Konami Grp Corp Regulatory News (KNM)

31 Jul 2007 07:56

Konami Corporation31 July 2007 Consolidated Financial Results for the First Quarter Ended June 30, 2007 (Prepared in Accordance with U.S. GAAP) July 31, 2007 KONAMI CORPORATION Address: 7-2, Akasaka 9-chome, Minato-ku, Tokyo, Japan Stock code number, TSE: 9766 Ticker symbol, NYSE: KNM URL: www.konami.net Shares listed: Tokyo Stock Exchange, New York Stock Exchange, London Stock EXCHANGE and Singapore Exchange Representative: Kagemasa Kozuki, Representative Director and Chief Executive Officer Contact: Noriaki Yamaguchi, Representative Director and Chief Financial Officer (Phone: +81-3-5770-0086) 1. Consolidated Financial Results for the First Quarter Ended June 30, 2007(Amounts are rounded to the nearest million) (1) Consolidated Results of Operations (Millions of Yen, except per share data) Net revenues Income before Net income Operating income income taxes Three months ended June 30, 2007 Y 60,650 Y 7,010 Y 7,271 Y 3,863% change from previous period 5.2 16.8 25.3 82.2Three months ended June 30, 2006 57,628 6,003 5,801 2,120 % change from previous period 20.0 95.3 (41.6) (61.0)Year ended March 31, 2007 280,279 28,145 27,567 16,211 Basic net Diluted net income per share income per share Three months ended June 30, 2007 Y 28.14 Y 28.13Three months ended June 30, 2006 15.46 15.45Year ended March 31, 2007 118.15 118.09 (2) Consolidated Financial Position (Millions of Yen, except per share data) Total assets Total Equity-assets Stockholders' stockholders' ratio equity per share Equity June 30, 2007 Y 306,535 Y 176,453 57.6% Y 1,285.44June 30, 2006 294,659 162,361 55.1% 1,183.77March 31, 2007 304,657 174,662 57.3% 1,272.54 (3) Consolidated Cash Flows (Millions of Yen) Net cash provided by (used in) Cash and Operating Investing Financing cash equivalents, activities activities activities end of the period Three months ended June 30, 2007 Y 489 Y (6,778) Y (4,277) Y 47,971Three months ended June 30, 2006 3,029 (2,409) (4,934) 64,518Year ended March 31, 2007 31,824 (11,098) (33,212) 57,333 2. Consolidated Financial Forecast for the Year Ending March 31, 2008 (Millions of Yen, except per share data) Net revenues Operating Income Basic net income income before per share income Net income taxes Year ending March 31, Y 295,000 Y 33,000 Y 32,500 Y 18,300 Y 133.33 2008 % change from previous 5.3 17.3 17.9 12.9 year Note: There has been no change in our forecast since we originally announced iton May 22, 2007. 3. Other (1)Changes to principal subsidiaries during the period (status changes ofspecified subsidiaries due to changes in the scope of consolidation): None (2) Adoption of simplified methods in accounting principles: None (3) Changes in accounting principles from the nearest consolidated fiscal yearended: None Special Note: In this document, forward-looking statements are based on management's assumptions and beliefs in light of informationcurrently available, which may contain various risks and uncertainties. As a result, you should not place undue reliance on them. A number of important factors could cause actual results tobe materially different from those discussed in forward-looking statements. Such factors include, but are not limitedto; changes in economic conditions affecting our operations, market trends and fluctuations in currency exchange rates,particularly with respect to the value of the Japanese yen, the U.S. dollar and the Euro. 1. Organizational Structure of the Konami Group The Konami Group is a conglomerate engaged in the entertainment and health industry providing customers with ''HighQuality Life'' and is comprised of KONAMI CORPORATION (the ''Company''), and its 22 consolidated subsidiaries and oneequity-method affiliate. Each of the Company and its subsidiaries and affiliated companies is categorized into fourbusiness segments based on its operations as stated below. This categorization is based on the same criteria explainedbelow under ''6. Segment Information (Unaudited).'' Business Segments Major Companies Digital Entertainment Domestic Konami Digital Entertainment Co., Ltd. (Note 3) HUDSON SOFT CO., LTD. Konami Manufacturing & Service, Inc. Overseas Konami Digital Entertainment, Inc. Konami Digital Entertainment GmbH Konami Digital Entertainment B.V. Konami Digital Entertainment Limited Konami Software Shanghai, Inc., One other company Health & Fitness Domestic Konami Sports & Life Co., Ltd. COMBI WELLNESS Corporation Konami Manufacturing & Service, Inc. Resort Solution Co., Ltd. (Note.2), Two other companies Gaming & System Overseas Konami Gaming, Inc. Konami Australia Pty Ltd., One other company Other Domestic Konami Manufacturing & Service, Inc. KPE, Inc. , Konami Real Estate, Inc. Two other companies Overseas Konami Corporation of America Konami Digital Entertainment B.V., One other company Notes:1. Companies that have operations categorized into more than one segment are included in each segment in which theyoperate. 2. Resort Solution Co., Ltd. is an equity-method affiliate. 3. Konami Digital Entertainment Co., Ltd. merged with Konami Career Management, Inc., Konami School, Inc. and MegacyberCorporation on April 1, 2007. 2. Business Performance and Cash Flows 1. Business Performance Overview In the entertainment industry as it relates to Konami, the home video game software market has entered a new growthphase. The industry has attracted a broad cross section of users of both sexes and all ages now that next-generationcomputer entertainment systems and handheld game consoles are available from all hardware manufacturers, along withcontents that capitalize on the differing features of each. In the commercial video game market, meanwhile, the userbase is growing due to the spread of services that make use of online functions and the expansion of facilitiesthrough scrapping and building. That in turn has generated demand for new content. In the health industry, specific health maintenance measures so-called "designated checkups and health guidance" areto be launched in April 2008, with the goal of preventing life style diseases through encouraging the adopting ofregular exercise regimes and improvements in diet by health insurers. In light of the aging of Japan's population,such measures underscore the importance of taking action to prevent the need for nursing care, with the baby boomersnow beginning to retire en masse. Greater demand and health awareness may thus drive further growth in the healthmarket. With respect to our business, in our Digital Entertainment segment, and in the field of home video game software inparticular, we recorded steady sales of our baseball games, which we market on a multiplatform basis. Sales ofproducts for amusement arcades also remained steady, including for our mainstay video games and token-operated games. In our Health and Fitness segment, we took steps to increase our membership rolls. Specifically, we expanded ourvarious health support programs catering to different ages, notably the baby boomers with their growing interest inimproving their fitness and avoiding the need for nursing care. On the service front, we strongly promoted theinstalling of our proprietary IT health management system in our fitness clubs. The number of facilities outsourced tous has increased, as our expertise and track records in running those facilities are now widely recognized throughoutJapan. In our Gaming and System segment, we increased sales by consolidating our base and expanding content in the growingNorth American market. Sales of the "Konami Casino Management System" in particular climbed steadily. This helpedstabilize profit structure, since installing more units leads to an increase in income from maintenance and servicing. As a result, for the three months ended June 30, 2007, net revenues was Y60,650 million, a 5.2% increase compared tothe previous same period, operating income was Y7,010 million, a 16.8% increase compared to the previous same period,income before income taxes was Y7,271 million, a 25.3% increase compared to the previous same period and net incomewas Y3,863 million, a 82.2% increase compared to the previous same period. Performance by business segmentSummary of net revenues by business segment: Millions of Yen Three months Three months % change from ended ended previous period June 30, 2006 June 30, 2007 Digital Entertainment Y32,038 Y34,800 8.6Health & Fitness 21,313 21,617 1.4Gaming & System 3,501 3,572 2.0Other and Eliminations 776 661 (14.8)Consolidated net revenues Y57,628 Y60,650 5.2 Digital Entertainment Computer and Video Games business. On the domestic Japanese market, baseball titles like "PUROYAKYU SPIRITS 4" and"JIKKYOU PAWAFURU PUROYAKYU PORTABLE 2" recorded strong sales. Overseas, the popular "PRO EVOLUTION SOCCER" series forthe European market, as well as "Eledees" (known in Japan as "Elebits") and "METAL GEAR SOLID PORTABLE OPS," likewiserecorded strong sales. Toy & Hobby business. The mainstay "YU-GI-OH! TRADING CARD GAME" series continued to sell well worldwide. Meanwhile the"BLUE DRAGON ROLE PLAYING CARD GAME" series was released to coincide with the debut of the like-named anime TV seriesin April 2007. This has proved particularly popular with children of primary school age, and sales have climbedsteadily. The "BUSOU SHINKI" series an original action figures has been synchronized more closely with the online game,making it more fun than ever. Amusement business. "MAH-JONG FIGHT CLUB 6," the latest addition to the much-praised mah-jong game series that enablesplayers to match wits on line, sold well upon its release. This utilizes the "e-AMUSEMENT" system, a service networkingamusement arcades nationwide in Japan. In the area of our mainstay music games, the latest offering in the series wasreleased, "pop'n music 15 ADVENTURE," which went on to record strong sales. In the field of token-operated games,"EUROQUEEN," the seventh installment in the ever-popular "GALAXYWORLD" series, was released to favorable reviews. Online business. In April 2007, "BUSOU SHINKI BATTLE RONDO" was launched. The game allows players to battle againstother players via the "SHINKI NET" online game service, which is tied in with the "BUSOU SHINKI" series of originalaction figures. Another release was "Aquanaut Online Aquarium," a game that gives relaxation by imaginarilytransforming your home computer screen into an aquarium where you can keep menagerie of fish, is played by many users.In terms of mobile services, "KONAMIoMUSIC FULL," which allows players to enjoy the theme music from Konami games, hasbeen enhanced with video distribution and user review features. Multimedia business. A number of guides, books, music CDs and other merchandise tied in with popular game software werereleased, and these too have sold well. The ninth installment of the "Series of simple health rules How to take offseven(7) years" health book series likewise sold well upon its release. As a result, consolidated net revenues in this segment for the three months ended June 30, 2007 amounted to Y34,800million, a 8.6% increase compared to the previous same period. Health & Fitness Operation of fitness clubs. At facilities that we directly manage, a new, more economically priced membershipexclusively for those sixty and above was introduced this May. The "e-XAX Branch Membership S," as it is called, isdesigned to help baby boomers stay fit. Our 2007 Summer Campaign took place in June, as part of an effort to expand ourmembership rolls. In terms of services offered at our clubs, further progress was made in installing the e-XAX healthmanagement system, which keeps track of each individual's exercise history and manages data on his or her fitnessprogress. In addition, Konami offers several lifestyle improvement and community support programs. The "KENKO PLUS"program is coordinated with "health guidance" for those at risk of lifestyle diseases - the guidance that,under the Health Insurance Reform Law, is to start being implemented in April 2008. "6 WEEKS" is a lifestyle diseaseprevention program and "HATSURATSU KENKOJYUKU" provides exercise guidance to senior citizens. We also continued to play an active role in helping local residents get in better shape by putting our know-how andproven record of achievement to good use in the running of public facilities outsourced to us. We added a total ofseven new facilities to the list of those outsourced to us, in such locations as Setagaya Ward (Tokyo), Wako City(Saitama), and Kariya City (Aichi). As of June 30, 2007, the number of fitness clubs run either directly or outsourcedto us totaled 319 throughout Japan. Health products. We continued to sell the multifunctional USB pedometer "e-walkeylife2," the TV-linked healthmanagement tool "Kenshin Keikaku TV," and the computer software program "Kenshin-Keikaku 2," as well as our ownoriginal supplements. Konami is steadily expanding its product lineup to cater to today's evolving health needs. Konami unveiled two new items at Health & Fitness Japan 2007, which took place at Tokyo Big Sight in June 2007. "SHINAEROBIKE" automatically calculates what exercise load is right for the user, enabling the user to burn fat moreefficiently. "GROVE MOTION DDR" redefines the concept of what a digital studio program is. Both earned highly favorablereviews. Meanwhile we inaugurated a new service that gives Konami Sports Club members preferential access to over 6,000services offered by our financial and operational partner Resort Solution Co., Ltd. These include use of hotel andleisure facilities, as well as medical checkups and complete health exams. As a result, consolidated net revenues in this segment for the three months ended June 30, 2007 amounted to Y21,617million, a 1.4% increase compared to the previous same period. Gaming & System A growing number of jurisdictions have legalized gaming - Pennsylvania and Oklahoma being among the latest- and the gaming market is expanding on a global scale, with the well-established but still-growing NorthAmerican market leading the way. Konami is exploiting these trends by developing and marketing new products. The Asia region, led my Macau, is growing particularly rapidly. In a bid to cater to this promising market, LasVegas-based Konami Gaming Inc. and Sydney-based Konami Australia Pty Ltd exhibited together for the first time ever atthe Global Gaming Expo Asia 2007 held in Macau in June. Among the products featured were two "progressive" productsthat have been highly popular on the North American market, "Mystical Temple" and the "Konami Casino ManagementSystem." In North America, Konami is seeking to secure steady revenues from participation agreements (a form of equipment salein which profits are shared) and from maintaining and servicing the "Konami Casino Management System." In the domestic Australian market, New South Wales has imposed a requirement that, from July, clubs and pubs mustestablish non-smoking areas, and for this and other reasons market growth has been flat. Nonetheless, we are working toclinch more orders in Australia and neighboring New Zealand by, among other things, bringing to market new productsthat are currently awaiting licensing. Konami intends to build a truly global development system capable of catering to developing markets in Asia, SouthAmerica, Europe, and elsewhere. We plan to pursue options like strategic alliances with other companies, such as theOEM agreements that are already being implemented. As a result, consolidated net revenues in this segment for the three months ended June 30, 2007 amounted to Y3,572million, a 2.0% increase compared to the previous same period. (2) Cash Flows Cash flow summary for the three months ended June 30, 2007: Millions of Yen Three months Three months Year-on-year ended ended change June 30, 2006 June 30, 2007 Net cash provided by operating activities Y 3,029 Y 489 Y(2,540)Net cash used in investing activities (2,409) (6,778) (4,369)Net cash used in financing activities (4,934) (4,277) 657Effect of exchange rate changes on cash and cash 138 1,204 1,066equivalentsNet decrease in cash and cash equivalents (4,176) (9,362) (5,186)Cash and cash equivalents, end of the period 64,518 47,971 (16,547) Cash and cash equivalents ("cash") as of June 30, 2007, amounted to Y47,971 million, decreased by Y9,362 millioncompared to the balance as of March 31, 2007, or 25.6% decrease compared to the previous same period. Each cash flowfor the three months ended June 30, 2007 is as follows: Cash flows from operating activities: Cash provided by operating activities amounted to Y489 million for the three months ended June 30, 2007, a 83.9%decrease compared to the previous same period. Despite the increase in net income, this decrease primarily resultedfrom increase in inventory and decreases in cash in connection with trade notes and accounts payables. Cash flows from investing activities: Cash used in investing activities amounted to Y6,778 million for the three months ended June 30, 2007, a 181.4%increase compared to the previous same period. This was primarily due to an increase in lease deposits and capitalexpenditures relating to Konami moving to a new office building. Cash flows from financing activities: Cash used in financing activities amounted to Y4,277 million for the three months ended June 30, 2007, a 13.3% decreasecompared to the previous same period, primarily due to distribution of cash dividends. 3. Consolidated Balance Sheets (Unaudited) Millions of Yen Thousands of U.S. Dollars June 30, 2006 June 30, 2007 March 31, 2007 June 30, 2007 % % %ASSETSCURRENT ASSETS:Cash and cash equivalents Y 64,518 Y 47,971 Y 57,333 $ 389,186 Trade notes and accounts 24,163 25,921 29,729 210,295receivable, netof allowance for doubtfulaccounts ofY526 million, Y537 million($4,357 thousand) and Y540million atJune 30, 2006, June 30, 2007and March 31, 2007,respectively Inventories 24,496 30,860 24,236 250,365 Deferred income taxes, net 16,416 13,714 14,877 111,261 Prepaid expenses and other 8,021 13,984 12,086 113,451current assets Total current assets 137,614 46.7 132,450 43.2 138,261 45.4 1,074,558 PROPERTY AND EQUIPMENT, net 41,188 14.0 57,990 18.9 53,294 17.5 470,469 INVESTMENTS AND OTHER ASSETS: Investments in marketable 442 660 701 5,355securities Investments in affiliates 5,996 6,322 6,213 51,290Identifiable intangible assets 38,414 38,456 38,585 311,991Goodwill 22,606 22,710 22,738 184,245Lease deposits 25,531 28,358 24,906 230,067Other assets 19,173 16,760 17,366 135,972Deferred income taxes, net 3,695 2,829 2,593 22,951Total investments and other 115,857 39.3 116,095 37.9 113,102 37.1 941,871assets TOTAL ASSETS Y 294,659 100.0 Y 306,535 100.0 Y 304,657 100.0 $ 2,486,898 Millions of Yen Thousands of U.S. Dollars June 30, 2006 June 30, 2007 March 31, 2007 June 30, 2007 % % %LIABILITIES AND STOCKHOLDERS'EQUITY CURRENT LIABILITIES: Short-term borrowings Y 601 - - - Current portion of long-term 24,158 Y22,984 Y 23,073 $ 186,468debt andcapital lease obligations Trade notes and accounts 19,700 18,877 24,002 153,148payable Accrued income taxes 1,879 826 1,740 6,701 Accrued expenses 15,512 22,759 19,179 184,642 Deferred revenue 5,618 6,322 5,661 51,290Other current liabilities 7,410 10,858 8,811 88,090Total current liabilities 74,878 25.4 82,626 26.9 82,466 27.1 670,339LONG-TERM LIABILITIES:Long-term debt and capital 34,747 23,707 24,248 192,333leaseobligations, less currentportionAccrued pension and severance 2,577 1,365 2,708 11,074costsDeferred income taxes, net 12,575 12,304 12,207 99,822Other long-term liabilities 5,191 6,942 5,669 56,320Total long-term liabilities 55,090 18.7 44,318 14.5 44,832 14.7 359,549TOTAL LIABILITIES 129,968 44.1 126,944 41.4 127,298 41.8 1,029,888 MINORITY INTEREST IN 2,330 0.8 3,138 1.0 2,697 0.9 25,459 CONSOLIDATED SUBSIDIARIES COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY:Common stock, no par value-Authorized 450,000,000 shares; 47,399 16.1 47,399 15.5 47,399 15.6 384,545issued 143,555,786 shares atJune 30, 2006, June 30, 2007and March 31, 2007Additional paid-in capital 77,218 26.2 77,227 25.2 77,213 25.3 626,537Legal reserve 284 0.1 284 0.1 284 0.1 2,304Retained earnings 52,174 17.7 62,717 20.5 62,560 20.5 508,819Accumulated other comprehensive 3,966 1.3 7,195 2.3 5,617 1.8 58,373incomeTreasury stock, at cost-6,399,854 (18,680) (6.3) (18,369) (6.0) (18,411) (6.0) (149,027)shares,6,285,738shares and6,300,970 shares at June 30,2006, June 30, 2007 and March31, 2007, respectivelyTotal stockholders' equity 162,361 55.1 176,453 57.6 174,662 57.3 1,431,551TOTAL LIABILITIES AND Y294,659 100.0 Y306,535 100.0 Y 304,657 100.0 $ 2,486,898STOCKHOLDERS' EQUITY 4. Consolidated Statements of Income (Unaudited) Millions of Yen Thousands of U.S. Dollars Three months Three months Year ended Three months ended ended March 31, 2007 ended June 30, 2006 June 30, 2007 June 30, 2007 % % %NET REVENUES:Product sales revenue Y38,062 Y40,782 Y199,620 $330,861Service revenue 19,566 19,868 80,659 161,188Total net revenues 57,628 100.0 60,650 100.0 280,279 100.0 492,049COSTS AND EXPENSES:Costs of products sold 21,007 21,372 118,806 173,390Costs of services rendered 18,525 18,707 74,700 151,768Selling, general and 12,093 13,561 58,628 110,019administrativeTotal costs and expenses 51,625 89.6 53,640 88.4 252,134 90.0 435,177Operating income 6,003 10.4 7,010 11.6 28,145 10.0 56,872OTHER INCOME (EXPENSES):Interest income 226 266 821 2,158Interest expense (273) (243) (985) (1,971)Other, net (155) 238 (414) 1,930Other income (expenses), net (202) (0.4) 261 0.4 (578) (0.2) 2,117INCOME BEFORE INCOME TAXES, 5,801 10.0 7,271 12.0 27,567 9.8 58,989MINORITY INTEREST AND EQUITY INNET INCOME OF AFFILIATED COMPANIESINCOME TAXES 3,470 6.0 3,117 5.1 10,919 3.9 25,288INCOME BEFORE MINORITY INTEREST 2,331 4.0 4,154 6.9 16,648 33,701AND EQUITY IN NET INCOME OF 5.9AFFILIATED COMPANIES MINORITY INTEREST IN INCOME 214 0.3 438 0.7 575 0.2 3,554 OF CONSOLIDATED SUBSIDIARIESEQUITY IN NET INCOME OF AFFILIATED 3 0.0 147 0.2 138 0.0 1,193COMPANIESNET INCOME Y 2,120 3.7 Y3,863 6.4 Y16,211 5.7 $31,340 PER SHARE DATA: Yen U.S. Dollar Three months ended Three months ended Year ended Three months ended June 30, 2006 June 30, 2007 March 31, 2007 June 30, 2007 Basic net income per Y 15.46 Y 28.14 Y 118.15 $ 0.23shareDiluted net income per 15.45 28.13 118.09 0.23shareWeighted-average commonshare outstanding 137,154,887 137,259,918 137,202,151Diluted weighted-averagecommon shares 137,218,238 137,298,107 137,271,645outstanding 5. Consolidated Statements of Cash Flows (Unaudited) Millions of Yen Thousands of U.S. Dollars Three Three Year ended Three months months March 31, months ended ended 2007 ended June 30, June 30, June 30, 2006 2007 2007 Cash flows from operating activities:Net income Y 2,120 Y 3,863 Y 16,211 $ 31,340Adjustments to reconcile net income to netcash provided by operating activities -Depreciation and amortization 2,625 3,037 11,757 24,638Provision for doubtful receivables (9) (34) (76) (275)Equity in net income of affiliated company (3) (147) (138) (1,192)Minority interest 214 438 575 3,553Deferred income taxes 801 1,055 2,621 8,559Change in assets and liabilities, net ofbusiness acquired:Decrease in trade notes and accounts 8,533 4,929 4,716 39,988receivableIncrease in inventories (4,375) (6,524) (4,298) (52,928)Increase (decrease) in trade notes and (38) (6,404) 3,354 (51,955)accounts payableDecrease in accrued income taxes (5,745) (42) (7,190) (340)Increase (decrease) in accrued expenses 30 (807) 3,567 (6,547)Increase (decrease) in deferred revenue (265) 659 309 5,346Other, net (859) 466 416 3,780Net cash provided by operating activities 3,029 489 31,824 3,967Cash flows from investing activities:Capital expenditures (2,125) (3,093) (9,308) (25,093)Acquisition of new subsidiaries, net of (227) - (202) -cash acquiredIncrease in lease deposits, net (20) (3,604) (705) (29,239)Acquisition of business - - (1,096) -Other, net (37) (81) 213 (657)Net cash used in investing activities (2,409) (6,778) (11,098) (54,989)Cash flows from financing activities:Net decrease in short-term borrowings (352) - (1,119) -Repayments of long-term debt (228) (148) (1,995) (1,201)Redemption of bonds - - (20,000) -Principal payments under capital lease (654) (678) (2,814) (5,501)obligationsDividends paid (3,673) (3,476) (7,420) (28,200)Purchases of treasury stock by parent (49) (8) (93) (65)companyOther, net 22 33 229 268Net cash used in financing activities (4,934) (4,277) (33,212) (34,699)Effect of exchange rate changes on cash 138 1,204 1,125 9,768and cash equivalentsNet decrease in cash and cash equivalents (4,176) (9,362) (11,361) (75,953)Cash and cash equivalents, beginning of 68,694 57,333 68,694 465,139the periodCash and cash equivalents, end of the Y 64,518 Y 47,971 Y 57,333 $ 389,186period 6. Segment Information (Unaudited) a . Segment Information Three months Digital Health & Gaming & Other, Consolidated ended Entertainment Fitness System corporate and June 30, 2006 Eliminations (Millions of Yen)Net revenue: Customers Y 31,678 Y 21,295 Y 3,501 Y 1,154 Y 57,628 Intersegment 360 18 - (378) - Total 32,038 21,313 3,501 776 57,628Operating 25,469 19,545 3,094 3,517 51,625expensesOperating income Y 6,569 Y 1,768 Y 407 Y (2,741) Y 6,003(loss) Three months Digital Health & Gaming & Other, Consolidated ended Entertainment Fitness System corporate and June 30, 2007 Eliminations (Millions of Yen) Net revenue: Customers Y 34,342 Y 21,513 Y 3,572 Y 1,223 Y 60,650 Intersegment 458 104 - (562) - Total 34,800 21,617 3,572 661 60,650Operating 26,300 19,833 3,177 4,330 53,640expensesOperating income Y 8,500 Y 1,784 Y 395 Y (3,669) Y 7,010(loss) Year ended Digital Health & Gaming & Other, Consolidated March 31, 2007 Entertainment Fitness System corporate and Eliminations (Millions of Yen)Net revenue: Customers Y 163,654 Y 88,326 Y 16,744 Y 11,555 Y 280,279 Intersegment 1,206 133 - (1,339) - Total 164,860 88,459 16,744 10,216 280,279Operating 133,463 80,937 14,574 23,160 252,134expensesOperating income Y 31,397 Y 7,522 Y 2,170 Y (12,944) Y 28,145(loss) Three months Digital Health & Gaming & Other, Consolidated ended Entertainment Fitness System corporate and June 30, 2007 Eliminations (Thousands of U.S. Dollars)Net revenue: Customers $ 278,614 $ 174,534 $ 28,979 $ 9,922 $ 492,049 Intersegment 3,716 843 - (4,559) - Total 282,330 175,377 28,979 5,363 492,049Operating 213,370 160,904 25,774 35,129 435,177expensesOperating income $ 68,960 $ 14,473 $ 3,205 $ (29,766) $ 56,872(loss) Notes: 1. Primary businesses of each segment are as follows: Digital Entertainment Production, manufacture and sale of digital contents and Segment: related products of our Computer & Video Games, Toy & Hobby, Amusement, Online and Multimedia businesses. Health & Fitness Segment: Management of fitness centers / Production, manufacture and sale of fitness machines and health service products. Gaming & System Segment: Production, manufacture, sale and service of gaming machines and Konami Casino Management System for casinos. 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 inter-company sales and of inter-company profits on inventories. 5. Inter-segment revenues primarily consist of sales of hardware and components from Digital Entertainment Segment to Health & Fitness Segment. b . Geographic Information Three months ended Japan North Europe Asia Total Eliminations Consolidated June 30, 2006 America /Oceania (Millions of Yen)Net revenue: Customers Y 47,753 Y 5,148 Y 2,958 Y 1,769 Y 57,628 - Y 57,628 Intersegment 3,752 200 122 35 4,109 Y (4,109) - Total 51,505 5,348 3,080 1,804 61,737 (4,109) 57,628Operating expenses 45,358 5,686 3,234 1,575 55,853 (4,228) 51,625Operating income Y 6,147 Y (338) Y (154) Y 229 Y 5,884 Y 119 Y 6,003(loss) Three months ended Japan North Europe Asia Total Eliminations Consolidated June 30, 2007 America /Oceania (Millions of Yen)Net revenue: Customers Y 50,346 Y 4,439 Y 4,136 Y 1,729 Y 60,650 - Y 60,650 Intersegment 1,702 1,070 0 37 2,809 Y (2,809) - Total 52,048 5,509 4,136 1,766 63,459 (2,809) 60,650Operating expenses 45,443 5,575 3,866 1,552 56,436 (2,796) 53,640Operating income Y 6,605 Y (66) Y 270 Y 214 Y 7,023 Y (13) Y 7,010(loss) Year ended Japan North Europe Asia Total Eliminations Consolidated March 31, 2007 America /Oceania (Millions of Yen)Net revenue: Customers Y 206,343 Y 34,847 Y 31,650 Y 7,439 Y 280,279 - Y 280,279 Intersegment 27,219 1,904 295 530 29,948 Y (29,948) - Total 233,562 36,751 31,945 7,969 310,227 (29,948) 280,279Operating expenses 205,831 40,346 28,860 7,249 282,286 (30,152) 252,134Operating income Y 27,731 Y (3,595) Y 3,085 Y 720 Y 27,941 Y 204 Y 28,145(loss) Three months ended Japan North Europe Asia Total Eliminations Consolidated June 30, 2007 America /Oceania (Thousands of U.S. Dollars)Net revenue: Customers $ 408,454 $ 36,013 $ 33,555 $ 14,027 $ 492,049 - $ 492,049 Intersegment 13,808 8,681 0 300 22,789 $ (22,789) - Total 422,262 44,694 33,555 14,327 514,838 (22,789) 492,049Operating expenses 368,676 45,229 31,365 12,591 457,861 (22,684) 435,177Operating income $ 53,586 $ (535) $ 2,190 $ 1,736 $ 56,977 $ (105) $ 56,872(loss) For the purpose of presenting its operations in geographic areas above, the Company and its subsidiaries attribute revenues from external customers to individual countries in each area based on where products are sold and services are provided. North America presented in the table above substantially consists of United States. Notes: The consolidated financial statements presented herein were prepared in accordance with U.S. generally acceptedaccounting principles (''U.S. GAAP'') 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. 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