IR Information

The 71st Annual General Meeting of Shareholders
Q & A
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The main questions from the shareholders who attended the shareholders' meeting and the answers to these questions are below: [In the string of statements, some shareholders had multiple questions but the Q&A will be posted on a question-by-question basis.]

Q 1   I have heard the comment, "3D images are not very good for children's eyes."  My understanding is that we have to be careful when children aged six and under are viewing the images. We have a child who is nine years old, but my wife says, "Even nine-year-old children should not touch it." I feel that many other families seem to be saying similar things, and it is becoming something of a harmful rumor. Will you take any measures to dispel these concerns in order to make the Nintendo 3DS more widespread in society?
A 1

Satoru Iwata (President, Chairperson of the shareholders' meeting):

  First, talking about "3D images," various 3D images exist in our world beyond those of the Nintendo 3DS. If you visit an electronics store, there are TVs which offer 3D images by using special glasses, and it is very popular to enjoy 3D movies by wearing glasses at the movie theatre. The variety of stuff that can be seen in 3D will continue to increase beyond what is possible today. Regarding these 3D images, the technology used in the Nintendo 3DS, the technology used in movies, which requires glasses, and the technology used in TVs are all slightly different, but the basic principle is very similar. The users can experience a stereoscopic effect because different images are able to be delivered to the left and the right eyes. It is not our eyes but our brains which make us feel the stereoscopic images. Accordingly, the topic of discussion about 3D viewing is not a possible effect on our eyes but on our brains. Such comments as, "It's bad for your eyes" or "your eyes get tired" have wings, so much so that some people appear to have the impression that viewing a 3D image is not good for their eyes, but what has been discussed here is whether there are any negative effects on the development of the brain."

  Until now, a number of movies have been viewed in 3D, and I have heard such comments as, "My eyes got tired" or "I experienced a headache." I suppose you have also heard the same stories, but there are no studies saying that these symptoms have any negative effect whatsoever on children's eyes. Also, taking into regard the fact that 3D movies are widespread in the U.S., which is a country well-known for litigation, any such negative effects would have had caused a huge debate over there but, as I see it, it is not happening.

  In the case of a nine-year-old child (who was mentioned in the question), the stereoscopic view function in the brain has been said to be already matured, and as for even younger children who are in the development stage, the well-accepted academic theory is that in many cases the functionality of stereoscopic viewing will mature in the brain when a child is about five years old or younger. We have carefully taken the individual differences in a child's maturation into consideration and, because nobody appears to have the information to declare that it is definitely safe to show 3D images to young children aged six and under, we decided to proactively encourage consumers to take care when children aged six and under are using the device. I understand that not very many companies make statements such as, "Our products have these features, so please be careful," but we thought we should do this.  Also, since video games are a type of entertainment which can be played by children for a long period of time without their parents' supervision, we have decided to communicate the message that "we do not recommend the viewing of 3D images for users who are aged six and under." However, this recommendation was somewhat blown out of proportion, and there are some consumers who think, "3D images are not good for children's eyes" and as in the shareholder’s example, "even a nine-year-old child shouldn't see 3D images."

  Also, there seems to be large individual differences when it comes to the most comfortable parallax and viewing distance for 3D viewing. Even with a very large stereoscopic depth effect, some users say, "I do not feel tired at all. In fact, I feel it is more dynamic at this depth, and I like it." On the other hand, some say, "I get tired when I see intense depth effects." We considered these differences at the development stage of the Nintendo 3DS, and implemented the "3D Depth Slider" in the right-hand side of the screen. By using this feature, the users will be able to adjust the 3D depth at anytime to a level that is most comfortable for them, and we have also been communicating the message, "Please adjust the 3D effect to your most comfortable level by using this function" to the public, but I believe there is more room for this communication effort.

  So far, only 1.2 or 1.3 million Nintendo 3DS systems have spread throughout Japanese society, which means that this product is yet to be sufficiently recognized in this country. We have been trying to communicate to the public to increase the awareness of such functions as the 3D Depth Slider and, also, Parental Controls, by which parents can disable the 3D effect for younger children unless they enter a PIN code, so that even if a child moves the 3D Depth Slider to the strongest level, he or she cannot see the 3D images. Hearing this comment from a shareholder right now emphasizes the importance of our continued communication efforts. By widely communicating these two points: one, "In most cases, regarding 3D viewing, users can maximize comfort by using the 3D Depth Slider," and two, "Parents who have a concern over any possible effect on the growth of their children’s eyes, which is more accurately the growth of their brain, should use the Parental Controls feature to restrict their children’s access to 3D images," I think we will be able to dispel the harmful rumors, such as "you cannot buy this or play with this because 3D is not good for your eyes," which was raised in this question. We are also aware that the Nintendo 3DS will not become widespread unless we dispel such rumors. We are trying hard to communicate these messages to help people have an accurate understanding.

Q 2   I want Nintendo to develop software which adults can enjoy more. Also, by using the technologies of Nintendo, is it possible to work on making heavy children's textbooks lighter, or to run a business with the mysteries of the universe as a theme?
A 2


  There are two aspects of the suggestion "there should be software which adults can enjoy further" that I would like to touch on. One is that even though such software titles already exist, we have failed to make them widely known. And second, because games were originally entertainment mainly enjoyed by children or young men, even though we have been working hard to expand the age range and offer entertainment which can be enjoyed by a wide range of people, we still have more work to do. If I understand your request correctly, you want Nintendo to develop games which fulfill people's intellectual curiosity by combining culture and entertainment in a clever way, so I would like to consider it as a future challenge for us.

  I understand that your second question was, "By using the technologies of Nintendo in a good way, is it possible for you to eliminate the need to carry around many heavy books, by making textbooks electronic?" Or, it was probably more of a suggestion that, if we go one step further in the computerization of textbooks, "Isn't it possible for Nintendo to make study itself more fun by using its technologies?" Nintendo is involved in a project called "DS Classroom," which uses the Nintendo DS system. With this system, the teacher uses a PC while each student has a Nintendo DS. Tasks are sent from the teacher's PC to each Nintendo DS, enabling each student to tackle tasks at his/her own pace and interact with the teacher. Each student's results are automatically calculated in the teacher's PC, which makes it easier for the teacher to evaluate the progress of each child. This system has been very well-received by the teachers who have started using it. However, it can be difficult to use gaming devices in places of education because some educators believe that video games are things that children play with that interrupt their studies, so there is a certain hurdle for us to overcome in order to work cooperatively in the educational fields. Therefore, keeping in mind that some people who believed that "video games = a waste of time" changed their minds when they played software such as "Brain Age" or "Wii Fit," we would like to increase the number of people in the field of education who can think of ways of utilizing our technologies or know-how by combining education and entertainment in a beneficial way. To that end, I think the most important thing is to produce good examples, so we would like to work towards that.

  In addition, you referred to a "universe" theme. I interpreted it that you are asking for the possibility for us to create more things that "fulfill people's intellectual curiosity," but not only their curiosity about the universe. Now this is just an example, but we have been discussing internally in the company how we could make use of Nintendo 3DS to offer the realistic experiences of visiting various museums worldwide. I believe that if we could offer something like this in the future, I would be able to answer your request to a certain degree.

Q 3-1   Please let me know the salary, bonus and stock options of the ten directors. The stock price is so sluggish that I have to ask this to know how you are taking management responsibility.
A 3-1


Directors' Total Compensation
Computation method of director's compensation in total
Computation method of fixed compensation
Computation method of performance-based variable compensation
Computation method of performance-based variable compensation
Computation method of performance-based variable compensation
Director's Compensation of 100 mil yen or More

  First I would like to tell you about the computation method of the directors' compensation. The total compensation for the 71st fiscal year for these board members was 741 million yen, reduced by 274 million yen from 1,015 million yen for the 70th fiscal year. The key reason for the reduction was the decrease of the performance-based variable compensation, 340 million yen from 600 million yen for the previous year, which is tied to the decreased consolidated operating income.

  Four years ago, in the 67th Annual General Meeting of Shareholders, it was approved that compensation payable to directors consists of fixed compensation and performance-based variable compensation: fixed compensation of up to 500 million yen per year and performance-based variable compensation of up to the amount equivalent to 0.2% of the consolidated operating income of the fiscal year. The performance-based variable compensation is capped at 600 million yen by the board of directors. As for the fixed compensation, within the approved maximum amount of 500 million yen each year, the board of directors determines each director's compensation, which basically reflects his duty position and the contribution he made up until the previous year.

  The total amount of the fixed compensation for the 71st fiscal year was 410 million yen. The highest amount of fixed compensation to a single person among all of the directors is 68 million yen per year to the president. The fixed compensation to each director is divided into 12 equal parts and paid monthly. As for the variable compensation, as I just explained, it is performance-based and the maximum amount is up to 0.2% of the consolidated operating income. The board of directors voluntarily decided that the total amount of the performance-based variable compensation should be rounded down to the nearest 10 million yen and capped at 600 million yen. The rounded-down amount, which is equivalent to 0.2% of the consolidated operating income of the 71st fiscal year (171.0 billion yen), was 340 million yen, reduced by 260 million yen from the maximum, 600 million yen, in the previous fiscal year.

  The determined performance-based variable compensation is allocated to each director according to the assigned points on each duty position. The point total for all of the 11 directors was 22.1. For example, I, as the president, am entitled to 4.5/22.1 of the total amount of the performance-based variable compensation. This slide shows the allocation of a total of 340 million yen to each duty position. We directors will receive the calculated amount of performance-based variable compensation for the 71st fiscal year as an executive bonus after the conclusion of this Annual General Meeting of Shareholders.

  In the annual shareholders' meeting last year, we had a question on the directors with compensation of 100 million yen or more. We had six last year, but this year I am the only one with compensation of 100 million yen or more.

  You also asked about such other compensation as stock options. Nintendo abolished the retirement-benefit system for directors and auditors effective at the conclusion of the 65th Annual General Meeting of Shareholders, and does not have non-cash compensation such as stock options. What I have just discussed is all of the compensation for directors of this company.

  I believe that this compensation method, approved at the 67th Annual General Meeting of Shareholders, is highly transparent and also clarifies how we are taking the business responsibility for directors. Thank you for your understanding.

Q 3-2   Since the yen is now the strongest currency, I would like you to stop your foreign currency deposits which could incur foreign exchange losses. My head aches every time I hear that Nintendo suffers a loss owing to its large deposits in euros and dollars.
A 3-2


  Focusing on a year with a foreign exchange loss which makes a financial result worse, I fully understand your point that it is not appropriate to have assets in foreign currencies.

  When we sell our products in overseas markets, which now account for more than 80 percent of our total sales, we cannot help receiving foreign currencies. How should we handle them? Prompt exchange to the yen would be the best way for the sole purpose of decreasing potential foreign exchange losses in the future, but we also have to look at the constant fluctuation of foreign exchange rates. It is true that the increasingly stronger yen has eroded our foreign currency assets when we calculate them in Japanese yen for these two years and more, and have lowered our profits in financial statements. On the other hand, the exchange rates will never fail to fluctuate at a constant frequency. I cannot deny the fact that the yen is currently evaluated as the strongest of the currencies in Japan, U.S. and Europe, but in light of the current economic conditions and future inevitable population decline in this country, the yen will not necessarily continue to be strong forever.

  We think that "how to hedge against currency risk" and "what should be the proportion of holding key currencies in Japan, U.S. and Europe" are more important points and, in fact, we have changed our asset allocations (as compared with the past). We had our products manufactured by paying in yen and had them sold in foreign currencies, but for several years we have drastically increased our purchases in dollars and, compared with the past, significantly decreased the influence of fluctuation in dollars on our profits. Unfortunately, however, none of our big business partners prefer payment in euros. We sell in euros but cannot pay in euros and, therefore, we are currently likely to accumulate euros, so we need to discuss what currency we should periodically exchange euros into.

  The opinion that we should have no assets in foreign currencies in order to eliminate any exchange losses is one opinion certainly worth considering. During the upcoming times of uncertainty, when any key currency could be volatile, however, we think it rather appropriate for Nintendo to have a good balance of several key currencies in case something goes wrong. I believe that the foreign exchange gains and losses will balance out in the long run.

Q 3-3   The stock price dropped after the press conference at E3 in the U.S. where you announced Wii U. I would like to hear your opinion on the current flagging stock price and on the company's responsibility in this situation.
A 3-3


Current Market Concerns for Nintendo

  When we announced the Wii U, I felt that the reaction from the crowd was very good. It seems that the excitement in the venue did not fully transmit to people in Japan who saw the presentation via webcast, but I think our presentation was one of the best presentations we have ever done in terms of receiving a solid response from the audience. In addition, I was interviewed by many foreign media there and about half congratulated us at the beginning or the end of the interview. Every year, for 11 years, I have attended E3 but I class being congratulated by half of the reporters as an extremely good result. On the other hand, recently, many of the media outside of the U.S., do not send reporters to E3 as they had done before. For Europe, I felt the same tone from Japanese articles too, and there was a great difference (in tone) between articles written by media where a reporter had come to the show, and articles written by media where a reporter was not sent there, and the articles were written using other information such as from the Internet. There seems to be a great difference in understanding between a person who saw the product with their own eyes, experienced the excitement around, touched the product and thought "Wow," and a person who only saw the presentation on the Internet and thought "hmm." From this difference in understanding, people in the stock market responded with, "Wii U doesn't seem innovative" or "I don't think Wii U will sell as well as the Wii," and that caused the decline in the stock price.

  Also, people at the event have commented very positively, and even many members from our industry commented, "We would like to develop games actively because this platform has great potential." So to speak, it was highly appreciated at the E3 show, but the value was not correctly transmitted to places far away. The fact that we were not able to fully transmit this positive appreciation is something we need to improve on. If there were no value (in the Wii U itself) we would need to re-develop it so that it had value, but people who actually saw it recognized the value and, therefore, I think "how to transmit the value" and "whether we can meet the expectations" are the real challenges we are facing.

  Having said that, however, I would like everyone to recall the reactions right after we announced the Nintendo DS, or the reaction right after we announced the Wii. I do not think many people praised the Wii or the Nintendo DS right after their respective announcements. Especially with the Nintendo DS, I felt that the dominant reactions were just like, "It seems like Nintendo is saying they will have two screens on a handheld console! Are they all right?" and "What are they going to do with this way out stuff?" Even for the Wii, the responses were, "The remote can be used for new gameplay, but what else can you make with this?" or "Is this going to sell in the home console market at all?" This time, I heard a very interesting comment from a Japanese analyst. "Actually, it (the reaction to the Wii U) was mixed, but I don't think having pros and cons is a bad thing. When there is something new, the pros and cons are always debated." I understand from a stock price standpoint that the current situation is not satisfactory and I am also unhappy with the situation as a shareholder that has 5,100 stocks. I sincerely understand that many shareholders are attending this meeting today to express the feeling "Do something." On the other hand, what we should be doing, and my main responsibility is to complete the development of the good value of Wii U, which has been appreciated by those who have had hands-on experience, launch the product next year and make it a product that sells even better than the Wii."

  I understand you are very much concerned about the situation, but I would like to ask for your understanding that, as for the Wii U, I am proceeding with confidence that we can shape it so that many people will enjoy the product.

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