CONSOLIDATED 5 YEAR summary

Transcription

1

2 Transition of Major Business Indicators, etc. CONSOLIDATED 5 YEAR summary Fiscal year ended Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Mar-09 (Thousands of U.S. dollars) (Note 2) Net sales (Million yen) 19,993 72,133 35,580 48,506 72, ,538 Operating income or loss (Million yen) (11,605) 16,088 (3,205) (5,310) 5,467 (118,150) Net income or loss (Million yen) (14,808) 38,086 9,169 (12,713) 1,022 (150,751) Net assets (Million yen) 112, , , , ,358 1,148,713 Total assets (Million yen) 145, , , , ,332 1,483,881 Net assets per share (Yen) 1, , , , , (U.S. dollars) Net income or loss per share (Yen) (185.26) (159.11) (U.S. dollars) (1.88) Shareholders equity ratio (%) Return on equity (%) (11.6) (11.3) 0.9 Price earning ratio (Multiples) Cash flow from operating (Million yen) activities (16,070) 17, (3,655) 13,919 (163,595) Cash flow from investing (Million yen) activities (34,912) 23,999 15,534 (7,734) (2,310) (355,413) Cash flow from financing (Million yen) activities 297 (22,946) (15,033) (5,937) 10,728 3,025 Cash and cash equivalents (Million yen) at the end of fiscal year 14,177 56,004 39,149 37,439 55, ,327 Number of employees [ Addition: Average number of temporary workers] (Persons) 1,167 [47] 1,325 [49] 1,193 [80] 1,212 [111] 1,617 [943] Net Sales (Unit: million ) Operating Income (Unit: million ) , , , (5,310) , (3,205) , , , (11,605) Net Income (Unit: million ) Net Income Per Share (NIPS) (Unit: ) ,022 (12,713) (14,808) 9,169 38, (159.11) (185.26) Return on Equity (ROE) (Unit: %) Total Assets, Net Assets (Unit: million ) Total Assets Net Assets (11.3) (11.6) , , , , , , , , , ,826 Capital Investments / Depreciation and Amortization Expenses (Unit: million ) Capital Investments Depreciation and Amortization Expenses Research and Development Expenses (Unit: million ) ,605 6,367 8,950 5,149 8,624 4,797 9,661 7,417 5,318 33, ,917 5,868 6,477 5,917 6,101

3 Operating Results In fiscal year 2009 (the year ended March 31, 2009) our company recorded a substantial decline in net sales, operating loss and net loss. We are taking these results very seriously and implementing necessary countermeasure for this situation. The Japanese economy during the consolidated fiscal year under review has shown very unstable situation, caused by extraordinary price-hike of crude oil during the first half of the fiscal year, and sharp fall of stock prices due to global financial uncertainty which derived from the U.S. financial market as represented by failures of major securities firms in the U.S. The environment surrounding Pachislot market experienced a continuing decline in the number of its customers due to restrictions to curb excessive volatility caused by changeover to Type 5 machines from Type 4 machines, which resulted in decline of purchasing motives of Pachislot parlors. The stagnant domestic economy affected by the global financial crisis has also caused decline in the number of parlors. As mentioned above, our Pachislot-machine sector experienced severe environment, and sales of Pachislot machines for the consolidated fiscal year resulted in 18 thousand units with software change service for 40 thousand units. For previous fiscal year, sales was 166 thousand unit with software change service for 27 thousand. Consequently, net sales during the consolidated fiscal year amounted to 19,933 million yen (a 72.3% decrease from the previous fiscal year), with operating loss of 11,605 million yen. Due to annual net profit of US$210,206 thousand recorded by Wynn Resorts, Limited (NASDAQ code: WYNN), an equity method affiliate of the Company and gain on change in equity caused by its capital increase, the Company posted total of 6,861 million yen as non-operating income from equity method investment. The Company recorded foreign-exchange loss of 4,066 million yen due to consolidation of 3 subsidiaries related to its casino project in the Philippines from the 3 rd Quarter and other reasons, and recorded 4,728 million yen as evaluation loss of inventories. These factors have resulted in 14,808 million yen net loss for the fiscal year. Discussed below are results for each business segment. Figures of business performance for each segment represent amounts prior to adjustment of intra-segment sales or reallocations and unallocable amounts relating to operating expenses. Performance by Segment (1) Pachislot and Pachinko Business Market environment for Pachislot and Pachinko business has not shown stability after complete changeover to Type 5 machines and the number of players continues to decrease. Also, due to difficulties in funding caused by the financial crisis since last year, many parlors and companies closed their operation or went out of business. Total number of investment in new Pachislot machines in the whole market during the consolidated fiscal year showed a large shrink to approximately 810 thousand units (45.9% as compared with the previous fiscal year).* 1 During the first half of the fiscal year, the Company sold 34.6 thousand units as against the original plan of 97 thousand units. Based on the results, during the second half, the Company conducted fundamental restructure of its sales organization, including review of number of branches and personnel allocation as well as development of a thorough information-gathering structure through its sales force to solve difficulties in communication of market information which should be the basis of planning and development of new machines. Furthermore, a transformation is started by conducting location testing of new machines which are planned and developed in accordance with the information so gathered and by clarifying recognition of the machines before they are Overview of Operating Results introduced to the market. Due to such improvement measures and on-going strengthening of domestic business activities, the Company made introduction of 10 new titles with sales of 58 thousand units of Pachislot during the consolidated fiscal year. * 1 Based on our in-house research As a result of the above, net sales for the Pachislot and Pachinko business during the consolidated fiscal year amounted to 16,459 million yen (a 75.1% decrease from the previous fiscal year), with operating loss of 3,381 million yen (operating income of 25,728 million yen for the previous fiscal year). (2) Overseas Casino Gaming Machine and Game Machine Business Severe competition continues in the environment of gaming machines for overseas casinos, where almost all the competitors have discounted their selling prices by 25% to 40% in the globally stagnant economy triggered by the financial crisis. As a result of the above, during the consolidated fiscal year, net sales for the gaming machines for overseas and game machine business during the consolidated fiscal year amounted to 2,111 million yen (a 52.5% decrease from the previous fiscal year), due to fixed costs including personnel expenses, depreciation expenses and other items, the Company posted operating loss in the amount of 1,759 million yen (operating loss of 1,470 million yen for the previous fiscal year). As has been disclosed, since the Company transferred shares of Aruze Gaming America, Inc. to Mr. Kazuo Okada, Chairman and a board member of the Company, the Company s financial burden would be reduced by approximately 4,000 million yen of annual cost and other expenses which were incurred by Aruze Gaming America, Inc. in the future. The Company is intending to further stabilize its operating foundation by concentrating its management resources. The transfer price of the shares of Aruze Gaming America, Inc. was 2,321 million yen for 1,079 shares, as a result of the third-party evaluation based on the closing figures as of December 2008 for Aruze Gaming America, Inc. (3) Other Businesses Aruze Media Net, Inc., which is in charge of media business for Aruze Group, recorded its first profitable operations since its establishment by having improved its operational effectiveness in its various mobile website operations. In Aruze Kingdom which represents core component of its business, further innovation was made as to collaboration with the actual machine sale and actual machine operation, and renewals have been made to offer new type of plays to its users. Japan Amusement Broadcasting Corp. conducted broadcasting business which is positioned as the other media businesses. Its Pachi-Tele, a specialty channel at SkyPerfect TV, has continued to gain firm support from fans as a channel that meets their needs. Under the very severe economic environment, it has achieved profitable business for 3 periods in a row by reducing various costs such as administrative expenses. As a result of the above, net sales for other businesses for the consolidated fiscal year totaled 1,914 million yen (an 11.6% decrease from the previous fiscal year) with operating income of 248 million yen (a 34.8% decrease from the previous fiscal year). Besides those operation results, Wynn Resorts, Limited, our equity method affiliates opened Encore at Wynn, Las Vegas a new hotel tower which commenced its operation on the Christmas day of Overview of Operating Results 02

4 Overview of Operations and Results Outlook for The Current Fiscal Year The Company celebrates its 40 th anniversary in this period, and in taking this opportunity to change its trade name to Universal Entertainment Corporation in order to show our solidity since the establishment of the Company as of November 1, 2009 We are planning to re-establish stable and profitable business base with this new brand name. (1) Pachislot and Pachinko Business The Company intends to recover its market share by the introductions of machines which reflect the factors of popularity and meet the market demands through the information gathering by sales personnel. Midori- Don, the current main sales product of the Company, obtained high recognition in the market and is expected to receive over 40,000 orders. This is also the 10 th anniversary of Don-Chan, the most renowned character of the Company, and which starts for another decade of popularity. For the current period, the Company plans to introduce 180,000 Pachislot machines to the market for the full fiscal year, centered on Don-Chan series. Also, with respect to Pachinco machines, the Company plans to introduce unprecedented and competitive machines and to install 50,000 units of such machines. (2) Other Businesses Aruze Media Net, Corp. and Japan Amusement Broadcasting Corp., both engaged in media businesses of Aruze Group, will cooperate with each other to enable to handle wide range of contents which go beyond their conventional contents based on the web or broadcasting platforms. To this end, Aruze Media Net, Inc. has established New Business Development Office which conducts investments for such purposes. Also, Japan Amusement Broadcasting Corp., which celebrates its 10 th anniversary in this period, will promote the creation of programs with higher definitions and will conduct restructure of its organizational framework and aggressive public relations and make investments to new businesses in order to establish a solid position as one of the largest information medium in Pachislot and Pachinko industry. Concerning the casino resort business, Aruze Group has started a project to operate its own casino resorts in Asia. The Company s concept proposal for the Bagong Nayong Pilipino Manila Bay Tour City project which is planned on a reclaimed land at the Metropolis Manila was highly regarded by the Government of the Philippines. Following this high evaluation, the Company has been developing business plans thereof. The plans are developed for a resort-complex facilities on vast 40-hectare land with total investment of 250 billion yen, integrating the world-largestclass casino with approximately 20 thousand square meter floor space as a core of the project, a hotel with 33 floors, spa, aquarium, large-scale Ferris wheel, convention halls, etc. The acquisition of the lands was completed in July 2008 as scheduled, and scheme designing has also been almost completed. From now on, a local office will be established in July 2009, and execution designing will start mostly with local firms. By summer of 2010, construction estimate will be completed and construction work is expected to start. The casino was originally expected to start its operation in April 2010, followed by opening of the hotel in November 2011, but the opening date was postponed to summer 2013 due to world-wide recession caused by the financial crisis started last fall and to the delay in development of local infrastructure and other factors. elimimnated from our consolidated financials since the business has been transferred. Results of Business Performance (1) Net Sales For the current consolidated fiscal year, net sales for the Pachislot and Pachinko business, which is the main business of the Company, decreased by 75.1% over the previous fiscal year to 16,459 million yen over the previous fiscal year. The Company placed 10 Pachislot titles on the market, however, number of machines sold remained 58,000 machines (193,000 machines for the previous fiscal year) and total net sales decreased by 72.3% over the previous year to 19,993 million yen. (2) Cost of sales Due to the decrease in net sales, the total amount of cost of sales decreased by 64.2% to 11,338 million yen as compared to the previous fiscal year, and the cost of sales ratio was 56.7%, an increase of 12.8% over the previous fiscal year. (3) Selling, general and administrative expenses The total amount of selling, general and administrative expenses decreased by 16.9% over the previous fiscal year to 20,260 million yen, in accordance with the decreases in sales. (4) Non-operating income and loss We recorded 2,092 million yen of equity in earnings of affiliates (6,468 million yen for the previous fiscal year) from Wynn Resorts, Limited, an equity method affiliate of which shares of 21.9% are held by the Company group as well as gain on change in equity of 4,769 million yen caused by the capital increase by Wynn Resorts, Limited, as non-operating income from equity method investment. We also recorded foreign exchange losses of 4,066 million yen (147 million yen for the previous fiscal year) in accordance with the new consolidations of overseas subsidiaries, and gain on sales of subsidiaries and affiliates stocks of 1,626 million yen caused by the sales of shares of Luck Holdings (Pty) Ltd., Luck At It Eastern Cape (Pty) Ltd. and Aruze Gaming America, Inc. We also recorded loss on valuation of inventories of 4,728 million yen, and the loss on liquidation of subsidiaries and affiliates of 628 million yen due to the liquidation of a subsidiary. (5) Net income As a result of the above, net loss of 14,808 million yen (net income of 38,086 million yen for the previous fiscal year), net loss per share of yen (net income per share of yen for the previous fiscal year) and return on equity of minus 11.6% (28.9% for the previous fiscal year) were recorded. From this fiscal year, it is planned that Gaming Machine Business will be 03

5 Financial Position (1) Assets section The amount of total assets at the end of the current consolidated fiscal year was 145,761 million yen, a decrease of 39,065 million yen over the end of the previous consolidated fiscal year. For current assets, cash and deposits decreased by 18,165 million yen, notes and accounts receivable trade decreased by 9,779 million yen, and accounts receivable-other decreased by 3,544 million yen. As a result, total current assets decreased by 56,238 million yen over the end of the previous consolidated fiscal year to 52,305 million yen. For noncurrent assets, while land increased by 26,562 million yen, assets for rent decreased by 3,844 million yen. Total noncurrent assets increased by 17,189 million yen over the end of the previous consolidated fiscal year to 93,456 million yen. (2) Liabilities section Regarding the amount of liabilities at the end of the current consolidated fiscal year, compared to the previous consolidated fiscal year, trade notes and accounts payable decreased by 6,437 million yen and income taxes payable decreased by 3,803 million yen, while interest-bearing liabilities (sum of short-term loans payable, long-term loans payable and bonds payable) increased by 15,756 million yen. As a result, total liabilities were reduced by 4,576 million yen, to 32,923 million yen. (3) Net Assets section The amount of net assets at the end of the current consolidated fiscal year was 112,838 million yen, as a result of a decrease of 20,071 million yen in retained earnings. The shareholders equity ratio decreased by 5.0 points to 74.7% as compared to the previous fiscal year, and net assets per share decreased by yen to 1, yen. Cash Flows As of the end of the consolidated fiscal year, the balance of cash and cash equivalents totaled 14,177 million yen. The status of each cash flow and the primary reasons for increases/decreases as of the end of the consolidated fiscal year is as follows: <Cash Flows from Operating Activities> Cash flows from operating activities totaled 16,070 million yen in expenditure (against 17,063 million yen in income for the same term of the previous fiscal year). This was primarily due to the generation of 12,177 million yen in net loss before taxes from a decrease in sales. Capital Investments The capital investments in the current consolidated fiscal year amounted to 33,609 million yen, and it was principally for acquisitions of land for overseas casino project, and assets for rent pertaining to Pachislot and Pachinko business, and tools, and furniture and fixtures pertaining to Pachislot and Pachinko business Research and Development Activities The amount of research and development cost of the whole group for the consolidated fiscal year in question totaled 3,917 million yen. The status of the research and development activities of the Company group is as follows: (1) Pachislot and Pachinko business In Pachislot and Pachinko business, the Company is striving to offer the amusement machines with capability of providing joy of games and payouts performance which are accepted in the market within the scope of current regulations and standards. With respect to Pachinko machines, the Company works on the streamlining research and development framework and is in process of development of amusement machines which are differentiated from those of preceding manufacturers. There are some titles of which applications have been submitted to the designated testing organizations and the Company will conduct the development for in further improvement of qualities of for future releases. (2) Other businesses The Company promotes the research and development of thermoelectric power generation, a technology effective for global warming prevention and energy saving, which obtains electric power from waste heat. Currently, in order to realize the practical use of the technology, we are planning to implement world s first demonstration experimental proof test of electric power generation at an industrial waste incinerator actually in operation. To this end, the development of 100-watt class large-scale thermoelectric generation module is in process and experimental proof tests will be conducted subsequently. Also, P to PA, Inc. transferred their focus field to the activities for the practical use of their research results on artificial intelligence, and conducted several demonstration tests and verifications. Depreciation Expenses Overview of Operations and Results <Cash Flows from Investing Activities> Cash flows from investing activities totaled 34,912 million yen in expenditure (against 23,999 million yen in income for the same period of the previous fiscal year). This was primarily due to expenditure of 33,609 million yen from the acquisition of property, plant and equipment, and expenditure of 995 million yen from the net increase in long-term loans. <Cash Flows from Financing Activities> Cash flows from financing activities totaled 297 million yen in income (against 22,946 million yen in expenditure for the previous fiscal year). This was primarily due to net increase of 9,761 million yen in short-term borrowings, 2,702 million yen in repayments of long-term debt, 2,300 million yen in payments for redemption of bonds and 4,796 million yen in cash dividends paid. Depreciation expenses decreased 28.3% to 5,318 million. 04

6 Consolidated Balance Sheet Consolidated Balance Sheets March 31, 2009 and 2008 Year ended March 31 (Thousands of U.S. dollars) (Note 2) Assets Current assets: Cash and bank deposits (Note 9) 14,448 32,613 $ 147,084 Trade notes and accounts receivable 5,552 15,331 56,523 Less: Allowance for doubtful accounts (116) (175) (1,182) Lease Receivable and Lease Investment (Note 1,6) 1,700 16,699 Securities (Note 9) ,391 1,345 Inventories 24,666 27, ,105 Deferred tax assets (Note 4) 1,536 3,005 15,639 Other current assets (Note 15) 4,385 6,381 43,074 Total current assets 52, , ,477 Property, plant and equipment, at cost: Land 33,635 7, ,413 Buildings and structures 7,542 7,814 76,787 Machinery, equipment and others 16,079 25, ,692 Less: Accumulated depreciation (15,709) (20,846) (159,920) Property, plant and equipment, net 41,548 19, ,972 Investments and other assets: Investment securities (Note 3,10) 46,972 51, ,190 Long-term loans receivable 1, ,646 Goodwill ,175 Deferred tax assets (Note 4) ,773 Other assets 5,308 5,667 54,037 Less: Allowance for doubtful accounts (2,494) (2,371) (25,391) Total investments and other assets 51,907 56, ,430 Deferred charges: 15 New stock issuance expenses 15 Total assets 145, ,826 $ 1,483,881 (See Notes to Consolidated Financial Statements.) 05

7 Consolidated Balance Sheet (Thousands of U.S. dollars) (Note 2) Liabilities and Net Assets Current liabilities: Short-term borrowings (Note 3,15) 20, $ 204,254 Current portion of long-term loans (Note 3) ,971 Current portion of bonds 1,200 2,300 12,216 Notes and accounts payable: Trade 1,060 7,497 10,797 Other 1,618 1,970 16,474 Advances received 1,970 Deferred revenues 6,014 Accrued income taxes 162 3,965 1,654 Accrued consumption taxes ,460 Provision for bonuses ,727 Short-term deferred tax liabilities (Note 4) Other current liabilities (Note 15) 3,722 2,002 37,899 Total current liabilities 28,949 27, ,710 Long-term liabilities: Long-term debt (Note 3) 2,000 5,069 20,360 Deferred tax liabilities (Note 4) Other long-term liabilities 1,924 4,549 19,595 Total long-term liabilities 3,974 9,650 40,457 Total liabilities 32,923 37, ,167 Net assets Shareholders equity (Note 7): Common stock: Authorized 324,820,000 shares Issued 80,195,000 shares 3,446 3,446 35,089 Capital surplus 7,503 7,503 76,385 Retained earnings 118, ,270 1,203,290 Treasury stock at cost: 260,363 shares in 2009 and 260,034 shares in 2008 and 289,415 shares in 2007 (1,637) (1,636) (16,666) Total shareholders equity 127, ,584 1,298,098 Valuation and translation adjustments: Unrealized holding gain on securities Translation adjustments (18,628) (389) (189,636) Total valuation and translation adjustments (18,623) (357) (189,585) Subscription rights to shares ,519 Minority interests 3,799 38,680 Total net assets 112, ,327 1,148,713 Total liabilities and net assets 145, ,826 $ 1,483,881 (See Notes to Consolidated Financial Statements.) 06

8 Consolidated Statements of Operations Consolidated Statements of Operations Years ended March 31, 2009 and 2008 Year ended March 31 (Thousands of U.S. dollars) (Note 2) Net sales 19,993 72,133 $ 203,538 Cost of sales 11,338 31, ,428 Gross profit 8,654 40,462 88,109 Selling, general and administrative expenses (Note 15) 20,260 24, ,259 Operating income (loss) (11,605) 16,088 (118,150) Other income (expenses): Interest and dividend income 519 1,139 5,293 Gain on sales of property, plant and equipment 3,494 Gain on sales of investment securities (Note 10) 1, ,554 Interest expense (481) (290) (4,899) Gain on equity method investments 6,861 22,534 69,853 Loss on impairment of goodwill (505) Loss on write-downs of inventories (4,728) (520) (48,133) Loss on disposal of inventories (1,191) Loss on sales and retirement of property, plant and equipment (259) Foreign exchange Losses (4,066) (147) (41,396) Other, net (303) 255 (3,093) Total other income (expenses), net (571) 24,822 (5,820) Income (loss) before income taxes and minority interests (12,177) 40,910 (123,971) Income taxes (Note 4): Current 379 4,745 3,867 Deferred 1,080 (1,813) 11,000 Total income taxes 1,460 2,932 14,868 Minority interests 1,170 (107) 11,912 Net income (loss) (14,808) 38,086 $ (150,751) (See Notes to Consolidated Financial Statements.) 07

9 Consolidated Statements of Change in Net Assets Years ended March 31, 2009 and 2008 Year ended March 31 (Thousands of U.S. dollars) (Note 2) Common stock Balance at beginning and end of year (80,195,000 shares) 3,446 3,446 $ 35,089 Consolidated Statements of Change in Net Assets Capital surplus Balance at beginning and end of year 7,503 7,503 $ 76,385 Retained earnings Balance at beginning of year 138, ,337 $ 1,407,624 Adjustments to retained earnings arising from: Disposal of treasury shares (103) Change in equity interest in an affiliate (52) Change of consolidated subsidiaries (467) (1) (4,757) As adjusted 137, ,180 1,402 Net income (loss) (14,808) 38,086 (150,751) Cash dividends paid (4,796) (3,995) (48,825) Balance at end of year 118, ,270 $ 1,203,290 Treasury stock at cost:260,363 shares in 2009 and 260,034 shares in 2008 and 289,415 shares in 2007 Balance at beginning of year (1,636) (1,821) $ (16,659) Net changes during the year 185 Balance at end of year (1,637) (1,636) $ (16,666) Unrealized holding gain on securities Balance at beginning of year $ 324 Net changes during the year (26) 0 (273) Balance at end of year 5 31 $ 50 Translation adjustments Balance at beginning of year (389) 2,996 $ (3,960) Net changes during the year (18,239) (3,385) (185,676) Balance at end of year (18,628) (389) $ (189,636) Subscription rights to shares Balance at beginning of year $ 1,015 Net changes during the year Balance at end of year $ 1,519 Minority interests Balance at beginning of year $ 0 Net changes during the year 3,799 (108) 38,680 Balance at end of year 3,799 0 $ 38,680 (See Notes to Consolidated Financial Statements.) 08

10 Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Years ended March 31, 2009 and 2008 Year ended March 31 (Thousands of U.S. dollars) (Note 2) Cash flows from operating activities Income (loss) before income taxes and minority interests (12,177) 40,910 $ (123,971) Depreciation and amortization of: Property, plant and equipment 5,318 7,417 54,146 Goodwill ,613 Loss on impairment Provision for allowance for doubtful accounts 126 (1,276) 1,291 Interest and dividend income (519) (1,139) (5,293) Interest expense ,899 Equity income from affiliates (6,861) (22,534) (69,853) Loss on disposal of property, plant and equipment Loss (Gain) on sales of property, plant and equipment (net) 9 (3,235) 90 Gain on sales of investment securities (1,626) (312) (16,554) Changes in operating assets and liabilities: Trade notes and accounts receivable 11,892 (10,128) 121,069 Inventories 3,914 (2,565) 39,853 Accrued income and other current assets 1,170 8,296 11,917 Notes and accounts payable (5,342) 28 (54,386) Advances received (5,721) (2,989) (58,248) Other current liabilities (2,005) 1,013 (20,413) Other noncurrent assets (3,601) (23) (36,662) Other noncurrent liabilities 1, ,068 Other 1,288 2,393 13,113 Subtotal (11,361) 17,639 (115,663) Interest and dividends received 519 1,139 5,293 Interest paid (352) (243) (3,586) Income taxes paid (4,876) (1,472) (49,639) Net cash provided by (used in) operating activities (16,070) 17,063 (163,595) Cash flows from investing activities Proceeds from sales of investment securities 4,024 Purchases of property, plant and equipment (33,754) (9,652) (343,622) Proceeds from sales of property, plant and equipment ,504 2,264 Net increase in long-term loans receivable (995) (248) (10,134) (Increase) decrease in investment in subsidiaries (460) (865) (4,689) Other 75 17, Net cash provided by (used in) investing activities (34,912) 23,999 (355,413) Cash flows from financing activities Net increase in short-term borrowings 9,761 (9,796) 99,370 Proceeds from long-term debt 965 Repayment of long-term debt (2,702) (7,388) (27,512) Payments for redemption of bonds (2,300) (2,800) (23,414) Cash dividends paid (4,796) (3,995) (48,825) Other ,408 Net cash used in financing activities 297 (22,946) 3,025 Effect of exchange rate changes on cash and cash equivalents (4,714) (1,261) (47,992) Net increase (decrease) in cash and cash equivalents (55,399) 16,855 (563,976) Cash and cash equivalents at beginning of year 56,004 39, ,140 Effect of merger of subsidiaries on cash and cash equivalents 13, ,163 Cash and cash equivalents at end of year (Note 9) 14,177 56,004 $ 144,327 (See Notes to Consolidated Financial Statements.) 09

11 1. Summary of Significant Accounting Policies (a) Basis of presentation The accompanying consolidated financial statements of ARUZE CORP. (the Company ) and consolidated subsidiaries (collectively, the Group ) are compiled from the consolidated financial statements prepared by the Company as required by the Financial Instruments and Exchange Law of Japan and have been prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards. For the purposes of this document, certain reclassifications have been made in order to present the accompanying consolidated financial statements in a format that is familiar to readers outside Japan. In addition, certain amounts in the prior years financial statements have been reclassified to conform to the current year s presentation. As permitted, amounts of less than one million yen have been omitted. As a result, the totals shown in the accompanying consolidated financial statements (both in yen and in U.S. dollars) do not necessarily agree with the sum of the individual amounts. (b) Scope of consolidation The accompanying consolidated financial statements include the accounts of the Company and 15 major subsidiaries in 2009 (16 in 2008 and 13 in 2007) over which substantial control is exerted either through majority ownership of voting stock and/or by other means. All significant intercompany balances and transactions have been eliminated from consolidation. Domestic consolidated subsidiaries Effective the current fiscal year, the scope of consolidated subsidiary has changed substantially. Aruze Rental Service Corporation, Seven Works Corporation and Aruze Global Trading Corporation were acquired by and merged with Aruze Marketing Japan Corporation with effect from the merger date of February 1, 2009; the liquidation of Forrest Entertainment Inc. was completed; and Seta Corp. passed a resolution in February to dissolve the company and subsequently began the special liquidation proceedings. For the aforementioned reasons, the respective companies were excluded from the scope of consolidation. Overseas consolidated subsidiaries Aruze Investment Co., Ltd. was newly established; and Molly Investments Cooperative U.A., Eagle I Landholdings, Inc. and Eagle II Holdco, Inc. were established during the current consolidated fiscal year. Because the respective companies increased their materiality for the aforementioned reasons, they were included in the scope of consolidation effective the current consolidated fiscal year. Aruze USA, Inc., Aruze Gaming America, Inc., Aruze Gaming Australia Pty Ltd. and Aruze Gaming Africa (Pty) Ltd., Aruze Investment Co., Ltd., Molly Investments Cooperative U.A., Eagle I Landholdings, Inc. and Eagle II Holdco, Inc. are consolidated on the basis of fiscal periods ended December 31, a balance sheet date that differs from that of the Company; however, the necessary adjustments have been made if the effect of the difference is material. Investments in unconsolidated subsidiaries are stated at cost because their impact on the consolidated financial statements was not material. Investments in affiliates (companies over which the Company has the ability to exercise significant influence) are accounted for by the equity method. The company accounted for under the equity method Notes to Consolidated Financial Statements is Wynn Resorts, Limited. All assets and liabilities of the consolidated subsidiaries have been revalued on acquisition and the excess of cost over the underlying net assets at their respective dates of acquisition is being amortized over a period of five years on a straight-line basis. For equity method affiliate s purchase of treasury stocks, the difference of purchase amount over its equity book value for the Company s share is being amortized over a period of five years on a straight-line basis. ( c) Foreign currency translation Translation of foreign currencies All monetary assets and liabilities denominated in foreign currencies are translated into yen at the rates of exchange in effect at the balance sheet date. Gain or loss on translation resulting from the settlement of these items at such rates as of the balance sheet date is credited or charged currently to operations. Translation of accounts of overseas consolidated subsidiaries The accounts of the overseas consolidated subsidiaries, except for the components of shareholders equity, are translated into yen at the rates of exchange in effect at the balance sheet dates of these subsidiaries. The components of shareholders equity are translated at their historical exchange rates. The differences arising from translation are presented as translation adjustments in consolidated shareholders equity and minority interests. (d) Cash equivalents All highly liquid investments, generally with a maturity of three months or less when purchased, which are readily convertible into known amounts of cash and are so near maturity that they represent only an insignificant risk of any change in their value as a result of changes in interest rates, are considered cash equivalents. Under the accounting standard for statements of cash flows, the definitions of Cash and cash equivalents in the consolidated statements of cash flows and of Cash and bank deposits in the consolidated balance sheets differ with respect to certain components. A reconciliation between the cash definitions above is presented in Note 10. (e) Securities Other securities with quoted market value are carried at market value as of the closing price of the fiscal year with unrealized gain, net of taxes, reported as a separate component of net assets, where unrealized Loss is charged to income. The cost of securities sold is determined by the moving average method. Other securities whose market value is not available are stated at cost by the moving average method. ( f ) Inventories Merchandise, finished goods and raw materials Merchandise, finished goods, and raw materials are principally stated at cost determined by the weighted average cost basis. The amount stated in the balance sheet was calculated by the book value write down method based on reduction in profitability. Work in process Work in process is principally stated at cost based on the weighted average cost basis. For work in process concerning production of contents, etc, a specific costing method applies. The amount stated in Notes to Consolidated Financial Statements 10

12 Notes to Consolidated Financial Statements the balance sheet was calculated by the book value write down method based on reduction in profitability. Supplies Supplies are stated at cost determined by the last purchase price method. (g) Depreciation and amortization Depreciation 1) Depreciation of property, plant and equipment of the Company and its domestic consolidated subsidiaries is calculated by the declining balance method at the rates prescribed in the Corporation Tax Law of Japan. However, buildings (excluding structures attached to the buildings) acquired on or subsequent to April 1, 1998 by the Company and its domestic consolidated subsidiaries are depreciated by the straight-line method over the periods stipulated in the Corporation Tax Law. Properties for the rental business are depreciated by the straight-line method. Depreciation for properties including Pachislot machines leased to customers is calculated by the straight-line method over the periods specified in the respective lease contracts. Effective the year ended March 31, 2008, following the amendments to the Corporate Tax Law in Japan, the Company and some domestic consolidated subsidiaries changed their depreciation and amortization methods to those pursuant to the amended Corporate Tax Law, for the property, plant and equipment obtained after April 1, The said change has a slight impact on the Company s profit and loss and segment information. ( i ) Allowance for doubtful accounts The allowance for doubtful accounts is provided at an amount sufficient to cover possible losses on the collection of receivables and has been determined based on the Group s historical experience with write-offs plus an estimated amount for probable doubtful accounts based on a review of the collectibility of individual receivables. At overseas consolidated subsidiaries, doubtful accounts, primarily individually designated receivables, are provided for at estimated amounts. ( j ) Accrued employees bonuses The Company and its domestic consolidated subsidiaries provide an accrual for the current fiscal year s portion of the anticipated total amount of future bonus payments. ( k ) Leases Noncancelable leases, excluding leases which stipulate the transfer of ownership of the leased assets to the lessee (regardless of whether such leases are classified as operating of finance leases) are accounted for by the straight-line method, using the lease term as the useful life and recognizing zero residual value. The finance lease transactions, where the ownership of the leased asset does not move to the lessee, and which started on and before the start of the initial year of the new accounting rule s application, are accounted for according to the previous accounting rules. ( l ) Income taxes Regarding the assets obtained on or before March 31, 2007, following the amendments to the Corporate Tax Law in Japan, the Company and its domestic consolidated subsidiaries amortize the difference between the amount corresponding to 5% of the asset s acquisition price and its memorandum value evenly over 5 years, and post the amortization in the item of Depreciation. Such amortization commences from the following consolidated fiscal year of the year, in which the asset s depreciation reaches the amount corresponding to 5% of the asset s acquisition price in accordance with the depreciation method provided in the former Corporate Tax Law. The said change has a slight impact on the Company s profit and loss and segment information. Deferred income taxes are recognized by the asset and liability method under which deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets and liabilities, and are measured using the enacted tax rates and laws which will be in effect when the differences are expected to reverse. (m) Research and development costs Research and development costs are charged to income when incurred. 2) Depreciation of property, plant and equipment of the overseas consolidated subsidiaries is calculated by the straight-line method over the estimated useful lives of the respective assets. Amortization Software intended to be marketed for sale is amortized at the higher of either the amounts calculated based on the estimated salable units or the amounts allocated equally over the remaining useful lives of the assets (Up to3 years). Costs for the development of software intended for internal use are amortized by the straight-line method over an estimated useful life of 5 years. Other intangible assets are amortized at the rates prescribed in the Corporation Tax Law. ( h) Deferred charges New stock issuance expenses and bond issuance expenses are amortized uniformly over 3 years. 11

13 2. Japanese Yen and U.S. Dollar Amounts The U.S. dollar amounts presented in the accompanying consolidated financial statements represent the arithmetic results of translating Japanese yen into U.S. dollars at = U.S.$1.00, the exchange rate prevailing on March 31, The inclusion of U.S. dollar amounts is solely for the convenience of the reader and is not intended to imply that Japanese yen have been or could be converted, realized or settled in U.S. dollars at that or any other rate. 3. Short-Term Borrowings and Long-Term Debt (Thousands of U.S. dollars) Short-term borrowing 20, ,189 Long-term debt 0 1,654 $ 0 Asset pledged as collateral for long-term debt at March 31, 2009 and 2008 are summarized as follows: 4. Income Taxes The major components of deferred tax assets and liabilities at March 31, 2009 and 2008 are summarized as follows: (Thousands of U.S. dollars) Deferred tax assets current: Inventories 2,389 1,057 $ 24,322 Accrued employees bonuses Allowance for doubtful accounts Operating loss carryforwards 1,294 1,383 13,182 Timing difference of sales recognition Other ,396 Gross deferred tax assets current: 4,237 4,670 43,139 Valuation allowance (2,626) (1,656) (26,735) Total deferred tax assets current 1,611 3,014 16,403 Offset against deferred tax liabilities current (75) (8) (764) Net deferred tax assets current 1,536 3,005 15,639 Deferred tax liabilities current: (100) (8) 1,019 Total deferred tax liabilities current (100) (8) 1,019 Offset against deferred tax assets current Net deferred tax liabilities current (25) (255) Notes to Consolidated Financial Statements (Thousands of U.S. dollars) Cash and deposit 403 4,102 Trade notes 951 9,681 Investment securities 46, ,752 47,596 $ 484,536 The related debt for which the above assets were pledged as collateral at March 31, 2009 and 2008 are summarized as follows: (Thousands of U.S. dollars) Borrowing of Company 6,845 69,683 Borrowing of Other (Unconsolidated Subsidiary) 345 3,512 7,190 $ 73,195 Deferred tax assets noncurrent: Allowance for doubtful accounts ,880 Investment securities 1,437 1,015 14,632 Research and development cots ,427 Loss on investments ,880 Loss on impairment of fixed assets ,829 Operating loss carryforwards 11,956 3, ,723 Excess of depreciation 1, ,974 Other ,187 Gross deferred tax assets non-current: 16,064 7, ,536 Valuation allowance (15,493) (6,850) (157,731) Total deferred tax assets non-current ,805 Offset against deferred tax liabilities non-current (3) (156) (32) Net deferred tax assets non-current ,773 Deferred tax liabilities non-current: Additional enterprise tax (135) Other (52) (52) (533) Total deferred tax liabilities non-current (52) (187) (533) Offset against deferred tax assets non-current Net deferred tax liabilities non-current (49) (31) $ (501) A reconciliation between the statutory tax rates and the effective tax rates as a percentage of loss or income before income taxes for the years ended March 31, 2009, 2008 and 2007 are as follows: Statutory tax rates n / a * 40.7% 40.7% Reconciliation: Valuation allowance (9.7) 45.7 Loss on change in equity interest in subsidiaries (16.0) (2.7) Equity in losses of affiliates (6.4) (63.2) Amortization of goodwill Other (2.0) 0.7 Effective tax rates 7.2% 21.6% * not applicable as we had loss before income taxes and minority interests 12

14 Notes to Consolidated Financial Statements 5. Research and Development Costs Research and development costs which were included in cost of sales and selling, general and administrative expenses for the years ended March 31, 2009, 2008 and 2007 were as follows: Year ended March (Thousands of U.S. dollars) 3,917 6,101 5,917 $ 39, Leases Year ended March 31 (Thousands of U.S. dollars) Depreciation $ 4,499 Interest expense $ 936 Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2009 for non-cancelable operating leases and finance leases accounted for as operating leases an March 31 are summarized as follows: 2009 (Thousands of U.S. dollars) Due within one year or less 390 $ 3,970 (a) As lessee Previously, finance lease transactions where the ownership is not transferred were accounted for by the method similar to the one used for leases transactions accounted for in accordance with the method applicable to lease transactions. With effect from the current consolidated fiscal year, however, the Accounting Standards Pertaining to the Lease Transactions (Corporate Accounting Standards No. 13 (June 17, 1993 (Business Accounting Council, Subcommittee 1), amended March 30, 2007)) and Application Guidance for Accounting Standards Pertaining to the Lease Transactions (Application Guidance on Corporate Accounting Standards No. 16 (January 18, 1994 (Japan Institute of Certified Public Accountants, Accounting System Committee), amended March 30, 2007)) are applied to account for the aforementioned lease transactions in accordance with the method similar to the one applicable to regular sales transactions. The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value of the leased assets as of March 31, 2009 and 2008, which would have been reflected in the consolidated balance sheets if lease accounting had been applied to finance leases currently accounted for as operating leases: Year ended March 31 (Thousands of U.S. dollars) Fixed assets: Acquisition costs 2,046 1,118 $ 20,828 Accumulated depreciation (1,633) (538) (16,624) Net book value ,194 Intangible fixed assets: Acquisition costs Accumulated depreciation (0) (2) (0) Net book value Total: Acquisition costs 2,049 1,127 20,859 Accumulated depreciation (1,633) (542) (16,624) Net book value $ 4,224 Due subsequent to one year 137 1,394 Total 528 $ 5,375 Note: The amounts in parentheses in the above table represent future minimum lease payments to be made by sublessees. Obligations under non-cancelable operating leases an as of March 31, 2009 were as follows: 2009 (Thousands of U.S. dollars) Due within one year 1 $ 10 Due over one year 1 10 Total 2 $ 20 (b) As lessor Information relating to finance leases of the Group at March 31, 2009 is summarized as follows: Breakdown of lease investment assets Current assets (Million yen) Portion for lease fee receivables 2,179 Portion for estimated remaining value Amount equivalent to interest income (478) Lease investment assets 1,700 Operating lease transactions (As a lender) Future lease payments Future lease payments for operating lease transactions which is not cancelable (Million Yen) Due within one year 8 Due after one year 3 Total 12 Lease payments relating to finance leases accounted for as operating leases in the accompanying consolidated financial statements amounted to 542 million ($5,517 thousand), and 339 million for the years ended March 31, 2009 and 2008, respectively. Depreciation of the leased assets computed by the straight-line method over the respective lease terms and the interest portion included in these lease payments are summarized as follows: (Impairment loss) There is no impairment loss allocated to lease assets. 7. Inventories The Accounting Standards Pertaining to the Valuation of Inventories 13

15 (Corporate Accounting Standards No. 9, published July 5, 2006) is applied with effect from the current consolidated fiscal year. Furthermore, in accordance with the changes in the business environment, Rules for Valuations of Inventory Assets was reviewed during the period in question. Accordingly, extraordinary loss increased by 4,018 million yen and net loss before taxes increased by the same amount. 8. Stock Option Plans Stock option plan approved at a shareholders meeting held on June 29, Supplementary Cash Flow Information The following table represents a reconciliation of cash and cash equivalents as of and for the years ended March 31, 2009 and 2008: Year ended March 31, 2009 (Thousands of U.S. dollars) Cash and bank deposits 14,448 32,613 $ 147,083 Securities ,391 1,343 Time deposit exceeding 3 months (403) (4,102) Cash and cash equivalents 14,177 56,004 $ 144,327 Notes to Consolidated Financial Statements On June 29, 2004, the shareholders approved a stock option plan for employees of the Company and directors and employees of wholly-owned subsidiaries to purchase warrants on shares of the Company s common stock at advantageous prices. The exercise price of each stock option is 2,434. The stock options outlined above were/are exercisable during the period from July 1, 2006 through June 30, Stock option plan approved at a shareholders meeting held on June 29, 2006 Securities represent money management funds in Poreign currencies 11. Investment Securities The components of unrealized gain or loss on marketable securities included in Investment securities at March 31, 2009 and 2008 are summarized as follows: March 31, 2009 On June 29, 2006, the shareholders approved a stock option plan for directors, officers, certain advisors and certain employees of the Company and subsidiaries to purchase warrants on shares of the Company s common stock at advantageous prices. The exercise price of each stock option is Other securities whose carrying value Acquisition costs Carrying value Unrealized gain (loss) 3,910. The stock options outlined above are exercisable during the period recorded in the balance sheet from July 1, 2008 through January 25, exceeds their acquisition costs: Stock option plan approved at a shareholders meeting held on June 28, 2007 On June 28, 2007, the shareholders approved a stock option plan for directors, officers, and certain employees of the Company and subsidiaries to purchase warrants on shares of the Company s common stock at advantageous prices. The exercise price of each stock option is 4,452. The stock options outlined above are exercisable during the period from July 1, 2009 through December 9, Equity securities Other securities whose carrying value recorded in the balance sheet does not exceed their acquisition costs: Equity securities (11) Total (3) Acquisition costs March 31, 2009 Carrying value Unrealized gain (loss) 9. Amounts per Share Other securities whose carrying value (Thousands of U.S. dollars) The following tables present net income (loss) per share for the years ended March 31, 2009, 2008 and 2007 and net assets per share at March 31, 2009 and 2008: Year ended March (Yen) (U.S. dollars) Net (loss) income: Basic (185.26) $ (1.88) Diluted (*1) March 31, (Yen) (U.S. dollars) Net assets 1, , $ 13,867 recorded in the balance sheet exceeds their acquisition costs: Equity securities $ 122 $ 213 $ 81 Total $ 122 $ 213 $ 81 Other securities whose carrying value recorded in the balance sheet exceeds their acquisition costs: Acquisition costs March 31, 2008 Carrying value Unrealized gain (loss) Equity securities Total (*1) Diluted net income per share is not presented since the full dilution of common stock equivalents would have had no dilative effect on net (loss) income per share for the year ended March 31,