Report on FY 2000 Third Quarter Settlements for Analyst Meeting February 5, 2001 DigiCube Co., Ltd. Contents • Report on FY2000 3Q Cumulative Results P. 3 • Report on FY2000 3Q Results P. 4 • FY2000 4Q Sales Targets P 5 • FY2001 Prospects P. 6 • Overview of Kiosk Terminal Business P. 7 • Installation of New Game Special Machines P. 15 • Game Related Publications Profit Structure P. 16 • Reference Data P. 17 2 Report on FY2000 3Q Cumulative Results • Merchandise sales (92.1% of total sales) in FY2000 increased over FY1999 due to the release of FINAL FANTASY IX and Dragon Quest VII as well as strong video game hardware sales. Sales in the game related publications sector decreased significantly with SQUARE’s policy of publishing online, resulting in fewer book titles being published. This led to a lower gross profit margin. Although higher sales resulted in a decrease in the ratio of selling, general and administrative expenses to sales, with lower gross profits from game related publications and 700 million yen in expenses for new business operations, the company recorded an operating loss. First Three Quarters of FY1999 First Three Quarters of FY2000 FY 1999 Quarter April 1, 1999 to April 1, 2000 to April 1, 1999 to Item December 31, 1999 December 31, 2000 March 31, 2000 AmountPercent Amount Percent Amount Percent Millions of yen Millions of yen Millions of yen Sales 28,093 100.0% 36,778 100.0% 39,204 100.0% Sales of sales of merchandise 23,900 85.1% 33,885 92.1%33,71886.0% Sales of finished products 4,093 14.6% 2,636 7.2% 5,35113.7% Other revenue 98 0.3% 256 0.7% 133 0.3% Cost of sales 22,496 80.1%31,215 84.9% 32,290 82.4% Cost of sales of merchandise 20,578 73.3% 29,855 81.2% 29,620 75.6% Cost of sales of of finished products 1,9146.8%1,331 3.6% 2,664 6.8% Other cost of revenue 20.0%280.1%40.0% Gross profit on sales 5,596 19.9% 5,562 15.1%6,914 17.6% Reversal of reserve for adjustment of returns 358 1.3% 388 1.1% 358 0.9% Addition to reserve for adjustment of returns 427 1.5% 410 1.1%388 1.0% Balance of gross profit on sales 5,527 19.7% 5,540 15.1%6,884 17.5% Sales, General and Administrative Expenses 4,688 16.7% 5,824 15.8% 6,294 16.0% Operating profit 838 3.0% (283) -0.7% 589 1.5% Ordinary profit 799 2.8% (488) -1.3% 456 1.2% Income before income taxes 650 2.3% (611)-1.7% 307 0.8% Net income 299 1.1% (685) -1.9% 148 0.4% Reference: Overview of 3rd Quarter Performance, p. 13. 3 Report on FY2000 3Q Cumulative Results • 3Q Highlights (Compared to 2Q) – Sales • Large drop in video game software sales. Sector Trend Reason No titles with sales over 300,000 copies and only one title with sales over Video Game Software Substantial decrease 100,000 copies. Video Game Hardware No change Strong sales with the release of PS2 with remote control. General Music No change Movie Software Slight decrease No major titles. Game Related Publications Continued sluggishness Start publication of how-to-conquer books for non-SQUARE games. Game Music CDs Substantial decrease No major titles from SQUARE. PC Software Substantial increase Contribution from DigiCube’s Uchimomo. Kiosk Terminal － Operations launched in November. – Selling, general and administrative expenses • Full-scale launch of kiosk terminal business resulted in increase in depreciation expense, advertising expenses and fees paid of approximately 450 million yen. • Lower sales resulted in decrease in shipping and handling expenses of approximately 450 million yen. • Ratio of selling, general and administrative expenses to sales increased from 11% to 23%. In monetary terms, the approx. 2.1 billion yen is no change from 2Q. Reference: Overview of 3rd Quarter Performance, p. 1. 4 FY2000 4Q Sales Targets • Few major game software titles in 4Q. Postponed until FY2001. FY2000 3Q FY2000 4Q Video Game Software (includes Finished Merchandise Products) 670,000 copies 530,000 copies Video Game Hardware 80,000 sets 140,000 sets Music CDs 290,000 copies 60,000 copies Video Software 120,000 copies -40,000 copies DVD Software 150,000 copies 100,000 copies Finished Game Related Publications 310,000 copies 380,000 copies Products Game Music CDs 40,000 disks 30,000 disks PC Software (includes Merchandise) 260,000 copies 80,000 copies All figures are net (shipments – returns). 3Q results are rounded to the nearest 10,000. The 4Q forecast of unit sales is merely a sales target, not an earnings estimate. Reference: Overview of 3rd Quarter Performance, p. 22. 5 FY2001 Prospects ■ Sales for Existing Businesses (Net) FY2000 (Estimate) FY2001 (Estimate) FY2001 Full Term Total Volume Amount Volume Category (1,000 units) (million yen) (1,000 units) Trend Reason Increase due to release of FFX and Video game software ↑ 4,040 22 ,500 5,300 strong sales of other PS2 software. Demand driven by PS2 software. Video game machines 320 5,700 250 → Increase due to release of X-Box. Other Merchandise 4,080 10 ,200 3,100 Total merchandise 8,440 38 ,400 8,650 ↑ Increase. Substantial increase with the release of FFX Game related books 1,250 1,000 4,000 ↑ and contributions from non-SQUARE strategy books. PC software 850 1,400 600 Decrease from previous term. Other 330 600 150 Finished Products Total finished products 2,430 3,000 4,750 ↑ Substantial increase. Other 3 - Total 10,870 41 ,600 13,400 ↑ Increase. (N.B.) The FY2000 and FY2001 estimates are rounded, which may result in differences between category totals and overall totals. ■ Overview of Kiosk Terminal Business FY2001 FY2000 (Estimate) FY2001 Full Term (Estimate) Category Sales （million Sales (million yen) Trend Reason yen） ↑ FY2002 sales target of 14,000 million yen. e-Business 40 6,200 13,000 CVS installations by December 2001. 6 Overview of Kiosk Terminal Business SlowSlow 3Q 3Q DCT DCT installation installation and and sales sales because because of of low low consumerconsumer awareness. awareness. CVSCVS kiosk kiosk terminals terminals installed installed from from 4Q. 4Q. SalesSales as as forecasted forecasted in in flagship flagship and and other other stores stores with with high high consumerconsumer awareness awareness.. StrengthStrength in in delivering delivering rare rare and and killer killer content content results results in in favorable favorable sales. sales. (Not available as packaged merchandise.) (Never out of stock.) (Not available as packaged merchandise.) (Never out of stock.) MoreMore CVS CVS kiosk kiosk terminal terminal installations installations and and higher higher consumerconsumer awareness. awareness. NationwideNationwide promotions promotions result result in in sales sales growth growth forfor all all kiosk kiosk terminals. terminals. SuperiorSuperior interface interface to to portable portable terminals terminals and and home home set-top set-top boxes. boxes. 7 DCT Sales Analysis 1 Sales by Content The following data represents the combined results from all DCT installations during the period from November 1, 2000 to January 28, 2001. Digital prints 18% Sales Volume Digital prints 7% Music (indie) 23% Digital photos 41% Music (indie) Sales Solid sales for digital photos and 15% Value Digital photos 55% digital prints. Music (major) 29% q Appropriate retail prices. Music (major) 12% q High level of awareness about the service is a factor. Breakdown by Sales Channel 100% 36% 80% 49% 55% 60% Music Photos Digital prints 41% 40% qHigh demand for digital printing at other sales outlets (CVS). 39% 48% 20% qNo difference between electronics and 23% music stores. 6% 3% 0% Music stores Electronics stores and Other bookstores 8 DCT Sales Analysis 2 Top Selling Titles Music (major) Title Artist Price angel song -Eve no Kane- the brilliant green¥ 500 Results of Analysis LOVE 2000 hitomi¥ 500 LOVE OR LUST Ken Hirai¥ 500 Oasis ｂｉｒｄ ¥ 500 Artists topping the list are those like Saboten Porno Graffitti¥ 500 Ken Hirai, Bird and Chara that started SAUDADE Porno Graffitti¥ 500 SEASONS "Original Mix" HAMASAKI AYUMI¥ 500 with top selling albums rather than taisetsu Wo Kizuku Mono Chara¥ 500 singles, and those with strong repeat there is... hitomi¥ 500 Why I'm Me RIZE¥ 500 rather than initial sales. Note: Listed in alphabetical order by song title. Top Selling Titles Music (independent) Title Artist Price ANO NATSU NO HI Kazumi Morohoshi¥ 450 Results of Analysis DJ BEAT featuring BEAT BREAKIN BEATS ZERO MIX KNUCKLES + ONE¥ 250 Drive-way Kazumi Morohoshi¥ 450 Lagrimas Negras Miho Nakayama¥ 450 Artists with high name recognition Never give up Kazumi Morohoshi¥ 450 ROCK DA HOUSE 2000 DJ-BEAT Feat. DONALD-D¥ 350 and content that have a specific fan SOBA NI IRERUNARA・・・ Kobukuro¥ 350 base ranked high. Take off Kazumi Morohoshi¥ 450 We Are The Wild Gathering Of The All Stars¥ 350 Whiske's Rock Kazumi Morohoshi¥ 450 Note: Listed in alphabetical order by song title. 9 DCT Sales Analysis 3 Top Selling Artists Digital photos Artist Ai Katoh Ami Suzuki Retail price: ¥150 Results of Analysis DA PUMP HAMASAKI AYUMI MALICE MIZER Artists with high name Morning Musume NEKO OIKAWA recognition, content with a NEW JAPAN PRO-WRESTLING specific fan base, and major Wakana Sakai Note: Listed in alphabetical order. artists topped the list. ZINE Sales Volume Concentrated on Top Sellers High percentage of total sales for top 10 titles (artists) Results of Analysis 70% 61% Top 10 titles comprise large percentage of total sales for each 60% 50% major content area.