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SA

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CO

.,LTD

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nnualRep

ort2007

SANKYO CO., LTD.

Annual Report 2007Year ended March 31, 2007

Board of Directors and Corporate Auditors(As of June 28, 2007)

ChairmanKunio Busujima*

Chief Executive OfficerHideyuki Busujima*

Executive Vice PresidentAkihiko Sawai*

Managing DirectorsKimihisa TsutsuiJunzo Hamaguchi

DirectorsYasuji SuzukiJunko TakimotoAkiyoshi SuzukiAkira YamadaHitoshi Eto

Standing Statutory AuditorShohachi Ugawa

Statutory AuditorToshiaki Ishiyama

Outside AuditorsYoshiro Sanada Fumiyoshi Noda

*Representative Directors

Corporate Data(As of March 31, 2007)

Company NameSANKYO CO., LTD.

Head Office6-460 Sakaino-cho, Kiryu-shi, Gunma 376-0002, JapanTelephone: 81(277)44-3161 Facsimile: 81(277)47-4523

Tokyo Head Office3-29-14 Shibuya, Shibuya-ku, Tokyo 150-8327, JapanTelephone: 81(3)5778-7777 Facsimile:81(3)5778-6731

Sanwa Plant2732-1 Sanwa-cho, Isesaki-shi, Gunma 372-0011, JapanTelephone: 81(270)40-7777 Facsimile: 81(270)22-3007

Established April 12, 1966Paid-in Capital ¥14,840millionNumber of Shares Authorized 144,000,000Number of Shares Issued 97,597,500Number of Employees 811Number of Shareholders 18,423

Stock Price Range

Stock Exchange ListingThe Tokyo Stock Exchange, First Section,Code Number 6417Transfer AgentThe Chuo Mitsui Trust and Banking Company, LimitedAuditorMISUZU Audit Corporation

5,000

10,000

15,000

20,000

25,000

1,700

3,400

5,100

6,800

8,500

(Thousands of Shares) (Yen)

Trading Volume (Thousands of Shares)

Stock Price (Yen)

32’07112111098765

’064

0 0

For Further Information Contact:Corporate Planning Division, SANKYO CO., LTD.3-29-14 Shibuya, Shibuya-ku, Tokyo 150-8327, JapanTelephone: 81(3)5778-7773 Facsimile: 81(3)5778-6731http://www.sankyo-fever.co.jp

37

Contents

1. Dear SANKYO Investors

2. Special Feature Revitalization of the SANKYO Brand

8. Divisional Review

11. Ground-Breaking Products

12. Corporate Governance

13. Consolidated Five-Year Summary

14. Financial Review

18. Consolidated Balance Sheets

20. Consolidated Statements of Income

21. Consolidated Statements of Changes in Net Assets

22. Consolidated Statements of Cash Flows

23. Notes to the Consolidated Financial Statements

36. Report of Independent Auditors

37. Board of Directors and Corporate Auditors / Corporate Data

Cautionary Statements with Respect to Forward-Looking Statements

Statements contained in this report with respects to the SANKYO Group’s plans,strategies and beliefs that are not historical facts are forward-looking statements aboutthe future performance of the SANKYO Group which are based on management’sassumptions and beliefs in light of the information currently available to it. Theseforward-looking statements involve known and unknown risks, uncertainties and otherfactors that may cause the SANKYO Group’s actual results, performance orachievements to differ materially from the expectations expressed herein.

Since its establishment in 1966, SANKYO Co., Ltd. has

been a source of pleasure for the Japanese people. As a

leading manufacturer of pachinko machines, we have fos-

tered pachinko as an immensely popular leisure activity

unique to Japan and enjoyed by millions of people.

From the very beginning, ingenuity has been the hallmark

of the SANKYO spirit. To cite just one example: our cre-

ation in 1980 of the highly entertaining Fever-type machine

equipped with a slot-machine movement revolutionized the

concept of pachinko machines. SANKYO’s track record as

a developer and manufacturer of pachinko machines that

set the pace in the pachinko industry is based on a tradi-

tion of out-of-the-box thinking and technological prowess.

The scope of SANKYO’s business extends beyond man-

ufacturing and sales of pachinko machines to encompass

production of pachislo machines as well as wide-ranging

equipment for pachinko parlors such as parlor manage-

ment computer systems, ball bearing supply systems and

prepaid card systems.

These strengths underpin SANKYO’s powerful presence

as a provider of cutting-edge items for pachinko parlors

and pachinko players nationwide.

Profile

1

By accomplishing its mission as the fore-most company in the pachinko andpachislo industries, SANKYO Groupendeavors to contribute to the develop-ment of healthy leisure activities and aspiritually fulfilling society. To sustaingrowth and increase profitability,SANKYO has undertaken to furtherstrengthen competitiveness in productdevelopment, production and marketing.At the same time, we are focusing effortson the development of compliance sys-tems and risk management. In this way,we aim to increase our shares of thepachinko and pachislo markets whilereinforcing the fundamentals of our busi-ness.

The business results for fiscal 2007,the year ended March 31, 2007, areexamined in the Financial Review sectionof this report.

The competitive environment in whichSANKYO Group operates is changingdrastically, as evidenced by the harshbusiness conditions confrontingpachinko parlor operators, the pur-chasers of our products, and M&A activi-ties on the part of competitors.Furthermore, a decrease in the numberof pachinko players, which is a problemchallenging the entire industry, has beena source of considerable concern inrecent years. Operating in these circum-stances, in fiscal 2007 the Group intro-duced various concept products to meetmarket needs and actively conducted thePachinko de ii egao (Big Pachinko Smile)campaign to increase the pachinko play-er population.

The Neon Genesis Evangelion series ofpachinko machines, marketed under theBisty brand, has been a major hit and ahallmark of SANKYO Group. The thirdproduct in the series, introduced inFebruary 2007, set a unit sales record ofnearly 200,000 machines, contributinggreatly to fiscal 2007 business results.

This success notwithstanding, theGroup posted disappointing businessresults that fell short of the initial forecast.We recognize that the major factor con-tributing to the unsatisfactory perfor-mance was a slump in sales of SANKYObrand pachinko machines: models ofmainstay pachinko machines andpachislo machines that failed to com-mand the attention of customers amidintensifying competition achieved onlymodest sales.

In fiscal 2008, the year beginning April1, 2007, we are determined to mount anall-out effort to increase earnings andmaximize enterprise value by expandingmarket share in order to recover from thedownturn in business performance in fis-cal 2007.

I request the continued guidance andsupport of our shareholders andinvestors in the coming years.

June 2007

Hideyuki Busujima,Chief Executive Officer

Hideyuki Busujima, Chief Executive Officer

Dear SANKYO Investors

2

Revitalization of theSANKYO Brand

Special Feature

Consolidated Financial HighlightsSANKYO CO., LTD. and Its Consolidated SubsidiariesYears ended March 31, 2007 and 2006

Thousands ofMillions of yen U.S. dollars

2007 2006 2007

For the year:

Net sales ¥197,723 ¥214,500 $1,674,342Operating income 54,910 72,138 464,985Net income 35,578 45,443 301,278

At year-end:

Total assets 420,504 406,611 3,560,878Total net assets 351,104 328,676 2,973,192

Yen U.S. dollars

Per share data:

Net income (basic) ¥365.26 ¥463.77 $3.09Cash dividends 100.00 100.00 0.85

Note: The U.S. dollar amounts in this report represent translations of Japanese yen, for convenience only, at the rate of ¥118.09=U.S.$1. See Note 2 to the consoli-dated financial statements.

3

A slump in sales of SANKYO brand pachinko machines

was a contributing factor to the poor business results in

fiscal 2007.

Since the establishment of SANKYO in 1966, SANKYOGroup has positioned the manufacture and sale ofpachinko machines as its core business, and in 1999SANKYO also entered the pachislo machine business.Since the launch of Fever in 1980, SANKYO has cementedits position as the foremost manufacturer in the pachinkomachine business. In addition, the alliance that subsidiaryBisty Co., Ltd. entered into with Fields Corporation in 2003triggered dramatic growth for Bisty as a second brand. Asa result, the Company succeeded in recording consolidat-ed net sales exceeding ¥200 billion and operating incomeexceeding ¥70 billion in fiscal 2005 and again in fiscal2006 by selling pachinko machines and pachislo machinesunder the SANKYO and Bisty brands, respectively, andcapturing a stable share of each market.

Nevertheless, in fiscal 2007 SANKYO was unable toachieve the business performance initially planned, primari-ly because of a slump in sales of SANKYO brand pachinkomachines, and both revenues and earnings decreased.Revitalization of the SANKYO brand is an urgent task for

ensuring continuation of the stable growth to whichSANKYO Group aspires.

Market Environment

Management believes that, at a time of major change inthe market environment against the backdrop of an indus-try slump in fiscal 2007, divergence of the Company’sestablished sales strategy from market needs adverselyaffected business results.

Around 2000, SANKYO’s customers, the parlor opera-tors, stepped up the opening of large parlors, in accor-dance with the “chain store” concept and underpinned bytheir greater ability to procure funds, while at the sametime accelerating the replacement of pachinko machineswith new models. In this environment, the Companyachieved favorable sales results by pursuing a strategy ofconstantly introducing pachinko machines at or above acertain level of quality and winning business from pachinkoparlors, which place importance on events to attract cus-tomers involving periodic model replacement.

However, the powerful trend toward larger pachinkoparlors has brought about stiff competition among theseparlors in addition to the traditional industry structure in

(Billions of yen)

Net Sales

200720062005200420030

50

100

150

200

250

(Billions of yen)

Net Income

200620062005200420030

10

20

30

40

50

(Thousands of units)

Pachinko

Sales Trends of Pachinko &Pachislo Machines

200620062005200420030

200

400

600

800

1,000

Pachislo

4

which small and medium-sized parlors were pitted againstlarge parlors, and competition has grown ever moreintense. Although efforts to increase the number ofpachinko and pachislo players are called for as a medium-term to long-term task to stem the decline in the playerpopulation, in the short term there has been a strong trendfor pachinko parlors to try to weather the competition byquickly introducing large numbers of game machines withhigh customer drawing power. As a result, many parlorsare showing a marked tendency to purchase large quanti-ties of the highest-quality, highly topical pachinkomachines, rather than periodically purchasing pachinkomachines of average or better quality.

Regrettably, apart from certain exceptions, the pachinkomachines SANKYO Group introduced in the market in fis-cal 2007, especially SANKYO brand machines, failed toadequately capture the attention of parlors or players. Tointroduce pachinko machines that captivate parlors andpachinko players and win their patronage, SANKYO hasidentified and examined issues that surfaced from thesummer of 2006 onward and begun implementing con-crete corrective measures.

Measures to Bring About Revitalization of the SANKYO

Brand

1) The Development and Introduction of Models that

Capture Attention

The Company has identified factors contributing to thedecline in the popularity of the SANKYO brand and identi-fied the following three priority tasks for brand revitalization.

1. Securing of licenses for major content2. Reinforcement of content creation3. Execution of effective advertising and promotional activities

About ten titles are launched by pachinko machine man-ufacturers each month. Previously, several of thosemachines would win popularity in the market. About a yearago, however, the market structure changed so that onlythe machines with the highest visibility sell well. For thisreason, the Company is actively acquiring well-known con-tent that can attract the attention of large numbers of peo-ple and engaging in effective advertising and promotionalactivities using television commercials and other advertis-ing media.

(Thousands of units)

0

1,000

2,000

3,000

4,000

5,000

Pachinko/Pachislo Industry Trend

200620052004200320022001200019991998199719961995199419931992CY1991

Number of shipped pachinko Number of shipped pachislo Number of installed pachinko Number of installed pachislo

Source: The Nikkoso, The Nichidenkyo and National Police Agency

5

Refusing to be satisfied with the stable level of qualityachieved to date, the Company will also conduct a reviewof its development systems with the aim of further enrich-ing the experience for players. An element of pachinkomachine development that is notably increasing in impor-tance is liquid crystal display (LCD) effects. The Companywill strive to realize game characteristics that appealstrongly to the emotions of players by incorporating storylines with which they can emphasize into the effects thatunfold on the LCD display, rather than merely pursuingsimple spectacle or visual impact.

2) Implementation of Concrete Initiatives

To secure licenses for major content, the Company hasaugmented and strengthened the functions of the previousPatent Department and newly established the IntellectualProperty Division to engage in business related to intellec-tual property, including licensing.

With regard to the reinforcement of content creation,major hit products are not born from the use of licenses ofwell-known content alone. Although high-profile licensedcontent is important as a stimulus to attract the interest of

pachinko players, a product becomes a major hit onlywhen the licensed content is effectively utilized in the gameof pachinko. For this reason, the Company has also con-ducted a review of its product development systems tomake it possible to incorporate the opinions not only ofsenior sales managers, but also of young sales representa-tives who work on the front lines in the market, and toreflect the latest market needs in product development.Based on the review of the development system initiated inthe summer of 2006, organizational changes were enactedin April 2007.

Finally, with regard to the conduct of effective advertis-ing and promotional activities, SANKYO will pursue a strat-egy grounded in B2B2C pull marketing to appeal not onlyto pachinko parlor operators, the actual buyers, but also topachinko players, the end users of our products. Televisioncommercials play a central role in the promotion strategy,with the Company aiming to foster loyalty to SANKYOproducts among pachinko players and to support the busi-ness of pachinko parlor operators by airing commercialsnot only before product launches, but also after sales activi-ties have wound down.

Players Needs

Promotions

Intellectual Property Division

Product Management

Division

SalesDivision

6

The first major product to reflect the above initiativesaimed at revitalization of the SANKYO brand is Koda KumiFever Live in Hall (July 2007 launch), which will be followedby a succession of new products.

Maximization of Stakeholder Benefits and Enhancement

of Enterprise Value

To sustain growth and increase profitability, SANKYOGroup is resolved to increase market share in the pachinkoand pachislo industries and to reinforce the fundamentalsof the business. In the mainstay pachinko machine busi-ness, the Group aims to further expand market share byaugmenting expertise in product planning, development,production, and marketing cultivated by sustaining a posi-tion among the market share leaders for a quarter of acentury. In the pachislo machine business, which SANKYOentered relatively recently, the Group is steadily raisingawareness of the SANKYO and Bisty brands and expand-ing market share step by step. The Group plans to secure

a solid position in the industry by increasing its competitiveadvantage in product planning, development, production,and marketing, a strategy similar to that pursued in thepachinko machine business.

With regard to the return of profits to shareholders, theCompany has a basic policy of implementing profit distrib-ution linked to consolidated business results. Specifically,the Company has adopted a basic profit distribution policythat incorporates a payout ratio of 20% of consolidated netincome as a guideline and plans to continuously increasedividends.

In keeping with the above basic policy, the Companypaid a dividend of ¥100 per share (including a ¥50 interimdividend) for fiscal 2007, resulting in a consolidated payoutratio of 27.4%.

The Company will strive to further improve business per-formance by effectively utilizing internal reserves tostrengthen product development, facilities investment, andmarketing.

Shareholders

SuppliersBusiness Partners

PachinkoParlors

PachinkoPlayers

LocalCommunities

Employees• High profit growth• Return of profit by means of

dividends etc.

• Job satisfaction• Good compensation

• Profitable game machines• Low-cost game machines

• Profitable business

• Game machines offering a good chance to win

• Interesting game machines

• Development of the area• Creation of employment

opportunities

7

©avex entertainment inc

KODA KUMI “FEVER LIVE IN HALL”

8

Divisional Review

Fever Powerful ZERO Neon Genesis Evangelion“she said, Don’t makeothers suffer for yourpersonal hatred”

©GAINAX.khara/ProjectEva.

Pachinko MachinesBusinessThis segment, which includes manufac-turing and sales of pachinko machinesand gauge boards, sales of related partsand pachinko machine-related royaltyincome, is SANKYO’s mainstay businessand accounted for 71.5% of net sales.

With regard to pachinko machines andpachinko machine gauges, the Group’smainstay products, the Neon GenesisEvangelion series, marketed under theBisty brand, won a favorable reputationin the market as a flagship series forSANKYO Group. Neon GenesisEvangelion “she said, Don’t make otherssuffer for your personal hatred” (intro-duced in February 2007), the third prod-uct in the series, became a major hit withunit shipments approaching 200,000machines. Unit sales of SANKYO brandmachines fell short of the level for theprevious year despite the introduction ofFever Powerful ZERO (introduced in May

(Billions of yen)

141.4 (71.5%)

Net Sales

Principal models introduced and numbersof machines sold during fiscal 2007(Only models with sales of 30,000 unitsor more are listed):

No. of machines soldPrincipal models Released (thousand machines)Indiana Jones April 2006 34

Powerful ZERO May 2006 61

Densha de GO! 2 June 2006 55

Vicky Chance August 2006 40

Matsuura Aya* August 2006 41

Chu-ra-island August 2006 38

Space Pirate Captain Herlock January 2007 46

Neon Genesis Evangelion “she said, Don’t make others suffer for your personal hatred”*

February 2007 184

*Bisty brand

9

2006), which emphasizes easy-to-under-stand game characteristics, FeverDensha de GO! 2 (introduced in June2006), a tie-up machine featuring well-known content, and Fever Space PirateCaptain Herlock (introduced in January2007).

Unit sales of pachinko machines andpachinko machine gauges fell 95,000units from the previous year to 640,000units, segment sales decreased 13.0%to ¥141.4 billion, and operating incomedecreased 21.9% to ¥52.2 billion.

Pachislo MachinesBusinessThis segment, which includes manufac-turing and sales of pachislo and palotmachines, sales of related parts andpachislo machine-related royalty income,accounted for 16.6% of net sales.

In the Pachislo machine business,SANKYO Group sold machines comply-ing with the former regulations as well as

Principal models introduced and numbersof machines sold during fiscal 2007(Only models with sales of 10,000 unitsor more are listed):

No. of machines soldPrincipal models Released (thousand machines)7Cafe May 2006 35Tomb Raider* August 2006 61

Battle Leaguer January 2007 15

Gao Gao Festival March 2007 14

*Bisty brand

Tomb Raider

© 2006 Core Design Ltd.Lara Croft and TombRaider are trademarks ofCore Design Lrd. All rightsreserved.Eidos and Eidoslogo are trademarks of theSCi Entertainment Group.All rights reserved.

Battle Leaguer

(Billions of yen)

32.9 (16.6%)

Net Sales

10

machines complying with the revisedregulations. The results for machinescomplying with the former regulationsreflected the Group’s astute timing inintroducing Nana Café (introduced inMay 2006) under the SANKYO brandand Tomb Raider (introduced in August2006) under the Bisty brand and thesemachines achieved a measure of salessuccess. With regard to machines com-plying with the revised regulations,although the Group introduced productsincluding Battle Leaguer (introduced inJanuary 2007) under the SANKYO brandand GTO (introduced in March 2007)under the Bisty brand, as demand formachines complying with the revisedregulations remained sluggish the Groupswitched to a plan involving a reductionin the number of models to be intro-duced during the fiscal year. As a result,although unit sales exceeded the prioryear level, revenue and profits decreasedyear on year owing to a higher sales ratiofor Bisty products and other factors.

Consequently, while unit sales ofpachislo machines rose 29,000 unitsfrom the previous year to 140,000 units,segment sales fell 3.3% from the previ-ous year to ¥32.9 billion, and operatingincome decreased 19.1% to ¥7.8 billion.

Ball Bearing SupplySystems BusinessBall bearing supply systems, card sys-tems, related equipment for parlors andball bearing supply system-related royaltyincome account for most of the sales ofthis segment, which contributed 11.1% ofnet sales.

The Group focused on selling the Luternanext-generation prepaid card system, anew product from Nippon Game CardCorporation, an affiliate accounted for bythe equity method, while InternationalCard System Co., Ltd., a newly consoli-dated subsidiary, contributed to bothsales and operating income. On theother hand, orders for installation of ballbearing supply systems decreased asthe trend toward concentration of capitalinvestment by parlor operators on gamemachines gained momentum. As aresult, segment sales rose 31.1% fromthe previous year to ¥22 billion, andoperating income decreased 20.5% to¥0.4 billion.

Other BusinessSales from this segment, consisting pri-marily of rental revenues of SANKYOCreate Co., Ltd., a consolidated sub-sidiary, rose 18.1% to ¥1.4 billion fromthe previous year, and operating incomeincreased 126.2% to ¥0.4 billion.

(Billions of yen)

22.0 (11.1%)

Net Sales

1.4 (0.8%)

(Billions of yen)Net Sales

11

Ground-breaking Products

New ProductsIn late July 2007, SANKYO launched Koda Kumi Fever Live in Hall, a pachinko machine based on a tie-up with KodaKumi, a recording artist who enjoys widespread fame and popularity for her extraordinary singing skills and power ofexpression.

The new machine, which the Company is counting on to revitalize the SANKYO brand, marks the first full modelchange in about three years. The machine is the first to use the Crystella pachinko machine casing that incorporatesmeticulously detailed visuals and stereo speakers producing powerful sound which, combined with the dynamic LCDdisplay visual presentation unique to pachinko machines, will enable users to enjoy presence, power, and excitement tothe fullest.

SANKYO is conducting major promotional activities for this machine with the aim of encouraging enjoyment by abroad spectrum of people. The Company ran a television commercial with 7,000 GRP (gross rating points), ten timesthe advertising volume necessary to ensure recognition of the commercial by all viewers. In addition, the Company heldlaunch exhibitions in major cities across Japan, including Tokyo, Osaka, Nagoya, and Fukuoka, and a special concert ina tie-up with Koda Kumi’s fan club. The Company will maximize the promotional impact Koda Kumi brings to the prod-uct through such activities as running advertisements in women’s magazines, which is unusual for a pachinko product,and issuing one million copies of Fever, a free newspapers for sales-promotion purposes, which will be easy to under-stand even for inexperienced pachinko players.

©avex entertainment inc

12

Corporate Governance

Basic Approach to Corporate Governance

Management StructureThe Company has adopted a Board of Statutory Auditorsmanagement structure, and the executive managementorganization consists of ten directors and four statutoryauditors (including two outside statutory auditors as ofJune 28, 2007). The Board of Directors meets regularlyand convenes additional meetings as necessary to decideimportant matters concerning management and to super-vise the execution of business. Also, the Company hasestablished the Management Council, consisting of thepresident, corporate officers, and key managers, whichholds regular monthly meetings. The Management Councildeliberates on matters for resolution by the Board ofDirectors, makes swift and appropriate decisions on suchmatters as strategy and the timely disclosure of importantinformation, and issues instructions to execute its deci-sions to the development, manufacturing, marketing, andadministrative departments and Group companies.

The Board of Statutory Auditors requests, as necessary,reports and explanations from the directors, independentauditors, and the Internal Auditing Section of theCorporate Planning Division, which serves as an internalaudit unit, and maintains systems for adequately monitor-ing the directors’ execution of business and legal compli-ance. The directors comply with the law, and in the eventthat a director discovers a materialfact that poses a significant risk tothe Company, the director promptlyreports the matter to the statutoryauditors. To monitor important deci-sion-making processes and thestate of execution of business, thedirectors attend meetings of theBoard of Directors and other impor-tant meetings to examine importantapproval requests and other docu-ments concerning the execution ofbusiness and request reports andexplanations of directors andemployees.

State of Development of Internal Control SystemsThe Company is deciding by means of resolutions of theBoard of Directors basic policies concerning the develop-ment and operation of internal control systems, in order toimplement the Company’s basic approach to corporategovernance of maintaining good relations with its stake-holders, including shareholders, the pachinko parlors thatare its customers, pachinko players, suppliers, the com-munities where we do business, and employees. In decid-ing the basic policy, management is mindful of theviewpoint of the Company’s stakeholders, especially theshareholders, and is placing priority on the reliability offinancial reporting, the effectiveness and efficiency of oper-ations, and the development and maintenance of compli-ance systems. The Administration Division is playing aleading role in the development of a group-wide internalcontrol system for which test operation began in April2007.

As permits and licenses mandated under the provisionsof laws including the Act to Control Businesses That MayAffect Public Morals are prerequisites for engaging in thedevelopment, manufacture, and sale of game machines,the principal business of SANKYO since its establishment,the Company operates in an environment in which it iseasy to foster awareness of compliance.

By accomplishing its mission as the foremost company in the pachinko and pachislo industries, SANKYO Groupendeavors to contribute to the development of healthy leisure activities and a spiritually fulfilling society.

The Company has many stakeholders, including its shareholders, the pachinko parlor operators that are its cus-tomers, pachinko players, suppliers, the communities where we do business, and employees. The conviction that oneof the most important management tasks is to maintain good relations with these stakeholders underpins our funda-mental approach to corporate governance.

SANKYO’s Corporate Governance Structure

General Meeting of Shareholders

Board of Statutory Auditors4 auditors

(including 2 outside auditors)

Board of Directors10 directors

Chairman

Chief Executive Officer

Management CouncilCorporate Planning Division

(Internal Auditing Section)Development,

manufacturing, marketing, and administrative

departments

Sales Strategy CouncilProduct Strategy

Council

Subsidiaries and affiliates

Indep

endent A

uditors

Ernst &

Young ShinN

ihon

Legal advisor

Tax accountant, etc.

Election/Dismissal Election/Dismissal

Cooperation

Audit

Report

Report

Audit

Audit

Advisory,guidance,

etc

Audit

Audit

Election/Dismissal

13

Five-Year SummarySANKYO CO., LTD. and Its Consolidated SubsidiariesYears ended March 31, 2007, 2006, 2005, 2004 and 2003


2007 2006 2005 2004 2003 2007

For the year:

Net sales ¥197,723 ¥214,500 ¥233,903 ¥151,726 ¥124,284 $1,674,342

Gross profit 92,982 108,545 106,570 67,759 52,103 787,383

Selling, general and administrative expenses 38,072 36,407 34,226 23,778 23,529 322,398

Operating income 54,910 72,138 72,344 43,981 28,574 464,985

Net income 35,578 45,443 45,887 27,294 18,595 301,278

Research and development expenditure 7,485 7,324 7,441 6,536 6,278 63,383

At year-end:

Total assets 420,504 406,611 418,886 297,104 270,912 3,560,878

Total net assets 351,104 328,676 288,523 244,715 219,611 2,973,192

Yen U.S. dollars

Per share data:

Net income ¥0,365.26 ¥0,463.77 ¥0,469.24 ¥0,278.37 ¥0,188.58 $03.09

Cash dividends 100.00 100.00 70.00 40.00 40.00 0.85

Net assets 3,603.59 3,371.93 2,959.27 2,517.81 2,258.76 30.51

%

Ratios:

Return on equity 10.5 14.7 17.2 11.8 8.8

Equity ratio 83.5 80.8 68.9 82.4 81.1

Note: 1. The U.S. dollar amounts in this report represent translations of Japanese yen, for convenience only, at the rate of ¥118.09=U.S.$1. See Note 2 to the consolidated fi-nancial statements.

2. Due to the change of the Accounting Standards, the conventional “shareholders’ equity” is presented as “net assets”. For details, please refer to Note 1(s)(2) to theConsolidated Financial Statements. According to the new standards, total net assets are defined as follows: Total net assets = total shareholders’ equity + valuation and translation adjustments + minority interests.

14

Financial Review

0

50

100

150

200

250Pachinko machines businesses

Pachislo machines businesses

Ball bearing supply systems businesses

Pachinko parlors businesses

Other businesses

Note: The pachinko parlors business is excluded from the segment information because the Company sold all its stake in Sanritsu Kigyo Co., Ltd., a pachinko parlor operator, which was previously included in the scope of consolidation.

(Billions of yen)

Net Sales

20072006200520042003

The Company’s financial position and operating results for the fiscal year ended March 31, 2007 (fiscal 2007), are ana-lyzed below.

Forward-looking statements in this annual report are based on SANKYO Group’s judgment as of the date of issue ofthis annual report.

Business Environment in Fiscal 2007

In fiscal 2007, the Japanese economy showed an underly-ing trend of gradual expansion as growth of private-sectorcapital investment accompanied upbeat corporate resultsand personal consumption developed solidly.

In the pachinko and pachislo industry, little time remainsuntil expiration of the three-year period for transitional mea-sures in line with the enforcement in July 2004 of revisedregulations governing game machines, and for pachinkoparlors the installation of game machines complying withthe revised game machine regulations has become obliga-tory. Whereas the installation rate for machines complyingwith the revised regulations in the pachinko machine mar-ket exceeded 90% as of March 2007, the installation ratein the pachislo machine market remained at the low level ofabout 20%. For this reason, pachinko parlor operators arecompelled to install a large quantity of compliant pachislo

machines in a limited period of time. In addition, amid adecline in the pachinko player population, pachinko parlorsare becoming more active than in the past in replacing oldmachines with new models, which is the key to attractingcustomers, and a gulf has opened up between those parloroperators possessing financial strength and those that donot.

For game machine manufacturers, the impact that differ-ences in product development capabilities, including theuse of superior content and sophisticated liquid crystal dis-play effects, have on business results is increasing, andcompetition among manufacturers is intensifying. Mergerand acquisition activity, for instance large listed manufac-turers bringing medium-sized manufacturers under theirwings as affiliated companies, is occurring here and there,and signs of industry consolidation have appeared.

Net Sales

During fiscal 2007 SANKYO Group engaged in productdevelopment to satisfy the wide-ranging amusement needsof pachinko and pachislo player by pursuing originality andpromoting intra-group competition through such means asseparate product development under the SANKYO andBisty brands. With the aim of further strengthening productdevelopment capabilities, SANKYO engaged in productdevelopment from a broad perspective, reinforcing humanresources by employing graduates of the Gaming and

Entertainment Business School operated by a Group affili-ate and pursuing alliances with other companies. Theseefforts notwithstanding, the Group did not achieve satisfac-tory results in fiscal 2007 as sales of mainstay pachinkomachines and sales of pachislo machines turned sluggishfrom the third quarter onward.

As a result of the above developments, consolidated netsales in fiscal 2007 fell ¥16.8 billion or 7.8% from the previ-ous year to ¥197.7 billion.

Cost of Sales, Selling, General & Administrative Expenses and Income

Cost of sales for fiscal 2007 amounted to ¥104.7 billion,having decreased ¥1.2 billion or 1.1% from the previousyear. However, gross profit fell 14.3% to ¥93.0 billion as aresult of a decline in net sales. The gross profit margindecreased 3.6 percentage points from the previous year to47.0%.

15

(Billions of yen)

Operating Income and Ratio of Operating Income to Net Sales

20072006200520042003

(%)(%)

Return on Sales (ROS)

200720062005200420030

5

10

15

20

25

(Billions of yen)

Gross Profit and Cost of sales

200720062005200420030

30

60

90

120

150

Operating Income (left scals)

Ratio of Operating Income to Net Sales

Gross Profit (left scals)

Cost of sales

0

20

40

60

80

0

10

20

30

40

Selling, general and administrative expenses increased¥1.7 billion or 4.6% from the previous year, mainly due tothe increase in sales commission paid to sales agents inline with the higher sales of Bisty-brand pachinkomachines. The ratio of selling, general and administrativeexpenses to net sales increased 2.2 percentage pointsfrom the previous year to 19.2%. As a result, operating

Segment Information by Business(Millions of yen)

Sales: 2007 Year-on-year change 2006

Pachinko machines business 141,405 -13.0% 162,482Pachislo machines business 32,916 -3.3% 34,047Ball bearing supply systems business 22,025 31.1% 16,806Other business 1,377 18.1% 1,165

Total 197,723 -7.8% 214,500

(Millions of yen)

Operating income: 2007 Year-on-year change 2006

Pachinko machines business 52,156 -21.9% 66,776Pachislo machines business 7,848 -19.1% 9,698Ball bearing supply systems business 424 -20.5% 533Other business 423 126.2% 187Elimination/Corporate -5,941 — -5,056

Total 54,910 -23.9% 72,138

Fiscal 2008 Forecast

For fiscal 2008 the Company forecasts a continuation ofstrong replacement demand for game machines despite thepersistence of a challenging business environment in thepachinko and pachislo industry.

SANKYO Group will concentrate on increasing sales ofmainstay pachinko machines and pachislo machines inorder to increase market share while also recovering fromthe dip in sales that occurred in fiscal 2007. In thepachinko machine business, the Group will engage in inno-vative product planning and development utilizing superiorcontent, actively implement a promotion mix centered onTV commercials to increase recognition of SANKYO Groupproducts among parlor operators and players, and lever-

age the higher recognition to increase sales. In the pachislomachine business, SANKYO will maintain flexibility in itspricing policy and systematically introduce new productswhile taking into account the schedules of pachinko parloroperators for the introduction of machines complying withthe revised regulations.

With regard to profits, although the ratio of operatingincome to net sales will decline from the previous yearowing to a change in the sales mix in line with the impact ofa model change of a pachinko machine frame and a strate-gic increase in advertising expenses and other operatingexpenses, the Company forecasts increases in revenuesand profits as indicated next page.

income declined ¥17.2 billion or 23.9% to ¥17.2 billion andthe ratio of operating income to net sales decreased 5.8percentage points from the previous year to 27.8%.

Recurring income fell 22.6% to ¥58.5 billion and net incomedecreased 21.7% to ¥35.6 billion. Net income per sharewas ¥365.26 compared with ¥463.77 for the previous year.

16

Assets, Liabilities, and Net Assets

Total assets at the end of fiscal 2007 increased ¥13.9 bil-lion from the previous fiscal year-end as current assetsincreased ¥8.1 billion and fixed assets increased ¥5.8 bil-lion. Liabilities decreased ¥8.5 billion primarily because of a

decrease in accrued income taxes. As a result, net assetsincreased ¥22.4 billion, and the equity ratio rose 2.7 per-centage points to 83.5%.

(%)

Return on Equity (ROE)Return on Assets (ROA)

20072006200520042003

(Billions of yen) (%)

Total Net Assets and Equity Ratio

200720062005200420030

80

160

240

320

400

0

20

40

60

80

100

0

5

10

15

20

25

(Billions of yen)

Total Assets

200720062005200420030

100

200

300

400

500

Total Net Assets (left scale)

Equity Ratio

Return on Equity (ROE)

Return on Assets (ROA)

ROA=(Operating income + Interest and dividend income + Interest on marketable securities) / Total assets (yearly average)

2008 forecasts Year-on-year change 2007 results

Net sales 240 billion yen 21.4% 197.7 billion yenOperating income 62 billion yen 12.9% 54.9 billion yenNet income 40 billion yen 12.4% 35.6 billion yen

Forecast of the Financial Position in Fiscal 2008

For fiscal 2008, the Company forecasts net cash providedby operating activities of ¥65.0 billion, net cash used ininvesting activities of ¥28.0 billion, and net cash used infinancing activities of ¥10.0 billion, primarily due to the pay-ment of cash dividends.

As a result, the Company forecasts an increase of ¥27.0billion in the cash balance at the end of fiscal 2008 com-pared to the figure at the end of the previous fiscal year.

Cash Flows

Cash and cash equivalents at the fiscal year-end were¥195.2 billion, having decreased ¥5.7 billion from the previ-ous fiscal year-end.

Cash flows from operating activitiesNet cash provided by operating activities increased ¥0.5billion from the previous year to ¥36.8 billion. The principalfactors increasing cash flows included income beforeincome taxes amounting to ¥58.1 billion, a decrease of¥5.5 billion in notes and accounts receivable-trade, and anincrease of ¥3.1 billion in other accounts payable. Cashoutflows included an increase of ¥3.1 billion in notes andaccounts payable-trade and income taxes paid amountingto ¥29.6 billion.

Cash flows from investing activitiesNet cash used in investing activities decreased ¥11.2 billionfrom the previous year to ¥31.4 billion. The decrease wasattributable to such factors as ¥3.2 billion in payments forthe purchase of fixed assets and cash outlays of ¥27.8 bil-lion due to an increase in the balance of financial instru-ments held by the Group.

Cash flows from financing activitiesNet cash used in financing activities increased ¥3.4 billionfrom the previous year to ¥11.2 billion. The principal itemwas ¥11.2 billion in cash dividends paid and the reason forthe increase in cash used was an increase in the cash divi-dend per share.

Risk Factors

Risks that may have an impact on the Group’s businessresults, stock price and financial position for fiscal 2008and beyond include the items described below.

Forward-looking statements in this document represent theGroup’s assumptions and judgment as of the end of fiscal2007, but do not cover all the potential risks.

17

Change in the market environmentThe principal customers of the Group’s core business,sales of game machines and ball bearing supply systems,are pachinko parlor operators nationwide. Therefore, deter-ioration of the business environment for pachinko parlors,accompanying reduction in demand or change in the mar-ket structure, determines the Group’s sales results.

While players are becoming more discriminating in theirevaluation of game machines, increasing numbers of rela-tively large-size parlors with more than 500 game machineshave been opened. This is the background to the tendencyin recent years for parlors to have a large number of unitsof certain hit title machines for long periods, which naturallyundermines sales of competitors’ products. Also, intensify-ing competition is reflected in the increasing number ofnew models debuting in the market. Therefore, if the timingof the introduction of one of the Company’s new productscoincides with the introduction of a competitor’s very pop-ular product, the Group’s sales plans and business resultsmay be affected.

The Group will strive to manufacture and sell gamemachines meeting the diverse needs of not only playersbut also parlors by fully utilizing original ideas, cutting-edgetechnology and other know-how.

RegulationsThe main business of the Group, namely, the development,manufacture and sales of game machines, is governed bythe Act to Control Businesses That May Affect PublicMorals and other regulations and is required to strictlycomply with the relevant laws and regulations. Thus, mate-rial revisions to relevant laws and regulations may affect theGroup’s sales plans and business results.

Intellectual property rightsA number of game machines introduced in recent yearsinvolve tie-ups with celebrities, animation characters andother popular characters. In accordance with this trend, asintellectual property rights, such as portrait rights andcopyrights of characters used for game machines, becomemore important to the business, conflicts concerning intel-lectual property are increasing.

In regard to the handling of characters, the Group con-ducts thorough investigations and takes the greatest possi-ble care to prevent such conflicts. The Company is alsoresponding to the growing importance of intellectual prop-erty by implementing organizational changes, notably theestablishment of the Intellectual Property Division on April1,2007. However, in the event that new intellectual proper-ty rights are approved without the Company’s knowledge,the Group may be subject to risks associated with claimsfor damage by the holders of the rights. In such case, if theGroup is deemed to be liable, the Group’s business resultsmay be affected.

Development of new modelsTo manufacture and sell a pachinko, pachislo or othergame machine, it is a prerequisite that the machine passesan official format inspection executed by a testing agency,such as Hotsukyo (Security Electronics andCommunications Technology Association), designated bythe National Public Safety Commission, in accordance withthe Enforcement Regulation of the Act to ControlBusinesses That May Affect Public Morals and other regu-lations. While it is necessary to satisfy the increasinglysophisticated expectations of players and keep abreast ofthe progress of game machine technology, in the eventthat it takes longer than expected for a format inspection ora machine of the Group is rejected by a format inspection,the Group’s business results might suffer. The Group willstrive to smoothly introduce new models in accordancewith the initial plan by capitalizing on its long-cultivatedproduct development capabilities and know-how.

(Billions of yen)

Depreciation

20072006200520042003

(Billions of yen)

Free Cash Flows

20072006200520042003-50

0

20

40

60

80

0

1

2

3

4

5

(%)

Payout Ratio

200720062005200420030

6

12

18

24

30

Net Cash Provided by Operating Activities

Net Cash Provided by (used in) Investing Activities

Free Cash Flows

18

Consolidated Balance SheetsSANKYO CO., LTD. and Its Consolidated SubsidiariesAs of March 31, 2007 and 2006

Thousands ofU.S. dollars

ASSETS Millions of yen (Note 2)

2007 2006 2007

Current assets:

Cash and deposits (Note 3) ¥156,999 ¥173,440 $1,329,486

Marketable securities (Notes 3 and 4) 71,880 40,363 608,688

Notes and accounts receivable-trade (Note 6) 57,293 61,955 485,164

Inventories (Note 7) 5,928 8,775 50,199

Deferred income taxes (Note 12) 1,893 2,362 16,030

Other current assets 9,632 8,716 81,565

Allowance for doubtful accounts (504) (595) (4,268)

Total current assets 303,121 295,016 2,566,864

Fixed assets:

Property, plant and equipment

Land 23,200 23,205 196,460

Buildings and structures 18,775 18,809 158,989

Machinery and equipment 19,339 17,249 163,765

Construction in progress — 209 —

61,314 59,472 519,214

Accumulated depreciation (19,429) (16,800) (164,527)

Total tangible fixed assets 41,885 42,672 354,687

Intangible fixed assets 185 204 1,567

Investments and other assets:

Investments in securities (Notes 4 and 5) 73,874 67,644 625,574

Long-term loans 31 33 263

Deferred income taxes (Note 12) 255 251 2,159

Other assets 2,625 1,218 22,229

Allowance for doubtful accounts (1,093) (427) (9,256)

Allowance for losses on investments in securities (379) — (3,209)

Total investments and other assets 75,313 68,719 637,760

Total fixed assets 117,383 111,595 994,014

Total assets ¥420,504 ¥406,611 $3,560,878

The accompanying notes are an integral part of these financial statements.

19


LIABILITIES AND NET ASSETS Millions of yen (Note 2)

2007 2006 2007

Current liabilities:

Notes and accounts payable-trade ¥ 39,234 ¥ 41,350 $ 332,238

Accrued income taxes 8,122 15,513 68,778

Reserve for Directors’ bonus 238 — 2,015

Other current liabilities 16,167 13,798 136,904

Total current liabilities 63,761 70,661 539,935

Long-term liabilities:

Accrued retirement allowances (Note 8) 3,406 3,078 28,842

Other long-term liabilities 2,233 4,196 18,909

Total long-term liabilities 5,639 7,274 47,751

Contingent liabilities (Note 9)

Net Assets:

Shareholders’ equity

Common stock:

Authorized :144,000,000 shares

Issued :97,597,500 shares 14,840 14,840 125,667

Capital surplus 23,883 23,821 202,244

Retained earnings 308,972 284,599 2,616,412

Treasury stock (670) (785) (5,673)

Total shareholders’ equity 347,025 322,475 2,938,650

Revaluation and transaction adjustments

Net unrealized gains on other securities (Note 4) 4,079 6,201 34,542

Total valuation and transaction adjustments 4,079 6,201 34,542

Total net assets 351,104 328,676 2,973,192

Total liabilities and net assets ¥420,504 ¥406,611 $3,560,878


20

Consolidated Statements of IncomeSANKYO CO., LTD. and Its Consolidated SubsidiariesFor the years ended March 31, 2007 and 2006


Millions of yen (Note 2)

2007 2006 2007

Net sales ¥197,723 ¥214,500 $1,674,342

Cost of sales 104,741 105,955 886,959

Gross profit 92,982 108,545 787,383

Selling, general and administrative expenses (Note 11) 38,072 36,407 322,398

Operating income 54,910 72,138 464,985

Other income (expenses):

Interest and dividend income 1,355 1,073 11,474

Equity in earnings of affiliates 1,750 1,808 14,819

Gain on sales of investment securities, net 249 571 2,109

Loss on sales or disposal of property, plant and equipment, net (192) (863) (1,626)

Provision for allowance for losses on investments in securities (379) — (3,209)

Other, net 428 455 3,623

Income before income taxes 58,121 75,182 492,175

Income taxes (Note 12):

Current 22,326 29,710 189,059

Deferred 217 29 1,838

Total income taxes 22,543 29,739 190,897

Net income ¥ 35,578 ¥ 45,443 $ 301,278

U.S. dollarsYen (Note 2)

Net income per share (Note 15):

Basic ¥365.26 ¥463.77 $3.09

Diluted — — —

Cash dividends per share 100.00 100.00 0.85


21

Consolidated Statements Of Changes In Net AssetsSANKYO CO., LTD. and Its Consolidated SubsidiariesFor the years ended March 31, 2007 and 2006

In millions of yen

Shareholders’ equity Revaluation and translation adjustments

Net Total unrealized revaluation

Total gains on and Number of Common Capital Retained Treasury Shareholders’ other translation Total net

shares issued stock surplus earnings stock equity securities adjustments assets

Balance at March 31, 2005 97,597,500 ¥14,840 ¥23,821 ¥247,259 ¥(749) ¥285,171 ¥3,352 ¥3,352 ¥288,523

Dividends from surplus (7,798) (7,798) — (7,798)

Bonuses to Directors (305) (305) — (305)

Net income 45,443 45,443 — 45,443

Net increase in treasury stock (36) (36) — (36)

Gain on sale of treasury stock 0 0 — 0

Net unrealized gain on other securities — 2,849 2,849 2,849

Balance at March 31, 2006 97,597,500 14,840 23,821 284,599 (785) 322,475 6,201 6,201 328,676


Bonuses to Directors (288) (288) — (288)

Net income 35,578 35,578 — 35,578

Increase arising from the increasing

amount of consolidated subsidiary 292 292 — 292

Net decrease in treasury stock 62 115 177 — 177

Net unrealized loss on other securities — (2,122) (2,122) (2,122)

Balance at March 31, 2007 97,597,500 14,840 23,883 308,972 (670) 347,025 4,079 4,079 351,104

Thousands of U.S. dollars (Note 2)

Shareholders’ equity Revaluation and translation adjustments

Net Total unrealized revaluation

Total gains on and Number of Common Capital Retained Treasury Shareholders’ other translation Total net

shares issued stock surplus earnings stock equity securities adjustments assets

Balance at March 31, 2006 97,597,500 $125,667 $201,719 $2,410,018 $(6,647) $2,730,757 $52,511 $52,511 $2,783,268


Bonuses to Directors (2,439) (2,439) — (2,439)

Net income 301,279 301,279 — 301,279

Increase arising from the increasing

amount of consolidated subsidiary 2,473 2,473 — 2,473

Net decrease in treasury stock 525 974 1,499 — 1,499

Net unrealized loss on other securities — (17,969) (17,969) (17,969)

Balance at March 31, 2007 97,597,500 125,667 202,244 2,616,412 (5,673) 2,938,650 34,542 34,542 2,973,192


22

Consolidated Statements of Cash FlowsSANKYO CO., LTD. and Its Consolidated SubsidiariesFor the years ended March 31, 2007 and 2006


Millions of yen (Note 2)

2007 2006 2007Cash flows from operating activities:

Income before income taxes ¥ 58,121 ¥ 75,182 $ 492,175 Depreciation and amortization 3,991 4,170 33,796 Gain on sales of investment securities, net (233) (571) (1,973)Loss on sales or disposal of property, plant and equipment, net 189 862 1,600 Increase in accrued retirement allowances 286 308 2,422 Interest and dividend income (1,355) (1,074) (11,474)Interest expense 7 — 59 Equity in earnings of affiliates (1,750) (1,808) (14,819)Decrease in notes and accounts receivable-trade 5,493 31,892 46,515 (Increase) decrease in inventories 2,869 (92) 24,295 Decrease in notes and accounts payable-trade (3,070) (44,268) (25,997)Decrease in accounts receivable related to onerous provisions 359 10,093 3,040 Increase in accounts payable-other 3,074 1,057 26,031 Increase in other current assets (2,964) (210) (25,100)Increase (decrease) in other current liabilities 98 (2,576) 830 Other 101 773 855

Sub total 65,216 73,738 552,255 Interest and dividend income received 1,139 836 9,645 Interest paid (7) — (59)Income taxes paid (29,598) (38,289) (250,639)

Net cash provided by operating activities 36,750 36,285 311,202

Cash flows from investing activities:Payment for purchase of marketable securities (4,693) (29,290) (39,741)Proceeds from sale of marketable securities 15,900 34,400 134,643 Payment for purchase of property,

plant and equipment and intangible fixed assets (3,245) (12,448) (27,479)Proceeds from sale of property,

plant and equipment and intangible fixed assets 26 1,167 220 Payment for purchase of investment securities (40,780) (40,163) (345,330)Proceeds from sale of investment securities 1,689 3,589 14,303 Payment for long-term loans (200) — (1,694)Proceeds from collection of long-term loans 200 406 1,694 Other (267) (186) (2,261)

Net cash used in investing activities (31,370) (42,525) (265,645)

Cash flows from financing activities:Payment for purchase of treasury stock (27) (58) (229)Proceeds from sales of treasury stock 3 1 25 Cash dividends paid (11,209) (7,798) (94,919)

Net cash used in financing activities (11,233) (7,855) (95,123)

Net increase in cash and cash equivalents (5,852) (14,095) (49,555)Cash and cash equivalents at beginning of year 200,835 214,930 1,700,694 Increase in cash and cash equivalents for increasing of a consolidated subsidiary 174 — 1,473

Cash and cash equivalents at end of year (Note 3) ¥195,157 ¥200,835 $1,652,612


23

1 Summary of Significant Accounting Policies(a) Basis of Presentation of Consolidated Financial StatementsThe accompanying consolidated financial statements have been prepared based on the accounts main-tained by SANKYO CO., LTD. (the “Company”) and its consolidated subsidiaries(the “Companies”) inaccordance with the provisions set forth in the Corporate Law of Japan and the Securities andExchange Law, and in conformity with accounting principles and practices generally accepted in Japan,which are different in certain respects from the application and disclosure requirements of InternationalFinancial Reporting Standards, and are compiled from the consolidated financial statements preparedby the Company as required by the Securities and Exchange Law of Japan.

Certain items presented in the consolidated financial statements submitted to the Director of theKanto Finance Bureau in Japan have been reclassified in these accounts for the convenience of readersoutside Japan.

(b) Consolidation PrinciplesThe consolidated financial statements include the accounts of the Company and its four significantwholly owned subsidiaries. The remaining unconsolidated subsidiaries have assets, net sales and netincome which are not significant in relation to those of the Companies, and, accordingly, the accountsof such subsidiaries have been excluded from consolidation.

In last year, DAIWA ELECTRIC CO.,LTD., a wholly owned subsidiary of the Company, was mergedinto SANKYO PLASTIC CO.,LTD., which is also a wholly owned subsidiary of the Company. SANKYOPLASTIC CO.,LTD. changed its name to SANKYO EXCEL CO.,LTD. on the same day.

In current period, INTERNATIONAL CARD SYSTEM CO.,LTD. was changed from an unconsolidatedsubsidiary to a consolidated subsidiary due to increase in materiality in net sales.

In accounting for the investments in unconsolidated subsidiaries and affiliates, over which the ability toexercise significant influence exists, with minor exceptions due to materiality, the equity method is used.

All significant intercompany transactions, account balances and unrealized profits among theCompanies have been eliminated on consolidation.

(c) Difference between The Cost of Investment and Equity in The Net Assets of a Subsidiary (2006)On the elimination of investments in the common stock of consolidated subsidiaries with the underlyingequity in the net assets of such subsidiaries, any difference between the cost of an investment in a sub-sidiary and the amount of underlying equity in the net assets of the subsidiary is charged to income forthe year.

(d) Foreign Currency TranslationAll monetary assets and liabilities denominated in foreign currencies, whether long-term or short-term,are translated into Japanese yen at the exchange rates prevailing at the balance sheet date. The result-ing gains and losses are included in net income or loss for the period.

(e) Cash and Cash EquivalentsCash and cash equivalents in the consolidated statements of cash flows are composed of cash onhand, bank deposits available for withdrawal on demand and short-term investments with an originalmaturity of three months or less and which represent a minor risk of fluctuations in value.

Notes to the Consolidated Financial Statements

24

(f) Allowance for Doubtful AccountsThe allowance for doubtful accounts is calculated on the basis of the actual bad debt rate for generalaccounts receivable and the assessed recoverability of individual doubtful accounts receivable.

(g) Reserve for Directors’ BonusReserve for directors’ bonus is provided for based on the estimated amounts payable at the end of cur-rent fiscal year.

(h) Marketable Securities and Investments in SecuritiesHeld-to-maturity debt securities that the Company and its consolidated subsidiaries intend to hold tomaturity are stated at cost after accounting for any premium or discount on acquisition, which is amor-tized over the period to maturity. Other securities for which market quotations are available are stated atfair value. Net unrealized gains or losses on these securities are reported as a separate item in netassets, net of taxes. Other securities for which market quotations are unavailable are stated at cost,except as stated in the paragraph below.

In cases where the fair value of held-to-maturity debt securities, equity securities issued by unconsoli-dated subsidiaries and affiliates not accounted for under the equity method, or other securities hasdeclined significantly and such impairment of value is not deemed temporary, those securities are writ-ten down to fair value and the resulting losses are included in net income or loss for the period.

(i) Inventories Inventories are stated at cost, determined as follows:

Finished goods, merchandise and raw materials Primarily, annual average methodWork in process Individual methodSupplies Last purchase price method

(j) Property, Plant and Equipment and DepreciationProperty, plant and equipment are stated at cost. Depreciation is computed principally by the declining-balance method at rates based on the estimated useful lives of the respective assets, except for build-ings, for which the straight-line method is applied.

Property, plant and equipment whose acquisition costs are more than ¥100,000 and less than¥200,000 are depreciated using the straight-line method over three years.

(k) Allowance for Losses on Investments in SecuritiesAllowance for losses of investment is provided at an estimated amount of possible investment losses forinvestment in affiliates etc, based on the financial condition of investees.

(l) Accrued Retirement Allowances The Company provides accrued retirement allowances for its employees, and directors and statutoryauditors.

The accrued retirement allowance for employees represents the estimated present value of projectedbenefit obligations, less/plus unrecognized actuarial differences and unrecognized prior service costs,which are amortized on a straight-line basis over a period of five years from the year in which they arise.

25

The accrued retirement allowance for directors and statutory auditors was made at 100 percent ofthe liability which would be required to be paid if all eligible directors and statutory auditors were to leavethe Company at the balance sheet date.

(m) LeasesLeases that transfer substantially all the risks and rewards of ownership of the assets to the lessee areaccounted for as capital leases, except that leases that do not transfer ownership of the assets at theend of the lease term are accounted for as operating leases, in accordance with accounting principlesand practices generally accepted in Japan.

(n) Research and Development and Computer SoftwareResearch and development expenses are charged to income as incurred.

Expenditures relating to computer software developed for internal use are charged to income asincurred, except where the software contributes to the generation of income or to future cost savings, inwhich case such expenditures are capitalized and amortized using the straight-line method over theestimated useful life of the software (five years).

(o) Income TaxesIncome taxes of the Company and its consolidated subsidiaries consist of corporate income taxes, localinhabitants’ taxes and enterprise taxes.

The Company and its consolidated subsidiaries have adopted the deferred tax accounting method.Income taxes are determined using the asset-and-liability approach, whereby deferred tax assets andliabilities are recognized in respect of temporary differences between the tax basis of assets and liabili-ties and those as reported in the financial statements.

(p) Appropriation of Retained EarningsThe Corporate Law of Japan stipulates that appropriations of retained earnings require approval by theshareholders at an ordinary general meeting. The appropriations of retained earnings are, therefore, notreflected in the consolidated financial statements for the period to which they relate but are recorded inthe consolidated financial statements in the subsequent accounting period after shareholders’ approvalhas been obtained.

(q) Net Income and Dividends per ShareNet income per share of common stock shown in the accompanying consolidated statements ofincome is computed based on the weighted average number of shares outstanding during each year.

Cash dividends per share shown in the accompanying consolidated statements of income representdividends declared and paid as applicable to the respective fiscal year.

(r) ReclassificationCertain reclassifications of previously reported amounts have been made to conform with current classi-fications.

26

(s) Change in Accounting Policy

(1) Impairment of Property, Plant and Equipment (2006)On August 9, 2002, the Business Accounting Council of Japan issued new accounting standards enti-tled “Statement of Opinion on the Establishment of Accounting Standards for Impairment of FixedAssets”. Further, on October 31, 2003, the Accounting Standards Board of Japan issued FinancialAccounting Standards Implementation Guidance No. 6 - “Application Guidance on AccountingStandards for Impairment of Fixed Assets”. These standards were effective from the fiscal years begin-ning April 1, 2005.

The Companies adopted these standards in the fiscal year ended March 31, 2006. As a result, prop-erty, plant and equipment decreased by ¥10 million, and income before income taxes and minority inter-est for the year ended March 31, 2006 decreased by the same amount, as compared with the amountwhich would have been reported if the previous standards had been applied consistently.

The sale of property, plant and equipment concerned was completed during last fiscal year.

(2) Accounting Standard for Presentation of Net Assets in The Balance SheetEffective from the year ended March 31, 2007, the Company has applied “Accounting standards forpresentation of net assets in the balance sheet (Accounting Standards Board of Japan StatementNo.5)”, and “Implementation guidance for Accounting standards for presentation of net assets in thebalance sheet (Accounting Standards Board of Japan Guidance No.8)” both issued by the AccountingStandards Board of Japan on December 9, 2005.

“Net assets” in the balance sheets for this year is presented according to the revision of “RegulationsConcerning the Terminology, Form and Presentation Methods of Consolidated Financial Statements”dated on April 25, 2006. Furthermore, the Company presented its net assets in the balance sheetsusing the new presentation as of March 31, 2006.

The consolidated statements of changes in net assets for the fiscal year ended March 31, 2006 arepresented under the new standard.

(3) Accounting standard for Directors’ bonusEffective from the year ended March 31, 2007, the Company applied “Accounting standard for direc-tors’ bonus (Accounting Standards Board of Japan Statement No.4)” issued by the AccountingStandards Board of Japan on November 29, 2005.

As a result of the application of this standard, operating profit, ordinary income and income beforeincome taxes for the year ended March 31, 2007 decreased by ¥238 million.

2 U.S. dollar AmountsAmounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of¥118.09=U.S.$1, the rate of exchange on March 31, 2007, has been used for the translation. The inclu-sion of such amounts is not intended to imply that Japanese yen have been or could be readily convert-ed, realized or settled in U.S. dollars at this or any other rate.

27

3 Cash and Cash EquivalentsA reconciliation of cash and cash equivalents to the accounts disclosed on the balance sheet at March31, 2007 and 2006 were as follows:


2007 2006 2007

Cash and deposits ¥156,999 ¥173,440 $1,329,486Marketable securities 71,880 40,363 608,688

Total 228,879 213,803 1,938,174Bonds and debentures, investment funds and others (33,722) (12,968) (285,562)Cash and cash equivalents ¥195,157 ¥200,835 $1,652,612

4 Marketable Securities and Investments in SecuritiesMarketable securities and investments in securities at March 31, 2007 and 2006 were as follows:

(a) Held-to-Maturity debt securitiesMillions of yen

2007 2006Gross Gross Gross Gross

Carrying unrealized unrealized Market Carrying unrealized unrealized Marketamounts gains losses value amounts gains losses value

Market value available:Bonds and debentures ¥119,880 ¥100 ¥135 ¥119,845 ¥80,303 ¥2 ¥326 ¥79,979

Market value not available:Bonds and debentures 60 80

¥119,940 ¥80,383

Thousands of U.S. dollars2007

Gross GrossCarrying unrealized unrealized Marketamounts gains losses value

Market value available:Bonds and debentures $1,015,158 $846 $1,144 $1,014,862

Market value not available:Bonds and debentures 508

$1,015,666

28

(b) Other SecuritiesMillions of yen

2007 2006Gross Gross Gross Gross

unrealized unrealized Carrying unrealized unrealized CarryingCost gains losses amounts Cost gains losses amounts

Market value available:Equity securities ¥1,457 ¥6,854 ¥— ¥8,311 ¥1,457 ¥10,423 ¥— ¥11,880

¥1,457 ¥6,854 ¥— ¥8,311 ¥1,457 ¥10,423 ¥— ¥11,880Market value not available:

Equity securities 68 65Other — 50

¥8,379 ¥11,995


Gross Grossunrealized unrealized Carrying

Cost gains losses amounts

Market value available:Equity securities $12,338 $58,041 $— $70,379

$12,338 $58,041 $— 70,379Market value not available:

Equity securities 575Other —

$70,954

5 Investments in unconsolidated subsidiaries and affiliatesInvestments in unconsolidated subsidiaries and affiliates as at March 31, 2006 and 2007 were as follows:


2007 2006 2007

Investments in securities ¥17,434 ¥15,627 $147,633

6 Notes and accounts receivable-tradeThe notes maturing are settled on the day of bank clearing.

Since the balance sheet date was a bank holiday, the amount of the notes was included in the follow-ing account.


2007 2006 2007

Notes receivable ¥3,070 ¥— $25,997

29

7 InventoriesInventories at March 31, 2007 and 2006 comprised the following:


2007 2006 2007

Merchandise ¥ 31 ¥ — $ 262Finished goods 1,022 1,719 8,654Work in process 179 588 1,516Raw materials 4,686 5,773 39,682Supplies 10 695 85

Total ¥5,928 ¥8,775 $50,199

8 Retirement Benefit PlanEmployees whose service with the Company and consolidated subsidiaries is terminated are usuallyentitled to receive lump-sum severance indemnities based on a defined benefit formula, which takes intoaccount current rates of payments and length of service.

The accrued retirement allowance for employees as of March 31, 2007 and 2006 were determined asfollows:


2007 2006 2007

Projected benefit obligations ¥2,391 ¥2,215 $20,247Unrecognized prior service cost (43) (88) (364)Unrecognized actuarial differences (99) (123) (838)

Accrued retirement allowance for employees ¥2,249 ¥2,004 $19,045

The net pension expense relating to retirement benefits for the years ended March 31, 2007 and2006 were as follows:


2007 2006 2007

Service costs ¥173 ¥199 $1,465Interest costs 32 29 271Amortization of prior service costs 46 47 390Amortization of actuarial differences 56 67 474Special load money according to secession of pension funds — 73 —

Total ¥307 ¥415 $2,600

Assumptions used in the calculation of the preceding information are as follows:2007 2006

Discount rate 1.50% 1.50%Method of attributing the projected benefits to periods of service Straight-line basis Straight-line basis

Amortization of prior service cost Over five years Over five yearsAmortization of actuarial differences Over five years Over five years

30

9 Contingent Liabilities Contingent liabilities at March 31, 2007 and 2006 were as follows:


2007 2006 2007

As an endorser of notes endorsed ¥13 ¥129 $110

10 Leases (1) Finance Lease Contracts without Ownership TransferThe Companies have various lease agreements whereby the Companies act as a lessee.

Pro forma information relating to the acquisition cost, accumulated depreciation and the net balanceof property held under finance leases which do not transfer ownership of the leased property to thelessee on an “as if capitalized” basis for the years ended March 31, 2007 and 2006 were as follows:

Millions of yen2007

Acquisition Accumulatedcost depreciation Net balance

Machinery and equipment ¥941 ¥645 ¥296

Millions of yen2006


Machinery and equipment ¥1,040 ¥642 ¥398



Machinery and equipment $7,968 $5,461 $2,507

Future minimum lease payments under finance leases as of March 31, 2007 and 2006 were as follows:Thousands of

Millions of yen U.S. dollars2007 2006 2007

Due within one year ¥168 ¥185 $1,423Due after one year 132 217 1,117

Total ¥300 ¥402 $2,540

The lease expense, depreciation and interest expense with respect to leased assets for the yearsended March 31, 2007 and 2006 were as follows:


2007 2006 2007

Lease expense ¥211 ¥222 $1,787Depreciation 206 216 1,744Interest expense 4 5 34

Depreciation is calculated using the straight-line method. The useful lives are equal to the lease termsand the residual value is zero.

(2) Operating LeasesFuture lease payments for non-cancelable operating leases as a lessee at March 31, 2007 and 2006were as follows:


2007 2006 2007

Due within one year ¥0 ¥0 $ 0Due after one year 1 2 8

Total ¥2 ¥3 $17

11 Selling, General and Administrative ExpensesThe main components of “Selling, general and administrative expenses” for the fiscal years endedMarch 31, 2006 and 2007 were as follows:


2007 2006 2007

Sales commission ¥15,670 ¥14,165 $132,695Advertisement expenses 3,354 3,792 28,402Salaries and Wages 3,884 4,218 32,890Reserve for directors’ bonus 238 — 2,015Reserve for bonuses 363 345 3,073Accrued retirement allowances 401 346 3,395Allowance for doubtful accounts 869 453 7,358Research and development expenses 7,485 7,324 63,383

In addition, research and development costs of ¥7,485 million ($63,383 thousand) and ¥7,324 millionfor the fiscal year ended March 31, 2007 and 2006, respectively were included in cost of sales and sell-ing, general and administrative expenses.

31

32

12 Income TaxesThe Company and its consolidated subsidiaries are subject to a number of different taxes based onincome which, in aggregate, indicate a statutory effective tax rate of approximately 40.5 percent for theyears ended March 31, 2007 and 2006.

Tax losses can be carried forward for a seven-year period and be offset against future taxableincome.

Significant components of deferred tax assets and liabilities at March 31, 2007 and 2006 were as fol-lows:


2007 2006 2007

Deferred tax assets:Accrued enterprise taxes ¥ 641 ¥1,190 $ 5,428Loss on write-down of inventories — 21 —Unrealized profits on inventories 35 468 296Allowance for doubtful accounts 199 254 1,685Accrued retirement allowances 1,375 1,243 11,644Accumulated depreciation 641 624 5,428Unrealized profit on property, plant and equipment 180 215 1,524Other 1,417 728 12,000Deferred tax assets 4,488 4,743 38,005

Deferred tax liabilities:Net unrealized gains on securities (2,775) (4,221) (23,500)Allowance for doubtful accounts — (61) —Reserve for special depreciation (5) (9) (42)Other — (4) —Deferred tax liabilities (2,780) (4,295) (23,542)Deferred tax assets, net ¥ 1,708 ¥ 448 $14,463

Since the difference between the statutory tax rate and the effective income tax rate was 5% or lessof the statutory tax rate, the breakdown of the difference at March 31,2007 and 2006 is not required.

13 Notes to the Consolidated Statement of Changes in Net Assetsa) Type and number of shares outstanding and treasury stock

Type of shares Type of outstanding treasury stock

Common stock Common stock

Number of shares as of March 31, 2006 97,597,500 205,186Increase in the number of shares during

the accounting period ended March 31, 2007 — 4,113*1

Decrease in the number of shares during the accounting period ended March 31, 2007 — 43,425*2

Number of shares as of March 31, 2007 97,597,500 165,874Note *1. Increase due to repurchase of odd stock: 4,113

*2. Decrease due to decrease in the number of the stocks of the Company which affiliates hold: 42,850 Decrease of other reason: 575

33

b) Matters related to dividends

i) Dividend paymentApprovals by the ordinary general meeting of shareholders held on June 29, 2006 were as follows:

Dividends on common stockTotal amount of dividends ¥6,335 million ($53,645 thousand)Dividends per share ¥65.00Record date March 31, 2006Effective date June 30, 2006

Approvals by the Board of Directors’ meeting held on November 9, 2006 were as follows:Dividends on common stockTotal amount of dividends ¥4,873 million ($41,265 thousand)Dividends per share ¥50.00Record date September 30, 2006Effective date December 8, 2006

ii) Dividends whose record date is attributable to the accounting period ended March 31, 2007 but which become effective after the said accounting period.

The company obtained the following approval at the general meeting of shareholders held on June28, 2007:

Dividends on common stockTotal amount of dividends ¥4,873 million ($41,265 thousand)Dividends per share ¥50.00Record date March 31, 2007Effective date June 29, 2007

14 Segment InformationThe Companies operate within four business segments in Japan: pachinko machines business, pachislomachines business, ball bearing supply systems business and other business.

Pachinko machines business Pachinko machines, machine gauges, relatedparts and royalty income relating to pachinkomachines

Pachislo machines business Pachislo machines, related parts and royaltyincome relating to pachislo machines

Ball bearing supply systems business Pachinko ball feeders, parlor equipment andperipherals and royalty income relating to ballfeeders

Other business General parts

Corporate items include general and administrative expenses and other expenses not identified withbusiness segments.

The Company had no overseas consolidated subsidiaries for the years ended March 31, 2007 and2006.

Sales of the Company and its consolidated subsidiaries from sources outside Japan for the yearsended 31 March 2007, and 2006 were not significant (less than 10 percent of consolidated sales foreach of the respective years).

34

Information by industry segment for the years ended March 31, 2007 and 2006 were as follows:Millions of yen

2007Pachinko Pachislo Ball bearing Eliminationmachines machines supply systems Other or corporatebusiness business business business items Consolidated

Sales :Customers ¥141,405 ¥32,916 ¥22,025 ¥ 1,377 ¥ — ¥197,723Intersegment 6 — 0 — (6) —Total 141,411 32,916 22,025 1,377 (6) 197,723

Operating expenses 89,255 25,068 21,601 954 5,935 *1 142,813Operating income ¥ 52,156 ¥ 7,848 ¥ 424 ¥ 423 ¥ (5,941) ¥ 54,910Identifiable assets ¥ 78,076 ¥ 9,375 ¥24,596 ¥12,295 ¥ 296,162 *2 ¥420,504Depreciation and amortization 3,085 488 59 146 213 3,991Capital expenditures 2,854 416 40 67 43 3,420*1. Non-allocable operating expenses ¥5,941 million*2. Corporate assets ¥296,162 million*3. Effective from the year ended March 31,2007,the company and its domestic consolidated subsidiaries adopted the Accounting Standard for

Directors’ Bonuses (Accounting Standards Board of Japan Statement No.4 issued by Accounting Standards Board of Japan on November29,2005). As a result, operating income decreased by ¥212 million for “Elimination or corporate items” and ¥16 million for “Pachinko ma-chines business” and ¥4 million for “Pachislo machines business” and ¥3 million for “Ball bearing supply systems business”, compared withwhat would have been reported using the previous method.

Millions of yen2006

Pachinko Pachislo Ball bearing Eliminationmachines machines supply systems Other or corporatebusiness business business business items Consolidated

Sales :Customers ¥162,482 ¥34,047 ¥16,806 ¥ 1,165 ¥ — ¥214,500Intersegment 5 — 0 — (5) —Total 162,487 34,047 16,806 1,165 (5) 214,500

Operating expenses 95,711 24,349 16,273 978 5,051*1 142,362Operating income (loss) ¥ 66,776 ¥ 9,698 ¥ 533 ¥ 187 ¥ (5,056) ¥ 72,138Identifiable assets ¥ 72,572 ¥12,923 ¥28,685 ¥12,565 ¥ 279,866 *2 ¥406,611Depreciation and amortization 3,209 529 59 137 236 4,170Capital expenditures 3,184 343 2 8,456 84 12,069*1. Non-allocable operating expenses ¥5,056 million*2. Corporate assets ¥279,866 million


Pachinko Pachislo Ball bearing Eliminationmachines machines supply systems Other or corporatebusiness business business business items Consolidated

Sales :Customers $1,197,434 $278,737 $186,510 $ 11,661 $ — $1,674,342Intersegment 51 — 0 — (51) —Total 1,197,485 278,737 186,510 11,661 (51) 1,674,342

Operating expenses 755,822 212,279 182,920 8,078 50,258 *1 1,209,357Operating income (loss) $ 441,663 $ 66,458 $ 3,590 $ 3,583 $ (50,309) $ 464,985Identifiable assets $ 661,157 $ 79,389 $208,282 $ 104,116 $2,507,933 *2 $3,560,877Depreciation and amortization 26,124 4,132 500 1,236 1,804 33,796Capital expenditures 24,168 3,523 339 567 363 28,960*1. Non-allocable operating expenses $50,309 thousand*2. Corporate assets $2,507,933 thousand*3. Effective from the year ended March 31,2007,the company and its domestic consolidated subsidiaries adopted the Accounting Standard for

Directors’ Bonuses (Accounting Standards Board of Japan Statement No.4 issued by Accounting Standards Board of Japan on November29,2005). As a result, operating income decreased by $1,795 thousand for “Elimination or corporate items” and $135 thousand for“Pachinko machines business” and $33 thousand for “Pachislo machines business” and $25 thousand for “Ball bearing supply systems busi-ness”, compared with what would have been reported using the previous method.

35

15 Per Share Informationyen U.S. dollars

2007 2006 2007

Net asset per share ¥3,603.59 ¥3,371.93 $30.51Basic net income per share 365.26 463.77 3.09Diluted net income per share — — —

16 Related Party TransactionsPrincipal transactions between the Company and INTERNATIONAL CARD SYSTEM CO., LTD., which isan unconsolidated subsidiary of the Company, for the years ended March 31, 2007 and 2006 weresummarized as follows:

(In current period, INTERNATIONAL CARD SYSTEM CO.,LTD. was changed from an unconsolidatedsubsidiary to a consolidated subsidiary due to increase in materiality in net sales.)


2007 2006 2007

Sales ¥— ¥ — $—Purchases — 3,381 —Payment of research and development charges — 296 —

17 Significant Subsidiaries and AffiliatesThe Company’s significant subsidiaries and affiliates at March 31, 2007 and 2006 were as follows:(2007)

Ownership Country ofName interest incorporation

SANKYO EXCEL CO., LTD. 100% JapanBISTY CO., LTD. 100% JapanSANKYO CREATE CO., LTD. 100% JapanINTERNATIONAL CARD SYSTEM CO., LTD. 100% JapanNippon Game Card Corporation 40.13% Japan

(2006)Ownership Country of

Name interest incorporation

SANKYO EXCEL CO., LTD. 100% JapanBISTY CO., LTD. 100% JapanSANKYO CREATE CO., LTD. 100% JapanNippon Game Card Corporation 41.49% Japan

36

To the Board of Directors and Shareholders of

SANKYO CO., LTD.

We have audited the accompanying consolidated balance sheets of SANKYO CO., LTD. and its sub-

sidiaries as of March 31, 2006 and 2007, and the related consolidated statements of income, changes in

net assets, and cash flows for the years then ended, all expressed in Japanese yen. These consolidated

financial statements are the responsibility of the Company’s management. Our responsibility is to express

an opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with auditing standards generally accepted in Japan. Those stan-

dards require that we plan and perform the audit to obtain reasonable assurance about whether the con-

solidated financial statements are free of material misstatement. An audit includes examining, on a test

basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An

audit also includes assessing the accounting principles used and significant estimates made by manage-

ment, as well as evaluating the overall consolidated financial statement presentation. We believe that our

audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material

respects, the consolidated financial position of SANKYO CO., LTD. and its subsidiaries as of March 31,

2006 and 2007, and the consolidated results of their operations and their cash flows for the years then

ended in conformity with accounting principles generally accepted in Japan.

The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have

been translated on the basis set forth in Note 2 to the accompanying consolidated financial statements.

Misuzu Audit Corporation

Tokyo, Japan

June 28, 2007

Report of Independent Auditors

Board of Directors and Corporate Auditors(As of June 28, 2007)

ChairmanKunio Busujima*

Chief Executive OfficerHideyuki Busujima*

Executive Vice PresidentAkihiko Sawai*

Managing DirectorsKimihisa TsutsuiJunzo Hamaguchi

DirectorsYasuji SuzukiJunko TakimotoAkiyoshi SuzukiAkira YamadaHitoshi Eto

Standing Statutory AuditorShohachi Ugawa

Statutory AuditorToshiaki Ishiyama

Outside AuditorsYoshiro Sanada Fumiyoshi Noda

*Representative Directors

Corporate Data(As of March 31, 2007)

Company NameSANKYO CO., LTD.

Head Office6-460 Sakaino-cho, Kiryu-shi, Gunma 376-0002, JapanTelephone: 81(277)44-3161 Facsimile: 81(277)47-4523

Tokyo Head Office3-29-14 Shibuya, Shibuya-ku, Tokyo 150-8327, JapanTelephone: 81(3)5778-7777 Facsimile:81(3)5778-6731

Sanwa Plant2732-1 Sanwa-cho, Isesaki-shi, Gunma 372-0011, JapanTelephone: 81(270)40-7777 Facsimile: 81(270)22-3007

Established April 12, 1966Paid-in Capital ¥14,840millionNumber of Shares Authorized 144,000,000Number of Shares Issued 97,597,500Number of Employees 811Number of Shareholders 18,423

Stock Price Range

Stock Exchange ListingThe Tokyo Stock Exchange, First Section,Code Number 6417Transfer AgentThe Chuo Mitsui Trust and Banking Company, LimitedAuditorMISUZU Audit Corporation

5,000

10,000

15,000

20,000

25,000

1,700

3,400

5,100

6,800

8,500

(Thousands of Shares) (Yen)

Trading Volume (Thousands of Shares)

Stock Price (Yen)

32’07112111098765

’064

0 0

For Further Information Contact:Corporate Planning Division, SANKYO CO., LTD.3-29-14 Shibuya, Shibuya-ku, Tokyo 150-8327, JapanTelephone: 81(3)5778-7773 Facsimile: 81(3)5778-6731http://www.sankyo-fever.co.jp

37

Contents

1. Dear SANKYO Investors

2. Special Feature Revitalization of the SANKYO Brand

8. Divisional Review

11. Ground-Breaking Products

12. Corporate Governance

13. Consolidated Five-Year Summary

14. Financial Review

18. Consolidated Balance Sheets

20. Consolidated Statements of Income

21. Consolidated Statements of Changes in Net Assets

22. Consolidated Statements of Cash Flows

23. Notes to the Consolidated Financial Statements

36. Report of Independent Auditors

37. Board of Directors and Corporate Auditors / Corporate Data

Cautionary Statements with Respect to Forward-Looking Statements

Statements contained in this report with respects to the SANKYO Group’s plans,strategies and beliefs that are not historical facts are forward-looking statements aboutthe future performance of the SANKYO Group which are based on management’sassumptions and beliefs in light of the information currently available to it. Theseforward-looking statements involve known and unknown risks, uncertainties and otherfactors that may cause the SANKYO Group’s actual results, performance orachievements to differ materially from the expectations expressed herein.

Since its establishment in 1966, SANKYO Co., Ltd. has

been a source of pleasure for the Japanese people. As a

leading manufacturer of pachinko machines, we have fos-

tered pachinko as an immensely popular leisure activity

unique to Japan and enjoyed by millions of people.

From the very beginning, ingenuity has been the hallmark

of the SANKYO spirit. To cite just one example: our cre-

ation in 1980 of the highly entertaining Fever-type machine

equipped with a slot-machine movement revolutionized the

concept of pachinko machines. SANKYO’s track record as

a developer and manufacturer of pachinko machines that

set the pace in the pachinko industry is based on a tradi-

tion of out-of-the-box thinking and technological prowess.

The scope of SANKYO’s business extends beyond man-

ufacturing and sales of pachinko machines to encompass

production of pachislo machines as well as wide-ranging

equipment for pachinko parlors such as parlor manage-

ment computer systems, ball bearing supply systems and

prepaid card systems.

These strengths underpin SANKYO’s powerful presence

as a provider of cutting-edge items for pachinko parlors

and pachinko players nationwide.

Profile

Printed in JapanUses soybean ink in consideration of the environment

100% recycled paper

http://www.sankyo-fever.co.jp/

SA

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CO

.,LTD

.A

nnualRep

ort2007

SANKYO CO., LTD.

Annual Report 2007Year ended March 31, 2007

sankyo co., ltd. - sankyoポータルサイト ... · 1,000 pachislo. 4 which small and...

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