3rd Quarter Results - Part 2

Konami Corporation 13 February 2003 Consolidated Financial Results for the Third Quarter and the Nine Months Ended December 31, 2002 (Prepared in Accordance with U.S. GAAP) February 13, 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) Adoption of U.S. GAAP: Yes Notes: 1. Financial information presented herein was not audited by independent public accountants. 2. The third quarter ended December 31, 2002 was the first period in which Konami prepared its quarterly consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Therefore, U.S. GAAP consolidated financial information for the three months and the nine months ended December 31, 2001 is not available. However, figures for the year ended March 31, 2002 presented herein have been prepared in accordance with U.S. GAAP. Consolidated Financial Results for the Three and Nine Months Ended December 31, 2002 (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, minority interest and equity in net income of affiliated companies Three months ended December 31, 2002 Y 78,161 Y13,646 Y13,095 Nine months ended December 31, 2002 191,356 23,811 23,245 Year ended March 31, 2002 225,580 18,087 22,678 Net income Diluted net income Net income per share (yen) per share (yen) Three months ended December 31, 2002 Y 8,371 Y 69.47 - Nine months ended December 31, 2002 12,739 104.50 - Year ended March 31, 2002 11,402 89.32 - Notes: 1. Equity in net income of affiliated companies Three months ended December 31, 2002: Y978 million Nine months ended December 31, 2002: Y1,622 million Year ended March 31, 2002: Y755 million 2. Weighted-average common shares outstanding Three months ended December 31, 2002: 120,487,247 shares Nine months ended December 31, 2002: 121,898,446 shares Year ended March 31, 2002: 127,647,120 shares 3. Change in accounting policies: None 4. Net income per share was prepared in accordance with Statement of Financial Accounting Standard (SFAS) No. 128 ''Earnings per Share''. (2) Consolidated Financial Position (Millions of yen, except per share amounts) Total Equity-assets Total shareholders' shareholders' Total assets equity ratio equity per share (yen) December 31, 2002 Y320,673 Y131,325 41.0% Y1,089.97 March 31, 2002 328,091 134,990 41.1% 1,084.44 Note: Number of shares outstanding December 31, 2002: 120,484,926 shares March 31, 2002: 124,479,815 shares (3) Consolidated Cash Flows (Millions of yen) Net cash provided by (used in) Cash and Operating Investing Financing cash equivalents activities activities activities at end of period Nine months ended December 31, 2002 Y6,799 Y (4,457) Y (16,894) Y60,670 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: 1 Number of consolidated subsidiaries removed: 10 Number of affiliated companies removed: 1 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 3 equity method affiliates. The Company, its subsidiaries and affiliated companies are categorized into business segments according to their operations as stated below. Business segment categorization is based on the same criteria explained in ''6. Segment Information''. Business Segments Major Companies Computer & Video Games Domestic The Company (Note 3, 5, 9), Konami Marketing, Inc. (*2, *3) Konami Computer Entertainment Osaka, Inc. or former Consumer Software (*9) Konami Computer Entertainment Tokyo, Inc. (CS) Konami Computer Entertainment Japan, Inc. Konami Computer Entertainment Studios, Inc. (Note 6) Konami School, Inc. (*1, *7, Note 3) Konami Mobile & Online, Inc. HUDSON SOFT CO., LTD. (*11), Genki Co., Ltd. (*11) Overseas Konami of America, Inc., Konami of Europe GmbH Konami Marketing (Asia) Ltd. (*4) Konami Software Shanghai, Inc., One other company Exercise Entertainment Domestic Konami Sports Corporationi*6, Note 4, 5j or former Health & Fitness (HF) Two other companies (Note 5) (*5, Note 5, 6) Toy & Hobby Domestic The Company (Note 3, 5, 9), Konami Marketing, Inc. (*2, *3) Konami Music Entertainment, Inc. (*5, Note 6) Overseas Konami of America, Inc. (*4) Konami Marketing (Asia) Ltd. Amusement Domestic The Company (Note 3, 5, 9), Konami Marketing, Inc. (*2, *3) Konami Sports Life Corporation (Note 5) or former Amusement Content KPE, Inc. (*8), One other company (*8) (AC) Overseas Konami of America, Inc. Konami Amusement of Europe Ltd. (Note 7) (Note 5, 6, 8) (*4) Konami Marketing (Asia) Ltd. Gaming Domestic The Company (Note 3, 5, 9), Konami Marketing, Inc. (*2, *3) or former Gaming Content (GC) Overseas Konami Gaming, Inc. (Note 6, 8) Konami Australia Pty Ltd., One other company Other Domestic Konami Capital, Inc. (Note 9, 10), Konami Service, Inc. Konami School, Inc. (*1, 7, Note 3) TAKARA CO., LTD. (*11), One other company Overseas Two other companies (*10) 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 nine months ended December 31, 2002 are as follows: (*1) Konami Computer Entertainment School, Inc. merged with Roppongi Monitoring Center, Inc. on May 1, 2002 for the purpose of improving the efficiency of their operations and changed its company name to Konami School, Inc. (*2) Konami Amusement Operation, Inc. transferred its amusement facility operation business to its new wholly-owned subsidiary KAO Co., Ltd. on May 11, 2002. Konami Amusement Operation, Inc. then sold all shares in KAO Co., Ltd. to Amlead Co., Ltd. on May 13, 2002. (*3) Konami Marketing, Inc. merged with Konami Style.com Japan, Inc. and Konami Amusement Operation, Inc. to improve the efficiency of their operations on August 1, 2002. (*4) Konami (Singapore) Pte. Ltd. and Konami Corporation of Korea were dissolved in August 2002 and September 2002, respectively. (*5) 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, while its debugging operations for video game software remain included in the Computer & Video Games segment. (*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) These are equity method affiliates. 3. The Company took over the debugging business of Konami School, Inc. by acquisition following a corporate split on January 1, 2003. 4. Konami Sports Corporation merged with Konami Sports Plaza, Inc. on January 1, 2003 in order to improve the efficiency of their operations. 5. On January 15, 2003, the Company transferred all of its shares in 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. 6. 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. 7. Konami Amusement of Europe Ltd. changed its company name to Konami Marketing Europe Ltd. on January 13, 2003. 8. 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 casino industry. 9. 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. 10. Konami Capital, Inc. changed its company name to Konami Real Estate, Inc. on February 1, 2003. 2. Business Performance and Cash Flows (1) Business Review Overview With respect to the entertainment industry in which we operate, during the third quarter ended December 31, 2002, PlayStation 2 maintained its global popularity as a video game software platform during the competitive Christmas sales season and its sales grew significantly. As a result, Sony Corporation's presence became even more dominant in the home video game software platform market. The domestic industry is approaching a turning point with debate about lifting of the ban on casino gaming and commencement of restructuring the video game software industry through mergers and business alliances. Sales of Yu-Gi-Oh! card game and video game software titles grew significantly in the U.S. and began in Europe resulting in favorable performance. Also, Pro Evolution Soccer 2, a home video game software title for the overseas market sold over one million copies following WORLD SOCCER WINNING ELEVEN that was previously released in Japan. Thus, we have received significant recognition in both domestic and overseas markets. In this environment, consolidated net revenues, consolidated operating income and consolidated net income for the three months ended December 31, 2002 were Y78,161 million, Y13,646 million and Y8,371 million, respectively. For the nine months ended December 31, 2002, consolidated net revenues, consolidated operating income and consolidated net income amounted to Y191,356 million, Y23,811 and Y12,739 million, respectively. Performance by business segment Summary of net revenues by business segment: Millions of Yen Three months ended Nine months ended December 31, 2002 December 31, 2002 Computer & Video Games (former CS) Y 31,607 Y 67,005 Exercise Entertainment (former H&F) 18,321 56,460 Toy & Hobby (former T&H) 18,463 37,907 Amusement (former AC) 8,061 26,670 Gaming (former GC) 4,053 12,468 Other 1,693 4,396 Less: Intersegment revenues (4,037) (13,550) Consolidated net revenues Y 78,161 Y 191,356 Note: 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. The Computer & Video Games (former CS) segment released WORLD SOCCER WINNING ELEVEN 6: Final Evolution for the PlayStation 2 in December 2002, which became a hit shipping more than 600,000 copies. PRINCE OF TENNIS: Aim at the Victory for the GameBoy Advance, and JIKKYO POWERFUL PRO BASEBALL 9 FINAL VERSION and METAL GEAT SOLID 2: SUBSTANCE for the PlayStation 2 also generated favorable sales. The Yu-Gi-Oh! series became a big hit overseas as a result of synergies with the trading card game. Yu-Gi-Oh! Dark Duel Stories for the GameBoy Color, Yu-Gi-Oh! THE ETERNAL DUELIST SOUL for the GameBoy Advance and Yu-Gi-Oh! FORBIDDEN MEMORIES for the PlayStation shipped more than 1.3 million copies altogether during the third quarter ended December 31, 2002. Pro Evolution Soccer 2 released in October 2002 became a big hit selling more than one million copies in Europe. The Dancing Stage series maintained favorable sales in the U.K., and Dancing Stage Euromix and Dancing Stage Party Edition became hits selling more than 400,000 copies altogether. As a result, consolidated revenues of the Computer & Video Games segment for the three months and the nine months ended December 31, 2002 were Y 31,607 million and Y 67,005 million, respectively. The Exercise Entertainment (former H&F) segment expanded the number of high-quality facilities by opening two new facilities Shin-ishikiri branch (Osaka Pref.), and Hoshigaoka branch (Aichi Pref.) and remodeling three existing facilities, Takasaki branch (Gunma Pref.), Himeji-chuo branch (Hyogo Pref.), and Korien branch (Osaka Pref.), during the third quarter ended December 31, 2002. We also worked to improve efficiency by merging a subsidiary Konami Olympic Sports Club Corporation on October 1, 2002. In a move to improve customer satisfaction and convenience, we introduced two new membership programs that allow members to use all facilities in a specific area (the ''Chubu Net Membership'' and the ''Hyogo Net Membership''). We also introduced a new personal trainer service that provides professional one-to-one advice. We also introduced a new ''Undo-Jyuku'' training class in order to expand our program offerings and broaden the age group of our members. We are working to expand our exercise entertainment business beyond the operation of fitness clubs. For example, we have created a web site called ''Konami Sports Club'' which we believe to be the first i-mode official site in the fitness industry and have also introduced a new jazzercise membership program that is intended to be more user-friendly so as to encourage more members to join our jazzercise program, which we believe to be the largest dance fitness program in the world. As a result, consolidated revenues of the Exercise Entertainment segment for the three months and the nine months ended December 31, 2002 were Y18,321million and Y56,460 million, respectively. The Toy & Hobby (former T&H) segment maintained solid sales of the Yu-Gi-Oh! Official Card Game series. Sales of the Yu-Gi-Oh! series rapidly expanded in the North America due to improving recognition. They became predominant in the trading card game market during the Christmas season in North America. The release of a new Yu-Gi-Oh! series card game helped us not only maintain a high level of domestic sales, but also to extend the sale of existing products during the competitive year-end sales season. DegiQ Formula, a new MICRO iR product, and COMBAT DigiQ contributed to increased MICRO iR sales and the robust sales performance of our hobby products. Candy toys, which enjoy popularity for their high quality figures, especially MIZUSHIMA SHINJI CHARACTERS YAKYUGUNZOU, achieved more than one million sales following the SF Movie Selection: Thunderbirds series, and achieved a more dominant position in the market. As a result, consolidated revenues of the Toy & Hobby segment for the three months and the nine months ended December 31, 2002 were Y18,463 million and Y37,907 million, respectively. The Amusement (former AC) segment maintained the popularity of an e-AMUSEMENT product for amusement arcades, MAH-JONG FIGHT CLUB, which is a video game that allows players to compete directly with players in other arcade game locations via an online amusement connection. In addition, sales of WORLD COMBAT, a gun shooting game that allows many players to play at the same time, remained strong. The health entertainment business continued to focus on expanding distribution of existing products such as Dance Dance Revolution FAMIMAT and MARTIAL BEAT, a fitness action game that uses popular martial arts, and MARTIAL BEAT 2, the sequel to MARTIAL BEAT, the first game with the ability to measure physical strength that was released in September 2002. The LCD unit business will aim to continue to introduce distinct and appealing products. As a result, consolidated revenues of the Amusement segment for the three months and the nine months ended December 31, 2002 were Y8,061 million and Y26,670 million, respectively. The Gaming (former GC) segment recorded favorable sales of domestic token-operated game products such as the large size token-operated game, MONSTER GATE III that was released in December 2002 as a sequel to MONSTER GATE II, which is known for having established a new category of token-operated game. The segment contributed to total sales with token-operated products that continue to be popular such as GI-WINNING SIRE, the latest large size token-operated horse racing game in the GI series which has a realistic ''right there in the midst of it'' feel, and FORTUNE ORB, a large-sized ''penny-falls'' game machine, popular for its entertaining stage effects. With respect to our overseas gaming business, we acquired gaming licenses in 18 states in North America, and the installed base of our core product, 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. The combination of WILD FIRE, a stand-alone progressive game with gaming contents has been well received in Australia. We have acquired gaming licenses in all Australian states, and sales in Queensland, Victoria, and New South Wales were especially strong. As a result, consolidated revenues of the Gaming segment for the three months and the nine months ended December 31, 2002 were Y4,053million and Y12,468 million, respectively. Consolidated revenues for the Other segment for the three months and the nine months ended December 31, 2002 were Y 1,693 million and Y4,396 million, respectively. (2) Cash Flows Cash flow summary for the nine months ended December 31, 2002: Millions of Yen Nine months ended December 31, 2002 Net cash provided by operating activities Y 6,799 Net cash used in investing activities (4,457) Net cash used in financing activities (16,894) Effect of exchange rate changes on cash and cash equivalents 34 Net decrease in cash and cash equivalents (14,518) Cash and cash equivalents at December 31, 2002 60,670 Cash follows from operating activities: Net cash provided by operating activities amounted to Y6,799 million for the nine months ended December 31, 2002. This resulted primarily from net income of Y12,739 million due to favorable sales of the Computer & Video Games (former CS) segment and the Toy & Hobby (former T&H) segment with an increase in trade notes and account receivables of Y6,269 million and an increase in inventories of Y1,775 million. Cash flows from investing activities: Net cash used in investing activities amounted to Y4,457 million for the nine months ended December 31, 2002. This resulted primarily from acquisitions of property and equipment of Y7,723 million, which was due mainly to an active increase in new club locations of the Exercise Entertainment (former H&F) segment, with proceeds from the sale of subsidiary shares of Y2,081 million and proceeds from the sale of property and equipment of Y1,444 million. Cash flows from financing activities: Net cash used in financing activities amounted to Y16,894 million for the nine months ended December 31, 2002. This was primarily due to purchases of treasury stock of Y10,658 million, a payment of dividends of Y6,172 million and a decrease in debts of Y9,297 million with proceeds from issuance of bonds of Y14,902 million. 3. Consolidated Balance Sheets (Unaudited) Millions of Yen Thousands of U.S. Dollars Dec. 31, 2002 Mar. 31, 2002 Dec. 31, 2002 % % ASSETS CURRENT ASSETS: Cash and cash equivalents Y 60,670 Y 75,188 $ 504,532 Trade notes and accounts 39,715 34,275 330,270 receivable, net of allowance for doubtful accounts of Y868 million ($7,218 thousand) and Y636 million at December 31, 2002 and March 31, 2002, respectively Inventories 17,652 15,990 146,794 Deferred income taxes, net 11,558 9,708 96,116 Prepaid expenses and other 6,696 6,894 55,685 current assets Total current assets 136,291 42.5 142,055 43.3 1,133,397 PROPERTY AND EQUIPMENT, 42,919 13.4 43,562 13.3 356,915 net INVESTMENTS AND OTHER ASSETS: Investments in marketable 145 204 1,206 securities Investments in 14,884 13,459 123,775 affiliates Identifiable intangible 57,527 60,169 478,395 assets Goodwill 36,967 36,825 307,418 Lease deposits 24,079 24,654 200,241 Other assets 7,861 7,163 65,372 Total investments and 141,463 44.1 142,474 43.4 1,176,407 other assets TOTAL ASSETS Y 320,673 100.0 Y 328,091 100.0 $ 2,666,719 Millions of Yen Thousands of U.S. Dollars Dec. 31, 2002 Mar. 31, 2002 Dec. 31, 2002 % % LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings Y 3,938 Y 10,948 $ 32,748 Current portion of long-term 2,035 4,751 16,923 debt and capital lease obligations Trade notes and accounts 20,912 20,292 173,904 payable Income taxes payable 9,426 13,224 78,387 Accrued expenses 18,603 21,120 154,703 Deferred revenue 5,324 3,866 44,274 Other current liabilities 4,593 5,347 38,196 Total current liabilities 64,831 20.2 79,548 24.2 539,135 LONG-TERM LIABILITIES: Long-term debt and capital 63,236 48,031 525,871 lease obligations, less current portion Accrued pension and severance 2,450 2,607 20,374 costs Deferred income taxes, net 21,923 22,986 182,312 Other long-term liabilities 3,170 4,013 26,362 Total long-term liabilities 90,779 28.3 77,637 23.7 754,919 MINORITY INTEREST IN 33,738 10.5 35,916 11.0 280,565 CONSOLIDATED SUBSIDIARIES SHAREHOLDERS' EQUITY: Common stock, no par value- Authorized 450,000,000 47,399 14.8 47,399 14.4 394,170 shares; issued128,737,566 shares at December 31, 2002 and March 31, 2002 Additional paid-in capital 46,736 14.6 46,736 14.2 388,657 Legal reserve 2,163 0.7 2,163 0.7 17,988 Retained earnings 60,239 18.8 53,149 16.2 500,948 Accumulated other 449 0.1 546 0.2 3,734 comprehensive income Total 156,986 49.0 149,993 45.7 1,305,497 Treasury stock, at cost- 8,252,640 shares and (25,661) (8.0) (15,003) (4.6) (213,397) 4,257,751 shares at December 31, 2002 and March 31, 2002, respectively Total shareholders' equity 131,325 41.0 134,990 41.1 1,092,100 COMMITMENTS AND CONTINGENCIES - - - TOTAL LIABILITIES AND Y 320,673 100.0 Y 328,091 100.0 $ 2,666,719 SHAREHOLDERS' EQUITY 4. Consolidated Statements of Income (Unaudited) Millions of Yen Thousands of U.S. Dollars Three months Nine months ended Year ended Three Nine ended Mar. 31, 2002 months months Dec. 31, 2002 Dec. 31, 2002 ended ended Dec. 31, Dec. 31, 2002 2002 % % % NET REVENUES: Product sales Y 59,843 Y Y $ 497,655 $ revenue 135,052 165,154 1,123,093 Service 18,318 56,304 60,426 152,333 468,225 revenue Total net 78,161 100.0 191,356 100.0 225,580 100.0 649,988 1,591,318 revenues COSTS AND EXPENSES: Costs of 34,061 77,787 104,192 283,251 646,877 products sold Costs of 17,129 50,615 50,459 142,445 420,915 services rendered Selling, 13,325 39,143 52,842 110,811 325,514 general and administrative Total costs 64,515 82.5 167,545 87.6 207,493 92.0 536,507 1,393,306 and expenses Operating 13,646 17.5 23,811 12.4 18,087 8.0 113,481 198,012 income OTHER INCOME (EXPENSES): Interest 87 256 244 723 2,129 income (190) (633) (767) (1,580) (5,264) Interest expense Gain on sale - 552 4,655 - 4,590 of subsidiary shares Other, net (448) (741) 459 (3,726) (6,162) Other income (551) (0.7) (566) (0.3) 4,591 2.1 (4,583) (4,707) (expenses), net INCOME BEFORE 13,095 16.8 23,245 12.1 22,678 10.1 108,898 193,305 INCOME TAXES, MINORITY INTEREST AND EQUITY IN NET INCOME OF AFFILIATED COMPANIES INCOME TAXES: Current 6,994 13,449 17,276 58,162 111,842 Deferred (1,835) (3,078) (5,609) (15,260) (25,597) Total 5,159 6.6 10,371 5.4 11,667 5.2 42,902 86,245 INCOME BEFORE 7,936 10.2 12,874 6.7 11,011 4.9 65,996 107,060 MINORITY INTEREST AND EQUITY IN NET INCOME OF AFFILIATED COMPANIES MINORITY 543 0.7 1,757 0.9 364 0.1 4,516 14,611 INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES EQUITY IN NET 978 1.2 1,622 0.9 755 0.3 8,133 13,489 INCOME OF AFFILIATED COMPANIES NET INCOME Y 8,371 10.7 Y 12,739 6.7 Y 11,402 5.1 $ 69,613 $ 105,938 PER SHARE DATA: Yen U.S. Dollars Three months Nine months Year ended Three Nine ended ended Mar. 31, 2002 months months Dec. 31, 2002 Dec. 31, 2002 ended ended Dec. 31, Dec. 31, 2002 2002 Basic and diluted Y 69.47 Y 104.50 Y 89.32 $ 0.58 $ 0.87 net income per share Weighted-average 120,487,247 121,898,446 127,647,120 common shares outstanding Note: Net income 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 December 31, 2002 and March 31, 2002, and therefore there is no difference between basic and diluted EPS. 5. Consolidated Statements of Cash Flows (Unaudited) Millions of Yen Thousands of U.S. Dollars Nine months Year ended Nine months ended Mar. 31, 2002 ended Dec. 31, 2002 Dec. 31, 2002 Cash flows from operating activities: Net income Y 12,739 Y 11,402 $ 105,938 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 8,263 15,460 68,715 Provision for doubtful receivables 569 4,189 4,732 Loss on sale or disposal of property and 837 924 6,960 equipment, net Gain on sale of subsidiary shares (552) (4,655) (4,590) Equity in net income of affiliated (1,621) (755) (13,480) companies Minority interest 1,757 364 14,611 Deferred income taxes (3,078) (5,609) (25,597) Change in assets and liabilities: Increase in trade notes and accounts (6,269) (3,930) (52,133) receivable Increase in inventories (1,775) (1,594) (14,761) Increase (decrease) in trade notes and 874 (5,934) 7,268 accounts payable Decrease in income taxes payable (3,880) (1,722) (32,266) Increase (decrease) in accrued expenses (2,742) 2,305 (22,802) Increase in deferred revenue 1,468 805 12,208 Other, net 209 (131) 1,738 Net cash provided by operating activities 6,799 11,119 56,541 Cash flows from investing activities: Purchases of investments in affiliates - (8,115) - Purchases of investments in a subsidiary (315) - (2,620) Proceeds from sales of investments in 2,081 1,797 17,306 subsidiaries Capital expenditures (7,723) (8,095) (64,225) Proceeds from sales of property and 1,444 444 12,008 equipment Acquisition of new subsidiaries, net of - 692 - cash acquired Decrease in time deposits, net 521 90 4,333 Increase in lease deposits, net (384) (1,877) (3,193) Other, net (81) (960) (674) Net cash used in investing activities (4,457) (16,024) (37,065) Cash flows from financing activities: Net decrease in short-term borrowings (6,811) (1,108) (56,640) Proceeds from long-term debt - 45,230 - Repayments of long-term debt (2,486) (13,172) (20,674) Principal payments under capital lease (1,931) (2,407) (16,058) obligations Proceeds from issuance of bonds 14,902 - 123,925 Net proceeds from issuance of common - 7,035 - stock by a subsidiary Dividends paid (6,172) (7,652) (51,326) Purchases of treasury stock by parent (10,658) (15,006) (88,632) company Purchases of treasury stock by (3,075) (194) (25,572) subsidiaries Other, net (663) (113) (5,514) Net cash provided by (used in) financing (16,894) 12,613 (140,491) activities Effect of exchange rate changes on cash 34 667 283 and cash equivalents Net increase (decrease) in cash and cash (14,518) 8,375 (120,732) equivalents Cash and cash equivalents, beginning of 75,188 66,813 625,264 the period Cash and cash equivalents, end of the Y 60,670 Y 75,188 $ 504,532 period 6. Segment Information (Unaudited) a . Operations in Different Industries Three months ended Eliminations and Dec. 31, 2002 CS H&F T&H AC GC Other Total Corporate Consolidated (Millions of Yen) Net revenue: Customers Y 31,367 Y 18,318 Y 18,351 Y 5,586 Y 3,995 Y 544 Y 78,161 - Y 78,161 Intersegment 240 3 112 2,475 58 1,149 4,037 Y (4,037) - Total 31,607 18,321 18,463 8,061 4,053 1,693 82,198 (4,037) 78,161 Operating 24,932 19,217 11,065 6,186 3,552 1,481 66,433 (1,918) 64,515 expenses Operating Y 6,675 Y (896) Y 7,398 Y 1,875 Y 501 Y 212 Y 15,765 Y (2,119) Y 13,646 income (loss) Nine months ended Eliminations and Dec. 31, 2002 CS H&F T&H AC GC Other Total Corporate Consolidated (Millions of Yen) Net revenue: Customers Y 65,770 Y 56,304 Y 37,776 Y 17,701 Y 12,299 Y 1,506 Y 191,356 - Y 191,356 Intersegment 1,235 156 131 8,969 169 2,890 13,550 Y (13,550) - Total 67,005 56,460 37,907 26,670 12,468 4,396 204,906 (13,550) 191,356 Operating 54,417 57,594 23,607 21,654 11,839 4,367 173,478 (5,933) 167,545 expenses Operating Y 12,588 Y (1,134) Y 14,300 Y 5,016 Y 629 Y 29 Y 31,428 Y (7,617) Y 23,811 income (loss) Year ended Mar. 31, 2002 Eliminations and CS H&F T&H AC GC Other Total Corporate Consolidated (Millions of Yen) Net revenue: Customers Y 88,762 Y 60,426 Y 25,213 Y 31,641 Y 13,264 Y 6,274 Y 225,580 - Y 225,580 Intersegment 1,367 120 388 7,092 382 2,622 11,971 Y (11,971) - Total 90,129 60,546 25,601 38,733 13,646 8,896 237,551 (11,971) 225,580 Operating 71,777 65,042 18,400 32,346 14,285 9,241 211,091 (3,598) 207,493 expenses Operating Y 18,352 Y (4,496) Y 7,201 Y 6,387 Y (639) Y (345) Y 26,460 Y (8,373) 18,087 income (loss) Three months ended Eliminations and Dec. 31, 2002 CS H&F T&H AC GC Other Total Corporate Consolidated (Thousands of U.S. Dollars) Net revenue: Customers $ 260,848 $ 152,333 $ 152,607 $ 46,454 $ 33,222 $ 4,524 $ 649,988 - $ 649,988 Intersegment 1,996 25 931 20,582 483 9,555 33,572 (33,572) - Total 262,844 152,358 153,538 67,036 33,705 14,079 683,560 (33,572) 649,988 Operating 207,335 159,809 92,016 51,443 29,538 12,316 552,457 (15,950) 536,507 expenses Operating $ 55,509 $ (7,451) $ 61,522 $ 15,593 $ 4,167 $ 1,763 $ 131,103 $ (17,622) $ 113,481 income (loss) Nine months ended Eliminations and Dec. 31, 2002 CS H&F T&H AC GC Other Total Corporate Consolidated (Thousands of U.S. Dollars) Net revenue: Customers $ 546,944 $ 468,225 $ 314,145 $ 147,202 $ 102,278 $ 12,524 $ 1,591,318 - $ 1,591,318 Intersegment 10,270 1,297 1,090 74,586 1,406 24,033 112,682 (112,682) - Total 557,214 469,522 315,235 221,788 103,684 36,557 1,704,000 (112,682) 1,591,318 Operating 452,532 478,952 196,316 180,075 98,454 36,316 1,442,645 (49,339) 1,393,306 expenses Operating $ 104,682 $ (9,430) $ 118,919 $ 41,713 $ 5,230 $ 241 $ 261,355 $ (63,343) $ 198,012 income (loss) Notes: 1. Primary businesses of each segment are as follows: Consumer Software (CS): Production and sale of home-use video game software Health and Fitness (H&F): Operation of health and fitness clubs Toy & Hobby (T&H): Production and sale of character related products Amusement Content (AC): Manufacture and sale of amusement arcade games and related components Gaming Content (GC): Manufacture and sale of gaming machines for overseas market and token-operated games for domestic market Other: Financial and real estate management services provided primarily to our subsidiaries 2. The Health and Fitness (HF) segment and the Character Products (CP) segment changed their names to Health & Fitness (H&F) and Toy & Hobby (T&H), respectively, on October 1, 2002. The Consumer Software (CS) segment, the Health & Fitness (H&F) segment, the Toy & Hobby (T&H) segment, the Amusement Content (AC) segment and the Gaming Content (GC) segment changed their names to Computer & Video Games, Exercise Entertainment, Toy & Hobby, Amusement and Gaming, respectively, on January 16, 2003. 3. Intersegment revenues primarily consists of sub-licensing of intellectual property rights from CS and T&H to AC and GC, sales of hardware and components from AC and GC to CS and H&F, and administrative services provided by shared-service subsidiaries included in other. Eliminations and corporate primarily consist of eliminations of intercompany profits on inventories and expenses for corporate headquarters. b . Operations in Geographic Areas Three months ended Asia December 31, 2002 Japan Americas Europe /Oceania Total Eliminations Consolidated (Millions of Yen) Net revenue: Customers Y 46,412 Y 22,667 Y 6,772 Y 2,310 Y 78,161 - Y 78,161 Intersegment 22,717 788 - 80 23,585 Y (23,585) - Total 69,129 23,455 6,772 2,390 101,746 (23,585) 78,161 Operating expenses 58,551 21,974 5,897 1,868 88,290 (23,775) 64,515 Operating income (loss) Y 10,578 Y 1,481 Y 875 Y 522 Y 13,456 Y 190 Y 13,646 Nine months ended Asia December 31, 2002 Japan Americas Europe /Oceania Total Eliminations Consolidated (Millions of Yen) Net revenue: Customers Y 138,208 Y 36,545 Y 10,777 Y 5,826 Y 191,356 - Y 191,356 Intersegment 38,522 977 27 315 39,841 Y (39,841) - Total 176,730 37,522 10,804 6,141 231,197 (39,841) 191,356 Operating expenses 154,850 37,021 10,370 4,864 207,105 (39,560) 167,545 Operating income (loss) Y 21,880 Y 501 Y 434 Y 1,277 Y 24,092 Y (281) Y 23,811 Year ended Asia March 31, 2002 Japan Americas Europe /Oceania Total Eliminations Consolidated (Millions of Yen) Net revenue: Customers Y 177,618 Y 26,002 Y 19,320 Y 2,640 Y 225,580 - Y 225,580 Intersegment 31,446 2,860 6 199 34,511 Y (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) Y 23,975 Y (1,576) Y 4,382 Y 144 Y 26,925 Y (8,838) Y 18,087 Three months ended Asia December 31, 2002 Japan Americas Europe /Oceania Total Eliminations Consolidated (Thousand of U.S. Dollars) Net revenue: Customers $ 385,963 $ 188,499 $ 56,316 $ 19,210 $ 649,988 - $ 649,988 Intersegment 188,915 6,553 - 665 196,133 (196,133) - Total 574,878 195,052 56,316 19,875 846,121 (196,133) 649,988 Operating expenses 486,911 182,736 49,039 15,535 734,221 (197,714) 536,507 Operating income (loss) $ 87,967 $ 12,316 $ 7,277 $ 4,340 $ 111,900 $ 1,581 $ 113,481 Nine months ended Asia December 31, 2002 Japan Americas Europe /Oceania Total Eliminations Consolidated (Thousand of U.S. Dollars) Net revenue: Customers $ 1,149,339 $ 303,908 $ 89,622 $ 48,449 $ 1,591,318 - $ 1,591,318 Intersegment 320,349 8,125 224 2,620 331,318 (331,318) - Total 1,469,688 312,033 89,846 51,069 1,922,636 (331,318) 1,591,318 Operating expenses 1,287,734 307,867 86,237 40,449 1,722,287 (328,981) 1,393,306 Operating income (loss) $ 181,954 $ 4,166 $ 3,609 $ 10,620 $ 200,349 $ (2,337) $ 198,012 Note: For the purpose of presenting its operations in geographic areas above, Konami 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 U.S. dollar amounts included herein represent a translation using the mid price for telegraphic transfer of U.S. dollars as of December 31, 2002 of Y 120.25 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. The third quarter ended December 31, 2002 was the first period in which Konami prepared its quarterly consolidated financial statements in accordance with U.S. GAAP. Therefore, U.S. GAAP consolidated financial information for the three months and the nine months ended December 31, 2001 is not available. 4. Comprehensive income for the three months and the nine months ended December 31, 2002 and for the year ended March 31, 2002 consisted of the following: Millions of Yen Thousands of U.S. Dollars Three Nine months Year ended Three months Nine months months ended Mar. 31, ended ended ended Dec. 31, 2002 Dec. 31, 2002 Dec. 31, Dec. 31, 2002 2002 2002 Net income Y 8,371 Y 12,739 Y 11,402 $ 69,613 $ 105,938 Other comprehensive income: Foreign currency 27 (186) 709 225 (1,547) translation adjustments Net unrealized gains (8) 89 (189) (67) 740 (losses) on available-for-sale securities 19 (97) 520 158 (807) Comprehensive income Y 8,390 Y 12,642 Y 11,922 $ 69,771 $ 105,131 This information is provided by RNS The company news service from the London Stock Exchange

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