Square Enix 2004 Annual Report Download - page 64

62 SQUARE ENIX 2004
Accrued bonus 500 27 4,773
Reserve for sales return and
price protection 553 — 5,237
Accrued expense and other 381 371 3,608
Investment securities 472 8 4,475
Investment tax credit 118 — 1,126
Net operating loss carryforward
in consolidated subsidiary 666 — 6,307
Other 34 2 253
Gross deferred tax assets 3,568 1,685 33,776
Deferred tax liabilities:
Software development costs ¥453 — $4,291
Fixed assets 13,767 — 130,264
Valuation gain on investment securities 249 15 2,362
Gross deferred tax liabilities 14,469 15 136,917
Net deferred tax (liabilities) assets ¥(10,901) ¥1,670 $(103,141)
On April 1, 2003, the acquisition of Square took place in the form of a
qualified non-taxable merger. Accordingly, the tax attributes to produce
future tax deduction in the amount of ¥9,867 million were transferred,
without limitation, to the Company. It included pre-merger net operating
loss carryforwards (NOLs) and the deductible temporary difference that
arose from a past write-off of a depreciable motion picture film in the
amount of ¥1,661 million and ¥2,211 million, respectively. Transferred
pre-merger NOLs were fully utilized in the year ended March 31, 2004.
At March 31, 2004, the U.S. subsidiary has NOLs and research and
development credits for federal income tax purposes of approximately
$16.3 million and $0.3 million, respectively expiring beginning in 2017.
Utilization of these net operating loss and credits carryforwards has certain
limitations.
The total amount of undistributed earnings of foreign subsidiaries for
income tax purposes was approximately ¥5,128 million and ¥4,547 million
for the years ended March 31, 2004 and 2003, respectively. It is the
Company’s intention to reinvest undistributed earnings of its foreign sub-
sidiaries and thereby indefinitely postpone their remittance. Accordingly,
no provision has been made for the Japanese income taxes which may
become payable if undistributed earnings of foreign subsidiaries were paid
as dividends to the Company.
15. STOCKHOLDERS’ EQUITY
Merger
On April 1, 2003, the Company issued 51,167,293 shares of common stock
in exchange for shares of former Square as a result of the statutory merger.
The merger was accounted for using "pooling of interest method of
accounting" for JCC purposes, and accordingly, the stockholders’ equity of
liquidated Square was combined with that of the Company. The Company
made cash payments to stockholders of former Square in the total amount
of ¥4,153 million in lieu of dividend for the final year of Square ended
March 31, 2003.
Dividend
The JCC requires that dividends declared shall be paid out of retained
earnings of the Company at the end of each fiscal year, and such retained
earnings available for dividend shall be calculated in accordance with relat-
ed JCC requirements and JPNGAAP. Since the merger with Square was
accounted for using "pooling of interest method of accounting" for JCC
purposes, a certain portion of additional paid in capital in the amount of ¥
11,524 million under purchase method of accounting presented in the
accompanying consolidated balance sheet as of March 31, 2004 constitutes
retained earnings available for dividend transferred from Square for JCC
purposes.
JCC, as amended effective October 1, 2001, provides that earnings in
an amount equal to at least 10% of appropriations of retained earnings that
are paid in cash shall be appropriated as a legal reserve until an aggregated
amount of additional paid-in capital and legal reserve equals 25% of stated
capital. The Company has already met this requirement, and accordingly,
it no longer needs to take reserve for future appropriation of retained earn-
ings in cash.
Comprehensive Income
Accumulated other comprehensive (loss) income as of March 31, 2004 and
2003 is as follows:
Thousands of
Millions of Yen U.S. Dollars
2004 2003 2004
Foreign currency translation adjustments:
Balance, beginning of year ¥43 ¥59 $408
Aggregate adjustment for the year
resulting from translation of foreign
currency financial statements (999) (16) (9,459)
Balance, end of year ¥(956) ¥43 $(9,051)
Net unrealized gains on available-for-sale securities::
Balance, beginning of year ¥23 ¥10 $221
Net increase 296 13 2,805
Balance, end of year ¥319 ¥23 $3,026
Total accumulated other comprehensive income::
Balance, beginning of year ¥66 ¥69 $630
Adjustments for the year (703) (3) (6,654)
Balance, end of year ¥(637) ¥66 $(6,024)
Tax effects allocated to each component of other comprehensive income
(loss) and adjustments are as follows:
Millions of Yen
Tax Benefit Net of Tax
2004 Pretax Amount (Expense) Amount
Foreign currency translation
adjustments ¥(999) — ¥(999)
Net unrealized gain (loss) on