CONTENTS
FINANCIAL HIGHLIGHTS

1

A MESSAGE FROM THE CEO

2

TOMY’S MEDIUM-TERM MANAGEMENT PLAN
GROUP NETWORK

47CORPORATE GOVERNANCE —BASIC POLICIES AND INITIATIVES
BOARD OF DIRECTORS

9

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATAFINANCIAL REVIEW

1011

CONSOLIDATED BALANCE SHEETS

16

CONSOLIDATED STATEMENTS OF OPERATIONS

18

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYCONSOLIDATED STATEMENTS OF CASH FLOWSINDEPENDENT AUDITORS’ REPORTSUBSIDIARY COMPANIES

19

20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CORPORATE DATA

8

21

37

38

39

FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements about the future plans, strategies, beliefs and performance of
TOMY Company, Ltd. and its subsidiaries. These forward-looking statements are not historical facts. They are expectations, estimates, forecasts and projections based on information currently available to the Company and are subject to anumber of risks, uncertainties and assumptions, which, without limitation, include economic trends, competition in markets where the Company is active, personal consumption, market demand, the tax system and other legislation. As such,actual results may differ materially from those projected.

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Millions of yen
2002

2003

2004

2004

For the Year:Net sales
Operating income (loss)
Net income (loss)¥64,440(941)(1,601)¥73,777
1,155(1,388)¥82,520
6,036
2,502

$780,775
57,11823,671At Year-End:Total assets
Shareholders’ equity¥54,434
20,541¥57,150
18,478¥47,568
20,838$450,073
197,161

Per Share of Common Stock (Yen and U.S. dollars):
Net income (loss) (basic)
Cash dividends, applicable to the year
Return on equity (ROE)¥ (78.40)
20.00–%¥ (70.45)––%¥114.52
10.00
12.73%

$

1.08
0.09

Note: U.S. dollar figures have been translated from yen, for convenience only, at the rate of ¥105.69 to US$1, the approximate rate of exchange at March 31, 2004.

Net Sales

Net Income (loss)

Shareholders’ Equity

Billions of yen

Billions of yen

Billions of yen

100

30

5

4
80
3
20
2

60

1
40
0

10

–1

20

–2
0

0

2002

2003

2004

2002

2003

2004

2002

2003

2004

4

Thousands of
U.S. dollars(Note)

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FINANCIAL HIGHLIGHTS

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2

A MESSAGE FROM THE CEO

TOMY’s Vision
My new vision for TOMY is for us to “Offer a new concept of play to remain a competitive toy company inthe 21st century.” Specifically, against a backdrop ofchanges in consumer needs and our operating environment, as well as the emergence of new technologies, “offering a new concept of play” means working
to respond to these developments through a repeatedlearning process, to create more unique products thatthrill and excite our customers. The second part of ourcorporate vision, our goal “remain a competitive toy
company in the 21st century,” embodies our desire to
become a toy company that resonates with 21st century society. This basically means expanding and reKantaro Tomiyama President & CEO

defining the concept of toys to encourage people fromall walks of life and a wider age group to take part inplay, thereby creating more value.

TOMY’s Corporate Philosophy
Since our founding in 1924, I think TOMY has consistently sought to fulfill its corporate philosophy. This will remain a key part of what we are about as a company. Our
corporate philosophy is made up of two elements: “Excite the global market withquality products,” which means spreading the TOMY approach into international
markets through high-quality products founded on innovative and perceptive thinking; and secondly, ensuring “Our sincerity and hard work will profit others andunderpin our sense of achievement.” Essentially, this means encouraging every
employee to improve our products and originate new ideas on a daily basis.

Fiscal 2003: A Marked Improvement in Top- and Bottom-Line Performance
In fiscal 2003, ended March 31, 2004, we implemented a number of priority initiatives
centered on reducing costs, with the express goal of driving a turnaround in profitability and the earnings capabilities of TOMY. In parallel with these efforts, we worked
to restore the financial health of the Company by streamlining the balance sheet,
improving cash flows and taking other steps. In addition, we carried out aggressive
business restructuring to strengthen TOMY’s profit structure, including the full-scaleroll out of a strategic business unit system comprising four business units aimed at
reinforcing Groupwide management. This system increases operating flexibility atbusiness units, but also anchors them to a common corporate philosophy and vision.
In the second half of fiscal 2003, we set up a fifth business unit, the Contents Business
Strategy Division. Since its establishment, this business unit has aimed to create newcontent and maximize potential demand for content held by TOMY businesses. This

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POKÉMON to their full potential, and increasing busi-

issued ¥7.0 billion in unsecured convertible bonds in June

ness opportunities by carrying out product planning and2004. These funds will support our efforts to realize thedevelopment for the TOMY Group and its partners. In

overriding goal of the plan—profitable growth.

the peripheral toy business, which is seen as the key to“Strategy” in terms of functional and business strat-

future growth, we worked to strengthen our presence inegy is the keyword of our latest management plan. If

the game software and digital field by acquiring the rights

the Group can work together over the medium-term

to popular game characters.

by strategically channeling resources into key areas such

TOMY also continued to aggressively market origi-

as international markets, content, and products that

nal new products both in Japan and overseas based on

appeal to a broader age group, I believe we can suc-

our Micro-Entertainment concept. Due to these efforts,

cessfully raise efficiency to further raise the pace of

TOMY posted an 11.9% increase in net sales year on

TOMY’s profitable growth.

year, to ¥82,520 million, while our raft of priority initia-

By “offering a new concept of play to remain a com-

tives and structural reforms led to an improvement inpetitive toy company in the 21st century,” the TOMY

the cost of sales and a reduction in selling, general andGroup is striving to satisfy customers, provide opportu-

administrative (SG&A) expenses. This resulted in a sig-

nities for employees, realize the ambitions of sharehold-nificant rebound in operating income, which surged 5.2

ers, and play a part in enriching society. In this way,times year on year, to ¥6,036 million. However, weunderpinned by our corporate philosophy, I believe webooked an extraordinary loss of ¥1,000 million for

can raise the satisfaction of our shareholders, customers,

expenses related to the voluntary recall of the Mag-

employees, and society as a whole and create win-win

num Patrailor due to safety issues. Consequently, net

relationships with all these stakeholders that will maxi-

income was held to ¥2,502 million, compared to a net

mize the corporate value of the TOMY Group. We ask

loss of ¥1,388 million in fiscal 2002.

for your ongoing support as a vital part of this process.

Medium-Term Management Plan
As a result of our priority initiatives, aimed first and foremost at driving a turnaround in TOMY’s earnings capabilities, and structural reforms, I believe we have madereal progress in strengthening our operating structure.
Building on this momentum, we have formulated a new
three-year medium-term management plan. Started inJuly 2004

April 2004, this plan is designed to propel the TOMYGroup to the next stage of growth.
Underpinned by our corporate vision—“Offer a newconcept of play to remain a competitive toy company inthe 21st century”—this plan aims to realize profitable
growth by expanding sales, enhancing earnings capabilities and boosting efficiency. The plan’s targets for fis-

Kantaro Tomiyama

cal 2006, ending March 2007, are consolidated net sales

President & CEOof ¥100.0 billion, and ordinary income of ¥8.0 billion. In
order to secure the necessary funds to help us reach the4targets in our medium-term management plan, TOMY

00

includes using key licensed content such as Disney and

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TOMY’S MEDIUM-TERM MANAGEMENT PLAN

Medium-Term Management Policy❑ Create new business units
Cultivate business units capable of creating new earnings streams alongside products like Tomica and PLARAIL; consistently develop new business units that generate annual sales of between ¥3.0 billion and ¥5.0 billion.
❑ Create new markets through business units targeting non-age-specific demand
Establish a new Ageless-Age business team to create ¥3.0 billion businesses. Channel management resources (personnel, assets, funds and information) into marketing these new businesses fields.
❑ Succeed in the Content Business
Strengthen TOMY’s Content Business by upgrading existing content assets, creating original new content, acquiring
new popular characters and securing our intellectual property rights.
Rapidly utilize enhanced common content across the Group to recoup business investments by leveraging theGroup’s collective strengths.
❑ Succeed in the Disney Business
Utilize all licensed categories to further grow the Disney Business.
❑ Expand sales in North America and move into China
In North America, establish and expand product categories to achieve net sales in fiscal 2007 of $100 million. In fiscal
2004, TOMY also plans to set up an office in Shanghai, China, a promising future toy market, to serve as its marketingbase in the country.

Business Strategy
Framing its strategy in terms of three axes and three forces, TOMY will strengthen its business in pursuit of profitable growth.
3 Axes: Lifestyle, Business Domain and Global
3 Forces: Marketing, Content and R&D

BUSINESS STRATEGY—TOMY’S APPROACH

Expand the peripheral
toy business

3 AxesLifestyle

Forge partnerships
suited to each business

Strengthen marketing

MarketingBusiness
Domain Content
R&D

Create strategic global product lines
Expand sales in North America / Fully enter
the Chinese market

Promote targeted Ageless-Age
activities

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concept and its products based on a lifestyle perspective.
❑ Developing the business domain axis
The Contents Business Strategy Division will enhance and leverage TOMY’s content to expand the peripheral toy business. Also, TOMY will select optimal partners with strengths that match the characteristics of each of its businesses.
❑ Developing the global axis
The International Business Division will leverage TOMY’s strengths in product development to identify global market
needs. Using this information, it will develop strategic global product lines capable of generating sales and driving
profits worldwide.

Operational Strategies❑ Development strategy
In conjunction with efforts to build up a reservoir of internal intellectual property assets, TOMY will rebuild its productplanning and development network anchored by mutually beneficial partnerships. In this way, TOMY will strengthen
both its product planning and development network and its internal development capabilities. TOMY will also work toenhance information sharing, using valuable customer feedback in quality control, improvements to product safety
and marketing activities.

OPERATIONAL STRATEGY—DEVELOPMENT STRATEGY
Creation of a function-based lateral management and responsibility system for each product group

TomicaElectronics

Disney...

Value/
Cost

Value/
Cost

Value/
Cost

Value/
Cost

Model creation
DesignMold manufacture
Testing
Production engineering
Quality issue solving
Quality control
Fanctional integrationby product items...

High Quality / Optimal Cost

4

Utilize best practices from the success of the Nohohon Swinging Dwarves business to develop the Ageless-Age

00❑ Developing the lifestyle axis

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❑ Production strategy
TOMY Development Center, Inc., a TOMY subsidiary, will be responsible for overseeing technologies, production
activities, improving quality and safety, and building a more cost-effective operating structure. TOMY (Thailand) Ltd.
will work to ensure its factory operates at world-leading efficiency levels and produces toys that engender customer
peace of mind. TOMY (Hong Kong) Ltd. will be transformed into the TOMY Group’s integrated procurement officewith a respective increase in functions, and the TOMY engineering center in Shenzhen, China, will accumulate technologies in the field to use in production activities. Overseeing this structure will be the TOMY Development Center,
which will integrate technology, production and procurement functions.
❑ Sales and retail strategy
TOMY will create a framework that ensures its products are always on store shelves so that the TOMY message
reaches its target consumers. This will mean making sales areas more appealing and responding to changes in theretail market by reinforcing our direct sales system for large retail stores, expanding existing sales channels and developing new products for emerging sales channels.
In marketing initiatives, TOMY will establish a marketing strategy committee that cuts cross-organizational boundaries to formulate and implement a Groupwide toy-focused marketing policy and retail strategy that can respondflexibly to changes in the market place. TOMY will also implement clear regional strategies for wholesalers and build
closer relationships with leading nationwide wholesalers.
❑ Distribution strategy
TOMY will work to reduce distribution costs by strengthening supply chain management (SCM) and integrating themanagement of overseas and domestic distribution operations.
❑ Finance strategy
TOMY is aiming to optimize its capital structure, streamline its balance sheet and reduce financial risk. In the first area,
the objective will be to raise TOMY’s ratings by increasing the shareholders’ equity ratio to at least 50%. In the second
area, TOMY will increase asset efficiency to achieve ROA of at least 10%. And in the third area, TOMY will work to
optimize Groupwide fund management and exchange rate risk.
Guided by the above strategies, we will continue to drive forward reform to take TOMY to the next stage of growth.

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The European toy market is the world’s second largest after North America. In 1982, we establishedTOMY UK Ltd. to oversee sales activities in all European countries other than France and Belgium.
Proud of its position as a leading player in the U.K. toy market, TOMY UK is now moving into othermarket segments, supported by its powerful presence in the baby and preschooler toy market.
TOMY France S.A.R.L., established in 1985, is responsible for marketing TOMY products inFrance and Belgium.
In the year under review, MicroBabies, the next product based on TOMY’s Micro-Entertain-

TOMY UK Ltd.

ment concept after MiCROPETS launched in the previous fiscal year, supported sales. Going forward, both these companies will work to put integrated operational functions on a surer footing as
they seek to win a greater share of the European toy market.

EAST AND SOUTHEAST ASIA
Asia is home to our first overseas manufacturing base, TOMY (Hong Kong) Ltd., established in 1970.
Since then, the company has worked to share technological and quality-control capabilities withother toy manufacturers in the region, enabling it to provide superior products the world over. High-TOMY France S.A.R.L.

lighting the superior quality of its products, the company has been awarded ISO 9001 certification.
It has also attained ISO 14001 certification for environmental management.
In addition to supplying products to TOMY Group companies, TOMY (Hong Kong) is also working to grow sales of mainstay products such as Tomica, PLARAIL and ZOIDS, independently developed products, and Disney-themed toys to external customers in East and Southeast Asia.
Established in 1987, TOMY (Thailand) Ltd. today employs over 1,000 employees at its own factory inThailand. Together with its Hong Kong counterpart, the company plays an important role as a manufacturing center for the TOMY Group. TOMY (Thailand) has obtained ISO 9002 certification, and places aconstant focus on reducing costs and enhancing manufacturing efficiency. Based on these efforts, thecompany is aiming to boost factory efficiency to world-leading levels and create highly safe products.
In fiscal 2004, TOMY will also establish an office in Shanghai, China, a promising future toy market,

TOMY (Hong Kong) Ltd.

to act as its marketing base in the country.

NORTH AMERICATOMY has been active in North America, the world’s largest toy market, since 1973. In 1998,
TOMY disbanded its local sales subsidiary to set up TOMY Corporation. Initially, this company
was primarily mandated to provide sales support for TOMY Group products to major toy retailers in the United States, such as Wal-Mart and Toys “R” Us, and to gather information on the
North American market.
In the previous fiscal year, the Company also began full-scale sales activities aimed at raising

TOMY (Thailand) Ltd.

the visibility of TOMY products in the region. Following on from MiCROPETS in fiscal 2002,
TOMY Corporation launched MicroBabies in the year under review, ahead of scheduled launches
in the Japanese and European markets. These toys and THOMAS Motor Road & Rail drove sales
significantly higher, helping to support a sustained and strong increase in earnings.
In 1999, TOMY established TOMY Yujin Corporation, a vehicle to market capsule toys inNorth America. Although sales of capsule toys are still relatively small, sales are growing steadily
as we gradually increase the number of capsule toy dispensers at leading retailers such as WalMart. We have great hopes for these products going forward.
TOMY Corporation

4

EUROPE

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GROUP NETWORK

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CORPORATE GOVERNANCE—BASIC POLICIES AND INITIATIVESBASIC POLICIESFirmly committed to our corporate vision of “offering a new concept of play to remain a competitive toy company in the
21st century,” we are building a management framework capable of objective and rapid decision making to help us
implement our medium-term management plan. At the same time, as a listed company, we believe it is important toreinforce oversight functions and increase management transparency to satisfy the demands of shareholders and capital
markets. Toward that goal, we have established a corporate governance system comprising the Board of Directors,
which manages the Company on behalf of shareholders, and a board of auditors to supervise the actions of the Board.
To increase transparency, we present business reports at the annual general meeting of shareholders and promote
greater communication with shareholders. TOMY also conducts an ongoing investor relations program designed tofacilitate better communication with the markets. Investor opinions gleaned from these activities are reflected in the
management of the Company.

INITIATIVES❑ Corporate governance framework
In June 2000, we reformed the Board of Directors and introduced a corporate executive officer system. The Board of
Directors sets policy and strategies on key Group management issues, and makes decisions on important businessactivities and oversees operations. In principle, the Board meets at least once a month in order to maintain management
responsiveness. TOMY’s executive management committee also meets at least once a month to ensure the smoothrunning of the parent company and its subsidiaries. The Board of Directors comprises eight directors, two of themoutside directors. Elected by shareholders, they are responsible for making management decisions, supervising business activities and passing resolutions required by the Commercial Code of Japan. Outside directors monitor operations
primarily from the standpoint of protecting shareholder interests. Corporate executive officers are in charge of the dayto-day running of their respective business units under the supervision of the board of directors and in accordance with
its policies and strategies. TOMY has adopted the Company with auditors system. Auditors, including outside auditors(a lawyer and a certified public accountant), closely monitor the decisions and actions of the Board of Directors, thus
strengthening the oversight functions of the Company. Moreover, TOMY has set up a financial advisory committee of
specialists, including an outside director and auditor, to provide advice to the Board of Directors. The committee advises
the Board on important management issues and monitors operations from the perspective of asset management.
❑ Corporate governance initiatives and progress in fiscal 2003
Compliance with laws and regulations is a matter of course at TOMY. In February 2004, TOMY launched the complianceproject. This project has two aims: to build a compliance system that ensures adherence with strict standards of company
ethics and internal rules, and to enforce a code of conduct consistent with our principles and vision. Through this project,
we will promote a shared corporate philosophy and vision, clearly define a Groupwide code of conduct and rules of
behavior, and enhance information transparency throughout the Company.
TOMY has worked relentlessly to ensure the safety of its products by strictly enforcing industry and in-house rules at
all stages of the product cycle—from planning and development to manufacturing and marketing. Shocked by the
Magnum Patrailor incident, we reformed our organizational structure on February 21, 2004, establishing the Safety andEnvironmental Assurance Division to strengthen our risk management system. This new office is revising our productsafety standards from the standpoint of total safety. Based on new standards, the office will assess safety at all stages ofthe product cycle—from development through to the finished product—and assess potential risks, implementing remedial measures where necessary. During the year, we also established a Safety and Quality Information Management Teamto compile, analyze and publish product safety and quality data by product. All these initiatives are aimed at providing
our customers with even safer, higher quality products.

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Senior Managing Director
Chief Domestic Operating Officer

Managing Director
Chief Financial Officer

Managing Director
Chief International Operating Officer

Shiryo Okuaki

Toshiki Miura

Isamu Takahashi

Board Director
Senior Executive Officer
Head of Toy Business Division

Board Director
Chief Engineering Officer

Yasuyuki Watanabe

Board Director

Board Director

Haruyuki Niimi

Saburo Okada

Shigeki Yanagisawa

Corporate Auditor

Corporate Auditor

Corporate Auditor

Mitsuo Matsuba

Toshi Yoshinari

Tsunekazu Umeda(As of June 26, 2004)

4

President & CEO

Kantaro Tomiyama

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BOARD OF DIRECTORS

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FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

Thousands of
U.S. dollars(Note)

Millions of yen
2000

2001

For the Year:Net sales
Operating income (loss)
Income (loss) before income taxes
Net income (loss)

2002

2004

2004

¥ 96,816
8,827
8,083
4,604

¥ 89,972
5,760
5,622
3,490

¥ 64,440(941)(1,743)(1,601)¥ 73,777
1,155(1,150)(1,388)¥ 82,520
6,036
4,165
2,502

$780,775
57,11839,412
23,671At Year-End:Total assets
Shareholders’ equity (Note 13)
Return on equity
Number of shares issued at year-end¥ 60,381
21,03125.62%
13,612,866¥ 60,447
22,441
16.06%
20,419,299¥ 54,434
20,541–%
20,419,299¥ 57,150¥ 47,568
18,47820,838–%12.73%
20,419,299 20,419,299$450,073
197,161

Per Share of Common Stock (Yen and U.S. dollars):
Net income (loss) (Note 15)
Basic
DilutedShareholders’ equity (Note 13)
Cash dividends, applicable to the year (Note 14)¥ 340.63
310.53
1,544.93
30.00¥ 170.94
152.391,099.01
30.00

¥

¥

$

(78.40)–1,006.06
20.00

2003

(70.45)–902.71–¥ 114.52–
1,012.90
10.00

1.08
–
9.58
0.09

Note: U.S.dollar figures have been translated from yen, for convenience only, at the rate of ¥105.69 to US$1, the approximate rate of exchange at March
31, 2004.

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In fiscal 2003, ended March 31, 2004, the Japanese economy was characterized by a gentle recovery in personal consumption. Improving corporate profitability and rising exports helped boost capital investment, while the employment
and personal income situation improved in the second half. However, the toy sector as a whole remained sluggish due tothe falling birthrate, increasingly diversified patterns of play and an absence of a hit product to fuel growth.
In response to this challenging operating environment, and guided by our Micro-Entertainment concept, we promoted sales of new TOMY-developed products in Japan and through our overseas sales subsidiaries. Positioning ourDisney Business as our core business, we also marshaled the Group’s resources to aggressively promote Disney products. As part of the strategy for our peripheral toy business, an area that holds the key to TOMY’s future growth, we
strengthened our presence in the digital entertainment field, including game software, by obtaining rights to popularanimation characters.
As a result of the above efforts, consolidated net sales increased 11.9% to ¥82,520 million.
SEGMENT INFORMATION
Toy
Toy sales remained strong as we upgraded the lineup in our mainstay Tomica and PLARAIL lines and revamped sales
areas. Standout performers included new products such as Fun Fun Highway in the Tomica World range, and Announce

Station in PLARAIL. Sales of Disney character toys also rose significantly, underpinned by strong demand for the Princess
Series. Other products, including baby toys and a range of new products across the Group, such as stuffed toys launchedby subsidiary HeartLand Co., Ltd., combined to maintain the strong pace of sales growth. Following the TOMY-developed

MiCROPETS, launched in line with our Micro-Entertainment concept, we rolled out Finger Pets Chicks in Japan andMicroBabies in the U.S. and Europe during the year under review. Both these products proved popular and contributed
significantly to sales. Game software, featuring the popular NARUTO character, also played a large part in boostingsales. As well as offering interesting game play, this game software was promoted aggressively through a tie-up with
Nintendo Co., Ltd., a company with a powerful distribution network. In the year under review, POKÉMON-related products

Finger Pets Chicks
POKÉMON AG Encyclopedia©Nintendo·Creatures·GAME FREAK·
TV Tokyo·ShoPro·JR Kikaku©PokémonFun Fun Highway
Me-mail Shot

NARUTO
Ninjutuzenkai! Saikyoninja
daikesshu© 岸本斉史 スコット／集英社･テレビ東京・
ぴえろ ©2003 TOMY쑼

Announce Station

NARUTO쑿
Gekito Ninja taisen© 岸本斉史 スコット／集英社･テレビ東京・ぴえろ ©2003 TOMY

MicroBabies

Princess Magical Stick
Cinderella Blue Dress©Disney

4

NET SALES

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FINANCIAL REVIEW

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also found a new lease of life in the game software field, particularly POKÉMON AG Encyclopedia. Thanks to a successful media-mix strategy rolled out with our partners, centered on movies, POKÉMON-related products made a major
contribution to sales in fiscal 2003. Me-mail shot, a new camera-equipped product in the long-seller Me-mail series was
also well received. Elsewhere, subsidiary Yujin Company, Ltd. reported strong sales of capsule toys, particularly Disneyand POKÉMON-themed products.
Thanks to a robust performance by all the above products, net sales in the Toy Segment grew 11.7% year on year to¥79,984 million.
Others
Net sales in this segment rose 16.9% to ¥2,536 million, reflecting higher POKÉMON-related revenues.
COST OF SALES
Although the cost of sales rose ¥2,996 million to ¥50,940 million, in line with the increase in net sales, the cost of sales
ratio declined 3.3 percentage points to 61.7%, benefiting from cost reduction initiatives and changes in the product mix.
SG&A EXPENSES
SG&A expenses increased 3.5% or ¥866 million, to ¥25,544 million. However, SG&A expenses as a percentage of net
sales declined 2.4 percentage points to 31.0%, reflecting the benefits of TOMY’s priority initiatives.
OPERATING INCOME
The Toy Business posted a substantial increase in operating income from ¥2,458 million in the previous year to ¥7,026
million in the year under review. Operating income in Others increased 3.2% to ¥423 million. Higher gross profit, improvement in the cost of sales ratio, and a lower SG&A expenses ratio led to a ¥4,881 million increase in consolidated
operating income.
NET INCOME
Net income before income taxes was ¥4,165 million, against a net loss of ¥1,150 million in the previous fiscal year. Afterthe deduction of income taxes, net income totaled ¥2,502 million, and net income per share was ¥114.52.
FINANCIAL CONDITION
As of March 31, 2004, total assets stood at ¥47,568 million, 16.8% lower than at the end of the previous year. This primarilyreflected the use of cash and cash equivalents and the sale of marketable securities for the redemption of convertible
bonds. Investments and other assets declined 32.4%, to ¥2,681 million. This was largely because of a decline in deferredincome tax—non-current, a result of the lower net loss carried forward from the end of the fiscal year due to the marked
recovery in earnings. Total liabilities decreased 31.5% to ¥26,463 million, due in large part to the redemption of convertible unsecured bonds and the repayment of short-term borrowings.
CASH FLOWSNet cash provided by operating activities rose sharply, while investing activities generated a net cash inflow. Financing
activities posted negative cash flow. As a result, consolidated cash and cash equivalents at the end of the fiscal year
totaled ¥15,349 million, ¥6,164 million lower than at the end of the previous fiscal year.
The main components of cash flows and factors affecting cash flows in the current fiscal year were as follows.

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before income taxes.
CASH FLOWS FROM INVESTING ACTIVITIESNet cash provided by investing activities was ¥1,449 million. This primarily resulted from proceeds from sales of marketable and investment securities.
CASH FLOWS FROM FINANCING ACTIVITIESNet cash used in financing activities was ¥13,563 million, largely reflecting redemption of the convertible unsecured
bonds totaling ¥9,965 million.
TWO-YEAR CASH FLOW/INCOME AND EXPENSES SUMMARY
Cash Flows

Millions of yen
FY2004

Operating cash flows

FY2003¥ 6,142 ¥ 3,079% Change
(%)

99.5%

Investing cash flows

1,449(2,745)–

Financing cash flows(13,563)

5,597–

Cash and cash equivalents at end of year

¥ 15,349¥21,513(28.7)%

Income and Expenses

Millions of yen% Change

FY2004

FY2003(%)

Net sales¥82,520¥73,777

11.9%

Cost of sales
Cost of sales ratio (%)

50,94061.7

47,944
65.0

6.2
(3.3)

Gross profit
Gross profit margin (%)

31,58038.3

25,833
35.0

22.2
3.3

SG&A expenses
SG&A expense ratio (%)

25,54431.0

24,678
33.4

3.5
(2.4)

Operating income
Operating income margin

6,036
7.3

1,155
1.6

422.6
5.7

Net income (loss)
Net income margin (%)

2,502
3.0

(1,388)
(1.9)

–
4.9

4

Net cash provided by operating activities was ¥6,142 million, mainly due to a significant ¥5,315 million increase in income

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CASH FLOWS FROM OPERATING ACTIVITIES

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FACTORS AFFECTING FINANCIAL POSITION AND OPERATING RESULTS(1) Foreign exchange risk
TOMY operates globally, with overseas sales accounting for 25.7% of consolidated net sales in the year under review.
TOMY also has significant overseas manufacturing operations, particularly in China and Thailand. Although the Company uses forward exchange contracts to reduce its exposure to foreign exchange risk, fluctuations in foreign exchange
rates may impact on TOMY’s financial position and operating results.

(2) Impact of hit products
The Company’s core Toy Business tends to be affected by the success or failure of certain individual products andcharacters. To become less reliant on specific products and characters, the TOMY Group is expanding its product lineupand simultaneously promoting several different characters. However, the unexpected popularity of a specific product orcharacter—or the loss of that popularity—may impact on the Company’s financial position and operating results.

(3) Seasonal fluctuations
Given the nature of TOMY’s core Toy Business, segment profit tends to increase toward December, the peak Christmas
sales period. To balance out income over the year, TOMY continually introduces appealing products during off-peakperiods. However, the Company expects seasonal fluctuations in earnings to be the norm for the foreseeable future.

(4) Major customers
Toys “R” US-Japan, Ltd. is the Group’s major customer, accounting for over 10% of sales. To reduce dependence on any
specific customer, TOMY is working to expand its customer base by diversifying marketing channels. However, dramaticchanges in business relationships have the potential to impact on the Company’s financial position and operating results.

(5) Voluntary recalls
In February 2004, TOMY voluntarily recalled the Tomica Magnum Patrailor due to customer complaints about injuries.
Consequently, for the year ended March 31, 2004, TOMY booked an extraordinary loss of ¥1,000 million for expenses
related to this voluntary recall. The Company may also have to bear additional costs. TOMY plans to implement a stricter
product safety policy to prevent similar product recalls. However, future product recalls may affect the Company’s financial position and operating results.
OUTLOOK
Despite a challenging industry and market environment, the TOMY Group will aggressively implement a forward-looking
growth strategy in the fiscal year to March 31, 2005, underpinned by investment in R&D, advertising and sales promotion,and product moulds.
We plan to boost sales of the flagship Tomica and PLARAIL lines by reviewing product planning and marketingstrategies. This will go hand in hand with a revamp of TOMY sales areas, primarily focusing on display equipment. We
also anticipate higher sales of Disney products as we expand the range of toy categories we offer, strengthen marketing
channels through U-Ace Company, Ltd., a distribution subsidiary, and develop products that play to the strengths of theDisney brand. ZOIDS are also slated for growth through marketplace revitalization using the related TV animation series
and efforts to win new customers. We also aim to ensure the continued popularity of the POKÉMON brand by pursuinga media-mix strategy centered on collaborative movie production. In game software, our focus will be on developing

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Microids, the next offering in our line of Micro-Entertainment products after MicroBabies, as well as a raft of new toysusing groundbreaking technologies that we plan to aggressively launch in the U.S., and then other global markets. Oneof these products is called Lights Alive, which lets children write words and draw pictures that glow in the dark.
We are projecting net sales of ¥85,500 million in fiscal 2004, an increase of 3.6% year on year.
Despite continuing efforts to pare back unit costs, we expect the cost of sales ratio to edge up marginally in view of
economic uncertainties such as exchange rate fluctuations. SG&A expenses are also likely to be higher as advertisingand sales promotion costs and R&D expenses all rise as we follow the growth strategies described earlier. We areprojecting operating income of ¥4,900 million, down 18.8% from the previous fiscal year, and net income of ¥2,400
million, a slight decline of 4.0%.

The above projections are based on information available to management as of August 17, 2004. As such, these
forecasts entail risks and uncertainties. Actual results may differ materially from these projections.
BASIC POLICY ON DISTRIBUTION OF EARNINGSTOMY believes that sharing profits with shareholders is one of its most important management duties. The Company’s
policy is to retain sufficient earnings to strengthen its operating base while raising profitability and, based on the premiseof continuing to pay a stable dividend, to strive to return earnings to shareholders in line with operating results.
Retained earnings are used to steadily develop new businesses and expand existing businesses.
In accordance with the above policies, TOMY declared a full-year dividend of ¥10.0 per common share for the fiscal
year ended March 31, 2004.

4

new game software titles through Nintendo’s powerful distribution network. In the coming year, we plan to launch

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new titles themed around NARUTO, a highly popular comic and TV animation character. We aim to continue marketing

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CONSOLIDATED BALANCE SHEETSTOMY COMPANY, LTD. AND SUBSIDIARIESAs of March 31, 2004 and 2003

Thousands of
U.S. dollars(Note 1)Millions of yen

ASSETS

2004

2003

2004

¥ 15,349
565
10,134
(256)
5,521
1,455
3,838

¥ 21,513
3,344
9,949
(217)
5,207
1,260
3,261

$ 145,229
5,343
95,889(2,425)52,23813,76936,31036,60644,317346,353

Property, Plant and Equipment, at Cost:
Land (Notes 7 and 16)
Buildings and structures (Note 7)
Machinery and equipment
Construction in progress

3,412
6,594
21,701
36

3,411
6,629
20,81063

32,28362,396205,330
341

Less accumulated depreciation

31,743(23,462)

30,913(22,047)

300,350(221,993)

8,281

8,866

78,357

997
219
945
520

1,179
101
1,112
1,575

9,429
2,072
8,939
4,923

2,681

3,967

25,363¥ 47,568¥ 57,150$ 450,073

Current Assets:
Cash and cash equivalents
Marketable securities (Note 3)
Trade notes and accounts receivable
Less allowance for doubtful receivables
Inventories (Note 5)
Deferred income taxes—current (Note 12)
Other

Investments and Other Assets:
Investment securities (Note 3)
Investment in unconsolidated subsidiaries and affiliates
Lease deposits and other
Deferred income taxes—non-current (Note 12)
Total Assets

The accompanying notes to consolidated financial statements are an integral part of these balance sheets.

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2004

2003

2004

Current Liabilities:
Short-term borrowings (Note 6)
Current portion of long-term debt (Note 7)
Trade notes and accounts payable
Other payables
Accrued expenses
Accrued income taxes
Other¥ 4,407
551
3,731
3,801
2,868
329
2,353

¥ 9,119
10,298
4,236
4,120
1,700
313
932

$ 41,698
5,210
35,30335,96027,1393,113
22,26718,04030,718

170,690

5,698

4,865

53,912

1,080
436
18
1,191

972
399
18
1,635

10,216
4,131
167
11,269Long-Term Liabilities:
Long-term debt, less current portion (Note 7)
Severance and retirement allowances (Note 10):
Employees
Directors
Deferred income taxes for revaluation of land (Notes 12 and 16)
Other

8,423

7,889

79,695

Total liabilities

26,46338,607250,385

Minority Interests:

267

65

2,527

2,990
2,936
16,53326
135(1,770)

2,990
2,936
14,07826(118)(1,426)28,29027,781
156,433
246
1,279(16,752)

20,85018,486

197,277

Commitments and Contingent Liabilities (Note 17)

Shareholders’ Equity (Note 13):
Common stock, no par
Authorized 60,000,000 shares
Issued 20,419,299 shares at March, 2004 and 2003
Additional paid-in capital
Retained earnings
Revaluation reserve for land, net of tax (Note 16)
Net unrealized holding gains (losses) on securities
Foreign currency translation adjustments
Less treasury stock, at cost
8,763 shares at March 31, 2004 and 5,993 shares at March 31, 2003

(12)

(8)

(116)

Total shareholders’ equity

20,83818,478

197,161

Total Liabilities and Shareholders’ Equity¥47,568¥57,150$450,073

4

Millions of yen

LIABILITIES AND SHAREHOLDERS‘ EQUITY

00

Thousands of
U.S. dollars(Note 1)

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CONSOLIDATED STATEMENTS OF OPERATIONSTOMY COMPANY, LTD. AND SUBSIDIARIES
Years ended March 31, 2004 and 2003

Thousands of
U.S. dollars(Note 1)Millions of yen
2004

2003

2004

¥82,520
50,940¥73,777
47,944$780,775
481,975

31,58025,833298,800

25,544

24,678

241,682

6,036

1,155

57,118

42
(286)
2
(33)
(173)
(19)
(223)
(1,000)
–
(181)

99
(280)
10
(83)
(211)
(458)
(663)
–
(355)
(364)

401
(2,701)22(308)(1,642)(178)(2,116)(9,462)–(1,722)(1,871)(2,305)(17,706)

Income (Loss) before Income Taxes

4,165(1,150)39,412

Provision for Income Taxes—current—deferred

840
777

737
(532)

7,948
7,351

Minority Interest in Subsidiaries

46

33

442

Net Income (Loss)¥ 2,502¥ (1,388)$ 23,671

Per Share of Common Stock:
Net income (loss) (Note 15):
Basic
DilutedCash dividends, applicable to the year (Note 14)¥114.52–
10.00¥ (70.45)––$

Net Sales
Cost of Sales
Gross profit
Selling, General and Administrative Expenses
Operating income
Other Income (Expenses):
Interest and dividend income
Interest expense
Gain on sale of fixed assets
Loss on disposal of plant and equipment
Cash discounts
Impairment loss on investment securities
Foreign exchange loss, net
Loss on voluntary recall of products
Special early retirement benefit
Other, net

The accompanying notes to consolidated financial statements are an integral part of these statements.

1.08
–
0.09

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Millions of yen (Note 13)

Balance at March 31, 2002

Commonstock

Additional
paid-in
capitalRetainedearnings

Treasurystock¥ 2,990¥ 2,936¥ 15,606¥(3)

Revaluation reserve for land, net of tax
Unrealized holding losses on securities arising during the period
Foreign currency translation adjustments
Net loss
Dividends declared
Bonuses paid to directors & corporate auditors
Equity in subsidiaries included in consolidation
at beginning of year
Treasury stock
Balance at March 31, 2003

¥

Total

(988)

¥ 20,541

1
(69)
(462)

1
(69)
(462)

(1,388)(102)(31)(1,388)
(102)
(31)

(7)

(7)
(5)

(5)
¥ 2,990¥ 2,936¥ 14,078¥(8)

Unrealized holding gains on securities arising during the period
Foreign currency translation adjustments
Net income
Bonuses paid to directors & corporate auditors
Treasury stock
Balance at March 31, 2004

Net gains and losses
not recognizedin the statementsof operations¥ (1,518)¥ 18,478

253
(344)

253
(344)

2,502
(47)

2,502
(47)
(4)

(4)
¥ 2,990 ¥ 2,936 ¥ 16,533¥ (12)¥ (1,609)¥ 20,838

Thousands of U.S. dollars (Note 1 and 13)

Balance at March 31, 2003

Commonstock

Additional
paid-in
capitalRetainedearnings

Treasurystock

Net gains and losses
not recognizedin the statementsof operations

Total$28,290$27,781$133,203$ (77)$(14,366)$174,831

2,399(3,260)2,399(3,260)

Unrealized holding gains on securities arising during the period
Foreign currency translation adjustments
Net income
Bonuses paid to directors & corporate auditors
Treasury stock
Balance at March 31, 2004

23,671(441)

23,671
(441)
(39)

(39)
$28,290 $27,781 $156,433

The accompanying notes to consolidated financial statements are an integral part of these statements.

$(116)$(15,227)$197,161

4

TOMY COMPANY, LTD. AND SUBSIDIARIES
Years ended March 31, 2004 and 2003

00

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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CONSOLIDATED STATEMENTS OF CASH FLOWSTOMY COMPANY, LTD. AND SUBSIDIARIES
Years ended March 31, 2004 and 2003

Thousands of
U.S. dollars(Note 1)Millions of yen
2004

2003

2004

¥ 4,165
2,256
(42)
286
(555)
(314)
214
(350)
1,570
7,230
44
(282)
(850)

¥ (1,150)
2,373
(99)
280
1,124
97
582
(103)
741
3,845
95
(289)
(572)

$ 39,412
21,347(401)
2,701(5,257)(2,969)2,023(3,307)
14,85968,408415(2,669)(8,042)

6,142

3,079

58,112(1,715)(1,685)
4,982
(133)

(2,219)(2,038)
1,793
(281)

(16,223)(15,943)
47,133(1,260)Net cash provided by (used in) investing activities

1,449(2,745)

13,707

Cash Flows from Financing Activities:
Proceeds from (Repayment of) short-term borrowings, net
Repayment of long-term debt
Proceeds from long-term debt
Redemption of the convertible unsecured bonds
Dividends paid
Other, net(4,749)(349)
1,400(9,965)
(3)
103

2,022
(1,130)
4,800
–
(109)
14

(44,937)(3,306)
13,246(94,285)(30)
986

Net cash provided by (used in) financing activities(13,563)

5,597(128,326)

Cash Flows from Operating Activities:
Income (loss) before income taxes
Depreciation and amortization
Interest and dividend income
Interest expense
Decrease (increase) in trade notes and accounts receivable
Decrease (increase) in inventories
Increase in prepaid expenses
Decrease in trade notes and accounts payable
Other, net
Sub totalInterest and dividend received
Interest paid
Income tax paid
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchase of property, plant and equipment
Purchase of marketable and investment securities
Proceeds from sales of marketable and investment securities
Other, net

Effect of Exchange Rate on Cash and Cash Equivalents
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Period
Net Increase in Cash and Cash Equivalents due to Change inConsolidated Subsidiaries (Note 4)
Cash and Cash Equivalents at End of Period
The accompanying notes to consolidated financial statements are an integral part of these statements.

(192)

(236)

(1,813)(6,164)
21,513

5,695
15,790(58,320)
203,549–28–¥ 15,349¥21,513$ 145,229

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1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Tomy Company, Ltd., (“the Company”) and its consolidated subsidiaries havebeen prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accounting
regulations, and in conformity with accounting principles generally accepted in Japan, which are different in certain respects to theapplication and disclosure requirements of International Financial Reporting Standards.
The accounts of overseas subsidiaries are based on their accounting records maintained in conformity with generally accepted
accounting principles prevailing in the respective countries of domicile. The accompanying consolidated financial statements havebeen restructured and translated into English (with some expanded descriptions and the inclusion of consolidated statements ofshareholders’ equity) from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP and
filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Securities and Exchange Law. Some
supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fairpresentation, is not presented in the accompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers outside Japan,
using the prevailing exchange rate at March 31, 2004, which was ¥105.69 to U.S. $1. These translations should not be construed as
representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at
this or any other rate of exchange.

2. SIGNIFICANT ACCOUNTING AND REPORTING POLICIES(a) Principles of Consolidation
The consolidated financial statements of the Company and its consolidated subsidiaries (“the Group”) include Tomy Company, Ltd., andthe companies that it controls. This control is normally evidenced when the Group owns, either directly or indirectly, more than 50% of thevoting rights of a company’s share capital and is able to exercise significant management control. The equity and net income attributable
to minority shareholders’ interests are shown separately in the consolidated balance sheets and statements of operations, respectively.
Material intercompany balances, transactions and profits have been eliminated in the consolidation. Differences between the cost andthe underlying net equity of investments in subsidiaries are amortized on a straight-line basis over a five-year period.
Investment in a 20%-50% owned affiliate is accounted for by the equity method and is included in investment in unconsolidated
subsidiaries and affiliates in the accompanying consolidated balance sheets. The Company’s equity in earnings of those affiliates is notmaterial and, accordingly, is included in other income (expenses) in the accompanying consolidated statements of operations.
(b) Foreign Currency Translation
All current and long-term monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen at theexchange rates in effect at the balance sheet date. Foreign exchange gain/loss on transactions is recognized in the consolidated
statement of operations.
The financial statements of the overseas consolidated subsidiaries and affiliates are translated into Japanese yen at the rates of
exchange in effect at the year-end for all assets and liabilities, at the average rates for income and expense accounts and at historicalrates for shareholders’ equity. Differences arising from translation are presented as “Foreign currency translation adjustments” in a
separate component of shareholders’ equity of the accompanying consolidated balance sheets.
(c) Marketable Securities and Investment Securities
Securities owned by the Group have been classified into two categories—held-to-maturity securities and available-for-sale securities
in accordance with the accounting standard for financial instruments. Under this standard, held-to-maturity debt securities are either
amortized or accumulated to face value on a straight-line method. Marketable securities classified as available-for-sale securities arecarried at fair value with changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in shareholders’ equity. Non-marketable securities classified as available-for-sale securities are carried at cost. Under this accounting standard, if
the fair value of the marketable securities classified as available-for-sale securities has declined significantly, such securities are written
down to fair value thus establishing a new cost basis. The amount of each devaluation is charged to income as an impairment loss
unless the fair value is deemed to be recoverable.

4

TOMY COMPANY, LTD. AND SUBSIDIARIES00

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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(d) Inventories
The Company and its consolidated domestic subsidiaries:
Inventories are mainly stated at cost determined by the average method.
Foreign consolidated subsidiaries:
Inventories are mainly stated at the lower of cost (first-in, first-out method) or market.
(e) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is principally computed using the following methods over their estimated useful lives:
Buildings:
3–65 years
Machinery and equipment:
2–20 years
The Company and its consolidated domestic subsidiaries:
Declining-balance method except for buildings acquired after April 1, 1998, which are computed by the straight-line method.
Foreign consolidated subsidiaries:
Straight-line method
In the year ended March 31, 2004, the Company did not early-adopt the new accounting standard for impairment of fixed Assets(“Opinion Concerning Establishment of Accounting Standard for Impairment of Fixed Assets” issued by the Business Accounting
Deliberation Council on August 9, 2002) and the implementation guidance for the accounting standard for impairment of fixed assets(the Financial Accounting Standard Implementation Guidance No. 6 issued by the Accounting Standards Board of Japan on October
31, 2003). The adoption of the new standard is mandatory for periods beginning on or after April 1, 2005, but the standard does notprohibit earlier adoption.
(f) Software
Software costs included in “lease deposits and other” are amortized over the estimated useful life (5 years) by the straight-line method.
(g) Research and Development
Expenditure relating to research and development activities has been charged to income as incurred.
(h) Allowance for Doubtful Accounts
The allowance for doubtful accounts is provided at an amount sufficient to cover possible losses on the collection of receivables. For
the Group, the amount of the allowance is determined based on (1) past write-off experience and (2) an estimated amount for probablespecific doubtful accounts based on a review of the collectibility of the individual receivables.
(i) Provision for Future Sales Returns
Provision has been made for future losses on sales returns of products after the end of the current fiscal year. The Company posted an
estimated loss for the current fiscal year calculated based on the past sales returns. This provision has been included in the item Other
under Current Liabilities in the Consolidated Balance Sheets.
(j) Provision for Voluntary Recall of Products
Provision has been made for the costs of voluntary recall of products based on the estimated loss at the end of the current fiscal year.
The Company posted a rational estimated loss recognized as necessary in the consolidated results for the end of the current fiscal
year. This provision has been included in the item Other under Current Liabilities in the Consolidated Balance Sheets.
(k) Employees’ Severance and Retirement Benefits
The Company and certain subsidiaries provide two types of post-employment benefits plans, unfunded lump-sum payment plans andfunded non-contributory pension plans, under which all eligible employees are entitled to benefits based on the level of wages andsalaries at the time of retirement or termination, length of service and certain other factors.

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(m) Derivative Transactions and Hedge Accounting
The Group states derivative financial instruments at fair value and recognizes changes in the fair value as gains or losses unlessderivative financial instruments are used for hedging purposes.
If derivative financial instruments are used as hedges and meet certain hedging criteria, the Group defers recognition of gains or losses
resulting from changes in fair value of derivative financial instruments until the related gains or losses on the hedged items are recognized.
(n) Income Taxes
The income taxes are provided based on income for financial reporting purposes.
Deferred income taxes are calculated using the asset and liability method and reflect the estimated tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes and tax loss carryforwards. Deferred tax assets and liabilities are measured using the tax rates expected to apply totaxable income in the years in which those temporary differences are expected to be recovered or settled. The measurement ofdeferred tax assets and liabilities reflects the tax consequences that would result from the manner in which the Company expects, atthe balance sheet date, to recover or settle the carrying amount of its assets and liabilities.
(o) Appropriation of Retained Earnings
Under the Code, retained earnings with respect to a given financial period are appropriated by resolution of the shareholders at a
general meeting to be held subsequent to the close of such financial period. The accounts for that period do not, therefore, reflect
such appropriations.
Cash dividends and bonuses to directors and corporate auditors are recorded in the year in which a proposed appropriation isapproved at the general meeting of shareholders.
(p) Consolidated Statements of Cash Flows
For purposes of the Consolidated Statements of Cash Flows, cash and cash equivalents include highly liquid investments with an
original maturity of three months or less.

4(l) Accounting for Leases
Finance leases other than those which are deemed to transfer the ownership of the leased assets to lessees are accounted for as
operating leases.

00

Effective April 1, 2000, in accordance with the accounting standard “Opinion on Settling Accounting Standard for Employees’
Severance and Pension Benefits”, issued by the Business Accounting Deliberation Council on June 16, 1998, the Group provided
allowance for employees’ severance and retirement benefits based on the estimated amounts of projected benefit obligation and thefair value of the plan assets at the balance sheet date.
The excess of the projected benefit obligation over the fair value of plan assets as of April 1, 2000 and the liabilities for severance andretirement benefits recorded as of April 1, 2000 (the “net transition obligation”) amounted to ¥222 million. The net transition obligation
has been recognized in expense in equal amounts over 5 years commencing with the year ended March 31, 2001. Unrecognized actuarial
net gains or losses are amortized over 5 years on a straight-line basis commencing from the succeeding period.
Severance and retirement allowance for directors and corporate auditors are recorded at the amount that would be required if all
directors and corporate auditors retired at each balance sheet date. These amounts are paid subject to the approval of the shareholders
in accordance with the code.

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3. MARKETABLE SECURITIES AND INVESTMENT SECURITIESMarketable securities and investment securities as of March 31, 2004 and 2003, consisted of the following:
A. The following tables summarize acquisition costs, book values and fair value of securities with available fair values as of March 31,
2004 and 2003:
Available-for-sale securities
Millions of yen
2004

Securities with book values exceeding acquisition costs
Type
Equity securities
Others
Total
Securities with book values not exceeding acquisition costs
Type
Equity securities
Others
Total
Total

2003

Acquisition
cost

Book
value

Acquisition
cost

Difference

Book
value

Difference

¥583
–

¥810
–

¥227
–

¥

79
100

¥ 124
101

¥ 45
1

¥583

¥810

¥227

¥ 179

¥ 225

¥ 46

¥

1
–

¥

1
–

¥ (0)
–

¥ 651
366

¥ 494
361

¥(157)
(5)

¥

1

¥

1

¥ (0)

¥1,017¥ 855¥(162)¥811¥227¥1,196¥1,080¥(116)¥584

Available-for-sale securities
Thousands of U.S. dollars
2004

Securities with book values exceeding acquisition costs
Type
Equity securities
Others
Total
Securities with book values not exceeding acquisition costs
Type
Equity securities
Others
Total
Total

Acquisition
cost

Book
value

Difference$5,519–$5,519$7,665–$7,665$2,146–$2,146

$

6
–

$

4
–

$

(2)
–

$

6

$

4

$

(2)

$5,525$7,669$2,144

An impairment loss of ¥19 million (US$178 thousand) was recognized for available-for-sale securities in year ended March 31, 2004.

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Millions of yen
2004

2003

Thousands of
U.S. dollars
2004

Book value

Type
Discounted receivables
Commercial paper
Euroyen bond
Total

¥ 65
500
–

¥

65
1,269
700

$ 615
4,728
–

¥565

¥2,034$5,343Available-for-sale securities
Millions of yen
2004

2003

Thousands of
U.S. dollars
2004

Book valueType
Non-listed equity securities
Others
Total

¥186
–

¥ 100
1,309

$1,760–¥186¥1,409$1,7604

Held-to-maturity debt securities

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B. The following tables summarize book values of securities with no available fair values as of March 31, 2004 and 2003:

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C. Available-for-sale securities with maturities and held-to-maturity debt securities are as follows:
Millions of yen
Within one year

Over one year but
within five years

Over five years but
within ten years

Over ten years

Total

Held-to-maturity debt securities:
Discounted receivables
Commercial paper
Others

¥ 65
500
–

–
–
–

–
–
–

–
–
–

¥ 65
500
–

Total

¥565

–

–

–

¥565

2004

Millions of yen
Over one year but
within five years

Over five years but
within ten years

Over ten years

Total

65
1,269
700

–
–
–

–
–
–

–
–
–

¥ 65
1,269
700

¥2,034–––¥2,034

Within one year

Over one year but
within five years

Over five years but
within ten years

Over ten years

Total

Held-to-maturity debt securities:
Discounted receivables
Commercial paper
Others

$ 615
4,728
–

–
–
–

–
–
–

–
–
–

$ 615
4,728
–

Total

$5,343–––$5,343

2003
Held-to-maturity debt securities:
Discounted receivables
Commercial paper
Others
Total

Within one year¥

Thousands of U.S. dollars

2004

D. Available-for-sale securities sold in the year ended March 31, 2004 amounted to ¥2,008 million ($19,001 thousand) and the related
gains and losses amounted to ¥18 million ($170 thousand) and ¥5 million ($50 thousand), respectively.
Available-for-sale securities sold in the year ended March 31, 2003 amounted to ¥2,878 million ($27,235 thousand) and the related
gains and losses amounted to ¥62 million ($588 thousand) and ¥121 million ($1,143 thousand), respectively.

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HeartLand Company, Ltd.
(At April 1, 2002)

Current Assets
Non-current Assets
Current Liabilities
Non-current Liabilities

Millions of yen

Thousands of
U.S. dollars

¥42
15
18
–

$399
144
168
–

5. INVENTORIESInventories as of March 31, 2004 and 2003, consisted of the following:

Millions of yen

Thousands of
U.S. dollars

2004

2003

2004

Finished goods
Work-in-process raw materials and supplies stock¥4,573948¥4,404803$43,265
8,973

Total

¥5,521¥5,207$52,238

6. SHORT-TERM BORROWINGS
Short-term borrowings principally represent notes payable and bank overdrafts to banks due generally within one year. Weighted
average interest rates on short-term borrowings excluding the current portion of long-term debt were 1.2% and 1.7% as of March 31,
2004 and 2003, respectively.

7. LONG-TERM DEBT
Long-term debt as of March 31, 2004 and 2003, consisted of the following:

Millions of yen

Thousands of
U.S. dollars

2004

2003

2004

¥1,200800¥ 1,200–$11,354
7,570

–

9,965

–

4,249

3,998

40,198

Less—Current portion

6,249
(551)

15,163(10,298)

59,122(5,210)Total¥5,698¥ 4,865$53,912

Bonds:
0.58% unsecured bonds, payable in yen, due 2008
0.49% unsecured bonds, payable in yen, due 2008
Convertible bonds:
0.25% convertible unsecured bonds, payable in yen, due 2003
Loans payable:
1.08% to 3.67% secured loans from banks, due 2005 through 2010

Short-term borrowings and long-term debt, aggregating ¥2,750 million ($26,019 thousand), were collateralized by land and buildings
with a net book value of ¥3,511 million ($33,227 thousand).

4

Assets and liabilities of a subsidiary, which was newly consolidated during the year ended March 31, 2003 due to an increase insignificance, are as follows:

00

4. NOTES TO CASH FLOW STATEMENT

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The annual maturities of long-term debt as of March 31, 2004, were as follows:

Millions of yen

Thousands of
U.S. dollars

2005
2006
2007
2008
From 2009

¥ 551
602
1,926
2,048
1,122

$ 5,2105,700
18,223
19,373
10,616Total¥6,249$59,122

Year ending March 31

To efficiently procure working capital, the Company has entered into loan commitment agreements with four banks. Based on thesecontracts, the unused portion of the Company’s commitment was ¥5,000 million ($47,308,000) amounting to ¥5,000 million ($47,308,000)
as of March 31, 2004.

8. STOCK OPTION PLAN
(1) At the annual meeting of shareholders held on June 29, 2000, the Company’s directors and certain employees were granted
options in the amount of 406,000 shares to purchase a maximum of 10,000 common shares of the Company, per individual. The
option exercise price is ¥3,621 per share. The options are exercisable between July 1, 2002 and June 30, 2006.
(2) At the annual meeting of shareholders held on June 28, 2001, the Company’s directors and certain employees were granted
options in the amount of 553,000 shares to purchase a maximum of 10,000 common shares of the Company, per individual. The
option exercise price is ¥2,661 per share. The options are exercisable between July 1, 2003 and June 30, 2007.
(3) At the annual meeting of shareholders held on June 26, 2003, the Company’s directors and certain employees were granted
options in the amount of 400,000 shares to purchase a maximum of 10,000 common shares of the Company, per individual. The
option exercise price is ¥1,441 per share. The options are exercisable between July 1, 2005 and June 30, 2009.
(4) At the annual meeting of shareholders held on June 25, 2004, a stock option plan and a grant of options to the Company’s directors,
directors of certain subsidiaries and certain employees in the amount of 400,000 shares were approved. The plan provides for the
granting of stock options having an exercise price calculated by multiplying by 1.03 the average of the closing prices applicable toordinary transactions of shares of the Company on the Tokyo Stock Exchange on all days for the month immediately preceding themonth in which the date of the grant falls, provided that the exercise price shall not be less than the closing price of the shares of theCompany on the Tokyo Stock Exchange at the date of the grant. The options are exercisable between July 1, 2006 and June 30, 2010.
(5) On September 13, 2001, the Company issued unsecured bonds with warrants in the amount of ¥553 million ($5,235 thousand). The
Company purchased all of the warrants and distributed them to the certain subsidiaries’ directors. The warrants’ exercise price is¥2,660 per share.

9. DERIVATIVE TRANSACTIONS(1) Information on derivatives
햲 Policy
The Group selectively enters into forward exchange, option and swap contracts to manage the market risks associated with fluctuations
in foreign exchange rates or interest rates. The Group does not hold or issue derivative finance instruments for speculative purposes.
햳 Purpose
The Group operates internationally, giving rise to significant exposure to market risks from changes in interest and foreign exchange
rates. The Group uses derivative financial instruments to mitigate those risks.

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Credit risk
The counterparties to forward exchange contracts are major financial institutions. The Group is exposed to credit loss in the event of
non-performance by these counterparties. The Group, however, does not have significant exposure to any individual counterpartiesand does not anticipate non-performance by any counterparty.
햵 Hedging instruments and items covered by hedges:
Hedging instruments:
Foreign exchange forward contracts, foreign exchange options, interest rate swaps,
and currency swap contracts
Items covered by hedges: Assets and liabilities in foreign currencies, and borrowings(2) Information on market value of derivative instruments
In the years ended March 31, 2004, and 2003, as all derivative instruments used by the Group qualify as a hedge, the market value ofthese derivative instruments are not required to be presented under the current accounting standard.

10. RETIREMENT BENEFITS
Employees’ severance and pension benefits
The liabilities and expenses for severance and retirement benefits are determined based on the actuarial calculations.
The liabilities for severance and retirement benefits included in the consolidated balance sheet as of March 31, 2004 and 2003 consistof the following:

Millions of yen

Projected benefit obligation
Unrecognized actuarial differences
Less fair value of pension assets
Less unrecognized net transition obligation
Liability for severance and retirement benefits

Thousands of
U.S. dollars

2004

2003

2004

¥1,408
(138)
(161)
(29)

¥1,429
(67)
(333)
(57)

$13,310(1,302)(1,521)(271)¥1,080¥ 972$10,216

4

Hedging interest rate risk
The Group uses interest rate options and interest rate swaps to mitigate its exposure to interest rate risks. When contracts qualify as
hedges, the accounting for the financial instruments is symmetrical to the accounting for the hedged items. Accordingly, changes in
the fair value of options are included in the profit and loss in the same period as the gains and losses arising from the related hedged
items and are recorded as an adjustment to the interest income or expense related to the designated hedged asset or liability.

00

햴 Risk
Hedging foreign currency risk
The Group uses forward exchange contracts and options to mitigate its exposure to foreign currency risks. Changes in the market
value of a forward contract that qualifies as a hedge and any gains and losses on early termination of such a forward contract are
deferred and included in the measurement of the hedged items. Market value changes in derivative financial instruments that do not
qualify as hedges are recognized currently in the consolidated statements of operations.

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Severance and retirement benefit expenses were as follows:
Thousands of
U.S. dollars

Millions of yen
2004

2003

2004

Service costs-benefits incurred during the year
Interest costs on projected benefit obligation
Expected return on plan assets
Amortization of actuarial differences
Amortization of net transition obligation
Temporary extra retirement pay

¥129
25
(3)
6
28
–

¥425
45
(15)
25
76
355

$1,225
232
(33)
60
271
–

Severance and retirement benefit expenses

¥185

¥911

$1,755

Assumptions and methods used to calculate projected benefit obligations are as follows:

Discount rate
Expected return on plan assets
Amortization of actuarial differences
Amortization of net transition obligation

2004

2003

2.0%
2.5%
5 years
5 years

2.5%
4.0%
5 years
5 years

11. FINANCE LEASES(1) As if capitalized amounts of acquisition cost, accumulated depreciation, and net book value of leased assets under finance leases at
March 31, 2004 and 2003, were as follows:
Millions of yen
Acquisition
cost

Accumulated
depreciation

Net book value

Machinery, equipment and vehicles

¥809

¥270

¥539

Total

¥809

¥270

¥539

Acquisition
cost

Accumulated
depreciation

Net book value

Machinery, equipment and vehicles

¥491

¥271

¥220

Total

¥491

¥271

¥220

As of March 31, 2004

Millions of yen

As of March 31, 2003

Thousands of U.S. dollars

As of March 31, 2004

Acquisition
cost

Accumulated
depreciation

Net book value

Machinery, equipment and vehicles$7,651$2,555$5,096

Total$7,651$2,555$5,096

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Thousands of
U.S. dollars

2004

2003

2004

Within one year
Over one year

¥237
302

¥ 83
137

$2,243
2,853

Total

¥539

¥220

$5,096

12. INCOME TAXES
Income taxes in Japan applicable to the Company and its consolidated domestic subsidiaries consist of corporate tax, inhabitants’ tax
and business tax.
The reconciliation between the effective tax rate and the statutory tax rate is as follows:
2004

2003

Statutory tax rate
Expenses not deductible for tax purpose
Foreign tax credit
Dividend received deduction from affiliates
Valuation allowance recognized
Difference in statutory tax rates of subsidiaries outside Japan
Elimination of unrealized gains
Adjustment of deferred tax assets by tax rate alteration
Others

42.0%
1.4
(2.8)
2.1
(4.1)
(0.9)
(1.6)
0.9
1.8

(42.0)%
4.3
10.6
5.6
40.3
(11.5)
2.5
8.5
(0.6)

Effective tax rate

38.8%

17.7%

4

Millions of yen

00(2) Minimum payments under the leases with noncancelable terms in excess of one year as of March 31, 2004 and 2003, were as follows:

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Significant components of deferred tax assets and liabilities at March 31, 2004 and 2003 are as follows:

Millions of yen
2004

Deferred tax assets by type of temporary differences
Revaluation losses on inventories
Allowance for doubtful receivables
Accrued enterprise tax
Allowance for bonus
Severance and retirement allowances for employees
Severance and retirement allowances for directors
Elimination of unrealized gains on inventory
Tax loss carryforward
Depreciation and amortization
Impairment loss on investment securities
Others

¥

142
56
30
463
400
159
94
838
136
215
805

¥

Thousands of
U.S. dollars

2003

2004

275
71
37
114
321
153
52
2,350
86
255
632

$ 1,340
529
285
4,382
3,783
1,506
890
7,932
1,285
2,032
7,623

Deferred tax assets¥ 3,338¥ 4,346$31,587

Valuation allowance¥(1,045)¥(1,236)$ (9,888)¥ 2,293¥ 3,110$21,699

Deferred tax liabilities by type of temporary differences
Reserve for tangible assets
Adjustment for subsidiaries' retained earnings
Revaluation of land
Others¥ (192)
(10)
(18)
(116)

¥ (194)
(45)
(18)
(36)

$ (1,821)
(95)
(167)
(1,091)

Deferred tax liabilities¥ (336)¥ (293)$ (3,174)

Net deferred tax assets¥ 1,957¥ 2,817$18,525

Total deferred tax assets

13. SHAREHOLDERS’ EQUITY
Under the Code, the entire amount of the issue price of shares is required to be accounted for as capital, although the Company may,by resolution of the board of directors, account for an amount not exceeding one-half of the issue price of the new shares as additional
paid-in capital.
The Code provides, as amended effective October 1, 2001, that an amount equal to at least 10% of cash dividends and other cash
appropriations shall be appropriated and set aside as a legal earnings reserve until the total amount of legal earnings reserve andadditional paid-in capital equals 25% of common stock. The legal earnings reserve and additional paid-in capital may be used toeliminate or reduce a deficit by resolution of the shareholders’ meeting or may be capitalized by resolution of the Board of Directors.
On condition that the total amount of legal earnings reserve and additional paid-in capital remain equal to or exceed 25% of common
stock, they are available for distribution by the resolution of the shareholders’ meeting. Legal earnings reserve is included in retained
earnings in the accompanying consolidated financial statements.
The maximum amount that the Company can distribute as dividends is calculated based on the unconsolidated financial statements of the Company in accordance with the Code.
Semi-annual cash dividends may be declared by the Board of Directors after the end of each interim six-month period. Such
dividends are payable to shareholders of record at the end of each fiscal or interim six-month period. In accordance with the Code, thedeclaration of these dividends and the related appropriations of retained earnings have not been reflected in the financial statements
at the end of such fiscal or interim six-month periods.

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15. PER SHARE DATA
Basic net income per share is based on the weighted average number of shares of common stock and common stock equivalents.
Since all warrants outstanding were anti-dilutive, diluted net income per share was not presented at March 31, 2004.
Diluted net income per share for the year ended March 31, 2003 was not presented as the Group had net losses in this period.

16. REVALUATION RESERVE FOR LAND
Pursuant to Article 2, Paragraphs 3 and 4 of the Enforcement Ordinance for the Law Concerning Revaluation Reserve for Land (the “Law”)
effective March 31, 1998, the Company recorded its owned land used for business at the fair value of ¥3,044 million (the original bookvalue was ¥3,001 million) as of March 31, 2002, and related net unrealized gain net of income taxes was credited to “Revaluation reserve
for land, net of tax” in the equity section and the applicable income tax portion was reported as “Deferred income taxes for revaluationof land” in liabilities and net of applicable income taxes were reported as “Revaluation reserve for land, net of tax” in shareholders’equity. According to the Law, the Company is not permitted to revalue the land at any time, even in the case that the fair value of the land
declines. The fair value of the land revaluated was ¥374 million lower than its book value as of March 31, 2004.

17. COMMITMENTS AND CONTINGENT LIABILITIESThe Company entered into an exclusive distribution agreement with Hasbro, Inc. for the sale of licensed products in Japan. The
agreement contains provisions for the payment of guaranteed or minimum royalty amounts from 1999 to 2008.
The Company entered into a comprehensive licensing agreement in December 2000 with Walt Disney International Japan, Inc.
that makes the Company the master licensee of Disney brand products in Japan.
As of March 31, 2004, the Company and certain consolidated subsidiaries were contingently liable for discounted notes receivablewith banks of ¥440 million ($4,161 thousand).

4

In accordance with the Code, dividends which are payable to shareholders of record at the end of a fiscal year are subsequently approvedby shareholders, and accordingly the declaration of these dividends is not reflected in the financial statements at such fiscal year-end.
The Board proposed a dividend of ¥10 ($0.09) per share for the 2004 fiscal year at the annual meeting of shareholders held on June25, 2004.

00

14. DIVIDENDS PER SHARE

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18. SEGMENT INFORMATION(1) Business Segment Information
The Group operates principally in the toy manufacturing and marketing business.
Millions of yen
2004

Toy

OthersTotal

Eliminations

Consolidated

Net sales:
Sales to customers
Inter-segment sales¥79,984
22¥2,536
2,616¥82,520
2,638¥–(2,638)¥82,520–

Total
Operating expenses

80,006
72,980

5,152
4,729

85,15877,709(2,638)(1,225)82,52076,484

Operating income

7,026

423

7,449

(1,413)

6,036

Total assets
Depreciation

31,626

4,435

36,061

11,50747,568

2,091

98

2,189

67

2,256

Capital expenditures

1,644

43

1,687

28

1,715

2003

Toy

OthersTotal

Eliminations

Consolidated

Net sales:
Sales to customers
Inter-segment sales¥71,60844¥2,1692,644¥73,777
2,688

Total
Operating expenses

71,652
69,194

4,813
4,403

Operating income

2,458

Total assets

Millions of yen¥–(2,688)¥73,777–

76,46573,597(2,688)(975)

73,777
72,622410

2,868(1,713)

1,155

30,216

4,402

34,61822,53257,150Depreciation

2,182

120

2,302

71

2,373

Capital expenditures

2,191

58

2,249

24

2,273

Eliminations

Consolidated$–(24,960)$780,775–

Thousands of U.S. dollars
2004

Toy

OthersTotal

Net sales:
Sales to customers
Inter-segment sales$756,783
210$23,992
24,750$780,775
24,960Total
Operating expenses

756,993
690,514

48,742
44,740805,735
735,254(24,960)(11,597)780,775
723,657

Operating income

66,4794,002

70,481(13,363)

57,118

Total assets

299,235

41,959341,194

108,879

450,073

Depreciation

19,787926

20,713634

21,347

Capital expenditures

15,550411

15,961

262

16,223

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Millions of yen
2004

Japan

EuropeAsia

OthersTotal

Eliminations

Consolidated

Net sales:
Sales to customers
Inter-segment sales¥62,294
4,101¥12,76140¥ 3,068
12,221¥4,397
1¥82,520
16,363¥–(16,363)¥82,520–

Total
Operating expenses

66,39559,23512,801
12,432

15,28915,295

4,398
4,381

98,883
91,343(16,363)(14,859)

82,52076,484

Operating income (loss)

7,160

369

(6)

17

7,540

(1,504)

6,036

Total assets

28,523

5,118

4,973

1,104

39,7187,850

47,568

2003

Japan

EuropeAsia

OthersTotal

Eliminations

Consolidated

Net sales:
Sales to customers
Inter-segment sales¥52,834
4,068¥13,67111¥ 3,201
14,170¥4,071–¥73,777
18,249¥–(18,249)¥73,777–

Total
Operating expenses

56,902
54,941

13,682
13,324

17,371
16,755

4,071
3,953

92,026
88,973(18,249)(16,351)

73,777
72,622

Operating income

1,961

358

616

118

3,053

(1,898)

1,155

Total assets

23,954

5,680

5,749

1,357

36,74020,41057,150Millions of yen

Thousands of U.S. dollars
2004

Japan

EuropeAsia

OthersTotal

Eliminations

Consolidated

Net sales:
Sales to customers
Inter-segment sales$589,402
38,798$120,740
380$ 29,024
115,638$41,6098$780,775
154,824$–(154,824)$780,775–

Total
Operating expenses

628,200
560,455

121,120
117,627

144,662
144,721

41,61741,452935,599864,255(154,824)(140,598)

780,775
723,657

Operating income (loss)

67,745

3,493

(59)

165

71,344(14,226)

57,118

Total assets

269,879

48,42147,05010,446

375,796

74,277450,073

4(2) Operations by Geographic Area
Sales and operating income are attributed to countries based on location of business assets.

00

Others consisted of businesses related to delivery and warehouse services and other operations.
Unallocatable operating expenses consist principally of the administrative expenses of the Company. The unallocatable operating
expenses included in eliminations as of March 31, 2004 and 2003, were ¥1,551 million ($14,676 thousand) and ¥1,875 million ($17,741
thousand), respectively.
Eliminations of total assets include corporate assets that are principally cash, time deposits, marketable securities, investment
securities and certain other assets of the Administration Division. The corporate assets as of March 31, 2004 and 2003, were ¥12,517
million ($118,429 thousand) and ¥23,650 million ($223,767 thousand), respectively.

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Operations in Europe are located primarily in the United Kingdom and France.
Operations in Asia are located primarily in Hong Kong and Thailand. Others comprise operations in North America and elsewhere.
Unallocatable operating expenses consist principally of the administrative expenses of the Company. The unallocatable operating
expenses included in eliminations as of March 31, 2004 and 2003, were ¥1,551 million ($14,676 thousand) and ¥1,875 million ($17,741
thousand), respectively.
Eliminations of total assets include corporate assets that are principally cash, time deposits, marketable securities, investment
securities and certain other assets of the Administration Division. The corporate assets as of March 31, 2004 and 2003, were ¥12,517
million ($118,429 thousand) and ¥23,650 million ($223,767 thousand), respectively.
Overseas sales and the ratios thereof to consolidated net sales for the years ended March 31, 2004 and 2003, are presented as follows:
Millions of yen
2004

Overseas sales
Consolidated sales
Overseas sales ratio

2003

EuropeOthersTotal

EuropeOthersTotal¥13,376–
16.2%¥7,872–
9.5%¥21,248
82,52025.7%¥15,524–
21.0%¥7,557–10.3%¥23,081
73,777
31.3%

Thousands of U.S. dollars
2004

Overseas sales
Consolidated sales
Overseas sales ratio

EuropeOthersTotal$126,558–
16.2%$74,483–
9.5%$201,041
780,775
25.7%

Overseas sales consist of export sales by the Company and sales by consolidated foreign subsidiaries.

19. SUBSEQUENT EVENTS
Based on a resolution adopted at the Board of Directors’ meeting held on May 26, 2004, the Company issued convertible bonds due
2009 in the amount of ¥7,000 million ($66,231thousand). The issue price was 100% of the face value. There will be no interest payment,
and the bond will be redeemed on March 31, 2009 at 100% of the face value. The subscription right is provided for free. When the rightis exercised, an amount equivalent to the bond face value must be paid in. The right can be exercised between August 2, 2004 andMarch 31, 2009 at the conversion price of ¥1,882 per share. Neither collateral nor a guarantee was provided for the bond issue.

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We have audited the accompanying consolidated balance sheets of Tomy Company, Ltd. (a Japanese corporation) and consolidated subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements ofoperations, shareholders’ equity and cash flows for the years then ended, expressed in Japanese yen. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is toindependently express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, theconsolidated financial position of Tomy Company, Ltd. and consolidated subsidiaries as of March 31, 2004 and2003, and the consolidated results of their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended
March 31, 2004 are presented solely for convenience. Our audit also included the translation of yen amounts into
U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 to theconsolidated financial statements.

Tokyo, Japan
June 25, 20044

To the Board of Directors ofTomy Company, Ltd.:00

INDEPENDENT AUDITORS’ REPORT

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SUBSIDIARY COMPANIESTOY PRODUCTS<Japan>Yujin Company, Ltd.*1
U-Ace Company, Ltd.
TOMY Direct Company, Ltd.
TOMY TEC Company, Ltd.
TOMY Development Center, Inc.
HeartLand Co., Ltd.*1
GLOW-TEC INTERNATIONAL Company, Ltd.*1
TOMY Link Company, Ltd.*1
U-MATE Company, Ltd.
<Overseas>
TOMY UK Ltd.
TOMY France S.A.R.L.
TOMY Yujin Europe Ltd.*3
TOMY Corporation
TOMY Yujin Corporation
YUJIN MICOTT KOREA CO., LTD.*1,4
TOMY (Hong Kong) Ltd.
TOMY (Thailand) Ltd.
OTHERSTOMY Ryutu Service Company, Ltd.
TOMY Kohsan Company, Ltd.
Play Kingdom Company, Ltd.*2
TOMY System Design Company, Ltd.
TOMY GENERAL SERVICE Co., Ltd.
Notes:
1. All the above subsidiaries are wholly owned, except: Yujin Company, Ltd. (88.6%), HeartLand Co., Ltd. (70.0%), GLOW-TEC INTERNATIONAL
Company, Ltd. (85.0%), TOMY Link Company, Ltd. (70.0%), and YUJIN MICOTT KOREA CO., LTD. (67.5%). Figures in brackets indicate the voting
rights of TOMY Company, Ltd.
2. Play Kingdom Company, Ltd. was dissolved on March 31, 2004.
3. TOMY Yujin Europe Ltd. is a non-consolidated subsidiary.
4. YUJIN MICOTT KOREA CO., LTD. is an equity method non-consolidated subsidiary.

(As of March 31, 2004)

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TOMY Company, Ltd.
Head Office:9-10 Tateishi 7-chome,
Katsushika-ku,
Tokyo 124-8511, Japan
Incorporated:
January 17, 1953
(founded in 1924)
Common Stock:¥2,990 million
Number of Shareholders:
17,722
Number of Shares Issued:
20,419,299 shares
Securities Traded:
Tokyo Stock Exchange, 1st Section
Number of Employees:
277(consolidated basis: 2,058)
Branch Offices:Tokyo, Osaka, Nagoya
Independent Auditors:
KPMG AZSA & Co.
Transfer Agent:
The Chuo Mitsui Trust & Banking Company, Limited(As of March 31, 2004)

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Company Name:00

CORPORATE DATA

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TOMY Company, Ltd.

Annual Report 2004

TOMY Company, Ltd.
9-10 Tateishi 7-chome, Katsushika-ku, Tokyo 124-8511, Japan
Tel: 81-3-3693-9033
Fax: 81-3-3694-7403
Web site: http://www.tomy.com

Printed in Japan