Pacific Golf Group International Holdings KK and Consolidated ...

Pacific Golf Group International Holdings KK
and Consolidated Subsidiaries
Consolidated Financial Statements for the
Years Ended December 31, 2005, 2006 and 2007,
and Independent Auditors' Report

INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pacific Golf Group International Holdings KK:
We have audited the accompanying consolidated balance sheets of Pacific Golf Group
International Holdings KK (the "Company") and consolidated subsidiaries (together, the "Group")
as of December 31, 2005, 2006 and 2007, and the related consolidated statements of income,
changes in equity, and cash flows for the years then ended, all expressed in Japanese yen. These
consolidated financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Pacific Golf Group International Holdings KK and
consolidated subsidiaries as of December 31, 2005, 2006 and 2007, and the consolidated results of
their operations and their cash flows for the years then ended in conformity with accounting
principles generally accepted in Japan.
As discussed in Note 2.f to the consolidated financial statements, certain consolidated subsidiaries
of the Company changed their methods of depreciation of fixed assets from the declining-balance
method to the straight-line method as of January 1, 2006.
As discussed in Note 2.g to the consolidated financial statements, the Group adopted the new
accounting standard for impairment of fixed assets as of January 1, 2006.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts
and, in our opinion, such translation has been made in conformity with the basis stated in Note 1.
Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.
March 26, 2008

Pacific Golf Group International Holdings KK and Consolidated Subsidiaries
Consolidated Balance Sheets
December 31, 2005, 2006 and 2007
Thousands of
U.S. Dollars
Millions of Yen
(Note 1)
ASSETS 2005 2006 2007 2007
CURRENT ASSETS:
Cash and cash equivalents (Note 6) ¥ 14,184 ¥ 12,344 ¥ 10,274 $ 90,008
Receivables:
Trade accounts 4,554 3,683 3,066 26,857
Other 825 2,782 2,027 17,760
Allowance for doubtful receivables (1,092) (849) (384) (3,369)
Inventories (Note 4) 1,413 1,581 1,842 16,139
Receivables due from financial institution
(Note 6) 12,575 7,177 7,169 62,804
Deferred tax assets (Note 10) 4,772 4,372 3,981 34,876
Prepaid expenses and other current assets 2,002 1,666 1,880 16,470
Total current assets 39,233 32,756 29,855 261,545
PROPERTY AND EQUIPMENT (Note 6):
Land (Note 5) 125,995 131,965 144,332 1,264,403
Buildings and structures (Note 5) 170,755 176,524 201,603 1,766,121
Machinery and equipment 7,176 7,217 8,920 78,142
Furniture and fixtures 8,275 8,965 11,359 99,510
Construction in progress 404 450 80 700
Total 312,605 325,121 366,294 3,208,876
Accumulated depreciation (154,851) (157,613) (178,921) (1,567,417)
Net property and equipment 157,754 167,508 187,373 1,641,459
INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 3) 22 9 7 65
Goodwill 9,746 11,682 14,834 129,949
Troubled loan receivables 32,179 8,375 15,205 133,205
Allowance for doubtful receivables (28,988) (2,066) (2,064) (18,081)
Deferred tax assets (Note 10) 2 296 749 6,564
Other assets (Note 6) 6,601 5,457 6,853 60,031
Total investments and other assets 19,562 23,753 35,584 311,733
Thousands of
U.S. Dollars
Millions of Yen
(Note 1)
LIABILITIES AND EQUITY 2005 2006 2007 2007
CURRENT LIABILITIES:
Short-term bank loans (Note 6) ¥ 18,000 – ¥ 3,000 $ 26,281
Current portion of long-term debt (Note 6) 4,445 ¥ 6,336 5,943 52,067
Payables:
Trade accounts 869 999 1,056 9,247
Other 3,208 3,727 3,632 31,814
Income taxes payable 758 704 1,321 11,573
Other current liabilities 4,559 3,680 3,647 31,952
Total current liabilities 31,839 15,446 18,599 162,934
LONG-TERM LIABILITIES:
Bonds with warrants (Note 6) – – 25,000 219,010
Long-term debt (Note 6) 93,655 108,580 96,371 844,252
Liability for employees' retirement benefits
(Note 7) 3,615 3,331 3,315 29,041
Retirement allowance for directors and
corporate auditors 39 58 94 820
Membership deposits 32,122 33,447 34,489 302,134
Deferred tax liabilities (Note 10) 21,459 20,955 22,178 194,294
Other 105 402 445 3,899
Total long-term liabilities 150,995 166,773 181,892 1,593,450
MINORITY INTEREST 0 – – –
COMMITMENTS (Notes 12 and 13)
EQUITY (Notes 8 and 9):
Common stock—authorized, 4,160,000 shares;
issued, 1,170,000 shares in 2005,
1,177,339 shares in 2006 and
1,180,659 shares in 2007 12,251 12,609 12,705 111,294
Capital surplus 13,433 13,791 13,886 121,647
Stock acquisition rights – 152 307 2,694
Retained earnings 8,030 16,665 26,211 229,621
Unrealized gain on available-for-sale securities 1 0 – –
Deferred loss on derivatives under hedge
accounting – (1,419) (862) (7,548)
Total 33,715 41,798 52,247 457,708
Minority interests – 0 74 645
Total equity 33,715 41,798 52,321 458,353
TOTAL ¥ 216,549 ¥ 224,017 ¥ 252,812 $2,214,737
TOTAL ¥ 216,549 ¥ 224,017 ¥ 252,812 $2,214,737
See notes to consolidated financial statements.
- 2 -

Pacific Golf Group International Holdings KK and Consolidated Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 2005, 2006 and 2007
Thousands of
U.S. Dollars
Millions of Yen
(Note 1)
2005 2006 2007 2007
NET SALES ¥ 61,109 ¥ 66,765 ¥ 73,392 $ 642,946
OPERATING EXPENSES (Note 11) 51,272 54,302 60,016 525,764
Operating income 9,837 12,463 13,376 117,182
OTHER INCOME (EXPENSES):
Interest income 23 19 77 678
Interest expense (3,904) (2,618) (2,990) (26,197)
Gain on sales of property and equipment 820 15 46 400
Loss on sales of property and equipment (26) (63) (1) (12)
Loss on disposal of property and
equipment (227) (327) (160) (1,401)
Financing commissions (1,460) (673) (58) (504)
Gain on collection of troubled loan
receivables 38 992 1,291 11,310
Impairment loss on long-lived assets
(Note 5) – (467) – –
Amortization of consolidation goodwill (2,923) (121) (145) (1,270)
Acquisition expenses (1,165) – – –
Other—net (189) 14 223 1,949
Other expenses—net (9,013) (3,229) (1,717 ) (15,047)
INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS 824 9,234 11,659 102,135
INCOME TAXES (Note 10):
Current 537 864 1,603 14,041
Deferred (3,575) (301) 510 4,463
Total income taxes (3,038) (563) 2,113 18,504
MINORITY INTERESTS IN NET INCOME – – 0 (1)
NET INCOME ¥ 3,862 ¥ 8,671 ¥ 9,546 $ 83,630
Yen
U.S. Dollars
PER SHARE OF COMMON STOCK
(Notes 2.v and 14):
Basic net income ¥3,829.74 ¥7,395.62 ¥8,093.04 $ 70.90
Diluted net income – 7,270.80 7,482.94 65.55
See notes to consolidated financial statements.
- 3 -

Pacific Golf Group International Holdings KK and Consolidated Subsidiaries
Consolidated Statements of Changes in Equity
Years Ended December 31, 2005, 2006 and 2007
Thousands Millions of Yen
Outstanding
Number of
Unrealized
Shares of
Common
Stock
Common
Stock
Capital
Surplus
Stock
Acquisition
Rights
Retained
Earnings
Gain on
Available-for-sale
Securities
Deferred
Loss on
Derivatives
under Hedge
Accounting Total
Minority
Interests
Total
Equity
BALANCE, JANUARY 1, 2005 10 ¥ 250 ¥ 250 ¥ 4,168 ¥0 ¥ 4,668 ¥ 4,668
Net income 3,862 3,862 3,862
Stock issuance through shareholder
allocation 1,000 2,500 2,500 5,000 5,000
Stock issuance through third party allotment 100 6,900 6,900 13,800 13,800
Stock issuance through public offering 60 2,601 3,783 6,384 6,384
Net increase in unrealized gain on
available-for-sale securities 1 1 1
BALANCE, DECEMBER 31, 2005 1,170 12,251 13,433 8,030 1 33,715 33,715
Reclassified balance as of December 31, 2005
(Note 2.u) ¥ 0 0
Net income 8,671 8,671 8,671
Bonuses to directors and corporate auditors (36) (36) (36)
Exercise of stock acquisition rights 7 358 358 716 716
Net change in the year ¥ 152 (1) ¥ (1,419) (1,268) (1,268)
BALANCE, DECEMBER 31, 2006 1,177 12,609 13,791 152 16,665 0 (1,419 ) 41,798 0 41,798
Net income 9,546 9,546 9,546
Exercise of stock acquisition rights 4 96 95 191 191
Net change in the year 155 (0) 557 712 74 786
BALANCE, DECEMBER 31, 2007 1,181 ¥ 12,705 ¥ 13,886 ¥ 307 ¥ 26,211 ¥ (862 ) ¥ 52,247 ¥ 74 ¥ 52,321
Common
Stock
Capital
Surplus
Stock
Acquisition
Rights
Thousands of U.S. Dollars (Note 1)
Retained
Earnings
Unrealized
Gain on
Available-for-sale
Securities
Deferred
Loss on
Derivatives
under Hedge
Accounting Total
Minority
Interests
Total
Equity
BALANCE, DECEMBER 31, 2006 $ 110,458 $ 120,812 $1,328 $ 145,991 $3 $ (12,427 ) $ 366,165 $ 2 $ 366,167
Net income 83,630 83,630 83,630
Exercise of stock acquisition rights 836 835 1,671 1,671
Net change in the year 1,366 (3) 4,879 6,242 643 6,885
BALANCE, DECEMBER 31, 2007 $ 111,294 $ 121,647 $2,694 $ 229,621 $ (7,548 ) $ 457,708 $ 645 $ 458,353
See notes to consolidated financial statements.
- 4 -

Pacific Golf Group International Holdings KK and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2005, 2006 and 2007
Thousands of
U.S. Dollars
Millions of Yen
(Note 1)
2005 2006 2007 2007
OPERATING ACTIVITIES:
Income before income taxes and minority
interests ¥ 824 ¥ 9,234 ¥ 11,659 $ 102,135
Adjustments for:
Income taxes—paid (157) (734) (2,536) (22,218)
Income taxes—refunded – – 676 5,923
Depreciation and amortization 5,681 3,391 4,270 37,407
Gain on sales of property and equipment (820) (15) (46) (400)
Gain on collection of troubled loan
receivables (38) (992) (1,291) (11,310)
Impairment loss on long-lived assets – 467 – –
Changes in assets and liabilities, excluding
effects from newly consolidated subsidiaries:
Decrease in trade accounts receivable 342 896 328 2,876
Increase in inventories (47) (176) (205) (1,797)
Increase in trade accounts payable 55 123 25 218
Increase (decrease) in interest payable (564) 339 334 2,930
Increase (decrease) in liability for
employee's retirement benefits 615 (372) (79) (695)
Increase in membership deposits 318 583 726 6,357
Other—net 301 746 (414) (3,627)
Total adjustments 5,686 4,256 1,788 15,664
Net cash provided by operating
activities—(Forward) ¥6,510 ¥ 13,490 ¥ 13,447 $ 117,799
- 5 - (Continued)

Pacific Golf Group International Holdings KK and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2005, 2006 and 2007
Thousands of
U.S. Dollars
Millions of Yen
(Note 1)
2005 2006 2007 2007
Net cash provided by operating activities—
(Forward) ¥ 6,510 ¥ 13,490 ¥ 13,447 $ 117,799
INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 1,359 170 115 1,004
Payment for purchases of property and
equipment (4,929) (5,416) (7,846) (68,738)
Payment for purchases of newly consolidated
subsidiaries, net of cash and cash equivalents
acquired 6,576 (2,657) (8,171) (71,582)
Payment for extension of loan receivables (286) (3,905) (4,030) (35,305)
Proceeds from collection of loan receivables 1,426 1,211 2,244 19,661
Payment for purchases of troubled loan and
other receivables (3,326) (5,773) (16,359) (143,303)
Proceeds from collection of troubled loan and
other receivables 4,878 3,651 6,520 57,119
Payment for purchases of business, net of cash
and cash equivalents acquired (4,623) (6,881) (2,202) (19,290)
Purchases of interest-rate swap (1,822) – – –
Other—net (293) 402 (1,001) (8,769)
Net cash used in investing activities (1,040) (19,198 ) (30,730 ) (269,203)
FINANCING ACTIVITIES:
Increase (decrease) in short-term bank loans—
net 17,500 (18,000) 2,829 24,780
Proceeds from long-term debt 161,900 37,300 7,700 67,455
Repayments of long-term debt (143,353) (20,487) (20,302) (177,852)
Decrease (increase) in receivables due from
financial institution (5,526) 5,398 8 72
Payment of debt under reorganization (51,904) (5) – –
Proceeds from bond issuances – – 24,853 217,722
Proceeds from stock issuances 24,833 689 183 1,605
Other—net – (1,027) (58) (505)
Net cash provided by financing
activities 3,450 3,868 15,213 133,277
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,920 (1,840) (2,070) (18,127)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 5,264 14,184 12,344 108,135
CASH AND CASH EQUIVALENTS, END OF YEAR ¥ 14,184 ¥ 12,344 ¥ 10,274 $ 90,008
- 6 - (Continued)

Pacific Golf Group International Holdings KK and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2005, 2006 and 2007
Thousands of
U.S. Dollars
Millions of Yen
(Note 1)
2005 2006 2007 2007
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION (Note 2.a):
Increase in assets and liabilities on
acquisition of subsidiaries:
Current assets ¥ (43,164) ¥ (661) ¥ (1,020) $ (8,938)
Non-current assets (72,855) (1,031) (13,177) (115,444)
Goodwill (6,421) (2,661) (4,260) (37,316)
Current liabilities 56,633 147 2,962 25,951
Non-current liabilities 33,539 1,010 5,485 48,052
Minority interests – – 73 643
Acquisition cost (32,268) (3,196) (9,937) (87,052)
Offset with loan receivable – – 350 3,066
Acquired in prior period – – 0 1
In-kind contribution – – 750 6,570
Cash and cash equivalents acquired 38,844 539 666 5,833
Payment for purchase of subsidiaries, net
of cash and cash equivalents acquired ¥ 6,576 ¥ (2,657) ¥ (8,171) $ (71,582)
Increase in assets and liabilities on purchase
of business:
Current assets ¥ 108 – ¥ 66 $ 578
Non-current assets 4,612 ¥ 7,359 2,121 18,582
Total assets ¥ 4,720 ¥ 7,359 ¥ 2,187 $ 19,160
Current liabilities – ¥ 248 ¥ 11 $ 93
Non-current liabilities – 231 13 115
Total liabilities – ¥ 479 ¥ 24 $ 208
See notes to consolidated financial statements.
- 7 - (Concluded)

Pacific Golf Group International Holdings KK and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
Years Ended December 31, 2005, 2006 and 2007
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with
the provisions set forth in the Japanese Securities and Exchange Law and its related accounting
regulations and in conformity with accounting principles generally accepted in Japan ("Japanese
GAAP"), which are different in certain respects as to application and disclosure requirements of
International Financial Reporting Standards.
On December 27, 2005, the Accounting Standards Board of Japan (the "ASBJ") published a new
accounting standard for the statement of changes in equity, which is effective for fiscal years
ending on or after May 1, 2006. The consolidated statement of shareholders' equity, which was
previously voluntarily prepared in line with international accounting practices, is now required
under Japanese GAAP and has been renamed "the consolidated statement of changes in equity"
from 2006 fiscal year.
In preparing these consolidated financial statements, certain reclassifications and
rearrangements have been made to the consolidated financial statements issued domestically in
order to present them in a form which is more familiar to readers outside Japan. In addition,
certain reclassifications have been made in the 2005 and 2006 financial statements to conform
to the classifications used in 2007.
The consolidated financial statements are stated in Japanese yen, the currency of the country in
which Pacific Golf Group International Holdings KK (the "Company") is incorporated and
operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely
for the convenience of readers outside Japan and have been made at the rate of ¥114.15 to $1,
the approximate rate of exchange at December 31, 2007. Such translations should not be
construed as representations that the Japanese yen amounts could be converted into U.S. dollars
at that or any other rate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Consolidation—The consolidated financial statements as of December 31, 2007 include the
accounts of the Company and its 33 significant (43 in 2006 and 39 in 2005) subsidiaries
(together, the "Group"). These significant subsidiaries include Pacific Golf Management
K.K., Pacific Golf Properties K.K., K.K. Chisan, K.K. Hatano Country Club, Nihon Golf
Shinko (Okinawa) K.K. and Taiyo Ryokka K.K.
Under the control or influence concept, those companies in which the Company, directly
or indirectly, is able to exercise control over operations are fully consolidated, and those
companies over which the Group has the ability to exercise significant influence are
accounted for by the equity method. During the three-year period ended December 31,
2007, there have been no companies accounted for by the equity method.
Goodwill, representing the excess of the Company's investments in subsidiaries over the fair
value of the net assets of the acquired subsidiaries at the date of acquisition, is being
amortized by the straight-line method over a period of 20 years.
- 8 -

Additional amortization of consolidation goodwill is recognized when deferred tax assets
for the net operating loss carryforward, which should have been recognized upon the
acquisition of a new subsidiary, are recognized. The improved financial condition of the
subsidiary, whose deferred tax assets for the net operating tax loss carryforward were not
fully recorded upon the acquisition, may result in the reduction of the valuation allowance
for the relevant deferred tax assets. In such case, the corresponding consolidation goodwill,
which would have been lower if the deferred tax assets were fully recognized upon the
acquisition, is additionally amortized by the same amount as the additional deferred tax
asset recognized.
All significant intercompany balances and transactions have been eliminated in
consolidation. All material unrealized profit included in assets resulting from transactions
within the Group is eliminated.
During the fiscal year ended December 31, 2005, the Group acquired all of the outstanding
shares of Japan Golf Shinko K.K., Nihon Golf Shinko (Okinawa) K.K., K.K. Miyazaki Kokusai
Golf Club, Taiyo Ryokka K.K. and Chitose Shoji K.K., which became consolidated
subsidiaries upon the share acquisition. On the other hand, the Group sold the entire
equity interest in Akita Golf Club K.K. in March 2005, which was then deconsolidated.
With the other acquisitions and new company establishments, the number of the
consolidated subsidiaries increased to 39 at December 31, 2005.
During the fiscal year ended December 31, 2006, the Group acquired all of the outstanding
shares of Kishigawa Golf Club K.K., Nakamine Golf Club K.K., Kitakata Golf Club K.K., Y.K.
Kaga Central Golf Club and Tajimi-Kita Kaihatsu Y.K., which became consolidated
subsidiaries upon the share acquisition. On the other hand, the Group sold the entire
equity interest in Kurobane Golf Club K.K. in January 2006, which was then
deconsolidated. Together with the restructuring activities within the Group, such as a
merger of K.K. Chisan and Japan Golf Shinko K.K. and a few spin-offs, and dispositions, the
number of consolidated subsidiaries at December 31, 2006 amounted to 43.
During the fiscal year ended December 31, 2007, the Group acquired all of the outstanding
shares of K.K. Daisen Ark Country Club, Tosa Yamada Kanko Kaihatsu K.K., PGPAH4 K.K.,
PGPAH5 K.K., Kitahiroshima Golf and Resort K.K., Hananoki Golf Club K.K., K.K. Shinko
Golf Club and BIP HOLDINGS Co., Ltd., which became consolidated subsidiaries upon the
share acquisition. On the other hand, the Group sold the entire equity interests in Y.K.
Kaga Central Golf Club and Asahikawa Country Club KK, which were then deconsolidated.
As a result of several intragroup mergers, including a merger of the Company and Pacific
Golf Group K.K. on December 26, 2007, and one subsidiary liquidation, the number of
consolidated subsidiaries at December 31, 2007 decreased to 33.
b. Business Combination—In October 2003, the Business Accounting Council (the "BAC")
issued a Statement of Opinion, "Accounting for Business Combinations," and on December
27, 2005, the ASBJ issued ASBJ Statement No. 7, "Accounting Standard for Business
Separations" and ASBJ Guidance No. 10, "Guidance for Accounting Standard for Business
Combinations and Business Separations." These new accounting pronouncements are
effective for fiscal years beginning on or after April 1, 2006.
The accounting standard for business combinations allows companies to apply the pooling
of interests method of accounting only when certain specific criteria are met such that the
business combination is essentially regarded as a uniting-of-interests.
For business combinations that do not meet the uniting-of-interests criteria, the business
combination is considered to be an acquisition and the purchase method of accounting is
required. This standard also prescribes the accounting for combinations of entities under
common control and for joint ventures.
- 9 -

The Group adopted the new accounting standard for business combinations and business
separations as of January 1, 2007.
c. Cash Equivalents—Cash equivalents are short-term investments that are readily
convertible into cash and that are exposed to insignificant risk of changes in value. Cash
equivalents include ordinary deposits and current deposits.
d. Inventories—Merchandise inventories are stated at cost determined by the first-in, first-out
method. Real estate held for resale is stated at cost determined by the specific identification
method, while supplies are stated at cost determined by the most recent purchase price
method.
e. Investment Securities—Investment securities held by the Group are classified as
available-for-sale securities. Marketable available-for-sale securities are reported at fair
value, with unrealized gains and losses, net of applicable taxes, reported in a separate
component of equity; the cost of securities sold is determined by the moving-average
method. Non-marketable available-for-sale securities are stated at cost determined by the
moving-average method. For other than temporary declines in fair value, investment
securities are reduced to net realizable value by a charge to income.
f. Property and Equipment—Property and equipment are stated at cost. Depreciation is
computed substantially by the straight-line method based on the estimated useful lives of
the assets. The range of useful lives is principally from 2 to 65 years for buildings and
structures and from 2 to 30 years for machinery and equipment as well as for furniture and
fixtures.
As at January 1, 2006, certain subsidiaries, which had previously applied the
declining-balance method, adopted the straight-line method in order to conform with the
Group's accounting policy. The effect of this change was to increase income before income
taxes and minority interests for the year ended December 31, 2006 by ¥535 million.
g. Long-lived Assets—In August 2002, the BAC issued a Statement of Opinion, "Accounting
for Impairment of Fixed Assets," and in October 2003 the ASBJ issued ASBJ Guidance No. 6,
"Guidance for Accounting Standard for Impairment of Fixed Assets." These new
pronouncements were effective for fiscal years beginning on or after April 1, 2005 with
early adoption permitted for fiscal years ending on or after March 31, 2004.
The Group adopted the new accounting standard for impairment of fixed assets as of
January 1, 2006.
The Group reviews its long-lived assets for impairment whenever events or changes in
circumstance indicate the carrying amount of an asset or asset group may not be
recoverable. An impairment loss is recognized if the carrying amount of an asset or asset
group exceeds the sum of the undiscounted future cash flows expected to result from the
continued use and eventual disposition of the asset or asset group. The impairment loss is
measured as the amount by which the carrying amount of the asset exceeds its recoverable
amount, which is the higher of the discounted cash flows from the continued use and
eventual disposition of the asset or the net selling price at disposition.
The effect of adoption of the new accounting standard for impairment of fixed assets was to
decrease income before income taxes and minority interests for the year ended December
31, 2006 by ¥467 million.
h. Other Assets—Other intangible assets, including software and long-term prepaid expenses,
are carried at cost less accumulated amortization computed using the straight-line method.
The estimated useful life of the software for amortization is 5 years.
- 10 -

i. Bonuses to Directors and Corporate Auditors—Prior to the fiscal year ended December 31,
2006, bonuses to directors and corporate auditors were accounted for as a reduction of
retained earnings in the fiscal year following approval at the general shareholders meeting.
The ASBJ issued ASBJ Practical Issues Task Force (PITF) No. 13, "Accounting Treatment for
Bonuses to Directors and Corporate Auditors," which encouraged companies to record
bonuses to directors and corporate auditors on the accrual basis with a related charge to
income, but still permitted the direct reduction of such bonuses from retained earnings
after approval of the appropriation of retained earnings.
The ASBJ replaced the above accounting pronouncement by issuing a new accounting
standard for bonuses to directors and corporate auditors on November 29, 2005. Under the
new accounting standard, bonuses to directors and corporate auditors must be expensed
and are no longer allowed to be directly charged to retained earnings. This accounting
standard is effective for fiscal years ending on or after May 1, 2006. The companies must
accrue bonuses to directors and corporate auditors at the year end to which such bonuses
are attributable.
The Group adopted this accounting standard from the fiscal year ended December 31, 2006.
The effect of this change was to decrease income before income taxes and minority interests
for the year ended December 31, 2006 by ¥21 million. The accrued bonuses to directors
and corporate auditors as of December 31, 2006 were included in other current liabilities.
Such bonuses related to the year ended December 31, 2005 were charged directly to
retained earnings in 2006.
j. Allowance for Doubtful Receivables—An allowance for doubtful accounts is provided
against potential losses on collection at an amount measured by a historical bad debt ratio,
plus an amount individually measured on collectibility of receivables that are expected to
be uncollectible due to bad financial condition or insolvency.
k. Employees' Retirement Benefits—The Group has an unfunded termination allowance plan
covering substantially all of its employees. The Group accounts for the liability for
retirement benefits based on projected benefit obligations at the balance sheet date. The
actuarial gain or loss calculated at the end of each fiscal year is amortized by the
straight-line method over 5 years, which is below the employees' average residual service
period, starting from the following fiscal year.
l. Retirement Allowances for Directors and Corporate Auditors—Retirement allowances for
directors and corporate auditors are recorded to state the liability at the amount that would
be required if all directors and corporate auditors retired at each balance sheet date.
Prior to January 1, 2005, no provision was recorded for retirement benefits to the
Company's directors and corporate auditors. Effective January 1, 2005, however, the
Company changed its accounting method for such retirement benefits to an accrual basis to
reflect periodic income and expenses more appropriately due to the reformation of the
regulation on directors' and corporate auditors' retirement allowance. The effect of this
change was to decrease income before income taxes and minority interests for the year
ended December 31, 2005 by ¥39 million, which included a cumulative effect of
¥15 million at December 31, 2004. This cumulative effect was included in other expenses
in the 2005 statement of income.
m. Allowance for Point System—The Group introduced a point system as a reward to its
customers for the year ended December 31, 2007. Accordingly, an allowance for point
system is provided against the expenses from future use of points awarded to customers
through point cards. The amount of allowance is estimated based on the actual point usage
rates by awarded customers, which is included in other current liabilities of consolidated
balance sheets. The effect of applying this accounting policy was to decrease income before
income taxes and minority interests for the year ended December 31, 2007 by ¥22 million
($197 thousand).
- 11 -

n. Allowance for Special Shareholder Benefits—For the year ended December 31, 2007, the
Group introduced "Special Shareholder Benefit" program to offer hospitality to its
shareholders. Corresponding to the introduction of such program, an allowance for special
shareholder benefits is provided against the expense from future utilization of granted
benefits. The amount of allowance is estimated based on the historical use of shareholder
benefits, which is included in other current liabilities of consolidated balance sheets. The
effect of applying this accounting policy was to decrease income before income taxes and
minority interests for the year ended December 31, 2007 by ¥8 million ($71 thousand).
o. Leases—All leases are accounted for as operating leases. Under Japanese accounting
standards for leases, finance leases that deem to transfer ownership of the leased property to
the lessee are to be capitalized, while other finance leases are permitted to be accounted for
as operating lease transactions if certain "as if capitalized" information is disclosed in the
notes to the lessee's financial statements.
p. Income Taxes—The provision for income taxes is computed based on the pretax income
included in the consolidated statements of income. The asset and liability approach is used
to recognize deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets and
liabilities. Deferred taxes are measured by applying currently enacted tax laws to the
temporary differences.
Certain of the consolidated subsidiaries file a tax return under the consolidated
corporate-tax system from the fiscal year ended December 31, 2005, which allows such
companies to base tax payments on the combined profits or losses of the filing companies
and their wholly owned subsidiaries.
q. Accounting for Consumption Taxes—The consumption taxes imposed on revenue from
customers for the Group's services are withheld by the Group and subsequently paid to the
government. The consumption tax withheld upon receipt of revenue and the consumption
tax paid by the Group on the purchase of products, merchandise and services from vendors
are not included in the related accounts in the accompanying consolidated statements of
income. The consumption tax paid is generally offset against the balance of consumption
tax collected, and net overpayment is included in current assets and net overwithholding is
included in current liabilities.
r. Stock Options—On December 27, 2005, the ASBJ issued "Accounting Standard for Stock
Options" and related guidance. The new standard and guidance are applicable to stock
options newly granted on and after May 1, 2006.
This standard requires companies to recognize compensation expense for employee stock
options based on the fair value at the date of grant and over the vesting period as
consideration for receiving goods or services. The standard also requires companies to
account for stock options granted to non-employees based on the fair value of either the
stock option or the goods or services received. In the balance sheet, the stock option is
presented as a stock acquisition right as a separate component of equity until exercised.
The standard covers equity-settled, share-based payment transactions, but does not cover
cash-settled, share-based payment transactions. In addition, the standard allows unlisted
companies to measure options at their intrinsic value if they cannot reliably estimate fair
value.
The Group adopted this accounting standard for those stock options granted on and after
May 1, 2006; and, accordingly, certain information relating to previously granted stock
options has been disclosed (see Note 9). The effect of this change was to decrease income
before income taxes and minority interests for the year ended December 31, 2006 by
¥171 million.
- 12 -

s. Appropriations of Retained Earnings—Appropriations of retained earnings are reflected in
the financial statements for the following year upon shareholders' approval.
t. Derivatives and Hedging Activities—The Group enters into derivatives, in the normal
course of business, to reduce the exposure to fluctuations in interest rates. The primary
derivatives used by the Group are interest-rate swaps in 2005 and interest-rate caps in 2006
and 2007.
It is the Group's policy to use derivatives only for the purpose of reducing interest rate risks
associated with borrowings, and the Group does not hold or issue derivatives for trading or
speculative purposes.
Derivative financial instruments are classified and accounted for as follows: (a) for those
derivatives recognized as either assets or liabilities and measured at fair value, and gains or
losses on derivative transactions are recognized in the income statement and (b) for
derivatives qualifying for hedge accounting because of high correlation and effectiveness
between the hedging instruments and the hedged items, gains or losses are deferred until
maturity of the hedged transactions.
Derivative transactions entered into by the Group have been made in accordance with
internal policies which regulate the authorization.
u. Presentation of Equity—On December 9, 2005, the ASBJ published a new accounting
standard for presentation of equity. Under this accounting standard, certain items which
were previously presented as liabilities are now presented as components of equity. Such
items include stock acquisition rights, minority interests, and any deferred gain or loss on
derivatives accounted for under hedge accounting. This standard was effective for fiscal
years ending on or after May 1, 2006. The consolidated balance sheets as of December 31,
2006 and 2007 are presented in line with this new accounting standard.
v. Per Share Information—Basic net income per share is computed by dividing net income
available to common shareholders by the weighted-average number of common shares
outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that could occur if securities
were exercised or converted into common stock. Diluted net income per share of common
stock assumes full exercise of dilutive outstanding stock option rights and full conversion of
the outstanding convertible preferred stocks at the beginning of the year and warrant bonds
at the time of issuance, with an applicable adjustment for related interest expense, net of
tax.
w. New Accounting Pronouncements
Measurement of Inventories—Under Japanese GAAP, inventories are currently measured
either by the cost method, or at the lower of cost or market. On July 5, 2006, the ASBJ
issued ASBJ Statement No. 9, "Accounting Standard for Measurement of Inventories," which
is effective for fiscal years beginning on or after April 1, 2008 with early adoption
permitted. This standard requires that inventories held for sale in the ordinary course of
business be measured at the lower of cost or net selling value, which is defined as the selling
price less additional estimated manufacturing costs and estimated direct selling expenses.
The replacement cost may be used in place of the net selling value, if appropriate. The
standard also requires that inventories held for trading purposes be measured at the market
price.
Lease Accounting—On March 30, 2007, the ASBJ issued ASBJ Statement No. 13,
"Accounting Standard for Lease Transactions," which revised the existing accounting
standard for lease transactions issued on June 17, 1993.
- 13 -

Under the existing accounting standard, finance leases that deem to transfer ownership of
the leased property to the lessee are to be capitalized, however, other finance leases are
permitted to be accounted for as operating lease transactions if certain "as if capitalized"
information is disclosed in the note to the lessee's financial statements.
The revised accounting standard requires that all finance lease transactions should be
capitalized. The revised accounting standard for lease transactions is effective for fiscal
years beginning on or after April 1, 2008 with early adoption permitted for fiscal years
beginning on or after April 1, 2007.
3. INVESTMENT SECURITIES
Investment securities as of December 31, 2005, 2006 and 2007 consisted of the following:
Thousands of
Millions of Yen U.S. Dollars
2005 2006 2007 2007
Non-current:
Marketable equity securities ¥ 2 ¥1 – –
Non-marketable equity securities 20 8 ¥7 $ 65
Total ¥ 22 ¥9 ¥7 $ 65
The carrying amounts and aggregate fair values of investment securities at December 31, 2005
and 2006 were as follows:
December 31, 2005 Cost
Millions of Yen
Unrealized
Gains
Unrealized
Losses
Fair
Value
Securities classified as
available-for-sale—Equity securities ¥1 ¥1 – ¥2
December 31, 2006
Securities classified as
available-for-sale—Equity securities 1 0 – 1
Available-for-sale securities whose fair value is not readily determinable as of December 31,
2005, 2006 and 2007 were as follows:
Carrying Amount
Thousands of
Millions of Yen U.S. Dollars
2005 2006 2007 2007
Available-for-sale—Equity securities ¥ 20 ¥8 ¥7 $ 65
For other than temporary declines where fair values of securities at the end of the fiscal year
become less than 50% of their acquisition costs, investment securities are reduced to net
realizable value by a charge to income. For the years ended December 31, 2005, 2006 and 2007,
no impairment losses for non-current marketable equity securities were recognized.
- 14 -

Proceeds from sales of available-for-sale securities for the years ended December 31, 2005, 2006
and 2007 were insignificant; therefore, the gross realized gains and losses on these sales have
not been presented.
4. INVENTORIES
Inventories at December 31, 2005, 2006 and 2007 consisted of the following:
Thousands of
Millions of Yen
U.S. Dollars
2005 2006 2007 2007
Merchandise ¥ 474 ¥ 634 ¥ 830 $ 7,269
Real estate for sale 439 419 401 3,511
Supplies 500 528 611 5,359
Total ¥1,413 ¥1,581 ¥1,842 $ 16,139
5. LONG-LIVED ASSETS
The Group reviewed its long-lived assets for impairment as of the year ended December 31,
2006 and recognized an impairment loss of ¥467 million as other expense due to the significant
decline in the market value of the identified idle assets. The main impairment losses relate to
buildings in Miyagi Prefecture (¥377 million) and land in Tokyo, Chiba Prefecture and
Hiroshima Prefecture (¥77 million), all of which are classified as idle assets. The carrying
amounts of the relevant assets were written down to the recoverable amounts.
No impairment loss was recognized in 2007.
6. BORROWINGS
Short-term bank loans at December 31, 2005 and 2007 bear interest rates 3.089% and from
0.913% to 2.000%, respectively.
Long-term debt at December 31, 2005, 2006 and 2007 consisted of the following:
Thousands of
Millions of Yen
U.S. Dollars
2005 2006 2007 2007
Loans from banks and other financial
institutions, due serially to 2012 with
interest rates 2.745% for 2005, from
1.295% to 2.218% for 2006, and from
1.500% to 2.338% for 2007:
Collateralized ¥ 98,100 ¥ 92,852 ¥ 87,730 $ 768,557
Unsecured 22,064 14,584 127,762
Total 98,100 114,916 102,314 896,319
Less current portion (4,445) (6,336) (5,943) (52,067)
Long-term debt, less current portion ¥ 93,655 ¥ 108,580 ¥ 96,371 $ 844,252
- 15 -

Annual maturities of long-term debt at December 31, 2007, were as follows:
Year Ending
December 31
Millions of Yen
Thousands of
U.S. Dollars
2008 ¥ 5,943 $ 52,067
2009 8,463 74,143
2010 10,036 87,919
2011 76,470 669,912
2012 1,402 12,278
Total ¥ 102,314 $ 896,319
The carrying amounts of assets pledged as collateral for long-term debt of ¥87,730 million
($768,557 thousand) at December 31, 2007 were as follows:
Millions of Yen
Thousands of
U.S. Dollars
Cash and cash equivalents ¥ 2,264 $ 19,838
Receivables due from financial institution 7,153 62,659
Land 113,571 994,930
Buildings and structures 24,346 213,284
Machinery and equipment 1,024 8,969
Furniture and fixtures 1,829 16,024
Construction in progress 30 262
Other assets 1,058 9,265
Total ¥ 151,275 $1,325,231
General agreements with respective banks provide, as is customary in Japan, that additional
collateral must be provided under certain circumstances if requested by the lender. The
Company has never been requested to provide any additional collateral.
The Company and two consolidated subsidiaries (Pacific Golf Management K.K. and Pacific Golf
Properties K.K.) have executed overdraft agreements with five banks in order to efficiently
procure operating funds. At December 31, 2007, the aggregate available overdraft amounted to
¥12,600 million ($110,381 thousand), out of which ¥2,000 million ($17,521 thousand) was
used.
On May 1, 2007, the Company issued ¥12,000 million ($105,125 thousand) of unsecured 1.0%
Japanese yen convertible bonds with non-detachable warrants and ¥13,000 million
($113,885 thousand) of unsecured zero coupon Japanese yen convertible bonds with
non-detachable warrant. The 1.0% bonds are due May 1, 2012 while the zero coupon bonds are
due April 28, 2017. The non-detachable warrants issued with both types of the bonds are
exercisable at ¥178,425 ($1,563) per share while such exercise prices are subject to adjustments
to reflect stock splits and certain other events. The warrants with 1.0% bonds are exercisable
from May 15, 2007 through April 17, 2012 while those with zero coupon bonds are exercisable
from May 15, 2007 through April 13, 2017. Upon exercise of the warrants, the bonds are
convertible into the Company's common stocks. The issue prices of these bonds were 100% of
the face value, and outstanding number of the warrants and number of common shares to be
issued upon exercise of the warrants are 2,400 warrants and 67,255 shares for 1.0% bonds and
2,600 warrants and 72,859 shares for zero coupon bonds, respectively, at December 31, 2007.
- 16 -

The amounts stated as bonds with warrants in long-term liabilities include a bond portion and a
warrant portion.
7. EMPLOYEES' RETIREMENT BENEFITS
The Group has a point-based unfunded employees' termination allowance plan covering
substantially all of their employees. Under the Group plan, points are granted to each employee
based upon the level of his or her salary every year. Employees are entitled to a lump-sum
payment at the time of termination of their employment. Also, under the plan, employees are
entitled to larger payments if the termination is involuntary, by retirement at the mandatory
retirement age or by death.
Liability for employees' retirement benefits at December 31, 2005, 2006 and 2007 consisted of
the following:
Thousands of
Millions of Yen
U.S. Dollars
2005 2006 2007 2007
Projected benefit obligation ¥3,773 ¥3,437 ¥3,470 $ 30,398
Unrecognized actuarial loss (158) (106) (155) (1,357)
Net liability ¥3,615 ¥3,331 ¥3,315 $ 29,041
The components of net periodic retirement benefit costs for the years ended December 31,
2005, 2006 and 2007 are as follows:
Thousands of
Millions of Yen U.S. Dollars
2005 2006 2007 2007
Service cost ¥ 660 ¥ 242 ¥ 282 $2,471
Interest cost 41 53 51 443
Recognized actuarial loss 29 34 34 297
Net periodic retirement benefit costs ¥ 730 ¥ 329 ¥ 367 $3,211
Assumptions used for the years ended December 31, 2005, 2006 and 2007 are as follows:
2005 2006 2007
Discount rate 1.5% 1.5% 1.5%
Recognition period of actuarial gain/loss 5 years 5 years 5 years
8. EQUITY
On and after May 1, 2006, Japanese companies are subject to a new corporate law of Japan (the
"Corporate Law"), which reformed and replaced the Commercial Code of Japan with various
revisions that are, for the most part, applicable to events or transactions which occur on or after
May 1, 2006 and for the fiscal years ending on or after May 1, 2006. The significant changes in
the Corporate Law that affect financial and accounting matters are summarized below:
- 17 -

a. Dividends
Under the Corporate Law, companies can pay dividends at any time during the fiscal year
in addition to the year-end dividend upon resolution at the shareholders meeting. For
companies that meet certain criteria such as; (1) having the Board of Directors, (2) having
independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of
service of the directors is prescribed as one year rather than two years of normal term by its
articles of incorporation, the Board of Directors may declare dividends (except for dividends
in kind) at any time during the fiscal year if the company has prescribed so in its articles of
incorporation.
The Corporate Law permits companies to distribute dividends-in-kind (non-cash assets) to
shareholders subject to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of
Directors if the articles of incorporation of the company so stipulate. The Corporate Law
provides certain limitations on the amounts available for dividends or the purchase of
treasury stock. The limitation is defined as the amount available for distribution to the
shareholders, but the amount of net assets after dividends must be maintained at no less
than ¥3 million.
b. Increases/Decreases and Transfer of Common Stock, Reserve and Surplus
The Corporate Law requires that an amount equal to 10% of dividends must be
appropriated as a legal reserve (a component of retained earnings) or as additional paid-in
capital (a component of capital surplus) depending on the equity account charged upon the
payment of such dividends until the total of aggregate amount of legal reserve and
additional paid-in capital equals 25% of the common stock. Under the Corporate Law, the
total amount of additional paid-in capital and legal reserve may be reversed without
limitation. The Corporate Law also provides that common stock, legal reserve, additional
paid-in capital, other capital surplus and retained earnings can be transferred among the
accounts under certain conditions upon resolution of the shareholders.
c. Treasury Stock and Treasury Stock Acquisition Rights
The Corporate Law also provides for companies to purchase treasury stock and dispose of
such treasury stock by resolution of the Board of Directors. The amount of treasury stock
purchased cannot exceed the amount available for distribution to the shareholders which is
determined by specific formula.
Under the Corporate Law, stock acquisition rights, which were previously presented as a
liability, are now presented as a separate component of equity.
The Corporate Law also provides that companies can purchase both treasury stock
acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as
a separate component of equity or deducted directly from stock acquisition rights.
Upon resolution and approval of the Board of Directors on December 13, 2004, the Company
issued 1,000,000 new shares of common stock to LSF Transcontinental Holdings SCA ("LSFT"),
the sole shareholder, at ¥5,000 per share through shareholder allocation on January 14, 2005.
The Company's common stock and capital surplus increased by ¥2,500 million and
¥2,500 million, respectively.
- 18 -

Upon resolution and approval of the Board of Directors on October 11, 2005, the Company
issued 100,000 new shares of common stock to LSFT at ¥138,000 per share through third party
allotment on October 14, 2005. The Company's common stock and capital surplus increased by
¥6,900 million and ¥6,900 million, respectively.
On December 14, 2005, the Company went public with the first section of the Tokyo Stock
Exchange and issued 60,000 new shares of common stock at ¥106,400 per share through public
offering. The Company's common stock and capital surplus increased by ¥2,601 million and
¥3,783 million, respectively.
The exercise of stock acquisition rights issued under the stock option plans discussed in Note 9
resulted in the issuance of 7,339 shares of the Company's common stock during the year ended
December 31, 2006, and common stock and capital surplus increased by ¥358 million and
¥358 million, respectively.
The exercise of stock acquisition rights issued under the stock option plans discussed in Note 9
resulted in the issuance of 3,320 shares of the Company's common stock during the year ended
December 31, 2007, and common stock and capital surplus increased by ¥96 million
($836 thousand) and ¥95 million ($835 thousand), respectively.
9. STOCK OPTION PLANS
The Company has stock option plans for directors and key employees of the Company and its
consolidated subsidiaries. Series 2 option plan was implemented in accordance with the Code
while Series 3 option plan was introduced under the Corporate Law and accounted for by the
new accounting standards as discussed at Note 2.r. The exercise price is subject to adjustment in
certain circumstances, such as stock splits, stock consolidations, or stock issuances or disposal of
treasury stock at a price lower than market value, based upon certain formulas, as defined.
There are also certain restrictions in exercising the stock option rights.
The stock options outstanding as of December 31, 2007 are as follows:
Stock
Option
Number
of
Persons
Granted
Number
of
Options
Granted
Date of
Grant Exercise Price Exercise Period
Series 2
Class A
Series 2
Class B
Series 3
Class A
84 54,100 shares 2006.3.24 ¥ 112,000 $ 981.17 June 13, 2006–
March 23, 2011
19 5,960 shares 2006.3.24 1 0.01 June 13, 2006–
March 23, 2011
107 5,810 shares 2006.9.20 112,000 981.17 September 20, 2006–
September 19, 2011
The stock option activity is as follows:
For the Year Ended December 31, 2006
Number of Shares
Non-vested Series 2 Class A Series 2 Class B Series 3 Class A
December 31, 2005—Outstanding – – –
Granted 54,100 5,960 5,810
Vested (54,100) (5,960) ( 5,810)
December 31, 2006—Outstanding – – –
- 19 -

Number of Shares
Vested Series 2 Class A Series 2 Class B Series 3 Class A
December 31, 2005—Outstanding – – –
Vested 54,100 5,960 5,810
Exercised (5,956) (1,122) (261)
Canceled (1,250) – (60)
December 31, 2006—Outstanding 46,894 4,838 5,489
December 31, 2006—Exercisable 7,369 852 1,168
For the Year Ended December 31, 2007
Number of Shares
Vested Series 2 Class A Series 2 Class B Series 3 Class A
December 31, 2006—Outstanding 46,894 4,838 5,489
Vested – – –
Exercised (1,564) (1,672) (84)
Canceled (3,425) (233) (181)
December 31, 2007—Outstanding 41,905 2,933 5,224
December 31, 2007—Exercisable 18,205 1,279 2,444
Series 2 Class A Series 2 Class B Series 3 Class A
Average stock price at exercise
(yen) ¥143,313 ¥118,082 ¥147,500
Average stock price at exercise
(U.S. dollar) $1,255.48 $1,034.45 $1,292.16
The fair value of the stock acquisition rights granted under Series 3 was estimated using the
Black-Scholes option pricing model under the following assumptions:
September 20,
2006–
September 19,
2011
September 20,
2007–
September 19,
2011
Exercise Period
September 20,
2008–
September 19,
2011
September 20,
2009–
September 19,
2011
Fair value price at
grant date ¥73,430 ¥76,224 ¥78,670 ¥82,310
Volatility of share price 36.507% 36.786% 36.610% 38.003%
Expected residual period 2.5 years 3.0 years 3.5 years 4.0 years
Risk-free rate 0.7080% 0.7938% 0.8810% 0.9740%
10. INCOME TAXES
The Company and its subsidiaries are subject to Japanese national and local income taxes
which, in the aggregate, resulted in a normal effective statutory tax rate of 40.49% for the years
ended December 31, 2005, 2006 and 2007, respectively.
- 20 -

Some of the subsidiaries, however, changed the normal effective statutory tax rate from 40.49%
to 42.05% for the year ended December 31, 2007 because of non-applicability of pro forma
standard taxation caused by capital reductions. The effect of this change was to increase
deferred tax assets and deferred tax liabilities in the consolidated balance sheets by ¥155 million
($1,361 thousand) and ¥804 million ($7,040 thousand), respectively.
The tax effects of significant temporary differences and tax loss carryforwards which resulted in
deferred tax assets and liabilities at December 31, 2005, 2006 and 2007 were as follows:
Thousands of
Millions of Yen
U.S. Dollars
2005 2006 2007 2007
Deferred tax assets:
Current:
Tax loss carryforwards ¥ 4,719 ¥ 4,352 ¥ 3,832 $ 33,568
Accrued expenses 625 – – –
Accrued enterprise tax 6 209 202 1,771
Allowance for doubtful accounts 442 397 235 2,062
Accrued bonuses 79 68 104 913
Revenue received in advance 91 87 87 763
Inventories 80 82 89 778
Other 112 108 119 1,038
Less—valuation allowance (1,382) (931) (687) (6,017)
Total 4,772 4,372 3,981 34,876
Non-current:
Tax loss carryforwards 13,905 32,964 29,862 261,607
Excess depreciation 11,018 1,874 1,935 16,948
Allowance for doubtful accounts 10,544 387 415 3,637
Impairment loss – 465 5,841 51,172
Loss on valuation of fixed assets 3,024 5,369 5,540 48,534
Employees' retirement benefits 1,755 1,349 1,386 12,142
Loss on deferred hedge – 413 308 2,696
Valuation differences of subsidiaries'
assets at consolidation – 4,568 5,617 49,204
Other 2,050 264 534 4,674
Less—valuation allowance (42,294) (47,185) (50,420) (441,698)
Less—offsetting with deferred tax
liabilities (non-current) – (172) (269) (2,352)
Total 2 296 749 6,564
Total ¥ 4,774 ¥ 4,668 ¥ 4,730 $ 41,440
Deferred tax liabilities—Non-current:
Valuation differences of subsidiaries'
assets at consolidation ¥ 21,459 ¥ 21,093 ¥ 22,421 $ 196,419
Other – 34 26 227
Less—offsetting with deferred tax
assets (non-current) – (172) (269) (2,352)
Total ¥ 21,459 ¥ 20,955 ¥ 22,178 $ 194,294
- 21 -

A reconciliation between the normal effective statutory tax rates and the actual effective tax
rates reflected in the accompanying consolidated statements of income for the years ended
December 31, 2005, 2006 and 2007 is as follows:
2005 2006 2007
Normal effective statutory tax rate 40.49 % 40.49 % 40.49 %
Valuation allowance ( 601.42) ( 40.57) ( 29.81)
Taxation on per capita basis 20.49 3.04 2.57
Amortization of consolidation goodwill 171.18 2.84 3.14
Other—net 1.51 0.30 1.73
Actual effective tax rate ( 367.75) % 6.10 % 18.12 %
11. OPERATING EXPENSES
Operating expenses for the years ended December 31, 2005, 2006 and 2007 consisted of the
following:
12. LEASES
Thousands of
Millions of Yen U.S. Dollars
2005 2006 2007 2007
Payroll ¥ 15,540 ¥ 17,776 ¥ 19,623 $ 171,905
Provision for accrued employee bonuses 193 179 225 1,975
Provision for allowance for doubtful
accounts 133 381 126 1,103
Net periodic employee's retirement benefit
costs 730 329 367 3,210
Provision for accrued bonuses for
directors and corporate auditors – 21 18 156
Provision for retirement allowances for
directors and corporate auditors 24 19 36 312
Provision for allowance for point system – – 22 198
Provision for allowance for special
shareholder benefits – – 8 71
Other 34,652 35,597 39,591 346,834
Total ¥ 51,272 ¥ 54,302 ¥ 60,016 $ 525,764
The Group leases certain machinery, furniture and fixtures, and computer software.
Total rental expenses for the years ended December 31, 2005, 2006 and 2007 were ¥897 million,
¥1,075 million and ¥1,238 million ($10,846 thousand), respectively, including ¥686 million,
¥711 million and ¥784 million ($6,871 thousand) of lease payments under finance leases.
- 22 -

Pro forma information of leased property such as acquisition cost, accumulated depreciation,
obligation under finance lease, depreciation expense, interest expense and other information of
finance leases that do not transfer ownership of the leased property to the lessee on an "as if
capitalized" basis for the years ended December 31, 2005, 2006 and 2007 was as follows:
Buildings
and
Structures
Machinery
and
Equipment
Millions of Yen
December 31, 2005
Furniture
and
Fixtures Other Total
Acquisition cost ¥9 ¥2,921 ¥ 446 ¥ 16 ¥3,392
Accumulated depreciation 8 1,068 153 14 1,243
Net leased property ¥1 ¥1,853 ¥ 293 ¥ 2 ¥2,149
Buildings
and
Structures
Millions of Yen
December 31, 2006
Machinery
and
Equipment
Furniture
and
Fixtures
Total
Acquisition cost ¥ 10 ¥3,068 ¥ 398 ¥3,476
Accumulated depreciation 10 1,460 128 1,598
Net leased property ¥ 0 ¥1,608 ¥ 270 ¥1,878
Machinery
and
Equipment
Millions of Yen
December 31, 2007
Furniture
and
Fixtures Other Total
Acquisition cost ¥3,555 ¥ 221 ¥5 ¥3,781
Accumulated depreciation 1,921 127 3 2,051
Net leased property ¥1,634 ¥ 94 ¥2 ¥1,730
Machinery
and
Equipment
Thousands of U.S. Dollars
December 31, 2007
Furniture
and
Fixtures Other Total
Acquisition cost $ 31,144 $1,938 $ 42 $ 33,124
Accumulated depreciation 16,832 1,109 30 17,971
Net leased property $ 14,312 $ 829 $ 12 $ 15,153
- 23 -

Obligations under finance leases:
Thousands of
Millions of Yen
U.S. Dollars
2005 2006 2007 2007
Due within one year ¥ 632 ¥ 666 ¥ 708 $ 6,204
Due after one year 1,554 1,256 1,063 9,317
Total ¥2,186 ¥1,922 ¥1,771 $ 15,521
Depreciation expense and interest expense under finance leases:
Thousands of
Millions of Yen
U.S. Dollars
2005 2006 2007 2007
Depreciation expense ¥ 644 ¥ 666 ¥ 735 $6,440
Interest expense 53 54 51 444
Total ¥697 ¥ 720 ¥ 786 $6,884
Depreciation expense and interest expense, which are not reflected in the accompanying
consolidated statements of income, are computed by the straight-line method and the interest
method, respectively.
The future minimum lease payments under noncancelable operating leases as of December 31,
2007 were as follows:
Millions of Yen
Thousands of
U.S. Dollars
Due within one year ¥ 12 $ 103
Due after one year 24 212
Total ¥ 36 $ 315
13. DERIVATIVES
The Group enters into derivative transactions in the normal course of business to reduce the
exposure to fluctuations in interest rates. The derivatives used by the Group are interest-rate
swaps in 2005 and interest-rate caps in 2006 and 2007. The interest-rate swaps effectively
convert some fixed rate debts to a floating basis, or convert some floating rate debts to a fixed
basis. The interest-rate caps effectively limit the Group's interest expense on specified amounts
of floating-rate long-term debt to a maximum rate.
The contract or notional amounts of derivatives, which are shown in the following tables, do
not represent the amounts exchanged by the parties and do not measure the Company's
exposure to credit or market risk.
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The fair values of the Group's derivative financial instruments at December 31, 2005 are as
follows:
Contract
Amount
Millions of Yen
Fair Unrealized
Value Gain/Loss
Interest-rate swaps:
Receive fixed/pay floating ¥ 98,100 ¥ 313 ¥ 313
Pay fixed/receive floating 98,100 (419) (419)
Total ¥ 196,200 ¥ (106 ) ¥ (106)
The fair values of the Group's derivative financial instruments at December 31, 2007 are as
follows:
Contract
Amount
Millions of Yen
Fair
Value
Unrealized
Gain/Loss
Thousands of U.S. Dollars
Fair
Value
Contract
Amount
Unrealized
Gain/Loss
Interest-rate caps ¥ 40,000 ¥ 33 ¥ (320) $ 350,416 $ 291 $ (2,806)
Total ¥ 40,000 ¥ 33 ¥ (320) $ 350,416 $ 291 $ (2,806)
All derivative financial instruments for the year ended December 31, 2006 qualified for hedge
accounting. The related deferred gains/losses are recorded on the consolidated balance sheet at
December 31, 2006, and are excluded from disclosure of market value information.
14. NET INCOME PER SHARE
Diluted net income per share for the year ended December 31, 2005 was not disclosed because
there were no dilutive securities.
Reconciliation of the differences between basic and diluted net income per share ("EPS") for the
years ended December 31, 2006 and 2007 was as follows:
Millions
of Yen
Thousands
of Shares Yen
Net Weighted-average
Year Ended December 31, 2006 Income Shares EPS
Basic EPS—Net income available
to common shareholders ¥8,671 1,172 ¥7,395.62
Effect of dilutive securities—Stock
acquisition rights (2) 20
Diluted EPS—Net income for
computation ¥8,669 1,192 ¥7,270.80
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Millions
of Yen
Thousands
of Shares Yen U.S. Dollars
Year Ended Net Weighted-average
December 31, 2007 Income Shares EPS
Basic EPS—Net income
available to common
shareholders ¥9,546 1,180 ¥8,093.04 $ 70.90
Effect of dilutive securities—
Stock acquisition rights 6
Warrant bonds 46 93
Convertible preferred stocks (22)
Diluted EPS—Net income
for computation ¥9,570 1,279 ¥7,482.94 $ 65.55
15. SEGMENT INFORMATION
Information about industry segments, geographical segments and sales to foreign customers of
the Group for the years ended December 31, 2005, 2006 and 2007, is as follows:
(1) Industry Segments
Net sales, operating income and total assets from industry segments other than the golf
management business are not significant; therefore, industry segment information is not
presented.
(2) Geographical Segments
As the Group was located and conducted its operations only in Japan, geographical segment
information is not presented.
(3) Sales to Foreign Customers
As the Group did not have any sales to foreign customers, such information is not
presented.
* * * * * *
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