Square Enix 2006 Annual Report Download - page 56

S Q U A R E E N IX C O . , L T D .
Because the conversion right embedded in convertible deben-
ture is not detachable from the debenture and is not purported
to convert the debenture into financial instruments other than
the Company’s common stock, the Company does not value the
embedded conversion right as derivative instrument separable
from the debenture for fiscal year of 2006.
Comprehensive Income (Loss)
Comprehensive income (loss) represents change in net assets
of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources.
Comprehensive income (loss) of the Company includes net
income adjusted for the change in foreign currency translation
adjustments and the change in net unrealized gains (losses)
from investments.
Foreign Currency Translation and Transactions
The functional currency for the Company’s foreign operations
is the applicable local currency. Accounts of foreign operations
are translated into Japanese yen using period-end exchange
rates for assets and liabilities at the balance sheet date and
average prevailing exchange rates for the period for revenue
and expense accounts. Adjustments resulting from translation
are included in other comprehensive income (loss). Realized and
unrealized transaction gains and losses are included in income
in the period in which they occur.
Reclassifications
Certain prior year amounts have been reclassified to conform to
current year presentation.
4 . S u p p le m e n t a l D is c lo s u r e s t o C o n s o l-
id a t e d S t a t e m e n t s o f C a s h F lo w s
Thousands of
Millions of yen U.S. dollars
Years ended March 31
2006 2005 2004 2006
Cash payment for interest ¥00,030 —¥0,011 $000,260
Cash payment for
income taxes ¥10,054 ¥2,768 ¥4,797 $085,591
Cash acquisition of
a new subsidiary:
Fair value of assets,
net of cash acquired ¥67,013 ¥3,507 — $570,465
Liabilities assumed (35,371) (747) — (301,106)
Goodwill 21,502 3,331 — 183,046
Cash paid, net of
cash acquired ¥53,144 ¥6,091 — $452,405
5 . B u s in e s s C o m b in a t io n s
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 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 Company’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, accordingly, the result of
operations and financial position of the acquired business are
included in the Company’s consolidated 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:
Millions of yen
Cost of the acquisition:
Value of stock issued ¥100,807
Liabilities assumed 16,324
Total ¥117,131
Allocation of purchase price:
Current assets ¥049,973
Non-current assets 8,012
Trademarks (indefinite useful life) 10,300
Licensing agreement (indefinite useful life) 9,710
Existing online game (useful life of 12 years) 12,850
Existing offline games and other
(useful life ranging from 1 to 5 years) 3,130
Goodwill 35,624
Net deferred tax liabilities (12,468)
Total ¥117,131
Acquisition of UIEvolution
On March 24, 2004, the Company acquired all of the outstand-
ing preferred and common stock of UIEvolution, Inc. (“ UIEvolu-
tion” ), a Seattle-based middleware development company for
approximately $58 million. This transaction was accounted for
as a purchase business combination and included in the Com-
pany’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 Com-
pany’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.