Square Enix 2014 Annual Report Download

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2014

Table of contents

  • Page 1
    2 014

  • Page 2
    ...Review of Operations 16 Creator's Voice 22 Corporate Governance 28 Financial Section 70 Corporate Data 71 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...

  • Page 3
    ... at March 31, 2014 of ¥102.92=US$1. Operating Income Margin/Recurring Income Margin (%) 20 15 10 5 0 -5 2010 2011 2012 2013 2014 Return on Equity (%) 10 5 0 -5 -10 -15 2010 2011 2012 2013 2014 Operating Income Margin Recurring Income Margin 01 ©2014 SQUARE ENIX CO., LTD. All Rights Reserved.

  • Page 4
    ...'s Message Yosuke Matsuda President and Representative Director Oct. 2001 Senior Vice President, SQUARE CO., LTD. (currently SQUARE ENIX HOLDINGS CO., LTD.) Apr. 2003 Senior Vice President and General Manager, Accounting and Finance Division Jun. 2004 Director, Accounting and Finance Mar. 2013...

  • Page 5
    ... on. For the fiscal year ended March 2014, we actively reformed our development policy and organization system, focusing on our European and North American studios, and simultaneously worked on earnings recovery through our existing lineup. Sales of console game titles, including "FINAL FANTASY...

  • Page 6
    ...our Group's core business. Since I was appointed to the position of President last year, I have been running the Group with emphasis on three major strategic issues: 1) revisiting long-term, large-scale development, 2) focusing on smart devices as game "SENGOKU IXA" ©2010-2014 SQUARE ENIX CO., LTD...

  • Page 7
    ...scale Development HD (high definition) games are the Square Enix Group's DNA and a showcase for our creativity. HD game development will continue to be an integral part of our businesses. However, as I mentioned in last year's annual report, there are serious structural flaws in the disc sales model...

  • Page 8
    ...game development and services for smart devices during the fiscal year ended March 2014. Our efforts have been producing noticeable results such as big hits of "DRAGON QUEST MONSTERS SUPER LIGHT" and "SCHOOLGIRL STRIKERS" since the big hits in Europe and North America. "SCHOOLGIRL STRIKERS" ©2014...

  • Page 9
    ... a foothold of entry into those fast-growing markets through the fiscal year ending March 2015. "Kaku-San-Sei Million Arthur" ©2012-2014 SQUARE ENIX CO., LTD. All Rights Reserved. "Sangokushi Ranbu" ©2013, 2014 SQUARE ENIX CO., LTD. ALL Rights Reserved. "LINE Puzzle Bobble" ©TAITO CORP. 1994...

  • Page 10
    ... been developing games for the global market. However, each region holds different cultures and lifestyles, and our customers in those regions have different tastes in games and playing styles. In addition, the gaming environment has become diversified; various options are offered from conventional...

  • Page 11
    ...of yen) 30 20 10 0 -10 3/2004 3/2005 3/2006 3/2007 3/2008 3/2009 3/2010 3/2011 3/2012 3/2013 3/2014 3/2015 (Forecast) best, and work on delivering their perfect "fun," we will provide customers with the ultimate content. That is what our Group's content development strategy should be, and it is...

  • Page 12
    ... Yukinobu Chida Director *1 Yukihiro Yamamura Director *1 Yuji Nishiura 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 Act *2 External...

  • Page 13
    ... corporations. Based on this experience, I consider it my duty to introduce new perspectives to the management of the Square Enix Group. I would be grateful if I could make a contribution to the Square Enix Group's efforts to "create the future" in any way. Brief Personal History April 1993 Director...

  • Page 14
    ... The 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, 2014 totaled ¥155,023 million (an...

  • Page 15
    ... Digital entertainment content is offered to meet customer lifestyles across a variety of usage environments such as consumer game consoles (including handheld game machines), personal computers and smart devices. During the fiscal year ended March 31, 2014, the sales of game console software titles...

  • Page 16
    Amusement Share of Net Sales (FY ended March 2014) 30.2% 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, 2014, ...

  • Page 17
    ... Share of Net Sales (FY ended March 2014) 2.4% ©SQUARE ENIX CO., LTD. All Rights Reserved. CHARACTER DESIGN: TETSUYA NOMURA The Merchandising segment includes the planning, production, distribution and licensing of derivative products of titles owned by the Group. During the fiscal year...

  • Page 18
    ... is currently serving as Art Director of the smartphone version of "FINAL FANTASY AGITO." ©2012-2014 ARMOR PROJECT/BIRD STUDIO/SQUARE ENIX All Rights Reserved. I actually majored in Japanese-style painting in college-entering the gaming world was a big leap from a world focused on mineral pigments...

  • Page 19
    ... for more, every year. ©2012 IO INTERACTIVE A/S. ALL RIGHTS RESERVED. Hannes Seifert Studio Head of Io-Interactive Previously Production Director and Executive Producer of "Hitman: Absolution" at IOI. Before joining Square Enix in 2010, Hannes had already worked on 35 video games since 1987. As...

  • Page 20
    .... In order to satisfy a dual purpose, providing the readers with a feeling of happiness, and generating stable, low-risk profit for the long term, I would like to continue delivering "beautiful manga" to the world. ©Yana Toboso/SQUARE ENIX ©SQUARE ENIX CO., LTD. All Rights Reserved. ©2013, 2014...

  • Page 21
    ... "PUZZLE & DRAGONS BATTLE TOURNAMENT," which has been running since April 2014. ©2012, 2014 SQUARE ENIX CO., LTD. All Rights Reserved. ©2007-2013 SQUARE ENIX CO., LTD. All Rights Reserved. In this era where the forms of entertainment available in the world are increasing year after year, I feel...

  • Page 22
    ... has worked as Sound Director, Sound Designer, Composer, and so on for many titles including "DAWN of MANA," the arcade game series "LORD of VERMILION," and the "Drakengard" series. He currently serves as Sound Director for the latest MMO "FINAL FANTASY XIV: A REALM REBORN." ©2010-2014 SQUARE ENIX...

  • Page 23
    ... FANTASY IV" for Nintendo DS, and more. In recent years, Tomoya Asano has served as Producer of new RPG titles such as "FINAL FANTASY: THE 4 HEROES OF LIGHT" and "BRAVELY DEFAULT: FLYING FAIRY." ©2012 SQUARE ENIX CO., LTD. All Rights Reserved. MAIN CHARACTER DESIGN: Akihiko Yoshida. Dear valued...

  • Page 24
    ... submits reports to the Board of Directors. This system is designed to ensure management objectivity and transparency. In principle, the Audit & Supervisory Board convenes monthly, and conducts accounting and operational audits based on the audit plan. The audit & supervisory board members attend...

  • Page 25
    ... 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 expertise...

  • Page 26
    ... directors' and audit & supervisory board members' terms of office, at the time of their retirement. Based on this resolution, in addition to the compensation indicated above, ¥1 million of the retirement benefits was paid to one audit & supervisory board member who retired during the fiscal year...

  • Page 27
    ... the audit & supervisory board members within the scope of the total remuneration amount approved by a General Meeting 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...

  • Page 28
    ... of the Companies Act may be determined by the Board of Directors unless legally stipulated otherwise. The objective of this provision is to expand the range of options enabling flexible execution of capital policies. (11) Exemption from liability of directors and audit & supervisory board members...

  • Page 29
    ... & Young Group. Fiscal year ended March 31, 2014 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 ¥103 million for statutory audit operations and ¥6 million for non-audit...

  • Page 30
    ... Notes to Consolidated Financial Statements (JPNGAAP) The financial statements and notes thereto in this section are the English translation of the Japanese original, which was reconstructed by the Company at its sole discretion from those in the Annual Security Report ( yukashoken hokokusho ). 28

  • Page 31
    ... affected by the following accounting policies. (1) Revenue recognition 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 32
    ... fiscal year saw the release of a big title, "Tomb Raider," in Europe and North America. Content Production Account March 31 2014 ¥20,556 2013 ¥15,805 Millions of yen Change ¥4,751 As a rule, content development costs incurred during the period from a title's formal development authorization...

  • Page 33
    ...196 Total property and equipment totaled ¥19,917 million, down ¥252 million from the previous fiscal year, primarily due to a decrease in buildings and structures (net) from ¥6,256 million to ¥5,719 million. Intangible Assets March 31 2014 ¥10,835 2013 ¥10,940 Millions of yen Change ¥(105...

  • Page 34
    ... relocation of Company headquarters incurred in the previous fiscal year. Depreciation and amortization totaled ¥6,614 million, a decrease of ¥687 million from the previous fiscal year, primarily due to a decrease in depreciation and amortization in the Amusement business from ¥4,384 million in...

  • Page 35
    ... 30, 2014). Millions of yen Years ended/ ending March 31 Net sales Operating income (loss) Recurring income (loss) Net income (loss) 2004 actual 2005 actual 2006 actual 2007 actual 2008 actual 2009 actual 2010 actual 2011 actual 2012 actual 2013 actual 2014 actual 2015 forecast ¥63...

  • Page 36
    ... of the Companies Act, pay dividends from surplus upon resolution of the Board of Directors. The dividends from surplus for the fiscal year ended March 31, 2014 are as follows: Total dividends Dividends per share (Millions of yen) (Yen) 6. Risk Factors The Group identifies the items listed below as...

  • Page 37
    ..., for its directors and audit & supervisory board members and employees. However, in the event that a security incident, as described in (6) above, occurs, and personal information is leaked to third parties, the Group's business performance may be affected. (8) Exchange rate fluctuations The...

  • Page 38
    ...Sheet (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries As of March 31 Millions of yen 2014 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 39
    Millions of yen 2014 Liabilities Current liabilities Notes and accounts payable Short-term loans Current portion of bonds Accrued income taxes Provision for bonuses Provision for sales returns Provision for game arcade closings Deferred tax liabilities Asset retirement obligations Other Total ...

  • Page 40
    Consolidated Statement of Income (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2014 Net sales Cost of sales Gross profit Reversal of provision for sales returns Provision for sales returns Net gross profit Selling, general and ...

  • Page 41
    Consolidated Statement of Comprehensive Income (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2014 Income (loss) before minority interests Other comprehensive income (loss) Unrealized gain (loss) on revaluation of available-for-sale ...

  • Page 42
    Consolidated Statement of Changes in Net Assets (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 â- 2014 Shareholders' equity Common stock Capital surplus Retained earnings Treasury stock Millions of yen Total shareholders' equity Balance at the ...

  • Page 43
    ...defined benefit rights comprehensive other investment adjustments plans income (loss) securities Balance at the beginning of the year Changes during the year Dividends from retained earnings Net loss Purchase of treasury stock Disposal of treasury stock Net changes in items other than shareholders...

  • Page 44
    Consolidated Statement of Cash Flows (JPNGAAP) SQUARE ENIX HOLDINGS CO., LTD. and Consolidated Subsidiaries Years ended March 31 Millions of yen 2014 Cash ï¬,ows from operating activities Income (loss) before income taxes and minority interests Depreciation and amortization Impairment loss ...

  • Page 45
    ... Proceeds from collection of guarantee deposits Other, net Net cash used in investing activities Cash ï¬,ows from financing activities Proceeds from issuance of new stocks Purchase of treasury stock Cash dividends paid Other, net Net cash used in financing activities Effect of exchange rate change...

  • Page 46
    ...consolidated subsidiaries SQUARE 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 (2) Names...

  • Page 47
    ... cash equivalents in the consolidated statements of cash ï¬,ows comprises cash on hand, bank deposits which may be withdrawn on demand and short-term investments with an original maturity of three months or less and with minimal risk of ï¬,uctuations in value. (7) Additional accounting policies used...

  • Page 48
    ...Consequently, the Â¥0 million in "Loss (gain) on valuation of investment securities" recorded under "Cash ï¬,ows from operating activities" on the consolidated statement of cash ï¬,ows for the fiscal year ended March 31, 2013 has been incorporated into "Other, net." Accounting Standards Issued but...

  • Page 49
    ... and development expenses Fiscal year ended March 31, 2013 ¥7,141 Millions of yen Fiscal year ended March 31, 2014 ¥2,155 *3 Breakdown of gain on sale of property and equipment Fiscal year ended March 31, 2013 ¥1,808 Millions of yen Fiscal year ended March 31, 2014 Buildings and structures...

  • Page 50
    ... fiscal year ended March 31, 2014, the Group posted an impairment loss on the following groups of assets. Millions of yen Location Shinjuku-ku, Tokyo Shinjuku-ku, Tokyo Usage Idle assets Idle assets Assets planned for disposal Prize production and sale Idle assets Prize production and sale DARTS...

  • Page 51
    ...2014 Fiscal year ended March 31, 2013 These are losses related to content in the Digital Entertainment Segment that Same as right reflect a careful review of marketability following revisions to development policy prompted by changes in the game industry environment. Notes to Consolidated Statement...

  • Page 52
    ...during the year As of March 31, 2014 Balance as of March 31, 2014 (Millions of yen) 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 Total...

  • Page 53
    ... 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) Common stock ¥2,301 Retained earnings ¥20 March 31, 2013 June 4, 2013 Notes to Consolidated Statement of Cash Flows...

  • Page 54
    ... other offices, and for amusement arcades, the general affairs division and the sales division, respectively, confirm the creditworthiness of the lessors through regular contact. In addition, the accounting division checks with each of these divisions on the situation at the end of each fiscal year...

  • Page 55
    ..., 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 securities...

  • Page 56
    ...shares on such methods as estimated future cash flows. As of March 31, 2014 ¥45 As of March 31, 2013 ¥48 These items are not included in "(4) Investment securities" above owing to the recognition of their lack of market prices and the extreme difficulty in estimating fair value based 3 Planned...

  • Page 57
    ... 126 ¥355 (15) ¥ 89 Millions of yen Fiscal year ended March 31, 2014 Item (1) Stocks (2) Bonds a. Government bonds and municipal bonds b. Corporate bonds c. Other (3) Other Total Proceeds Aggregate gain on sale Aggregate loss on sale Fiscal year ended March 31, 2013 Proceeds Aggregate gain on...

  • Page 58
    ... using forward exchange rates. â- Year ended March 31, 2013 Not applicable 2. Derivative transactions for which hedge accounting has been applied â- Year ended March 31, 2014 Not applicable â- Year ended March 31, 2013 Not applicable Employees' Retirement Benefits â- Year ended March 31, 2014...

  • Page 59
    ... Stocks General accounts Cash and deposits Others Total 45 22 9 7 17 100 Note: Total plan assets include 4% of the retirement benefit trust plan, which has been set up for the corporate pension plan. 2) Method of setting the long-term expected rate of return The long-term expected rate of return...

  • Page 60
    ... 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 method for projected...

  • Page 61
    ...Details of stock options ¥35 Fiscal year ended March 31, 2013 ¥445 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 stock options 2012 stock options Category of grantees Number of grantees...

  • Page 62
    ...- - - 2) Price information Yen 2008 stock options Exercise price Average share price at exercise Fair market value on grant date 2009 stock options 2009 stock options 2010 stock options 2010 stock options 2010 stock options 2011 stock options 2011 stock options 2012 stock options 2012 stock options...

  • Page 63
    ... for employees' retirement benefits Net defined benefit liabilities Provision for directors' retirement benefits Expense for stock-based compensation Non-deductible depreciation expense of property and equipment Asset retirement obligations Impairment loss Loss on evaluation of investments in...

  • Page 64
    ...buildings, including offices at the headquarters, are based on estimated useful life, generally ranging between 10 and 15 years, and a discount rate generally set between 0.801% and 2.240%. For amusement facility arcades, asset retirement obligations are based on an estimated useful life of 10 years...

  • Page 65
    ..." 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, distribution and licensing of...

  • Page 66
    ..." 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, distribution and licensing of...

  • Page 67
    ...by country or region, based on customer location. (2) Property and equipment Millions of yen Japan ¥17,664 North America ¥1,892 Europe ¥318 Asia ¥42 Total ¥19,917 3. Information by major customer This information has been omitted because all sales to major customers account for less than...

  • Page 68
    ... account for less than 10% of the net sales amount shown on the Consolidated Statement of Income. [Information related to impairment losses on property and equipment in each reporting segment] Year ended March 31, 2014 Millions of yen Digital Entertainment Amusement Publication Merchandising...

  • Page 69
    ... to a resolution by the Board rights in January 2011, pursuant to a resolution by the Board Company's earnings per share of Directors on December 24, 2010; issuance of stock acqui- of Directors on December 24, 2010; issuance of stock acquisition rights in August 2011, pursuant to a resolution of...

  • Page 70
    ... 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*1, 2 - February 4, 2010 (UK time) - ¥35,000 ¥35,000 (35,000) ¥35...

  • Page 71
    ... for Consolidated Financial Statements. [Other] Quarterly Financial Information Millions of yen Cumulative period 1Q April 1, 2013 to June 30, 2013 2Q April 1, 2013 to September 30, 2013 3Q April 1, 2013 to December 31, 2013 4Q April 1, 2013 to March 31, 2014 Net sales Income (loss) before...

  • Page 72
    ... 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 Rights...

  • Page 73
    ...711 (Toll-free number within Japan) â- Listed on: The First Section of the Tokyo Stock Exchange â- 10 BNYML-NON TREATY ACCOUNT Securities code: 9684 â- Trading unit: 100 shares â- Share Ownership (Thousands of shares) (%) 100 80 60 40 20 0 2010 2011 2012 2013 2014 Public notices: URL: http...

  • Page 74
    SQUARE ENIX HOLDINGS CO., LTD. www.hd.square-enix.com/ Printed in Japan