Final Results
Konami Corporation
12 May 2004
Consolidated Financial Results
for the Year Ended March 31, 2004
(Prepared in Accordance with U.S. GAAP)
May 12, 2004
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.com
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)
Date of Board Meeting to approve May 12, 2004
the financial results:
Adoption of U.S. GAAP: Yes
1. Consolidated Results for the Year Ended March 31, 2004
(Amounts are rounded to the nearest million)
(1) Consolidated Results of Operations
(Millions of Yen, except per share data)
Net revenues Operating Income (loss) Net income (loss)
before income
income (loss) taxes
Year ended March 31, 2004 273,412 40,713 40,107 20,104
% change from previous year 7.8 % - - -
Year ended March 31, 2003 253,657 (21,870) (22,096) (28,519)
% change from previous year 12.4 % - - -
Basic and diluted Return on Ratio of income Ratio of income
net income (loss) shareholders' (loss) (loss) before
per share equity before income income taxes
taxes to net revenues
to total assets
Year ended March 31, 2004 166.86 20.9% 14.0% 14.7%
Year ended March 31, 2003 (234.58) (25.3)% (7.3)% (8.7)%
Notes:
1. Equity in net income (loss) of affiliated companies
Year ended March 31, 2004: Y252 million
Year ended March 31, 2003: Y(1,288) million
2. Weighted-average common shares outstanding
Year ended March 31, 2004: 120,483,869
shares
Year ended March 31, 2003: 121,572,154
shares
3. Change in accounting policies: None
4. Income (loss) before income taxes represents 'Income (loss) before income taxes, minority interest
and equity in net income (loss) of affiliated companies' as stated in the accompanying
consolidated statements of operations.
5. Net income (loss) per share was calculated in accordance with Statement of Financial Accounting
Standard (SFAS) No. 128 'Earnings per Share'.
(2) Consolidated Financial Position
(Millions of Yen, except per share amounts)
Total assets Total shareholders' Equity-assets Shareholders'
equity ratio equity per share
March 31, 2004 294,497 102,129 34.7% 847.66
March 31, 2003 278,250 90,406 32.5% 750.35
Note:
Number of shares outstanding
March 31, 2004: 120,483,252 shares
March 31, 2003: 120,484,375 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 year
Year ended March 31, 2004 34,326 (7,001) (14,141) 86,885
Year ended March 31, 2003 27,711 (12,242) (16,443) 74,680
(4) Number of Consolidated Subsidiaries and Companies Accounted for by the
Equity Method
Number of consolidated subsidiaries: 28
Number of affiliated companies accounted for by the equity method: 3
(5) Changes in Reporting Entities
Number of consolidated subsidiaries added: 3
Number of consolidated subsidiaries removed: 3
2. Earnings Forecast for the Year Ending March 31, 2005
(Millions of Yen)
Net revenues Operating Income before Net income
income income taxes
Year ending March 31, 2005 275,000 28,000 27,000 15,000
Note:
Expected net income per share for the year ending March 31, 2005 is Y 124.50.
Cautionary Statement with Respect to Forward-Looking Statements:
Statements made in this document with respect to our current plans, estimates, strategies and beliefs,
including the above forecasts, are forward-looking statements about our future performance. These
statements are based on management's assumptions and beliefs in light of information currently
available to it and, therefore, you should not place undue reliance on them. A number of important
factors could cause actual results to be materially different from and worse than those discussed in
forward-looking statements. Such factors include, but are not limited to: (i) changes in economic
conditions affecting our operations; (ii) fluctuations in currency exchange rates, particularly with
respect to the value of the Japanese yen, the U.S. dollar and the Euro; (iii) our ability to continue
to win acceptance of our products, which are offered in highly competitive markets characterized by
the continuous introduction of new products, rapid developments in technology and subjective and
changing consumer preferences; (iv) our ability to successfully expand internationally with a focus on
our video game software business, card game business and gaming machine business; (v) our ability to
successfully expand the scope of our business and broaden our customer base through our health &
fitness business; (vi) regulatory developments and changes and our ability to respond and adapt to
those changes; (vii) our expectations with regard to further acquisitions and the integration of any
companies we may acquire; and (viii) the outcome of contingencies.
Please refer to page 13 of the attached material for information regarding the assumptions and other
related items used in the preparation of these forecasts.
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 ''8. Segment Information (Unaudited)''.
Business Segments Major Companies
Computer & Video Games Domestic The Company (*1, 9, 15)
Konami Marketing Japan, Inc. (*4)
Konami Computer Entertainment Studios, Inc. (*3)
Konami Computer Entertainment Tokyo, Inc.
Konami Computer Entertainment Japan, Inc.
Konami Online, Inc. (*11), HUDSON SOFT CO., LTD. (*16)
Genki Co., Ltd. (*16), TAKARA CO., LTD. (*12, 16)
Overseas Konami Digital Entertainment, Inc. (*2, 13)
Konami of Europe GmbH
Konami Marketing (Asia) Ltd.
Konami Software Shanghai, Inc., One other company
Toy & Hobby Domestic The Company (*1, 9, 15)
Konami Marketing Japan, Inc. (*4)
Konami Media Entertainment, Inc. (*10)
Konami Traumer, Inc. (*1), Konami Online, Inc. (*11)
Overseas Konami Marketing, Inc. (*2, 13)
Konami Corporation of Europe B.V. (*6)
Konami Marketing (Asia) Ltd.
Amusement Domestic The Company (*1, 9, 15)
Konami Marketing Japan, Inc. (*4)
KPE, Inc., Konami Online, Inc. (*11), One other company
Overseas Konami Marketing, Inc. (*2, 13)
Konami Corporation of Europe B.V. (*6)
Konami Marketing (Asia) Ltd.
Gaming Domestic The Company (*1, 9, 15)
Overseas Konami Gaming, Inc.
Konami Australia Pty Ltd., One other company
Health & Fitness(*14) Domestic Konami Sports Corporation (*5, 7)
Konami Sports Life Corporation
Konami Online, Inc. (*11), One other company
Other Domestic Konami Marketing Japan, Inc. (*4), Konami School, Inc. (*9)
Konami Computer Entertainment School, Inc. (*8)
Konami Real Estate, Inc., One other company
Overseas Konami Corporation of America
Konami Corporation of Europe B.V. (*6), One other company (*6)
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 March 31, 2004 are as follows:
(*1) The Company acquired 77.8% of the issued shares of Traumer, Inc. and added Traumer, Inc. to its
subsidiaries on April 17, 2003. Consequently, the corporate name of Traumer, Inc. was changed to
Konami Traumer, Inc. on the acquisition date.
(*2) On April 18, 2003, the Company transferred its arcade game sales operations in the U.S. from Konami
of America, Inc. to the newly established Konami Marketing, Inc.
(*3) Konami Computer Entertainment Osaka, Inc. merged with Konami Computer Entertainment Studios, Inc.
on May 1, 2003 and changed its corporate name to Konami Computer Entertainment Studios, Inc. on
June 18, 2003.
(*4) On May 1, 2003, Konami Service, Inc. merged with Konami Marketing Japan, Inc. in order to improve
customer satisfaction by integrating their sales, marketing and customer service businesses.
(*5) On May 1, 2003, Konami Athletics Inc. merged with Konami Sports Corporation in order to improve the
efficiency of their operations and enhance customer convenience.
(*6) On June 1, 2003, Konami Marketing Europe Ltd. transferred its amusement business to Konami
Corporation of Europe B.V.
(*7) On July 31, 2003, in order to enhance its business in Kinki area (western part of Japan), Konami
Sports Corporation acquired fitness club business from Hankyu Dentetsu Corporation and its
subsidiary, OXY Corporation.
(*8) On July 31, 2003, Konami School, Inc. changed its name to Konami Computer Entertainment School,
Inc.
(*9) On August 1, 2003, the Company established Konami School, Inc. in order to find talent for our all
business segments.
(*10) On September 30, 2003, Konami Music Entertainment, Inc. changed its name to Konami Media
Entertainment, Inc.
(*11) On September 30, 2003, Konami Mobile & Online, Inc. changed its name to Konami Online, Inc.
(*12) TAKARA CO., LTD. which had been included in Other segment until the period ended March 31, 2003 has
been included in Computer & Video Games segment from the six months period ended September 30,
2003.
(*13) On October 1, 2003, Konami of America, Inc. changed its name to Konami Digital Entertainment, Inc.
and transferred its Toy & Hobby division to Konami Marketing, Inc.
(*14) On March 29, 2004, Exercise Entertainment segment changed its name to Health &
Fitness segment.
(*15) On March 29, 2004, Gaming division of the Company changed its name to Gaming
Machine R & D Center.
(*16) These are equity method affiliates.
2. Management Policy
1. Management Policy
Our management policy places priority on our shareholders, sound relationships with all stakeholders, including
shareholders, and a wide range of social contributions as a good corporate citizen. We aim to make optimum use of the
group's management resources by taking into account the three keywords of our management policy: ''Adaptation to Global
Standards'', ''Maintaining Fair Competition'' and ''Pursuit of High Profits''.
In order to maximize our shareholders' values we strive to continuously increase and improve our market capitalization
and provide stable dividends as a means to return profits to shareholders. Retained earnings will be used for
investment focused on business fields with good future prospects and profitability to increase our corporate value and
source for paying dividends.
We are working on maintaining sound relationships with our stakeholders, including investors, end-users, suppliers,
employees and the community in general, as well as contributing to the society by supporting a wide range of activities
that promote education, sports and culture.
Pursuant to this basic management policy, we aim to create ''High Quality Life'' full of ''dream'' ''surprise'' and
''fascination'' in everyday life of people all over the world by offering entertainment and health products and
services with universal appeal.
2. Profit Appropriation Policy
We consider stable cash dividends and an increase in corporate value as an important means for returning our profits to
shareholders. Retained earnings will be used for investment focused on business fields with good future prospects and
profitability to strengthen our growth potential and competitiveness.
3. Policy of Changing Stock Unit
We have recognized an importance of expanding the range of our investors and promoting long-term and stable possession
of our stock by our investors for our capital management policy from our early days. On July 1, 1992, we reduced the
number of shares constituting one investment unit from 1,000 to 100. We also exercised 1.5 for 1 and 2 for 1 stock
splits on May 20, 1999 and May 19, 2000, respectively. We continue to work on maximizing shareholders' benefit,
expanding the range of our individual investors and facilitating the liquidity of our shares.
4. Targeted Management Indexes
We use various management indexes for the purpose of optimum utilization of management resources. We will make effort
to improve capital efficiency by analyzing them comprehensively, make high profit and enhance corporate value through
effective utilization of our assets.
5. Medium to Long-term Strategies and Objectives
Establishment of Strong Business Portfolio
We believe that competition among entertainment companies will be intensified, thus an innovative and
diversified corporate strategy and further reinforcement of the corporate structure supporting such strategy are
inevitable for the continuous growth of a company. Starting from the Amusement business, we have been expanding
our businesses to include such ''hit-businesses'' as Computer & Video Games business, Toy & Hobby business and
Gaming business in entertainment industries for many years. In recent years, we have been making an effort to
enhance the Health & Fitness business as a new business. Since the Health & Fitness business is getting on the
track, we are establishing a solid business portfolio with good profit balance by adding a ''stable profit
business'' to traditional ''hit businesses''.
Strengthening Our Corporate Structure by Enhancing Our Brand Value, Production, Marketing and Financial
Resources
To enhance our brand value, from April 2003 we have developed a new logo as the symbol for our new branding
initiative that we are promoting under the tagline ''Bikkuri (Be Creative)'', which indicates our core
competence of ''creativity''. Our goal is to promote high quality life full of surprise and fascination.
Strengthening our corporate structure is essential in setting the groundwork for our future growth. We continue
to strengthen our corporate structure in a variety of ways, such as enhancing our production, marketing and
financial resources, building a stronger group management system and establishing a fair and timely disclosure
system.
We have already reserved a part of resources at hand from our favorable operating cash flows as redemption funds
for Y 15,000 millions of unsecured bonds due in September 2005.
Our stock has been selected as one of 225 stock brands representing the First Section market of the Tokyo Stock
Exchange for the purpose of calculating Nikkei Average Stock Price since October 1, 2003.
We continue to further reinforce our corporate structure in order to become a truly global and leading
entertainment company which represents Japan.
6. Corporate Governance Development
It is necessary for us to develop a strong corporate governance in order to maintain and develop our basic
management policy of placing priority on our shareholders, sound relationship with all stakeholders including
shareholders, and a wide range of social contributions as a good corporate citizen.
The first and most important agenda in our corporate governance development program is the reform of the board of
directors. We employed an outside corporate officer in May 1992 and introduced an executive officer system in June
1999. In June 2001, we reduced the size of our board of directors and had nine directors, four of which were from
outside. We now have eight directors, four of which are from outside. We endeavored to accelerate the managerial
decision-making process, separate oversight and executive functions, strengthen the managerial monitoring system,
revitalize the board of directors, and pursue management transparency.
We are working to implement and activate committees in response to the changing environment in which we operate.
We established Risk Management Committee in April 2000 in order to enhance our ability to prevent and respond
quickly to internal and external risks. We established Compliance Committee in September 2001 to reinforce our
entire system for monitoring and encouraging compliance with applicable laws, rules and regulations. We
established Disclosure Committee in April 2003 in the wake of listing our stock on the New York Stock Exchange.
The Disclosure Committee is working on the establishment of inner management system and development of group
company reporting procedures that facilitates timely and accurate disclosure.
We also established Konami Group Code of Business Conduct and Ethics and Konami Group Officers and Employees
Conduct Guideline in order to integrate direction and improve its standard at all group levels.
3. Business Performance and Cash Flows
1. Business Performance
Overview
In the consolidated fiscal year ended March 31, 2004, Japan's economy seemed to have started a steady
recovery supported by capital investments and exports along with world economy's recovery.
Corporate profit has improved and personal consumption showed a sign of recovery.
There were a number of movements in the entertainment industry in which we operated, such as entering into
the promising market of China by numerous companies, and growth and diffusion of the mobile and online game
markets by expansion of broadband in the home video game soft market. As the importance of creation of
intellectual property gradually gained recognition, there have been trends to promote protection and
training of intellectual property supported by the government, and to establish programs related to games in
universities, and the entertainment industry has further expanded. On the other hand in the software market
it has been more selective and the size of the market has been more likely to depend on the titles.
In the health industry, demand increased in wide range of age groups, especially in the middle-aged and
senior groups, in light of increasing health conscious trend.
Under these circumstances, we performed well in most business segments in the consolidated year ended March
31, 2004, especially in the Computer & Video Games and Toy & Hobby segments, where the Yu-Gi-Oh! products, a
home video game software title and the related card game experienced growth in sales and popularity in the
U.S. and Europe.
In the Computer & Video Games segment, animation contents represented by the Yu-Gi-Oh! series and sports
titles such as the WINNING ELEVEN series generated 20 million units of total annual shipment for three
consecutive years due to their variety of products line-up.
The Toy & Hobby segment substantially improved its performance due to favorable sales of the Yu-Gi-Oh!
trading card game in the U.S. and Europe and development of large toy series for boys called GRANSAZERS.
In the Amusement segment, e-Amusement products generated solid achievement. The Gaming segment recorded
favorable sales by its enhanced products line-up.
The Health & Fitness segment provided a wide range of services such as HAWAII PROJECT which offered sports
event environment in Hawaii and improved the level of customer's satisfaction while expanding the facilities
network.
We established a new operation center for the Computer & Video Games segment in Los Angeles and started
activities which were geared toward the market needs in order to expand our market share in the overseas
game market in October 2003.
As a result, consolidated net revenue amounted to Y 273,412 million (107.8 % of the year ended March 31,
2003), which was the highest sales ever, consolidated operating income was Y 40,713 million, (Y 21,870
million of consolidated operating loss for the year ended March 31, 2003), consolidated income before income
tax and minority interest was Y 40,107 million (Y 22,096 million of consolidated loss before income tax and
minority interest for the year ended March 31, 2003), and consolidated net income was Y 20,104 million (Y
28,519 million of consolidated net loss for the year ended March 31, 2003) for the year ended March 31,
2004.
Dividend payout for the consolidated fiscal year ended March 31, 2004 is expected to be Y54 per share (Y27
as of September 30, 2003 and Y27 as of March 31, 2004).
Performance by business segment
Summary of net revenues by business segment:
Millions of Yen
Year ended Year ended % of previous year
March 31, 2003 March 31, 2004
Computer & Video Games Y87,476 Y92,520 105.8
Toy & Hobby 45,948 57,468 125.1
Amusement 34,305 35,427 103.3
Gaming 8,215 10,947 133.3
Health & Fitness 78,525 78,899 100.5
Other, Corporate and Eliminations (812) (1,849) -
Consolidated net revenues Y253,657 Y273,412 107.8
Note: Health & Fitness segment was renamed from Exercise Entertainment segment
as of March 29, 2004.
In the Computer & Video Games segment, we recorded favorable sales in the WINNING ELEVEN and the Yu-Gi-Oh! series.
As for the WINNING ELEVEN series in the domestic market, in continuous rising popularity of soccer, sales of soccer
titles such as WORLD SOCCER WINNING ELEVEN 7 and WORLD SOCCER WINNING ELEVEN 7 INTERNATIONAL for PlayStation2 reached
1,890,000 copies in total. In Europe, Pro Evolution Soccer 3 for PlayStation2 reached 2,310,000 copies sales and the
WINNING ELEVEN series recorded 4,500,000 sales worldwide including Asia and North America. As for the Yu-Gi-Oh! series,
these continued to be in good demand in North America. Yu-Gi-Oh! The sacred cards, Yu-Gi-Oh! Worldwide Edition Stairway
to the Destined Duel for Game Boy Advance and Yu-Gi-Oh! The Falsebound Kingdom for GameCube achieved 2,450,000 copies
shipment in total. In Europe, the total shipment of Yu-Gi-Oh! Worldwide Edition Stairway to the Destined Duel,
Yu-Gi-Oh! Dungeon Dice Monsters and Yu-Gi-Oh! The Sacred Cards for Game Boy Advance and Yu-Gi-Oh! Power of Chaos for PC
and repeat shipments of previously released titles recorded 2,240,000 copies. The Yu-Gi-Oh! series achieved sales of
5,010,000 copies worldwide including Japan and Asia.
In baseball titles, JIKKYO POWAFULPUROYAKYU 10 for PlayStation2 and GameCube, JIKKYO POWAFULPUROYAKYU 10 Final Edition
for PlayStation2 and GameCube and Pawapuro Pocket 6 for Game Boy Advance reached sales of 1,440,000 copies. TEENAGE
MUTANT NINJA TURTLES reached 1,480,000 copies shipment for Game Boy Advance, PlayStation2, GameCube, X-box and PC in
total for the year ended March 31, 2004 in North America due to strategic marketing in collaboration with related TV
animation.
As a result, consolidated net revenue of the Computer & Video Games segment was Y 92,520 million for the year ended
March 31, 2004 (105.8 % of the year ended March 31, 2003).
The Toy & Hobby segment maintained good sales of the Yu-Gi-Oh! trading card game in the U.S. for its second consecutive
year. We also have promoted sales in the European market with steady sales expansion and have developed markets in
Japan, the U.S and Europe. In the domestic market, we called the year ended March 31, 2004 the Toy & Hobby's origin
year and entered into the new market of toddlers toys and educational toys and introduced SOUND CUBE-KUN and Sound
Mobile which can be played with various sounds and voices. Concurrently in the bath toiletries market into which we
entered, we introduced Disney Bath Toiletries with Disney's characters. In the boy's toy business, we have obtained an
exclusive license to develop a major series for boy's toy products of GRANSAZERS, a special effect hero in a TV show
produced by Toho and broadcasted by 26 TV stations around the country, including six stations affiliated with TV Tokyo.
We have received favorable responses for our lineup of toys and merchandize carrying heroes and robots appearing on the
show.
As a result, the consolidated net revenue of the Toy & Hobby segment was Y57,468 million for the year ended March 31,
2004 (125.1 % of the year ended March 31, 2003).
In the Amusement segment, e-AMUSEMENT products for amusement arcades, such as QUIZ MAGIC ACADEMY, a quiz game which
allows intellectual competition with other players, and MAH-JONG FIGHT CLUB2, which allows direct competition with
players at other game locations nation-wide via online connection, received favorable reviews. Music simulation game
series, such as GUITARFREAKS, drummania and pop'n music, remained strong.
Token-operated products continued to be strong. Particularly Fantasic Fever, a new style of 'penny-falls' game machine
which decorates amusement facilities by medals flowing in the air and electric light shows like a parade, received
favorable reviews. Further, MONSTERGATE ONLINE, the first e-AMUSEMENT product of a token-operated game machine, FORTUNE
ORB Chapter 2, a new version of FORTUNE ORB, a large-sized ''penny-falls'' game machine, and GI-TURFWILD and GI-WINNING
SIRE, large scale token operated horse racing games, contributed to the sales. The LCD unit business contributed to the
sales by introducing differentiated and attractive products to customers.
As a result, consolidated net revenue of the Amusement segment was Y 35,427 million for the year ended March 31, 2004
(103.3% of the year ended March 31, 2003).
As for the Gaming segment, in the North America market we continued to mark solid sales of our main product, MARIACHI
MADNESS and SOLSTICE GOLD especially in Nevada, California and Ontario in Canada. In the Mechanical Slot Machines
market which has the largest share of the casino gaming machine market in North America, we introduced Advantage
Series, our first Mechanical Slot Machines product in December 2003 and increased our sales. While Australian market
leveled off, products such as THE MONSTER SHOW maintained favorable sales. As to the status of gaming licenses, we have
now obtained licenses in the total of 18 states in the United States, three states in Canada and one commonwealth as a
result of acquiring licenses in Quebec and British Columbia in Canada, and Idaho and North Dakota in the U.S. We have
acquired gaming licenses in every state in Australia.
As a result, consolidated net revenue of the Gaming segment was Y 10,947 million for the year ended March 31, 2004
(133.3 % of the year ended 31, 2003).
With regard to the Health & Fitness segment, we opened seven facilities such as the Aoyama branch in Tokyo, Osaka
branch in Osaka and Tsukushino branch in Fukuoka, relocated and reconstructed the Hitotsubashigakuen branch in Tokyo,
and continued to expand the Konami Sports Club's high quality facility networks through opening, acquiring and
renovating facilities. In September 2003, in order to make the best use of our nation-wide franchise operation, we
introduced a new membership system to offer services responding to customers' diversified needs and to improve their
convenience.
As to new products and services, we offered various services outside of facilities such as nature camps for children
and HAWAII PROJECT. In June 2003, we introduced nature camp for children, an outdoor sports-related program for
children, who are members of Konami Sports Club in collaboration with Hakuba-mura in Nagano and also launched HAWAII
PROJECT, a new service offered for the first time in the fitness industry, sponsoring the Honolulu marathon held in
December 2003 as a part of our activities in Hawaii.
Furthermore, in January 2004, we concluded an agreement of Japanese Olympic Committee ''JOC'' Official Partnership with
JOC. We will support athletes by offering facilities to athletes nominated by JOC and the Japanese national team for
the Athens Olympics. As to products in Health & Fitness segment, utilizing our knowledge in entertainment, we
introduced the EZ series, fitness machines for commercial use, into each of our exercise facilities and promoted
expansion of our products line up. As for home use, we introduced Diet Channel for PlayStation2, a game software which
emulates contents concerning diet and also made efforts to increase sales of existing products such as Aerobics
Revolution for PlayStation2, which allows players to enjoy aerobics activities at home.
As a result, the consolidated net revenue of the Health & Fitness segment was Y78,899 million for the year ended March
31, 2004 (100.5 % of the year ended March 31, 2003).
Outlook for Fiscal Year Ending March 31, 2005
In the Computer & Video Games segment, for domestic market, we will provide new titles of popular line-up such as Metal
Gear Solid 3: The Snake Eater and Suikoden IV as well as sports titles such as WORLD SOCCER WINNING ELEVEN 8 and JIKKYO
POWAFULPUROYAKYU 11. As for overseas market in the U.S. and Europe, we will continuously provide the Yu-Gi-Oh! series
and release new titles of smash hit original titles such as Metal Gear Solid 3: The Snake Eater and SILENT HILL 4 -The
Room-. We will also strengthen previously released titles such as TEENAGE MUTANT NINJA TURTLES 2 for the U.S market and
Pro Evolution Soccer 4 for the European market. We will try to obtain licenses of prevailing contents and reinforce
products line-up in the future with a new center in Los Angeles established in October 2003 to control overseas
operations.
The Toy & Hobby segment will continue to expand products line-up mainly for toys for boys. First of all, we developed
Get Ride! AMDRIVER, innovative robot hero animation, which has been broadcasted on Japanese TV from April 2004 and will
sell toys such as action figures and robots appeared on TV. We will also release game software, music CD and DVD by
utilizing synergy effects, generated from each segment in Konami group. Along with the TV program, we are planning to
tie up with monthly cartoon magazine, CoroCoro Comic to foster the popularity of the content in the new market such as
toys for toddlers and intellectual education and bath toiletries, and will strengthen these products line-up. Regarding
the Yu-Gi-Oh! card game series of which, sales remain at high level as a standard product, we will continue to provide
its new titles in Japan, North America and Europe. We will focus on developing new markets and participating in
international toy events.
In the Amusement segment, as for video games, we will provide new titles such as BATTLE CLIMAXX!, a combination of card
battle and video game, and MAH-JONG FIGHT CLUB3, the latest product of MAH-JONG FIGHT CLUB. As for token operated
games, we will also provide new products such as GIGADRAKE, a battle game with monsters collected by the players and
Wing Fantasia, a large-sized 'penny-falls' game machine with full-scale rolling dice game.
As for the Gaming segment, we will expand products range of video slot machines and mechanical slot machines. We will
develop new markets, as well as obtaining more gaming licenses in the U.S.
With regard to the Health & Fitness segment, in the sports club business, we aim to promote the expansion of high
quality facilities and the renewal of decrepit existing facilities, and to satisfy customers' various needs by offering
safe, clean and comfortable facilities from their point of view and personal services and by improving contents and
qualities with a wide range of services responding to a variety of customers' needs. We also assented to the philosophy
of JOC that encourage all people to participate in playing sports and build strong spirits and bodies, and we are
promoting activities as its official partner. In the health & fitness products business, under the concept of
''offering enjoyable exercises and relaxation'' we will create new services for health by introducing next generation
fitness machines such as EZ series into Konami sports club actively and by expanding the range of home health related
products, and build a network connecting sports clubs with home and offering information of health care close to
individuals.
As a whole, we will make efforts to offer products and services with high quality meeting the needs of customers with
''Pursuit of High Profits'' in mind.
Regarding our forecast for consolidated results for the year ending March 31, 2005, the consolidated net revenues are
expected to be Y 275,000 million, consolidated operating income to be Y 28,000 million, consolidated net income before
income taxes and minority interest to be Y 27,000 million and consolidated net income to be Y 15,000 million.
As for the six months ended September 30, 2004, we do not disclose our forecast since business we operate is
hit-business and net revenue fluctuates throughout the year with continuous introduction of new products.
As to disclosure of quarterly results, we intend to enhance the quality of disclosure.
2. Cash Flows
Cash flow summary for the year ended March 31, 2004:
Millions of Yen
Year ended Year ended Year-on year
March 31, 2003 March 31, 2004 change
Net cash provided by operating activities Y 27,711 Y 34,326 Y6,615
Net cash used in investing activities (12,242) (7,001) 5,241
Net cash used in financing activities (16,443) (14,141) 2,302
Effect of exchange rate changes on cash 466 (979) (1,445)
and cash equivalents
Net increase (decrease) in cash and cash (508) 12,205 12,713
equivalents
Cash and cash equivalents, end of the 74,680 86,885 12,205
period
Cash flows from operating activities:
Net cash provided by operating activities amounted to Y 34,326 million for the year ended March 31, 2004, compared to Y
27,711 million for the year ended March 31, 2003. This resulted primarily from a net income of Y 20,104 million due to
overall favorable results including sustained strong sales of the home video game software title and card game of the
Yu-Gi-Oh! which remained popular in the U.S. and Europe.
Cash flows from investing activities:
Net cash used in investing activities amounted to Y 7,001 million for the year ended March 31, 2004, compared to Y
12,242 million for the year ended March 31, 2003. This is due primarily to capital expenditures of Y 8,788 million,
offset by the proceeds from sales of investment in marketable securities of Y 1,596 million.
Cash flows from financing activities:
Net cash used in financing activities amounted to Y 14,141 million for the year ended March 31, 2004, compared to Y
16,443 million for the year ended March 31, 2003. This was primarily due to payments of dividends of Y 8,970 million
and treasury stock acquisitions by a subsidiary of Y 2,456 million.
The trends of cash flow index are as follows,
Year ended Year ended
March 31, 2003 March 31, 2004
Equity-assets ratio (%) 32.5 34.7
Equity-assets ratio at fair value (%) 75.1 124.4
Years of debt redemption (years) 2.7 2.1
Interest coverage ratio 29.5 39.7
Equity-assets ratio: Shareholders' equity / Total assets
Equity-assets ratio at fair value: Total stockholders' equity at fair value /
Total assets
Years of debt redemption: Interest-bearing debt / Cash flows from operating
activities
Interest coverage ratio: Cash flows from operating activities / Interest expense
Notes:
1. Each index is calculated from figures prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP).
2. Cash flows from operating activities are from the consolidated cash flow statement.
3. Interest-bearing debt covers all liabilities with interest in the consolidated balance
sheet.
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 (within the meaning of
Section 21E of the U.S. Securities and Exchange Act of 1934) 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.
4. Consolidated Balance Sheets (Unaudited)
Millions of Yen Thousands of
U.S. Dollars
March 31, 2003 March 31, 2004 March 31, 2004
% %
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Y Y 86,885 $ 822,074
74,680
Trade notes and accounts receivable, 29,107 25,438 240,685
net of allowance for doubtful accounts
of Y976 million and Y709 million
($6,708 thousand) at March 31, 2003 and
March 31, 2004, respectively
Inventories 13,359 17,821 168,616
Deferred income taxes, net 12,820 13,895 131,469
Prepaid expenses and other current 6,739 8,727 82,572
assets
Total current assets 136,705 49.1 152,766 51.9 1,445,416
PROPERTY AND EQUIPMENT, net 46,284 16.6 46,700 15.8 441,858
INVESTMENTS AND OTHER ASSETS:
Investments in marketable securities 189 124 1,173
Investments in affiliates 12,422 12,514 118,403
Identifiable intangible assets 46,503 45,984 435,084
Goodwill 125 464 4,390
Lease deposits 24,489 23,967 226,767
Other assets 11,533 11,978 113,332
Total investments and other assets 95,261 34.3 95,031 32.3 899,149
TOTAL ASSETS 100.0 100.0 $ 2,786,423
Y 278,250 Y 294,497
See accompanying notes to consolidated financial statements
Millions of Yen Thousands of
U.S. Dollars
March 31, 2003 March 31, 2004 March 31, 2004
% %
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings Y 8,308 Y 2,585 $ 24,458
Current portion of long-term debt and 1,815 2,900 27,439
capital lease obligations
Trade notes and accounts payable 18,684 15,998 151,367
Accrued income taxes 13,788 23,318 220,626
Accrued expenses 18,968 18,651 176,469
Deferred revenue 5,535 6,036 57,111
Other current liabilities 4,676 3,311 31,328
Total current liabilities 71,774 25.8 72,799 24.7 688,798
LONG-TERM LIABILITIES:
Long-term debt and capital lease 63,514 68,195 645,236
obligations, less current portion
Accrued pension and severance costs 2,345 2,350 22,235
Deferred income taxes, net 18,854 19,195 181,616
Other long-term liabilities 2,502 2,420 22,897
Total long-term liabilities 87,215 31.3 92,160 31.3 871,984
TOTAL LIABILITIES 158,989 57.1 164,959 56.0 1,560,782
MINORITY INTEREST IN 28,855 10.4 27,409 9.3 259,333
CONSOLIDATED SUBSIDIARIES
COMMITMENTS AND - - -
CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value-
Authorized 450,000,000 shares; issued 47,399 17.0 47,399 16.1 448,472
128,737,566 shares at March 31, 2003
and March 31, 2004
Additional paid-in capital 46,736 16.8 46,736 15.9 442,199
Legal reserve 2,163 0.8 - - -
Retained earnings 18,981 6.8 33,779 11.4 319,605
Accumulated other comprehensive income 790 0.3 (119) (0.0) (1,126)
(loss)
Total 116,069 41.7 127,795 43.4 1,209,150
Treasury stock, at cost-
8,253,191 shares and 8,254,314 shares (25,663) (9.2) (25,666) (8.7) (242,842)
at March 31, 2003 and March 31, 2004,
respectively
Total shareholders' equity 90,406 32.5 102,129 34.7 966,308
TOTAL LIABILITIES,MINORITY INTERESTS Y 278,250 100.0 Y 294,497 100.0 $ 2,786,423
AND SHAREHOLDERS' EQUITY
See accompanying notes to consolidated financial statements
5. Consolidated Statements of Operations (Unaudited)
Millions of Yen Thousands of
U.S. Dollars
Year ended March 31, Year ended
March 31,
2003 2004 2004
% %
NET REVENUES:
Product sales revenue Y 178,766 Y196,136 $ 1,855,767
Service revenue 74,891 77,276 731,157
Total net revenues 253,657 100.0 273,412 100.0 2,586,924
COSTS AND EXPENSES:
Costs of products sold 112,364 115,229 1,090,255
Costs of services rendered 62,515 63,953 605,100
Impairment charge for 47,599 - -
goodwill and other intangible assets
Selling, general and administrative 53,049 53,517 506,358
Total costs and expenses 275,527 108.6 232,699 85.1 2,201,713
Operating income (loss) (21,870) (8.6) 40,713 14.9 385,211
OTHER INCOME (EXPENSES):
Interest income 373 488 4,617
Interest expense (938) (865) (8,184)
Gain on sale of subsidiary shares 904 - -
Other, net (565) (229) (2,166)
Other income (expenses), net (226) (0.1) (606) (0.2) (5,733)
INCOME (LOSS) BEFORE INCOME TAXES, (22,096) (8.7) 40,107 14.7 379,478
MINORITY INTEREST AND EQUITY IN NET
INCOME (LOSS) OF AFFILIATED COMPANIES
INCOME TAXES:
Current 14,912 18,686 176,800
Deferred (8,726) (651) (6,159)
Total 6,186 2.4 18,035 6.6 170,641
INCOME (LOSS) BEFORE MINORITY (28,282) (11.1) 22,072 8.1 208,837
INTEREST AND EQUITY IN NET INCOME
(LOSS) OF AFFILIATED COMPANIES
MINORITY INTEREST IN INCOME (LOSS) OF (1,051) (0.4) 2,220 0.8 21,004
CONSOLIDATED SUBSIDIARIES
EQUITY IN NET INCOME (LOSS) OF (1,288) (0.5) 252 0.1 2,384
AFFILIATED COMPANIES
NET INCOME (LOSS) Y (28,519) (11.2) Y20,104 7.4 $ 190,217
PER SHARE DATA: Yen U.S. Dollars
Year ended March 31, Year ended
March 31,
2003 2004 2004
Basic and diluted net income (loss) Y (234.58) Y 166.86 $1.58
per share
Weighted-average common shares 121,572,154 120,483,869
outstanding
Note: Net income (loss) per share was prepared in accordance with Statement of Financial Accounting Standard
(SFAS) No. 128 'Earnings per Share'. The company had no dilutive securities outstanding at March 31,
2003 and 2004, and therefore there is no difference between basic and diluted EPS.
See accompanying notes to consolidated financial statements
6. Consolidated Statements of Shareholders' Equity (Unaudited)
Millions of Yen
Common Additional Legal Retained Accumulated Treasury Total
Stock Paid-in Earnings Other Stock, Shareholders'
Capital Reserve Comprehensive at Cost Equity
Income (Loss)
Balance at March 31, Y 47,399 Y 46,736 Y 2,163 Y 53,149 Y 546 Y(15,003) Y 134,990
2002
Net loss (28,519) (28,519)
Cash dividends, (5,649) (5,649)
Y46.0 per
share
Foreign currency 85 85
translation adjustments
Net unrealized gains 159 159
on available-for-sale
securities
Repurchase of (10,660) (10,660)
treasury stock
Reissuance of -
treasury stock
Transfer from -
retained earnings
Balance at March 31, Y 47,399 Y 46,736 Y 2,163 Y 18,981 Y 790 Y (25,663) Y90,406
2003
Net income 20,104 20,104
Cash dividends, (7,469) (7,469)
Y62.0 per
share
Foreign currency (1,108) (1,108)
translation
adjustments
Net unrealized gains 270 270
on
available-for-sale
securities
Adjustment for (71) (71)
minimum pension
liability
Repurchase of (3) (3)
treasury stock
Transfer from legal (2,163) 2,163 -
reserve
Balance at March 31, Y 47,399 Y 46,736 Y - Y33,779 Y(119) Y (25,666) Y102,129
2004
See accompanying notes to consolidated financial statements
Thousands of U.S. Dollars
Common Additional Legal Retained Accumulated Treasury Total
Stock Paid-in Earnings Other Stock, Shareholders'
Capital Reserve Comprehensive Equity
Income (Loss) at Cost
Balance at March 31, $448,472 $442,199 $20,466 $179,591 $7,475 $(242,814) $855,389
2003
Net income 190,217 190,217
Cash dividends, $ (70,669) (70,669)
0.59 per
share
Foreign currency (10,483) (10,483)
translation
adjustments
Net unrealized gains 2,554 2,554
on
available-for-sale
securities
Adjustment for (672) (672)
minimum pension
liability
Repurchase of (28) (28)
treasury stock
Transfer from legal (20,466) 20,466 -
reserve
Balance at March 31, $448,472 $ 442,199 $ - $319,605 $ (1,126) $(242,842) $ 966,308
2004
See accompanying notes to consolidated financial statements
7. Consolidated Statements of Cash Flows (Unaudited)
Millions of Yen Thousands of
U.S. Dollars
Year ended Year ended Year ended
March 31, March 31, March 31,
2003 2004 2004
Cash flows from operating activities:
Net income (loss) Y (28,519) Y 20,104 $ 190,217
Adjustments to reconcile net income (loss)
to net cash
provided by operating activities -
Depreciation and amortization 11,979 8,528 80,689
Impairment charge for goodwill and other 47,599 - -
intangible assets
Provision for doubtful receivables 429 (170) (1,608)
Loss on sale or disposal of property and 2,344 1,231 11,647
equipment, net
Gain on sale of marketable securities (20) (1,303) (12,328)
Gain on sale of subsidiary shares (904) - -
Equity in net loss (income) of affiliated 1,288 (252) (2,384)
companies
Minority interest (1,051) 2,220 21,005
Deferred income taxes (11,326) (651) (6,160)
Change in assets and liabilities, net of
business acquired:
Decrease (increase) in trade notes and 4,580 3,033 28,697
accounts receivable
Decrease (increase) in inventories 2,556 (4,791) (45,331)
Increase (decrease) in trade notes and (1,521) (1,724) (16,312)
accounts payable
Increase (decrease) in accrued income taxes 394 9,456 89,469
Increase (decrease) in accrued expenses (2,271) (293) (2,772)
Increase in deferred revenue 1,669 501 4,740
Other, net 485 (1,563) (14,789)
Net cash provided by operating activities 27,711 34,326 324,780
Cash flows from investing activities:
Purchases of investments in a subsidiary (315) - -
Proceeds from sales of investments in 2,081 - -
subsidiaries
Capital expenditures (15,357) (8,788) (83,149)
Proceeds from sales of property and 2,234 281 2,659
equipment
Proceeds from sales of investments in 241 1,596 15,101
marketable securities
Acquisition of new subsidiaries, net of (449) (206) (1,949)
cash acquired
Decrease in time deposits, net 516 63 596
Decrease (increase) in lease deposits, net (306) 121 1,145
Other, net (887) (68) (644)
Net cash used in investing activities (12,242) (7,001) (66,241)
Cash flows from financing activities:
Net decrease in short-term borrowings (2,448) (5,789) (54,773)
Proceeds from long-term debt 15,402 6,400 60,554
Repayments of long-term debt (2,765) (896) (8,478)
Principal payments under capital lease (3,439) (2,355) (22,282)
obligations
Dividends paid (6,324) (8,970) (84,871)
Purchases of treasury stock by parent (10,660) (3) (28)
company
Purchases of treasury stock by subsidiaries (4,516) (2,456) (23,238)
Other, net (1,693) (72) (681)
Net cash used in financing activities (16,443) (14,141) (133,797)
Effect of exchange rate changes on cash and 466 (979) (9,263)
cash equivalents
Net increase (decrease) in cash and cash (508) 12,205 115,479
equivalents
Cash and cash equivalents, beginning of the 75,188 74,680 706,595
period
Cash and cash equivalents, end of the Y 74,680 Y 86,885 $ 822,074
period
See accompanying notes to consolidated financial statements
8. Segment Information (Unaudited)
(1) . Operations in Different Industries
Year ended March Computer Toy & Amusement Gaming Health & Consolidated
31, 2003 & Video Hobby Fitness Other,
Games Corporate
and
Eliminations
(Millions of Yen)
Net revenue:
Customers Y 85,891 Y 45,887 Y 33,105 Y 8,215 Y 78,437 Y 2,122 Y 253,657
Intersegment 1,585 61 1,200 - 88 (2,934) -
Total 87,476 45,948 34,305 8,215 78,525 (812) 253,657
Operating expenses 73,489 29,319 27,035 8,384 127,937 9,363 275,527
Operating income Y 13,987 Y 16,629 Y 7,270 Y (169) Y (49,412) Y (10,175) Y (21,870)
(loss)
Year ended March Computer Toy & Amusement Gaming Health & Consolidated
31, 2004 & Video Hobby Fitness Other,
Games Corporate
and
Eliminations
(Million 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 expenses 76,436 37,889 23,630 10,255 76,127 8,362 232,699
Operating income Y 16,084 Y 19,579 Y 11,797 Y 692 Y 2,772 Y (10,211) Y 40,713
(loss)
Year ended March Computer Toy & Amusement Gaming Health & Other, Consolidated
31, 2004 & Video Hobby Fitness Corporate
Games and
Eliminations
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 852,540 $ 542,483 $ 326,871 $ 103,577 $ 746,286 $ 15,167 $ 2,586,924
Intersegment 22,850 1,259 8,326 - 227 (32,662) -
Total 875,390 543,742 335,197 103,577 746,513 (17,495) 2,586,924
Operating expenses 723,209 358,493 223,578 97,029 720,286 79,118 2,201,713
Operating income $ 152,181 $ 185,249 $ 111,619 $ 6,548 $ 26,227 $ (96,613) $ 385,211
(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
sale 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 of 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. Effective the second quarter ended September 30, 2003, Other segment is combined with Corporate
and Eliminations. In accordance with this change, results for the year ended March 31, 2003 have
been reclassified to conform to the presentation for the year ended March 31, 2004.
7. Segment name of Exercise Entertainment was changed to Health & Fitness in the fourth quarter
ended March 31, 2004.
8. An impairment charge of Y 47,599 million for goodwill and other intangible assets was included
in the operating expenses of the Health & Fitness segment for the year ended March 31, 2003.
(2). Operations in Geographic Areas
Year ended March 31, Japan Americas Europe Asia Total Eliminations Consolidated
2003 /Oceania
(Millions of Yen)
Net revenue:
Customers Y 182,345 Y 47,729 Y 16,297 Y 7,286 Y 253,657 - Y 253,657
Intersegment 50,670 805 27 506 52,008 Y (52,008) -
Total 233,015 48,534 16,324 7,792 305,665 (52,008) 253,657
Operating expenses 258,551 47,112 14,917 6,236 326,816 (51,289) 275,527
Operating income Y (25,536) Y 1,422 Y 1,407 Y 1,556 Y (21,151) Y (719) Y (21,870)
(loss)
Year ended March 31, Japan Americas Europe Asia Total Eliminations Consolidated
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
(loss)
Year ended March 31, Japan Americas Europe Asia Total Eliminations Consolidated
2004 /Oceania
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 1,669,041 $ 507,806 $ 336,371 $ 73,706 $ 2,586,924 - $ 2,586,924
Intersegment 650,554 14,344 2,885 2,460 670,243 $ (670,243) -
Total 2,319,595 522,150 339,256 76,166 3,257,167 (670,243) 2,586,924
Operating expenses 2,019,292 490,170 292,506 65,323 2,867,291 (665,578) 2,201,713
Operating income $ 300,303 $ 31,980 $ 46,750 $ 10,843 $ 389,876 $ (4,665) $ 385,211
(loss)
Note: 1. For the purpose of presenting its operations in geographic areas above, Konami and its subsidiaries
are based on revenues from external customers to individual countries in each area based on where
products are sold and services are provided.
2. An impairment charge of Y 47,599 million for goodwill and other intangible assets was included in
the operating expenses of the Japan segment for the year ended March 31, 2003.
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 March 31, 2004 of Y105.69 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 U.S. GAAP.
3. Comprehensive income for the year ended March 31, 2003 and March 31, 2004 is as follows:
Millions of yen Thousands of
U.S. Dollars
Year ended Year ended Year ended
March 31, 2003 March 31, 2004 March 31, 2004
Net income (loss) Y (28,519) Y 20,104 $ 190,217
Other comprehensive income (loss):
Foreign currency translation 85 (1,108) (10,483)
adjustments
Net unrealized gains on 159 270 2,554
available-for-sale securities
Adjustment for minimum pension - (71) (672)
liability
244 (909) (8,601)
Comprehensive income (loss) Y (28,275) Y 19,195 $ 181,616
9. Non-consolidated Financial Results
for the Year Ended March 31, 2004
(Prepared in Accordance with Japanese GAAP)
May 12, 2004
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.com
Shares Listed: Tokyo Stock Exchange, New York Stock Exchange, London Stock Exchange
and Singapore Exchange
Representative: Kagemasa Kozuki, Chairman of the Board and Chief Exective Officer
Contact: Noriaki Yamaguchi, Executive Vice President and Chief Financial Officer
(Phone:+81-3-5220-0163)
Date of Board Meeting to
approve the financial
results: May 12, 2004
Date of General Shareholders
Meeting: June 24, 2004
Adoption of interim divided
system: Yes
Adoption of unit trading Yes (1 Unit: 100 Shares)
system:
1. Financial Results for the Year Ended March 31, 2004
(1) Results of Operations
(Figures truncated)
Net revenues Year-on-year Operating Year-on-year Ordinary Year-on-year
change (%) income change (%) income change (%)
(millions of
yen) (millions of (millions of
yen) yen)
Year ended Y146,654 12.6 Y13,303 14.9 Y16,910 29.4
March 31, 2004
Year ended 130,186 5.6 11,577 4.5 13,068 10.8
March 31, 2003
Net income Year-on-year Net income Diluted net Return on Return on Ratio of
change (%) per share income per equity total ordinary
(millions share assets income to
of yen) (yen) (%) net
(yen) (%) revenues
(%)
Year ended Y10,381 - Y83.71 - 9.7 9.1 11.5
March 31, 2004
Year ended (11,284) - (92.82) - (9.5) 6.6 10.1
March 31, 2003
Notes:
1. Weighted-average common share outstanding:
Year ended March 31, 2004: 120,483,869 shares
Year ended March 31, 2003: 121,572,154 shares
2. Change in accounting policies: None
3. Change (%) of net revenues, operating income, ordinary income and net income represents the increase or
decrease ratio in relation with the previous year.
(2) Dividends
Cash dividends per share
Annual Interim Year-end Total dividend Pay-out ratio Dividend rate
payout for
shareholderfs
equity
(yen) (yen) (yen) (millions of (%) (%)
yen)
Year ended Y54.00 Y27.00 Y27.00 Y6,506 64.5 6.0
March 31, 2004
Year ended 54.00 19.00 35.00 6,506 - 6.2
March 31, 2003
(3) Financial Position
Total assets Total shareholders' Equity-assets Total shareholders'
(millions of yen ) equity ratio equity per share
(millions of yen) (%) (yen)
March 31, 2004 Y183,031 Y108,016 59.0 Y894.08
March 31, 2003 186,668 105,107 56.3 872.38
Notes:
Number of shares outstanding
March 31, 2004 120,483,252 shares
March 31, 2003 120,484,375 shares
Number of treasury stock
March 31, 2004 8,254,314 shares
March 31, 2003 8,253,191 shares
2. Financial Forecast for the Year Ending March 31, 2005
Net revenues Ordinary Net income Cash dividends per share
(millions of income (millions of
yen) (millions of yen)
yen) Interim Year-end Annual
(yen) (yen) (yen)
Six months ending 27.00 - -
September 30, 2004
Year ending - 27.00 54.00
March 31, 2005
Notes:
Non-consolidated financial forecast for the year ending March 31, 2005 is not disclosed.
10. Non-consolidated Financial Statements
(1) Non-consolidated Balance Sheets (Unaudited)
(Millions of Yen)
March 31, 2003 March 31, 2004
% %
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Y31,976 Y40,216
Trade notes receivable 37 -
Trade accounts receivable (Note 2) 30,068 12,673
Finished products 2,008 4,287
Raw materials and supplies 1,000 1,076
Work in process 2,409 2,597
Advances (Note 2) 3,144 4,753
Prepaid expenses 1,590 1,051
Deferred tax assets 12,099 8,143
Short-term loans to subsidiaries 12,797 4,170
Other accounts receivable 5,599 1,799
Refundable income taxes 1,789 -
Other 692 733
Allowance for bad debts (407 ) (139 )
Total current assets 104,806 56.1 81,362 44.5
FIXED ASSETS:
Tangible fixed assets (Note 1)
Buildings 4,378 -
Building improvement - 358
Structures 88 2
Machinery 0 0
Transportation equipment 10 5
Tools and fixtures 1,023 1,721
Land 3,488 -
Total tangible fixed assets 8,991 4.8 2,087 1.1
Intangible fixed assets
In-house software 1,379 1,411
In-house software development in progress - 1,670
Other 27 30
Total intangible fixed assets 1,407 0.8 3,112 1.7
Investments and other assets
Investment securities 675 348
Investments in subsidiaries and affiliates 65,544 88,369
Long-term loans to subsidiaries - 3,098
Receivables from customers in bankruptcy 73 82
proceedings
Long-term prepaid expenses 11 76
Deferred tax assets 2,801 1,854
Lease deposits 2,386 2,734
Other 44 11
Allowance for bad debts (73 ) (106 )
Total investments and other assets 71,463 38.3 96,469 52.7
Total fixed assets 81,862 43.9 101,669 55.5
TOTAL ASSETS Y186,668 100.0 Y183,031 100.0
See accompanying notes to non-consolidated financial statements
(Millions of Yen)
March 31, 2003 March 31, 2004
% %
LIABILITIES AND SHARHOLDERSf EQUITY
CURRENT LIABILITIES:
Trade notes payable Y6,091 Y6,235
Trade accounts payable (Note 2) 10,217 7,829
Short-term borrowings 11,852 -
Current portion of long-term debt - 912
Other accounts payable 1,617 3,876
Accrued expenses 3,518 3,045
Income taxes payable 15 190
Short-term deposits received - 84
Notes payable for capital expenditures - 74
Other 354 57
Total Current liabilities 33,667 18.0 22,306 12.2
LONG-TERM LIABILITIES:
Straight bonds 45,000 45,000
Long-term debt - 4,884
Liability for directors' retirement benefits 1,353 1,354
Allowance for loss incurred by subsidiaries 1,430 1,430
Long-term deposits received 110 41
Total long-term liabilities 47,893 25.7 52,709 28.8
Total liabilities 81,560 43.7 75,015 41.0
SHAREHOLDERS' EQUITY:
Common stock (Note 3) 47,398 25.4 47,398 25.9
Additional paid-in capital 47,106 25.2 47,106 25.7
Retained earnings 2,163 -
Legal reserve 36,265 19.4 39,176 21.4
Voluntary earned surplus
Reserve for advanced depreciation 207 206
General reserve 44,094 24,094
Unappropriated earned surplus (10,200 ) 14,875
Treasury Stock (Note 5) (25,662 ) (13.7 ) (25,665 ) (14.0 )
Total shareholdersf equity 105,107 56.3 108,016 59.0
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY Y186,668 100.0 Y183,031 100.0
See accompanying notes to non-consolidated financial statements
(2) Non-consolidated Statements of Operations (Unaudited)
(Millions of Yen)
Year ended Year ended
March 31, 2003 March 31, 2004
% %
Net revenues (Note 1) Y130,186 100.0 Y146,654 100.0
Cost of revenues (Note 1) 101,304 77.8 111,073 75.7
Finished goods, beginning of year 409 2,008
Purchases 31,666 39,735
Cost of goods manufactured 63,839 63,633
Less:
Transfer to other accounts (Note 2) (5 ) (42 )
Finished goods, end of year (2,008 ) (4,287 )
Royalty expenses (Note 3) 7,403 10,025
Gross profit 28,881 22.2 35,580 24.3
Selling, general 17,303 13.3 22,277 15.2
and administrative expenses (Note 4, 5)
Operating income 11,577 8.9 13,303 9.1
Non-operating income 2,843 2.2 4,227 2.8
Interest income 30 86
Dividend income (Note 1) 2,329 3,805
Foreign exchange gains - 23
Other 483 313
Non-operating expenses 1,352 1.0 620 0.4
Interest expenses 6 93
Bond interest expenses 400 400
Foreign exchange losses 25 -
Related expenses for NYSE listing 284 -
Other 635 125
Ordinary income 13,068 10.1 16,910 11.5
Extraordinary income 5,742 4.4 1,468 1.0
Gain on sale of marketable securities - 1,300
Gain on reversal of allowance - 168
for doubtful accounts
Gain on sale of 1,769 -
investments in subsidiaries
Gain on transfer of a business 3,972 -
Extraordinary losses 39,401 30.3 2,383 1.6
Loss on sale and disposal of fixed assets 169 2,212
(Note6)
Valuation loss of investment securities 115 49
Valuation loss of investments in subsidiaries 106 -
Loss on sale of investments in subsidiaries 39,010 -
Loss on liquidation of investments in - 121
subsidiary
Income (loss) before income taxes (20,590 ) (15.8 ) 15,996 10.9
Income taxes (9,306 ) (7.1 ) 5,614 3.8
Current 15 711
Deferred (9,321 ) 4,903
Net income (loss) (11,284 ) (8.7 ) 10,381 7.1
Unappropriated earned surplus carried forward 3,042 5,583
Transfer from legal reserve - 2,163
Interim cash dividends 2,289 3,253
Increase in retained earnings from 331 -
acquisition
following a corporate split
Unappropriated earned surplus Y(10,200 ) Y 14,875
See accompanying notes to non-consolidated financial statements
Statement of Cost of Goods Manufactured (Unaudited)
(Millions of Yen)
Year ended Year ended
March 31, 2003 March 31, 2004
% %
1 Material cost Y38,681 60.9 Y37,531 58.8
2 Contract processing cost 865 1.4 1,242 2.0
3 Labor cost 660 1.0 640 1.0
4 Overhead cost (Note 2) 1,033 1.6 1,469 2.3
5 Production cost (Note 3) 22,310 35.1 22,941 35.9
Total manufacturing cost for the year 63,551 100.0 63,824 100.0
Work in process, beginning of year 2,702 2,409
Less:
Work in process, end of year (2,409 ) (2,597 )
Transfer to other accounts (5 ) (3 )
Cost of goods manufactured Y63,839 Y63,633
Notes:
1. Process costing is applied to calculate cost of products other than production cost which is
calculated by job-order costing.
2. Major portion of overhead cost is follows:
(Millions of Yen)
Year ended Year ended
March 31, 2003 March 31, 2004
Depreciation expense Y581 Y474
External service fee 210 246
Supplies expense 23 62
3. Major portion of production cost consists of the following:
(Millions of Yen)
Year ended Year ended
March 31, 2003 March 31, 2004
Personnel expense Y3,216 Y2,757
Depreciation expense 258 79
Contract production expense 16,787 16,943
Other 2,047 3,161
Total Y22,310 Y22,941
(3) Proposed Appropriation Plan of Earned Surplus (Unaudited)
(Millions of Yen)
Year ended Year ended
March 31, 2003 March 31, 2004
Unappropriated earned surplus
at year-end Y(10,200) Y14,875
Reversal of general reserve
(Reversal of reserve
for advanced depreciation) 5 206
(Reversal of general reserve) 20,000 -
Appropriations
Cash dividends 4,216 3,253
Directors' bonuses - 295
Voluntary earned surplus
(Reserve for advanced depreciation) 4 -
(General reserve) - 5,000
Unappropriated earned surplus
carried forward Y5,583 Y6,534
Notes:
1. Reversal of reserve for advanced depreciation was calculated with tax effect based on the special
taxation measures law.
2. Reserve for advanced depreciation was appropriated due to the amendments of local tax laws in Japan.
Basis of Presentation
The accompanying non-consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in Japan.
Summary of Significant Accounting Policies
1. Marketable and Investment Securities
Investments in subsidiaries and affiliated companies and other securities for which the market value is not
readily determinable are stated at cost based on the moving average method.
2. Derivative Financial Instruments
Derivative financial instruments are stated at market value.
3. Inventories
Inventories other than work in process are stated at cost determined by the moving average method.
Work in process consisting of hardware products is stated at cost determined by the moving average method
while work in process consisting of software products is stated at cost determined by the specific
identification method.
4. Depreciation Methods
Tangible fixed assets are depreciated using the declining balance method while intangible fixed assets are
amortized mainly using the straight-line method. For in-house software, amortization is computed using the
straight-line method based on the estimated useful life of 5 years.
5. Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies are translated at the current exchange
rates as of the balance sheet date, and the translation gains and losses are credited or charged to income.
6. Provisions
(a) Allowance for doubtful accounts
Generally, allowance for doubtful accounts is calculated based on the actual ratio of bad debt losses
incurred. For specific accounts with higher possibility of bad debt loss, the allowance is determined by
independent judgment.
(b) Allowance for employees' retirement benefits (Prepaid pension expense)
Allowance for retirement benefits to be paid to employees as of balance sheet date is calculated based on
the estimated amount of the projected benefit obligation and the plan assets at the fiscal year-end.
Unrecognized net transition asset or obligation is amortized over 13 years.
Unrecognized actuarial net gain or loss will be amortized from the following fiscal year within the average
remaining service period of 13 years on a straight-line basis.
(c) Allowance for directors' retirement benefits
Required amount for retirement benefits to be paid to directors as of balance sheet date is reserved as
liability.
(d) Allowance for loss incurred by subsidiaries
Allowance for loss incurred by subsidiaries is provided at the amount determined based on its financial
condition.
7. Leases
Finance leases other than those that deem to transfer ownership of the leased property to the lessee are
accounted for as operating lease transactions.
8. Other significant matters
(a) Consumption Tax
Consumption tax is excluded from the stated amount of revenue and expenses.
(b) Accounting for treasury stock and reversal of legal reserve
Effective from the fiscal year 2001, the Company adopted 'Accounting Standard on Treasury Stock and
Reversal of Legal Reserves' (Accounting Standard Board statement No. 1), which was issued by Accounting
Standard Board of Japan. The effect of adoption on the Company's net income was immaterial.
Due to revision of 'Regulations Concerning the Terminology, Forms and Preparation Methods of interim
Financial Statements, ' the Company discloses shareholders' equity in accordance with the revised
regulation.
(c) Information per Share
Effective April 1, 2002, the Company adopted a new accounting standard in accordance with the Financial
Accounting Standard No.2 'Accounting for Net Income per Share' and Financial Accounting Standards
Implementation Guidance No.4 'Implementation Guidance for Accounting Standard for Earnings per Share.'
The effect of adoption on the Companyfs net income (loss) per share is stated in Information per Share.
Change in Presentation of Non-consolidated Financial Statements
'Building improvement' at March 31, 2004 is separately stated in the balance sheet although it had
been included in 'Buildings' in the previous year (Y265 million at March 31, 2003).
Notes to Non-consolidated Financial Statements
Notes to Non-consolidated Balance Sheets
1. Accumulated depreciation of tangible fixed assets is as follows:
(Millions of
Yen)
March 31, 2003 March 31, 2004
Accumulated depreciation of tangible Y7,143 Y3,017
fixed assets
2. Assets and liabilities to subsidiaries and affiliated companies other than the separately stated
accounts are as follows:
(Millions of Yen)
March 31, 2003 March 31, 2004
Trade accounts receivable Y29,740 Y12,392
Advances 3,134 4,650
Trade accounts payable 2,728 2,661
3. Number of shares at year-end is as follows:
(Thousands of shares)
March 31, 2003 March 31, 2004
Shares authorized 450,000 450,000
Shares issued and outstanding 128,737 128,737
4. The Company guarantees subsidiaries' loans payable to financial institutions as follows:
(Millions of Yen)
March 31, 2003 March 31, 2004
Konami Software Shanghai, Inc. - Y57
(US$ 543 thousand)
Konami Gaming, Inc. Y1,607 -
(US$ 13,375 thousand)
Total Y1,607 Y57
5. The Company holds 8,253,191 and 8,254,314 shares of the treasury stock at the year ended at March 31, 2003 and 2004,
respectively.
Notes to Non-consolidated Statements of Operations
1. Non-consolidated statements of operations include inter-company transactions
as follows:
(Millions of Yen)
Year ended Year ended
March 31, 2003 March 31, 2004
Net sales Y126,800 Y143,966
Purchases 40,580 41,436
Dividend income 2,329 3,804
2. Transfer to other accounts represents the transfer of Y5 million and Y42 million to selling, general and
administrative expenses for the year ended March 31, 2003 and 2004, respectively.
3. Royalty expenses consist of the royalties paid in relation to manufacturing and sales activities by
Computer & Video Games, Toy & Hobby and Amusement segments.
4. Major portion of selling, general and administrative expenses consists of the following:
(Millions of Yen)
Year ended Year ended
March 31, 2003 March 31, 2004
Advertising expenses Y4,080 Y6,727
Salary expenses 2,911 3,002
Depreciation expense 864 608
Rental expenses 2,089 2,941
External service fee 2,597 3,086
Commissions - 2,463
Bad debt expense 990 -
Addition to allowance for bad debts 272 -
Selling expenses portion 23.8% 30.4%
General and administrative expenses portion 76.2 69.6
5. General and administrative expenses include research and development expenses of Y347 million and Y500
million for the year ended March 31, 2003 and 2004, respectively.
6. Loss on sale and disposal of fixed assets consists of the following:
(Millions of Yen)
Year ended
March 31, 2003
Disposal of buildings Y62
Disposal of structures 9
Disposal of machinery 2
Sale and disposal of tools and fixtures 93
Total Y169
(Millions of Yen)
Year ended
March 31, 2004
Sale and disposal of buildings Y871
Sale and disposal of structures 1
Sale and disposal of tools and fixtures 83
Sale of land 1,255
Total Y2,212
Leases
Finance leases other than those deemed to transfer ownership of leased property to the lessee:
1. Acquisition cost, accumulated depreciation, and ending balance of leased
assets
(Millions of Yen)
March 31, 2003 March 31, 2004
Acquisition Accumulated Ending Acquisition Accumulated Ending
cost depreciation balance cost depreciation balance
Software - - - Y10 Y2 Y8
Transportation equipment Y8 Y6 Y1 - - -
Tools and fixtures 1,590 999 591 701 253 448
Total Y1,599 Y1,006 Y593 Y711 Y255 Y456
2. Obligations under finance leases
(Millions of Yen)
March 31, 2003 March 31, 2004
Due within one year Y370 Y175
Due after one year 251 303
Total Y622 Y478
3. Lease payments, depreciation expense and interest expense
(Millions of Yen)
Year ended Year ended
March 31, 2003 March 31, 2004
Lease payments Y472 Y414
Depreciation expense 452 396
Interest expense 19 13
4. Depreciation expense is computed according to the straight-line method with lease term as useful life and salvage
value of zero.
5. Interest expense is defined as the difference between total lease payment and acquisition cost, and allocated using
the effective interest method to each period.
Investments in Subsidiaries and Affiliated Companies
Investments in subsidiaries and affiliated companies as of each balance sheet date are as follows:
(Millions of Yen)
March 31, 2003 March 31, 2004
Balance Market Differences Balance Market Differences
sheet value sheet value
amount amount
Investments in subsidiaries Y1,312 Y34,993 Y33,680 Y1,312 Y45,032 Y43,720
Investments in affiliated 12,194 18,251 6,057 12,194 21,225 9,031
companies
Total Y13,506 Y53,245 Y39,738 Y13,506 Y66,258 Y52,751
Income Taxes
1. Major portion of deferred tax assets and deferred tax liabilities consists of
the following:
(Millions of Yen)
March 31, 2003 March 31, 2004
Deferred tax assets:
Liability for director's retirement benefits Y550 Y551
Allowance for loss incurred by subsidiaries 582 582
Accrued expenses 1,452 1,644
Inventories 5,472 6,393
Net operating loss carryforwards 7,414 -
In-house software development - 924
Other 499 636
Sub total 15,971 10,732
Less: Valuation allowance (715) (715)
Total deferred tax assets Y15,255 Y10,016
Deferred tax liabilities:
Reserve for advanced depreciation (141) -
Prepaid pension expense - (18)
Other (212) -
Total deferred tax liabilities Y(354) Y(18)
Deferred tax assets - net Y14,900 Y9,997
2. A reconciliation between the normal effective statutory tax rate and the actual effective tax rate was omitted for
the year ended March 31, 2003 and reflected in the accompanying non-consolidated statements of operations for the year
ended March 31, 2004 as follows:
Year ended
March 31, 2004
Normal effective statutory tax rate 42.0%
Permanently non-deductible expenses
Entertainment expenses 1.0
Donation 1.3
Permanently non-taxable income (8.0)
Per capita portion of inhabitants taxes 0.1
Other - net (1.3)
Actual effective tax rate 35.1%
3. Pursuant to the Amendments to the Local Tax Laws of 2003, the capital-based enterprise tax on corporation becomes
effective from the fiscal year commencing on or after April 1, 2004, which lowered the statutory tax rate from 42.0% to
40.7% for the income-based enterprise tax on corporation.
This change has no material effect on our financial statements.
Information per Share
March 31, 2003 March 31, 2004
Shareholders' equity per share Y872.38 Y894.08
Net income (loss) per share (92.82) 83.71
Diluted net income per share Diluted net income per share was Diluted net income per share is not
not disclosed because the Company reported because the Company had no
had net loss in fiscal 2002. outstanding warrant bonds, or
rights convertible into shares.
Effective April 1, 2002, the
Company adopted a new accounting
standard in accordance with the
Financial Accounting Standard No.2
'Accounting for Net Income per
Share' and Financial Accounting
Standards Implementation Guidance
No.4 'Implementation Guidance for
Accounting Standard for Earnings
per Share.'
There was no effect in connection
with adoption of these accounting
standards.
Calculation Base of Net Income (Loss) per Share
(Millions of Yen)
March 31, 2003 March 31, 2004
Net income (loss) Y(11,284) Y10,381
Bonuses to directors and corporate auditors - 295
by appropriations of retained earnings
Net income (loss) concerning common stock (11,284) 10,086
Average number of shares during the period 121,572 120,483
thousand thousand
Summary of latent common shares 17,879 17,879
(Stock option) thousand thousand
11. Changes in Board of Directors (Effective June 24, 2004)
1. Changes in Directors
(1) New Director Candidate
AKIRA GENMA, Director (former Representative Director and President of Shiseido
Co. Ltd.)
(2) Retiring Directors
SATOSHI AKAGI, Director
2. Changes in Corporate Auditors
No changes
Note: The new director candidate above will be an Outside Director as defined by
Article 188-2-7-2 of the Commercial Code of Japan.
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