Square Enix 2007 Annual Report Download

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This annual Report is printed on recycled paper. Printed in Japan
ANNUAL REPORT 2007
ANNUAL REPORT 2007
cover-欧文 07.8.31 14:24 ページ1

Table of contents

  • Page 1
    ANNUAL REPORT 2007 ANNUAL REPORT 2007 This annual Report is printed on recycled paper. Printed in Japan

  • Page 2
    ...12 Corporate Governance 14 Directors, Auditors and Executive Officers 15 Financial Section 53 Corporate Data 54 Investor Information Disclaimer Regarding Forward-Looking Statements Statements in this annual report with respect to the current plans, estimates, strategy, and beliefs of SQUARE ENIX CO...

  • Page 3
    ... 2002 2003 2004 Former ENIX 2005 2006 2007 SQUARE ENIX -60 2002 2003 2004 Former ENIX 2005 2006 2007 SQUARE ENIX Former SQUARE Former SQUARE Notes: 1. Return on equity = Net income / Average equity 2. Return on equity for fiscal 2004 has been calculated using the simple addition of the...

  • Page 4
    Network is the Game. Everything plays Games. Yoichi Wada President and Representative Director 02

  • Page 5
    ... in the Games (Offline) segment of Square Enix. As for current-generation software titles, major titles such as "FINAL FANTASY XII" and "KINGDOM HEARTS II" for the PlayStation 2 (PS2), both launched in Japan in the previous fiscal year, were released in Europe and North America and contributed...

  • Page 6
    ... [Figure 3] Game Software Unit Sales by Region Thousands of Units TAITO: Index of Monthly Sales of Existing Arcade Facilities* 125% * Change from previous year 20,000 15,000 Became wholly owned subsidiary Joined the SQUARE ENIX TAITO Group 10,000 100% 5,000 Europe North America Japan TAITO...

  • Page 7
    ... media are beginning to crosspenetrate. In such a business environment, we need to increase our touch points with customers to understand and respond to various demands of customers. Square Enix had far to go in the virtual space, addition of Taito will enhance our ability to use physical locations...

  • Page 8
    ...of goodwill, were consolidated into the amusement business. What is happening in the industry and what is our plan? Video games came out in amusement centers more than 30 years ago, and the breakthrough of the Space Invaders game of TAITO in Japan gave the infant industry a strong momentum. Console...

  • Page 9
    ... into generating results that will meet the expectations of our stakeholders. As we take on these new challenges, we look forward to your continued support. July 2007 Value Transformation Code Data Yoichi Wada Hardware Software Communities President and Representative Director SQUARE ENIX CO...

  • Page 10
    ... its network-related businesses as well as to apply the obtained technologies to its products and services. The total number of game titles shipped, including repeat orders, reached 7,210 thousand units in Japan, 6,150 thousand units in North America, 3,500 thousand units in the PAL region (Europe...

  • Page 11
    ...During the fiscal year under review, the Company released "FINAL FANTASY XI: Treasures of Aht Urhgan," a new expansion pack for "FINAL FANTASY XI," a massively multi-player online role-playing game (MMORPG) with 500,000 paying subscribers, in Japan, North America and Europe. The Company, at the same...

  • Page 12
    ... October 2005. During the fiscal year under review, the Company initiated a drastic restructuring of the Amusement business segment, including FULLMETAL ALCHEMIST, Volume 16 ©2007 Hiromu Arakawa FINAL FANTASY XII Official Guidebook ©2006 SQUARE ENIX CO.,LTD. All Rights Reserved. CHARACTER DESIGN...

  • Page 13
    ... and licensing of derivative products from the Company's titles, as well as operation of a school for game designers. During the fiscal year under review, the CG-animated film "FINAL FANTASY VII: Advent Children," which was released in Japan in the previous fiscal year and sold over a million...

  • Page 14
    ..., which performs a stand-alone internal audit function and reports directly to the president. Auditing Division performs regular checks and evaluations of internal control structures, including those of Group companies, taking priorities and risks into account, while communicating with the Board of...

  • Page 15
    ...'s Basic Policy on Building an Internal Control System. The Company is in the process of building the system, ensuring the thoroughness of auditing and supervisory functions and confirming that all business activities are executed in conformance with laws, regulations and the Company's Articles of...

  • Page 16
    ... Yoichi Haraguchi Masashi Hiramatsu Yu Miyake Koji Yamashita John Yamamoto Honorary Chairman Standing Auditor *2 Yasuhiro Fukushima Ryoichi Kobayashi Auditor *2 Tamotsu Iba Auditor *2 Norikazu Yahagi Auditor *2 Ryuji Matsuda *1: Outside Director *2: Outside Auditor (As of July 1, 2007) 14

  • Page 17
    ... Statements of Income (JPNGAAP) Consolidated Statements of Capital Surplus and Retained Earnings (JPNGAAP) Consolidated Statement of Changes in Net Assets (JPNGAAP) Consolidated Statements of Cash Flows (JPNGAAP) Notes to Consolidated Financial Statements (JPNGAAP) 26 26 27 29 16 22 25 SQUARE ENIX...

  • Page 18
    ...record bad debts and losses. (3) Content Production Account 3. Analysis of Business Performance in Fiscal 2006 (Ended March 31, 2007) Assets When the Group determines that differences between actual costs and market value of the content production account based on expected future demand and market...

  • Page 19
    ... during the previous year. In fiscal 2005, the Company had such major releases as "FINAL FANTASY XII," released in Japan on March 16, 2006, and "KINGDOM HEARTS II," released in North America on March 28, 2006. Content Production Account Years ended March 31 2006 2007 Millions of yen Change ¥29,995...

  • Page 20
    ... amusement facilities, causing allowance for store closings to increase from ¥292 million to ¥2,973 million. Non-Current Liabilities Years ended March 31 2005 Millions of yen 2006 Change As of March 31, 2007, total net assets amounted to ¥130,639 million. During the current accounting period...

  • Page 21
    ...by SQUARE ENIX, INC. In the fiscal year under review, several titles for PS2 were released, including the titles "FINAL FANTASY XII" and "DIRGE OF CERBERUS -FINAL FANTASY VII-." The Company's online game service "Play Online" -focused on "FINAL FANTASY XI"-performed well. As a result, sales in North...

  • Page 22
    ... PS2. As a result, sales in Europe increased ¥10,893 million, to ¥12,271 million. Asia Years ended March 31 2006 2007 Millions of yen Change Owing to the consolidation of Taito at the end of September 2005, Taito's operating results are reflected in the Company's consolidated statements of income...

  • Page 23
    ... the sale of software for use on home-use video game consoles. Consequently, the Company's business may be subject to the impact of transition to next-generation console platforms and changes in console manufacturers' strategies. (4) Securing Human Resources to Execute the Group's Growth Strategies...

  • Page 24
    ... SQUARE ENIX CO., LTD. and Consolidated Subsidiaries As of March 31 Millions of yen 2007 2006 Assets I Current assets 1. Cash and deposits 2. Notes and accounts receivable*5 3. Inventories 4. Content production account 5. Deferred tax assets 6. Other Allowance for doubtful accounts Total current...

  • Page 25
    ... and accounts payable 2. Other accounts payable 3. Accrued expenses 4. Accrued corporate taxes 5. Accrued consumption taxes 6. Advance payments received 7. Deposits received 8. Reserve for bonuses 9. Allowance for sales returns 10. Allowance for store closings 11. Other Total current liabilities...

  • Page 26
    ... Sheets (JPNGAAP) SQUARE ENIX CO., LTD. and Consolidated Subsidiaries As of March 31 Millions of yen 2007 2006 Net assets I Shareholders' equity 1. Common stock 2. Capital surplus reserve 3. Retained earnings 4. Treasury stock II Total shareholders' equity Valuation and translation adjustments...

  • Page 27
    Consolidated Statements of Income (JPNGAAP) SQUARE ENIX CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2007 2006 Net sales Cost of sales Gross profit Reversal of allowance for sales returns Provision for allowance for sales returns Net gross profit III Selling, ...

  • Page 28
    ... Statements of Capital Surplus and Retained Earnings (JPNGAAP) SQUARE ENIX CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2006 Capital surplus I Capital surplus at beginning of year II Increase in capital surplus 1. Gain on disposition of treasury stock 2. Shares...

  • Page 29
    ... Statements of Cash Flows (JPNGAAP) SQUARE ENIX CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2007 2006 I Cash flows from operating activities Income before income taxes Depreciation and amortization Impairment loss Increase in allowance for doubtful accounts...

  • Page 30
    ... from issuance of corporate bonds Proceeds from issuance of shares of common stock Payments for acquisition of treasury stock Payments for dividends Payments for dividends for minority interests Other Net cash (used in) provided by financing activities IV Effect of exchange rate changes on cash and...

  • Page 31
    ... ENIX WEBSTAR NETWORK TECHNOLOGY (BEIJING) CO., LTD. COMMUNITY ENGINE NETWORK SOFTWARE (BEIJING) CO., LTD. UIEVOLUTION, INC. FF·FILM·PARTNERS (partnership) HUANG LONG CO., LTD. BEIJING TAIXIN CULTURAL AMUSEMENT CO., LTD. TAITO KOREA CORPORATION TAITO ART CORPORATION EFFORT CO., LTD. TAITO TECH...

  • Page 32
    ... 1, 2005 to March 31, 2006) Among the Company's consolidated subsidiaries, the fiscal year of SQUARE ENIX (China) CO., LTD., HUANG LONG CO., LTD., COMMUNITY ENGINE NETWORK SOFTWARE (BEIJING) CO., LTD., BEIJING TAIXIN CULTURAL AMUSEMENT CO., LTD., SQUARE PICTURES, INC., and FF·FILM PARTNERS ends...

  • Page 33
    ... (April 1, 2006 to March 31, 2007) A) Investment securities Other investment securities Securities for which fair values are available Market value, determined by the quoted market price (Unrealized gains and losses are reported as a separate component of net assets, with cost of sales determined by...

  • Page 34
    ...1, 2006 to March 31, 2007) A) Share delivery expenses Costs associated with issuances of shares of common stock are expensed as incurred. B) Corporate bond issuance expenses Not applicable (7) Additional accounting policies used to prepare consolidated financial statements: • FY2005 (April 1, 2005...

  • Page 35
    ... year. The effect of the new accounting standard on segment information has been reflected wherever relevant. The cumulative amount of impairment loss was deducted directly from the book value of each asset in accordance with the amended consolidated accounting policy. • FY2006 (April 1, 2006...

  • Page 36
    ... activities, for the fiscal year ended March 31, 2006, foreign exchange gains and losses were recorded in the "other" category of cash flows from operating activities. This has been listed as a separate accounting category effective the fiscal year ended March 31, 2007. The amount within the...

  • Page 37
    ... to market prices calculated using real estate appraisals. An amount of ¥260 million related to the Republic of Korea (TAITO KOREA CORPORATION) has been posted as an impairment loss. This is the difference between the appraised income potential in excess of acquisition cost for amusement facilities...

  • Page 38
    ... trading unit. Items Pertaining to the Consolidated Statements of Changes in Net Assets • FY2006 (April 1, 2006 to March 31, 2007) 1. Type and number of shares issued and outstanding and type and number of shares of treasury stock 2. Stock options and the Company's stock options Number of shares...

  • Page 39
    ...current fiscal year, but whose effective date for dividends falls in the following fiscal year Resolution Type of shares Total dividends (Millions of yen) Source of dividends Dividends per share (Yen) Record date Effective date Ordinary general meeting of shareholders on June 23, 2006 Common stock...

  • Page 40
    ... over a useful life with no residual value. (Impairment loss) No impairment loss was recognized on leased assets. • FY2006 (April 1, 2006 to March 31, 2007) Information related to finance leases other than those that transfer ownership to the lessee 1. Acquisition cost, accumulated depreciation...

  • Page 41
    ... with book value exceeding acquisition cost (1) Stocks ¥102 (2) Bonds 1. Government bonds, municipal bonds - 2. Corporate bonds - 3. Others - (3) Others - Subtotal 102 ¥142 ¥39 Note: For the fiscal year ended March 31, 2007, the Company posted ¥157 million in impairment losses related to its...

  • Page 42
    ... Risk management Contracts are approved by the representative director and executive director in charge, and the Accounting and Financing Division administers risk management. 2. Market value of transactions Not applicable Retirement Benefits • FY2005 (April 1, 2005 to March 31, 2006) 1. Overview...

  • Page 43
    ... of yen Service cost Interest cost Expected return on plan assets Amortization of prior service cost Amortization of net actuarial loss Retirement benefit expenses ¥600 172 (170) (406) 190 ¥386 • FY2006 (April 1, 2006 to March 31, 2007) 1. Overview of retirement benefit plan The Company and...

  • Page 44
    ... to June 30, 2010 Directors and employees of the Company's subsidiaries 3 7,000 shares of common stock June 18, 2005 No conditions have been set for vesting of interests No service period has been established. July 1, 2007 to June 30, 2010 Notes: 1 The number of stock options indicated for 2001...

  • Page 45
    ... share price at exercise Fair market value on grant date ¥3,430 ¥2,152 ¥3,059 ¥2,981 ¥3,365 ¥3,360 2. Estimate of fair value of stock options Not applicable 3. Method of estimating vested interests in stock options Not applicable Tax Effect Accounting Deferred tax liabilities Non-current...

  • Page 46
    ..., allowance for bonuses to employees Advances paid Accrued expenses Allowance for sales returns Non-deductible portion of allowance for doubtful accounts Valuation loss on content production account Inventory valuation loss Loss on disposal of assets related to business restructuring Non-deductible...

  • Page 47
    ... Others Games Online games Content for mobile phones Magazine comics, serial comics, game-related books All businesses of the Taito Group including Amusement Operations and Rental, Sales of Goods and Merchandise and Content Services Derivative products such as character merchandise, school for game...

  • Page 48
    ... Others Games Online games Content for mobile phones Magazine comics, serial comics, game-related books All businesses of the Taito Group including Amusement Operations and Rental, Sales of Goods and Merchandise and Content Services Derivative products such as character merchandise, school for game...

  • Page 49
    ... FY2006 (April 1, 2006 to March 31, 2007) Millions of yen North America Eliminations or unallocated Consolidated total Japan Europe Asia Total I Sales and operating income Net sales (1) Sales to external customers (2) Intersegment sales Total Operating expenses Operating income (loss) II Total...

  • Page 50
    ... Kingdom, France, Germany, others (3) Asia...China, Korea, others 3. Overseas sales represent sales of the Company and its consolidated subsidiaries to countries and areas outside of Japan. • FY2006 (April 1, 2006 to March 31, 2007) Millions of yen North America Europe Asia Total I Overseas sales...

  • Page 51
    ...INC. 6. Change in equity of affiliated companies and method of accounting Not applicable 7. Name of separated business AM (Amusement) and Others 8. Overview of losses recorded in the consolidated financial statements for the year ended March 31, 2007 as a result of the business separation: Net sales...

  • Page 52
    ... year (thousands of shares) 110,600 Adjustments to net income used to calculate diluted net income per share: Adjustments to net income (millions of yen) - Increase in the number of shares of common stock (thousands of shares) 366 (number of shares reserved for the purpose of new share issuance...

  • Page 53
    ...2. Name of the partner company to transfer XING INC. 3. Detail of the business to transfer Selling party TAITO CORPORATION Main operations - Operation and rental business - Product and merchandise sales - Content services - Other businesses Paid-in capital ¥16 million Shareholding ratio SQUARE ENIX...

  • Page 54
    ... (%) Company Bond type Issue date Security Maturity SQUARE ENIX CO., LTD. Total Five-year yen-denominated bonds with warrants*1 November 25, 2005 (UK time) 50,000 50,000 50,000 50,000 - None November 25, 2010 (UK time) *1 [Bonds with Warrants Issued] (As of March 31, 2007) Issue price...

  • Page 55
    ...and business management of Square Enix Group companies located in North America Sale of games, sale and management of online games in North America Development, sale and licensing of network applications and middleware Management of overseas film revenues December 1998 January 2005 August 2005 July...

  • Page 56
    ... of March 31, 2007) Share Information Number of shares issued: 110,947,818 Number of shareholders: 34,711 Principal Shareholders Rank Shareholder Investment in SQUARE ENIX (Thousands of Shares) (%) Shareholders' Memo » Fiscal year: April 1 to March 31 » Record dates for dividends from retained...