Interim Results
Konami Corporation
13 November 2003
Consolidated Financial Results
for the Six Months Ended September 30, 2003
(Prepared in Accordance with U.S. GAAP)
November 13, 2003
KONAMI CORPORATION
Address: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan
Stock code number: 9766
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 the financial November 13, 2003
results:
Adoption of U.S. GAAP: Yes
Note: Financial information presented herein was not audited by independent public accountants.
1. Consolidated Financial Results for the Six Months Ended September 30, 2003
(Amounts are rounded to the nearest million)
(1) Consolidated Results of Operations
(Millions of Yen, except per share
data)
Net revenues Year-on- Operating income Year-on- Income (loss) Year-on-
year year before year
change (loss) change change
(%) (%) income taxes, (%)
minority interest
and equity in net
income (loss) of
affiliated
companies
Six months ended Y 129,976 14.8% Y 21,698 113.5% Y 22,408 120.8%
September 30, 2003
Six months ended 113,195 - 10,165 - 10,150 -
September 30, 2002
Year ended 253,657 (21,870) (22,096)
March 31, 2003
Net income Year-on- Net income (loss) Diluted net income
year
(loss) change per share (Yen) per share (Yen)
(%)
Six months ended Y 10,859 148.6% Y 90.13 -
September 30, 2003
Six months ended 4,368 - 35.66 -
September 30, 2002
Year ended (28,519) (234.58) -
March 31, 2003
Notes:
1. Equity in net income (loss) of affiliated companies
Six months ended September 30, 2003: Y 230 million
Six months ended September 30, 2002: 644 million
Year ended March 31, 2003: (1,288) million
2. Weighted-average common shares outstanding
Six months ended September 30, 2003: 120,484,155 shares
Six months ended September 30, 2002: 122,503,419 shares
Year ended March 31, 2003: 121,572,154 shares
3. Change in accounting policies: None
4. Change (%) of net revenues, operating income, income (loss) before income taxes, minority interest and
equity in net income (loss) of affiliated companies and net income represents the increase or decrease
relative to the same period of the previous year.
5. Consolidated financial statements for the first half year in the previous year was not prepared in
accordance with U.S. GAAP. Therefore, U.S. GAAP consolidated financial information for the first half year
ended September 30, 2002 is not presented herein.
6. Net income (loss) per share was prepared in accordance with Statements of Financial Accounting Standards
(SFAS) No. 128 'Earnings per Share'.
(2) Consolidated Financial Position
(Millions of Yen, except per share amounts)
Total shareholders' Equity-assets Total shareholders'
Total assets Equity ratio equity per share
(Yen)
September 30, 2003 Y 290,642 Y 96,626 33.3% Y 801.99
September 30, 2002 305,386 125,234 41.0% 1,039.38
March 31, 2003 278,250 90,406 32.5% 750.35
Note:
Number of shares outstanding
September 30, 2003: 120,483,851 shares
September 30, 2002: 120,488,459 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 period
Six months ended September 30, 2003 Y 16,079 Y (1,254) Y (6,654) Y 82,282
Six months ended September 30, 2002 6,835 (2,881) (17,504) 61,547
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. Consolidated Financial Forecast for the Year Ending March 31, 2004
(Millions of Yen)
Net revenues Operating income Income before Net income
income taxes,
minority interest
and equity in net
income of
affiliated
companies
Year ending March 31, 2004 Y255,500 Y27,500 Y26,700 Y14,500
There has been no change in our forecast for the year ending March 31, 2004, since we originally
announced on May 22, 2003.
Note:
Expected net income per share for the year ending March 31, 2004 is Y120.35
Cautionary Statement with Respect to Forward-Looking Statements:
Statements made in this document with respect to our current plans, estimates, strategies and beliefs,
including the above forecasts, are forward-looking statements about our future performance. These
statements are based on management's assumptions and beliefs in light of information currently
available to it and, therefore, you should not place undue reliance on them. A number of important
factors could cause actual results to be materially different from and worse than those discussed in
forward-looking statements. Such factors include, but are not limited to: (i) changes in economic
conditions affecting our operations; (ii) fluctuations in currency exchange rates, particularly with
respect to the value of the Japanese yen, the U.S. dollar and the Euro; (iii) our ability to continue
to win acceptance of our products, which are offered in highly competitive markets characterized by
the continuous introduction of new products, rapid developments in technology and subjective and
changing consumer preferences; (iv) our ability to successfully expand internationally with a focus on
our video game software business, card game business and gaming machine business; (v) our ability to
successfully expand the scope of our business and broaden our customer base through our exercise
entertainment business; (vi) regulatory developments and changes and our ability to respond and adapt
to those changes; (vii) our expectations with regard to further acquisitions and the integration of
any companies we may acquire; and (viii) the outcome of contingencies.
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 global
operations in the entertainment industry 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 ''5. Segment
Information (Unaudited)''.
Business Segments Major Companies
Computer & Video Games Domestic The Company (*1, 9), 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. (*13), Genki Co., Ltd. (*13)
TAKARA CO., LTD. (*12, 13)
Overseas Konami of America, Inc. (*2, Note 3)
Konami of Europe GmbH
Konami Marketing (Asia) Ltd.
Konami Software Shanghai, Inc., One other company
Exercise Entertainment Domestic Konami Sports Corporation (*5, 7)
Konami Sports Life Corporation, One other company
Toy & Hobby Domestic The Company (*1, 9)
Konami Marketing Japan, Inc. (*4)
Konami Media Entertainment, Inc. (*10)
Konami Traumer, Inc. (*1)
Overseas Konami of America, Inc. (*2, Note 3)
Konami of Europe GmbH
Konami Marketing (Asia) Ltd.
Amusement Domestic The Company (*1, 9)
Konami Marketing Japan, Inc. (*4)
KPE, Inc., One other company
Overseas Konami Marketing, Inc. (*2, Note 3)
Konami Corporation of Europe B.V. (*6)
Konami Marketing (Asia) Ltd.
Gaming Domestic The Company (*1, 9)
Overseas Konami Gaming, Inc.
Konami Australia Pty Ltd., 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 six months ended September 30, 2003 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, Okicey 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 is included in Computer & Video Games segment from the six months period ended September
30, 2003.
(*13) These are equity method affiliates.
3. On October 1, 2003, Konami of America, Inc. changed its name to Konami Digital Entertainment, Inc
and transferred Toy & Hobby segment to Konami Marketing, Inc.
Business Organization
2. Management Policy
1. Management Policy
Our management policy places the priorities 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 continuously increase and improve our market capitalization and
provide stable dividends as a means to return profits to shareholders. Retained earnings will be used to invest
heavily in prospective and profitable business fields to increase our corporate value and a 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 be an entertainment enterprise that achieves continuous
expansion and the respect of society.
2. Profit Appropriation Policy
We consider stable cash dividends and an increase in corporate value as important means for returning our profits
to shareholders. Retained earnings will be used to invest in prospective and profitable business fields 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 unit from 1,000 to 100. We also exercised 1.5 for 1 stock splits
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. Medium to Long-term Strategies and Objectives
Consumers are becoming more and more diversified in their tastes for, and selective about, ''entertainment'',
while fields within the entertainment industry such as games, toys, movies, music, sports, education, publishing
and communications are further merging and overlapping. In such an environment, competition among entertainment
companies has intensified and so we believe that 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.
To enhance our brand value, 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 create products that will bring more surprise and fascination to consumers' lives.
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 listed our stock on the New York Stock Exchange on September 30, 2002. Also, 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.
5. Corporate Governance Development
It is necessary for us to develop a strong corporate governance in order to implement and maintain our basic
management policy.
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 from 15 to nine directors. We now have eight
directors, four of them 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 establish and implement committees in response to the changing environment in which we operate.
We established a Risk Management Committee in April 2000 in order to enhance our ability to prevent and respond
quickly to internal and external risks. We established a Compliance Committee in September 2001 to reinforce our
entire system for monitoring and encouraging compliance with applicable laws, rules and regulations. We
established a 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 development of group company reporting procedures that can facilitate
timely and accurate disclosure.
We also established a Konami Group Code of Business Conduct and Ethics in order to integrate the direction and
improve the standard at all levels.
3. Business Performance and Cash Flows
1. Business Performance
Overview
Despite the fact that individual consumption is leveling off, the Japanese economy during the interim
consolidated accounting period has proved that corporate earnings have been improving, owing to increases in
capital investments and exports. There appears a mounting indication that the economy status is rallying,
although there are factors that could affect on the Japanese economy, such as unstable long-term interest rates
and strong yen tendency.
With respect to the entertainment industry in which we operate, the first half of this accounting period saw
sales of video game software platforms such as PlayStation2 leveling off, while online games have become more
popular with the expansion of broadband. Regarding software, the size of the market tends to fluctuate based on
game titles due to competitive market environment.
The entertainment industry has expanded due to increasing social recognition of the importance of intellectual
property creation, encouraged by the government's initiatives for protecting and nurturing support for
intellectual properties, and universities establishing game-related curriculums.
We performed well for the interim consolidated accounting period ended September 30, 2003, especially in the
Computer & Video Games and Toy & Hobby business segments, where the Yu-Gi-Oh! products, a home video game
software title and the related card game, made solid sales in the U.S. into the second consecutive year and
experienced growth in sales and popularity in Europe.
In the Japanese domestic market, a soccer video game software, WORLD SOCCER WINNING ELEVEN 7, achieved sales of
one million copies within three weeks after its release. The WINNING ELEVEN series thereby made a million-seller
for the recent two consecutive years.
The Exercise Entertainment business segment improved customer satisfaction and extended the network of
facilities. The Toy & Hobby business segment developed Kids Smile, a new brand of intellectual education toys,
which was introduced in the market in April 2003, and also sold BATTLEACCEL, toys for boys which have received
favorable reviews, thereby established a steady position in the toy industry. The Amusement business segment
marked stable growth mainly with e-AMUSEMENT products. The Gaming business segment had favorable sales growth in
the U.S. by diversifying its product line-up. Sales in Australia also increased steadily.
Overall, we have expanded our business capacity with creativity as a leading global operator in the
entertainment industry.
As a result, consolidated net revenues for the interim consolidated accounting period ended September 30, 2003,
amounted to Y 129,976 million, and consolidated operating income, consolidated net income before income taxes
and consolidated net income were Y 21,698 million, Y 22,408 million and Y 10,859 million, respectively.
The interim dividend payout is Y 27 per share.
Performance by business segment
Summary of net revenues by business segment:
Millions of Yen
Six months Six months Year-on-year
ended ended change
Sep. 30, 2002 Sep. 30, 2003 (%)
Computer & Video Games Y 35,071 Y 38,545 9.9
Exercise Entertainment 40,108 39,729 (0.9)
Toy & Hobby 19,444 31,455 61.8
Amusement 14,788 15,959 7.9
Gaming 3,935 5,165 31.3
Other, Corporate and Eliminations (151) (877) -
Consolidated net revenues Y 113,195 Y 129,976 14.8
In the Computer & Video Games segment, sales of WORLD SOCCER WINNING ELEVEN 7 for PlayStation2 achieved one million
copies within three weeks after its release in August 2003. Sales of JIKKYO POWAFUL PUROYAKYU 10 for PlayStation2
and GameCube which were released in July 2003 reached 620,000 copies in total. Silent Hill 3 for PlayStation2 and
Yu-Gi-Oh! Duel Monsters International: World Wide Edition for Game Boy Advance generated favorable sales.
As for the overseas market, the Yu-Gi-Oh! series continued to be in good demand and Yu-Gi-Oh! World Wide Edition:
Stairway to the Destined Duel for Game Boy Advance which was released in April 2003 reached 570,000 copies shipments
in the U.S. Sales of Silent Hill 3 for PlayStation2 achieved more than 300,000 copies and Castlevania: Aria of
Sorrow for Game Boy Advance and DDRMAX2 for PlayStation2 were also sold well. Silent Hill 3 and Dancing Stage
MegaMix for PlayStation2 made solid sales in Europe.
As a result, consolidated net revenues of the Computer & Video Games segment were Y 38,545 million (109.9% of
consolidated revenues for the six months ended September 30, 2002).
With regard to the Exercise Entertainment segment, our sports club business, we promoted the expansion of the Konami
Sports Club facility networks by opening 6 new facilities, including the Aoyama branch (Tokyo) and the Osaka branch
(Osaka) and by remodeling the Hitotsubashi-Gakuen branch (Tokyo). The Aoyama branch and the Osaka branch are
GRANCISE facilities, our top-end brand. On March 24, 2003, for more effective operation, we acquired all the shares
of NISSAY ATHLETICS COMPANY and changed its name to Konami Athletics Inc. It was merged into Konami Sports
Corporation on May 1, 2003.
In September 2003, in order to make the best use of our nation-wide franchise operation, we introduced a new
membership system for offering services responding to customers' diversified needs and to improve their convenience.
As for new products and services, in June 2003, we agreed to collaborate with Hakuba-mura (Nagano) in an outdoor
sports-related program, followed by the introduction of nature camps for children who are members of Konami Sports
Club in July 2003, which enjoyed popularity.
Utilizing our knowledge in entertainment and technology, we introduced EZ series, fitness machines for commercial
use, into each facility following the Aoyama branch (Tokyo) opened in April 2003. We also made efforts to increase
sales of existing products such as Aerobics Revolution for PlayStation2, which allows players to enjoy realistic
aerobics activities at home.
As a result, the consolidated net revenues of the Exercise Entertainment segment were Y 39,729 million (99.1 % of
consolidated revenues for the six months ended September 30, 2002).
The Toy & Hobby segment maintained solid sales of the Yu-Gi-Oh! Trading Card Game in the U.S. into its second
consecutive year. The Yu-Gi-Oh! card game, released in Europe during the year ended March 31, 2003, made solid sales
in Italy, Germany and Spain, followed by England and France. We are fully promoting the global expansion of the
product. As for the Japanese market, we regard this period as the first year for the Toy & Hobby segment and are
strengthening its product line-up. We entered a new market of intellectual education toys in Japan in April 2003,
introducing SOUND CUBE-KUN and Sound Mobile to enjoy various sounds and voices. Moreover we introduced BATTLEACCEL,
a new radio-controlled battle hobby for boys.
As a result, consolidated net revenues of the Toy & Hobby segment were Y 31,455 million (161.8 % of consolidated
revenues for the six months ended September 30, 2002).
The Amusement segment maintained a favorable acceptance in the market into its second consecutive year. e-AMUSEMENT
products for amusement arcades, the MAH-JONG FIGHT CLUB series, which allow players to compete directly with players
in other arcade game locations nation-wide via online connection, were well accepted in the market. QUIZ MAGIC
ACADEMY, a quiz game which allows players intellectually compete with other players, received favorable reviews, and
pop'n music and drummania, music simulation game series, remained strong with the introduction of new variations.
The e-AMUSEMENT system contributed to sales as well.
As for token-operated products, Fantasic Fever, a new style of 'penny-falls' game machine, which decorates amusement
facilities by medals flowing in the air and electric spectaculars like a parade, received favorable reviews. FORTUNE
ORB Chapter 2, a new version of FORTUNE ORB, a large-sized ''penny-falls'' game machine popular for its entertaining
stage effects, and GI-TURFWILD, a large scale token operated horse racing games, a leading GI series game featuring
a realistic sense of actually 'being there' marked favorable sales.
The LCD unit business contributed to sales by introducing differentiated and attractive products to customers.
As a result, consolidated net revenues of the Amusement segment were Y 15,959 million (107.9 % of consolidated
revenues for the six months ended September 30, 2002).
As for the Gaming segment, in North America, our main video slot machines, MARIACHI MADNESS and SOLTICE GOLD, continued
to mark solid sales, especially in Nevada, California and Minnesota. In the client management system business, we have
entered into contracts with several casinos and being acknowledged in the market. The Gaming segment has obtained a
gaming license from the province of Quebec making the total number of its gaming licenses in North America to 19
states. In Australia, we have obtained gaming licenses in every state and sales are improving steadily.
As a results, consolidated net revenues of the Gaming segment were Y 5,165 million (131.3 % of consolidated revenues
for the six months ended September 30, 2002).
2. Cash Flows
Cash flow summary for the six months ended September 30, 2003:
Millions of Yen
Six months Six months Year-on-year
ended ended change
Sep. 30, 2002 Sep. 30, 2003
Net cash provided by operating activities Y 6,835 Y 16,079 Y 9,244
Net cash used in investing activities (2,881) (1,254) 1,627
Net cash used in financing activities (17,504) (6,654) 10,850
Effect of exchange rate changes on cash and cash (91) (569) (478)
equivalents
Net increase (decrease) in cash and cash (13,641) 7,602 21,243
equivalents
Cash and cash equivalents, end of the period 61,547 82,282 20,735
Cash flows from operating activities:
Net cash provided by operating activities amounted to Y 16,079 million for the six months ended September 30, 2003,
compared to Y 6,835 million for the six months ended September 30, 2002. This resulted primarily from a net income
of Y 10,859 million due to overall favorable results, and a decrease in trade notes and accounts receivable of Y
5,136 million, offsetting an increase in inventories of Y 7,238 million.
Cash flows from investing activities:
Net cash used in investing activities amounted to Y 1,254 million for the six months ended September 30, 2003,
compared to Y 2,881 million for the six months ended September 30, 2002. This resulted primarily from capital
expenditure of Y 2,832 million, offsetting the proceeds from sales of investment in marketable securities of Y 1,593
million.
Cash flows from financing activities:
Net cash used in financing activities amounted to Y 6,654 million for the six months ended September 30, 2003,
compared to Y 17,504 million for the six months ended September 30, 2002. This was primarily due to payments of
dividends of Y 5,544 million and purchases of treasury stock by subsidiaries of Y 633 million.
The following table represents certain cash flow indexes for the six months ended September 30, 2003:
Six months Six months Year ended March
ended ended 31, 2003
Sep. 30, 2002 Sep. 30, 2003
Equity-assets ratio (%) 41.0 33.3 32.5
Equity-assets ratio based on market capitalization (%) 123.5 148.0 75.1
Years of debt redemption (years) 9.3 4.7 2.7
Interest coverage ratio (times) 15.4 37.8 29.5
Equity-assets ratio = Shareholders' equity / Total assets
Equity-assets ratio based on market capitalization = Market capitalization / Total assets
Years of debt redemption = Interest-bearing debts / Cash flows from operating activities
Interest coverage ratio = Cash flows from operating activities / Interest paid
Notes:
1. The above indexes are calculated on a consolidated basis with U.S. GAAP figures.
2. Cash flows from operating activities are equal to net cash provided by operating activities on
the consolidated statements of cash flows.
3. Interest-bearing debts include all the liabilities on the consolidated balance sheets that incur
interest expense.
3. Activities for the Future
The Computer & Video Games segment expects to release branded popular sports titles such as WORLD SOCCER WINNING
ELEVEN: Tactics, WORLD SOCCER WINNING ELEVEN 7: International and Castlevania in the Japanese market. In the U.S.,
we have released TEENAGE MUTANT NINJA TURTLES, a cartoon TV program started in February 2003. We also expect to
release Yu-Gi-Oh! The Sacred Cards, Yu-Gi-Oh! World Championship Tournament 2004 and Castlevania: Lament of
Innocence in the U.S. and Pro Evolution Soccer 3 in Europe.
The Exercise Entertainment segment will continuously strive for providing safe, clean and comfortable facilities
that fully satisfy members' diversified needs by improving quality of the services, and continue to expand our
network of fitness clubs. Based on the concept of ''Exertainment'' which provides ways of exercising and relaxing
that members can continue, we will actively introduce next generation fitness machines including EZ series into
Konami Sports Club and expand our home fitness product line-up.
The Toy & Hobby segment expects to continuously release new Yu-Gi-Oh! card games, which are gaining successful market
acceptance in the U.S. and Europe, and promote the global expansion of our products. In the domestic market, we expect
to expand the product line-up of boy's toy, mainly GRANSAZERS series, an cartoon TV program started in October 2003. We
also plan to improve sales in a new market of the intellectual and educational toys that we entered from this period.
The Amusement segment expects to introduce new titles such as WORLD SOCCER WINNING ELEVEN 2003, an arcade version
compatible to e-AMUSEMENT, and WARTRAN TROOPERS, a multi-player-cooperative shooting game in the video games area.
We also expect to introduce new titles such as Monster Gate for on-line battle and GIGADRAKE which is a hybrid of
card battle and token-operated games in the token-operated game area.
The Gaming segment expects to expand the product range by introducing stepper reels. We will also promote to
cultivate new markets outside of North America and Australia.
As for the group as a whole, each business segment will make efforts to provide high-quality products and services,
which target consumer needs, focusing on 'Pursuit of High Profit'.
There has been no change in our forecast for the year ending March 31, 2004, since we originally announced on May
22, 2003.
We expect that year-end dividend shall be Y 27 per share (Y 54 for the year including the interim dividend of Y 27).
Cautionary Statements with Respect to Outlook
Statements made in this document with respect to our current plans, estimates, strategies and beliefs,
including the above forecasts, are forward-looking statements about our future performance. These
statements are based on management's assumptions and beliefs in light of information currently available
to it and, therefore, you should not place undue reliance on them. A number of important factors could
cause actual results to be materially different from and worse than those discussed in forward-looking
statements. Such factors include, but are not limited to: (i) changes in economic conditions affecting our
operations; (ii) fluctuations in currency exchange rates, particularly with respect to the value of the
Japanese yen, the U.S. dollar and the Euro; (iii) our ability to continue to win acceptance of our
products, which are offered in highly competitive markets characterized by the continuous introduction of
new products, rapid developments in technology and subjective and changing consumer preferences; (iv) our
ability to successfully expand internationally with a focus on our video game software business, card game
business and gaming machine business; (v) our ability to successfully expand the scope of our business and
broaden our customer base through our exercise entertainment business; (vi) regulatory developments and
changes and our ability to respond and adapt to those changes; (vii) our expectations with regard to
further acquisitions and the integration of any companies we may acquire; and (viii) the outcome of
contingencies.
4. Consolidated Financial Statements
(1) Consolidated Balance Sheets (Unaudited)
Millions of Yen Thousands of
U.S. Dollars
September 30, September 30, March 31, 2003 September 30,
2002 2003 2003
% % %
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Y 61,547 Y 82,282 Y 74,680 $739,613
Trade notes and accounts 23,938 23,722 29,107 213,231
receivable, net of allowance for
doubtful accounts of Y611 million,
Y659 million ($5,926 thousand) and
Y976 million at September 30,
2002, September 30, 2003 and March
31, 2003, respectively
Inventories 18,280 20,291 13,359 182,391
Deferred income taxes, net 10,384 12,193 12,820 109,600
Prepaid expenses and other current 6,847 10,173 6,739 91,443
assets
Total current assets 120,996 39.6 148,661 51.1 136,705 49.1 1,336,278
PROPERTY AND EQUIPMENT, net 43,283 14.2 47,338 16.3 46,284 16.6 425,510
INVESTMENTS AND OTHER ASSETS:
Investments in marketable 169 113 189 1,016
securities
Investments in and advances to 13,961 12,472 12,422 112,108
affiliates
Identifiable intangible assets 58,387 46,168 46,503 414,993
Goodwill 37,150 464 125 4,171
Lease deposits 23,604 24,217 24,489 217,681
Other assets 7,836 11,209 11,533 100,755
Total investments and other assets 141,107 46.2 94,643 32.6 95,261 34.3 850,724
TOTAL ASSETS Y 305,386 100.0 Y 290,642 100.0 Y 278,250 100.0 $2,612,512
See accompanying notes to consolidated financial statements
Millions of Yen Thousands of
U.S. Dollars
September 30, September 30, March 31, 2003 September 30,
2002 2003 2003
% % %
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Short-term borrowings Y 13,401 Y 3,108 Y 8,308 $27,937
Current portion of long-term debt 2,046 2,977 1,815 26,760
and capital lease obligations
Trade notes and accounts payable 18,043 18,231 18,684 163,874
Accrued income taxes 6,878 17,926 13,788 161,133
Accrued expenses 16,391 18,089 18,968 162,598
Deferred revenue 5,464 6,739 5,535 60,575
Other current liabilities 5,719 4,500 4,676 40,449
Total current liabilities 67,942 22.3 71,570 24.6 71,774 25.8 643,326
LONG-TERM LIABILITIES:
Long-term debt and capital lease 48,331 69,026 63,514 620,458
obligations, less current portion
Accrued pension and severance 2,579 2,508 2,345 22,544
costs
Deferred income taxes, net 22,600 19,389 18,854 174,283
Other long-term liabilities 3,891 3,402 2,502 30,580
Total long-term liabilities 77,401 25.3 94,325 32.4 87,215 31.3 847,865
MINORITY INTEREST IN 34,809 11.4 28,121 9.7 28,855 10.4 252,773
CONSOLIDATED SUBSIDIARIES
COMMITMENTS AND CONTINGENCIES - - - -
SHAREHOLDERS' EQUITY:
Common stock, no par value-
Authorized 450,000,000 shares; 47,399 15.5 47,399 16.3 47,399 17.0 426,058
issued 128,737,566 shares at
September 30, 2002, September 30,
2003 and March 31, 2003
Additional paid-in capital 46,736 15.3 46,736 16.1 46,736 16.8 420,099
Legal reserve 2,163 0.7 - 2,163 0.8 -
Retained earnings 54,157 17.7 27,787 9.6 18,981 6.8 249,771
Accumulated other comprehensive 430 0.2 368 0.1 790 0.3 3,308
income
Total 150,885 49.4 122,290 42.1 116,069 41.7 1,099,236
Treasury stock, at cost-
8,249,107 shares, 8,253,715 shares (25,651) (8.4) (25,664) (8.8) (25,663) (9.2) (230,688)
and 8,253,191 shares at September
30, 2002, September 30, 2003 and
March 31, 2003, respectively
Total shareholders' equity 125,234 41.0 96,626 33.3 90,406 32.5 868,548
TOTAL LIABILITIES AND Y 305,386 100.0 Y 290,642 100.0 Y 278,250 100.0 $2,612,512
SHAREHOLDERS' EQUITY
See accompanying notes to consolidated financial statements
(2) Consolidated Statements of Operations (Unaudited)
Millions of Yen Thousands of
U.S. Dollars
Six months ended Six months ended Year ended Six months
September 30, September 30, ended
2002 2003 March 31, 2003 September 30,
2003
% % %
NET REVENUES:
Product sales revenue Y 75,209 Y 91,261 Y 178,766 $ 820,324
Service revenue 37,986 38,715 74,891 348,000
Total net revenues 113,195 100.0 129,976 100.0 253,657 100.0 1,168,324
COSTS AND EXPENSES:
Costs of products sold 43,726 50,618 112,364 454,993
Costs of services rendered 33,486 31,798 62,515 285,825
Impairment charge for goodwill and - - 47,599 -
other intangible assets
Selling, general and administrative 25,818 25,862 53,049 232,468
Total costs and expenses 103,030 91.0 108,278 83.3 275,527 108.6 973,286
Operating income (loss) 10,165 9.0 21,698 16.7 (21,870) (8.6) 195,038
OTHER INCOME (EXPENSES):
Interest income 169 228 373 2,049
Interest expense (443) (425) (938) (3,820)
Gain on sale of subsidiary shares 552 - 904 -
Other, net (293) 907 (565) 8,153
Other income (expenses), net (15) 0.0 710 0.5 (226) (0.1) 6,382
INCOME (LOSS) BEFORE INCOME TAXES, 10,150 9.0 22,408 17.2 (22,096) (8.7) 201,420
MINORITY INTEREST AND EQUITY IN NET
INCOME (LOSS) OF AFFILIATED
COMPANIES
INCOME TAXES: 5,212 4.6 10,669 8.2 6,186 2.4 95,901
INCOME (LOSS) BEFORE MINORITY 4,938 4.4 11,739 9.0 (28,282) (11.1) 105,519
INTEREST AND
EQUITY IN NET INCOME (LOSS) OF
AFFILIATED COMPANIES
MINORITY INTEREST IN INCOME (LOSS) 1,214 1.1 1,110 0.8 (1,051) (0.4) 9,977
OF CONSOLIDATED SUBSIDIARIES
EQUITY IN NET INCOME (LOSS) OF 644 0.6 230 0.2 (1,288) (0.5) 2,067
AFFILIATED COMPANIES
NET INCOME (LOSS) Y 4,368 3.9 Y 10,859 8.4 Y (28,519) (11.2) $97,609
See accompanying notes to consolidated financial statements
PER SHARE DATA: Yen U.S. Dollars
Six months Six months Year ended Six months
ended ended ended
September 30, September 30, March 31, September 30,
2002 2003 2003 2003
Basic and diluted net income Y 35.66 Y 90.13 Y (234.58) $ 0.81
(loss) per share
Weighted-average common shares
outstanding 122,503,419 120,484,155 121,572,154
Note: Net income (loss) per share was prepared in accordance with Statement of Financial Accounting Standard
(SFAS) No. 128 'Earnings per Share'. The Company and its subsidiaries had no dilutive securities
outstanding at September 30, 2002, September 30, 2003 and March 31, 2003, and therefore there was no
difference between basic and diluted EPS.
See accompanying notes to consolidated financial statements
(3) Consolidated Statements of Shareholders' Equity (Unaudited)
For the six months ended September 30, 2002
Millions of Yen
Common Additional Legal Retained Accumulated Treasury Total
Stock Paid-in Reserve Earnings Other Shareholders'Equity
Capital Comprehensive Stock,
Income at Cost
Balance at Y 47,399 Y 46,736 Y 2,163 Y 53,149 Y 546 Y (15,003) Y 134,990
March 31, 2002
Net income 4,368 4,368
Cash dividends, (3,360) (3,360)
Y 27.0 per share
Net unrealized 97 97
gains on
available-for-sale
securities
Foreign currency (213) (213)
translation
adjustments
Repurchase of (10,648) (10,648)
treasury stock
Balance at Y47,399 Y46,736 Y2,163 Y54,157 Y430 Y (25,651) Y125,234
September 30,
2002
For the six months ended September 30,
2003
Millions of Yen
Common Additional Legal Retained Accumulated Treasury Total Shareholders'
Stock Paid-in Earnings Other Equity
Capital Reserve Comprehensive Stock,
Income at Cost
Balance at Y47,399 Y46,736 Y2,163 Y18,981 Y790 Y (25,663) Y90,406
March 31, 2003
Net income 10,859 10,859
Cash dividends, (4,216) (4,216)
Y 35.0 per share
Net unrealized 160 160
gains on
available-for-sale
securities
Foreign currency (582) (582)
translation
adjustments
Repurchase of (1) (1)
treasury stock
Transfer from (2,163) 2,163 -
legal reserve
Balance at Y47,399 Y46,736 - Y 27,787 Y368 Y(25,664) Y96,626
September 30,
2003
See accompanying notes to consolidated financial statements
For the year ended March 31, 2003
Millions of Yen
Common Additional Legal Retained Accumulated Treasury Total
Stock Paid-in Earnings Other Stock, Shareholders'
Capital Reserve Comprehensive at Cost Equity
Income
Balance at Y47,399 Y 46,736 Y 2,163 Y 53,149 Y 546 Y (15,003) Y 134,990
March 31, 2002
Net loss (28,519) (28,519)
Cash dividends, Y (5,649) (5,649)
46.0 per share
Net unrealized 159 159
gains on
available-for-sale
securities
Foreign currency 85 85
translation
adjustments
Repurchase of (10,660) (10,660)
treasury stock
Balance at Y47,399 Y46,736 Y2,163 Y18,981 Y790 Y(25,663) Y90,406
March 31, 2003
For the six months ended September 30, 2003
Thousands of U.S. Dollars
Common Additional Legal Retained Accumulated Treasury Total
Stock Paid-in Earnings Other Shareholders'
Capital Reserve Comprehensive Stock, Equity
Income at Cost
Balance at $426,058 $420,099 $19,443 $170,616 $7,101 $(230,679) $812,638
March 31, 2003
Net income 97,609 97,609
Cash dividends, (37,897) (37,897)
$0.31 per share
Net unrealized 1,438 1,438
gains on
available-for-sale
securities
Foreign currency (5,231) (5,231)
translation
adjustments
Repurchase of (9) (9)
treasury stock
Transfer from legal (19,443) 19,443 -
reserve
Balance at $426,058 $420,099 - $249,771 $3,308 $(230,688) $868,548
September 30, 2003
See accompanying notes to consolidated financial statements
(4) Consolidated Statements of Cash Flows (Unaudited)
Millions of Yen Thousands of
U.S. Dollars
Six months Six months Year ended Six months
ended
ended ended March 31, September 30,
September September 2003 2003
30, 2002 30, 2003
Cash flows from operating activities:
Net income (loss) Y 4,368 Y 10,859 Y (28,519) $ 97,609
Adjustments to reconcile net income (loss) to
net cash provided by operating activities -
Depreciation and amortization 5,909 3,972 11,979 35,703
Impairment charge for goodwill and other - - 47,599 -
intangible assets
Provision for doubtful receivables 623 (253) 429 (2,274)
Loss on sale or disposal of property and 612 652 2,344 5,861
equipment, net
Loss (gain) on sale of marketable securities 24 (1,303) (20) (11,712)
Gain on sale of subsidiary shares (552) - (904) -
Equity in net loss (income) of affiliated (644) (230) 1,288 (2,067)
companies
Minority interest 1,214 1,110 (1,051) 9,977
Deferred income taxes (1,243) 1,159 (11,326) 10,418
Change in assets and liabilities, net of
business acquired:
Decrease in trade notes and accounts receivable 9,610 5,136 4,580 46,166
Decrease (increase) in inventories (2,390) (7,238) 2,556 (65,061)
Increase (decrease) in trade notes and accounts (2,243) 439 (1,521) 3,946
payable
Increase (decrease) in accrued income taxes (6,385) 4,083 394 36,701
Decrease in accrued expenses (4,175) (758) (2,271) (6,813)
Increase in deferred revenue 1,598 1,204 1,669 10,822
Other, net 509 (2,753) 485 (24,746)
Net cash provided by operating activities 6,835 16,079 27,711 144,530
Cash flows from investing activities:
Purchases of investments in a subsidiary (315) - (315) -
Proceeds from sales of investments in 2,081 - 2,081 -
subsidiaries
Capital expenditures (4,886) (2,832) (15,357) (25,456)
Proceeds from sales of property and equipment 1,098 73 2,234 656
Proceeds from sales of investments in marketable 241 1,593 371 14,319
securities
Acquisition of new subsidiaries, net of cash - (206) (449) (1,852)
acquired
Decrease in time deposits 517 63 516 566
Decrease (increase) in lease deposits, net (402) 272 (306) 2,445
Other, net (1,215) (217) (1,017) (1,950)
Net cash used in investing activities (2,881) (1,254) (12,242) (11,272)
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings 2,615 (5,268) (2,448) (47,353)
Proceeds from long-term debt - 6,400 15,402 57,528
Repayments of long-term debt (2,486) (315) (2,765) (2,831)
Principal payments under capital lease (1,207) (1,177) (3,439) (10,580)
obligations
Dividends paid (3,769) (5,544) (6,324) (49,834)
Purchases of treasury stock by parent company (10,648) (1) (10,660) (9)
Purchases of treasury stock by subsidiaries (1,782) (633) (4,516) (5,690)
Other, net (227) (116) (1,693) (1,042)
Net cash used in financing activities (17,504) (6,654) (16,443) (59,811)
Effect of exchange rate changes on cash and cash (91) (569) 466 (5,115)
equivalents
Net increase (decrease) in cash and cash (13,641) 7,602 (508) 68,332
equivalents
Cash and cash equivalents, beginning of the 75,188 74,680 75,188 671,281
period
Cash and cash equivalents, end of the period Y 61,547 Y 82,282 Y 74,680 $ 739,613
See accompanying notes to consolidated financial statements
5. Segment Information (Unaudited)
(1) Operations in Different Industries
Six months Computer Exercise Toy & Amusement Gaming Other, Consolidated
ended & Video Entertain- Hobby Corporate
Games ment and
September Eliminations
30, 2002
(Millions of Yen)
Net revenue:
Customers Y 34,403 Y 40,083 Y 19,425 Y 14,385 Y 3,935 Y 964 Y 113,195
Intersegment 668 25 19 403 - (1,115) -
Total 35,071 40,108 19,444 14,788 3,935 (151) 113,195
Operating 29,102 39,698 12,542 12,050 4,179 5,459 103,030
expenses
Operating Y 5,969 Y 410 Y 6,902 Y 2,738 Y (244) Y (5,610) Y 10,165
income
(loss)
Six months Computer Exercise Toy & Amusement Gaming Other, Consolidated
ended & Video Entertain- Hobby Corporate
Games ment and
September Eliminations
30, 2003
(Millions of Yen)
Net revenue:
Customers Y 37,195 Y 39,676 Y 31,420 Y 15,654 Y 5,165 Y 866 Y 129,976
Intersegment 1,350 53 35 305 - (1,743) -
Total 38,545 39,729 31,455 15,959 5,165 (877) 129,976
Operating 30,605 38,725 19,527 11,049 4,824 3,548 108,278
expenses
Operating Y 7,940 Y 1,004 Y 11,928 Y 4,910 Y 341 Y (4,425) Y 21,698
income
(loss)
Year ended Computer Exercise Toy & Amusement Gaming Other, Consolidated
& Video Entertain- Hobby Corporate
March 31, Games Ment and
2003 Eliminations
(Millions of Yen)
Net revenue:
Customers Y 85,891 Y 78,437 Y 45,887 Y 33,105 Y 8,215 Y 2,122 Y 253,657
Intersegment 1,585 88 61 1,200 - (2,934) -
Total 87,476 78,525 45,948 34,305 8,215 (812) 253,657
Operating 73,489 127,937 29,319 27,035 8,384 9,363 275,527
expenses
Operating Y 13,987 Y (49,412) Y 16,629 Y 7,270 Y (169) Y (10,175) Y (21,870)
income
(loss)
Six months Computer Exercise Toy & Amusement Gaming Other, Consolidated
ended & Video Entertain- Hobby Corporate
Games Ment and
September Eliminations
30, 2003
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 334,337 $ 356,638 $ 282,427 $ 140,710 $ 46,427 $ 7,785 $ 1,168,324
Intersegment 12,135 477 315 2,741 - (15,668) -
Total 346,472 357,115 282,742 143,451 46,427 (7,883) 1,168,324
Operating 275,101 348,090 175,524 99,317 43,362 31,892 973,286
expenses
Operating $ 71,371 $ 9,025 $ 107,218 $ 44,134 $ 3,065 $ (39,775) $ 195,038
income
(loss)
Notes: 1. Primary businesses of each segment are as follows:
Computer & Video Games: Production and sale of home-use video game software
Exercise Entertainment: Operation of health and fitness clubs
Toy & Hobby: Production and sale of character related products
Amusement: Manufacture and sale of amusement arcade games and
token-operated games
Gaming: Manufacture and sale of gaming machines for overseas
market
2. 'Other' consists of segments which do not meet the quantitative criteria for
separate presentation under SFAS No. 131 'Disclosures about Segments of an
Enterprise and Related Information. '
3 'Corporate' primarily consists of administrative expenses for the Company.
4. 'Eliminations' primarily consist of eliminations of intercompany sales and of
intercompany profits on inventories.
5. In the fourth quarter ended March 31, 2002, the Amusement segment transferred its
health entertainment business to the Exercise Entertainment segment, and the Gaming
segment transferred its token-operated game machine business to the Amusement
segment. In accordance with these changes, results for the six months ended
September 30, 2002 have been reclassified to conform to the presentation for the
year ended March 31, 2003.
6. Effective this second quarter ended September 30, 2003, Other segment is combined
with Corporate and Eliminations. In accordance with this change, results for the
six months ended September 30, 2002 and for the year ended March 31, 2003 have been
reclassified to conform to the presentation for the year ended September 30, 2003.
7. 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
Exercise Entertainment
8. An impairment charge of Y 47,599 million for goodwill and other intangible assets
was included in the operating expenses of the Exercise Entertainment segment for
the year ended March 31, 2003.
(2) Operations in Geographic Areas
Six months ended Japan Americas Europe Asia Total Eliminations Consolidated
September 30, 2002 /Oceania
(Millions of Yen)
Net revenue:
Customers Y 91,796 Y 13,878 Y 4,005 Y 3,516 Y 113,195 - Y 113,195
Intersegment 15,805 189 27 235 16,256 Y (16,256) -
Total 107,601 14,067 4,032 3,751 129,451 (16,256) 113,195
Operating expenses 96,299 15,047 4,473 2,996 118,815 (15,785) 103,030
Operating income Y 11,302 Y (980) Y (441) Y 755 Y 10,636 Y (471) Y 10,165
(loss)
Six months ended Japan Americas Europe Asia Total Eliminations Consolidated
September 30, 2003 /Oceania
(Millions of Yen)
Net revenue:
Customers Y 84,812 Y 27,026 Y 14,090 Y 4,048 Y 129,976 - Y 129,976
Intersegment 37,716 154 88 179 38,137 Y (38,137) -
Total 122,528 27,180 14,178 4,227 168,113 (38,137) 129,976
Operating expenses 101,192 26,978 13,264 3,352 144,786 (36,508) 108,278
Operating income Y 21,336 Y 202 Y 914 Y 875 Y 23,327 Y (1,629) Y 21,698
(loss)
Year ended Japan Americas Europe Asia Total Eliminations Consolidated
March 31, 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)
Six months ended Japan Americas Europe Asia Total Eliminations Consolidated
September 30, 2003 /Oceania
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 762,355 $ 242,930 $ 126,652 $ 36,387 $ 1,168,324 - $ 1,168,324
Intersegment 339,020 1,384 791 1,609 342,804 $ (342,804) -
Total 1,101,375 244,314 127,443 37,996 1,511,128 (342,804) 1,168,324
Operating expenses 909,591 242,498 119,227 30,131 1,301,447 (328,161) 973,286
Operating income $ 191,784 $ 1,816 $ 8,216 $ 7,865 $ 209,681 $ (14,643) $ 195,038
(loss)
Note: 1. For the purpose of presenting its operations in geographic areas above, the Company and its
subsidiaries attribute revenues from external customers to individual countries in each area based
on where products are sold and services are provided.
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 (Unaudited)
1. The U.S. dollar amounts included herein represent a
translation using the mid price for telegraphic
transfer of U.S. dollars as of September 30, 2003 of
Y111.25 to $1 and are included solely for the
convenience of the reader. The translation should not
be construed as a representation that the yen amounts
have been, could have been, or could in the future be
converted into U.S. dollars at the above or any other
rate.
2. The consolidated financial statements presented
herein were prepared in accordance with accounting
principles generally accepted in the United States of
America (U.S. GAAP).
6. Summary of Non-consolidated Financial Results
for the Six Months Ended September 30, 2003
(Prepared in Accordance with Japanese GAAP)
November 13, 2003
KONAMI CORPORATION
Address: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan
Stock code number: 9766
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 the financial November 13, 2003
results:
Date of commencement of
interim dividend payment: December 8, 2003
Adoption of
interim dividend system: Yes
Adoption of
unit trading system: Yes (1 unit: 100 shares)
1. Financial Results for the Six Months Ended September 30, 2003
(1) Results of Operations
(Figures truncated)
Net Year-on-year Operating Year-on-year Ordinary Year-on-year
revenues change income change income change
(Y million) (%) (Y million) (%) (Y million) (%)
Six months ended Y74,240 36.4 Y13,572 186.3 Y17,215 201.9
September 30, 2003
Six months ended 54,433 19.2 4,740 22.1 5,701 35.3
September 30, 2002
Year ended 130,186 - 11,577 - 13,068 -
March 31, 2003
Net Year-on-year Net income
income change per share
(Y million) (%) (Y)
Six months ended Y11,107 184.1 Y92.19
September 30, 2003
Six months ended 3,909 81.9 31.91
September 30, 2002
Year ended (11,284) - (92.82)
March 31, 2003
Notes:
1. Weighted-average common shares outstanding
Six months ended September 30, 2003: 120,484,155 shares
Six months ended September 30, 2002: 122,503,419 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
percentage change of the increase or decrease compared to the same period of the previous year.
(2) Dividends
Cash dividends per share
Interim Annual
(Y) (Y)
Six months ended September 30, 2003 Y27.00 -
Six months ended September 30, 2002 19.00 -
Year ended March 31, 2003 - 54.00
(3) Financial Position
Total shareholders' Equity-assets Total shareholders'
Total assets equity ratio equity per share
(Y million) (Y million) (%) (Y)
September 30, 2003 Y193,669 Y111,997 57.8 Y929.56
September 30, 2002 190,493 122,271 64.2 1,014.80
March 31, 2003 186,668 105,107 56.3 872.38
Notes:
Number of shares outstanding
September 30, 2003: 120,483,851 shares
September 30, 2002: 120,488,459 shares
March 31, 2003: 120,484,375 shares
Number of treasury stock
September 30, 2003: 8,253,715 shares
September 30, 2002: 8,249,107 shares
March 31, 2003: 8,253,191 shares
2. Financial Forecast for the Year Ending March 31, 2004
Net Ordinary Net Cash dividends per share
revenues income income Year-end Annual
(Y million) (Y million) (Y million) (Y) (Y)
Year ending March 31, 2004 Y27.00 Y54.00
Notes:
1. Non-consolidated financial forecast for the year ending March 31, 2004 is not disclosed.
7. Non-consolidated Financial Statements
(1) Non-consolidated Balance Sheets (Unaudited)
(Millions of Yen)
September 30, 2002 September 30, 2003 March 31, 2003
% % %
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Y23,892 Y40,926 Y31,976
Trade notes receivable 32 13 37
Trade accounts receivable 24,482 30,666 30,068
Inventories 5,704 6,920 5,418
Short-term loans receivable 10,935 - 12,797
Other 11,257 22,746 24,916
Allowance for doubtful accounts (245 ) (279 ) (407 )
Total current assets 76,059 39.9 100,993 52.1 104,806 56.1
FIXED ASSETS (Note 1):
Tangible fixed assets 8,913 1,533 8,991
Intangible fixed assets 1,417 1,071 1,407
Investment securities 101,608 83,448 66,219
Other 2,494 6,722 5,316
Allowance for doubtful - (99 ) (73 )
accounts
Investments and other assets 104,103 90,070 71,463
Total fixed assets 114,434 60.1 92,675 47.9 81,862 43.9
TOTAL ASSETS Y190,493 100.0 Y193,669 100.0 Y186,668 100.0
See accompanying notes to non-consolidated financial statements
(Millions of Yen)
September 30, 2002 September 30, 2003 March 31, 2003
% % %
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
Trade notes payable Y5,843 Y5,696 Y6,091
Trade accounts payable 7,313 8,666 10,217
Short-term borrowings - 7,418 11,852
Current portion of long-term - 912 -
debt
Income taxes payable 1,577 4 15
Other (Note 3) 5,380 5,783 5,491
Total current liabilities 20,114 10.6 28,480 14.7 33,667 18.0
LONG-TERM LIABILITIES:
Straight bonds 45,000 45,000 45,000
Long-term debt - 5,340 -
Allowance for directors' 1,350 1,354 1,353
retirement
Benefits
Long-term deposits received 327 67 110
Allowance for loss incurred 1,430 1,430 1,430
by subsidiaries
Total long-term liabilities 48,107 25.2 53,192 27.5 47,893 25.7
Total liabilities 68,222 35.8 81,672 42.2 81,560 43.7
SHAREHOLDERS' EQUITY:
Common Stock 47,398 24.9 47,398 24.5 47,398 25.4
Additional paid-in capital 47,106 24.7 47,106 24.3 47,106 25.2
Retained earnings 53,417 28.0 43,155 22.3 36,265 19.4
Legal reserve 2,163 - 2,163
Voluntary earned surplus 44,301 24,301 44,301
Unappropriated earned surplus 6,951 18,854 (10,200 )
Treasury Stock (25,651 ) (13.4 ) (25,663 ) (13.3 ) (25,662 ) (13.7 )
Total shareholders' equity 122,271 64.2 111,997 57.8 105,107 56.3
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY Y190,493 100.0 Y193,669 100.0 Y186,668 100.0
See accompanying notes to non-consolidated financial statements
(2) Non-consolidated Statements of Operations (Unaudited)
(Millions of Yen)
Six months ended Six months ended Year ended
September 30, 2002 September 30, 2003 March 31, 2003
% % %
Net revenues Y54,433 100.0 Y74,240 100.0 Y130,186 100.0
Cost of revenues 42,486 78.1 50,629 68.2 101,304 77.8
Gross profit 11,946 21.9 23,611 31.8 28,881 22.2
Selling, general and administrative 7,206 13.2 10,039 13.5 17,303 13.3
expenses
Operating income 4,740 8.7 13,572 18.3 11,577 8.9
Non-operating income (Note 1) 1,709 3.1 4,067 5.5 2,843 2.2
Non-operating expenses (Note 2) 747 1.4 423 0.6 1,352 1.0
Ordinary income 5,701 10.5 17,215 23.2 13,068 10.1
Extraordinary income (Note 3) - - 1,541 2.1 5,742 4.4
Extraordinary losses (Note 4) 83 0.2 2,135 2.9 39,401 30.3
Income (loss) before income taxes 5,618 10.3 16,622 22.4 (20,590 ) (15.8 )
Income taxes:
Current 1,931 4 15
Deferred (222 ) 5,511 (9,321 )
Total income taxes 1,708 3.1 5,515 7.4 (9,306 ) 7.1
Net income (loss) 3,909 7.2 11,107 15.0 (11,284 ) (8.7 )
Unappropriated earned surplus 3,042 5,583 3,042
carried forward
Reversal of legal reserve - 2,163 -
Interim cash dividends - - 2,289
Increase in retained earnings from - - 331
acquisition following a corporate
split
Unappropriated earned surplus Y6,951 Y18,854 Y(10,200 )
See accompanying notes to non-consolidated financial statements
Basis of Presentation
The accompanying interim 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.
Other securities for which the market value is determinable are stated at market value as of the balance
sheet date. Unrealized gains and losses on those securities are reported in the shareholders' equity and
the cost of securities sold is determined by 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. 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.
6. 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.
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) Income Taxes
Current and deferred income taxes for the six months ended September 30, 2003 are calculated on the
assumption of the reversal of reserve for advanced depreciation in appropriations of retained
earnings planned at the fiscal year-end.
(c) Accounting for treasury stock and reversal of legal reserve
Effective from the previous fiscal year, 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.
Change in Presentation of Non-consolidated Financial Statements
1. Non-consolidated Balance Sheets
Short-term loans receivable is stated in other of current assets while it had been represented
independently on the previous statements. It is Y 4,041 million as of balance sheet date, September
30, 2003.
Notes to Non-consolidated Financial Statements
Notes to Balance Sheets
1.Accumulated depreciation of tangible fixed assets is as follows:
(Millions of Yen)
September 30, 2002 September 30, 2003 March 31, 2003
Accumulated depreciation of
tangible fixed assets Y6,766 Y2,927 Y7,143
2. The Company guarantees subsidiaries' loans payable to financial institutions
as follows:
(Millions of Yen)
September 30, 2002 September 30, 2003 March 31, 2003
Konami of America, Inc 245 - -
(US$ 2,000 thousand)
Konami Gaming, Inc. 1,851 - Y1,607
(US$ 15,100 thousand) (US$ 13,375 thousand)
Total Y2,096 - Y1,607
3. Net amount of consumption tax payable and consumption tax to be refunded is included in 'Other' of current
liabilities.
Notes to Statements of Operations
1. Non-operating income mainly consists of the following:
Six months ended September 30, 2002: Dividend income: Y 1,628 million, Interest income: Y 4 million
Six months ended September 30, 2003: Dividend income: Y 3,744 million, Interest income: Y 41 million,
Foreign exchange gains: Y 56 million
Year ended March 31, 2003: Dividend income: Y 2,329million, Interest income: Y 30 million
2. Non-operating expenses mainly consist of the following:
Six months ended September 30, 2002: Bond interest expenses: Y 200 million, Foreign exchange losses:
Y 154 million, Related expenses for NYSE listing: Y 366 million
Six months ended September 30, 2003: Bond interest expenses: Y 200 million
Year ended March 31, 2003: Bond interest expenses: Y 400 million, Related expenses for NYSE
listing: Y 284 million
3. Extraordinary income mainly consists of the following:
Six months ended September 30, 2002: -
Six months ended September 30, 2003: Gain on sale of investment securities: Y 1,300 million
Year ended March 31, 2003: Gain on sale of investments in subsidiaries: Y 1,769 million,
Gain on transfer of business: Y 3,972 million
Note:
Extraordinary income for the six months ended September 30, 2002 did not include any items significant
enough to require separate disclosure.
4. Extraordinary losses mainly consist of the following:
Six months ended September 30, 2002: Loss on disposal of buildings: Y 56 million,
Loss on disposal of tools, furniture and fixtures: Y 22 million
Six months ended September 30, 2003: Loss on sale of land and buildings: Y 2,111 million
Year ended March 31, 2003: Loss on sale of investments in subsidiaries: Y 39,010 million
5. Depreciation expense for each period is as follows:
(Millions of Yen)
September 30, 2002 September 30, 2003 March 31, 2003
Tangible fixed assets Y323 Y436 Y1,965
Intangible fixed assets 211 220 656
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)
September 30, 2002 September 30, 2003 March 31, 2003
Acquisition Accumulated Ending Acquisition Accumulated Ending Acquisition Accumulated Ending
depreciation depreciation depreciation
Cost balance Cost balance Cost balance
Tangible
fixed
assets
-other Y1,511 Y750 Y761 Y1,629 Y1,069 Y559 Y1,599 Y1,006 Y593
Total Y1,511 Y750 Y761 Y1,629 Y1,069 Y559 Y1,599 Y1,006 Y593
2. Obligations under finance leases
(Millions of Yen)
September 30, 2002 September 30, 2003 March 31, 2003
Due within one year Y455 Y251 Y370
Due after one year 341 334 251
Total Y796 Y586 Y622
3. Lease payments, depreciation expense and interest expense
(Millions of Yen)
Six month ended Six month ended Year ended
September 30, 2002 September 30, 2003 March 31, 2003
Lease payments Y225 Y232 Y472
Depreciation expense 216 222 452
Interest expense 9 7 19
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)
September 30, 2002 September 30, 2003 March 31, 2003
Balance Balance Balance
sheet Market sheet Market sheet Market
amount value Differences amount value Differences amount value Differences
Investments Y70,327 Y74,513 Y4,185 Y1,312 Y38,517 Y37,205 Y1,312 Y34,993 Y33,680
in
subsidiaries
Investments 11,905 22,191 10,286 12,194 21,225 9,030 12,194 18,251 6,057
in affiliated
companies
Total Y82,233 Y96,705 Y14,471 Y13,506 Y59,742 Y46,235 Y13,506 Y53,245 Y39,738
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