Square Enix 2004 Annual Report Download

Download and view the complete annual report

Please find the complete 2004 Square Enix annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 70

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70

SQUARE ENIX CO., LTD. 2004 ANNUAL REPORT
SQUARE ENIX CO., LTD. www.square-enix.co.jp/
Printed in Japan
2004 ANNUAL REPORT

Table of contents

  • Page 1
    SQUARE ENIX CO., LTD. 2004 ANNUAL REPORT SQUARE ENIX CO., LTD. www.square-enix.co.jp/ 2004 ANNUAL REPORT Printed in Japan

  • Page 2
    ... ENIX uses extensively in its overseas business; (3) the continuous introduction of new products, and rapid technical innovation in the digital entertainment industry; and (4) SQUARE ENIX's ability to continue developing products and services accepted by consumers in the intensely competitive market...

  • Page 3
    ... STOCK: Net income (Note 3, 4 and 5) Total shareholders' equity (Note 3 and 4) ¥100.04 878.85 ¥41.18 845.18 233.83 626.78 $0.95 8.32 Notes : For the convenience of readers, amounts in U.S. dollars have been translated from yen at the exchange rate prevailing in the Tokyo foreign exchange market...

  • Page 4
    ...Director Yoichi Wada Square Enix Co., Ltd. is proud to present its first annual report for fiscal 2003, ended March 31, 2004, following the merger of Enix Corporation and Square Co., Ltd. on April 1, 2003. For its first fiscal year, consolidated net sales totaled ¥63,202 million, operating income...

  • Page 5
    SQUARE ENIX 2004 03 > Network is the Game. plays Games. Everything market growth that kept profits well distributed within the industry value chain. However, these conditions have changed. For hardware vendors, this change was embodied by the ability of PCs, and in the near future mobile ...

  • Page 6
    ... to the point of allowing users to enjoy communicating through virtual worlds. Demand for communications, and the communities that naturally formed as a result, present an unlimited market restricted only by the whims of people. Square Enix expresses the new era of networking in the following...

  • Page 7
    ...The video game industry is in the best position to take advantage of the technological changes mentioned above. To this end, we believe the mission of Square Enix is to lead the industry into a new era of entertainment. areas of business focus. As a result of the merger, the two companies were able...

  • Page 8
    ... nonexistent service category, and managing the quality of these communities is an area where we can add the most value going forward. Communities provide the most value to users, and managing them is the most difficult business area for providers to enter. For these very reasons, Square Enix plans...

  • Page 9
    ...IT industry as a whole, and I have chosen these years as a time for expansion. By 2010, the Square Enix Group plans on becoming one of the largest and best digital content providers in the world and profiting from its endeavors. We are now setting out on a new adventure. To this end, we ask for the...

  • Page 10
    ... income was ¥2,348 million. many best-selling titles worldwide. More than two million copies of FINAL FANTASY X-2 for the PlayStation 2, and more than one million copies of FINAL FANTASY TACTICS ADVANCE for the Game Boy Advance were shipped in North America and Europe. In Japan, the Company...

  • Page 11
    ... PROJECT/BIRD STUDIO/CHUNSOFT/SQUARE ENIX All Rights Reserved. > Publication The Company publishes monthly magazines including SHONEN GANGAN, G FANTASY, and GANGAN WING. During this Fiscal Year, from among these serial comics the Company created three animation series, FULLMETAL ALCHEMIST, E'S, and...

  • Page 12
    10 SQUARE ENIX 2004 Directors, Auditors and Executive Officers Board of Directors Yoichi Wada President and Representative Director Keiji Honda Executive Vice President and Director Akitoshi Kawazu Director Yosuke Matsuda Director Yukinobu Chida Director Makoto Naruke Director Corporate ...

  • Page 13
    ... (U.S. GAAP) 66 Report of Independent Auditors 67 Corporate Data 68 Investor Information Square Enix Co., Ltd. assumes full responsibility of the consolidated financial statements prepared in conformity with accounting principles generally accepted in Japan, which are the English translation of the...

  • Page 14
    ...stock, and one share of SQUARE's common stock was exchanged for a 0.85 share of ENIX common stock. Neither of the two companies would be recognized as the acquiring company, and, therefore, the pooling of interest method of accounting was employed. In the merger, the two companies' controls over net...

  • Page 15
    ...ENIX, payments to external developers in charge of planning and creating game titles were charged as expenses when incurred. From this Fiscal Year, however, the Company capitalizes payments during the development process in the content production account until the time of product launch. This change...

  • Page 16
    ...In March 2004, the Company acquired UIEVOLUTION INC. in the United States, and made it a consolidated subsidiary in order to incorporate its wireless communications technologies, which are fundamental to promote network-related businesses, into product and service planning. In conjunction with this...

  • Page 17
    ...(Online) business, this Fiscal Year was a great year of progress for the MMORPG FINAL FANTASY XI ("FFXI"), which was released in May 2002 in Japan. PlayOnline services for "FFXI" were launched in October 2003 in North America, bringing the total number of paying users to approximately 500,000 people...

  • Page 18
    ...former SQUARE licensed out its game strategy books and other publications to third parties, and recorded revenue from royalties. In this Fiscal Year, the Publication business grew considerably on the back of the major hit FULLMETAL ALCHEMIST, which is published in the Company's SHONEN GANGAN monthly...

  • Page 19
    ... a number of new titles in North America. In the previous fiscal year, the Company dissolved the sales joint venture with ELECTRONIC ARTS, INC. in the United States, and established is own distribution channel through consolidated subsidiary SQUARE ENIX, INC. (which changed its name from SQUARE ENIX...

  • Page 20
    ... Balance Sheets (JPNGAAP) SQUARE ENIX CO., LTD. and Consolidated Subsidiaries As of March 31, 2004 (Millions of Yen) As of March 31, 2003 SQUARE ENIX Former ENIX Former SQUARE (Assets) Current assets Cash and time deposits Notes and accounts receivable Inventories Content production account...

  • Page 21
    ... payments received Deposits received Reserve for bonuses Allowance for sales returns Reserve for relocation-related costs Deferred tax liabilities Other Total current liabilities Non-current liabilities Long-term debt Allowance for retirement benefits Allowance for directors' retirement benefits...

  • Page 22
    ... year ended March 31, 2003 SQUARE ENIX Former ENIX Former SQUARE Net sales Cost of sales Gross profit Reversal of allowance for sales returns Provision for allowance for sales returns Net gross profit Selling, general and administrative expenses Packaging freight charge Advertising expense Sales...

  • Page 23
    ... of treasury stock Shares issued through stock options Decrease in capital surplus Decrease due to transfer to retained earnings Capital surplus at end of year (Retained earnings) Retained earnings at beginning of year Increase in retained earnings Net income Increase due to merger Increase due...

  • Page 24
    ... in allowance for directors' retirement benefits (Decrease) increase in reserve for relocation-related costs Loss from bad debt Interest and dividend received Interest income Dividends received Interest from securities Interest expenses Loss on restructuring of affiliates Gain on sale of investment...

  • Page 25
    ... year ended March 31, 2003 SQUARE ENIX Former ENIX Former SQUARE Cash flows from investing activities Payments for acquiring property, plant and equipment Payments for acquiring intangible assets Payments for transfer of business Payments for acquiring investment securities Proceeds from sales...

  • Page 26
    ...Accounting Policies used in the Preparation of Consolidated Financial Statements (1) Number of consolidated subsidiaries: 10 Number of partnerships: 1 Digital Entertainment Academy Co., Ltd. Community Engine Inc. The Game Designers Studio, Inc. SQUARE ENIX U.S.A., INC. SQUARE L.L.C. SQUARE PICTURES...

  • Page 27
    ... financial statements, a December 31 fiscal year-end for SQUARE ENIX WEBSTAR NETWORK TECHNOLOGY (BEIJING) CO., LTD., SQUARE PICTURES, INC. and FF Film Partners was used. However, in the event a major transaction took place between the period December 31 and the consolidated balance date of...

  • Page 28
    ...for which fair values are available: Market value, determined by the quoted market price as of the balance sheet date, with unrealized gains and losses reported as a separate component of shareholders' equity at a net-of-tax amount, and the cost of sales determined by the moving-average method Other...

  • Page 29
    ... with internal policy. As of March 31, 2003, SQUARE ceased to operate as a going concern due to merger with Enix. As a result, the amount and date payable as retirement benefits to employees and directors of SQUARE was fixed and recorded as other accounts payable as of the balance sheet date (Refer...

  • Page 30
    ...to pay if all eligible employees voluntarily terminated their employement at the balance sheet date. Effective from the current fiscal year, as the number of Company employees exceeded 300 due to the merger with SQUARE, the Company changed its accounting policy for reserve for retirement benefits to...

  • Page 31
    ...2003, SQUARE adopted the new Japanese regulation for the presentation of shareholders' equity. The consolidated balance sheet and consolidated statement of shareholders' equity has been prepared in accordance with the new regulations. (d) Per share information (Change in accounting policy) Effective...

  • Page 32
    ... Goodwill Previous fiscal year (April 1, 2002 to March 31, 2003) ENIX The excess of cost over the underlying net assets ("Goodwill") is charged to income as immaterial. SQUARE Goodwill is charged to income. Fiscal year under review (April 1, 2003 to March 31, 2004) The Company Goodwill is amortized...

  • Page 33
    ... of sales at the time of sale of related game products. For the year ended March 31, 2004, "Content production account" includes such capitalized costs in the amount of ¥3,763 million. (Accounting for business combination) On April 1, 2003, SQUARE and ENIX merged and formed SQUARE ENIX. The merger...

  • Page 34
    ... sales returns Reserve for relocation-related costs Other current liabilities Long-term liabilities Long-term debt Long-term deposits received Reserve for retirement benefits Total Liabilities Net worth Notes to Consolidated Balance Sheets Previous fiscal year (April 1, 2002 to March 31, 2003) ENIX...

  • Page 35
    ... benefit expense Repairs and maintenance Rent expenses Depreciation and amortization of various components. 2. - 3. Breakdown of gain on sales of property and equipment: 1,919 162 42 80 332 289 Research and development cost is reported as a single account comprised Cash and deposits Cash and cash...

  • Page 36
    ...SQUARE - Fiscal year under review (April 1, 2003 to March 31, 2004) The Company Information related to finance leases other than those that transfer ownership to the lessee. 1. Acquisition cost, accumulated depreciation and net book value of leased assets Securities with market value exceeding book...

  • Page 37
    ... acquisition cost exceeding book value Total Note: An impairment loss of ¥100 million was incurred in the fiscal year ended March 31, 2003, in connection with the Company's other marketable securities with market value. Impairment loss on securities is charged to income when the market price at...

  • Page 38
    ... cost exceeding book value (1) Stocks (2) Bonds Government, municipal bonds, etc. Corporate bonds Other (3) Others Sub-total - - - - 76 256 - - - - 71 869 - - - - (4) 613 ENIX 1. Overview of retirement benefit plan applied Until the fiscal year ended March 31, 2002, ENIX had a defined benefit...

  • Page 39
    ... Accrued expenses Total Non-current assets Service cost Amortization of transition amount Loss on termination Retirement benefit expenses 72 - - 72 Fiscal year under review (April 1, 2003 to March 31, 2004) The Company 1. Overview of retirement benefit plan applied The Company and its domestic...

  • Page 40
    38 SQUARE ENIX 2004 Product development costs Non-deductible portion of amortization expense of software Offset to deferred tax liabilities (non-current) Total Total deferred tax assets Deferred tax liabilities Non-current liabilities Net unrealized gains on available-for-sale securities Offset to...

  • Page 41
    SQUARE ENIX 2004 39 Fiscal year under review (April 1, 2003 to March 31, 2004) The Company 1. Principal deferred tax assets and liabilities were as follows: Millions of Yen Taxation on per capita basis for residents tax Foreign tax credits Special income tax credits Investment loss on equity ...

  • Page 42
    ... and services. 2. Major products offered by each business segment Business segment Computer software business Publication business Other businesses Major products Family computer game softwares, communication personal computer softwares, Mobile phone contents Comic magazines and books, computer game...

  • Page 43
    ... products and services. 2. Major products offered by each business segment Business segment Computer game business Game-related businesses Other businesses Principal products Computer game softwares, online games Computer game CDs, computer game strategy books, computer game-related goods Videogram...

  • Page 44
    ... or unallocated" column. Fiscal year under review (April 1, 2003 to March 31, 2004) The Company Millions of Yen Japan North America Europe Asia Total Eliminations or unallocated Consolidated total I. Sales and operating income Sales (1) Sales to outside customers (2) Intersegment sales Total 49,354...

  • Page 45
    ...each segment: (1) North America (2) Europe (3) Others United States of America, Canada United Kingdom, France, Germany, etc. Asia, etc. 3. Overseas sales represent sales of the Company and its consolidated subsidiaries to countries and areas outside of Japan. Fiscal year under review (April 1, 2003...

  • Page 46
    ... Business post of directors relationship Transaction amount Name of account Balance at year-end Relationship Name Address Transaction Major shareholders (companies, other) SONY Computer Entertain ment Inc. Minato Ward, Tokyo 1,933 Computer game business 18.6 - Sale of SQUARE's products...

  • Page 47
    ... review (April 1, 2003 to March 31, 2004) The Company Relationship Name Occupation Shares owned (%) Transaction Transaction amount (number of shares) Balance at year-end (number of shares) Director Director Director Director Director Notes: Yasuhiro Fukushima Yoichi Wada Keiji Honda SQUARE ENIX...

  • Page 48
    46 SQUARE ENIX 2004 SQUARE Net assets per share Net income per share Diluted net income per share Diluted net income per share information has been omitted, as there are no shares with a dilutive effect. (Change in accounting policy) As described in, "4. Summary of Significant Accounting Policies...

  • Page 49
    ... net income per share: The issue of stock options was approved at the Company's annual general meeting of shareholders held on June 18, 2002 and June 23, 2003. Subsequent Events Previous fiscal year (April 1, 2002 to March 31, 2003) ENIX Merger with SQUARE. A merger agreement between ENIX and SQUARE...

  • Page 50
    ...Reserve for retirement benefits Total Liabilities Net worth Note: Amounts less than one million yen have been omitted. 422 1,248 594 83 463 893 1,074 3 359 18 39 301 13,848 37,012 ASSETS Current Assets Cash and deposits Accounts receivable Manufactured goods Merchandise Contents production account...

  • Page 51
    SQUARE ENIX 2004 49 Matters related to the merger of the two companies were duly reported at the ordinary shareholders' meeting of the Company held on June 21, 2003. Fiscal year under review (April 1, 2003 to March 31, 2004) The Company - Supplementary Information Corporate Bonds Debt Millions of ...

  • Page 52
    ... ASSETS Current assets Cash and cash equivalents Accounts and notes receivable, less allowance for doubtful accounts of 227 and 9, respectively Inventories Software development costs Prepaid expenses and others current assets Deferred income taxes Total current assets Property and equipment, net...

  • Page 53
    ...of property and equipment Write-down of investment securities Foreign currency exchange losses Other income (expenses), net Income before income taxes Income taxes: Current Deferred Income before minority interest and equity in loss of affiliated company Minority interest in earnings of consolidated...

  • Page 54
    ...Dollars (except number of shares) Issuance of common stock to effect business combination Dividends declared Purchase of treasury stock Reissuance of treasury stock Exercise of stock option Unrealized gains on available-for-sale securities Foreign currency translation adjustments Net income Balance...

  • Page 55
    ... of capitalized software developments costs Write-down of investment securities Losses on sale of property and equipment Losses on disposal of property and equipment Minority interest in earnings of consolidated subsidiaries Equity in loss of affiliated company Changes in assets and liabilities, net...

  • Page 56
    ... games designed for video game console platforms and PCs, and publishes and distributes such games in Japan, North America, Europe and Asia. (ii) Online Game: The Company provides online game services including massively multi-players online RPGs such as "FINAL FANTASY XI" in Japan and North America...

  • Page 57
    ... value of its inventories and makes adjustments as necessary. Cost is determined by the monthly average method for finished goods, merchandise and work in progress, by the last purchase price method for other supplies. Software Development Costs The Company applies Statement of Financial Accounting...

  • Page 58
    ... and sales incentives related to the current period product revenue. The U.S. subsidiary analyzes historical returns, current sell-through of distributor and retailer inventory of its products, current trends in the software games business segment and the overall economy, changes in customer demand...

  • Page 59
    ... effects on net income and the net income per share in future years. The fair value of the Company's stock options used to compute pro forma net income and the net income per share disclosures is the estimated present value at the grant date using the Black-Scholes option-pricing model. The weighted...

  • Page 60
    58 SQUARE ENIX 2004 into Japanese yen using period-end exchange rates for assets and liabilities at the balance sheet date and average prevailing exchange rates for the period for revenue and expense accounts. Adjustments resulting from translation are included in other comprehensive income (loss...

  • Page 61
    ... Millions of Yen 2004 2003 Thousands of U.S. Dollars 2004 2004 2003 Software Patent and trademark Online game License agreement for related goods Existing game Existing technologies Other intangible assets (Less: accumulated amortization) Net book value Goodwill Total ¥2,837 10,380 12,850 9,710...

  • Page 62
    ... internally funded. The benefits are in the form of lump-sum payment and are based on current basic rate pay applicable to former Enix employees and the highest basic rate pay until present applicable to former Square employees. For the new employees entering into the Company on Marketable equity...

  • Page 63
    SQUARE ENIX 2004 61 acquired company Acturial (gain) loss Benefit paid Benefit obligation at end of year Funded status Unrecognized actuarial loss Unrecognized FAS87 transition obligation Net amount recognized Accrued pension costs Net amount recognized Accumulated benefit obligation at end of ...

  • Page 64
    62 SQUARE ENIX 2004 Accrued bonus Reserve for sales return and price protection Accrued expense and other Investment securities Investment tax credit Net operating loss carryforward in consolidated subsidiary Other Gross deferred tax assets Deferred tax liabilities: Software development costs ...

  • Page 65
    ...) ¥296 The Company has five operating segments; (i) games, (ii) online games, (iii) mobilephone content, (iv) publication, and (v) others. Revenue from disc sales for Final Fantasy XI is included in the online games segment. They are defined for which separate financial information is available and...

  • Page 66
    ... tables below. Millions of Yen For the years ended March 31 Sales from external customers 2004 2003 Thousands of U.S. Dollars 2004 Operating income Millions of Yen For the years ended March 31 2004 2003 Japan North America Europe Asia excluding Japan Corporate and Elimination Total ¥16,192 3,192...

  • Page 67
    SQUARE ENIX 2004 65 U.S.GAAP adjustments Consolidated (9,916) ¥9,482 (208) ¥4,396 (93,821) $89,715 Thousands of U.S. Dollars 2004 Millions of Yen For the years ended March 31 Assets 2004 2003 Japan North America Europe Asia excluding Japan Corporate and Elimination Total U.S.GAAP ...

  • Page 68
    66 SQUARE ENIX 2004 Report of Independent Auditors

  • Page 69
    ...Year-End Common Stock Shareholding Principal Lines of Business [Japan] The Gamedesigners Studio, Inc. Community Engine Co., Ltd. DIGITAL ENTERTAINMENT ACADEMY [North America] SQUARE ENIX, INC.* UIEVOLUTION, INC. SQUARE PICTURES, INC. [Europe] SQUARE ENIX, LTD.* [Asia] SQUARE ENIX WEBSTAR NETWORK...

  • Page 70
    ...) • Trading unit: 100 shares • Listed on: The First Section of the Tokyo Stock Exchange • Securities code: 9684 • Transfer Agent: Securities Agency Department UFJ Trust Bank Limited 7-10-11 Higashi-suna, Koto-ku, Tokyo 137-8081 TEL: +81-3-5683-5111 • Transfer Agent Offices: UFJ Trust Bank...