Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Brief Report of Settlement of Accounts (Kessan Tanshin) for Full Fiscal Year Ending March 31, 2009
June 2, 2009 Listed Company Name: ARUZE CORP. Listed Exchange Market: JQ
Code Number: 6425 URL: http://www.aruze.com Representative: (Position) Representative Executive Officer and President (Name) Hajime Tokuda Contact Person: (Position) General Manager, Finance and Accounting Department (Name) Masayuki Saito Telephone: 03-5530-3055 Scheduled Date of Annual Shareholders Meeting: Scheduled Submission Date of Securities Registration Report: June 26, 2009 June 29, 2009 Scheduled Dividend Payment Commencement Date: - (Amounts are rounded down to nearest million yen)
1. Consolidated Financial Results for Full Fiscal Year Ending March 31, 2009 (April 1, 2008 to March 31, 2009) (1) Consolidated Results of Operations (Percentages indicate ratio of increase/decrease from previous fiscal year) Net sales Operating income Ordinary income Net income Million yen % Million yen % Million yen % Million yen % Mar. 2009 Fiscal Year 19,993 (72.3) (11,605) - (13,224) - (14,808) - Mar. 2008 Fiscal Year 72,133 102.7 16,088 - 23,311 - 38,086 315.4
Net income per share Ratio of current Ratio of ordinary Ratio of operating Net income per share after adjustment of net income to income to total assets income to net sales latent shares shareholders’ equity Yen Yen % % % Mar. 2009 Fiscal Year (185.26) - (11.6) (8.0) (58.0) Mar. 2008 Fiscal Year 476.52 476.45 28.9 13.1 22.3 (Reference) Equity in profit/loss of affiliates Fiscal year ending Mar. 31, 2009: 2,092 million yen; Fiscal year ending Mar. 31, 2008: 6,468 million yen
(2) Consolidated Financial Position Total assets Net assets Shareholders’ equity ratio Net assets per share Million yen Million yen % Yen Mar. 2009 Fiscal Year 145,761 112,838 74.7 1,362.23 Mar. 2008 Fiscal Year 184,826 147,327 79.7 1,841.84 (Reference) Shareholders’ equity Fiscal year ending Mar. 31, 2009: 108,889 million yen; Fiscal year ending Mar. 31, 2008: 147,227 million yen
(3) Consolidated Cash Flow Position Net cash provided by (used Net cash provided by (used Net cash provided by (used Cash and cash equivalents at in) operating activities in) investment activities in) financing activities end of period Million yen Million yen Million yen Million yen Mar. 2009 Fiscal Year (10,942) (40,420) 596 14,177 Mar. 2008 Fiscal Year 17,063 23,999 (22,946) 56,004
2. Status of Dividends Dividends per share Total Dividend Dividend ratio End of 1st End of 2nd End of 3rd End of dividends payout ratio to net assets (Record Date) Full year Qtr Qtr Qtr fiscal year (annual) (consolidated) (consolidated) Yen Yen Yen Yen Yen Million yen % % Mar. 2009 Fiscal Year - 0.00 - 60.00 60.00 4,796 12.6 3.6 Mar. 2008 Fiscal Year - 0.00 - 0.00 0.00 - - - Mar. 2010 Fiscal Year - 0.00 - 20.00 20.00 22.8 (forecast)
3. Forecast of Consolidated Financial Results for Fiscal Year Ending March 31, 2010 (April 1, 2009 to March 31, 2010) (Percentages indicate ratio of increase/decrease from year-to-year and from period-to-period) Net income Net sales Operating income Ordinary income Net income per share Million yen % Million yen % Million yen % Million yen % Yen Year to end of 2nd Quarter 22,000 107.7 2,000 - 2,000 - 1,500 - 18.76 Full Year 58,000 190.1 12,000 - 12,000 - 7,000 - 87.57
-1- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009 4. Others (1) Changes in material subsidiaries during fiscal year (changes in specified subsidiaries accompanying change in scope of consolidation): Present
Newly added: 1 company (Molly Investments Cooperatieve U. A.) Excluded: 3 companies (Seven Works Corporation, Aruze Global Trading Corporation, Seta Corp.) (Note) See p. 6, entitled “Status of the Corporate Group” for details.
(2) Changes in principles, procedures, methods of presentation etc. for accounting methods pertaining to preparation of consolidated financial statements (items marked as changes under significant items serving as the basis for preparation of consolidated financial statements) [1] Changes resulting from revision of accounting standards: Present [2] Changes other than [1]: Absent (Note) See p. 23, entitled “Changes in significant items serving as basis for preparation of consolidated financial statements,” for details.
(3) Total number of issued shares (common stock) [1] Shares issued at end of fiscal year (incl. treasury stock) Mar. 2009 Fiscal Year: 80,195,000; Mar. 2008 Fiscal Year: 80,195,000 [2] Number of treasury stocks at end of fiscal year: Mar. 2009 Fiscal Year: 260,363; Mar. 2008 Fiscal Year: 260,034 (Note) See p. 32, entitled “Per share information,” for details on the number of shares serving as the basis of calculating net income per share for the fiscal year in question (consolidated).
(Reference) Summary of Non-Consolidated Financial Results
1. Non-Consolidated Financial Results for Fiscal Year Ending March 31, 2009 (April 1, 2008 to March 31, 2009) (1) Non-Consolidated Results of Operations (Percentages indicate ratio of increase/decrease from previous fiscal year) Net sales Operating income Ordinary income Net income Million yen % Million yen % Million yen % Million yen % Mar. 2009 Fiscal Year 9,904 (83.2) (7,406) - (6,168) - (10,098) - Mar. 2008 Fiscal Year 58,903 83.9 9,521 - 9,846 - 9,350 -
Net income per share after Net income per share adjustment of latent shares Yen Yen Mar. 2009 Fiscal Year (126.33) - Mar. 2008 Fiscal Year 116.99 116.98
(2) Non-Consolidated Financial Position Total assets Net assets Shareholders’ equity ratio Net assets per share Million yen Million yen % Yen Mar. 2009 Fiscal Year 130,141 97,506 74.8 1,217.96 Mar. 2008 Fiscal Year 131,596 112,379 85.3 1,404.63 (Reference) Shareholders’ equity Fiscal year ending Mar. 31, 2009: 97,357 million yen; Fiscal year ending Mar. 31, 2008: 112,279 million yen
2. Forecast of Non-Consolidated Financial Results for Fiscal Year Ending March 31, 2010 (April 1, 2009 to March 31, 2010) (Percentages indicate ratio of increase/decrease from year-to-year and from period-to-period) Net income Net sales Operating income Ordinary income Net income per share Million yen % Million yen % Million yen % Million yen % Yen Year to end of 2nd quarter 18,500 - 2,500 - 2,500 - 2,000 - 25.02 Full year 54,500 450.3 10,000 - 10,000 - 6,000 - 75.06
*Explanation and Other Noteworthy Items Regarding Proper Application of Financial Results Forecast The forecasts of financial results and other items concerning the future as featured herein are based on information currently available and certain assumptions that are determined to be reasonable. Actual financial results, etc. may differ significantly due to various factors. Note that Aruze Gaming America, Inc., as well as Aruze Gaming Africa (Pty.) Ltd. and Aruze Gaming Australia Pty. Ltd. which are subsidiaries of Aruze Gaming America, Inc., are scheduled to be excluded from the scope of consolidation of the Company. Accordingly, the forecast of consolidated financial results does not include the results of Aruze Gaming America, Inc., Aruze Gaming Africa (Pty.) Ltd. and Aruze Gaming Australia Pty. Ltd.
-2- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
1. Operating Results (1) Analysis of Operating Results (Operating Results for Fiscal Year in Question) In the consolidated fiscal year in review, the Japanese economy remained unstable due partly to the escalating oil prices in the first half, and partly to the sharp falls in share prices triggered by the global financial crisis that began with the U.S. banking crisis following the collapse of a large U.S. securities company. As for the environment surrounding Pachislot machines, the user base continued to shrink due to the restriction of volatility upon transition from Type 4 to Type 5 machines, and this led to a drop in buying motivation among parlors. Also, the global financial crisis brought a slump in the domestic economy, and the number of parlors decreased. Because of this bleak environment surrounding Pachislot machines as described above, only 18,000 Pachislot machines were sold and installed and 40,000 units underwent servicing for software replacement during the current consolidated fiscal year,. As a result, sales revenue in the current consolidated fiscal year ended at 19,993 million yen (72.3% down over the same term of the previous fiscal year), with operating loss amounting to 11,605 million yen. Also, 2,092 million yen of investment gains under the equity method was recorded due partly to the full-year net profit of US$210,206,000 reported by Wynn Resorts, Limited (NASDAQ code: WYNN), which is an equity-method affiliate, while 4,066 million yen in foreign exchange loss was also recorded due partly to the inclusion into the scope of consolidation of the three subsidiaries involved in the casino project in the Philippines with effect from the third quarter. As a result, 13,224 million yen in ordinary losses was posted. Also, the capital increase by Wynn Resorts, Limited and other events, led to the reporting of 4,769 million yen in gain on change in equity, and 4,728 million yen in valuation losses on inventory assets was also recorded. These resulted in an extraordinary loss of 5,655 million yen, and consequently a net loss of 14,808 million yen for the period in review was posted. Discussed below are the results for each business segment. Segment figures represent amounts prior to adjustment for intra-segment sales or reallocations and unallocable amounts relating to operating expenses.
[1] Pachislot and Pachinko Business In the Pachislot and Pachinko business, the market environment for Pachislot machines had been seeing a period of failure to stabilize and of shrinking user base even after the full transition to Type 5 machines. Combined with the difficulty to raise funds under the financial crisis, this negative sentiment in the market led to closures and failures of many parlors. As a result, the total number of new Pachislot machines introduced in the market in the current consolidated fiscal year saw a sharp drop to approximately 810,000 units (approximately 45.9% of the number recorded in the previous fiscal year)*1. We sold only 34,600 units in the first half, compared to the initial plan of 97,000 units. Based on such result, in the second half, we were implementing sweeping measures to restructure our sales system by revising the number of branches and personnel allocations, etc.; while also stepping up the gathering of information through sales representatives in order to improve the undesirable state of insufficient market information in the planning and development of machines. In addition, we are currently switching our existing process to a new process whereby machines which are planned and developed pursuant to the collected information are tested at an actual site in order to evaluate the machines more accurately, before introducing them to the market. Under these situations, we sold 58,000 new Pachislot machines covering 10 titles in the current consolidated fiscal year in review. *1 Internal data of the Aruze Group. As a result of the above, net sales for the Pachislot and Pachinko business during the consolidated fiscal year in review amounted to 16,459 million yen (a 75.1%-decrease over the previous fiscal year), and operating losses totaling 3,381 million yen was recorded (compared to 25,728 million yen in operating income recorded in the previous fiscal year). [2] Overseas Casino Gaming Machine and Game Machine Business Turning to the overseas casino gaming machine business, the global economic slump triggered by the financial crisis forced all our competitors to lower prices by as much as 25 to 40%, and consequently the competitive environment remained very fierce. As notified earlier, a decision was made to transfer the shares of Aruze Gaming America, Inc. to Kazuo Okada, Chairman of the Board of Directors of the Company, and this transaction will reduce the financial burdens of the Company. For your information, the transfer price of the shares of Aruze Gaming America, Inc. was decided as 2,321 million yen, covering 1,079 shares to be transferred, as a result of calculation based on the financial closing numbers of Aruze Gaming America, Inc. for the period ended December 2008. As a result of the above, net sales for the overseas casino gaming machine and game machine businesses for the consolidated fiscal year in review totaled 2,111 million yen (a 52.5%-decrease from the previous fiscal year), with operating losses at 1,759 million yen (versus 1,470 million yen in operating losses for the previous fiscal year). [3] Other Businesses Aruze Media Net Inc., which is a media business arm in the Aruze Group, had a profitable full year for the
-3- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009 first time since its establishment, due to improved operational efficiencies at the various mobile sites the company is operating. Among these sites, “Aruze Kingdom” adopted measures to establish closer links with machine sales and operation and also underwent a major facelift to transform itself into a site offering new types of fun games to users. Japan Amusement Broadcasting Co., Ltd., another media business unit in the Aruze Group, continued to enjoy solid support among its fans whose needs were met by “Pachi-Tele! (Pachinko-Pachislot TV),” a Pachinko-Pachislot specialty channel that Japan Amusement Broadcasting is offering on SKY PerfectTV! Amidst the severe economic environment, cost-cutting measures to curve administrative expenses was implemented, etc., and profit from other businesses was reported for the third consecutive year. As a result of the above, net sales for other businesses for the consolidated fiscal year in question totaled 1,914 million yen (11.6%-decrease from the previous fiscal year), with operating income at 248 million yen (34.8%-decrease from the previous fiscal year).
(Outlook for Next Fiscal Year)
[1] Pachislot and Pachinko Business The Company will celebrate its 40th anniversary this year. At this important juncture, we will strive to recover our market share by introducing machines reflecting the popular features identified through information gathered by Sales Department, as well as machines meeting the needs of the market. As for “Midori-Don,” which released earlier, we have already received orders for nearly 30,000 units and the model is receiving high marks in the market. “Don-chan" which is Aruze’s poster character, has celebrated his 10th anniversary and began a new chapter for the next successful 10 years. This year, we are planning to introduce a total of 180,000 Pachislot machines to the market for the full year, mainly by focusing on the Don-chan series. As for Pachinko machines, our plan is to introduce 50,000 units by releasing unique products having competitive edges against rival machines in the market. [2] Other Businesses Aruze Media Net Inc. and Japan Amusement Broadcasting Co., Ltd., both of which are media business units in the Aruze Group, will collaborate with each other in the areas of their respective core platforms based on web and broadcasting, as companies that not only provide the existing contents, but which also have the ability to produce new contents over wide genres. Aruze Media Net will invest for the realization of these objectives by establishing a new Business Development Office. On the other hand, Japan Amusement Broadcasting, which celebrates its 10th anniversary this year, will promote production of high definition programs while also implementing organization changes, running active promotion campaigns and investing in new businesses in order to establish a firm position as a leading information media company in the Pachislot and Pachinko industry.
(2) Analysis of Financial Condition [1] Status of Cash Flow for Consolidated Fiscal Year in Question As of the end of the consolidated fiscal year in question, the balance of cash and cash equivalents totaled 14,177 million yen. The status of each cash flow and the primary reasons for increases/decreases as of the end of the consolidated fiscal year in question are as follows:
-4- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009 Ratio of interest-bearing 33.8 0.5 - liabilities to cash flow (years) Interest coverage ratio (x) 1.9 70.1 - Shareholders’ equity ratio = shareholders’ equity / total assets Shareholders’ equity ratio on market value basis = total market value of shares / total assets Ratio of interest-bearing liabilities to cash flow = interest bearing liabilities / cash flow Interest coverage ratio = cash flow / interest paid *Note 1: All figures are calculated based on consolidated financial values. *Note 2: The total market value of shares is calculated based on the number of issued shares minus treasury stock. *Note 3: Cash flow is represented by operating cash flow. *Note 4: Interest-bearing liabilities include all liabilities accounted for on the consolidated balance sheet for which interest is being paid.
(3) Basic Policy Regarding Distribution of Profits and Dividends for the Current and Next Fiscal Year The Company views the return of profits to its shareholders as one of its foremost management priorities. To this end, the Company is endeavoring to improve the profitability of its corporate constitution and keep a consistently high ratio of shareholders’ equity to profit, as well as adopt a basic policy of maintaining a stable level of dividends that reflects the Company’s business performance. The Company, through resolutions of its Board of Directors, has stipulated in its Articles of Incorporation that “The Company may pay dividends from retained earnings to shareholders and/or to the share pledgees who are registered on the last version of the registry of shareholders dated on September 30 every year” and that “The Company may pay dividends from retained earnings, specifying the record date.” The institution to determine the payment of dividends from retained earnings at the end of the business year is the Ordinary Shareholders’ Meeting and the one to determine the interim period or other record date is the Board of Directors. As for the dividend for the current consolidated fiscal year, the Company decided to forgo dividend pay-outs in view of the consolidated results and non-consolidated results. Payment of 20 yen per share is planned as the year-end dividend for the fiscal year ending March 2010. The Company’s basic policy regarding internal reserves is to preserve appropriate levels of internal reserves to ensure a healthy financial base, strengthen the management foundation of the Company in order to achieve higher corporate value and efficiently invest necessary funds in promising businesses.
(4) Businesses Risks Of the items relating to the operating results, the financial condition, etc., as stated in this Brief Report of Settlement of Accounts (Kessan Tanshin), factors that might affect investor decisions are described below. The Company recognizes the possibility that these risks might emerge, and will work to avoid such risks, or deal with them appropriately if they arise; provided, however, that the factors listed below do not cover all risks related to the business of The Company.
[1] Pachislot and Pachinko Business According to the “Law Concerning Regulation and Proper Operation of Businesses Affecting Public Morals,” Pachislot and Pachinko machines need to meet the “technical standards” defined in Item 4 of the National Public Safety Commission’s rules (Regulations Concerning Authorization and Model Approval for Amusement Machines). Each type of machine must pass the model test conducted by the designated testing organization (Security Electronics and Communications Technology Association) and the model inspection conducted by the Public Safety Commission of the applicable prefecture. In case these laws or standards are amended, the Company group will analyze industry trends and the application status of other companies, and make new applications for new machines in a structured and strategic fashion. However, if major changes need to be made due to administrative direction or voluntary restriction by the industry, the business results of the Company group would be materially impacted. There is also the possibility that profitability would be affected by changing preferences in the industry, as well as economic trends in Japan that includes income levels. [2] Foreign Exchange Risks In preparing consolidated financial statements, foreign currency-denominated gains/losses and assets/liabilities of each overseas subsidiary of the Company group are incorporated into the consolidated financial statements once they are converted into Japanese yen. As a result, business results of the Company may be adversely affected by fluctuations in exchange rates. [3] Litigation The Company group has several pending litigations, and the outcomes of the cases may have an impact on the business results of the Company group. Although the Company group continues to make every effort to eliminate litigation risk, there is always a possibility that third parties may file new cases against the Company group, with the rulings in these cases having the potential to affect future business results. The substance of the main litigations currently pending is stated in Notes (Consolidated Balance Sheet), “* Contingent liabilities, (1) Litigations.”
-5- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
2. Status of the Corporate Group The corporate group of the Company is composed of the Company, 23 subsidiaries, 1 affiliate and 1 related company which has a continuous business relationship. The main businesses are the development, manufacture and sales of Pachislot and Pachinko machines and other amusement machines and peripheral equipment thereof, as well as media content business, production of TV programs, and broadcasting business, etc. Please see below for the businesses of the Company’s corporate group, the relative position of the Company and each company in the business and the relationship between the business segments and the Company/each company.
Business Segment Main Business Company Name The Company, Macy Sales Co., Ltd., Product assembly Eleco Ltd., Mizuho Corp. Pachislot and Development, sale and rental of Pachislot and Pachinko Pachinko Business machines; development, manufacture and sale of Aruze Marketing Japan Corporation peripheral equipment; procurement of materials and units The Company Gaming machine Development, manufacture and sale of gaming machines Aruze Gaming America, Inc. business for overseas casinos. Aruze Gaming Africa (Pty) Ltd. Aruze Gaming Australia Pty Ltd.
Investment management in the US Aruze USA, Inc.
Operation and management of Wynn Resorts, Limited casino resorts Investment in, and operation and management of, land-holding Molly Investments Cooperatieve U. A. Casino Resort companies, etc., and other Operation Business Investment in companies of which Eagle II Holdco, Inc. purpose of business is to hold land
Holding of land Eagle I Landholdings, Inc. Other Businesses Operation of tourism-related Aruze Investment Co., Ltd. facilities
Media content business Aruze Media Net Inc. Japan Amusement Broadcasting Co., Production and broadcasting of TV programs Ltd. Development of human interface system P to PA, Inc. Patent Information Development Intellectual property management Corporation Operation and management of online Shogi games Nihon Shogi Network Co., Ltd.
Travel trade Trans Orbit Co., Ltd.
1. Aruze Marketing Japan Corporation acquired and merged with Aruze Global Trading Corporation, Aruze Rental Service Corporation and Seven Works Corporation as of February 1, 2009. Subsequently, the Company acquired and merged with Aruze Marketing Japan, Corp. as of June 1, 2009. 2. In addition to the companies listed above, there are 6 non-consolidated subsidiaries not accounted for by the equity method.
-6- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Pachislot/Pachinko Business Gaming Machine Business for Overseas Casinos
Aruze Marketing Japan Corporation Aruze Gaming America, Inc. (Development, sale and rental of amusement Aruze Gaming Africa (Pty) Ltd machines; procurement of materials and Aruze Gaming Australia Pty Ltd units; development, manufacture and sale of 1 other company *1 peripheral equipment) (Development, manufacture and sale of gaming machines for overseas Supply of casinos) products, etc. Consignment of sales Game machine business
Macy Sales Co., Ltd., Eleco Ltd., Mizuho Corp. (Manufacture of amusement machines) Customers/users in Japan and abroad
The Company Entrustment of (Manufacture of amusement machines, sales investment management, Group finance, management guidance for Group companies, etc.)
Other businesses
Entrustment of Investment Casino resort business Services and development Aruze USA, Inc. (Investment management) Aruze Media Net Inc. Japan Amusement Broadcasting Co., Ltd. Wynn Resorts, Limited *2 P to PA, Inc. (Operation and management of casino resorts) Nihon Shogi Network Co., Ltd. *1 Patent Information Development Invest- Molly Investments Cooperatieve U. A. ment Corporation *1 (Investment in land-holding companies, etc., 5 other companies *1 financing, establishment and operation of Trans Orbit Co., Ltd. *3 companies, management services, etc.)
Investment Investment
Eagle II Holdco, Inc. (Investment in companies whose purpose of business is to hold land) Investment
Eagle I Landholdings, Inc. (Holding of land)
Aruze Investment Co., Ltd. (Operation of tourism-related facilities)
Notes: No symbol: Consolidated subsidiaries 15 *1: Non-consolidated subsidiaries not accounted for by the equity method 8 *2: Affiliated company accounted for by the equity method 1 *3: Related company 1
-7- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009 3. Management Policy (1) Basic Management Policy of the Company The basic management policy of the Company group is to create "enjoyment" as a global entertainment company and to participate in the forming of "a society with dreams." To be specific, our basic management policy is two-folds: [1] Build a solid foundation to become a market leader as a manufacturer engaged in the planning, development, manufacture and sale of Pachislot and Pachinko machines in Japan; and [2] Solidify our position as a global entertainment company by strengthening our ties with Wynn Resorts, Limited as the Wynn’s joint business partner in the operation of some of the world’s largest casino resorts, and also by promoting the project for integrated casino resort facilities which will be the most luxurious resort in the Philippines. We will strive to expand the sphere of our business by focusing on the above two businesses.
(2) Targeted Performance Indicators For the purpose of bolstering the Pachislot and Pachinko business structure of the Company group, Aruze Marketing Japan Corporation acquired and merged with Aruze Global Trading Corporation, Aruze Rental Service Corporation and Seven Works Corporation where Aruze Marketing Corp. became the surviving company, with effect from February 2009. Subsequently, the Company acquired and merged with Aruze Marketing Japan Corporation, where the Company became the surviving company, with effect from June 1, 2009. Since management restructuring of the new organization is still underway, the details are not disclosed herein.
(3) Medium- and Long-Term Business Strategy In the Pachislot and Pachinko business, which is the core business of the Company group, the earlier merger of four subsidiaries helped establish a structure that would allow us to increase the collaboration between Sales and Development and supply products that meet the needs of the market. In addition, following such merger, the Company acquired and merged with Aruze Marketing Japan Corporation. All merged companies shall strive together to restore our market share and boost earnings in the Pachislot and Pachinko business. Also in the Philippines, we are promoting a project for integrated casino resort facilities, including 2,000 hotel rooms, Asia’s largest aquarium, Ferris wheel, and so on.
(4) The Company’s Challenges The Company group will strive towards strengthening the foundation of its two business pillars of 1) domestic Pachislot and Pachinko business, and 2) casino resort business, in order to ensure a highly-profitable corporate constitution. [1] Pachislot and Pachinko Business At the kickoff of the new structure through the mergers of companies which are involved in the Pachislot and Pachinko business, how to build a rock-solid structure through restructuring of sales offices and redistribution of sales forces presents a challenge. [2] Patent Strategy The Company group has long been aware of the importance of creating and protecting intellectual property, and has worked towards the establishment of a system that enables us to acquire superior patent right through usage of function flow and standard patent specification. Also, we have worked to improve the quality of our patent specifications and thereby improve the probability of patenting our inventions, by establishing a structure whereby individual inventions are categorized into different technical fields and applications for patent are filed for a group of inventions in each technical field. The technologies for which the Company has acquired or applied for patents are considerably more effective and commercially viable than those of its competitors. The Company intends to fully apply these technologies in the development of its products to improve the value of said products, thereby differentiating them from the competition in terms of technology. The Company believes this will enable it to achieve a competitive advantage. Also, in order to secure license income from its patents, the Company will move vigorously forward with strategies for both patent utilization and the protection of its patent rights when said rights are violated.
(5) Establishment and Operational Status of Internal Control Systems Details regarding this item are provided in the “Basic Approach and Establishment Status of Internal Control Systems” section of the “Report on Corporate Governance” as stipulated in Article 8-3 of the Securities Listing Regulations and Article 10-3 of the Rules for Timely Disclosure of Corporate Information by Issuer of Listed Securities, etc. As such, details have been omitted here.
(6) Other Significant Matters from a Management Perspective [1] Basic Policy Regarding Transactions with Related Parties The conditions, policy, etc. for making decision regarding transactions with related parties are the same as the corresponding items applicable to transactions with third party contractors in general.
-8- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
4. Consolidated Financial Statements (1) Consolidated balance sheet (Unit: Millions of yen) Previous consolidated fiscal year Current consolidated fiscal year (March 31st, 2008) (March 31st, 2009) Assets Current Assets Cash and deposits 32,613 14,448 Notes and accounts receivable-trade 15,331 5,552 Lease receivables and lease investment assets - 1,700 Short-term investment securities 23,391 132 Inventories 27,995 - Merchandise and finished goods - 3,254 Works in process - 3,762 Raw materials and supplies - 17,649 Deferred tax assets 3,005 1,536 Accounts receivable-other 4,124 - Other 2,256 4,385 Allowance for doubtful accounts (175) (116) Total current assets 108,543 52,305 Noncurrent Assets Property, plant and equipment Buildings and structures 7,814 7,542 Accumulated depreciation (4,179) (4,286) Buildings and structures (net amount) 3,635 3,256 Machinery, equipment and vehicles 4,782 4,680 Accumulated depreciation (3,066) (3,241) Machinery, apparatuses and transportation 1,716 1,439 equipment (net amount) Assets for rent 9,954 1,446 Accumulated depreciation (4,833) (169) Assets for rent (net amount) 5,121 1,277 Land 7,073 33,635 Other 10,985 9,952 Accumulated depreciation (8,768) (8,011) Other (net amount) 2,217 1,940 Total property, plant and equipment 19,764 41,548 Intangible assets Goodwill 602 410 Other 457 356 Total intangible assets 1,060 766 Investments and other assets Investment securities 51,635 46,972 Long-term loans receivable 899 1,144 Guarantees and deposits 1,482 1,472 Claims provable in bankruptcy, claims 2,131 2,419 provable in rehabilitation and other Deferred tax assets 69 567 Other 1,596 1,059 Allowance for doubtful accounts (2,371) (2,494) Total investments and other assets 55,443 51,141 Total noncurrent assets 76,267 93,456 Deferred assets Stock issuance cost 15 - Total deferred assets 15 - Total assets 184,826 145,761
-9- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(Unit: Millions of yen) Previous consolidated fiscal year Current consolidated fiscal year (March 31, 2008) (March 31, 2009) Liabilities Current liabilities Notes and accounts payable-trade 7,497 1,060 Short-term loans payable 49 20,063 Current portion of long-term loans payable 872 783 Current portion of bonds 2,300 1,200 Accounts payable-other 1,970 1,618 Income taxes payable 3,965 162 Accrued consumption taxes 907 143 Provision for bonuses 298 169 Advances received 1,970 - Unearned revenue 6,014 - Deferred tax liabilities - 25 Other 2,002 3,722 Total current liabilities 27,849 28,949 Noncurrent liabilities Bonds payable 3,350 2,000 Long-term loans payable 1,719 - Deferred tax liabilities 31 49 Other 4,549 1,924 Total noncurrent liabilities 9,650 3,974 Total liabilities 37,499 32,923 Net assets Shareholders’ equity Capital stock 3,446 3,446 Capital surplus 7,503 7,503 Retained earnings 138,270 118,199 Treasury stock (1,636) (1,637) Total shareholders’ equity 147,584 127,512 Valuation and translation adjustments Valuation difference on available-for-sale 31 5 securities Cumulative translation adjustments (389) (18,628) Total valuation and translation adjustments (357) (18,623) Subscription rights to shares 99 149 Minority interests - 3,799 Total net assets 147,327 112,838 Total liabilities and net assets 184,826 145,761
-10- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(2) Consolidated statements of income (Unit: Millions of yen) Previous consolidated fiscal year Current consolidated fiscal year (From Apr. 1, 2007 to (From Apr. 1, 2008 to Mar. 31, 2008) Mar. 31, 2009) Net sales 72,133 19,993 Cost of sales 31,671 11,338 Gross profit 40,462 8,654 Selling, general and administrative expenses 24,374 20,260 Operating income (or operating loss) 16,088 (11,605) Non-operating income Interest income 224 256 Dividends income 914 263 Equity in earnings of affiliates 6,468 2,092 Rent income 40 - Others 129 440 Total non-operating income 7,778 3,052 Non-operating expenses Interest expenses 290 481 Foreign exchange losses 147 4,066 Other 117 123 Total non-operating expenses 555 4,671 Ordinary income (or ordinary loss) 23,311 (13,224) Extraordinary income Gain on sales of noncurrent assets 3,494 - Gain on sales of investment securities 312 - Gain on sale of shares in affiliates - 1,626 Reversal of allowance for doubtful accounts 35 163 Gain on change in equity 16,065 4,769 Interest on refund 333 - Other 152 143 Total extraordinary income 20,394 6,702 Extraordinary loss Loss on sales of noncurrent assets 259 - Loss on valuation of inventories 520 4,728 Loss on disposal of inventories 1,191 - Loss on liquidation of affiliates - 628 Loss on impairment of goodwill 505 - Other 318 299 Total extraordinary losses 2,795 5,655 Net income (or loss) before taxes 40,910 (12,177) Income taxes-current 4,745 379 Income taxes-deferred (1,813) 1,080 Total income taxes 2,932 1,460 Minority interests gain (or loss) in income (107) 1,170 Net income (or loss) 38,086 (14,808)
-11- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(3) Consolidated statements of changes in net assets (Unit: Millions of yen) Previous consolidated fiscal year Current consolidated fiscal year (From Apr. 1, 2007 to (From Apr. 1, 2008 to Mar. 31, 2008) Mar. 31, 2009) Shareholders' equity Capital stock Ending balance for the previous period 3,446 3,446 Change during the current period Total change during the current period - - Ending balance for the current period 3,446 3,446 Capital surplus Ending balance for the previous period 7,503 7,503 Change during the current period Total change during the current period - - Ending balance for the current period 7,503 7,503 Retained earnings Ending balance for the previous period 104,337 138,270 Change during the current period Dividends from surplus (3,995) (4,796) Net income (or loss) 38,086 (14,808) Disposal of treasury stock (103) - Change of scope of consolidation (1) (467) Change of scope of application of equity (52) - method Total change during the current period 33,933 (20,071) Ending balance for the current period 138,270 118,199 Treasury stock Ending balance for the previous period (1,821) (1,636) Change during the current period Acquisition of treasury stock (0) (0) Disposal of treasury stock 186 - Total change during the current period 185 (0) Ending balance for the current period (1,636) (1,637) Total shareholders' equity Ending balance for the previous period 113,465 147,584 Change during the current period Dividends from surplus (3,995) (4,796) Net income (or loss) 38,086 (14,808) Acquisition of treasury stock (0) (0) Disposal of treasury stock 83 - Change of scope of consolidation (1) (467) Change of scope of application of equity (52) - method Total change during the current period 34,119 (20,072) Ending balance for the current period 147,584 127,512
-12- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(Unit: Millions of yen) Previous consolidated fiscal year Current consolidated fiscal year (From Apr. 1, 2007 to (From Apr. 1, 2008 to Mar. 31, 2008) Mar. 31, 2009) Valuation and translation adjustments Valuation difference on available-for-sale securities Ending balance for the previous period 32 31 Change during the current period Change in items other than shareholders’ (0) (26) equity during the current period (net amount) Total change during the current period (0) (26) Ending balance for the current period 31 5 Foreign currency translation adjustment Ending balance for the previous period 2,996 (389) Change during the current period Change in items other than shareholders’ (3,385) (18,239) equity during the current period (net amount) Total change during the current period (3,385) (18,239) Ending balance for the current period (389) (18,628) Total valuation and translation adjustments Ending balance for the previous period 3,028 (357) Change during the current period Change in items other than shareholders’ (3,385) (18,265) equity during the current period (net amount) Total change during the current period (3,385) (18,265) Ending balance for the current period (357) (18,623) Subscription rights to shares Ending balance for the previous period 12 99 Change during the current period Change in items other than shareholders’ 87 49 equity during the current period (net amount) Total change during the current period 87 49 Ending balance for the current period 99 149 Minority interests Ending balance for the previous period 108 - Change during the current period Change in items other than shareholders’ (108) 3,799 equity during the current period (net amount) Total change during the current period (108) 3,799 Ending balance for the current period - 3,799 Total net assets Ending balance for the previous period 116,614 147,327 Change during the current period Dividends from surplus (3,995) (4,796) Net income (or loss) 38,086 (14,808) Acquisition of treasury stock (0) (0) Disposal of treasury stock 83 - Change of scope of consolidation (1) (467) Change of scope of application of equity method (52) - Change in items other than shareholders’ (3,406) (14,416) equity during the current period (net amount) Total change during the current period 30,713 (34,489) Ending balance for the current period 147,327 112,838
-13- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(4) Consolidated statements of cash flows (Unit: Millions of yen) Previous consolidated fiscal year Current consolidated fiscal year (From Apr. 1, 2007 to (From Apr. 1, 2008 to Mar. 31, 2008) Mar. 31, 2009) Net cash provided by (used in) operating activities Net income (or loss) before taxes 40,910 (12,177) Depreciation 7,417 5,318 Impairment loss 25 32 Loss on impairment of goodwill 505 - Amortization of goodwill 144 210 Loss (gain) on sales of investment securities (312) (1,626) Increase (decrease) in allowance for bonuses 49 (128) Increase (decrease) in allowance for doubtful (1,276) 126 accounts Increase or decrease in allowance for losses (1,412) - due to litigation Loss on liquidation of affiliates - 628 Interest and dividends income (1,139) (519) Interest expenses 290 481 Foreign exchange loss (or gain) - 2,735 Investment loss (gain) under equity method (6,468) (2,092) Loss (gain) on change in equity (16,065) (4,769) Loss (gain) on sale of fixed assets (3,235) 9 Loss on retirement of fixed assets 1 32 Decrease (increase) in notes and accounts (10,128) 11,892 receivable-trade Decrease (increase) in inventories (2,565) 3,914 Decrease (increase) in accounts 3,607 3,503 receivable-other Decrease (increase) in other current assets 4,689 (1,853) Decrease (increase) in long-term accounts 2,392 319 receivable-other Decrease (increase) in claims provable in 1,435 (378) bankruptcy, claims provable in rehabilitation and other Increase (decrease) in notes and accounts 28 (5,342) payable-trade Increase (decrease) in accounts payable-other (82) (521) Increase (decrease) in advances received (2,989) (5,721) Increase (decrease) in other current liabilities 1,013 (1,303) Decrease (increase) in other fixed assets (23) (60) Increase (decrease) in other fixed liabilities 817 1,971 Other 11 (913) Subtotal 17,639 (6,233) Interest and dividends income received 1,139 519 Interest expenses paid (243) (352) Income taxes paid (1,472) (4,876) Net cash provided by (used in) operating 17,063 10,942 activities
-14- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(Unit: Millions of yen) Previous consolidated fiscal year Current consolidated fiscal year (From Apr. 1, 2007 to (From Apr. 1, 2008 to Mar. 31, 2008) Mar. 31, 2009) Net cash provided by (used in) investment activities Purchase of property, plant and equipment (9,564) (37,463) Proceeds from sales of property, plant and 13,504 222 equipment Purchase of intangible assets (87) (144) Proceeds from sales of investment securities 4,024 - Purchase of investments in subsidiaries (10) - resulting in change in scope of consolidation Purchase of investments in subsidiaries (855) (465) Proceeds from sale of shares in subsidiaries - 364 Payments of loans receivable (270) (17,747) Collection of loans receivable 22 14,738 Proceeds from redemptive of investment 17,338 - securities Payments of differences in guarantees and (133) (96) deposits Proceeds from collection of guarantees and 32 158 deposits Other - 14 Net cash provided by (used in) investment 23,999 (40,420) activities Net cash provided by (used in) financing activities Net increase (decrease) in short-term loans (9,796) 11,197 payable Proceeds from long-term loans payable 965 - Repayment of long-term loans payable (7,388) (3,866) Expenditure on bond redemption (2,800) (2,300) Cash dividends paid (3,995) (4,796) Payments for issuance of common stock (14) - Purchase of treasury stock (0) (0) Proceeds from collection of payments from -738 minority shareholders Payments into term deposits - (403) Other 82 27 Net cash provided by (used in) financing (22,946) 596 activities Effect of exchange rate change on cash and cash (1,261) (5,472) equivalents Net increase (decrease) in cash and cash 16,855 (56,239) equivalents Cash and cash equivalents at beginning of 39,149 56,004 consolidated fiscal year Increase in cash and cash equivalents from - 14,461 newly consolidated subsidiary Decrease in cash and cash equivalents resulting -(49) from exclusion of subsidiaries from consolidation Cash and cash equivalents at end of consolidated 56,004 14,177 fiscal year
-15- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Notes pertaining to going concern Not applicable
-16- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009 Changes in significant items serving as basis for preparation of consolidated financial statements
Previous consolidated fiscal year Current consolidated fiscal year Item (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) 1. Matters relating to scope (1) Number of Consolidated subsidiaries: 16 (1) Number of Consolidated subsidiaries: 15 of consolidation The principal consolidated subsidiaries are The principal consolidated subsidiaries are stated in “1. Corporate Overviews, 4. stated in “2. Status of Corporate Group” Status of affiliated companies” section and section and are therefore omitted. are therefore omitted. (2) Changes in consolidated subsidiaries (2) Changes in consolidated subsidiaries Domestic consolidated subsidiaries [1] Domestic consolidated subsidiaries Effective the current fiscal year, the scope Aruze Rental Service Corporation, of consolidated subsidiaries include Aruze Seven Works Corporation and Aruze Media Net Inc., as a result of Global Trading Corporation were incorporation-type company splits from acquired by and merged with Aruze the Company on April 2, 2007, Aruze Marketing Japan Corporation with Rental Service Corporation due to stock effect from the merger date of acquisition and capital increase by the February 1, 2009; the liquidation of Company conducted respectively on Sep. Forrest Entertainment Inc. was 25 and Sep. 27, 2007, and Seven Works completed; and Seta Corp. passed a Corporation (formerly known as Aruze resolution in February to dissolve the Preparatory Corporation) in accordance company and subsequently began the with its increased significance. special liquidation proceedings. For the aforementioned reasons, and ------others, the respective companies were excluded from the scope of consolidation. [2] Overseas consolidated subsidiaries Aruze Investment Co., Ltd. was newly established; and Molly Investments Cooperative U.A., Eagle I Landholdings, Inc. and Eagle II Holdco, Inc. were established during the current consolidated fiscal year. Because the respective companies increased their importance for the aforementioned reasons, they were included in the scope of consolidation with effect from the current consolidated fiscal year. (3) Names, etc. of principamaryl (3) Names, etc. of primaryncipal non-consolidated subsidiaries: non-consolidated subsidiaries: Primaryncipal non-consolidated Primaryncipal non-consolidated subsidiaries subsidiaries Luck Holdings (Pty) Ltd. Beijing Aruze Development Co., Ltd. Luck At It Eastern Cape (Pty) Ltd. Nihon Shogi Network Co., Ltd. Beijing Aruze Development Co., Ltd. 6 other companies Nihon Shogi Network Co., Ltd. All shares of Luck Holdings (Pty.) Ltd. 2 other domestic companies and Luck At It Eastern Cape (Pty.) Ltd. were sold all their shares during the current consolidated fiscal year, and accordingly they are no longer qualified as non-consolidated subsidiaries. (Reason for exclusion from consolidation) (Reason for exclusion from consolidation) Non-consolidated subsidiaries are small in Same as on the left. size, and their combined total assets, net sales, and fiscal year net profit/loss (the amount corresponding to our company’s equity holding), as well as retained earnings (the amount corresponding to our company’s equity holding) have no material impact on the consolidated fiscal year financial statements. -17- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous consolidated fiscal year Current consolidated fiscal year Item (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) 2. Matters relating to (1) Number of non-consolidated subsidiaries (1) Number of non-consolidated subsidiaries application of the equity and affiliated companies accounted for by and affiliated companies accounted for by method equity method: 3 equity method: 1 [1] Non-consolidated subsidiaries [1] Non-consolidated subsidiaries accounted for by equity method accounted for by equity method Luck Holdings (Pty) Ltd. ------Luck At It Eastern Cape (Pty) Ltd. ------(Reason for change) All shares of Luck Holdings (Pty.) Ltd. and Luck At It Eastern Cape (Pty.) Ltd. were sold all their shares and accordingly they are no longer qualified as subsidiaries or affiliates. For this reason, the respective companies were excluded from the scope of application of the equity method with effect from the current consolidated fiscal year. [2] Affiliated companies accounted for by [2] Affiliated companies accounted for by equity method equity method Wynn Resorts, Limited Wynn Resorts, Limited (Reason for change) ------Adores, Inc. is no longer an affiliated company accounted for by the equity method following the Company’s disposition of a part of Adores shares (as of September 30, 2007 being the deemed date of disposition). Therefore Adores was excluded from the range of application of equity method since the current consolidated fiscal year. (2) Since each of non-consolidated (2) Since each of non-consolidated subsidiaries not accounted for by the subsidiaries not accounted for by the equity method (Beijing Aruze equity method (Beijing Aruze Development Co., Ltd., Nihon Shogi Development Co., Ltd., Nihon Shogi Network Co., Ltd. and 2 other domestic Network Co., Ltd. and 6 other companies) affiliates) has no material impact on fiscal have no material impact on fiscal year net year net profit/losses, retained earnings, profit/losses, retained earnings, etc., and etc., and are not considered to possess any are not considered to possess any significance as a whole, they are excluded significance as a whole, they are excluded from the equity method. from the equity method. Patent Online Search Co., Ltd. which was an affiliated company not accounted for by the equity method, is no longer an affiliate, since the Company’s ownership ratio declined due to a capital increase through third-party allocation. As a result, there are no longer any affiliated companies which are not accounted for by the equity method. (3) For companies accounted for by the equity (3) Same as on the left. method of which fiscal year-ends differ from the consolidated fiscal year-end, the financial statements for their respective fiscal year were used.
-18- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous consolidated fiscal year Current consolidated fiscal year Item (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) 3. Matters regarding the The fiscal year of Aruze USA, Inc., Aruze The fiscal year of Aruze USA, Inc., Aruze fiscal year, etc. of Gaming America, Inc., Aruze Gaming Africa Gaming America, Inc., Aruze Gaming Africa consolidated subsidiaries (Pty) Ltd, Aruze Gaming Australia Pty Ltd, (Pty) Ltd, Aruze Gaming Australia Pty Ltd, which are consolidated subsidiaries, ends on Aruze Investment Co., Ltd., Molly Dec. 31. Investments Cooperatieve U. A., Eagle I Landholdings, Inc. and Eagle II Holdco, Inc. which are consolidated subsidiaries, ends on Dec. 31. In preparing consolidated financial In preparing consolidated financial statements, the financial statements as of Dec. statements, the financial statements as of Dec. 31 were used, provided, however, that the 31 were used, provided, however, that the necessary consolidation adjustments have necessary consolidation adjustments have been made for all significant transactions that been made for all significant transactions that occurred between Jan. 1, 2008 and the end of occurred between Jan. 1, 2009 and the end of the consolidated fiscal year on Mar. 31, 2008. the consolidated fiscal year on Mar. 31, 2009.
4. Matters regarding standards for accounting procedures (1) Valuation criteria and (a) Short-term investment securities (a) Short-term investment securities methods for Other securities Other securities significant assets Securities having market value: Same as on the left. Market value method based on market prices, etc. as of the closing date of the fiscal year (valuation discrepancies are treated by partial direct capitalization method and the cost of sales is determined by the moving average method). Securities without market value Securities without market value Cost method based on the moving Same as on the left. average method. (b) Inventories (b) Inventories Merchandise, finished goods, raw Merchandise, finished goods, raw materials materials Cost method primarily based on the Cost method primarily based on the weighted average costing method. weighted average costing method. (The amount stated in the balance sheet was calculated by the book value write-down method based on reduction in profitability.) Work in process Work in process Cost method primarily based on the Cost method primarily based on the weighted average costing method. weighted average costing method. For works-in-process concerning (The amount stated in the balance sheet production of contents, etc., specific was calculated by the book value costing method is applied. write-down method based on reduction in profitability.) For works-in-process concerning production of contents, etc., specific costing method is applied. Supplies Supplies Last purchase cost method. Same as on the left.
-19- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous consolidated fiscal year Current consolidated fiscal year Item (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) (2) Depreciation and (a) Property, plant and equipment (a) Property, plant and equipment amortization methods [1] The Company and its domestic (excluding lease assets) for significant consolidated subsidiaries [1] The Company and its domestic depreciable and Fixed rate method. consolidated subsidiaries amortizing assets Buildings (excluding structures attached Fixed rate method. to buildings) acquired on or after April Buildings (excluding structures 1, 1998 are depreciated using equal attached to buildings) acquired on or installment method. after April 1, 1998 are depreciated Assets for rent are depreciated using using equal installment method. equal installment method. Rental assets are amortized evenly Rental assets are amortized evenly over over the number of years which equals the number of years which equals to to contract period. contract period. Approximate useful lives: Assets acquired after April 1, 1998 at Buildings and structures prices of 100,000 yen or more but less 7 to 50 years than 200,000 yen had been amortized Machinery and delivery equipment evenly over 3 years. However, effective 2 to 20 years the current consolidated fiscal year, the method was changed to the one by which the costs of those assets should be posted at the time of acquisition. The said change has a slight impact on the Company’s profit and loss and segment information. Approximate useful lives: Buildings and structures 7 to 50 years Machinery and delivery equipment 4 to 17 years (Change in accounting policy) ------Effective the current fiscal year, following the amendments to the Corporate Tax Law in Japan, the Company and some domestic consolidated subsidiaries changed their depreciation and amortization methods to those pursuant to the amended Corporate Tax Law, for the property, plant and equipment obtained after April 1, 2007. The said change has a slight impact on the Company’s profit and loss and segment information. (Supplemental information) ------Regarding the assets obtained on or before March 31, 2007, following the amendments to the Corporate Tax Law in Japan, the Company and its domestic consolidated subsidiaries amortize the difference between the amount corresponding to 5% of the asset’s acquisition price and its memorandum value evenly over 5 years, and post the amortization in the item of Depreciation. Such amortization commences from the following consolidated fiscal year of the year, in which the asset’s depreciation reaches the amount corresponding to 5% of the asset’s acquisition price in accordance with the depreciation method provided in the former Corporate Tax Law. The said change has a slight impact on the Company’s profit and loss and segment information. [2] Overseas consolidated subsidiaries [2] Overseas consolidated subsidiaries Equal installment method is primarily Same as on the left used as prescribed by the accounting standards of the country where the subsidiary is located. -20- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous consolidated fiscal year Current consolidated fiscal year Item (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) (b) Intangible assets (b) Intangible assets (excluding lease assets) [1] The Company and its domestic [1] The Company and its domestic consolidated subsidiaries consolidated subsidiaries Software intended for sale in the Same as on the left market is amortized using the larger of the amortized amounts calculated based on the estimated sales volume or the equally allocated amounts over the remaining useful life of the assets (3 years or less). Software intended for internal use is amortized using equal installment method based on an estimated period of internal use (5 years). Other intangible assets are amortized using equal installment method. [2] Overseas consolidated subsidiaries [2] Overseas consolidated subsidiaries Equal installment method is used as Same as on the left prescribed by the accounting standards of the country where the subsidiary is located. (c) ------(c) Lease assets The equal installment method is applied whereby the lease period is deemed the durable life and the remaining value is deemed zero. For your information, finance lease transactions where the ownership is not transferred and where the lease transaction commenced on or before March 31, 2008 are accounted for in accordance with the method applicable to regular lease transactions. (d) Long-term prepaid expenses (d) ------Equal installment method The term of depreciation, however, is based on the same standards as prescribed by the Corporation Tax Law of Japan. (3) Treatment method of (a) Stock issuance cost (a) ------deferred assets The cost is amortized evenly over 3 years. (b) Bond issuance cost (b) ------The cost is amortized evenly over 3 years (4) Reporting basis for (a) Allowance for doubtful accounts (a) Allowance for doubtful accounts significant In provision for possible losses on Same as on the left allowances receivables caused by bad debts, an estimated uncollectible amount is reported based on their historical losses as to ordinary receivables, and in consideration of their collectibility as to an estimated amount of potential bad debt or other certain receivables. (b) Provision for bonuses (b) Provision for bonuses In provision for the future payment of Same as on the left employee bonuses, the anticipated amount of total bonus payments attributable to the current consolidated fiscal year is reported.
-21- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous consolidated fiscal year Current consolidated fiscal year Item (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) (5) Translation standard Monetary debts and credits denominated in Monetary debts and credits denominated in of significant foreign foreign currencies are translated into yen at foreign currencies are translated into yen at currency-denominated the spot exchange rates on the fiscal year-end the spot exchange rates on the fiscal year-end assets or liabilities date, with the differences resulting from such date, with the differences resulting from such into yen translations recorded as losses or profits. It translations recorded as losses or profits. It should be noted that the assets and liabilities should be noted that the assets and liabilities of overseas consolidated subsidiaries are of overseas consolidated subsidiaries are translated into yen at the spot exchange rates translated into yen at the spot exchange rates prevailing on the fiscal year-end date, and prevailing on the fiscal year-end date, and their revenues and expenses are translated their revenues and expenses are translated into yen at the average exchange rate into yen at the average exchange rate prevailing over the period, with the prevailing over the period, with the differences arising from any translation differences arising from any translation included in a currency translation adjustment included in a currency translation adjustment account in consolidated net assets. account and a minority interests in consolidated net assets.
(6) Treatment method of Finance lease transactions other than those ------significant lease that are deemed to transfer the ownership of transactions the leased assets to the lessee are principally accounted for by the method similar to the one used for ordinary operating leases transactions. For a part of overseas consolidated subsidiaries, reports were made in accordance with the accounting standards of the country where the subsidiary is located. (7) Other significant (a) Accounting procedure for consumption (a) Accounting procedure for consumption matters for taxes taxes preparation of Consumption taxes are accounted by the Same as on the left consolidated financial tax-exclusion method. statement (b) ------(b) RecordPosting standard for income pertaining to finance lease transactions Net sales and cost of sales are recorded when the lease chargepayment is received. 5. Matters regarding All assets and liabilities of the consolidated Same as on the left valuation of assets and subsidiaries are all valued using the market liabilities of consolidated method-price valuation. subsidiaries 6. Matters regarding Goodwill is amortized evenly over a 5-year Same as on the left amortization of goodwill period. 7. Definition of cash and Funds (cash and cash equivalents) booked in Same as on the left cash equivalents in the the consolidated cash flow statement refers to consolidated cash flow cash on hand, bank deposits that can be statement withdrawn from time to time or short-term investments which may be easily converted to cash with maturities of no more than 3 months from acquisition date that carry a minimal risk of fluctuation in value.
-22- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Changes in Important Matters Serving as Basis for Preparation of Consolidated Financial Statements Previous consolidated fiscal year Current consolidated fiscal year (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) (Posting of Production Costs of Digital Contents, etc.) ------Regarding production costs of contents, etc. originally, the Company posted the full amount as expenses at the time said cost was incurred. Starting the current consolidated fiscal year, the costs directly relating to production of individual titles are posted as development works in process under assets. This change was due to the increasing proportion of items classified as contents such as video images, audio and others and the prospect of its further increase in future. Furthermore, the development works in process accounted for are being posted as a singular sum under cost of sales upon the commencement of sales of the relevant individual titles. As a result, relative to accounting methods originally used, selling, general and administrative expenses decreased by 1,695 million yen, cost of sales increased by 168 million yen and inventories increased by 1,527 million yen. The impact of the said change on the segment information is described in the relevant portion. ------(Accounting Standards for Valuation of Inventory Assets) The “Accounting Standards Pertaining to the Valuation of Inventories” (Corporate Accounting Standards No. 9, published July 5, 2006) is applied with effect from the current consolidated fiscal year. Accordingly, gross profit on sales decreased 1,240 million yen, operating loss and ordinary loss increased 131 million yen, and net loss before taxes increased 4,103 million yen. The impact on segment information is stated in the applicable section. (Accounting Standards for Lease Transactions) Previously, finance lease transactions where the ownership is not transferred were accounted for in accordance with the method applicable to lease transactions. With effect from the current consolidated fiscal year, however, the “Accounting Standards Pertaining to the Lease Transactions” (Corporate Accounting Standards No. 13 (June 17, 1993 (Business Accounting Council, Subcommittee 1), amended March 30, 2007)) and “Application Guidance for Accounting Standards Pertaining to the Lease Transactions” (Application Guidance on Corporate Accounting Standards No. 16 (January 18, 1994 (Japan Institute of Certified Public Accountants, Accounting System Committee), amended March 30, 2007)) are applied to account for the aforementioned lease transactions in accordance with the method applicable to regular sales transactions. For your information, this change has no impact on the income and loss or segment information. In addition, finance lease transactions where the ownership is not transferred and where the lease transaction commenced on or before March 31, 2008 are accounted for in accordance with the method applicable to regular lease transactions; while the transactions in which the Company group isare the lessor are accounted for in accordance with the method applicable to regular sales transactions.
(Short-term Handling of Accounting for Overseas Subsidiaries in Preparation of Consolidated Financial Statements) With effect from the current consolidated fiscal year, the “Short-term Handling of Accounting for Overseas Subsidiaries in Preparation of Consolidated Financial Statements” (Practical Report No. 18, May 17, 2006) is applied. For your information, this change has no impact on the income and loss or segment information.
-23- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Changes in Description Previous consolidated fiscal year Current consolidated fiscal year (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) (Consolidated balance sheet) (Consolidated balance sheet) 1. “Long-term accounts receivable-other” which was 1. With the application of the Cabinet Office Ordinance for separately displayed has been included in “Others” under Partial Amendment of the Regulation on Financial investments and other assets since the amount has Statements, Etc. (August 7, 2008 Cabinet Office become insignificant. Ordinance No. 50), those recorded as “Inventory assets” The amount of long-term accounts receivable-other in the previous consolidated fiscal year are classified into included in “Others” was 647 million yen for the current “Merchandise and products,” “Work in process” and consolidated fiscal year. “Materials and supplies.” from the current consolidated fiscal year. For your information, the amounts of “Merchandise and products,” “Work in process” and “Materials and supplies,” which were included in “Inventory assets” in the previous consolidated fiscal year, are 2,709 million yen, 5,849 million yen and 19,435 million yen, respectively. 2. “Accounts receivable-other,” which was stated separately before, is now included in “Others” under “Current assets” because the applicable amount is no longer important. For your information, the amount of accounts receivable-other included in “Other” in the current consolidated fiscal year is 580 million yen. 3. “Advances received,” which was stated separately before, is now included in “Others” under “Current liabilities” because the applicable amount is no longer important. For your information, the amount of advances received included in “Others” in the current consolidated fiscal year is 223 million yen. 4. “Unearned revenue,” which was stated separately before, is now included in “Others” under “Current liabilities” because the applicable amount is no longer important. For your information, the amount of unearned revenue included in “Other” in the current consolidated fiscal year is 1,940 million yen. (Consolidated statements of income) (Consolidated statements of income) 1. “Dividends income” which was included in “Others” 1. “Gain on sale of fixed assets,” which was stated under non-operating income until the previous fiscal year, separately before, is now included in “Other” under has been separately stated to accommodate the increased “Extraordinary income” because the applicable amount is monetary substantiality for the current fiscal year. no longer important. The amount of “Dividends income” at the end of the For your information, the amount of gain on sale of fixed previous consolidated fiscal year was 2 million yen. assets included in “Other” in the current consolidated 2. “Foreign exchange losses” which was included in fiscal year is 6 million yen. “Others” under non-operating expenses until the previous 2. “Loss on sale of fixed assets,” which was stated fiscal year, has been separately stated to accommodate the separately before, is now included in “Other” under increased monetary substantiality for the current fiscal “Extraordinary loss” because the applicable amount is no year. longer important. The amount of “Foreign exchange losses” at the end of For your information, the amount of loss on sale of fixed the previous consolidated fiscal year was 100 million yen. assets included in “Other” in the current consolidated 3. “Gain on bad debts recovered” which was separately fiscal year is 15 million yen. displayed has been included in “Others” under 3. “Loss on disposition of inventory assets,” which was extraordinary income since the amount has become stated separately before, is now included in “Other” insignificant. under “Extraordinary loss” because the applicable The amount of gain on bad debts recovered included in amount is no longer important. “Others” was 0 million yen for the current consolidated For your information, the amount of loss on disposition fiscal year. of inventory assets included in “Other” in the current consolidated fiscal year is 17 million yen.
-24- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous consolidated fiscal year Current consolidated fiscal year (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) 4. “Loss on disposal of inventories”, which was included in “Others” under extraordinary loss until the previous fiscal year, has been separately stated to accommodate the increased monetary substantiality for the current fiscal year. The amount of “Loss on disposal of inventories” at the end of the previous consolidated fiscal year was 13 million yen. 5. “Loss on retirement of fixed assets,” which was stated separately before, has been included in “Other” under “Extraordinary loss” because the applicable amount was no longer important. For your information, the amount of “Loss on retirement of fixed assets” included in “Other” in the current consolidated fiscal year was 1 million yen. 6. “Impairment loss,” which was stated separately before, has been included in “Other” under “Extraordinary loss” because the applicable amount was no longer important. For your information, the amount of impairment loss included in “Other” in the current consolidated fiscal year was 25 million yen. 7. “Litigation settlement” which was separately displayed has been included in “Others” under extraordinary loss since the amount has become insignificant. The amount of litigation settlement included in “Others” was 8 million yen for the current consolidated fiscal year.
-25- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Notes (Consolidated Balance Sheet) Previous consolidated fiscal year Current consolidated fiscal year (Mar. 31, 2008) (Mar. 31, 2009) *Contingent liabilities *Contingent liabilities (1) Litigations (1) Litigations [1] A request for reconsideration against the correction [1] ------disposition of the National Taxation Bureau related to corporation taxes for fiscal year 1998 was heard by the Tokyo National Tax Tribunal; a ruling was handed down on January 29, 2004. As a result of this ruling, the amended income amount was decreased by 16 million yen, from 2,949 million yen to 2,932 million yen. However, the Company was opposing this ruling and lodged a suit demanding a revocation of the disposition of the corporate tax amendment to the Tokyo District Court on April 27, 2004. On February 23, 2007, the court almost entirely awarded for the Company’s claim and handed down the revocation of the disposition. The defendant was dissatisfied with the decision and filed an appeal on March 9, 2007. Tokyo High Court ruled in favor of the Company on February 20, 2008, and the Appellee did not make re-appeal by the time limit, therefore the case closed. Incidentally, Tokyo Regional Taxation Bureau paid 1,665,303,600 yen as the Company’s corporate tax refund on March 14, 2008. The balance which is the local tax paid by the Company is anticipated to receive in the future. [2] Regarding a stock purchase option agreement that [2] ------our company entered into with KM Enterprise Co., Ltd., an asset management company owned individually by one of our previous directors, Katsunori Manabe, our company was sued by the company on October 31, 2002 for damages for breach of contract because our company could not purchase the stock of Sigma Game, Inc., which was held by KM Enterprise Co., Ltd., as a result of our failure to obtain approval from the U.S. Gaming Board regarding the transfer of the stock (damages demanded: USD$30 million). This claim was submitted to the Tokyo District Court, which ruled on Jan. 17, 2006 that it fully awarded for the claims of KM Enterprise Co., Ltd. Dissatisfied with the result, the Company filed an appeal against this ruling on January 18, 2007 In a related case, Adores, Inc. submitted a claim for a loan repayment amounting to 2,074 million yen against Mr. Manabe, winning the first trial in this case. The Company was the debt guarantor for the loan in question; however, the Company became the creditor of this loan after taking it over on Mar. 30, 2006, hence nullifying the guaranteed debt of 2,074 million yen. As a result of taking over this loan as its creditor, the Company became a party to this case, replacing the position of Adores as the plaintiff.
-26- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous consolidated fiscal year Current consolidated fiscal year (Mar. 31, 2008) (Mar. 31, 2009) After accepting the credit of 2,074 million yen out of a total amount of the damages from KM enterprise Co., Ltd. on July 27, 2006, Mr. Manabe participated the said litigation to seek a setoff against the loan assigned to the Company from Adores, Inc on August 7, 2006. On October 31, 2006, Tokyo High Court handed down a decision to award for the claims of KM Enterprise Co., Ltd. as the result of the setoff regarding the rest amount of damages US$11,800,880 owned by KM Enterprise Co., Ltd. The Company filed a petition for acceptance of appeal to Supreme Court on November 13, 2006, claiming that the decision was unreasonable because the examination was insufficient and the reason of the judgment was defective. However, on October 4, 2007, the Court decided not to accept the Company’s petition. In accordance with a declaration of provisional execution of the ruling, in December 2006, KM Enterprise Co., Ltd. acquired 1,412 million yen by compulsory execution against 3,200 million yen deposited by the Company as a guarantee to suspend to execute the decision by the lower court. On March 2, 2007, the Company filed a petition for revocation of the deposit to the balance, 1,788 million yen, however, the petition was dismissed on June 4, 2007. Immediately thereafter, we filed an appeal to Tokyo High Court. On July 20, 2007, the Court, however, rejected our appeal. On December 26, 2007, the Company re-filed the petition for revocation of the deposit with Tokyo District Court in response to the dismissal of the Company’s petition for acceptance of appeal in the principal action. On February 6, 2008, it was decided that the revocation of the deposit was accepted by the court. Based on the decision, the Company went through the process to recover the balance of deposit, 1,788 million yen, and then it was repaid to the Company on February 26, 2008. Therefore the case closed. [3] From August 2004 to April 2007, 48 parlors, that [3] From August 2004 to April 2007, 48 parlors, that purchased the Company’s Pachislot machines “Gold purchased the Company’s Pachislot machines “Gold X” put on the market in June 2003, have submitted a X” put on the market in June 2003, have submitted a total of 6 complaints to the Tokyo District Court total of 6 complaints to the Tokyo District Court demanding a total sum of 335 million yen for demanding a total sum of 335 million yen for compensatory damages for imputed loss of earnings compensatory damages for imputed loss of earnings as a consequence of the defects in the programming as a consequence of the defects in the programming of “Gold X”. 23 companies out of 48 parlors of “Gold X”. 24 companies out of 48 parlors retracted from the lawsuit, 1 is in process of retracted from the lawsuit, 1 company is in process settlement and 4 cases (involving 24 parlors) are still of settlementd its case, 2 companies concluded their pending with the court as of the end of the fiscal lawsuits, and 2 cases (involving 21 parlors) are still year. The damages claim has accordingly been pending with the court as of the end of the fiscal reduced to 260 million yen. year. The Total amount of damages claim sought by Among 2 cases out of the said 4 cases, in 1 case, the the companieshas accordingly been reduced is to court handed down a decision on April 17, 2007 to 175 million yen. order the Company to pay 4.80 million yen for the plaintiff’s claim to pay 5.11 million yen. Dissatisfied with the Judgment, the Company appealed the case. In another case, the court handed down a decision on October 31, 2007 to order the Company to pay 2.30 million yen for the plaintiff’s claim of 7.03 million yen. The Company was dissatisfied with the rulings and filed an appeal.
-27- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous consolidated fiscal year Current consolidated fiscal year (Mar. 31, 2008) (Mar. 31, 2009) [4] On May 26, 2006, Japan Electric Amusement [4] On May 26, 2006, Japan Electric Amusement Machine Patent Association filed a complaint against Machine Patent Association filed a complaint against the Company in Tokyo District Court to seek the the company in Tokyo District Court to seek the payment of 3,435 million yen as the fee for patent payment of 3,435 million yen as the fee for patent sub-license used from 1998 to 2005 in accordance sub-license used from 1998 to 2005 in accordance with the patent license agreement using patent pool with the patent license agreement using patent pool method. method. Although the court made its decision on The company has responded to the complaint, December 26, 2008 to completely dismiss the claim claiming that reasons of claims of the complaint have by the plaintiff completely, the plaintiff subsequently no basis. appealed on January 19, 2009 and the case is currently pending.
-28- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(Omissions of disclosure) Notes for lease transactions, information of related parties, tax effect accounting, short-term investment securities and stock options, etc. are omitted since the importance is not so significant to disclose them in the Brief Report of Settlement of Accounts.
(Matters relating to Dderivative transactions) N/A
(Matters relating to retirement benefits) N/A
-29- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(Segment Information) a. Segment information by types of business The following data are the segment information by types of business in the last 2 consolidated fiscal years: . Previous Consolidated Fiscal Year (From April 1, 2007 to March 31, 2008) Pachislot and Game Eliminations Real Estate Other Pachinko Machines Total or Unallocated Consolidated Business Businesses Business Business (Mil. Yen) Amounts (Mil. Yen) (Mil. Yen) (Mil. Yen) (Mil. Yen) (Mil. Yen) (Mil. Yen) I. Net sales and operating income
(or loss) Net sales 1. Sales to external customers 66,000 205 4,448 1,479 72,133 - 72,133 2. Inter-segment sales or 2 25 - 685 713 (713) - reallocations Total 66,003 230 4,448 2,164 72,846 (713) 72,133 Operating expenses 40,274 221 5,918 1,783 48,197 7,848 56,045 Operating income (or loss) 25,728 9 (1,470) 381 24,649 (8,561) 16,088 II. Assets, depreciation, asset impairment loss and capital expenditures Assets 72,694 - 7,863 1,522 82,081 102,745 184,826 Depreciation 6,845 19 153 22 7,041 378 7,420 Impairment loss 11 - 0 - 11 14 25 Capital expenditures 9,442 - 190 3 9,637 26 9,664 *Notes: 1. Basis of segmentation The Company’s businesses are divided into segments based on the classification of its products, as well as similarities of sales market characteristics. 2. Adores, Inc, which had been mainly classified to amusement facilities management business, was changed to an affiliated company accounted for by the equity method as of the end of March 2006. Due to this change, “Amusement facilities management business” was not subject to disclosure. 3. Major products and merchandise in each segment Business Segment Major Products and Merchandise
Pachislot and Pachinko business Pachislot and Pachinko machines and related parts and peripheral equipment
Real estate business Leasing of real estate
Game machines business Commercial and home use game machines (including game software)
Other businesses Broadcasting business 4. Eliminations or unallocated amounts relating to operating expenses include an unallocable amount of 9,133 million yen in total, comprised primarily of expenses incurred in the administrative departments of the Company. 5. Regarding production costs of contents, etc. originally, the Company posted the full amount as expenses at the time said cost was incurred. Starting the current consolidated fiscal year, the costs directly relating to production of individual titles are posted as development works in process under assets, as stated in "Important Matters Serving as Basis for Preparation of Consolidated Financial Statements." This change caused 1,527 million yen decrease of the unallocable operating expenses included in the items of eliminations or unallocated amounts, comparing with the old method. 6. Eliminations or unallocated amounts relating to assets amount to 105,734 million yen, comprised primarily of investments in affiliates, surplus funds managed (cash deposits and securities), and assets pertaining to the administrative departments. 7. Depreciation and capital expenditures include the long-term prepaid expenses and amortization amounts associated with these expenses.
-30- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Current Consolidated Fiscal Year (From April 1, 2008 to March 31, 2009) Pachislot and Eliminations or Game Machines Pachinko Other Businesses Total Unallocated Consolidated Business Business (Mil. Yen) (Mil. Yen) Amounts (Mil. Yen) (Mil. Yen) (Mil. Yen) (Mil. Yen) I. Net sales and operating income
(or loss) Net sales 1. Sales to external customers 16,459 2,111 1,422 19,993 - 19,993 2. Inter-segment sales or - - 491 491 (491) - reallocations Total 16,459 2,111 1,914 20,485 (491) 19,993 Operating expenses 19,841 3,870 1,665 25,377 6,221 31,599 Operating income (or loss) (3,381) (1,759) 248 (4,892) (6,713) (11,605) II. Assets, depreciation, asset impairment loss and capital expenditures Assets 61,246 9,800 412 71,458 74,303 145,761 Depreciation 4,831 160 20 5,011 307 5,318 Impairment loss - - - - 32 32 Capital expenditures 7,858 103 - 7,961 29,502 37,463 *Note: 1. Basis of segmentation The Company’s businesses are divided into segments based on the classification of its products, as well as similarities of sales market characteristics. 2. “Real estate business” is no longer included in the business segments with effect from the current consolidated fiscal year because all lease properties were disposed of in the previous consolidated fiscal year. 3. Major products and merchandise in each segment Business Segment Major Products and Merchandise
Pachislot and Pachinko business Pachislot and Pachinko machines and related parts and peripheral equipment
Game machines business Commercial and home use game machines (including game software)
Other businesses Broadcasting business 4. Eliminations or unallocated amounts relating to operating expenses include an unallocable amount of 8,724 million yen in total, comprised primarily of expenses incurred in the administrative departments of the Company. 5. Eliminations or unallocated amounts relating to assets includes Group companies assets amount toof 86,190 million yen, comprised primarily of investments in affiliates, surplus funds managed (cash deposits and securities), and assets pertaining to the administrative departments. 6. Change of accounting method As explained in “Changes in Important Matters Serving as Basis for Preparation of Consolidated Financial Statements,” the “Accounting Standard Pertaining to the Valuation of Inventories” is applied with effect from the current consolidated fiscal year. Due to this change, operating expenses increased 131 million yen and operating loss also increased by the same amount for the Pachislot and pPachinko business in the current consolidated fiscal year, compared to the amounts calculated based on the previousconventional method.
b. Geographic segments Information on geographic segments is omitted, since Japanese sales and assets of the previous and current consolidated fiscal years accounted for more than 90% of the total sales and assets for all segments.
c. Overseas sales Information on overseas sales for the previous and current consolidated fiscal years is omitted, since overseas sales accounted for less than 10% of the total consolidated sales in each year.
-31- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(Per Share Information) Previous Consolidated Fiscal Year Current Consolidated Fiscal Year (From April 1, 2007 to March 31, 2008) (From April 1, 2008 to March 31, 2009) Net assets per share 1,841.84 yen Net assets per share 1,362.23 yen Net income per share 476.52 yen Net loss per share 185.26 yen Net income per share adjusted for latent shares For your information, “Net income per share adjusted for 476.45 yen latent shares” is not stated, partly because the Company group recorded a net loss per share and partly because latent shares do not exist. Note: The calculation basis for net income or net loss per share, or net income per share adjusted for latent shares is as follows: Previous Consolidated Fiscal Year Current Consolidated Fiscal Year (From April 1, 2007 to (From April 1, 2008 to March 31, 2008) March 31, 2009) Net income (or net loss) per share for the current fiscal year Net income (or net loss) for 38,086 (14,808) the current fiscal year - million yen Amount not attributed to -- common shareholders - million yen Net income (or net loss) relating to common stock for the current fiscal year 38,086 (14,808) - million yen Average number of shares during the year 79,925 79,934 - thousand shares
Net income per share adjusted for latent shares for the current fiscal year Adjusted net income for -- the current fiscal year - million yen (of which Interest expenses (after deduction of the amount -- corresponding to taxes) - million yen) Number of increased common stock 11 - - thousand shares (of which subscription rights to shares) (11) (-) Description of the latent shares not Stock option approved by the Stock option approved by the included in the calculation of net income ordinary shareholders meeting held ordinary shareholders meeting held per share adjusted for latent shares due to on June 28, 2007: on June 29, 2004: their non-dilutive effect 1 type of subscription right to shares 1 type of subscription right to shares (1,399 units) (194 units) Common stock 139,900 shares Common stock 19,400 shares Stock option approved by the ordinary shareholders meeting held on June 29, 2006: 1 type of subscription right to shares (730 units) Common stock 73,000 shares Stock option approved by the ordinary shareholders meeting held on June 28, 2007: 1 type of subscription right to shares (886 units) Common stock 88,600 shares
-32- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(Significant Subsequent Events) Previous Consolidated Fiscal Year Current Consolidated Fiscal Year (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) 1. Establishment of a subsidiary: 1. Issuance of new shares by an affiliate Aruze USA, Inc., a subsidiary of the company submitting Wynn Resorts, Limited, which is an overseas affiliate the consolidated financial statements, established the under the equity method, issued 11,040,000 new shares at following subsidiary with a 49% shareholding ratio an issuance price of 19 U.S. dollars per share. investment: ItThis is expected to generate a gain on change in equity (1) Name of the subsidiary: in the Consolidated Statement of Income among the Aruze Investment Co., Ltd. consolidated financial statements of the Company for the (2) Country: period ending March 2010. Kingdom of Cambodia (3) Date of registration: February 20, 2008 (4) Capital stock: $1,000 (5) Total number of shares: 1,000 shares (Aruze USA, Inc. acquired 490 shares) (6) Representative Director: Takahiro Usui (The Company’s employee) (7) Description of business: Operations of business relating to tourism such as hotel and spa, transactions of real estate including purchase and sales thereof and operations of real estate /investment business 2. Establishment of a subsidiary: 2. Merger The Company established the following subsidiary with a Merger details are stated in 1, “Mergers” under 5, 99.9% shareholding ratio investment: “Non-consolidated Financial Statements (Significant (1) Name of the subsidiary: Subsequent Events).” Molly Investments Cooperatieve U. A. (2) Country: Netherlands (3) Date of registration: May 19, 2008 (4) Investor: Aruze Corp., 99.9% (5) Business activities: Investment in and financing for land tenant corporations and other entities, as well as incorporation, operation and administration of companies in the Philippines. (6) Others: Aruze USA, Inc. financed US$ 172 million in April and May 2008 and Aruze Corp. financed US$ 128 million in May 2008 for the purpose of purchasing land lots in the Philippines.
-33- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
5. Non-consolidated Financial Statements (1) Balance sheet (Unit: Millions of yen) Previous fiscal year Current fiscal year (Mar. 31, 2008) (Mar. 31, 2009) Assets Current assets Cash and deposits 8,971 8,405 Accounts receivable-trade 9,582 6,786 Finished goods 180 - Raw materials 15,330 - Merchandise and products - 680 Work in process 3,937 2,436 Supplies 53 - Raw materials and supplies - 739 Advance payments-trade 1,679 952 Prepaid expenses 159 252 Deferred tax assets 2,097 1,320 Short-term loans receivable 2,806 7,481 Additional taxes in suspense 644 - Advances paid 2,017 - Accounts receivable-other - 20,911 Other 755 1,131 Allowance for doubtful accounts (1,225) (429) Total current assets 46,991 50,669 Noncurrent assets Property, plant and equipment Buildings 6,535 6,504 Accumulated depreciation (3,628) (3,790) Buildings (net amount) 2,906 2,714 Structures 451 451 Accumulated depreciation (290) (308) Structures (net amount) 161 143 Machinery and equipment 4,250 171 Accumulated depreciation (2,629) (152) Machinery and equipment (net amount) 1,621 18 Vehicles 118 99 Accumulated depreciation (97) (85) Vehicles (net amount) 20 13 Tools, furniture and fixtures 10,281 4,770 Accumulated depreciation (8,256) (3,593) Tools, furniture and fixtures (net amount) 2,024 1,176 Land 6,251 6,251 Construction in progress 449 466 Total property, plant and equipment 13,436 10,785 Intangible assets Patent right 16 10 Software 304 199 Telephone subscription right 24 24 Total intangible assets 345 235
-34- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(Unit: Millions of yen) Previous fiscal year Current fiscal year (Mar. 31, 2008) (Mar. 31, 2009) Investments and other assets Investment securities 264 206 Stocks of subsidiaries and affiliates 68,804 65,850 Investments in capital 293 292 Long-term loans receivable - 1,035 Long-term loans receivable from 178 188 subsidiaries and affiliates Claims provable in bankruptcy, claims 1,568 1,444 provable in rehabilitation and other Long-term prepaid expenses 0 - Guarantees and deposits 549 544 Deferred tax assets 69 137 Other 1,068 730 Allowance for doubtful accounts (1,774) (1,779) Allowance for investment loss (200) (200) Total investments and other assets 70,822 68,451 Total fixed assets 84,604 79,471 Total Assets 131,596 130,141 Liabilities Current liabilities Notes payable-trade 2,206 163 Accounts payable-trade 4,477 328 Short-term loans payable - 6,293 Short-term loans from shareholders, officers - 11,552 or employees Current portion of long-term loans payable 796 783 Current portion of bonds 2,200 1,200 Accounts payable-other 4,090 9,005 Accrued expenses 366 171 Short-term obligations to shareholders, - 655 officers or employees Income taxes payable 62 10 Accrued consumption taxes 557 134 Advance received 248 205 Deposits received 50 51 Unearned revenue 2 5 Provision for bonuses 128 35 Other 27 18 Total current liabilities 15,214 30,615 Noncurrent liabilities Bonds payable 3,200 2,000 Long-term loans payable 783 - Long-term guarantee deposits received 19 19 Total noncurrent liabilities 4,002 2,019 Total liabilities 19,217 32,634
-35- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(Unit: Millions of yen) Previous fiscal year Current fiscal year (Mar. 31, 2008) (Mar. 31, 2009) Net assets Shareholders’ equity Capital stock 3,446 3,446 Capital surplus Legal capital surplus 7,503 7,503 Total capital surplus 7,503 7,503 Retained earnings Legal retained earnings 861 861 Other retained earnings General reserve 90,000 90,000 Retained earnings brought forward 12,072 (2,822) Total retained earnings 102,933 88,039 Treasury stock (1,636) (1,637) Total shareholders’ equity 112,247 97,352 Valuation and translation adjustments Valuation difference on available-for-sale 31 4 securities Total valuation and translation adjustments 31 4 Subscription rights to shares 99 149 Total net assets 112,379 97,506 Total liabilities and net assets 131,596 130,141
-36- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(2) Statements of income (Unit: Millions of yen) Previous fiscal year Current fiscal year (From Apr. 1, 2007 to ( From Apr. 1, 2008 to Mar. 31, 2008) Mar. 31, 2009) Net sales Total net sales 58,903 9,904 Cost of sales Total cost of sales 31,567 6,839 Gross profit 27,336 3,065 Selling, general and administrative expenses 17,814 10,472 Operating income or (loss) 9,521 (7,406) Non-operating income Interest income 87 83 Dividend income 549 1,759 Other 60 226 Total non-operating income 697 2,069 Non-operating expenses Interest expenses 117 437 Interest on bonds 74 53 Amortization of bond issuance cost 19 - Foreign exchange losses 128 331 Other 34 8 Total non-operating expenses 373 831 Ordinary income (or loss) 9,846 (6,168) Extraordinary income Gain on sale of shares in affiliates - 143 Reversal of allowance for doubtful accounts - 89 Gain on sales of noncurrent assets 453 - Gain on sales of investment securities 187 - Interest on refund 333 - Other 47 51 Total extraordinary income 1,021 284 Extraordinary loss Loss on valuation of inventories 46 753 Loss on disposal of inventories 1,145 - Loss on valuation of stocks of subsidiaries 1,527 2,657 and affiliates Provision of allowance for investment loss 271 7 Other 109 59 Total extraordinary losses 3,101 3,479 Net income (or loss) before taxes 7,766 (9,362) Income taxes-current 42 8 Income taxes-deferred (1,626) 727 Total income taxes (1,584) 735 Net income (or loss) 9,350 (10,098)
-37- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(3) Statements of changes in net assetsshareholders’ equity
(Unit: Millions of yen) Previous fiscal year Current fiscal year (From Apr. 1, 2007 to (From Apr. 1, 2008 to Mar. 31, 2008) Mar. 31, 2009) Shareholders' Equity Capital stock Ending balance for the previous period 3,446 3,446 Change during the current period Total change during the current period - - Ending balance for the current period 3,446 3,446 Capital surplus Legal capital surplus Ending balance for the previous period 7,503 7,503 Change during the current period Total change during the current period - - Ending balance for the current period 7,503 7,503 Total capital surplus Ending balance for the previous period 7,503 7,503 Change during the current period Total change during the current period - - Ending balance for the current period 7,503 7,503 Retained earnings Legal retained earnings Ending balance for the previous period 861 861 Change during the current period Total change during the current period - - Ending balance for the current period 861 861 Other retained earnings Reserve for special depreciation Ending balance for the previous period 13 - Change during the current period Reversal of reserve for special depreciation (13) - Total change during the current period (13) - Ending balance for the current period - - General reserve Ending balance for the previous period 105,921 90,000 Change during the current period Reversal of general reserve (15,921) - Total change during the current period (15,921) - Ending balance for the current period 90,000 90,000 Retained earnings brought forward Ending balance for the previous period (9,114) 12,072 Change during the current period Dividends from surplus (3,995) (4,796) Net income (or loss) 9,350 (10,098) Disposal of treasury stock (103) - Reversal of reserve for special depreciation 13 - Reversal of general reserve 15,921 - Total change during the current period 21,186 (14,894) Ending balance for the current period 12,072 (2,822)
-38- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(Unit: Millions of yen) Previous fiscal year Current fiscal year (From Apr. 1, 2007 to (From Apr. 1, 2008 to Mar. 31, 2008) Mar. 31, 2009) Total retained earnings Ending balance for the previous period 97,681 102,933 Change during the current period Dividends from surplus (3,995) (4,796) Net income (or loss) 9,350 (10,098) Disposal of treasury stock (103) - Reversal of reserve for special depreciation - - Reversal of general reserve - - Total change during the current period 5,252 (14,894) Ending balance for the current period 102,933 88,039 Treasury stock Ending balance for the previous period (1,821) (1,636) Change during the current period Acquisition of treasury stock (0) (0) Disposal of treasury stock 186 - Total change during the current period 185 (0) Ending balance for the current period (1,636) (1,637) Total shareholders' equity Ending balance for the previous period 106,809 112,247 Change during the current period Dividends from surplus (3,995) (4,796) Net income (or loss) 9,350 (10,098) Acquisition of treasury stock (0) (0) Disposal of treasury stock 83 - Total change during the current period 5,437 (14,894) Ending balance for the current period 112,247 97,352 Valuation and translation adjustments Valuation difference on available-for-sale securities Ending balance for the previous period 28 31 Change during the current period Change in items other than shareholders’ 3 (27) equity during the current period (net amount) Total change during the current period 3 (27) Ending balance for the current period 31 4 Total valuation and translation adjustments Ending balance for the previous period 28 31 Change during the current period Change in items other than shareholders’ 3 (27) equity during the current period (net amount) Total change during the current period 3 (27) Ending balance for the current period 31 4 Subscription rights to shares Ending balance for the previous period 12 99 Change during the current period Change in items other than shareholders’ 87 49 equity during the current period (net amount) Total change during the current period 87 49 Ending balance for the current period 99 149
-39- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(Unit: Millions of yen) Previous fiscal year Current fiscal year (From Apr. 1, 2007 to (From Apr. 1, 2008 to Mar. 31, 2008) Mar. 31, 2009) Total net assets Ending balance for the previous period 106,850 112,379 Change during the current period Dividends from surplus (3,995) (4,796) Net income (or loss) 9,350 (10,098) Acquisition of treasury stock (0) (0) Disposal of treasury stock 83 - Change in items other than shareholders’ 91 22 equity during the current period (net amount) Total change during the current period 5,528 (14,872) Ending balance for the current period 112,379 97,506
-40- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Notes pertaining to going concern Not applicable
-41- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Significant Accounting Policies Previous fiscal year Current fiscal year Item (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) 1. Valuation criteria and (1) Shares of subsidiaries and affiliates (1) Shares of subsidiaries and affiliates methods for short-term Cost method based on the moving average Same as on the left. investment securities method. (2) Other securities (2) Other securities Securities having market value: Securities having market value: Market value method based on market Same as on the left. prices, etc. as of the closing date of the fiscal year (valuation discrepancies are treated by partial direct capitalization method and the cost of sales is determined by the moving average method). Securities without market value Securities without market value Cost method based on the moving Same as on the left. average method. 2. Valuation criteria and (1) Finished goods, raw materials and work in (1) Finished goods, raw materials and work in methods for inventories process process Cost method based on the weighted Cost method based on the weighted average costing method. average costing method. (The amount For works-in-process concerning stated in the balance sheet was calculated production of contents, etc., specific by the book value write-down method costing method is applied. based on reduction in profitability.) For works-in-process concerning production of contents, etc., specific costing method is applied. (2) Supplies (2) Supplies Last purchase cost method. Same as on the left. 3. Depreciation and (1) Property, plant and equipment (1) Property, plant and equipment amortization methods for Fixed rate method (excluding lease assets) noncurrent assets Buildings (excluding structures attached Fixed rate method to buildings) acquired after April 1, 1998 Buildings (excluding structures attached are depreciated using equal installment to buildings) acquired after April 1, 1998 method. are depreciated using equal installment Rental assets are amortized evenly over method. the number of years which equals to Approximate useful lives: contract period. Buildings Assets acquired after April 1, 1998 at 10 to 50 years prices of 100,000 yen or more but less Machinery and equipment than 200,000 yen had been amortized 7 to 17 years evenly over 3 years. However, effective Tools, furniture and fixtures the current consolidated interim period, 2 to 20 years the method was changed to the one by which the costs of those assets should be posted at the time of acquisition. The said change has a slight impact on the Company’s profit and loss. Approximate useful lives: Buildings 10 to 50 years Machinery and equipment 7 to 17 years Tools, furniture and fixtures 2 to 15 years
-42- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous fiscal year Current fiscal year Item (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) (Change in accounting policy) ------Effective the current fiscal year, following the amendments to the Corporate Tax Law in Japan, the Company changed its depreciation and amortization methods to those pursuant to the amended Corporate Tax Law, for “property, plant and equipment” obtained after April 1, 2007. The said change has a slight impact on the Company’s profit and loss. (Supplemental information) ------Regarding the assets obtained on or before March 31, 2007, following the amendments to the Corporate Tax Law in Japan, the Company amortizes the difference between the amount corresponding to 5% of the asset’s acquisition price and its memorandum value evenly over 5 years, and posts the amortization in the item of Depreciation. Such amortization commences from the following fiscal year of the year, in which the asset’s depreciation reaches the amount corresponding to 5% of the asset’s acquisition price in accordance with the depreciation method provided in the former Corporate Tax Law. The said change has a slight impact on the Company’s profit and loss. (2) Intangible assets (2) Intangible assets (excluding lease assets) Equal installment method Equal installment method Software intended for internal use is Same as on the left. amortized using equal installment method based on an estimated period of internal use (5 years). ------(3) Lease assets The equal installment method is applied whereby the lease period is deemed the durable life and the remaining value is deemed zero. For your information, finance lease transactions where the ownership is not transferred and where the lease transaction commenced on or before March 31, 2008 are accounted for in accordance with the method applicable to regular lease transactions.
-43- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous fiscal year Current fiscal year Item (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) 4. Treatment method of Bond issuance cost ------deferred assets The cost is amortized evenly over 3 years. 5. Translation standard of Monetary debts and credits denominated in Same as on the left. foreign foreign currencies are translated into yen at currency-denominated the spot exchange rates on the fiscal year-end assets and liabilities into date, with the differences resulting from such yen translations recorded as losses or profits. 6. Reporting basis for (1) Allowance for doubtful accounts (1) Allowance for doubtful accounts allowances In provision for possible losses on Same as on the left. receivables caused by bad debts, an estimated uncollectible amount is reported based on their historical losses as to ordinary receivables, and in consideration of their collectibility as to an estimated amount of potential bad debt or other specified receivables. (2) Provision for bonuses (2) Provision for bonuses In provision for the future payment of Same as on the left. employee bonuses, the anticipated amount of future bonus payments is reported. (3) Allowance for investment loss (3) Allowance for investment loss In provision for possible investment loss Same as on the left. pertaining to the affiliated companies, an estimated uncollectible amount is reported in consideration of their asset qualities, etc. 7. Treatment method of Finance lease transactions other than those ------lease transactions that are deemed to transfer the ownership of the leased assets to the lessee are accounted for by the method similar to the one used for ordinary operating leases transactions. 8. Other significant matters Accounting procedure for consumption taxes Accounting procedure for consumption taxes for preparation of Consumption taxes are accounted by the Same as on the left. financial statement tax-exclusion method.
-44- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Changes in Accounting Method
Previous fiscal year Current fiscal year (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) (Posting of Production Costs of Digital Contents, etc.) Regarding production costs of contents, etc. originally, the Company posted the full amount as expenses at the time said cost was incurred. Starting this consolidated interim period, the costs directly relating to production of individual titles are posted as development works in process under assets. This change was due to the increasing proportion of items classified as contents such as video images, audio and others and the prospect of its further increase in future. Furthermore, the development works in process accounted for are being posted as a singular sum under cost of sales upon the commencement of sales of the relevant individual titles. As a result, relative to accounting methods originally used, selling, general and administrative expenses decreased by 1,036 million yen, cost of sales increased by 711 million yen and inventories increased by 325 million yen. ------(Accounting Standards for Valuation of Inventory Assets) The “Accounting Standards Pertaining to the Valuation of Inventories” (Corporate Accounting Standards No. 9, published July 5, 2006) is applied with effect from the current consolidated fiscal year. Accordingly, gross profit on sales decreased 94 million yen, but the operating loss, ordinary loss and net loss before taxes were not affected.
------(Accounting Standards for Lease Transactions) Previously, finance lease transactions where the ownership is not transferred were accounted for in accordance with the method applicable to lease transactions. With effect from the current consolidated fiscal year, however, the “Accounting Standards Pertaining to the Lease Transactions” (Corporate Accounting Standards No. 13 (June 17, 1993 (Business Accounting Council, Subcommittee 1), amended March 30, 2007)) and “Application Guidance for Accounting Standards Pertaining to the Lease Transactions” (Application Guidance on Corporate Accounting Standards No. 16 (January 18, 1994 (Japan Institute of Certified Public Accountants, Accounting System Committee), amended March 30, 2007)) are applied to account for the aforementioned lease transactions in accordance with the method applicable to regular sales transactions. For your information, this change has no impact on the income and loss. In addition, finance lease transactions where the ownership is not transferred and where the lease transaction commenced on or before March 31, 2008 are still accounted for in accordance with the method applicable to regular lease transactions.
-45- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Notes (Balance Sheet) Previous fiscal year Current fiscal year (Mar. 31, 2008) (Mar. 31, 2009) *Contingent liabilities *Contingent liabilities (1) Litigations (1) Litigations [1] A request for reconsideration against the correction [1] ------disposition of the National Taxation Bureau related to corporation taxes for fiscal year 1998 was heard by the Tokyo National Tax Tribunal; a ruling was handed down on January 29, 2004. As a result of this ruling, the amended income amount was decreased by 16 million yen, from 2,949 million yen to 2,932 million yen. However, the Company was opposing this ruling and lodged a suit demanding a revocation of the disposition of the corporate tax amendment to the Tokyo District Court on April 27, 2004. On February 23, 2007, the court almost entirely awarded for the Company’s claim and handed down the revocation of the disposition. The defendant was dissatisfied with the decision and filed an appeal on March 9, 2007. Tokyo High Court ruled in favor of the Company on February 20, 2008, and the Appellee did not make re-appeal by the time limit, therefore the case closed. Incidentally, Tokyo Regional Taxation Bureau paid 1,665,303,600 yen as the Company’s corporate tax refund on March 14, 2008. The balance which is the local tax paid by the Company is anticipated to receive in the future. [2] Regarding a stock purchase option agreement that [2] ------our company entered into with KM Enterprise Co., Ltd., an asset management company owned individually by one of our previous directors, Katsunori Manabe, our company was sued by the company on October 31, 2002 for damages for breach of contract because our company could not purchase the stock of Sigma Game, Inc., which was held by KM Enterprise Co., Ltd., as a result of our failure to obtain approval from the U.S. Gaming Board regarding the transfer of the stock (damages demanded: USD$30 million). This claim was submitted to the Tokyo District Court, which ruled on Jan. 17, 2006 that it fully awarded for the claims of KM Enterprise Co., Ltd. Dissatisfied with the result, The Company filed an appeal against this ruling on January 18, 2007 In a related case, Adores, Inc. submitted a claim for a loan repayment amounting to 2,074 million yen against Mr. Manabe, winning the first trial in this case. The Company was the debt guarantor for the loan in question; however, the Company became the creditor of this loan after taking it over on Mar. 30, 2006, hence nullifying the guaranteed debt of 2,074 million yen. As a result of taking over this loan as its creditor, the Company became a party to this case, replacing the position of Adores as the plaintiff.
-46- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous fiscal year Current fiscal year (Mar. 31, 2008) (Mar. 31, 2009) After accepting the credit of 2,074 million yen out of a total amount of the damages from KM enterprise Co., Ltd. on July 27, 2006, Mr. Manabe participated the said litigation to seek a setoff against the loan assigned to the Company from Adores, Inc on August 7, 2006. On October 31, 2006, Tokyo High Court handed down a decision to award for the claims of KM Enterprise Co., Ltd. as the result of the setoff regarding the rest amount of damages US$11,800,880 owned by KM Enterprise Co., Ltd. The Company filed a petition for acceptance of appeal to Supreme Court on November 13, 2006, claiming that the decision was unreasonable because the examination was insufficient and the reason of the judgment was defective. However, on October 4, 2007, the Court decided not to accept the Company’s petition. In accordance with a declaration of provisional execution of the ruling, in December 2006, KM Enterprise Co., Ltd. acquired 1,412 million yen by compulsory execution against 3,200 million yen deposited by the Company as a guarantee to suspend to execute the decision by the lower court. On March 2, 2007, the Company filed a petition for revocation of the deposit to the balance, 1,788 million yen, however, the petition was dismissed on June 4, 2007. Immediately thereafter, we filed an appeal to Tokyo High Court. On July 20, 2007, the Court, however, rejected our appeal. On December 26, 2007, the Company re-filed the petition for revocation of the deposit with Tokyo District Court in response to the dismissal of the Company’s petition for acceptance of appeal in the principal action. On February 6, 2008, it was decided that the revocation of the deposit was accepted by the court. Based on the decision, the Company went through the process to recover the balance of deposit, 1,788 million yen, and then it was repaid to the Company on February 26, 2008. Therefore the case closed. [3] From August 2004 to April 2007, 48 parlors, that [3] From August 2004 to April 2007, 48 parlors, that purchased the Company’s Pachislot machines “Gold purchased the Company’s Pachislot machines “Gold X” put on the market in June 2003, have submitted a X” put on the market in June 2003, have submitted a total of 6 complaints to the Tokyo District Court total of 6 complaints to the Tokyo District Court demanding a total sum of 335 million yen for demanding a total sum of 335 million yen for compensatory damages for imputed loss of earnings compensatory damages for imputed loss of earnings as a consequence of the defects in the programming as a consequence of the defects in the programming of “Gold X”. 23 companies out of 48 parlors of “Gold X”. 24 companies out of 48 parlors retracted from the lawsuit, 1 company settled its retracted from the lawsuit, 1 company settled its case, and 4 cases (involving 24 parlors) are still case, 2 companies concluded their lawsuits, and 2 pending with the court as of the end of the fiscal cases (involving 21 parlors) are still pending with the year. Total amount of damages sought by the court as of the end of the fiscal year. Total amount of companies is 260 million yen. damages sought by the companies is 175 million yen. Among 2 cases out of the said 4 cases, in one case, the court handed down a decision on April 17, 2007 to order the Company to pay 4.80 million yen for the plaintiff’s claim to pay 5.11 million yen. Dissatisfied with the Judgment, the Company appealed the case. In another case, the court handed down a decision on October 31, 2007 to order the Company to pay 2.30 million yen for the plaintiff’s claim of 7.03 million yen. The Company was dissatisfied with the rulings and filed an appeal.
-47- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous fiscal year Current fiscal year ( Mar. 31, 2008) (Mar. 31, 2009) [4] On May 26, 2006, Japan Electric Amusement [4] On May 26, 2006, Japan Electric Amusement Machine Patent Association filed a complaint against Machine Patent Association filed a complaint against the Company in Tokyo District Court to seek the the Company in Tokyo District Court to seek the payment of 3,435 million yen as the fee for patent payment of 3,435 million yen as the fee for patent sub-license used from 1998 to 2005 in accordance sub-license used from 1998 to 2005 in accordance with the patent license agreement using patent pool with the patent license agreement using patent pool method. method. Although the court made its decision on The company has responded to the complaint, December 26, 2008 to dismiss the claim by the claiming that reasons of claims of the complaint have plaintiff completely, the plaintiff subsequently no basis. appealed on January 19, 2009 and the case is currently pending.
-48- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
(Significant Subsequent Events) Previous fiscal year Current fiscal year (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) 1. Establishment of a subsidiary: 1. Merger The Company established the following subsidiary with a The Company passed a resolution at the Board of 99.9% shareholding ratio investment: Directors Meeting held on April 27, 2009 to acquire and (1) Name of the subsidiary: merge with Aruze Marketing Japan Corporation, which is Molly Investments Cooperatieve U. A. a consolidated subsidiary of the Company, with effect (2) Country: from June 1, 2009. Netherlands (3) Date of registration: (1) Purpose of merger May 19, 2008 The Company earlier decided at the Board of Directors (4) Investor: Meeting held on December 24, 2008 on an Aruze Corp. 99.9% acquisition/merger of Aruze Marketing Japan (5) Business activities: Corporation, Aruze Global Trading Corporation, Aruze Investment in and financing for land tenant Rental Service Corporation and Seven Works corporations and other entities, as well as Corporation, with Aruze Marketing Japan Corporation incorporation, operation and administration of being the surviving company, for the purpose of companies in the Philippines. consolidating these individual companies relating to the (6) Others: Pachislot and Pachinko business and thereby reinforcing Aruze USA, Inc. financed US$ 172 million in April the collaboration between Development and Sales. and May 2008 and Aruze Corp. financed US$ 128 Subsequently, the Company decided at the Board of million in May 2008 for the purpose of purchasing Directors Meeting held on April 27, 2009 to acquire and land lots in the Philippines. merge with Aruze Marketing Japan Corporation, which is a consolidated subsidiary of the Company, with the aim of boosting the management constitution of the Company group and building a firmer business structure for the Pachislot and Pachinko business. The main role of the Company, as a holding company, used to has been to provide management guidance for the group companies. However, we have decided to strengthen management of our approach going forward, which was determined also in view of the slump of the Pachislot and Pachinko business in the previous business year, will be to step up our function to manage the Pachislot and Pachinko business which is the core business of the Company group and to improve business performance through direct involvement in the business as an integrated unit rather than , which is the core business of the Company group, and engage directly in the Pachislot and Pachinko business instead of just providing management guidance considering the slump of the business in the previous fiscal year, in order to restore business results.
(2) Outline of merger [1] Merger schedule Board of Directors Meeting where the resolution on merger was passed: April 27, 2009 Signing of the Merger Agreement: April 27, 2009 Effective Date of Merger takes effect: June 1, 2009 * Neither the Company nor Aruze Marketing Japan Corporation will call a General Shareholders’ Meeting to seek an approval of the merger on the grounds of the provisions of Article 796, Paragraph 3 (Simplified Merger) of the Companies Act in the case of the Company, and on the grounds of the provisions of Article 784, Paragraph 1 (Short Form Merger) of the Companies Act in the case of Aruze Marketing Japan Corporation. [2] Method of merger An absorption-type merger where the Company is the surviving company, with Aruze Marketing Japan Corporation being dissolved after the merger.
-49- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
Previous fiscal year Current fiscal year (From Apr. 1, 2007 to Mar. 31, 2008) (From Apr. 1, 2008 to Mar. 31, 2009) [3] Overview of accounting to be applied The merger will be accounted for as a transaction between entities under common controls based on the “Accounting Standards Pertaining to the Business Combination” (Business Accounting Council, published October 31, 2003) and “Application Guidance for Accounting Standards Pertaining to the Business Combination and Company Separation, Etc.” (Application Guidance on Corporate Accounting Standards No. 10, published November 15, 2007). (3) Overview of the company being merged in absorption-type method absorbed as a result of the merger(as of March 31, 2009) [1] Trade name Aruze Marketing Japan Corporation [2] Line of business Pachislot and Pachinko business [3] Establishment May 17, 1977 [4] Head office address 3-1-25 Ariake, Koto-ku, Tokyo [5] Name of representative Hajime Tokuda, Representative Director and President [6] Capital 2,015 million yen [7] Number of outstanding shares 41,500 shares [8] Last day of business year March 31 [9] Major shareholder and ratio of share holding Aruze Corp., 100%
(4) Status after the merger [1] Trade name Aruze Corp. [2] Line of business Pachislot and Pachinko business, overall management of group companies, etc. [3] Head office address 3-1-25 Ariake, Koto-ku, Tokyo [4] Name and title of representative Hajime Tokuda, Representative Executive Officer and President [5] Capital 3,446 million yen [6] Last day of business year March 31 * The capital does not change due to this merger because no new shares are issued.
-50- Brief Report of Settlement of Accounts (Kessan Tanshin) of Aruze Corp. (6425) for Period Ended March 2009
6. Others (1) Changes in Officers • Candidates for Directors Kazuo Okada Chairman of the Board of Directors (Members of Nominating Committee and Compensation Committee) Tomohiro Okada Director (Member of Audit Committee) Hiroyuki Sawada Outside Director (Member of Audit Committee) Masanori Iwabuchi Outside Director (Chairman of Nominating Committee and, member of Compensation Committee) Hideki Nakagome Outside Director (Chairman of Compensation Committee and, member of Nominating Committee) Mitsuhiro Kitabatake Outside Director (Member of Audit Committee) Naoko Otsuka Outside dDirector (Member of Audit Committee)
The above-named individuals are scheduled to be reappointed.
-51-