1st Quarter Results

Konami Corporation 29 July 2004 Consolidated Financial Results for the First Quarter Ended June 30, 2004 (Prepared in Accordance with U.S. GAAP) July 29, 2004 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) 1. Preparation Basis for Consolidated Financial Results for the First Quarter Ended June 30, 2004 (1) Adoption of U.S. GAAP: Yes (2) Adoption of simplified methods in accounting None principles: (3) Change in accounting policies: None (4) Changes in reporting entities: None 2. Consolidated Financial Results for the First Quarter Ended June 30, 2004 (Amounts are rounded to the nearest million) (1) Consolidated Results of Operations (Millions of Yen, except per share data) Net revenues Operating income Income before income taxes Three months ended June 30, 2004 Y 47,321 Y 2,947 Y 2,870 % change from previous period (17.6) (69.3) (70.2) Three months ended June 30, 2003 57,425 9,590 9,623 % change from previous period - - - Year ended March 31, 2004 273,412 40,713 40,107 Net income Diluted net income Net income per share (Yen) per share (Yen) Three months ended June 30, 2004 Y 264 Y 2.19 - % change from previous period (93.7) - - Three months ended June 30, 2003 4,175 34.65 - % change from previous period - - - Year ended March 31, 2004 20,104 166.86 - Notes: 1. Equity in net income (loss) of affiliated companies Three months ended June 30, 2004: Y(825) million Three months ended June 30, 2003: Y(502) million Year ended March 31, 2004: Y252 million 2. Weighted-average common shares outstanding (consolidated) Three months ended June 30, 2004: 120,482,960 shares Three months ended June 30, 2003: 120,484,327 shares Year ended March 31, 2004: 120,483,869 shares 3. Net income per share was calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 128 ''Earnings per Share.'' 4. Consolidate financial statements for the first quarter ended June 30, 2002 was not prepared in accordance with U.S. GAAP. Therefore, the percentage of changes for the first quarter ended June 30, 2003 is not presented herein. (2) Consolidated Financial Position (Millions of Yen, except per share amounts) Total Equity-assets Total stockholders' stockholders' Total assets Equity ratio equity per share (Yen) June 30, 2004 Y 284,442 Y 99,216 34.9% Y 823.48 June 30, 2003 276,960 90,967 32.8 755.01 March 31, 2004 294,497 102,129 34.7 847.66 Note: Number of shares outstanding (consolidated) June 30, 2004: 120,482,792 shares June 30, 2003: 120,484,298 shares March 31, 2004: 120,483,252 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 Three months ended June 30, 2004 Y 306 Y (3,512) Y (2,919) Y 81,000 Three months ended June 30, 2003 2,558 (1,738) (5,038) 71,169 Year ended March 31, 2004 34,326 (7,001) (14,141) 86,885 3. Consolidated Financial Forecast for the Year Ending March 31, 2005 (Millions of Yen) Net revenues Operating Income before Net income income income taxes Year ending March 31, Y 275,000 Y 28,000 Y 27,000 Y 15,000 2005 There has been no change in our forecast for the year ending March 31, 2005, since we originally announced. 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 health & fitness business; (vi) regulatory developments and changes and our ability to respond and adapt to those changes; (vii) our expectations with regard to further acquisitions and the integration of any companies we may acquire; and (viii) the outcome of contingencies. 1. Organizational Structure of the Konami Group The Konami Group is a conglomerate engaged in the amusement and health industry providing customers with ''High Quality Life'' and is comprised of KONAMI CORPORATION (the ''Company''), its 28 consolidated subsidiaries and 3 equity method affiliates. Each of the Company, its subsidiaries and affiliated companies is categorized into business segments based on its operations as stated below. Business segment categorization is based on the same criteria explained below under ''6. Segment Information (Unaudited).'' Business Segments Major Companies Computer & Video Games Domestic The Company Konami Marketing Japan, Inc. Konami Computer Entertainment Studios, Inc. Konami Computer Entertainment Tokyo, Inc. Konami Computer Entertainment Japan, Inc. Konami Online, Inc., TAKARA CO., LTD. (*2) HUDSON SOFT CO., LTD. (*2), Genki Co., Ltd. (*2) Overseas Konami Digital Entertainment, Inc. Konami of Europe GmbH Konami Marketing (Asia) Ltd. Konami Software Shanghai, Inc., One other company Toy & Hobby Domestic The Company Konami Marketing Japan, Inc. Konami Media Entertainment, Inc. Konami Traumer, Inc., Konami Online, Inc. Overseas Konami Marketing, Inc. Konami Corporation of Europe B.V. Konami Marketing (Asia) Ltd. Amusement Domestic The Company Konami Marketing Japan, Inc. KPE, Inc., Konami Online, Inc., One other company Overseas Konami Marketing, Inc. Konami Corporation of Europe B.V. Konami Marketing (Asia) Ltd. Gaming Domestic The Company Overseas Konami Gaming, Inc. Konami Australia Pty Ltd, One other company Health & Fitness Domestic Konami Sports Corporation Konami Sports Life Corporation Konami Online, Inc., One other company Other Domestic Konami Marketing Japan, Inc., Konami School, Inc. Konami Computer Entertainment School, Inc. Konami Real Estate, Inc., One other company Overseas Konami Corporation of America Konami Corporation of Europe 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. These are equity method affiliates. 2. Business Performance and Cash Flows 1. Business Performance Overview In the entertainment industry in which we operate, the mobile and online game markets grew and expanded as a result of the enhancement of broadband. In the home video game market, both Nintendo and SONY introduced new style portable game consoles and are trying to develop a new market. In the health industry, a health conscious trend especially among the middle-aged and senior groups seemed to have encouraged consumption along with improved consumer confidence in Japan's economy. We performed well in most business segments for the three months ended June 30, 2004. In the Computer & Video Games segment, at E3 (Electronic Entertainment Expo) 2004 held in May in the U.S., which is the biggest digital entertainment fair in the world, we presented many upcoming titles and received favorable feedback. The Toy & Hobby segment maintained its solid performance due to favorable sales of the Yu-Gi-Oh! trading card game in the U.S. and Europe and increased sales of a new product called the GRANSAZERS series, which was introduced in the fall 2003 as a boy's toy. We also participated in the planning and development of the Get Ride! AMDRIVER, a TV originated animation, which has been broadcasted on Japanese TV since April 2004, to start a big media-mix project. In the Amusement segment, we released BATTLE CLIMAXX!, the first online professional wrestling battle video game machine in the industry and GIGADRAKE, a token-operated product with a combination of a card game and a slot, and those e-AMUSEMENT products generated solid achievement. As for the Gaming segment, we recorded favorable sales in North America and Australia by enhancing our products line-up. In the Health & Fitness segment, we introduced our original fitness machines at the Health & Fitness Japan 2004, the industry's convention held in June 2004, and received favorable reviews. In addition, with advocating 'fun and healthy' as a concept of our business, we newly released Refreshmentbike, a home use fitness machine, and Kenshin-Keikaku, a PC software for improving living habits. In addition, we announced our participation in development and sales of supplements, and proposed new life style of 'sustaining health with fun' at every scene. As a result, the consolidated net revenue for the three months ended June 30, 2004 amounted to Y47,321 million, the consolidated operating income was Y2,947 million, the consolidated income before income taxes, minority interest and equity in net loss of affiliated companies was Y2,870 million, and the consolidated net income was Y264 million. Performance by business segment Summary of net revenues by business segment: Millions of Yen Three months Three months % of previous ended ended period June 30, 2003 June 30, 2004 Computer & Video Games Y 13,103 Y 9,101 69.5 Toy & Hobby 16,632 7,110 42.7 Amusement 6,597 8,969 136.0 Gaming 2,543 3,270 128.6 Health & Fitness 18,987 19,210 101.2 Other, Corporate and Eliminations (437) (339) - Consolidated net revenues Y 57,425 Y 47,321 82.4 Note: Health & Fitness segment was renamed from Exercise Entertainment segment as of March 29, 2004. In the Computer & Video Games segment, we recorded favorable domestic shipment for Professional Baseball Spirits 2004 and SILENT HILL 4 -The Room- for PlayStation 2, both of which were released in March 2004. As for overseas market, the Yu-Gi-Oh! series maintained its popularity. Yu-Gi-Oh! Reshelf of Destruction for Game Boy Advance and Yu-Gi-Oh! World Championship Tournament 2004 for Game Boy Advance increased sales in North America and Europe, respectively. As a result, the consolidated net revenue of the Computer & Video Games segment was Y9,101 million for the three months ended June 30, 2004 (69.5% of the three months ended June 30, 2003). In the Toy & Hobby segment, we have been developing our business presence mainly in boy's toy field since last year. We paid our attention to the continuously growing animation market further to explore the boy's toy field, and we fully participated in a planning and development of the Get Ride! AMDRIVER, a TV originated animation, which has been broadcasted on Japanese TV since April 2004, with which we have started a big media-mix project by tying up with the multimedia. We will foster the content to the extent it generates the synergy effects among each segment of Konami group. We also introduced a new product for the GRANSAZERS series which we have been facilitating the commercialization in line with a TV program broadcasted since October 2003 and we increased sales as a result of this. In other categories, sales of the Yu-Gi-Oh! trading card game continued strong in the U.S. and Europe and the Yu-Gi-Oh! series achieved global expansion in Japan, the U.S. and Europe. As a result, the consolidated net revenue of the Toy & Hobby segment was Y7,110 million for the three months ended June 30, 2004 (42.7% of the three months ended June 30, 2003). In the Amusement segment, in the video game, e-AMUSEMENT products for amusement arcades, such as BATTLE CLIMAXX!, a professional wrestling trading card game and the MAH-JONG FIGHT CLUB series, which allows online match-up among remote players nation-wide received favorable reviews. Music simulation game series, such as drummania, GUITARFREAKS and pop'n music, remained strong as a result of the development of the new versions and the e-AMUSEMENT system also pushed up the sales. In the token-operated products, GI-TURFWILD 2, a large scale token operated horse racing game, which makes players feel as though they are in the race track and has more advanced features than GI-WINNING SIRE, and GIGADRAKE, a new style battle game with a combination of card game and slot were continuously in a good demand. In addition, Fantasic Fever, penny-falls game machine which produces the fusion of sounds and lights, received favorable reviews. As a result, the consolidated net revenue of the Amusement segment was Y8,969 million for the three months ended June 30, 2004 (136.0% of the three months ended June 30, 2003). As for the Gaming segment, we continued to mark solid sales from our main products, including MARIACHI MADNESS and SOLSTICE GOLD in the North America market especially in Nevada and California, and Ontario in Canada. We introduced ADVANTAGE SERIES, a Mechanical Slot Machines product in December 2003 which increased our sales. Although Australian market leveled off, we secured our sales with our main products such as EGYPTAGON. As to the status of the acquisition of gaming licenses, we have obtained licenses in the total of 23 states, of which 18 states in the United States, four states in Canada and one dominion of the United States after we acquire a license in Saskatchewan in Canada in April 2004. We own gaming licenses in every state in Australia. As a result, the consolidated net revenue of the Gaming segment was Y3,270 million for the three months ended June 30, 2004 (128.6% of the three months ended 30, 2003). With regard to the Health & Fitness segment, in the business to operate sports club facilities, we opened the Fukuokatenjin branch in Fukuoka in April 2004 and the Oitaakino branch in Oita in May 2004 to expand the Konami Sports Club's facility networks. As to new products and services, we introduced a new corporate membership system which offers members a choice between pay-per use and pay-per month, and under which members' families at age 16 or over can use the facilities. As to the existing facilities, we have been introducing services such as massage, esthetic and clinic services for treatment in our exercise facilities gradually to improve customers' satisfaction. As to the fitness products business, for commercial use, we utilize our knowledge in entertainment business and our network technologies to promote expansion of our fitness machine products line-up such as the EZ series and introduced them into our exercise facilities and received highly favorable reviews from our members. As for home use, we entered into the market of home use fitness products and released Refreshmentbike, a home use fitness machine which features a function to generate the highly concentrated oxygen and negative ions, and Kenshin-Keikaku, a PC software to display and manage exercise data stored in e-walkeylife, a pedometer with multi-functions. And also we introduced Diet Channel for PlayStation 2, a game software which emulates contents concerning diet, and we also made efforts to increase sales of the existing products such as MARTIALBEAT2. As a result, the consolidated net revenue of the Health & Fitness segment was Y19,210 million for the three months ended June 30, 2004 (101.2% of the three months ended June 30, 2003). (2) Cash Flows Cash flow summary for the three months ended June 30, 2004: Millions of Yen Three months Three months ended ended June 30, 2003 June 30, 2004 Net cash provided by operating activities Y 2,558 Y 306 Net cash used in investing activities (1,738) (3,512) Net cash used in financing activities (5,038) (2,919) Effect of exchange rate changes on cash and cash 707 240 equivalents Net increase in cash and cash equivalents (3,511) (5,885) Cash and cash equivalents, end of the period 71,169 81,000 Cash flows from operating activities: Net cash provided by operating activities amounted to Y306 million for the three months ended June 30, 2004, compared to Y2,558 million for the three months ended June 30, 2003. Cash flows from investing activities: Net cash used in investing activities amounted to Y3,512 million for the three months ended June 30, 2004, compared to Y1,738 million for the three months ended June 30, 2003. This resulted primarily from acquisitions of property and equipment totaling Y3,629 million. Cash flows from financing activities: Net cash used in financing activities amounted to Y2,919 million for the three months ended June 30, 2004, compared to Y5,038 million for the three months ended June 30, 2003. This was due primarily to Y4,099 million payments of dividends despite an increase of Y2,513 million in short-term borrowings. 3. Consolidated Balance Sheets (Unaudited) Millions of Yen Thousands of U.S. Dollars March 31, 2004 June 30, 2004 June 30, 2004 % % ASSETS CURRENT ASSETS: Cash and cash equivalents Y 86,885 Y 81,000 $ 747,026 Trade notes and accounts receivable, net of 25,438 17,494 161,339 allowance for doubtful accounts of Y709 million and Y700 million ($6,456 thousand) at March 31, 2004 and June 30, 2004, respectively Inventories 17,821 21,042 194,061 Deferred income taxes, net 13,895 14,993 138,274 Prepaid expenses and other current assets 8,727 7,828 72,193 Total current assets 152,766 51.9 142,357 50.0 1,312,893 PROPERTY AND EQUIPMENT, net 46,700 15.8 46,277 16.3 426,792 INVESTMENTS AND OTHER ASSETS: Investments in marketable securities 124 127 1,171 Investments in affiliates 12,514 11,434 105,451 Identifiable intangible assets 45,984 45,942 423,702 Goodwill 463 463 4,270 Lease deposits 23,967 24,016 221,489 Other assets 11,979 13,826 127,510 Total investments and other assets 95,031 32.3 95,808 33.7 883,593 TOTAL ASSETS Y 294,497 100.0 Y 284,442 100.0 $ 2,623,278 See accompanying notes to consolidated financial statements Millions of Yen Thousands of U.S. Dollars March 31, 2004 June 30, 2004 June 30, 2004 % % LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings Y 2,585 Y 5,099 $ 47,026 Current portion of long-term debt and 2,900 2,756 25,417 capital lease obligations Trade notes and accounts payable 15,998 13,664 126,017 Accrued income taxes 23,318 19,071 175,883 Accrued expenses 18,651 14,903 137,444 Deferred revenue 6,036 6,147 56,691 Other current liabilities 3,311 4,217 38,891 Total current liabilities 72,799 24.7 65,857 23.2 607,369 LONG-TERM LIABILITIES: Long-term debt and capital lease 68,195 67,814 625,417 obligations, less current portion Accrued pension and severance costs 2,350 2,305 21,258 Deferred income taxes, net 19,195 20,584 189,837 Other long-term liabilities 2,420 2,306 21,267 Total long-term liabilities 92,160 31.3 93,009 32.7 857,779 TOTAL LIABILITIES 164,959 56.0 158,866 55.9 1,465,148 MINORITY INTEREST IN 27,409 9.3 26,360 9.2 243,106 CONSOLIDATED SUBSIDIARIES COMMITMENTS AND - - - CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, no par value- Authorized 450,000,000 shares; issued 47,399 16.1 47,399 16.7 437,139 128,737,566 shares at March 31, 2004 and June 30, 2004; outstanding 120,483,252 shares at March 31, 2004 and 120,482,792 shares at June 30, 2004 Additional paid-in capital 46,736 15.9 46,736 16.4 431,025 Retained earnings 33,779 11.4 30,500 10.7 281,287 Accumulated other comprehensive (119) (0.0) 248 0.1 2,287 income (loss) Total 127,795 43.4 124,883 43.9 1,151,738 Treasury stock, at cost- 8,254,314 shares and 8,254,774 shares (25,666) (25,667) (9.0) (236,714) at March 31, 2004 and June 30, 2004, (8.7) respectively Total stockholders' equity 102,129 34.7 99,216 34.9 915,024 TOTAL LIABILITIES, MINORITY INTERESTS Y 294,497 100.0 Y 284,442 100.0 $2,623,278 AND STOCKHOLDERS' EQUITY See accompanying notes to consolidated financial statements 4. Consolidated Statements of Operations (Unaudited) Millions of Yen Thousands of U.S. Dollars Three months Three months ended ended June 30, June 30, 2003 2004 2004 % % NET REVENUES: Product sales revenue Y 38,914 Y 28,433 $ 262,225 Service revenue 18,511 18,888 174,195 Total net revenues 57,425 100.0 47,321 100.0 436,420 COSTS AND EXPENSES: Costs of products sold 21,241 17,388 160,362 Costs of services rendered 14,808 16,520 152,356 Selling, general and administrative 11,786 10,466 96,523 Total costs and expenses 47,835 83.3 44,374 93.8 409,241 Operating income 9,590 16.7 2,947 6.2 27,179 OTHER INCOME (EXPENSES): Interest income 108 93 858 Interest expense (182) (222) (2,047) Other, net 107 52 479 Other income (expenses), net 33 0.1 (77) (0.1) (710) INCOME BEFORE INCOME TAXES, MINORITY INTEREST 9,623 16.8 2,870 6.1 26,469 AND EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES INCOME TAXES 4,628 8.1 1,588 3.4 14,646 INCOME BEFORE MINORITY INTEREST AND EQUITY IN 4,995 8.7 1,282 2.7 11,823 NET INCOME (LOSS) OF AFFILIATED COMPANIES MINORITY INTEREST IN INCOME OF 318 0.5 193 0.4 1,780 CONSOLIDATED SUBSIDIARIES EQUITY IN NET INCOME (LOSS) OF AFFILIATED (0.9) (825) (1.7) (7,608) COMPANIES (502) NET INCOME Y 4,175 7.3 Y 264 0.6 $ 2,435 PER SHARE DATA: Yen U.S. Dollars Three months ended June 30, Three months ended June 30, 2003 2004 2004 Basic and diluted net income per share Y 34.65 Y 2.19 $0.02 Weighted-average common shares outstanding 120,484,327 120,482,960 Note: Net income per share was prepared in accordance with Statement of Financial Accounting Standard (SFAS) No. 128 'Earnings per Share'. The company had no dilutive securities outstanding at June 30, 2003 and 2004, and therefore there is no difference between basic and diluted EPS. See accompanying notes to consolidated financial statements 5. Consolidated Statements of Cash Flows (Unaudited) Millions of Yen Thousands of U.S. Dollars Three months Three months Three months ended ended ended June 30, 2003 June 30, 2004 June 30, 2004 Cash flows from operating activities: Net income Y 4,175 Y 264 $ 2,435 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 1,988 2,026 18,685 Provision for doubtful receivables (287) (462) (4,261) Loss on sale or disposal of property and 305 177 1,632 equipment, net Equity in net loss (income) of affiliated 502 825 7,609 companies Minority interest 318 193 1,780 Deferred income taxes 665 292 2,693 Change in assets and liabilities, net of business acquired: Decrease in trade notes and accounts 5,926 8,175 75,394 receivable Increase in inventories (5,865) (2,938) (27,096) Decrease in trade notes and accounts (2,556) (2,473) (22,807) payable Decrease in accrued income taxes (913) (4,262) (39,306) Decrease in accrued expenses (1,920) (3,188) (29,401) Increase in deferred revenue 839 140 1,291 Other, net (619) 1,537 14,174 Net cash provided by operating activities 2,558 306 2,822 Cash flows from investing activities: Capital expenditures (1,241) (3,629) (33,469) Proceeds from sales of property and 12 - - equipment Acquisition of new subsidiaries, net of (206) - - cash acquired Decrease in time deposits, net 63 - - Decrease (increase) in lease deposits, net (111) 48 443 Other, net (255) 69 636 Net cash used in investing activities (1,738) (3,512) (32,390) Cash flows from financing activities: Net decrease in short-term borrowings (3,103) 2,513 23,176 Proceeds from long-term debt 4,199 - - Repayments of long-term debt (2) (232) (2,140) Principal payments under capital lease (584) (641) (5,912) obligations Dividends paid (5,318) (4,099) (37,803) Purchases of treasury stock by parent 0 (1) (9) company Purchases of treasury stock by subsidiaries (178) (299) (2,758) Other, net (52) (160) (1,475) Net cash used in financing activities (5,038) (2,919) (26,921) Effect of exchange rate changes on cash and 707 240 2,214 cash equivalents Net decrease in cash and cash equivalents (3,511) (5,885) (54,275) Cash and cash equivalents, beginning of the 74,680 86,885 801,301 period Cash and cash equivalents, end of the Y 71,169 Y 81,000 $ 747,026 period See accompanying notes to consolidated financial statements 6. Segment Information (Unaudited) a . Operations in Different Industries Three months Computer & Toy & Amusement Gaming Health & Other, Consolidated ended Video Hobby Fitness Games Corporate and June 30, 2003 Eliminations (Millions of Yen) Net revenue: Customers Y 12,461 Y 16,606 Y 6,379 Y 2,543 Y 18,985 Y 451 Y 57,425 Intersegment 642 26 218 - 2 (888) - Total 13,103 16,632 6,597 2,543 18,987 (437) 57,425 Operating 10,867 10,124 4,327 2,207 18,860 1,450 47,835 expenses Operating Y 2,236 Y 6,508 Y 2,270 Y 336 Y 127 Y (1,887) Y 9,590 income (loss) Three months Computer & Toy & Amusement Gaming Health & Other, Consolidated ended Video Hobby Fitness Games Corporate and June 30, 2004 Eliminations (Millions of Yen) Net revenue: Customers Y 8,809 Y 7,009 Y 8,804 Y 3,270 Y 19,184 Y 245 Y 47,321 Intersegment 292 101 165 - 26 (584) - Total 9,101 7,110 8,969 3,270 19,210 (339) 47,321 Operating 9,948 5,470 6,323 2,879 18,464 1,290 44,374 expenses Operating Y (847) Y 1,640 Y 2,646 Y 391 Y 746 Y (1,629) Y 2,947 income (loss) Three months Computer & Toy & Amusement Gaming Health & Other, Consolidated ended Video Hobby Fitness Games Corporate and June 30, 2004 Eliminations (Thousands of U.S. Dollars) Net revenue: Customers $ 81,241 $ 64,641 $ 81,195 $ 30,158 $ 176,925 $ 2,260 $ 436,420 Intersegment 2,693 931 1,522 - 240 (5,386) - Total 83,934 65,572 82,717 30,158 177,165 (3,126) 436,420 Operating 91,746 50,447 58,314 26,552 170,285 11,897 409,241 expenses Operating $ (7,812) $ 15,125 $ 24,403 $ 3,606 $ 6,880 $ (15,023) $ 27,179 income (loss) Notes: 1. Primary businesses of each segment are as follows: Computer & Video Games: Production and sale of home-use video game software Toy & Hobby: Production and sale of character related products Amusement: Manufacture and sale of amusement arcade games and LCD units for pachinko machines Gaming: Manufacture and sale of gaming machines for overseas market Health & Fitness: Operation of health and fitness clubs, production and sale of health and fitness related goods. 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 sub-licensing of intellectual property rights from Computer & Video Games and Toy & Hobby to Amusement and Gaming and sales of hardware and components from Amusement to Computer & Video Games and Health & Fitness. 6. Effective the second quarter ended September 30, 2003, Other segment is combined with Corporate and Eliminations. In accordance with this change, results for the three months ended June 30, 2003 have been reclassified to conform to the presentation for the three months ended June 30, 2004. 7. Segment name of Exercise Entertainment was changed to Health & Fitness in the fourth quarter ended March 31, 2004. b . Operations in Geographic Areas Three months ended Japan Americas Europe Asia Total Eliminations Consolidated June 30, 2003 /Oceania (Millions of Yen) Net revenue: Customers Y 32,632 Y 15,098 Y 7,577 Y 2,118 Y 57,425 - Y 57,425 Intersegment 20,092 256 7 118 20,473 Y (20,473) - Total 52,724 15,354 7,584 2,236 77,898 (20,473) 57,425 Operating expenses 44,122 15,312 6,706 1,677 67,817 (19,982) 47,835 Operating income Y 8,602 Y 42 Y 878 Y 559 Y 10,081 Y (491) Y 9,590 Three months ended Japan Americas Europe Asia Total Eliminations Consolidated June 30, 2004 /Oceania (Millions of Yen) Net revenue: Customers Y 35,143 Y 6,170 Y 4,106 Y 1,902 Y 47,321 - Y 47,321 Intersegment 8,090 545 - 26 8,661 Y (8,661) - Total 43,233 6,715 4,106 1,928 55,982 (8,661) 47,321 Operating expenses 40,366 7,085 4,044 1,621 53,116 (8,742) 44,374 Operating income Y 2,867 Y (370) Y 62 Y 307 Y 2,866 Y 81 Y 2,947 (loss) Three months ended Japan Americas Europe Asia Total Eliminations Consolidated June 30, 2004 /Oceania (Thousands of U.S. Dollars) Net revenue: Customers $ 324,108 $ 56,903 $ 37,868 $ 17,541 $ 436,420 - $ 436,420 Intersegment 74,610 5,026 - 240 79,876 $ (79,876) - Total 398,718 61,929 37,868 17,781 516,296 (79,876) 436,420 Operating expenses 372,277 65,341 37,296 14,950 489,864 (80,623) 409,241 Operating income $ 26,441 $ (3,412) $ 572 $ 2,831 $ 26,432 $ 747 $ 27,179 (loss) Note: 1. For the purpose of presenting its operations in geographic areas above, the Company and its subsidiaries attribute revenues from external customers to individual countries in each area based on where products are sold and services are provided. Notes: 1. The consolidated financial statements presented herein were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). 2. Comprehensive income for the three months ended June 30, 2003 and 2004 which consisted of the following: Millions of Yen Thousands of U.S. Dollars Three months Three months Three months ended ended ended June 30, 2003 June 30, 2004 June 30, 2004 Net income Y 4,175 Y 264 $ 2,435 Other comprehensive income: Foreign currency translation 600 314 adjustments 2,896 Net unrealized gains on 2 53 488 available-for-sale securities 602 367 3,384 Comprehensive income Y 4,777 Y 631 $ 5,819 This information is provided by RNS The company news service from the London Stock Exchange

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