3rd Quarter Results
Konami Corporation
27 January 2005
Consolidated Financial Results
for the Third Quarter Ended December 31, 2004
(Prepared in Accordance with U.S. GAAP)
January 27, 2005
KONAMI CORPORATION
Address: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan
Stock code number, TSE: 9766
Ticker symbol, NYSE: KNM
URL: http://www.konami.co.jp
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, 2004
(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: 28
Number of affiliated companies accounted for by the equity method: 3
(4) Changes in reporting entities
Number of consolidated subsidiaries added: 0
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 independent public accountants.
2. Consolidated Financial Results for the Third Quarter Ended December 31, 2004 and
for the Nine Months Ended December 31, 2004
(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 Y 81,494 (1.0)% Y 16,037 20.4% Y 15,355 18.5%
December 31, 2004
Third quarter ended 82,310 5.3 13,321 (2.4) 12,963 (1.0)
December 31, 2003
Nine months ended 195,503 (7.9) 27,888 (20.4) 26,941 (23.8)
December 31, 2004
Nine months ended 212,286 10.9 35,019 47.1 35,371 52.2
December 31, 2003
Year ended March 31, 273,412 40,713 40,107
2004
Net income Change Net income Diluted net income
per share (Yen) per share (Yen)
Third quarter ended Y 8,389 4.3% Y 70.16 Y70.16
December 31, 2004
Third quarter ended 8,044 (3.9) 66.76 66.76
December 31, 2003
Nine months ended 10,015 (47.0) 83.38 83.38
December 31, 2004
Nine months ended 18,903 48.4 156.89 156.89
December 31, 2003
Year ended March 31, 2004 20,104 166.86 166.86
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, 2004: Y135 million
Third quarter ended December 31, 2003: 311 million
Nine months ended December 31, 2004: (2,416) million
Nine months ended December 31, 2003: 541 million
Year ended March 31, 2004: 252 million
3. Weighted-average common shares outstanding (consolidated)
Third quarter ended December 31, 2004: 119,567,336 shares
Third quarter ended December 31, 2003: 120,483,726 shares
Nine months ended December 31, 2004: 120,116,594 shares
Nine months ended December 31, 2003: 120,484,014 shares
Year ended March 31, 2004: 120,483,869 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, 2004 Y 306,874 Y 103,445 33.7% Y 865.78
December 31, 2003 302,370 101,558 33.6 842.92
March 31, 2004 294,497 102,129 34.7 847.66
Note:
Number of shares outstanding (consolidated)
December 31, 2004: 119,481,820 shares
December 31, 2003: 120,483,525 shares
March 31, 2004: 120,483,252 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, 2004 Y 12,300 Y (11,173) Y (11,887) Y 76,719
Nine months ended December 31, 2003 23,136 (1,248) (11,992) 84,287
Year ended March 31, 2004 34,326 (7,001) (14,141) 86,885
3. Forecast for the Year Ending March 31, 2005
(Millions of Yen)
Net revenues Operating income Income before Net income
income taxes
Year ending March 31, 2005 Y275,000 Y 28,000 Y 27,000 Y 11,000
Note:
Expected net income per share for the year ending March 31, 2005 is Y 91.80.
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 28 consolidated subsidiaries and 3
equity method affiliates.
Each of the Company, its subsidiaries and affiliated companies 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
Computer & Video Games Domestic The Company
Konami Marketing Japan, Inc.
Konami Computer Entertainment Studios, Inc. (*2)
Konami Computer Entertainment Tokyo, Inc. (*2)
Konami Computer Entertainment Japan, Inc. (*2)
Konami Online, Inc. (*2), TAKARA CO., LTD. (*3)
HUDSON SOFT CO., LTD. (*3), Genki Co., Ltd. (*3)
Overseas Konami Digital Entertainment, Inc.
Konami of Europe GmbH, Konami Marketing (Asia) Ltd.
Konami Software Shanghai, Inc., One other company
Toy & Hobby Domestic The Company
Konami Marketing Japan, Inc.
Konami Media Entertainment, Inc.
Konami Traumer, Inc., Konami Online, Inc. (*2)
Overseas Konami Marketing, Inc.
Konami Corporation of Europe B.V.
Konami Marketing (Asia) Ltd.
Amusement Domestic The Company
Konami Marketing Japan, Inc.
KPE, Inc., Konami Online, Inc. (*2), One other company
Overseas Konami Marketing, Inc.
Konami Corporation of Europe B.V.
Konami Marketing (Asia) Ltd.
Gaming Domestic The Company
Overseas Konami Gaming, Inc.
Konami Australia Pty Ltd, One other company
Health & Fitness Domestic Konami Sports Corporation
Konami Sports Life Corporation
Konami Online, Inc. (*2), One other company
Other Domestic Konami Marketing Japan, Inc. , Konami School, Inc.
Konami Computer Entertainment School, Inc.
Konami Real Estate, Inc.,
One other company
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. In a meeting of the Board of Directors held on December 16, 2004, a merger among the
Company,
Konami Computer Entertainment Studios, Inc., Konami Computer Entertainment
Tokyo, Inc.,
Konami Computer Entertainment Japan, Inc., and Konami Online, Inc. effective
April 1, 2005 was resolved, and the related merger agreement was entered into.
*3. These are equity method affiliates.
2. Business Performance and Cash Flows
1. Business Performance
(1) Overview
The entertainment industry in which we operate enjoyed a booming market in the third quarter of the current fiscal year
especially as to year-end sales with the release of new-style portable game consoles by Nintendo Co., Ltd. and Sony
Computer Entertainment Inc. In the health industry, demand continued to be strong with increased interests in sports
due to the outstanding performances by Japanese athletes at the Olympics Games in Athens this summer.
In the Computer & Video Games segment, the long-awaited releases of the blockbuster METAL GEAR SOLID 3 SNAKE EATER both
in Japan and the U.S. generated favorable sales. Our newly released software titles for the latest generations of
new-style portable game consoles included MAH-JONG FIGHT CLUB, etc. for the PSP from Sony Computer Entertainment Inc.
and THE PRINCE OF TENNIS 2005 CRYSTALDRIVE for the Nintendo DS from Nintendo Co., Ltd.
In the Toy & Hobby segment, sales of the Yu-Gi-Oh! Trading Card Game remained strong in the U.S. and Europe. We also
launched NEKKETSU PAWAPUROCHAMP, the latest title in the new virtual game PLAY-POEMS series, during the year-end sales.
In the Amusement segment, the cumulative number of subscribers to our online arcade game service exceeded three
million. Our amusement games continued to enjoy high popularity, especially MAH-JONG FIGHT CLUB3.
In the Gaming segment, we achieved steady growth by expanding sales areas through the acquisition of gaming licenses
and enhancing product lineups. We are also constructing a new facility to keep in pace with expected increase in sales
in the future.
In the Health & Fitness segment, a large number of our sports club members participated in the HONOLULU MARATHON 2004,
an event co-sponsored by Konami Sports Corporation. We announced the opening of a new Konami Sports outlet in Okinawa
as part of our ongoing effort to expand our nationwide network of facilities.
As a result of the foregoing, our consolidated net revenues were Y81,494 million for the three months ended December
31, 2004 (99.0% of consolidated net revenues for the same period of the previous year) and Y195,503 million for the
nine months ended December 31, 2004 (92.1% of consolidated net revenues for the same period of the previous year).
Consolidated operating income stood at Y16,037 million for the three months ended December 31, 2004 (120.4% of
consolidated operating income for the same period of the previous year) and Y27,888 million for the nine months ended
December 31, 2004 (79.6% of consolidated operating income for the same period of the previous year). Consolidated net
income stood at Y8,389 million for the three months ended December 31, 2004 (104.3% of consolidated net income for the
same period of the previous year) and Y10,015 million for the nine months ended December 31, 2004 (53.0% of
consolidated net income in the same period of the previous year).
(2) Merger with Software Production Subsidiaries
In a meeting of the Board of Directors held on December 16, 2004, a merger among the Company and its software
production subsidiaries, Konami Computer Entertainment Studios, Inc., Konami Computer Entertainment Tokyo, Inc., and
Konami Computer Entertainment Japan, Inc. effective April 1, 2005 was resolved. Also, by simultaneously merging with
Konami Online, Inc., our core subsidiary in our online game business, we will be integrating and sharing our creators
and production know-how, which separated so far among three production companies, and will be concentrating our
managerial resources on online game business, an area expected to grow in the future.
(3) Performance by Business Segment
Summary of net revenues by business segment:
Millions of Yen
Nine months ended Nine months ended
December 31, 2003 December 31, 2004
Computer & Video Games Y73,336 Y73,161
Toy & Hobby 47,546 30,815
Amusement 24,819 25,160
Gaming 7,998 8,661
Health & Fitness 59,690 59,687
Other, Corporate and (1,103) (1,981)
Eliminations
Consolidated net revenues Y212,286 Y195,503
In the Computer & Video Games segment, we released a new title for the METAL GEAR series, METAL GEAR SOLID 3 SNAKE
EATER, in North America in November 2004 and in Japan in December. The series achieved cumulative sales of 14.6 million
units. The METAL GEAR SOLID 3 SNAKE EATER is receiving high reviews in various media and the unit sales are growing
steadily. In Europe, Pro Evolution Soccer 4, the latest title in the popular Pro Evolution Soccer series, tallied a
million sales with its release in October release. The Pro Evolution Soccer series (named the WINNING ELEVEN series in
the Japanese market) achieved million-sales for three consecutive terms in Japan and Europe, respectively. In North
America, our new original title RUMBLE ROSES received favorable reviews after its release in November.
As a result, consolidated net revenues of the Computer & Video Games segment were Y40,496 million for the three months
ended December 31, 2004 and Y73,161 million for the nine months ended December 31, 2004.
In the Toy & Hobby segment, we are strengthening our product lineup with a focus on toys for boys. In line
with a new TV series which started in October 2004, we introduced THE JUSTIRISERS toys series, a follow-up
to the GRANSAZERS series released earlier. The release of PLAY-POEMS, in November 2004, a new type of
virtual game featuring high-performance semiconductor chips POEMS installed on-board, attests to our
ongoing efforts to expand new markets. We also achieved steady sales for the globally marketed Yu-Gi-Oh!
card game with new releases launched in Japan, the U.S., and Europe.
As a result, consolidated net revenues of the Toy & Hobby segment were at Y12,818 million for the three
months ended December 31, 2004 and Y30,815 million for the nine months ended December 31, 2004.
In the Amusement segment, we received favorable reviews for new titles in our e-AMUSEMENT lineups of video games for
amusement arcades, most notably QUIZ MAGIC ACADEMY II, the latest version of quiz battle that allows players to
compete intellectually with others nationwide via an on-line connection and the MAH-JONG FIGHT CLUB series. Sales of
music game series such as pop'n music 12 also remained strong. Among token-operated products, WingFantasia, a new
product based on the concept of ' snakes-and-ladders,' with party-game-like fun which was not enjoyed by
coin-operated machines before, expanded sales. Sales of GI-TURFWILD2, a token-operated horse racing game with a more
advanced ' virtuality' and game features than GI-WINNING-SIRE, also growing steadily.
As a result, consolidated net revenues of the Amusement segment were Y6,168 million for the three months ended
December 31, 2004 and Y25,160 million for the nine months ended December 31, 2004.
In the Gaming segment, we operate mainly in North America and Australia. In North America, we continued to mark
solid sales, mainly in Nevada, California, Michigan and Wisconsin, with robust demand for video slot machines, our
main product, and the Advantage Series, a mechanical slot machine product newly introduced during the previous
fiscal year.
Although the Australian market leveled off, we had steady sales of our video slot machine products such as Show
Queen. We are also aggressively developing sales in other overseas market, as well. We currently hold gaming
licenses in 25 states in North America (20 states in the United States, 4 states in Canada, and 1 Commonwealth of
the United States). During the third quarter, we also commenced sales activities in several U.S. states in which we
had no previous experience, and expanding our sales areas. We own gaming licenses in every state in Australia.
As a result, consolidated net revenues of the Gaming segment were Y2,763 million for the three months ended December
31, 2004 and Y8,661 million for the nine months ended December 31, 2004.
In the Health & Fitness business, we expanded the Konami Sports Club network by consolidating two neighboring
facilities in Ogaki, Gifu Prefecture, into a new-style, large-scale facility in November 2004. In JUNIOR FUNK, the
dancing school in Undo-Jyuku (a sports school that promotes sound minds and sound bodies by enhancing the abilities of
children through sports), we recently introduced STAR TEAM, a superior class for students selected from among
applicants from the normal class to serve as a model for the children.
In the fitness products business, the EZ series, which utilize our knowledge in entertainment and network technologies,
were successively introduced into Konami Sports Club, and has won highly favorable reviews from the customers. We also
made efforts to increase sales of existing home-use products such as Refreshmentbike, a home use fitness machine
equipped with a function to generate highly concentrated oxygen and negative ions, Kenshin-Keikaku, a PC software
application to display and manage exercise data stored in the e-walkeylife, a pedometer with multi-functions,
FLAVANGENOL UP50 and FLAVANGENOL MSMPLUS, our original supplement products, and Diet Channel and MARTIALBEAT2 for
PlayStation2, a game application for fitness that emulates diet-related content.
As a result, consolidated net revenues of the Health & Fitness segment were Y19,909 million for the three months ended
December 31, 2004 and Y 59,687 million for the nine months ended December 31, 2004.
2. Cash Flows
Cash flow summary for the nine months ended December 31, 2004:
Millions of Yen
Nine months ended Nine months ended Year ended March 31,
December 31, 2003 December 31, 2004 2004
Net cash provided by Y23,136 Y12,300 Y34,326
operating activities
Net cash used in investing (1,248) (11,173) (7,001)
activities
Net cash used in financing (11,992) (11,887) (14,141)
activities
Effect of exchange rate (289) 594 (979)
changes on cash and
cash equivalents
Net increase (decrease) in 9,607 (10,166) 12,205
cash and cash
equivalents
Cash and cash 84,287 76,719 86,885
equivalents, end of the
period
Cash flows from operating activities:
Net cash provided by operating activities amounted to Y12,300 million for the nine months ended December
31, 2004, compared to Y23,136 million for the nine months ended December 31, 2003. This resulted primarily
from a net income of Y10,015 million.
Cash flows from investing activities:
Net cash used in investing activities amounted to Y11,173 million for the nine months ended December 31,
2004, compared to Y1,248 million for the nine months ended December 31, 2003. This resulted primarily from
capital expenditures of Y11,270 million.
Cash flows from financing activities:
Net cash used in financing activities amounted to Y11,887 million for the nine months ended December 31,
2004, compared to Y11,992 million for the nine months ended December 31, 2003. This was primarily due to
payments of dividends of Y7,652 million and treasury stock acquisitions by the Company and its
subsidiaries of Y6,178 million.
3. Consolidated Balance Sheets (Unaudited)
Millions of Yen Thousands of
U.S. Dollars
December 31, December 31, March 31, 2004 December 31,
2003 2004 2004
% % %
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Y 84,287 Y 76,719 Y 86,885 $ 741,963
Trade notes and accounts
receivable, net of allowance
for doubtful accounts of Y732
million, Y 795 million ($ 7,689
thousand) and Y706 million at
December 31, 2003, December 31,
2004 and March 31, 2004,
respectively 36,460 40,352 25,438 390,251
Inventories 17,228 22,479 17,821 217,398
Deferred income taxes, net 13,167 14,456 13,895 139,807
Prepaid expenses and other 10,045 8,020 8,727 77,564
current assets
Total current assets 161,187 53.3 162,026 52.8 152,766 51.9 1,566,983
PROPERTY AND EQUIPMENT, net 46,320 15.3 47,381 15.4 46,700 15.8 458,230
INVESTMENTS AND OTHER ASSETS:
Investments in marketable 123 148 124 1,431
securities
Investments in affiliates 12,823 9,713 12,514 93,936
Identifiable intangible assets 46,020 46,344 45,984 448,201
Goodwill 463 463 463 4,478
Lease deposits 23,983 23,481 23,967 227,089
Other assets 11,451 17,318 11,979 167,486
Total investments and other 94,863 31.4 97,467 31.8 95,031 32.3 942,621
assets
TOTAL ASSETS Y 302,370 100.0 Y 306,874 100.0 Y 294,497 100.0 $ 2,967,834
Millions of Yen Thousands of
U.S. Dollars
December 31, December 31, March 31, 2004 December 31,
2003 2004 2004
% % %
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Short-term borrowings Y 3,562 Y7,118 Y 2,585 $68,839
Current portion of long-term 2,892 17,735 2,900 171,518
debt and capital lease
obligations
Trade notes and accounts 19,073 17,623 15,998 170,435
payable
Accrued income taxes 21,238 25,320 23,318 244,874
Accrued expenses 20,907 21,799 18,651 210,822
Deferred revenue 6,389 5,808 6,036 56,170
Other current liabilities 5,499 5,180 3,311 50,098
Total current liabilities 79,560 26.3 100,583 32.8 72,799 24.7 972,756
LONG-TERM LIABILITIES:
Long-term debt and capital 68,636 52,133 68,195 504,188
lease obligations, less current
portion
Accrued pension and severance 2,519 2,393 2,350 23,143
costs
Deferred income taxes, net 19,370 20,757 19,195 200,745
Other long-term liabilities 3,307 2,302 2,420 22,263
Total long-term liabilities 93,832 31.0 77,585 25.3 92,160 31.3 750,339
TOTAL LIABILITIES 173,392 57.3 178,168 58.1 164,959 56.0 1,723,095
MINORITY INTEREST IN 27,420 9.1 25,261 8.2 27,409 9.3 244,304
CONSOLIDATED SUBSIDIARIES
COMMITMENTS AND - - - - - - -
CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value-
Authorized 450,000,000 shares; 47,399 15.7 47,399 15.4 47,399 16.1 458,404
issued 128,737,566 shares at
December 31, 2003, December 31,
2004 and March 31, 2004
Additional paid-in capital 46,736 15.4 46,736 15.2 46,736 15.9 451,992
Retained earnings 32,577 10.8 37,308 12.2 33,779 11.4 360,812
Accumulated other comprehensive 511 0.2 272 0.1 (119) (0.0) 2,631
income (loss)
Total 127,223 42.1 131,715 42.9 127,795 43.4 1,273,839
Treasury stock, at cost-
8,254,041 shares, 9,255,746 (25,665) (8.5) (28,270) (9.2) (25,666) (8.7) (273,404)
shares and 8,254,314 shares at
December 31, 2003, December 31,
2004 and March 31, 2004,
respectively
Total stockholders' equity 101,558 33.6 103,445 33.7 102,129 34.7 1,000,435
TOTAL LIABILITIES AND Y 302,370 100.0 Y306,874 100.0 Y 294,497 100.0 $2,967,834
STOCKHOLDERS' EQUITY
4. Consolidated Statements of Operations (Unaudited)
(For the nine months ended December 31, 2004)
Millions of Yen Thousands of
U.S. Dollars
Nine months Nine months Year ended Nine months
ended December ended December ended
31, 2003 31, 2004 March 31, 2004 December 31,
2004
% % %
NET REVENUES:
Product sales revenue Y153,901 Y136,953 Y196,136 $1,324,497
Service revenue 58,385 58,550 77,276 566,248
Total net revenues 212,286 100.0 195,503 100.0 273,412 100.0 1,890,745
COSTS AND EXPENSES:
Costs of products sold 88,520 81,192 115,229 785,223
Costs of services rendered 48,058 49,625 63,953 479,932
Selling, general and 40,689 36,798 53,517 355,880
administrative
Total costs and expenses 177,267 83.5 167,615 85.7 232,699 85.1 1,621,035
Operating income 35,019 16.5 27,888 14.3 40,713 14.9 269,710
OTHER INCOME (EXPENSES):
Interest income 325 334 488 3,230
Interest expense (648) (703) (865) (6,799)
Other, net 675 (578) (229) (5,590)
Other income (expenses), net 352 0.2 (947) (0.5) (606) (0.2) (9,159)
INCOME BEFORE INCOME TAXES, 35,371 16.7 26,941 13.8 40,107 14.7 260,551
MINORITY INTEREST AND EQUITY IN
NET INCOME OF AFFILIATED COMPANIES
INCOME TAXES 15,039 7.1 11,987 6.1 18,035 6.6 115,928
INCOME BEFORE MINORITY INTEREST 20,332 9.6 14,954 7.7 22,072 144,623
AND EQUITY IN NET INCOME (LOSS) OF 8.1
AFFILIATED COMPANIES
MINORITY INTEREST IN INCOME 1,970 0.9 2,523 1.3 2,220 0.8 24,400
OF CONSOLIDATED
SUBSIDIARIES
EQUITY IN NET INCOME (LOSS) OF 541 0.2 (2,416) (1.3) 252 0.1 (23,366)
AFFILIATED COMPANIES
NET INCOME Y 18,903 8.9 Y 10,015 5.1 Y20,104 7.4 $96,857
PER SHARE DATA: Yen U.S. Dollars
Nine months Nine months Year ended Nine months
ended December ended December ended
31, 2003 31, 2004 March 31, 2004 December 31,
2004
Basic and diluted net income Y 156.89 Y 83.38 Y166.86 $0.81
per share
Weighted-average common 120,484,014 120,116,594 120,483,869
shares outstanding
(For the third quarter ended December 31, 2004)
Millions of Yen Thousands of
U.S. Dollars
Third quarter Third quarter Third quarter
ended December ended December ended
31, 2003 31, 2004
December 31,
2004
% %
NET REVENUES:
Product sales revenue Y 62,640 Y62,020 $599,807
Service revenue 19,670 19,474 188,336
Total net revenues 82,310 100.0 81,494 100.0 788,143
COSTS AND EXPENSES:
Costs of products sold 37,902 35,783 346,064
Costs of services rendered 16,260 16,420 158,800
Selling, general and 14,827 13,254 128,182
administrative
Total costs and expenses 68,989 83.8 65,457 80.3 633,046
Operating income 13,321 16.2 16,037 19.7 155,097
OTHER INCOME (EXPENSES):
Interest income 97 95 919
Interest expense (223) (228) (2,205)
Other, net (232) (549) (5,310)
Other income (expenses), net (358) (0.5) (682) (0.9) (6,596)
INCOME BEFORE INCOME TAXES, 12,963 15.7 15,355 18.8 148,501
MINORITY INTEREST AND EQUITY IN
NET INCOME OF AFFILIATED
COMPANIES
INCOME TAXES 4,370 5.3 6,168 7.5 59,652
INCOME BEFORE MINORITY INTEREST 8,593 10.4 9,187 11.3 88,849
AND EQUITY IN NET INCOME OF
AFFILIATED COMPANIES
MINORITY INTEREST IN INCOME 860 1.0 933 1.1 9,023
OF CONSOLIDATED SUBSIDIARIES
EQUITY IN NET INCOME OF 311 0.4 135 0.1 1,306
AFFILIATED COMPANIES
NET INCOME Y 8,044 9.8 Y 8,389 10.3 $81,132
PER SHARE DATA: Yen U.S. Dollars
Third quarter Third quarter Third quarter
ended December ended December ended
31, 2003 31, 2004
December 31,
2004
Basic and diluted net income Y 66.76 Y 70.16 $ 0.68
per share
Weighted-average common 120,483,726 119,567,336
shares outstanding
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, December
31, 2003 31, 2004 2004 31, 2004
Cash flows from operating activities:
Net income Y 18,903 Y 10,015 Y 20,104 $96,857
Adjustments to reconcile net income to
net cash
provided by operating activities -
Depreciation and amortization 6,499 6,506 8,528 62,921
Provision for doubtful receivables (167) 127 (170) 1,228
Loss on sale or disposal of property and 686 985 1,231 9,526
equipment, net
Loss (gain) on sale of marketable (1,303) 46 (1,303) 445
securities
Equity in net loss (income) of affiliated (541) 2,416 (252) 23,366
companies
Minority interest 1,970 2,523 2,220 24,400
Deferred income taxes 161 904 (651) 8,743
Change in assets and liabilities, net of
business acquired:
Decrease (increase) in trade notes and (7,555) (15,477) 3,033 (149,681)
accounts
receivable
Increase in inventories (4,187) (4,729) (4,791) (45,735)
Increase (decrease) in trade notes and 1,220 1,498 (1,724) 14,487
accounts payable
Increase in accrued income taxes 7,507 1,908 9,456 18,453
Increase (decrease) in accrued expenses 1,516 3,277 (293) 31,692
Increase (decrease) in deferred revenue 854 (228) 501 (2,205)
Other, net (2,427) 2,529 (1,563) 24,459
Net cash provided by operating activities 23,136 12,300 34,326 118,956
Cash flows from investing activities:
Capital expenditures (3,272) (11,270) (8,788) (108,994)
Proceeds from sales of property and 207 566 281 5,474
equipment
Proceeds from sales of investments in 1,593 22 1,596 213
marketable
securities
Acquisition of new subsidiaries, net of (206) - (206) -
cash acquired
Decrease in time deposits, net 63 - 63 -
Decrease in lease deposits, net 505 158 121 1,528
Other, net (138) (649) (68) (6,277)
Net cash used in investing activities (1,248) (11,173) (7,001) (108,056)
Cash flows from financing activities:
Net decrease in short-term borrowings (4,812) 4,533 (5,789) 43,839
Proceeds from long-term debt 6,400 - 6,400 -
Repayments of long-term debt (543) (820) (896) (7,930)
Principal payments under capital lease (1,793) (1,712) (2,355) (16,557)
obligations
Dividends paid (8,959) (7,652) (8,970) (74,004)
Purchases of treasury stock by parent (2) (2,604) (3) (25,184)
company
Purchases of treasury stock by (2,192) (3,574) (2,456) (34,565)
subsidiaries
Other, net (91) (58) (72) (560)
Net cash used in financing activities (11,992) (11,887) (14,141) (114,961)
Effect of exchange rate changes on cash (289) 594 (979) 5,744
and cash equivalents
Net increase (decrease) in cash and cash 9,607 (10,166) 12,205 (98,317)
equivalents
Cash and cash equivalents, beginning of 74,680 86,885 74,680 840,280
the period
Cash and cash equivalents, end of the Y 84,287 Y76,719 Y 86,885 $741,963
period
6. Segment Information (Unaudited)
a . Operations in Different Industries
(Nine months ended December 31)
Nine months Computer Toy & Amusement Gaming Health & Other, Consolidated
ended & Video Hobby Fitness
Games Corporate
December 31, and
2003 Eliminations
(Millions of Yen)
Net revenue:
Customers Y 71,497 Y 47,480 Y 24,287 Y 7,998 Y 59,670 Y 1,354 Y 212,286
Intersegment 1,839 66 532 - 20 (2,457) -
Total 73,336 47,546 24,819 7,998 59,690 (1,103) 212,286
Operating 58,924 29,513 16,619 7,504 57,326 7,381 177,267
expenses
Operating Y 14,412 Y 18,033 Y 8,200 Y 494 Y 2,364 Y (8,484) Y 35,019
income (loss)
Nine months Computer Toy & Amusement Gaming Health & Other, Consolidated
ended & Video Hobby Fitness
Games Corporate
December 31, and
2004 Eliminations
(Millions of Yen)
Net revenue:
Customers Y 72,009 Y 30,581 Y 24,615 Y 8,661 Y 59,474 Y 163 Y 195,503
Intersegment 1,152 234 545 - 213 (2,144) -
Total 73,161 30,815 25,160 59,687 (1,981) 195,503
8,661
Operating 57,022 23,929 18,268 7,572 57,205 3,619 167,615
expenses
Operating Y 16,139 Y 6,886 Y 6,892 Y 1,089 Y 2,482 Y (5,600) Y 27,888
income (loss)
Computer Toy & Amusement Gaming Health & Other, Consolidated
& Video Hobby Fitness
Games Corporate
Nine months and
ended Eliminations
December 31,
2004
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 696,412 $ 295,755 $ 238,056 $ 83,762 $ 575,184 $ 1,576 $ 1,890,745
Intersegment 11,141 2,263 5,271 - 2,060 (20,735) -
Total 707,533 298,018 243,327 83,762 577,244 (19,159) 1,890,745
Operating 551,470 231,422 176,673 73,230 553,240 35,000 1,621,035
expenses
Operating $ 156,083 $ 66,596 $ 66,654 $ 10,532 $ 24,004 $ (54,159) $ 269,710
income (loss)
(Year ended March 31, 2004)
Year ended Computer Toy & Amusement Gaming Health & Other, Consolidated
& Video Hobby Fitness
March 31, 2004 Games Corporate
and
Eliminations
(Millions of Yen)
Net revenue:
Customers Y 90,105 Y 57,335 Y 34,547 Y 10,947 Y 78,875 Y 1,603 Y 273,412
Intersegment 2,415 133 880 - 24 (3,452) -
Total 92,520 57,468 35,427 10,947 78,899 (1,849) 273,412
Operating 76,436 37,889 23,630 10,255 76,127 8,362 232,699
expenses
Operating Y 16,084 Y Y 11,797 Y 692 Y Y (10,211) Y 40,713
income (loss) 19,579 2,772
(Third quarter ended December 31)
Third quarter Computer Toy & Amusement Gaming Health & Other, Consolidated
ended & Video Hobby Fitness
Games Corporate
December 31, and
2003 Eliminations
(Millions of Yen)
Net revenue:
Customers Y 34,302 Y 16,060 Y 8,633 Y 2,833 Y 19,994 Y 488 Y 82,310
Intersegment 489 31 227 - 17 (764) -
Total 34,791 16,091 8,860 2,833 20,011 (276) 82,310
Operating 28,319 9,986 5,570 2,680 18,651 3,783 68,989
expenses
Operating Y 6,472 Y 6,105 Y 3,290 Y 153 Y 1,360 Y (4,059) Y 13,321
income (loss)
Third quarter Computer Toy & Amusement Gaming Health & Other, Consolidated
ended & Video Hobby Fitness
Games Corporate
December 31, and
2004 Eliminations
(Millions of Yen)
Net revenue:
Customers Y 40,082 Y 12,707 Y 6,121 Y 2,763 Y 19,756 Y 65 Y 81,494
Intersegment 414 111 47 - 153 (725) -
Total 40,496 12,818 6,168 2,763 19,909 (660) 81,494
Operating 28,518 9,532 4,574 2,431 19,166 1,236 65,457
expenses
Operating Y 11,978 Y 3,286 Y 1,594 Y 332 Y 743 Y (1,896) Y 16,037
income (loss)
Third quarter Computer Toy & Amusement Gaming Health & Other, Consolidated
ended & Video Hobby Fitness
Games Corporate
December 31, and
2004 Eliminations
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 387,640 $ 122,892 $ 59,197 $ 26,721 $ 191,064 $ 629 $ 788,143
Intersegment 4,004 1,072 455 - 1,480 (7,011) -
Total 391,644 123,964 59,652 26,721 192,544 (6,382) 788,143
Operating 275,803 92,185 44,236 23,510 185,358 11,954 633,046
expenses
Operating $ 115,841 $ 31,779 $ 15,416 $ 3,211 $ 7,186 $ (18,336) $ 155,097
income (loss)
Notes: 1. Primary businesses of each segment are as follows:
Computer & Video Games: Production and sale of home-use video game software
Toy & Hobby: Production and sale of character related products
Amusement: Manufacture and sale of amusement arcade games and
LCD units for pachinko machines
Gaming: Manufacture and sale of gaming machines for
overseas market
Health & Fitness Operation of health and fitness clubs, production
and sales of health and
fitness related goods.
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 for the Company.
4. 'Eliminations' primarily consist of eliminations of intercompany sales and of intercompany
profits on inventories.
5. Intersegment revenues primarily consist of sub-licensing of intellectual property rights from
Computer & Video Games and Toy & Hobby to Amusement and Gaming and sales of hardware and
components from Amusement to Computer & Video Games and Health & Fitness.
6. Segment name of Exercise Entertainment was changed to Health & Fitness in the forth quarter
ended March 31,2004.
b . Operations in Geographic Areas
(Nine months ended December 31)
Nine months ended Japan Americas Europe Asia Total Eliminations Consolidated
December 31, 2003 /Oceania
(Millions of Yen)
Net revenue:
Customers Y 132,080 Y 44,327 Y 29,706 Y 6,173 Y 212,286 - Y 212,286
Intersegment 58,833 1,355 90 200 60,478 Y (60,478) -
Total 190,913 45,682 29,796 6,373 272,764 (60,478) 212,286
Operating expenses 162,345 43,422 24,950 5,251 235,968 (58,701) 177,267
Operating income Y 28,568 Y 2,260 Y 4,846 Y 1,122 Y 36,796 Y (1,777) Y 35,019
Nine months ended Japan Americas Europe Asia Total Eliminations Consolidated
December 31, 2004 /Oceania
(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, 2004 /Oceania
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 1,269,884 $ 317,602 $ 246,344 $ 56,915 $ 1,890,745 - $ 1,890,745
Intersegment 428,781 10,473 464 1,490 441,208 $ (441,208) -
Total 1,698,665 328,075 246,808 58,405 2,331.953 (441,208) 1,890,745
Operating expenses 1,480,367 308,781 215,541 47,776 2,052,465 (431,430) 1,621,035
Operating income $ 218,298 $ 19,294 $ 31,267 $ 10,629 $ 279,488 $ (9,778) $ 269,710
(Year ended March 31, 2004)
Year ended Japan Americas Europe Asia Total Eliminations Consolidated
March 31, 2004 /Oceania
(Millions of Yen)
Net revenue:
Customers Y 176,401 Y 53,670 Y 35,551 Y 7,790 Y 273,412 - Y 273,412
Intersegment 68,757 1,516 305 260 70,838 Y (70,838) -
Total 245,158 55,186 35,856 8,050 344,250 (70,838) 273,412
Operating expenses 213,419 51,806 30,915 6,904 303,044 (70,345) 232,699
Operating income Y 31,739 Y 3,380 Y 4,941 Y 1,146 Y 41,206 Y (493) Y 40,713
(Third quarter ended December 31)
Third quarter ended Japan Americas Europe Asia Total Eliminations Consolidated
December 31, 2003 /Oceania
(Millions of Yen)
Net revenue:
Customers Y 47,268 Y 17,301 Y 15,616 Y 2,125 Y 82,310 - Y 82,310
Intersegment 21,167 1,201 2 21 22,391 Y (22,391) -
Total 68,435 18,502 15,618 2,146 104,701 (22,391) 82,310
Operating expenses 61,203 16,444 11,686 1,899 91,232 (22,243) 68,989
Operating income Y 7,232 Y 2,058 Y 3,932 Y 247 Y 13,469 Y (148) Y 13,321
Third quarter ended Japan Americas Europe Asia Total Eliminations Consolidated
December 31, 2004 /Oceania
(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, 2004 /Oceania
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 441,296 $ 178,124 $ 148,675 $ 20,048 $ 788,143 - $ 788,143
Intersegment 218,830 2,234 - 1,074 222,138 $ (222,138) -
Total 660,126 180,358 148,675 21,122 1,010,281 (222,138) 788,143
Operating expenses 562,718 162,776 119,681 16,944 862,119 (229,073) 633,046
Operating income $ 97,408 $ 17,582 $ 28,994 $ 4,178 $ 148,162 $ 6,935 $ 155,097
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 31, 2004 of Y103.40 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, 2003 and December 31, 2004 and for the year ended March
31, 2004 consisted of the following:
Millions of yen Thousands of
U.S. Dollars
Nine months Nine months Year ended Nine months
ended ended ended
March 31, 2004
December 31, December 31, December 31,
2003 2004 2004
Net income Y 18,903 Y 10,015 Y 20,104 $ 96,857
Other comprehensive income
(loss):
Foreign currency (491) 538 (1,108) 5,203
translation adjustments
Net unrealized gains on 212 (147) 270 (1,422)
available-for-sale
securities
Adjustment for minimum - - (71) -
pension liabilities
(279) 391 (909) 3,781
Comprehensive income Y 18,624 Y 10,406 Y 19,195 $ 100,638
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