annual report 2002 - kojima.netkojima company, ltd. annual report 2002 3 thousands of millions of...

KOJIMA Company, Ltd. Annual Report 2002 1

Annual Report 2002Year ended March 31, 2002

KOJIMA Company, Ltd.

KOJIMA Company, Ltd. Annual Report 20022

P R O F I L EKojima Co., Ltd. started as a discount consumer electronics and home appliance store founded in Utsunomiya-shi, Tochigi

Prefecture, in 1955. Targeting large metropolitan areas, the Company has expanded its business operations from the Tokyo

region to Nagoya, Osaka, and Fukuoka. As of the end of September 2002, our expansion continued throughout Japan. Kojima

is one of Japan’s largest discount consumer electronics and home appliance chains. It has a network of 250 sales outlets

nationwide that generate ¥496 billion ($3,722 million) in annual sales.

Kojima is committed to a philosophy of putting the customer first and making our sales outlets the top-selling stores in

their regions. Kojima also strives to sell its products at the lowest prices in the world. To achieve this, the Company designs

products for sale under its own brand, and employs a wide range of sales channels, including television shopping on the

Kojima Shopping World channel and Internet shops. In addition, the Company offers a full range of service after the sale.

Currently, Kojima is implementing new business strategies. Based on these strategies, the Company intends to make its

sales outlets more competitive, its operations more effective, and its products more appealing. Kojima also aims to raise its

employees’ commitment to their work. Achieving these goals will enable the Company to shift their focus from expanding its

business activities to improving the quality of its business performance.

Con ten tsConsolidated Financial Highlights ........................ 1

Message from the Management .......................... 2

The Year's Highlights ........................................... 6

Products and Services .......................................... 8

Sales and Store Potential ................................... 10

Core Systems ..................................................... 12

Consolidated Five-Year Summary ....................... 13

Consolidated Financial Review ........................... 14

Consolidated Financial Statements .................... 16

Non-Consolidated Financial Statements ............. 32

Corporate Information ...................................... 41


Thousands ofMillions of yen U.S. dollars

Years ended March 31, 2002 2001 2002

Net sales ¥ 495,980 ¥ 508,053 $ 3,722,180

Operating (loss) income (4,899) 4,403 (36,766)

Net income 280 6,021 2,103

Per share of common stock (yen or U.S.dollars)

Net income (Basic) ¥ 7 ¥ 154 $ 0.05

Shareholders' equity 1,676 1,689 12.58

At March 31,

Shareholders’ equity ¥ 65,221 ¥ 65,734 $ 489,470

Total assets 201,562 220,232 1,512,666

Note: U.S. dollar amounts are translated, for convenience only, at ¥133.25=US$1, the rate prerailing on March 31, 2002.

CONSOLIDATED FINANCIAL HIGHLIGHTS

CONSOLIDATED FINANCIAL HIGHLIGHTS

Net Sales(¥ millions)

’98

304,

005

’99

368,

573

’00

427,

125

’01

508,

053

’02

495,

980

Shareholders' Equity(¥ millions)

’98

27,3

52

’99

30,4

23

’00

60,4

22

’01

65,7

34

’02

65,2

21

Total Assets (¥ millions)

’98

132,

744

’99

158,

185

’00

181,

854

’01

220,

232

’02

201,

562


MESSAGE FROM THE MANAGEMENT

The Kojima Group’s consolidated net sales for the year ended March 2002 totaled ¥495,980

million ($3,722 million), a marginal decline of 2.4 percent from the previous year’s net sales

that amounted to ¥508 billion, the highest total in our history. Our ordinary profit and net

income for the term declined significantly, however.

These results were attributable to Japan’s prolonged economic slump and weaker

personal consumption as a consequence of intensified deflationary pressure.

Although we posted gains in revenue and earnings after the Household Electric Appli-

ance Recycling Law was enacted in April 2001, the sales momentum didn’t last long. As its

positive effect tapered off, our sales dropped.

We also suffered declines in PC sales. During this term, PC demand cooled while the

number of PC users rose substantially. The selling prices of PCs and PC-related products fell

as well.

This term we witnessed the deceleration of the world economy, which triggered declines

in the Japanese economy and personal consumption. As the downward trend continued,

companies cut back on their production and capital expenditures. The number of unem-

ployed increased, and the jobless rate reached record high levels. Accordingly, the overall

economy in Japan remained in the doldrums.

In our home appliance industry, downward pressure in the market suppressed product

sales growth. Despite this, sales of digital appliances, such as LCD TVs, large PDPs, and DVD

players, were robust.

Significant changes occurred in the appliance industry’s business climate, as new busi-

ness alliances and mergers and acquisitions among major companies were constantly in the

headlines.

Greetings from the New PresidentKojima celebrated its 40th anniversary in April 2002. That same month, I was appointed by

the Board of Directors to succeed Katsuhei Kojima, Kojima’s outgoing president.

After starting my business career with Kojima, I was assigned to business operations in

our sales outlets and worked to build Kojima’s information management systems. In recent

years, I have planned and implemented marketing activities and business strategies in our

marketing and sales headquarters.

Currently, we are operating in a severe business climate. Despite this, I’m determined to

implement aggressive sales activities for our long-term development while adhering to the

corporate culture Kojima has created. I also plan to create a business platform to make our

Akitoshi KojimaPresident and CEO


Kojima’s Basic Strategy

Strategic framework to establish ‘‘Kojima, a corporation of the No.1 stores’’

Competitiveoutlets

Channel strategyLarge outlets development with a sales floor area of 3,000 square metersAcceleration of store integration

Workers with strong commitment

Personnel strategyEstablishment of training divisionBuildup of sales power through personnel training

Competitiveproducts

Product strategyAssortment of hot itemsRealization of service business

Effectivestructure

Operation strategyEstablishment of integrated distribution centersInstallation of a real-time network system

Performance targetsReturn on assets=9%Ratio of ordinary profit to sales=3%Total assets turnover=three times

business highly efficient and profitable.

We wish to win our customers’ trust. For this purpose, we provide customer service

tailored to local communities and a product lineup to satisfy our customers’ requests, in

addition to a wide range of customer support services. Moreover, we aim to maximize the

business capabilities of each of our employees to create the top-selling store in each of our

business areas. I am convinced this will help us claim the leading position in the industry.

Business StrategiesKojima will waste no time looking for excuses for our business performance this term.

Instead, we will examine our shortcomings and work to improve them for our future

development. Our priority will be to review this performance by impartially analyzing both

the external and internal factors that caused our earnings to dip this term.

Kojima’s business sagged as our existing small outlets failed to attract a large number of

customers and our sales representatives did not keep up with new trends and changes in

business operations. We are now taking practical measures to ameliorate these negative

factors.

We adhere to our fundamental business policy of selling the highest quality products at


the lowest prices in the world. We also maintain our business objective of creating the top-

selling store in each of our business areas by meeting our customers’ demands. We will

make no changes in these policies, but we will steer our business on a new course. In actual

practice, we will concentrate on improving the quality of our business performance rather

than expanding our business activities to raise the profitability of our outlets.

I can cite four measures we will implement to improve the quality of our business

performance and to create the top-selling store in each of our business areas. These

measures consist of making our sales outlets more competitive, our operations more

effective, and our products more appealing. In addition, we intend to raise our employees’

commitment to their work.

We plan to open and standardize large outlets with a sales floor area of 3,000 square

meters in promising suburban locations. We also will adopt a scrap and build scenario for

our less profitable and smaller outlets. Recently, we closed Kojima’s first sales outlet in

Utsunomiya. As this case illustrates, we will take active steps to reorganize our small outlets

if they perform poorly.

Kojima’s Next Generation Retail Project will help us restructure our current systems in

product distribution, the information business, and network sales. We built a distribution

center in the northern Kanto region in September 2001 and another in the southern Kanto

region in September 2002. We plan to build another distribution center in Osaka by March

2003.

Establishing distribution centers and integrating information systems enables us to

rationalize our distribution system. By establishing an integrated procurement system and

strengthening our sales capabilities, we will improve our inventory turnover ratio and

achieve a higher gross profit ratio.

Further, we will install new point-of-sale systems and other real-time network systems for

inventory management in all our sales outlets. This will enable us to build a comprehensive

and efficient operation structure.

To make our products more appealing and raise profitability, we keep a sufficient volume

of popular items in inventory by utilizing planned and lump-sum purchase orders. In

addition, we will expand the range of our branded products to increase the added value of

our products and to make them more profitable.

We continue to upgrade ADSL broadband Internet connectivity service and digital

content service by using our website Kojima Dot Net at www.kojima.net.

To improve our sales representatives’ commitment to their work, we promote organiza-


2003200220012000199919981997

Net Sales (¥ billions) Ordinary Profit (¥ millions)

Non-Consolidated Net Sales and Ordinary Profit

7,755

277.7

3,184

301.69,331

366.4

11,136

425.0

11,583

506.7

2,097

495.0

(4,000)

(510.0)

tional initiatives for personnel training to develop their sales

capabilities and boost their productivity. Kojima’s sales staff

has a young average age, so comprehensive personnel train-

ing will increase the productivity of each of these workers.

We anticipate that these strategies as a whole will

strengthen our earnings capabilities and consolidate Kojima’s

corporate culture.

Future Business StrategiesIn our home appliance industry, competition among compa-

nies will intensify as concerns continue to mount over the

weak performance of the stock market in the future and

downward trends in personal consumption.

Confronted with this business climate, we appointed executive directors on November 1,

2002, to make our decision-making more straightforward and to respond more flexibly to

these changes in our business climate. We also established an in-house management system

directly controlled by the president for implementing business strategies.

We will further strengthen our human resource and store management and reorganize

other company resources. For the year ending in March 2003, our objective is to post ¥510

billion in sales and ¥4 billion in ordinary profit. Our mid-term business target is to report a 20

percent increase in sales per worker by introducing new business strategies and comprehen-

sive systems. In addition, we aim to increase our inventory ratio by 20 percent and to achieve

a total asset turnover of three times. As a result, we expect to raise the level of ratio of

ordinary profit to sales to three percent and the level of return on assets to nine percent.

Kojima strives to provide our customers with a variety of products and services at lower

prices. We spare no effort in satisfying our stockholders by generating profits and increasing

our corporate value and paying dividends. We ask for your understanding and cooperation

for our sales and business strategies.

November 2002

Akitoshi Kojima

President and CEO


THE YEAR’S HIGHLIGHTS

Kojima’s business objective is to offer appealing products at the lowest

prices in the world. We always take the customer’s perspective and work to

satisfy our customers with an extensive product lineup. For this, we design

our own products and stock other companies’ products on our shelves.

Un ique product s tra tegy forimprov ing cus tomer sa t i s f ac t i on

>>

>>

>>

>>

>>

We offer a complete lineup in the Fresh Gray

Series of products featuring an attractive, simple

design. An original Kojima product line, the

Fresh Gray Series combines the colors of silver

and gray in consumer electronics products. In

2002 we released 40 new models.

We act as General Electric’s sales distributor and are the only discount consumer

electronics and home appliance chain in Japan to sell its refrigerators. Recently,

we have started to sell two GE freezer models.

In March 2000 we released the Windows-compatible package of Voice English

software for conversation and pronunciation. Following that, we placed on the

market an upgraded version of the Voice English Conversation series and the

English Conversation 110 Version for Overseas Travel product that places a

greater emphasis on practical application.

We launched our Kojima Dot Net ADSL service by eAccess for ADSL broadband

Internet connectivity—the most inexpensive in Japan. Since then, we have been

expanding this service nationwide.

We have started to conduct classes on basic PC operation at our major sales

outlets. The applications featured include Word 2002, Excel 2002, the Internet,

and e-mail. In the future, we intend to use more applications in our classes.


Since establishing dominance in the four major metropolitan areas of To-

kyo, Osaka, Nagoya, and Fukuoka, we have been increasing our presence in

the industry by using these areas as a base to expand Kojima’s network of

sales outlets nationwide. Currently, we have launched a new business

strategy of opening large outlets with a sales floor area of 3,000 square

meters. At the end of September 2002, our sales outlets totaled 250.

Large outlet development with a sales floorarea of 3,000 square meters

We have been concentrating on revamping our distribution system, infor-

mation system, and network sales using the Internet and communications

satellite broadcasts. Our objective is to create an effective structure for our

business operations by raising inventory turnover and improving produc-

tivity and profitability.

Company-wide promotion of the NextGeneration Retail Project

In a consumer survey of favorite companies conducted by Mainichi Shimbun’s

Advertising Division last year, many housewives voted for Kojima and

recognized us as the most customer-oriented company.

No.1 recognition in a consumer survey


An extensive product lineup and lower pricesA variety of products, lower prices, and customer-oriented services are prerequisites for captur-

ing the lion’s share of the sales market in a business area. Kojima takes pride in the wide range

of its product assortment that includes video products, audio products, seasonal products, PCs

and other new electronic devices, kitchen products, and grooming, fitness, and health appli-

ances. We make a particular effort to respond with meticulous detail to our customers’

diversifying product needs for these products. We also use lump-sum purchase orders to offer

popular items at lower prices,.

During the term, the 2002 FIFA World Cup Korea Japan was held from May 31 to June 30.

Thanks to this tournament, we posted sales gains for such video products as BS digital TVs and

large PDPs. As advanced technological innovation has accelerated the development of new

video products, the selling prices of these products have fallen. We anticipate that these trends

will contribute to expanded sales growth.

Kojima’s original productsTo provide our customers with products that most satisfy their needs, Kojima takes the

customer’s perspective to design and sell our original products. Owing to their distinctive

qualities, these products are highly acclaimed by our customers.

The Fresh Gray SeriesCrisply designed for singles and younger people, Kojima’s popular Fresh Gray Series blends the

colors of silver and gray in consumer electronics products such as smaller refrigerators and

completely automated washing machines.

We received cooperation from 14 manufacturers in Japan to develop this Series. Our product

lineup won the Japan Industrial Design Promotion Organization’s Good Design Award in 1999.

Currently 40 products are available in this Series.

We can offer these products at low prices because we use bulk orders and product offtake

contracts.

General Electric refrigeratorsLeading the U.S. market in large refrigerator manufacturing, General Electric is also very popular

in Japan. Kojima is the only company in Japan to sell General Electric’s refrigerators, and every

one of our sales outlets in Japan sells GE refrigerators. Thanks to our nationwide sales channels,

we offer General Electric’s refrigerators with specifications and colors specially designed for

Kojima. Japanese consumers have favorably responded to these products. We recently launched

two types of freezers with original specifications on the market.

The Voice English Conversation and English Conversation 110 Version forOverseas TravelIn March 2000, we released the Windows-compatible package of Voice English software for

conversation and pronunciation. Based on the junior high school English curriculum, this

product has exceeded all expectations with unprecedented sales. During the year, we released

PRODUCTS AND SERVICES


an upgraded version of the Voice English Conversation series and the English Conversation 110

Version for Overseas Travel. These products put a greater emphasis on practical application. For

these software applications, we used the latest version of IBM Japan’s voice recognition

software ViaVoice Millennium. They are sold exclusively at Kojima sales outlets or by mail order.

Home theater packageAs the range of digital content expands and consumers prefer purchasing larger displays, we

have added home theater audio systems to our product lineup. Jointly developed with the

audio, video and media related equipment manufacturer Denon, Ltd., our home theater audio

systems package gives our customers the full home theater experience. The standard package

includes DVD players, speakers, and AV amplifiers. We offer this package at a low price.

Kojima’s original servicesKojima ADSL Broadband Internet servicesIn August 2001 we launched Kojima Dot Net ADSL service by eAccess for ADSL broadband

Internet connectivity. Offering this service at low fixed costs earned us great support from our

customers nationwide. At present, people in 20 prefectures can use this service. We plan to

offer e-mail service, website service, and mobile connectivity service as options.

Classes for basic PC operationsWe began to operate classes for basic PC operations in May 2001. These classes are being

conducted at our 17 major outlets. The applications used in these classes include Word 2002,

Excel 2002, the Internet, and e-mail. We offer basic courses, including “Beginning PC use for

children” and such tutorial courses as “PC classes for parents and kids.” In addition to these

programs, we offer a course in our Voice English Conversation software application and other

courses designed for primary and secondary school students. We intend to make these courses

available at all our outlets and add more courses, such as home page creation tutorials.

Kojima’s original digital contentsWhile using our Web site as a business platform for sales expansion, we are concentrating on

online sales of digital content. These products include the English learning program “e-

learning” with the help of Global English Japan and an online keyboarding speed and accuracy

test. All these products have been highly acclaimed by users.

In September 2002, we added shareware applications to our digital content. As broadband

Internet rapidly penetrates our community and becomes a more mainstream means of commu-

nication, we anticipate that the digital content market will grow in importance in the future. We

strive to provide more digital content for our customers.


Large outlet development with a sales floor area of 3,000square metersWith business bases in Tokyo, Osaka, Nagoya, and Fukuoka, Kojima is expanding its business

activities across Japan. At the end of September 2002, our sales representatives in 250 outlets

were engaged in customer service.

After years of effort to expand our sales volume, we are reviewing our business strategies

and improving the quality of our business performance. In the past, we attempted to boost sales

at each of our outlets instead of applying the scrap and build program to old outlets. We have

decided to modify part of our business strategy, however, as consumers prefer visiting larger

outlets that offer extensive product selection at lower prices.

To strengthen our sales capabilities and expand our market share in local communities, we

have decided to introduce outlets with a sales floor area of 3,000 square meters. We intend to

develop our business by building a chain of these large-scale outlets. To achieve this objective,

we won’t hesitate to integrate small outlets that operate in an area where our large-scale

outlets also operate.

Making an outlet of 3,000 square meters our standard will enable us to integrate our

business operations and raise our business efficiency. It also will help us enhance the profitability

of our business.

We plan to establish 19 new large outlets by the end of March 2003. In the future, we will

put 300 large outlets in operation. We estimate one of these new large outlets will require an

investment of roughly ¥500 million to ¥600 million. It will take six to seven years for a new

outlet to become profitable.

Thus, we have set out to enlarge our sales floors and increase the number of outlets that are

sales leaders. We hope this will contribute to increasing our sales and earnings and to

consolidating Kojima’s No.1 position in the industry.

Comprehensive personnel trainingOur channel strategy and personnel training are two essential elements of our organizational

innovation. We have so far implemented on-the-job staff training. We believe we must provide

organized personnel training opportunities for our employees, however, as competition in our

industry becomes tougher and specialized knowledge of digital products becomes essential for

our sales activities.

In cognizance of this trend, a specified division will organize personnel training. The

objectives of this training are to give precise advice to our customers and to improve our sales

capabilities. Throughout the training period, we will improve our workers’ skills for serving

customers and increase their product knowledge. Another objective of the training is to increase

their sales potential and commitment to work.

SALES AND STORE POTENTIAL


Further, we aim to assign our employees to appropriate positions and to increase the number of

part-time workers. This will result in reducing fixed costs and enhancing productivity per worker.

Various media and channels for sales promotionNewspaper and magazine advertising, and newspaper insertsWe place advertising with the Nihon Keizai Shimbun and other major daily newspapers to

maintain the Kojima Corporation foremost in the minds of consumers. We also periodically

provide information through many PC magazines and other publications. In addition, we

distribute roughly 15 million newspaper advertising inserts every week throughout the country.

This extremely high volume of regular insert placement has a powerful impact on consumers.

Television and radio commercialsKojima produces and broadcasts more than 100 television and radio commercials each year to

enhance our prestige and convey up-to-date information about our home electronics products.

Digital broadcasts on communications satellitesWe operate Kojima Shopping World, the world’s first shopping channel exclusively for con-

sumer electronics products, through a station on communications satellites. Our channel shows

an extensive selection of exceptional products that consumers can purchase 24 hours a day.

The InternetThanks to Internet browsers that have rapidly developed into global media, shopping on the

Internet has become an important option for consumers. We fully understand the business

potential the Internet presents as a sales channel. For this reason, we occasionally update our

company website, Kojima Dot Net, at www.kojima.net and expand its content. Currently, more

people are becoming members of our site and sales through the site also are increasing.


CORE SYSTEMS

Creating systems generating high profitsWhile harnessing our sales potential and lifting earnings, we are implementing the NextGeneration Retail System to build low cost operation systems.

Specifically, this is an upgrade of our distribution system, information system, and networksales using the Internet and communications satellite broadcasts.

As part of our new system, we will build our own distribution centers and redesign ourinformation system and sales activities through our website. We also will reform our buyingprocess. We anticipate that these improvements will lead to a greater inventory turnover ratioand lower selling and administrative costs.

Building an innovative distribution systemDistribution centers will play a significant role enabling Kojima to continue its business develop-ment nationwide. We regard the creation of our own distribution centers as an importantstrategy we must implement. We believe that improving the efficiency of distribution to all oursales outlets will enable our shop personnel to concentrate on sales and eliminate missed salesopportunities. For this reason, we consider it effective to locate our distribution centers in majorcommercial areas. In September 2001, we built our first distribution center in the northernKanto region. Following this, we built another center to cover the southern Kanto region inSeptember 2002. We plan to build a Kansai distribution center by March 2003 for our businessoperations in the Kansai region.

Upgrading our information systemTo offer the most competitive pricing on our products, we conclude product offtake contractswith manufacturers. Improving inventory turnover, therefore, means improving gross profitratio. We will expand our product assortment to achieve a higher gross profit ratio and sell ourproducts at appropriate prices to secure a reasonable profit. We are determined to promptlydeliver products to our customers, so we think we must establish our own distribution systemand utilize our information system.

Kojima has for some time used bar codes as a way to manage our products. Our manage-ment of individual items is so precise that we can use our network to search for repaired items.For this reason, we only needed to add some improvements to upgrade our previous informa-tion system.

There are several advantages in upgrading our information system. For instance, we canspecify our plans for the buying process and sales activities. We also can implement company-wide inventory management without changing purchase order requests. Thanks to our real-time network system, all our outlets have obtained access to inventory information and canshare this information with other outlets throughout the network. Consequently, our inventoryturnover has been improving.

Strengthening Internet shoppingKojima wishes to offer greater convenience to our customers whenever they visit our site.Therefore, we devote a lot of energy to enhancing the functions of our online systems andupgrading our server systems and cable lines. We have now added more options to thesettlement function. Along with this improvement, we have incorporated in our site a recom-mendation function compatible with various software applications and operation systems of thePCs used by our customers. As a result of this greater interactivity, we have made our Internetshopping more customer-friendly.

Last year, we upgraded the server system of Kojima Dot Net, at www.kojima.net. Since then,customers nationwide can easily access our site, which now handles a higher volume of trafficwithout decreased performance or availability. The level of access is among the highest in theretail industry. Our shopping site provides customers with the full use and integration of oursales outlets on line, including product delivery and after-sales services. In addition, we expect itto contribute to improving our sales efficiency.


CONSOLIDATED FIVE-YEAR SUMMARY

Thousands ofMillions of yen U.S. dollars (Note)

Years ended March 31, 2002 2001 2000 1999 1998 2002

Net sales ¥ 495,980 ¥ 508,053 ¥ 427,125 ¥ 368,573 ¥ 304,005 $ 3,722,180

Net income 280 6,021 6,571 3,788 1,699 2,103

Per share of common stock (yen or U.S.dollars)

Net income (Basic) ¥ 7 ¥ 154 ¥ 180 ¥ 114 ¥ 51 $ 0.05

Shareholders' equity 1,676 1,689 1,522 911 819 12.58

At March 31,

Shareholders' equity ¥ 65,221 ¥ 65,734 ¥ 60,422 ¥ 30,423 ¥ 27,352 $ 489,470

Total assets 201,562 220,232 181,854 158,185 132,744 1,512,666

Note: U.S. dollar amounts are translated, for convenience only, at ¥133.25=US$1, the rate prevailing on March 31, 2002.

CONTENTSConsolidated Balance Sheets ...........................................16

Consolidated Statements of Income ................................18

Consolidated Statements of Shareholders’ Equity ............ 19

Consolidated Statements of Cash Flows ..........................20

Notes to Consolidated Financial Statements ................... 21

Report of Independent Certified Public Accountants ........ 31

Non-Consolidated Balance Sheets ...................................32

Non-Consolidated Statements of Income ........................ 34

Non-Consolidated Statements of Shareholders’ Equity .... 35

Notes to Non-Consolidated Financial Statements .............36

Report of Independent Certified Public Accountants ........ 40


Sales performance and financial conditionsConsolidated net sales for the year ended March 2002 slid 2.4 percent from the previous year to

¥495,980 million ($3,722.2 million), a decline of ¥533,000 million from initial projections. The

cost of sales also fell 2.4 percent to ¥417,342 million, resulting in a 2.2 percent year-on-year

decrease in gross profit to ¥78,638 million.

Turning our attention to selling, general, and administrative expenses, personnel expenses

climbed 9.9 percent from the year before to ¥83,537 million due to the increased expenditures

for new sales outlet expansion, the scrap and build program for existing outlets, and the large

volume of new sales personnel hired last spring. This had the effect of turning the ¥4,430

million in operating income earned during the previous year into an operating loss of ¥4,899

million during the year under review. As a result, net income plunged 95.3 percent from the

previous year to ¥280 million ($2.1 million).

This year in particular, the decline in sales coupled with the rise in personnel costs had

serious repercussions. The sales to personnel ratio stood at 6.6 percent, 0.8 percentage points

higher than the year before. Therefore, we will aim to increase productivity in the future

through the comprehensive training of our employees, and to increase profitability by curbing

personnel and fixed costs through the use of more part-time employees.

Sales breakdownThe following is a breakdown of sales by merchandise for the year ended March 2002.

Overall sales fell due to sluggish personal consumption and the reaction from the burst in

sales following the enactment of the Household Electric Appliance Recycling Law. Personal

computers and other new consumer electronics products account for 30.4 percent of Kojima’s

sales. Our sales in this category fell 5.5 percent year-on-year to ¥150,913 million. This had a

significant impact on our total sales.

In contrast, sales of video equipment, including liquid crystal television, large-screen plasma

television, and DVD players, inched upward 1.1 percent to ¥86,535 million. Sales of grooming,

fitness, and health appliances climbed 14.9 percent to ¥22,639 million. There was also an

increase in the sales of convenience goods, soaring 16.5

percent above year-before totals to ¥10,602 million.

In the audio equipment sector, sales of the mainstay

component stereo products were hard-hit, and the sale

prices of MD radio-cassette players fell. Sales in this sector

dropped somewhat to ¥32,485 million. Sales also were

off for air conditioners and other seasonal items at ¥65,765

million, and for cooking appliances at ¥64,916 million.

Financial condit ionsCash and time deposits at the end of the year under

review fell 47.0 percent from the previous year to ¥19,149

million. Notes and accounts receivable also fell sharply by

43.0 percent to ¥11,869 million. In contrast, however,

inventories rose 6.0 percent during the same period to

CONSOLIDATED FINANCIAL REVIEW

Net Sales(¥ millions)

’98

304,

005

’99

368,

573

’00

427,

125

’01

508,

053

’02

495,

980

Sales Composition (Non-Consolidated)(¥ billions)

Video Equipment¥86.5 (17.5%)(Televisions, VCRs, etc.)

Audio Equipment¥32.4 (6.6%)(Stereo Components & Radio Cassette Tape Decks)

New Household Electrical Appliances¥150.9 (30.5%)(Computers, Telephones & Fax Machines)

Seasonal Items¥65.7 (13.3%)(Air Conditioners & Fan Heaters)

Housekeeping Products¥38.2 (7.7%)(Washing Machines & Vacuum Cleaners)

Others¥22.9 (4.6%)

Convenience Goods¥ 10.6 (2.1%)

Grooming, Fitness & Health Appliances¥22.6 (4.6%)(Dryers & Massage Devices)

Cooking Appliances¥64.9 (13.1%)(Refrigerators & Microwave Ovens)

Total: ¥495.0 billion (100.0%)


Total Assets (¥ millions)

’98

132,

744

’99

158,

185

’00

181,

854

’01

220,

232

’02

201,

562

¥70,454 million. As a result, total current assets stood at ¥109,640 million, representing a

19.4 percent decline from the year-before period.

Property and equipment rose 5.3 percent from the end of the previous year to ¥64,495

million. This was due primarily to the opening of new large sales outlets. This resulted in an

8.5 percent decline in total assets to ¥201,562 million.

Meanwhile, total current liabilities skidded 17.0 percent to ¥80,645 million with the

decline in notes and accounts payable. There was little change in shareholders’ equity from

the year before.

Cash flowsCash and cash equivalents fell ¥16,966 million from the total of ¥35,987 million at the end

of the previous year to stand at ¥19,021 million at the end of the year under review. This

was primarily accounted for by trade receivables, but it was also due to a decline in income

before income taxes as well as declines in notes and accounts payable and expenditures for

the purchase of property and equipment for the new sales outlets.

Cash flow from operating activitiesDuring the year under review, the net cash used in operating activities climbed ¥1,956

million to reach a total outflow of ¥2,957 million. This is attributable to such factors as the

year-on-year plunge in income before income taxes, the ¥3,959 million increase in invento-

ries, and the ¥13,443 million decline in notes and accounts payable.

Cash flow from investing activitiesDuring the year under review, the net cash used in investing activities fell ¥8,862 million

from the previous year for a total outflow of ¥11,969 million. This is attributable primarily to

the ¥6,973 million spent for purchases of property and equipment related to the new sales

outlet expansion, and the ¥5,325 million increase in other investments.

Cash flow from financing activitiesThere was a net ¥15,099 million increase in financing activities last year, but during the year

under review the net cash for financing activities fell ¥2,041 million. While there was a

¥20,000 million increase in long-term debt, there was also a ¥21,400 million outflow for

repayment of long-term debt.

Future sales and earnings targetsWe forecast consolidated sales for the year ending March 2003 to rise 3.0 percent from the

total for the year under review to ¥510,740 million. The basis for our forecast is our

projection of a 9.4 percent year-on-year decline in same-store sales, caused by the bleak

prospect for a recovery in individual consumption as a result of the economic downturn.

Nevertheless, we anticipate that we can achieve an earnings increase through greater

efficiencies and the reduction of fixed operating expenses. We project ordinary profit to soar

94.1 percent to ¥3,931 million, and net income to rise 5.8 times to ¥1,615 million.


CONSOLIDATED BALANCE SHEETS


CONSOLIDATED STATEMENTS OF INCOME


CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


CONSOLIDATED STATEMENTS OF CASH FLOWS


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


NON-CONSOLIDATED BALANCE SHEETS


NON-CONSOLIDATED STATEMENTS OF INCOME


NON-CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Corporate Auditors

Chairman Katsuhei Kojima

President Akitoshi Kojima

Vice Presidents Yoshizo Kojima

Etsuo Ogaki

Senior Managing Directors

Hideo Ishikawa

Takayuki Kato

Maki Mori

Hideyuki Obana

Managing Directors Iwao Takayama

Motohiko Sato

Kimiaki Sato

Sukenari Nagashima

Etsuo Terasaki

Eizo Yamamoto

Directors Kazumi Nagao

Shinichi Kojima

Koichi Umezu

Mitsuru Ukaji

Seiji Tsuchiya

Yoshiaki Sato

Masamitsu Kobori

Masaru Matsushima

Norio Yamamoto

Yuji Tamura

Yoshio Iwade

Akio Kamiyama

Dai Kojima

Terufumi Imai

Yoshio Sekiguchi

Senior Corporate Auditor

Takanori Akimoto

Corporate Auditors Shigeru Nakayama

Koichi Hirayama

Directory

Head Office

2-1-8, Hoshigaoka, Utsunomiya,

Tochigi 320-4855, Japan

Phone: (028) 621-0001

Facsimile: (028) 621-0002

URL: http://www.kojima.net/

Founded: April 1955

Capital (Common Stock):

¥18,914 million ($141,948 thousand)

Stores: 250 (as of Sept. 30, 2002)

Employees: 6,401

C O R P O R AT E I N F O R M AT I O N ( a s o f J u l y 1 , 2 0 0 2 )


K O J I M A C o m p a n y, L t d .Head Office: 2-1-8, Hoshigaoka, Utsunomiya, Tochigi 320-0038, Japan Phone: 028-621-0001 Fax: 028-621-0002

http : / /www.ko j ima.net /

aPrinted in Japan

annual report 2002 - kojima.netkojima company, ltd. annual report 2002 3 thousands of millions of...

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