Square Enix 2009 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... the exchange rate of the Japanese yen in relation to the U.S. dollar, the euro and others, which SQUARE ENIX HOLDINGS uses extensively in its overseas business; [3] the continuous introduction of new products, and rapid technical innovation in the digital entertainment industry; and [4] SQUARE ENIX...

  • Page 3
    Financial Highlights SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years Ended March 31 Millions of Yen 2005 For the Year Net sales Operating income Net income At year-end Total assets Total equity ¥131,695 108,933 ¥ 213,348 120,993 ¥ 215,679 129,461 ¥ 212,134 147,034 ¥ 213,194 ...

  • Page 4
    Yoichi Wada President and Representative Director

  • Page 5
    ... to our shareholders for the opportunity to present the Company's annual report for the fiscal year ended March 31, 2009. In the fiscal year under review, on a consolidated basis, net sales decreased 8.0% compared with the previous fiscal year, to ¥135,693 million. Operating income declined 42...

  • Page 6
    ...strength within Japan, we commenced domestic sales of game titles The SQUARE ENIX Group's Growth Strategy ❶ Enhancing the value of our brands ❷ Building a global business structure ❸ Establishing diverse points of contact with our customers ❹ Reinforcing capabilities in community management...

  • Page 7
    ... and brand value is enhanced. Until now, the entertainment industry has been divided, according to the point of contact chosen by the customer, into such sectors as movies, music, manga (comics), and games. However, many sectors, including the movie sector, have pursued a multi-window strategy while...

  • Page 8
    .... The company's culture of pursuing the richest game experience possible Eidos studios and its major titles Crystal Dynamics United States Tomb Raider : Underworld (Published in November 2008) Hitman : Blood Money (Published in May 2006) IO Interactive Denmark Kane & Lynch : Dead Men (Published in...

  • Page 9
    ... Japanese staff members are sent out to overseas locations to establish offices and hire local staff as a means of expanding the business internationally. Eidos has a history in Europe spanning over twenty years, and was listed on the London Stock Exchange prior to the acquisition by SQUARE ENIX...

  • Page 10
    ... pursuing research and development (R&D) in core technology areas, with particular emphasis on network-related businesses, and aims to apply network technologies to its products and services. The Company moved to a holding company structure on October 1, 2008. In the fiscal year ended March 31, 2009...

  • Page 11
    ... subscribers in Japan, North America and Europe. Consequently, sales in the Games (Online) segment totaled ¥10,629 million (down 12.1% from the previous fiscal year), and operating income amounted to ¥3,087million (down 47.5%, ditto). Mobile Phone Content The Group plans, develops and provides...

  • Page 12
    ... Operations Publication The Group publishes comic magazines, comic books, and game related books including game strategy books. In the fiscal year under review, comic collections taken from regular monthly magazine serials such as "Kuroshitsuji" and "SOUL Eater" contributed to increase of sales of...

  • Page 13
    ...ENIX titles' derivative products. In the fiscal year under review, the successful distribution of a kids' card game machines distributed by Square Enix Co., Ltd., including "DRAGON QUEST Monster Battleroad" and "LORD of VERMILION" have contributed to the earnings of this segment. Consequently, sales...

  • Page 14
    ...one standing corporate auditor, are drawn from outside the company. The directors are appointed for a term of one year, the same as for companies adopting the committee system. The Auditing Division reports directly to the president as an autonomous internal unit currently comprising one member. The...

  • Page 15
    ... as required for financial reporting. (4) Policy on determining audit compensation The Company's policy on determining compensation for audits conducted by the statutory audit firm takes into account such factors as the size of the Company's business operations, the number of days the audit requires...

  • Page 16
    ...As of June 30, 2009) 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 *2 Ryoichi Kobayashi Auditor...

  • Page 17
    ... 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 HOLDINGS CO., LTD. assumes full...

  • Page 18
    ... goods. These shareholdings include stock in 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...

  • Page 19
    ... used in financing activities amounted to ¥3,044 million, an increase of ¥359 million compared with the previous fiscal year. The largest item within this was payments for dividends of ¥3,443 million. The Group believes that it will be possible to procure the funds required for working capital...

  • Page 20
    ... of goodwill. The Company amortizes goodwill relating to its acquisition and subsequent inclusion in the TAITO CORPORATION 's scope of consolidation in September 2005 using the straight-line method over a period of 20 years. In the fiscal year ended March 31, 2009, the Company recorded ¥1,104...

  • Page 21
    ... (Online) business in this region, the Group provides online game services and sells software discs for online games. In the fiscal year ended March 31, 2009, sales in North America totaled ¥14,285 million, an increase of ¥927 million. Europe Millions of yen Years ended March 31 2008 2009 Change...

  • Page 22
    ... capital investments and M&A for the purpose of expanding existing businesses and developing new businesses. The retention of internal reserves is done while also taking into account return to shareholders, operating performance and the optimal balance for stable dividends. Accordingly, the Company...

  • Page 23
    ... Direction" may adversely affect the Group's business performance if the Group is unable to respond adequately and promptly to these changes. (3) Changes in Game Platforms and the Group's Response The Group's core business predominantly involves the sale of software for use on home-use video game...

  • Page 24
    ... Balance Sheets (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries As of March 31 Millions of yen 2009 Assets Current assets Cash and deposits Notes and accounts receivable Inventories Merchandise and finished goods Work in progress Raw materials and supplies Content production...

  • Page 25
    ... payments received Deposits received Reserve for bonuses Allowance for sales returns Allowance for closing of game arcades Other Total current liabilities Non-current liabilities Corporate bonds Allowance for employees' retirement benefits Allowance for directors' retirement benefits Allowance...

  • Page 26
    ... Investment loss on equity method Miscellaneous loss Total non-operating expenses Recurring income Extraordinary gain Gain on sale of investment securities Gain on divestiture of a business Reversal of allowance for doubtful accounts Reversal of allowance for closing of game arcades Reversal of...

  • Page 27
    ... of new shares (Exercise of Share Options) Issuance of new shares Dividends from retained earnings Net income Purchase of treasury stock Disposal of treasury stock Change in scope of consolidation Change in scope of equity method Total changes during the period Balance at the end of current period...

  • 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 Loss (gain) on sale of investment securities...

  • Page 29
    ... Proceeds from issuances 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 financing activities Effect of exchange rate changes on cash and cash equivalents Net increase in cash and cash...

  • Page 30
    ... statements. • Year ended March 31, 2009 (1) Number of consolidated subsidiaries: 16 and one partnership SQUARE ENIX CO., LTD. TAITO CORPORATION DIGITAL ENTERTAINMENT ACADEMY CO., LTD. COMMUNITY ENGINE INC. SG Lab INC. SQUARE ENIX OF AMERICA HOLDINGS, INC. SQUARE ENIX, INC. SQUARE L.L.C. SQUARE...

  • Page 31
    ...Market value, determined by the quoted market price as of the balance sheet date, with unrealized gains and losses reported as a separate component of net assets at a net-of-tax amount, and cost of sales determined by the moving-average method Securities for which fair values are unavailable: Stated...

  • Page 32
    ... moving-average method (book-entry devaluation method based on the decrease in profitability is used with respect to balance sheet values). Supplies: Stated at the last purchase price (2) Method of depreciation and amortization of major assets: • Year ended March 31, 2008 A) Property and equipment...

  • Page 33
    ... policy. • Year ended March 31, 2009 A) Allowance for doubtful accounts Same as the year ended March 31, 2008 B) Reserve for bonuses Same as the year ended March 31, 2008 C) Allowance for sales returns Same as the year ended March 31, 2008 D) Allowance for closing of game arcades Same as the year...

  • Page 34
    ..., based on the identified cost method (for the best value of inventory stated on the balance sheet, by writing inventory down based on its decrease in profitability). As a result, in the fiscal year ended March 31, 2009, on a consolidated basis, operating income decreased ¥685 million. There was...

  • Page 35
    ...the nature of products, merchandise, services and markets. Consequently, all assets for operational purposes are classified in one asset group, and idle assets which are not used for operational purposes are classified individually. In addition, assets related to the Group's headquarters and welfare...

  • Page 36
    ..., assets related to the Group's headquarters and welfare facilities are classified as common-use assets. Of the assets listed above, land, buildings, telephone subscription rights and amusement equipment were idle assets and their market value had fallen substantially below their book value. Since...

  • Page 37
    ... unit. 2. Stock options and the Company's stock options Details of stock options Number of shares allocated for the purpose of stock options Type of shares issuable As of As of for the exercise of March 31, Increase during Decrease during March 31, stock options 2008 the year the year 2009 Balance...

  • Page 38
    ... in the following fiscal year Date of approval Type of shares Total dividends (Millions of yen) Source of dividends Dividends per share (Yen) Record date Effective date June 24, 2009 (Annual General Meeting of Shareholders) Common stock ¥2,300 Retained earnings ¥20 March 31, 2009 June 25...

  • Page 39
    ... • Year ended March 31, 2008 1. Held-for-sale securities Not applicable 2. Held-to-maturity securities with market value Not applicable 3. Other investment securities with market value: Millions of yen Type Acquisition cost Book value Difference Buildings and structures Tools and fixtures Total...

  • Page 40
    ... Securities with acquisition cost exceeding book value Total (1) Stocks Subtotal (1) Stocks Subtotal ¥ 0 0 ¥ 0 0 ¥ 0 0 1,997 1,997 ¥1,998 1,881 1,881 ¥1,882 (115) (115) ¥(115) Note: For the fiscal year ended March 31, 2009, the impairment loss associated with the fair market value...

  • Page 41
    ...on plan assets Period over which prior service cost is amortized Period over which net actuarial gain or loss is amortized 1.300-2.099% 1.300% 1-5 years 1-5 years Stock Options • Year ended March 31, 2008 1. Expense items and amounts during the fiscal year related to stock options: Cost of sales...

  • Page 42
    ...Company directors 2007 stock options Company employees, and directors and employees of the Company's subsidiaries Number of grantees Number of stock options Date granted Conditions for vesting of interests Service period 696 2,550,000 shares of common stock* June 22, 2002 No conditions have been set...

  • Page 43
    ... 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 44
    ... interests No service period has been established 2008 stock options Company directors Company directors Company directors Company directors and employees and employees and employees 2,550,000 shares 600,000 shares of 902,000 shares of of common stock* June 22, 2002 No conditions have been set for...

  • Page 45
    ... 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 2008 stock options Stock price volatility* 2 24.0% Expected remaining period* 3 3.5 years Expected dividend* 4 Risk-free...

  • Page 46
    ... benefits Allowance for directors' retirement benefits Non-deductible depreciation expense of property and equipment Loss on investments in securities Non-deductible portion of allowance for doubtful accounts Tax effect from sale of stock of affiliated companies Allowance for closing of game...

  • Page 47
    ... in securities 410 Non-deductible portion of allowance for doubtful accounts 124 Research and development expense 294 Allowance for closing of game arcades 293 Loss carried forward 8,557 Other 194 Valuation allowance (10,807) Total 952 Net deferred tax assets 4,834 Deferred tax liabilities Current...

  • Page 48
    ... 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 such as character...

  • Page 49
    ... 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 such as character...

  • Page 50
    ... method. • Year ended March 31, 2009 Millions of yen Japan North America Europe Asia Eliminations or Total unallocated Consolidated total I Sales and operating income Net sales (1) Sales to external customers (2) Intersegment sales Total Operating expenses Operating income (loss) II Total assets...

  • Page 51
    ... 31, 2009 Common control transactions 1. Outline of the business combination (1) Name of the company acquired and business operations subject to the business combination The Games (Offline), Games (Online), Mobile Phone Content, Publication and Other businesses operated by SQUARE ENIX HOLDINGS CO...

  • Page 52
    ...pursue a strategy of moving to a pure holding company structure. As well as aiming to clarify the profitability of each business and the accountability structure, this move is seen as crucial to facilitating Group management that can flexibly engage in strategic business alliances, including capital...

  • Page 53
    ...Bank of Japan, Ltd. (Trust Account) 8.83% Fukushima Planning Co., Ltd. 8.50% Sony Computer Entertainment Inc. 8.29% Masashi Miyamoto 6.86% SQUARE ENIX CO., LTD. Planning, development and marketing of games and other content and services October 1, 2008 3-22-7, Yoyogi, Shibuya-ku, Tokyo Yoichi Wada...

  • Page 54
    ...of the SQUARE ENIX Group as one of the global leaders in the interactive entertainment industry. (3) Name of acquisition target, type and size of business acquired Name of company: Eidos Interactive Ltd. Type of business: Development, production and sale of interactive entertainment products Capital...

  • Page 55
    Additional Information [Corporate Bonds Issued] Outstanding balance as of March 31, 2008 (Millions of yen) Outstanding balance as of March 31, 2009 (Millions of yen) Company Bond type Issuance date Coupon (%) Security Maturity date SQUARE ENIX HOLDINGS CO., LTD. Total *1 Five-year yen-...

  • Page 56
    ... Information Millions of yen 1Q April 1, 2008 to June 30, 2008 2Q July 1, 2008 to September 30, 2008 3Q October 1, 2008 to December 31, 2008 4Q January 1, 2009 to March 31, 2009 Net sales Income (loss) before income taxes and minority interests Net income (loss) Per share data of common stock...

  • Page 57
    ...and sale of game software; planning, development and provision of mobile phone content 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...

  • Page 58
    Network Locations R&D Center (As of June 30, 2009) Company Profile (As of March 31, 2009) Headquarters: Shinjuku Bunka Quint Bldg. 3-22-7 Yoyogi, Shibuya-ku Tokyo 151-8544, Japan. TEL.+81-3-5333-1144 Established: September 22, 1975 Common stock: ¥15,113,014,100 Number of employees: 2,952 (...

  • Page 59
    ...Tokyo Stock Exchange Securities code: 9684 â- â- â- 10 Morgan Stanley & Co. Inc (Standing Proxy Agent: Morgan Stanley Japan Securities Co., Ltd.) 1,665 â- Note: 1. The above investment of Japan Trustee Services Bank, Ltd. (Trust Account), includes 7,456,000 shares held in the name of Japan...

  • Page 60
    SQUARE ENIX HOLDINGS CO., LTD.