Form 6-K
Table of Contents

U.S. 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

Commission File Number: 333-10486

For the Month of February 2007

Trend Micro Incorporated

(Translation of registrant’s name into English)

 


Shinjuku MAYNDS Tower, 1-1, Yoyogi 2-chome,

Shibuya-ku, Tokyo 151-0053, 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 if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):    

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):    

Indicate by check mark whether by furnishing the information contained in this Form, the registrant 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-            

 



Table of Contents

Information furnished on this form:

Table of Contents

1. Press Release dated February 19, 2007, relating to the restatement of consolidated / non-consolidated financial statements for the first half of the fiscal year ending December 31, 2006.


Table of Contents

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:  

February 20, 2007

    By:  

/s/    MAHENDRA NEGI        

 

       

Mahendra Negi

Representative Director, Chief Operating Officer,

Chief Financial Officer and Executive Vice President


Table of Contents

Restatement of Consolidated / Non-consolidated Financial Statements for the first half of the fiscal year ending December 31, 2006

Tokyo, Japan – February 19th, 2007 - Trend Micro (TSE: 4704; Nasdaq: TMIC), a leader in network antivirus and Internet content security software and services, today is restating its Consolidated / Non-consolidated Financial Statements for the first half of the fiscal year ending December 31, 2006, which were previously announced on August 10, 2006.

1. Reasons for Restatement

The Company is restating its Consolidated / Non-consolidated Financial Statements for the first half of the fiscal year ended December 31, 2006 due to the following reasons:

 

(1) Revenue for post-contract customer support services should be deferred based on their fair values and recognized ratably over the service period. However, certain inconsistencies between the revenue recognition period and the actual service period were found. In addition, certain fair value amounts were erroneously calculated. Thus, the Company revises its net sales to correct those errors.

 

(2) The fair value of the legal obligation associated with the retirement of long-lived assets should be recognized as a liability as prescribed in SFAS No. 143. However, the Company had not recorded certain of such obligations that were considered immaterial. Therefore, the Company provides an appropriate amount for all of its asset retirement obligations.

 

(3) In our North America operation, a subsidiary immediately expensed certain fixed assets with an acquisition cost of less than USD3,000 or a useful life of less than 2 years. The Company capitalizes such fixed assets and records appropriate depreciation expense.

 

(4) In our North America operation, a subsidiary corrected its tax calculation with regard to the transfer of intellectual property which took place in 2005.

The Company quantified these misstatements by applying SEC Staff Accounting Bulletin No.108, which was released in September 2006, and has concluded that these errors are material misstatements that warrant a restatement of its consolidated/non-consolidated financial results.

As a result of these adjustments, deferred tax asset (current) and deferred revenue (current) on the consolidated balance sheet as of June 30, 2006 increased by (Yen) 1,249,722 thousand and (Yen) 3,297,852 thousand, respectively. With regard to the consolidated income statements for the six-month period ended June 30, 2006, net sales and operating expenses increased by (Yen) 552,088 thousand and (Yen) 10,163 thousand respectively. As a result, each of operating income and net income before taxes increased by (Yen) 541,925 thousand.

Deferred tax asset (current) and deferred revenue (current) on the non-consolidated balance sheet as of June 30, 2006 increased by (Yen) 1,078,231 thousand and (Yen) 2,649,868 thousand, respectively. The increases in net sales by (Yen) 83,315 thousand and extraordinary loss by (Yen) 3,015,805 thousands in the non-consolidated income statement resulted in an increase in each of operating income and ordinary income by (Yen) 83,315 thousand and a decrease in income before taxes by (Yen) 2,932,489 thousand.

2. Restatement

Refer to the attachment.


Table of Contents

Restatement of Consolidated / Non-consolidated Financial Statements for the first half of the fiscal year ending December 31, 2006

Amendments (Revised figures are underlined.)

1. Financial Highlights for the first half of FY2006 (January 1, 2006 through June 30, 2006)

(All figures except for per share information are rounded to the nearest millions of yen.)

<As Originally Reported>

(1) Consolidated Results of Operations

 

     Net sales    Growth rate   

Operating

income

   Growth rate   

Net income

before tax

   Growth rate
     Millions of yen    %    Millions of yen    %    Millions of yen    %

The first half of FY 2006

   40,673    17.9    13,717    7.4    14,229    6.9

The first half of FY 2005

   34,490    21.2    12,771    12.2    13,316    15.5
                       

FY 2005 (annual)

   73,030       27,572       29,108   
                       

 

    

Net

income

   Growth rate    

Net income

per share (basic)

  

Net income

per share (diluted)

     Millions of yen    %     Yen    Yen

The first half of FY 2006

   7,997    (5.8 )   59.54    59.26

The first half of FY 2005

   8,490    21.8     63.67    62.71
                

FY 2005 (annual)

   18,670      139.85    137.83
                

 

(Note)   

1.      Equity in earnings of affiliated companies:

                    11 million yen (32 million yen in the first half of FY 2005, 67 million yen in FY 2005)

  

2.      The Company made no changes in accounting principle that had a material effect on the financial position, results of operations, and cash flows during the current period.

  

3.      Weighted average number of common shares outstanding:

                    134,323,039 shares (133,341,012 shares in the first half of FY 2005, 133,498,438 shares in FY 2005)

  

4.      The percentages for net sales, operating income, net income before tax and net income represent a change from the corresponding financial figures for the first half of prior fiscal year.

(2) Consolidated Financial Position

 

As of

   Total assets    Shareholders’ equity   

Shareholders’ equity

ratio

  

Shareholders’ equity

per share

   Millions of yen    Millions of yen    %    Yen

June 30, 2006

   145,657    86,465    59.4    642.18

June 30, 2005

   111,546    68,549    61.5    513.45
                   

December 31, 2005

   132,935    81,863    61.6    610.51
                   

(Note) Number of common shares outstanding : 134,642,555 shares

(133,505,467 shares as of June 30, 2005, 134,090,494 shares as of December 31, 2005)

(3) Consolidated Cash Flows

 

As of

  

Cash flows from

operating activities

  

Cash flows from

investing activities

   

Cash flows from

financing activities

    Ending balance of cash and
cash equivalents
   Millions of yen    Millions of yen     Millions of yen     Millions of yen

June 30, 2006

   19,978    (3,094 )   (5,998 )   71,118

June 30, 2005

   9,649    (3,218 )   (3,635 )   55,798
                     

December 31, 2005

   20,646    (12,738 )   (2,406 )   59,613
                     


Table of Contents

<As Amended>

(1) Consolidated Results of Operations

 

     Net sales    Growth rate   

Operating

income

   Growth rate   

Net income

before tax

   Growth rate
     Millions of yen    %    Millions of yen    %    Millions of yen    %

The first half of FY 2006

   41,226    19.5    14,259    11.7    14,771    10.9

The first half of FY 2005

   34,490    21.2    12,771    12.2    13,316    15.5
                       

FY 2005 (annual)

   73,030       27,572       29,108   
                       

 

    

Net

income

   Growth rate    

Net income

per share (basic)

  

Net income

per share (diluted)

     Millions of yen    %     Yen    Yen

The first half of FY 2006

   8,385    (1.2 )   62.42    62.14

The first half of FY 2005

   8,490    21.8     63.67    62.71
                

FY 2005 (annual)

   18,670      139.85    137.83
                

 

(Note)   

1.      Equity in earnings of affiliated companies:

                    11 million yen (32 million yen in the first half of FY 2005, 67 million yen in FY 2005)

  

2.      The Company made no changes in accounting principle that had a material effect on the financial position, results of operations, and cash flows during the current period.

  

3.      Weighted average number of common shares outstanding:

                    134,323,039 shares (133,341,012 shares in the first half of FY 2005, 133,498,438 shares in FY 2005)

  

4.      The percentages for net sales, operating income, net income before tax and net income represent a change from the corresponding financial figures for the first half of prior fiscal year.

(2) Consolidated Financial Position

 

As of

   Total assets    Shareholders’ equity   

Shareholders’ equity

ratio

  

Shareholders’ equity

per share

   Millions of yen    Millions of yen    %    Yen

June 30, 2006

   147,325    84,601    57.4    628.34

June 30, 2005

   111,546    68,549    61.5    513.45
                   

December 31, 2005

   132,935    81,863    61.6    610.51
                   

(Note) Number of common shares outstanding : 134,642,555 shares

(133,505,467 shares as of June 30, 2005, 134,090,494 shares as of December 31, 2005)

(3) Consolidated Cash Flows

 

As of

  

Cash flows from

operating activities

  

Cash flows from

investing activities

   

Cash flows from

financing activities

    Ending balance of cash and
cash equivalents
   Millions of yen    Millions of yen     Millions of yen     Millions of yen

June 30, 2006

   20,052    (3,168 )   (5,998 )   71,118

June 30, 2005

   9,649    (3,218 )   (3,635 )   55,798
                     

December 31, 2005

   20,646    (12,738 )   (2,406 )   59,613
                     


Table of Contents

2. Management Policy and Business Performance

OPERATING RESULTS AND FINANCIAL CONDITION

I. OPERATING RESULTS

<As Originally Reported>

(1). REVIEW OF CURRENT PERIOD

 

     (Unit: million yen)  
     Net Sales     Operating
income
   

Net income

before tax

    Net income  

The first half of FY2006

   40,673     13,717     14,229     7,997  

The first half of FY2005

   34,490     12,771     13,316     8,490  

Rate of Change

   18 %   7 %   7 %   D6 %

 

     (Unit: million yen)  
     Net Sales  
  

The first half of

FY2006

  

The first half of

FY2005

   Rate of Change
(%)
 

Japan

   16,073    14,248    13 %

North America

   8,836    6,885    28 %

Europe

   10,021    8,829    14 %

Asia and Pacific Reg.

   4,436    3,766    18 %

Latin America

   1,308    763    71 %

[Overview of Current Business Performance]

…SNIP…

Under such environment, our group’s business conditions are as follows:

First of all, in Japan, the virus which abuses Winny and Share, Japanese indigenous peer-to-peer (P2P) file-sharing program with being controversial since 2003, has flourished from the beginning of this year. Such a virus has been creating many sensational headline related to the theft of proprietary information. In addition, the demand for the security products continues to increase to the SMB market since the full enforcement of the personal information protection law from April 2005. Moreover, our flagship personal product “Virus Buster”, called “PC-Cillin” outside of Japan, has still seen healthy growth with the demand of personal users based on their strong awareness to protect against the theft of individual property helping to boost Japan revenue. In those results, the amount of sales for this period in Japan was 16,073 million yen (13% increase from the same period in previous year).

In the North American region, under the situation that the Fed stopping soon based on both 2 points; increasing inflationary pressure caused by high oil price and US economy recession caused by growing rates and slowing housing market, the consumer market in which we had implemented reinforcement measures of sales channels since last year showed a substantial increase. Also, the security demands for especially the small companies in SMB business market increased. The sales for this period in the area came to 8,836 million yen (28% increase from the previous period).


Table of Contents

In the European region, the European Central Bank (ECB) has been reviewed its ultra-low interest policy that had kept with the stagnant economy in the background with raising its interest rate in March 2006 as the second times since the end of 2005 for the first time in recent 5 years and fixed. European’s business economy is on a gradual recovery based on enterprise-driven with the improved employment picture and brisk exports. According to Institute for Economic Research, Munich (IFO), German business sentiment rose in June to its highest level in over 15 years. It is considered that great opportunities such as the 2006 World Cup and incentives to spend before value-added tax’s expires at the beginning of 2007 are increasing. Under these circumstances, sales for the large enterprise market in France and Italy has increased. The sales for this period in the area came to 10,021 million yen (14% increase from the previous period).

In Asia and Pacific regions, although inflationary pressure has concerned as the issue, the economic recovery tone in the background of brisk export stands out. In East Asia, especially mainland China has showed a better-than-expected GDP in this first half of the year. According to such a situation, we have a growth of sales for large enterprise and SMB business market, and also Australia and mainland China have been showing steady performance of sales. The net sales for this period in the regions came to 4,436 million yen (18% increase from the previous period).

At Latin America region, large enterprise business market boosted net sales and its growth rate is the highest in all region for this period. In this region net sales came to 1,308 million yen (71% increase from the previous period).

As a result, the consolidated net sales for this period came to 40,673 million yen (18% increase from the previous period). Meanwhile, operating expenses came to 26,956 million yen (24% increase from the previous period) due to the increases in the expense to deal with stock option expense since 2006 and expanding employee hiring. In spite of 1,766 million of a one time payment (receipt) related to intellectual property usage, the consolidated operating income for this period was 13,717 million yen (7% increase from the same period in previous year) and the consolidated net income for this period was 7,997 million yen (6% decrease from the same period in previous year).

<As Amended>

(1). REVIEW OF CURRENT PERIOD

 

     (Unit: million yen)  
     Net Sales    

Operating

income

    Net income
before tax
    Net income  

The first half of FY2006

   41,226     14,259     14,771     8,385  

The first half of FY2005

   34,490     12,771     13,316     8,490  

Rate of Change

   20 %   12 %   11 %   D1 %

 

     (Unit: million yen)  
     Net Sales  
  

The first half of

FY2006

  

The first half of

FY2005

   Rate of Change
(%)
 

Japan

   16,156    14,248    13 %

North America

   9,068    6,885    32 %

Europe

   10,258    8,829    16 %

Asia and Pacific Reg.

   4,436    3,766    18 %

Latin America

   1,308    763    71 %


Table of Contents

[Overview of Current Business Performance]

…SNIP…

Under such environment, our group’s business conditions are as follows:

First of all, in Japan, the virus which abuses Winny and Share, Japanese indigenous peer-to-peer (P2P) file-sharing program with being controversial since 2003, has flourished from the beginning of this year. Such a virus has been creating many sensational headline related to the theft of proprietary information. In addition, the demand for the security products continues to increase to the SMB market since the full enforcement of the personal information protection law from April 2005. Moreover, our flagship personal product “Virus Buster”, called “PC-Cillin” outside of Japan, has still seen healthy growth with the demand of personal users based on their strong awareness to protect against the theft of individual property helping to boost Japan revenue. In those results, the amount of sales for this period in Japan was 16,156 million yen (13% increase from the same period in previous year).

In the North American region, under the situation that the Fed stopping soon based on both 2 points; increasing inflationary pressure caused by high oil price and US economy recession caused by growing rates and slowing housing market, the consumer market in which we had implemented reinforcement measures of sales channels since last year showed a substantial increase. Also, the security demands for especially the small companies in SMB business market increased. The sales for this period in the area came to 9,068 million yen (32% increase from the previous period).

In the European region, the European Central Bank (ECB) has been reviewed its ultra-low interest policy that had kept with the stagnant economy in the background with raising its interest rate in March 2006 as the second times since the end of 2005 for the first time in recent 5 years and fixed. European’s business economy is on a gradual recovery based on enterprise-driven with the improved employment picture and brisk exports. According to Institute for Economic Research, Munich (IFO), German business sentiment rose in June to its highest level in over 15 years. It is considered that great opportunities such as the 2006 World Cup and incentives to spend before value-added tax’s expires at the beginning of 2007 are increasing. Under these circumstances, sales for the large enterprise market in France and Italy has increased. The sales for this period in the area came to 10,258 million yen (16% increase from the previous period).

In Asia and Pacific regions, although inflationary pressure has concerned as the issue, the economic recovery tone in the background of brisk export stands out. In East Asia, especially mainland China has showed a better-than-expected GDP in this first half of the year. According to such a situation, we have a growth of sales for large enterprise and SMB business market, and also Australia and mainland China have been showing steady performance of sales. The net sales for this period in the regions came to 4,436 million yen (18% increase from the previous period).

At Latin America region, large enterprise business market boosted net sales and its growth rate is the highest in all region for this period. In this region net sales came to 1,308 million yen (71% increase from the previous period).

As a result, the consolidated net sales for this period came to 41,226 million yen (20% increase from the previous period). Meanwhile, operating expenses came to 26,967 million yen (24% increase from the previous period) due to the increases in the expense to deal with stock option expense since 2006 and expanding employee hiring. In spite of 1,766 million of a one time payment (receipt) related to intellectual property usage, the consolidated operating income for this period was 14,259 million yen (12% increase from the same period in previous year) and the consolidated net income for this period was 8,385 million yen (1% decrease from the same period in previous year).


Table of Contents

II. FINANCIAL CONDITION

<As Originally Reported>

CASH FLOWS

 

 

     (Unit: million yen)  
    

The first half of

FY 2006

    The first half of
FY2005
    Increase
(Decrease)
 

Cash Flows from Operating Activities

   19,978     9,649     10,329  

Cash Flows from Investing Activity

   (3,094 )   (3,218 )   124  

Cash Flows from Financing Activity

   (5,998 )   (3,635 )   (2,363 )

Effect of Exchange Rate Changes on Cash and Cash Equivalents

   620     93     527  

Net increase (Decrease) in Cash and Cash Equivalents

   11,506     2,889     8,617  

Cash and Cash Equivalents at end of period

   71,118     55,798     15,320  

[Overview of Cash Flows]

For the cash flows from operating activity for this period, cash inflows increased by 10,329 million yen compared with the previous period and the balance was ended with a surplus of 19,978 million yen. This increase in cash inflows is mainly due to a substantial increase in deferred revenue and a substantial increase in accrued income and other taxes in spite of a slight decrease in net income.

For the cash flows from investing activity, cash outflows decreased by 124 million yen compared with the previous period and the balance was ended with a deficit of 3,094 million yen. This decrease in cash outflows is mainly due to an increase in proceeds from sales of marketable securities.

For the cash flows from financing activity, cash outflows increased by 2,363 million yen compared with the previous period and the balance was ended with a deficit of 5,998 million yen. This increase in cash outflows is mainly due to a substantial increase in dividends paid.

Taking these increases and decreases and the effect of exchange rate changes on cash and cash equivalents into account, the cash and cash equivalents at the end of this period was 71,118 million yen and was increased by 15,320 million yen compared with the previous period.


Table of Contents

[Trends of Cash Flow Indexes]

 

     (US GAAP)
     FY2003    FY2004    FY2005    The first half of
FY2006

Shareholder’s equity Ratio (%)

   54.1    59.2    61.6    59.4

Capital Adequacy Ratio on Market Value Basis (%)

   462.2    690.0    449.9    356.8

Debt Redemption Period (years)

   0.4    —      —      —  

Interest Coverage Ratio

   103.3    218.2    5,566.4    2,498.8

 

     (Japan GAAP)
     FY2001    FY2002

Shareholder’s equity Ratio (%)

   47.3    50.0

Capital Adequacy Ratio on Market Value Basis (%)

   626.7    360.4

Debt Redemption Period (years)

   1.2    0.8

Interest Coverage Ratio

   44.2    49.4

<As Amended>

CASH FLOWS

 

     (Unit: million yen)  
    

The first half of

FY 2006

    The first half of
FY2005
    Increase
(Decrease)
 

Cash Flows from Operating Activities

   20,052     9,649     10,403  

Cash Flows from Investing Activity

   (3,168 )   (3,218 )   50  

Cash Flows from Financing Activity

   (5,998 )   (3,635 )   (2,363 )

Effect of Exchange Rate Changes on Cash and Cash Equivalents

   620     93     527  

Net increase (Decrease) in Cash and Cash Equivalents

   11,506     2,889     8,617  

Cash and Cash Equivalents at end of period

   71,118     55,798     15,320  


Table of Contents

[Overview of Cash Flows]

For the cash flows from operating activity for this period, cash inflows increased by 10,403 million yen compared with the previous period and the balance was ended with a surplus of 20,052 million yen. This increase in cash inflows is mainly due to a substantial increase in deferred revenue and a substantial increase in accrued income and other taxes in spite of a slight decrease in net income.

For the cash flows from investing activity, cash outflows decreased by 50 million yen compared with the previous period and the balance was ended with a deficit of 3,168 million yen. This decrease in cash outflows is mainly due to an increase in proceeds from sales of marketable securities.

For the cash flows from financing activity, cash outflows increased by 2,363 million yen compared with the previous period and the balance was ended with a deficit of 5,998 million yen. This increase in cash outflows is mainly due to a substantial increase in dividends paid.

Taking these increases and decreases and the effect of exchange rate changes on cash and cash equivalents into account, the cash and cash equivalents at the end of this period was 71,118 million yen and was increased by 15,320 million yen compared with the previous period.

[Trends of Cash Flow Indexes]

 

 

     (US GAAP)
     FY2003    FY2004    FY2005    The first half of
FY2006

Shareholder’s equity Ratio (%)

   54.1    59.2    61.6    57.4

Capital Adequacy Ratio on Market Value Basis (%)

   462.2    690.0    449.9    352.8

Debt Redemption Period (years)

   0.4    —      —      —  

Interest Coverage Ratio

   103.3    218.2    5,566.4    2,508.0

 

     (Japan GAAP)
     FY2001    FY2002

Shareholder’s equity Ratio (%)

   47.3    50.0

Capital Adequacy Ratio on Market Value Basis (%)

   626.7    360.4

Debt Redemption Period (years)

   1.2    0.8

Interest Coverage Ratio

   44.2    49.4


Table of Contents

3. CONSOLIDATED FINANCIAL STATEMENTS

    (1) CONSOLIDATED BALANCE SHEETS

<As Originally Reported>

 

Account   

(Thousands of yen)

  

June 30,

2005

  

June 30,

2006

  

December 31,

2005

     Amount     %    Amount     %    Amount     %

<Assets>

              

Current assets:

              

Cash and cash equivalents

   55,797,854        71,118,356        59,612,577    

Time deposits

   906,397        1,038,871        1,435,293    

Marketable securities

   14,915,254        22,566,765        22,395,365    

Notes and accounts receivable, trade

              

    –less allowance for doubtful accounts of

              

        -June 30, 2005 (Yen) 381,428

              

        -June 30, 2006 (Yen) 383,294

         and December 31, 2005 (Yen) 282,257

              

    –less sales returns allowance of

              

        -June 30, 2005 (Yen) 695,848

              

        -June 30, 2006 (Yen) 517,796

         and December 31, 2005 (Yen) 422,453

   13,742,453        15,827,083        19,198,870    

Inventories

   280,722        496,261        359,897    

Deferred income taxes

   6,272,727        7,985,215        6,727,229    

Prepaid expenses and other current assets

   1,457,490        2,603,035        1,925,791    
                                

Total current assets

   93,372,897     83.7    121,635,586     83.5    111,655,022     84.0
                                

Investments and other assets:

              

Investment securities

   9,321,151        12,469,433        11,159,428    

Investments in and advances to affiliate companies

   206,944        297,511        321,569    

Software development costs, net

   640,578        1,012,239        1,174,691    

Other intangibles, net

   1,260,470        1,781,019        1,390,434    

Goodwill

   2,442,109        2,079,121        2,130,179    

Deferred income taxes

   1,543,222        2,883,907        2,033,488    

Other

   662,846        751,433        671,800    
                                

Total investments and other assets

   16,077,320     14.4    21,274,663     14.6    18,881,589     14.2
                                

Property and equipment:

              

Office furniture and equipment

   3,841,551        4,981,586        4,468,891    

Other properties

   1,349,320        1,830,459        1,539,195    
                          
   5,190,871        6,812,045        6,008,086    

Less: Accumulated depreciation

   (3,094,701 )      (4,065,622 )      (3,609,473 )  
                                

Property and equipment, net

   2,096,170     1.9    2,746,423     1.9    2,398,613     1.8
                                

Total assets

   111,546,387     100.0    145,656,672     100.0    132,935,224     100.0
                                


Table of Contents
    

(Thousands of yen)

Account

  

June 30,

2005

  

June 30,

2006

  

December 31,

2005

   Amount     %    Amount     %    Amount     %

<Liabilities, minority interest and shareholders’ equity>

              

Current liabilities:

              

Notes payable, trade

   139,895        105,159        118,572    

Accounts payable, trade

   744,285        856,727        794,450    

Accounts payable, other

   2,970,364        3,476,117        3,208,625    

Income taxes withheld

   839,157        1,402,864        1,082,302    

Accrued expenses

   2,886,400        3,340,038        3,138,674    

Accrued income and other taxes

   4,133,554        8,768,137        5,476,791    

Deferred revenue

   26,240,519        34,425,100        31,506,315    

Other

   781,518        530,104        895,088    
                                

Total current liabilities

   38,735,692     34.7    52,904,246     36.3    46,220,817     34.8
                                

Long-term liabilities:

              

Deferred revenue, less current portion

   3,425,101        5,281,248        3,874,936    

Accrued pension and severance costs

   767,945        930,540        889,774    

Other

   64,108        70,095        82,056    
                                

Total long-term liabilities

   4,257,154     3.8    6,281,883     4.3    4,846,766     3.6
                                

Minority interest

   4,613     0.0    5,572     0.0    4,531     0.0
                                

Shareholders’ equity:

              

Common stock

              

Authorized

              

-June 30, 2005 250,000,000 shares

              

-June 30, 2006 250,000,000 shares

              

-December 31, 2005 250,000,000 shares (no par value)

              

Issued

              

-June 30, 2005 136,051,155 shares

   11,803,201              

-June 30, 2006 137,179,504 shares

        13,294,144         

-December 31, 2005 136,603,725 shares

             12,484,849    

Additional paid-in capital

   18,035,675        21,928,873        18,572,063    

Retained earnings

   45,829,022        56,424,662        55,971,955    

Accumulated other comprehensive income (loss)

              

Net unrealized gain (loss) on debt and equity securities

   (2,654 )      827,108        657,885    

Cumulative foreign currency translation adjustments

   230,810        1,431,551        1,459,600    
                          
   228,156        2,258,659        2,117,485    
                          

Treasury stock, at cost

              

-June 30, 2005 2,545,688 shares

   (7,347,126 )            

-June 30, 2006 2,536,949 shares

        (7,441,367 )       

-December 31, 2005 2,513,231 shares

             (7,283,242 )  
                                

Total shareholders’ equity

   68,548,928     61.5    86,464,971     59.4    81,863,110     61.6
                                

Total liabilities, minority interest and shareholders’ equity

   111,546,387     100.0    145,656,672     100.0    132,935,224     100.0
                                


Table of Contents

<As Amended>

 

     (Thousands of yen)

Account

  

June 30,

2005

  

June 30,

2006

  

December 31,

2005

   Amount     %    Amount     %    Amount     %

<Assets>

              

Current assets:

              

Cash and cash equivalents

   55,797,854        71,118,356        59,612,577    

Time deposits

   906,397        1,038,871        1,435,293    

Marketable securities

   14,915,254        22,566,765        22,395,365    

Notes and accounts receivable, trade

              

–less allowance for doubtful accounts of

              

-June 30, 2005 (Yen) 381,428

              

-June 30, 2006 (Yen) 383,294 and December 31, 2005 (Yen) 282,257

              

–less sales returns allowance of

              

-June 30, 2005 (Yen) 695,848

              

-June 30, 2006 (Yen) 517,796 and December 31, 2005 (Yen) 422,453

   13,742,453        15,827,083        19,198,870    

Inventories

   280,722        496,261        359,897    

Deferred income taxes

   6,272,727        9,234,937        6,727,229    

Prepaid expenses and other current assets

   1,457,490        2,603,035        1,925,791    
                                

Total current assets

   93,372,897     83.7    122,885,308     83.4    111,655,022     84.0
                                

Investments and other assets:

              

Investment securities

   9,321,151        12,469,433        11,159,428    

Investments in and advances to affiliate companies

   206,944        297,511        321,569    

Software development costs, net

   640,578        1,012,239        1,174,691    

Other intangibles, net

   1,260,470        1,781,019        1,390,434    

Goodwill

   2,442,109        2,079,121        2,130,179    

Deferred income taxes

   1,543,222        3,000,761        2,033,488    

Other

   662,846        751,433        671,800    
                                

Total investments and other assets

   16,077,320     14.4    21,391,517     14.5    18,881,589     14.2
                                

Property and equipment:

              

Office furniture and equipment

   3,841,551        5,458,359        4,468,891    

Other properties

   1,349,320        2,031,540        1,539,195    
                          
   5,190,871        7,489,899        6,008,086    

Less: Accumulated depreciation

   (3,094,701 )      (4,442,004 )      (3,609,473 )  
                                

Property and equipment, net

   2,096,170     1.9    3,047,895     2.1    2,398,613     1.8
                                

Total assets

   111,546,387     100.0    147,324,720     100.0    132,935,224     100.0
                                


Table of Contents
     (Thousands of yen)

Account

  

June 30,

2005

  

June 30,

2006

  

December 31,

2005

   Amount     %    Amount     %    Amount     %

<Liabilities, minority interest and shareholders’ equity>

              

Current liabilities:

              

Notes payable, trade

   139,895        105,159        118,572    

Accounts payable, trade

   744,285 7        856,727        794,450    

Accounts payable, other

   2,970,364        3,476,117        3,208,625    

Income taxes withheld

   839,157        1,402,864        1,082,302    

Accrued expenses

   2,886,400        3,340,038        3,138,674    

Accrued income and other taxes

   4,133,554        8,483,308        5,476,791    

Deferred revenue

   26,240,519        37,722,952        31,506,315    

Other

   781,518        530,104        895,088    
                                

Total current liabilities

   38,735,692     34.7    55,917,269     38.0    46,220,817     34.8
                                

Long-term liabilities:

              

Deferred revenue, less current portion

   3,425,101        5,581,312        3,874,936    

Accrued pension and severance costs

   767,945        930,540        889,774    

Other

   64,108        288,778        82,056    
                                

Total long-term liabilities

   4,257,154     3.8    6,800,630     4.6    4,846,766     3.6
                                

Minority interest

   4,613     0.0    5,572     0.0    4,531     0.0
                                

Shareholders’ equity:

              

Common stock

              

Authorized

              

-June 30, 2005 250,000,000 shares

              

-June 30, 2006 250,000,000 shares

              

-December 31, 2005 250,000,000 shares (no par value)

              

Issued

              

-June 30, 2005 136,051,155 shares

   11,803,201              

-June 30, 2006 137,179,504 shares

        13,294,144         

-December 31, 2005 136,603,725 shares

             12,484,849    

Additional paid-in capital

   18,035,675        21,928,873        18,572,063    

Retained earnings

   45,829,022        54,560,940        55,971,955    

Accumulated other comprehensive income (loss)

              

Net unrealized gain (loss) on debt and equity securities

   (2,654 )      827,108        657,885    

Cumulative foreign currency translation adjustments

   230,810        1,431,551        1,459,600    
                          
   228,156        2,258,659        2,117,485    
                          

Treasury stock, at cost

              

-June 30, 2005 2,545,688 shares

   (7,347,126 )            

-June 30, 2006 2,536,949 shares

        (7,441,367 )       

-December 31, 2005 2,513,231 shares

             (7,283,242 )  
                                

Total shareholders’ equity

   68,548,928     61.5    84,601,249     57.4    81,863,110     61.6
                                

Total liabilities, minority interest and shareholders’ equity

   111,546,387     100.0    147,324,720     100.0    132,935,224     100.0
                                


Table of Contents

(2) CONSOLIDATED STATEMENTS OF INCOME

<As Originally Reported>

 

     (Thousands of yen)

Account

   For the six months
ended June 30, 2005
   For the six months
ended June 30, 2006
   For the year ended
December 31, 2005
   Amount     %    Amount     %    Amount     %

Net sales

   34,489,740     100.0    40,673,427     100.0    73,029,901     100.0

Cost of sales:

              

Amortization of capitalized software and materials

   1,191,244        1,796,469        2,598,603    

Maintenance

   694,846        1,699,983        1,671,320    

Customer support

   3,190,146        4,009,038        6,857,901    
                                

Total cost of sales

   5,076,236     14.7    7,505,490     18.5    11,127,824     15.2
                                

Operating expenses:

              

Selling

   10,338,819        13,150,894        20,944,484    

Research and development

   2,196,929        2,373,496        4,395,207    

General and administrative

   4,106,616        3,926,186        8,990,611    
                                

Total operating expenses

   16,642,364     48.3    19,450,576     47.8    34,330,302     47.0
                                

Operating income

   12,771,140     37.0    13,717,361     33.7    27,571,775     37.8
                                

Other income (expenses):

              

Interest income

   326,282        707,821        836,910    

Interest expense

   (2,241 )      (7,826 )      (3,709 )  

Gain (loss) on sales of marketable securities

   20,534        73,829        370,326    

Foreign exchange gain (loss), net

   197,132        (127,425 )      327,257    

Other income (expense), net

   2,897        (135,134 )      5,741    
                                

Total other income (expenses)

   544,604     1.6    511,265     1.3    1,536,525     2.1
                                

Net income before income taxes

   13,315,744     38.6    14,228,626     35.0    29,108,300     39.9
                                

Income taxes:

              

Current

   4,698,548        8,361,670        11,863,127    

Deferred

   158,283        (2,119,648 )      (1,358,568 )  
                                
   4,856,831     14.1    6,242,022     15.3    10,504,559     14.4
                                

Income before minority interest and equity in earnings of affiliated companies

   8,458,913     24.5    7,986,604     19.7    18,603,741     25.5

Minority interest in income of consolidated subsidiaries

   (420 )   0.0    (574 )   0.0    (338 )   0.0

Equity in earnings of affiliated companies

   31,663     0.1    10,942     0.0    66,551     0.1
                                

Net income

   8,490,156     24.6    7,996,972     19.7    18,669,954     25.6
                                
     Yen          Yen          Yen      

Per share data:

              

Net income

              

-Basic

   63.67        59.54        139.85    

-Diluted

   62.71        59.26        137.83    


Table of Contents

<As Amended>

 

     (Thousands of yen)

Account

   For the six months
ended June 30, 2005
   For the six months
ended June 30, 2006
   For the year ended
December 31, 2005
   Amount     %    Amount     %    Amount     %

Net sales

   34,489,740     100.0    41,225,515     100.0    73,029,901     100.0

Cost of sales:

              

Amortization of capitalized software and materials

   1,191,244        1,796,469        2,598,603    

Maintenance

   694,846        1,699,983        1,671,320    

Customer support

   3,190,146        4,009,038        6,857,901    
                                

Total cost of sales

   5,076,236     14.7    7,505,490     18.2    11,127,824     15.2
                                

Operating expenses:

              

Selling

   10,338,819        13,150,894        20,944,484    

Research and development

   2,196,929        2,373,496        4,395,207    

General and administrative

   4,106,616        3,936,349        8,990,611    
                                

Total operating expenses

   16,642,364     48.3    19,460,739     47.2    34,330,302     47.0
                                

Operating income

   12,771,140     37.0    14,259,286     34.6    27,571,775     37.8
                                

Other income (expenses):

              

Interest income

   326,282        707,821        836,910    

Interest expense

   (2,241 )      (7,826 )      (3,709 )  

Gain (loss) on sales of marketable securities

   20,534        73,829        370,326    

Foreign exchange gain (loss), net

   197,132        (127,425 )      327,257    

Other income (expense), net

   2,897        (135,134 )      5,741    
                                

Total other income (expenses)

   544,604     1.6    511,265     1.2    1,536,525     2.1
                                

Net income before income taxes

   13,315,744     38.6    14,770,551     35.8    29,108,300     39.9
                                

Income taxes:

              

Current

   4,698,548        8,361,670        11,863,127    

Deferred

   158,283        (1,965,640 )      (1,358,568 )  
                                
   4,856,831     14.1    6,396,030     15.5    10,504,559     14.4
                                

Income before minority interest and equity in earnings of affiliated companies

   8,458,913     24.5    8,374,521     20.3    18,603,741     25.5

Minority interest in income of consolidated subsidiaries

   (420 )   0.0    (574 )   0.0    (338 )   0.0

Equity in earnings of affiliated companies

   31,663     0.1    10,942     0.0    66,551     0.1
                                

Net income

   8,490,156     24.6    8,384,889     20.3    18,669,954     25.6
                                
     Yen          Yen          Yen      

Per share data:

              

Net income

              

-Basic

   63.67        62.42        139.85    

-Diluted

   62.71        62.14        137.83    


Table of Contents

(3) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

<As Originally Reported>

 

     (Thousands of yen)  

Account

  

For the six months
ended

June 30,

2005

   

For the six months
ended

June 30,

2006

   

For the year
ended
December 31,

2005

 

Net income

   8,490,156     7,996,972     18,669,954  
                  

Other comprehensive income (loss), before tax:

      

Unrealized gains (losses) on available-for-sale securities:

      

Unrealized holding gains (losses) arising during period

   (279,612 )   465,352     1,375,136  

Less reclassification adjustment for (gains) losses included in net income

   (186,353 )   (168,404 )   (704,199 )
                  
   (465,965 )   296,948     670,937  

Foreign currency translation adjustments

   837,273     (28,049 )   2,066,063  
                  

Total

   371,308     268,899     2,737,000  

Income tax (expense) benefit related to unrealized gains (losses) on available-for-sale securities

   178,963     (127,725 )   (297,400 )
                  

Other comprehensive income, net of tax

   550,271     141,174     2,439,600  
                  

Comprehensive income

   9,040,427     8,138,146     21,109,554  
                  

<As Amended>

 

     (Thousands of yen)  

Account

  

For the six months
ended

June 30,

2005

   

For the six months
ended

June 30,

2006

   

For the year

ended

December 31,

2005

 

Net income

   8,490,156     8,384,889     18,669,954  
                  

Other comprehensive income (loss), before tax:

      

Unrealized gains (losses) on available-for-sale securities:

      

Unrealized holding gains (losses) arising during period

   (279,612 )   465,352     1,375,136  

Less reclassification adjustment for (gains) losses included in net income

   (186,353 )   (168,404 )   (704,199 )
                  
   (465,965 )   296,948     670,937  

Foreign currency translation adjustments

   837,273     (28,049 )   2,066,063  
                  

Total

   371,308     268,899     2,737,000  

Income tax (expense) benefit related to unrealized gains (losses) on available-for-sale securities

   178,963     (127,725 )   (297,400 )
                  

Other comprehensive income, net of tax

   550,271     141,174     2,439,600  
                  

Comprehensive income

   9,040,427     8,526,063     21,109,554  
                  


Table of Contents

(4) CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

<As Originally Reported>

 

     (Thousands of yen)  

Account

  

For the six months
ended

June 30,

2005

   

For the six months
ended

June 30,

2006

   

For the year

ended

December 31,

2005

 

<Common stock>

      

Balance at beginning of period

   11,426,977     12,484,849     11,426,977  

Exercise of stock purchase warrants and stock acquisition rights

   376,224     809,295     1,057,872  
                  

Balance at end of period

   11,803,201     13,294,144     12,484,849  
                  

<Additional paid-in capital>

      

Balance at beginning of period

   17,359,335     18,572,063     17,359,335  

Tax benefit from exercise of non-qualified stock warrants

   300,271     125,689     155,323  

Tax expense derived from gain on elimination of stock purchase warrants related to stock option plan

   —       (59,091 )   —    

Stock option compensation expense

   —       2,481,126     —    

Exercise of stock purchase warrants and stock acquisition rights

   376,069     809,086     1,057,405  
                  

Balance at end of period

   18,035,675     21,928,873     18,572,063  
                  

<Retained earnings>

      

Balance at beginning of period

   42,165,026     55,971,955     42,165,026  

Net income

   8,490,156     7,996,972     18,669,954  

Stock issue costs, net of tax

   (1,829 )   (3,178 )   (3,519 )

Cash dividends

   (4,794,028 )   (7,509,068 )   (4,794,028 )

Loss on sales of treasury stock, net of tax

   (30,303 )   (32,019 )   (65,478 )
                  

Balance at end of period

   45,829,022     56,424,662     55,971,955  
                  

<Net unrealized gain (loss) on available-for-sale securities>

      

Balance at beginning of period

   284,348     657,885     284,348  

Net change during the period

   (287,002 )   169,223     373,537  
                  

Balance at end of period

   (2,654 )   827,108     657,885  
                  

<Cumulative foreign currency translation adjustments>

      

Balance at beginning of period

   (606,463 )   1,459,600     (606,463 )

Aggregate foreign currency translation adjustments for the period

   837,273     (28,049 )   2,066,063  
                  

Balance at end of period

   230,810     1,431,551     1,459,600  
                  

<Treasury stock, at cost>

      

Balance at beginning of period

   (7,454,463 )   (7,283,242 )   (7,454,463 )

Purchases of treasury stock

   (42,631 )   (305,817 )   (142,062 )

Sales of treasury stock

   149,968     147,692     313,283  
                  

Balance at end of period

   (7,347,126 )   (7,441,367 )   (7,283,242 )
                  

Total shareholders’ equity

   68,548,928     86,464,971     81,863,110  
                  


Table of Contents

<As Amended>

 

     (Thousands of yen)  

Account

  

For the six months
ended

June 30,

2005

   

For the six months
ended

June 30,

2006

   

For the year

ended

December 31,

2005

 

<Common stock>

      

Balance at beginning of period

   11,426,977     12,484,849     11,426,977  

Exercise of stock purchase warrants and stock acquisition rights

   376,224     809,295     1,057,872  
                  

Balance at end of period

   11,803,201     13,294,144     12,484,849  
                  

<Additional paid-in capital>

      

Balance at beginning of period

   17,359,335     18,572,063     17,359,335  

Tax benefit from exercise of non-qualified stock warrants

   300,271     125,689     155,323  

Tax expense derived from gain on elimination of stock purchase warrants related to stock option plan

   —       (59,091 )   —    

Stock option compensation expense

   —       2,481,126     —    

Exercise of stock purchase warrants and stock acquisition rights

   376,069     809,086     1,057,405  
                  

Balance at end of period

   18,035,675     21,928,873     18,572,063  
                  

<Retained earnings>

      

Balance at beginning of period (as previously reported)

   42,165,026     55,971,955     42,165,026  

Cumulative-effect of correcting prior-period errors by applying SAB No.108

   —       (2,251,639 )   —    

Balance at beginning of period (as corrected)

   42,165,026     53,720,316     42,165,026  

Net income

   8,490,156     8,384,889     18,669,954  

Stock issue costs, net of tax

   (1,829 )   (3,178 )   (3,519 )

Cash dividends

   (4,794,028 )   (7,509,068 )   (4,794,028 )

Loss on sales of treasury stock, net of tax

   (30,303 )   (32,019 )   (65,478 )
                  

Balance at end of period

   45,829,022     54,560,940     55,971,955  
                  

<Net unrealized gain (loss) on available-for-sale securities>

      

Balance at beginning of period

   284,348     657,885     284,348  

Net change during the period

   (287,002 )   169,223     373,537  
                  

Balance at end of period

   (2,654 )   827,108     657,885  
                  

<Cumulative foreign currency translation adjustments>

      

Balance at beginning of period

   (606,463 )   1,459,600     (606,463 )

Aggregate foreign currency translation adjustments for the period

   837,273     (28,049 )   2,066,063  
                  

Balance at end of period

   230,810     1,431,551     1,459,600  
                  

<Treasury stock, at cost>

      

Balance at beginning of period

   (7,454,463 )   (7,283,242 )   (7,454,463 )

Purchases of treasury stock

   (42,631 )   (305,817 )   (142,062 )

Sales of treasury stock

   149,968     147,692     313,283  
                  

Balance at end of period

   (7,347,126 )   (7,441,367 )   (7,283,242 )
                  

Total shareholders’ equity

   68,548,928     84,601,249     81,863,110  
                  


Table of Contents

(5) CONSOLIDATED STATEMENT OF CASH FLOWS

<As Originally Reported>

 

     (Thousands of yen)  

Account

  

For the six months

ended

June 30,

2005

   

For the six months
ended

June 30,

2006

    For the year
ended
December 31,
2005
 

Cash flows from operating activities:

      

Net income

   8,490,156     7,996,972     18,669,954  

Adjustments to reconcile net income to net cash provided by operating activities -

      

Depreciation and amortization

   942,777     1,551,957     1,878,050  

Pension and severance costs, less payments

   91,650     45,400     207,109  

Deferred income taxes

   158,283     (2,119,648 )   (1,358,568 )

(Gain) loss on sales of marketable securities

   (20,534 )   (73,829 )   (370,326 )

Equity in earnings of affiliated companies

   (31,663 )   (10,942 )   (66,551 )

(Gain) loss on sale and disposal of fixed assets

   —       3,362     11,585  

Stock option compensation expense

   —       2,478,850     —    

Dividends received from affiliate company

   —       28,000     —    

Minority interest

   420     574     338  

Changes in assets and liabilities:

      

Increase (decrease) in deferred revenue

   1,424,155     4,174,075     6,209,680  

(Increase) decrease in accounts receivable, net of allowances

   1,552,014     3,505,934     (3,567,924 )

(Increase) decrease in inventories

   (53,076 )   (137,610 )   (124,971 )

Increase (decrease) in notes and accounts payable, trade

   (510,190 )   33,513     (526,321 )

Increase (decrease) in accrued income and other taxes

   (3,219,572 )   3,221,541     (1,826,959 )

(Increase) decrease in other current assets

   133,075     (75,518 )   (34,426 )

Increase (decrease) in accounts payable, other

   250,129     143,381     381,414  

Increase (decrease) in other current liabilities

   321,916     98,858     1,336,703  

(Increase) decrease in other assets

   5,754     (599,325 )   (207,984 )

Other

   113,694     (287,900 )   34,809  
                  

Net cash provided by operating activities

   9,648,988     19,977,645     20,645,612  
                  

Cash flows from investing activities:

      

Payments for purchases of property and equipment, net

   (507,160 )   (883,241 )   (1,153,193 )

Software development cost

   (475,129 )   (598,687 )   (1,446,248 )

Payments for purchases of other intangibles

   (83,946 )   (677,992 )   (216,107 )

Proceeds from sales and maturities of marketable securities

   8,545,586     8,974,014     22,079,575  

(Payments for) proceeds from marketable securities maturing within three months, net

   784,865     426,035     (189,708 )

Payments for purchases of marketable securities and investment securities

   (8,241,925 )   (10,730,312 )   (28,043,534 )

Payments for acquisition of business

   (2,716,702 )   —       (2,716,702 )

(Payments for) proceeds from time deposits, net

   (523,121 )   396,422     (1,052,017 )
                  

Net cash used in investing activities

   (3,217,532 )   (3,093,761 )   (12,737,934 )
                  

Cash flows from financing activities:

      

Issuance of common stock pursuant to exercise of stock purchase warrants and stock acquisition rights

   750,464     1,615,203     2,111,758  

Proceeds from sales of treasury stock

   119,665     115,672     247,805  

Payments for purchase of treasury stock

   (42,631 )   (305,816 )   (142,062 )

Tax benefit from exercise of non-qualified stock warrants

   300,271     125,689     155,322  

Tax expense derived from gain on elimination stock purchase warrants related to stock option plan

   —       (59,091 )   —    

Capital contributions from minority shareholders

   4,193     —       4,193  

Dividends paid

   (4,766,610 )   (7,489,966 )   (4,782,764 )
                  

Net cash used in financing activities

   (3,634,648 )   (5,998,309 )   (2,405,748 )
                  

Effect of exchange rate changes on cash and cash equivalents

   92,689     620,204     1,202,290  
                  

Net increase in cash and cash equivalents

   2,889,497     11,505,779     6,704,220  

Cash and cash equivalents at beginning of period

   52,908,357     59,612,577     52,908,357  
                  

Cash and cash equivalents at end of period

   55,797,854     71,118,356     59,612,577  
                  

Supplementary information of cash flows:

      

Payments for interest

   2,241     7,995     3,709  

Payments for income taxes

   7,350,227     3,603,882     13,109,985  


Table of Contents

<As Amended>

 

 

     (Thousands of yen)  

Account

  

For the six months

ended

June 30,

2005

   

For the six months

ended

June 30,

2006

   

For the year

ended

December 31,

2005

 

Cash flows from operating activities:

      

Net income

   8,490,156     8,384,889     18,669,954  

Adjustments to reconcile net income to net cash provided by operating activities -

      

Depreciation and amortization

   942,777     1,633,532     1,878,050  

Pension and severance costs, less payments

   91,650     45,400     207,109  

Deferred income taxes

   158,283     (1,965,640 )   (1,358,568 )

(Gain) loss on sales of marketable securities

   (20,534 )   (73,829 )   (370,326 )

Equity in earnings of affiliated companies

   (31,663 )   (10,942 )   (66,551 )

(Gain) loss on sale and disposal of fixed assets

   —       3,362     11,585  

Stock option compensation expense

   —       2,478,850     —    

Dividends received from affiliate company

   —       28,000     —    

Minority interest

   420     574     338  

Changes in assets and liabilities:

      

Increase (decrease) in deferred revenue

   1,424,155     3,621,987     6,209,680  

(Increase) decrease in accounts receivable, net of allowances

   1,552,014     3,505,934     (3,567,924 )

(Increase) decrease in inventories

   (53,076 )   (137,610 )   (124,971 )

Increase (decrease) in notes and accounts payable, trade

   (510,190 )   33,513     (526,321 )

Increase (decrease) in accrued income and other taxes

   (3,219,572 )   3,221,541     (1,826,959 )

(Increase) decrease in other current assets

   133,075     (75,518 )   (34,426 )

Increase (decrease) in accounts payable, other

   250,129     143,381     381,414  

Increase (decrease) in other current liabilities

   321,916     98,858     1,336,703  

(Increase) decrease in other assets

   5,754     (599,325 )   (207,984 )

Other

   113,694     (285,339 )   34,809  
                  
Net cash provided by operating activities    9,648,988     20,051,618     20,645,612  
                  

Cash flows from investing activities:

      

Payments for purchases of property and equipment, net

   (507,160 )   (957,214 )   (1,153,193 )

Software development cost

   (475,129 )   (598,687 )   (1,446,248 )

Payments for purchases of other intangibles

   (83,946 )   (677,992 )   (216,107 )

Proceeds from sales and maturities of marketable securities

   8,545,586     8,974,014     22,079,575  

(Payments for) proceeds from marketable securities maturing within three months, net

   784,865     426,035     (189,708 )

Payments for purchases of marketable securities and investment securities

   (8,241,925 )   (10,730,312 )   (28,043,534 )

Payments for acquisition of business

   (2,716,702 )   —       (2,716,702 )

(Payments for) proceeds from time deposits, net

   (523,121 )   396,422     (1,052,017 )
                  
Net cash used in investing activities    (3,217,532 )   (3,167,734 )   (12,737,934 )
                  

Cash flows from financing activities:

      

Issuance of common stock pursuant to exercise of stock purchase warrants and stock acquisition rights

   750,464     1,615,203     2,111,758  

Proceeds from sales of treasury stock

   119,665     115,672     247,805  

Payments for purchase of treasury stock

   (42,631 )   (305,816 )   (142,062 )

Tax benefit from exercise of non-qualified stock warrants

   300,271     125,689     155,322  

Tax expense derived from gain on elimination stock purchase warrants related to stock option plan

   —       (59,091 )   —    

Capital contributions from minority shareholders

   4,193     —       4,193  

Dividends paid

   (4,766,610 )   (7,489,966 )   (4,782,764 )
                  
Net cash used in financing activities    (3,634,648 )   (5,998,309 )   (2,405,748 )
                  

Effect of exchange rate changes on cash and cash equivalents

   92,689     620,204     1,202,290  
                  

Net increase in cash and cash equivalents

   2,889,497     11,505,779     6,704,220  

Cash and cash equivalents at beginning of period

   52,908,357     59,612,577     52,908,357  
                  

Cash and cash equivalents at end of period

   55,797,854     71,118,356     59,612,577  
                  

Supplementary information of cash flows:

      

Payments for interest

   2,241     7,995     3,709  

Payments for income taxes

   7,350,227     3,603,882     13,109,985  


Table of Contents

NOTES TO INTERIM CONSOLIDATED FINANCIAL INFORMATION

2. Summary of significant accounting policies

(Following accounting policies are newly added)

<As Amended>

Asset retirement obligations

The Company accounts for its asset retirement obligations in accordance with SFAS No.143 “Accounting for Asset Retirement Obligation” and FASB Interpretation No.47 “Accounting for Conditional Asset Retirement Obligation – an interpretation of FASB Statement No.143,” which require that a company to recognize the fair value of a legal obligation associated with the retirement of long-lived assets as a liability in the period in which it is incurred and period-to-period changes in the asset retirement liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows in the subsequent periods. The associated asset retirement costs are capitalized and amortized to expense over an economic useful life of the related assets.

Quantifying financial statement misstatements

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No.108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108 requires the Company to quantify misstatements using both the balance-sheet and income-statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is determined to be material, SAB No. 108 allows the Company to record that effect as a transitional cumulative-effect adjustment to beginning-of-year retained earnings.

SAB No. 108 is effective from the first annual period ending after November 16, 2006, however, as permitted, the Company has elected to adopt the provisions early from the first half period of this fiscal year. Upon adoption of SAB No. 108, the Company corrected prior year misstatements through a cumulative-effect adjustment to the beginning of the year retained earnings in the amount of (Yen) 2,251,639 thousand, which had previously been considered immaterial to the prior year consolidated financial statements. A breakdown of the cumulative-effect adjustment is as follows:

 

               (Thousands of Yen)  
Contents and reasons of the misstatements    Fiscal year that
misstatements occurred
  

Increase (decrease)

in the beginning of year

retained earnings

 
(1)    Post-contract customer support service revenue should be deferred and recognized ratably over the service period. The Company corrected certain inconsistencies between the revenue recognition period and the actual service period that had occurred due to an operational limitation of tracking individual customer contract terms.    FY 1999 -    (1,189,469 )
(2)    In Japan, revenue for certain multi-year support service contracts was being recognized in a one-year period due to a system bug.    FY 1999 -    (12,288 )
(3)    Revenue of our North America operation had been dominated by the sales for the large corporate market and the deferral method used for sales in the large corporate market was also applied to the sales in the consumer market. However, the sales in the North America consumer market have increased in recent years. Therefore, the Company changed its deferral method in the consumer market to reflect a more accurate fair value.    FY 1999 -    (143,845 )
(4)    The fair value of post-contract customer support service in the Japanese consumer market had been determined in reference to the retail list price (the price for end-users) of each product component. To calculate more accurate fair value, the Company changed its deferral amounts to the ones which were based on the wholesale price (the price for distributors).    FY 1999 -    (725,585 )
(5)    The fair value of the legal obligation associated with the retirement of long-lived assets should be recognized as a liability as prescribed in SFAS No.143. However, the Company had not recorded certain such obligations that were considered immaterial. Therefore, the Company had provided an appropriate amount for all of its asset retirement obligations.    FY 2005-    (84,019 )
(6)    In our North America operation, a subsidiary had applied the same deferral method for the major product line to the revenue from Intermute products and the products with a seat number of 50,001 or more, as well as the products bundled with a premium support program. However, the Company changed its method so that the entire sales amounts are deferred and recognized ratably over the service period since the fair value of the PCS component for those products could not be determined.    FY2005-    (253,742 )
(7)    In our North America operation, the start date and end date information for certain post-contract customer service arrangements was incorrectly entered into the system due to human processing errors. Accordingly, the Company corrected amortization of the related deferred revenue.    FY2005    23,212  
(8)    In our North America operation, a subsidiary corrected its tax calculation with regard to the transfer of intellectual property which took place in 2005.    FY2005    284,830  
(9)    In our North America operation, a subsidiary immediately expensed certain fixed assets with an acquisition cost of less than USD 3,000 or a useful life of less than 2 years. The Company has capitalized such fixed assets and recorded appropriate depreciation expense.    FY2003-    133,594  
(10)    In our European operation, the Company corrected certain inconsistencies between the revenue recognition period and the actual service period.    FY1999-    (284,327 )
      Total    (2,251,639 )


Table of Contents

3. Reconciliation of the difference between basic and diluted net income per share (“EPS”)

<As Originally Reported>

A reconciliation of the differences between basic and diluted EPS for the six months ended June 30, 2005 and 2006 and for the year ended December 31, 2005, is as follows:

 

    

For the six months
ended

June 30, 2005

  

For the six months
ended

June 30, 2006

  

For the year

ended

December 31, 2005

     Thousands of Yen

Net income available to common shareholders

   8,490,156    7,996,972    18,669,954
     Thousands of Shares

Weighted-average number of common shares

   133,341    134,323    133,498

Effect of dilutive securities:

        

Stock options

   2,045    621    1,958

Weighted-average number of common shares for diluted EPS computation

   135,386    134,944    135,456
     Yen

Basic EPS:

   63.67    59.54    139.85

Diluted EPS:

   62.71    59.26    137.83

Shareholders’ equity per share as of June 30, 2005 and 2006 and December 31, 2005, was as follows:

 

     (Yen)
     June 30, 2005    June 30, 2006    December 31, 2005

Shareholders’ equity per share

   513.45    642.18    610.51


Table of Contents

<As Amended>

A reconciliation of the differences between basic and diluted EPS for the six months ended June 30, 2005 and 2006 and for the year ended December 31, 2005, is as follows:

 

    

For the six months
ended

June 30, 2005

  

For the six months
ended

June 30, 2006

  

For the year

ended

December 31, 2005

     Thousands of Yen

Net income available to common shareholders

   8,490,156    8,384,889    18,669,954
     Thousands of Shares

Weighted-average number of common shares

   133,341    134,323    133,498

Effect of dilutive securities:

        

Stock options

   2,045    621    1,958

Weighted-average number of common shares for diluted EPS computation

   135,386    134,944    135,456
     Yen

Basic EPS:

   63.67    62.42    139.85

Diluted EPS:

   62.71    62.14    137.83

Shareholders’ equity per share as of June 30, 2005 and 2006 and December 31, 2005, was as follows:

 

     (Yen)
     June 30, 2005    June 30, 2006    December 31, 2005

Shareholders’ equity per share

   513.45    628.34    610.51


Table of Contents

11. Asset retirement obligation

(Following footnote below is newly added after “Employee benefit plans” )

<As Amended>

The Company has legal obligations associated with the retirement of long-lived assets in connection with restoration activities to be carried out at the time the Company vacates certain leased premises, and records such legal obligation as the asset retirement obligations included in other non-current liabilities.

Information regarding the activities for the asset retirement obligation for the six months ended June 30, 2006 is as follows:

 

     (Thousands of Yen)
    

For the six months
ended

June 30, 2006

Beginning balance (as adjusted)    200,161
Accretion expense    2,562
Newly incurred in the period    15,960
    
Ending balance    218,683


Table of Contents

<As Originally Reported>

13. Segment information

…SNIP…

 

     (Thousands of yen)

Net sales to external customers

  

For the six months

ended

June 30, 2005

  

For the six months

ended

June 30, 2006

  

For the year

ended

December 31, 2005

Japan

   14,247,671    16,072,588    29,416,077

North America

   6,884,623    8,835,759    15,416,991

Europe

   8,828,580    10,021,048    18,379,304

Asia Pacific

   3,765,821    4,435,824    7,909,753

Latin America

   763,045    1,308,208    1,907,776

Corporate

   —      —      —  
              

Consolidated Total

   34,489,740    40,673,427    73,029,901
              

 

     (Thousands of yen)  

Operating income

  

For the six months

ended

June 30, 2005

   

For the six months

ended

June 30, 2006

   

For the year

ended

December 31, 2005

 

Japan

   9,005,153     13,258,245     18,636,462  

North America

   4,587,286     4,660,912     10,483,801  

Europe

   4,899,005     4,503,754     10,330,980  

Asia Pacific

   1,516,628     596,537     2,836,044  

Latin America

   319,536     808,327     1,092,793  

Corporate

   (7,556,468 )   (10,110,414 )   (15,808,305 )
                  

Consolidated Total

   12,771,140     13,717,361     27,571,775  
                  

From the fiscal year ending December 31, 2006, the Company reports sales information by customer size in addition to the sales information by five regional segments for the chief operating decision maker to assess the Company’s performance. The three operating segment by customer size are enterprise, small and mid size business, and consumer.

Below is summarized segment information of sales by customer size. These figures comply with the accounting policies disclosed in the notes to consolidated financial statements.

 

 

     (Thousands of yen)

Net sales to external customers

  

For the six months

ended

June 30, 2006

Enterprise

   11,140,592

Small and mid size business

   19,543,364

Consumer

   9,989,471
    

Consolidated Total

   40,673,427
    

Significant customer

 

     (Thousands of yen)  

Customer

  

For the six months

ended

June 30, 2005

   

For the six months

ended

June 30, 2006

   

For the year

ended

December 31, 2005

 
   Net sales    Ratio     Net sales    Ratio     Net sales    Ratio  

SOFTBANK BB

   5,145,269    14.9 %   5,878,167    14.5 %   10,604,947    14.5 %


Table of Contents

<As Amended>

14. Segment information

…SNIP…

 

     (Thousands of yen)  

Net sales to external customers

  

For the six months

ended

June 30, 2005

   

For the six months

ended

June 30, 2006

   

For the year

ended

December 31, 2005

 

Japan

   14,247,671     16,155,904     29,416,077  

North America

   6,884,623     9,068,187     15,416,991  

Europe

   8,828,580     10,257,392     18,379,304  

Asia Pacific

   3,765,821     4,435,824     7,909,753  

Latin America

   763,045     1,308,208     1,907,776  

Corporate

   —       —       —    
                  

Consolidated Total

   34,489,740     41,225,515     73,029,901  
                  
     (Thousands of yen)  

Operating income

  

For the six months

ended

June 30, 2005

   

For the six months

ended

June 30, 2006

   

For the year

ended

December 31, 2005

 

Japan

   9,005,153     13,333,738     18,636,462  

North America

   4,587,286     4,898,296     10,483,801  

Europe

   4,899,005     4,738,533     10,330,980  

Asia Pacific

   1,516,628     590,806     2,836,044  

Latin America

   319,536     808,327     1,092,793  

Corporate

   (7,556,468 )   (10,110,414 )   (15,808,305 )
                  

Consolidated Total

   12,771,140     14,259,286     27,571,775  
                  

From the fiscal year ending December 31, 2006, the Company reports sales information by customer size in addition to the sales information by five regional segments for the chief operating decision maker to assess the Company’s performance. The three operating segment by customer size are enterprise, small and mid size business, and consumer.

Below is summarized segment information of sales by customer size. These figures comply with the accounting policies disclosed in the notes to consolidated financial statements.

 

     (Thousands of yen)

Net sales to external customers

  

For the six months

ended

June 30, 2006

Enterprise

   11,176,958

Small and mid size business

   19,614,539

Consumer

   10,434,018
    

Consolidated Total

   41,225,515
    

Significant customer

 

     (Thousands of yen)  

Customer

  

For the six months

ended

June 30, 2005

   

For the six months

ended

June 30, 2006

   

For the year

ended

December 31, 2005

 
   Net sales    Ratio     Net sales    Ratio     Net sales    Ratio  

SOFTBANK BB

   5,145,269    14.9 %   5,909,763    14.3 %   10,604,947    14.5 %


Table of Contents

<As Originally Reported>

14. Deferred revenue by region

 

     ( Thousands of yen)
     As of June 30, 2005    As of June 30, 2006    As of December 31, 2005
     Current    Non-current    Current    Non-current    Current    Non-current

Japan

   11,163,970    1,450,931    14,237,796    1,441,820    12,429,867    1,542,109

North America

   5,815,242    723,391    8,050,075    2,004,911    7,529,743    856,903

Europe

   6,352,090    1,109,933    8,210,938    1,402,109    7,779,059    1,289,305

Asia Pacific

   2,115,572    140,846    2,630,861    432,408    2,579,002    186,619

Latin America

   793,645    —      1,295,430    —      1,188,644    —  
                             

Total

   26,240,519    3,425,101    34,425,100    5,281,248    31,506,315    3,874,936
                             

<As Amended>

15. Deferred revenue by region

 

     ( Thousands of yen)
     As of June 30, 2005    As of June 30, 2006    As of December 31, 2005
     Current    Non-current    Current    Non-current    Current    Non-current

Japan

   11,163,970    1,450,931    16,887,664    1,724,440    12,429,867    1,542,109

North America

   5,815,242    723,391    8,521,399    2,011,773    7,529,743    856,903

Europe

   6,352,090    1,109,933    8,387,598    1,412,691    7,779,059    1,289,305

Asia Pacific

   2,115,572    140,846    2,630,861    432,408    2,579,002    186,619

Latin America

   793,645    —      1,295,430    —      1,188,644    —  
                             

Total

   26,240,519    3,425,101    37,722,952    5,581,312    31,506,315    3,874,936
                             

 


Table of Contents

<As Originally Reported>

15. Subsequent events

 

(1)

Trend Micro adopted, at the meeting of the Board of Directors on June 30, 2006, the following resolutions regarding stock acquisition rights to be issued to the directors, employees and staff seconded to, of the Company and its affiliates in order to introduce the 17th stock option plan.

 

Date of issuance    July 10, 2006
Number of stock acquisition rights to be issued    The total number of stock acquisition rights is 2,902. (One stock acquisition right represents the acquisition right of five hundred shares.)

Class of shares subject to

the exercise of stock acquisition rights

   Common shares for the Company
Issue price of stock acquisition rights    (Yen) 0
Exercise period of stock acquisition rights    The exercise period of stock acquisition rights shall be from July 10, 2007 to July 9, 2011.
Exercise price per share    (Yen) 3,995
Individuals who were be granted the stock acquisition rights:    The directors and employees of and staff seconded to the Company and its affiliates (1,372 people)

 

(2) Trend Micro adopted, at the meeting of the Board of Directors on August 21, 2006, the following share repurchase program in order to gain flexibility in implementing its capital policy in response to any changes in the business environment:

 

   Resolution

 

Class of capital stock to be purchased    Common Shares of the Company
Number of shares to be repurchased    Up to 2 million shares (1.49% of the total outstanding shares)
Total purchase price    Up to 7 billion yen
Purchase period    From August 22, 2006 to September 30, 2006
Purchase method    Transactions through the Tokyo Stock Exchange

 

  Others

As a result of the transactions through a stock market, the Company repurchased 2,000,000 shares of its common stock for a total cost of (Yen) 6,809,730 thousand and completed the share repurchase program on September 20, 2006.


Table of Contents

<As Amended>

16. Subsequent events

 

(1)

Trend Micro adopted, at the meeting of the Board of Directors on June 30, 2006, the following resolutions regarding stock acquisition rights to be issued to the directors, employees and staff seconded to, of the Company and its affiliates in order to introduce the 17th stock option plan.

 

Date of issuance    July 10, 2006
Number of stock acquisition rights to be issued    The total number of stock acquisition rights is 2,902. (One stock acquisition right represents the acquisition right of five hundred shares.)

Class of shares subject to

the exercise of stock acquisition rights

   Common shares for the Company
Issue price of stock acquisition rights    (Yen) 0
Exercise period of stock acquisition rights    The exercise period of stock acquisition rights shall be from July 10, 2007 to July 9, 2011.
Exercise price per share    (Yen) 3,995
Individuals who were be granted the stock acquisition rights:    The directors and employees of and staff seconded to the Company and its affiliates (1,372 people)
  

 

(2) Trend Micro adopted, at the meeting of the Board of Directors on August 21, 2006, the following share repurchase program in order to gain flexibility in implementing its capital policy in response to any changes in the business environment:

 

   Resolution

 

Class of capital stock to be purchased    Common Shares of the Company
Number of shares to be repurchased    Up to 2 million shares (1.49% of the total outstanding shares)
Total purchase price    Up to 7 billion yen
Purchase period    From August 22, 2006 to September 30, 2006
Purchase method    Transactions through the Tokyo Stock Exchange

 

  Others

As a result of the transactions through a stock market, the Company repurchased 2,000,000 shares of its common stock for a total cost of (Yen) 6,809,730 thousand and completed the share repurchase program on September 20, 2006.

 

(3)

Trend Micro adopted, at the meeting of the Board of Directors on October 31, 2006, the following resolutions regarding stock acquisition rights to be issued to the directors, employees and staff seconded to, of the Company and its affiliates in order to introduce the 18th stock option plan.

 

Date of issuance    November 8, 2006
Number of stock acquisition rights to be issued    The total number of stock acquisition rights is 2,906. (One stock acquisition right represents the acquisition right of five hundred shares.)

Class of shares subject to

the exercise of stock acquisition rights

   Common shares for the Company
Issue price of stock acquisition rights    (Yen) 0
Exercise period of stock acquisition rights    The exercise period of stock acquisition rights shall be from November 8, 2007 to November 7, 2011.
Exercise price per share    (Yen) 3,610
Individuals who were be granted the stock acquisition rights:    The directors and employees of and staff seconded to the Company and its affiliates (1,173 people)


Table of Contents

<As Originally Reported>

16. Status of manufacturing and actual sales

(2) Sales results

 

          (Thousands of Yen)

Product

   Period   

For the six months
ended

June 30, 2005

  

For the six months
ended

June 30, 2006

  

For the year

ended

December 31, 2005

PC client

      9,503,106    11,141,074    19,714,453

LAN server

      1,571,812    1,407,760    3,278,568

Internet server

      8,809,325    9,105,326    18,373,789

All Suite products

      11,479,519    15,045,681    24,484,969

Other products

      1,545,459    1,803,183    3,494,862
                 

Sub-total

      32,909,221    38,503,024    69,346,641

Other service

      1,580,519    2,170,403    3,683,260
                 

Total

      34,489,740    40,673,427    73,029,901
                 

<As Amended>

17. Status of manufacturing and actual sales

(2) Sales results

 

          (Thousands of Yen)

Product

   Period   

For the six months
ended

June 30, 2005

  

For the six months
ended

June 30, 2006

  

For the year

ended

December 31, 2005

PC client

      9,503,106    11,469,141    19,714,453

LAN server

      1,571,812    1,405,604    3,278,568

Internet server

      8,809,325    9,153,598    18,373,789

All Suite products

      11,479,519    15,204,927    24,484,969

Other products

      1,545,459    1,817,106    3,494,862
                 

Sub-total

      32,909,221    39,050,376    69,346,641

Other service

      1,580,519    2,175,139    3,683,260
                 

Total

      34,489,740    41,225,515    73,029,901
                 


Table of Contents

A part of report of First–Half Results (Non-consolidated)

For Fiscal Year Ending December 31, 2006

nRevised figures are underlined.

(Original)

1. Financial Highlights for the first half of FY 2006 (January 1, 2006 through June 30, 2006)

(1) Results of operations

(All figures except for per share information are rounded down to millions of yen)

 

      Net sales    Growth rate   

Operating

income

   Growth rate   

Ordinary

income

   Growth rate
     Millions of yen    %    Millions of yen    %    Millions of yen    %

The first half of FY 2006

   26,438    17.9    11,917    15.0    12,315    18.6

The first half of FY 2005

   22,421    21.8    10,359    15.4    10,383    17.4
                       

FY 2005 (annual)

   48,228       21,823       22,423   
                       

 

     Net income    Growth rate    Net income
per share
     Millions of yen    %    Yen

The first half of FY 2006

   8,740    48.5    65.07

The first half of FY 2005

   5,884    5.9    44.13
            

FY 2005 (annual)

   13,122       98.30
            

(Note)

 

1.      Weighted average number of shares outstanding:

  

134,323,039 shares (for the first half of FY 2006)

133,341,012 shares (for the first half of FY 2005)

133,498,438 shares (for FY 2005)

2. Change in accounting policies: None

 

3. The percentage of net sales, operating income, ordinary income and net income are comparison to the first half of previous fiscal year.

(2) Financial Position

 

      Total assets    Shareholders’ equity   

Shareholders’

equity ratio

   Shareholders’ equity
per share
     Millions of yen    Millions of yen    %    Yen

As of

           

June 30, 2006

   91,238    61,482    67.4    456.64

June 30, 2005

   70,949    49,188    69.3    368.44
                   

December 31, 2005

   83,692    58,515    69.9    436.39
                   

(Note)

 

1.      Number of shares issued at the end of period:

  

134,642,555 shares as of June 30, 2006

136,051,155 shares as of June 30, 2005

134,090,494 shares as of December 31, 2005

  

2.      Number of treasury stocks at the end of period:

  

2,536,949 shares as of June 30, 2006

2,545,688 shares as of June 30, 2005

2,513,231 shares as of December 31, 2005


Table of Contents

(Amended)

1. Financial Highlights for the first half of FY 2006 (January 1, 2006 through June 30, 2006)

 

(1) Results of operations

(All figures except for per share information are rounded down to millions of yen)

 

     Net sales    Growth rate   

Operating

income

   Growth rate   

Ordinary

income

   Growth rate
     Millions of yen    %    Millions of yen    %    Millions of yen    %

The first half of FY 2006

   26,522    18.3    12,000    15.8    12,398    19.4

The first half of FY 2005

   22,421    21.8    10,359    15.4    10,383    17.4
                       

FY 2005 (annual)

   48,228       21,823       22,423   
                       

 

     Net income    Growth rate   

Net income

per share

     Millions of yen    %    Yen

The first half of FY 2006

   7,000    19.0    52.12

The first half of FY 2005

   5,884    5.9    44.13
            

FY 2005 (annual)

   13,122       98.30
            

(Note)

 

1.      Weighted average number of shares outstanding:

  

134,323,039 shares (for the first half of FY 2006)

133,341,012 shares (for the first half of FY 2005)

133,498,438 shares (for FY 2005)

 

2. Change in accounting policies: None

 

3. The percentage of net sales, operating income, ordinary income and net income are comparison to the first half of previous fiscal year

(2) Financial Position

 

      Total assets    Shareholders’ equity   

Shareholders’

equity ratio

   Shareholders’ equity
per share
     Millions of yen    Millions of yen    %    Yen

As of

           

June 30, 2006

   92,431    59,743    64.6    443.72

June 30, 2005

   70,949    49,188    69.3    368.44
                   

December 31, 2005

   83,692    58,515    69.9    436.39
                   

(Note)

 

1. Number of shares issued at the end of period:   

134,642,555 shares as of June 30, 2006

136,051,155 shares as of June 30, 2005

134,090,494 shares as of December 31, 2005

  
2. Number of treasury stocks at the end of period:   

2,536,949 shares as of June 30, 2006

2,545,688 shares as of June 30, 2005

2,513,231 shares as of December 31, 2005

  


Table of Contents

Non-consolidated Semi-annual Financial Statements

(Original)

Non-consolidated semi-annual balance sheets

 

         (Thousands of yen)

Account

 

Period

  

At the end of
the first half of
the previous fiscal year

(As of June 30, 2005)

  

At the end of
the first half of
the current fiscal year

(As of June 30, 2006)

  

Condensed balance sheet
at the end of

previous fiscal year

(As of December 31, 2005)

         Amount     Percentage    Amount     Percentage    Amount     Percentage
               %          %          %

(Assets)

                

I        Current assets

                

1.      Cash and bank deposits

     36,898,408        42,146,031        36,425,321    

2.      Accounts receivable, trade

     7,345,918        10,190,421        11,158,987    

3.      Marketable securities

     1,528,805        2,181,348        5,919,607    

4.      Inventories

     103,224        113,318        124,894    

5.      Intercompany short-term loan receivables

     32,375        33,724        34,552    

6.      Other receivables

     96,531        154,475        182,357    

7.      Deferred tax assets

     5,429,057        7,104,759        5,886,541    

8.      Others

     674,518        924,019        959,023    

9.      Allowance for bad debt

     (39,138 )      (40,365 )      (56,094 )  
                            

Total current assets

     52,069,701     73.4    62,807,733     68.8    60,635,190     72.4

II      Non-current assets

                

1.      Property and equipment

  *1    511,424     0.7    475,438     0.5    468,619     0.6

2.      Intangibles

                

(1)      Software

     444,297        1,283,228        1,032,322    

(2)      Software in progress

     224,335        119,961        432,456    

(3)      Others

     13,001        537,076        627,551    
                            

Total intangibles

     681,633     1.0    1,940,265     2.2    2,092,330     2.5

3.      Investments and other non-current assets

                

(1)      Investments in securities

     13,835,849        22,354,546        16,779,345    

(2)      Investments in subsidiaries and affiliates

     2,152,563        2,152,563        2,152,563    

(3)      Deferred tax assets

     1,375,206        1,176,493        1,292,730    

(4)      Others

     385,670        393,183        393,403    

(5)      Allowance for bad debt

     (127 )      (115 )      (59,231 )  

(6)      Allowance for loss on investments in subsidiaries and affiliates

     (62,365 )      (62,038 )      (62,365 )  
                            

Total investments and other non-current assets

     17,686,798     24.9    26,014,633     28.5    20,496,446     24.5
                            

Total non-current assets

     18,879,856     26.6    28,430,337     31.2    23,057,396     27.6
                            

Total assets

     70,949,558     100.0    91,238,070     100.0    83,692,587     100.0
                            


Table of Contents
         

(Thousands of yen)

 

Account

   Period   

At the end of
the first half of
the previous fiscal year

(As of June 30, 2005)

   

At the end of
the first half of
the current fiscal year

(As of June 30, 2006)

  

Condensed balance sheet
at the end of

previous fiscal year

(As of December 31, 2005)

 
          Amount     Percentage     Amount    Percentage    Amount     Percentage  
                %          %          %  

( Liabilities)

                 

I        Current liabilities

                 

1. Accounts payable, trade

      122,164       96,460       150,183    

2. Accounts payable, other

      4,366,872       5,925,372       5,757,523    

3. Accrued corporate tax and others

      2,856,664       6,432,901       3,574,476    

4. Allowance for bonuses

      —         53,078       —      

5. Allowance for sales return

      351,857       274,728       144,289    

6. Warrants

      352,200       —         298,050    

7. Deferred revenue

      11,163,970       14,237,795       12,429,867    

8. Others

   *3    524,740       645,418       687,830    
                           

Total current liabilities

      19,738,469     27.8     27,665,754    30.3    23,042,220     27.5  

II      Long-term liabilities

                 

1. Deferred revenue

      1,450,930       1,441,820       1,542,109    

2. Allowance for retirement benefits

      566,969       641,157       586,482    

3. Allowance for retirement benefits for directors and corporate auditors

      5,078       6,585       5,836    
                           

Total long-term liabilities

      2,022,979     2.9     2,089,562    2.3    2,134,428     2.6  
                           

Total liabilities

      21,761,449     30.7     29,755,317    32.6    25,176,648     30.1  

(Shareholders’ equity)

                 

I        Common stock

   *4    11,803,201     16.6     —      —      12,484,849     14.9  

II      Capital surplus

                 

1. Additional paid-in capital

      14,351,815     20.2     —      —      15,087,304     18.0  

III     Accumulated earnings

                 

1. Legal reserve

      20,833     0.0     —      —      20,833     0.0  

2. Unappropriated retained earnings at the end of the period

      30,314,791     42.7     —      —      37,517,773     44.9  

IV    Valuated difference on other securities

      44,593     0.1     —      —      688,420     0.8  

V      Treasury stock

   *2    (7,347,126 )   (10.3 )   —      —      (7,283,242 )   (8.7 )
                           

Total shareholders’ equity

      49,188,109     69.3     —      —      58,515,938     69.9  
                           

Total liabilities and shareholders’ equity

      70,949,558     100.0     —      —      83,692,587     100.0  
                           


Table of Contents

 

         (Thousands of yen)

Account

  Period   

At the end of
the first half of
the previous fiscal year

(As of June 30, 2005)

  

At the end of
the first half of
the current fiscal year

(As of June 30, 2006)

   

Condensed balance sheet
at the end of

previous fiscal year

(As of December 31, 2005)

         Amount    Percentage    Amount     Percentage     Amount    Percentage
              %          %          %

(Net assets)

                 

I        Shareholders’ equity

                 

1. Common stock

  *4    —      —      13,294,143     14.6     —      —  

2. Capital surplus

                 

(1) Additional paid-in capital

     —      —      16,017,739       —      —  
                         

Total capital surplas

     —      —      16,017,739     17.6     —      —  

3. Accumulated earnings

                 

(1) Legal reserve

     —      —      20,833       —      —  

(2) Accumulated profit

                 

Retained earnings carried forward

     —         38,716,809       —     
                         

Total retained earnings

     —      —      38,737,642     42.4     —      —  

4. Treasury stock

     —      —      (7,441,366 )   (8.2 )   —      —  
                         

Total shareholders’ equity

     —      —      60,608,159     66.4     —      —  
                         

II      Revaluation surplus

  *2                

1. Valuated difference on other securities

     —      —      874,593     1.0     —      —  

Total net assets

     —      —      61,482,753     67.4     —      —  
                         

Total liabilities and net assets

     —      —      91,238,070     100.0     —      —  


Table of Contents

(Amended)

Non-consolidated semi-annual balance sheets

 

         (Thousands of yen)

Account

 

Period

  

At the end of
the first half of
the previous fiscal year

(As of June 30, 2005)

  

At the end of the first

half of the current

fiscal year

(As of June 30, 2006)

  

Condensed balance

sheet at the end of

previous fiscal year

(As of December 31, 2005)

         Amount     Percentage    Amount     Percentage    Amount     Percentage
               %          %          %

(Assets)

                

I     Current assets

                

1. Cash and bank deposits

     36,898,408        42,146,031        36,425,321    

2. Accounts receivable, trade

     7,345,918        10,190,421        11,158,987    

3. Marketable securities

     1,528,805        2,181,348        5,919,607    

4. Inventories

     103,224        113,318        124,894    

5. Intercompany short-term loan receivables

     32,375        33,724        34,552    

6. Other receivables

     96,531        154,475        182,357    

7. Deferred tax assets

     5,429,057        8,182,991        5,886,541    

8. Others

     674,518        924,019        959,023    

9. Allowance for bad debt

     (39,138 )      (40,365 )      (56,094 )  
                            

Total current assets

     52,069,701     73.4    63,885,965     69.1    60,635,190     72.4

II   Non-current assets

                

1. Property and equipment

  *1    511,424     0.7    475,438     0.5    468,619     0.6

2. Intangibles

                

(1) Software

     444,297        1,283,228        1,032,322    

(2) Software in progress

     224,335        119,961        432,456    

(3) Others

     13,001        537,076        627,551    
                            

Total intangibles

     681,633     1.0    1,940,265     2.1    2,092,330     2.5

4. Investments and other non-current assets

                

(3) Investments in securities

     13,835,849        22,354,546        16,779,345    

(4) Investments in subsidiaries and affiliates

     2,152,563        2,152,563        2,152,563    

(3) Deferred tax assets

     1,375,206        1,291,491        1,292,730    

(4) Others

     385,670        393,183        393,403    

(5) Allowance for bad debt

     (127 )      (115 )      (59,231 )  

(6) Allowance for loss on investments in subsidiaries and affiliates

     (62,365 )      (62,038 )      (62,365 )  
                            

Total investments and other non-current assets

     17,686,798     24.9    26,129,631     28.3    20,496,446     24.5
                            

Total non-current assets

     18,879,856     26.6    28,545,335     30.9    23,057,396     27.6
                            

Total assets

     70,949,558     100.0    92,431,300     100.0    83,692,587     100.0
                            

 


Table of Contents

 

          (Thousands of yen)  

Account

   Period   

At the end of

the first half of

the previous fiscal year

(As of June 30, 2005)

   

At the end of

the first half of

the current fiscal year

(As of June 30, 2006)

  

Condensed balance sheet
at the end of
previous fiscal year

(As of December 31, 2005)

 
          Amount     Percentage     Amount    Percentage    Amount     Percentage  
                %          %          %  

( Liabilities)

                 

I        Current liabilities

                 

1. Accounts payable, trade

      122,164       96,460       150,183    

2. Accounts payable, other

      4,366,872       5,925,372       5,757,523    

3. Accrued corporate tax and others

      2,856,664       6,432,901       3,574,476    

4. Allowance for bonuses

      —         53,078       —      

5. Allowance for sales return

      351,857       274,728       144,289    

6. Warrants

      352,200       —         298,050    

7. Deferred revenue

      11,163,970       16,887,664       12,429,867    

8. Others

   *3    524,740       645,418       687,830