Square Enix 2006 Annual Report Download - page 21

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A n n u a l R e p o r t 2 0 0 6
Non-Operating Income and Expenses
Years ended March 31 Millions of yen
2005 2006 Change
Non-operating income ¥0,542 ¥1,046 ¥(503
Non-operating expenses 1,080 968 (111)
In the fiscal year under review, non-operating income amounted
to ¥1,046 million, an increase of ¥503 million compared with the
previous fiscal year. Within this figure, the Company recorded a
foreign exchange gain totaling ¥508 million, compared with ¥296
million for this item in the previous fiscal year. Other items included
increases in interest income and dividends received.
Non-operating expenses amounted to ¥968 million, a decrease
of ¥111 million compared with the previous fiscal year. This
included a loss on write-off of the content production account
totaling ¥460 million, compared with ¥983 million for this item in
the previous fiscal year.
Extraordinary Gain and Loss
Years ended March 31 Millions of yen
2005 2006 Change
Extraordinary gain ¥118 ¥1,361 ¥1,243
Extraordinary loss 443 7,878 7,435
Extraordinary gain amounted to ¥1,361 million, an increase of
¥1,243 million compared with the previous fiscal year. This was
primarily due to a gain on sale of investment securities relating to
the sale of shares in Mag Garden Corporation.
Extraordinary loss amounted to ¥7,878 million, an increase of
¥7,435 million compared with the previous fiscal year. This included
impairment loss of ¥4,426 million, extraordinary disposal loss on
inventories of ¥1,652 million, adjustment loss in connection with
advance received in mobile phone business of ¥302 million, loss
on liquidation of affiliate of ¥209 million, provision for doubtful
accounts of ¥505 million and provision to allowance for store
closings of ¥153 million.
Impairment loss was mainly related to UIEVOLUTION goodwill.
For details, please refer to the note on page 33 of this report.
Extraordinary disposal loss on inventories, provision for doubtful
accounts and provision to allowance for store closings stemmed
from the inclusion of Taito in the Company’s scope of consolida-
tion. These items were related to the write-offs of inventory such
as coin-operated amusement machines, and reserve provisions for
closure of unprofitable game center facilities.
Adjustment loss in connection with advance received in mobile
phone business resulted from the increase in significance of a user
point program run as part of the Mobile Phone Content business.
This loss was posted in relation to unused points awarded up to the
previous fiscal year.
Loss on liquidation of affiliate related to the establishment of a
wholly owned subsidiary in China, SQUARE ENIX (China) CO., LTD.,
and the accompanying transfer of operations from a formerly exist-
ing 60% -owned affiliate, SQUARE ENIX WEBSTAR NETWORK
TECHNOLOGY (BEIJING) CO., LTD. (SEW). The business transfer led
to a loss on liquidation of SEW.
Dividends
For the previous fiscal year, the Company paid an ordinary dividend
of ¥30 per share and a commemorative dividend of ¥30 per share,
for a total annual dividend of ¥60 per share. For the fiscal year
under review, the Company paid a ¥30 per share ordinary dividend
only. This was mainly owing to an income increase relating to tax
effects, which are expected to materialize in the future but have
not produced a cash increase at this stage.
Capital Expenditures and Depreciation
Years ended March 31 Millions of yen
Reference:
2005 2006 Change Taito
Capital expenditures ¥1,814 ¥8,419 ¥6,605 ¥6,364
Depreciation 1,523 9,169 7,646 6,521
Note: Depreciation does not include amortization of goodwill.
Capital expenditures for the fiscal year ended March 31, 2006,
amounted to ¥8,419 million, an increase of ¥6,605 million com-
pared with the previous fiscal year. This was mainly owing to the
consolidation of Taito.
Amortization of Goodwill
In March 2004, the Company acquired UIEVOLUTION and made it
a wholly owned subsidiary of SQUARE ENIX, INC., a wholly owned
subsidiary of the Company. The purpose of this acquisition was to
acquire information and telecommunication technologies funda-
mental to the development of network-related businesses, and
bolster the Company’s product and service capabilities in this area.
As a result of this transaction, the Company posted goodwill
amounting to U.S.$507 million. In the previous fiscal period, the
Company commenced amortization of this goodwill over five years.
However, in the fiscal year under review the Company compared
projected future cash flows from this subsidiary with its book value,
and decided to post an impairment loss of ¥3,926 million, which is
the amount projected at this stage as unrecoverable.
In addition, accompanying the consolidation of Taito during the
period under review, the Company recorded goodwill amounting
to ¥23,283 million. This amount will be amortized over 20 years
commencing from the fiscal year under review.
As a result of the factors outlined above, amortization of
goodwill totaled ¥1,827 million.
O v e r s e a s S a le s
Geographic segment sales are dependent on game title develop-
ment in Japan. As a result, overseas sales fluctuate depending on
the timing of overseas game title releases.
North America
Years ended March 31 Millions of yen
2005 2006 Change
¥12,295 ¥15,635 ¥3,340