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The following is an excerpt from a 6-K SEC Filing, filed by KONAMI CORP on 5/23/2003.
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KONAMI CORP - 6-K - 20030523 - FORM
Table of Contents

 

FORM 6-K

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 

Commission File Number: 1-31452

 

For the month of May 2003.

 

KONAMI CORPORATION

(Translation of registrant’s name into English)

 

Marunouchi Building

4-1, Marunouchi 2-chome

Chiyoda-ku, Tokyo 100-6330

Japan

 


(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F x             Form 40-F ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes ¨             No x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-             

 


Table of Contents

 

Information furnished on this form:

 

EXHIBITS

 

Exhibit Number


1.      

  

Press release of May 22, 2003 regarding consolidated financial results for the year ended March 31, 2003 (Prepared in accordance with U.S. GAAP)

2.      

  

Consolidated financial results for the year ended March 31, 2003 (Prepared in accordance with U.S. GAAP) filed with the Tokyo Stock Exchange on May 22, 2003

3.      

  

Press release of May 22, 2003 regarding announcement of decrease to additional paid-in capital and legal reserve

 


Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

       

KONAMI CORPORATION

Date: May 22, 2003

     

By:

 

/s/    N ORIAKI Y AMAGUCHI


               

Name: Noriaki Yamaguchi

Title: Executive Vice President and CFO

 


Table of Contents

 

FOR IMMEDIATE RELEASE

 

May 22, 2003

 

KONAMI CORPORATION

2-4-1 Marunouchi Chiyoda-ku Tokyo, Japan

Kagemasa Kozuki

Representative Director and CEO

Ticker 9766 at TSE1

Contact: Noriaki Yamaguchi

Representative Director and CFO

Tel: +81-3-5220-0163

 

Consolidated Financial Results for the Year Ended March 31, 2003

(Prepared in Accordance with U.S. GAAP)

 

We hereby announce the consolidated financial results of the Konami Group in accordance with U.S. GAAP for the year ended March 31, 2003 as stated in the attached documents.

 

We expanded globally during the year ended March 31, 2003 with video game software such as WORLD SOCCER WINNING ELEVEN 6 , a home video game sports software title that reached combined sales of two million copies in Japan and Europe, video game software with cartoon characters such as Yu-Gi-Oh! , music games and a variety of other original products. As a result, the total number of home video games shipped reached 20 million for the second consecutive year. Also, the explosively popular Yu-Gi-Oh! card game was a hit, especially in the U.S. The MICROiR series high-technology toys gained market share. Sales of candy toys, which have attracted attention for their elaborate figurines, expanded. The amusement arcade game MAH-JONG FIGHT CLUB , which is an e-AMUSMENT product that allows players to compete via an on-line amusement connection, developed well. Gaming machines in overseas markets achieved healthy sales. Konami Sports Corporation, which seeks to improve its customers’ quality of life based on the concept of “Exertainment”, introduced a next generation fitness machine and personal trainer program as well as a new sports club membership category all to improve customer convenience.

 

In order to better focus our business and management resources, we transferred our amusement arcade operations, which had been conducted by Konami Amusement Operation, Inc. to AmLead Co., Ltd. We did so to achieve business portfolio optimization. Konami Sports Corporation acquired NISSAY ATHLETICS COMPANY with the goal of expanding our network of fitness clubs. We are engaged in fast-paced business expansion and creating products and services that meet our customers’ needs.

As a result, consolidated net revenues for the year ended March 31, 2003 amounted to ¥253,657 million, which is the highest level recorded since our founding. However, based on the findings of a U.S. independent appraiser, we decided to recognize an impairment loss of ¥47,599 million because the fair value of goodwill and other intangible assets in the Exercise Entertainment segment had declined below carrying value. Consequently, consolidated operating loss, consolidated net loss before income taxes and consolidated net loss were ¥21,870 million, ¥22,096 million and ¥28,519 million, respectively.

Since all business segments generally performed favorably, dividends for the year ended March 31, 2003 were ¥54 per share (¥19 as of September 30, 2002 and ¥35 as of March 31, 2003).

 


Table of Contents

 

Consolidated Financial Results

for the Year Ended March 31, 2003

(Prepared in Accordance with U.S. GAAP)

May 22, 2003

 

KONAMI CORPORATION

Address:

  

4-1, Marunouchi2-chome, Chiyoda-ku, Tokyo, Japan

Stock code number, TSE:

  

9766

Ticker symbol, NYSE:

  

KNM

URL:

  

http://www.konami.com

Shares listed:

  

Tokyo Stock Exchange, New York Stock Exchange, London Stock Exchange

and Singapore Exchange

Representative:

  

Kagemasa Kozuki, Chairman of the Board and Chief Executive Officer

Contact:

  

Noriaki Yamaguchi, Executive Vice President and Chief Financial Officer

(Phone: +81-3-5220-0163)

Date of Board Meeting to approve the financial results:

  

May 22, 2003

Adoption of U.S. GAAP:

  

Yes

 

1.    Consolidated Results for the Year Ended March 31, 2003

(Amounts are rounded to the nearest million)

(1)    Consolidated Results of Operations

 

    

(Millions of yen, except per share data)


 
    

Net revenues


    

Operating

income (loss)


    

Income (loss) before income taxes


    

Net income (loss)


 

Year ended March 31, 2003

  

253,657

 

  

(21,870

)

  

(22,096

)

  

(28,519

)

% change from previous year

  

12.4

%

  

—  

 

  

—  

 

  

—  

 

Year ended March 31, 2002

  

225,580

 

  

18,087

 

  

22,678

 

  

11,402

 

% change from previous year

  

31.5

%

  

(52.3

)%

  

(44.5

)%

  

(47.1

)%

 

      

Basic and diluted net income (loss) per share


      

Return on shareholders’ equity


      

Ratio of income (loss) before

income taxes to total assets


      

Ratio of income (loss) before

income taxes to

net revenues


 

Year ended March 31, 2003

    

(234.58

)

    

(25.3

)%

    

(7.3

)%

    

(8.7

)%

Year ended March 31, 2002

    

89.32

 

    

8.1

%

    

7.3

%

    

10.1

%

 

Notes:

  1.   Equity in net income (loss) of affiliated companies

             Year ended March 31, 2003:

  

¥(1,288) million

             Year ended March 31, 2002:

  

¥ 755 million

  2.   Weighted-average common shares outstanding

             Year ended March 31, 2003:

  

121,572,154 shares

             Year ended March 31, 2002:

  

127,647,120 shares

  3.   Change in accounting policies: None
  4.   Net income (loss) per share was calculated in accordance with Statement of Financial Accounting Standard (SFAS) No. 128 “Earnings per Share”.
  5.   Income (loss) before income taxes represents “Income (loss) before income taxes, minority interest and equity in net income (loss) of affiliated companies” as stated in the accompanying consolidated statements of income.

 

 

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(2)    Consolidated Financial Position

 

    

(Millions of yen, except per share amounts)


    

Total assets


    

Total shareholders’

equity


    

Equity-assets

ratio


      

Shareholders’

equity per share


March 31, 2003

  

278,250

    

90,406

    

32.5

%

    

750.35

March 31, 2002

  

328,091

    

134,990

    

41.1

%

    

1,084.43

 

Note:

    

Number of shares outstanding

    

March 31, 2003:

  

120,484,375 shares

March 31, 2002:

  

124,479,815 shares

 

(3)    Consolidated Cash Flows

 

    

(Millions of yen)


    

Net cash provided by (used in)


      

Cash and

cash equivalents at end of year


    

Operating

activities


  

Investing

activities


    

Financing

activities


      

Year ended March 31, 2003

  

27,711

  

(12,242

)

  

(16,443

)

    

74,680

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:

  

28

    Number of affiliated companies accounted for by the equity method:

  

3

 

(5)    Changes in Reporting Entities

    Number of consolidated subsidiaries added:

  

2

    Number of consolidated subsidiaries removed:

  

11

    Number of affiliated companies removed:

  

1

 

2.    Earnings Forecast for the Year Ending March 31, 2004

 

    

(Millions of yen)


    

Net revenues


  

Operating

income


    

Income before

income taxes


  

Net income


Year ending March 31, 2004

  

255,500

  

27,500

    

26,700

  

14,500

 

Reference:

Estimated net income per share: ¥120.35

 

Cautionary Statement with Respect to Forward-Looking Statements:

 

Statements made in this document with respect to our current plans, estimates, strategies and beliefs, including the above forecasts, are forward-looking statements about our future performance. These statements are based on management’s assumptions and beliefs in light of information currently available to it and, therefore, you should not place undue reliance on them. A number of important factors could cause actual results to be materially different from and worse than those discussed in forward-looking statements. Such factors include, but are not limited to: (i) changes in economic conditions affecting our operations; (ii) fluctuations in currency exchange rates, particularly with respect to the value of the Japanese yen, the U.S. dollar and the Euro; (iii) our ability to continue to win acceptance of our products, which are offered in highly competitive markets characterized by the continuous introduction of new products, rapid developments in technology and subjective and changing consumer preferences; (iv) our ability to successfully expand internationally with a focus on our video game software business, card game business and gaming machine business; (v) our ability to successfully expand the scope of our business and broaden our customer base through our exercise entertainment business; (vi) regulatory developments and changes and our ability to respond and adapt to those changes; (vii) our expectations with regard to further acquisitions and the integration of any companies we may acquire; and (viii) the outcome of contingencies.

Please refer to page 12 of the attached material for information regarding the assumptions and other related items used in the preparation of these forecasts.

 

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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”), 28 consolidated subsidiaries and three 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 below under the heading “8. Segment Information (Unaudited)”.

 

Business Segments


  

Major Companies


Computer & Video Games

(*14)

  

Domestic

(*9)

  

The Company (*11, *13, *17, *19, *21, Note 3)

     

Konami Marketing Japan, Inc. (*2, *3, Note 6)

     

Konami Computer Entertainment Osaka, Inc. (*19, Note 5)

     

Konami Computer Entertainment Tokyo, Inc.

     

Konami Computer Entertainment Japan, Inc.

     

Konami Computer Entertainment Studios, Inc. (*19, Note 5)

     

Konami Mobile & Online, Inc.

     

HUDSON SOFT CO., LTD. (*22),

     

Genki Co., Ltd. (*22)


  

Overseas

(*4)

  

Konami of America, Inc. (Note 4), Konami of Europe GmbH

     

Konami Marketing (Asia) Ltd.

     

Konami Software Shanghai, Inc., One other company


           

Exercise Entertainment

(*5, *13, *14)

  

Domestic

  

Konami Sports Corporation (*6, *12, *13, *20, Note 7)

     

Konami Sports Life Corporation (*13)

     

Two other companies (*20, Note 7)


Toy & Hobby

(*5, *14)

  

Domestic

  

The Company (*11, *13, *17, *19 *21, Note 3)

     

Konami Marketing Japan, Inc. (*2, *3, Note 6)

     

Konami Music Entertainment, Inc.

 
    

Overseas

(*4)

  

Konami of America, Inc. (Note 4), Konami of Europe GmbH

Konami Marketing (Asia) Ltd.


           

Amusement

(*13, *14, *16)

  

Domestic

  

The Company (*11, *13, *17, *19, *21, Note 3)

     

Konami Marketing Japan, Inc. (*2, *3, Note 6)

     

KPE, Inc. (*8, *21), One other company (*8)

 
           
    

Overseas

(*4)

  

Konami of America, Inc. (Note 4)

       

Konami Marketing Europe Ltd. (*15)

       

Konami Marketing (Asia) Ltd.


           

Gaming

(*14, *16)

  

Domestic

  

The Company (*11, *13, *17, *19, *21, Note 3)


  

Overseas

  

Konami Gaming, Inc.

       

Konami Australia Pty Ltd., One other company


           

Other

  

Domestic

  

Konami Real Estate, Inc. (*17, *18)

     

Konami Service, Inc. (Note 6)

     

Konami School, Inc. (*1, *7, *11)

     

TAKARA CO., LTD. (*22), One other company


  

Overseas

(*10)

  

Two other companies


 

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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 year ended March 31, 2003 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 Japan, 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)   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 Sports Corporation merged with Konami Olympic Sports Club Corporation on October 1, 2002 to improve the efficiency of their operations.
(*7)   The education business of Konami School, Inc., which used to be included in the Computer & Video Games segment, was transferred to the Other segment as of October 1, 2002 in order to develop human resources in the whole Konami group.
(*8)   Konami Parlor Entertainment, Inc. and Konami Parlor Research, Inc. changed their company names to KPE, Inc. and KPR, Inc., respectively, on November 11, 2002.
(*9)   Konami Computer Entertainment Kobe, Inc. and Konami Computer Entertainment Nagoya, Inc. were dissolved in December 2002.
(*10)   Konami Asia (Singapore) Pte. Ltd. was dissolved in December 2002.
(*11)   The Company took over the debugging business of Konami School, Inc. by acquisition following a corporate split on January 1, 2003.
(*12)   Konami Sports Corporation merged with Konami Sports Plaza, Inc. on January 1, 2003 in order to improve the efficiency of their operations.
(*13)   On January 15, 2003, the Company transferred all of its shares of Konami Sports Corporation to Konami Sports Life Corporation as a step toward changing the Company’s corporate structure by reorganizing into a pure holding company. As a result, the health entertainment business which had been a part of the Amusement segment was transferred to the Exercise Entertainment segment on January 16, 2003.
(*14)   The Consumer Software (CS) segment, Health & Fitness (H&F) segment, Toy & Hobby (T&H) segment, Amusement Content (AC) segment and Gaming Content (GC) segment changed their names to Computer & Video Games, Exercise Entertainment, Toy & Hobby, Amusement and Gaming, respectively on January 16, 2003.
(*15)   Konami Amusement of Europe Ltd. changed its company name to Konami Marketing Europe Ltd. on January 13, 2003.
(*16)   On January 27, 2003, the Gaming segment transferred its token-operated game machine business for the domestic market to the Amusement segment in order to focus on its gaming machine business for the overseas gaming industry.
(*17)   The Company took 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. now concentrates on its real estate management business.
(*18)   Konami Capital, Inc. changed its company name to Konami Real Estate, Inc. on February 1, 2003.
(*19)   The Company transferred all the shares of Konami Computer Entertainment Studios, Inc. to Konami Computer Entertainment Osaka, Inc. on March 13, 2003.
(*20)   Konami Sports Corporation acquired all the shares of NISSAY ATHLETICS COMPANY on March 24, 2003. Thereafter, NISSAY ATHLETICS COMPANY changed its name to Konami Athletics Inc.
(*21)   The Company transferred its LCD unit business to its wholly-owned subsidiary, KPE, Inc., on March 13, 2003.
(*22)   These are equity method affiliates.
3.   The Company added Traumer, Inc. to its subsidiaries through acquisition of 77.8% of the issued shares of Traumer on April 17, 2003. Consequently, the corporate name of Traumer, Inc. was changed to Konami Traumer, Inc. on the acquisition date.
4.   On April 18, 2003, the Company spun off its arcade game sales operations in the U.S. from Konami of America, Inc. and established Konami Marketing, Inc. which focuses on sales of arcade games in the U.S.
5.   Konami Computer Entertainment Osaka, Inc. merged with Konami Computer Entertainment Studios, Inc. on May 1, 2003. The surviving company, Konami Computer Entertainment Osaka, Inc. plans to change its name to Konami Computer Entertainment Studios, Inc. on June 18, 2003.
6.   On May 1, 2003, Konami Marketing Japan, Inc. merged with Konami Service, Inc. in order to improve customer satisfaction in an integrated business structure which includes sales, marketing and customer services.
7.   On May 1, 2003, Konami Sports Corporation merged with Konami Athletics Inc. in order to improve the efficiency of their operations and also enhance customer convenience.

 

 

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LOGO

 

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2. Management Policy

 

1.    Management Policy

 

Our management policy places primary priority on shareholders and maintaining healthy relationships with all stakeholders, including 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 by taking into account the three keywords of our management policy: “Adaptation to Global Standards”, “Maintaining Fair Competition” and “Pursuit of High Profits”.

 

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 a means to return profits to shareholders. Retained earnings will be used to heavily invest in potentially profitable business fields to increase our corporate value and as a source for paying dividends.

 

In addition to focusing on the importance of maintaining healthy relationships with shareholders, investors, end-users, suppliers, employees and the community in general, we will also work to expand social contributions by supporting a wide range of activities that promote education, sports and culture.

 

Pursuant to basic management policy, we aim to be an entertainment enterprise that achieves continuous expansion and the respect of society.

 

2.    Profit Appropriation Policy

 

We consider the providing of stable cash dividends and increasing and improving corporate value as being important to return income to shareholders. Retained 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 fields within the entertainment industry such as games, toys, movies, music, sports, education, publishing and communications are increasingly merging and overlapping. In such an environment, competition among companies has intensified and so we believe that an 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 continue to grow.

 

To enhance our brand value, we have developed a new logo as the symbol for a new image branding initiative that we are promoting under the tagline “Bikkuri (Be Creative)”, which indicates our core competence of “creativity”. Our goal is to create products that will add more surprise and emotion to consumer’s lives. At the same time, we are committed to increasing our production, marketing and financial resources.

 

Strengthening our corporate structure is a constant theme in setting the groundwork for future growth. We continue to strengthen our corporate structure in a variety of ways including enhancement of our production, marketing and financial resources, building a stronger group management system and establishing a fair and timely disclosure system.

 

As a special note with respect to the fiscal year ended March 31, 2003, we realized our goal of listing on the New York Stock Exchange on September 30, 2002. We continue to work toward expanding business operations in the U.S., increasing the number of U.S. shareholders, reinforcing our corporate structure and complying with the strict regulations of the SEC and New York Stock Exchange in order to become a truly global company. As for human resources development, we will continue to nurture next generation leadership and enhance management skills by using our Leadership Development Center, which was established in the Konami Super Campus in March 2003.

 

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4.    Corporate Governance Development

 

It is necessary for us to develop strong corporate governance in order to implement and maintain our basic management policy.

The first and most important agenda in our corporate governance development program was to reform the board of directors. We employed an outside corporate officer in May 1992 and introduced a corporate officer system in June 1999. In June 2001, we reduced the size of our board of directors from 15 to nine, four of whom consist of outside directors. We have endeavored to accelerate the managerial decision-making process, separate monitoring from implementation, strengthen the managerial audit system, revitalize the board of directors, and pursue management transparency.

We are working to establish committees that will take appropriate action in response to the increasingly complicated environment within which we operate. We established a Risk Management Committee in April 2000 in order to enhance our ability to prevent and respond quickly to internal and external risks. We established a Compliance Committee in September 2001 to reinforce our entire system for monitoring and encouraging compliance with applicable laws, rules and regulations. We established a Disclosure Committee in April 2003. The Disclosure Committee will work on the development of group company reporting procedures that will facilitate timely and accurate disclosure.

We established a Konami Group Conduct Charter and a Konami Group Code of Business Conduct and Ethics that require all members of the Konami Group to monitor and improve compliance and risk management issues, promote compliance with applicable laws, rules and regulations and minimize risks.

 

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3. Business Performance and Cash Flows

 

(1)    Business Review

 

Overview

 

Although the Japanese economy has improved somewhat due to increased exports, individual consumption has been leveling off. Economic concern remains regarding the possibility of a downturn due to uncertainty about the future of the U.S. economy associated with the war in Iraq 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 recent soccer boom in Japan. The domestic industry is in a state of transition evidenced by debate regarding the possible lifting of the ban against casino gaming and restructuring within the video game software market.

We entered a new stage by transferring our headquarters to Marunouchi, Tokyo in August 2002 and by listing on the New York Stock Exchange on September 30, 2002. We also celebrated our 30th anniversary on March 19, 2003.

We expanded globally during the year ended March 31, 2003 with video game software such as WORLD SOCCER WINNING ELEVEN 6 , a home video game sports software title that reached combined sales of two million copies in Japan and Europe, video game software with cartoon characters such as Yu-Gi-Oh! , music games and a variety of other original products. As a result, the total number of home video games shipped reached 20 million for the second consecutive year. Also, the explosively popular Yu-Gi-Oh! card game was a hit, especially in the U.S. The MICROiR series high-technology toys gained market share. Sales of candy toys, which have attracted attention for their elaborate figurines, expanded. The amusement arcade game MAH-JONG FIGHT CLUB , which is an e-AMUSMENT product that allows players to compete via an on-line amusement connection, developed well. Gaming machines in overseas markets achieved healthy sales. Konami Sports Corporation, which seeks to improve its customers’ quality of life based on the concept of “Exertainment”, introduced a next generation fitness machine and personal trainer program as well as a new sports club membership category all to improve customer convenience.

In order to better focus our business and management resources, we transferred our amusement arcade operations, which had been conducted by Konami Amusement Operation, Inc. to AmLead Co., Ltd. We did so to achieve business portfolio optimization. Konami Sports Corporation acquired NISSAY ATHLETICS COMPANY with the goal of expanding our network of fitness clubs. We are engaged in fast-paced business expansion and creating products and services that meet our customers’ needs.

As a result, consolidated net revenues for the year ended March 31, 2003 amounted to ¥253,657 million, which is the highest level recorded since our founding. However, based on the findings of a U.S. independent appraiser, we decided to recognize an impairment loss of ¥47,599 million because the fair value of goodwill and other intangible assets in the Exercise Entertainment segment had declined below carrying value. Consequently, consolidated operating loss, consolidated net loss before income taxes and consolidated net loss were ¥21,870 million, ¥22,096 million and ¥28,519 million, respectively.

Since all business segments generally performed favorably, dividends for the year ended March 31, 2003 were ¥54 per share (¥19 as of September 30, 2002 and ¥35 as of March 31, 2003).

 

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Table of Contents

 

Performance by business segment

 

Summary of net revenues by business segment:

 

    

Millions of Yen


      

Year-on-year

change

(%)


 
    

Year ended March 31,


      
    

2002


    

2003


      

Computer & Video Games

  

¥

90,129

 

  

¥

87,476

 

    

(2.9

)

Exercise Entertainment

  

 

65,650

 

  

 

78,525

 

    

19.6

 

Toy & Hobby

  

 

25,601

 

  

 

45,948

 

    

79.5

 

Amusement

  

 

37,918

 

  

 

34,305

 

    

(9.5

)

Gaming

  

 

3,063

 

  

 

8,215

 

    

168.2

 

Other

  

 

8,897

 

  

 

5,520

 

    

(38.0

)

Less: Intersegment revenues

  

 

(5,678

)

  

 

(6,332

)

    

—  

 

    


  


        

Consolidated net revenues

  

¥

225,580

 

  

¥

253,657

 

    

12.4

 

    


  


        
Note:   In the fourth quarter ended March 31, 2003, the Amusement segment transferred its health entertainment business to the Exercise Entertainment segment, and the Gaming segment transferred its token-operated game machine business to the Amusement segment. In accordance with these changes, results for the year ended March 31, 2002 have been reclassified to conform to the presentation for the year ended March 31, 2003.

 

The Computer & Video Games segment, taking advantage of the soccer boom in Japan, marked a new record with combined sales of over 1.8 million copies of WORLD SOCCER WINNING ELEVEN 6 and WORLD SOCCER WINNING ELEVEN 6: Final Evolution for the PlayStation 2. The JIKKYO POWERFULPROYAKYU series, our popular baseball game product, maintained stable sales. JIKKYO POWERFULPROYAKYU 9 for the PlayStation 2 and the Game Cube sold 570,000 copies. JIKKYO POWERFULPROYAKYU 9 KETTEIBAN for the PlayStation 2 and the Game Cube sold 180,000 copies. As for our tennis games, THE PRINCE OF TENNIS , a popular character from Shonen Jump (a Japanese weekly comic book for boys), THE PRINCE OF TENNIS: GENIUS BOYS ACADEMY and four other titles for the GameBoy Advance and THE PRINCE OF TENNIS: Sweat and Tears and three other titles for the PlayStation were released and sold over 600,000 copies altogether. A conference called “Seishun-Gakuen-Teikyu-Sai 2003” where fans of THE PRINCE OF TENNIS gathered in Ariake Tennis no Mori in the end of March contributed greatly to its regaining popularity.

In the overseas markets, Pro Evolution Soccer 2 for the PlayStation 2 recorded one million sales in Europe battling for the best soccer game status in Europe. As a result of maximized synergies with the TV program and the trading card game, Yu-Gi-Oh! THE ETERNAL DUELIST SOUL for the GameBoy Advance, Yu-Gi-Oh! FORBIDDEN MEMORIES for the PlayStation, and Yu-Gi-Oh! Dark Duel Stories for GameBoy Color, each of which recorded million sales, resulting in the sales for the Yu-Gi-Oh! series as a whole reached 4.6 million copies.

As a result, consolidated revenues of the Computer & Video Games segment were ¥87,476 million (97.1% of consolidated revenues for the year ended March 31, 2002).

 

The Exercise Entertainment segment worked to expand its network of fitness clubs by opening 16 facilities including Oyama (Tokyo), Yachiyodai (Chiba) Moriguchi (Osaka), Nishi-funabashi (Chiba) and other facilities operated by third parties. On March 24, 2003, we acquired all of the outstanding shares of the NISSAY ATHLETICS COMPANY, which became a wholly-owned subsidiary thereby adding five new directly-managed club facilities. Konami Sports Corporation merged with the acquired company on May 1, 2003. We also worked to improve customer satisfaction by moving six existing club facilities to better locations in the same neighborhood or by acquiring facilities that had been operated by other companies.

As for product branding activities, we integrated our Freizeit and Sele clubs into the Eg-zas brand on April 1, 2002, and introduced a new “Undo-Jyuku” on October 1, 2002 to strengthen brand recognition and provide more sophisticated facility services, aiming to improve the retention rate of current customers. In a move to improve customer convenience, we introduced new services and product such as a personal trainer system where an instructor with specialized knowledge provides individualized lessons for each customer. We also launched the first official i-mode (internet enabled cellular phone) site in the fitness industry, which provides various club facility information and health-related information.

We released home fitness products such as MARTIAL BEAT II , which is a popular martial arts fitness action game that uses video game software and can measure physical strength, and Aerobics Revolution , which allows players to enjoy realistic aerobics activity at home.

As a result, consolidated revenues of the Exercise Entertainment segment were ¥78,525 million (119.6% of consolidated revenues for the year ended March 31, 2002).

 

9


Table of Contents

The Toy & Hobby segment maintained solid card game sales with products such as the Yu-Gi-Oh! Official Card Game series and THE PRINCE OF TENNIS trading card game. In particular, the Yu-Gi-Oh! series for the U.S. released during the end of the previous fiscal year recorded better-than-expected sales growth and acquired an overwhelming share of the market during the Christmas season. The Yu-Gi-Oh! card game has been sold in Europe since the end of the previous fiscal year and is contributing to the global expansion of the product. A new series of the Yu-Gi-Oh! card game also maintained high levels of sales in Japan. As to other hobby products , DigiQ Train , Combat DigiQ , and DigiQ Formula , which are new MICROiR series products, also achieved robust sales. Candy toys, which enjoy popularity for their high quality figures, especially the SF Movie Selection: Thunderbirds series and the MIZUSHIMA SHINJI CHARACTERS YAKYUGUNZOU consistently achieved more than a million sales, which gave them a dominant position in the market. As a result, consolidated revenues of the Toy & Hobby segment were ¥ 45,948 million (179.5% of consolidated revenues for the year ended March 31, 2002).

 

The Amusement segment maintained favorable market acceptance of e-AMUSEMENT products for amusement arcades such as the MAH-JONG FIGHT CLUB series, which are video games that allow players to compete directly with players in other arcade game locations via an on-line amusement connection. We expanded the line-up of simulation games that can be played by more than one person such as WORLD COMBAT , a gun shooting game, as well as music simulation games such as pop n music , GUITAR FREAKS and drummania . These products maintained strong sales.

Token-operated products that continue to be popular such as GI-WINNING SIRE and GI-TURFWILD , the latest large-scale token-operated horse racing games in the GI series which has a realistic “right there in the midst of it” feel, FORTUNE ORB , a large-sized “penny-falls” game machine, popular for its entertaining stage effects, and Oval Arena , new large-scale token-operated bingo game machine with a player match-up function, also contributed the favorable sales.

The LCD unit business’s results declined relative to the previous year because sales to main customers were affected by the World Cup Soccer tournament. We plan to introduce differentiated and attractive products in the future. As a result, consolidated revenues of the Amusement segment were ¥34,305 million (90.5 % of consolidated revenues for the year ended March 31, 2002).

 

The Gaming segment acquired gaming licenses from 18 states in the U.S. and 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. We released a new gaming machine in February 2003 called ReNeA , which creates an innovative experience by combining stepper reels with a video image. The combination of WILD FIRE , a standalone progressive game, with existing gaming contents has been well received in Australia. We have acquired gaming licenses in all Australian states, and sales in New South Wales, Queensland and Victoria were especially strong. As a result, consolidated revenues of the Gaming segment were ¥8,215 million (268.2% of consolidated revenues for the year ended March 31, 2002).

 

Consolidated revenues for the Other segment were ¥5,520 million. (62.0% of consolidated revenues for the year ended March 31, 2002)

 

 

10


Table of Contents

 

Forecast for the year ending March 31, 2004

 

The Computer & Video Games segment expects to release branded popular sports titles like JIKKYO POWERFULPROYAKYU , the World Soccer Winning Eleven series and a more diverse line up of new original products. The segment will further enhance its competitiveness in the overseas market by working to expand the Yu-Gi-Oh! series in the U.S. and Europe. We also plan to strengthen the branded original title SILENT HILL series and soccer games and to release TEENAGE MUTANT NINJA TURTLES as a new big title based on the cartoon TV program started in February in 2003. In order to strengthen our product line up, Konami Computer Entertainment Osaka, Inc. merged with Konami Entertainment Studios, Inc., both of which are video game software producing subsidiaries on May 1, 2003.

 

The Exercise Entertainment segment will work to improve customer satisfaction by providing secure, clean and comfortable fitness club facilities. We also plan to improve the quality of our sports club services to fully satisfy diversified member needs by continuing to actively open new facilities and renew existing facilities. Based on the concept of “Exertainment”, which seeks to provide ways to exercise while continuing to have fun, we plan to introduce next generation fitness machines, expand home fitness products, provide personal health management information and establish a completely networked environment for sports clubs and households. By doing so we hope to set the new standard as to what a fitness club should be.

 

The Toy & Hobby segment expects to continue 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 program. We also plan to expand the product in Europe and organize an event, “Yu-Gi-Oh! World Championship 2003” that will attract competitors from around the world with the aim of making it a global hit. In addition, we plan to expand the value added product line-up of advanced-technology MICROiR toys and to establish Kids Smile , a new brand of intellectual education toys that we introduced in April 2003.

 

The Amusement segment will work to develop variations of hit products and genres and expand the e-AMUSEMENT product lineup with an aim to provide a more “enjoyable” and “interesting” experience for players at arcade amusement centers.

 

The Gaming segment will work to expand its product range by introducing original products. We also plan to expand distribution by introducing our products in new markets and increasing the number of states in the U.S. where we have licenses to conduct business.

 

With the “Pursuit of High Profits” in mind, each business segment will endeavor to provide high-quality products and services that target consumer needs.

 

Consolidated results for the year ending March 31, 2004 are expected to be as follows: ¥255,500 million of net revenues; ¥27,500 million of operating income; ¥26,700 million of income before income taxes, minority interest and equity in net income of affiliated companies; and ¥14,500 million of net income.

 

We do not disclose interim consolidated earnings forecasts because revenues fluctuate during the fiscal period resulting from the fact that we operate hit businesses that rely on the timely creation and introduction of new merchandise. Therefore, we strive to enhance the quality of our quarterly disclosure.

 

 

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(2) Cash Flows

 

Cash flow summary for the years ended March 31, 2002 and 2003:

 

    

Millions of Yen


 
    

Year ended March 31,


    

Year-on-year change


 
    

2002


    

2003


    

Net cash provided by operating activities

  

¥

11,119

 

  

¥

27,711

 

  

¥

16,592

 

Net cash used in investing activities

  

 

(16,024

)

  

 

(12,242

)

  

 

3,782

 

Net cash provided by (used in) financing activities

  

 

12,613

 

  

 

(16,443

)

  

 

(29,056

)

Effect of exchange rate changes on cash and cash equivalents

  

 

667

 

  

 

466

 

  

 

(201

)

Net increase (decrease) in cash and cash equivalents

  

 

8,375

 

  

 

(508

)

  

 

(8,883

)

Cash and cash equivalents at end of year

  

 

75,188

 

  

 

74,680

 

  

 

(508

)

 

Cash flows from operating activities:

Net cash provided by operating activities amounted to ¥27,711 million for the year ended March 31, 2003, which is a significant increase from ¥11,119 million during the previous year. This was due primarily to favorable results of the Computer & Video Games segment and Toy & Hobby segment, and a decrease in trade notes and accounts receivables of ¥4,580 million. The impairment charge of goodwill and other intangible assets in the Exercise Entertainment segment had no effect on cash flows.

 

Cash flows from investing activities:

Net cash used in investing activities amounted to ¥12,242 million for the year ended March 31, 2003 as compared to ¥16,024 million in the previous year. This resulted primarily from capital expenditures of ¥15,357 million, which was due mainly to active investment in property and equipment by the Exercise Entertainment segment. On the other hand, investments in new subsidiaries and affiliated companies decreased to ¥449 million from ¥7,423 million during the previous year.

 

Cash flows from financing activities:

Net cash used in financing activities amounted to ¥16,443 million for the year ended March 31, 2003 while net cash of ¥12,613 million was provided during the previous year. This was due primarily to active payment of dividends, repayments of debts and purchases of treasury stock with ¥14,893 million of proceeds from the issuance of bonds by Konami Sports Corporation. Proceeds from the Company’s issuance of bonds in the previous year were ¥44,681 million.

 

The following table represents certain cash flow indexes for the years ended March 31, 2002 and 2003.

 

    

Year ended March 31,


    

2002


  

2003


        Equity-assets ratio (%)

  

41.1

  

    32.5

        Equity-assets ratio based on market capitalization (%)

  

111.9

  

75.1

        Years of debt redemption (years)

  

5.7

  

2.7

        Interest coverage ratio (times)

  

14.5

  

29.5

 

Equity-assets ratio = Shareholders’ equity / Total assets

Equity-assets ratio based on market capitalization = Market capitalization / Total assets

Years of debt redemption = Interest-bearing debt / Cash flows from operating activities

Interest coverage ratio = Cash flows from operating activities / Interest paid

 

Notes:

1.   The above indexes are calculated on a consolidated basis with U.S. GAAP figures.
2.   Cash flows from operating activities are equal to net cash provided by operating activities on the consolidated statements of cash flows.
3.   Interest-bearing debts include all the liabilities on the consolidated balance sheets that incur interest expense.

 

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Table of Contents

 

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.

 

 

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Table of Contents

 

4. Consolidated Balance Sheets (Unaudited)

 

    

Millions of Yen


  

Thousands of U.S. Dollars


    

March 31,


  

March 31,


    

2002


  

2003


  

2003


         

%

       

%

    

ASSETS

                              

CURRENT ASSETS:

                              

Cash and cash equivalents

  

¥

75,188

       

¥

74,680

       

$

621,298

Trade notes and accounts receivable, net of allowance for doubtful accounts of ¥636 million and ¥976 million ($8,120 thousand) at March 31, 2002 and 2003, respectively

  

 

34,275

       

 

29,107

       

 

242,155

Inventories

  

 

15,990

       

 

13,359

       

 

111,140

Deferred income taxes, net

  

 

9,143

       

 

12,820

       

 

106,656

Prepaid expenses and other current assets

  

 

7,459

       

 

6,739

       

 

56,064

    

  
  

  
  

Total current assets

  

 

142,055

  

43.3

  

 

136,705

  

49.1

  

 

1,137,313

PROPERTY AND EQUIPMENT, net

  

 

43,562

  

13.3

  

 

46,284

  

16.6

  

 

385,058

INVESTMENTS AND OTHER ASSETS:

                              

Investments in marketable securities

  

 

204

       

 

189

       

 

1,572

Investments in affiliates

  

 

13,459

       

 

12,422

       

 

103,345

Identifiable intangible assets

  

 

60,169

       

 

46,503

       

 

386,880

Goodwill

  

 

36,825

       

 

125

       

 

1,040

Lease deposits

  

 

24,654

       

 

24,489

       

 

203,736

Other assets

  

 

7,163

       

 

11,533

       

 

95,948

    

  
  

  
  

Total investments and other assets

  

 

142,474

  

43.4

  

 

95,261

  

34.3

  

 

792,521

    

  
  

  
  

TOTAL ASSETS

  

¥

328,091

  

100.0

  

¥

278,250

  

100.0

  

$

2,314,892

    

  
  

  
  

 

(Continued on following page.)

 

14


Table of Contents

 

    

Millions of Yen


    

Thousands of U.S. Dollars


 
    

March 31,


    

March 31,


 
    

2002


    

2003


    

2003


 
           

%

           

%

        

LIABILITIES AND SHAREHOLDERS’ EQUITY

                                        

CURRENT LIABILITIES:

                                        

Short-term borrowings

  

¥

10,948

 

         

¥

8,308

 

         

$

69,118

 

Current portion of long-term debt and capital lease obligations

  

 

4,751

 

         

 

1,815

 

         

 

15,100

 

Trade notes and accounts payable

  

 

20,292

 

         

 

18,684

 

         

 

155,441

 

Accrued income taxes

  

 

13,224

 

         

 

13,788

 

         

 

114,709

 

Accrued expenses

  

 

21,120

 

         

 

18,968

 

         

 

157,804

 

Deferred revenue

  

 

3,866

 

         

 

5,535

 

         

 

46,048

 

Other current liabilities

  

 

5,347

 

         

 

4,676

 

         

 

38,902

 

    


  

  


  

  


Total current liabilities

  

 

79,548

 

  

24.2

 

  

 

71,774

 

  

25.8

 

  

 

597,122

 

LONG-TERM LIABILITIES:

                                        

Long-term debt and capital lease obligations, less current portion

  

 

48,031

 

         

 

63,514

 

         

 

528,403

 

Accrued pension and severance costs

  

 

2,607

 

         

 

2,345

 

         

 

19,509

 

Deferred income taxes, net

  

 

24,169

 

         

 

18,854

 

         

 

156,855

 

Other long-term liabilities

  

 

2,830

 

         

 

2,502

 

         

 

20,815

 

    


  

  


  

  


Total long-term liabilities

  

 

77,637

 

  

23.7

 

  

 

87,215

 

  

31.3

 

  

 

725,582

 

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES

  

 

35,916

 

  

11.0

 

  

 

28,855

 

  

10.4

 

  

 

240,058

 

COMMITMENTS AND CONTINGENCIES

  

 

—  

 

         

 

—  

 

         

 

—  

 

SHAREHOLDERS’ EQUITY:

                                        

Common stock, no par value-

                                        

Authorized 450,000,000 shares; issued 128,737,566 shares at March 31, 2002 and 2003

  

 

47,399

 

  

14.4

 

  

 

47,399

 

  

17.0

 

  

 

394,334

 

Additional paid-in capital

  

 

46,736

 

  

14.2

 

  

 

46,736

 

  

16.8

 

  

 

388,819

 

Legal reserve

  

 

2,163

 

  

0.7

 

  

 

2,163

 

  

0.8

 

  

 

17,995

 

Retained earnings

  

 

53,149

 

  

16.2

 

  

 

18,981

 

  

6.8

 

  

 

157,912

 

Accumulated other comprehensive income

  

 

546

 

  

0.2

 

  

 

790

 

  

0.3

 

  

 

6,572

 

    


  

  


  

  


Total

  

 

149,993

 

  

45.7

 

  

 

116,069

 

  

41.7

 

  

 

965,632

 

Treasury stock, at cost-

                                        

4,257,751 shares and 8,253,191 shares at March 31, 2002 and 2003, respectively

  

 

(15,003

)

  

(4.6

)

  

 

(25,663

)

  

(9.2

)

  

 

(213,502

)

    


  

  


  

  


Total shareholders’ equity

  

 

134,990

 

  

41.1

 

  

 

90,406

 

  

32.5

 

  

 

752,130

 

    


  

  


  

  


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

  

¥

328,091

 

  

100.0

 

  

¥

278,250

 

  

100.0

 

  

$

2,314,892

 

    


  

  


  

  


 

 

15


Table of Contents

 

5. Consolidated Statements of Income (Unaudited)

 

    

Millions of Yen


    

Thousands of U.S. Dollars


 
    

Year ended March 31,


    

Year ended March 31,


 
    

2002


  

2003


    

2003


 
           

%

         

%

        

NET REVENUES:

                                      

Product sales revenue

  

¥

165,154

 

       

¥

178,766

 

         

$

1,487,238

 

Service revenue

  

 

60,426

 

       

 

74,891

 

         

 

623,053

 

    


  
  


  

  


Total net revenues

  

 

225,580

 

  

100.0

  

 

253,657

 

  

100.0

 

  

 

2,110,291

 

    


  
  


  

  


COSTS AND EXPENSES:

                                      

Costs of products sold

  

 

104,192

 

       

 

112,364

 

         

 

934,809

 

Costs of services rendered

  

 

50,459

 

       

 

62,515

 

         

 

520,091

 

Impairment charge for goodwill and other intangible assets

  

 

—  

 

       

 

47,599

 

         

 

395,998

 

Selling, general and administrative

  

 

52,842

 

       

 

53,049

 

         

 

441,340

 

    


  
  


  

  


Total costs and expenses

  

 

207,493

 

  

92.0

  

 

275,527

 

  

108.6

 

  

 

2,292,238

 

    


  
  


  

  


Operating income (loss)

  

 

18,087

 

  

8.0

  

 

(21,870

)

  

(8.6

)

  

 

(181,947

)

    


  
  


  

  


OTHER INCOME (EXPENSES):

                                      

Interest income

  

 

244

 

       

 

373

 

         

 

3,103

 

Interest expense

  

 

(767

)

       

 

(938

)

         

 

(7,804

)

Gain on sale of subsidiary shares

  

 

4,655

 

       

 

904

 

         

 

7,521

 

Other, net

  

 

459

 

       

 

(565

)

         

 

(4,700

)

    


  
  


  

  


Other income (expenses), net

  

 

4,591

 

  

2.1

  

 

(226

)

  

(0.1

)

  

 

(1,880

)

    


  
  


  

  


INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST AND EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES

  

 

22,678

 

  

10.1

  

 

(22,096

)

  

(8.7

)

  

 

(183,827

)

INCOME TAXES:

                                      

Current

  

 

17,276

 

       

 

14,912

 

         

 

166,023

 

Deferred

  

 

(5,609

)

       

 

(8,726

)

         

 

(114,559

)

    


  
  


  

  


Total

  

 

11,667

 

  

5.2

  

 

6,186

 

  

2.4

 

  

 

51,464

 

    


  
  


  

  


INCOME (LOSS) BEFORE MINORITY INTEREST AND EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES

  

 

11,011

 

  

4.9

  

 

(28,282

)

  

(11.1

)

  

 

(235,291

)

MINORITY INTEREST IN INCOME (LOSS) OF CONSOLIDATED SUBSIDIARIES

  

 

364

 

  

0.1

  

 

(1,051

)

  

(0.4

)

  

 

(8,744

)

EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES

  

 

755

 

  

0.3

  

 

(1,288

)

  

(0.5

)

  

 

(10,716

)

    


  
  


  

  


NET INCOME (LOSS)

  

¥

11,402

 

  

5.1

  

¥

(28,519

)

  

(11.2

)

  

$

(237,263

)

    


  
  


  

  


PER SHARE DATA:

  

Yen


    

U.S. Dollars


 
    

Year ended March 31,


    

Year ended March 31,


 
    

2002


  

2003


    

2003


 

Basic and diluted net income (loss) per share

  

¥89.32

  

¥(234.58)

  

$

(1.95

)

    
  

  


Weighted-average common shares outstanding

  

127,647,120

  

121,572,154

        

 

Note:   Net income (loss) per share was prepared in accordance with Statement of Financial Accounting Standard (SFAS) No. 128 “Earnings per Share”. Konami had no dilutive securities outstanding at March 31, 2002 and 2003, and therefore there is no difference between basic and diluted EPS.

 

 

16


Table of Contents

 

6. Consolidated Statements of Shareholders’ Equity (Unaudited)

 

    

Millions of Yen


 
    

Common Stock


  

Additional Paid-in Capital


  

Legal Reserve


  

Retained Earnings


      

Accumulated Other Comprehensive Income


    

Treasury Stock, at Cost


    

Total Shareholders’ Equity


 

Balance at March 31, 2001

  

¥

47,399

  

¥

46,736

  

¥

1,770

  

¥

49,220

 

    

¥

26

 

  

 

—  

 

  

¥

145,151

 

Net income

                       

 

11,402

 

                      

 

11,402

 

Cash dividends, ¥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 loss

                       

 

(28,519

)

                      

 

(28,519

)

Cash dividends, ¥46.0 per share

                       

 

(5,649

)

                      

 

(5,649

)

Net unrealized losses on available-for-sale securities

                                  

 

159

 

           

 

159

 

Foreign currency translation adjustments

                                  

 

85

 

           

 

85

 

Repurchase of treasury stock

                                           

 

(10,660

)

  

 

(10,660

)

    

  

  

  


    


  


  


Balance at March 31, 2003

  

¥

47,399

  

¥

46,736

  

¥

2,163

  

¥

18,981

 

    

¥

790

 

  

¥

(25,663

)

  

¥

90,406

 

    

  

  

  


    


  


  


 

    

Thousands of U.S. Dollars


 
    

Common Stock


  

Additional Paid-in Capital


  

Legal Reserve


  

Retained Earnings


      

Accumulated Other Comprehensive Income


  

Treasury Stock, at Cost


    

Total Shareholders’ Equity


 

Balance at March 31, 2002

  

$

394,334

  

$

388,819

  

$

17,995

  

$

442,171

 

    

$

4,543

  

$

(124,817

)

  

$

1,123,045

 

Net loss

                       

 

(237,263

)

                    

 

(237,263

)

Cash dividends, $ 0.38 per share

                       

 

(46,996

)

                    

 

(46,996

)

Net unrealized losses on available-for-sale securities

                                  

 

1,322

           

 

1,322

 

Foreign currency translation adjustments

                                  

 

707

           

 

707

 

Repurchase of treasury stock

                                         

 

(88,685

)

  

 

(88,685

)

    

  

  

  


    

  


  


Balance at March 31, 2003

  

$

394,334

  

$

388,819

  

$

17,995

  

$

157,912

 

    

$

6,572

  

$

(213,502

)

  

$

752,130

 

    

  

  

  


    

  


  


 

 

17


Table of Contents

 

7. Consolidated Statements of Cash Flows (Unaudited)

 

    

Millions of Yen


    

Thousands of U.S. Dollars


 
    

Year ended March 31,


    

Year ended March 31,


 
    

2002


    

2003


    

2003


 

Cash flows from operating activities:

                          

Net income (loss)

  

¥

11,402

 

  

¥

(28,519

)

  

$

(237,263

)

Adjustments to reconcile net income to net cash provided by operating activities—  

                          

Depreciation and amortization

  

 

15,460

 

  

 

11,979

 

  

 

99,659

 

Impairment charge for goodwill and other intangible assets

  

 

—  

 

  

 

47,599

 

  

 

395,998

 

Provision for doubtful receivables

  

 

4,189

 

  

 

429

 

  

 

3,569

 

Loss on sale or disposal of property and equipment, net

  

 

924

 

  

 

2,344

 

  

 

19,501

 

Gain on sale of subsidiary shares

  

 

(4,655

)

  

 

(904

)

  

 

(7,521

)

Equity in net (income) loss of affiliated companies

  

 

(755

)

  

 

1,288

 

  

 

10,716

 

Minority interest

  

 

364

 

  

 

(1,051

)

  

 

(8,744

)

Deferred income taxes

  

 

(5,609

)

  

 

(11,326

)

  

 

(94,226

)

Change in assets and liabilities:

                          

Decrease (increase) in trade notes and accounts receivable

  

 

(3,930

)

  

 

4,580

 

  

 

38,103

 

Decrease (increase) in inventories

  

 

(1,594

)

  

 

2,556

 

  

 

21,264

 

Decrease in trade notes and accounts payable

  

 

(5,934

)

  

 

(1,521

)

  

 

(12,654

)

Increase (decrease) in accrued income taxes

  

 

(1,722

)

  

 

394

 

  

 

3,278

 

Increase (decrease) in accrued expenses

  

 

2,305

 

  

 

(2,271

)

  

 

(18,893

)

Increase in deferred revenue

  

 

805

 

  

 

1,669

 

  

 

13,885

 

Other, net

  

 

(131

)

  

 

465

 

  

 

3,869

 

    


  


  


Net cash provided by operating activities

  

 

11,119

 

  

 

27,711

 

  

 

230,541

 

Cash flows from investing activities:

                          

Purchases of investments in affiliates

  

 

(8,115

)

  

 

—  

 

  

 

—  

 

Purchases of investments in subsidiaries

  

 

—  

 

  

 

(315

)

  

 

(2,621

)

Proceeds from sales of investments in subsidiaries

  

 

1,797

 

  

 

2,081

 

  

 

17,313

 

Capital expenditures

  

 

(8,095

)

  

 

(15,357

)

  

 

(127,762

)

Proceeds from sales of property and equipment

  

 

444

 

  

 

2,234

 

  

 

18,586

 

Acquisition of new subsidiaries, net of cash acquired

  

 

692

 

  

 

(449

)

  

 

(3,735

)

Decrease in time deposits, net

  

 

90

 

  

 

516

 

  

 

4,293

 

Increase in lease deposits, net

  

 

(1,877

)

  

 

(306

)

  

 

(2,546

)

Other, net

  

 

(960

)

  

 

(646

)

  

 

(5,375

)

    


  


  


Net cash used in investing activities

  

 

(16,024

)

  

 

(12,242

)

  

 

(101,847

)

Cash flows from financing activities:

                          

Net decrease in short-term borrowings

  

 

(1,108

)

  

 

(2,448

)

  

 

(20,366

)

Proceeds from long-term debt

  

 

45,230

 

  

 

15,402

 

  

 

128.137

 

Repayments of long-term debt

  

 

(13,172

)

  

 

(2,765

)

  

 

(23,004

)

Principal payments under capital lease obligations

  

 

(2,407

)

  

 

(3,439

)

  

 

(28,611

)

Net proceeds from issuance of common stock by a subsidiary

  

 

7,035

 

  

 

—  

 

  

 

—  

 

Dividends paid

  

 

(7,652

)

  

 

(6,324

)

  

 

(52,612

)

Purchases of treasury stock by parent company

  

 

(15,006

)

  

 

(10,660

)

  

 

(88,685

)

Purchases of treasury stock by subsidiaries

  

 

(194

)

  

 

(4,516

)

  

 

(37,571

)

Other, net

  

 

(113

)

  

 

(1,693

)

  

 

(14,085

)

    


  


  


Net cash provided by (used in) financing activities

  

 

12,613

 

  

 

(16,443

)

  

 

(136,797

)

Effect of exchange rate changes on cash and cash equivalents

  

 

667

 

  

 

466

 

  

 

3,877

 

Net increase (decrease) in cash and cash equivalents

  

 

8,375

 

  

 

(508

)

  

 

(4,226

)

Cash and cash equivalents, beginning of year

  

 

66,813

 

  

 

75,188

 

  

 

625,524

 

    


  


  


Cash and cash equivalents, end of year

  

¥

75,188

 

  

¥

74,680

 

  

$

621,298

 

    


  


  


 

 

18


Table of Contents

8. Segment Information (Unaudited)

 

(1)    Operations in Different Industries

 

Year ended

March 31, 2002


  

Computer & Video Games


  

Exercise Entertainment


    

Toy & Hobby


  

Amusement


  

Gaming


    

Other


    

Total


  

Eliminations and Corporate


    

Consolidated


    

(Millions of Yen)

Net revenue:

                                                                      

Customers

  

¥

88,762

  

¥

65,619

 

  

¥

25,213

  

¥

36,649

  

¥

3,063

 

  

¥

6,274

 

  

¥

225,580

  

 

—  

 

  

¥

225,580

Intersegment

  

 

1,367

  

 

31

 

  

 

388

  

 

1,269

  

 

—  

 

  

 

2,623

 

  

 

5,678

  

¥

(5,678

)

  

 

—  

    

  


  

  

  


  


  

  


  

Total

  

 

90,129

  

 

65,650

 

  

 

25,601

  

 

37,918

  

 

3,063

 

  

 

8,897

 

  

 

231,258

  

 

(5,678

)

  

 

225,580

Operating expenses

  

 

71,777

  

 

70,273

 

  

 

18,400

  

 

29,318

  

 

5,789

 

  

 

9,241

 

  

 

204,798

  

 

2,695

 

  

 

207,493

    

  


  

  

  


  


  

  


  

Operating income (loss)

  

¥

18,352

  

¥

(4,623

)

  

¥

7,201

  

¥

8,600

  

¥

(2,726

)

  

¥

(344

)

  

¥

26,460

  

¥

(8,373

)

  

¥

18,087

    

  


  

  

  


  


  

  


  

 

Year ended

March 31, 2003


  

Computer & Video Games


  

Exercise Entertainment


    

Toy & Hobby


  

Amusement


  

Gaming


    

Other


    

Total


    

Eliminations and Corporate


    

Consolidated


 
    

(Millions of Yen)

 

Net revenue:

                                                                          

Customers

  

¥

85,891

  

¥

78,437

 

  

¥

45,887

  

¥

33,105

  

¥

8,215

 

  

¥

2,122

 

  

¥

253,657

 

  

 

—  

 

  

¥

253,657

 

Intersegment

  

 

1,585

  

 

88

 

  

 

61

  

 

1,200

  

 

—  

 

  

 

3,398

 

  

 

6,332

 

  

¥

(6,332

)

  

 

—  

 

    

  


  

  

  


  


  


  


  


Total

  

 

87,476

  

 

78,525

 

  

 

45,948

  

 

34,305

  

 

8,215

 

  

 

5,520

 

  

 

259,989

 

  

 

(6,332

)

  

 

253,657

 

Operating expenses

  

 

73,489

  

 

127,937

 

  

 

29,319

  

 

27,035

  

 

8,384

 

  

 

6,330

 

  

 

272,494

 

  

 

3,033

 

  

 

275,527

 

    

  


  

  

  


  


  


  


  


Operating income (loss)

  

¥

13,987

  

¥

(49,412

)

  

¥

16,629

  

¥

7,270

  

¥

(169

)

  

¥

(810

)

  

¥

(12,505

)

  

¥

(9,365

)

  

¥

(21,870

)

    

  


  

  

  


  


  


  


  


 

Year ended

March 31, 2003


  

Computer & Video Games


  

Exercise Entertainment


    

Toy & Hobby


  

Amusement


  

Gaming


    

Other


    

Total


    

Eliminations and Corporate


    

Consolidated


 
    

(Thousands of U.S. Dollars)

 

Net revenue:

                                                                          

Customers

  

$

714,567

  

$

652,554

 

  

$

381,755

  

$

275,417

  

$

68,344

 

  

$

17,654

 

  

$

2,110,291

 

  

 

—  

 

  

$

2,110,291

 

Intersegment

  

 

13,186

  

 

732

 

  

 

508

  

 

9,983

  

 

—  

 

  

 

28,270

 

  

 

52,679

 

  

$

(52,679

)

  

 

—  

 

    

  


  

  

  


  


  


  


  


Total

  

 

727,753

  

 

653,286

 

  

 

382,263

  

 

285,400

  

 

68,344

 

  

 

45,924

 

  

 

2,162,970

 

  

 

(52,679

)

  

 

2,110,291

 

Operating expenses

  

 

611,389

  

 

1,064,368

 

  

 

243,918

  

 

224,917

  

 

69,750

 

  

 

52,663

 

  

 

2,267,005

 

  

 

25,233

 

  

 

2,292,238

 

    

  


  

  

  


  


  


  


  


Operating income (loss)

  

$

116,364

  

$

(411,082

)

  

$

138,345

  

$

60,483

  

$

(1,406

)

  

$

(6,739

)

  

$

(104,035

)

  

$

(77,912

)

  

$

(181,947

)

    

  


  

  

  


  


  


  


  


 

Notes:

  1.   Primary businesses of each segment are as follows:

 

                  Computer & Video Games:

 

Production and sale of home-use video game software

                  Exercise Entertainment:

 

Operation of health and fitness clubs

                  Toy & Hobby:

 

Production and sale of character related products

                  Amusement:

 

Manufacture and sale of amusement arcade games, related components

and token-operated games for domestic market

                  Gaming:

 

Manufacture and sale of gaming machines for overseas market

                  Other:

 

Real estate management services provided primarily to our subsidiaries

 

  2.   In the third quarter ended December 31, 2002, the Health and Fitness (HF) segment and Character Products (CP) segment changed their names to Health & Fitness (H&F) and Toy & Hobby (T&H), respectively.

 

  3.   In the fourth quarter ended March 31, 2003, the Consumer Software (CS) segment, Health & Fitness (H&F) segment, Toy & Hobby (T&H) segment, Amusement Content (AC) segment and Gaming Content (GC) segment changed their names to Computer & Video Games, Exercise Entertainment, Toy & Hobby, Amusement and Gaming, respectively.

 

  4.   In the fourth quarter ended March 31, 2003, the Amusement segment transferred its health entertainment business to the Exercise Entertainment segment, and the Gaming segment transferred its token-operated game machine business to the Amusement segment. In accordance with these changes, results for the year ended March 31, 2002 have been reclassified to conform to the presentation for the year ended March 31, 2003.

 

  5.   ¥47,599 million ($395,998 thousand) of impairment charge for goodwill and other intangible assets was included in the operating expenses of the Exercise Entertainment segment for the year ended March 31, 2003.

 

  6.   Intersegment revenues primarily consist of sub-licensing of intellectual property rights from Computer & Video Games and Toy &Hobby to Amusement and Gaming, sales of hardware and components from Amusement and Gaming to Computer & Video Games and Exercise Entertainment, and administrative services provided by shared-service subsidiaries included in “Other”. “Eliminations and Corporate” primarily consists of eliminations of intercompany profits on inventories and expenses for corporate headquarters.

 

 

19


Table of Contents

 

(2)    Operations in Geographic Areas

 

Year ended March 31, 2002


  

Japan


  

Americas


    

Europe


  

Asia/Oceania


  

Total


  

Eliminations


    

Consolidated


    

(Millions of Yen)

Net revenue:

                                                    

Customers

  

¥

177,618

  

¥

26,002

 

  

¥

19,320

  

¥

2,640

  

¥

225,580

  

 

—  

 

  

¥

225,580

Intersegment

  

 

31,446

  

 

2,860

 

  

 

6

  

 

199

  

 

34,511

  

¥

(34,511

)

  

 

—  

    

  


  

  

  

  


  

Total

  

 

209,064

  

 

28,862

 

  

 

19,326

  

 

2,839

  

 

260,091

  

 

(34,511

)

  

 

225,580

Operating expenses

  

 

185,089

  

 

30,438

 

  

 

14,944

  

 

2,695

  

 

233,166

  

 

(25,673

)

  

 

207,493

    

  


  

  

  

  


  

Operating income (loss)

  

¥

23,975

  

¥

(1,576

)

  

¥

4,382

  

¥

144

  

¥

26,925

  

¥

(8,838

)

  

¥

18,087

    

  


  

  

  

  


  

 

Year ended March 31, 2003


  

Japan


    

Americas


  

Europe


  

Asia/Oceania


  

Total


    

Eliminations


    

Consolidated


 
    

(Millions of Yen)

 

Net revenue:

                                                        

Customers

  

¥

182,345

 

  

¥

47,729

  

¥

16,297

  

¥

7,286

  

¥

253,657

 

  

 

—  

 

  

¥

253,657

 

Intersegment

  

 

50,670

 

  

 

805

  

 

27

  

 

506

  

 

52,008

 

  

¥

(52,008

)

  

 

—  

 

    


  

  

  

  


  


  


Total

  

 

233,015

 

  

 

48,534

  

 

16,324

  

 

7,792

  

 

305,665

 

  

 

(52,008

)

  

 

253,657

 

Operating expenses

  

 

258,551

 

  

 

47,112

  

 

14,917

  

 

6,236

  

 

326,816

 

  

 

(51,289

)

  

 

275,527

 

    


  

  

  

  


  


  


Operating income (loss)

  

¥

(25,536

)

  

¥

1,422

  

¥

1,407

  

¥

1,556

  

¥

(21,151

)

  

¥

(719

)

  

¥

(21,870

)

    


  

  

  

  


  


  


 

Year ended March 31, 2003


  

Japan


    

Americas


  

Europe


  

Asia/Oceania


  

Total


    

Eliminations


    

Consolidated


 
    

(Thousands of U.S. Dollars)

 

Net revenue:

                                                        

Customers

  

$

1,517,013

 

  

$

397,080

  

$

135,582

  

$

60,616

  

$

2,110,291

 

  

 

—  

 

  

$

2,110,291

 

Intersegment

  

 

421,548

 

  

 

6,697

  

 

225

  

 

4,209

  

 

432,679

 

  

 

(432,679

)

  

 

—  

 

    


  

  

  

  


  


  


Total

  

 

1,938,561

 

  

 

403,777

  

 

135,807

  

 

64,825

  

 

2,542,970

 

  

 

(432,679

)

  

 

2,110,291

 

Operating expenses

  

 

2,151,007

 

  

 

391,947

  

 

124,101

  

 

51,880

  

 

2,718,935

 

  

 

(426,697

)

  

 

2,292,238

 

    


  

  

  

  


  


  


Operating income (loss)

  

$

(212,446

)

  

$

11,830

  

$

11,706

  

$

12,945

  

$

(175,965

)

  

$

(5,982

)

  

$

(181,947

)

    


  

  

  

  


  


  


Notes:

  1.   For the purpose of presenting its operations in geographic areas above, Konami attributes revenues from external customers to individual countries in each area based on where products are sold and services are provided.
  2.   ¥47,599 million ($395,998 thousand) of impairment charge for goodwill and other intangible assets was included in the operating expenses of the Japan segment for the year ended March 31, 2003.

 

20


Table of Contents

 

Notes (Unaudited):

 

1.   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 March 31, 2003 of ¥120.20 to $1 and are included solely for the convenience of the reader. The translation should not be construed as a representation that the yen amounts have been, could have been, or could in the future be converted into U.S. dollars at the above or any other rate.

 

2.   The consolidated financial statements presented herein were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).

 

3.   Comprehensive income for the years ended March 31, 2002 and 2003 consisted of the following:

 

    

Millions of Yen


    

Thousands of U.S. Dollars


 
    

Year ended March 31,


    

Year ended March 31,


 
    

2002


    

2003


    

2003


 

Net income (loss)

  

¥

11,402

 

  

¥

(28,519

)

  

$

(237,263

)

Other comprehensive income:

                          

Foreign currency translation adjustments

  

 

709

 

  

 

85

 

  

 

707

 

Net unrealized gains (losses) on available-for-sale securities

  

 

(189

)

  

 

159

 

  

 

1,323

 

    


  


  


    

 

520

 

  

 

244

 

  

 

2,030

 

    


  


  


Comprehensive income (loss)

  

¥

11,922

 

  

¥

(28,275

)

  

$

(235,233

)

    


  


  


 

4.   Adoption of New Accounting Standards

 

  (1)   Accounting for business combinations and goodwill and other intangible assets:

 

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” which supersedes Accounting Principles Board Opinion (“APB”) No. 16, “Business Combinations”. 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 Corporation and its subsidiaries (collectively “Konami”) adopted SFAS No. 141 on June 30, 2001 and the adoption did not have a material effect on Konami’s 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 on April 1, 2002.

 

Upon the adoption of SFAS No. 142 effective April 1, 2002, Konami completed its transitional impairment test for goodwill and other intangible assets based on their fair value. As a result, no impairment charge was recorded for any of the reporting units as of the April 1, 2002 measurement date.

 

During the fourth quarter ended March 31, 2003, Konami performed its annual impairment test for goodwill and other intangible assets and recorded a non-cash charge of ¥47,599 million ($395,998 thousand) as a component of operating loss in the accompanying consolidated statement of income for the year ended March 31, 2003. In the impairment test, Konami engaged a U.S. independent appraiser to determine the fair value of its certain reporting unit to which goodwill was allocated. Based on the appraiser’s findings, it was determined that the fair value of the Exercise Entertainment segment which included goodwill and indefinite-lived intangible assets was lower than the carrying value. As a result of the subsequent reassessment of fair values of goodwill and other intangible assets which were allocated to the Exercise Entertainment segment, an impairment loss of ¥36,717 million ($305,466 thousand) and ¥10,882 million ($90,532 thousand) was recognized for goodwill and trademarks, respectively, as a component of operating loss of the business segment for the year ended March 31, 2003. The impaired goodwill and trademarks all related to Konami Sports Corporation (“Konami Sports”), which is a subsidiary in the Exercise Entertainment segment and operates sports club facilities in Japan.

 

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The following table represents the impact of SFAS No. 142 on net income and net income per share previously reported for the year ended March 31, 2002, had the statement been in effect on April 1, 2001:

 

    

Millions of Yen


    

Year ended March 31,


    

2002


Reported net income

  

¥

11,402

Add back:

      

Goodwill amortization

  

 

1,853

Intangible assets amortization

  

 

452

Goodwill amortization related to equity method affiliates

  

 

181

Intangible assets amortization related to equity method affiliates

  

 

9

    

Adjusted net income

  

¥

13,897

    

 

    

Yen


    

Year ended March 31,


    

2002


Per share data:

      

Reported net income per share, basic and diluted

  

¥

89.32

Add back:

      

Goodwill amortization

  

 

14.52

Intangible assets amortization

  

 

3.54

Goodwill amortization related to equity method affiliates

  

 

1.42

Intangible assets amortization related to equity method affiliates

  

 

0.07

    

Adjusted net income per share, basic and diluted

  

¥

108.87

    

 

  (2)   Impairment or Disposal of Long-Lived Assets:

 

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 supersedes 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 supersedes APB 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 adopted SFAS No. 144 on April 1, 2002 and the adoption did not have a material effect on Konami’s results of operations, financial position or cash flows.

 

5.   Investments in Affiliates

 

Considering the flagging economy and stock market in Japan during the year ended March 31, 2003, Konami reviewed the values of its equity method investments in order to determine if there was any other-than-temporary decline in investment values. In performing the assessment, Konami utilized cash flow projections, market capitalization and if applicable, independent valuations.

 

As a result of such assessment, Konami determined that the decline in value of investment in Hudson Soft Co., Ltd., a producer of video game software, was other than temporary and recorded a net-of-tax impairment charge of ¥2,438 million ($20,283 thousand) for the year ended March 31, 2003. The impairment charge is included in equity in net loss of affiliated companies in the accompanying consolidated statement of income.

 

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6.   Goodwill

 

The changes in the carrying amount of goodwill by operating segment for the years ended March 31, 2002 and 2003 are as follows:

 

    

Millions of Yen


 
    

Exercise Entertainment


    

Gaming


  

Total


 

Balance at April 1, 2001

  

¥

36,913

 

  

 

—  

  

¥

36,913

 

Additional acquisitions during year

  

 

1,647

 

  

¥

125

  

 

1,772

 

Amortization during year

  

 

(1,860

)

  

 

—  

  

 

(1,860

)

    


  

  


Balance at March 31, 2002

  

¥

36,700

 

  

¥

125

  

¥

36,825

 

Additional acquisitions during year

  

 

389

 

  

 

—  

  

 

389

 

Effect of a merger between acquired entities

  

 

(168

)

  

 

—  

  

 

(168

)

Post-acquisition adjustment

  

 

(204

)

  

 

—  

  

 

(204

)

Impairment charge

  

 

(36,717

)

  

 

—  

  

 

(36,717

)

    


  

  


Balance at March 31, 2003

  

¥

—  

 

  

¥

125

  

¥

125

 

    


  

  


 

    

Thousands of U.S. Dollars


 
    

Exercise Entertainment


    

Gaming


  

Total


 

Balance at March 31, 2002

  

$

305,324

 

  

$

1,040

  

$

306,364

 

Additional acquisitions during year

  

 

3,236

 

  

 

—  

  

 

3,236

 

Effect of a merger between acquired entities

  

 

(1,397

)

  

 

—  

  

 

(1,397

)

Post-acquisition adjustment

  

 

(1,697

)

  

 

—  

  

 

(1,697

)

Impairment charge

  

 

(305,466

)

  

 

—  

  

 

(305,466

)

    


  

  


Balance at March 31, 2003

  

$

—  

 

  

$

1,040

  

$

1,040

 

    


  

  


 

7.   Identifiable Intangible Assets

 

Identifiable intangible assets at March 31, 2002 and 2003 consisted of the following:

 

    

Millions of Yen


    

Thousands of U.S. Dollars


 
    

March 31,


    

March 31,


 
    

2002


    

2003


    

2003


 

Identifiable intangible assets subject to amortization:

                          

Membership lists

  

¥

5,915

 

  

¥

5,915

 

  

$

49,210

 

Existing technology

  

 

800

 

  

 

721

 

  

 

5,998

 

Customer relationships

  

 

93

 

  

 

84

 

  

 

699

 

    


  


  


Total

  

 

6,808

 

  

 

6,720

 

  

 

55,907

 

Less-Accumulated amortization

  

 

(3,177

)

  

 

(5,878

)

  

 

(48,902

)

    


  


  


Net amortized identifiable intangible assets

  

 

3,631

 

  

 

842

 

  

 

7,005

 

Identifiable intangible assets with an indefinite life:

                          

Trademarks

  

 

49,682

 

  

 

38,800

 

  

 

322,795

 

Franchise contracts

  

 

6,601

 

  

 

6,601

 

  

 

54,917

 

Gaming licenses

  

 

255

 

  

 

260

 

  

 

2,163

 

    


  


  


Total unamortized identifiable intangible assets

  

 

56,538

 

  

 

45,661

 

  

 

379,875

 

    


  


  


Total identifiable intangible assets

  

¥

60,169

 

  

¥

46,503

 

  

$

386,880

 

    


  


  


 

 

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9. Summary of Non-consolidated Financial Results

for the Year Ended March 31, 2003

(Prepared in Accordance with Japanese GAAP)

May 22, 2003

 

KONAMI CORPORATION

Address:

 

4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan

Stock Code Number, TSE:

 

9766

Ticker symbol, NYSE:

 

KNM

URL:

 

http://www.konami.com

Shares Listed:

 

Tokyo Stock Exchange, New York Stock Exchange, London Stock Exchange
and Singapore Exchange

Representative:

 

Kagemasa Kozuki, Chairman of the Board and Chief Executive Officer

Contact:

 

Noriaki Yamaguchi, Executive Vice President and Chief Financial Officer

(Phone:+81-3-5220-0163)

Date of Board Meeting to approve the financial results:

 

May 22, 2003

Date of General Shareholders Meeting:

 

June 19, 2003

Adoption of interim divided system:

 

Yes

Adoption of unit trading system:

 

Yes (1 Unit: 100 Shares)

 

1.    Financial Results for the Year Ended March 31, 2003

 

(1)    Results of Operations

 

    

(Figures truncated)


 
    

Net revenues

(millions of yen)


    

Year-on-year

change (%)


    

Operating income

(millions of yen)


    

Year-on-year

change (%)


    

Ordinary income

(millions of yen)


    

Year-on-year

change (%)


 

Year ended March 31, 2003

  

130,186

    

5.6

 

  

11,577

    

4.5

 

  

13,068

    

10.8

 

Year ended March 31, 2002

  

123,283

    

(17.0

)

  

11,083

    

(67.5

)

  

11,792

    

(64.5

)

 

    

Net income

(millions of yen)


      

Year-on-year

change (%)


    

Net income

per share

(yen)


    

Diluted

net income

per share

(yen)


  

Return on

equity

(%)


    

Return on

total assets

(%)


  

Ratio of

ordinary

income to

net revenues

(%)


Year ended March 31, 2003

  

(11,284

)

    

—  

 

  

(92.82

)

  

—  

  

(9.5

)

  

6.6

  

10.1

Year ended March 31, 2002

  

8,675

 

    

(51.9

)

  

67.96

 

  

—  

  

6.2

 

  

5.8

  

9.6

 

Notes:

1.   Weighted-average common share outstanding:

 

              Year ended March 31, 2003:

  

121,572,154 shares

              Year ended March 31, 2002:

  

127,647,120 shares

 

2.   Change in accounting policies: None
3.   Change (%) of net revenues, operating income, ordinary income and net income represents the increase or decrease ratio in relation with the same period of the previous year.

 

 

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(2)    Dividends

 

    

Cash dividends per share


  

Total dividend payout

  

Pay-out ratio

    

Dividend rate for shareholder’s equity

    

Annual

  

Interim

  

Year-end

          
    

(yen)


  

(yen)


  

(yen)


  

(millions of yen)


  

(%)


    

(%)


Year ended March 31, 2003

  

54.00

  

19.00

  

35.00

  

6,506

  

—  

    

6.2

Year ended March 31, 2002

  

54.00

  

27.00

  

27.00

  

6,836

  

78.8

    

5.2

 

(3)    Financial Position

 

    

Total assets

(millions of yen )


  

Total

shareholders’

equity

(millions of yen)


    

Equity-assets ratio (%)


  

Total shareholders’ equity per share (yen)


Year ended March 31, 2003

  

186,668

  

105,107

    

56.3

  

872.38

Year ended March 31, 2002

  

208,896

  

132,573

    

63.5

  

1,029.80

 

Notes:

Number of shares outstanding

                March 31, 2003

  

120,484,375 shares

                March 31, 2002

  

124,479,815 shares

 

        Number of treasury stock

                March 31, 2003

  

8,253,191 shares

                March 31, 2002

  

4,257,751 shares

 

2.    Financial Forecast for the Year Ending March 31, 2004

 

      

Net revenues

(millions of yen)


    

Ordinary income

(millions of yen)


    

Net income

(millions of yen)


  

Cash dividends per share


                   

Interim

(yen)


  

Year-end

(yen)


  

Annual

(yen)


                         

Six months ending September 30, 2003

                       

27.00

  

—  

  

—  

Year ending March 31, 2004

                       

—  

  

27.00

  

54.00

 

Notes:

1.   Non-consolidated financial forecast for the year ending March 31, 2004 is not disclosed.

 

 

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10. Non-consolidated Financial Statements

 

(1)    Non-consolidated Balance Sheets (Unaudited)

    

(Millions of yen)


    

March 31, 2002


  

March 31, 2003


           

%

         

%

ASSETS

                           

CURRENT ASSETS:

                           

Cash and cash equivalents

  

 

36,389

 

       

 

31,976

 

    

Trade notes receivable

  

 

163

 

       

 

37

 

    

Trade accounts receivable (Note 2)

  

 

35,383

 

       

 

30,068

 

    

Finished products

  

 

409

 

       

 

2,008

 

    

Raw materials and supplies

  

 

1,133

 

       

 

1,000

 

    

Work in process

  

 

2,702

 

       

 

2,409

 

    

Advances (Note 2)

  

 

2,445

 

       

 

3,144

 

    

Prepaid expenses

  

 

1,791

 

       

 

1,590

 

    

Short-term loans to subsidiaries

  

 

8,400

 

       

 

12,797

 

    

Other accounts receivable

  

 

—  

 

       

 

5,599

 

    

Refundable income taxes

  

 

—  

 

       

 

1,789

 

    

Deferred tax assets

  

 

4,740

 

       

 

12,099

 

    

Other

  

 

629

 

       

 

692

 

    

Allowance for bad debts

  

 

(13

)

       

 

(407

)

    
    


  
  


  

Total current assets

  

 

94,176

 

  

45.1

  

 

104,806

 

  

56.1

FIXED ASSETS:

                           

Tangible fixed assets (Note 1)

                           

Buildings

  

 

4,636

 

       

 

4,379

 

    

Structures

  

 

114

 

       

 

88

 

    

Machinery

  

 

4

 

       

 

0

 

    

Transportation equipment

  

 

16

 

       

 

10