Fiscal Year Ended

Traded

Stock Code

May 31, 2005

TSE1

1377

YUHO REPORTAnnual

YUHOREPORT

Fiscal Year Ended May 31, 2005

Traded TSE1

Stock Code 1377

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This report is based on the Company’s Japanese-language annual filing with the Financial Services Agency and supplemented with materials that facilitate comparison with the Company’s peers. The materials from the annual filing with the Financial Services Agency have been edited and reorganized in a format more familiar to the international investment community. All information contained in this report has been obtained from sources believed to be reliable, but the accuracy of the data and the translation and the completeness and timeliness of the information are not warranted by the Company, Pacific Associates, or Asia Securities Printing. None of the above parties shall be responsible for any error or omission or for results obtained from the use of this information.

Table of Contents Profile ...................................................................................................................................3

Financial highlights............................................................................................................................................3 Peer comparisons .............................................................................................................................................3 Common size statements..................................................................................................................................4

Business Overview..............................................................................................................5 Contents of business.........................................................................................................................................5 Group companies..............................................................................................................................................7 History ...............................................................................................................................................................8 Risk factors .....................................................................................................................................................10 Research and development ............................................................................................................................12 Analysis of financial condition and results of operations.................................................................................15 Corporate governance.....................................................................................................................................17 Directors ..........................................................................................................................................................20 Employees.......................................................................................................................................................21 Union ...............................................................................................................................................................21 Stock options...................................................................................................................................................21 Other issues ....................................................................................................................................................24

Cash Flows.........................................................................................................................25 Consolidated statement of cash flows.............................................................................................................25 Capital expenditures........................................................................................................................................27 Dividend policy ................................................................................................................................................27

Consolidated Operations..................................................................................................28 Consolidated income statement......................................................................................................................28 Consolidated statement of retained earnings..................................................................................................29 Results of operations ......................................................................................................................................29 Segment information .......................................................................................................................................40 Issues requiring action ....................................................................................................................................42 Sales and procurement ...................................................................................................................................42 Selling, general and administrative expenses.................................................................................................43 Leases.............................................................................................................................................................43

Capital Structure................................................................................................................44 Consolidated balance sheet ............................................................................................................................44 Market value of securities ...............................................................................................................................46 Derivatives.......................................................................................................................................................47 Facilities ..........................................................................................................................................................48 Debt.................................................................................................................................................................49 Retirement benefits .........................................................................................................................................49 Deferred taxes.................................................................................................................................................50

Nonconsolidated Financial Statements...........................................................................51 Nonconsolidated income statement ................................................................................................................51 Appropriation of nonconsolidated retained earnings.......................................................................................52

Nonconsolidated Capital Structure..................................................................................53 Nonconsolidated balance sheet ......................................................................................................................53 Trade credits ...................................................................................................................................................56 Securities.........................................................................................................................................................58 Fixed assets ....................................................................................................................................................60

Accounting Policies ..........................................................................................................61 Share-related Information.................................................................................................63 Performance in Graphs.....................................................................................................65 YUHOREPORT is a trademark of Pacific Associates and Asia Securities Printing. The translation is copyrighted by Pacific Associates.

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Profile Financial highlights Years ended May 31; Millions of yen 2001 2002 2003 2004 2005

Changes2001/2005

Consolidated

Net sales 47,573 46,383 46,842 46,281 46,357 102.6

Ordinary profit 3,582 3,265 2,892 2,356 2,309 155.1

Net income 1,758 1,241 848 1,536 1,581 111.2

Shareholders' equity 83,374 84,259 82,631 83,041 84,926 98.2

Total assets 99,268 101,456 99,978 96,092 98,067 101.2

Shareholders' equity per share (Yen) 1,643.60 1,661.08 1,644.75 1,676.18 1,715.49 95.8

Net income per share (Yen) 34.66 24.48 16.56 29.96 31.66 109.5

Net income per share, fully diluted (Yen) - - - - -

Net cash provided by (used in) operating activities 1,693 1,345 4,089 4,897 4,369 38.8

Net cash provided by (used in) investing activities 2,467 (11,610) (1,121) 3,021 (3,031) (81.4)

Net cash provided by (used in) financing activities (737) (64) (2,162) (6,043) (679) 108.5

Cash and cash equivalents at end of year 15,980 5,866 6,615 8,467 9,198 173.7

Employees 1,652 1,722 1,726 1,790 1,733 95.3

Peer comparisons Percentage 2001 2002 2003 2004 2005

Net income / net sales 3.7 2.7 1.8 3.3 3.4

Peers 3.2 3.5 3.6 3.2 4.2

Ordinary profit / net sales 7.5 7.0 6.2 5.1 5.0

Peers 7.5 7.5 7.2 6.4 5.8

Net income / assets 1.8 1.2 0.8 1.6 1.6

Peers 3.0 3.3 3.6 3.1 4.0

Ordinary profit / assets 3.6 3.2 2.9 2.5 2.4

Peers 7.2 7.2 7.5 6.3 5.5

Equity / assets 84.0 83.0 82.6 86.4 86.6

Peers 42.7 40.2 40.0 40.4 39.7

Net income / equity 2.1 1.5 1.0 1.8 1.9

Peers 6.0 6.0 7.0 6.9 8.6

Peers include Kaneko Seeds (1376), Yukiguni Maitake (1378), Hokuto Corporation (1379) and Akikawa Foods & Farms (1380).

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Common size statements Years ended May 31; Percent Consolidated 2003 2004 2005Balance sheet Assets 100.0 100.0 100.0

Current assets 57.7 52.3 47.9

Tangible fixed assets 30.1 31.2 30.9

Intangible fixed assets 1.0 1.2 1.0

Investments and other assets 11.2 15.3 20.2

Total fixed assets 42.3 47.7 52.1

Liabilities and shareholders' equity 100.0 100.0 100.0

Current liabilities 13.7 9.9 10.0

Long-term liabilities 2.5 2.7 2.5

Total liabilities 16.2 12.6 12.5

Minority shareholders' equity in consolidated companies 1.1 1.0 0.9

Common stock 13.5 14.0 13.8

Capital reserves 10.8 11.3 11.0

Retained earnings 61.3 64.5 63.9

Unrealized gains or losses on other securities (0.1) 1.2 1.6

Foreign currency translation adjustments (1.7) (2.5) (1.6)

Treasury stock (1.1) (2.1) (2.1)

Total shareholders' equity 82.7 86.4 86.6

Income statement Net sales 100.0 100.0 100.0

Cost of goods sold 56.7 54.8 53.8

Gross profit on sales 43.3 45.2 46.2

Selling, general and administrative expenses 38.5 40.2 42.4

Operating income 4.8 5.0 3.8

Nonoperating income 2.3 1.7 2.0

Nonoperating expenses 0.9 1.7 0.8

Ordinary profit 6.2 5.0 5.0

Extraordinary losses 2.9 0.0 0.1

Income before taxes and other adjustments 3.3 5.0 4.9

Corporate, inhabitants and other taxes 1.3 1.6 1.4

Minority interest in income of consolidated companies 0.2 0.1 0.1

Net income 1.8 3.3 3.4

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Business Overview Contents of business The Corporate Group, composed of Sakata Seed Corporation (“the Company”), 43 subsidiaries and an affiliated company, is engaged in selling horticultural products and materials (vegetable seeds, flower seeds, bulbs, seedlings and agricultural and horticultural products). The Group’s businesses, and the relationship of the Company and its affiliates to these businesses, are outlined below. In the interim period ended November 2004, the Group changed the method of categorizing its business segments. These changes are discussed in the notes to Segment Information shown on page 40. The three divisions described below coincide with the categories used for segment information by type of business listed on page 40. (1) Wholesaling (40 affiliated companies)

This division produces or procures vegetable seeds, flower seeds, bulbs, seedlings and agricultural and horticultural products, and wholesales these products to nurseries, etc., in Japan and other countries around the world.

(2) Retailing (2 affiliated companies) The retailing division procures products for horticultural hobbyists and sells them to home improvement retailers in Japan. It also operates a mail-order sales business and conducts retailing through corporate-managed garden shops.

(3) Others (2 affiliated companies) This division is engaged in landscaping for the public and private sectors and operates an insurance agency and a temporary services agency.

The following table outlines the Group’s business segments and the companies participating in them.

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Principal operations Major participating companies

Wholesaling SAKATA SEED CORPORATION (Consolidated subsidiaries)

Kyoei Noji Co., Ltd., Brolead Co., Ltd., Sakata Seed America, Inc., Sakata Seed de Mexico, S.A., Sakata Centroamerica, S.A., Sakata Seed de Guatemala S.A., Alf Christianson Seed Co., Sakata Seed Sudamerica Ltda., Sakata Korea Co., Ltd., Sakata Vegetables Europe S.A.R.L., Sakata Ornamentals Europe A/S, Sakata Holland B.V., Sakata Seed Iberica S.L., Sakata UK Limited, Sakata Ornamentals UK Ltd., MayFord Seeds (Pty) Ltd. and 13 other companies

Wholesaling of seeds and of agricultural and horticultural products to nurseries and other producers

(Products: vegetable seeds, flower seeds, bulbs and seedlings) 31 companies, including the Company

(Affiliated company) Sakata Polska Sp. z o.o.

Wholesaling of agricultural and horticultural products to nurseries and other producers

(Products: agricultural and horticultural materials) 2 companies, including the Company

SAKATA SEED CORPORATION (Consolidated subsidiary)

Jiffy Pot Products Co. of Japan, Ltd.

Production of seeds and of agricultural and horticultural products for nurseries and other producers

(Products: vegetable seeds, flower seeds, bulbs and seedlings) Total: 9 companies

(Consolidated subsidiaries) Nakai Engei Ltd., Yamagata Celltop Co., Ltd., Nagano Celltop Co., Ltd., Hida Celltop Co., Ltd., Fukuoka Celltop Co., Ltd., Sakata Seed Chile S.A., Sakata Siam Seed Co., Ltd., Sakata Seed (Suzhou) Co., Ltd. and 1 other company

Retailing SAKATA SEED CORPORATION Selling to horticultural hobbyists through home

improvement retailers. 3 companies, including the Company

(Consolidated subsidiaries) Nishio Shokubutsu Co., Ltd. and Yurix Co., Ltd.

Mail-order sales, corporate-managed garden shops The Company

SAKATA SEED CORPORATION

Others SAKATA SEED CORPORATION Landscaping, insurance agency, temporary services

agency 3 companies, including the Company

(Consolidated subsidiaries)

Sakata Kosan Co., Ltd. and Sakata Techno Service Co., Ltd.

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Group companies Millions of yen or as indicated Capital stock Percent ownership Kyoei Noji Co., Ltd. 30 100 Sakata Kosan Co., Ltd. 10 100 Nakai Engei Ltd. 10 100 Brolead Co., Ltd. 50 100 Yamagata Celltop Co., Ltd. 50 100 Nagano Celltop Co., Ltd. 60 70 Hida Celltop Co., Ltd. 70 51 Fukuoka Celltop Co., Ltd. 200 100 Yurix Co., Ltd. 50 100 Jiffy Pot Products Co. of Japan, Ltd. 18 100 Nishio Shokubutsu Co., Ltd. 21 52 Sakata Techno Service Co., Ltd. 13 100 Sakata Seed America, Inc. US$ 1,500 thousand 90 Sakata Seed de Mexico, S.A. Mex$ 450 thousand 100 Semillas Sakata de Mexico, Aric Mex$ 45 thousand 100 Productora de Semillas Sakata, Spr de Rl Mex$ 45 thousand 100 Agricola Sakata, Spr de Rl Mex$ 46 thousand 100 Sakata Centroamerica, S.A. CCO 9 million 100 Sakata Seed de Guatemala S.A. GTQ 1,541 thousand 100 Piloncito Verde S.A. GTQ 3,352 thousand 63 Sakata Seed Oceania Pty Ltd Aus$ 60 thousand 100 Alf Christianson Seed Co. US$ 7 thousand 100 Alfco, Inc. US$ 0 thousand 100 European Sakata Holding S.A.S. EUR 36,050 thousand 100 Sakata Holland B.V. EUR 420 thousand 100 Sakata Vegetables Europe S.A.R.L. EUR 5,630 thousand 100 Sakata Ornamentals Europe A/S DKK 119 million 100 Frisa Planter A/S DKK 1,500 thousand 100 Sakata Ornamentals Chile Ltda. US$ 500 thousand 100 Sakata Seed Iberica S.L. EUR 3 thousand 100 Sakata UK Limited STG£ 100 thousand 100 Sakata Ornamentals UK Ltd. STG£ 1,200 thousand 100 MayFord Holdings (Pty) Ltd. ZAR 594 thousand 100 MayFord Seeds (Pty) Ltd. ZAR 19 thousand 100 The South African Seed Company (Pty) Ltd. ZAR 0 thousand 100 A Ford & Company (Pty) Ltd. ZAR 4 thousand 100 Zingel Properties (Pty) Ltd. ZAR 0 thousand 100 Sakata Vegenetics RSA (Pty) Ltd. ZAR 0 thousand 100 Sakata Seed Chile S.A. Ch$ 1,196 million 95 Sakata Seed Sudamerica Ltda. R$ 13,776 thousand 90 Sakata Siam Seed Co., Ltd. THB 20 million 91 Sakata Korea Co., Ltd. WON 18,540 million 100 Sakata Seed (Suzhou) Co., Ltd. RMB 11,259 thousand 86

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History Year Month Event 1913 July Takeo Sakata (the Company's founder) establishes Sakata Noen in Shirosato-mura,

Kanagawa (currently, Rokkakubashi, Yokohama). 1916 Company name changed to T. Sakata & Co. 1923 September Company building lost in fire following the Great Kanto Earthquake. 1930 May Chigasaki Breeding Station established. 1942 December T. Sakata & Co., Atariya Noen, Fujita Zenbei & Co., Enomoto Tokujiro & Co. and Yomoto Co.

merged to form T. Sakata & Company, capitalized at 195,000 yen. 1951 December Retail store operations begun (currently, Garden Center Yokohama). 1959 April Misato Research Station established. 1960 April Chogo Research Station established. 1966 August Hazawa Office established. 1967 August Fukuoka Branch opened. 1970 June Chogo Distribution Center established. 1971 June Kimitsu Research Station established. July Sendai Branch opened. 1974 August Shirakawa Branch opened. 1975 October Shares of Jiffy Pot Products Co. of Japan, Ltd., acquired. 1976 January Okayama Branch opened. 1977 July Sakata Seed America, Inc., established. 1979 June Kyoei Noji Co., Ltd., established. 1980 October Florist Sakata Co., Ltd., established. Sapporo Branch opened. 1982 July Nakai Engei Ltd., established. 1985 October Nagoya Branch opened. 1986 January Company name changed to Sakata Seed Corporation. 1987 January Yamagata Vegetable Center, Co., Ltd. (currently, Yamagata Celltop Co., Ltd.) established. May Shares listed on the Second Section of the Tokyo Stock Exchange. 1988 January Sakata Kosan Co., Ltd., established. June Higashimura Seed Co., Ltd., established (currently, Brolead Co., Ltd.). December European Representative Office established. 1989 September Shares of Yamaki Kogyo Co., Ltd., acquired. 1990 March European Representative Office upgraded to local subsidiary through establishment of Sakata

Seed Europe B.V. (currently, Sakata Holland B.V.). April Kakegawa Research Center established. May Nagano Celltop Co., Ltd., established. June Kanto-Kita Branch opened. November Hokkaido Research Station established. Shares listed on the First Section of the Tokyo Stock Exchange. December Hida Celltop Co., Ltd., established. 1991 July Yokohama Branch opened. August Sakata Seed Chile S.A. established. 1992 May Fukuoka Celltop Co., Ltd., established.

1993 March Sakata Seed de Mexico, S.A. established.

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Year Month Event 1994 March Yamagata Distribution Center established. April Kazo Distribution Center established. May Shiga Breeding Branch Station of Kakegawa Research Center established. June Shares of Naniwa Green Co., Ltd., acquired. October Sakata Seed do Brasil Ltda. established. November Shares of Agroflora S.A. (currently, Sakata Seed Sudamerica Ltda.) acquired by Sakata Seed

do Brasil Ltda. 1995 February Corporate headquarters and head office moved to present site (Tsuzuki-ku, Yokohama). 1996 February Hokkaido Branch established (entailing move and change of name of Sapporo Branch). Shares of Yurix Co., Ltd., acquired. March Shares of Samuel Yates Ltd. acquired. April Sakata Seed France S.A.R.L. established (currently, Sakata Vegetables Europe S.A.R.L.). June Osaka Branch opened. Sakata Siam Seed Co., Ltd., established. Sakata Seed Iberica S.L. established. August YCC Distribution Center established. September Shares of Flora Feliz S.A. in Costa Rica (currently, Sakata Centroamerica, S.A.) acquired. October Number of shares comprising one trading unit of the Company's stock changed from 1,000 to

100. 1997 March Shares of Chung Won Seed Co., Ltd. (currently, Sakata Korea Co., Ltd.) acquired. April Shares of Nishio Shokubutsu, Co., Ltd., acquired. 1998 October Garden Center Shonan opened. 1999 February Sakata Seed (Suzhou) Co., Ltd., established. May Procedures for liquidation of Florist Sakata Co., Ltd., completed.

October Additional shares in Wilgro Nurseries Ltd. (currently, Sakata Ornamentals UK Ltd.) acquired.

Shiga Breeding Branch Station of Kakegawa Research Center closed. December Shares of MayFord Holdings (Pty) Ltd. acquired. 2000 January Additional shares in Sakata Seed NZ Ltd. acquired. December Additional shares of Piloncito Verde S.A. acquired. 2001 February Chiba Branch opened. European Sakata Holding S.A.S. established. June Sakata Vegenetics RSA (Pty) Ltd. established. Merger of Sakata Seed do Brasil Ltda. and Sakata Seed Sudamerica Ltda. completed. August Procedures for liquidation of Sakata Seed NZ Ltd. completed. September Sakata Techno Service Co., Ltd., established. 2002 March Chiba Branch closed. April Narita Office opened. Alf Christianson Seed Co. and Alfco, Inc., incorporated into Group as subsidiaries through

shares buyback and retirements. Procedures for liquidation of Naniwa Green Co., Ltd., completed. May Additional shares in Sakata Siam Seed Co., Ltd., acquired. Shirakawa Branch closed. August System of regional branches (Hokkaido Branch, Higashi Nihon Branch, Nishi Nihon Branch,

Kyushu Branch) established.

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Year Month Event 2003 May Procedures for liquidation of Yamaki Kogyo Co., Ltd., completed.

July Following acquisition of the flower division of L. Daehnfeldt A/S, Sakata Ornamentals Europe A/S established.

2004 May Okayama Office of the Nishi Nihon Branch closed.

2005 February Yurix Co., Ltd., dissolved.

May Sakata Seed Oceania Pty Ltd established.

Risk factors The following is a discussion of factors that could negatively impact the Company’s financial performance and financial condition. The forward-looking statements in the discussion are based on judgments made by the Company as of the final day of the fiscal year. 1. Weather-related risks

• Climate change around the world has a significant impact on sales of vegetable seeds, flower seeds, bulbs and seedlings; poor weather conditions could thus erode sales and adversely affect the Company’s financial performance.

• The Company carries out seed production in 19 countries around the world. In each region, the Company takes steps to disperse risk by consigning seed production to multiple outside producers. Despite these precautions, it may be unable to assure sufficient quality and quantity of production in the event of sudden changes in the local weather. In that event, there would be a significant negative impact on its financial results.

2. Impact of geopolitical and social systems The Company is engaged in production, R&D and sales operations in 20 countries around the world. It operates six breeding and research stations in Japan and another 10 overseas (in nine countries). This extensive base of operations exposes the Company to the following kinds of risks, which could have a significant impact on the Group’s financial performance:

• Sudden and unexpected enactment of laws and regulations, or amendments to such laws and regulations

• Political and economic disarray

• Social disorder caused by terrorism or other eruptions of violence

• Earthquakes or other natural disasters

• Information age-related problems, including computer viruses and information leakage

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3. Development risks, including those related to human resources

• The long-term nature of cultivar development (over 10 years) means dealing with the following kinds of risks: 1) Investment risk—that economic payoffs will fall short of expectations 2) Development risk—that efforts may fail to produce the desired cultivar 3) Market risk—that market needs may change during the course of

development 4) Competitive risk—that a product may fare unfavorably against a product

developed by another company

• In addition to access to genetic resources, successful development hinges to a large extent on the abilities of individual breeders. There is the risk that a breeder may leave the Company midway through a project, thus creating obstacles to its successful completion. Failure to produce the intended high-quality variety could have a significant impact on the Company’s financial performance.

4. Risks related to safety

• The Company’s creed, articulated by its founder Takeo Sakata, is “Quality, Sincerity and Service.” With this as a basis, the Company seeks to gain customers’ confidence in the quality and safety of its products. Accordingly, it responds quickly and effectively when complaints arise, and works diligently to prevent problems from occurring.

• Because the Company’s products are “living genetics,” however, appropriate levels of quality or uniformity may not always be achieved. Safety-related problems could also arise from environmental factors or manufacturing technology, rather than from the seeds themselves. Safety-related problems could have a significant impact on the Company’s financial performance.

5. Risks related to currency fluctuations

• Financial statements prepared in local currencies are translated into yen during consolidation. Fluctuations in foreign exchange markets could thus reduce earnings, even while earnings in local currencies remain unchanged.

• Currency fluctuations may also impair the Company’s ability to procure raw materials and merchandise and become an obstacle to exporting. To minimize such impacts, the Sakata Group maintains a close watch over trends in the value of currencies. Sudden and unexpected market turns could, however, negatively affect the Company’s financial performance despite these efforts.

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Research and development The Group’s research and development of vegetables and flowers is coordinated by the Company’s R&D Division, which endeavors to develop new cultivars for flower and vegetable markets around the world. In Japan, research is carried out at six farms, with leadership taken by the Company’s Kakegawa Research Center in Shizuoka Prefecture. Overseas, research is conducted at ten farms, including Sakata Seed America, Inc., European Sakata Holding S.A.S., and Sakata Seed Sudamerica Ltda. Research on horticultural materials is led by the Company’s Materials Coordination Department, which conducts independent research as well as joint research with other companies and agencies. Approximately 400 people are involved in research and development throughout the Group. Total R&D expenditures during the fiscal year amounted to ¥3,269 million. Wholesaling Research environment (vegetables): constraints and challenges 1. The need for vegetable cultivars to meet different conditions depending on country

and region: • Differences in eating customs based on tradition and culture; differences in

tastes; differences in natural conditions • Differences in physical distribution systems

2. Hence, the need to establish research farms in various regions of the world to develop cultivars that respond to local needs • In Japan, research (conducted at the Kakegawa Research Center; Kimitsu,

Misato and Hokkaido Research Stations; and Brolead Co., Ltd) aims to develop cultivars offering: 1) High quality, high productivity and adaptability to various planting

conditions 2) Cultivars must also transport well after the research is completed.

• Overseas, research (conducted at farms in the United States, France, Brazil, Korea and Thailand) aims to develop cultivars that suit cultural, climatic and soil conditions; are resistant to pests and disease; and meet local demand.

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3. Research effectiveness furthered by interaction among worldwide research facilities: • Active information exchange • Joint access to genetic resources • Coordination in test plantings • Use of common evaluation systems

Results of R&D Japan

• BRIGHTON, a dark-green spinach with extremely late-blooming, lipophilic characteristics

• SATOBUKI 622, a tasty Chinese cabbage, especially suited to pickling Overseas

• At Sakata Seed America, development of peppers as a supplement for the mainstay broccoli; market share for peppers and tomatoes increasing in the United States, Central America and Mexico

• Sakata Seed Sudamerica Ltda. 1) Largest-scale cultivar development among overseas subsidiaries 2) Widely considered the top seed company in the region for its wide array of

tomatoes, peppers, lettuce and cauliflower • Sakata Korea Co., Ltd.

1) Chinese cabbage quickly developing into the major variety in the Korean market

2) Aggressive development of chili pepper cultivars, which are earning kudos from producers in neighboring countries

Research environment (flowers): aims, organization 1. As compared with vegetable cultivars, there is less concern about the weather in

development of flower cultivars, and the basic requirements are generally the same throughout the world

2. Research facilities • Three main research centers: Japan (Kakegewa Research Center; Misato

Research Station); Denmark (Sakata Ornamentals Europe A/S); and Costa Rica (Sakata Centroamerica S.A., the global center for research on flowers for low-latitude regions) aim to develop cultivars for cut flowers, potted flowers and flower bed seedlings for world markets.

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• United States, England, France, others: testing cultivars developed in three main research centers for local adaptability with the aim of developing superior cultivars adaptable to a wider range of environments

Results of R&D • RAINBOW VIOLET series, developed as joint project with Takara • GORILLA series of extremely large-leaved coleus • PETITFUL series of very small-blossomed lisianthus • FESTIVAL SPEEDY series of gerbera daisies • EMPEROR series of begonias, which bloom year round

Increasing Concerns about Environmental Safety 1. Japanese agriculture

• Post-war policy focused on increasing production efficiency; succeeded in lessening dependence on overseas sources of food through the followings: 1) Use of chemical fertilizers and pesticides and herbicides 2) Development of large-scale farming 3) Development of irrigation/drainage 4) Automation and continuous cropping 5) Cultivar improvement

• Recent change in tastes and consciousness among Japanese, who now desire quality as opposed to quantity; this is requiring seed companies to meet needs for: 1) Better taste 2) Peace of mind and safety 3) Crops that impose a minimal environmental burden

• Also, needs have arisen for the protection of agricultural workers’ health, which has led to: 1) Spread of organic farming 2) Efforts to reduce agricultural chemicals, chemical fertilizers, etc.

2. Sakata’s response • Development of a series of eco-products, supplies to support organic farming,

seeds and propagation materials that enable the harvesting of increasingly better crops, which are safer and offer peace of mind

• Specific products and projects: new molded propagation supplies developed by subsidiary, Jiffy Pot Products of Japan, Ltd.—biodegradable, highly effective

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products with major market potential and long product life (e.g., Box Plug for cuttings, Plant Plug for sowing)

• Response to problems of soil disease caused by continuous planting, which have arisen as a serious concern in recent years 1) Launch of a project team for effective use of microorganisms 2) Research on Bitech BioAce, a compost fermentation and ripening process

using bacilli 3) Research on Root Saver, a technology that strengthens roots through the use

of three types of soil microorganisms • Other projects

1) Joint development (with Tokyo University of Technology and the National Institute of Advanced Industrial Science and Technology) of Soil Dock, the world’s first soil diagnostic system that analyzes the compatibility of soils and microorganisms

2) Team working on development of a commercially viable Soil Dock

Analysis of financial condition and results of operations 1. Significant accounting policies and estimates

• The Sakata Group’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in Japan.

• In preparing these statements, the Company makes all necessary estimates on the basis of rational standards.

2. Results of operation (year-on-year, percentage changes)

• Net sales: increased by ¥75 million to ¥46,357 million (up 0.2%). For other information provided in this section, refer to the section on Segment Information by Region.

• SG&A expenses: increased by ¥1,036 million to ¥19,644 million (up 5.6%), reflecting long-term expenditures aimed at developing the Group’s base of operation in Europe.

• Operating income: decreased by ¥542 million to ¥1,776 million (down 23.4%); parent company operating income decreased by ¥1,281 million to ¥631 million (down 67.0%). Decline in parent company income primarily attributable to a slump in flowers and other gardening-related businesses.

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• Nonoperating income and expenses: Nonoperating income increased by ¥494 million to ¥532 million (up 1,325.5%), primarily because of an improvement in the balance of financial income and expenses and a decline in currency losses.

• Ordinary profit: declined by ¥47 million to ¥2,309 million (down 2.0%). 3. Financial condition

• Total assets: increased by ¥1,975 million to ¥98,067 million, largely because of an increase in investments in securities.

• Equity ratio: increased by 0.2 percentage points to 86.6%. 4. Strategic situation and forecasts

• Overseas sales and profits: overall gains seen 1) Recovery in Europe 2) Higher revenues in South America and other regions 3) Improvement in ratio of sales expenses-to-sales in Europe 4) Higher profits in South America

• Domestic operations: continued difficulties in business environment 1) Growth in vegetables sales, achieved through focus on strong-selling items 2) Higher operating income and ordinary profit, as a result of reorganization of

retailing operations (including closure and integration of outlets), construction of new distribution center, etc.

• Forecasts 1) Net sales, up 3.5% to ¥48.0 billion 2) Operating income, up 21.0% to ¥2,150 million 3) Ordinary profit, up 14.8%, to ¥2,650 million 4) Net income, down 1.9% to ¥1,550 million

5. Cash flow: cash and cash equivalents increased by ¥731 million

• Net cash provided by operating activities: ¥4,369 million

• Net cash used in investing activities: ¥3,031 million

• Net cash used in financing activities: ¥679 million 6. Liquidity, financing and use of capital

• Liquidity: ample liquidity provided in the form of cash and marketable securities to meet emergency needs

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• Financing: domestic subsidiaries and key overseas companies given the leeway to raise capital in accordance with conditions in the various markets

• Use of capital: primarily to finance operating needs 7. Management’s assessments of issues and policies: please refer to section on Issues

Requiring Action.

Corporate governance 1. Basic views regarding corporate governance

The Sakata Group’s management policy is “to become the top seed company in the world” by “helping to improve the everyday life and culture of the world’s people through the provision of high-quality products and services.” Based on its long-held creed, “Quality, Sincerity and Service,” it is taking active steps to establish a healthier financial structure, more efficient operations and a stronger system of compliance. To enhance the public’s understanding of the Sakata Group, it is also devoting additional resources to improving its public information and investor relations capabilities.

2. Governing entities and system of internal controls

• The Company employs a system of corporate auditors.

• Governing bodies and system of internal controls 1) The Company has no external directors; to strengthen its Board of Corporate

Auditors, two of its three corporate auditors have been appointed from outside the Company.

2) Executives meet to make reports, exchange information and discuss matters concerning operations through the following schedule of regular meetings: a. Monthly meetings of the Board of Directors, also attended by corporate

auditors b. Monthly senior management meetings, attended by all directors above the

rank of managing director c. General managers’ meeting, attended by general managers, branch

managers and standing corporate auditors 3) Auditing Office, which reports directly to the president, conducts audits that

ensure the health of operations: a. Audits of the Company b. Audits of related companies

4) Advice from consulting attorneys and tax accountants as the need arises for expert judgments

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• Advisory committee of outside experts 1) Three-person committee, including two from overseas 2) To provide wide-ranging and objective opinions concerning management

based on the members’ individual knowledge and experience in their area of expertise

• Internal audits; audits by corporate auditors 1) Board of Corporate Auditors, a body that engages in all necessary discussions

and decisions related to auditing; comprises three auditors (of whom two are outside auditors), who meet regularly each month or in extraordinary sessions to exchange information on important matters related to audits.

2) Internal audits are carried out by the previously mentioned Auditing Office in accordance with internal regulations.

3) Relationships among Auditing Office, Board of Corporate Auditors, and financial auditors a. Between Auditing Office and Board of Corporate Auditors: close

coordination through mutual information exchange on an as-needed basis b. Between the Company’s auditing bodies and the financial auditors:

information exchange concerning audit findings and related information on an as-needed basis

• Financial audits 1) Conducted by the following certified public accountants and 12 assistants (2

CPAs, 7 junior accountants and 3 others) 2) The Company requests that the financial auditor perform its audits in

accordance with the Law for Special Exceptions to the Commercial Code Concerning Audits, etc., of Corporations.

Name Affiliation No. of consecutive

years of auditing Designated partner/engagement partner: Hiroshi Kawai

KPMG AZSA & Co. -

Designated partner/engagement partner: Shigemori Akiyama

KPMG AZSA & Co. -

Because auditing relationships have been in place for less than seven years, information on the number of consecutive years of auditing has been omitted.

• Relationships between the Company and its outside directors and corporate auditors The Company’s two external corporate auditors are neither former employees of the Company or its affiliates nor shareholders in the Company. The Company has no external directors.

S A K A T A S E E D

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3. Status of risk management system

• Development of a Risk Management Manual to ensure quick and effective responses to risks surrounding the enterprise 1) When an event occurs and is reported, there will be an establishment of a

Crisis Management Headquarters 2) The building of an information-conveyance mechanism 3) Direct, hands-on control by the president

• Procedures for the protection and acquisition of rights related to the intellectual property of the Company and its affiliates are 1) Coordinated by the Legal Department and the Research and Development

Headquarters 2) With the aim of responding in an appropriate and timely way to changes that

occur in every country around the world

• System to ensure ethical behavior and to foster the development of a healthy openness in the corporate culture 1) Preparation and distribution of a Compliance Manual 2) Adoption of measures to educate employees and to encourage ethical

behavior

• Establishment of a Customer Relations Office (in June 2003) to improve customer satisfaction 1) Central collection point for complaints received by other departments or

directly from customers 2) Reporting responsibility to Board of Directors 3) Increase customer satisfaction and reduce response time

4. Directors’ compensation Directors Corporate auditors Millions of yen Number Amount Number AmountCompensation paid to directors and corporate auditors 12 71 3 16

Bonuses paid to directors and corporate auditors through appropriation of earnings

12 25 3 4

Retirement bonuses paid to directors in accordance with resolutions of the General Meeting of Shareholders

- - - -

Employees' salaries and bonuses

Employee compensation paid to directors who are also employees

124

S A K A T A S E E D

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5. Professional fees paid to financial auditors Millions of yen Compensation for audit certification as stipulated under Article 2-1 of the Certified Public Accountants Law

36

Other payments -

Directors Name Title

Date joined company

Previous or current employers/occupations Date of birth

Thousandshares

Hideo Takahashi President and Representative Director

Apr-69 20-Aug-46 20.6

Shunichiro Suda Representative Senior Managing Director

Apr-66 12-Mar-43 13.2

Isao Iizuka Managing Director Apr-67 14-Apr-44 20.9

Hiroshi Sakata Managing Director May-81 The Dai-Ichi Kangyo Bank Ltd.

14-Feb-52 65.3

Hiroshi Arakawa Director Apr-69 20-Jan-46 10.4

Makoto Watanabe Director Apr-68 31-Aug-45 112.0

Makoto Ohta Director Jul-90 The Sanwa Bank Ltd. 21-Oct-48 7.6

Takayuki Ikegami Director Apr-67 12-Dec-43 15.9

Ryoichi Kojima Director Apr-69 30-Oct-46 6.9

Seiko Tasaki Director Sep-92 16-Dec-48 1.9

Katsuaki Ito Director Mar-99 Mitsui & Co., Ltd. 23-Jun-45 -

Takashi Mori Director Apr-69 10-Jan-47 9.4

Seiji Miyazaki Director Apr-70 1-May-46 7.3

Hideo Kimura Standing Corporate Auditor Nov-74 9-Jun-42 4.0

Yoshinobu Sato Corporate Auditor Aug-03 Nissho Iwai Corp., Shin Mitsui Sugar

30-Jun-41 1.0

Atsushi Hachiboshi Corporate Auditor Aug-03 Mizuho Bank, Ltd., Mizuho Research Institute

4-Sep-49 1.0

297.5

Current assignments and previous positions in the Company have been omitted.

S A K A T A S E E D

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Employees Consolidated 2005Business segment Number

Wholesaling 1,382

Retailing 130

Others 17

Corporate staff 204

1,733

Parent Total or average

Number 578

Average age 36.5

Average years of service 13.6

Average annual salary (thousands of yen) 5,925

Average annual salary includes bonuses and overtime pay. In the fiscal year ended May 2005, the Company changed its method of categorizing its business segments.

Union Sakata Seed Corporation’s union is an intra-company union, independent of any outside umbrella organization. The Company enjoys amicable labor relations.

Stock options At the Regular General Meeting of Shareholders held on August 28, 2002, the Company approved the issuance of share-subscription rights at favorable terms to its employees and to the directors and employees of its subsidiaries, in accordance with Articles 280-20 and 280-21 of the Commercial Code. (Resolution adopted at the Regular General Meeting of Shareholders on August 28, 2002)

Date of resolution August 28, 2002

Categories and numbers of persons to be granted rights Directors (22 persons) Employees (14 persons)

Type of shares subject to rights Par-value common stock

Number of shares 45,900 shares

Amount paid in at time of execution of rights 148,500 yen (Notes)

Period of execution of rights October 1, 2004 - August 31, 2007

Conditions for execution of rights Partial execution of subscription rights shall be prohibited.

Item concerning the assignment of rights Approval of the Board of Directors is required for the conveyance of subscription rights.

S A K A T A S E E D

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(Notes) After the issuance of common stock acquisition rights, amounts paid in will be adjusted as follows if any of the following events occur: (1) In the event that the Company splits its common stock or carries out a reverse split on such stock, the payment per

share shall be adjusted according to the following formula, with any resulting fractions rounded to the next yen:

(2) In the event that the Company issues new common stock or disposes of treasury stock shares at less than market value

{excluding conveyances of treasury stock based on provisions of Supplementary Provision 5-2 of the Law Amending the Commercial Code (Law No. 79, 2001)}, the payment per share shall be adjusted according to the following formula, with any resulting fractions rounded to the next yen:

With respect to the above formula, “number of shares previously issued” shall be defined as the total number of shares issued by the Company less the total number of treasury stock shares held by the Company. Furthermore, in the event that the Company disposes of its treasury stock shares, the phrase “number of new shares issued” shall be replaced in the formula by the phrase “number of treasury stock shares disposed of.”

(3) When reasons such as a reduction of capital, merger or division of the Company into separate companies compel the Company to adjust the payment per share, it shall make such adjustment in a reasonable manner, in consideration of the conditions affecting said capital decrease, merger or division.

Number of new shares issued × Payment per share Adjusted payment per share

Market price Number of shares previously issued +

Payment per share Number of shares

previously issued ＋ Number of new shares issued

=

Adjusted payment per share

1 Payment per share Ratio of stock split or reverse

stock split

= ×

×

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The 59th Regular General Meeting of Shareholders, held on August 28, 2000, approved the granting of stock options to the following persons listed on the register of eligible persons: 14 directors who held that position as of the end of the general shareholders meeting on August 28, 2000, and 70 senior management personnel who were employed by the Company as of that date. The Company’s stock option plan is based on Article 210-2 of the Commercial Code as of August 2000, and is executed through the purchase by the Company of its own shares.

(Resolution adopted at the Regular General Meeting of Shareholders on August 28, 2000)

Date of resolution August 28, 2000

Categories and numbers of persons to be granted rights Directors (14 persons) Employees (70 persons)

Type of shares subject to rights Par-value common stock

Number of shares 102,800 shares

Amount paid in at time of execution of rights 2,130 yen (Notes)

Period of execution of rights August 28, 2000 - August 31, 2005

Conditions for execution of rights (Notes)

Item concerning the assignment of rights There shall be no transfers, pledges or other disposal of subscription rights to third parties.

(Notes) The transfer price shall be defined as the amount arrived at by multiplying the average closing price of the Company’s common stock on the Tokyo Stock Exchange in the month preceding that in which the options are granted (excluding days on which no trading in the shares occurs), with any fractional yen rounded up to the next yen. This is provided, however, that the value of the assigned shares shall be the larger of the amount arrived at through such calculation or the average amount expended by the Company to purchase its own shares (with fractional amounts rounded up to the next yen). Furthermore, in the event that the amount arrived at through the foregoing calculation is less than the closing price on the day of the award of options, the value of the assigned shares shall be the closing price on the day that the options are awarded. Moreover, if the Company splits its stock or issues new shares at a value less than market value (excluding instances in which the new shares are issued as a result of conversions of convertible stock or the exercise of warrants), the value of the assigned shares shall be adjusted according to the following formula, with any fractional shares resulting from such adjustment rounded off to the next yen.

Number of new shares issued × Amount paid in per shareAdjusted value of assigned shares

Share price prior to split or issuance of new sharesNumber of shares previously issued + Value of assigned

shares prior to adjustment Number of shares

previously issued ＋ Number of shares added as a result of the split or issuance of new shares

= ×

S A K A T A S E E D

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Other issues On August 26, 2002, the Fair Trade Commission issued a recommendation citing the Company and 31 other seed producers for violating the provisions of Article 3 of the Anti-Monopoly Law. In its recommendation, the commission ruled that the practice of deciding on standard prices for cabbage, Chinese cabbage, turnips and daikon radish amounted to an improper restriction of trade as defined under Article 2-6 of the Anti-Monopoly Law.

Upon evaluation of the commission’s recommendation, the Company and 18 other seed producers notified the commission that they would not accept its findings. This triggered the initiation of legal proceedings by the commission on October 16, 2002. Up until now, the commission conducted 18 meetings (including ten meetings during the year ended May 31, 2005: on June 9, 2004; June 23, 2004; July 12, 2004; September 22, 2004; October 15, 2004; December 15, 2004; February 1, 2005; March 23, 2005; April 12, 2005; and May 12, 2005), and it continues to review the case.

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Cash Flows Consolidated statement of cash flows Years ended May 31; Millions of yen 2003 2004 2005

Net cash provided by (used in) operating activities

Net income before taxes and other adjustments 1,553 2,334 2,274

Depreciation expenses 1,898 2,037 1,991

Amortization of consolidation differences (97) (111) (113)

Allowance for doubtful accounts (18) 54 25

Interest and dividend income (270) (327) (420)

Interest expenses 46 43 74

Securities borrowing expenses 164 91 -

Foreign exchange losses (gains) 159 (0) (4)

Gain on sales of investment securities (0) (22) -

Loss on valuation of investment securities 1,254 - -

Decrease (increase) in trade receivables (675) 1,116 359

Decrease (increase) in inventory 485 744 1,098

Increase in notes and accounts payable 655 31 (575)

Others 26 (204) 421

5,181 5,787 5,130

Interest and dividends received 254 315 405

Interest paid (68) (43) (71)

Income taxes and others paid (1,277) (1,161) (1,094)

4,089 4,897 4,369

Net cash provided by (used in) investing activities

Increase in time deposits (9,693) (2,294) (1,953)

Proceeds from decrease in time deposits 9,607 3,413 2,260

Payments for purchase of marketable securities (3,286) (2,070) (3,681)

Proceeds from sales of marketable securities 99 878 3,637

Payments for acquisition of tangible fixed assets (765) (1,291) (1,637)

Payments for acquisition of intangible fixed assets (233) (469) (227)

Payments for purchase of investment securities (4,362) (2,380) (3,379)

Proceeds from sales of investment securities 2,116 223 662

Proceeds from redemption of investment securities 5,287 8,753 762

Payments for acquisition of subsidiaries’ capital (15) (94) (105)

Payments for loans and advances (22) (22) (10)

Proceeds from collection of short-term loans 25 33 22

Payments for assumption of business - (1,656) -

Others 122 (0) 618

(1,121) 3,021 (3,031)

S A K A T A S E E D

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Years ended May 31; Millions of yen 2003 2004 2005

Net cash provided by (used in) financing activities

Increase (decrease) in short-term borrowings (523) (122) 227

Payments of securities borrowing expenses (164) (164) -

Payments for redemption of borrowed securities - (4,000) -

Payments for purchase of treasury stock (636) (925) (33)

Dividend payments (810) (803) (842)

Others (27) (27) (32)

(2,162) (6,043) (679)

Effect of exchange rate changes on cash and cash equivalents (57) (23) 72

Increase (decrease) in cash and cash equivalents 748 1,852 731

Cash and cash equivalents at beginning of year 5,866 6,615 8,467

Cash and cash equivalents at end of year 6,615 8,467 9,198

Relationship between balance of cash and cash equivalents as of term end and balance sheet items

Years ended May 31; Millions of yen 2003 2004 2005

Cash and deposits 15,775 16,497 14,371

Time deposits, etc., of 3 months or longer (9,160) (8,030) (5,173)

Cash and cash equivalents 6,615 8,467 9,198

Increase in assets and liabilities from the assumption of a business

During the previous year, the Company’s new subsidiary, Sakata Ornamentals Europe A/S, acquired certain assets and assumed certain liabilities from L. Daehnfeldt as part of its assumption of the business of that company. The following presents the amounts of such assets and liabilities as well as the expenditures incurred in the acquisition of this business in detail. Years ended May 31; Millions of yen 2003 2004 2005

Current assets - 1,011 -

Fixed assets - 698 -

Current liabilities - (52) -

Payments for assumption of business - 1,656 -

S A K A T A S E E D

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Capital expenditures The Group spent ¥890 million on capital investment projects in Japan, of which ¥577 million went for the construction of the new Yaita Distribution Center. Overseas, it spent ¥133 million on a building for Sakata Ornamentals Europe A/S and ¥110 million on systems development at Sakata Seed America, Inc.

Capital expenditures and disposal Expenditures

Millions of yen Items Budgeted

amountExpenditures

to date Date

commenced Completion

date

Head Office Order entry and shipment system 454 20 2004/12 2006/1

New Yaita Distribution Center Distribution center 1,843 577 2005/4 2006/1

Disposal Millions of yen Items Book value at term end Projected date of scrapping

YCC Distribution Center Distribution center 52 2006/5

Dividend policy The Company’s basic policy with regard to the distribution of earnings is to maintain the most stable dividend possible while retaining sufficient earnings to strengthen its operating base, including measures to sustain future business development and to adapt to sudden and drastic changes in the business environment. Amendments to the Commercial Code have set into motion a groundswell for change regarding payouts to shareholders. Recognizing the significance of this new trend, the Company has incorporated into its previous policies a stronger emphasis on returning profits to shareholders. Full-year financial performance in Japan was extremely disappointing. However, because of the outlook for long-term improvement in the domestic market, and because of the healthy performance of most of our overseas businesses, we have decided to increase year-end dividends by ¥3 to ¥11 per share. Together with the ¥9 per share dividend paid at the end of the interim period, this brings the total payout to ¥20 per share. The Company intends to utilize retained earnings to finance product development and other R&D, and to finance information technology-related investments.

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Consolidated Operations Consolidated income statement Years ended May 31; Millions of yen 2003 2004 2005Net sales 46,842 46,281 46,357

Cost of goods sold 26,536 25,354 24,935

Gross profit on sales 20,305 20,927 21,421

Selling, general and administrative expenses 18,030 18,607 19,644

Operating income 2,275 2,319 1,776

Nonoperating income

Interest income 217 225 286

Dividend income - 102 134

Foreign exchange gains 220 - -

Rental income - 88 121

Amortization of consolidation differences - 111 113

Others 618 279 249

1,056 806 905

Nonoperating expenses

Interest expenses 46 43 74

Securities borrowing expenses 164 91 -

Foreign exchange losses - 340 38

Provision for doubtful accounts 13 13 -

Others 215 279 260

439 768 372

Ordinary profit 2,892 2,356 2,309

Extraordinary losses

Loss on disposal of fixed assets 83 21 17

Loss on valuation of investment securities 1,254 - 17

1,338 21 34

Income before taxes and other adjustments 1,553 2,334 2,274

Corporate, inhabitants and other taxes 1,254 1,147 841

Adjustments to corporate income taxes (640) (411) (194)

613 736 646

Minority interest in income of consolidated companies 91 62 46

Net income 848 1,536 1,581

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Consolidated statement of retained earnings Years ended May 31; Millions of yen 2003 2004 2005Capital reserves

Capital reserves, beginning of term 10,823 10,823 10,823

Capital reserves, end of term 10,823 10,823 10,823

Retained earnings

Retained earnings, beginning of term 61,261 61,283 62,003

Increase in retained earnings

Net income 848 1,536 1,581

848 1,536 1,581

Decrease in retained earnings

Dividends 810 803 841

Directors' bonuses 15 13 38

Loss on disposal of treasury stock - 0 0

Others - - 7

826 816 887

Retained earnings, end of term 61,283 62,003 62,696

Results of operations Fiscal year ended May 31, 2005 Net sales, up 0.2% to ¥46,357 million; operating income, down 23.4% to ¥1,776 million; ordinary profit, down 2.0% to ¥2,309 million; and net income, up 2.9% to ¥1,581 million. Economic and other factors affecting operations 1. Continuing expansion in Japan and the global economy

• In Japan, a stalling of export growth, reflecting worries about oil markets and a trend in Chinese economy; at the same time, a steady recovery of corporate profits, underpinning prospects for a continued gradual expansion

• Solid growth in the U.S. economy, which is benefiting from a nimble and proactive monetary policy by the Federal Reserve Bank.

2. Increasingly difficult business environment for Japanese agriculture • Declining prices for flowers and other fresh produce, which exacerbate operating

difficulties for nurseries and suppliers of agricultural and horticultural materials

S A K A T A S E E D

30

• Further adaptation to environmental and ecological needs and to product differentiation based on quality, leading to gradual reductions in the use of pesticides and herbicides and to increasing use of environmentally friendly materials and products

3. Other factors • In North America and Europe, the impact of the acquisition of the flower division

of L. Daehnfeldt A/S in August 2003—leading to higher revenues from flower seeds cultivated by L. Daehnfeldt A/S

• A strong euro, which increases competition for the Group in Europe from lower-priced flower seeds imported from producers who are shipping from dollar-based economies

• Strong sales of vegetable seeds in non-European markets 1) Extremely strong growth in Asia, particularly Korea (Chinese cabbage for

domestic market and chili peppers for export to China) 2) In South America, increased acreage for tomatoes, rebounding from a virus

outbreak in the previous year 3) Strong exports of peppers from the United States to Mexico 4) Europe is the exception because sales of broccoli, the Group’s principal

product, were dampened by intense competition. Financial analysis (year-on-year, percentage changes) 1. Parent company results: decline in domestic sales and gross margins

• The impact of unfavorable weather—extreme heat and typhoons in the first half, extreme cold in the second half—reduces business across the board in both wholesaling and retailing.

• Sales of flower seeds sharply lower due to a persistent weakness in the market for flower seedlings which diminishes growers’ motivation to plant

• Despite substantial growth in sales of seeds of tomatoes, carrots, bunching onions and komatsuna, the sales of vegetable seeds also decline sharply due to product line adjustments (removal of unprofitable bulbs and horticultural material).

• Inventory adjustments, including disposal of seeds in the wake of amendments to the Agricultural Chemicals Regulation Law, reduce gross profit margin.

S A K A T A S E E D

31

2. Parent company results: sharp decline in export sales and in operating profit margins on exports • Reflects change in accounting methodology to recognition of royalties by the

Company on vegetable seed sales to Europe; also reflects transfer of business in Australian and African markets to the books of overseas subsidiaries.

• Strong growth of exports to Asia, which continues to be covered by the Company 3. Consolidated results: decline in operating income

• Reflecting a ¥1,036 million increase in sales expenses, mainly related to the acquisition of the flower division of L. Daehnfeldt A/S

• Impacts from increased long-term investments in the future Review of existing businesses and operations

• Dissolution of unprofitable Yurix Co., Ltd. • Integrating sales function for wholesaling to Kyushu home improvement

retailers • Shifting physical distribution function to the Yaita facility, with the aim of

integrating the order entry and shipment system • Adopting measures to enhance operating efficiency through integration of basic

operations-related systems Segment information by business (year-on-year, percentage changes) 1. Wholesaling: net sales, up 2.7% to ¥33,351 million; operating income, down 2.4%

to ¥6,576 million • Vegetable seeds: overall, sales of vegetable seeds grow year-on-year—with a

breakdown of flat domestic sales and higher overseas sales. 1) Domestic market

- Strong sales of tomatoes, bunching onions, carrots and Chinese cabbage - Other items, with the exception of melons, also showing signs of reversing

declines 2) Overseas markets

- In North America, stronger sales of peppers to Mexico - In South America, higher sales of tomatoes, peppers and lettuce - In Asia, rapid sales increases, particularly of Chinese cabbage in Korea - Improvements offset, however, by a sharp decline in sales in Europe, where

competition has intensified

S A K A T A S E E D

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• Flower seeds: United States and Europe strong, domestic market weak 1) First full-year of contributions from gerbera daisies, primulas and other

products in the former L. Daehnfeldt A/S product line (compared to seven months’ worth of former L. Daehnfeldt A/S sales in the previous year), leading to extremely favorable year-on-year comparisons

2) Sales of pansies, a major Sakata-developed product, sharply lower in the domestic market due to production cut backs by producers who are discouraged by persistently weak prices

3) Introduction of a number of new products aimed at stemming the sales decline and generating new value in the market - RAINBOW VIOLETS WITH LICCA - FUNWARI VIOLAS

• Bulbs: overall sales decline, but slight improvement in gross margins 1) Further reductions made to the low-margined refrigerated and frozen lily bulb

business 2) Bad weather, causing problems for spring planting 3) Focus on selling profitable bulb combinations leads to slight margin

improvement. • Seedlings: overall year-on-year growth

1) Overall increase in seedling sales, reflecting significant contributions in Europe from former L. Daehnfeldt A/S products

2) Domestically, further development of royalty business; also, a focus on sales of profitable “original combination sets”

• Agricultural and horticultural products: steep decline in sales 1) Vinyl sheets strong because of recovery-related demand in the wake of

typhoons 2) Declines in orders for low-margined chemicals, soil and fertilizer from large

users 2. Retailing: net sales, down 4.2% to ¥12,180 million; operating deficit of ¥82 million,

compared to operating income of ¥108 million in the previous year • Unfavorable weather in peak selling seasons (extremely hot summer, frequent

typhoons in the autumn and an extremely cold winter) reduces motivation to buy among horticultural hobbyists.

S A K A T A S E E D

33

• Mail order 1) Sharp decline in sales of flower seedlings, bulbs and trees 2) Despite competition from large volume retailers, sales of vegetable seeds

increase, helped by proposals for specially designed products; orders through the Company’s website also strong

• Garden centers 1) Declines in customer traffic due to unfavorable weather 2) Steps taken to improve precision of merchandise management with aim of

increasing profit margins • Home gardening department: sales strong in eastern Japan but disappointing

results in Hokkaido and western Japan as Company reassesses merchandise lineup for those markets

3. Other businesses: net sales, down 24.8% to ¥825 million; operating deficit of ¥10 million, compared to operating income of ¥70 million in the previous year • In landscaping, substantial growth in orders from the private sector due to focus

on rooftop greenery installation and lawn management; this growth nullified, however, by weakness in public sector orders

• In the greenery division, business sagged in both rooftop and schoolyard segments.

Segment information by region (percentage changes, year-on-year) 1. Japan: net sales, down 3.4% to ¥31,264 million; operating income, down 17.1% to

¥5,566 million • Despite recovery in the Japanese economy, continued difficulties for the seed

industry in Japan 1) Weakness in wholesaling of flower seeds, mail order of horticultural

materials and sales through home improvement centers (vegetable seeds the only exception), due to unfavorable weather and persistently low prices

2) Operational review by the Company aimed at creating new enterprise value, including weighing of the option of closing unprofitable companies, rebuilding physical distribution systems and integrating other systems

• Exports 1) Strong to Asia 2) Changes in the form of internal transactions, including recognizing royalties

on sales of vegetable seeds to Europe, using dollars instead of euros as the settlement currency for sales of flower seeds to Europe, etc.

S A K A T A S E E D

34

2. North America: net sales, up 7.6% to ¥6,407 million; operating income, up 4.1% to ¥576 million • Vegetable seeds: slight increase in net sales

1) Substantial growth in sales of peppers and tomatoes 2) Negated by production problems for broccoli due to heat wave in Arizona

• Flower seeds: overall strong gain in net sales 1) Major contributions from gerbera daisies, primulas and other products from

the former L. Daehnfeldt A/S product line 2) Significant growth in Sakata-developed products, particularly pansies and

lisianthus 3) Sharp decline in exports to the Company

3. Europe: net sales, up 1.4% to ¥5,158 million; operating deficit, ¥359 million, representing a decline of ¥365 million compared to the previous year • Sales of flower seeds and seedlings higher due to contributions from gerbera

daisies, primulas and other products from the former L. Daehnfeldt A/S product line

• Sakata-developed flower seeds fare poorly. 1) Pansies, due to intense competition within Europe 2) Lisianthus and other products, due to increased imports of lower-priced seeds

from dollar-based economies in response to euro’s appreciation • Slower sales of vegetable seeds, reflecting intense competition in the broccoli

and cauliflower segments • Higher sales expenses, partly related to the acquisition of L. Daehnfeldt A/S and

partly to costs of moving to a new distribution center 4. Other regions: net sales, up 22.3% to ¥3,526 million; operating income, up 45.6% to

¥390 million • In South America, increased revenues resulting from a recovery of tomato

production; peppers, lettuce and pumpkins also strong. However, compulsory wage increases lead to higher sales expenses.

• In Korea, strong growth of Sakata-developed products leading to sharp increases in sales and profits. Sales of Chinese cabbage for the Korean market a major factor (the Chinese cabbage was a product of the Yoju (Korea) Research Station, established in 2000). Exports of chili peppers to China also strong

S A K A T A S E E D

35

Fiscal year ended May 31, 2004 Net sales, down 1.2% to ¥46,281 million; operating income, up 2.0% to ¥2,319 million; ordinary profit, down 18.5% to ¥2,356 million; and net income, up 81.0% to ¥1,536 million. Economic and other factors affecting operations 1. Brighter economic picture in Japan and other countries

• In the second half of the fiscal year, economic revitalization in Japan’s manufacturing sector, supported by growth in exports and capital investment

• In the United States, a surging real economy led by private demand, which is spurred by record-low interest rates

• Appreciation of the yen against the dollar 2. Difficult environment for the seed industry in Japan

• Sudden emergence of “food safety” and “environmental health” as key issues requiring action by seed producers

• Continued poor business environment for farmers • Deteriorating financial health of seed distributors (including growing numbers of

bankruptcies) due to continuing slippage in fresh produce prices 3. Other factors

• Unfavorable weather in Japan from summer through autumn 2003 • Virus outbreak in South America, which severely reduces plantings of tomatoes

in that market Strategic measures by the Company 1. Reorganization as part of long-term strategic plan (See Appendix below.)

• Strengthened marketing capabilities through organizational realignment and the creation of teams for individual products

• Strengthened international competitiveness through reorganization of the European sales and distribution network

• Reduced inventories, discontinued unprofitable business lines and integrated distribution capabilities

• Implementation of more effective personnel policies, including expansion and strengthening of training programs

2. Marketing-related developments • Establishment of Sakata Ornamentals Europe A/S, in Denmark, following

acquisition of the flower division of L. Daehnfeldt A/S

S A K A T A S E E D

36

• Opening of a representative office in Bangalore, India Financial analysis (year-on-year, percentage changes) 1. In domestic operations, cost savings lead to higher gross profits and operating

income. • Company results: revenues down 1.1% but operating income up 27.2% • Profit improved through thorough review and restructuring of unprofitable

product lines • Reductions of SG&A expenses

2. Impact of investments and a weaker dollar on overseas results • Consolidated ordinary profit down 18.5%, down 9.1% on Company basis • Profits affected by acquisition-related costs (for L. Daehnfeldt A/S) and

long-term investments aimed at reorganizing European sales and distribution network

• Higher dollar sales in North America, particularly of chili peppers and gerbera daisies, translating into fewer yen because of yen appreciation

3. Recovery in Japanese stock market, eliminating the need to recognize valuation losses on investment securities

Segment information by business (year-on-year, percentage changes) 1. Seed wholesaling: net sales, up 0.7% to ¥29,614 million; operating income, up 1.8%

to ¥4,685 million • Vegetables (domestic market): notwithstanding the continuing slippage in

produce prices, signs of sales decreases bottoming out in Japan 1) Surging sales of broccoli and bunching onions, and steady demand for

carrots, tomatoes and cucumbers 2) In areas where sales have been particularly weak (cabbage, spinach, corn and

melons), introduction of new varieties begins to ameliorate the decline. • Vegetables (overseas markets): measured in local currencies, sales are up in most

major overseas markets. 1) North America (including Mexico): strong sales of chili peppers (which do

particularly well in Mexico) and melons offset marginal decline in cabbage sales, generating year-on-year increase.

2) South America: sharp decline in sales of tomatoes nullifies growth in sales of melons and cabbage, causing year-on-year decline.

3) Europe: cabbage, watermelon and cauliflower sales increase.

S A K A T A S E E D

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4) Asia: The Company’s Chinese cabbage cultivar gains acceptance among Korean producers.

• Flowers 1) Bad weather in peak selling seasons in Japan undermines prices of seedlings

and cut flowers, resulting in a year-on-year decline in sales. Despite marketing efforts for the LR series, pansy sales weaken in Japan and North America.

2) Lisianthus: sales end flat, as demand cools following a surge of buying sparked by impending amendments to the Agricultural Chemicals Regulation Law.

3) Products of the former L. Daehnfeldt A/S (gerbera daisies, primula and begonias) do well in North America.

• Bulbs: sales decline but gross profits increase due to: 1) Emphasis on the marketing of Sakata-developed products 2) Other changes in the product mix

• Seedlings: weakness seen across the board, for potted flowers, flower beds and cut flowers; sales of flower seedlings in Europe decline.

2. Wholesaling of agricultural and horticultural materials: net sales, down 5.7% to ¥11,299 million; operating loss widens by 46.5% to ¥184 million. • Development of the industry’s first “soil biosensor,” which uses sensor

technology to identify the susceptibility of soils to disease; also, development of new series of fertilizers for organic farming

• Decline in revenues attributable to: 1) Low temperatures in the first half of the fiscal year 2) Elimination of unprofitable product lines (particularly agricultural

chemicals) 3. Other businesses: net sales, down 1.4% to ¥5,367 million; operating loss shrinks by

56.3% to ¥130 million. • Garden centers: Internet-based WEB Shop does well, but business at stores is

severely impacted by competition from large-scale retailers; retail operations are also affected by bad weather in peak seasons. In addition to lowering costs, the Company’s task is to forge an identity for its retail operations that combines high quality with high profitability.

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• Landscaping and greenery: sales benefit from completion of large orders from the national government and from brisk sales in the area of lawn management and installation of rooftop greenery. However, projects for grass maintenance on behalf of golf courses and flower bed construction decline.

Segment information by region (year-on-year, percentage changes) 1. Japan: net sales, down 3.7% to ¥32,360 million; operating income, up 14.6% to

¥4,231 million • Positive trends

1) Signs of recovery in vegetable seed business 2) Strong landscaping operations 3) Lower write-offs of defective seeds and successful cost reductions

• Negative trends 1) Slumping sales of flower seeds, bulbs and horticultural materials 2) Lack of growth in retailing business at garden centers

2. North America: net sales, down 7.4% to ¥5,952 million; operating income, up 23.5% to ¥554 million • Positive trends

1) Despite a slight decline in mainstay broccoli sales, sharp growth seen in sales of cabbages, peppers and spinach, leading to a year-on-year increase in vegetable seed sales

2) Decline in sales of pansies compensated for by gains in sales of zinnia, lisianthus and primula and by contributions from gerbera daisies, which were formerly marketed by L. Daehnfeldt A/S

• Negative trends 1) Stronger yen results in 12.1% decline in sales when translated into yen

3. Europe: net sales, up 25.1% to ¥5,085 million; operating income, down 93.7% to ¥6 million Costs associated with the acquisition of the flower division of L. Daehnfeldt A/S and costs incurred for transferring sales and distribution operations for vegetables and flowers to France and Denmark cause expenses to increase sharply.

4. Other regions: net sales, up 5.6% to ¥2,882 million; operating income, up 120.6% to ¥268 million • South America: lower sales of tomatoes combined with higher personnel

expenses (because of mandatory wage increases) result in year-on-year declines in sales and profits.

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• Asia: Sakata Korea Co., Ltd. reports higher sales and profits. Appendix: Review of strategic plan I. The year ended May 31, 2004 was the final year of the 3-year Sakata New Century

Plan, the goals of which were to: a. Become number one in the industry in terms of customer satisfaction b. Develop an ability to respond quickly to the increasingly globalized nature of

agriculture c. Achieve lower-cost operations

II. Assessment a. Sales and profit fell far short of the targets projected in the plan, particularly in

the domestic market. b. Measures to deal with the rapidly changing business environment and to restore

profit-earning capabilities remain incompletely executed, as indicated by the Company’s failure to recover to appropriate levels of profitability.

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Segment information Business segment information

Millions of yen Wholesaling Retailing Others Total Eliminations Consolidated

2005 Sales

External customer sales 33,351 12,180 825 46,357 - 46,357

Intersegment transactions and eliminations 498 0 89 588 (588) -

33,849 12,180 914 46,945 (588) 46,357

Operating expenses 27,272 12,263 925 40,461 4,118 44,580

Operating income 6,576 (82) (10) 6,483 (4,706) 1,776

Identifiable assets 48,603 4,598 654 53,856 44,211 98,067

Depreciation 1,303 99 0 1,403 587 1,991

Capital expenditures 1,736 28 0 1,765 64 1,829

Seed

wholesaling

Wholesaling of agricultural and

horticultural materials Others Total Eliminations Consolidated

2004 Sales

External customer sales 29,614 11,299 5,367 46,281 - 46,281

Intersegment transactions and eliminations 491 41 22 555 (555) -

30,106 11,340 5,389 46,836 (555) 46,281

Operating expenses 25,420 11,525 5,520 42,465 1,496 43,962

Operating income 4,685 (184) (130) 4,370 (2,051) 2,319

Identifiable assets 53,493 9,339 4,923 67,755 28,336 96,092

Depreciation 1,520 105 176 1,802 234 2,037

Capital expenditures 1,523 12 38 1,574 137 1,712

Change in business classifications and in method of allocating expenses Whereas the Company had previously categorized its businesses into “Seed Wholesaling,” “Wholesaling of Agricultural and Horticultural Materials” and “Other Businesses,” it changed these classifications in the year ended May 2005 to “Wholesaling,” “Retailing” and “Other Businesses.” The Company’s aim was to strengthen, and to improve the profitability of, the division that sells merchandise to horticultural hobbyists. While bearing in mind the existing interrelationships among its wholesaling divisions, it carried out this reorganization on July 1, 2004. The changes in classification made during the year to May 2005 take into account the realities of financial management following the July 2004 reorganization and seek to increase the usefulness of the Company’s segment information. As a result of these changes, certain operating expenses that had previously been allocated to each segment are now treated differently. The principal change in this regard relates to the R&D expenses of the Company, which are now included in “eliminations or corporate items” due to the difficulty of allocating them as operating expenses.

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Geographical segment information

Millions of yen

2005 Japan North America Europe Others Total Eliminations Consolidated

Sales

External customers 31,264 6,407 5,158 3,526 46,357 - 46,357

Internal 3,621 1,400 1,076 647 6,746 (6,746) -

34,886 7,807 6,235 4,174 53,103 (6,746) 46,357

Operating expenses 29,319 7,230 6,594 3,783 46,929 (2,348) 44,580

Operating income 5,566 576 (359) 390 6,174 (4,397) 1,776

Identifiable assets 45,516 8,506 8,271 5,583 67,878 30,189 98,067

2004

Sales

External customers 32,360 5,952 5,085 2,882 46,281 - 46,281

Internal 4,573 1,649 650 960 7,834 (7,834) -

36,933 7,601 5,736 3,843 54,115 (7,834) 46,281

Operating expenses 32,702 7,047 5,730 3,575 49,055 (5,093) 43,962

Operating income 4,231 554 6 268 5,059 (2,740) 2,319

Identifiable assets 59,810 8,466 8,244 5,113 81,634 14,457 96,092

As a result of changes mentioned under Business Segment Information, certain operating expenses that had previously been allocated to each segment are now treated differently. The principal change in this regard relates to the R&D expenses of the Company, which are now included in “eliminations or corporate items” due to the difficulty of allocating them as operating expenses.

Overseas sales

2004 2005 Millions of yen Overseas sales As % of net sales Overseas sales As % of net sales

North America 6,002 13.0 6,530 14.1

Europe 5,092 11.0 5,158 11.1

Other regions 3,824 8.2 4,644 10.0

14,919 32.2 16,333 35.2

Consolidated net sales 46,281 46,357

S A K A T A S E E D

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Issues requiring action 1. In the second year of the 3-year management plan covering the period to May 2007,

the Company is placing its highest priority on achieving the goals of the plan, including its financial targets: net sales, ¥50 billion; operating income, ¥5 billion; and an operating profit margin of 10%.

2. Continuing to strengthen the foundations of operations to establish the Company as No. 1 in customer satisfaction; and establishing a management capable of achieving a high potential by:

• Reassessing existing businesses to generate new enterprise value

• Integrating shipping operations with selection and seed processing operations

• Adopting measures to integrate systems Companywide 3. Putting the “Think Global! Act Local!” strategy into practice

Sales and procurement Procurement Millions of yen 2005 Amount Year-on-year (%)

Wholesaling 15,029 1.1

Retailing 8,163 (5.9)

Others 785 (13.7)

23,977 (1.9)

In the fiscal year ended May 2005, the Company changed its method of categorizing its business segments. All year-on-year comparisons are based on a reclassification of the Company’s results for the year to May 2004.

Sales by business

Millions of yen 2005 Amount Year-on-year (%)

Wholesaling 33,351 2.7

Retailing 12,180 (4.2)

Others 825 (24.8)

46,357 0.2

In the fiscal year ended May 2005, the Company changed its method of categorizing its business segments. All year-on-year comparisons are based on a reclassification of the Company’s results for the year to May 2004.

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Selling, general and administrative expenses Years ended May 31; Millions of yen 2003 2004 2005Packing expenses 457 438 409

Transportation expenses 1,107 995 972

Advertising expenses 837 831 852

Provision for allowance for doubtful accounts 64 143 73

Employees' salaries 6,535 6,999 7,337

Retirement benefit expenses 386 417 446

Reserve provision for directors' retirement allowances 43 34 44

Depreciation expenses 1,558 1,720 1,705

Research and development expenses 2,952 2,975 3,269

Leases Under generally accepted accounting principles in Japan, finance leases that do not transfer ownership are accounted for in the same manner as operating leases when “as if capitalized” information is disclosed. The Company’s main finance lease contracts are as follows: Years ended May 31; Millions of yen 2003 2004 2005Machinery, vehicles and delivery equipment

Acquisition cost 185 200 158

Accumulated depreciation 125 130 92

Net leased property 60 69 65 Other tangible fixed assets

Acquisition cost 519 480 433

Accumulated depreciation 239 257 289

Net leased property 279 222 143 Other intangible fixed assets

Acquisition cost 502 505 557

Accumulated depreciation 148 209 316

Net leased property 353 296 241 Total

Acquisition cost 1,207 1,185 1,149

Accumulated depreciation 513 597 698

Net leased property 693 588 450 Future minimum lease payments, including interest portion Due within one year 221 214 216

Due after one year 471 373 233

693 588 450

Lease payments 304 243 217

Pro forma depreciation expenses (assuming straight-line method)

304 243 217

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Capital Structure Consolidated balance sheet Assets As of May 31; Millions of yen 2003 2004 2005

Current assets Cash and deposits 15,775 16,497 14,371

Trade notes and accounts receivable - total 14,563 13,456 13,346

Marketable securities 8,215 1,041 879

Inventories 17,231 16,880 16,147

Deferred tax assets 1,186 1,309 1,098

Others 1,097 1,486 1,572

Allowance for doubtful accounts (333) (412) (460)

57,736 50,257 46,955

Fixed assets Tangible fixed assets

Buildings and structures 23,049 23,839 24,784

Accumulated depreciation (10,580) (11,361) (12,336)

12,469 12,477 12,447

Machinery, vehicles and delivery equipment 7,459 7,578 7,850

Accumulated depreciation (5,298) (5,510) (5,859)

2,161 2,067 1,990

Land 14,697 14,660 14,717

Construction in progress 193 302 677

Others 1,973 2,006 2,066

Accumulated depreciation (1,434) (1,513) (1,630)

538 492 435

30,060 30,000 30,269

Intangible fixed assets

Others 985 1,095 984

985 1,095 984

Investments and other assets

Investment securities 8,747 12,750 15,529

Long-term loans 44 29 23

Deferred tax assets 1,533 823 903

Others 1,298 1,540 3,793

Allowance for doubtful accounts (428) (405) (391)

11,195 14,738 19,858

Total fixed assets 42,241 45,834 51,111

Total assets 99,978 96,092 98,067

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Liabilities and shareholders’ equity

As of May 31; Millions of yen 2003 2004 2005

Current liabilities Notes and accounts payable - trade 5,475 5,510 5,198

Short-term borrowings 1,224 1,057 1,351

Income taxes payable 540 567 319

Others 2,414 2,390 2,925

13,724 9,525 9,795

Long-term liabilities Long-term borrowings 81 67 42

Reserve for employees' retirement benefits 1,317 1,444 1,480

Reserve for directors' retirement allowances 184 209 227

Consolidation translation adjustments 476 425 368

Deferred tax liabilities 297 302 242

Others 151 144 146

2,508 2,593 2,509

16,233 12,119 12,305

Minority shareholders' equity in consolidated companies

1,113 931 836

Shareholders' equity

Common stock 13,500 13,500 13,500

Capital reserves 10,823 10,823 10,823

Retained earnings 61,283 62,003 62,696

Unrealized gains or losses on other securities (146) 1,165 1,520

Foreign currency translation adjustments (1,701) (2,396) (1,527)

Treasury stock (1,127) (2,053) (2,086)

Total shareholders' equity 82,631 83,041 84,926

Total liabilities, minority shareholder's equity and shareholders' equity

99,978 96,092 98,067

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Market value of securities Other quoted securities 2004 2005

Millions of yen Cost of

acquisition Book valueUnrealized gain

(loss)Cost of

acquisition Book value Unrealized gain

(loss)Securities valued on the consolidated balance sheet at amounts greater than purchase cost

Shares 3,869 6,068 2,198 4,693 7,830 3,137

Bonds

JGB, local government bonds, etc. - - - 59 60 0

Corporate bonds 429 449 20 244 247 2

Others - - - - - -

Others 200 205 5 200 202 2

4,498 6,722 2,224 5,198 8,341 3,142Securities for which valuations on the consolidated balance sheet do not exceed purchase cost

Shares 1,277 1,216 (60) 939 880 (58)

Bonds

JGB, local government bonds, etc. 271 205 (66) 211 131 (79)

Corporate bonds 890 864 (26) 2,948 2,781 (167)

Others 1,622 1,522 (100) 1,800 1,530 (269)

Others 238 232 (6) 114 108 (5)

4,300 4,040 (260) 6,014 5,433 (580)

8,799 10,763 1,963 11,212 13,774 2,562

A reduction in value of impaired shares of \21 mn (May 31, 2005 term)

Other marketable securities sold during the years ended May 31, 2004 and 2005 2004 2005 Millions of yen

Amount sold Total gain on

sales Total loss on

sales Amount soldTotal gain on

salesTotal loss on

sales

1,080 24 2 4,300 13 -

Major investment securities without market prices

Millions of yen 2004 2005

Other securities

Money management fund (MMF) 130 90

Unlisted stocks (excluding OTC stocks) 2,587 2,539

Unlisted foreign bonds 300 0

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Scheduled redemptions of bonds with maturity dates and bonds being held to maturity (among holdings in the “other securities” account) 2004 2005

Millions of yen Up to 1 year

Greater than 1 and up to

5 years

Greater than 5 and up to

10 yearsGreater than

10 years Up to 1 year

Greater than 1 and up to

5 years

Greater than 5 and up to

10 yearsGreater than

10 yearsBonds

JGB, local government bonds, etc. - 145 234 - 131 60 - -

Corporate bonds 139 820 - 476 641 694 - 1,562

Others 620 - - 901 - 1,092 - 438

Others 6 - 300 - - 217 49 -

767 966 534 1,377 773 2,064 49 2,000

Derivatives Millions of yen 2004 2005

Total Over one

yearMarket

valueUnrealized gain (loss) Total

Over one year

Market value

Unrealized gain (loss)

Forward exchange contracts

Buy side

US dollar 15 - 15 0 110 - 109 0

Euro 17 - 18 1 50 - 48 (1)

Currency option contracts

Sell side

Put US dollar 118 - (9) (3) 103 - (7) (1)

Put Euro 188 - (1) 9 134 - (0) 9

Buy side

Call US dollar 118 - 4 (0) 103 - 2 (2)

Call Euro 188 - 30 22 134 - 23 18

646 - 57 27 637 - 176 21

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Facilities

Millions of yen Buildings and

structures

Machinery and delivery

equipment Land Others Total book

value Number of employees

Book value Book value Book value Square meters Book value Administrative office and branches Head Office (Yokohama) 2,375 17 4,238 18,034 76 6,708 256

Hokkaido Branch 198 0 10 5,117 2 212 9

Higashi Nihon Branch 553 4 442 14,155 5 1,009 55

Nishi Nihon Branch 259 1 1,034 4,967 2 1,298 41

Kyushu Branch 80 0 497 4,695 1 580 25

Hazawa Office 635 82 1,392 15,755 26 2,136 33

Yaita Distribution Center 604 107 225 45,083 3 940 -

Kazo Distribution Station 140 4 138 6,150 0 288 -

YCC Distribution Center and additional offices

114 25 - - 7 147 10

Kazo Research Station 5 5 364 16,040 - 368 0

Kimitsu Research Station 189 91 61 96,121 8 352 29

Kakegawa Research Center 863 194 1,857 290,444 40 2,955 68

Hokkaido Research Station and other

162 44 106 118,468 1 314 24

Garden Center Yokohama 793 0 296 4,250 22 1,113 17

Garden Center Shonan 102 0 - - 1 103 6

Chogo Distribution Center 265 9 7 28,507 4 286 3 Leased to consolidated companies

Yamagata Celltop Co., Ltd. 134 12 216 116,849 0 362 -

Kyoei Noji Co., Ltd. 156 - - - - 156 -

Sakata Seed America, Inc. 299 - 392 525,778 0 692 -

Yurix Co., Ltd. and other 109 0 236 49,370 - 346 -

Idle equipment 90 0 970 27,589 0 1,061 -

Recreation center, dormitory and company housing

496 - 500 2,838 - 996 -

Domestic consolidated companies

Kyoei Noji Co., Ltd. 4 192 - - 16 213 53

4 Celltop companies 89 71 86 20,006 1 248 33 Overseas consolidated companies

Sakata Seed America, Inc. 634 290 229 488,530 69 1,224 157

Sakata Vegetables Europe S.A.R.L. 437 134 26 19,000 19 618 56

Sakata Ornamentals Europe A/S 685 71 - 11,000 8 766 73

Sakata Holland B.V. 180 47 110 81,932 6 344 10

Sakata Ornamentals UK Ltd. 160 56 20 48,000 17 255 28

Sakata Seed Sudamerica Ltda. 160 175 108 53,403 17 462 275

Sakata Korea Co., Ltd. 526 18 249 128,754 10 805 44

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Debt Borrowings

Millions of yen Previous period Outstanding Average rate (%) Maturity

Short-term borrowings 1,016 1,320 2.6 -

Current portion of long-term borrowings 40 30 0.1 -

Long-term borrowings (excluding current portion of long-term borrowings)

67 42 0.8 2006-2009

1,124 1,393 - -

Retirement benefits The Company and its domestic subsidiaries offer employees defined benefit pension plans in the form of tax-qualified pensions or lump-sum payments at retirement.

Items related to retirement benefit liabilities

Millions of yen 2004 2005

Retirement benefit obligations (3,449) (3,478)

Pension assets 1,519 1,595

Unaccrued retirement benefit obligations (1,930) (1,883)

Unrecognized actuarial gains or losses 485 402

Liability for retirement benefits (1,444) (1,480)

Items related to retirement benefit expenses

Millions of yen 2004 2005

Current service costs 384 453

Interest expenses 64 65

Expected return on plan assets (25) (29)

Expensing of differences based on actuarial calculations 81 63

Retirement benefit expenses 504 553

Assumptions underlying the calculation of retirement benefit liabilities

2004 2005

Discount rate 2.0% 2.0%

Expected rate of return 2.0% 2.0%

Method of allocating prospective retirement benefits to each period

Periodic straight-line basis

Periodic straight-line basis

Amortization period for actuarial gains or losses 10 years 10 years

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Deferred taxes Millions of yen 2004 2005

Deferred tax assets 3,117 3,313

Deferred tax liabilities 1,287 1,554

Deferred tax assets - net 1,829 1,758

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Nonconsolidated Financial Statements Nonconsolidated income statement Years ended May 31; Millions of yen 2003 2004 2005Net sales 35,834 35,432 33,071

Cost of goods sold

Merchandise inventory, beginning of year 11,809 11,512 10,658

Purchase of merchandise 21,642 20,362 18,554

33,451 31,875 29,212

Merchandise inventory, end of year 11,512 10,658 9,147

21,938 21,216 20,065

Gross profit on sales 13,896 14,216 13,006

Selling, general and administrative expenses

Sales packing expenses 582 606 538

Transportation expenses 1,098 1,029 1,004

Advertising expenses 710 665 663

Provision for doubtful accounts - 62 22

Employees' salaries 3,862 3,859 3,754

Provision for directors' retirement allowances 34 20 31

Retirement benefit expenses 241 280 258

Depreciation expenses 1,111 1,111 1,033

Rental expenses 437 528 528

Others 4,313 4,139 4,540

12,392 12,303 12,375

Operating income 1,503 1,912 631

Nonoperating income

Interest income 75 81 71

Interest income from securities 85 82 108

Dividend income 98 134 176

Rental income 108 111 137

Foreign exchange gains 335 - -

Others 133 76 100

836 486 593

Nonoperating expenses

Securities borrowed expenses 164 91 -

Foreign exchange losses - 257 55

Others 43 111 45

207 460 100

Ordinary profit 2,132 1,938 1,124

S A K A T A S E E D

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Years ended May 31; Millions of yen 2003 2004 2005

Extraordinary losses

Loss on disposal of fixed assets 83 12 15

Loss on valuation of investment securities 1,236 - 17

Loss on valuation of capital stock of affiliated company - - 35

1,320 12 67

Income before taxes and special reserves 812 1,925 1,056

Corporate, inhabitants and other taxes 934 818 454

Adjustments for income and other taxes (515) (136) (74)

418 682 380

Net income 393 1,243 676

Retained earnings brought forward from previous year 399 776 590

Loss on disposal of treasury stock - 0 0

Interim dividends 404 401 445

Unappropriated retained earnings, fiscal year-end 387 1,617 821

Appropriation of nonconsolidated retained earnings 2003 2004 2005Millions of yen August 28 August 26 August 30

Unappropriated retained earnings, fiscal year-end 387 1,617 821

Disposition of voluntary reserves 800 - 1,000

Disposition of special reserve 800 - 1,000

1,187 1,617 1,821

Appropriated retained earnings 411 1,026 549

Dividends 401 396 544

Directors' bonuses 4 30 4

(Corporate auditors' bonuses 4 4 4 )

Voluntary reserves - total

Reserve for asset reduction entry 5 - -

Special reserves - 600 -

Retained earnings carried forward to following year 776 590 1,272

S A K A T A S E E D

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Nonconsolidated Capital Structure Nonconsolidated balance sheet Assets

As of May 31; Millions of yen 2003 2004 2005

Current assets Cash and deposits 12,456 12,868 11,207

Notes receivable - trade 4,291 3,378 3,011

Accounts receivable - trade 8,509 8,945 8,087

Marketable securities 8,164 850 863

Merchandise 11,512 10,658 9,147

Expenses on unfinished projects 55 13 119

Supplies 622 597 551

Advances to suppliers 211 12 111

Deferred tax assets 167 129 155

Others 383 751 848

Allowance for doubtful accounts (168) (246) (270)

46,206 37,958 33,833

Fixed assets Tangible fixed assets

Buildings 16,798 16,902 16,956

Accumulated depreciation (7,704) (8,272) (8,803)

9,094 8,629 8,152

Structures 1,685 1,705 1,712

Accumulated depreciation (1,106) (1,177) (1,235)

578 528 477

Machinery and equipment 3,481 3,475 3,508

Accumulated depreciation (2,757) (2,864) (2,925)

724 610 582

Vehicles and delivery equipment 198 163 158

Accumulated depreciation (171) (142) (137)

27 20 20

Tools, furniture and fixtures 1,109 1,121 1,102

Accumulated depreciation (820) (874) (895)

289 247 207

Land 12,999 13,000 12,991

Construction in progress 42 17 578

23,756 23,054 23,012

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As of May 31; Millions of yen 2003 2004 2005Intangible fixed assets

Patents 330 250 170

Leaseholds 4 4 4

Software 315 466 331

Others 165 17 52

816 739 559

Investments and other assets

Investment securities 8,557 12,474 15,181

Capital stock of affiliated companies 5,850 8,023 8,093

Investments other than securities 8 8 8

Other equity investments - affiliated companies 1,557 1,557 1,557

Long-term loans 17 10 4

Long-term loans to employees 11 8 7

Long-term loans to affiliated companies 1,899 1,336 1,001

Reorganization, bankruptcy and other claims 812 843 820

Deferred tax assets 1,705 979 780

Others 714 892 3,101

Allowance for doubtful accounts (996) (957) (913)

20,137 25,177 29,643

Total fixed assets 44,710 48,971 53,215

Total assets 90,917 86,930 87,048

S A K A T A S E E D

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Liabilities and shareholders’ equity

As of May 31; Millions of yen 2003 2004 2005

Current liabilities Notes payable - trade 3,686 3,467 2,912

Accounts payable - trade 1,862 1,552 1,930

Accounts payable - other 1,102 914 1,227

Accrued expenses 72 - -

Income taxes payable 357 307 120

Advances from customers 181 92 95

Deposits received 229 219 191

Securities borrowed 4,000 - -

11,492 6,555 6,478

Long-term liabilities Reserve for employees' retirement benefits 1,201 1,319 1,325

Reserve for directors' retirement allowances 153 167 198

Others 60 60 83

1,415 1,547 1,607

Total liabilities 12,908 8,102 8,086

Shareholders' equity Common stock 13,500 13,500 13,500

Capital reserves 10,823 10,823 10,823

10,823 10,823 10,823

Retained earnings

Legal income reserves 1,010 1,010 1,010

Voluntary reserves - total

Reserve for foreign exchange fluctuations 300 300 300

Reserve for construction 250 250 250

Reserve for development of overseas markets 80 80 80

Reserve for asset reduction entry 230 236 236

Special reserve 52,700 51,900 52,500

Unappropriated retained earnings, fiscal year-end 387 1,617 821

54,959 55,394 55,198

Unrealized gains or losses on other securities (145) 1,163 1,527

Treasury stock (1,127) (2,053) (2,086)

Total shareholders' equity 78,009 78,827 78,962

Total liabilities and shareholders' equity 90,917 86,930 87,048

S A K A T A S E E D

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Trade credits

Notes receivable

Millions of yen 2005 Months in accounting period 2005

Jounishi Green Service Co., Ltd. 155 June 2005 806

Kounoen 120 July 2005 899

Paserina Co.,Ltd. 90 August 2005 819

Daigaku Noen Co.,Ltd. 81 September 2005 362

Kyobashi Engei Sizai Co., Ltd. 75 October 2005 104

Others 2,489 November 2005 and later 19

3,011 3,011

Accounts receivable ― trade

Millions of yen 2005

Keiyo Co., Ltd. 1,147

Sakata Vegetables Europe S.A.R.L. 552

Sakata Seed America, Inc. 516

Sakata Ornamentals Europe A/S 266

Homa Green Co., Ltd. 208

Others 5,395

8,087

Turnover of accounts receivable

Millions of yen 2005

Beginning balance 8,945

Increase 34,482

Collected 35,340

Ending balance 8,087

Turnover 81.4%

Average days for collection 90.2

S A K A T A S E E D

57

Notes payable

Millions of yen 2005 Months in accounting period 2005

Sumika-Takeda Garden Products Co., Ltd. 459 June 2005 791

Hyponex Japan Corp., Ltd. 255 July 2005 1,043

Rainbow Chemical Co., Ltd. 215 August 2005 988

Jiffy Pot Products Co. of Japan, Ltd. 158 September 2005 74

Mitsui & Co., Ltd. 143 October 2005 14

Others 1,680 November 2005 and later 0

2,912 2,912

Accounts payable ― trade

Millions of yen 2005

Sumika-Takeda Garden Products Co., Ltd. 187

Nishio Shokubutsu Co., Ltd. 147

Mitsui Kagaku Platech Co., Ltd. 84

Hyponex Japan Corp., Ltd. 56

Sakata Seed America, Inc. 49

Others 1,404

1,930

S A K A T A S E E D

58

Securities

Marketable and investment securities

2005 Stocks

Investment securities Number of sharesBook value

(Millions of yen)Other securities

Maruichi Steel Tube Ltd. (5463) 1,060,000 2,459

T&D Holdings, Inc. 205,800 1,123

Mizuho Preferred Capital (Cayman) 6 Limited Series A 10 1,000

Mizuho Financial Group 11th Series Class XI Preferred Shares 1,000 1,000

The Gunma Bank, Ltd. (8334) 1,178,000 764

The Bank of Ikeda Ltd. (8375) 105,450 582

The Bank of Yokohama Ltd. (8332) 866,670 540

Sumitomo Mitsui Financial Group, Inc. (8316) 683.67 481

Yokohama Reito Co., Ltd. (2874) 493,573 411

TOKYO SEIKA CO., LTD. 435,920 398

Mitsui Chemicals, Inc. (4183) 554,814 342

Bull-Dog Sauce Co., Ltd. (2804) 249,000 336

Mizuho Financial Group, Inc. (8411) 524.83 269

Nissho Electronics Corp. (9865) 214,000 177

Others (69 companies) 1,810,478 1,344

7,175,923 11,233

Bonds Total face value Book value

Marketable securities (Millions of yen) Other securities

Kawasaki Heavy Industries, Ltd. No. 7 convertible bonds 200 200

Convertible bonds (8 issues) 420 421

Treasury bonds US$ 1,200,000 131

Kintetsu Corporation No. 38 bond 20 20

US$ 1,200,000640 773

S A K A T A S E E D

59

2005 Total face value Book value

Investment securities (Millions of yen)

Other securities

SUN WAVE CORPORATION No. 4 convertible bonds 10 9

The Royal Bank of Scotland 1,000 864

Nomura Europe Finance N.V. 500 500

SGA first-to-default credit-linked note 500 439

JP Morgan Chase Bank, N.A., R-FRN 500 438

SGA FTD CLN 500 364

BSGAH FTD CLN 300 288

Japan Telecom Co., Ltd. No. 1 unsecured bonds (2004) 200 202

NIB Capital Bank 200 197

Corporate bonds (3 issues) 300 285

Local government bonds (2 issues) 60 60

4,070 3,651

US$ 1,200,000

4,710 4,424

Others Number of units

(Thousands)Book value

(Millions of yen)Marketable securities Other securities

Beneficiary certificate for bond investment trusts 90,235 90

Investment securities Other securities

DKB Morgan Prime Income 201,045 202

Beneficiary certificate for investment trust 204 44

Beneficiary certificates for unit-type bond investment trust 50,000 49

251,249 296

341,485 387

S A K A T A S E E D

60

Fixed assets Tangible fixed assets

Millions of yen Beginning of

term Increase Decrease End of term Depreciation End of term,

net Accumulated Current

Tangible fixed assets

Buildings - - - 16,956 8,803 537 8,152

Structures - - - 1,712 1,235 62 477

Machinery and equipment - - - 3,508 2,925 120 582

Vehicles and delivery equipment - - - 158 137 10 20

Tools and fixtures - - - 1,102 895 76 207

Land - - - 12,991 - - 12,991

Construction in progress - - - 578 - - 578

- - - 37,010 13,998 806 23,012

Intangible fixed assets

Patents - - - 639 468 79 170

Leaseholds - - - 4 - - 4

Software - - - 914 582 172 331

Others - - - 60 8 0 52

1,619 1,059 252 559

Reserves

Millions of yen Beginning of

term Increase Decrease End of term

Allowance for doubtful accounts 1,203 193 212 1,183

Reserve for directors' retirement allowances 167 31 - 198

S A K A T A S E E D

61

Accounting Policies Summary of accounting policies: Consolidated

Basis of presentation Japanese GAAP; consolidated

Other securities Marketable and investment securities Quoted securities: The market value method is applied, based on the

market value as of the fiscal year-end. The entire positive or negative valuation difference with the purchase price is booked directly as shareholders’ equity, and the cost of securities sold is calculated using the moving average method.

Nonquoted securities: valued at cost using the moving average method

Derivatives Market value method

Inventories Valued at cost using the periodic average basis

Depreciation Tangible fixed assets: declining-balance method The useful life of buildings and structures is 2-50 years, that of machinery and

delivery equipment is 2-15 years and that of others is 2-20 years. Intangible fixed assets: straight-line method

Software for internal use is amortized on a straight-line basis (based on 5 years of internal useful life).

Allowance for doubtful accounts To provide for potential losses from doubtful accounts, the Company recognizes an amount calculated on the basis of a historical bad loss ratio for general accounts receivable, plus an amount for specific accounts for which collection appears doubtful.

Retirement benefits To provide for employees’ retirement benefits, the Company recognizes an amount based on retirement benefit liabilities and estimated pension assets as of the fiscal year-end.

Reserve for directors' retirement allowances

Recognition of full amount of liability at term end based on internal employment regulations

Opinion of independent auditors Auditors: KPMG AZSA & Co. Opinion: unqualified

S A K A T A S E E D

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Summary of accounting policies: Nonconsolidated

Basis of presentation Japanese GAAP; nonconsolidated

Marketable and investment securities

Securities in subsidiaries and affiliated companies: valued at cost using the moving average method

Other securities Quoted securities: The market value method is applied, based on the

market value as of the fiscal year-end. The entire positive or negative valuation difference with the purchase price is booked directly as shareholders’ equity, and the cost of securities sold is calculated using the moving average method.

Nonquoted securities: valued at cost using the moving average method

Inventories Valued at cost using the periodic average basis

Depreciation Tangible fixed assets: declining-balance method Provided that buildings acquired after April 1, 1998 (excluding

appurtenances) are depreciated on a straight-line basis. The useful life of buildings and structures is 2-50 years, that of machinery and

delivery equipment is 2-15 years and that of others is 2-20 years. Intangible fixed assets: straight-line method Software for internal use is amortized on a straight-line basis (based on 5

years of internal useful life).

Allowance for doubtful accounts To provide for potential losses from doubtful accounts, the Company recognizes an amount calculated on the basis of a historical bad loss ratio for general accounts receivable, plus an amount for specific accounts for which collection appears doubtful.

Retirement benefits To provide for employees’ retirement benefits, the Company recognizes an amount based on retirement benefit liabilities and estimated pension assets as of the fiscal year-end.

Reserve for directors' retirement allowances

Recognition of full amount of liability at term end based on internal employment regulations

Opinion of independent auditors Auditors: KPMG AZSA & Co. Opinion: unqualified

S A K A T A S E E D

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Share-related Information Shares issued

Class of shares Common

Registered or bearer Registered

Number of shares authorized 104,000,000

Issued

As of May 31, 2005 50,910,750

As of August 30, 2005 50,910,750

Stock exchange listings Tokyo Stock Exchange, First Section

Comments The standard stock of the Company, with no limitations on rights

Changes in common stock

Millions of yen Shares outstanding Common stock Additional paid-in capital

Shares Date

Increase or decrease Balance

Increase or decrease Balance

Increase or decrease Balance

July 20, 1993 4,628,250 50,910,750 - 13,500 - 10,823

Shareholders by type of investor

Type of investor Number of

shareholders Hundreds of shares % of total units

National and local government agencies - - -

Financial institutions 55 120,817 23.77

Securities companies 26 3,358 0.66

Business and other corporations 282 109,806 21.60

Non-residents: other than individuals 60 60,066 11.82

Non-residents: individuals 9 463 0.09

Individuals and others 22,039 213,811 42.06

22,471 508,321 100.00

Shares less than one unit - 78,650 -

S A K A T A S E E D

64

Largest shareholders

Name Thousands of shares

ownedHeld in trust

accounts% of shares outstanding

TM Kosan Co., Ltd. 7,607.9 14.94

SIS Sega Intersettle A.G. 3,560.0 6.99

Mizuho Bank, Ltd. 2,264.1 4.45

Sumitomo Mitsui Banking Corp. 1,990.7 3.91

The Master Trust Bank of Japan, Ltd. 1,438.9 1,438.9 2.83

Japan Trustee Services Bank, Ltd. 1,307.9 1,307.9 2.57

MARUICHI STEEL TUBE LTD. 1,199.4 2.36

Societe Generale Bank and Trust 979.0 1.92

The Bank of Yokohama, Ltd. 744.0 1.46

The Mitsubishi Trust and Banking Corp. 726.3 184.5 1.43

21,818.4 42.86

Share information

Fiscal year-end May 31

Ex-rights date May 31

Ex-rights date for interim dividend November 30

Annual general meeting of shareholders August

Trading unit 100 shares

Types of share certificates 100, 500, 1,000, 5,000, 10,000 shares and stock certificates for fractional shares of less than 100

Transfer agent Mitsubishi Trust and Banking Corp., 1-4-5, Marunouchi, Chiyoda-ku, Tokyo

Publication of record The Company’s balance sheet and income statement can be found on the “Finance” page of its website at http://www.sakataseed.co.jp.

S A K A T A S E E D

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Performance in Graphs

Net Sales

30,000

35,000

40,000

45,000

50,000

55,000

2001 2002 2003 2004 2005

Million yen

Ordinary Profit and Net Income

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2001 2002 2003 2004 2005

Million yen

Ordinary Profit Net Income

S A K A T A S E E D

66

Margins on Sales

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2001 2002 2003 2004 2005

%

Ordinary Profit Net Income

Per Share

0200400600800

1,0001,2001,4001,6001,8002,000

2001 2002 2003 2004 2005

Yen

Net Income Equity

S A K A T A S E E D

67

Equity and Assets

70,000

75,000

80,000

85,000

90,000

95,000

100,000

105,000

2001 2002 2003 2004 2005

Million yen

Equity Assets

Equity / Assets

82.0

83.0

84.0

85.0

86.0

87.0

2001 2002 2003 2004 2005

%

S A K A T A S E E D

68

Return on Assets

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2001 2002 2003 2004 2005

%

Ordinary Profit Net Income

Return on Equity

0.5

1.0

1.5

2.0

2.5

2001 2002 2003 2004 2005

%

S A K A T A S E E D

69

Contact Hiroshi Sakata Managing Director General Administration Division SAKATA SEED CORPORATION 2-7-1, Nakamachidai, Tsuzuki-ku, Yokohama, Kanagawa Prefecture Telephone: 81-45-945-8800 Facsimile: 81-45-945-8841

7-1, Nakamachidai, 2-Chome, Tsuzuki-ku, Yokohama, Kanagawa, 224-0041 Japan TEL : 81-45-945-8800FAX : 81-45-945-8841http : //www.sakataseed.co.jp/

Printed in Japan