DAIICHIKOSHO

CO.,

LTD.

Financial Results in the Year ended March 2003

May 19, 2003

DAIICHIKOSHO CO., LTD.
Company code number: 7458
(URL http://www.dkkaraoke.co.jp)
Shares traded: JASDAQ
Location of headquarters: Tokyo
Please address all communications to: Tomio Suzuki, Senior Managing Director
Administration Headquarters
Phone: (03) 3280-2151
Date of Board of Directors’ meeting for approval of financial results: May 19, 2003
Adoption of U.S. accounting standards : No

Financial highlights
Years ended March 31;Millions of yen
Consolidated

1999

2000

2001

2002

2003

Net sales

94,681

88,39786,73098,591

117,057

Ordinary income

5,998

9,240

8,430

8,447

10,831

Net income

2,307

3,131

3,079

3,304

6,938

Shareholders' equity

64,481

71,79848,67849,91455,555

Total assets

168,135

159,159

123,775

131,075

131,938

Shareholders' equity per share (Yen)

3,439.13

3,829.25

2,596.50

2,726.97

3,081.34

123.09167.01

164.28176.39375.89Equity ratio (%)

38.4

45.1

39.3

38.1

42.1

Return on equity (%)

3.6

4.6

5.1

6.7

13.2

Net sales

63,302

59,884

61,20065,48974,974

Ordinary income

2,870

4,449

4,683

5,332

7,510

909

1,078

1,157

2,019

4,350

Shareholders' equity

64,08067,14542,011

42,31445,543

Total assets

120,088

112,651

78,37681,45982,546

Shareholders' equity per share (Yen)

3,417.56

3,581.05

2,240.57

2,311.78

2,530.19

Net income per share (Yen)

48.53

57.50

61.71

107.82238.37

Equity ratio (%)

53.4

59.6

53.6

52.0

55.2

Return on equity (%)

1.4

1.6

2.1

4.8

9.9

Net income per share (Yen)

Non consolidated

Net income

1DAIICHIKOSHO

CO.,

LTD.

Group organization
The Daiichikosho group (“DKG”) that consists of Daiichikosho (“DK”) and 38 subsidiaries is
engaged in the commercial karaoke business, the karaoke room business, the contents business andthe music software business.
The following is a graphic presentation of DKG’s operations.

[Factoring of the Company’s andits subsidiaries’ installment salesreceivables; personal loans]
DK Finance, Co., Ltd.

(Production and sale of software
for music and video)
Gauss Entertainment Co., Ltd.
Nippon Crown Co., Ltd.
Tokuma Japan Communications
Co., Ltd.
First Distribution Co., Ltd.

DAIICHIKOSHO CO., LTD. (Reporting company)

Domestic users

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.
16 other companies

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

Overseas users(Overseas subsidiaries)(Domestic sales subsidiaries)(Operation and management of
employee leisure facility)
D.K. Enterprises (Guam), Inc.
(Other overseas subsidiaries)
World Wide Top Co., Ltd.

(Acquisition and management of
copyrights)(Non consolidated subsidiaries)

DK Music Publishing Co., Ltd.

Daiichi Kosho Europe GmbH *2
H. K. Electronik und Musik GmbH *2(Manufacture and sale of fruit wines)

Union Eiga Co., Ltd.

Maruhagi Yoshu Kogyo, Co., Ltd.

9 other companies

Sale and rental of merchandise and products(Notes)Operation of karaoke cabins

Provision of services

1. *1 indicates companies in dormancy.
2. *2 indicates companies that are now being liquidated.
3. Daiichikosho (Shanghai), Ltd. founded in Aug.,2002 and First Distribution Co., Ltd. founded in Sep.,2002 have been
newly included among the scope of consolidation.
4. Hokkaido Daiichikosho Co., Ltd. that was retained and Otaru Daiichikosho Co., Ltd. merged in May, 2003.

2

DAIICHIKOSHO

CO.,

LTD.

1. Management policy(1) Basic management policy
DKG’s mission statement is “more music to the world, more service to the world.” Its basic
management policy is to promote musical culture and to provide field of enjoyablecommunication through karaoke.
DKG understands necessity to provide karaoke equipments and a variety range of karaoke
software that suit users’ needs, and karaoke rooms where people gather to enjoy karaoke in orderto realize the policy.
DKG aims to become an enterprise that can meet expectations of not only investors but also
every person concerned around the group by means of more expansion of the business andsecuring high revenue, centering karaoke business, building on the know-how that the group has
developed and contents that the group has accumulated.
(2) Basic policy on the distribution of profits
DKG’s top priority on the distribution of profits is the benefit of its shareholders. Concerning
dividend, its basic policy is to continue paying stable dividends, while to pay dividends
corresponding to a growth of business results. Concerning retained earnings, its basic policy is toinvest it in development of new products and operating assets systematically and effectively inorder to raise its market share and extend earning foundations.
(3) Basic policy on a round lot reduction
DK will examine about this carefully, considering the benefit of its shareholders.
(4) Medium and long-term management strategy
DKG aims to be an overall service corporation of music and information, expanding the karaokecommunication network, creating new service.
(5) Basic policy on Corporate Governance and status of policy implementation
Basic policy on Corporate Governance
DKG has introduced the corporate executive officer system that make function of the board of
directors strengthen and make a prompt decision in order to establish efficient groupmanagement, aiming to realize its basic management policy, quickly adapting to businessenvironments that change continuously and severely. DKG makes an effort to disclose prompt
and accurate information for the purpose of raising transparency of its management.
Status of policy implementation
DK holds a weekly management meeting that corporate auditors attend, a regular board of
directors’ meeting monthly, in addition, an extraordinary board of directors’ meeting as the needarises.
(6) Subjects to be handled① DKG will invest maximum effort in sales and rental of the telecommunication karaokeequipment “DAM” in order to expand its telecommunication karaoke network that is thesource of revenues of sound delivery services.
② As of March 31, DKG operates 192 karaoke room stores. DKG aims to achieve an
operating-profit ratio of 15%, by closing unprofitable stores, opening large-scale stores in
the metropolitan area and provincial cities, and differentiation.

3

DAIICHIKOSHO

CO.,

LTD.

③ DK broadcasts programs via the direct-broadcast-satellite provider, Sky PerfecTV, through 2
TV channels and 100 radio channels. DKG aims to make this operation be in the black early.
④ DKG aims to increase the synergies between the music software business and its karaoke
operations due to strengthening the operating foundations of 2 music-recording subsidiaries
that constitute the music software business by means of restructuring.
⑤ DK aims to raise its ROE.
(7) Basic policy on related party transactions
DK’s basic policy on related party transactions is to disclose all.
(8) Target performance indicators
DK aims to achieve that its Consolidated ROE exceeds 12% by the end of FY2005.
2. Results of operations and financial condition(1) Summary of the fiscal year to March 2003
① Results of operations
In the Japanese economy during the year to March 2003, although there ware brightsigns for a while due to expectation for personal consumption, the Japanese economy
continued to be severer compared with the previous fiscal year because of exports that
weren’t increasing as much as expected, severe employment conditions, the Iraq War, and afall in stock prices.
In the karaoke industry, the business environment was severe due to a depression.
Selection and amalgamation to survive progressed, with price competition becoming
intense.
Under these conditions, DKG concentrated on sale and rental of chiefly “cyber DAM”
which was main house brand and electronic music selection remote control “Denmoku” into
which various title-search function and remote-control function were united in order to raise
its market share further regarding the commercial karaoke business. DKG opened new
karaoke room stores and closed unprofitable ones carefully and aggressively in order toimprove the rate of return regarding the karaoke room business. DKG endeavored toincrease customers in the satellite broadcasting business and the e-commerce business thatprovided customized ring tones for cellular phones. In the music software business, DKG
aimed to raise the profit by means of integrating sales departments of two subsidiaries that
constitute the music software business into a sales company that was established in order tostreamline the sales departments.
As a result, net sales increased by 18.7 % to 117,057 million yen in FY2003 comparedwith FY2002, operating income increased by 31.4 % to 12,493 million yen in FY2003
compared with FY2003, ordinary income increased by 28.2% to 10,831 million yen in
FY2003 compared with FY2002, net income increased by 110.0% to 6,938 million yen in
FY2003 compared with FY2002, main factors that impact on net income were write-off on
consolidation adjustments account of 1,742million yen, income taxes-deferred that wascaused by sales of revalued land of 2,499 million yen.

4

DAIICHIKOSHO

CO.,

LTD.

Business segment information (percentage changes, year-on-year)
Commercial karaoke business
Sales: 61,498 million yen (+14.4%)
Operating income: 9,756 million yen (+16.1%)
In this segment, popular “Denmoku” aroused replacement demand for “cyber DAM”
during the first half of the fiscal year and “New cyber DAM” that could use broadband
internet service during the second half of fiscal year. As the result, the number ofmerchandise shipment increased by 48.0% in FY2003 compared with FY2002.
Although the number of rental increased, rental sales decreased minutely due todeclines in rents of karaoke equipment.
While revenues from providing karaoke-streaming service increased as customer
increased, with the result that net sales increased by 14.4%, operating income increased by
16.1% in FY2003 compared with FY2002.
Karaoke room business
Sales: 23,722 million yen (+7.9%)
Operating income: 2,358 million yen (+65.7%)
In this segment, DKG operated 190 karaoke room stores in the country and 2 ones inforeign countries with name of a store “BIG ECHO”
Under severe business environment that users of karaoke decreased, DKG opened 2
ones in the metropolitan area, and 8 ones that had bought from peer companies, meanwhile,closed 15 unprofitable ones in order to improve its profit ratio. As a result, net sales
increased by 7.9%, operating income increased by 65.7% in FY2003 compared with
FY2002.
Contents business
Sales: 10,308 million yen (+13.3%)
Operating income: 1,932 million yen (+53.1%)
In the satellite broadcasting business, although personal use subscription was on thedecrease gradually, commercial use subscription increased steadily.
In the e-commerce business, although charge of customized ring tones service forcellular phones declined, the number of contracts increased steadily. As a result, net sales
increased by 13.3%, operating income increased by 53.1% in FY2003 compared with
FY2002.
Music software business
Sales: 16,648 million yen (+82.8%)
Operating income: -82 million yen
Under the condition that the music CD market continued to be stagnant, sales
company, First Distribution Co., Ltd. was established in order that the business in thissegment may strengthen and streamline. Robust sales of albums of “Gackt” who belonged
to Nippon Crown Co., Ltd. and the audio-visual software the title of “Spirited Away” thatbelonged to Tokuma Japan Communications Co., Ltd. contributed greatly to its revenue. As
a result, net sales increased by 82.8%, operating loss improved by 250 million yen in
FY2003 compared with FY2002.

5

DAIICHIKOSHO

CO.,

LTD.

Other business
Sales: 4,879 million yen (+4.8%)
Operating income: 627 million yen (-9.9%)This segment mainly consists of the restaurant business and rents of real estatebusiness. Although net sales increased by 4.8% in FY2003 compared with FY2002,
operating income decreased by 9.9% in FY2003 compared with FY2002, largely due to arise in its sales cost ratio.
② Cash flows
Although income before income taxes and minority interest in consolidated
subsidiaries decreased by 3.9% to 6,516 million yen in FY2003 compared with FY2002,
proceeds from origination of long-term borrowings increased. As a result, consolidated cash
and cash equivalents increased by 2,513 million yen to 22,831 million yen at the end of
FY2003 compared with the end of FY2002.
The following is the conditions of consolidated cash flows.
(Cash flows from operating activities)
Cash flows from operating activities resulted in an increase in cash by 19,876 million
yen in FY2003, mainly due to increases in depreciation expenses by 1,049 million yen, gain
and loss on sales of investment securities by 1,213 million yen, and amortization of
consolidation adjustments account by 1,867 million yen. Net cash provided by operating
activities increased by 5,066 million yen in FY2003 compared with FY2002.
(Cash flows from investing activities)
Cash flows from investing activities resulted in a decrease in cash by 14,286 million
yen in FY2003, mainly due to increase in time deposits by 1,426 million yen, decreases inproceeds from decrease in time deposits by 1,063 million yen and proceeds from sales ofinvestments in securities by 1,392 million yen in FY2003 compared with FY2002. Net cashused in investing activities decreased by 3,079 million yen in FY2003 compared with
FY2002.
(Cash flows from financing activities)
Cash flows from financing activities resulted in a decrease in cash by 3,076 million
yen in FY2003, mainly due to an increase in proceeds from origination of long-termborrowings by 5,996 million yen, decreases in payments for repayment of long-termborrowings by 1,171 million yen and net increase and decrease in short-term borrowings by
5,099 million yen in FY2003 compared with FY2002. Net cash provided by financing
activities increased by 2,561 million yen in FY2003 compared with FY2002.

6

DAIICHIKOSHO

CO.,

LTD.

(2) Outlook for the next fiscal year
There is no expectation so far that capital investments by the private sector andpersonal consumption expenditure will recover due to volatile international situation anduncertain business conditions, and therefore severer business conditions compared withcurrent period will continue.
In the karaoke industry, the operating environments will be severe in the same way.
The bipolarization in the market concerned will grow more distinct.
Under these conditions, DKG will aim to expand the top share of thetelecommunication karaoke market by means of improvement and differentiation of thehouse brands, and enrichment of the service. DKG will endeavor to improve profitability
and investing efficiency of the karaoke room business by means of the opening of new
karaoke room stores that are in locations selected carefully, the closing of unprofitable ones,
and raising the level of the service. DKG will endeavor to increase the number ofcommercial use subscriptions and to reduce its costs for the purpose of quick recovery fromdeficit in the satellite broadcasting business, will concentrate on the sales promotion andenrichment of the service for the purpose of the expansion of its revenue in the e-commercebusiness. In the music software business, DKG will endeavor to improve profitability bymeans of making various measures be specific.
Due to fulfilling the preceding measures, DKG is planning to achieve net sales of
1,155 hundred million yen, ordinary profit of 117 hundred million yen, and net income of 57
hundred million yen for the next fiscal year.

7

DAIICHIKOSHO

CO.,

LTD.

Consolidated balance sheets
Years ended March 31; Millions of yen

2002

%

2003

36.8

26,077
13,786
9
6,689
3,852
4,021
( 1,235)
53,201

36.7

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

6.2

−
7,709
7,709

20.3
63.2
100.0

3,084
3,719
3,930
−
11,824
4,596( 3,096)
24,05978,736
131,938%

Year-on-yearchange40.3

3,967( 953)
0( 686)
2,657( 197)
164
4,951

35.6

( 1,548)
1,432( 266)( 969)
97143( 1,110)

5.9( 1,336)897( 438)

18.2
59.7
100.0

( 1,253)
(
97)
1,891
( 2,251)( 487)( 608)
267( 2,539)( 4,088)
862

Current assets
Cash and deposits
Trade notes and accounts receivable - total
Marketable securities
Inventories
Deferred income taxes
Other current assets
Allowance for doubtful accounts

22,11014,740
9
7,376
1,194
4,219
( 1,400)
48,250

Fixed assets
Property, plant and equipment
Buildings and structures
Karaoke equipment for rental
Karaoke-room facilities
Land
Construction in progress
Other property, plant and equipment

11,924
7,208
10,04017,054
84
1,765
48,077

Intangible fixed assets
Consolidation adjustments account
Other intangible fixed assets
Investments and other assets
Investments in securities
Long-term loans
Deferred income taxes
Deferred income taxes arising from revaluation
Leasehold deposits
Other investments and other assets
Allowance for doubtful accounts
Total fixed assets
Total assets

1,336
6,811
8,148
4,337
3,816
2,038
2,251
12,312
5,204( 3,363)
26,59982,825131,075

8

DAIICHIKOSHO

Years ended March 31; Millions of yen

CO.,

2002

LTD.

%

2003

33.7

6,537
18,782
5,825
1,154
1,032
759
2,506
36,59814,30016,404
249
2,642
−
1,182
34,77878,992%Year-on-yearchangeCurrent liabilities
Trade notes and accounts payable - total
Short-term borrowings - total
Accounts payable - other
Income taxes payable
Allowance for bonuses
Unrealized profit on installment sales
Other current liabilities

7,697
23,135
5,871
2,593
1,080
869
2,966
44,213

27.7

(
(
(
(
(
(
(
(

1,160)
4,352)
45)
1,438)
47)
110)
460)
7,615)

26.5
60.2

12,16521,049
226
2,696
1,105
1,238
38,48275,08029.2
56.9( 2,135)
4,645
(
22)
54
1,105
56
3,703
( 3,911)

2,169

1.7

1,301

1.0

(

Common stock
Additional paid-in capital
Unrealized gains or losses on land valuation
Consolidated retained earnings
Unrealized gains or losses on securities
Foreign currency conversion adjustments
Treasury stock

12,34824,000( 25,189)
38,889
(
352)
233
(
15)

9.4
18.3
( 19.2)29.7( 0.3)
0.2( 0.0)

−
−
−
−
−
−
−

−
−
−
−
−
−
−

( 12,348)( 24,000)
25,189( 38,889)
352
(
233)
15

Common stock
Capital surplus
Retained earnings
Unrealized gains or losses on land valuation
Unrealized gains or losses on securities
Foreign currency conversion adjustments
Treasury stock
Total shareholders’ equity
Total liabilities, minority interests and shareholders'equity

−
−
−
−
−
−
−
49,914

−
−
−
−
−
−
−
38.1

12,34824,00029,879( 10,005)
(
103)
135
(
700)
55,555

9.4
18.2
22.6
( 7.6)( 0.1)
0.1( 0.5)
42.1

12.34824,00029,879( 10,005)
(
103)
135
(
700)
5,641

131,075

100.0

131,938

100.0

862

Long-term liabilities
Convertible bonds
Long-term borrowings
Deferred income taxes
Allowance for retirement benefits
Consolidation adjustments account
Other long-term liabilities
Total liabilities

Minority interest in consolidated
subsidiaries

867)

Shareholders' equity

9DAIICHIKOSHO

CO.,

LTD.

Consolidated statements of income
2002

%

2003

%

Year-on-yearchange (%)

Net sales
Cost of sales
Gross profit before adjustment for unrealized profit
on installment sales

98,591
55,71042,880

100.0
56.5
43.5

117,057
67,72049,337

100.0
57.9
42.1

118.7
121.6
115.1

Unrealized profit on installment sales - reversal
Unrealized profit on installment sales - deferred

269
162
106
42,98733,478
9,508

0.1
43.6
34.0
9.6

243
132
110
49,44736,954
12,493

0.1
42.2
31.6
10.6

115.0
110.4
131.4

1.7

619
42
1,136
1,798

1.6

106.5

2.7
8.6

658
475
1,140
19
−
1,165
3,460
10,831

2.9
9.3

125.9
128.2

Years ended March 31; Millions of yen

Gross profit on sales
Selling, general and administrative expenses
Operating income
Non operating income
Interest and dividend income
Profit on retirement of convertible bonds
Other non operating income

685
41
961
1,688

Non operating expenses
Interest expenses
Loss on disposal of inventories
Loss on valuation of inventories
Provision for allowance for doubtful accounts
Equity in loss of affiliated companies
Other non operating expenses

707
654
398
410
103
475
2,749
8,447

Ordinary income
Extraordinary gain
Gain on sales of fixed assets
Gain on sales of investment securities
Reversal of allowance for doubtful accounts
Gain resulting from change in retirement benefit
accounting standards

4
532
50
−
588

Extraordinary loss
Loss on disposal of fixed assets
Loss on valuation of investment securities
Loss on valuation of memberships in leisure facilities
Directors' retirement allowances
Loss on sales of investment securities
Amortization of consolidation adjustments accountIncome before income taxes and minority interestin consolidated subsidiaries
Income taxes - current
Income taxes - deferred
Minority interest in consolidated subsidiaries
Net income

0.6

492

0.4

83.7

704
1,036
17
498
−
−
2,256

2.3

1,626
515
−
156
767
1,742
4,808

4.1

213.1

6,779

6.9

6,516

5.6

96.1

(0.1)
3.3

1,999
( 2,499)
76
6,938

0.1
5.9

( 55.4)
210.0

3,515
97
(138)
3,304

10

15
87
126
262

DAIICHIKOSHO

CO.,

LTD.

Consolidated statement of retained earnings
Years ended March 31; Millions of yen

2002

2003

Retained earnings at beginning of year
Decrease in retained earnings
Dividends
Bonuses to directors and corporate auditors
Reversal of revaluation differences
Retirement of treasury stock
Decrease due to merger of consolidated subsidiaries

37,782

−

656
88
241
836
375
2,197

−
−
−
−
−
−

Net income
Retained earnings at end of year

3,304
38,889−−−−24,00024,000−38,889

−

6,938

−
−
−
−
−

658
105
15,184
15,94829,879(Capital surplus)
Capital surplus at beginning of period
Capital surplus at end of period(Retained earnings)
Retained earnings at beginning of period
Increases in retained earnings
Net income
Decreases in retained earnings
Dividends
Bonuses to directors and corporate auditors
Land revaluation differences
Retained earnings at end of period

11

DAIICHIKOSHO

CO.,

LTD.

Consolidated statement of cash flows
Years ended March 31; Millions of yen

Cash flows from operating activities
Income before income taxes and minority interest inconsolidated subsidiaries
Depreciation expenses
amortization of consolidation adjustments account
Increase (decrease) in allowance for doubtful accounts
Interest and dividend income
Profit on retirement of convertible bonds
Gain and loss on sales of investment securities
Profit on prior period adjustment of royalty of the copyrightInterest expenses
Loss on disposal of fixed assets
Loss on valuation of investment securities
Decrease in trade receivables
Increase in trade payables
OthersSubtotalInterest and dividend received
Interest paid
Income taxes paid
Cash flows from operating activities
Cash flows from investing activities
Increase in time deposits
Proceeds from decrease in time deposits
Proceeds from sales of marketable securities
Payments for acquisition of tangible fixed assets
Proceeds from sales of tangible fixed assets
Payments for acquisition of intangible fixed assets
Payments for purchase of investment securities
Proceeds from sales of investment securities
Payments for acquisition of subsidiary's capital
Payments for loans
Proceeds from collection of loans
Payments of leasehold deposits
Proceeds from repayments of leasehold deposits
OthersCash flows from investing activities
Cash flows from financing activities
Net (decrease) increase in short-term borrowings
Proceeds from origination of long-term borrowings
Payments for repayment of long-term borrowings
Payments for retirement of convertible bonds
Dividends paid
Payments for repurchase of treasury stock
OthersCash flows from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents due to increase in number of
newly consolidated subsidiaries
Cash and cash equivalents at end of year

12

(
(

(
(

(
(

2002

2003

6,779

6,516

10,262
108
926
685)
(41)
532)
−
707
699
1,053
412
835)
752)
18,103679
731)
3,241)
14,81011,312
1,975
21)
619)
42)
680
262)
658
1,610
515
835
723)
890
23,325619
629)
3,438)
19,876

(
(
(
(

(

(
(

( 1,787)
2,823
101( 8,774)388( 4,235)( 1,340)
2,466
(
779)
( 1,125)
1,193( 1,230)891(
200)( 11,206)( 3,213)
1,759−( 9,959)983( 4,610)
(
908)
1,073
(
442)
( 1,628)
1,846
(
433)
808
438
( 14,286)

444
12,649( 14,777)( 2,508)
(
652)
(
865)
71
( 5,638)11( 2,022)
21,499839( 4,655)
18,646( 13,606)( 2,091)
(
660)
(
685)
(
24)
( 3,076)(
0)
2,513
20,317−

20,317

22,831DAIICHIKOSHO

CO.,

LTD.

Assumptions underlying preparation of consolidated financial statements
Item

Assumptions underlying preparation of consolidated financial statements

1. Item relating to scope of
consolidation(1) Number of consolidated subsidiaries: 38(2) Names of major non consolidated subsidiaries:
Because of the small size of their operations, Union Eiga Co., Ltd., Crown MusicEnterprise Co., Ltd. and Zoom Republic Co., Ltd. have been excluded fromconsolidation on the grounds of lack of materiality(1) Affiliate accounted for by the equity method: None
(2) Affiliate not accounted for by the equity method:
Because of its small impact on profits, Union Eiga Co., Ltd., Crown Music EnterpriseCo., Ltd., Zoom Republic Co., Ltd., etc. have not been consolidated under the equity
method on the grounds of lack of materiality

2. Item relating toapplication of the equity
method3. Item relating to the fiscal
years of subsidiaries

4. Items related toaccounting standards

The following consolidated subsidiaries have fiscal-year ends that differ from that of thereporting company. In preparing the consolidated financial statements, the Company used
the financial statements prepared by these subsidiaries as of their respective year-end
dates. In the event that an important transaction occurs between the year-end dates andthe date of consolidated closing, the Company makes the necessary adjustments forpurposes of consolidation.
Companies with December 31 year-ends: Shanghai Sogei Ongaku Goraku Co., Ltd.;
Saha Daiichi Kosho Co., Ltd., Daiichikosho (Shanghai), Ltd.
Companies with March 20 year-ends: Nippon Crown Co., Ltd.; Tokuma Japan
Communications(1) Standards and methods of valuation for important assets{1} Marketable and investment securities
Bonds held to maturity: cost amortization method (straight line)
Other securities:
Quoted securities: market value method, based on market prices etc.
Unquoted securities: valued at cost using the moving average method{2} Inventories
Valued at cost, using the moving average method(2) Depreciable assets and methods of depreciation{1} Tangible fixed assets: declining-balance method (certain buildings, however, aredepreciated on a straight-line basis){2} Intangible fixed assets: straight-line method(3) Standards for important allowances{1} Allowance for doubtful accounts: allowance recognized on the basis of a statutory
deduction ratio{2} Reserve for bonuses: estimated-payment standard{3} Reserve for employees' retirement benefits: amounts based on retirement-benefit
liabilities and estimated pension assets as of the end of the fiscal year(4) Standard for converting foreign currency-denominated assets and liabilities
Foreign currency-denominated assets and liabilities are converted into yen at market
rates on the day of the closing of accounts, with any gains or losses from conversion
recognized on the income statement. Any gains or losses resulting from theconversion at current market rates of assets, liabilities, revenues or expenses ofoverseas subsidiaries etc. are debited or credited to the foreign currency adjustment
account of the shareholders’ equity section of the balance sheet.
(5) Accounting for significant lease transactions
Financing leases are treated as ordinary rental transactions(6) Hedge accounting methods
The Company hedges against risks of interest rate fluctuations by engaging in interest
rate swap transactions(7) Others{1} Accounting for installment sales: profits on installment sales are deferred{2} Accounting for consumption taxes: tax-exclusion method

13

DAIICHIKOSHO

CO.,

LTD.

Item

Assumptions underlying preparation of consolidated financial statements

5. Amortization of
consolidated adjustment
account
6. Scope of funds in the
consolidated statement ofcash flow

Amortized in equal installments over a 5 or 15 years period

Funds are defined as cash on hand, readily withdrawable deposits, and short-term
investments with maturities of less than three months from date of purchase

Notes(Consolidated balance sheet-related)
Millions of yen

2002

2003

1. Aggregate amount of depreciation on fixed assets
50,71649,268
2. Guarantee liabilities
1,329
1,136
3. Assets provided as collateral
22,55023,195
Secured liabilities
21,27122,809
4. The Company (Daiichikosho Co., Ltd.) revalued its land holdings as provided for under the “Law Relating to the
Revaluation of Land.” Differences resulting from this revaluation were debited to (decreased) the shareholders’ equity
section of the balance sheet.
(1) Date of revaluation of land: March 31, 2001
(2) Method of revaluation: revaluations based on land tax-related
appraisals, to which reasonable adjustments were made(3) Difference between the total market value of revalued land as of theend of last fiscal year and the total book value of such land after
revaluation

14

(483)

DAIICHIKOSHO

CO.,

LTD.

Segment information
Segment information by business category
Commercial
karaokebusiness

Karaokeroombusiness

Contents
businessMusicsoftwarebusiness

Otherbusiness

Sales
External customer sales
Intersegment transactions
and eliminations

61,498143

23,722−

10,308−

16,648
234

4,879
449

117,057
826

Total
Operating expenses
Operating income

61,642
51,885
9,756

23,722
21,3642,358

10,308
8,375
1,932

16,882
16,964
(
82)

5,328
4,701
627

117,884
103,291
14,593

AssetsDepreciation
Capital expenditure

65,657
7,505
9,194

23,852
2,073
2,625

5,352
925
1,156

11,150
50
21

8,170
422
1,110

114,183
10,977
14,109Commercial
karaokebusiness

Karaokeroombusiness

Contents
businessMusicsoftwarebusiness

Otherbusiness

Sales
External customer sales
Intersegment transactions
and eliminations

53,745
149

21,980
-

9,097
-

9,109
108

4,658
392

98,591
651

Total
Operating expenses
Operating income

53,89545,4948,400

21,98020,557
1,423

9,097
7,835
1,262

9,218
9,550
332)

5,051
4,355
696

99,242
87,792
11,449AssetsDepreciation
Capital expenditure

65,206
6,371
8,209

24,037
1,957
2,958

4,964
859
941

14,581
54
6

9,647
655
1,022

118,436
9,898
13,138Millions of yen
2002

Millions of yen
2002(

Total Eliminations Consolidated

(
(
(

−
826)

117,057
−

826)
1,272
2,099)

117,057
104,564
12,49317,75561
124

131,938
11,038
14,233

Total Eliminations Consolidated

(
(
(

651)

98,591
-

651)
1,290
1,941)

98,591
89,082
9,508

12,63961
23131,075
9,960
13,161

Segment-related businesses
1. Commercial karaoke businessIn this segment, DKG sells and rents karaoke equipment and karaoke software, and provides
karaoke streaming services for telecommunications-based systems.
2. Karaoke room businessIn this segment, DKG rents karaoke rooms on an hourly basis and provides food and drink.
3. Contents businessIn the e-commerce business, DK distributes customized ring tones to users of cellular phones;
while in the satellite broadcasting business, DK broadcasts programs via thedirect-broadcast-satellite provider, Sky PerfecTV, through 2 TV channels and 100 radio channels.
4. Music software businessIn this segment, DKG produces and sells software for music and video.
5. Other business
Other operations include a real estate rental operation, restaurants and other activities.

15

DAIICHIKOSHO

CO.,

LTD.

2002

%

2003

29.6

13,980
2,142
5,753
2,761
120
1,523
254
733
3,362
822
475
268
(
437)
31,761

26.2

4,569
335
643
3,621
6,058
4,807
191
20,228

7.6

2
44
6
3,891
2,932
210
7,087

36.6
70.4
100.0

2,252
5,178
704
100
5,717
1,012
130
2,438
−
984
9,069
569
( 4,687)
23,46950,78582,546

Non consolidated balance sheet
Years ended March 31; Millions of yen%

Year-on-yearchange

38.5

4,937
83
406)
597)
11
292
93)
88)
2,664
822
151)
70
87
7,632

Current assets
Cash and deposits
Trade notes receivable
Trade accounts receivable
Merchandise
Finished products
Work in process
Advances paid
Prepaid expenses
Deferred income taxes
Income taxes receivable
Current portion of long-term loans
Other current assets
Allowance for doubtful accounts

9,043
2,058
6,160
3,359
108
1,230
347
822
698
−
626
198
(
525)
24,128

(
(

(
(

(

Fixed assets
Property, plant and equipment
Buildings
Structures
Tools, furniture and fixtures
Karaoke equipment for rental
Karaoke-cabin facilities
Land
Other property, plant and equipment

5,279
510
673
2,656
6,065
6,051
87
21,324

Intangible fixed assets
Patent rights
Leaseholds
Trademarks
Software
Audio-visual software
Other intangible fixed assets
Investments and other assets
Investment in securities
Capital stock of affiliated companies
Investments
Investment in affiliates
Long-term loans
Bankrupt or quasi-bankrupt assets
Long-term prepaid expenses
Deferred income taxes
Deferred Income taxes arising from revaluation
Prepaid pension assets
Deposits and guarantee money
OthersAllowance for doubtful accounts
Total fixed assets
Total assets

−
44
11
3,503
2,432
211
6,204
3,376
7,857
833
−
7,067
1,207
133
592
2,251
951
9,233
693
( 4,395)
29,80257,33181,459

16

(
(
(

24.5

709)
175)
30)
964
(
6)
( 1,243)104( 1,096)

8.6

2
−
5)
387
499
1)
882

28.4
61.5
100.0

( 1,123)( 2,678)(
128)
100( 1,350)
(
194)
(
3)
1,846
( 2,251)
33
(
164)
(
124)
(
292)
( 6,332)( 6,546)
1,086

(

(

DAIICHIKOSHO

CO.,

LTD.

2002

%

2003

23.7

2,365
2,617
1,250
3,388
3,884
110
−
406
302
631
301
15,25814,300
4,176
959
390
19,82639,145
12,34824,000485( 25,189)

Years ended March 31; Millions of yen%

Year-on-yearchangeCurrent liabilities
Notes payable - trade
Accounts payable - trade
Short-term borrowings
Current portion of long-term borrowings
Accounts payable – otherAccrued expenses
Income taxes payable
Consumption taxes payable
Unrealized profit on installment sales
Allowance for bonuses
Other current liabilities

3,152
1,938
4,321
2,467
4,530
89
1,423
87
309
665
332
19,318

(

18.5

787)
679
( 3,071)
921
(
645)
21
( 1,423)
318
(
7)
(
34)
(
31)
( 4,060)

24.3
48.0

12,165
8,179
1,002
397
21,74437,002

26.3
44.8( 2,135)
4,003
42
6
1,917
( 2,142)

15.1
29.5
0.6
( 30.9)

−
−
−
−

−
−
−
−

( 12,348)( 24,000)(485)
25,18929,4501,586
31,03638.1(351) ( 0.4)(
15) ( 0.0)

−
−
−
−
−

−
−
−

( 29,450)( 1,586)( 31,036)
351
15

−

12,34814.9

12.348−4,000
20,00020,00024,00029.1

4,000
20,00020,00024,00029,750( 9,750)
19,99924.2( 10,005) ( 12.1)(
99) ( 0.1)(700) ( 0.8)
45,54355.2

29,750( 9,750)
19,999( 10,005)
(
99)
(
700)
3,228

Long-term liabilities
Convertible bonds
Long-term borrowings
Allowance for retirement benefits
Other long-term liabilities
Total liabilities

Shareholders' equity
Common stock
Additional paid-in capital
Earned reserve
Unrealized gains or losses on land valuation
Other earned surplus
Voluntary reserve
Unappropriated retained earnings at end of year
Total other earned surplus
Unrealized gains or losses on securities
Treasury stock−

Common stock
Capital surplus
Additional paid-in capital
Other additional paid-in capitalGain from additional paid-in capital
Total capital surplus
Retained earnings
Voluntary reserve
Unappropriated retained earnings at end of year
Total retained earnings
Land revaluation differences
Unrealized gains or losses on securities
Treasury stock
Total shareholder’s equity

−
−
−
−
−
−
42,314

−
−
−
−
52.0

Total liabilities and shareholders' equity

81,459

100.0

−
−
−
−

17

82,546

100.0

1,086

DAIICHIKOSHO

CO.,

LTD.

Non consolidated statements of income
2002

%

2003

%

Year-on-yearchange (%)

Net sales
Cost of sales
Gross profit before adjustment for unrealized profit
on installment sales

65,48940,877
24,611

100.0
62.4
37.6

74,974
46,52928,445

100.0
62.1
37.9

114.5
113.8
115.6

Unrealized profit on installment sales - reversal
Unrealized profit on installment sales - deferred

108
243
(135)
24,475
18,583
5,892

(0.2)
37.4
28.4
9.0

196
189
7
28,452
20,326
8,125

0.0
37.9
27.1
10.8

116.3
109.4
137.9

1.3

485
42
126
411
1,066

1.4

122.1

2.2
8.1

235
93
144
712
495
1,681
7,510

2.2
10.0

117.3
140.9

0.7

88.2

8.0
2.7

366.2
47.3

5.8

215.4

Years ended March 31; Millions of yen

Gross profit on sales
Selling, general and administrative expenses
Operating income
Non operating income
Interest and dividend income
Profit on retirement of convertible bonds
Commissions income
Other non operating income

277
41
148
406
873

Non operating expenses
Interest expenses
Loss on disposal of inventories
Loss on valuation of inventories
Provision for allowance for doubtful accounts
Other non operating expenses

215
202
280
404
331
1,434
5,332

Ordinary income
Extraordinary gain
Gain on sales of fixed assets
Gain on sales of investment securities
Reversal of allowance for doubtful accounts
Profit on prior period adjustment of royalty of the
copyright

−
13
206
262

4
488
53
−
546

Extraordinary loss
Loss on sales and disposal of fixed assets
Loss on valuation of investment securities
Loss on valuation of membership in leisure facilities
Directors' retirement allowances
Loss on sales of investment securities
Loss from valuation of shares in affiliates

467
1,018
10
137
−
−
1,634
4,244
2,036
188
2,019
644
−
241
836
1,586

Income before income taxes
Income taxes – current
Income taxes – deferred
Net income
Unappropriated retained earnings brought forward
Earned reserve drawn downLand revaluation differences drawn down
Retirement of treasury stock
Unappropriated retained earnings at end of year

18

0.9

2.5
6.5

3.1

482
1,278
483
−
83
767
3,370
5,984
2,009
100
( 2,441)
4,350
598
485
( 15,184)−( 9,750)DAIICHIKOSHO

CO.,

LTD.

Proposal for appropriation of retained earnings
Years ended March 31; Millions of yen

2002

Unappropriated retained earnings at end of year
Reversal of voluntary reserve
Reversal of general reserves
Total
Appropriation of retained earnings
Dividends
Bonuses to directors and corporate auditors
Voluntary reserve
General reserves
Unappropriated retained earnings to be carried forward

2003

1,586

( 9,750)

1,586

11,150
1,399

658
30
300

683
36
988
598

−

719
679

Important accounting policies
Item

Accounting policies

1. Methods of valuation formarketable and investment
securities(1) Shares in subsidiaries and affiliated companies: valued at cost using the moving
average method(2) Other securities:
Quoted securities: market value method, based on market prices etc.
Unquoted securities: valued at cost using the moving average method(1) Merchandise and finished goods: valued at cost, using the moving averagemethod(2) Work in process: valued at cost, using the specific identification method

2. Methods of valuation forInventories
3. Depreciable assets andmethods of depreciation(1) Tangible fixed assets: declining-balance method (certain buildings, however, aredepreciated on a straight-line basis)(2) Intangible fixed assets: straight-line method

4. Standards for important
allowances(1) Allowance for doubtful accounts: allowance recognized on the basis of a statutory
deduction ratio(2) Reserve for bonuses: estimated-payment standard(3) Reserve for employees' retirement benefits: amounts based on retirement-benefit
liabilities and estimated pension assets as of the end of the fiscal year

5. Accounting for significant
lease transactions
6. Accounting for installment
sales
7. Accounting for
consumption taxes

Financing leases are treated as ordinary rental transactions
Profits on installment sales are deferred
Tax-exclusion method

19

DAIICHIKOSHO

CO.,

LTD.

Notes
(Non consolidated balance sheet-related)
Millions of yen

2002

2003

1. Aggregate amount of depreciation on fixed assets
23,52023,098
2. Guarantee liabilities
6,624
5,645
3. Assets provided as collateral
4,505
4,239
Secured liabilities
5,482
6,677
4. The Company (Daiichikosho Co., Ltd.) revalued its land holdings as provided for under the “Law Relating to the
Revaluation of Land.” Differences resulting from this revaluation were debited to (decreased) the shareholders’ equity
section of the balance sheet(1) Date of revaluation of land: March 31, 2001
(2) Revaluations based on land tax-related appraisals, to which reasonableadjustments were made(3) Difference between the total market value of revalued land as of theend of last fiscal year and the total book value of such land after
revaluation

20

(483)

DAIICHIKOSHO

CO.,

LTD.

Management (FYI) as of June 25, 2003
ChairmanTadahiko Hoshi

President
and Senior Executive Corporate Officer

Tatsuyoshi Yoneda

Managing Director andSenior Executive Corporate Officer

Shinichi Koshimizu

Supreme Manager for
Production Headquarters

Managing Director andSenior Executive Corporate Officer

Shinichi Matukawa

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

Managing Director andSenior Executive Corporate Officer

Hiroshi Mino

Executive Director,
Development Headquarters
Supreme Manager forIntellectual Property

Director (Newly appointed)
Corporate officer

Saburou Hayashi

Executive Director,
Sales Management Headquarters andGeneral Manager,
Branch Sales Dept.

Director (Newly appointed)
Corporate officer

Tomohiro Midorikawa

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

Director (Newly appointed)
Corporate officer

Eiji Hata

Executive Director,
Administration Headquarters andGeneral Manager,
Finance Dept.

Standing Statutory Auditor

Juichi Ishikawa

Standing Statutory Auditor

Haruhiko Tamura

Standing Statutory Auditor

Nobuyuki Takase

Statutory Auditor

Kumiko Takahashi

Statutory Auditor

Masumi Arichika

Corporate officer

Shinji Arima

General Manager,
Auditing Dept.

Corporate Officer

Takachika Narahara

General Manager,
Corporate Sales Dept.

21

DAIICHIKOSHO

CO.,

LTD.

Corporate Officer

Yasuyuki Suzuki

General Manager,
Accounting Dept.

Corporate Officer

Hirotsune Tahara

Vice Executive Director,
Administration Headquarters, andGeneral Manager,
General Affairs Dept.

Corporate Officer

Yuji Yamamoto

Executive Director,
Production Headquarters andGeneral Manager,
Contents Planning Dept.

Corporate Officer

Shunichi Sadasue

General Manager,
Contents Production Dept.

Corporate Officer (Newly appointed)

Osamu Arima

General manager,
Big Echo DivisionCorporate Officer (Newly appointed)

Tatsuya KumagaiVice Executive Director,
Development Headquarters andGeneral Manager,
Product Development Dept.

Corporate Officer (Newly appointed)

Akira Miyake

Vice Executive Director,
Sales Management Headquarters andGeneral Manager,
e-Business Division andSatellite Broadcasting DivisionCorporate Officer (Newly appointed)

Kentarou Kurokawa

General Manager,
Information system Dept.

Corporate Officer (Newly appointed)

Yuuichi Murai

General Manager,
Marketing and Advertising Dept.

Corporate Officer (Newly appointed)

Yasutaka Wada

General Manager,
Production Management Dept.

Corporate Officer (Newly appointed)

Syouichi Maruta

General Manager,
Corporate planning Office22