Doc.02 99.9.30 6:31 PM Page H2 COMPANY PROFILE … · launch Resident Evil 3 Nemesis and a brand...

Fiscal 1999 was another highly successful andproductive year at Capcom. We reported goodfinancial results, with net sales at ¥38,367 millionand net income at ¥1,507 million, or ¥43.00 pershare. We released 54 products, many successfulsequels becoming long-lasting franchises. Wecommanded 9.2% of the consumer game consolemarket and entered the Nintendo 64 platformmarket. We released a number of products in Japanfor the new Sega Dreamcast home video gameconsole. And we took steps to maintain and buildfurther on our creative leadership by strengtheningour internal development groups and solidifying amultiple platform strategy.

We have strengthened our worldwide sales,marketing and distribution organizations to preparefor our most aggressive product lineup in years. Tocapitalize and enhance our strategic position in theEuropean market, we created Capcom Eurosoft, asubsidiary of Capcom Entertainment, Inc.

Clearly we are pleased with the Company’s progressduring the year, and we believe Capcom is wellpositioned to build on this momentum and leveragethe leadership role we have established in ourgrowing industry. The resulting improvement inhardware technology has increased product realism,enhanced overall game play and attracted anincreasing number of consumers, making interactivesoftware a mainstream entertainment category.Capcom has capitalized on this market opportunityby continuing to develop high quality titles and keybrands, and promoting them through targetedmarketing initiatives including national television

advertising and incentive-based consumerpromotions such as our innovative Fighters Edgeprogram.

With the new millennium on the horizon, the businessworld is on the brink of change. We are entering anage where consumers will have the power of choice.Bidding farewell to mass consumption, we will seethe development of an information-centered societywhich contributes to a higher level of customersatisfaction as well as increased environmentalawareness. And in the years to come, the world willcontinue to change at a faster rate than ever.

At the leading edge of the software age, theamusement industry has achieved continuous growthby habitually absorbing and assimilating up-to-the-minute technology. Capcom has created original andunique game genres that surpass all others byconstantly exploring the meaning of “amusement”and developing products that delight our customers.To reach this goal, we have strengthened ourorganizational skills by providing an environment thatenables every employee to show their prowess andestablishing a flexible system that can adapt to thechanges of the times.

In our quest to provide unique experiences withimages, music, screenplay, and amusement spots,Capcom aims to lead the software age and to takeadvantage of the unfolding possibilities in order tocreate inspiration for the 21st century.

Capcom’s performance goals for fiscal 2000 are toexpand our position as a leading provider of exciting,high-quality interactive entertainment software onmultiple platforms, to continue to emphasizeprofitability by maintaining strict cost controls, andmanage the risks associated with softwaredevelopment to maximize shareholder value.

We want to thank all of our employees, customers,and business partners for another year of success.And we thank you, our shareholders, for yourcontinued support. We look forward to reporting onCapcom’s progress in the months and years ahead.

Kenzo TsujimotoPresident

1

COMPANY PROFILE

A leading company in the amusementindustry, Capcom develops, publishes anddistributes a variety of software games forboth arcade machines and home videoconsoles. We also operate amusementfacilities at 47 locations in Japan. Since thefoundation of the company in May 1979, wehave taken a leading role in the entertainmentsoftware industry and have continued torespond to the demand and expectations ofcustomers. In March 1991, we achieved thetop position in the arcade game industry withthe Street Fighter series. Subsequently we

have succeeded in producing one hit afteranother, and the release of Resident Evil inMarch 1996 established a new genre,"Survival Horror", which is unrivaled by ourcompetitors. Popular all over the world, theoutstanding Resident Evil series hascontributed enormously to Capcom's growth.In addition to our existing overseassubsidiaries in the United States and Asia, weestablished Capcom Eurosoft in London,England in July 1998, as a main sales base forthe European home video game market.

CAPCOM’S MANAGEMENT GOALS

Producing multiple variations of high-quality software

Delivering the enjoyment of our software games to more customers

Financial management with emphasis on cash flow

Cultivating professional human resources

TABLE OF CONTENTSPresident’s Message .............................................1Management Innovation .......................................2Sales Innovation ...................................................4Development Innovation .......................................6Capcom’s Franchise Assets ...................................8Corporate History ...............................................10Five-Year Summary.............................................11Business Evaluation and Analysis ........................12Financial Statements ..........................................14Notes to Consolidated Financial Statements .......19Report of Independent Accountants ....................24Shareholder Information .....................................24Corporate Information ........................................25

PRESIDENT’S MESSAGE

Doc.02 99.9.30 6:31 PM Page H2

3

2

MANAGEMENT INNOVATION

Improving cash flowthrough stronger management

Today there are so many entertainmentsoftware companies that only the games whichmeet consumer demand with the power toreally captivate players will endure. Ashardware’s technological advance continues,software development takes a longer period oftime and more cost. Capcom established astrong financial control system and we are ableto provide adequate financial resources tosecure well experienced and highly talenteddevelopment professionals.

Capcom’s management strength lies in ourorganization structure which facilitates fastdecision-making. We endeavor to take thenecessary steps to evaluate and improve ourfinancial status in a timely manner.Designating 1998 as “Cash Flow Year One”,we have been working to strengthen ourbalance sheet position. Although we recordedspecial losses due to the liquidation of CapcomMexico and re-evaluation of certain assets heldby our subsidiaries, we were able to establish abase for cash flow expansion by liquidating

these unprofitable divisions and nonperformingassets. Aiming for management based onmarket value of assets and operations, wemoved forward with our measures to reinforcemanagement of cash flow, evaluation of profitby each game, and control of return oninvestment. Considering the rapidly changingmarket, we have repositioned our developmentstaff in the arcade game and home video gamedivisions to maximize sales of game softwarewith higher profit margins. By improving ourfinancial position and achieving a higheroperating income margin, our goal is toincrease net worth ratio.

To reinforce our view on maximizingshareholders’ value, we implemented a stockoption program for all employees, the firstcompany in the industry to do so. This programwill boost the morale of our staff, enabling usto improve performance and strive formanagement innovation.

95

(13,

909)

1,75

6

9,70

6

15,0

43

5,74

7

96 97 98 99

Operating cash flow (¥million)

95

(300

.71)

(76.

64)

14.2

9

(135

.24)

43.0

0

96 97 98 99

Earnings per share (¥)

950 0

1.4

0

5.0

96 97 98 99

ROE (%)

95 96 97 98 99

32.2

29.630.6

29.4

30.7

Net worth ratio (%)

Doc.02 99.9.30 5:11 PM

5

4

SALES INNOVATION

The entertainment software market hasexperienced phenomenal growth with annualsales of more than ¥580 billion in Japan alone.While software companies traditionally developproducts for specific game consoles, Capcomis a multi-platform developer and publisher.This term, we launched a total of 54 differenttitles, comprising 23 for Sony PlayStation, 14for Sega Saturn, two for Sega Dreamcast, andone for Nintendo 64. Next term we plan tolaunch Resident Evil 3 Nemesis and a brandnew game, Dino Crisis, for the PlayStationconsole, a new game called Resident Evil CodeVeronica for the Dreamcast console, andResident Evil 2 for the Nintendo 64 console.Capcom is the first in the industry to attemptto produce hit games for all three of the majorgame console manufacturers. Through ourmulti-platform strategy, we are able to achievea substantial income increase by multiplyingthe number of viable users. Furthermore, weare able to lay the foundations for futureproduct development, using our accumulatedassets of know-how and technology to producegames that make the best use of each consoleplatform’s special features. We implementedour multi-platform strategy with the belief thatthe most important factor in video game salesis enabling every fan with every platform toenjoy Capcom games.

Introduced in the USA last year, the FightersEdge program offers advantages to theconsumer for purchasing multiple Capcomfighting games and benefits the retailer bygenerating store traffic. This program alsoprovides advertising support to retail storesand largely contributes to increased sales byproducing a strong affiliation with Capcom.

Taking further advantage of our coin-operatedbusiness, Capcom has entered another growingmarket — family amusement centers.Capcom’s Nickel City family amusementfacilities continue to grow at a steady rateacross America. A growing trend in Japan andin the USA, Capcom’s Nickel City hassucceeded in attracting a large customer base,offering services that meet consumer’sexpectations, and contributing to thedevelopment of the region by providing a safeenvironment at a low price. Our continuedawareness of the changing times, and ourcommitment to providing consumers with thehigh-quality products and services they require,allows Capcom to adapt and excel in this ever-changing market. Capcom currently has 47arcade facilities in Japan and seven in theUnited States.

95 96 97 98 99

6,684

4,871

8,7949,713

6,904

174

284

577

554

610

PlayStation ■Sega Saturn ■Dreamcast ■

Nintendo 64 ■Super Famicom ■

GameBoy ■

5,501

71.16.3

5.9

5.7

2.9

1.8

6.3

Game software sales by hardware platform (thousands of units)

Ratio of Capcom's software releases by hardware platform (FY 99)

(%)

Increasing revenue withoriginal multi-platform strategy

Nickel City

Plaza Capcom Kichijoji

Street Fighter Alpha 3 for arcade games

The latest addition to the Street Fighter series that established Capcom as the leader in fighting games.

Street Fighter Alpha 3 for arcade games

The latest addition to the Street Fighter series that established Capcom as the leader in fighting games.

Doc.02 99.9.30 6:05 PM Page 4

7

6

DEVELOPMENT INNOVATION

Cultivating the talentto produce chart-topping games

Capcom’s research and development ability isone of the best in the interactive entertainmentindustry. Our Osaka, Japan office designs anddevelops coin-operated and home videogames. In Tokyo, our Flagship Corporation is incharge of screenplay production and story linedevelopment. Digital Studios, our R&D divisionin Sunnyvale, California designs and developsoriginal products for the US market.

Using the state-of-the-art 3D polygontechniques, Capcom’s video games are knownfor incredibly realistic graphics, lifelikecharacters and powerful sound effects. Thepotential for developing games with a highlevel of perfection has been enhanced byintense internal competitiveness. Ourdevelopment and research staff, whose workincludes game concept planning, characterdesign, background graphic design, soundproduction and programming, constitute 60%of the total work force. The internaldevelopment system has contributedenormously to the accumulation of know-howand cultivation of a talented work force. Whenit comes to investing in people Capcom sparesno expense. Our producer system, which wasstarted five years ago, has proved verysuccessful in motivating each R&D staffmember to produce excellent work, and 25employees have now grown to becomeproducers. The development and sale of simpleyet advanced software generates revenuewhich in turn enables us to reinvest in

strengthening our development skills.

The establishment of screenplay-planningcompany Flagship is also helping to strengthenour game contents. The Resident Evil series,with its story line created by Flagship, requiresplayers to crack the mystery and try to escapein addition to simply destroying the zombies,and has succeeded in attracting more usersacross a broader age spectrum. Flagship isenthusiastically working on new projects suchas developing a series of games to bepublished on a monthly magazine-type basis.

In light of the popularization of network-typegames in the USA, we are developing anetwork version of Street Fighter Alpha 3 forDreamcast in Japan, which will be released inJuly 1999. We will continue to develop network-type games as they grow in popularity.

The coin-operated game market continues tobe a viable business and the springboard towhich many of our home video games areconceived. Using Sega Dreamcast’s coin-op PCboard“Naomi,” we developed Power Stone forarcades. One week after its release, welaunched a home-video console version for theDreamcast console. Producing this populargame for both arcade and home video gamesis one of our development strategies to achievehigh profitability reaching a wide range ofgame players with lower development costs.

R&D Center

Doc.02 99.9.30 5:25 PM Page 6

9

8

CAPCOM’S FRANCHISE ASSETS

Creating new gamesin an ever-changing market

Number of game releases in Capcom's history

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

Total118

4

4

6

5

10

10

10

7

5

7

10

10

9

11

10

0

2

3

6

8

10

15

13

17

21

27

18

26

22

44

232

Arcade Game Home Video Game

As many as 350 different games have beenproduced in Capcom’s 16-year history. Many ofCapcom’s well-known titles continue to receivesupport from around the world. Examplesinclude the timeless Street Fighter hero series,the ever-popular fast-paced Mega Man series,the comical Darkstalkers monster series, andthe captivating Breath of Fire heroic fantasyseries. Capcom has etched a firm position inthe entertainment software industry byreleasing one series after another of gameswith a wide range of characters that fascinateplayers of all ages.

Capcom is also well-known for establishingnew genres with its pioneer spirit. It wasResident Evil that clearly paved the way for“survival horror,” one of the most populargenres to date. Produced by Capcom, ResidentEvil has been the driving force in positioningthe PlayStation as the leading console in thehome video game hardware market. Capcom is

one of the most influential software companiescontributing to the success of new hardwareplatforms. The Resident Evil series, whichincludes Resident Evil 2, has already soldapproximately 11 million units as of March1999. Resident Evil 3 Nemesis will be releasedin the next fiscal year ending March 2000.

Since we are committed to providing gamesthat live up to expectations, there areoccasions when our dedication to creating anoutstanding product extends the developmentspan. Dino Crisis, for example, was originallyslated for release within the fiscal year endedMarch 1999 and then unavoidably postponeduntil next term. Dino Crisis, a dinosaur horrorgame, has been rendered with extremely closeattention to detail, and enormous amounts ofdata were used to accurately reproduce thedinosaurs. We anticipate that the release ofthis game will establish a new genre called“panic horror.”

Resident Evil 2Power Stone Breath of Fire III

Doc.02 99.9.30 5:27 PM Page 8

Five-Year Summary 11

Five-Year SummaryYears ended March 31, 1999, 1998, 1997, 1996 and 1995

10 Corporate History

Corporate History

1979May Capcom is established as a manufacturer and distributor of

electronic game machines.

1983Oct. Tokyo branch office opens.

1985Jul. A contract is concluded with Nintendo Co., Ltd. for the sale of

Nintendo Entertainment System software.

Aug. Capcom U.S.A., Inc. is established in California.

1988May An important contract is concluded with Walt Disney Company

for the development and marketing of games featuring Disneycharacters.

Jul. The CP System, Capcom’s unique hardware system for arcadegame machines, is put on the market.

1989Apr. Capcom enters the rental arcade game machine business.

May Matsubara Works opens in Osaka Prefecture.

1990Mar. The head office building opens.

Oct. Over-the-counter trading of Capcom stock begins.

Dec. Employee recreation facilities in Mie Prefecture are completed.

1991Feb. Sapporo sales office opens.

Apr. Fukuoka sales office opens.

Nov. Convertible bonds due 1996 (SF100 million) payable in Swissfrancs are issued.

1992Feb. Hirano Works opens in Osaka Prefecture.

Capcom Europe GmbH is established in Germany to spearheadsales for the European region.

Jul. Sendai sales office opens.

Sep. Nagoya sales office opens.

Oct. Convertible bonds due 1996 (¥20 billion) are issued.Kanto, Kinki, and Okayama sales offices open.

1993Mar. Contract with Sega Enterprises, Ltd. is concluded for the

manufacture and sale of video game software.

Apr. Capcom enters the amusement facilities business.

May Convertible bonds due 1997 (¥12 billion) are issued.

Jul. Capcom Asia Co., Ltd. is established in Hong Kong to lead salesfor the China and Southeast Asia region. Niigata sales office opens.

Aug. Trading unit changes from 1,000 to 100.

Oct. The company’s stock is listed in the second section of the OsakaSecurities Exchange.Capcom Mexico S.A. DE C.V. is established, bringing thecompany into the growing Central and South American markets.

1994May Ueno Works opens in Mie Prefecture.

Jun. Convertible bonds due 2001(¥25 billion) are issued.Convertible bonds due 2005(¥20 billion) are issued.

Jul. New head office opens.

Aug. Release of the animated movie Street Fighter II.

Dec. Release of the action movie Street Fighter.

1995Jun. Capcom Coin-Op Inc., Capcom Entertainment, Inc. and

Capcom Digital Studios, Inc. are established with CapcomU.S.A., Inc. as the holding company.

Aug. Matsubara Works is merged into Ueno Works and shuts down.

1996Mar. Construction of Research and Development Building begins.Dec. Hirano Works is merged into Ueno Works and shuts down.

1998Jul. Capcom Eurosoft. Ltd. is established to sell Capcom’s products

in Europe.

1999Mar. Kita Kanto sales office opens.

For the Year:Net salesOperating income Income (loss) before income taxesNet income (loss)

Per Share Data:Net income (loss) per share, primaryCash dividends

At Year-end:Total assetsShareholders’ equityShareholders’ equity per share

Ratios (%):Return on equity (ROE)Return on assets (ROA)Net worth ratio

Note: U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥120 to $1. Amounts per share are computed based on weighted average method and are retroactively adjusted for the effect of the stock splits.

Millions of yen,except per share amounts

Thousands ofU.S. dollars,

except per shareamounts (Note 1)

1999 1998 1997 1996 1995 1999

¥ 38,367

3,611

2,085

1,507

43.00

20.00

98,127

30,125

862.96

5.0

1.5

30.7

¥ 58,201

10,366

(3,696)

(4,760)

(135.24)

20.00

100,833

29,612

841.35

—

—

29.4

¥ 41,650

5,296

3,995

502

14.29

53.00

118,330

36,267

1,030.42

1.4

0.4

30.6

¥ 40,448

1,139

(497)

(2,697)

(76.64)

15.00

123,323

36,467

1,036.11

—

—

29.6

¥ 52,250

(7,403)

(10,871)

(10,583)

(300.71)

30.00

129,777

41,734

1,185.92

—

—

32.2

$ 319,725

30,092

17,375

12,558

0.36

0.17

817,725

251,042

7.19

Financial.01 99.9.30 6:39 PM Page 10

Business Evaluation and Analysis 1312 Business Evaluation and Analysis

Business Evaluation and Analysis

Due to such factors as the postponedrelease of mainstream games, net salesdecreased 34.1% to ¥38,367 million andnet income at ¥1,507 million over lastterm.

General Overview of Each Business Segment

Arcade Games

Street Fighter Alpha 3 enjoyed firmpopularity and steady sales both in Japanand overseas, and Street Fighter Ex 2 andJOJO’s Venture also produced good results.However, sluggish demand had a negativeimpact on the industry’s business climate,causing sales of other products to level off,and net sales in this division decreased48.1% to ¥7,177 million over last term.We also recorded an operating loss of¥1,506 million, a substantial decrease by¥2,476 million over last term.(The arcade game segment develops,manufactures, distributes and/or rentsarcade game software and hardware toamusement facility operators.)

Home Video Games

Resident Evil 2 commanded good sales,especially in Europe, and existing gamessuch as Resident Evil 2 Dual Shock Version

and Resident Evil Director’s Cut Dual ShockVersion were selling well both in Japan andoverseas since the brand has become ahousehold name. However, with the releaseof the highly anticipated Dino Crisispushed back to next term, net sales weredown 28.6% to ¥22,451 million andoperating income fell 42.8% to ¥6,700million over last term.

Other

Capcom’s Nickel City family amusementfacilities continued to grow both in Japanand overseas. Nickel city is a new type ofamusement facility that provides a low-costarcade experience in a family-orientedatmosphere while charging admission. Byproviding a safe environment at areasonable price, we are contributing to thedevelopment of the community. We alsoheld a variety of other events. Throughthese operations we endeavored to attract abroader spectrum of users includingfamilies and casual game players. However,revenue from the screening of Hollywoodmega hit Street Fighter decreased slightly,and sales of LCDs for pachinko machineswere held back until next term. As a result,net sales fell 31.5% to ¥9,148 million, andoperating income increased by ¥750million to ¥687 million.

Financial Situation

Total assets at the end of the term weredown 2.7% to ¥98,127 million becauseinvestments and other assets as well asfixed assets decreased. The total of currentliabilities and fixed liabilities decreased4.5% to ¥67,975 million. Short-termborrowings, which come under currentliabilities, decreased mainly because as offiscal 1998, loans from banks are to berepaid annually in fixed amounts throughan agreement with the bank. Long-termdebt, which comes under fixed liabilities,decreased because items due to be repaidwithin one year were transferred to thecurrent portion of long-term debt. As aresult, the total of short-term borrowingsand long-term debt decreased 4.0% to¥58,053 million.At the end of the term, shareholder’s equitywas up 1.7% over last term to ¥30,125million.

Cash Flow

Due to the delayed release of mainstreamsoftware, cash and time deposits at the endof the term decreased 7.3% to ¥12,026million.We are endeavoring to improve ourfinancial constitution by focusing on

a consolidated accounting system andworking to strengthen the balance sheet.We are also striving to maintain a stablefinancial base in order to expand cash flow.By continuing to launch high-qualityunique products on the market, we aim tofurther increase cash flow, which willenable us to repay convertible bonds duein September 2001 and September 2005using our own funds.

The Year 2000 Issue

We are working throughout the companyto achieve Year 2000 compliance for ourentire product lineup as well as internalinformation systems. Furthermore, we areconducting research on actual conditionsand implementing measures with closeattention to Y2K impact on both profitand society. We are also fully prepared witha contingency plan to cover fiscal 2000.

Outlook

During fiscal 2000, with the launch of thepostponed mainstream games and newgames in the internationally acclaimedResident Evil series, we anticipate that netsales and operating income will increaseover this term.

0

10,000

20,000

30,000

40,000

50,000

60,000

95 96 97 98 99

52,250

40,448 41,650

58,201

38,367

■ Arcade games ■ Home video games ■ Other

95 96 97 98 99

-10,000

-12,000

-8,000

-6,000

-4,000

-2,000

0

2,000

(10,583)

(2,697)

502

(4,760)

1,507

95 96 97 98 99

129,777123,323 118,330

100,833 98,127

0

30,000

60,000

90,000

120,000

150,000

95 96 97 98 99

41,734

36,467 36,267

29,612 30,125

0

10,000

20,000

30,000

40,000

50,000

NET SALES BY BUSINESS SEGMENT (millions of yen)

NET INCOME (millions of yen)

TOTAL ASSETS (millions of yen)

TOTAL SHAREHOLDERS’ EQUITY(millions of yen)


Consolidated Balance Sheets 1514 Consolidated Balance Sheets

Consolidated Balance SheetsCapcom Co., Ltd. and its consolidated subsidiaries ● March 31, 1999 and 1998

Assets

Current assets:Cash and time depositsNotes and accounts receivable —

Trade OtherAllowance for doubtful accounts

Short-term loans receivableInventories (Note 4)Capitalized development costsPrepaid expensesDeferred income taxes Other

Total current assets

Investments and other assets:Investments in securities (Note 5)Long-term loans receivableLong-term prepaid expensesDeferred income taxesOtherAllowance for doubtful accounts

Total investments and other assets

Property, plant and equipment (Notes 6 and 7):LandBuildings and structuresMachinery and equipmentConstruction in progressAccumulated depreciation

Total property, plant and equipment

Excess cost over net assets of acquired subsidiaries

Translation adjustments

Total assetsThe accompanying notes are an integral part of these statements.

Millions of yen

Thousands ofU.S. dollars

(Note 1)1998

¥ 12,974

8,0642,454

( 2,512)1,7127,2513,5332,789

42,290

38,559

2,37520,6961,374

3965,524

( 8,482)

21,883

26,29813,70614,991

13( 15,511)

39,497

114

780

¥ 100,833

1999

¥ 12,026

8,0742,948

( 2,912)3,3725,6327,790

8707

734

38,541

2,06715,577

1,147138

5,111( 3,784)

20,256

26,27713,43614,352

83( 15,526)

38,622

32

676

¥ 98,127

1999

$ 100,217

67,28324,567

( 24,267)28,10046,93364,917

7,25058

6,117

321,175

17,225129,808

9,5581,150

42,592( 31,533)

168,800

218,975111,967119,600

691( 129,383)

321,850

267

5,633

$ 817,725

Liabilities and Shareholders’ Equity

Current liabilities:Short-term borrowings (Note 7)Current portion of long-term debt (Note 7)Notes and accounts payableAccrued expensesAccrued income taxes (Note 8)Other

Total current liabilities

Long-term liabilities:Long-term debt (Note 7)Accrued retirement allowances (Note 9)Other

Total long-term liabilities

Minority interest in a consolidated subsidiary

Shareholders’ equity (Note 11):Common stock, ¥50 par value —

Authorized — 69,000,000 sharesIssued — 35,196,011 shares

Capital surplusAccumulated deficitTreasury stock (Note 10)

Total shareholders’ equity

Total liabilities and shareholders’ equity

Millions of yen


(Note 1)1998

¥ 14,279386

4,2291,765

1302,866

23,655

45,786130

1,628

47,544

22

18,21121,098

( 9,697)—

29,612

¥ 100,833

1999

¥ 12,373645

2,9111,772

2233,190

21,114

45,035168

1,658

46,861

27

18,21121,098

( 8,786)( 398)

30,125

¥ 98,127

1999

$ 103,1085,375

24,25814,7671,858

26,584

175,950

375,2921,400

13,816

390,508

225

151,758175,817

( 73,217)( 3,316)

251,042

$ 817,725


Consolidated Statements of Shareholders’ Equity 17

Consolidated Statements of Shareholders’ EquityCapcom Co., Ltd. and its consolidated subsidiaries ● Years ended March 31, 1999 and 1998

16 Consolidated Statements of Operations

Consolidated Statements of OperationsCapcom Co., Ltd. and its consolidated subsidiaries ● Years ended March 31, 1999 and 1998

Net sales

Cost of sales

Gross profit

Selling, general and administrative expensesResearch and development expenses

Operating income

Other income (expense):Interest and dividend incomeInterest expensesExchange gain, netGain on sales of investments in securitiesLoss on sales or disposition of property,

plant and equipmentWrite off of investments in securitiesSpecial losses, mainly for liquidation of

an unconsolidated subsidiary (Note 12)Other, net

Income (loss) before income taxes

Income taxes (Note 8):CurrentDeferred

Minority interest in a consolidated subsidiary, credit

Net income (loss)

Per share amounts:Net income (loss)Cash dividends paid

The accompanying notes are an integral part of these statements.

Millions of yen


(Note 1)1998

¥ 58,201

33,300

24,901

11,5872,948

10,366

743( 1,001)

623—

( 311)( 670)

( 12,867)( 579)

( 3,696)

160912

1,072

8

(¥ 4,760)

(¥ 135.24)20.00

1999

¥ 38,367

22,723

15,644

10,6191,414

3,611

348( 616)( 598)

307

( 88)( 143)

—( 736)

2,085

317255572

( 6)

¥ 1,507

¥ 43.0020.00

1999

$ 319,725

189,358

130,367

88,49211,783

30,092

2,900( 5,133)( 4,983)

2,558

( 734)( 1,192)

—( 6,133)

17,375

2,6422,1254,767

( 50)

$ 12,558

$ 0.360.17

Common stock:Balance at beginning of year

Balance at end of year

Capital surplus:Balance at beginning of year


Accumulated deficit:Balance at beginning of yearNet income (loss) for the yearCash dividendsBonuses to directors and statutory auditorsEffect of changing reporting entities



Millions of yen


(Note 1)1998

¥ 18,211

¥ 18,211

¥ 21,098

¥ 21,098

(¥ 3,042)( 4,760)( 1,865)( 30)

—

(¥ 9,697)

1999

¥ 18,211

¥ 18,211

¥ 21,098

¥ 21,098

(¥ 9,697)1,507

( 701)—

105

(¥ 8,786)

1999

$ 151,758

$ 151,758

$ 175,817

$ 175,817

($ 80,808)12,558

( 5,842)—

875

($ 73,217)

yen U.S. dollars


Notes to Consolidated Financial Statements 19

Notes to Consolidated Financial StatementsCapcom Co., Ltd. and its consolidated subsidiaries ● Years ended March 31, 1999 and 1998

18 Consolidated Statements of Cash Flows

Consolidated Statements of Cash FlowsCapcom Co., Ltd. and its consolidated subsidiaries ● Years ended March 31, 1999 and 1998

Cash flows from operating activities:Net income (loss)Adjustments to reconcile net income (loss) to net

cash provided by operating activities —Depreciation and amortizationProvision for doubtful accountsSpecial losses, mainly for liquidation of

an unconsolidated subsidiaryDecrease (increase) in notes and accounts receivableDecrease (increase) in inventoriesIncrease (decrease) in notes and accounts payableOther

Total adjustments

Net cash provided by operating activities

Cash flows from investing activities:Proceeds from sales of facilitiesAcquisition of property, plant and equipmentDecrease (increase) in short-term loans receivableDecrease in marketable securitiesOther

Net cash provided by (used in) investing activities

Cash flows from financing activities:Net repayments of short-term borrowings

and current portion of long-term debtRepayments of long-term debtCash dividends paidOther

Net cash used in financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash

Cash and time deposits at beginning of year

Cash and time deposits at end of year


Millions of yen


(Note 1)1998

(¥ 4,760)

3,157962

12,867( 447)

4,9191,115

( 2,770)

19,803

15,043

1,454( 2,490)

1,1236,351

( 756)

5,682

( 11,068)( 610)( 1,895)

1,515

( 12,058)

( 267)

8,400

4,574

¥ 12,974

1999

¥ 1,507

2,828887

—( 1,068)( 2,626)( 1,192)

5,411

4,240

5,747

116( 2,346)( 1,454)

—393

( 3,291)

( 997)( 309)( 701)( 132)

( 2,139)

( 1,265)

( 948)

12,974

¥ 12,026

1999

$ 12,558

23,5677,392

—( 8,900)( 21,883)( 9,933)

45,091

35,334

47,892

967( 19,550)( 12,117)

—3,275

( 27,425)

( 8,308)( 2,575)( 5,842)( 1,100)

( 17,825)

( 10,542)

( 7,900)

108,117

$ 100,217

1. MAJOR POLICIES IN PREPARINGCONSOLIDATED FINANCIALSTATEMENTS:

The accompanying consolidated financial statements which are atranslation of those publicly issued in Japan after modification toenhance readers’ understanding are prepared in accordance withaccounting principles generally accepted in Japan, which aredifferent in certain respects to the application and disclosurerequirements of International Accounting Standards.

In addition, the notes to the consolidated financial statementsinclude financial information which is not required underaccounting principles generally accepted in Japan, but is presentedherein as additional information.

The U.S. dollar amounts are included solely for convenience.These translations should not be construed as representations thatthe Japanese yen amounts actually represent, or have been or couldbe converted into, U.S. dollars. As the amounts shown in U.S.dollars are for convenience only, and are not intended to becomputed in accordance with generally accepted translationprocedures, the rate of ¥120=US$1, the approximate current rateprevailing on March 31, 1999, has been used for the purpose ofpresentation of the U.S. dollar amounts in the accompanyingconsolidated financial statements.

2. SIGNIFICANT ACCOUNTING POLICIES:

(1) Consolidation and accounting for investments inaffiliates

The consolidated financial statements consist of the accounts ofCapcom Co., Ltd. (the “Company”) and, with minor exceptions,those of its majority-owned subsidiaries at the relevant balance sheetdate. All significant inter-company transactions and accounts areeliminated.

Investments in unconsolidated subsidiaries are accounted for on acost basis because their effect on the consolidated financialstatements is insignificant.

The difference between the cost and underlying net equity ofinvestments in consolidated subsidiaries is deferred and amortizedon a straight line method over a five-year period, with the exceptionof minor differences which are charged or credited to income in theperiod of acquisition.

(2) Revenue recognitionRevenue from sales of products are recognized when products areshipped to customers.

Motion picture revenue is recognized on the dates of theatricalexhibition.

(3) Statement of cash flowsA portion of cash in excess of daily requirements is invested intemporary cash investments, mainly consisting of time deposits,which are low risk short-term financial instruments readilyconvertible to known amounts of cash. The Company deems thetime deposits as cash equivalents for the purposes of the statement ofcash flows.

(4) Translation of foreign currenciesForeign currency amounts are translated into Japanese yen at therates prevailing at the relevant balance sheet date for short-termassets and liabilities and at historical rates for long-term assets andliabilities. When the historical exchange rates differ significantlyfrom the year-end rates, the year-end rates are used to translate thelong-term assets or liabilities. Receivable and payable in foreigncurrency hedged by forward exchange contracts are translated intoJapanese yen at the contracted rates of exchange. Income andexpenses in foreign currencies are translated at the rates prevailing atthe time of the transactions. Resulting exchange gains or losses arecredited or charged to income as incurred.

All of assets, liabilities, income and expenses of foreign subsidiariesin the financial statements of foreign subsidiaries are translated intoJapanese yen at the rates in effect at the balance sheet date, exceptfor shareholders’ equity which is translated at the rates prevailing atthe time when transaction occurred and the resulting translationdifferences are debited or credited to the translation adjustmentsaccounts of the consolidated financial statements in accordance with“Accounting Standards for Foreign Currency Transactions, etc.”

(5) Marketable securities and investments in securitiesMarketable equity securities and other marketable securities both ofcurrent and non-current nature are stated the lower of cost ormarket. Other security investments are stated at cost.

The cost of securities sold is determined based on the average costof all such securities held at the time of sale.

(6) InventoriesInventories are stated at the lower of cost or market, cost beingprincipally determined by the average cost method.

Capitalized development costs of game software for 32-bit and 64-bit game machines are stated at accumulated cost on a specificproject basis.

Development costs incurred at subcontractors are presented ascapitalized development costs and are charged to cost of sales whenrevenues are recognized for the year ended March 31, 1999. Untiland including the year ended March 31, 1998, such developmentcosts incurred at subcontractors had been presented as prepaidexpenses and had been charged to research and developmentexpenses when revenues had been recognized. As a result of thischange, cost of sales for this fiscal year increased by ¥2,245 millionand research and development expenses decreased by ¥2,245million. There are no effects of this change in operating income,income before income taxes and net income respectively.

Production, print and certain advertising costs relating to specificmotion picture titles comprise motion picture film costs and arepresented as inventories.

The motion film costs are amortized in proportion to the revenueearned to total estimated revenue. Unamortized motion picture filmcosts are compared with estimated net realizable value on anindividual film basis and write-downs is recorded as required.

(7) Property, plant and equipment and depreciationProperty, plant and equipment are stated at cost. Depreciation isprincipally computed by the declining balance method at rates basedon estimated useful lives of the assets, except for buildings andstructures. During the year ended March 31, 1999 the depreciationmethod for buildings and structures was changed from the declining


Notes to Consolidated Financial Statements 2120 Notes to Consolidated Financial Statements


balance method to the straight-line method. As a result of thischange, depreciation charges for the year ended March 31, 1999decreased by ¥148 million and income before income taxes and netincome increased by ¥148 million respectively. The Companyshortened useful life of buildings and structures in the year endedMarch 31, 1999. These changes were made following theamendments to Corporate Tax Law in 1998. As a result of thesechange, depreciation charges for the year ended March 31, 1999increased by ¥20 million and income before income taxes and netincome decreased by ¥20 million respectively.

Significant renewals and additions are capitalized at cost.Maintenance and repairs, including minor renewals andbetterments, are charged to income as incurred.

(8) Research and development expensesResearch and development expenses for improvement of existingproducts or development of products other than capitalized costs ofgame software for 32-bit and 64-bit game machines, including basicresearch and development costs, are charged to income when incurred.

(9) Pension plan and accrued retirement allowancesThe Company has a non-contributory pension plan which coversthose employees who have served with the Company for more than10 years and have reached at the age of 45. In consideration ofcontributions, a trust banking corporation provides approximately50% portion of retirement allowances as annuity payments over a10-year period subsequent to retirement (or a lump-sum payment atretiring employees’ option); the remaining portion will be paid bythe Company as a lump-sum.

The Company’s policy is to accrue and fund pension costs inaccordance with amounts permitted by tax regulations, whichapproximate amounts are determined actuarially. Pension expenses forthe plan include amortization of past service cost over five years. Theamount of annuity of lump-sum varies based on current basic rate ofpay, length of services and conditions under which the employees retire.

The employees of the Company not covered by the above pensionplan are also entitled to lump-sum indemnities when they separatefrom the Company. For these employees and the portion notcovered by the pension plan for the employees expected to qualify toreceive the annuity payments, the Company accrues retirementallowances at 40%, which is stipulated in the Japanese CorporationTax Law, of the amounts which would be required if all employeesvoluntarily retired at the balance sheet date.

(10) Income taxesThe income statements of the Company and its consolidatedsubsidiaries include many items for financial reporting purposeswhich, in the case of costs and expenses, are not currently deductibleand, in the case of income, are not currently taxable. With respect toall such temporary differences, the Company and its consolidatedsubsidiaries follow the practice of inter-period tax allocation basedon the methods generally accepted in the respective country whereeach entity is located.

(11) Amounts per shareThe computation of net income per share is based on the weightedaverage number of common stock outstanding during each year, afterappropriate retroactive adjustment for the effect of the stock splitsmade by the Company. Cash dividends per share are based on the

number of shares outstanding at the end of each period after retroactiveadjustment for the effect of the stock splits mentioned above andreflect the appropriations applicable to each period rather than to theperiod in which shareholders’ approval is obtained (Note 11).

(12) ReclassificationsCertain reclassifications of previously reported amounts have beenmade to conform with current classifications.

3. CASH FLOW INFORMATION:Cash payments for interest expenses for the years ended March 31,1999 and 1998 amounted to ¥636 million ($5,300 thousand) and¥1,019 million respectively, and cash payments [refunds] for income taxes for the years ended March 31, 1999 and 1998amounted to [¥699 million ($5,825 thousand)] and ¥2,575 millionrespectively.

4. INVENTORIES:Inventories at March 31 consisted of:

5. MARKETABLE EQUITY SECURITIES:At March 31, the cost and market value of marketable equitysecurities wholly included in investments in securities (non-currentassets) are presented below.

6. PROPERTY, PLANT AND EQUIPMENT:Depreciation charges for the years ended March 31, 1999 and 1998amounted to ¥2,367 million ($19,725 thousand) and ¥2,610million respectively. Estimated useful lives of the major classes ofdepreciable assets ranged from 3 to 50 years (principally 47 years)for buildings and structures, and from 2 to 15 years (principally 3years) for machinery and equipment.

7. SHORT-TERM BORROWINGS ANDLONG-TERM DEBT:

Short-term borrowings at March 31, 1999 consisted of the following:

Long-term debt at March 31, 1999 consisted of the following:

The aggregate annual maturates of long-term debt at March 31,1999 were as follows:

The 0.8% convertible bonds due 2001 were issued on June 17,1994 and are convertible into common stock at conversion price of¥4,982 per share. These convertible bonds are redeemable atCompany’s option in the period from October 1, 1998 toSeptember 27, 2001 as provided in the indentures.

The 1.0% convertible bonds due 2005 were issued on June 17,1994 and convertible into common stock at conversion price of¥4,982 per share. These convertible bonds are redeemable atCompany’s option in the period from October 1, 2000 toSeptember 29, 2005 as provided in the indentures.

At March 31, 1999 the following assets were pledged as collateralfor short-term borrowings and long-term debt.

8. INCOME TAXES:The Company and its Japanese consolidated subsidiaries are subject to anumber of different income taxes which, in the aggregate, indicateeffective statutory tax rates of approximately 46%. The ordinaryrelationship between income tax expenses and pretax accounting incomeis distorted by a number of items including various tax credits, tax effectto temporary differences, permanent non-deductibility of certainexpenses and operating losses incurred by the consolidated subsidiaries.

The substantial difference between the tax rate in the incomestatements and the effective statutory tax rates for the years endedMarch 31, 1999 and 1998 was caused by the operating losses ofconsolidated subsidiaries.

Filing of a consolidated tax return by a group of corporations is notpermitted in Japan, irrespective of percentage of ownership.

9. PENSION PLAN AND ACCRUEDRETIREMENT ALLOWANCES:

The amounts charged to income for the years ended March 31, 1999and 1998 with respect to the pension plan and retirement allowanceswere ¥138 million ($1,150 thousand) and ¥93 million respectively.

Pension assets (based on the latest available information) of thepension plan at March 31, 1999 and 1998 amounted to ¥328million ($2,733 thousand) and ¥290 million respectively.

Unamortized past service costs of pension plan have beensubstantially amortized.

10. TREASURY STOCK:During the year ended March 31, 1999, the Company introduced amanagement incentive plan or scheme giving the Company’sdirectors and employees an option to acquire the common stock ofthe Company as defined.

In order to reserve for this plan, the general shareholders meetingheld on June 26, 1998 approved the Company to acquire 288,000shares of the common stock of the Company by ¥398 million($3,317 thousand) which were outstanding at March, 1999 andincluded in “Treasury stock” in the accompanying balance sheet.

11. APPROPRIATION OF RETAINEDEARNINGS AND LEGAL RESERVE:

The Japanese Commercial Code provides that all appropriations ofretained earnings, except for interim cash dividends, must beapproved at an ordinary general meeting of shareholders. Inaccordance with customary practice in Japan, the appropriation ofretained earnings is not accrued in the financial statements for theyear to which it relates, but is recorded in the subsequent accountingyear after shareholder approval has been obtained.

Finished goods and merchandiseWork in processRaw materialsSuppliesFilms

Thousands ofU.S. dollarsMillions of yen

1998¥ 1,685

3602,499

5212,186

¥ 7,251

1999¥ 985

722,525

3801,670

¥ 5,632

1999$ 8,208

60021,0423,167

13,916$ 46,933

CostMarketUnrealized gain (loss)Represented by:

Gross unrealized gainsGross unrealized losses


1998¥ 1,454

1,451(¥ 3)

¥ —3

1999¥ 1,972

3,043¥ 1,071

¥ 1,071—

1999$ 16,433

25,358$ 8,925

$ 8,925—

Bank overdraft with interest rangingfrom 1.375% to 2.375% per annum

Unsecured loan payable to banks withinterest 1.5% per annum

Notes payable with interest 1.75% per annum

$ 80,692

20,333

2,083$ 103,108

¥ 9,683

2,440

250¥ 12,373


Millionsof yen

0.8% convertible bonds due 20011.0% convertible bonds due 2005Loans payable to banks and other

financial institutions due 1999 - 2005, with interest at 1.294% - 15.275%

SecuredUnsecured

Less portion due within one year

¥ 25,00019,866

¥ 247567

¥ 45,680( 645)¥ 45,035

$ 208,333165,550

$ 2,0594,725

380,667( 5,375)$ 375,292

Millionsof yen


2000 (current portion)2001200220032004Thereafter

¥ 64575

25,07519—

19,866¥ 45,680

$ 5,375625

208,958159—

165,550$ 380,667

Millionsof yen


Land

Buildings and structures,net of accumulated depreciation

¥ 6,098

634¥ 6,732

$ 50,817

5,283$ 56,100


Millionsof yen


Notes to Consolidated Financial Statements 2322 Notes to Consolidated Financial Statements


The following appropriations of retained earnings of the Companywere proposed and resolved at the general meeting of shareholdersheld on June 25, 1999.

The Japanese Commercial Code provides that an amount equal to atleast 10% of cash disbursement (principally, dividends and directors’bonuses) for appropriation of retained earnings of each period beappropriated as a legal reserve until such reserve equals 25% of thecommon stock account. This reserve may be used to reduce a deficit orit may be transferred to stated capital by appropriate legal procedures.

12. SPECIAL LOSSES, MAINLY FORLIQUIDATION OF ANUNCONSOLIDATED SUBSIDIARY:

Special losses for the year ended March 31, 1998 comprised asfollows:

13. SEGMENT INFORMATION:(1) Business SegmentThe Company and its consolidated subsidiaries operate principallywithin three business segments: “arcade games,” “home videogames,” and “other.” The “arcade game” segment develops,manufactures, distributes and/or rents arcade game software andhardware to amusement facility operators. The “other” segmentmainly comprises the operation of amusement facilities. Thefollowing tables present certain information regarding the businesssegments for the years ended March 31, 1999 and 1998.

(2) Geographic AreaThe following tables present certain information regarding operationsby geographic area for the years ended March 31, 1999 and 1998.

(3) Foreign SalesThe following table presents certain information regarding the salesoutside Japan of the Company and its consolidated subsidiaries forthe years ended March 31, 1999 and 1998.

14. LEASES:The following information is disclosed to conform with anamendment to the Japanese securities and exchange law and relatedaccounting regulations, which are applicable to the informationeffective the year ended March 31, 1999.

(a) Financing leaseLease transaction as lessee

Payments of financing leases which do not transfer ownership of theleased assets to the lessee for the years ended March 31, 1999 were¥1,190 million ($9,917 thousand).

The future lease payments for financing leases which do nottransfer ownership of the leased assets including amountsrepresenting interest at March 31, 1999 are as follows:

The leased assets at March 31, 1999 are as follows:

(b) Operating leaseThe future lease payments under non-cancellable operating leases atMarch 31, 1999 are as follows:

Balance at March 31, 1999Appropriations —

Transfer to legal reserveCash dividends (¥10 per share

outstanding at March 31, 1999)Balance after appropriations

¥ 2,131

( 35)

( 349)¥ 1,747

$ 17,758

( 292)

( 2,908)$ 14,558

Millionsof yen


Millionsof yen


Liquidation losses of a subsidiary,CAPCOM MEXICO S.A. DE C.V.excluded from 1998 consolidation

Allowance for doubtful accountsof a consolidated subsidiary

Write off of short-term loansto an overseas business agent

¥ 7,791

3,045

2,031¥ 12,867

$ 59,023

23,068

15,387$ 97,478

Net sales:Arcade games —

CustomersIntersegment

Home video games —Customers

Other —Customers

Sub-totalEliminationsConsolidated

Cost of sales and direct expenses:

Arcade gamesHome video gamesOther

Sub-totalCorporate expenses and

eliminationsConsolidated

Operating income (loss):Arcade gamesHome video gamesOther

Sub-totalAdjustmentsConsolidated

Total assets:Arcade gamesHome video gamesOther

Sub-totalCorporate assets and


Depreciation:Arcade gamesHome video gamesOther

Sub-totalCorporate expenses and


Capital expenditure:Arcade gamesHome video gamesOther

Sub-totalCorporate expenditure and


1998

¥ 13,402432

13,834

31,453

13,34758,634

( 433)¥ 58,201

¥ 12,86419,73713,41046,011

1,824¥ 47,835

¥ 97011,716

( 63)12,623

( 2,257)¥ 10,366

¥ 23,27119,24521,60764,123

36,710¥ 100,833

¥ 1,406389

1,1952,990

253¥ 3,243

¥ 1,04184

1,3702,495

62¥ 2,557

1999

¥ 6,768409

7,177

22,451

9,14838,776

( 409)¥ 38,367

¥ 8,68315,751

8,46132,895

1,861¥ 34,756

(¥ 1,506)6,700

6875,881

( 2,270)¥ 3,611

¥ 21,13823,89819,01864,054

34,073¥ 98,127

¥ 1,225246

1,0742,545

273¥ 2,818

¥ 964384

1,3552,703

159¥ 2,862

1999

$ 56,4003,408

59,808

187,092

76,233323,133

( 3,408)$ 319,725

$ 72,358131,25870,509

274,125

15,508$ 289,633

($ 12,550)55,833

5,72549,008

( 18,916)$ 30,092

$ 176,150199,150158,483533,783

283,942$ 817,725

$ 10,2082,0508,950

21,208

2,275$ 23,483

$ 8,0333,200

11,29222,525

1,325$ 23,850


Net sales:Japan —

CustomersIntersegment

North America —CustomersIntersegment

Other —CustomersIntersegment

Sub-totalEliminationsConsolidated

Costs of sales anddirect expenses:

JapanNorth AmericaOther


Operating profit (loss):JapanNorth AmericaOther


Total assets:JapanNorth AmericaOther

Sub-totalCorporate assets and


1999

¥ 27,8643,607

31,471

9,64720

9,667

855624

1,47942,617

( 4,250)¥ 38,367

¥ 27,4288,3411,022

36,791( 2,035)¥ 34,756

¥ 4,0431,326

4575,826

( 2,215)¥ 3,611

¥ 62,0653,8641,252

67,181

30,946¥ 98,127

1998

¥ 44,7224,009

48,731

11,78157

11,838

1,699299

1,99862,567

( 4,366)¥ 58,201

¥ 38,20110,2291,634

50,064( 2,229)¥ 47,835

¥ 10,5301,609

36412,503

( 2,137)¥ 10,366

¥ 62,0315,852

85068,733

32,100¥ 100,833

1999

$ 232,20030,058

262,258

80,391167

80,558

7,1255,201

12,326355,142

( 35,417)$ 319,725

$ 228,56769,508

8,517306,592

( 16,959)$ 289,633

$ 33,69211,050

3,80848,550

( 18,458)$ 30,092

$ 517,20832,20010,434

559,842

257,883$ 817,725

Millions of yenThousands ofU.S. dollars

Net sales:North AmericaOther

1999

¥ 10,9523,450

¥ 14,402

1998

¥ 13,6363,635

¥ 17,271

1999

$ 91,26728,750

$ 120,017


Percentage of such sales inconsolidated net sales

Percentage

37.5% 29.7%

Due within one yearDue later

¥ 1,1201,446

¥ 2,566

$ 9,33312,050

$ 21,383

Millionsof yen


Machinery and equipment

Tools, furniture and fixtures

Instruments in amusement facilities

Net

¥ 264

1,602

700¥ 2,566

Accumulateddepreciation

¥ 96

2,096

557¥ 2,749

Cost

¥ 360

3,698

1,257¥ 5,315

Net

$ 2,200

13,350

5,833$ 21,383


Due within one yearDue later

¥ 5463,521

¥ 4,067

$ 4,55029,342

$ 33,892

Millionsof yen



Corporate Information 25

Corporate InformationAs of June 30, 1999

24 Report of Independent Accountants / Shareholder Information

Report of Independent Accountants

Shareholder Information

In our opinion, based upon our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statementsof operations, of shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Capcom Co., Ltd. and its consolidatedsubsidiaries at March 31, 1999 and 1998, and the results of their operations and their cash flows for the years then ended in conformity with accountingprinciples generally accepted in Japan. These financial statements are the responsibility of the Company’s management; our responsibility is to express anopinion on these financial statements based on our audits. We did not audit the financial statements of certain subsidiaries which statements reflect total assetsof ¥14,444 million and ¥15,592 million at March 31, 1999 and 1998, respectively, and total revenues of ¥10,362 million and ¥12,369 million for the yearsended March 31, 1999 and 1998, respectively. Those statements were audited by other auditors whose reports thereon have been furnished to us, and ouropinion expressed herein, insofar as it relates to the amounts included for those companies, is based solely on the reports of the other auditors.

We conducted our audits of these statements in accordance with generally accepted auditing standard which require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for theopinion expressed above.

As discussed in Note 2 to the financial statements, the Company changed its depreciation method and its method of accounting for development costsincurred at subcontractors during the year ended March 31, 1999.

(Notice to readers)

The accompanying financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles and practicesgenerally accepted in countries and jurisdictions other than Japan. Accordingly the accompanying consolidated balance sheet and related consolidated statements of income, shareholders’equity and cash flows, and their utilization, are not designed for those who are not informed about Japanese accounting principles, procedures and practices.

The standards, procedures and practices utilized in Japan to audit such financial statements may differ from those generally accepted in countries and jurisdictions other than Japan.

LISTING OF SECURITIES

Osaka Securities Exchange 2nd Section(Transferred to the 1st section of the Osaka Securities Exchange on September 1, 1999.)

MONTHLY HIGH-LOW SHARE PRICE (yen) MONTHLY SHARE VOLUME (Thousands of shares)

TRANSFER AGENT

The Toyo Trust & Banking Co., Ltd.4-3, Marunouchi 1-chome, Chuo-ku, Tokyo

June 25, 1999

To the Board of Directors and Shareholders of Capcom Co., Ltd.

Report of Independent Accountants

Osaka Center Building1-3, Kyutaro-machi 4-chome

Chuo-ku, Osaka 541-0056Price WaterhouseCORPORATE DATA

Name of Company:Capcom Co., Ltd.

Date of Establishment:May 30, 1979

Paid-in Capital:¥18,211 million(US $151,758 thousand)

End of Term:March 31

Number of Employees:1,017

Head Office: 3-1-3 Uchihirano-machi, Chuo-ku, Osaka 540-0037, JapanPhone: 06-6920-3600 Fax: 06-6920-5100Website: http://www.capcom.co.jp/

Tokyo Branch: Shinjuku Mitsui Building 2-1-1 Nishi Shinjuku, Shinjuku-ku, Tokyo 163-0411, JapanPhone: 03-3340-0710Fax: 03-3340-0711

DIRECTORS AND STATUTORY AUDITORS

President: Kenzo Tsujimoto

Senior Managing Director: Heiji Oshima

Managing Directors: Takashi AokiYoshiki OkamotoMasatoshi YoshidaHaruhiro TsujimotoNoritaka Funamizu

Statutory Auditors: Morio KurodaFumiaki KawamotoShizuhiko YamamotoTadashi Kadowaki

CONSOLIDATED SUBSIDIARIES

CAPCOM U.S.A., Inc.475 Oakmead Parkway, Sunnyvale, California 94086, USAPhone: 1-408-774-0500Fax: 1-408-774-3994Website: http://www.capcom.com/

CAPTRON Co., Ltd.3-1-3 Uchihirano-machi Chuo-ku, Osaka 540-0037, JapanPhone: 06-6920-3637Fax: 06-6920-5138

STATUS Co., Ltd.2-1-12 Tokiwa-machi, Chuo-ku, Osaka 540-0028, JapanPhone: 06-6920-3655Fax: 06-6920-5154

CAPCOM EUROPE GmbHKurfuersten Strasse 30, 8F, 40211 Düsseldorf, GermanyPhone: 49-211-354320Fax: 49-211-354321

CAPCOM ASIA Co., Ltd.Units 1205-6, 12/F, New East Ocean Centre 9 Science Museum Rd., T.S.T. East, Kowloon, Hong KongPhone: 852-2366-1001Fax: 852-2366-1985Website: http://www.capcomasia.com.hk/

CAPCOM COIN-OP, Inc.475 Oakmead Parkway, Sunnyvale, California 94086, USAPhone: 1-408-774-0500Fax: 1-408-522-5331

CAPCOM ENTERTAINMENT, Inc.475 Oakmead Parkway, Sunnyvale, California 94086, USAPhone: 1-408-774-0500Fax: 1-408-774-3995

CAPCOM DIGITAL STUDIOS, Inc.475 Oakmead Parkway, Sunnyvale, California 94086, USAPhone: 1-408-774-0500Fax: 1-408-774-3995

FLAGSHIP Co., Ltd.Shinjuku Mitsui Building 2-1-1 Nishi Shinjuku, Shinjuku-ku, Tokyo 163-0411, JapanPhone: 03-3340-0710Fax: 03-3340-0711

4 5 6 7 8 9 10 11 12 1 2 3

2,000

1,800

1,600

1,400

1,200

1,000

04 5 6 7 8 9 10 11 12 1 2 3

1,000

800

600

400

200

0

6073

760

255 205 268

445 458 435

1079

557

371

1121


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