Consolidated Operating Results for the Year Ended March 31, 2014

RESULTS OF CONSOLIDATED OPERATIONS

	Net sales		Operating income		Ordinary income		Net income
	Million yen	%	Million yen	%	Million yen	%	Million yen	%
Year ended March 31, 2014	56,954	-3.2	5,338	-24.0	5,474	-24.4	3,278	-21.2
Year ended March 31, 2013	58,861	25.0	7,023	99.2	7,244	104.5	4,161	150.3

(Note) Comprehensive income
Year ended March 31, 2014: ¥3,290 million (-21.0%)
Year ended March 31, 2013: ¥4,167 million (147.4%)

	Net income per share	Diluted net income per share	Net income to shareholders’ equity ratio	Ordinary income to total assets ratio	Operating income to net sales ratio
	Yen	Yen	%	%	%
Year ended March 31, 2014	221.80	−	10.5	9.9	9.4
Year ended March 31, 2013	281.53	−	14.5	13.7	11.9

(Reference) Equity in earnings of affiliates:
Year ended March 31, 2014: ¥− million
Year ended March 31, 2013: ¥− million

CONSOLIDATED FINANCIAL POSITION

	Total assets	Net assets	Shareholders’ equity ratio	Net assets per share
	Million yen	Million yen	%	Yen
Year ended March 31, 2014	53,929	32,260.0	59.8	2,182.23
Year ended March 31, 2013	56,706	30,439.0	53.7	2,059.02

(Reference) Shareholders’ equity
Year ended March 31, 2014: ¥32,260 million
Year ended March 31, 2013: ¥30,439 million

CONSOLIDATED CASH FLOWS

	Cash flows from operating activities	Cash flows from investing activities	Cash flows from financing activities	Cash and equivalents, end of period
	Million yen	Million yen	Million yen	Million yen
Year ended March 31, 2014	340	-1,655	-1,809	15,281
Year ended March 31, 2013	9,600	2,153	-7,003	18,406

Dividends

	Annual dividends
	First quarter-end	Second quarter-end	Third quarter-end	Year-end	Annual
	Yen	Yen	Yen	Yen	Yen
Year ended March 31, 2013	−	20	−	70	90
Year ended March 31, 2014	−	20	−	60	80
Year ended March 31, 2015 (Forecast)	−	10	−	30	40

	Total dividends paid (annual)	Payout ratio (Consolidated)	Dividends paid to net assets (Consolidated)
	Million yen	%	%
Year ended March 31, 2013	1,330	32.0	4.6
Year ended March 31, 2014	1,182	36.1	3.8
Year ended March 31, 2015 (Forecast)		−

Forecast earnings for the year ending March 31, 2015

	Net sales		Operating income		Ordinary income		Net income		Net income per share
	Million yen	%	Million yen	%	Million yen	%	Million yen	%	Yen
First half ending September, 2014	27,000	4.3	1,500	-39.7	1,500	-41.4	1,000	-35.2	67.64
Entire – year	55,000	-3.4	3,000	-43.8	3,000	-45.2	2,000	-39.0	135.29

Others

Material changes in subsidiaries during this period (Changes in scope of consolidations resulting from change is subsidiaries)

No(Number of subsidiaries excluded from consolidation: −, Name of subsidiaries excluded from consolidation: −)

Changes in accounting policies and accounting estimates, retrospective restatement

Changes in accounting policies based on revisions of accounting standard: Yes
Changes in accounting policies other than ones based on revisions of accounting standard: No
Changes in accounting estimates: No
Retrospective restatement: No

Number of shares outstanding (common stock)

1. Number of issued and outstanding shares at the end of fiscal year (including treasury stock)
March 31, 2014: 14,783,900
March 31, 2013: 14,783,900

2. Number of treasury stock at the end of fiscal year
March 31, 2014: 578
March 31, 2013: 488

3.Average number of shares
March 31, 2014: 14,783,397
March 31, 2013: 14,783,517

Analysis of Operating Results

Operating results for this period

During the consolidated fiscal year ended March 31, 2014 (from April 1, 2013 to March 31, 2014), the Japanese economy was recovering moderately, supported by the recovery in corporate earnings and personal expenditures due to the effects of monetary policy by the Bank of Japan and the economic policy of the government.

The pachinko business, in which the Daikoku Denki Group (“the Group”) is engaged, has generally experienced low growth in earnings of pachinko hall operations, while some companies have been active in the new opening and remodeling of large-scale pachinko halls.

According to the 2013 White Paper on Adult Entertainment Business issued by the Community Safety Bureau of the National Police Agency, the total number of installed game machines was 4,611,714 units, as a result of a decrease of 33,162 units in pachinko game machines and an increase of 52,829 units in pachislot game machines. Consequently, the average number of installed game machines per store was increased by 9.8 units to 387.8 units.

Under these market environments, the Information System Segment promoted sales of “BiGMO” and “IL-X,” with a focus on “VEGASIA” (a CR unit) and “BiGMO PREMIUM” (a new product with enhanced contents for fans). The Control System Segment presented planning proposals to customers on performance display devices regarding “contribution to customers,” while addressing the enhancement of development capabilities and production quality.

As a result of the above, during the consolidated fiscal year, consolidated net sales amounted to \56,954 million, down 3.2% from the previous consolidated fiscal year. Consolidated operating income was \5,338 million (down 24.0% year on year), consolidated ordinary income was \5,474 million (down 24.4% year on year), and consolidated net income amounted to \3,278 million (down 21.2% year on year).

Business results by segment are as follows.

Information System Segment

During the consolidated fiscal year, the Information System Segment addressed further improvement of customer satisfaction by enhancing contents for fans using “Contents Download” and “C II Standard,” (a hall supporting service system using the MIRAIGATE network).

In particular, “BiGMO PREMIUM” (released in November 2013) was favorably accepted in the market with a high evaluation for the new model with its larger monitor screen and more enhanced functions than “BiGMO” (a conventional data display tool highlighting the amusing and thrilling features of diversified pachinko and pachislot games in a comprehensible way). In addition, the segment continued to achieve strong sales of “VEGASIA” (a CR unit highlighting enhanced security and effective operational capacity) and “IL-X” (a call-out lamp with colorful illumination).

As a result, sales in the Information System Segment were \36,065 million (up 13.8% from the previous consolidated fiscal year), and segment operating income was \6,093 million (up 0.4% year on year).

Control System Segment

During the consolidated fiscal year, the Control System Segment strove to enhance planning and proposal capabilities and strengthen the development line in collaboration with the Group companies. In addition, while the number of models sold by the Company decreased from the previous consolidated fiscal year, 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 \20,889 million (down 23.2% from the previous consolidated fiscal year), and segment operating income amounted to \1,127 million (down 61.5% year on year).

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

Future outlook

The Japanese economy is expected to recover gradually, reflecting effects from the economic and monetary measures by the Japanese government, although there might be adverse effects of a consumption tax hike. It may take a while before the pachinko business, a part of the amusement industry in which the Group is engaged, will benefit from this trend.

However, the business is likely to recover gradually approaching the Tokyo Olympics in 2020 in the medium and long term perspective.

Given such market environments, the Group forecasts the Information System Segment to achieve sales of \33 billion, down 8.5% from the previous consolidated fiscal year. Concretely, the Information System Segment will further promote sales of “VEGASIA” (a CR unit with enhanced functions, etc. in conjunction with the hall computing system “C II”) and data display tools per machine centering on “BiGMO PREMIUM” (a new model released in November 2013 with a high evaluation in the market). In addition, the segment also aims to strengthen the relationship with MIRAIGATE network users and continues to address active investments in the development of core product groups for the next generation successively from the previous consolidated fiscal year. The Group forecasts the Control System Segment to achieve sales of \22 billion (up 5.3% year on year). Aiming to improve operating performance, the segment will activate collaboration with partners with technological strength for the expansion of business domains and will engage in creating machines with a market outlook of three years ahead.

Consequently, the Group anticipates consolidated net sales of \55 billion (down 3.4% year on year), consolidated operating income of \3 billion yen (down 43.8%), consolidated ordinary income of \3 billion (down 45.2%), and consolidated net income of \2 billion (down 39.0%).

Note on the outlook:

Forecasts in this report are judged based on information available at the time when this report was prepared and may therefore contain potential risks and uncertainties.

As for future outlook, the Group will continuously collect and analyze the data. If its earnings forecast is required to be revised, the Group will announce the revision immediately.

Analysis of Financial Position

Status of Assets, Liabilities and Net Assets

Current assets at the end of the consolidated fiscal year were \37,045 million, a decrease of \2,744 million from the end of the previous consolidated fiscal year. The main factor for the decrease was a decrease in cash, deposits and raw materials, which exceeded an increase in notes and accounts receivable trade resulting from an increase in products planned to be sold during the next consolidated fiscal year as well as a larger collection of development contributions and payment of material supplied to subcontractors as compared to the previous consolidated fiscal year.

Non-current assets at the end of the consolidated fiscal year were \16,884 million, a decrease of \32 million from the end of the previous consolidated fiscal year, primarily attributable to the disposal of idle assets, etc., which more than offset an increase in construction in progress for the production equipment of new products.

Liabilities at the end of the consolidated fiscal year amounted to \21,669 million, a decrease of \4,598 million from the end of the previous consolidated fiscal year. The main factors for the decrease were a decrease in trade payables and income taxes payable due to a smaller amount of purchases in the second half of the consolidated fiscal year as compared to the previous consolidated fiscal year, which exceeded an increase in accounts payable due to a larger amount of development expenses posted during the consolidated fiscal year.

Net assets at the end of the consolidated fiscal year were \32,260 million yen, an increase of \1,821 million from the end of the previous consolidated fiscal year, due mainly to retained earnings increased by net income for the year while the Group paid dividends. Consequently, net assets at the end of the consolidated fiscal year were \53,929 million, a decrease of \2,776 million from the end of the previous consolidated fiscal year, and the Group’s equity ratio was 59.8% (a rise of 6.1% percentage points as compared to that at the end of the previous consolidated fiscal year).

Status of Cash Flow

Cash and cash equivalents (“cash”) at the end of the consolidated fiscal year were \15,281 million, a decrease of \3,124 million from the end of the previous consolidated fiscal year.

The situation of each cash flow for the consolidated fiscal year is as follows:

(Cash flow from operating activities)

Cash obtained from operating activities for the consolidated fiscal year was \340 million yen (a decrease of \9,260 million year on year). The main factors of the decrease were a smaller amount of purchases in the second half of the consolidated fiscal year as compared to the previous consolidated fiscal year, a significant drop in trade payables due to a bank holiday at the end of the previous consolidated fiscal year, and larger payment for income taxes, etc. resulting from strong operating results for the previous consolidated fiscal year, which overwhelmingly exceeded net income before income taxes of \5,347 million.

(Cash flow from investing activities)

Cash used in investing activities for the consolidated fiscal year was \1,655 million (\2,153 million was obtained for the previous consolidated fiscal year). The main factor was due to an increase in expenditure in non-current assets, mainly due to repair costs for production facilities and business offices and software upgrade costs.

(Cash flow from financing activities)

Cash used for financing activities for the consolidated fiscal year was \1,809 million, (a decrease of \5,194 million year on year). The main factor of the decrease was due to repayment of debts and payment of dividends.

Basic Policy for Profit Allocation and the Dividends for the Current and Next Consolidated Fiscal Years

The Group identifies the return of profits to the shareholders as the most important corporate management policies while expanding its business scale. Therefore, the Group sets out stable dividends as the basic policy, taking into consideration a comprehensive assessment of business environments, earnings conditions and payout ratio, etc. The amount and timing of the dividend will be carefully examined and determined at the Board of Directors meeting. The Group also has the policy to utilize retained earnings for investments in new business development and operational efficiency improvement in a long-term perspective in order to improve market competitiveness and profitability.

To return profits to the shareholders, the Group determined to pay dividends of \80 per share for the current consolidated fiscal year (interim dividend of \20, year-end dividend of \60).

The Group also plans to pay dividends of \40 per share for the next consolidated fiscal year (interim dividend of \10, year-end dividend of \30).

Business Risk

The disclosure is omitted because there are no significant changes in the description of the recent annual securities report (submitted on June 28, 2013).

Management Policy

Basic Management Policy of the Group

The Group has, since its inception, adhered to “providing satisfaction to pachinko fans” as the source of the business ideas, and has been striving for developing new systems and services everybody can enjoy in the amusement world. In the future, the Group will also maintain the basic policy of contributing to the society by offering market-creating products and services that go a step ahead of customers’ needs through its continuous efforts to keep up with the changes of the times, mainly in computer fields, leveraging its original ideas and technologies. In addition, the Group is also engaged in business activities based on its corporate quality policy that “customer support is a key driver to boost business performance on an ongoing basis” because the Group has the solid belief that sustained growth in business can be attainable through the establishment of a stable and strong brand name which retains a steady support from its customers.

Pursuant to these policies, the Group will offer “amusement infrastructures” generating a new phase of growth in the pachinko business.

Target Management Indicator

The Group sets operating income margin as a key management indicator, based on the idea that enhancing the profitability through the promotion of management efficiency and high added value will surely improve its enterprise value and shareholder value.

Medium- to Long-Term Corporate Management Strategy

As an information system company supporting the pachinko industry, the Group considers proposing the most superior information infrastructures, which can create a new growth in the industry as its mission.

Based on the belief that an expansion of the pachinko fan base (attracting customers) will lead to the growth of the business, the Group will build up trusting relationships with pachinko halls, game machine manufacturers and pachinko fans and establish a business model that enables all of these three parties to gain benefits and satisfaction.

For these purposes, the Group will support pachinko halls throughout the country in terms of business management and hall administration by the effective use of game machines and providing information system instruments such as hall computers for the attraction of pachinko fans. Meanwhile, the Group will continue to propose game machine manufacturers with more attractive video processing units and control units. For pachinko fans, the Group will further strengthen the services including mobile phones, internet and broadcasting, and offer them more effective hall information.

Issues to Be Addressed by the Group

Information System Segment

1. The segment will strengthen the relationship with MIRAIGATE users and continue to provide value-added services.
2. The segment will create products with market competitiveness and launch new products on the market in a timely manner.

Control System Segment

1. Aiming to improve operating performance, the segment will activate collaboration with partners with technological strength for the expansion of business domains.
2. The segment will commit itself to create machines with an outlook of the market three years ahead.