Interim Results - Part 1
Konami Corporation
28 November 2002
Consolidated Financial Results
for the Six Months Ended September 30, 2002
(Prepared in Accordance with U.S. GAAP)
November 28, 2002
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, Osaka Securities Exchange,
New York Stock Exchange, London Stock Exchange and Singapore Exchange
Representative: Kagemasa Kozuki, Representative Director and CEO
Contact: Noriaki Yamaguchi, Representative Director and CFO (Phone: 03-5220-0163)
Date of Board Meeting to
approve the financial November 28, 2002
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, 2002
(Amounts are rounded to the nearest million)
(1) Consolidated Results of Operations
(Millions of yen, except per share data)
Income before income
taxes, minority
interest and equity in
net income of
Net revenues Operating income affiliated companies
Six months ended September 30, 2002 Y113,195 Y10,165 Y10,150
Six months ended September 30, 2001 - - -
Year ended March 31, 2002 225,580 18,087 22,678
Net income Diluted net income
Net income per share (yen) per share (yen)
Six months ended September 30, 2002 Y 4,368 Y35.66 -
Six months ended September 30, 2001 - - -
Year ended March 31, 2002 11,402 89.32 -
Notes:
1. Equity in net income of affiliated companies
Six months ended September 30, 2002: Y644 million
Six months ended September 30, 2001: - million
Year ended March 31, 2002: Y755 million
2. Weighted-average common shares outstanding
Six months ended September 30, 2002: 122,503,419 shares
Six months ended September 30, 2001: - shares
Year ended March 31, 2002: 127,647,120 shares
3. Change in accounting policies: None
4. Net income per share was prepared in accordance with Statement of Financial Accounting Standard (SFAS) No.
128 'Earnings per Share'
5. The six months ended September 30, 2002 was the first period in which Konami prepared its interim
consolidated financial statements in accordance with U.S. GAAP. Therefore U.S. GAAP consolidated financial
information for the six months ended September 30, 2001 is not available. However, figures for the year
ended March 31, 2002 presented herein have been prepared in accordance with U.S. GAAP.
(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, 2002 Y305,386 Y125,234 41.0% Y1,039.38
September 30, 2001 - - - -
March 31, 2002 328,091 134,990 41.1% 1,084.44
Note:
Number of shares outstanding
September 30, 2002: 120,488,459 shares
September 30, 2001: - shares
March 31, 2002: 124,479,815 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, 2002 Y 6,835 Y (2,881) Y(17,504) Y61,547
Six months ended September 30, 2001 - - - -
Year ended March 31, 2002 11,119 (16,024) 12,613 75,188
(4) Number of Consolidated Subsidiaries and Companies Accounted for by the Equity Method
Number of consolidated subsidiaries: 32
Number of affiliated companies accounted for by the equity method: 4
(5) Changes in Reporting Entities
Number of consolidated subsidiaries added: 1
Number of consolidated subsidiaries removed: 6
2. Consolidated Financial Forecast for the Year Ending March 31, 2003
(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, 2003 Y245,000 Y25,000 Y24,500 Y11,500
Note:
Expected net income per share for the year ending March 31, 2003 is Y95.44
Cautionary Statement with Respect to Forward-Looking Statements:
Statements made in this report 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 and
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.
1. Organizational Structure of the Konami Group
The Konami Group is a collection of companies with global operations in the
entertainment industry and is comprised of KONAMI CORPORATION (the 'Company', 32
consolidated subsidiaries and 4 equity method affiliates.
The Company, its subsidiaries and affiliated companies are categorized into
business segments according to their operations as stated below.
Business segment categorization is based on the same criteria explained in the
segment information notes to the consolidated financial statements.
Business Segments Major Companies
Consumer Software (CS) Domestic The Company (Note 4, 9), Konami Marketing, Inc. (*2, *3)
Konami Computer Entertainment Osaka, Inc.
Konami Computer Entertainment Tokyo, Inc.
Konami Computer Entertainment Japan, Inc.
Konami Computer Entertainment Studios, Inc.
Konami School, Inc. (*1, Note 4)
Konami Mobile & Online, Inc.
HUDSON SOFT CO., LTD. (*5), Genki Co., Ltd. (*5)
Three other companies (*5, Note 7)
Overseas Konami of America, Inc., Konami of Europe GmbH
(*4) Konami Marketing (Asia) Ltd.
Konami Software Shanghai, Inc., One other company
Toy & Hobby (T&H) Domestic The Company (Note 4, 9), Konami Marketing, Inc. (*2, *3)
or former Character Products Konami Music Entertainment, Inc.
(CP) Overseas Konami of America, Inc.
(Note 5) (*4) Konami Marketing (Asia) Ltd.
Amusement Content (AC) Domestic The Company (Note 4, 9), Konami Marketing, Inc. (*2, *3)
Konami Sports Life Corporation
Konami Parlor Entertainment, Inc., One other company
Overseas Konami of America, Inc.
(*4) Konami Amusement of Europe Ltd.
Konami Marketing (Asia) Ltd.
Gaming Content (GC) Domestic The Company (Note 4, 9), Konami Marketing, Inc. (*2, *3)
Konami Parlor Entertainment, Inc. (Note 6)
One other company (Note 6)
Overseas Konami Gaming, Inc.
Konami Australia Pty Ltd., One other company
Health & Fitness (H&F) Domestic Konami Sports Corporation Note 3, 8
or former Health and Fitness Konami Olympic Sports Club Corporation Note 3
(HF) Two other companies (Note 8)
(Note 5)
Other Domestic Konami Capital, Inc. (Note 9), Konami Service, Inc.
TAKARA CO., LTD. (*5), One other company
Overseas Three other companies
Notes:
1. Companies that have multiple business segments are included in each segment in which they operate.
2. Primary changes in major companies for the six months ended September 30, 2002 are as follows:
(*1) Konami Computer Entertainment School, Inc. merged with Roppongi Monitoring Center, Inc. on May
1, 2002 for the purpose of improving the efficiency of their operations and changed its company
name to Konami School, Inc.
(*2) Konami Amusement Operation, Inc. transferred its amusement facility operation business to its
new wholly-owned subsidiary KAO Co., Ltd. on May 11, 2002. Konami Amusement Operation, Inc. then
sold all shares in KAO Co., Ltd. to Amlead Co., Ltd. on May 13, 2002.
(*3) Konami Marketing, Inc. merged with Konami Style.com Japan, Inc. and Konami Amusement Operation,
Inc. to improve the efficiency of their operations on August 1, 2002.
(*4) Konami (Singapore) Pte. Ltd. and Konami Corporation of Korea were dissolved in August 2002 and
September 2002, respectively.
(*5) These are equity method affiliates.
3. Konami Sports Corporation merged with Konami Olympic Sports Club Corporation on October 1, 2002 to
improve the efficiency of their operations.
4. The education business of Konami School, Inc., which used to be included in the CS segment, was
transferred to the Other segment as of October 1, 2002 in order to develop human resources in the
whole Konami group, while its debugging operations for video game software remains included in the
CS segment. Also, the Company plans to take over the debugging business of Konami School, Inc. by
acquisition following a corporate split on January 1, 2003.
5. The Character Products (CP) segment and the Health and Fitness (HF) segment changed their names to
Toy & Hobby (T&H) and Health & Fitness (H&F), respectively, on October 1, 2002.
6. Konami Parlor Entertainment, Inc. and Konami Parlor Research, Inc. changed their company names to
KPE, Inc. and KPR, Inc., respectively, on November 11, 2002.
7. Konami Computer Entertainment Kobe, Inc. and Konami Computer Entertainment Nagoya, Inc. are
scheduled to be dissolved in December 2002.
8. Konami Sports Corporation plans to merge with Konami Sports Plaza, Inc. on January 1, 2003 in order
to improve the efficiency of their operations.
9. The Company plans to take over the financial service business, such as arrangement of intercompany
loans, of its wholly-owned subsidiary Konami Capital, Inc. by acquisition following a corporate
split on February 1, 2003. Konami Capital, Inc. will then concentrate on its real estate management
business.
2. Management Policy
1. Management Policy
In addition to our management policy of putting our primary priority
on shareholders, we aim to maintain a healthy relationship with all the
stakeholders including shareholders and to make wide range of social
contributions as a good corporate citizen.
Management policy of putting primary priority on shareholders
Our management policy of putting our primary priority on shareholders
is expressed in two ways. One is to continuously increase and improve
shareholder value = corporate value = market capitalization and the other is to
provide stable dividends as means to return profit to shareholders. We strive to
realize our targets of consolidated return on equity of 15% through optimum
utilization of management resources. 'Adaptation to Global Standards'
'Maintaining Fair Competition' and 'Pursuit of High Profit' are the keywords of
our management policy.
Healthy relationship with stakeholders and social contributions as a good
corporate citizen
Aiming to maintain a healthy relationship with shareholders,
investors, end-users, suppliers, employees and the community in general, we
promote disclosure of information and social contribution by supporting a wide
range of activities that promote education, sports and culture.
We aim to be an entertainment enterprise that achieves continuous
expansion and the respect of society.
2. Profit Appropriation Policy
We consider providing stable cash dividends and increasing and
improving corporate value as important to return income to shareholders and aim
to do so at levels of more than 30% of consolidated net income. Accumulated
earnings will be used to invest in potentially profitable business fields to
strengthen our growth potential and competitiveness.
3. Medium to Long-term Strategies and Company Priorities
Consumers are becoming more and more diversified in their tastes for
and selective about 'Entertainment', while the fields of games, toys movies,
music, sports, education, publishing and communications are further merging and
overlapping with each other in the entertainment industry.
In such an environment, the competition among companies has intensified, and so
we believe that innovative and diversified corporate strategy and further
reinforcement of the corporate structure supporting such a strategy are required
for a company to maintain its capacity to grow continuously. Thus, we are
committed to further increase our production, marketing and financial resources
and by doing so will place top priority on enhancing our brand value.
Reinforcement of corporate structure
We realized our long-cherished desire of listing on the New York Stock
Exchange on September 30, 2002. We will continue to pursue our purposes of
listing, which were to expand business operations in the U.S., increase the
number of U.S. shareholders and enhance convenience for investors. In addition,
we endeavor to obtain further trust from stakeholders by building a stronger
management system and enhancing fair disclosure.
As for brand value, we will establish and increase brand value by
shifting our orientation from marketing to branding.
As for human resources development, we will continue to nurture
leadership and enhance management control capacity through our Leadership
Development Program which was launched this year.
3. Business Performance and Financial Position
The six months ended September 30, 2002 was the first period in which
we prepared our interim consolidated financial statements in accordance with
U.S. GAAP. Therefore, U.S. GAAP consolidated financial information for the six
months ended September 30, 2001 is not available. However, figures for the year
ended March 31, 2002 presented herein have been prepared in accordance with U.S.
GAAP.
1. Business Review
Overview
Although the Japanese economy has improved somewhat due to increased exports,
concern remains regarding the possibility of a downturn due to the leveling off
of individual consumption and corporate earnings, concern about the future of
the U.S. economy and the serious decline of domestic stock prices.
With respect to the entertainment industry in which we operate, sales
of PlayStation 2 grew most significantly among the full line-up of next
generation video game software platforms. Sales of soccer game software were
robust due to the continuation of the recent soccer boom in Japan.
We performed well for the six months ended September 30, 2002 due to
the following reasons: WORLD SOCCER WINNING ELEVEN 6, a home video game software
title, sold over one million copies; the card game and video game software
titles of Yu-Gi-Oh! became hits in the U.S.; MICRO iR products, which are
high-technology toys, are gaining market acceptance; e-AMUSMENT products, which
are amusement arcade games that allow players to compete directly with players
in other arcade game locations via an on-line amusement connection, are
developing well; and gaming machines in the overseas market achieved healthy
sales. We engaged in more effective sales promotion activities by jointly
presenting the products of four group companies (Konami, Takara Co., Ltd.,
Hudson Soft Co., Ltd. and Genki Co., Ltd.) at the Tokyo Game Show 2002 held in
September 2002.
Aiming to achieve a more appropriate business portfolio and to better
focus management resources, we decided to transfer our amusement arcade
operations, which had been conducted by Konami Amusement Operation, Inc. to test
market preferences, to AmLead Co., Ltd. Also, Konami Sports Corporation unveiled
a new style of sports clubs membership to improve customer convenience by
introducing a new nationwide membership system that allows customers to use of
all its sports clubs nationwide through a 'Single card system'
We transferred our headquarters to Marunouchi, Tokyo in August 2002,
and listed on the New York Stock Exchange on September 30, 2002.
As a result of the fast-paced business expansion and efforts to create
products and services that meet customer needs explained above, consolidated net
revenues for the six months ended September 30, 2002 were Y113,195 million, and
consolidated operating income was Y10,165 million, and net income was Y4,368
million for the same period. Dividends for the six months ended September 30,
2002 were Y19 per share (consolidated payout ratio: 52.4%).
Performance by business segment
Summary of net revenues by business segment:
Millions of Yen
Six months ended
September 30, 2002
Consumer Software (CS) Y 35,398
Toy & Hobby (T&H) 19,444
Amusement Content (AC) 18,609
Gaming Content (GC) 8,415
Health & Fitness (H&F) 38,139
Other 2,703
Less: Intersegment revenues (9,513)
Consolidated net revenues Y 113,195
Note:
The Character Products (CP) segment and the Health and Fitness (HF) segment
changed their names to Toy & Hobby (T&H) and Health & Fitness (H&F),
respectively, on October 1, 2002.
The CS segment released WORLD SOCCER WINNING ELEVEN 6 for the
PlayStation 2 in April 2002, which became a hit shipping more than 1.1 million
copies over the six months ended September 30, 2002. JIKKYO POWERFUL PRO
BASEBALL 9 for both the PlayStation 2 and the Game Cube released in July 2002
shipped more than 500,000 copies. Shipments of SUIKODEN III for the PlayStation
2, a role-playing game, also released in July 2002, reached more than 350,000
copies. For the GameBoy Advance, shipments of Yu-Gi-Oh! Duel Monsters 7: The
Duelcity Legend reached 300,000 copies, and HIKARU NO GO 2 and TENNIS NO
OHJISAMA also experienced significant sales growth. HIKARU NO GO: HEIAN GENSO
IBUNROKU and CAPTAIN TSUBASA: ARATANARU DENSETSU JOSHO released for the
PlayStation generated favorable sales.
Yu-Gi-Oh! Dark Duel Stories for the GameBoy Color in the U.S. and
Yu-Gi-Oh! FORBIDDEN MEMORIES for the PlayStation released in the overseas market
became hits selling more than 1.2 million copies altogether. As a result,
consolidated revenues of the CS segment were Y35,398 million.
The T&H (former CP) segment maintained solid sales of the Yu-Gi-Oh!
Official Card Game series. The video game software of the Yu-Gi-Oh! series
achieved significant sales growth in North America as a result of synergies with
the cartoon TV program. The release of a new Yu-Gi-Oh! series card game helped
us to maintain a high level of domestic sales as well. Electronic toys such as
Combat DigiQ, a new product of the MICRO iR series, also achieved robust sales.
Candy Toys, which enjoy popularity for their high quality figures, especially
the SF Movie Selection: Thunderbirds series achieved more than two million
sales, which gave them a dominant position in the market. As a result,
consolidated revenues of the T&H segment were Y19,444 million.
The AC segment introduced its first e-AMUSEMENT product for amusement
arcades, MAH-JONG FIGHT CLUB, which continued to be popular. Sales of the pop'n
music series and Beatmania series, which are music simulation games, remained
strong. The WORLD SOCCER Winning Eleven Arcade Game Style arcade game that was
adapted from the popular home video game, WORLD SOCCER WINNING ELEVEN, was also
well received by the market.
The health entertainment business continued to focus on expanding
distribution of existing products such as Dance Dance Revolution FAMIMAT and
MARTIAL BEAT, a fitness action game that uses popular martial arts. MARTIAL BEAT
2, the first game with the ability to measure physical strength was released in
September 2002.
The LCD unit business's results declined compared with that of the
same period of the previous year because sales to main customers were affected
by the World Cup Soccer tournament. As a result, consolidated revenues of the AC
segment were Y18,609 million. During the second half of the fiscal year ending
March 31, 2003, we aim to continue to introduce distinct and appealing products.
The GC segment contributed to total sales with token-operated products
that continue to be popular such as GI-WINNING SIRE, the latest large-scale
token-operated horse racing game in the GI series which has a realistic 'right
there in the midst of it' feel, and FORTUNE ORB, a large-sized 'Penny-falls'
game machine, popular for its entertaining stage effects. Magicparade, a single
token-operated machine released in September, also achieved favorable sales.
With respect to our overseas gaming business, the installed base of video slot
machines has been increasing in line with a more diverse line up of products. As
a result, sales of our products are improving steadily in Nevada and the
mid-west region of the U.S. Also, a casino management system was delivered to
new customers in September 2002. The combination of WILD FIRE, a standalone
progressive game with gaming contents has been well-received in Australia. We
have acquired gaming licenses in all Australian states, and sales in Queensland,
Victoria, and New South Wales were especially strong. As a result, consolidated
revenues of the GC segment were Y8,415 million.
The H&F (former HF) segment actively expanded the number of newly-open
facilities by opening 14 facilities under its direct management including
Moriguchi (Osaka), Funabashi (Chiba), Nishifunabashi (Chiba), and Sannomiya
(Hyogo), which is the first facility to operate 24 hours a day. We also expanded
operations by moving existing facilities to better locations in the same
neighborhood or by acquiring facilities that had been operated by other
companies.
In a move to strengthen brand recognition of our Eg-zas clubs, we
decided to integrate and operate our Sele and Freizeit clubs under the Eg-zas
brand from April 1, 2002. In order to capitalize on the advantage of operating a
large number of club locations, we are introducing a membership system that can
be used at all facilities in our dominant area, Chiba prefecture, and another
membership system that can be used at all Eg-zas and GRANCISE clubs nationwide.
Service revenues also improved due to the fact that Konami Sports
Corporation began consolidating the results of its subsidiary, Daiei Olympic
Sports Club, Inc. (currently Konami Olympic Sports Club Corporation), since
February 2002. As a result, the consolidated revenues of the H&F segment were Y
38,139 million.
Consolidated revenues for the Other segment were Y2,703 million.
2. Financial Position
Overview
Millions of Yen
Six months ended
September 30, 2002
Net cash provided by operating activities Y 6,835
Net cash used in investing activities (2,881)
Net cash used in financing activities (17,504)
Effect of exchange rate changes on cash and cash equivalents (91)
Net decrease in cash and cash equivalents (13,641)
Cash and cash equivalents at September 30, 2002 61,547
Cash flows from operating activities:
Net cash provided by operating activities amounted to Y6,835 million for the six
months ended September 30, 2002. This was primarily due to net income of Y4,368
million, depreciation expense of Y5,909 million and a decrease in trade
receivables, mainly at the CS segment, of Y9,610 million, with income taxes of Y
12,839 million paid for the previous fiscal year, an increase in inventories of
Y2,390 million and a decrease in trade payables of Y2,243 million.
Cash flows from investing activities:
Net cash used in investing activities amounted to Y2,881 million for the six
months ended September 30, 2002. This resulted primarily from acquisitions of
property and equipment, which was due mainly to an active increase in new club
locations of the H&F (former HF) segment, with proceeds from the sale of
subsidiary shares of Y2,081 million and proceeds from the sale of property and
equipment of Y1,098 million.
Cash flows from financing activities:
Net cash used in financing activities amounted to Y17,504 million for the six
months ended September 30, 2002. This was primarily due to our purchases of
treasury stock of Y10,648 million and a payment of dividends of Y3,769 million.
3. Outlook for Fiscal Year Ending March 31, 2003
The CS segment expects to release branded popular titles like World
Soccer Winning Eleven 6 Final Evolution and Yu-Gi-Oh! Duel Monsters 8 in Japan,
Yu-Gi-Oh! THE ETERNAL DUELIST SOUL and CONTRA: SHATTERED SOLDIER in the U.S.,
and Pro Evolution Soccer2 in Europe.
The T&H segment expects to release new Yu-Gi-Oh! card games, which are
gaining successful market acceptance in the U.S. resulting from an effective
media mix promotion. It also hopes to introduce the product in Europe with the
aim of making it a global hit. The division also plans to expand the value added
product line-up of MICRO iR, which are advanced-technology toys.
The AC segment will develop new products that have features to promote
the keyword of 'live communication'
The GC segment will expand distribution of our gaming business in
North America, introduce link progressive games, and increase the line-up of
software supporting existing machines.
At the H&F segment, Konami Sports Corporation merged with its
subsidiary Konami Olympic Sports Club Corporation in October 2002. The H&F
segment aims to improve efficiency and acquire one million members by improving
member services and convenience.
As for the whole group, each business segment will, having 'Pursuit of
High Profit' in mind, make efforts to provide high-quality products and
services, which target consumer needs. Consolidated results for the year ending
March 31, 2003 are expected as follows: Y245,000 million of net revenues; Y
25,000 million of operating income; Y24,500 million of income before income
taxes, minority interest and equity in net income of affiliated companies; and Y
11,500 million of net income.
A total annual dividend of Y54 per share, which consists of an interim
dividend of Y19 per share and a year-end dividend of Y35 per share (consolidated
payout ratio: 56.6%), is expected to be paid for the year ending March 31, 2003.
Cautionary Statement with Respect to Forward-Looking Statements:
Statements made in this report 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 and 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.
4. Consolidated Financial Statements
(1) Consolidated Balance Sheets (Unaudited)
Millions of Yen Thousands
of U.S.
Dollars
September 30, March 31, 2002 September
2002 30, 2002
% %
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Y 61,547 Y 75,188 $ 502,015
Trade notes and accounts receivable,
net of allowance for doubtful
accounts of Y611 million ($4,984
thousand) and Y636 million at
September 30, 2002 and March 31,
2002, respectively 23,938 34,275 195,253
Inventories 18,280 15,990 149,103
Deferred income taxes, net 10,384 9,708 84,698
Prepaid expenses and other current
assets 6,847 6,894 55,848
Total current assets 120,996 39.6 142,055 43.3 986,917
PROPERTY AND EQUIPMENT, net 43,283 14.2 43,562 13.3 353,042
INVESTMENTS AND OTHER ASSETS:
Investments in marketable securities 169 204 1,378
Investments in and advances to
affiliates 13,961 13,459 113,874
Identifiable intangible assets 58,387 60,169 476,240
Goodwill 37,150 36,825 303,018
Lease deposits 23,604 24,654 192,529
Other assets 7,836 7,163 63,915
Total investments and other assets 141,107 46.2 142,474 43.4 1,150,954
TOTAL ASSETS Y 305,386 100.0 Y 328,091 100.0 $ 2,490,913
See accompanying notes to consolidated financial statements
Millions of Yen Thousands
of U.S.
Dollars
September 30, March 31, 2002 September
2002 30, 2002
% %
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings Y 13,401 Y 10,948 $ 109,306
Current portion of long-term debt and
capital lease obligations 2,046 4,751 16,688
Trade notes and accounts payable 18,043 20,292 147,170
Income taxes payable 6,878 13,224 56,101
Accrued expenses 16,391 21,120 133,695
Deferred revenue 5,464 3,866 44,568
Other current liabilities 5,719 5,347 46,648
Total current liabilities 67,942 22.3 79,548 24.2 554,176
LONG-TERM LIABILITIES:
Long-term debt and capital lease
obligations, less current portion 48,331 48,031 394,217
Accrued pension and severance costs 2,579 2,607 21,036
Deferred income taxes, net 22,600 22,986 184,339
Other long-term liabilities 3,891 4,013 31,737
Total long-term liabilities 77,401 25.3 77,637 23.7 631,329
MINORITY INTEREST IN
CONSOLIDATED SUBSIDIARIES 34,809 11.4 35,916 11.0 283,923
SHAREHOLDERS' EQUITY:
Common stock, no par value-
Authorized 450,000,000 shares; issued
128,737,566 shares at September 30,
2002 and March 31, 2002 47,399 15.5 47,399 14.4 386,615
Additional paid-in capital 46,736 15.3 46,736 14.2 381,207
Legal reserve 2,163 0.7 2,163 0.7 17,643
Retained earnings 54,157 17.7 53,149 16.2 441,738
Accumulated other comprehensive
income 430 0.2 546 0.2 3,507
Total 150,885 49.4 149,993 45.7 1,230,710
Treasury stock, at cost-
8,249,107 shares and 4,257,751 shares
at September 30, 2002 and March 31,
2002, respectively (25,651) (8.4) (15,003) (4.6) (209,225)
Total shareholders' equity 125,234 41.0 134,990 41.1 1,021,485
COMMITMENTS AND CONTINGENCIES - - -
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY Y 305,386 100.0 Y 328,091 100.0 $ 2,490,913
See accompanying notes to consolidated financial statements
(2) Consolidated Statements of Income (Unaudited)
Millions of Yen Thousands
of U.S.
Dollars
Six months ended Year ended Six months
September 30, 2002 March 31, 2002 ended
September
30, 2002
% %
NET REVENUES:
Product sales revenue Y 75,209 Y 165,154 $ 613,450
Service revenue 37,986 60,426 309,837
Total net revenues 113,195 100.0 225,580 100.0 923,287
COSTS AND EXPENSES:
Costs of products sold 43,726 104,192 356,656
Costs of services rendered 33,486 50,459 273,132
Selling, general and administrative 25,818 52,842 210,587
Total costs and expenses 103,030 91.0 207,493 92.0 840,375
Operating income 10,165 9.0 18,087 8.0 82,912
OTHER INCOME (EXPENSES):
Interest income 169 244 1,378
Interest expense (443) (767) (3,613)
Gain on sale of subsidiary shares 552 4,655 4,502
Other, net (293) 459 (2,390)
Other income (expenses), net (15) 0.0 4,591 2.1 (123)
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST AND EQUITY IN NET INCOME OF
AFFILIATED COMPANIES 10,150 9.0 22,678 10.1 82,789
INCOME TAXES:
Current 6,455 17,276 52,651
Deferred (1,243) (5,609) (10,139)
Total 5,212 4.6 11,667 5.2 42,512
INCOME BEFORE MINORITY INTEREST AND
EQUITY IN NET INCOME OF AFFILIATED
COMPANIES 4,938 4.4 11,011 4.9 40,277
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES 1,214 1.1 364 0.1 9,902
EQUITY IN NET INCOME OF AFFILIATED
COMPANIES 644 0.6 755 0.3 5,253
NET INCOME Y 4,368 3.9 Y 11,402 5.1 $ 35,628
See accompanying notes to consolidated financial statements
PER SHARE DATA: Yen U.S.
Dollars
Six months ended Year ended Six months
September 30, ended
2002 March 31, 2002 September
30, 2002
Basic and diluted net income per
share Y 35.66 Y 89.32 $ 0.29
Weighted-average common shares
outstanding 122,503,419 127,647,120
See accompanying notes to consolidated financial statements
Consolidated Statements of Shareholders' Equity and Accumulated Other Comprehensive Income (Unaudited)
(3)
Millions of Yen
Common Additional Legal Retained Accumulated Treasury Total
Stock Paid-in Earnings Other Stock, Shareholders'
Capital Reserve Comprehensive Equity
Income at Cost
Balance at
March 31, 2001 Y47,399 Y46,736 Y1,770 Y49,220 Y26 - Y145,151
Net income 11,402 11,402
Cash dividends,
Y 54.0 per share (7,080) (7,080)
Net unrealized
losses on
available-for-sale
securities (189) (189)
Foreign currency
translation
adjustments 709 709
Reissuance of
treasury stock 3 3
Repurchase of
treasury stock (15,006) (15,006)
Transfer from
retained earnings 393 (393) -
Balance at
March 31, 2002 47,399 46,736 2,163 53,149 546 (15,003) 134,990
Net income 4,368 4,368
Cash dividends,
Y 27.0 per share (3,360) (3,360)
Net unrealized
losses on
available-for-sale
securities 97 97
Foreign currency
translation
adjustments (213) (213)
Repurchase of
treasury stock (10,648) (10,648)
Balance at
September 30, 2002 Y47,399 Y46,736 Y2,163 Y54,157 Y430 Y(25,651) Y125,234
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
March 31, 2002 $386,615 $381,207 $17,643 $433,515 $4,453 $(122,374) $1,101,059
Net income 35,628 35,628
Cash dividends,
$0.22 per share (27,405) (27,405)
Net unrealized
losses on
available-for-sale
securities 791 791
Foreign currency
translation
adjustments (1,737) (1,737)
Repurchase of
treasury stock (86,851) (86,851)
Balance at
September 30, 2002 $386,615 $381,207 $17,643 $441,738 $3,507 $(209,225) $1,021,485
See accompanying notes to consolidated financial statements
(4) Consolidated Statements of Cash Flows (Unaudited)
Millions of Yen Thousands of
Six months Year ended U.S. Dollars
ended March 31, Six months
September 30, 2002 ended
2002 September 30,
2002
Cash flows from operating activities:
Net income Y4,368 Y11,402 $35,628
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 5,909 15,460 48,197
Provision for doubtful receivables 623 4,189 5,082
Loss on sale or disposal of property and
equipment, net 612 924 4,992
Gain on sale of subsidiary shares (552) (4,655) (4,502)
Equity in net income of affiliated companies (644) (755) (5,253)
Minority interest 1,214 364 9,902
Deferred income taxes (1,243) (5,609) (10,139)
Change in assets and liabilities:
Decrease (Increase) in trade notes and accounts
receivable 9,610 (3,930) 78,385
Increase in inventories (2,390) (1,594) (19,494)
Decrease in trade notes and accounts payable (2,243) (5,934) (18,295)
Decrease in income taxes payable (6,385) (1,722) (52,080)
Increase (decrease) in accrued expenses (4,175) 2,305 (34,054)
Increase in deferred revenue 1,598 805 13,034
Other, net 533 (131) 4,347
Net cash provided by operating activities 6,835 11,119 55,750
Cash flows from investing activities:
Purchases of investments in affiliates - (8,115) -
Purchases of investments in a subsidiary (315) - (2,569)
Proceeds from sales of investments in
subsidiaries 2,081 1,797 16,974
Capital expenditures (4,886) (8,095) (39,854)
Proceeds from sales of property and equipment 1,098 444 8,956
Acquisition of new subsidiaries, net of cash
acquired - 692 -
Decrease in time deposits 517 90 4,217
Increase in lease deposits, net (402) (1,877) (3,279)
Other, net (974) (960) (7,944)
Net cash used in investing activities (2,881) (16,024) (23,499)
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings 2,615 (1,108) 21,330
Proceeds from long-term debt - 45,230 -
Repayments of long-term debt (2,486) (13,172) (20,277)
Principal payments under capital lease
obligations (1,207) (2,407) (9,845)
Net proceeds from issuance of common stock by a
subsidiary - 7,035 -
Dividends paid (3,769) (7,652) (30,742)
Purchases of treasury stock by parent company (10,648) (15,006) (86,851)
Purchases of treasury stock by subsidiaries (1,782) (194) (14,535)
Other, net (227) (113) (1,853)
Net cash provided by (used in) financing
activities (17,504) 12,613 (142,773)
Effect of exchange rate changes on cash and cash
equivalents (91) 667 (742)
Net increase (decrease) in cash and cash
equivalents (13,641) 8,375 (111,264)
Cash and cash equivalents, beginning of the
period 75,188 66,813 613,279
Cash and cash equivalents, end of the period Y 61,547 Y 75,188 $ 502,015
See accompanying notes to consolidated financial statements
Notes to Consolidated Financial Statements
1. Accounting Principles, Accounting Procedures and Method for Presenting
Interim Consolidated Financial Statements
The accompanying consolidated interim financial statements are prepared
in accordance with accounting principles generally accepted in the United States
of America ('U.S. GAAP'), including Accounting Principles Board Opinion ('APB'),
Statement of Financial Accounting Standards ('SFAS', Emerging Issues Task Force
Consensus ('EITF')and the American Institute of Certified Public Accountants
Statement of Position ('SOP'). Konami Corporation ('Konami') and its domestic
subsidiaries maintain their books and records in conformity with accounting
principles and practices generally accepted in Japan ('Japanese GAAP'), and its
foreign subsidiaries in conformity with those of the country of their domicile.
The consolidated financial statements presented herein have been prepared in a
manner and reflect certain adjustments that are necessary to conform them with
U.S. GAAP.
The significant differences between accounting principles, accounting
procedures and method of presentation which are adopted by Konami and its
subsidiaries and those in Japan are as follows. In addition to an explanation of
the differences, the approximate amount of each effect on income before income
taxes under Japanese GAAP is shown if it is material.
(a) Effect of Business Combinations
Konami and its subsidiaries accounted for its business combinations
initiated prior to June 30, 2001 using the purchase method of accounting in
accordance with APB No. 16 'Business Combinations', Acquisitions initiated after
June 30, 2001 are accounted for in accordance with SFAS No. 141 'Business
Combinations'. The purchase method of accounting under APB 16 and SFAS 141
requires recording of acquired assets, including identifiable intangible assets,
and liabilities assumed at their respective estimated fair value at the date of
acquisition.
Also, in accordance with SFAS No. 142 'Goodwill and Other Intangible
Assets', which was adopted by Konami and its subsidiaries on April 1, 2002 in
its entirety, goodwill and certain acquired intangible assets are no longer
subject to amortization but are subject to assessments for impairment based on
fair value.
The differences between U.S. GAAP and Japanese GAAP therefore result
from application of the purchase method of accounting and the differences in
initial recognition and the subsequent amortization of goodwill and certain
identifiable intangible assets. Effects of such differences on income before
income taxes are an increase in income of Y1,651 million ($13,467 thousand)
related to cessation of goodwill amortization and a decrease of Y1,613 million
($13,157 thousand) related to identifiable intangible assets for the six months
ended September 30, 2002.
(b) Long-lived Assets Basis Differences
Long-lived assets are carried at cost less applicable depreciation or
amortization and impairment losses recognized. Recognition of impairment losses
is required when events and circumstances indicate that the carrying amount of
those long-lived assets will not be recoverable.
(c) Accrued Pension and Severance Costs
Konami and its subsidiaries account for their pension plans in
accordance with SFAS No. 87, 'Employers' Accounting for Pensions'. Certain of
their plans have been determined to be a multiemployer defined benefit plan
which requires recognition of net pension cost based on the amount of required
contribution for the period.
(d) Directors' Bonuses
Directors' bonuses are charged to earnings.
(e) Software Development Costs
Konami and its subsidiaries account for software development costs for
internal use in accordance with SOP 98-1, 'Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use', which requires expensing of
costs incurred during the preliminary planning stage as well as
post-implementation stage, and capitalization of costs incurred during the
application development stage.
(f) Capital Leases
Konami and its subsidiaries capitalize all leased property meeting
specified criteria under SFAS No. 13 'Accounting for Leases' as property and
equipment based on the present value of the future minimum lease payments.
2. Business and Organization
Konami was founded in 1969 and was incorporated under the laws of Japan
in March 1973. Konami and its subsidiaries engage in production and sale of game
software for home video game systems, game machines for installation in
amusement arcades and other entertainment venues and other amusement-related
products, and operation of health and fitness club facilities. The principal
markets for Konami and its subsidiaries' products are Japan, North America,
Europe, Asia and Australia while all of its health and fitness club facility
operations are in Japan.
Substantially all of Konami and its subsidiaries' revenues from video
game software have historically been derived from sales of software for use on
proprietary game platforms developed and manufactured by other manufacturers.
Konami and its subsidiaries may only publish its games for use on the
manufacturers' game platforms if it receives a platform license from them, which
is generally for an initial term of several years and may be extended for
additional one-year terms. If Konami and its subsidiaries cannot obtain licenses
to develop video game software from manufacturers of popular game platforms or
if any of its existing license agreements are terminated, it will not be able to
release software for those platforms, which may have a negative impact on its
results of operations and profitability. To date, Konami and its subsidiaries
have always obtained extensions or new agreements with the platform
manufacturers. These licenses include other provisions such as approval rights
by the manufacturers of all products and related promotional materials which
could have an effect on Konami and its subsidiaries' costs and the timing of
release of new game titles.
In the United States, Canada and Australia, the manufacture and
distribution of Konami and its subsidiaries' gaming machines are subject to
numerous federal, state and local regulations. In addition, Konami and its
subsidiaries may be subject to regulation as a gaming operator if it enters into
lease participation agreements under which it shares in the revenues generated
by gaming machines. These regulations are constantly changing and evolving, and
may curtail gaming in various jurisdictions in the future, which would decrease
the number of jurisdictions from which Konami and its subsidiaries can generate
revenues. Konami and its subsidiaries and their key personnel are subject to an
extensive investigation before each jurisdictional gaming license is issued.
Also, Konami and its subsidiaries' gaming machines are subjected to independent
testing and evaluation prior to approval from each jurisdiction. Generally,
regulatory authorities have broad discretion when granting, renewing or revoking
these game approvals and licenses.
3. Translation into U.S. Dollars
The accompanying consolidated financial statements are stated in
Japanese yen, the currency of the country in which Konami is incorporated and
principally operates. The U.S. dollar amounts included herein represent a
translation using the mid price for telegraphic transfer of U.S. dollars for yen
quoted by The Bank of Tokyo-Mitsubishi, Ltd. as of September 30, 2002 of Y122.6
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.
4. Summary of Significant Accounting Policies
(a) Consolidation Policy
The accompanying consolidated financial statements include the accounts
of Konami and all of its majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
(b) Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an
initial maturity of three months or less.
(c) Marketable Securities
Konami and its subsidiaries classify their debt and equity securities
into one of the three categories: trading, available-for-sale, or
held-to-maturity securities. Trading securities are bought and held primarily
for the purpose of selling them in the near term. Held-to-maturity securities
are those securities in which Konami and its subsidiaries have the ability and
intent to hold them until maturity. All securities not included in trading or
held-to-maturity categories are classified as available-for-sale. Trading and
available-for-sale securities whose fair values are readily determinable are
recorded at fair value. Held-to-maturity securities are recorded at amortized
cost, adjusted for the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses on trading securities are included in
earnings. Unrealized gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of accumulated other comprehensive income until realized.
Realized gains and losses from sale of available-for-sale securities are
determined based on the average cost method. A decline in the market value of
any available-for-sale security below cost that is deemed to be other than
temporary results in a reduction in carrying amount to fair value. The
impairment is charged to earnings and a new cost basis for the security is
established. Dividend income is recognized when earned. As of September 30, 2002
and March 31, 2002, all equity securities held by Konami are classified as
available-for-sale.
(d) Investments in Affiliates
For those investments in affiliates in which Konami's voting interest
is between 20% and 50% and it has the ability to exercise significant influence
over the affiliate's operations, the equity method of accounting is used. Under
this method, the investment originally recorded at cost is adjusted to recognize
Konami's share of the net earnings or losses of the affiliates, including
amortization of the excess of Konami's cost over its percentage interest in the
net assets of each affiliate. All significant intercompany profits from these
affiliates have been eliminated.
Investments in non-marketable equity securities in which Konami's
ownership is less than 20% are carried at cost. A decline in the value of a
non-marketable equity security below cost that is deemed to be other than
temporary results in a reduction in carrying amount to fair value. The
impairment is charged to earnings and a new cost basis for the security is
established.
e) Inventories
Inventories, consisting of merchandise for resale, finished products,
work-in-process, raw materials and supplies, are stated at the lower of cost or
market. Cost is determined by the first-in, first-out method for merchandise, by
the specific identification method for software products, and by the average
method for others.
(f) Property and Equipment
Property and equipment are carried at cost. Depreciation is computed on
the declining-balance method using estimated useful lives ranging from 3 to 50
years for buildings and structures and from 2 to 20 years for tools, furniture
and fixtures. Equipment under capital leases is stated at the present value of
minimum lease payments and is amortized on a straight-line basis over the
shorter of the lease term or estimated useful life of the asset, which ranged
from 2 to 8 years.
Ordinary maintenance and repairs are expensed as incurred. Major
replacements and improvements are capitalized. When properties are retired or
otherwise disposed of, the property and related accumulated depreciation
accounts are relieved of the applicable amounts and any differences are included
in operating income or expenses.
(g) Intangible Assets Other Than Goodwill
Under the provisions of SOP 98-1, 'Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use,' Konami and its subsidiaries
have capitalized costs associated with software systems for internal use, that
have reached the application stage and meet recoverability tests as capitalized
computer software. Such capitalized costs primarily include external direct
costs utilized in developing or obtaining the applications. Capitalization of
such costs ceases at the point in which the project is substantially complete
and ready for its intended use, and the costs capitalized are amortized on a
straight-line basis over the estimated useful life of each application, ranging
from two to five years. Konami and its subsidiaries expense costs incurred
during the preliminary project stage which include costs for making strategic
decisions about the project, and determining performance and system
requirements. Konami and its subsidiaries also expense costs incurred for
internal-use software in the post-implementation stage such as training and
maintenance costs.
Identifiable intangible assets represent intangible assets related to
trademarks, membership lists, gaming licenses, existing technology, customer
relationships and franchise contracts acquired in connection with acquisitions
of subsidiaries. Intangible assets related to trademarks, gaming licenses, and
franchise contracts are determined to have an indefinite useful life. Intangible
assets with an indefinite life acquired prior to June 30, 2001 had been
amortized using the straight-line method over 40 years in accordance with the
requirements under APB No. 17, 'Intangible Assets'. Intangible assets with an
indefinite life acquired after June 30, 2001 have not been subject to
amortization according to the non-amortization provisions of SFAS No. 142 which
is discussed in (h) below. Intangible assets related to membership lists,
existing technology, and customer relationships have been amortized over their
estimated useful lives of 2 to 5 years. Konami and its subsidiaries have
assessed these intangible assets for impairment as described in (h) and (i)
below.
(h) Goodwill
Goodwill represents the difference between the cost of acquired
companies and amounts allocated to the estimated fair value of their net assets.
In June 2001, the Financial Accounting Standards Board ('FASB') issued
SFAS No. 141, 'Business Combinations,' which supercedes APB No. 16. SFAS No.
141 requires all business combinations initiated after June 30, 2001 to be
accounted for under the purchase method of accounting. In addition, SFAS No. 141
establishes criteria for the recognition of intangible assets separately from
goodwill. Konami and its subsidiaries adopted SFAS No. 141 on June 30, 2001 and
the adoption did not have a material effect on Konami and its subsidiaries'
results of operations, financial position or cash flows.
In June 2001, the FASB issued SFAS No. 142, 'Goodwill and Other
Intangible Assets'. Under SFAS No. 142, unamortized goodwill and certain other
intangible assets are no longer subject to amortization over their useful lives,
but are subject at least annually to assessments for impairment based on fair
value. Goodwill and intangible assets acquired after June 30, 2001 are subject
immediately to the non-amortization and amortization provisions of SFAS No. 142.
Goodwill and other intangible assets acquired prior to June 30, 2001, were not
subject to the non-amortization and amortization provisions until SFAS No. 142
was fully adopted by Konami and its subsidiaries on April 1, 2002. There was no
transitional impairment charge of unamortized goodwill and intangible assets
based on their fair value for any of the reporting units as of the April 1, 2002
measurement date. Konami and its subsidiaries expect that the adoption of SFAS
No. 142 will have a significant impact on future operating results as income
will increase as a result of reduced amortization expense.
Prior to the adoption of SFAS No. 142, the recoverability of goodwill
was assessed according to SFAS No. 121 as described in (i) below.
Goodwill acquired prior to June 30, 2001 had been amortized on a
straight-line basis over the estimated useful life of 20 years in accordance
with the requirements under APB No. 17. Goodwill acquired after June 30, 2001
has not been subject to amortization according to the non-amortization
provisions of SFAS No. 142.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Konami and its subsidiaries' long-lived assets are reviewed for
impairment according to SFAS No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,' whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Factors Konami and its subsidiaries consider important which
could trigger an impairment review include: significant underperformance
relative to expected historical or projected future operating results;
significant changes in the manner of the use of the acquired assets or the
strategy for overall business; significant negative industry or economic trends;
significant decline in the stock price of the acquired entity for a sustained
period; and market capitalization of the acquired entity relative to its net
book value. When it is determined that the carrying amount of assets to be held
and used may not be recoverable based upon the existence of one or more of these
indicators of impairment, recoverability is measured by a comparison of the
carrying amount of an asset to future net cash flows (undiscounted and without
interest charges) expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the estimated fair
value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
In August 2001, the FASB issued SFAS No. 144, 'Accounting for the
Impairment or Disposal of Long-Lived Assets'. SFAS No. 144 supercedes SFAS No.
121, but retains SFAS No. 121's fundamental provisions for (a) recognition and
measurement of impairment of long-lived assets held and used and (b)
measurements of long-lived assets disposed of by sale. SFAS No. 144 also
supercedes Accounting Principle Board Opinion No. 30 'Reporting the Results of
Operation - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions' for
segments of a business to be disposed of but retains APB No. 30's requirement to
report discontinued operations separately from continuing operations. SFAS 144
also extends reporting of discontinued operations to a part of a company that
either has been disposed of or is classified as held for sale. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years. Konami and its subsidiaries adopted SFAS No.
144 on April 1, 2002 and the adoption did not have a material effect on the
results of operations, financial position or cash flows.
(j) Derivative Financial Instruments
From time to time, Konami and its subsidiaries use certain derivative
financial instruments to manage its foreign currency risks. Konami and its
subsidiaries may enter into forward contracts to reduce its exposure to
short-term (generally no more than one year) movements in exchange rates
applicable to firm funding commitments that are denominated in currencies other
than the Japanese yen.
Effective April 1, 2001, Konami and its subsidiaries adopted SFAS No.
133, 'Accounting for Derivative Instruments and Hedging Activities.' span style=
'mso-spacerun: yes'> SFAS No. 133, as amended, requires that all derivative
instruments be reported on the balance sheet as either assets or liabilities
measured at fair value. For derivative instruments designated and effective as
fair value hedges, changes in the fair value of the derivative instrument and of
the hedged item attributable to the hedged risk are recognized in earnings. For
derivative instruments designated as cash flow hedges, the effective portion of
any hedge is reported in other comprehensive income until it is recognized in
earnings in the same period in which the hedged item affects earnings. Any
amounts excluded from the assessment of hedge effectiveness as well as the
ineffective portion of all hedges are reported in current earnings each period.
Changes in fair value of derivative instruments that are not designated as a
hedge are recorded each period in current earnings. If a derivative instrument
is not designated as a hedge, the gain or loss is recognized in earnings in the
period of change. The adoption of SFAS 133 did not have a material impact on
Konami and its subsidiaries' consolidated financial position and results of
operations. To date, there has been no derivative instrument designated as a
hedge by Konami and its subsidiaries.
(k) Severance and Retirement Plans
Konami and its domestic subsidiaries have defined benefit severance and
retirement plans which are accounted for in accordance with SFAS No. 87,
'Employers' Accounting for Pensions.' It was not feasible to obtain actuarial
information necessary to implement the standard as of the effective date as
specified in the standard of April 1, 1989. Upon adoption, Konami and its
subsidiaries recognized the entire amount of the transition obligation of Y199
million as a direct deduction to beginning shareholders' equity to reflect the
effect of the retroactive adoption as of April 1, 1989.
(l) Income Taxes
Konami and its subsidiaries account for income taxes in accordance with
SFAS No. 109, 'Accounting for Income Taxes.' Under SFAS No. 109, deferred income
taxes are recognized by the asset and liability method for the estimated future
tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards, using
enacted tax rates in effect for the years in which those temporary differences
are expected to reverse. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in earnings in the period that includes the
enactment date.
(m) Revenue Recognition
Konami and its subsidiaries derive revenue from primarily two sources:
(i) product revenue, which includes packaged game software and other products,
game machines and related equipment and components, and (ii) membership fee
revenue from health and fitness club members.
Konami and its subsidiaries' revenue recognition criteria are as
follows:
Persuasive Evidence of an Arrangement.
For product sales, it is Konami and its subsidiaries' customary
practice to have a written contract, which is signed by both the customer and
Konami and its subsidiaries, or a purchase order or amendment to the written
contract from those customers that have previously negotiated a standard
purchase agreement.
For Konami and its subsidiaries' health and fitness clubs, members are
required to sign a standard monthly membership agreement upon admission, which
is automatically renewed unless the member provides advance notice of his or her
intention to cancel prior to the tenth day of the month at the end of which the
membership will terminate.
Delivery Has Occurred.
Packaged game software and other products are physically delivered to
customers. Also, Konami and its subsidiaries' game machines and related
equipment are physically delivered to customers as a fully-assembled, ready to
be installed unit. Accordingly, Konami and its subsidiaries recognize revenue
from product sales upon delivery since the terms of the sale are based on free
on board ('FOB') destination. Generally, Konami and its subsidiaries do not
permit exchanges or accept returns of unsold merchandise except in the case of
obvious defects. In certain limited circumstances Konami and its subsidiaries
may allow returns, for which Konami and its subsidiaries estimate the related
allowances based upon management's evaluation of historical experience, the
nature of the software titles and other factors. These estimates are deducted
from gross sales.
Revenue from health and fitness club membership is derived primarily
from monthly membership fees from club members. Revenue for those fees is
recognized as monthly charges are generally made to the members' accounts in
advance, at the end of each month, with respect to the following month's
membership. This policy requires Konami to defer the applicable membership fee
revenue for one month. Initial membership fee revenue is deferred and recognized
over the estimated period of the related membership.
The Price is Fixed or Determinable.
The price customers pay for Konami and its subsidiaries' products is
negotiated at the outset of an arrangement, and is generally determined by the
specific volume of product to be delivered. Therefore, the prices are considered
to be fixed or determinable at the start of the arrangement. Konami and its
subsidiaries' membership fee for health and fitness clubs is fixed at the time
of admission of the member.
Collection is Probable.
Probability of collection is assessed on a customer-by-customer basis.
Konami and its subsidiaries typically sell to customers with whom Konami and its
subsidiaries have a history of successful collection. New customers are
subjected to a credit review process that evaluates the customers' financial
position and ultimately their ability to pay. For Konami and its subsidiaries'
health and fitness clubs, the collectibility of membership fees is assured as it
generally charges members' accounts one-month in advance.
(n) Software Development Costs
Research and development expenses are charged to income as incurred.
Research and development expenses included in selling, general and
administrative expenses amounted to Y509 million ($4,152 thousand) and Y861
million for the six months ended September 30, 2002 and the year ended March 31,
2002, respectively, in the accompanying consolidated statements of income.
SFAS No. 86, 'Accounting for the Cost of Computer Software to be Sold,
Leased, or Otherwise Marketed', provides for the capitalization of certain
software development costs incurred after technological feasibility is
established or for development costs that have alternative future uses. Under
Konami and its subsidiaries' current practice of developing new game software
products, the technological feasibility is not established until substantially
all development activities are complete, which generally include the development
of a working template and the related tools. For game products where a proven
game engine technology exists and other criteria supporting the technological
feasibility of the game title in development have been met, which include coding
and testing of unique or unproven functions and features, Konami and its
subsidiaries capitalize these costs and begin to expense them upon release of
the product through cost of revenues or when they are deemed unrecoverable.
(o) Royalties and License Fees
Konami pays royalties and license fees to professional sports
organizations and certain other third parties for use of their trade names.
Minimum portions of such royalties and license fees paid up-front are recorded
as prepaid royalties and are expensed to cost of products sold over the
contractual terms ranging primarily from 4 to 12 months. Variable portions of
such royalties and license fees, which are generally determined based on the
number of copies shipped at the predetermined royalty rates, are expensed to
cost of products sold based on actual shipment. Management periodically
evaluates the future realizability of prepaid royalties and charges to income
any amounts deemed unlikely to be realized. Prepaid royalties amounted to Y831
million ($6,778 thousand) and Y1,005 million at September 30, 2002 and March 31,
2002, respectively, and were included in Prepaid expenses and other current
assets in the accompanying consolidated balance sheets.
(p) Advertising Expenses
Advertising expenses are charged to earnings as incurred and are
included in selling, general and administrative expenses in the accompanying
consolidated statements of income. Advertising expenses amounted to Y
5,101million ($41,607 thousand) and Y6,973 million for the six months ended
September 30, 2002 and the year ended March 31, 2002, respectively.
(q) Stock-based Compensation
Konami accounts for its stock-based compensation plan to directors and
employees using the intrinsic value based method prescribed by APB No. 25,
'Accounting for Stock Issued to Employees' and FASB Interpretation No. 44,
'Accounting for Certain Transactions Involving Stock Compensation-an
Interpretation of APB No. 25' ('FIN No. 44'). As such, compensation expense is
recorded on the date of grant only if the current fair value of the underlying
stock exceeds the exercise price. SFAS No. 123, 'Accounting for Stock-Based
Compensation,' allows companies to continue to apply the provisions of APB No.
25. Konami and its subsidiaries have elected to continue to apply the provisions
of APB No. 25 for their stock-based compensation plans to directors and
employees.
(r) Issuance of Stock by Subsidiaries
The change in Konami's proportionate share of subsidiary equity
resulting from issuance of stock by the subsidiary is accounted for as gain or
loss, including the related income tax effect, in the period such shares are
issued provided the sale of such shares by the subsidiary is not a part of a
broader corporate reorganization contemplated or planned by the registrant. If
such transaction is considered to be a part of a broader corporate
reorganization, it is accounted for as a capital transaction in the consolidated
financial statements.
(s) Comprehensive Income
SFAS No. 130, 'Reporting Comprehensive Income,' requires classification
of other comprehensive income in a financial statement and display of other
comprehensive income separately from retained earnings and additional paid-in
capital. Other comprehensive income includes primarily foreign currency
translation adjustments and unrealized gains (losses) from marketable securities
considered available-for-sale.
(t) Translation of Foreign Currencies
Transactions denominated in foreign currencies are recorded using the
exchange rates in effect as of the transaction dates. The related foreign
currency asset and liability balances are translated based on exchange rates
prevailing at each balance sheet date with the resulting gain/loss charged to
income.
Assets and liabilities of a foreign subsidiary where the functional
currency is other than Japanese yen are translated into Japanese yen at the
exchange rates in effect at the balance sheet date. Revenue and expense
accounts are translated at average exchange rates during the current period.
The resulting translation adjustments are included in accumulated other
comprehensive income.
(u) Earnings Per Share
Earnings per share ('EPS') is presented in accordance with the
provisions of SFAS No. 128, 'Earnings Per Share.' Under SFAS No. 128, basic EPS
excludes dilution for potential common stock and is computed by dividing
consolidated net income by the weighted-average number of common shares
outstanding. Diluted EPS reflects the effect of potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock. Diluted net income per share is calculated by
dividing net income by the sum of the weighted-average number of shares plus
additional shares that would be outstanding if potential dilutive shares had
been issued.
Konami has no dilutive securities outstanding at September 30, 2002 and
March 31, 2002, and therefore there is no difference between basic and diluted
EPS.
(v) Use of Estimates
Preparation of these consolidated financial statements requires
management of Konami and its subsidiaries to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of financial statements, and the reported
amounts of revenue and expenses during the reporting periods. There can be no
assurance that actual results will not differ from those estimates.
(w) Recent Pronouncements
In June 2001, the FASB issued SFAS No. 143, 'Accounting for Asset
Retirement Obligations' SFAS No. 143 is effective for Konami and its
subsidiaries beginning April 1, 2003. SFAS No. 143 requires that legal
obligations associated with the retirement of tangible long-lived assets be
recorded as a liability and measured at fair value when those obligations are
incurred if an estimate of fair value is possible. When a company initially
recognizes a liability for an asset retirement obligation, it must capitalize
the cost by recognizing an increase in the carrying amount of the related
long-lived asset. Konami and its subsidiaries are in the process of determining
the impact, if any, that SFAS No. 143 will have on the results of operations and
financial position.
In April 2002, the FASB issued SFAS No. 145, 'Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections'. SFAS No. 145 provides for the rescission of several previously
issued accounting standards, new accounting guidance for the accounting for
certain lease modifications and various technical corrections that are not
substantive in nature to existing pronouncements. SFAS No. 145 will be adopted
beginning April 1, 2003, except for the provisions relating to the amendment of
SFAS No.13, which will be adopted for transactions occurring subsequent to May
15, 2002. Adoption of SFAS No. 145 will not have a material impact on the
consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, 'Accounting for Costs
Associated with Exit or Disposal Activities'. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, ('Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)'. This statement
requires recognition of a liability for a cost associated with an exit or
disposal activity when the liability is incurred, as opposed to when the entity
commits to an exit plan under EITF No. 94-3. The provisions of this statement
are effective for exit or disposal activities that are initiated after December
31, 2002. The adoption of SFAS No. 146 is not expected to have a material impact
on the consolidated financial statements.
5. Acquisitions
Konami has acquired varying interests in subsidiaries during the
periods presented. Konami has used the purchase method of accounting for all
such acquisitions and, accordingly, has allocated the purchase price based on
the estimated fair value of net assets of the acquired companies. Such companies
have been included in the accompanying consolidated financial statements since
the dates of acquisition.
In February 2002, Konami acquired 82.17% of the issued and outstanding
shares of Daiei Olympic Sports Club, Inc., a non-public health and fitness club
operator in Japan and a subsidiary of The Daiei Inc., for the total cash
consideration of Y3,604 million including direct acquisition costs. The acquired
company was then renamed Konami Olympic Sports Club Corporation ('Konami
Olympic'). The acquisition of Konami Olympic was made for the purpose of
expanding the health and fitness club operations of Konami Sports Corporation
('Konami Sports').
Konami used the purchase method of accounting to account for the
acquisition of Konami Olympic, and accordingly, the purchase price has been
allocated to the tangible and intangible net assets of Konami Olympic based on
the estimated fair value of such net assets. The allocation of the purchase
price was made at the time of acquisition based on preliminary analyses and
valuations that were available then as the acquisition occurred near Konami and
its subsidiaries'fiscal year end. The amount of consideration paid in excess of
the estimated fair value of the net assets acquired of Y1,647 million was
recorded as goodwill for the year ended March 31, 2002, which was adjusted to Y
1,443 million for the six months ended September 30, 2002 for a post-acquisition
adjustment. Such adjustment resulted from a decrease in accrued pension cost of
Konami Olympic as a result of its withdrawal from the former shareholder group's
welfare pension fund in June 2002 for transfer to the fund which Konami and its
domestic subsidiaries have participated. Management of Konami believes that the
solid growth history and potential of Konami Olympic have contributed to the
purchase price that has resulted in recognition of such goodwill. The Konami
Olympic assets, liabilities and operations have been included in the
consolidated financial statements since the acquisition date.
The following table reflects the February 28, 2002 condensed balance
sheet of Konami Olympic, as adjusted to give effect to the purchase method
accounting adjustments:
Millions of Yen
Cash, receivables and other assets Y 7,601
Property and equipment 4,607
Identifiable intangible assets 1,596
Goodwill 1,443
Debt and capital lease obligations (6,257)
Minority interest (442)
Other liabilities (4,944)
Y 3,604
Identifiable intangible assets of Konami Olympic include intangible
assets related to trademarks of Y767 million and membership lists of Y829
million acquired. Intangible assets related to trademarks are determined to have
an indefinite useful life while membership lists are estimated to have a useful
life of 2 years. Goodwill arising from the acquisition of Konami Olympic has all
been allocated to the Health and Fitness segment of Konami and its subsidiaries.
The following unaudited pro forma condensed combined results of
operations for Konami and its subsidiaries is prepared assuming that the
foregoing acquisition were completed as of the beginning of the respective
period in which the acquisition occurred. This pro forma condensed combined
financial information does not purport to represent what Konami and its
subsidiaries' results of operations would actually have been if such transaction
had in fact occurred on such dates. The pro forma adjustments are based upon
available information and upon certain assumptions that management believes are
reasonable.
Millions of Yen, except
for per
share data
Year ended
March 31, 2002
Net revenue Y 238,070
Net income 10,780
Basic and diluted net income per share 84.45
6. Marketable and Investment Securities
Marketable and investment securities at September 30, 2002 and March
31, 2002 consisted of the following:
Millions of Yen
September 30, 2002 March 31, 2002
Cost Gross unrealized Gross Fair value Cost Gross Gross Fair
gains unrealized unrealized unrealized value
losses gains losses
Available-for-sale:
Marketable equity
securities Y 188 Y 1 Y 118 Y 71 Y 191 Y 6 Y 107 Y 90
Other
securities 200 - 102 98 200 - 86 114
Total Y 388 Y 1 Y 220 Y 169 Y 391 Y 6 Y 193 Y 204
Thousands of U.S. Dollars
September 30, 2002
Cost Gross unrealized Gross Fair value
gains unrealized
losses
Available-for-sale:
Marketable equity
securities $ 1,534 $ 8 $ 963 $ 579
Other securities 1,631 - 832 799
Total $ 3,165 $ 8 $ 1,795 $ 1,378
7. Property and Equipment
Property and equipment at September 30, 2002 and March 31, 2002
consisted of the following:
Millions of Yen Thousands of U.S. Dollars
September 30, 2002 March 31, September 30, 2002
2002
Property and equipment, at cost:
Land Y 8,327 Y 7,797 $ 67,920
Buildings and structures 52,169 52,733 425,522
Tools, furniture and fixtures 23,129 24,802 188,654
Construction in progress 175 175 1,427
Total 83,800 85,507 683,523
Less-Accumulated depreciation (40,517) 41,945) (330,481)
Net property and equipment Y 43,283 Y 43,562 $ 353,042
Depreciation expense for the six months ended September 30, 2002 and the
year ended March 31, 2002 amounted to Y3,401 million ($27,741 thousand) and Y
7,688 million, respectively.
8. Goodwill and Identifiable Intangible Assets
Goodwill and identifiable intangible assets, primarily representing
intangible assets acquired in connection with acquisitions of subsidiaries, at
September 30, 2002 and March 31, 2002 consisted of the following:
Amortized intangible assets, net of accumulated Millions of Yen Thousands of U.S. Dollars
amortization: September 30, 2002 March 31, September 30, 2002
2002
Goodwill Y - Y 37,064 $ -
Trademarks - 50,277
Membership lists 5,915 5,915 48,246
Existing technology 736 800 6,004
Customer relationships 86 93 701
Franchise contracts - 6,785 -
Total 6,737 100,934 54,951
Less-Accumulated amortization (4,873) (6,734) (39,747)
Net goodwill and identifiable intangible assets Y 1,864 Y 94,200 $ 15,204
Unamortized intangible assets: Millions of Yen Thousands of U.S. Dollars
September 30, 2002 March 31, September 30, 2002
2002
Goodwill Y 37,150 Y 1,772 $ 303,018
Trademarks 49,682 767 405,236
Franchise contracts 6,601 - 53,842
Gaming licenses 240 255 1,958
Total Y 93,673 Y 2,794 $ 764,054
Goodwill acquired prior to June 30, 2001 had been amortized on a
straight-line basis over the estimated useful life of 20 years in accordance
with the requirements under APB No. 17 until SFAS No. 142 was fully adopted by
Konami and its subsidiaries on April 1, 2002. Goodwill acquired after June 30,
2001 has not been subject to amortization according to the non-amortization
provisions of SFAS No. 142. Trademarks, franchise contracts and gaming licenses
are determined to have an indefinite useful life while membership lists,
existing technology and customer relationships are estimated to have useful
lives of 2 to 5 years. Intangible assets with an indefinite life acquired prior
to June 30, 2001 had been amortized using the straight-line method over 40 years
in accordance with the requirements under APB No. 17 until SFAS No. 142 was
fully adopted by Konami and its subsidiaries on April 1, 2002. Intangible assets
with an indefinite life acquired after June 30, 2001 have not been subject to
amortization according to the non-amortization provisions of SFAS No. 142.
Aggregate amortization expense for the six months ended September 30, 2002 and
the year ended March 31, 2002 was Y1,707 million ($13,923 thousand) and Y6,233
million, respectively.
Effective, April 1, 2002, Konami and its subsidiaries adopted SFAS No.
142 in its entirety. As a result, amortization on goodwill, equity method
goodwill and intangible assets with an indefinite life acquired prior to June
30, 2001 has ceased and such assets will be assessed annually for impairment.
Konami and its subsidiaries had no transitional impairment charge of unamortized
goodwill and intangible assets based on their fair value for any of its
reporting units as of the April 1, 2002 measurement date.
The changes in the carrying amount of goodwill for the six months ended
September 30, 2002 are as follows:
Millions of Yen
Gaming Health and Fitness
Content segment
segment Total
Balance at April 1, 2002 Y 125 Y 36,700 Y 36,825
Additional acquisitions during the period - 529 529
Post-acquisition adjustment - (204) (204)
Balance at September 30, 2002 Y 125 Y 37,025 Y 37,150
Thousands of U.S. Dollars
Gaming Health and Fitness
Content segment
segment Total
Balance at April 1, 2002 $ 1,020 $ 299,347 $ 300,367
Additional acquisitions during the period - 4,315 4,315
Post-acquisition adjustment - (1,664) (1,664)
Balance at September 30, 2002 $ 1,020 $ 301,998 $ 303,018
Konami acquired additional shares of Konami Sports and Konami Olympic
during the six months ended September 30, 2002. As a result, additional goodwill
was recorded at the Health and Fitness segment for the excess cost over the
estimated fair value of the additional net assets acquired. The post-acquisition
adjustment for goodwill resulted from a decrease in accrued pension cost of
Konami Olympic as a result of its withdrawal from the former shareholder group's
welfare pension fund in June 2002.
9. Derivative Financial Instruments
Konami and its subsidiaries use foreign exchange forward contracts with
terms ranging from 3 to 6 months to reduce its exposure to short-term movements
in the exchange rates applicable to firm funding commitments denominated in
currencies other than Japanese yen. The aggregate notional amounts of derivative
financial instruments outstanding at September 30, 2002 and March 31, 2002 were
as follows:
Millions of Yen Thousands of
September 30, March 31, U.S. Dollars
2002 2002 September 30,
2002
Forward exchange contracts:
To sell foreign currencies Y 7,010 Y 6,793 Y 57,178
Konami and its subsidiaries do not designate the forward exchange
contracts as hedges. Accordingly the foreign currency losses of Y225 million
($1,835 thousand) and Y49 million arising from these forward exchange contracts
at September 30, 2002 and March 31, 2002, respectively, were included in
earnings under the caption Other, net in the accompanying consolidated
statements of income. Foreign exchange net gains and (losses), including those
on these forward exchange contracts, for the six months ended September 30, 2002
and the year ended March 31, 2002 were Y305million ($2,488 thousand) and Y335
million, respectively.
Effects of exchange rate changes subsequent to September 30, 2002 on
the fair value of those forward exchange contracts have not been significant as
of the reporting date.
10. Fair Value of Financial Instruments
Cash and cash equivalents, Trade notes and accounts receivable, Trade notes and
accounts payable, Accrued expenses, and Short term borrowings
The carrying amount approximates fair value because of the short
maturity of these instruments.
Investments in marketable securities
The fair values of Konami and its subsidiaries' investments in
marketable securities are based on quoted market prices.
Investments in non-marketable securities
For investments in non-marketable securities for which there are no
quoted market prices, a reasonable estimate of fair value could not be made
without incurring excessive costs. It was not practicable to estimate the fair
value of common stock representing certain untraded companies. These investments
are carried at cost.
Long-term debt
The fair values of Konami and its subsidiaries' long-term debt
instruments are based on the quoted price in the most active market or the
present value of future cash flows associated with each instrument discounted
using Konami's current borrowing rate for similar debt instruments of comparable
maturity.
Derivative financial instruments
The fair values of derivative financial instruments, consisting
principally of foreign exchange contracts, all of which are used for purposes
other than trading, are estimated by obtaining quotes from brokers.
The estimated fair values of Konami and its subsidiaries' financial
instruments at September 30, 2002 and March 31, 2002 are as follows:
Millions of Yen Thousands of U.S. Dollars
September 30, 2002 March 31, 2002 September 30, 2002
Carrying Estimated Carrying Estimated Carrying Estimated
amount fair value amount fair value amount fair value
Nonderivatives:
Investment in
marketable
securities Y 169 Y 169 Y 204 Y 204 $ 1,378 $ 1,378
Long-term debt,
including current
installments (45,325) (43,803) (47,838) (45,329) (369,698) (357,284)
Derivatives:
Foreign exchange
forward contracts:
Assets - - 8 8 - -
Liabilities (225) (225) (57) (57) (1,835) (1,835)
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instruments.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
11. Supplemental Disclosures to Consolidated Statements of Cash Flows
Millions of Yen Thousands of U.S. Dollars
Six months ended September Year ended March 31, Six months ended September
30, 2002 2002 30, 2002
Cash paid during the period for:
Interest Y 430 Y 691 $ 3,507
Income taxes 12,839 19,010 104,723
Cash acquisitions of new
subsidiaries:
Fair value of assets acquired - 30,849 -
Liabilities assumed - (29,048) -
Goodwill - 1,772 -
Minority interest - (4,265) -
Cash paid, net of cash acquired - (692) -
Cash sale of all shares in a
subsidiary:
Assets transferred 2,018 - 16,460
Liabilities transferred (489) - (3,988)
Gain on sale of subsidiary
shares 552 - 4,502
Cash proceeds received, net of
cash transferred 2,081 - 16,974
Property acquired under capital
leases during the period 1,997 1,923 16,289
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