poletowin pitcrew holdings, inc. · for smartphone social games and for amusement (pachinko and...

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Poletowin Pitcrew Holdings, Inc.

Annual Review 2014 For the Year Ended January 31, 2014

�Company Profile Poletowin Pitcrew Holdings, Inc., was formed in February 2009 as the holding company of Pole To Win Co., Ltd. (PTW), founded in 1994 as Japan’s first independent testing outsourcee, and PITCREW CO., LTD., established in 2000 as the industry’s first Internet monitoring specialist company. Poletowin Pitcrew Holdings, listed on the First Section of the Tokyo Stock Exchange, had 17 consolidated subsidiaries as of April 1, 2014.

The Group provides various support services guided by the corporate philosophy of “Create Customer Value.” The Group’s mission is to make effective use of high-quality systems, yet ultimately rely on human capabilities to perform checks, in contributing to the business growth of client companies.

The Group consists of two main businesses: A Testing/Verification & Evaluation Business that carries out defect detection (finding bugs) in support of improvement in product quality of software and hardware, and an Internet Monitoring Business that supports healthy development of the Internet by detecting any fraudulent activity, as well as any illegal or harmful information, that may be embedded in a variety of content.

�Corporate Philosophy �Create Customer Value: All that a person is capable of, all that a technology is capable of

�Vision

�Global Excellence: From foremost in Japan to foremost in the world �Create Added Value: Provide services maximizing proprietary systems

� � � and all that a person is capable of

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�Overview of Fiscal Year Ended January 31, 2014��

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1. Factors in higher revenues and earnings Net sales advanced 27.7% and operating income gained 16.8%. This growth stemmed from the steady expansion of overseas operations that were fully launched in the previous fiscal year, as well as increases in merchandise check services for Internet and other shopping, reviews of advertisements, and in user support and other e-commerce services.

2. Segment Highlights Testing/Verification & Evaluation Business sales increased 29.0% year on year, to ¥10,772 million, with operating income rising 12.7%, to ¥1,973 million. Overseas sales exceeded ¥1,900 million, reflecting steady business expansion. Sales of this segment thereby exceeded ¥10 billion for the first time. In Japan, defect detection orders were solid for smartphone social games and for amusement (pachinko and pachislot) equipment.

Internet Monitoring Business sales increased 21.3%, to ¥3,046 million, with operating income rising 187.5%, to ¥182 million thousand. This growth was because of expanded merchandise check services, reviews of advertisements, and user support in line with greater Internet shopping and auction activity. The operating income ratio was 6.0%, from 2.5% a year earlier.

3. Shareholder returns The Company maintains a basic policy of targeting a consolidated payout ratio of 25%. The annual dividend for the year was ¥16.00 per share. Dividends have increased every year since listing.��

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�Consolidated Financial Highlights (Millions of yen) FY2010/1 FY2011/1 FY2012/1 FY2013/1 FY2014/1 Net sales 6,450 6,865 8,364 10,866 13,879

,,86 Operating income 482 770 1,275 1,835 2,144 Ordinary income 524 769 1,280 1,885 2,290 Net income 217 381 651 932 1,205 Comprehensive income � � 652 930 1,613 Net assets 2,103 2,479 4,353 6,154 7,494 Total assets 2,941 3,535 5,415 7,866 9,228

Net assets per share (¥) 11,631.92 13,710.07 511.44 324.85

394.28 Net income per share (¥) 1,202.16 2,111.19 86.01 53.35

63.55

Diluted net income per share (¥) � � 82.56 51.86

61.82 Equity ratio (%) 71.5 70.1 80.4 78.2 81.2 Return on equity (ROE) (%) 10.9 16.7 19.1 17.7 17.7 P/E multiple � � 14.5 15.3 26.5 Cash flows from operating activities 257 612 803 1,199 1,239 Cash flows from investing activities 146 (114) (119) (1,561) (256) Cash flows from financing activities (34) (55) 1,014 848 (274) Cash and cash equivalents at end of period 1,586 2,018 3,712 4,199 4,959 Number of employees (persons) 343 336 341 562 558 Notes: 1. Net sales exclude consumption and other taxes. 2. As the holding company was established on February 2, 2009, the first term was the 11 months and 27 days that began on February 2, 2009, and

ended January 31, 2010. 3. Diluted net income per share for the 1st term ended January 31, 2010, was omitted because there were no dilutive shares at the time. Diluted net

income per share for the 2nd term ended January 31, 2011, was omitted as the Company stock was unlisted at the time and average market capitalization of the balance of stock options during the period was unavailable as a result.

4. P/E multiples for the 1st and 2nd term were omitted as the Company stock was unlisted at the time. 5. The Company conducted a stock split on July 13, 2011, at a ratio of 20 shares of common stock per share of common stock, and on January 9,

2013, at a ratio of two shares of common stock per share of common stock. 6. The Company conducted a stock split in the fiscal year ended January 31, 2014, at a ratio of two shares of common stock per share of common

stock. However, the figures for net assets per share, net income per share and diluted net income per share were calculated on the assumption that this stock split was conducted at the beginning of the previous fiscal year.

Forward-looking statements: Earnings forecasts in this Annual Review are based on information currently available to the Company and on certain assumptions deemed to be reasonable. These statements do not guarantee that the Company will achieve its earnings forecasts. In addition, actual business and other results may differ substantially due to various factors.

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FY2010/1 FY2011/1 FY2012/1 FY2013/1 FY2014/1

Net sales 6,450 6,865 8,364 10,866 13,879

FY2010/1 FY2011/1 FY2012/1 FY2013/1 FY2014/1

Operating income 482 770 1,275 1,835 2,144

FY2010/1 FY2011/1 FY2012/1 FY2013/1 FY2014/1

Net income 217 381 651 932 1205

FY2010/1 FY2011/1 FY2012/1 FY2013/1 FY2014/1

Net assets 2,103 2,479 4,353 6,154 7,494Total assets 2,941 3,535 5,415 7,866 9,228

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�Message from the President

In the fiscal year ended January 31, 2014, the

Testing/Verification & Evaluation Business,

which accounts for around three-quarters of

revenues, performed well on the strength of

exceeding projections in defect detection orders

for smartphone social games and for amusement

(pachinko and pachislot) equipment. Overseas

sales were more than ¥1,900 million, reflecting a

steady expansion of operations that were fully

launched in the previous fiscal year. As a result of

these factors, segment sales were above ¥10

billion for the first time, rising 29.0% year on

year, to ¥10,772 million. Segment operating

income gained 12.7%, to ¥1,973 million.

In the video game sector, the rising popularity

of smartphones and tablet PCs has stimulated

expansion in native applications that users can

download directly. Portable game devices and

high resolutions for these native applications have

resulted in more complex content. The Company

has also benefited from increased development of amusement equipment featuring characters and

celebrities, leading to increased man-hours with testing.

Sales in the Internet Monitoring Business, another key segment, increased 21.3%, to ¥3,046 million,

with operating income climbing 187.5%, to ¥182 million. Both figures were record highs. The operating

income ratio was 6.0%, from 2.5% a year earlier. Large Internet firms have started putting effort into

online shopping and auctions. This drove order growth from e-commerce firms for related merchandise

checks, the review of Internet advertising based on the Pharmaceutical Affairs Act, the Act against

Unjustifiable Premiums and Misleading Representations, and other laws and regulations, and for handling

product arrival and other inquiries from end-users. The spread of smartphones and tablets should continue

to foster expansion in the e-commerce market.

Naoto Konishi, President

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As a result of these factors, consolidated net sales for the year under review were ¥13,879 million (up

27.7% year on year), operating income was ¥2,144 million (up 16.8%), ordinary income was ¥2,290

million (up 21.5%) and net income was ¥1,205 million (up 29.4%). All of these figures were record highs

and represented a fifth consecutive year of revenue and earnings growth. The Company conducted a stock

split on January 9, 2014, at a ratio of two shares of common stock per share of common stock, and paid

an annual dividend for the year of ¥16.00 per share. The Company maintains a basic policy of targeting a

consolidated payout ratio of 25%, and dividends have increased every year since listing.

Management has three key priorities for the years ahead. The first is to become more competitive by

delivering services of higher quality and added value in the domestic Testing/Verification & Evaluation

Business as a stable operational foundation. The second is to cultivate overseas operations by drawing on

expansion at nine business units in six countries (the United States, the United Kingdom, China,

Singapore, India, and Korea). The third is to expand e-commerce support services to drive ongoing

performance growth.

We ask for the continued support and understanding of our stakeholders.

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Naoto Konishi

President

Poletowin Pitcrew Holdings, Inc.

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�Interview with the President about Group Business Strategies

Globalizing operations and driving e-commerce support operations forward while pursuing ongoing growth in Japan and abroad �

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Q1: Overseas sales exceeded ¥1.9 billion in the year under review, accounting for nearly 20% of Testing/Verification & Evaluation Business sales. You established a Korean business unit in December 2013. Given this progress, what overseas business initiatives do you plan to undertake? A1: In May 2009, we led the competition in establishing Pole to Win America, Inc., the first full-fledged overseas unit in our business area, which has since increased its transactions, primarily for Japanese-owned operations in the United States. In October 2012, we acquired a testing company that has done business overseas, making it a subsidiary, thereby starting to serve large overseas clients. We steadily integrated the sales and administrative units of foreign subsidiaries, with the resulting synergies culminating in overseas operations generating more than ¥1.9 billion in sales, accounting for nearly 20% of Testing/Verification & Evaluation Business sales.

The momentum of smartphone applications and social games in Japan has resulted in flat demand in the domestic market for console games in recent years. In contrast, demand has been robust in the United States and Europe for home video game consoles, and sales have been favorable for such next-generation models as the PlayStation 4, which debuted in the United States and Europe in November 2013, and the Xbox One. We therefore look for the number of titles for these platforms to grow. On top of that, social game developers around the world have been releasing numerous hit titles for smartphones. Overseas, releases of individual titles in multiple languages should increase demand for defect detection, localization, and user support by local staffers.

Future Business Strategies 1. Reinforce competitiveness in domestic market to maintain enhanced performance

Drive sales of promising next-generation game consoles, leveraging the stable growth of social game and amusement equipment markets to steadily expand market share

2. Accelerate global business deployments to increase overseas sales

Have nine business units in six countries collaborate with Japanese bases to globally supply testing, localization, and user support services

3. Expand e-commerce support services

In an increasingly promising e-commerce market, reinforce merchandise checking, advertising review, and user support services

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It is also worth noting that Japanese game developers have recently stepped up their deployments around Asia, and in December 2013, we established Pole To Win Korea Co., Ltd., to build our business infrastructure in Korea, where there are numerous online and mobile game developers. Complementing our nine business units in six countries (the United States, the United Kingdom, China, Singapore, India, and Korea), we will bolster the capabilities of overseas business managers in Japan to enhance worldwide collaboration between Group companies in Japan and abroad. �

Q2: How do you plan to go about expanding operations in the domestic testing/verification & evaluation market? A2: We view the domestic Testing/Verification & Evaluation Business as a stable operational platform. We have met client needs in supplying various services since pioneering Japan’s testing/verification & evaluation outsourcing market in 1994. As this market matures, we expect more entrants, intensified price competition, and higher personnel expenses. We will overcome these challenges by bolstering our marketing capabilities and service quality while supplying high-quality, value-added services to reinforce our market competitiveness and pursue ongoing business expansion. Q3: What specific initiatives are you undertaking to expand your e-commerce operations in the Internet Monitoring Business? A3: E-commerce markets represent just 3% of sales in Japan, compared with 7% in the United States. The domestic market thus offers significant upside potential. The number of e-commerce users is rising every year through PC channels and through the rapid adoption of smartphones and tablets. Recently, the number of companies offering Internet shopping and auctions and e-books has increased, prompting us to deploy various initiatives. The future of the e-commerce business depends on the security and convenience of site operations and shapes reputations. We will leverage our Internet monitoring expertise to provide complete support to e-commerce companies. This is notably by offering e-commerce-related merchandise check services, reviewing advertisements based on the Pharmaceutical Affairs Act, the Act against Unjustifiable Premiums and Misleading Representations, and other laws and regulations, and accommodating handling charges and shipping inquiries from end-users. We will cultivate and hire people and set up business sites to take advantage of anticipated growth in e-commerce-related orders.��

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�Business Segments and Business Companies��

Business Segments� Key Businesses� Company Names�

Testing/Verification &

Evaluation Business�

Pre-launch defect detection (finding bugs), including for consumer electronic games, social games, smartphone applications, pachinko and pachislot machines, and IT appliances, and localization of in-game text, manuals, and other materials for overseas game titles�

Pole To Win Co., Ltd. Pole To Win Shanghai Co., Ltd. SARUGAKUCHO Inc. Pole To Win America, Inc. Pole To Win Networks Co., Ltd. Pole To Win Asia Pte. Ltd. Pole To Win Europe Glasgow Limited Pole To Win India Private Limited Pole To Win Europe Limited Pole To Win Korea Co., Ltd.�

Internet Monitoring Business�

Checking merchandise and reviewing advertisements for Internet shopping and auctions, providing support for inquiries from end-users of games and e-commerce sites, and checking youth Internet usage�

PITCREW CO., LTD. Portside CO., LTD. PITCREW COREOPS CO., LTD.�

Others� Producing barrier-free subtitles and providing medical staffing services�

Pacer CO., Ltd. Daiichi Shorin Co., Ltd. IMAid Inc. Palabra Inc.�

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Operations ancillary and pertaining to the control and management of business activities of the Company and the Group’s 17 consolidated subsidiaries�

Poletowin Pitcrew Holdings, Inc.�

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�Business Bases in Testing/Verification & Evaluation and Internet Monitoring��

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23 business units in Japan

and 9 in 6 countries overseas

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�Group Business Overview�During the year under review, the Japanese economy showed signs of a gradual recovery amid the new government’s economic policies and financial measures and a turnaround in personal consumption. Nonetheless, there remain risks of downward pressure on the economy because of concerns that a consumption tax hike will dampen consumption and because of slowdowns in economies overseas.

Under those economic circumstances, the Poletowin Pitcrew Holdings Group saw rapid growth in the market for Web browser-based social games, native applications and other mobile game content undergirding its Testing/Verification & Evaluation Business, in step with the rising popularity of smartphones and tablet PCs. Furthermore, this application content is expected to grow progressively richer and more sophisticated, and the march of globalization should continue apace. These factors are anticipated to drive continued market expansion going forward. Frequent events and updates are essential after social games and native applications are launched. As a result, the importance of ongoing services in detecting defects (finding bugs) should rise. At the same time, in the consumer electronic game market sales have been favorable of new next-generation consoles launched around the world, confirming underlying demand for these dedicated machines. Looking ahead, the launch of new content for each platform is expected to expand globally as game platforms diversify, as exemplified by the distribution of games using game consoles, smartphones and tablet PCs, as well as via the cloud.

In online markets related to the Group’s Internet Monitoring Business, online shopping, video, e-book, and other forms of e-commerce are catching on against the backdrop of the growing popularity of smartphones and tablet PCs. This, in turn, is pushing up demand for monitoring postings and other types of user support services to make safe and reliable Internet access ubiquitous. In the e-commerce market, there is growing demand for handling merchandise checks, the review of Internet advertising based on the Pharmaceutical Affairs Act, the Act against Unjustifiable Premiums and Misleading Representations, and other laws and regulations, and for handling the rights infringement investigations and end-user inquiries and so forth. The recent focus in Japan on the issue of cyber-bullying has also prompted municipal boards of education to put efforts into monitoring youth Internet usage and providing Internet literacy education for students, parents and guardians.

The Group provides checking, testing, monitoring and inspection services that require human input on a contractual basis to corporate clients. The demand for such services has been growing as these clients have diversified and expanded overseas, and as business processes have become more advanced and sophisticated. In the year under review, the Company developed business units and increased the number of administrators in anticipation of future business expansion. Following the opening of the Shinjuku Studio in July 2013, Pole To Win Co., Ltd., relocated and increased the floor space of its Kyoto Studio in September and opened the Shinagawa Studio and the Meieki Studio in Nagoya in November 2013. In January 2014, Pole to Win Networks Co., Ltd., relocated its headquarters from Ota Ward, Tokyo, to a location in Minato Ward, Tokyo, that is more conveniently accessible and offers better office space efficiency. In December 2013, the Group established Pole to Win Korea Co., Ltd., in Gwangju, Korea, to pave the way for its development in Asia. In addition, PITCREW CO., LTD., increased the floor space of its Chubu Support Center in Nagoya in May 2013 and its Kitakyushu Support Center in July 2013.

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PITCREW COREOPS CO., LTD., opened the Okinawa BCP Center in October 2013. As a result, the Group’s business units in Japan grew to 23 locations. Along with nine business units in six countries (the United States, the United Kingdom, China, Singapore, India, and Korea), this will serve to enhance worldwide collaboration among Group companies as we strive to provide a one-stop, full service platform in such areas as defect detection (finding bugs), localization, Internet monitoring, and user support. The Group is actively referred domestic and overseas clients to one another, providing clients with mutual introductions around the world, in order to deepen its transactions with each corporate client and expand business.

As a result, consolidated net sales for the year ended January 31, 2014, were ¥13,879,714 thousand (up 27.7% year on year), operating income was ¥2,144,980 thousand (up 16.8%), ordinary income was ¥2,290,580 thousand (up 21.5%) and net income was ¥1,205,800 thousand (up 29.4%). �

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�Overview of Segment Business Performance �Testing/Verification & Evaluation Business In the Testing/Verification & Evaluation Business, the growing popularity of smartphones has resulted in a sharp increase in the social games that users download directly as native applications, in addition to social games accessed using conventional Web browsers. Moreover, the higher level of functionality of smartphones relative to traditional handsets has made the game content of native applications more complex. Combined with growth in the scope of defect detection work for finding bugs per title, and in the numbers of titles, these trends led to the Group securing more orders for mobile content defect detection (finding bugs) services. The Group received defect detection orders for game software for consumer electronic game consoles centered on titles for the Nintendo 3DS. In defect detection work for finding bugs in amusement (pachinko and pachislot) equipment, growth was driven firmly by existing clients who were eagerly developing new models with enhanced entertainment features to win the support of end users, and by achievements in cultivating business with new clients. On top of that, an overseas subsidiary acquired in October 2012 fully contributed to performance in the year under review, helping overseas sales to exceed ¥1.9 billion as part of a steady expansion of foreign operations. In one example during the term, Group subsidiaries in Japan, the United States, the United Kingdom, China, and Singapore together received orders to handle inquiries from end-users of consumer electronic game console titles that a client launched globally. As a result, Testing/Verification & Evaluation Business sales increased 29.0% year on year, to ¥10,772 million. Operating income rose 12.7% to ¥1,973 million, a key factor being an increase in goodwill amortization owing to business relocation, establishment, and floor space costs, and foreign exchange fluctuations. �Internet Monitoring Business In the Internet Monitoring Business, the Group received increased orders from Internet companies, reflecting their vigorous efforts to develop business in the e-commerce market. The orders were for merchandise check services for Internet shopping and auction sites and for reviews of advertisements based on the Pharmaceutical Affairs Act, the Act against Unjustifiable Premiums and Misleading Representations, and other laws and

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regulations, and also reflected increased demand for handling charges and product arrival inquiries from end-users. Demand grew for running legal and compliance checks of the proper operation of the broker websites of insurance companies in light of laws and regulations. Through a proposal-based bidding process, the Group has received steady orders for the online monitoring of youth Internet usage, which it is providing to various municipal boards of education and private schools on a contract basis. In year under review, the Group received orders from 20 municipal governments and 15 private schools. At the same time, following on from fiscal 2012, the Ministry of Economy, Trade and Industry commissioned the Group to conduct the Fiscal 2013 Research on Infrastructure Development in Japan’s Information-based Economy Society program. By pressing ahead with vigorous planning- and proposal-driven sales activities, the Group captured orders from clients that switched from competitors. As a result of these and other factors, the Internet Monitoring Business saw net sales increase 21.3% year on year to ¥3,046,944 thousand, with operating income rising 187.5% to ¥182,619 thousand. �Others In this segment, Palabra Inc. instituted a subtitle training curriculum to prepare for the advent of barrier-free motion pictures, and started producing barrier-free subtitles for television program and video production firms on contract. IMAid Inc. launched medical staffing services. Net sales for Others were ¥60,520 thousand (compared with ¥4,582 thousand in the same period the previous year), an operating loss of ¥104,157 thousand (compared to a ¥27,013 thousand loss a year earlier). �

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�Management Structure �Corporate Governance Recognizing the need to conduct Group-wide management reflecting the Company’s structure as a holding company, we aim to practice corporate governance optimal to developing the Group’s business. To this end, we believe that it is important to fulfill our social responsibilities through our business activities, while seeking to enhance our corporate value over the long term, as we build relationships of trust with all stakeholders, including shareholders, suppliers, employees and local communities. From this perspective, we consider our key corporate governance priorities to be the following: ensuring corporate management premised on compliance with laws and regulations and all other relevant rules; enhancing the appropriateness, soundness and transparency of management; and establishing a framework for timely and appropriate disclosure of information. We are developing a corporate governance structure with emphasis on these key priorities. �Corporate Governance Structure In accordance with the Companies Act of Japan, the Company has a Board of Directors, Board of Corporate Auditors, and Independent Auditor, along with an Internal Audit Office. In addition, the Company receives advice on its corporate governance system as necessary from a lawyer with whom it has entered into an advisory agreement.

The Board of Directors comprises eight directors, and holds regular monthly meetings to ensure effective management oversight among the directors. In addition, extraordinary meetings of the Board of Directors are convened as necessary to facilitate rapid decision-making. Barring any special reasons, these meetings are held with full attendance by directors and corporate auditors.

Group companies also hold regular monthly meetings of their respective boards of directors. As stated above, the Board of Directors serves as a check on the business execution of the directors. Oversight of the operation of the Board of Directors and the business execution of the directors is also conducted through audits by the corporate auditors.

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In regard to the Company’s internal control system, the Company ensures the appropriateness of business operations by establishing decision-making and reporting systems through the formulation and implementation of various internal rules. � The Company has established the Rules on Legal Compliance stipulating the handling of compliance issues for the purpose of rigorously enforcing compliance and enhancing public trust in the Company. The Group has also entered into advisory agreements with external experts on legal affairs, taxation, labor affairs and other matters in order to put in place a framework for obtaining guidance and advice in the daily course of business. �

�Internal and Independent Audits The Internal Audit Office acts based on annual auditing plans and under the direct supervision of the president. The office has one person. Its audits cover compliance, risk management, and the adequacy and efficiency of business processes for the Company and all Group operations.

The office exchanges information with independent auditors and cooperates with them by providing them with periodic reports about internal auditing progress.

The Company maintains a Board of Corporate Auditors system in which there are one full-time and three part-time members; three of these people are external. These auditors attend meetings of the Board of Directors and monitor director performance. These auditors additionally attend board and other important meetings of Group companies and strictly monitor director performance while exchanging information and opinions with each other, deliberating on important matters for all Group companies and assessing business conditions for the Company and Group companies while sharing issues relating to them.

The Internal Audit Office and independent auditors periodically exchange information and cooperate to enhance the implementation of audits.

�Financial Audits The Company’s Independent Auditor is Ernst & Young ShinNihon LLC. �Outside Director and Auditors Outside the Company are one director and three auditors.

To ensure that the outside director and auditors can monitor management objectively, the Company maintains a system in which the Internal Audit Office and Independent Auditor periodically exchange information, thereby helping to enhance oversight and audit implementation. �CSR The Group fulfills its corporate social responsibilities in the course of business and ensures that it contributes to the communities in which it operates.

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Barrier-free Initiatives Examples of these efforts include Pole To Win Co., Ltd., supporting the activities of SALSAGUMTAPE, a barrier-free rock band, and Palabra Inc. helping to sponsor film festivals through its production of subtitles. Information Literacy PITCREW CO., LTD., draws on more than a decade of experience in Internet monitoring to visit junior and senior high schools to teach them about information literacy relating to Internet usage. Social Contributions Following the March 2011 Great East Japan Earthquake through September that year, we ran a service that provided homestay opportunities for displaced people.�

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�Management’s Discussion and Analysis �Net Sales and Earnings Net Sales Net sales increased ¥3,013 million, or 27.7%, to ¥13,879 million. In the Testing/Verification & Evaluation Business, the main contributors to this rise were higher defect detection orders for amusement equipment and smartphone applications and games, a full-year contribution to performance from an overseas subsidiary acquired in October 2012, and the steady expansion of foreign operations. Key growth drivers from the Internet Monitoring Business were higher orders for merchandise check services for Internet shopping and auction sites, reviews of advertisements, and user support services. Gross Profit The cost of sales increased ¥2,165 million, or 31.2%, to ¥9,112 million. Prime factors were that personnel and outsourcing expenses rose with sales and that there was higher spending on business relocations, establishments, and floor space costs.

Gross profit thus increased 21.6%, to ¥4,767 million. Operating Income Selling, general and administrative expenses increased ¥539 million, or 25.9%, to ¥2,622 million. Factors in this rise included higher headcounts in sales and administrative divisions owing to increases in the number of business units, as well as an increase in goodwill amortization.

Operating income thus increased 16.8%, to ¥2,144 million. Ordinary Income Non-operating income increased ¥73 million, or 101.7%, to ¥145 million, owing mainly to higher foreign exchange gains. There were no non-operating expenses, compared with ¥22 million in such expenses a year earlier.

Ordinary income therefore increased 21.5%, to ¥2,290 million. Net Income Extraordinary losses rose ¥46 million, or 85.6%, to ¥100 million, the main factor being an impairment loss.

Income before income taxes and minority interests was thus ¥2,190 million. After adjusting for deferred income taxes, total income taxes were ¥984 million. Net income therefore increased 29.4%, to ¥1,205 million.

�Cash Flows

Cash and cash equivalents (hereinafter referred to as “cash”) as of January 31, 2014, were ¥4,959 million, up ¥760 million from January 31, 2013.

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Net cash provided by operating activities was ¥1,239 million, from ¥1,199 million in the previous fiscal year. The main contributors to cash were ¥2,190 million in income before income taxes and minority interests, partly offset by ¥1,091 million in income taxes paid.

Net cash provided by investing activities was ¥256 million, compared with ¥1,561 million used in investing activities in the previous fiscal year. The main uses of cash were ¥176 million in purchase of property, plant and equipment and ¥78 million in payments for lease and guarantee deposits.

Net cash provided by financing activities was ¥274 million, from ¥848 million in the previous fiscal year. This was partly offset by ¥284 million in cash dividends paid. �Financial Position

Total assets increased by ¥1,361 million, or 17.3% year on year, to ¥9,228 million as of January 31, 2014. Current assets rose ¥1,117 million, or 18.9% from January 31, 2013, to ¥7,036 million. This was

attributable mainly to a ¥760 million increase in cash and deposits and a ¥380 million increase in notes and accounts receivable-trade.

Noncurrent assets stood at ¥2,191 million, ¥244 million, or 12.5% higher than at January 31, 2013. Key factors were a ¥142 million increase in goodwill owing to foreign exchange fluctuations and a ¥73 million rise in property, plant and equipment owing to new investments.

Total liabilities increased ¥22 million, or 1.3% year on year, to ¥1,734 million as of January 31, 2014. Current liabilities stood at ¥1,680 million at January 31, 2014, ¥90 million or 5.7% higher than at

January 31, 2013. This was mainly attributable to a ¥132 million increase in accounts payable-other. Noncurrent liabilities decreased ¥67 million, or 55.8%, to ¥53 million. This was due mainly to a ¥69

million decrease in long-term accounts payable-other. Net assets increased ¥1,339 million, or 21.8%, to ¥7,494 million as of January 31, 2014. This was

mainly attributable to increases of ¥921 million in retained earnings and ¥404 million in foreign currency translation adjustments.

�Basic Policy on Earnings Distribution

The Company considers shareholder returns an important management issue. Management is taking into account the Group’s overall financial position, including by factoring in the internal reserves needed to cultivate its businesses to maintain growth in the years ahead, in maintaining a basic policy of targeting a consolidated payout ratio of 25% on net income for the payment of one yearly dividend at the end of the year.

In line with this basic policy, the Company paid an annual dividend of ¥16 per share for the year ended January 31, 2014.

Management aims to allocate internal reserves for investment in ICT systems for responding to intensifying competition and in increasing the employee headcount and otherwise driving future business development.

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�Outlook for the Fiscal Year Ending January 31, 2015

Testing/verification and evaluation operations used to be performed before software launches. Now, various companies offer ongoing services in online sales, e-books, social games, and other areas. This has given rise to the need for both pre-launch and ongoing operational testing/verification and evaluation of such services. The need to support clients with both defect detection and Internet monitoring is also on the rise, as those online businesses also require monitoring against improper usage, Internet advertising reviews and other compliance checks, response to end-user inquiries and other support once they are in operation.

The Group’s domestic and overseas companies collaborate to comprehensively and globally supply Testing/Verification & Evaluation and Internet Monitoring in specializing in development and services for our client companies.

Segment projections for the year ending January 31, 2015, are as follows.

Testing/Verification & Evaluation Business In Japan, we aim to increase our market share testing applications and social games for smartphones, amusement equipment, and consumer electronic game software. We will therefore reinforce our sales competitiveness in the market, deploy human resources initiatives to build close ties with clients and enhance our services, maintain testing equipment for new next-generation consoles, and continue to consistently deliver high-quality services.

Overseas, we will strengthen collaboration between nine business units in six countries and with domestic business units to assist with the global business expansions of overseas and Japanese companies. We will take advantage of prospects for further globalization in games and Internet services by expanding orders for testing/verification, localization, and user support services by local staffers. To that end, we will allocate more overseas business officers in Japan and reinforce sales collaboration between Group subsidiaries domestically and abroad.

Internet Monitoring Business The number of users of Internet shopping and auction, e-book, and other e-commerce services has increased with the spread of smartphones and tablet PCs. In 2012, e-commerce markets represented just 3% of sales in Japan and 7% of sales in the United States, and have significant upside potential. Given that the future of the e-commerce business depends on the security and convenience of site operations, the Group seeks to expand orders for merchandise checks, advertising representation reviews, and end-user inquiries. The Group will leverage collaboration with the overseas units of the Test/Verification & Evaluation Business to cultivate the international deployment of the Internet Monitoring Business. The Group will therefore cultivate and hire people who can plan and deliver high-quality, value-added services and set up business sites.

18

Others In its Cinematheque Movie Classes, Palabra Inc. is training subtitle creators to prepare for the advent of barrier-free motion pictures, and has started producing barrier-free subtitles for television program and video production firms under contract. IMAid Inc. is offering medical staffing services. We will explore and cultivate new businesses in the medical field.

As a result of these factors, for the year ending January 31, 2015, the Group projects consolidated net sales of ¥14,961 million (up 7.8%), operating income of ¥2,183 million (up 1.8%), ordinary income of ¥2,186 million (down 4.5%), and net income of ¥1,211 million (up 0.5%).

The earnings forecasts are based on information currently available to the Company and on certain assumptions deemed to be reasonable. These statements do not guarantee that the Company will achieve its earnings forecasts. In addition, actual business and other results may differ substantially due to various factors.

19

�Consolidated Balance Sheets � � (Millions of yen)�

�Fiscal 2013

(As of January 31, 2013)�Fiscal 2014

(As of January 31, 2014)

Assets� � �

Current assets Cash and deposits� 4,199 4,959 Notes and accounts receivable-trade� 1,317 1,698 Deferred tax assets 72 76 Other� 332 301 Allowance for doubtful accounts� (3) (0) Total current assets� 5,918 7,036

Noncurrent assets� Property, plant and equipment�

Buildings and structures� 150 239 Accumulated depreciation (59) (82) Buildings and structures, net 90 156

Machinery, equipment and vehicles� 2 2 Accumulated depreciation (1) (2) Machinery, equipment and vehicles, net 0 0

Tools, furniture and fixtures 393 497 Accumulated depreciation (263) (358) Tools, furniture and fixtures, net 130 138

Total property, plant and equipment� 221 295 Intangible assets

Goodwill 1,282 1,425 Software 36 28 Other� 2 2 Total intangible assets� 1,320 1,456

Investments and other assets� Investment securities� 45 50 Lease and guarantee deposits 255 314 Deferred tax assets 32 68 Other� 71 16 Allowance for doubtful accounts � (10) Total investments and other assets� 405 440

Total noncurrent assets� 1,947 2,191 Total assets� 7,866 9,228

20

� � (Millions of yen)�

Fiscal 2013 (As of January 31, 2013)�

Fiscal 2014 (As of January 31, 2014)

Liabilities

Current liabilities

Accounts payable-other 732 865

Accrued expenses 36 44

Income taxes payable 604 527

Provision for bonuses 11 11

Other 205 231

Total current liabilities 1,589 1,680

Noncurrent liabilities

Provision for retirement benefits 42 44

Long-term accounts payable-other 69 �

Deferred tax liabilities � 7

Other 10 1

Total noncurrent liabilities 121 53

Total liabilities 1,711 1,734

Net Assets

Shareholders’ equity

Capital stock 1,228 1,233

Capital surplus 1,275 1,279

Retained earnings 3,657 4,579

Total shareholders’ equity 6,161 7,092

Accumulated other comprehensive income

Valuation difference on available-for-sale securities 8 11

Foreign currency translation adjustments (15) 389

Total accumulated other comprehensive income (6) 401

Total net assets 6,154 7,494

Total liabilities and net assets 7,866 9,228

21

�Consolidated Statement of Income and Consolidated Statement of Comprehensive Income Consolidated Statements of Income � � (Millions of yen)�

�Fiscal 2013

(From February 1, 2012, to January 31, 2013)

Fiscal 2014 (From February 1, 2013,

to January 31, 2014) Net sales� 10,866 13,879 Cost of sales� 6,946 9,112 Gross profit� 3,919 4,767 Selling, general and administrative expenses� 2,083 2,622 Operating income� 1,835 2,144 Non-operating income�

Interest income� 1 1 Dividends income� 0 0 Foreign exchange gains 39 120 Consumption tax adjustment 2 1 Insurance premiums refunded cancellation 0 5 Subsidy income 22 1 Insurance proceeds � 3 Other� 5 11 Total non-operating income� 72 145

Non-operating expenses� Interest expenses� 1 � Stock issuance cost 21 � Other 0 � Total non-operating expenses 22 �

Ordinary income� 1,885 2,290 Extraordinary losses�

Loss on retirement of noncurrent assets� 11 0 Loss on valuation of investment securities� 2 � Loss on valuation of investments in capital 31 � Office transfer expenses� 5 8 Loss on cancellation of development � 36 Impairment loss � 46 Other� 3 8 Total extraordinary losses 53 100

Income before income taxes and minority interests 1,831 2,190 Income taxes-current 908 1,016 Income taxes-deferred (8) (31) Total income taxes 899 984 Income before minority interests 932 1,205 Net income� 932 1,205

22

Consolidated Statement of Comprehensive Income � � (Millions of yen)�

�Fiscal 2013



to January 31, 2014)

Income before minority interests� 932 1,205

Other comprehensive income�

Valuation difference on available-for-sale securities� 4 3

Foreign currency translation adjustments� (6) 404

Total other comprehensive income� (1) 408

Total comprehensive income� 930 1,613

Comprehensive income attributable to:�

Owners of the parent� 930 1,613

23

�Consolidated Statements of Changes in Net Assets

Fiscal 2013 (From February 1, 2012, to January 31, 2013) (Millions of yen)


Capital stock Capital surplus Retained earnings Total shareholders’ equity

Balance at the beginning of current period 712 758 2,887 4,358

Changes of items during the period

Issuance of new shares 516 516 1,032

Dividends from surplus (161) (161)

Net income 932 932

Net changes of items other than

shareholders’ equity

Total changes of items during the period 516 516 770 1,803

Balance at the end of current period 1,228 1,275 3,657 6,161


Total net assets

Valuation difference on available-for-sale

securities Foreign currency

translation adjustment Total accumulated

other comprehensive income

Balance at the beginning of current period 3 (8) (5) 4,353


Issuance of new shares 1,032

Dividends from surplus (161)

Net income 932


shareholders’ equity 4 (6) (1) (1)

Total changes of items during the period 4 (6) (1) 1,801

Balance at the end of current period 8 (15) (6) 6,154

24

Fiscal 2014 (From February 1, 2013, to January 31, 2014) (Millions of yen)


Capital stock Capital surplus Retained earnings Total shareholders’ equity

Balance at the beginning of current period 1,228 1,275 3,657 6,161


Issuance of new shares 4 4 9

Dividends from surplus (284) (284)

Net income 1,205 1,205


shareholders’ equity

Total changes of items during the period 4 4 921 930

Balance at the end of current period 1,233 1,279 4,579 7,092


Total net assets

Valuation difference on available-for-sale

securities Foreign currency

translation adjustment Total accumulated

other comprehensive income

Balance at the beginning of current period 8 (15) (6) 6,154


Issuance of new shares 9

Dividends from surplus (284)

Net income 1,205


shareholders’ equity 3 404 408 408

Total changes of items during the period 3 404 408 1,339

Balance at the end of current period 11 389 401 7,494

25

�Consolidated Statements of Cash Flows (Millions of yen)

Fiscal 2013



to January 31, 2014) Cash flows from operating activities

Income before income taxes and minority interests 1,831 2,190 Depreciation and amortization 72 145 Amortization of goodwill 60 195 Impairment loss � 46 Increase in allowance for doubtful accounts 0 6 Increase in provision for bonuses 1 0 Increase in provision for retirement benefits 8 2 Interest and dividends income (1) (1) Interest expenses 1 � Stock issuance cost 21 � Foreign exchange (gains) losses (17) (68) Loss on retirement of noncurrent assets 11 0 Loss on valuation of investment securities 2 � Loss on valuation of investments in capital 31 � Increase in notes and accounts receivable-trade (64) (334) Increase in accounts receivable-other (10) (8) Increase (decrease) in accounts payable-other (96) 56 Increase in accrued expenses 15 7 Increase in deposits received 2 0 Other, net 31 90 Subtotal 1,902 2,330 Interest and dividends income received 1 1 Interest paid (1) � Income taxes paid (703) (1,091) Net cash provided by operating activities 1,199 1,239

Cash flows from investing activities Decrease in time deposits 20 � Purchase of property, plant and equipment (111) (176) Purchase of intangible assets (8) (13) Purchase of investments in subsidiaries resulting in change in

scope of consolidation (1,403) �

Proceeds from purchase of investments in subsidiaries resulting in change in scope of consolidation 5 �

Purchase of investment securities (3) (0) Payments for transfer of business (60) � Payments of loans receivable (2) (1) Collection of loans receivable 0 1 Payments for lease and guarantee deposits (42) (78) Proceeds from collection of lease and guarantee deposits 43 11 Net cash used in investing activities (1,561) (256)

26

(Millions of yen)

Fiscal 2013



to January 31, 2014) Cash flows from financing activities

Repayment of long-term loans payable (1) � Proceeds from issuance of common stock 1,011 9 Cash dividends paid (161) (284) Net cash provided by financing activities 848 (274)

Effect of exchange rate change on cash and cash equivalents 0 51 Net increase in cash and cash equivalents 487 760 Cash and cash equivalents at beginning of period 3,712 4,199 Cash and cash equivalents at end of period 4,199 4,959

27

�Company Information (As of January 31, 2014) �Company Name: Poletowin Pitcrew Holdings, Inc. �Date of Establishment: February 2, 2009 �Listing Date: October 26, 2011 (changed stock market listing to the First Section of the Tokyo Stock Exchange in November 6, 2012) �Business Year: From February 1 to January 31 �Paid-in Capital: 1,233 million yen �Number of Employees: 1,919 (including 558 full-time employees) �Head Office: 11th Floor, Shinjuku NS Building, 2-4-1, Nishi-Shinjuku, Shinjuku-ku, Tokyo 163-0811, Japan �Telephone: +81-3-5909-7911� �Consolidated Subsidiaries: Pole To Win Co., Ltd.

(As of April 1, 2014) PITCREW CO., LTD. Pacer CO., Ltd.

SARUGAKUCHO Inc. Pole To Win Networks Co., Ltd. Pole To Win Shanghai Co., Ltd. (Local subsidiary in China)

Pole To Win America, Inc. (Local subsidiary in the U.S.) Pole To Win Asia Pte. Ltd. (Local subsidiary in Singapore)

Pole To Win Europe Glasgow Limited (Local subsidiary in the U.K.) Pole To Win India Private Limited (Local subsidiary in India) Pole To Win Europe Limited (Local subsidiary in the U.K.) Pole To Win Korea Co., Ltd. (Local subsidiary in Korea) Portside CO., LTD. PITCREW COREOPS CO., LTD.

Daiichi Shorin Co., Ltd. IMAid Inc. Palabra Inc.

�Directors and Corporate Auditors (As of April 24, 2014) �Chairman Tamiyoshi Tachibana �President Naoto Konishi �Directors Mitsutaka Motoshige Kozo Matsumoto Tetsuji Tsuda Teppei Tachibana Joji Yamauchi Hajime Saito (outside) �Standing Corporate Auditor Kiyoshi Ohuchi �Corporate Auditors (outside) Hideo Takada

Tadao Tsuya Hisaaki Shirai

28

�Stock Information (As of January 31, 2014) �Number of Shares Authorized: 56,000,000

�Number of Shares Issued: 19,007,200

�Number of Shareholders: 3,076

�Major Shareholders (Top 10)

Shareholder name Number of shares held Share-holding ratio (Thousands) (%)

Tamiyoshi Tachibana 1,960 10.32

Mitsutaka Motoshige 1,930 10.16

The Master Trust Bank of Japan, Ltd. (Trust Account) 1,621 8.53

Kozo Matsumoto 1,216 6.40

Japan Trustee Services Bank, Ltd. 1,197 6.30

(Securities Investment Trust Account)

The Nomura Trust & Banking Co., Ltd. (Trust Account) 770 4.05

Teppei Tachibana 603 3.17

Trust & Custody Services Bank, Ltd. (Trust Account) 437 2.30

Masuo Uesugi 351 1.85

Tetsuji Tsuda 344 1.81

�Share Distribution

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22

29 32 80

9,552,200 shares

(50.26%)

5,042,300 shares

(26.53%)

314,400 shares

70,600 shares

4,026,100 shares

●Breakdown of Shareholding 22by Number of Shares Held 22Total: 19,005,600 shares 220Individuals and Others 220Financial Institutions 220Securities Companies 220Domestic Corporations 220Non-Japanese Corporations�

●Breakdown of Shareholding 22by Investor Type 22Total: 3,007 220Individuals and Others 220Financial Institutions 220Securities Companies 220Domestic Corporations 220Non-Japanese Corporations�

(2.66%)�(1.06%)�

(0.97%)�

(0.73%)� (0.37%) �

(1.66%) �

(21.18%) �

(94.58%)�

*Note: Excluding 1,600 fractional shares. *Note: Excluding 69 shareholders owning only fractional shares.

poletowin pitcrew holdings, inc. · for smartphone social games and for amusement (pachinko and...

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