annual report 2004some cars sold in a matter of seconds. such features make japan’s automobile...

ANNUAL REPORT 2004

AN

NU

AL

REP

ORT

2004

Trends in the Used-Car Market■ JAPAN’S USED-CAR MARKET

Used-car registrations first exceeded those for new cars in 1992, and the used-car market has grown steadily ever since. In 2003,

whereas new-car registrations totaled approximately six million, used-car registrations amounted to more than eight million.

(However, calculations of used-car registrations may be artificially high since ownership titles are changed when automobiles are trad-

ed from business to business. The actual number of units is estimated at four million, or half the number of registrations.)

The ratio of new cars (approximately six million) to used cars (approximately four million) is estimated at 3:2. Although Japan’s used-

car market has shown little fluctuation in recent years, considering that the new-car to used-car ratio in Europe and North

America is approximately 1:2, the Japanese used-car market still has room for growth.

■ THE RISE OF AUCTIONS

As stated above, since the new-car to used-car ratio is higher than that of Europe and North America, the Japanese automobile mar-

ket features an overabundance of used cars. Hence, used-car prices change every two to three weeks on the auction market, and,

in many cases, used cars that are left in long-term inventory become dead stock. New-car dealer stores and used-car businesses

must dispose of their inventories of dead-stock automobiles that they are unable to sell on their own. This situation has led to the rise

in the number of auction sites that conduct B-to-B resale of automobiles.

Auction sites are often run by the Japan Used Car Distributors Association and have increased in activity with the emergence of

such independent auction administration companies as USS Co., Ltd. (securities code: 4732), and Aucnet Inc. (securities code: 9669).

Today’s auctions consist of on-site auctions, in which the vehicles are transported to any actual site, and TV auctions, which use satel-

lite communications without physically moving the actual cars. USS conducts both TV auctions and on-site auctions, while

Aucnet specializes in TV auctions.

Approximately six million automobiles are put up for auction annually at Japan’s approximately 150 auction sites, and more than

50% of these automobiles are successfully sold. Moreover, recent years have seen an increase in the use of computer systems, with

some cars sold in a matter of seconds. Such features make Japan’s automobile auctions among the most advanced in the

world.

■ USED-CAR MARKET

Japan’s used-car industry comprises three main functions covering the process by which cars are sold by one owner and purchased

by a new owner. All three of these functions have been established as businesses.

1) The vehicle is purchased from a customer and sold wholesale through an auction site. WHOLESALE (C to B )

2) Auction sites are run, with fees taken on vehicle transactions. The AUCTION BUSINESS (B to B)

3) The vehicle is supplied to an auction site and sold to a new customer. RETAIL (B to C)

Companies in this industry work to expand their businesses with emphasis on their respective function of expertise, with

many variations existing side by side.

01

02

06

09

12

13

36

37

Trends in the Used-Car Market

To Our Stakeholders

How Gulliver’s Business Operates

Sales Process—Auctions and the Dolphinet System

Directors and Auditors

Financial Section

Corporate Data

Gulliver’s History

Cautionary Statement with Respect to Forward-Looking Statements

This annual report contains statements about Gulliver’s future business plans

and strategies as well as estimates. Statements regarding the Company’s

projected business results are not based on historical facts and are subject to

various risks and uncertainties.

CONTENTS

01ANNUAL REPORT 2004

Registrations of new carsSales of new cars Source: Automobile Inspection & Registration AssociationSources: Japan Automobile DealersAssociation, Japan Mini Vehicles Association

0

2

4

6

8

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20032002

TRENDS IN VOLUME OF NEW-CAR SALES AND NO. OF USED-CAR REGISTRATIONS (Millions of cars)

0

10

20

30

40

50

60

70

1988 1989 1990 1991 1992 1993 1994 1995 1996 19971998 1999 2000 2001 20032002

TRENDS OF AUTOMOBILE OWNERSHIP(Millions of cars)

0

2

4

6

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 20032002

Source: Monthly Used CarSource: Monthly Used Car

No. of cars actually sold

NO. OF CARS PUT UP FOR AUCTION AND NO. ACTUALLY SOLD (Millions of cars) AUCTION COMPANIES’ MARKET SHARE(No. of cars put up for auction in 2003)

No. of cars put up for auction

Total of USS26.8%

Other18.5%

JU affiliated18.2%

12.1%6.7%

5.2%

5.7%

JAATotal of Hanaten

TAA 5 districts

Total of Arai AA

Total of CAA

Aucnet

KCAA

4.5%2.6%

THE FLOW OF JAPAN’S USED-CAR INDUSTRY

S E L LB to C

W H O L E S A L EC to B

New-car dealersUsed-car dealer storesUsed-car purchasingdealer stores

Auction sites

AUCTIONB to B

Customersselling

used cars

Used-car dealer stores●New-car dealer storeaffiliates

●IndependentsUsed-car

purchasingcustomers

0

20,000

40,000

60,000

80,000

100,000

120,000

0

1,000

2,000

4,000

3,000

5,000

7,000

6,000

0

500

1,000

2,500

2,000

1,500

3,000

4,000

3,500

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

02

■Earnings

The fiscal year ended February 29, 2004, marked the 10th con-

secutive year of increases in both revenue and profit for Gulliver

International Co., Ltd., since its establishment in 1994.

Consolidated net sales increased 28.4%, compared with the

previous fiscal year, to ¥121,885 million. Consolidated operat-

ing income grew 45.8%, to ¥7,648 million, and net income

grew 45.9%, to ¥4,050 million.

The total number of Gulliver dealer stores for the fiscal year

ended February 29, 2004, was 492 (down 19 from the previous

fiscal year), comprising 205 directly managed stores (up 27)

and 287 franchise stores (down 46). In directly managed

stores, the Company succeeded in increasing its vehicle-

handling volume by opening new stores and expanding per-

dealer store patronage. In addition, by augmenting personnel

education and training programs at Gulliver dealer stores and

improving precision on the part of the Company’s head office in

leading auction site sales, we also succeeded in raising our

per-vehicle gross margin. Regarding franchise dealer stores,

although royalties revenues declined as a result of the decrease

in the number of stores, we obtained contracts with 24 new

franchise dealer stores. Both Dolphinet based sales volume

and revenue from Dolphinet fees also increased.

The Company maintained high levels of ROE and ROA at

fiscal year-end, working out to 28.8% and 33.1%, respectively.

We have also sustained a positive free cash flow position for

several years now, which, in addition to Gulliver International’s

zero debts payable status on a non-consolidated basis, indi-

cates the soundness of our financial base.

Gulliver International considers the return of profit to its

shareholders to be one of the most vital tasks of its business

operations. Our basic policy is to emphasize dividend payout

and provide returns commensurate with our earnings. In line

with this policy and in reflection of the achievement of

increased income for the term, the annual shareholders’ divi-

dend has been increased by ¥35 compared with the previous

fiscal year, to ¥115 per share. Our payout ratio thus worked out

to 30.1%, just slightly higher than in the previous fiscal year.

Retained earnings will be used efficiently and effectively in

the Company’s efforts to further expand future profitability and

increase corporate value as well as will be applied in such

areas as the opening of new directly managed dealer stores,

To Our StakeholdersConsolidated basisNon-consolidated basis Consolidated basisNon-consolidated basis Consolidated basisNon-consolidated basis

NET INCOME (Millions of yen)OPERATING INCOME (Millions of yen)NET SALES (Millions of yen)


fortifying internal infrastructure, and personnel education and

training so as to augment its competitive strength and enhance

its level of service.

*On a net sales and operating income basis.

■ Affirming Our Status as a Premier Company

On August 1, 2003, Gulliver was listed on the First Section of

the Tokyo Stock Exchange (TSE). This development followed

both our over-the-counter IPO in December 1998—only four

years after our October 1994 establishment—and our Second

Section TSE listing, which we achieved in the record short time

frame of six years and one month in December 2000. Thus, our

First Section listing was also achieved in the remarkably swift

span of eight years and ten months. We owe this progress

entirely to our valued stakeholders, customers, and business

partners, as well as our employees. It is to our employees to

whom we owe a great debt of gratitude for their untiring pursuit

of their goals.

However, what we have accomplished until now is merely

the laying of the foundation from which to realize the purpose

for which we were established: to bring about a distribution

revolution in Japan’s automobile industry. Our true challenge

still lies ahead. Thus, while a First Section TSE listing is a land-

mark, it is but a checkpoint along the way and certainly not our

final goal.

Recently, I have noticed that our employees are shedding

their venture-business mind-set and are displaying more self-

confidence than ever before. All Gulliver employees are fully

devoting themselves to implementing customer-satisfying ser-

vice enhancement and store management, providing relaxed

and worry-free enjoyment of automobile ownership to as many

people as possible, and to ensuring the healthy development of

their industry. Through these efforts, it is my belief that we will

become an essential and premier company.

■ Social Contributions

In addition, with project support obtained from the National

Federation of UNESCO Associations in Japan and enlisting the

participation of Gulliver’s celebrity spokesman, Hideki Matsui of

the New York Yankees, the Company has announced the

implementation of its “Gulliver Presents: Hideki Matsui Home

Run Charity, World Heritage Study Program*” charity project.

It is our hope to continue to make contributions, however

Kenichi Hatori President

Photo by Yasuhito Egi

04

humble, to the betterment of society as a responsible publicly

traded company.

*With applications accepted from the children who will take

charge of Japan’s future, the program is intended to imbue

them with ambition and foster grand aspirations by studying

and visiting world heritage sites and experiencing firsthand the

vastness of the world and the creativity of our ancestors.

Corresponding to Matsui’s jersey number 55, Gulliver will con-

tribute ¥550,000 for every home run hit by Matsui in regular-

season games during 2004. (This information is based on the

Company’s announcement made on March 24, 2004).

■Today’s Used-Car Industry

In recent years, the used-car industry has seen an increasing

shift from the core business toward expansion into other sec-

tors. In the car-purchasing industry, such major automakers as

Toyota and Nissan have entered the market. It is sometimes

I believe that Japan’s used-car industry is approaching a

crucial turning point. With the lackluster condition of the

Japanese economy, many used-car operations are struggling. I

think companies that concentrate simply on reaping the most

profit out of each individual vehicle sold, or offer no post-sales

service or warranty, will find it very difficult to survive in the

months and years ahead without changing their ways. It is cru-

cial to achieve low-cost operations with minimal expenses and

raise revenues by steadily increasing the number of vehicles

traded, even at relatively low per-vehicle profit. Equally impor-

tant is the ability to understand the customer’s point of view

when providing service and put the customer’s mind at ease.

■Working to Bring About a Distribution

Revolution in Japan’s Automobile Industry

In the past, Japan’s used-car industry tended to be perceived

by consumers as lacking transparency. Despite quality vari-

claimed that their entry into the market would bring more inten-

sified competition to the industry. However, I consider this to

be a blessing rather than a curse because, whereas traditional-

ly the Japanese used-car business has been perceived as

somewhat shady and lacking in transparency, the entry of

major automakers into the market has served to increase con-

sumers’ confidence in the industry. Moreover, there are still

some areas of the used-car purchasing market that remain

dormant, and increasing overall awareness of the purchasing

market will certainly be of benefit to Gulliver. In fact, the number

of people using our services continues to rise, with expansion

seen not only in our traditional market segment of the younger

generation, but also among customers in their 40s and 50s.

It is a fact that billboards advertising used-car purchasing

franchises are increasing along Japan’s highways. However,

Gulliver still lacks any true competitors: the reason being that,

although other companies’ franchises may resemble ours

externally, they have not taken the same steps that we have to

transcend traditional business models and practiced low-cost

operations. There is also a substantial difference in the quality

of service brand strength and market recognition.

ances from car to car and even though used cars are products

that are prone to price fluctuation depending on different

regions or trends, information on vehicle condition and reason-

ableness of price was not openly available. However, there are

many fine vehicles on the used-car market. Gulliver’s desire

has been to improve the industry’s image and make its benefits

known to as much of the consumer population as possible.

In October 1994, I launched this business specializing in

used-car purchasing. My ambition was to bring about a distri-

bution revolution in Japan’s automobile industry and maximize

the appeal of used cars so that everyone would be able to

exchange their cars freely to suit their lifestyle needs. That is

why today Gulliver is progressing steadily toward the goal of a

revolution in automobile distribution that was set a decade ago.

For Gulliver, the purchasing of automobiles is a means to

achieve a goal, not a goal in itself.

Gulliver has adopted the medium-term goal of annual Group

purchases of one million units and is working to capture an

unparalleled market share in the used-car industry. I believe

that achieving the goal of one million units is essential to bring-

ing about the automobile distribution revolution for which we


strive. Our immediate task will be to attain 500,000 units in pur-

chases, which is double the 250,000-unit figure attained for the

fiscal year under review.

■Achieving Greater Brand Power

To reach our goal of one million units purchased, we must

attract a greater number of customers. According to one mar-

ket survey, approximately 70% of the population never consid-

er visiting any car businesses other than new-car dealer stores.

Although awareness of the business of specialization in used-

car purchasing has grown significantly, the fact remains that a

substantial segment of the consumer population still consider

new-car dealer stores to offer the best value on vehicle trade-

ins. Hence, finding ways to attract this segment of the market

is one of our immediate tasks. To accomplish this task, I

believe that we must further improve the Gulliver brand.

■Sales Strategy

The number of vehicles sold through Gulliver’s Dolphinet

System (hereinafter “Dolphinet”) during the term under review

reached a new record high of almost 4.4 million units. When

we launched Dolphinet in 1998 with the aim of establishing our

own sales route, we were often told that we would not be able

to sell cars simply by showing pictures on a display terminal,

and there was also significant opposition from within our

Company. However, Dolphinet provides highly detailed infor-

mation on the used cars for sale, including minute blemish data

and records of past repair work, and, as the recognition that

customers can rest assured when buying used cars with the

system has gradually permeated the market, we realize now

that more and more customers are placing their trust in and

making use of Dolphinet.

Membership in GAuc* is also rising, having passed the

9,000-member mark, and auction-winning bids made with

Part of this involves our dealer store strategy. In the months

and years ahead, we will continue to strengthen our directly

managed operations, open approximately 30 new dealer stores

annually, and replace existing dealer stores (by changing loca-

tions and opening new stores). In approaching replacements

and new openings, we will find ways to attract a greater num-

ber of customers and give our dealer stores a fresh style on a

par with new-car dealer stores. Our new dealer stores will be

larger with increased floor space and will break away from our

traditional use of a bright yellow color scheme, the Gulliver

mark, and the “used-car purchasing” signboard.

In June 2003, Gulliver signed Hideki Matsui, of the New York

Yankees baseball team, as its celebrity spokesman. Matsui

continues to ascend the ranks of the world’s top athletes and

undertake the challenge of competing in American Major

League Baseball. In addition to his high-profile status, we

believe that Matsui is a strategic fit with our ambitious spirit.

Contracting Matsui as our celebrity spokesman should provide

a significant boost to our brand power.

GAuc units have risen as well. Hence, Dolphinet’s usage in

auctions is also expanding. We are also expanding the network

of our Gold Lounge fee-based membership system and contin-

ually adding new services for members.

The Dolphinet sales volume currently represents only a frac-

tion of overall sales. While we will, of course, continue to use

actual auction sites to sell our cars, we will also further promote

the use of Dolphinet, which is a much lower-cost system. In the

future, we would like to have the Dolphinet sales volume

account for 50% of all cars that we purchase.

* GAuc is a membership system that uses Dolphinet to provide automobile industrybusinesses with vehicles that are recently bought by Gulliver before they are putup for auction. Members use special GAuc terminals to sell cars to their own cus-tomers. Recently, membership in our web GAuc, which uses low-cost Internetlines, is also on the rise.

May 2004

Kenichi HatoriPresident

06

How Gulliver’s Business Operates

(Used-Car Auction or Dolphinet System)

C=CustomerB=Business

Used-Car Dealer Business(Except Gulliver) Gulliver

NON-GULLIVER AND GULLIVER BUSINESS MODELS

■Gulliver’s Original Business Model

Traditional Used-Car Dealerships

The average vehicle inventory period for used-car dealer stores is

considered to be approximately two to three months. Because

there is a surplus of supply in Japan’s used-car market and auc-

tion prices for used cars tend to change within two to three

weeks, thus inducing price degradation on long-term inventory,

used-car companies constantly shoulder inventory risk.

Moreover, display sales operations must have customer draw-

ing appeal. Raising such appeal requires a certain amount of

property and number of display vehicles, which, in turn, increases

personnel costs, resulting in a substantial display cost. These

inventory risks and display costs engender a philosophy of pur-

chasing as low as possible and selling as high as possible. Due to

this environment, the public perception of the used-car industry

has been one of non-transparent, industry-imposed price setting.

The Gulliver Advantage

Gulliver has substantially reduced the time from purchase to sale

to between 7 and 10 days by selling all vehicles it purchases

through auctions. By promptly auctioning off our vehicles, we

have alleviated inventory risk and reduced display costs. Thus, by

reducing inventory time we have constructed a system by which

we generate profit even at low gross margins by handling large

volume. The used-car industry is also faced with the concern of

chronic shortages of popular models. Hence, business value in

this industry is determined by the ability to secure popular mer-

chandise.

According to some opinions, industry competition has recently

intensified due to full-fledged entry into the market by major

automakers. However, Gulliver’s competitors operate under busi-

ness models that differ little from the traditional used-car dealer

store—with its inherent inventory risks and display costs—and

they are completely different from Gulliver in their post-purchase

operations. Gulliver has continued to grow steadily by implement-

ing a level of thorough low-cost operations unrivaled in the indus-

try, thus enabling it to pass on the savings to its customers.

■The Purchasing Process

When cars are brought into a Gulliver dealer store, not only are

the make, model year, and mileage checked, but also such items

as the existence of scratches and blemishes and the condition of

the car’s interior. Further note is made of any beneficial points,

such as the installation of optional components, and then all data

are compiled in an assessment sheet. When all checks are com-

pleted, these assessment sheets are faxed to Gulliver’s Head

Office, where professional assessors determine the purchase

price and report back to the dealer store. Dealer store staff are

then able to put themselves in the position of the customer—who

will be parting with his or her beloved vehicle—and provide highly

satisfactory negotiations. For customers relinquishing their cars,

the greatest concern is price. At Gulliver, we believe that, by offer-

ing prices commensurate with market value, we can provide

peace of mind to used-car customers. Because used-car prices

tend to change within two to three weeks, purchase prices must

be determined based on an assessment of fluctuating auction


5 to 10 minutes

Customer Inspection Assessment Sheet Head OfficeDetermining

Purchasing Price

7 to 10 days

Ship

ment

FAX

Used-Car Auction

Agreement

THE PURCHASING PROCESS

rates and an accurate prediction of winning bid prices. With the

inclusion of different models and classes, there are more than

6,000 different automobile models, both domestic and foreign, in

market circulation. In addition, when such items as mileage, year,

color, features, and repair records are factored in, the result is a

near-infinite variety of vehicles. Gulliver employs a system where-

by professional assessors at its Head Office provide comprehen-

sive assessments based on a database of 450,000 entries

reflecting the most recent auction prices. By so doing, we are

able to offer clearly based prices for any type of car, eliminate

inconsistency in price setting, and offer a uniform level of high-

quality service nationwide.

■ ISO Certification for Its Purchasing Business

In November 2001, Gulliver became the first in the industry to

attain certification in the ISO 9001 quality assurance system

(2000 version) for the assessment and price computation opera-

tions of its used-car purchasing business. Through the implemen-

tation of the ISO 9001 quality management system, we will

enhance the quality of our assessment services (the accuracy and

speed of our price calculations) and other highly precise assess-

ments along with the negotiations provided by our nationwide

network of dealer stores.

■Contact Center and Dispatched

Purchasing Service

Gulliver’s Contact Center handles customer inquiries and consul-

tation. By either telephone (toll free: 0120-22-1616) or the Internet

(http://221616.com), customers can easily reach our Contact

Center to make assessment inquiries. A sales representative from

one of our nationwide dispatch centers then visits the customer

directly. Sales representatives’ schedules are managed by the

Contact Center, and these operations are conducted in a highly

efficient manner.

■Dealer Store Network

Gulliver’s dealer store network currently consists of approximately

500 branches throughout Japan. As of February 29, 2004, there

were 205 directly managed stores and 287 franchise stores. One

of the keys to our success was our swift capture of the largest

share of Japan’s used-car purchasing market, which was a com-

pletely new industry at the time of our establishment, and we

have been quick to expand our nationwide franchise operations.

Having thus established its basic infrastructure, starting in fiscal

2000, the Company shifted its focus from franchised-based oper-

ations to directly managed operations in a determined effort to

further expand profitability.

In addition to the conversion to large dealer stores, we are also

changing our traditional Gulliver mark and shifting our catch slo-

gan from “used-car purchasing specialist” to “all about cars.”

Through these and other actions, we are making a full-out appeal

to the comprehensive support we provide to consumers regard-

ing all things related to automobiles, which is spearheaded by our

core business of used-car purchasing.

Going forward, we will continue to open new directly managed

dealer stores at a rate of approximately 30 branches a year, as

NegotiationsAssessment result

Sale agreement

Dolphinet System

08

well as replace (location changes and new openings) existing dealer

stores. To accelerate these efforts, we are taking such initiatives

as the tie-up with Daiwa House Industry Co., Ltd., in October

2003, and augmentation of our dealer store development workforce.

Gulliver’s aggressive opening of new directly managed dealer

stores has made the swift cultivation of quality human resources

an urgent need. Our personnel training efforts have traditionally

consisted of a range of training courses, including introductory

training for new hires. However, in the fiscal year under review,

we began to augment our training operations by introducing such

new programs as our Store Manager Audition system.

The Store Manager Audition system extends to the opportunity

to sit for Gulliver’s store manager certification examination to

dealer store staff applicants free of classification according to

duration of employment, past performance record, current job

title, or gender. All Gulliver employees who have completed their

initial probationary period are eligible to apply. Under the previ-

ously employed system of store manager certification, training

was conducted only for assistant store managers who met cer-

tain qualifications based on sales records and store management

and who had been recommended by their superiors.

We have also implemented a number of initiatives to improve

business skills among dealer store employees. For example, to

improve staff skills, we have put in place a market analyzer (MA)

System. The MA System consolidates all information necessary

for sales negotiations, including the structure of the used-car

market, in computers installed at each reception table as a

means to improve the flow and efficiency of such negotiations.

This is intended to raise the rate of successful contract negotia-

tions, quickly vitalize lagging employees or new hires, and

improve the overall quality of business negotiations with our cus-

tomers. In addition, we have also increased the number of man-

agers overseeing multiple dealer stores, thus reinforcing our

administrative framework and preparing it for further openings of

new dealer stores.

■Celebrity Spokesman Hideki Matsui

To audiences male and female, young and old, the popularity of

professional baseball player Hideki Matsui, of the New York

Yankees, is unrivaled. In June 2003, Gulliver signed on Matsui as

its official celebrity spokesman. Not content simply on dominance

of Japanese baseball, Matsui resolved to undertake the challenge

of ascending the ranks of Major League Baseball in North

America. As a company striving to bring about a vehicle distribu-

tion revolution and pioneering numerous new services and sys-

tems unrestrained by traditional industry practices, Gulliver

strongly identifies with Matsui. We also feel that Matsui’s refusal

to be satisfied merely with the status quo and consummate mod-

esty in his endeavors are a perfect fit with our own philosophy.

The adoption of Matsui as our official celebrity spokesman should

be highly effective, not only in our external publicity, but also in

raising our employees’ outlook on their professional duties.

Gulliver advertisement featuring Hideki Matsui

Close-up of the new Gulliver mark

New-style Gulliver dealer store

New-style Gulliverdealer store


Sales Process—Auctions and the Dolphinet System

A used-car auction

■Stable Sales Routes Established

Through the Use of Auctions

There are approximately 150 auction sites throughout Japan,

to which numerous used-car dealers gather in search of popu-

lar models. The high popularity and high quality of cars put up

for auction by Gulliver are highly rated, and approximately 70%

of all Gulliver cars are successfully sold, in comparison to the

national average for auction sales of just above 50%.

The purchase prices of used cars bought by Gulliver are cal-

culated by professional assessors at Gulliver’s Head Office

based on a database of more than 450,000 entries. This data-

base ascertains the latest prices from every auction site in real

time, with approximately 20,000 entries updated each month.

By applying this database, we are able to offer fair purchase

prices that are commensurate with current auction rates. Thus,

by accurately ascertaining market saleable cars and saleable

prices, we are able to avoid dead stock and maintain a high

rate of successful auction sales.

Some opinions view negatively the reliance on auction sites

that are run by third parties for one’s sales routes. However,

since auction sites usually have a shortage of vehicles for auc-

tion, and since auction sites are in competition with each other,

they must constantly secure vehicles for auction so as to main-

tain their appeal. Hence, the number of vehicles handled is

extremely high, and Gulliver cars—with their high popularity and

high quality—are often given preferential treatment in terms of

cost. Thus, such negative opinions do not accurately grasp

actual circumstances.

■Gulliver’s Original Sales Route,

the “Dolphinet System”

As a means to maintaining its own sales routes, in 1998

Gulliver launched its Dolphinet System (hereinafter referred to

simply as “Dolphinet”), leveraging both satellite communica-

tions and graphics technology. Dolphinet is used to sell auto-

mobiles in the brief 7- to 10-day time frame following purchase

by Gulliver dealer stores, after which they are placed at auc-

tions. The Dolphinet display monitor provides not only such

basic information as images of the vehicle but also such

detailed data as past repair records and whether there are any

scratches or dents. The vehicle’s exterior is further assessed

on a scale of 100 and its interior rated according to a five-stage

system, thus providing comprehensive vehicle value data.

Consumers who find it difficult to discern a used car’s value

try their best to do so by examining the vehicle itself. However,

detailed information is seldom disclosed, making the decision

to purchase difficult. With Dolphinet, such problems are allevi-

ated without the need for hands-on examination of the vehicle

by providing professional assessment and price setting as well

as the open disclosure of detailed data.

0

10

20

30

40

0

20

40

60

80

1999 2000 2001 2002 2003 20042000 2001 2002 2003 2004

NUMBER OF CARS SOLD BYTHE DOLPHINET SYSTEM

(Thousands)

Gulliver Auctions overall

Source: Monthly Used Car (Rate of overall auction car sales)

RATE OF OVERALL AUCTION CARSALES AND RATE OF GULLIVERCARS SOLD AT AUCTIONS (%)

10

Communication satellite or Internet

Purchasefrom

customer

Communicationsatellite or

Internet

Vehicle purchase

(winning bid) Sale

▲

❚❚❚❚❚❚❚❚❚❚❚❚❚

▲

❚❚❚❚❚❚

❚❚❚

Gulliver store Dolphinet SystemPut up for auction within 7 to 10 days

GulliverStore

GAucMember

Customer Customer

Used-car auction

Gulliver revenue from Dolphinet operations includes gross profit on vehicles in the case of sales by directlymanaged Gulliver dealer stores and service charges in the case of sales by Gulliver franchise dealer storesand GAuc members.

THE FLOW OF AUCTIONS AND THE DOLPHINET SYSTEM

Total Dolphinet sales as of April 2004 were 150,000 units.

While image-based car sales have not permeated the general

market, we at Gulliver feel that for the sale of used cars—each

with differing value—this form of sale offers the best service to

the consumer. In the future, should automobile sales based on

visual data alone become commonly accepted, Dolphinet has

the potential to make a substantial contribution to earnings.

To provide greater convenience to its customers and

increase sales opportunities, Gulliver is constantly developing

new products and services. One of these is the Gulliver

“Rakunori” Plan. Launched in March 2004, this plan marks the

Japanese auto industry’s first cash-back guaranteed balance

deferred auto loan. While cash-back guaranteed type loans

have been available on new car purchases, the “Rakunori” Plan,

which leverages Gulliver’s unique expertise, is the first such

service to be extended to used-car purchases. Under the plan,

Gulliver calculates the residual value of a car after three years

and guarantees the buy-back price. In addition, customers that

fulfill certain conditions, including avoidance of damage and lim-

iting of distance traveled to within the prescribed mileage, are

eligible to receive cash back for the difference between the vehi-

cle’s residual price and its assessment value.

■Development of Dolphinet System

For automobile industry businesses, Gulliver also offers GAuc,

a membership-based system that uses Dolphinet to supply

cars that are recently purchased by Gulliver before they are put

up for auction. GAuc members use specialized terminals to sell

cars through their own dealer stores. Recently, membership

has also been rising in Gulliver’s Internet-based web GAuc.

Using the Internet allows subscribers to access the server from

their own PCs, eliminating the need to install special terminals

and enabling swift access, thus decreasing costs related to

maintenance and data distribution.

In recent years, our Gold Lounge fee-based membership

network has also been expanding. Gold Lounge was launched

for automobile-related businesses based on the recognition

that vitality in the used-car industry correlates directly to the

continued success of Gulliver’s business. In addition to search

on buy functions for vehicles purchased by Gulliver that are

provided to web GAuc members, Gold Lounge also offers

assessment expertise, automobile components marketing

functions, financing, customer services, and sales promotion

tools, as well as a range of training programs, sales negotiation

methodologies, vehicle assessment procedures, and dealer-

ship management expertise for overall improvement of the sub-

scriber’s business.


Autobacs, Japan’s premier automobile goods chain retailer,

has also joined the Gold Lounge.

In February 2004, Gulliver also added a One-Stop Vehicle

Inspection Quotation Site to its general-use website

(http://221616.com) as a service to support the customer

recruiting efforts of maintenance and repair businesses. Since

the July 1995 revision to the Road Traffic Law, which resulted

in sweeping reforms to vehicular regulations, consumers have

enjoyed greater freedom of choice regarding where to have

their vehicles inspected and the level of service they want. With

the market thus liberalized and competition increasing from

other industries, the competition for new customers has

become intense, forcing maintenance and repair businesses to

differentiate themselves from their competitors through cost-

cutting and advertising campaigns. Given these circumstances,

as well as the fact that approximately half of the Gold Lounge

members engage in inspection operations as part of their ser-

vice lineups, Gulliver decided to provide a service that would

facilitate such inspection operations. This offers customers the

choice of also applying for free assessment of their vehicles

along with inspection, thus enabling them to consider whether

to pay for inspection or trade in their current vehicle and buy a

different one.

■Export

In addition to exports through GAuc members that conduct

export operations, Gulliver exports used automobiles to New

Zealand through a tie-up with the New Zealand used-car bid-

ding agency Auto Auction Network Limited (Aucsat). Gulliver

provides data and accepts bidding on vehicles it has pur-

chased to Aucsat’s membership of approximately 650 used-

car businesses. Gulliver determines purchase prices based on

successful sale data from auction sites, whereas, in the past, it

did not purchase older vehicles with longer usable time frames

from initial registration or vehicles with no record of successful

auction sales. However, older and less popular vehicles that

are difficult to market in Japan can still find markets overseas,

and by widening the range of vehicle purchases through

expansion in export operations, we will aim to increase our pur-

chase volume.

Display of Dolphinet

12

PresidentKenichi Hatori

Senior Executive Vice PresidentIkuo Murata

Senior Managing DirectorYusuke Hatori

Managing DirectorsYukihiro YoshidaTakao Hatori

Standing Corporate AuditorNitsumasa Ito

Corporate AuditorsEtsuya WashioMasakatsu Endo

Directors and Auditors(As of February 29, 2004) (From left) Takao Hatori, Ikuo Murata, Kenichi Hatori, Yusuke Hatori, and Yukihiro Yoshida


Consolidated Financial HighlightsFor the years ended February 29, 2004 and February 28, 2003Gulliver International Co., Ltd.

Thousands ofThousands Thousands U.S. dollars

of yen of yen (Note 1)

2004 2003 2004

For the year:Net sales ¥121,885,207 ¥94,957,515 $1,111,888Operating income 7,648,729 5,244,913 69,775Net income 4,050,512 2,777,175 36,950

At year-end:Total assets 26,225,811 20,057,544 239,242Total shareholders’ equity 15,554,769 12,565,484 141,897

Per share data (Yen/U.S. dollars):Net income:

Basic ¥000,0393.36 ¥00,0275.67 $0,0003.59Diluted 384.92 274.49 3.51

Cash dividends 115.00 80.00 1.05Shareholders’ equity 1,539.49 1,258.87 14.04

Ratios (%):Return on equity (Note 2) 28.8 23.5Return on assets (Note 3) 33.1 26.9Equity ratio 59.3 62.6

Employees:Number of employees 1,448 1,199

Non-Consolidated Six-Year SummaryYears ended February 28 or 29Gulliver International Co., Ltd.

Thousandsof yen

1999 2000 2001 2002 2003 2004

For the year:Net sales ¥25,429,560 ¥42,340,143 ¥58,285,250 ¥82,503,511 ¥91,071,908 ¥114,991,215Operating income 1,181,799 2,514,698 2,541,888 4,033,953 5,032,169 7,165,957Net income 552,391 1,036,557 1,251,516 1,780,142 2,667,689 3,863,649

At year-end:Total assets 6,851,202 15,516,320 18,286,974 18,339,282 18,931,226 24,512,307Total shareholders’ equity 1,652,686 9,422,714 10,580,780 10,962,262 12,329,634 15,132,056

Per share data (Yen/U.S. dollars):Net income:

Basic 94.15 146.87 124.17 171.22 264.80 374.83Diluted — — — — 263.67 366.79

Cash dividends 5.00 5.00 20.00 45.00 80.00 115.00Shareholders’ equity 254.57 1,257.70 1,008.76 1,078.78 1,235.24 1,497.65

Ratios (%):Return on equity (Note 2) 49.2 18.7 12.5 16.5 22.9 28.1Return on assets (Note 3) 21.9 22.5 15.0 22.0 27.0 33.0Equity ratio 24.1 60.7 57.9 59.8 65.1 61.7Dividends ratio 5.5 3.6 16.7 25.9 30.0 30.1

Common stock (Shares):Number of shares issued 6,492,000 7,492,000 10,488,800 10,488,800 10,488,800 10,557,200

Employees:Number of employees 350 559 733 1,035 1,177 1,420

Notes: 1. Translation into U.S. dollars has been made on the basis of ¥109.62=$1, the effective exchange rate at February 29, 2004.Notes: 2. ROE=Net income/shareholders’ equity (yearly average) X 100Notes: 3. ROA=Operating income/total assets (yearly average) X 100

14

Management’s Discussion and Analysis

Net Sales

Net sales for the fiscal year ended

February 29, 2004, increased 28.4%,

compared with the previous fiscal year,

to ¥121,885 million. Vehicle net sales,

which account for the greatest portion

of Gulliver’s net sales, rose 28.1%, to

¥108,046 million, while the volume of

vehicle sales cl imbed 27.3%, to

128,615 units. As “the used-car pur-

chasing expert,” the primary operations

of Gulliver’s dealer stores comprise the

purchasing of used vehicles, and the

number of directly managed dealer

stores increased by 27, to 205 (includ-

ing purchasing dispatch centers). The

number of vehicles purchased also

expanded as per-dealer store patron-

age increased. Both of these factors

contributed to the growth in vehicle

sales. Factors contributing to increased

patronage include dynamic advertising

and PR programs, with Gulliver’s use of

Hideki Matsui of the New York Yankees

as its celebrity spokesperson beginning

in June 2003, and rapidly spreading

recognition of the Company’s used-car

purchasing specialist business.

On the other hand, the number of

franchise dealer stores declined by 46, to

287, and there was an easing off of roy-

alties revenues. The Company obtained

contracts with 24 new franchise dealer

stores—5 more than in the previous fis-

cal year—thus recording ¥192 million in

revenue from franchise admission fees.

Vehicles purchased by Gulliver are

sold both at nationwide auctions, fol-

lowing a brief inventory period of 7 to 10

days, as well as through sales routes

established with its own Dolphinet visual

graphics sales system. The number of

dealer stores equipped with the

Dolphinet System increased by 1,520


to 9,946 (not including Gulliver dealer

stores), and the number of vehicles sold

through the Dolphinet System also

increased, up 38.1%, to 44,404 units,

as a result of a rise in the number of

vehicles successfully tendered through

web GAuc (an Internet-based sales sys-

tem furnished by Gulliver primarily to

used-car dealers free of any member-

ship charge).

Cost of Sales, SG&A Expenses,

Other Revenue, and Expenditures

Cost of sales increased 28.4% com-

pared with the previous fiscal year, to

¥93,200 million. Selling, general and

administrative (SG&A) expenses also

increased, up 22.7%, to ¥21,035 mil-

lion, primarily reflecting increases in per-

sonnel expenses, depreciation and

amortization, and property rental fees

resulting from the increase in the num-

ber of dealer stores as well as increased

advert ising expenses from the

Company’s dynamic advertising pro-

grams. As a result, operating income

climbed 45.8% compared with the pre-

vious fiscal year, to ¥7,648 million, and

the operating income margin edged up

0.8 percentage point, to 6.3%.

In other income (expenses), net,

expenses rose ¥2 million, to ¥123 million,

due primarily to the approximately ¥135

million in losses on the retirement of fixed

assets that were incurred during the fiscal

year. Net income for the term increased

45.9%, to ¥4,050 million, with the net

income margin working out to 3.3%, an

increase of 0.4 percentage point.

Segment Earnings

Used-Car Sales

Although vehicle sales prices hovered at

approximately the same level as that of

the previous fiscal year, the number of

vehicles handled by Gulliver increased

steadily, and net sales in this segment

rose 29.8%, compared with the previ-

ous fiscal year, to ¥114,884 million.

The Company succeeded in raising its

per-vehicle gross margin compared with

the previous term on the strength of

increased vehicle handling volume, which

it achieved through new dealer store

openings and expanded per-dealer store

patronage, as well as augmented per-

sonnel education and training programs

at Gulliver dealer stores and heightened

precision on the part of the Company’s

Head Office in leading auction site sales.

As a result, operating income advanced

29.5%, to ¥7,701 million.

Franchise Operations

The number of vehicles handled dipped

slightly compared with the previous

term due to the decline in the number of

franchise dealer stores. Nevertheless,

the Company succeeded in obtaining

contracts with 24 new franchise dealer

stores. In addit ion, revenue from

Dolphinet fees also increased as the

volume of Dolphinet-based sales

expanded. As a result, net sales

climbed 8.1%, to ¥7,001 million, and

operating income grew 39.5%, to

¥3,277 million.

Financial Condition

The Company’s total capital outlays for

the term under review amounted to

¥1,636 million. Investment in buildings,

structures, and fixtures related to the

opening of new Gulliver dealer stores and

the relocation or expansion of existing

dealer stores amounted to ¥943 million.

The Gulliver International Group’s

total assets increased ¥6,168 million, or

30.8%, compared with the previous fis-

cal year-end, to ¥26,225 million. Current

assets totaled ¥17,585 million mainly

because of increases in cash and

deposits and accounts receivable that

resulted from the Company’s strong

sales activities and growth in vehicle-

handling volume. Fixed assets amount-

ed to ¥8,640 million due to an increase

in property and equipment that resulted

from the increase in directly managed

dealer stores and associated new acquisi-

tions of buildings, structures, and fixtures.


Total liabilities rose ¥310.4 million, or

41.9%, to ¥10,518 mill ion. Current

liabilities rose to ¥9,780 million due

to higher accounts payable—trade

because of the increase in the number

of vehicles handled.

Shareholders’ equity increased

¥2,989 million, or 23.8%, to ¥15,554 mil-

lion. This increase was due primarily to

growth in consolidated retained earnings

that reflected the Company’s net income

for the term. Capital amounted to ¥3,954

million as a result of the issuance of new

shares through the Company’s use of

stock options during the term. As a

result, Gulliver’s equity ratio eased off by

3.3 percentage points, to 59.3%.

Gulliver International places great

emphasis on the return on equity (ROE)

as a vital indicator of its fiscal standing

and str ives to maintain an ROE of

greater than 10% over the long term.

ROE for the term under review

increased 5.3 percentage points, to

28.8%. Return on assets (ROA) grew

6.2 percentage points, to 33.1%. The

Company has maintained high levels of

both ROE and ROA, with continual

increases in recent years.

Cash Flow Analysis

Although the Company recorded negative

cash flows from investing and financing

activities, cash flows from operating

activities were positive, with overall cash

flow amounting to ¥2,111 million.

Net cash provided by operating activ-

ities totaled an inflow of ¥5,228 million,

primarily on the strength of operating

revenue.

Net cash used in investing activities

amounted to an outflow of ¥2,204 million,

stemming primarily from expenditures for

the opening of new directly managed

dealer stores and internal systems main-

tenance.

Net cash used in financing activities

worked out to an outflow of ¥913 mil-

lion, mostly from the buy-back of stock.

Dividends

Gulliver International considers the return

of profit to its shareholders to be one of

the most vital tasks of its business oper-

ations. Our basic policy is to emphasize

dividend payout and provide returns

commensurate with our earnings. In line

with this policy, the annual shareholders’

dividend has been increased by ¥35


to ¥115 per share, thus producing an

increase in the Company’s payout ratio

to 30.1%, slightly higher than in the pre-

vious fiscal year.

Retained earnings will be used effi-

ciently and effectively in the Company’s

efforts to further expand future profit-

ability and increase corporate value as

well as will be applied in such areas as

the opening of new directly managed

dealer stores, fortifying internal infra-

structure, and personnel education and

training so as to augment its competitive

strength and enhance its level of service.

Outlook

Gulliver will continue to aim to expand

its earnings by increasing its number of

vehicles handled (through new dealer

store openings and heightened per-

dealer store patronage) and thoroughly

implementing low-cost operations.

For the fiscal year ending February

28, 2005, on a consolidated basis, we

anticipate recording net sales of

¥140,000 million, operating income of

¥8,800 mil l ion, and net income of

¥4,600 million. On a non-consolidated

basis, we expect to record net sales of

¥131,300 million, operating income of

¥8,200 mil l ion, and net income of

¥4,300 million.

Future Business Development

Japan’s vast used-car market now

totals eight million annual registrations

(including buses, trucks, and other vehi-

cle types), and it is the aim of the

Gulliver International Group to capture

the top share of this market and expand

its profitability. In terms of a numerical

target, the Group will strive to attain

annual vehicle purchases of one million

units over the medium-to-long term.

Tasks immediately facing the Group

include strategic marketing efforts

aimed at expanding its customer appeal

by augmenting its brand strength and

increasing its recognition among a

wider range of age-groups; the qualita-

tive enhancement of services and cus-

tomer satisfaction; bolstering its

business competence through the train-

ing and education of i ts human

resources; and the implementation of

thoroughgoing, low-cost operations.

Note: ROE=Net income/Total shareholders’ equity (yearly average) x 100

ROE (%)

Note: ROA=Operating income/Total assets (yearly average) x 100

ROA (%)

0

10

20

30

2001 2002 2003 20040

10

20

30

2001 2002 2003 2004

16

Consolidated Balance SheetsAs of February 29, 2004 and February 28, 2003Gulliver International Co., Ltd.



ASSETS 2004 2003 2004

Current assets:Cash and cash equivalents ¥08,624,831 ¥06,513,298 $078,679Short-term investments (Note 3) 236,689 78,188 2,159Accounts receivable:

Trade 5,130,911 3,260,617 46,806Allowance for doubtful accounts (88,984) (34,104) (812)

5,041,927 3,226,513 45,994Inventories 1,974,624 1,703,495 18,013Deferred income tax assets (Note 12) 409,198 216,802 3,733Other current assets 1,298,356 816,588 11,844

Total current assets 17,585,627 12,554,887 160,423

Property and equipment:Land 327,075 323,011 2,984Buildings and structures 4,376,664 3,532,784 39,926Furniture, fixtures and equipment 1,819,221 1,483,277 16,596Construction in progress 39,293 31,642 358

6,562,255 5,370,715 59,864Less—Accumulated depreciation (2,187,222) (1,677,871) (19,953)

Net property and equipment 4,375,032 3,692,845 39,911

Investments and other assets:Investment securities (Note 3) 228,040 189,909 2,080Leasehold and guarantee deposits (Note 4) 2,154,048 1,708,191 19,650Deferred income tax assets (Note 12) 203,508 177,436 1,856Software costs, net 1,201,535 1,217,628 10,961Other assets 750,673 785,356 6,848Allowance for doubtful accounts (272,655) (268,713) (2,487)

Total investments and other assets 4,265,150 3,809,811 38,908

¥26,225,811 ¥20,057,544 $239,242

The accompanying notes are an integral part of these statements.




LIABILITIES AND SHAREHOLDERS’ EQUITY 2004 2003 2004

Current liabilities:Short-term bank loans (Note 5) ¥00,550,000 ¥00,450,000 $005,017Accounts payable:

Trade 2,796,848 1,848,934 25,514Other 1,871,250 1,588,417 17,070

Accrued income taxes (Note 12) 2,531,239 1,295,061 23,091Accrued bonuses 380,639 282,126 3,472Deferred income tax liabilities (Note 12) — 167 —Other current liabilities 1,740,616 1,205,806 15,879

Total current liabilities 9,870,594 6,670,514 90,043

Long-term liabilities:Guarantee deposits received (Note 6) 647,437 743,102 5,906Other liabilities — 50 —

Total long-term liabilities 647,437 743,152 5,906

Minority interest in consolidated subsidiaries 153,008 78,393 1,396

Shareholders’ equity (Note 9):Common stock:

Authorized 40,000,000 sharesIssued 10,557,200 shares in 2004Issued 10,488,800 shares in 2003 3,954,882 3,849,820 36,078

Additional paid-in capital 3,943,997 3,725,460 35,979Retained earnings 9,727,986 6,706,077 88,743Unrealized holding losses on available-for-sale securities (2,646) (27,284) (24)

17,624,219 14,254,073 160,776

Less—Treasury stock (2,069,450) (1,688,588) (18,878)

Total shareholders’ equity 15,554,769 12,565,484 141,897

¥26,225,811 ¥20,057,544 $239,242

18

Consolidated Statements of IncomeFor the years ended February 29, 2004 and February 28, 2003Gulliver International Co., Ltd.



2004 2003 2004

Net sales ¥121,885,207 ¥94,957,515 $1,111,888

Costs and expenses:Cost of sales 93,200,970 72,575,504 850,219Selling, general and administrative expenses (Note 10) 21,035,508 17,137,097 191,895

114,236,478 89,712,601 1,042,113

Operating income 7,648,729 5,244,913 69,775

Other income (expenses):Losses on disposal of software, property and equipment (Note 11) (135,091) (121,746) (1,232)Other, net 11,426 1,004 104

(123,664) (120,742) (1,128)

Income before income taxes and minority interest 7,525,065 5,124,170 68,647

Income taxes (Note 12):Current 3,644,702 2,239,150 33,249Deferred (236,617) 92,047 (2,159)

3,408,085 2,331,197 31,090

Minority interest, net of taxes 66,467 15,797 606

Net income ¥004,050,512 ¥02,777,175 $0,036,950

U.S. dollarsYen Yen (Note 2)

2004 2003 2004

Net income per share (Note 2 (m)):Basic ¥000,0393.36 ¥000,275.67 $0,0003.59Diluted 384.92 274.49 3.51

Cash dividends per share (Note 2 (m)) 115 80 1.05



Thousands of yen

UnrealizedForeign holding

Number of Additional currency losses onshares of Common paid-in Retained translation available-for- Treasury

common stock stock capital earnings adjustments sale securities stock

Balance at February 28, 2002 10,488,800 ¥3,849,820 ¥3,725,460 ¥4,547,559 ¥4,345 ¥(20,710) ¥(1,013,502)Net income for the year 2,777,175Unrealized holding losses on available-for-sale securities (6,574)

Foreign currency translation adjustments (4,345)

Cash dividends paid (555,957)Bonuses to directors and corporate auditors (62,700)

Purchase of treasury stock (675,086)

Balance at February 28, 2003 10,488,800 3,849,820 3,725,460 6,706,077 — (27,284) (1,688,588)Net income for the year 4,050,512Unrealized holding losses on available-for-sale securities 24,638


Purchase of treasury stock (1,190,886)Reissuance of treasury stock 113,475 810,024Common stock issued 68,400 105,062 105,062

Balance at February 29, 2004 10,557,200 ¥3,954,882 ¥3,943,997 ¥9,727,986 ¥ — ¥ (2,646) ¥(2,069,450))

Thousands of U.S. dollars (Note 2)

UnrealizedForeign holding

Additional currency losses onCommon paid-in Retained translation available-for- Treasury

stock capital earnings adjustments sale securities stock

Balance at February 28, 2003 $35,120 $33,985 $61,176 $— $(249) $(15,404))Net income for the year 36,950Unrealized holding losses on available-for-sale securities 225

Cash dividends paid (8,716)Bonuses to directors and corporate auditors (667)

Purchase of treasury stock (10,864)Reissuance of treasury stock 1,035 7,389Common stock issued 958 958

Balance at February 29, 2004 $36,078 $35,979 $88,743 $— $ (24) $(18,878)


Consolidated Statements of Shareholders’ EquityFor the years ended February 29, 2004 and February 28, 2003Gulliver International Co., Ltd.

20

Consolidated Statements of Cash FlowsFor the years ended February 29, 2004 and February 28, 2003Gulliver International Co., Ltd.



2004 2003 2004

Operating activities:Income before income taxes and minority interest ¥7,525,065 ¥5,124,170 $68,647Adjustments for:

Depreciation and amortization 1,026,411 875,833 9,363Losses on disposal of software, property and equipment 135,091 121,746 1,232

Increase in accounts receivable—trade (1,826,907) (318,389) (16,666)Increase in inventories (271,129) (124,389) (2,473)Increase (decrease) in accounts payable—trade 935,097 (394,196) 8,530Other, net 122,436 (894,454) 1,117

Subtotal 7,646,064 4,390,321 69,751Interest and dividend income received 619 3,194 6Interest expenses paid (9,484) (4,793) (87)Income taxes paid (2,408,524) (2,295,372) (21,972)

Net cash provided by operating activities 5,228,674 2,093,348 47,698

Investing activities:Payments for purchase of short-term investments (229,470) (498,532) (2,093)Proceeds from sales of short-term investments 74,125 700,332 676Payments for purchase of property and equipment (1,260,407) (1,155,622) (11,498)Payments for purchase of software and intangible assets (539,374) (568,682) (4,920)Decrease in time deposits — 552,521 —Other, net (248,911) (13,728) (2,271)

Net cash used in investing activities (2,204,038) (983,711) (20,106)

Financing activities:Increase in short-term bank loans, net 100,000 200,000 912Cash dividends paid (955,453) (555,957) (8,716)Purchase of treasury stock (1,190,886) (675,086) (10,864)Proceeds from sales of treasury stock 923,500 — 8,425Other, net 209,737 19,850 1,913

Net cash used in financing activities (913,103) (1,011,192) (8,330)

Effect of exchange rate changes on cash and cash equivalents — (4,345) —

Net increase in cash and cash equivalents 2,111,533 94,099 19,262Cash and cash equivalents at beginning of year 6,513,298 6,419,198 59,417

Cash and cash equivalents at end of year ¥8,624,831 ¥6,513,298 $78,679



Notes to Consolidated Financial StatementsFor the years ended February 29, 2004 and February 28, 2003Gulliver International Co., Ltd.

1. Nature of Operations

Gulliver International Co., Ltd. (the “Company”) and its consolidated subsidiaries are mainly engaged in thepurchase and sale of used cars through a nationwide network and franchising business.

2. Summary of Significant Accounting Policies

The accompanying consolidated financial statements have been prepared from the accounts maintained bythe Company and its consolidated subsidiaries in accordance with the provisions set forth in the JapaneseCommercial Code and Japanese Securities and Exchange Law, and in conformity with accounting princi-ples and practices generally accepted in Japan, which are different in certain respects as to the applicationand disclosure requirements of the International Accounting Standards. The consolidated financial state-ments are not intended to present the consolidated financial position, results of operations and cash flowsin accordance with accounting principles and practices generally accepted in countries and jurisdictionsother than Japan. However, certain items presented in the consolidated financial statements filed with theDirector of the Kanto Finance Bureau in Japan have been reclassified and relevant notes have been added,if appropriate, for the convenience of readers outside Japan. Certain prior-year amounts have also beenreclassified to conform to the current year’s presentation. All figures in the accompanying consolidatedfinancial statements and their notes are rounded to thousands of yen, with figures of less than a thousandyen being omitted.

Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of¥109.62=U.S.$1, the rate of exchange on February 29, 2004, has been used in translation. The inclusion ofsuch amounts is not intended to imply that Japanese yen have been or could be readily converted, realizedor settled in U.S. dollars at this or any other rate.

(a) Basis of ConsolidationThe accompanying consolidated financial statements include the accounts of the Company and its threesubsidiaries, as shown below.

Country of Fiscalincorporation year-end

G Trading Co., Ltd. Japan February 29E-Investment Co., Ltd. Japan February 29Gulliver Europe Ltd. Switzerland December 31

All significant intercompany accounts and transactions and unrealized intercompany profits are eliminatedin consolidation.

The financial statements of subsidiaries are included in the consolidated financial statements on the basisof their respective fiscal years after making appropriate adjustments for material transactions during theperiods from their respective year-ends to the date of the consolidated financial statements, as required.

Upon acquisition of a subsidiary, all of the subsidiary’s assets and liabilities are revalued to their respec-tive fair value at the date of acquisition.

(b) Cash and Cash EquivalentsCash and cash equivalents comprise cash on hand, bank deposits withdrawable on demand and all highlyliquid investments with original maturities of three months or less which present insignificant risk of changein value.

22

(c) Short-Term Investments and Investment SecuritiesSecurities have been classified into four categories: trading securities, held-to-maturity debt securities, equitysecurities of unconsolidated subsidiaries and affiliates, and available-for-sale securities. Debt securities with amaturity date of one year or less are classified as current and debt securities with a maturity date of more thanone year and equity securities other than trading securities are classified as noncurrent.

Held-to-maturity securities are carried at amortized cost under the straight-line method. Marketable avail-able-for-sale securities are stated at market value with unrealized gains and losses, net of applicable taxes,being reported in a separate component of shareholders’ equity. The cost of securities sold is determinedbased on the moving-average method. Available-for-sale securities that do not have readily determinablefair values are reported at cost.

(d) Allowance for Doubtful AccountsAn allowance is provided for “normal receivables” based on the Company’s historical write-off experiencerate and an estimate of irrecoverable amounts for doubtful receivables on an individual account basis.

(e) InventoriesVehicles for resale are stated at cost, cost being determined by the individual cost method.

Other merchandise is stated at cost, cost being determined by the first-in, first-out method.Supplies are valued under the last invoice cost method.

(f) Property and EquipmentProperty and equipment are stated at cost. Depreciation is computed using the declining-balance method,except for buildings acquired on or after April 1, 1998, for which it is computed using the straight-linemethod.

The range of the estimated useful lives for property and equipment is as follows:Buildings and structures 15 to 20 years Motor vehicles 02 to 6 years

Expenditures for maintenance, repairs and minor renewals are charged to income as incurred.

(g) Finance LeasesLease payments under finance lease contracts are charged to income as incurred. Under Japaneseaccounting principles, finance leases where ownership of the assets does not transfer to the lessee at theend of the lease period may be accounted for as operating leases with an appropriate footnote disclosure.

(h) Capitalized Software CostsThe costs of software for internal use are amortized based on the straight-line method over its estimateduseful life, five years.

( i ) Intangible and Other AssetsAmortization of intangible assets and long-term prepaid expenses included in “Other assets” is computedusing the straight-line method.

Common stock issue costs are charged to income as incurred.

( j) Accrued BonusesAccrued employees’ bonuses are provided at the estimated amount to be paid.

(k) Income TaxesIncome taxes consist of corporate income tax, local inhabitants’ taxes and enterprise tax.

Income taxes are determined using the “asset and liability approach,” in which deferred income taxassets and liabilities are recognized for the expected future tax consequences of temporary differencesbetween the carrying amounts and the tax bases of assets and liabilities.


(l) DerivativesDerivative financial instruments are stated at fair value. Deferred hedge accounting is applied to hedginginstruments which meet certain criteria.

(m) Net Income and Dividends per ShareThe computation of net income per share is based on the weighted average number of shares of commonstock outstanding during each period.

Effective from the year ended February 29, 2004, the Company adopted the Statement of FinancialAccounting Standard No. 2 “Earnings per Share” and the relevant implementation guidance issued by theAccounting Standards Board of Japan. Prior to adopting the new statement, net income per share was cal-culated based on the net income shown on the consolidated statements of income. The net income pershare calculation therefore excluded bonuses to directors and statutory auditors, since, under the JapaneseCommercial Code, these are recognized as an appropriation of retained earnings in the consolidated state-ments of retained earnings, rather than as expenses in the consolidated statements of income. However,the new statement requires that net income should be adjusted by deducting bonuses paid to directors andstatutory auditors as well as the payment of dividends to shareholders of preferred stocks to be recognizedas an appropriation of retained earnings from net income shown in the consolidated statements of incomeand the calculation of net income per share be made on that adjusted net income basis. Basic net incomeper share for the year ended February 29, 2004 calculated using the previous method and under the newstatement is ¥401.65 and ¥393.36, respectively, and diluted net income per share for that period on bothbases is ¥393.04 and ¥384.92, respectively.

Cash dividends per share represent interim dividends paid and annual dividends declared as applicableto the respective years.

(n) Appropriation of Retained EarningsUnder the Commercial Code and the Articles of Incorporation of the Company, a proposal by the Board ofDirectors for the appropriation of retained earnings, including the payment of annual cash dividends, shouldbe approved by the shareholders’ meeting which must be held within three months after the end of eachfiscal year. The appropriation of retained earnings is recorded in the accompanying consolidated financialstatements following the approval of the shareholders’ meeting. As is customary practice in Japan, the pay-ment of bonuses to directors and corporate auditors is made out of retained earnings instead of beingcharged to income for the year and constitutes a part of the appropriation referred to above.

3. Short-Term Investments and Investments in Securities

Held-to-maturity securities and available-for-sale securities as of February 29, 2004 and February 28, 2003were analyzed as follows:

Thousands of yen

2004 Carrying amount Market value Difference

Held-to-maturity securities:With available market value:

Securities whose market value does not exceedtheir carrying amount ¥229,187 ¥228,820 ¥366

Without market value —

Total ¥229,187

24

Thousands of yen

2004 Carrying amount Acquisition cost Difference

Available-for-sale securities:With available market value:

Securities whose carrying amount does not exceed their acquisition cost ¥103,041 ¥107,504 ¥4,462

Without market value 132,500

Total ¥235,541

Thousands of yen


Held-to-maturity securities:With available market value ¥ — ¥— ¥—


Total ¥52,910

Thousands of yen



Securities whose carrying amount does not exceed their acquisition cost ¥080,658 ¥127,742 ¥47,083


Total ¥215,187

Thousands of U.S. dollars


Held-to-maturity securities:With available market value:

Securities whose market value does not exceed their carrying amount $2,090 $2,087 $3

Without market value —

Total $2,090




Securities whose carrying amount does not exceed their acquisition cost $0,940 $980 $40


Total $2,149


Proceeds from sales as well as the relevant gains/losses in respect of available-for-sale securities soldduring the year ended February 29, 2004 and February 28, 2003 were summarized as follows:

Thousands Thousands Thousands ofof yen of yen U.S. dollars

2004 2003 2004

Proceeds from sales ¥21,178 ¥6,032 $193Gains on sales 687 5,190 6Losses on sales — — —

The aggregate annual maturities of bonds included in held-to-maturity securities and available-for-salesecurities outstanding as of February 29, 2004 and February 28, 2003 were as follows:


2004 2003 2004

Within one year ¥229,187 ¥52,910 $2,0901-5 years — — —5-10 years — — —Over ten years — — —

4. Leasehold and Guarantee Deposits

Leasehold and guarantee deposits are mainly those paid to lessors in connection with the lease of facilitiesfor shops and office space. As is customary practice in Japan, non-interest bearing leasehold and guaran-tee deposits are paid to the lessors, which are generally returnable to the Company only when the leaseagreements are terminated.

5. Short-Term Bank Loans

The average interest rate applicable to short-term bank loans as of February 29, 2004 and February 28,2003 was 0.831% and 0.675%, respectively.

6. Guarantee Deposits Received

Guarantee deposits received were non-interest bearing guarantee deposits paid by franchisees for fran-chise agreements, which are returnable to franchisees upon termination of the franchise agreements.

26

7. Leases

(a) Finance LeasesLeased assets and related expenses in respect of the Company’s finance leases, other than those whichtransfer ownership of the leased assets to the lessee, are accounted for using a method similar to that foroperating leases. Finance lease charges for the years ended February 29, 2004 and February 28, 2003 were¥321,260 thousand ($2,930 thousand) and ¥288,579 thousand, respectively. Had the leased assets beencapitalized on the balance sheets, the following items would have been recognized on the consolidated bal-ance sheets and the consolidated statements of income at, and for the years ended, February 29, 2004 andFebruary 28, 2003.


2004 2003 2004

Furniture, fixtures and equipment—at cost ¥1,180,524 ¥1,176,720 $10,769Software—at cost 100,151 75,397 914Other — 5,980 —

Less—Accumulated depreciation (808,100) (722,423) (7,372)

¥0,472,575 ¥0,535,676 $04,311

Depreciation ¥0,304,461 ¥0,269,244 $02,777Interest expense 17,377 21,445 159

The depreciation above is computed based on the straight-line method over the lease term of the leasedassets, the residual value of which is deemed to be zero.

The present values of future finance lease payments at February 29, 2004 and February 28, 2003 wereas follows:


2004 2003 2004

Within one year ¥281,378 ¥262,213 $2,567Over one year 216,616 299,921 1,976

¥497,994 ¥562,134 $4,543

(b) Operating LeasesThe minimum rental commitments under noncancellable operating leases as of February 29, 2004 andFebruary 28, 2003 are as follows:


2004 2003 2004

Within one year ¥07,716 ¥— $070Over one year 38,319 — 350

¥46,036 ¥— $420

8. Derivatives and Hedging Activities

The Company entered into interest rate swap agreements as hedging instruments. These agreements aredesigned to hedge the Company’s exposures to interest rate fluctuations upon its debt. The Company doesnot hold or issue any financial instruments for trading or speculative purposes. The Company’s manage-ment believes that there is no credit risk associated with the swaps since they are executed with domesticcreditworthy financial institutions. Deferred hedge accounting was applied to these derivatives.


9. Shareholders’ Equity

The Commercial Code requires that at least 50% of the issue price of new shares be included in the statedcapital. The portion to be recorded as stated capital is determined by resolution of the Board of Directors.Proceeds in excess of the stated capital are credited to additional paid-in capital.

The Commercial Code provides that an amount equivalent to a minimum of 10% of cash dividends andbonuses paid to directors and statutory auditors be appropriated as a legal reserve until the reserve reachesa certain limit, which is 25% of the stated capital, less certain capital reserves.

The Commercial Code provides that both additional paid-in capital and the legal reserve may be trans-ferred to the stated capital by a resolution of the Board of Directors, or may be used to reduce a deficit fol-lowing the approval of a shareholders’ meeting. In addition, under the Commercial Code, additional paid-incapital and the legal reserve may be available for dividends to the extent that the total amount of additionalpaid-in capital and the legal reserve do not fall below 25% of the stated capital. The legal reserve of theCompany and its subsidiaries is included in the retained earnings on the consolidated balance sheet and isnot shown separately.

10. Selling, General and Administrative Expenses

Selling, general and administrative expenses mainly consisted of the following:


2004 2003 2004

Employees’ salaries and bonuses ¥6,981,498 ¥5,878,272 $63,688Rental expenses 2,271,527 1,956,359 20,722Advertising expenses 2,736,516 1,738,410 24,964

11. Other Income (Expenses)

“Losses on disposal of software, property and equipment” were summarized as follows:


2004 2003 2004

Property and equipment ¥ (16,477) ¥040,535 $ (151)Software 151,567 81,211 1,383

Total ¥135,091 ¥121,746 $1,232

28

12. Income Taxes

The Company is subject to several taxes based on income, which resulted in a statutory tax rate of approxi-mately 42.0% in the aggregate. On March 31, 2003, the Japanese National Diet approved various changesto the calculation of the statutory local enterprise tax for companies with capital in excess of ¥100 million,effective April 1, 2004. Under the amended legislation, the enterprise tax will be the sum of three tax com-ponents: a) an income-based component, b) a value-added component and c) a capital-based component,whereas there was only an “income tax based component” before the amendment. Concurrently, the basicenterprise tax rate for the “income-based component” has been reduced from 9.6% to 7.2%.

As a result of this amendment, the tax rate to be applied to deferred tax assets and liabilities for theexpected future tax consequences of temporary differences between the carrying amounts and tax bases ofassets and liabilities, that are expected to reverse in the year beginning March 1, 2005 or later, decreasedfrom 42.0% to 40.6% as at February 29, 2004. For temporary differences that are expected to reverse in theyear ending February 28, 2005, a tax rate of 42.0% has continued to be used at that date. This resulted in areduction in deferred tax assets at February 29, 2004 of ¥6,626 thousand ($60 thousand) and a reduction inunrealized holding losses on available-for-sale securities of ¥3 thousand ($0 thousand), compared with theasset that would have been recognized if a tax rate of 42.0% had been fully applied to all temporary differ-ences. Net income for the year ended February 29, 2004 was also reduced by ¥6,626 thousand ($60 thou-sand) as a result of these changes in statutory local enterprise tax regulations.

The effective tax rate for the years ended February 29, 2004 and February 28, 2003 differed from thestatutory tax rate for the following reasons:

2004 2003

Statutory tax rate: 42.0% 42.0%Expenses not deductible for income tax purposes,entertainment expenses and other 0.8 1.4

Tax charged upon undistributed net income 2.4 1.0Local inhabitants’ taxes levied per capita 1.3 1.6Other (1.2) (0.5)

Effective tax rate 45.3% 45.5%

Major components of deferred income tax assets as of February 29, 2004 and February 29, 2003 are asfollows:


2004 2003 2004

Deferred income tax assetsCurrent assets:

Enterprise tax payable ¥202,646 ¥108,475 $1,849Accrued bonuses 125,054 54,363 1,140Losses on valuation of inventories 15,845 9,211 145Other 65,653 44,752 599

Total ¥409,198 ¥216,802 $3,733

Investments and other assets:Allowance for doubtful accounts ¥120,284 ¥112,220 $1,097Losses on valuation of investment securities 45,776 46,452 418Other 37,448 18,762 341

Total ¥203,508 ¥177,436 $1,856


13. Segment Information

The Company has two business segments, covering its used-car sales and franchising businesses. The carsales business mainly involves the purchase and sale of used cars through the Company’s directly man-aged dealership organization. The franchising business includes earning royalty income on franchise con-tracts, providing staff education services and acting as an agent for used-car transactions.

Certain financial information relating to these two operating segments is summarized below.

Thousands of yen

Used-car Franchising Corporate/2004 sales business business (eliminations) Consolidated

Sales to external customers ¥114,884,047 ¥7,001,159 ¥ — ¥121,885,207Intersegment sales/transfers — — — —

Total 114,884,047 7,001,159 — 121,885,207Operating costs and expenses 107,182,697 3,723,325 3,330,455 114,236,478

Operating income 7,701,349 3,277,834 (3,330,455) 7,648,729Segment assets 12,797,050 2,188,898 11,239,862 26,225,811Depreciation and amortization 643,760 27,916 354,733 1,026,411

Expenditures to acquire long-lived assets 1,739,685 134,973 296,373 2,171,033

Thousands of yen


Sales to external customers ¥88,478,636 ¥6,478,878 ¥ — ¥94,957,515Intersegment sales/transfers — — — —

Total 88,478,636 6,478,878 — 94,957,515Operating costs and expenses 82,533,678 4,129,337 3,049,586 89,712,601

Operating income 5,944,958 2,349,541 (3,049,586) 5,244,913Segment assets 9,749,407 1,905,027 8,403,109 20,057,544Depreciation and amortization 386,652 139,673 349,507 875,833

Expenditures to acquire long-lived assets 1,015,721 264,884 489,788 1,770,394



Sales to external customers $1,048,020 $63,867 $ — $1,111,888Intersegment sales/transfers — — — —

Total 1,048,020 63,867 — 1,111,888Operating costs and expenses 977,765 33,965 30,382 1,042,113

Operating income 70,255 29,902 (30,382) 69,775Segment assets 116,740 19,968 102,535 239,242Depreciation and amortization 5,873 255 3,236 9,363

Expenditures to acquire long-lived assets 15,870 1,231 2,704 19,805

30

Operating costs and expenses shown as “Corporate” are mainly administrative division expenses of theCompany’s headquarters. The major components of “Segment assets” shown as “Corporate” are theCompany’s surplus funds included in “Cash and cash equivalents” and short-term investments, and assetsof the administrative division.

There are no major geographic areas other than Japan in which sales and assets are material. The ratio offoreign customer sales to consolidated sales is also immaterial, meaning less than 10%.

14. Related Party Transactions

The Company’s transactions with its directors for the years ended February 29, 2004 and February 28, 2003were as follows:


2004 2003 2004

Sales of vehicles ¥13,590 ¥11,049 $124Purchase of vehicles 921 — 8Rental expense for company houses 14,482 11,510 132

The terms and conditions of these transactions were determined in accordance with the Company’sinternal rules.

The Company sold vehicles and supplies to Tokyo My Car Co., Ltd., which is wholly owned by YusukeHatori, a director of the Company. The Company’s directors own the majority of the voting rights of itsBoard of Directors. Sales for the years ended February 29, 2004 and February 28, 2003 were ¥34,174 thou-sand ($311 thousand) and ¥11,139 thousand, respectively. The terms and conditions of these sales trans-actions were the same as those available to other customers in the ordinary course of business.

Kenichi Hatori, a director, guaranteed the Company’s obligations in connection with used-car auctionsand the Company’s leased assets for the years ended February 29, 2004 and February 28, 2003. Suchguarantees are provided by the directors to the Company without any compensation being paid.

15. Subsequent Events

The following appropriation of the Company’s retained earnings in respect of the year ended February 29,2004 was approved by the shareholders at the annual general meeting held on May 26, 2004.

Thousands Thousands ofof yen U.S. dollars

Cash dividends (¥75 per share) ¥757,789 $6,912Bonuses to directors and corporate auditors 83,600 762

Total ¥841,389 $7,675


The Board of Directors

Gulliver International Co., Ltd.

We have audited the accompanying consolidated balance sheets of Gulliver International Co., Ltd. and its subsidiaries as of

February 29, 2004 and February 28, 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, procedures and practices generally accepted and applied in

Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consoli-

dated 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 princi-

ples 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 Gulliver International Co., Ltd. and its subsidiaries as of February 29, 2004 and February 28, 2003, and the

consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles

and practices generally accepted in Japan (see Note 2).

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 2 to the accompanying consolidated financial statements.

Yusei Audit Corporation

Tokyo, Japan

May 26, 2004

Report of Independent Auditors

32

Non-Consolidated Balance Sheets (Unaudited)As of February 29, 2004 and February 28, 2003(Supplemental Information)Gulliver International Co., Ltd.



ASSETS 2004 2003 2004

Current assets:Cash and cash equivalents ¥07,811,087 ¥05,655,527 $071,256Short-term investments 236,689 78,188 2,159Accounts receivable:

Trade 4,805,523 3,083,870 43,838Allowance for doubtful accounts (86,171) (37,523) (786)

4,719,352 3,046,347 43,052Inventories 1,528,096 1,415,060 13,940Deferred income tax assets 383,209 207,346 3,496Other current assets 1,119,708 864,126 10,214

Total current assets 15,798,145 11,266,599 144,117

Property and equipment:Land 327,075 323,011 2,984Buildings and structures 4,371,645 3,527,873 39,880Furniture, fixtures and equipment 1,806,723 1,476,031 16,482Construction in progress 39,293 31,642 358

6,544,739 5,358,557 59,704Less—Accumulated depreciation (2,179,368) (1,674,478) (19,881)

Net property and equipment 4,365,370 3,684,080 39,823

Investments and other assets:Investment securities 538,189 532,538 4,910Leasehold and guarantee deposits 1,983,472 1,640,375 18,094Deferred income tax assets 199,802 176,569 1,823Software costs, net 1,196,204 1,216,905 10,912Other assets 694,043 680,341 6,331Allowance for doubtful accounts (262,921) (266,189) (2,398)

Total investments and other assets 4,348,791 3,980,545 39,672

¥24,512,307 ¥18,931,226 $223,612

Notes: 1. Translation into U.S. dollars has been made on the basis of ¥109.62=$1, the effective exchange rate at February 29, 2004.

2. Retained earnings included the legal reserve, which was ¥39,556 thousand ($360 thousand) and ¥39,556 thousand as of February 29, 2004 and February 28, 2003, respectively.




LIABILITIES AND SHAREHOLDERS’ EQUITY 2004 2003 2004

Current liabilities:Accounts payable:

Trade ¥02,761,961 ¥01,783,863 $025,195Other 1,535,059 1,373,701 14,003

Accrued income taxes 2,338,400 1,209,793 21,332Accrued bonuses 369,914 275,139 3,375Other current liabilities 1,727,477 1,215,937 15,759

Total current liabilities 8,732,813 5,858,438 79,664

Long-term liabilities:Guarantee deposits received 647,437 743,102 5,906Other liabilities — 50 —

Total long-term liabilities 647,437 743,152 5,906

Shareholders’ equity:Common stock:

Authorized 40,000,000 sharesIssued 10,557,200 shares in 2004Issued 10,488,800 shares in 2003 3,954,882 3,849,820 36,078

Additional paid-in capital 3,943,997 3,725,460 35,979Retained earnings (Note 2) 9,305,273 6,470,226 84,886Unrealized holding losses on available-for-sale securities (2,646) (27,284) (24)

17,201,506 14,018,222 156,919

Less—Treasury stock (2,069,450) (1,688,588) (18,878)

Total shareholders’ equity 15,132,056 12,329,634 138,041

¥24,512,307 ¥18,931,226 $223,612

34

Non-Consolidated Statements of Income (Unaudited)For the years ended February 29, 2004 and February 28, 2003(Supplemental Information)Gulliver International Co., Ltd.


of yen of yen (Note)

2004 2003 2004

Net sales ¥114,991,215 ¥91,071,908 $1,048,998

Costs and expenses:Cost of sales 87,343,009 69,274,012 796,780Selling, general and administrative expenses 20,482,247 16,765,726 186,848

107,825,257 86,039,738 983,628

Operating income 7,165,957 5,032,169 65,370

Other income (expenses):Losses on disposal of software, property and equipment (135,091) (116,816) (1,232)Other, net 36,509 8,493 333

(98,581) (108,323) (899)

Income before income taxes 7,067,376 4,923,845 64,471

Income taxes:Current 3,420,807 2,158,825 31,206Deferred (217,079) 97,329 (1,980)

3,203,728 2,256,155 29,226

Net income ¥003,863,649 ¥02,667,689 $0,035,246

U.S. dollarsYen Yen (Note)

2004 2003 2004

Net income per share:Basic ¥000,0374.83 ¥00,0264.80 $0,0003.42Diluted 366.79 263.67 3.35

Cash dividends per share 115 80 1.05

Note: Translation into U.S. dollars has been made on the basis of ¥109.62= $1, the effective exchange rate at February 29, 2004


Non-Consolidated Statements of Shareholders’ Equity (Unaudited)For the years ended February 29, 2004 and February 28, 2003(Supplemental Information)Gulliver International Co., Ltd.

Thousands of yen

Unrealizedholding gains/

Number of Additional (losses) onshares of Common paid-in Retained available-for- Treasury

common stock stock capital earnings sale securities stock

Balance at February 28, 2002 10,488,800 ¥3,849,820 ¥3,725,460 ¥4,421,194 ¥(20,710) ¥(1,013,502)Net income for the year 2,667,689Unrealized holding losses on available-for-sale securities (6,574)


Purchase of treasury stock (675,086)

Balance at February 28, 2003 10,488,800 3,849,820 3,725,460 6,470,226 (27,284) (1,688,588)Net income for the year 3,863,649Unrealized holding losses on available-for-sale securities 24,638


Purchase of treasury stock (1,190,886)Reissuance of treasury stock 113,475 810,024Common stock issued 68,400 105,062 105,062

Balance at February 29, 2004 10,557,200 ¥3,954,882 ¥3,943,997 ¥9,305,273 ¥ (2,646) ¥(2,069,450)

Thousands of U.S. dollars (Note)

Unrealizedholding gains/

Additional (losses) onCommon paid-in Retained available-for- Treasury

stock capital earnings sale securities stock

Balance at February 28, 2003 $35,120 $33,985 $59,024 $(249) $(15,404)Net income for the year 35,246Unrealized holding losses on available-for-sale securities 225

Cash dividends paid (8,716)Bonuses to directors and corporate auditors (667)Purchase of treasury stock (10,864)Reissuance of treasury stock 1,035 7,389Common stock issued 958 958

Balance at February 29, 2004 $36,078 $35,979 $84,886 $ (24) $(18,878))

Note: Translation into U.S. dollars has been made on the basis of ¥109.62= $1, the effective exchange rate at February 29, 2004.

36

GULLIVER INTERNATIONAL CO., LTD.

Head Office

5F, Shin-Tokyo Building,

3-3-1 Marunouchi, Chiyoda-ku,

Tokyo 100-0005, Japan

IR Section

Telephone: 81-3-5208-5503

Fax: 81-3-5208-5513

URL: (investor relations) http://www.glv.co.jp

(vehicle information) http://221616.com

Established

October 25, 1994

Fiscal Year

The end of February

Paid-in Capital

¥3,954 million

Number of Employees

1,420

Total Number of Shares Authorized

40,000,000

Total Number of Shares Issued

10,557,200

Unit of Shares

10 shares

Securities Code

7599

Transfer Agent

The Chuo Mitsui Trust & Banking

Company, Limited

3-33-1 Shiba, Minato-ku,

Tokyo 105-8574, Japan

Stock Exchange Listing

Tokyo

Number of Shareholders

4,132

Major Shareholders (As of February 29, 2004)

Number of shares Percentage of totalheld (Shares) shares issued (%)

Forward Co., Ltd. 2,800,000 26.52Yusuke Hatori 946,500 8.96Takao Hatori 946,500 8.96Goldman Sachs International Ltd. 773,520 7.32The Master Trust Bank of Japan, Ltd. (Held in trust account) 736,880 6.97Gulliver International Co., Ltd. 453,343 4.29Kenichi Hatori 423,490 4.01Deutsche Bank AG London PP Nontreaty Clients 613 320,500 3.03Bank of New York for Goldman Sachs International (Equity) 269,860 2.55Japan Trustee Services Bank, Ltd. (Held in trust account) 255,800 2.42

CORPORATE DATA (As of February 29, 2004)

GULLIVER’S HISTORY


1994April Gulliver’s first dealership established as the automobile purchase

division of Tokyo My Car Sales Co., Ltd.

October Gulliver International Corporation established.

1995December Business consignment contract signed with Venture Link Co., Ltd.,

aimed at franchise recruitment activities to expand the Gulliverfranchise chain. (The contract has since expired.)

1996April Company name changed to Gulliver International Co., Ltd.

1998February Full-scale Dolphinet System operations start.

December Gulliver’s stock registered with the Japan Securities DealersAssociation.

2000May Head Office relocated to Chiyoda-ku, Tokyo.

December Company’s stock listed on the Tokyo Stock Exchange’s SecondSection.

2001November Company attained ISO 9001 (fiscal 2000 version) for its assessed

price calculation services.

2002December Company received the Japan Investor Relations Association’s

Award for Advancement of Excellence in Corporate IR.

2003June Professional baseball player Hideki Matsui signed on as celebrity

spokesman.

August Company listed on the First Section of the Tokyo Stock Exchange.

1996Tokyo Head Office wasestablished in the city ofUrayasu, Chiba.

1998Dolphinet Systemoperations start.

2003Company listed on the FirstSection of the Tokyo StockExchange.

2001Company attained ISO 9001 (fiscal 2000version) for its assessed price calculationservices.

2002Company received the Japan InvestorRelations Association’s Award forAdvancement of Excellence in Corporate IR.

http://www.glv.co.jp

http://221616.com

This report is printed on recycled paper made from 100% used paper (whiteness 87%) and by using soybean oil ink.

It is printed without the use of water to prevent hazardous liquid waste.

Printed on recycled paper madefrom 100% used paper(whiteness 87%)

Printed in Japan

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annual report 2004some cars sold in a matter of seconds. such features make japan’s automobile...

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