<PAGE>
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 September, 2000
Trend Micro Incorporated
(Translation of registrant's name into English)
Odakyu Southern Tower, 10th Floor, 2-1, Yoyogi 2-chome,
Sibuya-ku, Tokyo 151-8583, Japan
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F __
---
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ___ No X
---
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-__________
<PAGE>
Information furnished on this form:
Table of Contents
Consolidated Interim Financial Information (Unaudited) of Trend Micro
Incorporated, consisting of:
Consolidated balance sheets at June 30, 1999 and 2000 (and audited balance
sheet at December 31, 1999)
Consolidated statements of income for the six months ended June 30, 1999
and 2000
Consolidated statements of cash flows for the six months ended June 30,
1999 and 2000
Notes to consolidated financial schedules
<PAGE>
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: September 29, 2000 By: /s/ Chang Ming-Jang
-------------------
Chang Ming-Jang
Representative Director;
President, Chief Executive
Officer and Chairman of the
Board
<PAGE>
TREND MICRO INCORPORATED
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
INDEX TO CONSOLIDATED INTERIM FINANCIAL INFORMATION (UNAUDITED)
---------------------------------------------------------------
Page
----
Consolidated balance sheets at June 30, 1999 and 2000 (and 1
audited balance sheet at December 31, 1999)
Consolidated statements of income for the six months ended
June 30, 1999 and 2000 3
Consolidated statements of cash flows for the six months
ended June 30, 1999 and 2000 4
Notes to consolidated financial schedules 5
<PAGE>
TREND MICRO INCORPORATED
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Except December 31, 1999, all balances unaudited)
ASSETS
------
<TABLE>
<CAPTION>
Thousands of
Thousands of yen U.S. dollars
---------------------------------------------------- ------------
June 30, December 31, June 30, June 30,
--------------- --------------- --------------- --------
1999 1999 2000 2000
--------------- --------------- --------------- --------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents (Yen) 6,113,898 (Yen)15,648,881 (Yen)20,901,860 $196,927
Marketable securities 2,161,558 624,328 3,262,862 30,741
Notes and accounts receivable, trade 5,172,256 6,057,172 7,232,047 68,137
Allowance for doubtful accounts and sales returns (279,059) (382,973) (419,776) (3,955)
Inventories 74,325 64,036 101,778 959
Deferred income taxes 617,896 922,061 940,866 8,864
Prepaid expenses and other current assets 493,468 771,577 1,749,301 16,481
--------------- --------------- --------------- --------
Total current assets 14,354,342 23,705,082 33,768,938 318,154
--------------- --------------- --------------- --------
Investments and other assets:
Securities investments 3,393,960 3,078,406 980,801 9,241
Investment in and advances to affiliated Companies -- 70,144 246,628 2,324
Goodwill and other intangible assets 478,154 440,252 1,586,609 14,948
Deferred income taxes 87,991 276,609 398,019 3,750
Other 388,889 461,125 539,415 5,082
--------------- --------------- --------------- --------
4,348,994 4,326,536 3,751,472 35,345
--------------- --------------- --------------- --------
Property and equipment:
Office furniture and equipment 809,347 998,126 1,308,853 12,331
Other properties 157,117 222,094 357,362 3,367
--------------- --------------- --------------- --------
966,464 1,220,220 1,666,215 15,698
Less: Accumulated depreciation (390,256) (470,435) (667,128) (6,285)
--------------- --------------- --------------- --------
576,208 749,785 999,087 9,413
--------------- --------------- --------------- --------
(Yen)19,279,544 (Yen)28,781,403 (Yen)38,519,497 $362,912
=============== =============== =============== ========
</TABLE>
The accompanying notes are an integral part of the financial schedules.
1
<PAGE>
TREND MICRO INCORPORATED
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Except December 31, 1999, all balances unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Thousands of
Thousands of yen U.S. dollars
---------------------------------------------------- ------------
June 30, December 31, June 30, June 30,
--------------- --------------- --------------- --------
1999 1999 2000 2000
--------------- --------------- --------------- --------
<S> <C> <C> <C> <C>
Current liabilities:
Notes payable, trade (Yen) 87,795 (Yen) 137,803 (Yen) 148,182 $ 1,396
Accounts payable, trade 352,905 578,332 472,072 4,448
Accounts payable, other 322,703 633,806 591,154 5,570
Withholding income taxes 14,512 119,791 145,999 -1,375
Accrued expenses 443,537 343,243 476,950 4,493
Accrued income and other taxes 791,412 981,899 946,855 8,921
Deferred revenue 1,725,153 2,185,659 2,898,887 27,312
Other 294,910 139,326 349,417 3,292
--------------- --------------- --------------- --------
Total current liabilities 4,032,927 5,119,859 6,029,516 56,807
--------------- --------------- --------------- --------
Long-term liabilities:
Long-term debt - 6,000,000 10,865,760 102,372
Deferred revenue 136,519 226,365 330,544 3,114
Accrued pension and severance costs 82,745 125,246 143,590 1,353
--------------- --------------- --------------- --------
219,264 6,351,611 11,339,894 106,839
--------------- --------------- --------------- --------
Minority interest in consolidated subsidiary - - 151,468 1,427
Shareholders' equity:
Common stock,(Yen)50 par value -
Authorized - 83,000,000 shares
Issued and outstanding
- June 30, 1999 63,504,000 shares 5,223,669
- December 31, 1999 64,842,900 shares 5,414,660
- June 30, 2000 65,172,669 shares 5,620,192 52,951
Additional paid-in capital 8,255,851 9,198,712 10,101,923 95,175
Legal reserve 149,991 149,991 149,991 1,413
Deferred compensation related to stock options (291,429) (101,528) (50,764) (478)
Retained earnings 1,770,170 3,082,302 5,276,722 49,715
Accumulated other comprehensive income
Net unrealized gain on debt and equity 205,936 215,922 503,255 4,741
securities
Cumulative translation adjustments (270,255) (632,988) (580,279) (5,467)
--------------- --------------- --------------- --------
(64,319) (417,066) (77,024) (726)
--------------- --------------- --------------- --------
Treasury stock, at cost (16,580) (17,138) (22,421) (211)
--------------- --------------- --------------- --------
15,027,353 17,309,933 20,998,619 197,839
--------------- --------------- --------------- --------
Commitments and contingent liabilities - - - -
--------------- --------------- --------------- --------
Total liabilities and shareholders'
equity (Yen)19,279,544 (Yen)28,781,403 (Yen)38,519,497 $362,912
=============== =============== =============== ========
</TABLE>
The accompanying notes are an integral part of the financial schedules.
2
<PAGE>
TREND MICRO INCORPORATED
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
( Unaudited )
<TABLE>
<CAPTION>
Thousands of
Thousands of yen U.S. dollars
--------------------------------- ------------
For the six
For the six months months ended
ended June 30, June 30,
--------------------------------- ------------
1999 2000 2000
----------------- -------------- ------------
<S> <C> <C> <C>
Net sales (Yen)5,733,698 (Yen)9,330,979 $87,912
Cost of sales 210,454 603,879 5,689
-------------- -------------- ---------
Gross profit 5,523,244 8,727,100 82,223
-------------- -------------- ---------
Operating expenses:
Selling 746,211 1,068,155 10,064
Research and development 487,038 850,858 8,016
General and administrative 2,581,081 4,129,855 38,910
-------------- -------------- ---------
3,814,330 6,048,868 56,990
-------------- -------------- ---------
Operating income 1,708,914 2,678,232 25,233
-------------- -------------- ---------
Other income (expenses):
Interest income 76,190 76,561 721
Interest expense (1,389) (85,521) (806)
Gain on sales of marketable securities 1,488 65,377 616
Foreign exchange gain (loss), net 68,094 31,191 294
Other income (expense), net (84,975) 974,227 9,179
-------------- -------------- ---------
59,408 1,061,835 10,004
-------------- -------------- ---------
Income before income taxes, minority interest
and equity in loss of affiliated companies 1,768,322 3,740,067 35,237
-------------- -------------- ---------
Income taxes:
Current 1,107,638 1,790,174 16,866
Deferred (174,557) (340,689) (3,210)
-------------- -------------- ---------
933,081 1,449,485 13,656
-------------- -------------- ---------
Income before minority interest and equity in loss of
affiliated companies 835,241 2,290,582 21,581
Minority interest in income of a consolidated subsidiary -- 72,645 684
-------------- -------------- ---------
Income from consolidated companies 835,241 2,217,937 20,897
Equity in losses of affiliated companies -- 23,517 222
-------------- -------------- ---------
Net income (Yen)835,241 (Yen)2,194,420 $20,675
============== ============== =========
Yen Yen U.S. dollars
-------------- -------------- ------------
Per share data:
Net income - basic (Yen)13.26 (Yen)33.76 $ 0.32
- diluted 12.70 32.80 0.31
Cash dividends 3.33 -- --
</TABLE>
The accompanying notes are an integral part of the financial schedules.
3
<PAGE>
TREND MICRO INCORPORATED
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
( Unaudited )
<TABLE>
<CAPTION>
Thousands of
Thousands of yen U.S. dollars
---------------------------------- ------------
For the six
For the six months months ended
ended June 30, June 30,
---------------------------------- ------------
1999 2000 2000
----------------- --------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (Yen) 835,241 (Yen) 2,194,420 $ 20,675
Adjustments to reconcile net income to net cash
provided by operating activities -
Amortization of deferred compensation related to stock
Options 189,901 46,114 434
Depreciation and amortization 130,160 466,243 4,393
Pension and severance costs, less payments 24,670 30,833 290
Loss on disposal of fixed assets -- 2,739 26
Deferred income taxes (174,557) (340,688) (3,210)
Gain on sales of marketable securities (1,488) (65,377) (616)
Minority interest in income of a consolidated subsidiary -- 72,645 684
Changes in assets and liabilities:
Increase in deferred revenue 361,920 800,107 7,538
Increase in notes and accounts receivable, trade, net
of allowances (690,220) (915,342) (8,624)
Increase in inventories (13,984) (26,987) (254)
Increase (decrease) in notes and accounts payable,
trade 15,063 (187,070) (1,762)
(Decrease) increase in accrued corporate taxes and
other (50,522) 76,529 721
Increase in other current assets (18,559) (726,786) (6,847)
Decrease in other current liabilities (228,871) (6,101) (57)
Other (68,580) 172,974 1,629
----------------- --------------- ------------
Net cash provided by operating activities 310,174 1,594,253 15,020
----------------- --------------- ------------
Cash flows from investing activities:
Payments for purchases of fixed assets (185,473) (412,227) (3,884)
Proceeds from sales of marketable securities 49,252 150,814 1,421
Payments for purchases of marketable securities (3,821,068) (2,736) (26)
Acquisitions of businesses, net of cash acquired -- (1,308,248) (12,326)
Increase in investments in affiliated companies -- (200,000) (1,884)
----------------- --------------- ------------
Net cash used in investing activities (3,957,289) (1,772,397) (16,699)
----------------- --------------- ------------
Cash flows from financing activities:
Issuance of common stock pursuant to exercise of stock
options 283,313 359,273 3,385
Tax benefit from exercise of non-qualified stock options 323,579 621,555 5,855
Proceeds from long-term debt -- 5,000,000 47,108
Repayment of long-term debt -- (325,056) (3,062)
Decrease in short-term borrowings (72,800) (198,000) (1,865)
Dividends paid (208,337) -- --
Other 25,789 (27,555) (260)
----------------- --------------- ------------
Net cash provided by financing activities 351,544 5,430,217 51,161
----------------- --------------- ------------
Effect of exchange rate changes on cash and cash equivalents 12,992 906 9
----------------- --------------- ------------
Net (decrease) increase in cash and cash equivalents (3,282,579) 5,252,979 49,491
Cash and cash equivalents at beginning of period 9,396,477 15,648,881 147,436
----------------- --------------- ------------
Cash and cash equivalents at end of period (Yen) 6,113,898 (Yen)20,901,860 $196,927
================= =============== ============
</TABLE>
The accompanying notes are an integral part of the financial schedules.
4
<PAGE>
TREND MICRO INCORPORATED
------------------------
AND CONSOLIDATED SUBSIDIARIES
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL SCHEDULES
-----------------------------------------
( Unaudited )
1. Basis of presentation
The consolidated financial schedules of Trend Micro Incorporated and
its subsidiaries (collectively "the Company") are unaudited. These schedules
have been prepared in accordance with U.S. GAAP. The unaudited financial
schedules furnished include all adjustments that are, in the opinion of
management, necessary to a fair statement of the results for the interim periods
presented. Operating results for the six months ended June 30, 2000 are not
necessarily indicative of the results for the year ended December 31, 2000.
2. Recent pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), REVENUE RECOGNITION IN FINANCIAL
STATEMENTS. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. In June 2000,
the SEC issued Staff Accounting Bulletin No. 101B ("SAB 101B"), SECOND
AMENDMENT: REVENUE RECOGNITION IN FINANCIAL STATEMENTS. SAB 101B delays the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. The Company will adopt SAB 101
pursuant to SAB 101B as required in the fourth quarter of 2000 and does not
expect the adoption of SAB 101 to have a material impact on the Company's
financial position or results of operations.
3. U.S. dollar amounts
U.S. dollar amounts presented in the financial schedules are included
solely for the convenience of the reader. These translations should not be
construed as representations that the yen amounts actually represent, or have
been or could be converted into, U.S. dollars. As the amounts shown in U.S.
dollars are for convenience only, the approximate current rate at June 30, 2000
((Yen)106.14 = U.S. $1) has been used for the purpose of presentation of the
U.S. dollar amounts in the accompanying consolidated financial schedules.
4. Acquisitions
On February 29, 2000, the Company acquired 1,600 shares (66.7%) of
outstanding shares of Nihon Unisoft Incorporated for (Yen)1,600,000 thousand
($15,074 thousand) in cash through ipTrend Incorporated, a wholly-owned
subsidiary of the Company established on January 18, 2000. Nihon Unisoft
Incorporated has been a Japanese Unix software solution provider in the
networking communications and Internet domain since November 1, 1983. The
purpose of the acquisition is to develop the internet-based technology and to
expand the sales of the products and services used by that technology. This
acquisition was accounted for as a purchase and the purchase price was allocated
to the assets acquired and liabilities assumed, including goodwill of (Yen)
1,442,117 thousand ($13,587 thousand) which was being amortized over 5 years on
a straight-line basis. Pro forma information reflecting this acquisition is not
included as the impact of this acquisition is not material.
5. Net income per share
Net income per share amounts were computed based on Statements of
Financial Accounting Standards No. 128. For the six months ended June 30, 1999
and 2000, weighted average shares used for computation of basic net income per
share were 63,015 thousand shares and 65,006 thousand shares, respectively, and
the weighted average shares used for diluted net income per share were 65,754
thousand shares and 66,905 thousand shares, respectively. The dilutive effect
resulted from the exercise of stock warrants.
5
<PAGE>
6. Comprehensive income
Changes in shareholders' interest that do not result directly from
transactions with shareholders are as follows:
<TABLE>
<CAPTION>
Thousands of
Thousands of yen U.S. dollars
---------------------------------- ------------
For the six
For the six months months ended
ended June 30, June 30,
---------------------------------- ------------
1999 2000 2000
----------------- --------------- ------------
<S> <C> <C> <C>
Net income (Yen)835,241 (Yen)2,194,420 $20,675
------------ -------------- -------
Other comprehensive income (loss), net of tax:
Unrealized gain on debt and equity securities:
Unrealized holding gains arising during period (53,467) 561,635 5,291
Less reclassification adjustment for gains
included in net income (931) (65,377) (616)
------------ -------------- -------
(54,398) 496,258 4,675
Foreign currency translation adjustments 8,267 52,709 497
------------ -------------- -------
Other comprehensive income (loss), before tax (46,131) 548,967 5,172
Income tax expense related to items of other
comprehensive income 25,736 (208,925) (1,969)
------------ -------------- -------
Other comprehensive income (loss), net of tax (20,395) 340,042 3,203
------------ -------------- -------
Comprehensive income (Yen)814,846 (Yen)2,534,462 $23,878
============ ============== =======
</TABLE>
7. Supplemental cash flow information
Cash payments for income taxes were (Yen)770,619 thousand and
(Yen)883,384 thousand ($8,323 thousand) for the six months ended June 30, 1999
and 2000, respectively. In these respective periods, interest payments were
(Yen)1,338 thousand and (Yen)85,725 thousand ($808 thousand).
8. Marketable securities
Cash equivalents and marketable securities (current and non-current)
include money market funds, mutual funds and debt and equity securities for
which the aggregate fair value, gross unrealized gains and losses and cost
pertaining to "available-for-sale" investments as of June 30 and December
31,1999 and June 30,2000 were as follows:
<TABLE>
<CAPTION>
Thousands of yen
----------------------------------------------------------------------
June 30, 1999
----------------------------------------------------------------------
Gross unrealized
---------------------------------
Cost Gains Losses Fair value
-------------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
Available for sale:
Money market funds (Yen)3,417,154 (Yen) - (Yen) - (Yen)3,417,154
Equity securities 159,073 396,405 - 555,478
Debt securities 5,002,686 3,394 6,040 5,000,040
-------------- ------------ ---------- --------------
Total (Yen)8,578,913 (Yen)399,799 (Yen)6,040 (Yen)8,972,672
============== ============ ========== ==============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Thousands of yen
----------------------------------------------------------------------
December 31,1999
----------------------------------------------------------------------
Gross unrealized
---------------------------------
Cost Gains Losses Fair value
-------------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
Available for sale:
Money market funds (Yen) 31 (Yen) - (Yen) - Yen) 31
Mutual funds 960,806 - - 960,806
Equity securities 529,076 412,392 - 941,468
Debt securities 1,800,000 460 - 1,800,460
--------------- ------------ ---------- --------------
Total (Yen)3,289,913 (Yen)412,852 (Yen) - (Yen)3,702,765
=============== ============ ========== ==============
</TABLE>
<TABLE>
<CAPTION>
Thousands of yen
----------------------------------------------------------------------
June 30, 2000
----------------------------------------------------------------------
Gross unrealized
---------------------------------
Cost Gains Losses Fair value
------------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
Available for sale:
Money market funds (Yen) 31 (Yen) - (Yen) - (Yen) 31
Mutual funds 960,806 - - 960,806
Equity securities 573,747 927,912 30,082 1,471,577
Debt securities 1,800,000 11,280 - 1,811,280
-------------- ------------ ----------- --------------
Total (Yen)3,334,584 (Yen)939,192 (Yen)30,082 (Yen)4,243,694
============== ============ =========== ==============
</TABLE>
<TABLE>
<CAPTION>
Thousands of U.S. dollars
----------------------------------------------------------------------
June 30, 2000
----------------------------------------------------------------------
Gross unrealized
---------------------------------
Cost Gains Losses Fair value
------------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
Available for sale:
Money market funds $ - -- -- $ -
Mutual funds 9,052 -- -- 9,052
Equity securities 5,406 8,742 284 13,864
Debt securities 16,959 106 -- 17,065
-------------- ------------- ----------- --------------
Total $ 31,417 $ 8,848 $ 284 $ 39,982
=============== ============= =========== ==============
</TABLE>
Fair value of money market funds approximates cost due to the short-
term maturities of these investments.
At June 30, 1999 and 2000, debt securities consisted of bonds issued by
a related party (SOFTBANK). The cost and fair value of "available-for sale" debt
securities by contractual maturity at June 30 and December 31,1999 and June
30,2000 are as follows:
<TABLE>
<CAPTION>
Thousands of yen
--------------------------------------------------------------------------------------------
June 30, 1999 December 31, 1999 June 30, 2000
------------------------------ ------------------------------ ------------------------------
Available-for sale Available-for sale Available-for-sale
------------------------------ ------------------------------ ------------------------------
Cost Fair value Cost Fair value Cost Fair value
--------------- -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Due within one year (Yen)1,602,686 (Yen)1,606,080 (Yen) 100,000 (Yen) 100,460 (Yen) 100,000 (Yen) 100,230
Due after one year 3,400,000 3,393,960 1,700,000 1,700,000 1,700,000 1,711,050
--------------- --------------- --------------- --------------- --------------- ----------------
(Yen)5,002,686 (Yen)5,000,040 (Yen)1,800,000 (Yen)1,800,460 (Yen)1,800,000 (Yen)1,811,280
=============== =============== =============== =============== =============== ================
</TABLE>
<TABLE>
<CAPTION>
Thousands of U.S. dollars
------------------------------
June 30, 2000
------------------------------
Available-for-sale
------------------------------
Cost Fair value
-------------- --------------
<S> <C> <C>
Due within one year $ 942 $ 944
Due after one year 16,017 16,121
-------------- --------------
$16,959 $17,065
============== ==============
</TABLE>
7
<PAGE>
Proceeds from sales of "available-for-sale" securities for the six
months ended June 30, 2000 was (Yen)151,621 thousand ($1,429 thousand). There
were no sales transactions of "available-for-sale" securities for the six months
ended June 30,1999. Gross realized gains on sales of "available-for-sale"
securities for the six months ended June 30, 2000 was (Yen)65,376 thousand ($616
thousand).
Equity securities of (Yen)417,600 thousand and debt securities of
(Yen)1,800,000 thousand, which had previously been recorded as "Securities
investments" under investments and other assets, became marketable and were
reclassified to"Marketable securities" at June 30, 2000.
9. Transactions with related parties
Account balances and transactions with SOFTBANK and its affiliated
companies are as follows:
<TABLE>
<CAPTION>
Thousands of
Thousands of yen U.S. dollars
---------------------------- ------------
June 30 June 30
---------------------------- ------------
1999 2000 2000
-------------- ------------ -----------
<S> <C> <C> <C>
Accounts receivable, trade (Yen) 720,841 (Yen)737,693 $ 6,950
Accounts payable, other 19,494 44,604 420
Sales for the six months ended 1,262,643 1,241,653 11,698
Purchase and expense for the six months 69,861 95,280 898
ended
</TABLE>
The Company believes that each of these transactions has been
negotiated on an arm's length basis and done at fair value based on market
pricing.
10. Long-term debt
Long-term debt at December 31, 1999 consisted of unsecured bonds of
(Yen)6,000,000 thousand due 2002 with interest rate of 2.5% per annum. issued in
relation to the Company's 1999 incentive plan.
Long-term debt at June 30, 2000 consisted of unsecured bonds of
(Yen)5,700,000 thousand ($53,703 thousand) due 2002 with an interest rate of
2.5% per annum issued in relation to the Company's 1999 incentive plan,
unsecured bonds of (Yen)5,000,000 thousand ($47,108 thousand) due 2003 with an
interest rate of 2.1% per annum issued in relation to the Company's 2000
incentive plan, and unsecured loans from banks of (Yen)165,760 thousand ($1,562
thousand) with weighted-average interest rate of 2.25% per annum due 2002 to
2003. The unsecured bonds of (Yen)5,000,000 thousand ($47,108 thousand) were
issued by the Company on June 26, 2000 with 5,000 detachable warrants. One
warrant, which is exercisable commencing July 21, 2000, entitles the holder to
subscribe (Yen)1 million ($9 thousand) per warrant for shares of common stock of
the Company at (Yen)15,700 ($148) per share. Upon issuance of these bonds, the
Company repurchased all of these warrants and distributed such instruments at
fair market value to the directors and certain employees of the Company and
certain of its subsidiaries as a part of their remuneration. At June 30, 2000,
no warrants had been exercised. The warrants will expire on June 19, 2003.
8
<PAGE>
11. Stock warrants
Based on the Company's 1997, 1998 and 1999 incentive plans, the Company
issued the following bonds with detachable warrants to SOFTBANK. Based on the
Company's 2000 incentive plan, the Company issued following bonds with
detachable warrants to public.
<TABLE>
<S> <C> <C> <C> <C> <C>
1. Shareholders' meeting September 29, March 28, May 29, 1998 June 30, 1999 June 1, 2000
approval................... 1997 1998
2. Date of bond October 17, April 15, 1998 June 15, 1998 July 29, 1999 June 26, 2000
issuance................... 1997
3. Amount of each bond
(Thousands of yen)......... (Yen)908,523 (Yen)412,965 (Yen)196,650 (Yen)6,000,000 (Yen)5,000,000
4. Date on which the bonds October 17, April 15, 1998 June 15, 1998 - -
were fully redeemed........ 1997
5. Exercise price per
each warrant............... (Yen)285 (Yen)285 (Yen)285 (Yen)6,400 (Yen)15,700
6. Warrant exercise period.... October 27, April 27, 1998 June 25, August 20, July 21,
1997 to to April 5, 1998 to June 1999 to July 2000 to
October 12, 2002 7, 2002 22, 2002 June 19,
7. Number of shares 2001 2003
represented by warrants.... 3,187,800 1,449,000 690,000 937,500 318,471
8. Outstanding as of
December 31, 1999.......... 727,200 475,500 406,800 937,500 -
9. Outstanding as of
June 30, 2000.............. 595,200 384,900 351,000 886,131 318,471
</TABLE>
Upon issuance of each bond, the Company bought all of the warrants and
distributed them to the directors and certain employees of the Company and its
subsidiaries as a part of their remuneration.
These transactions were accounted for both as an issuance of debt to
SOFTBANK and the public, and as an issuance of warrants to the directors and
certain employees of the Company and its subsidiaries. The issuance of the
warrants to the directors and employees was accounted for under APB 25.
Warrant activity was as follows:
<TABLE>
<CAPTION>
Thousands of shares
represented by warrants
--------------------------
<S> <C>
Outstanding at December 31, 1996............................ 3,188
Granted.................................................... -
Exercised.................................................. -
Redeemed................................................... -
--------
Outstanding at December 31, 1997............................ 3,188
Granted.................................................... 2,139
Exercised.................................................. (1,007)
Redeemed................................................... (374)
--------
Outstanding at December 31, 1998............................ 3,946
Granted.................................................... 937
Exercised.................................................. (2,336)
Redeemed................................................... -
--------
Outstanding at December 31, 1999 2,547
Granted.................................................... 318
Exercised.................................................. (329)
Redeemed................................................... -
--------
Outstanding at June 30, 2000 2,536
========
</TABLE>
Balances were as follows:
13
<PAGE>
Thousands of shares
-----------------------
December 31 June 30
-----------------------
1999 2000
---------- -----------
Authorized and outstanding................. 2,547 2,536
Exercisable................................ 1,308 1,590
For the above stock warrants granted on April 15, 1998 and June 15, 1998,
management calculated deferred compensation expense of (Yen)878,798 thousand
during fiscal 1998. Such deferred compensation will be amortized over the
vesting period which is generally 24 months. Approximately (Yen)397,467 thousand
and (Yen)379,803 thousand were amortized during fiscal 1998 and 1999,
respectively. Approximately (Yen)50,764 thousand ($478 thousand) was amortized
during the six months ended June 30,2000.The grants of October 17, 1997, July
29, 1999 and June 26, 2000, with respect to which the vesting period is
generally 24 months, did not result in deferred compensation.
12. Commitments and contingent liabilities
There were no significant commitments outstanding at June 30, 2000.
In May 1997, Trend Micro Incorporated (TMI), the parent company's U.S.
subsidiary, sued Network Associates (formerly McAfee Associates, Inc.) in the
U.S. Federal District Court for the Northern District of California alleging
that their products infringe TMI's U.S. Patent No. 5,623,600 relating to a
system and method for detecting computer viruses in a network environment and
seeking injunctive relief and unspecified money damages. In June 1997, Network
Associates denied infringement, alleging the Company's patent is invalid, and
filed counterclaims against TMI alleging unfair competition, false advertising,
trade libel and interference with prospective economic advantage. In April 2000,
Network Associates filed suit against TMI in the U.S. Federal District Court for
the Northern District of Texas, alleging that TMI's anti-virus software
packages, including the Trend Virus Control System, infringes a Network
Associates patent which was issued on February 22, 2000.
On May 31, 2000, the parties entered into a settlement agreement and cross-
license agreement pursuant to which they agreed, among other things, to dismiss
all outstanding litigation between each other and to cross-license certain
rights in their respective patent portfolios. Under the agreements, Network
Associates is to pay $12,500 thousand ((Yen)1,326,750 thousand) to Trend U.S.
within 60 days in consideration for its past patent license from Trend U. S. The
Company recorded gain on settlement of the litigation and related receivable
balance of (Yen)1,040,172 thousand ($9,800 thousand), net of related fees for
lawyers of (Yen)286,578 thousand ($2,700 thousand) in total, as "other income"
and "prepaid expense and other current assets". Payment by Network Associates to
Trend U.S. pursuant to the agreement was made on July 7, 2000.
14
<PAGE>
13. Segment information
The Company and its consolidated subsidiaries operate principally in two
industry segments: "Security software business" and "Internet-related
products/service business". However, industry segment information is not
currently disclosed since more than 90% of sales, operating income and assets in
all segments are from the "security software business". Net sales is attributed
to countries based on the location of the Company or the relevant consolidated
subsidiary. Geographic information concerning the Company's net sales to
external customers and long-lived assets for the six months ended June 30, 1999
and 2000 is as follows:
<TABLE>
<CAPTION>
Thousands of
Thousands of yen U.S. dollars
------------------------------------------ --------------
For the six
months ended
For the six months ended June 30, June 30,
------------------------------------------ --------------
1999 2000 2000
------------------- -------------------- --------------
<S> <C> <C> <C>
Net sales to external customers:
Japan (Yen)2,600,520 (Yen)3,388,855 $31,928
U.S.A. 1,465,708 2,778,167 26,175
Taiwan 750,149 829,621 7,816
Europe 662,363 1,870,517 17,623
Other 254,958 463,819 4,370
-------------- -------------- ---------
Total 5,733,698 9,330,979 87,912
============== ============== =========
Long-lived assets:
Japan (Yen)941,023 (Yen)939,497 $ 8,851
U.S.A. 180,749 351,647 3,313
Taiwan 264,553 371,104 3,496
Europe 39,585 83,803 790
Other 17,340 33,532 316
-------------- -------------- ---------
Total (Yen)1,443,250 (Yen)1,779,583 $16,766
============== ============== =========
</TABLE>
Long-lived assets for a particular geographic segment are those assets used
in the geographic segment.
15
