Doc.02 99.9.30 6:31 PM Page H2 1 COMPANY PROFILE PRESIDENT’S MESSAGE A leading company in the amusement have succeeded in producing one hit after advertising and incentive-based consumer industry, Capcom develops, publishes and another, and the release of Resident Evil in promotions such as our innovative Fighters Edge program. distributes a variety of software games for March 1996 established a new genre, both arcade machines and home video "Survival Horror", which is unrivaled by our With the new millennium on the horizon, the business consoles. We also operate amusement competitors. Popular all over the world, the world is on the brink of change. We are entering an age where consumers will have the power of choice. facilities at 47 locations in Japan. Since the outstanding Resident Evil series has Bidding farewell to mass consumption, we will see foundation of the company in May 1979, we contributed enormously to Capcom's growth. the development of an information-centered society have taken a leading role in the entertainment In addition to our existing overseas which contributes to a higher level of customer software industry and have continued to subsidiaries in the United States and Asia, we satisfaction as well as increased environmental awareness. And in the years to come, the world will respond to the demand and expectations of established Capcom Eurosoft in London, continue to change at a faster rate than ever. customers. In March 1991, we achieved the England in July 1998, as a main sales base for top position in the arcade game industry with the European home video game market. At the leading edge of the software age, the amusement industry has achieved continuous growth the Street Fighter series. Subsequently we by habitually absorbing and assimilating up-to-the- minute technology. Capcom has created original and Fiscal 1999 was another highly successful and unique game genres that surpass all others by productive year at Capcom. We reported good constantly exploring the meaning of “amusement” financial results, with net sales at ¥38,367 million and developing products that delight our customers. and net income at ¥1,507 million, or ¥43.00 per To reach this goal, we have strengthened our CAPCOM’S MANAGEMENT GOALS share. We released 54 products, many successful organizational skills by providing an environment that sequels becoming long-lasting franchises. We enables every employee to show their prowess and Producing multiple variations of high-quality software commanded 9.2% of the consumer game console establishing a flexible system that can adapt to the changes of the times. Delivering the enjoyment of our software games to more customers market and entered the Nintendo 64 platform market. We released a number of products in Japan In our quest to provide unique experiences with Financial management with emphasis on cash flow for the new Sega Dreamcast home video game images, music, screenplay, and amusement spots, console. And we took steps to maintain and build Capcom aims to lead the software age and to take Cultivating professional human resources further on our creative leadership by strengthening advantage of the unfolding possibilities in order to our internal development groups and solidifying a create inspiration for the 21st century. multiple platform strategy. Capcom’s performance goals for fiscal 2000 are to We have strengthened our worldwide sales, expand our position as a leading provider of exciting, marketing and distribution organizations to prepare high-quality interactive entertainment software on for our most aggressive product lineup in years. To multiple platforms, to continue to emphasize capitalize and enhance our strategic position in the profitability by maintaining strict cost controls, and European market, we created Capcom Eurosoft, a manage the risks associated with software subsidiary of Capcom Entertainment, Inc. development to maximize shareholder value. Clearly we are pleased with the Company’s progress TABLE OF CONTENTS We want to thank all of our employees, customers, during the year, and we believe Capcom is well and business partners for another year of success. President’s Message .............................................1 positioned to build on this momentum and leverage And we thank you, our shareholders, for your Management Innovation .......................................2 the leadership role we have established in our continued support. We look forward to reporting on growing industry. The resulting improvement in Sales Innovation ...................................................4 Capcom’s progress in the months and years ahead. hardware technology has increased product realism, Development Innovation .......................................6 enhanced overall game play and attracted an Capcom’s Franchise Assets...................................8 increasing number of consumers, making interactive Corporate History ...............................................10 software a mainstream entertainment category. Five-Year Summary.............................................11 Capcom has capitalized on this market opportunity Business Evaluation and Analysis ........................12 by continuing to develop high quality titles and key Kenzo Tsujimoto brands, and promoting them through targeted Financial Statements ..........................................14 President marketing initiatives including national television Notes to Consolidated Financial Statements .......19 Report of Independent Accountants....................24 Shareholder Information .....................................24 Corporate Information ........................................25 Doc.02 99.9.30 5:11 PM Page 2 3 MANAGEMENT INNOVATION mproving cash flow Operating cash flow (¥million) Earnings per share (¥) through stronger management 43.00 I 14.29 5,747 (76.64) Today there are so many entertainment these unprofitable divisions and nonperforming 1,756 (135.24) 9,706 software companies that only the games which assets. Aiming for management based on 15,043 meet consumer demand with the power to market value of assets and operations, we really captivate players will endure. As moved forward with our measures to reinforce (13,909) hardware’s technological advance continues, management of cash flow, evaluation of profit (300.71) 95 96 97 98 99 95 96 97 98 99 software development takes a longer period of by each game, and control of return on time and more cost. Capcom established a investment. Considering the rapidly changing strong financial control system and we are able market, we have repositioned our development ROE (%) 5.0 to provide adequate financial resources to staff in the arcade game and home video game secure well experienced and highly talented divisions to maximize sales of game software development professionals. with higher profit margins. By improving our financial position and achieving a higher Capcom’s management strength lies in our operating income margin, our goal is to organization structure which facilitates fast increase net worth ratio. 1.4 decision-making. We endeavor to take the necessary steps to evaluate and improve our To reinforce our view on maximizing 00 0 financial status in a timely manner. shareholders’ value, we implemented a stock 95 96 97 98 99 Designating 1998 as “Cash Flow Year One”, option program for all employees, the first we have been working to strengthen our company in the industry to do so. This program Net worth ratio (%) balance sheet position. Although we recorded will boost the morale of our staff, enabling us special losses due to the liquidation of Capcom to improve performance and strive for Mexico and re-evaluation of certain assets held management innovation. 32.2 by our subsidiaries, we were able to establish a 30.6 30.7 base for cash flow expansion by liquidating 29.6 29.4 95 96 97 98 99 2 Doc.02 99.9.30 6:05 PM Page 4 5 SALES INNOVATION ncreasing revenue with Game software sales I original multi-platform strategy by hardware platform (thousands of units) 9,713 8,794 The entertainment software market has Introduced in the USA last year, the Fighters 6,684 6,904 experienced phenomenal growth with annual Edge program offers advantages to the 5,501 4,871 sales of more than ¥580 billion in Japan alone. consumer for purchasing multiple Capcom 610 While software companies traditionally develop fighting games and benefits the retailer by 577 554 products for specific game consoles, Capcom generating store traffic. This program also 284 is a multi-platform developer and publisher. provides advertising support to retail stores 174 This term, we launched a total of 54 different and largely contributes to increased sales by 95 96 97 98 99 titles, comprising 23 for Sony PlayStation, 14 producing a strong affiliation with Capcom. PlayStation ■ Nintendo 64 ■ for Sega Saturn, two for Sega Dreamcast, and Sega Saturn ■ Super Famicom ■ Taking further advantage of our coin-operated Dreamcast ■ GameBoy ■ one for Nintendo 64. Next term we plan to business, Capcom has entered another growing 1.8 launch Resident Evil 3 Nemesis and a brand market — family amusement centers. 2.9 new game, Dino Crisis, for the PlayStation 6.3 Capcom’s Nickel City family amusement console, a new game called Resident Evil Code 5.7 facilities continue to grow at a steady rate Veronica for the Dreamcast console, and 5.9 across America. A growing trend in Japan and Resident Evil 2 for the Nintendo 64 console. 6.3 71.1 in the USA, Capcom’s Nickel City has Capcom is the first in