CAPCOM Investor Relations

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Presentation Material of FY2010 Financial Results

May 10, 2011

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FY2010 Financial Results Question and Answer Summary
Your new medium-term target is to generate online content sales of 30,000 million yen in the fiscal year ending in March 2015. Please provide a breakdown of this figure by platform and geographic region.

We are unable to disclose its breakdown. Please bear with us. The major sources of growth will be SNS games, content for smartphones, and expansion of the PC online game business into more regions.

What is your plan for the Mobile Contents business for the first and second halves of this fiscal year?

We do not disclose figures for each half. We can say that we plan to start distributing new titles in the second half in the overseas SNS game sector, which is the primary component of the Mobile Contents business.

Why do you plan on a big drop in sales in the Consumer Online Games business in the fiscal year ending in March 2012?

We believe that a drop in sales will be unavoidable following the strong sales of five big titles in the previous fiscal year. Furthermore, the packaged game software market is in a cyclical downturn. Sales are expected to be flat in anticipation of the upcoming introductions of titles for next-generation game consoles. In this environment, packaged game software prices are falling. On top of it, foreign exchange rates are negatively impacting overseas sales of major titles. So we had to plan on lower sales because of all these factors.

What is your plan for operating income and the operating margin with regard to your plan for online content sales?

We are not disclosing about operating income and the margin. In the past, there have been large ups and downs in profitability. Particularly, online content is a business that requires up-front investments to some degree. So we think you can see that this is a business where the profit margin does not increase in a straight line.

Might Capcom push back the launch of "Resident Evil: Operation Raccoon City" depending on the timing of introductions of competing titles?

We have no intention of postponing the launch at this time.

Your medium-term goal is consolidated operating income of 75,000 million yen over the next five years. Isn't your 12,100 million yen plan for this fiscal year the absolute minimum for reaching this goal? Can Capcom continue to increase earnings after this fiscal year?

Because of the rapid changes taking place in our operating environment, we decided that aiming for 10% growth in each fiscal year would be very risky. This is why we created a plan that covers five years. We believe that the benefits of structural reforms that we started enacting in October 2009 will start producing benefits in the next fiscal year. So we are aiming for steady growth. At the very least, we believe that the performance we foresee in the current fiscal year will not hold us back with regard to our medium-term target.

What are your plans for more titles in the Monster Hunter series?

At this time, the only upcoming major title that we can talk about is the title that we recently unveiled at Capcom Captivate 2011. Of course, we are working on a variety of other titles. But we are unable to say furthermore because of issues involving our marketing strategies.

What is your policy about application to Android?

We have a strong commitment to Android application as part of our focus on the smartphone market. But developing mobile content requires up-front expenses. Developing games for all mobile platforms at once would therefore bring down profitability. Furthermore, there are many systems for collecting payments for content used on Android devices. That means we have to supply this content while taking into consideration development expenses, the number of users and profitability.

Why have Capcom's SNS games been successful overseas?

We started concentrating on developing freemium games for North America several years ago. At the same time, we have been seeking opportunities in this category along with the rapid increase in popularity of the iPhone. We believe that our success is largely attributable to our ability to use these activities to establish a position as the trailblazer in the SNS game sector. Another reason for our success is the utilization of CRAM, our exclusive marketing tool, to thoroughly analyze the needs of users.

What are your plans for selling Capcom's own machines in the P&S business in the current fiscal year?

We are unable to disclose anything right now about titles or the timing of product introductions. Taking into consideration on our performance in the previous fiscal year, we will continue to develop and manufacture our own machines and provide products for other companies so that the P&S business efficiently contributes to earnings.

Your forecast for the fiscal year ending in March 2012 is weighted toward the second half. Is Capcom still working on evening out sales and earnings in each quarter?

We are working on evening out our performance, but unfortunately this will not happen in the current fiscal year. We will reexamine our product lineup as part of our second stage of structural reforms. We hope to start making gradual progress toward reducing fluctuations in quarterly performance in the next fiscal year.

How will the suspension of PlayStation Network affect Capcom?

We will closely monitor upcoming events, but at this time we do not anticipate a significant effect on our results of operations.

Is there a possibility that restrictions and other limitations will be imposed on billing systems for "The Smurf's Village"?

With the billing system provided by Apple, the buyer needs to carefully confirm the desire to make a purchase for each item purchased. Furthermore, as a content provider, Capcom works hard on making users aware that a game includes elements that require payments. Therefore, we are not concerned at this time about restrictions and similar actions.

How many development staffs did Capcom have at the end of March 2011 and how many were in each business?

We had about 1,300 persons at the end of March 2011. Approximately 1,000 are involved in creating home video game software. In other businesses, we have about 150 online game developers and about 100 mobile content developers. The remaining developers are in the P&S business and arcade games business.

What is your stance concerning the development of games for next-generation game consoles?

We will continue to pursue our multi-platform strategy as in the past. We are very happy when new hardware is introduced because it invigorates the entire game market. Capcom remains committed to developing games that are designed to allow users to enjoy all the capabilities of game consoles.

Presentation Material of 3rd Quarter Financial Results

February 2, 2011

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3rd Quarter Question and Answer Summary
How did the performance of each business segment compare with your third quarter plans?

Sales and operating income were higher than planned in all business segments except Amusement Equipments business.

What percentage of the Consumer Online Games business does the Online Games business represent?

We are unable to provide a specific percentage, but we can say that the Online Games business is performing better than planned.

What were the cumulative sales of "Monster Hunter Freedom 3" as of the end of last December?

Shipments in Japan and Asia totaled 4.1 million units.

What was your third quarter (three months) plan for sales of "Monster Hunter Freedom 3"?

We have not disclosed our plan for third quarter sales. We can tell you that sales of this game were far above our initial plan.

What is your sales forecast for "Monster Hunter Freedom 3" for the fiscal year ending March 2011?

Repeat sales of "Monster Hunter Freedom 3" are still strong. We are carefully examining market conditions, the outlook for orders and other factors to assess the sales volume for the fiscal year. We believe that cumulative sales can top 5 million units in the future.

Please explain your strategy from now on with regard to the "Monster Hunter" series.

Our current base of game users is not the only reason for the popularity of this series. "Monster Hunter" is also generating sales by targeting casual game players with measures like spin-off titles and collaboration with other companies. We therefore believe that the popularity of "Monster Hunter" is due to our success at attracting people from a broader range of user segments. We will continue aggressively utilizing this approach to further increase the value of this brand.

What is the status of orders for "Marvel VS. Capcom 3 Fate of Two Worlds"?

There is no change in our plan to sell 2 million units in the current fiscal year.

Why were sales up and earnings down in the mobile content business in the third quarter?

The main reason was a decline in sales of content (excluding smart phone content and social games) to communications carriers and cell phone users. Furthermore, we started distributing SNS games overseas in the third quarter but do not expect a meaningful contribution to earnings to begin until at least the fourth quarter.

How many "Monhan Nikki Mobile Airu Mura" members are there and what are the revenues from this game?

The number of members is not increasing as quickly as when we introduced this service. But there is no significant change in the billing ratio and earnings are in line with our plans. Please note that we do not disclose the number of active users or the billing ratio.

What is your policy for recognizing structural reform expenses?

We have not yet determined how to handle these expenses because expense items differ for each initiative.

What were your advertising and marketing expenses, capital expenditures, depreciation and development investments in the first three quarters?

Advertising and marketing expenses were about 5,000 million yen, capital expenditures and depreciation were both about 2,000 million yen and we invested about 18,000 million yen in development activities.

Deducting SG&A expenses for the first three quarters from your fiscal year plan shows that you plan on SG&A expenses of about 8,000 million yen in the fourth quarter. Will cost-cutting bring these expenses below your plan, producing a differential that contributes to earnings?

We expect SG&A expenses in the fourth quarter to be about the same as in each of the previous three quarters.

What are your sales and earnings forecasts for the entire fiscal year?

We are currently working on our outlook for sales of major new titles and repeat sales in the fourth quarter. We are also examining expenses associated with structural reforms. Therefore, we are unable to announce a forecast at this time because we can make a final decision only after completing this process. However, we believe that our performance will not fall below the current forecast.

Are you still committed to your long-term goals of sustaining 10% annual growth in sales and a 15% operating margin?

There is no change in our policy of aiming for steady growth. However, there may be variations in our pace of growth in each fiscal year because of sudden shifts in market conditions and the status of progress with the structural reforms that are now under way.

When do you plan to hold your private game fest overseas?

In North America, we plan to hold our "Capivate" private game fest on April 6 and 7, 2011.

What is your plan for sales of games for the Nintendo 3DS?

Our plan for the current fiscal year includes sales of "Super Street Fighter IV 3D Edition". We are unable to disclose our sales plans for individual titles.

What are your plans with regard to the NGP that Sony recently unveiled?

We cannot provide any specific information at this time. We will move quickly in response to this development in line with our "multi-platform" strategy.

Presentation Material of 2nd Quarter Financial Results

October 29, 2010

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2nd Quarter Question and Answer Summary
Please explain the reason for Mr. Inafune's resignation.

We have been thinking about radical reforms in our R&D operations in response to the rapid changes taking place in our markets. As we were under preparation for executing these structural reforms, Mr. Inafune stated that he wants to continue working as an independent creator. Capcom accepted this request, which led to the announcement of his resignation.

Please explain your system concerning incentives for game developers.

We have made no changes in particular in our existing incentive system. We pay incentive bonuses to developers based on our results of operations and their contributions to our operations.

What is your policy concerning the distribution of earnings to shareholders?

Our cash flows have improved greatly in recent years due to a reexamination of our financial condition. Based on this improvement, we plan to consider ways to distribute more earnings to shareholders.

Please explain the division of responsibilities in the new R&D framework. Who will be responsible for overseeing the operations that were previously under Mr. Inafune's supervision?

Our goal is to build an organization able to develop software that matches market needs even more closely. Consequently, as I announced earlier today, we will hold meetings to reach decisions concerning the direction of our development activities and other important items. These meetings will bring together people from our R&D, business operations, quality control and other key units of our organization so that we can use opinions from many viewpoints.

With "MONHAN NIKKI POKAPOKA AIRU MURA" and "MONHAN NIKKI MOBILE AIRU MURA", you attracted users in two new segments: casual game players and women. Do you think that you can sell "Monster Hunter Freedom 3" to these new user segments?

"Monster Hunter Freedom Unite", which is the previous version, was an enormous hit with more than 4 million players. We studied many ways to make this new version popular not only among users of the previous version. We also want users who enjoyed this game series for the first time with the "AIRU MURA" games to buy "Monster Hunter Freedom 3". We view the "AIRU MURA" games as an excellent example of how to successfully make inroads with new customer segments. We want to use relationships with these kinds of new user segments to make our brand even more powerful.

Please explain how you determine sales volume plans for games?

We create our sales plans by taking into account all applicable items: the development plan of R&D and business departments; the timing of the launch; market conditions; the concept for the game title; targeted user segments; and other items. Due to the nature of video games, we unfortunately do not know exactly how well a title will sell until after its introduction. For our recent major titles, I think that the overall weakness of overseas markets is having an effect on sales.

How do you plan to revise your "MT Framework" common development tool when new game consoles are released?

The multi-platform approach will remain Capcom's core strategy. We plan to use "MT Framework" research programs so that we can quickly provide compatibility with new hardware products. However, our goal is not to achieve compatibility with every new type of game console. We will select hardware for compatibility with the "MT Framework" after thoroughly examining the characteristics of games, specifications of the hardware and other items.

How will the unified market-R&D organization differ from your previous operations?

We want to be an organization that can create products that reflect our markets and users. When several people are responsible for a project, we tend to lose sight of the objectives and decision-making slows down. Switching to this unified organizational structure will allow us to move with greater speed. Furthermore, the top management of our R&D operations will fulfill their responsibility to determine major strategic objectives and other goals. We will entrust the development of individual products to the creativity of our game creators.

Do you plan to make more acquisitions like the recent purchase of Blue Castle Games?

We want to "enlarge our development line". Doing this will involve increasing our own workforce as well as forming alliances with external game development companies. Blue Castle Games acquisition was part of this stance. At this point, we have no definite plans for any more acquisitions. But we may make more acquisitions if, while developing a game with an alliance partner, we decide that an acquisition would better enable Capcom and the partner to utilize their strengths and produce benefits for both companies.

Forecast Revisions

October 4, 2010

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Presentation Material of 1st Quarter Financial Results

July 29, 2010

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1st Quarter Question and Answer Summary
Looking at the consolidated performance for the first quarter, how does your progress level compare to your initial projection?

Sales of "Super Street Fighter IV" did much better than we expected and contributed to our earnings, but "Lost Planet 2" did less than its respective sales target. This caused our earnings as well as our operating income lower than our initial goal. In addition, foreign exchange losses did impact on ordinary income and other areas.

Could you provide us with a breakdown of the progress levels for each individual business segment?

Excluding the Consumer Online Games Business, for the most part we feel that our businesses are proceeding according to plan.

Could you tell us the main reasons for the increases in the selling, general and administrative expenses?

These increases are mainly the result of an increase in advertising expenses. Other expenses, such as personnel costs, were nearly the same as those in the previous term.

Do you expect Capcom to be continuously affected by the exchange rate in the future?

We feel the chances of the yen appreciation for the US dollar and Euro seem rather low.

What effect do you think the postponed release of "Dead Rising 2" had on operating income during the first half year?

Because its release was delayed nearly a month, a repeat shipment will be posted in the third quarter. However, the title received great reviews at the recent Electronic Entertainment Expo (E3) 2010, so there's still a strong chance that the initial shipment will exceed our original goal. Please understand our position that the company cannot give any definitive comments about the impact of the postponed release until we officially start receiving orders.

Do you plan to release any titles for the Nintendo 3DS this fiscal year?

We broke the news at E3 2010 that development is underway for "Resident Evil: Revelations (tentative title)" and "Super Street Fighter IV 3D Edition", but these are not in our initial plan for release.

Could you tell us when Capcom's titles for the Nintendo 3DS will be released?

We regret to advise you that release date is uncertain at this time.

Could you tell us about Capcom's development costs for game titles made for the Nintendo 3DS?

By employing our original game development engine the "MT Framework", we are able to streamline the basic development processes with those for other consoles. Thus we don't really expect to see a dramatic rise in costs.

When you say that Capcom uses the "MT Framework" to develop game titles for Nintendo 3DS, are you implying that the Nintendo 3DS is going to be part of your multi-platform strategy?

The "MT Framework" is tailored to the unique features of each individual platform, and we upgrade it as needed. The Nintendo 3DS is one of the platforms for which the "MT Framework" is compatible. This doesn't mean that we necessarily adapt a title to each console when we release it; rather the company comprehensively consider all the game elements when choosing which platform to develop the game for.

Could you tell us why the sales of "Lost Planet 2" fell short of its initial target?

As we see it, the main reasons are 1) Capcom made no success of differentiating the product from all the other competing shooters on the market, and 2) the company hardly managed to launch a decent sales promotion campaign as a result of the postponed release date.

Is there any chance a price protection guarantee for "Lost Planet 2" will be introduced?

Capcom always considers strategic pricing as a means for reducing inventory risk, not just for "Lost Planet 2", but for all of our products.

Do you have any plans to reevaluate works-in-progress for game software?

We recognize that accounting has become more transparent, because we carefully review works-in-progress for game software in each quarter.

What percentage of the first quarter earnings for the Consumer Online Games Business did the Online Game business account for?

We haven't publicized the details yet, but compared to the previous term our Online Game business grew between 10 to 20%.

Could you tell us how many registered members there are for "Monster Hunter Frontier Online"?

We regret to advise you that no detailed figures is disclosed at this time.

Could you describe Capcom's specific measures for effectively outsourcing product development to outside developers?

Capcom strives to establish an effective "hybrid development" structure, in which we farm out only part of the game development to outside developers, while designing the game framework ourselves. Furthermore, in regards to outsourcing game development, Capcom will implement thorough management controls by having the headquarters oversee game quality control and working to manage budgets and human resources through the effective use of overseas subsidiaries.

What is Capcom's outlook on the competitive environment of the year-end sales season?

Right now we are not really worried about competing with the game titles released by rival companies, both in Japan and overseas markets. The company plans to release franchise titles from the third quarter onward, so we are going to do our best to achieve our individual goals.

What are your thoughts on the long-term trends in the video game market?

While we believe the combined total of the packaged game software market and the online games market will continue to grow in the long-run, we anticipate the market share of the online game market will expand.

What is the break-down of sales for the Amusement Equipment business in the first quarter?

The Arcade Games Sales business accounts for 80% of the net sales, while the Pachinko & Pachislo business accounts for 20%.

Do you plan to reorganize the corporate structure or implement other measures to reinforce the Online Game business in the foreseeable future?

Currently, the structure of Capcom's development division for home video game software is different from that of the development division for online games. Nevertheless, as we look ahead to the future world market, we realize there is a need to lower the barriers between each division and implement a product development structure that is more cross-sectional.

Could you tell us about the mobile content development system?

In Japan, the mobile contents development division is in charge of developing video games for conventional carriers, smartphones, and SNS. Overseas, Capcom Interactive, Inc., one of Capcom's subsidiaries, handles the development of mobile phone games.

What is Capcom's take on the In-App Purchase for iPhone game applications?

Considering the current expansion of smartphone and SNS users, the micro-transaction has become a necessary feature for purchasing items, such as virtual goods within online games. We are going to actively consider using it because it can help us attract new users in addition to our existing core users.


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