Business results for the third quarter of the year ending March 31, 2014

Operating results

(Note) Comprehensive income
Third quarter of the year ended March 31, 2014: ¥3,950 million (-12.4%)
Third quarter of the year ended March 31, 2013: ¥4,508 million (129.9%)

Financial position

(Reference) Shareholders’ equity
Third quarter of the year ended March 31, 2014: ¥33,059 million
Third quarter of the year ended March 31, 2013: ¥30,439 million

Dividends

Forecast earnings for the year ending March 31, 2014

Qualitative Information Regarding the Consolidated Operating Results and Other Items for This Quarter

1. Qualitative Information on Consolidated Operating Results

During the cumulative third (April-December) quarter, the Japanese economy was recovering moderately, supported by the pickup in corporate and personal expenditures following the upturn in business sentiment and job creation driven by the government’s economic measures.

The pachinko business, a part of the amusement industry in which the Daikoku Denki Group (“the Group”) is engaged, has not yet experienced the ripple effects from the economic recovery. Specifically, in pachinko game machines, the operation of pachinko game machines with a playing cost of 4-yen per pachinko ball remained on a downward trend, putting pachinko halls (our customers) in a tough business environment.

Under these market environments, the Information System Segment aimed to expand sales of “BiGMO”, a data display tool highlighting the amusing and thrilling features of diversified pachinko and pachislot games in a comprehensible way, together with another key product, “IL-X”. In November 2013, the Segment also released “BiGMO PREMIUM”, which had been highly evaluated at the exhibition titled “MIRAIGARTE 2013 ? a new standard for creation of the next generation entertainment hall”. The Control System Segment presented planning proposals to customers on performance display devices towards “contribution to customers”, while addressing the enhancement of planning and development capabilities in collaboration with the Group companies for the enhancement of the development line.

As a result of the above, during the cumulative consolidated third quarter net sales amounted to \47,229 million, down 4.2% from the same period last year. Consolidated operating income was \6,448 million (down 16.0% year on year), consolidated ordinary income was \6,545 million (down 16.5% year on year), and consolidated net income amounted to \3,936 million (down 12.6% year on year).

Business results by segment are as follows.

(Information System Segment)

During the cumulative consolidated third (April-December) quarter for this segment, the key products continuously achieved good reputation in the market. In particular, “VEGASIA” (a CR unit) was highly evaluated for its enhanced security and effective operational capacity in conjunction with the hall computing system, “BiGMO” (a data display tool highlighting the amusing and thrilling features of diversified pachislot games in a comprehensible way) together with “BiGMO PREMIUM” (a new model with larger monitor screen released in November 2013) and “IL-X” (a call-out lamp for its colorfulness of illumination). In addition, the Information System Segment also enhanced the services of “C II Standard” (a hall supporting service system using the MIRAIGATE network) for further improvement of customer satisfaction. The segment commenced active investments in the next generation key product development group in line with the current favorable trend where the key products have been highly evaluated by pachinko halls in terms of product superiority.

As a result, sales in the Information System Segment were \28,846 million (up 4.4% from the same period of the previous fiscal year), and segment income was \6,009 million (down 7.2% year on year).

(Control System Segment)

During the cumulative consolidated third (April-December) quarter, Control System Segment strove to enhance planning and proposal capabilities and strengthen the development line in collaboration with the Group companies. In addition, the segment experienced strong sales of peripheral components, such as liquid crystal panels, motors, switches and power equipment.

As a result, net sales in the Control System Segment were \18,382 million (down 15.1% from the same period of the previous fiscal year), and segment operating income amounted to \1,848 million (down 35.0% year on year).

(Note) Business segment sales and income figures include intersegment transactions.

2. Qualitative Information on Consolidated Financial Position

Total assets as of December 31, 2013 were \54,960 million, a decrease of \1,745 million from the end of the previous consolidated fiscal year. The main factors for the decrease were a decrease in notes and accounts payable-trade, a decrease in cash and deposits due mainly to income taxes paid, and a decrease in inventory assets; although trade receivables increased due to strong sales during the third quarter consolidated accounting period compared to the fourth quarter consolidated accounting period of the previous fiscal year.

Total liabilities as of December 31, 2013 were \21,901 million, a decrease of \4,365 million from those at the end of the previous consolidated fiscal year. The main factors for the decrease were a decrease in accrued income taxes and a decrease in notes and accounts payable-trade.

Total net assets as of December 31, 2013 were \33,059 million, an increase of \2,620 million from those at the end of the previous consolidated fiscal year, due mainly to the fact that the net income during the cumulative second (April-September) quarter was greater than the dividend paid. The Group’s equity ratio was 60.2% (a rise of 6.5 percentage points compared to that at the end of the previous consolidated fiscal year).

3. Qualitative Information regarding Forecast of Consolidated Operating Results

The full-year earnings forecast announced on May 13, 2013 has been revised based on recent business trends.

Reason for the revision

During the consolidated fiscal year ending March 2014, earnings are expected to exceed the former projections, due primarily to the strong sales growth resulting from the continuous good reputation established in the market. Information System Segment, in particular, “VEGASIA” (a CR unit) was highly evaluated for its enhanced security and effective operational capacity in conjunction with hall computing systems, and so was “BiGMO” (a data display tool highlighting the amusing and thrilling features of diversified pachinko and pachislot game in a comprehensible way) together with “BiGMO PREMIUM” (a new model with larger monitor screen released in November 2013) and “IL-X” (a call-out lamp for its colorfulness of illumination).

(Notes on forecasts and projections)

The business forecasts are prepared based on the currently available information. The actual business performance may differ from these forecasts due to various factors that may arise in the future.

Assets

Current assets

Noncurrent assets

Property, plant and equipment

Intangible assets

Liabilities

Current liabilities

Noncurrent liabilities

Net assets