Square Enix 2005 Annual Report Download - page 49

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Annual Report 2005
Notes to Consolidated Financial Statements
(U.S. GAAP)
SQUARE ENIX CO., LTD. and Consolidated Subsidiaries
1. Business and Organization
SQUARE ENIX CO., LTD. (the “Company”) is a digital
entertainment content provider. The Company was formed
in connection with the merger of ENIX CORPORATION
(”ENIX”) and SQUARE CO., LTD. (“SQUARE”) on April 1,
2003. The merger was consummated in the form of a statu-
tory merger under the Japanese Commercial Code (“JCC”),
with ENIX being the surviving entity.
The Company’s businesses consist of five segments: (i)
games, (ii) online games, (iii) Mobilephone Content, (iv)
Publication, and (v) Others. (i) Games: The Company devel-
ops interactive games designed for video game console
platforms and PCs, and publishes and distributes such
games in Japan, North America, Europe and Asia. (ii) Online
Games:
The Company provides online game services
including massively multi-players online RPGs such as
“FINAL FANTASY XI” in Japan and North America, and
“CROSS GATE” in Asia. (iii) Mobilephone Content: The
Company’s mobilephone content is delivered via third
party telecommunication carriers while offering content
such as games, wallpaper, and ring tones. (iv) Publication:
Publishing of RPG strategy guide books, comic books and
manga magazines. (v)
Others: The Company produces
character goods and toys.
As of March 31, 2005, the Company had eleven consoli-
dated subsidiaries, one partnership and two non-consolidated
subsidiaries. Three subsidiaries were established in Japan,
four in the United States, one in the United Kingdom, and
three in the People’s Republic of China.
SQUARE ENIX, INC., the wholly-owned U.S. subsidiary,
publishes video games, provides localization services to
the Company translating Japanese content into English,
provides online game and mobilephone content services,
and markets middle-ware products to electronic device
manufacturers.
SQUARE ENIX LTD., the U.K. wholly-owned subsidiary,
provides localization services to the Company, translating
Japanese content into English, French, Germany, Italy, and
Spanish. Marketing and distribution of the translated con-
tent in the European market is carried out through outside
independent licensees.
The Chinese subsidiary, SQUARE ENIX WEBSTAR NET-
WORK TECHNOLOGY (BEIJING) CO., LTD., is a joint ven-
ture company with SOFTSTAR ENTERTAINMENT, INC.,
(“SS”), a Taiwan based video game publisher, in which the
Company holds a 60% ownership interest. The venture has
been concentrated on providing online game services for
CROSS GATE in China since its incorporation. In February
2005, the Company and SS agreed on dissolution of the
venture, and it will be effective on December 1, 2005. In
order to take over the current operation of the venture and
to expand it over the future, the Company decided to
establish a new wholly-owned new subsidiary, SQUARE
ENIX (China) CO., LTD., which was incorporated on January
18, 2005 in Beijing, China.
2. Translation into U.S. Dollars
The accompanying consolidated financial statements are
stated in Japanese yen, the functional currency of the coun-
try in which the Company is incorporated and principally
operates. The U.S. dollar amounts included herein repre-
sents a translation using the mid price for telegraphic trans-
fer of U.S. dollars for yen quoted by The Bank of Tokyo
Mitsubishi, Ltd., as of March 31, 2005 of ¥107.39 to US$1,
and are included solely for the convenience of the reader.
The translation should not be construed as a representation
that the yen amounts have been, could have been, or could
in the future be converted into U.S. dollars at the above or
any other rate.
3. Significant Accounting Policies
Basis of Accounting
The Company and its domestic subsidiaries maintain their
books and records in conformity with generally accepted
accounting principles and practices in Japan (“JPNGAAP”),
and its foreign subsidiaries in conformity with those of the
country of their domicile. The consolidated financial state-
ments presented herein have been prepared in a manner
and reflect certain adjustments that are necessary to con-
form to accounting principles generally accepted in the
United States of America (“U.S.GAAP”). Such adjustments
include principally accounting for business combinations,
goodwill and other intangible assets, and pensions.
Principles of Consolidation
The consolidated financial statements include the financial
statements of the Company and its wholly owned subsid-
iaries. All inter-company balances and transactions have
been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with
U.S.GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the
reporting periods. The most significant estimates and
assumptions relate to the recoverability of capitalized