Outline of consolidated financial results for the nine months ended December 31, 2013 and consolidated earnings forecast for the fiscal year ending March 31, 2014

Outline | Presentation by the President | Q & A

Tatsumi Kimishima, Managing Director, Nintendo Co., Ltd.

This outline is based on the documents “Earnings Release” and “Supplementary Information about Earnings Release” for the 3rd quarter of the fiscal year ending March 31, 2014.

1. Briefing of consolidated financial results for the nine months ended December 31, 2013

Consolidated operating results for the nine months ended December 31, 2012 and 2013

	Nine months ended Dec. 31, 2012	Nine months ended Dec. 31, 2013	Comparison
Net Sales	543.0 billion yen	499.1 billion yen	-8.1%
Gross Profit	127.2 billion yen	149.2 billion yen	17.3%
(Gross Profit Ratio)	(23.4%)	(29.9%)
Operating Income	-5.8 billion yen	-1.5 billion yen	-
(Operating Income Ratio)	(-1.1%)	(-0.3%)
Ordinary Income	22.7 billion yen	55.5 billion yen	144.2%
(Ordinary Income Ratio)	(4.2%)	(11.1%)
Net Income	14.5 billion yen	10.1 billion yen	-29.9%
(Net Income Ratio)	(2.7%)	(2.0%)

(Net sales)
The sales units of the “Nintendo 3DS” software increased in all regions as a result of a strong software lineup featuring titles such as “Pokémon X/Pokémon Y,” simultaneously released globally in October 2013, “Animal Crossing: New Leaf,” “Luigi’s Mansion: Dark Moon,” “The Legend of Zelda: A Link Between Worlds” and six more of Nintendo’s first party titles that became million-seller titles this fiscal year. However, the total net sales were down compared to the same period of the previous fiscal year because, in addition to a large decrease in the unit sales of the “Wii” and “Nintendo DS” hardware and software, the “Wii U” sales fell short of our targeted recovery despite releasing various compelling titles from the summer toward the year-end sales season.

(Gross profit ratio)
The gross profit ratio increased compared to the same period of the previous fiscal year mainly because of a decrease in the hardware sales ratio out of the total net sales and an improvement in the profitability of the “Nintendo 3DS” hardware.

(Main reason for operating loss)
Total selling, general and administrative expenses, including fixed expenses, exceeded gross profit, resulting in another operating loss situation for this period of the fiscal year. This situation arose because, in addition to depreciation of the yen against the U.S. dollar and euro, which increases costs incurred in foreign currencies when they are converted to Japanese yen, the “Wii U” hardware still has a negative impact on Nintendo’s profits owing mainly to its markdown in the United States and Europe, and sales of software, which has high profit margins, did not grow sufficiently.

(Main reason for ordinary income)
The 48.1 billion yen of foreign exchange gains were produced as a result of the depreciation of the yen at the end of this period compared with the one at the end of the last fiscal year.

2. Briefing of consolidated earnings forecast for the fiscal year ending March 31, 2014

The earnings forecast was modified on January 17, 2014 to reflect a lower-than-expected sales outlook from the initial forecast, based on the sales performance in the year-end sales season and afterward.

In the fourth quarter, we expect sales to decrease significantly due to seasonal factors as the year-end sales season concludes. Total selling, general and administrative expenses, which include fixed costs, are expected to exceed gross profit, leading to a bigger operating loss. Also, we expect the yen to rise from the end of the third quarter to the end of the fiscal year, reducing exchange gains and ordinary income. We expect an annual net loss primarily due to the reversal of deferred tax assets in the third quarter in relation to the losses carried over from the previous fiscal years mainly in the United States. Exchange rate assumptions for the fourth quarter as well as the end of the fiscal year are 100 yen per U.S. dollar and 140 yen per euro.

As for the estimated annual dividend, if the actual consolidated financial results are in line with our modified financial forecasts, there will be no annual dividend per share. However, on the basis of our dividends paid in the last two years, we have set a minimum of 100 yen for the year-end and annual dividend per share for this fiscal year.

Forecasts referred to above are based upon management’s assumptions with information available at the time the announcement was made and, therefore, involve known and unknown risks and uncertainties. Please note that such risks and uncertainties may cause actual results to be materially different from the forecasts (earnings forecast, dividend forecast and other forecasts).

Outline | Presentation by the President | Q & A