DAIICHIKOSHO

CO.,

LTD.

Flash Report on the Consolidated Results for the Year Ended March 31, 2004
May 17, 2004
Company Name: DAIICHIKOSHO CO., LTD.
Code Number: 7458
(URL http://www.dkkaraoke.co.jp)
Registered Stock: JASDAQ
Location of Head Office (Prefecture): Metropolis of Tokyo
Representative: Tatsuyoshi Yoneda, President
Contact:
Eiji Hata, Executive Director; Administration Headquarters and General Manager,
Finance Dept.
Phone: (03) 3280-2151
Date of the Board of Directors Meeting on the Closing of Accounts: May 17, 2004
Adoption of U.S. GAAP: No
1. Consolidated Performance for the Year Ended March 31, 2004 (from April 1, 2003, to March 31,
2004)(1) Consolidated operating results
Note: Amounts below one million yen are truncated.
Net sales¥ Million

Year ended March 2004
Year ended March 2003

119,335
117,057

%
1.9
18.7

¥ Million

4,898
6,938

¥ Million

%
5.1
31.4

Net income per share%(29.4)
110.0

Return on equity

Year ended March 2004
Year ended March 2003

Ordinary income¥ Million

13,126
12,493

Net income
Year ended March 2004
Year ended March 2003

Operating income

%
13.8
28.2

Fully diluted net income
per share¥¥

265.08375.89252.21354.25

Ordinary income to total
assets
%
9.1
8.2

%
8.4
13.2

12,331
10,831

Ordinary income to net
sales
%
10.3
9.3

Notes: 1. Average number of shares outstanding during the year (consolidated):
Year ended March 2004: 17,979,209 sharesYear ended March 2003: 18,097,192 shares
2. Change in accounting method: Yes
3. Percentages for net sales, operating income, ordinary income and net income show
year-over-year change from the previous fiscal year.
(2) Consolidated financial position

Year ended March 2004
Year ended March 2003

Total assets

Shareholders’ equity

Equity ratio¥ Million¥ Million%

138,453
131,938

60,85655,55544.0
42.1

Shareholders’ equity
per share¥

3,378.93
3,081.34

Note: Number of shares outstanding at the end of the year (consolidated):
17,971,260 shares at March 31, 2004
17,985,551 shares at March 31, 2003

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(3) Consolidated cash flows
Cash flows fromoperating activities
Year ended March 2004
Year ended March 2003

Cash flows frominvesting activities

Cash flows fromfinancing activities

Cash and cash
equivalents at theend of the year

¥ Million¥ Million¥ Million¥ Million

27,20019,876(26,056)(14,286)(3,606)(3,076)

20,30022,831(4) Scope of consolidation and application of the equity method
Number of consolidated subsidiaries: 38
Number of unconsolidated subsidiaries accounted for by the equity method: —Number of affiliates accounted for by the equity method: —(5) Change in the scope of consolidation and application of the equity method
Consolidation (newly included): 1(Excluded): 1
Equity method (newly applied): —(Excluded): —2. Forecast Consolidated Performance for FY 2004 (from April 1, 2004, to March 31, 2005)
Interim period ending
September 30, 2004
Year ending March 31,
2005 (full year)

Net sales

Ordinary income

Net income¥ Million¥ Million¥ Million

60,300

5,900

3,800

126,000

12,8006,800(Reference) Forecast net income per share (full year): ¥185.49
The value of forecast net income per share (full year) above is calculated based on thenumber of shares after the two-for-one stock split conducted on May 20, 2004.
Note: These projected performance figures are based on information available to the Company’s management at thetime of preparing this report. There are many uncertain factors inherent in forecasting, and there might becases in which actual results differ from forecast values. See page 10 of the Attachment for further information on the forecasts above.

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(Attachment)

1. Corporate GroupThe Daiichikosho Group (“DKG”) consists of Daiichikosho Co., Ltd. (“DK” or “the Company”), and38 subsidiaries.
The major group companies engage in the commercial karaoke business, the karaoke cabin business,the content business and the music software business.
Business segment

Business line

Commercial
karaoke business

Sales and rental of commercial-use
karaoke equipment and software

Karaoke cabin
business

Operation of karaoke cabins, as well as
the supply of food and beverages in thecabinsContent business

Satellite broadcasting and supply ofmusic content, etc., via mobile phones

Music software
business

Production and sales of music andvideo software products

Other business

Real estate lease and rental business,
restaurant business, etc.

Domestic
Daiichikosho Co., Ltd.
Hokkaido Daiichikosho Co., Ltd.
Tohoku Daiichikosho Co., Ltd.
Taito Daiichikosho Co., Ltd.
Niigata Daiichikosho Co., Ltd.
Tokai Daiichikosho Co., Ltd.
Daiichikosho Kinki Co., Ltd.
Kyushu Daiichikosho Co., Ltd.
and 15 other subsidiaries

Gauss Entertainment Co., Ltd.
Nippon Crown Co., Ltd.
Tokuma Japan Communications Co.,Ltd.
First Distribution Co., Ltd.
Tri-M, Inc.
Daiichikosho Co., Ltd.
DK Finance, Co., Ltd.
DK Music Publishing Co., Ltd.
Maruhagi Yoshu Kogyo, Co., Ltd.

3

Overseas
DK KOREA
Co., Ltd.
Daiichikosho(Shanghai), Ltd.
and two othersubsidiaries
ShanghaiZong-Yi Music& Entertainment
Co., Ltd.
Saha Daiichi
Kosho Co., Ltd.

D.K. Enterprises(Guam), Inc.
World Wide Top
Co., Ltd.

DAIICHIKOSHO

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The following diagram schematically shows the relationships of the respective group companies
and businesses.

DK Finance, Co., Ltd.
(Production and sales of music
and video software products)
Gauss Entertainment Co., Ltd.
Nippon Crown Co., Ltd.
Tokuma Japan Communications
Co., Ltd.
First Distribution Co., Ltd.
Tri-M, Inc.
(Acquisition and management of
copyrights)

DAIICHIKOSHO CO., LTD. (Reporting company)

Domestic users(Intermediary services related to
installment sales and loans for
DK and group companies)

DK KOREA Co., Ltd.
Daiichikosho (Shanghai), Ltd.
Daiichikosho (Hong Kong), Ltd.
Daiichi Kosho (Singapore), Pte
Ltd.*(Operation of karaoke cabins)
Shanghai Zong-Yi Music & Entertainment Co., Ltd.
Saha Daiichi Kosho Co., Ltd.

Overseas users(Overseas subsidiaries)(Domestic sales subsidiaries)
Hokkaido Daiichikosho Co., Ltd.
Tohoku Daiichikosho Co., Ltd.
Niigata Daiichikosho Co., Ltd.
Kyushu Daiichikosho Co., Ltd.
Taito Daiichikosho Co., Ltd.
Tokai Daiichikosho Co., Ltd.
Daiichikosho Kinki Co., Ltd.
and 15 other companies(Operation and management ofrecreation facilities)
D.K. Enterprises (Guam), Inc.

(Other overseas subsidiary)
World Wide Top Co., Ltd.

(Nonconsolidated subsidiaries)

DK Music Publishing Co., Ltd.

H. K. Electronik und Musik
GmbH**
Union Eiga Co., Ltd.
and 9 other companies(Production and sale of fruitwines)
Maruhagi Yoshu Kogyo, Co.,Ltd.
Sales and rentals of merchandise and products

Operation of karaoke cabins

Provision of services

Notes:
1. * indicates a dormant company.
2. ** indicates a company that is under liquidation proceedings.
3. Tri-M, Inc., has been newly included in consolidation as DK consolidated it in October 2003 by acquiring all of its shares outstanding.
4. Harima Daiichikosho Co., Ltd., and Himeji Daiichikosho Co., Ltd., consolidated in April 2004 with the former as the surviving company. The newcompany was renamed Hyogo Daiichikosho Co., Ltd.
5. Daiichikosho (Hong Kong), Ltd., and World Wide Top Co., Ltd., were liquidated in March 2004.
6. The liquidation procedure for Daiichi Kosho Europe GmbH has been completed.

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2. Management Policies(1) Basic management policy
Based on the corporate philosophy of “More music to the world, more service to the world,” DKG’s basic management policy is “to promote music culture through karaoke and provide people with many places of pleasantcommunications.” To that end, DKG believes it must provide karaoke equipment and an attractive range of karaoke
software products that meet diversified users’ needs, as well as karaoke cabins where people can easily gather toenjoy singing karaoke songs. DKG is proud of its role as a pioneer in the karaoke business in Japan and overseas.
Building on the know-how and entertainment content it has accumulated to date, DKG aims to become a multinational corporate group that satisfies the expectations and trust not only of investors but also of all the group’s
stakeholders by ensuring continued business growth and higher earnings around the core karaoke business.

(2) Basic policy on profit distribution
DK attaches a high priority to ensuring stable, long-term profit distribution to shareholders and follows a policy of
paying performance-based dividends with due regard for adequate earnings retention. Retained earnings not distributed to shareholders will be effectively reinvested in the development of new products and operating assets toimprove DKG’s market share and reinforce a profit-enhancing foundation.

(3) Basic views on the reduction of the minimum investment lot of shares
Considering changes in DK’s stock price, for which an amount corresponding to a unit (tangen) of 100 shares has
consistently exceeded the benchmark of ¥500,000 since January 2004, the Board of Directors, at its meeting held on
February 23, 2004, adopted a resolution to the effect that DK’s common shares be split two-for-one as of May 20,
2004, with March 31, 2004, as the reference day. As a result of this decision, the market amount for one unit (tangen)of shares declined to approximately ¥300,000 on March 31, 2004.
DK intends to flexibly address this issue by taking into account the increasing liquidity of its shares, past performance and market conditions while focusing on the shareholders’ interests.

(4) Management target indicator
As a priority indicator, DKG aims to achieve a consolidated return on equity (ROE) of 12% or more for FY 2004, theyear ending March 31, 2005.

(5) Medium- and long-term management strategies
For the ongoing growth of DKG around the mainstay karaoke business, DKG’s basic management strategies are toa) create new customer-oriented, value-added products and services leveraging off of the latest information technology (IT) and the expanded karaoke telecommunications network; b) encourage reforms of the karaoke businessenvironment and the revitalization of the karaoke market; and c) establish an integrated music entertainment business in which “music, karaoke and entertainment” are harmoniously intertwined.

(6) DKG’s tasks ahead
DKG needs to proactively address the following groupwide issues: ① further extending its karaoke telecommunications network and increasing revenue from the network, ② future expansion of the karaoke cabin business andimproving profitability in the business, ③ firmly ensuring the profitability of the satellite broadcasting business, ④
reinforcing the business foundations of the music software business and increasing revenue from the business and ⑤
setting up the “Gateway Business” as a steady and promising new business.
① DKG has established the karaoke telecommunications network to provide a karaoke-streaming service. As of
March 31, 2004, the market share of the operating “DAM” karaoke equipment had increased to almost 50% of
the commercial karaoke market. To further expand the network, DKG will focus on increasing the sales andrental contracts of “DAM” karaoke equipment to improve profits including the fee revenue from the provision of
the karaoke-streaming service.
② As of March 31, 2004, DKG operated 201 “BIG ECHO” karaoke cabin stores, including those overseas. With
the closing of unprofitable stores almost completed, DKG continues to actively open large-scale stores at prime
locations such as sites in front of important regional railway stations and in prime locations in the Tokyo metropolitan area. Moreover, DKG will pursue further differentiation with enhanced equipment and quality services
for higher management efficiency and an improved operating margin.
③ With the multichannel direct broadcast satellite provider, Sky PerfecTV, as its platform, DKG now offers two
television channels and 100 radio channels. DKG intends to make the satellite broadcasting business firmly
profitable with an aggressive effort to increase the number of commercial-use subscribers, thereby offsetting a
recent decline in contracts for household service.
④ To increase profits in the highly competitive music industry, DKG will endeavor to strengthen its managementfoundation in each music software subsidiary while increasing synergies with DKG’s mainstay karaoke business.

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⑤ DKG has begun supplying a new, broadband-based interactive service that combines the mainstay “New cyber
DAM (DAM-G100)” equipment with the information terminal “DAM Station” beginning from the year underreview. DKG intends to develop this new “Gateway Business” as a steady source of growth.

(7) Basic views on corporate governance and the implementation of related measures① Basic views on corporate governance“Shareholders first” corporate governance has become a predominant view among corporations given recent
stock market pressures. Shareholders who shoulder the burden of monetary risk should be the most respectedamong a corporation’s various stakeholders, which also include employees, business partners and suppliers. DK
believes its corporate governance should be carried out and improved in the direction of maximizing shareholder
value while meeting the requirements of the different stakeholders.
② Current status of internal supervising organs
Pursuant to the aforementioned concept, DK reduced the number of directors to eight in FY 2001 from a high of
25 in FY 1997 to achieve swifter managerial decision making. Along with the reduction in the number of directors, DK introduced the corporate officer system in June 2001, in which the responsibility of each corporate
officer in each significant department has been clarified with regard to his/her duties. Meetings of the Board of
Directors and the Executive Board are held periodically according to the “Board of Directors Rules” and the“Executive Board Rules,” respectively. Transparency in managerial decisions is emphasized and respected byallowing responsible staff from the related departments to attend these meetings, and complicated subjects arethoroughly reviewed on the spot to ensure quicker decision making. Although DK currently does not intend to
introduce the outside director system, its implementation will be examined as business activities develop in the
future.
③ Risk management
DK ensures that each of its employees fully understands the urgency of risk management and participates insetting up a contingency system to cope with various risks including management risk. To address an emergency
situation, DK plans to have an emergency response system in place with the formation of the Crisis-Management
Task Force<Headquarters?> , for which the President will serve as its general manager; the establishment of asmooth chain of command; and effective measures to minimize human and physical damages.
④ Compliance
DK endeavors to raise the consciousness of its employees by taking the initiative within the industry in seeking
guidance from specialists. DK’s believes that every corporate activity should be guided by a recognition ofcompliance. Consequently, DK is committed to upgrading the audit and legal affairs departments to reinforce thehold-down function, including the measures for improving moral code of conducts of all employees.
⑤ IR activity
DK’s IR information is quickly disclosed with an emphasis on timeliness and usefulness. Such disclosure occurs
via the Intermediate-Term Business Plan, the Flash Report on the Consolidated Results, the Business Report andother documents from the PR department, for example, in the “NEWS RELEASE” and “FOR INVESTORS”
columns. Moreover, important information is disclosed externally according to the regulations on timely disclosure of corporate information.
⑥ Future tasks
DK believes management-supervising organs such as the Board of Directors and the Board of Statutory Auditors
should be streamlined to solidify corporate governance. More important, management executives such as directors and corporate officers as well as all managerial staff and employees must maintain a high sense of ethics
in carrying out their respective duties. Accordingly, DK strives to establish higher efficiency and soundmanagement by enhancing its quality-focused corporate governance.
⑦ Unified corporate governanceAlthough DK’s subsidiaries have not developed their own organizational reforms, DK shares a unified approachto corporate governance with its subsidiaries. For example, DK places subjects to achieve common organizational decisions with regard to corporate governance on the agenda at the Subsidiary Presidents’ Conference andthe Sales Promotion Strategy Conference, which are held periodically by convening the presidents and major
management executives of the subsidiaries.

(8) Basic policies on relations with a related party
DK clarifies the scope of a related party and strictly investigates the scope and details of its transactions with a related party. In particular, DK discloses all transactions by its officers and principal individual shareholders regardless of the disclosure criteria on transaction amounts.

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(9) Other important management matters
DAIICHIKOSHO received an advisory as of October 31, 2003, from the Japan Fair Trade Commission to the effectthat DK had infringed on regulations of the Anti-Monopoly Law. However, as DK’s management could not comply
with this advisory, it submitted a letter of non-acceptance to the commission. The adjudication procedure began at
the commission in February 2004.

3. Operating Results and Financial Position(1) Overview for the Year
① Operating results
During the year ended March 31, 2004, the Japanese economy showed signs of bottoming with a gradual upturn,supported by a rally in capital investments centered on digital household electric appliances, a boost in exports to
Asian countries including China and an improving Nikkei Stock Average in the second half, following a record
low since the collapse of the bubble economy in the first half. These favorable trends were partly offset by a lackof strong momentum in the consumer spending recovery, employment concerns and a general malaise about
future prospects as represented by the dispute over the domestic public pension plan.
In the karaoke industry, new products were launched by several manufacturers despite intensifying competition
resulting in low-priced products and services amid lingering deflation. The business environment remained difficult for the nighttime market resulting in an increase in the number of store closures. On a positive note, storesattempting to differentiate performed well. In the daytime market, medium- and large-scale chain karaoke store
operators proactively opened large stores in which diversified services could be supplied thanks to economies ofscale, despite a continued decline in investments in small stores. As a result, several bright signs were seen, including an upturn in the number of operational karaoke cabins compared with the previous year following several
years of decline.
In these circumstances, DKG concentrated its promotional efforts on the sales and rental of the mainstay“Broadband Cyber DAM (DAM-G100)” equipment and the “Denmoku” electronic music selection remotecontrol to raise its market share in the commercial karaoke business. In the karaoke cabin business, DKG actively
opened new stores at selected prime locations as the closing of unprofitable stores has almost been completed. In
the content business, DKG endeavored to increase the number of contracts for different services with extensive
service content and aggressive sales promotion activity using media coverage. Moreover, to increase its productlineups, DK acquired a music recording company and made it a subsidiary. As described above, DK and DKG
aggressively undertook these measures to realize the ideal of integrating the music entertainment business suchthat “music, karaoke and entertainment” are intertwined in an effort to respond flexibly to rapid environmental
changes in the existing businesses.
Consequently, consolidated net sales for the year increased 1.9% year over year to ¥119,335 million. Consolidated operating income rose 5.1% year over year to ¥13,126 million, by more than offsetting costs for new
product development and the reinforcement of music content, as well as the increased operating expenses fordiverse measures taken to raise market share. Consolidated ordinary income was a record high ¥12,331 million,
up 13.8% year over year.
Meanwhile, consolidated net income decreased 29.4% year over year to ¥4,898 million, reflecting a collective
provision for the reserve for directors’ retirement allowances for prior years as a result of the institutionalizationof payment criteria for directors’ retirement allowances and the adjustment of deferred tax assets.
Operating results by business segment are summarized as follows (with year-over-year percentagechanges):Commercial karaoke businessNet sales: ¥66,505 million (+8.1%)
Operating income: ¥10,683 million (+9.5%)
In this segment, sales of equipment decreased mainly owing to the planned suspension of manufacturing andthe sale of karaoke discs by the end of this fiscal year in light of the wide popularity of karaoke telecommunications equipment nationwide.
Given the progress of lower-priced products in the market, DKG actively marketed value-added products withextensive onboard functions and diversified content. Such marketing efforts included holding steady replacement demand of the mainstay equipment “New cyber DAM (DAM-G50Ⅱ)” in the first half, and introducing a new product, “Broadband cyber DAM (DAM-G100),” which substantially leverages broadband
technology available for interactive services, in the second half. The latter is an innovative system that is far
superior to similar products in terms of video, music and sound quality. The popularity of the “Denmoku”
electronic music selection remote control also pushed up shipments of DAM products, including sales to thegrowing karaoke cabin chain stores, thus posting record annual shipments of 33,786 units.

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As for the rental of karaoke equipment centering on the nighttime market, the recent decline in the monthly
rental fee was more than compensated by a considerable rise in the number of rental contracts. In addition, as
for the fee revenue from the provision of the karaoke-streaming service, the amount of operating equipment
expanded firmly along with increases in equipment sold and the number of rental contracts. As a result,segment net sales expanded 8.1% and operating income rose 9.5% year over year.

Karaoke cabin businessNet sales: ¥25,156 million (+6.0 %)Operating income: ¥2,499 million (+6.0%)
In the operation of karaoke cabin stores with the “BIG ECHO” brand, DKG implemented the latest “DAM”
model in cabin stores and actively promoted store renewal. The upgraded equipment and the supply of quality
services helped improve the number of guests and sales, both of which exceeded the previous year’s figures.
With the closing of unprofitable stores almost complete (six stores were closed), DKG opened 15 new stores atprime locations such as sites in front of important regional railway stations and in prime downtown quarters in
the Tokyo metropolitan area. As a consequence, the number of karaoke cabin stores directly operated by DKG
increased to 201 as of March 31, 2004 (199 domestically and two overseas), and the number of karaoke rooms
totaled 5,362, up 530. Segment net sales and operating income equally increased 6.0% year over year.
Content businessNet sales: ¥10,324 million (+0.2%)
Operating income: ¥1,642 million (–15.0%)
In this segment, DKG engages in two business fields: satellite broadcasting and e-business. Despite a gradualdecline in the number of household-use subscribers, subscribers of the “Stardam” commercial-use satellite
broadcasting service, which offers content similar to that supplied for household-use subscribers, increased
steadily and achieved profitability on a single-year basis for the first time since it began operations partly due
to stringent cost controls. In its e-business, DKG strove to minimize the adverse effect of a decline in thenumber of subscribers with the start-up of new sites, extended services and various sales promotion campaigns
to cope with a decline in subscribers for the mobile phone ringtone service. As a result, segment net sales wereflat with a marginal increase of 0.2%, whereas operating income fell 15.0% year over year, reflecting increases
in new site operation costs and advertising expenses from enhanced sales promotion activity.
Music software businessNet sales: ¥12,098 million (–27.3%)
Operating income: ¥342 million (up ¥425 million from the previous fiscal year)
In this segment, DK acquired Tri-M, Inc., a company engaged in the Indies music business, and made it asubsidiary in the second half in light of the continuously shrinking market volume of the music CD market.
Segment net sales dropped 27.3% year over year because of fewer hit items such as “Spirited Away,” which
made a significant contribution to sales in the previous fiscal year. Nevertheless, operating income increased¥425 million, owing principally to cost controls.
Other businessNet sales: ¥5,249 million (+7.6%)
Operating income: ¥485 million (–22.6%)
This segment mainly consists of the restaurant business and the real estate lease and rental business. Segment
net sales increased 7.6%, largely supported by the prosperous restaurant business, whereas operating income
declined 22.6% due to an increase in selling, general and administrative expenses.

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② Financial position(Cash flows)
For the year ended March 31, 2004, income before income taxes and minority interests increased 21.3% year
over year to ¥7,904 million, whereas proceeds from long-term borrowings decreased and payments increased due
to an increase in time and saving deposits. As a result of these cash flows, consolidated cash and cash equivalents
at the end of the year totaled ¥20,300 million, down ¥2,530 million, compared with the end of the previous year.
The relationship between the year-end balance of cash and cash equivalents and the accounts listed in the consolidated balance sheets are as described in the “Note to Consolidated Statements of Cash Flows.”
The following describes the consolidated cash flow conditions for the year ended March 31, 2004, andtheir factors.
(Cash flows from operating activities)
Net cash provided by operating activities increased ¥7,323 million year over year to ¥27,200 million. This rise
was attributable to an increase of ¥1,572 million in depreciation expense, an increase of ¥3,141 million in reservefor directors’ retirement allowances and a decrease of ¥1,441 million in income taxes paid.
(Cash flows from investing activities)
Net cash used in investing activities increased ¥11,770 million year over year to ¥26,056 million. This rise wasprimarily attributable to a ¥5,794 million increase in time and saving deposits and an increase of ¥1,725 million
in payments for the acquisition of tangible fixed assets.
(Cash flows from financing activities)
Net cash used in financing activities increased ¥530 million year over year to ¥3,606 million. The principal factors in this increase were decreases of ¥9,254 million in the increase in long-term borrowings and of ¥2,124
million in payments from repayments of long-term borrowings, as well as a net increase of ¥5,273 million in
short-term borrowings.
The trends of DKG’s several cash flow indicators are as follows:
FY 2001 (Year ended FY 2002 (Year ended FY 2003 (Year ended
March 31, 2002)
March 31, 2003)
March 31, 2004)
Year-end
Year-end
Year-end
Equity ratio (%)
38.1
42.1
44.0
Market value–based equity ratio (%)
27.6
47.7
87.5
Debt redemption (years)
3.6
2.6
0.9
Interest coverage ratio (times)
20.3
31.6
47.6
Note: Equity ratio: Shareholders’ equity/Total assets
Market value–based equity ratio: Total market capitalization/Total assets
Debt redemption: Interest-bearing debt/Operating cash flow
Interest coverage ratio: Operating cash flow/Interest payment
1. All of the above indicators are calculated for their respective values on a consolidated basis.
2. Total market capitalization is calculated by multiplying the closing stock price at the end of the year by
the (number of shares outstanding at the end of the year + number of shares increased due to the stock
split).
3. Operating cash flow is the value stated as “Cash flows from operating activities” in the consolidated
statements of cash flows.
4. Interest-bearing debt indicates the liabilities for which interest is paid on all the liabilities posted in the
consolidated balance sheets. Interest payment corresponds to the amount of interest paid in the consolidated statements of cash flows.

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(2) Outlook for the next year
Despite several uncertain factors in world affairs and the ongoing stringent conditions in the domestic employment
environment, personal consumption showed a tendency toward recovery as represented by rising demand for digitalhousehold appliances. In addition, a steady economic recovery is anticipated, supported by an expansion of exports
and growth in civil-sector capital investments.
Although the overall climate surrounding the karaoke industry remains difficult, the launching of new products is
expected with the renewal in high time of the karaoke telecommunications equipment business and leading karaokecabin chain operators aggressively opening new stores. Accordingly, a distinct bipolar tendency could become apparent in the karaoke industry with intensifying competition for survival.
FY 2004, the year ending March 31, 2005, is the 30th anniversary of DK’s foundation. DKG regards this year as its“Second Foundation” and is committed to fully support the new “Gateway Business” and supply broadband-based,interactive services by combining “Broadband cyber DAM” with the “DAM Station” information terminal. DKG
is determined to restructure its karaoke business environment, revitalize the karaoke market and expand its existing
businesses.
Moreover, to solidify its current top share in the commercial-use karaoke telecommunications market, DKG endeavors to differentiate its products and services and improve the DAM brand value with enhanced quality. In the
karaoke cabin business, DKG will work to open new stores at carefully selected prime sites by emphasizing investment efficiency, thereby improving the profitability of each store. DKG will strive to increase the number ofcommercial-use subscription contracts in the satellite broadcasting business to ensure a continuous surplus in thebusiness. Meanwhile, in the e-business, DKG will focus on increasing the number of subscribers with effective
promotional activity and the development of superior content, as well as with the secondary utilization of various
DK-owned content.
In the music software business engaged by its subsidiaries, DKG will endeavor to improve profitability by quickly
implementing various measures including the scouting, nurturing and promotion of new artists through the group
network and the production of hit songs.
In the unpredictably harsh operating environment, DKG expects to achieve net sales of ¥126.0 billion, ordinary
income of ¥12.8 billion and net income of ¥6.8 billion for the year ending March 31, 2005, on a consolidated basis,by aggressively carrying out these measures.
As for the distribution of dividends, we plan to distribute an annual dividend of ¥20 per share in view of the stock
split (two-for-one) conducted on May 20, 2004.

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4. Consolidated Financial Statements(1) Consolidated Balance Sheets
Fiscal year
Account item
(Assets)
Current assets
Cash and bank deposits
Notes and accounts receivable―
tradeMarketable securities
Inventories
Deferred tax assets
Other
Allowance for doubtful accounts
Total current assets

FY 2002 (Year ended March 31, 2003)
AmountComposition ratio(%)(Millions of yen)
FY 2003 (Year ended March 31, 2004) Year-overAmountComposi- year
tion ratio change(%)

26,077
13,78629,28014,011

3,203
225

9
6,689
3,852
4,021
(1,235)53,201

40.3

131
5,907
3,613
3,131
(1,432)54,644

39.5

121
(782)
(238)
(890)
(196)
1,442

34.9

(1,281)
751
1,039
541
215
111
1,378

6.5

1,240
1,240

Fixed assets
Tangible fixed assets
Buildings and structures
Karaoke equipment for rental
Karaoke cabin facilities
Land
Construction in progress
Other
Total tangible fixed assets

10,375
8,641
9,774
16,085182
1,908
46,967

35.6

9,094
9,392
10,813
16,626398
2,020
48,345Intangible assets
Other
Total intangible assets

7,709
7,709

5.9

8,950
8,950

Investments and other assets
Investments in securities
Long-term loans receivable
Deferred tax assets
Leasehold deposits and guarantee money
Other
Allowance for doubtful accounts
Total investments and otherassetsTotal fixed assets
Total Assets

3,084
3,719
3,930
11,824

7,214
2,985
2,193
12,6044,130(734)(1,736)779

4,596(3,096)24,05918.2

4,001(2,486)
26,513

19.1

(595)
609
2,453

78,736
131,938

59.7
100.0

83,808138,453

60.5
100.0

5,072
6,514

11

DAIICHIKOSHOFiscal year
Account item
(Liabilities)
Current liabilities
Notes and accounts payable ―trade
Short-term borrowings
Convertible bonds redeemablewithin one year
Accounts payable―other
Income taxes payable
Reserve for bonuses
Unrealized profit on installment
sales
Other
Total current liabilitiesCO.,

FY 2002 (Year ended March 31, 2003)
AmountComposition ratio
(%)

LTD.

(Millions of yen)
FY 2003 (Year ended March 31, 2004) Year-overAmountComposi- year
tion ratio change
(%)

6,537

7,249

712

18,782-

19,418
10,799636
10,799

5,825
1,154
1,032
759

6,705
1,125
998
667

880
(29)
(34)
(92)

2,506
36,59827.7

2,576
49,54135.8

70
12,942Long-term liabilities
Convertible bonds
Long-term borrowings
Deferred tax liabilities
Reserve for employees’ retirement benefits
Reserve for directors’ retirement
allowances
Consolidation adjustments account
Other
Total long-term liabilities
Total Liabilities

1,238
38,48275,080

29.2
56.9

1,161
27,144
76,685

19.6
55.4

(77)
(11,338)
1,604(Minority Interests)
Minority interests

1,301

1.0

910

0.6

(391)

12,34824,00029,879(10,005)
(103)

9.4
18.2
22.6
(7.6)
(0.1)

12,34924,001
29,716(5,761)
1,286

8.9
17.3
21.5
(4.1)
0.9

0
0
(163)
4,243
1,389

135

0.1

31

0.0

(103)

(700)
55,555
131,938

(0.5)
42.1
100.0

(767)
60,856
138,453

(0.5)
44.0
100.0

(67)
5,300
6,514

(Shareholders’ Equity)
Capital stock
Capital surplus
Retained earnings
Land revaluation difference
Net unrealized gains or losses onavailable-for-sale securities
Foreign currency translation
adjustments
Treasury stock
Total Shareholders’ Equity
Total Liabilities, Minority Interests and Shareholders’ Equity

12,16521,049226
2,696

18,935
226
2,662(12,165)(2,114)
(34)

-

3,141

3,141

1,105

1,016

(88)

12

DAIICHIKOSHO

CO.,

LTD.

(2) Consolidated Statements of Income
Fiscal year

Account item
Net sales
Cost of sales
Gross profit before adjustment for
unrealized profit on installment
sales
Unrealized profit on installment
sales─reversal (+)
Unrealized profit on installment
sales─deferred (–)
Gross profit on sales
Selling, general and administrative
expenses
Operating income
Nonoperating income
Interest and dividend income
Profit on retirement of convertible
bonds
Fees and commissions received
Amortization of consolidation
adjustments account
Other
Nonoperating expenses
Interest expense
Loss on disposal of inventories
Loss on valuation of inventories
Provision for allowance for
doubtful accounts
Other
Ordinary income
Extraordinary gains
Gain on sales of fixed assets
Gain on sales of investments insecurities
Reversal of allowance for doubtful
accounts
Gain on correction of copyrightuse fees for prior years
Extraordinary losses
Loss on disposal of fixed assets
Loss on sales of investments insecurities
Loss on valuation of investments
in securities
Loss on valuation of memberships
Provision for reserve for directors’
retirement allowances for prioryears
Directors’ retirement allowances

FY 2002 (From April 1, 2002, toMarch 31, 2003)
AmountPercentage(%)
117,057
100.0
67,72057.9
49,337
42.1

243
132

(Millions of yen)
Year-overFY 2003 (From April 1, 2003, to
year
March 31, 2004)
AmountPercentage change(%)(%)
119,335100.0
101.9
68,85557.7
101.7
50,479
42.3
102.3

219
110

0.1

49,44736,954
12,493

127

92

0.1

83.7

42.2
31.6

50,57237,445

42.4
31.4

102.3
101.3

10.6

13,126

11.0

105.1

1,792

1.5

99.7

2,587
12,331

2.2
10.3

74.8
113.8

426

0.4

86.6

619
42

540
-

220
-

275
283

915

1,798

1.6

658
475
1,140
19
1,165

692
570
729
519
102

3,460
10,831

2.9
9.3

665

15
87

16
208

126

201

262

492

0.4

-

1,626
767

1,843
-

507

82

7
-

2,921

156

-

13

DAIICHIKOSHO

Amortization of consolidation
adjustments accountLoss on arrangement of subsidiaries and affiliates
Income before income taxes andminority interests
Income taxes―current
Income taxes―deferred
Minority interests in income (loss) ofconsolidated subsidiaries
Net income

CO.,

LTD.

1,742
-

1,999
(2,499)

4,808

4.1

6,516

5.6

(499)
76

(0.4)
0.1

6,938

5.9

5

1,975
1,021

4,853

4.1

100.9

7,904

6.6

121.3

2,996
8

2.5
0.0

(600.1)
11.5

4,898

4.1

70.6

(3) Consolidated Statements of Retained Earnings
Fiscal year
Account item
(Capital surplus)
Capital surplus at beginning of year
Increase in capital surplus
Conversion of convertible bonds
Gain from purchase and redemption oftreasury stock
Capital surplus at end of year
(Retained earnings)
Retained earnings at beginning of year
Increase in retained earnings
Net income
Decrease in retained earnings
Cash dividends
Bonuses to directors and statutory auditors
Reversal of land revaluation difference
Retained earnings at end of year

FY 2002(From April 1, 2002, to March 31, 2003)
Amount(Millions of yen)
FY 2003(From April 1, 2003, to March 31, 2004)
Amount24,000
0
-

0

6,938

0
24,001

38,88929,87915,94829,879140024,000

6,938

658
105
15,18424,000

4,898
683
134
4,243

4,898

5,062
29,716DAIICHIKOSHO

CO.,

LTD.

(4) Consolidated Statements of Cash Flows
Fiscal year
Account item
Cash flows from operating activities:
Income before income taxes and minority interests
Depreciation expense
Amortization of consolidation adjustments account
Increase (decrease) in allowance for doubtful accounts
Increase in reserve for directors’ retirement allowances
Dividend and interest income
Profit on retirement of convertible bonds
Gain or loss on sales of investments in securities
Gain or loss on investments in venture capital funds
Gain on correction of copyright use fees for prior
years
Interest expenses
Gain or loss on disposal of fixed assets
Loss on valuation of investments in securities
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Transfer of cost of sales on karaoke equipment forrentalDecrease (increase) in trade payables
Other
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Income taxes refunded
Net cash provided by operating activities
Cash flows from investing activities:
Increase in time and saving deposits
Proceeds from decrease in time and saving deposits
Payments for acquisition of tangible fixed assets
Proceeds from sales of tangible fixed assets
Payments for acquisition of intangible assets
Payments for purchase of investments in securities
Proceeds from sales of investments in securities
Payments for purchase of subsidiaries’ stocks
Payments for loans
Proceeds from collection of loans
Payments for leasehold deposits and guarantee
money
Proceeds from repayment of leasehold deposits andguarantee money
Proceeds from dividends by venture capital funds
Other
Net cash used in investing activities

FY 2002 (From April 1, 2002, toMarch 31, 2003)
Amount15(Millions of yen)
FY 2003 (From April 1, 2003, to
March 31, 2004)
Amount6,516
11,312
1,975
(21)

7,904
12,884
(283)
504

-

3,141

(619)
(42)
680
100
(262)

(540)
(208)
18
-

658
1,610
515
835
686
633

570
1,827
82
(353)
820
943

(723)
(530)
23,325619(629)(3,445)
6
19,876625
295
28,232541(571)(2,004)
1,002
27,200(3,213)
1,759(9,959)983(4,610)
(908)
1,073
(442)
(1,628)
1,846
(433)

(9,008)
3,275(11,684)
46(6,064)(2,093)
223
(265)
(495)
1,101
(1,405)

808

241

61
376
(14,286)70(26,056)DAIICHIKOSHOCash flows from financing activities:
Net increase (decrease) in short-term borrowings
Increase in long-term borrowings
Payments for repayment of long-term borrowings
Payments for retirement of convertible bonds
Cash dividends paid
Payments for purchase of treasury stock
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

16

CO.,

LTD.

(4,655)
18,646(13,606)(2,091)
(660)
(685)
(24)
(3,076)
(0)

618
9,391
(11,481)(1,373)
(684)
(67)
(9)
(3,606)
(66)

2,513

(2,530)20,317
22,831

22,831
20,300DAIICHIKOSHO

CO.,

LTD.

Basis of Presenting the Consolidated Financial Statements
1. Scope of Consolidation(1) Consolidated subsidiaries: 38
The names of the consolidated subsidiaries are omitted as they are stated in the “1. Corporate Group.”(2) Major unconsolidated subsidiaries(Reason for exclusion from consolidation)
Major unconsolidated subsidiaries (Union Eiga Co., Ltd., Crown Music Enterprise Co., Ltd., and Zoom Republic) areexcluded from consolidation because they are small-scale firms, and their respective total assets, net sales and others
have no significant impact on the financial position and operating results for the year under review of DKG.
2. Application of the Equity Method(1) Unconsolidated companies accounted for by the equity method: None
(2) Unconsolidated companies not accounted for by the equity method:
Unconsolidated subsidiaries that are not accounted for by the equity method (e.g., Union Eiga Co., Ltd., Crown
Music Enterprise Co., Ltd., and Zoom Republic) are excluded from the application of the equity method because theirrespective net income (loss) and retained earnings have no significant impact on these account items in the consolidated financial statements for the year under review, and they are immaterial on the whole.
3. Closing Date for the Settlement of Accounts of Consolidated Subsidiaries
Of the consolidated subsidiaries, the closing date of the following companies is different from the consolidation closing
date, which is March 31. In preparing the consolidated financial statements, the financial statements for the respective
fiscal years are used for those that have a closing date that differs from the consolidation closing date, provided thatnecessary adjustments are made for consolidation purposes with regard to material transactions that might take place inthe period between their respective closing dates and the consolidation closing date.
Closing date is December 31:
Shanghai Zong-Yi Music & Entertainment Co., Ltd., Saha Daiichi Kosho Co., Ltd., and Daiichikosho (Shanghai),
Ltd.
Closing date is March 20:
Nippon Crown Co., Ltd., Tokuma Japan Communications Co., Ltd., and Tri-M, Inc.
4. Summary of Significant Accounting Policies(1) Valuation basis and method for important assets① Marketable securities and investments in securities
Held-to-maturity debt securities that are expected to be held to maturity: Carried at amortized cost using thestraight-line method.
Other securities primarily designated as available-for-sale securities for which the fair values are readily determinable: Carried at fair value as of the balance-sheet date with changes in net unrealized holding gain or loss,
net of the applicable income taxes, included directly in shareholders’ equity. The cost of securities sold is determined by the moving-average method.
Other securities primarily designated as available-for-sale securities for which the fair values are not readily
determinable: Carried at cost determined by the moving-average method.
② Inventories
Principally stated at cost determined by the moving-average method.
(2) Depreciation method of major depreciable assets① Tangible fixed assets
Depreciation is principally computed by the declining-balance method at rates based on the estimated useful
lives of the assets as shown below. However, the straight-line method is adopted for buildings (excluding
building improvements) acquired on or after April 1, 1998.
Building and structures: 3–50 years
Karaoke equipment for rental: 5–6 years
Karaoke cabin facilities: 3–19 years② Intangible assets
Amortization of intangible assets is computed by the straight-line method.

17

DAIICHIKOSHO

CO.,

LTD.

(3) Accounting standard for important reserves① Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amount of possible losses from uncollectible receivables
based on the actual rate of losses from bad debt for ordinary receivables, and on the estimated recoverability forspecific doubtful receivables.
② Reserve for bonuses
The reserve for bonuses is provided at an estimated amount based on the internal payment prediction standard.
③ Reserve for employees’ retirement benefits
The reserve for employees’ retirement benefits is provided at an amount recognized to have accrued as of thebalance-sheet date, based on the projected benefit obligations and plan assets as of March 31, 2004.
Actuarial differences are amortized on a pro rata basis by the straight-line method over a certain period (10years), which is shorter than the average remaining service years for employees at the time of their occurrence,from the following fiscal year of recognition.
④ Reserve for directors’ retirement allowances
The reserve for directors’ retirement allowances of DK and its domestic consolidated subsidiaries is provided at
amounts that would be required to be paid in accordance with their respective internal rules concerning directors’
retirement allowances if all eligible directors and statutory auditors were to resign their positions as of the respective balance-sheet dates.
(Change in accounting principle)
The directors’ retirement allowances were previously charged to income as incurred when disbursed. Effectivefrom this fiscal year under review, the accounting method for directors’ retirement allowances at DK and its
consolidated subsidiaries has been changed to provide for possible payments at amounts that would be required tobe paid in accordance with the respective internal rules concerning directors’ retirement allowances if all eligible
directors and statutory auditors were to resign their positions as of the respective balance-sheet dates. Thischange, which was implemented when the relevant internal rules were reviewed, aims to regularize the periodic
accounting of profit and loss and achieve a sounder financial base by allocating the directors’ retirement allowances to the tenure of directors and statutory auditors. As per this change, ¥367 million that was recognized tohave occurred during this fiscal year was included in selling, general and administrative expenses, whereas¥2,921 million was collectively included in the provision for the reserve for directors’ retirement allowances forprior years as an extraordinary loss factor.
As a result, compared with the previous accounting method, operating income and ordinary income each declinedby ¥367 million, and income before income taxes and minority interest decreased by ¥3,141 million.
(4) Translation of important assets and liabilities denominated in foreign currencies into yen
Monetary receivables and payables denominated in foreign currencies are translated into yen at the spot exchange
rate in effect at the balance-sheet date. The resulting exchange differences are charged or credited to income. Thebalance sheet accounts, as well as the revenue and expense accounts, of the overseas subsidiaries are translated into
yen at the spot exchange rate in effect at their respective balance-sheet dates. The resulting translation differences
have been recorded as a component of minority interests and presented as “Foreign currency translation adjustments”
in shareholders’ equity.
(5) Accounting for important leases
Finance leases that do not transfer ownership of leased property to the lessee are accounted for as rental transactions.
(6) Hedge accounting
DKG hedges against risks of interest rate fluctuations for its variable-rate borrowings using interest rate swaps. The
preferential treatment is applied to these interest rate swaps.
(7) Other important matters in preparing the consolidated financial statements① Accounting for installment sales
Unrealized profit on installment sales is deferred for the amount corresponding to the portion of installment receivables for which the due date has not expired based on DKG’s installment standards.
② Accounting for consumption taxes
Consumption taxes are accounted for using the tax exclusion method.
5. Valuation of assets and liabilities of consolidated subsidiaries
The assets and liabilities of consolidated subsidiaries are valued at their fair values.
6. Amortization of the consolidation adjustments account
The amount of the consolidation adjustments account is equally amortized over five or 15 years on a straight-line basis.

18

DAIICHIKOSHO

CO.,

LTD.

7. Treatment of appropriation items of profit
The statements of consolidated retained earnings are based on the distribution of profit finalized during the consolidation
fiscal year at the consolidated subsidiaries.
8. Cash and Cash Equivalents in the Consolidated Statements of Cash Flows
Cash and cash equivalents in the consolidated statements of cash flows include cash on hand, demand deposits andshort-term investments due within three months from the acquired date, which are easily convertible into cash with little
risk of value fluctuation.

19

DAIICHIKOSHO

CO.,

LTD.

Notes to Consolidated Financial Statements(Notes to Consolidated Balance Sheets)
1. Accumulated depreciation for tangible fixed assets
2. Liabilities for guarantee
3. Assets pledged as collateral and secured debt
Notes and accounts receivable―trade
Buildings and structures
Karaoke equipment for rental
Land
Other tangible fixed assets
Investments in securities
Long-term loans receivable
Leasehold deposits and guarantee money
Total
Debt corresponding to the above:
Short-term borrowings
Long-term borrowings
Total
4. Treasury stock

As of March 31, 2003
49,268(Millions of yen)
As of March 31, 2004
49,527

1,136

899

4,007
5,164
59
10,293
876
626
2,011
155
23,195

3,282
3,311
28
7,576
897
1,634
155
16,886

7,245
15,56322,809

6,000
6,993
12,994

324,819 shares339,203 shares

5. DK revalued the land used for its business based on the provisions prescribed in the Law Concerning Revaluation of Land
(1998 Law No. 34). The resulting revaluation difference is included in Shareholders’ Equity as “Land revaluation difference.”(1) Date of revaluation: March 31, 2001
(2) Revaluation method:
The value of land is calculated by reasonably adjusting the “ land prices calculated under the method determined andannounced by the Director-General of the National Tax Administration Agency for calculating land value as the basisof calculating taxable prices of land value tax set forth in Article 16 of the Land Value Tax Law,” stipulated in Article
2, Item 4, of the “Ordinance Implementing the Law Concerning Revaluation of Land (1998 Government Ordinance
No. 119).”(3) The difference between the market value of the land for business use as of March 31, 2004, and its carrying amount after the revaluation: ¥(648) million(Note to Consolidated Statements of Cash Flows)
Relations between the year-end balance of cash and cash equivalents and the accounts listed in the consolidated balance sheets(Millions of yen)
FY 2002
FY 2003(As of March 31, 2003)(As of March 31, 2004)
Cash and bank deposits
26,07729,280Time and saving deposits for which the depositing pe(3,246)(8,979)riod exceeds three months
Cash and cash equivalents
22,831
20,30020

DAIICHIKOSHO

CO.,

LTD.

(Notes to Leases)
1. Finance lease contracts that do not transfer ownership of leased property to the lessee(1) Assumed data as to acquisition cost, accumulated depreciation and remaining book value of leased assets as of March 31, 2003 and 2004

Karaoke cabin facilities
Other tangible fixed assets
Total

FY 2002(From April 1, 2002, to March 31, 2003)
Acquisition
Accumulated Remaining
cost
depreciation
book value
1,188
841
346
1,844
1,145
698
3,032
1,986
1,045

(Millions of yen)
FY 2003(From April 1, 2003, to March 31, 2004)
Acquisition
Accumulated
Remaining
cost
depreciation
book value
476
319
157
1,534
964
569
2,010
1,283
726

(2) Assumed future lease payments at the end of the year under finance leases
As of March 31, 2003
588
474
1,063

Due within one year
Due after one year
Total

(Millions of yen)
As of March 31, 2004
444
292
736

(3) Lease payments, and assumed depreciation expense and interest expense
Lease payments
Assumed depreciation expense
Assumed interest expense

As of March 31, 2003
1,171
1,114
23

(Millions of yen)
As of March 31, 2004
654
635
11

(4) Computation method of assumed depreciation expense
Depreciation expense is computed by the straight-line method, assuming the lease period as the useful life and noresidual value.
(5) Computation method of assumed interest expense
The difference between the total lease contract amount and the assumed acquisition cost is assumed to be interest,and interest expense is computed by the interest method.
2. Operating lease contracts
Assumed future lease payments at the end of the year under operating leases
As of March 31, 2003
432
2,807
3,239

Due within one year
Due after one year
Total

(Millions of yen)
As of March 31, 2004
422
2,495
2,918

(Notes to Securities)
1. Other securities primarily designated as available-for-sale securities for which fair values are readily determinable
Category

Securities with book values
exceeding acquisition costs
Securities with book values notexceeding acquisition costs
Total

StocksOther
Subtotal
StocksOther
Subtotal

FY 2002(As of March 31, 2003)
AcquisiBook value Net oftion cost
per congains
solidated(losses)balancesheets
152
230
77
152
230
77
986
923
(62)
944
772
(172)
1,931
1,696
(235)
2,083
1,926
(157)

21

(Millions of yen)
FY 2003(As of March 31, 2004)
AcquisiBook value Net oftion cost
per congains
solidated(losses)balancesheets
848
2,837
1,989
822
1,016
194
1,670
3,854
2,183
334
329
(4)
122
121
(0)
456
451
(5)
2,127
4,305
2,178

DAIICHIKOSHO

CO.,

LTD.

2. Available-for-sale securities sold in the years ended March 31, 2003 and 2004
FY 2002 (From April 1, 2002, to March 31, 2003)
Proceeds from sales Gross realized gains
Gross realized
losses
1,073
87
767

(Millions of yen)
FY 2003 (From April 1, 2003, to March 31, 2004)
Proceeds from sales Gross realized gains
Gross realized
losses223
208-

3. Debt securities expected to be held-to-maturity and other securities primarily designated as available-for-sale securities for which values were not readily determinable as of March 31, 2003 and 2004
FY 2002(As of March 31, 2003)
Book value per consolidatedbalance sheets(Millions of yen)
FY 2003(As of March 31, 2004)
Book value per consolidatedbalance sheets

9

9

460

2,313

Held-to-maturity debt securities:
Discount bank debentures
Available-for-sale securities:
Unlisted stocks (excluding OTC issues)

4. Future repayment schedule of available-for-sale securities with maturities and held-to-maturity debt securities(Millions of yen)

FY 2002 (As of March 31, 2003)
Within 1
year
Bonds anddebentures
OthersOther
Total

Within 5
years
99Within 10
years

772
772

FY 2003 (As of March 31, 2004)

After 10years-

Within 1
year
-

9
121
131

Within 5
years
1,016
1,016

Within 10
years

After 10
years
-

-

(Note to Derivative Transactions)Year ended March 31, 2003:
Relevant information is omitted as hedge accounting is applied.
Year ended March 31, 2004:
Relevant information is omitted as hedge accounting is applied.

(Retirement Benefit Plan)
1. Summary of DKG’s retirement benefit plans
DK and its seven consolidated domestic subsidiaries have defined-benefit retirement plans that consist of qualified
pension plans and lump-sum retirement payment plans, whereas other consolidated subsidiaries have lump-sum retirement payment plans. DK and certain consolidated subsidiaries may also pay extra retirement benefits upon the resignation of their employees that are not considered subject to the retirement benefit obligations by the actuarial calculation
based on the retirement benefit accounting standards.
2. Balance and details of the retirement benefit obligations as of March 31, 2004
FY 2002(As of March 31, 2003)(4,538)1,849(2,689)976(1,712)(Millions of yen)
FY 2003(As of March 31, 2004)(4,596)2,205(2,391)(131)
875(1,646)(1) Projected benefit obligations(2) Fair value of plan assets(3) Unfunded benefit obligations (1) + (2)(4) Unrecognized plan assets(5) Unrecognized actuarial differences(6) Net amount recorded in the consolidated balance sheets(3) + (4) + (5)(7) Prepaid plan cost(984)
(1,015)(8) Reserve for employees’ retirement benefits(2,696)(2,662)
Note: Consolidated subsidiaries adopt a simplified method on calculating their projected benefit obligations.

22

DAIICHIKOSHO

CO.,

LTD.

3. Retirement benefit expenses(Millions of yen)
FY 2002
FY 2003(From April 1, 2002, to(From April 1, 2003, to
March 31, 2003)
March 31, 2004)(1) Service cost
479
467(2) Interest expense
4144(3) Expected return on plan assets (subtraction)
(58)
(32)
(4) Amortization of actuarial differences
83109(5) Extra retirement benefits(6) Retirement benefit expenses (1) + (2) + (3) + (4) + (5)547587
Note: The retirement benefit expenses of certain consolidated subsidiaries that adopt the simplified method areincluded in “(1) Service cost.”
4. Assumptions in the computation of retirement benefit obligations and others
FY 2002
FY 2003(As of March 31, 2003)(As of March 31, 2004)(1) Discount rate
1.7%
1.7%
(2) Expected rate of return on plan assets
3.5%
2.0%
(3) Interperiod allocation method of estimated retirement
Straight-line basis
Straight-line basis
benefits(4) Number of years for amortization of actuarial differences 10 years from the fol10 years from the following fiscal year of rec- lowing fiscal year of recognition
ognition23

DAIICHIKOSHO

CO.,

LTD.

(Tax-Effect Accounting)
1. Breakdown by cause of deferred tax assets and liabilities
FY 2002 (as of March 31, 2003)
Deferred tax assets:
Loss brought forward
Depreciation expense
Allowance for doubtful accounts
Reserve for employees’ retirement
benefits
Loss on valuation of investments insecurities
Inventories
Reserve for bonuses
Net unrealized gains or losses on available-for-sale securities
OthersDeferred tax assets subtotal
Valuation reserve
Total deferred tax assets
Deferred tax liabilities:
Prepaid plan expense

5,915
1,276
1,071
901

(Millions of yen)
FY 2003 (as of March 31, 2004)
Deferred tax assets:
Loss brought forward
4,535
Depreciation expense
585
Allowance for doubtful accounts
1,083
Reserve for employees’ retirement benefits
953

887

Reserve for directors’ retirement allowances

1,301

811

Loss on valuation of investments in securities
Inventories
Reserve for bonuses

913

351
75
1,053
12,343(4,162)
8,180

689
407

Others738
Deferred tax assets subtotal
11,209Valuation reserve(4,112)
Total deferred tax assets
7,097
Deferred tax liabilities:(398)
Net unrealized gains or losses on avail(878)able-for-sale securities
Unrealized gains or losses(226)
Prepaid plan expense(411)
Net deferred tax assets
7,555
Unrealized gain or loss
(226)
Net deferred tax assets
5,580
2. Reconciliation between the statutory income tax rate and the effective income tax rate after the adoption oftax-effect accounting% FY 2003 (as of March 31, 2004)%
FY 2002 (as of March 31, 2003)
Statutory income tax rate
42.0 Statutory income tax rate
42.0
Reconciliation items:
Reconciliation items:
Reversal of unrecognized land revaluation (77.8)
Reversal of unrecognized land revaluation(22.6)
difference
differenceEntertainment expenses and others, which
3.4
Entertainment expenses and others, which are
2.8
are permanently nondeductible
permanently nondeductible
Dividend income and others, which are(2.1)
Per capita inhabitant’s tax
1.5
permanently excluded from taxable income
Per capita inhabitant’s tax
1.9
Valuation reserve
13.1
Reduction in deferred tax assets at the
1.6
Others1.1balance sheet date due to tax rate change
Valuation reserve
23.1
Effective income tax rate after the adoption
37.9
of tax-effect accounting
Others0.2
Effective income tax rate after the(7.7)
adoption of tax-effect accounting

24

DAIICHIKOSHO

3. Pursuant to the “Law for the Amendment of a Part ofLocal Tax Law, etc.” (which implements the pro forma
standard tax for income tax effective from the businessyear beginning on and after April 1, 2004), the statutory
income tax rate used for calculating deferred tax assets
and liabilities for the year ended March 31, 2004, is that
before the amendment with regard to the transitional
differences that were expected to be resolved by March
31, 2004, and that after the amendment with regard to
the transitional differences that were expected to beresolved on and after April 1, 2004. As a result of thischange in the statutory/effective tax rate, net deferred
tax assets as of the balance-sheet date (after deducting
deferred tax liabilities) decreased ¥103 million,
whereas income taxes—deferred recorded for the year
under review increased ¥103 million.

―

25

CO.,

LTD.

DAIICHIKOSHO

CO.,

LTD.

(Segment Information)
The business and geographical segments of DK and its consolidated subsidiaries for the year ended March 31,
2003 and 2004, are summarized as follows:
1. Business segments
FY 2002 (From April 1, 2002, to March 31, 2003)(Millions of yen)
Item
Sales and operating
incomeSales
Sales to externalcustomers
Intersegment sales
and transfers
Total
Operating expenses
Operating income(loss)
Assets, depreciation
expense and capital
expenditures
AssetsDepreciation
expenseCapital expenditures

Commercial karaoke

Karaokecabin

ContentMusic
software61,49823,722

10,308

16,6484,879

117,057-

117,057

143

-

-

234

449

826

(826)

-

61,642
51,885
9,756

23,722
21,3642,358

10,308
8,375
1,932

16,882
16,964
(82)

5,328
4,701
627

117,884
103,291
14,593(826)
1,272(2,099)117,057
104,564
12,49365,657
7,505

23,852
2,073

5,352
925

11,150
50

8,170
422

114,183
10,977

17,755
61

131,938
11,038

9,194

2,625

1,156

21

1,110

14,109124

14,233

Other

Total

Eliminations andcorporate

Consolidated

FY 2003 (From April 1, 2003, to March 31, 2004)(Millions of yen)
Item
Sales and operating
incomeSales
Sales to externalcustomers
Intersegment sales
and transfers
Total
Operating expenses
Operating income(loss)
Assets, depreciation
expense and capital
expenditures
AssetsDepreciation
expenseCapital expenditures

Commercial karaoke

Karaokecabin

ContentMusic
softwareOther

66,50525,156

10,324

12,098

5,249

164

-

-

248

66,67055,986
10,68325,15622,656
2,499

10,324
8,682
1,642

64,2908,758

25,775
2,077

10,683

5,279

Total

Eliminations andcorporate

Consolidated

119,335-

119,335

340

753

(753)

-

12,347
12,004
342

5,590
5,105
485

120,088
104,434
15,653(753)
1,773(2,527)

119,335
106,208
13,126

6,245
1,075

10,13628

11,377
659

117,825
12,59920,627
79

138,453
12,679

1,598

35

736

18,33353

18,387

Notes: 1. Segmentation method
According to DKG’s sales tabulation categories.
2. Major products and/or services of each business segment
Business segment
Commercial karaoke businessKaraoke cabin business
Content business
Music software business
Other business

Major products and/or services
Sales and rental of commercial-use karaoke equipment and software
Operation of karaoke cabins, as well as the supply of food and beverages in the cabins
Supply of music content, etc., via satellite broadcasting and mobile phones
Production and sales of music and video software products
Real estate lease and rental business, restaurant business, etc.

26

DAIICHIKOSHO

CO.,

LTD.

3. Amounts and major items included in “Eliminations and corporate”(Millions of yen)Amount of unabsorbed operating expenses included in“Eliminations and corporate”
Amount of corporate assets
included in “Eliminations andcorporate”

FY 2002(Year ended March
31, 2003)
2,346

FY 2003(Year ended
March 31, 2004)
2,527

17,53021,026

Major items
Expenses required for operations by administrative departments such as the General Affairs Dept.
Surplus funds operated by the Company (cashand bank deposits, and securities), long-term
investment funds (investments in securities)
and properties related to administrative departments.

2. Geographical segments
As sales and assets in Japan account for more than 90% of the sum of sales and the sum of assets for all the respective
geographical segments, the segment information by geographical region is omitted.
3. Overseas sales
As overseas sales account for less than 10% of consolidated net sales, information related to overseas sales is omitted.

27

DAIICHIKOSHO

CO.,

LTD.

(Transactions with Related Parties)
Fiscal 2002 (From April 1, 2002, to March 31, 2003)
Directors and major individual shareholders, etc.
(Millions of yen)

Attribute

A company in which a majority of the voting rights are held by DK’s director and his/her relative(s)Company name
Wakahara Co., Ltd.
Location
Kawaguchi, Saitama
Capital stock or investment in capital3
Principal business or profession
Operation of karaoke cabins
Ownership percentage of voting rights, etc. The relative(s) of DK’s statutory auditor Kumiko Takahashi directly own(s)100% of its shares.
Relationship Directors’ posts held con—with thecurrently
Company
Business relationship
Lending of trade mark and outsourced operations, etc.
Description of transactions
Lending of trade
Charges forward for
Outsourced operations
markmanagement expense,
etc.
Transaction amount3
3
11
Account item
Accounts receivOther current assets—
able—tradeYear-end balance02—
Note: The transactions between Wakahara Co., Ltd. and DK are so-called arm’s length transactions and were determined by reference to the selling prices and payment conditions for unrelated operating bodies with regard to theterms and conditions and the decision policy thereon. Of the figures above, “Transaction amount” does not include consumption taxes, whereas “Year-end balance” does.

Fiscal 2003 (From April 1, 2003, to March 31, 2004)
Directors and major individual shareholders, etc.
(Millions of yen)

Attribute

A company in which a majority of the voting rights are held by DK’s director and his/her relative(s)Company name
Wakahara Co., Ltd.
Location
Kawaguchi, Saitama
Capital stock or investment in capital3
Principal business or profession
Operation of karaoke cabins
Ownership percentage of voting rights, etc. The relative(s) of DK’s statutory auditor Kumiko Takahashi directly own(s)100% of its shares.
Relationship Directors’ posts held con—with thecurrently
Company
Business relationship
Lending of trade mark, etc.
Description of transactions
Lending of trade
Charges forward for management expense, etc.
mark
Transaction amount0
1
Account item——
Year-end balance——
Notes: The transactions between Wakahara Co., Ltd. and DK are so-called arm’s length transactions and were determined by reference to the selling prices and payment conditions for unrelated operating bodies with regard to
the terms and conditions and the decision policy thereon. Of the figures above, “Transaction amount” does notinclude consumption taxes, whereas “Year-end balance” does.

28

DAIICHIKOSHO

CO.,

LTD.

(Per Share Data)
Item

FY 2002

FY 2003(From April 1, 2002, to March 31, 2003)(From April 1, 2003, to March 31, 2004)

Shareholders’ equity per share¥3,081.34¥3,378.93¥375.89¥265.08¥354.25¥252.21

Net income per share
Fully diluted net income per share

Effective from this year ended March 31,
2004, the Company has applied the “Accounting Standard for Net Income per
Share” (Business Accounting Standard
No. 2) and the “Application Guideline
concerning the Accounting Standard for
Net Income per Share” (Application
Guideline for Business Accounting Standard No. 4) to its net income and net income per share.
Per share data by applying the above
accounting standard and the application
guideline to shareholders’ equity per shareand net income per share for the year
ended March 31, 2003, were as follows:
Shareholders’ equity per share:¥2,721.21
Net income per share:¥170.77
Fully diluted net income per share:¥160.86
Note: Assumptions in the computation of net income per share and fully diluted net income per share are as follows:
FY 2002
FY 2003(From April 1, 2002, to March 31, 2003)(From April 1, 2003, to March 31, 2004)

Net income per share:
Net income for the year (Millions ofyen)Amount not belonging to commonshareholders (Millions of yen)
(Bonuses to directors through profit
appropriation included therein)
Net income related to common sharesof the Company (Millions of yen)
Average number of shares during theyear (Thousand shares)

6,938

4,898

136

133

(136)

(133)

6,802

4,765

18,097

17,979

52

46

(48)

(43)

1,253

1,101

(1,253)(1,101)

Fully diluted net income per share:
Adjustment to net income (Millions ofyen)(Interest paid included therein (after
excluding the amount equivalent totax))
Increase in the number of commonshares (Thousand shares)(Convertible bonds included therein)
Summary of residual securities not included in the calculation of fully diluted
net income per share because they haveno dilutive effect

None

None

29

DAIICHIKOSHO

CO.,

LTD.

(Significant Subsequent Events)
FY 2002 (From April 1, 2002, to March 31, 2003)――

FY 2003 (From April 1, 2003, to March 31, 2004)
1. The meeting of the Board of Directors held on March 22,
2004, adopted a resolution to the effect that the land andbuildings at six sales office buildings be sold to an affiliated company (DK Finance, Co., Ltd.). The sales procedure completed on April 27, 2004, resulted in a ¥1,234
million loss on sales of fixed assets and caused a ¥(3,834)
million reversal of land revaluation difference.
2. Pursuant to a resolution adopted by the Board of
Directors on February 23, 2004, the Company shallissue new shares via a stock split in the following
manner:(1) Two-for-one stock split for common shares on May
20, 2004
1) Number of shares increased via the stock split:
18,310,463 common shares2) Splitting method:
The Company’s common shares shall be split at therate of two-for-one for the shares owned byshareholders whose names are registered or recorded in the last record of shareholders and thelast record of beneficiary shareholders as of March
31, 2004.
(2) Initial date of reckoning for dividends
April 1, 2004
The per share data for the year ended March 31,
2003, supposing that the stock split was conducted
as of April 1, 2002, and those for the year ended
March 31, 2004, supposing that the stock split was
conducted as of April 2003, are as follows:
FY 2002 (From April 1,
FY 2003 (From April 1,
2002, to March 31, 2003)
2003, to March 31, 2004)
Shareholders’ equity per
Shareholders’ equity per
share
share
¥1,540.67
Net income per share¥1,689.46
Net income per share¥187.95¥132.54

Fully diluted net income per
share

Fully diluted net income per
share¥177.12¥126.1130

DAIICHIKOSHO

CO.,

LTD.

5. Production, Orders Received and Sales(1) Production
Fiscal year
Segment
Commercial karaoke business:
Telecommunications-type karaoke
software
Disk-type karaoke software
SubtotalContent business:
Sound delivery/video software for satellite broadcastingMusic software business:
Music and video software
Total

FY 2002(From April 1, 2002, to March 31, 2003)
Year-over-yearchange (%)(Millions of yen)
FY 2003(From April 1, 2003, to March 31, 2004)
Year-over-yearchange (%)

2,261

122.1

3,610

159.6

1,226
3,487

90.1
108.5

1,032
4,642

84.2
133.1

474

94.1

972

205.0

2,718
6,680

118.7
111.2

3,474
9,089

127.8
136.1

Note: The above amounts are indicated in terms of manufacturing cost.

(2) Orders received
Inapplicable as DKG follows a policy of project production.
(3) Sales
Fiscal year
Segment
Commercial karaoke business:
Turnover of merchandise andproducts
Revenue from rental of karaoke equipment
Fee revenue from the provisionof karaoke-streaming service
Subtotal
Karaoke cabin business:
Content business:
Satellite broadcasting
e-business
Subtotal
Music software business:
Other business:
Total

FY 2002 (From April 1, 2002, to March 31,
2003)
Composition
Year-over-year
ratio (%)
change (%)(Millions of yen)
FY 2003 (From April 1, 2003, to March 31,
2004)
Composition
Year-over-yea
ratio (%)
r change (%)

27,234

23.2

124.6

28,421

23.8

104.4

16,948

14.5

100.8

18,062

15.1

106.6

17,314

14.8

114.9

20,020

16.8

115.6

61,49823,722

52.5
20.3

114.4
107.9

66,50525,156

55.7
21.1

108.1
106.0

4,583
5,724
10,308
16,6484,879
117,057

3.9
4.9
8.8
14.2
4.2
100.0

101.0
125.6
113.3
182.8
104.8
118.7

4,592
5,731
10,324
12,098
5,249
119,335

3.9
4.8
8.7
10.1
4.4
100.0

100.2
100.1
100.2
72.7
107.6
102.0

31

DAIICHIKOSHO

CO.,

LTD.

Summary of Nonconsolidated Financial Statements for the Year Ended March 31, 2004
May 17, 2004
Company Name: DAIICHIKOSHO CO., LTD.
Code Number: 7458
(URL http://www.dkkaraoke.co.jp)
Registered Stock: JASDAQ
Location of Head Office (Prefecture): Metropolis of Tokyo
Representative: Tatsuyoshi Yoneda, President
Contact:
Eiji Hata, Executive Director; Administration Headquarters and General Manager,
Finance Dept.
Phone: (03) 3280-2151
Date of the Board of Directors Meeting on the Closing of Accounts: May 17, 2004
Interim Dividend System: Applied
Date of the Ordinary General Meeting of Shareholders: June 25, 2004
Unit (tangen) Stock System: Adopted (Unit (tangen) stock of shares: 100 shares)
1. Nonconsolidated Performance for the Year Ended March 2004 (from April 1, 2003, to March 31,
2004)(1) Nonconsolidated operating results
Note: Amounts below one million yen are truncated.
Net sales¥ Million

Year ended March 2004
Year ended March 2003

%
7.7
14.5

80,711
74,974

Year ended March 2004
Year ended March 2003

4,679
4,350

%
9.7
9.9

%
0.6
37.9

Net income per share
%
7.6
115.4

Return on equity
Year ended March 2004
Year ended March 2003

Ordinary income¥ Million

8,170
8,125

Net income¥ Million

Operating income¥ Million

7,531
7,510

Fully diluted net income
per share¥¥

258.95238.37246.44225.64

Ordinary income to total
assets%8.8
9.2

Ordinary income to net
sales
%
9.3
10.0

Notes: 1. Average number of shares outstanding during the year:
Year ended March 2004: 17,979,209 sharesYear ended March 2003: 18,097,192 shares
2. Change in accounting method: Yes
3. Percentages for net sales, operating income, ordinary income and net income show
year-over-year change from the previous fiscal year.

32

%
0.3
40.9

DAIICHIKOSHO

CO.,

LTD.

(2) Dividends
Annual dividend per
share
Year Ended
March 31, 2004
Year Ended
March 31, 2003

Year-end

Total amount ofdividends (annually)

Payout ratio

Interim

Ratio of dividends to shareholders’ equity¥¥ Million
682

%
14.7

%
1.3

683

15.9

1.5

¥
38.00

—

¥
38.00

38.00

—

38.00

(3) Nonconsolidated financial position
Total assets

Shareholders’equity¥ Million¥ Million%

88,57850,81557.4

2,826.29

82,54645,54355.2

2,530.19

Year Ended March 31,
2004
Year Ended March 31,
2003

Equity ratio

Shareholders’equity per share¥

Notes: 1. Number of shares outstanding at the end of the year:
17,971,260 shares at March 31, 2004
17,985,551 shares at March 31, 2003
2. Number of treasury stocks at the end of the year:
339,203 shares at March 31, 2004
324,819 shares at March 31, 2003
2. Forecast Nonconsolidated Performance for FY 2004 (from April 1, 2004, to March 31, 2005)

Interim period
ending September 30, 2004
Year ending
March 31, 2005
(full year)

Net sales

Ordinary income

Net income

Annual dividend per share
InterimYear-end¥ Million¥ Million¥ Million¥¥¥

41,000

3,800

3,200

-

-

-

85,500

7,800

5,300

-

20.00

20.00

(Reference) Forecast net income per share (full year): ¥146.79
The value of forecast net income per share (full year) above is calculated based on thenumber of shares after the two-for-one stock split conducted on May 20, 2004.
Note: These projected performance figures are based on information available to the Company’s management at thetime of preparing this report. There are many uncertain factors inherent in forecasting, and there might be cases
in which actual results differ from forecast values. See page 10 of the Attachment for further information on
forecasts.

33

DAIICHIKOSHO

CO.,

LTD.

6. Nonconsolidated Financial Statements(1) Nonconsolidated Balance Sheet
Fiscal year

Account item
(Assets)
Current assets
Cash and bank deposits
Notes receivable―trade
Accounts receivable―tradeMarketable securities
Merchandise
Finished products
Work in process
Advance money
Prepaid expenses
Deferred tax assets
Income taxes receivable
Current portion of long-termloans receivable from subsidiaries and affiliates
Other
Allowance for doubtful accounts
Total current assets
Fixed assets
Tangible fixed assets
Buildings
Structures
Tools, furniture and fixtures
Karaoke equipment for rental
Karaoke cabin facilities
Land
Other
Total tangible fixed assets
Intangible assets
Patent rightLeasehold
Trademark right
SoftwareSound delivery/video software
Other
Total intangible assets
Investments and other assets
Investments in securities
Investment in stocks of subsidiaries and affiliates
Investment in capital
Investment in capital of subsidiaries and affiliates
Long-term loans receivable

FY 2002(Year ended March 31, 2003)
AmountComposition ratio(%)(Millions of yen)
FY 2003Year-over(Year ended March 31, 2004)
yearchangeAmountComposition ratio(%)

13,980
2,142
5,753
2,761
120
1,523
254
733
3,362
822
475

17,476
1,136
6,609
121
2,592
49
781
313
683
3,340
—
327

3,496
(1,006)
856
121
(169)
(71)
(741)
58
(50)
(21)
(822)
(147)

268
(437)
31,761

38.5

588
(451)
33,571

37.9

319
(13)
1,810

24.5

3,241
263
757
4,388
6,992
4,853
165
20,662

23.3(1,328)
(71)
114
767
933
45
(26)
434

8.6

2
44
1
3,811
4,369
208
8,437

9.5

0
(5)
(79)
1,437
(1)
1,350

4,569
335
643
3,621
6,058
4,807
191
20,228
2
44
6
3,891
2,932
210
7,087
2,252
5,178

6,341
5,080

4,088
(97)

704
100

685
100

(18)
0

5,717

5,373

(343)

34

DAIICHIKOSHO

Claims in bankruptcy, reorganization claims and similar claims
Long-term prepaid expenses
Deferred tax assets
Prepaid plan cost
Leasehold deposits and guarantee money
Other
Allowance for doubtful accounts
Total investments and otherassetsTotal fixed assets
Total Assets

CO.,

LTD.

1,012

968

(44)

130
2,438
984
9,069

100
963
1,015
9,860

(29)
(1,475)31
790

569(4,687)23,46928.4

311(4,893)25,907

29.3

(257)
(205)
2,437

50,78582,54661.5
100.0

55,007
88,578

62.1
100.0

4,222
6,032

35

DAIICHIKOSHOFiscal year
Account item
(Liabilities)
Current liabilities
Notes payable―trade
Accounts payable―trade
Short-term borrowings
Convertible bonds redeemablewithin one year
Current portion of long-termborrowings
Accounts payable―otherAccrued expenses
Income taxes payable
Consumption taxes payable
Unrealized profit on installment
sales
Reserve for bonuses
Other
Total current liabilities
Long-term liabilities
Convertible bonds
Long-term borrowings
Reserve for employees’ retirement benefits
Reserve for directors’ retirement
allowances
Other
Total long-term liabilities
Total Liabilities(Shareholders’ Equity)
Capital stock
Capital surplus
Capital reserve
Other capital surplus
Gain on decrease in capital reserve
Gain on disposal of treasury
stock
Total capital surplus
Retained earnings
Voluntary reserve
Unappropriated retained earnings
for the year
Total retained earnings
Land revaluation difference
Net unrealized gains or losses onavailable-for-sale securities
Treasury stock
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity

CO.,

LTD.

FY 2002 (Year ended March 31, 2003)
AmountComposition ratio(%)

FY 2003 (Year ended March 31, 2004)
AmountComposition ratio(%)

Year-overyearchange

2,365
2,617
1,250
-

2,556
3,049
600
10,799

190
431
(650)
10,799

3,388

3,400

12

3,884
110
406
302

4,711
205
161
267
176

827
95
161
(139)
(125)

631
301
15,258605
582
27,116(25)
280
11,85718.5

30.6

12,165
8,179
1,002

8,049
1,026

(12,165)
(130)
23

-

1,130

1,130

397
21,74437,002

26.3
44.8

440
10,64737,763

12.0
42.6

43
(11,097)760

12,34814.9

12,349

14.0

0

4,000

4,001

0

20,00020,000--0024,00029.1

29,750(9,750)24,00127.1

18,602
1,114(11,148)
10,86519,999(10,005)(99)

24.2(12.1)(0.1)

19,716(5,761)
1,277

22.3
(6.5)
1.4

(282)
4,243
1,376

(700)
45,54382,546

(0.8)
55.2
100.0

(767)
50,81588,578

(0.9)
57.4
100.0

(67)
5,272
6,032

36

DAIICHIKOSHO

CO.,

LTD.

(2) Nonconsolidated Statement of Income
Fiscal year
Account item
Net sales
Cost of sales
Gross profit before adjustment for
unrealized profit on installment sales
Unrealized profit on installment
sales─reversal (+)
Unrealized profit on installment
sales─deferred (–)
Gross profit on sales
Selling, general and administrative
expenses
Operating income
Nonoperating income
Interest and dividend income
Fees and commissions received
Profit on retirement of convertible
bonds
Other
Nonoperating expenses
Interest expense
Loss on valuation of inventories
Loss on disposal of inventories
Provision for allowance for doubtful
accounts
Other
Ordinary income
Extraordinary gains
Gain on correction of copyright use
fees for prior years
Gain on sales of fixed assets
Reversal of allowance for doubtful
accounts
Gain on sales of investments in securities
Extraordinary losses
Loss on sales and disposal of fixed
assetsLoss on valuation of investments insecurities
Loss on valuation of investment instocks of subsidiaries and affiliates
Loss on sales of investments in securities
Directors’ retirement allowances
Provision for reserve for directors’
retirement allowances for prior years
Loss on arrangement of subsidiaries
and affiliates
Income before income taxes
Income taxes―current
Income taxes―deferred
Net income for the year
Surplus brought forward from theprevious year
Reversal of legal reserve
Reversal of land revaluation difference
Unappropriated retained earnings

FY 2002 (From April 1, 2002, toMarch 31, 2003)
AmountPercentage(%)
74,974100.0
46,52962.1
28,445
37.9
196
189

231
7

0.0

125

0.2

28,452
20,32637.9
27.1

29,61921,448

36.7
26.6

104.1
105.5

8,125

10.8

8,170

10.1

100.6

1,049

1.3

98.4

1,688
7,531

2.1
9.3

100.4
100.3

424

0.5

87.9

2,621

3.2

43.8

5,334

6.6

265.6

655
4,679
679

0.8
5.8

107.6

485
126
42
411

106

557
164
1,066

1.4

235
144
93
712
495

(Millions of yen)
Year-overFY 2003 (From April 1, 2003, to
year
March 31, 2004)
AmountPercentage change(%)(%)
80,711
100.0
107.7
51,21763.5
110.1
29,493
36.5
103.7

327
202
198
414
500

1,681
7,510

2.2
10.0

372

262

-

—
206

14
201

13

482

0.7

208

1,278

1,136

483

77

3,370

303

767

-

83
-

1,097

100
(2,441)

5,984

8.0

2,009

2.7

(2,341)
4,350
598

(3.1)
5.8

5
100
555

485
(15,184)(4,243)(9,750)1,114

37

DAIICHIKOSHO

CO.,

LTD.

(3) Proposal for Appropriation of Retained Earnings
Fiscal year
Account item
Unappropriated retained earnings
Reversal of voluntary reserve
Reversal of general reserve
Total
To be appropriated as follows:
Amounts of profit appropriation:
Cash dividends
Bonuses to directors(including those to statutory auditors)
Retained earnings to be carried forward

FY 2002 (Year ended March 31, 2003)
Amount(9,750)
11,150

11,150
1,399

683
36
(13)

719
679

38

(Millions of yen)
FY 2003 (Year ended March 31, 2004)
Amount
1,114
-

682
23
(3)

1,114

706
408

DAIICHIKOSHO

CO.,

LTD.

Significant Accounting Policies
1. Valuation basis and method for securities(1) Investment in stocks of subsidiaries and affiliates
Stated at cost determined by the moving-average method.
(2) Other securities
Securities with fair value:
Carried at fair value as of the balance-sheet date with changes in net unrealized holding gain or loss, net of the applicable income taxes, included directly in shareholders’ equity. The cost of securities sold is determined by themoving-average method.
Securities without fair value:
Carried at cost determined by the moving-average method.
2. Valuation basis and method for inventories(1) Merchandise and finished products
Carried at cost determined by the moving-average method.
(2) Work in process
Carried at cost determined by the specific identification method.
3. Depreciation method of fixed assets(1) Tangible fixed assets
Depreciation is computed by the declining-balance method at rates based on the estimated useful lives of the assets asshown below. However, the straight-line method is adopted for buildings (excluding building improvements) acquired on or after April 1, 1998.
Building and structures: 3–50 years
Karaoke equipment for rental: 5–6 years
Karaoke cabin facilities: 3–19 years(2) Intangible assets
Amortization of intangible assets is computed by the straight-line method. Computer software for internal use isamortized by the straight-line method over the estimated useful life (five years), and sound delivery and video
software is amortized by the straight-line method over two years.
(3) Long-term prepaid expenses
Straight-line method is adopted.
4. Accounting standards for reserves(1) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amount of possible losses from uncollectible receivables basedon the actual rate of losses from bad debt for ordinary receivables, and on the estimated recoverability for specificdoubtful receivables.
(2) Reserve for bonuses
The reserve for bonuses is provided at an estimated amount based on DK’s internal payment prediction standard.
(3) Reserve for employees’ retirement benefits:
The reserve for employees’ retirement benefits is provided at an amount recognized to have accrued as of the balance-sheet date, based on the projected benefit obligations and plan assets as of March 31, 2004. Actuarial differences
are amortized on a pro rata basis by the straight-line method over a certain period (10 years), which is shorter than the
average remaining service years for employees at the time of their occurrence, from the following fiscal year ofrecognition.
(4) Reserve for directors’ retirement allowances:
The reserve for directors’ retirement allowances is provided at an amount that would be required to be paid in accordance with the DK’s internal rules concerning directors’ retirement allowances if all eligible directors and statutory auditors were to resign their positions as of the balance-sheet date.
(Change in accounting principle)
DK’s directors’ retirement allowances were previously charged to income as incurred when disbursed. Effective fromthis year under review, the accounting method for DK’s directors’ retirement allowances has been changed to provide
for possible payments at an amount that would be required to be paid in accordance with its internal rules concerning
directors’ retirement allowances if all eligible directors and statutory auditors were to resign their positions as of thebalance-sheet date. This change, which was implemented when the relevant internal rules were reviewed, aims toregularize the periodic accounting of profit and loss and achieve a sounder financial structure by allocating the directors’ retirement allowances to the tenure of directors and statutory auditors. As per this change, ¥123 million thatwas recognized to have occurred during this fiscal year was included in selling, general and administrative expenses,

39

DAIICHIKOSHO

CO.,

LTD.

whereas ¥1,097 million was collectively included in the provision for the reserve for directors’ retirement allowances
for prior years as an extraordinary loss factor.
As a result, compared with the previous accounting method, operating income and ordinary income each declined by¥123 million, and income before income taxes decreased by ¥1,130 million.
5. Accounting for leases
Finance leases that do not transfer ownership of leased property to the lessee are accounted for as rental transactions.
6. Accounting for installment sales
DK’s installment profit involved in installment sales is deferred for the amount corresponding to the portion of installment receivables for which the due date has not expired.
7. Accounting for consumption tax, etc.
Consumption taxes are accounted for using the tax exclusion method. Consumption taxes related to installment sales aredeferred for the amount corresponding to the portion of installment receivables for which the due date has not expired.

40

DAIICHIKOSHO

CO.,

LTD.

Notes to Nonconsolidated Financial Statements(Notes to Nonconsolidated Balance Sheet)
As of March 31, 2003
23,098
1. Accumulated depreciation for tangible fixed assets

2. Liabilities for guarantee
Liabilities for guarantee
Guarantee by subscription
Total
3. Assets pledged as collateral and secured debt
Buildings
Land
Investments in securities
Total
Debt corresponding to the above:
Current portion of long-term borrowings
Long-term borrowings
Total
4. Commitment line contracts with seven main financing banks
Total amount of commitment line contracts
Residual amount of borrowed funds
On balance(Millions of yen)
As of March 31, 2004
23,102

5,288
356
5,645

3,928
301
4,230

1,471
2,141
626
4,239

-

696
5,981
6,677

-

10,00010,00010,00010,0005. DK revalued the land used for its business based on the provisions prescribed in the Law Concerning Revaluation of Land (1998 Law No. 34). The resulting revaluation difference is included in Shareholders’Equity as “Land revaluation difference.”(1) Date of revaluation: March 31, 2001
(2) Revaluation method:
The value of land is calculated by reasonably adjusting the “ land prices calculated under the method determined andannounced by the Director-General of the National Tax Administration Agency for calculating land value as thebasis of calculating taxable prices of land value tax set forth in Article 16 of the Land Value Tax Law,” stipulated in
Article 2, Item 4, of the “Ordinance Implementing the Law Concerning Revaluation of Land (1998 Government
Ordinance No. 119).”(3) The difference between the market value of the land for business use as of March 31, 2004, and its carrying amount after the revaluation: ¥(648) million

41

DAIICHIKOSHO

CO.,

LTD.

(Notes to Leases)
1. Finance lease contracts that do not transfer ownership of leased property to the lessee(1) Assumed data as to acquisition cost, accumulated depreciation and remaining book value of leased assets as of March 31, 2003 and 2004

Tools, furniture and fixtures
Karaoke cabin facilities
Total

FY 2002 (From April 1, 2002, to March 31, 2003)
Acquisition
Accumulated
Remaining
cost
depreciation
book value
2,509
1,197
1,312
984
742
241
3,494
1,940
1,554

(Millions of yen)
FY 2003 (From April 1, 2003, to March 31, 2004)
Acquisition
Accumulated
Remaining
cost
depreciation
book value
2,423
1,281
1,142
303
247
55
2,726
1,529
1,197

(2) Assumed future lease payments at the end of the year
Due within one year
Due after one year
Total

As of March 31, 2003
795
775
1,571

(Millions of yen)
As of March 31, 2004
668
540
1,209

(3) Lease payments, and assumed depreciation expense and interest expense
Lease payments
Assumed depreciation expense
Assumed interest expense

As of March 31, 2003
1,226
1,169
25

(Millions of yen)
As of March 31, 2004
828
807
15

(4) Computation method of assumed depreciation expense
Depreciation expense is computed by the straight-line method, assuming the lease period as the useful life and no residual value.

(5) Computation method of assumed interest expense
The difference between the total lease contract amount and the assumed acquisition cost is assumed to be interest,and interest expense is computed by the interest method.
2. Operating lease contracts
Assumed future lease payments at the end of the year
Due within one year
Due after one year
Total

As of March 31, 2003
324
2,400
2,725

(Millions of yen)
As of March 31, 2004
331
2,144
2,476

(Note to Securities)
DK had no available-for-sale securities for which the fair value was readily determinable in its investment in stocks ofsubsidiaries and affiliates for the years ended March 31, 2003 and 2004.

42

DAIICHIKOSHO

CO.,

LTD.

(Tax-Effect Accounting)
1. Breakdown by cause of deferred tax assets and liabilities(Millions of yen)
FY 2002 (as of March 31, 2003)
Deferred tax assets:
Loss brought forward
Loss on valuation of investment instocks of subsidiaries and affiliates
Allowance for doubtful accounts
Loss on valuation of investments in securities
Reserve for employees’ retirement
benefits
Reserve for bonuses
Loss on valuation of inventories
Net unrealized gains or losses on available-for-sale securities
OthersDeferred tax assets: subtotal
Valuation reserve
Total deferred tax assets
Deferred tax liabilities:
Prepaid plan expense

FY 2003 (as of March 31, 2004)
Deferred tax assets:
Loss brought forward
Loss on valuation of investment in stocks
of subsidiaries and affiliates
Allowance for doubtful accounts
Loss on valuation of investments in securities
Reserve for employees’ retirement benefits
Reserve for directors’ retirement allowances
Reserve for bonuses
Loss on valuation of inventories

4,960
1,723
1,551
837
268
213
86
72

3,724
1,574
1,808
865
336
458
245
33

Others242
Deferred tax assets: subtotal
9,288
Valuation reserve(3,703)
Total deferred tax assets
5,584
Deferred tax liabilities:(398)
Net unrealized gains or losses on avail(869)able-for-sale securities
Net deferred tax assets
5,801
Prepaid plan expense(411)
Net deferred tax assets
4,304
2. Reconciliation between the statutory income tax rate and the effective income tax rate after the adoption oftax-effect accounting%%
FY 2002 (as of March 31, 2003)
FY 2003 (as of March 31, 2004)
Statutory income tax rate
Reconciliation items:
Reversal of unrecognized land revaluationdifferenceEntertainment expenses and others, which
are permanently nondeductible
Dividend income and others, which arepermanently excluded from taxable income
Per capita inhabitant’s tax
Reduction in deferred tax assets at the balance sheet date due to tax rate change
Valuation reserve
Others
Effective income tax rate after the adoptionof tax-effect accounting

140
9,854
(3,654)
6,199

42.0

Statutory income tax rate

(252.4)
6.3
(6.5)
5.0
5.1
84.1
(0.1)
(116.5)43

Reconciliation items:
Reversal of unrecognized land revaluation differenceEntertainment expenses and others,
which are permanently nondeductible
Dividend income and others, which arepermanently excluded from taxable income
Per capita inhabitant’s tax
Valuation reserve
Others
Effective income tax rate after the
adoption of tax-effect accounting

42.0(33.4)
2.6
(3.4)
1.9
0.9
1.7
12.3

DAIICHIKOSHO

3. Pursuant to the “Law for the Amendment of a Part of ―Local Tax Law, etc.” (which implements the pro
forma standard tax for income tax effective from thebusiness year beginning on and after April 1, 2004),
the statutory income tax rate used for calculating
deferred tax assets and liabilities for the year ended
March 31, 2004, is that before the amendment withregard to the transitional differences that were expected to be resolved by March 31, 2004, and thatafter the amendment with regard to the transitional
differences that were expected to be resolved on andafter April 1, 2004. As a result of this change in thestatutory/effective tax rate, net deferred tax assets asof the balance-sheet date (after deducting deferred
tax liabilities) decreased ¥103 million, whereas income taxes—deferred recorded for the year underreview increased ¥103 million.

44

CO.,

LTD.

DAIICHIKOSHO

CO.,

LTD.

(Per Share Data)
Item
Shareholders’ equity per share

FY 2002 (From April 1, 2002, to
FY 2003 (From April 1, 2003, to
March 31, 2003)
March 31, 2004)¥2,530.19¥2,826.29

Net income per share
Fully diluted net income per share¥238.37¥258.95¥225.29¥246.44

Effective from this year ended March 31,
2004, the Company has applied the “Accounting Standard for Net Income per
Share” (Business Accounting Standard No.
2) and the “Application Guideline concerning the Accounting Standard for Net
Income per Share” (Application Guideline
for Business Accounting Standard No. 4) to
its net income and net income per share.
Per share data by applying the above accounting standard and the application
guideline to shareholders’ equity per shareand net income per share for the year ended
March 31, 2003, were as follows:
Shareholders’ equity per share:¥2,310.15
Net income per share:¥106.22
Fully diluted net income per share:¥101.15
Note: Assumptions in the computation of net income per share and fully diluted net income per share are as follows:
FY 2002 (From April 1, 2002, to
FY 2003 (From April 1, 2003, to
March 31, 2003)
March 31, 2004)
Net income per share:
Net income for the year (Millions of
4,350
4,679
yen)
Amount not belonging to common
36
23
shareholders (Millions of yen)
(Bonuses to directors through profit
(36)
(23)
appropriation included therein)
Net income related to common
4,313
4,655
shares of the Company (Millions ofyen)
Average number of shares during the
18,097
17,979year (Thousand shares)
Fully diluted net income per share:
Adjustment to net income (Millionsof yen)(Interest paid included therein (after
excluding the amount equivalent totax))
Increase in the number of commonshares (Thousand shares)(Convertible bonds included
therein)
Summary of residual securities notincluded in the calculation of fully
diluted net income per share because
they have no dilutive effect.

None

52

46

(48)

(43)

1,253

1,101

(1,253)(1,101)
None

45

DAIICHIKOSHO

CO.,

LTD.

(Significant Subsequent Events)
FY 2002 (From April 1, 2002, to March 31, 2003)――

FY 2003 (From April 1, 2003, to March 31, 2004)
1. The meeting of the Board of Directors held on March 22,
2004, adopted a resolution to the effect that the land andbuildings at six sales office buildings be sold to an affiliated company (DK Finance, Co., Ltd.). The sales
procedure completed on April 27, 2004, resulted in a
¥1,234 million loss on sales of fixed assets and caused a¥(3,834) million reversal of land revaluation difference.
2. Pursuant to a resolution adopted by the Board of
Directors on February 23, 2004, the Company shallissue new shares via a stock split in the following
manner:(1) Two-for-one stock split for common shares on May
20, 2004
1) Number of shares increased via the stock split:
18,310,463 common shares2) Splitting method:
The Company’s common shares shall be split at therate of two-for-one for the shares owned by shareholders whose names are registered or recorded in
the last record of shareholders and the last record ofbeneficiary shareholders as of March 31, 2004.
(2) Initial date of reckoning for dividends
April 1, 2004
The per share data for the year ended March 31,
2003, supposing that the stock split was conducted
as of April 1, 2002, and that for the year ended
March 31, 2004, supposing that the stock split was
conducted as of April 2003, are as follows:
FY 2002 (From April 1,
FY 2003 (From April 1,
2002, to March 31, 2003)
2003, to March 31, 2004)
Shareholders’ equity per
Shareholders’ equity per
share
share
¥1,265.09¥1,413.14
Net income per share
Net income per share¥119.19¥129.47
Fully diluted net income
Fully diluted net income
per shareper share¥112.82¥123.2246

DAIICHIKOSHO

CO.,

LTD.

7. Changes in Management Executives(1) Change of the representative
None applicable.
(2) Changes in the posts of other officers (As of June 25, 2004)
1) Candidate for a new statutory auditor
Hiroshi Kakegawa (Currently Advisor, Mitsubishi Trust Asset Management Co., Ltd.)
2) Retiring statutory auditors
Haruhiko Tamura (Currently Standing Statutory Auditor)
Kumiko Takahashi (Currently Statutory Auditor)
Reference: New Management System (As of June 25, 2004)
ChairmanTadahiko Hoshi

President andChief Executive Officer

Tatsuyoshi Yoneda

Managing Director andSenior Executive Corporate Officer

Shinichi Koshimizu

Supreme Manager for
Production Headquarters

Managing Director andSenior Executive Corporate Officer

Shinichi Matukawa

Supreme Manager for
Sales Management Headquarters andPurchasing and Shipment Dept. andMarketing and Advertising Dept.

Managing Director andSenior Executive Corporate Officer

Hiroshi Mino

Supreme Manager for
Development Headquarters andGateway Headquarters andIntellectual Property Dept.

Director andCorporate Officer

Saburou Hayashi

Executive Director,
Sales Management Headquarters

Director andCorporate Officer

Tomohiro Midorikawa

Vice Executive Director,
Sales Management Headquarters andGeneral Manager,
Subsidiary Sales Dept. and Branch Sales
Dept.

Director andCorporate Officer

Eiji Hata

Executive Director,
Administration Headquarters andGeneral Manager,
Finance Dept.

Standing Statutory Auditor

Juichi Ishikawa

Standing Statutory Auditor (Newly appointed)

Hiroshi Kakegawa

Standing Statutory Auditor

Nobuyuki Takase

Statutory Auditor

Masumi Arichika

47

DAIICHIKOSHO

CO.,

LTD.

Corporate Officer

Shinji Arima

General Manager,
Auditing Dept.

Corporate Officer

Takachika Narahara

General Manager,
Corporate Sales Dept.

Corporate Officer

Yasuyuki Suzuki

Vice Executive Director,
Administration Headquarters andGeneral Manager,
Accounting Dept.

Corporate Officer

Hirotsune Tahara

General Manager,
Satellite Broadcasting DivisionCorporate Officer

Yuji Yamamoto

Executive Director,
Production Headquarters andGeneral Manager,
Content Production Dept.

Corporate Officer

Shunichi Sadasue

Vice Executive Director,
Gateway Headquarters andGeneral Manager,
Composition and Production Dept.

Corporate Officer

Osamu Arima

General manager,
Big Echo DivisionCorporate Officer

Tatsuya Kumagai

Executive Director,
Development Headquarters

Corporate Officer

Akira Miyake

Vice Executive Director,
Sales Management Headquarters andGeneral Manager,
e-Business DivisionCorporate Officer

Kentarou Kurokawa

General Manager,
Information System Dept.

Corporate Officer

Yuuichi Murai

Vice Executive Director,
Gateway Headquarters andGeneral Manager,
Business Force Dept. andMarketing and Advertising Dept.

Corporate Officer

Yasutaka Wada

Vice Executive Director,
Production Headquarters andGeneral Manager,
Production Management Dept.

Corporate Officer

Toshio Watanabe

Executive Director,
Gateway Headquarters

48