Final Results

Konami Corporation 10 May 2005 Consolidated Financial Results for the Year Ended March 31, 2005 (Prepared in Accordance with U.S. GAAP) May 10, 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) Date of Board Meeting to approve May 10, 2005 the financial results: Adoption of U.S. GAAP: Yes 1. Consolidated Results for the Year Ended March 31, 2005 (Amounts are rounded to the nearest millions) (1) Consolidated Results of Operations (Millions of Yen, except per share data) Net revenues Operating Income (loss) Net income (loss) before income income (loss) taxes Year ended March 31, 2005 260,691 28,136 27,442 10,486 % change from previous year (4.7)% (30.9)% (31.6)% (47.8)% Year ended March 31, 2004 273,412 40,713 40,107 20,104 % change from previous year 7.8 % - - - Basic and diluted Return on Ratio of income Ratio of income net income (loss) shareholders' (loss) (loss) before per share equity before income income taxes taxes to net revenues to total assets Year ended March 31, 2005 87.41 10.1% 9.2% 10.5% Year ended March 31, 2004 166.86 20.9% 14.0 % 14.7 % Notes: 1. Equity in net income (loss) of affiliated companies Year ended March 31, 2005: Y(6,293)millions Year ended March 31, 2004: Y252 millions 2. Weighted-average common shares outstanding Year ended March 31, 2005: 119,970,052 shares Year ended March 31, 2004: 120,483,869 shares 3. Change in accounting policies: None 4. Income (loss) before income taxes represents 'Income (loss) before income taxes, minority interest and equity in net income (loss) of affiliated companies' as stated in the accompanying consolidated statements of operations. 5. Net income (loss) per share was calculated 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 assets Total shareholders' Equity-assets Shareholders' equity ratio equity per share March 31, 2005 304,321 105,857 34.8% 885.97 March 31, 2004 294,497 102,129 34.7% 847.66 Note: Number of shares outstanding March 31, 2005: 119,481,411 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 year Year ended March 31, 2005 27,760 (14,343) (11,670) 89,583 Year ended March 31, 2004 34,326 (7,001) (14,141) 86,885 (4) Number of Consolidated Subsidiaries and Companies Accounted for by the Equity Method Number of consolidated subsidiaries: 27 Number of affiliated companies accounted for by the equity method: 2 (5) Changes in Reporting Entities Number of consolidated subsidiaries added: 0 Number of consolidated subsidiaries removed: 1 Number of affiliated companies accounted for by the equity method added: 0 Number of affiliated companies accounted for by the equity method removed: 1 2. Earnings 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, 2006 270,000 28,500 34,000 18,000 Note: Expected net income per share for the year ending March 31, 2006 is Y 150.65 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. Please refer to page 13 of the attached material for information regarding the assumptions and other related items used in the preparation of these forecasts. 1. Organizational Structure of the Konami Group The Konami Group is a conglomerate engaged in the entertainment and health industry providing customers with ''High Quality Life'' and is comprised of KONAMI CORPORATION (the ''Company''), its 27 consolidated subsidiaries and two 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 ''8. Segment Information (Unaudited)''. Business Segments Major Companies Computer & Video Games Domestic The Company Konami Marketing Japan, Inc. (*1) Konami Computer Entertainment Studios, Inc. (Note 3) Konami Computer Entertainment Tokyo, Inc. (Note 3) Konami Computer Entertainment Japan, Inc. (Note 3) Konami Online, Inc. (Note 3) TAKARA CO., LTD. (Note 5) , HUDSON SOFT CO., LTD. (Note 6) Overseas Konami Digital Entertainment, Inc. (*2) Konami of Europe GmbH Konami Marketing (Asia) Ltd. Konami Software Shanghai, Inc. Toy & Hobby Domestic The Company Konami Marketing Japan, Inc. Konami Media Entertainment, Inc. (Note 3) Konami Traumer, Inc. (Note 4) , Konami Online, Inc. (Note 3) 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. (Note 3) , 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. (Note 3) , One other company Other Domestic Konami Marketing Japan, Inc., Konami School, Inc. Konami Computer Entertainment School, Inc. (*3) 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. Primary changes in major companies for the year ended March 31, 2005 are as follows: (*1) The Company sold its entire shares of Genki Co., Ltd which was an equity method affiliate on March 31, 2005 and dissolved its equity relationship. (*2) Konami Computer Entertainment Hawaii, Inc merged with Konami Digital Entertainment, Inc on March 31, 2005. (*3) Konami Computer Entertainment School, Inc. was dissolved on March 31, 2005 and will be liquidated by mid- June 2005. 3. Konami Computer Entertainment Studios, Inc., Konami Computer Entertainment Tokyo, Inc., Konami Computer Entertainment Japan, Inc., Konami Online, Inc., and Konami Media Entertainment, Inc. merged with the Company on April 1, 2005. 4. The Company decided to merge with Konami Traumer, Inc. at the meeting of Board of Directors on April 11, 2005 effective on June 1, 2005. 5. This is an equity method affiliate. The Company has sold its entire shares of Takara and has dissolved its equity relationship on April 25, 2005. 6. This is an equity method affiliate. 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. Business Organization 2. Management Policy 1. Management Policy Our management policy places priority on our shareholders, sound relationships with all stakeholders, including shareholders, and a wide range of social contributions as a good corporate citizen. We aim to make optimum use of the group's management resources by taking into account the three keywords of our management policy: 'Adaptation to Global Standards,' 'Maintaining Fair Competition' and 'Pursuit of High Profits.' In order to maximize our shareholders' value we strive to continuously increase and improve our market capitalization and provide stable dividends as a means to return profits to shareholders. Retained earnings will be used for investment focused on business fields with good future prospects and profitability to increase our corporate value and a source for paying dividends. We are working on maintaining sound relationships with our stakeholders, including investors, end-users, suppliers, employees and the community in general, as well as contributing to society by supporting a wide range of activities that promote education, sports and culture. Pursuant to this basic management policy, we aim to create a 'High Quality Life' full of ''dreams'' ''surprises'' and ''fascination'' in everyday life for people all over the world by offering entertainment and health products and services with universal appeal. 2. Profit Appropriation Policy The Company's basic policy in profit distribution is to provide dividend payouts of 30% or more of consolidated net income. Retained earnings will be used for investment focused on business fields with good future prospects and profitability to strengthen our growth potential and competitiveness. 3. Medium to Long-term Strategies and Objectives Establishment of Strong Business Portfolio Restructuring of business operations in order to respond to changing market conditions Computer & Video Game, Toy & Hobby, Amusement, Health & Fitness and Gaming, the five business segments that have supported the Konami group, strengthened their respective presences, achieved good balance between creativity and profitability, and earned wide acclaim from the markets. Meanwhile, the arrival of an internet society and the development of digital technology have been rapidly eroding the business barriers among industries related to digital entertainment. This trend has accelerated since the emergence of the online game market. In order to respond to the diversifying needs of consumers, we positioned five areas (Computer & Video Games, Toy & Hobby, Amusement, On-line and Multimedia) as a unified Digital Entertainment Business and established a system that can maximize synergy effects. Along with this business restructuring, we established three business segments to respond to the changing market conditions: the Digital Entertainment segment, the Health & Fitness segment, and the Gaming segment. Increased profitability and injection of managerial resources into growing business areas On April 1, 2005, we merged our three group companies engaged in the production of home videogame software and two group companies specialized in online games, music and publishing. We will be integrating and sharing our creators, intellectual property, and production know-how-resources previously separated between our three production companies. We also will pursue improved profitability by promoting an effective product line-up and streamlining operations which have become redundant or complicated over many years. With the maturation of the internet and other online environments, we will redistribute our managerial resources from videogame software to online business, an area expected to grow in the future. Through all of these efforts, we will strive to maintain the Company's growth. Promoting global development by implementing a Regional Corporate Structure Given the acceleration of globalization and the transition to the internet in recent years, we are expected to comprehend the specificity of the market, which is growing globally, and respond flexibly and promptly, above and beyond business segments. We now classify the world market into four regions - Japan, America, Europe, and Asia. Henceforth we will be building an organizational structure that can achieve maximal synergy effect among the businesses in the market of each region. Three directors manage the businesses in these four markets: one oversees the Japan market, one oversees the American and European markets together, and one oversees the Asian market. Each director also takes charge of development, production, and sales, across business segments, and shoulders the role of promoting the further global development of the Konami Group by assuming ultimate responsibility in each region. Addition of Hudson as our subsidiary Responding to a request from Hudson, a firm which expects to report a considerable net loss for the year ended March31, 2005,to support an increase in its capitalization we decided on April 11, 2005 to accept a subscription offer to purchase additional shares of Hudson. Hudson aims to improve its financial structure through increased capital. Consequently, Hudson Soft Co., Ltd. became our consolidated subsidiary. We will support Hudson's management reconstruction and aim for a synergy effect mainly with our online business. 4. Corporate Governance Development Our basic management policy is to place priority on shareholders, to maintain a sound relationship with all stakeholders, including shareholders, and to make a wide range of social contributions as a good corporate citizen. We need to develop a strong corporate governance in order to maintain and develop these policies, and we have positioned the reform of the board of directors as the first and most important agenda in our corporate governance development program. We adopted an outside corporate director in May 1992 in an effort to revitalize and strengthen the function of the board of directors, and we introduced an corporate officer system in June 1999. In June 2001 we reduced the size of our board of directors from fifteen directors to nine, including four directors from outside the company. We now have eight directors, three of whom are from outside the company. Diverse opinions are exchanged at meetings of the board of directors, a board of eight directors and four auditors. Through such reform measures, we are striving to accelerate our managerial decision-making process, separate oversight and executive functions, strengthen the managerial monitoring system, revitalize the board of directors, and pursue management transparency. There are no direct interests between the outside directors and the Company, whether in transaction or otherwise. We are working to implement committees and revitalize them so that we can respond more accurately to the ever-complicated environment in which we operate. We established the Risk Management Committee in April 2000 in order to enhance our ability to prevent and respond quickly and precisely to internal and external risks. We established the Compliance Committee in September 2001 to reinforce our entire system for encouraging compliance with applicable laws, rules, and regulations and to keep each employee informed about compliance. As a SEC reporting company listed on the New York Stock Exchange, we are subject to the Sarbanes-Oxley Act. With the enactment of said Act, we established a Disclosure Committee in April 2003. The Company will also be subject to Article 404 of the Sarbanes-Oxley Act, 'Management Assessment of Internal Controls,' from fiscal year ending March 31, 2007. The entire Konami Group is currently working on the documentation, assessment method, and monitoring system for the important internal control over financial reporting. Through these processes, the Disclosure Committee is seeking to establish an internal management system and to develop group company reporting procedures to facilitate accurate and timely disclosure. We also established the Konami Group Code of Business Conduct and Ethics and the Konami Group Officers and Employees Conduct Guidelines in order to integrate directions and improve standards at all group levels. 3. Business Performance and Cash Flows 1. Business Performance Overview In the consolidated fiscal year ended March 31, 2005, corporate performance improved and the Japanese economy grew steadily on the whole. However, personal consumption still lagged behind and full-scale recovery is yet to be attained. The U.S. economy expanded steadily, the Chinese economy maintained steady growth, and a healthy recovery was observed generally on the global stage. In the entertainment industry in which we operate, sales of home video game software grew steadily on a global scale. Nintendo and Sony both released new-style portable game consoles in the domestic and North American markets. In the health industry, demand is growing, especially in the middle-aged and senior groups, in light of the trend of increasing health consciousness. In Japan, where membership in sports clubs is relatively low compared to that in Europe and the U.S., the market is expected to grow with increased interest in health. Under these circumstances, in the Computer & Video Games segment, we launched the long-awaited big product, METAL GEAR SOLID 3 SNAKE EATER in Japan, the U.S., and Europe and achieved favorable sales. WINNING ELEVEN and PRO EVOLUTION SOCCER, popular soccer game series, together tallied double million sales in Japan and Europe for each of the last three consecutive years. As a result of these achievements, the Computer & Video Games segment was able to achieve total annual shipments of over 20 million units for four consecutive years. In the Toy & Hobby segment, sales of Yu-Gi-Oh! trading card game continued to grow steadily in the Japanese, U.S., and European markets. We also introduced the PLAY-POEMS series, a new genre of virtual game, in the domestic market. In the Amusement segment, products utilizing 'e-AMUSEMENT' services, such as MAH-JONG FIGHT CLUB, enjoyed large sales. We exhibited numerous new products at the 'AOU2005 Amusement EXPO' held in February 2005. Sales in the Gaming segment increased steadily with the acquisition of gaming licenses and an expanded line-up of products. Sales of not only the traditional gaming machines but also gaming control systems are well underway, with a view to expanding business operations. In the Health & Fitness segment, our network of nationwide fitness club facilities is being expanded. The Konami Group is putting in a good amount of effort to accept entrustment of management of sports clubs owned by municipal governments, and the number of sports clubs entrusted to the Group totaled 48 facilities as of the end of March 2005. We exhibited numerous exercise machines both for institutional use and home use at the world's largest fitness trade show, IHRSA (International Health, Racquet & Sports Club Association) 2005 held in San Francisco in March 2005. These machines attracted a high level of interest among visitors. As a result, consolidated net revenue for the year ended March 31, 2005 amounted to Y 260,691 million, consolidated operating income was Y 28,136 million, consolidated income before tax was Y 27,442 million, and consolidated net income was Y 10,486 million. Dividend payout for the consolidated fiscal year ended March 31, 2005 is expected to be Y54 per share (Y27 as of September 30, 2004 and Y27 as of March 31, 2005). Performance by business segment Summary of net revenues by business segment: Millions of Yen Year ended Year ended % of previous year March 31, 2004 March 31, 2005 Computer & Video Games Y92,520 Y94,444 102.1 Toy & Hobby 57,468 41,008 71.4 Amusement 35,427 37,582 106.1 Gaming 10,947 11,643 106.4 Health & Fitness 78,899 79,105 100.3 Other, Corporate and Eliminations (1,849) (3,091) - Consolidated net revenues Y273,412 Y260,691 95.3 Note: Health & Fitness segment was renamed from Exercise Entertainment segment as of March 29, 2004. In the Computer & Video Games segment, WORLD SOCCER WINNING ELEVEN 8, the popular soccer game for PlayStation2, recorded million sales for each of three consecutive years in the domestic market. Also, the popular series of JIKKYO PAWAFURUPUROYAKYU 11 sold a total of over 700,000 units for the PlayStation2 and Nintendo GameCube versions. As for Konami's original titles, we released METAL GEAR SOLID 3 SNAKE EATER, the latest product in the globally acclaimed METAL GEAR SOLID series, for the Christmas season and recorded sales of more than 800,000 units. Sales of Suikoden IV for PlayStation2 remained strong, matching the solid performance of the previous production. In the area of comic content, THE PRINCE OF TENNIS series and the Korokke series remained popular among primary and junior high school students. In North America, METAL GEAR SOLID 3 SNAKE EATER was released in autumn ahead of other markets and recorded sales of 1.5 million units. The Yu-Gi-Oh! series continues to enjoy popularity. More than 1.5 million sales units in the series have now been sold, including the titles Yu-Gi-Oh! Capsule Monsters (PlayStation2 version) and Yu-Gi-Oh! Destiny Board Traveler (Game Boy Advance version). As for the Dance Dance Revolution series, sales for the whole series, including DDR Extreme for the PlayStation2 version, also reached 1.3 million units. In Europe, we released PRO EVOLUTION SOCCER 4 for PlayStation2, Xbox and PC in October 2004. The title turned out to be a big hit, selling a total of 3.5 million units for the whole series. METAL GEAR SOLID 3 SNAKE EATER recorded million sales right after its release in March 2005. The Yu-Gi-Oh! series continues to be popular in Europe as well, and the total shipment of the series amounted to 1.2 million units. As a result, consolidated net revenue of the Computer & Video Games segment was Y 94,444 million for the year ended March 31, 2005 (102.1% of the year ended March 31, 2004). As in the previous year, the Toy & Hobby segment developed its business operations focusing on a line-up of boys' toys. As for new initiatives in the area of boys' toys, we concentrated attention on the expanding animation market, began a full-scale drive to plan and develop an original TV animation series called Get Ride! AMDRIVER, and launched a 'media-mix' project to promote this content across a variety of media. Also, as a new product for boys' toys, we released THE JUSTIRISERS as a follow-up to GRANSAZERS, one after another, in line with the TV program aired from October 2004. In November 2004 we started the release of the PLAY-POEMS series, a new type of virtual game loaded with high-performance semiconductor chips, POEMS, and we are striving to expand new markets. As for Yu-Gi-Oh! trading card games, although there has been some decrease in sales compared to the previous year in Europe, looking at the trading card game market as a whole, we were able to maintain a steady level of sales. In Japan we recorded robust sales exceeding the level of the preceding year. As a result, the consolidated net revenue of the Toy & Hobby segment was Y 41,008 million for the year ended March 31, 2005 (71.4 % of the year ended march 31, 2004). In the Amusement segment, products exploiting e-AMUSEMENT services for amusement arcades, such as the MAH-JONG FIGHT CLUB series, a full-fledged mah-jong game which allows direct competition with other players at other game locations nationwide online, and QUIZ MAGIC ACADEMY II, the newest title in a quiz game series allowing intellectual competition with other players, received favorable reviews. Variation products of music simulation game series, most notably drummania, GUITARFREAKS, and pop'n music, also sold steadily. As for token-operated products, the new product Wing Fantasia, a snake-and-ladder-type game which creates an exciting variety of party-game fun previously unattainable with traditional large-scale token-operated games, and GI-TURFWILD, a large-scale token-operated horseracing game machine which provides a higher degree of realistic sensations and more advanced game features than GI-WINNING SIRE, both generated strong sales. As a result, consolidated net revenue of the Amusement segment was Y 37,582 million for the year ended March 31, 2005 (106.1 % of the year ended March 31, 2004). Two centers of activity for our Gaming segment are North America and Australia. In North America we mainly deploy video slot machines, our main product, and ADVANTAGE SERIES, a new generation of Mechanical Slot Machines introduced in the last fiscal year. During the current term under review, sales grew at an especially rapid pace in the states of Nevada, California, Michigan, and Wisconsin. In Canada we started sales activities in the provinces of British Columbia and Quebec, expanding both sales areas and amounts. Sales of Forcise, our first casino control system, are getting on track with steadily increasing orders. Although the Australian market leveled off, we secured sales in the country with video slot titles such as EGYPTAGON. At the same time, we are pressing forward to develop overseas markets. As a result, consolidated net revenue of the Gaming segment was Y 11,643 million for the year ended March 31, 2005 (106.4 % of the year ended March 31, 2004). With regard to management of fitness clubs in the Health & Fitness segment, we expanded our network of Konami Sports Club facilities further and opened eight facilities, including renovations and consolidations, in Fukuoka Tenjinn (Fukuoka prefecture), Oita Akeno (Oita prefecture), Ogaki (Gifu prefecture) and the Head Office Nishinomiya Annex (Hyogo prefecture). As for new products and services, we introduced in April 2004 a new corporate membership system which offers members a choice between pay-per use and pay-per month, and under which members' families aged 16 years or over can use the facilities. We also newly created a 'gymnasts course' in our 'Undo-Jyuku' sports school to train young gymnasts in the hopes of contributing to the further development of Japanese sports. Also, as a step toward strengthening the structure of swimming competitions, we set up an organizational system in support of instructors and swimmers. In order to enhance safety and provide high quality services at the facilities, we have installed and introduced an automated external defibrillator (AED) in all the facilities of Konami fitness clubs. In the area of fitness products for commercial use, we newly equipped our exercise facilities with the EZ series products developed based on our network technologies and knowledge in the entertainment business. These products have already received highly favorable reviews from members. In the area of home use, we released Refreshmentbike, a home use fitness machine capable of generating highly concentrated oxygen and negative ions, and Kenshin-Keikaku, a PC software application to display and manage exercise data stored in e-walkeylife, a pedometer with multi-functions. We also released our original supplements, most notably, FLAVANGENOL UP 50 and FLAVANGENOL MSMPLUS, to further promote expansion of our product line-up. As a result, consolidated net revenue of the Health & Fitness segment was Y 79,105 million for the year ended March 31, 2005 (100.3 % of the year ended March 31, 2004). Outlook for Fiscal Year Ending March 31, 2006 In the Digital Entertainment segment, we will try to obtain licenses of overseas video game contents and extend market shares overseas as for computer & video game area. We will also try to further reinforce our popular prevailing series such as WORLD SOCCER WINNING ELEVEN and our sports series such as PRO EVOLUTION SOCCER and JIKKYO PAWAFURUPUROYAKYU; and we will continue to develop our original contents as well. The Toy & Hobby area will further strengthen the Choseishin series of GRANSAZERS and THE JUSTIRISERS and strive to expand boys' toys focusing on products related to special effect heroes. As for the Yu-Gi-Oh! trading card series, a steadily popular line-up of standard products in the domestic, American, and European markets, we plan to remain active in the sponsorship of events such as international contests while exerting energy to develop new users. In the Amusement area, as for video games, we will provide new titles such as DANCE86.4, a music simulation game for light users, and pop'n music 13, the latest production of the stable pop'n music series. As for token-operated products, we plan to launch GI-HORSEPARK, the latest title in the GI series. This large-scale token-operated horse racing games is programmed with advanced features and an impressive tableaux of video images which give players an amazingly real feeling, a feeling of actually standing on a real racetrack, that they have never been able to experience before. As for Online area, we will inject online versions of Yu-Gi-Oh!, now a popular title worldwide, and Tokimeki Memorial, an original Konami title with a long history of popularity and gamer acclaim behind it. In the area of Multimedia, we will press on to develop the Figure Anime series, a brand combining original animation products that express a vision of the world and high-quality figures produced by Konami. We will also focus efforts on the planning of original animation projects such as Gokujyou Seitokai, a TV program aired beginning in April. In the Gaming segment we exhibited and received high marks for Forcise, our first casino control system, at the Global Gaming Expo held in Las Vegas in October 2004. We will expand sales on the two pillars of slot machines sales and the sale of casino control systems, and thereby aim for stable development of the business. With regard to our new company buildings being transferred, we will start full-scale operations from June 2005. By opening a new company office on the premises adjacent to McCarran International Airport, Las Vegas, we will not only enhance production capabilities of gaming-related equipment, but also consolidate gaming segment functions at this new headquarters to establish it as a global center. In the Health & Fitness segment, we aim to promote the expansion of a network of high-quality facilities and the renewal of older existing facilities in the sports club business. These moves, combined with our work to improve the contents and quality of a wide range of services not available at conventional sports clubs and to respond to diverse customer needs, will ultimately satisfy the high demand among customers for safe, clean and comfortable facilities and personal services. By applying the know-how and experiences cultivated through direct management of facilities to entrusted management of municipal government facilities, we will strive to expand profit-earning opportunities. In the Health & Fitness products business, under the concept of 'offering enjoyable exercises and relaxation,' we will create new services for health by actively introducing next-generation fitness machines such as the EZ series into Konami sports clubs, by expanding the range of home health-related products, and by building a network connecting sports clubs with homes and offering healthcare information tailored to individuals. We will make efforts to offer products and services with high quality meeting the exact needs of customers with 'Improved Customer Satisfaction' in mind. Regarding our forecast for consolidated results for the year ending March 31, 2006, the consolidated net revenues are expected to be Y 270,000 million, consolidated operating income is expected to be Y 28,500 million, consolidated net income before income taxes and minority interest is expected to be Y 34,000 million, and consolidated net income is expected to be Y 18,000 million. For the six months ended September 30, 2005, we do not disclose our forecasts since the business we operate is a hit-business and net revenue fluctuates throughout the year with continuous introduction of new products. In disclosing quarterly results, we intend to enhance the quality of the disclosure contents and methods. 2. Cash Flows Cash flow summary for the year ended March 31, 2004: Millions of Yen Year ended Year ended Year-on year March 31, 2004 March 31, 2005 change Net cash provided by operating activities Y 34,326 Y 27,760 Y(6,566) Net cash used in investing activities (7,001) (14,343) (7,432) Net cash used in financing activities (14,141) (11,670) 2,471 Effect of exchange rate changes on cash (979) 951 1,930 and cash equivalents Net increase (decrease) in cash and cash 12,205 2,698 (9,507) equivalents Cash and cash equivalents, end of the 86,885 89,583 2,658 period Cash flows from operating activities: Net cash provided by operating activities amounted to Y 27,760 million for the year ended March 31, 2005, compared to Y 34,326 million for the year ended March 31, 2004. This resulted primarily from income before income tax of Y 27,442 million due to overall favorable results, including sustained strong sales of the Yu-Gi-Oh! trading card game and the popular soccer game in each Toy & Hobby segment and Computer & Video Games segment, and releasing of the latest product in METAL GEAR SOLID series in the Computer & Video Games segment. Cash flows from investing activities: Net cash used in investing activities amounted to Y 14,343 million for the year ended March 31, 2005, compared to Y 7,001 million for the year ended March 31, 2004. This is due primarily to capital expenditures of Y 15,818 million for capital investment, offset by the proceeds from sales of shares of affiliated companies of Y 1,407million. Cash flows from financing activities: Net cash used in financing activities amounted to Y 11,670 million for the year ended March 31, 2005, compared to Y 14,141 million for the year ended March 31, 2004. This was primarily due to payments of dividends of Y 7,963 million, acquisition of treasury stock of 6,198 million, offset by increasing of short-term borrowing of Y6,001 million. The trends of cash flow index are as follows: Year ended Year ended March 31, 2004 March 31, 2005 Equity-assets ratio (%) 34.7 34.8 Equity-assets ratio at fair value (%) 124.4 93.4 Years of debt redemption (years) 2.1 2.8 Interest coverage ratio 39.7 28.6 Equity-assets ratio: Shareholders' equity / Total assets Equity-assets ratio at fair value: Total stockholders' equity at fair value / Total assets Years of debt redemption: Interest-bearing debt / Cash flows from operating activities Interest coverage ratio: Cash flows from operating activities / Interest expense Notes: 1. Each index is calculated from figures prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). 2. Cash flows from operating activities are from the consolidated cash flow statement. 3. Interest-bearing debt covers all liabilities with interest in the consolidated balance sheet. 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 (within the meaning of Section 21E of the U.S. Securities and Exchange Act of 1934) about our future performance. These statements are based on management's assumptions and beliefs in light of information currently available to it and, therefore, you should not place undue reliance on them. A number of important factors could cause actual results to be materially different from and worse than those discussed in forward-looking statements. Such factors include, but are not limited to: (i) changes in economic conditions affecting our operations; (ii) fluctuations in currency exchange rates, particularly with respect to the value of the Japanese yen, the U.S. dollar and the Euro; (iii) our ability to continue to win acceptance of our products, which are offered in highly competitive markets characterized by the continuous introduction of new products, rapid developments in technology and subjective and changing consumer preferences; (iv) our ability to successfully expand internationally with a focus on our video game software business, card game business and gaming machine business; (v) our ability to successfully expand the scope of our business and broaden our customer base through our exercise entertainment business; (vi) regulatory developments and changes and our ability to respond and adapt to those changes; (vii) our expectations with regard to further acquisitions and the integration of any companies we may acquire; and (viii) the outcome of contingencies. 4. Consolidated Balance Sheets (Unaudited) Millions of Yen Thousands of U.S. Dollars March 31, 2004 March 31, 2005 March 31, 2005 % % ASSETS CURRENT ASSETS: Cash and cash equivalents Y 86,885 Y89,583 $834,184 Trade notes and accounts receivable, 25,438 33,577 312,664 net of allowance for doubtful accounts of Y709 millions and Y604 millions ($ 5,624thousands) at March 31, 2004 and March 31, 2005, respectively Inventories 17,821 15,488 144,222 Deferred income taxes, net 13,895 18,392 171,264 Prepaid expenses and other current 8,727 4,898 45,609 assets Total current assets 152,766 51.9 161,938 53.2 1,507,943 PROPERTY AND EQUIPMENT, net 46,700 15.8 46,595 15.3 433,886 INVESTMENTS AND OTHER ASSETS: Investments in marketable securities 124 165 1,536 Investments in affiliates 12,514 5,184 48,273 Identifiable intangible assets 45,984 45,991 428,261 Goodwill 464 849 7,906 Lease deposits 23,967 24,216 225,496 Other assets 11,978 19,383 180,492 Total investments and other assets 95,031 32.3 95,788 31.5 891,964 TOTAL ASSETS Y 294,497 100.0 Y 304,321 100.0 $2,833,793 See accompanying notes to consolidated financial statements Millions of Yen Thousands of U.S. Dollars March 31, 2004 March 31, 2005 March 31, 2005 % % LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings Y 2,585 Y8,582 $79,914 Current portion of long-term debt and 2,900 16,727 155,759 capital lease obligations Trade notes and accounts payable 15,998 16,134 150,237 Accrued income taxes 23,318 28,372 264,196 Accrued expenses 18,651 19,875 185,073 Deferred revenue 6,036 5,396 50,247 Other current liabilities 3,311 4,741 44,148 Total current liabilities 72,799 24.7 99,827 32.8 929,574 LONG-TERM LIABILITIES: Long-term debt and capital lease 68,195 52,780 491,480 obligations, less current portion Accrued pension and severance costs 2,350 2,344 21,827 Deferred income taxes, net 19,195 16,147 150,359 Other long-term liabilities 2,420 1,879 17,497 Total long-term liabilities 92,160 31.3 73,150 24.0 681,163 TOTAL LIABILITIES 164,959 56.0 172,977 56.8 1,610,737 MINORITY INTEREST IN 27,409 9.3 25,487 8.4 237,331 CONSOLIDATED SUBSIDIARIES COMMITMENTS AND - - - CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock, no par value- Authorized 450,000,000 shares; issued 47,399 16.1 47,399 15.6 441,373 128,737,566 shares at March 31, 2004 and March 31, 2005 Additional paid-in capital 46,736 15.9 46,736 15.4 435,199 Legal reserve - - - - - Retained earnings 33,779 11.4 37,776 12.4 351,764 Accumulated other comprehensive income (119) (0.0) 2,217 0.7 20,644 (loss) Total 127,795 43.4 134,128 1,248,980 44.1 Treasury stock, at cost- 8,254,314 shares and 9,256,155 shares (263,255) at March 31, 2004 and March 31, 2005, (25,666) (8.7) (28,271) (9.3) respectively Total shareholders' equity 102,129 34.7 105,857 34.8 985,725 TOTAL LIABILITIES,MINORITY INTERESTS Y 294,497 100.0 Y304,321 100.0 $2,833,793 AND SHAREHOLDERS' EQUITY See accompanying notes to consolidated financial statements 5. Consolidated Statements of Operations (Unaudited) Millions of Yen Thousands of U.S. Dollars Year ended March 31, Year ended March 31, 2004 2005 2005 % % NET REVENUES: Product sales revenue Y 196,136 Y183,030 $1,704,349 Service revenue 77,276 77,661 723,168 Total net revenues 273,412 100.0 260,691 100.0 2,427,517 COSTS AND EXPENSES: Costs of products sold 115,229 114,547 1,066,645 Costs of services rendered 63,953 65,816 612,869 Selling, general and administrative 53,517 52,192 486,005 Total costs and expenses 232,699 85.1 232,555 89.2 2,165,519 Operating income 40,713 14.9 28,136 10.8 261,998 OTHER INCOME (EXPENSES): Interest income 488 518 4,824 Interest expense (865) (971) (9,042) Gain on sale of shares of affiliated - 563 5,243 companies Other, net (229) (804) (7,487) Other income (expenses), net (606) (0.2) (694) (0.3) (6,462) INCOME BEFORE INCOME TAXES, MINORITY 40,107 14.7 27,442 255,536 INTEREST AND EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES 10.5 INCOME TAXES: Current 18,686 15,517 144,492 Deferred (651) (7,615) (70,910) Total 18,035 6.6 7,902 3.0 73,582 INCOME BEFORE MINORITY INTEREST AND 22,072 8.1 7.5 181,954 EQUITY IN NET INCOME (LOSS) OF 19,504 AFFILIATED COMPANIES MINORITY INTEREST IN INCOME OF 2,220 0.8 2,761 1.1 25,710 CONSOLIDATED SUBSIDIARIES EQUITY IN NET INCOME (LOSS) OF 252 0.1 (6,293) (2.4) (58,600) AFFILIATED COMPANIES NET INCOME Y 20,104 7.4 Y10,486 4.0 $97,644 PER SHARE DATA: Yen U.S. Dollars Year ended March 31, Year ended March 31, 2004 2005 2005 Basic and diluted net income (loss) Y166.86 Y87.41 $0.81 per share Weighted-average common shares 120,483,869 119,970,052 outstanding See accompanying notes to consolidated financial statements 6. Consolidated Statements of Shareholders' Equity (Unaudited) Millions of Yen Common Additional Legal Retained Accumulated Treasury Total Stock Paid-in Earnings Other Stock, Shareholders' Capital Reserve Comprehensive Equity Income (Loss) at Cost Balance at March 31, Y 47,399 Y 46,736 Y 2,163 Y 18,981 Y 790 Y Y 90,406 2003 (25,663) Net Income 20,104 20,104 Cash dividends, Y (7,469) (7,469) 62.0 per Share Foreign currency (1,108) (1,108) translation adjustments Net unrealized gains 270 270 on available-for-sale securities Minimum pension (71) (71) liability adjustment Repurchase of (3) (3) treasury stock Transfer from legal (2,163) 2,163 - reserve Balance at March 31, Y 47,399 Y 46,736 Y - Y 33,779 Y (119) Y (25,666) Y102,129 2004 Net income 10,486 10,486 Cash dividends, Y (6,489) (6,489) 54.0 per Share Foreign currency 2,285 2,285 translation adjustments Net unrealized gains (20) (20) on available-for-sale securities Minimum pension 71 71 liability adjustment Repurchase of (2,605) (2,605) treasury stock Balance at March 31, Y 47,399 Y 46,736 Y - Y 37,776 Y 2,217 Y (28,271) Y 105,857 2005 See accompanying notes to consolidated financial statements Thousands of U.S. Dollars Common Additional Legal Retained Accumulated Treasury Total Stock Paid-in Earnings Other Stock, Shareholders' Capital Reserve Comprehensive Equity Income (Loss) at Cost Balance at March 31, $441,373 $ 435,199 $ - $ 314,545 $ (1,108) $(238,998) $951,011 2004 Net income 97,644 97,644 Cash dividends, $ (60,425) (60,425) 0.50 per share Foreign currency 21,278 21,278 translation adjustments Net unrealized gains (186) (186) on available-for-sale securities Minimum pension 660 660 liability adjustment Repurchase of (24,257) (24,257) treasury stock Balance at March 31, $441,373 $435,199 $- $351,764 $20,644 $ (263,255) $985,725 2005 See accompanying notes to consolidated financial statements 7. Consolidated Statements of Cash Flows (Unaudited) Millions of Yen Thousands of U.S. Dollars Year ended Year ended Year ended March 31, March 31, March 31, 2004 2005 2005 Cash flows from operating activities: Net income Y 20,104 Y 10,486 $ 97,644 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 8,528 9,360 87,159 Reversal for doubtful receivables (170) (400) (3,725) Loss on sale or disposal of property and 1,231 1,553 14,461 equipment, net Gain on sale of shares of an affiliated - (563) (5,243) company Equity in net loss (income) of affiliated (252) 6,293 58,600 companies Minority interest 2,220 2,761 25,710 Deferred income taxes (651) (7,615) (70,910) Change in assets and liabilities, net of business acquired: Decrease (increase) in trade notes and 3,033 (7,329) (68,247) accounts receivable Decrease (increase) in inventories (4,791) 2,949 27,461 Increase (decrease) in trade notes and (1,724) 352 3,278 accounts payable Increase in accrued income taxes 9,456 4,954 46,131 Decrease (increase) in other accounts (1,187) 1,697 15,802 receivables Increase in advance receipt 44 1,301 12,115 Decrease (increase) in prepaid expenses (398) 791 7,366 Increase (decrease) in deferred revenue 501 (640) (5,960) Other, net (1,618) 1,810 16,855 Net cash provided by operating activities 34,326 27,760 258,497 Cash flows from investing activities: Proceeds from sales of shares of affiliated - 1,407 13,102 companies Capital expenditures (8,788) (15,818) (147,295) Proceeds from sales of property and 281 696 6,481 equipment Proceeds from sales of investments in 1,596 22 205 marketable securities Acquisition of new subsidiaries, net of (206) - - cash acquired Decrease in time deposits, net 63 - - Decrease (increase) in lease deposits, net 121 (542) (5,047) Other, net (68) (108) (1,006) Net cash used in investing activities (7,001) (14,343) (133,560) Cash flows from financing activities: Net increase (decrease) in short-term (5,789) 6,001 55,880 borrowings Proceeds from long-term debt 6,400 - - Repayments of long-term debt (896) (1,177) (10,960) Principal payments under capital lease (2,355) (2,255) (20,998) obligations Dividends paid (8,970) (7,963) (74,150) Purchases of treasury stock by parent (3) (2,605) (24,257) company Purchases of treasury stock by subsidiaries (2,456) (3,593) (33,457) Other, net (72) (78) (727) Net cash used in financing activities (14,141) (11,670) (108,669) Effect of exchange rate changes on cash and (979) 951 8,856 cash equivalents Net increase in cash and cash equivalents 12,205 2,698 25,124 Cash and cash equivalents, beginning of the 74,680 86,885 809,060 year Cash and cash equivalents, end of the year Y 86,885 Y 89,583 $ 834,184 See accompanying notes to consolidated financial statements 8. Segment Information (Unaudited) (1) . Operations in Different Industries Year ended March Computer Toy & Amusement Gaming Health & Other, Consolidated 31, 2004 & Video Hobby Fitness Games Corporate and Eliminations (Millions of Yen) Net revenue: Customers Y 90,105 Y 57,335 Y 34,547 Y 10,947 Y 78,875 Y 1,603 Y 273,412 Intersegment 133 880 - 24 (3,452) - 2,415 Total 92,520 57,468 35,427 10,947 78,899 (1,849) 273,412 Operating expenses 76,436 37,889 23,630 10,255 76,127 8,362 232,699 Operating income Y 16,084 Y 19,579 Y 11,797 Y 692 Y 2,772 Y (10,211) Y 40,713 Year ended March Computer Toy & Amusement Gaming Health & Other, Consolidated 31, 2005 & Video Hobby Fitness Games Corporate and Eliminations (Million of Yen) Net revenue: Customers Y 92,672 Y 40,631 Y 36,699 Y 11,641 Y 78,843 Y 205 Y 260,691 Intersegment 1,772 377 883 2 262 (3,296) - Total 94,444 41,008 37,582 11,643 79,105 (3,091) 260,691 Operating expenses 79,376 33,860 26,750 10,201 77,058 5,310 232,555 Operating income Y 15,068 Y 7,148 Y 10,832 Y 1,442 Y 2,047 Y (8,401) Y 28,136 Year ended March Computer Toy & Amusement Gaming Health & Other, Consolidated 31, 2005 & Video Hobby Fitness Games Corporate and Eliminations (Thousands of U.S. Dollars) Net revenue: Customers $ 862,948 $ 378,350 $ 341,736 $ 108,399 $ 734,175 $ 1,909 $ 2,427,517 Intersegment 16,501 3,510 8,222 19 2,439 (30,691) - Total 879,449 381,860 349,958 108,418 736,614 (28,782) 2,427,517 Operating expenses 739,138 315,299 249,092 94,990 717,553 49,447 2,165,519 Operating income $ 140,311 $ 66,561 $ 100,866 $ 13,428 $ 19,061 $ (78,229) $ 261,998 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. (2). Operations in Geographic Areas Year ended March 31, Japan Americas Europe Asia Total Eliminations Consolidated 2004 /Oceania (Millions of Yen) Net revenue: Customers Y 176,401 Y 53,670 Y Y 7,790 Y 273,412 - Y 273,412 35,551 Intersegment 68,757 1,516 260 70,838 Y (70,838) - 305 Total 245,158 55,186 35,856 8,050 344,250 (70,838) 273,412 Operating expenses 213,419 30,915 6,904 303,044 (70,345) 232,699 51,806 Operating income Y 31,739 Y 3,380 Y 4,941 Y 1,146 Y 41,206 Y (493) Y 40,713 Year ended March 31, Japan Americas Europe Asia Total Eliminations Consolidated 2005 /Oceania (Millions of Yen) Net revenue: Customers Y 176,566 Y 41,480 Y 34,878 Y 7,767 Y 260,691 - Y 260,691 Intersegment 57,123 1,593 450 419 59,585 Y (59,585) - Total 233,689 43,073 35,328 8,186 320,276 (59,585) 260,691 Operating expenses 211,500 41,682 32,207 6,684 292,073 (59,518) 232,555 Operating income Y 22,189 Y 1,391 Y 3,121 Y 1,502 Y 28,203 Y (67) Y 28,136 Year ended March 31, Japan Americas Europe Asia Total Eliminations Consolidated 2005 /Oceania (Thousands of U.S. Dollars) Net revenue: Customers $ 1,644,157 $ 386,256 $ 324,779 $ 72,325 $ 2,427,517 - $ 2,427,517 Intersegment 531,921 14,834 4,190 3,902 554,847 $ (554,847) - Total 2,176,078 401,090 328,969 76,227 2,982,364 (554,847) 2,427,517 Operating expenses 1,969,457 388,137 299,907 62,240 2,719,741 (554,222) 2,165,519 Operating income $ 206,621 $ $ $ 13,987 $ 262,623 $ (625) $ 261,998 12,953 29,062 Note: 1. For the purpose of presenting its operations in geographic areas above, Konami and its subsidiaries are based on revenues from external customers to individual countries in each area based on where products are sold and services are provided. (Subsequent Events) Previous fiscal year from April 1, 2003 to March 31, 2004 None Current fiscal year from April 1, 2004 to March 31, 2005 (1) The Company has acquired all minority interests in its three subsidiaries, Konami STUDIO, Konami TYO, Konami JPN, by merging with these companies effective April 1, 2005. The Company is currently in the process of determining the impact of the acquisition using a third-party appraisal. (2) Pursuant to resolutions adopted at a meeting of the Board of Directors of Konami, held on April 11, 2005, Konami will support HUDSON SOFT CO., LTD., ('Hudson') by accepting a third party allotment of new shares of Hudson, an equity method affiliate of the Company. Following the third party allotment of new shares of Hudson, the Company will own 53.99% of issued and outstanding share of Hudson and Hudson will become a consolidated subsidiary of the Company. The Company is currently in the process of determining the impact of the acquisition using a third-party appraisal. (3) Pursuant to resolutions adopted at a meeting of the Board of Directors of the Company, held on April 25, 2005, the Company has sold its entire shares of Takara Co., Ltd ('Takara') on the same date. As a result, Takara is no longer an affiliated of the Company. 9. Non-consolidated Financial Results for the Year Ended March 31, 2005 (Prepared in Accordance with Japanese GAAP) May 10, 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 Exective Officer Contact: Noriaki Yamaguchi, Executive Vice President and Chief Financial Officer (Phone:+81-3-5220-0163) Date of Board Meeting to approve the financial results: May 10, 2005 Date of General Shareholders Meeting: June 23, 2005 Date of dividend payment: June 24, 2005 Adoption of interim divided system: Yes Adoption of unit trading Yes (1 Unit: 100 Shares) system: 1. Financial Results for the Year Ended March 31, 2005 (1) Results of Operations (Figures truncated) Net revenues Year-on-year Operating Year-on-year Ordinary Year-on-year change (%) income change (%) income change (%) (millions of yen) (millions of (millions of yen) yen) Year ended Y134,117 (8.5) Y4,261 (68.0) Y13,447 (20.5) March 31, 2005 Year ended 146,654 12.6 13,303 14.9 16,910 29.4 March 31, 2004 Net income Year-on-year Net income Diluted net Return on Return on Ratio of change (%) per share income per equity total ordinary (millions share assets income to of yen) (yen) (%) net (yen) (%) revenues (%) Year ended Y12,794 23.2 Y105.33 - 11.7 7.3 10.0 March 31, 2005 Year ended 10,381 - 83.71 - 9.7 9.1 11.5 March 31, 2004 Notes: 1. Weighted-average common share outstanding: Year ended March 31, 2005: 119,970,052 shares Year ended March 31, 2004: 120,483,869 shares 2. Change in accounting policies: None 3. Change (%) of net revenues, operating income, ordinary income and net income represents the increase or decrease ratio in relation with the previous year. (2) Dividends Cash dividends per share Annual Interim Year-end Total dividend Pay-out ratio Dividend rate payout for shareholder's equity (yen) (yen) (yen) (millions of (%) (%) yen) Year ended Y54.00 Y27.00 Y27.00 Y6,461 51.3 5.8 March 31, 2005 Year ended 54.00 27.00 27.00 6,506 64.5 6.0 March 31, 2004 (3) Financial Position Total assets Total shareholders' Equity-assets Total shareholders' (millions of yen ) equity ratio equity per share (millions of yen) (%) (yen) March 31, 2005 Y187,798 Y111,423 59.3 Y931.24 March 31, 2004 183,031 108,016 59.0 894.08 Notes: Number of shares outstanding March 31, 2005 119,481,411 shares March 31, 2004 120,483,252 shares Number of treasury stock March 31, 2005 9,256,155 shares March 31, 2004 8,254,314 shares 2. Financial Forecast for the Year Ending March 31, 2006 Net revenues Ordinary Net income Cash dividends per share income (millions of (millions of yen) (millions of yen) yen) Interim Year-end Annual (yen) (yen) (yen) Six months ending 27.00 - - September 30, 2005 Year ending - 27.00 54.00 March 31, 2006 Notes: Non-consolidated financial forecast for the year ending March 31, 2006 is not disclosed. 10. Non-consolidated Financial Statements (1) Non-consolidated Balance Sheets (Unaudited) (Millions of Yen) March 31, 2004 March 31, 2005 % % ASSETS CURRENT ASSETS: Cash and cash equivalents Y40,216 Y37,121 Trade accounts receivable (Note 2) 12,673 18,233 Finished products 4,287 2,846 Raw materials and supplies 1,076 719 Work in process 2,597 2,019 Advances (Note 2) 4,753 3,862 Prepaid expenses 1,051 577 Deferred tax assets 8,143 9,719 Short-term loans to subsidiaries 4,170 3,192 Other accounts receivable 1,799 1,244 Other 733 567 Allowance for bad debts (139 ) (199 ) Total current assets 81,362 44.5 79,904 42.5 FIXED ASSETS: Tangible fixed assets (Note 1) Building improvement 358 356 Structures 2 1 Machinery 0 0 Transportation equipment 5 3 Tools and fixtures 1,721 1,596 Construction in process - 27 Total tangible fixed assets 2,087 1.1 1,986 1.1 Intangible fixed assets In-house software 1,411 5,899 In-house software development in progress 1,670 5,427 Other 30 5 Total intangible fixed assets 3,112 1.7 11,332 6.0 Investments and other assets Investment securities 348 360 Investments in subsidiaries and affiliates 88,369 87,318 Long-term loans to subsidiaries 3,098 1,496 Receivables from customers in bankruptcy 82 98 proceedings Long-term prepaid expenses 76 61 Deferred tax assets 1,854 2,380 Lease deposits 2,734 2,459 Other 11 511 Allowance for bad debts (106 ) (111 ) Total investments and other assets 96,469 52.7 94,574 50.4 Total fixed assets 101,669 55.5 107,894 57.5 TOTAL ASSETS Y183,031 100.0 Y187,798 100.0 See accompanying notes to non-consolidated financial statements (Millions of Yen) March 31, 2004 March 31, 2005 % % LIABILITIES AND SHARHOLDERS' EQUITY CURRENT LIABILITIES: Trade notes payable Y6,235 Y5,662 Trade accounts payable (Note 2) 7,829 8,589 Short-term borrowings - 15,000 Current portion of long-term debt 912 912 Other accounts payable 3,876 2,443 Accrued expenses 3,045 4,843 Income taxes payable 190 3,245 Short-term deposits received 84 136 Notes payable for capital expenditures 74 - Other 57 173 Total Current liabilities 22,306 12.2 41,008 21.9 LONG-TERM LIABILITIES: Straight bonds 45,000 30,000 Long-term debt 4,884 3,972 Liability for directors' retirement benefits 1,354 1,354 Allowance for loss incurred by subsidiaries 1,430 - Long-term deposits received 41 41 Total long-term liabilities 52,709 28.8 35,367 18.8 Total liabilities 75,015 41.0 76,375 40.7 SHAREHOLDERS' EQUITY: Common stock (Note 3) 47,398 25.9 47,398 25.2 Additional paid-in capital 47,106 25.7 47,106 25.1 Retained earnings 39,176 21.4 45,188 24.1 Voluntary earned surplus Reserve for advanced depreciation 206 - General reserve 24,094 29,094 Unappropriated earned surplus 14,875 16,093 Net unrealized gains on - 0 available-for-sale securities Treasury Stock (Note 5) (25,665 ) (14.0 ) (28,271 ) (15.1 ) Total shareholders' equity 108,016 59.0 111,423 59.3 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY Y183,031 100.0 Y187,798 100.0 See accompanying notes to non-consolidated financial statements (2) Non-consolidated Statements of Operations (Unaudited) (Millions of Yen) Year ended Year ended March 31, 2004 March 31, 2005 % % Net revenues (Note 1) Y146,654 100.0 Y134,117 100.0 Cost of revenues (Note 1) 111,073 75.7 107,121 79.9 Finished goods, beginning of year 2,008 4,287 Purchases 39,735 19,560 Cost of goods manufactured 63,633 76,514 Less: Transfer to other accounts (Note 2) (42 ) (104 ) Finished goods, end of year (4,287 ) (2,846 ) Royalty expenses (Note 3) 10,025 9,711 Gross profit 35,580 24.3 26,995 20.1 Selling, general 15.2 22,733 16.9 22,277 and administrative expenses (Note 4, 5) Operating income 13,303 9.1 4,261 3.2 Non-operating income 4,227 2.8 9,838 7.3 Interest income 86 64 Dividend income (Note 1) 3,805 9,418 Foreign exchange gains 23 245 Other 313 109 Non-operating expenses 620 0.4 652 0.5 Interest expenses 93 153 Bond interest expenses 400 400 Other 125 98 Ordinary income 16,910 11.5 13,447 10.0 Extraordinary income 1,468 1.0 1,722 1.3 Gain on sale of marketable securities 1,300 - Gain on sales of shares of affiliated - 703 companies Gain on reversal of allowance 168 - for doubtful accounts Gain on reversal of allowance for loss - 1,019 incurred by subsidiaries Extraordinary losses 2,383 1.6 67 0.1 Loss on sale and disposal of fixed assets 2,212 67 (Note6) Valuation loss of investment securities 49 - Loss on liquidation of investments in 121 - subsidiary Income before income taxes 15,996 10.9 15,102 11.2 Income taxes 5,614 3.8 2,308 1.7 Current 711 4,410 Deferred 4,903 (2,102 ) Net income 10,381 7.1 12,794 9.5 Unappropriated earned surplus carried forward 5,583 6,534 Transfer from legal reserve 2,163 - Interim cash dividends 3,253 3,235 Unappropriated earned surplus Y14,875 Y16,093 See accompanying notes to non-consolidated financial statements Statement of Cost of Goods Manufactured (Unaudited) (Millions of Yen) Year ended Year ended March 31, 2004 March 31, 2005 % % 1 Material cost Y37,531 58.8 Y49,811 65.6 2 Contract processing cost 1,242 2.0 1,222 1.6 3 Labor cost 640 1.0 628 0.8 4 Overhead cost (Note 2) 1,469 2.3 1,340 1.8 5 Production cost (Note 3) 22,941 35.9 22,940 30.2 Total manufacturing cost for the year 63,824 100.0 75,944 100.0 Work in process, beginning of year 2,409 2,597 Less: Work in process, end of year (2,597 ) (2,019 ) Transfer to other accounts (3 ) (8 ) Cost of goods manufactured Y63,633 Y76,514 Notes: 1. Process costing is applied to calculate cost of products other than production cost which is calculated by job-order costing. 2. Major portion of overhead cost is follows: (Millions of Yen) Year ended Year ended March 31, 2004 March 31, 2005 Depreciation expense Y474 Y412 External service fee 246 131 Supplies expense 62 75 3. Major portion of production cost consists of the following: (Millions of Yen) Year ended Year ended March 31, 2004 March 31, 2005 Personnel expense Y2,757 Y2,917 Depreciation expense 79 260 Contract production expense 16,943 16,122 Other 3,161 3,640 Total Y22,941 Y22,940 (3) Proposed Appropriation Plan of Earned Surplus (Unaudited) (Millions of Yen) Year ended Year ended March 31, 2004 March 31, 2005 Unappropriated earned surplus at year-end Y14,875 Y16,093 Reversal of general reserve (Reversal of reserve for advanced depreciation) 206 - Appropriations Cash dividends 3,253 3,225 Directors' bonuses 295 157 Voluntary earned surplus (General reserve) 5,000 5,000 Unappropriated earned surplus carried forward Y6,534 Y7,710 Notes: 1. Reversal of reserve for advanced depreciation was calculated with tax effect based on the special taxation measures law. Basis of Presentation The accompanying non-consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in Japan. Summary of Significant Accounting Policies 1. Marketable and Investment Securities Investments in subsidiaries and affiliated companies and other securities for which the market value is not readily determinable are stated at cost based on the moving average method. Other securities for which the market value is determinable are stated at market value as of the balance sheet date. Unrealized gains and losses on those securities are reported in the stockholders' equity and the cost of securities sold is determined by the moving average method. 2. Derivative Financial Instruments Derivative financial instruments are stated at market value. 3. Inventories Inventories other than work in process are stated at cost determined by the moving average method. Work in process consisting of hardware products is stated at cost determined by the moving average method while work in process consisting of software products is stated at cost determined by the specific identification method. 4. Depreciation Methods Tangible fixed assets are depreciated using the declining balance method while intangible fixed assets and long term prepaid expenses are amortized mainly using the straight-line method. For in-house software, amortization is computed using the straight-line method based on the estimated useful life of 5 years. 5. Foreign Currency Translation Monetary assets and liabilities denominated in foreign currencies are translated at the current exchange rates as of the balance sheet date, and the translation gains and losses are credited or charged to income. 6. Provisions (a) Allowance for doubtful accounts Generally, allowance for doubtful accounts is calculated based on the actual ratio of bad debt losses incurred. For specific accounts with higher possibility of bad debt loss, the allowance is determined by independent judgment. (b) Allowance for employees' retirement benefits (Prepaid pension expense) Allowance for retirement benefits to be paid to employees as of balance sheet date is calculated based on the estimated amount of the projected benefit obligation and the plan assets at the fiscal year-end. Unrecognized net transition asset or obligation is amortized over 13 years. Unrecognized actuarial net gain or loss will be amortized from the following fiscal year within the average remaining service period of 8 years on a straight-line basis. (c) Allowance for directors' retirement benefits Required amount for retirement benefits to be paid to directors as of balance sheet date is reserved as liability. (d) Allowance for loss incurred by subsidiaries Allowance for loss incurred by subsidiaries is provided at the amount determined based on its financial condition. 7. Leases Finance leases other than those that deem to transfer ownership of the leased property to the lessee are accounted for as operating lease transactions. 8. Other significant matters (a) Consumption Tax Consumption tax is excluded from the stated amount of revenue and expenses. Change in Presentation of Non-consolidated Financial Statements 'Building improvement' at March 31, 2004 is separately stated in the balance sheet although it had been included in 'Buildings' in the previous year (Y265 millions at March 31, 2003). Notes to Non-consolidated Financial Statements Notes to Non-consolidated Balance Sheets 1. Accumulated depreciation of tangible fixed assets is as follows: (Millions of Yen) March 31, 2004 March 31, 2005 Accumulated depreciation of tangible Y3,017 Y3,949 fixed assets 2. Assets and liabilities to subsidiaries and affiliated companies other than the separately stated accounts are as follows: (Millions of Yen) March 31, 2004 March 31, 2005 Trade accounts receivable Y12,392 Y17,958 Advances 4,650 3,852 Trade accounts payable 2,661 3,575 3. Number of shares at year-end is as follows: (Thousands of shares) March 31, 2004 March 31, 2005 Shares authorized 450,000 450,000 Shares issued and outstanding 128,737 128,737 4. The Company guarantees subsidiaries' loans payable to financial institutions as follows: (Millions of Yen) March 31, 2004 March 31, 2005 Konami Software Shanghai, Inc. Y57 Y - (US$ 543 thousands) Total Y57 Y - 5. The Company holds 8,254,314 and 9,256,155shares of the treasury stock at the year ended at March 31, 2004 and 2005, respectively. 6. Increased Net Assets evaluated in fair market value based on Article 124-3 of the Commercial Code of Japan. 0 million yen Notes to Non-consolidated Statements of Operations 1. Non-consolidated statements of operations include inter-company transactions as follows: (Millions of Yen) Year ended Year ended March 31, 2004 March 31, 2005 Net sales Y143,966 Y133,209 Purchases 41,436 23,399 Dividend income 3,804 9,412 2. Transfer to other accounts represents the transfer of Y42 millions and Y 104 millions to selling, general and administrative expenses for the year ended March 31, 2004 and 2005, respectively. 3. Royalty expenses consist of the royalties paid in relation to manufacturing and sales activities by Computer & Video Games, Toy & Hobby and Amusement segments. 4. Major portion of selling, general and administrative expenses consists of the following: (Millions of Yen) Year ended Year ended March 31, 2004 March 31, 2005 Advertising expenses Y6,727 Y7,362 Selling expenses - 754 Salary expenses 3,002 3,037 Depreciation expense 608 1,183 Rental expenses 2,941 3,231 External service fee 3,086 3,370 Commissions 2,463 - Selling expenses portion 30.4% 36.0% General and administrative expenses portion 69.6 64.0 5. General and administrative expenses include research and development expenses of Y500 millions and Y 486 millions for the year ended March 31, 2004 and 2005, respectively. 6. Loss on sale and disposal of fixed assets consists of the following: (Millions of Yen) Year ended Year ended March 31, 2004 March 31, 2005 Disposal of buildings Y871 - Disposal of structures 1 - Sales and disposal of tools and fixtures 83 28 Disposal of software - 38 Sales of land 1,255 - Total Y2,212 Y67 Leases Finance leases other than those deemed to transfer ownership of leased property to the lessee: 1. Acquisition cost, accumulated depreciation, and ending balance of leased assets (Millions of Yen) March 31, 2004 March 31, 2005 Acquisition Accumulated Ending Acquisition Accumulated Ending cost depreciation cost depreciation balance balance Software Y10 Y2 Y8 10 4 6 Tools and fixtures 701 253 448 772 419 353 Total Y711 Y255 Y456 Y782 Y423 Y359 2. Obligations under finance leases (Millions of Yen) March 31, 2004 March 31, 2005 Due within one year Y175 Y166 Due after one year 303 209 Total Y478 Y375 3. Lease payments, depreciation expense and interest expense (Millions of Yen) Year ended Year ended March 31, 2004 March 31, 2005 Lease payments Y414 Y211 Depreciation expense 396 202 Interest expense 13 6 4. Depreciation expense is computed according to the straight-line method with lease term as useful life and salvage value of zero. 5. Interest expense is defined as the difference between total lease payment and acquisition cost, and allocated using the effective interest method to each period. Investments in Subsidiaries and Affiliated Companies Investments in subsidiaries and affiliated companies as of each balance sheet date are as follows: (Millions of Yen) March 31, 2004 March 31, 2005 Balance Market Differences Balance Market Differences sheet value sheet value amount amount Investments in subsidiaries Y1,312 Y45,032 Y43,720 Y1,312 Y49,991 Y48,679 Investments in affiliated 12,194 21,225 9,031 12,194 14,756 2,562 companies Total Y13,506 Y66,258 Y52,751 Y13,506 Y64,748 Y51,241 Income Taxes 1. Major portion of deferred tax assets and deferred tax liabilities consists of the following: (Millions of Yen) March 31, 2004 March 31, 2005 Deferred tax assets: Liability for director's retirement benefits Y551 Y551 Allowance for loss incurred by subsidiaries 582 167 Accrued expenses 1,644 2,560 Inventories 6,393 6,959 In-house software development 924 1,443 Other 636 731 Sub total 10,732 12,412 Less: Valuation allowance (715) (301) Total deferred tax assets Y10,016 Y12,111 Deferred tax liabilities: Other (18) (11) Total deferred tax liabilities Y(18) Y(11) Deferred tax assets - net Y9,997 Y12,099 2. A reconciliation between the normal effective statutory tax rate and the actual effective tax rate was omitted for the year ended March 31, 2004 and reflected in the accompanying non-consolidated statements of operations for the year ended March 31, 2005 as follows: Year ended Year ended March 31, 2004 March 31, 2005 Normal effective statutory tax rate 42.0% 40.7% Permanently non-deductible expenses mainly Entertainment expenses 1.0 0.8 Donations 1.3 Permanently non-taxable income mainly Dividend income (8.0) 8.7 Per capital portion of inhabitants taxes 0.1 0.1 IT investment tax reduction 5.4 Tax credit - (11.3) Valuation Allowance - (2.8) Other - net (1.3) 1.9 Actual effective tax rate 35.1% 15.3% 3. Pursuant to the Amendments to the Local Tax Laws of 2003, the capital-based enterprise tax on corporation becomes effective from the fiscal year commencing on or after April 1, 2004, which lowered the statutory tax rate from 42.0% to 40.7% for the income-based enterprise tax on corporation. This change has no material effect on our financial statements. Information per Share March 31, 2004 March 31, 2005 Shareholders' equity per share Y894.08 Y931.24 Net income per share 83.71 105.33 Diluted net income per share Diluted net income per share is not Diluted net income per share is not reported because the Company had no reported because the Company had no potential common share which has potential common share which has dilutive effect. dilutive effect. Calculation Base of Net Income per Share (Millions of Yen) March 31, 2004 March 31, 2005 Net income Y10,381 Y12,794 Bonuses to directors and corporate auditors 295 157 by appropriations of retained earnings Net income concerning common stock 10,086 12,637 Average number of shares during the period 120,483 119,970 thousands thousands Summary of potential common shares 1,784 1,784 (Stock option) thousands thousands (Subsequent Events) (1) Konami STUDIO, Konami TYO and Konami JPN (collectively, '' Production Companies'') merged with the Company effective on April 1, 2005, by approval of shareholders' meetings on February 22, 2005. I. Objective of Merger Currently, for the Computer & Video Games business of Konami Group, Production Companies develop game software, the Company merchandizes such game software as the publisher and the products are sold through sales subsidiaries within the Konami Group. After the merger, the Company will take over the Production Company's role. The Company will be an integrated game software publisher, from planning and developing products to acquiring merchandizing rights to sales promotion, which will enable us to be faster and more flexible in making business decisions. We will shift our managerial resources into the online game business which is expected to grow, integrating and sharing the creative forces and know-how in developing game software which each Production Company presently possesses separately. In addition, we will enhance the effectiveness of the merger by merging with Konami Online, Inc., a wholly-owned subsidiary which is a core company in our online game business, effective April 1, 2005. We will also strive to improve synergy with our other businesses, including our Amusement business and Toy & Hobby business. II. Method of Merger The Company will be the surviving entity and absorb Konami STUDIO, Konami TYO and Konami JPN, which will be subsequently dissolved. Effective date of merger April 1, 2005 Merger Ratio Company Konami Konami STUDIO Konami TYO Konami JPN Merger Ratio 1 0.42 1.00 0.81 Cash paid due to merger The Company will pay cash for exchange shares following amounts to shareholders of Production Companies on one day before effective date of the merger. The amounts are calculated by deducting the interim dividend from 50% of net income for the year ended March 2005 of each company. Konami Computer Entertainment Studios, Inc. 0 yen (0 yen/per share) Konami Computer Entertainment Tokyo, Inc. 424 million yen (88.00 yen/ per share) Konami Computer Entertainment Japan, Inc. 271 million yen (55.50 yen/ per share) III. Outline of Merging Companies Registered name Konami STUDIO Konami TYO Konami JPN Sales 9,549 millions yen 12,917 millions yen 8,581 millions yen Net Income 448 millions yen 2,623 millions yen 1,453 millions yen Total assets 9,904 millions yen 14,446 millions yen 15,777 millions yen Stockholders' 5,782 millions yen 12,113 millions yen 13,947 millions yen Equity Number of 391 300 244 employees Capital 1,213 millions yen 2,323 millions yen 3,366 millions yen Total number 14,941,500 14,601,840 14,424,000 of shares issued Main business Production, manufacture and Production, manufacture and Production, manufacture and sales for consumer game sales for consumer game sales for consumer game software software software (Those financial dates are as of March 31, 2004) (2) The Company decided to accept a third party allotment of HUDSON SOFT CO., LTD at meeting of the Board of Directors of its company held on April 11, 2005. By accepting the third party allotment of new shares of Hudson, the Company will own 53.99% shares of Hudson and Hudson will become a consolidated subsidiary of the Company. I. Objective of Acquiring Additional Hudson Shares Hudson expects to record a large loss in the fiscal year ended March 31, 2005, which is expected to result in a substantial reduction in its net worth, and it requested the assistance of the Company in connection with the reorganization of its business and operations. The Company has decided to accept the request and support its company. The Company will support its reorganization and drive for synergy with its company especially in online business area. II. Summary of the third party allotment Number of shares acquired 3,000,000 shares (Acquisition Cost 1,434 millions yen) Payment date for allotment of new shares to a third party April 27, 2005 III. Outline of Hudson Registered name HUDSON SOFT CO., LTD Sales 13,116 millions yen Net Income 1,130 millions yen Total Assets 15,417 millions yen Stockholder's equity 9,604 millions yen Number of employees 532 Capital 4,347 millions yen Total number of shares issued 16,214,000 Main Business Production, manufacture and sales of contents for mobile and online and consumer game software (Those financial dates are as of March 31, 2004) (3) The Company decided to sell shares of TAKARA CO., LTD ('Takara') at meeting of the Board of Directors of the Company held on April 25, 2005 and executed it on same day. I. Objective of sale of shares In July 2000, in response to a request from Takara, the Company accepted a third party allotment of new shares of Takara in response to its request and the Company has supported Takara since then. (The Company now owns common stock of 20,104,000, 22.2% shares of Takara) However, the business environment for both parties has changed drastically over the last 4 years and 9 months, and then prompting the Company has decided to review its capital relationship with Takara, which led to its decision to sell its holdings shares of Takara. II. Summary of sale of shares Number of Shares Owned before the Sale 20,104,000 shares Number of Shares Sold 20,104,000 shares (Sale Price: 11,016 millions yen) Number of Shares Owned after the Sale 0 shares Gain on the Sale 5.5 billion yen (Non-Consolidated Basis) Transaction Date April 25, 2005 III. Outline of Takara Registered name Takara Co., Ltd Sales 68,287 millions yen Net Income 2,055 millions yen Total Assets 52,266 millions yen Stockholder's equity 29,898 millions yen Number of employees 459 Capital 18,121 millions yen Total number of shares issued 90,462,244 Main Business Manufacture and sales of toys (Those financial dates are as of March 31, 2004) 11. Changes in Board of Directors (Effective June 23, 2005) 1. Changes in Directors (1) New Director Candidate KIMIHIKO HIGASHIO, Director (former Division Director of Human Resources Division) (2) Retiring Directors TOSHIRO TATENO, Executive Corporate Officer, in charge of External Affairs 2. Changes in Corporate Auditors No changes Note: The new director candidate above will be an Outside Director as defined by Article 188-2-7-2 of the Commercial Code of Japan. This information is provided by RNS The company news service from the London Stock Exchange

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