UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August, 2019
Commission File Number 001-35884
KABUSHIKI KAISHA FRONTEO
(Exact name of registrant as specified in its charter)
FRONTEO, INC.
(Translation of registrants name into English)
Meisan Takahama Building
2-12-23, Konan
Minato-ku, Tokyo 108-0075
Japan
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
x Form 20-F o Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
FRONTEO, INC.
FORM 6-K
FRONTEO, Inc. is furnishing under the cover of Form 6-K the following:
Exhibit 99.1 |
|
Safe Harbor Statement
Exhibit 99.1 attached hereto contains forward-looking statements. These forward-looking statements are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, believes, estimates and similar statements. Among other things, the consolidated forecasts for the year ending March 31, 2020 are forward-looking statements. FRONTEO may also make written or oral forward-looking statements in its reports filed with, or furnished to, the U.S. Securities and Exchange Commission, in its reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about FRONTEOs beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: FRONTEOs goals and strategies; FRONTEOs expansion plans; the expected growth of the data center services market; expectations regarding demand for, and market acceptance of, RONTEOs services; FRONTEOs expectations regarding keeping and strengthening its relationships with customers; FRONTEOs plans to invest in research and development to enhance its solution and service offerings; and general economic and business conditions in the regions where FRONTEO provides solutions and services. Further information regarding these and other risks is included in FRONTEOs reports filed with, or furnished to the Securities and Exchange Commission. FRONTEO does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of the date of this press release, and FRONTEO undertakes no duty to update such information, except as required under applicable law.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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FRONTEO, INC. | |
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| |
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By: |
/s/ MASAHIRO MORIMOTO |
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Masahiro Morimoto |
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Chief Executive Officer and Chairman of the Board |
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Date: August 14, 2019 |
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Summary of Consolidated Financial Results
For the Three-Month Period Ended June 30, 2019
[Japanese GAAP]
August 14, 2019
Company name: |
FRONTEO, Inc. | |
Stock exchange listing: |
Tokyo Stock Exchange | |
Stock code: |
2158 | |
URL: |
https://www.fronteo.com/ | |
Representative: |
Masahiro Morimoto, Chief Executive Officer and Chairman of the Board | |
Contact: |
Tomohiro Uesugi, Chief Financial Officer | |
Tel: |
+81-3-5463-6344 | |
Scheduled date of filing Quarterly Financial Report: |
August 14, 2019 | |
Scheduled date of commencement of dividend payment: |
| |
Supplementary materials for the quarterly financial results: |
Yes | |
Briefing on the quarterly financial results: |
No | |
(Amounts of less than one million yen are rounded down to the nearest million yen)
1. Consolidated Financial Results for the Three-Month Period Ended June 30, 2019 (from April 1, 2019 to June 30, 2019)
(1) Consolidated results of operations
(Percentage figures represent changes from the same period in the previous year)
Three-month |
|
Net sales |
|
Operating income (loss) |
|
Ordinary income (loss) |
|
Net income (loss) |
| ||||||||
period ended |
|
Millions of yen |
|
% |
|
Millions of yen |
|
% |
|
Millions of yen |
|
% |
|
Millions of yen |
|
% |
|
June 30, 2019 |
|
2,583 |
|
(6.3 |
) |
(444 |
) |
|
|
(479 |
) |
|
|
(444 |
) |
|
|
June 30, 2018 |
|
2,756 |
|
2.9 |
|
158 |
|
|
|
222 |
|
|
|
139 |
|
|
|
Note: Comprehensive income
Three-month period ended June 30, 2019 ¥(601) million [%]
Three-month period ended June 30, 2018 ¥172 million [%]
Three-month |
|
Net income (loss) per share |
|
Net income per share |
|
period ended |
|
Yen |
|
Yen |
|
June 30, 2019 |
|
(11.65 |
) |
|
|
June 30, 2018 |
|
3.66 |
|
3.61 |
|
(2) Consolidated financial position
|
|
Total assets |
|
Net assets |
|
Equity ratio |
|
As of |
|
Millions of yen |
|
Millions of yen |
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% |
|
June 30, 2019 |
|
12,872 |
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3,867 |
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28.0 |
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March 31, 2019 |
|
13,442 |
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4,622 |
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32.3 |
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Reference: Equity
As of June 30, 2019 |
¥3,609 million |
As of March 31, 2019 |
¥4,344 million |
2. Dividends
|
|
Dividend per share |
| ||||||||
|
|
End of the |
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End of the |
|
End of the |
|
End of |
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Total |
|
|
|
Yen |
|
Yen |
|
Yen |
|
Yen |
|
Yen |
|
Year ended March 31, 2019 |
|
|
|
0.00 |
|
|
|
3.00 |
|
3.00 |
|
Year ending March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
Year ending March 31, 2020 (Forecast) |
|
|
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0.00 |
|
|
|
3.00 |
|
3.00 |
|
Note: Changes from the latest dividend forecasts: None
3. Consolidated Forecasts for the Year Ending March 31, 2020 (from April 1, 2019 to March 31, 2020)
(Percentages represent year-on-year changes)
|
|
Net sales |
|
Operating income |
|
Ordinary income |
|
Net income |
|
Net income |
| ||||||||
For the year |
|
Millions |
|
% |
|
Millions |
|
% |
|
Millions |
|
% |
|
Millions |
|
% |
|
Yen |
|
March 31, 2020 |
|
11,600 |
|
3.0 |
|
200 |
|
(18.2 |
) |
116 |
|
(42.9 |
) |
10 |
|
(80.9 |
) |
0.26 |
|
Note: Changes from the latest consolidated forecasts: None
Notes:
(1) Changes in significant subsidiaries during the three-month period ended June 30, 2019 (changes in the scope of consolidation): None
(2) Application of specific accounting treatments for the preparation of the quarterly consolidated financial statements: Yes
(3) Changes in accounting policies, changes in accounting estimates, and restatements
1) Changes in accounting policies associated with the revision of accounting standards: |
Yes |
2) Changes in accounting policies other than the 1) above: |
None |
3) Changes in accounting estimates: |
None |
4) Restatements: |
None |
(4) Number of issued and outstanding shares (common stock)
1) Number of issued and outstanding shares (including treasury stock)
As of June 30, 2019: |
38,149,862 shares |
As of March 31, 2019: |
38,123,862 shares |
2) Number of treasury stock
As of June 30, 2019: |
696 shares |
As of March 31, 2019: |
696 shares |
3) Average number of issued and outstanding shares during the three-month period ended
June 30, 2019: |
38,132,481 shares |
June 30, 2018: |
38,044,623 shares |
* This summary of quarterly consolidated financial results falls outside the scope of quarterly review procedures to be performed by certified public accountants or an audit firm.
* Explanations concerning the appropriate use of the forecasts for results of operations and other special matters
· The forecasts for results of operations in this report are based on information currently available to FRONTEO, Inc. (the Company) and assumptions determined to be reasonable, and are not intended to assure achievement of the Companys operations. Actual results may differ significantly from the forecasts due to various factors.
Table of Contents of Attachment
1. |
Qualitative Information on Financial Results for the Three-Month Period Ended June 30, 2019 |
2 |
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(1) Explanations regarding the operating results |
2 |
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(2) Explanations regarding the consolidated financial position |
5 |
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(3) Explanations regarding the forecasts for the consolidated financial results |
5 |
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2. |
Quarterly Consolidated Financial Statements |
6 |
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(1) Quarterly consolidated balance sheets |
6 |
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(2) Quarterly consolidated statements of income and consolidated statements of comprehensive income |
8 |
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(3) Notes to the quarterly consolidated financial statements |
10 |
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Going concern assumptions |
10 |
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Significant changes in shareholders equity |
10 |
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Specific accounting treatments for the preparation of the quarterly consolidated financial statements |
10 |
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Changes in accounting polices |
10 |
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Segment information |
11 |
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Significant subsequent events |
12 |
1. Qualitative Information on Financial Results for the Three-Month Period Ended June 30, 2019
(1) Explanation regarding the operating results
The Company and its consolidated subsidiaries (the Group) operate in accordance with their mission of Being a Bright Value Creatorproviding solutions to unearth risks and opportunities buried deep within data to bring fairness into an information society. Making full use of the Groups sophisticated information analysis technologies, particularly a proprietary artificial intelligence (AI)-based search engine called KIBIT and Concept Encoder (CE), the Group has been contributing to the creation of an environment where users can obtain essential and appropriate information and to solve challenges faced by society in a wide array of fields, from the Groups founding business of international litigation support and fraud investigation services to other businesses, including manufacturing, finance, retail, logistics and healthcare.
In the LegalTech AI business, the eDiscovery market (comprised of contracts with companies in Asia) is expected to continue to expand at approximately 15% annually (Mordor Intelligence Global e-Discovery Market 2017-2023). This is primarily driven by a continuous increase in the volume of electronically-stored information held by companies subject to the eDiscovery process. Meanwhile, the pressure for lower prices of analysis service per data volume increases each year, which has led a number of vendors to suffer from unprofitable projects. Under such circumstances, the competition among vendors to win large and profitable projects has become fierce. As a result, some eDiscovery vendors outsource their review process, which has high labor costs and low profit margins, to subcontractors.
The review process is a step that requires a substantial amount of time due to trends of increasing data volume and incurs 70% of the total eDiscovery process costs. Naturally, an improvement in efficiency by use of technologies is being sought by the market, and the Company sees this need as a substantial opportunity for its business. In addition, a Technology Assisted Review (TAR) is known to significantly reduce the number of documents that need review, and guidelines (Bolch Judicial Institute, Duke Law School Technology Assisted Review (TAR) Guidelines) for the use of TAR have been issued in the U.S. The guidelines define key TAR terms, explain the TAR process and examples of the use of TAR and stipulate key decision points in the application of TAR by law firms and user entities. The guidelines also recommend the use of technology in the review process.
In response to these changes in the environment, the Company released KIBIT Automator, an AI review tool, in March 2019 and has been promoting its document review services using the tool. As a result, the Company achieved some promising results, including cases where only AI reviews are required without any human checks so that a human reviewer is able to review the remaining documents, while still maintaining the same quality as traditional reviews carried out by humans.
In the fiscal year ended March 31, 2019, the Group originally set the goal of reinforcing its sales force; however, the Companys subsidiaries in the U.S. are having a particularly hard time meeting this goal and contributing to sales growth. In the U.S., which is one of leading countries in the legal tech market, discretion to select vendors was historically given mainly to law firms, although there was a general idea in the market that companies should take initiative in selecting their own vendors. However, as stated above, given the increasing financial and time burden due to the surge in data volume, more companies are now seeking technology-based solutions on their own and are thereby actively involved in selecting vendors themselves. In these circumstances, many vendors have boosted their sales and marketing activities and have gone directly to their customers to win orders, while the Companys subsidiaries in the U.S. are falling behind in this competitive market. As a result, the Group recorded lower sales and an operating loss for the three-month period ended June 30, 2019 in the LegalTech AI business.
Going forward, the Group is committed to capturing new business opportunities by securing potential projects and winning new contracts and improving its sales with rapid improvements in organizational power through continuing promotional activities of KIBIT Automator, proposal of solutions that can be implemented by customers in their daily operations, enhancement of senior management in marketing and sales, promotion of technology marketing and revitalization of diversified operating activities.
In the AI Solution business, the Group performed well in Japan in the fields of business intelligence and healthcare. As a result, the number of companies that have implemented the Companys AI products increased to 184 (1.6 times year on year) in the AI Solution business, and net sales in the overall AI Solution business for the three-month period ended June 30, 2019, increased steadily by 88.2% year on year.
In the AI market in Japan, companies willingness to invest in AI has been growing, supported by Work style reform, measures by the Japanese government aimed at improving productivity and labor automation in the context of a working population that is expected to decrease. Also, recently, compliance with laws and regulations has been placing a heavier burden on companies, creating more need for Regtech which enables companies to comply with various laws and regulations using information technology.
The Company has been actively selling KIBIT advertisement examination solution services and other products that enable companies to comply with the Act against Unjustifiable Premiums and Misleading Representations and Financial Instruments and Exchange Act to meet such customers needs. The Company will continue to focus on this prospective growing field.
In the healthcare field, the Group has begun to provide the Drug Discovery Support AI System using a new AI-based search engine featuring objectivity, transparency and reproducibility called Concept Encoder (CE).
The Drug Discovery Support AI system, which is based on the New Candidate Medications Discovery technology launched in November 2018 and provides a cloud service by packaging databases, including literature and gene expression information, in advance, allows researchers at pharmaceutical companies to discover candidate chemical compounds more efficiently and quickly.
With existing dictionary or grammar learning-based AI, which has been used in the past in the analysis of papers, researchers needed to have knowledge of coding before use and had to continually update sets of words and meanings included in databases. Initial trials and proof of concept took several months and required large budgets. On the other hand, the Drug Discovery Support AI system has databases containing 14 million papers on diseases and genes and public data of 1.7 million cases, which are essential in the process of drug discovery research, and these databases can be searched and analyzed immediately, as CE has already learned them. When adopting the Drug Discovery Support AI system on-premises, it is not necessary to install large-scale equipment, such as a super computer, since this support AI system can run even on servers costing a few million yen.
The Group will continue to utilize the strength of CE that enables natural language processing by statistical procedures that is essential for Evidence-Based Medicine and promote the utilization of big data and the delivery of solutions in the healthcare field.
In its consolidated operating results for the three-month period ended June 30, 2019, the Group recorded net sales of 2,583,304 thousand yen (a 6.3% decrease year-on-year), operating loss of 444,479 thousand yen (operating income of 158,860 thousand yen for the same period in the previous year), ordinary loss of 479,243 thousand yen (ordinary income of 222,350 thousand yen for the same period in the previous year), and net loss attributable to owners of the parent of 444,263 thousand yen (net income attributable to owners of the parent of 139,411 thousand yen for the same period in the previous year). The Groups operating results underperformed compared with the same period in the previous year.
The following is an overview of the financial results of each business segment for the three-month period ended June 30, 2019:
LegalTech AI business
1) eDiscovery services
Net sales from eDiscovery services were 2,128,175 thousand yen, a decrease of 16.0% from the same period in the previous year. The decrease reflects a delayed response by the Group, particularly by the U.S. subsidiaries, to the change in business trends. Previously, law firms were given a discretion to select an e-discovery service provider, but now, it is their clients, who are highly conscious of the quality of services provided and costs, that select a service provider.
2) Forensic services
Net sales from forensic services were 175,012 thousand yen, an increase of 133.5% from the same period in the previous year, due to winning large-scale investigation projects that utilize AI technology in Japan, such as investigation support for third-party committees and increases in the number of projects related to the forensic investigation services for payment cards and consulting services.
As a result, net sales of the LegalTech AI business were 2,303,187 thousand yen, a decrease of 11.7% from the same period in the previous year. As shown in the segment information section below, the LegalTech AI business recorded operating loss of 357,075 thousand yen mainly due to a decrease in document process sales with high profit margin and an increase in personnel expenses due to hiring of senior management-level personnel during the period (operating income of 237,083 thousand yen for the same period in the previous year).
Overview of net sales by service type is as follows:
(Thousands of yen)
Service type |
|
Total |
| ||
1. eDiscovery services |
|
Review |
|
706,945 |
|
|
|
|
|
(651,348 |
) |
|
|
Collection and Process |
|
378,030 |
|
|
|
|
|
(613,112 |
) |
|
|
Hosting |
|
1,044,199 |
|
|
|
|
|
(1,267,797 |
) |
|
|
Total |
|
2,128,175 |
|
|
|
|
|
(2,532,258 |
) |
2. Forensic services |
|
|
|
175,012 |
|
|
|
|
|
(74,941 |
) |
Total net sales for the LegalTech AI business |
|
|
|
2,303,187 |
|
|
|
|
|
(2,607,199 |
) |
The amounts in parentheses are net sales for the same period in the previous year.
Overview of net sales by country of residence of customers is as follows:
(Thousands of yen)
Country of residence of customers |
|
Total |
|
Japan and other countries in Asia |
|
1,191,405 |
|
|
|
(1,212,820 |
) |
United States and Europe |
|
1,111,782 |
|
|
|
(1,394,379 |
) |
Total net sales of the LegalTech AI business |
|
2,303,187 |
|
|
|
(2,607,199 |
) |
The amounts in parentheses are net sales for the same period in the previous year.
AI Solution business
The AI Solution business grew steadily, supported by an increase in large-scale projects and the number of companies that introduced AI products in both the business intelligence field and healthcare field. As a result, net sales from the AI Solution business were 280,116 thousand yen, an increase of 88.2% from the same period in the previous year. Nevertheless, an increase in indirect and other costs associated with net sales growth led to operating loss of 87,403 thousand yen (operating loss of 78,223 thousand yen for the same period in the previous year). The AI Solution business includes expenses related to back-office divisions of the Company of 75,998 thousand yen.
Overview of net sales by service type is as follows:
(Thousands of yen)
Service type |
|
Total |
| ||
AI Solution business |
|
Business intelligence |
|
247,390 |
|
|
|
|
|
(133,158 |
) |
|
|
Healthcare |
|
28,400 |
|
|
|
|
|
(12,529 |
) |
|
|
AI Solution-overseas |
|
4,325 |
|
|
|
|
|
(3,112 |
) |
Total net sales from the AI Solution business |
|
|
|
280,116 |
|
|
|
|
|
(148,801 |
) |
The amounts in parentheses are net sales for the same period in the previous year.
(2) Explanations regarding the consolidated financial position
(Assets)
Total assets decreased by 570,331 thousand yen to 12,872,293 thousand yen compared with the end of the previous year.
Current assets decreased by 331,778 thousand yen to 6,531,040 thousand yen compared with the end of the previous year. This was mainly attributable to the net effect of an increase in payments of 93,658 thousand yen in the suspense account and an increase of 354,571 thousand yen in prepaid expenses under Other, a decrease of 512,627 thousand yen in cash and deposits due to payments made on a temporary basis and a decrease of 257,803 thousand yen in notes and accounts receivable-trade affected by decreased sales.
Noncurrent assets decreased by 238,553 thousand yen to 6,341,252 thousand yen compared with the end of the previous year. This was mainly attributable to a decrease of 20,845 thousand yen in software due to amortization, a decrease of 91,049 thousand yen in goodwill due to the effects of foreign currency exchange rates and amortization and a decrease of 112,500 thousand yen in investment securities due to a decrease in the fair value of stocks held.
(Liabilities)
Total liabilities increased by 184,287 thousand yen to 9,004,911 thousand yen compared with the end of the previous year.
Current liabilities increased by 569,517 thousand yen to 5,316,917 thousand yen compared with the end of the previous year. This was mainly attributable to an increase of 600,000 thousand yen in short-term loans payable due to new borrowings and an increase of 85,870 thousand yen in accounts payable-other due to dividends payable, which were partially offset by a decrease of 76,577 thousand yen in accounts payable and a decrease of 36,293 thousand yen in income taxes payable.
Noncurrent liabilities decreased by 385,229 thousand yen to 3,687,994 thousand yen compared with the end of the previous year. This was mainly attributable to a decrease of 315,109 thousand yen in long-term loans payable due to repayments and a decrease of 47,087 thousand yen in deferred tax liabilities due mainly to valuation difference on available-for-sale securities.
(Net Assets)
Total net assets decreased by 754,619 thousand yen to 3,867,381 thousand yen compared with the end of the previous year. This was mainly due to a decrease of 591,868 thousand yen in retained earnings due to the payment of dividends and net loss attributable to owners of the parent, a decrease of 116,869 thousand yen in foreign currency translation adjustment and a decrease of 44,817 thousand yen in valuation difference on available-for-sale securities.
(3) Explanations regarding the forecasts for the consolidated financial results
No adjustments have been made to the consolidated operating forecasts for the year ending March 31, 2020, announced on May 15, 2019.
Note: The operating forecasts are based on information currently available to the Company and contain uncertainties. Actual operating results may differ from the forecasts due to various factors.
2. Quarterly Consolidated Financial Statements
(1) Quarterly consolidated balance sheets
(Thousands of yen)
|
|
As of March 31, 2019 |
|
As of June 30, 2019 |
|
Assets |
|
|
|
|
|
Current assets |
|
|
|
|
|
Cash and deposits |
|
3,926,008 |
|
3,413,381 |
|
Notes and accounts receivable-trade |
|
2,666,605 |
|
2,408,802 |
|
Merchandise |
|
1,051 |
|
1,778 |
|
Supplies |
|
2,826 |
|
3,281 |
|
Other |
|
351,042 |
|
798,594 |
|
Allowance for doubtful accounts |
|
(84,715 |
) |
(94,797 |
) |
Total current assets |
|
6,862,818 |
|
6,531,040 |
|
Noncurrent assets |
|
|
|
|
|
Property, plant, and equipment |
|
|
|
|
|
Buildings and structures, net |
|
145,194 |
|
139,818 |
|
Vehicles, net |
|
1,952 |
|
1,528 |
|
Tools, furniture, and fixtures, net |
|
483,269 |
|
474,689 |
|
Leased assets, net |
|
100,498 |
|
80,832 |
|
Other, net |
|
12,549 |
|
12,187 |
|
Total property, plant, and equipment |
|
743,464 |
|
709,056 |
|
Intangible assets |
|
|
|
|
|
Software |
|
878,980 |
|
858,135 |
|
Goodwill |
|
1,733,991 |
|
1,642,941 |
|
Customer-related assets |
|
1,599,671 |
|
1,517,942 |
|
Other |
|
326,763 |
|
433,008 |
|
Total intangible assets |
|
4,539,406 |
|
4,452,027 |
|
Investments and other assets |
|
|
|
|
|
Investment securities |
|
872,114 |
|
759,614 |
|
Guarantee deposits |
|
161,533 |
|
156,873 |
|
Long-term deposits |
|
221,980 |
|
215,580 |
|
Deferred tax assets |
|
11,123 |
|
23,675 |
|
Other |
|
30,183 |
|
24,424 |
|
Total investments and other assets |
|
1,296,934 |
|
1,180,168 |
|
Total noncurrent assets |
|
6,579,805 |
|
6,341,252 |
|
Total assets |
|
13,442,624 |
|
12,872,293 |
|
(Thousands of yen)
|
|
As of March 31, 2019 |
|
As of June 30, 2019 |
|
Liabilities |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Accounts payable-trade |
|
137,568 |
|
60,990 |
|
Short-term loans payable |
|
1,100,000 |
|
1,700,000 |
|
Current portion of long-term loans payable |
|
933,520 |
|
902,084 |
|
Current portion of bonds with subscription rights to shares |
|
1,250,000 |
|
1,250,000 |
|
Accounts payable-other |
|
331,838 |
|
417,709 |
|
Income taxes payable |
|
80,292 |
|
43,999 |
|
Provision for bonuses |
|
35,156 |
|
83,600 |
|
Provision for loss on business liquidation |
|
63,022 |
|
47,651 |
|
Other |
|
815,999 |
|
810,882 |
|
Total current liabilities |
|
4,747,399 |
|
5,316,917 |
|
Noncurrent liabilities |
|
|
|
|
|
Long-term loans payable |
|
3,475,323 |
|
3,160,213 |
|
Deferred tax liabilities |
|
167,825 |
|
120,738 |
|
Liabilities for retirement benefits |
|
49,991 |
|
57,284 |
|
Asset retirement obligations |
|
45,755 |
|
45,883 |
|
Other |
|
334,329 |
|
303,874 |
|
Total noncurrent liabilities |
|
4,073,224 |
|
3,687,994 |
|
Total liabilities |
|
8,820,624 |
|
9,004,911 |
|
Net assets |
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
Capital stock |
|
2,559,206 |
|
2,568,651 |
|
Capital surplus |
|
2,343,293 |
|
2,352,737 |
|
Retained earnings |
|
(676,120 |
) |
(1,267,989 |
) |
Treasury stock |
|
(90 |
) |
(90 |
) |
Total shareholders equity |
|
4,226,288 |
|
3,653,309 |
|
Accumulated other comprehensive income (loss) |
|
|
|
|
|
Valuation difference on available-for-sale securities |
|
530,444 |
|
485,627 |
|
Foreign currency translation adjustment |
|
(412,128 |
) |
(528,998 |
) |
Total accumulated other comprehensive income (loss) |
|
118,316 |
|
(43,370 |
) |
Subscription rights to shares |
|
227,797 |
|
203,401 |
|
Noncontrolling interests |
|
49,597 |
|
54,041 |
|
Total net assets |
|
4,622,000 |
|
3,867,381 |
|
Total liabilities and net assets |
|
13,442,624 |
|
12,872,293 |
|
(2) Quarterly consolidated statements of income and consolidated statements of comprehensive income
Consolidated statements of income for the three-month period ended June 30, 2019
(Thousands of yen)
|
|
For the three-month period |
|
For the three-month period |
|
Net sales |
|
2,756,001 |
|
2,583,304 |
|
Cost of sales |
|
1,517,565 |
|
1,670,382 |
|
Gross profit |
|
1,238,435 |
|
912,921 |
|
Selling, general, and administrative expenses |
|
1,079,575 |
|
1,357,401 |
|
Operating income (loss) |
|
158,860 |
|
(444,479 |
) |
Nonoperating income |
|
|
|
|
|
Interest income |
|
303 |
|
747 |
|
Dividend income |
|
14,400 |
|
18,000 |
|
Foreign exchange gains, net |
|
78,505 |
|
|
|
Other |
|
315 |
|
271 |
|
Total nonoperating income |
|
93,524 |
|
19,019 |
|
Nonoperating expenses |
|
|
|
|
|
Interest expenses |
|
12,273 |
|
8,774 |
|
Foreign exchange losses, net |
|
|
|
43,035 |
|
Syndicated loan fees |
|
7,937 |
|
824 |
|
Other |
|
9,823 |
|
1,148 |
|
Total nonoperating expenses |
|
30,033 |
|
53,783 |
|
Ordinary income (loss) |
|
222,350 |
|
(479,243 |
) |
Extraordinary income |
|
|
|
|
|
Gain on reversal of subscription rights to shares |
|
16,898 |
|
27,703 |
|
Total extraordinary income |
|
16,898 |
|
27,703 |
|
Extraordinary losses |
|
|
|
|
|
Loss on retirement of noncurrent assets |
|
|
|
1,512 |
|
Total extraordinary losses |
|
|
|
1,512 |
|
Income (loss) before income taxes |
|
239,248 |
|
(453,053 |
) |
Income taxes |
|
99,473 |
|
(13,232 |
) |
Net income (loss) |
|
139,775 |
|
(439,820 |
) |
Net income attributable to noncontrolling interests |
|
363 |
|
4,443 |
|
Net income (loss) attributable to owners of the parent |
|
139,411 |
|
(444,263 |
) |
Consolidated statements of comprehensive income for the three-month period ended June 30, 2019
(Thousands of yen)
|
|
For the three-month period |
|
For the three-month period |
|
Net income (loss) |
|
139,775 |
|
(439,820 |
) |
Other comprehensive income (loss) |
|
|
|
|
|
Valuation difference on available-for-sale securities |
|
(63,690 |
) |
(44,817 |
) |
Foreign currency translation adjustment |
|
96,623 |
|
(116,869 |
) |
Total other comprehensive income (loss) |
|
32,933 |
|
(161,687 |
) |
Comprehensive income (loss) |
|
172,708 |
|
(601,507 |
) |
Comprehensive income (loss): |
|
|
|
|
|
Comprehensive income (loss) attributable to owners of the parent |
|
172,344 |
|
(605,951 |
) |
Comprehensive income attributable to noncontrolling interests |
|
363 |
|
4,443 |
|
(3) Notes to the quarterly consolidated financial statements
Going concern assumptions
Not applicable.
Significant changes in shareholders equity
There were no significant changes in shareholders equity compared with the end of the previous year.
Specific accounting treatments for the preparation of the quarterly consolidated financial statements
Income tax expenses are calculated based on a reasonable estimate of the effective tax rate based on the expected income before income taxes (net of the effects of deferred taxes) for the fiscal year to which the three-month period pertains, and multiplying income before income taxes for the three-month period by the estimated effective tax rate.
Changes in accounting polices
Application of Revenue from Contracts with Customers (Accounting Standards Codification (ASC) 606):
Overseas consolidated subsidiaries adopting generally accepted accounting principles (GAAP) in the United States of America have applied Revenue from Contracts with Customers (ASC 606) for the three-month period ended June 30, 2019. The impact of the change on the quarterly financial statements is expected to be immaterial.
Segment information
I. Three-month period of the previous year (from April 1, 2018 to June 30, 2018)
1) Information relating to net sales and profits or losses for each reportable segment
(Thousands of yen)
|
|
Reportable segment |
|
|
|
|
| ||||
|
|
LegalTech AI |
|
AI Solution |
|
Total |
|
Adjustments |
|
Amounts |
|
Net sales |
|
2,607,199 |
|
148,801 |
|
2,756,001 |
|
|
|
2,756,001 |
|
(2) Intersegment sales and transfers |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
2,607,199 |
|
148,801 |
|
2,756,001 |
|
|
|
2,756,001 |
|
Segment profits (losses) |
|
237,083 |
|
(78,223 |
) |
158,860 |
|
|
|
158,860 |
|
Notes:
(1) The adjustment to intersegment sales and transfers refers to intersegment transaction eliminations.
(2) Total segment profits (losses) are equal to operating income reported in the quarterly consolidated statements of income.
2) Information relating to assets for each reportable segment
Not applicable.
3) Information relating to impairment loss on property, plant, and equipment or goodwill for each reportable segment
Not applicable.
4) Matters relating to changes in reportable segments
Not applicable.
II. Three-month period of the current year (from April 1, 2019 to June 30, 2019)
1) Information relating to net sales and profits or losses for each reportable segment
(Thousands of yen)
|
|
Reportable segment |
|
|
|
|
| ||||
|
|
LegalTech AI |
|
AI Solution |
|
Total |
|
Adjustments |
|
Amounts |
|
Net sales |
|
2,303,187 |
|
280,116 |
|
2,583,304 |
|
|
|
2,583,304 |
|
(2) Intersegment sales and transfers |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
2,303,187 |
|
280,116 |
|
2,583,304 |
|
|
|
2,583,304 |
|
Segment losses |
|
(357,075 |
) |
(87,403 |
) |
(444,479 |
) |
|
|
(444,479 |
) |
Notes:
(1) The adjustment to intersegment sales and transfers refers to intersegment transaction eliminations.
(2) Total segment losses are equal to operating loss reported in the quarterly consolidated statements of income.
2) Information relating to assets for each reportable segment
Not applicable.
3) Information relating to impairment loss on property, plant, and equipment or goodwill for each reportable segment
Not applicable.
4) Matters relating to changes in reportable segments
Not applicable.
Significant subsequent events
Implementation of business restructuring
The Group has decided to cut its workforce in FRONTEO USA, Inc., a consolidated subsidiary of the Company, beginning August 1, 2019, to streamline its business operation.
Expenses relating to this restructuring event are expected to accrue in the second quarter ending September 30, 2019, or after. The Group is currently examining the details of those expenses and possible impacts.