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MAY 2008 SPECIAL ALERT
BREAKING NEWS: D&M Lowers FY2007 Profit Forecast 49%
New forecasts are radical change resulting from audit by Japanese tax authorities
 
<STRATECON><May 20, 2008>D&M Holdings Inc. announced today that it was revising its FY2007 forecasts, originally released May 23, 2007, modifying them in accordance with the interpretation of the Tokyo Regional Taxation Bureau (TRTB) in the matter of the appropriate application of tax loss carry-forwards by Marantz to D&M’s overall tax liability. The result of this change is that the company now expects profits will be 49.2% lower than originally planned.

This change is being issued by the company only days before it is scheduled to release its FY2007 results.

Originally, D&M had forecast a net profit of ¥3.35 billion (approximately $32 million based on the current exchange rate) on sales of ¥108.5 billion (approximately $1 billion). Now, the company has issued a revised forecast of a net profit of ¥1.7 billion (approximately $16.4 million). This new profit forecast is 49.2% lower than their original forecast…and 42% below last years profits.

On a positive note, the company now says that it anticipates sales will come in at ¥112 billion versus the original projection of ¥108.5 billion for a 3.2% increase.

D&M’s release…available on Stratecon’s website here…makes clear that the company disputes the tax bureau’s interpretation; however, it is adjusting the forecasts as a result of the TRTB’s audit and will record a provision of ¥1.4 billion including tax penalties against FY2007 results. This action, D&M says, is being taken even though the TRTB has not yet issued any special “tax correction notice” at this time.

The issue revolves around the company’s acquisition of Marantz and D&M’s tax years of FY2005 (year-ended 3/31/2005) and FY2006 (year-ended 3/31/2007). The company, upon acquisition of Marantz, had applied Marantz’s tax loss carry-forwards to the consolidated D&M tax liability.

The TRTB has indicated to D&M that since the company began consolidated tax filings on April 1, 2005, they could not apply the Marantz losses to the consolidated results.