Square Enix 2005 Annual Report Download - page 54

52 SQUARE ENIX CO., LTD.
4. Business Combinations
Acquisition of SQUARE
On April 1, 2003, the Company acquired all 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 qual-
ity digital content in the rapidly changing digital entertain-
ment 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 was based on the market price of the Com-
pany’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, accord-
ingly, the result of operations and financial position of the
acquired business are included in the Company’s consoli-
dated financial statement from the dates 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 purchased 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 $0,953,798
Liabilities assumed 16,324 154,452
Total ¥117,131 $1,108,250
Allocation of purchase price:
Current assets ¥049,973 $0,472,828
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 offline 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 out-
standing preferred and common stock of UIEvolution Inc.
(“UIEvolution”), a Seattle-based middleware development
company for approximately $58 million. The purpose of
acquisition was to acquire core technology that could pro-
vide the Company with more flexibility to produce digital
content for various types of platforms, by way of which, the
Company expects to enhance its cutting edge under rapidly
changing internet circumstances. This transaction was
accounted for as a purchase business combination 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 for the year ended March 31, 2004 reflected
UIEvolution’s operating activities for the period from March
24, 2004 (the date of acquisition) 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 ¥0,010 $00,094
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 1, 2002.
The unaudited pro forma financial information is based on
management’s estimates and assumptions and does not
purport to represent 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 years ended March 31, 2005 and 2004
are not presented as it would not differ materially from
reported results.
Year ended March 31, 2003
Millions of yen
(Except per share data)
Total revenue ¥62,380
Income before income taxes ¥2,794
Net income ¥1,334
Net income per share–Basic ¥12.12
Net income per share–Diluted ¥11.64