1st Quarter Results
Konami Corporation
27 July 2006
Consolidated Financial Results
for the First Quarter Ended June 30, 2006
(Prepared in Accordance with U.S. GAAP)
July 27, 2006
KONAMI CORPORATION
Address: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan
Stock code number, TSE: 9766
Ticker symbol, NYSE: KNM
URL: www.konami.net
Shares listed: Tokyo Stock Exchange, New York Stock Exchange, London Stock Exchange and
Singapore Exchange
Representative: Kagemasa Kozuki, Chairman of the Board and Chief Executive Officer
Contact: Noriaki Yamaguchi, Representative Director and Chief Financial Officer
(Phone: +81-3-5220-0163)
1. Preparation Basis for Consolidated Financial Results for the First Quarter Ended June 30, 2006
(1) Adoption of U.S. GAAP: Yes
(2) Adoption of simplified methods in accounting None
principles:
(3) Change in accounting policies: None
(4) Changes in reporting entities: Yes
Number of consolidated subsidiaries added: 1
Number of consolidated subsidiaries removed: 0
Number of affiliated companies added: 0
Number of affiliated companies removed: 0
2. Consolidated Financial Results for the First Quarter Ended June 30, 2006
(Amounts are rounded to the nearest million)
(1) Consolidated Results of Operations
(Millions of Yen, except per share data)
Net revenues Operating income Income before
income taxes
Three months ended June 30, 2006 Y 57,628 Y 6,003 Y 5,801
% change from previous period 20.0 95.3 (41.6)
Three months ended June 30, 2005 48,029 3,074 9,927
% change from previous period 1.5 4.3 245.9
Year ended March 31, 2006 262,137 2,481 8,438
Basic net income Diluted net income
Net income per share per share
Three months ended June 30, 2006 Y 2,120 Y 15.46 Y 15.45
% change from previous period (61.0) - -
Three months ended June 30, 2005 5,439 41.75 41.75
% change from previous period 1,960.2 - -
Year ended March 31, 2006 23,008 175.86 175.80
Notes:
1. Equity in net income (loss) of affiliated companies
Three months ended June 30, 2006: Y3 million
Three months ended June 30, 2005: Y- million
Year ended March 31, 2006: Y33 million
2. Weighted-average common shares outstanding (consolidated)
Three months ended June 30, 2006: 137,154,887 shares
Three months ended June 30, 2005: 130,287,026 shares
Year ended March 31, 2006: 130,835,422 shares
3. Net income per share was calculated in accordance with Statement of Financial Accounting Standards
(SFAS) No. 128 ''Earnings per Share.''
(2) Consolidated Financial Position
(Millions of Yen, except per share data)
Total Equity-assets Shareholders'
stockholders'
Total assets Equity ratio equity per share (Yen)
June 30, 2006 Y 294,659 Y 162,361 55.1% Y 1,183.77
June 30, 2005 314,002 131,160 41.8% 1,006.48
March 31, 2006 302,637 163,815 54.1% 1,194.41
Note:
Number of shares outstanding (consolidated)
June 30, 2006: 137,155,932 Shares
June 30, 2005: 130,315,456 Shares
March 31, 2006: 137,152,347 Shares
(3) Consolidated Cash Flows
(Millions of Yen)
Net cash provided by (used in) Cash and
Operating Investing Financing cash equivalents
activities activities activities , end of the
period
Three months ended June 30, 2006 Y 3,029 Y (2,409) Y (4,934) Y 64,518
Three months ended June 30, 2005 (4,462) 8,874 (4,357) 89,278
Year ended March 31, 2006 23,879 (7,266) (38,330) 68,694
3. Consolidated Financial Forecast for the Year Ending March 31, 2007
(Millions of Yen)
Net revenues Operating Income before Net income
income income taxes
Year ending March 31, Y 275,000 Y 29,000 Y 28,500 Y 16,000
2007
There has been no change in our forecast for the year ending March 31, 2007,
since we originally announced it on May 17, 2006.
Cautionary Statement with Respect to Forward-Looking Statements:
Statements made in this document with respect to our current plans, estimates, strategies and beliefs,
including the above forecasts, are forward-looking statements about our future performance. These
statements are based on management's assumptions and beliefs in light of information currently
available to it and, therefore, you should not place undue reliance on them. A number of important
factors could cause actual results to be materially different from and worse than those discussed in
forward-looking statements. Such factors include, but are not limited to: (i) changes in economic
conditions affecting our operations; (ii) fluctuations in currency exchange rates, particularly with
respect to the value of the Japanese yen, the U.S. dollar and the Euro; (iii) our ability to continue
to win acceptance of our products, which are offered in highly competitive markets characterized by
the continuous introduction of new products, rapid developments in technology and subjective and
changing consumer preferences; (iv) our ability to successfully expand internationally with a focus on
our video game software business, card game business and gaming machine business; (v) our ability to
successfully expand the scope of our business and broaden our customer base through our health &
fitness business; (vi) regulatory developments and changes and our ability to respond and adapt to
those changes; (vii) our expectations with regard to further acquisitions and the integration of any
companies we may acquire; and (viii) the outcome of contingencies.
1. Organizational Structure of the Konami Group
The Konami Group is a conglomerate engaged in the entertainment and health industry providing customers with ''High
Quality Life'' and is comprised of KONAMI CORPORATION (the ''Company''), and its 24 consolidated subsidiaries and one
equity-method affiliate. Each of the Company and its subsidiaries and affiliated companies is categorized into four
business segments based on its operations as stated below. This categorization is based on the same criteria explained
below under ''6. Segment Information (Unaudited).''
Business Segments Major Companies
Digital Entertainment Domestic Konami Digital Entertainment Co., Ltd.
HUDSON SOFT CO., LTD.
Internet Revolution Inc.
Konami Logistics & Service, Inc.(Note.3)
Overseas Konami Digital Entertainment, Inc.
Konami Digital Entertainment GmbH
Konami Digital Entertainment B.V.
Konami Digital Entertainment Limited
Konami Software Shanghai, Inc., One other company
Health & Fitness Domestic Konami Sports & Life Co., Ltd.
COMBI WELLNESS Corporation (Note.2)
Konami Logistics & Service, Inc. (Note.3)
Resort Solution Co., Ltd. (Note.5), Two other companies
Gaming & System Overseas Konami Gaming, Inc.
(Note.4) Konami Australia Pty Ltd., One other company
Other Domestic Konami Logistics & Service, Inc. (Note.3)
KPE, Inc. , Konami Real Estate, Inc.
Konami School, Inc., Two other companies
Overseas Konami Corporation of America
Konami Digital Entertainment B.V., One other company
Notes:
1. Companies that have operations categorized in more than one segment are included in each segment in which they
operate.
2. On May 31, 2006, the Company acquired all outstanding shares of COMBI WELLNESS Corporation and made it a wholly
owned subsidiary.
3. Konami Logistics & Service, Inc. changed its registered name to Konami Manufacturing & Service, Inc. on July 1,
2006.
4. Gaming segment was renamed to Gaming & System segment from October 1, 2005.
5. This is an equity method affiliate.
2. Business Performance and Cash Flows
1. Business Performance
Overview
In the entertainment industry in which Konami operates, Nintendo and Sony Computer Entertainment received keen
attention for their exhibits of the Wii home-use video game console (Nintendo) and PlayStation3 (Sony Computer
Entertainment) at E3 2006 (Electronic Entertainment Expo 2006), the worldfs largest digital entertainment trade show,
held in the United States on May 2006. Together with Microsoftfs Xbox 360 already released in the market, the
next-generation home-use video game consoles of all the relevant companies will be launched by the end of the current
term, and the demand for these consoles is expected to expand further.
In the health and fitness industry, Medical Service Reform Legislation enacted on June 2006 now clearly defines an
orientation towards the prevention of diseases. Consequently, efforts are now underway to maintain health by focusing
on the importance of routine exercise and the improvement of dietary habits.
Under these circumstances, in the Digital Entertainment segment, home-use video game software for soccer games was
sold steadily against the backdrop of the boom in the popularity of soccer worldwide. WORLD SOCCER Winning Eleven 10
(PlayStation2 version) released in April 2006, in the domestic market became a million-seller, with shipments of over
one million units. As for the baseball contents, in response to the diversified tastes of users, Konami released
home-use video game software with subjects derived from real baseball and major league baseball games, as well as
titles for mobile game consoles. Sales of game machines for amusement arcades also continued to increase steadily, and
Konami will strive to undertake further multi-faceted measures to develop baseball contents, including the sale of
card games and the release of JIKKYOU PAWAFURU YAKYU Game Board in cooperation with EPOCH CO., LTD.
In the Health & Fitness segment, as the demand for fitness clubs increases in response to moves to promote health and
curb the rising need for nursing-care, membership of KONAMI SPORTS CLUB is on the increase. In addition to this, as a
result of the scrap-and-build development of fitness club facilities and the review of programs (a notable trend at
Konami over the last few years), the profit structure of the operation of our fitness facilities has greatly improved.
Moreover, health support programs on a national level are being developed steadily and markets related to the health
service businesses are expected to expand further.
In the Gaming & System segment, Konami is aggressively promoting activities based on the reinforced business structure
which it had been pursuing in North America. Further, Konami started sales of casino management system on a full scale
in the fist half of the term and has steadily increased sales since then. Konami expects sales of this system to be a
source of stable profit, principally through the regular profits brought in from the maintenance and services for the
increased number of machines installed.
As a result, consolidated net revenues for the three months ended June 30, 2006 were Y57,628 million (120% of the
figure for the same period of the previous year), operating income was Y6,003 million (195.3% of the figure for the
same period of the previous year), income before income taxes was Y5,801 million (58.4% of the figure for the same
period of the previous year), and net income was Y2,120 million (39.0% of the figure for the same period of the
previous year). In addition, income before income taxes and net income for the three months ended June 30, 2006
decreased compared to the three months ended June 30, 2005. This is due primarily to Y6.9 billion of gain on sale of
shares of TAKARA CO., LTD. for the three months ended June 30, 2005.
Performance by business segment
Summary of net revenues by business segment:
Millions of Yen
Three months Three months % of previous
ended ended period
June 30, 2005 June 30, 2006
Digital Entertainment Y25,573 Y 32,038 125.3
Health & Fitness 19,662 21,313 108.4
Gaming & System 2,683 3,501 130.5
Other, Corporate and Eliminations 111 776 699.1
Consolidated net revenues Y48,029 Y57,628 120.0
(Note)
The Gaming segment was renamed to the Gaming & System segment from October 1,
2005.
Digital Entertainment Segment
In the Computer & Video game business, the PlayStation2 version of WORLD SOCCER Winning Eleven 10 recorded a million
sales in the domestic market for video game software. With increased interest in baseball, titles such as the
PlayStation2 version of JIKKYO PAWAFURU MAJOR LEAGUE and PROYAKYU SPIRITS3 recorded steady sales. In overseas, Pro
Evolution Soccer 5 released in October 2005, for the European market maintained steady sales. The PlayStation portable
version of METAL GEAR ACID2 for the European market was also popular.
In the Toy & Hobby business, sales of the globally popular Yu-Gi-Oh! Trading Card Game series continued to grow
steadily. Konami has built up a diverse line-up of products in trading card games, toys for infants, and figures and
character goods, including a recently released series of trading cards for the popular comic DEATH NOTE.
In the Amusement business, the MAH-JONG FIGHT CLUB series and BASEBALL HEROES (the first arcade game in the industry to
use the cards with images of professional baseball players) two products available in the e-AMUSEMENT line of services
connecting amusement arcades all over Japan through the network, continued to record strong sales. WORLD SOCCER Winning
Eleven 2006 ARCADE CHAMPIONSHIP, the latest arcade version of the WORLD SOCCER Winning Eleven series, was released and
gained wide popularity. As for token-operated games, PRECIOUSPARTY, a real-time online bingo game, received wide
acclaim in the market.
In the Online business, following Yu-Gi-Oh! ONLINE and Tokimeki Memorial ONLINE, two titles already distributed as
online game services, Konami is scheduled to launch online services for BUSOU SHINKI, its original content, in
September 2006. Through these and other efforts, Konami will actively promote online games, a business expected to grow
in the future. The distribution of mobile contents, a business Konami is promoting globally through famous telecom
carriers both in Japan and in various countries of the world, is also growing steadily.
In the Multimedia business, music CDs and DVDs tied up with music game series and official guidebooks for popular video
game software grew steadily. Moreover, the first issue of our new bimonthly Soccer Culture Magazine WE-ELe was launched
and broadcasting of FAIRY MUSKETEERS AKAZUKIN, an original TV animation, started in July 2006. Through these efforts,
Konami will venture into a new market genre although we will also continue to create original contents by striving to
improve synergy with our other areas of digital entertainment.
As a result, consolidated net revenues in the Digital Entertainment segment for the three months ended June 30, 2006
amounted to Y32,038 million (125.3% of the figure for the same period of the previous year).
Health & Fitness Segment
In the operation of our fitness club business, a new facility was opened in Yokohama (Kanagawa) in June, and a facility
in Sanda (Hyogo) was transferred and consolidated into expanded facilities. Members, both individual and corporate,
increased steadily from the previous term. The use of paid programs and Wellness grew steadily as well.
In the operation of sports facilities outsourced to us, Konami added 34 facilities, including one in Ichinomiya-shi
(Aichi) and one Osaka-shi (Osaka), increasing the number of facilities to 101 in Japan as of the end of June 2006. We
will make our utmost efforts to maximize our know-how in the management of public facilities and to promote health for
the people of the community.
As a new undertaking in the sports facilities business, we started to accept subscriptions for Hatsuratsu Kenko-jyuku,
a health promotion program suited for the aged. Aged persons and anyone else who may feel out of the habit of
exercising or deprived of opportunities to go out may participate in the Hatsuratsu Kenko-jyuku. Through Hatsuratsu
Kenko-jyuku, a program structured to enable anyone who has never used a sports facility before to use one safely and
easily, we intend to propose new lifestyles for the participants.
In efforts towards product development, Konami exhibited five ''training machines with functions of care prevention, ''
including massugu sesuji (straight backbone), at ''Health & Fitness Japan 2006'' held at Tokyo Big Site in June. All
five of these fitness products received favorable reviews. These machines will be sold for use by local governments,
medical institutions, and private day service and nursing-care facilities from autumn this year. BODYJAM, a new B.T.S.
program was exhibited for the first time in Japan at ''Health & Fitness Japan 2006, '' fascinated visitors. COMBI
WELLNESS Corporation, a company made into a wholly owned subsidiary in May 2006, also exhibited many products which
attracted great attention.
As a result, consolidated net revenues in the Health & Fitness segment for the three months ended June 30, 2006
amounted to Y21,313 million (108.4% of the figure for the same period in the previous year) .
Gaming & System Segment
In the Gaming & System segment, sales of ''Konami Casino Management System'' in North America are growing steadily. In
accordance with a sales agreement concluded in the previous year, Konami completed the installation of the Casino
Management System in the first casino established in Quebec province. The number of machines connected increased, and
sales from maintenance/services are also increasing steadily. We have also installed slot machines under profit-sharing
agreements, in an effort to generate steady revenues and lead to more stable management. K2V, the platform launched in
the previous year, is also being received well in the markets, and sales of gaming machines are also increasing
steadily. Casinos are expected to be legalized in the State of Pennsylvania, where Konami expects great demand and is
presently preparing to acquire a license.
In Australia, where the gaming market remains basically unchanged, we have secured profit through the sales of link
progressives which connect gaming machines and raise the added value of the contents. In the overseas markets of
Europe, Asia, and South America, we have secured profit through the development of new business and our stable customer
base.
As a result, consolidated net revenues in the Gaming & System segment for the three months ended June 30, 2006 amounted
to Y3,501 million (130.5% of the figure for the same period in the previous year).
(2) Cash Flows
Cash flow summary for the three months ended June 30, 2006:
Millions of Yen
Three months Three months
ended ended
June 30, 2005 June 30, 2006
Net cash provided by (used in) operating activities Y (4,462) Y 3,029
Net cash provided by (used in) investing activities 8,874 (2,409)
Net cash used in financing activities (4,357) (4,934)
Effect of exchange rate changes on cash and cash (360) 138
equivalents
Net decrease in cash and cash equivalents (305) (4,176)
Cash and cash equivalents, end of the period 89,278 64,518
Cash and cash equivalents ('cash') as of June 30, 2006, amounted to Y64,518 million, decreased by Y4,176 million
compared to the balance as of March 31, 2006, or 72.3% of the balance as of June 30, 2005. Each cash flow for the three
months ended June 30, 2006 is as follows.
Cash flows from operating activities:
Cash provided by operating activities amounted to Y3,029 million for the three months ended June 30, 2006, compared to
cash used in operating activities of Y4,462 million for the three months ended June 30, 2005. This was primarily due to
the decrease in net income which included gain on sales of shares of affiliated company for the previous period and
also due to the decrease in payment of income taxes.
Cash flows from investing activities:
Cash used in investing activities amounted to Y2,409 million for the three months ended June 30, 2006, compared to cash
provided by investing activities of Y8,874 million for the three months ended June 30, 2005. This was primarily due to
the decrease in proceeds from sales of affiliated companies included in previous period cash flow and also due to the
increase in capital expenditures.
Cash flows from financing activities:
Cash used in financing activities amounted to Y4,934 million for the three months ended June 30, 2006, increased by
Y577 million compared to the three months ended June 30, 2005. This was primarily due to the increase in dividends
paid, according to the increase in total number of shares outstanding.
3. Consolidated Balance Sheets (Unaudited)
Millions of Yen Thousands of
U.S. Dollars
March 31, 2006 June 30, 2006 June 30, 2006
% %
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Y 68,694 Y 64,518 $ 559,858
Trade notes and accounts receivable, 32,294 24,163 209,675
net of allowance for doubtful accounts
of /541 millions and / 526 millions
($4,564 thousands) at March 31, 2006
and June 30, 2006, respectively
Inventories 20,109 24,496 212,565
Deferred income taxes, net 16,510 16,416 142,451
Prepaid expenses and other current 6,720 8,021 69,602
assets
Total current assets 144,327 47.7 137,614 46.7 1,194,151
PROPERTY AND EQUIPMENT, net 42,452 14.0 41,188 14.0 357,411
INVESTMENTS AND OTHER ASSETS:
Investments in marketable securities 572 442 3,835
Investments in affiliates 6,050 5,996 52,031
Identifiable intangible assets 38,575 38,414 333,339
Goodwill 22,102 22,606 196,165
Lease deposits 25,277 25,531 221,546
Other assets 20,103 19,173 166,374
Deferred income taxes, net 3,179 3,695 32,064
Total investments and other assets 115,858 38.3 115,857 39.3 1,005,354
TOTAL ASSETS Y 100.0 Y 100.0 $ 2,556,916
302,637 294,659
Millions of Yen Thousands of
U.S. Dollars
March 31, 2006 June 30, 2006 June 30, 2006
% %
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings Y 958 Y 601 $ 5,215
Current portion of long-term debt and 24,492 24,158 209,632
capital lease obligations
Trade notes and accounts payable 19,357 19,700 170,948
Accrued income taxes 7,487 1,879 16,305
Accrued expenses 16,323 15,512 134,606
Deferred revenue 5,353 5,618 48,750
Other current liabilities 7,254 7,410 64,301
Total current liabilities 81,224 26.9 74,878 25.4 649,757
LONG-TERM LIABILITIES:
Long-term debt and capital lease 35,631 34,747 301,519
obligations, less current portion
Accrued pension and severance costs 2,658 2,577 22,362
Deferred income taxes, net 11,924 12,575 109,120
Other long-term liabilities 5,264 5,191 45,045
Total long-term liabilities 55,477 18.3 55,090 18.7 478,046
TOTAL LIABILITIES 136,701 45.2 129,968 44.1 1,127,803
MINORITY INTEREST IN 2,121 0.7 2,330 0.8 20,219
CONSOLIDATED SUBSIDIARIES
COMMITMENTS AND CONTINGENCIES - - - - -
STOCKHOLDERS' EQUITY:
Common stock, no par value-
Authorized 450,000,000 shares; issued 47,399 15.7 47,399 16.1 411,307
143,555,786 shares at March 31, 2006
and June 30, 2006, respectively;
outstanding 137,152,347 shares at March
31, 2006 and 137,155,932 shares at June
30, 2006
Additional paid-in capital 77,110 25.5 77,218 26.2 670,063
Legal reserve 284 0.1 284 0.1 2,464
Retained earnings 53,756 17.7 52,174 17.7 452,742
Accumulated other comprehensive income 3,957 1.3 3,966 1.3 34,415
Total 182,506 60.3 181,041 61.4 1,570,991
Treasury stock, at cost-
6,403,439 shares and 6,399,854 shares (18,691) (6.2) (18,680) (6.3) (162,097)
at March 31, 2006 and June 30, 2006,
respectively
Total stockholders' equity 163,815 54.1 162,361 55.1 1,408,894
TOTAL LIABILITIES, MINORITY INTERESTS
AND STOCKHOLDERS' EQUITY Y 302,637 100.0 Y 294,659 100.0 $ 2,556,916
4. Consolidated Statements of Operations (Unaudited)
Millions of Yen Thousands of U.S.
Dollars
Three months Three months ended
ended June 30, June 30,
2005 2006 2006
% %
NET REVENUES:
Product sales revenue Y 30,409 Y 38,062 $ 330,285
Service revenue 17,620 19,566 169,784
Total net revenues 48,029 100.0 57,628 100.0 500,069
COSTS AND EXPENSES:
Costs of products sold 17,153 21,007 182,289
Costs of services rendered 16,707 18,525 160,751
Selling, general and administrative 11,095 12,093 104,938
Total costs and expenses 44,955 93.6 51,625 89.6 447,978
Operating income 3,074 6.4 6,003 10.4 52,091
OTHER INCOME (EXPENSES):
Interest income 141 226 1,961
Interest expense (232) (273) (2,369)
Gain on sale of shares of an affiliated 6,917 - -
company
Other, net 27 (155) (1,345)
Other income (expenses), net 6,853 14.3 (202) (0.4) (1,753)
INCOME BEFORE INCOME TAXES, MINORITY INTEREST 9,927 20.7 5,801 10.0 50,338
AND EQUITY IN NET INCOME OF AFFILIATED
COMPANIES
INCOME TAXES 4,380 9.2 3,470 6.0 30,111
INCOME BEFORE MINORITY INTEREST AND EQUITY IN 5,547 11.5 2,331 4.0 20,227
NET INCOME OF AFFILIATED COMPANIES
MINORITY INTEREST IN INCOME OF 108 0.2 214 0.3 1,857
CONSOLIDATED SUBSIDIARIES
EQUITY IN NET INCOME OF AFFILIATED COMPANIES - - 3 0.0 26
NET INCOME Y 5,439 11.3 Y 2,120 3.7 $ 18,396
PER SHARE DATA: Yen U.S. Dollars
Three months ended June 30, Three months ended
June 30,
2005 2006 2006
Basic net income per share Y 41.75 Y 15.46 $0.13
Diluted net income per share Y 41.75 Y 15.45 $0.13
Weighted-average common shares outstanding 130,287,026 137,154,887
Dilutive weighted-average common shares 130,287,026 137,218,238
outstanding
5. Consolidated Statements of Cash Flows (Unaudited)
Millions of Yen Thousands of
U.S. Dollars
Three months Three months Three months
ended ended ended
June 30, 2005 June 30, 2006 June 30, 2006
Cash flows from operating activities:
Net income Y 5,439 Y 2,120 $ 18,396
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 2,157 2,625 22,779
Provision for doubtful receivables (148) (9) (78)
Gain on sale of shares of an affiliated (6,917) - -
company
Equity in net income of affiliated - (3) (26)
companies
Minority interest 108 214 1,857
Deferred income taxes 3,932 801 6,951
Change in assets and liabilities, net of
business acquired:
Decrease in trade notes and accounts 11,587 8,533 74,045
receivable
Increase in inventories (5,309) (4,375) (37,964)
Decrease in trade notes and accounts (592) (38) (330)
payable
Decrease in accrued income taxes (10,956) (5,745) (49,852)
Increase (decrease) in accrued expenses (2,544) 30 260
Increase (decrease) in deferred revenue 177 (265) (2,300)
Other, net (1,396) (859) (7,453)
Net cash provided by (used in) operating (4,462) 3,029 26,285
activities
Cash flows from investing activities:
Capital expenditures (1,061) (2,125) (18,440)
Proceeds from sales of shares of an 11,016 - -
affiliated company
Acquisition of a new subsidiary, net of - (227) (1,970)
cash, acquired
Decrease in time deposits, net (623) - -
Purchase of minority interests (504) - -
Decrease (increase) in lease deposits, net 91 (20) (174)
Other, net (45) (37) (321)
Net cash provided by (used in) investing 8,874 (2,409) (20,905)
activities
Cash flows from financing activities:
Decrease in short-term borrowings (775) (352) (3,054)
Repayments of long-term debt (246) (228) (1,978)
Principal payments under capital lease (301) (654) (5,675)
obligations
Dividends paid (3,039) (3,673) (31,873)
Purchases of treasury stock by parent (16) (49) (425)
company
Other, net 20 22 190
Net cash used in financing activities (4,357) (4,934) (42,815)
Effect of exchange rate changes on cash and (360) 138 1,198
cash equivalents
Decrease in cash and cash equivalents (305) (4,176) (36,237)
Cash and cash equivalents, beginning of the 89,583 68,694 596,095
period
Cash and cash equivalents, end of the Y 89,278 Y 64,518 $ 559,858
period
6. Segment Information (Unaudited)
a . Operations in Different Industries
Three months Digital Health & Gaming & Other, Consolidated
ended Entertainment Fitness System corporate and
Eliminations
June 30, 2005
(Millions of Yen)
Net revenue:
Customers Y 25,277 Y 19,641 Y 2,683 Y 428 Y 48,029
Intersegment 296 21 - (317) -
Total 25,573 19,662 2,683 111 48,029
Operating 20,263 19,483 2,372 2,837 44,955
expenses
Operating income Y 5,310 Y 179 Y 311 Y (2,726) Y 3,074
(loss)
Three months Digital Health & Gaming & Other, Consolidated
ended Entertainment Fitness, System corporate and
Eliminations
June 30, 2006
(Millions of Yen)
Net revenue:
Customers Y 31,678 Y 21,295 Y 3,501 Y 1,154 Y 57,628
Intersegment 360 18 - (378) -
Total 32,038 21,313 3,501 776 57,628
Operating 25,469 19,545 3,094 3,517 51,625
expenses
Operating income Y 6,569 Y 1,768 Y 407 Y (2,741) Y 6,003
(loss)
Three months Digital Health & Gaming & Other, Consolidated
ended Entertainment Fitness, System corporate and
Eliminations
June 30, 2006
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 274,887 $ 184,788 $ 30,380 $ 10,014 $ 500,069
Intersegment 3,124 156 - (3,280) -
Total 278,011 184,944 30,380 6,734 500,069
Operating 221,008 169,603 26,848 30,519 447,978
expenses
Operating income $ 57,003 $ 15,341 $ 3,532 $ (23,785) $ 52,091
(loss)
Notes: 1. Primary businesses of each segment are as follows:
Digital Entertainment Segment: include following five business areas
Computer & Video Games: Production, manufacture and sale of video game software for
consoles.
Distribution of video game software produced.
Toy & Hobby: Planning, production, manufacture and sale of card games,
electronic toys, toys for boys, candy toys, figures, character goods
and others.
Amusement: Production, manufacture and sale of the contents for
amusement facilities such as video games and token-operated games.
Online: Production of online game software. Creation of systems
for online games. Management and operation of online servers. Production and
distribution of the contents for mobile phones.
Multimedia: Planning, production and sale of the products related to
music and video.
Planning, production and sale of books and magazines.
Health & Fitness Segment Management of fitness clubs. Production, manufacture and sale of fitness
machines and health-related products.
Gaming & System Segment Production, manufacture and sale of gaming machines for casinos and casino
management systems.
2. 'Other' consists of segments which do not meet the quantitative criteria for separate
presentation under SFAS No. 131 'Disclosures about Segments of an Enterprise and Related
Information.'
3. 'Corporate' primarily consists of administrative expenses of the Company.
4. 'Eliminations' primarily consist of eliminations of intercompany sales and of intercompany
profits on inventories.
5. Intersegment revenues primarily consist of sales of hardware and components from Digital
Entertainment segment to Health & Fitness segment.
6. The Gaming segment was renamed to the Gaming & System segment from October 1, 2005.
b . Operations in Geographic Areas
Three months ended Japan United Europe Asia Total Eliminations Consolidated
States
June 30, 2005 /Oceania
(Millions of Yen)
Net revenue:
Customers Y 38,332 Y 5,245 Y 2,338 Y 2,114 Y 48,029 - Y 48,029
Intersegment 5,886 183 - 45 6,114 / (6,114) -
Total 44,218 5,428 2,338 2,159 54,143 (6,114) 48,029
Operating expenses 40,907 5,605 2,962 1,591 51,065 (6,110) 44,955
Operating income Y 3,311 Y (177) Y (624) Y 568 Y 3,078 Y (4) Y 3,074
(loss)
Three months ended Japan United Europe Asia Total Eliminations Consolidated
States
June 30, 2006 /Oceania
(Millions of Yen)
Net revenue:
Customers Y 47,753 Y 5,148 Y 2,958 Y 1,769 Y 57,628 - Y 57,628
Intersegment 3,752 200 122 35 4,109 Y (4,109) -
Total 51,505 5,348 3,080 1,804 61,737 (4,109) 57,628
Operating expenses 45,358 5,686 3,234 1,575 55,853 (4,228) (51,625)
Operating income Y 6,147 Y (338) Y (154) Y 229 Y 5,884 Y 119 Y 6,003
(loss)
Three months ended Japan United Europe Asia Total Eliminations Consolidated
States /Oceania
June 30, 2006
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 414,379 $ 44,671 $ 25,668 $ 15,351 $ 500,069 - $ 500,069
Intersegment 32,558 1,736 1,059 303 35,656 $ (35,656) -
Total 446,937 46,407 26,727 15,654 535,725 (35,656) 500,069
Operating expenses 393,596 49,340 28,063 13,667 484,666 (36,688) (447,978)
Operating income $ 53,341 $ (2,933) $ (1,336) $ 1,987 $ 51,059 $ 1,032 $ 52,091
(loss)
Note: For the purpose of presenting its operations in geographic areas above,
the Company and its subsidiaries attribute revenues from external customers to
individual countries in each area based on where products are sold and services
are provided.
Notes:
1. The consolidated financial statements presented herein were prepared in accordance with U.S. generally
accepted accounting principles (''U.S. GAAP'').
2. Comprehensive income for the three months ended June 30, 2005 and 2006 which consisted of the following:
Millions of Yen Thousands of
U.S. Dollars
Three months Three months Three months
ended ended ended
June 30, 2005 June 30, 2006 June 30, 2006
Net income Y 5,439 Y 2,120 $ 18,396
Other comprehensive income:
Foreign currency translation (66) 86 746
adjustments
Net unrealized gains (losses) 212 (77) (668)
on available-for-sale
securities 146 9 78
Comprehensive income Y 5,585 Y 2,129 18,474
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