Konami Grp Corp Regulatory News (KNM)

27 Jul 2006 13:12

Konami Corporation27 July 2006 Consolidated Financial Results for the First Quarter Ended June 30, 2006 (Prepared in Accordance with U.S. GAAP) July 27, 2006 KONAMI CORPORATIONAddress: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, JapanStock code number, TSE: 9766Ticker symbol, NYSE: KNMURL: www.konami.netShares listed: Tokyo Stock Exchange, New York Stock Exchange, London Stock Exchange and Singapore ExchangeRepresentative: Kagemasa Kozuki, Chairman of the Board and Chief Executive OfficerContact: Noriaki Yamaguchi, Representative Director and Chief Financial Officer (Phone: +81-3-5220-0163) 1. Preparation Basis for Consolidated Financial Results for the First Quarter Ended June 30, 2006(1) Adoption of U.S. GAAP: Yes(2) Adoption of simplified methods in accounting None principles:(3) Change in accounting policies: None(4) Changes in reporting entities: Yes Number of consolidated subsidiaries added: 1 Number of consolidated subsidiaries removed: 0 Number of affiliated companies added: 0 Number of affiliated companies removed: 0 2. Consolidated Financial Results for the First Quarter Ended June 30, 2006(Amounts are rounded to the nearest million) (1) Consolidated Results of Operations (Millions of Yen, except per share data) Net revenues Operating income Income before income taxesThree months ended June 30, 2006 Y 57,628 Y 6,003 Y 5,801% change from previous period 20.0 95.3 (41.6)Three months ended June 30, 2005 48,029 3,074 9,927 % change from previous period 1.5 4.3 245.9Year ended March 31, 2006 262,137 2,481 8,438 Basic net income Diluted net income Net income per share per shareThree months ended June 30, 2006 Y 2,120 Y 15.46 Y 15.45 % change from previous period (61.0) - -Three months ended June 30, 2005 5,439 41.75 41.75 % change from previous period 1,960.2 - -Year ended March 31, 2006 23,008 175.86 175.80 Notes: 1. Equity in net income (loss) of affiliated companies Three months ended June 30, 2006: Y3 million Three months ended June 30, 2005: Y- million Year ended March 31, 2006: Y33 million 2. Weighted-average common shares outstanding (consolidated) Three months ended June 30, 2006: 137,154,887 shares Three months ended June 30, 2005: 130,287,026 shares Year ended March 31, 2006: 130,835,422 shares3. Net income per share was calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 128 ''Earnings per Share.'' (2) Consolidated Financial Position (Millions of Yen, except per share data) Total Equity-assets Shareholders' stockholders' Total assets Equity ratio equity per share (Yen) June 30, 2006 Y 294,659 Y 162,361 55.1% Y 1,183.77 June 30, 2005 314,002 131,160 41.8% 1,006.48 March 31, 2006 302,637 163,815 54.1% 1,194.41 Note: Number of shares outstanding (consolidated) June 30, 2006: 137,155,932 Shares June 30, 2005: 130,315,456 Shares March 31, 2006: 137,152,347 Shares (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 periodThree months ended June 30, 2006 Y 3,029 Y (2,409) Y (4,934) Y 64,518Three months ended June 30, 2005 (4,462) 8,874 (4,357) 89,278Year ended March 31, 2006 23,879 (7,266) (38,330) 68,694 3. Consolidated Financial Forecast for the Year Ending March 31, 2007 (Millions of Yen) Net revenues Operating Income before Net income income income taxes Year ending March 31, Y 275,000 Y 29,000 Y 28,500 Y 16,000 2007 There has been no change in our forecast for the year ending March 31, 2007,since we originally announced it on May 17, 2006. Cautionary Statement with Respect to Forward-Looking Statements: Statements made in this document with respect to our current plans, estimates, strategies and beliefs, including the above forecasts, are forward-looking statements about our future performance. These statements are based on management's assumptions and beliefs in light of information currently available to it and, therefore, you should not place undue reliance on them. A number of important factors could cause actual results to be materially different from and worse than those discussed in forward-looking statements. Such factors include, but are not limited to: (i) changes in economic conditions affecting our operations; (ii) fluctuations in currency exchange rates, particularly with respect to the value of the Japanese yen, the U.S. dollar and the Euro; (iii) our ability to continue to win acceptance of our products, which are offered in highly competitive markets characterized by the continuous introduction of new products, rapid developments in technology and subjective and changing consumer preferences; (iv) our ability to successfully expand internationally with a focus on our video game software business, card game business and gaming machine business; (v) our ability to successfully expand the scope of our business and broaden our customer base through our health & fitness business; (vi) regulatory developments and changes and our ability to respond and adapt to those changes; (vii) our expectations with regard to further acquisitions and the integration of any companies we may acquire; and (viii) the outcome of contingencies. 1. Organizational Structure of the Konami Group The Konami Group is a conglomerate engaged in the entertainment and health industry providing customers with ''HighQuality Life'' and is comprised of KONAMI CORPORATION (the ''Company''), and its 24 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. HUDSON SOFT CO., LTD. Internet Revolution Inc. Konami Logistics & Service, Inc.(Note.3) 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 (Note.2) Konami Logistics & Service, Inc. (Note.3) Resort Solution Co., Ltd. (Note.5), Two other companies Gaming & System Overseas Konami Gaming, Inc. (Note.4) Konami Australia Pty Ltd., One other company Other Domestic Konami Logistics & Service, Inc. (Note.3) KPE, Inc. , Konami Real Estate, Inc. Konami School, Inc., Two other companies Overseas Konami Corporation of America Konami Digital Entertainment B.V., One other company Notes: 1. Companies that have operations categorized in more than one segment are included in each segment in which theyoperate. 2. On May 31, 2006, the Company acquired all outstanding shares of COMBI WELLNESS Corporation and made it a whollyowned subsidiary. 3. Konami Logistics & Service, Inc. changed its registered name to Konami Manufacturing & Service, Inc. on July 1,2006. 4. Gaming segment was renamed to Gaming & System segment from October 1, 2005. 5. This is an equity method affiliate. 2. Business Performance and Cash Flows 1. Business PerformanceOverview In the entertainment industry in which Konami operates, Nintendo and Sony Computer Entertainment received keenattention for their exhibits of the Wii home-use video game console (Nintendo) and PlayStation3 (Sony ComputerEntertainment) at E3 2006 (Electronic Entertainment Expo 2006), the worldfs largest digital entertainment trade show,held in the United States on May 2006. Together with Microsoftfs Xbox 360 already released in the market, thenext-generation home-use video game consoles of all the relevant companies will be launched by the end of the currentterm, and the demand for these consoles is expected to expand further. In the health and fitness industry, Medical Service Reform Legislation enacted on June 2006 now clearly defines anorientation towards the prevention of diseases. Consequently, efforts are now underway to maintain health by focusingon the importance of routine exercise and the improvement of dietary habits. Under these circumstances, in the Digital Entertainment segment, home-use video game software for soccer games wassold steadily against the backdrop of the boom in the popularity of soccer worldwide. WORLD SOCCER Winning Eleven 10(PlayStation2 version) released in April 2006, in the domestic market became a million-seller, with shipments of overone million units. As for the baseball contents, in response to the diversified tastes of users, Konami releasedhome-use video game software with subjects derived from real baseball and major league baseball games, as well astitles for mobile game consoles. Sales of game machines for amusement arcades also continued to increase steadily, andKonami will strive to undertake further multi-faceted measures to develop baseball contents, including the sale ofcard games and the release of JIKKYOU PAWAFURU YAKYU Game Board in cooperation with EPOCH CO., LTD. In the Health & Fitness segment, as the demand for fitness clubs increases in response to moves to promote health andcurb the rising need for nursing-care, membership of KONAMI SPORTS CLUB is on the increase. In addition to this, as aresult of the scrap-and-build development of fitness club facilities and the review of programs (a notable trend atKonami over the last few years), the profit structure of the operation of our fitness facilities has greatly improved.Moreover, health support programs on a national level are being developed steadily and markets related to the healthservice businesses are expected to expand further. In the Gaming & System segment, Konami is aggressively promoting activities based on the reinforced business structurewhich it had been pursuing in North America. Further, Konami started sales of casino management system on a full scalein the fist half of the term and has steadily increased sales since then. Konami expects sales of this system to be asource of stable profit, principally through the regular profits brought in from the maintenance and services for theincreased number of machines installed. As a result, consolidated net revenues for the three months ended June 30, 2006 were Y57,628 million (120% of thefigure for the same period of the previous year), operating income was Y6,003 million (195.3% of the figure for thesame period of the previous year), income before income taxes was Y5,801 million (58.4% of the figure for the sameperiod of the previous year), and net income was Y2,120 million (39.0% of the figure for the same period of theprevious year). In addition, income before income taxes and net income for the three months ended June 30, 2006decreased compared to the three months ended June 30, 2005. This is due primarily to Y6.9 billion of gain on sale ofshares of TAKARA CO., LTD. for the three months ended June 30, 2005. Performance by business segmentSummary of net revenues by business segment: Millions of Yen Three months Three months % of previous ended ended period June 30, 2005 June 30, 2006Digital Entertainment Y25,573 Y 32,038 125.3Health & Fitness 19,662 21,313 108.4Gaming & System 2,683 3,501 130.5Other, Corporate and Eliminations 111 776 699.1Consolidated net revenues Y48,029 Y57,628 120.0 (Note) The Gaming segment was renamed to the Gaming & System segment from October 1,2005. Digital Entertainment Segment In the Computer & Video game business, the PlayStation2 version of WORLD SOCCER Winning Eleven 10 recorded a millionsales in the domestic market for video game software. With increased interest in baseball, titles such as thePlayStation2 version of JIKKYO PAWAFURU MAJOR LEAGUE and PROYAKYU SPIRITS3 recorded steady sales. In overseas, ProEvolution Soccer 5 released in October 2005, for the European market maintained steady sales. The PlayStation portableversion of METAL GEAR ACID2 for the European market was also popular. In the Toy & Hobby business, sales of the globally popular Yu-Gi-Oh! Trading Card Game series continued to growsteadily. Konami has built up a diverse line-up of products in trading card games, toys for infants, and figures andcharacter goods, including a recently released series of trading cards for the popular comic DEATH NOTE. In the Amusement business, the MAH-JONG FIGHT CLUB series and BASEBALL HEROES (the first arcade game in the industry touse the cards with images of professional baseball players) two products available in the e-AMUSEMENT line of servicesconnecting amusement arcades all over Japan through the network, continued to record strong sales. WORLD SOCCER WinningEleven 2006 ARCADE CHAMPIONSHIP, the latest arcade version of the WORLD SOCCER Winning Eleven series, was released andgained wide popularity. As for token-operated games, PRECIOUSPARTY, a real-time online bingo game, received wideacclaim in the market. In the Online business, following Yu-Gi-Oh! ONLINE and Tokimeki Memorial ONLINE, two titles already distributed asonline game services, Konami is scheduled to launch online services for BUSOU SHINKI, its original content, inSeptember 2006. Through these and other efforts, Konami will actively promote online games, a business expected to growin the future. The distribution of mobile contents, a business Konami is promoting globally through famous telecomcarriers both in Japan and in various countries of the world, is also growing steadily. In the Multimedia business, music CDs and DVDs tied up with music game series and official guidebooks for popular videogame software grew steadily. Moreover, the first issue of our new bimonthly Soccer Culture Magazine WE-ELe was launchedand broadcasting of FAIRY MUSKETEERS AKAZUKIN, an original TV animation, started in July 2006. Through these efforts,Konami will venture into a new market genre although we will also continue to create original contents by striving toimprove synergy with our other areas of digital entertainment. As a result, consolidated net revenues in the Digital Entertainment segment for the three months ended June 30, 2006amounted to Y32,038 million (125.3% of the figure for the same period of the previous year). Health & Fitness Segment In the operation of our fitness club business, a new facility was opened in Yokohama (Kanagawa) in June, and a facilityin Sanda (Hyogo) was transferred and consolidated into expanded facilities. Members, both individual and corporate,increased steadily from the previous term. The use of paid programs and Wellness grew steadily as well. In the operation of sports facilities outsourced to us, Konami added 34 facilities, including one in Ichinomiya-shi(Aichi) and one Osaka-shi (Osaka), increasing the number of facilities to 101 in Japan as of the end of June 2006. Wewill make our utmost efforts to maximize our know-how in the management of public facilities and to promote health forthe people of the community. As a new undertaking in the sports facilities business, we started to accept subscriptions for Hatsuratsu Kenko-jyuku,a health promotion program suited for the aged. Aged persons and anyone else who may feel out of the habit ofexercising or deprived of opportunities to go out may participate in the Hatsuratsu Kenko-jyuku. Through HatsuratsuKenko-jyuku, a program structured to enable anyone who has never used a sports facility before to use one safely andeasily, we intend to propose new lifestyles for the participants. In efforts towards product development, Konami exhibited five ''training machines with functions of care prevention, ''including massugu sesuji (straight backbone), at ''Health & Fitness Japan 2006'' held at Tokyo Big Site in June. Allfive of these fitness products received favorable reviews. These machines will be sold for use by local governments,medical institutions, and private day service and nursing-care facilities from autumn this year. BODYJAM, a new B.T.S.program was exhibited for the first time in Japan at ''Health & Fitness Japan 2006, '' fascinated visitors. COMBIWELLNESS Corporation, a company made into a wholly owned subsidiary in May 2006, also exhibited many products whichattracted great attention. As a result, consolidated net revenues in the Health & Fitness segment for the three months ended June 30, 2006amounted to Y21,313 million (108.4% of the figure for the same period in the previous year) . Gaming & System Segment In the Gaming & System segment, sales of ''Konami Casino Management System'' in North America are growing steadily. Inaccordance with a sales agreement concluded in the previous year, Konami completed the installation of the CasinoManagement System in the first casino established in Quebec province. The number of machines connected increased, andsales from maintenance/services are also increasing steadily. We have also installed slot machines under profit-sharingagreements, in an effort to generate steady revenues and lead to more stable management. K2V, the platform launched inthe previous year, is also being received well in the markets, and sales of gaming machines are also increasingsteadily. Casinos are expected to be legalized in the State of Pennsylvania, where Konami expects great demand and ispresently preparing to acquire a license. In Australia, where the gaming market remains basically unchanged, we have secured profit through the sales of linkprogressives which connect gaming machines and raise the added value of the contents. In the overseas markets ofEurope, Asia, and South America, we have secured profit through the development of new business and our stable customerbase. As a result, consolidated net revenues in the Gaming & System segment for the three months ended June 30, 2006 amountedto Y3,501 million (130.5% of the figure for the same period in the previous year). (2) Cash Flows Cash flow summary for the three months ended June 30, 2006: Millions of Yen Three months Three months ended ended June 30, 2005 June 30, 2006Net cash provided by (used in) operating activities Y (4,462) Y 3,029Net cash provided by (used in) investing activities 8,874 (2,409)Net cash used in financing activities (4,357) (4,934)Effect of exchange rate changes on cash and cash (360) 138equivalentsNet decrease in cash and cash equivalents (305) (4,176)Cash and cash equivalents, end of the period 89,278 64,518 Cash and cash equivalents ("cash") as of June 30, 2006, amounted to Y64,518 million, decreased by Y4,176 millioncompared to the balance as of March 31, 2006, or 72.3% of the balance as of June 30, 2005. Each cash flow for the threemonths ended June 30, 2006 is as follows. Cash flows from operating activities: Cash provided by operating activities amounted to Y3,029 million for the three months ended June 30, 2006, compared tocash used in operating activities of Y4,462 million for the three months ended June 30, 2005. This was primarily due tothe decrease in net income which included gain on sales of shares of affiliated company for the previous period andalso due to the decrease in payment of income taxes. Cash flows from investing activities: Cash used in investing activities amounted to Y2,409 million for the three months ended June 30, 2006, compared to cashprovided by investing activities of Y8,874 million for the three months ended June 30, 2005. This was primarily due tothe decrease in proceeds from sales of affiliated companies included in previous period cash flow and also due to theincrease in capital expenditures. Cash flows from financing activities: Cash used in financing activities amounted to Y4,934 million for the three months ended June 30, 2006, increased byY577 million compared to the three months ended June 30, 2005. This was primarily due to the increase in dividendspaid, according to the increase in total number of shares outstanding. 3. Consolidated Balance Sheets (Unaudited) Millions of Yen Thousands of U.S. Dollars March 31, 2006 June 30, 2006 June 30, 2006 % %ASSETSCURRENT ASSETS:Cash and cash equivalents Y 68,694 Y 64,518 $ 559,858Trade notes and accounts receivable, 32,294 24,163 209,675net of allowance for doubtful accountsof /541 millions and / 526 millions($4,564 thousands) at March 31, 2006and June 30, 2006, respectivelyInventories 20,109 24,496 212,565Deferred income taxes, net 16,510 16,416 142,451Prepaid expenses and other current 6,720 8,021 69,602assetsTotal current assets 144,327 47.7 137,614 46.7 1,194,151 PROPERTY AND EQUIPMENT, net 42,452 14.0 41,188 14.0 357,411 INVESTMENTS AND OTHER ASSETS:Investments in marketable securities 572 442 3,835Investments in affiliates 6,050 5,996 52,031Identifiable intangible assets 38,575 38,414 333,339Goodwill 22,102 22,606 196,165Lease deposits 25,277 25,531 221,546Other assets 20,103 19,173 166,374Deferred income taxes, net 3,179 3,695 32,064Total investments and other assets 115,858 38.3 115,857 39.3 1,005,354TOTAL ASSETS Y 100.0 Y 100.0 $ 2,556,916 302,637 294,659 Millions of Yen Thousands of U.S. Dollars March 31, 2006 June 30, 2006 June 30, 2006 % %LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES:Short-term borrowings Y 958 Y 601 $ 5,215Current portion of long-term debt and 24,492 24,158 209,632capital lease obligationsTrade notes and accounts payable 19,357 19,700 170,948Accrued income taxes 7,487 1,879 16,305Accrued expenses 16,323 15,512 134,606Deferred revenue 5,353 5,618 48,750Other current liabilities 7,254 7,410 64,301Total current liabilities 81,224 26.9 74,878 25.4 649,757LONG-TERM LIABILITIES:Long-term debt and capital lease 35,631 34,747 301,519obligations, less current portionAccrued pension and severance costs 2,658 2,577 22,362Deferred income taxes, net 11,924 12,575 109,120Other long-term liabilities 5,264 5,191 45,045Total long-term liabilities 55,477 18.3 55,090 18.7 478,046TOTAL LIABILITIES 136,701 45.2 129,968 44.1 1,127,803 MINORITY INTEREST IN 2,121 0.7 2,330 0.8 20,219 CONSOLIDATED SUBSIDIARIES COMMITMENTS AND CONTINGENCIES - - - - - STOCKHOLDERS' EQUITY:Common stock, no par value-Authorized 450,000,000 shares; issued 47,399 15.7 47,399 16.1 411,307143,555,786 shares at March 31, 2006and June 30, 2006, respectively;outstanding 137,152,347 shares at March31, 2006 and 137,155,932 shares at June30, 2006Additional paid-in capital 77,110 25.5 77,218 26.2 670,063Legal reserve 284 0.1 284 0.1 2,464Retained earnings 53,756 17.7 52,174 17.7 452,742Accumulated other comprehensive income 3,957 1.3 3,966 1.3 34,415 Total 182,506 60.3 181,041 61.4 1,570,991Treasury stock, at cost-6,403,439 shares and 6,399,854 shares (18,691) (6.2) (18,680) (6.3) (162,097)at March 31, 2006 and June 30, 2006, respectivelyTotal stockholders' equity 163,815 54.1 162,361 55.1 1,408,894TOTAL LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' EQUITY Y 302,637 100.0 Y 294,659 100.0 $ 2,556,916 4. Consolidated Statements of Operations (Unaudited) Millions of Yen Thousands of U.S. Dollars Three months Three months ended ended June 30, June 30, 2005 2006 2006 % %NET REVENUES:Product sales revenue Y 30,409 Y 38,062 $ 330,285Service revenue 17,620 19,566 169,784Total net revenues 48,029 100.0 57,628 100.0 500,069COSTS AND EXPENSES:Costs of products sold 17,153 21,007 182,289Costs of services rendered 16,707 18,525 160,751Selling, general and administrative 11,095 12,093 104,938Total costs and expenses 44,955 93.6 51,625 89.6 447,978Operating income 3,074 6.4 6,003 10.4 52,091OTHER INCOME (EXPENSES):Interest income 141 226 1,961Interest expense (232) (273) (2,369)Gain on sale of shares of an affiliated 6,917 - -companyOther, net 27 (155) (1,345)Other income (expenses), net 6,853 14.3 (202) (0.4) (1,753)INCOME BEFORE INCOME TAXES, MINORITY INTEREST 9,927 20.7 5,801 10.0 50,338AND EQUITY IN NET INCOME OF AFFILIATEDCOMPANIESINCOME TAXES 4,380 9.2 3,470 6.0 30,111INCOME BEFORE MINORITY INTEREST AND EQUITY IN 5,547 11.5 2,331 4.0 20,227NET INCOME OF AFFILIATED COMPANIESMINORITY INTEREST IN INCOME OF 108 0.2 214 0.3 1,857 CONSOLIDATED SUBSIDIARIESEQUITY IN NET INCOME OF AFFILIATED COMPANIES - - 3 0.0 26NET INCOME Y 5,439 11.3 Y 2,120 3.7 $ 18,396 PER SHARE DATA: Yen U.S. Dollars Three months ended June 30, Three months ended June 30, 2005 2006 2006Basic net income per share Y 41.75 Y 15.46 $0.13Diluted net income per share Y 41.75 Y 15.45 $0.13 Weighted-average common shares outstanding 130,287,026 137,154,887Dilutive weighted-average common shares 130,287,026 137,218,238outstanding 5. Consolidated Statements of Cash Flows (Unaudited) Millions of Yen Thousands of U.S. Dollars Three months Three months Three months ended ended ended June 30, 2005 June 30, 2006 June 30, 2006Cash flows from operating activities:Net income Y 5,439 Y 2,120 $ 18,396Adjustments to reconcile net income to netcash provided by operating activities -Depreciation and amortization 2,157 2,625 22,779Provision for doubtful receivables (148) (9) (78)Gain on sale of shares of an affiliated (6,917) - -companyEquity in net income of affiliated - (3) (26)companiesMinority interest 108 214 1,857Deferred income taxes 3,932 801 6,951Change in assets and liabilities, net ofbusiness acquired:Decrease in trade notes and accounts 11,587 8,533 74,045receivableIncrease in inventories (5,309) (4,375) (37,964)Decrease in trade notes and accounts (592) (38) (330)payableDecrease in accrued income taxes (10,956) (5,745) (49,852)Increase (decrease) in accrued expenses (2,544) 30 260Increase (decrease) in deferred revenue 177 (265) (2,300)Other, net (1,396) (859) (7,453)Net cash provided by (used in) operating (4,462) 3,029 26,285activitiesCash flows from investing activities:Capital expenditures (1,061) (2,125) (18,440)Proceeds from sales of shares of an 11,016 - -affiliated companyAcquisition of a new subsidiary, net of - (227) (1,970)cash, acquiredDecrease in time deposits, net (623) - -Purchase of minority interests (504) - -Decrease (increase) in lease deposits, net 91 (20) (174)Other, net (45) (37) (321)Net cash provided by (used in) investing 8,874 (2,409) (20,905)activitiesCash flows from financing activities:Decrease in short-term borrowings (775) (352) (3,054)Repayments of long-term debt (246) (228) (1,978)Principal payments under capital lease (301) (654) (5,675)obligationsDividends paid (3,039) (3,673) (31,873)Purchases of treasury stock by parent (16) (49) (425)companyOther, net 20 22 190Net cash used in financing activities (4,357) (4,934) (42,815)Effect of exchange rate changes on cash and (360) 138 1,198cash equivalentsDecrease in cash and cash equivalents (305) (4,176) (36,237)Cash and cash equivalents, beginning of the 89,583 68,694 596,095periodCash and cash equivalents, end of the Y 89,278 Y 64,518 $ 559,858period 6. Segment Information (Unaudited) a . Operations in Different Industries Three months Digital Health & Gaming & Other, Consolidated ended Entertainment Fitness System corporate and Eliminations June 30, 2005 (Millions of Yen)Net revenue: Customers Y 25,277 Y 19,641 Y 2,683 Y 428 Y 48,029 Intersegment 296 21 - (317) - Total 25,573 19,662 2,683 111 48,029Operating 20,263 19,483 2,372 2,837 44,955expensesOperating income Y 5,310 Y 179 Y 311 Y (2,726) Y 3,074(loss) Three months Digital Health & Gaming & Other, Consolidated ended Entertainment Fitness, System corporate and Eliminations June 30, 2006 (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 Eliminations June 30, 2006 (Thousands of U.S. Dollars)Net revenue: Customers $ 274,887 $ 184,788 $ 30,380 $ 10,014 $ 500,069 Intersegment 3,124 156 - (3,280) - Total 278,011 184,944 30,380 6,734 500,069Operating 221,008 169,603 26,848 30,519 447,978expensesOperating income $ 57,003 $ 15,341 $ 3,532 $ (23,785) $ 52,091(loss) Notes: 1. Primary businesses of each segment are as follows: Digital Entertainment Segment: include following five business areas Computer & Video Games: Production, manufacture and sale of video game software for consoles. Distribution of video game software produced. Toy & Hobby: Planning, production, manufacture and sale of card games, electronic toys, toys for boys, candy toys, figures, character goods and others. Amusement: Production, manufacture and sale of the contents for amusement facilities such as video games and token-operated games. Online: Production of online game software. Creation of systems for online games. Management and operation of online servers. Production and distribution of the contents for mobile phones. Multimedia: Planning, production and sale of the products related to music and video. Planning, production and sale of books and magazines. Health & Fitness Segment Management of fitness clubs. Production, manufacture and sale of fitnessmachines and health-related products. Gaming & System Segment Production, manufacture and sale of gaming machines for casinos and casinomanagement systems. 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 sales of hardware and components from Digital Entertainment segment to Health & Fitness segment. 6. The Gaming segment was renamed to the Gaming & System segment from October 1, 2005. b . Operations in Geographic Areas Three months ended Japan United Europe Asia Total Eliminations Consolidated States June 30, 2005 /Oceania (Millions of Yen)Net revenue: Customers Y 38,332 Y 5,245 Y 2,338 Y 2,114 Y 48,029 - Y 48,029 Intersegment 5,886 183 - 45 6,114 / (6,114) - Total 44,218 5,428 2,338 2,159 54,143 (6,114) 48,029Operating expenses 40,907 5,605 2,962 1,591 51,065 (6,110) 44,955Operating income Y 3,311 Y (177) Y (624) Y 568 Y 3,078 Y (4) Y 3,074(loss) Three months ended Japan United Europe Asia Total Eliminations Consolidated States June 30, 2006 /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) (51,625)Operating income Y 6,147 Y (338) Y (154) Y 229 Y 5,884 Y 119 Y 6,003(loss) Three months ended Japan United Europe Asia Total Eliminations Consolidated States /Oceania June 30, 2006 (Thousands of U.S. Dollars)Net revenue: Customers $ 414,379 $ 44,671 $ 25,668 $ 15,351 $ 500,069 - $ 500,069 Intersegment 32,558 1,736 1,059 303 35,656 $ (35,656) - Total 446,937 46,407 26,727 15,654 535,725 (35,656) 500,069Operating expenses 393,596 49,340 28,063 13,667 484,666 (36,688) (447,978)Operating income $ 53,341 $ (2,933) $ (1,336) $ 1,987 $ 51,059 $ 1,032 $ 52,091(loss) Note: For the purpose of presenting its operations in geographic areas above,the Company and its subsidiaries attribute revenues from external customers toindividual countries in each area based on where products are sold and servicesare provided. Notes: 1. The consolidated financial statements presented herein were prepared in accordance with U.S. generallyaccepted accounting principles (''U.S. GAAP''). 2. Comprehensive income for the three months ended June 30, 2005 and 2006 which consisted of the following: Millions of Yen Thousands of U.S. Dollars Three months Three months Three months ended ended ended June 30, 2005 June 30, 2006 June 30, 2006 Net income Y 5,439 Y 2,120 $ 18,396 Other comprehensive income: Foreign currency translation (66) 86 746 adjustments Net unrealized gains (losses) 212 (77) (668) on available-for-sale securities 146 9 78 Comprehensive income Y 5,585 Y 2,129 18,474 This information is provided by RNS The company news service from the London Stock Exchange