SANRIO COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED - PDF by sqi14466

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									SANRIO COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES

       CONSOLIDATED FINANCIAL STATEMENTS

        FOR THE YEAR ENDED MARCH 31, 2004
                            Report of Independent Auditors




To the Board of Directors and Shareholders of Sanrio Company, Ltd.

We have audited the accompanying consolidated balance sheets of Sanrio Company, Ltd.
and its subsidiaries as of March 31, 2004 and 2003, and the related consolidated
statements of income, shareholders' equity, and cash flows for the years then ended, all
expressed in Japanese yen.        These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated 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, the consolidated financial position of Sanrio Company, Ltd. and its
subsidiaries as of March 31, 2004 and 2003, and the consolidated results of their
operations and their cash flows for the years then ended in conformity with accounting
principles and generally accepted in Japan.

The amounts expressed in U.S. dollars, which are provided solely for the convenience of
the reader, have been translated on the basis set forth in Note 3 to the accompanying
consolidated financial statements.




ChuoAoyama PricewaterhouseCoopers
Tokyo, Japan
June 24, 2004
               SANRIO COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES

                               CONSOLIDATED BALANCE SHEETS

                                        AS OF MARCH 31

                                           ASSETS




                                                                                   Thousands of
                                                                                    U.S. dollars
                                                       Millions of yen               (Note 3)
                                                    2004            2003               2004

Current assets:
 Cash on hand and in banks (Note 5)                 ¥8,646         ¥9,365             $81,566
 Notes and accounts receivable, trade
   (Notes 8 and 15)                                 11,318          13,277            106,771
 Inventories (Note 8)                                6,179           6,495             58,297
 Deferred income taxes (Note 10)                       953           1,026              8,993
 Other current assets (Note 8)                       1,823           2,380             17,199
 Allowance for doubtful accounts                      (246)           (284)            (2,328)
          Total current assets                      28,673          32,259            270,498

Fixed assets:
  Property and equipment, net of accumulated
   depreciation (Notes 7 and 8) -
    Buildings                                       30,873          33,617            291,257
    Machinery and equipment                          3,043           3,430             28,704
    Land                                            12,230          12,704            115,379
    Construction in progress                            18              36                173
                                                    46,164          49,787            435,513

  Intangible fixed assets                              841             885               7,929

  Investments and other assets -
    Investment securities (Note 6)                   7,359           4,793             69,426
    Long-term receivables (Note 8)                  13,196          14,442            124,489
    Deferred income taxes (Note 10)                 10,210           9,579             96,325
    Other (Note 8)                                   2,123           2,029             20,022
    Allowance for doubtful accounts                   (392)           (480)            (3,695)
                                                    32,496          30,363            306,567

          Total fixed assets                        79,501          81,035            750,009

          Total assets                            ¥108,174       ¥113,294          $1,020,507




                The accompanying notes are an integral part of these statements.
                SANRIO COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES

                               CONSOLIDATED BALANCE SHEETS

                                         AS OF MARCH 31

                          LIABILITIES AND SHAREHOLDERS’ EQUITY



                                                                                    Thousands of
                                                                                     U.S. dollars
                                                         Millions of yen              (Note 3)
                                                       2004           2003              2004

Liabilities:
  Current liabilities -
    Notes and accounts payable, trade                  ¥11,582        ¥12,935          $109,261
    Short-term borrowings (Note 8)                      36,808         45,754           347,249
    Current portion of long-term debt (Note 8)          15,897          5,446           149,972
    Accrued taxes on income                                166            236             1,570
    Accrued bonuses to employees                           352            325             3,315
    Other current liabilities                            5,371          4,979            50,670
             Total current liabilities                  70,176         69,675           662,037

  Long-term liabilities -
    Long-term debt (Note 8)                               9,358         21,424           88,287
    Accrued pension and severance costs (Note 9)          5,048          5,634           47,623
    Other long-term liabilities                           1,669            985           15,739
          Total long-term liabilities                    16,075         28,043          151,649

Shareholders’ equity:
  Common stock
    Authorized-159,200,000 shares
    Issued and outstanding
     - 77,745,378 shares in 2004 and 2003               18,343          36,843          173,047
  Capital surplus                                       12,867               3          121,385
  Accumulated deficit                                   (7,338)        (18,412)         (69,228)
  Net unrealized gains (losses) on securities            1,521            (297)          14,346
  Cumulative translation adjustments                    (2,342)         (1,433)         (22,091)
                                                        23,051          16,704          217,459
  Treasury stock, at cost
   (-1,000,901 shares in 2004,
     -1,000,626 shares in 2003)                          (1,128)        (1,128)         (10,638)

           Total shareholders’ equity                   21,923          15,576          206,821

Commitments and contingent liabilities (Notes 12
and 15)

Total liabilities and shareholders’ equity            ¥108,174       ¥113,294        $1,020,507




                 The accompanying notes are an integral part of these statements.
              SANRIO COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF INCOME
                                       YEAR ENDED MARCH 31
                                                                                        Thousands of
                                                                                         U.S. dollars
                                                            Millions of yen               (Note 3)
                                                          2004          2003                2004

Net sales (Note 13)                                     ¥103,989            ¥109,566      $981,032
Cost of sales                                             63,560              69,412       599,627
            Gross profit                                  40,429              40,154       381,405
Selling, general and administrative expenses              36,104              38,079       340,603
 (Note 11)
            Operating profit (Note 13)                      4,325              2,075        40,802
Non-operating income:
  Interest and dividend income                               200                141          1,887
  Other                                                      353                389          3,334
            Total non-operating income                       553                530          5,221
Non-operating expenses:
  Interest expense                                          1,522              1,490        14,362
  Net loss on trading of securities and related
    derivatives (Note 6)                                        -              1,391             -
  Loss on devaluation of investment securities                  -                115             -
  Foreign exchange loss, net                                  443                220         4,178
  Other                                                       426                342         4,021
            Total non-operating expenses                    2,391              3,558        22,561
            Ordinary profit (loss)                          2,487               (953)       23,462
Special gains:
  Gain on sale of investment securities                      474                    0        4,470
  Gain on return of substitutional portion of the
    government welfare pension program (Note 9)             1,505                   -       14,203
  Other                                                       176                   1        1,661
            Total special gains                             2,155                   1       20,334
Special losses:
  Loss on disposal of property and equipment                 154                442          1,454
  Loss on devaluation of property and equipment              132                  -          1,245
  Loss on devaluation of investment securities                 -                257              -
  Loss on disposal of trading securities and related
    derivatives (Note 6)                                        -             15,157             -
  Loss on devaluation of inventories                            -              1,028             -
  Other                                                       221                584         2,085
            Total special losses                              507             17,468         4,784
Income (loss) before income taxes                           4,135            (18,420)       39,012
Income taxes (Note 10) - current                              668                606         6,302
                         - deferred                        (1,891)               353       (17,833)
            Net income (loss)                             ¥5,358            ¥(19,379)      $50,543

                                                                                        U.S. dollars
                                                                      Yen                (Note 3)
Per share data:                                           2004               2003          2004

  Net income (loss) (Note 16) -Basic                       ¥69.81           ¥(252.51)         $0.66
                     -Diluted                                    ¥-              ¥-              $-
  Cash dividends                                                 ¥-           ¥10.00             $-



                  The accompanying notes are an integral part of these statements.
                          SANRIO COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES

                          CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

                                               YEAR ENDED MARCH 31

                                                                             Millions of yen
                                                                                   Net
                                                           Retained            unrealized
                                                           Earnings               gains           Cumulative
                                 Common        Capital    (accumulated         (losses) on        translation        Treasury
                                   stock       surplus      deficit)            securities        adjustments      stock, at cost     Total
Balance    at    March   31,
                                      ¥36,84         ¥3         ¥1,436                    ¥(22           ¥(549)           ¥(1,127)        ¥36
2002


Net loss for the year
                                                               (19,379)                                                                       (19
ended March 31, 2003
Increase    in      retained
 earnings due to inclusion
 of    subsidiaries      into
                                                                       298
 consolidation
Net change in unrealized
                                                                                          (275
 losses on securities
Foreign             currency
                                                                                                           (884)
 translation adjustments
                                                                                                                                (1)
Purchase of treasury stock
                                                                   (767)
Cash dividends


Balance    at    March   31,
                                      ¥36,84         ¥3       ¥(18,412)                  ¥(297         ¥(1,433)           ¥(1,128)        ¥15
2003



                                      (18,50     12,864           5,636
Capital reduction
Net income for the year
                                                                  5,358                                                                        5
ended March 31, 2004
Increase    in      retained
 earnings due to inclusion
 of    subsidiaries      into
                                                                        80
 consolidation
Net change in unrealized
                                                                                          1,818                                                1
 gains on securities
Foreign             currency
                                                                                                           (909)
 translation adjustments
                                                                                                                                (0)
Purchase of treasury stock


Balance    at    March   31,
                                      ¥18,34    ¥12,867        ¥(7,338)               ¥1,521           ¥(2,342)           ¥(1,128)        ¥21
2004




                           The accompanying notes are an integral part of these statements.
                       SANRIO COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

                                               YEAR ENDED MARCH 31

                                Thousands of U.S. dollars (Note 3)

                                                                                   Net
                                                             Retained           unrealized
                                                             Earnings             gains           Cumulative
                                 Common        Capital     (accumulated         (losses) on       translation       Treasury
                                   stock       surplus        deficit)          securities        adjustments     stock, at cost     Total
                                       347,5                     (173,697)                (2,80         (13,522          (10,638)       146,94
Balance at March 31, 2003



                                      (174,5        121,             53,172
Capital reduction
Net income for the year
                                                                     50,543                                                                  50,54
ended March 31, 2004
Increase    in      retained
 earnings due to inclusion
 of    subsidiaries     into
                                                                         754                                                                   75
 consolidation
Net change in unrealized
                                                                                         17,14                                               17,14
 gains on securities
Foreign             currency
                                                                                                         (8,569                              (8,56
 translation adjustments
                                                                                                                               (0)
Purchase of treasury stock



                                       173,0        121,             (69,228)            14,34          (22,091          (10,638)       206,82
Balance at March 31, 2004




                         The accompanying notes are an integral part of these statements.
                   SANRIO COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           YEAR ENDED MARCH 31
                                                                                                     Thousands of
                                                                                                      U.S. dollars
                                                                             Millions of yen           (Note 3)
                                                                           2004            2003          2004
Cash flows from operating activities:
  Income (loss) before income taxes                                        ¥4,135       ¥(18,420)       $39,012
  Depreciation and amortization                                              3,209         3,424         30,275
  Increase (decrease) in accrued pension and severance costs                  (583)          568         (5,501)
  Interest and dividend income                                                (200)         (141)        (1,887)
  Interest expense                                                           1,522         1,490         14,362
  Net loss on trading of securities and related derivatives                      -         1,391              -
  Loss on disposal of property and equipment                                   154           442          1,454
  Loss on sale of investment securities                                         38           192            355
  Loss on devaluation of investment securities                                   -           372              -
  Loss on disposal of trading securities and related derivatives                 -        15,157              -
  Loss on devaluation of inventories                                             -         1,028              -
  Decrease in notes and accounts receivable-trade, net                       2,082         4,347         19,641
  Decrease in inventories                                                      284         1,341          2,675
  Decrease in other assets                                                      70           318            656
  Decrease in notes and accounts payable, trade                             (1,361)       (2,760)       (12,839)
  Other                                                                       (626)         (586)        (5,902)
                  Sub total                                                  8,724         8,163         82,301
  Interest and dividend income, received                                       198           119          1,864
  Interest expense, paid                                                    (1,517)       (1,476)       (14,313)
  Income taxes, paid                                                          (342)         (722)        (3,223)
                  Net cash provided by operating activities                  7,063         6,084         66,629
Cash flows from investing activities:
  Payments for purchase of time deposits                                    (3,748)        (4,427)       (35,358)
  Proceeds from maturity of time deposits                                    4,076          4,028         38,451
  Proceeds and payments for sale and purchase of marketable securities           -         (1,441)             -
  Proceeds and payments from sale of trading securities                         (1)         8,251             (9)
  Payments for acquisition of property and equipment                        (1,014)        (1,230)        (9,566)
  Proceeds from sale of property and equipment                                 950             80          8,962
  Payments for purchase of investment securities                            (1,390)          (621)       (13,112)
  Proceeds from sale of investment securities                                2,127            430         20,070
  Payments for loan receivables                                               (125)          (179)        (1,182)
  Collection of lease deposits                                               1,144          1,081         10,787
  Collection of loan receivables and other                                   1,111           (211)        10,485
                  Net cash provided by investing activities                  3,130          5,761         29,528
Cash flows from financing activities:
  Decrease in short-term borrowings                                         (8,824)       (6,124)        (83,245)
  Proceeds from issuance of long-term debt                                   3,612         1,840          34,075
  Payment of long-term debt                                                 (8,436)       (7,897)        (79,585)
  Proceeds from issuance of bond                                             3,115             -          29,389
  Dividends paid by parent company                                             (17)         (776)           (158)
  Other                                                                         (0)           (0)             (2)
               Net cash used in financing activities                       (10,550)      (12,957)        (99,526)
  Effect of exchange rate changes on cash and cash equivalents                (170)         (197)         (1,605)
  Net decrease in cash and cash equivalents                                   (527)       (1,309)         (4,974)
  Cash and cash equivalents at beginning of year                             7,960         9,050          75,097
  Increase of cash and cash equivalents due to inclusion of subsidiaries
   into consolidation                                                         230            219          2,166
  Cash and cash equivalents at end of year (Note 5)                        ¥7,663         ¥7,960        $72,289




                    The accompanying notes are an integral part of these statements.
             SANRIO COMPANY, LTD. AND CONSOLIDATED SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




1.   Basis of presenting consolidated financial statements:

The consolidated financial statements, which are filed with the Japanese Ministry of Finance
(hereinafter called the “MOF”) as required by the Securities and Exchange Law in Japan, are
prepared in accordance with accounting principles generally accepted in Japan, which are
different in certain respects from the application and disclosure requirements of International
Financial Reporting Standards. The accompanying consolidated financial statements are a
translation of those filed with the MOF and incorporate certain modifications to enhance
foreign readers’ understanding of the financial statements. In addition, the notes to the
consolidated financial statements include certain financial information that is not required
under the disclosure regulations in Japan, but is presented herein as additional information.
Also, certain reclassifications of previously reported amounts have been made to conform to
current classifications. Such modifications or reclassifications have no effect on net income or
retained earnings.



Consolidation and investments in affiliated companies -

The consolidated financial statements consist of Sanrio Company, Ltd. (the parent company)
and the following subsidiaries (hereinafter collectively referred to as the “Company”) which,
with minor exceptions due to materiality, are all of its majority and wholly owned subsidiaries.




                                                1
                                                                      Direct or indirect
                                                                     ownership percentage
                                                                            March 31,
                                                                     2004                2003

         Sanrio, Inc.                                               100                 100%
         Sanrio Do Brasil.                                          100                 100%
         Sanrio (Hong Kong) Co., Ltd.                               100                 100%
         Sanrio Taiwan Co., Ltd.                                    100                 100%
         Sanrio Korea Co., Ltd. (*1)                                100                 100
         Sanrio GmbH (*2)                                           100                 100
         Sanrio Puroland Co., Ltd.                                  100                 100%
         Harmony Land Co., Ltd                                       95                  96%
         Sanrio Far East Co., Ltd.                                  100                 100%
         Sanway Co.,Ltd.                                            100                 100%
         Sanmare Co., Ltd.                                          100                 100%
       (*1) Sanrio Korea Co., Ltd. has been consolidated for the first time in the year ended March 31, 2003.

       (*2) Sanrio GmbH has been consolidated for the first time in the year ended March 31, 2004.



Investments in nine unconsolidated subsidiaries and one affiliate at March 31, 2004 and 2003
are stated at cost as, in aggregate, they are immaterial to the consolidated figures.


All significant inter-company transactions and accounts have been eliminated.
Sanrio Korea Co., Ltd. and Sanrio GmbH are consolidated on the basis of results for the fiscal
year ended December 31, 2003. Material differences in inter-company transactions and
accounts arising from the use of different fiscal year-ends are appropriately adjusted through
consolidation procedures.


The assets and liabilities of consolidated subsidiaries are incorporated into the financial
statements at fair value at the time of acquisition, and the difference between the underlying
net equity of consolidated subsidiaries at fair value and the cost of the investment by the parent
company is accounted for as goodwill.

2.    Significant accounting policies:

(a)   Cash and cash equivalents
      For the purpose of the cash flow statement, cash and cash equivalents include all highly
      liquid investments, generally with original maturities of three months or less, which are
      readily convertible to known amounts of cash and are so near maturity that they present
      insignificant risk of a change in value because of changes in interest rates.



                                                       2
(b)   Inventories
      Inventories are principally stated at cost as determined by the moving-average method.


(c)   Property and equipment
      Property and equipment is stated at cost. Significant renewals and improvements are
      capitalized at cost, while maintenance and repairs are charged to income as incurred.
      Depreciation is provided under the declining-balance method at rates based on the
      estimated useful lives of the assets, except for i) the parent company facilities at theme
      parks and distribution centers, ii) buildings acquired by the parent company on or after
      April 1, 1998 and iii) property and equipment of Harmony Land Co., Ltd., Sanrio Far East
      Co., Ltd., Sanrio, Inc., Sanrio Taiwan Co., Ltd., Sanrio (Hong Kong) Co., Ltd., Sanrio Korea
      Co., Ltd, and Sanrio GmbH, all of which are depreciated using the straight-line method.
      The ranges of useful lives are as follows;
        Buildings : 2 to 60 years
        Machinery and equipment : 2 to 20 years


      Accounting for impairment of fixed assets-
      On August 9, 2002, the Business Accounting Council in Japan issued “Accounting
      Standard for Impairment of Fixed Assets”. The standard requires that fixed assets should
      be reviewed for impairment whenever events or changes in circumstances indicate that the
      carrying amount of an asset may not be recoverable. An impairment loss should be
      recognized in the income statement by reducing the carrying amount of impaired assets or
      a group of assets to the recoverable amount to be measured as the higher of net selling
      price or value in use.
      The standard shall be effective for the fiscal year beginning April 1, 2005. However, an
      earlier adoption is permitted for fiscal years beginning April 1, 2004 and for fiscal years
      ending between March 31, 2004 and March 30, 2005.
      The Company has not yet applied this new standard nor has determined the effect of
      applying it on the Company’s consolidated financial statements.


(d)   Accrued pension and severance costs
      In accordance with Japanese accounting standard for retirement benefits for employees,
      the accrued pension and severance costs represents the estimated present value of
      projected benefit obligations in excess of the fair value of the plan assets. As permitted
      under the accounting standard, the unrecognized prior service costs are amortized on a
      straight-line basis over ten years and unrecognized actuarial differences are to be
      amortized on a straight-line basis over periods ranging from eight years to fifteen years
      beginning in the year following that in which they arise.



                                                   3
(e)   Financial instruments
      In accordance with the Japanese accounting standard, securities, derivatives and other
      miscellaneous financial instruments are stated at their fair values at the balance sheet
      date as follows;


      i) Securities
        Securities are classified into four categories; trading securities, held-to-maturity debt
        securities, equity securities of unconsolidated subsidiaries and affiliates and other
        securities. At March 31, 2004 and 2003, the Company did not have held-to-maturity debt
        securities or trading securities.


        Other securities, whose fair values are readily determinable, are carried at fair value
        with net unrealized gains or losses included as a component of shareholders’ equity, net
        of related taxes. Other securities not practicable to fair value are stated at cost. In cases
        where any significant decline in the realizable value is assessed to be other than
        temporary, the cost of other securities is written-down by the impaired amount and is
        charged to income.
        Realized gains and losses are determined on the average cost method and are reflected in
        the consolidated statement of income.


        Securities held by certain foreign subsidiaries are stated in accordance with the generally
        accepted accounting principles in each respective country.


      ii) Derivative financial instruments
        All derivatives are stated at fair value. Gains or losses arising from changes in fair value
        are charged or credited to income for the period in which they arise, except for
        derivatives that are designated as hedging instruments. Gains or losses arising from
        changes in fair value of the derivatives designated as hedging instruments are deferred
        as asset or liability to be off-set against gains or losses on the underlying hedged assets
        and liabilities. The differentials of interest to be paid or received under the purchased
        interest rate option contracts and interest rate swap agreements are recognized in
        “Interest expense” over the terms of the agreement.
        .
(f)   Taxes
      Accrued income taxes are stated at the estimated amount payable for corporation,
      enterprise and inhabitant taxes. The asset and liability approach is used to recognize
      deferred tax assets and liabilities for the expected future tax consequences of temporary
      differences between the carrying amounts and the tax bases of assets and liabilities.



                                                  4
(g)   Leases
      Under Japanese accounting practice, financing leases must be capitalized by the lessee
      except for those that do not transfer ownership of the leased asset to the lessee. Such
      exceptions can be accounted for either as financing leases or operating leases with
      appropriate footnote disclosure. Periodic lease charges for financing leases entered into by
      the parent company and its domestic subsidiaries, where lessors retain the ownership of
      the leased assets, are charged to income as incurred.


(h)   Translation of foreign currencies
      Foreign currency receivables and payables are translated into Japanese yen at the
      exchange rates prevailing at the balance sheet date. Resulting gains and losses are
      charged or credited to income for the period.
      Assets, liabilities of foreign subsidiaries are translated into Japanese yen at year-end rates.
      Profit and loss accounts of foreign subsidiaries are translated into Japanese yen using the
      average exchange rate during the year. Shareholders’ equity of foreign subsidiaries is
      translated into Japanese yen at the historical rates. The translation differences in
      Japanese yen amounts arising from the use of different rates are recognized as
      “Cumulative translation adjustments” in the consolidated balance sheets.


(i)   Net income (loss) per share
      Basic net income (loss) per share is calculated by dividing net income (loss) by the
      weighted average number of common shares outstanding during the year. Diluted net
      income per share is calculated by adjusting weighted average outstanding shares,
      assuming conversion of all potentially dilutive stock options.     In case of net loss or no
      dilutive effect, diluted net income (loss) per share is not required to be presented under the
      Japanese accounting standard for net income (loss) per share (See Note 16 for further
      discussion). Cash dividends per share shown for each year in the consolidated statements
      of income represent dividends approved by the shareholders and paid in the respective
      periods.



3.    United States dollar amounts:

The U.S. dollar amounts presented in the financial statements are included solely for the
convenience of the readers. These translations should not be construed as representations that
the Japanese yen amounts actually represent, or have been or could be converted into U.S.
dollars. As the amounts shown in U.S. dollars are for convenience only, and are not intended to
be computed in accordance with generally accepted translation procedures, the approximate
current exchange rate prevailing on March 31, 2004, ¥106= US$1, has been used for the
purpose of presentation of the U.S. dollar amounts in the accompanying consolidated financial

                                                 5
statements.

4.   Derivative financial instruments:

The Company operates internationally, giving rise to exposure to market risks from
fluctuations in foreign currency exchange and interest rates. In the normal course of its risk
management efforts, the Company uses a variety of derivative financial instruments, which are
comprised of foreign currency forward exchange contracts, foreign currency option contracts,
interest rate cap contracts and interest rate swap agreements, to reduce its exposure.
In accordance with the company policy, these derivative financial instruments are utilized
solely for hedging purposes and for a reduction of interest expense. The company does not
anticipate any credit loss from nonperformance by the counter-parties to these derivative
financial instruments. Since these derivative financial instruments are designated as hedges,
they do not involve market risk.


The estimated fair values of derivative financial instruments, except for those accounted for as
designated hedging instruments, at March 31, 2004 and 2003 are as follows:

                                                                    2004
                                              Millions of yen         Thousands of U.S. dollars
                                           Contract Estimated         Contract     Estimated
                                           amount      fair value      amount      fair value

 Foreign currency option contracts
   Purchased option
       U.S dollars – Put option                ¥838          ¥-         $7,909            $-
       (premium fee)                             34          12            318           115
   Written option
       U.S dollars – Call option              2,515           -         23,728            -
       (premium fee)                            106        (204)         1,004       (1,925)



                                                    2003
                                              Millions of yen
                                           Contract Estimated
                                           amount      fair value

 Foreign currency option contracts
   Purchased option
       U.S dollars – Put option              ¥1,198          ¥-
       (premium fee)                             69          71
 Written option
       U.S dollars – Call option              3,354           -
       (premium fee)                            113        (103)

The foreign currency option contracts were estimated by obtaining quotes for future contracts
with similar maturities.


                                               6
5.    Cash and cash equivalents:

Reconciliation of cash and cash equivalents on the consolidated statements of cash flows to the
account disclosed on the consolidated balance sheets at March 31 is as follows:



                                                                              Thousands of
                                                  Millions of yen              U.S. dollars
                                               2004              2003              2004

     Cash on hand and in banks               ¥8,646             ¥9,365            $81,566

     Time deposits with deposit term of
       over 3 months                            (983)           (1,405)            (9,277)

     Cash and cash equivalents               ¥7,663             ¥7,960            $72,289




                                               7
6.     Investment securities:

Securities are classified into four categories; trading securities, held-to-maturity debt securities,
equity securities of unconsolidated subsidiaries and affiliates and other securities.
During the year ended March 31, 2003, the management of the Company decided not to hold
securities for trading purposes. In accordance with this decision, a substantial portion of
trading securities were sold during the year and the remaining trading securities, amounting to
¥3,756 million as of March 31, 2003, were reclassified to investment securities.
In addition, the contracts on derivative financial instruments related to trading securities were
terminated. The loss on disposal of trading securities amounting to ¥15,157 million was
recorded as a special loss comprised of losses on sale and devaluation of trading securities and
termination of related derivative contracts.
Realized and unrealized gains and losses arising from trading securities together with related
derivatives are recorded in the consolidated statements of income as “Net loss on trading of
securities and related derivatives”. For the year ended March 31, 2003, the net loss comprised
the following:


                                                              Millions of yen
                                                                    2003
     Loss on sale of trading securities                             ¥1,443

     Dividends received on trading securities                            (59)

     Interest received on trading securities                               (1)

     Commission expense                                                    8

                                                                    ¥1,391

The carrying amount of investment securities at March 31, are analyzed as follows:


                                                                                               Thousands of
                                                                  Millions of yen              U.S. dollars
                                                               2004              2003             2004
     Equity      securities      of     unconsolidated
       subsidiaries and an affiliate                            ¥ 563             ¥ 806             $ 5,311
     Other securities with available fair value                  6,265            3,373              59,106
     Other securities not practicable to fair value                531             614                5,009
                                                               ¥7,359            ¥4,793             $69,426
     “Equity securities of unconsolidated subsidiaries and an affiliate” are stated at cost.

     “Other securities not practicable to fair value” at March 31, 2004, and 2003 principally
     represent equity investments in nonpublic companies.




                                                          8
The aggregate cost, carrying amount which was identical to fair value, gross unrealized gains
and losses of debt and equity securities classified as other securities with available fair value at
March 31, 2004 are as follows:


                                                              Millions of yen

                                                                    2004

                                                                 Carrying         Unrealized
                                                 Cost            Amount          gains (losses)
   Securities with unrealized gain:
              Equity securities                      ¥3,127          ¥5,752            ¥2,625


   Securities with unrealized loss:
              Equity securities                         150                98             (52)
                   Others                               474             415               (59)
                                                        624             513              (111)
                                                     ¥3,751          ¥6,265            ¥2,514



                                                              Millions of yen

                                                                    2003

                                                                 Carrying         Unrealized
                                                 Cost            Amount          gains (losses)
   Securities with unrealized gain:
              Equity securities                        ¥33              ¥34                ¥1


   Securities with unrealized loss:
              Equity securities                       3,484           2,952              (532)
                   Others                               600             387              (213)
                                                      4,084           3,339              (745)
                                                     ¥4,117          ¥3,373            ¥(744)




                                                 9
                                                        Thousands of U.S. dollars

                                                                  2004

                                                               Carrying        Unrealized
                                               Cost             Amount        gains (losses)
   Securities with unrealized gain:
              Equity securities                 $29,502           $54,268             $24,766


   Securities with unrealized loss:
              Equity securities                     1,412               922              (490)
                    Others                          4,475             3,917              (558)
                                                    5,887             4,839            (1,048)
                                                $35,389           $59,107             $23,718


As a result of the revaluation of other securities at fair value as of March 31, 2004 and 2003,
net unrealized gains on securities amounting to ¥1,521 million (US$14,346 thousand) as of
March 31, 2004 and net unrealized losses on securities amounting to ¥297 million as of March
31, 2003 are recorded as a component of shareholders’ equity. Loss on devaluation of other
securities with available fair value for the year ended March 31, 2003 was ¥257 million .


The realized gains and losses on sale of other securities during the year ended March 31 are as
follows:


                                                                               Thousands
                                                                                    of U.S.
                                                    Millions of yen
                                                                                    dollars
                                               2004              2003                2004
   Selling amount                                ¥2,149               ¥521            $20,273
   Gains on sale of securities                        474                 0             4,470
   Losses on sale of securities                       38                192                 355




                                               10
The carrying amounts of other securities which it is not practicable to determine fair value at
March 31 are as follows:


                                                                               Thousands
                                                                                of U.S.
                                                   Millions of yen              dollars
                                              2004              2003             2004
     Equity     investment   in   nonpublic
     companies                                     ¥531              ¥612          $5,009
     Others                                            -                2                  -


Investment securities at March 31, 2004 and 2003 comprise investment in nine unconsolidated
subsidiaries and an affiliate amounting to ¥563 million (US$5,311 thousand) and ¥806 million,
respectively.


Investment securities at March 31, 2004 comprise investment securities lent to a third party
under a security loan agreement amounting to ¥1,912 million (US$ 18,045 thousand).



7.    Accumulated depreciation:

Accumulated depreciation at March 31 comprises the following:
                                                                               Thousands of
                                                       Millions of yen          U.S. dollars
                                                     2004           2003            2004

Buildings                                            ¥23,634         ¥22,128      $222,958
Machinery and equipment                               15,814          16,008       149,191

                                                     ¥39,448         ¥38,136      $372,149




                                              11
8.   Borrowings:

Short-term borrowings at March 31, 2004 and 2003 represent loans, principally from banks.
The weighted average interest rates on these borrowings are 2.2% in 2004 and 1.6% in 2003,
respectively.


Long-term debt at March 31 comprises the following:

                                                                                   Thousands of
                                                          Millions of yen           U.S. dollars
                                                       2004             2003           2004
Loans, principally from banks, due 2004 to 2010
(2003 to 2011 at March 31, 2003) with a
weighted-average interest rates of 1.5% at
March 31, 2004 and 1.8% at March 31, 2003 for
the short-term portion and 1.6% at March 31,
2004 and 1.4% at March 31, 2003 for the long-
term portion
  Secured                                                ¥528         ¥1,855           $4,985
  Unsecured                                             21,518        25,015          203,000
0.69% unsecured bonds, due September 29,2006             1,000              -           9,434
0.9% unsecured bonds, due September 28, 2007             1,000              -           9,434
1.07% unsecured bonds, due September 30,2008             1,209              -          11,406
                                                        25,255        26,870          238,259
Less - Portion due within one year                    (15,897)        (5,446)        (149,972)
                                                        ¥9,358       ¥21,424          $88,287


A summary of assets pledged as collateral for short-term loans and long-term debt at March 31,
2004 and 2003 are as follows:

                                                                                   Thousands of
                                                         Millions of yen            U.S. dollars
                                                      2004              2003           2004

Accounts receivable, trade and inventories              ¥528               ¥-          $4,985
Property and equipment                                     -            4,740               -
Leasehold deposits and others                              -              456               -
                                                        ¥528           ¥5,196          $4,985
The aggregate annual maturities of long-term debt after March 31, 2004 are as follows:

                                                   Millions of     Thousands of
                Years ending March 31                 yen           U.S. dollars

                2005                                  ¥15,897         $149,972
                2006                                    3,057           28,840
                2007                                    2,457           23,180
                2008                                    2,152           20,302
                2009                                    1,685           15,902
                2010                                        7               63
                                                      ¥25,255         $238,259



                                              12
9.   Accrued pension and severance costs:
On terminating employment, employees of the parent company, three Japanese consolidated
subsidiaries and two foreign consolidated subsidiaries are entitled, under most circumstances,
to lump-sum severance indemnities determined by reference mainly to their current basic rates
of pay and length of service. Two foreign subsidiaries have defined contribution pension plans.
Sanway Co., Ltd., Sanmare Co., Ltd. Sanrio Do Brasil and Sanrio GmbH do not have retirement
benefit plans.


The obligation for the severance indemnity benefits is provided for through accruals and
contributory funded defined benefit pension plans and/or non-contributory funded tax-qualified
pension plans.


The parent company, Sanrio Puroland Co., Ltd. and Sanrio Far East Co., Ltd. jointly had a
multi-employer contributory funded defined benefit pension plan, pursuant to the Japanese
Welfare Pension Insurance Law. The multi-employer contributory funded defined benefit
pension plan was comprised of a portion covering part of the severance indemnity benefits and
another portion relating to the governmental welfare pension program, subject to the Japanese
Welfare Pension Insurance Law, to which the parent company, the two subsidiaries and their
employees made contributions.


On March 1, 2004, the parent company, Sanrio Puroland Co., Ltd. and Sanrio Far East Co., Ltd.
obtained approval from the Ministry of Health, Labour and Welfare to return the substitutional
portion of the government welfare pension program. Gain on return of the substitutional
portion of the government welfare pension program amounting to ¥1,505 million (US$14,203
thousand) is recognized for the year ended March 31, 2004.


The parent company and Sanrio Far East Co., Ltd. jointly have a non-contributory tax-qualified
pension plan which covers a part of the indemnities payable to qualified employees at the time
of termination.




                                              13
Accrued severance and pension costs at March 31, 2004 and 2003 are analyzed as follows:

                                                                                    Thousands of
                                                     Millions of yen                 U.S. dollars
                                                  2004            2003                  2004

Projected benefit obligations                   ¥(13,547)       ¥(17,625)             $(127,801)
Fair value of plan assets                          6,185           7,219                 58,344
                                                  (7,362)        (10,406)               (69,457)
Unrecognized actuarial differences                 2,314           5,026                 21,834
Unrecognized prior service costs                       -            (254)                     -
Accrued pension and severance costs              ¥(5,048)        ¥(5,634)              $(47,623)


Note 1 The figures at March 31, 2003 in the above table include the substitutional portion of the governmental

         welfare pension program that is subject to the Japanese Welfare Pension Insurance Law. The figures

         at March 31, 2004 in the above table do not include the substitutional portion of the governmental

         welfare pension program that is subject to the Japanese Welfare Pension Insurance Law.



Net periodic pension and severance costs for employees for the years ended March 31, 2004 and
2003, include the following components:

                                                                                         Thousands of
                                                         Millions of yen                  U.S. dollars
                                                     2004               2003                 2004

 Service cost                                         ¥ 812               ¥ 1,325              $7,661
 Interest cost                                           420                  411               3,962
 Expected return on plan assets                         (173)                (188)             (1,634)
 Amortization of prior service costs                     (26)                 (30)               (249)
 Amortization of actuarial differences                   598                  209               5,647
 Net pension and severance costs                     ¥ 1,631              ¥ 1,727            $ 15,387


Note 1 The figures in the above table do not include contributions made by employees.




Assumptions used in calculation of the above information are as follows:

                                                                     2004                       2003
Discount rate                                                          2.25 %                     2.5 %
Expected rate of return on plan assets -
  Contributory funded defined benefit pension plans                    3.50 %                      3.50 %
  Non-contributory tax-qualified pension plans                         0.71 %                      0.71 %
Method of attributing the projected benefits to              Straight-line basis         Straight-line basis
 periods of employee service
Amortization of unrecognized prior service costs                         10 years                 10 years
Amortization of actuarial differences                               8 to 15 years            8 to 15 years




                                                     14
10. Taxes:

Income taxes applicable to the parent company and domestic subsidiaries include corporation
tax, enterprise tax and inhabitants tax which, in aggregate, result in a statutory tax rate
approximately equal to 41.9% for the years ended March 31, 2004 and 2003.
Due to a revision to the Local Tax Law in Japan, the statuary tax rate will be reduced to
approximately 40.6% effective from the year ending March 31, 2005. The newly enacted rate is
reflected in the calculation of the future expected tax effect of temporary differences as of March
31, 2004 and 2003. The effect of this change as of March 31, 2003 was to decrease deferred tax
assets and to increase deferred income tax expenses by approximately ¥384 million,
respectively.


Significant components of deferred tax assets and liabilities at March 31, 2004 and 2003 are as
follows:
                                                                                    Thousands of
                                                            Millions of yen          U.S. dollars
  Deferred tax assets:                                    2004           2003             2004
    Operating loss carry-forwards for tax
      purposes                                          ¥15,272        ¥13,307          $144,075
    Accrued pension and severance costs                   2,030          2,265            19,155
    Allowance for doubtful accounts                         149            232             1,404
    Other                                                 1,103          1,524            10,402
  Total deferred tax assets                              18,554         17,328           175,036
    Less: Valuation allowance                            (6,346)         (6,723)         (59,871)
  Total deferred tax assets, net of valuation
  allowance                                              12,208          10,605           115,165
  Deferred tax liabilities:
    Net unrealized gains on securities                   (1,044)                -          (9,847)
  Total deferred tax liabilities                         (1,044)                -          (9,847)
  Total deferred tax assets, net of valuation
  allowance and deferred tax liabilities               ¥ 11,164        ¥ 10,605         $105,318




                                                15
The reconciliation of the difference between the statutory tax rate and the effective tax rate for
the year ended March 31, 2003 is not disclosed because such difference is less than 5% of the
statutory tax rate.
The reconciliation of the difference between the statutory tax rate and the effective tax rate for
the year ended March 31, 2004, is as follows:


 Statutory tax rate                                                                         42.1%
 Loss on devaluation of investments in subsidiaries                                         (81.9)
 Dividend income from consolidated subsidiaries                                             13.4
 Lower income tax rates applicable to income in certain foreign countries                    (4.6)
 Equalization inhabitants taxes                                                               2.3
 Others                                                                                      (0.7)
 Effective tax rate                                                                         (29.6)%


In Japan, the consumption tax system is designed so that all goods and services are taxed at a
flat rate of 5% unless specifically provided otherwise.    Assets, liabilities and profit and loss
accounts are stated net of consumption tax.



11. Selling, general and administrative expenses:

Major components of selling, general and administrative expenses are as follows:

                                                                            Thousands of
                                                  Millions of yen            U.S. dollars
                                                2004          2003              2004

          Salaries                              ¥8,249      ¥8,747             $77,820
          Bonuses                                1,107       1,121              10,442
          Rent                                   4,555       4,820              42,971
          Sales promotion expenses               3,392       3,652              32,003
          Freight charges                        2,076       2,147              19,586
          Depreciation                           1,111       1,250              10,484




                                                16
12. Leases:

Periodic lease charges for the Company’s financing leases, where lessors retain the ownership of
the leased assets, are charged to income. Such lease charges were ¥406 million (US$3,828
thousand) and ¥510 million for the years ended March 31, 2004 and 2003, respectively.


The future lease payments under the Company’s financing leases and noncancellable operating
leases, including amounts representing interest, at March 31 are as follows:

                                                                                 Thousands of
                                                        Millions of yen           U.S. dollars
                                                      2004           2003            2004

 Due within one year                                   ¥360             ¥473          $3,400
 Due after one year                                     448               678          4,222
                                                       ¥808            ¥1,151         $7,622
Leased assets under the Company’s financing leases, where lessors retain ownership of the
leased assets, are being accounted for as operating leases by the Company. If the leases were
capitalized then the cost of the assets and the related accumulated amortization at March 31,
2004 and 2003 would be as follows:

                                                               2004
                                                                                Thousands of
                                                Millions of yen                  U.S. dollars
                                                  Accumulated          Net
                                        Cost      amortization        amount    Net amount

   Machinery and equipment             ¥250            ¥147             ¥103         $971
   Other                               1,779           1,074             705         6,651
                                      ¥2,029          ¥1,221            ¥808        $7,622


                                                     2003
                                                Millions of yen
                                                  Accumulated          Net
                                        Cost      amortization        amount

   Buildings                            ¥36             ¥30               ¥6
   Machinery and equipment               302             158             144
   Other                               2,240           1,239           1,001
                                      ¥2,578          ¥1,427          ¥1,151


The amortization amount of the leased assets, computed on the straight-line method over the
term of the lease, would have been ¥406 million (US$3,828 thousand) and ¥510 million for the
years ended March 31, 2004 and 2003, respectively.




                                               17
13. Business segment information:

(1)   Industry segments -

Sales and operating profit for the year ended March 31:


                                                                               Millions of yen
                                                                                    2004
                                      Social                                                                Corporate
                                   communication                                                           expenses and
                                       gifts          Theme parks         Other           Combined         eliminations      Consolidated

      Sales:
        Customers                     ¥93,013               ¥6,731         ¥4,245          ¥103,989                 ¥-         ¥103,989
        Intersegment                    1,221                  398             13             1,632             (1,632)               -
          Total                        94,234                7,129          4,258           105,621             (1,632)         103,989
      Operating expenses               87,197                9,215          4,217           100,629               (965)          99,664

      Operating profit (loss)          ¥7,037              ¥(2,086)           ¥41                ¥4,992         ¥(667)           ¥4,325

                                                                               Millions of yen
                                                                                    2003
                                      Social                                                                Corporate
                                   communication                                                           expenses and
                                       gifts          Theme parks         Other           Combined         eliminations     Consolidated

      Sales:
        Customers                     ¥97,717               ¥7,587         ¥4,262          ¥109,566                 ¥-         ¥109,566
        Intersegment                    1,396                  399             11             1,806             (1,806)               -
          Total                        99,113                7,986          4,273           111,372             (1,806)         109,566
      Operating expenses               93,985               10,305          4,353           108,643             (1,152)         107,491

      Operating profit (loss)          ¥5,128              ¥(2,319)          ¥(80)               ¥2,729         ¥(654)           ¥2,075


                                                                         Thousands of U.S. dollars
                                                                                  2004
                                      Social                                                                Corporate
                                   communication                                                           expenses and
                                       gifts          Theme parks         Other           Combined         eliminations     Consolidated

      Sales:
        Customers                    $877,480              $63,499        $40,053           $981,032                $-         $981,032
        Intersegment                   11,523                3,758            115             15,396           (15,396)              (-)
          Total                       889,003               67,257         40,168            996,428           (15,396)         981,032
      Operating expenses              822,612               86,940         39,785            949,337            (9,107)         940,230

      Operating profit (loss)         $66,391             $(19,683)          $383            $47,091           $(6,289)         $40,802


Corporate expenses of ¥669 million (US$ 6,313 thousand) and ¥627 million, included in “Corporate expenses and eliminations” for the years ended March 31, 2004 and 2003, respectively, consist mainly of expenses for
corporate management and planning.




                                                                                                          18
Identifiable assets, depreciation and amortization,
  and capital expenditure as of and for the year ended March 31:

                                                                                          Millions of yen
                                                                                               2004
                                            Social                                                                Corporate
                                         communication                                                            assets and
                                             gifts           Theme parks             Other          Combined     eliminations      Consolidated

    Identifiable assets                     ¥44,944            ¥34,632                ¥5,642          ¥85,218     ¥22,956           ¥108,174
    Depreciation and amortization             1,082              1,964                    89            3,135          74              3,209
    Capital expenditure                         811                286                     7            1,104          32              1,136



                                                                                          Millions of yen
                                                                                               2003
                                            Social                                                                Corporate
                                         communication                                                            assets and
                                             gifts          Theme parks              Other          Combined     eliminations      Consolidated

    Identifiable assets                     ¥50,261            ¥36,406                ¥3,750         ¥90,417      ¥22,877           ¥113,294
    Depreciation and amortization             1,159              2,082                   107           3,348           76              3,424
    Capital expenditure                         810                132                    15             957           92              1,049



                                                                                     Thousands of U.S. dollars
                                                                                              2004
                                            Social                                                                Corporate
                                         communication                                                            assets and
                                             gifts          Theme parks              Other          Combined     eliminations      Consolidated

    Identifiable assets                     $424,002               $326,714            $53,222       $803,938     $216,569         $1,020,507
    Depreciation and amortization             10,207                 18,532                840         29,579          696             30,275
    Capital expenditure                        7,655                  2,696                 62         10,413          304             10,717




Corporate assets of ¥23,494 million (US$ 221,648 thousand) and ¥23,373 million, included in “Corporate assets and eliminations” as of March 31, 2004 and 2003, respectively, consist mainly of cash on hand and in
banks, investment securities and assets maintained for general corporate purposes.




                                                                                                            19
(2)   Geographic areas –

Sales and operating profit for the year ended March 31:

                                                                            Millions of yen
                                                                                 2004
                                                                                                        Corporate
                                                           North                                       expenses and
                                       Japan              America      Other          Combined         eliminations     Consolidated

      Sales:
        Customers                     ¥88,526             ¥12,123        ¥3,340       ¥103,989               ¥-          ¥103,989
        Intersegment                    5,571                  55         2,240          7,866           (7,866)                -
          Total                        94,097              12,178         5,580        111,855           (7,866)          103,989
      Operating expenses               90,057              11,770         5,114        106,941           (7,277)           99,664

      Operating profit (loss)          ¥4,040                ¥408         ¥466           ¥4,914           ¥(589)           ¥4,325

                                                                            Millions of yen
                                                                                 2003
                                                                                                        Corporate
                                                           North                                       expenses and
                                       Japan              America       Other         Combined         eliminations     Consolidated

      Sales:
        Customers                     ¥95,776             ¥11,514        ¥2,276       ¥109,566               ¥-          ¥109,566
        Intersegment                    4,656                  53         2,014          6,723           (6,723)                -
          Total                       100,432              11,567         4,290        116,289           (6,723)          109,566
      Operating expenses               98,541              11,402         3,806        113,749           (6,258)          107,491

      Operating profit (loss)          ¥1,891                ¥165         ¥484           ¥2,540           ¥(465)           ¥2,075

                                                                       Thousands of U.S. dollars
                                                                                2004
                                                                                                        Corporate
                                                           North                                       expenses and
                                       Japan              America       Other         Combined         eliminations     Consolidated

      Sales:
        Customers                    $835,151             $114,371      $31,510       $981,032               $-          $981,032
        Intersegment                   52,555                  521       21,136          74,212         (74,212)                -
          Total                       887,706              114,892       52,646       1,055,244         (74,212)          981,032
      Operating expenses              849,596              111,042       48,243       1,008,881         (68,651)          940,230

      Operating profit (loss)         $38,110               $3,850       $4,403         $46,363         $(5,561)           $40,802


Corporate expenses of ¥669 million (US$ 6,313 thousand) and ¥627 million, included in “Corporate expenses and eliminations” for the years ended March 31, 2004 and 2003, respectively, consist mainly of expenses for
corporate management and planning.




                                                                                                         20
Identifiable assets as of March 31:

                                                                             Millions of yen
                                                                                  2004
                                                        North                                          Corporate assets
                                         Japan         America           Other          Combined       and eliminations   Consolidated

      Identifiable assets              ¥75,511          ¥7,573           ¥3,568          ¥86,652            ¥21,522        ¥108,174

                                                                             Millions of yen
                                                                                  2003
                                                        North                                          Corporate assets
                                         Japan         America           Other          Combined       and eliminations   Consolidated

      Identifiable assets              ¥79,303           ¥9,029          ¥3,137          ¥91,469            ¥21,825        ¥113,294

                                                                        Thousands of U.S. dollars
                                                                                 2004
                                                        North                                          Corporate assets
                                         Japan         America           Other          Combined       and eliminations   Consolidated

      Identifiable assets             $712,362          $71,446         $33,662         $817,470           $203,037       $1,020,507




Corporate assets of ¥23,494 million (US$ 221,648 thousand) and ¥23,373 million, included in “Corporate assets and eliminations” as of March 31, 2004 and 2003, respectively, consist mainly of cash on hand and in
banks, investment securities and assets maintained for general corporate purposes.



(3)   Overseas sales for the year ended March 31:

                                                                                       Thousands of
                                                              Millions of yen           U.S. dollars
                                                            2004           2003            2004

         North America                                       ¥12,135       ¥11,516         $114,481
         Other                                                 6,484         5,654           61,173
         Overseas sales total                                ¥18,619       ¥17,170         $175,654

         Overseas sales as a proportion of net sales               17             15           17.9%


Overseas sales represent sales of the Company to customers in countries or regions other than Japan and consist of export sales of the parent company and its Japanese subsidiaries and net sales of overseas
subsidiaries.




                                                                                                          21
14. Stock Option Plan:

The parent company obtained approval at the annual shareholders’ meeting held on June 25,
2002 regarding the issue of the stock acquisition rights as stock options (the Stock Acquisition
Rights) for directors of the parent company and employees of the parent company and Japanese
subsidiaries, pursuant to Articles 280-20 and 280-21 of the Japanese Commercial Code. Upon
approval, the Board of Directors has adopted resolutions to issue at no charge an aggregate of
9,291 Stock Acquisition Rights, each representing a stock option to purchase 100 shares of
common stock of the parent company to 8 directors, 965 employees of the parent company and
289 employees of Japanese subsidiaries. The Stock Acquisition Rights issued on July 18, 2002
are exercisable during the period from July 1, 2004 to June 25, 2012. The amount to be paid by
qualified persons upon the exercise of each Stock Acquisition Rights is set at ¥1,197 (US$11)
per share of common stock and is subject to an adjustment in certain events, including but not
limited to a stock split and a reverse split.
A summary of the status of the Company’s stock option plan as of March 31, 2004 and of the
activity during the year then ended is as follows:

                                                             2004                                2004
                                                   Number of    Exercise price               Exercise price
                                                    shares          Yen                       U.S. dollars

 Outstanding at beginning of year                   842,700                    ¥1,197                   $11
 Granted                                                  -                         -                     -
 Exercised                                                -                         -                     -
 Forfeited or expired                                20,200                     1,197                    11
 Outstanding at end of year                         822,500                     1,197                    11
 Exercisable                                        822,500                     1,197                    11

15. Contingent liabilities:

Contingent liabilities at March 31, arising in the ordinary course of business, are as follows:

                                                         Millions of                    Thousands of
                                                            Yen                          U.S. dollars
                                                 2004                  2003                  2004

       Notes discounted                             ¥7                  ¥13                    $61
       Loans guaranteed                          1,296                 1,401                12,227

                                                ¥1,303            ¥1,414                   $12,288


At March 31, 2004, the Company had no material litigation or claims outstanding, nor was
there any pending or threatened litigation.




                                                  22
16. Reconciliation of the difference between basic and diluted net income (loss) per share:

Reconciliation of the differences between basic and diluted net income (loss) per share for the
year ended March 31 is as follows:

                                                                                     Thousand of
                                                          Millions of yen            U.S. dollars
                                                      2004              2003            2004
Net income (loss)                                    ¥5,358          ¥(19,379)         $50,543
Amount not allocated to the common stock                   -                 -                 -
Net income (loss) allocated to the common
stock                                                 5,358           (19,379)           50,543
Effect of dilutive securities                             -                 -                 -
Net income (loss) allocated to the common
stock for computation of diluted net income
(loss) per share                                   ¥5,358            ¥(19,379)          $50,543


                                                         Thousands of shares
                                                         2004           2003
               Weighted-average shares                   76,744         76,745
               Effect of dilutive securities                  -              -
               Weighted-average shares for
               computation of diluted net
               income (loss) per share                   76,744          76,745



                                                               Yen                   U.S. dollars
                                                      2004            2003              2004
Basic net income (loss) per share                     ¥69.81         ¥(252.51)             $0.66

Diluted net income (loss) per share                      ¥-                ¥-                 $-



In case of net loss or no dilutive effect, diluted net income (loss) per share is not required to be
presented as outlined under the Japanese accounting standards for net income (loss) per share.




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