Square Enix 2008 Annual Report Download

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ANNUAL REPORT 2008
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Table of contents

  • Page 1
    ANNUAL REPORT 2008

  • Page 2
    ... Governance 14 Directors, Auditors and Executive Officers 15 Financial Section 54 Corporate Data 55 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., LTD...

  • Page 3
    Financial Highlights SQUARE ENIX CO., LTD. and Consolidated Subsidiaries Years Ended March 31 Millions of Yen 2004 For the Year Net sales Operating income Net income At year-end Total assets Total equity ¥110,633 96,700 ¥131,695 108,933 ¥ 213,348 120,993 ¥ 215,679 129,461 ¥ 212,134 147,034 ¥ ...

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

  • Page 5
    ... also built a good balance among the three key regions of Japan, North America, and Europe, while exhibiting an extremely strong operating income margin of 48.6% in the fiscal year ended March 31, 2008. In a very short time this segment has become one of our core businesses. At present, the segment...

  • Page 6
    ... the arcade game machine business of SQUARE ENIX (excluding TAITO). Sales have risen from ¥4.2 billion to ¥9.0 billion over five years, resulting in a CAGR of 16.4%, while exhibiting a robust operating income margin of 36.9% in the fiscal year ended March 31, 2008. The merchandising business has...

  • Page 7
    ... related to internal game development. Although we are a publisher, until now we have not sold titles developed by other companies. While we have a strong sales force Japan, our sales and marketing organizations in North America and Europe have not been fully equipped for this task. Consequently...

  • Page 8
    ... can be perceived as moving through three distinct stages, and I believe that execution of the optimal business strategy at each stage is the core task for management. and depended on a very unusual strategy. This is the ultimate reason why the reforms we are currently working on are taking a long...

  • Page 9
    ... changes completely. I believe that continuous growth is the key mission for management. We are absolutely committed to achieving our long-term missions. In these endeavors, I look forward to your ongoing support. July 2008 Yoichi Wada President and Representative Director SQUARE ENIX CO...

  • Page 10
    ...to move to pure holding-company structure SQUARE ENIX HOLDINGS CO., LTD. (The current SQUARE ENIX CO., LTD., to change its corporate name) SQUARE ENIX CO., LTD. Succeeding company keeps the business TAITO CORPORATION SQUARE ENIX OF AMERICA HOLDINGS, INC. SQUARE ENIX LTD. SQUARE ENIX (China) CO...

  • Page 11
    ... SQUARE ENIX LTD. During the fiscal year under review, the Company released a number of titles for Nintendo DS, including "DRAGON QUEST IV" (1.15 million units in Japan as of March 31, 2008; hereafter references to units sold are as of that date), "FINAL FANTASY IV" (590 thousand units in Japan...

  • Page 12
    ... Japan, North America and Europe. Sales in the Games (Online) segment totaled ¥12,098 million, a decrease of 11.4% compared with the previous fiscal year, and operating income amounted to ¥5,880 million, a decline of 13.1%. portal services as "DRAGON QUEST" and "FINAL FANTASY," the service lineup...

  • Page 13
    ... fiscal year under review, the Company published the monthly magazines "SHONEN GANGAN," "G Fantasy," "GANGAN WING" and weekly magazine "YOUNG GANGAN," as well as comic collections taken from regular magazine serials and various game strategy guide books. Sales in the Publication segment totaled ¥11...

  • Page 14
    ... derivative products related to SQUARE ENIX titles, and the operation of a school for game engineers. In the fiscal year under review, the successful launch in July 2007 of a kids card-game machine, "DRAGON QUEST Monster Battleroad," contributed significantly to segment earnings. As a result, sales...

  • Page 15
    .... The Auditing Division's functions are carried out while sharing information with the Board of Auditors and the independent audit firm. To ensure a rigorous compliance system, the Company clearly specifies the importance of compliance in its management guidelines and The Square Enix Group Code of...

  • Page 16
    ... and Executive Officers (As of March 31, 2008) Board of Directors President and Representative Director Yoichi Wada Executive Vice President and Representative Director Keiji Honda Director Yosuke Matsuda Director Yukinobu Chida Director *1 Makoto Naruke Corporate Auditors Standing Auditor...

  • Page 17
    ...) 22 24 25 26 28 Consolidated Balance Sheets (JPNGAAP) Consolidated Statements of Income (JPNGAAP) Consolidated Statements of Changes in Net Assets (JPNGAAP) Consolidated Statements of Cash Flows (JPNGAAP) Notes to Consolidated Financial Statements (JPNGAAP) SQUARE ENIX CO., LTD. assumes full...

  • Page 18
    ...listed companies subject to price fluctuation risk in the stock market and stock in privately held companies for which share prices are difficult to calculate. In the event that the fair market value of these shares as of the end of the fiscal year declines no less than 50% of their acquisition cost...

  • Page 19
    ...-current tax assets totaled ¥852 million, a decrease of ¥4,087 million. Property and Equipment Millions of yen March 31 2007 2008 Change ¥21,206 ¥17,738 ¥(3,468) ¥25,664 ¥19,939 The year end balance of notes and accounts receivable varies greatly depending on the timing of new game title...

  • Page 20
    .... Current Liabilities Millions of yen March 31 2007 2008 Change Common stock ¥ 8,038 Capital surplus 37,279 Retained earnings 84,315 Treasury stock (540) Total shareholders' equity 129,092 Unrealized gain on revaluation of other investment securities (8) Foreign currency translation adjustments...

  • Page 21
    ... of yen Years ended March 31 2007 2008 Change The Group primarily is engaged in the Games (Offline) and Games (Online) businesses in North America. In the Games (Offline) business in this region, sales of game content developed by the Company are handled primarily by SQUARE ENIX, INC., a wholly...

  • Page 22
    ... policy is to pay dividends from retained earnings twice a year, through an interim dividend and a year end dividend. The year end dividend is determined at the Annual General Meeting of Shareholders, and the interim dividend is determined by the Board of Directors. For fiscal 2007, total dividends...

  • Page 23
    ... includes consolidated subsidiaries located in North America, Europe and Asia. The risk of foreign exchange loss has been reduced as foreign currency gained by subsidiaries is expended for settlement or reinvestment in the applicable countries. However, sales, expenses, assets, liabilities and net...

  • Page 24
    Consolidated Balance Sheets (JPNGAAP) SQUARE ENIX CO., LTD. and Consolidated Subsidiaries As of March 31 Millions of yen 2008 Assets I Current assets 1. 2. 3. 4. 5. 6. Cash and deposits Notes and accounts receivable* 3 Inventories Content production account Deferred tax assets Other Allowance for ...

  • Page 25
    ... directors' retirement benefits Allowance for closing of game arcades Other 37,000 1,528 215 796 1,318 40,858 63,940 50,000 2,169 262 - 204 52,635 85,040 Total non-current liabilities Total liabilities Net assets I Shareholders' equity 1. 2. 3. 4. Common stock Capital surplus Retained earnings...

  • Page 26
    ...license payment 8. Miscellaneous loss Recurring income Extraordinary gain 1. Gain on sale of investment securities 2. Gain on divestiture of a business 3. Reversal of allowance for doubtful accounts 4. Reversal of allowance for retirement benefits 5. Reversal of allowance for closing of game arcades...

  • Page 27
    ... adjustments securities Total net assets Balance as of March 31, 2006 Changes during the year New stock issuances Year end dividends from retained earnings Interim dividends from retained earnings Net income Disposition of treasury stock Acquisition of treasury stock Change due to increase in...

  • Page 28
    ...for employees' retirement benefits (Decrease) increase in allowance for directors' retirement benefits (Decrease) increase in allowance for closing of game arcades and other allowances Interest and dividends received Interest expense Foreign exchange loss (gain) Gain on sale of investment securities...

  • Page 29
    ...for acquisition of treasury stock Payments for dividends Payments for dividends for minority interests Other Net cash used in financing activities IV V VI VII Effect of exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at beginning...

  • Page 30
    ... CO., LTD. COMMUNITY ENGINE INC. TAITO CORPORATION SQUARE ENIX OF AMERICA HOLDINGS, INC. SQUARE ENIX, INC. SQUARE L.L.C. SQUARE PICTURES, INC. SQUARE ENIX LTD. SQUARE ENIX (China) CO., LTD. SQUARE ENIX WEBSTAR NETWORK TECHNOLOGY (BEIJING) CO., LTD. FF . FILM . PARTNERS (partnership) HUANG LONG CO...

  • Page 31
    ... years 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 end on December 31. In the preparation of the accompanying consolidated financial statements...

  • Page 32
    ... cost and its memorandum value using the straight-line method over a period of five years, from the fiscal year following the fiscal year in which the net book value of the asset reaches 5% of its acquisition cost. These differences are recorded in depreciation expense. The impact of this change...

  • Page 33
    ... plan if all eligible employees were to voluntarily terminate their employment at the balance sheet date. F) Allowance for directors' retirement benefits Same as in FY2006 (4) Translation of foreign currency transactions and accounts: • FY2006 (April 1, 2006 to March 31, 2007) All monetary assets...

  • Page 34
    ... the Company's sales partners. New Accounting Standards • FY2006 (April 1, 2006 to March 31, 2007) (Accounting Standard for Presentation of Net Assets in the Balance Sheet) "Accounting Standard for Presentation of Net Assets in the Balance Sheet" (Accounting Standards Board of Japan Statement No...

  • Page 35
    ... the current level of income assessed as recoverable above acquisition cost. *6 A breakdown of loss on disposal and write-downs of assets associated with business restructuring is as follows: Inventories ¥1,368 million Amusement equipment 666 million Other (current assets) 239 million Total ¥2,275...

  • Page 36
    .... 3. Dividends (1) Dividend payments Date of approval Type of shares Total dividends (Millions of yen) Dividends per share (Yen) Record date Effective date June 24, 2006 (Annual General Meeting of Shareholders) November 17, 2006 (Board of Directors' Meeting) Common stock Common stock ¥2,210...

  • Page 37
    .... 3. Dividends (1) Dividend payments Date of approval Type of shares Total dividends (Millions of yen) Dividends per share (Yen) Record date Effective date June 23, 2007 (Annual General Meeting of Shareholders) November 19, 2007 (Board of Directors' Meeting) Common stock Common stock ¥2,768...

  • Page 38
    ... Information related to finance leases other than those that transfer ownership to the lessee 1. Acquisition cost, accumulated depreciation and net book value of leased assets: Millions of yen Acquisition cost Accumulated depreciation Net book value Buildings and structures Tools and fixtures Total...

  • Page 39
    ... depreciation and net book value of leased assets: Millions of yen Acquisition cost Accumulated depreciation Net book value 3. Other investment securities with market value: Millions of yen Type Acquisition cost Book value Difference Buildings and structures Tools and fixtures Total Note: Same as...

  • Page 40
    ... the director with responsibility for this area. The Accounting and Finance Division administers risk management. 2. Market valuation of transactions Not applicable Securities with book value exceeding acquisition cost Securities with acquisition cost exceeding book value Total (1) Stocks Subtotal...

  • Page 41
    ... the Company recorded an extraordinary loss for premium severance payments of ¥925 million. Millions of yen Service cost Interest cost Expected return on plan assets Amortization of prior service cost Amortization of net actuarial gain Retirement benefit expenses 4. Assumptions used in accounting...

  • Page 42
    ... and changes in stock options (1) Details of stock options 2001 stock options Category and number of grantees Company directors and employees 766 Number of stock options Date granted Conditions for vesting of interests Service period 520,710 shares of common stock* 1 June 23, 2001 No conditions have...

  • Page 43
    ...and employees 2004 stock options Company directors and employees 2005 stock options Company directors and employees 2005 stock options Directors and employees of the Company's subsidiaries 696 Number of stock options Date granted Conditions for vesting of interests Service period 2,550,000 shares of...

  • Page 44
    ... 3. Estimate of fair value of stock options (1) Method of valuation employed-Black-Scholes Model (2) Main basic values and methods of estimation 2007 stock options 2007 stock options Stock price volatility* 2 24.0% Expected remaining period* 3 3.5 years Expected dividend* 4 Risk-free interest...

  • Page 45
    ... and equipment 577 Loss on investments in securities 763 Non-deductible portion of allowance for doubtful accounts 902 Allowance for closing of game arcades 1,201 Loss carried forward 5,891 Other 362 Valuation allowance (5,220) Offset to deferred tax assets (non-current assets) (102) Total 4,939...

  • Page 46
    ... for doubtful accounts Tax effect from sale of stock of affiliated companies Allowance for closing of game arcades Loss carried forward Other Valuation allowance Total Net deferred tax assets Deferred tax liabilities Current liabilities Accrued expenses and other cost calculation details Offset...

  • Page 47
    ... (Online) Online games Mobile Phone Content Content for mobile phones Publication Magazine comics, serial comics, game-related books Amusement All businesses of the Taito Group including Amusement Operations and Rental, Sales of Goods and Merchandise and Content Services Others Derivative products...

  • Page 48
    ... (Online) Online games Mobile Phone Content Content for mobile phones Publication Magazine comics, serial comics, game-related books Amusement All businesses of the Taito Group including Amusement Operations and Rental, Sales of Goods and Merchandise and Content Services Others Derivative products...

  • Page 49
    ... value using the straight-line method over a period of five years, from the fiscal year following the fiscal year in which the net book value of the asset reaches 5% of its acquisition cost. Such depreciation is recorded in depreciation expense. The impact of this change was a ¥149 million increase...

  • Page 50
    ... as a new company, and all shares of the new company were sold to XING 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...

  • Page 51
    ...'s earnings per share: The issuance of stock options was approved at the Company's annual general meeting of shareholders held on June 18, 2005, and bonds with warrants were issued based on a resolution approved by the Board of Directors on November 9, 2005. An overview of the stock option plan is...

  • Page 52
    ... Company's business effective October 1, 2008. Accompanying this move to a holding company structure, effective October 1, 2008, the Company's Articles of Incorporation will be partially revised and the company's name is planned to be changed to SQUARE ENIX HOLDINGS CO., LTD. The Board of Directors...

  • Page 53
    ... (new company established through the split) planned post-split status (1) Company name (2) Principle businesses (3) Date of incorporation (4) Address of head office (5) Name and title of representative (6) (7) (8) (9) (10) (11) Common stock Outstanding shares Net assets Total assets Fiscal year...

  • Page 54
    ... 1. Company name SQUARE ENIX HOLDINGS CO., LTD. (scheduled) 2. Principle business Management of corporate group as a pure holding company 3. Address of head office 3-22-7, Yoyogi, Shibuya-ku, Tokyo 4. Name and title of representative Yoichi Wada, President and Representative Director 5. Common stock...

  • Page 55
    ... Company Bond type Security Maturity date SQUARE ENIX CO., LTD. Total *1 Five-year yen-denominated bonds with warrants* 1 November 25, 2005 (UK time) ¥50,000 ¥50,000 ¥37,000 ¥37,000 - None November 25, 2010 (UK time) [Bonds with Warrants Issued] (As of March 31, 2008) Issuance price...

  • Page 56
    ... games School for computer game engineers Network application, development, sale of middleware Holding of shares in and business management of Square Enix Group companies located in North America Sale of games, sale and management of online games in North America Management of overseas film revenues...

  • Page 57
    ...N Transfer agent offices: Mitsubishi UFJ Trust and Banking Corporation (domestic branches) Listed on: The First Section of the Tokyo Stock Exchange Securities code: 9684 N Note: 1. The above investment of Japan Trustee Services Bank, Ltd. (Trust Account), includes 977,000 shares held in the name...

  • Page 58
    This annual Report is printed on recycled paper.