Square Enix 2004 Annual Report Download - 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 peri-
od for revenue and expense accounts. Adjustments resulting from transla-
tion are included in other comprehensive income (loss). Realized and unre-
alized transaction gains and losses are included in income in the period in
which they occur.
4. BUSINESS COMBINATIONS
Acquisition of SQUARE
On April 1st, 2003, the Company acquired entire outstanding shares of
SQUARE CO., LTD., a video game developer in Japan, in the form of a
statutory merger. The purpose of the merger was to enhance the ability to
provide high quality digital contents in the rapidly changing digital enter-
tainment industry. The aggregate purchase price, including assumption of
liabilities and issuance of 51,167,293 shares of common stock was ¥117,131
million. The value of the Company’s common stock issued in connection
with this acquisition has been based on the market price of the Company’s
common stock shortly before and after the date such proposed transaction
was agreed and announced. The acquisition has been accounted for as a
purchase business combination in accordance with SFAS No.141 and,
accordingly, the result of operations and financial position of the acquired
business are included in the Company’s consolidated financial statement
from the date of acquisition. The balance of the purchase price in excess of
the fair value of the assets acquired and the liabilities assumed at the date of
acquisition was recorded as goodwill totaling ¥35,624 million, none of
which is expected to be deductible for tax purposes. The amount of pur-
chased in-process research and development assets was ¥12,728 million. Of
this, ¥4,862 million was charged to cost of sales during the year ended
March 31, 2004.
The following table sets forth the components of the purchase price of the
Square acquisition:
Thousands of
Millions of Yen U.S. Dollars
Cost of the acquisition:
Value of stock issued ¥100,807 $953,798
Liabilities assumed 16,324 154,452
Total ¥117,131 $1,108,250
Allocation of purchase price:
Current assets ¥49,973 $472,828
Non-current assets 8,012 75,807
Trademarks (indefinite useful life) 10,300 97,454
Licensing agreement (indefinite useful life) 9,710 91,872
Existing online game (useful life of 12 years) 12,850 121,581
Existing off-line games and other
(useful life ranging from 1 to 5 years) 3,130 29,614
Goodwill 35,624 337,061
Net deferred tax liabilities (12,468) (117,967)
Total ¥117,131 $1,108,250
Acquisition of UIEvolution
On March 24, 2004, the Company acquired all of the outstanding pre-
ferred and common stock of UIEvolution, Inc. ("UIEvolution"), a Seattle-
based middleware development company for approximately $58million.
The purpose of acquisition was to acquire core technology that could pro-
vide the Company with more flexibility to produce digital contents for var-
ious type of platform, by way of which, the Company expects to enhance its
cutting edge under rapidly changing internet circumstances. This transac-
tion has been accounted for as a purchase and included in the Company’s
operations since the date of acquisition. The balance of the purchase price
in excess of the fair value of the assets acquired and the liabilities assumed
at the date of acquisition was recorded as goodwill totaling ¥3,331 million,
none of which is expected to be deductible for tax purposes. The
Company’s consolidated results of operations reflected UIEvolution’s
operating activities for the period from March 24, 2004 (the date of acqui-
sition) to March 31, 2004.
The following table sets forth the components of the purchase price of the
UIEvolution acquisition:
Thousands of
Millions of Yen U.S. Dollars
Cost of the acquisition:
Cash, net of cash acquired ¥6,091 $57,640
Total ¥6,091 $57,640
Allocation of purchase price:
Property and equipment ¥10 $94
Existing technology (useful life of 5 years) 2,853 26,994
Trade name and trade marks
(useful life of 5 years) 401 3,794
Customer contracts (useful life of 2 years) 243 2,299
Goodwill 3,331 31,516
Net other liabilities (747) (7,057)
Total ¥6,091 $57,640
Unaudited Pro Forma Information
The unaudited pro forma data below for the year ended March 31, 2003 is
presented as if the acquisitions of Square and UIEvolution had taken place
on April 1st, 2002. The unaudited pro forma financial information is based
on management’s estimates and assumptions and does not purport to rep-
resent the results that actually would have occurred if the acquisitions had,
in fact, been completed on the dates assumed, or which may result in the
future. Pro forma data for the year ended March 31, 2004 is not presented
as it would not differ materially from reported results.
The year ended March 31, 2003
Millions of Yen
(Except share data)
Total revenue ¥62,380
Income before income taxes ¥2,794