Nintendo 2005 Annual Report Download - page 38

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Nintendo Co., Ltd. and consolidated subsidiaries
37
Nintendo’s financial position continues to be very strong.
At March 31, 2005 total liabilities were ¥210.8 billion ($1,970 million), and the current ratio was 4.84:1. The balance of cash
and cash equivalents was 3.76 times total liabilities. Working capital was ¥788.4 billion ($7,369 million). The number of days’
sales in receivables did not change from 28 days compared with the previous fiscal year. The number of days’ sales in inventories
was 29 days. Liabilities-to-equity ratio was 0.23:1 at March 31, 2005.
Financial Position
Listed below are the various risks that could significantly affect Nintendo’s operating performance, share price, and financial
condition. However, unpredictable risks may exist other than the risks set forth herein.
Note that matters pertaining to the future presented herein are determined by Nintendo as of fiscal year ended March 31, 2005.
(1) Risks around economic environment
•Fluctuation in foreign exchange rates
Nintendo distributes its products globally with overseas sales accounting for more than 70% of total sales. The majority of
monetary transactions are made in local currencies. In addition, the Company holds a substantial amount of assets
denominated in foreign currencies without exchange contracts. Thus, fluctuation in foreign exchange rates would have a
direct influence on earnings if foreign currencies were converted to Japanese yen or revaluated for financial reporting
purposes. Japanese yen appreciation against the U.S. dollar or Euro would have a negative impact on Nintendo’s profitability.
(2) Risks around business activities
•Fluctuation of the market
Nintendo is engaged in a business categorized under the massive entertainment industry. Therefore, the availability of other
forms of entertainment affects Nintendo’s business. If consumer preferences shift to other forms of entertainment, it is possible
that the video game market may shrink. In the field of computer entertainment as well, the emergence of new competitors
resulting from technological innovation could have a detrimental impact.
•Development of new products
Although Nintendo continues to develop innovative and appealing products, in the field of computer entertainment, the
development process is complicated and includes many uncertainties. Various risks involved are as follows:
①Despite the substantial costs and time needed for software development, there is no guarantee that all new products will
be accepted by consumers due to ever shifting consumer preferences. As a result, development of certain products may be
suspended or aborted.
②Hardware requires a long term development span. While technological advancements occur continuously, it is possible that
the Company may be unable to acquire the necessary technology which can be utilized in entertainment. Furthermore, in
the case of a delayed launch, it is possible that market share can be adversely affected.
③Due to the nature of Nintendo products, actual development and distribution may significantly differ from projections.
•Product valuation and adequate inventory procurement
Products in the video game industry are strongly affected by customers’ preferences as well as seasonality characterized by short
product life cycles and sharp increases in demand around the holiday season. Although production is targeted at the equilibrium
point of supply and demand, accurate projections are extremely difficult to obtain which may lead to the risk of excessive
inventory. In addition, inventory obsolescence could have an adverse effect on Nintendo’s operations and financial position.
Risk Factors
During the fiscal year ended March 31, 2005, the Nikkei stock average declined slightly to ¥11,668.95 ($109.06). The
Company’s stock price rose 11% and ended the year at ¥11,700 ($109.35). The Company raised its annual dividend by ¥130
($1.21) to ¥270 ($2.52) per share for Fiscal 2005. On a consolidated basis, the dividend payout ratio was approximately 41%.
Foreign shareholders constituted 38% of total outstanding shares at March 31, 2005.
(Note) The amounts presented herein are stated in Japanese yen and have been translated into U.S. dollars solely for the convenience of readers
outside Japan at the rate of ¥107 to US$1, the approximate rate of exchange at March 31, 2005.
Common Stock Activity