[FINANCIAL STATEMENTS]
-1-
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Consolidated balance sheets (Unaudited)
Yen (Millions)
-------------------------------------------
September 30, September 30, March 31,
ASSETS 2001 2002 2002
-------------------------------------------------------------------------------
Current assets:
� � �
Cash and cash equivalents 126,709 147,822 125,761
Trade receivables:
Notes 8,148 8,178 8,219
Accounts 123,577 132,918 138,378
Allowance for doubtful
receivables (2,721 ) (3,300 ) (3,770 )
-------------------------------------------
Net trade receivables 129,004 137,796 142,827
-------------------------------------------
Inventories 117,409 83,714 91,149
Income tax receivables 1,453 1,889 8,289
Prepaid expenses and other current
assets 30,201 35,079 31,180
-------------------------------------------
Total current assets 404,776 406,300 399,206
-------------------------------------------
Investments and advances (Notes 2
and 5) 22,173 19,309 24,265
Property, plant and equipment, at
cost:
Land 22,569 23,611 23,739
Buildings 180,519 180,385 183,450
Machinery and equipment 497,858 496,859 507,589
Construction in progress 31,898 8,989 13,301
-------------------------------------------
732,844 709,844 728,079
Less accumulated depreciation 455,367 465,804 462,489
-------------------------------------------
Net property, plant and
equipment 277,477 244,040 265,590
-------------------------------------------
Goodwill 10,830 10,712 11,500
Intangible assets 7,772 6,796 7,265
Deferred income taxes 20,483 36,021 37,021
Other assets 5,424 4,496 5,063
-------------------------------------------
� � �
748,935 727,674 749,910
-------------------------------------------
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See accompanying notes to consolidated financial statements.
-2-
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Yen (Millions)
-----------------------------------------------
September 30, September 30, March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2002 2002
-------------------------------------------------------------------------------
Current liabilities:
Short-term debt �2,912 �1,463 �1,655
Current installments of long-term debt 742 371 657
Trade payables:
Notes 732 663 849
Accounts 48,851 55,233 51,760
Accrued salaries and wages 11,838 12,452 11,247
Other accrued expenses 18,794 13,779 12,510
Income taxes 2,730 2,484 2,546
Other current liabilities 20,267 13,238 29,117
-----------------------------------------------
Total current liabilities 106,866 99,683 110,341
-----------------------------------------------
Long-term debt, excluding current
installments 612 255 459
Retirement and severance benefits 33,294 58,318 49,992
Deferred income taxes 9 398 598
-----------------------------------------------
Total liabilities 140,781 158,654 161,390
-----------------------------------------------
Minority interests 4,220 4,425 4,593
Stockholders' equity:
Common stock
Authorized 480,000,000 shares;
Issued 133,189,659 shares at
September 30, 2001 and 2002, and
March 31, 2002 32,641 32,641 32,641
Additional paid-in capital 63,051 63,051 63,051
Legal reserve (Note 3) 15,710 15,955 15,683
Retained earnings (Note 3) 551,705 521,859 520,143
Accumulated other comprehensive income
(loss) (Note 4) (55,591 ) (64,100 ) (43,999 )
Treasury stock at cost;
328,455 shares at September 30,
2001,
555,567 shares at September 30,
2002 and
330,083 shares at March 31, 2002 (3,582 ) (4,811 ) (3,592 )
-----------------------------------------------
Total stockholders' equity 603,934 564,595 583,927
-----------------------------------------------
Commitments and contingent liabilities
(Note 6)
-----------------------------------------------
� �
748,935 727,674 �749,910
-----------------------------------------------
-3-
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Consolidated statements of income (Unaudited)
Yen (Millions)
----------------------------------------------------
Six months Six months
ended September ended September Year ended
30, 2001 30, 2002 March 31, 2002
-------------------------------------------------------------------------------
Net sales �270,786 �296,380 �570,511
Cost of sales 213,309 223,738 464,620
----------------------------------------------------
Gross profit 57,477 72,642 105,891
Selling, general and
administrative expenses 60,288 59,196 123,741
Restructuring cost - 3,427 25,872
----------------------------------------------------
Operating income (loss) (2,811 ) 10,019 (43,722 )
Other income (deductions) :
Interest and dividend
income 1,288 708 2,033
Interest expense (672 ) (198 ) (1,264 )
Foreign exchange gain
(loss) (514 ) (1,699 ) 618
Other - net (373 ) (1,194 ) (1,362 )
----------------------------------------------------
(271 ) (2,383 ) 25
----------------------------------------------------
Income (loss) before income
taxes (3,082 ) 7,636 (43,697 )
Income taxes:
Current 1,786 223 (3,197 )
Deferred (5,363 ) 2,533 (13,797 )
----------------------------------------------------
(3,577 ) 2,756 (16,994 )
----------------------------------------------------
Income (loss) before
minority interests 495 4,880 (26,703 )
Minority interests 1,337 (235 ) 932
----------------------------------------------------
Net income (loss) �1,832 �4,645 �(25,771 )
----------------------------------------------------
Amounts per share:
Yen (except number of common shares outstanding)
-------------------------------------------------
Basic and diluted net income �
(loss) per share �13.78 �34.98 (193.91 )
Weighted average and diluted
common shares outstanding in
thousands 132,940 132,802 132,900
Cash dividends paid (Note 3) �30.00 �20.00 �60.00
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See accompanying notes to consolidated financial statements.
Note: TDK adopted the Emerging Issues Task Force Issue 01-9 ("EITF 01-9"),
"Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)" from the fiscal year beginning April 1,
2002 and the prior year's consolidated financial statements have been restated
for the change, accordingly.
-4-
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Consolidated statements of stockholders' equity (Unaudited)
Yen (Millions)
------------------------------------------------------
Six months ended Six months ended
September 30, September 30, Year ended March
2001 2002 31, 2002
-------------------------------------------------------------------------------
Common stock:
Balance at beginning of
period �32,641 �32,641 �32,641
------------------------------------------------------
Balance at end of period 32,641 32,641 32,641
------------------------------------------------------
Additional paid-in capital:
Balance at beginning of
period 63,051 63,051 63,051
------------------------------------------------------
Balance at end of period 63,051 63,051 63,051
------------------------------------------------------
Legal reserve (Note 3):
Balance at beginning of
period 13,409 15,683 13,409
Transferred from retained
earnings 2,301 272 2,274
------------------------------------------------------
Balance at end of period 15,710 15,955 15,683
------------------------------------------------------
Retained earnings (Note 3):
Balance at beginning of
period 556,165 520,143 556,165
Net income (loss) 1,832 4,645 (25,771 )
Cash dividends (3,991 ) (2,657 ) (7,977 )
Transferred to legal
reserve (2,301 ) (272 ) (2,274 )
------------------------------------------------------
Balance at end of period 551,705 521,859 520,143
------------------------------------------------------
Accumulated other
comprehensive income (loss)
(Note 4):
Balance at beginning of
period (24,851 ) (43,999 ) (24,851 )
Other comprehensive income
(loss) for the period, net
of tax (30,740 ) (20,101 ) (19,148 )
------------------------------------------------------
Balance at end of period (55,591 ) (64,100 ) (43,999 )
------------------------------------------------------
Treasury stock:
Balance at beginning of
period (2,666 ) (3,592 ) (2,666 )
Acquisition of treasury
stock (916 ) (1,219 ) (926 )
------------------------------------------------------
Balance at end of period (3,582 ) (4,811 ) (3,592 )
------------------------------------------------------
Total stockholders' equity �603,934 �564,595 �583,927
------------------------------------------------------
Disclosure of comprehensive
income (loss):
Net income (loss) for the
period �1,832 �4,645 �(25,771 )
Other comprehensive income
(loss) for the period, net
of tax (Note 4) (30,740 ) (20,101 ) (19,148 )
------------------------------------------------------
Total comprehensive income
(loss) for the period �(28,908 ) �(15,456 ) �(44,919 )
------------------------------------------------------
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See accompanying notes to consolidated financial statements.
-5-
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Consolidated statements of cash flows (Unaudited)
Yen (Millions)
------------------------------------------------------
Six months ended Six months ended
September 30, September 30, Year ended March
2001 2002 31, 2002
------------------------------------------------------
Cash flows from operating
activities:
Net income (loss) �1,832 �4,645 �(25,771 )
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depreciation and
amortization 29,062 28,503 61,920
Loss on disposal of
property and equipment 226 2,441 6,436
Deferred income taxes (5,363 ) 2,533 (13,797 )
Loss (gain) on securities (117 ) 949 207
Changes in assets and
liabilities:
Decrease in trade
receivables 24,980 306 18,517
Decrease (increase) in
inventories (3,218 ) 4,616 28,776
Increase (decrease) in
trade payables (13,874 ) 5,451 (14,806 )
Increase (decrease) in
income taxes (16,838 ) 62 (17,181 )
Other - net 5,752 (5,436 ) (2,797 )
------------------------------------------------------
Net cash provided by
operating activities 22,442 44,070 41,504
------------------------------------------------------
Cash flows from investing
activities:
Capital expenditures (38,094 ) (14,472 ) (58,777 )
Proceeds from sale of
investments 326 11 323
Payment for purchase of
investments (1,859 ) (30 ) (3,116 )
Other - net 2,568 1,146 3,667
------------------------------------------------------
Net cash used in
investing activities (37,059 ) (13,345 ) (57,903 )
------------------------------------------------------
Cash flows from financing
activities:
Proceeds from long-term
debt 46 35 46
Repayment of long-term debt (459 ) (439 ) (777 )
Decrease in short-term debt (1,973 ) (60 ) (3,568 )
Payment to acquire treasury
stock (916 ) (1,219 ) (926 )
Dividends paid (3,991 ) (2,657 ) (7,977 )
------------------------------------------------------
Net cash used in
financing activities (7,293 ) (4,340 ) (13,202 )
------------------------------------------------------
Effect of exchange rate
changes on cash and cash
equivalents (2,298 ) (4,324 ) 4,445
------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (24,208 ) 22,061 (25,156 )
Cash and cash equivalents
at beginning of period 150,917 125,761 150,917
------------------------------------------------------
Cash and cash equivalents
at end of period �126,709 �147,822 �125,761
------------------------------------------------------
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See accompanying notes to consolidated financial statements.
-6-
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Summary of Significant Accounting Policies
(a) Financial Statements
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America. The consolidated financial statements include the accounts of TDK
and all its subsidiaries.
The segment information is presented in accordance with the accounting
principles generally accepted in Japan. The segment information required to be
disclosed in financial statements under accounting principles generally
accepted in the United States of America is not presented in the accompanying
consolidated financial statements.
In the opinion of management, all adjustments necessary for a fair
presentation have been included. The results of operations for interim periods
are not necessarily indicative of the operating results which may be expected
for any other interim period or for the year. For further information, refer to
the March 31, 2002 consolidated financial statements and notes thereto included
in TDK Corporation and Subsidiaries Annual Report 2002. Consolidated financial
statements ended March 31, 2002 are audited while consolidated financial
statements ended September 30, 2001 and 2002 are unaudited.
(b) Consolidation Policy
The consolidated financial statements include the accounts of TDK and its
subsidiaries. The investments in affiliates in which TDK's ownership is twenty
percent (20%) to fifty percent (50%) are accounted for by the equity method.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
(c) Cash Equivalents
Cash equivalents include all highly liquid debt instruments purchased with
an original maturity of three months or less.
(d) Marketable Securities
TDK classifies its debt and equity securities into one of three
categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near term. Held-to-maturity securities are those securities in which TDK
has the ability and intent to hold the security until maturity. All securities
not included in trading or held-to-maturity are classified as
available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains
and losses on trading securities are included in earnings. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of other comprehensive income until realized.
(e) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally by the average method.
(f) Depreciation
Depreciation of property, plant and equipment is principally computed by
the declining-balance method for assets located in Japan and for certain
foreign subsidiaries and by the straight-line method for assets of other
foreign subsidiaries based on the following estimated useful lives:
Buildings 3 to 60 years
Machinery and equipment 2 to 22 years
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
(h) Retirement and Severance Benefits
TDK accounts for and provides disclosures about its defined benefit
pension and retirement plans in accordance with Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for Pensions" and with
Statement of Financial Accounting
-7-
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Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits".
(i) Advertising Costs
Advertising costs are expensed as incurred.
(j) Foreign Currency Translation
The assets and liabilities of TDK's subsidiaries located outside Japan are
translated into Japanese yen at the rates of exchange prevailing at the balance
sheet date. Revenue and expense items are translated at the average exchange
rate during the year.
(k) Use of Estimates
Management of TDK has made a number of estimates and assumptions relating
to the reporting of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles in the
United States of America. Actual results could differ from those estimates.
(l) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
TDK's long-lived assets and certain identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows (undiscounted and without interest charges) expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
(m) Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations",
and Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill
and Other Intangible Assets". SFAS 141 requires the use of the purchase method
of accounting for business combinations. SFAS 141 also specifies the types of
acquired intangible assets that are required to be recognized and reported
separately from goodwill and those acquired intangible assets that are required
to be included in goodwill. Under SFAS 142 goodwill is no longer amortized, but
instead is tested for impairment at least annually. Intangible assets are
amortized over their respective estimated useful lives and reviewed for
impairment in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". Any recognized intangible asset determined to have
an indefinite useful life will not be amortized, but instead is tested for
impairment until its life is determined to no longer be indefinite.
TDK adopted early the provisions of SFAS 142 on April 1, 2001.
(n) Derivative Financial Instruments
TDK and certain of its subsidiaries use derivative financial instruments,
such as currency swaps, currency option contracts and forward foreign exchange
contracts, to limit their exposure to fluctuations in foreign exchange rates
and interest rates.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities". In June 2000, the Financial Accounting
Standards Board also issued Statement of Financial Accounting Standards No. 138
("SFAS 138"), "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133". Both standards
establish accounting and reporting standards for derivative instruments and for
hedging activities, and require that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. SFAS 133, as amended, and 138 are effective for fiscal years
beginning after June 15, 2000. TDK adopted SFAS 133 and 138 as of April 1,
2001. The cumulative effect adjustment upon the adoption of SFAS 133 and 138,
net of the related income tax effect, resulted in a decrease to other
comprehensive income of approximately �90 million. This amount was reclassified
from other comprehensive income to earnings during the year ended March 31,
2002. TDK has not elected to apply hedge accounting subsequent to the adoption
of SFAS 133 and 138, and changes in the fair value of derivatives are
recognized in earnings in the period of the changes.
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(o) Net Income per Share
Basic net income per share has been computed by dividing net income
available to common stockholders by the weighted-average number of common
shares outstanding during each year. Diluted net income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or any other
arrangement resulted in the issuance of common stock that participates in
distribution of income of TDK.
(p) Revenue Recognition
TDK recognizes revenue when persuasive evidence of an arrangement
including title transfer exists, delivery has occurred, the sales price is
fixed or determinable, and collectibility is probable.
(q) Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)
In May 2000, the Emerging Issues Task Force reached a final consensus on
Issue 00-14 ("EITF 00-14"), "Accounting for Certain Sales Incentives". EITF
00-14 addresses accounting and reporting standards for sales incentives such as
coupons or rebates that are provided by vendors or manufacturers and are
exercisable by customers at the point of sale.
In April 2001, the Emerging Issues Task Force also reached a final
consensus on a portion of Issue 00-25 ("EITF 00-25"), "Vendor Income Statement
Characterization of Consideration to a Purchaser of the Vendor's Products or
Services". EITF 00-25 addresses the income statement characterization of
consideration, other than that directly addressed in EITF 00-14, from a vendor
(typically a manufacturer or distributor) to a customer (typically a retailer
or wholesaler) in connection with the sale to the customer of the vendor's
products or promotion of sales of the vendor's products by the customer.
In November 2001, EITF 00-14 and EITF 00-25 were subsequently codified in
and superseded by Issue 01-9 ("EITF 01-9"), "Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor's Products)" on
which the Emerging Issues Task Force reached a final consensus. TDK adopted
EITF 01-9 on April 1, 2002. The adoption of EITF 01-9 did not have a material
effect on TDK's consolidated financial position or results of operations.
(r) Accounting for the Impairment of Disposal of Long-Lived Assets
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supersedes both Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
and the accounting and reporting provisions of APB Opinion No. 30 ("Opinion
30"), "Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions", for the disposal of a segment of a business
(as previously defined in that Opinion). SFAS 144 retains the fundamental
provisions in SFAS 121 for recognizing and measuring impairment losses on
long-lived assets held for use and long-lived assets to be disposed of by sale,
while also resolving significant implementation issues associated with SFAS
121. TDK adopted the provision of SFAS 144 on April 1, 2002. Adoption of SFAS
144 did not have a material effect on TDK's consolidated financial position or
results of operations.
(s) New Accounting Standards Not Yet Adopted
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset
Retirement Obligations". SFAS 143 applies to legal obligations associated with
the retirement of long-lived assets that result from the acquisition,
construction, development and (or) the normal operation of a long-lived assets,
except for certain obligations of lessees. SFAS 143 requires that the fair
value of liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset and subsequently allocated to expense
over the asset's useful life. TDK is required to adopt the provisions of SFAS
143 on April 1, 2003. Currently, the effect on TDK's consolidated financial
statements of adopting SFAS 143 has not been determined.
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In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". The provisions of SFAS
146 are effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. Currently, the effect on
TDK's consolidated financial statements of adopting SFAS 146 has not been
determined.
2. Marketable Securities and Investments and Advances
Marketable securities and investments and advances consist of
available-for-sale securities. Information with respect to such securities at
September 30, 2001 and 2002, and at March 31, 2002, are as follows:
September 30, 2001
Gross Gross
Unrealized Unrealized
Holding Holding
Yen (Millions): Cost Gains Losses Fair Value
---------------------------------------------------
Investments and advances:
�
Equity securities 3,695 99 435 3,359
Debt securities 2,864 32 - 2,896
---------------------------------------------------
�
6,559 131 435 6,255
---------------------------------------------------
September 30, 2002
Gross Gross
Unrealized Unrealized
Holding Holding
Yen (Millions): Cost Gains Losses Fair Value
----------------------------------------------------
Investments and advances:
�
Equity securities 5,766 150 2,622 3,294
Debt securities 3,287 12 - 3,299
----------------------------------------------------
�
9,053 162 2,622 6,593
----------------------------------------------------
March 31, 2002
Gross Gross
Unrealized Unrealized
Holding Holding
Yen (Millions): Cost Gains Losses Fair Value
-------------------------------------------------
Investments and advances:
�
Equity securities 4,389 596 - 4,985
Debt securities 3,274 24 - 3,298
-------------------------------------------------
�
7,663 620 - 8,283
-------------------------------------------------
3. Legal Reserve and Dividends
Cash dividends and appropriations to the legal reserve charged to retained
earnings during the periods represent dividends paid out during the periods and
related appropriations to the legal reserve. The accompanying consolidated
financial statements do not include any provision for the dividend proposed by
the Board of Directors of �25 per share aggregating �3,316 million in respect
of the six months ended September 30, 2002, or for the related appropriation to
the legal reserve.
Cash dividends per common share are computed based on dividends paid for
each period presented.
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4. Other Comprehensive Income (Loss)
Change in accumulated other comprehensive income (loss) for the six months
ended September 30, 2001 and 2002, and the year ended March 31, 2002, are as
follows:
Yen (Millions)
-----------------------------------------------------------
September 30, 2001 September 30, 2002 March 31, 2002
-------------------------------------------------------------------------------
Foreign currency translation adjustments:
Balance at beginning of � �
period (23,798 ) �(7,773 ) (23,798 )
Adjustments for period (7,457 ) (15,542 ) 16,025
-----------------------------------------------------------
Balance at end of period (31,255 ) (23,315 ) (7,773 )
-----------------------------------------------------------
Net unrealized gains
(losses) on securities:
Balance at beginning of
period (329 ) 379 (329 )
Adjustments for period 128 (1,959 ) 708
-----------------------------------------------------------
Balance at end of period (201 ) (1,580 ) 379
-----------------------------------------------------------
Minimum pension liability
adjustments:
Balance at beginning of
period (724 ) (36,605 ) (724 )
Adjustments for period (23,411 ) (2,600 ) (35,881 )
-----------------------------------------------------------
Balance at end of period (24,135 ) (39,205 ) (36,605 )
-----------------------------------------------------------
Total accumulated other
comprehensive income
(loss):
Balance at beginning of
period (24,851 ) (43,999 ) (24,851 )
Adjustments for period (30,740 ) (20,101 ) (19,148 )
-----------------------------------------------------------
� � �
Balance at end of period (55,591 ) (64,100 ) (43,999 )
-----------------------------------------------------------
5. Leases
TDK and its subsidiaries occupy offices and other facilities under various
cancellable lease agreements expiring in fiscal 2003 through 2004. Lease
deposits made under such agreements, aggregating �1,952 million and �1,856
million at September 30, 2001 and 2002, respectively, and �1,896 million at
March 31, 2002, are included in investments and advances on the accompanying
consolidated balance sheets.
The followings are schedules of future minimum rental payments required
under operating leases that have initial or remaining noncancellable lease
terms in excess of one year as of September 30, 2001 and 2002, and March 31,
2002:
Yen (Millions)
------------------------------------------------------------
September 30, 2001 September 30, 2002 March 31, 2002
------------------------------------------------------------
Less 1 year �3,535 �4,402 �4,968
Over 1 year 8,477 8,697 9,990
-------------------------------------------------------------------------------
� � �
Total 12,012 13,099 14,958
-------------------------------------------------------------------------------
6. Contingent Liabilities
Contingent liabilities for guarantees of loans of TDK's employees and
affiliates at September 30, 2001 and 2002, and March 31, 2002, are as follows:
Yen (Millions)
--------------------------------------------------------
September 30, 2001 September 30, 2002 March 31, 2002
--------------------------------------------------------
Contingent liabilities
for guarantees of loans
of TDK's employees and � � �
affiliates 8,426 7,485 8,224
-------------------------------------------------------------------------------
Several claims and legal actions against TDK and certain subsidiaries are
pending. Provisions have been made for the estimated liabilities for certain
items. In the opinion of management based upon discussion with counsel, any
additional liability will not materially affect the consolidated financial
position and results of operations of TDK.
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7. Risk Management Activities and Derivative Financial Instruments
TDK and its subsidiaries operate internationally which exposes them to the
risk of changes in foreign exchange rates and interest rates, and therefore it
utilizes derivative financial instruments to reduce these risks. TDK and its
subsidiaries do not hold or issue financial instruments for trading purposes.
TDK is exposed to credit related losses in the event of nonperformance by the
counterparties to those financial instruments, but does not expect any
counterparties to fail in meeting their obligations given their high credit
ratings. The credit exposure of currency swaps, interest rate and currency
swaps, interest rate swaps, forward foreign exchange contracts and currency
option contracts are represented by the fair values of contracts with a
positive fair value at the reporting date.
TDK and one of its subsidiaries have currency swaps and interest rate and
currency swaps with certain financial institutions to limit their exposure to
fluctuations in foreign exchange rates and interest rates involved mainly in
loans made by TDK to its subsidiaries. Gains or losses on currency swaps are
included in interest expenses, other income or other deductions in the
consolidated statements of income. The swap contracts are measured at fair
value and are included in prepaid expenses and other current assets or other
current liabilities, as the case may be, in the consolidated balance sheets.
Forward exchange contracts and currency option contracts have been entered
into to hedge adverse effects of foreign currency exchange rate fluctuations
mainly on foreign-currency-denominated trade receivables and
foreign-currency-denominated forecasted transactions.
TDK and certain subsidiaries had forward exchange contracts to sell and
buy foreign currencies at September 30, 2001 and 2002, and at March 31, 2002.
Written foreign currency option contracts are entered into in combination
with purchased option contracts to offset premium amounts to be paid for
purchased option contracts. Notional amounts, exercise dates and exercise
prices of both written and purchased contracts are the same. All foreign
currency option contracts and forward exchange contracts are measured at their
fair values by recognizing a foreign exchange gain or loss on the consolidated
statements of income, and such gains or losses are included in prepaid expenses
and other current assets or other current liabilities, as the case may be, in
the consolidated balance sheet.
The contract amounts, carrying amounts and estimated fair values of TDK's
financial instruments at September 30, 2001 and 2002, and at March 31, 2002,
are summarized as follows:
Yen (Millions)
-----------------------------------------
September 30, 2001 Contract Carrying Estimated
amount amount fair value
-------------------------------------------------------------------------------
� �
Forward foreign exchange contracts 34,336 358 �358
-------------------------------------------------------------------------------
Currency option contracts
Purchased 123 (1 ) (1 )
Written 1,661 (1 ) (1 )
-------------------------------------------------------------------------------
Currency swap agreements and
interest rate and currency swap
agreements for loans to its
subsidiaries 18,406 (68 ) (68 )
-------------------------------------------------------------------------------
Yen (Millions)
--------------------------------------
September 30, 2002 Contract Carrying Estimated
amount amount fair value
-----------------------------------------------------------------------------
� �
Forward foreign exchange contracts 17,549 (84) � (84)
-----------------------------------------------------------------------------
Currency swap agreements and
interest rate and currency swap
agreements for loans to its
subsidiaries 13,613 (48 ) (48 )
-----------------------------------------------------------------------------
-12-
-------------------------------------------------------------------------------
Yen (Millions)
-----------------------------------
March 31, 2002 Contract Carrying Estimated
amount amount fair value
-------------------------------------------------------------------------------
Forward foreign exchange contracts �7,577 �(59 ) �(59 )
-------------------------------------------------------------------------------
Currency swap agreements and interest rate
and currency swap agreements for loans to
its subsidiaries 13,269 (315 ) (315 )
-------------------------------------------------------------------------------
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
8. Goodwill and Other Intangible Assets
Under Statement of Financial Accounting Standards No. 142 ("SFAS 142"),
"Goodwill and Other Intangible Assets", goodwill is no longer amortized but is
reviewed for impairment annually, or more frequently if certain indicators
arise. In addition, the statement requires reassessment of the useful lives of
previously recognized intangible assets. With the adoption of SFAS 142, TDK
ceased amortization of goodwill as of April 1, 2001. As of March 31, 2002, TDK
completed a goodwill impairment test. No impairment was indicated at that time.
The components of acquired intangible assets excluding goodwill at
September 30, 2001, September 30, 2002 and March 31, 2002, are as follows:
Yen (Millions)
-------------------------------------------------------------------------------
September 30, 2001 September 30, 2002 March 31, 2002
-------------------------------------------------------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization Amount Amortization
-------------------------------------------------------------------------------
Amortized
intangible
assets:
Software �5,907 2,249 �6,535 2,892 �6,401 2,672
Other 3,403 975 3,326 1,122 4,032 1,376
-------------------------------------------------------------------------------
Total 9,310 3,224 9,861 4,014 10,433 4,048
-------------------------------------------------------------------------------
Unamortized
intangible
assets �1,686 �949 �880
-------------------------------------------------------------------------------
Aggregate amortization expense for the six months ended September 30, 2001 and
2002 are �754 million and �738 million, respectively and for the year ended
March 31, 2002 is �1,394 million. Estimated amortization expense for the next
five years is: �720 million in the 2nd half of 2003, �1,266 million in 2004, �
882 million in 2005, �693 million in 2006, and �320 million in 2007.
-13-
-------------------------------------------------------------------------------
The changes in the carrying amount of goodwill by segment for the six
months ended September 30, 2001 and 2002, and the year ended March 31, 2002 are
as follows:
Yen (Millions)
-----------------------------------------------------
Electronic
materials and Recording media
components and systems Total
-----------------------------------------------------
� �
Balance as of April 1, 2001 11,002 �497 11,499
Goodwill acquired during
period 66 - 66
Impairment losses - - -
Goodwill written off related
to sale of business unit - - -
Translation adjustment (735 ) - (735 )
-----------------------------------------------------
Balance as of September 30, � �
2001 10,333 �497 10,830
-----------------------------------------------------
Yen (Millions)
-----------------------------------------------------
Electronic
materials and Recording media
components and systems Total
-----------------------------------------------------
� �
Balance as of March 31, 2002 11,003 �497 11,500
Goodwill acquired during
period - - -
Impairment losses - - -
Goodwill written off related
to sale of business unit - - -
Translation adjustment (788 ) - (788 )
-----------------------------------------------------
Balance as of September 30, � �
2002 10,215 �497 10,712
-----------------------------------------------------
Yen (Millions)
-----------------------------------------------------
Electronic
materials and Recording media
components and systems Total
-----------------------------------------------------
� �
Balance as of April 1, 2001 11,002 �497 11,499
Goodwill acquired during year 106 - 106
Impairment losses - - -
Goodwill written off related
to sale of business unit - - -
Translation adjustment (105 ) - (105 )
-----------------------------------------------------
� �
Balance as of March 31, 2002 11,003 �497 11,500
-----------------------------------------------------
9. Supplementary Information
Yen (Millions)
------------------------------------------------------------
Six months ended Six months ended Year ended March
September 30, 2001 September 30, 2002 31, 2002
------------------------------------------------------------
(a) Statement of Income
Research and � � �
development 19,065 15,649 38,630
Rent 5,435 4,830 11,538
Maintenance and
repairs 5,836 5,514 11,437
Advertising costs 4,618 2,684 10,489
-------------------------------------------------------------------------------
(b) Statement of Cash
Flows
Cash paid during six
months for:
Interest �673 �193 �1,162
� � �
Income taxes 19,830 (6,239 ) 22,026
-------------------------------------------------------------------------------
Noncash activities
There were no material noncash investing and financing activities.
-14-
-------------------------------------------------------------------------------
10. Segment Information
(a) Industry segment information
Six months ended September 30, 2001
Yen (Millions)
---------------------------------------------------------------------------
Electronic Recording Eliminations
materials & media & and
component systems Sub total corporate Total
-------------------------------------------------------------------------------
Net sales
Unaffiliated � � � �
customers 209,607 61,179 270,786 - 270,786
Intersegment - - - - -
---------------------------------------------------------------------------
Total 209,607 61,179 270,786 - 270,786
---------------------------------------------------------------------------
Operating
expenses 210,329 63,268 273,597 - 273,597
---------------------------------------------------------------------------
Operating �
income (loss) �(722 ) (2,089 ) �(2,811 ) - �(2,811 )
-------------------------------------------------------------------------------
Six months ended September 30, 2002
Yen (Millions)
---------------------------------------------------------------------------
Electronic Recording Eliminations
materials & media & and
components systems Sub total corporate Total
-------------------------------------------------------------------------------
Net sales
Unaffiliated � � � �
customers 234,272 62,108 296,380 - 296,380
Intersegment - - - - -
---------------------------------------------------------------------------
Total 234,272 62,108 296,380 - 296,380
---------------------------------------------------------------------------
Operating expenses 223,557 62,804 286,361 - 286,361
---------------------------------------------------------------------------
Operating income
(loss) �10,715 �(696 ) �10,019 - �10,019
-------------------------------------------------------------------------------
Year ended March 31, 2002
Yen (Millions)
-----------------------------------------------------------------------------
Electronic Recording Eliminations
materials & media & and
components systems Sub total corporate Total
-------------------------------------------------------------------------------
Net sales
Unaffiliated � � � �
customers 432,886 137,625 570,511 - 570,511
Intersegment - - - - -
-----------------------------------------------------------------------------
Total 432,886 137,625 570,511 - 570,511
-----------------------------------------------------------------------------
Operating expenses 469,232 145,001 614,233 - 614,233
-----------------------------------------------------------------------------
Operating income � � �
(loss) (36,346 ) �(7,376 ) (43,722 ) - (43,722 )
-------------------------------------------------------------------------------
(Notes) 1. Segment classification
Segments are classified by the similarity of the
product, the product's character, the manufacturing method
and the selling market.
2. Principal products in each segment
Electronic materials & components:
Ferrite cores, Ceramic capacitors, High-frequency
components, Inductors, GMR heads and Semiconductors
Recording media & systems:
Audio tapes, Video tapes, CD-Rs, MDs, DVDs and PC cards
-15-
-------------------------------------------------------------------------------
3. TDK adopted the Emerging Issues Task Force Issue 01-9 ("EITF
01-9"), "Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor's Products)" from the
fiscal year beginning April 1, 2002 and the prior year's
consolidated financial statements have been restated for the
change, accordingly.
(b) Geographic segment information
Six months ended September 30, 2001
Yen (Millions)
---------------------------------------------------------------------------
Asia and Eliminations
Japan Americas Europe others Sub total and corporate Total
---------------------------------------------------------------------------
Net sales
Unaffiliated �
customers �92,204 �41,558 36,243 �100,781 �270,786 - �270,786
Intersegment 74,923 6,102 1,258 22,539 104,822 (104,822) -
---------------------------------------------------------------------------
Total 167,127 47,660 37,501 123,320 375,608 (104,822) 270,786
---------------------------------------------------------------------------
Operating expenses 166,389 52,588 38,373 123,315 380,665 (107,068) 273,597
---------------------------------------------------------------------------
Operating income
(loss) �738 �(4,928) �(872) �5 �(5,057) �2,246 �(2,811)
---------------------------------------------------------------------------
Six months ended September 30, 2002
Yen (Millions)
------------------------------------------------------------------------------
Asia and Eliminations
Japan Americas Europe others Sub total and corporate Total
-------------------------------------------------------------------------------
Net sales
Unaffiliated �
customers �90,338 �43,019 �33,507 �129,516 �296,380 - 296,380
Intersegment 83,557 7,919 655 19,471 111,602 (111,602) -
------------------------------------------------------------------------------
Total 173,895 50,938 34,162 148,987 407,982 (111,602) 296,380
------------------------------------------------------------------------------
Operating expenses 171,231 51,247 36,457 139,117 398,052 (111,691) 286,361
------------------------------------------------------------------------------
Operating income
(loss) �2,664 �(309) �(2,295) �9,870 �9,930 �89 �10,019
-------------------------------------------------------------------------------
-16-
-------------------------------------------------------------------------------
Year ended March 31, 2002
Yen (Millions)
-------------------------------------------------------------------------------
Asia and Eliminations
Japan Americas Europe others Sub total and corporate Total
-------------------------------------------------------------------------------
Net sales
Unaffiliated
customers �178,771 �86,808 �76,604 �228,328 �570,511 - �570,511
Intersegment 149,443 15,102 2,337 40,036 206,918 (206,918) -
-------------------------------------------------------------------------------
Total 328,214 101,910 78,941 268,364 777,429 (206,918) 570,511
-------------------------------------------------------------------------------
Operating expenses 361,466 114,622 82,125 266,664 824,877 (210,644) 614,233
-------------------------------------------------------------------------------
Operating income
(loss) �(33,252) �(12,712) �(3,184) �1,700 �(47,448) �3,726 �(43,722)
-------------------------------------------------------------------------------
(Notes) 1. Geographic segments are based on the location of the seller.
2. Principal nations in each geographic segment excluding Japan:
Americas: United States of America
Europe: Luxembourg, Germany
Asia and others: Hong Kong, Taiwan, and Singapore
3. TDK adopted the Emerging Issues Task Force Issue 01-9 ("EITF
01-9"), "Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor's Products)" from
the fiscal year beginning April 1, 2002 and the prior year's
consolidated financial statements have been restated for the
change, accordingly.
(c) Overseas sales
Six months ended September 30, 2001
Yen (Millions)
-----------------------------------------------------------
Americas Europe Asia and others Total
-------------------------------------------------------------------------------
� � �
Sales by region 50,463 37,817 �97,336 185,616
Net sales 270,786
Ratio to overseas sales
of net sales (%) 18.6 14.0 35.9 68.5
-------------------------------------------------------------------------------
Six months ended September 30, 2002
Yen (Millions)
-----------------------------------------------------------
Americas Europe Asia and others Total
-------------------------------------------------------------------------------
� � � �
Sales by region 56,294 34,368 121,429 212,091
Net sales 296,380
Ratio to overseas
sales of net sales (%) 19.0 11.6 41.0 71.6
-------------------------------------------------------------------------------
-17-
-------------------------------------------------------------------------------
Year ended March 31, 2002
Yen (Millions)
------------------------------------------------------------
Americas Europe Asia and others Total
-------------------------------------------------------------------------------
� � � �
Sales by region 109,452 79,639 216,616 405,707
Net sales 570,511
Ratio to overseas sales
of net sales (%) 19.2 13.9 38.0 71.1
-------------------------------------------------------------------------------
(Notes) 1. Overseas sales are classified by the geographic areas of the
buyer.
2. Principal nations in each region excluding Japan:
Americas: United States of America
Europe: Germany, United Kingdom, and France
Asia and others: Singapore, Hong Kong, and Malaysia
3. Overseas sales are net sales of TDK and its consolidated
subsidiaries in the countries and regions other than Japan.
4. TDK adopted the Emerging Issues Task Force Issue 01-9 ("EITF
01-9"), "Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor's Products)" from
the fiscal year beginning April 1, 2002 and the prior year's
consolidated financial statements have been restated for the
change, accordingly.
-18-
END
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