 Honcho, Higashikurume-shi, Tokyo 203-0053, JapanTel. +81-424-76-5300 Fax. +81-424-76-5303

INTAGE LINKS Inc.2-14-11 Yatocho, Nishitokyo-shi, Tokyo 188-8701, JapanTel. +81-424-23-9600 Fax. +81-424-23-6311

INTAGE Marketing Consulting (Shanghai) Co., Ltd.Room No. 8003 Novel Building 887, Huai Hai Road (M), Shanghai 200020, P.R. ChinaTel. +86-21-6431-1515 Fax. +86-21-6431-0537

INTAGE INTERACTIVE Inc.1-4-1 Honcho, Higashikurume-shi, Tokyo 203-0053, JapanTel. +81-424-70-1972 Fax. +81-424-70-1839 URL: http://www.intage-interactive.co.jp/

Investor Information: Number of shares outstanding: 10,330,000 shares (As of March 31, 2005)

Number of shareholders: 995 (As of March 31, 2005)

Securities listing: JASDAQTransfer agent: Mitsubishi UFJ Trust and Banking Corporation

Further Information: INTAGE Inc.Corporate Planning DepartmentCorporate Communications Group2-14-11 Yatocho, Nishitokyo-shi, Tokyo 188-8701, JapanTel. +81-424-23-9656 Fax. +81-424-22-9443 URL: http://www.intage.co.jp/ir.htmlNote: From November 7, 2005, please contact Akihabara Head Office.

INTAGE Akihabara Building Opens

On November 7, 2005, the new INTAGE Group office—the INTAGE Akihabara Building—will open in Akihabara.

The INTAGE Akihabara Building will be a creative space for intelligence, the center of the INTAGE Group’s “total

marketing”, and providing “total solutions.” The new building will house the INTAGE marketing division, the solutions

division, the personnel organization, the Group organization, as well as consolidated subsidiary ASKLEP Inc., and the

combined head office and marketing functions of INTAGE INTERACTIVE Inc. This move will invigorate business by

fusing together the INTAGE Group’s strengths of marketing research and system solutions, and further deepen our

two-way communication with our customers.

Fuji SoftABC

WasedaJuku

Nihon NogyoNewspaper

YodobashiCamera

Multimedia(Akiba)

Seven-Eleven

Stationroundabout

INTAGE Akihabara Building

AkihabaraUDX

AkihabaraDai

Building

JR Akihabara Station

TOKYOTIMES

TOWER

●

To Shinjuku To Ryogoku

JR Akihabaracentral ticket barrier

Akihabara Station,Hibiya Line Subway

SubwayExit No.2

Showa StreetTo Ueno

To Tokyo

Chuo Street

●

NEW ADDRESSHead OfficeINTAGE Akihabara Building,3-banchi Neribei-cho, Kanda, Chiyoda-ku, Tokyo 101-8201INTAGE Inc.Corporate Planning DepartmentCorporate Communications GroupTel. +81-3-5294-6000 Fax. +81-3-5294-5318

Hibarigaoka Office2-14-11 Yatocho, Nishitokyo-shi, Tokyo 188-8701Tel. +81-424-23-1111 Fax. +81-424-23-2009


• 3 minutes on foot from JR Akihabara central ticket barrier.(To get to the central ticket barrier, take the escalator down to ground levelfrom the elevated platform.)

• 5 minutes on foot from Exit 2 of Akihabara Station of Hibiya Line Subway.

INTAGE Inc.2-14-11 Yatocho, Nishitokyo-shi, Tokyo 188-8701, JapanURL: http://www.intage.co.jp/

Printed in Japan

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