Interim Consolidated Financial Statements for the six-month-period ended
September 30, 2003 (in English)
On December 15, 2003, this report in the Japanese version was filed with the
Director of the Kanto Local Finance Bureau of the Ministry of Finance pursuant
to the Securities and Exchange Law of Japan.
Consolidated balance sheets (Unaudited)
Yen (Millions)
September 30, September 30, March 31,
ASSETS 2002 2003 2003
Current assets:
Cash and cash equivalents �147,822 �193,406 �170,551
Trade receivables:
Notes 8,178 6,610 7,750
Accounts 132,918 137,415 135,123
Allowance for doubtful receivables (3,300) (2,682) (2,850)
Net trade receivables 137,796 141,343 140,023
Inventories 83,714 77,663 73,917
Income taxes receivables 1,889 2,667 2,765
Prepaid expenses and other current 35,079 31,245 33,706
assets
Total current assets 406,300 446,324 420,962
Investments (Note 2) 14,737 16,791 18,722
Property, plant and equipment, at cost:
Land 23,611 20,622 21,284
Buildings 180,385 175,950 178,959
Machinery and equipment 496,859 488,427 489,131
Construction in progress 8,989 7,629 9,362
709,844 692,628 698,736
Less accumulated depreciation 465,804 475,958 472,829
Net property, plant and equipment 244,040 216,670 225,907
Goodwill (Note 8) 10,712 11,316 14,131
Intangible assets (Note 8) 6,796 15,977 16,418
Deferred income taxes 36,021 36,935 43,948
Other assets (Note 5) 9,068 6,702 7,249
�727,674 �750,715 �747,337
See accompanying notes to consolidated financial statements.
Yen (Millions)
September September March
30, 30, 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
2002 2003 2003
Current liabilities:
Short-term debt �1,463 �1,338 �1,431
Current installments of long-term debt 371 282 488
Trade payables:
Notes 663 617 824
Accounts 55,233 59,837 56,136
Accrued salaries and wages 12,452 13,489 11,483
Accrued expenses 20,579 24,277 28,088
Income taxes payables 2,484 2,163 1,057
Other current liabilities 6,438 7,833 5,507
Total current liabilities 99,683 109,836 105,014
Long-term debt, excluding current installments 255 165 94
Retirement and severance benefits 58,318 75,811 84,971
Deferred income taxes 398 13 13
Total liabilities 158,654 185,825 190,092
Minority interests 4,425 3,228 3,360
Stockholders' equity:
Common stock
Authorized 480,000,000 shares;
Issued 133,189,659 shares at September
30, 2002 and 2003,
and March 31, 2003 32,641 32,641 32,641
Additional paid-in capital 63,051 63,051 63,051
Legal reserve (Note 3) 15,955 16,494 15,953
Retained earnings (Note 3) 521,859 541,295 525,919
Accumulated other comprehensive income (loss)
(Note 4) (64,100) (85,204) (78,824)
Treasury stock at cost;
555,567 shares at September 30,
2002,
814,102 shares at September 30, 2003
and
564,475 shares at March 31, 2003 (4,811) (6,615) (4,855)
Total stockholders' equity 564,595 561,662 553,885
�727,674 �750,715 �747,337
Consolidated statements of income (Unaudited)
Yen (Millions)
Six months Six months Year
ended ended ended
September 30, September 30, March 31,
2002 2003 2003
Net sales �296,380 �316,279 �608,880
Cost of sales 223,738 227,919 459,616
Gross profit 72,642 88,360 149,264
Selling, general and administrative 62,623 64,340 127,184
expenses
Operating income 10,019 24,020 22,080
Other income (deductions):
Interest and dividend income 708 655 1,379
Patent infringement settlement
income - 2,012 -
Equity income of affiliates 204 1,372 361
Interest expense (198) (212) (577)
Loss on securities (net of gain) (949) (1,068) (3,298)
Foreign exchange gain (loss) (1,699) (2,037) (1,482)
Other - net (449) 272 (382)
(2,383) 994 (3,999)
Income before income taxes 7,636 25,014 18,081
Income taxes:
Current 223 3,017 995
Deferred 2,533 2,494 4,301
2,756 5,511 5,296
Income before minority interests 4,880 19,503 12,785
Minority interests (235) (246) (766)
Net income �4,645 �19,257 �12,019
Amounts per share:
Yen (except number of common shares
outstanding)
Basic net income per share �34.98 �145.27 �90.56
Diluted net income per share 34.98 145.27 90.56
Weighted average basic and diluted common
shares
outstanding (in thousands) 132,802 132,559 132,716
Cash dividends paid (Note 3) �20.00 �25.00 �45.00
See accompanying notes to consolidated financial statements.
Consolidated statements of stockholders' equity (Unaudited)
Yen (Millions)
Six months Six months Year
ended ended ended
September September March
30, 30, 31,
2002 2003 2003
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 15,683 15,953 15,683
Transferred from retained earnings 272 541 270
Balance at end of period 15,955 16,494 15,953
Retained earnings (Note 3):
Balance at beginning of period 520,143 525,919 520,143
Net income 4,645 19,257 12,019
Cash dividends (2,657) (3,316) (5,973)
Losses on sales of treasury stock - (24) -
Transferred to legal reserve (272) (541) (270)
Balance at end of period 521,859 541,295 525,919
Accumulated other comprehensive income
(loss) (Note 4):
Balance at beginning of period (43,999) (78,824) (43,999)
Other comprehensive income (loss)
for
the period, net of tax (20,101) (6,380) (34,825)
Balance at end of period (64,100) (85,204) (78,824)
Treasury stock:
Balance at beginning of period (3,592) (4,855) (3,592)
Acquisition of treasury stock (1,219) (1,854) (1,263)
Exercise of stock option - 94 -
Balance at end of period (4,811) (6,615) (4,855)
Total stockholders' equity �564,595 �561,662 �553,885
Disclosure of comprehensive income (loss):
Net income for the period �4,645 �19,257 �12,019
Other comprehensive income (loss) for the
period, net of tax (Note 4) (20,101) (6,380) (34,825)
Total comprehensive income (loss) for the
period �(22,806
�(15,456) �12,877 )
See accompanying notes to consolidated financial statements.
Consolidated statements of cash flows (Unaudited)
Yen (Millions)
Six months Six months Year
ended ended ended
September September March
30, 30, 31,
2002 2003 2003
Cash flows from operating activities:
Net income �4,645 �19,257 �12,019
Adjustments to reconcile net income to
net cash provided
by operating activities:
Depreciation and amortization 28,503 23,642 57,789
Loss on disposal of property and
equipment 2,441 1,231 4,845
Deferred income taxes 2,533 2,494 4,301
Loss on securities (net of gain) 949 1,068 3,298
Changes in assets and liabilities:
Decrease (increase) in trade
receivables 306 (6,860) (2,256)
Decrease (increase) in inventories 4,616 (6,323) 14,277
Increase in prepaid expenses and
other current assets (3,822) (277) (4,744)
Increase in trade payables 5,451 6,411 6,691
Increase in accrued salaries and
wages 1,697 2,006 236
Decrease in accrued expenses (14,257) (2,358) (6,207)
Increase (decrease) in income taxes
payables, net 5,865 2,072 2,265
Increase in other current
liabilities 644 2,667 1,725
Increase in retirement and
severance benefits 3,644 4,377 7,639
Other - net 855 2,624 2,480
Net cash provided by operating
activities 44,070 52,031 104,358
Cash flows from investing activities:
Capital expenditures (14,472) (20,826) (41,451)
Proceeds from sales and maturities of 11 1,830 1,511
investments
Payment for purchase of investments (30) (96) (7,306)
Other - net 1,146 557 601
Net cash used in investing
activities (13,345) (18,535) (46,645)
Cash flows from financing activities:
Proceeds from long-term debt 35 35 211
Repayment of long-term debt (439) (212) (646)
Increase (decrease) in short-term debt, (60) (15) (254)
net
Sale (purchase) of treasury stock, net (1,219) (1,784) (1,263)
Dividends paid (2,657) (3,316) (5,973)
Net cash used in financing
activities (4,340) (5,292) (7,925)
Effect of exchange rate changes on cash
and cash
equivalents (4,324) (5,349) (4,998)
Net increase in cash and cash equivalents 22,061 22,855 44,790
Cash and cash equivalents at beginning of 125,761 170,551 125,761
period
Cash and cash equivalents at end of �147,822 �193,406 �170,551
period
See accompanying notes to consolidated financial statements.
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, 2003 consolidated financial statements and notes thereto included in
TDK Corporation and Subsidiaries Annual Report 2003. Consolidated financial
statements ended March 31, 2003 are audited while consolidated financial
statements ended September 30, 2002 and 2003 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 20% to
50% and TDK exercises significant influence over their operating and financial
policies 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 short 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 accumulated 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 of 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.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(h) Stock Option Plan
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation" defines a fair value based method of accounting
for a stock option. SFAS 123 gives an entity a choice of recognizing related
compensation expense by adopting the fair value method or continuing to measure
compensation using the intrinsic value-based method prescribed under Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees", the former standard. As such, stock-based compensation cost is
recognized by TDK only if the market price of the underlying common stock
exceeds the exercise price on the date of grant. TDK chose to use the
measurement prescribed by APB 25, and no compensation cost for the stock option
plan has been incurred in the 1st half of fiscal 2004, and fiscal 2003. The
following table illustrates the effect on net income and net income per share
if the fair-value-based method had been applied to all outstanding and unvested
awards with such costs recognized ratably over the vesting period of the
underlying instruments.
Yen (Millions)
September September March
30, 30, 31,
2002 2003 2003
Net income, as reported �4,645 �19,257 �12,019
Deduct total stock-based employee compensation
expense determined
under fair-value-based method for all awards,
net of tax (91) (129) (241)
Pro forma net income 4,554 19,128 11,778
Yen
Basic and diluted net income per share:
As reported �34.98 �145.27 �90.56
Pro forma 34.29 144.30 88.74
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 148 ("SFAS 148"), "Accounting
for Stock-Based Compensation - Transition and Disclosure", which amends FASB
Statement No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". SFAS
148 provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
more prominent and more frequent disclosures in financial statements about the
effects of stock-based compensation. The transition guidance and annual
disclosure provisions of SFAS 148 are effective for fiscal years ending after
December 15, 2002. The adoption of SFAS 148 had no effect on TDK's consolidated
financial position and results of operations.
(i) Advertising Costs
Advertising costs are expensed as incurred.
(j) Foreign Currency Translation
Foreign currency financial statements have been translated in accordance with
Statement of Financial Accounting Standards No. 52 ("SFAS 52"), "Foreign
Currency Translation". Under SFAS 52, the assets and liabilities of TDK's
subsidiaries located outside Japan are translated into Japanese yen at the
rates of exchange in effect at the balance sheet date. Revenue and expense
items are translated at the average exchange rates prevailing during the
period. Gains and losses resulting from foreign currency transactions are
included in other income (deductions), and those resulting from translation of
financial statements are generally excluded from the statements of income and
are accumulated in stockholders' equity as a component of accumulated other
comprehensive income (loss).
(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 accounting principles generally accepted in the United States
of America. Significant items subject to such estimates and assumptions include
the valuation of intangible assets, property, plant and equipment, trade
receivables, inventories, and deferred income tax assets, and assumptions
related to the estimation of actuarial determined employee benefit obligations.
Actual results could differ from those estimates.
(l) Accounting for the Impairment or 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.
TDK's long-lived assets and certain identifiable intangibles with finite useful
lives 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.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets". 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 conducts its annual impairment test at the end of each fiscal year.
(n) Derivative Financial Instruments
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. 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.
(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 resulted in the
issuance of common stock that then shared in the income of TDK. Stock options
were not included in the calculation of diluted earnings per share as their
effect would be antidilutive for the six months ended September 30, 2002 and
for the year ended March 31, 2003.
(p) Revenue Recognition
TDK recognizes revenue when (i) persuasive evidence of an arrangement exists
which is generally in the form of a purchase order or a signed contract; (ii)
delivery has occurred and title and risk of loss have transferred; (iii) the
sales price is fixed and determinable, and (iv) 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 January 2001, the Emerging Issues Task Force also reached a final consensus
on a portion of Issue 00-22 ("EITF 00-22"), "Accounting for "Points" and
Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for
Free Products or Services to Be Delivered in the Future". EITF 00-22 addresses
accounting and reporting standards for sales incentives such as royalty
programs or rebates that are offered to customers by vendors only if the
customer completes a specified cumulative level of revenue transactions with
the vendor or remains a customer of the vendor for a specified time period.
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. 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.
(r) Accounting for Asset Retirement Obligations
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset
Retirement Obligations", which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
associated asset retirement costs. 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 asset, except for certain obligations of lessees. SFAS 143 requires
that the fair value of a 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 adopted the provisions
of SFAS 143 on April 1, 2003. The adoption of SFAS 143 did not have a material
effect on TDK's consolidated financial positions and results of operations.
(s) Accounting for Costs Associated with Exit or Disposal Activities
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 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. The adoption of SFAS 146 did not have a material effect on
TDK's consolidated financial positions and results of operations.
(t) Guarantor's Accounting and Disclosure Requirements for Guarantees
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others". FIN 45 requires that a liability be recorded in the guarantor's
balance sheet upon issuance of a guarantee. In addition, FIN 45 requires
disclosures about the guarantees that an entity has issued. TDK adopted the
recognition provisions of FIN 45 prospectively to guarantees issued after
December 31, 2002. The disclosure provisions of FIN 45 are effective for
consolidated financial statements as of March 31, 2003. The adoption of FIN 45
did not have a material effect on TDK's consolidated financial positions and
results of operations.
(u) Accounting for Revenue Arrangements with Multiple Deliverables
In November 2002, the Emerging Issues Task Force reached a consensus on Issue
00-21 ("EITF 00-21"), "Accounting for Revenue Arrangements with Multiple
Deliverables". EITF 00-21 provides guidance on when and how to account for
arrangements that involve the delivery or performance of multiple products,
services and/or rights to use assets. TDK adopted EITF 00-21 on July 1, 2003.
The adoption of EITF 00-21 did not have a material effect on TDK's consolidated
financial position and results of operations.
(v) Consolidation of Variable Interest Entities
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities,
an interpretation of ARB No. 51". FIN 46 addresses consolidation by a primary
beneficiary of a variable interest entity ("VIE"). FIN 46 applies immediately
to all new VIEs created or acquired after January 31, 2003, TDK has not entered
into any new arrangements with VIEs after January 31, 2003. For VIEs created or
acquired before February 1, 2003, the provisions of FIN 46 must be adopted by
December 31, 2003. The effect on TDK's consolidated financial statements of
adopting the provisions of FIN 46 has not been determined.
(w) New Accounting Standard Not Yet Adopted
In January 2003, the Emerging Issues Task Force reached a final consensus on
Issue 03-2 ("EITF 03-2"), "Accounting for the Transfer to the Japanese
Government of the Substitutional Portion of Employee Pension Fund Liabilities".
EITF 03-2 addresses accounting for a transfer to the Japanese government of a
substitutional portion of an Employees' Pension Fund ("EPF") plan, which is a
defined benefit pension plan established under the Welfare Pension Insurance
Law. EITF 03-2 requires employers to account for the separation process of the
substitutional portion from the entire EPF plan (which includes a corporation
portion) upon completion of the transfer to the government of the
substitutional portion of the benefit obligation and related plan assets. The
separation process is considered the culmination of a series of steps in a
single settlement transaction. Under this approach, the difference between the
fair value of the obligation and the assets required to be transferred to the
government should be accounted for and separately disclosed as a subsidy. On
September 25, 2003, TDK was approved by the Minister of Health, Labour and
Welfare for an exemption from the obligation to pay benefits for future
employee service related to the substitutional portion of an EPF plan.
2. Investments
Investments include available-for-sale securities. Information with respect to
such securities at September 30, 2002 and 2003, and at March 31, 2003, are as
follows:
September 30, 2002
Cost Gross Gross Fair Value
Unrealized Unrealized
Holding Holding
Yen (Millions):
Gains Losses
Investments:
Equity securities �5,766 150 2,622 3,294
Debt securities 3,287 12 - 3,299
�9,053 162 2,622 6,593
September 30, 2003
Gross Gross Fair Value
Cost
Unrealized Unrealized
Holding Holding
Yen (Millions): Gains Losses
Investments:
Equity securities �1,262 180 13 1,429
Debt securities 1,099 - 2 1,097
�2,361 180 15 2,526
March 31, 2003
Gross Gross Fair Value
Cost
Unrealized Unrealized
Holding Holding
Yen (Millions):
Gains Losses
Investments:
Equity securities �3,384 193 11 3,566
Debt securities 2,495 3 - 2,498
�5,879 196 11 6,064
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 �3,309 million in respect
of the six months ended September 30, 2003, or for the related appropriation to
the legal reserve.
Cash dividends per common share are computed based on dividends paid for each
period presented.
4. Other Comprehensive Income (Loss)
Change in accumulated other comprehensive income (loss) for the six months
ended September 30, 2002 and 2003, and the year ended March 31, 2003, are as
follows:
Yen (Millions)
September 30, September March
30, 31,
2002 2003 2003
Foreign currency translation adjustments:
Balance at beginning of period �(7,773) �(26,520) �(7,773)
Adjustments for period (15,542) (14,709) (18,747)
Balance at end of period (23,315) (41,229) (26,520)
Net unrealized gains (losses) on
securities:
Balance at beginning of period 379 110 379
Adjustments for period (1,959) 33 (269)
Balance at end of period (1,580) 143 110
Minimum pension liability adjustments:
Balance at beginning of period (36,605) (52,414) (36,605)
Adjustments for period (2,600) 8,296 (15,809)
Balance at end of period (39,205) (44,118) (52,414)
Total accumulated other comprehensive
income (loss):
Balance at beginning of period (43,999) (78,824) (43,999)
Adjustments for period (20,101) (6,380) (34,825)
Balance at end of period �
�(64,100) �(85,204) (78,824)
5. Leases
TDK and its subsidiaries occupy offices and other facilities under various
cancellable lease agreements expiring in fiscal 2004 through 2006. Lease
deposits made under such agreements, aggregating �1,856 million and �1,773
million at September 30, 2002 and 2003, respectively, and �1,838 million at
March 31, 2003, are included in other assets on the accompanying consolidated
balance sheets.
The following is a schedule 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, 2002 and 2003, and March 31, 2003:
Yen (Millions)
September 30, September 30, March 31,
2002 2003 2003
Less 1 year �4,402 �3,976 �4,245
Over 1 year 8,697 8,331 8,863
Total �13,099 �12,307 �13,108
6. Contingent Liabilities
Contingent liabilities for guarantees of loans of TDK's employees and
affiliates at September 30, 2002 and 2003, and March 31, 2003, are as follows:
Yen (Millions)
September September March
30, 30, 31,
2002 2003 2003
Contingent liabilities for guarantees of loans of TDK's employees
�
and affiliates �7,485 �6,926 7,247
Several claims and legal actions against TDK and certain subsidiaries are
pending. Provision has 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.
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 utilize
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 to meet their obligations given their high credit
ratings.
TDK and one of its subsidiaries have currency swaps with certain financial
institutions to limit their exposure to fluctuations in foreign exchange rates
involved mainly in loans made by TDK to its subsidiaries. Gains or losses on
currency swaps are included in interest expense, 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 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, 2002 and 2003, and at March 31, 2003.
The contract amounts, carrying amounts and estimated fair values of TDK's
financial instruments at September 30, 2002 and 2003, and at March 31, 2003,
are summarized as follows:
Yen (Millions)
September 30, 2002 Contract Carrying Estimated
amount amount fair
value
Forward foreign exchange contracts �17,549 �(84) �(84)
Currency swap agreements for loans to its
subsidiaries 13,613 (48) (48)
Yen (Millions)
Contract Carrying Estimated
September 30, 2003 amount amount fair
value
Forward foreign exchange contracts �3,124 �(21) �(21)
Currency swap agreements for loans to its
subsidiaries 10,418 (9) (9)
Yen (Millions)
March 31, 2003 Contract Carrying Estimated
amount amount fair
value
Forward foreign exchange contracts �19,016 �39 �39
Currency swap agreements for loans to its
subsidiaries 13,794 (287) (287)
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
TDK adopted Statement of Financial Accounting Standards No. 142 ("SFAS 142"),
"Goodwill and Other Intangible Assets", effective April 1, 2001. Under SFAS
142, 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, 2003, TDK completed a goodwill impairment
test. No impairment was indicated at that time.
The components of acquired intangible assets excluding goodwill at September
30, 2002, September 30, 2003 and March 31, 2003, are as follows:
Yen (Millions)
September 30, 2002 September 30, 2003 March 31, 2003
Gross Accumulated Gross Accumulated Gross Accumulated
Carrying Amortization Carrying Amortization Carrying Amortization
Amount Amount Amount
Amortized
intangible
assets:
Patent �1,368 868 �10,628 1,038 �11,213 1,122
Software 6,535 2,892 7,373 4,159 6,985 3,471
Other 1,958 254 2,849 694 2,235 692
Total 9,861 4,014 20,850 5,891 20,433 5,285
Unamortized �949 �1,018 �1,270
intangible
assets
The patent addition principally represents an acquisition to accelerate the
TDK's position at the leading edge of refining materials and process
technologies in electronics materials and components.
Aggregate amortization expense for the six months ended September 30, 2002 and
2003 are �738 million and �1,300 million, respectively and for the year ended
March 31, 2003 is �1,762 million. Estimated amortization expense for the next
five years is: �1,208 million in the 2nd half of 2004, �2,149 million in 2005,
�1,941 million in 2006, �1,549 million in 2007, and �1,240 million in 2008.
The changes in the carrying amount of goodwill by segment for the six months
ended September 30, 2002 and 2003, and the year ended March 31, 2003 are as
follows:
Yen (Millions)
Electronic Recording media Total
materials and and systems
components
Balance as of March 31, 2002 �11,003 �497 �11,500
Translation adjustment (788) - (788)
Balance as of September 30, 2002 �10,215 �497 �10,712
Yen (Millions)
Electronic Recording media Total
materials and and systems
components
Balance as of March 31, 2003 �13,634 �497 �14,131
Transfer to other accounts (1,902) - (1,902)
Translation adjustment (913) - (913)
Balance as of September 30, 2003 �10,819 �497 �11,316
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 year 3,553 - 3,553
Translation adjustment (922) - (922)
Balance as of March 31, 2003 �13,634 �497 �14,131
9. Supplementary Information
Yen (Millions)
Six months Six months Year ended
ended ended
March 31,
September 30, September 30,
2003
2002 2003
(a) Statement of Income
Research and development �15,649 �17,179 �31,862
Rent 4,830 4,579 9,410
Maintenance and repairs 5,514 5,674 11,534
Advertising costs 2,684 2,786 5,546
(b) Statement of Cash Flows
Cash paid during the periods
for:
Interest �193 �196 �646
Income taxes �(6,239) �1,822 �(1,270)
Noncash activities
There were no material noncash investing and financing activities during the
periods presented.
10. Segment Information
(a) Industry segment information
Six months ended September 30, 2002
Yen (Millions)
Electronic Recording Sub total Eliminations Total
materials & media & and
components systems corporate
Net sales
Unaffiliated �234,272 �62,108 �296,380 - �296,380
customers
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
Six months ended September 30, 2003
Yen (Millions)
Electronic Recording Sub total Eliminations Total
materials & media & and
components systems corporate
Net sales
Unaffiliated customers �254,352 �61,927 �316,279 - �316,279
Intersegment - - - - -
Total 254,352 61,927 316,279 - 316,279
Operating expenses 228,520 63,739 292,259 - 292,259
Operating income (loss) �25,832 �(1,812) �24,020 - �24,020
Year ended March 31, 2003
Yen (Millions)
Electronic Recording Eliminations
materials & media & Sub total and Total
components systems corporate
Net sales
Unaffiliated �472,529 �136,351 �608,880 - �608,880
customers
Intersegment - - - - -
Total 472,529 136,351 608,880 - 608,880
Operating expenses 451,993 134,807 586,800 - 586,800
Operating income �20,536 �1,544 �22,080 - �22,080
(Notes) 1. Segment classification
Segments are classified by the similarity of the products, 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 softwares
(b) Geographic segment information
Six months ended September 30, 2002
Yen (Millions)
Japan Americas Europe Asia Sub Eliminations Total
and total
and
others
corporate
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) � �9,870 �9,930 �89 �10,019
(2,295)
Six months ended September 30, 2003
Yen (Millions)
Japan Americas Europe Asia Sub Eliminations Total
and total
and
others
corporate
Net sales
Unaffiliated �77,524 �36,128 � � � - �
customers 36,268 166,359 316,279 316,279
Intersegment 81,192 13,585 300 19,332 114,409 (114,409) -
Total 158,716 49,713 36,568 185,691 430,688 (114,409) 316,279
Operating expenses 155,208 50,318 36,627 164,131 406,284 (114,025) 292,259
Operating income (loss) �3,508 �(605) �(59) �21,560 �24,404 �(384) �24,020
Year ended March 31, 2003
Yen (Millions)
Japan Americas Europe Asia Sub Eliminations Total
and total
and
others
corporate
Net sales
Unaffiliated � �83,039 �77,191 � �608,880 - �
customers 172,818 275,832 608,880
Intersegment 162,064 18,745 1,271 39,086 221,166 (221,166) -
Total 334,882 101,784 78,462 314,918 830,046 (221,166) 608,880
Operating 329,689 102,866 82,009 294,278 808,842 (222,042) 586,800
expenses
Operating �5,193 �(1,082) � �20,640 � �876 �22,080
income (loss) (3,547) (21,204)
(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
(c) Overseas sales
Six months ended September 30, 2002
Yen (Millions)
Americas Europe Asia and Total
others
Sales by region �56,294 � �121,429 �
34,368 212,091
Net sales 296,380
Ratio of overseas sales to net sales (%) 19.0 11.6 41.0 71.6
Six months ended September 30, 2003
Yen (Millions)
Americas Europe Asia and Total
others
Sales by region �43,328 � �154,428 �
36,987 234,743
Net sales 316,279
Ratio of overseas sales to net sales (%) 13.7 11.7 48.8 74.2
Year ended March 31, 2003
Yen (Millions)
Americas Europe Asia and Total
others
Sales by region �106,060 � �258,577 �
78,740 443,377
Net sales 608,880
Ratio of overseas sales to net sales (%) 17.4 12.9 42.5 72.8
(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 Italy
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.
END