Square Enix 2005 Annual Report Download - page 58

56 SQUARE ENIX CO., LTD.
The components of the deferred tax assets and liabilities
as of March 31, 2005 and 2004 consist of the following:
Thousands of
Millions of yen U.S. dollars
2005 2004 2005
Deferred tax assets:
Software development costs ¥00,951 ¥ — $008,852
Accrued paid absence 134 108 1,250
Accrued pension costs 500 416 4,651
Enterprise tax payable 810 115 7,541
Prepaid expenses 310 205 2,888
Accrued bonus 416 500 3,871
Reserve for sales return and price
protection 442 553 4,119
Accrued expense and other 366 381 3,411
Investment securities 934 1,138 8,695
Investment tax credit 80 118 749
Other 747 34 6,956
Gross deferred tax assets ¥05,690 ¥(03,568 $052,983
Deferred tax liabilities:
Software development costs ¥00,968 ¥(00,453 $009,018
Fixed assets 13,752 13,767 128,055
Valuation gain on investment
securities 324 249 3,019
Other 127 —1,179
Gross deferred tax liabilities ¥15,171 ¥(14,469 $141,271
Net deferred tax liabilities ¥ (9,481) ¥(10,901) $ (88,288)
On April, 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 limita-
tion, 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, 2005, the U.S. subsidiary had NOLs and
research and development credits for federal income tax
purposes of approximately $16 million and $0.3 million,
respectively expiring beginning in 2022. 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
¥4,377 million and ¥5,128 million for the years ended March
31, 2005 and 2004, respectively. It is the Company’s inten-
tion 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 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 Com-
pany. 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 to 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 related JCC requirements
and JPNGAAP. Since the merger with SQUARE was
accounted for using “pooling of interest method of account-
ing” 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 con-
solidated balance sheets 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 appro-
priations 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 require-
ment, and accordingly, it no longer needs to take reserve
for future appropriation of retained earnings in cash.