Major Questions Concerning Actual Results for First Quarter of Year Ending March 2013

Summary

Sega Sammy Holdings experienced a strong financial start to the fiscal year ending March 2013, characterized by increased sales and income compared to the same period in the previous year. Growth was primarily driven by robust performance in the pachislot and pachinko machine segment, bolstered by the successful release of titles such as Pachislot Monster Hunter and Pachislot Code Geass. Additionally, the conversion of Phoenix Resort K.K. into a wholly owned subsidiary and structural reforms within the consumer business—which reduced operating expenses despite a decline in packaged software sales—contributed to improved profitability.

Capital expenditure rose significantly during this period, largely due to the construction of a new plant and distribution center for Sammy Corporation. The company also implemented a change in accounting policies regarding the depreciation of property, plant, and equipment, shifting from a tax-based useful life to an economic-based useful life and adopting the straight-line method. This transition resulted in a depreciation expense reduction of approximately 600 million yen for the first quarter. Furthermore, the company signaled a strategic expansion into the international resort and casino market through a joint venture in South Korea.

Operational performance across other segments remained mixed. While the amusement machine sales business benefited from strong recurring revenue through consumables and revenue-sharing models, the amusement center operations segment saw a decline in sales and income due to store closures and lower same-store sales. In the digital gaming sector, the company established SEGA Networks to accelerate decision-making and transition toward an operation-based model. Management noted that the termination of complete gacha mechanisms in May 2012 would have no material impact on financial results, while digital titles like Kingdom Conquest and Phantasy Star Online 2 demonstrated strong user engagement.