To the Shareholders

Items Posted on Internet Concerning
Notice of the 12th Ordinary General Meeting of
Shareholders

May 26, 2016

SEGA SAMMY HOLDINGS INC.

1

Contents
1.

Notes to Consolidated Financial Statements ··············································· p. 3

2.

Notes to Non-Consolidated Financial Statements ········································ p. 15

Pursuant to the provisions of laws and regulations and the Article 16 of the Articles of Incorporation, theabove information shall be deemed to be provided to all shareholders by posting it on the website of theCompany: (http://www.segasammy.co.jp/japanese/ir/event/meeting.html).
Information in English will be posted on our English website(http://www.segasammy.co.jp/english/ir/event/meeting.html).

2

1. Notes to Consolidated Financial Statements
I Significant Accounting Policies Used in Preparation of Consolidated Financial Statements(1) Scope of Consolidation
Number of consolidated subsidiaries
81
For a complete list of major consolidated subsidiaries, refer to the section “I Outline of the Group’s
Business” under “7 Material Parent Company and Subsidiaries” of “(2) Relationships withsubsidiaries”.
Effective as of the fiscal year ended March 31, 2016, the following were included in the
Company’s consolidated subsidiaries; Sammy Digital Security Co., Ltd. and two other companies,
because of the newly establishment; Career Staff Co., Ltd., because of the Company’s acquisition;
SEGA Holdings Co., Ltd. and three other companies, establishment through an incorporation-type
split; Sammy Facility Service Co., Ltd. and one other company, because of the increase ofimportance. Play Heart, Inc., which was an equity-method affiliate in the previous fiscal year, has
become a consolidated subsidiary from the current fiscal year due to additional acquisition ofequity. With the deemed date of acquisition set at the end of the current fiscal year, only balance
sheets of this company are consolidated and its financial results are recognized as equity inearnings/losses of affiliates for the current fiscal year.
Effective as of the fiscal year ended March 31, 2016, the following have been excluded from thescope of consolidation; Index Corporation, sale of the share of stocks; D×L CREATION Co., Ltd.
and three other companies, because of its liquidation; SEGA Networks Co., Ltd., because ofmerger with SEGA Games Co., Ltd.; SAMMYHANBAI CORPORATION and one other company,
because of merger with Sammy Corporation.
Number of non-consolidated subsidiaries
11
Major non-consolidated subsidiaries: Sega (Shanghai) Software Co., Ltd. etc.
Non-consolidated subsidiaries are excluded from the scope of consolidation because the combined
amount of each of assets, net sales and net income corresponding to the percentage of equity
interest held by the Company, and the combined amount of retained earnings corresponding to thepercentage of equity interest held by the Company do not have significant effect on the
consolidated financial statements.
(2) Application of the Equity Method
Number of non-consolidated subsidiaries accounted for under the equity-method-

Number of equity-method affiliates
12
Major equity-method affiliates: PARADISE SEGASAMMY Co., Ltd., INTERLIFE HOLDINGS
CO., LTD, etc.
The following have included in the scope of application of equity-method; ZEEG Co. Ltd., becauseof the newly establishment; Cloudzilla, Inc., because of the Company’s acquisition;
Zen Tiger S.à r.l., because of increase of importance.
The following have excluded from the scope of application of equity-method; ELTEX, Inc.,
because of sale of the share of stocks; Play Heart, Inc., because it has become a consolidated
subsidiary due to additional acquisition of equity.

Number of non-consolidated subsidiaries and affiliates not accounted for under the equity method
13
Major non-consolidated subsidiaries and affiliates not accounted for under the equity method:
CHARA-WEB.CO., LTD. etc.
Some of the Company’s non-consolidated subsidiaries and affiliates are not accounted for by the3equity method (non-consolidated subsidiaries and affiliates not accounted for by equity method)
because the combined amount of net income corresponding to the percentage of equity interest
held by the Company, and the combined amount of retained earnings corresponding to thepercentage of equity interest held by the Company have little effect on the consolidated financial
statements even if they are excluded from the scope of equity method, and have no significance asa whole.
(3) Fiscal Year for Consolidated Subsidiaries
Consolidated subsidiaries whose fiscal year-ends differ from the consolidated balance sheet date
are listed below. Necessary adjustments are made on consolidation for material transactions that
occurred between the end of the fiscal years of these subsidiaries and the end of the consolidatedbalance sheet date.
Consolidated subsidiary
Sega Amusements Taiwan Ltd.
Beijing SEGA Mobile Entertainment Technology Co., Ltd.
Sega Jinwin (Shanghai) Amusements Co., Ltd.
SEGA (QINGDAO) ENTERTAINMENT PARK CO., LTD.
Dartslive China Ltd.
Play Heart, Inc.

Fiscal year-end
December 31
December 31
December 31
December 31
December 31
December 31(4) Accounting Policies① Valuation standards and accounting treatment for important assets
a. Held-to-maturity debt securities are stated at amortized cost (the straight - line method).
b. Available-for-sale securities
Securities with fair market value are stated at fair market value. The difference between
acquisition cost and market value is accounted for as net unrealized holding gains or losses
on securities in net assets, with cost of sales determined by the moving-average method.
c. Available-for-sale securities without quoted market prices are carried at cost, which isdetermined by the moving-average method.
The net amount of equity included in the Company’s financial statements from limited
liability investment partnerships and similar investments, regarded as marketable securities
under Article 2-2 of the Financial Investment and Exchange Law of Japan, is calculated
based on the relevant financial statements for the partnership available as of the reporting
date stipulated in the partnership agreement.
d. Derivatives
Derivatives are stated at fair market value.
e. Inventories
Inventories are stated at cost, cost being determined mainly by the gross-average method (orat the net realizable value (NRV) calculated by writing down the book value to reflect a
decrease in the NRV).
Also, work in process is stated at cost, cost being determined mainly by the specificidentification method (or at the NRV calculated by writing down the book value to reflect a
decrease in the NRV).
② Depreciation and amortization for important assets
a. Property, plant and equipment (excluding lease assets):
Depreciation is calculated primarily using the straight-line method.
Range of useful life for the assets is as follows:
Buildings and Structures: 2-50 years
Machinery, equipment and vehicles: 2-16 years
Amusement machines and facilities: 2-5 years
b. Intangible assets (excluding lease assets):
Amortization is calculated using the straight-line method. The software used in the Company
is amortized by the straight-line method based on the useful lives within the Company (lessthan 5 years).
4

c. Lease assets
Lease assets involving finance lease transactions of which the ownership is transferred tolessees:
Depreciation method for such assets is the same as that which applies to property, plant andequipment owned by the Company.
Lease assets involving finance lease transactions of which the ownership is not transferred tolessees:
Depreciated, using the straight-line method over a useful life equal to the lease period with aresidual value of zero.
③ Accounting for deferred assets
Bond issue cost: All expenses are expensed when incurred.
④ Accounting for allowances and provisions
a. Allowance for doubtful accounts
Allowance for doubtful accounts is provided in the amount sufficient to cover possible losses
based on a historical write-off of general receivables. Receivables with default possibility
and bankrupt receivables are calculated based on an individual assessment of the possibilityof collection.
b. Provision for bonuses
Accrued employees’ bonuses are provided based on the estimated amount to be paid.
c. Provision for directors’ bonuses
The estimated amount of bonuses was recorded to meet the bonus payments to Directors andAudit & Supervisory Board Members.
d. Provision for business restructuring
Of the expenses expected to incur in connection with business restructuring, thoserecognized to have incurred in the fiscal year are recorded.
e. Provision for directors’ retirement benefits
Certain domestic consolidated subsidiaries provide provision for directors’ retirement
benefits to adequately cover payment of such benefits at the end of the applicable period in
accordance with internal regulations.
f. Provision for dismantling of fixed assets
To provide for expenses for dismantling unused aging buildings, estimated future expenses
are recorded.
⑤ Accounting method for retirement benefitsa. Attribution method for projected retirement benefits
In calculating retirement benefits obligations, benefit formula attribution is adopted for the
purpose of attributing projected retirement benefits to the period up to the end of the fiscal
year ended March 31, 2016.
b. Treatment of actuarial gains and losses and prior service costs
Prior service costs are amortized equally over a certain number of years (10 years inprinciple) within the average remaining years of service for the employees at the time ofaccrual, or are charged to income collectively at the time of accrual. Actuarial gains andlosses are amortized by the straight-line method over a certain number of years (10 years inprinciple) within average remaining years of service for the employees at the time of accrualin each fiscal year, commencing from the following fiscal year after the accrual for each
employee, or are charged to income collectively in the following fiscal year after the accrual.
⑥ Accounting for significant hedge
a. Hedge accounting
The Company adopts deferred hedge accounting. However, special treatment is used for
qualifying interest rate swap transactions. Moreover, allocation hedge accounting is applied
to qualifying currency swap transactions and forward exchange contracts.
b. Hedging instruments and hedged items
Hedging instrument: Currency swaps, Interest rate swaps, forward exchange contracts
Hedged item: Interest on loans payable, receivables and payables denominated in foreign5

currencies
c. Hedge policy
Derivative instruments are used to mitigate risks associated with foreign exchange andinterest rate fluctuations.
As a rule, hedging is only used for items in which actual demand exists, and not for
speculative purposes.
d. Evaluation of hedge effectivenessHedge effectiveness is evaluated through comparative analysis of the cumulative fluctuationsin the market between the hedged item and the hedging instrument. Evaluation of hedge
effectiveness at fiscal year-end is omitted for currency swap transactions, as material
conditions for the notional principal of hedging instruments and those for hedged items are
the same and these transactions are deemed to offset the market fluctuations. Evaluation ofhedge effectiveness at fiscal year-end is omitted also for interest rate swap transactions
applied to special treatment.
⑦ Amortization method and period of goodwill
If the duration of the effect of goodwill can be rationally estimated, amortization is made overthe estimated number of years by the straight-line method. In other cases, amortization is madeover a five-year-period by the straight-line method.
⑧ Accounting method for consumption taxes
Consumption taxes and local consumption taxes are accounted using the net-of-tax method,and non-deductible consumption taxes and local consumption taxes on assets are posted mainly
as expenses when incurred.
⑨ Application of the Consolidated Taxation System
The Company applied the Consolidated Taxation System.
(5) Additional information
With the enactment of the “Act on Partial Revision to the Income Tax Act” (Act No. 15 of
2016) and the “Act on Partial Revision to the Local Tax Act” (Act. No. 13 of 2016) in the Dieton March 29, 2016, the income tax rate will be reduced from consolidated fiscal years
beginning on or after April 1, 2016.
As a result of the changes, net deferred tax assets at the end of the fiscal year ended March 31,
2016, income taxes-deferred, valuation difference on available-for-sale securities, revaluation
reserve for land, and remeasurements of defined benefit plans have increased by ¥243 million,¥200 million, ¥340 million, ¥99 million, and ¥4 million respectively.
II

Changes in Accounting Policies(1) Adoption of accounting standard for business combinations, etc.
Effective from the fiscal year ended March 31, 2016, the Company adopted “AccountingStandard for Business Combinations” (Accounting Standards Board of Japan (ASBJ) Statement
No. 21 issued on September 13, 2013) (hereinafter, the “Business Combinations AccountingStandard”), “Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No.
22 issued on September 13, 2013), “Accounting Standard for Business Divestitures” (ASBJ
Statement No. 7 issued on September 13, 2013), and other related accounting standards.
Accordingly, the accounting methods have been changed to record the difference arising fromchanges in equity in subsidiaries which the Company continues to control as capital surplus,
and to record business acquisition costs as expenses for the fiscal year in which incurred.
For business combinations executed on and after April 1, 2015, the accounting method has
been changed. For temporarily allocated acquisition costs adjusted upon the finalization ofprovisional accounting treatment, when such adjustment is made in the year following the yearof the business combination, the impact amount of such adjustments on the balance as of the
beginning of the fiscal year of such adjustments will be stated separately, and the balance as of
the beginning of the fiscal year shall be the amount restated upon such impact.
Furthermore, presentation of net income and others have been changed and presentation of6minority interests has been changed to non-controlling interests.
The Business Combinations Accounting Standard and other standards were applied from
April 1, 2015 into the future in accordance with the transitional measures provided in
Paragraph 58-2 (4) of the Business Combinations Accounting Standard, Paragraph 44-5 (4) of
the Consolidation Accounting Standard and Paragraph 57-4 (4) of the Business Divestitures
Accounting Standard.
As a result, capital surplus at the end of the fiscal year decreased by ¥892 million.
(2) Change in revenue recognition for sales of merchandise and finished goods
Some of the Company’s subsidiaries previously recognized revenue primarily on a shipping
basis. Effective from the fiscal year ended March 31, 2016, the revenue recognition method
was changed to on a delivery basis. From the fiscal year ended March 31, 2016, the Company’ssystems for identifying delivery dates were improved in line with the reinforcement of productdelivery management mainly in the Pachislot and Pachinko Machines Business. Taking thisimprovement as an opportunity, the Company reconsidered the revenue recognition standard
and judged that recognition of revenues upon delivery more accurately reflects actual
transactions.
This accounting policy change was applied retroactively and cumulative effects of changes inaccounting policies were reflected in the book value of net assets as of the beginning of thecurrent fiscal year.
As a result, the balance of retained earnings as of April 1, 2015 decreased by ¥220 million as
cumulative effects were reflected in net assets as of the beginning of the current fiscal year.
(3) Change in revenue presentation in the field of digital game software
Regarding sales in the field of digital game software and platform fees and other associatedexpenses, some of the Company’s subsidiaries previously recorded a net amount by offsetting
net sales, the cost of sales and selling, general and administrative expenses. Effective from thefiscal year ended March 31, 2016, those subsidiaries changed the method to the recording of agross amount of net sales, the cost of sales and selling, general and administrative expenses.
Owing to the Company’s decision to promote business development in the field of digital gamesoftware, which is positioned as a growth field in the Entertainment Contents Business, throughreallocation of resources and new investment including overseas, quantitative materiality of the
field of digital game software will increase from now on. Thus, the Company considered
accounting treatment that more clearly presents the situation of the Company’s businessactivities and concluded that presenting a gross amount of net sales and recording platform feesand other associated expenses as part of the cost of sales and selling, general and administrative
expenses will more clearly represent the results of operations.
This accounting policy change was applied retroactively and cumulative effects of changes inaccounting policies were reflected in the book value of net assets as of the beginning of thecurrent fiscal year.
There was no effect of the change on net assets as of April 1, 2015.
III Changes in Presentation
Consolidated Statement of Income“Restructuring loss” that was included in “other” under extraordinary loss for the previous fiscal year(¥862 million for the previous fiscal year) has now exceeded 10% of the amount of total extraordinary
loss, and is therefore separately itemized beginning from the fiscal year ended March 31, 2016.
“Loss on valuation of shares of subsidiaries and associates” that was included in “other” under
extraordinary loss for the previous fiscal year (¥188 million for the previous fiscal year) is separately
itemized beginning from the fiscal year ended March 31, 2016 because of increase in importance.

7

IV Notes to Consolidated Balance Sheet(1) Accumulated depreciation of property, plant and equipment¥165,434 million(2) Assets pledged
Shares of subsidiaries and associates (Note)¥23,119 million(Note) For loans from financial institutions to the equity-method affiliate PARADISESEGASAMMY Co., Ltd. at the end of the current fiscal year ¥40,074 million(KR₩392,500 million), the shares of this company were provided as a pledge.
(3) Revaluation of Land
Consolidated subsidiary SEGA Holdings Co., Ltd. has revalued land for commercial use, pursuant
to Japan’s Law Concerning Revaluation of Land (Law No. 34, March 31, 1998) and Amendments
to the Law Concerning Revaluation of Land (Law No. 19, March 31, 2001). SEGA Holdings Co.,
Ltd. has recorded an item for the revaluation reserve for land under net assets.
Revaluation method
SEGA Holdings Co., Ltd. computed the value of land based on the methodology regarding rational
adjustments to valuation of fixed assets stipulated in Article 2-3, and appraisals by licensed realestate appraisers prescribed in Article 2-5 of the Enforcement Ordinance No. 119 (March 31, 1998)
pertaining to the Law Concerning Revaluation of Land.
Date of the revaluation

March 31, 2002

(4) Outstanding balance of overdraft account:
Outstanding balance of commitment line:V¥99,625 million¥20,000 million

Notes to Consolidated Statement of Income(1) The book value devaluation of inventories held for normal sales purpose based on decline inprofitability.
Cost of sales¥4,588 million(2) R&D expenses included in general and administrative expenses and this fiscal year’s production
expenses¥41,752 million(3) Breakdown of major extraordinary items① Breakdown of gain on sales of noncurrent assets
Buildings and structures¥2 million
Machinery, equipment and vehicles¥4 millionLand¥6 million
Other property, plant and equipment¥55 million
Other intangible assets¥0 million
Total¥68 million② Breakdown of loss on sales of noncurrent assets
Machinery, equipment and vehicles¥8 million
Other property, plant and equipment¥64 million
Total¥72 million

8③ Breakdown of impairment loss.
Use
Amusement
facilities

Assets for business

Other(Unit: millions of yen)
Impairment
Location
Type
loss
256
Yokohama-city, Buildings and structures
Kanagawa and Other property, plant and equipment
189
3 other
Other intangible assets
1
locations
Buildings and structures
124
ShinagawaAmusement machines and facilities
137-ward, Tokyo
Other property, plant and equipment392
and 5 otherlocations
Other intangible assets
204
South Korea

Goodwill
Total

22
1,329

For each business segment, the Group classifies assets or asset groups based on whether
their cash flows can be estimated independently. The book values of assets or asset groups
whose market values declined significantly or that are projected to consistently generate
negative cash flows are reduced to their recoverable value. The amount of this reduction isdeemed an impairment loss and is recorded under extraordinary loss.

9

VI Notes to Consolidated Statement of changes in Net Assets(1) Issued Stock
Type of stock
Common stock

As of April 1,
2015
266,229,476

Increase(Unit: shares)
As of March 31,
2016266,229,476

Decrease──(2) Treasury Stock
As of April 1,
Type of stock
Increase
2015
Common stock
28,801,789
3,107,179(Outline of Causes of Change)
The causes of the increase are as follows:
Increase due to purchase in the market by the
resolution at the Board of Directors’ meeting
Increase due to repurchase of fractional shares(Unit: shares)
As of March 31,
201631,834,807

Decrease
74,161

3,098,400 shares
8,779 shares

The causes of the decrease are as follows:
Decrease due to exercise of stock options

73,500 shares

Decrease due to request to purchase fractional
shares

661 shares(3) Dividends① Dividend AmountResolution
Board of Directors’Meeting held on
May 11, 2015
Board of Directors’Meeting held on
October 30, 2015

Type of
Stock

Total
dividend(¥ million)

Dividend
per share(¥)

Record date

Effective dateCommon
stock

4,748

20

March 31, 2015

May 27, 2015

Common
stock

4,687

20

September 30,
2015

December 1,
2015② Of the dividends of which the record date is in the fiscal year ended March 31, 2016, but
the effective date is in the following fiscal year.
Type of
Stock

Resourceof dividend

Board of Directors’CommonMeeting held on May
Stock
13, 2016

Retained
Earnings

Resolution

Total
Dividend
dividend per share(¥ million)
(¥)
4,687

20

Recorddate

Effective
date

March 31,2016

May 27,2016(4) Number and type of shares to be issued upon exercise of subscription rights to shares (except
for the ones before the first day of the exercisable period) as of the end of the fiscal year ended
March 31, 2016.
Common stock: 3,468,500 shares

10VII Notes on the Financial Instruments(1) Matters regarding the current status of financial instruments
The Group’s signed an agreement concerning commitment lines with financial institutions,such as securing medium- to long-term fund liquidity with the Company as a holding company,
as a safety net for the entire Group. In addition, capital for each business is financed based on
the financial plan as needed, through bank borrowing or bond issue applying CashManagement System for the purpose of the efficient utilization of the Group funds. Most funds
are invested primarily in low-risk and high-liquidity financial assets, while some are invested
in compound financial instruments such as bonds etc. for the purpose of efficiently managing
funds. Derivatives are mainly used, not for speculative purposes, but to manage exposure tofinancial risks as described later.
Credit risks of the clients in terms of notes and accounts receivable - trade are mitigated under
the credit management rules, etc. at each Group company.
Short-term investment securities are mainly negotiable certificates of deposit. The Group’s
credit risk exposure is minimal as these transactions are restricted to highly rated financial
institutions in accordance with the capital management rules etc. of each Group company.
Investment securities are mainly stocks and the relevant information such as market prices ofthese stocks and financial conditions of the issuers (business partners) is reviewed and reported
to the Board of Directors of each Group company, etc. on a regular basis. Shareholding status isalso continually reviewed in view of the relationship with business partners that issue thesestocks. With certain compound financial instruments etc., the Group is exposed to risks
associated with market price fluctuations etc. in the stock markets but periodically evaluatesthem on a mark-to-market basis.
Borrowings as well as bonds is intended to secure funds necessary for the purpose of working
capital and capital expenditures etc. and diversify means for procuring funds. Each Group
company reviews its own actual and projected cash position on a monthly basis, which is
eventually verified collectively by the Company as part of the Group’s liquidity risk
management.
The Group’s derivative transactions are restricted to forward exchange contracts and currency
swap transactions as hedges against currency fluctuation risks on its foreign
currency-denominated operating receivables and debt as well as foreign currency-denominatedloans payable, and interest rate swap transactions etc. to mitigate interest rate risks on some of
the Group’s variable interest rate loans payable. These transactions are executed and managed
mainly by the financial department or the accounting department upon obtaining internal
approvals in compliance with the derivative transactions management rules, etc. of each Group
company. Furthermore, reports on the status of the derivative transactions are made to theBoard of Directors at each company as appropriate.

11(2) Matters regarding the market value etc. of financial instruments
Consolidated balance sheet amounts and market values of the Group’s financial instruments
and the difference between the two as of the end of the fiscal year ended March 31, 2016 are as
follows. Market values of financial instruments named in Note 2 below are extremely difficult
to grasp, thus are not included in the following list.
(Unit: millions of yen)
Consolidated balance
sheet amount
141,316
55,612Marketvalue
141,316
55,612Difference(1) Cash and deposits─(2) Notes and accounts receivable - trade(0)(3) Short-term investment securities andinvestment securities
1) Held-to-maturity debt securities
3,374
3,378
4
2) Available-for-sale securities (*1)
84,62984,629─3) Stocks of affiliates
892
791
(100)
(4) Notes and accounts payable - trade
33,01133,011─(5) Short-term loans payable
14,002
14,002
─(6) Long-term loans payable
48,89548,87025(7) Current portion of bonds
14,20014,200─(8) Bonds payable
52,00051,713286(9) Derivative transactions (*2)
1) Transactions outside the scope of44─
hedge accounting
2) Transactions subject to hedge
(39)
(39)
─
accounting(*1) Since market values of embedded derivatives cannot be reasonably categorized andmeasured, those of the entire compound financial instruments are evaluated, and included ininvestment securities.
(*2) Receivables and payables incurred by derivative transactions are presented in net amount.

Notes: 1 Matters regarding the methods to calculate the market values of financial instruments
and securities and derivative transactions(1) Cash and deposits; and (2) Notes and accounts receivable - trade
Of these, items that are settled in the short term (within a year) are recorded usingbook values, as their market values approximate book values. In addition, ofnotes and accounts receivable - trade, those which more than a year to the payment
date from the end of the fiscal year ended March 31, 2016 are stated at the present
values by discounting the amount of claim for each receivable with the interest rate
calculated by the payment period and credit risk.
(3) Short-term investment securities and investment securities
The market values of stocks are determined using the quoted price at the stock
exchange, and those of debt securities are determined using the quoted price at thestock exchange or the quoted price obtained from the financial institutions. In
addition, negotiable certificates of deposit included in available-for-sale securities
are recorded using book values, as they are settled in the short term (within a year)
and their market values approximate book values.
(4) Notes and accounts payable – trade; (5) Short-term loans payable; and (7) Current
portion of bonds
Of these, items that are settled in the short term (within a year) are recorded usingbook values, as their market values approximate book values. Of the short-termloans payable, market values of the loans hedged by interest rate swap contracts
meeting certain conditions are calculated applying the special treatment by
combining them with the relevant interest rate swap.
12(6) Long-term loans payable; and (8) Bonds payable
These are stated with the present values calculated by discounting the aggregatedvalues of the principal and interest using an assumed interest rate if loans are
newly made. Of the long-term loans payable, fair values of the loans hedged byinterest rate swap contracts with special treatment applied and by interest rate andcurrency swap contracts with combined treatment applied (subject to special
treatment and allocation hedge accounting) are calculated by combining them withthe relevant interest rate swap or interest rate and currency swap.
(9) Derivative transactions
Market values of these are the prices quoted by the counterparty financial
institutions. Meanwhile, certain derivative transactions such as forward exchange
contracts subject to allocation hedge accounting are treatment on a combined basiswith the receivables and payables that are hedged; therefore, their fair values arepresented as part of the fair values of such receivables and payables.
2 Financial instruments whose market values are not readily determined
Consolidated balance sheet amount
Category(Millions of yen)
Investment in unlisted stocks, etc.
3,011
Investment in investment limited
6,653
partnerships, etc.
Stocks of non-consolidated subsidiaries
1,195
Stocks of affiliates
24,211
Investment in affiliates
938
Items above are not included in “(3) Short-term investment securities and investment
securities,” because there is no market price, future cash flows cannot be estimated and
it is very difficult to identify market values.
VIII Note Regarding Investment and Rental Property
Status and market value of investment and rental property
This disclosure is omitted due to the immateriality of the total amount of the investment and rental
property.
IX Note Regarding Per Share Information
Net assets per share¥1,257.43
Net income per share¥22.90X Note Regarding Business Combinations
Transactions under common control
The Company established the “Group Structure Reform Division,” and has held discussions toreview the earnings structure of the entire Group from a medium- to long-term perspective, andimplemented the organizational restructuring within the Group as well as the change of trade namesof some subsidiaries on April 1, 2015 based on the resolutions of the Board of Directors meetings
held on January 30, 2015 and February 12, 2015.
(1) Purpose of the corporate divestiture and merger
As part of the measures for restructuring into three business groups, the Company implemented
the organizational restructuring within the Group on April 1, 2015 as a policy to clarify the
responsible business field of each Group company and thereby continuously review businesses
owned by the Group to promote further business reorganization.

13

(2) Overview of the corporate divestiture(i) Legal form of the business combination
An incorporation-type demerger, designating SEGA CORPORATION as a transferor company andestablishing new companies (SEGA Holdings Co., Ltd., SEGA Interactive Co., Ltd., and SEGALIVE CREATION Inc.)(ii) Overview of newly established companies
Name

Business
description

Head office
Capital stock

SEGA Holdings Co., Ltd.
(As of April 1, 2015)

SEGA Interactive Co., Ltd.
(As of April 1, 2015)

Management of its Groupas the Holding Company of
SEGA Group and allbusinesses appertaining
1-39-9, HigashiShinagawa,Shinagawa-ward, Tokyo¥ 100 million

Principal ShareHolder and
SEGA SAMMY
Shareholding
HOLDINGS INC. :100%
RatiosDevelopment,
Manufacture and Sales ofAmusement Machine
1-2-12, Haneda,
Ota-ward, Tokyo

SEGA LIVECREATION Inc.
(As of April 1, 2015)
Planning, Development
and Operation ofEntertainment Theme
Park in Resort Business
1-39-9, HigashiShinagawa,Shinagawa-ward, Tokyo¥ 100 million¥ 100 million

SEGA Holdings Co.,
Ltd.:100%

SEGA SAMMYHOLDINGS INC. :100%(3) Overview of the merger(i) Legal form of the business combination
An absorption-type merger, designating SEGA CORPORATION as the surviving company anddissolving SEGA Networks Co., Ltd. as the absorbed company(ii) Overview of merging companies (As of March 31, 2015)
Name

SEGA CORPORATION(Surviving Company)(As of April 1, 2015)

SEGA Networks Co., Ltd.
(Absorbed Company)(As of April 1, 2015)
Business involved in the Planning,
Development, Design, Sales, Delivery andManagement and Operation of Products andServices that Utilize the Internet and Other
Means of Communication

Business
description

Development, Production and Salesof Amusement Machines,
Development Sales of Game
SoftwareHead office

1-2-12, Haneda, Ota-ward, Tokyo

1-6-1, Roppongi, Minato-ward, Tokyo

Capital stock¥ 100 million¥ 10 million* SEGA CORPORATION changed its trade name to SEGA Games Co., Ltd. on April 1, 2015(4) Overview of the accounting procedures applied
Based on the “Business Combinations Accounting Standard” and the “Guidance on AccountingStandard for Business Combinations and Accounting Standard for Business Divestitures” (ASBJ
Guidance No. 10, issued on September 13, 2013), the Company applied an accounting procedure asa transaction under common control.
XI Note Regarding Material Subsequent Events
Not applicable.

142. Notes to Non-Consolidated Financial Statements
I

Notes Regarding Material Matters Related to Accounting Policies
1. Valuation standards and accounting treatment for assets(1) Valuation standards and methods for securities① Stocks of subsidiaries and affiliates are stated at moving-average cost.
② Available-for-sale securities
Securities with fair market value are stated at fair market value. The difference between
acquisition cost and market value is accounted for as net unrealized holding gains or losses on
securities in net assets, with cost of sales determined by the moving average method.
Securities without fair market value are stated at moving-average cost.
The net amount of equity included in the Company’s financial statements from limited liability
investment partnerships and similar investments, regarded as marketable securities under
Article 2-2 of the Financial Investment and Exchange Law of Japan, is calculated based on therelevant financial statements for the partnership available as of the reporting date stipulated in
the partnership agreement.
(2) Derivatives
Derivatives are stated at fair market value.
2. Depreciation and amortization of noncurrent assets(1) Property, plant and equipment
Depreciation is calculated by the straight-line method.
Range of useful life for the assets is as follows:
Buildings: 2 - 50 years
Structures: 2 - 47 years
Aircraft:
8 years
Tools, furniture and fixtures : 2 - 13 years(2) Intangible assets
Amortization is calculated using the straight-line method. The software used in the Company isamortized by the straight-line method based on the useful lives within the Company (less than 5
years).
3. Accounting for deferred assets
Bond issue cost: All expenses are expensed when incurred.
4. Accounting for provisions(1) Allowance for doubtful accounts
The reserve for doubtful accounts is provided in amount sufficient to cover possible losses.
Allowance for doubtful accounts is calculated on an individual assessment of the possibility ofcollection.
(2) Provision for bonuses
Accrued employees’ bonuses are provided based on the estimated amount to be paid.
(3) Provision for directors’ bonuses
The estimated amount of bonuses was recorded to meet the bonus payments to Directors and Audit& Supervisory Board Members.
(4) Provision for retirement benefits
The liability for retirement benefits is based on the estimated amount of benefit obligations at theend of the fiscal year. Simplified method is used to calculate provision for retirement benefits.

15

5. Accounting for hedge(1) Accounting for hedge
Allocation hedge accounting is used for qualifying currency swap transactions, while special
treatment is applied to qualifying interest rate swap transactions.
(2) Hedging instruments and hedged items
Hedging instrument: Currency swaps, Interest rate swaps
Hedged item: Foreign currency-denominated loans payable and associated interest(3) Hedge policy
The Company engages in currency swap transactions with the purpose to avoid risks associatedwith foreign exchange fluctuations of loans payable, along with interest rate swap transactions withthe purpose to avoid risks associated with interest rate fluctuations of loans payable. The Company
has a policy not to engage in speculative derivative transactions.
(4) Evaluation of hedge effectivenessEvaluation of hedge effectiveness at fiscal year-end is omitted for currency swap transactions, as
material conditions for the notional principal of hedging instruments and those for hedged items
are the same and these transactions are deemed to offset the market fluctuations. Evaluation ofhedge effectiveness at fiscal year-end is omitted also for interest rate swap transactions as they
adopt special treatment.
6. Other material matters that form the basis of accounting documents(1) Accounting method for consumption taxes
Consumption taxes and local consumption taxes are accounted using the net-of-tax method, andnon-deductible consumption taxes and local consumption taxes on assets are posted mainly as
expenses when incurred.
(2) Application of the Consolidated Taxation System
The Company applied the Consolidated Taxation System.
II

Notes to Balance Sheet(1) Accumulated depreciation of property, plant and equipment ¥2,859 million(2) Assets pledged
Shares of subsidiaries and associates (Note)¥20,737 million(Note) For loans from financial institutions to the affiliated company PARADISESEGASAMMY Co., Ltd. at the end of the current fiscal year ¥40,074 million(KR₩392,500 million), the shares of this company were provided as a pledge.
(3) Guaranteed obligation
Guarantee
SEGA Holdings
Co., Ltd.

Amount¥674 million(US $6 million)

Description
Accounts payable- other(4) Receivables from and payables to affiliates
Short-term receivables from affiliates
Short-term payables to affiliates
III Notes to Statement of Income(1) Transactions with affiliates
Consulting fee income
Dividends income (Operating revenue)
SG&A expenses
Non-operating transactions¥6,751 million¥15,369 million¥4,727 million¥8,010 million¥63 million¥375 million
16(2) Extraordinary loss
¥130 million of loss on support to subsidiaries and associates is recorded due to debt forgiveness ofloans receivable from the Company’s subsidiaries and affiliates.
IV Notes to Statement of Changes in Net Assets
Number and type of Treasury stock as of the end of the fiscal year ended March 31, 2016
Common stock
31,834,807 shares

17

V

Notes Regarding Tax Effect Accounting(1) Significant components of deferred tax assets and deferred tax liabilities(Unit: millions of yen)
Deferred tax assets
Loss carried forward
Exclusion from the deductible expenses of provision forbonuses
Exclusion from the deductible expenses of Provision ofallowance for doubtful accounts
Exclusion from the deductible expenses of loss on
valuation of investment securities
Exclusion from the deductible expenses of loss on
valuation of shares of subsidiaries and associates
Disallowed portion of loss on investments in partnership
Valuation difference on available-for-sale securities
Other
Subtotal deferred tax assets
Valuation allowance
Offset against deferred tax liabilities
Total deferred tax assets

183
180
77
10,060(10,007)(1)
51

Deferred tax liabilities
Valuation difference on available-for-sale securities
Subtotal deferred tax liabilities
Offset against deferred tax assets
Total deferred tax liabilities
Deferred tax liabilities, net(3,907)(3,907)(1)(3,906)(3,854)

1,179
42
985
4,651
2,760

(2) Breakdown by major causes of the significant difference between the statutory tax rate and theeffective tax rate for financial statement purposes, if any, by item.
Normal effective statutory tax rate
(Adjustment)
Permanently non-deductible expenses including
entertainment expenses
Exclusion from the deductible expenses of donation
Amount excluded from gross revenue such as dividend
incomeOther permanently non-taxable items
Changes in valuation allowance
Other
Effective tax rate after tax effect accounting

33.1%
3.2%
8.1%
(106.3%)(1.3%)
51.0%(0.4%)(12.6%)(3) Amendments to deferred tax assets and deferred tax liabilities due to changes in income tax rate
With the enactment of the “Act on Partial Revision to the Income Tax Act” (Act No. 15 of 2016)
and the “Act on Partial Revision to the Local Tax Act” (Act. No. 13 of 2016) in the Diet on March
29, 2016, the statutory tax rate used to calculate deferred tax assets and deferred tax liabilities forthe fiscal year ended March 31, 2016 (those which will be reversed in the fiscal years beginning
April 1, 2016) has been changed from the previous fiscal year’s 33.10% to 30.86% for those to becollected or paid between April 1, 2016 and March 31, 2018 and 30.62% for those to be collected or
paid on or after April 1, 2018, respectively.
As a result, deferred tax liabilities at the end of the fiscal year ended March 31, 2016 decreased by¥219 million, while Valuation difference on available-for-sale securities increased by ¥219 million.

18

VI Notes Regarding Transactions with Related Parties(1) Subsidiaries and Affiliates(Unit: millions of yen)
Name of thecompanyType

Votingrights (%)

Relationship

Description of thetransactions
Consulting fee
income(Note 2)

Management
Subsidiary

Sammy
Corporation

guidance to the
100.0

company,
interlocking
directorate

Consolidated
taxation system
Reception ofdeposits(Note 3)
Payment ofinterests(Note 4)
Consulting fee
income(Note 2)
Lending of funds

Subsidiary

SEGA Holdings
Co., Ltd.

100.0

Management

Collection of loans

guidance to thereceivable

company,

Reception ofinterlocking

interests(Note 4)

directorate

Consolidated
taxation system
Contribution inkind(Note 5)
Collection of loans
receivable

Transaction
amount(Note 1)
3,167
─Accounts
Accounts receivabletrade
Accounts receivableother

SEGA Games
Co., Ltd.

100.0

285
5,646

─

Deposits received

9,528

9

─

─

1,559
2,540

Accounts receivabletrade
Short-term loans receivablefrom subsidiaries and affiliates

140
2,140

400
24
─

Accrued interest
Accounts payableother─

87,985

2,140

Short-term loans receivablefrom subsidiaries and affiliates
Long-term loans receivable

Subsidiary

Balance at
end offiscal year

from subsidiaries and affiliates

Interlocking

0
547

─

2,140

8,580

directorate
Reception ofinterests(Note 4)183

Accrued interest

71

52,769──

Reception ofdividend in kind
(Note 6)Long-term loans receivable
Lending of funds

2,350

from subsidiaries and

4,500

affiliates(Note 7)
Subsidiary

SEGA SAMMY
CREATION INC.

100.0

Interlocking

Reception of

directorate

interests(Note 4)46

Accrued interest

0

Deferred interest

0

9,252

─

─

20,737──

Underwriting of
capital increase

PARADISE
Affiliate

SEGASAMMY
Co., Ltd.

45.0

Interlocking
directorate(Note 8)Provision of security(Note 9)Notes: 1. Consumption taxes are not included in transaction amounts.
19

2. The amount of the Consulting fee income is decided based on the Company’s necessary
expenses.
3. Cash management system transactions are used for the purpose of uniformly andefficiently procuring and managing funds within the Group. Lending and borrowing offunds is executed at any time between the Group companies, thus the transaction amount isomitted.
4. Interest is determined with consideration to market interest rates.
5. The Company made contribution in kind of the stocks of subsidiaries and affiliates
following the intragroup reorganization as of April 1, 2015.
6. The Company received dividend in kind when it acquired the stocks of subsidiaries andaffiliates following the intragroup reorganization as of April 1, 2015.
7. For long-term loans receivable from subsidiaries and affiliates from SEGA SAMMY
CREATION INC., the Company recorded provision of allowance for doubtful accounts
and allowance for doubtful accounts of ¥3,212 million for the fiscal year ended March 31,
2016.
8. The Company underwrote a capital increase through allotment to shareholders.
9. For part of the loans from financial institutions to PARADISE SEGASAMMY Co., Ltd.,the shares of the company were provided as a pledge.
(2) Directors, Key Individual Shareholders, etc.
(Unit: millions of yen)Type

Director

Name of
Votingrelatedrightsindividual and(%)
company

Relationship

Description of
the transactions

1.30

Director of theCompany

Exercise ofstock options(Note 2)

118

─

─

Insurance
representative

Payment of
insurance
premium(Note 4)11

Prepaid
expenses6

Subcontractor

Payment of
subcontracting
fees(Note 4)0──Lending ofreal-estate andequipment

Rental income
from real-estateand equipment(Note 4)3

─

─Haruki Satomi

Company
in which
Directors
FSC Co., Ltd.
or their(Note 3)
relatives own
majority
voting rights

5.57

Transaction
Balance atamountAccounts
end of(Note 1)
fiscal year

Notes: 1. Consumption taxes are not included in transaction amounts.
2. Stock options which were granted based on the resolution at the ordinary Board of
Directors meeting on July 31, 2012 and exercised during the current fiscal year are
listed. The transaction amount listed herein is calculated by multiplying the number ofshares granted upon exercise of stock options during the current fiscal year by theamount of payment upon exercise.
3. Hajime Satomi, Chairman of the Board and Chief Executive Officer, directly holds 53%
shares in FSC Co., Ltd.
4. Transaction prices are determined in the same way as for general transactions and withreference to market prices.

20

VII Note Regarding Per Share Information
Net assets per share
Net income per share¥1,330.62¥12.55

VIII Note Regarding Business Combinations
The Company conducted contribution in kind of all of the shares of the Company’s subsidiaries, Sammy
Networks Co., Ltd., SEGA TOYS CO., LTD., TMS ENTERTAINMENT CO., LTD. and MARZAANIMATION PLANET INC. to a subsidiary of the Company, SEGA Holdings Co., Ltd. (established on April
1, 2015) as of April 1, 2015.
(1) Purpose
As part of the measures for restructuring into three business groups, it is to clarify the responsible businessfield of each Group company and thereby continuously review businesses owned by the Group to promotefurther business reorganization.
(2) Overview of the subsidiaries
Name

Sammy Networks Co.,Ltd.
(As of April 1, 2015)

TMS
SEGA TOYS CO., LTD. ENTERTAINMENT
CO., LTD.
(As of April 1, 2015)(As of April 1, 2015)

Business
description

Planning, production,
sales of game and music
contents through mobile
phones and Internet, etc.

Development,
manufacture, sales of
toys

Planning, production,
sales and otheractivities involving
animated movies

Head office

1-6-1, Roppongi,
Minato-ward, Tokyo

1-1-39 Hiroo,
Shibuya-ward, Tokyo

3-31-1, Nakano,
Nakano-ward, TokyoMARZA ANIMATION
PLANET INC.
(As of April 1, 2015)
Production of computer
graphics animations,planning, production ofanimated movies,
licensing business
2-2-20,Higashi-Shinagawa,Shinagawa-ward, Tokyo

Capital stock¥300 million (Note)¥100 million¥8,816 million¥100 million

Book valueof the stock¥12,065 million¥21 million¥12,011 million¥842 million

Note: Sammy Networks Co., Ltd. reduced its capital stock from ¥300 million to ¥100 million on February 9, 2016.

(3) Ownership ratio after the contribution in kindIndirect ownership: 100%(4) Overview of the accounting procedures applied
Based on the “Business Combinations Accounting Standard” and the “Guidance on Accounting Standard
for Business Combinations and Accounting Standard for Business Divestitures” (ASBJ Guidance No. 10,
issued on September 13, 2013), the Company applied an accounting procedure as a transaction undercommon control.
IX Notes Regarding Material Subsequent Events
Not applicable.

21