Square Enix 2013 Annual Report Download

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2013

Table of contents

  • Page 1
    2 013

  • Page 2
    ...stand. Each of our customers has his or her own definition of happiness. The Square Enix Group provides high-quality content, services, and products to help those customers create their own wonderful, unforgettable experiences, thereby allowing them to discover a happiness all their own. Management...

  • Page 3
    Financial Highlights SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of Yen 2009 For the Year Net sales Operating income (loss) Recurring income (loss) Net income (loss) At Year-end Total assets Total net assets ¥ 213,194 148,724 ¥ 270,529 154,258 ¥ 206...

  • Page 4
    ... Held) President and Representative Director, SQUARE ENIX CO., LTD. Director, SQUARE ENIX OF EUROPE HOLDINGS LTD. (the Group's intermediate holding company in Europe) President and Director, SQUARE ENIX OF AMERICA HOLDINGS, INC. (the Group's intermediate holding company in North America) 02

  • Page 5
    ... Annual Shareholders' Meeting and the Board of Directors' Meeting held on June 25, 2013. I will draw on my previous experience and do my utmost to guide the Group under the new management structure toward significant business growth. I look forward to your continued support. The fiscal year ended...

  • Page 6
    ... review, primarily in Europe and North America. These titles- "SLEEPING DOGS," "Hitman: Absolution," and "TOMB RAIDER"-failed to reach their respective targets, and resulted in financially unsatisfactory consequences, whereas the HD business in Japan remained strong The Merchandising segment showed...

  • Page 7
    ... faces the structural issues of an inflexible earnings model and long-term, large-scale development resulting in a low rate of investment turnover. These two factors are closely interconnected. This business model is also having a critical impact on game development. Under the model of selling...

  • Page 8
    ... devise various earnings models conforming to customers' game-playing environments, moving away from the limited outlet of disc-based distribution of games. In this current of change, it is extremely important for the HD games category to enable transition from a disc-based earnings model to a more...

  • Page 9
    ...March 31, 2014 is to build a firm business structure as quickly as possible to address changes in the earnings model while providing customers with excellent game experiences that make us stand out from the others. Our poor performance in the fiscal year under review undoubtedly caused shareholders...

  • Page 10
    ... Director Philip Timo Rogers Director Keiji Honda Director Yukinobu Chida Director *1 Audit & Supervisory Board Members Ryoichi Kobayashi (Standing*2) Ryuji Matsuda *2 Masaji Tomiyama *2 Honorary Chairman Yasuhiro Fukushima *1 Outside Director specified in Article 2, Item 15, of the Companies...

  • Page 11
    ... change. As a board member I am absolutely determined to help lead the Square Enix Group through its next phase and I am sincerely grateful to you as shareholders for your support. [Brief Personal History] Jan. 2008 Nov. 2009 May 2013 Jun. 2013 Director and CEO, EIDOS PLC Director and CEO, SQUARE...

  • Page 12
    ...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, 2013 totaled ¥147,981 million (an increase...

  • Page 13
    ... in North America and Europe. Regarding content on platforms such as browsers and smartphones, "SENGOKU IXA," a browser game, and "FINAL FANTASY BRIGADE," a Mobagebased social game, are continuously contributing to the profit of this segment. "Kaku-San-Sei Million Arthur," a social game released in...

  • Page 14
    Amusement Share of Net Sales (FY ended March 2013) 29.9% The Amusement segment consists of the operation of amusement facilities and the planning, development and distribution of arcade game machines and related products for amusement facilities. During the fiscal year ended March 31, 2013, ...

  • Page 15
    .... During the fiscal year ended March 31, 2013, the Group continued to distribute and license items such as character goods and soundtracks based on the Group's own IPs while diversifying new opportunities for profit by strengthening its character goods lineup with additional products based on third...

  • Page 16
    ... Crystal Dynamics, where he worked to oversee the "TOMB RAIDER" franchise, prior to that Darrell worked for both Sony Europe and Rockstar Games for 10 years. In 2013 he became Head of Product Development and Studios for Square Enix Group's studios in North America and Europe. larger than the moment...

  • Page 17
    ... I want Square Enix games to recover the customers' trust, so that customers can buy our games with confidence. We are creating games to earn profits, a part of which has to be returned to the customers in the form of "enjoyment." That cycle is an integral part of our business. I believe that people...

  • Page 18
    ...2010-the year said to have marked the dawn of the e-book era in the domestic market-the shift toward digitization and subsequent evolution of Web-based media in the publication industry has unfolded at incredible speed. Against this backdrop, our publication business has grown along with development...

  • Page 19
    ...series. With this goal in mind, I would appreciate your continuous support. Going forward, as a creator I would like to develop new IPs for seniors. I will create games that would thoroughly satisfy myself as I get older. Also, as a leader, I want to establish a strong production studio with an open...

  • Page 20
    ... masses; rather, they are articles of taste. I want to create "authentic games" that would "fanaticize" people, and "change" or even "trouble" their lives. Those are the kind of products ts I want to produce produce. Takamasa Shiba General Manager of Producer Management Division II In addition to...

  • Page 21
    ... producing games such as "BATMAN ARKHAM ASYLUM," "JUST CAUSE" and "SLEEPING DOGS." Lee has recently set up the new Square Enix studio in Montreal, which will become a centre of excellence for tablet development and now heads up all production in London to deliver exciting new content for the Group...

  • Page 22
    ...accounting and operational audits based on the audit plan. The audit & supervisory board members attend meetings of the Board of Directors to audit the execution of duties of the directors. The Board of Directors has passed a resolution establishing the Company's Basic Policy on Building an Internal...

  • Page 23
    ... does not have experience in corporate management excluding duties as outside director or audit & supervisory board member (external) at several companies. However, he holds a qualification as a CPA and therefore has extensive expertise in finance and accounting-related matters. Based on this...

  • Page 24
    ... board members from the corporate management of the Company. Audit & supervisory board members' remuneration is also reviewed every year. The amount of remuneration and the distribution among the audit Total Number of remuneration individuals (Millions of yen ) Directors Outside director...

  • Page 25
    ... presented on balance sheets for the fiscal years ended March 31, 2012 and March 31, 2013; and total dividends received, total gain on sale of shares and total loss on revaluation of shares for the fiscal year ended March 31, 2013 for investments in shares for purely investment purposes: Millions...

  • Page 26
    ... 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 Ernst & Young Group amounting to ¥82 million for...

  • Page 27
    ... of English-language financial statements. (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 scale of the Company's business operations, the number of days required...

  • Page 28
    ...38 40 42 Management Discussion and Analysis of Operating Results and Financial Position (JPNGAAP) Consolidated Balance Sheet (JPNGAAP) ... the English translation of the Japanese original, which was reconstructed by the Company at its sole discretion from those in the Annual Security Report ( ...

  • Page 29
    ... 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 in privately held companies for which share prices are...

  • Page 30
    ... releases. In the fiscal year ended March 31, 2013, notes and accounts receivable increased by ¥11,795 million to ¥30,226 million, mainly due to the March release of "Tomb Raider" in Europe and North America. Content Production Account March 31 2013 ¥15,805 2012 ¥25,047 Millions of yen Change...

  • Page 31
    ...per share) for the fiscal year under review. Current Liabilities March 31 2013 ¥37,414 2012 ¥33,778 Millions of yen Change ¥3,636 Total current liabilities increased by ¥3,636 million, to ¥37,414 million as of March 31, 2013. This was mainly due to an increase in provision for sales returns...

  • Page 32
    ... reversal of subscription rights to shares. Total extraordinary loss was ¥11,210 million, mainly due to a change in development policy, a structural review and a change in some business models, given changes in the game business environment, and the booking of ¥4,834 million in loss on evaluation...

  • Page 33
    ... of entertainment content and services that meet user needs, while recruiting and training a workforce that can achieve such goals. The Group's operating forecast for the fiscal year ending March 31, 2014, is as follows (as of June 30, 2013). Millions of yen Years ended/ ending March 31 Net sales...

  • Page 34
    ... the return of profits to shareholders one of its most important management tasks. The Group prioritizes investments that will enhance the value of the Group and toward this end maintains internal reserves to finance efforts that include expanding existing businesses, developing new businesses and...

  • Page 35
    ... management of customer inquiries. The Group intends to maintain its stringent management systems for personal information by reviewing current systems and enhancing employee training. However, if a leak of personal information were to occur from the Group, the Group's business performance...

  • Page 36
    ... Balance Sheet (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries As of March 31 Millions of yen 2013 Assets Current assets Cash and deposits Notes and accounts receivable Merchandise and finished goods Work in progress Raw materials and supplies Content production account...

  • Page 37
    ... 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 38
    Consolidated Statement of Operations (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2013 Net sales Cost of sales Gross profit Reversal of provision for sales returns Provision for sales returns Net gross profit Selling, general and ...

  • Page 39
    ...of Comprehensive Income (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2013 Income (loss) before minority interests Other comprehensive income (loss) Unrealized gain (loss) on revaluation of available-for-sale securities Foreign currency...

  • Page 40
    ... (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2013 Shareholders' equity Common stock Balance at the beginning of the year Changes during the year Total changes during the year Balance at the end of the year Capital surplus Balance at...

  • Page 41
    ... year Changes during the year Net changes in items other than shareholders' equity Total changes during the year Balance at the end of the year Total net assets Balance at the beginning of the year Changes during the year Dividends from retained earnings Net income (loss) Purchase of treasury stock...

  • Page 42
    ...decrease) in provision for directors' retirement benefits Increase (decrease) in provision for game arcade closing Interest and dividends income Interest expenses paid Foreign exchange losses (gains) Loss (gain) on sales of investment securities Loss (gain) on sales of stocks of subsidiaries and af...

  • Page 43
    ... Other, net Net cash used in investing activities Cash ï¬,ows from financing activities Net increase (decrease) in short-term loans payable Purchase of treasury stock Cash dividends paid Other, net Net cash provided by (used in) financing activities Effect of exchange rate change on cash and cash...

  • Page 44
    ... sheet values). Content production account: Stated at cost, determined by the identified cost method (book-entry devaluation method based on the decrease in profitability is used with respect to balance sheet values). Raw materials, unfinished goods: Stated at cost, determined by the moving...

  • Page 45
    ... to employees of the Company and certain consolidated subsidiaries at the amount expected to be paid in respect of the calculation period ended on the balance sheet date. C) Provision for sales returns At certain consolidated subsidiaries prior to the fiscal year ended March 31, 2013, provisions...

  • Page 46
    ...Act of Japan, changed their depreciation method for property, plant and equipment acquired on or after April 1, 2012, based on the revised Corporation Tax Act, effective the fiscal year under review. (2) Effective dates The Company will apply the revised accounting standard and related guidance to...

  • Page 47
    ... and development expenses Fiscal year ended March 31, 2012 ¥4,797 Millions of yen Fiscal year ended March 31, 2013 ¥1,808 *3 Breakdown of gain on sale of property and equipment Fiscal year ended March 31, 2012 ¥1,273 Millions of yen Fiscal year ended March 31, 2013 Buildings and structures...

  • Page 48
    ... regard to idle assets presented in the table above, market value had fallen substantially below book value and the future use of these assets was deemed In the Amusement business segment, each division, including captive outlets, rented outlets and equipment production and sales, is classified as...

  • Page 49
    ... in the Digital Entertainment Segment that reflect a careful review of marketability following revisions to development policy prompted by changes in the game industry environment. - Fiscal year ended March 31, 2012 Fiscal year ended March 31, 2012 This loss is related to equipment in the Amusement...

  • Page 50
    ... 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 17, 2013 (Board of Directors' Meeting) â- Common stock Â¥2,301 Retained earnings Â¥20 March 31, 2013 June 4, 2013 Year ended...

  • Page 51
    ... of April 1, 2011 Increase during the year Decrease during the year As of March 31, 2012 Balance as of March 31, 2012 (Millions of yen) Supplying company (parent company) Issuance of euro yen zero-coupon convertible bonds due 2015, pursuant to a resolution of the Common stock Board of Directors on...

  • Page 52
    ... March 31, 2013 Acquisition cost Buildings and structures Tools and fixtures Total ¥ 62 103 ¥165 Accumulated depreciation ¥ 53 92 ¥146 Net book value ¥ 8 10 ¥19 Acquisition cost ¥114 210 ¥325 As of March 31, 2012 Accumulated depreciation ¥ 83 168 ¥252 Millions of yen Net book value ¥30...

  • Page 53
    ... contact. In addition, the accounting division checks with each of these divisions on the situation at the end of each fiscal year. 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...

  • Page 54
    ...-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 55
    ... of their lack of market prices and the extreme difficulty in estimating fair value based 3. Planned redemption amounts subsequent to the consolidated balance sheet date for monetary claims Millions of yen As of March 31, 2013 Within one year Deposits Notes and accounts receivable Income taxes...

  • Page 56
    ...Securities with acquisition cost exceeding book value Total 4. Securities sold during the year 110 ¥444 126 ¥355 ¥ (15) 89 106 ¥549 111 ¥355 (5) ¥193 Millions of yen Fiscal year ended March 31, 2013 Item (1) Stocks (2) Bonds a. Government bonds and municipal bonds b. Corporate bonds...

  • Page 57
    ... retirement benefit expenses shown above, the Company recorded severance payments related to business restructuring for the years ended March 31, 2013 and 2012 amounting to ¥901 million and ¥11 million, respectively. 4. Assumptions used in accounting for the above plans: (1) Periodic allocation...

  • Page 58
    ... Company directors 2009 stock options Company directors 2009 stock options Company employees 2010 stock options Company directors 2010 stock options Company employees 2010 stock options Company employees Fiscal year ended March 31, 2012 ¥46 ¥445 2011 stock options Company directors 2011 stock...

  • Page 59
    ... 2) 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 2012...

  • Page 60
    ... 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 61
    ... are based on an estimated useful life of 10 years-the average operating period for arcades that have been closed-and a discount rate between 0.645% and 1.355%. c) Changes to aggregate asset retirement obligations Millions of yen Fiscal year ended March 31, 2013 Beginning balance Increase due...

  • Page 62
    ... game consoles (including handheld game machines), personal computers and mobile phones (including smartphones); (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...

  • Page 63
    ... to that of segment information and has therefore been omitted. 2. Information by geographical area (1) Sales Millions of yen Japan ¥109,524 North America ¥14,936 Europe ¥21,588 Asia ¥1,931 Total ¥147,981 Note: Sales are grouped by country or region, based on customer location. 61

  • Page 64
    ...are grouped 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...

  • Page 65
    ...Fiscal year ended March 31, 2012 ¥ 6,060 - 6,060 115,070 - - (-) - 240 (240) Issuance of January 2010 stock acquisition rights, pursuant to Fourth issuance of stock acquisition rights pursuant to a resoa resolution of the Board of Directors on December 25, 2009; lution by the Board of Directors...

  • Page 66
    ...Corporate Bonds Issued] Outstanding balance as of March 31, 2012 (Millions of yen) Outstanding balance as of March 31, 2013 (Millions of yen) Company Bond type Issuance date Coupon (%) Security Maturity date SQUARE ENIX HOLDINGS CO., LTD. Total euro yen zero coupon convertible bonds due 2015...

  • Page 67
    ...Article 92-2 of Regulations for Consolidated Financial Statements. [Other] Quarterly Financial Information Millions of yen Cumulative period 1Q April 1, 2012 to June 30, 2012 2Q July 1, 2012 to September 30, 2012 3Q October 1, 2012 to December 31, 2012 4Q January 1, 2013 to March 31, 2013 Net sales...

  • Page 68
    ... million 100.0% 100.0% (100.0%) 100.0% (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...

  • Page 69
    ... 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 â- â- â- â- Share Ownership (Thousands of shares) (%) 100 80 60 40 20 0 2009 2010 2011 2012 2013 Public...

  • Page 70
    SQUARE ENIX HOLDINGS CO., LTD. www.hd.square-enix.com/