Business results for the third quarter of the year ending March 31, 2015

Operating results

(Note) Comprehensive income
Third quarter of the year ended March 31, 2015: ¥2,787 million (-29.5%)
Third quarter of the year ended March 31, 2014: ¥3,950 million (-12.4%)

Financial position

(Reference) Shareholders’ equity
Third quarter of the year ended March 31, 2015: ¥34,063 million
Third quarter of the year ended March 31, 2014: ¥32,260 million

Dividends

Forecast earnings for the year ending March 31, 2015

Qualitative Information Regarding the Consolidated Results for the Third Quarter

Analytical Review of Operating Results

During the cumulative consolidated second (April-September) quarter, while the Japanese economy moved towards gradual recovery, buoyed by the ongoing trends of a weakening yen and higher stock prices, the outlook remains unpredictable due to concerns for a prolonged subsequent decline in consumption after a rush in demand ahead of the consumption tax hike as well as possible downside risks of overseas economies.

The pachinko business, a part of the amusement industry in which the Daikoku Denki Group (“the Group”) is engaged, has not yet experienced negative effects from the consumption tax hike. However, the operation of pachinko game machines with a playing cost of 4-yen per pachinko ball showed a slight downward trend, putting pachinko halls (our customers) in a tough business environment.In addition,It remains to be seen how the market would likely develop due to the self-imposed regulations on pachislot game machines.

Under these market environments, the Information System Segment expanded sales of “BiGMO PREMIUM”, a high performance data display tool aiming to improve amusing aspects of games for players, and its new models “BiGMO Type IV”, “IL-X2” along with sales promotion of “VEGASIA,” a CR unit. The Control System Segment strived to cultivate new customers and achieve orders for new development projects aiming to improve operating results.

As a result of the above, during the cumulative consolidated second quarter, net sales amounted to \44,657 million, down 5.4% from the same period last year. Consolidated operating income was \4,223 million (down 34.5% year on year), consolidated ordinary income was \4,315 million (down 34.1% year on year), and consolidated net income amounted to \2,747 million (down 30.2% year on year).

Business results by segment are as follows.

Information System Segment

Amid decreases in newly opened or renovated parlors, the sales volume of “VEGASIA,” a CR unit, increased year on year, through replacement of competitors; products as well as the introduction of new ones. Accordingly, wet successfully encouraged customers to replace their old information publication terminals with “BiGMO PREMIUM”, “BiGMO Type IV”, “IL-X2”, a call lamp, and so forth. In addition, research and development expenses increased, reflecting aggressive investments in the development of next-generation product lines.

As a result, net sales in the Information System Segment were \31,306 million (up 8.5% from the same period of the previous fiscal year), and segment operating income was \5,341 million (down 11.1% year on year).

Control System Segment

During the cumulative consolidated third quarter for this segment, we were actively engaged in bringing proposals aimed at acquiring new customers and receiving new orders. However, the sales volume of display units decreased year on year, due to a decrease in the number of salable models.In addition,reflecting a cost reduction by game machine manufacturers.

As a result, net sales in the Control System Segment were \13,350 million (down 27.4% from the same period of the previous fiscal year), and segment operating income amounted to \147 million (down 92.0% year on year).

Analytical Review of Financial Position

Total assets as of December 31, 2014 were \54,815 million, an increase of \886 million from the end of the previous consolidated fiscal year. The main factors for the increase were an increase in trade receivables due to strong sales during the third quarter consolidated accounting period as compared to the fourth quarter consolidated accounting period of the previous fiscal year, as well as an increase of tangible fixed assets due to the expansion of office space next to the existing office building, which more than offset a decrease in cash and deposits due to the settlement of accounts payable, payment of taxes and cash dividends, a decrease in inventories arising from the sales thereof during the third quarter consolidated accounting period, and a decrease in software due to amortization.

Total liabilities as of December 31, 2014 were \20,752 million, a decrease of \917 million from those at the end of the previous consolidated fiscal year, due mainly to a decrease in accounts payable related to research and development expenses and repayment of long-term borrowings during December in the cumulative third quarter as compared to last March in the previous consolidated fiscal year, which more than offset increases in deferred tax liabilities and accrued consumption taxes.

Total net assets as of December 31, 2014 were \34,063 million, an increase of \1,803 million from those at the end of the previous consolidated fiscal year, due mainly to an increase in retained earnings resulting from strong operating results. The Group’s equity ratio was 62.1% (a rise of 2.3 percentage point compared to that at the end of the previous consolidated fiscal year).

Explanation of Forward-looking Information, Including Outlook for Consolidated Operating Results

There is no change in the earnings forecast for the full year of FY2014, which were announced on May 12, 2014.