CONSOLIDATED FINANCIAL STATEMENTS 9 Months Ended December 31, 2009

February 5, 2010

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CONSOLIDATED FINANCIAL STATEMENTS
9 Months Ended December 31, 2009
Name of the Company :
SEGA SAMMY HOLDINGS INC.
Code number :

6460
(URL http://www.segasammy.co.jp/ )
Representative:
Hajime Satomi
Chairman of the Board and Chief Executive Officer Any inquiry to :
Shunichi Shimizu
General Manager, Accounting and Financial Department Shiodome Sumitomo Building 21F, 1-9-2 Higashi Shimbashi, Minato-ku, Tokyo
Tel (03) 6215-9955
Filing of Quarterly Report: February 12, 2010 (plan)
(Amounts below one million yen are rounded down)

1. Consolidated Operating Results for the 9 Months Ended December 31, 2009 (1)

RESULTS OF CONSOLIDATED OPERATIONS
(Percentage for net sales, operating income and net income represent change from the prior period)

Net sales
Operating income
Net income

Millions of Yen
%
Millions of Yen
%
Millions of Yen
%
For 9 months ended December 31,2009
285,336 (7.7)

28,863
－
16,945
－
For 9 months ended December 31,2008
309,018
－
(2,757)
－
(10,840)
－
Net income
per share

Net income per
share (Diluted)

Yen
Yen
For 9 months ended December 31,2009
67.27
－
For 9 months ended December 31,2008
(43.03)
－

（2）CONSOLIDATED FINANCIAL POSITION

Total assets
Net assets
Equity ratio
Net assets per share

Millions of Yen
Millions of Yen
%
Yen
December 31, 2009
439,132 250,692 52.6 917.74
March 31, 2009
423,938 242,532 52.4 882.47
(Reference) Shareholders’ equity (consolidated):
December 31, 2009

:

¥231,194 million
March 31, 2009

: ¥222,316 million

－1－

2. Cash Dividends
Cash dividends per share

First
quarter
Second
quarter
Third
quarter
Year-end
For the year
Yen
Yen
Yen
Yen Yen
Year ended
March 31, 2009
－
15.00
－
15.00 30.00
Year ending
March 31, 2010
－
15.00
－

Year ending March
31, 2010 (plan)
15.00
30.00
(Note) Revision of the forecast in the third quarter of the year ending March 31, 2010: No 3. Projection for Consolidated Results for the Year ending March 31, 2010
(Percentage for net sales, operating income and net income represent change from the prior year)

Net sales
Operating income
Net income
Net income
per share

Millions of Yen
%
Millions of Yen
%
Millions of Yen
%
Yen
Entire – year
420,000
(2.1)
27,000
222.8
15,000
－
59.54
(Note) Revision of the projection in the third quarter of the year ending March 31, 2010: No
4. Other (1) Significant changes in subsidiaries (scope of consolidation) during period: No
(2)

Adoption of the simplified method of accounting as well as specific accounting for preparing the quarterly consolidated financial statements: Yes
(3) Changes in accounting principles, procedures, disclosure methods, etc., for preparing the quarterly
consolidated financial statements:
1. Changes associated with revision in accounting standards: Yes 2. Other changes: Yes (4) Number of shares outstanding (common stock) 1. Number of shares outstanding at the end of the period (including treasury stock) December 31, 2009 : 283,229,476
March 31, 2009

: 283,229,476

2. Number of treasury stock at the end of the period
December 31, 2009

: 31,313,340
March 31, 2009

: 31,305,733
3. Average number of shares during the period (cumulative from the beginning of the fiscal year)
For 9 months ended December 31, 2009: 251,919,673

For 9 months ended December 31, 2008: 251,932,752
[Caution With Regard to Operating Results Outlook]
Statements in this report pertaining to market projections and the outlook for operating results reflect the assumptions and judgment of the Company’s management based on the most accurate information available at the time of release. Such statements carry inherent risks and uncertainties. Factors that may affect operating results include, but are not limited to, those discussed in the projections and outlook. Readers are cautioned that changes in a variety of factors could cause actual results to differ substantially from the aforementioned projections and outlook.

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Operating Results and Financial Position

(1) Overview
During the first three quarters of the fiscal year ending March 31, 2010, the Japanese economy remained stagnant in spite of a certain degree of recovery. Corporate earnings were under pressure on issues such as rapid appreciation of yen and ongoing deflation. In addition, the employment condition remained sluggish and personal consumption stayed at low levels. In this climate, however, the pachislot and pachinko industry witnessed a firm drive to replace older pachinko machines with models offering more diverse gameplay. In the pachislot market, although some machines with innovative gameplay have gained popularity, the market has yet to mount a full-fledged recovery. Nevertheless, efforts are continued to be expected to revitalize this market. In the amusement machine and amusement center industry, conditions remained difficult. The industry awaits the development and launch of new innovative machines that will lead the market by addressing the diversified needs of customers, including families and casual players. In the home video game software industry, the demand was generally weak in the U.S. and European markets due to the headwind like sluggish personal consumption. Further penetration of the current generation of game platforms with price revision and market revitalization in accordance therewith are expected in the future. In this business environment, net sales for the first three quarters of the fiscal year ending March 31, 2010 amounted to ¥285,336 million, down 7.7% year on year. The Group posted an operating income of ¥28,863 million, compared with an operating loss of ¥2,757 million for the same period year ago. The Group posted net income of ¥16,945 million, compared with a net loss of ¥10,840 million for the same period in the previous fiscal year. Results by business segments were as follows. 《Pachislot and Pachinko Machines》 In the pachinko machine business, the Group recorded brisk sales, especially sales of “Pachinko CR Soten no Ken”, this year’s flagship and “Pachinko CR Sengoku Ranbu Aoki Dokugan”, a title with an innovative gameplay under the Sammy brand. Consequently, the sales of all the pachinko machines totaled 329 thousand units for the period, exceeding the results of the same period in the previous fiscal year. Profit margins improved due to such factors as a rise on the board sales of the pachinko machines and the reduced cost of procurement. In the pachislot machine business, “Pachislot Psalms of Planets Eureka SeveN” a title launched in the second quarter of the current fiscal year under the Sammy brand, maintained strong sales in the third quarter. As introduction of a new major title was absent in the third quarter, overall pachislot machine sales were 79 thousand units, underscoring the results in the same period in the previous fiscal year. Profit margins improved due to price revisions for both pachinko and pachislot machines. As a result, the segment recorded net sales of ¥125,864 million (an increase of 17.7% year on year) and operating income of ¥26,950 million (an increase of 409.2% year on year). 《Amusement Machine Sales》 In the amusement machine sales business, operation of a major title for the year “BORDER BREAK” video game remained strong. This title was sold under a revenue share model (ALL.Net P-ras) for the purpose of improving investment efficiency of the operators of amusement centers and securing long-term stable earnings for the Group. Strong sales were also seen in CVT KIT, such as “StarHorse2 FIFTH EXPANSION” and “WORLD CLUB Champion Football Intercontinental Clubs 2008-2009”. Due to less major titles scheduled for launch in this nine-month period, both net sales and profit were lower than the results during the same period in the previous year. As a result, net sales in this segment declined 33.4%, to ¥35,142 million and operating income declined 24.3%, to ¥4,707 million, compared with the same period in the previous year.
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《Amusement Center Operations》 In the amusement center operations business, sales at existing SEGA amusement centers in Japan were weakened by sluggish personal consumption, at 91.3% of the level during the same period in the previous year, lower than the level during the same period in the previous year. Facing difficult business conditions, the Group continued to close domestic amusement centers with low profitability or future potential. In the first three quarters of the fiscal year ending March 31, 2010, the Group closed 51 amusement centers and opened 3 new amusement centers. Consequently, the Group operated a total of 274 amusement center as the end of the period. As a result, the segment reported 23.8% decline in net sales to ¥41,458 million and an operating loss of ¥644 million, compared with an operating loss of ¥4,970 million for the same period in the previous fiscal year. 《Consumer Business》 In the consumer business, the Group launched some new titles of home video game software such as “Mario and Sonic at the Olympic Winter Games™ ” in the U.S. and European markets and “Phantasy Star Portable 2”, the latest title of the popular series in the domestic market. While domestic sales were mostly firm thanks to streamlining the development by narrowing down the titles, overseas sales were weaker than expected following the adverse market condition, and also, the launch of some titles was postponed to the next fiscal year. As a result, the Group sold 6,090 thousand video game copies in the United States, 8,160 thousand copies in Europe and 2,470 thousand copies in Japan and other regions, for a total of 16,730 thousand copies. In the toy sales division, while domestic sales were weak, sales of “Bakugan” in overseas markets continued to perform well. In the mobile phone and PC content business, sales were brisk mainly for downloadable games for PCs. In the animated films business, although the revenue from the production of animated films was lower than the level during the same period in the previous fiscal year, the revenue from the sale of the films were strong, primarily driven by “Bakugan” in the overseas markets. As a result, this segment posted 13.6% decline in net sales to ¥83,114 million, and an operating income of ¥1,416 million, compared with an operating loss of ¥5,647 million for the same period in the previous fiscal year. (2) Consolidated Financial Position Total assets as of December 31, 2009 were ¥439,132 million, an increase of ¥15,194 million from the previous fiscal year end. This was primarily attributable to an increase of ¥29,893 million in short-term investment securities resulting from a purchase of negotiable certificates of deposit, and a decrease of ¥7,014 million in noncurrent assets resulting from an impairment of property, plant and equipment, and a decrease of lease and guarantee deposits. Net assets were ¥250,692 million, an increase of ¥8,159 million from the previous fiscal year end, largely due to a net income, and the payment of dividends. The current ratio remained at a high level of 276.8%, down 18.2 points from the previous fiscal year end. As a result, the equity ratio was 52.6%, up 0.2 points from the previous fiscal year end. (3) Projection for Consolidated Results No amendments have been made to the full-year consolidated forecasts for the current fiscal year announced on May 13, 2009. (4) Other Changes in accounting principles, procedures, method of presentation associated with the preparation of the quarterly consolidated financial statements. Content production expenses related to game software and amusement machines conducted primarily by the consolidated subsidiary SEGA CORPORATION have previously been accounted for as cost of sales at the time that such expenses are incurred (when production work is outsourced, these expenses are first posted as advance payments, and later treated as cost of sales at the time that production work is inspected). However, from the first quarter of the fiscal year ending March 31, 2010, goods recognized as products for commercialization will be posted under inventories as work in process, with opting to treat the amount of such expenses equivalent to the actual sales volume recorded among projected sales volume as cost of sales.
－4－

The rationale for this change is to redeploy a framework capable of properly evaluating the certainty of realizing earnings by clarifying decision-making processes at the development stages of each project in line with efforts to review and enhance the development structure. This change will enable the appropriate disclosure of income for a given fiscal period by directly matching content production expenses, which have tended to grow sharply in recent years, with commensurate earnings. As a consequence of this change, work in process under inventories increased by ¥5,850 million, amusement machines under property, plant and equipment increased by ¥57 million, advance payments decreased by ¥1,202 million, foreign currency translation adjustment decreased by ¥12 million, while operating income, and income before income taxes and minority interests each increased by ¥4,717 million. The impact of this change on segment information is discussed in the Segment Information section of this report.
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