Nintendo 2005 Annual Report Download - page 37

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Nintendo Co., Ltd. and consolidated subsidiaries
During the fiscal year ended March 2005, worldwide hardware sales in the video game industry showed a downward trend due
to saturation within the market. As for software, the “gamer drift” phenomenon seen in the Japan market has become more
prominent. In markets outside of Japan, software sales were heavily centered on sequels, sports games, and movie-based titles
which caused slower growth of the entire market, leaving the overall software business in a difficult situation.
In an effort to expand in this difficult environment, Nintendo Co., Ltd. (the “Company”) and its subsidiaries (together with
the Company, “Nintendo”) launched Nintendo DS, a brand new handheld device. Nintendo DS joins the Nintendo GameCube
and Game Boy Advance in Nintendo’s hardware lineup. This new system is equipped with dual screens, touch screen technology,
wireless network, and microphone port, which enables anyone to easily play and provides an unprecedented gaming
experience. In addition, a variety of software is being developed that is intuitive and easy to control, putting novice and expert
gamers on the “same starting line” and providing everyone with a fresh experience.
As for future efforts, Game Boy Micro, a new stylish and compact handheld device that enables users to play all Game Boy
Advance software, will be available in fall of 2005. Also, Nintendo’s next console, code-named Revolution, is being developed
under the theme “All-Access Gaming” and is aimed at increasing the gaming population by welcoming a wide variety of new
customers to the world of video games. Revolution will launch in 2006.
Overview
Game Boy Advance software titles “Pokémon FireRed/LeafGreen” provide a whole new gaming experience through a wireless
communication adapter. These titles were released outside of Japan in Fiscal 2005 following their 2004 Japan launch and
became a smash hit, selling more than 6 million units worldwide. “The Legend of Zelda: The Minish Cap”, a game that lets the
main character change body size during the adventure, sold more than a million units. In addition, to commemorate the
twentieth anniversary of Famicom, the “Famicom Mini” series, which enables users to enjoy Famicom software on the Game
Boy Advance system, provided new appeal to those who have turned away from recent video games. Sales for the “Famicom
Mini” series were particularly strong in Japan. Sales of the entire series exceeded 6 million units worldwide. Furthermore, in an
effort to expand sales during the holiday season, a price cut was initiated in September on Game Boy Advance SP hardware,
gathering further support from customers.
Nintendo DS hardware, which was launched in Japan and the United States at the end of last year and in Europe this March,
reached more than 5.2 million in unit sales during a short period of time. Software such as “Super Mario 64 DS” and
“WarioWare: Touched!” contributed to the successful launch by selling more than a million units each worldwide. In the U.S.
and Europe, initial shipments of Nintendo DS hardware were packaged with a playable demo, entitled “Metroid Prime Hunters:
First Hunt”, which appealed to fans because of its unique blend of action, combat and exploration. Also, the “Touching is
Good” campaign, which was one of the largest launch programs ever employed by Nintendo in the U.S. gathered interest from
a broad consumer audience.
As for console-type software, 6 titles for Nintendo GameCube sold more than a million units. Two examples include “Paper
Mario: The Thousand-Year Door”, which allows players to embark on mysterious adventures with Mario in a picture book based
setting, and “Mario Party 6”, which provides a new gaming experience with the use of a microphone.
Consolidated net sales in Fiscal 2005 reached ¥515.0 billion ($4,813 million). Gross margin was ¥217.4 billion ($2,032
million). The gross margin rate increased by 2% compared with the previous fiscal year, reaching 42%. Selling, general and
administrative expenses amounted to ¥103.9 billion ($971 million). Operating income was ¥113.5 billion ($1,060 million) as the
operating income ratio increased by 1% compared with the previous fiscal year to 22%. Interest income was ¥13.5 billion ($126
million), while foreign exchange gain was ¥21.8 billion ($204 million) due to Japanese yen depreciation. As a result, net income
reached ¥87.4 billion ($817 million). The net income ratio increased by 11% compared with the previous fiscal year to 17%.
Revenue and Expenses
At March 31, 2005, Nintendo’s cash and cash equivalents were ¥792.7 billion ($7,409 million).
Net cash provided by operating activities was ¥116.6 billion ($1,089 million), a decrease of ¥3.5 billion compared with the
previous fiscal year. The increase in accounts receivable and inventory contributed to the overall decrease.
Net cash used in investing activities was ¥11.7 billion ($109 million), Payments for investments in securities mainly contributed
to the overall decrease.
Net cash used in financing activities was ¥61.4 billion ($574 million) with the dividend payout and payments for purchase of
treasury stock in conformity with the board of directors resolution accounting for a significant portion of the activity.
Cash Flow
Analysis of Operations and Financial Review