FORM 6-K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
Commission File Number:333-10486
For the Month of January 2002
Trend Micro Incorporated
(Translation of registrant's name into English)
Odakyu Southern Tower, 10th Floor, 2-1, Yoyogi 2-chome,
Shibuya-ku, Tokyo 151-8583, Japan
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F ____
-----
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes _____ No X
-----
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-__________
Information furnished on this form:
Table of Contents
1. Press release dated February 6, 2002 announcing results for the Fiscal Year
Ended December 31, 2001.
2. Digest of Consolidated Earnings results for the Fiscal Year Ended December
31, 2001 (English translation).
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 12, 2002 By: /s/ Mahendra Negi
---------------------------
Mahendra Negi
Director and Chief
Financial Officer
Attachment 1
Immediate release
Trend Micro Reports Record Fourth Quarter Revenue
Fourth Quarter Revenue Grows 57% to (Yen)10,838 Million under Japan GAAP
Tokyo, JAPAN - February 6, 2002 - Trend Micro Incorporated (TSE:4704,
Nasdaq:TMIC), a worldwide leader in network antivirus and Internet content
security solutions, today announced financial results for the fourth quarter
ended December 31, 2001: consolidated net revenue was 10,838 million yen, an
increase of 57% from the fourth quarter of FY2000, operating income climbed 51%
to 3,916 million yen and ordinary income was up 72% to 4,239 million yen.
If the results were not adjusted in accordance with a new revenue recognition
policy, net revenue, operating income and ordinary income would have grown by
77% to 12,247 million yen, 106% to 5,325 million yen and 129% to 5,648 million
yen respectively.
"Given the difficult economic conditions faced by the technology sector in
general, we are gratified that our innovative products and dedicated employees
led to this result", said Steve Chang, CEO of Trend Micro. "We are even more
excited to be leaving the year on the strongest possible note with our strongest
quarter of the year."
Summary of Results for the Fourth Quarter of the fiscal year 2001
-----------------------------------------------------------------
--------------------------------------------------------------------------
(in million yen, Three Month Ended December 31, Change
----------------------------------
unaudited) 2001 2000
--------------------------------------------------------------------------
Net sales 10,838 6,903 57%
--------------------------------------------------------------------------
Operating Income 3,916 2,588 51%
--------------------------------------------------------------------------
Ordinary Income 4,239 2,461 72%
--------------------------------------------------------------------------
[not adjusted for the new revenue recognition policy]
--------------------------------------------------------------------------
(in million yen, Three Month Ended December 31, Change
----------------------------------
unaudited) 2001 2000
--------------------------------------------------------------------------
Net sales 12,247 6,903 77%
--------------------------------------------------------------------------
Operating Income 5,325 2,588 106%
--------------------------------------------------------------------------
Ordinary Income 5,648 2,461 135%
--------------------------------------------------------------------------
For the annual results of the fiscal year ended December 31, 2001, the company
reported consolidated net revenue of 31,326 million yen, ordinary income of
9,549 million yen and net income of 2,421 million yen.
Summary of Results for the fiscal year 2001
-------------------------------------------
--------------------------------------------------------------------------
(in million yen) The Fiscal Year Ended December 31, Change
-------------------------------------
2001 2000
--------------------------------------------------------------------------
Net sales 31,326 21,834 43%
--------------------------------------------------------------------------
Operating Income 9,481 7,443 27%
--------------------------------------------------------------------------
Net Income 2,421 4,722 -49%
--------------------------------------------------------------------------
[not adjusted for the new revenue recognition policy]
--------------------------------------------------------------------------
(in million yen) The Fiscal Year Ended December 31, Change
-------------------------------------
2001 2000
--------------------------------------------------------------------------
Net sales 33,652 21,834 54%
--------------------------------------------------------------------------
Operating Income 11,807 7,443 59%
--------------------------------------------------------------------------
Net Income 5,555 4,722 18%
--------------------------------------------------------------------------
Description of the change of the recognition policy
Until the end of FY 2000, the Company (Japan) and Trend Micro Incorporated
(Taiwan) booked revenue for Premium Support and other post-contract customer
support services at the beginning of the support period. Effective from FY 2001,
the method of recognizing this revenue recognition has been changed and sales
revenues from customer support are deferred over the relevant support period.
Under Japanese GAAP, Trend Micro is not required to restate its financial
statements because of a change in its revenue recognition policy and has chosen
not to do so in this case.
Financial Outlook
Trend Micro expects consolidated net revenue for the fiscal year 2002 of 40,000
million yen, ordinary income of 13,000 million yen and net income of 7,300
million yen.
For the first quarter of the fiscal year 2002, the company estimates
consolidated net revenue will be between 8,500 million yen and 9,100 million
yen, ordinary income between 2,300 million yen and 2,700 million yen and net
income between 1,300 million yen and 1,500 million yen.
Highlights of 2001
Exceptional Growth - The IDC named Trend Micro the fastest-growing antivirus
vendor and the worldwide leader in server-based antivirus software sales.
Specifically, it found Trend Micro to be the global leader in the following
segments of the antivirus industry in 2000:
. #1 in overall server AV market share - 33% market share
. #1 in Internet gateway AV market share - 63% worldwide market share
. #1 in groupware AV market share - 31% worldwide market share
New Customers - Trend Micro boosted its Fortune 1000 client base by securing
many new enterprise customers, including HSBC, IBM, BMW, Commerzbank Securities,
Conoco, Fuji Bank, Mitsubishi Heavy Industries, NEC, Asahi, Sprint, Sony, Colt,
Deloitte & Touche, Ogilvy & Mather, and Verizon Wireless, the European
Aeronautic Defence and Space Company (EADS) and Pemex. New government and
institutional accounts included the US Army, Social Security Administration,
Departments of Justice and Transportation, and Census Bureau, the Australian
Defence Force, Italy's Ministry of Foreign Affairs, Malaysia's Ministries of
Education and Employment, the Tokyo Metro government, City of San Francisco and
the National University of Singapore.
Broadband and Wireless Initiatives Trend Micro unveiled GateLock(TM), an all-in-
one plug-and-play device for broadband Internet connections offering security
against hackers, viruses and other intruders, and released PC-cillin(R) for
Wireless 2.0 supporting Palm OS, Microsoft Pocket PC, and Symbian EPOC platforms
to help enable secure wireless communications.
Awards and Recognition - Trend Micro enterprise and desktop products continued
to gather accolades from numerous publications. ScanMail for Microsoft Exchange
and ScanMail eManager were PC Magazine's Editors' Choice for best enterprise
email security solution. PC-cillin was named a "must-have" by PC World and an
Editor's Choice by Australian PC Magazine; while its Japanese version, Virus
Buster, picked up a Best Personal Computer Software Award from Nikkei Business.
InterScan(R) VirusWall(R) and eManager were 'Highly Commended' at the Secure
Computing Academy Awards 2001. Trend Micro was voted "Best Vendor" by the system
integrator
community at VARVision(R) Spring 2001, and HouseCall finished first in a test of
online virus scanners for PC World (German edition). Trend Micro also received a
US patent for its active content security technology, used in AppletTrap to
guard against harmful Java applets and ActiveX controls.
Notice Regarding Forward Looking Statements
These forward-looking statements include statements regarding our expectations
about our earnings for the fiscal year ending December 31, 2002.
Many important factors could cause our actual results to differ materially from
those expressed in our forward-looking statements. These factors include:
-Customer acceptance of our new products and services
-The impact of competing products and services
-Difficulties in adapting our products and services to the Internet
-Difficulties in addressing new virus and other computer security problems
-The potential lack of attractive investment targets and difficulties
unsuccessfully executing our investment strategy
-Declining prices for our products and services
We assume no obligation to update any forward-looking statements.
For more details regarding risk factors relating to our future performance,
please refer to our filings with the SEC including our annual report on Form 20-
F which was filed on June 29,2001.
About Trend Micro
Trend Micro Inc. is a leader in network antivirus and Internet content security
software and services. The Tokyo-based Corporation has its North American
headquarters in Cupertino, CA, and business units worldwide. Trend Micro
products are sold directly, through corporate, value-added resellers and managed
service providers. For additional information and evaluation copies of all Trend
Micro products, visit www.antivirus.com or www.trendmicro.com.
TREND MICRO INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Thousands of yen)
-------------------------------------------------------------------------------------------------------------------------------
FY 2001 FY 2000 Compared
Period to the
( From January 1, 2001 ( From January 1, 2000 previous
Account To December 31, 2001 ) To December 31, 2000 ) year
------------------------------------------------------------------------
Amount Percentage Amount Percentage
----------------------------------------------------------------------------------------------------------------------------
% % %
I Sales 31,326,320 100.0 21,834,797 100.0 143.5
II Cost of sales 1,898,970 6.1 1,474,689 6.8 128.8
------------------------ -------------- -------------
Gross profit 29,427,350 93.9 20,360,107 93.2 144.5
III Selling, general and 19,946,331 63.6 12,916,789 59.1 154.4
administrative expenses
------------------------ -------------- -------------
Operating income 9,481,018 30.3 7,443,318 34.1 127.4
IV Non-operating income 1,064,688 3.4 660,295 3.0 161.2
V Non-operating expenses 996,517 3.2 780,900 3.6 127.6
------------------------ -------------- -------------
Ordinary income 9,549,189 30.5 7,322,712 33.5 130.4
VI Unusual gains - - 1,035,812 4.7 -
VII Unusual losses 5,180,970 16.6 7,805 0.0 66,372.8
------------------------ -------------- -------------
Income before taxes 4,368,218 13.9 8,350,719 38.2 52.3
Corporate, inhabitant 4,205,850 13.4 4,560,562 20.9 92.2
and enterprise tax
Income tax - deferred (2,258,958) (7.2) (939,507) (4.3) 240.4
Minority interest income - - 6,845 0.0 -
------------------------ -------------- -------------
Net income 2,421,326 7.7 4,722,818 21.6 51.3
-----------------------------------------------------------------------------------------------------------------------------
TREND MICRO INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEET DATA
ASSETS
------ (Thousands of yen)
------------------------------------------------------------------------------------------------------------------
Period FY 2001 FY 2000 Net
increase/
(As of December 31,2001) (As of December 31,2000) decrease
--------------------------------------------------------------------------------------
Account Amount Percentage Amount Percentage Amount
------------------------------------------------------------------------------------------------------------------
% %
(Assets)
I Current assets
1. Cash and 40,853,417 24,435,471
bank deposits
2. Notes and 12,280,759 8,780,266
accounts
receivable,trade
3. Marketable - 1,872,520
securities
4. Inventories 238,881 318,187
5. Deferred tax 3,209,029 1,562,172
assets
6. Other current 786,996 607,143
assets
7. Allowance for (206,752) (137,398)
bad debt
------------------ -------------- ---------------
Total current 57,162,330 87.5 37,438,364 85.5 19,723,966
assets
II Non current
assets
1. Property
and equipment
(1) Buildings 703,877 302,722
(2) Furniture and 1,290,269 909,075
fixture
(3) Others 18,727 10,849
------------------ -------------- ---------------
Total property 2,012,873 3.1 1,222,648 2.8 790,225
and equipment
2. Intangibles
(1) Software 661,116 241,385
(2) Software in 400,202 163,629
progress
(3) Software - 9,312
Copyright
(4) Consolidation - 2,253,559
Goodwill
(5) Others 49,141 72,940
------------------ ----------------- ---------------
Total 1,110,461 1.7 2,740,827 6.2 (1,630,365)
intangibles
3. Other assets
(1) Investments in 2,529,142 600,198
Securities
(2) Investments in 707,389 928,119
capital funds
(3) Deferred tax 926,772 301,123
Assets
(4) Others 882,995 586,276
(5) Allowance for (14,617) (15,534)
bad debt
------------------ -----------------
Total other assets 5,031,681 7.7 2,400,183 5.5 2,631,498
------------------ -----------------
Total non-current 8,155,017 12.5 6,363,659 14.5 1,791,358
assets
------------------ ----------------- ---------------
Total assets 65,317,347 100.0 43,802,023 100.0 21,515,324
================== ================= ===============
----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (Thousands of yen)
------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Period FY 2001 FY 2000 Net
increase/
(As of December 31,2001) (As of December 31,2000) decrease
--------------------------------------------------------------------------
Account Amount Percentage Amount Percentage Amount
--------------------------------------------------------------------------------------------------------------------------
% %
( Liabilities )
I Current
liabilities
1. Notes and accounts payable, trade 1,381,995 929,280
2. Current portion of
Long-term Debt 3,000,000 -
3 Current portion of
long-term borrowing - 57,200
4 Accrued corporate
tax and others 3,006,182 1,877,631
5. Deferred revenue 9,342,597 2,350,813
6. Allowance for
sales return 643,622 509,168
7. Others 4,185,534 1,715,783
------------- ------------ -----------
Total current
liabilities 21,559,933 33.0 7,439,877 17.0 14,120,055
II Long-term
liabilities
1. Long-term debt 11,500,000 9,700,000
2. Long-term
borrowing - 99,900
3. Deferred revenue 916,873 239,439
4. Accrued pension
and severance
costs - 85,896
5 Allowance for Retirement
Benefit 313,082 -
6 Others 126,399 -
------------- ------------ -----------
Total long-term
liabilities 12,856,355 19.7 10,125,236 23.1 2,731,119
------------- ------------ -----------
Total liabilities 34,416,288 52.7 17,565,113 40.1 16,851,174
(Shareholders' equity)
I Common stock 6,833,677 10.5 6,182,838 14.1 650,839
II Suspense receipt on capital - - 427 0.0 ( 427)
Subscriptions
III Additional 11,236,702 17.2 10,842,946 24.8 393,756
paid-in capital
IV Consolidated 11,978,410 18.3 9,557,084 21.8 2,421,326
Retained earnings
V Valuated differences on 21,735 0.0 - - 21,735
other securities
VI Cumulative translation
adjustment 852,595 1.3 (324,477) (0.7) 1,177,073
------------- ------------ -----------
30,923,122 47.3 26,258,818 60.0 4,664,303
VII Treasury stock ( 22,063) (0.0) (21,908) (0.1) ( 154)
------------- ------------ -----------
Total
shareholders'
equity 30,901,059 47.3 26,236,910 59.9 4,664,149
------------- ------------ -----------
Total liabilities
and shareholders'
equity 65,317,347 100.0 43,802,023 100.0 21,515,324
============= ============ ============
Attachment 2
February 6, 2002
Digest of Consolidated Earnings Results
for the Fiscal Year Ended December 31, 2001
Company: Trend Micro Incorporated Tokyo Stock Exchange 1/st/ section
Code: 4704 Location: Tokyo
Contact person: Position: Director, Chief Financial Officer
Name: Mahendra Negi (Phone: 81-3-5334-3600)
Date of the board of directors
meeting: February 6, 2002
The company has prepared this document under Japan GAAP.
1. Financial Highlights for FY 2001 (January 1, 2001 through December 31, 2001)
(1) Consolidated Results of Operations
(All figures are rounded down to millions of yen.)
----------------------------------------------------------------------------------------------------------------------------------
(Compared to (Compared to (Compared to
the previous Operating the previous Ordinary the previous
Sales year) income year) income year)
----------------------------------------------------------------------------------------------------------------------------------
Millions of yen % Millions of yen % Millions of yen %
FY2001 31,326 (43.5) 9,481 (27.4) 9,549 (30.4)
FY2000 21,834 (58.9) 7,443 (75.0) 7,322 (64.0)
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Net income (Compared to the ) Net income Net income Return on Ordinary Ordinary
previous year per share per share shareholders' income/total income ratio
(basic) (diluted) equity assets ratio
----------------------------------------------------------------------------------------------------------------------------------
Millions of yen % Yen Yen % % %
FY2001 2,421 (- 48.7) 18.40 18.23 8.5 17.5 30.5
FY2000 4,722 (91.5) 72.44 70.78 21.1 20.2 33.5
----------------------------------------------------------------------------------------------------------------------------------
(Note) 1) Loss on investment in affiliated companies: - 129 millions of yen (FY 2001)
- 87 millions of yen (FY2000)
2) Number of weighted average shares outstanding: 131,594,913 shares (FY2001)
65,194,481 shares (FY2000)
3) The company made a change in accounting principle during the period.
(2) Consolidated Financial Position
----------------------------------------------------------------------------------------------------------------------------------
Total assets Shareholders' equity Shareholders' equity ratio Shareholders' equity
per share
----------------------------------------------------------------------------------------------------------------------------------
Millions of yen Millions of yen % Yen
FY 2001 65,317 30,901 47.3 234.02
FY 2000 43,802 26,236 59.9 400.20
----------------------------------------------------------------------------------------------------------------------------------
(Note) Number of shares issued at the end of fiscal year : 132,043,182 shares (FY 2001)
65,560,421 shares (FY 2000)
(3) Consolidated Cash Flow
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from Cash flows from Cash flows from Ending balance of cash and
operating activities investing activities financing activities cash equivalent
----------------------------------------------------------------------------------------------------------------------------------
Millions of yen Millions of yen Millions of yen Millions of yen
FY 2001 12,563 -2,918 5,460 40,782
FY 2000 7,776 -4,141 4,804 24,435
----------------------------------------------------------------------------------------------------------------------------------
(4) Basis of consolidation and investments in affiliated companies:
The number of consolidated subsidiaries ........................................................................ 18
The number of unconsolidated subsidiaries accounted by the equity method........................................ 0
The number of affiliated companies accounted by the equity method .............................................. 4
(5) Change in reporting entities:
Changes in the subsidiaries and affiliates
(Subsidiaries) Two subsidiaries were newly consolidated and none was
excluded from consolidation.
1
(Affiliates) Equity method of accounting was newly applied to one
affiliated company.
2. Projected consolidated earnings
(1) Projected earnings for the next fiscal year (January 1, 2002 through December 31, 2002)
----------------------------------------------------------------------------------------------------------------------------------
Sales Ordinary income Net income
----------------------------------------------------------------------------------------------------------------------------------
Millions of yen Millions of yen Millions of yen
FY 2002 40,000 13,000 7,300
----------------------------------------------------------------------------------------------------------------------------------
Projected consolidated net income per share for the next fiscal year : 55.28 Yen
(2) Projected earnings for the next quarter (January 1, 2002 through March 31, 2002)
----------------------------------------------------------------------------------------------------------------------------------
Sales Ordinary income Net income
----------------------------------------------------------------------------------------------------------------------------------
Millions of yen Millions of yen Millions of yen
1/st/ Qtr 8,500 to 9,100 2,300 to 2,700 1,300 to 1,500
----------------------------------------------------------------------------------------------------------------------------------
(Note) Surrounding environment of Trend Micro Group may change significantly in
very short period of time. Therefore, the Company has decided to disclose
projected earnings range in a quarterly basis, but the actual earnings may
deviate from the projection.
[Supplementary information on the results (January 1, 2001 through December 31,
2001)]
Sales revenues Trend Micro Group are mainly derived from licensing of its
products, upgrading of its products and patterns files and post-contract support
including customer support. Until December 31, 2000, the Company and Trend Micro
Incorporated (Taiwan) had recognized sales revenues from customer support (which
was included in post-contract support) at the beginning of the relevant support
period. Effective January 1, 2001, the method of the revenue recognition has
been changed and sales revenues from customer support are deferred and recorded
as Deferred Revenue under current or non-current liabilities over the relevant
support period.
For convenience of comparison, actual current fiscal year result, assumed
result based on the old accounting policies and their differentials are stated
in the below.
--------------------------------------------------------------------------------------------------------
Result of FY2001 Result of FY 2001
(based on Accounting
policies applied until Increace/Decrease
previous fiscal year)
--------------------------------------------------------------------------------------------------------
(millions of Yen) (millions of Yen) (millions of Yen)
Sales 31,326 33,652 (2,326)
Ordinary income 9,549 11,875 (2,326)
Net income (loss) 2,421 5,555 (3,134)
--------------------------------------------------------------------------------------------------------
(Yen) (Yen) (Yen)
Net income (loss)
per share 18.40 42.22 (23.82)
--------------------------------------------------------------------------------------------------------
[Information on net income per share and shareholders' equity per share]
For periodic comparison of restated net income per share and shareholders'
equity per share reflecting the effect of stock split on March 31, 2001 is as
follows:
--------------------------------------------------------------------------------------------------------
Net income (loss) Shareholders' equity
per share (Yen) per share (Yen)
--------------------------------------------------------------------------------------------------------
FY2001 18.40 234.02
FY2000 36.22 200.10
--------------------------------------------------------------------------------------------------------
2
FY2001 (as of December 2001) Attachment to the Report
1. Condition of corporate group
----------------------------
Overview of corporate group
---------------------------
Trend Micro Group consists of Trend Micro Inc., and its 18 subsidiaries
which develop and sell anti-virus products and offer other related services
and Four affiliated companies are: NTT Data Security Corporation which
offers total network securities, Soft Trend Capital Corporation which
manages capital funds to be invested into Internet-related ventures, Japan
JCN Co., Ltd which develops and offers the security system against unlawful
access and NetSTAR Inc. which develops and offers the products of URL
filtering.
The business related to anti-virus are described below:
The products related to anti-virus:
PC client products Trend Micro Inc develops and sells the
LAN server products products. Some parts of the research and
Internet server products development activities are entrusted to
Other products Trend Micro Incorporated (Taiwan), Trend
Micro Inc.(U.S.A.), Trend Micro Deutschland
GmbH (Germany), Trend Micro (UK) Limited,
and Trend Micro (Shanghai) Inc. (China).
Trend Micro Incorporated (Taiwan) also
operates manufacturing and sales of the
products, part of which are purchased by
Trend Micro Inc (Japan), Trend Micro
Inc.(U.S.A.), Trend Korea Inc., Trend Micro
Deutschland GmbH(Germany), Trend Micro Italy
S.r.l., Trend Micro Australia Pty.
Ltd.(Australia), Trend Micro do Brasil
Ltda.(Brazil), Trend Micro France, Trend
Micro Hong Kong Limited, Trend
Micro(UK)Limited, Trend Micro Latinoamerica
S.A.de C.V (Mexico), Trend Micro (Shanghai)
Inc. (China). In addition, Trend Micro Inc
(Japan) owns software copyrights and
receives from its overseas subsidiaries
royalties based on the respective sales of
products to such subsidiaries.
[GRAPH APPEARS HERE]
(Note) All subsidiaries are consolidated.
3
2. Management policies and results of operations
---------------------------------------------
Trend Micro Group's Basic Management Policy
Since its founding, Trend Micro has provided "peace of mind" to all users of
computer networks and the Internet by offering anti-virus and Internet content
security solutions. We currently have the strong impression that needs of the
market to be met by Trend Micro has been changing into larger one in accordance
with development of the Internet followed by rapid growth of the market scale of
business. Such dramatic change tells us that we have to change our current
corporate scheme to sell products through a single sales organization to new
global corporate scheme to provide value-added services through the Internet and
in addition, that even among the corporations to provide value-added services
through the Internet while competing to a greater extent in the market, we
should aim at provision of high value-added products and services which show
high difficulty level for competitors to develop them to enter the market.
Upholding the slogan "your Internet VirusWall," we have become a reliable
partner to both corporate users and individual customers, working to block
computer viruses, SPAM (unwanted e-mail) and Malicious Code (harmful programs
created in such programs as JAVA and Active X), as well as to protect users from
offensive URLs. We continue to contribute to the development of the networked
society in Japan and globally by offering network security solutions and
devices. We believe that our ongoing efforts to protect users' computer systems
and expand our global client base will lead to an increase in shareholders'
value.
Basic Policy on the Distribution of Profits
Although Trend Micro has steadily increased its profits in the past few years,
we believe that the Internet security market has only begun its full-fledged
expansion and that our market share has not stabilized in relation to our U.S.
competitors. Our larger rivals may well concentrate their management resources
to further enlarge their market share. Since our business areas are more
concentrated on anti-virus solutions and Internet content security related
solutions than other competitors with diversified Internet security solutions,
we also face the possibility of larger profit fluctuations in the short term. In
this business environment the most critical management challenges are to
strengthen our financial structure and management foundation and aggressively
develop new business operations in order to maintain our competitiveness in the
market. Our priority, therefore, is to accumulate reserves, which means
withholding dividends for the time being. Regarding our accumulated reserves, we
would like to ask all shareholders to accept our decision to appropriate them
for investment in research and development division to be further strengthened
in the future by Trend Micro and for activities to improve brand awareness and
corporate image.
Medium and Long-Term Management Strategy
Corporate IT investment has plateaued with the slowdown in North American and
--------------
European economies. Chilled by this decrease in IT investment, the business
climate surrounding Trend Micro is not bright. However, we expect network
security solutions, including anti-virus measures, to continue gaining in
importance, as more and more corporate users become dependent on using networks,
and their systems' problems consequently subject them to huge losses, both in
financial terms and opportunity costs. Thus the network security market is
expected to grow steadily in the medium-to-long term. To take advantage of this
opportunity, we are focusing on maintaining our competitive edge against major
U.S. rival companies and expanding our global market share. Utilizing our global
resources and networks spanning the United States, Europe and Taiwan, we will
continue to strengthen our sales channels, improve brand awareness and corporate
image and accelerate the development of products that meet customer needs.
The IT industry is evolving rapidly in conjunction with its constantly changing
technology. The next generation of Internet-related technologies, including
broadband, mobile communications and open platforms such as Linux, will likely
bring about dramatic changes in the network environment. We must seize the
opportunities afforded by this high-paced technological evolution, in advance of
our major U.S. competitors, while strengthening our management structure and
further increasing our operational efficiency.
Summary of Consolidated Financial Results for the fiscal year 2001
The fiscal year under review saw a slowdown in demand within the IT industry,
primarily the result of declining corporate IT spending in Japan, Europe and the
United States. The corporate spending cuts also put the damper on demand for
network security solutions, which have been positioned as a high priority in IT
investment. According to the survey conducted by U.S. Information Security in
October 2001, it reports that due to the decline in economic environment, about
one-third of companies to be surveyed freeze investment in network security
related products and degree of freeze on the investment is more distinguished in
North America.
Although the business environment has been harsh and we expect some ups and
downs in the short term, we believe the network security market will enjoy
steady growth over the medium and long term, as corporations continue to
increase IT investment in advanced networks and the renewal of core business
systems. In addition, malicious viruses as a new type of virus expanding serious
damages over networks these days and typified by "Code Red" programmed to attack
the White House computer systems and "Nimda" including a lot of attack tools
have increased their number incurring serious damages to users by automatically
attacking users'computer systems after detection of inherent vulnerability
included therein on the Internet and further, have much more infectious capacity
compared with conventional viruses. To vendors who provide network security
related products has been directed further increased demand for more effective
products and services than ever before. According to the report by Information-
technology Promotion Agency (IPA), also in Japan, the frequency with which
viruses appear reported in 2001 resulted in the worst figure, i.e., over two
times that of last year, indicating the degree of virus-induced damages growing
more seriously, and therefore, the recognition of importance in network security
has been enhanced to a large extent in the face of dramatic increase in the
number of subscribers to communicate through broadband transmission.
4
During the fiscal FY2001, Trend Micro domestic operations significantly
increased contracts for its Virus Buster Corporate Edition (OfficeScan) and
"ServerProtect," winning not only large companies but also medium and small
companies. Sales of InterScan, our anti-virus software for Internet servers,
rose steadily, in response to the more frequent virus infections spread via e-
mail. In addition, by releasing a new product "Virus Buster 2002" timely at the
time when malicious viruses continuously infected many systems in the second
half of the FY2001, we have succeeded in selling package types of products in
the retail market achieving substantial increase in sales amount over the figure
planned by Trend Micro. Furthermore, for the same reason, also as for our
VirusWall E-Mail Service (Internet Outsourcing Service) operations, through
which we offer anti-virus solutions as a service, by forming a partnership with
ISP (Internet Service Provider) we succeeded in establishing the way to offer
such services via major ISPs, such as @Nifty and OCN, and thus we continue to
rapidly increase the number of our contracted customers.
In the phase of deployment of our business operations in North America and
Europe, anti-virus products, such as "InterScan" series and "ScanMail" series,
used in higher layers of hierarchy of the network mainly contributed to the
steady growth in sales of the products for relatively large-sized corporate
users. As a highly specialized anti-virus solutions provider, we have pioneered
post-contract support services, called "Premium Support," introducing them
before our major competitors in the industry. This service is in response to the
trend among large corporate users to select a vendor based not only on the
performance of its anti-virus software but also on the quality of support the
vendor offers during the license period to swiftly alert customers to new
viruses. In addition, in response to the growing needs for anti-virus measures
against attack to storage systems in the network, two products, "ServerProtect
for EMC Celerra" and "ServerProtect for Network Appliance," have joined our
product lineup as a new product of "ServerProtect" series.
Security appliance server business for medium and small companies, which had
been handled by our subsidiary ipTrend Incorporated, did not bring about the
result to be achieved in building a solid client base of medium and small
companies because of the harsh economic environment surrounding medium and small
companies of Japan. IpTrend's Linux and Unix hardware-related technology has
played an important role in the development of our next-generation anti-virus
product for consumers, GateLock, and continues to be a crucial part of our
group. However, the company's ipStax security appliance server business for
small- and medium-sized companies urgently needed a restructuring review. We
decided to dissolve ipTrend and integrate its operations into Trend Micro, while
strategically reorganizing its operations and utilizing its technology in our
anti-virus products. This integration and reorganization resulted in our writing
off the entire goodwill of 2,000 million yen as a one-time amortization charge
during the first half of FY2001. This goodwill had been recognized as a portion
of the purchase price when we acquired ipTrend (formerly Nippon Unisoft).
Starting with the first quarter of FY2001, Trend Micro (Japan) and Trend Micro
Incorporated (Taiwan) changed their accounting method for revenues from post-
contract support services. Sales revenues for these services had been booked at
the beginning of the support period; the new method defers the recognition of
sales revenues from support services and recognizes as revenue over the support
period. This new accounting treatment will reflect these transactions more
accurately, and has been applied to all our financial filings with the
Securities and Exchange Commission (SEC), including our Form 20-F filing, which
was submitted on June 29, 2001. The conversion to deferred revenue recognition
resulted in an extraordinary loss of 3,009 million yen for our half-year
results.
During the fiscal year 2001, Trend Micro posted consolidated sales of 31,326
million yen, an increase of 43.5 percent over the last year. Consolidated
ordinary income increased 30.4 percent to 9,549 million yen, while net income
decreased 48.7 percent to 2,421 million yen.
(Sales in all geographical areas grew steadily during the first half of FY2001.)
Sales in Japan posted an increase of 81.6 percent to 19,029 million yen, while
operating income from these sales rose to 13,299 million yen, up 112.1 percent
from the comparable period in FY2000. U.S. sales increased 41.3 percent to
11,107 million yen, with operating income totaling 1,070 million yen, a 58.8
percent decrease. In Europe, sales increased 61.5 percent to 6,881 million yen,
and operating income decreased 65 percent to 532 million yen. Taiwan sales
increased 48.1 percent to 4,184 million yen, and operating loss resulted 143
million yen from the previous period. Other areas posted combined sales of 1,979
million yen, a 54.8 percent increase, and operating income of 171 million yen,
down 53.1 percent.
Prospects for next period
-------------------------
We expect the economies of Japan, Europe and the United States to continue their
sluggish performance in 2002, further restraining corporate spending on IT. Our
industry seriously suffered from expanded damages incurred by new type of
viruses such as "Code Red" and "Nimda" last year, and even the company, which
already had introduced and was running the network security related products,
reported receiving frequent damages incurred by sophisticated polymorphic
attacks by those new viruses having strong infecting power. Therefore, when
selecting a network security product vendor, in addition to a quality of
products, corporate users now are directing their eyes to an ability to show
competitive edge against rival vendors in offering a total solution, which
includes such critical elements as a quick and effective support and an
effective system integration of the vendor's products and other network security
products such as a firewall or an IDS (Intrusion Detection System: anti-
unauthorized access system). Naturally, our competitors will likely well
concentrate their management resources to provide new products and services to
obtain such competitive edge. In consideration of those circumstances
surrounding our company, we have decided to continuously expand and strengthen
our operational resources in developing products and supporting users to meet
customer needs in advance of competitors, powered by our competitive edge as a
highly specialized provider to offer anti-virus content security solutions and
strong partnerships with main vendors who provide network security products for
other fields, such as firewall and IDS. Furthermore, we have determination to
concentrate our management resources to further enlarge our share in each market
by making effort to provide our products and services broader than ever
5
before in the market for medium and small companies and the retail market, and
offering more sophisticated solutions in the market for large-sized companies.
As for our business development in the North American market, we have decided to
newly enter the retail market and at the same time strengthen marketing
activities to improve brand awareness and corporate image followed by expansion
of customer base from leading medium-sized companies to small- and medium-sized
companies. With respect to our business strategy for the European market, we
will also strengthen marketing activities, as will be done in the North American
market, to improve brand awareness and corporate image to increase our share
mainly in the market for leading companies. Furthermore, we will accelerate
operational efficiency and integration throughout our European business sites
while strengthening our sales channels to maintain and further increase
corporate growth rate.
The above-stated commitments make us forecast the following consolidated
operating results for FY2002:
Projections for FY 2002(January 1, 2002 through December 31, 2002)
------------------------------------------------------------------
Consolidated sales: 40,000 million yen (+ 27.7 %)
Consolidated ordinary income: 13,000 million yen (+ 36.1 %)
Consolidated net income: 7,300 million yen (+ 201.5 %)
Projections for the first quarter of FY2002 (January 1, 2002 through March 31,
------------------------------------------------------------------------------
2002)
-----
Consolidated sales: 8,500 million yen to 9,100 million yen
Consolidated ordinary income: 2,300 million yen to 2,700 million yen
Consolidated net income: 1,300 million yen to 1,500 million yen
Earnings projections are calculated based on estimated major currency exchange
rates of $1 = 130 yen and 1 EUR = 110 yen.
We would be very grateful if all shareholders could accept our decision to defer
distribution of profits of FY2002 following the previous fiscal year and
appropriate our accumulated reserves for research/development division and
marketing activities to improve brand awareness and corporate image in the North
American market, and for promotion of activities to sell new product "GateLock"
in Japan and North America, in order to maintain and strengthen our
competitiveness against U.S. rival companies in the market.
6
3. Condensed Consolidated Financial Statements
-------------------------------------------
(1) Condensed consolidated balance sheets
(Thousands of yen)
-----------------------------------------------------------------------------------------------------------------------
Period FY 2001 FY 2000 Net
increase/
(As of December 31, 2001) (As of December 31, 2000) Decrease
Account ---------------------------------- -------------------------------------------
Amount Percentage Amount Percentage Amount
-----------------------------------------------------------------------------------------------------------------------
% %
(Assets)
I Current assets
1. Cash and
bank deposits 40,853,417 24,435,471
2. Notes and accounts
receivable,trade 12,280,759 8,780,266
3. Marketable securities - 1,872,520
4. Inventories 238,881 318,187
5. Deferred tax assets 3,209,029 1,562,172
6. Others current assets 786,996 607,143
7. Allowance for bad debt (206,752) (137,398)
-------------- --------------- ------------
Total current assets 57,162,330 87.5 37,438,364 85.5 19,723,966
II Non current assets
1. Property and equipment *1
(1) Buildings *3 703,877 302,722
(2) Furniture and fixture 1,290,269 909,075
(3) Others 18,727 10,849
-------------- --------------- ------------
Total property and equipment 2,012,873 3.1 1,222,648 2.8 790,225
2. Intangibles
(1) Software *3 661,116 241,385
(2) Software in progress 400,202 163,629
(3) Software Copyright - 9,312
(4) Consolidation Goodwill - 2,253,559
(5) Others 49,141 72,940
-------------- --------------- ------------
Total intangibles 1,110,461 1.7 2,740,827 6.2 (1,630,365)
3. Other assets
(1) Investments in
Securities *2,4 2,529,142 600,198
(2) Investments in
capital funds 707,389 928,119
(3) Deferred tax Assets 926,772 301,123
(4) Others 882,995 586,276
(5) Allowance for bad debt (14,617) (15,534)
-------------- --------------- ------------
Total other assets 5,031,681 7.7 2,400,183 5.5 2,631,498
-------------- --------------- ------------
Total non-current assets 8,155,017 12.5 6,363,659 14.5 1,791,358
-------------- --------------- ------------
Total assets 65,317,347 100.0 43,802,023 100.0 21,515,324
============== =============== ============
-----------------------------------------------------------------------------------------------------------------------
7
(Thousands of yen)
-------------------------------------------------------------------------------------------------------------------------------
Period FY 2001 FY 2000 Net
increase/
(As of December 31, 2001) (As of December 31, 2000) Decrease
Account ---------------------------------- -------------------------------------------
Amount Percentage Amount Percentage Amount
-------------------------------------------------------------------------------------------------------------------------------
% %
(Liabilities)
I Current liabilities
1. Notes and accounts payable, trade 1,381,995 929,280
2. Current portion of Long-term Debt *4 3,000,000 -
3 Current portion of long-term
borrowing *3 - 57,200
4 Accrued corporate tax and others 3,006,182 1,877,631
5 Deferred revenue 9,342,597 2,350,813
6. Allowance for sales return 643,622 509,168
7. Others 4,185,534 1,715,783
------------ ------------- ------------
Total current liabilities 21,559,933 33.0 7,439,877 17.0 14,120,055
II Long-term liabilities
1. Long-term debt *4 11,500,000 9,700,000
2. Long-term borrowing *3 - 99,900
3. Deferred revenue 916,873 239,439
4. Accrued pension and severance
costs - 85,896
5 Allowance for Retirement Benefit 313,082 -
6 Others 126,399 -
------------ ------------- ------------
Total long-term liabilities 12,856,355 19.7 10,125,236 23.1 2,731,119
------------ ------------- ------------
Total liabilities 34,416,288 52.7 17,565,113 40.1 16,851,174
(Shareholders' equity)
I Common stock 6,833,677 10.5 6,182,838 14.1 650,839
II Suspense receipt on capital
Subscriptions - - 427 0.0 (427)
III Additional paid-in capital 11,236,702 17.2 10,842,946 24.8 393,756
IV Consolidated Retained earnings 11,978,410 18.3 9,557,084 21.8 2,421,326
V Valuated differences on
other securities 21,735 0.0 - - 21,735
VI Cumulative translation
adjustment 852,595 1.3 (324,477) (0.7) 1,177,073
------------ ------------- ------------
30,923,122 47.3 26,258,818 60.0 4,664,303
VII Treasury stock (22,063) (0.0) (21,908) (0.1) (154)
------------ ------------- ------------
Total shareholders' equity 30,901,059 47.3 26,236,910 59.9 4,664,149
------------ ------------- ------------
Total liabilities
and shareholders' equity 65,317,347 100.0 43,802,023 100.0 21,515,324
============ ============= ============
-------------------------------------------------------------------------------------------------------------------------------
8
(2) Condensed consolidated income statements
(Thousands of yen)
-------------------------------------------------------------------------------------------------------------------------------
Period FY 2001 FY 2000 Compared
(From January 1, 2001 (From January 1, 2000 to the
To December 31, 2001) To December 31, 2000) previous year
Account ------------------------------------------------------------------- -------------
Amount Percentage Amount Percentage
-------------------------------------------------------------------------------------------------------------------------------
% % %
I Sales 31,326,320 100.0 21,834,797 100.0 143.5
II Cost of sales 1,898,970 6.1 1,474,689 6.8 128.8
------------ -------------- ------------
Gross profit 29,427,350 93.9 20,360,107 93.2 144.5
III Selling, general and
administrative expenses *1 19,946,331 63.6 12,916,789 59.1 154.4
------------ -------------- ------------
Operating income 9,481,018 30.3 7,443,318 34.1 127.4
IV Non-operating income *2 1,064,688 3.4 660,295 3.0 161.2
V Non-operating expenses *3 996,517 3.2 780,900 3.6 127.6
------------ -------------- ------------
Ordinary income 9,549,189 30.5 7,322,712 33.5 130.4
VI Unusual gains *4 - - 1,035,812 4.7 -
VII Unusual losses *5 5,180,970 16.6 7,805 0.0 66,372.8
------------ -------------- ------------
Income before taxes 4,368,218 13.9 8,350,719 38.2 52.3
Corporate, inhabitant and
enterprise tax 4,205,850 13.4 4,560,562 20.9 92.2
Income tax - deferred (2,258,958) (7.2) (939,507) (4.3) 240.4
Minority interest income - - 6,845 0.0 -
------------ -------------- ------------
Net income 2,421,326 7.7 4,722,818 21.6 51.3
============ ============== ============
(3) Consolidated statement of retained earnings
(Thousands of yen)
----------------------------------------------------------------------------------------------------------------
Period FY 2001 FY 2000
(From January 1, 2001 (From January 1, 2000
To December 31, 2001) To December 31, 2000)
Account -------------------------------------------------------------------
Amount Amount
----------------------------------------------------------------------------------------------------------------
I Beginning balance
of consolidated
retained earnings 9,557,084 4,834,265
II Net income 2,421,326 4,722,818
-------------------------------------------------------------------
III Ending balance of
consolidated
retained earnings 11,978,410 9,557,084
===================================================================
9
(4) Condensed Consolidated Cash Flow Statement
(Thousands of yen)
Period ( From January 1, 2001 ( From January 1, 2000
Account To December 31, 2001 ) To December 31, 2000 )
I Cash flows from operating activities
1. Income before taxes 4,368,218 8,350,719
2. Depreciation 1,350,782 737,996
3. Amortization for Consolidation goodwill 2,253,559 276,285
4. Investment loss due to equity method accounting 129,543 87,671
5. Increase (Decrease) in allowance for bad debt 62,591 (90,173)
6. Decrease in accrued pension and severance costs (85,896) -
7. Increase in allowance for retirement benefits 307,414 -
8. (Decrease) Increase in allowance for sales returns 134,454 355,870
9. Interest Income and Dividends earned (393,254) (241,132)
10. Interest Cost 296,625 214,209
11. Bond-issuing expense 108,438 -
12. Gain on sales of marketable securities - (119,649)
13. Evaluation loss on marketable securities - 245,124
14. Loss on evaluation of investment in capital funds 220,730 -
15. Loss on disposal inventories 150,041 -
16. Loss on repurchased treasury stock 12,000 -
17. Unusual gain from settlement of lawsuit - (1,019,734)
18. Decrease (Increase) in accounts receivables (2,857,080) (2,115,338)
19. Decrease (Increase) in inventories (62,751) (234,841)
20. Increase in account payables 360,097 51,234
21. Increase in deferred revenue 7,168,909 1,205,982
22. (Increase) Decrease in others current assets (41,612) 451,305
23. Increase in other current liabilities 2,203,488 -
24. Others (423,541) 444,431
------------- -----------
Sub-Total 15,262,757 8,599,961
25. Receipts of interest 403,050 202,547
26. Payments for interest (284,432) (217,921)
27. Receipts of lawsuit settlement - 1,019,734
28. Payments for corporate taxes (2,817,748) (1,827,638)
------------- -----------
Net cash flow from operating activities 12,563,627 7,776,684
II Cash flows from investment activities
1. Payments for time-deposit (70,767) -
2. Proceeds from sales of marketable securities - 239,486
3. Proceeds from matured bond - 100,000
4. Payments for acquired tangible and intangible fixed assets (2,729,595) (1,365,540)
5. Payments for investment in securities (2,929,926) (597,730)
6. Proceeds from sale of investment in securities 2,811,974 -
7. Payments for investment in subsidiaries affected to consolidation - (1,308,248)
8. Payments for additional acquisition of consolidated subsidiary's Stock - (1,200,000)
9. Others - (9,034)
------------- -----------
Net cash flow from *used( by investing activities (2,918,314) (4,141,067)
III Cash flows from financing activities
1. Payments for short-term borrowings - (226,000)
2. Payments for long-term borrowings (157,100) (127,685)
3. Proceeds from bond with detachable warrants 12,500,000 5,000,000
4. Payments for bond-issuing expense (108,438) -
5. Payments for bonds maturing (900,000) (1,300,000)
6. Payments for repurchasing treasury stock (6,812,000) -
7. Proceeds from marketable securities issuing 958,567 1,536,784
8. Proceeds (Payments) for treasury stocks, net (13,556) (78,618)
9. Others (7,068) -
------------- -----------
Net cash flow provided *used( by financing activities 5,460,404 4,804,481
10
IV Translation difference with Cash and Cash Equivalents 1,241,430 346,523
------------- -----------
V Increase (Decrease) in Cash and Cash Equivalents 16,347,147 8,786,621
VI Beginning balance of Cash and Cash Equivalents 24,435,502 15,648,880
------------- -----------
VII Ending balance of Cash and Cash Equivalents 40,782,649 24,435,502
============= ===========
11
Significant accounting policies and practices for preparing consolidated
------------------------------------------------------------------------
financial statements
--------------------
--------------------------------------------------------------------------------
FY 2001
(From January 1, 2001
to December 31, 2001)
--------------------------------------------------------------------------------
1. Basis of consolidation All subsidiaries are consolidated.
The subsidiaries are the following 18 companies:
Trend Micro Incorporated (Taiwan)
Trend Micro Inc. (USA),
Trend Korea Inc.
Trend Micro Italy S.r.l.
Trend Micro Deutschland
Gmbh (Germany)
Trend Micro
Australia Pty.Ltd
Trend Micro do Brasil Ltda. (Brazil),
Trend Micro France
Trend Micro Hong Kong Limited
Trend Micro Incorporated Sdn.Bhd
(Malaysia).
Trend Micro (UK) Limited
Trend Micro Latinoamerica
S.A.de C.V. (Mexico)
Wells Antivirus Research Laboratory,
Inc.(U.S.A.)
Trend Micro (NZ) Limited (Newzealand)
ip Trend Incorporated (Tokyo Shibuya-ku)
ip Trend Incorporated (Tokyo Chuo-ku)
ipTrend Incorporated (Taiwan)
Trend Micro (Shanghai) Inc. (China)
Trend Micro Incorporated Sdn.Bhd. (Malaysia),
ipTrend Incorporated (Taiwan) are on the process
of the liquidation. Additionaly, Wells Antivirus
Research Laboratory, Inc. (U.S.A.) has been
dissolved in June 2001, and ipTrend Incorporated
(Tokyo, Shibuya-ku) and ipTrend Incorporated
(Tokyo, Chuo-ku) have been dissolved in December
2001. ipTrend Incorporated (Tokyo, Chuo-ku) has
been moved the office to Tokyo Shibuya-ku in
August 2001.
--------------------------------------------------------------------------------
2. Basis of applying equity Equity method is applied to investment in
method affiliated companies NTT Data Security Corporation
(Japan)
Soft Trend Capital Corporation (Japan)
JCN Co.,Ltd (Japan)
Net Star Inc. (Japan)
Total 4 companies
--------------------------------------------------------------------------------
3. Fiscal year of All financial statements included in a set of
consolidated consolidated financial statements are prepared as
subsidiaries of the same date.
--------------------------------------------------------------------------------
12
4. Accounting policies
and practices
(1)Securities
(1) Valuation of Other securities:
significant assets
Other securities with fair market value:
The securities are stated at the market value
method based on the value at the end of the
period (valuated differences are recognized in
equity directly, not to reflect to net
earnings and cost of selling is
determined by the weighted average method.)
Other securities without a market value:
The securities are stated at the weighted
average cost.
(Additional information)
Effective January 1, 2001, the company began
to apply "Accounting Standard for financial
instruments" ((Argument of establishment for
Accounting Standard for Financial
Instruments") Business Accounting Deliberation
Council, January 22, 1999)) for the financial
instruments. Cumulative effect of change in
this accounting principle are resulted in
increase of ordinary income by 77,483 thousand
yen and income before taxes by 772,483282
thousand yen. In addition, the change of
classification resulted in decrease of other
securities in "Investment in securities" by
25,362 thousand yen and "Deferred tax assets"
of 10,664 thousand yen was recognized. As a
result,-14,697 thousand yen of "Valuated
difference on other securities" is recognized
under Shareholders equity (The difference from
21,735 thousand yen disclosed on the
consolidated balance sheet is caused by the
translation of security in foreign
currencies).
Finally, the company evaluated Other
securities owned for holding purposes at the
beginning of fiscal year. The company changed
classification of such securities included in
Current assets to Investment in securities.
This change in classification resulted in
decrease of Marketable securities under
Current assets and in increase of Investment
in securities by 1,872,475 thousand yen.
(2) The transaction of derivatives
The market value method
(Additional information)
For the financial instruments, "Accounting
Standard for financial instruments" ((Argument
of establishment for Accounting Standard for
Financial Instruments") Business Accounting
Deliberation Council, January 22, 1999)), is
applied from the current consolidated fiscal
year.
This change has resulted in decrease of
"Ordinary income" by 11,986 thousand yen and
"Income before taxes".
(3) Inventories
Finished goods - Raw materials - Supplies -
Finished goods, raw materials and supplies are
stated at the weighted average cost.
In Trend Micro Incorporated (Taiwan) and Trend
Micro Inc. (U.S.A), such inventories are
stated at the cost being determined by the
first-in-first-out method.
Work in process and Expense for Finished Goods
Work in process and Expense for finished goods
are stated at the cost being determined by
accumulated production and development cost
for individual projects.
13
(2) Depreciation and amortization (1) Property and equipment
Parent company and domestic consolidated subsidiaries -
Depreciation is computed by declining-balance method.
Foreign consolidated subsidiaries -
Depreciation is computed by a straight-line method.
(2) Intangibles
Parent company and domestic consolidated subsidiaries
(Software for sale)
Straight-line method over the estimated useful lives. (mainly, for 12 months)
(Software for internaluse)
Straight-line method over the estimated useful lives (5 years).
(Other intangibles)
Straight-line method
*Foreign consolidated subsidiaries
(Software for internaluse)
Straight-line method over the estimated economic useful lives.
(3) Accounting for significant deferred Issueing costs of stocks and bonds are changed to expense when incurred.
assets
(4) Accounting policies for significant (1) Allowance for doubtful accounts
provisions
As contingency against losses from default of note and account receivables, the
allowance for doubtful accounts is provided. The amount is determined using a
percentage based on own actual doubtful account loss against total of debts and an
amount, which takes into consideration the possibility of recovering specific
liabilities.
(Additional information)
From the current consolidated fiscal year, the company began to apply to "Accounting
Standards for financial instruments" ((Argument of establishment for Accounting
Standard for Financial Instruments") Business Accounting Deliberation Council,
January 22, 1999)) for the accounting of Allowance for doubtful accounts. The
adoption had no significant effect.
(2) Allowance for sales return
In order to reserve future losses from sales return subsequent to the fiscal year-
end, allowance for sales return is provided based on the past experience in the sales
return.
14
(3) Allowance for retirement benefits
In order to reserve future losses from retirement of
employees, allowance for retirement benefits are provided
based on retirement benefit liabilities and pension assets at
the end of the period under reviewing. The difference caused
by change in accounting principle (119,077 thousand yen) is
recognized as an expense under Unusual losses.
(Additional Information)
Form the current consolidated fiscal year, pursuant to
"Accounting Standards for Retirement Benefit Obligation"
(("Argument of establishment for Accounting Standard for
Retirement Benefits Obligation") Business Accounting
Deliberation Council, June 16, 1998), allowance is provided.
The adoption resulted in increase of retirement benefits'
expense by 168,807 thousand yen, in decrease of Ordinary
income by 48,042 thousand yen and in decrease of income before
taxes by 167,119 thousand yen. Amount of Accrued pension and
severance costs, which was recognized until previous fiscal
year, is included and disclosed in Accrued retirement benefit.
The effect on segment information is described in (Segment
information).
(5) Translation of major foreign-currency assets Foreign-currency financial receivables and liabilities are translated
and liabilities into Yen into yen at the spot rate effective at the end of the period. Exchange
differential is treated as a profit/loss. Foreign-currency assets and
liabilities held by overseas subsidiaries are translated into yen at the
spot rate effective at the end of the period. Revenued and expenses of
overseas subsidiaries are translated into yen at the average rate during
the period. Exchange differential is included in "Cumulative translation
adjustment" under Shareholders' equity.
(Additional information)
From the current consolidated fiscal year, the company adopted revised
accounting standards for foreign currency transactions. (Views on
Revision of Accounting Standards for Foreign Currency Transactions, etc.,
issued by Business Accounting Deliberation Councile on October 22, 1999).
The adoption had no significant effects on profits and losses.
(6) Accounting for leased assets Finance leases without transfer of ownership of the leased
assets are accounted for in the same manner as applied to
operating leases.
(7) Accounting for consumption tax Transactions subject to consumption tax are stated at the amount net of
the related consumption tax.
15
(8) Accounting treatment for stock The parent company and its subsidiaries have adopted Incentive plans pursuant to
warrants and stock option granted which warrants to purchase directors and some employees under the Company's
to directors and some employees incentive plan parent company shares were granted to directors and certain
under the Company's incentive plan Employees. Under these plans, the parent company issued bonds with detachable
warrants and immediately repurchased all of the warrants for distribution to grantees.
In addition, our U.S. subsidiary adopted an incentive plan in which parent company
shares, that were transferred to a special purpose company by certain large
shareholders, and from the current fiscal year, based on the Japanese Commercial Code,
the compensation plan of stock option (subscription right method) for directors and
certain employees of the company and subsidiaries that is provided as specific related
entrepreneur on the Industrial Revitalization Special Measures Law, were granted to
certain directors and employees (these three plans are hereinafter referred to as the
"stock option plan").
The total compensation cost under the stock option plan is measured by differences
between the quoted market price of the parent company shares at the measurement date
(the first date on which both the number of shares an individual employee is entitled
to receive and the exercise price are known (normally the grand date) and the exercise
price and is recognized as expense over the exercisable period.
The warrant portion of the bonds with detachable warrants issued under the stock
option plan is recorded as "warrant account" in current liability upon issuance of the
bonds and eliminated upon repurchasing the warrants.
The accounting policy on compensation cost is the same as that of our U.S. subsidiary.
For the purpose of unification of accounting policies to disclose financial position
and results of operation as a group more accurately, financial statements before
consolidation of parent company and its subsidiaries (other than the U.S. subsidiary)
have been adjusted through consolidation.
The adjustment of the parent company's financial statements, which was made on the
process of consolidation, resulted in an increase in operating income, ordinary income
and income before taxes of 293,655 thousand yen each, and an increase in net income
after tax of 170,173 thousand yen.
In addition, the balance of consolidated retained earnings at the end of current
consolidated fiscal year is increased by 582,309 thousand yen.
(9) Change in revenue recognition Basically, The product license agreement, which the parent company and its
method for Post Contract subsidiaries contract with the end-user, states the article for PCS (customer
Customer Support Service (PCS) support and upgrading of products and its pattern files).
Until previous consolidated fiscal year, whole revenue of the parent company and Trend
Micro Incorporated (Taiwan) applied to each product license agreement including a
portion of PCS revenue had been recognized when the license is delivered to user.
Effective current consolidated fiscal year, the revenue recognition method for portion
of PCS has changed as follows. Portion of PCS revenue is recognized separately from
total revenue and it is deferred as Deferred revenues under Current liabilities and
Non-current liabilities based on contracted period. Deferred revenue is finally
recognized for the contracted period evenly.
As per the tendency of the parent company and Trend Micro Incorporated (Taiwan) that
the ratio of the consideration of Post Contract Customer Support is getting larger
than as before. As the result of the above, the companies adopt new revenue
recognition policy on PCS, in order to recognize proper periodic profits and losses
accurately. On the other hand, there is no change for the recognition by the
subsidiaries in USA and Europe, the policy has been applied in the past and carried it
over for those subsidiaries.
16
According to the above change, PCS revenue (3,009,009 thousand
yen), which should be deferred by the parent company and Taiwan
subsidiary as of the beginning of the current fiscal year applied
to the prior year's revenues, is stated as Losses on prior year
adjustment under Unusual losses at the current consolidated period.
Effect of change in method resulted in decrease of Sales, Operating
income, Ordinary income 2,326,535 thousand yen and income before
taxes by 5,335,545 thousand yen, respectively.
The effect on segment information is described in (Segment
Information).
------------------------------------------------------------------------------------------------------------------------------------
5 . Valuation of assets and liabilities Full fair value method.
of the consolidated subsidiaries
------------------------------------------------------------------------------------------------------------------------------------
6. Amortization of consolidated goodwill Consolidated goodwill is amortized over 5 years on a straight-line basis. Due
to resolution of winding up and liquidation in the board meeting which was
held in August 3, 2001, consolidated goodwill that was recognized in February
2000 as purchasing ipTrend Incorporated (ex Nihon Unisoft Corp.) was
amortized unamortization balance as Unusual loss at the first-half of
consolidated current fiscal period.
------------------------------------------------------------------------------------------------------------------------------------
7. Appropriation of retained earnings Consolidated statement of retained earnings are prepared to reflect the
appropriation of retained earnings which are approved during the fiscal year.
------------------------------------------------------------------------------------------------------------------------------------
8. Definition of cash and cash equivalent in the Cash and cash equivalents in the consolidated statement of cash flows are
consolidated cash flow Cash statement composed of cash in hand, bank deposits statement able to be withdrawn on
demand and short-term investments with an original maturity of three months
or less which represent a minor risk of fluctuations in value.
------------------------------------------------------------------------------------------------------------------------------------
17
Notes
-----
(Consolidated balance sheets) (Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
FY 2001 FY 2000
(As of December 31, 2001) (As of December 31, 2000)
------------------------------------------------------------------------------------------------------------------------------------
*1. Accumulated depreciation of *1. Accumulated depreciation of
property and equipment property and equipment
1,308,385 756,897
------------------------------------------------------------------------------------------------------------------------------------
*2. Major assets owned toward affiliates *2. Major assets owned toward affiliates
Investments in securities 84,928 Investments in securities 182,472
------------------------------------------------------------------------------------------------------------------------------------
*3. Pledged assets and liabilities applied to its assets are as *3. Pledged assets and liabilities applied
follows: to its assets are as follows:
[Pledged assets]
Software 32,449
Building 24,733
--------------------- -------------
Total 57,182
[Liability applied to the above]
Current portion of
Long-term Borrowing 57,200
Long-term
Borrowing 99,900
--------------------- -------------
Total 157,100
------------------------------------------------------------------------------------------------------------------------------------
18
--------------------------------------------------------------------------------
*4 Treasury bonds
In order for the warrants to be granted or transferred to
the directors and certain employees of the Company and the
directors and certain employees of the affiliated company,
the Company issued unsecured bonds with detachable warrants.
Under section 341-8-4 of the Business Law, the redemption
and retirement of these bonds are restricted when total
amount of bonds is less than the total amount of issue
price of the stocks from unexecuted warrants. To reduce
interest costs, the Company repurchased a part of the
issued bonds after warrants were detached. The purpose
of the repurchase is to hold the treasury bonds until they
can be retired legally and it is same as the redemption
substantially.
Thus, bonds and treasury bonds are disclosed in net amount in
the balance sheet as follows. The difference between the
repurchased price and book value of the treasury bonds at the
time of transaction are booked as loss on repurchase of treasury
bonds in the unusual loss section.
(Thousands of yen)
Current liability
Non-current liability
Bonds
3,800,000
17,500,000
Treasury bonds
(800,000)
(6,000,000)
3,000,000
11,500,000
--------------------------------------------------------------------------------
19
(Consolidated income statements)
(Thousands of yen)
------------------------------------------------------------------------------------------------------
FY 2001 FY 2000
(From January 1, 2001 (From January 1, 2000
to December 31, 2001) to December 31, 2000)
------------------------------------------------------------------------------------------------------
*1. Major components of selling, general *1. Major components of selling, general
and administrative expenses and administrative expenses
Advertising and sales 2,617,250 Advertising and sales 2,575,951
promotions promotions
Salaries and bonuses 5,827,285 Salaries and bonuses 3,748,978
Service charge 1,643,626 Service charge 910,394
Depreciation expense 462,450 Depreciation expense 343,992
Research and 1,901,434 Research and 974,689
development costs development costs
Amortizaion of consolidated 252,763 Amortizaion of consolidated 276,285
goodwill goodwill
Software maintenance fee 853,766 Software maintenace fee 966,591
------------------------------------------------------------------------------------------------------
*2. Major component of *2. Major components of
non-operating income non-operating income
Interest income 393,254 Interest income 241,132
Foreign exchange gain 567,551 Foreign exchange gain 277,983
Gain on sales of
marketable securities 119,649
------------------------------------------------------------------------------------------------------
*3. Major components of *3. Major components of
non-operating expense non-operating expense
Interest expense 296,625 Interest expense 214,209
Equity in loss of affiliated Equity in loss of affiliated
companies 129,543 companies 87,671
Bonds issued cost 108,438 Loss on evaluation of
Loss on disposal inventories 150,041 marketable securities 245,124
Loss on eveluation of
Investments in capital fund 220,730
------------------------------------------------------------------------------------------------------
*4. Major components of unusual gains *4. Major components of unusual gains
Gain from
lawsuit settlement 1,019,734
------------------------------------------------------------------------------------------------------
*5. Major components of unusual losses * 5. Major components of unusual losses
Loss on disposal of fixed assets Loss on disposal of
fixed assets 30,307 fixed assets 5,571
Amortization of
Consolidated Goodwill
(the component of Unusual
Losses) 2,000,795
Loss on prior year Adjustment
(due to change in revenue
Recognition) 3,009,009
Retirement benefit expense 119,077
Loss on repurchased
treasury stock 12,000
------------------------------------------------------------------------------------------------------
20
(Consolidated cash flow statement)
(Thousands of yen)
--------------------------------------------------------------------------------------------------------------------
For the current fiscal year For the previous fiscal year
--------------------------------------------------------------------------------------------------------------------
(From January 1, 2001 (From January 1, 2000
To December 31, 2001) To December 31, 2000)
--------------------------------------------------------------------------------------------------------------------
1. The ending balance of cash and cash equivalents 1. The ending balance of cash and cash equivalents
and accounts in the consolidated balance sheet and accounts in the consolidated balance sheet
Cash and deposits 40,853,417 Cash and deposits 24,435,471
Time deposit matured Marketable securities 31
Over 3 months (excluded
from Cash and deposit) (70,767)
-------------- --------------
Cash and cash equivalents 40,782,649 Cash and cash equivalents 24,435,502
============== ==============
2. The breakdown of assets and liabilities of the
consolidated subsidiaries which Trend acquired
newly. Through acquisition of its stocks the
breakdown of assets and liabilities at the date of
the acquisition, acquisition cost and some other
expenses incurred through acquisition process are
as follows.
Nihon Unisoft Incorporated (Tokyo Chuo-ku)
(As of Feb. 29, 2000) (*)
Current Assets 812,085
Non-current assets 101,532
Consolidated Goodwill 1,422,899
Current liabilities (362,294)
Non-current liabilities (285,805)
Minority interest (88,417)
Acquisition cost for Nihon
Unisoft Incorporated 1,600,000
Cash and cash equivalent of
Nihon Unisoft Incorporated 291,751
Net: Actual payment for
Acquisition 1,308,248
(*) Present corporate name is ipTrend Incorporated
(Tokyo Chuo-ku)
------------------------------------------------------------------------------------------------------------------------------------
3. Major non-cash transaction 3. 3 Major non-cash transaction
Tax benefit of JPY 1,474,901 thousand due from Trend Micro Inc. (U.S.A.) got tax benefit of
exercise of stock options that Trend Micro Inc. JPY 1,474,901 thousand in this current fiscal
(U.S.A.) got in previous fiscal year was year due from exercise of stock options.
canceled in this current fiscal year. It resulted to increase of Additional
It resulted to decrease of Additional Paid-in-Capital.
Paid-in-Capital by 263,978 thousand yen.
------------------------------------------------------------------------------------------------------------------------------------
21
(Segment Information)
---------------------
(1) Industry segment information
The company and its subsidiaries operate principally in two industry
segments: "security software business" and "Internet-related
products/service business". However, industry segment information is not
currently disclosed Segment Information based on the ratio of software
business related Security since more than 90% of sales, operating income
and assets in all segments are from the "security software business".
ipTrend Incorporated (Tokyo Shibuya-ku) and ipTrend Incorporated (Tokyo
Chuo-ku) which operate "Internet-related products/service business" is
liquidated in the current fiscal year. Also, ipTrend Incorporated
(Taiwan) has been processed to liquidate.
(2) Geographic segment information
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
FY 2001 (From January 1, 2001
to December 31, 2001)
----------------------------------------------------------------------------------------------------------
Japan North Taiwan Europe Others Total Eliminations Consoli-
America or Corporate dated
------------------------------------------------------------------------------------------------------------------------------------
I Sales and operating
income/loss
Sales
(1) Sales to third
parties 12,114,971 8,577,200 1,896,325 6,860,192 1,877,630 31,326,320 - 31,326,320
(2) Intersegment 6,914,741 2,530,239 2,288,584 21,285 101,687 11,856,537 (11,856,537) -
sales
------------------------------------------------------------------------------------------------------------------------------------
Total 19,029,713 11,107,439 4,184,909 6,881,478 1,979,317 43,182,858 ( 11,856,537) 31,326,320
------------------------------------------------------------------------------------------------------------------------------------
Operating expenses 5,730,025 10,037,183 4,328,060 6,349,022 1,807,521 28,251,812 (6,406,510) 21,845,302
------------------------------------------------------------------------------------------------------------------------------------
Operating 13,299,688 1,070,256 (143,150) 532,455 171,795 14,931,045 (5,450,026) 9,481,018
income(loss)
------------------------------------------------------------------------------------------------------------------------------------
II Assets 32,942,562 13,426,526 3,296,190 7,499,876 2,116,496 59,281,651 6,035,695 65,317,347
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
(From January 1, 2001
FY 2001 to December 31, 2001)
----------------------------------------------------------------------------------------------------------
Japan North Taiwan Europe Others Total Eliminations Consoli-
America or Corporate dated
------------------------------------------------------------------------------------------------------------------------------------
I Sales and operating
income/loss
Sales
(1) Sales to 8,447,154 6,258,300 1,869,024 4,126,420 1,133,898 21,834,797 - 21,834,797
third parties
(2) Intersegment 2,031,350 1,602,229 957,303 135,633 144,804 4,871,320 (4,871,320) -
sales
------------------------------------------------------------------------------------------------------------------------------------
Total 10,478,504 7,860,529 2,826,327 4,262,053 1,278,702 26,706,117 (4,871,320) 21,834,797
------------------------------------------------------------------------------------------------------------------------------------
Operating expenses 4,207,010 5,264,325 1,987,241 2,739,898 912,699 15,111,175 (719,696) 14,391,478
------------------------------------------------------------------------------------------------------------------------------------
Operating 6,271,493 2,596,204 839,086 1,522,155 366,003 11,594,942 (4,151,624) 7,443,318
income(loss)
------------------------------------------------------------------------------------------------------------------------------------
II Assets 34,399,769 7,638,018 2,244,741 3,968,890 909,393 49,160,813 (5,358,789) 43,802,023
------------------------------------------------------------------------------------------------------------------------------------
(Notes)
1. Classification of countries and regions is based on geographical
proximity.
2. Classificaton of countries and regions into each geographic segment
North America : U.S.A.
Europe : Italy, Germany, France, UK
Others : Korea, Australia, Brazil, Hong Kong, Malaysia, Mexico, New
Zealand, China (Note) "China" that classified as "Others" has added since
the current consolidated fiscal year.
3. Unallocable operating expense for the current period and the previous
period (JPY 6,310 millions and JPY 4,429 millions respectively) in the
operating expense is included in "Eliminations or Corporate". Major
components are expenses for the administrative department in parent
company and research and development costs for our products.
4. Major components of total assets for the current period and the previous
period (JPY 18,537 millions and JPY 2,049 millions respectively) with
"elimination or corporate" are marketable securities in parent company,
copyright and software used to develop our products.
5. Unallocable operating expenses are included in "elimination or corporate"
due to the diffculty in recognizing their contribution to each segments'
profit and loss.
22
6. As described in Significant accounting policies and practices for preparing
consolidated financial statements, Deferred revenue is recognized by Trend
Micro Incorporated (Japan) and Trend Micro Incorporated (Taiwan). It
resulted in decrease of Sales to third parties and Operating income by
JPY2,284,871 thousand in Japan and in decrease of Sales to third parties and
in increase of Operating loss by JPY 41,664 thousand in Taiwan.
7. As described in Significant accounting policies and practices for preparing
consolidated financial statements, Allowance for retirement benefit is
reserved by Trend Micro Incorporated (Japan) and Trend Micro Incorporated
(Taiwan). It resulted in increase of Operating expense and decrease of
Operating income by JPY35,539 thousand in Japan and in increase of Operating
expense and Operating loss by JPY12,502 thousand in Taiwan.
(3) Overseas sales
(Thousands of yen)
-------------------------------------------------------------------------------------------------------------------------
FY 2001 (From January 1, 2001)
to December 31, 2001
-------------------------------------------------------------------------------
North America Taiwan Europe Others Total
-------------------------------------------------------------------------------------------------------------------------
I. Overseas sales 8,577,200 1,905,389 6,860,192 1,877,630 19,220,413
II.Consolidated sales 31,326,320
III.Ratio of overseas sales 27.4% 6.1% 21.9% 6.0% 61.4%
against consolidated sales
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
FY 2000 (From January 1, 2000)
to December 31, 2000
----------------------------------------------------------- -------------------
North America Taiwan Europe Others Total
---------------------------------------------------- ----------------------------- --------------------------------------
I. Overseas sales 6,258,300 1,503,037 4,126,420 1,595,093 13,482,851
II.Consolidated sales 21,834,797
III.Ratio of overseas sales 28.7% 6.9% 18.9% 7.3% 61.7%
against consolidated sales
---------------------------------------------------- --------------------------------------------------------------------
(Note) 1. Overseas sales are sales to countries/regions other than Japan by
Trend Micro Inc. and its consolidated subsidiaries.
2. Classification of countries/region is based on geographical
proximity.
3. Classification of countries and regions
NorthAmerica : U.S.A.
Europe : Italy, Germany, France,UK
Others : Korea, Australia, Brazil
Hong Kong, Malaysia, Mexico,
New Zealand and China
*"China" that classified as "Others" had added since the
current consolidated fiscal year.
(Lease transactions)
None.
23
(Accounting for deferred tax)
----------------------------------------------------------------------------------------------------
FY 2001
----------------------------------------------------------------------------------------------------
1. Major items causing deferred tax assets and liabilities
(Deferred tax assets) (thousands of Yen)
Deferred revenue 2,396,461
Loss carry-forward 313,647
Sales return allowance 261,585
Accrued enterprise taxes 212,773
Research and development cost (Taiwan) 186,037
Others 988,167
------------
Sub-total of deferred tax assets 4,358,673
Valuation allowance (207,099)
------------
Total of deferred tax assets 4,151,573
(Deferred tax liabilities)
Valuated difference on other securities (15,771)
------------
Deferred tax liabilities total (15,771)
------------
Total of deferred tax net assets 4,135,802
============
2. Major items causing differences between statutory
and effective rate after tax effect accounting.
Statutory rate 42.05%
(Adjustment)
Difference between foreign subsidiaries (4.19%)
U.S. State tax 2.25%
Permanent difference, such as entertainment cost 5.00%
Research and development cost (1.14%)
Others 0.60%
------------
Effective rate after tax effect accounting 44.57%
------------
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
FY 2000
----------------------------------------------------------------------------------------------------
Factors of deferred tax assets and liabilities
(Deferred tax assets) (thousands of Yen)
Deferred revenue 769,410
Loss carry-forward 236,689
Sales return allowance 209,318
Accrued corporate taxes 112,694
Loss on evaluation of marketable securities 103,074
Others 548,740
------------
Sub-total of deferred tax assets 1,979,926
Allowance 116,630
------------
Total of deferred tax assets 1,863,296
============
----------------------------------------------------------------------------------------------------
24
(Marketable Securities)
-----------------------
(For the consolidated current fiscal year)
(1) Other securities with fair market value for FY2001 (as of December 31, 2001)
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
Classification Acquisition Cost Recorded amount on Differences
consolidated B/S
------------------------------------------------------------------------------------------------------------------------------------
The market value of securities is greater than consolidated B/S
1. Equity securities - - -
2. Debt securities - - -
Government bond/Municipal bond
Corporate bond 1,700,000 1,746,920 46,920
Others - - -
3. Others - - -
------------------------------------------------------------------------------------------------------------------------------------
Sub-total 1,700,000 1,746,920 46,920
------------------------------------------------------------------------------------------------------------------------------------
The market value of securities is less than consolidated B/S
1. Equity securities 172,475 100,193 (72,282)
2. Debt securities
Government bond/Municipal bond - - -
Corporate bond - - -
Others - - -
3. Others - - -
------------------------------------------------------------------------------------------------------------------------------------
Sub-total 172,475 100,193 (72,282)
------------------------------------------------------------------------------------------------------------------------------------
Total 1,872,475 1,847,113 (25,362)
------------------------------------------------------------------------------------------------------------------------------------
(2) Other major securities market value non-applicable for FY2001 (as of
December 31, 2001)
(Thousands of Yen)
------------------------------------------------------------------------------------------------------------------------------------
Classification Recorded amount on consolidated B/S
------------------------------------------------------------------------------------------------------------------------------------
1. Unlisted securities 682,028
(excluding OTC transaction securities)
2. Others
------------------------------------------------------------------------------------------------------------------------------------
Total 682,028
------------------------------------------------------------------------------------------------------------------------------------
25
Market value of the marketable securities
(Thousands of yen)
-------------------
------------------------------------------------------------------------------------------------------------------------------------
FY 2000 (as of December 31, 2000)
--------------------------------------------------------------------------------------
Current / Non-current Recorded amount on B/S Fair Market Value Appraisal gain (loss)
------------------------------------------------------------------------------------------------------------------------------------
Current assets
Equity securities 172,475 172,475 -
Debt securities 1,700,000 1,711,050 11,050
Others - - -
------------------------------------------------------------------------------------
Sub-total 1,872,475 1,883,525 11,050
------------------------------------------------------------------------------------------------------------------------------------
Non-current assets
Equity securities - - -
Debt securities - - -
Others - - -
------------------------------------------------------------------------------------
Sub-total - - -
------------------------------------------------------------------------------------------------------------------------------------
Total 1,872,475 1,883,525 11,050
------------------------------------------------------------------------------------------------------------------------------------
(Note) 1. Calculation method of fair (market) value
I. Securities traded in the overseas over-the-counter market
Based on price quotations in NASDAQ.
II. Debt securities whose fair value are determinable
Based on the standard indication price announced by Japan
Securities Association.
2. The amount of securities included in the balance sheets but excluded
from the above table.
(Thousands of yen)
-------------------
--------------------------------------------------------------------------------------------------------------------
FY 2000
(As of December 31, 2000)
--------------------------------------------------------------------------------------------------------------------
Securities classifed as current assets:
Mutual fund that is not affected by market volatility
including medium-term JGB fund and MMF [MMF included
in above] 44
(31)
--------------------------------------------------------------------------------------------------------------------
Securities classified as non-current assets:
Non-listed equity securities excluding equity
securities traded in the over-the-counter market 600,198
[including the investments in affiliates 182,472 thousand
yen]
--------------------------------------------------------------------------------------------------------------------
26
(Contract or Notional amount, FMV and Valuation gain/loss of Derivatives)
-------------------------------------------------------------------------
1. Basic policies for derivatives transactions.
A corporate policy of Trend Micro Group does not engage in derivative
transactions. However, the interest cap trading and the interest rate swap
had been made by ipTrend Incorporated (Tokyo, Chuo-ku), before the company
acquisition. (Due to business transfer to Trend Micro in the current fiscal
year, Trend Micro Inc. has been transferred the interest cap trading and
the interest rate swap.) Trend Micro Group has no intention of changing, so
there will no newly derivative transactions in future. These transactions
had been made to avoid risks for interest rate fluctuation. The borrowing
applied to the hedge was paid completely, when ipTrend Incorporated became
a consolidated subsidiary. The contractor for the interest cap trading and
the interest rate swap is the financial institution, which is trustworthy
institution. No expectation is required for future losses because of any
defaults. In addition, these transactions have a risk related to rate
changing, but there is no significant effect for the company business. The
contract amount of "Fair market value of the derivative transaction"
doesn't show the amount of risks on the derivative market.
2. Fair market value of the derivative transaction
Contract amount, fair market value and appraisal gain/loss (Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
FY 2001 (As of December 31, 2001)
-------------------------------------------------------------------------------------
Transaction type Contract amount Fair market value Appraisal gain (loss)
---------------
Over 1 year
------------------------------------------------------------------------------------------------------------------------------------
Other than market transactions
Interest rate cap
Buy 100,000 100,000 63 (3,136)
[Option premium] (3,200) (3,200)
Interest rate swap
Receive / floating and pay / fixed 200,000 200,000 (9,773) (9,773)
------------------------------------------------------------------------------------------------------------------------------------
Total 300,000 300,000 (9,710) (12,910)
------------------------------------------------------------------------------------------------------------------------------------
Contract amount, fair market value and appraisal gain (loss) (Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
FY 2000 (As of December 31, 2000)
-------------------------------------------------------------------------------------
Transaction type Contract amount Fair market value Appraisal gain (loss)
---------------
Over 1 year
------------------------------------------------------------------------------------------------------------------------------------
Other than market transactions
Interest rate cap
Buy 100,000 100,000 731 (2,468)
[Option premium] (3,200) (2,275)
Interest rate swap
Receive / floating and pay / fixed 200,000 200,000 (7,482) (7,482)
------------------------------------------------------------------------------------------------------------------------------------
Total 300,000 300,000 (6,751) (9,950)
------------------------------------------------------------------------------------------------------------------------------------
(Note) 1. The amount of option premium is stated in [_] and the fair market
value of it and Appraisal gain (loss) are stated on the above.
2. Fair market value is determined based on the price, which is provided
by the contractor of the financial institute.
27
(Employee Benefit Plans)
1. Basic policy of employee benefit plans
The company and consolidated subsidiaries adopt retirement benefit plan, as
defined-benefit plan. Also, the company has been a member of Tokyo Small
Computer Software Industry Welfare pension plan.
2. Projected Benefit Obligation information (as of December 31, 2001)
(Thousands of yen)
(1) Projected Benefit Obligation 420,118
(2) Plan assets (57,843)
-------------------------------------------------------------------------------
(3) Funded status (1) + (2) 362,274
(4) Unrecognized prior service cost (23,999)
(5) Unrecognized net actuarial gain/loss (25,192)
-------------------------------------------------------------------------------
(6) Accrued benefit cost (3) + (4) + (5) 313,082
===============================================================================
(Note) 1. Tokyo Small Computer Software Industry Welfare pension plan that
the company has joined is a synthetic-type, so it is impossible to
calculate efficiently for an amount of plan asset compared to a
contribution.
Therefore, the amount of contribution of pension fund in the
amount of 53,237 thousand yen is recognized as retirement
benefit cost. The plan assets for the contribution of pension
fund in the amount of 325,791 thousand yen is calculated based
on the ratio of members for the organization concerned.
2.For calculation of projected benefit obligation, the company adopts
simplified method to subsidiaries that have no significant effect.
3. Component of net periodic benefit cost (From January 1, 2001 to December 31,
2001)
(Thousands of yen)
(1) Service cost 108,162
(2) Interest cost 11,114
(3) Expected return on plan assets (2,705)
(4) Amortization of unrecognized transition obligation 119,077
(5) Amortization of prior service cost 1,142
(6) Recognized actuarial loss 789
-------------------------------------------------------------------------------
(7) Net periodic benefit cost 237,579
===============================================================================
(Note 1) The company deducts employees' contribution to welfare pension plan.
(Note 2) Service cost includes pension costs of subsidiaries under simplified
method.
4. Basis of projected benefit obligation calculation
Basis of projected benefit obligation calculation of the company and Taiwan
subsidiary that adopt principle method are as follows. Subsidiaries, except
Taiwan, do not recognize transition obligation.
-------------------------------------------------------------------------
(1) Method of allocation of estimated pension cost Straight line method
-------------------------------------------------------------------------
(2) Discount rate 3.0 - 6.0%
-------------------------------------------------------------------------
(3) Expected long-term return rate on plan assets 6.0%
-------------------------------------------------------------------------
(4) Estimated life of actuarial loss 1 - 23 years
-------------------------------------------------------------------------
(5) Estimated life of transition obligation one year
-------------------------------------------------------------------------
(6) Estimated life of prior service cost 24 years
-------------------------------------------------------------------------
(Significant Subsequent events)
None
28
4. Status of manufacturing, orders received and actual sales
---------------------------------------------------------
(1) Manufacturing result
--------------------
(Thousands of Yen)
----------------------------------------------------------------------------------------------------------------
Period For the current fiscal year For the previous fiscal year
Products
--------------------------------------
(From January 1, 2001 (From January 1, 2000
To December 31, 2001) To December 31, 2000)
----------------------------------------------------------------------------------------------------------------
PC Client 150,846 39,002
-----------------------------------------------------------------------------------------------------------
LAN Server 25,031 7,879
-----------------------------------------------------------------------------------------------------------
Internet Server 570,641 149,751
-----------------------------------------------------------------------------------------------------------
Other Products 205,382 56,938
----------------------------------------------------------------------------------------------------------------
Internet based products/service 354,040 680,722
----------------------------------------------------------------------------------------------------------------
Sub-total 1,305,942 934,292
----------------------------------------------------------------------------------------------------------------
Other service - 16,700
----------------------------------------------------------------------------------------------------------------
Total 1,305,942 950,992
----------------------------------------------------------------------------------------------------------------
(Note)
1. Amount is based on manufacturing expense.
2. Consumption tax is not included in the amount above.
(2) Sales result
-----------------
(Thousands of Yen)
----------------------------------------------------------------------------------------------------------------
Period For the current fiscal year For the previous fiscal year
Products
--------------------------------------
(From January 1, 2001 (From January 1, 2000
To December 31, 2001) To December 31, 2000)
----------------------------------------------------------------------------------------------------------------
PC Client 11,283,846 4,926,095
-----------------------------------------------------------------------------------------------------------
LAN Server 3,400,685 2,163,586
-----------------------------------------------------------------------------------------------------------
Internet Server 10,070,003 8,021,347
-----------------------------------------------------------------------------------------------------------
Other Products 681,483 870,137
-----------------------------------------------------------------------------------------------------------
Internet based products/service 574,197 1,218,954
----------------------------------------------------------------------------------------------------------------
Sub-total 26,010,216 17,200,119
----------------------------------------------------------------------------------------------------------------
Other service 5,316,103 4,634,678
----------------------------------------------------------------------------------------------------------------
Total 31,326,320 21,834,797
----------------------------------------------------------------------------------------------------------------
(Note)
1. Quantity is omitted dues to many types of products included in one product
line.
29
Digest of Non-consolidated Earnings Results
for the Fiscal Year Ended December 31, 2001
Company: Trend Micro Incorporated Tokyo Stock Exchange 1st section
Code: 4704
Location: Tokyo
Contact Position Director, Chief Financial Officer
person:
Name Mahendra Negi (Phone: 81-3-5334-3600)
Date of the board of directors meeting: February 6, 2002
Date of the ordinary shareholders' meeting: March 26, 2002
The company can distribute semi-annual cash dividends based on the Articles
of corporation.
The company adopts Unit Stock method. (One unit: 500 shares)
1. Financial Highlights for FY 2001(January 1, 2001 through December 31, 2001)
(1) Results of operations
(All figures are rounded down to millions of yen.)
-------------------------------------------------------------------------------------------------------------------------------
(Compared to Operating (Compared to Ordinary (Compared to
Sales the previous year) income the previous year) income the previous year)
-------------------------------------------------------------------------------------------------------------------------------
Millions of yen % Millions of yen % Millions of yen %
FY 2001 18,454 (95.8) 7,579 (177.2) 7,589 (199.5)
FY 2000 9,426 (30.6) 2,734 (37.0) 2,533 (17.3)
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
(Compared to Net income Net income Return on Ordinary Ordinary
Net income the previous year) per share per share shareholders' income/total income ratio
(Basic) (Diluted) equity assets ratio
-------------------------------------------------------------------------------------------------------------------------------
Millions of yen % Yen Yen % % %
FY 2001 393 (- 80.7) 2.99 2.96 1.9 18.4 41.1
FY 2000 2,038 (81.1) 31.26 30.54 11.5 8.7 26.9
-----------------------------------------------------------------------------------------------------------------------------
(Note)
1. Number of weighted average 131,594,913 shares (FY 2001)
shares outstanding: 65,194,481 shares (FY 2000)
2. The company made a change in accounting principle during the period.
(2) Cash dividends
------------------------------------------------------------------------------------------------------------------------------------
Annual cash dividends per share Dividend/
----------------------------------------- Total dividends Dividend-payout stockholders'
As of June end As of Dec end (Annual) ratio equity ratio
------------------------------------------------------------------------------------------------------------------------------------
Yen Yen Yen Millions of Yen % %
FY 2001 0.00 0.00 0.00 - - -
FY 2000 0.00 0.00 0.00 - - -
------------------------------------------------------------------------------------------------------------------------------------
30
(3) Financial Position
------------------------------------------------------------------------------------------------------------------------------------
Total assets Shareholders' equity Shareholders' Shareholders' equity per
equity ratio share
------------------------------------------------------------------------------------------------------------------------------------
Millions of yen Millions of yen % Yen
FY 2001 49,142 21,139 43.0 160.10
FY 2000 33,493 19,655 58.7 299.80
------------------------------------------------------------------------------------------------------------------------------------
(Note)
1. Number of shares issued at the end of fiscal year: 132,052,284 shares (FY 2001)
65,560,421 shares (FY 2000)
2. Number of treasury Stocks at the end of fiscal year: 9,102 shares (FY 2001)
2,631 shares (FY 2000)
[Supplementary information on the results (January 1, 2001 through December 31,
2001)]
The Company's sales revenues are mainly derived from licensing of its
products, upgrading of its products and patterns files and post-contract support
including customer support. Until December 31, 2000, the Company had recognized
sales revenues from customer support (which was included in post-contract
support) at the beginning of the relevant support period. Effective from January
1, 2001, the method of the revenue recognition has been changed and sales
revenues from customer support are deferred and recorded as Deferred Revenue
under current liabilities or non-current liabilities over the relevant support
period.
For convenience of comparison, actual current fiscal year result, assumed
result based on the old accounting policies and their differentials are stated
in the below.
(Millions of yen except for per share information)
-----------------------------------------------------------------------------------------------------------------------
Result of the FY2001 Assumed result of FY2001 (based on
Accounting policies applied until Increase (Decrease)
previous fiscal year)
-----------------------------------------------------------------------------------------------------------------------
Millions of yen Millions of yen Millions of yen
Sales Revenue 18,454 20,739 (2,284)
Ordinary income 7,589 9,874 (2,284)
Net income (loss) 393 3,340 (2,947)
-----------------------------------------------------------------------------------------------------------------------
Net income (loss) Yen Yen Yen
Per share 2.99 25.38 (22.40)
-----------------------------------------------------------------------------------------------------------------------
[Information on net income per share and shareholders' equity per share]
For periodic comparison of restated net income per share and shareholders'
equity per share, reflecting the effect of stock split on March 31, 2001 is as
follows:
------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) Shareholders' equity Number of weighted Number of shares
per share per share average shares issued and out
(Yen) (Yen) outstanding standing at the end
of fiscal year
------------------------------------------------------------------------------------------------------------------------------------
FY2001 2.99 160.10 131,594,913 132,052,284
FY2000 15.63 149.90 130,388,962 131,120,842
------------------------------------------------------------------------------------------------------------------------------------
31
Non-consolidated Financial Statements
(1) Condensed non-consolidated balance sheets
---------------------------------------------
(Thousands of yen)
--------------------------------------------------------------------------------------------------------------------------------
Period FY2001 FY2000 Net increase
(As of December 31, 2001) (As of December 31, 2000) /decrease
----------------------------------------------------------------------
Account Amount Percentage Amount Percentage Amount
--------------------------------------------------------------------------------------------------------------------------------
(Assets) % %
I Current assets
1. Cash and bank deposits *3 27,935,721 16,271,731 11,663,990
2. Accounts receivable, trade *3,4 9,062,033 4,131,960 4,930,073
3. Marketable securities *3,7 -- 1,872,506 (1,872,506)
4. Treasury stocks *6 -- 21,908 (21,908)
5. Inventories 110,253 39,025 71,228
6. Intercompany short-term
loan receivables *3 508,266 762,169 (253,903)
7. Other receivables *4 553,079 290,375 262,704
8. Deffered tax assets 2,704,514 500,494 2,204,020
9. Other current assets *4 155,031 161,832 (6,801)
10. Allowance for bad debt (127,923) (106,649) (21,274)
----------- ----------- -----------
Total current assets 40,900,977 83.2 23,945,356 71.5 16,955,621
II Non-current assets
1. Property and equipment *2 676,311 1.4 260,871 0.8 415,440
2. Intangibles
(1) Software copyright -- 115,175 (115,175)
(2) Software 465,072 162,799 302,273
(3) Software in progress 400,202 163,629 236,573
(4) Others 44,411 62,103 (17,692)
----------- ----------- -----------
Total intangibles 909,686 1.9 503,707 1.5 405,979
3. Investments and Other assets
(1) Investments in
securities *3 2,444,213 397,730 2,046,483
(2) Investments in
Subsidiaries and affiliates *3 2,255,464 6,960,940 (4,705,476)
(3) Investments in
capital funds 707,389 928,119 (220,730)
(4) Investments in
capital of affiliates 5,277 5,274 3
(5) Intercompany long-term
loan receivables *3 66,169 57,590 8,579
(6) Claim in bankruptcy 14,616 14,616 0
(7) Long-term prepaid expenses 75 120 (45)
(8) Security deposits 593,363 351,854 241,509
(9) Deffered tax assets 584,069 81,544 502,525
(10) Others 902 1,004 (102)
(11) Allowance for
bad debt (15,559) (15,534) (25)
----------- ----------- -----------
Total investments and other assets 6,655,983 13.5 8,783,260 26.2 (2,127,277)
----------- ----------- -----------
Total non-current assets 8,241,981 16.8 9,547,839 28.5 (1,305,858)
----------- ----------- -----------
Total assets 49,142,958 100.0 33,493,195 100.0 15,649,763
=========== =========== ===========
--------------------------------------------------------------------------------------------------------------------------------
32
(Thousands of yen)
----------------------------------------------------------------------------------------------------------------------------------
Period FY2001 FY2000 Net increase
(As of December 31, 2001) (As of December 31, 2000) /decrease
------------------------------------------------------------------------
Accounts Amount Percentage Amount Percentage Amount
----------------------------------------------------------------------------------------------------------------------------------
% %
(Liabilities)
I Current liabilities
1. Accounts payable, trade *4 231,874 36,658 195,216
2. Current portion of long-term debt *5 3,000,000 -- 3,000,000
3. Other payables *3,4 1,840,557 819,825 1,020,732
4. Accrued corporate
tax and other 2,269,000 1,229,925 1,039,075
5. Accrued consumption taxes 303,266 108,803 194,463
6. Accrued expenses 419,157 98,121 321,036
7. Deposits received 27,548 90,279 (62,731)
8. Advances received *4 23,556 34,392 (10,836)
9. Allowance for sales return 505,309 287,661 217,648
10. Warrant 2,556,691 1,345,666 1,211,025
11. Deferred Revenue 4,619,339 -- 4,619,339
12. Other *4 10,358 32,454 (22,096)
----------- ----------- -----------
Total current liabilities 15,806,660 32.2 4,083,788 12.2 11,722,872
II Long-term liabilities
1. Long-term debt *5 11,500,000 9,700,000 1,800,000
2. Deferred Revenue 466,493 -- 466,493
3. Accrued pension and
severance costs -- 53.716 (53,716)
4. Allowance for
retirement benefit 229,924 -- 229,924
----------- ----------- -----------
Total long-term liabilities 12,196,418 24.8 9,753,716 29.1 2,442,702
----------- ----------- -----------
Total liabilities 28,003,079 57.0 13,837,504 41.3 14,165,575
(Shareholders' equity)
I Common stock *1,9 6,833,677 13.9 6,182,838 18.5 650,839
II Suspense receipt on capital
subscriptions *10 -- -- 427 0.0 (427)
III Additional paid-in capital 8,553,818 17.4 8,112,841 24.2 440,977
IV Legal reserve 20,833 0.0 20,833 0.1 --
V Retained earnings
1. Unappropriated retained
earnings at the end
of period 5,731,876 5,338,749 393,127
----------- ----------- -----------
Total retained earnings 5,731,876 11.7 5,338,749 15.9 393,127
----------- ----------- -----------
VI Valuated difference
on other securities *8 21,735 0.0 -- 21,735
VII Treasury Stock *6 (22,063) 0.0 -- (22,063)
----------- ----------- -----------
Total shareholders' equity 21,139,878 43.0 19,655,690 58.7 1,484,188
----------- ----------- -----------
Total liabilities and
shareholders' equity 49,142,958 100.0 33,493,195 100.0 15,649,763
=========== =========== ===========
----------------------------------------------------------------------------------------------------------------------------------
33
(2) Condensed non-consolidated income statements
(Thousands of yen)
-------------------------------------------------------------------------------------------------------------------------
Period FY 2001 FY 2000 Compared to
the previous year
(From January 1, 2001 (From January 1, 2000
to December 31, 2001) to December 31, 2000)
--------------------------------------------------------------------------
Account Amount Percentage Amount Percentage Amount
-------------------------------------------------------------------------------------------------------------------------
% %
I Sales *1 18,454,367 100.0 9,426,589 100.0 9,027,778
II Cost of sales *5 1,171,372 6.3 625,267 6.6 546,105
Provision for
sales return -- -- 195,458 2.1 (195,458)
----------- ----------- -----------
Gross profit 17,282,995 93.7 8,605,863 91.3 8,677,132
III Selling, general and
administrative expenses *2,5 9,703,516 52.6 5,871,643 62.3 3,831,873
----------- ----------- -----------
Operating income 7,579,478 41.1 2,734,219 29.0 4,845,259
IV Non-operating income *3 669,696 3.6 439,650 4.7 230,046
V Non-operating expenses *4 659,572 3.6 639,873 6.8 19,699
----------- ----------- -----------
Ordinary income 7,589,602 41.1 2,533,996 26.9 5,055,606
VI Unusual gains *6 -- -- 1,019,734 10.8 (1,019,734)
VII Unusual losses *7 6,607,963 35.8 5,027 0.1 6,602,936
----------- ----------- -----------
Income before taxes 981,639 5.3 3,548,703 37.6 (2,567,064)
Corporate, inhabitant
and enterprise tax 3,310,828 17.9 1,945,570 20.6 1,365,258
Income taxes - deffered (2,722,317) (14.7) (434,886) (4.6) (3,157,203)
----------- ----------- -----------
Net income 393,127 2.1 2,038,019 21.6 (1,644,892)
Retained earnings at the
beginning of the year 5,338,749 3,153,577 2,185,172
Adjustment of
previous year
tax effect -- 147,152 (147,152)
----------- ----------- -----------
Unappropriated retained
earnings at
the end of the
period 5,731,876 5,338,749 393,127
=========== =========== ===========
-------------------------------------------------------------------------------------------------------------------------
(3) Proposed appropriation of retained earnings
(Thousands of yen)
-------------------------------------------------------------------------------------------------------------------------
Period FY 2001 FY 2000
(From January 1, 2001 (From January 1, 2000
Account to December 31, 2001) to December 31, 2000)
-------------------------------------------------------------------------------------------------------------------------
I Unappropriated retained
earnings at the end of the period 5,731,876 5,338,749
II Profit appropriation -- --
III Unappropriated retained
earnings carried forward 5,731,876 5,338,749
-------------------------------------------------------------------------------------------------------------------------
34
Significant accounting policies and practices for preparing annual financial
----------------------------------------------------------------------------
statements
----------
------------------------------------------------------------------------------------------------------------------------------------
1. Accounting for evaluation and method of evaluation (1) Marketable securities
(1) Investments in affiliates and in subsidiaries
Moving average cost method
(2) Other securities
Other securities with fair market value:
The securities are stated at the market value method
based on the value at the end of the period (valuated
differences are recognized in equity directly, not to
reflect to net earnings) and cost of selling is
determined by the weighted average method.
Other securities without a market value:
The securities are stated at the weighted average cost.
(Additional information)
For the financial instruments, "Accounting Standard for
financial instruments" (("Argument of establishment for
Accounting Standard for Financial Instruments") Business
Accounting Deliberation Council, January 22,1999), is
applied from the current fiscal year. According to the
adoption, the valuation basis and the method for securities
are changed. The change resulted in increase of ordinary
income by 72,282 thousand yen and in increase of income
before taxes by 72,282 thousand yen.
The classification resulted in decrease of other securities
in "Investment in securities" by 25,362 thousand yen and
"Deferred tax liabilities" of 10,664 thousand yen was
recognized. Finally, -14,697 thousand yen of "Valuated
difference on other securities" is recognized under
Shareholders equity (The difference from 21,735 thousand
yen disclosed on the balance sheet is caused by the
translation of security in foreign currency.)
In addition, the other securities, which was classified as
"Marketable securities" till previous fiscal year, are
classified as "Investment in securities" effective from the
beginning of current fiscal year under reviewing.
The classification also resulted in decrease of Marketable
securities under Current assets by 1,872,475 thousand yen
and in increase of Investment in securities by 1,872,475
thousand yen.
(2) Assets (or liabilities) due to accounting for derivative
Market Value method
(3) Inventories
Finished goods, Raw materials, Supplies Moving average cost
method
------------------------------------------------------------------------------------------------------------------------------------
2. Depreciation and amortization method for fixed assets (1) Property and equipment
Declining-balance method
(2) Intangibles
(Software for sales)
Straight-line method over the estimated useful
lives.(mainly for 12 months)
(Software for internal use)
Straight-line method over the estimated useful lives.(5
years)
(Other intangibles)
Straight-line method
(3) Long-term prepaid expense
35
Amortization is computed by a straight-line method
------------------------------------------------------------------------------------------------------------------------------------
3. Accounting for deferred assets Issuing costs of stocks and bonds are charged to expenses
when incurred.
------------------------------------------------------------------------------------------------------------------------------------
4. Accounting policies for provision (1) Allowance for doubtful accounts
As contingency against losses from default of note
and account receivable, the allowance for doubtful
accounts is provided. The amount is determined using
a percentage based on own actual doubtful account
loss against total of debts and an amount, which
takes into consideration the possibility of
recovering specific liabilities.
(Additional Information)
For the financial instruments, from the current
fiscal year, pursuant to "Accounting Standards for
financial instruments" (("Argument of establishment
for Accounting Standard for Financial Instruments")
Business Accounting Deliberation Council, January
22,1999), The recording principal of Allowance for
doubtful accounts is changed (The allowance for bad
debts is recognized at a percentage based on the
accomplishments instead of a statutory prescribed
percentage). The adoption had no significant effect.
(2) Allowance for sales return
In order to reserve future losses from sales return
subsequent to the fiscal year end, allowance for
sales return is provided based on the past
experience in the sales return.
(3) Allowance for retirement benefits
In order to reserve future losses arising from
retirement of employees, allowance for retirement
benefits is provided based on retirement benefit
liabilities at the end of the period under
reviewing. The difference from the changing
accounting standard 106,581 thousand yen is
recognized as an expense under Unusual losses.
(Additional Information)
From the current fiscal year, pursuant to
"Accounting Standards for Retirement Benefits
Obligation" (("Argument of establishment for
Accounting Standard for Retirement Benefits
Obligation") Business Accounting Deliberation
Council, June 16,1998), allowance is provided. The
adoption resulted in increase of retirement benefits
expense by 143,808 thousand yen, in decrease of
Ordinary income by 35,539 thousand yen and in
decrease of income before taxes by 142,121 thousand
yen. Amount of accrued pension and severance costs ,
which was recognized till previous fiscal year, is
included and disclosed in Accrued retirement
benefits.
------------------------------------------------------------------------------------------------------------------------------------
5. Translation of major foreign-currency assets and Foreign-currency financial receivables and
liabilities into Yen liabilities are translated into yen at the spot rate
effective at the end of the period. Exchange
differential is treated as a profit/loss.
(Additional information)
From the current fiscal year, the company adopted
revised accounting standards for foreign currency
transactions (Views on Revision of Accounting
Standards for Foreign Currency Transactions, etc.,
issued by Business Accounting Deliberation Councile
on October 22, 1999). The adoption had no
significant effects on profits and losses.
------------------------------------------------------------------------------------------------------------------------------------
6. Accounting for leased assets Finance leases without transfer of ownership of the
leased assets are accounted for in the same manner
as applied for operating leases.
------------------------------------------------------------------------------------------------------------------------------------
36
------------------------------------------------------------------------------------------------------------------------------------
7. Other important matters for preparing (1) Consumption tax
annual financial statements
Transactions subject to consumption tax are stated
at the amount net of the related consumption tax.
(2) Accounting treatment for stock warrants and stock
option granted to directors and certain employees
under the company's incentive plan.
The Company has adopted incentive plans where
warrants to purchase parent company's shares are
granted to directors and certain employees after
parent company issues bonds with detachable warrants
and immediately repurchases all of the warrants.
Compensation costs are measured at repurchase costs
of warrant securities at the point of grant. Warrant
portion of the bonds is recorded as "warrant account"
upon issuance and then transferred to "additional
paid-in capital" upon exercise.
In addition, from the current fiscal year, the
company has adopted incentive plans of Stock Option
(Subscription right method) to directors and certain
employees based on the Japanese Commercial Code. The
company doesn't recognize compensation cost and
transactions due to this scheme.
(3) Change in revenue recognition method for Post
Contract
Customer Support Service (PCS)
Basically, The product license agreement, which
the company contract with the end-user, states the
article for PCS (customer support and upgrading of
products and its pattern files).
Till previous fiscal year, whole revenue of the
company applied to each product license agreement
including a portion of PCS revenue had been
recognized when the license is delivered to user.
From the current fiscal year, the revenue recognition
method for portion of PCS is changed as follows.
Portion of PCS revenue is recognized separately from
whole revenue and it is deferred as Deferred revenues
under Current liabilities and Non-current liabilities
based on contracted period. Deferred revenue is
finally recognized for the contracted period evenly.
As per the tendency of the company that the
ratio of the consideration of Post Contract Customer
Support is getting larger than as before. As the
result of the above, the companies adopt new revenue
recognition policy on PCS, in order to recognize
proper periodic profits and losses accurately.
According to the above change, PCS revenue
2,800,962 thousand yen, which should be deferred by
the company as of the beginning of the current fiscal
year applied to the prior year's revenues, is stated
as Losses on prior year adjustment under Unusual
losses at the beginning of the current period. And it
resulted in decrease of Sales, Operating income and
Ordinary income by 2,284,871 thousand yen and in
decrease of income before taxes by 5,085,833 thousand
yen.
------------------------------------------------------------------------------------------------------------------------------------
Changes in presentation
-----------------------
Allowance for sales return indicated independently until the previous fiscal
year is deducted from sales amount immediately from the current fiscal year.
Allowance for sales return cause sales revenue to decrease by 217,648 thousand
yen in this period.
From the current fiscal year, pursuant to amendment of financial statement
policy, treasury stock (22,063 thousand yen at the end of period) indicated
independently under Current assets until the previous fiscal year is recorded in
Shareholders' equity as deduction item from equity.
37
Notes
-----
(Non-consolidated balance sheets) (Thousands of yen)
--------------------------------------------------------------------------------------------------------------------------------
FY2001 FY2000
(As of December 31, 2001) (As of December 31, 2000)
--------------------------------------------------------------------------------------------------------------------------------
*1 Number of shares authorized *1 Number of shares authorized
250,000,000 shares 250,000,000 shares
Number of shares issued Number of shares issued
132,052,284 shares 65,560,421 shares
--------------------------------------------------------------------------------------------------------------------------------
*2 Accumulated depreciation of *2 Accumulated depreciation of
property and equipment property and equipment
287,601 192,765
--------------------------------------------------------------------------------------------------------------------------------
*3 Major assets
---------------------------------
and liabilities denominated in foreign currencies are
as follows.
Accounts in foreign currency in JPY
(in thousands)
Cash and bank deposits US$ 11,123 1,276,932
Accounts receivable,
trade US$ 7,805 896,078
Marketable securities
US$ 1,502 172,746
Intercompany short-term
loan receivables US$ 3,693 424,049
GBP 406 69,537
Investments in securities US$ 2,000 215,730
US$ 1,276 146,429
Investment in subsidiaries
and affiliates NT$ 436,499 1,721,400
GBP 110 20,611
Intercompany long-term
loan receivable US$ 501 57,590
Other payable US$ 2,709 311,103
NT$ 36,848 127,790
DM 221 12,082
GBP 24 4,195
--------------------------------------------------------------------------------------------------------------------------------
*4 Notes to intercompany balances which *4 Notes to intercompany balances which
are not disclosed separately are as follows. are not disclosed separately are as follows.
(1) Receivables (3) Receivables
Accounts receivables, trade 3,081,599 Accounts receivables, trade 896,086
Other receivables 495,727 Other receivables 273,503
Other current assets 14,202 Other current assets 15,496
------------------------------------------ --------------------------------------------
Total 3,591,528 Total 1,185,087
(2) Payables (4) Payables
Accounts payables, trade 11,862 Accounts payables, trade 21
Other payables 698,627 Other payables 459,372
------------------------------------------
Total 710,489 Advances received 2,113
Other current liabilities 3,027
--------------------------------------------
Total 464,534
--------------------------------------------------------------------------------------------------------------------------------
38
-------------------------------------------------------------------------------------------------------------------------
*5 Treasury bonds -------------------
In order for the warrants to be granted or transferred to the
directors and certain employees of the Company and the
directors and certain employees of the affiliated company, the
Company issued unsecured bonds with detachable warrants. Under
section 341-8-4 of the Business Law, the redemption and
retirement of these bonds are restricted when total amount of
bonds is less than the total amount of issue price of the
stocks from unexecuted warrants. To reduce interest costs, the
Company repurchased a part of the issued bonds after warrants
were detached. The purpose of the repurchase is to hold the
treasury bonds until they can be retired legally and it is
same as the redemption substantially. Thus, bonds and treasury
bonds are disclosed in net amount in the balance sheet as
follows. The difference between the repurchased price and book
value of the treasury bonds at the time of transaction are
booked as loss on repurchase of treasury bonds in the unusual
loss section.
(Thousands of yen)
Current liability Non-current liability
----------------- ---------------------
Bonds 3,800,000 17,500,000
Treasury bonds (800,000) (6,000,000)
----------------- ---------------------
3,000,000 11,500,000
================= =====================
--------------------------------------------------------------------------------------------------------------------------------
*6 Number of treasury stocks *6 Number of treasury stocks
9,102 shares 2,631 shares
--------------------------------------------------------------------------------------------------------------------------------
------------------------- *7 (Additional information)
We have changed the purpose for investment in securities below to
the temporary investment from the current fiscal year.
SINA.COM 172,475 thousands yen
Softbank 7/th/ round bonds
1,700,000 thousand yen
----------------------
1,872,475 thousand yen
--------------------------------------------------------------------------------------------------------------------------------
*8 Limitation of dividends --------------------------
Due to valuation of Marketable securities with fair
value, sharholder's equity increased 21,735
thousand yen. According to the Japanese Commercial
Code, 290-1-6, the increased amount is limited to
appropriate to dividends.
--------------------------------------------------------------------------------------------------------------------------------
39
--------------------------------------------------------------------------------------------------------------------------------
*9 Description of increases in the number of *9 Description of increases in the number of
shares issued shares issued
-Type of issuance of shares
-Type of issuance of shares Exercise of stock warrant
Exercise of stock warrant Detached from bonds
Detached from bonds -Number of shares issued
717,521 shares
Stock Split -Issue price per share
-Number of shares issued Yen -
812,636 shares -Increase in common stock
65,679,227 shares 768,178
-Issue price per share
Yen -
Yen -
-Increase in common stock
479,939
170,900
(Note) Increase in common stock of stock split is due to
capitalization of Additional paid in capital.
--------------------------------------------------------------------------------------------------------------------------------
__________________________ *10 Exercise of stock warrants
Suspense receipts on capital subscriptions
consists of exercised stock warrants and will be
issue 1,500 stocks and transferred to 213
thousands yen of Additional Paid-in-Capital
and 214 thousands yen of Common Stock.
------------------------------------------------------------------------------------------------------------------------------------
40
(Non-consolidated income statement)
(Thousands of yen)
FY2001 FY2000
(From January 1, 2001 (From January 1, 2000
To December 31, 2001) To December 31, 2000)
*1 Intercompany sales included in net sales *1 Intercompany sales included in net sales
6,905,819 1,992,778
------------------------------------------------------------------------------------------------------------------------------------
*2 Major components of selling, general and *2 Major components of selling, general and
administrative expenses are as follows. administrative expenses are as follows.
Sales promotion cost 697,172 Sales promotion cost 533,333
Salaries and bonuses 2,044,197 Salaries and bonuses 1,339,050
Retirement benefit cost 96,657 Pension and severance cost 26,485
Allowance for bad debt 21,299 Allowance for bad debt 10,755
Depreciation expense 82,480 Depreciation expense 61,652
Service charge 897,229 Service charge 359,501
Research and development costs 1,779,241 Research and development costs 927,403
Software maintenance fee 803,224 Software maintenance fee 966,591
Intercompany charge 1,473,367
------------------------------------------------------------------------------------------------------------------------------------
*3 Major components of *3 Major components of
non-operating income non-operating income
Investment income 62,325 Investment income 52,973
Gain on sales of 19,974 Gain on sales of 119,649
marketable securities marketable securities
Foreign exchange gain 481,001 Foreign exchange gain 215,766
Interest income 51,690 Interest income 45,836
------------------------------------------------------------------------------------------------------------------------------------
*4 Major components of *4 Major components of
non-operating expenses non-operating expenses
Bonds interest expense 290,755 Loss from evaluation of securities 245,124
Bonds issued cost 108,438 Bonds interest expense 202,714
Loss from sales of treasury stock 13,401 Bonds issued cost 44,295
Evaluation loss on investment Loss from sales of treasury stock 67,380
in capital fund 220,730
------------------------------------------------------------------------------------------------------------------------------------
*5 Depreciation and amortization expense *5 Depreciation and amortization expense
Property and equipment 107,047 Property and equipment 76,042
Intangibles 579,993 Intangibles 621,172
------------------------------------------------------------------------------------------------------------------------------------
*6 Major components of unusual gain *6 Major components of unusual gain
- Gain from lawsuit 1,019,734
settlement
------------------------------------------------------------------------------------------------------------------------------------
41
------------------------------------------------------------------------------------------------------------------------------------
*7 Major components of unusual loss *7 Major components of unusual loss
Losses on prior year Loss on disposal of
adjustment fixed assets 5,027
(Due to change in 2,800,962
revenue recognition)
Loss on liquidation of
affiliates
Loss on revaluation of 3,460,700
Investments in
subsidiaries and
affiliates 203,683
Retirement Benefit 106,581
Loss on disposal of
fixed assets 24,034
Loss on repurchased
treasury stock 12,000
------------------------------------------------------------------------------------------------------------------------------------
(Lease Transactions)
None
(Marketable Securities)
*Marketable securities (except invenstments in subsidiaries and
affiliates with fair value) for the current consolidated fiscal year,
and market value of the marketable securities for the previous
consolidated fiscal year indicated on the explanatory note on
consolidated financial statements.
FY2001 (as of December 31, 2001)
None of investments in subsidiaries and affiliates have fair value.
(Accounting for derivative)
Derivative for the current and previous consolidated fiscal year
indicated on the explanatory note on consolidated financial statements.
42
(Accounting for deferred tax)
(Thousands of yen)
----------------------------------------------------------------------------------------------------
FY 2001 (as of December 31, 2001)
----------------------------------------------------------------------------------------------------
1. Major items causing deferred tax assets and liabilities
(1) Current assets
(Deferred tax assets)
Deferred Revenue 1,942,432
Accrued enterprise taxes 212,773
Allowance for sales return 212,482
Uncertainty accrued expenses 251,681
Other 127,195
--------------
Sub Total 2,746,564
Valuation allowance (42,050)
--------------
Total 2,704,514
(2) Non-current assets
(Deferred tax assets)
Deferred revenue 196,160
43
Intangibles 150,842
Loss on evaluation for investments
in securities 171,148
Pension and severance costs 67,678
Other 14,010
--------------
Sub total 599,841
(Deferred tax liabilities)
Valuated difference on other securities (15,771)
Deferred tax liabilities Total (15,771)
--------------
Total 584,069
2. Major items causing differences between statutory and
effective rate after tax effect accounting.
Statutory rate 42.05%
(Adjustment)
Permanent difference such as entertainment expense 13.29%
Inhabitant tax 0.77%
Adjustment for deferred tax assets 4.35%
Other (0.51%)
--------------
Effective rate after tax effect accounting 59.95%
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
FY2000 (as of December 31, 2000)
------------------------------------------------------------------------------------------------------------------------------------
Major items causing deferred tax assets and liabilities
(Deferred Tax assets)
(1) Current assets
Allowance for sales return 120,961
Accrued enterprise taxes 112,694
Devaluation of investment securities 103,074
Other 205,815
Valuation allowance (42,050)
--------------
Total 500,494
(2) Non-current assets
Intangibles 66,411
Retirement and severance benefit 15,133
--------------
Total 81,544
------------------------------------------------------------------------------------------------------------------------------------
44
(Changes of officers)
-------------------
(1) Changes of representative director
Representative director who is intended to resign on March 26, 2002
Representative director,
Senior Executive Vice President Toshihiro Watanabe
(2) Changes of other officers
1. Nominees for Director (intended to be inaugurated on March 26, 2002)
Director Nick Dederer (Chief Operating
Officer)
2. Nominees for Auditor (intended to be inaugurated on March 26, 2002)
Part-time Auditor (outside) Koji Fujita (Attorney)
3. Auditor who is intended to resign on March 26, 2002
Part-time Auditor (outside) Mitsuo Sano
4. Nominees for promoted Director (intended to be inaugurated on March
26, 2002)
Representative director (Director) Mahendra Negi
45