Konami Grp Corp Regulatory News (KNM)

7 Nov 2006 13:40

Konami Corporation07 November 2006 Consolidated Financial Results for the Six Months Ended September 30, 2006 (Prepared in Accordance with U.S. GAAP) November 7, 2006 KONAMI CORPORATION Address: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, JapanStock code number: 9766URL: www.konami.netShares listed: Tokyo Stock Exchange, New York Stock Exchange, London Stock Exchange and Singapore ExchangeRepresentative: Kagemasa Kozuki, Representative Director and Chief Executive OfficerContact: Noriaki Yamaguchi, Representative Director and Chief Financial Officer (Phone: +81-3-5220-0163)Date of Board Meeting toapprove the financial November 7, 2006results:Adoption of U.S. GAAP: Yes Note: Financial information presented herein was not audited by independent public accountants. 1. Consolidated Financial Results for the Six Months Ended September 30, 2006(Amounts are rounded to the nearest million) (1) Consolidated Results of Operations (Millions of Yen, except per share data) Net revenues Change Operating income Change Income before Change income taxesSix months ended Y119,599 6.9% Y10,115 35.6% Y9,884 (31.1)%September 30, 2006Six months ended 111,870 (1.9) 7,462 (37.0) 14,335 23.7September 30, 2005Year ended 262,137 2,481 8,438 March 31, 2006 Net income Change Net income Diluted net income (Y million) per share (Yen) Per share (Yen)Six months ended Y5,114 (26.6)% Y37.28 Y37.27September 30, 2006Six months ended 6,964 328.3 53.45 53.44September 30, 2005Year ended 23,008 175.86 175.80March 31, 2006 Notes: 1. Equity in net income of affiliated companies Six months ended September 30, 2006: Y 81 million Six months ended September 30, 2005: - million Year ended March 31, 2006: 33 million 2. Weighted-average common shares outstanding Six months ended September 30, 2006: 137,164,825 shares Six months ended September 30, 2005: 130,300,952 shares Year ended March 31, 2006: 130,835,422 shares 3. Change in accounting policies: None4. Change (%) of net revenues, operating income, income before income taxes and net income represents the increase or decrease relative to the same period of the previous year. (2) Consolidated Financial Position (Millions of Yen, except per share amounts) Total stockholders' Equity-assets Total stockholders' Total assets equity ratio equity per share (Yen)September 30, 2006 Y280,535 Y165,947 59.2% Y1,209.39September 30, 2005 304,021 133,941 44.1 1,027.89March 31, 2006 302,637 163,815 54.1 1,194.41 Note: Number of shares outstanding September 30, 2006: 137,215,841 shares September 30, 2005: 130,306,075 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 at end of periodSix months ended September 30, 2006 Y3,821 Y(7,230) Y(22,330) Y 43,347Six months ended September 30, 2005 2,312 7,170 (23,899) 75,678Year ended March 31, 2006 23,879 (7,266) (38,330) 68,694 (4) Number of Consolidated Subsidiaries and Companies Accounted for by theEquity Method Number of consolidated subsidiaries: 24 Number of affiliated companies accounted for by the equity method: 1 (5) Changes in Reporting Entities Number of consolidated subsidiaries added: 1 Number of consolidated subsidiaries removed: 0 Number of affiliated companies accounted for by the equity method added: 0 Number of affiliated companies accounted for by the equity method removed: 0 2. Consolidated Financial Forecast for the Year Ending March 31, 2007 (Millions of Yen) Net revenues Operating income Income before Net income income taxesYear ending March 31, 2007 Y275,000 Y29,000 Y28,500 Y16,000 (Reference) Expected net income per share for the year ending March 31, 2007 is Y116.60 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 exercise entertainment business; (vi) regulatory developments and changes and our ability to respond and adapt to those changes; (vii) our expectations with regard to further acquisitions and the integration of any companies we may acquire; and (viii) the outcome of contingencies. Please refer to page 12 of the attached material for information regarding the assumptions and other related items used in the preparation of these forecasts. 1. Organizational Structure of the Konami Group The Konami Group is a conglomerate engaged in the amusement and health industry providing customers with ''HighQuality Life,'' and is comprised of KONAMI CORPORATION (the ''Company''), its 24 consolidated subsidiaries andone equity-method affiliate. Each of the Company and its subsidiaries and affiliated company is categorized intofour business segments based on its operations as stated below. This categorization is based on the same criteriaexplained below under ''5. Segment Information (Unaudited). Business Segments Major Companies Digital Entertainment Domestic Konami Digital Entertainment Co., Ltd. HUDSON SOFT CO., LTD. Konami Manufacturing & 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 Manufacturing & 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 Manufacturing & Service, Inc. (Note.3) KPE, Inc. , Konami Real Estate, Inc. Konami School, Inc., Three 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 segmentin which they operate.2. On May 31, 2006, the Company acquired all outstanding shares of COMBI WELLNESS Corporation andmade it a wholly owned subsidiary.3. Konami Logistics & Service, Inc. changed its registered name to Konami Manufacturing & Service,Inc. on July 1, 2006.4. The Gaming segment was renamed the Gaming & System segment effective October 1, 2005.5. Resort Solution Co., Ltd. is an equity method affiliate. 2. Management Policy 1. Management PolicyWe place priority on our following corporate goal: "We, Konami Group of Companies, aim to be a business group fromwhich people all around the world have high expectations, through creating and providing people with 'ValuableTime'. Furthermore, our basic management policy is to place priority on our shareholders, to maintain soundrelationships with all stakeholders, including our shareholders, and to make a wide range of social contributionsas a good corporate citizen. We aim to make optimum use of the group's management resources and maintain thefollowing specific management policies: "Adaptation to Global Standards", "Maintaining Fair Competition" and"Pursuit of High Profits". To place priority on the interests of our shareholders, our basic policy is to provide stable dividends to returnprofits to our shareholders. It is our policy to use retained earnings for investments focused on business fieldswith good future profitability and other prospects to increase our corporate value and as a source for payingdividends in the future. We are working on maintaining sound relationships with our stakeholders, including our investors, end-users,suppliers, employees and the community in general, as well as contributing to society by supporting a wide rangeof activities that promote education, sports and culture. Pursuant to this basic management policy, throughcreating and providing "Valuable Time", we aim to deliver "dreams" and "surprises" for people all over the world. 2. Profit Appropriation PolicyThe Company's basic policy in profit distribution is to provide stable and high dividend payouts to ourstockholders and to increase our corporate value. Our policy is to use retained earnings for investments focusedon business fields with good future profitability and other prospects to strengthen our growth potential andcompetitiveness. 3. Target Management Performance Measures The Group always aims to improve profitability by enhancing management efficiency and striving to optimizeperformance based on three important management indicators: the ratio of operating income to net sales, the ratioof net income to net sales and return on equity. 4. Medium to Long-term Strategies and ObjectivesRestructuring of business operations in order to respond to changing market conditions The dissemination of broadband and various digital platform products has increased the complexity anddiversification of user needs in the field of IT. The decline in population, falling birthrate and aging ofsociety are serious problems in the domestic market, and conventional business models are on the verge of beingtransformed in various industries. Within this environment, our group adopted a holding company structure on March 31, 2006. The purposes of aholding company structure are to enhance the speed of management by separating "implementation functions" forbusiness projects from the "decision-making and oversight functions" of the entire group. With regard to theholding company, we aim at continuous growth in an environment expected to intensively change through balancedmanagement in the three business areas of "Digital Entertainment," "Health & Fitness," and "Gaming & System." Increased profitability and injection of managerial resources into growing business areas In the Digital Entertainment business, the high performance of video game consoles is pushing up the cost of videogame software development. To recover game software development costs promptly and improve profitability, thecompany plans to develop individual products and titles multilaterally beyond geographic regions and in thevarious content fields in video game software, amusement, and online fields. We will also be expanding online businesses, a market expected to grow as the Internet and other onlineenvironments mature. Konami Digital Entertainment, Inc., a U.S. subsidiary of our group, purchased assets inconnection with the mobile-related business from Blue Label Interactive, Inc., a developer of cutting-edge mobiletechnologies based in the U.S., in June 2006. Through this purchase we plan to expand our business in the videogames industry, as well as the entertainment and information service industries. Also in October 2006, wepurchased entire shares of Megacyber Corporation, a content provider for domestic cellular phones. With theparticipation of Megacyber Corporation in our group, we believe we will be able to enhance our ability to producecontent for the mobile-related industry and increase our product lineup to serve the expanding market for DigitalEntertainment. Expansion of products for enhancement of domestic health consciousness Due to demand expansion in the nursing care prevention business resulting from the advent of an aging society andthe prolonging of leisure time resulting from the retirement of the Dankai generation (the baby-boom generation),our group expects growth in the health & fitness business. In May 2006 we purchased entire shares of COMBIWELLNESS Corporation, a company with an established brand for health and nursing care prevention devices. With theparticipation of COMBI WELLNESS Corporation in our group, we believe we will be able to arrange a vast productlineup to meet customer expectations in the Health & Fitness business. Goal of growth as a mainstay of businesses Casinos have been legalized in more and more countries and regions of the world, and the number of casinos hasincreased year by year. With the high growth potential of the casino market, we expect our Gaming & Systembusiness to become a business mainstay in the near future, following the Digital Entertainment and Health &Fitness businesses, and will help us build a firmer business portfolio. 3. Business Performance and Cash Flows 1. Business Performance Overview In the entertainment industry that is relevant to our group, Nintendo Co., Ltd. and Sony Computer EntertainmentInc. are expected to release "Wii" (Nintendo) and "PLAYSTATION(R)3" (Sony) for video game consoles. In additionto "Xbox360," a product already released by Microsoft Corporation, the next generation computer entertainmentsystem for home use from all of the manufacturers will be on sale within this fiscal term. With these newconsoles, and following the big success of "Nintendo DS" as a handheld system, we believe the video gamesoftware industry is poised to reach a turning point as new game users are assimilated and demand continues toexpand and diversify. The Healthcare Reform Act concluded in June 2006 demonstrates the trend towards prevention in the healthindustry. With the growing recognition of metabolic syndrome, consumers are more aware of the need to preventlifestyle-related diseases. The public is taking full-fledged measures for health maintenance, particularly byestablishing exercise habits and improving their diets. In these circumstances, the Digital Entertainment segment has maintained solid sales, despite a slight decreasein the six months ended September 30, 2006 from the six months ended September 30, 2005. "WORLD SOCCER WinningEleven 10" for PlayStation(R)2 computer entertainment system, a title released domestically in April 2006,achieved million-seller status. "GRANDCROSS," a large scale token-operated game for amusement arcades, a machinewith overwhelming presence and highly entertaining effects, has enjoyed a growing popularity with steady sales.In addition, our products utilizing "e-AMUSEMENT," a service connecting amusement arcades nationwide via anetwork, consistently record stable sales. In the Health & Fitness segment, progress in the redevelopment of our facilities has become fruitful. We believewe have managed to improve the profit structure of our fitness clubs and that our efforts to attract moremembers by opening large stores in front of stations and other favorable locations continue to succeed. Inaddition, we have promoted reviews of pay programs and the adoption of an original IT health management systemin our facilities. Through these and other efforts, we believe we have continued to provide services to improvecustomer satisfaction. In the Gaming and System segment, we opened a new office building, introduced new enclosures, and promoted salesof casino systems. The expansion of sales in North America has been strong as a result. Growth in sales of"Konami Casino Management System" has been particularly strong. In system sales, we believe the increase in thenumber of units installed helps to maintain our ongoing income from maintenance and servicing, expected to be astable source of income. As a result, in this interim consolidated accounting period, net revenue amounted to Y119,599 million (a 6.9%increase compared to the previous same period), consolidated operating income was Y10,115 million (a 35.6%increase compared to the previous same period), consolidated income before income taxes was Y9,884 million (a31.1% decrease compared to the previous same period), and consolidated net income was Y5,114 million (a 26.6%decrease compared to the previous same period). The primary reason of the decrease in consolidated income beforeincome taxes and consolidated net income for the six months ended September 30, 2006, compared from the previoussame period, resulted from sales of shares of Takara Co., Ltd., executed in the interim fiscal year 2006, whichwe realized gain on sale of Y6,917 million. Interim dividend for the six months ended September 30, 2006 is Y27 per share. Performance by business segmentSummary of net revenues by business segment: Millions of Yen Six months Six months Change ended ended September 30, September 30, 2005 2006 Digital Entertainment Y 66,671 Y63,540 (4.7)%Health & Fitness 40,609 44,445 9.4Gaming & System 4,727 7,718 63.3Other, Corporate and Eliminations (137) 3,896 -Consolidated net revenues Y 111,870 Y119,599 6.9% Note The Gaming segment was renamed the Gaming & System segment effective October 1, 2005. Digital Entertainment SegmentIn our Computer and Video Games business, "WORLD SOCCER Winning Eleven 10," a title released domestically in April2006, has achieved million-seller status. A full variety of lineups for standard baseball titles such as "JIKKYOPAWAFURU PROYAKYU 13," and "JIKKYO PAWAFURU MAJOR LEAGUE," anime titles such as "KIRARINTMREVOLUTION," and musictitles achieved steady sales. Overseas, the "Pro Evolution Soccer" series released in Europe in the previous fiscalyear has continued to sell well. Also, sales of "Dance Dance Revolution SuperNOVA" have been firm in North Americasince the title was released at the end of September 2006. In our Toy & Hobby business, we continued to enhance global sales of the Yu-Gi-Oh Trading Card Game series, whichwas already established as a mainstay. In September 2006, we released "BUSOU SHINKI," a newly conceived series ofcustomizable action figures designed by a popular designer and a Genkeishi (producer who creates models for toys).The "BUSOU SHINKI" series has received attention for its online tie-up: in addition to enjoying the figuresthemselves, BUSOU SHINKI owners can go online using access codes enclosed with the products. Battle services will bescheduled to officially start via playing online from the beginning of year 2007, with high expectations for thisproduct. In our Amusement business, we continued to enjoy strong sales of products incorporating the "e-AMUSEMENT" service, anetwork-linked arcade game connecting amusement arcade machines nationwide, major products such as the "MAH-JONGFIGHT CLUB" series and "BASEBALL HEROS," a title played with cards bearing the images of professional baseballplayers. In music games, our latest title "Dance Dance Revolution SuperNOVA" has now been released and continues togain popularity. In token-operated games, "GRANDCROSS," an extra-large-scale token-operated pusher-machine game,which 32 people can play at the same time, has also sold steadily. In our Online business, we started to distribute the "SHINKI-NET" service online from September 2006, in a tie-upwith sales of "BUSOU SHINKI." Also, in relation to "Tokimeki Memorial ONLINE," a service launched in March 2006, wehave also been promoting a service linked with the TV animation program "Tokimeki Memorial Only Love", which hasaired from October 2006. We plan to continue to promote the online game business to take advantage of anticipatedgrowth through linkages with other business. Additionally, the mobile content distribution business developedglobally through major carriers in and outside of Japan has been performing steadily. In our Multimedia business, we published or released several music CDs, DVDs and guides with thematic ties topopular videogames, and the bimonthly soccer culture magazine "WE-ELe," with many of these products receivingfavorable reviews. As a follow-up to the original TV animation "FAIRY MUSKETEERS AKAZUKIN" , which debuted in July2006, "Tokimeki Memorial Only Love" began broadcasting this October. We are now paying closer attention to productssuch as music and novels derived from animated productions. We plan to continue to create original content whilepromoting synergy effects in each area of our Digital entertainment segment. As a result, consolidated net revenues in the Digital Entertainment Segment were Y63,540 million (a 4.7% decreasecompared to the previous same period). Health & Fitness SegmentIn the operation of our fitness clubs, we opened directly-managed facilities in Yokohama (Kanagawa), Inagi (Tokyo)and Musashiurawa (Saitama). We transferred and rebuilt our facilities in Sanda (Hyogo), Sapporo (Hokkaido) andYawata (Kyoto). Through these efforts, our facilities were further expanded. As a result, we had a total of 209fitness clubs to supply services for the end of September 2006. The wide variety of fitness programs in our directlymanaged facilities allows users to fully enjoy "the pleasure of exercise." Original services such as "6 WEEKS," afitness program for the prevention of lifestyle-related diseases, have received favorable reviews. We propose themiddle-aged and elderly with imbalances in diet or out of the habit of exercising to improve their lifestyles bysupporting their everyday life with "exercise" and "proper diet." In the operation of sports facilities outsourced to us, we added 35 facilities in regions such as Ichinomiya-shi(Aichi) and Osaka-shi (Osaka). As a result, we had a total of 102 facilities to supply services as of the end ofSeptember 2006. In running these facilities, our aim is to improve the health of all members of the community bymaximizing the know-how and experience the Konami Group has garnered and to make full use in operating publicfacilities. Our product development activities have focused on the development of programs, services, machines, and supplements,as well as our businesses for health products, health improvement, and for senior citizens. In September, wereleased new products with multifunctional USB pedometer "e-walkeylife2", a TV monitoring health management toolcalled "Kenshin-Keikaku TV", and the computer software program "Kenshin-Keikaku 2." These products are very usefulfor heath-improvement routines and enable users to manage data on their exercise histories and physical strength indaily life on an ongoing basis, using television and personal computers at home. At the Int. Home Care & Rehabilitation Exhibition 2006, an event held at TOKYO BIG SIGHT this September, weexhibited a range of fitness products with a central focus on the latest machines with functions to prevent the needfor nursing care and software that unifies the management of exercise histories logged electronically in trainingmachines. We have developed products and services for our future health improvement to allow the elderly and thosewho require nursing care to train safely and effectively. Our IT-enabled health management system, "e-XAX," was conferred an award of excellence for the year 2006, " NetKADENGrand Prix" sponsored by the Ministry of Economy, Trade and Industry. "e-XAX" refers to a network system developedin-house for the continuous management of data on health improvement and exercise history in various daily-lifesituations at sports clubs and places outside and inside the home. This offers another support for health-promotionefforts. This system is available at our operating sports clubs. As a result, consolidated net revenues in the Health & Fitness Segment were Y44,445 million (a 9.4 % increasecompared to the previous same period). aming & System SegmentIn our Gaming & System segment, the new "K2V" platform launched in North America last year has penetrated the marketand sales of machines have remained solid. Following the first quarter term, sales of Konami Casino ManagementSystem remained steady. With the increase in the number of machines connecting the Konami Casino Management Systemin Canada, the sales for maintenance and servicing have increased every month as well. In conjunction with machineinstallments under profit-sharing agreements, we have helped to solidify our business by maintaining ongoing income. While the market situation in Australia remains unchanged, we have developed new businesses and worked to preserveour customer base in both the domestic market and the overseas markets. At the Australasian Gaming Expo held inSeptember, the largest-scale gaming exhibition in the Oceania region, we expanded our presence in both the domesticmarket and overseas markets with major products in two areas: the "Linked Progressive" jackpot system that connectsgaming machines and enhances the added value of content, and the "K2V" platform launched at the beginning of thisspring not long after its release in North America. As a result, consolidated net revenues in the Gaming & System Segment were Y7,718 million (a 63.3% increase comparedto the previous same period). 2. Cash FlowsCash flow summary for the six months ended September 30, 2006: Millions of Yen Six months Six months Change ended ended September 30, September 30, 2005 2006Net cash provided by operating activities Y 2,312 Y 3,821 Y 1,509Net cash provided by (used in) investing activities 7,170 (7,230) (14,400)Net cash used in financing activities (23,899) (22,330) 1,569Effect of exchange rate changes on cash and cash 512 392 (120)equivalentsNet decrease in cash and cash equivalents (13,905) (25,347) (11,442)Cash and cash equivalents, end of the period 75,678 43,347 (32,331) Cash and cash equivalents (hereafter, referred to as "Net cash") for the sixmonths ended September 30, 2006, amounted to Y 43,347 million, year-on-yeardecreased by Y25,347 million . Cash flow summary for each activity for the six months ended September 30, 2006is as follows: Cash flows from operating activities: Net cash provided by operating activities amounted to Y3,821 million (a 65.3% increase compared to the previous sameperiod) for the six months ended September 30, 2006. This increase, despite the decrease in net income and Net cashin connection with trade notes and accounts receivable, compared to the year-ago-period, resulted from the fact thatnet income for the previous interim period included a gain on sale of shares of an affiliated company, which do noteffect cash flow from operating activities, and that there were increases in Net cash in connection with trade notesand accounts payable, compared to the year-ago-period. Cash flows from investing activities: Net cash used in investing activities amounted to Y7,230 million for the six months ended September 30, 2006(compared to Y7,170 million provided in the previous interim period). This resulted primarily from the proceeds fromsales of shares of affiliated companies, which was included in the previous interim period, decrease in proceedsfrom sales of property and equipment compared to previous same period and capital expenditures. Cash flows from financing activities: Net cash used in financing activities amounted to Y 22,330 million for the six months ended September 30, 2006 (a6.6% decrease compared to the previous same period). This was primarily due to repayment of long-term debt,redemption of bonds and payments of dividends. The following table represents certain cash flow indexes for the six months ended September 30, 2006: Six months Six months Year ended March ended ended 31, 2006 September 30, September 30, 2005 2006Equity-assets ratio (%) 44.1 59.2 54.1Equity-assets ratio at fair value (%) 109.5 146.7 134.4Years of debt redemption (years) - - 2.6Interest coverage ratio (times) 4.4 6.6 21.0 Equity-assets ratio = Stockholders ' equity / Total assetsEquity-assets ratio at fair value = Market capitalization / Total assetsYears of debt redemption = Interest-bearing debts / Cash flows from operating activitiesInterest coverage ratio = Cash flows from operating activities / Interest expense Notes:1. Each index is calculated from figures prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP).2. Cash flows from operating activities are from the consolidated statements of cash flow.3. Interest-bearing debt covers all liabilities with interest in the consolidated balance sheets.4. Years of debt redemption are not disclosed in the interim financial results. 3. Activities for the FutureDigital Entertainment Segment In our Computer and Video Games business, in response to the release of new hardware "Wii" by Nintendo Co., Ltd. and"PLAYSTATION(R)3" by Sony Computer Entertainment Inc., we are scheduled to release "Elebits" for the Wii version fordomestic and overseas markets and "MAH-JONG FIGHT CLUB ONLINE" for the PLAYSTATION(R)3 version for the domesticmarket. We also plan to debut two new soccer titles: for the European market, "PRO EVOLUTION SOCCER 6," anenormously popular title in Europe, and for the domestic market, "J-League Winning Eleven 10 + Europe League'06-'07." Our large lineup now includes the baseball title "JIKKYO PAWAFURU PROYAKYU 13 Ketteiban," the latestversion of the Metal Gear series "METAL GEAR SOLID PORTABLE OPS," the stock trading simulation "Stock TradingTrainer Kabutore!," and the standard music title "Karaoke Revolution American Idol." We are now attempting to expandsales based on this lineup. In our Toy & Hobby business, we plan to release the latest version of the Yu-Gi-Oh Trading Card Game seriesworldwide. In addition, to take advantage of the succession of teaching events and tournaments in various regions,we will attempt to maintain our popularity in more regions around the world. Starting with "OTOIZUMU," an electronictoy which creates characters when connected with portable music players, we intend to sell various new electronictoys such as "Attame Kenkyujo (Labo)" and "Digiry-man." These items are expected to further expand our salesoverall. In our Amusement business, we plan to continue to expand our products utilizing "e-AMUSEMENT," a service connectingnationwide amusement arcades via a network. In videogames, we plan to respond to the recent expansion of theeducational game market by marketing "NOVA USAGI no GAME de RYUGAKU!?," the English-language quiz game to be editedin cooperation with Nova Corporation, a major language school; "CURUCURULABO," an innovative game designed toactivate the brain through brain training; and the latest version of "BASEBALL HEROS," a series highly acclaimed inthe market. In token-operated games, we plan to focus on expanding sales of our most popular medal games:"GRANDCROSS," an extra-large-scale token-operated pusher-machine game for amusement arcades, and a large-scalehorseracing mass token-operated game. In our Online business, the "SHINKI-NET" online service was distributed in linkage with sales of the "BUSOU SHINKI"figures in the Toy & Hobby business from September 2006. We have also been promoting "Tokimeki Memorial ONLINE," aservice launched in March 2006, in a tie-up with the TV animation program "Tokimeki Memorial Only Love", which hasaired from this October. We plan to promote the online game business to take advantage of the anticipated growththrough linkage with other businesses. In the mobile-related business, we plan to start up new sites such as digitalcomics and deco-mail, with plans to ascend to the highest position in every genre. In our Multimedia business, a TV animation program called "SaintOctober" is planned to be aired in January 2007, asa follow-up to the TV animation program "Tokimeki Memorial Only Love" aired from October 2006. We plan to create ourown original content, sequentially publish related books such as novels, etc., and release music CDs and DVDs. Wewill also develop products of book series on health, which will pursue high synergy within the group beyond theframework of Digital Entertainment segment. Health & Fitness Segment The Health & Fitness business will not only respond to the demands of the time but also create new in-depth productsand services. We will attempt to develop our business more forcefully than ever before. In the operation of fitness clubs, we will offer "safe, clean, and comfortable" services of high quality to helpcustomers stably maintain and improve their health. We plan to operate facilities where customers feel moresatisfied with the value they receive than ever before. In the product development business, we plan to continue to develop attractive products. With a view to a market tobe created by new laws on specified health examinations and health guidance in year 2008, we plan to promotebusiness development by emphasizing the strengths of our group. We will also reinforce the health-related devices ofCOMBI WELLNESS Corporation, which joined our group in May 2006. We will aim to further expand our business throughthese measures. We will endeavor to impress customers all over the world with emotional experiences through the outstandingperformances of the Konami-sponsored athletes competing in the "Pan Pacific Swimming Championships" and the "WorldGymnastics Championships," and through our second consecutive year as an official sponsorship of the "KONAMI CUPAsia series 2006," an international tournament of Japanese and Asian baseball. Gaming & System Segment The gaming market is expected to expand based on demand in the gaming industry in Southeast Asia and thelegalization of casinos in more states of North America, including Pennsylvania (licensed in the first half of thefiscal year). Under these circumstances, we plan to stabilize management by promoting the sales of video andmechanical reel machines and new sales of the "Konami Casino Management System," and by trying to increase ourperiodic income sales through machine installment and system maintenance services based on a profit-sharingstructure. We plan to exhibit our products in November 2006, at the "Global Gaming Expo," the largest gaming show inNorth America, and will aim to improve our presence in both areas of slot machine and systems. There is no modification to our consolidated earnings forecast for the year ending March 31, 2007, as announced onMay 17, 2006. Year-end dividend payout for the consolidated fiscal year ending March 31, 2007 is expected to be Y27per share (dividend for the year: Y54 per share including an interim dividend of Y27 per share). Cautionary Statements with Respect to Outlook 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. Thesestatements are based on management's assumptions and beliefs in light of information currently availableto it and, therefore, you should not place undue reliance on them. A number of important factors couldcause actual results to be materially different from and worse than those discussed in forward-lookingstatements. Such factors include, but are not limited to: (i) changes in economic conditions affecting ouroperations; (ii) fluctuations in currency exchange rates, particularly with respect to the value of theJapanese yen, the U.S. dollar and the Euro; (iii) our ability to continue to win acceptance of ourproducts, which are offered in highly competitive markets characterized by the continuous introduction ofnew products, rapid developments in technology and subjective and changing consumer preferences; (iv) ourability to successfully expand internationally with a focus on our video game software business, card gamebusiness and gaming machine business; (v) our ability to successfully expand the scope of our business andbroaden our customer base through our exercise entertainment business; (vi) regulatory developments andchanges and our ability to respond and adapt to those changes; (vii) our expectations with regard tofurther acquisitions and the integration of any companies we may acquire; and (viii) the outcome ofcontingencies. 4. Consolidated Financial Statements (1) Consolidated Balance Sheets (Unaudited) Millions of Yen Thousands of U.S. Dollars September 30, September 30, March 31, 2006 September 30, 2005 2006 2006 % % %ASSETSCURRENT ASSETS:Cash and cash equivalents Y 75,678 Y 43,347 Y 68,694 $ 367,659Trade notes and accounts 24,992 27,053 32,294 229,457receivable, net of allowance fordoubtful accounts of Y463 million,Y531 million ($4,504 thousand) andY541 million at September 30,2005, September 30, 2006 and March31, 2006, respectivelyInventories 22,988 24,356 20,109 206,582Deferred income taxes, net 12,878 16,755 16,510 142,112Prepaid expenses and other current 8,990 8,639 6,720 73,274assetsTotal current assets 145,526 47.9 120,150 42.8 144,327 47.7 1,019,084 PROPERTY AND EQUIPMENT, net 52,277 17.2 44,221 15.8 42,452 14.0 375,072 INVESTMENTS AND OTHER ASSETS:Investments in marketable 185 531 572 4,504securitiesInvestments in affiliates - 6,084 6,050 51,603Identifiable intangible assets 45,944 38,752 38,575 328,685Goodwill 15,471 22,962 22,102 194,758Lease deposits 25,182 26,488 25,277 224,665Other assets 19,436 18,095 20,103 153,478Deferred income taxes, net - 3,252 3,179 27,583Total investments and other assets 106,218 34.9 116,164 41.4 115,858 38.3 985,276TOTAL ASSETS Y 304,021 100.0 Y 280,535 100.0 Y 302,637 100.0 $ 2,379,432 See accompanying notes to consolidated financial statements Millions of Yen Thousands of U.S. Dollars September 30, September 30, March 31, 2006 September 30, 2005 2006 2006 % % %LIABILITIES AND STOCKHOLDERS'EQUITYCURRENT LIABILITIES:Short-term borrowings Y 9,990 Y 500 Y958 $ 4,241Current portion of long-term debt 17,147 22,860 24,492 193,893and capital lease obligationsTrade notes and accounts payable 13,399 19,611 19,357 166,336Accrued income taxes 18,951 2,206 7,487 18,711Accrued expenses 17,358 14,116 16,323 119,729Deferred revenue 5,963 5,318 5,353 45,106Other current liabilities 5,962 5,271 7,254 44,707Total current liabilities 88,770 29.2 69,882 24.9 81,224 26.9 592,723LONG-TERM LIABILITIES:Long-term debt and capital lease 40,717 21,337 35,631 180,975obligations, less current portionAccrued pension and severance 2,614 2,684 2,658 22,765costsDeferred income taxes, net 15,822 12,605 11,924 106,913Other long-term liabilities 6,559 5,570 5,264 47,244Total long-term liabilities 65,712 21.6 42,196 15.0 55,477 18.3 357,897 TOTAL LIABILITIES 154,482 50.8 112,078 39.9 136,701 45.2 950,620 MINORITY INTEREST IN 15,598 5.1 2,510 0.9 2,121 0.7 21,289 CONSOLIDATED SUBSIDIARIES COMMITMENTS AND CONTINGENCIES - - - - - - - STOCKHOLDERS' EQUITY:Common stock, no par value-Authorized 450,000,000 shares; 47,399 15.6 47,399 16.9 47,399 15.7 402,027issued 139,531,708 shares atSeptember 30, 2005, 143,555,786shares at September 30, 2006 andMarch 31, 2006; outstanding130,306,075 shares at September30, 2005, 137,215,841 shares atSeptember 30, 2006 and 137,152,347shares at March 31, 2006Additional paid-in capital 70,376 23.1 77,178 27.5 77,110 25.5 654,606Legal Reserve 207 0.1 284 0.1 284 0.1 2,409Retained earnings 41,308 13.6 55,167 19.7 53,756 17.7 467,913Accumulated other comprehensive 2,820 0.9 4,431 1.6 3,957 1.3 37,583incomeTotal 162,110 53.3 184,459 65.8 182,506 60.3 1,564,538Treasury stock, at cost-9,225,633 shares, 6,339,945 shares (28,169) (9.2) (18,512) (6.6) (18,691) (6.2) (157,015)and 6,403,439 shares at September30, 2005, September 30, 2006 andMarch 31, 2006, respectivelyTotal stockholders' equity 133,941 44.1 165,947 59.2 163,815 54.1 1,407,523TOTAL LIABILITIES, Y 304,021 100.0 Y 280,535 100.0 Y 302,637 100.0 $ 2,379,432 MINORITY INTEREST ANDSTOCKHOLDERS' EQUITY See accompanying notes to consolidated financial statements (2) Consolidated Statements of Income (Unaudited) Millions of Yen Thousands of U.S. Dollars Six months ended Six months ended Year ended Six months September 30, September 30, ended 2005 2006 March 31, 2006 September 30, 2006 % % %NET REVENUES:Product sales revenue Y 74,377 Y 79,353 Y186,875 $ 673,053Service revenue 37,493 40,246 75,262 341,357Total net revenues 111,870 100.0 119,599 100.0 262,137 100.0 1,014,410 COSTS AND EXPENSES:Costs of products sold 44,038 45,547 112,613 386,319Costs of services rendered 36,572 37,797 72,131 320,585Impairment of long-lived assets - - 10,533 -Impairment of identifiable - - 9,180 -intangible assetsSelling, general and administrative 23,798 26,140 55,199 221,713Total costs and expenses 104,408 93.3 109,484 91.5 259,656 99.1 928,617Operating income 7,462 6.7 10,115 8.5 2,481 0.9 85,793 OTHER INCOME (EXPENSES):Interest income 365 398 716 3,376Interest expense (531) (579) (1,137) (4,911)Gain on sale of shares of an 6,917 - 6,917 -affiliated companyOther, net 122 (50) (539) (424)Other income (expenses), net 6,873 6.1 (231) (0.2) 5,957 2.3 (1,959) INCOME BEFORE INCOME TAXES, 14,335 12.8 9,884 8.3 8,438 3.2 83,834MINORITY INTEREST AND EQUITY IN NETINCOME OF AFFILIATED COMPANIES INCOME TAXES 7,167 6.4 4,473 3.8 (10,270) (3.9) 37,939 INCOME BEFORE MINORITY INTEREST AND 7,168 6.4 5,411 4.5 18,708 7.1 45,895 EQUITY IN NET INCOME OF AFFILIATED COMPANIES MINORITY INTEREST IN INCOME (LOSS) 204 0.2 378 0.3 (4,267) (1.7) 3,206OF CONSOLIDATED SUBSIDIARIESEQUITY IN NET INCOME OF AFFILIATED - - 81 0.1 33 0.0 687COMPANIESNET INCOME Y 6,964 6.2 Y 5,114 4.3 Y23,008 8.8 $ 43,376 See accompanying notes to consolidated financial statements PER SHARE DATA: Yen U.S. Dollars Six months Six months Year ended Six months ended ended ended September 30, September 30, March 31, September 30, 2005 2006 2006 2006Basic net income per share Y53.45 Y37.28 Y175.86 $0.32Diluted net income per share Y53.44 Y37.27 Y175.80 $0.32Number of weighted-average commonshares outstanding 130,300,952 137,164,825 130,835,422 Number of diluted 130,316,192 137,212,311 130,877,436weighted-average common sharesoutstanding NoteBasic net income per share is calculated following the FAS No.128 "Earnings per share" See accompanying notes to consolidated financial statements Consolidated Statements of Stockholders' Equity (Unaudited) (3) For the six months ended September 30, 2005 Millions of Yen Common Additional Legal Retained Accumulated Treasury Total Stock Paid-in Reserve Earnings Other Stockholders' Equity Capital Comprehensive Stock, Income (Loss) at Cost Balance at Y47,399 Y46,736 Y- Y37,776 Y2,217 Y (28,271) Y105,857 March 31, 2005 Issuance of common 23,583 23,583 stock for stock exchange Stock-based 57 57 compensation Transfer from 207 (207) - Retained Earnings Net income 6,964 6,964 Cash dividends, (3,225) (3,225) Y27.0 per share Foreign currency 759 759 translation adjustments Net unrealized (156) (156) losses on available-for-sale securities Repurchase of (29) (29) treasury stock Use of treasury 131 131 stock for merger Balance at Y47,399 Y70,376 Y207 Y 41,308 Y2,820 Y (28,169) Y133,941 September 30, 2005 For the six months ended September 30, 2006 Millions of Yen Common Additional Legal Retained Accumulated Stock Paid-in Reserve Earnings Other Treasury Total Capital Comprehensive Stock, Stockholders' Income (Loss) at Cost Equity Balance at Y47,399 Y77,110 Y284 Y53,756 Y3,957 Y (18,691) Y163,815 March 31, 2006 Reissuance of (86) (86) treasury stock through stock option plan Stock-based 154 231 385 compensation Net income 5,114 5,114 Cash dividends, (3,703) (3,703) Y27.0 per share Foreign currency 483 483 translation adjustments Net unrealized (25) (25) losses on available-for-sale securities Minimum pension 16 16 liability adjustment Repurchase of (52) (52) treasury stock Balance at Y47,399 Y77,178 Y284 Y55,167 Y4,431 Y (18,512) Y165,947 September 30, 2006 For the year ended March 31, 2006 Millions of Yen Common Additional Legal Retained Accumulated Treasury Total Stock Paid-in Earnings Other Stock, Stockholders' Capital Reserve Comprehensive Equity Income (Loss) at Cost Balance at Y47,399 Y46,736 Y- Y37,776 Y2,217 Y (28,271) Y105,857 March 31, 2005Issuance of common 33,095 33,095stock for stockexchangeReissuance of (2,818) (2,818)treasury stock forstock exchangeStock-based 97 39 136compensationTransfer from 284 (284) -Retained EarningsNet income 23,008 23,008Cash dividends, (6,744) (6,744)Y54.0 per shareForeign currency 1,888 1,888 translationadjustmentsNet unrealized (132) (132)losses onavailable-for-salesecuritiesMinimum pension (16) (16)liabilityadjustmentRepurchase of (71) (71)treasury stockUse of treasury 18,064 18,064stock for mergerParent company (8,452) (8,452)stocks acquired byits subsidiariesBalance at Y47,399 Y77,110 Y 284 Y53,756 Y3,957 Y (18,691) Y163,815March 31, 2006 For the six months ended September 30,2006 Thousands of U.S. Dollars Common Additional Legal Retained Accumulated Treasury Total Stock Paid-in Earnings Other Stockholders' Capital Reserve Comprehensive Stock, Equity Income (Loss) at Cost Balance at $402,027 $654,029 $2,409 $455,946 $33,562 $ (158,533) $1,389,440 March 31, 2006Reissuance of (729) (729)treasury stockthrough stockoption planStock-based 1,306 1,959 3,265compensationNet income 43,375 43,375Cash dividends, (31,408) (31,408)$0.23 per shareForeign currency 4,097 4,097translationadjustmentsNet unrealized (212) (212)losses onavailable-for-salesecuritiesMinimum pension 136 136liabilityadjustmentRepurchase of (441) (441)treasury stockBalance at $402,027 $654,606 $2,409 $467,913 $37,583 $ (157,015) $1,407,523 September 30, 2006 See accompanying notes to consolidated financial statements (4) Consolidated Statements of Cash Flows (Unaudited) Millions of Yen Thousands of U.S. Dollars Six months Six months Year ended Six months ended ended ended March 31, September September September 2006 30, 2006 30, 2005 30, 2006 Cash flows from operating activities:Net income Y 6,964 Y 5,114 Y 23,008 $43,376Adjustments to reconcile net income to net cashprovided by operating activities -Depreciation and amortization 4,484 4,902 13,782 41,578Impairment of long-lived assets - - 10,533 -Impairment of identifiable intangible assets - - 9,180 -Provision for doubtful receivables 105 (18) (10) (153)Loss (gain) on sale or disposal of property and (484) 76 645 645equipment, netGain on sale of marketable securities - - (173) -Gain on sale of shares of an affiliated company (6,917) - (6,917) -Equity in net income of affiliated companies - (81) (33) (687)Minority interest 204 378 (4,267) 3,206Deferred income taxes 5,258 501 (5,485) 4,249Change in assets and liabilities, net ofbusiness acquired:Decrease in trade notes and accounts receivable 10,559 6,556 3,369 55,606Increase in inventories (4,793) (4,119) (635) (34,936)Increase (decrease) in trade notes and accounts (2,902) (353) 2,945 (2,994)payableDecrease in accrued income taxes (9,384) (5,265) (20,772) (44,657)Decrease in accrued expenses (1,560) (1,923) (3,043) (16,310)Increase (decrease) in deferred revenue 567 (34) (43) (288)Other, net 211 (1,913) 1,795 (16,226)Net cash provided by operating activities 2,312 3,821 23,879 32,409Cash flows from investing activities:Proceeds from sales of shares of affiliates 11,016 - 11,016 -Capital expenditures (5,784) (5,141) (14,513) (43,605)Proceeds from sales of property and equipment 2,484 25 2,455 212Proceeds from sales of investments in - - 245 -marketable securitiesAcquisition of new subsidiaries, net of cash 1,433 (227) 1,433 (1,925)acquiredPurchase of investments in subsidiaries (695) - (6,688) -Increase in lease deposits, net (833) (768) (697) (6,514)Expenditure on acquisition of operation - (1,061) - (8,999)Other, net (451) (58) (517) (492)Net cash provided by (used in) investing 7,170 (7,230) (7,266) (61,323)activitiesCash flows from financing activities:Net decrease in short-term borrowings (3,632) (452) (12,551) (3,834)Repayments of long-term debt (619) (1,696) (1,099) (14,385)Principal payments under capital lease (1,210) (1,541) (2,526) (13,070)obligationsDividends paid (3,369) (3,714) (7,025) (31,501)Purchase of treasury stock by parent company (29) (52) (71) (441)Redemption of bonds (15,000) (15,000) (15,000) (127,227)Other, net (40) 125 (58) 1,060Net cash used in financing activities (23,899) (22,330) (38,330) (189,398)Effect of exchange rate changes on cash and 512 392 828 3,325cash equivalentsNet decrease in cash and cash equivalents (13,905) (25,347) (20,889) (214,987)Cash and cash equivalents, beginning of the 89,583 68,694 89,583 582,646periodCash and cash equivalents, end of the period Y 75,678 Y 43,347 Y 68,694 $367,659 See accompanying notes to consolidated financial statements 5. Segment Information (Unaudited) (1) Operations in Different IndustriesSix months ended Digital Health & Gaming & Other, Consolidated Entertainment Fitness System Corporate and September 30, Eliminations 2005 (Millions of Yen)Net revenue: Customers Y 65,864 Y 40,553 Y 4,727 Y 726 Y 111,870 Intersegment 807 56 - (863) - Total 66,671 40,609 4,727 (137) 111,870Operating 53,623 39,928 4,724 6,133 104,408expensesOperating income Y 13,048 Y 681 Y 3 Y (6,270) Y 7,462(loss) Six months ended Digital Gaming & Other, Consolidated Entertainment System Corporate and September 30, Health & Eliminations 2006 Fitness (Millions of Yen)Net revenue: Customers Y 62,834 Y 44,391 Y 7,718 Y 4,656 Y 119,599 Intersegment 706 54 - (760) - Total 63,540 44,445 7,718 3,896 119,599Operating 52,154 41,073 6,714 9,543 109,484expensesOperating income Y 11,386 Y 3,372 Y 1,004 Y (5,647) Y 10,115(loss) Year ended Digital Gaming & Other, Consolidated Entertainment System March 31, 2006 Health & Corporate and Fitness Eliminations (Millions of Yen)Net revenue: Customers Y 163,624 Y 81,117 Y 10,621 Y 6,775 Y 262,137 Intersegment 1,652 92 2 (1,746) - Total 165,276 81,209 10,623 5,029 262,137Operating 131,426 98,268 10,563 19,399 259,656expensesOperating income Y 33,850 Y (17,059) Y 60 Y (14,370) Y 2,481(loss) Six months ended Digital Gaming & Other, Consolidated Entertainment System September 30, Health & Corporate and 2006 Fitness Eliminations (Thousands of U.S. Dollars)Net revenue: Customers $ 532,943 $ 376,514 $ 65,462 $ 39,491 $ 1,014,410 Intersegment 5,988 458 - (6,446) - Total 538,931 376,972 65,462 33,045 1,014,410Operating 442,358 348,372 56,946 80,941 928,617expensesOperating income $ 96,573 $ 28,600 $ 8,516 $ (47,896) $ 85,793(loss) Notes: 1. Primary businesses of each segment are as follows: Digital Entertainment Segment: Digital Entertainment Segment contains five business fields. Computer & Video Games: Production, manufacture and sale of video game software. Purchasing and distribution of video game software. 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 content for amusement facilities such as video games and token-operated games. Online: Creation of systems for online games. Management and operation of online servers. Distribution of the content 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 centers. Production, manufacture and sale of fitness machines and health-related products. Gaming & System segment: Production, manufacture and sale of gaming machines 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 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. Gaming segment was renamed to Gaming & System segment on October 1, 2005. (2) Operations in Geographic AreasSix months ended Japan United Europe Asia Total Eliminations Consolidated States /OceaniaSeptember 30, 2005 (Millions of Yen)Net revenue: Customers Y 90,332 Y 12,358 Y 5,120 Y 4,060 Y 111,870 - Y 111,870 Intersegment 11,396 881 22 64 12,363 Y (12,363) - Total 101,728 13,239 5,142 4,124 124,233 (12,363) 111,870Operating expenses 93,063 13,557 6,923 3,268 116,811 (12,403) 104,408Operating income Y 8,665 Y (318) Y (1,781) Y 856 Y 7,422 Y 40 Y 7,462 Six months ended Japan United Europe Asia Total Eliminations Consolidated States /OceaniaSeptember 30, 2006 (Millions of Yen)Net revenue: Customers Y 99,201 Y 11,792 Y 5,117 Y 3,489 Y 119,599 - Y 119,599 Intersegment 7,450 539 237 177 8,403 Y (8,403) - Total 106,651 12,331 5,354 3,666 128,002 (8,403) 119,599Operating expenses 95,233 13,324 6,707 3,371 118,635 (9,151) 109,484Operating income Y 11,418 Y (993) Y (1,353) Y 295 Y 9,367 Y 748 Y 10,115 Year ended Japan United Europe Asia Total Eliminations Consolidated States /OceaniaMarch 31, 2006 (Millions of Yen)Net revenue: Customers Y 193,108 Y 33,797 Y 27,387 Y 7,845 Y 262,137 - Y 262,137 Intersegment 31,488 1,545 902 361 34,296 Y (34,296) - Total 224,596 35,342 28,289 8,206 296,433 (34,296) 262,137Operating expenses 222,559 37,688 27,181 6,895 294,323 (34,667) 259,656Operating income Y 2,037 Y (2,346) Y 1,108 Y 1,311 Y 2,110 Y 371 Y 2,481 Six months ended Japan United Europe Asia Total Eliminations Consolidated States /OceaniaSeptember 30, 2006 (Thousands of U.S. Dollars)Net revenue: Customers $ 841,399 $ 100,017 $ 43,401 $ 29,593 $ 1,014,410 - $ 1,014,410 Intersegment 63,189 4,572 2,010 1,501 71,272 $ (71,272) - Total 904,588 104,589 45,411 31,094 1,085,682 (71,272) 1,014,410Operating expenses 807,744 113,011 56,887 28,592 1,006,234 (77,617) 928,617Operating income $ 96,844 $ (8,422) $ (11,476) $ 2,502 $ 79,448 $ 6,345 $ 85,793 Note: 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. Notes (Unaudited) The consolidated financial statements presented herein were prepared in accordance with U.S. generally accepted accounting principles("U.S.GAAP"). 6. Summary of Non-consolidated Financial Results for the Six Months Ended September 30, 2006 (Prepared in Accordance with Japanese GAAP) November 7, 2006 KONAMI CORPORATIONAddress: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, JapanStock code number: 9766URL: www.konami.netShares listed: Tokyo Stock Exchange, New York Stock Exchange, London Stock Exchange and Singapore ExchangeRepresentative: Kagemasa Kozuki, Representative Director and Chief Executive OfficerContact: Noriaki Yamaguchi, Representative Director and Chief Financial Officer (Phone: +81-3-5220-0163)Date of Board Meeting to approve the financial results: November 7, 2006Date of commencement of dividend payment: November 30, 2006Adoption of unit trading system: Yes (1 unit: 100 shares) 1. Financial Results for the Six Months Ended September 30, 2006 (1) Results of Operations (Figures truncated) Operating revenues Operating income Ordinary income (Y million) Change (Y million) Change (Y million) ChangeSix months ended Y4,727 (90.7)% Y2,589 (50.0)% Y2,475 (73.7)% September 30, 2006Six months ended 51,016 (12.6) 5,179 709.2 9,408 155.3 September 30, 2005Year ended 122,591 14,305 19,291 March 31, 2006 Net income Net income per share (Y million) Change (Y)Six months ended Y2,278 (79.7)% Y16.40 September 30, 2006Six months ended 11,197 304.8 85.93 September 30, 2005Year ended 16,572 124.75 March 31, 2006 Notes: 1. Weighted-average common shares outstanding Six months ended September 30, 2006: 138,906,814 shares Six months ended September 30, 2005: 130,300,952 shares Year ended March 31, 2006: 131,089,462 shares2. Change in accounting policies: None3. Change (%) of operating revenues, operating income, ordinary income and net income represents the percentage change of the increase or decrease compared to the same period of the previous year. (2) Financial Position (Figures truncated) Equity-assets Net assets Total assets Net assets ratio per share (Y million) (Y million) (%) (Y)September 30, 2006 Y171,291 Y144,061 84.1 Y1,049.89September 30, 2005 203,217 149,486 73.6 1,147.20March 31, 2006 202,303 153,339 75.8 1,092.15 Notes: Number of shares outstanding September 30, 2006: 137,215,841 shares September 30, 2005: 130,306,075 shares March 31, 2006: 140,200,828 shares Number of treasury stock September 30, 2006: 6,339,945 shares September 30, 2005: 9,225,633 shares March 31, 2006: 3,354,958 shares 2. Financial Forecast for the Year Ending March 31, 2007 Net revenues Ordinary income Net income (Y million) (Y million) (Y million)Year ending March 31, 2007 Note: Non-consolidated financial forecast for the year ending March 31, 2007 is not disclosed. 3. Cash Dividends Cash dividends per share (Y) Interim Year-end AnnualYear ended March 31, 2006 Y27.00 Y27.00 Y54.00 Year ending March 31, 2007 Y27.00 - Y54.00 -Results Year ending March 31, 2007 - Y27.00 -Forecast 7. Non-consolidated Financial Statements (1) Non-consolidated Balance Sheets (Unaudited) (Millions of Yen) September 30, 2005 September 30, 2006 March 31, 2006 % % % ASSETS CURRENT ASSETS: Cash and cash equivalents Y57,773 Y27,599 Y43,980 Trade notes receivable 1 - - Trade accounts receivable 12,207 - - Inventories 13,061 - - Short-term loan receivable - 17,624 12,890 Other (Note 3) 16,711 3,963 2,318 Allowance for doubtful accounts (16 ) ) (18 ) (26 Total current assets 99,738 49.1 49,161 28.7 59,170 29.3 FIXED ASSETS: Tangible fixed assets (Note 1) 3,709 72 81 Intangible fixed assets 11,767 7 3 Investments and other assets 88,001 122,050 143,048 Investment securities 80,654 117,681 140,581 Other 7,446 4,379 2,467 Allowance for doubtful accounts (98 ) (10 ) - Total fixed assets 103,478 50.9 122,130 71.3 143,132 70.7 TOTAL ASSETS Y203,217 100.0 Y171,291 100.0 Y202,303 100.0 See accompanying notes to non-consolidated financial statements (Millions of Yen) September 30, 2005 September 30, 2006 March 31, 2006 % % %LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade notes payable Y1,448 - - Trade accounts payable 8,710 - - Short-term borrowings - Y6,450 - Current portion of long-term debt 2,152 592 Y1,992 Current portion of long-term 15,000 15,000 15,000 bonds Income taxes payable 573 262 6,791 Accrued directors' bonuses - 110 - Other (Note 3) 7,236 849 6,867 Total current liabilities 35,120 17.3 23,264 13.6 30,651 15.2 LONG-TERM LIABILITIES: Straight bonds 15,000 - 15,000 Long-term debt 2,276 2,034 1,980 Accrued directors' retirement 1,332 1,332 1,332 benefits Long-term deposits received 2 599 - Total long-term liabilities 18,610 9.1 3,965 2.3 18,312 9.0 Total liabilities 53,730 26.4 27,230 15.9 48,963 24.2 STOCKHOLDERS' EQUITY: Common stock 47,398 23.3 - - 47,398 23.4 Capital surplus 60,236 29.6 - - 43,568 21.6 Retained earnings 70,018 34.5 - - 72,546 35.9 Legal reserve 206 - 283 Special reserves 34,094 - 34,094 Retained earnings brought forward 35,716 - 38,168 Net unrealized gains on 1 0.0 - - 64 0.0 available-for-sale securities Treasury Stock (28,168 ) (13.8 ) - - (10,238 ) (5.1 ) Total stockholders' equity 149,486 73.6 - - 153,339 75.8 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY Y203,217 100.0 - - Y202,303 100.0 NET ASSETS: Common stock - - 47,398 27.7 - - Capital surplus - - 43,482 25.4 - - Retained earnings - - 70,820 41.3 - - Treasury stock - - (17,679) (10.3) - - Total stockholder's equity - - 144,021 84.1 - - Net unrealized gains on - - 40 0.0 - - available-for-sale securities Total net assets - - 144,061 84.1 - - TOTAL LIABILITIES AND NET ASSETS - - Y171,291 100.0 - - See accompanying notes to non-consolidated financial statements (2) Non-consolidated Statements of Operations (Unaudited) (Millions of Yen) Six months ended Six months ended Year ended September 30, 2005 September 30, 2006 March 31, 2006 % % % Operating revenues (Note 1) Y51,016 100.0 Y4,727 100.0 Y122,591 100.0 Net revenues 51,016 - 122,591 Management fee revenue - 2,953 - (Note 1) Dividend income (Note1) - 1,773 - Cost of revenues 33,041 64.8 - - 75,499 61.6 Gross profit 17,975 35.2 4,727 100.0 47,091 38.4 Selling, general and administrative 12,795 25.1 2,137 32,786 26.7 expenses 45.2 Operating income 5,179 10.1 2,589 54.8 14,305 11.7 Non-operating income (Note 2) 4,505 8.8 102 2.1 5,679 4.6 Non-operating expenses (Note 3) 276 0.5 216 4.5 693 0.6 Ordinary income 9,408 18.4 2,475 52.4 19,291 15.7 Extraordinary income (Note 4) 5,788 11.3 - - 5,707 4.7 Extraordinary losses (Note 5) 25 0.0 - - 247 0.2 Income before income taxes 15,172 29.7 2,475 52.4 24,751 20.2 Income taxes: Current 697 (346) 8,803 Deferred 3,277 544 (625 ) Total income taxes 3,974 7.8 197 4.2 8,178 6.7 Net income 11,197 21.9 Y2,278 48.2 16,572 13.5 Unappropriated earned surplus 7,710 - 7,710 carried forward Received undistributed profit from 16,808 - 17,402 merger Interim cash dividends - - 3,518 Unappropriated earned surplus Y35,716 - Y38,168 See accompanying notes to non-consolidated financial statements (3) Non-consolidated Statement of Changes in Stockholders' Equity (Unaudited) (Millions of yen) Stockholder's equity Common Capital surplus Retained earnings Treasury Total stock stock stockholders' equity Additional Other Net Legal Other retained Net paid-in capital capital reserve earnings retained capital surplus surplus earnings Special Retained reserves earnings brought forward Balance at Y47,398 Y36,893 Y6,674 Y43,568 Y283 Y34,094 Y38,168 Y72,546 Y(10,238) Y153,275 March 31, 2006 Changes in theterm Dividends from (3,785) (3,785) (3,785)surplus (*) Directors' (220) (220) (220)Bonuses (*) Transfer to 18,000 (18,000) - -special reserve(*) Net income 2,278 2,278 2,278 Purchase of (7,689) (7,689)treasury stock Disposal of (85) (85) 248 162treasury stock Net change ofitems other thanstockholders'equity Total changes in - - (85) (85) - 18,000 (19,726) (1,726) (7,441) (9,254)the term Balance at Y47,398 Y36,893 Y6,588 Y43,482 Y283 Y52,094 Y18,441 Y70,820 Y(17,679) Y144,021September 30,2006 Difference of appreciation and Total net assets conversion Net unrealized Net Difference gains on of available-for-sale appreciation securities and conversion Balance at Y64 Y64 Y153,339 March 31, 2006 Changes in the term Dividends from (3,785)surplus (*) Directors' Bonuses (220)(*) Transfer to special -reserve (*) Net income 2,278 Purchase of (7,689)treasury stock Disposal of 162treasury stock Net change of items (23) (23) (23)other thanstockholders'equity Total changes in (23) (23) (9,278)the term Balance at Y40 Y40 Y144,061September 30, 2006 (*) Surplus appropriated in the Ordinary General Meeting of Shareholders held in June 2006. Basis of Presentation The accompanying interim non-consolidated financial statements of the Company have been prepared inaccordance with accounting principles generally accepted in Japan. Summary of Significant Accounting Policies 1. Marketable and Investment Securities Investments in subsidiaries and affiliated companies and other securities for which the market value is not readily determinable are stated at cost based on the moving average method. Other securities for which the market value is determinable are stated at market value as of the balance sheet date. Unrealized gains and losses on those securities are reported in the stockholders' equity and the cost of securities sold is determined by the moving average method. 2. Derivative Financial Instruments Derivative financial instruments are stated at market value. 3. Inventories Inventories other than work in process are stated at cost determined by the moving average method. Work in process consisting of hardware products is stated at cost determined by the moving average method while work in process consisting of software products is stated at cost determined by the specific identification method. 4. Depreciation Methods Tangible fixed assets are depreciated using the declining balance method while intangible fixed assets are amortized mainly using the straight-line method. For in-house software, amortization is computed using the straight-line method based on the estimated useful life of 5 years. Long-term prepaid expenses are amortized using the straight-line method. 5. Provisions(a) Allowance for doubtful accounts Generally, allowance for doubtful accounts is calculated based on the actual ratio of bad debt losses incurred. For specific accounts with higher possibility of bad debt loss, the allowance is determined by independent judgment. (b) Accrued Directors' Bonuses The estimated bonus payment to Directors is reserved as Accrued Directors' Bonuses. (c) Accrued pension and severance costs Allowance for retirement benefits to be paid to employees as of balance sheet date is calculated based on the estimated amount of the projected benefit obligation and the plan assets at the fiscal year-end. Unrecognized net transition asset or obligation is amortized over 13 years. Unrecognized actuarial net gain or loss are amortized from the following fiscal year within the average remaining service period of 8 years on a straight-line basis. (d) Accrued directors' retirement benefits Required amount for retirement benefits to be paid to directors as of balance sheet date is reserved as liability. 6. Foreign Currency Translation Monetary assets and liabilities denominated in foreign currencies are translated at the current exchange rates as of the balance sheet date, and the translation gains and losses are credited or charged to income. 7. Leases Finance leases other than those that deem to transfer ownership of the leased property to the lessee are accounted for as operating lease transactions. 8. Other significant matters Consumption Tax Consumption tax is excluded from the stated amount of revenue and expenses. Changes in accounting method 1. Accounting Standard for Directors' Bonuses Effective from fiscal year 2007, the Company adopted "Accounting Standard for Directors' Bonuses" (Financial Accounting Standards No.4 issued by the Accounting Standard Board of Japan on November 29, 2005). The change effected our operating income, ordinary income and income before income taxes to decrease by Y110 million, respectively. 2. Accounting Standard for Presentation of Net Assets in the Balance Sheet Effective from fiscal year 2007, the Company adopted "Accounting Standard on Presentation of Net Assets in the Balance Sheet" (Financial Accounting Standards No.5 issued by the Accounting Standard Board of Japan on December 9, 2005) and "Accounting implementation guideline on Presentation of Net Assets in the Balance Sheet" (Financial Accounting Standards Implementation Guidance No.8 issued by the Accounting Standard Board of Japan on December 9, 2005). Shareholders' equity under the previous presentation method amounted to Y144,061 million. Net assets in the balance sheet as of September 30, 2006, have been presented in accordance with the revised "Regulations for the Interim Non-Consolidated Financial Statements". Change in reporting form Interim Non-consolidated Balance Sheet Short-term loan receivable, which was included in the "Other" of current assets item for the previous fiscal years, is indicated in an individual account for the six months ended September 30, 2006, as it has exceeded 5/100 of the Total Assets. Short-term loan receivable for the six moths ended September 30, 2005, was Y4,121 million. Notes to Non-consolidated Financial Statements Notes to Balance Sheets 1. Accumulated depreciation of tangible fixed assets is as follows: (Millions of Yen) September 30, 2005 September 30, 2006 March 31, 2006Accumulated depreciation of tangible fixed assets Y5,734 Y168 Y204 2. The Company guarantees subsidiaries' loans payable to financial institutionsas follows: (Millions of Yen) September 30, 2005 September 30, 2006 March 31, 2006Konami Software Shanghai, Inc. Y97 Y- Y- (US$ 863 thousand)Konami Gaming, Inc. - - Y352 (US$ 3,000 thousand)Total Y97 Y- Y352 3. Net amount of consumption tax payable and consumption tax to be refunded areincluded in "Other" of current liabilities and "Other" of current assets forSeptember 30, 2005 and September 30, 2006, respectively. Notes to Statements of Operations 1. The Company adopted a holding company structure on March 31, 2006, by executing a company separation, to which a newly established Konami Digital Entertainment Co., Ltd. succeed to the Company's Digital Entertainment business. Accordingly, the primary business operation of the Company relates to management fee revenue and dividend income from subsidiary companies which we indicate as operating revenue. 2. Non-operating income mainly consists of the following: Six months ended September 30, 2005: Interest income: Y 29 million, Dividend income: Y 4,394 million, Foreign exchange gains: Y 4 million Six months ended September 30, 2006: Interest income: Y 87 million Year ended March 31, 2006: Interest income: Y 56 million, Dividend income: Y 5,360 million, Foreign exchange gains: Y 139 million 3. Non-operating expenses mainly consist of the following: Six months ended September 30, 2005: Bond interest expenses: Y 200 million Six months ended September 30, 2006: Bond interest expenses: Y 145 million Year ended March 31, 2006: Bond interest expenses: Y 346 million 4. Extraordinary income mainly consists of the following: Six months ended September 30, 2005: Gain on sale of shares of affiliated companies: Y 5,555 million Six months ended September 30, 2006: None Year ended March 31, 2006 Gain on sale of shares of affiliated companies: Y 5,555 million 5. Extraordinary losses mainly consist of the following: Six months ended September 30, 2005: Loss on sale and disposal of fixed assets : Y 25 million Six months ended September 30, 2006: None Year ended March 31, 2006: Loss on sale and disposal of fixed assets: Y 247 million 6. Depreciation expense for each period is as follows: (Millions of Yen) September 30, 2005 September 30, 2006 March 31, 2006Tangible fixed assets Y634 Y26 Y1,730Intangible fixed assets 1,352 0 4,276 Notes to Non-consolidated Statements of Changes in Stockholders' Equity Summary of type of treasury stock and total number of shares (Thousands shares) Total number of Increase in total Decrease in Total number of shares for the number of shares total number of shares for the year ended March for the half year shares for the half year ended 31, 2006 ended September half year ended September 30, 30, 2006 September 30, 2006 2006 Common Stock 3,354 3,072 87 6,339 Total 3,354 3,072 87 6,339 Outline of the change Primary items which increased total number of shares Acquisition of own shares from subsidiary company: 3,048 thousand shares Acquisition of shares of less than one unit: 24 thousand shares Primary items which decreased total number of shares Sale of shares of stock option: 82 thousand shares. Sale of shares of less than one unit 5 thousand shares Investments in Subsidiaries and Affiliated Companies Investments in subsidiaries and affiliated companies as of each balance sheetdate are as follows: (Millions of Yen) September 30, 2005 September 30, 2006 March 31, 2006 Balance Balance Balance sheet sheet sheet amount Market amount Market amount Market value Differences value Differences value Differences Investments Y8,167 Y6,618 Y(1,548) Y8,167 Y9,346 Y1,179 Y8,167 Y7,728 Y(438)in subsidiariesInvestments - - - 5,993 4,814 (1,178) 5,993 6,593 600in affiliatedcompaniesTotal Y8,167 Y6,618 Y(1,548) Y14,160 Y14,161 Y1 Y14,160 Y14,322 Y161 This information is provided by RNS The company news service from the London Stock Exchange