Nintendo 2006 Annual Report Download - page 19

Nintendo Co., Ltd. and consolidated subsidiaries
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Nintendo’s financial position continues to be very strong.
At March 31, 2006 total liabilities were ¥186.4 billion ($1,593 million), and the current ratio was 5.59 to 1. The balance of
cash and cash equivalents was 3.31 times total liabilities. Working capital was ¥836.5 billion ($7,149 million). The receivable
turnover period increased by 6 days compared with the previous fiscal year to 34 days. Inventories were ¥30.8 billion ($264
million). The inventory turnover period was 29 days. The debt-to-equity ratio was 0.19 to 1 at March 31, 2006.
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 annual consolidated fiscal
period ended March 31, 2006.
(1) Risks around economic environment
•Fluctuation in foreign exchange rates
Nintendo distributes its products globally with overseas sales accounting for approximately 70% of total sales. The majority
of monetary transactions are made in local currencies. In addition, the Company holds a substantial amount of assets
including cash deposits denominated in foreign currencies without exchange contracts. Thus, fluctuation in foreign exchange
rates would have a direct influence on earnings not only if foreign currencies were converted to Japanese yen but also if
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 and competition in 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. The emergence of new competitors resulting from technological innovation could have
a detrimental impact as well.
In the video game industry, it may become even more difficult to generate profit as more research and development expenses
and marketing expenses are required and as price competition intensifies with giant enterprises entering into the market. As a
result, Nintendo may find difficulty in maintaining or expanding its market share as well as sustaining profitability.
•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:
① Despite 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.
② Hardware 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 could be adversely affected.
③ Due to the nature of Nintendo products, it may become difficult to sell or develop the products as planned which could
lead to significant variances from income projections.
Risk Factors
During the fiscal year ended March 31, 2006, the Nikkei stock average rose 46% to ¥17,059.66 ($145.81). The stock price of
Nintendo Co., Ltd. (“the Company”) rose 50% and ended the year at ¥17,600 ($150.43). The Company raised its annual
dividend level by ¥120 ($1.03) to ¥390 ($3.33) per share for Fiscal 2006. On a consolidated basis, the dividend payout ratio was
approximately 51%. Foreign shareholders constituted 41% of total outstanding shares at March 31, 2006.
(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 ¥117 to US$1, the approximate rate of exchange at March 31, 2006.
Common Stock Activity