Interim Results
Konami Corporation
07 November 2006
Consolidated Financial Results
for the Six Months Ended September 30, 2006
(Prepared in Accordance with U.S. GAAP)
November 7, 2006
KONAMI CORPORATION
Address: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan
Stock code number: 9766
URL: www.konami.net
Shares listed: Tokyo Stock Exchange,
New York Stock Exchange, London Stock Exchange and Singapore Exchange
Representative: Kagemasa Kozuki, Representative Director and Chief Executive Officer
Contact: Noriaki Yamaguchi, Representative Director and Chief Financial Officer
(Phone: +81-3-5220-0163)
Date of Board Meeting to
approve the financial November 7, 2006
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, 2006
(Amounts are rounded to the nearest million)
(1) Consolidated Results of Operations
(Millions of Yen, except per share
data)
Net revenues Change Operating income Change Income before Change
income taxes
Six months ended Y119,599 6.9% Y10,115 35.6% Y9,884 (31.1)%
September 30, 2006
Six months ended 111,870 (1.9) 7,462 (37.0) 14,335 23.7
September 30, 2005
Year ended 262,137 2,481 8,438
March 31, 2006
Net income Change Net income Diluted net income
(Y million) per share (Yen) Per share (Yen)
Six months ended Y5,114 (26.6)% Y37.28 Y37.27
September 30, 2006
Six months ended 6,964 328.3 53.45 53.44
September 30, 2005
Year ended 23,008 175.86 175.80
March 31, 2006
Notes:
1. Equity in net income of affiliated companies
Six months ended September 30, 2006: Y 81 million
Six months ended September 30, 2005: - million
Year ended March 31, 2006: 33 million
2. Weighted-average common shares outstanding
Six months ended September 30, 2006: 137,164,825 shares
Six months ended September 30, 2005: 130,300,952 shares
Year ended March 31, 2006: 130,835,422 shares
3. Change in accounting policies: None
4. Change (%) of net revenues, operating income, income before income taxes and net income represents the
increase or decrease relative to the same period of the previous year.
(2) Consolidated Financial Position
(Millions of Yen, except per share amounts)
Total stockholders' Equity-assets Total stockholders'
Total assets equity ratio equity per share (Yen)
September 30, 2006 Y280,535 Y165,947 59.2% Y1,209.39
September 30, 2005 304,021 133,941 44.1 1,027.89
March 31, 2006 302,637 163,815 54.1 1,194.41
Note:
Number of shares outstanding
September 30, 2006: 137,215,841 shares
September 30, 2005: 130,306,075 shares
March 31, 2006: 137,152,347 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, 2006 Y3,821 Y(7,230) Y(22,330) Y 43,347
Six months ended September 30, 2005 2,312 7,170 (23,899) 75,678
Year ended March 31, 2006 23,879 (7,266) (38,330) 68,694
(4) Number of Consolidated Subsidiaries and Companies Accounted for by the
Equity Method
Number of consolidated subsidiaries: 24
Number of affiliated companies accounted for by the equity method: 1
(5) Changes in Reporting Entities
Number of consolidated subsidiaries added: 1
Number of consolidated subsidiaries removed: 0
Number of affiliated companies accounted for by the equity method added: 0
Number of affiliated companies accounted for by the equity method removed: 0
2. Consolidated Financial Forecast for the Year Ending March 31, 2007
(Millions of Yen)
Net revenues Operating income Income before Net income
income taxes
Year ending March 31, 2007 Y275,000 Y29,000 Y28,500 Y16,000
(Reference)
Expected net income per share for the year ending March 31, 2007 is Y116.60
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 12 of the attached material for information regarding the assumptions and other
related items used in the preparation of these forecasts.
1. Organizational Structure of the Konami Group
The Konami Group is a conglomerate engaged in the amusement and health industry providing customers with ''High
Quality Life,'' and is comprised of KONAMI CORPORATION (the ''Company''), its 24 consolidated subsidiaries and
one equity-method affiliate. Each of the Company and its subsidiaries and affiliated company is categorized into
four business segments based on its operations as stated below. This categorization is based on the same criteria
explained below under ''5. Segment Information (Unaudited).
Business Segments Major Companies
Digital Entertainment Domestic Konami Digital Entertainment Co., Ltd.
HUDSON SOFT CO., LTD.
Konami Manufacturing & Service, Inc. (Note.3)
Overseas Konami Digital Entertainment, Inc.
Konami Digital Entertainment GmbH
Konami Digital Entertainment B.V.
Konami Digital Entertainment Limited
Konami Software Shanghai, Inc., One other company
Health & Fitness Domestic Konami Sports & Life Co., Ltd.
COMBI WELLNESS Corporation (Note.2)
Konami Manufacturing & Service, Inc. (Note.3)
Resort Solution Co., Ltd. (Note.5), Two other companies
Gaming & System Overseas Konami Gaming, Inc.
(Note.4) Konami Australia Pty Ltd, One other company
Other Domestic Konami Manufacturing & Service, Inc. (Note.3)
KPE, Inc. , Konami Real Estate, Inc.
Konami School, Inc., Three other companies
Overseas Konami Corporation of America
Konami Digital Entertainment B.V., One other company
Notes:
1. Companies that have operations categorized in more than one segment are included in each segment
in which they operate.
2. On May 31, 2006, the Company acquired all outstanding shares of COMBI WELLNESS Corporation and
made it a wholly owned subsidiary.
3. Konami Logistics & Service, Inc. changed its registered name to Konami Manufacturing & Service,
Inc. on July 1, 2006.
4. The Gaming segment was renamed the Gaming & System segment effective October 1, 2005.
5. Resort Solution Co., Ltd. is an equity method affiliate.
2. Management Policy
1. Management Policy
We place priority on our following corporate goal: 'We, Konami Group of Companies, aim to be a business group from
which people all around the world have high expectations, through creating and providing people with 'Valuable
Time'. Furthermore, our basic management policy is to place priority on our shareholders, to maintain sound
relationships with all stakeholders, including our shareholders, and to make a wide range of social contributions
as a good corporate citizen. We aim to make optimum use of the group's management resources and maintain the
following specific management policies: 'Adaptation to Global Standards', 'Maintaining Fair Competition' and
'Pursuit of High Profits'.
To place priority on the interests of our shareholders, our basic policy is to provide stable dividends to return
profits to our shareholders. It is our policy to use retained earnings for investments focused on business fields
with good future profitability and other prospects to increase our corporate value and as a source for paying
dividends in the future.
We are working on maintaining sound relationships with our stakeholders, including our investors, end-users,
suppliers, employees and the community in general, as well as contributing to society by supporting a wide range
of activities that promote education, sports and culture. Pursuant to this basic management policy, through
creating and providing 'Valuable Time', we aim to deliver 'dreams' and 'surprises' for people all over the world.
2. Profit Appropriation Policy
The Company's basic policy in profit distribution is to provide stable and high dividend payouts to our
stockholders and to increase our corporate value. Our policy is to use retained earnings for investments focused
on business fields with good future profitability and other prospects to strengthen our growth potential and
competitiveness.
3. Target Management Performance Measures
The Group always aims to improve profitability by enhancing management efficiency and striving to optimize
performance based on three important management indicators: the ratio of operating income to net sales, the ratio
of net income to net sales and return on equity.
4. Medium to Long-term Strategies and Objectives
Restructuring of business operations in order to respond to changing market conditions
The dissemination of broadband and various digital platform products has increased the complexity and
diversification of user needs in the field of IT. The decline in population, falling birthrate and aging of
society are serious problems in the domestic market, and conventional business models are on the verge of being
transformed in various industries.
Within this environment, our group adopted a holding company structure on March 31, 2006. The purposes of a
holding company structure are to enhance the speed of management by separating 'implementation functions' for
business projects from the 'decision-making and oversight functions' of the entire group. With regard to the
holding company, we aim at continuous growth in an environment expected to intensively change through balanced
management in the three business areas of 'Digital Entertainment,' 'Health & Fitness,' and 'Gaming & System.'
Increased profitability and injection of managerial resources into growing business areas
In the Digital Entertainment business, the high performance of video game consoles is pushing up the cost of video
game software development. To recover game software development costs promptly and improve profitability, the
company plans to develop individual products and titles multilaterally beyond geographic regions and in the
various content fields in video game software, amusement, and online fields.
We will also be expanding online businesses, a market expected to grow as the Internet and other online
environments mature. Konami Digital Entertainment, Inc., a U.S. subsidiary of our group, purchased assets in
connection with the mobile-related business from Blue Label Interactive, Inc., a developer of cutting-edge mobile
technologies based in the U.S., in June 2006. Through this purchase we plan to expand our business in the video
games industry, as well as the entertainment and information service industries. Also in October 2006, we
purchased entire shares of Megacyber Corporation, a content provider for domestic cellular phones. With the
participation of Megacyber Corporation in our group, we believe we will be able to enhance our ability to produce
content for the mobile-related industry and increase our product lineup to serve the expanding market for Digital
Entertainment.
Expansion of products for enhancement of domestic health consciousness
Due to demand expansion in the nursing care prevention business resulting from the advent of an aging society and
the prolonging of leisure time resulting from the retirement of the Dankai generation (the baby-boom generation),
our group expects growth in the health & fitness business. In May 2006 we purchased entire shares of COMBI
WELLNESS Corporation, a company with an established brand for health and nursing care prevention devices. With the
participation of COMBI WELLNESS Corporation in our group, we believe we will be able to arrange a vast product
lineup to meet customer expectations in the Health & Fitness business.
Goal of growth as a mainstay of businesses
Casinos have been legalized in more and more countries and regions of the world, and the number of casinos has
increased year by year. With the high growth potential of the casino market, we expect our Gaming & System
business to become a business mainstay in the near future, following the Digital Entertainment and Health &
Fitness businesses, and will help us build a firmer business portfolio.
3. Business Performance and Cash Flows
1. Business Performance
Overview
In the entertainment industry that is relevant to our group, Nintendo Co., Ltd. and Sony Computer Entertainment
Inc. are expected to release 'Wii' (Nintendo) and 'PLAYSTATION(R)3' (Sony) for video game consoles. In addition
to 'Xbox360,' a product already released by Microsoft Corporation, the next generation computer entertainment
system for home use from all of the manufacturers will be on sale within this fiscal term. With these new
consoles, and following the big success of 'Nintendo DS' as a handheld system, we believe the video game
software industry is poised to reach a turning point as new game users are assimilated and demand continues to
expand and diversify.
The Healthcare Reform Act concluded in June 2006 demonstrates the trend towards prevention in the health
industry. With the growing recognition of metabolic syndrome, consumers are more aware of the need to prevent
lifestyle-related diseases. The public is taking full-fledged measures for health maintenance, particularly by
establishing exercise habits and improving their diets.
In these circumstances, the Digital Entertainment segment has maintained solid sales, despite a slight decrease
in the six months ended September 30, 2006 from the six months ended September 30, 2005. 'WORLD SOCCER Winning
Eleven 10' for PlayStation(R)2 computer entertainment system, a title released domestically in April 2006,
achieved million-seller status. 'GRANDCROSS,' a large scale token-operated game for amusement arcades, a machine
with overwhelming presence and highly entertaining effects, has enjoyed a growing popularity with steady sales.
In addition, our products utilizing 'e-AMUSEMENT,' a service connecting amusement arcades nationwide via a
network, consistently record stable sales.
In the Health & Fitness segment, progress in the redevelopment of our facilities has become fruitful. We believe
we have managed to improve the profit structure of our fitness clubs and that our efforts to attract more
members by opening large stores in front of stations and other favorable locations continue to succeed. In
addition, we have promoted reviews of pay programs and the adoption of an original IT health management system
in our facilities. Through these and other efforts, we believe we have continued to provide services to improve
customer satisfaction.
In the Gaming and System segment, we opened a new office building, introduced new enclosures, and promoted sales
of casino systems. The expansion of sales in North America has been strong as a result. Growth in sales of
'Konami Casino Management System' has been particularly strong. In system sales, we believe the increase in the
number of units installed helps to maintain our ongoing income from maintenance and servicing, expected to be a
stable source of income.
As a result, in this interim consolidated accounting period, net revenue amounted to Y119,599 million (a 6.9%
increase compared to the previous same period), consolidated operating income was Y10,115 million (a 35.6%
increase compared to the previous same period), consolidated income before income taxes was Y9,884 million (a
31.1% decrease compared to the previous same period), and consolidated net income was Y5,114 million (a 26.6%
decrease compared to the previous same period). The primary reason of the decrease in consolidated income before
income taxes and consolidated net income for the six months ended September 30, 2006, compared from the previous
same period, resulted from sales of shares of Takara Co., Ltd., executed in the interim fiscal year 2006, which
we realized gain on sale of Y6,917 million.
Interim dividend for the six months ended September 30, 2006 is Y27 per share.
Performance by business segment
Summary of net revenues by business segment:
Millions of Yen
Six months Six months Change
ended ended
September 30, September 30,
2005 2006
Digital Entertainment Y 66,671 Y63,540 (4.7)%
Health & Fitness 40,609 44,445 9.4
Gaming & System 4,727 7,718 63.3
Other, Corporate and Eliminations (137) 3,896 -
Consolidated net revenues Y 111,870 Y119,599 6.9%
Note The Gaming segment was renamed the Gaming & System segment effective October 1, 2005.
Digital Entertainment Segment
In our Computer and Video Games business, 'WORLD SOCCER Winning Eleven 10,' a title released domestically in April
2006, has achieved million-seller status. A full variety of lineups for standard baseball titles such as 'JIKKYO
PAWAFURU PROYAKYU 13,' and 'JIKKYO PAWAFURU MAJOR LEAGUE,' anime titles such as 'KIRARINTMREVOLUTION,' and music
titles achieved steady sales. Overseas, the 'Pro Evolution Soccer' series released in Europe in the previous fiscal
year has continued to sell well. Also, sales of 'Dance Dance Revolution SuperNOVA' have been firm in North America
since the title was released at the end of September 2006.
In our Toy & Hobby business, we continued to enhance global sales of the Yu-Gi-Oh Trading Card Game series, which
was already established as a mainstay. In September 2006, we released 'BUSOU SHINKI,' a newly conceived series of
customizable action figures designed by a popular designer and a Genkeishi (producer who creates models for toys).
The 'BUSOU SHINKI' series has received attention for its online tie-up: in addition to enjoying the figures
themselves, BUSOU SHINKI owners can go online using access codes enclosed with the products. Battle services will be
scheduled to officially start via playing online from the beginning of year 2007, with high expectations for this
product.
In our Amusement business, we continued to enjoy strong sales of products incorporating the 'e-AMUSEMENT' service, a
network-linked arcade game connecting amusement arcade machines nationwide, major products such as the 'MAH-JONG
FIGHT CLUB' series and 'BASEBALL HEROS,' a title played with cards bearing the images of professional baseball
players. In music games, our latest title 'Dance Dance Revolution SuperNOVA' has now been released and continues to
gain popularity. In token-operated games, 'GRANDCROSS,' an extra-large-scale token-operated pusher-machine game,
which 32 people can play at the same time, has also sold steadily.
In our Online business, we started to distribute the 'SHINKI-NET' service online from September 2006, in a tie-up
with sales of 'BUSOU SHINKI.' Also, in relation to 'Tokimeki Memorial ONLINE,' a service launched in March 2006, we
have also been promoting a service linked with the TV animation program 'Tokimeki Memorial Only Love', which has
aired from October 2006. We plan to continue to promote the online game business to take advantage of anticipated
growth through linkages with other business. Additionally, the mobile content distribution business developed
globally through major carriers in and outside of Japan has been performing steadily.
In our Multimedia business, we published or released several music CDs, DVDs and guides with thematic ties to
popular videogames, and the bimonthly soccer culture magazine 'WE-ELe,' with many of these products receiving
favorable reviews. As a follow-up to the original TV animation 'FAIRY MUSKETEERS AKAZUKIN' , which debuted in July
2006, 'Tokimeki Memorial Only Love' began broadcasting this October. We are now paying closer attention to products
such as music and novels derived from animated productions. We plan to continue to create original content while
promoting synergy effects in each area of our Digital entertainment segment.
As a result, consolidated net revenues in the Digital Entertainment Segment were Y63,540 million (a 4.7% decrease
compared to the previous same period).
Health & Fitness Segment
In the operation of our fitness clubs, we opened directly-managed facilities in Yokohama (Kanagawa), Inagi (Tokyo)
and Musashiurawa (Saitama). We transferred and rebuilt our facilities in Sanda (Hyogo), Sapporo (Hokkaido) and
Yawata (Kyoto). Through these efforts, our facilities were further expanded. As a result, we had a total of 209
fitness clubs to supply services for the end of September 2006. The wide variety of fitness programs in our directly
managed facilities allows users to fully enjoy 'the pleasure of exercise.' Original services such as '6 WEEKS,' a
fitness program for the prevention of lifestyle-related diseases, have received favorable reviews. We propose the
middle-aged and elderly with imbalances in diet or out of the habit of exercising to improve their lifestyles by
supporting their everyday life with 'exercise' and 'proper diet.'
In the operation of sports facilities outsourced to us, we added 35 facilities in regions such as Ichinomiya-shi
(Aichi) and Osaka-shi (Osaka). As a result, we had a total of 102 facilities to supply services as of the end of
September 2006. In running these facilities, our aim is to improve the health of all members of the community by
maximizing the know-how and experience the Konami Group has garnered and to make full use in operating public
facilities.
Our product development activities have focused on the development of programs, services, machines, and supplements,
as well as our businesses for health products, health improvement, and for senior citizens. In September, we
released new products with multifunctional USB pedometer 'e-walkeylife2', a TV monitoring health management tool
called 'Kenshin-Keikaku TV', and the computer software program 'Kenshin-Keikaku 2.' These products are very useful
for heath-improvement routines and enable users to manage data on their exercise histories and physical strength in
daily life on an ongoing basis, using television and personal computers at home.
At the Int. Home Care & Rehabilitation Exhibition 2006, an event held at TOKYO BIG SIGHT this September, we
exhibited a range of fitness products with a central focus on the latest machines with functions to prevent the need
for nursing care and software that unifies the management of exercise histories logged electronically in training
machines. We have developed products and services for our future health improvement to allow the elderly and those
who require nursing care to train safely and effectively.
Our IT-enabled health management system, 'e-XAX,' was conferred an award of excellence for the year 2006, ' NetKADEN
Grand Prix' sponsored by the Ministry of Economy, Trade and Industry. 'e-XAX' refers to a network system developed
in-house for the continuous management of data on health improvement and exercise history in various daily-life
situations at sports clubs and places outside and inside the home. This offers another support for health-promotion
efforts. This system is available at our operating sports clubs.
As a result, consolidated net revenues in the Health & Fitness Segment were Y44,445 million (a 9.4 % increase
compared to the previous same period).
aming & System Segment
In our Gaming & System segment, the new 'K2V' platform launched in North America last year has penetrated the market
and sales of machines have remained solid. Following the first quarter term, sales of Konami Casino Management
System remained steady. With the increase in the number of machines connecting the Konami Casino Management System
in Canada, the sales for maintenance and servicing have increased every month as well. In conjunction with machine
installments under profit-sharing agreements, we have helped to solidify our business by maintaining ongoing income.
While the market situation in Australia remains unchanged, we have developed new businesses and worked to preserve
our customer base in both the domestic market and the overseas markets. At the Australasian Gaming Expo held in
September, the largest-scale gaming exhibition in the Oceania region, we expanded our presence in both the domestic
market and overseas markets with major products in two areas: the 'Linked Progressive' jackpot system that connects
gaming machines and enhances the added value of content, and the 'K2V' platform launched at the beginning of this
spring not long after its release in North America.
As a result, consolidated net revenues in the Gaming & System Segment were Y7,718 million (a 63.3% increase compared
to the previous same period).
2. Cash Flows
Cash flow summary for the six months ended September 30, 2006:
Millions of Yen
Six months Six months Change
ended ended
September 30, September 30,
2005 2006
Net cash provided by operating activities Y 2,312 Y 3,821 Y 1,509
Net cash provided by (used in) investing activities 7,170 (7,230) (14,400)
Net cash used in financing activities (23,899) (22,330) 1,569
Effect of exchange rate changes on cash and cash 512 392 (120)
equivalents
Net decrease in cash and cash equivalents (13,905) (25,347) (11,442)
Cash and cash equivalents, end of the period 75,678 43,347 (32,331)
Cash and cash equivalents (hereafter, referred to as 'Net cash') for the six
months ended September 30, 2006, amounted to Y 43,347 million, year-on-year
decreased by Y25,347 million .
Cash flow summary for each activity for the six months ended September 30, 2006
is as follows:
Cash flows from operating activities:
Net cash provided by operating activities amounted to Y3,821 million (a 65.3% increase compared to the previous same
period) for the six months ended September 30, 2006. This increase, despite the decrease in net income and Net cash
in connection with trade notes and accounts receivable, compared to the year-ago-period, resulted from the fact that
net income for the previous interim period included a gain on sale of shares of an affiliated company, which do not
effect cash flow from operating activities, and that there were increases in Net cash in connection with trade notes
and accounts payable, compared to the year-ago-period.
Cash flows from investing activities:
Net cash used in investing activities amounted to Y7,230 million for the six months ended September 30, 2006
(compared to Y7,170 million provided in the previous interim period). This resulted primarily from the proceeds from
sales of shares of affiliated companies, which was included in the previous interim period, decrease in proceeds
from sales of property and equipment compared to previous same period and capital expenditures.
Cash flows from financing activities:
Net cash used in financing activities amounted to Y 22,330 million for the six months ended September 30, 2006 (a
6.6% decrease compared to the previous same period). This was primarily due to repayment of long-term debt,
redemption of bonds and payments of dividends.
The following table represents certain cash flow indexes for the six months ended September 30, 2006:
Six months Six months Year ended March
ended ended 31, 2006
September 30, September 30,
2005 2006
Equity-assets ratio (%) 44.1 59.2 54.1
Equity-assets ratio at fair value (%) 109.5 146.7 134.4
Years of debt redemption (years) - - 2.6
Interest coverage ratio (times) 4.4 6.6 21.0
Equity-assets ratio = Stockholders ' equity / Total assets
Equity-assets ratio at fair value = 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 expense
Notes:
1. Each index is calculated from figures prepared in accordance with U.S. generally accepted
accounting principles (U.S. GAAP).
2. Cash flows from operating activities are from the consolidated statements of cash flow.
3. Interest-bearing debt covers all liabilities with interest in the consolidated balance sheets.
4. Years of debt redemption are not disclosed in the interim financial results.
3. Activities for the Future
Digital Entertainment Segment
In our Computer and Video Games business, in response to the release of new hardware 'Wii' by Nintendo Co., Ltd. and
'PLAYSTATION(R)3' by Sony Computer Entertainment Inc., we are scheduled to release 'Elebits' for the Wii version for
domestic and overseas markets and 'MAH-JONG FIGHT CLUB ONLINE' for the PLAYSTATION(R)3 version for the domestic
market. We also plan to debut two new soccer titles: for the European market, 'PRO EVOLUTION SOCCER 6,' an
enormously popular title in Europe, and for the domestic market, 'J-League Winning Eleven 10 + Europe League
'06-'07.' Our large lineup now includes the baseball title 'JIKKYO PAWAFURU PROYAKYU 13 Ketteiban,' the latest
version of the Metal Gear series 'METAL GEAR SOLID PORTABLE OPS,' the stock trading simulation 'Stock Trading
Trainer Kabutore!,' and the standard music title 'Karaoke Revolution American Idol.' We are now attempting to expand
sales based on this lineup.
In our Toy & Hobby business, we plan to release the latest version of the Yu-Gi-Oh Trading Card Game series
worldwide. In addition, to take advantage of the succession of teaching events and tournaments in various regions,
we will attempt to maintain our popularity in more regions around the world. Starting with 'OTOIZUMU,' an electronic
toy which creates characters when connected with portable music players, we intend to sell various new electronic
toys such as 'Attame Kenkyujo (Labo)' and 'Digiry-man.' These items are expected to further expand our sales
overall.
In our Amusement business, we plan to continue to expand our products utilizing 'e-AMUSEMENT,' a service connecting
nationwide amusement arcades via a network. In videogames, we plan to respond to the recent expansion of the
educational game market by marketing 'NOVA USAGI no GAME de RYUGAKU!?,' the English-language quiz game to be edited
in cooperation with Nova Corporation, a major language school; 'CURUCURULABO,' an innovative game designed to
activate the brain through brain training; and the latest version of 'BASEBALL HEROS,' a series highly acclaimed in
the market. In token-operated games, we plan to focus on expanding sales of our most popular medal games:
'GRANDCROSS,' an extra-large-scale token-operated pusher-machine game for amusement arcades, and a large-scale
horseracing mass token-operated game.
In our Online business, the 'SHINKI-NET' online service was distributed in linkage with sales of the 'BUSOU SHINKI'
figures in the Toy & Hobby business from September 2006. We have also been promoting 'Tokimeki Memorial ONLINE,' a
service launched in March 2006, in a tie-up with the TV animation program 'Tokimeki Memorial Only Love', which has
aired from this October. We plan to promote the online game business to take advantage of the anticipated growth
through linkage with other businesses. In the mobile-related business, we plan to start up new sites such as digital
comics and deco-mail, with plans to ascend to the highest position in every genre.
In our Multimedia business, a TV animation program called 'SaintOctober' is planned to be aired in January 2007, as
a follow-up to the TV animation program 'Tokimeki Memorial Only Love' aired from October 2006. We plan to create our
own original content, sequentially publish related books such as novels, etc., and release music CDs and DVDs. We
will also develop products of book series on health, which will pursue high synergy within the group beyond the
framework of Digital Entertainment segment.
Health & Fitness Segment
The Health & Fitness business will not only respond to the demands of the time but also create new in-depth products
and services. We will attempt to develop our business more forcefully than ever before.
In the operation of fitness clubs, we will offer 'safe, clean, and comfortable' services of high quality to help
customers stably maintain and improve their health. We plan to operate facilities where customers feel more
satisfied with the value they receive than ever before.
In the product development business, we plan to continue to develop attractive products. With a view to a market to
be created by new laws on specified health examinations and health guidance in year 2008, we plan to promote
business development by emphasizing the strengths of our group. We will also reinforce the health-related devices of
COMBI WELLNESS Corporation, which joined our group in May 2006. We will aim to further expand our business through
these measures.
We will endeavor to impress customers all over the world with emotional experiences through the outstanding
performances of the Konami-sponsored athletes competing in the 'Pan Pacific Swimming Championships' and the 'World
Gymnastics Championships,' and through our second consecutive year as an official sponsorship of the 'KONAMI CUP
Asia series 2006,' an international tournament of Japanese and Asian baseball.
Gaming & System Segment
The gaming market is expected to expand based on demand in the gaming industry in Southeast Asia and the
legalization of casinos in more states of North America, including Pennsylvania (licensed in the first half of the
fiscal year). Under these circumstances, we plan to stabilize management by promoting the sales of video and
mechanical reel machines and new sales of the 'Konami Casino Management System,' and by trying to increase our
periodic income sales through machine installment and system maintenance services based on a profit-sharing
structure. We plan to exhibit our products in November 2006, at the 'Global Gaming Expo,' the largest gaming show in
North America, and will aim to improve our presence in both areas of slot machine and systems.
There is no modification to our consolidated earnings forecast for the year ending March 31, 2007, as announced on
May 17, 2006. Year-end dividend payout for the consolidated fiscal year ending March 31, 2007 is expected to be Y27
per share (dividend for the year: Y54 per share including an interim dividend of Y27 per share).
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, 2006 September 30,
2005 2006 2006
% % %
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Y 75,678 Y 43,347 Y 68,694 $ 367,659
Trade notes and accounts 24,992 27,053 32,294 229,457
receivable, net of allowance for
doubtful accounts of Y463 million,
Y531 million ($4,504 thousand) and
Y541 million at September 30,
2005, September 30, 2006 and March
31, 2006, respectively
Inventories 22,988 24,356 20,109 206,582
Deferred income taxes, net 12,878 16,755 16,510 142,112
Prepaid expenses and other current 8,990 8,639 6,720 73,274
assets
Total current assets 145,526 47.9 120,150 42.8 144,327 47.7 1,019,084
PROPERTY AND EQUIPMENT, net 52,277 17.2 44,221 15.8 42,452 14.0 375,072
INVESTMENTS AND OTHER ASSETS:
Investments in marketable 185 531 572 4,504
securities
Investments in affiliates - 6,084 6,050 51,603
Identifiable intangible assets 45,944 38,752 38,575 328,685
Goodwill 15,471 22,962 22,102 194,758
Lease deposits 25,182 26,488 25,277 224,665
Other assets 19,436 18,095 20,103 153,478
Deferred income taxes, net - 3,252 3,179 27,583
Total investments and other assets 106,218 34.9 116,164 41.4 115,858 38.3 985,276
TOTAL ASSETS Y 304,021 100.0 Y 280,535 100.0 Y 302,637 100.0 $ 2,379,432
See accompanying notes to consolidated financial statements
Millions of Yen Thousands of
U.S. Dollars
September 30, September 30, March 31, 2006 September 30,
2005 2006 2006
% % %
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Short-term borrowings Y 9,990 Y 500 Y958 $ 4,241
Current portion of long-term debt 17,147 22,860 24,492 193,893
and capital lease obligations
Trade notes and accounts payable 13,399 19,611 19,357 166,336
Accrued income taxes 18,951 2,206 7,487 18,711
Accrued expenses 17,358 14,116 16,323 119,729
Deferred revenue 5,963 5,318 5,353 45,106
Other current liabilities 5,962 5,271 7,254 44,707
Total current liabilities 88,770 29.2 69,882 24.9 81,224 26.9 592,723
LONG-TERM LIABILITIES:
Long-term debt and capital lease 40,717 21,337 35,631 180,975
obligations, less current portion
Accrued pension and severance 2,614 2,684 2,658 22,765
costs
Deferred income taxes, net 15,822 12,605 11,924 106,913
Other long-term liabilities 6,559 5,570 5,264 47,244
Total long-term liabilities 65,712 21.6 42,196 15.0 55,477 18.3 357,897
TOTAL LIABILITIES 154,482 50.8 112,078 39.9 136,701 45.2 950,620
MINORITY INTEREST IN 15,598 5.1 2,510 0.9 2,121 0.7 21,289
CONSOLIDATED SUBSIDIARIES
COMMITMENTS AND CONTINGENCIES - - - - - - -
STOCKHOLDERS' EQUITY:
Common stock, no par value-
Authorized 450,000,000 shares; 47,399 15.6 47,399 16.9 47,399 15.7 402,027
issued 139,531,708 shares at
September 30, 2005, 143,555,786
shares at September 30, 2006 and
March 31, 2006; outstanding
130,306,075 shares at September
30, 2005, 137,215,841 shares at
September 30, 2006 and 137,152,347
shares at March 31, 2006
Additional paid-in capital 70,376 23.1 77,178 27.5 77,110 25.5 654,606
Legal Reserve 207 0.1 284 0.1 284 0.1 2,409
Retained earnings 41,308 13.6 55,167 19.7 53,756 17.7 467,913
Accumulated other comprehensive 2,820 0.9 4,431 1.6 3,957 1.3 37,583
income
Total 162,110 53.3 184,459 65.8 182,506 60.3 1,564,538
Treasury stock, at cost-
9,225,633 shares, 6,339,945 shares (28,169) (9.2) (18,512) (6.6) (18,691) (6.2) (157,015)
and 6,403,439 shares at September
30, 2005, September 30, 2006 and
March 31, 2006, respectively
Total stockholders' equity 133,941 44.1 165,947 59.2 163,815 54.1 1,407,523
TOTAL LIABILITIES, Y 304,021 100.0 Y 280,535 100.0 Y 302,637 100.0 $ 2,379,432
MINORITY INTEREST AND
STOCKHOLDERS' EQUITY
See accompanying notes to consolidated financial statements
(2) Consolidated Statements of Income (Unaudited)
Millions of Yen Thousands of
U.S. Dollars
Six months ended Six months ended Year ended Six months
September 30, September 30, ended
2005 2006 March 31, 2006 September 30,
2006
% % %
NET REVENUES:
Product sales revenue Y 74,377 Y 79,353 Y186,875 $ 673,053
Service revenue 37,493 40,246 75,262 341,357
Total net revenues 111,870 100.0 119,599 100.0 262,137 100.0 1,014,410
COSTS AND EXPENSES:
Costs of products sold 44,038 45,547 112,613 386,319
Costs of services rendered 36,572 37,797 72,131 320,585
Impairment of long-lived assets - - 10,533 -
Impairment of identifiable - - 9,180 -
intangible assets
Selling, general and administrative 23,798 26,140 55,199 221,713
Total costs and expenses 104,408 93.3 109,484 91.5 259,656 99.1 928,617
Operating income 7,462 6.7 10,115 8.5 2,481 0.9 85,793
OTHER INCOME (EXPENSES):
Interest income 365 398 716 3,376
Interest expense (531) (579) (1,137) (4,911)
Gain on sale of shares of an 6,917 - 6,917 -
affiliated company
Other, net 122 (50) (539) (424)
Other income (expenses), net 6,873 6.1 (231) (0.2) 5,957 2.3 (1,959)
INCOME BEFORE INCOME TAXES, 14,335 12.8 9,884 8.3 8,438 3.2 83,834
MINORITY INTEREST AND EQUITY IN NET
INCOME OF AFFILIATED COMPANIES
INCOME TAXES 7,167 6.4 4,473 3.8 (10,270) (3.9) 37,939
INCOME BEFORE MINORITY INTEREST AND 7,168 6.4 5,411 4.5 18,708 7.1 45,895
EQUITY IN NET INCOME OF
AFFILIATED COMPANIES
MINORITY INTEREST IN INCOME (LOSS) 204 0.2 378 0.3 (4,267) (1.7) 3,206
OF CONSOLIDATED SUBSIDIARIES
EQUITY IN NET INCOME OF AFFILIATED - - 81 0.1 33 0.0 687
COMPANIES
NET INCOME Y 6,964 6.2 Y 5,114 4.3 Y23,008 8.8 $ 43,376
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,
2005 2006 2006 2006
Basic net income per share Y53.45 Y37.28 Y175.86 $0.32
Diluted net income per share Y53.44 Y37.27 Y175.80 $0.32
Number of weighted-average common
shares outstanding 130,300,952 137,164,825 130,835,422
Number of diluted 130,316,192 137,212,311 130,877,436
weighted-average common shares
outstanding
Note
Basic net income per share is calculated following the FAS No.128 'Earnings per share'
See accompanying notes to consolidated financial statements
Consolidated Statements of Stockholders' Equity (Unaudited)
(3)
For the six months ended September 30, 2005
Millions of Yen
Common Additional Legal Retained Accumulated Treasury Total
Stock Paid-in Reserve Earnings Other Stockholders' Equity
Capital Comprehensive Stock,
Income (Loss) at Cost
Balance at Y47,399 Y46,736 Y- Y37,776 Y2,217 Y (28,271) Y105,857
March 31, 2005
Issuance of common 23,583 23,583
stock for stock
exchange
Stock-based 57 57
compensation
Transfer from 207 (207) -
Retained Earnings
Net income 6,964 6,964
Cash dividends, (3,225) (3,225)
Y27.0 per share
Foreign currency 759 759
translation
adjustments
Net unrealized (156) (156)
losses on
available-for-sale
securities
Repurchase of (29) (29)
treasury stock
Use of treasury 131 131
stock for merger
Balance at Y47,399 Y70,376 Y207 Y 41,308 Y2,820 Y (28,169) Y133,941
September 30,
2005
For the six months ended September 30,
2006
Millions of Yen
Common Additional Legal Retained Accumulated
Stock Paid-in Reserve Earnings Other Treasury Total
Capital Comprehensive Stock, Stockholders'
Income (Loss) at Cost Equity
Balance at Y47,399 Y77,110 Y284 Y53,756 Y3,957 Y (18,691) Y163,815
March 31, 2006
Reissuance of (86) (86)
treasury stock
through stock
option plan
Stock-based 154 231 385
compensation
Net income 5,114 5,114
Cash dividends, (3,703) (3,703)
Y27.0 per share
Foreign currency 483 483
translation
adjustments
Net unrealized (25) (25)
losses on
available-for-sale
securities
Minimum pension 16 16
liability
adjustment
Repurchase of (52) (52)
treasury stock
Balance at Y47,399 Y77,178 Y284 Y55,167 Y4,431 Y (18,512) Y165,947
September 30,
2006
For the year ended March 31, 2006
Millions of Yen
Common Additional Legal Retained Accumulated Treasury Total
Stock Paid-in Earnings Other Stock, Stockholders'
Capital Reserve Comprehensive Equity
Income (Loss) at Cost
Balance at Y47,399 Y46,736 Y- Y37,776 Y2,217 Y (28,271) Y105,857
March 31, 2005
Issuance of common 33,095 33,095
stock for stock
exchange
Reissuance of (2,818) (2,818)
treasury stock for
stock exchange
Stock-based 97 39 136
compensation
Transfer from 284 (284) -
Retained Earnings
Net income 23,008 23,008
Cash dividends, (6,744) (6,744)
Y54.0 per
share
Foreign currency 1,888 1,888
translation
adjustments
Net unrealized (132) (132)
losses on
available-for-sale
securities
Minimum pension (16) (16)
liability
adjustment
Repurchase of (71) (71)
treasury stock
Use of treasury 18,064 18,064
stock for merger
Parent company (8,452) (8,452)
stocks acquired by
its subsidiaries
Balance at Y47,399 Y77,110 Y 284 Y53,756 Y3,957 Y (18,691) Y163,815
March 31, 2006
For the six months ended September 30,
2006
Thousands of U.S. Dollars
Common Additional Legal Retained Accumulated Treasury Total
Stock Paid-in Earnings Other Stockholders'
Capital Reserve Comprehensive Stock, Equity
Income (Loss) at Cost
Balance at $402,027 $654,029 $2,409 $455,946 $33,562 $ (158,533) $1,389,440
March 31, 2006
Reissuance of (729) (729)
treasury stock
through stock
option plan
Stock-based 1,306 1,959 3,265
compensation
Net income 43,375 43,375
Cash dividends, (31,408) (31,408)
$0.23 per share
Foreign currency 4,097 4,097
translation
adjustments
Net unrealized (212) (212)
losses on
available-for-sale
securities
Minimum pension 136 136
liability
adjustment
Repurchase of (441) (441)
treasury stock
Balance at $402,027 $654,606 $2,409 $467,913 $37,583 $ (157,015) $1,407,523
September 30, 2006
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
September September 2006 30, 2006
30, 2005 30, 2006
Cash flows from operating activities:
Net income Y 6,964 Y 5,114 Y 23,008 $43,376
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 4,484 4,902 13,782 41,578
Impairment of long-lived assets - - 10,533 -
Impairment of identifiable intangible assets - - 9,180 -
Provision for doubtful receivables 105 (18) (10) (153)
Loss (gain) on sale or disposal of property and (484) 76 645 645
equipment, net
Gain on sale of marketable securities - - (173) -
Gain on sale of shares of an affiliated company (6,917) - (6,917) -
Equity in net income of affiliated companies - (81) (33) (687)
Minority interest 204 378 (4,267) 3,206
Deferred income taxes 5,258 501 (5,485) 4,249
Change in assets and liabilities, net of
business acquired:
Decrease in trade notes and accounts receivable 10,559 6,556 3,369 55,606
Increase in inventories (4,793) (4,119) (635) (34,936)
Increase (decrease) in trade notes and accounts (2,902) (353) 2,945 (2,994)
payable
Decrease in accrued income taxes (9,384) (5,265) (20,772) (44,657)
Decrease in accrued expenses (1,560) (1,923) (3,043) (16,310)
Increase (decrease) in deferred revenue 567 (34) (43) (288)
Other, net 211 (1,913) 1,795 (16,226)
Net cash provided by operating activities 2,312 3,821 23,879 32,409
Cash flows from investing activities:
Proceeds from sales of shares of affiliates 11,016 - 11,016 -
Capital expenditures (5,784) (5,141) (14,513) (43,605)
Proceeds from sales of property and equipment 2,484 25 2,455 212
Proceeds from sales of investments in - - 245 -
marketable securities
Acquisition of new subsidiaries, net of cash 1,433 (227) 1,433 (1,925)
acquired
Purchase of investments in subsidiaries (695) - (6,688) -
Increase in lease deposits, net (833) (768) (697) (6,514)
Expenditure on acquisition of operation - (1,061) - (8,999)
Other, net (451) (58) (517) (492)
Net cash provided by (used in) investing 7,170 (7,230) (7,266) (61,323)
activities
Cash flows from financing activities:
Net decrease in short-term borrowings (3,632) (452) (12,551) (3,834)
Repayments of long-term debt (619) (1,696) (1,099) (14,385)
Principal payments under capital lease (1,210) (1,541) (2,526) (13,070)
obligations
Dividends paid (3,369) (3,714) (7,025) (31,501)
Purchase of treasury stock by parent company (29) (52) (71) (441)
Redemption of bonds (15,000) (15,000) (15,000) (127,227)
Other, net (40) 125 (58) 1,060
Net cash used in financing activities (23,899) (22,330) (38,330) (189,398)
Effect of exchange rate changes on cash and 512 392 828 3,325
cash equivalents
Net decrease in cash and cash equivalents (13,905) (25,347) (20,889) (214,987)
Cash and cash equivalents, beginning of the 89,583 68,694 89,583 582,646
period
Cash and cash equivalents, end of the period Y 75,678 Y 43,347 Y 68,694 $367,659
See accompanying notes to consolidated financial statements
5. Segment Information (Unaudited)
(1) Operations in Different Industries
Six months ended Digital Health & Gaming & Other, Consolidated
Entertainment Fitness System Corporate and
September 30, Eliminations
2005
(Millions of Yen)
Net revenue:
Customers Y 65,864 Y 40,553 Y 4,727 Y 726 Y 111,870
Intersegment 807 56 - (863) -
Total 66,671 40,609 4,727 (137) 111,870
Operating 53,623 39,928 4,724 6,133 104,408
expenses
Operating income Y 13,048 Y 681 Y 3 Y (6,270) Y 7,462
(loss)
Six months ended Digital Gaming & Other, Consolidated
Entertainment System Corporate and
September 30, Health & Eliminations
2006 Fitness
(Millions of Yen)
Net revenue:
Customers Y 62,834 Y 44,391 Y 7,718 Y 4,656 Y 119,599
Intersegment 706 54 - (760) -
Total 63,540 44,445 7,718 3,896 119,599
Operating 52,154 41,073 6,714 9,543 109,484
expenses
Operating income Y 11,386 Y 3,372 Y 1,004 Y (5,647) Y 10,115
(loss)
Year ended Digital Gaming & Other, Consolidated
Entertainment System
March 31, 2006 Health & Corporate and
Fitness Eliminations
(Millions of Yen)
Net revenue:
Customers Y 163,624 Y 81,117 Y 10,621 Y 6,775 Y 262,137
Intersegment 1,652 92 2 (1,746) -
Total 165,276 81,209 10,623 5,029 262,137
Operating 131,426 98,268 10,563 19,399 259,656
expenses
Operating income Y 33,850 Y (17,059) Y 60 Y (14,370) Y 2,481
(loss)
Six months ended Digital Gaming & Other, Consolidated
Entertainment System
September 30, Health & Corporate and
2006 Fitness Eliminations
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 532,943 $ 376,514 $ 65,462 $ 39,491 $ 1,014,410
Intersegment 5,988 458 - (6,446) -
Total 538,931 376,972 65,462 33,045 1,014,410
Operating 442,358 348,372 56,946 80,941 928,617
expenses
Operating income $ 96,573 $ 28,600 $ 8,516 $ (47,896) $ 85,793
(loss)
Notes: 1. Primary businesses of each segment are as follows:
Digital Entertainment Segment: Digital Entertainment Segment contains five business fields.
Computer & Video Games: Production, manufacture and sale of video game software.
Purchasing and distribution of video game software.
Toy & Hobby: Planning, production, manufacture and sale of card games,
electronic toys, toys for boys, candy toys, figures, character goods and
others.
Amusement: Production, manufacture and sale of the content for amusement
facilities such as video games and token-operated games.
Online: Creation of systems for online games.
Management and operation of online servers.
Distribution of the content for mobile phones.
Multimedia: Planning, production and sale of the products related to music
and video.
Planning, production and sale of books and magazines.
Health & Fitness Segment: Management of fitness centers.
Production, manufacture and sale of fitness machines and health-related
products.
Gaming & System segment: Production, manufacture and sale of gaming machines for casinos.
2. 'Other' consists of segments which do not meet the quantitative criteria for separate
presentation under SFAS No. 131 'Disclosures about Segments of an Enterprise and Related
Information.'
3. 'Corporate' primarily consists of administrative expenses of the Company.
4. 'Eliminations' primarily consist of eliminations of intercompany sales and of intercompany
profits on inventories.
5. Intersegment revenues primarily consist of sales of hardware and components from Digital
Entertainment segment to Health & Fitness segment.
6. Gaming segment was renamed to Gaming & System segment on October 1, 2005.
(2) Operations in Geographic Areas
Six months ended Japan United Europe Asia Total Eliminations Consolidated
States /Oceania
September 30, 2005
(Millions of Yen)
Net revenue:
Customers Y 90,332 Y 12,358 Y 5,120 Y 4,060 Y 111,870 - Y 111,870
Intersegment 11,396 881 22 64 12,363 Y (12,363) -
Total 101,728 13,239 5,142 4,124 124,233 (12,363) 111,870
Operating expenses 93,063 13,557 6,923 3,268 116,811 (12,403) 104,408
Operating income Y 8,665 Y (318) Y (1,781) Y 856 Y 7,422 Y 40 Y 7,462
Six months ended Japan United Europe Asia Total Eliminations Consolidated
States /Oceania
September 30, 2006
(Millions of Yen)
Net revenue:
Customers Y 99,201 Y 11,792 Y 5,117 Y 3,489 Y 119,599 - Y 119,599
Intersegment 7,450 539 237 177 8,403 Y (8,403) -
Total 106,651 12,331 5,354 3,666 128,002 (8,403) 119,599
Operating expenses 95,233 13,324 6,707 3,371 118,635 (9,151) 109,484
Operating income Y 11,418 Y (993) Y (1,353) Y 295 Y 9,367 Y 748 Y 10,115
Year ended Japan United Europe Asia Total Eliminations Consolidated
States /Oceania
March 31, 2006
(Millions of Yen)
Net revenue:
Customers Y 193,108 Y 33,797 Y 27,387 Y 7,845 Y 262,137 - Y 262,137
Intersegment 31,488 1,545 902 361 34,296 Y (34,296) -
Total 224,596 35,342 28,289 8,206 296,433 (34,296) 262,137
Operating expenses 222,559 37,688 27,181 6,895 294,323 (34,667) 259,656
Operating income Y 2,037 Y (2,346) Y 1,108 Y 1,311 Y 2,110 Y 371 Y 2,481
Six months ended Japan United Europe Asia Total Eliminations Consolidated
States /Oceania
September 30, 2006
(Thousands of U.S. Dollars)
Net revenue:
Customers $ 841,399 $ 100,017 $ 43,401 $ 29,593 $ 1,014,410 - $ 1,014,410
Intersegment 63,189 4,572 2,010 1,501 71,272 $ (71,272) -
Total 904,588 104,589 45,411 31,094 1,085,682 (71,272) 1,014,410
Operating expenses 807,744 113,011 56,887 28,592 1,006,234 (77,617) 928,617
Operating income $ 96,844 $ (8,422) $ (11,476) $ 2,502 $ 79,448 $ 6,345 $ 85,793
Note:
For the purpose of presenting its operations in geographic areas above, the Company and its
subsidiaries attribute revenues from external customers to individual countries in each area based
on where products are sold and services are provided.
Notes (Unaudited)
The consolidated financial statements presented herein were prepared in accordance with U.S. generally accepted
accounting principles('U.S.GAAP').
6. Summary of Non-consolidated Financial Results
for the Six Months Ended September 30, 2006
(Prepared in Accordance with Japanese GAAP)
November 7, 2006
KONAMI CORPORATION
Address: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan
Stock code number: 9766
URL: www.konami.net
Shares listed: Tokyo Stock Exchange,
New York Stock Exchange, London Stock Exchange and Singapore Exchange
Representative: Kagemasa Kozuki, Representative Director and Chief Executive Officer
Contact: Noriaki Yamaguchi, Representative Director and Chief Financial Officer
(Phone: +81-3-5220-0163)
Date of Board Meeting to
approve the financial results: November 7, 2006
Date of commencement of
dividend payment: November 30, 2006
Adoption of
unit trading system: Yes (1 unit: 100 shares)
1. Financial Results for the Six Months Ended September 30, 2006
(1) Results of Operations
(Figures truncated)
Operating revenues Operating income Ordinary income
(Y million) Change (Y million) Change (Y million) Change
Six months ended Y4,727 (90.7)% Y2,589 (50.0)% Y2,475 (73.7)%
September 30, 2006
Six months ended 51,016 (12.6) 5,179 709.2 9,408 155.3
September 30, 2005
Year ended 122,591 14,305 19,291
March 31, 2006
Net income Net income per share
(Y million) Change (Y)
Six months ended Y2,278 (79.7)% Y16.40
September 30, 2006
Six months ended 11,197 304.8 85.93
September 30, 2005
Year ended 16,572 124.75
March 31, 2006
Notes:
1. Weighted-average common shares outstanding
Six months ended September 30, 2006: 138,906,814 shares
Six months ended September 30, 2005: 130,300,952 shares
Year ended March 31, 2006: 131,089,462 shares
2. Change in accounting policies: None
3. Change (%) of operating 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) Financial Position
(Figures truncated)
Equity-assets Net assets
Total assets Net assets ratio per share
(Y million) (Y million) (%) (Y)
September 30, 2006 Y171,291 Y144,061 84.1 Y1,049.89
September 30, 2005 203,217 149,486 73.6 1,147.20
March 31, 2006 202,303 153,339 75.8 1,092.15
Notes:
Number of shares outstanding
September 30, 2006: 137,215,841 shares
September 30, 2005: 130,306,075 shares
March 31, 2006: 140,200,828 shares
Number of treasury stock
September 30, 2006: 6,339,945 shares
September 30, 2005: 9,225,633 shares
March 31, 2006: 3,354,958 shares
2. Financial Forecast for the Year Ending March 31, 2007
Net revenues Ordinary income Net income
(Y million) (Y million) (Y million)
Year ending March 31, 2007
Note:
Non-consolidated financial forecast for the year ending March 31, 2007 is not disclosed.
3. Cash Dividends
Cash dividends per share (Y)
Interim Year-end Annual
Year ended March 31, 2006 Y27.00 Y27.00 Y54.00
Year ending March 31, 2007 Y27.00 - Y54.00
-Results
Year ending March 31, 2007 - Y27.00
-Forecast
7. Non-consolidated Financial Statements
(1) Non-consolidated Balance Sheets (Unaudited)
(Millions of Yen)
September 30, 2005 September 30, 2006 March 31, 2006
% % %
ASSETS
CURRENT ASSETS:
Cash and cash equivalents Y57,773 Y27,599 Y43,980
Trade notes receivable 1 - -
Trade accounts receivable 12,207 - -
Inventories 13,061 - -
Short-term loan receivable - 17,624 12,890
Other (Note 3) 16,711 3,963 2,318
Allowance for doubtful accounts (16 ) ) (18 )
(26
Total current assets 99,738 49.1 49,161 28.7 59,170 29.3
FIXED ASSETS:
Tangible fixed assets (Note 1) 3,709 72 81
Intangible fixed assets 11,767 7 3
Investments and other assets 88,001 122,050 143,048
Investment securities 80,654 117,681 140,581
Other 7,446 4,379 2,467
Allowance for doubtful accounts (98 ) (10 ) -
Total fixed assets 103,478 50.9 122,130 71.3 143,132 70.7
TOTAL ASSETS Y203,217 100.0 Y171,291 100.0 Y202,303 100.0
See accompanying notes to non-consolidated financial statements
(Millions of Yen)
September 30, 2005 September 30, 2006 March 31, 2006
% % %
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade notes payable Y1,448 - -
Trade accounts payable 8,710 - -
Short-term borrowings - Y6,450 -
Current portion of long-term debt 2,152 592 Y1,992
Current portion of long-term 15,000 15,000 15,000
bonds
Income taxes payable 573 262 6,791
Accrued directors' bonuses - 110 -
Other (Note 3) 7,236 849 6,867
Total current liabilities 35,120 17.3 23,264 13.6 30,651 15.2
LONG-TERM LIABILITIES:
Straight bonds 15,000 - 15,000
Long-term debt 2,276 2,034 1,980
Accrued directors' retirement 1,332 1,332 1,332
benefits
Long-term deposits received 2 599 -
Total long-term liabilities 18,610 9.1 3,965 2.3 18,312 9.0
Total liabilities 53,730 26.4 27,230 15.9 48,963 24.2
STOCKHOLDERS' EQUITY:
Common stock 47,398 23.3 - - 47,398 23.4
Capital surplus 60,236 29.6 - - 43,568 21.6
Retained earnings 70,018 34.5 - - 72,546 35.9
Legal reserve 206 - 283
Special reserves 34,094 - 34,094
Retained earnings brought forward 35,716 - 38,168
Net unrealized gains on 1 0.0 - - 64 0.0
available-for-sale securities
Treasury Stock (28,168 ) (13.8 ) - - (10,238 ) (5.1 )
Total stockholders' equity 149,486 73.6 - - 153,339 75.8
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY Y203,217 100.0 - - Y202,303 100.0
NET ASSETS:
Common stock - - 47,398 27.7 - -
Capital surplus - - 43,482 25.4 - -
Retained earnings - - 70,820 41.3 - -
Treasury stock - - (17,679) (10.3) - -
Total stockholder's equity - - 144,021 84.1 - -
Net unrealized gains on - - 40 0.0 - -
available-for-sale securities
Total net assets - - 144,061 84.1 - -
TOTAL LIABILITIES AND NET ASSETS - - Y171,291 100.0 - -
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, 2005 September 30, 2006 March 31, 2006
% % %
Operating revenues (Note 1) Y51,016 100.0 Y4,727 100.0 Y122,591 100.0
Net revenues 51,016 - 122,591
Management fee revenue - 2,953 -
(Note 1)
Dividend income (Note1) - 1,773 -
Cost of revenues 33,041 64.8 - - 75,499 61.6
Gross profit 17,975 35.2 4,727 100.0 47,091 38.4
Selling, general and administrative 12,795 25.1 2,137 32,786 26.7
expenses 45.2
Operating income 5,179 10.1 2,589 54.8 14,305 11.7
Non-operating income (Note 2) 4,505 8.8 102 2.1 5,679 4.6
Non-operating expenses (Note 3) 276 0.5 216 4.5 693 0.6
Ordinary income 9,408 18.4 2,475 52.4 19,291 15.7
Extraordinary income (Note 4) 5,788 11.3 - - 5,707 4.7
Extraordinary losses (Note 5) 25 0.0 - - 247 0.2
Income before income taxes 15,172 29.7 2,475 52.4 24,751 20.2
Income taxes:
Current 697 (346) 8,803
Deferred 3,277 544 (625 )
Total income taxes 3,974 7.8 197 4.2 8,178 6.7
Net income 11,197 21.9 Y2,278 48.2 16,572 13.5
Unappropriated earned surplus 7,710 - 7,710
carried forward
Received undistributed profit from 16,808 - 17,402
merger
Interim cash dividends - - 3,518
Unappropriated earned surplus Y35,716 - Y38,168
See accompanying notes to non-consolidated financial statements
(3) Non-consolidated Statement of Changes in Stockholders' Equity (Unaudited)
(Millions of yen)
Stockholder's equity
Common Capital surplus Retained earnings Treasury Total
stock stock stockholders'
equity
Additional Other Net Legal Other retained Net
paid-in capital capital reserve earnings retained
capital surplus surplus earnings
Special Retained
reserves earnings
brought
forward
Balance at Y47,398 Y36,893 Y6,674 Y43,568 Y283 Y34,094 Y38,168 Y72,546 Y(10,238) Y153,275
March 31, 2006
Changes in the
term
Dividends from (3,785) (3,785) (3,785)
surplus (*)
Directors' (220) (220) (220)
Bonuses (*)
Transfer to 18,000 (18,000) - -
special reserve
(*)
Net income 2,278 2,278 2,278
Purchase of (7,689) (7,689)
treasury stock
Disposal of (85) (85) 248 162
treasury stock
Net change of
items other than
stockholders'
equity
Total changes in - - (85) (85) - 18,000 (19,726) (1,726) (7,441) (9,254)
the term
Balance at Y47,398 Y36,893 Y6,588 Y43,482 Y283 Y52,094 Y18,441 Y70,820 Y(17,679) Y144,021
September 30,
2006
Difference of appreciation and Total net assets
conversion
Net unrealized Net Difference
gains on of
available-for-sale appreciation
securities and conversion
Balance at Y64 Y64 Y153,339
March 31, 2006
Changes in the term
Dividends from (3,785)
surplus (*)
Directors' Bonuses (220)
(*)
Transfer to special -
reserve (*)
Net income 2,278
Purchase of (7,689)
treasury stock
Disposal of 162
treasury stock
Net change of items (23) (23) (23)
other than
stockholders'
equity
Total changes in (23) (23) (9,278)
the term
Balance at Y40 Y40 Y144,061
September 30, 2006
(*) Surplus appropriated in the Ordinary General Meeting of Shareholders held in June 2006.
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 stockholders'
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.
Long-term prepaid expenses are amortized using the straight-line method.
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) Accrued Directors' Bonuses
The estimated bonus payment to Directors is reserved as Accrued Directors' Bonuses.
(c) Accrued pension and severance costs
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 are amortized from the following fiscal year
within the average remaining service period of 8 years on a straight-line basis.
(d) Accrued directors' retirement benefits
Required amount for retirement benefits to be paid to directors as of balance sheet
date is reserved as liability.
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
Consumption Tax
Consumption tax is excluded from the stated amount of revenue and expenses.
Changes in accounting method
1. Accounting Standard for Directors' Bonuses
Effective from fiscal year 2007, the Company adopted 'Accounting Standard for Directors'
Bonuses' (Financial Accounting Standards No.4 issued by the Accounting Standard Board of Japan
on November 29, 2005). The change effected our operating income, ordinary income and income
before income taxes to decrease by Y110 million, respectively.
2. Accounting Standard for Presentation of Net Assets in the Balance Sheet
Effective from fiscal year 2007, the Company adopted 'Accounting Standard on Presentation of Net
Assets in the Balance Sheet' (Financial Accounting Standards No.5 issued by the Accounting
Standard Board of Japan on December 9, 2005) and 'Accounting implementation guideline on
Presentation of Net Assets in the Balance Sheet' (Financial Accounting Standards Implementation
Guidance No.8 issued by the Accounting Standard Board of Japan on December 9, 2005).
Shareholders' equity under the previous presentation method amounted to Y144,061 million.
Net assets in the balance sheet as of September 30, 2006, have been presented in accordance with
the revised 'Regulations for the Interim Non-Consolidated Financial Statements'.
Change in reporting form
Interim Non-consolidated Balance Sheet
Short-term loan receivable, which was included in the 'Other' of current assets item for the previous
fiscal years, is indicated in an individual account for the six months ended September 30, 2006, as it has
exceeded 5/100 of the Total Assets.
Short-term loan receivable for the six moths ended September 30, 2005, was Y4,121 million.
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, 2005 September 30, 2006 March 31, 2006
Accumulated depreciation of
tangible fixed assets Y5,734 Y168 Y204
2. The Company guarantees subsidiaries' loans payable to financial institutions
as follows:
(Millions of Yen)
September 30, 2005 September 30, 2006 March 31, 2006
Konami Software Shanghai, Inc. Y97 Y- Y-
(US$ 863 thousand)
Konami Gaming, Inc. - - Y352
(US$ 3,000 thousand)
Total Y97 Y- Y352
3. Net amount of consumption tax payable and consumption tax to be refunded are
included in 'Other' of current liabilities and 'Other' of current assets for
September 30, 2005 and September 30, 2006, respectively.
Notes to Statements of Operations
1. The Company adopted a holding company structure on March 31, 2006, by executing a company separation, to
which a newly established Konami Digital Entertainment Co., Ltd. succeed to the Company's Digital
Entertainment business. Accordingly, the primary business operation of the Company relates to management
fee revenue and dividend income from subsidiary companies which we indicate as operating revenue.
2. Non-operating income mainly consists of the following:
Six months ended September 30, 2005: Interest income: Y 29 million, Dividend income: Y 4,394 million,
Foreign exchange gains: Y 4 million
Six months ended September 30, 2006: Interest income: Y 87 million
Year ended March 31, 2006: Interest income: Y 56 million, Dividend income: Y 5,360 million,
Foreign exchange gains: Y 139 million
3. Non-operating expenses mainly consist of the following:
Six months ended September 30, 2005: Bond interest expenses: Y 200 million
Six months ended September 30, 2006: Bond interest expenses: Y 145 million
Year ended March 31, 2006: Bond interest expenses: Y 346 million
4. Extraordinary income mainly consists of the following:
Six months ended September 30, 2005: Gain on sale of shares of affiliated companies: Y 5,555 million
Six months ended September 30, 2006: None
Year ended March 31, 2006 Gain on sale of shares of affiliated companies: Y 5,555 million
5. Extraordinary losses mainly consist of the following:
Six months ended September 30, 2005: Loss on sale and disposal of fixed assets : Y 25 million
Six months ended September 30, 2006: None
Year ended March 31, 2006: Loss on sale and disposal of fixed assets: Y 247 million
6. Depreciation expense for each period is as follows:
(Millions of Yen)
September 30, 2005 September 30, 2006 March 31, 2006
Tangible fixed assets Y634 Y26 Y1,730
Intangible fixed assets 1,352 0 4,276
Notes to Non-consolidated Statements of Changes in Stockholders' Equity
Summary of type of treasury stock and total number of shares
(Thousands
shares)
Total number of Increase in total Decrease in Total number of
shares for the number of shares total number of shares for the
year ended March for the half year shares for the half year ended
31, 2006 ended September half year ended September 30,
30, 2006 September 30, 2006
2006
Common Stock 3,354 3,072 87 6,339
Total 3,354 3,072 87 6,339
Outline of the change
Primary items which increased total number of shares
Acquisition of own shares from subsidiary company: 3,048 thousand shares
Acquisition of shares of less than one unit: 24 thousand shares
Primary items which decreased total number of shares
Sale of shares of stock option: 82 thousand shares
. Sale of shares of less than one unit 5 thousand shares
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, 2005 September 30, 2006 March 31, 2006
Balance Balance Balance
sheet sheet sheet
amount Market amount Market amount Market
value Differences value Differences value Differences
Investments Y8,167 Y6,618 Y(1,548) Y8,167 Y9,346 Y1,179 Y8,167 Y7,728 Y(438)
in
subsidiaries
Investments - - - 5,993 4,814 (1,178) 5,993 6,593 600
in affiliated
companies
Total Y8,167 Y6,618 Y(1,548) Y14,160 Y14,161 Y1 Y14,160 Y14,322 Y161
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