1st Quarter Results

Konami Corporation 28 July 2005 Consolidated Financial Results for the First Quarter Ended June 30, 2005 (Prepared in Accordance with U.S. GAAP) July 28, 2005 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, 2005 (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: Yes Number of consolidated subsidiaries added: 3 Number of consolidated subsidiaries removed: 6 Number of affiliated companies added: 0 Number of affiliated companies removed: 2 2. Consolidated Financial Results for the First Quarter Ended June 30, 2005 (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, 2005 Y 48,029 Y 3,074 Y 9,927 % change from previous period 1.5 4.3 245.9 Three months ended June 30, 2004 47,321 2,947 2,870 % change from previous period (17.6) (69.3) (70.2) Year ended March 31, 2005 260,691 28,136 27,442 Basic and diluted Net income net income per share Three months ended June 30, 2005 Y 5,439 Y 41.75 % change from previous period 1960.2 - Three months ended June 30, 2004 264 2.19 % change from previous period (93.7) - Year ended March 31, 2005 10,486 87.41 Notes: 1. Equity in net income (loss) of affiliated companies Three months ended June 30, 2005: Y0 Three months ended June 30, 2004: Y(825) million Year ended March 31, 2005: Y(6,293) million 2. Weighted-average common shares outstanding (consolidated) Three months ended June 30, 2005: 130,287,026 shares Three months ended June 30, 2004: 120,482,960 shares Year ended March 31, 2005: 119,970,052 shares 3. Net income per share was calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 128 ''Earnings per Share.'' (2) Consolidated Financial Position (Millions of Yen, except per share data) Total Equity-assets Shareholders' stockholders' Total assets Equity ratio equity per share (Yen) June 30, 2005 Y 314,002 Y 131,160 41.8% Y 1,006.48 June 30, 2004 284,442 99,216 34.9% 823.48 March 31, 2005 304,321 105,857 34.8% 885.97 Note: Number of shares outstanding (consolidated) June 30, 2005: 130,315,456 Shares June 30, 2004: 120,482,792 Shares March 31, 2005: 119,481,411 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, 2005 Y (4,462) Y 8,874 Y (4,357) Y 89,278 Three months ended June 30, 2004 306 (3,512) (2,919) 81,000 Year ended March 31, 2005 27,760 (14,343) (11,670) 89,583 3. Consolidated Financial Forecast for the Year Ending March 31, 2006 (Millions of Yen) Net revenues Operating Income before Net income income income taxes Year ending March 31, Y 270,000 Y 28,500 Y 34,000 Y 18,000 2006 There has been no change in our forecast for the year ending March 31, 2006, since we originally announced it. 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'') and its 24 consolidated subsidiaries. Each of the Company and its subsidiaries 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 Digital Entertainment Domestic The Company *1,2,3,4 Konami Marketing Japan, Inc. HUDSON SOFT CO., LTD *4 Overseas Konami Digital Entertainment, Inc. Konami of Europe GmbH Konami Software Shanghai, Inc. Konami Marketing, Inc. Konami Corporation of Europe B.V. Konami Marketing (Asia) Ltd. Hudson Entertainment, Inc. Gaming Domestic The Company *1,2,3,4 Overseas Konami Gaming, Inc. Konami Australia Pty Ltd., One other company Health & Fitness Domestic The Company *1,2,3,4 Konami Sports Corporation Konami Sports Life Corporation Two other companies Other Domestic KPE, Inc., Konami Marketing Japan, Inc. Konami Real Estate, Inc., Konami School, Inc. Two other companies 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. Primary changes in major companies for the year ended June 30, 2005 are as follows: *1. The Company merged with Konami Computer Entertainment Studios, Inc., Konami Computer Entertainment Tokyo, Inc., Konami Computer Entertainment Japan, Inc., Konami Online, Inc. and Konami Media Entertainment, Inc.on April 1, 2005. *2. The Company merged with Konami Traumer, Inc., on June 1, 2005 *3. The Company has sold its entire shares of TAKARA Co., LTD and has dissolved its equity relationship on April 25, 2005. *4. As a result of the Company's acceptance of a third party allotment of additional shares on April 27, 2005, HUDSON SOFT CO., LTD became a 53.99% owned consolidated subsidiary of the Company. *5. Digital Entertainment segment comprises previous Computer & Video Games segment, Toy & Hobby segment, Amusement segment, online business took over from Konami Online, Inc. and multimedia business took over from Konami Media Entertainment, Inc., on April 1, 2005. 2. Business Performance and Cash Flows 1. Business Performance Overview In the entertainment industry in which we operate, new markets for home video games are being developed with the introduction of new-style portable game consoles by Nintendo and Sony. Demand is expected to rise in the future with the release of new generation fixed-type game consoles by Nintendo, Sony and Microsoft. With the rapid aging of the population resulting from a decline in the birthrate, the market in the health industry is expanding in light of increasing health consciousness among middle-aged and senior groups. Under these circumstances, our business results expanded steadily for each segment during the three months ended June 30, 2005, in line with our plans. In the computer and video game business within the Digital Entertainment Business segment, sales of two video game software series grew steadily: ''Pro Evolution Soccer'' for the European markets and ''PROYAKYU SPIRITS 2'' a title which reproduces the expressions and movements of a baseball player through advanced computer graphics. We exhibited numerous titles for our next-generation consoles at ''E 3 2005'' (Electronic Entertainment Expo 2005), the world's largest electronic entertainment show held in the U.S. in May 2005, and received favorable reviews. In the toy & hobby business, sales continued to grow robustly for trading card games, represented by the ''Yu-Gi-Oh! Official Card Game-Duel Monsters,'' in Japan, the U.S. and Europe; the ''PLAY-POEMS'' series, a new genre of virtual game; and ''THE JUSTIRISER, '' a series of toys for boys. In particular, domestic sales of ''Yu-Gi-Oh! '' card games largely exceeded the sales for the same period of the previous year. In the amusement business, products utilizing ''e-AMUSEMENT'' services such as ''MAH-JONG FIGHT CLUB, '' received particularly favorable comments. In the online business, we started distributing contents in China to respond to the growing markets. New markets were also expanded as ''Yu-Gi-Oh! ONLINE'' services were introduced simultaneously in Japan, the U.S. and Europe. In the gaming business, we steadily acquired market shares in the video slot machine category in the U.S. In addition, we completed our business foundation in North America by improving production capabilities through the launch of operations at our new factory in Las Vegas. In the Health and Fitness segment, we exhibited ''e-XAX'' our original next-generation health management system, at ''Health & Fitness Japan 2005,'' a health industry convention held in June 2005. The new system received wide acclaim. On April 1, 2005, we merged with our three home video game software production companies and two group companies in charge of our online, music and publication businesses. Later, on June 1, 2005, we completed a second merger with a subsidiary specialized in the planning/production/distribution of toys and upscale household goods. Through these mergers, we are building a system capable of adapting to changes in the environment of the entertainment industry. On April 25, 2005, we dissolved our equity relationship with TAKARA Co., Ltd., an equity-method affiliate. On April 27, 2005, we accepted a third party allotment of additional shares and acquired shares of HUDSON SOFT CO., LTD., thereby changing the game software producer from an equity-method affiliate to a consolidated subsidiary. As a result, consolidated net revenues for the three months ended June 30, 2005, amounted to Y 48,029 million, consolidated operating income was Y 3,074million, consolidated income before income taxes was Y 9,927million, and consolidated net income was Y 5,439million. 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, 2004 June 30, 2005 Digital Entertainment Y23,885 Y 25,573 107.1 Gaming 3,270 2,683 82.0 Health & Fitness 19,210 19,662 102.4 Other, Corporate and Eliminations 956 111 11.6 Consolidated net revenues Y47,321 Y48,029 101.5 In the video game software business within the Digital Entertainment segment, sales of the PlayStation2 version of ''PROYAKYU SPIRITS 2'' expanded in the domestic market. Overseas, the ''Pro Evolution Soccer'' series for the European markets continued to sell at high volumes. The PlayStation2 version of ''ENTHUSIA PROFESSIONAL RACING'' and the PlayStation Portable version of ''METAL GEAR ACID'' also remained popular. In the toy & hobby business, sales of the ''Yu-Gi-Oh!'' card game, series, with an established position as our global strategic product focusing on domestic, U.S., and European markets, to grow. Domestic sales, in particular, substantially exceeded the level of the previous year. As a follow-up to the ''Yu-Gi-Oh!'' card game series, we released card games drawn from the popular TV animation series ''MARHEAVEN'' and ''EYESHIELD21. '' Both new card games are achieving firm sales. In the amusement business, the ''MAH-JONG FIGHT CLUB'' series products exploiting ''e-AMUSEMENT'' services for amusement arcades continued to sell steadily. As for token-operated products, ''GI-TURFWILD2'' a large-scale online horseracing game machine, and ''SAIKARANMAN,'' a single-token game machine with enhanced communication capabilities, received high reviews in the market. The full-fledged launch of the on-line game business, an area expected to grow in the future, started with the provision of on-line game battle services such as ''WORLD SOCCER Winning Eleven 8 LIVEWARE EVOLUTION'' released in March 2005 and the full-scale operation of ''Yu-Gi-Oh! ONLINE'' commenced in April 2005. The business of delivering mobile contents both in Japan and on a global scale via major carriers progressed steadily as well. In the multimedia business, we released our ''Tokimeki Memorial 10th Anniversary'' CD bundled with a paper craft as a 10-year celebration product of the ''Tokimeki Memorial'' series. The new CD received favorable reviews. Further, we produced an original TV animation program, ''GOKUJO SEITOKAI'' and released derivative products such as music CDs, DVDs, and character goods. In the future we plan to develop further products combining products from each business and utilizing contents from various sectors of the Digital Entertainment segment. As a result, consolidated net revenue of the Digital Entertainment Business for the three months ended June 30, 2005 amounted to Y 25,573 million (107.1% of consolidated net revenue for the same period in the previous year). In the Gaming segment, with the completion of a new office and production facility in North America in June, we are working to further strengthen our business. We sold video slot machines, our leading product, in the Canadian province of Ontario and the U.S. states of Nevada, California, and Michigan. Mechanical slot machines marketed from December 2003 onward have also been recording steady sales. We are receiving steadily increasing orders for ''Forcise'' a highly profitable casino management system, and we expect the product to contribute further to our revenues. In Australia, where the gaming market is leveling off in general, machines featuring our link progressive jackpot system were well received and maintained sales level. Exports to European and Asian markets are increasing steadily as well. As a result, consolidated net revenue of the Gaming segment for the three months ended June 30, 2005 amounted to Y 2,683 million (82.0% of consolidated net revenue for the same period in the previous year). With regard to management of fitness clubs in the Health and Fitness segment, we expanded our network of Konami Sports Club facilities further and opened Konami Sports Club Honten Hachioji (Tokyo) in May 2005 and Konami Sports Club in Takamatsu (Kagawa prefecture) in June 2005. In the area of fitness products, we have introduced an original line of next-generation training machines with feature that provide entertainment and cater to individuals who want to stay fit while having fun and the ''e-XAX'' an IT health management system that links together the three scenes of customers' daily life, i.e., fitness clubs, home, and outside the home in our nationwide sports clubs. This product has been very well received by customers. We also made efforts to promote sales of existing products such as our original ''FLAVANGENOL'' and ''BIOMETRICS WATER'' supplements. In April 2005, we established Self Fitness Club Co., Ltd. with the aim of developing business under a new brand and developing a price-competitive fitness club that provides an unprecedented self-service style environment. As a result, consolidated net revenue of the Health & Fitness segment was Y 19,662 million for the three months ended June 30, 2005 (102.4% of consolidated net revenue for the same period in the previous year). (2) Cash Flows Cash flow summary for the three months ended June 30, 2005: Millions of Yen Three months Three months ended ended June 30, 2004 June 30, 2005 Net cash provided by (used in) operating activities Y 306 Y (4,462) Net cash provided by (used in) investing activities (3,512) 8,874 Net cash used in financing activities (2,919) (4,357) Effect of exchange rate changes on cash and cash 240 (360) equivalents Net decrease in cash and cash equivalents (5,885) (305) Cash and cash equivalents, end of the period 81,000 89,278 Cash flows from operating activities: Net cash used in operating activities amounted to Y4,462 million for the three months ended June 30, 2005, compared to net cash provided by operating activities amounted to Y306 million for the three months ended June 30, 2004. Cash flows from investing activities: Net cash provided by investing activities amounted to Y8,874 million for the three months ended June 30, 2005, compared to net cash used in investing activities amounted to Y3,512 million for the three months ended June 30, 2004. This resulted primarily from proceeds from sales of shares of an affiliated company amounted to Y11,016 million. Cash flows from financing activities: Net cash used in financing activities amounted to Y4,357 million for the three months ended June 30, 2005, compared to Y2,919 million for the three months ended June 30, 2004. This was due primarily to Y3,039 million payments of dividends and a decrease of Y775 million in short-term borrowings. 3. Consolidated Balance Sheets (Unaudited) Millions of Yen Thousands of U.S. Dollars March 31, 2005 June 30, 2005 June 30, 2005 % % ASSETS CURRENT ASSETS: Cash and cash equivalents Y 89,583 Y 89,278 $ 807,069 Trade notes and accounts receivable, 33,577 22,861 206,662 net of allowance for doubtful accounts of Y604 million and Y 452 million ($ 4,086thousand) at March 31, 2005 and June 30, 2005, respectively Inventories 15,488 21,900 197,975 Deferred income taxes, net 18,392 13,577 122,736 Prepaid expenses and other current 4,898 10,068 91,014 assets Total current assets 161,938 53.2 157,684 50.2 1,425,456 PROPERTY AND EQUIPMENT, net 46,595 15.3 47,297 15.1 427,563 INVESTMENTS AND OTHER ASSETS: Investments in marketable securities 165 194 1,754 Investments in affiliates 5,184 - - Identifiable intangible assets 45,991 45,969 415,558 Goodwill 849 17,963 162,385 Lease deposits 24,216 25,211 227,906 Other assets 19,383 19,684 177,942 Total investments and other assets 95,788 31.5 109,021 34.7 985,545 TOTAL ASSETS 304,321 100.0 314,002 100.0 $ 2,867,564 See accompanying notes to consolidated financial statements Millions of Yen Thousands of U.S. Dollars March 31, 2005 June 30, 2005 June 30, 2004 % % LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings Y 8,582 Y 12,701 $ 114,816 Current portion of long-term debt and 16,727 16,490 149,069 capital lease obligations Trade notes and accounts payable 16,134 15,530 140,391 Accrued income taxes 28,372 16,589 149,964 Accrued expenses 19,875 15,974 144,404 Deferred revenue 5,396 5,505 49,765 Other current liabilities 4,741 9,861 89,143 Total current liabilities 99,827 32.8 92,650 29.5 837,552 LONG-TERM LIABILITIES: Long-term debt and capital lease 52,780 52,937 478,548 obligations, less current portion Accrued pension and severance costs 2,344 2,654 23,992 Deferred income taxes, net 16,147 16,247 146,872 Other long-term liabilities 1,879 2,917 26,370 Total long-term liabilities 73,150 24.0 74,755 23.8 675,782 TOTAL LIABILITIES 172,977 56.8 167,405 53.3 1,513,334 MINORITY INTEREST IN 25,487 8.4 15,437 4.9 139,550 CONSOLIDATED SUBSIDIARIES STOCKHOLDERS' EQUITY: Common stock, no par value- Authorized 450,000,000 shares; issued 47,399 15.6 47,399 15.1 428,485 128,737,566 shares at March 31, 2005 and 139,531,708 shares at June 30, 2005; outstanding 119,481,411 shares at March 31, 2005 and 130,315,456 shares at June 30, 2005 Additional paid-in capital 46,736 15.4 70,664 22.5 638,799 Retained earnings 37,779 12.4 39,294 12.5 355,216 Accumulated other comprehensive income 2,217 (0.7) 2,071 0.7 18,722 Total 134,128 44.1 159,428 50.9 1,441,222 Treasury stock, at cost- 9,256,155shares and 9,216,252 shares at (28,271) (9.3) (28,268) (9.0) (255,542) March 31, 2005 and June 30, 2005, respectively Total stockholders' equity 105,857 34.8 131,160 41.8 1,185,680 TOTAL LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY Y304,321 100.0 Y 314,002 100.0 $ 2,838,564 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, 2004 2005 2005 % % NET REVENUES: Product sales revenue Y 28,433 Y 30,409 $ 274,896 Service revenue 18,888 17,620 159,284 Total net revenues 47,321 100.0 48,029 100.0 434,180 COSTS AND EXPENSES: Costs of products sold 17,388 17,153 155,062 Costs of services rendered 16,520 16,707 151,031 Selling, general and administrative 10,466 11,095 100,298 Total costs and expenses 44,374 93.8 44,955 93.6 406,391 Operating income 2,947 6.2 3,074 6.4 27,789 OTHER INCOME (EXPENSES): Interest income 93 141 1,275 Gain on sale of shares of an affiliated - 6,917 62,529 company Interest expense (222) (232) (2,097) Other, net 52 27 244 Other income (expenses), net (77) (0.1) 6,853 14.3 61,951 INCOME BEFORE INCOME TAXES, MINORITY INTEREST 2,870 6.1 9,927 20.7 89,740 AND EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES INCOME TAXES 1,588 3.4 4,380 9.2 39,595 INCOME BEFORE MINORITY INTEREST AND EQUITY IN 1,282 2.7 5,547 11.5 50,145 NET INCOME (LOSS) OF AFFILIATED COMPANIES MINORITY INTEREST IN INCOME OF 193 0.4 108 0.2 977 CONSOLIDATED SUBSIDIARIES EQUITY IN NET INCOME (LOSS) OF AFFILIATED (825) (1.7) - - - COMPANIES NET INCOME Y 264 0.6 Y 5,439 11.3 $ 49,168 PER SHARE DATA: Yen U.S. Dollars Three months ended June 30, Three months ended June 30, 2004 2005 2005 Basic and diluted net income per share Y 2.19 Y 41.75 $ 0.38 Weighted-average common shares outstanding 120,482,960 130,287,026 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, 2004 June 30, 2005 June 30, 2005 Cash flows from operating activities: Net income Y 264 Y 5,439 $ 49,168 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 2,026 2,157 19,499 Provision for doubtful receivables (462) (148) (1,338) Gain on sale of shares of an affiliated - (6,917) (62,529) company Loss on sale or disposal of property and 177 - - equipment, net Equity in net loss of affiliated companies 825 - - Minority interest 193 108 976 Deferred income taxes 292 3,932 35,545 Change in assets and liabilities, net of business acquired: Decrease in trade notes and accounts 8,175 11,587 104,746 receivable Increase in inventories (2,938) (5,309) (47,993) Decrease in trade notes and accounts (2,473) (592) (5,352) payable Decrease in accrued income taxes (4,262) (10,956) (99,042) Decrease in accrued expenses (3,188) (2,544) (22,998) Increase in deferred revenue 140 177 1,600 Other, net 1,537 (1,396) (12,618) Net cash provided by operating activities 306 (4,462) (40,336) Cash flows from investing activities: Capital expenditures (3,629) (1,061) (9,591) Proceeds from sales of shares of an - 11,016 99,584 affiliated company Decrease in time deposits, net - (623) (5,632) Decrease in proceeds from the merger - (504) (4,556) Decrease in lease deposits, net 48 91 823 Other, net 69 (45) (408) Net cash used in investing activities (3,512) 8,874 80,220 Cash flows from financing activities: Net increase (decrease) in short-term 2,513 (775) (7,006) borrowings Repayments of long-term debt (232) (246) (2,224) Principal payments under capital lease (641) (301) (2,721) obligations Dividends paid (4,099) (3,039) (27,472) Purchases of treasury stock by parent (1) (16) (145) company Purchases of treasury stock by subsidiaries (299) - - Other, net (160) 20 181 Net cash used in financing activities (2,919) (4,357) (39,387) Effect of exchange rate changes on cash and 240 (360) (3,254) cash equivalents Net decrease in cash and cash equivalents (5,885) (305) (2,757) Cash and cash equivalents, beginning of the 86,885 89,583 809,826 period Cash and cash equivalents, end of the Y 81,000 Y 89,278 $ 807,069 period See accompanying notes to consolidated financial statements 6. Segment Information (Unaudited) a . Operations in Different Industries Three months Digital Gaming Health & Other, Consolidated ended Entertainment Fitness, corporate and Eliminations June 30, 2004 (Millions of Yen) Net revenue: Customers Y 23,746 Y 3,270 Y 19,184 Y 1,121 Y 47,321 Intersegment 139 - 26 (165) - Total 23,885 3,270 19,210 956 47,321 Operating 20,394 2,879 18,464 2,637 44,374 expenses Operating income Y 3,491 Y 391 Y 746 Y (1,681) Y 2,947 (loss) Three months Digital Gaming Health & Other, Consolidated ended Entertainment Fitness, corporate and Eliminations June 30, 2005 (Millions of Yen) Net revenue: Customers Y 25,277 Y 2,683 Y 19,641 Y 428 Y 48,029 Intersegment 296 - 21 (317) - Total 25,573 2,683 19,662 111 48,029 Operating 20,263 2,372 19,483 2,837 44,955 expenses Operating income Y 5,310 Y 311 Y 179 Y (2,726) Y 3,074 (loss) Three months Digital Gaming Health & Other, Consolidated ended Entertainment Fitness, corporate and Eliminations June 30, 2005 (Thousands of U.S. Dollars) Net revenue: Customers $ 228,503 $ 24,254 $ 177,554 $ 3,869 $ 434,180 Intersegment 2,676 - 190 (2,866) - Total 231,179 24,254 177,744 1,003 434,180 Operating 183,177 21,443 176,125 25,646 406.391 expenses Operating income $ 48,002 $ 2,811 $ 1,619 $ (24,643) $ 27,789 (loss) Notes: 1. Primary businesses of each segment are as follows: Digital Entertainment Segment: include following five business areas Computer & Video Games: Production, manufacture and sale of video game software for consoles. Production of contents for mobile phones. Distribution of video game software produced by third parties. Production of online game software. Toy & Hobby: Planning, production and sale of card games, electronic toys, toys for boys, candy toys, figures, character goods and others. Amusement: Design, manufacture and sale of the content for amusement facilities such as video games and token-operated games. Online: Creation of systems for online games. Management and operation of online servers. Distribution of the content for mobile phones. Multimedia: Planning, production and sale of the products related to music and video. Planning, production and sale of books and magazines. Gaming Segment Design manufacture and sale of gaming machines for casinos and casino management systems. Health & Fitness Segment Management of fitness centers. Design manufacture and sale of fitness machines and health-related products. 2. See Notes (*5) on page 3 for Digital Entertainment segment information. 3. '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.' 4. 'Corporate' primarily consists of administrative expenses of the Company. 5. 'Eliminations' primarily consist of eliminations of intercompany sales and of intercompany profits on inventories. 6. Intersegment revenues primarily consist of sub-licensing of intellectual property rights from Digital Entertainment segment to Gaming segment and sales of hardware and components from Digital Entertainment segment to Health & Fitness segment. b . Operations in Geographic Areas 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, 2005 /Oceania (Millions of Yen) Net revenue: Customers Y 38,332 Y 5,245 Y 2,338 Y 2,114 Y 48,029 - Y 48,029 Intersegment 5,886 183 - 45 6,114 Y (6,114) - Total 44,218 5,428 2,338 2,159 54,143 (6,114) 48,029 Operating expenses 40,907 5,605 2,962 1,591 51,065 (6,110) 44,955 Operating income Y 3,311 Y (177) Y (624) Y 568 Y 3,078 Y 4 Y 3,074 (loss) Three months ended Japan Americas Europe Asia Total Eliminations Consolidated June 30, 2005 /Oceania (Thousands of U.S. Dollars) Net revenue: Customers $ 346,520 $ 47,415 $ 21,135 $ 19,110 $ 434,180 - $ 434,180 Intersegment 53,209 1,654 - 407 55,270 $ (55,270) - Total 399,729 49,069 21,135 19,517 489,450 (55,270) 434,180 Operating expenses 369,798 50,669 26,776 14,382 461,625 (55,234) 406,391 Operating income $ 29,931 $ (1,600) $ (5,641) $ 5,135 $ 27,825 $ (36) $ 27,789 (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 U.S. generally accepted accounting principles (''U.S. GAAP''). 2. Comprehensive income for the three months ended June 30, 2004 and 2005 which consisted of the following: Millions of Yen Thousands of U.S. Dollars Three months Three months Three months ended ended ended June 30, 2004 June 30, 2005 June 30, 2005 Net income Y 264 Y 5,439 $ 49,168 Other comprehensive income: Foreign currency translation 314 (66) (597) adjustments Net unrealized gains on 53 212 1,917 available-for-sale securities 367 146 1,320 Comprehensive income Y 631 5,585 50,488 This information is provided by RNS The company news service from the London Stock Exchange

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