Konami Grp Corp Regulatory News (KNM)

23 May 2006 09:16

Konami Corporation23 May 2006 The following amendment has been made to the Re Consolidated Financial Results released on 17 May 2006 at 14:02 under RNS No 1305D. (DETAIL CHANGE). In Health & Fitness of Outlook for Fiscal Year Ending March 31, 2007 Corrected from (In May 2006, we acquired shares of COMBI WELLNESS Corporation and made it a wholly owned subsidiary of the Company.) Corrected to (In May 2006, we plan to acquire shares of COMBI WELLNESS Corporation and make it a wholly owned subsidiary of the Company.) All other details remain unchanged. The full amended text is shown below Consolidated Financial Results for the Year Ended March 31, 2006 (Prepared in Accordance with U.S. GAAP) May 17, 2006 KONAMI CORPORATIONAddress: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, JapanStock code number, TSE: 9766Ticker symbol, NYSE: KNMURL: www.konami.netShares listed: Tokyo Stock Exchange, New York Stock Exchange, London Stock Exchange and Singapore ExchangeRepresentative: Kagemasa Kozuki, Chairman of the Board and Chief Executive OfficerContact: Noriaki Yamaguchi, Representative Director and Chief Financial Officer (Phone: +81-3-5220-0163)Date of Board Meeting to approve May 17, 2006the financial results:Adoption of U.S. GAAP: Yes 1. Consolidated Results for the Year Ended March 31, 2006(Amounts are rounded to the nearest millions) (1) Consolidated Results of Operations (Millions of Yen, except per share data) Net revenues Operating Income (loss) Net income (loss) before income income (loss) taxesYear ended March 31, 2006 262,137 2,481 8,438 23,008 % change from previous year 0.6% (91.2)% (69.2)% 119.4%Year ended March 31, 2005 260,691 28,136 27,442 10,486 % change from previous year (4.7) % (30.9)% (31.6)% (47.8)% Basic net income Diluted net income Return on Ratio of income Ratio of income (loss) per share (loss) per share shareholders' (loss) (loss) before equity before income taxes income taxes to total assets to net revenues Year ended 175.86 175.80 17.1% 2.8% 3.2%March 31, 2006 Year ended 87.41 87.41 10.1% 9.2% 10.5%March 31, 2005 Notes: 1. Equity in net income (loss) of affiliated companies Year ended March 31, 2006: Y33 millions Year ended March 31, 2005: Y(6,293) millions 2. Weighted-average common shares outstanding Year ended March 31, 2006: 130,835,422 shares Year ended March 31, 2005: 119,970,052 shares 3. Change in accounting policies: None 4. Income (loss) before income taxes represents "Income (loss) before income taxes, minority interest and equity in net income (loss) of affiliated companies" as stated in the accompanying consolidated statements of operations. (2) Consolidated Financial Position (Millions of Yen, except per share amounts) Total assets Total shareholders' Equity-assets Shareholders' equity ratio equity per share March 31, 2006 302,637 163,815 54.1% 1,194.41 March 31, 2005 304,321 105,857 34.8% 885.97 Note: Number of shares outstanding March 31, 2006: 137,152,347 Shares March 31, 2005: 119,481,411 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 year Year ended March 31, 2006 23,879 (7,266) (38,330) 68,694Year ended March 31, 2005 27,760 (14,343) (11,670) 89,583 (4) Number of Consolidated Subsidiaries and Companies Accounted for by theEquity Method Number of consolidated subsidiaries: 23 Number of affiliated companies accounted for by the equity method: 1 (5) Changes in Reporting Entities Number of consolidated subsidiaries added: 6 Number of consolidated subsidiaries removed: 10 Number of affiliated companies accounted for by the equity method added: 1 Number of affiliated companies accounted for by the equity method removed: 2 2. Earnings Forecast for the Year Ending March 31, 2007 (Millions of Yen) Net revenues Operating Income before Net income income income taxesYear ending March 31, 2007 275,000 29,000 28,500 16,000 Note: Forecast for the net income per share for the year ending March 31, 2007 is Y 116.66 Cautionary Statement with Respect to Forward-Looking Statements: Statements made in this document with respect to our current plans, estimates, strategies and beliefs, including the above forecasts, are forward-looking statements about our future performance. These statements are based on management's assumptions and beliefs in light of information currently available to it and, therefore, you should not place undue reliance on them. A number of important factors could cause actual results to be materially different from and worse than those discussed in forward-looking statements. Such factors include, but are not limited to: (i) changes in economic conditions affecting our operations; (ii) fluctuations in currency exchange rates, particularly with respect to the value of the Japanese yen, the U.S. dollar and the Euro; (iii) our ability to continue to win acceptance of our products, which are offered in highly competitive markets characterized by the continuous introduction of new products, rapid developments in technology and subjective and changing consumer preferences; (iv) our ability to successfully expand internationally with a focus on our video game software business, card game business and gaming machine business; (v) our ability to successfully expand the scope of our business and broaden our customer base through our health & fitness business; (vi) regulatory developments and changes and our ability to respond and adapt to those changes; (vii) our expectations with regard to further acquisitions and the integration of any companies we may acquire; and (viii) the outcome of contingencies. 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 entertainment and health industry providing customers with''High Quality Life'' and is comprised of KONAMI CORPORATION (the ''Company''), its 23 consolidated subsidiariesand one equity-method affiliate. Each of the Company, its subsidiaries and affiliated companies is categorizedinto business segments based on its operations as stated below. This categorization into four business segmentsis based on the same criteria explained below under ''8. Segment Information (Unaudited)''. The Gaming BusinessSegment was renamed the Gaming & System Business Segment on October 1, 2005, as mentioned note 4 below. Business Segments Major Companies Digital Entertainment Domestic Konami Digital Entertainment Co., Ltd. (*12) (Note3) (*2) HUDSON SOFT CO., LTD. (*3) Konami Logistics & Service, Inc. (*6) Internet Revolution Inc. (*8) Overseas Konami Digital Entertainment, Inc.(*7,10) Konami Digital Entertainment GmbH (*10) Konami Software Shanghai, Inc. Konami Digital Entertainment B.V. (*10) Konami Digital Entertainment Limited. (*10) Hudson Entertainment, Inc.(*3) Health & Fitness Domestic Konami Sports & Life Co., Ltd (*9) Konami Digital Entertainment Co., Ltd. (*12) Konami Logistics & Service, Inc. (*6) Resort Solution Co., Ltd. (*11)., Two other companies Gaming & System Overseas Konami Gaming, Inc. (Note 4) Konami Australia Pty Ltd., One other company Other Domestic Konami Logistics & Service, Inc. (*6) KPE, Inc. , Konami Real Estate, Inc. Konami School, Inc., Two other companies Overseas Konami Corporation of America Konami Digital Entertainment B.V., One other company Notes:1. Companies that have operations categorized in more than one segment are included in each segment in whichthey operate.2. Primary changes in major companies for the year ended March 31, 2006 are as follows.*1. The Company merged with Konami Computer Entertainment Studios, Inc., Konami Computer Entertainment Tokyo,Inc., Konami Computer Entertainment Japan, Inc., Konami Online, Inc. and Konami Media Entertainment, Inc. onApril 1, 2005.*2. The Company sold its entire shares of and dissolved its equity relationship with TAKARA Co., LTD, previouslyan equity-method affiliate, on April 25, 2005.*3. As a result of the Company's acceptance of a third party allotment of additional shares on April 27, 2005,HUDSON SOFT CO., LTD, previously an equity-method affiliate, became a 53.99% owned consolidated subsidiary ofthe Company. Hudson Entertainment, Inc., a subsidiary of HUDSON SOFT CO., LTD, became a consolidated subsidiaryof the Company.*4. The Company merged with Konami Traumer, Inc. on June 1, 2005.*5. The Company merged with Konami Marketing Japan, Inc. on October 1, 2005.*6. The Company established a new company, Konami Logistics & Service, Inc, on October 1, 2005.*7. Konami Digital Entertainment, Inc. merged with Konami Marketing, Inc. on October 1, 2005.*8. The Company and Internet Initiative Japan Inc. established a joint venture company, Internet Revolution Inc.on February 1, 2006.*9. Konami Sports Life Corporation and Konami Sports Corporation merged on February 28, 2006, with Konami SportsCorporation as the surviving company. Upon completion of the merger, the Company and Konami Sports Corporationexecuted a share exchange on March 1, 2006, which made the Company the sole parent company and Konami SportsCorporation the wholly owned subsidiary. Also, Konami Sports Corporation was renamed Konami Sports & Life Co.,Ltd.*10. On March 2, 2006, Konami Marketing (Asia) Limited was renamed Konami Digital Entertainment Limited, onMarch 22, 2006, Konami of Europe GmbH was renamed Konami Digital Entertainment GmbH, and on March 23, 2006,Konami Corporation of Europe B.V. was renamed Konami Digital Entertainment B.V..*11. On March 10, 2006, the Company acquired 20.0% of the outstanding shares of Resort Solution Co., Ltd., whichbecame an equity method affiliate.*12. The company established a new wholly owned subsidiary, Konami Digital Entertainment Co., Ltd., on March 31,2006, by executing a company separation, to succeed to the Company's digital entertainment business and shift toa holding company structure.3. The Digital Entertainment segment comprises the previous Computer & Video Games segment, Toy & Hobby segment,Amusement segment, the online business taken over from Konami Online, Inc. and the multimedia business takenover from Konami Media Entertainment, Inc. on April 1, 2005.4. The Gaming segment was renamed the Gaming & System segment from October 1, 2005. Business Organization 2. Management Policy 1. Management PolicyWe place priority on our following corporate goal: "We aim to be a business group of which people around the globehave high expectations, through creating and providing "valuable time". Furthermore, our basic management policyis to place priority on our shareholders, to maintain sound relationships with all stakeholders, includingshareholders, and to make a wide range of social contributions as a good corporate citizen. We aim to make optimumuse of the group's management resources and maintain these specific management policies: "Adaptation to GlobalStandards", "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 shareholders. It is our policy to use retained earnings for investments focused on business fields withgood future profitability and other prospects to increase our corporate value and as a source for paying dividendsin the future. We are working on maintaining sound relationships with our stakeholders, including 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 "High Quality Life", we aim to deliver "dreams" and "surprises" for people all over theworld. 2. Profit Appropriation PolicyThe Company's basic policy in profit distribution is to provide stable and high dividend payouts to ourshareholders and to increase our corporate value. Our policy is to use retained earnings for investments focusedon business fields with good future and other prospects to strengthen our growth potential and competitiveness. Our company plans to amend the articles of incorporation so that "Board of Directors decide the dividend ofretained earnings", pursuant to Article 459 clause 1 of the recently enacted Company Law in the annualshareholders meeting to be held on June 29, 2006. 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 In the market in which the Konami group operates, regardless of geographic areas or age, the needs of consumersare rapidly diversifying and growing. Also, as the internet environment has improved, online service has becomegeneralized. As Japan has become an aging society, people have become more focused on their health and the retirement of peoplein the baby boom generation has created new markets. These changes in market conditions will make timely management decision making and globalizing of the business,more important that ever. The Konami group has prepared a management base which meets the needs of the marketappropriately, by strengthening the management system through group restructuring and shifting to a holdingcompany structure by company separation and by further promoting the globalization of our business. Group restructuring and shift to a holding company structure by company separation The merger between Konami Sports Life Corporation (hereafter, referred to as Konami Sports Life) and Konami SportsCorporation (hereafter, referred to as Konami Sports) took place on February 28, 2006, with Konami Sportsremaining as the surviving company, and on March 1, 2006, the Company became the sole parent company through ashare exchange with the merged Konami Sports. After this share exchange, Konami Sports changed its registered nameto Konami Sports & Life Co., Ltd. On March 31, 2006, Konami Digital Entertainment Co., Ltd. was newly established through a company separation tosucceed Konami Corporation's Digital Entertainment business, and Konami Corporation shifted to a holding companystructure. The major objectives of shifting to a holding company structure are as follows: (1) Further improvement of management transparency The Konami Group has been actively working to improve corporate governance and will endeavor to further strengthengroup governance through its recent shift to a holding company structure. We will promote transparency of management by strengthening our group management structure, separating andclarifying the decision-making and supervisory functions of the entire group from the executive function of eachbusiness, speeding up the management process, conducting business evaluations, and allocating management resourcesfrom the viewpoint of the shareholders. (2) Creating a speedy and flexible management structure We will clarify the roles of our "Digital Entertainment Business," "Health & Fitness Business," and "Gaming &System Business." Each group will cultivate creativity and expertise in its fields and cope with the changes intoday's business environment with speed and flexibility. To respond more effectively to rapidly changing marketconditions, we will build a system which enables us to participate in new business collaborations and make capitalinvestments in a timely manner. (3) Building a thorough structure of profit accountability We will clarify our profit accountability structure by evaluating the profitability of each of our businesses morecarefully than before. The holding company will be responsible for planning the corporate strategy of the entire Group, planning forinvestment projects, including the allocation of management resources, and checking the status of the businessesexecuted in each subsidiary. Business subsidiaries will make timely decisions in each business area of the Companyand accelerate the management process. The holding company will thus aim to maximize corporate value at the KonamiGroup level. 3. Business Performance and Cash Flows 1. Business PerformanceOverview Moderate economic recovery was the overall trend in the Japanese economy in the consolidated fiscal yearended March 31, 2006. Corporate performance improved, capital investments increased, and personalconsumption rose moderately. There was also healthy recovery in the global economy. Although the EU economyremained stagnant, the U.S economy continued to grow steadily and the China economy maintained solid growth. With respect to the industries in which we operate, in the entertainment industry, demand for videogamesoftware has grown in step with the spreading popularity of the new-style portable game consoles fromNintendo and Sony, and the online application content business has progressed with further advances in ITtechnology. In the health industry, demand for fitness clubs among middle-aged and senior consumers, ourmain target market, is rising as the Japanese population ages, and the market is expected to expand into newservice areas such as preventive nursing care and health promotion. Demand in the gaming industry hasexpanded, as casinos are being legalized in new localities. Under these circumstances, the Digital Entertainment segment has maintained solid sales. Sales of the WORLDSOCCER Winning Eleven series rose worldwide, especially in Europe, reaching a record high in the number oftitles sold. Sales of trading card games also expanded globally, and "e-AMUSEMENT" service products foramusement arcades sold at steadily rising levels. The Company promoted business efficiency by restructuringthe group through a merger with a videogame software production company and other realignments. Content wasdeveloped on multiple levels, and product lineups were selected and streamlined in various genres. Throughthese endeavors, operating income rose slightly from the previous year. In the Health & Fitness segment, we expanded our network of sports facilities and endeavored to furtherboost the quality of our services by steadily installing our original e-XAX IT health management system,chiefly in the new Konami Sports Clubs. In March 2006 we exhibited fitness machines for institutional use atthe world's largest fitness trade show, Las Vegas, U.S.A. (IHRSA International Health, Racquet & Sports ClubAssociation 2006). These machines attracted a high level of interest among visitors. In the Gaming & System segment, Konami concluded a sales agreement in October 2005 with Casiloc, Inc., whichis under the management of the Quebec provincial government in Canada whereby we provided Casiloc with theKonami Casino Management System. We will continue to promote sales of our system to build a stableprofitability base. In March 2006, we received high reviews for our next-generation K2V platform and otherproducts exhibited at the CMAA (The Club Managers' Association Australia) 2006 game machine exhibits inSydney, Australia - a major showcase for state-of-art gaming machines from around the world. As a result, consolidated net revenue for the year ended March 31, 2006 amounted to Y 262,137 million(100.6% of the figure for the year ended March 31, 2005), consolidated operating income was Y 2,481 million(8.8 % of the figure for the year ended March 31, 2005), consolidated income before tax was Y 8,438 million(30.8 % of the figure for the year ended March 31, 2005), and consolidated net income was Y 23,008 million(219.4 % of the figure for the year ended March 31, 2005). The dividend payout for the consolidated fiscal year ended March 31, 2006 is expected to be Y 54 per share(the interim dividend payout of Y 27 per share and the end-of-term dividend payout of Y 27 per share). Performance by business segmentSummary of net revenues by business segment: Millions of Yen Year ended Year ended % of previous year March 31, 2005 March 31, 2006Digital Entertainment 163,671 165,276 101.0Health & Fitness 79,106 81,209 102.7Gaming & System 11,643 10,623 91.2Other, Corporate and Eliminations 6,271 5,029 80.2Consolidated net revenues 260,691 262,137 100.6 Note: 1. In response to the reorganization of Digital Entertainment business, we rearranged the classification offinancial results for the year ended March 31, 2005. 2. Gaming segment renamed to Gaming & System segment from October 1, 2005. Digital Entertainment In our Computer & Video Games business, the WORLD SOCCER Winning Eleven series sold well all over the world, withaccumulated sales of more than 7 million units since the series' first release. The high quality of the games and thelatest player data explain the strong support of our consumers. Another factor behind the rising sales volumes for theunits has been Konami's decision to start developing products for PlayStation Portable. In addition, music games havegained popularity, mainly in North America, and sales of the PlayStation2 version of Dance Dance Revolution EXTREME 2have exceeded sales of its predecessor. Well-established series such as Yu-Gi-Oh!, METAL GEAR SOLID, PAWAFURUPUROYAKYU, and GENSOSUIKODEN also achieved solid sales. In our Toy & Hobby business, we continued to achieve strong sales of the Yu-Gi-Oh! Official Card Game series, aglobally expanding series with a particularly strong presence in the Japanese, U.S., and European markets. We alsoreleased card games based on the popular animated TV series MALHEAVEN and EYESHIELD21, as well as a new toy seriescalled SAZER X. All of these titles are selling well. In the Amusement business, we continued to enjoy strong sales of MAH-JONG FIGHT CLUB, a series of titles incorporatingthe "e-AMUSEMENT" service which brings Konami together with entertainment centers across Japan in a network. We alsolaunched Baseball Heroes, a videogame played with cards carrying images of professional baseball players, and QUIZMAGIC ACADEMY III, a quiz game that gives players the chance to test their knowledge of trivia against each other. Bothreceived favorable reviews. The music game series continue to be popular with steadily growing sales. Our multiplayertoken-operated horse racing games GI-HORSEPARK and GI-TURFWILD3 have also received favorable reviews in the market. In the online business, we developed an online match-up service for the WORLD SOCCER Winning Eleven series in Japan,Europe, North America, and Asia. We also launched services for Yu-Gi-Oh! ONLINE in Korea in December 2005. Our mobilesite in Japan, Konami Net DX, launched and distributed titles already popular in the home and arcade arenas such asPAWAFURU PUROYAKYU and QUIZ MAGIC ACADEMY, and Winning Eleven is now providing services via an independent mobile site. In the multimedia business we published several guides and released several soundtracks on CD relating to popularvideogames, all of which received favorable reviews. We also released a CD album, a DVD album of live concerts music ofpopular voice actors, and a series of products tied in with our original animated TV program, GOKUJO SEITOKAI. As a result, consolidated net revenues in the Digital Entertainment segment were Y 165,276 million for the year endedMarch 31, 2006 (101.0% of the figure for the year ended March 31, 2005). Health & Fitness In the fitness club management business, we further expanded our network of Konami Sports Clubs through direct managingfacilities. We opened nine new facilities, including Honten Nishinomiya (Hyogo), Myoden (Chiba), Fukuoka-Kashii(Fukuoka), Suzuka (Mie), and Asahikawa (Hokkaido), bringing the total number of facilities up to 209 as of the end ofMarch 2006. Konami Sports Club Honten Nishinomiya (Hyogo), which opened in February 2006, is one of the largest sportsfacilities in Japan with a fifty-meter regulation-size pool, a machine gym equipped with some 100 training machines, ane-XAX IT health management system, and other advanced facilities incorporating the IT technology and know-how of theKonami Group. In the entrusted management business, we added 30 facilities in public sports centers, including those in Itabashi-ku(Tokyo) and Osaka-shi (Osaka), increasing the number of facilities to 67 as of the end of March 2006. With 34 morefacilities to be added in April, we will be entrusted with 101 facilities by May 17, 2006. As more and more peoplebecome health conscious in today's rapidly aging society, we will make our utmost efforts to maximize the accumulatedknow-how and experiences of the Konami Group in the management of public facilities. Through these efforts, the KonamiGroup will be helping people in communities everywhere become fitter. As a new undertaking in the sports facilities business, in July 2005, our Konami Sports Clubs became the firstprivate-sector facilities in Japan to be granted the right to call themselves "JOC Athlete Support Center authorized byThe Japanese Olympic Committee." Konami Sports Clubs are committed to supporting JOC-designated athletes in partnershipwith JOC. "The First Konami Sports Club Action Soccer Tournament," acting as Japan's preliminary tournament leading upto the Action Soccer World Cup (to be held in October 2006), was held in January 2006. This is one of our efforts topromote sports exchanges on a global scale. As an output of our development activities, we exhibited a range of fitness products for commercial use at theInternational Home Care & Rehabilitation Exhibition 2005, an event held at Tokyo Big Sight from September 27 through29, 2005. Our original machine program services developed for an aging society - a program to promote "Healthier,more enjoyable, and more attractive" life - received especially favorable comments. We also exhibited "GROOVEMOTION DDR," our new proposal for group exercise, and "EZTWISTER," an innovative muscle and balance training machine,at IHRSA (International Health, Racquet & Sportsclub Association) 2006, the world's largest fitness trade show (held inLas Vegas, U.S. from March 21 through 23, 2006). Both products attracted a great deal of interest from visitors. In the area of supplement products, we released EXERDIET and KONAMI SPORTS CLUB BLACKCURRANT, two original Konamisupplements, to further expand our product line-up. As a result, consolidated net revenues in the Health & Fitness segment totaled Y 81,209 million for the year endedMarch 31, 2006 (102.7 % of the figure for the year ended March 31, 2005). Gaming & System The construction of our new office building, which is to become the center of our business activities in North America,was completed in June 2005. This is part of our effort to strengthen the Company's operating base. We have also begunmarketing our new K2V platform in the North American and Australian markets to efficiently promote global development.As for the Konami Casino Management System now being marketed on a full scale, in October 2005, we concluded a salesagreement for the System with Casiloc, Inc., a casino operator under the management of Quebec provincial government inCanada, for sales to three Quebec casinos (approximate 6,300 slot machines in total) and also concluded a salesagreement with a casino in Oklahoma that will be a new market for us. Furthermore, we have installed slot machines inprofit-sharing agreements that promise to generate steady revenues and lead to more stable management. In Australia webegan selling a link progressive jackpot system which won wide acclaim in August at the Australian Gaming Expo 2005,one of the largest events of its kind in Oceania. We have also begun providing knock-down components to Russia. Throughthese endeavors, we are expanding our presence in both the domestic market and the overseas markets of Europe, Asia,and South America. As a result, consolidated net revenues in the Gaming & System segment was Y 10,623 million for the year ended March 31,2006 (91.2 % of the figure for the year ended March 31, 2005). Outlook for Fiscal Year Ending March 31, 2007 Digital Entertainment In the Digital Entertainment segment, we plan to continue to launch new titles for the popular sports series WORLDSOCCER Winning Eleven, JIKKYOU PAWAFURU PUROYAKYU, and PROYAKYU SPIRITS in anticipation of rising public interest insoccer and baseball this year in Japan. We plan to introduce a strong line-up of products in the European and Americanmarkets, including the newest title for the most strongly supported soccer series, Pro Evolution Soccer, music gamessuch as the Dance Dance Revolution series, and animation contents such as the popular Yu-Gi-Oh! series. We also intendto expand our line-up of software products for the popular mobile game consoles and to market software for thenext-generation stationary game consoles to be released during the current fiscal year. In our Toy & Hobby business, we plan to further strengthen the Yu-Gi-Oh! Official Card Game series, a steadily popularline-up of standard products in the domestic, American, and European markets, as well as to release new trading cardgames in the domestic market. We will work to expand sales size by acquiring new customers through the launch of a newgenre of electronic toys such as "OTOIZUMU", a musical pet born from music, and innovative figurines. In our Amusement business, we will strive to further expand various products exploiting our "e-AMUSEMENT" services,including the MAH-JONG FIGHT CLUB series. We also plan to launch our newest music games, including Dance DanceRevolution superNOVA, a title received favorably at the AOU 2006 Amusement Expo held in February 2006, and a newdeparture video game, NOVA USAGI no GAME de RYUGAKU!? , whereby users can learn English in an enjoyable way as thoughit were a game and GRANDCROSS, an extra-large-scale token-operated pusher-machine game. In our Online business we plan to strengthen the community gaming features of Tokimeki Memorial ONLINE, a servicestarted from the end of March. We will also enhance our planning for various events and work proactively to put ouroriginal content games online. Konami Net DX, our mobile site in Japan, will be producing online versions of Konami'shome videogame masterpieces in Konami Masterpiece Series. We will also start providing services for Mobile PAWAFURUPUROYAKYU OFFICIALLY LICENCED 2006 as an independent site, adding actual player data to the database for the alreadypopular PAWAPURO series. In our Multimedia business we will be concentrating on the production of new animation works such as Fairy Muskteers.We also plan to aggressively develop related products. Also, terrestrial digital broadcasting of Fairy Muskteers isscheduled to start this summer. In our Digital Entertainment segment consisting of these five businesses, we are promoting cross-use of the contents.From April 2006, we developed line-ups of the popular WORLD SOCCER Winning Eleven series in multiple directions- producing games for institutional videogame machines in amusement arcades in addition to those for home videosoftware, distributing services for mobile phones, and selling the specialized magazines and music CDs with recordedtheme songs. We intend to promote these undertakings in the future to strengthen our profitability structure. Health & Fitness As for our directly managed facilities in our fitness club management business, we will strive to offer safe, clean,and comfortable facilities which provide wide-ranging services tailored to the diversified needs of customers of allages, from the viewpoint of the customers themselves. We also aim to manage sports clubs that promote health for peoplein local communities. In our entrusted management business, we will strive to expand profit-earning opportunities byapplying the know-how and experiences of the Konami Group to the entrusted management of public facilities. In the fitness products business, we intend to adapt to our aging and increasingly health-conscious society byplanning, producing, and offering health service products that maintain and improve the health of our customers on thebasis of the latest technology and health management know-how resulting from Konami's many years in the industry. Konami concluded a business alliance agreement with Resort Solution Co., Ltd. in March 2006. Through this alliance, weplan to provide high-level products and services closely tailored to the needs of our customers. The alliance willallow the joint development of facilities, products, and services with Konami Sports Clubs and the joint use offacilities by members of both companies. In May 2006, we plan to acquire shares of COMBI WELLNESS Corporation and makeit a wholly owned subsidiary of the Company. As a result of this, we intend to strengthen our line-up of health-relatedmachine products and further expand our market share. Gaming & System In February 2006 we established the Japan branch of Konami Gaming, Inc. (U.S.). The new branch will act as a center ofresearch and development activities for gaming machines in Japan. We plan to expand our business based on two pillars- the sales of slot machines, mainly video and mechanical slot machines, and the sale of casino managementsystems - by establishing an efficient and strategic development structure globally based on our three centers inthe U.S., Australia, and Japan. Casinos are expected to be legalized in expanding geographies in North America,including the State of Pennsylvania and Oklahoma thus expanding the existing market, and the demand for gaming machinesin Europe and Southeast Asia is also rising. In anticipation of the expanding demand in the casino market in thefuture, we will endeavor to enhance our business activities based on the structure of our three centers and bystrengthening software production, developing new mechanical reel machines, and improving customer services andtraining facilities at our new office building in North America. Regarding our forecast for consolidated results for the year ending March 31, 2007, the consolidated net revenues areexpected to be Y275,000 million, consolidated operating income is expected to be Y29,000 million, consolidated netincome before income taxes is expected to be Y28,500 million, and consolidated net income is expected to be Y16,000million. Konami operates a hit-business and takes in fluctuating net revenues throughout the year with the continuousintroduction of new products. In light of this, we will not disclose our forecast for the six months ending September30, 2006. In disclosing quarterly results, we intend to enhance the quality of our disclosure methods and the informationdisclosed. 2. Cash FlowsCash flow summary for the year ended March 31, 2006: Millions of Yen Year ended Year ended Year-on year March 31, 2005 March 31, 2006 change Net cash provided by operating activities Y 27,760 Y23,879 Y(3,881)Net cash used in investing activities (14,343) (7,266) 7,077Net cash used in financing activities (11,670) (38,330) (26,660)Effect of exchange rate changes on cash 951 828 (123)and cash equivalentsNet increase (decrease) in cash and cash 2,698 (20,889) (23,587)equivalentsCash and cash equivalents, end of the 89,583 68,694 (20,889)period Cash and cash equivalents (hereafter, referred to as "Net cash") amounted to Y68,694 million for the year ended March31, 2006, a decrease of Y 20,889 million, or 76.7% of figure for the year ended March 31, 2005. Cash flow summary for each activity for the year ended March 31, 2006 is as follows: Cash flows from operating activities: Net cash provided by operating activities amounted to Y 23,879 million for the year ended March 31, 2006. (86.0% offigure for the year ended March 31, 2005). This resulted from that net income increased from the period for March 31,2005, however it includes gain on sales of shares of an affiliated company of Y 6,917 million which does not effectoperating cash flows, and impairment of long lived assets and intangible fixed assets of Y 19,713 million which doesnot influence the operating cash flow. Cash flows from investing activities: Net cash used in investing activities amounted to Y 7,266 million for the year ended March 31, 2006. (50.7% of figurefor the year ended March 31, 2005). This resulted from the proceeds from sales of shares of affiliated companies of Y11,016 million and proceed from sale of property and equipment of Y2,455 million, offset by the capital expenditures ofY14,513 million for capital investment. Cash flows from financing activities: Net cash used in financing activities amounted to Y 38,330 million yen for the year ended March 31, 2006 (328.4% of forthe year ended March 31, 2005). This was primarily due to the redemption of bonds of Y 15,000 million, payment ofshort-term borrowing of Y 20,601 million and dividends payments of Y 7,025 million. The trends of cash flow index are as follows: Year ended Year ended March 31, 2005 March 31, 2006Equity-assets ratio (%) 34.8 54.1Equity-assets ratio at fair value (%) 93.4 134.4Years of debt redemption (years) 2.8 2.6Interest coverage ratio 28.6 21.0 Equity-assets ratio: Shareholders' equity / Total assets Equity-assets ratio at fair value: Total stockholders' equity at fair value /Total assetsYears of debt redemption: Interest-bearing debt / Cash flows from operatingactivitiesInterest coverage ratio: Cash flows from operating activities / Interest expense Notes: 1. Each index is calculated from figures prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). 2. Cash flows from operating activities are from the consolidated cash flow statement. 3. Interest-bearing debt covers all liabilities with interest in the consolidated balance sheet. Cautionary Statement with Respect to Forward-Looking Statements: Statements made in this document with respect to our current plans, estimates, strategies andbeliefs, including the above forecasts, are forward-looking statements (within the meaning ofSection 21E of the U.S. Securities and Exchange Act of 1934) about our future performance.These statements are based on management's assumptions and beliefs in light of informationcurrently available to it and, therefore, you should not place undue reliance on them. Anumber of important factors could cause actual results to be materially different from andworse than those discussed in forward-looking statements. Such factors include, but are notlimited to: (i) changes in economic conditions affecting our operations; (ii) fluctuations incurrency 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, whichare offered in highly competitive markets characterized by the continuous introduction of newproducts, rapid developments in technology and subjective and changing consumer preferences;(iv) our ability to successfully expand internationally with a focus on our video gamesoftware business, card game business and gaming machine business; (v) our ability tosuccessfully expand the scope of our business and broaden our customer base through ourexercise entertainment business; (vi) regulatory developments and changes and our ability torespond and adapt to those changes; (vii) our expectations with regard to furtheracquisitions and the integration of any companies we may acquire; and (viii) the outcome ofcontingencies. 4. Consolidated Balance Sheets (Unaudited) Thousands of Millions of Yen U.S. Dollars March 31, 2005 March 31, 2006 March 31, 2006 % %ASSETSCURRENT ASSETS:Cash and cash equivalents Y 89,583 Y 68,694 $ 584,779Trade notes and accounts receivable, net of 33,577 32,294 274,913allowance for doubtful accounts of Y604 millionsand Y541millions ($4,605 thousands) at March 31,2005 and March 31, 2006, respectivelyInventories 15,488 20,109 171,184Deferred income taxes, net 18,392 16,510 140,547Prepaid expenses and other current assets 4,898 6,720 57,206Total current assets 161,938 53.2 144,327 47.7 1,228,629 PROPERTY AND EQUIPMENT, net 46,595 15.3 42,452 14.0 361,386 INVESTMENTS AND OTHER ASSETS:Investments in marketable securities 165 572 4,869Investments in affiliates 5,184 6,050 51,503Identifiable intangible assets 45,991 38,575 328,382Goodwill 849 22,102 188,150Lease deposits 24,216 25,277 215,178Other assets 19,383 20,103 171,133Deferred Tax assets - 3,179 27,062Total investments and other assets 95,788 31.5 115,858 38.3 986,277TOTAL ASSETS Y 304,321 100.0 Y 302,637 100.0 $ 2,576,292 See accompanying notes to consolidated financial statements Thousands of Millions of Yen U.S. Dollars March 31, 2005 March 31, 2006 March 31, 2006 % %LIABILITIES AND SHAREHOLDERS' EQUITYCURRENT LIABILITIES:Short-term borrowings Y 8,582 Y 958 $ 8,155Current portion of long-term debt and capital 16,727 24,492 208,496lease obligationsTrade notes and accounts payable 16,134 19,357 164,782Accrued income taxes 28,372 7,487 63,735Accrued expenses 19,875 16,323 138,955Deferred revenue 5,396 5,353 45,569Other current liabilities 4,741 7,254 61,753Total current liabilities 99,827 32.8 81,224 26.9 691,445LONG-TERM LIABILITIES:Long-term debt and capital lease obligations, 52,780 35,631 303,320less current portionAccrued pension and severance costs 2,344 2,658 22,627Deferred income taxes, net 16,147 11,924 101,507Other long-term liabilities 1,879 5,264 44,811Total long-term liabilities 73,150 24.0 55,477 18.3 472,265TOTAL LIABILITIES 172,977 56.8 136,701 45.2 1,163,710 MINORITY INTEREST IN 25,487 8.4 2,121 0.7 18,056 CONSOLIDATED SUBSIDIARIES SHAREHOLDERS' EQUITY:Common stock, no par value-Authorized 450,000,000 shares; issued 47,399 15.6 47,399 15.7 403,499128,737,566 shares at March 31, 2005 and143,555,786 shares at March 31, 2006,respectivelyAdditional paid-in capital 46,736 15.4 77,110 25.5 656,423Legal reserve - - 284 0.1 2,417Retained earnings 37,776 12.4 53,756 17.7 457,615Accumulated other comprehensive income 2,217 0.7 3,957 1.3 33,685Total 134,128 44.1 182,506 1,553,639 60.3Treasury stock, at cost-6,403,439 shares and 9,256,155 shares at March (18,691) (6.2) (159,113)31, 2005 and March 31, 2006, respectively (28,271) (9.3)Total shareholders' equity 105,857 34.8 163,815 54.1 1,394,526TOTAL LIABILITIES,MINORITY INTERESTS AND Y 304,321 100.0 Y 302,637 100.0 $ 2,576,292SHAREHOLDERS' EQUITY See accompanying notes to consolidated financial statements 5. Consolidated Statements of Operations (Unaudited) Thousands of Millions of Yen U.S. Dollars Year ended March 31, Year ended March 31, 2005 2006 2006 % %NET REVENUES:Product sales revenue Y 183,030 Y 186,875 $ 1,590,832Service revenue 77,661 75,262 640,691Total net revenues 260,691 100.0 262,137 100.0 2,231,523COSTS AND EXPENSES:Costs of products sold 114,547 112,613 958,653Costs of services rendered 65,816 72,131 614,038Costs of impairment of long-lived assets - 10,533 89,665Costs of impairment of intangible assets - 9,180 78,148Selling, general and administrative 52,192 55,199 469,899Total costs and expenses 232,555 89.2 259,656 99.1 2,210,403Operating income 28,136 10.8 2,481 0.9 21,120OTHER INCOME (EXPENSES):Interest income 518 716 6,095Interest expense (971) (1,137) (9,679)Gain on sale of shares of affiliated 563 6,917 58,883companiesOther, net (804) (539) (4,588)Other income (expenses), net (694) (0.3) 5,957 2.3 50,711INCOME BEFORE INCOME TAXES, MINORITY INTEREST 27,442 10.5 8,438 71,831AND EQUITY IN NET INCOME (LOSS) OF AFFILIATEDCOMPANIES 3.2INCOME TAXES:Total 7,902 3.0 (10,270) (3.9) (87,427)INCOME BEFORE MINORITY INTEREST AND EQUITY IN 19,540 7.5 18,708 7.1 159,258NET INCOME (LOSS) OF AFFILIATED COMPANIESMINORITY INTEREST IN INCOME OF CONSOLIDATED 2,761 1.1 (4,267) (1.7) (36,324)SUBSIDIARIESEQUITY IN NET INCOME (LOSS) OF AFFILIATED (6,293) (2.4) 33 0.0 281COMPANIESNET INCOME Y 10,486 4.0 Y 23,008 8.8 $ 195,863 PER SHARE DATA: Yen U.S. Dollars Year ended March 31, Year ended March 31, 2005 2006 2006Basic net income per share Y87.41 Y175.86 $1.49Diluted net income per share 87.41 175.80 1.49Weighted-average common shares outstanding 119,970,052 130,835,422 See accompanying notes to consolidated financial statements 6. Consolidated Statements of Shareholders' Equity (Unaudited) Millions of Yen Common Additional Legal Retained Accumulated Treasury Total Stock Paid-in Earnings Other Stock, Shareholders' Capital Reserve Comprehensive Equity Income (Loss) at CostBalance at March 31, Y 47,399 Y 46,736 - Y 33,779 Y (119) Y Y102,1292004 (25,666)Net Income 10,486 10,486Cash dividends, Y 54.0 (6,489) (6,489)per Share Foreign currency 2,285 2,285 translationadjustmentsNet unrealized gains on (20) (20) available-for-salesecuritiesMinimum pension 71 71liability adjustmentRepurchase of treasury (2,605)stock (2,605)Balance at March 31, Y 47,399 Y 46,736 - Y 37,776 Y 2,217 Y Y105,8572005 (28,271)New share issued due 33,095 33,095to merger withsubsidiaries and stockexchangeDecrease due to (2,818) (2,818)disposal of treasurystockIncrease due to 97 97issuance of stockoptionsTransfer from Retained 284 284EarningsNet income 23,008 23,008Cash dividends, Y 54.0 (6,744) (6,744)per ShareTransfer to Legal (284) (284)ReserveForeign currency 1,888 1,888 translationadjustmentsNet unrealized gains on (132) (132) available-for-salesecuritiesMinimum pension (16) (16)liability adjustmentAcquisition of treasury (71) (71)stockUse of treasury stock 18,064 18,064for mergerDecrease due to 39 39execution of stockoptionsParent company stocks (8,452) (8,452)acqired by itssubsidiariesBalance at March 31, Y 47,399 Y 77,110 Y 284 Y 53,756 Y 3,957 Y (18,691) Y 163,8152006 See accompanying notes to consolidated financial statements Thousands of U.S. Dollars Common Additional Legal Retained Accumulated Treasury Total Stock Paid-in Earnings Other Stock, Shareholders' Capital Reserve Comprehensive Equity Income (Loss) at Cost $Balance at March 31, $ 403,499 $ 397,855 - $ 321,580 $ 18,873 (240,666) $901,1412005 New share issued due 281,731 281,731to merger withsubsidiaries andstock exchangeDecrease due to (23,989) (23,989)disposal of treasurystockIncrease due to 826 826issuance of stockoptionsTransfer from 2,417 2,417Retained EarningsNet income 195,863 195,863Cash dividends, $ (57,410) (57,410)0.46 per shareTransfer to Legal (2,418) (2,418)ReserveForeign currency 16,072 16,072 translationadjustmentsNet unrealized gains (1,124) (1,124)on available-for-salesecuritiesMinimum pension (136) (136)liability adjustmentAcquisition of (604) (604)treasury stockUse of treasury stock 153,775 153,775for mergerDecrease due to 332 332execution of stockoptionsParent company stocks (71,950) (71,950)owned by itssubsidiariesBalance at March 31, 2006 $ 403,499 $ 656,423 $ 2,417 $ 457,615 $ 33,685 $ (159,113) $ 1,394,526 See accompanying notes to consolidated financial statements 7. Consolidated Statements of Cash Flows (Unaudited) Thousands of Millions of Yen U.S. Dollars Year ended Year ended Year ended March 31, 2005 March 31, 2006 March 31, 2006Cash flows from operating activities:Net income Y 10,486 Y 23,008 $ 195,863Adjustments to reconcile net income to net cash provided by operating activities -Depreciation and amortization 10,913 15,219 129,556Reversal for doubtful receivables (400) (10) (85)Costs of impairment of long-lived assets - 10,533 89,665Costs of impairment of intangible assets - 9,180 78,148Loss on sale of Investment securities 46 - -Gain on sale of shares of an affiliated company (563) (6,917) (58,883)Equity in net loss (income) of affiliated companies 6,293 (33) (281)Minority interest 2,761 (4,267) (36,324)Deferred income taxes (7,615) (5,485) (46,693)Change in assets and liabilities, net of businessacquired:Decrease (increase) in trade notes and accounts (5,632) 3,422 29,131receivableDecrease (increase) in inventories 2,949 (949) (8,079)Increase in trade notes and accounts payable 352 2,945 25,070Increase (decrease) in accrued income taxes 4,954 (20,772) (176,828)Increase (decrease) in accrued expenses 617 (3,043) (25,904)Decrease in deferred revenue (640) (43) (366)Other, net 3,239 1,091 9,287Net cash provided by operating activities 27,760 23,879 203,277Cash flows from investing activities:Proceeds from sales of shares of affiliated 1,407 11,016 93,777companiesCapital expenditures (15,818) (14,513) (123,546)Proceeds from sales of property and equipment 696 2,455 20,899Proceeds from sales of investments in marketable 22 - -securitiesAcquisition of new subsidiaries, net of cash - 1,433 12,198acquiredExpenditure on acquisition of shares of affiliated - (5,993) (51,018)companiesDecrease (increase) in lease deposits, net (542) (697) (5,933)Expenditure on acquisition on minority interests - (695) (5,916)Other, net (108) (272) (2,315)Net cash used in investing activities (14,343) (7,266) (61,854)Cash flows from financing activities:Net increase (decrease) in short-term borrowings 6,001 (12,551) (106,844)Repayments of long-term debt (1,177) (1,099) (9,355)Principal payments under capital lease obligations (2,255) (2,526) (21,503)Dividends paid (7,963) (7,025) (59,803)Purchases of treasury stock by parent company (2,605) (48) (409)Purchases of treasury stock by subsidiaries (3,593) - -Redemption of bonds - (15,000) (127,692)Other, net (78) (81) (690)Net cash used in financing activities (11,670) (38,330) (326,296)Effect of exchange rate changes on cash and cash 951 828 7,049equivalentsNet increase in cash and cash equivalents 2,698 (20,889) (177,824)Cash and cash equivalents, beginning of the year 86,885 89,583 762,603Cash and cash equivalents, end of the year Y 89,583 Y 68,694 $ 584,779 See accompanying notes to consolidated financial statements 8. Segment Information (Unaudited) (1) . Operations in Different IndustriesYear ended March 31, Digital Health & Gaming & Other, Consolidated 2005 Entertainment Fitness System Corporate and Eliminations Million of YenNet revenue: Customers Y 162,797 Y 78,843 Y 11,641 Y 7,410 Y 260,691 Intersegment 874 263 2 (1,139) - Total 163,671 79,106 11,643 6,271 260,691Operating expenses 131,018 77,059 10,201 14,277 232,555Operating income Y 32,653 Y 2,047 Y 1,442 Y (8,006) Y 28,136 Year ended March 31, Digital Health & Gaming & Other, Consolidated 2006 Entertainment Fitness System Corporate and Eliminations Million of YenNet 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 expenses 131,426 98,268 10,563 19,399 259,656Operating income Y 33,850 Y (17,059) Y 60 Y (14,370) Y 2,481 Year ended March 31, Digital Health & Gaming & Other, Consolidated 2006 Entertainment Fitness System Corporate and Eliminations (Thousands of U.S. Dollars)Net revenue: Customers $ 1,392,900 $ 690,534 $ 90,415 $ 57,674 $ 2,231,523 Intersegment 14,063 783 17 (14,863) - Total 1,406,963 691,317 90,432 42,811 2,231,523Operating expenses 1,118,804 836,537 89,921 165,141 2,210,403Operating income $ 288,159 $ (145,220) $ 511 $ (122,330) $ 21,120 Notes: 1. Primary businesses of each segment are as follows: 1. Digital Entertainment: In accordance with change in the digital entertainment market, the company newly established two areas - online and multimedia in addition to the existing three areas - computer & video games, toy & hobby and amusement. Computer & Video Games: Production and sale of home-use video game software Toy & Hobby: Production and sale of character related products Amusement: Manufacture and sale of amusement arcade games and LCD units for pachinko machines Online: Development of online game systems, Administration of online servers, Contents delivery for cellular phones Multimedia: Plan, production and sale of packaged commodities relating to music and image, planning, production and sale of books and magazines 3. Health & Fitness: Operation of health and fitness clubs, production and sale of health and fitness related goods. 2. Gaming: Manufacture and sale of gaming machines for overseas market 2 In response to the reorganization of Digital Entertainment business, we rearranged the classification of financial results for the year ended March 31, 2006. 3. "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." 4. "Corporate" primarily consists of administrative expenses of the Company. 5. "Eliminations" primarily consist of eliminations of intercompany sales and of intercompany profits on inventories. 6. Intersegment revenues primarily consist of sales of hardware and components from Digital Entertainment Segment to Health & Fitness Segment. 7. Gaming segment renamed to Gaming & System segment from October 1, 2005. (2). Operations in Geographic AreasYear ended March 31, Japan Americas Europe Asia Total Eliminations Consolidated2005 /Oceania (Millions of Yen)Net revenue: Customers Y 176,566 Y 41,480 Y 34,878 Y 7,767 Y 260,691 - Y 260,691 Intersegment 57,123 1,593 450 419 59,585 Y (59,585) - Total 233,689 43,073 35,328 8,186 320,276 (59,585) 260,691Operating expenses 211,500 41,682 32,207 6,684 292,073 (59,518) 232,555 Operating income Y 22,189 Y 1,391 Y 3,121 Y 1,502 Y 28,203 Y (67) Y 28,136 Year ended March 31, Japan Americas Europe Asia Total Eliminations Consolidated2006 /Oceania (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 Year ended March 31, Japan Americas Europe Asia Total Eliminations Consolidated2006 /Oceania (Thousands of U.S. Dollars)Net revenue: Customers $ 1,643,892 $ 287,707 $ 233,140 $ 66,784 $ 2,231,523 - $ 2,231,523 Intersegment 268,051 13,153 7,679 3,072 291,955 $ (291,955) - Total 1,911,943 300,860 240,819 69,856 2,523,478 (291,955) 2,231,523Operating expenses 1,894,602 320,831 231,387 58,696 2,505,516 (295,113) 2,210,403Operating income $ 17,341 $ (19,971) $ 9,432 $ 11,160 $ 17,962 $ 3,158 $ 21,120 Note: 1. For the purpose of presenting its operations in geographic areas above, Konami and its subsidiaries are based on revenues from external customers to individual countries in each area based on where products are sold and services are provided. (Subsequent Events) None 9. Non-consolidated Financial Results for the Year Ended March 31, 2006 (Prepared in Accordance with Japanese GAAP) May 17, 2006 KONAMI CORPORATIONAddress: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, JapanStock Code Number, TSE: 9766Ticker symbol, NYSE: KNMURL: www.konami.netShares Listed: Tokyo Stock Exchange, New York Stock Exchange, London Stock Exchange and Singapore ExchangeRepresentative: Kagemasa Kozuki, Chairman of the Board and Chief Executive OfficerContact: Noriaki Yamaguchi, Representative Director and Chief Financial Officer (Phone:+81-3-5220-0163)Date of Board Meeting toapprove the financialresults: May 17, 2006Date of General ShareholdersMeeting: June 29, 2006Date of dividend payment: June 30, 2006Adoption of interim dividedsystem: YesAdoption of unit trading Yes (1 Unit: 100 Shares)system: 1. Financial Results for the Year Ended March 31, 2006 (1) Results of Operations (Figures truncated) Net revenues Year-on-year Operating Year-on-year Ordinary Year-on-year (millions of change (%) income change (%) income change (%) yen) (millions of (millions of yen) yen)Year ended Y 122,591 (8.6) Y 14,305 235.7 Y 19,291 43.5March 31, 2006Year ended 134,117 (8.5) 4,261 (68.0) 13,447 (20.5)March 31, 2005 Net income Year-on-year Net income Diluted net Return on Return on Ratio of (millions change (%) per share income per equity total ordinary share assets income to of yen) (yen) (yen) (%) (%) net revenues (%)Year ended Y 16,572 29.5 Y124.75 Y124.71 12.5 9.9 15.7March 31, 2006Year ended 12,794 23.2 105.33 - 11.7 7.3 10.0March 31, 2005 Notes: 1. Weighted-average common share outstanding: Year ended March 31, 2006: 131,089,462 shares Year ended March 31, 2005: 119,970,052 shares 2. Change in accounting policies: None3. Change (%) of net revenues, operating income, ordinary income and net income represents the increase or decrease ratio in relation with the previous year. (2) Dividends Cash dividends per share Annual Interim Year-end Total dividend Pay-out ratio Dividend rate payout for shareholder's equity (yen) (yen) (yen) (millions of (%) (%) yen) Year ended Y 54.00 Y 27.00 Y 27.00 Y 7,303 43.3 4.8March 31, 2006Year ended 54.00 27.00 27.00 6,461 51.3 5.8March 31, 2005 (3) Financial Position Total assets Total shareholders' Equity-assets Total shareholders' (millions of yen ) equity ratio equity per share (millions of yen) (%) (yen) March 31, 2006 Y 202,303 Y 153,339 75.8 Y 1,092.15March 31, 2005 187,798 111,423 59.3 931.24 Notes: Number of shares outstanding March 31, 2006 140,200,828 shares March 31, 2005 119,481,411 shares Number of treasury stock March 31, 2006 3,354,958 shares March 31, 2005 9,256,155 shares 2. Financial Forecast for the Year Ending March 31, 2007 Net revenues Ordinary Net income Cash dividends per share income (millions of (millions of yen) (millions of yen) yen) Interim Year-end Annual (yen) (yen) (yen) Six months ending 27.00 - - September 30, 2006Year ending - 27.00 54.00March 31, 2007 Notes:Forecast of Net income (loss) per share for the year ending March 31,2007 is Yen Non-consolidated financial forecast for the year ending March 31, 2007 is not disclosed. 10. Non-consolidated Financial Statements (1) Non-consolidated Balance Sheets (Unaudited) (Millions of Yen) March 31, 2005 March 31, 2006 % %ASSETS CURRENT ASSETS: Cash and cash equivalents Y 37,121 Y 43,980 Trade accounts receivable (Note 2) 18,233 - Finished products 2,846 - Raw materials and supplies 719 - Work in process 2,019 - Advances (Note 2) 3,862 - Prepaid expenses 577 45 Deferred tax assets 9,719 891 Short-term loans to subsidiaries 3,192 12,890 Other accounts receivable 1,244 1,192 Other 567 188 Allowance for bad debts (199 ) (18 ) Total current assets 79,904 42.5 59,170 29.3 FIXED ASSETS: Tangible fixed assets (Note 1) Building improvement 356 37 Structures 1 - Machinery 0 - Transportation equipment 3 4 Tools and fixtures 1,596 39 Construction in process 27 - Total tangible fixed assets 1,986 1.1 81 0.0 Intangible fixed assets In-house software 5,899 3 In-house software development in progress 5,427 - Other 5 0 Total intangible fixed assets 11,332 6.0 3 0.0 Investments and other assets Investment securities 360 952 Investments in subsidiaries and affiliates 87,318 139,628 Long-term loans to subsidiaries 1,496 - Receivables from customers in bankruptcy 98 - proceedings Long-term prepaid expenses 61 - Deferred tax assets 2,380 544 Lease deposits 2,459 1,264 Other 511 658 Allowance for bad debts (111 ) - Total investments and other assets 94,574 50.4 143,048 70.7 Total fixed assets 107,894 57.5 143,132 70.7TOTAL ASSETS Y 187,798 100.0 Y 202,303 100.0 See accompanying notes to non-consolidated financial statements (Millions of Yen) March 31, 2005 March 31, 2006 % % LIABILITIES AND SHARHOLDERS' EQUITY CURRENT LIABILITIES: Trade notes payable Y 5,662 Y - Trade accounts payable (Note 2) 8,589 - Short-term borrowings 15,000 15,000 Current portion of long-term debt 912 1,992 Other accounts payable (Note 2) 2,443 6,356 Accrued expenses 4,843 128 Income taxes payable 3,245 6,791 Short-term deposits received 136 138 Other 173 243 Total Current liabilities 41,008 21.9 30,651 15.2 LONG-TERM LIABILITIES: Straight bonds 30,000 15,000 Long-term debt 3,972 1,980 Liability for directors' retirement benefits 1,354 1,332 Long-term deposits received 41 - Total long-term liabilities 35,367 18.8 18,312 9.0 Total liabilities 76,375 40.7 48,963 24.2 SHAREHOLDERS' EQUITY: Common stock (Note 3) 47,398 25.2 47,398 23.4 Additional paid-in capital 47,106 25.1 43,568 21.6 Legal Reserve - 283 Retained earnings 45,188 24.1 72,262 35.9 General reserve 29,094 34,094 Unappropriated earned surplus 16,093 38,168 Net unrealized gains on 0 0.0 64 0.0 available-for-sale securities Treasury Stock (Note 5) (28,271 ) (15.1 ) (10,238 ) (5.1 ) Total shareholders' equity 111,423 59.3 153,339 75.8TOTAL LIABILITIES ANDSHAREHOLDERS' EQUITY Y 187,798 100.0 Y 202,303 100.0 See accompanying notes to non-consolidated financial statements (2) Non-consolidated Statements of Operations (Unaudited) (Millions of Yen) Year ended Year ended March 31, 2005 March 31, 2006 % %Net revenues (Note 1) Y 134,117 100.0 Y 122,591 100.0Cost of revenues (Note 1) 107,121 79.9 75,499 61.6 Finished goods, beginning of year 4,287 2,846 Purchases 19,560 8,935 Cost of goods manufactured 76,514 52,135 Less: Transfer to other accounts (Note 2) 104 115 Loss on company separation - 2,481 Finished goods, end of year 2,846 - Royalty expenses (Note 3) 9,711 14,178 Gross profit 26,995 20.1 47,091 38.4 Selling, general 16.9 32,786 26.7 22,733 and administrative expenses (Note 4, 5) Operating income 4,261 3.2 14,305 11.7Non-operating income 9,838 7.3 5,679 4.6 Interest income 64 56 Dividend income (Note 1) 9,418 5,360 Foreign exchange gains 245 139 Other 109 122Non-operating expenses 652 0.5 693 0.6 Interest expenses 153 64 Bond interest expenses 400 346 Other 98 282 Ordinary income 13,447 10.0 19,291 15.7Extraordinary income 1,722 1.3 5,707 4.7 Gain on sales of shares of affiliated 703 5,555 companies Gain on reversal of allowance - 151 for doubtful accounts Gain on reversal of allowance for loss 1,019 - incurred by subsidiariesExtraordinary losses 67 0.1 247 0.2 Loss on sale and disposal of fixed assets 67 247 (Note6) Income before income taxes 15,102 11.2 24,751 20.2Income taxes 2,308 1.7 8,178 6.7 Current 4,410 8,803 Deferred (2,102 ) (625 ) Net income 12,794 9.5 16,572 13.5 Unappropriated earned surplus carried forward 6,534 7,710 Transfer from legal reserve - 17,402 Interim cash dividends 3,235 3,518 Unappropriated earned surplus Y 16,093 Y 38,168 See accompanying notes to non-consolidated financial statements Statement of Cost of Goods Manufactured (Unaudited) (Millions of Yen) Year ended Year ended March 31, 2005 March 31, 2006 % % 1 Material cost Y 49,811 65.6 Y 25,916 45.8 2 Contract processing cost 1,222 1.6 1,308 2.3 3 Labor cost 628 0.8 636 1.1 4 Overhead cost (Note 2) 1,340 1.8 2,133 3.8 5 Production cost (Note 3) 22,940 30.2 26,627 47.0 Total manufacturing cost for the year 75,944 100.0 56,623 100.0 Work in process, beginning of year 2,597 2,019 Less: Loss on company separation - 6,499 Work in process, end of year 2,019 - Transfer to other accounts 8 7 Cost of goods manufactured Y 76,514 Y 52,135 Notes:1. Process costing is applied to calculate cost of products other than production cost which is calculated by job-order costing. 2. Major portion of overhead cost is follows: (Millions of Yen) Year ended Year ended March 31, 2005 March 31, 2006 Depreciation expense Y 412 Y 375 External service fee 131 16 Supplies expense 75 50 3. Major portion of production cost consists of the following: (Millions of Yen) Year ended Year ended March 31, 2005 March 31, 2006 Personnel expense Y 2,917 Y 11,786 Depreciation expense 260 903 Contract production expense 16,122 5,808 Other 3,640 8,129 Total Y 22,940 Y 26,627 (3) Proposed Appropriation Plan of Earned Surplus (Unaudited) (Millions of Yen) Year ended Year ended March 31, 2005 March 31, 2006Unappropriated earned surplusat year-end Y 16,093 Y 38,168Appropriations Cash dividends 3,225 3,785 Directors' bonuses 157 220 (General reserve) 5,000 18,000Unappropriated earned surplus carried forward Y 7,710 Y16,162 Basis of Presentation The accompanying non-consolidated financial statements of the Company have been prepared in accordance with accountingprinciples 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 and long term prepaid expenses 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.5. 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.6. 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) Allowance for employees' retirement benefits (Prepaid pension expense) 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 will be amortized from the following fiscal year within the average remaining service period of 8 years on a straight-line basis.(c) Allowance for directors' retirement benefits Required amount for retirement benefits to be paid to directors as of balance sheet date is reserved as liability.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. Change in Accounting Method1. Accounting Standard for Impairment losses on Fixed Assets Effective from the fiscal year 2005, the Company adopted "Accounting Standard on Impairment losses on Fixed Assets" (Opinion Statement for Impairment losses on Fixed Assets, which was issued by Accounting Standards Board of Japan on August 9, 2002) and "Implementation Guidance for Accounting Standards for Impairment losses on Fixed Assets" (Financial Accounting Standards Implementation Guidance No.6 on October 31, 2003). The effect of adoption was none to the Company's net income. 2. Accounting Standard for Retirement Benefits Effective from the fiscal year 2005, the Company adopted "Revised Accounting Standards for Retirement Benefits" (Financial Accounting Standards No.3 on March 16, 2005) and "Implementation Guidance for Accounting Standards for revised Accounting Standards for Retirement Benefits" (Financial Accounting Standards Implementation Guidance No.7 on March 16, 2005). The effect of adoption on the Company's net income was immaterial. Notes to Non-consolidated Financial Statements Notes to Non-consolidated Balance Sheets1. Accumulated depreciation of tangible fixed assets is as follows: (Millions of Yen) March 31, 2005 March 31, 2006 Accumulated depreciation of tangible fixed Y 3,949 Y 204 assets 2. Assets and liabilities to subsidiaries and affiliated companies other than the separately stated accounts are as follows: (Millions of Yen) March 31, 2005 March 31, 2006Trade accounts receivable Y 17,958 -Advances 3,852 -Trade accounts payable 3,575 -Account payable - Y 5,961 3. Number of shares at year-end is as follows: (Thousands of shares) March 31, 2005 March 31, 2006Shares authorized 450,000 450,000Shares issued and outstanding 128,737 143,555 4. The Company guarantees subsidiaries' loans payable to financial institutions as follows: (Millions of Yen) March 31, 2005 March 31, 2006 Konami Gaming, Inc. - Y 352 (3,000 thousands dollars) Total - Y 352 5. The Company holds 9,256,155 shares and 3,354,958 shares of the treasury stock at the year ended at March 31, 2005and 2006, respectively. 6. Increased Net Assets evaluated in fair market value based on Article 124-3 of the Commercial Code of Japan. 0million yen and 64 million yen at the year ended at March 31, 2005 and 2006, respectively. 7. Increased number of shares issued Merger Share exchangeIssuance date April 1, 2005 March 1, 2006Number of shares 10,794,142 4,024,078Issued amount - -Amount transferred to be capital - - Notes to Non-consolidated Statements of Operations 1. Non-consolidated statements of operations include inter-company transactionsas follows: (Millions of Yen) Year ended Year ended March 31, 2005 March 31, 2006Net sales Y 133,209 Y 68,562Purchases 23,399 3,406Dividend income 9,412 5,354 2. Transfer to other accounts represents the transfer of Y 104 millions and Y 115 millions to selling, general and administrative expenses for the year ended March 31, 2005 and 2006, respectively. 3. Royalty expenses consist of the royalties paid in relation to manufacturing and sales activities by Digital Entertainment business segment. 4. Major portion of selling, general and administrative expenses consists of the following: (Millions of Yen) Year ended Year ended March 31, 2005 March 31, 2006 Advertising expenses Y 7,362 Y 7,548Selling expenses 754 2,206Salary expenses 3,037 3,746Depreciation expense 1,183 4,965Rental expenses 3,231 3,597External service fee 3,370 5,011Selling expenses portion 36.0% 37.6%General and administrative expenses portion 64.0 62.4 5. General and administrative expenses include research and development expenses of Y 486 millions and Y 1,191 millions for the year ended March 31, 2005 and 2006, respectively. 6. Loss on sale and disposal of fixed assets consists of the following: (Millions of Yen) Year ended Year ended March 31, 2005 March 31, 2006Disposal of structures - 22Sales and disposal of tools and fixtures 28 124Disposal of software 38 100Total Y 67 Y 247 Leases Finance leases other than those deemed to transfer ownership of leased property to the lessee: 1. Acquisition cost, accumulated depreciation, accumulated impairment and endingbalance of leased assets (Millions of Yen) March 31, 2005 March 31, 2006 Acquisition Accumulated Ending Acquisition Accumulated Ending cost depreciation cost depreciation balance balanceSoftware Y 10 Y 4 Y 6 - - -Tools and fixtures 772 419 353 Y 70 Y 51 Y 19Total Y 782 Y 423 Y 359 Y 70 Y 51 Y 19 2. Obligations under finance leases (Millions of Yen) March 31, 2005 March 31, 2006Due within one year Y 166 Y 9Due after one year 209 10Total Y 375 Y 20 3. Lease payments, reversal of impairment on lease assets, depreciation expense,interest expense and impairment loss (Millions of Yen) Year ended Year ended March 31, 2005 March 31, 2006Lease payments Y 211 Y 15Depreciation expense 202 14Interest expense 6 0 4. Depreciation expense is computed according to the straight-line method with lease term as useful life and salvagevalue of zero. 5. Interest expense is defined as the difference between total lease payment and acquisition cost, and allocated usingthe effective interest method to each period. Impairment There is no impairment loss allocated to lease assets. Investments in Subsidiaries and Affiliated Companies Investments in subsidiaries and affiliated companies as of each balance sheet date are as follows: (Millions of Yen) March 31, 2005 March 31, 2006 Balance Market Differences Balance Market Differences sheet value sheet value amount amount Investments in subsidiaries Y 1,312 Y 49,991 Y 48,679 Y 8,167 Y 7,728 Y (438) Investments in affiliated 12,194 14,756 2,562 5,993 6,593 600 companies Total Y 13,506 Y 64,748 Y 51,241 Y 14,160 Y 14,322 Y 161 Income Taxes 1. Major portion of deferred tax assets and deferred tax liabilities consists ofthe following: (Millions of Yen) March 31, 2005 March 31, 2006Deferred tax assets:Liability for director's retirement benefits Y 551 Y 542Allowance for loss incurred by subsidiaries 167 -Accrued expenses 2,560 891Inventories 6,959 -In-house software development 1,443 -Property & Equipment basis differences - 10Other 731 45Sub total 12,412 1,490Less: Valuation allowance (301) (9)Total deferred tax assets Y 12,111 Y 1,480Deferred tax liabilities:Net unrealized losses on available - for-sale - (44)securities Other (11) -Total deferred tax liabilities Y (11) Y (44)Deferred tax assets - net Y 12,099 Y 1,436 2. A reconciliation between the normal effective statutory tax rate and the actual effective tax rate was omitted forthe year ended March 31, 2005 and reflected in the accompanying non-consolidated statements of operations for the yearended March 31, 2006 as follows: Year ended Year ended March 31, 2005 March 31, 2006Normal effective statutory tax rate 40.7% 40.7%Permanently non-deductible expenses mainlyEntertainment expenses 0.8 0.2Permanently non-taxable income mainlyDividend income (8.7) (6.0)Per capital portion of inhabitants taxes 0.1 0.2IT investment tax reduction (5.4) (3.3)Tax credit (11.3) (1.2)Valuation Allowance (2.8) (1.2)Other - net 1.9 3.6Actual effective tax rate 15.3% 33.0% (Subsequent Events) None 11. Changes in Board of Directors None This information is provided by RNS The company news service from the London Stock Exchange