3rd Quarter Results
Konami Corporation
03 February 2006
Consolidated Financial Results
for the Third Quarter Ended December 31, 2005
(Prepared in Accordance with U.S. GAAP)
February 3, 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, Executive Vice President and Chief Financial Officer
(Phone: +81-3-5220-0163)
1. Preparation Basis for Consolidated Financial Results for the Third Quarter Ended
December 31, 2005
(1) Adoption of U.S. GAAP: Yes
(2) Change in accounting policies: None
(3) Number of consolidated subsidiaries and affiliated companies accounted for by the equity
method
Number of consolidated subsidiaries: 22
Number of affiliated companies accounted for by the equity method: 0
(4) Changes in reporting entities
Number of consolidated subsidiaries added: 4
Number of consolidated subsidiaries removed: 9
Number of affiliated companies added: 0
Number of affiliated companies removed: 2
(5) Financial information presented herein was not audited by independent public accountants.
2. Consolidated Financial Results for the Third Quarter Ended December 31, 2005 and
for the Nine Months Ended December 31, 2005
(Amounts are rounded to the nearest million)
(1) Consolidated Results of Operations
(Millions of Yen, except per share data)
Net revenues Operating Change Income before income Change
income taxes
Change
Third quarter ended Y80,679 (1.0)% Y16,383 2.2% Y15,593 1.5%
December 31, 2005
Third quarter ended 81,494 (1.0) 16,037 20.4 15,355 18.5
December 31, 2004
Nine months ended 192,549 (1.5) 23,845 (14.5) 29,928 11.1
December 31, 2005
Nine months ended 195,503 (7.9) 27,888 (20.4) 26,941 (23.8)
December 31, 2004
Year ended March 31, 260,691 28,136 27,442
2005
Net income Change Net income Diluted net income
per share (Yen) per share (Yen)
Third quarter ended Y9,676 15.3% Y74.26 Y74.24
December 31, 2005
Third quarter ended 8,389 4.3 70.16 70.16
December 31, 2004
Nine months ended 16,640 66.2 127.70 127.68
December 31, 2005
Nine months ended 10,015 (47.0) 83.38 83.38
December 31, 2004
Year ended March 31, 2005 10,486 87.41 87.41
Notes:
1. Change (%) of net revenues, operating income, income before income taxes, and net income represents the increase or
decrease relative to the same period of the previous year
2. Equity in net income (loss) of affiliated companies
Third quarter ended December 31, 2005: - million
Third quarter ended December 31, 2004: Y135 million
Nine months ended December 31, 2005: - million
Nine months ended December 31, 2004: (2,416) million
Year ended March 31, 2005: (6,293) million
3. Weighted-average common shares outstanding (consolidated)
Third quarter ended December 31, 2005: 130,307,911 shares
Third quarter ended December 31, 2004: 119,567,336 shares
Nine months ended December 31, 2005: 130,306,094 shares
Nine months ended December 31, 2004: 120,116,594 shares
Year ended March 31, 2005: 119,970,052 shares
(2) Consolidated Financial Position
(Millions of Yen, except per share amounts)
Total Equity-assets Total stockholders'
stockholders'
Total assets equity Ratio equity per share (Yen)
December 31, 2005 Y319,784 Y140,762 44.0% Y1,080.22
December 31, 2004 306,874 103,445 33.7 865.78
March 31, 2005 304,321 105,857 34.8 885.97
Note:
Number of shares outstanding (consolidated)
December 31, 2005: 130,308,978 shares
December 31, 2004: 119,481,820 shares
March 31, 2005: 119,481,411 shares
(3) Consolidated Cash Flows
(Millions of Yen)
Net cash provided by (used in) Cash and
Operating Investing Financing cash equivalents
activities activities activities at end of period
Nine months ended December 31, 2005 Y6,831 Y 6,317 Y (29,013) Y 74,764
Nine months ended December 31, 2004 12,300 (11,173) (11,887) 76,719
Year ended March 31, 2005 27,760 (14,343) (11,670) 89,583
3. Forecast for the Year Ending March 31, 2006
(Millions of Yen)
Net revenues Operating income Income before Net income
income taxes
Year ending March 31, 2006 Y270,000 Y 28,500 Y 34,000 Y 18,000
Note:
Expected net income per share for the year ending March 31, 2006 is Y138.13.
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 exercise
entertainment 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 amusement and health industry providing customers with 'High
Quality Life' and is comprised of KONAMI CORPORATION ('the Company'), its 22 consolidated subsidiaries.
Each of the Company and its subsidiaries is categorized into business segments based on its operations as stated
below.
Business segment categorization is based on the same criteria explained below under '6. Segment Information
(Unaudited) '. However, Gaming Business Segment changed its name to Gaming & System Business Segment on October
1, 2005, as mentioned note 3 below.
Business Segments Major Companies
Digital Entertainment Domestic The Company (*1,2,3,4,6,Note 5,6)
(*5) (*3) HUDSON SOFT CO., LTD. (*4)
Konami Logistics & Service, Inc. (*8)
Overseas Konami Digital Entertainment, Inc.(*7)
Konami of Europe GmbH
Konami Software Shanghai, Inc.
Konami Corporation of Europe B.V.
Konami Marketing (Asia) Ltd.
Hudson Entertainment, Inc.(*4)
Health & Fitness Domestic The Company (Note 5)
(Note 3) Konami Sports Life Corporation (Note 5)
Konami Sports Corporation (Note 5)
Konami Logistics & Service, Inc. (*8)
Two other companies
Gaming & System Domestic The Company
(Note 3) Overseas Konami Gaming, Inc.
Konami Australia Pty Ltd., One other company
Other Domestic Konami Logistics & Service, Inc. (*8)
(Note 4) KPE, Inc. , Konami Real Estate, Inc.
Konami School, Inc., Two other companies
Overseas Konami Corporation of America
Konami Corporation of Europe 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. Primary changes in major companies for the year ended December 31, 2005 are as follows.
*1. The Company merged with Konami Computer Entertainment Studios, Inc., Konami Computer Entertainment Tokyo,
Inc., Konami Computer Entertainment Japan, Inc., Konami Online, Inc. and Konami Media Entertainment, Inc. on
April 1, 2005.
*2. The Company merged with Konami Traumer, Inc. on June 1, 2005.
*3. The Company has sold its entire shares of TAKARA Co., LTD, an equity-method affiliate, and has dissolved its
equity relationship on April 25, 2005.
*4. As a result of the Company's acceptance of a third party allotment of additional shares on April 27, 2005,
HUDSON SOFT CO., LTD, an equity-method affiliate, became a 53.99% owned consolidated subsidiary of the Company.
Hudson Entertainment, Inc., a subsidiary of HUDSON CO., LTD, became a consolidated subsidiary of the Company.
*5. Digital Entertainment segment comprises previous Computer & Video Games segment, Toy & Hobby segment,
Amusement segment, online business took over from Konami Online, Inc. and multimedia business took over from
Konami Media Entertainment, Inc. on April 1, 2005.
*6. The Company merged with Konami Marketing Japan, Inc. on October 1, 2005.
*7. Konami Digital Entertainment, Inc. merged with Konami Marketing, Inc. on October 1, 2005.
*8. The Company has established a new company, Konami Logistics & Service, Inc, on October 1, 2005.
3. Gaming segment had changed its name to Gaming & System segment from October 1, 2005.
4. The Company and Internet Initiative Japan Inc. have established a joint venture company, Internet Revolution
Inc. on February 1, 2006.
5. Konami Sports Life Corporation and Konami Sports Corporation will merge on February 28, 2006, with
Konami Sports Corporation as the surviving company. With the completion of the merger, the Company and
Konami Sports Corporation will execute a share exchange on March 1, 2006, which will make the Company
the sole parent company and Konami Sports Corporation the wholly owned subsidiary.
6. The company will execute a company separation on March 31, 2006, with the Company as the separating
company and a newly established Konami Digital Entertainment Co., Ltd. as the succeeding company.
2. Business Performance and Cash Flows
1. Business Performance
(1) Overview
New markets continued to open up in the entertainment industry, as Nintendo and Sony released new portable game
consoles. In the health industry, demand for fitness clubs among middle-aged and senior consumers, our main target
market, has been rising as Japan's population ages. The demand in the gaming industry, such as casinos, is expanding as
legalized casino areas increase.
The following is a review of the Company's performance during the term. In the computer and video game business, in our
Digital Entertainment segment, the multiplatform version of the Pro Evolution Soccer series, which was developed for
the European market, was released, and global sales of card games generated high sales volumes. As selection and
concentration of contents progressed, and there was growth in business, the business recorded improved sales compared
to the same period of the previous year.
In the Health & Fitness segment, we expanded our network of sports facilities and, in an effort to further boost
quality of service, we made steady progress in installing our original e-XAX IT health management system, primarily in
newly-opened Konami Sports Clubs. Many Konami Sports Club members took part in the Honolulu Marathon 2005, which Konami
Sports Corporation cosponsored in December 2005.
In the Gaming & Systems segment, in October 2005, we concluded a sales agreement for the Konami Casino Management
System with Casiloc, Inc., a casino operator under the management of the government of Quebec in Canada. We plan to
continue to expand sales of the system and create a basis which will enable us to earn steady revenue.
As a result, consolidated net revenues stood at Y 80,679 million for the three months ended December 31, 2005 (99.0
percent of the figure for the same period of the previous year), and Y 192,549 million for the nine months ended
December 31, 2005 (98.5 percent of the figure for the same period of the previous year). Consolidated operating income
stood at Y 16,383 million for the three months ended December 31, 2005 (102.2 percent of the figure for the same period
of the previous year), and Y 23,845 million for the nine months ended December 31, 2005 (85.5 percent of the figure for
the same period of the previous year). Consolidated net income stood at Y 9,676 million for the three months ended
December 31, 2005 (115.3 percent of the figure for the same period of the previous year) and Y16,640 million for the
nine months ended December 31, 2005 (166.2 percent of the figure in the same period of the previous year).
(2) Group restructuring (merger between subsidiaries, share exchange with subsidiary) and shift to holding company
structure by company separation
The Company and two of its subsidiaries, Konami Sports Life Corporation (hereafter referred as 'Konami Sports Life')
and Konami Sports Corporation (hereafter referred as 'Konami Sports'), based on the basic agreement entered into on
November 7, 2005, formally agreed to merge Konami Sports Life into Konami Sports, to effect share exchange between the
Company and the merged Konami Sports, and to shift to a holding company structure by company separation at the
respective meeting of their Boards of Directors' held on January 5, 2006, and the related merger agreement, share
exchange agreement and separation planning documents were approved in the Extraordinary General Meeting of
Shareholders' held on January 26, 2006.
The merger between Konami Sports Life and Konami Sports will be effected on February 28, 2006 with Konami Sports as a
surviving company. On March 1, 2006, the share exchange between the Company and the merged Konami Sports will be
executed, in which the Company will become the sole parent company. After this share exchange, Konami Sports will
change its registered name to Konami Sports & Life Corporation.
On March 31, 2006, the Company will execute a company separation, in which a newly established wholly owned subsidiary,
Konami Digital Entertainment Co., Ltd., will take over Konami's digital entertainment business and the group will shift
to a holding company structure.
The Konami group, under the new holding company structure, will endeavor to increase enterprise value and shareholder
value and fulfill the social responsibility of the group by achieving the main objectives as set forth below.
1. Improving management transparency
Konami group will endeavor to strengthen group governance through taking this opportunity to shift to a holding company
structure, to build on the work on corporate governance we have done actively until now.
We will pursue management transparency by further strengthening of our group management structure, separating the
decision and supervision functions of the group, delineating the execution function in each business clearly, speeding
up our management decision making and executing business evaluation and allocating management resources from our
shareholders' point of view.
2. Creating a speedy and flexible management structure.
We will make clear the position within our group that each of the Digital Entertainment Business, Health & Fitness
Business and Gaming & System Business have within our group and try to respond more speedily and flexibly to change in
each business environment, with each of our group companies pursuing its area of specialty and creativity in each
business area. In addition, we will try to create a structure that can execute business tie-ups, capital acquisitions
and other activities more quickly.
3. Creating a complete profit responsibility structure.
We will make our profit responsibility structure clear by assessing the profitability of each business more completely.
The holding company will have functions of planning the corporate strategy of the entire group, planning for investment
projects through the allocation of management resources and checking the status of business execution within each
subsidiary. Business subsidiaries will make timely and speedy decisions in each company's business area. Thus, we will
aim to maximize our business values at the Konami group level.
(3) Performance by Business Segment
Summary of net revenues by business segment:
Millions of Yen
Nine months ended Nine months ended
December 31, 2004 December 31, 2005
Digital Entertainment Y123,210 Y124,110
Health & Fitness 59,687 60,859
Gaming & System 8,661 8,000
Other, Corporate and 3,945 (420)
Eliminations
Consolidated net revenues Y195,503 Y192,549
*1 Computer & Video Games Segment, Toy & Hobby Segment and Amusement Segment were recognized as the Digital
Entertainment Segment effective April 1, 2005. Thus, records in previous fiscal year are reclassified into the new
business segment.
*2 Gaming segment had changed its name to Gaming & System segment from October 1, 2005.
Digital Entertainment segment:
In the computer and video game business, METAL GEAR SOLID 3 SUBSISTENCE and JIKKYOU PAWAFURU PUROYAKYU 12, KETTEIBAN,
both for PlayStation2, recorded strong sales in the Japanese market. For portable game consoles, two new software
titles were released: METAL GEAR ACID 2 for the PSP, and Pawapurokun Pocket 8 for the Nintendo DS. Overseas, a
multiplatform version of the Pro Evolution Soccer series was released in Europe, and has generated larger sales volumes
compared to previous year. In the United States, Castlevania: Curse of Darkness and the Dance Dance Revolution series
have both enjoyed strong sales.
In the toy & hobby business, the Yu-Gi-Oh! card game series, which has established a strong presence for itself on
the global market, continued to record strong sales. Meanwhile the SAZER X toy series, as the third wave in the
Choseishin series, was released to coincide with the debut of the TV program which started broadcast this October.
In the Amusement business, 'e-AMUSEMENT' service, which brings Konami together with entertainment centers across
Japan in a network, we have started a never-before-seen video game called Baseball Heroes, played by using cards
with images of professional baseball players, and QUIZ MAGIC ACADEMY++V, the latest version of a series of
head-to-head online quiz games. Music game series have continued to record strong sales. As for token-operated
games, the large-sized horseracing machines GI-HORSEPARK and GI-TURFWILD 2, have both established themselves as
market favorites.
In the online business, soccer match-up service became available online in Europe and Japan with the WORLD SOCCER
Winning Eleven series. Meanwhile Yu-Gi-Oh! ONLINE, came into full service in April 2005, expanded to Korea in
December. Furthermore, we made steady progress in the global expansion of our mobile content distribution services
via major carriers based in Japan and around the world. And our mobile site in Japan, Konami Net DX, unveiled online
versions of such games as PAWAPURO world, Winning Eleven Mobile, and QUIZ MAGIC ACADEMY, already popular favorites
in the home and the arcade.
In the multimedia business, we brought out several guides to playing popular video games, along with sound tracks on
CD, which earned favorable reviews. We also released a series of products tied in with our own original animated TV
program, GOKUJO SEITOKAI, and also released music CD album JAFRSAX2 by the group JAFROSAX, which performs danceable
jazz.
As a result, consolidated net revenues in the Digital Entertainment segment totaled Y 57,439 million for the three
months ended December 31, 2005, and Y124,110 million for the nine months ended December 31, 2005.
Health & Fitness segment:
We have two service brands optimized for adults in the fitness club management business, XAX and GRANCISE. They offer a
full assortment of services, including relaxing studio programs such as Yoga and Pilates. Meanwhile we have been
bringing in the e-XAX IT health management system, which incorporates the Konami Group's latest technology and has the
capability to manage individuals' personal training routine; to design exercise programs and recommend training
techniques better suited to individual members. In this way we encourage customers to make repeat visits keep coming
back to our facilities.
Our Undo-Jyuku service brand offers programs optimized for children, the goal of which is to cultivate a sound mind and
intellect in a sound body by expanding children's potential through sports. Through special events at the Nature Child
Camp in Hakuba and elsewhere, Undo-Jyuku emphasizes the importance of enjoying regular exercise.
In December 2005 the Konami Sports Tennis School Nishikasai (Tokyo) moved to a dedicated building with four indoor and
two outdoor courts.
During the fourth quarter of the fiscal year, three new facilities are slated to open their doors, including the Konami
Sports Club Honten Nishinomiya (Hyogo Prefecture), the largest facility in Japan with a fifty-meter regulation-size
pool, and two other facilities to be relocated. We will thus continue to expand our Japan-wide network of Konami Sports
Clubs while enhancing safety and comfort.
Drawing on the expertise that we have built up over the past thirty years of proven success in running our own
facilities, we are helping people in communities everywhere become fitter.
We enhance our services by sponsoring special events, including a special tennis program featuring Shuzo Matsuoka as
adviser and by participating in an overseas tour, including the annual Honolulu Marathon.
As a result, consolidated net revenues in the Health & Fitness segment totaled Y 20,250 million for the three months
ended December 31, 2005, and Y 60,859 million for the nine months ended December 31, 2005.
Gaming & Systems segment:
In North America, we concluded a sales agreement for the Konami Casino Management System with Casiloc, Inc., a casino
operator under the management of the government of Quebec in Canada on October 2005. Under this agreement Konami
equipment will be installed in three casinos located in the province of Quebec (the Casino de Montreal, the Casino du
Lac-Leamy, and the Casino de Charlevoix), and a total of some 6,300 slot machines will be linked to a network. We plan
to continue to expand sales of system to enable us to earn steady revenue. Sales of the new K2V video slot machine
platform, meanwhile, have been steady, and we are taking steps to achieve steady revenues by signing profit-sharing
agreements when installing new machines.
Exports to Europe, Asia, and South America have been steady, and we have maintained our presence on the Australian
market as well.
As a result, consolidated net revenues in the Gaming & System segment totaled Y 3,273 million for the three months
ended December 31, 2005, and Y 8,000 million for the nine months ended December 31, 2005.
2. Cash Flows
Cash flow summary for the nine months ended December 31, 2005:
Millions of Yen
Nine months ended Nine months ended Year ended March 31,
December 31, 2004 December 31, 2005 2005
Net cash provided by Y12,300 Y6,831 Y27,760
operating activities
Net cash provided by (11,173) 6,317 (14,343)
investing activities
Net cash used in financing (11,887) (29,013) (11,670)
activities
Effect of exchange rate 594 1,046 951
changes on cash and
cash equivalents
Net increase (decrease) in (10,166) (14,819) 2,698
cash and cash
equivalents
Cash and cash 76,719 74,764 89,583
equivalents, end of the
period
Cash and cash equivalents (hereafter referred as 'cash') for the three months ended December 31, 2005,
amounted to Y 74,764 million, a decrease of Y 14,819 million compared to the fiscal year ended March 31,
2005.
Cash flows from operating activities:
Net cash provided by operating activities amounted to Y 6,831 million for the nine months ended December
31, 2005. Net income increased substantially compared to the nine months ended December 31, 2004. However,
as a result of a gain on sale of shares of an affiliated company of Y 6,917 million, which do not effect
cash flow from operating activities and the increase in deferred income taxes which is included in the net
income, net cash provided by operating activities for the nine months ended December 31, 2005 has
decreased Y 5,469 million compared to the nine months ended December 31, 2004.
Cash flows from investing activities:
Net cash provided by operating activities amounted to Y 6,317 million for the nine months ended December
31, 2005. This was primarily due to proceeds from sales of shares of affiliated companies of Y 11,016
million, proceeds from sales of property and equipment of Y 2,545 million and Y 7,154 million in capital
expenditures. As a result, increase in Y 17,490 million was recognized compared to nine months ended
December 31, 2004.
Cash flows from financing activities:
Net cash used in financing activities amounted to Y 29,013 million for the nine months ended December 31,
2005. This was primarily due to the redemption of bonds of Y 15,000 million and from dividends paid of Y
6,902 million. As a result, increase of Y 17,126 million in cash used in financing activities was
recognized compared to the nine months ended December 31, 2004.
3. Consolidated Balance Sheets (Unaudited)
Millions of Yen Thousands of
U.S. Dollars
December 31, December 31, March 31, 2005 December 31,
2004 2005 2005
% % %
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Y 76,719 Y 74,764 Y 89,583 $ 633,271
Trade notes and accounts 40,352 41,894 33,577 354,853
receivable, net
of allowance for doubtful
accounts of
Y795 million, Y523million
($4,430 thousand) and Y604
million at
December 31, 2004, December 31,
2005 and March 31, 2005,
respectively
Inventories 22,479 22,091 15,488 187,117
Deferred income taxes, net 14,456 14,635 18,392 123,962
Prepaid expenses and other 8,020 8,940 4,898 75,725
current assets
Total current assets 162,026 52.8 162,324 50.8 161,938 53.2 1,374,928
PROPERTY AND EQUIPMENT, net 47,381 15.4 51,246 16.0 46,595 15.3 434,068
INVESTMENTS AND OTHER ASSETS:
Investments in marketable 148 260 165 2,202
securities
Investments in affiliates 9,713 - 5,184 -
Identifiable intangible assets 46,344 45,913 45,991 388,895
Goodwill 463 15,471 849 131,044
Lease deposits 23,481 24,829 24,216 210,308
Other assets 17,318 19,741 19,383 167,212
Total investments and other 97,467 31.8 106,214 33.2 95,788 31.5 899,661
assets
TOTAL ASSETS Y 306,874 100.0 Y 319,784 100.0 Y 304,321 100.0 $ 2,708,657
Millions of Yen Thousands of
U.S. Dollars
December 31, December 31, March 31, 2005 December 31,
2004 2005 2005
% % %
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Short-term borrowings Y7,118 Y9,244 Y 8,582 $78,299
Current portion of long-term 17,735 24,166 16,727 204,693
debt and
capital lease obligations
Trade notes and accounts 17,623 18,663 16,134 158,081
payable
Accrued income taxes 25,320 23,828 28,372 201,830
Accrued expenses 21,799 18,265 19,875 154,709
Deferred revenue 5,808 5,694 5,396 48,230
Other current liabilities 5,180 5,577 4,741 47,237
Total current liabilities 100,583 32.8 105,437 33.0 99,827 32.8 893,079
LONG-TERM LIABILITIES:
Long-term debt and capital 52,133 33,248 52,780 281,620
lease obligations, less current
portion
Accrued pension and severance 2,393 2,605 2,344 22,065
costs
Deferred income taxes, net 20,757 15,383 16,147 130,298
Other long-term liabilities 2,302 6,266 1,879 53,075
Total long-term liabilities 77,585 25.3 57,502 18.0 73,150 24.0 487,058
TOTAL LIABILITIES 178,168 58.1 162,939 51.0 172,977 56.8 1,380,137
MINORITY INTEREST IN 25,261 8.2 16,083 5.0 25,487 8.4 136,228
CONSOLIDATED SUBSIDIARIES
COMMITMENTS AND - - - - - - -
CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value-
Authorized 450,000,000 shares; 47,399 15.4 47,399 14.7 47,399 15.6 401,482
issued 128,737,566 shares at
December 31, 2004 and March 31,
2005, 139,531,708 shares at
December 31, 2005
Additional paid-in capital 46,736 15.2 70,391 22.0 46,736 15.4 596,231
Legal Reserve - - 207 0.1 - - 1,753
Retained earnings 37,308 12.2 47,243 14.8 37,776 12.4 400,161
Accumulated other comprehensive 272 0.1 3,694 1.2 2,217 0.7 31,289
income
Total 131,715 42.9 168,934 52.8 134,128 44.1 1,430,916
Treasury stock, at cost-
9,255,746 shares, (28,270) (9.2) (28,172) (8.8) (28,271) (9.3) (238,624)
9,222,730shares and 9,256,155
shares at December 31, 2004,
December 31, 2005 and March 31,
2005, respectively
Total stockholders' equity 103,445 33.7 140,762 44.0 105,857 34.8 1,192,292
TOTAL LIABILITIES AND Y306,874 100.0 Y319,784 100.0 Y 304,321 100.0 $2,708,657
STOCKHOLDERS' EQUITY
4. Consolidated Statements of Operations (Unaudited)
(For the nine months ended December 31, 2005)
Millions of Yen Thousands of
U.S. Dollars
Nine months Nine months Year ended Nine months
ended December ended December ended
31, 2004 31, 2005 March 31, 2005 December 31,
2005
% % %
NET REVENUES:
Product sales revenue Y136,953 Y136,410 Y183,030 $1,155,429
Service revenue 58,550 56,139 77,661 475,513
Total net revenues 195,503 100.0 192,549 100.0 260,691 100.0 1,630,942
COSTS AND EXPENSES:
Costs of products sold 81,192 76,255 114,547 645,900
Costs of services rendered 49,625 54,080 65,816 458,072
Selling, general and 36,798 38,369 52,192 324,996
administrative
Total costs and expenses 167,615 85.7 168,704 87.6 232,555 89.2 1,428,968
Operating income 27,888 14.3 23,845 12.4 28,136 10.8 201,974
OTHER INCOME (EXPENSES):
Interest income 334 544 518 4,608
Interest expense (703) (753) (971) (6,378)
Gain on sale of shares of an - 6,917 563 58,589
affiliated company
Other, net (578) (625) (804) (5,295)
Other income (expenses), net (947) (0.5) 6,083 3.1 (694) (0.3) 51,524
INCOME BEFORE INCOME TAXES, 26,941 13.8 29,928 15.5 27,442 10.5 253,498
MINORITY INTEREST AND EQUITY IN
NET INCOME OF AFFILIATED COMPANIES
INCOME TAXES 11,987 6.1 12,701 6.6 7,902 3.0 107,581
INCOME BEFORE MINORITY INTEREST 14,954 7.7 17,227 8.9 19,540 145,917
AND EQUITY IN NET INCOME (LOSS) OF 7.5
AFFILIATED COMPANIES
MINORITY INTEREST IN INCOME 2,523 1.3 587 0.3 2,761 1.1 4,972
OF CONSOLIDATED
SUBSIDIARIES
EQUITY IN NET INCOME (LOSS) OF (2,416) (1.3) - - (6,293) (2.4) -
AFFILIATED COMPANIES
NET INCOME Y 10,015 5.1 Y16,640 8.6 Y10,486 4.0 $140,945
PER SHARE DATA: Yen U.S. Dollar
Nine months ended Nine months ended Year ended Nine months ended
December 31, 2004 December 31, 2005 March 31, 2005 December 31, 2005
Basic net income per Y 83.38 Y 127.70 Y 87.41 $ 1.08
share
Diluted net income per 83.38 127.68 87.41 1.08
share
Weighted-average common
share outstanding 120,116,594 130,306,094 119,970,052
(For the third quarter ended December 31, 2005)
Millions of Yen Thousands of
U.S. Dollars
Third quarter Third quarter Third quarter
ended December ended December ended
31, 2004 31, 2005 December 31,
2005
% %
NET REVENUES:
Product sales revenue Y62,020 Y62,033 $525,436
Service revenue 19,474 18,646 157,937
Total net revenues 81,494 100.0 80,679 100.0 683,373
COSTS AND EXPENSES:
Costs of products sold 35,783 32,217 272,887
Costs of services rendered 16,420 17,508 148,297
Selling, general and 13,254 14,571 123,421
administrative
Total costs and expenses 65,457 80.3 64,296 79.7 544,605
Operating income 16,037 19.7 16,383 20.3 138,768
OTHER INCOME (EXPENSES):
Interest income 95 179 1,516
Interest expense (228) (222) (1,880)
Other, net (549) (747) (6,327)
Other income (expenses), net (682) (0.9) (790) (1.0) (6,691)
INCOME BEFORE INCOME TAXES, 15,355 18.8 15,593 19.3 132,077
MINORITY INTEREST AND EQUITY IN
NET INCOME OF AFFILIATED
COMPANIES
INCOME TAXES 6,168 7.5 5,534 6.8 46,875
INCOME BEFORE MINORITY INTEREST 9,187 11.3 10,059 12.5 85,202
AND EQUITY IN NET INCOME OF
AFFILIATED COMPANIES
MINORITY INTEREST IN INCOME 933 1.1 383 0.5 3,244
OF CONSOLIDATED SUBSIDIARIES
EQUITY IN NET INCOME OF 135 0.1 - - -
AFFILIATED COMPANIES
NET INCOME Y 8,389 10.3 Y9,676 12.0 $81,958
PER SHARE DATA: Yen U.S. Dollar
Third quarter ended Third quarter ended Third quarter ended
December 31, 2004 December 31, 2005 December 31, 2005
Basic net income per share Y 70.16 Y 74.26 $ 0.63
Diluted net income per share 70.16 74.24 0.63
Weighted-average common
share outstanding 119,567,336 130,307,911
5. Consolidated Statements of Cash Flows (Unaudited)
Millions of Thousands
Yen of
U.S.
Dollars
Nine months Nine months Year ended Nine months
ended ended ended
December December March 31,
31, 2004 31, 2005 2005 December
31, 2005
Cash flows from operating activities:
Net income Y 10,015 Y 16,640 Y 10,486 $140,945
Adjustments to reconcile net income to
net cash
provided by operating activities -
Depreciation and amortization 6,506 8,502 9,360 72,014
Allowance (Reversal) for doubtful 127 (108) (400) (915)
receivables
Loss on sale or disposal of property and 985 (521) 1,553 (4,413)
equipment, net
Loss on sale of marketable securities 46 - 46 -
Gain on sales of shares of an affiliated - (6,917) (563) (58,589)
company
Equity in net loss of affiliated 2,416 - 6,293 -
companies
Minority interest 2,523 587 2,761 4,972
Deferred income taxes 904 2,971 (7,615) 25,165
Change in assets and liabilities, net of
business acquired:
Decrease (increase) in trade notes and (15,477) (7,286) (5,632) (61,714)
accounts
receivable
Decrease (increase) in inventories (4,729) (4,134) 2,949 (35,016)
Increase (decrease) in trade notes and 1,498 2,889 352 24,471
accounts payable
Increase (decrease)in accrued income 1,908 (4,462) 4,954 (37,794)
taxes
Increase (decrease) in accrued expenses 3,277 (454) 617 (3,846)
Increase (decrease) in deferred revenue (228) 298 (640) 2,524
Other, net 2,529 (1,174) 3,239 (9,944)
Net cash provided by operating activities 12,300 6,831 27,760 57,860
Cash flows from investing activities:
Proceeds from sales of shares of - 11,016 1,407 93,308
affiliated companies
Capital expenditures (11,270) (7,154) (15,818) (60,596)
Proceeds from sales of property and 566 2,545 696 21,557
equipment
Proceeds from sales of investments in 22 - 22 -
marketable
securities
Acquisition of new subsidiaries, net of - 1,433 - 12,138
cash acquired
Decrease (increase) in lease deposits, 158 (205) (542) (1,736)
net
Expenditure from acquisition of minority - (695) - (5,887)
interests
Other, net (649) (623) (108) (5,277)
Net cash provided by (used in) investing (11,173) 6,317 (14,343) 53,507
activities
Cash flows from financing activities:
Net increase (decrease) in short-term 4,533 (4,387) 6,001 (37,159)
borrowings
Repayments of long-term debt (820) (870) (1,177) (7,369)
Principal payments under capital lease (1,712) (1,764) (2,255) (14,942)
obligations
Redemption of bonds - (15,000) - (127,054)
Dividends paid (7,652) (6,902) (7,963) (58,462)
Purchases of treasury stock by parent (2,604) (30) (2,605) (254)
company
Purchases of treasury stock by (3,574) - (3,593) -
subsidiaries
Other, net (58) (60) (78) (508)
Net cash used in financing activities (11,887) (29,013) (11,670) (245,748)
Effect of exchange rate changes on cash 594 1,046 951 8,860
and cash equivalents
Net increase (decrease) in cash and cash (10,166) (14,819) 2,698 (125,521)
equivalents
Cash and cash equivalents, beginning of 86,885 89,583 86,885 758,792
the period
Cash and cash equivalents, end of the Y76,719 Y74,764 Y 89,583 $ 633,271
period
6. Segment Information (Unaudited)
a . Operations in Different Industries
(Nine months ended December 31)
Nine months Digital Health & Gaming & Other, Consolidated
ended Entertainment Fitness System Corporate and
December 31, Eliminations
2004
(Millions of Yen)
Net revenue:
Customers Y 122,752 Y 59,474 Y 8,661 Y 4,616 Y 195,503
Intersegment 458 213 - (671) -
Total 123,210 59,687 8,661 3,945 195,503
Operating 94,019 57,205 7,572 8,819 167,615
expenses
Operating Y 29,191 Y 2,482 Y 1,089 Y (4,874) Y 27,888
income
(loss)
Nine months Digital Health & Gaming & Other, Consolidated
ended Entertainment Fitness System Corporate and
December 31, Eliminations
2005
(Millions of Yen)
Net revenue:
Customers Y 122,943 Y 60,794 Y 8,000 Y 812 Y 192,549
Intersegment 1,167 65 - (1,232) -
Total 124,110 60,859 8,000 (420) 192,549
Operating 92,481 59,171 7,684 9,368 168,704
expenses
Operating Y 31,629 Y 1,688 Y 316 Y (9,788) Y 23,845
income
(loss)
Nine months Digital Health & Gaming & Other, Consolidated
ended Entertainment Fitness System Corporate
December 31, and
2005 Eliminations
Thousands of U.S. Dollars)
Net revenue:
Customers $ 1,041,360 $ 514,942 $ 67,762 $ 6,878 $ 1,630,942
Intersegment 9,885 550 - (10,435) -
Total 1,051,245 515,492 67,762 (3,557) 1,630,942
Operating 783,339 501,194 65,085 79,350 1,428,968
expenses
Operating $ 267,906 $ 14,298 $ 2,677 $ (82,907) $ 201,974
income
(loss)
(Year ended March 31, 2005)
Year ended Digital Health & Gaming & Other, Consolidated
March 31, Entertainment Fitness System Corporate
2005 and
Eliminations
(Millions of Yen)
Net revenue:
Customers Y 162,797 Y 78,843 Y 11,641 Y 7,410 Y 260,691
Intersegment 874 263 2 (1,139) -
Total 163,671 79,106 11,643 6,271 260,691
Operating 131,018 77,059 10,201 14,277 232,555
expenses
Operating Y 32,653 Y 2,047 Y 1,442 Y (8,006) Y 28,136
income (loss)
(Third quarter ended December 31)
Third Digital Health & Gaming & Other, Consolidated
quarter Entertainment Fitness System Corporate
ended and
December 31, Eliminations
2004
(Millions of Yen)
Net revenue:
Customers Y 58,263 Y 19,755 Y 2,763 Y 713 Y 81,494
Intersegment 47 154 - (201) -
Total 58,310 19,909 2,763 512 81,494
Operating 41,509 19,167 2,431 2,350 65,457
expenses
Operating Y 16,801 Y 742 Y 332 Y (1,838) Y 16,037
income
(loss)
Third quarter Digital Health & Gaming & Other, Consolidated
ended Entertainment Fitness System Corporate
December 31, and
2005 Eliminations
(Millions of Yen)
Net revenue:
Customers Y 57,079 Y 20,241 Y 3,273 Y 86 Y 80,679
Intersegment 360 9 - (369) -
Total 57,439 20,250 3,273 (283) 80,679
Operating 38,858 19,243 2,960 3,235 64,296
expenses
Operating Y 18,581 Y 1,007 Y 313 Y (3,518) Y 16,383
income (loss)
Third quarter Digital Health & Gaming & Other, Consolidated
ended Entertainment Fitness System Corporate
December 31, and
2005 Eliminations
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 483,475 $ 171,447 $ 27,723 $ 728 $ 683,373
Intersegment 3,049 76 - (3,125) -
Total 486,524 171,523 27,723 (2,397) 683,373
Operating 329,138 162,993 25,072 27,402 544,605
expenses
Operating $ 157,386 $ 8,530 $ 2,651 $ (29,799) $ 138,768
income (loss)
Notes: 1. Primary businesses of each segment are as follows:
Digital Entertainment Segment: Digital Entertainment Segment contains former three business
segments, Computer & Video Games, Toy & Hobby and Amusement, and two new business areas, Online
and Multimedia to respond to the change on the digital entertainment market.
Computer & Video Games: Production, manufacture and sale of video game software for
consoles.
Production of contents for mobile phones.
Distribution of video game software
produced by third parties.
Production of online game software.
Toy & Hobby: Planning, production, manufacture and sale of card
games, electronic toys, toys for boys, candy toys, figures,
character goods and others.
Amusement: Planning, manufacture and sale of the content for
amusement facilities such as video games and token-operated games.
Online: Creation of systems for online games.
Management and operation of online servers.
Distribution of the content 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 centers.
Production manufacture and sale of
gaming machines and health-related products.
Gaming & System Segment: Production manufacture and sale of gaming machines for casinos and
casino management systems.
2. Computer & Video game Segment, Toy & Hobby Segment and Amusement Segment were reorganized to
Digital Entertainment Segment effective on April 1, 2005. Thus, records in previous fiscal year
are reclassified into new business segment.
3. '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.'
4. 'Corporate' primarily consists of administrative expenses of the Company.
5. 'Eliminations' primarily consist of eliminations of intercompany sales and of intercompany
profits on inventories.
6. Intersegment revenues primarily consist of Digital Entertainment segment to Health & Fitness
segment sales of hardware and components from Amusement Health & Fitness.
7. Gaming segment had changed its name to Gaming & System segment from October 1, 2005.
b . Operations in Geographic Areas
(Nine months ended December 31)
Nine months ended Japan Americas Europe Asia Total Eliminations Consolidated
December 31, 2004 /Oceania /
Others
(Millions of Yen)
Net revenue:
Customers Y 131,306 Y 32,840 Y 25,472 Y 5,885 Y 195,503 - Y 195,503
Intersegment 44,336 1,083 48 154 45,621 Y (45,621) -
Total 175,642 33,923 25,520 6,039 241,124 (45,621) 195,503
Operating expenses 153,070 31,928 22,287 4,940 212,225 (44,610) 167,615
Operating income Y 22,572 Y 1,995 Y 3,233 Y 1,099 Y 28,899 Y (1,011) Y 27,888
Nine months ended Japan Americas Europe Asia Total Eliminations Consolidated
December 31, 2005 /Oceania /
Others
(Millions of Yen)
Net revenue:
Customers Y 139,491 Y 22,489 Y 24,277 Y 6,292 Y 192,549 - Y 192,549
Intersegment 23,885 1,026 349 196 25,456 Y (25,456) -
Total 163,376 23,515 24,626 6,488 218,005 (25,456) 192,549
Operating expenses 142,238 23,655 23,049 5,199 194,141 (25,437) 168,704
Operating income Y 21,138 Y (140) Y 1,577 Y 1,289 Y 23,864 Y (19) Y 23,845
Nine months ended Japan Americas Europe Asia Total Eliminations Consolidated
December 31, 2005 /Oceania /
Others
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 1,181,526 $ 190,488 $ 205,633 $ 53,295 $ 1,630,942 - $ 1,630,942
Intersegment 202,313 8,690 2,956 1,660 215,619 $ (215,619) -
Total 1,383,839 199,178 208,589 54,955 1,846,561 (215,619) 1,630,942
Operating expenses 1,204,794 200,364 195,231 44,037 1,644,426 (215,458) 1,428,968
Operating income $ 179,045 $ (1,186) $ 13,358 $ 10,918 $ 202,135 $ (161) $ 201,974
(Year ended March 31, 2005)
Year ended Japan Americas Europe Asia Total Eliminations Consolidated
March 31, 2005 /Oceania /
Others
(Millions of Yen)
Net revenue:
Customers Y 176,566 Y 41,480 Y 34,878 Y 7,767 Y 260,691 - Y 260,691
Intersegment 57,123 1,593 450 419 59,585 Y (59,585) -
Total 233,689 43,073 35,328 8,186 320,276 (59,585) 260,691
Operating expenses 211,500 41,682 32,207 6,684 292,073 (59,518) 232,555
Operating income Y 22,189 Y 1,391 Y 3,121 Y 1,502 Y 28,203 Y (67) Y 28,136
(Third quarter ended December 31)
Third quarter ended Japan Americas Europe Asia Total Eliminations Consolidated
December 31, 2004 /Oceania /
Others
(Millions of Yen)
Net revenue:
Customers Y 45,630 Y 18,418 Y 15,373 Y 2,073 Y 81,494 - Y 81,494
Intersegment 22,627 231 - 111 22,969 Y (22,969) -
Total 68,257 18,649 15,373 2,184 104,463 (22,969) 81,494
Operating expenses 58,185 16,831 12,375 1,752 89,143 (23,686) 65,457
Operating income Y 10,072 Y 1,818 Y 2,998 Y 432 Y 15,320 Y 717 Y 16,037
Third quarter ended Japan Americas Europe Asia Total Eliminations Consolidated
December 31, 2005 /Oceania /
Others
(Millions of Yen)
Net revenue:
Customers Y 49,159 Y 10,131 Y 19,157 Y 2,232 Y 80,679 - Y 80,679
Intersegment 12,489 145 327 132 13,093 Y (13,093) -
Total 61,648 10,276 19,484 2,364 93,772 (13,093) 80,679
Operating expenses 49,175 10,098 16,126 1,931 77,330 (13,034) 64,296
Operating income Y 12,473 Y 178 Y 3,358 Y 433 Y 16,442 Y (59) Y 16,383
Third quarter ended Japan Americas Europe Asia Total Eliminations Consolidated
December 31, 2005 /Oceania /
Others
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 416,390 $ 85,812 $ 162,265 $ 18,906 $ 683,373 - $ 683,373
Intersegment 105,785 1,228 2,770 1,118 110,901 $ (110,901) -
Total 522,175 87,040 165,035 20,024 794,274 (110,901) 683,373
Operating expenses 416,525 85,533 136,592 16,356 655,006 (110,401) 544,605
Operating income $ 105,650 $ 1,507 $ 28,443 $ 3,668 $ 139,268 $ (500) $ 138,768
Note: 1. 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 U.S. dollar amounts included herein represent a translation using the mid price for telegraphic transfer of U.S.
dollars as of December 29, 2005 of Y118.06 to $1 and are included solely for the convenience of the reader. The
translation should not be construed as a representation that the yen amounts have been, could have been, or could in
the future be converted into U.S. dollars at the above or any other rate.
2. The consolidated financial statements presented herein were prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP).
3. Comprehensive income for the nine months ended December 31, 2004 and December 31, 2005 and for the year ended March
31, 2005 consisted of the following:
Millions of yen Thousands of
U.S. Dollars
Nine months Nine months Year ended Nine months
ended ended March 31, 2005 ended
December 31, December 31, December 31,
2004 2005 2005
Net income Y 10,015 Y 16,640 Y10,486 $ 140,945
Other comprehensive income
(loss):
Foreign currency 538 1,606 2,285 13,603
translation adjustments
Net unrealized gains on (147) (129) (20) (1,092)
available-for-sale
securities
Adjustment for minimum - - 71 -
pension liabilities
391 1,477 2,336 12,511
Comprehensive income Y 10,406 Y 18,117 Y12,822 $ 153,456
Subsequent Event
On February 1, 2006, the Company and Internet Initiative Japan Inc.
(headquartered in Chiyoda-ku Tokyo, hereafter referred to as 'IIJ') have
established a joint venture company, 'Internet Revolution Inc.', to operate
comprehensive portal sites. The summary of the joint venture company is as shown
below.
1. Summary of the joint venture company
(1) Registered name Internet Revolution Inc
(2) Date of incorporation February 1, 2006
(3) Head office location 6-10-1, Roppongi, Minato-ku, Tokyo (Roppongi Hills)
(4) Capital 1,250 million yen
(5) Amount of investment 2,500 million yen
(6) Investment ratio Konami 70% IIJ 30%
*Internet Revolution Inc. will become a consolidated subsidiary
of Konami and an equity method affiliate of IIJ
(7) Main business Operating the Internet portal sites
This information is provided by RNS
The company news service from the London Stock Exchange
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