Square Enix 2012 Annual Report Download

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2012

Table of contents

  • Page 1
    2 012

  • 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 as well as SQUARE ENIX...

  • Page 3
    ... using the currency exchange rates at March 31, 2012 of ¥82.19=US$1. 2. Total equity = Common stock + Capital surplus + Retained earnings + Treasury stock + Accumulated other comprehensive loss Operating Income Margin/Recurring Income Margin (%) 25 20 15 10 5 0 2008 2009 2010 2011 2012 Return...

  • Page 4
    ... Director I am grateful to our shareholders for the opportunity to present the Company's annual report for the fiscal year ended March 31, 2012. On a consolidated basis, net sales for the fiscal year ended March 31, 2012 totaled ¥127,896 million (an increase of 2.1% from the prior fiscal year...

  • Page 5
    ... assets from the last fiscal year. The Digital Entertainment segment increased in profits, but the structure of the business has changed more than the numbers. I will elaborate on this point later. Sales in the Amusement segment are flat but generated more profits. The arcade business is getting out...

  • Page 6
    .... By the fiscal year ending March 31, 2013, these MMO games will provide more revenues and in the fiscal year ending March 31, 2014, further contribute to our profit. SN games refer to those with designs that allow customers to Figure 3 Asia Japan MMO Game Market Size Europe North America Source...

  • Page 7
    ... in 2012. In addition, we intend to advance aggressively into Central and South America, Asia, and Eastern Europe markets. HD games is a coined phrase that mainly refers to console games. This fiscal year we released "DEUS EX: HUMAN REVOLUTION" and "FINAL FANTASY XIII-2" in Japan, North America, and...

  • Page 8
    ... of our development environment as a global task. Game engines are of significant relevance. We use both third-party and internally developed engines. We are in the midst of developing the "Luminous Studio" engine, with an eye toward next-generation capabilities. We presented the demo for the first...

  • Page 9
    ...of "search engine" this century where a "winner-takes-all" situation was created. Interestingly, the content businesses that survived during this time were those with vertical integration models such as games and Japanese mobile phone services. However, as Apple emerged, we saw change for the second...

  • Page 10
    ... Square Enix Group (the "Group") is continuing determined efforts to strengthen the competitiveness and profitability of its business segments of Digital Entertainment, Amusement, Publication and Merchandising. Net sales for the fiscal year ended March 31, 2012 totaled ¥127,896 million (an increase...

  • Page 11
    ... and mobile phones (including smartphones). During the fiscal year ended March 31, 2012, the Group released major titles on consumer game consoles ("FINAL FANTASY XIII-2" [Japan, North America, Europe]; "DEUS EX: HUMAN REVOLUTION" [North America, Europe, Japan]), which favorably grew sales of...

  • Page 12
    ... of arcade game machines and related products for amusement facilities. During the fiscal year ended March 31, 2012, due to the softening market conditions, amusement facilities operations stagnated on sales during the second half of the fiscal year. However, the Group showed steady increase on...

  • Page 13
    ... (an increase of 9.1% over the prior fiscal year), respectively. ©2012 SQUARE ENIX CO., LTD. All Rights Reserved. ©Hiromu Arakawa ©Yana Toboso ©Cocoa Fujiwara ©2011 SQUARE ENIX CO., LTD. All Rights Reserved. CHARACTER DESIGN: TETSUYA NOMURA ©1986-2011 ARMOR PROJECT/BIRD STUDIO/SQUARE ENIX All...

  • Page 14
    ... by SQUARE ENIX MUSIC GANGAN! 2 ©TAITO CORPORATION 2009,2011 ALL RIGHTS RESERVED. Agni's Philosophy - FINAL FANTASY REALTIME TECH DEMO ©2012 SQUARE ENIX CO., LTD. All Rights Reserved. TOMB RAIDER ©SQUARE ENIX LTD. Published by Square Enix Co., Ltd. FINAL FANTASY XIV ©2010-2012 SQUARE ENIX CO...

  • Page 15
    ... IO INTERACTIVE A/S. Published by Square Enix Co., Ltd. SLEEPING DOGS ©2012 Square Enix Ltd. Published by Square Enix Co., Ltd. DRAGON QUEST X Mezameshi Itsutsu No Shuzoku Online ©2012 ARMOR PROJECT/BIRD STUDIO/SQUARE ENIX All Rights Reserved. Pop Tower for GREE ©TAITO CORP.2011 ©PopCap Games...

  • Page 16
    ...reports to the Board of Directors. This system is designed to ensure management objectivity and transparency. In principle, the Board of Auditors convenes monthly, and conducts accounting and operational audits based on the audit plan. The corporate auditors attend meetings of the Board of Directors...

  • 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
    ...(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 presented on the...

  • Page 19
    ... 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 investment purposes...

  • Page 20
    ... audit firm retained by the Company is also affiliated with the international auditing network of the Ernst & Young Group. Fiscal year ended March 31, 2012 The Company's consolidated subsidiaries SQUARE ENIX OF EUROPE HOLDINGS LTD. and SQUARE ENIX OF AMERICA HOLDINGS, INC. paid compensation to the...

  • Page 21
    ... Managing Officer Honorary Chairman Standing Auditor *2 Ryoichi Kobayashi Auditor *2 Norikazu Yahagi Auditor *2 Ryuji Matsuda Auditor Nobuhiro Saito Hirokazu Nishikado Yasuhiro Fukushima Yoichi Haraguchi Akihide Miyawaki *1: External Director specified in Article 2, Item 15, of the Companies...

  • Page 22
    ...) SQUARE ENIX HOLDINGS CO., LTD. assumes full responsibility for the accompanying consolidated financial statements prepared in conformity with accounting principles generally accepted in Japan, which are the English translation of the consolidated financial statements submitted to the Director of...

  • Page 23
    ... 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 value of these shares as of the end of the fiscal year declines by 50% or more of their acquisition...

  • Page 24
    ...new game title releases. In the fiscal year ended March 31, 2012, notes and accounts receivable increased by ¥2,957 million to ¥18,431 million, mainly due to the March release of "KINGDOM HEARTS 3D" in Japan. Content Production Account March 31 2012 ¥25,047 2011 ¥19,890 Millions of yen Change...

  • Page 25
    ...,121 million, a decrease of ¥202 million from the prior fiscal year, mainly due to software amortization costs. Investments and Other Assets March 31 2012 ¥14,514 2011 ¥14,382 Millions of yen Change ¥132 Total investments and other assets increased by ¥132 million, to ¥14,514 million as of...

  • Page 26
    ... prior fiscal year, primarily as a result of depreciation and amortization in the Amusement business declining from ¥3,987 million to ¥3,363 million. Change ¥ (327) (15,265) Total extraordinary gain was ¥305 million, mainly due to profits from the sale of subsidiaries' and affiliates' stocks...

  • Page 27
    ... diverse business model tailored to user needs. Amid such large structural shifts in the digital entertainment industry, the Group will strive to respond to these changes, and has adopted a medium- to long-term management strategy that focuses on pioneering a new era in digital entertainment. The...

  • Page 28
    ... for home-use video game consoles, smartphones and everyday digital devices, which would impact the way the Group supplies content, its business model and profitability. (4) Securing Human Resources to Execute the Group's Growth Strategies Concentrating on the Creation of New Content and the...

  • Page 29
    ... establishment of new amusement facilities. However, if regulations were to change owing to the establishment of new laws or other reasons, the Group's business performance may be affected. (8) Management of Personal Information With regard to the management of personal information, in conjunction...

  • Page 30
    ... (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries As of March 31 Millions of yen 2012 Assets Current assets Cash and deposits Notes and accounts receivable Merchandise and finished goods Work in progress Raw materials and supplies Content production account Deferred tax...

  • Page 31
    ... Provision for sales returns Provision for game arcade closings Asset retirement obligations Other Total current liabilities Non-current liabilities Corporate bonds Provision for employees' retirement benefits Provision for directors' retirement benefits Provision for game arcade closings Deferred...

  • Page 32
    ...of Income (Loss) (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2012 Net sales Cost of sales Gross profit Reversal of provision for sales returns Provision for sales returns Net gross profit Selling, general and administrative expenses...

  • Page 33
    ...Income (Loss) (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2012 Income (loss) before ...loss) (Breakdown) Comprehensive income (loss) attributable to owners of the Company Comprehensive income (loss) attributable to minority interests The...

  • Page 34
    ... Statements of Changes in Net Assets (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2012 Shareholders' equity Common stock Balance at the beginning of the year Changes during the year Total changes of items during the year Balance at...

  • Page 35
    ... assets Balance at the beginning of the year Changes during the year 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 items other than shareholders' equity Total...

  • Page 36
    ...provision for sales returns Increase (decrease) in provision for employees' retirement benefits Increase (decrease) in provision for directors' retirement benefits Increase (decrease) in provision for game arcade closings Interest and dividends income Interest expenses paid Foreign exchange losses...

  • Page 37
    ... stock Cash dividends paid Other, net Net cash provided by (used in) financing activities Effect of exchange rate change on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Decrease in cash and cash equivalents...

  • Page 38
    ...ENIX OF AMERICA HOLDINGS, INC. SQUARE ENIX OF EUROPE HOLDINGS LTD. SQUARE ENIX CO., LTD. TAITO CORPORATION SMILE-LAB Co., Ltd. SQUARE ENIX, INC. SQUARE ENIX LTD. SQUARE ENIX (China) CO., LTD. CRYSTAL DYNAMICS INC. EIDOS INTERACTIVE CORP. IO INTERACTIVE A/S During the fiscal year ended March 31, 2012...

  • Page 39
    ... benefits At the Company and certain consolidated subsidiaries, a provision for employees' and directors' retirement benefits is provided at the amount incurred during the fiscal year based on the estimated present value of the projected benefit obligation and pension plan assets. Unrecognized...

  • Page 40
    ... "Cash flows from financing activities" in the fiscal year ended March 31, 2011, has been included within "Increase (decrease) in short-term loans payable" for the fiscal year ended March 31, 2012. Changes in Accounting Estimates (Change in Estimate for Asset Retirement Obligations) The Company and...

  • Page 41
    ... of property and equipment ¥ 1 23 6 ¥30 Fiscal year ended March 31, 2011 ¥- 1 - ¥ 1 Millions of yen Fiscal year ended March 31, 2012 Buildings and structures Tools and fixtures Amusement equipment Software Other Total ¥ 41 16 292 1 0 ¥352 Fiscal year ended March 31, 2011 ¥ 49 297 257...

  • Page 42
    ...Shibuya-ku, Tokyo United Kingdom Total Assets planned for disposal related to Telephone subscription rights Amusement equipment home-use online karaoke business (discontinued business) Tools and fixtures Buildings Tools and fixtures Software Amusement equipment production and sale Long-term prepaid...

  • Page 43
    ... 31, 2011 the year the year 2012 Balance as of March 31, 2012 (Millions of yen) Category Supplying company (parent company) Issuance of euro yen zero-coupon convertible bonds due 2015, pursuant to a resolution of the Board of Directors on January 18, 2010 Stock acquisition rights as stock options...

  • Page 44
    ...Dividends per share (Yen) Record date Effective date May 18, 2012 (Board of Directors' Meeting) Common stock Â¥2,301 Retained earnings Â¥20 March 31, 2012 June 5, 2012 â- Year ended March 31, 2011 of shares of treasury stock Thousands of shares Shares as of April 1, 2010 Share Share Shares...

  • Page 45
    ... 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 May 18, 2011 (Board of Directors' Meeting) Common stock ¥2,301 Retained earnings ¥20 March 31, 2011 June 23, 2011 Notes to...

  • Page 46
    ... is a refund of corporate taxes that is recouped in a short period of time. Investment securities mainly comprise stock market listed shares, and, hence, exposed to market price fluctuation risk. However, fair values are monitored and regularly reported to the Board of Directors. Guarantee deposits...

  • Page 47
    ... instruments includes amounts based on market prices as well as those calculated using an appropriate formula when there is no applicable market price. Since variable factors are included in the calculation of such fair values, the adoption of different assumptions may lead to changes in these fair...

  • Page 48
    ...-term basis, book value is used on the assumption that fair 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...

  • Page 49
    .... In the fiscal year ended March 31, 2011, other investment securities (shares) were subject to impairment amounting to ¥175 million. With regard to the impairment of shares, shares whose fair value has fallen to below 50% of the acquisition price are fully impaired, and shares whose fair value has...

  • Page 50
    ... service cost ¥1,397 562 151 (75) 759 - Fiscal year ended March 31, 2011 ¥1,249 542 152 (82) 720 (81) Note: In addition to the retirement benefit expenses shown above, the Company recorded severance payments related to business restructuring for the years ended March 31, 2012 and 2011 amounting...

  • Page 51
    ...stock options 2009 stock options 2010 stock options 2010 stock options 2010 stock options 2011 stock options 2011 stock options Category of grantees Number of grantees Number of stock options Date granted Conditions for vesting of interests Service period Company employees, and directors and Company...

  • Page 52
    ... Price information Yen 2007 stock options Exercise price Average share price at exercise Fair market value on grant date 2007 stock options 2008 stock options 2009 stock options 2009 stock options 2010 stock options 2010 stock options 2010 stock options 2011 stock options 2011 stock options ¥3,706...

  • Page 53
    ... tax payable Business office tax payable Provision for bonuses Accrued expenses Provision for sales returns Non-deductible portion of allowance for doubtful accounts Tax credits Loss on write-offs of content production account Loss on inventory revaluation Provision for game arcade closings Loss...

  • Page 54
    ... to structural changes in the economy of Japan" (Law No. 114 of 2011) and the "Law on special measures related to securing financial resources necessary to execute programs for recovery from the Great East Japan Earthquake" (Law No. 117 of 2011) on December 2, 2011, a reduction in the corporate tax...

  • Page 55
    ... as the sale and rental of arcade game machines; (3) the "Publication" segment, for publication of comic books, game strategy books and comic magazines; and (4) the "Merchandising" segment, for planning, production, distribution and licensing of derivative products. These are the Company's reporting...

  • Page 56
    ... mobile phones; (2) the "Amusement" segment, for amusement facility operation as well as the sale and rental of arcade game machines; (3) the "Publication" segment, for publication of comic books, game strategy books and comic magazines; and (4) the "Merchandising" segment, for planning, production...

  • Page 57
    ... by country or region, based on customer location. (2) Property and equipment Millions of yen Japan ¥16,297 North America ¥529 Europe ¥326 Asia ¥29 Total ¥17,183 3. Information by major customer This information has been omitted because all sales to major customers account for less than...

  • Page 58
    ... by country or region, based on customer location. (2) Property and equipment Millions of yen Japan ¥16,655 North America ¥394 Europe ¥258 Asia ¥20 Total ¥17,328 3. Information by major customer This information has been omitted because all sales to major customers account for less than...

  • Page 59
    ... due 2015, pursuant Company's earnings per share the Board of Directors on January 18, 2010; issuance of to a resolution of the Board of Directors on January 18, stock acquisition rights in August 2010 pursuant to a reso- 2010; issuance of August 2010 stock acquisition rights lution by the Board of...

  • Page 60
    ...Company Bond type Issuance date Coupon (%) Security Maturity date SQUARE ENIX HOLDINGS CO., LTD. Total euro yen zero coupon convertible bonds due 2015* 1, 2 February 4, 2010 (UK time) ¥35,000 ¥35,000 - None February 4, 2015 (UK time) ¥35,000 ¥35,000 Notes: 1. Information relating...

  • Page 61
    ... Financial Information Millions of yen Cumulative period 1Q April 1, 2011 to June 30, 2011 2Q April 1, 2011 to September 30, 2011 3Q April 1, 2011 to December 31, 2011 4Q April 1, 2011 to March 31, 2012 Net sales Income before income taxes and minority interests Net income Net income per share (yen...

  • Page 62
    ...(100.0%) 100.0% (100.0%) 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 Percentage of Voting...

  • Page 63
    ... Investment in SQUARE ENIX (Thousands of Shares) (%) Record dates for dividends from retained earnings: September 30 (Record date for interim dividend) March 31 (Record date for year-end dividend) â- 1 Yasuhiro Fukushima 2 Fukushima Planning Co., Ltd. 3 Sony Computer Entertainment Inc. 4 Masashi...

  • Page 64
    SQUARE ENIX HOLDINGS CO., LTD.