FORM 6-K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
Commission File Number:333-10486
For the Month of October 2001
Trend Micro Incorporated
(Translation of registrant's name into English)
Odakyu Southern Tower, 10th Floor, 2-1, Yoyogi 2-chome,
Sibuya-ku, Tokyo 151-8583, Japan
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F ____
-----
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes _____ No X
-----
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-__________
Information furnished on this form:
Table of Contents
1. Press release dated October 22, 2001 relating to the U.S. GAAP consolidated
interim financial information (unaudited) of the registrant and its
consolidated subsidiaries for the six months ended June 30, 2001, which
information the registrant plans to file with the Tokyo Stock Exchange on
October 23, 2001. (*)
2. The U.S. GAAP consolidated interim financial information (unaudited) of the
registrant and its consolidated subsidiaries for the six months ended June
30, 2001.
(*) The U.S. GAAP consolidated interim financial information (unaudited)
contained in the press release is the same as 2. (except that the press
release does not contain full notes thereto) and is thus omitted from 1.
SIGNATURE
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.
Trend Micro Incorporated
Date: October 22, 2001 By: /s/ Toshihiro Watanabe
---------------------------
Toshihiro Watanabe
Representative Director and
Senior Executive Vice
President
Attachment 1
Trend Micro announced its U.S. GAAP financial information for the first half of
2001
Tokyo, Japan - October 22, 2001 - Trend Micro Incorporated (Nasdaq: TMIC, Tokyo
Stock Exchange: 4704), a leading provider of enterprise antivirus and content
security software, today announced its unaudited U.S. GAAP financial information
for the first half of 2001.
Financial Highlights for the first half of FY 2001 (January 1, 2001 through
June 30, 2001)
(1) Consolidated Results of Operations (Unaudited except FY 00 (annual))
-----------------------------------------------------------------------------------------------------------------------------
Operating Net income
Sales Growth rate income Growth rate before tax Growth rate
-----------------------------------------------------------------------------------------------------------------------------
Millions of yen % Millions of yen % Millions of yen %
The first half of FY 01 12,939 38.7 1,007 (62.4) 1,224 (67.3)
The first half of FY 00 9,331 62.7 2,678 56.7 3,740 111.5
-----------------------------------------------------------------------------------------------------------------------------
FY 00 (annual) 20,070 5,527 6,892
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Net Growth Net income Net income
Income rate per share per share (diluted)
-----------------------------------------------------------------------------------------------------------------------------
Millions of yen % Yen Yen
The first half of FY 01 554 (74.8) 4.22 4.14
The first half of FY 00 2,194 162.7 16.88 16.40
-----------------------------------------------------------------------------------------------------------------------------
FY 00 (annual) 3,675 28.18 27.53
-----------------------------------------------------------------------------------------------------------------------------
(Note)
1. Equity in loss of affiliated companies: - 105 million yen (- 24 million yen in the first half of FY 2000, - 88
million yen in FY 2000)
2. The average number of issued and 131,339,944 shares (130,011,158 shares for the first half of FY 2000,
outstanding shares (consolidated): 130,388,962 shares for FY 2000)
3. Changes in accounting principles: Not applicable
4. The percentage of sales, operating income, net income before tax and net income are in comparison to the first
half of the prior fiscal year.
(2) Consolidated Financial Position (Unaudited except December 31, 2000)
-----------------------------------------------------------------------------------------------------------------------------
Total assets Shareholders' equity Shareholders' equity Shareholders' equity
ratio per share
-----------------------------------------------------------------------------------------------------------------------------
As of Millions of yen Millions of yen % Yen
June 30, 2001 52,993 26,891 50.7 204.21
June 30, 2000 38,519 20,999 54.5 161.10
-----------------------------------------------------------------------------------------------------------------------------
December 31, 2000 44,574 24,344 54.6 185.66
-----------------------------------------------------------------------------------------------------------------------------
(Note)
Number of issued and outstanding shares 131,681,887 shares as of June 30, 2001, the end of the first half of FY 2001
(consolidated): (130,345,338 shares as of the end of the first half of FY 2000, 131,120,842
shares as of the end of the FY 2000)
(3) Consolidated Cash Flow Position (Unaudited except December 31, 2000)
-----------------------------------------------------------------------------------------------------------------------------
Ending balance of
Operating Cash Flow Investing Cash Flow Financing Cash Flow Cash and Cash
equivalents
-----------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
equivalents
------------------------------------------------------------------------------------------------------------------------
As of Millions of yen Millions of yen Millions of yen Millions of yen
June 30, 2001 4,191 (1,364) 6,963 34,553
June 30, 2000 1,594 (1,772) 5,430 20,902
------------------------------------------------------------------------------------------------------------------------
December 31, 2000 6,086 (4,141) 6,496 24,436
------------------------------------------------------------------------------------------------------------------------
(4) Basis of consolidation and application of equity method:
The number of consolidated subsidiaries .............. 18
The number of unconsolidated subsidiaries............. -
The number of affiliated companies ............... 4
(5) Change in the basis of consolidation and application of equity method:
The number of additional consolidated subsidiaries ............ 2
The number of excluded consolidated subsidiaries .............. -
The number of additional consolidated affiliated companies .... 1
The number of excluded consolidated affiliated companies ...... -
Previously, on August 3, 2001, Trend Micro announced its Japanese GAAP financial
information for the same period. Significant differences between Japanese GAAP
and U.S. GAAP applicable to Trend Micro are summarized below.
Goodwill write-off (2,000 million yen), which is recognized as other expenses
under Japanese GAAP, is recognized as operating expenses under U.S. GAAP.
From the fiscal year ending December 31, 2001, Trend Micro and Trend Micro
Incorporated (Taiwan) have adopted the deferred revenue accounting for their
Post-contract Customer Support service for its Japanese GAAP financial reporting
purposes. The cumulative effect of adopting the deferred revenue accounting of
3,009 million yen is recorded as other expenses under Japanese GAAP. For its
U.S. GAAP reporting purposes, Trend Micro and Trend Micro Incorporated (Taiwan)
have historically adopted the deferred revenue accounting for their Post-
contract Customer Support service on a consistent basis.
[For the U.S. GAAP consolidated interim financial information (unaudited) of
Trend Micro and its consolidated subsidiaries for the six months ended June 30,
2001, see the second attachment to this report on Form 6-K.]
About Trend Micro, Inc.
Trend Micro, Inc. is a leader in network antivirus and Internet content
security software and services. The Tokyo-based corporation has its North
American headquarters in Cupertino, CA, and business units worldwide. Trend
Micro products are sold directly, through corporate, value-added resellers and
managed service providers. Trend Micro's U.S. GAAP financial statements for the
six months ended June 30, 2001, including the notes thereto, are available on
its website at
http://www.antivirus.com/corporate/investor_relations/financial_information.htm.
For additional information and evaluation copies of all Trend Micro products,
visit http://www.antivirus.com.
For additional information:
Mr. Mahendra Negi
Chief Financial Officer/IR Officer
Phone: +81-3-5334-4899
Fax: +81-3-5334-4874
ir@trendmicro.co.jp
Attachment 2
TREND MICRO INCORPORATED
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
INDEX TO CONSOLIDATED INTERIM FINANCIAL INFORMATION (UNAUDITED)
---------------------------------------------------------------
Page
----
Consolidated balance sheets at June 30, 2000 and 2001 (and audited 2
consolidated balance sheet at December 31, 2000)
Consolidated statements of income for the six months ended June 30, 4
2000 and 2001
Consolidated statements of cash flows for the six months ended June 5
30, 2000 and 2001
Notes to consolidated financial information 6
TREND MICRO INCORPORATED
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Except December 31, 2000, all balances unaudited)
ASSETS
------
Thousands of U.S.
Thousands of yen dollars
--------------------------------------------------------------------------
June 30, December 31, June 30, June 30,
--------------------------------------------------------------------------
2000 2000 2001 2001
--------------------------------------------------------------------------
Current assets:
Cash and cash equivalents (Yen)20,901,860 (Yen)24,435,503 (Yen)34,553,234 $276,426
Time deposits - - 65,511 524
Marketable securities 3,262,862 1,893,475 2,505,717 20,046
Notes and accounts receivable, trade - less
allowance for doubtful accounts and sales return of
(Yen)419,776, (Yen)646,566 and (Yen)608,682 ($4,869) 6,812,271 8,133,700 7,058,799 56,471
Inventories 101,778 318,188 206,946 1,656
Deferred income taxes 940,866 2,687,913 2,798,031 22,384
Prepaid expenses and other current assets 1,749,301 607,142 994,108 7,952
-------------------------------------------------------------------------
33,768,938 38,075,921 48,182,346 385,459
-------------------------------------------------------------------------
Investments and other assets:
Securities investments 980,801 1,335,849 1,256,501 10,052
Investment in and advances to affiliated 246,628 182,473 109,623 877
Companies
Goodwill and other intangible assets 1,586,609 2,740,827 979,528 7,836
Deferred income taxes 398,019 446,004 150,447 1,204
Other 539,415 570,742 795,721 6,366
-------------------------------------------------------------------------
3,751,472 5,275,895 3,291,820 26,335
-------------------------------------------------------------------------
Property and equipment:
Office furniture and equipment 1,308,853 1,536,444 1,921,112 15,369
Other properties 357,362 443,102 597,089 4,776
-------------------------------------------------------------------------
1,666,215 1,979,546 2,518,201 20,145
Less: Accumulated depreciation (667,128) (756,898) (999,550) (7,996)
-------------------------------------------------------------------------
999,087 1,222,648 1,518,651 12,149
-------------------------------------------------------------------------
(Yen)38,519,497 (Yen)44,574,464 (Yen)52,992,817 $423,943
=========================================================================
The accompanying notes are an integral part of the financial information.
2
TREND MICRO INCORPORATED
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Except December 31, 2000, all balances unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Thousands of
Thousands of yen U.S. dollars
--------------------------------------------------------------------
June 30, December 31, June 30, June 30,
--------------------------------------------------------------------
2000 2000 2001 2001
--------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt - (Yen) 57,200 (Yen) 57,200 $ 458
Notes payable, trade (Yen)148,182 132,499 81,140 649
Accounts payable, trade 472,072 796,782 627,547 5,020
Accounts payable, other 591,154 517,247 637,700 5,102
Withholding income taxes 145,999 120,994 172,648 1,381
Accrued expenses 476,950 615,850 981,643 7,853
Accrued income and other taxes 946,855 2,014,589 606,682 4,853
Deferred revenue 2,898,887 5,043,425 6,311,197 50,490
Other 349,417 415,372 273,278 2,187
--------------- --------------- --------------- ---------
6,029,516 9,713,958 9,749,035 77,993
--------------- --------------- --------------- ---------
Long-term liabilities:
Long-term debt 10,865,760 9,799,900 15,471,300 123,770
Deferred revenue 330,544 548,225 655,291 5,242
Accrued pension and severance costs 143,590 168,032 226,315 1,811
--------------- --------------- --------------- ---------
11,339,894 10,516,157 16,352,906 130,823
--------------- --------------- --------------- ---------
Minority interest in consolidated subsidiary 151,468 - - -
Shareholders' equity:
Common stock, (Yen)50 par value -
Authorized - 250,000,000 shares
Issued and outstanding
- June 30, 2000 130,345,338 shares 5,620,192
- December 31, 2000 131,120,842 shares 6,183,266
- June 30, 2001 131,681,887 shares 6,799,374 54,395
Additional paid-in capital 10,101,923 11,631,591 12,313,160 98,505
Legal reserve 149,991 149,991 149,991 1,200
Deferred compensation related to stock options (50,764) - - -
Retained earnings 5,276,722 6,745,769 7,279,920 58,239
Accumulated other comprehensive income
Net unrealized gain on debt and equity securities 503,255 (168,277) 118,721 950
Cumulative translation adjustments (580,279) (169,616) 240,701 1,926
--------------- --------------- --------------- ---------
(77,024) (337,893) 359,422 2,876
--------------- --------------- --------------- ---------
Treasury stock, at cost (22,421) (28,375) (10,991) (88)
--------------- --------------- --------------- ---------
20,998,619 24,344,349 26,890,876 215,127
--------------- --------------- --------------- ---------
Commitments and contingent liabilities - - - -
--------------- --------------- --------------- ---------
(Yen)38,519,497 (Yen)44,574,464 (Yen)52,992,817 $423,943
=============== =============== =============== =========
The accompanying notes are an integral part of the financial information.
3
TREND MICRO INCORPORATED
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
Thousands of
Thousands of yen U.S. dollars
-------------------------------------- ---------------
For the six
For the six months months ended
ended June 30, June 30,
-------------------------------------- ---------------
2000 2001 2001
-------------- --------------- ---------------
Net sales (Yen)9,330,979 (Yen)12,939,355 $103,515
Cost of sales 603,879 732,229 5,858
-------------- --------------- --------------
Gross profit 8,727,100 12,207,126 97,657
-------------- --------------- --------------
Operating expenses:
Selling 1,068,155 3,224,430 25,795
Research and development 850,858 1,481,962 11,856
General and administrative 4,034,058 4,240,357 33,923
Goodwill amortization 95,797 - -
Goodwill write-off - 2,253,559 18,028
-------------- --------------- --------------
6,048,868 11,200,308 89,602
-------------- --------------- --------------
Operating income 2,678,232 1,006,818 8,055
-------------- --------------- --------------
Other income (expenses):
Interest income 76,561 202,267 1,618
Interest expense (85,521) (135,172) (1,081)
Gain on sales of marketable securities 65,377 - -
Foreign exchange gain, net 31,191 256,830 2,055
Other income (expense), net 974,227 (107,200) (859)
-------------- --------------- --------------
1,061,835 216,725 1,733
-------------- --------------- --------------
Income before income taxes, minority interest and equity in
loss of affiliated companies 3,740,067 1,223,543 9,788
-------------- --------------- --------------
Income taxes (benefit):
Current 1,790,174 491,658 3,933
Deferred (340,689) 73,174 585
-------------- --------------- --------------
1,449,485 564,832 4,518
-------------- --------------- --------------
Income before minority interest and equity in loss of affiliated
companies 2,290,582 658,711 5,270
Minority interest in income of a consolidated subsidiary 72,645 - -
-------------- --------------- --------------
Income from consolidated companies 2,217,937 658,711 5,270
Equity in losses of affiliated companies 23,517 104,850 839
-------------- --------------- --------------
Net income (Yen)2,194,420 (Yen)553,861 $ 4,431
-------------- --------------- --------------
Yen Yen U.S. dollars
-------------- --------------- --------------
Per share data:
Net income - basic (Yen)16.88 (Yen)4.22 $ 0.03
- diluted 16.40 4.14 0.03
Cash dividends - - -
The accompanying notes are an integral part of the financial information.
4
TREND MICRO INCORPORATED
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Thousands of
Thousands of yen U.S. dollars
-------------------------------------------- -------------------
For the six
For the six months months ended
ended June 30, June 30,
-------------------------------------------- -------------------
2000 2001 2001
------------------- ------------------- -------------------
Cash flows from operating activities:
Net income (Yen) 2,194,420 (Yen) 553,861 $ 4,431
Adjustments to reconcile net income to net cash
provided by operating activities -
Amortization of deferred compensation related to stock
Options 46,114 - -
Depreciation and amortization 466,243 2,728,584 21,829
Pension and severance costs, less payments 30,833 56,660 453
Loss on disposal of fixed assets 2,739 - -
Deferred income taxes (340,688) 73,174 585
Gain on sales of marketable securities (65,377) - -
Minority interest in income of a consolidated subsidiary 72,645 - -
Changes in assets and liabilities:
Increase in deferred revenue 800,107 1,197,419 9,579
Decrease (increase) in notes and accounts receivable,
trade, net of allowances (915,342) 1,323,967 10,592
Decrease (increase) in inventories (26,987) 113,719 910
(Decrease) in notes and accounts payable, trade (187,070) (261,766) (2,094)
(Decrease) increase in accrued corporate taxes and other 76,529 (1,413,131) (11,305)
Increase in other current assets (726,786) (103,212) (826)
Increase (decrease) in other current liabilities (6,101) 40,311 322
Other 172,974 (118,669) (949)
------------------- ------------------- -------------------
Net cash provided by operating activities 1,594,253 4,190,917 33,527
------------------- ------------------- -------------------
Cash flows from investing activities:
Payments for purchases of fixed assets (412,227) (1,228,759) (9,830)
Proceeds from sales of marketable securities 150,814 2,611,426 20,891
Payments for purchases of marketable securities (2,736) (2,648,926) (21,191)
Acquisitions of businesses, net of cash acquired (1,308,248) - -
Increase in investments in affiliated companies (200,000) (32,000) (256)
Payments for time deposits - (65,511) (524)
------------------- ------------------- -------------------
Net cash used in investing activities (1,772,397) (1,363,770) (10,910)
------------------- ------------------- -------------------
Cash flows from financing activities:
Issuance of common stock pursuant to exercise of stock
options 359,273 870,797 6,966
Tax benefit from exercise of non-qualified stock options 621,555 411,301 3,290
Proceeds from long-term debt 5,000,000 6,500,000 52,000
Repayment of long-term debt (325,056) (828,600) (6,629)
Decrease in short-term borrowings (198,000) - -
Other (27,555) 9,525 77
------------------- ------------------- -------------------
Net cash provided by financing activities 5,430,217 6,963,023 55,704
------------------- ------------------- -------------------
Effect of exchange rate changes on cash and cash equivalents 906 327,561 2,621
------------------- ------------------- -------------------
Net increase in cash and cash equivalents 5,252,979 10,117,731 80,942
Cash and cash equivalents at beginning of period 15,648,881 24,435,503 195,484
------------------- ------------------- -------------------
Cash and cash equivalents at end of period (Yen)20,901,860 (Yen)34,553,234 $ 276,426
=================== =================== ===================
The accompanying notes are an integral part of the financial information.
5
TREND MICRO INCORPORATED
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------
(Unaudited)
1. Basis of presentation
The consolidated financial information of Trend Micro Incorporated and its
subsidiaries (collectively "the Company") are unaudited. The financial
information has been prepared in accordance with U.S. GAAP. The unaudited
financial information furnished include all adjustments that are, in the opinion
of management, necessary to a fair statement of the results for the interim
periods presented. Operating results for the six months ended June 30, 2001 are
not necessarily indicative of the results for the year ended December 31, 2001.
2. Recent pronouncements
From the fiscal year beginning January 1, 2001, The Company adopted FAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities" as
amended by FAS No. 138 "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an Amendment of FASB statement No. 133". FAS No.
133, as amended, establishes accounting and reporting standards for derivative
instruments. Specifically, FAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities in the balance sheet and to measure
those instruments at fair value. Additionally, the fair value adjustments will
affect either stockholders' equity or net income depending on whether the
derivative instrument qualifies as a hedge for accounting purposes and, if so,
the nature of the hedging activity. The adoption of FAS No. 133 did not have an
effect on the Company's financial position and results of operations.
In July 2001, the Financial Accounting Standards Board issued FAS No. 141
"Business Combinations" and FAS No. 142 "Goodwill and Other Intangible Assets."
FAS No. 141 supersedes Accounting Principles Board Opinion ("APB") No. 16
"Business Combination" and FAS No. 38 "Accounting for Preacquisition
Contingencies of Purchases Enterprises." Under FAS No. 141, all business
combinations are required to be accounted for under a single method, the
purchase method. This new statement prohibits the use of the pooling-of-interest
method, which was previously permitted under APB No. 16, for business
combinations initiated after June 30, 2001. FAS No. 141 also established
criteria for the separate recognition of intangible assets acquired in a
business combination. FAS No. 142 supersedes APB No. 17 "Intangible Assets."
This new statement requires that goodwill no longer be amortized to earnings,
but instead be subject to periodic testing for impairment. FAS No. 142 is
effective for fiscal years beginning after December 15, 2001, with earlier
application permitted only in specified circumstances. The Company believes that
the adoption of FAS No. 141 and FAS No. 142 will not have a material effect on
the financial statements of the Company.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 143
"Accounting for Asset Retirement Obligations" ("FAS 143"). FAS No. 143 requires
the recognition of a liability for an asset retirement obligation in the period
in which it is incurred. When the liability is initially recorded, the carrying
amount of the related long-lived asset is correspondingly increased. Over time,
the liability is accreted to its present value and the related capitalized
charge is depreciated over the useful life of the asset. FAS No. 143 is
effective for fiscal years beginning after June 15, 2002. The Company is
evaluating the effect of the new standard on its financial position and results
of operations.
3. U.S. dollar amounts
U.S. dollar amounts presented in the financial information are included
solely for the convenience of the reader. These translations should not be
construed as representations that the yen amounts actually represent, or have
been or could be converted into, U.S. dollars. As the amounts shown in U.S.
dollars are for convenience only, the approximate current rate at June 29, 2001
((Yen)125.00 = U.S. $1) has been used for the purpose of presentation of the
U.S. dollar amounts in the accompanying consolidated financial information.
4. Stock split
On February 15 2001, the Board of Directors of the Company decided and declared
a stock split in the ratio of two-for-one for which the record date was May 18,
2001. All prior share and per share amounts in the financial information and
accompanying notes have been restated to reflect this stock split.
5. Net income per share
Net income per share amounts were computed based on Statements of Financial
Accounting Standards No. 128. For the six months ended June 30, 2000 and 2001,
weighted average shares used for computation of basic net income per share were
130,011 thousand shares and 131,340 thousand shares, respectively, and the
weighted average shares used for diluted net income per share were 133,810
thousand shares and 133,676 thousand shares, respectively. The weighted average
shares outstanding for diluted net income per share calculation were increased
to include additional shares from the assumed exercise of stock warrants and
options which had dilutive effect.
6. Comprehensive income
Changes in shareholders' interest that do not result directly from
transactions with shareholders are as follows:
6
Thousands of
Thousands of yen U.S. dollars
------------------------------------ -----------------
For the six
months ended
For the six months ended June 30, June 30,
------------------------------------ -----------------
2000 2001 2001
----------------- ----------------- -----------------
Net income (Yen)2,194,420 (Yen) 553,861 $ 4,431
----------------- ----------------- -----------------
Other comprehensive income, net of tax:
Unrealized gain on debt and equity securities:
Unrealized holding gains arising during period 561,635 495,407 3,963
Less reclassification adjustment for gains
included in net income (65,377) - -
----------------- ----------------- -----------------
496,258 495,407 3,963
Foreign currency translation adjustments 52,709 410,317 3,283
----------------- ----------------- -----------------
Other comprehensive income, before tax 548,967 905,724 7,246
Income tax expense related to items of other
comprehensive income (208,925) (208,410) (1,668)
----------------- ----------------- -----------------
Other comprehensive income, net of tax 340,042 697,314 5,578
----------------- ----------------- -----------------
Comprehensive income (Yen)2,534,462 (Yen)1,251,175 $10,009
================= ================= =================
7. Supplemental cash flow information
Cash payments for income taxes were (Yen)883,384 thousand and
(Yen)1,618,952 thousand ($12,952 thousand) for the six months ended June 30,
2000 and 2001, respectively. In these respective periods, interest payments were
(Yen)85,725 thousand and (Yen)122,593 thousand ($981 thousand).
8. Marketable securities
Cash equivalents and marketable securities (current and non-current)
include money market funds, mutual funds and debt and equity securities for
which the aggregate fair value, gross unrealized gains and losses and cost
pertaining to "available-for-sale" investments as of June 30 and December
31, 2000 and June 30, 2001 were as follows:
Thousands of yen
-------------------------------------------------------------------------
June 30, 2000
-------------------------------------------------------------------------
Gross unrealized
-----------------------------------
Cost Gains Losses Fair value
---------------- ---------------- ---------------- ----------------
Available for sale:
Money market funds (Yen) 31 (Yen) - (Yen) - (Yen) 31
Mutual funds 960,806 - - 960,806
Equity securities 573,747 927,912 30,082 1,471,577
Debt securities 1,800,000 11,280 - 1,811,280
---------------- ---------------- ---------------- ----------------
Total (Yen)3,334,584 (Yen)939,192 (Yen)30,082 (Yen)4,243,694
================ ================ ================ ================
Thousands of yen
-------------------------------------------------------------------------
December 31, 2000
-------------------------------------------------------------------------
Gross unrealized
-----------------------------------
Cost Gains Losses Fair value
---------------- ---------------- ---------------- ----------------
Available for sale:
Money market funds (Yen) 31 (Yen) - (Yen) - (Yen) 31
Mutual funds 970,802 - 32,747 938,055
Equity securities 825,344 - 245,124 580,220
Debt securities 1,700,000 11,050 - 1,711,050
---------------- ---------------- ---------------- ----------------
Total (Yen)3,496,177 (Yen) 11,050 (Yen)277,871 (Yen)3,229,356
================ ================ ================ ================
7
Thousands of yen
----------------------------------------------------------------
June 30, 2001
----------------------------------------------------------------
Gross unrealized
-----------------------------
Cost Gains Losses Fair value
-------------- ------------ ------------ --------------
Available for sale:
Money market funds (Yen) - (Yen) - (Yen) - (Yen) -
Mutual funds 970,802 - 32,901 937,901
Equity securities 862,830 192,976 - 1,055,806
Debt securities 1,700,000 68,510 - 1,768,510
-------------- ------------ ------------ --------------
Total (Yen)3,533,632 (Yen)261,486 (Yen)32,901 (Yen)3,762,217
============== ============ ============ ==============
Thousands of U.S. dollars
----------------------------------------------------------------
June 30, 2001
----------------------------------------------------------------
Gross unrealized
-----------------------------
Cost Gains Losses Fair value
-------------- ------------ ------------ --------------
Available for sale:
Money market funds $ - - - $ -
Mutual funds 7,766 - 263 7,503
Equity securities 6,903 1,544 - 8,447
Debt securities 13,600 548 - 14,148
-------------- ------------ ------------ --------------
Total $ 28,269 $ 2,092 $ 263 $ 30,098
============== ============ ============ ==============
Fair value of money market funds approximates cost due to the short-term
maturities of these investments.
At June 30, 2000 and 2001, debt securities consisted of bonds issued by a
related party (SOFTBANK). The cost and fair value of "available-for sale" debt
securities by contractual maturity at June 30 and December 31, 2000 and June
30, 2001 are as follows:
Thousands of yen
---------------------------------------------------------------------------------------------------
June 30, 2000 December 31, 2000 June 30, 2001
------------------------------- ------------------------------- -------------------------------
Available-for sale Available-for sale Available-for sale
------------------------------- ------------------------------- -------------------------------
Cost Fair value Cost Fair value Cost Fair value
-------------- -------------- -------------- -------------- -------------- --------------
Due within one year (Yen) 100,000 (Yen) 100,230 (Yen) - (Yen) - (Yen) - (Yen) -
Due after one year 1,700,000 1,711,050 1,700,000 1,711,050 1,700,000 1,768,510
-------------- -------------- -------------- -------------- -------------- --------------
(Yen)1,800,000 (Yen)1,811,280 (Yen)1,700,000 (Yen)1,711,050 (Yen)1,700,000 (Yen)1,768,510
============== ============== ============== ============== ============== ==============
Thousands of U.S. dollars
----------------------------
June 30, 2001
----------------------------
Available-for-sale
----------------------------
Cost Fair value
---------- --------------
Due within one year $ - $ -
Due after one year 13,600 14,148
---------- --------------
$ 13,600 $ 14,148
========== ==============
Proceeds from sales of "available-for-sale" securities for the six months
ended June 30, 2000 and 2001 were (Yen)151,621 and (Yen)2,611,426 thousand
($20,891 thousand).
Equity securities of (Yen)160,000 thousand which had previously been recorded
as "Securities investments" under investments and other assets was reclassified
to "Marketable securities" under current assets at June 30, 2001.
8
9. Transactions with related parties
Account balances and transactions with SOFTBANK and its affiliated
companies are as follows:
Thousands of
Thousands of yen U.S. dollars
------------------------------------------------ --------------
June 30, December 31, June 30, June 30,
2000 2000 2001 2001
-------------- -------------- -------------- --------------
Accounts receivable, trade (Yen) 737,693 (Yen)1,072,768 (Yen)1,335,247 $ 10,682
Securities investments 1,811,280 1,700,000 1,768,510 14,148
Accounts payable, other 44,604 16,435 2,802 22
Sales for the six months ended 1,241,653 3,507,641 2,580,812 20,646
Purchase and expense for the six
months ended 95,280 69,104 56,483 452
Interest income on security investments 26,605 53,113 25,290 202
The Company believes that each of these transactions has been negotiated on
an arm's length basis and done at fair value based on market pricing.
10. Short-term borrowings and long-term debt
At June 30, 2001, the Company had unused lines of credit amounting to
(Yen)800,000 thousand relating to bank overdraft and other short-term loan
agreements. Under these overdraft agreements, the Company is authorized to
obtain short-term financing at prevailing interest rates for periods not in
excess of one year.
Long-term debt comprises the following:
Thousands of
Thousands of yen U.S. dollars
------------------------------------------------- --------------
June 30, December 31, June 30, June 30,
2000 2000 2001 2001
-------------- -------------- --------------- --------------
Unsecured bank loan of a consolidated
subsidiary due 2001 with a weighted
average interest rate of 2.175% per
annum................................... (Yen) - (Yen) 57,200 (Yen) 28,600 $ 229
Unsecured bank loan of a consolidated
subsidiary due 2003 with a weighted
average interest rate of 2.25% per
annum................................... 165,760 - - -
Unsecured bank loan of a consolidated
subsidiary due 2003 with a weighted
average interest rate of 2.175% per
annum................................... - 99,900 99,900 799
Unsecured 2.5% bonds, due 2002 with
detachable warrants..................... 5,700,000 4,700,000 3,900,000 31,200
Unsecured 2.1% bonds, due 2003 with
detachable warrants..................... 5,000,000 5,000,000 5,000,000 40,000
Unsecured 1.75% bonds, due 2004 with
detachable warrants..................... - - 5,000,000 40,000
Unsecured 1.5% bonds, due 2004 with
detachable warrants - - 1,500,000 12,000
------------------------------------------------- --------------
10,865,760 9,857,100 15,528,500 124,228
Less - portion due within one year - 57,200 57,200 458
-------------------------------------------------- --------------
(Yen)10,865,760 (Yen)9,799,900 (Yen)15,471,300 $ 123,770
=============== ============== =============== ==============
9
11. Stock Warrants
Based on the Company's 1997, 1998 and 1999 incentive plans, the Company
issued the following bonds with detachable warrants to SOFTBANK.
1. Shareholders' meeting/board
meeting approval................... September 29, 1997 March 28, 1998 May 29, 1998 June 30, 1999
2. Date of bond issuance.............. October 17, 1997 April 15, 1998 June 15, 1998 July 29, 1999
3. Amount of each bond (Thousands
of yen)............................ (Yen)908,523 (Yen)412,965 (Yen)196,650 (Yen)6,000,000
4. Date on which the bonds were
fully redeemed..................... October 17, 1997 April 15, 1998 June 15, 1998 -
5. Exercise price per each warrant.... (Yen)142.5 (Yen)142.5 (Yen)142.5 (Yen)3,200
6. Warrant exercise period............ October 27, 1997 to April 27, 1998 to June 25, 1998 to August 20, 1999 to
October 12, 2001 April 5, 2002 June 7, 2002 July 22, 2002
7. Number of shares represented
by warrants........................ 6,375,600 2,898,000 1,380,000 1,875,000
8. Outstanding as of June 30, 2000.... 1,190,400 769,800 702,000 1,772,262
9. Outstanding as of December 31,
2000............................... 940,200 682,200 597,000 1,439,494
10. Outstanding as of June 30, 2001.... 834,600 549,600 539,400 1,174,182
Based on the Company's 2000 and 2001 incentive plan, the Company issued
following bonds with detachable warrants to public.
1. Shareholders' meeting/
board meeting approval................... June 1, 2000 February 15, 2001 May 8, 2001
2. Date of bond issuance.................... June 26, 2000 March 19, 2001 June 4, 2001
3. Amount of each bond (Thousands of yen)... (Yen)5,000,000 (Yen)5,000,000 (Yen)1,500,000
4. Date on which the bonds were
fully redeemed........................... - - -
5. Exercise price per each warrant.......... (Yen)7,850 (Yen)5,675 (Yen)5,760
6. Warrant exercise period.................. July 21, 2000 to April 12, 2001 to May 17, 2002 to
June 19, 2003 March 12, 2004 May 28, 2004
7. Number of shares represented
by warrants.............................. 636,942 881,057 260,416
8. Outstanding as of June 30, 2000.......... 636,942 - -
9. Outstanding as of December 31,
2000.................................... 636,942 - -
10. Outstanding as of June 30, 2001......... 636,942 873,128 256,076
Upon issuance of each bond, the Company bought all of the warrants and
distributed them to the directors and certain employees of the Company and its
subsidiaries as a part of their remuneration.
These transactions were accounted for both as an issuance of debt to
SOFTBANK and the public, and as an issuance of warrants to the directors and
certain employees of the Company and its subsidiaries. The issuance of the
warrants to the directors and employees was accounted for under APB 25.
10
Warrant activity was as follows:
Thousands of shares represented by
warrants
-------------------------------------
Outstanding at December 31, 1997............................ 6,376
Granted.................................................... 4,278
Exercised.................................................. (2,014)
Cancelled.................................................. -
Redeemed................................................... (749)
------------
Outstanding at December 31, 1998............................ 7,891
Granted.................................................... 1,875
Exercised.................................................. (4,672)
Cancelled.................................................. -
Redeemed................................................... -
------------
Outstanding at December 31, 1999............................ 5,094
Granted.................................................... 637
Exercised.................................................. (1,435)
Cancelled.................................................. -
Redeemed................................................... -
------------
Outstanding at December 31, 2000 4,296
Granted.................................................... 1,141
Exercised.................................................. (561)
Cancelled.................................................. (12)
Redeemed................................................... -
------------
Outstanding at June 30, 2001 4,864
============
Balances were as follows:
Thousands of shares
June 30 December 31 June 30
--------------------------------------------------
2000 2000 2001
---------- ---------- ------------
Authorized and outstanding............... 5,071 4,296 4,864
Exercisable.............................. 3,180 2,958 3,278
For the above stock warrants granted on April 15, 1998 and June 15, 1998,
management calculated deferred compensation expense of (Yen)878,798 thousand
during fiscal 1998. Such deferred compensation will be amortized over the
vesting period which is generally 24 months. Approximately (Yen)397,467
thousand, (Yen)379,803 thousand and (Yen)101,528 thousand was amortized during
fiscal 1998, 1999 and 2000 respectively. The grants of October 17, 1997, July
29, 1999, June 26, 2000 March 19, 2001 and June 4, 2001 with respect to which
the vesting period is generally 24 months, did not result in deferred
compensation.
In July 1999, the subsidiary in the United States introduced the U.S.
program of the Company's incentive plan. Under the U.S. program, STG Incentive
Company L.L.C., a Delaware limited company organized for the program by three
principal shareholders of the Company, grants stock options to purchase shares
of the Company's common stock, which vest one year from the date of grant and
which are exercisable for the 3 years subsequent to the vesting date, to
directors and certain employees of the subsidiary in the United States. The
grants of options to the directors and employees were accounted for under APB
25. Option activity under the U.S. program for the year ended December 31, 2000
and for the period ended June 30, 2001 was as follows:
11
Thousands of shares
represented by options
--------------------------
Outstanding at December 31, 1999..................... 1,620.0
Granted.............................................. -
Exercised............................................ (113.0)
Cancelled............................................ -
Redeemed............................................. -
Outstanding at December 31, 2000..................... 1,507.0
Granted.............................................. -
Exercised............................................ (45.5)
Cancelled............................................ -
Redeemed............................................. -
Outstanding at June 30, 2001......................... 1,461.5
The exercise price per share for the options granted was determined as
equivalent to the fair market value of the Company's shares at the time of the
grants. The weighted average exercise price per share for the option granted for
the six months ended June 30, 2001 was (Yen)3,126. Consequently, the grants of
the option did not result in deferred compensation.
In February 2001, the Company introduced the stock option plan qualified
under Article 280-19 of the Commercial Code of Japan. This stock option plan
grants subscription rights to the Company's shares of common stock, which are
exercisable from April 1 2002 to March 31, 2009, to certain directors and
employees of the Company and its subsidiaries qualifying for the special related
business as defined in Paragraph 1 of Article 9 of the Corporate Rehabilitation
Law of Japan. The exercise price per share for the options granted was
determined as equivalent to the fair market value of the Company's shares at the
time of the grants. The weighted average exercise price per share for the
option granted for the six months ended June 30, 2001 was (Yen)5.760.
Consequently, the grants of the option did not result in deferred compensation.
Option activity qualified under the Commercial Code of Japan for the period
ended June 30, 2001 was as follows:
Thousands of shares
represented by options
--------------------------
Outstanding at December 31, 2000 -
Granted.............................................. 725
Exercised............................................ -
Cancelled............................................ (11)
Redeemed............................................. -
Outstanding at June 30, 2001......................... 714
12. COMMITMENTS AND CONTINGENT LIABILITIES
The Company and its subsidiaries have no significant commitments
outstanding, and no material pending litigation or claims threatened against
them.
13. SEGMENT INFORMATION
The Company and its consolidated subsidiaries operate principally in two
industry segments: "Security software business" and "Internet-related
products/service business". However, industry segment information is not
currently disclosed since more than 90% of sales, operating income and assets in
all segments are from the "security software business". Net sales is attributed
to countries based on the location of the Company or the relevant
12
consolidated subsidiary. Geographic information concerning the Company's net
sales to external customers and long-lived assets for the six months ended June
30, 2000 and 2001 is as follows:
Thousands of
Thousands of yen U.S. dollars
------------------------------------------ ---------------
For the six
months ended
For the six months ended June 30, June 30,
------------------------------------------ -------------
2000 2001 2001
------------------- -------------------- ---------------
Net sales to external customers:
Japan (Yen)3,388,855 (Yen)4,487,538 $ 35,900
U.S.A. 2,778,167 4,017,816 32,143
Taiwan 829,621 883,544 7,068
Europe 1,870,517 2,796,600 22,373
Other 463,819 753,857 6,031
-------------- -------------- --------
Total 9,330,979 12,939,355 103,515
============== ============== ========
Long-lived assets:
Japan (Yen) 939,497 (Yen)1,701,329 $ 13,611
U.S.A. 351,647 658,108 5,265
Taiwan 371,104 643,413 5,147
Europe 83,803 211,118 1,689
Other 33,532 79,932 639
-------------- -------------- --------
Total (Yen)1,779,583 (Yen)3,293,900 $ 26,351
============== ============== ========
Long-lived assets for a particular geographic segment are those
assets used in the geographic segment.
14. Impairment of ipTrend Investment
In February 2000, the company acquired a controlling interest in ipTrend
Incorporated ("ipTrend"). ipTrend effectively became a wholly owned subsidiary
in November 2000, when the remaining minority interest was acquired. The total
purchase price was (Yen)2,800,000 thousand and (Yen)2,527,636 thousand was
allocated to goodwill. Recently, the company undertook a revaluation of its
investment in ipTrend and related business strategy and determined that the
investment was impaired. On August 3, 2001, the company approved the sale of the
main business of ipTrend to IPSQUARE, an unrelated third party, and subsequently
commenced liquidation of the subsidiary. Although a definitive agreement has not
been agreed between the parties, the company does not expect a significant gain
or loss on the sale of the business, apart from the goodwill write-off of
(Yen)2,253,559 thousand ($18,028 thousand). Goodwill amortization of (Yen)95,797
thousand and the write off of (Yen)2,253,559 thousand ($18,028 thousand) are
included in operating income for the six months ended June 30, 2000 and 2001,
respectively.
13