Square Enix 2011 Annual Report Download

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2011

Table of contents

  • Page 1
    2 011

  • Page 2
    ... Governance 19 Directors, Auditors and Executive Officers 20 Financial Section 68 Corporate Data 69 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 2007 For the Year Net sales Operating income Recurring income Net income (loss) At Year-end Total assets Total equity ¥ 215,679 129,461 ¥ 212,134 147,034 ¥ 213,194 147,318 ¥ ...

  • Page 4
    ... ensure new development going forward, we made a reassessment of the yearend balance sheet. While these actions resulted in the recording of a net loss, our financial position continues to be strong, allowing us to set dividends applicable to the fiscal year ended March 31, 2011 at ¥30.00 per share...

  • Page 5
    ... title. The weakness of new releases, a stumble in "FINAL FANTASY XIV" and the delay of "DEUS EX: HUMAN REVOLUTION" were the primary factors resulting in operating income of ¥7.3 billion, substantially lower than forecast at the start of the fiscal year and the lowest level in our company history...

  • Page 6
    ... 2008 2009 2010 2011 Japan Europe/North America Years ended March 31 Total net assets (154.3) Total net assets (135.1) "DEUS EX: HUMAN REVOLUTION" 4 Awards, 19 Nominations (Due: August 2011 N. America/ Europe; September 2011 Japan) As of March 31, 2010 As of March 31, 2011 "FINAL FANTASY XIII...

  • Page 7
    ... Market Size Cloud Games Browser Games PC, etc. (Online Games) Mobile Games Console Game Software Console Game Hardware Amusement/Arcade 1975 1985 1995 2005 2015E Various sources compiled by the Company Historical Development of the Game Industry For a deeper understanding of our basic strategy...

  • Page 8
    ...grow tremendously and allow the market to expand to customers who lacked awareness of games in the past (this is already happening). The dramatic expansion of the customer base and the permeation of the network environment will cause both business models and content design to transform fundamentally...

  • Page 9
    ... for high-end gaming within 10 years. 2. Becoming "Network Centric" As I have mentioned, we have to transform both our business model and our content design. The two critical points are embracing the continuous relationships with customers and having pricing determined by customers according to...

  • Page 10
    ... net income of ¥9,509 million in the prior fiscal year. During the fiscal year, an extraordinary loss of ¥570 million was recorded as a result of the Tohoku Pacific Ocean Earthquake and Tsunami. Publication 10.4% Merchandising 2.4% Share of Net Sales (FY Ended March 2011) Digital Entertainment...

  • Page 11
    ...meet customer lifestyles across a variety of usage environments such as consumer game consoles (including handheld game machines), personal computers and mobile phones. During the fiscal year ended March 31, 2011, while "DRAGON QUEST MONSTERS: Joker 2" released in April and "Kane & Lynch 2: Dog Days...

  • Page 12
    ... and the planning, development and distribution of arcade game machines and related products for amusement facilities. During the fiscal year ended March 31, 2011, amusement facilities operations met difficult market conditions with continued profit improvement efforts. During the fiscal year ended...

  • Page 13
    ... to developing network-based businesses such as distribution of special applications for iPhone, iPod touch and iPad by which the Group's GANGAN ONLINE, a web-based comic magazine, can be browsed. During the fiscal year ended March 31, 2011, net sales and operating income in the Publication segment...

  • Page 14
    FINAL FANTASY XIII: ©2009,2010 SQUARE ENIX CO., LTD. All Rights Reserved. CHARACTER DESIGN: TETSUYA NOMURA DRAGON QUEST IX: Sentinels of the Starry Skies: ©2009 ARMOR PROJECT/BIRD STUDIO/LEVEL-5/SQUARE ENIX All Rights Reserved. KINGDOM HEARTS Birth by Sleep: ©Disney. Developed by SQUARE ENIX

  • Page 15
    TOMB RAIDER: ©2011 SQUARE ENIX LTD. Published by Square Enix Co., Ltd. HITMAN ABSOLUTION: ©2011 IO INTERACTIVE A/S. Published by Square Enix Co., Ltd. DEUS EX: HUMAN REVOLUTION: ©2011 SQUARE ENIX LTD. Published by Square Enix Co., Ltd.

  • Page 16
    ...out while sharing information with the Board of Auditors and the independent audit firm. Audits by the corporate auditors are carried out by four corporate auditors, three of whom are drawn from outside the Company. Nobuhiro Saito, a corporate auditor, has many years' experience working at financial...

  • 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
    ...of Shareholders. (5) Matters relating to the Company's holdings of shares Matters relating to shares held by the Company, which has the largest balance-sheet value of investments in shares within the Square Enix Group, are as follows: (i) Number of companies in which shares are held and total amount...

  • Page 19
    ... asterisk under "Total loss on revaluation of shares" indicate impairment losses for the fiscal year under review. (iv) Companies in which shares are held, number of shares, amount presented on the balance sheets for investments in shares for which the purpose of investment has changed from "purely...

  • Page 20
    ... Compensation for non-audit operations Parent company Consolidated subsidiaries Total 52 78 130 51 - 51 52 78 130 1 - 1 (2) Other significant compensation Fiscal year ended March 31, 2010 The Company's consolidated subsidiaries SQUARE ENIX OF EUROPE HOLDINGS LTD. and SQUARE ENIX OF AMERICA 18

  • Page 21
    ...of June 30, 2011) 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
    ... Balance Sheets (JPNGAAP) Consolidated Statements of Income (JPNGAAP) Consolidated Statement of Comprehensive Income (JPNGAAP) Consolidated Statements of Changes in Net Assets (JPNGAAP) Consolidated Statements of Cash Flows (JPNGAAP) Notes to Consolidated Financial Statements (JPNGAAP) SQUARE ENIX...

  • Page 23
    ...write-downs will become necessary. (4) Unrealized Losses on Investments The Group owns shares in certain financial institutions and companies with which it sells or purchases goods. These shareholdings include stock in listed companies subject to price fluctuation risk in the stock market and stock...

  • Page 24
    ...quarter of the fiscal year under review. This situation contrasted with the previous fiscal year in which "FINAL FANTASY XIII," "Just Cause 2" and other major titles were launched in the United States and Europe during March. Content Production Account Millions of yen March 31 2010 ¥270,529 2011...

  • Page 25
    ...(ASBJ Statement No. 18). Another principal factor was an increase in the allowance for employees' retirement benefits from Â¥2,170 million to Â¥3,061 million. â- Shareholders' Equity/Net Assets Millions of yen March 31 2010 Â¥16,707 2011 Â¥14,382 Change Â¥(2,325) March 31 Common stock Capital...

  • Page 26
    ... CORPORATION and the U.K. company Eidos plc, the Company recorded goodwill as a result of both purchases. For the fiscal year under review, however, it has recognized impairment losses, based on more cautious estimates for future cash flow in view of the recent changes in the business environment...

  • Page 27
    ...-term management strategy that focuses on pioneering a new era in digital entertainment. The Group's operating forecast for the fiscal year ending March 31, 2012 is as follows (as of June 30, 2011). Millions of yen Years ended/ ending March 31 Net sales Operating income Recurring income Net income...

  • Page 28
    ... Group. Such investments may include 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...

  • Page 29
    ... subsidiaries located in North America, Europe and Asia. The risk of foreign exchange loss has been reduced as foreign currency gained by those subsidiaries is expended for settlement or reinvestment in the applicable countries. However, sales, expenses, assets, liabilities and net assets of...

  • Page 30
    Consolidated Balance Sheets (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries As of March 31 Millions of yen 2011 Assets 2010 Current assets Cash and deposits Notes and accounts receivable Short-term investment securities Merchandise and finished goods Work in progress Raw ...

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

  • Page 32
    ... expenses Interest expenses Bond issuance cost Investment loss on equity method Foreign exchange loss Miscellaneous loss Total non-operating expenses Recurring income Extraordinary gain Gain on sale of property and equipment Gain on sale of investment securities Reversal of allowance for doubtful...

  • Page 33
    ... Statement of Comprehensive Income (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Year ended March 31 Millions of yen 2011 Loss before minority interests Other comprehensive loss Unrealized loss on revaluation of other investment securities Foreign currency translation...

  • Page 34
    Consolidated Statements of Changes in Net Assets (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2011 Shareholders' equity Common stock Balance at the end of previous period Changes during the period Issuance of new shares Total changes ...

  • Page 35
    ... period Total net assets Balance at the end of previous period Changes during the period Issuance of new shares Dividends from retained earnings Net income (loss) Purchase of treasury stock Disposal of treasury stock Change of scope of consolidation Change of scope of equity method Net changes in...

  • Page 36
    ... for employees' retirement benefits Increase (decrease) in allowance for directors' retirement benefits Increase (decrease) in allowance for game arcade closings Interest and dividends income Interest expenses paid Foreign exchange losses (gains) Loss (gain) on sales of investment securities Loss on...

  • Page 37
    ... from sales of stocks of subsidiaries and affiliates Proceeds from liquidation of subsidiaries Payments for rental deposits Proceeds from collection of rental deposits Other, net Net cash provided by (used in) investing activities Cash flows from financing activities Increase in short-term loans...

  • Page 38
    ..., development, production, sales and rental of coin-operated game machines (excluding the planning, 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...

  • Page 39
    ... cost determined by the 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 â- Year ended March 31, 2011 A) Investment securities Other investment securities Securities...

  • Page 40
    ... on the balance sheet date. Allowance for sales returns At certain consolidated subsidiaries prior to the fiscal year ended March 31, 2010, allowances are provided for losses on the return of published materials, at an amount calculated based on historical experience prior to this fiscal year and...

  • Page 41
    ...-term investments with an original maturity of three months or less and with minimal risk of fluctuations in value. â- Year ended March 31, 2011 Same as the year ended March 31, 2010 (8) Additional accounting policies used to prepare consolidated financial statements: â- Year ended March 31, 2010...

  • Page 42
    ... the fiscal year ended March 31, 2009, "gain on sale of property and equipment" was presented as part of "other" within extraordinary (Consolidated Statements of Income) From the fiscal year ended March 31, 2011, the Company applies "Regulation for Terminology, Forms and Presentation of Financial...

  • Page 43
    ... rights Assets planned Amusement for disposal equipment Notes to Consolidated Statements of Income â- Year ended March 31, 2010 *1 Inventories at fiscal year-end are stated after writing down based on its decrease in profitability. The following amount is included within cost of sales as loss on...

  • Page 44
    ... (BAPA) system relating to transfer pricing taxation, during this fiscal year, a mutual agreement became effective between the governments of Japan and the United States. Japan and the United Kingdom plan to reach a mutual agreement in the near future. The amount presented as income taxes for prior...

  • Page 45
    ...were closed. Items Pertaining to the Consolidated Statements of Changes in Net Assets â- Year ended March 31, 2010 1. Type and number of shares issued and outstanding, and type and number of shares of treasury stock Thousands of shares Shares as of March 31, 2009 Share Share Shares as of increases...

  • Page 46
    ...Statements (JPNGAAP) 2. Stock options and the Company's stock options Details of stock options Type of shares issuable for the exercise of stock options Number of shares allocated for the purpose of stock options As of As of March 31, Increase during Decrease during March 31, 2009 the year the year...

  • Page 47
    ... unit. 2. Stock options and the Company's stock options Details of stock options Type of shares issuable for the exercise of stock options Number of shares allocated for the purpose of stock options As of As of March 31, Increase during Decrease during March 31, 2010 the year the year 2011 Balance...

  • Page 48
    ... to the payment for share acquisition-net. â- Millions of yen Lease Transactions â- Year ended March 31, 2010 Finance lease transactions (1) Type of leased assets Amusement facilities in the Amusement business (buildings and structures) (2) Depreciation method for leased assets Please see...

  • Page 49
    ... net book value of leased assets: Millions of yen Acquisition cost Accumulated depreciation Net book value Buildings and structures Tools and fixtures Total ¥425 218 ¥643 ¥390 160 ¥550 ¥34 58 ¥92 Note: Same as the year ended March 31, 2010 2. Ending balances of future lease payments: Due...

  • Page 50
    ...to Consolidated Financial Statements (JPNGAAP) Notes and accounts payable are defined as those trade payables due within one year. Short-term loans are used to meet short-term working capital requirements. The Group avoids the settlement liquidity risk associated with short-term payables, including...

  • Page 51
    ...to book value. Book value is therefore recorded as fair value. (4) Investment securities Investment securities comprise stock market listed shares and fair value is the stock-market trading price. For information relating to each of the holding purposes of securities, please refer to the note titled...

  • Page 52
    ... value is principally equivalent to book value. (4) Investment securities Investment securities comprise stock market listed shares and fair value is the stock-market trading price. For information relating to each of the holding purposes of securities, please refer to the note titled "Securities...

  • Page 53
    ... equivalent to book value. (4) Corporate bonds The fair value of corporate bonds issued by the Company is the price quoted by the correspondent financial institutions. 3. Other investment securities with market value: Type Book value Millions of yen Acquisition Difference cost (1) Stocks (2) Bonds...

  • Page 54
    ... (1) Stocks (2) Bonds a. Government bonds and Securities with municipal acquisition cost bonds exceeding book b. Corporate value bonds c. Other (3) Other Subtotal Total ¥4 ¥2 ¥1 5. Investment securities subject to impairment In the fiscal year under review, other investment securities (shares...

  • Page 55
    ...hedge accounting has not been applied Not applicable Discount rates Expected rate of return on plan assets Period over which prior service cost is amortized Period over which net actuarial gain or loss is amortized â- Year ended March 31, 2011 1. Overview of employees' retirement benefit plan Same...

  • Page 56
    ... Financial Statements (JPNGAAP) Stock Options â- Year ended March 31, 2010 1. Expense items and amounts during the fiscal year related to stock options: Cost of sales Â¥ 13 million Selling, general and administrative expenses 311 million 2. Amounts recorded as gains due to vested stock options...

  • Page 57
    ... value of stock 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...

  • Page 58
    ... Financial Statements (JPNGAAP) â- Year ended March 31, 2011 1. Expense items and amounts during the fiscal year related to stock options: Cost of sales Â¥ 13 million Selling, general and administrative expenses 210 million 2. Amounts recorded as gains due to vested stock options unexercised...

  • Page 59
    ...stock options The fair value of the 2010 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 2010 Stock Options 2010 Stock Options 2010 Stock...

  • Page 60
    ... portion of allowance for employees' retirement benefits 959 Allowance for directors' retirement benefits 90 Expense for stock-based compensation 296 Non-deductible depreciation expense of property and equipment 214 Impairment loss 508 Loss on investments in securities 482 Non-deductible portion...

  • Page 61
    ... for the fiscal year ended March 31, 2011 because the Company posted a loss before income taxes and minority interests. (3) Date of business combination April 22, 2009 (4) Legal form of the business combination and name of the postcombination company Legal form of the business combination: Share...

  • Page 62
    ...fiscal year Millions of yen Net sales Recurring loss Net loss These estimates were not subject to audit certification. ¥0 447 447 In addition, by integrating the business operated by TAITO SOFT CORPORATION related to game software for home game consoles into the games business operated by SQUARE...

  • Page 63
    ... Business Segment Information] â- Year ended March 31, 2010 Millions of yen Games Amusement Publication Mobile Merchandising phone content Total Eliminations or unallocated Consolidated total I Sales and operating income (loss) Net sales (1) Sales to external customers (2) Intersegment sales Total...

  • Page 64
    ... subsidiaries to countries and areas outside Japan. [Segment Information] Year ended March 31, 2011 1. Outline of reporting segments The Company's reporting segments are business units for which abstracted financial data is available and periodically reviewed by the Board of Directors to determine...

  • Page 65
    ...Digital Entertainment Amusement Publication Merchandising Total Adjustment (Note 1) Consolidated total (Note 2) Net sales (1) Sales to outside customers (2) Intersegment sales Total Segment operating income Segment assets Other items Depreciation and amortization Increases in property and equipment...

  • Page 66
    ...Â¥125,271 Note: Sales are grouped by country or region, based on customer location. [Information related to impairment losses on property and equipment in each reporting segment] â- Year ended March 31, 2011 Millions of yen Digital Entertainment Amusement Publication Merchandising Eliminations or...

  • Page 67
    ... and number of allotted shares A total of 870 units, wherein one (1) unit equals 100 shares, will be offered to five (5) directors. 3. Issue price No payment will be required in exchange for stock acquisition rights. Year ended March 31, 2011 Net assets per share (yen) Net income (loss) per share...

  • Page 68
    ...capital increase. Supplementary Schedule [Corporate Bonds Issued] Outstanding balance as of March 31, 2010 (Millions of yen) Outstanding balance as of March 31, 2011 (Millions of yen) Company Bond type Issuance date Coupon (%) Security Maturity date SQUARE ENIX HOLDINGS CO., LTD. SQUARE ENIX...

  • Page 69
    ...of the fiscal year in review (ended March 31, 2011) amounted to less than one percent of total liabilities and net assets as at the year-end date and have therefore been omitted, as provided in Article 92-2 of Regulations for Consolidated Financial Statements. [Other] Quarterly Financial Information...

  • Page 70
    ... Holding of shares in and business management of Square Enix Group companies located in North America Digital entertainment, publication, merchandising in North America Development of games Development of games Established Fiscal Year-End Common Stock Percent of Voting Rights Principal Lines...

  • Page 71
    ... of the Tokyo Stock Exchange Securities code: 9684 Trading unit: 100 shares â- â- Note: Japan Trustee Services Bank, Ltd. (Trust Account) includes 3,666 shares held in the name of Japan Trustee Services Bank, Ltd. (Trust Account 1-9). â- â- Share Ownership (Thousands of shares) (%) 100 80...

  • Page 72
    SQUARE ENIX HOLDINGS CO., LTD.