Falcom’s 2019 End of Year Financial Sheet – Record Profits Earned!

On November 7, 2019, Falcom posted their balance sheet reporting on the end of year results for their most recent fiscal year. For those who are unaware, Falcom’s fiscal year runs slight off of the norm, starting from October 1st and ending on September 30th. (The norm in Japan is April ~ March.)

This is all leading up to the shareholder meeting, which is taking place on December 18th, 2019 at the Palace Hotel Tachikawa at 1:30 pm Japan standard time. (11:30 pm eastern standard time on December 17th for people in the United States.)

Per Falcom’s supplemental document, the primary game titles that impacted the 2018-2019 fiscal year are:

  • The Legend of Heroes: Sen no Kiseki IV -The End of Saga- (JP) (PS4)
  • Ys VIII -Lacrimosa of Dana- (International) (Switch)
  • Ys VIII -Lacrimosa of Dana- Christmas Gift Package (JP) (PS4)
  • The Legend of Heroes: Sen no Kiseki Entry Pack (Sen 1 + 2 Set) (CN / KR) (PS4)
  • The Legend of Heroes: Trails of Cold Steel -Thors Academy 1204- (EN) (PS4)
  • The Legend of Heroes: Trails of Cold Steel II -The Erebonian Civil War- (EN) (PS4)
  • The Legend of Heroes: Sen no Kiseki III (CN) (PS4)
  • The Legend of Heroes: Sen no Kiseki III (KR) (PS4)
  • The Legend of Heroes: Sen no Kiseki IV (CN) (PS4)
  • The Legend of Heroes: Sen no Kiseki IV (KR) (PS4)
  • Ys: Memories of Celceta Kai (JP) (PS4)
  • Ys VIII -Lacrimosa of Dana- Super Price (JP) (PS4)
  • Ys IX -Monstrum Nox- (JP) (PS4)

Editors Note on all JPY > USD Conversions: All amounts are an approximation, and as of 12/26/2019, utilizing google’s currency conversion. This data is provided by Morningstar for Currency. Additional rounding may have been performed for concise numbers. The financial tables will not see number conversions- all conversions are in the summary information.


The numbers are listed in the table below:

In one million yen increments.

Total Sales Operating Profit Operating Income EOY Net Income
FY 2019 2,454 4.1% 1,470 13.9% 1,472 13.7% 1,006 20.2%
FY 2018 2,357 14.7% 1,290 33.0% 1,294 33.7% 836 30.2%

Date: 11/7/2019
Listed Company Name: Nihon Falcom
Company Code Number: 3723
URL: http://www.falcom.co.jp
TEL: 042-527-0555
Delegate: Board Selected President Toshihiro Kondo
Contact Representative: Board Member Takashi Nakano
Scheduled Shareholder Meeting Date: 12/18/2019
Scheduled Dividend Payout Date: 12/19/2019
Scheduled Securities and Bonds Reporting Date: 12/19/2019
Do Supplemental Documents Exist? No
Is A Meeting to Explain Documents Planned? No

Table of Contents

  1. Analysis of Operational Results
    1. Analysis of this Term’s Operational Results
    2. Analysis of Current Term’s Financial Condition
    3. Current Term’s Cash Flow Analysis
    4. Forecast for the Future Term
    5. Policies Regarding Profit Distribution and Dividends for Current and Upcoming Terms
  2. Fundamentals on the Selection of Accounting Standards
  3. Financial Statements and Important Annotations
    1. Balance Sheet
    2. Profit and Loss Statement
    3. Document Regarding Fluctuations in Capital Stock
    4. Cash Flow Statement
    5. Annotations Related to Financial Statements

EDITOR’S NOTE

  1. Relevant Information

Analysis of Operational Results

( 1 ) Analysis of This Term’s Operational Results

During this fiscal year, the Sony PlayStation 4 console has become the fastest console to reach 100 million units sold worldwide and the Nintendo Switch broke through 15 million units sold in North America alone. Even while these numbers are continuously growing, trends on the next generation of consoles, including the PlayStation 5 and Google Stadia are being observed. As competition in the video game industry is fierce, excellent contents are being developed at a steady pace.

Regarding this company, we will continue to push forward with development of game software that will be enjoyed by many users.

As a result, for the PlayStation 4, we have re-released Ys: Memories of Celceta and launched Ys IX -Monstrum Nox-.

As the market remains strong for smartphone and browser games, we will continue to provide downloadable content utilizing our IPs. As long with this, we will be collaborating with various comics and other media. Additionally, we will continue to push forward with the planning of special live events, such as live musical performances, the Kiseki Series 15th Anniversary event that we held earlier this year.

As a result, total sales came out to 2,454 million yen ($22,399,710) (an increase of 4.1% from the previous term), the operating profit was 1,470 million yen ($13,417,920) (an increase of 13.9%), operating income was 1,472 million yen ($13,436,170) (an increase of 13.7%), and the net income was 1,006 million yen ($9,182,600) (an increase of 20.2%).

The divisional outlooks are below.

Manufactured Products Division

This fiscal year saw the releases of Ys VIII -Lacrimosa of Dana- Christmas Gift Package in December 2018, Ys Memories of Celceta Kai in May 2019, and Ys VIII -Lacrimosa of Dana- Super Price in June 2019 – all of which were for PlayStation 4.

September 2019 saw the release of Ys IX -Monstrum Nox-, the new title in the beloved landmark Ys series that has been having titles published since 1987.

As a result, for this fiscal year, the total sales for the manufactured products division was 811 million yen. ($7,402,670) (A reduction of 27.8% from the previous year.)

Licensing Division

The licensing division of this company has assisted in granting consent for licenses to help expand the IP contents and characters developed within the company. One such example was the releases of Sen no Kiseki for the PlayStation 4 in traditional Chinese and Korean in November 2018 This was followed up in January 2019 with a traditional Chinese and Korean release of Sen no Kiseki II for PlayStation 4, as well as a ‘Sen no Kiseki Entry Pack,’ which contained both games.

In March 2019, not only was Sen no Kiseki IV -The End of Saga- was released in both traditional Chinese and Korean, but Sen no Kiseki Kai (Trails of Cold Steel) was also released in English. In June 2019, Sen no Kiseki II (Trails of Cold Steel II) also saw an English language release.

In July 2019, the smartphone story RPG Hoshi no Kiseki was released in China, and in September 2019, the MMORPG version of Sora no Kiseki began its service.

Additionally, Lineking Entertainment Technology (located in Beijing) has executed a contract, giving them the rights for worldwide distribution of a smartphone version of Ys VIII -Lacrimosa of Dana- and other new licensing contracts are advancing.

Furthermore, Falcom’s userbase continues to grow, as older titles from Falcom’s library are being released in English, the online story RPG Akatsuki no Kiseki continues its service, Ys VIII -Lacrimosa of Dana- is released on Switch and the development of a collaboration event in Langrisser Mobile.

As the Kiseki series breaks past 4.3 million units sold, this year is its 15th anniversary, and many shops have had collaborative events and goods developed for sale.

As a result, for this fiscal year, the total sales for the licensing division was 1,642 million yen. ($14,987,900) (An increase of 33.1%)

( 2 ) Analysis of Current Term’s Financial Condition

( Total Assets )
The assets for this fiscal year saw a 582 million yen ($5,312,400) increase, to 6,592 million yen ($60,170,690). The primary cause of this is an increase to 1,028 million yen ($9,383,410) of cash in banks and a reduction to accounts receivable to 426 million yen ($3,888,460).

( Liabilities )
For liabilities, this fiscal year saw a decrease of 320 million yen ($2,290,900), coming to a total of 523 million yen ($4,773,860). The primary factors for this were an accounts payable decrease to 121 million yen ($1,104,470), and a decrease to 187 million yen ($1,706,900) in unpaid taxes.

( Net Worth )
This company’s network saw a 903 million ($8,242,440) increase this fiscal year, totaling out to 6,068 million yen ($55,387,700). The primary cause for this is the surplus of 102 million yen ($931,040), in regards to the 1,006 million yen ($9,182,600) operating income for this fiscal term.

( 3 ) Current Term’s Cash Flow Analysis

For this term, cash and cash equal assets (hereon referred to as ‘capital’) saw an increase of 1,028 million yen, totaling out to 5,586 million yen.

The next information is regarding this term’s cash flow.

( Cash Flow Through Business Activities )
Capital from business activities has increased to 1,131 million yen. This is primarily due to 620 million yen paid in corporate tax, sales credit decreasing to 426 million yen, and stock liabilities decreasing to 121 million yen. This lead to a pre-tax, current net income of 1,463 million yen.

( Cash Flow Through Investments )
Investment activities have resulted in a decrease of 1 million yen. This is due to expenses in obtaining tangible fixed assets.

( Cash Flow Through Financial Activities )
Financial activities have resulted in a decrease in capital to 101 million yen. Dividend payments are the primary cause of this with expenditures coming out to 101 million yen.

  2015 Term 2016 Term 2017 Term 2018 Term 2019 Term
Capital-to-Asset Ratio 91.4 92.4 87.8 86.0 92.1
Capital-to-Asset Ratio of
Market Value Base
265.7 154.6 206.9 222.4 213.8
Ratio of Interest Bearing Debt
Against Cash Flow
Interest Coverage Ratio

( 4 ) Forecast for the Future Term

The next fiscal year will see the release of Trails of Cold Steel III in English for the PlayStation 4 and the Chinese and Korean releases of both Zero and Ao no Kiseki Evolution for PlayStation Vita. Ys IX -Monstrum Nox- will be seeing a PlayStation 4 release in Traditional Chinese and Korean. After the successful releases of the Kai versions of Sen no Kiseki and Memories of Celceta, multiple ‘Kai’ versions of other games are being developed for PlayStation 4.

This is content that has been translated for use on Endless History – http://www.esterior.net/

With a focus on the Ys and Kiseki series, developments for Japan, North America, Europe, and Asia are in progress, as well as continued promotions on previously released titles.

Additionally, a new work for the Kiseki series is planned for release. The Kiseki series has won many awards, such as the Japan Game First Prize of Excellence, Japan Game Future Award, Famitsu Award, PlayStation Award Users Choice, and others, and has broken 4.3 million units sold.

Again, for the next term, we intend to continue with development plans for various titles on other platforms and smartphones, and collaborative works with other game developers utilizing our IPs and other multiplatform developments. As recent years have seen strong growth in download sales, a stronger effort for the development of downloadable content will also be made.

Now, including both the Ys and Kiseki series, we have the opportunity to push for new challenges with console games and continue with new titles. From here on out, we intend to offer attractive game software and other content.

For the term that ends in September 2020, we have made a forecast of 2,100 million yen in total sales (a reduction of 14.4%), an operating profit of 1,000 million yen (a reduction of 32.0%), an operating income of 1,000 million yen (a reduction of 32.1%), and a net income of 680 million yen (a reduction of 32.4%).

Now, a distinction of this company during development is the tendency for the total sales to be focused on the months of the release of new products. We expect the next term to follow this trend, and much of the percentage comes from the second half of the year. As such, through the second quarter, the year will appear very low when compared to the earnings forecast.

Regarding the forecast in this document, this judgment has been made based on information that is currently available at this present time. Actual results may be greatly different from the forecast once more information has become available.

( 5 ) Policies Regarding Profit Distribution and Dividends for Current and Upcoming Terms

The management of profit return is an important topic for all of the shareholders of this company. While in line with profit gains, it is necessary to secure capital from internal funds to strengthen business operations. It is the company’s basic policy to determine the appropriate dividends based on the term’s performance.

The dividends for this fiscal year will be 6 yen per 1 share (general dividend), as well as a commemorative 6 (due to the Kiseki series 15th anniversary, and the 15th anniversary of the public listing), totaling to 12 yen per share.

For next term, there are plans for a commemorative bonus to the 6 yen per share dividend as well.

Fundamentals on the Selection of Accounting Standards

As this firm does not prepare consolidated financial statements, there has been consideration on using international standards for drawing up said statements, but they were instead prepared using Japanese standards.

Financial Statements and Important Annotations

( 1 ) Balance Sheet

In thousand yen increments.
  Prev. Year (2018) Current Year (2019)
Property Division    
Current Assets    
Cash on Hand 4,554,444 5,586,537
Accounts Receivable 1,154,166 728,053
Products 2,276 2,926
Raw Materials 1,387 1,083
Prepaid Expenses 5,612 4,693
Misc. 1,396 11,684
Current Assets Sum 5,723,284 6,334,979
Fixed Assets    
Tangible Property    
Facilities Related Installations 16,281 16,281
Total Depreciation Amount ▲ 15,465 ▲ 15,628
Facilities Related Installations
(Net Amount)
815 652
Tools, Equipment, and Furnishings 33,625 34,717
Total Depreciation Amount ▲ 30,576 ▲ 31,929
Tools, Equipment, and Furnishings
(Net Amount)
3,049 2,788
Fixed Assets Sum 3,865 3,440
Intangible Fixed Assets    
Software 346 170
Telephone Procurement 757 757
Intangible Fixed Assets Sum 1,103 927
Assets from Additional Investments    
Security Investments 116,578 116,578
Deferred Tax Assets 134,735 106,969
Securities and Deposits 30,015 29,683
Sum of Assets from Additional Investments 281,329 253,230
Sum of Fixed Assets 286,297 257,598
Total Assets 6,009,582 6,592,557
 
Debt Division    
Current Liabilities    
Accounts Payable 229,802 107,828
Arrears 85,514 79,692
Accrued Expenses 17,049 20,992
Unpaid Corporate Taxes 406,054 218,569
Unpaid Consumption Taxes 67,228 54,235
Advances Received 33 108
Deposits 12,154 12,403
Reward Provisions 26,250 30,000
Sum of Current Liabilities 884,087 523,829
Total Debts 884,087 523,829
 
Net Worth Division    
Shareholder Equity    
Capital Stock 164,130 164,130
Capital Surplus    
Capital Reserve Fund 319,363 319,363
Sum of Capital Surplus 319,363 319,363
Profit Surplus    
Miscellaneous Profit Surplus    
Contingent Reserve 710,000 710,000
Transferred Profit Surplus 3,972,191 4,875,556
Sum of Profit Surplus 4,682,191 5,585,556
Treasury Stock ▲ 189 ▲ 300
Sum of Shareholder Equity 5,165,494 6,068,748
Total Net Worth 5,165,494 6,068,748
Net Worth Minus Debts 6,009,582 6,592,557

this is content that has been translated for use on Endless History – http://www.esterior.net/

( 2 ) Profit and Loss Statement

In thousand yen increments
  Prev. Year (2018) Current Year (2019)
Sales    
Sales of Manufactured Goods 1,123,648 881,511
Royalty Income 1,234,342 1,642,617
Total Sales 2,357,991 2,454,128
Cost of Sales    
Cost of Sales for Manufactured Goods *1 347,263 *1 220,176
Cost of Sales for Royalty Income 3,000
Total Cost of Sales 350,263 220,176
Total of All Sales 2,007,727 2,233,951
 
Sales and Administrative Costs    
Shipping and Freight Costs 21,710 9,435
Advertising Expenses 58,697 58,763
Promotional Costs 24,542 14,889
Executive Salary 53,434 55,484
Employee Salary and Wages 26,443 27,642
Bonuses 2,764 5,333
Sums Transferred into Bonus Reserves 2,763 2,899
Legal Costs 13,415 14,095
Hiring Costs 12,349 11,833
Utility Costs 1,011 1,071
Payment Handling 40,802 36,267
Supply Expenses 1,827 3,024
Travel Expenses 1,583 1,571
Communication Expenses (Postage) 628 546
Depreciation Costs 957 537
Research and Development *2 414,476 *2 479,202
Miscellaneous 39,687 41,019
Sum of Sales and Administrative Costs 717,095 763,618
 
Operating Profit 1,290,632 1,470,333
Earnings from Outside the Business    
Interest Receipts 42 51
Dividend Receipts 1,738 2,321
Profit on Currency Exchange 1,268
Excluded Profits from Unpaid Dividends 966 710
Sum of Earnings from Outside the Business 4,016 3,082
Costs from Outside the Business    
Losses from Foreign Exchange 1,084
Sum of Costs from Outside the Business 1,084
Current Profits 1,294,648 1,472,367
Special Costs    
Costs from Eliminating Fixed Assets 0 0
Sum of Special Costs 0 0
Current Income Before Taxes 1,294,648 1,472,637
Corporation, Municipal, and Enterprise Taxes 547,554 438,437
Sum of Adjustments from Corporation Tax ▲ 89,783 27,766
Sum of Taxes 457,770 466,203
Current Net Income 836,877 1,006,163

Detailed Statement of the Cost of Sales of Manufactured Goods

Operation Section Previous Year (2018) Current Year (2019)
Division Amount Ratio (%) Amount Ratio (%)
I. Material Cost 310,738 89.7 204,409 92.6
II. Outsourcing Cost 35,639 10.3 16,416 7.4
SUBTOTAL 346,486 100.0 220,826 100.0
III. Inventory Count of Goods
at Beginning of Term
3,053 2,276
SUM TOTAL 349,540 223,102
IV. Inventory Count of Goods
at End of Term
2,276 2,926
Difference in Costs
of Goods
347,263 220,176

Document Regarding Fluctuations in Capital Stock

Previous Term (Oct 1, 2017, thru Sept 30, 2018)

In thousand yen increments
Shareholder Equity Sum of
Net Worth
Capital
Stock
Capital Surplus Profit Surplus Treasury
Stock
Sum of
Capital
Stock
Capital Reserve Misc. Profit Surplus
Special Reserve Transferred Profit Surplus
Current Term Balance 164,130 319,363 710,000 3,217,553 ▲ 117 4,410,929 4,410,929
Change of Sums in Current Term
Surplus Shares ▲82,239 ▲82,239 ▲82,239
Current Net
Income
836,877 836,877 836,877
Treasury
Stock Profit
▲72 ▲72 ▲72
Sum of Fluctuations
For the Current
Period
754,638 ▲72 754,565 754,565
Remainder at
the end of this
Period
164,130 319,363 710,000 3,972,191 ▲189 5,165,494 5,165,494

Previous Term (Oct 1, 2018, thru Sept 30, 2019)

In thousand yen increments
Shareholder Equity Sum of
Net Worth
Capital
Stock
Capital Surplus Profit Surplus Treasury
Stock
Sum of
Capital
Stock
Capital Reserve Misc. Profit Surplus
Special Reserve Transferred Profit Surplus
Current Term Balance 164,130 319,363 710,000 3,972,191 ▲ 189 5,165,494 5,165,494
Change of Sums in Current Term
Surplus Shares ▲102,798 ▲102,798 ▲102,798
Current Net
Income
1,006,163 1,006,163 1,006,163
Treasury
Stock Profit
▲111 ▲111 ▲111
Sum of Fluctuations
For the Current
Period
903,365 ▲111 903,254 903,254
Remainder at
the end of this
Period
164,130 319,363 710,000 4,875,556 ▲300 6,068,748 6,068,748

Cash Flow Statement

In thousand yen increments.
  Prev. Year (2018) Current Year (2019)
Cash Flow from Business Activities    
Current Net Income Before Taxes 1,294,648 1,472,367
Depreciation Costs 3,605 2,162
Reduction of Fluctuations of Reward Reserves
(▲ is decrease)
2,250 3,750
Interest and Dividend Receipts ▲1,780 ▲2,372
Loss from Elimination of Fixed Assets 0 0
Reduction of Fluctuations in Sales Credit
(▲ is increase)
▲192,164 426,188
Reduction of Fluctuations in Inventory Assets
(▲ is increase)
2,701 ▲301
Fluctuation Amounts of Other Assets
(▲ is increase)
702 ▲9,036
Reduction of Fluctuations in Purchased Debts
(▲ is decrease)
84,746 ▲121,973
Reduction of Fluctuations of Arrears
(▲ is decrease)
27,031 ▲121,973
Fluctuation Amounts of Unpaid Taxes
(▲ is decrease)
6,031 ▲12,993
Fluctuation Amounts of Other Debts
(▲ is decrease)
8,652 ▲1,517
Subtotal 1,236,426 1,749,978
Amounts Received via Interests and Dividends 1,780 2,372
Amount Paid for Corporation Tax ▲445,478 ▲620,923
Cash Flow from Business Activities 792,728 1,131,427
Cash Flow from Investment Activities    
Expenses from the Value of Tangible Assets ▲1,562
Cash Flow from Investment Activities ▲1,562
Cash Flow from Financial Activities    
Expenses from the Value of Treasury Stock ▲72 ▲111
Dividend Payments ▲81,713 ▲101,660
Cash Flow from Financial Activities ▲81,785 ▲101,771
Increased Reduction in Cash and Cash Value Articles
(▲ is decrease)
710,942 1,028,093
Balance of Cash and Cash Value Articles at Start of Term 3,847,502 4,558,444
Balance of Cash and Cash Value Articles at End of Term * 4,558,444 * 5,586,537

Annotations Related to Financial Statements

(Annotations Concerning Business Condition Continued)
No applicable information.

(Important Accounting Policies)

1. Appraisal Standards and Evaluation Policies for Marketable Securities
Other Marketable Securities
There are no market value items.
Moving average is calculated via cost price.

2. Appraisal Standards and Evaluation Policies for Inventory Assets
Manufactured goods and raw services.
Utilizing the previously mentioned cost price ( calculations based on the declining book value of profitability) principles.

3. Depreciation Estimates Process for Fixed Assets
( 1 ) Tangible fixed assets
Using a fixed rate. (based on building installation value laws instated on 4/1/2016)

Below is the average service life.

Building Installations: 10 ~ 15 years
Tools, Devices, and Furnishings: 4 ~ 8 years

( 2 ) Intangible fixed assets
Based on the in-house availability (5 years) of software used in the corporation.

4. Appropriation Standards for Reserves
( 1 ) Irrecoverable debt reserves
Prepared to have ready for losses caused by irrecoverable debt from credits. There is a considered ratio for irrecoverable debt to go along with the general credit, as such this is a sum of money to maintain for the times when it’s impossible to claim a debt.

( 2 ) Bonus reserves
Provisioned expenditures set aside to give to employees as a reward.

5. Scope Regarding Funds in the Cash Flow Statement
Cash on hand is made up of money that can be quickly withdrawn, and items that can be easily liquidated, moreover the company takes responsibility for small risks from value fluctuations that can be paid off anywhere between three days to three months.

6. Important Notes Involving the Standards for Drawing up Other Financial Statements
Accounting of consumption tax: based on formulas that include tax amounts.

( Changes to Account Objectives )
No applicable information.

Relevant Information

Prev. Term (Oct 1, 2017 ~ Sept 30, 2018)

( 1 ) Information on Manufactured Goods and Other Services

In thousand yen increments.
  Manufactured Goods Div. Licensed Goods Div. Total
Total Sales of External Clients 1,123,648 1,234,342 2,357,991

( 2 ) Regional Information
→ Total Sales

In thousand yen increments.
Japan Asia North America / Europe Total
2,033,602 144,422 173,966 2,357,991

Note: The information is based on client sales, sorted by region.

→ Tangible Fixed Assets

( 3 ) Major Client Information

In thousand yen increments.
Major Client Name Total Sales Related Segment Name
Konami Digital Entertainment 991,587 Game Development / Sales
Sony Interactive Entertainment 683,489 Game Development / Sales

Current Term (Oct 1, 2018 ~ Sept 30, 2019)

( 1 ) Information on Manufactured Goods and Other Services

In thousand yen increments.
  Manufactured Goods Div. Licensed Goods Div. Total
Total Sales of External Clients 811,511 1,642,617 2,454,128

( 2 ) Regional Information
→ Total Sales

In thousand yen increments.
Japan Asia North America / Europe Total
1,856,004 198,628 399,495 2,454,128

Note: The information is based on client sales, sorted by region.

→ Tangible Fixed Assets

( 3 ) Major Client Information

In thousand yen increments.
Major Client Name Total Sales Related Segment Name
Konami Digital Entertainment 830,925 Game Development / Sales
Sony Interactive Entertainment 718,682 Game Development / Sales

Sources:
Falcom IR Information – Summary of Accounts for Term ending in Sept 2019

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