Easy-to-use Internet

MELCO INC.
BUSINESS REPORT 2003
A leading company in the broadband era

MELCO INC.

Strategy

Direction of our company

Aiming to lead the broadband era
The ability to foresee user needs
and the technological power to fulfill themPresident and CEO Makoto Maki

Closer and closer to the broadband era
High-speed broadband* Internet lines continue tospread rapidly and are becoming increasingly commonplace. Most people have seen the flood of commercials for broadband on TV and elsewhere.
While broadband has brought the Internet even closer topeople, it has also enabled ordinary households to start
using networks. A home network means that eachfamily member can now be online with their own
computer rather than having to share one machine, andthis is helping to make the Internet an essential part of allof our daily lives. As explained in more detail in "Eye:The Future Society" on pages 3 and 4, home networks
are used as a source of entertainment like the television or going to the movies, with the ever increasing
number of ways to use Internet and home networks,
they will soon be considered a lifeline, on the same
scale as electricity and running water.
*High-speed broadband Internet lines such as ADSL, CATV, and FTTH

Stable profit base and growth potential
MELCO INC. has actively cultivated the expanding
broadband-related markets through the early introductionof new products along with proposals for new applica1

tions. Among these, we have pioneered products
worldwide with strengthened security functions thatare vital for wireless LANs, along with high-speed

products that will be mainstream in the near future, allleading to annual sales volume doubling year afteryear.
The use of networks in the home is directly connected to
the further expansion of broadband related markets.
This is why the increase in the number of wireless
LAN users in particular, holds the promise of future
growth for MELCO INC.
Despite the harsh conditions in the peripherals market
this year resulting from a fall in demand for computers,
MELCO INC. has managed to show a large profit
increase largely due to strong sales efforts achieved
through strict cost reduction and retrenchment.
In the field of memory products, MELCO INC. has
not only achieved a significant profit increase, with
reduced costs from tighter inventory control andprompt material procurement outweighing the dip in

product prices, but has also created a new market with
the introduction of USB flash drives, a new memory
media for computers.
MELCO INC. has also been able to considerablyincrease sales of storage products, by being quick tointroduce new products such as hard disks and DVDs as
more and more computer users look for increased
memory capacity in order to be able to view video on
their machines. At the same time, the effect of the cost
reduction since last year has contributed to greatly
improved profitability.
In this way, memory and storage products have provided a stable revenue source for MELCO INC.,
which has been able to take over as market leader due tosmooth growth in broadband related products andchanging to a business structure with both stability andgrowth potential.

The next stage of development through the transition
to a holding company system
The source of MELCO INC.'s growth potential is its
ability to foresee user needs and having the technological power to fulfill them.
As broadband continues to spread, people's lives will
undergo various changes and the market and userneeds will become progressively diverse. Until now,
MELCO INC. has achieved growth with only the
BUFFALO brand, but is now trying to shift towards a
multi-brand system in order to meet new demands.
This also means that MELCO INC. will add new products to target a new layer of users, which is absolutely
essential in order to take the next leap forward.
Within the MELCO INC. Group exist a number ofbusinesses whose characteristics differ according totheir development stage and marketability, such as stableprofit or fast growth type businesses, and thus should be
run as separate companies.
In order to unify business types and distribute corporate
resources more effectively, the MELCO INC. Groupwill shift to a holding company system in October
2003.
The MELCO INC. Group by becoming a holding
company system, will build a corporate structure that
responds quicker than ever before to market trends,
and work even harder to optimize business value
through continued growth and increased profit.
2

Marketing

Tomorrow's society

From the diffusion stage to the application stage of broadband ···The spread of home networks
Broadband marches on and on
The rapid spread of broadband continues with thenumber of broadband lines breaking through the 10
million barrier. In other words, about one in fourJapanese households now use broadband. As themomentum continues, this number is forecast to double
to 20 million households within three years.
The diffusion of broadband is increasing the numberof users as well as opening up for new applications.
Audio and video applications have been added, making
use of the capacity to transfer data at high speed.
Services have emerged recently that enable large numbers of people to watch concerts of famous singers
live on the Internet. As this kind of entertainment

application becomes more common, the number ofInternet users is likely to increase even more.
Predicted spread of high-speed and ultra high-speed Internet
Millionhouseholds

Services using wirelessCable Internet

20

DSL
Services using
optical fiber

15.13
0.41

10

1.26
0
0.97
0.29
2001/6

19.77
0.8
4.29

4.17

15

5

17.97
0.65

3.78
0.02
2.05
1.64
164
0.07
2001

9.17
0.16

3.88

3.23

7.49

6.95
7.22

4.81
3.35
0.97
2002

2003

5.93

2004

7.73

2005
Fiscal year end

Source: National Broadband Plan, Ministry of Public Management,
Home Affairs, Posts and Telecommunications

Diffusion of TV and video by computer
Along with the use of video entering the world ofgrams of interest to the user. It will even be possible toInternet, it has become possible to watch TV programs
and record video images from the computer. Most

set the recording timer while away from home, orview videos which are at home from a remote loca-

computers sold these days have a television tuner
installed, with many tuners being sold as computer

tion.
Furthermore, computers are ideal for editing recorded

peripherals. It is easy for users to set these devices torecord video via the Internet. There are online TV pro-

programs or home videos. It is easy to remove
unwanted portions or add comments and titles.

gram guides like those in newspapers, from which theImportant videos can be stored onto DVD, saving

user simply selects a program to record. Keywords canalso be registered to enable the computer to point out pro-space and removing the risk of deterioration over time.

3The coming era of home networks
Everyone would rather watch TV on a large set in the living room. Programs or home videos recorded or edited

like skimming through a magazine. This will remove theneed to set the timer to record.

on a computer, can be watched on a television in

Networks used in homes will mainly be wirelessanother room.
Networks have already been started to be introduced

LANs. The simplicity of a wireless network over a
cable network becomes increasingly beneficial as

into homes due to the spread of broadband. In such a network, the computers and televisions in every room are

more, and different types of devices are connected
togeter.

connected so that people can watch TV throughout the

The MELCO INC. Group will be continuously present inhome. There is also a network memory device within thehome, and any family member will be easily able tothe crossover to this era, by providing solutions alongwith wireless LAN's and related peripherals needded

access videos stored on it. If the memory capacity is large
enough, it will be possible to record all programs but justin home networks.

watch selected ones, or watch them all on fast-forward

Increasing home network applications by connecting computers and TVs
Internet
Broadband

インターネット
ブロードバン
ドDigitally editing video memories
Watching TV programs recorded on a computer

Finding recipes on the network

Displaying computer images on a TV

4Melcoholdings

Forest corporate structure

Changing into a holding company
MELCO INC. Group chance to move forward again
Social change brings increase in users
People's lifestyles are set to change as broadband
becomes more and more common. Networks such as
wireless LANs are being used in the home to connect not
only computers but televisions and other devices. Thisposes a unique opportunity for MELCO INC. to supply

Use of home networks flourishes

New user layer gives rise to new market

products and services to an entirely new layer of users
beyond the conventional field of computers.

MELCO INC.'s business area expands and diversifies

Multi-branding will take MELCO INC. to the next stage of growth
As the layer of users expands there will be extra users

requirement. MELCO INC. Group intends to take thiswith new needs, and users' expectations of makers andproduct brands is likely to diversify.

opportunity to move on to a new stage of businessdevelopment.

MELCO INC. has achieved growth until now with
only one brand name, BUFFALO. But to meet thediversified user demand, there is a need to shift
towards a multi-brand system. For this reason, we may
develop in different ways than before, with lines of
products and services other than BUFFALO, forinstance, or in new markets.

Diversified user needs

Must have multiple brands and markets

Although MELCO INC. has, with the aim of the perpetual growth of the group, previously examined thepure holding company system, modern demands havemade the shift towards such a system an urgent
5

Signs of social change emerge, providing a chance to reformForest corporate structure
The long-term goal of moving towards a pure holding
company system is to construct a corporate systemthey form the forest. So even if one tree decays, it is compensated for by the growth of other trees and the forestthat can respond quicker than ever to large market

keeps its form. In this way, even small organizations canchange, and to run the group by trying to enhance its
business value through continued growth andshow flexibility and power if they act as one. That is theforest corporate structure that MELCO INC. is aiming toincreased profit.
The aim is to change MELCO INC.'s current single

be.
MELCO INC. Group raison d'etre will always be to con-

rapid growth type business into a corporate structure

tinue to strive in order to increase it is return value for it'swith a combined growth type business. The image
being conveyed is that of a forest, full of vitality. All the

stakeholders.

trees in a forest stand independently, but collectively

Forest corporate structure- Prompt reaction to changes inthe external environment- Always growing seedlings in
preparation for the next era

BUFFALO INC.
BUFFALOTECHNOLOGY(TAIWAN) INC.

BUFFALOTECHNOLOGYUK LIMITEDBUFFALOTECHNOLOGYIRELAND
LIMITEDMELCOFINANCE INC.

BUFFALO
LOGISTICS INC.
BUFFALOTECHNOLOGY（USA）,INC.

CFD SALES INC.

BUFFALOLEASE INC.

MELCOHOLDINGS INC.
The earth supporting the entire group is its people, money and know-how.
6Melcoholdings

Forest corporate structure

Perpetual development and tireless reform
In order to achieve perpetual growth a company mustreform itself tirelessly to survive, whatever changes
take place around it. Each business area has a lifecycle,
with ups and downs which can occur at different levels,
whether for a single product, a group of products or an
entire business or industry. According to the 30-yeartheory of enterprise, there is a natural limit to theextent that a company (/industry/business) can transform itself as a single entity. It is not easy, a company
must navigate many difficult changes, not only within
itself but also according to its surroundings such as

existing suppliers and customers. This can be dealt
with more easily and efficiently in a holding company
system, by creating new business through alliancesand mergers with other companies, just like nurturing andgrafting young seedlings. One important duty of aholding company is to be a supply base of personnel andfunding, to make the soil fertile so that new business can
grow. Like a forest with a changing ratio of broadleaf
trees and conifers, the business group as a whole continues to grow as a unit in response to climatic change.

The role of the holding company
The holding company is an umbrella organization withthe function of strategic planning. It carries out theefficient distribution and application of corporate
resources including people, products, money, informationand know-how. It's roles include the following plan-ning a unified corporate strategy for the entire groupwith a mid to long-term view, setting corporate goals,
drafting business plans and supervising their operationand control, studying strategic alliances with othercompanies, and monitoring group companies.

The role of business companies
Each of the individual companies belonging to thegroup has a particular mission. As well as "business
units", companies that are either making a steady profit
from mature markets or showing continued growth,
there are also "functional units", such as distribution
companies whose mission is to provide business units
with high quality services and improve efficiency. The
best strategy and most effective personnel distribution forthis kind of business varies depending on its growthstage and character. The holding company system
7

positions business companies on the same level, and istherefore excellent for distributing corporate resourcesand ensuring fluidity, and ideal for realizing efficientgroup management.
By moving to the holding company system, the
MELCO INC. Group will enhance its management
speed and its ability to respond to outside change. The
group will also, for the sake of all its stakeholders,
strive for perpetual development and maximized businessvalue.

Environment surrounding company

Market expansion andhigh share acquisition are a priorityStageof market

Competitive
situation- New market- Growth market- Mature market
etc- Very competitivemarket- Monopolistic or
oligopolistic market
etc×Stage of company

×

Reaping the harvest ofseeds sown up until now
Facing the end of business
etc

Shift to pure holding company system■Shape for the time being (Oct. 1st, 2003)
MELCO
HOLDINGS INC.

BUFFALOLEASE INC.

BUFFALO
LOGISTICS INC.

MELCO
FINANCE INC.

■Shape targeted for the
futureBUFFALOLEASE INC.

BUFFALOTECHNOLOGY(TAIWAN) INC.

BUFFALO INC.
(now MELCO)

CFD
SALES INC.

BUFFALOTECHNOLOGY（USA）,INC.

BUFFALOTECHNOLOGYUK LIMITED

Other
subsidiaries

BUFFALOTECHNOLOGY(TAIWAN) INC.

MELCOHOLDINGS INC.

BUFFALO
LOGISTICS INC.
MELCO
FINANCE INC.

CFD
SALES INC.

BUFFALO INC.
(now MELCO)BUFFALOTECHNOLOGY（USA）,INC.

BUFFALOTECHNOLOGYIRELAND
LIMITEDBUFFALOTECHNOLOGYUK LIMITEDBUFFALOTECHNOLOGYIRELAND
LIMITED8

Topics

UpdateSuccessive new products released ahead of the home network era
Now the whole family can share digital data
The home network era is approaching when families
will connect together not only their computers but also

MELCO INC. has released a number of other products
such as, the PCast series, a multimedia product thatperipherals such as TVs and DVDs, so that they canconnects computers to televisions to offer new applica-

share digital data such as audio or video as well as an
Internet line. MELCO INC. is expanding its producttions, PC-MV5/U2, the MPEG2 TV capture box, lets theuser record and play back TV programs on a computer.

lineup to meet these needs.
In the storage products field, MELCO INC. has

Also MELCO INC.'s revolutionary product called
Play@TV, a network media player that plays backalready released LinkStation, a hard disk that connects tocomputer-recorded image and sound data on a televisiona LAN so that multiple computers connected to thesame network can share its data. All of the family's

via a cable or wireless network. Other releases include a
MPEG2 TV capture board and a PC-TV converter.

digital data, from their favorite music to travel snaps andwedding videos taken on a digital camera, can be

By constructing a home network of these products
using the wireless LAN AirStation, users can actually

saved on the LinkStation and accessed by any family

record TV programs on their computer in the study

member. From a functional point of view, the applicationof MELCO INC.'s original storage and network tech-and then watch them on the television set in the livingroom. Not only that, but the whole family can enjoy

nologies allow it's products to achieve high-speed
access more than double that of any rival products.

editing digital content on their own computer andplaying it back on a big-screen television set. In this

LinkStation can also be used together with theway, MELCO INC. will continue to propose new solu-

AirStation wireless LAN to share data without having tochoose a location for it and without the restriction of ations to increase home entertainment, by combining
computers, televisions and other audio-visual equip-

complicated cable arrangement.

ment.

LinkStation hard disk for
LAN connection

9

Play@TV network media
player

MPEG2 TV capture box

PC-TV converter

Release of high-speed wireless LANs that lead the global market
Promotion of FREESPOT, public areas with wireless Internet service

Dominant share of PC peripheral sales
Won BCN Awards in 11 categories

MELCO INC. has launched AirStation G54 worldwide, a 54Mbps wireless LAN to support the next gen-

MELCO INC. received first prize in 11 categories in the
BCN Awards 2003 sponsored by Computer News,
Inc. The awards were given to companies with the top
sales volume throughout 2002 at prominent stores inTokyo, Osaka and Nagoya. The BCN Awards are theonly Japanese domestic awards in the IT field basedon the objective criteria of actual sales volume.
MELCO INC. products won in the following 11 categories: wireless LANs, LAN cards, hubs, print servers,
external hard drives, internal hard drives, MO drives,
CD-R/RW drives, memory, memory cards and card
readers. Gaining the top market share in these 11 categories, three more than last year, is the result of developing products that meet customer needs and introducing
attractive products onto the market. It is also evidence ofthe confidence that customers place in MELCO INC.
MELCO INC.'s goal is to keep delivering productsthat can satisfy all needs and hold onto that No.1 market
share.

eration high-speed transmission standard IEEE802.11g.
We have continued to lead in the wireless LAN market
with competition-beating products, such as a 2Mbps
model released in January 1999 and an 11Mbps model
released in April 2000.
MELCO INC.'s high performance wireless LAN products have received considerable acclaim in the global
market. AirStation was ranked by the leading UK
computer magazine PC Pro as PC Pro Recommended
and placed on their PC Pro A List, and awarded the KBench Best Product prize by K-Bench, the major
Korean PC & IT information website.
A wireless LAN is an essential item for constructing ahome network of household electronic appliances such as
computers and TVs. MELCO INC. is also working
hard to spread FREESPOT, areas in public locations
that offer wireless connection to the Internet. In theseways, MELCO INC. will continue to deliver products

Others 4.6%
Wireless LAN

Others
34.0%

MELCO

External HDD

Logitec
13.8%

MELCO

48.6%

and services aimed at simpler Internet access.

46.7%
I-O DATA
34.9%

NEC
8.1%

I-O DATA 9.3%
Others*8.7%

PLANEX
Memory Card

Hub

MELCO
Others
39.1%

25.6%
I-O DATA
20.2%

Wireless LAN security
Broadband router model

SanDisk
15.1%*Wireless Internet spot

10.7%

MELCO
47.8%

corega32.8%

Sales volume share of mass retailer market from January to December, 2002 (Computer News, Inc.)

10

Outline

Summary of business

Under the motto "Easy-to-use Internet", MELCO INC. is working tocreate an online environment that is comfortable and convenient for all.
Consolidated sales per product from April 2002 to March 2003
OthersMemoryMemory module

Internet setup/installation on-call service(BUFFALO Service Alliance)

Flash disk

Liquid crystal
display

Card reader/
writerOthers9.6%
MemoryNetwork

28.6%

26.2%

Flash memory

Component
Broadband(Within network ratio of consolidated
business)sales for the March
20.5%
2003 term
Storage

35.7%
DVD±R/RW drive
Wireless LAN

Switching hub
MO drive

Broadband router

Network/Broadband
11

Portable harddisk drive

StorageGroup Companies

MELCO INC.Group*1 BUFFALO TECHNOLOGY (USA) ,INC. transferred US$5,997 of its capital to capital surplus on October 30, 2002.
Its capital became $3.
*2 BUFFALO TECHNOLOGY IRELAND LIMITED increased its capital by 338,000 on September 18, 2002.
Its denominated currency was changed to the euro upon Ireland's entry into the euro.
*3 MELCO TECHNO SCHOOL INC. changed its trade name and business aims on March 12, 2003, and became
BUFFALO LEASE INC. BUFFALO LEASE INC. increased its capital by ¥78 million on March 25, 2003.

MELCO INC.Group Affiliation Chart(Consolidated subsidiaries)●Sales company
Products

Products

CFD SALES INC.
(Capital : ￥ 98 million Ratio of shareholdings : 100%)

Products

Customers in Japan

Japan

Products
TaiwanProducts●Manufacturing and sales company

Parts(Capital : TWN $ 100 million Ratio of shareholdings : 100%)BUFFALO TECHNOLOGY (TAIWAN)INC.

Products

EUROPE
U.S.A.
Overseas customers

MELCO INC.

JAPANTAIWANU.S.A.
Products●Sales and Manufacturing company *1

Parts(Capital : US $ 3 Ratio of shareholdings : 100%)BUFFALO TECHNOLOGY(USA),INC.

Products

Europe●Sales company
Products

Products

BUFFALO TECHNOLOGY UK LIMITED(Capital : US $ 5.728 million Ratio of shareholdings : 100%)●Manufacturing company *2
Parts

BUFFALO TECHNOLOGY IRELAND LIMITED(Capital :790,000 Ratio of shareholdings : 100%)

Other operations in Japan●Distribution company (Packing and shipping company)●Rental of broadband equipment *3

BUFFALO LOGISTICS INC.

BUFFALO LEASE INC.

MELCO FINANCE INC.

(Capital : ￥ 70 million Ratio of shareholdings : 100%)(Capital : ￥ 98 million Ratio of shareholdings : 100%)(Capital : ￥ 20 million Ratio of shareholdings : 100%)●Securities management company

12

Financial Report

Consolidated Statement

Consolidated sales
100,000(unit:¥million)

94,50088,86587,482Others79,424

9,900

6,886

80,00066,12160,000

8,602

8,355

69,96725,40022,887

19,047

10,980
10,586

21,400（Broadband）

5,125

Network（Broadband）

17,95722,051

5,455（Broadband）

27,01114,80829,75140,00032,20031,22824,292

Storage

24,11820,00035,92030,09025,7870
24th term('99/3)

25th term('00/3)

26th term('01/3)

27,00018,67125,01022,00027th term('02/3)

28th term('03/3)

Memory22,00029th term('04/3 projected)

NB. Broadband related products such as wireless LANs are calculated separately from Year 27 onwards as Broadband.

Consolidated ordinary
income and % of sales(unit:¥million)(unit:%)

5,000(unit:¥million)

25

2,500

20

2,000

(unit:%)

10

4,081 4,100
4,000

Consolidated shareholder'sequity and return on equity (ROE)

Consolidated net
income and % of sales

15

1,500

30,000 27,454

20,000
10

1,000

4.4

832 4.7 4.3

5

500

2.5

0

0

26,514 26,430 26,835

12

6

944

7.1

7.0

8

7.0

4

4

869

2.4
1,000

16

8

2,252
2,000

(unit:%)

2,000
1,868

1,868

3,473
3,000

(unit:¥million)

40,0002.1 2.1
1.1 1.2

3.5

10,000

3.3

2

1.2
25th term 26th term 27th term 28th term 29th term('00/3) ('01/3) ('02/3) ('03/3) ('04/3 projected)

13

25th term 26th term 27th term 28th term 29th term('00/3) ('01/3) ('02/3) ('03/3) ('04/3 projected)

0025th term('00/3)26th term('01/3)27th term('02/3)28th term('03/3)0

Consolidated balance sheet
Fiscal year

(unit:¥million)

2003

2002

(As of March 31,
2003)(As of March 31,
2002)

30,7442,717
106
10,922
13,74644,49028,022
2,777
156
11,121
14,05542,077

Current liabilities
Long-term liabilities
Total liabilities(Capital)

16,875780
17,655

14,968678
15,646

CapitalCapital surplus
Profit surplus
Capital reserve
Consolidated surplus
Balance of other profits on securities
Exchange adjustment
Treasury stock
Total capital
Total liabilities and capital

6,400
7,593
14,260−−71▲241▲1,24926,83544,490

6,400
−
−
7,593
12,74170▲160▲213
26,43042,077

Item(Assets)
Current assets
Tangible fixed assets
Intangible fixed assets
Investments, etc.
Total Fixed assets
Total assets(Liabilities)

Consolidated cash flow statement
Fiscal year
Item
Operating activity cash flow
Investment activity cash flow
Financial activity cash flow
Balance of cash/cash-equivalent conversions
Increase of cash/cash-equivalents
Cash/cash-equivalent opening balance
Cash/cash-equivalent closing balance(unit:¥million)

2003

2002

(April 1, 2002 to
March 31,2003)(April 1, 2001 to
March 31,2002)

6,513▲1,043▲1,685
▲67
3,715
2,030
5,746

3,422
▲7,444▲765
43▲4,7446,775
2,030

Consolidated statement of income
Fiscal year
Item
Sales
Cost of sales
Selling, general and administrative expenses
Operating income
Non-operating income
Non-operating expenses
Ordinary income
Extraordinary income
Extraordinary loss
Current term net income before
taxes and other adjustments

Corporation, resident and enterprise taxes
Adjustment for corporation tax, etc.
Current term net income

2003

2002

(April 1, 2002 to
March 31,2003)(April 1, 2001 to
March 31,2002)

87,48275,857
7,694
3,931
243
92
4,081
173
581
3,673
1,375
429
1,868

69,967
61,389
7,922
655
421
244
832
54
222
664
397
▲603
869

Consolidated statement of surplus
Fiscal year
Item
Capital surplus opening balance
Capital surplus closing balance
Profit surplus opening balance
Current term net income
Reduction of profit surplus
Profit surplus closing balance
Consolidated surplus opening balance
Reduction of consolidated surplus
Current term net income
Consolidated surplus closing balance(unit:¥million)(unit:¥million)

2003

2002

(April 1, 2002 to
March 31,2003)(April 1, 2001 to
March 31,2002)

7,593
7,593
12,741
1,868
348
14,260
−
−
−
−

−
−
−
−
−
−
12,801929
869
12,74114

Financial Report

Unconsolidated Statement

Sales
100,000(unit:¥million)

92,00082,63580,00071,561
59,391

63,031

4,249

5,282

60,0006,160

25,50022,479（Broadband）

17,424

2,901

8,094
5,357

Network

21,600（Broadband）

18,343

10,55340,000

Others
9,200

74,60821,138（Broadband）

31,00014,63727,307

24,125Storage

29,912

23,67622,36320,000

Memory28,41722,262

27,88826,30024,084

16,6280
24th term('99/3)

25th term('00/3)

26th term('01/3)

27th term('02/3)

28th term('03/3)

29th term('04/3 projected)

NB. Broadband related products such as wireless LANs are calculated separately from Year 27 onwards as Broadband.

Ordinary income and % of
sales
(unit:¥million)(unit:%)

25

5,000

4,300
4,000

3,926
3,540

2,000

Shareholder's equity andreturn on equity (ROE)(unit:%)

2,500

2,200
2,076

2,009

10
8

(unit:¥million)

30,000

6
20,000

15

10

1,000

2.8

2.5 2.4

2.1

500

0
25th term 26th term 27th term 28th term 29th term(’00/3) (’01/3) (’02/3) (’03/3) (’04/3 projected)-500
026,611

27,245 12
7.7

7.3

8

5.5
10,000

4

0

0

0

5

2.3

28,310 28,166

2

0

4.8 4.7

16

4

-0.7

1,463
4.9 4.5(unit:%)

40,000

1,544
1,500

2,000

15

(unit:¥million)

20

3,351

3,000

1,000

Net income and % of
sales

-409

-2

-1.5
-10,000-4-4-1,00025th term 26th term 27th term 28th term 29th term(’00/3) (’01/3) (’02/3) (’03/3) (’04/3 projected)

25th term(’00/3)26th term(’01/3)27th term(’02/3)28th term(’03/3)

Balance sheet
Fiscal year
Item
(Assets)
Current assets
Tangible fixed assets
Intangible fixed assets
Investments, etc.
Total Fixed assets
Total assets(Liabilities)(unit:¥million)

2003

2002

(As of March 31,
2003)(As of March 31,
2002)

39,548
1,980
90
2,552
4,622
44,17037,021
2,027
139
3,215
5,382
42,404Current liabilities
Long-term liabilities
Total liabilities(Capital)

16,227697
16,925

15,163629
15,793

CapitalCapital surplus
Profit surplus
Capital reserve
Revenue reserve
Other surplus
Balance of other profits on securities
Treasury stock
Total capital
Total liabilities and capital

6,400
7,593
14,490−−−10▲1,24927,24544,170

6,400
−
−
7,593
1,600
11,16170▲213
26,61142,404

Statement of income
Fiscal year
Item
Sales
Cost of sales
Selling, general and administrative expenses
Operating income
Non-operating income
Non-operating expenses
Ordinary income
Extraordinary income
Extraordinary loss
Current net income (loss) before tax
Corporation, resident and enterprise taxes
Adjustment for corporation tax, etc.
Current net income (loss)
Profit carried over from previous term
Revenue reserve reversal
Earnings allocated to retirement of treasury stock
Interim dividends
Unappropriated profit current term

2003

2002

(April 1, 2002 to
March 31,2003)(April 1, 2001 to
March 31,2002)

82,63572,266
6,527
3,841
155
70
3,926
135
254
3,808
1,317
415
2,076
11,0011,600−
186
14,49063,031
55,773
6,147
1,110
529
176
1,463
56
2,506
▲986
333
▲909
▲409
5,301
−
569
160
4,161

Profit appropriation
Fiscal year
Item
Unappropriated profit for current term
Disposition discretionary reserves
Disposition of special reserves
Total
Dividends

Notes:
1) Interim dividends ¥160,846,590 in total (¥6/common share)werepaid
on December 3, 2001.
2) Interim dividends ¥193,648,966 in total (¥7/common share)werepaid
on December 1, 2000.
3) The other capital surplus of ¥5,993,137,563 from the current
term will be carried forward to the next term.

(unit:¥million)

Executive bonuses
Total
Surplus camied over to next term

(unit:¥million)

2003

2002

(April 1, 2002 to
March 31,2003)(April 1, 2001 to
March 31,2002)

14,4904,161−
14,490182

7,000
11,161160（¥7/share）（¥6/share）

50
232
14,257−160
11,001

16

Company Data

Company Profile/Investor Information

Company Profile (As of March 31, 2003)

Board of Directors (As of June 27, 2003)

Company Name: MELCO INC.

President and CEO Makoto Maki

Headquarters:

11-50, Ohsu 4-chome, Naka-ku, Nagoya, Aichi Prefecture, Japan

Senior Managing Director Kuniaki Saiki

Founded:May 1, 1975

Director

Hiromi Maki

Incorporated:

August 5, 1978

Director

Hiromichi Maki

President and CEO: Makoto Maki

Director

Seishi Toyooka

Capital:¥6.4 billion

Director

Takayuki Nishioka

Sales:¥87.482 billion consolidated¥82.635 billion unconsolidated(at end of March 2003)

Director

Hidetoshi Yamaguchi

Senior Corporate Auditor Yozo Ueda

Business content: Development, manufacture and sales of computer andbroadband equipment, and supply of related services
No. of employees: 615 consolidated, 374 unconsolidated

Corporate Auditor

Toshio Nishikawa

Corporate Auditor

Yuzuru Kawashima

Corporate Auditor

Iwao Tsusaka

Group affiliates: 8 companies (4 in Japan and 4 overseas)
Banks:

UFJ, Nagoya, Iyo, Tokyo-Mitsubishi, UFJ Trust Bank

Investor Information(As of March 31,2003)
Accounts closed:

March 31

Scheduled shareholder's meeting: June
Dates to determine stock ownership: Shareholders entitled to voteMarch 31
Shareholders entitled to year-end dividend
March 31
Shareholders entitled to interim dividend
September 30
Listed Stock Exchanges: First Section of Tokyo Stock Exchange andFirst Section of Nagoya Stock Exchange
Stock code:

6913

Number of shares issued: 26,841,136*
Number of treasury stocks: 715,164

Newspaper with
notice to shareholders: Nihon Keizai Shimbun
Transfer agent:

UFJ Trust Bank Limited
4-3, Marunouchi 1-chome,
Chiyoda-ku, Tokyo

Handling office:

UFJ Trust Bank Limited
Security Agent Department
10-11, Higashi-suna, 7-chome,
Koto-ku, Tokyo 137-8081
Tel: 81-3-5683-5111

Managing underwriters: (main) Nomura Securities(others) Daiwa Securities SMBC
Mizuho Investors Securities
Nikko Cordial Securities

Number of shareholders: 13,868
Number of shares per unit: 100* Treasury stocks were cancelled on May 16, 2003. The number of shares issued became 26,125, 936.

17

Evolution of the MELCO INC. GROUP

History

Business/Others
1978

Incorporated for the purpose of manufacturing and selling audio equipment Aug

Aug Began marketing a string-driven turntable

1980
Opened Tokyo Branch Office (now the Tokyo Head Office) Oct
Established BUFFALO LOGISTICS INC. Sep

1981
1982
1986
1988

Jul Entered the personal computer peripherals market in earnest
Nov Began marketing an internal printer buffer
Oct Began marketing Japan’s first EMS board

1990

1991
Opened Osaka Sales Office (now the Osaka Branch Office) Sep
Registered with JASDAQ Oct
1992
Jul Began marketing CPU accelerator products
Opened High-Tech Center Jan
Aug Began marketing LAN products
Established BAPILU PRODUCTS INC. Jun
1993
May Began marketing window accelerators;[now BUFFALO TECHNOLOGY (TAIWAN) INC.]
entered the multimedia market in earnest
Oct Received Prize for Excellence at PCB Technology Awards
Feb Began marketing hard disks; shifted emphasis to1994
manufacture of computer peripheral devices
Listed in second section of Nagoya Stock Exchange Jan
Sep Obtained ISO 9001 certification
Listed in second section of Tokyo Stock Exchange Aug
Nov Began marketing DOS/V component PCs;
shifted emphasis from manufacture of computer
Opened agencies in Sendai and Fukuoka (now the Sendai and Fukuoka sales Offices) Dec
peripheral devices to manufacture of PC components
Listed in the first sections of the Tokyo and Nagoya Stock Exchanges Sep
1996
Oct Began marketing LCD monitors
Made CFD SALES INC. a subsidiary Oct
Introduced divisional organization Oct
1997
Made TechWorks (Delaware), Inc.(now BUFFALO TECHNOLOGY(USA),INC.) a subsidiary Jan
1998
Made TechWorks (UK) Limited and TechWorks (Ireland) Limited Dec(now BUFFALO TECHNOLOGY UK LIMITED. and BUFFALO TECHNOLOGY IRELAND LIMITED.)subsidiaries
Jan Entered the wireless LAN market; released "AIRCONNECT"1999
Nov Began marketing memory for Rambus devices
MELCO FINANCE INC. commenced operations in securities management and related areas Aug

1995

Apr Began marketing the wireless LAN "AirStation"2000 Oct
Received Good Design Award for AirStation wireless LAN
Developed worldwide standard specification of DDR memory for notebook computers

Opened BUFFALO Solution Square (formerly Akihabara Customer Support Center) Dec
Formed BUFFALO Service Alliance Jan
Established joint venture company, Digital Reuse Inc. Mar

Began Internet service business2001 Jan Obtained
Environmental Management System ISO14001 Certification
Oct Received Good Design Awards for card reader and CD-RW drive

Reorganized business department into broadband business and computer business Nov
BUFFALO LEASE INC. began broadband equipment rental business Mar

Proposed FreeSpot to promote Internet wireless spot service
2002 OctJul Received
Good Design Award for AirStation wireless LAN
2003

18

Easy-to-use Internet

MELCO INC.
11-50, Ohsu 4-chome, Naka-ku, Nagoya, 460-0011, Japan
Tel: 81-52-251-6891 FAX: 81-52-241-7979

http://www.melcoinc.co.jp/

Offices
Headquarters

Kamiya Bldg., 11-50, Ohsu 4-chome, Naka-ku, Nagoya, 460-0011, Japan

Tel:81-52-251-6891 Fax:81-52-241-7979

Tokyo Head OfficeEitaro Bldg., 2-5, Nihonbashi 1-chome, Chuo-ku, Tokyo, 103-0027, Japan

Tel:81-3-3242-7777 Fax:81-3-5203-8551

Subsidiaries Japan
CFD SALES INC.

Kamiya Bldg., 11-50, Ohsu 4-chome, Naka-ku, Nagoya, 460-0011, Japan

Tel:81-52-261-7771 Fax:81-52-261-7775

BUFFALO LOGISTICS INC.

1-3, Mutsuno 2-chome, Atsuta-ku, Nagoya, 456-0023, Japan

Tel:81-52-883-3035 Fax:81-52-883-3042

BUFFALO LEASE INC.

15, Shibata hondori 4-chome, Minami-ku, Nagoya, 457-8520, Japan

Tel:81-52-619-1815 Fax:81-52-619-7754

MELCO FINANCE INC.

Kamiya Bldg., 11-50, Ohsu 4-chome, Naka-ku, Nagoya, 460-0011, Japan

Tel:81-52-251-6891 Fax:81-52-241-7979

Subsidiaries Overseas
BUFFALO TECHNOLOGY (TAIWAN) INC.

4F, NO.18, LANE609, SEC.5, CHUNG HSIN RD., SANCHUNG CITY, TAIPEI HSIEN, TAIWAN

Tel:886-2-2999-9860 Fax:886-2-2999-2264

BUFFALO TECHNOLOGY (USA) , INC.

4030 West Braker Lane, Suite 120, Austin, TEXAS 78759-5319 U.S.A.

Tel:1-512-794-8533 Fax:1-512-794-8520

BUFFALO TECHNOLOGY UK LIMITED

176 Buckingham Avenue, Slough, Berkshire SL1 4RD, United Kingdom

Tel:44-1753-555-000 Fax:44-1753-535-420

BUFFALO TECHNOLOGY IRELAND LIMITED

East Park, Shannon Free Zone, Shannon, Co.Clare, Ireland

Tel:353-61-708090

This booklet was made from recycled paper.

Fax:353-61-360140