Financial Information as of December 31, 2020
(This is an English translation of the “Yukashouken-Houkokusho” for the year ended December 2020)
UNIVERSAL ENTERTAINMENT CORPORATION
Ariake Frontier Building Tower A, 7-26, Ariake 3-chome, Koto-ku, Tokyo (E02452)
Contents Page Cover Part I Company Information...... 1 Section 1. Overview of the Company ...... 1 1. Transition of Significant Business Indicators, etc...... 2 2. The Company’s History ...... 4 3. Description of Businesses ...... 7 4. Affiliated Companies ...... 9 5. Employees ...... 10 Section 2. Business ...... 11 1. Management Policy, Operating Environment and Issues to Be Addressed...... 11 2. Business and Other Risks ...... 12 3. Management’s Analyses of Financial Status, Operating Results and Cash Flow...... 14 4. Important Contracts, etc., in Operations ...... 20 5. Research-and-Development Activities...... 20 Section 3. Facilities and Equipment ...... 21 1. Overview of Capital Investments...... 21 2. Major Facilities and Equipment ...... 21 3. Plans for Construction and Retirement, etc., of Facilities ...... 22 Section 4. Situation of the Company...... 23 1. Details of Stock, etc...... 23 (1) Total Number of Shares, etc...... 23 (2) Subscription Rights to Shares ...... 23 (3) Exercise Status, etc., of Bonds with Subscription Rights to Shares with a Clause to Revise the Exercise Price ...... 28 (4) Transition of Total Number of Issued Shares and Amount of Capital Stock ...... 28 (5) Shareholders by Category ...... 29 (6) Major Shareholders ...... 30 (7) Voting Rights ...... 31 2. Acquisition of Treasury Shares, etc...... 32 3. Dividend Policy ...... 33 4. Corporate Governance, etc...... 34 (1) Overview of Corporate Governance ...... 34 (2) Directors and Audit & Supervisory Board Members ...... 38 (3) Accounting Audit ...... 41 (4) Remuneration, etc. Paid to Directors and Audit & Supervisory Board Members ...... 43 (5) Shareholding Status ...... 45 Section 5. Accounting ...... 46 1. Consolidated Financial Statements, etc...... 47 (1) Consolidated Financial Statements ...... 47 (2) Others ...... 88 2. Non-consolidated Financial Statements, etc...... 89 (1) Non-consolidated Financial Statements ...... 89 (2) Major Assets and Liabilities ...... 98 (3) Others ...... 98 Section 6. Outline of Stock-Related Matters of the Company ...... 99 Section 7. Referential Information of the Company ...... 100
Part II Information on Guarantee Companies, etc., for the Company ...... 100
[Independent Auditors’ Reports]
Cover Submitted document Securities Registration Report Statutory basis Paragraph 1, Article 24 of the Financial Instruments and Exchange Act of Japan Agency receiving submission Director-General of the Kanto Local Finance Bureau Submission date March 31, 2021 Fiscal year 48th period (from January 1, 2020 through December 31, 2020) Corporate name Kabushiki-gaisha Universal Entertainment Name in English Universal Entertainment Corporation Name and position of representative Jun Fujimoto, Representative Director and President Location of headquarters Ariake Frontier Building Tower A, 7-26, Ariake 3-chome, Koto-ku, Tokyo Phone +81-3-5530-3055 Name of contact person Kenshi Asano, Director and CFO Closest contact address Ariake Frontier Building Tower A, 7-26, Ariake 3-chome, Koto-ku, Tokyo Phone +81-3-5530-3055 Name of contact person Kenshi Asano, Director and CFO Place available for public inspection Tokyo Stock Exchange, Inc. (2-1, Nihombashi Kabutocho, Chuo-ku, Tokyo)
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Part I. Company Information
Section 1. Overview of the Company
(Introduction) Effective April 1, 1998, the company submitting this report (the former Universal Technos Co., Ltd., hereinafter “the Company”) absorbed in a merger the former Universal Sales Co., Ltd., and changed its trade name to Aruze Corp. The purpose of the merger was to change the face value per share of the former Universal Sales Co., Ltd., from 500 yen to 50 yen. In addition, the change of trade name represented the Company’s prospects for further growth in anticipation of the future expansion of its businesses. Effective November 1, 2009, Aruze Corp. changed its trade name to Universal Entertainment Corporation. The change of trade name represented the Company’s prospects for further growth in anticipation of the future expansion of its businesses. The following illustrates changes in the status of the Company since its establishment to date:
Universal Technos
Co., Ltd.
Spun off on December 10, 1979 (registered Aruze Corp. surviving company) Merged and Universal Co., changed the trade Universal Ltd. name on April 1, Lease Co., Ltd. 1998 Changed the trade Universal Established on name on October 1, Sales Co., Ltd. December 2, 1969 1971 (dissolved company) Merged on April 1, Universal Universal 1993
Giken Co., Ltd. Sales Co., Ltd. Universal Spun off on Changed the trade Entertainment June 26, 1973 name on May 31, Corporation 1975 (substantial surviving company) Changed the trade name on November 1, 2009
To date
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
1. Transition of Significant Business Indicators, etc. (1) Consolidated Business Indicators, etc. 43rd 44th 45th 46th 47th 48th Term Period Period Period Period Period Period March March December December December December Fiscal year ended 2016 2017 2017 2018 2019 2020 (Million Net sales yen) 91,709 111,187 68,546 93,267 124,944 90,871 (Million Ordinary profit (loss) yen) 22,343 27,036 (12,829) 67,232 (7,941) (9,249) Net income (loss) attributable (Million to owners of the parent yen) 15,661 18,629 (13,426) 161,168 (5,191) (19,218) (Million Comprehensive income yen) 12,314 9,588 (7,427) 144,581 6,075 (12,452) (Million Net assets yen) 229,072 259,990 230,945 375,063 371,834 357,577 (Million Total assets yen) 369,580 568,635 543,747 510,677 573,238 568,502
Net assets per share (Yen) 3,108.92 3,287.46 2,931.97 4,746.18 4,756.13 4,614.09
Net income (loss) per share (Yen) 213.41 252.66 (170.18) 2,037.75 (66.18) (247.60)
Diluted net income per share (Yen) 213.38 252.27 - 2,035.02 - -
Ratio of shareholders’ equity (%) 61.7 45.6 42.6 73.4 64.9 62.9 Ratio of net income to (%) shareholders’ equity 7.0 7.6 (5.5) 53.2 (1.4) (5.3)
Price-earnings ratio (Times) 8.8 14.1 - 1.6 - - Net cash from operating (Million activities yen) 19,118 23,780 (2,177) 15,280 29,468 3,112 Net cash from investing (Million activities yen) (66,900) (120,584) (59,903) 154,849 (28,897) (18,496) Net cash from financing (Million activities yen) 56,662 166,804 4,352 (163,173) (8,863) 14,436 Cash and cash equivalents at (Million the end of fiscal year yen) 51,518 119,038 35,594 45,870 38,226 37,133
Number of employees (Persons) 1,421 7,062 7,095 7,866 8,437 6,775 Notes: 1. Net sales do not include consumption taxes, etc. 2. The “Diluted net income per share” for the 45th, 47th and 48th periods is not presented because net loss was posted despite the existence of latent shares with a dilution effect. 3. “Price-earnings ratio” is not presented for the 45th, 47th and 48th periods because a net loss per share was posted. 4. The 45th period is a transitional nine-month period due to a change in the fiscal year end.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(2) Non-consolidated Business Indicators, etc., of the Company 43rd 44th 45th 46th 47th 48th Term Period Period Period Period Period Period March March December December December December Fiscal year ended 2016 2017 2017 2018 2019 2020 (Million Net sales yen) 92,024 114,751 53,317 44,602 54,812 64,489 (Million Ordinary profit (loss) yen) 13,994 25,072 (14,450) 224,360 (6,754) (1,402) (Million Net income (loss) yen) 7,025 16,842 (15,557) 208,794 (6,799) (503) (Million Capital stock yen) 98 98 98 98 98 98
Number of issued shares (Shares) 80,195,000 80,195,000 80,195,000 80,195,000 80,195,000 80,195,000 (Million Net assets yen) 150,838 188,495 169,880 378,696 361,212 358,936 (Million Total assets yen) 269,938 363,674 346,926 470,183 458,554 465,370
Net assets per share (Yen) 2,054.48 2,388.05 2,150.93 4,792.16 4,620.24 4,631.63
Dividend per share - 40 50 50 - (Yen) - [Interim dividend per share] [-] [-] [-] [-] [50] [-]
Net income (loss) per share (Yen) 95.74 228.43 (197.19) 2,639.91 (86.68) (6.48)
Diluted net income per share (Yen) 95.73 228.08 - 2,636.38 - -
Ratio of shareholders’ equity (%) 55.9 51.8 48.9 80.5 78.8 77.1 Ratio of net income to (%) shareholders’ equity 4.7 9.9 (8.7) 76.1 (1.8) (0.1)
Price-earnings ratio (Times) 19.5 15.6 - 1.2 - -
Dividend payout ratio (%) - 17.5 - 1.9 - -
Number of employees (Persons) 976 973 1,024 980 988 998 Shareholder return (%) 97.6 185.9 169.6 198.9 130.8 [Comparison with TOPIX 216.0 including dividends] (%) [89.2] [102.3] [124.3] [104.5] [123.4] [132.5]
Highest share price (Yen) 3,450 4,765 4,485 6,290 4,010 3,695
Lowest share price (Yen) 1,535 1,684 2,611 2,823 2,947 1,277 Notes: 1. Net sales do not include consumption taxes, etc. 2. The “Diluted net income per share” for the 45th, 47th and 48th periods is not presented because net loss was posted despite the existence of latent shares with a dilution effect. 3. “Price-earnings ratio” is not presented for the 45th, 47th and 48th periods because a net loss per share was posted. 4. The 45th period is a transitional nine-month period due to a change in the fiscal year end. 5. The highest and lowest share prices were at the Jasdaq (standard) market of the Tokyo Stock Exchange.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2. The Company’s History Events Month & Year Universal Entertainment Corporation Former company name: Aruze Corp. (Universal Sales Co., Universal Co., Ltd. Ltd. and Universal Technos Co., Ltd.) December 1969 Established Universal Lease Co., Ltd., for the purpose of leasing jukeboxes at 2515, Mamada, Oyama, Tochigi Prefecture. July 1970 Established a factory at the same place and started producing amusement machines. October 1971 Changed trade name to Universal Co., Ltd. June 1972 Purchased land adjacent to the factory and built a new factory. June 1973 Spun off Sales Division of Universal Co., Ltd. from the company and established Universal Giken Co., Ltd., as an independent company and began its operation. May 1975 Relocated the Head Office of Universal Giken Co., Ltd., to 11-1, Ueno 5-chome, Taito-ku, Tokyo, and changed the trade name to Universal Sales Co., Ltd. September 1975 Established the Osaka Sales Office in Suita, Osaka Built a new factory in Oyama, Tochigi Prefecture. Prefecture. Hereafter, this factory began full-scale production of various game machines as a base. November 1976 Established the Nagoya Sales Office in Naka-ku, Nagoya, Aichi Prefecture. April 1978 Built the Universal Building in Nihombashi Horidomecho, Chuo-ku, Tokyo, and relocated the Head Office of Universal Sales Co., Ltd. December 1979 Spun off the Development Division of Universal Co., Ltd. from the company and established Universal Technos Co., Ltd., as an independent company, and began its operation. March 1980 Constructed a new factory located in the third industrial park in Oyama, Tochigi Prefecture (Oyama Second Factory) and moved there. Expanded from production of game machines into pachislot machines for the entertainment and amusement industry. January 1981 Established the Fukuoka Sales Office in Hakata-ku, Fukuoka, Fukuoka Prefecture. May 1982 Established the Hokkaido Sales Office in Shiroishi-ku, Sapporo, Hokkaido. February 1983 Established the Sendai and Kagoshima Sales Offices in Sendai, Miyagi Prefecture, and Kagoshima, Kagoshima Prefecture. August 1983 Established the Niigata Sales Office in Niigata, Niigata Prefecture. June 1985 Established the Aomori, Shikoku and Kobe Sales Offices in Aomori, Aomori Prefecture, Takamatsu, Kagawa Prefecture, and Chuo-ku, Kobe, Hyogo Prefecture. July 1985 Established the Hiroshima Sales Office in Naka-ku, Hiroshima, Hiroshima Prefecture, and the Okayama Sub- Branch in Okayama, Okayama Prefecture. October 1985 Established the Kitakanto Sales Office in Utsunomiya, Tochigi Prefecture. July 1986 Procured the head office building of Universal Technos Co., Ltd. in Nihombashi Hamacho, Chuo-ku, Tokyo, and moved there. April 1988 Constructed the head office building of Universal Sales Procured a factory in Yonago, Tottori Prefecture, Co., Ltd. in Takanawa, Minato-ku, Tokyo. as a new manufacturing base and started production of amusement machines. May 1988 Established the Shizuoka Sales Office in Shizuoka, Shizuoka Prefecture. September 1988 Established the Oita Sub-Branch in Oita, Oita Prefecture.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Events Month & Year Universal Entertainment Corporation Former company name: Aruze Corp. (Universal Sales Co., Universal Co., Ltd. Ltd. and Universal Technos Co., Ltd.) July 1990 Established the Kanazawa Sub-Branch in Kanazawa, Ishikawa Prefecture. September 1990 Established the Koriyama Sub-Branch in Koriyama, Fukushima Prefecture. April 1992 Established the Kumamoto Sub-Branch in Kumamoto, Kumamoto Prefecture. July 1992 Established the Saitama, Kanagawa and Chiba Sales Offices in Omiya, Saitama Prefecture, Kohoku-ku, Yokohama, Kanagawa Prefecture, and Chuo-ku, Chiba, Chiba Prefecture. August 1992 Established the Kyoto Sales Office in Shimogyo-ku, Kyoto, Kyoto Prefecture. April 1993 Universal Sales Co., Ltd. absorbed Universal Co., Ltd. in a Dissolved as a result of a merger with Universal merger. Sales Co., Ltd. July 1993 Moved the Head Office to the head office building of Universal Co., Ltd. in Takanawa, Minato-ku, Tokyo. April 1994 Established the Mito Sales Office in Mito, Ibaraki Prefecture. April 1998 Universal Technos Co., Ltd. absorbed Universal Sales Co., Ltd. in a merger and changed the trade name to Aruze Corp. Moved the Head Office to Ariake, Koto-ku, Tokyo. September 1998 Registered its shares on the over-the-counter market of the Japan Securities Dealers Association. August 1999 Built a new factory in Yotsukaido, Chiba Prefecture (current Pachislot and Pachinko machine manufacturing site). October 2000 Acquired shares of Aruze USA, Inc. (currently a consolidated subsidiary). October 2000 Aruze USA, Inc. invested in Valvino Lamore, LLC. November 2000 Acquired shares of Japan Amusement Broadcasting Co., Ltd. February 2001 Established Yotsukaido Techno Center in Yotsukaido, Chiba Prefecture. September 2002 All capital holdings of Valvino Lamore, LLC, were invested in kind to Wynn Resorts, Limited. November 2002 Acquired shares of Nautilus Inc. (trade name was changed to Aruze Global Trading Corporation). October 2003 Established Beijing Aruze Development Co., Ltd. (currently a non-consolidated subsidiary). June 2004 Obtained a gaming machine manufacturer’s license and an approval for stock acquisition of Universal Distributing of Nevada, Inc. (currently Aruze Gaming America, Inc.), in the State of Nevada, U.S.A. December 2004 Cancelled over-the-counter registration with the Japan Securities Dealers Association and listed the Company’s shares on Jasdaq Securities Exchange, Inc. December 2004 Obtained a gaming machine manufacturer’s license and an approval for stock acquisition of Universal Distributing of Nevada, Inc., in the State of Mississippi, U.S.A. January 2005 Acquired shares of Universal Distributing of Nevada, Inc., which had subsidiaries in Australia and South Africa, and made the three companies consolidated subsidiaries. March 2005 Wynn Resorts, Limited and its subsidiary obtained a license for casino operations in the State of Nevada, U.S.A. May 2006 Established Aruze Preparatory Corporation. July 2006 Obtained a gaming machine manufacturer’s license, which is renewable without limitation, in the State of Nevada, U.S.A. April 2007 Transferred gaming machine business for overseas casinos to Aruze Gaming America, Inc. Established ARUZE MEDIA NET CORP. for mobile web site operation business through a company split. September 2007 Acquired shares of Japan Rental Service, Ltd. (trade name was changed to Aruze Rental Service Corporation). October 2007 Transferred the Sales Division of the Pachislot/Pachinko Business to Aruze Marketing Japan Corporation (formerly known as System Staff Co., Ltd.) and the Development Division thereof to Seven Works Corporation (formerly known as Aruze Preparatory Corporation) through company splits. February 2008 Established Aruze Investment Co., Ltd. (currently a consolidated subsidiary). June 2008 Transitioned to a company with committees. August 2008 Acquired a provisional license to operate a casino resort in the Philippines. Aruze Gaming America, Inc. implemented an allocation of new shares to a third party and the shares of Aruze Gaming America owned by the Company were partially transferred. February 2009 Aruze Global Trading Corporation, Aruze Rental Service Corporation and Seven Works Corporation were merged to Aruze Marketing Japan Corporation by an absorption-type merger with Aruze Marketing Japan to act as the surviving company. March 2009 Transferred all the shares of Aruze Gaming America, Inc. owned by the Company.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Events Month & Year Universal Entertainment Corporation Former company name: Aruze Corp. (Universal Sales Co., Ltd. and Universal Technos Co., Ltd.) June 2009 The Company merged Aruze Marketing Japan Corporation in an absorption-type merger with the Company to act as the surviving company. November 2009 Changed the trade name to Universal Entertainment Corporation. March 2010 A casino project of the Universal Entertainment Group (Manila Bay Resorts) obtained the designation as a special economic zone and the foreign capital restrictions for casino businesses were removed in the Philippines. April 2010 The Company’s stock was listed on the Jasdaq market of the Osaka Securities Exchange, in accordance with the merger of the Jasdaq Securities Exchange and the Osaka Securities Exchange. June 2010 Transitioned to a company with an Audit & Supervisory Board. October 2011 The Company merged ARUZE MEDIA NET CORP. in an absorption-type merger with the Company to act as the surviving company. January 2012 Manila Bay Resorts Project’s groundbreaking ceremony held in Manila. July 2013 The Company’s stock was listed on the Jasdaq (standard) market of the Tokyo Stock Exchange, in accordance with the integration of the Tokyo Stock Exchange and the Osaka Securities Exchange. October 2013 Opened Okada Museum of Art in Hakone. June 2014 Okada Museum of Art formed sister partnership with Liu Hai Su Art Museum, a national museum of art in China. March 2016 Established joint venture “ZEEG Co. Ltd” with Sammy Corporation. July 2016 The casino resort project in the Philippines was officially named OKADA MANILA. December 2016 Okada Manila received permission to operate a casino and resort facility in the Philippines. Casino operations started. March 2017 Completed construction of the world’s largest multi-color fountains “The Fountain” at Okada Manila. December 2017 Cove Manila, covered by an enormous glass dome, started operating at Okada Manila. December 2018 Completed construction of Tower A at Okada Manila. July 2019 Started selling the Multi Currency System, an automated foreign exchange system for casino equipment, and the Slot Program Play System, customer special benefit system created exclusively for casino slot machines.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
3. Description of Businesses The corporate group of the Company is composed of the Company, 21 subsidiaries and four affiliates. The main businesses are the development, manufacture and sales of pachislot and pachinko machines and other game machines and peripheral equipment thereof, as well as the Integrated Resort Business and the media content business, etc. Indicated below are the businesses of the Company’s corporate group, the Company and each company’s relative position in the business and the relationship with the segments (as of December 31, 2020).
Name of Segment Main Business Company Name Universal Entertainment Development and manufacture of pachislot and Corporation, Macy Co., Ltd., Eleco pachinko machines Ltd., Mizuho Corp., Across Corp. Amusement and Universal Bros. Corp. Equipments Sale of pachislot and pachinko machines; Business development, manufacture and sale of peripheral Universal Entertainment Corporation equipment; procurement of units consisting of parts and materials Integrated Resort Tiger Resort, Leisure and Casino resort development Business Entertainment, Inc.
Other Media content business Universal Entertainment Corporation
* In addition to the companies listed above, there are four consolidated subsidiaries, 11 non-consolidated subsidiaries not accounted for by the equity method, three affiliates accounted for by the equity method, and one affiliate not accounted for by the equity method.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
The business linkage of the above status is shown in the diagram below (as of December 31, 2020):
Amusement Equipments Macy Co., Ltd., Eleco Ltd., Mizuho Corp., Business Across Corp. and Universal Bros. Corp. (Development and manufacture of amusement machines)
1 other affiliate accounted for by Supply of parts and the equity method (Note 2) materials Entrustment of sales
Customers/ Universal Entertainment Corp. users (Development, manufacture and sale of amusement machines and peripheral equipment; investment management; and management guidance for group companies)
Other 1 other consolidated subsidiaries 1 affiliate accounted for by the equity method (Note 2) 1 affiliate not accounted for by the equity method (Note 3)
Nihon Shogi Network Co., Ltd. (Note 1) 7 other companies (Note 1)
Integrated Resort Tiger Resort, Leisure and
Business Entertainment, Inc.
3 other consolidated subsidiaries 1 affiliate accounted for by the equity method (Note 2) 3 other companies (Note 1)
No symbol: Consolidated subsidiaries: 10 Note 1: Non-consolidated subsidiaries: 11 Note 2: Affiliates accounted for by the equity method: 3 Note 3: Affiliates not accounted for by the equity method: 1
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
4. Affiliated Companies Holding/Held Main Line of Name of Company Location Capital Stock Ratio of Voting Relationship Business Rights (%) (Parent company) Held
Hong Kong, 9,362,968 Investments in Okada Holdings Limited 70.2 China [1,000 HKD] securities, etc.
(Consolidated subsidiary) Manufacture Koto-ku, 20 of amusement 100.0 Tokyo [Million yen] Macy Co., Ltd. (Note 1) machines Manufacture Koto-ku, 10 Eleco Ltd. (Note 1) of amusement 100.0 Tokyo [Million yen] machines Manufacture Koto-ku, 10 Mizuho Corp. (Note 1) of amusement 100.0 Tokyo [Million yen] machines Manufacture Koto-ku, 5 Across Corp. of amusement 100.0 Tokyo [Million yen] machines Manufacture Koto-ku, 5 Universal Bros. Corp. of amusement 100.0 Tokyo [Million yen] machines Tiger Resort, Leisure and Manila, 8,699,745 99.9 Entertainment, Inc. Other Note 4 Philippines [1,000 PHP] (99.9) (Note 1) (Note 2) Tiger Resort Asia Limited Hong Kong, 14,638,663 Other 100.0 Note 4 (Note 1) China [1,000 HKD] Brontia Limited Hong Kong, 1,280,191 100.0 Other Note 4 (Note 1) (Note 2) China [1,000 HKD] (100.0) Nevada, 10 Aruze USA, Inc. Other USA [USD] 100.0 Phnom ARUZE Investment Co., Ltd. 4,000 49.0 Penh, Other (Note 2) [1,000 Riels] (49.0) Cambodia Manufacture (Equity-method affiliate) Shinagawa- 25 of amusement 50.0 ZEEG Co. Ltd. ku, Tokyo [Million yen] machines EAGLE I Manila, 480,000 40.0 LANDHOLDINGS, INC. Other Note 4 Philippines [1,000 PHP] (40.0) (Note 2) Japan Amusement Broadcasting Minato-ku, 50 79.0 Note 4 Co., Ltd. Tokyo [Million yen] Other Notes: 1. These companies are specified subsidiaries. 2. “Holding/Held Ratio of Voting Rights” is rounded down to the nearest second decimal place. Figures in parentheses represent the percentage of indirectly held votes. 3. With the exception of Tiger Resort, Leisure and Entertainment, Inc., no important earnings information, etc. is presented about the consolidated subsidiaries in this table because the sales (after eliminations for consolidation) of each subsidiary are not more than 10% of total consolidated sales. The sales of Tiger Resort, Leisure and Entertainment, Inc. (after eliminating sales to and from other consolidated companies) are more than 10% of total consolidated sales. However, no important earnings information, etc. about this company is presented because the sales of this company (including inter-segment sales and transfers) accounted for more than 90% of the sales of the Integrated Resort Business in the current consolidated fiscal year. 4. Directors and Audit & Supervisory Board Members of the Company hold concurrent positions at these affiliated companies.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
5. Employees (1) Employees on a Consolidated Basis As of December 31, 2020 Name of Segment Number of Employees
Amusement Equipments Business 803 Integrated Resort Business 5,753 Reportable segment total 6,556 Others 34 Corporate (unallocated) 185 Total 6,775 Notes: 1. The number of employees in the “Corporate (unallocated)” segment represents those employees employed by the administrative division. 2. The main reason for the year-on-year decrease in the number of employees by 1,662 is due to the reduction of local personnel at overseas subsidiaries in the Integrated Resort Business.
(2) Employees of the Company As of December 31, 2020 Average Number of Years Average Annual Salary Number of Employees Average Age Employed (Yen) 998 41 years and 9 months 10 years and 3 months 6,331,985
Name of Segment Number of Employees
Amusement Equipments Business 779
Integrated Resort Business - Reportable segment total 779 Others 34 Corporate (unallocated) 185 Total 998 Notes: 1. Average annual salary includes bonuses and surplus wages. 2. The number of employees in the “Corporate (unallocated)” segment represents those employees employed by the administrative division.
(3) Labor Union Although a labor union has not been formed, the Company has maintained sound labor-management relations.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Section 2. Business
1. Management Policy, Operating Environment and Issues to Be Addressed Statements involving the future in this section are based on judgments by the Universal Entertainment Group as of the end of 2020.
(1) Management Policy The basic management policy of the Group is to create enjoyment as a total global entertainment company and to participate in the forming of a society with dreams. Specifically, as a manufacturer engaged in the research, development, manufacture and sales of Pachislot and Pachinko machines and peripheral equipment, the Group is offering enjoyment for all players. At the same time, by developing Okada Manila, an integrated resort in Manila, Philippines, the Group is dedicated to becoming a source of enjoyment for people worldwide as a provider of comprehensive entertainment that gives large numbers of customers’ memorable experiences.
(2) Business Strategy The Pachislot and Pachinko industry in Japan is slowly shrinking as the number of children declines, people seek a broader range of leisure activities, and the falling number of Pachislot and Pachinko players reduces the number of locations with these machines. In addition, progress is continuing with the installation of new Pachislot and Pachinko machines in response to the enactment of revised regulations for these machines. When rules were tightened in the past, the Group experienced a brief downturn but was able to develop revolutionary systems and highly appealing machines that played key roles in the industry’s growth. The Group will continue to use its expertise involving content and technologies to develop highly appealing products that offer enjoyment for users as well as to use engineering skills for more cost reductions in order to aim for growth of sales and earnings. Okada Manila, a casino and resort in the Manila Bay region of the Philippines, has been posting steady growth. This casino and resort has expanded amenities other than the casino to a level that no competitor can match. There are many VIP visitors from China, South Korea and other Asian countries as well as large numbers of guests who live in the Philippines. The goal is to continue growing in order to earn a reputation as one of the world’s leading entertainment resorts with amenities.
(3) Operating Environment In the Amusement Equipments Business, the replacement of Pachislot and Pachinko machines that did not comply with revised regulations for these machines enacted in February 2018 was supposed to be completed at the end of January 2021. As a result, a phase of major changes has started in the Pachislot and Pachinko industry now that the industry is complying with the new regulations. However, in response to the COVID-19 crisis, Japan enacted revised regulations in May 2020 that extended by one year the transitional period for the removal of machines based on the old regulations. This extension decreased the pace of the switch to new machines. The Group has continuously responded with speed and flexibility to these shifts in the market and the environment for developing new machines with the goal of developing and selling titles that can enable pachinko halls to attract more people. In the Integrated Resort Business, the casino market in the Philippines has been growing rapidly. One reason is favorable taxes, including a low casino tax rate and a corporate income tax exemption. Other factors include the low cost of labor and other advantages in relation to other countries, the growth of the casino mass market in the Philippines, and the increasing number of visitors from China and other countries. Okada Manila, an integrated resort facility, suspended operations beginning on March 15, 2020 because of a lockdown in the Philippines caused by the COVID- 19 outbreak. Currently, the gaming operations of Okada Manila are open at 30% of capacity as restrictions were partially mitigated. In October 2020, the Department of Tourism allowed the Okada Manila hotel to resume operations at 100% of capacity. Furthermore, on October 2, 2020, the Department of Trade and Industry allowed restaurants in Metro Manila to operate at more than 50% of capacity for dine-in customers. Some restaurants at Okada Manila restarted operations while following the government’s guidelines. The COVID-19 crisis is continuing and Okada Manila is implementing rigorous hygiene and safety measures to prevent the spread of infections.
(4) Priority business and financial issues i. Amusement Equipments Business Due to the effects of COVID-19, Japan enacted on May 20, 2020 Partial Amendments to the Enforcement Rules of the Act Concerning Regulation and Proper Operation of Businesses Affecting Public Morals and Partial Amendments to Rules for Certification of Amusement Machines and Models. One result was a one-year extension of the transitional period for the removal of amusement machines that comply with the previous regulations. Due to these amendments, Pachinko halls have become more cautious about replacing their current amusement machines with new models. The Pachinko and Pachislot Industry 21st Century Club, which consists of 14 amusement machine industry associations, has established internal rules involving the removal of amusement machines that comply with the previous regulations in order to facilitate the replacement of machines with new models in a well-planned manner. Universal Entertainment will use technologies for complying with the new rules and its manufacturing capabilities to continue supplying amusement machines that make a big contribution to the operations of Pachinko halls and allow these halls to replace outdated machines based on well-structured plans.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
ii. Patent Strategy The Group has long been aware of the importance of creating and protecting intellectual property, and has worked towards the establishment of a system that enables it to acquire patent rights for superior inventions through standardization of patent applications. Also, the Group has been working to improve the quality of its patent applications and improve the ratio of patent registrations to submitted applications, by establishing a structure whereby individual inventions are categorized into different technical fields and applications for patents are filed for a group of inventions in each technical field. The technologies which the Company has acquired or applied for patents are considerably more effective and commercially viable than those of its competitors. The Company intends to fully apply these technologies in the development of its products to improve the value of said products, thereby differentiating them from the competition in terms of technology. The Company believes this will enable it to achieve a competitive advantage. Also, in order to secure license income from its patents, the Company will move forward vigorously with strategies for both patent utilization and the protection of its patent rights when said rights are violated.
iii. Integrated Resort Business Okada Manila, an integrated resort facility operated by the Group, was created to meet the expectations of all customers, whether from the Philippines or other countries. This resort has a luxurious hotel, fine dining with cuisine of many countries, high-end shopping, The Fountain (a multi-color fountain that is the largest of its type in the world), Cove Manila, an all-weather dome that has Southeast Asia’s largest night club and beach club. Everyone at this resort is dedicated to providing guests with exceptional hospitality and experiences of the highest quality. Currently, adding more guest rooms is the highest priority of Okada Manila. Plans also include expansion of the gaming area, including the addition of a casino exclusively for VIP guests, opening more restaurants and enlarging the shopping mall in order to attract an even larger number of guests.
(5) Objective Indicators Used to Determine Progress Concerning Performance Targets In the Amusement Equipments Business, the Group will gather information from the market and further reinforce the sales framework in order to capture the No. 1 market share position by securing unit sales through the provision of Pachislot and Pachinko machines that match diversifying market needs. Additionally, the Group will build a lean management framework by improving operational efficiency, and strive to forge a stable and profitable corporate culture. In the Integrated Resort Business in the Philippines, the main performance indicator is the adjusted segment EBITDA.
2. Business and Other Risks This section explains the major risk factors, from among items involving business operations and financial soundness as stated in this Securities Registration Report, that management believes may have a significant effect on the consolidated financial condition, results of operations and cash flows. The Universal Entertainment Group recognizes the possibility that these problems may occur and is taking appropriate preventive actions. No information about the magnitude or timing of the potential problems associated with these risk factors is provided because of the difficulty of determining reliable predictions. Statements involving the future in this section have are based on judgments by the Universal Entertainment Group as of the end of 2020.
(1) Amusement Equipments Business According to the “Act Concerning Regulation and Proper Operation of Businesses Affecting Public Morals,” Pachislot and Pachinko machines need to meet the “technical standards” defined in the National Public Safety Commission’s rules (Regulations Concerning Authorization and Model Approval for Amusement Machines). Each type of machine must pass the model test conducted by the designated testing organization (Security Communications Association) and the model inspection conducted by the Public Safety Commission of the applicable prefecture. In case these laws or standards are amended or abolished, the Group will analyze industry trends and the application status of other companies, and make new applications for new machines in a structured and strategic fashion. However, if major changes need to be made due to administrative direction or voluntary restriction by the industry, the business results of the Group would be materially impacted. There is also the possibility that business results of the Group would be adversely affected by changing preferences in the market, as well as economic trends in Japan that include income levels.
(2) Foreign Exchange Risks In preparing consolidated financial statements, foreign currency-denominated profits/losses and assets/liabilities of each overseas subsidiary of the Group are incorporated into the consolidated financial statements after they are translated into Japanese yen. As a result, business results of the Group may be adversely affected by fluctuations in currency exchange rates.
(3) Litigation The Group has several pending lawsuits, and their outcomes may have an impact on the business results of the Group. Although the Group makes every effort to eliminate litigation risk, there is always a possibility that third parties 12
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
may file new cases against the Group, with the rulings in these cases having the potential to affect business results of the Group.
(4) Integrated Resort Business The Group operates Okada Manila, an integrated resort facility in the Philippines. Changes in the economic environment of the Philippines and other countries, movements in foreign exchange rates and other economic factors, and changes in the business environment, including revisions to regulations of the Philippine Amusement and Gaming Corporation (PAGCOR) and tax revisions by the Philippine government, may affect the Group’s business results.
(5) Risk caused by the spread of COVID-19 pandemic The global spread of the COVID-19 pandemic significantly affected the economic environment of countries around the world, including Japan. The Group’s financial results may be affected if the effect caused by further spread of infections on the economic environment is prolonged or becomes even more severe. The safety of customers, employees and business partners is the highest priority of the Universal Entertainment Group. Group companies will continue to operate in compliance with the directives of the applicable governments while using staggered working hours, remote work, Internet conferences and other measures for safety during the COVID-19 pandemic.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
3. Management’s Analyses of Financial Status, Operating Results and Cash Flow Overview of Operating Results, etc. (1) Operating Results (Million yen) Fiscal year ended Net loss attributable to owners Net sales Operating profit Ordinary loss December 31, 2020 of parent Non-consolidated 64,489 10,424 (1,402) (503) Consolidated 90,871 2,555 (9,249) (19,218)
In 2020, the global COVID-19 pandemic caused economic downturns worldwide as corporate earnings plummeted and unemployment increased. Although some sectors of the economy are beginning to recover, the economic outlook remains unclear. In the Amusement Equipments Business, the number of Pachislot and Pachinko machines supplied remained low mainly for two reasons. First is limitations on pachinko hall operations and advertising activities because of the COVID-19 pandemic. Second is the extension of transitional measures concerning the removal of machines that comply with previous regulations. In the integrated resort (IR) business in the Philippines, as a standard, employees are encouraged to work from home as much as possible. Furthermore, regular antibody tests and daily body temperature checks are conducted on employees who report to the office. On the other hand, guests who visit Casino areas are strongly encouraged to wear masks and face shields inside the property and perform disinfection after the body temperature check at the entrance. Hotel guests are also strongly encouraged to undergo antibody test in the facility before their stay, and strict hygiene control is implemented to ensure all the guests can comfortably enjoy their stay. In 2020, in the Amusement Equipments Business, there was an increase in the number of units sold to 139,152 from 114,463 in 2019. In the Integrated Resort Business, the operations at Okada Manila were suspended for a long time to prevent the spread of COVID-19 and operations were limited after this resort reopened. As a result, Universal Entertainment posted net sales of 90,871 million yen (a decrease of 27.3% year on year) in 2020. There was an operating profit but an ordinary loss and loss attributable to owners of parent were recorded. Fixed expenses totaling 9,165 million yen (depreciation and other items) of facilities at Okada Manila that were not used during the suspension of operations were reclassified from selling, general and administrative expenses to an extraordinary loss. In addition, there were foreign exchange losses of 3,058 million yen due to the yen’s strength in relation to the U.S. dollar and a valuation loss of 1,040 million yen on investment securities owned by a consolidated subsidiary. Operating profit was 2,555 million yen (an increase of 556.1% year on year), the ordinary loss was 9,249 million yen (compared with an ordinary loss of 7,941 million yen in 2019), and the net loss attributable to owners of parent was 19,218 million yen (compared with net loss attributable to owners of parent of 5,191 million yen in 2019). Business segment performance was as follows. Sales are prior to adjustments for inter-segment sales or transfers.
Operating expenses Fiscal year ended December 31, 2020 Net sales Segment profit (loss) and others Amusement Equipments Business 61,792 41,410 20,382 Integrated Resort Business 27,699 36,733 (9,034) Others 1,200 924 276 Total 90,693 79,068 11,624 Supplementary Information: In the Integrated Resort segment, although fixed expenses for this business during the period when operations were suspended due to the lockdown were reclassified as extraordinary losses and non- recurring loss of 9,165 million yen (including depreciation of 8,733 million yen) was recorded, there was also a substantial loss because of the large amount of personnel expenses and depreciation (14,655 million yen) that are included in operating expenses (selling, general and administrative expenses).
i. Amusement Equipments Business The Amusement Equipments Business posted net sales of 61,792 million yen (an increase of 19.6% year on year) and an operating profit of 20,382 million yen (an increase of 88.5% year on year) in 2020. In the Pachislot machine market, restrictions on game playing characteristics of these machines were reduced with the new category 6.1 voluntary regulation following a reexamination of the voluntary restrictions of the Nihon Dendo- shiki Yugiki Kogyo Kyodo Kumiai and the Nihon Yugiki Kogyo Kumiai. In the Pachinko machine category, a revision of the standard for interpretation of technological standards has made it possible to develop machines with a wide range of game playing characteristics. Both of these events created expectations for more vitality in the market for these machines. However, the COVID-19 outbreak that began in February 2020 impacted this market as pachinko halls reduced or suspended operations as well as advertising for attracting customers. After the end of the requirement to reduce their activities, pachinko halls have been seeing a slow recovery in the number of customers. Despite this recovery, the number of Pachislot and Pachinko machines supplied remained low. In 2020, we launched several new titles and the sales volume of many of our titles was higher than planned. Two significant new titles are “SLOT Basilisk: The Koga Ninpocho Kizuna 2,” the latest version of the extremely popular “Basilisk: The Koga Ninpocho” series of category 5 machines, and “Oki-Doki! 2-30,” the latest version of the “Oki-
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Doki!” series that is popular among a diverse spectrum of people. Both of these new titles ranked among the best- selling Pachislot titles of 2020. Furthermore, Universal Entertainment had the largest share of the Pachislot market in 2020 based on sales volume.
ii. Integrated Resort Business The Integrated Resort Business posted net sales (1) of 27,699 million yen (a decrease of 61.2% year on year) and an operating loss of 9,034 million yen for the year ended December 31, 2020 (compared with an operating loss of 1,391 million yen in 2019). Adjusted segment (2) EBITDA in the Integrated Resort Business was 2,652 million yen loss and lost 15,873 million yen compared with 13, 221 million yen from last year. At Okada Manila, an integrated casino resort owned and operated by the Universal Entertainment Group, all operations have been temporarily suspended since March 15, 2020 in response to an order from PAGCOR due to the global outbreak of COVID-19. However, due to the Philippine government's efforts against Coronavirus, as per the release of "Notice on Okada Manila's operation" on September 9, 2020, gaming operations' suspension has been lifted, and have partially resumed. Okada Manila has resumed its gaming operations for up to 30% of seated capacity. Furthermore, the Okada Manila hotel received approval from the DOT (Department of Tourism) in October 2020 to resume hotel services at full capacity. Also, the DTI (Department of Trade and Industry) reduced on October 2 its restrictions on restaurant operations. Operations are allowed for up to 50% of seats for dine-in customers at restaurants in Metro Manila. Okada Manila has resumed part of its operation in accordance with the government's guidelines. In addition, as described in the press release of “Notice on Sale of Noncurrent Assets (Amendment on Disclosure Matters)” dated March 30, 2021, the partial sale of noncurrent assets (land) owned by EAGLE I LANDHOLDINGS, INC., an equity-method affiliate of the Company, was in negotiation. However, in response to the new threat of coronavirus variants as well as the spread of COVID-19, it was difficult to negotiate the extension of the period as there was no prospect of resuming economic activities in the future. Furthermore, the Company took into account the new inquiries about the concerned land and decided to terminate the existing land sale agreement with exclusivity on March 31, 2021, to continuously proceed with the sale of concerned land, including the negotiation with other buyers. (1) Net sales are defined as gross revenues minus gaming taxes and jackpots. (2) Adjusted segment EBITDA = Operating profit/loss + Depreciation and amortization + Other adjustments
iii. Other Other Business posted net sales of 1,200 million yen (a decrease of 20.4% year on year) and an operating profit of 276 million yen (a decrease of 48.0% year on year) in 2020. In the Media Content Business, distribution of four simulator applications including “SLOT Basilisk: The Koga Ninpocho Kizuna 2” started on the App Store and Google Play. All four titles were an immediate big hit, consistently ranking among the best selling paid applications. We have started licensing our intellectual property for use in household video games. Sales have started for the first game using licensed intellectual property, “PACHISLOT Univa Kingdom A Project” for the Nintendo Switch. Another new activity is the distribution of original sound tracks using iTunes, Amazon Digital Music, Google Play Music, LINE MUSIC, RecoChoku and mora. We plan to continue increasing the number of songs we distribute. The “Slots Street” social casino game has reached the third anniversary of its launch. “Slots Street” now distributes 44 titles in Japan, including six video slot titles, and has more than one million members.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(2) Production, Order Entry and Sales
i. Production Production performance in each segment in the current consolidated fiscal year is as follows: Current Consolidated Fiscal Year Year-on-Year Name of Segment (January 1 to December 31, 2020) Comparison (%) Amusement Equipments Business (Million yen) 61,036 128.3 Total (Million yen) 61,036 128.3 Notes: 1. The amounts are based on sales price. 2. Consumption taxes, etc., are not included in the above amounts. 3. The Integrated Resort Business and other business are not included in the production performance table because the services provided by these businesses do not involve production activities.
ii. Orders Received The status of orders received in each segment in the current consolidated fiscal year is as follows: Amount of Orders Balance of Orders Year-on-Year Year-on-Year Name of Segment Received Received Comparison (%) Comparison (%) (Million yen) (Million yen) Amusement Equipments Business 63,161 121.4 1,264 1,694.1 Total 63,161 121.4 1,264 1,694.1 Notes: 1. The amounts are based on sales price. 2. Consumption taxes, etc., are not included in the above amounts. 3. The Integrated Resort Business and other business are not included in the order status table because the services provided by these businesses do not involve receipt of orders.
iii. Sales Performance The sales performance in each segment in the current consolidated fiscal year is as follows: Current Consolidated Fiscal Year Year-on-Year Name of Segment (January 1 to December 31, 2020) Comparison (%) Amusement Equipments Business (Million yen) 61,792 119.6 Integrated Resort Business (Million yen) 27,699 38.8 Others (Million yen) 1,200 79.6 Total (Million yen) 90,693 72.8 Notes: 1. Transactions between segments are eliminated by offsets. 2. Consumption taxes, etc., are not included in the above amounts. 3. No single entity accounted for 10% or more of total sales. 4. In addition to the sales in this table, there were sales of 177 million yen that could not be allocated to any segment.
(3) Analyses of Financial Status, Operating Results and Cash Flow The following analyses of financial status and operating results regarding the Group are based on the data presented in the consolidated financial statements, in principle. The matters relating to the future contained in the following paragraphs have been judged by the Group as of the submission date of this report.
i. Significant Accounting Policies and Estimates The consolidated financial statements are prepared based on generally accepted accounting standards in Japan. Estimation that was considered necessary to prepare these consolidated financial statements has been conducted in accordance with reasonable standards. However, these estimates incorporate uncertainties and may differ from actual results. Consequently, there may be a need to recognize valuation losses or make additions to allowances in the consolidated financial statements in 2021 or afterward. More information is in “Section 5. Accounting, 1. Consolidated Financial Statements, etc., (1) Consolidated Financial Statements [Notes] Significant Items Serving as a Basis for Preparation of the Consolidated Financial Statements.” The following section contains supplementary information about accounting estimates that may have a significant effect on the financial condition and results of operations of Universal Entertainment.
(Allowance for doubtful accounts) The Group maintains an allowance for doubtful accounts to be prepared for losses involving receivables that cannot be collected. In the Amusement Equipments Business, the allowance is based on the actual percentage of ordinary receivable losses in prior years. For specific receivables for which collectability is a great concern in the Amusement Equipments Business and for VIP customers and junket customers of Okada Manila which operates casino and resort facilities in the Integrated Resort Business, the allowance is based on the likelihood of collecting amounts owed for specific receivables or specific customers. The amounts that are not expected to be collected is added to the allowance. Additions to the allowance for doubtful accounts are made at the end of each fiscal year based on the outlook for sales in the following years and the ability in the past to collect amounts owed by specific customers. However, further additions to this allowance may be needed due to unpredictable events that affect receivables and other reasons.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Valuation of investment securities) For available-for-sale securities, securities with a fair value are valued at the market price and securities with no fair value are valued at cost by using the moving average method. An impairment loss is recognized for securities with no fair value in the event of a decline in the financial condition of the issuer and a decline in net assets per share to less than 50% of the acquisition cost. However, this loss is not posted for securities where the original value is expected to be recovered. Valuations of securities are based on studies that take into account the issuer’s results of operations and the stock market environment. Additional valuation losses may be required in the future if the performance of issuers declines or there is a stock market downturn.
(Impairment losses on non-current assets) The Group makes decisions about assets or asset groups where there are indications of the possible need for the impairment of non-current assets and then posts impairment losses as required. Studies for identifying signs of a possible impairment loss and the recognition and measurement of the loss are based on the outlook for sales in the following years of the applicable companies. A change in the conditions or assumptions used to estimate these losses may result in the need to post impairment losses.
More information about the impact of the COVID-19 pandemic on accounting estimates is in “Section 5. Accounting, 1. Consolidated Financial Statements, etc., (1) Consolidated Financial Statements [Notes] Additional Information.”
ii. Analysis of Financial Status Assets Total assets at the end of 2020 amounted to 568,502 million yen, a decrease of 4,736 million yen over the end of 2019. There was a decrease in accounts receivable-trade, a reduction in the valuation of inventories, and an increase in the allowance for doubtful accounts to VIP and junket customers in the Integrated Resort Business, while there were increases in construction in progress resulting from construction expenditures, investment securities resulting from the share of profit of entities accounted for using equity method, and loans to subsidiaries and affiliates.
Liabilities Liabilities at the end of 2020 amounted to 210,924 million yen, an increase of 9,520 million yen over the end of 2019. There were increases in new short-term borrowings and additional issuance of bonds, repayments of long- term borrowings and a decrease in casino-related obligations due to reduction in operation in the Integrated Resort Business.
Net assets Net assets at the end of 2020 amounted to 357,577 million yen, a decrease of 14,256 million yen over the end of 2019. The valuation difference on available-for-sale securities increased due to a loss on valuation of investment securities owned by a consolidated subsidiary. The foreign currency translation adjustment increased because the yen appreciated against the U.S. dollar. However, retained earnings decreased because of the loss attributable to owners of parent and the treasury shares deduction increased because of the purchase of these shares.
iii. Analysis of Operating Results Net sales The Group posted net sales of 90,871 million yen (a decrease of 27.3% year on year). There were big contributions to sales from two new titles. One is “SLOT Basilisk: The Koga Ninpocho Kizuna 2,” the successor of “SLOT Basilisk: The Koga Ninpocho Kizuna” and a category 6 machine with new elements added. The other is “Oki-Doki! 2-30,” a title that people of many ages can enjoy and that is the successor of “Oki-Doki!,” a very successful category 5 title that was in operation for an unusually long time. More than 100,000 units of these two titles were sold. As a result, the number of Pachislot and Pachinko machines sold increased from 114,463 in 2019 to 139,152 in 2020. In the Integrated Resort Business, the operations at Okada Manila were suspended for a long time to prevent the spread of COVID-19 and operations were limited after this resort reopened. As a result, sales in this business decreased 61.2% year on year in 2020.
Cost of sales The total cost of sales was 40,779 million yen (a decrease of 32.3% year on year). The reason for this decrease was lower sales commissions involving VIPs and junkets in the Integrated Resort Business in association with the decline in sales in this business.
Selling, general and administrative expenses Selling, general and administrative expenses were 47,535 million yen (a decrease of 26.1% year on year). In the Integrated Resort Business, fixed expenses (depreciation and other items) of 9,165 million yen applicable to the time Okada Manila suspended operations due to COVID-19 were deducted from selling, general and administrative expenses and reclassified as an extraordinary loss. Another reason for the decrease is a decrease of 5,484 million 17
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
yen in personnel expenses partially due to a reduction in the workforce of Okada Manila of about 20% (1,500 people) because of the long suspension of operations and restrictions on activities after operations were restarted.
Non-operating income and expenses Non-operating income was 1,850 million yen (a decrease of 6.0% year on year). Non-operating expenses were 13,656 million yen (an increase of 32.6% year on year). This was mainly because of equity in earnings of affiliates of 1,459 million yen, interest expenses and interest on bonds of 10,177 million yen, and an increase in foreign exchange losses to 3,058 million yen because of the yen’s strength in relation to the U.S. dollar.
Extraordinary income and losses Extraordinary income amounted to 9 million yen (an increase of 43.9% year on year). The extraordinary losses amounted to 10,495 million yen (an increase of 808.6% year on year) mainly for two reasons. First is the reclassification from selling, general and administrative expenses to an extraordinary loss of fixed expenses (depreciation and other items) of 9,165 million yen applicable to the period when Okada Manila suspended operations. Second is a valuation loss of 1,040 million yen on investment securities owned by a consolidated subsidiary where the effective value of the securities fell to far below the acquisition cost.
As a result of the above, net loss attributable to owners of the parent was 19,218 million yen (compared with net loss attributable to owners of the parent of 5,191 million yen in 2019), and net loss per share was 247.60 yen (compared with net loss per share of 66.18 yen in 2019).
iv. Analysis of Cash Flows As of the end of 2020, cash and cash equivalents totaled 37,133 million yen, a decrease of 1,093 million yen over the end of 2019. This decrease was mainly the result of the payment for construction works, interest expenses paid for bonds, short-term and long-term loans for subsidiaries and affiliates, purchase of treasury shares, and repayments of long-term borrowings. There were increases due to depreciation, interest expenses and interest on bonds, new loans and additional issuance of bonds.
The primary reasons for increases/decreases in each cash flow category in 2020 are as follows:
The following section explains sources of capital and liquidity for the Group. The demands for capital consist of construction expenses at Okada Manila, the cost of manufacturing such as expenses for materials used in the Amusement Equipments Business, selling, general and administrative expenses, and other expenses for business operations, research and development expenditures and the repurchase of stock. Major sources of funds to meet this demand for capital are internal resources, private placement bonds and loans from financial institutions. At the end of 2020, bonds payable, loans payable and other interest-bearing liabilities totaled 98,859 million yen and cash and cash equivalents totaled 37,133 million yen.
(4) Factors that Could Have a Material Impact on Operating Results As stated in “2. Business and Other Risks.”
(5) Current Situation and Outlook of Business Strategy i. Amusement Equipments Business A state of emergency has been declared for 11 prefectures in Japan because of the third wave of COVID-19. Pachinko halls have not been requested by the government to shorten operating hours but many pachinko halls in these prefectures have voluntarily turned off exterior advertising lights after 8:00 in the evening and stopped advertising activities for attracting customers. The number of customers at pachinko halls is expected to remain low and their operating hours may be shortened. It is still impossible to predict when the COVID-19 crisis will end. As a result, pachinko halls will probably continue to be cautious about making expenditures for new titles to replace their existing machines.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Universal Entertainment started selling two titles in 2021. One is the Pachinko title “P Another God Poseidon- Doto no Shingeki,” which incorporates elements of the God series of Pachinko titles that have been enormously successful. The other is the Pachislot title “Pachislot BIOHAZARD 7 resident evil,” the first new title resulting from the alliance with Capcom Co., Ltd.
Universal Entertainment will continue to work on developing unique and appealing titles. Our goal is to use these titles for energizing the entire amusement machine industry and increasing our share of this market.
ii. Integrated Resort Business Gaming revenues continued to recover. Challenges, however, still remain based on gaming capacity and overseas travel restrictions still remain. Marketing efforts made by Okada Manila have been adjusted to reflect these constraints. Nevertheless, the impact of COVID-19 has not ended. Okada Manila will continue to maintain high levels of hygiene management to prevent infection.
iii. Other The Media Content Business will continue to distribute high-quality simulator applications on the App Store and Google Play and increase the distribution of music. To further improve user satisfaction, the “Slots Street” social casino game is continuing to develop innovative and highly appealing video slot titles, hold events on its website, and upgrade and add website functions. In addition, this business plans to attract new members by using new game platforms and use its intellectual property by licensing video slot titles in order to increase earnings.
(6) Analyses of Sources of Capital and Liquidity of Funds i. Status of cash flow The status of cash flow is stated in “Section 2. Business, 3. Management’s Analyses of Financial Status, Operating Results and Cash Flow, (3) Analyses of Financial Status, Operating Results and Cash Flow, iv. Analysis of Cash Flows.” Trends of cash flow-related indicators are as follows:
ii. Trends of cash flow-related indicators Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Ended Ended Ended Ended Ended March December 31, December 31, December 31, December 31, 31, 2017 2017 2018 2019 2020 Ratio of shareholders’ equity (%) 45.6 42.6 73.4 64.9 62.9 Ratio of shareholders’ equity on 49.4 60.2 49.4 50.7 32.4 market value basis (%) Ratio of interest-bearing 10.1 - 5.4 2.9 31.8 liabilities to cash flow (Years) Interest coverage ratio (Times) 81.4 - 8.6 5.5 0.6 Ratio of shareholders’ equity = Shareholders’ equity/Total assets Ratio of shareholders’ equity on market value basis = Total market value of shares/Total assets Ratio of interest-bearing liabilities to cash flow = Interest-bearing liabilities/Cash flow Interest coverage ratio = Cash flow/Interest paid Notes: 1. All figures are calculated based on consolidated financial values. 2. The total market value of shares is calculated based on the number of issued shares minus treasury shares. 3. Cash flow is represented by operating cash flow. 4. Interest-bearing liabilities include bonds, loans and other liabilities recorded on the consolidated balance sheet. 5. For the fiscal year ended December 31, 2017, the ratio of interest-bearing liabilities to cash flow and interest coverage ratio are not stated because operating cash flow was negative.
(7) Management’s Awareness on Issues and Their Policy for Future Business As stated in “1. Management Policy, Operating Environment and Issues to Be Addressed.”
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
4. Important Contracts, etc., in Operations On December 11, 2018, Universal Entertainment issued bonds totaling US$600 million with a maturity of 2021 for the purpose of procuring funds for the operations of Okada Manila. Bonds totaling US$482 million have been exchanged for newly issued bonds, resulting in the extension of the maturity date from December 11, 2021 to December 11, 2024. The following is a summary of the newly issued bonds that were exchanged for the existing bonds.
(1) Principal terms of the new notes issued for the exchange Universal Entertainment Corporation privately placed notes issued for the exchange with the existing notes in 2020 i Issue (exchange) date October 29, 2020 ii. Total amount US$482 million iii. Interest rate 8.5% per annum iv. Redemption date December 11, 2024 v. Use of proceeds No cash proceeds Note: The remaining US$118 million of the original bonds that were not exchanged will be redeemed upon maturity in accordance with the current terms on December 11, 2021.
Based on a resolution approved by the Universal Entertainment Board of Directors on October 16, 2020, bonds were issued on October 29, 2020 as follows.
(2) Principal terms of the additional notes Universal Entertainment Corporation privately placed additional notes issued in 2020 i Issue date October 29, 2020 ii. Total amount US$135 million iii. Issue price 100% of the principal amount iv. Interest rate 8.5% per annum v. Redemption date December 11, 2024 vi. Use of proceeds For business operations
5. Research-and-Development Activities The amount spent for research and development of the whole group for the current consolidated fiscal year totaled 5, 844 million yen. The status of the research-and-development activities of the Group is as follows.
(1) Amusement Equipments Business In the Amusement Equipments Business, the Company is striving to offer machines with attractive capabilities as to the joy of games and payout performance that will be acceptable in the market within the scope of current laws, regulations and standards. The research-and-development expenses for the Amusement Equipments Business amounted to 5,309 million yen.
(2) Integrated Resort Business There are no research-and-development expenses for Integrated Resort Business.
(3) Others The research-and-development expenses for others amounted to 535 million yen.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Section 3. Facilities and Equipment
1. Overview of Capital Investments In the current consolidated fiscal year, the Company invested 7,466 million yen for construction works, etc., of the integrated resort project in the Philippines.
2. Major Facilities and Equipment The major facilities and equipment of the Group are as follows: (1) The Company As of December 31, 2020 Book Value (Million yen) Name of Business Number of Name of Purpose of Facility Place Buildings Machinery, Land Employees Segment and Equipment (Location) and Equipment (Square Others Total (Persons) Structures and Vehicles meters) Amusement Head Office (Koto- Development and Equipments 321 113 - 449 884 707 ku, Tokyo) overall business Business, Other management Yotsukaido Factory Amusement 5,240 (Yotsukaido, Equipments Manufacturing 2,993 1,439 2,604 12,278 117 (74,373) Chiba) Business, Other
Amusement Oyama Factory 361 Equipments Manufacturing 101 - - 462 - (Oyama, Tochigi) (9,520) Business Amusement Tokyo Branch and 256 Equipments Sales 124 0 5 386 157 18 other branches (603) Business Okada Museum of Art (Hakone-machi, Other Art museum 5,187 4 - 366 5,558 17 Ashigarashimo-gun, Kanagawa) Notes: 1. “Others” under “Book value” mainly represent tools, furniture and fixtures. It does not include construction in progress. The amounts do not include consumption tax, etc. 2. Major rental and lease facilities and equipment other than those mentioned above are as follows: As of December 31, 2020 Number of Square Annual Rent and Name of Business Purpose of Facility and Name of Segment Employees Measure of Lease Payment Place (Location) Equipment (Persons) Land (Million yen) Development and overall Head Office (Koto- Amusement Equipments business management 707 - 359 ku, Tokyo) Business, Other (leased)
(2) Domestic Subsidiary There are no major facilities and equipment.
(3) Overseas Subsidiary As of December 31, 2020 Book Value (Million yen) Name of Purpose of Number of Business Name of Company Name Facility and Buildings Machinery, Construc- Employees Place Segment Equipment and Equipment tion in Others Total (Persons) (Location) Structures and Vehicles progress
Tiger Resort, Head Casino Integrated Leisure and Office and resort 218,874 22,865 62,951 56,653 361,343 5,742 Resort Entertainment, Inc. (Manila) facility Note: “Others” under “Book value” mainly represent tools, furniture and fixtures, and lease assets.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
3. Plans for Construction and Retirement, etc. of Facilities The Group determines capital investments considering the business forecast, the trends of the industry, and investment efficiency in total. In addition, preparation of system infrastructure is being promoted to improve the efficiency of business management. In principle, investment proposals are evaluated by each of the consolidated companies, but in such processes, the Company mainly exercises coordination at group conferences. The new major facilities investment plans as of the end of the current consolidated fiscal year are as follows:
Construction of New Major Facilities Planned Timing of Planned Launch and Name of Purpose of Investment Increased Name of Funding Completion Company or Location Facility and Capacity on Segment Total Paid in Measures Business Place Equipment Completion (Million (Million Launch Completion yen) yen) Machinery and Yotsukaido Amusement Own funds Yotsukaido, Equipment January December Factory of the Equipments 3,348 - and - Chiba for 2021 2021 Company Business borrowings manufacture, etc. Borrowings Tiger Resort, and Integrated Leisure and Integrated investments July Manila Resort 301,710 268,680 June 2021 - Entertainment, resort facility from the 2016 Business Inc. parent company Notes: 1. The facilities investment plans of the consolidated group are aggregated in each area at the above business place. 2. A description of “Increased Capacity on Completion” is omitted as a reasonable calculation of the relevant figure is difficult.
22
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Section 4. Situation of the Company 1. Details of Stock, etc. (1) Total Number of Shares, etc. i. Total Number of Shares Classification Total Number of Authorized Shares Common stock 324,820,000 shares Total 324,820,000 shares Note: Partial changes to the Articles of Incorporation were approved at the 48th Ordinary Shareholders’ Meeting held on March 30, 2021. As a result, the preferred stock classification was added and the authorized number of shares of common stock became 324,820,000. The Articles of Incorporation now provide for the following number of authorized shares for each class of stock. Common stock: 324,820,000 shares Preferred stock: 40,000,000 shares
ii. Number of Issued Shares Name of Listed Financial Number of Issued Shares Number of Issued Shares Instruments Exchange as of the End of the as of the Submission Date Market or Authorized Remarks Classification Current Fiscal Year of This Report Financial Instruments Firms (December 31, 2020) (March 31, 2021) Association Common Tokyo Stock Exchange, Number of shares 80,195,000 shares stock 80,195,000 shares Jasdaq (standard) for one unit: 100 Total 80,195,000 shares 80,195,000 shares - - Note: The shares issued upon the exercise of subscription rights to shares from March 1, 2021 through the submission date of this Securities Registration Report are not included in “Number of Issued Shares as of the Submission Date of This Report.”
(2) Subscription Rights to Shares i. Stock Options Ordinary Shareholders’ Meeting on June 26, 2014 and Date of resolution Board of Directors on October 31, 2014 Category and number of eligible persons to whom subscription 43 employees of the Company rights to shares are granted Number of subscription rights to shares (Units)* 398 (Note 1) Type, details and number of stock subject to subscription rights to Common stock: 39,800 shares* Amount to be paid upon the exercise of subscription rights to 1,813 (Note 2) shares (Yen)* Exercise period of subscription rights to shares* From December 23, 2016 to October 30, 2024 Issue price of stock due to exercise of subscription rights to Issue price: 2,524 shares and amount to be incorporated into capital stock (Yen)* Amount to be incorporated into capital stock: 1,262 Conditions for the exercise of subscription rights to shares* (Note 3) The approval of the Board of Directors is required when Matters pertaining to transfer of subscription rights to shares* acquiring subscription rights to shares through transfer. Matters pertaining to issuance of subscription rights to shares (Note 4) resulting from Corporate Reorganization* * The information in this table is as of December 31, 2020. No information as of February 28, 2021, which is the end of the month prior to the month when this report was submitted, is shown because there were no changes since December 31, 2020.
Notes: 1. The number of shares subject to the subscription rights to shares per unit (hereinafter the “Number of Shares Granted”) shall be 100 shares. In addition, the Number of Shares Granted will be adjusted using the following formula if, after the allotment date of the subscription rights to shares, the Company conducts a stock split (including gratis allocations of the Company’s common stock, same hereafter) or a stock consolidation. However, this adjustment will be performed only for shares subject to the subscription rights to shares that have not been exercised at the time of the split or consolidation. Furthermore, any fraction of less than one share resulting from the adjustment is discarded. Number of Shares Granted after adjustment = Number of Shares Granted before adjustment × Ratio of stock split or stock consolidation In addition, if there is a need to adjust the Number of Shares Granted due to a merger, divestiture or similar event after the allotment date of the subscription rights to shares, the Company may adjust the Number of Shares Granted to a 23
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
reasonable extent. 2. The value of assets to be contributed upon the exercise of the subscription rights to share is calculated by multiplying the amount to be paid per share (hereinafter the “Exercise Price”), which is determined as follows, by the Number of Shares Granted. Exercise Price shall be 1,813 yen. In case that the Company conducts a stock split or a stock consolidation for the Company’s stock after the allotment date of the subscription rights to shares, the Exercise Price shall be adjusted using the following formula and fractions less than one yen resulting from the adjustment shall be rounded up.
Exercise Price after adjustment = Exercise Price before adjustment × 1 Ratio of stock split/stock consolidation
In case that the Company issues new shares of common stock or disposes of its treasury shares at prices less than the market price after the allotment date of the subscription rights to shares (excluding the cases of the issuance of new shares and disposition of treasury shares pursuant to an exercise of the subscription rights to shares, as well as the transfer of treasury shares through a share exchange), the Exercise Price shall be adjusted using the following formula and fractions of less than one yen resulting from the adjustment shall be rounded up.
Number of newly Amount to be × Number of issued issued shares paid per share + shares Per share market price before new Exercise Price Exercise Price after = × issuance adjustment before adjustment Number of issued Number of newly issued + shares shares In the above formula, “Number of issued shares” shall mean the number to be obtained by deducting the number of treasury shares relative to the Company’s common stock from the total number of issued shares relative to the Company’s common stock. In case that the Company disposes of its treasury shares relative to the Company’s common stock, “Number of newly issued shares” shall be read, in turn, as “Number of treasury shares to be disposed of.” Furthermore, in case that the Company merges with another company or conducts a company split or if the Exercise Price needs to be adjusted owing to unavoidable circumstances according to the aforementioned cases after the allotment date of the subscription rights to shares, the Company shall be allowed to appropriately conduct an adjustment of the Exercise Price to a reasonable extent. 3. Conditions for exercising subscription rights to shares (1) At the time of exercising the subscription rights to shares, each holder shall have the position of director or employee of the Company or any of its affiliates (defined in Article 8 of the “Ordinance on Terminology, Forms, and Preparation Methods for Financial Statements, etc.”). Provided, however, that this clause shall not apply to cases where the Board of Directors finds a justifiable reason for leaving the Company before exercising the subscription rights to shares, such as retirement from office due to expiry of tenure and mandatory age-limit retirement. (2) The subscription rights to shares may not be exercised by an heir to a holder thereof. (3) If the total number of issued shares would exceed the number of then-authorized shares by the exercise of subscription rights to shares at the time of exercise thereof, said subscription rights to shares cannot be exercised at that time. (4) The partial exercise of a single subscription right to shares is not allowed. 4. At mergers (limited to cases where the Company comes to be extinct as a result of the merger), absorption-type company splits, incorporation-type company splits, share exchanges or share transfers of the Company (hereinafter collectively the “Corporate Reorganization”), the subscription rights to shares of each business corporation specified in Article 236, Paragraph 1, Item 8, Nos. (1) to (5), of the Companies Act (hereinafter the “Reorganized Corporations”) will be granted, respectively, to the holders of the subscription rights to shares on the effective date of the Corporate Reorganization in accordance with the following conditions. Provided, however, that this shall be limited to the cases in which absorption- type merger agreements, incorporation-type merger agreements, absorption-type company split agreements, incorporation- type company split plans, share exchange contracts or share transfer plans stipulate that the subscription rights to shares of Reorganized Corporations will be issued under the following terms and conditions: (1) Number of the subscription rights to shares of Reorganized Corporations to be granted: The same number as the subscription rights to shares held by each holder shall be granted. (2) Type of shares of Reorganized Corporations subject to the subscription rights to shares: Common stock of the Reorganized Corporations shall be issued.
24
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(3) Number of shares of Reorganized Corporations subject to the subscription rights to shares: This shall be determined in the same manner as said item 1 by taking into consideration the terms and conditions of the Corporate Reorganization. (4) Value of assets to be contributed upon the exercise of the subscription rights to shares: The value of assets to be contributed upon the exercise of the subscription rights to shares shall be the amount obtained by multiplying the amount to be paid in after the Corporate Reorganization through adjustment of the Exercise Price as prescribed in said item 2 by the number of shares of Reorganized Corporations subject to the subscription rights to shares in accordance with said item 4. (3), considering the terms and conditions of the Corporate Reorganization. (5) Period during which the subscription rights to shares can be exercised: The period shall be from the later date of either the first day of the exercise period of the subscription rights to shares or the effective date of the Corporate Reorganization to the last day of the exercise period of the subscription rights to shares. (6) Matters pertaining to capital stock and legal capital surplus that would increase upon stock issuance by the exercise of the subscription rights to shares: The matters pertaining to capital stock and legal capital surplus that would increase upon stock issuance by the exercise of the subscription rights to shares shall be determined in the same manner as those for the subscription rights to shares. (7) Restrictions on the acquisition of subscription rights to shares through transfer: Restrictions on the acquisition of subscription rights to shares through transfer shall require the approval of the Board of Directors of the Reorganized Corporation.
Date of resolution The Board of Directors on September 21, 2017 Category and number of eligible persons to whom 7 directors, 4 executive officers and 1 employee of the subscription rights to shares are granted Company Number of subscription rights to shares (Units)* 3,800 (Note 1) Type, details and number of stock subject to subscription Common stock: 380,000 (Note 2) rights to shares* Amount to be paid upon the exercise of subscription rights to 4,463 (Note 3) shares (Yen)* Exercise period of subscription rights to shares* From April 1, 2020 to October 5, 2024 Issue price of stock due to exercise of subscription rights to Issue price: 4,543 shares and amount to be incorporated into capital stock (Yen)* Amount to be incorporated into capital stock: 2,272 Conditions for the exercise of subscription rights to shares* (Note 4) The approval of the Board of Directors is required when Matters pertaining to transfer of subscription rights to shares* acquiring subscription rights to shares through transfer. Matters pertaining to issuance of subscription rights to (Note 5) shares resulting from Corporate Reorganization* * The information in this table is as of December 31, 2020. No information as of February 28, 2021, which is the end of the month prior to the month when this report was submitted, is shown because there were no changes since December 31, 2020. Notes: 1. The subscription rights to shares were issued at 8,000 yen per unit. 2. Number of shares subject to subscription rights to shares The number of shares subject to the subscription rights to shares per unit (hereinafter the “Number of Shares Granted”) shall be 100 shares. In addition, the Number of Shares Granted will be adjusted using the following formula if, after the allotment date of the subscription rights to shares, the Company conducts a stock split (including gratis allocations of the Company’s common stock, same hereafter) or a stock consolidation. However, this adjustment will be performed only for shares subject to the subscription rights to shares that have not been exercised at the time of the split or consolidation. Furthermore, any fraction of less than one share resulting from the adjustment is discarded. Number of Shares Granted after adjustment = Number of Shares Granted before adjustment × Ratio of stock split or stock consolidation In addition, if there is a need to adjust the Number of Shares Granted due to a merger, divestiture, reduction of the amount of its capital stock, or similar event after the allotment date of the subscription rights to shares, the Company may adjust the Number of Shares Granted to a reasonable extent. 3. Amount to be paid upon the exercise of subscription rights to shares The value of assets to be contributed upon the exercise of the subscription rights to shares is calculated by multiplying the amount to be paid per share (hereinafter the “Exercise Price”), which is determined as follows, by the Number of 25
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Shares Granted. The Exercise Price shall be 4,463 yen, which is equivalent to 150% of the closing price of the Company’s stock for the regular trading session on the JASDAQ Standard market of the Tokyo Stock Exchange on September 20, 2017, which is the trading day immediately preceding the date of resolution of the Board of Directors concerning the issuance of the subscription rights to shares. In case that the Company conducts a stock split or a stock consolidation for the Company’s stock after the allotment date of the subscription rights to shares, the Exercise Price shall be adjusted using the following formula and fractions less than one yen resulting from the adjustment shall be rounded up.
Exercise Price after adjustment = Exercise Price before adjustment × 1 Ratio of stock split/stock consolidation
In case that the Company issues new shares of common stock or disposes of its treasury shares at prices less than the market price after the allotment date of the subscription rights to shares (excluding the cases of the issuance of new shares and disposition of treasury shares pursuant to an exercise of the subscription rights to shares, as well as the transfer of treasury shares through a share exchange), the Exercise Price shall be adjusted using the following formula and fractions of less than one yen resulting from the adjustment shall be rounded up.
Amount to be Number of newly × Number of issued issued shares paid per share + shares Per share market price before new Exercise Price Exercise Price after = × issuance adjustment before adjustment Number of issued + Number of newly issued shares shares
In the above formula, “Number of issued shares” shall mean the number to be obtained by deducting the number of treasury shares relative to the Company’s common stock from the total number of issued shares relative to the Company’s common stock. In case that the Company disposes of its treasury shares relative to the Company’s common stock, “Number of newly issued shares” shall be read, in turn, as “Number of treasury shares to be disposed of.” Furthermore, in case that the Company merges with another company or conducts a company split or if the Exercise Price needs to be adjusted owing to unavoidable circumstances according to the aforementioned cases after the allotment date of the subscription rights to shares, the Company shall be allowed to appropriately conduct an adjustment of the Exercise Price to a reasonable extent. 4. Conditions for exercising subscription rights to shares (1) Person who received allocations of the subscription rights to shares (hereinafter the “Holder of the subscription rights to shares”) shall be able to exercise all or part of the subscription rights to shares only in the event that either of the two following conditions is met. In the event that there is a significant change in the concept of ordinary profit, etc. to be referred to due to the adoption of the International Financial Reporting Standards or other reasons, any other indicator to be referred to shall be determined by the Board of Directors. (i) In the event that ordinary profit for the fiscal years ended December 31, 2018 and December 31, 2019 (ordinary profit on the Company’s audited consolidated or non-consolidated statements of income, same hereafter) meets all the conditions set forth below. (a) Ordinary profit for the fiscal year ended December 31, 2018 has exceeded 30.0 billion yen. (b) Ordinary profit for the fiscal year ended December 31, 2019 has exceeded 32.0 billion yen. (ii) In the event that the cumulative amount of ordinary profit for the fiscal years ended December 31, 2018 and December 31, 2019 has exceeded 80.0 billion yen. (2) In addition to said item 4. (1), the Holder of the subscription rights to shares may exercise the subscription rights to shares only after the time when the closing price of the Company’s common stock for the regular trading session on the financial instrument exchange has become equal to or more than 130% of the Exercise Price of the subscription rights to shares (provided, however that the Exercise Price shall be adjusted appropriately by the Board of Directors in accordance with said item 3) even once during the period from the date of allotment of the subscription rights to shares to the end of the Exercise Period of the subscription rights to shares. (3) At the time of exercising the subscription rights to shares, each Holder of the subscription rights to shares shall have the position of director, Audit & Supervisory Board member, or employee of the Company or any of its affiliates (defined in Article 8 of the “Ordinance on Terminology, Forms, and Preparation Methods of Financial Statements, etc.”). However, this shall not apply in the case of retirement upon the expiration of the term of office, mandatory retirement, or other reasons deemed justifiable by the Board of Directors. 26
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(4) The subscription rights to shares may not be exercised by an heir to the Holder of the subscription rights to shares. (5) If the total number of issued shares would exceed the number of then-authorized shares by the exercise of subscription rights to shares at the time of exercise thereof, or in other cases that would violate laws and regulations, said subscription rights to shares cannot be exercised at that time. (6) The partial exercise of a single subscription right to shares is not allowed. 5. Matters pertaining to issuance of subscription rights to shares resulting from Corporate Reorganization At mergers (limited to cases where the Company comes to be extinct as a result of the merger), absorption-type company splits, incorporation-type company splits, share exchanges or share transfers of the Company’s stock (hereinafter collectively the “Corporate Reorganization”), the subscription rights to shares of each business corporation specified in Article 236, Paragraph 1, Item 8, Nos. (1) to (5), of the Companies Act (hereinafter the “Reorganized Corporations”) will be granted, respectively, to the holders of the subscription rights to shares on the effective date of the Corporate Reorganization in accordance with the following conditions. Provided, however, that this shall be limited to the cases in which absorption-type merger agreements, incorporation-type merger agreements, absorption-type company split agreements, incorporation-type company split plans, share exchange contracts or share transfer plans stipulate that the subscription rights to shares of Reorganized Corporations will be issued under the following terms and conditions. (1) Number of the subscription rights to shares of Reorganized Corporations to be granted: The same number as the subscription rights to shares held by each holder shall be granted. (2) Type of shares of Reorganized Corporations subject to the subscription rights to shares: Common stock of the Reorganized Corporations shall be issued. (3) Number of shares of Reorganized Corporations subject to the subscription rights to shares: This shall be determined in the same manner as said item 2 by taking into consideration the terms and conditions of the Corporate Reorganization. (4) Value of assets to be contributed upon the exercise of the subscription rights to shares: The value of assets to be contributed upon the exercise of the subscription rights to shares shall be the amount obtained by multiplying the amount to be paid in after the Corporate Reorganization through adjustment of the Exercise Price as prescribed in said item 3 by the number of shares of Reorganized Corporations subject to the subscription rights to shares in accordance with said item 5. (3), considering the terms and conditions of the Corporate Reorganization. (5) Period during which the subscription rights to shares can be exercised: The period shall be from the later date of either the first day of the exercise period of the subscription rights to shares or the effective date of the Corporate Reorganization to the last day of the exercise period of the subscription rights to shares. (6) Matters pertaining to capital stock and legal capital surplus that would increase upon stock issuance by the exercise of the subscription rights to shares: The matters pertaining to capital stock and legal capital surplus that would increase upon stock issuance by the exercise of the subscription rights to shares shall be determined in the same manner as those for the subscription rights to shares. (7) Restrictions on the acquisition of subscription rights to shares through transfer: Restrictions on the acquisition of subscription rights to shares through transfer shall require the approval of the Board of Directors of the Reorganized Corporation. (8) Other conditions for exercising subscription rights to shares: Shall be determined in the same manner as those for the subscription rights to shares. (9) Reasons and conditions to acquire subscription rights to shares: Shall be determined in the same manner as those for the subscription rights to shares. (10) Other conditions shall be determined in the same manner as those for the Reorganized Corporation.
ii. Rights Plan There is no applicable information.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020 iii. Other Subscription Rights to Shares, etc. There is no applicable information.
(3) Exercise Status, etc., of Bonds with Subscription Rights to Shares with a Clause to Revise the Exercise Price There is no applicable information.
(4) Transition of Total Number of Issued Shares and Amount of Capital Stock Change in Balance of Change in Balance of Total Number Total Number Change in Balance of Legal Capital Legal Capital Capital Stock Capital Stock Date of Issued of Issued Surplus Surplus Shares (Shares) Shares (Shares) (Million yen) (Million yen) (Million yen) (Million yen) July 23, 2011 (Note) - 80,195,000 (3,348) 98 - 7,503 Note: Pursuant to the resolution adopted by the Ordinary Shareholders’ Meeting held on June 21, 2011, the Company’s capital stock was reduced by 3,348 million yen to 98 million yen through a capital reduction without compensation (ratio of capital reduction: 97.1%) as of July 23, 2011. Said 3,348 million yen was transferred to other capital surplus.
28 Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(5) Shareholders by Category As of December 31, 2020 Details of Shareholders (one unit share represents 100 shares) Number of Government Foreign Entities, etc. Shares Less Financial Category Agencies Financial Other Individuals Than One Instruments Total and Public Institutions Entities Other Than and Others Unit Share Traders Individuals Institutions Individuals (Shares) Number of shareholders - 12 14 139 171 41 11,405 11,782 - (Persons) Number of shares held - 10,331 11,786 1,853 659,023 3,267 115,602 801,862 8,800 (Units)
Shareholding percentage (%) - 1.29 1.47 0.23 82.19 0.41 14.41 100.00 -
Notes: 1. Treasury shares of 2,710,772 shares are included in “Individuals and Others” and “Number of Shares Less Than One Unit Share” in terms of 27,107 units and 72 shares, respectively. 2. Four units of shares under the name of Japan Securities Depository Center, Inc., are included in “Other Entities.”
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(6) Major Shareholders As of December 31, 2020
Number of Shares Ratio of Shares Held Name Address Held (Excluding treasury (Thousand shares) shares) (%) 1401 Hutchison House, 10 Harcourt Road, Okada Holdings Limited Hong Kong 54,452 70.27 (Standing Proxy: Atsunobu Ishida) (Chiyoda-ku, Tokyo) Hiroko Yokotsuka Shinagawa-ku, Tokyo 2,105 2.71 STATE STREET BANK AND 100 KING STREET WEST, SUITE 3500, PO TRUST CLIENT OMNIBUS BOX 23 TORONTO, ONTARIO M5X 1A9 ACCOUNT OM02 505002 1,480 1.91 (Standing Proxy: Mizuho Bank, Ltd., CANADA Settlement Division) (15-1, Konan 2-chome, Minato-ku, Tokyo) GOLDMAN SACHS PLUMTREE COURT, 25 SHOE LANE, INTERNATIONAL LONDON EC4A 4AU, U.K. 1,419 1.83 (Standing Proxy: Goldman Sachs (10-1, Roppongi 6-chome, Minato-ku, Tokyo) Japan Co., Ltd.) GOLDMAN, SACHS & CO.REG 200 WEST STREET NEW YORK, NY, USA (Standing Proxy: Goldman Sachs 1,335 1.72 Japan Co., Ltd.) (10-1, Roppongi 6-chome, Minato-ku, Tokyo) JPLLC CLIENT SAFEKEEPING FOUR CHASE METROTECH CENTER ACCOUNT BROOKLYN, NY 11245 1,288 1.66 (Standing Proxy: Citibank, N.A., (27-30, Shinjuku 6-chome, Shinjuku-ku, Tokyo) Tokyo Branch) BBH (LUX) FOR FIDELITY 2A RUE ALBERT BORSCHETTE FUNDS PACIFIC FUND LUXEMBOURG L-1246 679 0.87 (Standing Proxy: MUFG Bank, Ltd.) 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo) 6-21, Minamiaoyama 2-chome, Minato-ku, Rakuten Securities, Inc. 667 0.86 Tokyo
Jun Fujimoto Meguro-ku, Tokyo 658 0.84
J.P. MORGAN SECURITIES PLC FOR AND ON BEHALF OF ITS 25 BANK STREET, CANARY WHARF CLIENTS JPMSP RE CLIENT LONDON E14 5JP UK ASSETS-SETT ACCT 530 0.68 (27-30, Shinjuku 6-chome, Shinjuku-ku, Tokyo) (Standing Proxy: Citibank, N.A., Tokyo Branch)
Total - 64,618 83.39 Note: The Company holds 2,710,772 treasury shares, which is excluded from the above table of major shareholders.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(7) Voting Rights i. Issued Shares As of December 31, 2020 Number of Voting Rights Classification of Shares Number of Shares (Shares) Remarks (Units) Shares without voting rights - - - Shares with limited voting rights (treasury - - - shares, etc.) Shares with limited voting rights (others) - - - Shares with full voting rights (treasury shares, Common stock 2,710,700 - - etc.) Shares with full voting rights (others) Common stock 77,475,500 774,755 - Shares less than one unit share Common stock 8,800 - - Total number of issued shares 80,195,000 - - Voting rights of total shareholders - 774,755 - Note: The common stock indicated in “Shares with full voting rights (others)” includes 400 shares of unknown holders’ stock registered under the name of Japan Securities Depository Center, Inc. The “Number of Voting Rights” includes four units of voting rights related to such shares with full voting rights under the name of Japan Securities Depository Center, Inc.
ii. Treasury Shares, etc. As of December 31, 2020 Number of Number of Total Number of Holding Ratio to Owner’s Treasury Shares Treasury Shares Owner’s Address Shares Owned Total Number of Name or Title in Own Name in the Names of (Shares) Issued Shares (%) (Shares) Others (Shares) Universal Ariake Frontier Building Entertainment Tower A, 7-26, Ariake 3- 2,710,700 - 2,710,700 3.38 Corporation chome, Koto-ku, Tokyo
Total - 2,710,700 - 2,710,700 3.38
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2. Acquisition of Treasury Shares, etc.
[Class of Stock, etc.] Acquisition of common stock that falls under the provisions of Item 3, Article 155 and Item 7, Article 155 of the Companies Act (1) Status of Acquisitions of Treasury Shares Based on Resolutions at Shareholders’ Meetings There is no applicable information. (2) Status of Acquisitions of Treasury Shares Based on Resolutions at the Board of Directors Meetings Acquisition by a resolution at the Board of Directors meeting based on the provision of Article 156 of the Companies Act, which is applied by replacing the relevant terms and phrases pursuant to the provision of Article 165, Paragraph 3 of the Act Number of Classification of Shares Total Value (Yen) Shares (Shares) Status of resolution at the Board of Directors meeting held on September 2, 2019 1,200,000 4,000,000,000 (Acquisition period: From September 3, 2019 to June 30, 2020) Treasury shares acquired before the current fiscal year - - Treasury shares acquired during the current fiscal year 686,600 1,752,558,700 Total number of remaining shares subject to the resolution and total value thereof 513,400 2,247,441,300 Unexercised ratio as of the end of the current fiscal year (%) 42.78 56.19
Acquired treasury shares during the period for acquisition - - Unexercised ratio as of the submission date (%) 42.78 56.19 Note: At the Board of Directors held on February 14, 2020, the Company made a resolution to raise the number of shares to be acquired from 1,000,000 to 1,200,000 and the total cost of these acquisitions from 3 billion yen to 4 billion yen and extend the acquisition period to June 30, 2020.
(3) Details of Acquisitions of Treasury Shares Not Based on Resolutions at Shareholders’ Meetings or the Board of There is no applicable information.
(4) Status of Disposal and Holding of Treasury Shares Current Fiscal Year Period for Acquisition Total Amount of Total Amount of Classification Number of Shares Number of Shares Disposition Disposition (Shares) (Shares) (Yen) (Yen) Treasury shares offered for acquisition - - - - Treasury shares canceled for disposition - - - - Transferred treasury shares in connection with merger, share exchange, share issuance or - - - - corporate split Others (Exercise of stock options) 5,000 9,065,000 - - Number of treasury shares held 2,710,772 - 2,710,772 - Notes: 1. Total amount of disposition in the current fiscal year due to the exercise of stock options is the total of payments made in association with the exercise of stock options. 2. The treasury shares disposed of during the period for acquisition do not include shares resulting from additional purchases of less than one unit shares or shares by the exercise of subscription rights to shares from March 1, 2021 to the submission date of this Securities Registration Report. 3. The number of treasury shares held during the period for acquisition does not include shares resulting from purchases and additional purchases of less than one unit shares, the exercise of subscription rights to shares or purchases based on a resolution by the Board of Directors from March 1, 2021 to the submission date of this Securities Registration Report.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
3. Dividend Policy The Group views the return of profits to its shareholders as one of its foremost management priorities. To this end, the Group is endeavoring to establish a highly profitable corporate structure and to improve the ratio of profit to shareholder’s equity continuously. The basic policy is to maintain a stable level of dividends that reflects business performance as well as to maintain internal reserves at appropriate levels to ensure a sound financial base and to strengthen the management foundation of the Group in order to invest necessary funds efficiently in promising businesses. Regrettably, the decision was made to not pay a year-end dividend applicable to 2020. This decision reflects results of operations, which were impacted by the COVID-19 pandemic, the outlook for the financial condition and other considerations. There is currently an urgent need to achieve a recovery in earnings and financial stability. Pursuant to Article 454, Paragraph 5 of the Companies Act, the Company’s Articles of Incorporation state that the Board of Directors can approve an interim dividend. Dividends for the fiscal year ending December 31, 2021 will be determined after carefully considering future performance and capital demand.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
4. Corporate Governance, etc. (1) Overview of Corporate Governance i. Basic Philosophy Regarding Corporate Governance Improving corporate governance is one of the Company’s highest priorities. There are many activities for making management more efficient, speeding up decision making and further strengthening the management oversight function based on lessons learned in prior years. In addition, in accordance with the Basic Policy for the Establishment of an Internal Control System, there will be activities to establish and maintain the corporate governance structure needed for more growth of corporate value and ensuring the soundness and transparency of management. ii. Outline of Corporate Governance Structure and Reason for the Adoption of the Structure 1. Outline of Corporate Governance Structure Because the Company recognizes that the transparency of its entire business management and the reinforcement of its monitoring system on management operations are critical to continuously enhance the corporate value, it strives for improvements of corporate governance functions. The Board of Directors of Universal Entertainment is composed of six Directors (including two Outside Directors) and three Audit & Supervisory Board Members (including two Outside Audit & Supervisory Board Members) with Mr. Jun Fujimoto, Representative Director and President, serving as the Chairman and holds regular monthly meetings and extraordinary meetings as necessary to report and determine important matters concerning the management of the Group. The Audit & Supervisory Board is composed of three Audit & Supervisory Board members (including two Outside Audit & Supervisory Board members) with Ms. Chihiro Shibahara, a full-time Audit & Supervisory Board Member, serving as the Chairman. Audit & Supervisory Board Members conduct appropriate and lawful audits in cooperation with the Accounting Auditors and the Internal Audit Office. In addition, the Company has established Gaming Compliance Rules in order to maintain a rigorous framework for compliance. The corporate governance structure of the Company is as follows.
Shareholders’ Meeting
Appointment/ Appointment/ Appointment/ discharge discharge discharge
Board of Directors Audit Audit & Supervisory Board Cooperation (Six Directors (Three Audit & Supervisory Board Accounting Auditors Members including two Outside including two Outside Audit & Supervisory Board (Audit Firm) Directors) Members)
Audit Audit
Direction Report Direction Report Each division, office, department or subsidiary Internal Audit Office
2. Reason for the Adoption of the Above Corporate Governance Structure The Company is a company with an Audit & Supervisory Board. The main reason for the adoption of this system is to respond to changes in Company’s business environment and businesses and to enable prompt decision making by Directors in order to respond to a rapidly changing market. Through prompt decision making by the Board of Directors, which is mainly composed of full-time Directors, and flexible business operations, the Company has established a framework to correspond to market changes immediately. In addition, the Outside Directors oversee the performance of Directors and the Audit & Supervisory Board, which consists of Outside Audit & Supervisory Board Members (who are a majority) and a full-time Audit & Supervisory Board Member, maintains a framework for fair audits.
iii. Other Matters relating to Corporate Governance 1. Status of Maintenance of the Internal Control System The Company has stipulated a basic policy for the establishment of an internal control system and maintains and operates the system based on that policy.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(1) Framework to Ensure that the Execution of the Duties of Directors and Employees Complies with Laws and the Articles of Incorporation a. The Company shall establish the Business Ethics Guidelines that serve as a standard of conduct for executives and employees of the Company and its group companies in order to have them comply with laws and the Articles of Incorporation. b. The Company shall establish the Gaming Compliance Rules to maintain the strict compliance system and conduct management complying with said rules. c. If a Director finds any material violation of laws or ordinances of the Company or any other material facts concerning compliance, the Director shall immediately report it to the Audit & Supervisory Board, as well as to the Board of Directors, without delay. d. Audit & Supervisory Board Members shall audit whether the appropriateness in operations conducted by the Directors, etc., is ensured from an independent viewpoint. e. The Company shall establish an Internal Audit Office that is completely independent from its operating sectors.
(2) Framework Concerning Storage and Control of Information Related to the Execution of Duties by Directors Handling of storage control and information security control for information related to the execution of duties by directors shall be stipulated in the Document Control Rules and the Information Control Rules.
(3) Regulations Concerning Risk Management of Loss and Other Frameworks a. The Company shall establish organizations responsible for administration, which will recognize, comprehend and control various risks associated with its business operations and deal with each risk. b. The Company shall develop Risk Management Rules as a basis for its risk management framework and establish a management framework to deal with respective risks continuously with an emphasis on risk prevention in order to minimize losses resulted therefrom.
(4) Framework to Ensure the Effective Execution of Duties by Directors a. The Board of Directors shall promote the prompt and effective treatment of business operations based on the decision making of the Board of Directors by clarifying the responsibility structure and operational processes in business execution through the establishment of the Rules of the Board of Directors, the Executive Officers Rules, the Rules on Administrative Authorities, the Rules on Division of Responsibilities, the Rules of the Internal Approval System, etc. b. As a framework to ensure that Directors perform their duties efficiently, the Board of Directors holds regular monthly meetings and the Division Communication Conference, which consist of full-time Directors, executive officers and managers of selected departments and meets twice every month. The objective of this framework is to ensure that the Board of Directors can perform its duties efficiently.
(5) Framework for Ensuring Proper Business Operations of the Group, Consisting of the Company and its Subsidiaries a. The Company and its group companies shall accept audits by Audit & Supervisory Board Members and the Internal Audit Division of the Company to establish internal control. Each group company will formulate a profit plan, periodically review its progress status and reflect the review results in the improvement of corporate management. b. The Company and its group companies shall make active personnel exchanges to exchange information among themselves and to establish a cooperative framework.
(6) Matters Related to the Framework for Employees to Support Audit & Supervisory Board Members’ Duties and the Independence of Such Employees from Directors a. The Company shall establish the Audit & Supervisory Board Office in order to support the duties of the Audit & Supervisory Board Members and assign employees to work in the office (“Supportive Employees”). b. Personnel changes and treatment of the Supportive Employees shall be implemented with the Audit & Supervisory Board’s approval.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(7) Framework for Reporting from Directors or Employees to Audit & Supervisory Board Members and for Other Reporting to Audit & Supervisory Board Members a. Audit & Supervisory Board Members shall attend and receive reports at Board of Directors meetings and at meetings for other important deliberations and resolutions including Division Communication Conference. b. When an employee finds a breach of any law or the Articles of Incorporation, extremely inappropriate business operation or any matters equivalent thereto, the employee shall immediately report it to the Audit & Supervisory Board Members. When the Audit & Supervisory Board Members request reports, the employee must follow such instruction.
(8) Framework to Ensure No Suffering of Individuals for any Detrimental Treatment as a Result of Their Reporting to Audit & Supervisory Board Members No executives and employees of the Company and its group companies shall suffer any detrimental treatment as a result of their reporting to Audit & Supervisory Board Members for matters.
(9) Other Frameworks to Ensure the Effective Operation of Audits by the Audit & Supervisory Board Members a. Audit & Supervisory Board Members may utilize outside specialists as necessary at the Company’s expense (within the range of the amount allowed by law). b. Directors, managers-in-charge and other employees must cooperate with the Audit & Supervisory Board Members on their audits.
(10) Framework for Elimination of Antisocial Forces a. The Group shall stipulate in its action policy to emphatically confront antisocial forces or groups that threaten the order and security of civil society from the perspectives of social responsibility and corporate protection. b. In case the Company receives any unfair requests, etc., from an antisocial force, the Company shall consult with its legal counsel in each case.
(11) Framework to Ensure the Credibility of Its Financial Reports The Company shall maintain and operate a framework of internal control for financial reporting in order to ensure the credibility of such financial reporting in accordance with the Financial Instruments and Exchange Act and related laws and regulations.
2. Establishment of a Risk Management System All types of contracts and other legal matters are reviewed by the Legal Affairs Office at the Company. The opinion of its legal counsel is sought in regard to particularly important contracts and documents, etc., and the Company strives to avoid unforeseeable risks to the extent possible. For newly arising risks, the Company promptly appoints a person in charge of handling such risks appropriately. Our basic policy for the establishment of an internal control system includes the following Regulations Concerning Risk Management of Loss and Other Rules. (1) The Company recognizes various risks accompanying its business activities and maintain an administrative structure to detect, manage and cope with each risk. (2) The Company uses the Risk Management Rules as the basis of the risk management system and establishes a management system that can respond to each risk continuously with an emphasis on risk prevention in order to minimize the associated losses.
3. Framework to Ensure Proper Business Operations at Subsidiaries The Company has a “(5) Framework for Ensuring Proper Business Operations of the Group, Consisting of the Company and its Subsidiaries” as explained in section “1. Status of Maintenance of the Internal Control System.”
4. Overview of Liability Limitation Agreements The Articles of Incorporation allow the Company to enter into liability limitation agreements with Directors (excluding executive directors, same hereafter) and Audit & Supervisory Board Members, pursuant to Article 427, Paragraph 1 of the Companies Act. These agreements are to limit the responsibilities stipulated in Article 423, Paragraph 1 of the Companies Act and are valid only when Directors and Audit & Supervisory Board Members perform their duties in good faith and without gross negligence. The Company has these agreements with all Outside Directors and all Audit & Supervisory Board Members. Liability is limited to the higher of one million yen or the amount specified by laws and regulations.
5. Number of Directors The Company’s Articles of Incorporation state that the number of Directors of the Company is 10 or less.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
6. Requirements for Resolutions for Election of Directors The Company’s Articles of Incorporation state that the resolution to elect Directors requires a majority or more of the votes of shareholders present at the Shareholders’ Meeting where the shareholders holding one third or more of the voting rights of shareholders entitled to exercise their votes at these meetings are present. The articles also state that no cumulative voting will be used for the resolution to elect Directors.
7. Shareholders’ Meeting Resolution Items that the Board of Directors can Approve (1) Acquisition of Treasury Shares Pursuant to Article 165, Paragraph 2 of the Companies Act, the Company’s Articles of Incorporation state that the Company may acquire its own shares in accordance with a resolution by its Board of Directors. The purpose of this provision is to allow the Company to take flexible actions to acquire its treasury shares.
(2) Interim Dividends Pursuant to Article 454, Paragraph 5 of the Companies Act, the Company’s Articles of Incorporation state that the Board of Directors can approve an interim dividend each year with a record date of June 30. This facilitates the rapid and flexible distribution of earnings to shareholders.
(3) Summary of Exemption from Liabilities Pursuant to the provision of Article 426, Paragraph 1 of the Companies Act, the Company stipulates in its Articles of Incorporation to exempt the liabilities of Directors and Audit & Supervisory Board Members (including persons who were previously Directors and Audit & Supervisory Board Members) provided in Article 423, Paragraph 1 of the Companies Act by a resolution of the Board of Directors within the scope legally allowed by applicable laws and regulations. The purpose of this provision is to establish an environment in which Directors and Audit & Supervisory Board Members are allowed to fully demonstrate their abilities and fulfill their expected roles for performing their duties.
8. Extraordinary Resolutions at Shareholders’ Meetings For resolutions stipulated in Article 309, Paragraph 2 of the Companies Act, the Company’s Articles of Incorporation state that approval requires at least two thirds of the voting rights at a Shareholders’ Meeting attended by shareholders who hold at least one third of all voting rights that can be exercised. The purpose of this provision is to run Shareholders’ Meetings smoothly, by relaxing the quorum requirement for extraordinary resolutions at the Shareholders’ Meetings.
9. Differences in the handling of class stock voting rights and reason Holders of preferred stock cannot exercise voting rights concerning any proposals at shareholders’ meetings. The Articles of Incorporation allow the issuance of preferred stock for the purpose of providing one option for procuring funds with greater speed and flexibility in order to increase financial soundness. Preferred stock does not have voting rights in consideration of the future effect on existing shareholders of the issuance for the reason explained above of preferred stock. As of the submission date of this report, Universal Entertainment had issued only common stock and has issued no preferred stock.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(2) Directors and Audit & Supervisory Board Members i. Directors 7 males, 2 females (Pct. of female officers: 22.2%) Number of the Date of Term of Company Official Title Name Brief Career History Birth Office Shares Held (Thousands) Oct. 1985 Established Seta Corp. as Representative Director and President Jun. 2001 Managing Director of the Company Jun. 2004 Director, Vice President and Senior General Manager of R&D Division of the Company Representative Jun. 2006 Representative Director, President and General Jun Mar. 29, Manager of R&D Division of the Company Director and Note 3 658 Fujimoto 1958 Jun. 2009 Representative Executive Officer of the Company President Jun. 2010 Representative Director and Vice Chairman of the Company Jun. 2011 Representative Director and President of the Company Jun. 2017 Representative Director and President, CEO and CIO of the Company (current) Apr. 1981 Joined The Sumitomo Bank, Limited Jan. 2007 Executive Officer and General Manager of Management Planning Office of the Company Jun. 2007 Director of the Company Jun. 2008 Representative Executive Officer and President of the Company Jun. 2010 Director and President of the Company Jun. 2011 Senior Advisor of the Company Jun. 2012 Director of the Company Hajime Aug. 3, Jan. 2014 Representative Director and President of Ariake Director Densan Center Co., Ltd. (Currently Pit Earth Note 3 137 Tokuda 1958 Co., Ltd.) Jun. 2014 Director of the Company Dec. 2014 Director of Ariake Densan Center Co., Ltd. (Currently Pit Earth Co., Ltd.) (current) May 2017 Director, Deputy General Manager of Administrative Division of the Company Jun. 2017 Director and COO of the Company May 2018 Director of Tiger Resort, Leisure and Entertainment, Inc. (current) Mar. 2020 Director of the Company (current) May 2000 Representative Director of Spring Coat Co., Ltd. (currently Okada Holdings GK) Sep. 11, Jun. 2015 Director of the Company (current) Director Takako Note 3 - Okada 1973 Jun. 2017 Director of Tiger Resort Asia Limited (current) May 2018 Director of Tiger Resort, Leisure and Entertainment, Inc. (current) Oct. 1990 Registered as a junior accountant Oct. 1990 Joined Aoyama Audit Corporation/ Pricewaterhouse (currently PricewaterhouseCoopers Aarata LLC) Mar. 1997 Registered as a certified public accountant Jun. 2004 Executive Officer and CFO of cyber communications inc. Aug. 2007 CFO, Executive Officer and General Manager of Administration Division of SGI Japan, Ltd. Mar. 2009 Director and CFO of Gaba Co., Ltd. Jul. 2010 Executive Officer and General Manager of Administrative Division of the Company Kenshi Aug. 18, Director Jun. 2011 Director and General Manager of Administrative Note 3 50 Asano 1963 Division of the Company Jul. 2015 Asano Certified Public Accountant Office Jun. 2017 Director and CFO of the Company (current) Jun. 2017 Director of Tiger Resort Asia Limited (current) Sep. 2017 Director of Brontia Limited (current) Oct. 2017 Audit & Supervisory Board Member of MIZUHO Co.,Ltd. Oct. 2017 Director of KO Dining Group Limited Jun. 2018 Director of Pananio Limited Sep. 2018 Director of Tiger Resort, Leisure and Entertainment, Inc. (current)
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Number of the Date of Term of Company Official Title Name Brief Career History Birth Office Shares Held (Thousands) Apr. 1973 Clerk of the Osaka District Court Jul. 1977 Clerk of the Hiroshima District Court Aug. 1980 Personnel Affairs Bureau, General Secretariat of the Supreme Court of Japan Aug. 1982 Clerk of the Tokyo District Court Apr. 1983 Head of Ishigaki and Taira Branches of the Naha District and Family Court Apr. 1984 Judge of the Tokyo District Court Jan. 1985 Civil Affairs Bureau of the Ministry of Justice of Japan Oct. 1986 Director of the Civil Affairs Bureau, Ministry of Justice of Japan Apr. 1992 Judge of the Tokyo High Court Apr. 1994 Presiding Judge of the Nagoya District Court Apr. 1998 Presiding Judge of the Tokyo District Court Dec. 1998 Yoshio Jul. 7, Deputy Director-General of the Financial Director Reconstruction Commission Note 3 - Otani 1945 Jan. 2001 Presiding Judge of the Tokyo District Court (Civil Division Number 8) Mar. 2005 Chief Judge of the Otsu District and Family Court Dec. 2006 Presiding Judge of the Tokyo High Court (Civil Division Number 7) Oct. 2010 Registered as an attorney Oct. 2010 Attorney at Momo-o, Matsuo & Namba (current) Apr. 2011 Professor of Law at Surugadai University Law School Sep. 2011 Chairman of the General Management Committee of The Nuclear Damage Claim Dispute Resolution Center Apr. 2012 Dean of Surugadai University Law School Jun. 2015 Outside Director of the Company (current) Jan. 2016 Advisor of The Nuclear Damage Claim Dispute Resolution Center (current) Apr. 1981 Joined The Nippon Credit Bank, Ltd. (currently Aozora Bank, Ltd.) Feb. 1990 Seconded to Nippon Credit Bank Investment Advisors Co., Ltd. Oct. 1991 Seconded to Nippon Credit Gartmore Ltd. (UK) Apr. 1995 Manager of Asset Management Division, Schroders Investment Management Japan Limited (currently Schroder Investment Management (Japan) Limited) Apr. 2000 Director of Schroder Investment Management (Japan) Limited Jun. 3, Director Masayoshi Jan. 2001 CIO in charge of Stock Investment of Prudential Note 3 - 1958 Miyanaga Asset Management Japan Co., Ltd. (currently PGIM Japan Co., Ltd.) Nov. 2003 Co-representative Partner of IRB, Inc. (currently FALCON Research & Consulting Ltd.) Nov. 2011 Representative Director of IRB, Inc. (currently FALCON Research & Consulting Ltd.) Apr. 2017 Professor of Graduate School of Innovation Studies, Tokyo University of Science (Currently Graduate School of Management) (current) Jun. 2017 Outside Director of the Company (current)
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Number of Date of Term of the Company Official Title Name Brief Career History Birth Office Shares Held (Thousands) Oct. 1998 Joined Recruit Plasis Co., Ltd. Mar. 2004 Joined ITC Network, Ltd. Feb. 2005 Joined Thinca co., Ltd. Oct. 2007 Joined CCC Casting Co., Ltd. (currently Culture Convenience Club Co., Ltd.) Oct. 2013 Joined ABeam Consulting Ltd. Full-time Audit & Chihiro May 8, Oct. 2016 Joined the Company, Section Chief of Internal Supervisory Board Note 4 - Shibahara 1974 Audit Office Member Mar. 2017 Deputy General Manager of Internal Audit Office of the Company Jul. 2017 General Manger of Internal Audit Office of the Company Mar. 2019 Audit & Supervisory Board Member of the Company (current) Nov. 1991 Registered as a junior accountant Nov. 1991 Joined Showa Ota & Co. (currently Ernst & Young ShinNihon LLC) Aug. 1995 Registered as a certified public accountant Nov. 2003 Registered as a certified tax accountant Apr. 2004 Established Suzuki Makoto CPA and Tax Accounting Firm as President (current) Jun. 2004 Outside Audit & Supervisory Board Member of ValueCommerce Co., Ltd. Audit & Supervisory Makoto Apr. 21, Apr. 2005 Representative Director of Max Accounting Co., Ltd. Note 4 - Board Member Suzuki 1966 (current) Sep. 2007 Member of the Tax Policy Steering Committee for the Japanese Institute of Certified Public Accountants (current) Jun. 2015 Outside Audit & Supervisory Board Member of the Company (current) Mar. 2017 Outside Director and Audit and Supervisory Committee Member of ValueCommerce Co., Ltd. (current) Jun. 2019 Outside Audit & Supervisory Board Member of Spancrete Corporation (current) Apr. 1993 Registered as an accountant assistant Apr. 1993 Joined Chuo Coopers & Lybrand Consulting (currently IBM Japan, Ltd.) Apr. 1997 Registered as a certified public accountant Feb. 2003 Joined Tokyo Hokuto & Co. (currently Gyosei & Co.) Audit & Supervisory Akiyoshi Jun. 23, Jul. 2013 Representative Director of Gyosei Management Note 4 - Board Member Kaneko 1969 Consulting Co., Ltd. (currently Gyosei Consulting Co., Ltd.) (current) Jul. 2015 Outside Audit & Supervisory Board Member of Institute of Accelerator Analysis, Ltd. (current) Feb. 2017 Outside Audit & Supervisory Board Member of the Company (current) Oct. 2018 Employee of Gyosei & Co. (current) Total 845 Notes: 1. Directors Yoshio Otani and Masayoshi Miyanaga are Outside Directors. 2. Audit & Supervisory Board Members Makoto Suzuki and Akiyoshi Kaneko are Outside Audit & Supervisory Board Members. 3. The term of office shall continue until the conclusion of the Ordinary Shareholders’ Meeting for the last fiscal year that ends within two years from the time of their election. 4. The term of office shall continue until the conclusion of the Ordinary Shareholders’ Meeting for the last fiscal year that ends within four years from the time of their election.
ii. Outside Directors and Outside Audit & Supervisory Board Members The Company has two Outside Directors and two Outside Audit & Supervisory Board Members. The Company has no significant personal, financial or business relationships with the two Outside Directors and the two Outside Audit & Supervisory Board Members. Outside Director Yoshio Otani has a wealth of experience and professional knowledge in the field of justice. Outside Director Masayoshi Miyanaga has a wealth of experience and extensive knowledge as a management consultant and manager. Outside Audit & Supervisory Board Member Makoto Suzuki has many years of experience as a certified public accountant and a tax accountant and has considerable knowledge concerning finance and accounting. Outside Audit & Supervisory Board Member Akiyoshi Kaneko has many years of experience as a certified public 40
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020 accountant and has considerable knowledge concerning finance and accounting. For the selection of Outside Directors and Outside Audit & Supervisory Board Members, the Company does not have standards or policies involving independence. The selection process takes into account the requirements of the Companies Act for independence as well as the need for professional knowledge and objectivity and the ability to perform duties as an Outside Director or Outside Audit & Supervisory Board Member properly from a fair perspective. The Company has registered Mr. Yoshio Otani and Mr. Masayoshi Miyanaga as Independent Directors, and Mr. Makoto Suzuki and Mr. Akiyoshi Kaneko as Independent Audit & Supervisory Board Members as provided for the rules of the Tokyo Stock Exchange.
iii. Oversight, Audits and Internal Audits by Outside Directors and Outside Audit & Supervisory Board Members, Audits by Audit & Supervisory Board Members, Mutual Cooperation with the Accounting Auditor, and Relationship with Internal Controls Departments Outside Audit & Supervisory Board Members intend to share information with Outside Directors and to reinforce corporate governance through close cooperation with the Internal Audit Office, the Accounting Auditors, etc.
(3) Accounting Audit i. Audits by Audit & Supervisory Board Members (Audit & Supervisory Board organization and composition) Audits by Audit & Supervisory Board Members are conducted by one Audit & Supervisory Board Member and two Outside Audit & Supervisory Board Members. Audit & Supervisory Board Member attend the Board of Directors meetings to audit the performance of Directors. Also, the full-time Audit & Supervisory Board Member attends important internal meetings to conduct audits with emphasis on whether there are any violations of laws and regulations or infringements of any shareholders’ interests. The Audit & Supervisory Board Members gather and share information with the Internal Audit Office and the Accounting Auditors through frequent communications. For the efficiency and effectiveness of auditing activities, there is an Audit & Supervisory Board Office that is overseen directly by this board and has staff members who are assigned solely to this office.
Ms. Chihiro Shibahara, a full-time Audit & Supervisory Board Member, who was the General Manager of the Company’s Internal Audit Office, has considerable experience and knowledge concerning audits as well as a thorough understanding of the Group. Outside Audit & Supervisory Board Member Makoto Suzuki has many years of experience as a certified public accountant and a tax accountant and has considerable knowledge concerning finance and accounting. Outside Audit & Supervisory Board Member Akiyoshi Kaneko has many years of experience as a certified public accountant and has considerable knowledge concerning finance and accounting.
(Attendance at the Audit & Supervisory Board Meetings) Attendance of Audit & Supervisory Board Members at the 15 Audit & Supervisory Board meetings held during 2020 was as follows.
Number of meetings attended/ Name Number of meetings held (Attendance rate) Full-time Audit & Supervisory Board Member Chihiro Shibahara 15/15 (100%)
Outside Audit & Supervisory Board Member Nobuyoshi Ichikura 15/15 (100%)
Outside Audit & Supervisory Board Member Makoto Suzuki 15/15 (100%)
Outside Audit & Supervisory Board Member Akiyoshi Kaneko 14/15 (93%) * Audit & Supervisory Board Member Nobuyoshi Ichikura resigned at the end of the 48th Ordinary Shareholders’ Meeting held on March 30, 2021.
At an Audit & Supervisory Board meeting, a policy and plan for audits are approved at the beginning of each fiscal year and discussions are held to determine important items for these audits. The activities of the full-time Audit & Supervisory Board Member include chairing board meetings and performing the duties of the specified Audit & Supervisory Board Member. In addition, this individual attends important internal meetings, receives verbal reports from directors, executive officers and other individuals who manage business operations, examines important documents, performs on-site investigations, and conducts other activities to gather information from many sources. The full-time Audit & Supervisory Board member then reports the results of these audits to the other Audit & Supervisory Board Members. The Outside Audit & Supervisory Board Members use this information to state their objective opinions and, as needed, perform audits with the full-time Audit & Supervisory Board Member and take other actions to ensure the effectiveness of audits.
ii. Internal Audit Internal audits are performed by one member of the Internal Audit Office, which is supervised directly by the 41
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Representative Director. Based on an internal audit plan established for each year, the audit covers all head office departments and all of the activities of subsidiaries. Results of the internal audits are reported in writing to the Board of Directors, etc., with recommendations for improvement given to the audited divisions. We try to raise the effectiveness of internal audits by making the audited divisions prepare and report their improvement plans immediately after the audit.
iii. Accounting Audit a. Name of audit firm UHY Tokyo & Co.
b. Successive terms Since 2009
c. Names of certified public accountants who executed the audit Akira Wakatsuki, CPA, Designated Partner and Managing Partner Tatsuya Kanome, CPA, Designated Partner and Managing Partner Yoshinori Kataoka, CPA, Designated Partner and Managing Partner
d. Assistant accountants A total of eight certified public accountants and 10 others assist the auditing of the Company.
e. Reason for selection of the accounting firm The Company’s policy for the selection of the accounting firm is to establish evaluation standards that comply with the Practical Guidelines for Corporate Auditors, etc. concerning the Formulation of Evaluation and Selection Standards for Accounting Auditors, which are announced by the Japan Audit & Supervisory Board Members Association. The Company then performs a broad range of evaluations of accounting auditors concerning quality management, professional skills and independence for accounting audits, and overall suitability. Then a decision is made that covers all applicable factors, including the compensation for auditing services. The Audit & Supervisory Board, if it determines that the accounting auditor has difficulty executing his/her duties or considers it necessary to do so, may determine the agenda for dismissal or non-reappointment of the accounting auditor to be submitted to a Shareholders’ meeting. The Audit & Supervisory Board may dismiss the accounting auditor if it determines that any act or circumstance of the accounting auditor falls under any items of Article 340, Paragraph 1 of the Companies Act. In this case, an Audit & Supervisory Board member appointed by the Audit & Supervisory Board shall report the fact that the Audit & Supervisory Board has dismissed the accounting auditor and reasons thereof at the first Shareholders’ meeting to be held after such dismissal.
f. Evaluation of the accounting auditor As part of their normal auditing activities, Audit & Supervisory Board Members and the Audit & Supervisory Board perform oversight and confirmations concerning the independence of the accounting auditor and the suitability of audits conducted by the accounting auditor. Audit & Supervisory Board Members also receive reports from the accounting auditor concerning the performance of its duties. Based on examinations using the evaluation standards for the accounting firm in the preceding section e., Audit & Supervisory Board Members determined that the current accounting firm has been serving appropriately as the accounting auditor.
iv. Compensation for Audit a. Compensation for certified public accountants, etc., conducting audits (Million yen) Previous Consolidated Fiscal Year Current Consolidated Fiscal Year
Compensation Based Compensation Based Classification of Payers on Audit Compensation Based on Audit Compensation Based Certification Work on Non-Audit Work Certification Work on Non-Audit Work The Company 92 - 92 - Consolidated subsidiaries - - - - Total 92 - 92 -
b. Compensation for organizations belonging to the same network as the auditing certified public accountants, etc. (excluding a.) Description of this item is omitted due to immateriality.
c. Compensation for other significant audit certification works There is no applicable information.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
d. Policy to determine audit compensation The Company has not particularly stipulated a policy concerning the determination of compensation for the auditing certified public accountants and other staff conducting audits. However, we review the appropriateness of compensation every fiscal year in consideration of the scale of the Company, the number of days spent for audits, and other items.
e. Reason for Audit & Supervisory Board Agreement with Accounting Auditor Compensation After performing the necessary examinations to confirm the suitability of the audit plan, financial auditing activities, basis for the calculation of the compensation estimate, and other items concerning the accounting auditor, the Audit & Supervisory Board Members decided to agree with the compensation for the accounting auditor.
f. Non-audit work for the Company by certified public accountants, etc., conducting audits (Previous Consolidated Fiscal Year) There is no applicable information.
(Current Consolidated Fiscal Year) There is no applicable information.
(4) Remuneration, etc. Paid to Directors and Audit & Supervisory Board Members i. Matters on policies for determining the amount or calculation method of compensation, etc., of executives Remuneration for Directors is solely a fixed monthly cash payment that is within the limit approved by shareholders. The monthly payments consist of a basic payment and a performance-linked payment that is determined in accordance with results of operations in the previous fiscal year and other items. The basic payment is an amount obtained by multiplying the previous year’s basic payment by a coefficient determined by reflecting the individual’s roles, responsibilities and other items or is an amount determined separately by the Board of Directors. The performance-linked payment is determined by multiplying consolidated ordinary profit in the previous fiscal year by a coefficient that reflects each individual’s roles, responsibilities and other items. The ratio of the basic payment and performance-linked payment for the remuneration of each director is determined by the Board of Directors based on the individual’s roles, responsibilities and other items. The Board of Directors determines the coefficients for calculating the basic payment and performance-linked payment. (For the basic payment, the coefficient includes the amount when the payment is determined separately.) Then the Representative Director and President is entrusted with performing the calculations to determine remuneration. The Representative Director and President has the authority to determine remuneration for individual Directors, within the limit established by shareholders, by using the coefficients established by the Board of Directors and other factors in accordance with the basic policy established by the Board of Directors. Remuneration for Audit & Supervisory Board Members is determined by discussions held by these members and within the limit approved by shareholders. The limits on remuneration that were approved by shareholders are as follows. 1. The amount of remuneration to be paid to Directors No more than 2,000 million yen per year (including 200 million yen per year for Outside Directors) (approved at Ordinary Shareholders’ Meeting held on June 29, 2017) (The total number of Directors at the time of the resolution was seven) 2. The amount of remuneration to be paid to Audit & Supervisory Board Members No more than 100 million yen per year (approved at Extraordinary Shareholders’ Meeting held on March 26, 1998) (The total number of Audit & Supervisory Board Member at the time of the resolution was one) The Company has not provided for a scheme of retirement benefits for executives.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
ii. Total amount of compensation by executive category, total amount by compensation category and number of eligible executives Total Amount of Total Amount of Compensation, etc., by Category Number of Eligible Compensation, (Million yen) Executive Category Executives etc. Fixed Stock Bonuses Other (Persons) (Million yen) Compensation Options Directors 903 903 - - - 4 (excluding Outside Directors) Audit & Supervisory Board Members 22 22 - - - 1 (excluding Outside Audit & Supervisory Board Members) Outside executives 76 76 - - - 6 Total 1,002 1,002 - - - 11
iii. Total amount of consolidated compensation, etc., for those whose consolidated compensation, etc. exceeds 100 million yen in total Total Amount of Consolidated Compensation, etc., by Total Amount of Category (Million yen) Consolidated Executive Company Name Compensation, Category Category Fixed Stock Retirement Bonuses Other etc. (Million Compensation Options Benefit yen) Jun Representative The Company 654 - - - - 654 Fujimoto Director Director The Company 127 - - - - Hajime Tiger Resort, 153 Tokuda Leisure and Director Entertainment, 19 - - - 6 Inc. Director The Company 45 - - - -
Tiger Resort Asia Takako Director - - - - 32 Limited 104 Okada Tiger Resort, Leisure and Director Entertainment, 19 - - - 6 Inc. Note: “Other” is an amount equivalent to the rent for company housing provided at no cost to directors.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(5) Shareholding Status i. Standards and stance for categorization of investment stocks The Company categorizes investment stocks as stocks held for pure investment purposes and stocks held for other purposes. Investment stocks held for the purpose of earning income from changes in value or dividends are pure investments and other investment stocks are investments for other purposes. The Company currently owns no stocks held for pure investment purposes.
ii. Investment stocks of which the purpose of holding is other than pure investment purposes a. Method for verifying ownership policies and justification for ownership and examinations of ownership of individual stocks by the Board of Directors, etc. The Company has strategic holdings of stocks for the purposes of contributing to sustained growth and the medium to long-term growth of corporate value due to the maintenance and growth of business relationships and the use of business alliances. The Board of Directors examines the suitability of the purpose of ownership, assesses the benefits and risk based on certain standards, and determines whether or not to continue ownership.
b. Number of stocks and balance sheet amounts Balance Sheet Amount Number of stocks (Million yen) Non-listed shares 4 10 Shares other than 1 76 the above
Stocks where the number of shares owned increased in the current fiscal year Total cost of increase in shares Number of stocks Reason for increase in number of shares owned (Million yen) Non-listed shares - - - Shares other than Further strengthen the business 1 10 the above relationship and cooperation
Stocks where the number of shares owned decreased in the current fiscal year There is no applicable information.
c. Number of shares and balance sheet amounts of stock held for purpose other than pure investment Current Fiscal Year Previous Fiscal Year Purpose of ownership, Company shares Stock Brand Number of Shares Number of Shares quantitative benefit, reason for owned (Shares) (Shares) increase in number of shares Amount Posted in the Amount Posted in the Balance Sheet (Million yen) Balance Sheet (Million yen) Holding this stock assists with the maintenance and continuation of a certain percentage of sales in the 716,127 622,987 Amusement Equipments Business. A quantitative benefit cannot be shown. However, the Board of Dynam Japan Directors has determined None Holdings Co., Ltd. that ownership is justifiable by examining the suitability of the purpose of 76 89 ownership, assessing the benefits and risk based on certain standards, and determining whether or not to continue ownership.
iii. Investment stocks of which the purpose of holding is pure investment There is no applicable information.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Section 5. Accounting
1. Basis for Preparation of Consolidated and Non-consolidated Financial Statements (1) The consolidated financial statements of the Company are prepared in accordance with the “Regulation on Terminology, Forms, and Preparation Methods of Consolidated Financial Statements” (Ministry of Finance Ordinance No. 28, 1976) (the “Regulations for Consolidated Financial Statements”). (2) The non-consolidated financial statements of the Company are prepared in accordance with the “Regulation on Terminology, Forms, and Presentation Methods of Financial Statements” (Ministry of Finance Ordinance No. 59, 1963) (hereinafter the “Regulations for Non-consolidated Financial Statements”). The Company is subject to prepare the financial statements in accordance with special provision pursuant to Article 127 of the Regulations for Non-consolidated Financial Statements.
2. Audit Certificate Pursuant to the provision of Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act, the consolidated financial statements for the consolidated fiscal year from January 1, 2020 to December 31, 2020, and the non-consolidated financial statements for the non-consolidated fiscal year from January 1, 2020 to December 31, 2020, have been audited by UHY Tokyo & Co.
3. Special Approaches to Secure the Appropriateness of the Consolidated Financial Statements, etc. The Company takes special approaches to secure the appropriateness of its consolidated financial statements, etc. Specifically, we are a member of the Financial Accounting Standards Foundation, attend seminars and subscribe to specialized accounting periodicals to appropriately comprehend accounting standards, etc., and maintain an appropriate system for preparing financial statements.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
1. Consolidated Financial Statements, etc. (1) Consolidated Financial Statements i. Consolidated Balance Sheet (Million yen) 2019 2020
(December 31, 2019) (December 31, 2020) Assets Current assets Cash and deposits *1 38,442 *1 37,349 Notes and accounts receivable-trade *4 11,361 *4 7,369 Securities 2 2 Merchandise and finished goods 1,671 2,367 Work in process 10,747 11,866 Raw materials and supplies 12,981 9,653 Other 10,726 15,591 Allowance for doubtful accounts (876) (2,599) Total current assets 85,057 81,601 Non-current assets Property, plant and equipment Buildings and structures 277,992 285,088 Accumulated depreciation (17,127) (24,424) Buildings and structures (net amount) 260,865 260,664 Machinery, equipment and vehicles 45,565 46,151 Accumulated depreciation (16,618) (22,039) Machinery, equipment and vehicles (net 28,947 24,111 amount) Leased assets 62,748 62,748 Accumulated depreciation (5,459) (7,858) Lease assets (net amount) 57,288 54,889 Land 7,164 7,152 Construction in progress 66,056 70,346 Other 20,854 22,682 Accumulated depreciation (14,562) (16,528) Other (net amount) 6,292 6,153 Total property, plant and equipment 426,614 423,317 Intangible assets Other 2,357 1,969 Total intangible assets 2,357 1,969 Investments and other assets Investment securities *2 14,414 *2 16,762 Long-term deposits 6,773 6,413 Long-term deposits for subsidiaries and 26,583 25,125 associates Deferred tax assets 6,082 5,968 Other 5,629 7,069 Allowance for doubtful accounts (713) (696) Total investments and other assets 58,770 60,644 Total non-current assets 487,743 485,931 Deferred assets 437 969 Total assets 573,238 568,502
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Million yen) 2019 2020
(December 31, 2019) (December 31, 2020) Liabilities Current liabilities Notes and accounts payable-trade *4 6,279 *4 5,960 Short-term borrowings 6,554 10,927 Current portion of long-term borrowings 1,204 2,070 Accounts payable-other 10,734 9,247 Accrued expenses 13,503 15,484 Income taxes payable 466 463 Provision for bonuses 78 81 Other 17,057 13,125 Total current liabilities 55,879 57,361 Non-current liabilities Bonds payable 66,745 78,720 Long-term borrowings 9,749 7,141 Retirement benefit liability 251 167 Long-term deposits received from subsidiaries and 5,477 5,175 associates Lease obligations 58,791 59,209 Deferred tax liabilities 1,088 27 Other 3,421 3,121 Total non-current liabilities 145,524 153,563 Total liabilities 201,404 210,924 Net assets Shareholders’ equity Share capital 98 98 Capital surplus 18,830 18,829 Retained earnings 365,751 346,478 Treasury shares (5,578) (7,317) Total shareholders’ equity 379,101 358,088 Accumulated other comprehensive income Valuation difference on available-for-sale (882) (27) securities Foreign currency translation adjustment (6,433) (631) Remeasurements of defined benefit plans (18) 88 Total accumulated other comprehensive income (7,335) (569) Share acquisition rights 67 58 Total net assets 371,834 357,577 Total liabilities and net assets 573,238 568,502
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020 ii. Consolidated Statement of Income and Consolidated Statement of Comprehensive Income (Consolidated Statement of Income) (Million yen) 2019 2020
(January 1 to December 31, 2019) (January 1 to December 31, 2020) Net sales 124,944 90,871 Cost of sales *3 60,216 *3 40,779 Gross profit 64,727 50,091 Selling, general and administrative expenses *1, 2 64,337 *1, 2 47,535 Operating profit 389 2,555 Non-operating income Interest income 196 120 Dividend income 20 16 Share of profit of entities accounted for using equity 1,650 1,459 method Other 101 253 Total non-operating income 1,969 1,850 Non-operating expenses Interest expenses 4,212 4,252 Interest on bonds 5,444 5,924 Foreign exchange losses 152 3,058 Commission expenses 314 22 Other 175 398 Total non-operating expenses 10,299 13,656 Ordinary loss (7,941) (9,249) Extraordinary income Gain on sales of non-current assets 0 4 Other 6 5 Total extraordinary income 6 9 Extraordinary losses Loss on sales and retirement of non-current assets 754 8 Loss on valuation of investment securities - 1,040 Loss on valuation of shares of subsidiaries and 369 150 associates Non-recurring loss - *4 9,165 Other 31 130 Total extraordinary losses 1,155 10,495 Loss before income taxes and others (9,089) (19,735) Income taxes-current 565 458 Income taxes-deferred (2,945) (970) Refund of income taxes (1,518) (4) Total income taxes (3,898) (517) Net loss (5,191) (19,218) Net income attributable to non-controlling interests - - Net loss attributable to owners of parent (5,191) (19,218)
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Consolidated Statement of Comprehensive Income) (Million yen) 2019 2020
(January 1 to December 31, 2019) (January 1 to December 31, 2020) Net loss (5,191) (19,218) Other comprehensive income Valuation difference on available-for-sale securities (162) 855 Foreign currency translation adjustment 11,494 5,802 Remeasurements of defined benefit plans, net of tax (64) 107 Total other comprehensive income * 11,267 * 6,765 Comprehensive income 6,075 (12,452) (Breakdown) Comprehensive income attributable to owners of 6,075 (12,452) parent Comprehensive income attributable to non- - - controlling interests
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020 iii. Consolidated Statement of Changes in Equity 2019 (January 1 to December 31, 2019) (Million yen) Shareholders’ equity Total Capital stock Capital surplus Retained earnings Treasury shares shareholders’ equity Balance at beginning of current 98 18,831 377,424 (2,764) 393,589 period Cumulative effects of changes in 1,385 1,385 accounting policies Restated balance 98 18,831 378,809 (2,764) 394,975 Changes of items during period Loss attributable to owners of (5,191) (5,191) parent Dividends of surplus (7,867) (7,867) Purchase of treasury shares (2,834) (2,834) Disposal of treasury shares (1) 20 19 Net changes of items other than - shareholders’ equity Total changes of items during - (1) (13,058) (2,813) (15,873) period Balance at end of current period 98 18,830 365,751 (5,578) 379,101
Accumulated other comprehensive income Valuation Total Foreign Remeasure- difference accumulated Subscription currency ments of Total net assets on available- other rights to shares translation defined for-sale comprehensive adjustment benefit plans securities income Balance at beginning of current (719) (17,928) 45 (18,602) 76 375,063 period Cumulative effects of changes in accounting - 1,385 policies Restated balance (719) (17,928) 45 (18,602) 76 376,448 Changes of items during period Loss attributable to owners of (5,191) parent Dividends of surplus (7,867) Purchase of treasury shares (2,834) Disposal of treasury shares 19 Net changes of items other (162) 11,494 (64) 11,267 (8) 11,258 than shareholders’ equity Total changes of items during (162) 11,494 (64) 11,267 (8) (4,614) period Balance at end of current (882) (6,433) (18) (7,335) 67 371,834 period
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2020 (January 1 to December 31, 2020) (Million yen) Shareholders’ equity Total Capital stock Capital surplus Retained earnings Treasury shares shareholders’ equity Balance at beginning of current 98 18,830 365,751 (5,578) 379,101 period Changes of items during period Loss attributable to owners of (19,218) (19,218) parent Purchase of treasury shares (1,752) (1,752) Disposal of treasury shares (1) 13 12 Change in scope of consolidation (55) (55) Net changes of items other than
shareholders’ equity Total changes of items during - (1) (19,273) (1,738) (21,013) period Balance at end of current period 98 18,829 346,478 (7,317) 358,088
Accumulated other comprehensive income Valuation Total Foreign Remeasure- difference accumulated Subscription currency ments of Total net assets on available- other rights to shares translation defined for-sale comprehensive adjustment benefit plans securities income Balance at beginning of current (882) (6,433) (18) (7,335) 67 371,834 period Changes of items during period Loss attributable to owners of (19,218) parent Purchase of treasury shares (1,752) Disposal of treasury shares 12 Change in scope of (55) consolidation Net changes of items other 855 5,802 107 6,765 (9) 6,756 than shareholders’ equity Total changes of items during 855 5,802 107 6,765 (9) (14,256) period Balance at end of current (27) (631) 88 (569) 58 357,577 period
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020 iv. Consolidated Statement of Cash Flows (Million yen) 2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Cash flows from operating activities Loss before income taxes and others (9,089) (19,735) Depreciation 17,873 18,148 Loss on valuation of shares of subsidiaries and 369 150 associates Loss (gain) on sales and retirement of non-current 753 4 assets Share of loss (profit) of entities accounted for using (1,650) (1,459) equity method Loss (gain) on valuation of investment securities - 1,040 Interest and dividend income (217) (137) Interest expenses 4,212 4,252 Interest on bonds 5,444 5,924 Foreign exchange losses (gains) (593) (3,887) Increase (decrease) in allowance for doubtful accounts 357 1,722 Decrease (increase) in trade receivables (335) 4,091 Decrease (increase) in inventories (2,170) 1,514 Decrease (increase) in accounts receivable-other 2,804 300 Increase (decrease) in accrued consumption taxes 1,583 1,114 Increase (decrease) in trade payables (476) 208 Increase (decrease) in accounts payable-other 717 (1,342) Decrease (increase) in other current assets 138 (2,369) Increase (decrease) in other current liabilities 7,587 (1,405) Increase (decrease) in other non-current liabilities 5,163 (45) Other, net 257 616 Subtotal 32,730 8,707 Interest and dividend income received 215 139 Interest expenses paid (5,364) (5,278) Income taxes paid (167) (461) Income taxes refund 2,053 4 Net cash provided by (used in) operating activities 29,468 3,112
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Million yen) 2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Cash flows from investing activities Purchase of property, plant and equipment (27,486) (11,499) Purchase of intangible assets (750) (388) Purchase of investment securities (11) (10) Payments of short-term loans receivable (1,729) (4,803) Collection of short-term loans receivable 2,816 77 Payments of long-term loans receivable (690) (1,677) Purchase of non-consolidated subsidiary stock (1,356) - Other, net 311 (194) Net cash provided by (used in) investing activities (28,897) (18,496) Cash flows from financing activities Net increase (decrease) in short-term borrowings (10,209) 4,830 Proceeds from long-term borrowings 10,775 - Repayments of long-term borrowings - (1,156) Proceeds from issuance of bonds - 13,294 Purchase of treasury shares (2,834) (1,752) Cash dividends paid (5,867) - Proceeds from disposal of treasury shares from 13 9 exercise of share acquisition rights Payments for sale and lease back transactions (741) (671) Other, net - (116) Net cash provided by (used in) financing activities (8,863) 14,436 Effect of exchange rate change on cash and cash 647 (133) equivalents Net increase (decrease) in cash and cash equivalents (7,644) (1,081) Decrease in cash and cash equivalents resulting from - (11) exclusion of subsidiaries from consolidation Cash and cash equivalents at beginning of period 45,870 38,226 Cash and cash equivalents at end of period * 38,226 * 37,133
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
[Notes] Significant Items Serving as a Basis for Preparation of the Consolidated Financial Statements 1. Matters relating to the scope of consolidation (1) Number of consolidated subsidiaries: 10 The major consolidated subsidiaries are stated in “4. Affiliated Companies” under “Section 1. Overview of the Company” and are therefore omitted here. (2) Changes in consolidated subsidiaries This information is not disclosed due to its lack of significance. (3) Principal non-consolidated subsidiaries: SHANGHAI KO DINING MANAGEMENT CO.,LTD. Exiis-Lab Co., Ltd. and 9 other companies (Reason for exclusion from the scope of consolidation) Non-consolidated subsidiaries are small in size, and their combined total assets, net sales, net income or loss (the amount corresponding to the Company’s equity holding) and retained earnings (the amount corresponding to the Company’s equity holding) have no material impact on the Company’s consolidated financial statements.
2. Matters relating to application of the equity method (1) Number of affiliated companies accounted for by the equity method: 3 The major company: EAGLE I LANDHOLDINGS, INC. ZEEG Co. Ltd. Japan Amusement Broadcasting Corp. (2) Non-consolidated subsidiaries and affiliates not accounted for by the equity method The non-consolidated subsidiaries (SHANGHAI KO DINING MANAGEMENT CO.,LTD., Exiis-Lab Co., Ltd, and 9 other companies) and an affiliate (Pit Earth Co., Ltd.) are not accounted for under the equity method since they have a very minor effect on net income or loss (the amount corresponding to the Company’s equity holding) and retained earnings (the amount corresponding to the Company’s equity holding), and are relatively insignificant in the context of the consolidated financial statements. (3) Changes in equity-method affiliate There is no applicable information.
3. Matters regarding the fiscal year, etc., of consolidated subsidiaries All consolidated subsidiaries in Japan (five companies) end their fiscal years on March 31. For these five companies, provisional financial statements as of the end of the consolidated fiscal year were used for the preparation of the consolidated financial statements.
4. Matters regarding accounting policies (1) Valuation criteria and methods for significant assets (a) Securities Available-for-sale securities Securities having market value: Market value method based on market prices, etc., as of the closing date of the fiscal year. (Valuation differences are treated by the total direct capitalization method and the cost of securities sold is determined by the moving average method.) Securities without market value: Cost method based on the moving average method. (b) Derivatives Market value method. (c) Inventories Inventories held for regular sales purpose Merchandise, finished goods, raw materials: Cost method primarily based on the weighted average costing method. (The amount stated in the balance sheet was calculated by the book value write-down method based on a reduction in profitability.) Work in process: Cost method primarily based on the weighted average costing method. (The amount stated in the balance sheet was calculated by the book value write-down method based on a reduction in profitability.) For work in process concerning the production of content, etc., the specific costing method is applied. Supplies: Last purchase cost method. (2) Depreciation and amortization methods for significant depreciable and amortizing assets (a) Property, plant and equipment (excluding lease assets) i. The Company and its domestic consolidated subsidiaries Declining-balance method. Buildings (excluding facilities attached to buildings) acquired on or after April 1, 1998 and facilities attached to buildings and structures acquired on or after April 1, 2016 are depreciated principally using the straight-line method. Approximate useful lives: Buildings and structures: 7 to 50 years ii. Overseas consolidated subsidiaries Property, plant and equipment at overseas consolidated subsidiaries is depreciated using the straight-line method in accordance with the accounting standards in the countries of their domicile.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(b) Intangible assets (excluding lease assets) i. The Company and its domestic consolidated subsidiaries The straight-line method. Software intended for internal use is amortized using the straight-line method based on an estimated period of internal use (five years). ii. Overseas consolidated subsidiaries Intangible assets at overseas consolidated subsidiaries is depreciated using the straight-line method in accordance with the accounting standards in the countries of their domicile. (c) Lease assets Lease assets relating to finance lease transactions without transfer of ownership: The straight-line method is applied whereby the lease period is deemed the durable life and the remaining value is deemed zero. Finance lease transactions without transfer of ownership for which the lease transaction commenced on or before March 31, 2008, are accounted for in accordance with the method applicable to regular lease transactions. (3) Reporting basis for significant allowances (a) Allowance for doubtful accounts The Group maintains an allowance for doubtful accounts to be prepared for losses involving receivables that cannot be collected. In the Amusement Equipments Business, the allowance is based on the actual percentage of ordinary receivable losses in prior years. For specific receivables for which collectability is a great concern in the Amusement Equipments Business and for VIP customers and junket customers of Okada Manila which operates casino and resort facilities in the Integrated Resort Business, the allowance is based on the likelihood of collecting amounts owed for specific receivables or specific customers. The amounts that are not expected to be collected is added to the allowance. (b) Provision for bonuses In the provision for the future payment of employee bonuses, an anticipated amount of total bonus payments attributable to the current consolidated fiscal year is reported. (4) Accounting method for retirement benefit obligations 1) Method of attributing estimated retirement benefit obligations to periods In calculation of retirement benefit obligations, the Company uses the benefit formula basis as the method for attributing estimated retirement benefit obligations to periods. 2) Amortization of actuarial differences Actuarial differences are amortized and charged to expense in the year following the fiscal year in which such gain or loss is recognized by the straight-line method over a certain period (three years) which is within the estimated average remaining years of service of the eligible employees. (5) Translation standard of significant foreign currency–denominated assets or liabilities into yen Monetary debts and credits denominated in foreign currencies are translated into yen at the spot exchange rates on the fiscal year-end date, with the differences resulting from such translations recorded as losses or profits. It should be noted that the assets and liabilities of overseas subsidiaries, etc. are translated into yen at the spot exchange rates prevailing on the fiscal year-end date, and their income and expenses are translated into yen at the average exchange rate prevailing over the period, with the differences arising from any translation included in the foreign currency translation adjustment and non-controlling interests under net assets. (6) Definition of cash and cash equivalents in the consolidated statement of cash flows. Funds (cash and cash equivalents) booked in the consolidated statement of cash flows refer to cash on hand, bank deposits that can be withdrawn from time to time or short-term investments that may be easily converted to cash with maturities of no more than three months from the acquisition date that carry a minimal risk of fluctuation in value. (7) Other significant matters for preparation of the consolidated financial statements Accounting procedure for consumption taxes: Consumption taxes are accounted by the tax-exclusion method.
Changes in Accounting Policies There is no applicable information.
(Accounting Standards and Others that Have Not Yet Been Applied) 1. Accounting Standard for Revenue Recognition and other standards - Accounting Standard for Revenue Recognition (Accounting Standards Board of Japan (ASBJ) Statement No. 29, March 31, 2020) - Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30, March 31, 2020)
(1) Outline The International Accounting Standards Board (IASB) and U.S. Financial Accounting Standards Board (FASB) have jointly developed a comprehensive accounting standard concerning the recognition of revenue. This resulted in the May 2014 announcement of “Revenue from Contracts with Customers” (IFRS No. 15 of the IASB and Topic 606 of the FASB). IFRS No. 15 became effective starting with fiscal years beginning on or after January 1, 2018 and Topic 606 became effective starting with fiscal years beginning after December 15, 2017. Due to this action, the ASBJ developed a comprehensive accounting standard for revenue recognition and announced this standard along with implementation guidance. The fundamental policy for the development of the ASBJ accounting standard for revenue recognition was to facilitate comparisons of financial statements, which is one benefit of compatibility with IFRS No. 15. Consequently, the development of this standard started by incorporating the basic elements of IFRS No. 15. In addition, in cases where there were items to be considered in relation to accounting practices in Japan, alternative methods were added, but only to an extent that did not negatively affect financial statement comparisons. 56
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(2) Effective date Beginning of 2022. (3) Effects of the application of the above accounting standards The monetary effect on the consolidated financial statements of the application of Accounting Standard for Revenue Recognition and other standards is currently being evaluated.
2. Accounting standard and guidance used for calculation of fair value -Accounting Standard for Fair Value Measurement (ASBJ Statement No. 30, July 4, 2019) -Accounting Standard for Measurement of Inventories (ASBJ Statement No. 9, July 4, 2019) -Accounting Standard for Financial Instruments (ASBJ Statement No. 10, July 4, 2019) -Implementation Guidance on Accounting Standard for Fair Value Measurement (ASBJ Guidance No. 31, July 4, 2019) -Implementation Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No. 19, March 31, 2020)
(1) Outline The detailed guidance for the determination of fair value is virtually identical in the standards of the IASB and the FASB (IFRS No. 13 “Fair Value Measurement” and FASB Accounting Standards Codification Topic 820 “Fair Value Measurement”). Consequently, for guidance and disclosure of fair values, primarily for financial instruments, the ASBJ enacted measures for the consistency of Japanese and international accounting standards. The result was the announcement of the Accounting Standard for Fair Value Measurement. For the development of this accounting standard for the measurement of fair value, the fundamental policy of the ASBJ was to incorporate basically all of the provisions of IFRS No. 13 from the standpoint of facilitating comparisons of the financial statements of companies in Japan and other countries. In addition, in order to reflect accounting practices that have been used in Japan as well as other factors, other treatments are stipulated for individual items to the extent that these treatments are not significantly detrimental to the possibility of financial statement comparisons. (2) Effective date Beginning of 2022. (3) Effects of the application of the above accounting standards The monetary effect on the consolidated financial statements of the application of the accounting standards and guidance for calculation of fair value is currently being evaluated.
3. Accounting Standard for Disclosure of Accounting Estimates, etc. - Accounting Standard for Disclosure of Accounting Estimates (ASBJ Guidance No. 31, March 31, 2020) (1) Outline Paragraph 125 of International Accounting Standards (IAS) No. 1 “Presentation of Financial Statements,” which was announced in 2003 by the IASB, requires the disclosure of “causes of uncertainties about estimates.” There were requests for a study in Japan to require in Japanese accounting standards the disclosure of this information in a note because information about uncertainties concerning estimates is very useful for users of financial statements. As a result, the ASBJ established and announced an accounting standard concerning the disclosure of accounting estimates. The basic policy of the ASBJ for the establishment of this standard was, in principle, to present this information for the purpose of disclosure rather than as an expansion of individual notes. Based on this policy, the decision was made to allow companies to select information to disclose in accordance with the purpose of the disclosure. The standard was developed while using as reference the provisions of Paragraph 125 of IAS No. 1.
(2) Effective date End of 2021.
Changes in Description (Consolidated Statement of Cash Flows) “Increase (decrease) in allowance for doubtful accounts” which was included in “Other” under “Cash flows from operating activities” in the previous fiscal year, has been separately stated in the current fiscal year due to the increased significance of the amount. To reflect this change in description, the reclassification of accounts has been made for the financial statements for the previous fiscal year. As a result, “Other” of 614 million yen under “Cash flows from operating activities” in the consolidated statement of cash flows for the previous fiscal year has been reclassified into “Increase (decrease) in allowance for doubtful accounts” of 357 million yen and “Other” of 257 million yen.
“Payments for leasehold and guarantee deposits” under “Cash flows from investing activities” are included in “Other” in the current fiscal year, given the reduced significance of the amount. To reflect this change in description, the reclassification of accounts has been made for the financial statements for the previous fiscal year. As a result, “Payments for leasehold and guarantee deposits” of (37) million yen under “Cash flows from investing activities” in the consolidated statement of cash flows for the previous fiscal year has been reclassified into “Other.”
Additional Information (Borrowing costs into the acquisition cost) Loans and bonds/debentures (private placement bonds) have been used to procure part of the funds required by the Integrated Resort Business for its long-term projects. Given the significance of these amounts, the Company has included borrowing costs that are funding ongoing construction periods into its calculation of the acquisition cost.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Impact of the COVID-19 pandemic on accounting estimates) In the Amusement Equipments Business, the pandemic has lowered the number of customers at pachinko halls, made pachinko hall operators more cautious about replacing machines with new ones and had other negative effects. In the Integrated Resort Business, some aspects of operations were restricted due to the pandemic and there were other negative effects. It is impossible to predict when this crisis will end. The Company has reflected in its accounting processes estimates used for valuations of investment securities, the determination of the allowance for doubtful accounts and other items that are based on the premise that the COVID-19 pandemic will continue to affect results of operations to some degree at least until the end of 2021. There is considerable uncertainty about how much this crisis will affect economic activity. If there is a change in the impact of this crisis on the economy, there may be an effect on the financial condition, results of operations and cash flows of the Group.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Consolidated Balance Sheet) *1. Assets pledged as collateral and secured liabilities Assets pledged as collateral are as follows. (Million yen)
2019 2020 (December 31, 2019) (December 31, 2020) Cash and deposits 216 216
There are no secured liabilities.
*2. Investment securities for non-consolidated subsidiaries and affiliates are as follows. (Million yen) 2019 2020 (December 31, 2019) (December 31, 2020) Investment securities (stocks) 13,817 16,404 Other (Investments in capital) 0 0
3. Contingent liabilities Standby letters of credit issued to companies other than consolidated companies are as follows. (Million yen) 2019 2020 (December 31, 2019) (December 31, 2020) Philippine Amusement and Gaming 216 216 Corporation (100 million Philippine Peso) (100 million Philippine Peso)
Tiger Resort, Leisure and Entertainment, Inc., which is a consolidated subsidiary of the Company, has issued a standby letter of credit to Philippine Amusement and Gaming Corporation by submitting a request to BDO UNIBANK, INC. The issuance of this letter of credit is stipulated in the contract concerning the Group’s casino resort project in the Philippines. The Company’s consolidated subsidiary pledged the following assets as collateral when this standby letter of credit was issued.
(Million yen) 2019 2020 (December 31, 2019) (December 31, 2020) Cash and deposits 216 216 (100 million Philippine Peso) (100 million Philippine Peso)
*4. Notes matured at the end of the consolidated fiscal year and electric recorded receivable and payable With respect to accounting for notes matured at the end of the consolidated fiscal year and electric recorded receivable and payable, though the current consolidated fiscal year-end fell on a holiday for financial institutions, they were treated as though they were settled on the maturity date. The amount of notes matured at the end of the consolidated fiscal year and electric recorded receivable and payable are as follows. (Million yen) 2019 2020 (December 31, 2019) (December 31, 2020) Notes receivable 461 269 Electronic recorded receivable 1,333 155 Notes payable 1,259 500 Electronic recorded payable 230 9
(Consolidated Statement of Income) *1. Major items of selling, general and administrative expenses (Million yen) 2019 2020 (December 31, 2019) (December 31, 2020) Salaries and allowances 17,764 12,571 Commission fee 5,013 4,356 Depreciation 17,404 8,771
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
*2. Total amount of research and development expenses included in general and administrative expenses, and manufacturing expenses (Million yen) 2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) 5,001 5,844
*3. The ending inventory is the amount written down to reflect the effect of lower profit margins. The following provision for valuation of inventories is included in cost of sales. (Million yen) 2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) 64 2,505
*4. Non-recurring loss Tiger Resort, Leisure And Entertainment Inc., a consolidated subsidiary of the Company, has posted an extraordinary loss for fixed expenses (depreciation and other items) during the period when Okada Manila was closed in accordance with orders of the Philippine government and PAGCOR in order to prevent the spread of COVID-19.
(Consolidated Statement of Comprehensive Income) * Reclassification adjustments and tax effects pertaining to other comprehensive income are as follows. (Million yen) 2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Valuation difference on available-for-sale securities: Amount recognized during the current (162) (180) consolidated fiscal year Re-classification adjustments - 1,036 Before tax effect adjustment (162) 855 Tax effects - - Valuation difference on available-for- sale (162) 855 securities Foreign currency translation adjustment: Amount recognized during the current 11,494 5,672 consolidated fiscal year Re-classification adjustments - 130 Before tax effect adjustment 11,494 5,802 Tax effects - - Foreign currency translation 11,494 5,802 adjustment Remeasurements of defined benefit plans, net of tax Amount recognized during the current (65) 135 consolidated fiscal year Re-classification adjustments (11) (4) Before tax effect adjustment (76) 131 Tax effects 11 (23) Remeasurements of defined benefit plans, net of (64) 107 tax Total other comprehensive income 11,267 6,765
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Consolidated Statement of Changes in Equity) 2019 (January 1 to December 31, 2019) 1. Matters regarding the class and number of issued shares and treasury shares (Shares) As of Jan. 1, 2019 Increase Decrease As of Dec. 31, 2019 Issued shares Common stock 80,195,000 - - 80,195,000 Total 80,195,000 - - 80,195,000 Treasury shares Common stock 1,186,716 850,056 7,600 2,029,172 (Notes 1 and 2) Total 1,186,716 850,056 7,600 2,029,172 Notes: 1. The increase of 850,056 treasury shares were the result of the acquisition of 600,000 treasury shares based on a resolution by the Board of Directors held on January 9, 2019, the acquisition of 250,000 treasury shares based on a resolution by the Board of Directors held on June 4, 2019, and an increase of 56 shares from the purchase of shares less than one unit. 2. The decrease of 7,600 treasury shares was the result of the use of 7,600 treasury shares to provide stock to individuals who exercised stock options.
2. Matters regarding subscription rights to shares and subscription rights to own shares Type of shares Number of shares subject to subscription rights to Classification of Balance as of subject to shares Classification subscription rights to Dec. 31, 2019 subscription As of Jan. As of Dec. shares Increase Decrease (Million yen) rights to shares 1, 2019 31, 2019 Subscription rights to shares as stock - - - - - 62 The Company options (parent company) Subscription rights 8th (Issued Mar. 27, Common stock 500,000 - - 500,000 5 2017) Total - 500,000 - - 500,000 67
3. Matters regarding dividends (1) Amount paid as dividends Total amount Dividend Class of Dividend (Resolution) of dividends per share Record date Effective date share resource (Million yen) (Yen) Ordinary Shareholders’ Common Retained Meeting 3,950 50 Dec. 31, 2018 Mar. 26, 2019 held on March 25, 2019 stock earnings Board of Directors’ Meeting Common Retained 3,916 50 Jun. 30, 2019 Sep. 30, 2019 held on August 7, 2019 stock earnings
(2) Dividends for which the record date belongs to the current consolidated fiscal year and the effective date is in the following consolidated fiscal year There is no applicable information.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2020 (January 1 to December 31, 2020) 1. Matters regarding the class and number of issued shares and treasury shares (Shares) As of Jan. 1, 2020 Increase Decrease As of Dec. 31, 2020 Issued shares Common stock 80,195,000 - - 80,195,000 Total 80,195,000 - - 80,195,000 Treasury shares Common stock 2,029,172 686,600 5,000 2,710,772 (Notes 1 and 2) Total 2,029,172 686,600 5,000 2,710,772 Notes: 1. The increase of 686,600 treasury shares were the result of the acquisition of 686,600 treasury shares based on a resolution by the Board of Directors held on February 14, 2020. 2. The decrease of 5,000 treasury shares was the result of the use of 5,000 treasury shares to provide stock to individuals who exercised stock options.
2. Matters regarding subscription rights to shares and subscription rights to own shares Type of shares Number of shares subject to subscription rights to Classification of Balance as of subject to shares Classification subscription rights to Dec. 31, 2020 subscription As of Jan. As of Dec. shares Increase Decrease (Million yen) rights to shares 1, 2020 31, 2020 Subscription rights to shares as stock - - - - - 58 The Company options (parent company) Subscription rights 8th (Issued Mar. 27, Common stock 500,000 - 500,000 - - 2017) Total - 500,000 - 500,000 - 58 Note: The decrease in the number of the 8th subscription rights to shares issued on March 27, 2017 is due to the end of the exercise period.
3. Matters regarding dividends (1) Amount paid as dividends There is no applicable information. (2) Dividends for which the record date belongs to the current consolidated fiscal year and the effective date is in the following consolidated fiscal year There is no applicable information.
(Consolidated Statement of Cash Flows) *The relationship between the balance of cash and cash equivalents at the end of the consolidated fiscal year and the amount of items posted in the consolidated balance sheet is as follows. (Million yen) 2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Cash and deposit account 38,442 37,349 Deposits pledged as collateral (216) (216) Cash and cash equivalents 38,226 37,133
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Lease Transactions) (Lessee) 1. Finance lease transactions Finance lease transactions where there is no transfer of ownership i. Lease assets Aircraft, land ii. The depreciation method of lease assets As explained in the section “Significant Items Serving as a Basis for Preparation of the Consolidated Financial Statements, 4. Matters regarding accounting policies, (2) Depreciation and amortization methods for significant depreciable and amortizing assets.”
(Financial Instruments) 1. Matters pertaining to the status of financial instruments (1) Policy to deal with financial instruments The Group secures necessary funds mainly through borrowings from banks, issuance of bonds or group finances based on an appropriate business plan. Temporary surplus funds are managed in a capital-safe type large amount deposit, etc., on the basis of safety and liquidity. Derivative instruments are used for risk aversion and not for speculative purposes.
(2) Details and risks of financial instruments Notes receivable-trade and accounts receivable-trade are operating receivables that accrue in the course of sales activities from receipts of orders to collections of payments and are exposed to the credit risks of customers. Securities and investment securities are mainly composed of investment trusts managed by overseas subsidiaries, shares of companies that have business relationships with the Company and are exposed to the risk of fluctuations in market prices and currency exchange risks. Notes payable-trade and accounts payable-trade are mostly due within four months and composed of operating liabilities that mainly accrue in the course of purchasing parts, etc., and clearing liabilities. Loans payable, bonds payable and lease obligations are mainly for payments for the construction of Okada Manila. Some of these payables are vulnerable to interest rate and foreign exchange risk.
(3) Risk management framework pertaining to financial instruments The Company manages the risks of financial instruments as follows, in addition to having deliberations at General Managers’ Meetings as the need arises. i. Management of credit risks (risks of a customer’s default of contracts) As to notes receivable-trade, accounts receivable-trade and other operating receivables, the Receivables Administration Section of the Company conducts surveys and information gathering on customers’ credit status in accordance with the Credit Administration Rules. ii. Management of market risks (risks of fluctuations in currency exchanges, interest rates, etc.) To hedge against the risks of fluctuations in interest rates on loans and bonds payable, the Company ensures that disadvantageous clauses are excluded from the terms and conditions of the borrowings and bond issuances executed by the Company. With respect to securities, the Company manages safe and secure investment trusts with minute risk for loss of principal. For investment securities, the Company periodically confirms the market prices and financial status, etc., of issuers (client companies), while annually investigating the financial statements of client companies to continuously review its own shareholding status. Derivative instruments are executed and managed by the department in charge with the approval of the responsible persons. iii. Liquidity risks for funding (risks of default by due dates) The Company executes borrowings after careful reviews mainly on movements in long- and short-term fund costs in consideration of the liquidity of funds and borrowing periods. The borrowed funds are managed under a cash management plan, which is prepared and updated by the department in charge in a timely manner.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2. Matters pertaining to the market prices, etc., of financial instruments Amounts posted in the consolidated balance sheet, market prices and the difference thereof are as follows. Items of which market prices seems to be extremely difficult to measure are not included herein. (See Note 2)
2019 (December 31, 2019) (Million yen) Amount Posted in the Market Price Difference Consolidated Balance Sheet (1) Cash and deposits 38,442 38,442 - (2) Notes and accounts receivable-trade 11,361 11,361 - (3) Securities and investment securities Securities 2 2 - Available-for-sale securities 578 578 - Total assets 50,385 50,385 - (1) Notes and accounts payable-trade (Note 1) [6,279] [6,279] - (2) Short-term borrowings (Notes 1 and 2) [7,758] [7,758] - (3) Accounts payable-other (Note 1) [10,734] [10,734] - (4) Bonds payable (Note 1) [66,745] [70,668] [3,923] (5) Long-term borrowings (Note 1) [9,749] [9,749] - (6) Lease obligations (Notes 1 and 3) [59,613] [55,376] 4,236 Total liabilities (Note 1) [160,881] [160,567] 313 Notes: 1. Items that are included in liabilities are indicated in brackets. 2. Short-term borrowings include current portion of long-term borrowings. 3. Lease obligations include current portion of lease obligations.
2020 (December 31, 2020) (Million yen) Amount Posted in the Market Price Difference Consolidated Balance Sheet (1) Cash and deposits 37,349 37,349 - (2) Notes and accounts receivable-trade 7,369 7,369 - (3) Securities and investment securities Securities 2 2 - Available-for-sale securities 339 339 - Total assets 45,060 45,060 - (1) Notes and accounts payable-trade (Note 1) [5,960] [5,960] - (2) Short-term borrowings (Notes 1 and 2) [12,997] [12,997] - (3) Accounts payable-other (Note 1) [9,247] [9,247] - (4) Bonds payable (Note 1) [78,720] [79,751] [1,030] (5) Long-term borrowings (Note 1) [7,141] [7,141] - (6) Lease obligations (Notes 1 and 3) [60,002] [62,596] [2,594] Total liabilities (Note 1) [174,069] [177,694] [3,625] Notes: 1. Items that are included in liabilities are indicated in brackets. 2. Short-term borrowings include current portion of long-term borrowings. 3. Lease obligations include current portion of lease obligations.
(Note 1) Calculation method of market prices of financial instruments and matters pertaining to securities and derivative transactions Assets (1) Cash and deposits and (2) Notes and accounts receivable-trade Because these items are settled in a short period and their market prices are nearly equal to their book values, the market prices of these items are based on their book value. (3) Securities and investment securities Market prices of these items are based on prices at listed securities exchanges. Market prices of investment trusts are based on book values because such prices are nearly equal to their book values.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Liabilities (1) Notes and accounts payable-trade, (2) Short-term borrowings and (3) Accounts payable-other Because these items are settled in a short period and their market prices are nearly equal to their book values, the market prices of these items are based on their book value. (4) Bonds payable The fair value of bonds issued by the Company is the present value of the future cash flows of these bonds that is discounted by the estimated interest rate for a newly issued bond with similar terms. (5) Long-term borrowings The fair value of long-term borrowings is the present value of the sum of interest and principal using a discount rate equal to the expected interest rate on similar new loans. (6) Lease obligations The fair value of lease obligations is the present value of the sum of interest and principal using a discount rate equal to the expected interest rate for similar leasing transactions.
Derivative Transactions See “Derivative Transactions” under the Notes section.
(Note 2) Financial instruments of which market prices seem to be extremely difficult to measure (Million yen) Category 2019 2020 (December 31, 2019) (December 31, 2020) Non-listed shares 13,836 16,423 Long-term deposits 6,773 6,413 Long-term deposits for affiliates 26,583 25,125 For non-listed shares, there are no market prices and it is deemed extremely difficult to measure their current fair values. As a result, these are not included in “(3) Securities and investment securities.” For long-term deposits and long-term deposits for affiliates, it is not possible to estimate future cash flows and it is deemed extremely difficult to measure their current fair values. As a result, long-term deposits and long-term deposits for affiliates are not evaluated at the fair value.
3. Scheduled redemption of monetary receivables and securities with maturity after the consolidated accounts settlement date
2019 (December 31, 2019) (Million yen) More than one year More than five years Within one year More than 10 years but within five years but within 10 years Cash and deposits 38,442 - - - Notes and accounts receivable-trade 11,361 - - - Securities 2 - - - Total 49,806 - - - Note: Monetary receivables in this table do not include long-term accounts receivable-other, etc. without a specified period for collection.
2020 (December 31, 2020) (Million yen) More than one year More than five years Within one year More than 10 years but within five years but within 10 years Cash and deposits 37,349 - - - Notes and accounts receivable-trade 7,369 - - - Securities 2 - - - Total 44,720 - - - Note: Monetary receivables in this table do not include long-term accounts receivable-other, etc. without a specified period for collection.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
4. Scheduled repayment of short-term borrowings, bonds payable and long-term borrowings, and lease obligations after the consolidated accounts settlement date
2019 (December 31, 2019) (Million yen) More than one More than two More than three More than four More than five Within one year year but within years but within years but within years but within years two years three years four years five years Short-term borrowings 6,554 - - - - - Bonds payable - 66,745 - - - - Long-term borrowings 1,204 2,190 2,464 3,286 1,807 - Lease obligations 821 830 788 442 101 56,628 Total 8,580 69,767 3,253 3,728 1,908 56,628
2020 (December 31, 2020) (Million yen) More than one More than two More than three More than four More than five Within one year year but within years but within years but within years but within years two years three years four years five years Short-term borrowings 10,927 - - - - - Bonds payable 12,782 - - 65,938 - - Long-term borrowings 2,070 2,328 3,105 1,707 - - Lease obligations 792 750 423 101 105 57,829 Total 26,571 3,079 3,528 67,747 105 57,829
(Marketable Securities) 1. Available-for-sale securities 2019 (December 31, 2019) (Million yen) Amount in Cost of Type Consolidated Difference Acquisition Balance Sheet (1) Stocks - - - (2) Bonds Securities for which the 1) National/local government bonds, etc. - - - value posted on the 2) Corporate bonds - - - consolidated B/S exceeds their acquisition cost 3) Other bonds - - - (3) Others - - - Subtotal - - - (1) Stocks 578 1,584 (1,006)
Securities for which the (2) Bonds value posted on the 1) National/local government bonds, etc. - - - consolidated B/S does not 2) Corporate bonds - - - exceed their acquisition 3) Other bonds - - - cost (3) Others - - - Subtotal 578 1,584 (1,006) Total 578 1,584 (1,006) For non-listed shares, etc. (amount in the consolidated balance sheet of 13,836 million yen), there are no market prices and it is not possible to estimate future cash flows and is deemed extremely difficult to measure their current fair values. As a result, these are not included in this table.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2020 (December 31, 2020) (Million yen) Amount in Cost of Type Consolidated Difference Acquisition Balance Sheet (1) Stocks - - - (2) Bonds Securities for which the 1) National/local government bonds, etc. - - - value posted on the 2) Corporate bonds - - - consolidated B/S exceeds their acquisition cost 3) Other bonds - - - (3) Others - - - Subtotal - - - (1) Stocks 339 1,595 (1,255)
Securities for which the (2) Bonds value posted on the 1) National/local government bonds, etc. - - - consolidated B/S does not 2) Corporate bonds - - - exceed their acquisition 3) Other bonds - - - cost (3) Others - - - Subtotal 339 1,595 (1,255) Total 339 1,595 (1,255) For non-listed shares, etc. (amount in the consolidated balance sheet of 16,423 million yen), there are no market prices and it is not possible to estimate future cash flows and is deemed extremely difficult to measure their current fair values. As a result, these are not included in this table.
2. Available-for-sale securities sold 2019 (January 1 to December 31, 2019) There is no applicable information.
2020 (January 1 to December 31, 2020) There is no applicable information.
3. Marketable securities written down for impairment 2019 (January 1 to December 31, 2019) Market securities (stock of a non-consolidated subsidiary) of 369 million yen were written down. For the impairment of non-listed shares for which it is extremely difficult to determine a current fair value, there is a write- down for impairment in principle if the issuing company’s financial condition worsens and net assets per share fall to 50% or less of the acquisition cost. However, the final decision about whether or not to write down these shares is based on the prospects for a recovery in the value of each holding.
2020 (January 1 to December 31, 2020) Market securities (stock of available-for-sale securities of 1,040 million yen and stock of a non-consolidated subsidiary of 150 million yen) were written down by 1,191 million yen. For the impairment of non-listed shares for which it is extremely difficult to determine a current fair value, there is a write- down for impairment in principle if the issuing company’s financial condition worsens and net assets per share fall to 50% or less of the acquisition cost. However, the final decision about whether or not to write down these shares is based on the prospects for a recovery in the value of each holding.
(Derivative Transactions) There is no applicable information.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Retirement Benefits) 1. Retirement benefit plans Consolidated subsidiary Tiger Resort, Leisure and Entertainment, Inc. started a lump-sum retirement payment system as a non-contributory retirement benefit plan for the payment of retirement benefits to employees.
2. Defined benefit plan (1) Reconciliation of beginning and ending balances of retirement benefit obligation (Million yen) 2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Retirement benefit obligations at beginning of period 116 251 Service cost 59 73 Interest cost 9 9 Actuarial differences 66 (135) Payment of retirement benefit - (31) Effects of changes in foreign exchange rates (0) 0 Retirement benefit obligations at end of period 251 167
(2) Reconciliation of ending balance of retirement benefit obligation and net defined benefit liability recognized in the balance sheet (Million yen)
2019 2020
(December 31, 2019) (December 31, 2020) Retirement benefit obligation of non-contributory plan 251 167 Net liability recognized in the consolidated balance sheet 251 167 Net defined benefit liability 251 167 Net liability recognized in the consolidated balance sheet 251 167
(3) Components of retirement benefit expenses (Million yen)
2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Service cost 59 73 Interest cost 9 9 Amortization of actuarial differences 7 (4) Retirement benefit obligation of retirement benefit plan 75 78
(4) Remeasurements of defined benefit plans, net of tax Components of remeasurements of defined benefit plans (before deduction of tax effects) (Million yen)
2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Actuarial differences (59) 131
(5) Remeasurements of defined benefit plans, cumulative Components of cumulative remeasurements of defined benefit plans (before deduction of tax effects) (Million yen)
2019 2020
(December 31, 2019) (December 31, 2020) Actuarial differences 20 105
(6) Relevant information on assumptions for actuarial calculation
2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Discount rate 5.23% 3.95% Expected rate of salary increases 2.00% 2.00%
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Stock Options, etc.) 1. Stock option expenses and items There is no applicable information.
2. Amount posted as income from the expiration of stock options due to the non-exercise of the right (Million yen) 2019 2020
(January 1 to December 31, 2019) (January 1 to December 31, 2020) Gain on reversal of subscription rights to shares 3 5
3. Description, size and change of stock options (1) Description of stock options Stock Options in 2014 (Resolution adopted by the Ordinary Stock Options in 2017 Shareholders’ Meeting on June 26, 2014 and (Resolution adopted by the Board of Directors’ the Board of Directors’ meeting held on meeting held on September 21, 2017) October 31, 2014) Classification and number of Directors of the Company: 7 people to whom stock options Employees, etc. of the Company: 43 Executive Officer of the Company: 4 were granted Employees, etc. of the Company: 1 Number of stock options by Common stock: 124,000 shares Common stock: 400,000 shares class of shares (Note) Date of grant December 22, 2014 October 6, 2017 At the time of exercising the subscription 1) Person who received allocations of the rights to shares, each holder shall have the subscription rights to shares (hereinafter the position of director, or employee of the “Holder of the subscription rights to Company or any of its affiliates (defined in shares”) shall be able to exercise all or part Article 8 of “Regulations Concerning of the subscription rights to shares only in Terminology, Format, and Preparation the event that either of the two following Methods for Financial Statements). Provided, conditions is met. however, that this clause shall not apply to In the event that there is a significant cases where the Board of Directors finds a change in the concept of ordinary profit, justifiable reason for leaving the Company etc. to be referred to due to the adoption of before exercising the subscription rights to the IFRS or other reasons, any other shares, such as retirement from office due to indicator to be referred to shall be expiry of tenure and mandatory age-limit determined by the Board of Directors. retirement. (i) In the event that ordinary profit for the fiscal years ended December 31, 2018 and December 31, 2019 (ordinary profit on the Company’s audited consolidated or non- consolidated statements of income, same hereafter) meets all the conditions set forth below. (a) Ordinary profit for the fiscal year ended Vesting conditions December 31, 2018 must exceeded 30.0 billion yen. (b) Ordinary profit for the fiscal year ended December 31, 2019 must exceed 32.0 billion yen. (ii) In the event that the cumulative amount of ordinary profit for the fiscal years ended December 31, 2018 and December 31, 2019 has exceeded 80.0 billion yen. 2) In addition to 1) above, the Holder of the subscription rights to shares may exercise the subscription rights to shares only after the time when the closing price of the Company’s common stock for the regular trading session on the financial instrument exchange has become equal to or more than 130% of the Exercise Price of the subscription rights to shares even once during the period from the date of allotment of the subscription rights to shares to the end of the Exercise Period of the subscription rights to shares.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Stock Options in 2014 (Resolution adopted by the Ordinary Stock Options in 2017 Shareholders’ Meeting on June 26, 2014 and (Resolution adopted by the Board of Directors’ the Board of Directors’ meeting held on meeting held on September 21, 2017) October 31, 2014) 3) At the time of exercising the subscription rights to shares, each Holder of the subscription rights to shares shall have the position of director, Audit & Supervisory Board member or employee of the Company or any of its affiliates (defined in Article 8 of “Regulations Concerning Terminology, Format, and Preparation Methods for Financial Statements). Provided, however, that this clause shall not apply to cases where the Board of Directors finds a justifiable reason for leaving the Company before exercising the subscription rights to shares, such as retirement from office due to expiry of tenure and mandatory age-limit retirement. Subject period of employment - - Exercise period From December 23, 2016 to October 30, 2024 From April 1, 2020 to October 5, 2024 Note: The number of stock options is translated into the number of shares.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(2) Size and changes of stock options The following describes the size and changes of stock options that existed during the fiscal year ended December 31, 2020. The number of stock options is translated into the number of shares. i. Number of stock options (Shares) Stock Options in 2014 Stock Options in 2017 (Resolution adopted by the Ordinary Shareholders’ (Resolution adopted by the Board of Directors’ Meeting on June 26, 2014 and the Board of meeting held on September 21, 2017) Directors’ meeting held on October 31, 2014) Stock options not yet vested As of the end of the previous consolidated - 380,000 fiscal year Granted - - Forfeited - - Vested - 380,000 Balance of options not - - vested Stock options already vested As of the end of the previous consolidated 44,800 - fiscal year Vested - 380,000 Exercised 5,000 - Forfeited - - Balance of options not 39,800 380,000 exercised
ii. Per share prices (Yen)
Stock Options in 2014 Stock Options in 2017 (Resolution adopted by the Ordinary Shareholders’ (Resolution adopted by the Board of Directors’ Meeting on June 26, 2014 and the Board of meeting held on September 21, 2017) Directors’ meeting held on October 31, 2014) Exercise price 1,813 4,463 Average share price on 3,171 - exercise Fairly evaluated price as of the grant date 711 80 (Note) Note: This represents the fair value per share as of the grant date.
4. Method of calculating the fair value of stock options There is no applicable information.
5. Estimation method for the number of vested stock options Because it is basically difficult to reasonably estimate the number of stock options that will expire in future, the number of vested stock options reflects only the number of stock options that have actually forfeited.
(Additional Information) (Application of “Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which Involve Considerations, with Vesting Conditions”) For transactions for granting stock options with vesting conditions to employees and others prior to the start of applying “Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which Involve Considerations, with Vesting Conditions” (Practical Issues Task Force (PITF) No. 36, January 12, 2018), the previous accounting treatment continued to be applied as stipulated in PITF No. 36, Paragraph 10 (3).
1. Summary of stock options with vesting conditions This item is omitted because the same information is presented in “3. Description, size and change of stock options.” Stock
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020 options in 2017 fall under the category of those with vesting conditions.
2. Summary of accounting treatment When stock options are issued, the amount paid for the stock options is added to net assets as share acquisition rights. When a stock option is exercised to issue new shares, the amount paid when that stock option was issued and the amount paid when the stock option was exercised are transferred to capital stock and capital surplus. When a stock option expires or becomes invalid without being exercised, the amount corresponding to that stock option is recognized as a profit in the fiscal year in which the stock option expired or became invalid.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Tax-Effect Accounting) 1. Details of the causes for deferred tax assets and deferred tax liabilities (Million yen) 2019 2020 (December 31, 2019) (December 31, 2020) Deferred tax assets Loss on valuation of inventories 3,472 3,657 Provision for bonuses 27 28 Allowance for doubtful accounts 1,310 1,114 Amortization of long-term prepaid expenses 271 135 Net defined benefit liability 32 32 Foreign exchange losses (gains) 418 316 Amount in excess of depreciation 446 230 Loss on investment 143 143 Impairment loss 245 245 Investment securities/stocks of subsidiaries and 209 250 affiliates Loss carried forward for tax purposes (Note 2) 22,339 24,736 Interest equivalent for long-term advances paid 2,041 2,271 Reduction entry of dividend asset 15,033 15,033 Lease assets/obligations 2,609 3,644 Other 558 285 Subtotal deferred tax assets 49,159 52,125 Valuation allowance for loss carried forward for tax (19,674) (22,071) purposes (Note 2) Valuation allowance for total of future subtraction (23,402) (23,866) of temporary differences, etc. Subtotal valuation allowance (Note 1) (43,077) (45,938) Total deferred tax assets 6,082 6,187 Deferred tax liabilities Gain on valuation of non-current assets (30) (27) Foreign exchange losses (gains) (1,057) (219) Other (0) (0) Total deferred tax liabilities (1,088) (246) Net deferred tax assets 4,994 5,940 Notes: 1. There is a significant change in the amount deducted from deferred tax assets (valuation allowance). The primary component of this change is the increase in the valuation allowance in association with loss carried forward for tax purposes. 2. Amounts of the loss carried forward for tax purposes and the carryover deadline of the deferred tax asset
Previous Consolidated Fiscal Year (December 31, 2019) (Million yen) More than More than More than More than Within one one year but two years but three years four years but More than Total year within two within three but within within five five years years years four years years Loss carried forward for tax purposes (Note 2,664 2,003 4,677 - - 12,994 22,339 1) Valuation allowance - (2,003) (4,677) - - (12,994) (19,674) Deferred tax assets 2,664 - - - - - (Note 2) 2,664 Notes: 1. The loss carried forward for tax purposes is the amount obtained by using the statutory effective tax rate. 2. The loss carried forward for tax purposes of 22,339 million yen (based on the statutory effective tax rate) includes 2,664 million yen that was added to deferred tax assets. For this loss carried forward for tax purposes, due to the outlook for future taxable income, the portion that is believed to be recoverable is not recognized as a valuation allowance.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Current Consolidated Fiscal Year (December 31, 2020) (Million yen) More than More than More than More than Within one one year but two years but three years four years but More than Total year within two within three but within within five five years years years four years years Loss carried forward for tax purposes (Note 2,664 4,677 - - 5,507 11,886 24,736 1) Valuation allowance - (4,677) - - (5,507) (11,886) (22,071) Deferred tax assets 2,664 - - - - - (Note 2) 2,664 Notes: 1. The loss carried forward for tax purposes is the amount obtained by using the statutory effective tax rate. 2. The loss carried forward for tax purposes of 24,736 million yen (based on the statutory effective tax rate) includes 2,664 million yen that was added to deferred tax assets. For this loss carried forward for tax purposes, due to the outlook for future taxable income, the portion that is believed to be recoverable is not recognized as a valuation allowance.
2. Details of major items causing the significant difference between the statutory effective tax rate and the actual effective tax rate after the application of tax-effect accounting Details for 2019 and 2020 are omitted due to recording of a loss before income taxes and others.
(Business Combinations) There is no applicable information.
(Asset Retirement Obligations) Asset retirement obligations recorded in the consolidated balance sheet (a) Outline of the asset retirement obligations Lease contracts include an obligation to restore buildings and land to the original condition.
(b) Method for calculating the amount of asset retirement obligations Asset retirement obligations are calculated by using an estimated expected period of use of 50 years for the art museum and 47 years for the annex and a discount rate of 1.71%.
(c) Changes in the total amount of asset retirement obligations (Million yen) 2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Balance at the beginning of the period 395 398 Increase due to acquisition of property, plant and equipment - - Adjustment with elapse of time 3 3 Decrease due to fulfillment of asset retirement obligations - - Other increase (decrease) - - Balance at the end of the period 398 402
(Investment and Rental Property) There is no applicable information.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Segments of an Enterprise and Related Information) [Segment Information] 1. Outline of reportable segments The segments reported herein by the Company are the units constituting the company, of which segregated financial information is available and which are subject to periodical reviews by the Board of Directors so as to determine allocations of management resources and to evaluate business performance. The Company has established business divisions classified by products and services at the headquarters and each business division devises comprehensive strategies for domestic or overseas products and services and deploys its business activities. A consolidated subsidiary Azure USA, which was included in the Others segment, has been included in the Integrated Resort Business segment from the previous fiscal year. The change is being affected because Azure USA is expanding its business domains from the investment management business to casino equipment manufacturing and marketing business through the US subsidiary UE Technologies, Inc. As this will involve licensing management of casino equipment, the Aruze USA’s casino-related business is to be included in the Integrated Resort Business segment. Accordingly, the Company is composed of segments classified by products or services based on the business divisions and there are two reportable segments: “Amusements Equipments Business” and “Integrated Resort Business.” (1) “Amusement Equipments Business” includes research, development, manufacture and sales of Pachislot/ Pachinko machines and peripheral equipment. (2) “Integrated Resort Business” operates casino, hotel, food and beverage, retail and leasing, entertainment and real estate development business in Philippines.
2. Calculation method of net sales, profit/loss, assets, liabilities and other items in each reportable segment Accounting method applied to reportable segments is based on accounting policies for the preparation of consolidated financial statements. Values in segment profit/loss are based on operating profit. Inter-segment sales or transfer amounts are based on actual market prices.
3. Information pertaining to amounts of net sales, profit/loss, assets, liabilities and other items in each reportable segment 2019 (January 1 to December 31, 2019) (Million yen) Reportable Segment Amusement Integrated Resort Others (Note) Total Equipments Business Business Net sales Sales to external customers 51,687 71,408 1,509 124,605 Inter-segment sales or transfers - - 605 605 Total 51,687 71,408 2,115 125,211 Segment profit (loss) 10,811 (1,391) 531 9,951 Segment assets 58,830 460,001 6,503 525,334 Other items Depreciation 1,729 14,574 239 16,543 Increase in property, plant and 1,801 21,277 371 23,450 equipment and intangible assets Note: “Others” classification consists of business segments not included in any reportable segment and is inclusive of overseas business and others.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2020 (January 1 to December 31, 2020) (Million yen) Reportable Segment Amusement Integrated Resort Others (Note) Total Equipments Business Business Net sales Sales to external customers 61,792 27,699 1,200 90,693 Inter-segment sales or transfers - - 448 448 Total 61,792 27,699 1,649 91,142 Segment profit (loss) 20,382 (9,034) 276 11,624 Segment assets 65,607 444,561 6,517 516,686 Other items Depreciation 1,606 15,115 177 16,898 Increase in property, plant and 1,938 7,466 116 9,522 equipment and intangible assets Notes: 1. “Others” classification consists of business segments not included in any reportable segment and is inclusive of Overseas business and others. 2. “Depreciation” of 15,115 million yen in the Integrated Resort Business segment includes 8,733 million yen, which is included in “non-recurring loss” of 9,165 million yen in the consolidated statement of income.
4. Difference between the total amounts in reportable segment and the amounts recorded in consolidated financial statements and primary items of such difference (matters pertaining to difference adjustments) (Million yen) Net Sales 2019 2020
Total of reportable segments 123,096 89,492 Net sales in “Others” classification 2,115 1,649 Eliminated inter-segment transactions (605) (448) Corporate revenue (Note) 338 177 Net sales in consolidated financial statements 124,944 90,871 Note: Corporate revenue is mainly composed of art museum not attributed to any reportable segment. (Million yen) Profit 2019 2020
Total of reportable segments 9,420 11,348 Profit in “Others” classification 531 276 Eliminated inter-segment transactions (338) (199) Corporate revenue (Note 1) 338 177 Unallocated expenses (Note 2) (9,562) (9,046) Operating profit in consolidated financial statements 389 2,555 Notes: 1. Corporate revenue is mainly composed of art museum not attributed to the reportable segment. 2. Unallocated expenses are mainly composed of selling, general and administrative expenses not attributed to the reportable segment. (Million yen) Assets 2019 2020
Total of reportable segments 518,831 510,168 Assets in “Others” classification 6,503 6,517 Unallocated assets (Note) 47,903 51,816 Total assets in consolidated financial statements 573,238 568,502 Note: Unallocated assets are mainly composed of investments in affiliates, excess funds in working capital (cash and deposits and securities), land, etc. not attributed to the reportable segment.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Million yen) Total of Amounts in Reportable Others Adjusted Amounts Consolidated Financial Other Items Segments Statements 2019 2020 2019 2020 2019 2020 2019 2020 Depreciation 16,304 16,721 239 177 1,330 1,249 17,873 18,148 Increase in property, plant and equipment 23,078 9,405 371 116 445 500 23,895 10,022 and intangible assets Note: The adjusted amounts in increase in property, plant and equipment and intangible assets are unallocated investment amounts. [Related Information] 2019 (January 1 to December 31, 2019) 1. Information of each product and service Description of this item is omitted because same information is indicated in Segment Information.
2. Geographical information (1) Net sales (Million yen) Japan Philippines Other overseas countries Total 53,537 71,406 - 124,944
(2) Property, plant and equipment (Million yen) Japan Philippines Other overseas countries Total 20,923 402,995 2,695 426,614
3. Information of specific major customer Description of this item is omitted because there is no specific external customer whose sales exceed 10% or more of net sales in the consolidated statement of income.
2020 (January 1 to December 31, 2020) 1. Information of each product and service Description of this item is omitted because same information is indicated in Segment Information.
2. Geographical information (1) Net sales (Million yen) Japan Philippines Other overseas countries Total 63,172 27,698 - 90,871
(2) Property, plant and equipment (Million yen) Japan Philippines Other overseas countries Total 20,116 400,676 2,524 423,317
3. Information of specific major customer Description of this item is omitted because there is no specific external customer whose sales exceed 10% or more of net sales in the consolidated statement of income.
[Impairment Loss of Non-current Assets by Each Reportable Segment] 2019 (January 1 to December 31, 2019) There is no applicable information.
2020 (January 1 to December 31, 2020) There is no applicable information.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
[Amortization of Goodwill and Unamortized Balance by Each Reportable Segment] 2019 (January 1 to December 31, 2019) There is no applicable information.
2020 (January 1 to December 31, 2020) There is no applicable information.
[Gain on Bargain Purchase by Each Reportable Segment] 2019 (January 1 to December 31, 2019) There is no applicable information.
2020 (January 1 to December 31, 2020) There is no applicable information.
[Information on Related Parties] 1. Transactions with related parties (1) Transactions between the Company and related parties i. Parent company and major institutional shareholders, etc. of the Company 2019 (January 1 to December 31, 2019) Capital or Description of Business or Holding or Held Ratio of Category Name Location Investments Occupation Voting Rights Parent Okada Holdings China 9,362 million Investments in securities, 69.6% directly held company Limited (Hong Kong) HK$ etc.
Transaction Year-end Relationship with the Description of Category Name Amount Account Item Balance Related Party Transactions (Million yen) (Million yen) Other non- Parent Okada Holdings Control of shares of the Dividends 2,000 current 2,000 company Limited Company retained liabilities Transaction terms and policies in determining the terms: Note: The Company notifies the parent company of related party transactions and decisions about the suitability and propriety of the transactions are made from the standpoint of the asset management of the Company’s corporate group.
2020 (January 1 to December 31, 2020) Capital or Description of Business or Holding or Held Ratio of Category Name Location Investments Occupation Voting Rights Parent Okada Holdings China 9,362 million Investments in securities, 70.2% directly held company Limited (Hong Kong) HK$ etc.
Transaction Year-end Relationship with the Description of Category Name Amount Account Item Balance Related Party Transactions (Million yen) (Million yen) Other non- Parent Okada Holdings Control of shares of the - - current 2,000 company Limited Company liabilities Transaction terms and policies in determining the terms: Note: “Holding/Held Ratio of Voting Rights” is rounded down to the nearest second decimal place.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
ii. Non-consolidated subsidiaries and affiliates, etc. of the Company 2019 (January 1 to December 31, 2019) Capital or Description of Business or Holding or Held Ratio of Category Name Location Investments Occupation Voting Rights EAGLE I Philippines LANDHOLDINGS, 480 million PHP Investment business 40.0% indirectly held (Manila) Affiliated INC. company Manufacture and sale Shinawaga-ku, ZEEG Co. Ltd. 25 million yen of Pachinko and 50.0% directly held Tokyo Pachislot machines
Transaction Year-end Relationship with the Description of Category Name Amount Account Item Balance Related Party Transactions (Million yen) (Million yen) Long-term deposits for 26,583 affiliates EAGLE I Receipt of Long-term LANDHOLDINGS, Investment 5,593 funds deposits INC. received 5,477 from Affiliated affiliates company Interest income 40 Accrued interest 17 received
ZEEG Co. Ltd. Investment Loans (Note 3) 2,045 Long-term 2,591 Collection of loans receivable 2,800 loans Transaction terms and policies in determining the terms: Notes: 1. The transaction amount does not include consumption taxes, etc., whereas the year-end balance includes consumption taxes, etc. 2. Transaction terms are determined in the same fashion as regular transaction conditions taking market prices into consideration. 3. Details on loans are determined by consultation between both parties in consideration of market interest rates etc.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2020 (January 1 to December 31, 2020) Capital or Description of Business or Holding or Held Ratio of Category Name Location Investments Occupation Voting Rights EAGLE I Philippines LANDHOLDINGS, 480 million PHP Investment business 40.0% indirectly held (Manila) Affiliated INC. company Manufacture and sale Shinawaga-ku, ZEEG Co. Ltd. 25 million yen of Pachinko and 50.0% directly held Tokyo Pachislot machines
Transaction Year-end Relationship with the Description of Category Name Amount Account Item Balance Related Party Transactions (Million yen) (Million yen) Long-term deposits for 25,125 affiliates EAGLE I Investment Long-term LANDHOLDINGS, - - Shared directors deposits INC. received 5,175 from affiliates Affiliated Interest income company 52 Accrued interest 45 received Short-term Investment 6,425 loans receivable ZEEG Co. Ltd. Procurement of Loans (Note 3) 5,560 Long-term materials 1,725 loans receivable Procurement of Accounts 6,015 657 materials (Note 4) payable-trade Transaction terms and policies in determining the terms: Notes: 1. “Holding/Held Ratio of Voting Rights” is rounded down to the nearest second decimal place. 2. The transaction amount does not include consumption taxes, etc., whereas the year-end balance includes consumption taxes, etc. 3. Details on loans are determined by consultation between both parties in consideration of market interest rates etc. 4. Transaction terms are determined in the same fashion as regular transaction conditions taking market prices into consideration.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
iii. Executives and major individual shareholders, etc. of the Company 2019 (January 1 to December 31, 2019) Capital or Description of Business or Holding or Held Ratio Category Name Location Investments Occupation of Voting Rights (Million yen) Company, Koto-ku, Okada Holdings GK (Note 2) 10 Lease of real property, etc. None etc. with Tokyo majority voting rights Aruze Gaming America, Inc. Nevada, owned by 8 thousand US$ Gaming machine business None director or (Note 4) USA his close relatives Close Close relative of director 69.6% indirectly held relative of Kazuo Okada - - of the Company (Note 6) Director Representative Director Jun Fujimoto - - and President of the 0.8% directly held Company
Directors Hajime Tokuda - - Director of the Company 0.2% directly held
Kenshi Asano - - Director of the Company 0.1% directly held
Relationship Transaction Year-end Description of Category Name with the Related Amount Account Item Balance Transactions Party (Million yen) (Million yen) Company, etc. with Provision of guarantees - Guarantee deposits 141 majority Okada Holdings Rental of real voting GK (Note 2) property rights Payment of rents, etc. - Advances paid 12 owned by director or Aruze Gaming Sales of the Long-term his close America, Inc. Company’s Sales of products - accounts 292 relatives (Note 4) products receivable-other
Close Advances paid 43 Payment of Payment of rents, etc. relative of Kazuo Okada 10 rents, etc. (Note 3) Director Accrued expenses 58
Short-term loans Jun Fujimoto Loans Loans (Note 7) - 527 receivable
Short-term loans Directors Hajime Tokuda Loans Loans (Note 7) - 131 receivable
Short-term loans Kenshi Asano Loans Loans (Note 7) - 131 receivable Notes: 1. The transaction amount does not include consumption taxes, etc., whereas the year-end balance includes consumption taxes, etc. 2. 99.9% of its voting rights are indirectly held by Kazuo Okada, a close relative of a director of the Company and his close relatives. 3. Details on the payment of rents are determined by consultation between both parties in consideration of the business description. 4. 100% of its voting rights are directly or indirectly held by Kazuo Okada, a close relative of a director of the Company. 5. Rents are determined in the same fashion as regular transaction conditions taking market prices into consideration. 6. Ownership of the Company’s parent company, where Kazuo Okada, a close relative of a director of the Company, and his close relatives directly hold 100% of the voting rights. 7. Details on loans are determined by consultation between both parties in consideration of market interest rates etc.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2020 (January 1 to December 31, 2020) Capital or Description of Business or Holding or Held Ratio of Category Name Location Investments Occupation Voting Rights (Note 1) (Million yen) Company, Koto-ku, Okada Holdings GK (Note 3) 10 Lease of real property, etc. None etc. with Tokyo majority voting rights Aruze Gaming America, Inc. Nevada, owned by 8 thousand US$ Gaming machine business None director or (Note 4) USA his close relatives Close Close relative of director 70.2% indirectly held relative of Kazuo Okada - - of the Company (Note 5) Director Representative Director Jun Fujimoto - - and President of the 0.8% directly held Company
Hajime Tokuda - - Director of the Company 0.1% directly held
Directors Kenshi Asano - - Director of the Company 0.0% directly held
70.2% directly held Takako Okada - - Director of the Company (Note 8)
Transaction Relationship Year-end Description of Amount Category Name with the Related Account Item Balance Transactions (Million yen) Party (Million yen) (Note 2) Company, etc. with Provision of guarantees - Guarantee deposits 141 majority Okada Holdings Rental of real voting GK (Note 3) property rights Payment of rents, etc. - Advances paid 12 owned by director or Aruze Gaming Sales of the Long-term his close America, Inc. Company’s Sales of products - accounts 276 relatives (Note 4) products receivable-other Payment of rents, etc. Close 10 Advances paid 43 Payment of (Note 6) relative of Kazuo Okada rents, etc. Director Collection of deposits 24 Accrued expenses 50
Short-term loans Jun Fujimoto Loans Loans (Note 7) - 527 receivable
Short-term loans Hajime Tokuda Loans Loans (Note 7) - 131 receivable
Directors Short-term loans Kenshi Asano Loans Loans (Note 7) - 131 receivable
Purchase of Takako Okada Purchase of art (Note 9) 18 - - assets Notes: 1. “Holding/Held Ratio of Voting Rights” is rounded down to the nearest second decimal place. 2. The transaction amount does not include consumption taxes, etc., whereas the year-end balance includes consumption taxes, etc. 3. 99.9% of its voting rights are indirectly held by Kazuo Okada, a close relative of a director of the Company and his close relatives. 4. 100% of its voting rights are directly or indirectly held by Kazuo Okada, a close relative of a director of the Company. 5. Ownership of the Company’s parent company, where Kazuo Okada, a close relative of a director of the Company, and his close relatives directly hold 100% of the voting rights. 6. Details on payment of rent are determined by consultation between both parties in consideration of market prices. 7. Details on loans are determined by consultation between both parties in consideration of market interest rates etc. 8. Ownership of the Company’s parent company, where Takako Okada, a director of the Company, and her close relatives directly hold 100% of the voting rights. 9. The price is determined by mutual agreement based on the price at the time of purchase from a third party.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(2) Transactions between consolidated subsidiaries of the Company and related parties i. Executives and major individual shareholders of the Company, etc. 2019 (January 1 to December 31, 2019) Description of Holding or Capital or Category Name Location Business or Held Ratio of Investments Occupation Voting Rights Aruze Gaming Gaming Macau Limited China (Macau) 120 thousand US$ machine None (Note 2) business Shen Long Property Company, etc. with majority Batangas, Real estate Management, Inc. 8 million PHP None voting rights owned by Philippines development (Note 3) director or his close relatives Aruze Gaming Philippine, Batangas, Gaming machine 200 thousand US$ None Manufacturing Inc. Philippines business (Note 3)
Relationship Transaction Year-end Description of Account Category Name with the Amount Balance Transactions Item Related Party (Million yen) (Million yen) Aruze Gaming Purchase of Purchase of Accrued Macau Limited Gaming non-current 49 - expenses (Note 2) machines assets (Note 4) Accrued Payment of 8 expenses Shen Long Property Operation and rents, etc. 50 Company, etc. with majority Lease Management, Inc. development of (Note 4) 242 voting rights owned by obligations (Note 3) real estate director or his close relatives Provision of Guarantee - 14 guarantees deposits Aruze Gaming Manufacture Purchase of Philippine, and storage of Accrued non-current - 137 Manufacturing Inc. gaming expenses assets (Note 3) machines Notes: 1. The transaction amount does not include consumption taxes, etc., whereas the year-end balance includes consumption taxes, etc. 2. 100% of its voting rights are indirectly held by Kazuo Okada, a close relative of a director of the Company. 3. 99% of its voting rights are indirectly held by Kazuo Okada, a close relative of a director of the Company. 4. Purchase of non-current assets and payment of rents, etc. are determined in the same fashion as regular transaction conditions taking market prices into consideration.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2020 (January 1 to December 31, 2020) Description of Holding or Capital or Category Name Location Business or Held Ratio of Investments Occupation Voting Rights Aruze Gaming Gaming Macau Limited China (Macau) 120 thousand US$ machine None (Note 2) business Shen Long Property Company, etc. with majority Batangas, Real estate Management, Inc. 8 million PHP None voting rights owned by Philippines development (Note 3) director or his close relatives Aruze Gaming Philippine, Batangas, Gaming machine 200 thousand US$ None Manufacturing Inc. Philippines business (Note 3)
Relationship Transaction Year-end Description of Account Category Name with the Amount Balance Transactions Item Related Party (Million yen) (Million yen) Aruze Gaming Purchase of Purchase of Accrued Macau Limited Gaming non-current 36 - expenses (Note 2) machines assets (Note 4) Accrued Payment of 9 expenses Shen Long Property Operation and rents, etc. 48 Company, etc. with majority Lease Management, Inc. development of (Note 4) 230 voting rights owned by obligations (Note 3) real estate director or his close relatives Provision of Guarantee - 14 guarantees deposits Aruze Gaming Manufacture Purchase of Philippine, and storage of Accrued non-current - 132 Manufacturing Inc. gaming expenses assets (Note 3) machines Notes: 1. The transaction amount does not include consumption taxes, etc., whereas the year-end balance includes consumption taxes, etc. 2. 100% of its voting rights are indirectly held by Kazuo Okada, a close relative of a director of the Company. 3. 99% of its voting rights are indirectly held by Kazuo Okada, a close relative of a director of the Company. 4. Purchase of non-current assets and payment of rents, etc. are determined in the same fashion as regular transaction conditions taking market prices into consideration.
ii. Non-consolidated subsidiaries and affiliates of the Company 2019 (January 1 to December 31, 2019) Capital or Description of Business Holding or Held Ratio of Category Name Location Investments or Occupation Voting Rights EAGLE I Affiliated Philippines LANDHOLDINGS, 480 million PHP Investment business 40.0% indirectly held company (Manila) INC.
Transaction Year-end Relationship with Description of Category Name Amount Account Item Balance the Related Party Transactions (Million yen) (Million yen) EAGLE I Affiliated Lease of real Lease payments Accrued expenses 3,489 LANDHOLDINGS, 2,823 company property (Note) INC. Lease obligations 54,668 Note: Details on lease payments are determined by consultation between both parties in consideration of market price, etc.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2020 (January 1 to December 31, 2020) Capital or Description of Business Holding or Held Ratio of Category Name Location Investments or Occupation Voting Rights EAGLE I Affiliated Philippines LANDHOLDINGS, 480 million PHP Investment business 40.0% indirectly held company (Manila) INC.
Transaction Year-end Relationship with Description of Category Name Amount Account Item Balance the Related Party Transactions (Million yen) (Million yen) Accrued expenses 6,671 Lease payments 3,172 Lease of real (Note 1) Lease obligations 55,908 property Guarantee of bank loans EAGLE I received by the Affiliated LANDHOLDINGS, Company’s 14,386 company INC. consolidated subsidiaries Accrued expenses 19 Shared directors (Note 2)
Loan guarantee 19 payments
Notes: 1. Details on lease payments are determined by consultation between both parties in consideration of market price, etc. 2. EAGLE I LANDHOLDINGS guarantees the loans received from financial institutions by consolidated subsidiaries and the guarantee fees are determined by mutual agreement and at a reasonable level.
iii. Transactions between consolidated subsidiaries of the Company and related parties As was announced on September 4, 2017 in the release titled “Notice on Result of Investigation by Special Investigation Committee and Future Actions” (Japanese original version of the same release was disclosed on August 30, 2017), the results of the investigation performed by the Special Investigation Committee revealed that Kazuo Okada, a former director of the Company, was responsible for improper activities. As a result, the Company filed a lawsuit in The High Court of the Hong Kong Special Administrative Region on December 27, 2017 demanding that Mr. Okada pay damages regarding the following two receivables at Tiger Resort Asia Limited (“TRA”), a subsidiary of the Company.
(A) Loan from TRA to Goldluck Tech Limited Mr. Okada ordered TRA to extend a loan of HK$135 million to Goodluck Tech, where Li Jian is the CEO, for the purposes of repaying a loan extended by Okada Holdings Limited, a company owned by Mr. Okada and members of his family, as well as procuring funds for his personal use. Okada Holdings was the ultimate recipient of the funds provided by the loan to Goodluck Tech. HK$120,050 thousand (¥1,602 million at the end of the fiscal year) of this loan is recorded as an account receivable on TRA’s balance sheet.
(B) Check issued by TRA Mr. Okada ordered TRA to issue a check in the amount of HK$16 million for his personal benefit. He has endorsed the check, which is now a HK$16 million (¥213 million at the end of the fiscal year) receivable on TRA’s balance sheet.
As was announced on December 28, 2017 in the release titled “Announcement of a Damage Suit Filing by a wholly owned subsidiary of the Company,” the Company’s lawsuit filed in Hong Kong demands the payment of damages in the amount of HK$136,050 thousand (¥1,816 million at the end of the fiscal year), which includes TRA’s accounts receivables in (A) and (B), from Mr. Okada, Okada Holdings, Li Jian, Goldluck and others. If these two receivables are classified as receivables involving Mr. Okada, who is a former Company director and a close relative of a director, and Okada Holdings, where Company directors and their close relatives hold a majority of voting rights, the receivables must be disclosed as related party transactions. As was explained earlier, the Company believes that the facts concerning assets and liabilities involving these transactions should be revealed through litigation. Consequently, this information as of the end of the current consolidated fiscal year is provided for the purpose of supplying information that is useful for decisions made by individuals using the Company’s financial statements as of the end of the current consolidated fiscal year.
2. Notes regarding the parent companies and important affiliates Information on the parent companies Okada Holdings Limited (not listed)
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Per Share Information) 2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Net assets per share (Yen) 4,756.13 Net assets per share (Yen) 4,614.09
Net loss per share (Yen) (66.18) Net loss per share (Yen) (247.60)
Diluted net income per share (Yen) - Diluted net income per share (Yen) - Notes: 1. “Diluted net income per share” is not stated, because net loss was posted despite the existence of latent shares with a dilution effect. 2. The calculation bases for net loss per share and diluted net income per share are as follows: 2019 2020
(January 1 to December 31, 2019) (January 1 to December 31, 2020) Net loss per share (Yen) (66.18) (247.60) Net loss attributable to owners of the parent (5,191) (19,218) (Million yen) Amount not attributed to common shareholders - - (Million yen) Net loss attributable to owners of the parent (5,191) (19,218) applicable to common stock (Million yen) Average number of shares during the year 78,437 77,616 (Thousand shares)
(Material Subsequent Events) Although Tiger Resort, Leisure and Entertainment, Inc. a consolidated subsidiary of the Company, and EAGLE I LANDHOLDINGS, INC., an equity method affiliate of the Company, had entered into an agreement for the partial sale of owned land to a Philippine entity and the involved cancelation of lease rights for said land on February 14, 2020, the Company, at the meeting of its Board of Directors held on March 30, 2021, resolved to terminate said agreement on March 31, 2021. Details as follows: As a result of the global spread of COVID-19, the Company formally received a document from the proposed purchaser that includes the Property's transfer to be sold and the presentation of a certain amount of security deposit accompanying the extension on the settlement period. The parties had foreseen the resumption of economic activities following the lifting of the lockdown in the Republic of the Philippines, and were looking into concluding an agreement (tentative name) on changes to the existing land sales agreement. However, in response to the new threat of coronavirus variants as well as the spread of COVID-19, the Philippine government decided to continue restricting the entry of foreign nationals into the country, and it was difficult to negotiate the extension of the period as there was no prospect of resuming economic activities in the future. Furthermore, the Company took into account the new inquiries about the concerned land and decided to terminate the existing land sale agreement with exclusivity on March 31, 2021 to continuously proceed with the sale of concerned land, including the negotiation with other buyers.
v. Consolidated Supplementary Schedules [Detailed Statements of Bonds] Current Year Current Year Interest Company Redemption Stock Brand Issue Date Beginning Balance Ending Balance Rate Collateral Name Date (Million yen) (Million yen) (%) US dollar- denominated 12,782 December 66,745 December private (12,782) 8.50 Yes 11, 2018 [$609 million] 11, 2021 placement bond [$123 million] issued 2018 US dollar- denominated private Universal placement bond October 29, - 51,965 December 8.50 Yes Entertainment issued for the 2020 [-] [$502 million] 11, 2024 Corporation exchange with the existing notes 2020 US dollar- denominated private October 29, - 13,972 December 8.50 Yes placement 2020 [-] [$135 million] 11, 2024 additional bond issued 2020 78,720 Total - - 66,745 - - - (12,782) Notes: 1. The figures in parentheses represent the bond amounts scheduled to be redeemed within one year. 2. The figures in brackets represent the amount denominated in foreign currency. 3. The bond amounts scheduled to be redeemed within five years after the closing date of the consolidated fiscal year are 86
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
as follows: (Million yen) More than one year but More than two years More than three years More than four years Within one year within two years but within three years but within four years but within five years 12,782 - - 65,938 -
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
[Detailed Statements of Borrowings] Current Year Current Year Average Category Beginning Balance Ending Balance Interest Rate Due Date (Million yen) (Million yen) (%) Short-term borrowings 6,554 10,927 2.887 - Current portion of long-term borrowings 1,204 2,070 4.374 - Current portion of lease obligations 821 792 7.94 - Long-term borrowings (excluding those 9,749 7,141 4.374 June 2024 repayable within one year) Lease obligations (excluding those From February 2022 58,791 59,209 7.94 repayable within one year) to December 2061 Total 77,121 80,140 - - Notes: 1. The weighted average interest rate on the balance of borrowings at the end of fiscal year is stated as the average interest rate. 2. Long-term borrowings and lease obligations (excluding those repayable within one year) scheduled to be repaid within five years after the closing date of the consolidated fiscal year are as follows: (Million yen) More than one year but More than two years More than three years More than four years but
within two years but within three years but within four years within five years Long-term borrowings 2,328 3,105 1,707 - Lease obligations 750 423 101 105 Note: Repayments of lease obligations decrease steadily from “more than one year but within two years” to “more than four years but within five years” because of the inclusion of long-term leases with lease payments that increase. Although payments increase as the lease period progresses, interest expenses recorded for these leases early in the lease period are more than the lease payments. As a result, repayments of lease obligations decrease even though lease obligations increase.
[Detailed Statements of Asset Retirement Obligations] This information is omitted here because it is provided in the form of notes to the consolidated financial statements as prescribed in Article 15-23 of the Regulations for Consolidated Financial Statements.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(2) Others i. Quarterly information for 2020 Three months ended Six months ended Nine months ended Fiscal year ended Cumulative period March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 Net sales (Million yen) 40,770 65,647 77,142 90,871 Income (loss) before income taxes 2,926 3,454 (7,195) (19,735) and others (Million yen) Net income (loss) attributable to 3,123 3,410 (6,813) (19,218) owners of the parent (Million yen) Net loss per share (Yen) 40.05 43.87 (87.74) (247.60)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Each quarter January 1 to April 1 to July 1 to October 1 to March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 Net income (loss) per share (Yen) 40.05 3.82 (131.61) (159.86)
ii. Status after the account closing date There are no matters to report.
iii. Litigation As explained in the section “Information on Related Parties.”
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2. Non-consolidated Financial Statements, etc. (1) Non-consolidated Financial Statements i. Non-consolidated Balance Sheet (Million yen) 2019 2020 (December 31, 2019) (December 31, 2020) Assets Current assets Cash and deposits 12,016 20,271 Notes receivable-trade *3 1,237 *3 1,216 Accounts receivable-trade *1 5,758 *1 2,381 Merchandise and finished products 103 817 Work in process 10,746 11,866 Raw materials and supplies 12,847 9,535 Advance payments-trade 3,517 5,580 Prepaid expenses *1 540 *1 564 Short-term loans receivable *1 1,299 *1 7,398 Other *1 638 *1 1,188 Allowance for doubtful accounts (11) (9) Total current assets 48,695 60,811 Non-current assets Property, plant and equipment Buildings 8,406 8,359 Structures 616 551 Machinery and equipment 1,951 1,554 Lease assets 2,078 1,154 Tools, furniture and fixtures 2,794 3,431 Land 5,889 5,948 Other 11 4 Total property, plant and equipment 21,747 21,003 Intangible assets Software 379 242 Other 670 763 Total intangible assets 1,050 1,006 Investments and other assets Investment securities 99 86 Stocks of subsidiaries and affiliates *2 225,741 *2 225,623 Long-term advances paid to subsidiaries and affiliates 134,954 130,992 Long-term deposits 2,775 2,774 Long-term deposits for affiliates 12,912 *1 12,287 Other *1 10,440 *1 10,121 Allowance for doubtful accounts (299) (306) Total investments and other assets 386,623 381,579 Total non-current assets 409,421 403,589 Deferred assets 437 969 Total assets 458,554 465,370
90
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(Million yen) 2019 2020 (December 31, 2019) (December 31, 2020) Liabilities Current liabilities Notes payable-trade *3 3,184 *3 2,873 Accounts payable-trade *1 2,664 *1 1,922 Short-term borrowings *1 6,227 *1 5,727 Accounts payable-other *1 1,729 *1 1,293 Accrued expenses *1 925 *1 1,005 Accrued income taxes 40 40 Provision for bonuses 76 79 Other *1 2,167 *1 3,719 Total current liabilities 17,013 16,661 Non-current liabilities Bonds payable 66,745 78,720 Long-term lease obligations 1,725 978 Deposits received from subsidiaries and associates 7,470 7,058 Deferred tax liabilities 1,087 27 Asset retirement obligations 398 402 Other *1 2,902 *1 2,585 Total non-current liabilities 80,329 89,772 Total liabilities 97,342 106,433 Net assets Shareholders’ equity Capital stock 98 98 Capital surplus Legal capital surplus 7,503 7,503 Other capital surplus 12,759 12,758 Total capital surplus 20,262 20,261 Retained earnings Legal retained earnings 861 861 Other retained earnings General reserve 90,000 90,000 Retained earnings brought forward 255,503 255,000 Total retained earnings 346,365 345,862 Treasury shares (5,578) (7,317) Total shareholders’ equity 361,148 358,905 Valuation and translation adjustments Valuation difference on available-for-sale securities (3) (27) Total valuation and translation adjustments (3) (27) Subscription rights to shares 67 58 Total net assets 361,212 358,936 Total liabilities and net assets 458,554 465,370
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
ii. Non-consolidated Statement of Income (Million yen) 2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Net sales *1 54,812 *1 64,489 Cost of sales *1 31,322 *1 32,071 Gross profit 23,489 32,417 Selling, general and administrative expenses *1, 2 22,032 *1, 2 21,993 Operating profit 1,457 10,424 Non-operating income Interest income *1 83 *1 81 Dividend income 9 8 Reversal of allowance for doubtful accounts 1 96 Insurance claim income - 23 Other *1 16 *1 56 Total non-operating income 110 266 Non-operating expenses Interest expense *1 315 *1 205 Interest on bonds 7,171 7,405 Amortization of bond issuance cost 228 454 Commission fee 267 22 Foreign exchange losses 338 3,983 Other 0 22 Total non-operating expenses 8,322 12,094 Ordinary loss (6,754) (1,402) Extraordinary income Gain on sales of non-current assets 0 1 Gain on reversal of subscription rights to shares 3 5 Other 3 - Total extraordinary income 6 6 Extraordinary loss Loss on sales of non-current assets 25 8 Loss on valuation of shares of subsidiaries and - 117 associates Loss on liquidation of subsidiaries and associates 31 0 Total extraordinary losses 57 126 Loss before income taxes (6,804) (1,522) Income taxes-current 41 40 Income taxes-deferred (47) (1,060) Total income taxes (5) (1,019) Net loss (6,799) (503)
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
iii. Non-consolidated Statement of Changes in Equity 2019 (January 1 to December 31, 2019) (Million yen) Shareholders’ equity Capital surplus Retained earnings
Capital Legal Other Total Legal Other retained earnings stock capital capital capital retained Total retained surplus surplus surplus earnings General Retained earnings earnings reserve brought forward Balance at beginning of 98 7,503 12,761 20,264 861 90,000 270,170 361,031 current period Changes of items during period Dividends of surplus (7,867) (7,867) Net loss (6,799) (6,799) Purchase of treasury shares Disposal of treasury shares (1) (1) Net changes of items other
than shareholders’ equity Total changes of items - - (1) (1) - - (14,666) (14,666) during period Balance at end of current 98 7,503 12,759 20,262 861 90,000 255,503 346,365 period
Shareholders’ equity Valuation and translation adjustments Subscription Total net Total Valuation difference Total valuation rights to assets Treasury shares shareholders’ on available-for-sale and translation shares equity securities adjustments Balance at beginning of (2,764) 378,629 (9) (9) 76 378,696 current period Changes of items during period Dividends of surplus (7,867) (7,867) Net loss (6,799) (6,799) Purchase of treasury shares (2,834) (2,834) (2,834) Disposal of treasury shares 20 19 19 Net changes of items other - 5 5 (8) (2) than shareholders’ equity Total changes of items (2,813) (17,481) 5 5 (8) (17,483) during period Balance at end of current (5,578) 361,148 (3) (3) 67 361,212 period
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
2020 (January 1 to December 31, 2020) (Million yen) Shareholders’ equity Capital surplus Retained earnings
Capital Legal Other Total Legal Other retained earnings stock capital capital capital retained Total retained surplus surplus surplus earnings General Retained earnings earnings reserve brought forward Balance at beginning of 98 7,503 12,759 20,262 861 90,000 255,503 346,365 current period Changes of items during period Net loss (503) (503) Purchase of treasury shares Disposal of treasury shares (1) (1) Net changes of items other
than shareholders’ equity Total changes of items - - (1) (1) - - (503) (503) during period Balance at end of current 98 7,503 12,758 20,261 861 90,000 255,000 345,862 period
Shareholders’ equity Valuation and translation adjustments Subscription Total net Total Valuation difference Total valuation rights to assets Treasury shares shareholders’ on available-for-sale and translation shares equity securities adjustments Balance at beginning of (5,578) 361,148 (3) (3) 67 361,212 current period Changes of items during period Net loss (503) (503) Purchase of treasury shares (1,752) (1,752) (1,752) Disposal of treasury shares 13 12 12 Net changes of items other - (23) (23) (9) (32) than shareholders’ equity Total changes of items (1,738) (2,243) (23) (23) (9) (2,275) during period Balance at end of current (7,317) 358,905 (27) (27) 58 358,936 period
94
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
[Notes] Significant Accounting Policies 1. Valuation criteria and methods for assets (1) Valuation criteria and methods for marketable securities 1) Shares of subsidiaries and affiliates Cost method based on the moving average method. 2) Available-for-sale securities Securities having market value: Market value method based on market prices, etc., as of the closing date of the fiscal year. (Valuation differences are treated by the total direct capitalization method and the cost of securities sold is determined by the moving average method.) Securities without market value: Cost method based on the moving average method. (2) Valuation criteria and methods for derivatives Derivatives Market value method. (3) Valuation criteria and methods for inventories 1) Finished goods, raw materials and work in process Cost method based on the weighted average costing method. (The amount stated in the balance sheet was calculated by the book value write-down method based on a reduction in profitability.) For work in process concerning the production of content, etc., the specific costing method is applied. 2) Supplies Last purchase cost method. 2. Depreciation and amortization methods for non-current assets (1) Property, plant and equipment (excluding lease assets) The declining-balance method. Buildings (excluding facilities attached to buildings) acquired on or after April 1, 1998 and facilities attached to buildings and structures acquired on or after April 1, 2016, are depreciated using the straight-line method. Rental assets are depreciated evenly over the number of years that equals the contract period. Approximate useful lives: Buildings and structures: 7 to 50 years Machinery and equipment: 5 to 17 years Tools, furniture and fixtures: 2 to 20 years (2) Intangible assets (excluding lease assets) The straight-line method. Software intended for internal use is amortized using the straight-line method based on an estimated period of internal use (five years). (3) Lease assets The straight-line method is applied whereby the lease period is deemed the durable life and the remaining value is deemed zero. Finance lease transactions without transfer of ownership for which the lease transaction commenced on or before March 31, 2008, are accounted for in accordance with the method applicable to regular lease transactions. 3. Translation standard of foreign currency-denominated assets or liabilities into yen Monetary debts and credits denominated in foreign currencies are translated into yen at the spot exchange rates on the fiscal year-end date, with the differences resulting from such translations recorded as losses or profits. 4. Reporting basis for allowances (1) Allowance for doubtful accounts In the provision for possible losses on receivables caused by bad debts, an estimated uncollectible amount is reported based on their historical losses as to ordinary receivables and based on the consideration of feasibly recoverable amounts in individual cases of specific receivables for which collectability is a great concern. (2) Provision for bonuses In the provision for the future payment of employee bonuses, the anticipated amount of future bonus payments is reported. 5. Other significant matters for preparation of the financial statement Accounting procedure for consumption taxes Consumption taxes are accounted by the tax-exclusion method.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Changes in Accounting Policies There is no applicable information. Additional Information There is no applicable information. Changes in Description (Balance sheet) “Short-term loans receivable” which was included in “Other” under current assets in the previous fiscal year, has been separately stated in the current fiscal year due to the increased significance of the amount. In order to reflect changes in this presentation method, the financial statements for the previous fiscal year have been restated. As a result, “Other” under current assets totaled 1,938 million yen in the balance sheet for the previous fiscal year has been restated to “Short-term loans receivable” of 1,299 million yen and “Other” of 638 million yen.
(Statement of Income) “Reversal of allowance for doubtful accounts” which was included in “Other” under non-operating income in the previous fiscal year, has been separately stated in the current fiscal year due to the increased significance of the amount. In order to reflect changes in this presentation method, the financial statements for the previous fiscal year have been restated. As a result, “Other” under non-operating income totaled 1 million yen in the statement of income for the previous fiscal year has been restated to “Reversal of allowance for doubtful accounts.”
Non-consolidated Balance Sheet *1. Assets and liabilities relating to affiliated companies (excluding separately presented on the balance sheet) (Million yen) 2019 2020 (December 31, 2019) (December 31, 2020) Short-term monetary claims 3,348 8,439 Long-term monetary claims 3,016 8,148 Short-term monetary liabilities 6,881 6,824 Long-term monetary liabilities 2,049 2,049
*2. Assets pledged as collateral (Million yen) 2019 2020 (December 31, 2019) (December 31, 2020) Stocks of subsidiaries and affiliates 199,384 199,384 There are no secured liabilities.
*3. Notes matured at the end of the fiscal year and electric recorded receivable and payable With respect to accounting for notes matured at the end of the fiscal year and electric recorded receivable and payable, though the current fiscal year-end fell on a holiday for financial institutions, they were treated as though they were settled on the maturity date. The amount of notes matured at the end of the fiscal year and electric recorded receivable and payable are as follows. (Million yen) 2019 2020 (December 31, 2019) (December 31, 2020) Notes receivable 461 269 Electronic recorded receivable 1,333 155 Notes payable 1,259 500 Electronic recorded payable 230 9
Non-consolidated Statement of Income *1. Transactions with subsidiaries and affiliates Amount of business transactions (Million yen) 2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Net sales 2,402 2,286 Purchases 4,922 10,116 Selling, general and administrative expenses 108 94 Amount of non-business transactions 186 179
*2. Selling expenses accounted for about 5% of selling, general and administrative (SG&A) expenses for the previous and current fiscal years. General and administrative expenses accounted for about 95% of the SG&A expenses for the previous and current fiscal years.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Major components and their amounts of the selling, general and administrative expenses are as follows. (Million yen) 2019 2020 (January 1 to December 31, 2019) (January 1 to December 31, 2020) Research and development expenses 5,001 5,844 Salaries and allowances 2,479 2,823 Commission fee 3,806 3,738 Depreciation 2,551 2,392
Marketable Securities Detailed information on the shares of subsidiaries and affiliates (the amounts recorded on the non-consolidated balance sheet are 225,080 million yen for subsidiaries and 542 million yen for affiliates for the current fiscal year, and 225,080 million yen for subsidiaries and 660 million yen for affiliates for the previous fiscal year) is not provided because there are no market prices for these shares, and therefore it is extremely difficult to measure their current market value.
Tax-Effect Accounting 1. Details of the causes for deferred tax assets and deferred tax liabilities (Million yen) 2019 2020
(December 31, 2019) (December 31, 2020) Deferred tax assets (current) Provision for bonuses 26 27 Allowance for doubtful accounts 1,168 1,114 Loss on valuation of inventories 3,472 3,657 Amortization of long-term prepaid expenses 271 135 Loss on valuation of subsidiaries’ stocks 337 338 Loss on investment 143 143 Amount in excess of depreciation 380 164 Impairment loss 245 245 Foreign exchange losses (gains) - 316 Interest equivalent for long-term advances paid 2,041 2,271 Reduction entry of dividend asset 15,033 15,033 Investment securities/stocks of subsidiaries and affiliates 209 250 Loss carried forward for tax purposes 10,792 9,902 Other 211 130 Subtotal of deferred tax assets 34,334 33,730 Valuation allowance for loss carried forward for tax purposes (10,792) (9,902) Valuation allowance for total of future subtraction of temporary (23,542) (23,827) differences, etc. Subtotal valuation allowance (34,334) (33,730) Total deferred tax assets - - Deferred tax liabilities Gain on valuation of non-current assets (30) (27) Foreign exchange losses (gains) (1,057) - Total deferred tax liabilities (non-current) (1,087) (27) Net deferred tax liabilities (non-current) (1,087) (27)
2. Details of major items causing the significant difference between the statutory effective tax rate and the actual effective tax rate after the application of tax-effect accounting Details for 2019 and 2020 are omitted due to recording of a loss before income taxes and others.
Business Combinations There is no applicable information.
Significant Subsequent Events There is no applicable information.
97
Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
iv. Non-consolidated Supplementary Schedules [Detailed Statement of Property, Plant and Equipment, etc.] (Million yen) Accumulated Balance Balance as Depreciation Depreciation as of of or Balance at Category of Assets Increase Decrease or January 1, December Amortization Year-end Amortization 2020 31, 2020 for the Year at Year-end Property, plant and equipment Buildings 14,976 352 66 15,262 6,903 392 8,359 Structures 1,436 8 - 1,444 893 73 551 Machinery and equipment 5,487 79 103 5,463 3,908 429 1,554 Lease assets 6,243 - - 6,243 5,088 923 1,154 Tools, furniture and 15,443 1,755 360 16,837 13,406 1,065 3,431 fixtures Land 5,889 58 - 5,948 - - 5,948 Construction in progress - 141 141 - - - - Vehicles 195 - 25 170 165 5 4 Rental assets 166 - 30 136 136 - 0 Total property, plant and 49,839 2,395 728 51,506 30,502 2,890 21,003 equipment Intangible assets Software 5,780 174 - 5,955 5,712 311 242 Software in progress 643 220 128 736 - - 736 Telephone subscription 25 - - 25 - - 25 rights Other 2 - - 2 1 0 1 Total intangible assets 6,452 395 128 6,719 5,713 311 1,006 Deferred assets 682 986 - 1,668 699 454 969 Total deferred assets 682 986 - 1,668 699 454 969 Notes: 1. The major increases and decreases in the current fiscal year are as follows: Increase (Million yen) Company housing for Athlete club 172 Buildings Decrease (Million yen) Retirement 66 Machinery and Increase (Million yen) Assembly line modifications 23 equipment Decrease (Million yen) Sale 90 Increase (Million yen) Tools, furniture and fixtures 227 Tools, furniture and Increase (Million yen) Metal molds 1,508 fixtures Decrease (Million yen) Retirement 281 Decrease (Million yen) Sale 79 Increase (Million yen) Air conditioning renovation work 126 Construction in progress Decrease (Million yen) Air conditioning renovation work 126 Software Increase (Million yen) Game apps 85 Increase (Million yen) Internal system 98 Software in progress Decrease (Million yen) Game apps 94 2. Amounts at the beginning and end of the fiscal year are based on acquisition cost.
[Detailed Statement of Allowances] (Million yen) Decrease Decrease Balance as of Balance as of Category Increase (for Specific (for Other December 31, January 1, 2020 Purposes) Purposes) 2020 Allowance for doubtful accounts 310 9 - 3 316 Provision for bonuses 76 79 76 - 79 Note: The current fiscal year decrease in the allowance for doubtful accounts for other purposes is the result of the receipt of applicable payables.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
(2) Major Assets and Liabilities Omitted because the Company prepares consolidated financial statements.
(3) Others i. Status after the account closing date There are no matters to report.
ii. Litigation There is no applicable information.
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Section 6. Outline of Stock-Related Matters of the Company
Business year From January 1 to December 31 Ordinary Shareholders’ Meeting In March Record date December 31 Record date of dividend from June 30 and December 31 surplus Number of shares in one share 100 shares unit Purchase and additional purchase of shares less than one unit Administration office (Special Account) Sumitomo Mitsui Trust Bank, Limited Securities Agency Division 1-4-1, Marunouchi, Chiyoda-ku, Tokyo Administrator of the (Special Account) shareholder registry Sumitomo Mitsui Trust Bank, Limited 1-4-1, Marunouchi, Chiyoda-ku, Tokyo Agents - Purchasing and additional The amount prescribed separately as the one equivalent to the purchase fee commission fees for entrustment of sales and purchase of shares Public notice of the Company is done by electronic public notice. However, in case that the Company is not able to issue electronic public Method of public notice notices due to accidents or any other inevitable reasons, such notices shall be published in the Nihon Keizai Shimbun newspaper. URL for public notices: https://www.universal-777.com Special benefit for None shareholders Note: In the Articles of Incorporation of the Company, the rights pertaining to shares less than one unit are limited to the following: The Company’s shareholders cannot exercise the rights other than those stated below with respect to shares less than one unit in their possession. (1) Rights stipulated in each item of Paragraph 2, Article 189 of the Companies Act (2) Right to demand stipulated in Paragraph 1, Article 166 of the Companies Act (3) Right to receive allocations of shares solicited or subscription of share purchase warrants in accordance with the number of shares in each shareholder’s possession (4) Pursuant to the provision stipulated in the Shareholder Handling Rule, the right to demand that the Company sell numbers of shares that form one unit combined with shares less than one unit owned by the shareholder
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Universal Entertainment Corporation (Securities code: 6425) Financial Information for the Fiscal Year Ended December 2020
Section 7. Referential Information of the Company
1. Information Pertaining to the Parent Companies, etc., of the Company Okada Holdings Limited is the parent company of the Company provided for in Paragraph 1, Article 24-7 of the Financial Instruments and Exchange Act.
2. Other Referential Information The Company has submitted the following documents during the period from the beginning date of the current fiscal year to the date of submission of this Securities Registration Report. (1) Securities Registration Report, Attachments and Written Confirmation For the 47th period (from January 1, 2019 to December 31, 2019): Submitted to the Director-General of the Kanto Local Finance Bureau on March 27, 2020. (2) Internal Control Report and Attachments Submitted to the Director-General of the Kanto Local Finance Bureau on March 27, 2020. (3) Quarterly Reports and Written Confirmation 1st Quarter of the 48th period (from January 1, 2020 to March 31, 2020): Submitted to the Director-General of the Kanto Local Finance Bureau on May 29, 2020. 2nd Quarter of the 48th period (from April 1, 2020 to June 30, 2020): Submitted to the Director-General of the Kanto Local Finance Bureau on August 6, 2020. 3rd Quarter of the 48th period (from July 1, 2020 to September 30, 2020): Submitted to the Director-General of the Kanto Local Finance Bureau on November 12, 2020. (4) Report on the Status of Own Stock Purchase Reporting period (from March 1, 2020 to March 31, 2020); Submitted to the Director-General of the Kanto Local Finance Bureau on April 6, 2020. Reporting period (from April 1, 2020 to April 30, 2020); Submitted to the Director-General of the Kanto Local Finance Bureau on May 7, 2020. Reporting period (from May 1, 2020 to May 31, 2020); Submitted to the Director-General of the Kanto Local Finance Bureau on June 15, 2020. Reporting period (from June 1, 2020 to June 30, 2020); Submitted to the Director-General of the Kanto Local Finance Bureau on July 10, 2020.
Part II. Information on Guarantee Companies, etc., for the Company
There is no applicable information.
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Audit Report and Internal Control Audit Report by Independent Auditor March 30, 2021 Board of Directors Universal Entertainment Corporation UHY Tokyo & Co. Shinagawa-ku, Tokyo Akira Wakatsuki, CPA, Designated Partner and Managing Partner Tatsuya Kanome, CPA, Designated Partner and Managing Partner Yoshinori Kataoka, CPA, Designated Partner and Managing Partner
Auditor’s opinion To make audit certification pursuant to the provisions of Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act, we audited the consolidated financial statements of Universal Entertainment Corporation (the “Company”) included in the “Accounting” section of the Securities Registration Report for the consolidated fiscal year that commenced on January 1, 2020, and ended on December 31, 2020, which consisted of consolidated balance sheet, consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of cash flows, significant items serving as the basis for the preparation of the consolidated financial statements and other notes to consolidated financial statements and consolidated supplementary schedules. In our opinion, the consolidated financial statements referred to above present fairly, in all material aspects, the financial position of Universal Entertainment Corporation and its consolidated subsidiaries as of December 31, 2020, and their operating results and cash flows for the consolidated fiscal year ended on the same day, in accordance with the corporate accounting standards generally accepted as fair and appropriate in Japan.
Basis for auditor’s basis We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit on the consolidated financial statements section of this report. We are independent of the Company and its consolidated subsidiaries in accordance with the provisions related to professional ethics in Japan, and we have fulfilled other ethical responsibilities as an auditor. We believe that we obtained sufficient and appropriate audit evidence that forms the basis for expressing our opinions.
Responsibilities of management, Audit & Supervisory Board Members and Audit & Supervisory Board for the consolidated financial statements The Company’s management is responsible for the preparation and fair disclosure of the aforementioned consolidated financial statements in accordance with the corporate accounting standards generally accepted as fair and appropriate in Japan. This includes the establishment and operation of internal control systems that are regarded as necessary by management to ensure the preparation and fair disclosure of the consolidated financial statements without material misstatement due to fraudulence or errors. In preparing the consolidated financial statements, management is responsible for assessing whether it is appropriate to prepare the consolidated financial statements in accordance with the premise of a going concern, and for disclosing matters relating to going concern when it is required to do so in accordance with accounting principles generally accepted in Japan. Audit & Supervisory Board Members and the Audit & Supervisory Board are responsible for monitoring the execution of Directors’ duties related to designing and operating the financial reporting process.
Auditor’s responsibilities for audit on the consolidated financial statements The auditor’s responsibility is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to express an opinion on the consolidated financial statements from an independent standpoint in an audit report, based on audit. Misstatements can occur as a result of fraud or error, and are deemed material if they can be reasonably expected to, either individually or collectively, influence the decisions of users taken on the basis of the consolidated financial statements. The auditor makes professional judgment in the audit process in accordance with auditing standards generally accepted in Japan, and perform the following while maintaining professional skepticism. - Identify and assess the risks of material misstatement, whether due to fraud or error. Design and implement audit procedures to address the risks of material misstatement. The audit procedures shall be selected and applied as determined by the auditor. In addition, sufficient and appropriate audit evidence shall be obtained to provide a basis for the audit opinion. - In making those risk assessments, the auditor considers internal control relevant to the entity’s audit in order to design audit procedures that are appropriate in the circumstances, although the purpose of the audit of the financial statements and the accompanying supplementary schedules is not to express an opinion on the effectiveness of the entity’s internal control. 102
- Assess the appropriateness of accounting policies adopted by management and the method of their application, as well as the reasonableness of accounting estimates made by management and the adequacy of related notes. - Determine whether it is appropriate for management to prepare the consolidated financial statements on the premise of a going concern and, based on the audit evidence obtained, determine whether there is a significant uncertainty in regard to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If there is a significant uncertainty concerning the premise of a going concern, the auditor is required to call attention to the notes to the consolidated financial statements in the audit report, or if the notes to the financial statements and the accompanying supplementary schedules pertaining to the significant uncertainty are inappropriate, issue a modified opinion on the consolidated financial statements. While the conclusions of the auditor are based on the audit evidence obtained up to the date of the audit report, depending on future events or conditions, an entity may be unable to continue as a going concern. - Besides assessing whether the presentation of and notes to the consolidated financial statements are in accordance with accounting principles generally accepted in Japan, assess the presentation, structure, and content of the consolidated financial statements including related notes, and whether the consolidated financial statements fairly present the transactions and accounting events on which they are based. - Obtain sufficient and appropriate audit evidence regarding the financial information of the entity and its consolidated subsidiaries to express an opinion on the consolidated financial statements. The auditor is responsible for the direction, supervision and performance of the audit on the consolidated financial statements. The auditor remains solely responsible for its audit opinion. The auditor reports to Audit & Supervisory Board Members and the Audit & Supervisory Board regarding the scope and timing of implementation of the planned audit, material audit findings including material weaknesses in internal control identified in the course of the audit, and other matters required under the auditing standards. The auditor reports to Audit & Supervisory Board Members and the Audit & Supervisory Board regarding the observance of provisions related to professional ethics in Japan as well as matters that are reasonably considered to have an impact on the auditor’s independence and any safeguards that are in place to reduce or eliminate obstacles.
103
Basis for auditor’s opinion We conducted internal control audit in accordance with internal control auditing standards for financial reports generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor’s responsibilities for internal control audit for the audit of the consolidated financial statements section of this report. We are independent of the Company and its consolidated subsidiaries in accordance with the provisions related to professional ethics in Japan, and we have fulfilled other ethical responsibilities as an auditor. We believe that we obtained sufficient and appropriate audit evidence that forms the basis for expressing our opinions.
Responsibilities of management, Audit & Supervisory Board Members and Audit & Supervisory Board for the internal control audit reports The Company’s management is responsible for streamlining and operating its internal control concerning its financial reporting and preparing and fairly disclosing an internal control report in accordance with the evaluation standards for internal controls relating to financial reporting generally accepted as fair and appropriate in Japan. Audit & Supervisory Board Members and the Audit & Supervisory Board are responsible for monitoring and verifying the status of implementation and operation of internal control concerning financial reporting. There is a possibility that misstatements in financial reporting are not completely prevented or detected by the internal control systems concerning financial reporting.
Auditor’s responsibilities for internal control audit The auditor’s responsibility is to obtain reasonable assurance about whether the internal control audit reports are free from material misstatement and to express an opinion on the internal control audit reports from an independent standpoint in an internal control audit reports, based on internal control audit. The auditor makes professional judgment in the audit process in accordance with auditing standards for internal controls concerning financial reporting that are generally accepted in Japan, and perform the following while maintaining professional skepticism. - Auditing procedures are executed to obtain audit evidence supporting the results of evaluation of the internal control systems relating to financial reporting in the internal control report. The internal control auditing procedures are selected and applied at our discretion based on the importance of the internal control’s effects on the reliability of financial reports. - The internal control audit also includes a review of the overall presentation of the internal control report, including the statements made by management on the scope, procedures and results of evaluation on the internal controls relating to financial reporting. - Auditing procedures are executed to obtain sufficient and appropriate audit evidence supporting the results of evaluation of the internal control systems relating to financial reporting in the internal control report. The auditor is responsible for the direction, supervision and performance of the audit on the internal control audit reports. The auditor remains solely responsible for its audit opinion. The auditor reports to Audit & Supervisory Board Members and the Audit & Supervisory Board regarding the scope and timing of implementation of the planned internal control audit, the results of internal control audits, material weaknesses in internal control identified that need to be disclosed, results of corrective measures and other matters required under the internal control auditing standards. The auditor reports to Audit & Supervisory Board Members and the Audit & Supervisory Board regarding the observance of provisions related to professional ethics in Japan as well as matters that are reasonably considered to have an impact on the auditor’s independence and any safeguards that are in place to reduce or eliminate obstacles.
Vested interests Our firm and Managing Partners have no vested interests in the Company and its consolidated subsidiaries that should be disclosed in accordance with the provisions of the Certified Public Accountants Act. End
Notes: 1. The above is the digitized form of the matters described in the original audit report, and the original copy is in the custody of the Company. 2. The scope of the audit does not include the XBRL data.
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Independent Auditors’ Report March 30, 2021 Board of Directors
Universal Entertainment Corporation UHY Tokyo & Co. Shinagawa-ku, Tokyo Akira Wakatsuki, CPA, Designated Partner and Managing Partner Tatsuya Kanome, CPA, Designated Partner and Managing Partner Yoshinori Kataoka, CPA, Designated Partner and Managing Partner
Auditor’s opinion To make certification pursuant to the provisions of Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act, we audited the non-consolidated financial statements of Universal Entertainment Corporation (the “Company”) included in the “Accounting” section of the Securities Registration Report for the 48th business year that commenced on January 1, 2020, and ended on December 31, 2020, which consisted of non-consolidated balance sheet, non-consolidated statement of income, non-consolidated statement of changes in equity, significant accounting policies and other notes to non-consolidated financial statements and non-consolidated supplementary schedules. In our opinion, the non-consolidated financial statements referred to above present fairly, in all material aspects, the financial position of Universal Entertainment Corporation as of December 31, 2020, and its operating results for the fiscal year ended on the same day, in accordance with the corporate accounting standards generally accepted as fair and appropriate in Japan.
Basis for auditor’s basis We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the auditor’s responsibilities for audit on the non-consolidated financial statements section of this report. We are independent of the Company in accordance with the provisions related to professional ethics in Japan, and we have fulfilled other ethical responsibilities as an auditor. We believe that we obtained sufficient and appropriate audit evidence that forms the basis for expressing our opinions.
Responsibilities of management, Audit & Supervisory Board Members and Audit & Supervisory Board for the non- consolidated financial statements The Company’s management is responsible for the preparation and fair disclosure of the aforementioned non- consolidated financial statements in accordance with the corporate accounting standards generally accepted as fair and appropriate in Japan. This includes the establishment and operation of internal control systems that are regarded as necessary by management to ensure the preparation and fair disclosure of the non-consolidated financial statements without material misstatement due to fraudulence or errors. In preparing the non-consolidated financial statements, management is responsible for assessing whether it is appropriate to prepare the non-consolidated financial statements in accordance with the premise of a going concern, and for disclosing matters relating to going concern when it is required to do so in accordance with accounting principles generally accepted in Japan. Audit & Supervisory Board Members and the Audit & Supervisory Board are responsible for monitoring the execution of Directors’ duties related to designing and operating the financial reporting process.
Auditor’s responsibilities for audit on the non-consolidated financial statements The auditor’s responsibility is to obtain reasonable assurance about whether the non-consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to express an opinion on the non- consolidated financial statements from an independent standpoint in an audit report, based on audit. Misstatements can occur as a result of fraud or error, and are deemed material if they can be reasonably expected to, either individually or collectively, influence the decisions of users taken on the basis of the non-consolidated financial statements. The auditor makes professional judgment in the audit process in accordance with auditing standards generally accepted in Japan, and perform the following while maintaining professional skepticism. - Identify and assess the risks of material misstatement, whether due to fraud or error. Design and implement audit procedures to address the risks of material misstatement. The audit procedures shall be selected and applied as determined by the auditor. In addition, sufficient and appropriate audit evidence shall be obtained to provide a basis for the audit opinion. - In making those risk assessments, the auditor considers internal control relevant to the entity’s audit in order to design audit procedures that are appropriate in the circumstances, although the purpose of the audit of the financial statements and the accompanying supplementary schedules is not to express an opinion on the effectiveness of the entity’s internal control. - Assess the appropriateness of accounting policies adopted by management and the method of their application, as well as the reasonableness of accounting estimates made by management and the adequacy of related notes. - Determine whether it is appropriate for management to prepare the non-consolidated financial statements on the
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premise of a going concern and, based on the audit evidence obtained, determine whether there is a significant uncertainty in regard to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If there is a significant uncertainty concerning the premise of a going concern, the auditor is required to call attention to the notes to the non-consolidated financial statements in the audit report, or if the notes to the financial statements and the accompanying supplementary schedules pertaining to the significant uncertainty are inappropriate, issue a modified opinion on the non-consolidated financial statements. While the conclusions of the auditor are based on the audit evidence obtained up to the date of the audit report, depending on future events or conditions, an entity may be unable to continue as a going concern. - Besides assessing whether the presentation of and notes to the non-consolidated financial statements are in accordance with accounting principles generally accepted in Japan, assess the presentation, structure, and content of the non-consolidated financial statements including related notes, and whether the non-consolidated financial statements fairly present the transactions and accounting events on which they are based. The auditor reports to Audit & Supervisory Board Members and the Audit & Supervisory Board regarding the scope and timing of implementation of the planned audit, material audit findings including material weaknesses in internal control identified in the course of the audit, and other matters required under the auditing standards. The auditor reports to Audit & Supervisory Board Members and the Audit & Supervisory Board regarding the observance of provisions related to professional ethics in Japan as well as matters that are reasonably considered to have an impact on the auditor’s independence and any safeguards that are in place to reduce or eliminate obstacles.
Vested interests Our firm and Managing Partners have no vested interests in the Company that should be disclosed in accordance with the provisions of the Certified Public Accountants Act. End
Notes: 1. The above is the digitized form of the matters described in the original audit report, and the original copy is in the custody of the Company. 2. The scope of the audit does not include the XBRL data.
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Submitted document Written Confirmation Statutory basis Article 24-4-2, Paragraph 1 of the Financial Instruments and Exchange Act Agency receiving submission Director-General of the Kanto Local Finance Bureau Submission date March 31, 2021 Corporate name Kabushiki-gaisha Universal Entertainment Name in English Universal Entertainment Corporation Name and position of representative Jun Fujimoto, Representative Director and President Name and position of Chief Financial Officer Kenshi Asano, Director and CFO Location of headquarters Ariake Frontier Building Tower A, 7-26, Ariake 3-chome, Koto-ku, Tokyo Place available for public inspection Tokyo Stock Exchange, Inc. (2-1 Nihombashi Kabutocho, Chuo-ku, Tokyo, Japan)
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1. Matters Regarding the Appropriateness of Descriptions in the Financial Information Jun Fujimoto, Representative Director and President and Kenshi Asano, Director and CFO of Universal Entertainment Corporation (“the Company”), confirmed that the contents of the Company’s Financial Information of the 48th period (from January 1, 2020 through December 31, 2020) was appropriately stated pursuant to the Financial Instruments and Exchange Act.
2. Matters to Be Noted There is no applicable information.
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Submitted document Internal Control Report Statutory basis Article 24-4-4, Paragraph 1 of the Financial Instruments and Exchange Act Agency receiving submission Director-General of the Kanto Local Finance Bureau Submission date March 31, 2021 Corporate name Kabushiki-gaisha Universal Entertainment Name in English Universal Entertainment Corporation Name and position of representative Jun Fujimoto, Representative Director and President Name and position of Chief Financial Officer Kenshi Asano, Director and CFO Location of headquarters Ariake Frontier Building Tower A, 7-26, Ariake 3-chome, Koto-ku, Tokyo Place available for public inspection Tokyo Stock Exchange, Inc. (2-1 Nihombashi Kabutocho, Chuo-ku, Tokyo, Japan)
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1. Basic Framework for Internal Controls Concerning Financial Reports Representative Director and President Jun Fujimoto is responsible for establishing and operating internal controls for financial reports. The establishment and operation of these internal controls comply with the basic framework for internal controls in Business Accounting Council Opinion Statement concerning the Standards for Evaluations and Audits of Financial Report Internal Controls and the Standards for Implementing Internal Control Evaluations and Audits. Internal controls are intended to achieve their objectives within reasonable bounds by functioning as an integrated unit with all fundamental elements seamlessly linked. Consequently, preventing or identifying every false entry in financial reports by using internal controls for these reports may not be possible.
2. Scope of Evaluations, Record Date and Evaluation Procedure The evaluation of internal controls for financial reports was performed with a record date of December 31, 2020, the last day of the fiscal year. The evaluation was based on evaluation standards for financial report internal controls that are recognized as fair and proper. For this evaluation, there was an evaluation of internal controls (corporate internal controls) that have a significant influence on overall consolidated financial reports. The results of this evaluation were used to select operational processes for evaluations. For the evaluation of these processes, the selected processes were analyzed and items that have a significant influence on the reliability of financial reports were identified. Then the status and implementation of these items in relation to the applicable controls were evaluated in order to determine the effectiveness of internal controls. The scope of financial report internal control evaluations is the coverage required from the standpoint of the importance of influences on the reliability of financial reports of the Company, its consolidated subsidiaries and equity-method affiliates. The importance of influences on the reliability of financial reports was decided by taking into consideration the importance of monetary and qualitative influences. Based on the evaluation of corporate internal controls for the entire company and one consolidated subsidiary, a reasonable evaluation scope was determined for internal controls for operational processes. The coverage of evaluations for corporate internal controls does not include nine consolidated subsidiaries and three equity-method affiliates that are believed to be negligible with respect to their monetary and qualitative importance. For the scope of evaluations for internal controls for operational processes, the sales (after eliminations for consolidation) of all business sites in the fiscal year ended December 31, 2019 were added in order beginning with the location having the highest sales. Then the business sites that account for about two-thirds of total sales were classified as important business sites. At the selected important business sites, the operational process evaluation covered processes involving sales, receivables and inventories, which are items closely linked to business activities. In addition, irrespective of the important business sites selected, evaluations included operational processes that are important because of their influence on financial reports at certain other business sites. One category is businesses processes where there is a high probability of significant false entries and that are associated with important accounting items requiring estimates and forecasts. Another category is operational processes for businesses and operations that perform transactions with substantial risk.
3. Results of Evaluations Based on the results of the internal control evaluations described in the preceding section, the management has concluded that internal controls for financial reports were effective as of December 31, 2020.
4. Supplementary Information There is no applicable information.
5. Matters to Be Noted There is no applicable information.
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