3rd Quarter Results
Konami Corporation
06 February 2007
Consolidated Financial Results
for the Third Quarter Ended December 31, 2006
(Prepared in Accordance with U.S. GAAP)
February 6, 2007
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, Representative Director 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 Third Quarter Ended
December 31, 2006
(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: 25
Number of affiliated companies accounted for by the equity method: 1
(4) Changes in reporting entities
Number of consolidated subsidiaries added: 2
Number of consolidated subsidiaries removed: 0
Number of affiliated companies added: 0
Number of affiliated companies removed: 0
(5) Financial information presented herein was not audited by our independent public accountants.
2. Consolidated Financial Results for the Third Quarter Ended December 31, 2006 and
for the Nine Months Ended December 31, 2006
(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 Change
income income taxes
Change
Third quarter ended Y92,838 15.1% Y16,583 1.2% Y16,688 7.0%
December 31, 2006
Third quarter ended 80,679 (1.0) 16,383 2.2 15,593 1.5
December 31, 2005
Nine months ended 212,437 10.3 26,698 12.0 26,572 (11.2)
December 31, 2006
Nine months ended 192,549 (1.5) 23,845 (14.5) 29,928 11.1
December 31, 2005
Year ended March 31, 2006 262,137 2,481 8,438
Net income Change Net income Diluted net income
per share (Yen) per share (Yen)
Third quarter ended Y9,473 (2.1)% Y69.03 Y69.00
December 31, 2006
Third quarter ended 9,676 15.3 74.26 74.24
December 31, 2005
Nine months ended 14,587 (12.3) 106.33 106.27
December 31, 2006
Nine months ended 16,640 66.2 127.70 127.68
December 31, 2005
Year ended March 31, 2006 23,008 175.86 175.80
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, 2006: Y(3) million
Third quarter ended December 31, 2005: - million
Nine months ended December 31, 2006: 78 million
Nine months ended December 31, 2005: - million
Year ended March 31, 2006: 33 million
3. Weighted-average common shares outstanding (consolidated)
Third quarter ended December 31, 2006: 137,239,132 shares
Third quarter ended December 31, 2005: 130,307,911 shares
Nine months ended December 31, 2006: 137,187,117 shares
Nine months ended December 31, 2005: 130,306,094 shares
Year ended March 31, 2006: 130,835,422 shares
(2) Consolidated Financial Position
(Millions of Yen, except per share amounts)
Total Equity-assets Total stockholders'
stockholders' Ratio equity per share (Yen)
Total assets equity
December 31, 2006 Y300,434 Y172,707 57.5% Y1,258.34
December 31, 2005 319,784 140,762 44.0 1,080.22
March 31, 2006 302,637 163,815 54.1 1,194.41
Note:
Number of shares outstanding (consolidated)
December 31, 2006: 137,248,399 shares
December 31, 2005: 130,308,978 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 at end of period
Nine months ended December 31, 2006 Y15,471 Y(9,536) Y(31,966) Y43,745
Nine months ended December 31, 2005 6,831 6,317 (29,013) 74,764
Year ended March 31, 2006 23,879 (7,266) (38,330) 68,694
3. Forecast for the Year Ending March 31, 2007
(Millions of Yen)
Net revenues Operating income Income before Net income
income taxes
Year ending March 31, 2007 Y275,000 Y 29,000 Y 28,500 Y 16,000
Note:
Expected net income per share for the year ending March 31, 2007 is Y116.58.
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 existing contingencies.
1. Organizational Structure of the Konami Group
The Konami Group is a conglomerate engaged in the amusement and health services industry providing customers
with 'High Quality Life', and is comprised of KONAMI CORPORATION ('the Company') and its 25 consolidated
subsidiaries and one equity-method affiliate.
Each of the Company and its subsidiaries and affiliated company 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) '.
Business Segments Major Companies
Digital Entertainment Domestic Konami Digital Entertainment Co., Ltd.
HUDSON SOFT CO., LTD.
Megacyber Corporation (Note 4)
Konami Manufacturing & 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 Manufacturing & Service, Inc. (Note 3)
Resort Solution Co., Ltd. (Note 5), Two other companies
Gaming & System Overseas Konami Gaming, Inc.
Konami Australia Pty Ltd, One other company
Other Domestic Konami Manufacturing & Service, Inc. (Note 3)
KPE, Inc., Konami Real Estate, Inc.
Konami School, Inc., Three 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. On October 2, 2006, the Company acquired all outstanding shares of Megacyber Corporation and
made it a wholly-owned subsidiary.
5. Resort Solution Co., Ltd. is an equity-method affiliate.
2. Business Performance and Cash Flows
1. Business Performance
(1) Overview
In the entertainment industry as it is relevant to our group, all of the next-generation computer entertainment
systems, Nintendo's 'Wii' and Sony's 'PLAYSTATION(R)3'('PS3'), in addition to the already released 'Xbox360'
video game and entertainment system from Microsoft, are now on the market. Video game consoles now all offer
online capabilities as a standard feature [?c=8212]including for the handheld systems 'Nintendo DS' and
'PlayStation(R)Portable'('PSP') - and sales of products and services on line are expanding. The success
of Nintendo DS has supported an increase in the number of the game users in a wide age group; as a result,
demand has grown, preferences have diversified, and the market continues to expand.
The Healthcare Reform Act, enacted in June 2006, demonstrates the trend towards prevention in the health
industry relevant to our group. As of 2008, the Ministry of Health, Labour and Welfare will require health
insurance associations and other health insurers to provide what are called 'designated checkups and health
guidance' at the national level to fight lifestyle-related diseases. The public is taking full-scale measures
towards health maintenance, particularly by establishing exercise habits and improving diets. This in turn has
led to an increasing awareness of health issues, and the market promises to grow even further.
In these circumstances, the Digital Entertainment segment enjoyed strong sales in the market for video game
software. The soccer game series 'Pro Evolution Soccer 6', released in Europe in October 2006, has proved
particularly popular with its multiplatform compatibility. Cumulative sales of the soccer game series recorded
over 7,580,000 units for the nine months ended December 31, 2006, already surpassing the volume for the whole of
the previous year, itself a record. Sales of products utilizing the 'e-AMUSEMENT' system, a service connecting
amusement arcades nationwide via a network, recorded consistently stable sales by introducing innovative new
titles on top of the established mainstays. Additionally, sales of 'GRANDCROSS', a large-size token-operated
game for amusement arcades, were also steady.
In the Health and Fitness segment, the revised profit structure of our directly managed facilities has improved
progress in the 'scrapping and building' of our facilities. We believe we have managed to improve the profit
structure of our fitness clubs and obtain more stable revenue. We are continuing to open large stores next to
stations and in other prime locations, and also, revise our fee-based programs and introduce our original IT
health management system in our facilities, which we believe will provide services that improve customer
satisfaction.
In the Gaming and System segment, Konami's sales have increased in the growing North American market due to
efforts to expand sales volumes. Sales of the 'Konami Casino Management System' in particular have risen
steadily. In system sales, we believe the increase in the number of units installed helps to maintain our
ongoing income from maintenance and servicing, expected to be a stable source of income.
As a result, consolidated net revenues during the current quarter, was Y92,838 million, a 15.1% increase
compared to the same period in the previous year, and Y212,437 million for the nine months ended December 31,
2006, a 10.3% increase compared to the same period in the previous year. Results of our operating income during
the current quarter amounted to Y16,583 million, a 1.2% increase compared to the same period in the previous
year, and Y26,698 million for the nine months ended December 31, 2006, a 12.0% increase compared to the same
period in the previous year. During the current quarter, consolidated net income amounted to Y9,473 million, a
2.1% decrease compared to the same period in the previous year and Y14,587 million for the nine months ended
December 31, 2006, a 12.3% decrease compared to the same period in the previous year. The primary reason of the
year-to-year decrease in consolidated net income resulted from the sales of shares of an affiliated company,
recording gain on sale of Y6,917 million, executed in the same period of the previous fiscal year.
(2) Performance by Business Segment
Summary of net revenues by business segment:
Millions of Yen
Nine months ended Nine months ended
December 31, 2005 December 31, 2006
Digital Entertainment Y124,110 Y129,447
Health & Fitness 60,859 66,636
Gaming & System 8,000 11,847
Other, Corporate and Eliminations (420) 4,507
Consolidated net revenues Y192,549 Y212,437
Digital Entertainment segment:
In our Computer and Video Games business in Japan, our soccer titles 'J.LEAGUE Winning Eleven 10 + EUROPE LEAGUE
'06-'07' for the PlayStation(R)2 and 'WORLD SOCCER Winning Eleven DS' for the Nintendo DS, as well as 'Metal Gear
Solid: Portable Ops' for the PSP recorded strong sales. In North America, 'Metal Gear Solid: Portable Ops' for the PSP,
'Castlevania: Portrait of Ruin' for the Nintendo DS, 'Elebits' for the Wii, and the flagship 'Dance Dance Revolution'
music series likewise recorded strong sales. In Europe, a multiplatform version of 'Pro Evolution Soccer' series
appeared and has already outsold the previous version.
In our Toy & Hobby business, the mainstay 'Yu-Gi-Oh Trading Card Game' series continued to record steady sales
worldwide during the current quarter. In October 2006, meanwhile, the innovative new portable electronic toy 'OTOIZUMU'
went on sale, along with 'Attame Kenkyujo (Labo)' and the 'Digi' series. In the market for action figures, our original
contents 'BUSOU SHINKI' series continued to record strong sales.
In our Amusement business, in the area of video games, the 'MAH-JONG FIGHT CLUB' series, which utilize, the
'e-AMUSEMENT' service, a network-linked arcade game connecting amusement arcade machines nationwide, continued to
garner favorable reviews. Several new releases also recorded strong sales: 'BASEBALL HEROS 2', the latest version of a
popular video game series played with cards bearing the portraits of professional baseball players; 'NOVA USAGI no GAME
de RYUGAKU!?', an English quiz game developed with the cooperation and supervision of Nova Corporation, a major
language school; and 'CURUCURULABO', an innovative new game that activates the brain with special training exercises.
Music games also maintained strong sales. Among token-operated games, 'GRANDCROSS', an extra-large token-operated
gaming machine, likewise continued to sell well. Strong sales were also recorded by 'GI-HORSEPARK EX', the latest
offering in the 'GI' series of large-size token-operated horseracing games.
In our Online business, Konami began offering consumers new ways to have fun as two new services debuted: an online
match-up service for 'MAH-JONG FIGHT CLUB' game consoles for PSP and PS3, already performing well in the commercial
market; and 'e-AMUSEMENT SPOT', a wireless LAN service, available in amusement arcades throughout Japan. The company
intends to continue aggressively promoting new network-based services. In the mobile-related business, several new
services were launched in October 2006, and their membership has grown favorably. They include 'deco R', a free site
for image-enriched e-mail, and the 'KONAMI MUSIC CALL' service site, where customers can change the ring tone of their
cell phone to whatever tune they choose. Performance was also strong in overseas distribution of mobile content, done
via major carriers across the globe.
In our Multimedia business, a series of new items tied in with our popular contents such as video game guides, novels,
picture books, and original music CDs and animated DVDs were released and sold well. In addition, an originally
developed animated TV program, 'SaintOctober', started its broadcast in January 2007, following in the footsteps of
'FAIRY MUSKETEERS AKAZUKIN' and 'TOKIMEKI MEMORIAL Only Love'. We intend to produce original content that capitalizes
on synergies between the different areas of our digital entertainment business.
As a result, the Digital Entertainment segment recorded consolidated net revenues of Y65,907 million (a 14.7% increase
compared to the same period in the previous year), during the current quarter and Y129,447 million (a 4.3% increase
compared to the same period in the previous year), for the nine months ended December 31, 2006.
Health & Fitness segment:
In our fitness clubs business, in October 2006, Konami Sports Club Kawasaki (Kanagawa), a new facility under Konami's
direct management, opened in LAZONA Kawasaki plaza, which is directly accessible from JR Kawasaki Station. With an
impressive area of 4,500 m(2), the club is equipped with the e-XAX IT-enabled health management system and the latest
exercise machines, and offers a full range of recreational amenities, including bathing facilities, an esthetic salon,
a therapy center, and a cafeteria. Since opening it has received praise.
Konami Sports Clubs offer a wide assortment of health programs that are enjoyable and offer peace of mind. Besides
fitness, diet, spa, and esthetic services, programs to prevent lifestyle diseases are also available. The '6 WEEKS'
fitness program for the prevention of lifestyle-related diseases assists participants on two fronts; work outs and meal
plans.
In the nursing care and prevention business, as Japan's population steadily ages, Konami has been taking extra steps to
help people maintain and enhance their health both inside and outside its facilities. For example, it operates a
community support service on contract from local government, whereby Konami facilities send out exercise instructors;
runs the 'HATSHURATHU KENKOJYUKU', which provides follow-up to this program and develops and markets fitness equipment
designed for senior citizens.
In our product development activities, as a way to expand sales channels, Konami has started offering products on line.
In December 2006, 'KONAMISPORTSCLUB ONLINE' and 'i-revo Kenkou' site were launched and goods that are available in
stores, as well as special items only available on the Web site, are offered.
In October 2006, Konami's proprietary 'e-XAX', IT-enabled health management system, was conferred an award of
excellence for the year 2006, 'NetKADEN Grand Prix' sponsored by the Ministry of Economy, Trade and Industry. The
'e-XAX' system supports people in their efforts to build fitness by keeping an ongoing record of their exercise history
in various real-life situations - at sports clubs, when out and about and at home - and managing
health-related data.
As a result, Health & Fitness segment recorded consolidated net revenues of Y22,191 million (a 9.6% increase compared
to the same period in the previous year), during the current quarter and Y66,636 million (a 9.5% increase compared to
the same period in the previous year), for the nine months ended December 31, 2006.
Gaming & Systems segment:
The 'Konami Casino Management System' continues to sell well in North America, where casinos have enthusiastically
adopted information technology. The number of units installed increased steadily as new casinos opened in Oklahoma and
Mississippi in October 2006. Monthly sales from maintenance and servicing have also risen steadily. This, along with
installation of new machines under profit-sharing agreements, is helping our gaming business achieve stability by
generating steady revenues. Moreover, in Pennsylvania, where gaming has recently been legalized, Konami has obtained a
license and started selling equipment, further strengthening the 'K2V' series platform.
While the Australian market remains flat, Konami has been working to develop business and secure new clientele both
locally and abroad, focusing particularly on sales of two items: the 'K2V', which went on sale this spring in Australia
following its North American debut; and the Linked Progressive jackpot system, which connects gaming machines and
enhances the added value of their content.
Also, at the Global Gaming Expo 2006 held in Las Vegas in November 2006 - the world's biggest gaming show
- Konami unveiled its new '27 Ways' mechanical reel slot machine (the type that dominates the North American
market), as well as the 'ScatteReel' video slot machine. Our extensive lineup of machines with the popular built-in
progressive jackpot also generated much excitement.
As a result, our Gaming & System segment recorded consolidated net revenues of Y4,129 million (a 26.2% increase
compared to the same period in the previous year), during the current quarter and Y11,847 million (a 48.1% increase
compared to the same period in the previous year), for the nine months ended December 31, 2006.
2. Cash Flows
Cash flow summary for the nine months ended December 31, 2006:
Millions of Yen
Nine months ended Nine months ended Year ended
December 31, 2005 December 31, 2006 March 31, 2006
Net cash provided by operating activities Y6,831 Y15,471 Y23,879
Net cash provided by (used in) investing 6,317 (9,536) (7,266)
activities
Net cash used in financing activities (29,013) (31,966) (38,330)
Effect of exchange rate changes on cash and
cash
equivalents 1,046 1,082 828
Net decrease in cash and cash equivalents (14,819) (24,949) (20,889)
Cash and cash equivalents, end of the period 74,764 43,745 68,694
Cash and cash equivalents (hereafter referred as 'Net cash') as of December 31, 2006, amounted to Y43,745
million, a decrease of Y24,949 million compared to Net cash as of March 31, 2006.
Cash flow summary for each activity for the nine months ended December 31, 2006 is as follows:
Cash flows from operating activities:
Net cash provided by operating activities for the nine months ended December 31, 2006 amounted to Y15,471
million, a 126.5% increase compared to the same period in the previous year.
This mainly results from the fact that, despite the decrease in net income and increase in trade notes and
account receivable, consolidated net income for the nine months ended December 31, 2005 included gain on
sale of shares of an affiliated company, which do not effect cash flow from operating activities, and that
there were increases in Net cash in connection with accounts payable and accrued expenses.
Cash flows from investing activities:
Net cash used in investing activities amounted to Y9,536 million for the nine months ended December 31,
2006 (cash provided in the same period in the previous year was Y6,317 million).
This was primarily due to proceeds from sales of shares of an affiliated company which was included in the
same period in the previous year, decrease in proceeds from sales of property and equipment compared to
the same period in the previous year and increased capital expenditures.
Cash flows from financing activities:
Net cash used in financing activities amounted to Y31,966 million for the nine months ended December 31,
2006 (a 10.2% increase compared to the same period in the previous year). This was primarily due to
repayment of long-term debt, redemption of bonds and payment of dividends.
3. Consolidated Balance Sheets (Unaudited)
Millions of Yen
Thousands of
U.S. Dollars
December 31, December 31, March 31, 2006 December 31,
2005 2006 2006
% % %
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Y Y Y $ 367,266
74,764 43,745 68,694
Trade notes and accounts 41,894 46,953 32,294 394,199
receivable, net
of allowance for doubtful
accounts of
Y523 million, Y592 million
($4,970 thousand) and Y541
million at
December 31, 2005, December 31,
2006 and March 31, 2006,
respectively
Inventories 22,091 24,573 20,109 206,305
Deferred income taxes, net 14,635 17,266 16,510 144,958
Prepaid expenses and other 8,940 6,851 6,720 57,518
current
assets
Total current assets 162,324 50.8 139,388 46.4 144,327 47.7 1,170,246
PROPERTY AND EQUIPMENT, net 51,246 16.0 45,317 15.1 42,452 14.0 380,463
INVESTMENTS AND OTHER ASSETS:
Investments in marketable 260 644 572 5,407
securities
Investments in affiliates - 6,054 6,050 50,827
Identifiable intangible assets 45,913 38,606 38,575 324,121
Goodwill 15,471 23,153 22,102 194,383
Lease deposits 24,829 26,318 25,277 220,956
Other assets 19,741 17,688 20,103 148,501
Deferred income taxes, net - 3,266 3,179 27,420
Total investments and other 106,214 33.2 115,729 38.5 115,858 38.3 971,615
assets
TOTAL ASSETS 319,784 Y 100.0 300,434 Y 100.0 302,637 Y 100.0 $ 2,522,324
Millions of Yen Thousands of
U.S. Dollars
December 31, December 31, March 31, 2006 December 31,
2005 2006 2006
% % %
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Short-term borrowings Y9,244 - Y 958 -
Current portion of long-term 24,166 Y22,616 24,492 $189,875
debt and
capital lease obligations
Trade notes and accounts 18,663 24,100 19,357 202,334
payable
Accrued income taxes 23,828 8,845 7,487 74,259
Accrued expenses 18,265 21,105 16,323 177,189
Deferred revenue 5,694 6,076 5,353 51,012
Other current liabilities 5,577 5,820 7,254 48,862
Total current liabilities 105,437 33.0 88,562 29.5 81,224 26.9 743,531
LONG-TERM LIABILITIES:
Long-term debt and capital 33,248 16,386 35,631 137,570
lease
obligations, less current
portion
Accrued pension and severance 2,605 2,687 2,658 22,559
costs
Deferred income taxes, net 15,383 11,975 11,924 100,537
Other long-term liabilities 6,266 5,482 5,264 46,025
Total long-term liabilities 57,502 18.0 36,530 12.1 55,477 18.3 306,691
TOTAL LIABILITIES 162,939 51.0 125,092 41.6 136,701 45.2 1,050,222
MINORITY INTEREST IN 16,083 5.0 2,635 0.9 2,121 0.7 22,123
CONSOLIDATED SUBSIDIARIES
COMMITMENTS AND - - - - - - -
CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value-
Authorized 450,000,000 shares; 47,399 14.7 47,399 15.8 47,399 15.7 397,943
issued 139,531,708 shares at
December 31, 2005 and
143,555,786
shares at March 31, 2006, and
December 31, 2006
Additional paid-in capital 70,391 22.0 77,184 25.7 77,110 25.5 648,006
Legal reserve 207 0.1 284 0.1 284 0.1 2,384
Retained earnings 47,243 14.8 60,936 20.3 53,756 17.7 511,594
Accumulated other comprehensive 3,694 1.2 5,330 1.7 3,957 1.3 44,749
income
Total 168,934 52.8 191,133 63.6 182,506 60.3 1,604,676
Treasury stock, at cost-
9,222,730 shares, (28,172) (8.8) (18,426) (6.1) (18,691) (6.2) (154,697)
6,307,387shares and 6,403,439
shares at December 31, 2005,
December 31, 2006 and March 31,
2006, respectively
Total stockholders' equity 140,762 44.0 172,707 57.5 163,815 54.1 1,449,979
TOTAL LIABILITIES AND Y319,784 100.0 Y300,434 100.0 Y 302,637 100.0 $2,522,324
STOCKHOLDERS' EQUITY
4. Consolidated Statements of Operations (Unaudited)
(For the nine months ended December 31, 2006)
Millions of Yen Thousands of
U.S. Dollars
Nine months Nine months Year ended Nine months
ended December ended December March 31, 2006 ended
31, 2005 31, 2006 December 31,
2006
% % %
NET REVENUES:
Product sales revenue Y136,410 Y151,644 Y186,875 $1,273,142
Service revenue 56,139 60,793 75,262 510,394
Total net revenues 192,549 100.0 212,437 100.0 262,137 100.0 1,783,536
COSTS AND EXPENSES:
Costs of products sold 76,255 87,201 112,613 732,104
Costs of services rendered 54,080 56,731 72,131 476,291
Impairment of long-lived assets - - 10,533 -
Impairment of identifiable - - 9,180 -
intangible assets
Selling, general and 38,369 41,807 55,199 350,995
administrative
Total costs and expenses 168,704 87.6 185,739 87.4 259,656 99.1 1,559,390
Operating income 23,845 12.4 26,698 12.6 2,481 0.9 224,146
OTHER INCOME (EXPENSES):
Interest income 544 589 716 4,945
Interest expense (753) (703) (1,137) (5,902)
Gain on sale of shares of an 6,917 - 6,917 -
affiliated company
Other, net (625) (12) (539) (101)
Other income (expenses), net 6,083 3.1 (126) (0.1) 5,957 2.3 (1,058)
INCOME BEFORE INCOME TAXES, 29,928 15.5 26,572 12.5 8,438 3.2 223,088
MINORITY INTEREST AND EQUITY IN
NET INCOME OF AFFILIATED COMPANIES
INCOME TAXES 12,701 6.6 11,562 5.4 (10,270) (3.9) 97,070
INCOME BEFORE MINORITY INTEREST 17,227 8.9 15,010 7.1 18,708 126,018
AND EQUITY IN NET INCOME OF 7.1
AFFILIATED COMPANIES
MINORITY INTEREST IN INCOME 587 0.3 501 0.2 (4,267) (1.7) 4,206
OF CONSOLIDATED
SUBSIDIARIES
EQUITY IN NET INCOME OF AFFILIATED - - 78 0.0 33 0.0 655
COMPANIES
NET INCOME Y 16,640 8.6 Y14,587 6.9 Y23,008 8.8 $122,467
PER SHARE DATA: Yen U.S. Dollar
Nine months ended Nine months ended Year ended Nine months ended
December 31, 2005 December 31, 2006 March 31, 2006 December 31, 2006
Basic net income per Y 127.70 Y 106.33 Y 175.86 $ 0.89
share
Diluted net income per 127.68 106.27 175.80 0.89
share
Weighted-average common
share outstanding 130,306,094 137,187,117 130,835,422
Diluted weighted-average
common shares outstanding 130,333,376 137,261,200 130,877,436
(For the third quarter ended December 31, 2006)
Millions of Yen Thousands of
U.S. Dollars
Third quarter Third quarter Third quarter
ended December ended December ended
31, 2005 31, 2006 December 31,
2006
% %
NET REVENUES:
Product sales revenue Y62,033 Y72,291 $606,926
Service revenue 18,646 20,547 172,504
Total net revenues 80,679 100.0 92,838 100.0 779,430
COSTS AND EXPENSES:
Costs of products sold 32,217 41,654 349,710
Costs of services rendered 17,508 18,934 158,962
Selling, general and 14,571 15,667 131,534
administrative
Total costs and expenses 64,296 79.7 76,255 82.1 640,206
Operating income 16,383 20.3 16,583 17.9 139,224
OTHER INCOME (EXPENSES):
Interest income 179 191 1,603
Interest expense (222) (124) (1,041)
Other, net (747) 38 319
Other income (expenses), net (790) (1.0) 105 0.1 881
INCOME BEFORE INCOME TAXES, 15,593 19.3 16,688 18.0 140,105
MINORITY INTEREST AND EQUITY IN
NET INCOME (LOSS) OF AFFILIATED
COMPANIES
INCOME TAXES 5,534 6.8 7,089 7.7 59,516
INCOME BEFORE MINORITY INTEREST 10,059 12.5 9,599 10.3 80,589
AND EQUITY IN NET INCOME (LOSS)
OF AFFILIATED COMPANIES
MINORITY INTEREST IN INCOME 383 0.5 123 0.1 1,032
OF CONSOLIDATED SUBSIDIARIES
EQUITY IN NET INCOME (LOSS) OF - - (3) (0.0) (25)
AFFILIATED COMPANIES
NET INCOME Y 9,676 12.0 Y9,473 10.2 $79,532
PER SHARE DATA: Yen U.S. Dollar
Third quarter ended Third quarter ended Third quarter ended
December 31, 2005 December 31, 2006 December 31, 2006
Basic net income per share Y 74.26 Y 69.03 $ 0.58
Diluted net income per share 74.24 69.00 0.58
Weighted-average common
share outstanding 130,307,911 137,239,132
Diluted weighted-average
common shares outstanding 130,336,050 137,296,666
5. Consolidated Statements of Cash Flows (Unaudited)
Millions of Yen Thousands
of
U.S.
Dollars
Nine Nine months Year ended Nine months
months ended ended
ended December March 31, December
December 31, 2006 2006 31, 2006
31, 2005
Cash flows from operating activities:
Net income Y 16,640 Y 14,587 Y 23,008 $122,467
Adjustments to reconcile net income to net
cash
provided by operating activities -
Depreciation and amortization 8,502 7,916 13,782 66,459
Provision for doubtful receivables (108) 20 (10) 168
Impairment of long-lived assets - - 10,533 -
Impairment of identifiable intangible - - 9,180 -
assets
Loss (gain) on sale or disposal of (521) 125 645 1,049
property and equipment, net
Gain on sale of marketable securities - - (173) -
Gain on sale of shares of an affiliated (6,917) - (6,917) -
company
Equity in net income of affiliated - (78) (33) (655)
companies
Minority interest 587 501 (4,267) 4,206
Deferred income taxes 2,971 (729) (5,485) (6,120)
Change in assets and liabilities, net of
business acquired:
Decrease (increase) in trade notes and (7,286) (12,357) 3,369 (103,744)
accounts receivable
Increase in inventories (4,134) (4,406) (635) (36,991)
Increase in trade notes and accounts 2,889 3,389 2,945 28,453
payable
Increase (decrease) in accrued income (4,462) 2,735 (20,772) 22,962
taxes
Increase (decrease) in accrued expenses (454) 4,786 (3,043) 40,181
Increase (decrease) in deferred revenue 298 724 (43) 6,078
Other, net (1,174) (1,742) 1,795 (14,625)
Net cash provided by operating activities 6,831 15,471 23,879 129,888
Cash flows from investing activities:
Proceeds from sales of shares of 11,016 - 11,016 -
affiliates
Capital expenditures (7,154) (7,859) (14,513) (65,981)
Proceeds from sales of property and 2,545 423 2,455 3,551
equipment
Proceeds from sales of investments in - - 245 -
marketable securities
Acquisition of new subsidiaries, net of 1,433 (202) 1,433 (1,696)
cash acquired
Purchase of investments in subsidiaries (695) - (6,688) -
Increase in lease deposits, net (205) (657) (697) (5,516)
Expenditure on acquisition of operation - (1,061) - (8,907)
Other, net (623) (180) (517) (1,511)
Net cash provided by (used in) investing 6,317 (9,536) (7,266) (80,060)
activities
Cash flows from financing activities:
Net decrease in short-term borrowings (4,387) (1,119) (12,551) (9,395)
Repayments of long-term debt (870) (1,844) (1,099) (15,481)
Principal payments under capital lease (1,764) (1,993) (2,526) (16,732)
obligations
Redemption of bonds (15,000) (20,000) (15,000) (167,912)
Dividends paid (6,902) (7,137) (7,025) (59,919)
Purchases of treasury stock by parent (30) (80) (71) (672)
company
Other, net (60) 207 (58) 1,738
Net cash used in financing activities (29,013) (31,966) (38,330) (268,373)
Effect of exchange rate changes on cash 1,046 1,082 828 9,084
and cash equivalents
Net decrease in cash and cash equivalents (14,819) (24,949) (20,889) (209,461)
Cash and cash equivalents, beginning of 89,583 68,694 89,583 576,727
the period
Cash and cash equivalents, end of the Y74,764 Y43,745 Y 68,694 $ 367,266
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
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 and
December 31, Eliminations
2006
(Millions of Yen)
Net revenue:
Customers Y 128,378 Y 66,576 Y 11,847 Y 5,636 Y 212,437
Intersegment 1,069 60 - (1,129) -
Total 129,447 66,636 11,847 4,507 212,437
Operating 100,129 61,177 10,325 14,108 185,739
expenses
Operating Y 29,318 Y 5,459 Y 1,522 Y (9,601) Y 26,698
income (loss)
Nine months Digital Health & Gaming & Other, Consolidated
ended Entertainment Fitness System Corporate and
December 31, Eliminations
2006
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 1,077,810 $ 558,945 $ 99,463 $ 47,318 $ 1,783,536
Intersegment 8,975 504 - (9,479) -
Total 1,086,785 559,449 99,463 37,839 1,783,536
Operating 840,643 513,617 86,685 118,445 1,559,390
expenses
Operating $ 246,142 $ 45,832 $ 12,778 $ (80,606) $ 224,146
income (loss)
(Year ended March 31, 2006)
Year ended Digital Health & Gaming & Other, Consolidated
March 31, 2006 Entertainment Fitness System Corporate and
Eliminations
(Millions of Yen)
Net revenue:
Customers Y 163,624 Y 81,117 Y 10,621 Y 6,775 Y 262,137
Intersegment 1,652 92 2 (1,746) -
Total 165,276 81,209 10,623 5,029 262,137
Operating 131,426 98,268 10,563 19,399 259,656
expenses
Operating Y 33,850 Y (17,059) Y 60 Y (14,370) Y 2,481
income (loss)
(Third quarter ended December 31)
Third quarter Digital Health & Gaming & Other, Consolidated
ended Entertainment Fitness System Corporate and
December 31, Eliminations
2005
(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 and
December 31, Eliminations
2006
(Millions of Yen)
Net revenue:
Customers Y 65,544 Y 22,185 Y 4,129 Y 980 Y 92,838
Intersegment 363 6 - (369) -
Total 65,907 22,191 4,129 611 92,838
Operating 47,975 20,104 3,611 4,565 76,255
expenses
Operating Y 17,932 Y 2,087 Y 518 Y (3,954) Y 16,583
income (loss)
Third quarter Digital Health & Gaming & Other, Consolidated
ended Entertainment Fitness System Corporate and
December 31, Eliminations
2006
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 550,281 $ 186,256 $ 34,665 $ 8,228 $ 779,430
Intersegment 3,048 50 - (3,098) -
Total 553,329 186,306 34,665 5,130 779,430
Operating 402,779 168,785 30,316 38,326 640,206
expenses
Operating $ 150,550 $ 17,521 $ 4,349 $ (33,196) $ 139,224
income (loss)
Notes: 1. Primary businesses of each segment are as follows:
Digital Entertainment Segment: Digital Entertainment segment contains five business fields.
Computer & Video Games: Production, manufacture and sale of video game software.
Purchasing, manufacture and sale of video 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: Production, 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.
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.
b . Operations in Geographic Areas
(Nine months ended December 31)
Nine months ended Japan United Europe Asia Total Eliminations Consolidated
December 31, 2005 States /Oceania
(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
(loss)
Nine months ended Japan United Europe Asia Total Eliminations Consolidated
December 31, 2006 States /Oceania
(Millions of Yen)
Net revenue:
Customers Y 155,660 Y 23,333 Y 27,591 Y 5,853 Y 212,437 - Y 212,437
Intersegment 21,221 1,138 271 313 22,943 Y (22,943) -
Total 176,881 24,471 27,862 6,166 235,380 (22,943) 212,437
Operating expenses 151,876 26,293 25,145 5,497 208,811 (23,072) 185,739
Operating income Y 25,005 Y (1,822) Y 2,717 Y 669 Y 26,569 Y 129 Y 26,698
(loss)
Nine months ended Japan United Europe Asia Total Eliminations Consolidated
December 31, 2006 States /Oceania
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 1,306,859 $ 195,895 $ 231,643 $ 49,139 $ 1,783,536 - $ 1,783,536
Intersegment 178,163 9,554 2,275 2,628 192,620 $ (192,620) -
Total 1,485,022 205,449 233,918 51,767 1,976,156 (192,620) 1,783,536
Operating expenses 1,275,090 220,746 211,107 46,150 1,753,093 (193,703) 1,559,390
Operating income $ 209,932 $ (15,297) $ 22,811 $ 5,617 $ 223,063 $ 1,083 $ 224,146
(loss)
(Year ended March 31, 2006)
Year ended Japan United Europe Asia Total Eliminations Consolidated
March 31, 2006 States /Oceania
(Millions of Yen)
Net revenue:
Customers Y 193,108 Y 33,797 Y 27,387 Y 7,845 Y 262,137 - Y 262,137
Intersegment 31,488 1,545 902 361 34,296 Y (34,296) -
Total 224,596 35,342 28,289 8,206 296,433 (34,296) 262,137
Operating expenses 222,559 37,688 27,181 6,895 294,323 (34,667) 259,656
Operating income Y 2,037 Y (2,346) Y 1,108 Y 1,311 Y 2,110 Y 371 Y 2,481
(loss)
(Third quarter ended December 31)
Third quarter ended Japan United Europe Asia Total Eliminations Consolidated
December 31, 2005 States /Oceania
(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
(loss)
Third quarter ended Japan United Europe Asia Total Eliminations Consolidated
December 31, 2006 States /Oceania
(Millions of Yen)
Net revenue:
Customers Y 56,459 Y 11,541 Y 22,474 Y 2,364 Y 92,838 - Y 92,838
Intersegment 13,771 599 34 136 14,540 Y (14,540) -
Total 70,230 12,140 22,508 2,500 107,378 (14,540) 92,838
Operating expenses 56,643 12,969 18,438 2,126 90,176 (13,921) 76,255
Operating income Y 13,587 Y (829) Y 4,070 Y 374 Y 17,202 Y (619) Y 16,583
(loss)
Third quarter ended Japan United Europe Asia Total Eliminations Consolidated
December 31, 2006 States /Oceania
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 474,007 $ 96,894 $ 188,682 $ 19,847 $ 779,430 - $ 779,430
Intersegment 115,616 5,029 285 1,142 122,072 $ (122,072) -
Total 589,623 101,923 188,967 20,989 901,502 (122,072) 779,430
Operating expenses 475,552 108,883 154,798 17,849 757,082 (116,876) 640,206
Operating income $ 114,071 $ (6,960) $ 34,169 $ 3,140 $ 144,420 $ (5,196) $ 139,224
(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 (Unaudited)
The consolidated financial statements presented herein were prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP).
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