Konami Grp Corp Regulatory News (KNM)

Consolidated Financial Results

for the Six Months Ended September 30, 2009

(Prepared in Accordance with U.S. GAAP)

November 5, 2009

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 and London Stock Exchange

Representative:

Kagemasa Kozuki, Representative Director and Chief Executive Officer

Contact:

Noriaki Yamaguchi, Representative Director and Chief Financial Officer

(Phone: +81-3-5771-0222)

Date of dividend payment:

November 27, 2009

Adoption of U.S. GAAP:

Yes

1. Consolidated Financial Results for the Six Months Ended September 30, 2009

(Amounts are rounded to the nearest million)

(Millions of Yen, except per share data)

Net revenues

Operating

income 

Income before income taxes

Net income attributable to Konami Corporation 

Six months ended September 30, 2009

% change from previous period

113,914

(22.5)%

4,611

(79.8)%

4,029

(82.0)%

2,232

(81.3)%

Six months ended September 30, 2008

% change from previous period

146,904

9.8%

22,844

75.2%

22,408

71.4%

11,964

90.3%

Basic net income attributable to Konami Corporation per share (yen)

Diluted net income attributable to Konami Corporation per share (yen)

Six months ended September 30, 2009

16.73

16.73

Six months ended September 30, 2008

87.07

87.01

Note: 

Upon adoption of FASB Accounting Standards Codification 810, (former Statement of Financial Accounting Standards No.160), "Net income attributable to Konami Corporation" represents "Net Income" up to the year ended March 31, 2009.

(Millions of Yen, except per share amounts)

Total assets

Konami Corporation stockholders' equity

Konami Corporation stockholders' 

equity ratio

Konami Corporation stockholders'

equity per share

September 30, 2009

280,031

176,367

63.0%

1,321.48

March 31, 2009

301,670

178,632

59.2%

1,338.46

2. Cash Dividends

Record Date

Cash dividends per share (yen)

First quarter end

Second quarter end

Third quarter end

Year end

Annual

Year ended March 31, 2009

-

27.00

-

27.00

54.00

Year ending March 31, 2010

-

27.00

-Forecast- 

-

27.00

54.00

3. Consolidated Earnings Forecast for the Year Ending March 31, 2010

(Millions of Yen, except per share data)

Net revenues

Operating

income 

Income before income taxes

Net income attributable to Konami Corporation

Net income attributable to Konami Corporation per share

Year ending March 31, 2010

% change from previous year

310,000

0.1%

30,000

9.6%

28,500

15.3%

16,000

47.1%

119.88

Note: 

Change in earnings forecasts for the fiscal year ending March 31, 2010 during the three months ended September 30, 2009: None

4. Other

 1.

Changes accompanying amendment of accounting standard: Yes

 2.

Other: None

Please refer to page 10 for details.

 1.

Number of shares issued: (Treasury stock included)

 Six months ended September 30, 2009

143,500,000

 shares

 Year ended March 31, 2009

143,500,000

 shares

 2.

Number of Treasury Stock:

 Six months ended September 30, 2009

10,038,735

 shares

 Year ended March 31, 2009

10,038,498

 shares

 3.

Average number of shares outstanding:

 Six months ended September 30, 2009

133,461,290

 shares

 Six months ended September 30, 2008

137,406,295

 shares

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 Digital Entertainment business and Gaming & System 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 existing contingencies.

Please refer to page 8 for information regarding the assumptions and other related items used in the preparation of these forecasts.

Business Performance

1. Consolidated Results of Operations

(1) Business Overview

The business environment surrounding KONAMI CORPORATION and its subsidiaries ("Konami") was harsh despite showing signs of some recovery from the economic slowdown that began last year. This was mainly due to continued uncertainty caused by factors such as the impact of the appreciation of the yen and a decline in consumer spending.

Regarding the entertainment industry, the amusement arcade market remained in a severe state largely because of the credit crunch. In the home video game market, which also remained in a severe condition, gamescom 2009, one of the largest interactive game trade fairs in Europe, was held in August 2009, and the Tokyo Game Show 2009 was held in September 2009, following the Electronic Entertainment Expo 2009 held in June 2009. The various new products and titles exhibited at the trade fairs again attracted great attention not only in Japan but also in the overseas markets, primarily in North America and Europe. Efforts to stimulate new demand are being carried out in the industry, including announcements made by various hardware manufacturers of price reductions in standalone video game consoles.

In the health and fitness industry, heightened interest and demand related to the maintenance and promotion of good health are expected to continue due to concerns over the arrival of an aging society as well as of lifestyle diseases.

Against such a backdrop, Konami's Digital Entertainment segment rolled out titles in home video game software series, such as PUROYAKYU SPIRITS, Winning Eleven (known in the U.S and Europe as PRO EVOLUTION SOCCER), JIKKYOU PAWAFURU PUROYAKYU and DanceDanceRevolution, on multiple platforms. The new romantic communication game LOVEPLUS, an original title, was also released to favorable market reviews. Although sales of card games, centering on Yu-Gi-Oh! TRADING CARD GAME, were satisfactory, sales in video game software and amusement arcade video games have fallen compared to the same period last year when major titles had been released.

In the Health & Fitness segment, we strove to upgrade services supporting the maintenance and promotion of good health both within and outside our facilities by increasing the number of new fitness clubs under our direct management or outsourced to us, introducing new services that meet the diversifying needs of customers, reinforcing the development and sale of health products and promoting the computerization of health management.

As for the Gaming & System segment, we enjoyed healthy sales of the K2V, Advantage 5 and other slot machine series in the North American and Australian markets. Furthermore, sales through the Konami Casino Management System and participation agreements (equipment sales in which profits are shared with operators) also expanded steadily.

In terms of the consolidated results for the six months ended September 30, 2009, net revenues amounted to Y113,914 million (a year-on-year decrease of 22.5%), operating income was Y4,611 million (a year-on-year decrease of 79.8%), income before income taxes was Y4,029 million (a year-on-year decrease of 82.0%), and net income attributable to Konami Corporation was Y2,232 million (a year-on-year decrease of 81.3%).

(2) Performance by Business Segment

Summary of net revenues by business segment:

Millions of Yen

Six months ended September 30, 2008

Six months ended September 30, 2009

 % change 

Digital Entertainment 

Y93,030

Y51,419

(44.7)

Health & Fitness 

45,456

43,375

(4.6)

Gaming & System

7,854

8,896

13.3

Other and Eliminations

564

10,224

1,712.8

Consolidated net revenues

Y146,904

Y113,914

(22.5)

Digital Entertainment

Computer & Video Games business: A diverse lineup of products was released in Japan in addition to sports titles - which are Konami's forte - such as PUROYAKYU SPIRITS 6, J.LEAGUE Winning Eleven 2009 CLUB CHAMPIONSHIP and JIKKYOU PAWAFURU PUROYAKYU PORTABLE 4. The lineup included the animated titles A penguin's troubles X and Okamikakushi, and the new communication game LOVEPLUS in which characters' daily lives are linked to time and season in the real world. Regarding the distribution of game software titles for mobile phones and terminals including the iPhone and iPod touch, Konami promoted development utilizing various popular titles.

Amusement business: In the amusement arcade video games, jubeat ripples, the latest game in this music series; HORSERIDERS 2, a horseracing simulation card game; and InfinityRings, a mass medal game in a new genre were released in addition to popular music games already in place utilizing the e-AMUSEMENT service that links amusement arcades nationwide through its network.

Card games business: The Yu-Gi-Oh! TRADING CARD GAME series continued to show steady sales.

Meanwhile, in North America and Europe, sales were strong for the DanceDanceRevolution series (known as DancingStage in Europe) and the PRO EVOLUTION SOCCER series, which were released last year. Due to the absence of major titles such as last year's METAL GEAR SOLID 4 GUNS OF THE PATRIOTS and the fact that most of the main titles driven by our Digital Entertainment segment for this current fiscal year were not scheduled to be released until the second half of the year, sales fell this quarter as compared to the same period the previous year.

In terms of financial performance, consolidated net revenues for the six months ended September 30, 2009 of this segment amounted to Y51,419 million (a year-on-year decrease of 44.7%).

Health & Fitness

Operation of fitness clubs: While there were signs of some recovery from the economic slowdown from factors such as continued financial unrest since last year, consumer spending continued to be suppressed due to uncertainty over employment and income. The business environment surrounding the fitness club industry remained harsh, as the trend towards lower prices continued and the increase in the number of facilities made the capturing of members difficult. Against such a backdrop, Konami strove to enhance its value-added services both within and outside its facilities as well as its health products and expand the range of services and the lineup of products that meet regional characteristics and customer needs.

Regarding directly managed facilities, 19 fitness clubs were closed as part of the streamlining efforts executed as Konami's structural reform. Meanwhile, a total of five facilities, including relocated and reconstructed facilities, were opened: Motoyamaminami (Hyogo Prefecture) and Sapporo Maruyama (Hokkaido) in April 2009, and Ichikawa (Chiba Prefecture), Kitahama (Osaka Prefecture) and Shinsaibashi (Osaka Prefecture) in May. In September, we launched a golf swing data analysis service at some facilities by introducing Science Fit by PRGR (Pro Gear), which is even utilized by professional golfers. We provided services for customers, whose health consciousness is on the rise, by developing facilities that meet regional characteristics, expanding and enriching services, and developing and introducing health promotion programs that leverage Konami's strengths in health management, exercise and nutritional guidance utilizing IT.

Operation of sports facilities outsourced to us: In the management of fitness facilities outsourced to Konami, the promotion of the good health of local residents was advanced by adding four facilities under our management, including the Mikamo Clean Center Residual Heat Utilization Facility (Tochigi Prefecture) and the Hiroshima Prefectural Sports Center (Hiroshima Prefecture). These facilities are operated by fully utilizing Konami's know-how and experience in the operation of public facilities, etc. The number of sports facilities managed by Konami, including those that are directly managed or managed on an outsourced basis, was 327 nationwide as of the end of September 2009.

Health products: In health products, we expanded our sales network, such as by launching catalog sales through an alliance with the Tokyo Branch of Japan Post Network Co. Ltd. in May 2009. In August, we launched EXERCISEWATER ZERO, a sugar-free beverage with zero calories, and in September, we commenced a download service for the Konami Sports Club Widget, a new function that enables convenient health management and can be interfaced with the Konami Sports Club mobile phone site. By promoting the roll-out of new products and the computerization of health management, we enriched and expanded our products and services for the maintenance and promotion of health within and outside our facilities.

In terms of financial performance, consolidated net revenues for the six months ended September 30, 2009 of this segment amounted to Y43,375 million (a year-on-year decrease of 4.6%).

Gaming & System 

Sales of the K2V video slot machine series, which has become standard items, and the Advantage 5 five-reel mechanical slot machine series continued to win favorable recognition in the North American market. Sales of the Konami Casino Management System, which provides a stable source of income from maintenance and servicing, as well as sales through participation agreements (equipment sales in which profits are shared with operators) are also increasing, and market share is being steadily captured. Full-scale marketing has also commenced in Central and South America, with progress in the building of a distributor network for the market.

Growth in demand came to a halt in the Australian market due to factors such as the sluggish economy, restrictions placed in key states on the number of machines installed, smoking restrictions in clubs and pubs and tax code revisions. Konami's revenues, however, improved through the introduction of the Konami Casino Management System in addition to favorable K2V video slot machine series sale.

Konami exhibited products at various trade fairs around the world, including the Australasian Gaming Expo (in Sydney, Australia in August 2009), the largest gaming equipment exposition in the Oceania region; and the South American Gaming Suppliers Expo/SAGSE Buenos Aires (in Buenos Aires, Argentina in September 2009). A wide ranging product lineup that met the needs of each market was shown to favorable reviews. Products exhibited included the Advantage 5 series, which is gathering attention in North America; the K2V series, which is installed with a new-concept free game; a link progressive machine; and the Podium, a new generation cabinet (outer structure).

In terms of financial performance, consolidated net revenues for the six months ended September 30, 2009 of this segment amounted to Y8,896 million (a year-on-year increase of 13.3%).

2. Cash Flows

Cash flow summary for the six months ended September 30, 2009:

Millions of Yen

Six months ended September 30, 2008

Six months ended September 30, 2009

Change

Net cash provided (used) by operating activities

Y16,044

Y(6,206)

Y(22,250)

Net cash used in investing activities

(1,593)

(3,265)

(1,672)

Net cash used in financing activities

(5,082)

(5,336)

(254)

Effect of exchange rate changes on cash and cash equivalents

(354)

(98)

256

Net increase (decrease) in cash and cash equivalents 

9,015

(14,905)

(23,920)

Cash and cash equivalents, end of the period

Y61,145

Y38,663

Y (22,482)

Cash and cash equivalents (hereafter, referred to as "Net cash"), for the six months ended September 30, 2009, amounted to Y38,663 million, a decrease of Y14,905 million compared to the year ended March 31, 2009, and a year-on-year decrease of 36.8%.

Cash flow summary for each activity for the six months ended September 30, 2009 is as follows:

Cash flows from operating activities:

Net cash used in operating activities amounted to Y6,206 million for the six months ended September 30, 2009 (for the six months ended September 30, 2008, net cash provided by these activities amounted to Y16,044 million). This primarily resulted from decreases in net income and the collection amount of sales proceeds compared to those for the six months ended September 30, 2008 when our Digital Entertainment segment released hit titles for video game software and amusement arcades.

Cash flows from investing activities:

Net cash used in investing activities amounted to Y3,265 million for the six months ended September 30, 2009, a year-on-year increase of 105.0%. This increase mainly resulted from the lack of proceed of sales of property and equipment which existed for the six months ended September 30, 2008, despite a decrease in capital expenditures for investments.

Cash flows from financing activities:

Net cash used in financing activities amounted to Y5,336 million for the six months ended September 30, 2009, a year-on-year increase of 5.0%. These financing activities primarily resulted from payments of dividends.

3. Outlook for Fiscal Year Ending March 31, 2010

Digital Entertainment

In digital entertainment, we will continue to focus on the large-scale European and North American video game software markets in addition to the matured Japanese market. In particular, we will roll out the Winning Eleven (known in the U.S and Europe as PRO EVOLUTION SOCCER) soccer game series, which is highly recognized around the world, on multiple platforms. Through a license agreement with the Union of European Football Associations, the latest title in the Winning Eleven (known in the U.S. and Europe as PRO EVOLUTION SOCCER) series comes with an UEFA Champions League mode. It was released in Europe, where soccer is highly popular, in October. It will be sequentially released in the future around the world in the U.S., Asia and Japan.

We will also focus on the production of animation games and original games in addition to music game, a genre that Konami is particularly strong in, such as the DanceDanceRevolution series, which maintains a solid popularity in North America. Furthermore, we will also devote our efforts on the online marketing of titles for the increasing number of game consoles with network connectivity, and mobile phones and terminals.

In arcade video games, we will further upgrade and enlarge the lineup of products utilizing the e-AMUSEMENT service. We will keep an eye on the market environment and plan to launch new titles for standard series, such as the MAH-JONG FIGHT CLUB and BASEBALL HEROES as well as new games, as appropriate. In card games, we will continue to rollout Yu-Gi-Oh! TRADING CARD GAME series titles worldwide.

As for popular content, we will pursue high synergy through multifaceted development that is not restricted to home video game software, arcade games and card games.

Health & Fitness

In health and fitness services, we will aim to enhance the Konami Sports Club's added value by securing a precise grasp of diversifying customer needs and proposing new lifestyles. Furthermore, with more than 300 fitness clubs under our management, we are the largest operator of sports facilities in Japan. We will leverage this strength to the utmost, create synergy - such as the enrichment and expansion of the programs offered at facilities, the computerization of health management and the expansion of the product lineup - and promote growth of the Konami Health & Fitness segment.

Although the market environment is expected to continue to be harsh, the level of health consciousness is rising with the arrival of an aging society and the government taking countermeasures for lifestyle diseases, etc. We believe that business opportunities in fitness club management and the development and sale of health equipment will continue to expand.

Konami will continue to rollout facilities that meet regional characteristics and customer needs as well as expand its product and services lineup. We will also aim to upgrade and enlarge services which support the maintenance and promotion of good health both within and outside of our facilities according to changes in the business environment.

Gaming & System

The Advantage 5 mechanical slot machine series is proving popular and we will carry on with aggressive marketing. As for video slot machines, which are mainstream items in Australia and Central and South America, we will continue to rollout products, with a focus on the K2V series that continues to be a standard item, reinforce sales, and develop and release into the market new products including the Podium, a new-generation cabinet (outer structure).

The Konami Casino Management System continues to be adopted in the North American and Australian markets, particularly by major casino operators. In the future, we plan to aggressively market this system to other markets, as well as reinforce its strength as a product while developing new features and pursuing strategic alliances with other companies. Furthermore, we plan to stabilize operations by increasing our amount of steady, periodical income through the reinforcement of participation agreement (equipment sales in which profits are shared with operators) sales.

We intend to further strengthen collaboration between our three bases - the U.S., Australia and Japan - and promote the efficiency of operations and the reinforcement of production and sales. Furthermore, we plan to develop new products that respond to changes in society and meet demands, and endeavor to enhance the added value of Konami's existing products. We will continue to use Konami's strength in the domain of entertainment as the foundation for proposing new products that will bring even greater enjoyment to customers.

Projected consolidated results for the fiscal year ending March 31, 2010 are as follows: net revenue of 310,000 million yen; operating income of 30,000 million yen; income before income taxes of 28,500 million yen; and net income attributable to Konami Corporation of 16,000 million yen. Thus, there is no change from the figures released in the "Consolidated financial results for the year ended March 31, 2009" dated May 14, 2009.

4. Other

Changes in significant consolidated subsidiaries during the period (status changes of subsidiaries due to changes in the scope of consolidation) : None

Adoption of simplified methods in accounting principles for quarterly consolidated financial statements: None

Changes in accounting principles, procedures and reporting policies for quarterly consolidated financial statements (items to be disclosed in "Significant change in preparation basis for quarterly consolidated financial statements")

1.

Changes accompanying amendment of accounting standard: Yes

a)  FASB Accounting Standards Codification ("ASC")

In the three months ended September 30, 2009, Konami adopted ASC No.105, "Generally Accepted Accounting Principles" (former Statement of Financial Accounting Standards ("SFAS") No.168 "The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No.162"). ASC No. 105 establishes that the FASB Accounting Standard Codification ™ is the single official source of authoritative U.S. Generally Accepted Accounting Principles, other than guidance issued by the Securities and Exchange Commission, doing away with the previous various hierarchy. The adoption of ASC No. 105 did not have a material effect on Konami's consolidated financial position or results of operations.

b) Business Combinations

Effective April 1, 2009, Konami has adopted ASC No.805, "Business Combinations" (former SFAS No.141 (revised 2007), "Business Combinations" ("SFAS 141R")). ASC No.805 establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. As of the effective date, the adoption of ASC No.805 did not have a significant impact on its consolidated financial statements.

c) Noncontrolling Interests in Consolidated Financial Statement

Effective April 1, 2009, Konami has adopted ASC No. 810, "Consolidation" (former SFAS No. 160 "Noncontrolling Interests in Consolidated Financial Statement, an amendment of ARB No. 51"). ASC No. 810 establishes accounting standards for noncontrolling interests and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. ASC No. 810 requires (i) that consolidated net income include the amounts attributable to both the parent and the noncontrolling interest, (ii) that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and (iii) expanded disclosures that clearly identify and distinguish between the interests of the parent owner and the interests of the noncontrolling owners of a subsidiary. Upon the adoption of ASC No. 810 noncontrolling interests, which were previously referred to as minority interests and classified between total liabilities and stockholders' equity on the consolidated balance sheets, are now included as a separate component in equity. In addition, the presentation of consolidated statements of income and cash flows has been changed. The consolidated financial statements of the prior year have also been reclassified to conform to the presentation used for this current period.

 2.

Other: None

5. Consolidated Financial Statements

(1) Consolidated Balance Sheets (Unaudited)

Millions of Yen

Thousands of U.S. Dollars

September 30, 2008

September 30, 2009

March 31, 2009

September 30, 2009

%

%

%

ASSETS

CURRENT ASSETS:

Cash and cash equivalents 

Y61,145

Y38,663

Y53,568

$428,589

Trade notes and accounts receivable, net 

23,336

19,903

30,624

220,629

of allowance for doubtful accounts of 

Y266 million, Y598 million 

($6,629 thousand) and Y470 million at 

September 30, 2008, September 30, 2009, and March 31, 2009,respectively

Inventories 

32,909

28,618

23,512

317,238

Deferred income taxes, net

19,442

19,049

19,203

211,163

Prepaid expenses and other current

assets

10,439

11,037

9,768

122,348

Total current assets

147,271

45.4

117,270

41.9

136,675

45.3

1,299,967

PROPERTY AND EQUIPMENT, net

65,821

20.3

60,011

21.4

60,552

20.1

665,236

INVESTMENTS AND OTHER ASSETS:

Investments in marketable securities 

618

312

560

3,459

Investments in affiliates

6,433

2,116

2,119

23,456

Identifiable intangible assets 

37,982

35,782

35,883

396,652

Goodwill

21,951

21,885

21,925

242,601

Lease deposits

28,218

27,931

27,959

309,622

Deferred income taxes, net

2,915

3,306

3,641

36,648

Other assets

13,374

11,418

12,356

126,571

Total investments and other assets

111,491

34.3

102,750

36.7

104,443

34.6

1,139,009

TOTAL ASSETS

Y324,583

100.0

Y280,031

100.0

Y301,670

100.0

$3,104,212

Millions of Yen

Thousands of U.S. Dollars

September 30, 2008

September 30, 2009

March 31, 2009

September 30, 2009

%

%

%

LIABILITIES

Current liabilities:

Current portion of long-term debt and 

Y8,166

Y3,117

Y3,627

$34,553

capital lease obligations

Trade notes and accounts payable

15,691

12,197

17,430

135,207

Accrued income taxes

9,498

1,399

6,683

15,508

Accrued expenses 

16,588

14,442

17,738

160,093

Deferred revenue 

12,225

6,109

7,586

67,720

Other current liabilities

8,761

6,469

9,322

71,710

Total current liabilities

70,929

21.8

43,733

15.6

62,386

20.7

484,791

Long-term liabilities:

Long-term debt and capital lease 

obligations, less current portion 

35,330

38,315

37,739

424,731

Accrued pension and severance costs 

2,717

2,714

2,941

30,085

Deferred income taxes, net 

11,221

5,805

6,564

64,350

Other long-term liabilities

8,468

8,253

8,501

91,487

Total long-term liabilities

57,736

17.8

55,087

19.7

55,745

18.5

610,653

TOTAL LIABILITIES

128,665

39.6

98,820

35.3

118,131

39.2

1,095,444

COMMITMENTS AND 

CONTINGENCIES

EQUITY

Konami Corporation stockholders' equity:

Common stock, no par value-

Authorized 450,000,000 shares;

47,399

14.6

47,399

16.9

47,399

15.7

525,430

issued 143,500,000 shares at September 30, 2008, September 30, 2009 and March 31, 2009

Additional paid-in capital

77,091

23.8

77,089

27.5

77,090

25.6

854,550

Legal reserve

284

0.1

284

0.1

284

0.1

3,148

Retained earnings

81,749

25.2

75,576

27.0

76,947

25.5

837,779

Accumulated other comprehensive

income (loss)

2,323

0.7

(794)

(0.3)

98

0.0

(8,802)

Treasury stock, at cost-

6,037,956 shares, 10,038,735 shares and 10,038,498 shares at September 30, 2008, September 30, 2009 and March 31, 2009, respectively

(17,711)

(5.5)

(23,187)

(8.2)

(23,186)

 (7.7)

(257,034)

Total Konami Corporation

stockholders' equity

191,135

58.9

176,367

63.0

178,632

59.2

1,955,071

Noncontrolling interest

4,783

1.5

4,844

1.7

4,907

1.6

53,697

TOTAL EQUITY

195,918

60.4

181,211

64.7

183,539

60.8

2,008,768

TOTAL LIABILITIES AND EQUITY

Y324,583

100.0

Y280,031

100.0

Y301,670

100.0

$3,104,212

Millions of Yen

Thousands of U.S. Dollars

Six months

ended

September 30, 2008

Six months

ended

September 30, 2009

Year ended

March 31, 2009

Six months

ended

September, 2009

%

%

%

NET REVENUES:

Product sales revenue 

Y105,431

Y75,283

Y227,821

$834,531

Service revenue 

41,473

38,631

81,950

428,234

Total net revenues 

146,904

100.0

113,914

100.0

309,771

100.0

1,262,765

COSTS AND EXPENSES:

Costs of products sold

55,865

43,780

133,670

485,312

Costs of services rendered 

39,865

37,697

78,966

417,881

Selling, general and administrative

28,330

27,826

58,653

308,458

Restructuring and impairment charges

-

-

11,121

-

Total costs and expenses

124,060

84.4

109,303

96.0

282,410

91.2

1,211,651

Operating income

22,844

15.6

4,611

4.0

27,361

8.8

51,114

OTHER INCOME (EXPENSES):

Interest income

381

71

459

787

Interest expense

(863)

(791)

(1,468)

(8,769)

Foreign currency exchange gain (loss), net

54

95

(1,641)

1,053

Other, net 

(8)

43

8

477

Other income (expenses), net

(436)

(0.3)

(582)

(0.5)

(2,642)

(0.8)

(6,452)

INCOME BEFORE INCOME TAXES

22,408

15.3

4,029

3.5

24,719

8.0

44,662

INCOME TAXES

9,990

6.8

1,653

1.4

10,715

3.5

18,324

EQUITY IN NET INCOME (LOSS) OF AFFILIATED COMPANIES

60

0.0

48

0.0

(2,490)

(0.8)

532

NET INCOME

12,478

8.5

2,424

2.1

11,514

3.7

26,870

NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST

514

0.4

192

0.1

640

0.2

2,128

NET INCOME ATTRIBUTABLE TO KONAMI CORPORATION

Y11,964

8.1

Y2,232

2.0

 Y10,874 

3.5

$24,742

PER SHARE DATA:

Yen

U.S. Dollar

Six months ended

Six months ended

Year ended

Six months ended

September 30, 2008

September 30, 2009

March 31, 2009

September 30, 2009

Basic net income attributable to Konami Corporation per share

Y87.07

Y16.73

Y79.30

$0.19

Diluted net income attributable to Konami Corporation per share

87.01

16.73

79.30

0.19

Weighted-average common

shares outstanding

137,406,295

133,461,290

137,124,130

Diluted weighted-average

common shares outstanding

137,508,812

133,461,290

137,124,130

(3) Consolidated Statements of Cash Flows (Unaudited)

Millions of Yen

Thousands of 

U.S. Dollars

Six months ended September 30, 2008

Six months ended September 30, 2009

Year ended

March 31, 2009

Six months ended September 30, 2009

Cash flows from operating activities:

Net income

Y12,478

Y2,424

Y11,514

$26,871

Adjustments to reconcile net income to net cash  provided by operating activities -

Depreciation and amortization 

6,204

6,260

13,731

69,394

Provision for doubtful receivables 

13

144

209

1,596

Restructuring and impairment charges

-

-

11,121

-

Equity in net loss (income) of affiliated company

(60)

(48)

2,490

(532)

Deferred income taxes

(1,856)

(187)

(4,811)

(2,073)

Change in assets and liabilities, net of business acquired:

Decrease (increase) in trade notes and accounts receivable

10,164

7,074

175

78,417

Decrease (increase) in inventories

(9,007)

(5,524)

(1,424)

(61,235)

Decrease (increase) in other receivables

1,233

(219)

1,111

(2,428)

Decrease (increase) in prepaid expenses

(1,984)

(1,191)

(918)

(13,202)

Increase (decrease) in trade notes and accounts payable

(4,426)

(2,798)

(556)

(31,016)

Increase (decrease) in accrued income taxes, net of tax refunds

478

(5,151)

(2,157)

(57,100)

Increase (decrease) in accrued expenses

(3,725)

(2,802)

(1,266)

(31,061)

Increase (decrease) in deferred revenue

4,377

(1,320)

(234)

(14,633)

Increase (decrease) in advance received

753

(267)

(796)

(2,960)

Increase (decrease) in deposits

(530)

(576)

(93)

(6,385)

Other, net

1,932

(2,025)

2,035

(22,448)

Net cash provided (used) by operating activities

16,044

(6,206)

30,131

(68,795)

Millions of Yen

Thousands of 

U.S. Dollars

Six months ended September 30, 2008

Six months ended September 30, 2009

Year ended

March 31, 2009

Six months ended September 30, 2009

Cash flows from investing activities:

Capital expenditures

(4,658)

(2,945)

(8,531)

(32,646)

Proceeds from sales of property and equipment

1,331

0

1,355

0

Decrease (increase) in lease deposits, net

1,784

(508)

1,616

(5,631)

Other, net

(50)

188

(155)

2,084

Net cash used in investing activities

(1,593)

(3,265)

(5,715)

(36,193)

Cash flows from financing activities:

Repayments of long-term debt

(296)

(296)

(592)

(3,281)

Redemption of bonds

-

-

(5,000)

-

Principal payments under capital lease obligations

(1,437)

(1,360)

(2,886)

(15,076)

Dividends paid

(3,713)

(3,843)

(7,414)

(42,601)

Purchases of treasury stock by parent company

(100)

(1)

(5,576)

(11)

Other, net

464

164

464

1,818

Net cash used in financing activities 

(5,082)

(5,336)

(21,004)

(59,151)

Effect of exchange rate changes on cash and cash equivalents

(354)

(98)

(1,974)

(1,084)

Net increase (decrease) in cash and cash equivalents

9,015

(14,905)

1,438

(165,223)

Cash and cash equivalents, beginning of the period

52,130

53,568

52,130

593,812

 Cash and cash equivalents, end of the period

Y61,145

Y38,663

Y53,568

$428,589

(4) Going concern assumption:

None

(5) Significant changes in stockholders' equity:

None

(6) Segment Information (Unaudited)

Six months ended September 30, 2008

Digital Entertainment

Health & Fitness

Gaming & System

Other, Corporate and Eliminations

Consolidated

(Millions of Yen)

Net revenue:

 Customers

Y

92,873

Y

45,317

Y

7,854

Y

860

Y

146,904

 Intersegment

157

139

-

(296)

-

Total

93,030

45,456

7,854

564

146,904

Operating expenses

66,725

43,892

6,814

6,629

124,060

Operating income (loss)

Y

26,305

Y

1,564

Y

1,040

Y

(6,065)

Y

22,844

Six months ended September 30, 2009

Digital Entertainment

Health & Fitness

Gaming & System

Other, Corporate and Eliminations

Consolidated

(Millions of Yen)

Net revenue:

 Customers

Y

51,222

Y

43,239

Y

8,896

Y

10,557

Y

113,914

 Intersegment

197

136

-

(333)

-

Total

51,419

43,375

8,896

10,224

113,914

Operating expenses

46,935

43,077

6,681

12,610

109,303

Operating income (loss)

Y

4,484

Y

298

Y

2,215

Y

(2,386)

Y

4,611

Year ended 

March 31, 2009

Digital Entertainment

Health & Fitness

Gaming & System

Other, Corporate and Eliminations

Consolidated

(Millions of Yen)

Net revenue:

 Customers

Y

187,308

Y

89,702

Y

18,336

Y

14,425

Y

309,771

 Intersegment

320

263

-

(583)

-

Total

187,628

89,965

18,336

13,842

309,771

Operating expenses

146,076

98,235

14,889

23,210

282,410

Operating income (loss)

Y

41,552

Y

(8,270)

Y

3,447

Y

(9,368)

Y

27,361

Six months ended September 30, 2009

Digital Entertainment

Health & Fitness

Gaming & System

Other, Corporate and Eliminations

Consolidated

(Thousands of U.S. Dollars)

Net revenue:

 Customers

$

567,808

$

479,315

$

98,614

$

117,028

$

1,262,765

 Intersegment

2,184

1,508

-

(3,692)

-

Total

569,992

480,823

98,614

113,336

1,262,765

Operating expenses

520,286

477,519

74,061

139,785

1,211,651

Operating income (loss)

$

49,706

$

3,304

$

24,553

$

(26,449)

$

51,114

Notes:

1.

Primary businesses of each segment are as follows:

Digital Entertainment Segment:

Production and sale of digital content and related products including Computer & Video Games, Amusement, Card Games, and Online.

Health & Fitness Segment:

Operation of health and fitness clubs, and production and sale of health and fitness related goods.

Gaming & System Segment: 

Production, manufacture, sale and service of gaming machines and the Casino Management System for overseas markets.

2.

"Other" consists of segments which do not meet the quantitative criteria for separate presentation under ASC No. 280 "Segment Reporting" (former 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 consists of eliminations of intercompany sales and of intercompany profits on inventories.

Six months ended

September 30, 2008

Japan 

North America

Europe

Asia

/Oceania

Total 

Eliminations 

Consolidated

(Millions of Yen)

Net revenue:

 Customers

Y

109,854

Y

20,620

Y

13,913

Y

2,517

Y

146,904

-

Y

146,904

 Intersegment

10,504

2,264

66

213

13,047

Y

(13,047)

-

Total

120,358

22,884

13,979

2,730

159,951

(13,047)

146,904

Operating expenses

100,065

21,291

12,715

3,041

137,112

(13,052)

124,060

Operating income (loss)

Y

20,293

Y

1,593

Y

1,264

Y

(311)

Y

22,839

Y

5

Y

22,844

Six months ended

September 30, 2009

Japan 

North America

Europe

Asia

/Oceania

Total 

Eliminations 

Consolidated

(Millions of Yen)

Net revenue:

 Customers

Y

92,063

Y

13,784

Y