YUHO REPORT
AnnualFiscal Year Ended

March 31, 2003

TradedTSE1Stock Code6419

MARS ENGINEERING CORPORATIONYUHOREPORTYUHOMars Engineering Corporation

Fiscal Year Ended

March 31, 2003

TradedTSE1Stock Code

6419

MARS

ENGINEERING

CORP ORATI ON

This report is based on the Company’s Japanese-language annual filing with the Financial Services Agency and supplemented withmaterials that facilitate comparison with the Company’s peers. The materials from the annual filing with the Financial Services
Agency have been edited and reorganized in a format more familiar to the international investment community. All information
contained in this report has been obtained from sources believed to be reliable, but the accuracy of the data and the translation,completeness, or timeliness of the information are not warranted by the Company, Pacific Associates, or Asia Securities Printing.
None of the above parties shall be responsible for any errors or omissions or for the results obtained from the use of this information.

Table of Contents
COMPANY PROFILE ........................................................................................................... 3
Financial highlights ........................................................................................................................................... 3
Common size statements ................................................................................................................................. 4

BUSINESS OVERVIEW ....................................................................................................... 5
Description of business .................................................................................................................................... 5Group companies ............................................................................................................................................. 5
History .............................................................................................................................................................. 6
Research and development ............................................................................................................................. 7
Important agreements with third parties ........................................................................................................... 9
Directors ......................................................................................................................................................... 10
Employees...................................................................................................................................................... 10
Union .............................................................................................................................................................. 10

CASH FLOWS.................................................................................................................... 11
Consolidated statement of cash flows............................................................................................................ 11
Capital expenditures....................................................................................................................................... 13
Dividend policy ............................................................................................................................................... 14

OPERATIONS .................................................................................................................... 15
Consolidated statement of income ................................................................................................................. 15
Consolidated appropriation of retained earnings ........................................................................................... 16
Results of operations...................................................................................................................................... 17
Business segment information ....................................................................................................................... 19
Issues requiring action ................................................................................................................................... 19
Production and sales ...................................................................................................................................... 20
Leases ............................................................................................................................................................ 21

CAPITAL STRUCTURE ..................................................................................................... 23
Consolidated balance sheet: assets............................................................................................................... 23
Consolidated balance sheet: liabilities and shareholders’ equity................................................................... 24
Market value of securities............................................................................................................................... 25
Derivatives ...................................................................................................................................................... 26
Facilities.......................................................................................................................................................... 27
Borrowings...................................................................................................................................................... 28
Retirement benefits ........................................................................................................................................ 29
Deferred taxes ................................................................................................................................................ 30

NONCONSOLIDATED FINANCIAL STATEMENTS.......................................................... 31
Nonconsolidated statement of income ........................................................................................................... 31
Nonconsolidated appropriation of retained earnings...................................................................................... 33
Cost of goods sold.......................................................................................................................................... 33
Nonconsolidated balance sheet: assets......................................................................................................... 34
Nonconsolidated balance sheet: liabilities and shareholders’ equity ............................................................. 36
Trade credits................................................................................................................................................... 38
Securities ........................................................................................................................................................ 39
Tangible fixed assets...................................................................................................................................... 40
Reserves ........................................................................................................................................................ 40

ACCOUNTING POLICIES .................................................................................................. 41
SHARE-RELATED INFORMATION ................................................................................... 43
is a trademark of Pacific Associates and Asia Securities Printing.
YUHOREPORTYUHOThe translation is copyrighted by Pacific Associates.

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MARS

ENGINEERING

CORP ORATI ON

Company Profile
Financial highlights
Years ended March 31;
Thousands of yen

1999

2000

2001

2002

2003

Net sales-

13,070,881

19,774,357

21,404,851

24,959,669

Ordinary profit-

1,480,799

4,593,015

5,958,626

5,521,514

Net income (loss)-

1,211,055

1,810,623

3,030,640(714,837)

Shareholders' equity-

22,872,756

23,752,627

26,446,783

25,030,579

Total assets-

31,689,010

35,498,374

39,879,762

38,699,119

Shareholders' equity per share (Yen)-2,013.45

2,090.91

2,328.08

2,197.95

Net income (loss) per share (Yen)-

115.51

159.39266.78(68.38)Net income per share, fully diluted (Yen)

-

-

-

-

-

Net cash provided by (used in) operating
activities-

2,192,265

4,793,955

4,158,507

1,853,845

Net cash provided by (used in) investing
activities-(681,036)(1,011,079)(1,286,444)(1,030,841)

Net cash provided by (used in) financing
activities-(1,592,541)(2,195,483)(2,043,303)

1,343,337

Cash and cash equivalents, end of term-

4,104,599

5,688,148

6,513,699

8,680,028

Employees

-

433

448

483

510

Consolidated

The Company began preparing consolidated financial statements in the March 2000 fiscal term.

3

Change2003/1999

MARS

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Common size statements
Years ended March 31; Percent

Consolidated

Parent

2002

2003

2002

2003

Assets

100.0

100.0

100.0

100.0

Current assets

53.2

68.5

45.4

65.9

Tangible fixed assets

40.7

26.8

47.4

20.1

Intangible fixed assets

0.3

0.3

0.2

0.2

Investments and other assets

5.8

4.4

7.0

13.8

Total fixed assets

46.8

31.5

54.6

34.1

Liabilities, shareholder's equity

100.0

100.0

100.0

100.0

Current liabilities

27.2

26.3

17.6

11.3

Long-term liabilities

6.1

8.5

2.4

1.9

Total liabilities

33.3

34.8

20.0

13.2

Minority interests

0.4

0.5

Common stock

19.9

-

23.5

-

Additional paid-in capital

21.0

-

24.8

-

1.1

-

Balance sheet

Legal income reserves
Retained earnings

25.5

-

30.7

-

Unrealized gains or losses on other securities

(0.1)

-

(0.1)

-

Treasury stock

(0.0)

-

(0.0)

-

Common stock

-

20.5

-

26.9

Capital reserves

-

21.6

-

28.4

Retained earnings

-

22.9

-

31.9

Unrealized gains or losses on other securities

-

(0.3)

-

(0.4)

Treasury stock

-

(0.0)

-

(0.0)

66.3

64.7

80.0

86.8

Net sales

100.0

100.0

100.0

100.0

Cost of sales

52.4

54.8

50.4

54.3

Gross profit

47.6

45.2

49.6

45.7

Selling, general and administrative expenses

23.1

23.2

23.6

22.1

Operating income

24.5

22.0

26.0

23.6

Nonoperating income

4.2

0.3

5.2

0.5

Nonoperating expenses

0.8

0.2

0.9

0.2

Ordinary profit

27.8

22.1

30.2

23.9

Extraordinary income

0.1

-

0.1

-

Extraordinary losses

3.6

24.2

6.2

29.4

Income (loss) before taxes and other adjustments

24.4

(2.1)

24.1

(5.5)

9.9

0.5

10.4

(2.1)

Minority interest in income of consolidated companies

0.3

0.3

Net income (loss)

14.2

(2.9)

13.7

(3.4)

Total shareholders' equity

Statement of income

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Business Overview
Description of business
The Mars Engineering group consists of the Company (Mars Engineering
Corporation) and five subsidiaries, all consolidated. Its primary business is the
manufacture and sale of pachinko-related electronic products.
The group’s businesses, and the relationship of the Company and its subsidiaries tothese businesses, are outlined below.
(1) Pachinko division
The Company, Mars Corporation, Mars Line-Tech Corporation, Mars
Techno-Science Corporation, and WINTEC Co., Ltd.
(2) Other division
Hotel Sunroute Hakata, Inc.

Group companies
Name

Operations

Common stock
Millions of yen

Percent
ownership(Consolidated subsidiaries)
Mars Corporation

Pachinko division

1,000

100

Mars Line-Tech Corporation

Pachinko division

10

100

Mars Techno-Science Corporation

Pachinko division

250

82

WINTEC Co., Ltd.

Pachinko division

107

80

Hotel Sunroute Hakata, Inc.

Other division

10

100

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History
Year

Month

Event

1974

SeptemberMars Engineering Corporation is established in Shinjuku-ku, Tokyo to design, trial-manufacture,
manufacture, and sell electronic devices

1975

DecemberEnters into an exclusive distributorship agreement with Casio Computer Co., Ltd. to sell Casio
business systems

1980

AugustDevelops and begins selling a prize control systems at amusement centers

1981

OctoberEnters into a distributorship agreement with NEC Corp. to sell office computers

1985

February

Develops and begins selling counting machines

1987

OctoberConcludes agreement with Nippon Signal Co., Ltd. relating to the development, manufacture, andsale of small magnetic-card readers and writers; develops and begins selling a magnetic
card-based prize control system

1989

October

Opens Higashi Fuji Plant in Gotemba, Shizuoka Pref.

1990

OctoberDevelops and begins selling auto-dispenser systems; expands Higashi Fuji Plant

1992

March

Develops and begins selling a prize control systems with membership management capabilities

1993

March

Opens Technical Center in Mishima, Shizuoka Pref.

November

Registers shares for over-the-counter trading with Japan Securities Dealers Association

1994

July

Develops and begins selling computers for pachinko hall management (hall computer systems)

1995

October

Opens Technology and Distribution Center in Gotemba, Shizuoka Pref.

1996

July

Obtains ISO 9001 certification for quality control standards

AugustDevelops and begins selling “personal systems”

September

Lists shares on the Second Section of the Tokyo Stock Exchange

November

AM Planning Corp., which was established to operate pachinko halls as antenna outlets for theCompany, becomes an affiliated company

DecemberCompletes construction of new headquarters building and moves corporate headquarters to newsite; establishes Mars Corporation (now, a consolidated subsidiary) to engage in real estate
management and general leasing

April

Opens Technical Center in Susono, Shizuoka Pref.

October

Acquires Asama Sangyo Inc., a leading developer and builder of pachinko ball replenishment
systems; incorporates company into group as an affiliate (in Sept. 1998, changes its trade name to
ASAMA Engineering Corp.)

July

Develops and begins selling reusable pachinko cycle card (PCC) system

October

Establishes Hotel Sunroute Hakata Inc. (now, a consolidated subsidiary) to develop and operate abusiness hotel; establishes KARD Information System Inc. to provide card issuance and data
management services for third parties

April

Completes construction of Hotel Sunroute Hakata

AugustLaunches K1 Cycle Card system as part of its prepaid card business

July

Acquires WINTEC Co., Ltd., a leading developer of peripheral devices for pachinko halloperations; incorporates company (now, a consolidated subsidiary) into group as affiliate

September

Acquires RFID business (the manufacture of IC cards and radio identification tags) from Toshiba
Chemical Corp.; establishes M&T Card Technology Corp. to sell RFID products

December

Discontinues operations of AM Planning Corp. after concluding that it had achieved its original
objectives

September

Lists shares on the First Section of the Tokyo Stock Exchange

1997

1998

1999

2000

2001

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Year

Month

Event

2002

January

Liquidates AM Planning Corp.

March

KARD Information System Inc. absorbs the operations of M&T Card Technology Corp.

April

KARD Information System Inc. changes its trade name to Mars Techno-Science Corp. (now aconsolidated subsidiary); ASAMA Engineering Corp. changes trade name to Mars Line-Tech Corp.
(now a consolidated subsidiary)

October

Expands Higashi Fuji Plant

Research and development
The Mars Engineering group provides a wide range of peripheral devices used inamusement centers throughout Japan, encompassing all types of machines except for
the game consoles themselves. It is responding to the demands of an age of
information technology by making research and development on new products theprincipal driver of its operations.
The group manages R&D activities based on the belief that the methods and practices
followed during the six years following its acquisition of ISO 9001 certification havebegun to benefit its new product development.
In the two years since the group began its radio frequency business, the focus ofresearch and development has shifted increasingly toward basic and applied researchin this area. Payoffs can be seen in its commercialization of a number of products
based on RF technologies.
The group spent a total of 477 million yen on research and development during the
fiscal year ended March 2003.
The following is a summary of the objectives, major issues, and principal
achievements of the group’s R&D program by business division.
(1) Organization
Research and development is carried out collaboratively by personnel working at
three locations: the Technology Development Department of the Susono TechnicalCenter; the Software Development Department of Mars Techno-Science Corp.;
and the Technology Development Department of WINTEC Co., Ltd. These
personnel (a combined total of 40 at the Susono Technical Center and at WINTEC,
and another 18 at Mars Techno-Science) are engaged in hardware and softwaredevelopment and in mechanical design.

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ENGINEERING

CORP ORATI ON(2) Major results of R&D
The following are the major results of the Company’s R&D program during the
fiscal year to March 2003.
1) Pachinko division—successful commercialization of the following:•“e9500s” tabletop auto-dispenser system•“e9500D” auto-dispenser system, with specifications for connection totabletop systems•“e3100iu” automatic member check-in device, with IC-card capabilities•“e3100iRP” membership card reader, with rewrite printer; for members using
IC cards•“MX-140K1-V” card-reader unit for IC cards•“MX-140K2-V” ball-dispensing device with IC-card capabilities, forinstallation between game consoles•“FB-33” flat bill validator (four-denomination reader), for installation
between game consoles•“SL-730” token-issuing machine for IC-card adapted console•“SL-735” token-issuing machine for installation between IC-card adapted
consoles•“SL-830” token-issuing machine for IC-coin adapted console•“SL-835” token-issuing machine for installation between IC-coin adapted
consoles•“MX-350” controller for processing individual membership data•

“MS-01” game-data processor•“EX-33i” IC-card reader for vending machines•“ACE-25SDDi” IC-card reader for counting machines•“PC-150” prize-reader for prizes tagged with ICs•“ICU-150/150S” IC-card reader with USB connections•“ICU-151/151S” IC-card reader for connection to RS-232Cs•“ICU-160” built-in type IC-card reader with USB connections•“ICU-170” card reader with built-in keyboard with USB connections

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2) Other division
The hotel division does not have an R&D program.

Important agreements with third parties(1) Technology development agreement
Name of licenser

Nature of agreement

Period of agreement

Nippon Signal Co., Ltd.

Joint development and manufacturing of
small magnetic-card readers and writers

Three years, beginning January 9, 1996
(automatically renewed on an annual basis
thereafter)(2) Marketing agreements
Name of licenser

Nature of agreement

Period of agreement

Casio Computer Co., Ltd.

Exclusive distributorship agreement relating
to business machines and personal
computers

One year, beginning March 21, 1982
(automatically renewed on an annual basis
thereafter)

NEC Corp.

Distributorship agreement relating to officeprocessors

Fifteen months, beginning January 1, 1989
(automatically renewed on an annual basis
thereafter)

Nippon Signal Co., Ltd.

Exclusive rights to sell jointly-developed
magnetic-card readers and writers; joint
development and manufacturing

Three years, beginning January 9, 1996
(automatically renewed on an annual basis
thereafter)

Name of licenser

Nature of agreement

Period of agreement

Sunroute Co., Ltd.

Sunroute Co., Ltd. agrees to allow the
Company to use the “Hotel Sunroute xxx”
name and to conduct business using its
trademarks, services, and other hotelmanagement know-how; the Company willcontinue to operate its hotels in accordancewith guidance and advice provided bySunroute, with the aim of achieving prosperity
for both companies.

Twenty years, beginning June 1, 1999
(automatically renewed every five years
thereafter)(3) Franchise agreement

The franchise agreement noted above requires the Company to pay a certain percentage of its sales to cover franchise membership,
franchisee deposits, general planning charges, and royalties.

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Directors
Date joined
company

Previous employers

Date of birth

Chairman and
Representative
Director

Sep-74

TAKACHIHO KOHEKI

9-Apr-38

702.8

Shigeo Komiya

President andRepresentative
Director

Sep-74

TAKACHIHO KOHEKI

19-Dec-50

245.0

Teruo Gomi

Executive Vice
President

Apr-75

Hitachi, TAKACHIHOKOHEKI

10-Mar-44

225.0

Yoshikiyo Kawakami

Managing Director

Nov-7827-Sep-46

130.0

Akihiro Matsunami

Managing Director

Feb-95

1-Jul-65

500.0

Toshihisa Oya

Director

Sep-7429-Nov-44

194.0

Hiroshi Murakami

Director

Mar-96

5-Apr-62

124.0

Yukio Onuki

Standing Statutory
Corporate Auditor

Feb-80TAKACHIHO KOHEKI

9-Sep-50

123.0

Koichi Takemata

Statutory Corporate
Auditor
Statutory Corporate
AuditorJun-91

Tokai Bank

18-Nov-52-

Jun-00National Police Agency

9-Jan-39

-

Name

Title

Hirokazu Matsunami

Tsutomu Ikeda

Kawasho Corp.

Sharesowned (1,000)

2,243.8
Current assignments and previous positions in the Company have been omitted.

Employees
Consolidated
Business segment

NumberPachinko division

496

Other division

14
510

ParentTotal or average

Number393

Average age

31.3

Average years of service

8.0

Average annual salary (Yen)5,187,605

The average annual salary includes bonuses.

Union
The group has no labor union and enjoys amicable labor relations.

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Cash Flows
Consolidated statement of cash flows
Years ended March 31; Thousands of yen

2002

2003

5,217,201(530,895)

Depreciation

704,415

689,002

Increase (decrease) in allowances

18,755(19,392)

Interest and dividend income(22,977)(46,437)

Interest expenses

154,490

45,591

Profits from anonymous association(811,993)-

Foreign exchange losses (gains)(1,345)

12

Amortization of consolidation differences

9,052

9,529

Loss on sales of marketable securities-

52,189Valuation loss on investment securities

662,781

59,539Loss on disposal and sales of tangible fixed assets

17,49912,180-5,779,387(2,959,173)(782,305)

Decrease (increase) in inventories

143,732(309,532)

Increase (decrease) in trade payables

831,677(872,402)

Increase in advances

1,697,342

415,200

Director's bonuses(48,000)(47,000)

Others413,277(414,756)

6,026,737

4,039,911

22,672

46,763(242,288)(265,176)(1,648,613)(1,967,652)

4,158,507

1,853,845(1,100,000)(299,566)(232,960)(50,000)

99,50048,649(470,093)(701,644)

7,633

-

Proceeds from liquidation of anonymous association

452,886-

Payments for acquisition of stock of consolidated subsidiary(44,820)-

1,409(28,280)(1,286,444)(1,030,841)

Net cash provided by (used in) operating activities
Net income (loss) before taxes and other adjustments

Valuation loss on tangible fixed assets
Decrease (increase) in trade receivables

Interest and dividend income
Interest expenses
Income tax and others

Net cash provided by (used in) investing activities
Net change in holdings of marketable securities
Payments for investments in securities
Proceeds from sales of investment securities
Payments for acquisition of tangible fixed assets
Proceeds from sales of tangible fixed assets

Others11

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ENGINEERING

Years ended March 31; Thousands of yen

CORP ORATI ON

2002

2003

(1,436,060)

913,368-

1,000,000

Repayments of long-term debt

(29,434)-

Dividends(573,807)(566,031)(4,000)(4,000)(2,043,303)

1,343,337

1,345

(12)

830,105

2,166,328

5,688,148

6,513,699(4,554)-

6,513,699

8,680,028

Net cash provided by (used in) financing activities
Net increase (decrease) in short-term borrowings
Proceeds from increase in long-term debt

Dividend payments to minority shareholders

Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents, beginning of term
Net change due to elimination of subsidiary from consolidation
Cash and cash equivalents, end of term

Relationship between balance of cash and cash equivalents as of termend and balance sheet items
Years ended March 31; Thousands of yen

2002

2003

Cash and deposit accounts at end of term

3,419,786

7,286,078

Money management funds and medium-term government bondfunds included in the marketable securities account3,093,913

1,393,949

Cash and cash equivalents at end of term

6,513,699

8,680,028

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Capital expenditures
The group makes required investments from a long-term perspective, focusing on
R&D projects and business operations that promise growth. During the consolidated
fiscal year ended March 2003, it spent 577 million yen on capital investments in theseareas.
The pachinko division invested 216 million yen for the expansion of the Higashi Fuji
plant and another 124 million yen on dies and other tooling related to new productdevelopment.
The group recorded essentially no capital expenditures for its hotel business.
During the year to March 2003, the group also recognized valuation losses of 5,779
million yen on fixed assets (land and buildings) that were sold to its consolidated
subsidiary, Mars Corporation. These losses appear on the income statement as an
extraordinary loss. A tabulation of the specific assets transferred to the subsidiary
appears below.
Square meters

Land

Buildings

Head office556.07

4,067.55

644.705,569.78

1,787.73

3,154.25

989.001,193.79

1,421.00

1,700.11

Shinjuku, Tokyo
Hotel Sunroute Hakata
Fukuoka, Fukuoka
Susono Technical Center
Susono, Shizuoka
Mishima Technical Center
Mishima, Shizuoka
Fuchu Technical Center
Fuchu, Tokyo

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Capital expenditure and disposal plan

The group adopts capital investment plans based on a comprehensive assessment of
economic conditions, industry trends, investment efficiency and other factors.
Generally, each consolidated subsidiary formulates its own capital expenditure plan,with Mars Engineering Corp. functioning as a coordinator to prevent duplication on agroup-wide basis.
As of the end of the consolidated fiscal year, the group had adopted the following newplans for investments in major facilities.
Budgeted Expenditures toamountdate

Millions of yen

Datecommenced

Scheduledcompletion

2002/11

2003/11

WINTEC Co., Ltd.

Construction of corporate headquarters and plant

482

17

Dividend policy
The Company considers its policy on dividends to be extremely significant. Its goalwith respect to dividends is to make payouts in a way that furthers the stability of theenterprise’s growth over the long-term. This will require that it strengthen its financial
structure and pay dividends that more closely reflect changes in its financial
performance each term, while giving due consideration to maintaining a stable payout
to its shareholders.
Accordingly, notwithstanding a net loss of 692 million yen for the term (which
resulted from an extraordinary loss of 5,779 million from the sale of assets), theCompany will pay a year-end dividend of 30 yen per share, of which 20 yen will be a
regular dividend and 10 yen, a special dividend. This decision reflects the Company’s
desire to reward shareholders for their support, and takes into consideration a wide
range of factors, including the Company’s success in registering its third consecutive
year of record revenue.
Together with the interim dividend of 20 yen, the Company will therefore pay a total
dividend of 50 yen per share for the year to March 2003.
The Company intends to invest retained earnings in areas that will foster stable growth,
including measures aimed at strengthening its balance sheet and capital investments.
The Board of Directors’ resolution on interim dividends for the year ended March 31,
2003 was adopted on October 21, 2002.

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Operations
Consolidated statement of income
Years ended March 31; Thousands of yen

2002

2003

Net sales

21,404,851

24,959,669

Cost of goods sold11,218,613

13,687,741

Gross profit on sales

10,186,238

11,271,928

Selling, general and administrative expenses

4,948,792

5,783,601

Operating income

5,237,445

5,488,327

Interest income

21,002

43,832Foreign exchange gain

1,345

-

811,993--

13,51060,77536,694895,117

94,037

Interest expenses

154,490

45,591Others19,446

15,258173,936

60,8495,958,626

5,521,514

567-

17,047-

17,614-

Valuation loss on fixed assets-

5,779,387

Loss on disposal of inventories

13,776

145,408

Valuation loss on investment securities

662,781

59,539Others82,482

68,075759,039

6,052,410

Income (loss) before taxes and other adjustments

5,217,201(530,895)

Corporate, inhabitant and enterprise taxes

2,244,226

434,988

Deferred taxes(119,398)(324,984)

2,124,828

110,004

61,73273,9373,030,640(714,837)

Nonoperating income

Profits from anonymous association
Rental income
OthersNonoperating expenses

Ordinary profit
Extraordinary income
Gain on sales of tangible fixed assets
Reversal of allowance for doubtful accounts

Extraordinary losses

Minority interest in income of consolidated companies
Net income (loss) for the term

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Consolidated appropriation of retained earnings
March 31; Thousands of yen

2002

2003

7,774,450

-

6,009

-

6,009

-

4,618

-

Dividends

567,996-

Directors' bonuses

45,000-617,614-

Net income

3,030,640-

Retained earnings, end of term

10,193,486--

8,371,830-

8,371,830-

8,371,830-

10,193,486-

10,193,486

Net loss-

714,837

Dividends-

567,996

Directors' bonuses-

45,600-1,328,434-

8,865,052

Retained earnings, beginning of term
Increase in retained earnings
Increase resulting from merger between subsidiaries

Reduction in retained earnings
Decrease resulting from liquidation of subsidiary

Capital reserves
Capital reserves, beginning of term
Additional paid-in capital, beginning of term

Capital reserves, end of term

Retained earnings
Retained earnings, beginning of term
Retained earnings, beginning of term

Reduction in retained earnings

Retained earnings, end of term

16

MARS

ENGINEERING

CORP ORATI ON

Results of operations
Consolidated fiscal year ended March 31, 2003
Economic and other factors affecting operations(1) Extremely difficult conditions in the Japanese economy•

Languishing consumer spending•

The decline of stock prices to a post-bubble low•

Concerns about the viability of the financial system fostered by banks’
accelerated write-offs of non-performing loans•

More pronounced deflation(2) Harsher competition in the industry, fueled by:•

Declining customer traffic at pachinko halls•

More pachinko hall bankruptcies•

Shorter game machine cycles, requiring investments that weigh on the
profitability of pachinko halls(3) Other industry trends•

Strong replacement demand for equipment in prepaid card market•

Industry-wide increase in game-machine installations, reflecting growing
popularity of “pachinko slot” machines•

Year-on-year decline in sales and installations of pachinko machines•

Move to large-scale pachinko halls, where operating efficiencies enable
operators to develop chains

Marketing strategies and results(1) Existing products and new product launches•

Continued aggressive push to market Cycle Card prepaid card systems•

Development and launch of new products (payment devices that enable players
to charge {replenish the value of} their IC cards while seated at game consoles;
IC-card adapted devices for issuing pachinko slot tokens)

17

MARS

ENGINEERING

CORP ORATI ON(2) Results•

Despite undershooting sales targets for IC card systems (partly because ofdelays in bringing new products to market), more system installations eachmonth than any other company in the industry•

IC systems business added 364 new customers, bringing cumulative total to 928
halls; registers year-on-year increase in sales of such systems

Financial analysis (percentage changes, year-on-year)(1) Sold land and buildings to subsidiary to strengthen financial position and increase
efficiency of asset use, resulting in valuation loss of 5,779 million yen (recognized
as extraordinary loss) and net deficit for the term(2) 16.6% increase in sales(3) 4.8% increase in operating income(4) 7.3% decline in ordinary profit
Segment breakdown
Pachinko division: By increasing customer satisfaction through effective productdevelopment and responsive follow-up services, the division created new customer
demand while reducing total costs, resulting in a 17.1% increase in sales to 24,438
million yen.
•

Despite relatively late entry into market, market share in IC-card systems grew
to more than 7% as of the end of March 2003•

Success achieved in IC-card market from the Company’s lead in using
contact-less IC-card technology to integrate various technologies it hasdeveloped over the years—prize control systems, hall computer systems, andprepaid card systems

Other division: The effects of the September 11 terrorist attacks continued to be felt in
the Company’s hotel operations. Although occupancy rates improved year-on-year (tothe number one position in the Hakata market), average room charges declined.
Consequently, the division reported a 1.8% decline in sales to 521 million yen.

18

MARS

ENGINEERING

CORP ORATI ON

Business segment information
Thousands of yen
2002Pachinko
division Hotel division

Total

Eliminations

Consolidated

Net sales
External customer sales

20,873,676

531,175

21,404,851-

21,404,851

-

-

-

-

-

20,873,676

531,175

21,404,851-

21,404,851

Operating expenses

15,457,849

406,056

15,863,906

303,499

16,167,406

Operating income

5,415,826

125,118

5,540,945(303,499)

5,237,445

Assets

24,793,472

3,257,831

28,051,304

11,828,457

39,879,762

Depreciation

598,130

58,377

656,508

29,480685,989

Capital expenditures

467,5626,165

473,728

5,746

479,474

Intersegment transactions and eliminations

March 2003 term
Because pachinko operations generate more than 90 percent of the sales of all
segments and account for more than 90 percent of all segments’ operating income andassets, the Company discontinued reporting segment information by type of businessfrom the fiscal year to March 2003.

Issues requiring action
1. Reducing costs and improving gross profit margins to generate sufficientprofitability amid declining market size in the industry and general economic
malaise
2. Fulfilling the mission of an R&D-based company by correctly recognizing changes
in the market and swiftly launching products that meet customer needs;
differentiating the Company from the competition and establishing superiority in its
markets
3. After achieving sufficient profitability on the basis of enhanced brand image andname recognition, increasing market share for prepaid card systems to the No. 3
position in the industry; bringing the Company back to full profitability by the endof its 30th anniversary year (ending March 2004)

19

MARS

ENGINEERING

CORP ORATI ON

Production and sales
Production
2003
Thousands of yen

AmountYear-on-yearcomparison (%)

Pachinko division

17,073,366

140.2

-

-

17,073,366

140.2

Other division

Procurement
2003
Thousands of yen

AmountYear-on-yearcomparison (%)

Pachinko division891,970

45.6

Other division

94,06797.0

986,037

48.0

Sales by product2003
Thousands of yen

AmountYear-on-yearcomparison (%)

Pachinko division

24,438,053

117.1

521,61598.2

24,959,669

116.6

Other division

20

MARS

ENGINEERING

CORP ORATI ON

LeasesUnder generally accepted accounting principles in Japan, finance leases that do nottransfer ownership are accounted for in the same manner as operating leases when “asif capitalized” information is disclosed.
The Company’s main finance lease contracts are as follows:
Number of
employees(Square meters)

Current
payments

74-

23,631Rent

OA equipment-

14,837

Lease

Vehicles and delivery equipment

-

3,483

Lease

13

-

2,006

Rent

39

-

7,674

Rent

-

227

Lease

8

-

4,092

Rent

19

-

37

Lease

207

-

134,146

Rent

OA equipment

-

1,814

Lease

Vehicles and delivery equipment-

69,741

Lease

1

-

1,066,121

Lease

42

-

23,516Rent

OA equipment

-

3,197

Lease

Vehicles-

13,974Lease-

40,527

Rent

Peripheral equipment-

900,325

Lease

Vehicles and delivery equipment

-

451

Lease

-

2,686

Rent

OA equipment

-

105

Lease

Vehicles and delivery equipment

-

1,234

Lease

Thousands of yen

Land

Rent or lease

ParentHead office
OfficeFuchu Technical Center
OfficeSusono Technical Center
OfficeOA equipment
Mishima Technical Center
OfficeGotemba Technology and Distribution Center
Vehicles and delivery equipment
Tokyo Branch, etc.
OfficeMars Corporation

Peripheral equipment
Mars Line-Tech Corporation

OfficeMars Techno-Science Corporation

Office42

WINTEC Co., Ltd.

Office

18

21

MARS

ENGINEERING

CORP ORATI ON

Number of
employees(Square meters)

Current
payments

Rent or lease

14

644

145,977

Rent

Equipment and machinery

-

358

Lease

OA equipment

-

177

Lease

Thousands of yen

Land

Hotel Sunroute Hakata, Inc.

Buildings and structures

Pro forma information on leased property is as follows:
LesseeThousands of yen
Tools, appliances and fixtures

2002

2003

1,461,948

1,893,363

427,593

797,082

1,034,354

1,096,281

Due within one year

1,155,419

1,536,282

Due after one year

3,022,868

2,999,465

4,178,287

4,535,747

Lease payments

941,452

1,497,907

Pro forma depreciation expenses (assuming
declining balance method)

261,412388,176Pro forma interest expenses

162,909208,328

Due within one year

-

1,003

Due after one year

-

3,343

-

4,346

2002

2003

Acquisition cost

4,343,061

488,553

Accumulated depreciation

1,124,467

353,312Net leased property

3,218,594

135,241

Due within one year

977,546

1,257,370

Due after one year

2,681,089

2,796,341

3,658,636

4,053,711

Lease payments received

966,525

1,423,611

Depreciation expenses

108,558

96,033

Interest revenue

284,199

299,745

Acquisition cost
Accumulated depreciation
Net leased property
Future minimum lease payments,
including interest portion

Operating leases - future minimum lease payments

LessorThousands of yen
Tools, appliances and fixtures

Future minimum lease payments,
including interest portion

22

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ENGINEERING

CORP ORATI ON

Capital Structure
Consolidated balance sheet: assets
March 31; Thousands of yen

2002

2003

Cash and deposits

3,419,786

7,286,078

Notes and accounts receivable

9,531,276

10,313,582

Investment securities

4,626,631

3,425,487

Inventories

3,194,132

3,519,687

364,674

865,704-

933,050

Others106,859

190,165

Allowance for doubtful accounts(9,065)(22,999)

21,234,295

26,510,757

7,906,200

5,723,107

2,612,887

1,657,960

5,293,312

4,065,146

178,832

198,41184,549108,715

94,28389,6962,259,585

2,348,959

1,673,568

1,866,976

586,016

481,983

10,242,712

5,699,374

7,180

21,00016,223,506

10,357,201

Consolidation translation adjustments

25,95916,430

Others96,362

121,882

122,321

138,313

Investment securities

1,169,365706,010Deferred tax assets

681,628

569,362

Others611,431563,551(162,785)(146,077)

2,299,638

1,692,847

Total fixed assets

18,645,466

12,188,361

Total assets

39,879,762

38,699,119

Current assets

Deferred tax assets
Income tax refunds receivable

Fixed assets
Tangible fixed assets
Buildings and structures
Accumulated depreciation

Machinery and transportation equipment
Accumulated depreciation

Tools, appliances and fixtures
Accumulated depreciation

Land
Construction in progress

Intangible fixed assets

Investments and other assets

Allowance for doubtful accounts

23

MARS

ENGINEERING

CORP ORATI ON

Consolidated balance sheet: liabilities and shareholders’ equity
March 31; Thousands of yen

2002

2003

4,289,542

3,417,140

86,632

1,000,000-

300,000

Income taxes payable

1,805,334

272,670

Allowance for bonuses

266,839

254,359

3,762,361

4,177,561

634,963749,509

10,845,673

10,171,241-

700,000

4,137-

2,438,739

2,584,459

2,442,877

3,284,459

13,288,551

13,455,701

144,427

212,837

Common stock

7,934,100-

Additional paid-in capital

8,371,830-

Retained earnings

10,193,486-(52,340)

-

(292)

-

26,446,783-

Common stock-

7,934,100

Capital reserves-

8,371,830

Retained earnings-

8,865,052

Unrealized gains or losses on other securities-(140,110)

Treasury stock

-

(292)

Total shareholders' equity-

25,030,579

39,879,762

38,699,119

Current liabilities
Notes and accounts payable
Short-term borrowings
Long-term debt due within 1 year

Advances received
OthersLong-term liabilities
Long-term debt
Employees' retirement benefits
OthersTotal liabilities

Minority interests
Shareholders' equity

Unrealized gains or losses on other securities
Treasury stock
Total shareholders' equity

Total liabilities, minority interests and shareholders' equity

24

MARS

ENGINEERING

CORP ORATI ON

Market value of securities
Other quoted securities
2002
Thousands of yen

Cost ofacquisition

2003

Unrealized gain
Book value(loss)

Cost ofacquisition

Book value

Unrealized gain
(loss)

Securities valued on the consolidatedbalance sheet at amounts greater thanpurchase cost
Shares95,745

126,445

30,69995,745

108,709

12,964

JGB, local government bonds, etc.

-

-

-

-

-

-

Corporate bonds

-

-

-

-

-

-

Others

-

-

-

-

-

-

1,030,000

1,036,920

6,920

1,530,000

1,531,825

1,825

1,125,745

1,163,365

37,6191,625,745

1,640,534

14,78997,58485,059(12,524)

75,20460,236(14,967)

JGB, local government bonds, etc.

-

-

-

-

-

-

Corporate bonds

-

-

-

-

-

-

Others

-

-

-

-

-

-

1,304,151

1,188,966(115,184)

667,652

426,064(241,587)

1,401,735

1,274,026(127,708)

742,856

486,301(256,555)

2,527,480

2,437,391(90,089)

2,368,601

2,126,835(241,766)

Bonds

OthersSecurities for which valuations on the
consolidated balance sheet do not exceed
purchase cost
Shares
Bonds

OthersDuring the year ended March 2003, a valuation write-off of 59,539,000 yen was recorded with regard to other securities held. When themarket value of a security at the fiscal year-end has fallen to less than 50% of the acquisition price, a valuation write-off is made for thefull amount of the differential. When the market price has fallen by 30%-50% of the acquisition price, an amount deemed necessary is
written off, taking into consideration the actual amount in question and the possibility of recovery.

Other marketable securities that were sold during the years ended March
31, 2002 and 2003
Thousands of yen

2002

2003

74,547

48,649Total gains on sales--

Total losses on sales

24,95352,189Amount sold25

MAR S

ENG IN EERINGC OR PO RAT IO N

Major investment securities without market prices
Thousands of yen

2002

2003

Corporate bonds

223,192

221,146

Commercial paper-

299,566

41,50090,000

Money management funds

2,082,834

1,283,815

Medium - term government bond funds

1,011,078

110,134

Bonds being held to maturity

Other securities
Unlisted stocks (excluding OTC stocks)

Scheduled redemptions of bonds with maturity dates and bonds being
held to maturity (among holdings in the “other securities” account)
Up to 1 year

Greater than 1 andup to 5 years

Greater than 5 andup to 10 years

Greater than
10 years

-

-

-

-

Corporate bonds

200,146

21,000--

Others299,566---

145,228

83,883

142,804-

644,940

104,883

142,804-

JGB, local government bonds, etc.

-

-

-

-

Corporate bonds-

223,192--

Others----28,391

376,366

216,423-

28,391

599,558

216,423-

Thousands of yen
2003

Bonds
JGB, local government bonds, etc.

Others

2002

Bonds

OthersDerivatives
Thousands of yen

2002
Total

2003

Over oneyear Market value

Unrealized
gain (loss)

Total

-

-

Over oneyear Market value

Unrealized
gain (loss)

Interest rate swap

Pay floating and receive fixed

-

-

-

-

-

-

Pay fixed and receive floating

10,000,000 10,000,000(730,436)(730,436) 10,000,000 10,000,000(511,266)(511,266)

10,000,000 10,000,000(730,436)(730,436) 10,000,000 10,000,000(511,266)(511,266)

26

MARS

ENGINEERING

CORP ORATI ON

Facilities
Thousands of yen

Buildings andstructures

Tools,
appliancesand fixtures

Land

Other

Book value

SquaremetersTotal bookvalue

Number of
employees

ParentHigashi Fuji Plant
Manufacturing equipment

571,342

197,453597,253

11,4471,240 1,367,289

26

677,154

11,101535,660

2,692

73,959 1,297,875

19-

32,830

-

-

3,128

35,959

74

-

1,135

-

-

-

1,135

13

-

27,971

-

-

1,282

29,25339

288,716

3,232

172,813

7,654

5,050

469,8127

321,590

774

-

-

-

322,365

-

-

3,446

-

-

209

3,656

8

194,915586

550,024

1,202

3,472

748,998

-

3,484

2,508

-

-

-

5,992

207

-

- 1,641,013

16,278- 1,641,013-

Buildings and structures

1,502,194- 2,199,000

5,398- 3,701,194

1Equipment and machinery

478,592

13,157---491,750

OA equipment

-

3,223

-

-

-

3,223

Peripheral equipment-

296,701---

296,701

Buildings and structures

19,854

-

3,610

23

-

23,465Equipment and machinery

4,944

905

-

-

-

5,849

OA equipment

-

765

-

-

-

765

Dies

-

2,046

-

-

-

2,046

Vehicles

-

-

-

-

381

381

Gotemba Technology andDistribution Center
Manufacturing and distribution
facilities
Head Office
Facilities for corporate
administration
Fuchu Technical Center
Facilities for corporate
administration
Susono Technical Center
R&D facilities
Gotemba Warehouse
Warehousing facilities
Fuji Training Center
Training facilities
Mishima Technical Center
Inactive
Dormitories
Employee recreation and welfare
facilities
Tokyo Branch, etc.
Sales, installation, andmaintenance facilities
Others
Unused landMars Corporation

Mars Line-Tech Corporation

27

42

MARS

ENGINEERING

CORP ORATI ON

Buildings andstructures

Tools,
appliancesand fixtures

1,083

3,954

-

OA equipment-

12,082

Peripheral equipment-

Buildings and structures
Equipment and machinery

Other

Total bookvalue

Number of
employees

-

-

5,038

42

-

-

-

12,082

2,504

-

-

-

2,504

-

-

-

-

21,00021,000

210

722

-

-

-

933

OA equipment

-

452

-

-

-

452

Dies

-

7,099

-

-

-

7,099

Vehicles

-

-

-

-

971

971

1,062

4,970

-

-

-

6,033

Thousands of yen

Land

Mars Techno-Science Corporation

Equipment and machinery

WINTEC Co., Ltd.

18

Hotel Sunroute Hakata, Inc.

Equipment and machinery

14

Borrowings
Thousands of yen

Previous term

Outstanding

Average rate

86,632

1,000,000

0.30667%

Current portion of long-term debt-

300,000

0.44%

Long-term debt (excluding current
portion of long-term debt)-

700,000

0.44%

Other interest-bearing liabilities

-

-

-

86,6322,000,000-

Short-term borrowings

Maturity

2004 - 2006

Long-term debt repayable within 5 years of the end of the fiscal year to March 2003
(excluding the amount payable within one year) is as follows:
Thousands of yen

Long-term debt

Greater than 1
and up to 2 years

Greater than 2
and up to 3 years

Greater than 3
and up to 4 years

300,000

300,000

100,00028

MARS

ENGINEERING

CORP ORATI ON

Retirement benefits
Outline of retirement benefit system

The Company has established a qualified defined-benefit pension plan. It has alsojoined a corporate pension plan formed by multiple employers (the National
Employers Welfare Pension Fund for the Information Service Industry).
Upon the retirement of an employee, the Company may make extra retirement
payments to the employee. These are unrelated to liabilities calculated on the basis ofactuarial assumptions, which the Company recognizes in accordance withretirement-benefit accounting guidelines.
Items related to retirement benefit liabilities
Thousands of yen

2002

2003

Retirement benefit liabilities(736,965)(832,861)

Pension assets

639,361

683,299

Unaccrued pension benefit liabilities(97,604)(149,561)

Unrecognized actuarial gains or losses

261,079

304,266

Net amount shown on consolidated balance sheet

163,475

154,705

Prepaid pension expenses

167,613

154,705

Allowance for retirement benefits(4,137)-

Items related to retirement benefit expenses
Thousands of yen

2002

2003

Current service costs

55,86870,555Pension premiums paid under multi-party employers’
welfare pension fund

76,737

85,230Interest expense

17,21812,458

Expected earnings on pension fund assets(13,191)(2,162)

6,680

26,776

143,314

192,856

Expensing of actuarial differences
Retirement benefit expenses

29

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ENGINEERING

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Assumptions underlying the calculation of retirement benefit liabilities
Thousands of yen

2002

2003

Discount rate

Generally 1.7%

1.7%

Expected rate of return

Generally 2.3%

0.3%

Equal payments basis

Equal payments basis

Generally 10 years

10 years

Method of allocating prospective retirement benefits toeach period
Amortization period for actuarial gains or losses(Expensed beginning in the(Expensed beginning in the
consolidated fiscal year following the consolidated fiscal year following theyear in which the expenses arise,year in which the expenses arise,using straight-line amortization over using straight-line amortization overa prescribed number of years that is a prescribed number of years that isequal to or less than the average
equal to or less than the averageremaining period of service ofremaining period of service of
employees.)
employees.)

The Company’s share of pension assets based on percentage of premiums
contributed to multi-party employers’ pension system
Thousands of yen

2002

2003

726,957

676,766

Deferred taxes
Thousands of yen

2002

2003

365,021865,989

346

284

Deferred tax assets - net

364,674

865,704

Deferred tax assets (fixed)

752,201

634,384

Deferred tax liabilities (long-term)

70,57365,022

Deferred tax assets - net

681,628

569,362

The difference between
the effective tax rate as
stipulated by law andthe corporate tax rate
after application ofinterperiod tax allocationis less than 5 percent,therefore the figure is
not reported in thissection.

42.05

Deferred tax assets (current)
Deferred tax liabilities (current)

Percentage

Legal effective tax rate
Expenses not deductible for tax purposes(such as entertainment expenses)
Per capita rate of inhabitant tax
Non-recognition of tax effects related to unrealized profits
Impact of change in effective tax rate
Others(2.23)(6.47)(50.66)(3.87)
0.46

Income tax and others accompanying adoption of tax effectaccounting

30(20.72)MARS

ENGINEERING

CORP ORATI ON

Nonconsolidated Financial Statements
Nonconsolidated statement of income
Years ended March 31; Thousands of yen

2002

2003

Net sales - finished goods

17,398,992

20,167,621

Net sales - merchandise

421,575

413,258

17,820,567

20,580,880

Finished goods inventory, beginning of term

1,471,750

993,386

Production costs for the term

8,291,917

11,653,380

9,763,668

12,646,766

Transfers to other accounts

50,881

128,937

Finished goods inventory, end of term

993,386

1,562,263

8,719,400

10,955,565

4,369

4,017

270,366

213,602274,735

217,620

4,017

4,207

270,717

213,4128,990,118

11,168,978

8,830,449

9,411,902

After-sales service expenses

304,763356,981

Directors' salaries

117,420

129,420

Employees' salaries

1,326,536

1,445,079

Bonuses281,741

272,611

Provision for bonuses

192,606

181,378

Legal welfare expenses

224,230

245,466

Rent

163,254

171,551

Depreciation expenses

207,671

190,614

1,385,734

1,558,302

4,203,960

4,551,406

4,626,488

4,860,496

Net sales

Cost of goods soldCost of finished goods soldCost of merchandise sold
Merchandise inventory, beginning of term
Merchandise purchased during term

Merchandise inventory, end of term

Gross profit on sales
Selling, general and administrative expenses

OthersOperating income

31

MARS

ENGINEERING

Years ended March 31; Thousands of yen

CORP ORATI ON

2002

2003

Interest income

31,385

16,242

Interest income from securities

9,995

38,123

Dividend income

7,954

18,604Foreign exchange gain

1,345

-

Profits from anonymous association

811,993-

Income from contracted operations-

10,60065,412

17,546

928,085

101,117

153,195

45,956

Loss on sale of securities

4,258

-

Miscellaneous losses

9,332

2,208

166,786

48,164

5,387,787

4,913,449

16,950-16,950--5,779,387

Loss on removal of fixed assets

13,311

13,264

Loss on liquidation of subsidiaries

374,600-

Loss on disposal of inventories

23,590139,023

Loss on sale of investment securities

24,95352,189Valuation loss on investment securities

662,781

59,539Valuation loss on memberships

500-

Provision for doubtful accounts

9,500

-

1,109,236

6,043,404

Income (loss) before taxes and other adjustments

4,295,501(1,129,954)

Corporate, inhabitant and enterprise taxes

1,926,805

42,113(63,585)(479,734)

1,863,220(437,620)

Net income (loss) for the term

2,432,281(692,333)

Retained earnings brought forward from previous term

3,521,578

5,345,863

227,198

227,198

5,726,661

4,426,331

Nonoperating income

Miscellaneous income

Nonoperating expenses
Interest expenses

Ordinary profit
Extraordinary income
Reversal of allowance for doubtful accounts

Extraordinary losses
Loss on sale of fixed assets

Adjustment for income and other taxes

Interim dividends
Unappropriated retained earnings, fiscal year end

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Nonconsolidated appropriation of retained earnings
Thousands of yen

June 27, 2002

June 27, 2003

5,726,661

4,426,331

Dividends

340,797

340,797

Directors' bonuses

40,00054,000[Statutory auditors' bonuses][ 2,000 ][ 2,000 ]380,797394,797

5,345,863

4,031,533

Unappropriated profit, end of term
Appropriation of retained earnings

Retained earnings carried forward to next term

Cost of goods soldYears ended March 31; Thousands of yen

2002

Cost of materials

7,175,664

2003%

84.8 10,186,258

%

86.6

Subcontracted processing expenses

531,460

6.3

823,935

7.0

Labor costs

333,7623.9

307,987

2.6

Manufacturing overhead

425,061

5.0

441,7373.8

8,465,949

100.0 11,759,919

100.0

131,047

185,964

8,596,997

11,945,883

Work-in-process inventory, end of term

185,964

34,447

Transfers to other accounts

119,115

258,055

Production costs for the term

8,291,917

11,653,380

Total manufacturing costs for the term
Work-in-process inventory, beginning of term

Primary items and amounts included under Labor costs and Manufacturing overhead.

Labor costs
Provision for bonuses

27,62526,242

264,011

278,393

115,741

223,288-

31,496

1,254

216

-

3,053

2,120

-

119,115

258,055

Manufacturing overhead
Depreciation expenses
Transfers to other accounts
Selling, general and administrative expenses
Loss on disposal of inventories
Manufacturing expenses
Tools, appliances and fixtures
Construction in progress

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Nonconsolidated balance sheet: assets
March 31; Thousands of yen

2002

2003

Cash and deposits

2,537,075

5,755,222

Notes receivable

1,059,480

1,184,473

Accounts receivable - trade3,952,161

4,205,551

Negotiable securities

4,265,079

3,165,074

Merchandise

4,017

4,207

Finished goods

993,386

1,562,263

Materials

987,083

807,245

Work in process

185,964

34,447

Supplies

491,194

509,058

Advances paid

6,557

4,454

Prepaid expenses

29,32856,118

Short-term loans

518,000

456,000

Deferred tax assets

269,880

724,580-

933,050

Others12,106

13,035

Allowance for doubtful accounts(5,418)(5,856)15,305,896

19,408,927

7,513,760

3,506,666

2,378,694

1,503,591

5,135,065

2,003,075

348,368

191,175

218,937

137,047

129,430

54,128148,055

166,20760,53282,22487,52383,983

Vehicles and delivery equipment

26,17826,178

Accumulated depreciation

20,024

21,817

6,153

4,360

Tools, appliances and fixtures

1,609,433

1,641,258

Accumulated depreciation

1,251,179

1,360,217

358,253

281,041

10,239,102

3,496,763

2,770

-

15,958,299

5,923,352

Current assets

Income tax refunds receivable

Fixed assets
Tangible fixed assets
Buildings
Accumulated depreciation

Structures
Accumulated depreciation

Machinery and equipment
Accumulated depreciation

Land
Construction in progress

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ENGINEERING

March 31; Thousands of yen

CORP ORATI ON

2002

2003

Patents

13,217

15,785

Telephone subscription rights

15,214

15,214

Software49,36736,76377,79967,764

1,169,365706,010

Capital stock of affiliated companies

466,860

2,476,860

Investments other than securities

1,610

1,610

Long-term loans to affiliates

239,000

103,000

Rental and guarantee deposits

162,165

392,450

Claims in bankruptcy and substantial bankruptcy

76,393

52,791Long-term prepaid expenses

39,791

18,686

Deferred tax assets

97,939186,296

Prepaid pension expenses

167,613

154,705

Others

66,10066,100(130,962)(109,635)

2,355,877

4,048,876

Total fixed assets

18,391,976

10,039,993

Total assets

33,697,873

29,448,920

Intangible fixed assets

Investments and other assets
Investments in securities

Allowance for doubtful accounts

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Nonconsolidated balance sheet: liabilities and shareholders’ equity
March 31; Thousands of yen

2002

2003

Notes payable

1,422,773

15,830Accounts payable - trade

2,286,744

2,656,365

Accounts payable - other

183,543

104,911

Income taxes payable

1,553,467

17,407

Consumption taxes payable

143,023

177,359

Accrued expenses

84,25685,150

Advances from customers

8,400

31,913

Deposits received

13,373

14,646

Deferred income

28,077

15,241

Allowance for bonuses

220,232

207,621-

12,772

5,943,893

3,339,219

Interest rate swap liability

730,436

511,266

Others72,011

34,500802,447

545,766

6,746,340

3,884,986

Common stock

7,934,100-

Additional paid-in capital

8,371,830-

Legal income reserves

372,109-4,600,000-

4,600,000-

5,726,661-

10,326,661-(52,875)

-

(292)

-

26,951,532-

Current liabilities

OthersLong-term liabilities

Total liabilities

Shareholders' equity

Retained earnings
Voluntary reserves - total
Special reserve

Unappropriated retained earnings, fiscal year end

Unrealized gains or losses on other securities
Treasury stock
Total shareholders' equity

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ENGINEERING

March 31; Thousands of yen

CORP ORATI ON

2002

2003

-

7,934,100-

8,371,830-

8,371,830-

372,109-4,600,000-

4,426,331-

9,398,441

Unrealized gains or losses on other securities-(140,144)

Treasury stock

-

(292)

Total shareholders' equity-

25,563,934

33,697,873

29,448,920

Common stock
Capital reserves
Additional paid-in capital

Retained earnings
Legal income reserves
Voluntary reserves - total
Special reserve
Unappropriated retained earnings, fiscal year end

Total liabilities and shareholders' equity

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Trade credits
Notes receivableThousands of yen

2003

Hikari Shinsei

318,500

Niko Tsusho

45,000GAIA

42,660

Diamond Lease

40,000Daiei Shoji

37,880

Others700,432
1,184,473

Accounts receivable — trade
Thousands of yen

2003

Tokyo Leasing

406,445

Dynam

295,844

Fuyo General Lease

293,018

SMBC Leasing

160,683

NTT Leasing

142,116

Others2,907,442
4,205,551

Turnover of accounts receivableThousands of yen

2003

Beginning balance

3,952,161

Increase

21,718,314

Collected

21,464,924

Ending balance

4,205,551

Turnover83.6%

Average days for collection

68.5

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Securities
Marketable and investment securities
Thousands of yen

StocksNumber of sharesBook value

Tokyo Tomin Bank (8339)

21,242

23,366

Nissei Plastic Industrial (6293)

1,400

756

Taisei Oncho (1904)

1,500

337

Daiwabo Information System (9912)

1,100

682

Nippon Signal (6741)

5,000

1,530

Japan Cash Machine (6418)

73,205

108,70950

5,900

465,150

26,513

NAGANO KEIKI (7715)

1,331

1,151

TOKYO MAGTEK Inc.

30

-

IRLAN

2,048

-

P ARK

20,00040,000Atom Corp. (7412)

1,000

50,000593,056

258,945

Bonds
Marketable securities

Total face value

Book value

500,000

499,712

1,376,606

2,665,361

1,876,606

3,165,074

Bonds being held to maturity

21,00021,000

Other securities

106,995

426,064

Investment securities
Other securities

UFJ Holdings, Inc. (8307)
Resona Holdings, Inc. (8038)

Bonds being held to maturity
Other securities

Investment securities

706,01039

MARS

ENGINEERING

CORP ORATI ON

Tangible fixed assets
Beginning ofterm

Increase

Decrease

End of term

Buildings

7,513,760

286,882

4,293,976

3,506,666

1,503,591

273,6092,003,075

Structures

348,368

6,839

164,031

191,175

137,047

18,56654,128

Machinery and equipment

148,055

32,03813,885

166,20782,224

28,83983,983

Vehicles and delivery equipment

26,178--26,17821,817

1,793

4,360

Tools, appliances and fixtures

1,609,433

163,620

131,795

1,641,258

1,360,217

212,303

281,041

Land

10,239,102-

6,742,338

3,496,763--

3,496,763

2,770

311,388314,159

-

-

-

-

19,887,668

800,769

11,660,186

9,028,251

3,104,898

535,113

5,923,352

Patents---

20,661

4,875

2,193

15,785

Telephone subscription rights

-

-

-

15,214--

15,214

Software---70,14233,37815,122

36,763---106,018

38,253

17,316

67,76493,4902,240

30,80364,927

46,24022,137

18,686

Thousands of yen

Depreciation
Accumulated
Current

End of term,net

Tangible fixed assets

Construction in progress

Intangible fixed assets

Long-term prepaid expenses

Reserves
Beginning ofterm

Increase

Decrease

End of term

Allowance for doubtful accounts

136,380

8,159

29,047

115,491

Reserve for bonuses

220,232

207,621220,232

207,621

Thousands of yen

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Accounting Policies
Summary of accounting policies: consolidated
Basis of presentation

Japanese GAAP

Marketable securities andinvestments in securities

Bonds held to maturity: cost amortization method (straight line)
Other securities:
Quoted securities: the market value method is applied, based on the market value asof the fiscal year end. The entire positive or negative valuation difference with thepurchase price is booked directly as shareholder’s equity, and the cost of securities
sold is calculated using the moving average method
Unquoted securities: valued at cost using the moving average method

Derivatives

Market price method

Inventories

Valued at cost, using the moving average method

Depreciation

Tangible fixed assets: declining balance method
Provided, however, that buildings acquired after April 1, 1998 (excluding
appurtenances) and assets used in hotel operations are depreciated on astraight-line basis
Intangible fixed assets:
Software for sale: amortized over a period of three years from the commencement ofsales, based on a projected number of sales. However, if the amount calculated on
this basis is less than straight-line amortization over the estimated economic life of
the software, then the latter is recognized as a minimum amount of amortization.
Other: straight-line method
Amortization of software for internal use is based on period of potential use (5years); patent rights are amortized over 5 years.
Long-term prepaid expenses: amortized in equal installments over the period
coveredAllowance for doubtful accounts

Reserve for bonuses
Retirement benefits

Opinion of independent auditors

To provide for potential losses from doubtful accounts, the Company recognizes anamount calculated on the basis of a statutory deduction ratio for general accounts
receivable plus an amount for specific accounts for which collection appears doubtful
Recognition of expense for current term, based on estimated bonus expense for thebonus period
To provide for employees’ retirement benefits, the Company recognizes an amountbased on retirement benefit liabilities and estimated pension assets as of the end of
the consolidated fiscal year to March 2003
Auditors: Tohmatsu & Co.
Opinion: unqualified

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Summary of accounting policies: nonconsolidated
Basis of presentation

Japanese GAAP

Marketable securities andinvestments in securities

Bonds held to maturity: cost amortization method (straight line)
Shares in subsidiaries and affiliated companies: valued at cost using the moving
average method

Derivatives
Inventories
Depreciation

Allowance for doubtful accounts

Reserve for bonuses
Retirement benefits

Opinion of independent auditors

Other securities:
Quoted securities: the market value method is applied, based on the market value asof the fiscal year end. The entire positive or negative valuation difference with thepurchase price is booked directly as shareholder’s equity, and the cost of securities
sold is calculated using the moving average method
Unquoted securities: valued at cost using the moving average method
Market price method
Merchandise, finished goods, work in process, raw materials and supplies: valued atcost, using the moving average method
Tangible fixed assets: declining balance method
Provided, however, that buildings acquired after April 1, 1998 (excluding
appurtenances) are depreciated on a straight-line basis
Intangible fixed assets: straight-line method
Amortization of software for internal use is based on period of potential use (5years); patent rights are amortized over 5 years.
Long-term prepaid expenses: amortized in equal installments over the period
coveredTo provide for potential losses from doubtful accounts, the Company recognizes anamount calculated on the basis of a statutory deduction ratio for general accounts
receivable plus an amount for specific accounts for which collection appears doubtful
Recognition of expense for current term, based on estimated bonus expense for thebonus period
To provide for employees’ retirement benefits, the Company recognizes an amountbased on retirement benefit liabilities and estimated pension assets as of the end of
the consolidated fiscal year to March 2003
Auditors: Tohmatsu & Co.
Opinion: unqualified

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Share-related Information
Shares in issue
Class of shares

CommonNumber of shares authorized

33,810,000

IssuedAs of March 31, 2003

11,360,000

As of June 30, 2003

11,360,000

Stock exchange listings or registration

Tokyo Stock Exchange, First Section

Comments-

Changes in common stock and number of shares outstanding
SharesThousands of yen
Date

December 24, 1999

Shares outstanding
Increase or
decrease
Balance

1,200

11,360Common stock
Increase or
decrease
Balance

Additional paid-in capital
Increase or
decrease
Balance Remark

2,433,600

2,432,400

7,934,100

8,371,830

Public offering ofsharesShareholders by type of investor
Type of investor;
Hundred shares

Number ofshareholders

National and local government agencies

Number of units
owned% owned---Financial institutions

48

23,62420.80

Securities companies

22

330

0.29

Business and other corporations

76

22,674

19.96

Nonresidents (business and corporations)

45

4,734

4.17

6,892

62,237

54.78

7,083

113,599

100.00-100-

Individuals and others

Shares less than one unit

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ENGINEERING

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Largest shareholders
Name

Thousands ofshares owned

EM Planning

Held in trust
accounts% of shares
outstanding

2,125.0

18.71

Hirokazu Matsunami

702.8

6.19

Kayoko Matsunami

514.0

4.52

Akihiro Matsunami

500.0

4.40

Japan Trustee Services Bank, Ltd. (Trust Account)

410.5

365,800

3.61

The Master Trust Bank of Japan, Ltd. (Trust
Account)
Tokyo Tomin Bank, Ltd.

396.4

318,400

3.49

300.0

2.64

Shigeo Komiya

245.0

2.16

Teruo Gomi

225.0

1.98

Mika Nagai

216.0

1.90

5,634.7

49.60

Share information
Fiscal year-end

March 31

Ex-rights date

March 31

Ex-rights date for interim dividend

September 30

Annual general meeting of shareholders

June

Trading unit

100 shares

Types of share certificates

100, 1,000 and 10,000 shares

Transfer agent

Publication of record

The Sumitomo Trust & Banking Co., Ltd.
1-4-4, Marunouchi, Chiyoda-ku, Tokyo
Nihon Keizai Shimbun, Inc.

44

MARS

ENGINEERING

Contact
Toshiaki Sato
Executive Officer
Accounting Department
Mars Engineering Corporation
1-10-7, Shinjuku, Shinjuku-ku
Tokyo, Japan
Telephone: 81-3-3352-8555
Facsimile: 81-3-3351-7368

45

CORP ORATI ON

MARS ENGINEERING CORPORATION
1-10-7, Shinjuku, Shinjuku-ku, Tokyo 160-0022
Phone : 81-3-3352-8555
Facsimile : 81-3-3351-7368
URL : http://www.mars-eng.co.jp

Printed in Japan