2．Overview of the SEGA SAMMY Group The SEGA SAMMY Group consists of SEGA SAMMY HOLDINGS INC., 86 subsidiaries and 16 affiliates. The core business domain of the SEGA SAMMY Group is the comprehensive entertainment business, comprising pachislot and pachinko machines, amusement machine sales, amusement center operations, consumer business and the other business. Refer to the following chart for an overview of Group operations. 《In Japan》 AM machine sales ●SEGA Logistics Service Co., Ltd. ● DARTSLIVE Co., Ltd. Pachislot and Pachinko 《Overseas》 Sale Customers SEGA CORPORATION (Development CORPORATION SEGA Sale ●Sega Amusements U.S.A., Inc. ●RODEO Co., Ltd. ●Sega Amusements Europe Ltd. (Development･Manufacture･Sale ) SEGA SAMMY HOLDINGS INC.(HOLDINGCOMPANY) Pachislot Other : 2 consolidated subusidiary ･ 1 non-consolidatd subsidiary Users Sammy Corporation 1 affiliated company using the equity method ●GINZA CORPORATION Sale ●GINZAHANBAI CORPORATION ●ＴＡＩＹＯ ELEC Ｃｏ.,Ｌｔｄ. Pachislot (Development･Manufacture･Sale ) 《In Japan》 Pachinko operation AM center ●OASYS PARK Co., Ltd. ●SEGA Bee LINK Co., Ltd. Sales Agent Sales Agent 《Overseas》 ●Sega Entertainment U.S.A., Inc. Customers Service Management guidance Management guidance ●Sega Amusements Taiwan Ltd. （ Sale ●Sega Korea Ltd. Development ･ Pachinko Parlors Other : 5 consolidated subsidiaries Users Pachislot 2 affiliated companies using the equity method Pachinko Service ･ Manufacture ･ Sale 《Overseas》 Manufacture ●Sammy Rental Services Co., Ltd. ●Sega of America, Inc. (Lease and maintenance) ●Sega Europe Ltd. ●Sammy Systems Co., Ltd. (Development・Manufacture・ ●The Creative Assembly Ltd. Sale of peripherals) ･ Other : 18 consolidated subsidiaries Customers Sale ●Sammy Design Co., Ltd. Sale 2 non-consolidatd subsidiaries (Planning, design, construction of) Service ･ ･ 2 affiliated companies using the equity method pachinko parlors.) Sale Consumer business Facilities Operation) △Japan Setup Service Co., Ltd. 4 affiliated companies non-using the equity method ･ (Installation of pachislot/pachinko, Users ） Maintenance) 《In Japan》 Other : 1 cons olidated subs idiary Sale ●Sammy NetWorks Co., Ltd. 4 non-consolidatd subsidiaries (Internet Music Contents Provider) 1 affiliated company non-using the equity method ●SEGA TOYS, Ltd. (Planning・Manufacture・Sale of Toys) ●SI ELECTRONICS LTD. ●TMS ENTERTAINMENT, LTD. (Development sales of LCD optical imaging (Planning・production・sales and other activities involving system chips) animated movies ) Other : 14 consolidated subsidiaries 1 non-consolidated subsidiary 1 affiliated company using the equity method 2 affiliated companies non-using the equity method 《In Japan》 Other : 1 consolidated subsidiary Other : 1 non-consolidated subsidiary 1 affiliated company non-using the equity method Customers Others ●Sega Sammy Golf Entertainment Inc.(Operation and Management of Golf course) Sale ･ ●Japan Multimedia Services Corporation(Information Provider Service) Service Users ●SEGA SAMMY INVESTMENT & PARTNERS INC.(Real estate management and investment advisory) △Nissho Inter Life Co., Ltd.(Design and Construction of Commericial arcades, etc.) Other : 1 consolidated subsidiary Flow of Products･Service Others ● Consolidated subsidiary △ Affiliate 8 (Note 1) In addition to the companies listed above, the SEGA SAMMY Group includes Sega Holdings U.S.A. Inc., (a holding company of subsidiaries in U.S.), Sega Holdings Europe Ltd. (a holding company of subsidiaries in Europe.) as consolidated subsidiaries. And the SEGA SAMMY Group includes 5 investment in partnerships as consolidated subsidiaries. (Note 2) See Consolidated companies listed in stock market SEGA TOYS, Ltd. (JASDAQ) Sammy NetWorks Co., Ltd. (The Mothers market of the Tokyo Stock Exchange) TMS ENTERTAINMENT, LTD. (Second Section of the Nagoya Stock Exchange) TAIYO ELEC Co., LTD. (JASDAQ) Nissho Inter Life Co., Ltd. (JASDAQ) 3. Management Policies (1) Basic Management Policies SEGA CORPORATION and Sammy Corporation on October 1, 2004 integrated their operations to build an even more powerful base as a comprehensive global entertainment organization. Combining the resources of the two companies, a holding company called SEGA SAMMY HOLDINGS was established with the aim of maximizing corporate value. Since then, the Group has been taking various measures to build a business framework that responds quickly and flexibly to changes in the operating environment and accelerate growth. The core business domain of the SEGA SAMMY Group is the comprehensive entertainment business, comprising pachislot and pachinko machines, amusement machine sales, amusement center operations, and the consumer business. Within this sphere, the Group targets markets worldwide in the quest to maximize and cross-fertilize its entertainment content and resources, ultimately aiming to promote business operations that target every age group. Moreover, the SEGA SAMMY Group is enhancing its presence in every applicable business field in a drive to become the world’s leading name in comprehensive entertainment. To this end, the Group is committed to winning the trust and meeting the expectations of its stakeholders (2) Medium- to Long-term Strategies and Other Issues The Sega Sammy Group is engaged in a diverse array of entertainment buisnesses, ranging from pachislot and pachinko machines to commercial amusement machines, amusement center operation and home videogame software, as well as services through internet and for mobile handsets. Operations also extend to toys and animation. Our goal is to have strong competitiveness in these fields as our core businesses. (3) Issues to be Addressed In the pachislot and pachinko machine business, as market conditions undergo drastic changes in the pachislot machine business, the SEGA SAMMY Group will strive to maintain market share in this business by bringing together development expertise and increasing the sophistication of its technologies. At the same time, in the pachinko machine business, where market conditions are firm, the Group must seek to increase its market share by strengthening development capabilities and internal collaboration among Group companies. In the amusement machine business, the Group will seek a broad range of users by providing various products from high value added products to the products for family users that meet user needs. In overseas markets, the Group must provide the products that meet local needs at competitive price. In the amusement center operations business, the Group will continue closing or selling unprofitable amusement centers as part of ongoing business restructuring. Also the Group will seek effective business operation by fundamental review on the functions of headquarter, and it will be the Group’s business challenge to recover the profits by strengthening sales force for each machine category, and improving supports for the operation of the amusement centers. In the consumer business, the Group must improve development efficiency and profitability as business challenge in the domestic consumer business market. In overseas markets, the Group must acquire licenses and reinforce local development capabilities to create products that accurately reflect local needs. In mobile phone contents, toy sales, video, and other businesses, the Group must reinforce these operations, mainly by listed subsidiaries. 9 .