Square Enix 2004 Annual Report Download - page 17

SQUARE ENIX 2004 15
Common stock carried on from the former ENIX, the surviving company
of the merger, was ¥7,154 million as of March 31, 2004, reflecting an
increase by the exercise of stock options. Capital surplus reserve totaled
¥36,393 million as of March 31, 2004. The Company recorded an increase
of capital surplus from capital reduction of ¥11,945 million realized by the
merger, and took over capital surplus reserve of ¥14,847 million from the
former SQUARE. The capital surplus reserve as of March 31, 2004
amounted ¥36,393 million, reflecting reassurance of treasury stock of ¥4
million and the issuance of shares from stock options of ¥213 million.
Sales and Operating Income
Games (Offline)
(Millions of yen)
Fiscal 2003 Fiscal 2004 Change
Net Sales 45,677 37,988 (7,689)
Operating Income 18.212 16,404 (1,808)
Operating Income Margin 39.9% 43.2% —
In the Games (Offline) business, the Company shipped more than a million
copies of Dragon Quest V: Tenkuu no Hanayome in Japan as well as
FINAL FANTASY X-2 and FINAL FANTASY TACTICS ADVANCE
overseas.
The operating income margin was 43.2%, an improvement from the
previous fiscal year due to higher efficiency from stronger title develop-
ment management after the merger. Only titles that cleared sales and earn-
ings standards began development, as business plans were created for each
title and management of development expenses was unified on a per-title
basis, as was done at the former SQUARE. Sales in the Games (Offline)
business declined ¥7,689 million to ¥37,988 million, and operating income
decreased ¥1,808 million to ¥16,404 million, compared to the Simple
Total.
Games (Online)
(Millions of yen)
Fiscal 2003 Fiscal 2004 Change
Net Sales 4,154 8,924 4,770
Operating Income (985) 2,348 3,333
Operating Income Margin (23.7)% 26.3% —
In the Games (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 around the world by the end
of this Fiscal Year. Sales of “FFXI” exceeded ¥2,000 million in North
America, and were approximately ¥8,000 million in total with Japan.
“FFXI” is growing into a world-class online game.
The business model for “FFXI” is based on users purchasing software
on CD-ROMs, accessing our game servers, and paying a monthly member-
ship fee to play the game online. Therefore, online game business sales
include both CD-ROM software sales and membership fees. Monthly
membership fees are ¥1,280 in Japan and US$12.95 in North America.
The addition of a playable character is an extra charge of ¥100 per month
in Japan and $1.00 per month in North America. As of March 31, 2004, the
average number of characters played by each user was 2.5 characters
around the world.
Played in mainland China and Taiwan, CROSSGATE also performed
well. Our consolidated subsidiary SQUARE ENIX WEBSTAR NET-
WORK TECHNOLOGY (BEIJING) CO., LTD. recorded sales of more
than ¥700 million. Players use prepaid cards containing a unique user ID
and a password to access game servers to enjoy playing the game online in
hourly units according to amounts on the prepaid card. CROSSGATE
game software CD-ROMs are distributed for free as a countermeasure to
illegal copying. Revenues from these prepaid cards of approximately ¥800
million are recorded as other accounts payable under current liabilities, as a
result of carrying forward card revenue for unfulfilled services.
Sales in the Games (Online) segment, mainly derived from these two
games, was ¥8,924 million in this Fiscal Year, an increase of ¥4,770 million
from the Simple Total. Operating income improved ¥3,333 million to
¥2,348 million. The Company plans to reveal new titles and expand the
reach of “FFXI” services into new regions in fiscal 2005.
Mobilephone Content
(Millions of yen)
Fiscal 2003 Fiscal 2004 Change
Net sales 1,696 2,793 1,097
Operating Income 755 1,159 404
Operating Income Margin 44.5% 41.5% —
In this Fiscal Year, the Mobilephone Content business grew steadily along
with the Games (Online) business. The Mobilephone Content business
develops products through mainly outsourcing production, and provides
various content for mobilephones including ring tones, wallpaper and
games. Development expenses are recognized at the time of occurrence.
The Mobilephone Content business just began expanding overseas in
this Fiscal Year, launching mobilephone content operations in North
America and Asia. As a result, overseas operations made insignificant con-
tributions to sales and profits in this Fiscal Year..
The Company plans to accelerate business development at overseas
bases from fiscal 2005 onward.
Sales in the Mobilephone Content business were ¥2,793 million, an
increase of ¥1,097 million from the Simple Total. Operating income rose
¥404 million to ¥1,159 million.
Publication
(Millions of yen)
Fiscal 2003 Fiscal 2004 Change
Net Sales 6,417 9,671 3,254
Operating Income 1,820 3,180 1,360
Operating Income Margin 28.4% 32.9% —