DAIICHIKOSHO

CO.,

LTD.

FY 2005, the year ended March 31, 2006

Flash Report on the Consolidated Results for the Interim Period Ended
September 30, 2005
November 14, 2005

Company Name: DAIICHIKOSHO CO., LTD.
Code Number: 7458
(URL http://www.dkkaraoke.co.jp)
Stock Exchange Listing: JASDAQ

Location of Head Office (Prefecture): Metropolis of Tokyo
Representative: Tatsuyoshi Yoneda, President
Contact: Eiji Hata, Managing Director and Senior Corporate Officer; and Executive Director, Administration
Headquarters

Phone: (03) 3280-2151
Date of the Board of Directors Meeting on the Closing of Accounts: November 14, 2005
Adoption of U.S. GAAP: No
1. Consolidated Performance for the Interim Period Ended September 2005 (from April 1, 2005, toSeptember 30, 2005)(1) Consolidated operating results

Interim period ended
September 2005
Interim period ended
September 2004
Year ended March 2005

Net sales¥ Million
64,191%
5.5

60,8506.9

Note: Amounts below one million yen are truncated.
Operating income
Ordinary income¥ Million%¥ Million%
5,143(18.3)
5,188(16.3)
6,296

122,085

10,383

Net income
Interim period ended
September 2005
Interim period ended
September 2004
Year ended March 2005

(8.5)

Net income per share

6,195

(3.1)

9,932

¥ Million
790%(79.7)¥
22.71

Fully diluted net income
per share
¥
―

3,895

178.6

108.40103.22139.83―

5,118

Notes: 1. Equity in net income of unconsolidated subsidiaries and affiliates:
Interim period ended September 2005: (¥ ― million)
Interim period ended September 2004: (¥ ― million)
Year ended March 2005: (¥ ― million)
2. Average number of shares outstanding during the respective periods (consolidated):
Interim period ended September 2005: 34,803,317 sharesInterim period ended September 2004: 35,941,040 sharesYear ended March 2005: 35,745,780 shares“Fully diluted net income per share” for the year ended March 2005 is not stated because no residual
securities existed as convertible bonds were redeemed at maturity as of September 30, 2005.
3. Change in accounting method: Yes
4. Percentages for net sales, operating income, ordinary income and net income show respective
year-over-year changes from the previous fiscal year.

1

DAIICHIKOSHO

CO.,

LTD.

(2) Consolidated financial position
Total assets

Note: Amounts below one million yen are truncated.
Shareholders’Equity ratio
Shareholders’equityequity per share¥ Million%¥
62,19145.4
1,787.00¥ Million
Interim period ended
136,910
September 2005
Interim period ended
139,292
63,74645.8
September 2004
Year ended March 2005
131,996
62,19447.1
Note: Number of shares outstanding at the end of the period (consolidated):
34,802,391 shares at September 30, 2005
35,938,948 shares at September 30, 2004
34,804,216 shares at March 31, 2005

1,773.74
1,783.56(3) Consolidated cash flows
Cash flows fromoperating activities
Interim period ended
September 2005
Interim period ended
September 2004
Year ended March 2005

¥ Million
10,119Note: Amounts below one million yen are truncated.
Cash flows from
Cash flows from
Cash and cash
investing activities financing activities equivalents at endof period¥ Million¥ Million¥ Million(10,816)
2,343
25,520

11,589(8,396)(1,372)

22,142

24,221(10,999)(11,106)

22,428(4) Scope of consolidation and application of the equity method
Number of consolidated subsidiaries: 47
Number of nonconsolidated subsidiaries accounted for by the equity method: ―Number of affiliates accounted for by the equity method: 1(5) Change in the scope of consolidation and application of the equity method
Consolidation (newly included): 13 (Excluded): 3
Equity method (newly applied): 1 (Excluded): ―2. Forecast Consolidated Performance for FY2005, the Year Ending March 31, 2006 (from April 1,
2005, to March 31, 2006)
Net sales¥ Million
129,400

Year ending March 31,
2006 (full year)(Reference) Forecast net income per share (full year): ¥100.00

Ordinary income¥ Million
10,500Net income¥ Million
3,600

Note: These projected performance figures are based on information available to the Company’s management at
the time 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 11 of the Attachment for further
information on forecasts.

2

DAIICHIKOSHO

CO.,

LTD.

(Attachment)

1. Corporate GroupThe Daiichikosho Group (“DKG”) consists of Daiichikosho Co., Ltd. (“DK” or “the Company”), 47
consolidated subsidiaries and one affiliate. The major group companies engage in the commercial
karaoke business, the karaoke cabin and restaurant business, the Gateway business and the music
software business.
Effective from the interim period under review, the business segmentation was changed as shown in(Segment Information).
Business segment

Business line

Commercial
karaoke business

Sales and rental of commercial-use
karaoke equipment

Karaoke cabin
and restaurant
business

Operation of karaoke cabins andrestaurants

Gateway businessSupply of content service via thespecial “DAM Station” information
terminal and mobile phones

Music software
business

Production and sales of music andvideo software products

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 19 other subsidiaries

Overseas
DK KOREA
Co., Ltd.
Daiichikosho(Shanghai), Ltd.
and two othersubsidiaries
Saha Daiichi
Kosho Co., Ltd.
BIG ECHO(SHANGHAI)
Co., Ltd.
and three othersubsidiaries

Nippon Crown Co., Ltd.
Tokuma Japan Communications Co.,Ltd.
First Distribution Co., Ltd.
Union motion picture Co., Ltd.

Other businessand four other subsidiaries
Daiichikosho Co., Ltd.
DK Finance, Co., Ltd.
Maruhagi Yoshu Kogyo, Co., Ltd.

Satellite broadcasting, real estate lease
and rental business, etc.

3

D.K. Enterprises(Guam), Inc.
and one othersubsidiary

DAIICHIKOSHO

CO.,

LTD.

(Intermediary services related to
installment sales and loans for
DK and group companies)
DK Finance, Co., Ltd.
(Production and sales of music
software products)
Nippon Crown Co., Ltd.
Tokuma Japan Communications
Co., Ltd.
First Distribution Co., Ltd.
Tri-M, Inc.
DK Music Publishing Co., Ltd.
Union motion picture Co., Ltd. *4
Crown Music Enterprise Co.*4
Zoom Republic*4(Overseas subsidiaries)(Operation of karaoke cabins andrestaurants)
Saha Daiichi Kosho Co., Ltd.
BIG ECHO (SHANGHAI) Co.,Ltd.
BIG ECHO (SHXG) CO., LTD.*3
BIG ECHO (SHSG) CO., LTD.*3
Shanghai Zong-Yi Music &Entertainment Co., Ltd.*2(Operation and management ofrecreation facilities)
D.K. Enterprises (Guam), Inc.
(Other overseas subsidiaries)
Daiichikosho (Beijing) Music &Culture Co., Ltd.*3(Nonconsolidated subsidiary)
Shubi Planet CO., LTD
and three other subsidiaries(Production and sale of fruitwines)
Maruhagi Yoshu Kogyo, Co.,Ltd.
Sales and rentals of merchandise and products

DK KOREA Co., Ltd.
Daiichikosho (Shanghai), Ltd.
Daiichikosho (Hong Kong), Ltd.*2
Daiichi Kosho (Singapore), Pte
Ltd.*1

Overseas users(Domestic sales subsidiaries)*6
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 19 other companies

DAIICHIKOSHO CO., LTD. (Reporting company)

Domestic users

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

(Equity method affiliate)
Spice Records Co., Ltd.*5

Operation of karaoke cabins and restaurants

Provision of services

Notes:
1. *1. Indicates a dormant company.
2. *2. Indicates a company that is under liquidation proceedings. Shanghai Zong-Yi Music & Entertainment Co., Ltd., was dissolved in August 2005.
3. *3. Since the current interim period, BIG ECHO (SHXG) CO., LTD. has been newly included in consolidation as it was newly established in March 2005.
BIG ECHO (SHSG) CO., LTD. and Daiichikosho (Beijing) Music & Culture Co., Ltd., have been newly included in consolidation as they were newly
established in August 2005.
4. *4. As a result of the reorganization of the music software business segment, the scope of consolidation was reviewed and the previous nonconsolidated
subsidiaries Union motion picture Co., Ltd., Crown Music Enterprise Co., Zoom Republic, CRS Co., Ltd., and Crown Creative Co. have been included inconsolidation since the current interim period.
5. Nippon Crown Co., Ltd. (the surviving company), CRS Co., Ltd., and Crown Creative Co. were merged in July 2005, through which Crown Creative Co. andCRS Co., Ltd., were dissolved.
6. Tokuma Japan Communications Co., Ltd. (the surviving company), and Gauss Entertainment Co., Ltd., were merged in July 2005, through which Gauss
Entertainment Co., Ltd., was dissolved.
7. *5. Spice Records Co., Ltd., was established in September 2005 and is included in the scope of application of the equity method since the current interim
period.
8. *6. As a result of the reorganization of domestic subsidiaries in April 2005, Kita-Tohoku Daiichikosho Co., Ltd., Fukushima Daiichikosho Co., Ltd., Tochigi
Daiichikosho Co., Ltd., Hokuriku Daiichikosho Co., Ltd., and Okinawa Daiichikosho Co., Ltd., were newly established.

4

DAIICHIKOSHO

CO.,

LTD.

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
content that meet users’ needs, as well as karaoke cabins where people can easily gather to enjoy singing karaokesongs. DKG is proud that this objective has been well completed.
Building on the know-how and entertainment content it has accumulated to date, DKG aims to satisfy the
expectations and trust not only of investors but also of all the group’s stakeholders by ensuring continued businessgrowth 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 this basic
dividend policy with due regard to the consolidated performance level, the payout ratio and other factors. Retained
earnings not distributed to shareholders will be systematically and effectively reinvested in the development of new
products and operating assets to improve DKG’s market share and reinforce its profit-enhancing foundation.

(3) Basic views on the reduction of the minimum investment lot of shares
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) Target management indicator
As a priority indicator, DKG aims to achieve consolidated return on equity (ROE) of 12% or more.

(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 karaokebusiness environment and the revitalization of the karaoke market; and c) establish an integrated musicentertainment 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 improving profitability in the karaokecabin and restaurant business, ③ steadily commercializing the new “Gateway Business,” ④ expanding theoperating performance of e-business, ⑤ reinforcing the business foundations of the music software business andimproving revenue from the business and ➅ expanding operating performance of the satellite broadcasting
business.
① DKG has established a business model to earn fee revenue from the provision of the karaoke-streaming service
in the karaoke telecommunications network. As of September 30, 2005, the market share of the operating“DAM” karaoke equipment had increased to above 50% of the telecommunications karaoke market. To further
expand the network, DKG will focus on increasing the sales and rental contracts of “DAM” karaoke equipment
to improve profits including the fee revenue from the provision of the karaoke-streaming service.
② As of September 30, 2005, DKG operated 219 “BIG ECHO” karaoke cabin stores and 32 restaurants,
including those overseas. DKG intends to focus on the development of multifunctional stores incorporating“BIG ECHO” and restaurants, full-scale promotion of developing new businesses and attracting morecustomers by creating added value and differentiating its stores in pursuit of an improved operating margin.
③ Effective from the year ended March 31, 2005, DKG began substantially supplying a new, broadband-based
interactive content service using the “DAM Station” information terminal to secure a new income source.
DKG will endeavor to further commercialize the “Gateway Business” by disseminating the “DAM Station”
information terminal and increasing recognition of the content service.
④ DKG aims to expand the operating performance of its content delivery services such as the mobile phonering-tone service and increase the number of subscribers for the services, which are decreasing in the market. In
this regard, DKG reviews the service content, adds content as necessary and links it with content service using
the “DAM Station” information terminal.
⑤ In view of the harsh business environment in the music recording industry, in which DK’s subsidiaries mainly
engage, DK will reinforce the management foundation of the music software business, expand the business andimprove profitability by increasing synergies with DKG’s mainstay karaoke business, store managementbusiness and Gateway business.

5

DAIICHIKOSHO

CO.,

LTD.

⑥ With the multichannel direct broadcast satellite provider SKY PerfecTV as its platform, DKG now offers two
television channels and 100 radio channels. As the targeted consistent surplus in the satellite broadcasting
business seems to have been achieved, DKG aims to increase operating performance in the future.

(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 and business partners, etc. 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 corporate governance implemented
a. Board of Directors and Executive Board
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. The proposals at these meetings are carefully
discussed and decisions are made after requesting opinions of all the member attendees. Transparency inmanagerial decisions is emphasized and respected by allowing responsible staff from the related departments toattend these meetings, and complicated subjects are thoroughly 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.
b. Corporate officer system
Based on the basic concept of corporate governance, DK introduced the corporate officer system in June 2001,
in which the responsibility of each corporate officer in each significant department has been clarified withregard to his/her duties, and these corporate officers are currently in place.
c. Managerial Liaison Conference
The Managerial Liaison Conference is held once every week, in principle. Although the conference is not adecision-making organ, directors and statutory auditors attend meetings and responsible persons at related
departments report the progress of the basic policies and plans that were approved by the Board of Directors, aswell as other important subjects. DK therefore positions the Managerial Liaison Conference as the third
important internal organ after the Board of Directors and the Executive Board.
d. Board of Statutory Auditors and internal audit
DK adopts the statutory auditor system. The Board of Statutory Auditors consists of four statutory auditors, ofwhich three are outside auditors. They carry out stringent audits by attending the meetings of the Board of
Directors and other important meetings, such as the Managerial Liaison Conference, examine important
authorized documents and receive reports and explanations on business operations directly from the Directors,
the internal audit department and the staff in charge, as required.
Two of the three outside auditors, Hiroshi Kakegawa (400 shares) and Juichi Ishikawa (12,000 shares), held theCompany’s shares as of September 30, 2005. However, as these two outside auditors having DK’s shares haveno specific interest such as that in human relations other than the interest of having shares in DKG, the Board of
Statutory Auditors may be deemed to conduct its functions from an objective viewpoint.
DK also has an Audit Dept. as an internal control organization under the direct control of the President. The
department consists of eight dedicated staff members who conduct an internal audit of the overall operations ofboth DK and DKG, and quickly report the audit results to the President.
e. Audit of accounts
DK has appointed Ernst & Young ShinNihon as its auditing firm. Ernst & Young ShinNihon audits DK’s
financial matters for each account settlement and provides advice on managerial and system issues as necessary.

(8) Matters related to the parent company, etc.
None applicable.

(9) Streamlining and operation of internal management systems
At present, DK endeavors to review its Ringi & Final Decision Authority Standards and reinforce its internalmanagement systems so that its internal controls can be more appropriately and rationally operated.
Furthermore, an internal audit by the Audit Dept. is under way regarding DK and its group subsidiaries toinvestigate whether the internal management systems are properly operated under the reviewed standards.
If any change to the provisions of a law or a regulation, or an organization or an operation, occurs, the relevant
departments around the central General Affairs Dept. will immediately check and review the relevant internal
regulations. In case of any problematic operation of the internal regulations, the substance of the management
systems is reviewed every time an objection or an opinion is raised, as required.

6

DAIICHIKOSHO

CO.,

LTD.

3. Operating Results and Financial Position(1) Overview for the Interim Period① Operating results
During the period ended September 30, 2005, the Japanese economy began to turn around and showed signs ofrecovery, leveraged by increased capital investment and consumer spending supported by corporate profits at
leading companies, despite some apprehensive factors such as high crude oil prices and uncertainty in overseas
economies.
In the karaoke industry, where the market expanded and the number of people enjoying karaoke increased
steadily, equipment manufacturers promoted a shift from conventional models to broadband-compliant models
with new services. Moreover, a trend toward a broadband-based karaoke telecommunications network is underway. Meanwhile, large-scale karaoke cabin operators promoted a multifunctional business model combining
restaurants, amusement and relaxation facilities, etc., and expanded the business scale.
In these circumstances, to further raise its top market share, DKG actively concentrated its promotional effortson the sales and rental of karaoke equipment including the mainstay “Broadband Cyber DAM (DAM-G100)”
equipment and the downscale “DAM-G30” model. The broadband-compliant “DAM-G100” model thatinterlocks with the “DAM Station” information terminal and the compact and inexpensive “DAM-G30”
equipment gained high acclaim in the market. As a result, DKG recorded a historical high in the number of units
shipped of karaoke telecommunications equipment for the interim period. Despite sluggish growth in thenumber of karaoke telecommunications units in operation in the overall commercial-use karaoke
telecommunications market, DKG actively promoted a shift from conventional models to broadband models
such as the “DAM-G100,” which steadily increased the number of broadband-compliant units in operation.
In the “BIG ECHO” karaoke cabin business, DKG opened new stores and developed multifunctional storeswith restaurants to attract more customers. At the same time, continuing expenses such as rent and personnel
were thoroughly reviewed for existing stores. As a result, unprofitable stores were closed and scrapped or thebuildings were partially leased or rented to improve profitability. Such efforts were clearly reflected in thebusiness results.
In the Gateway business, DKG actively promoted the installation of “DAM Station” information terminals
mainly in the group-owned “BIG ECHO” karaoke cabins. DKG’s active advertising activities related to the
TV programs enhanced brand recognition, increased the number of terminal units in operation and the amountof content used, and expanded the number of subscribers of “Club DAM MEMBERSHIP,” an association of
information terminal users.
In the music software business, DKG reorganized its recording companies, devoting itself to scouting for new
artists and producing hit songs, to reinforce the management foundation and increase revenues.
Consequently, consolidated net sales for the interim period under review increased 5.5% year over year to¥64,191 million. Consolidated operating income decreased 18.3% to ¥5,143 million and consolidated ordinary
income fell 16.3% to ¥5,188 million, reflecting an increase in sales expenses due to the active promotion of
karaoke telecommunications equipment, the burden of investment for the Gateway business and temporary
selling, general and administration expenses, which were partly offset by greatly improved profitability in the
karaoke cabin business and the music software business.
Consolidated net income for the interim period ended September 30, 2005, decreased 79.7% to ¥790 million, asa result of a ¥1,083 million loss on the disposal of land and buildings, a ¥1,115 million loss for karaoke cabins
recorded as an extraordinary loss item to maintain the soundness of tangible fixed assets after the AccountingStandard on the Impairment of Fixed Assets was adopted and an increase in income taxes—deferred from thereversal of deferred tax assets.
Operating results by business segment are summarized as follows
Effective from the interim period under review, the business segmentation was changed as follows, with
year-over-year percentage changes from the previous fiscal term computed based on the change in segmentation
applied to the previous interim period.
1) The restaurant business previously included in “Other business” was combined with the previous “karaokecabin business” and changed to “karaoke cabin and restaurant business.”2) The “Gateway business” previously included in “Other business” was separated as an independent businesssegment.
3) “E-business,” which was previously included in “Content business,” was integrated into “Gateway business,”and “satellite broadcasting business” was included in “Other business.”

7

DAIICHIKOSHO

CO.,

LTD.

Commercial karaoke businessNet sales: ¥36,897 million (+5.2%)
Operating income: ¥6,391 million (–15.8%)
In this segment, given the success of lower-priced products due to intensified competition, DKG’spremium“DAM” brand still achieved high acclaim. In addition, with the help of a user-oriented, enhanced
after-sales maintenance system, DKG had record karaoke telecommunications equipment shipments of
24,250 units including “Broadband Cyber DAM (DAM-G100),” our mainstay product, and the downscale“DAM-G30” model. On the other hand, despite sluggish growth in the number of karaoke
telecommunications units in operation throughout the commercial karaoke market, DKG actively promoted ashift from conventional models to broadband-compliant models such as the “DAM-G100” to promote a
broadband-based karaoke telecommunications network. As a result, the number of broadband-compliant
units in operation increased by more than 10,000 from the end of the previous term.
In addition, sales of merchandise and the cumulative number of karaoke equipment rental contracts rose,
whereas contracts to supply information such as karaoke sound sources and videos increased steadily. As aconsequence, net sales in the business segment advanced 5.2% year over year. Operating income decreased
15.8% year over year due to lower average sales prices owing to shipments of the downscale “DAM-G30”
model and increases in expenses to reinforce content for differentiation and sales promotion costs to promote
shipments of karaoke telecommunications equipment.

Karaoke cabin and restaurant businessNet sales: ¥15,781 million (+9.0%)
Operating income: ¥927 million (+93.0%)
In the operation of karaoke cabin stores and restaurants, DKG actively pushed ahead with multifunctional
store development combining the karaoke cabin and restaurant businesses. During the interim period underreview, DKG closed eight unprofitable “BIG ECHO” karaoke cabin stores but opened 17 new
multifunctional stores with restaurants—14 domestically and three overseas. Accordingly, the karaoke cabin
stores directly operated by DKG totaled 219 as of September 30, 2005 (214 domestically and five overseas),
and the number of restaurants totaled 32. At existing “BIG ECHO” karaoke cabin stores, a thorough review
was conducted of continuing expenses such as rent and personnel, and measures to improve profitability were
implemented that included cutting operating expenses and partially renting or leasing buildings at
unprofitable major stores. Existing restaurant brands such as “Bistro-ya,” “Tompooya,” “Umenoko-no-ie”
and “Cuisine” progressed smoothly, and a new brand, “Torizo,” was added. As a result, segment net sales
increased 9.0% year over year owing to the increased number of stores as a result of the aggressive opening of
new “BIG ECHO” karaoke cabin stores and the steady progress of restaurants. Operating income jumped
93.0% year over year owing to our stringent cost-cutting measures that included a reduction of continuing
costs such as rent and personnel, which offset expenses for new-store openings.
Gateway businessNet sales: ¥2,469 million (–1.3%)
Operating income: –¥1,355 million (–¥1,136 million)
In this segment, DKG engages in two business fields: e-business to deliver content such as mobile phonering-tones, etc., and the Gateway business to supply a new, broadband-based interactive service using “DAM
Station” information terminals interlocked with “Broadband Cyber DAM (DAM-G100).” In e-business,for which the number of mobile phone ring-tone service subscribers is declining gradually, DKG strived tomaintain subscribers by reviewing the service content. In the Gateway business, DKG actively promoted“DAM Station” information terminal installations mainly in the group-owned “BIG ECHO” karaokecabins as anticipatory investment. DKG also conducted effective advertising activities including
broadcasting “Uta-Star!!” (“Uta” means “songs”), a TV program designed to find new artists related toentertainment content, and hosting the “Nationwide Karaoke Grand Prix 2005.” As a result, 11,550 “DAM
Station” information terminals were in operation as of September 30, 2005, significantly enhancing
recognition of our equipment. The advertising also contributed to differentiating “DAM-G100” in themarket and greatly boosted shipments of karaoke merchandise. The cumulative number of subscribers of“Club DAM MEMBERSHIP,” an association of information terminal users, increased to approximately
800,000. Use of content supplied by DKG also expanded, with 3.9 million units of paid and free content
disseminated during the interim period ended September 30, 2005. The content included material related to
the “Uta-Star!!” TV program, “Kasho-kentei” (meaning “step tests for singing abilities”) karaoke events and“Ranking Battle,” which is popular karaoke content that spans generations. For users of “Uta-Star!!,” it wasdetermined that five new artists would debut as of November 14, 2005, and about 5,300 people applied toparticipate in the “Nationwide Karaoke Grand Prix 2005,” reflecting high acclaim among karaoke lovers

8

DAIICHIKOSHO

CO.,

LTD.

nationwide. As a result, a decrease in revenue in e-business was offset by an increase in net sales in the
Gateway business and segment net sales declined 1.3%, almost flat with the same period last year. However,an operating loss of ¥1,355 million was recorded owing to the increased burden of investment in the Gateway
business.

Music software businessNet sales: ¥5,562 million (+5.2%)
Operating income: ¥52 million (up ¥943 million from the same period of the previous fiscal year)
In this segment, in light of the continuously shrinking market volume of the music CD market, DKG
reorganized seven recording subsidiaries into four and consolidated three previously nonconsolidated
subsidiaries to reinforce the management foundation and increase revenues. Segment net sales increased
5.2% year over year owing to hit items such as “Gackt” at Nippon Crown Co., Ltd., and “Tongari Kids” at
Tokuma Japan Communications Co., Ltd. DKG also reviewed the initial shipment volume and improved therate of returned goods unsold, which helped to reduce the cost-to-sales ratio and selling, general andadministrative expenses. As a result, operating income surged ¥943 million year over year.
Other businessNet sales: ¥3,480 million (–0.9%)
Operating income: ¥872 million (+42.6%)
This segment mainly consists of satellite broadcasting using SKY PerfecTV as its platform and the realestate lease and rental business. In the satellite broadcasting business, despite a gradual decline in the numberof household-use subscribers, subscribers of the “Stardam” commercial-use satellite broadcasting service,
which offers content menus similar to those supplied for household-use subscribers, increased steadily andprofitability remained steady through stringent cost-cutting efforts. Other business including the real estatelease and rental business progressed steadily as well. As a result, segment net sales decreased 0.9% year overyear, almost flat with the same period a year earlier. Operating income increased 42.6% year over year,
reflecting a decrease in selling, general and administrative expenses.

9DAIICHIKOSHO

CO.,

LTD.

② Financial position(Cash flows)
Consolidated cash and cash equivalents as of September 30, 2005, totaled ¥25,520 million, compared with
¥22,142 million as of September 30, 2004, reflecting cash flows provided by operating activities of ¥10,119
million, cash flows used in investing activities of ¥10,816 million and cash flows provided by financing
activities of ¥2,343 million, and a cash increase of ¥1,398 million due to an increase in the number of newly
consolidated subsidiaries.
The following describes the respective consolidated cash flow conditions for the interim period ended
September 30, 2005, and their major factors.
(Cash flows from operating activities)
Net cash provided by operating activities was ¥10,119 million. This amount reflected ¥2,874 million inincome before income taxes and minority interests and ¥7,585 million in depreciation expense.
(Cash flows from investing activities)
Net cash used in investing activities was ¥10,816 million. This amount reflected ¥7,681 million in payments
for the acquisition of tangible fixed assets and ¥2,466 million in payments for the acquisition of intangible
fixed assets.
(Cash flows from financing activities)
Net cash used in financing activities was ¥2,343 million. This amount reflected ¥10,694 million in proceedsfrom long-term borrowings and ¥6,504 million in payments for the repayment of long-term borrowings.
The trends of DKG’s several cash flow indicators are as follows:
As of
As of March
As of
As of March
As of
September 30,
31, 2004
September 30,
31, 2005
September 30,
2003
2004
2005
Equity ratio (%)
42.1
44.0
45.8
47.1
45.4
Market value–based equity ratio (%)
56.9
87.5
84.6
72.8
63.8
Debt redemption (years)
2.1
1.8
2.1
1.7
2.3
Interest coverage ratio (times)
40.1
47.6
42.3
43.8
43.3
Notes:
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 (after deducting the treasury stock).
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.
5. Debt redemption (years) at the end of the interim period under review was doubled for comparison
with other annual amounts.

10

DAIICHIKOSHO

CO.,

LTD.

(2) Future Outlook
Although the economic environment for fiscal 2005, ending March 31, 2006, still reflects uncertainties such as thecrude oil market, the U.S. economy and the exchange market, a gradual recovery is expected to continue with
underlying strength.
In the business environment surrounding the karaoke industry, replacement demand for broadband-compliant
models will increase to meet diversifying customer needs, and large-scale karaoke cabin operators are expected toactively expand operations by accelerating the transition to multifunctional stores.
DK and DKG established the “DAM Network,” which now has more than 200,000 terminals in the commercial
karaoke market, and intend to further expand the network. DKG aims to increase revenues from a new software
service with the early shift of the “DAM Network” to broadband-compliant models, which will increasingly
dominate the telecommunications environment, to establish the next-generation commercial “Gateway (GW)
Network” for the proactive and flexible supply of entertainment and other kinds of software based on karaoke,
music and video. To further disseminate and improve recognition of “DAM Station” information terminals, DKG
continues to actively introduce the information terminals in major karaoke cabins, such as “BIG ECHO,” andfocus on development and procurement of content to promote the use of the information terminals in the nighttime
and other commercial markets. As evident in the performance of “Uta-Star!!” related to a TV audition program,“Kasho-kentei” to qualify for participation in the “Nationwide Karaoke Grand Prix” and the immensely popular“Ranking Battle,” karaoke-related content has deep-rooted support. DKG will continue to strive to create new
possibilities for the Gateway business by proposing attractive content services such as an ordering system, music
and video delivery and e-commerce, targeted at various markets and generations.
In the commercial karaoke market, in November 2005 DKG released a new product, “Cyber DAMG70(DAM-G70),” that includes more than 10,000 songs from the “LPC Series” performed live and aims to expand
sales of this product together with our mainstay “DAM-G100” product throughout our markets to further increase
our top market share. Commercial karaoke equipment is in a renewal period for conventional equipment models,
and the broadband-based karaoke telecommunications network is expanding steadily. However, an estimated
70%–80% of karaoke equipment currently in the market, including the nighttime market, is still narrowband, where
DKG sees a great opportunity to facilitate a shift from conventional models by introducing our new “DAM-G70”
product in the nighttime market and to further promote broadband-based karaoke services for the karaoke
telecommunications network by adding broadband-compliant options scheduled to be released next spring.
In the karaoke cabin and restaurant business, DKG will open 29 new stores in fiscal 2005, exceeding our initialplan. These include 17 “BIG ECHO” karaoke cabins opened during the first half of the fiscal year under review.
Based on the multifunctional store format including restaurants, which we started in the first half of fiscal 2005, wehave seen success in store differentiation and managerial streamlining. Therefore, DKG plans to add entertainment
facilities to actively promote and realize new store business. DKG aims to draw customers and expand store
business by enhancing customer satisfaction with added value and store differentiation by actively opening newstores and offering entertainment-based content services via “DAM Station” and new facilities that differ fromconventional karaoke cabins.
In the music software business, DKG rearranged and integrated its recording subsidiaries during the first half offiscal 2005 and continues to strive to increase revenues by scouting and nurturing new artists, improving the ratio ofreturned products to reduce costs, and effective and lively sales promotion activities. DKG will focus on scouting
for new artists using our expanding “Gateway network” and creation of hit songs through advertising activities
using our comprehensive group capabilities.
DK and DKG plan to achieve net sales of ¥129.4 billion, ordinary income of ¥10.5 billion and net income of ¥3.6
billion for fiscal 2005, the year ending March 31, 2006, on a consolidated basis by carrying out the above measuresand absorbing the investment burden for our active expansion in the Gateway business and expenses to further
improve our top market share.

11

DAIICHIKOSHO

CO.,

LTD.

(Business risks)
The following describes potential risk factors in DKG’s business development. The descriptions may notnecessarily refer to risk factors but mention matters deemed material for the convenience of investors’ judgmentfrom the viewpoint of active information disclosure. In recognition of the possibility of being exposed to these risk
factors, DKG endeavors to avoid them and to properly handle them should they occur.
The projections in this section are based on information available to DK’s management as of March 31, 2005.
There might be cases in which actual results differ from forecast values due to the many uncertain factors inherent
in forecasting.
(1) Risk factors that might change performance in each business segment
DKG’s businesses are categorized into five segments: 1) Commercial karaoke business, 2) Karaoke cabin andrestaurant business, 3) Gateway business, 4) Music software business and 5) Other business. DKG’s operating
performance and business deployment could be influenced by the following factors.
1) Commercial karaoke business:
a. Sales from the commercial karaoke business might decline owing to possible decreases in shipments andthe number of operational units of commercial karaoke equipment, affected by the shrinkage of market
size if many clubs, bars and karaoke cabin stores are closed.
b. Sales from the commercial karaoke business might be influenced by variations in shipments and thenumber of commercial karaoke equipment in operation, depending on the release of new models and thelevel of support in the karaoke cabin market.
c. Sales from the commercial karaoke business might decline due to intensified competition and falling
selling prices of products.
2) Karaoke cabin and restaurant business:
a. Sales from the karaoke cabin and restaurant business might be influenced by a variable number of newstore openings, depending on the number of good candidate sites in the new store-opening plan.
b. Sales from the karaoke cabin business might vary depending on the extent of support by customers in the
karaoke cabin and restaurant market, which is linked with changes in user needs.
c. Sales from the karaoke cabin and restaurant business might decline due to a decrease in the number ofcustomers and a reduction in the per-customer transaction along with intensified competition.
3) Gateway business:
a. Sales from the business might be influenced by a variable number of paid subscribers and a fluctuation in
the number of times paid content is used, etc., depending on the extent of market support for the content
menus supplied by DKG.
b. The sales and income summary from the Gateway business might vary owing to the suspension ofbusiness or any change to business policies with regard to telecommunications carriers.
4) Music software business:
a. Sales from the music software business might be influenced by variable sales volume, which would
depend on the support of newly released music CDs and DVD by the market.
b. The sales and income summary from the music software business might vary due to a possible decline insales volume of music CDs and DVDs via media shifting, and a possible increase in sales volume via othermedia such as the Internet.
c. The Anti-Monopoly Law prescribes the resale price maintenance system (resale system) of music CD
copyrighted work as legal resale products. However, a future change in the law is possible, which might
result in the abolition of the resale system and fuel price competition. In such a case, the sales price might
be reduced, and sales and income from the Music software business would decrease.
d. Due to the aforementioned resale system, which does not allow retail stores to freely set sales prices, there
is a commercial custom that music CDs can be returned with certain restrictions. Therefore, CDs withsluggish sales might be returned in the future. DKG addresses such a risk by properly accounting for anallowance for sales returns based on the past record of returned volume. However, should returns exceed
our expectation, sales and income from the Music software business might decrease.
5) Other business:a. The sales and income summary from the Satellite broadcasting business might vary owing to thesuspension of business or any change to business policies with regard to telecommunications carriers.
b. Sales from the Satellite broadcasting business might decline due to a decrease in the number of subscribers
and a reduction of audiovisual service fees through intensifying competition with similar services such as
ground digital broadcasting.

12

DAIICHIKOSHO

CO.,

LTD.

c. Sales from the other business and segment business policies might vary depending on the market support
for DKG’s new businesses.

(2) Legal restrictions
At present, there is no specific legal restriction through which DKG might be directly controlled within its
industry. However, DKG’s operating results and financial position might be influenced by future revisions orchanges to the provisions of laws, regulations and ordinances by local governments, such as the Copyright Act,
the Food Sanitation Law, the Broadcast Law and the Telecommunications Business Law, if business operations
are restricted by such a revision or a change.
(3) Competition
DKG has solidified the top share in the commercial karaoke business owing to strong support in the market for
relevant products and services. There is no guarantee that the market will continuously accept DKG’s products
and services in the future. Moreover, DKG’s operating results and financial position might be affected if DKG
cannot maintain an advantageous position in its increasingly competitive business environment.
(4) Quality control
DK’s products and merchandise are manufactured and supplied in compliance with certain rigorous quality
control standards. However, there is no guarantee that all the merchandise is without defect. Even DK’s
products and completed operation liability insurance will not always cover 100% of a claim. In the event that alarge claim and/or indemnity is pursued in conjunction with any merchandise defect, DK’s merchandise would
lose considerable consumer trust and DKG’s operating results and financial position might be affected.
(5) Supply of new products and services
In the karaoke industry, technological innovations are occurring rapidly, thereby requiring the development andswift supply of corresponding new products and services. However, the success of such new products andservices involves various risks such as the following.
z There is no guarantee that funds and resources required to develop and supply new products orservices can be fully appropriated in the future.
z There is no guarantee that long-term investment and the use of significant resources will always
result in successful products or services.
z In response to diversifying or changing user needs, DKG’s new products or services might fail toreceive high acclaim in the market.
z There is no guarantee that a newly developed product or technology is protected as a proprietary
intellectual property.
z The delayed commercialization of a new product might fail to match well with market needs. Or, if acompetitor commercializes a similar product sooner than DKG, the DKG product might not be able
to gain sufficient market share.
Apart from the above risks, DKG’s operating results and financial position might be affected by stagnant
growth and profitability if it cannot appropriately predict changes in the industry and the market and/or
cannot supply attractive products or services.
(6) Dependency on outside corporations
DK planned and developed the commercial “DAM” karaoke equipment sold by DKG. Its production is
entrusted to outside corporations such as YAMAHA CORPORATION based on the OEM agreement. DK
therefore has entered into contracts regarding “technological” and “purchase” alliances with several outside
corporations on a one-year renewal basis. DKG’s operating results and financial position may be affected byrevisions to any contractual conditions or the termination of these contracts in the future.
(7) Intellectual property rights
Various intellectual property rights have been acquired for the merchandise supplied by DKG. Moreover, DKG
strives not to infringe on the intellectual property rights of any third parties. There is no guarantee that suchinvestigations are appropriately carried out for a sufficient and reasonable range. In case DK infringes anyone’s
intellectual property rights, the infringed party may bring a suit to appeal a claim for damage and/or an
injunction relief, in addition to a request for payment of a consideration for the intellectual property rights inquestion. Moreover, a third party might infringe DK’s intellectual property rights. In these cases, DKG’soperating results and financial position might be affected.

13

DAIICHIKOSHO

CO.,

LTD.

(8) System failure
DKG’s services distribute or transmit various content menus such as music, videos and data through a variety of
networks such as fixed lines, mobile phones, the Internet and satellite broadcasting. As a result, if a network is
down due to a natural disaster or a grave accident, temporary service suspension might occur. System failure
accompanying the suspended normal transmission of data might be also caused by a possible hardware/software
defect, any unauthorized and improper access into the computer or any erroneous operation by the staff incharge. In these cases, DKG’s operating results and financial position might be affected by a decline in thereliability of the related DKG service.
(9) Information management
DK keeps a large amount of data and information, including personal information on customers and a variety ofmusic and musical composition information used for the karaoke telecommunications service. Moreover,
several DK businesses use personal information–dependent services. DK has paid special attention to the strict
management of such important information. However, should such an information leakage incident occur for
whatever reason, DK’s social responsibility would be criticized and possibly management’s involvement as
well, which would involve the risk of losing social trust. In such cases, DKG’s operating results and financial
position might be affected.
(10) Securing and nurturing excellent human resources
Consistent future growth will require DKG to maintain and nurture good human resources along with its scale
expansion. Unless such talented people can be maintained and nurtured internally, DKG’s operating results andfinancial position might be affected.
(11) Impairment accounting
As for the fixed assets owned by DKG, the “Accounting Standard on the Impairment of Fixed Assets” wasadopted and DKG recorded an impairment loss of ¥2,199 million for the interim period under review. However,an additional loss might occur, depending on fluctuation in DKG’s income.
(12) Lending of trademarks, etc.
DK owns several trademarks such as the karaoke cabin “BIG ECHO” and endeavors to raise its brand power
and the protection of brand values. If any corporation other than DK wishes to use the trademarks for any
purpose, DK authorizes their utilization by entering into a “Trademark License Contract,” even with any its
subsidiaries, in principle. For example, a business partner with which DK has a long business relationship uses
the company name “Daiichikosho Co., Ltd.” Also, DK authorizes several business partners to use the “BIGECHO” trademark based on previous transaction results and under an agreement with certain conditions. If any
contingency takes place at such a business partner, DKG’s operating results and financial position might beaffected.
(13) Recommendation issued by the Japan Fair Trade Commission
DK has received an admonition from the Japan Fair Trade Commission for allegedly violating the provision of
the Anti-Monopoly Law with regard to the licensing of musical compositions owned by its music software
subsidiaries. DK has forwarded a notice of non-acceptance to the Commission, and an appeal is under way. DK
believes the admonition is unfair and inadequate. However, the results and the effects of the appeal cannot be
forecast at this time.
(14) Lawsuits
ASIA COPYRIGHT ASSOCIATION has filed a suit requesting a claim for damages against DK to the Tokyo
District Court for alleged unauthorized use of Korean musical compositions it controls in DKG’scommunications karaoke songs. DK considers the Association’s complaint to be unreasonable.

14

DAIICHIKOSHO

CO.,

LTD.

4. Consolidated Financial Statements(1) Consolidated Interim Balance Sheet(Millions of yen)
Fiscal year

Account item

Previous interim period(As of September 30,
2004)
AmountComposition
ratio
(%)

Current interim period(As of September 30,
2005)
AmountComposition
ratio
(%)

Last fiscal year
(As of March 31, 2005)
Condensed
ComAmount
position
ratio(%)

Yearoveryearchange30,843
12,90926,086
15,51623,094
12,241

2,991
3,274

25
5,733
3,207
3,496
(870)
55,346

—
6,871
3,163
5,805
(1,349)56,092

—
6,843
3,102
4,706
(1,075)
48,913

—
27
60
1,099
(273)
7,179

(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
Fixed assets
Tangible fixed assets
Buildings and structures
Karaoke equipment for rental
Karaoke cabin facilities
Land
Other
Total tangible fixed assets
Intangible assets
Other
Total intangible assets
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 other assets
Total fixed assets
Total Assets

39.7

7,711
10,16012,13815,18941.0

6,508
10,15912,322
14,795

37.1

7,036
9,998
12,89015,463

(528)
161
(567)
(667)

3,010
48,21134.6

4,138
47,92535.0

2,863
48,252

36.5

1,275
(326)

8,888
8,888

6.4

7,920
7,920

5.8

8,665
8,665

6.6

(745)
(745)

6,735
2,356
2,672
13,179

7,479
1,215
1,375
13,113

6,971
1,294
2,494
13,418508(79)(1,118)
(305)

4,511
(2,609)26,84583,945
139,292

4,017(2,230)24,97180,817
136,9104,331(2,345)
26,16583,083
131,996(314)
115(1,193)(2,266)
4,913

19.3
60.3
100.0

15

18.2
59.0
100.0

19.8
62.9
100.0

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 liabilities
Long-term liabilities
Long-term borrowings
Deferred tax liabilities
Reserve for employees’ retirement
benefits
Reserve for directors’ retirement
allowances
Consolidation adjustment account
Other
Total long-term liabilities
Total Liabilities(Minority Interests)
Minority Interests(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

CO.,

LTD.

Previous interim period(As of September 30,
2004)
AmountComposition
ratio
(%)

Current interim period(As of September 30, 2005)

7,574
19,665
9,955

8,818
22,190―

7,672
21,107
―

1,146
1,082
―

5,682
1,019
1,160
526

7,095
1,253
1,139
422

7,067
907
1,035
463

27
345
104
(41)

2,683
48,267

Amount34.7

Composition
ratio
(%)

2,883
43,80232.0

Last fiscal year
(As of March 31, 2005)
Condensed
AmountComposition
ratio
(%)

2,660
40,91431.0

Yearoveryearchange223
2,887

18,865
226
2,741

23,370257
2,616

20,492
226
2,764

2,877
30
(147)

2,752

1,987

2,959

(972)

935
1,135
26,65774,924

19.1
53.8

736
1,190
30,15973,961

22.0
54.0

818
1,096
28,35869,272

21.5
52.5

(81)
94
1,801
4,688

621

0.4

756

0.6

528

0.4

227

12,35024,00228,961(1,927)
1,025

8.9
17.2
20.8
(1.3)
0.7

12,35024,002
29,373(1,409)
1,364

9.0
17.5
21.5

9.4
18.2
22.8

(1.0)
1.0

12,35024,00230,050(1,794)
1,113

0.8

―
―
(677)
385
250

114

0.1

144

0.1

101

0.1

42

(780)
63,746139,292

(0.6)
45.8
100.0

(3,634)62,191
136,910

(2.7)
45.4
100.0

(3,629)62,194
131,996

(2.8)
47.1
100.0

(4)
(3)
4,913

16

(1.4)

DAIICHIKOSHO

CO.,

LTD.

(2) Consolidated Interim 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 income
Dividend income
Fees and commissions received
Insurance payment received
Amortization of consolidation
adjustments account
Other
Nonoperating expenses
Interest expense
Provision for allowance for doubtful
accounts
Loss on disposal of inventories
Loss on devaluation of inventories
Other
Ordinary income
Extraordinary gains
Gain on sales of fixed assets
Reversal of allowance for doubtful
accounts
Reversal of reserve for directors’
retirement allowancesGain on sales of investments insecurities
Indemnity on relocation of
warehouse
Extraordinary losses
Loss on sales and disposal of fixed
assetsImpairment loss on fixed assets
Loss on sales of investments insecurities
Loss on valuation of investments insecurities
Loss 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

Previous interim period(From April 1, 2004,
to September 30, 2004)
AmountPercentage(%)
60,850 100.0
36,20659.5
24,64340.5
156
17

Yearoveryearchange
(%)
105.5
108.5
101.1

60
139

0.2

24,782
18,486
6,296

19

0.1

29.5

202

0.2

40.7
30.4

24,953
19,810

38.9
30.9

100.7
107.2

48,41938,035

39.7
31.2

10.3

5,143

8.0

81.7

10,383

8.5

1,743

1.4

2,195
9,932

1.8
8.1

1,150

0.9

4,583

3.7

6,499

5.3

1,672
(291)

1.3
(0.2)

5,118

4.2

177
111
95
154
116
819

1.4

410

(Millions of yen)
FY 2004 (From April 1,
2004, to March 31, 2005)
Condensed
AmountPercentage(%)
122,085 100.0
73,86860.5
48,216
39.5
250

41

215
28
129
12
113
320

Current interim period(From April 1, 2005,
to September 30, 2005)
AmountPercentage(%)
64,191 100.0
39,27861.2
24,912
38.8

48

410
37
241
12
230
1,067

1.7

130.3

811

275
24

244
49

551
25

73
307
239

30
449
248

96
1,203
318

920
6,195

1.5
10.2

1,022
5,188

1.6
8.1

111.1
83.7

4
34

34
92

54
71

139

48

139

553

370

757

―

731

1.2

―

546

0.9

74.7

128

2,232

456

4,547

―
6

2,199
―

―

―

7

29

―

884
107

2,238

3.7

4,687

7.7

991
(199)

1.6
(0.3)

3,895

6.4

17

196

1,106
983

6

2,860

4.5

127.8

2,874

4.5

61.3

2,089
(6)

3.3
(0.0)

210.9
3.1

790

1.2

20.3

―

1,342
330

DAIICHIKOSHO

CO.,

LTD.

(3) Consolidated Interim Statements of Retained Earnings
Fiscal year
Account item
(Capital surplus)
Capital surplus at the beginning of the year
Increase in capital surplus
Conversion of convertible bonds
Gain from purchase and redemption of treasury stock
Capital surplus at the end of the interim period

Previous interim
period (From April
1, 2004,
to September 30,
2004)
AmountCurrent interim
period (From April
1, 2005,
to September 30,
2005)
Amount24,001

24,00200(Retained earnings)
Retained earnings at the beginning of the year
Increase in retained earnings
Net income
Increase in retained earnings due to the increase in thenumber of consolidated subsidiaries
Decrease in retained earnings
Cash dividends
Bonuses to directors and statutory auditors
Reversal of land revaluation difference
Retained earnings at the end of the interim period

1
24,002――

29,716
3,895
―
682
134
3,834

18

3,895

4,651
28,961―
24,002(Millions of yen)
FY 2004 (FromApril 1, 2004, to
March 31, 2005)
Amount24,0010030,050
790
414
1,392
104
385

1,204

1,881
29,373

1
24,002
29,716

5,118
―
682
134
3,966

5,118

4,783
30,050DAIICHIKOSHO

CO.,

LTD.

(4) Consolidated Interim Statements of Cash Flows(Millions of yen)
Fiscal year
Account item
Cash flows from operating activities:
Income before income taxes and minority interests
Depreciation expense
Impairment loss on fixed assets
Increase in allowance for doubtful accounts
Increase (decrease) in reserve for directors’ retirement
allowances
Dividend and interest income
Gain or loss on sales of investments in securities
Interest expense
Gain or loss on disposal of fixed assets
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Transfer of cost of sales on karaoke equipment forrentalIncrease in trade payables
Other
SubtotalInterest and dividends received
Interest paid
Income taxes paid
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 acquisition of video licenses
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 receivable
Payments for leasehold deposits and guarantee money
Proceeds from repayment of leasehold deposits andguarantee money
Other
Net cash used in investing activities
Cash flows from financing activities:
Net increase in short-term borrowings
Increase in long-term borrowings
Payments for repayment of long-term borrowings
Payments for retirement of convertible bonds
Payments for redemption 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 the beginning of the year
Increase in cash and cash equivalents due to theincrease in the number of newly consolidated
subsidiaries
Cash and cash equivalents at the end of the interim
periodPrevious interim
period (FromApril 1, 2004,
to September 30,
2004)
AmountCurrent interim
period (FromApril 1, 2005,
to September 30,
2005)
AmountYear-over-year change

FY 2004 (FromApril 1, 2004, to
March 31, 2005)
Condensed
Amount

4,687
6,811
―
(160)
(388)

2,874
7,585
2,199
91
(1,009)6,499
14,853
―
23
(182)

(243)
(547)
275
2,227
911
(607)
514

(289)
(370)
244
421
(2,920)
1
552

(447)
(751)
551
4,493
1,707
(1,717)
1,293

(137)
(644)
12,698237(274)(1,072)
11,5891,398(25)
10,752
277
(233)
(675)
10,11985(352)
26,059448(552)(1,732)
24,221(324)
603(7,460)748(2,045)
(392)
(41)
595
(45)
(212)
542
(790)
112

(216)
316
(7,681)82(2,466)
(866)
(988)
524
―
(452)
425
(232)
498

315
(8,396)240(10,816)

124
5,756(5,705)
(845)
―
(682)
(12)
(7)
(1,372)20(1,946)(1,470)

(630)
8,943
(16,071)
1,477(4,269)(1,057)
(358)
1,628
(45)
(395)
1,129
(1,709)220(2,419)139(10,999)(448)
10,694(6,504)――(1,389)
(4)
(2)
2,343
46

3,716
25

829
14,576(12,159)(845)(9,955)(683)(2,862)(7)(11,106)
11

1,841
20,300―1,693
22,428
1,398

(147)
2,127
1,398

2,127
20,300―22,142

25,5203,377

22,42819

DAIICHIKOSHO

CO.,

LTD.

Basis of Presenting the Consolidated Interim Financial Statements
1. Scope of Consolidation(1) Consolidated subsidiaries: 47
The names of the consolidated subsidiaries are omitted as they are stated in “1. Corporate Group.”(2) Major unconsolidated subsidiaries
Major unconsolidated subsidiaries are Shubi Planet, etc.
(Reason for exclusion from consolidation)
The unconsolidated subsidiaries above are excluded from consolidation because they are small-scale corporations
and their respective sums of total assets, net sales, interim net income (loss) (amount reasonable for the equity
method) and retained earnings (amount reasonable for the equity method) have no significant impact on DKG’sconsolidated interim financial position and operating results for the year.

2. Application of the Equity Method(1) Unconsolidated companies accounted for by the equity method: Spice Records Co., Ltd.
(2) Unconsolidated companies not accounted for by the equity method:
Major unconsolidated subsidiaries are Shubi Planet Co., Ltd., etc.
(Reason for exclusion from the application of the equity method)
Unconsolidated subsidiaries that are not accounted for by the equity method are excluded from the application of theequity method because the respective sums of interim net income (loss) (amount reasonable for the equity method)
and retained earnings (amount reasonable for the equity method) have no significant impact on these account itemsin the consolidated interim financial statements for the year, and they are immaterial on the whole.

3. Closing Date for the Settlement of Accounts of Consolidated Subsidiaries
Of the consolidated subsidiaries, the interim closing date of the following companies is different from the consolidated
interim closing date, which is March 31. In preparing the consolidated interim financial statements, the financial
statements for the respective interim periods are used for those that have an interim closing date that differs from theconsolidated interim closing date, provided that necessary adjustments are made for consolidation purposes with regard
to material transactions that might take place in the period between their respective interim closing dates and theconsolidated interim closing date.
Interim Closing date is June 30:
Shanghai Zong-Yi Music & Entertainment Co., Ltd., Saha Daiichi Kosho Co., Ltd., Daiichikosho (Shanghai), Ltd.,BIG ECHO (SHANGHAI) Co., Ltd., BIG ECHO (SHXG) Co., Ltd., BIG ECHO (SHSG) Co., Ltd., and DAIICHIKOSHO (BEIJING) MUSIC & CULTURE CO., LTD.
Interim Closing date is August 31:
Nippon Crown Co., Ltd., Tokuma Japan Communications Co., Ltd., Tri-M, Inc., First Distribution Co., Ltd., DKMusic Publishing Co., Ltd., Crown Music Enterprise Co., Ltd., and Zoom Republic
Nippon Crown Co., Ltd., Tokuma Japan Communications Co., Ltd., Tri-M, Inc., and Crown Music Enterprise Co., Ltd.,changed their interim closing date from September 20 to August 31. First Distribution Co., Ltd., DK Music PublishingCo., Ltd., and Zoom Republic changed their interim closing date from September 30 to August 31.

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:
Carried at amortized cost using the straight-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 ofthe applicable income taxes, included directly in shareholders’ equity. The cost of securities sold isdetermined by the moving-average method.
Other securities primarily designated as available-for-sale securities for which the fair values are notreadily determinable:
Carried at cost determined by the moving-average method.

② Derivatives
Carried at fair value.

20

DAIICHIKOSHO

CO.,

LTD.

③ 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.
Buildings 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.
(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 theinterim balance-sheet date, based on the projected benefit obligations and plan assets as of March 31, 2005.
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 recognition,from the following fiscal year of recognition.
(Change of accounting policies)
From the current interim period, the Company has adopted the “Partial Amendment to the Accounting Standard
for Retirement Benefits” (Financial Accounting Standard No. 3, March 16, 2005) and the “Implementation
Guidance for Partial Amendment to the Accounting Standard for Retirement Benefits” (Financial AccountingStandards Implementation Guidance No. 7, March 16, 2005). As a result, operating income, ordinary income
and income before income taxes each increased ¥13 million. The adoption of these standards does not have asignificant impact on the segment information.
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 therespective interim balance-sheet dates.
(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 interim balance-sheet date. The resulting exchange differences are charged or credited to income.
The balance 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 interim balance-sheet dates. The resulting translationdifferences have been recorded and presented as a component of minority interests and as “Foreign currencytranslation 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 interim 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.

21

DAIICHIKOSHO

CO.,

LTD.

5. Cash and Cash Equivalents in the Consolidated Interim Statements of Cash Flows
Cash and cash equivalents in the consolidated interim statements of cash flows included cash on hand, demand
deposits and short-term investments due within three months from the acquired date, which are easily convertible
into cash with little risk of value fluctuation.

Change in Significant Accounting Policies
From the current interim period, the Company adopted the Accounting Standard on the Impairment of Fixed Assets(“Statement of Position on Accounting Standard on the Impairment of Fixed Assets”) (Business Accounting Council,
August 9, 2002) and the “Implementation Guidance on the Accounting Standard on the Impairment of Fixed Assets”(Financial Accounting Standards Implementation Guidance No. 6, October 31, 2003). The adoption of these accounting
standards decreased interim income before income taxes by ¥2,199 million. The accumulated impairment loss was
directly deducted from the amount of each of the related assets.

22

DAIICHIKOSHO

CO.,

LTD.

Notes to Consolidated Interim Financial Statements(Consolidated Interim Balance Sheets)(Millions of yen)

1. Accumulated depreciation for tangible fixed assets
2. Liabilities for guarantee

As of
September 30,
2004
48,174As of
September 30,
2005
48,023As of March
31, 2005

910

885

919

2,466
―
3,886
22
9,716
964
1,409
155
18,621

1,585
575
2,682
5
6,950
1,174
625
155
13,755

2,255
553
3,058
8
7,294
1,141
552
155
15,0205,839
7,975
13,815

4,729
6,893
11,623

5,755
7,732
13,487

10,000―10,00010,000―10,00010,000―10,00047,971

3. Assets pledged as collateral
Notes and accounts receivable―trade
Other current assets
Buildings and structures
Karaoke equipment for rental
Land
Other tangible fixed assets
Long-term loans receivable
Leasehold deposits and guarantee money
Total
Debt corresponding to the above:
Short-term borrowings
Long-term borrowings
Total

4 Commitment line contract
Total amount of commitment line contracts
Residual amount of borrowed funds
On balance

23

DAIICHIKOSHO

CO.,

LTD.

(Consolidated Interim Statement of Income)1. Content of impairment loss
(1) An impairment loss was recorded with regard to the following asset groups during the current interim period.
Place
DKG
“Big Echo” Dotonbori karaokecabin main store (Chuo-ku,
Osaka) and 21 other stores
Asagiri Sky Gym (Fujinomiya,
Shizuoka) and 3 other places
Gumma Daiichikosho Co., Ltd.,
etc.
“Big Echo” Shibukawa
Interchange store and 3 otherstores(Shibukawa, Gumma)
Shonan Daiichikosho Co., Ltd.,etc.,
and 2 other rental offices(Odawara, Kanagawa)
Maruhagi Yoshu Kogyo, Co.,
Ltd., and 7 other unused realestate locations(Enzan Yamanashi)

UseClassification(Millions of yen)
Impairment loss

Karaoke cabins, restaurants

Karaoke cabin facilities, etc.

939

Real estate for lease and rental

Land and buildings, etc.

288

Karaoke cabins

Karaoke cabin facilities, etc.
(including land)

175

Real estate for lease and rental

Land and buildings

472

Unused real estate, etc.

Land and buildings

322(2) Method of grouping assets
The Company determines asset groups based on internal management segmentation. The asset groups for unused and rental realestate are determined by each property and those of karaoke cabins and restaurants mainly by each store.
(3) Background to the impairment loss
Due to a plunge in the market value of real estate for lease and rental and unused real estate, it is regarded as difficult to collect theoriginal investment. Therefore, the acquisition cost was reduced to the collectible amount and the reduced amount was recorded as
an impairment loss (¥1,083 million), which was included in extraordinary losses.
Due to the decreased profitability of “Big Echo” karaoke cabin stores and restaurants, it is difficult to collect the original
investment. Therefore, the acquisition cost was reduced to the collectible amount and the reduced amount was recorded as an
impairment loss (¥1,115 million), which was included in extraordinary losses.
(4) Amount of the impairment loss
(Millions of yen)
Karaoke cabin facilities
Land
Buildings, etc.
Total

1,115
591
492
2,199

(5) Method of computing the collectible amounts
The collectible amount was computed by the net sale value and the use value. The net sale value was computed based on the realestate appraisal value, and the use value was computed by discounting 3.6% from the future cash flow.

2. Components of loss on arrangement of subsidiaries and affiliates
The loss on arrangement of subsidiaries and affiliates consists of a ¥140 million loss due to the cessation of music CD sales at “BigEcho” karaoke cabin stores and a loss of ¥56 million due to the cessation of the DAM cinema business.

24

DAIICHIKOSHO

CO.,

LTD.

(Consolidated Interim Statements of Cash Flows)
1. Relations between the year-end balance of cash and cash equivalents and the accounts listed in the
consolidated interim balance sheets(Millions of yen)

Cash and bank deposits
Time and saving deposits for which thedeposit period exceeds three months
Cash and cash equivalents

As of September 30,
2004
30,843(8,701)

As of September 30,
2005
26,086(566)

As of March 31, 2005

22,142

25,52022,42823,094(666)

2. Regarding payments for the acquisition of video licenses“Video licenses” in the account item “Payments for acquisition of video licenses” of “Cash flows from investing
activities” is included in “Other” of “Investments and other assets” in the Consolidated Interim Financial Statements.

25

DAIICHIKOSHO

CO.,

LTD.

(Segment Information)
The business and geographical segments of DK and its consolidated subsidiaries for the interim periods ended
September 30, 2004 and 2005, as well as the last fiscal year ended March 31, 2005, are summarized as follows:
1. Business segments
Previous interim period (From April 1, 2004, to September 30, 2004)(Millions of yen)
CommerKaraokecial karaoke cabin andrestaurant

Item
Sales and operating
incomeSales
Sales to third
partiesIntersegment sales
and transfers
Total
Operating expenses
Operating income(loss)

GatewayMusic
software

Other

Total

Eliminations andcorporate

Consolidated

35,067

14,480

2,502

5,289

3,510

60,850―60,850

96

―

―

66

348

511

(511)

―

35,16427,571
7,593

14,48013,999
480

2,502
2,721
(219)

5,356
6,247
(891)

3,858
3,246
612

61,36253,786
7,575

(511)
767
(1,279)60,85054,553
6,296

Current interim period (From April 1, 2005, to September 30, 2005)(Millions of yen)
CommerKaraokecial karaoke cabin andrestaurant

Item
Sales and operating
incomeSales
Sales to third
partiesIntersegment sales
and transfers
Total
Operating expenses
Operating income(loss)

GatewayMusic
software

Other

Total

Eliminations andcorporate

Consolidated

36,897

15,781

2,469

5,562

3,480

64,191―64,191

120

―

―

87

355

564

(564)

―

37,01830,627
6,391

15,781
14,853
927

2,469
3,824
(1,355)

5,650
5,597
52

3,836
2,963
872

64,75557,867
6,888

(564)
1,180
(1,744)64,191
59,0475,143

FY2004 (From April 1, 2004, to March 31, 2005)(Millions of yen)
CommerKaraokecial karaoke cabin andrestaurant

Item
Sales and operating
incomeSales
Sales to third
partiesIntersegment sales
and transfers
Total
Operating expenses
Operating income(loss)

GatewayMusic
software

Other

Total

Eliminations andcorporate

Consolidated

68,67830,027

4,769

11,672

6,937

122,085―

122,085

210

―

―

141

716

1,068

(1,068)―68,88856,678
12,21030,027
28,775
1,252

4,769
5,526
(756)

11,814
12,564
(750)

7,653
6,377
1,275

123,153
109,922
13,231(1,068)
1,779(2,847)122,085
111,701
10,383

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 and restaurant
business

Major products and/or services
Sales and rental of commercial-use karaoke equipment and software
Operation of karaoke cabins and restaurants

26

DAIICHIKOSHO

Gateway business
Music software business
Other business

CO.,

LTD.

Supply of music content, etc., via “DAM Station” special information terminals andmobile phones
Production and sales of music and video software products
Satellite broadcasting business and real estate lease and rental business, etc.

3. Amounts and major items included in “Eliminations and corporate”

Amounts of unabsorbed operating
expenses included in“Eliminations and corporate”

Previousinterim period¥1,279Current interim
period¥1,744

Last fiscal year
¥2,847(Millions of yen)
Major items
Expenses required for
operations by administrative
departments such as General
Affairs Dept.

4. Change in business segmentation
The business segmentation was reviewed and changed for this interim period as follows:
The “Restaurant business,” which was included in “Other businesses” until fiscal 2004, was combined with the former“Karaoke cabin business” and changed to the “Karaoke cabin and restaurant business,” effective from the interim period
under review. This change clarifies the corresponding relationships between our internal management segmentation andbusiness segmentation subsequent to the system change to develop the multifunctional store business that combines the
karaoke cabin business and the restaurant business.
The “Gateway business,” which was included in “Other businesses” until fiscal 2004, was combined with “e-business”
in the “Content business” and changed to the “Gateway business.” This change resulted from a review of businesssegmentation due to the increased importance of the Gateway business, which concluded that both the Gateway ande-businesses share the same function of offering content menus via information terminals. The similarity in service
content and markets was also considered in reviewing the accounting items of sales from each business. The change
could improve the effectiveness of segment information by relating new internal management segments and businesssegments resulting from the change.
The “Satellite broadcasting business” previously included with e-business in the “Content business” was newly
included in “Other businesses,” effective from the interim period under review, due to the decreased importance in therevenue amount.
The aforementioned segment information for the previous consolidated interim period and previous consolidated fiscal
year were prepared based on the business segmentation after the change.

2. Geographical segments
As sales in Japan account for more than 90% of the sum of sales in each region of the respective geographicalsegments, the segment information by geographical region is omitted.

3. Overseas sales
As sales overseas account for less than 10% of consolidated net sales, overseas sales related information is omitted.

27

DAIICHIKOSHO

CO.,

LTD.

(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 net book value of leased assets at the endof the period

Karaoke cabin facilities
Other tangible fixed assets
Total

Previous interim period(From April 1, 2004, toSeptember 30, 2004)
Acquisit Accumu Net
ion cost latedbookdeprecia value
tion
454
335
119
1,393
977
416
1,848
1,312
536

Current interim period(From April 1, 2005, toSeptember 30, 2005)
Acquisit Accumu Net
ion cost
latedbook
deprecia value
tion
196
124
72
1,450
485
965
1,646
609
1,037

(Millions of yen)
Last fiscal year
(From April 1, 2004, to
March 31, 2005)
Acquisit Accumu Net
ion cost
latedbook
deprecia value
tion
285
194
90
914
489
425
1,200
684
516

(2) Assumed future lease payments at the end of the period under finance leases
As of September
30, 2004
330
212
543

Due within one year
Due after one year
Total

As of September
30, 2005
372
668
1,041

(Millions of yen)
As of March 31,
2005
246
274
520

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

Lease payments
Assumed depreciation expense
Assumed interest expense

As of September
30, 2004247
240
3

As of September
30, 2005200
196
3(Millions of yen)
As of March 31,
2005
442
431
6

(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
Future lease payments at the end of the period under operating leases

Due within one year
Due after one year
Total

As of September 30,
2004
383
2,224
2,608

As of September 30,
2005
371
1,862
2,233

28

(Millions of yen)
As of March 31,
2005
378
2,030
2,409

DAIICHIKOSHO

CO.,

LTD.

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

Category

StocksBonds anddebentures
Government
andmunicipal
bonds
Corporate
bonds
Other bonds
anddebentures
Other
Total

Previous interim period(As of September 30, 2004)
Acquisition Book value Unrealized
cost
pergain (loss)
consolidatedbalancesheets
876
2,468
1,591

Current interim period(As of September 30, 2005)
Acquisition Book value Unrealized
cost
pergain (loss)
consolidatedbalancesheets
1,679
3,982
2,302

(Millions of yen)
Last fiscal year
(As of March 31, 2005)
Acquisition Book value Unrealized
cost
pergain (loss)
consolidatedbalancesheets
881
2,766
1,884

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

―

822
1,699

953
3,421

130
1,722

1,679

3,982

2,302

―
881

―
2,766

―
1,884

2. Held-to-maturity debt securities and Other securities primarily designated as available-for-salesecurities for which values were not readily determinable as of September 30, 2004 and 2005, andMarch 31, 2005
(Millions of yen)Book value per consolidated (interim) balance sheets
Previous interim period
Current interim period
Last fiscal year
(As of September 30,(As of September 30,(As of March 31, 2005)
2004)
2005)
Held-to-maturity debt securities:
Discount bank debentures
Available-for-sale securities:
Unlisted stocks (excluding OTC issues)
Other

9

―

―

2,613
―

2,838
534

2,866
623

(Derivative Transactions)
Relevant information is omitted as hedge accounting is applied.

29

DAIICHIKOSHO

CO.,

LTD.

(Significant Subsequent Events)
Previous interim period(From April 1, 2004, to September 30,
2004)
The meeting of the Board of Directors
held on December 13, 2004, adopted aresolution to the effect that theCompany acquire treasury stock
pursuant to the provisions of Article
211-3, Paragraph 1, Item 2, of theCommercial Code of Japan in thefollowing manner:(1) Purpose:
To be able to implement flexible
capital policy to address changes in
the management environment andimprove capital efficiency(2) Acquisition method:
Purchase at JASDAQ Securities
Exchange, Inc.
(3) Class of shares to be acquired:
Common shares(4) Number of shares to be acquired: Amaximum of 1,440,000 shares(5) Total stock acquisition price:
A maximum of ¥4,300 million(6) Period of acquiring treasury stock:
From December 17, 2004, toFebruary 28, 2005

Current interim period(From April 1, 2005, to September 30,
2005)

Last fiscal year
(From April 1, 2004, to March 31,
2005)

―

―

30

DAIICHIKOSHO

CO.,

LTD.

5. Production, Orders Received and Sales Performance(1) Production(Millions of yen)Segment

Previous interim period(From April 1, 2004, toSeptember 30, 2004)
Year-overyear change(%)

Current interim period(From April 1, 2005, toSeptember 30, 2005)
Year-overyear change(%)

FY 2004(From April 1, 2004, to March
31, 2005)

Year-overyear change(%)

Music software business:
Music and video software

1,863
167.8
2,090
112.2
3,766
108.4
Note: 1. The above amounts do not include consumption taxes.
2. The production of intangible fixed assets for “Music and video software” is explained as follows:
Previous interim period
Current interim period
FY 2004(From April 1, 2004, to March(From April 1, 2004, to(From April 1, 2005, to
31, 2005)
September 30, 2004)
September 30, 2005)
Segment
Year-overYear-overYear-overyear change
year change
year change
(%)
(%)
(%)

Commercial karaokebusiness:
Telecommunication-typekaraoke software
Other business:
Sound delivery/video
software for satellite
broadcasting
Total

990

64.5

1,241

125.4

1,998

43.1

427

248.4

373

87.4

836

86.1

1,417
83.0
1,615
Note: 1. The above amounts do not include consumption taxes.

113.9

2,835

50.5

(2) Orders received
Inapplicable as DKG follows a policy of project production.

31

DAIICHIKOSHO

CO.,

LTD.

(3) Sales performance(Millions of yen)Segment

Previous interim period(From April 1, 2004, toSeptember 30, 2004)

Current interim period(From April 1, 2005, toSeptember 30, 2005)

Composition
ratio
(%)

Composition
ratio
(%)

Yearoveryearchange(%)

Yearoveryearchange(%)

FY 2004(From April 1, 2004, to
March 31, 2005)
ComYearposiovertion
year
ratio
change(%)(%)

Commercial karaoke business:
Sales volume of merchandise
14,52523.9
110.2 15,267
23.8
105.1 26,723
21.9
94.0
Revenue from rental of karaoke
9,395
15.4
106.2
9,657
15.0
102.8 19,050
15.6
105.5
equipment
Fee revenue from the provision of
11,14718.3
115.5 11,973
18.7
107.4 22,904
18.8
114.4
karaoke-streaming service
Subtotal
35,06757.6
110.7 36,897
57.5
105.2 68,678
56.3
103.3
Karaoke cabin and restaurant business:
Karaoke cabin business
12,771
21.0
105.4 13,803
21.5
108.1 26,532
21.7
105.5
Restaurant business
1,708
2.8
101.5
1,977
3.1
115.8
3,494
2.9
106.2
Subtotal
14,48023.8
105.0 15,781
24.6
109.0 30,027
24.6
105.6
Gateway business:
Gateway business
46
0.1
—
530
0.8 1,140.4
102
0.1
―
e-business
2,455
4.0
82.4
1,938
3.0
78.9
4,667
3.8
81.4
Subtotal
2,502
4.1
84.0
2,469
3.8
98.7
4,769
3.9
83.2
5,289
8.7
99.7
5,562
8.7
105.2 11,672
9.6
96.5
Music software business:
3,510
5.8
111.3
3,480
5.4
99.1
6,937
5.6
105.9
Other business:
Total
60,850100.0106.9 64,191
100.0
105.5 122,085
100.0
102.3
Note: Sales performance for the previous interim period and fiscal 2004 is indicated based on the business segments after the change ofbusiness segmentation.

32