Square Enix 2010 Annual Report Download

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2010

Table of contents

  • Page 1
    2010

  • Page 2
    ... Governance 19 Directors, Auditors and Executive Officers 20 Financial Section 64 Corporate Data 65 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 HOLDINGS CO...

  • Page 3
    Financial Highlights SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years Ended March 31 Millions of Yen 2006 For the Year Net sales Operating income Recurring income Net income At Year-end Total assets Total equity ¥ 213,348 120,993 ¥ 215,679 129,461 ¥ 212,134 147,034 ¥ 213,194 ...

  • Page 4
    Yoichi Wada President and Representative Director 02

  • Page 5
    ... to our shareholders for the opportunity to present the Company's annual report for the fiscal year ended March 31, 2010. On a consolidated basis, net sales for the fiscal year ended March 31, 2010 totaled ¥192,257 million (an increase of 41.7% from the prior fiscal year), operating income amounted...

  • Page 6
    ... year under review, sales and profit reached record levels, while nearly all business segments showed increased profit. Furthermore, sales across all geographic segments of Japan, North America and Europe achieved record levels (Figures 2 - 4). the market, computer games and network communications...

  • Page 7
    ... Skies" has reached 4.26 million units. On the other hand, "Batman: Arkham Asylum" had very modest sales in Japan but sold 3.24 million units mostly in North America and Europe. Our global development is not the release of all titles in all regions, nor is it game development in a certain region for...

  • Page 8
    ... fiscal year under review. We are also placing a priority on games for new devices such as smartphones. This has included, for example, game titles for iPhone/iPod touch like "CHAOS RINGS," "SPACE INVADERS INFINITY GENE," and "FINAL FANTASY," which each reached #1 in sales rankings on the App Store...

  • Page 9
    ...IPs face the risk of structural bottlenecks in business development. This is why we insist on focusing on our own-IPs. At SQUARE ENIX and TAITO, almost all of our titles are our own-IPs. And with the acquisition of Eidos, we increased our stable of AAA and potential AAA titles including "Tomb Raider...

  • Page 10
    ...Operations The Square Enix Group (the "Group") is continuing determined efforts to strengthen the competitiveness and profitability of its business segments of Games, Amusement, Publication, Mobile Phone Content and Merchandising. Net sales for the fiscal year ended March 31, 2010 totaled ¥192,257...

  • Page 11
    ... including SQUARE ENIX CO., LTD. (Japan), SQUARE ENIX, INC. (North America region) and SQUARE ENIX LTD. (Europe and PAL regions). During the fiscal year ended March 31, 2010, major game titles such as "FINAL FANTASY Xlll," "DRAGON QUEST IX: Sentinels of the Starry Skies," "Batman: Arkham Asylum...

  • Page 12
    ... on popular game titles. Consequently, net sales in this segment totaled ¥14,367 mllion (an increase of 10.6% from the prior fiscal year), and operating income increased 16.4%, to ¥4,120 million. ©2008-2010 ARMOR PROJECT/ BIRD STUDIO/SQUARE ENIX All Rights Reserved. ©TAITO CORPORATION 2009 ALL...

  • Page 13
    ...products of titles owned by the Group. The CG-animated film "FINAL FANTASY Vll ADVENT CHILDREN COMPLETE," released in April 2009, contributed to sales and profit of this segment. Net sales in this segment totaled ¥5,473 million (an increase of 45.6% from the prior fiscal year), and operating income...

  • Page 14

  • Page 15

  • Page 16
    ...under the Company's internal decisionmaking authority rules, the Board of Directors, which sets management policy, is clearly separated from the decisionmaking bodies responsible for the execution of operations. This system aims to enhance the efficiency and balance of management decision-making and...

  • Page 17
    ... finance and accounting-related matters, and based on his experience in serving as a fulltime director of the Japan Corporate Auditors Association. Yahagi offers his opinions at meetings of the Board of Directors and Board of Auditors as appropriate. The Company has notified the Tokyo Stock Exchange...

  • Page 18
    ... compensation applicable to the fiscal year under review was in the form of stock options. 2. The Company has abolished retirement benefits for directors and corporate auditors auditors from the corporate management of the Company. Corporate auditors' remuneration is also reviewed every year. The...

  • Page 19
    ... Previous fiscal year Fiscal year under review accordance with Article 427, Paragraph 1, of the Companies Act to limit liabilities provided under Article 423, Paragraph 1, of the Companies Act. These agreements limit the liability of the outside director and each outside corporate auditor to Total...

  • Page 20
    ... audit firm takes into account such factors as the scale of the Company's business operations, the number of days required to (2) Other significant compensation Fiscal year ended March 31, 2009 The Company's consolidated subsidiaries SQUARE ENIX LTD. and SQUARE ENIX OF AMERICA HOLDINGS, INC., paid...

  • Page 21
    ...of July 31, 2010) 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 Senior Executive Managing Officers Koji Taguchi...

  • Page 22
    ... 30 31 32 34 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 23
    ...the SQUARE ENIX Group (the "Group") are prepared in accordance with generally accepted accounting principles in Japan (JPNGAAP). In preparing the consolidated financial statements, management chooses and applies accounting policies, and makes estimates that affect the disclosure of amounts in assets...

  • Page 24
    ... to this increase were the release of two major game titles in March 2010 in Europe and the United States, "FINAL FANTASY XIII" and "Just Cause 2." Content Production Account Millions of yen 3. Analysis of Business Performance in the Fiscal Year Ended March 31, 2010 Assets Total Assets â- Millions...

  • Page 25
    ... 2009 ¥18,697 2010 ¥21,623 Change ¥2,926 Total intangible assets increased by ¥2,926 million, to ¥21,623 million. Two major factors affected the balance of intangible assets during this fiscal year. Firstly, the acquisition of United Kingdombased EIDOS LTD. in April 2009 led to an increase...

  • Page 26
    ... Change ¥ 69 69 5,627 (3) 5,762 62 As of March 31, 2010, total shareholders' equity amounted to ¥157,641 million, an increase of ¥5,762 million compared with the previous fiscal year-end. Common stock and capital surplus increased owing to the exercise of stock options (stock acquisition rights...

  • Page 27
    ... in Japan, the United States and Europe are handled by SQUARE ENIX, INC., a wholly-owned subsidiary of the Company. In the fiscal year ended March 31, 2010, sales in North America totaled ¥26,315 million, an increase of ¥12,030 million. In particular, sales of "FINAL FANTASY XIII," "BATMAN: ARKHAM...

  • Page 28
    ... the Board of Directors in the case of the interim dividend. For the fiscal year ended March 31, 2010, to commemorate the highest recurring income achieved by the Company since the merger of SQUARE CO., LTD., and ENIX CORPORATION in April 2003, the year-end dividend was increased by 5 yen per share...

  • Page 29
    ...the sale of game software for use on home-use video game consoles. Consequently, the Group's business may be affected by change in market shares of console platforms caused by generational transition, and changes in console manufacturers' strategies. (4) Securing Human Resources to Execute the Group...

  • Page 30
    Consolidated Balance Sheets (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries As of March 31 Millions of yen 2010 Assets 2009 Current assets Cash and deposits Notes and accounts receivable Short-term investment securities Merchandise and finished goods Work in progress Raw ...

  • Page 31
    ... and accounts payable Short-term loans Current portion of corporate bonds Other accounts payable Accrued expenses Accrued income taxes Accrued comsumption taxes Advance payments Deposits received Reserve for bonuses Allowance for sales returns Allowance for game arcade closings Other Total current...

  • Page 32
    Consolidated Statements of Income (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2010 Net sales Cost of sales Gross profit Reversal of allowance for sales returns Provision for allowance for sales returns Net gross profit Selling, ...

  • Page 33
    ... of Changes in Net Assets (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen Millions of yen 2010 Shareholders' equity Common stock Balance at the end of previous period Changes during the period Issuance of new shares Total changes of...

  • Page 34
    Consolidated Statements of Cash Flows (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2010 Cash ï¬,ows from operating activities Income before income taxes and minority interests Depreciation and amortization Impairment loss Increase (...

  • Page 35
    ... short-term loans Proceeds from issuances of shares Proceeds from issuance of corporate bonds Payments for acquisition of treasury stock Payments for dividends Payments for dividends for minority interests Other Net cash provided by (used in) financing activities Effect of exchange rate changes on...

  • Page 36
    ...development and sale of game software for home-use game consoles); to ES1 CORPORATION, a consolidated subsidiary of the Company whose shares were acquired by the Company during this fiscal year. Simultaneously, TAITO CORPORATION changed its corporate name to TAITO SOFT CORPORATION. On March 11, 2010...

  • Page 37
    ... consolidation. For SQUARE ENIX WEBSTAR NETWORK TECHNOLOGY (BEIJING) CO., LTD., a provisional settlement of accounts as of the Company's balance sheet date was used as the basis for the preparation of the consolidated financial statements. â- Year ended March 31, 2010 Same as the year ended March...

  • Page 38
    ... is applied. The estimated useful lives of major assets are as follows: Buildings and structures 3-65 years Tools and fixtures 2-20 years Amusement equipment 3 years (auxiliary components: 5 years) B) Intangible assets (excluding leased assets) Amortized using the straight-line method. Software used...

  • Page 39
    ... Board of Japan (ASBJ) Statement No. 9, issued on July 5, 2006), inventories are primarily stated at cost, based on the identified cost method (the value stated on the balance sheet was calculated by writing down the book value based on declining profitability). As a result, in the fiscal year...

  • Page 40
    ... of adopting the new standard to the segment information are noted in the applicable section. (Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements) Effective from the fiscal year ended March 31, 2009, the Company has adopted...

  • Page 41
    ...: Investments and other assets Â¥69 million Notes to Consolidated Statements of Income â- Year ended March 31, 2009 *1 Inventories at fiscal year-end are stated after writing down inventory based on its decrease in profitability. The following amount is included within cost of sales as loss on...

  • Page 42
    ... relating to an overhaul of the Group's game development and sales structures in Europe and the United States due to the acquisition of the Eidos Group. *10 Income taxes for prior periods With regard to transactions between the Company and its subsidiaries in the United States and the United Kingdom...

  • Page 43
    ... the Board of Directors on November 9, 2005 Stock acquisition rights as stock options Total Common stock 10,756,439 125,913 - 10,882,352 - - - - - - - - - - - 410 410 Note: The increase of 125,913 shares during the year was due to the conversion price adjustment conditions being applied...

  • Page 44
    ...) 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 2009 the year the year 2010 Balance as of...

  • Page 45
    ... of Significant Accounting Policies Used in the Preparation of Consolidated Financial Statements; 4. Summary of Significant Accounting Year ended March 31, 2010 (1) Type of leased assets Amusement facilities in the Amusement business (buildings and structures) (2) Depreciation method for leased...

  • Page 46
    ...Acquisition cost Accumulated depreciation Net book value Buildings and structures Tools and fixtures Total ¥ 593 593 ¥1,186 ¥472 453 ¥926 ¥120 139 ¥259 Note: The total amount of future lease payments at the end of the year constituted an insignificant portion of net property and equipment...

  • Page 47
    ... received Corporate bonds Total Derivative transactions investment securities Assets (1) Cash and deposits, and (2) Notes and accounts receivable Since these items are settled on a short-term basis, book value is used on the assumption that fair value is principally equivalent to book value. Notes...

  • Page 48
    ... balance sheet date for corporate bonds. Please refer to the "Corporate Bonds Issued" tables within the Supplementary Schedule section of the Notes to Consolidated Financial Statements. (Additional information) From the fiscal year ended March 31, 2010, the Company has applied "Accounting...

  • Page 49
    ... 2010 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 Acquisition Difference cost - - - - - - 0 1,997 - - - 0 1,881 - - - 0 (115) Type Book value (1) Stocks (2) Bonds...

  • Page 50
    ...Financial Statements (JPNGAAP) 4. Securities sold during the fiscal year ended March 31, 2010 Millions of yen Aggregate loss on sale 2. Market valuation of transactions Not applicable â- Item (1) Stocks (2) Bonds a. Government bonds and municipal bonds b. Corporate bonds c. Other (3) Other Total...

  • Page 51
    ... plans. Stock Options â- Year ended March 31, 2009 1. Expense items and amounts during the fiscal year related to stock options: Cost of sales Â¥ 16 million Selling, general and administrative expenses 312 million 2. Details, scale of and changes in stock options (1) Details of stock options...

  • Page 52
    ...directors 2007 stock options Company employees, and directors and employees of the Company's subsidiaries 59 670,000 shares of common stock December 4, 2007 2008 stock options Company directors Company directors and Company directors and Company directors and employees employees employees Number...

  • Page 53
    ... Exercise price Average share price at exercise Fair market value on grant date ¥2,152 3,292 - ¥2,981 3,489 - ¥3,365 - - ¥3,360 - - ¥3,706 - 526 ¥3,706 - A. 526 B. 594 C. 715 ¥ 1 - 3,171 3. Estimate of fair value of stock options (1) Method of valuation employed-Black-Scholes Model...

  • Page 54
    ... directors 2009 stock options Company employees Company directors Company directors Company directors Directors and and employees and employees and employees employees of the Company's subsidiaries Number of grantees Number of stock options Date granted Conditions for vesting of interests Service...

  • Page 55
    ... options The fair value of the 2009 Stock Options granted during the fiscal year under review was estimated using following method. (1) Method of valuation used: Black-Scholes option pricing model (2) Main assumptions used and method of valuation 2009 Stock Options 2009 Stock Options Expected share...

  • Page 56
    ... and equipment 707 Loss on investments 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...

  • Page 57
    ... mobile phones Publication 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 Amusement Others Derivative products such as character merchandise, school for game designers...

  • Page 58
    ...-generating capabilities. Driven by changes in its corporate structure as well as measures aimed at building and reinforcing its business base, the Group decided to change its business segment classifications, effective this fiscal year, to the following: Games, Amusement, Publication, Mobile Phone...

  • Page 59
    ...first quarter of this fiscal year, the amount of total assets for the Game segment increased by Â¥35,864 million. [Consolidated Geographic Segment Information] â- Year ended March 31, 2009 Millions of yen Japan North America Europe Asia Eliminations or Total unallocated Consolidated total I Sales...

  • Page 60
    ... (2) Europe...United Kingdom, France, Germany, others (3) Asia...China, South Korea, Taiwan, others 3. Overseas sales represent sales of the Company and its consolidated subsidiaries to countries and areas outside Japan. â- Year ended March 31, 2010 Millions of yen North America Europe Asia Total...

  • Page 61
    ... operations Name of company: Eidos plc (hereinafter "Eidos") Type of business: Games (interactive entertainment products) (2) Purpose of the business combination This acquisition was carried out based on the judgment that, by combining the hit products of Eidos with the products of SQUARE ENIX Group...

  • Page 62
    ... and the corporate name of the surviving company was changed to TAITO CORPORATION. Absorption-type company merger: SQUARE ENIX CO., LTD. (4) Outline of the transaction including purpose of the transaction The purpose of the transaction is to aggregate the Group's business units responsible for...

  • Page 63
    ... 2010 stock acquisition rights pursuant to a resolution by the Board of Directors on December 25, 2009; issuance of euro yen zero-coupon convertible bonds due 2015, pursuant to a resolution of the Board of Directors on January 18, 2010 Year ended March 31, 2010 Net assets per share (yen) Net income...

  • Page 64
    ... 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 â- Name of company: Eidos Interactive Ltd. Type of business: Development, production and sale of interactive entertainment products Capital...

  • Page 65
    3. Information relating to euro yen zero-coupon convertible bonds due 2015 is as follows. (As of March 31, 2010) Issuance price 100% of face value Aggregate amount of issuance ¥35.0 billion Warrants applicable to Common shares Exercise price (yen) ¥2,500 Period for exercise of warrants February 19...

  • Page 66
    ....0%) 100.0% (100.0%) Holding of shares in and business management of Square Enix Group companies located in North America Games, publication, mobile phone content, merchandising in North America Development of games Development of games Established Fiscal Year-End Common Stock Percent of Voting...

  • Page 67
    ... Corporation 7-10-11 Higashi-suna, Koto-ku, Tokyo 137-8082 TEL: +81-120-232-711 Listed on: The First Section of the Tokyo Stock Exchange Securities code: 9684 Trading unit: 100 shares N N Note: Japan Trustee Services Bank, Ltd. (Trust Account) includes 3,642 shares held in the name of Japan...

  • Page 68
    SQUARE ENIX HOLDINGS CO., LTD. This annual report is printed on recycled paper.