Financial · July 1, 2004

Square Enix Annual Report FY2004

Summary

The fiscal year ending March 31, 2004, marked the successful integration of Enix Corporation and Square Co., Ltd. following their April 2003 merger. This transition resulted in record-high financial performance, characterized by consolidated net sales of ¥63,202 million and a robust operating margin of 30.7%. The newly formed entity established a strong financial foundation with an 87.4% shareholders' equity ratio and significant cash reserves, signaling a stable transition into a unified corporate structure. The strategic focus shifted toward a "polymorphic content" model, designed to maximize the value of established intellectual property across multiple platforms, including mobile and network-based digital entertainment. While offline games remained the primary revenue driver at ¥37,988 million, the online segment achieved a critical turnaround. Driven by the global expansion of Final Fantasy XI, online operations moved from an operating loss to a profit of ¥2,348 million. Additionally, the publication segment, bolstered by the Fullmetal Alchemist series, and the establishment of internal distribution channels in North America contributed to diversified growth. Geographically, Japan remained the dominant market, though overseas sales grew to nearly 30% of total revenue. The company also expanded its technological capabilities through the $58 million acquisition of middleware developer UIEvolution. Despite the bankruptcy of affiliate Digicube, which necessitated impairment losses, the overall financial outlook remained positive. Management set ambitious medium-term goals to become a leading global digital content provider by 2010, targeting continued margin strength through franchise expansion and enhanced community management in the burgeoning network-based gaming sector.

From the report

SQUARE ENIX CO., LTD. www.square-enix.co.jp/ SQUARE ENIX CO., LTD. 2004 ANNUAL REPORT 2004 ANNUAL REPORT

> Networks Will Transform the Entertainment Industry. Disclaimer Regarding Forward-Looking Statements Statements in this annual report with respect to the current plans, estimates, strategy, and beliefs of SQUARE ENIX CO., LTD. and consolidated subsidiaries (collectively “SQUARE ENIX”) include both historical facts and forward-looking statements concerning the future performance of SQUARE ENIX. Such forward-looking statements are based on management’s assumptions and beliefs in light of the information currently available and, therefore, involve risks and uncertainties. Actual results may differ materially from those anticipated in these statements due to the influence of a number of important factors. Such factors include but are not limited to: (1) general economic conditions in Japan and foreign countries, in particular levels of consumer spending; (2) fluctuations in exchange rates, in particular Contents the exchange rate of the Japanese yen in relation to the U.S. dollar, the euro and others, which SQUARE ENIX uses extensively in its overseas 01 Financial Highlights business; (3) the continuous introduction of new products, and rapid technical innovation in the 02 To Our Shareholders digital entertainment industry; and (4) SQUARE

yen in relation to the U.S. dollar, the euro and others, which SQUARE ENIX uses extensively in its overseas 01 Financial Highlights business; (3) the continuous introduction of new products, and rapid technical innovation in the 02 To Our Shareholders digital entertainment industry; and (4) SQUARE 08 Review of Operations ENIX’s ability to continue developing products and services accepted by consumers in the intensely 10 Directors, Auditors and Executive Officers competitive market, which is heavily influenced by subjective and quickly changing consumer prefer- 11 Financial Section ences.

Financial Highlights SQUARE ENIX CO., LTD. and Consolidated Subsidiaries Years Ended March 31 Millions of Yen Thousands of U.S. Dollars 2004 2003 2003 2004 SQUARE ENIX Former ENIX Former SQUARE SQUARE ENIX FOR THE YEARs Net sales ¥63,202 ¥21,877 ¥40,286 $597,994 Operating income 19,398 4,603 12,594 183,537 Net income 10,993 2,419 14,074 104,012 AT YEAR-ENDs Total assets 110,633 57,465 54,354 1,046,769 Total shareholders’ equity 96,700 49,647 37,727 914,940 Yen U.S. Dollars PER SHARE OF COMMON STOCKs Net income (Note 3, 4 and 5) ¥100.04 ¥41.18 233.83 $0.95 Total shareholders’ equity (Note 3 and 4) 878.85 845.18 626.78 8.32 Notes : For the convenience of readers, amounts in U.S. dollars have been translated from yen at the exchange rate prevailing in the Tokyo foreign exchange market as of March 31, 2004 of ¥105.69=U.S. $1. Operating Income Margin (%) Return on Equity (%) 50 60 30 20 10 -20 0 -40 -10 -60 1999 2000 2001 2002 2003 2004 1999 2000 2001 2002 2003 2004 SQUARE ENIX Former ENIX Former SQUARE SQUARE ENIX Former ENIX Former SQUARE

he Tokyo foreign exchange market as of March 31, 2004 of ¥105.69=U.S. $1. Operating Income Margin (%) Return on Equity (%) 50 60 30 20 10 -20 0 -40 -10 -60 1999 2000 2001 2002 2003 2004 1999 2000 2001 2002 2003 2004 SQUARE ENIX Former ENIX Former SQUARE SQUARE ENIX Former ENIX Former SQUARE Notes: 1. Return on equity = Net income / Average shareholders’ equity Notes: 2. The former ENIX did not prepare consolidated financial statements for the period between FY1998 and FY2000. The former ENIX Notes: figures for this period are, therefore, disclosed on a non-consolidated basis. Notes: 3. Return on equity for FY2003 has been calculated using the simple addition of the former ENIX and the former SQUARE's Notes: shareholders’ equity as of the end of the previous period.

To Our Shareholders President and Representative Director Yoichi Wada Square Enix Co., Ltd. is proud to present its first annual report for fiscal 2003, ended March 31, 2004, following the merger of Enix Corporation and Square Co., Ltd. on April 1, 2003. For its first fiscal year, consolidated net sales totaled ¥63,202 million, operating income was ¥19,398 million and net income amounted to ¥10,993 million for an operating income margin of 30.7% and return on equity (ROE) of 11.9%. Compared against the simple addition of the historical figures of the former Enix Corporation and Square Co., Ltd., performance in fiscal 2003 reached a record high. Square Enix got an excellent start to its new journey owing to the smooth integration of the two companies following the merger. The Square Enix Group aims to become one of the world’s largest and best digital content providers. While our performance during the fiscal year under review was encouraging, we believe it was nothing more than a start of what is to come. Here, we would like to discuss our vision, perception of the operating environment and future management strategies.

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