Nonconsolidated Final Results

Konami Corporation 22 May 2003 9. Summary of Non-consolidated Financial Results for the Year Ended March 31, 2003 (Prepared in Accordance with Japanese GAAP) May 22, 2003 KONAMI CORPORATION Address: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan Stock Code Number, TSE: 9766 Ticker symbol, NYSE: KNM URL: http://www.konami.com Shares Listed: Tokyo Stock Exchange, New York Stock Exchange, London Stock Exchange and Singapore Exchange Representative: Kagemasa Kozuki, Chairman of the Board and Chief 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 22, 2003 Date of General Shareholders Meeting: June 19, 2003 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, 2003 (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 (millions of (millions of yen) yen) yen) Year ended 130,186 5.6 11,577 4.5 13,068 10.8 March 31, 2003 Year ended 123,283 (17.0) 11,083 (67.5) 11,792 (64.5) March 31, 2002 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 (11,284) - (92.82) - (9.5) 6.6 10.1 March 31, 2003 Year ended 8,675 (51.9) 67.96 - 6.2 5.8 9.6 March 31, 2002 Notes: 1. Weighted-average common share outstanding: Year ended March 31, 2003: 121,572,154 shares Year ended March 31, 2002: 127,647,120 shares 2. Change in accounting policies: None 3. Change (%) of net revenues, operating income, ordinary income and net income represents the increase or decrease ratio in relation with the same period of the previous year. (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 54.00 19.00 35.00 6,506 - 6.2 March 31, 2003 Year ended 54.00 27.00 27.00 6,836 78.8 5.2 March 31, 2002 (3) Financial Position Total assets Total shareholders' Equity-assets Total shareholders' (millions of yen ) equity ratio equity per share (millions of yen) (%) (yen) Year ended March 31, 186,668 105,107 56.3 872.38 2003 Year ended March 31, 208,896 132,573 63.5 1,029.80 2002 Notes: Number of shares outstanding March 31, 2003 120,484,375 shares March 31, 2002 124,479,815 shares Number of treasury stock March 31, 2003 8,253,191 shares March 31, 2002 4,257,751 shares 2. Financial Forecast for the Year Ending March 31, 2004 Net revenues 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, 2003 Year ending - 27.00 54.00 March 31, 2004 Notes: 1. Non-consolidated financial forecast for the year ending March 31, 2004 is not disclosed. 10. Non-consolidated Financial Statements (1) Non-consolidated Balance Sheets (Unaudited) (Millions of yen) March 31, 2002 March 31, 2003 % % ASSETS CURRENT ASSETS: Cash and cash equivalents 36,389 31,976 Trade notes receivable 163 37 Trade accounts receivable (Note 2) 35,383 30,068 Finished products 409 2,008 Raw materials and supplies 1,133 1,000 Work in process 2,702 2,409 Advances (Note 2) 2,445 3,144 Prepaid expenses 1,791 1,590 Short-term loans to subsidiaries 8,400 12,797 Other accounts receivable - 5,599 Refundable income taxes - 1,789 Deferred tax assets 4,740 12,099 Other 629 692 Allowance for bad debts (13 ) (407 ) Total current assets 94,176 45.1 104,806 56.1 FIXED ASSETS: Tangible fixed assets (Note 1) Buildings 4,636 4,379 Structures 114 88 Machinery 4 0 Transportation equipment 16 10 Tools and fixtures 778 1,023 Land 3,488 3,488 Total tangible fixed assets 9,038 4.3 8,991 4.8 Intangible fixed assets In-house software 1,152 1,379 Other 26 27 Total intangible fixed assets 1,178 0.6 1,407 0.8 Investments and other assets Investment securities 553 675 Investments in subsidiaries 101,297 65,544 and affiliates Long-term prepaid expenses 50 11 Lease deposits 1,719 2,386 Deferred tax assets 834 2,801 Receivables from customers in bankruptcy - 73 proceedings Other 46 44 Allowance for bad debts - (73 ) Total investments and other assets 104,501 50.0 71,463 38.3 Total fixed assets 114,719 54.9 81,862 43.9 TOTAL ASSETS Y208,896 100.0 Y186,668 100.0 (Millions of yen) March 31, 2002 March 31, 2003 % % LIABILITIES AND SHARHOLDERS' EQUITY CURRENT LIABILITIES: Trade notes payable 7,856 6,091 Trade accounts payable (Note 2) 9,146 10,217 Other accounts payable 1,938 1,617 Accrued expenses 2,242 3,518 Short-term borrowings - 11,852 Income taxes payable 6,387 15 Notes payable for capital expenditures 14 - Other 545 354 Total Current liabilities 28,130 13.4 33,667 18.0 LONG-TERM LIABILITIES: Straight bonds 45,000 45,000 Liability for directors' retirement 1,346 1,353 benefits Allowance for loss incurred 1,430 1,430 by subsidiaries Long-term deposits received 414 110 Total long-term liabilities 48,191 23.1 47,893 25.7 Total liabilities 76,322 36.5 81,560 43.7 SHAREHOLDERS' EQUITY: Common Stock (Note 3) 47,398 22.7 - - Additional Paid-in Capital 47,106 22.6 - - Legal Reserve 2,163 1.0 - - Retained Earnings 50,907 24.4 - - Voluntary earned surplus 42,107 - Reserve for advanced depreciation 212 - General reserve 41,894 - Unappropriated earned surplus 8,800 - Treasury Stock (15,003 ) (7.2 ) - - Total shareholders' equity 132,573 63.5 - - SHAREHOLDERS' EQUITY: Common Stock (Note 3) - - 47,398 25.4 Additional Paid-in Capital - - 47,106 25.2 Retained Earnings - - 36,265 19.4 Legal Reserve - 2,163 Voluntary earned surplus Reserve for advanced depreciation - 207 General reserve - 44,094 Unappropriated earned surplus - (10,200 ) Treasury Stock (Note 5) - (25,662 ) (13.7 ) Total shareholders' equity - - 105,107 56.3 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY Y208,896 100.0 Y186,668 100.0 (2) Non-consolidated Statements of Income (Unaudited) (Millions of yen) Year ended Year ended March 31, 2002 March 31, 2003 % % Net Revenues (Note 1) Y123,283 100.0 Y130,186 100.0 Cost of revenues (Note 1) 97,690 79.2 101,304 77.8 Finished goods, beginning of year 504 409 Purchases 21,868 31,666 Cost of goods manufactured 69,229 63,839 Less: Transfer to other accounts (Note 2) (26 ) (5 ) Finished goods, end of year (409 ) (2,008 ) Royalty expenses (Note 3) 6,525 7,403 Gross Profit 25,592 20.8 28,881 22.2 Selling, General 17,303 13.3 and Administrative Expenses (Note 4, 5) 14,508 11.8 Operating Income 11,083 9.0 11,577 8.9 Non-operating income 1,485 1.2 2,843 2.2 Interest income 47 30 Dividend income (Note 1) 981 2,329 Rental income 6 - Foreign exchange gains 243 - Other 207 483 Non-operating Expenses 776 0.6 1,352 1.0 Interest expenses - 6 Bond interest expenses 325 400 Bond issue expenses 318 - Bad debt expenses 20 - Foreign exchange losses - 25 Related expenses for NYSE listing - 284 Other 110 635 Ordinary Income 11,792 9.6 13,068 10.1 Extraordinary Income 3,049 2.5 5,742 4.4 Gain on sale of 1,769 investments in subsidiaries (Note 8) 1,754 Gain on transfer of a business (Note 9) - 3,972 Gain on transfer of - intellectual property rights 149 - Gain on transfer of a business of a 1,145 subsidiary Extraordinary Losses 874 0.7 39,401 30.3 Loss on sale and disposal of fixed assets 31 169 (Note6) Valuation loss of investment securities - 115 Valuation loss of investments in subsidiaries 106 (Note 7) 843 Loss on sale of investments in subsidiaries - 39,010 (Note 10) Income (Loss) before Income Taxes 13,967 11.4 (20,590 ) (15.8 ) Income Taxes 5,291 4.3 9.306 7.1 Current 7,612 15 Deferred (2,320 ) (9,321 ) Net Income (Loss) 8,675 7.1 (11,284 ) (8.7 ) Unappropriated earned surplus 3,042 carried forward 3,600 Interim cash dividends 3,475 2,289 Increase in retained earnings from - 331 acquisition following a corporate split Unappropriated Earned Surplus Y8,800 Y(10,200 ) (3) Statement of Cost of Goods Manufactured (Unaudited) (Millions of yen) Year ended Year ended March 31 , 2002 March 31, 2003 % % 1 Material cost Y43,742 62.3 Y38,681 60.9 2 Contract processing cost 1,033 1.5 865 1.4 3 Labor cost 762 1.1 660 1.0 4 Overhead cost (Note 2) 1,009 1.4 1,033 1.6 5 Production cost (Note 3) 23,712 33.7 22,310 35.1 Total manufacturing cost for the year 70,260 100.0 63,551 100.0 Work in process, beginning of year 1,678 2,702 Less: Work in process, end of year (2,702 ) (2,409 ) Transfer to other accounts (6 ) (5 ) Cost of goods manufactured Y69,229 Y63,839 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, 2002 March 31, 2003 Depreciation expense Y202 Y581 External service fee 164 210 Supplies expense 512 23 3. Major portion of production cost consists of the following: (Millions of yen) Year ended Year ended March 31, 2002 March 31, 2003 Personnel expense Y3,627 Y3,216 Depreciation expense 326 258 Contract production expense 16,185 16,787 Other 3,572 2,047 Total Y23,712 Y22,310 (4) Proposed Appropriation Plan of Earned Surplus (Unaudited) (Millions of yen) Year ended Year ended March 31, 2002 March 31, 2003 Unappropriated earned surplus at year-end Y8,800 Y(10,200) Reversal of general reserve (Reversal of reserve for advanced depreciation) 5 5 (Reversal of general reserve) - 20,000 Appropriations Cash dividends 3,360 4,216 Directors' bonuses 202 - Voluntary earned surplus (Reserve for advanced depreciation) - 4 (General reserve) 2,200 - Unappropriated earned surplus carried forward Y3,042 Y5,583 Note: 1. Reversal of reserve for advanced depreciation was calculated with tax effect based on the special taxation measures law. 2. Reserve for advanced depreciation was appropriated due to the amendments of local tax laws 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 shareholders' equity and the cost of securities sold is determined by the moving average method. 2. Derivative Financial Instruments Derivative financial instruments are stated at fair 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 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. Long-term prepaid expenses are amortized on a straight-line basis. 5. Foreign Currency Translation Monetary assets and liabilities denominated in foreign currencies are translated at the current exchange rate as of the balance sheet date, and the translation gains and losses are credited or charged to income. 6. Provisions (a) Allowance for bad debts Generally, allowance for bad debts 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 retirement benefits (Prepaid pension expense) Allowance for retirement benefits to be paid to employees 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 13 years on a straight-line basis. (c) Liability for directors' retirement benefits Required amount for retirement benefits to be paid to directors as of the 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. (b) Treasury stock and reversal of legal reserve The Company adopted Accounting Standards Board Statement No.1, 'Accounting Standard on Treasury Stock and Reversal of Legal Reserve', issued by Accounting Standards Board of Japan from the year ended March 31, 2003, and the adoption did not have a material effect on the Company's results of operations. The Company reflected certain reclassification on the balance sheet as of March 31, 2003 to conform to the new standard. Change in Presentation of Non-consolidated Financial Statements Non-consolidated Balance Sheets 'Other accounts receivable' at March 31, 2003 is separately stated in the balance sheet although it had been included in 'Other' in the previous year (Y236 million at March 31, 2002). Notes to Non-consolidated Financial Statements Notes to Non-consolidated Balance Sheets 1. Accumulated depreciation of tangible fixed assets is Y6,782 million and Y7,143 million for the years ended March 31, 2002 and 2003, respectively. 2. Assets and liabilities to subsidiaries and affiliated companies other than the separately stated accounts are as follows: (Millions of yen) March 31, 2002 March 31, 2003 Trade accounts receivable Y34,905 Y29,740 Advances 1,895 3,134 Trade accounts payable 2,208 2,728 3. Number of shares at year-end is as follows: (Thousands of shares) March 31, 2002 March 31, 2003 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, 2002 March 31, 2003 Konami Capital, Inc. Y2,398 - Konami Gaming, Inc. 1,830 Y1,607 (USD 13.74 million) (USD13.375million) Konami of America, Inc. 319 - (USD 2.4 million) Total Y4,548 Y1,607 5. Treasury stock at March 31, 2003 is 8,253,191 shares. Notes to Non-consolidated Statements of Income 1. Non-consolidated statements of income include inter-company transactions as follows: (Millions of yen) Year ended Year ended March 31, 2002 March 31, 2003 Net sales Y117,709 126,800 Purchases 34,930 40,580 Dividend income 981 2,329 2. Transfer to other accounts represents the transfer of Y26 million and Y5 million to selling, general and administrative expenses for the year ended March 31, 2002 and March 31, 2003, respectively. 3. Royalty expenses consist of the royalties paid in relation to manufacturing and sales activities by Computer & Video Games, Toy & Hobby, Amusement and Gaming segment. 4. Major portion of selling, general and administrative expenses consists of the following: (Millions of yen) Year ended March 31, 2002 Directors' fee Y768 Advertising expenses 2,187 Salary expenses 2,633 Depreciation expense 697 Rental expenses 1,882 Commissions 1,642 Addition to allowance for bad debts 11 Selling expenses portion 15.8% General and administrative expenses portion 84.2% (Millions of yen) Year ended March 31, 2003 Advertising expenses Y4,080 Salary expenses 2,911 Depreciation expense 864 Rental expenses 2,089 External service fee 2,597 Bad debt expenses 990 Addition to allowance for bad debts 272 Selling expenses portion 23.8% General and administrative expenses portion 76.2% 5. General and administrative expenses include research and development expenses of Y87 million and Y347 million for the years ended March 31, 2002 and 2003, respectively. 6. Loss on sale and disposal of fixed assets consists of the following: (Millions of yen) Year ended March 31, 2002 Disposal of buildings Y9 Disposal of tools and fixtures 22 Total Y31 (Millions of yen) Year ended March 31, 2003 Disposal of buildings Y62 Disposal of structures 9 Disposal of machinery 2 Sale and disposal of tools and fixtures 93 Total Y169 7. Major portion of valuation loss of investments in subsidiaries consists of the following: (Millions of yen) Year ended Year ended March 31, 2002 March 31, 2003 Konami Computer Entertainment Kobe, Inc. Y693 - Konami School, Inc. - Y106 8. Gain on sale of investments in subsidiaries consists of the following: (Millions of yen) Year ended Year ended March 31, 2002 March 31, 2003 Konami Computer Entertainment Tokyo, Inc. Y1,754 - Konami Computer Entertainment Studios, Inc. - Y1,769 (Sold to Konami Computer Entertainment Osaka, Inc.) 9. Gain on transfer of a business to a subsidiary of Y3,972 million represents the gain arising from the transfer of the liquid crystal display business to a consolidated subsidiary, KPE, Inc. 10. Loss on sale of investments in subsidiaries of Y39,010 million represents the loss incurred by the sale of shares of Konami Sports Corporation to Konami Sports Life Corporation as a step toward changing the Company's corporate structure by reorganizing into a pure holding company. Leases Finance leases other than those that deem to transfer ownership of leased property to the lessee: The amount of obligation and depreciation under finance leases for the year ended March 31, 2002 was calculated by the effective interest method which excludes the imputed interest portion although it had been calculated by the method which includes the imputed interest portion. 1. Acquisition cost, accumulated depreciation, and ending balance of leased assets (Millions of yen) March 31, 2002 March 31, 2003 Acquisition Accumulated Ending Acquisition Accumulated Ending cost depreciation balance cost depreciation balance Transportation equipment Y8 Y3 Y5 Y8 Y6 Y1 Tools and fixtures 1,213 549 664 1,590 999 591 Total Y1,222 Y553 Y669 1,599 1,006 593 2. Obligations under finance leases (Millions of yen) March 31, 2002 March 31, 2003 Due within one year Y412 370 Due after one year 286 251 Total Y699 622 3. Lease payments, depreciation expense and interest expense (Millions of yen) Year ended Year ended March 31, 2002 March 31, 2003 Lease payments Y411 Y472 Depreciation expense 395 452 Interest expense 20 19 4. Depreciation expense is calculated 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 equivalent of acquisition cost, and allocated using the effective interest method to each period. Investment Securities Investments in subsidiaries and affiliated companies which have fair value. (Millions of yen) March 31, 2002 March 31, 2003 Balance Fair value Differences Balance Fair value Differences sheet sheet amount amount Investments in subsidiaries Y70,327 Y91,364 Y21,036 Y 1,312 Y49,262 Y47,950 Investments in affiliated 11,905 23,076 11,171 12,194 18,251 6,057 companies Total Y82,233 Y114,441 Y32,208 Y13,506 Y67,514 Y54,008 Income Taxes 1. Major portion of deferred tax assets and deferred tax liabilities consists of the following: (Millions of yen) March 31, 2002 Deferred tax assets: Enterprise taxes payable Y576 Liability for directors' retirement benefits 565 Allowance for loss incurred by subsidiaries 600 Valuation loss of investments in subsidiaries 354 Accrued expenses 179 Inventories 3,982 Other 394 Sub total 6,653 Less: Valuation allowance (903) Total deferred tax assets Y5,750 Deferred tax liabilities: Reserve for advanced depreciation (150) Other (25) Total deferred tax liabilities Y(175) Deferred tax assets - net Y5,575 (Millions of yen) March 31, 2003 Deferred tax assets: Liability for director's retirement benefits Y550 Allowance for loss incurred by subsidiaries 582 Accrued expenses 1,452 Inventories 5,472 Net operating loss carryforwards 7,414 Other 499 Sub total 15,971 Less: Valuation allowance (715) Total deferred tax assets Y15,255 Deferred tax liabilities: Reserve for advanced depreciation (141) Other (212) Total deferred tax liabilities Y(354) Deferred tax assets - net Y14,900 2. A reconciliation between the statutory tax rate and the effective tax rate is omitted for the year ended March 31, 2003 since the Company had loss before income taxes. 3. Pursuant to the Amendments to the Local Tax Laws of 2003, the capital-based enterprise tax on corporation will become effective from the fiscal year commencing on or after April 1, 2004, which will lower the statutory tax rate from 42.0% to 40.7% for the income-based enterprise tax on corporation. This change is expected to have no material effect on our financial statements. 11. Changes in Board of Directors (Effective June 19, 2003) 1. Changes in Directors (1) New Director Candidate TSUTOMU TAKEDA, Director (former Representative Director and President of ASATSU-DK INC.) (2) Retiring Directors HIDETOSHI INATOMI, Director (current Executive Vice President of Konami Sports Corporation) TAKUYA IWASAKI, Director 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 D FR ATMRTMMTTMRJ

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