Square Enix 2006 Annual Report Download - page 51

N o t e s t o C o n s o lid a t e d F in a n c ia l S t a t e m e n t s (U . S . G A A P )
SQUARE ENIX CO., LTD. and Consolidated Subsidiaries
4 8 4 9
A n n u a l R e p o r t 2 0 0 6
1 . B u s in e s s a n d O r g a n iza t io n
SQUARE ENIX CO., LTD. (the “ Company” ), is a digital entertain-
ment content provider. The Company was formed through the
merger of ENIX CORPORATION (“ Enix” ) and SQUARE CO., LTD.
(“ Square” ) on April 1, 2003, with being Enix the surviving entity.
The Company’s businesses consist of six segments: (i)
games, (ii) online games, (iii) mobilephone content, (iv) publica-
tion, (v) amusement and (vi) others. (i) Games: The Company
develops 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) M obile-
phone Content: The Company’s mobilephone content is deliv-
ered via third party telecommunication carriers while offering
content such as games, wallpaper, and ring tones. (iv) Publica-
tion: Publishing of RPG strategy guide books, comic books and
manga magazines. (v) Amusement: The Company operates
amusement arcade facilities located in Japan. The Company
also manufactures various types of game machine for inde-
pendent amusement arcade facility operators. (vi) Others: The
Company produces character goods and toys.
As of March 31, 2006, the Company had seventeen consoli-
dated subsidiaries, one partnership and three non-consolidated
subsidiaries. Eight subsidiaries were established in Japan, four
in the United States, two in the United Kingdom, five in the
People’s Republic of China, and one in the Republic of Korea.
SQARE ENIX, INC., the wholly-owned U.S. subsidiary, pub-
lishes 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 wholly-owned U.K. subsidiary, pro-
vides localization services to the Company, translating Japanese
content into English, French, Germany, Italy, and Spanish.
Marketing and distribution of the translated content in the
European market is carried out through outside independent
licensees.
SQUARE ENIX (China) LTD, the wholly-owned Chinese sub-
sidiary, provides on-line game services in China, which business
was transferred from SQUARE ENIX WEBSTAR NETWORK TECH-
NOLOGY (BEIJING) CO., LTD. (“ SEW” ), a joint venture company
with SOFTSTAR ENTERTAINMENT, INC., a Taiwan based video
game publisher. As of March 31, 2006, SEW is in process of a
liquidation proceeding in Beijing.
TAITO CORPORATION (“ Taito” ), the wholly owned Japan-
ese subsidiary, in which the Company acquired its entire stake
in September 2005 through March 2006, operates amusement
arcade facilities located in Japan. Taito also manufactures
various types of arcade game machines for independent
amusement arcade operators in Japan.
2 . T r a n s la t io n in t o U . S . D o lla r s
The accompanying consolidated financial statements are stated
in Japanese yen, the functional currency of the country in which
the Company is incorporated and principally operates. The U.S.
dollar amounts included herein represents a translation using
the mid price for telegraphic transfer of U.S. dollars for yen
quoted by The Bank of Tokyo–Mitsubishi UFJ, Ltd. as of March 31,
2006 of ¥117.47 to $1 and are included solely for the conve-
nience 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 . S ig n if ic a n t A c c o u n t in g P o lic ie s
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 statements presented
herein have been prepared in a manner and reflect certain
adjustments that are necessary to conform to accounting
principles generally accepted in the United States of America
(“ U.S.GAAP” ).
Principles of Consolidation
The consolidated financial statements include the financial
statements of the Company and its material majority owned
subsidiaries. All inter-company balances and transactions have
been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with
the 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 software development costs and
other intangibles, inventories, realization of deferred income
taxes and the adequacy of allowances for returns, price protec-
tion and doubtful accounts. Actual amounts could differ from
these estimates.