Final Results - Part 2

Konami Corporation 9 May 2002 5. Summary of Non-consolidated Financial Results for the Year Ended March 31, 2002 May 9, 2002 KONAMI CORPORATION Stock Code Number: 9766 Shares Listed: Tokyo Stock Exchange , Osaka Securities Exchange , London Stock Exchange and Singapore Exchange Contact: Toshiro Tateno, Executive Corporate Officer, Corporate Planning Division (Phone:03-3578-0573) URL: http://www.konami.com Date of Board Meeting on the Financial Results: May 9, 2002 Date of General Shareholders Meeting: June 20, 2002 Interim Divided System: Applied Unit Trading System: Applied (1 Unit: 100 Shares) 1. Financial Results for the Year Ended March 31, 2002 (1) Results of Operations (Figures truncated) Year-on-year Operating Year-on-year Ordinary Year-on-year Net Sales Change Income Change Income Change (Y million) (%) (Y million) (%) (Y million) (%) Year ended 123,283 (17.0) 11,083 (67.5) 11,792 (64.5) March 31, 2002 Year ended 148,470 14.1 34,092 33.1 33,238 31.0 March 31, 2001 Diluted Ordinary Ordinary Net Income Year-on-year Net Income Net Income Return on Income to Income to Change per Share per Share Equity Assets Ratio Sales Ratio (Y million) (%) (Y) (Y) (%) (%) (%) Year ended 8,675 (51.9) 67.97 - 6.2 5.8 9.6 March 31, 2002 Year ended 18,042 11.1 158.12 - 16.6 20.6 22.4 March 31, 2001 Notes: 1. Average number of shares issued and outstanding Year ended March 31, 2002: 127,647,120 shares Year ended March 31, 2001: 114,107,429 shares 2. There is no change in accounting policies. 3. Change (%) of net sales, operating income, ordinary income and net income represents the increase or decrease ratio in relation with the same period of the previous year. (2) Dividends Cash Dividends per Share Annual Interim Year-end Total Dividend Payout Ratio Ratio of Cash Payout Dividends to Shareholders' Equity (Y) (Y) (Y) (Y million) (%) (%) Year ended 54.00 27.00 27.00 6,836 78.8 5.2 March 31, 2002 Year ended 54.00 26.00 28.00 6,561 36.4 4.5 March 31, 2001 Note: There was no commemorative or special dividend for the year ended March 31, 2002. (3) Financial Position Total Shareholders' Equity-Assets Total Shareholders' Total Assets Equity Ratio Equity per Share (Y million) (Y million) (%) (Y) March 31, 2002 208,896 132,573 63.5 1,029.80 March 31, 2001 201,090 146,309 72.8 1,136.49 Notes: Number of shares issued and outstanding March 31, 2002: 124,479,815 shares March 31, 2001: 128,737,566 shares Number of treasury stock March 31, 2002: 4,257,751 shares 2. Financial Forecast for the Year Ended March 31, 2003 Ordinary Net Cash Dividends per Share Net Sales Income Income Interim Year-end Annual (Y million) (Y million) (Y million) (Y) (Y) (Y) Six months ended 9.00 - - September 30, 2002 Year ended - 9.00 18.00 March 31, 2003 Notes: 1. Non-consolidated financial forecast for the year ended March 31, 2003 is not disclosed. 2. Annual cash dividends per share may change depending on the consolidated net income for the year, since the Company aims the total amount of cash dividends more than 30 % of consolidated net income. 6. Non-consolidated Financial Statements (1) Non-consolidated Balance Sheets (Unaudited) (Millions of yen) March 31, 2001 March 31, 2002 Component Component Ratio Ratio ASSETS: I Current Assets Y99,545 49.5 % Y94,176 45.1 % Cash and cash equivalents 48,702 36,389 Trade notes receivable 49 163 Trade accounts receivable 33,347 35,383 Treasury stock 0 - Finished products 504 409 Raw materials and supplies 1,487 1,133 Work in process 1,678 2,702 Advances 2,374 2,445 Prepaid expenses 1,730 1,791 Short-term loans to subsidiaries 6,293 8,400 Deferred tax assets 2,692 4,740 Other 695 629 Allowance for bad debts (11 ) (13 ) II Fixed Assets 101,545 50.5 114,719 54.9 1. Tangible fixed assets 9,782 4.9 9,038 4.3 Buildings 5,048 4,636 Structures 132 114 Machinery 6 4 Transportation equipment 25 16 Tools and fixtures 1,081 778 Land 3,488 3,488 2. Intangible fixed assets 1,156 0.6 1,178 0.6 In-house software 1,129 1,152 Other 26 26 3. Investments and other assets 90,606 45.0 104,501 50.0 Investment securities 426 553 Investments in subsidiaries 88,006 101,297 and affiliates Long-term prepaid expenses 28 50 Lease deposits 1,527 1,719 Deferred tax assets 561 834 Other 55 46 Allowance for bad debts (0 ) - TOTAL ASSETS Y201,090 100 % Y208,896 100 % (Millions of yen) March 31, 2001 March 31, 2002 Component Component Ratio Ratio LIABILITIES: I Current Liabilities Y51,273 25.5 % Y28,130 13.4 % Trade notes payable 14,676 7,856 Trade accounts payable 11,362 9,146 Current portion of straight bonds 10,000 - Other accounts payable 2,868 1,938 Accrued expenses 2,020 2,242 Income taxes payable 9,386 6,387 Allowance for bonuses 600 - Notes payable for capital expenditures 40 14 Others 319 545 II Long-term Liabilities 3,507 1.7 48,191 23.1 Straight bonds - 45,000 Liability for directors' retirement 1,545 1,346 benefits Allowance for loss incurred 1,430 1,430 by subsidiaries Deposits received 532 414 TOTAL LIABILITIES 54,781 27.2 76,322 36.5 SHAREHOLDERS' EQUITY: I Common Stock 47,398 23.6 47,398 22.7 II Additional Paid-in Capital 47,106 23.4 47,106 22.6 III Legal Reserve 1,770 0.9 2,163 1.0 IV Retained Earnings 50,033 24.9 50,907 24.4 Voluntary earned surplus 33,243 42,107 Reserve for advanced depreciation 218 212 General reserve 33,024 41,894 Unappropriated earned surplus 16,790 8,800 V Treasury Stock - - (15,003 ) (7.2 ) TOTAL SHAREHOLDERS' EQUITY 146,309 72.8 132,573 63.5 TOTAL LIABILITIES AND TOTAL SHAREHOLDERS' EQUITY Y201,090 100.0 % Y208,896 100.0 % (2) Non-consolidated Statements of Income (Unaudited) (Millions of yen) Year ended Year ended March 31 , 2001 March 31, 2002 Share of Share of net sales net sales I Net Sales Y148,470 100.0 % Y123,283 100.0 % II Cost of Sales 96,292 64.8 97,690 79.2 Finished goods, beginning of year 2,187 504 Purchases 29,339 21,868 Cost of goods manufactured 56,071 69,229 Less: Transfer to other accounts (104 ) (26 ) Finished goods, end of year (504 ) (409 ) Royalty expenses 9,303 6,525 Gross Profit 52,177 35.2 25,592 20.8 III Selling, General and Administrative Expenses 18,085 12.2 14,508 11.8 Operating Income 34,092 23.0 11,083 9.0 IV Non-operating Income 681 0.4 1,485 1.2 Interest income 171 47 Dividend income 220 981 Gain on sale of treasury stock 16 - Rental income 12 6 Foreign exchange gains 128 243 Other 131 207 V Non-operating Expenses 1,535 1.0 776 0.6 Interest expenses 110 - Bond interest expenses 264 325 Bond issue expenses - 318 Commission for syndicate loan 302 - Stock issue expenses 639 - Bad debt expenses - 20 Other 218 110 Ordinary Income 33,238 22.4 11,792 9.6 VI Extraordinary Income 168 0.1 3,049 2.5 Gain on reversal of allowance for bad debts 164 - Gain on sale of investments in subsidiaries 3 1,754 Gain on transfer of intellectual property rights - 149 Gain on transfer of a business of a subsidiary to an affiliated company - 1,145 VII Extraordinary Losses 684 0.5 874 0.7 Loss on sale and disposal of fixed assets 84 31 Valuation loss of investments in subsidiaries 599 843 Income before Income Taxes 32,722 22.0 13,967 11.4 Income Taxes 14,679 9.9 5,291 4.3 Income taxes - current 15,995 7,612 Income taxes - deferred (1,316 ) (2,320 ) Net Income 18,042 12.1 8,675 7.1 Unappropriated earned surplus carried forward 2,000 3,600 Interim cash dividends 2,956 3,475 Transfer to legal reserve due to interim cash dividends 295 - Unappropriated Earned Surplus Y16,790 Y8,800 (3) Statement of Cost of Goods Manufactured (Unaudited) (Millions of yen) Year ended Year ended March 31 , 2001 March 31, 2002 Component Component ratio ratio 1 Material cost Y30,765 55.0 % Y43,742 62.3 % 2 Contract processing cost 1,356 2.4 1,033 1.5 3 Labor cost 765 1.4 762 1.1 4 Overhead cost 1,149 2.0 1,009 1.4 5 Production cost 21,904 39.2 23,712 33.7 Total manufacturing cost for the year 55,941 100.0 % 70,260 100.0 % Work in process, beginning of year 1,808 1,678 Less: Work in process, end of year (1,678 ) (2,702 ) Transfer to other accounts - (6 ) Cost of goods manufactured Y56,071 Y69,229 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, 2001 March 31, 2002 Depreciation expense Y260 Y202 External service fee 286 164 Supplies expense 429 512 3. Major portion of software production cost consists of the following: (Millions of yen) Year ended Year ended March 31, 2001 March 31, 2002 Personnel expense Y3,851 Y3,627 Depreciation expense 369 326 Contract production expense 15,766 16,185 Other 1,917 3,572 Total Y21,904 Y23,712 (4) Proposed Appropriation Plan of Earned Surplus (Unaudited) (Millions of yen) Year ended Year ended March 31, 2001 March 31, 2002 Unappropriated earned surplus at year-end Y16,790 Y8,800 Reversal of general reserve (Reversal of reserve for advanced depreciation) 5 5 Appropriations Legal reserve 393 - Cash dividends 3,604 3,360 Directors' bonuses 328 202 Voluntary earned surplus (General reserve) 8,870 2,200 Unappropriated earned surplus carried forward Y3,600 Y3,042 Note: Date of approval by shareholders was June 21, 2001 for the year ended March 31, 2001 and will be June 20, 2002 for the year ended March 31, 2002. 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 fair value. 3. Inventories Inventories other than merchandise and work in process are stated at cost determined by the moving average method. Merchandise is stated at the lower of cost or market, cost being determined mainly by the first-in, first-out 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. Long-term prepaid expenses are amortized on a straight-line basis. 5. Deferred Assets Bond issue expenses are charged to income upon payment or as incurred. 6. Foreign Currency Translation Monetary assets and liabilities denominated in foreign currencies are translated at the current exchange rate as of the balance sheet date, and the translation gains and losses are credited or charged to income. 7. Provisions (a) Allowance for bad debts Generally, allowance for bad debts 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 retirement benefits (Prepaid pension expense) Allowance for retirement benefits to be paid to employees 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) Liability for directors' retirement benefits Required amount for retirement benefits to be paid to directors as of the 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. 8. 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. 9. Consumption Tax Consumption tax is excluded from the stated amount of revenue and expenses. Additional Information 1. Treasury Stock 'Treasury stock' which had been stated in current assets (Y0 million as of March 31, 2001) is stated as contra account at the bottom of shareholders' equity section on balance sheet from the year ended March 31, 2002 due to a change in preparation standards for financial statements. 2. Allowance for Bonuses 'Allowance for bonuses' (Y675 million) is included in 'Accrued expenses' of current liabilities based on the release on February 14, 2001 regarding presentation of allowance for bonuses by the Japanese Institute of Certified Public Accountant although it had been stated separately as part of estimated bonus payment to employees in the following period. Notes to Non-consolidated Financial Statements Notes to Non-consolidated Balance Sheets 1. Accumulated depreciation of tangible fixed assets is Y6,227 million and Y6,782 million for the years ended March 31, 2001 and 2002, respectively. 2. Assets and liabilities to subsidiaries and affiliated companies other than the separately stated accounts are as follows: (Millions of yen) March 31, 2001 March 31, 2002 Trade accounts receivable Y32,598 Y34,905 Advances 2,120 1,895 Trade accounts payable 5,267 2,208 3. Number of shares at year-end is as follows: (Thousands of shares) March 31, 2001 March 31, 2002 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, 2001 March 31, 2002 Konami Capital, Inc Y4,667 Y2,398 Konami of America, Inc. 2,044 319 (USD 16.5 million) (USD 2.4 million) Konami of Europe GmbH 559 - (DEM 10.0 million) Konami Gaming, Inc. - 1,830 (USD 13.74 million) Konami Computer 520 - Entertainment America, Inc. (USD 4.2 million) Total Y7,791 Y4,548 5. Trade notes matured on the balance sheet date are settled on the exchange date of the notes. Since each balance sheet date was a holiday for financial institutions, the following matured trade notes are included in each ending balance. (Millions of yen) March 31, 2001 March 31, 2002 Trade notes receivable Y49 - Trade notes payable 3,023 Y1,615 Trade notes payable for capital 25 3 expenditures Notes to Non-consolidated Statements of Income 1. Non-consolidated statements of income include inter-company transactions as follows: (Millions of yen) Year ended Year ended March 31, 2001 March 31, 2002 Net sales Y90,477 Y117,709 Purchases 20,832 34,930 Dividend income 220 981 2. Transfer to other accounts represents the transfer of Y5 million to selling, general and administrative expenses for the year ended March 31, 2002. 3. Royalty expenses consist of the royalties paid in relation to manufacturing and sales activities by Consumer Software, Character Products, Amusement Machines and Gaming Machines segment. 4. Major portion of selling, general and administrative expenses consists of the following: (Millions of yen) Year ended March 31, 2001 Advertising expenses Y5,263 Salary expenses 2,153 Addition to allowance for bonuses 561 Addition to liability for directors' retirement benefits 78 Depreciation expense 694 Rental expenses 1,794 Commissions 2,131 Selling expenses portion 46.9% General and administrative expenses portion 53.1% (Millions of yen) Year ended March 31, 2002 Advertising expenses Y2,187 Salary expenses 2,633 Depreciation expense 697 Rental expenses 1,882 Commissions 1,642 Addition to allowance for bad debts 11 Selling expenses portion 15.8% General and administrative expenses portion 84.2% 5. General and administrative expenses include research and development expenses of Y118 million and Y87 million for the years ended March 31, 2001 and 2002, respectively. 6. Loss on sale and disposal of fixed assets consists of the following: (Millions of yen) Year ended Year ended March 31, 2001 March 31, 2002 Sale of transportation equipment Y4 - Disposal of buildings 7 Y9 Disposal of tools and fixtures 60 22 Disposal of software 10 - Total Y84 Y31 7. Major portion of valuation loss of investments in subsidiaries consists of the following: (Millions of yen) Year ended Year ended March 31, 2001 March 31, 2002 Konami Computer Entertainment Kobe, Inc. Y299 Y693 Konami Computer Entertainment Nagoya, Inc. Y299 - 8. Gain on sale of investments in subsidiaries of Y1,754 million represents the gain arising from the sale of shares in Konami Computer Entertainment Tokyo, Inc for the year ended March 31, 2002. 9. Gain on transfer of a business of a subsidiary to an affiliated company of Y1,145 million is recognized along with the transfer of the business in Sapporo of a consolidated subsidiary, Konami Computer Entertainment Studios, Inc., to an affiliated company, HUDSON SOFT CO., LTD., by the method of absorption following a spin-off based on the strategic business alliance including a capital tie-up. Leases Finance leases other than those that deem to transfer ownership of leased property to the lessee: The amount of obligation and depreciation under finance leases for the year ended March 31, 2002 is calculated by the effective interest method which excludes the imputed interest portion although it had been calculated by the method which includes the imputed interest portion. 1. Acquisition cost, accumulated depreciation, and ending balance of leased assets (Millions of yen) March 31, 2001 March 31, 2002 Acquisition Accumulated Ending Acquisition Accumulated Ending Cost depreciation balance cost depreciation balance Transportation equipment - - - Y8 Y3 Y5 Tools and fixtures Y1,250 Y307 Y942 1,213 549 664 Total Y1,250 Y307 Y942 Y1,222 Y553 Y669 2. Obligations under finance leases (Millions of yen) March 31, 2001 March 31, 2002 Due within one year Y395 Y412 Due after one year 547 286 Total Y942 Y699 3. Lease payments and depreciation expense for the year ended March 31, 2001 (Millions of yen) Year ended March 31, 2001 Lease payments Y132 Depreciation expense 132 Lease payments, depreciation expense and interest expense for the year ended March 31, 2002 (Millions of yen) Year ended March 31, 2002 Lease payments Y411 Depreciation expense 395 Interest expense 20 4. Depreciation expense is calculated 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 equivalent of acquisition cost and allocated using the effective interest method to each period. Investment Securities Investments in subsidiaries and affiliated companies which have fair value. (Millions of yen) March 31, 2001 March 31, 2002 Balance Differences Balance Differences sheet sheet amount Fair value amount Fair value Investments in subsidiaries Y69,770 Y86,739 Y16,969 Y70,356 Y91,564 Y21,207 Investments in affiliated companies 3,686 9,015 5,329 12,194 23,336 11,141 Total Y73,456 Y95,755 Y22,299 Y82,551 Y114,901 Y32,349 Income Taxes 1. Major portion of deferred tax assets and deferred tax liabilities consists of the following: (Millions of yen) March 31, 2001 Deferred tax assets: Enterprise taxes payable Y865 Liability for directors' retirement benefits 649 Allowance for loss incurred by a subsidiary 600 Valuation loss of investments in subsidiaries 251 Accrued expenses 212 Allowance for bonuses 183 Inventories 1,394 Other 428 Sub total 4,585 Less: Valuation allowance (1,157) Total deferred tax assets Y3,427 Deferred tax liabilities: Reserve for deferred gains on fixed assets Y(154) Other (18) Total deferred tax liabilities Y(173) Deferred tax assets - net Y3,254 (Millions of yen) March 31, 2002 Deferred tax assets: Enterprise taxes payable Y576 Liability for directors' retirement benefits 565 Allowance for loss incurred by a subsidiary 600 Valuation loss of investments in subsidiaries 354 Accrued expenses 179 Inventories 3,982 Other 397 Sub total 6,653 Less: Valuation allowance (903) Total deferred tax assets Y5,750 Deferred tax liabilities: Reserve for deferred gains on fixed assets (150) Other (25) Total deferred tax liabilities Y(175) Deferred tax assets - net Y5,575 2. A reconciliation between the normal effective statutory tax rate and the actual effective tax rates reflected in the accompanying consolidated statements of income is as follows: March 31, 2001 Normal effective statutory tax rate 42.1% Permanently non-deductible expenses 1.6 Permanently non-taxable income (0.3) Per capita portion of inhabitants taxes 0.1 Valuation allowance 1.7 Other - net (0.3) Actual effective tax rate 44.9% March 31, 2002 Normal effective statutory tax rate 42.1% Permanently non-deductible expenses 1.9 Permanently non-taxable income (2.8) Per capita portion of inhabitants taxes 0.1 Nontaxable gain on transfer (3.5) of a business of a subsidiary to an affiliated company Other - net 0.1 Actual effective tax rate 37.9% 7. Changes in Board of Directors (Effective June 20, 2002) 1. Changes in Directors There is no change in directors. 2. Changes in Corporate Auditors There is no changes in corporate auditors. 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