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2003 Finance Info

Trend Micro Announces Second Quarter Consolidated Results

Tokyo, Japan - July 29th, 2003 - Trend Micro Inc (TSE: 4704; Nasdaq: TMIC), a leader in network antivirus and Internet content security software and services, today reported results in US GAAP for the second quarter 2003, ended June 30, 2003. Trend Micro posted consolidated net sales of 11.4 billion yen, (or US $95.7 million1), operating income of 2.9 billion yen (or US $24.0 million) and net income of 1.6 billion yen (or US $13.2 million). The figures for the quarter reflect gains of 6% in sales compared with the same period a year ago and 4% sequentially.
Both of enterprise products and consumer products grew year over year, and all regions worldwide experienced growth compared to the same quarter a year ago.
"We are pleased to announce solid results considering the current landscape of overall IT spending,” said Steve Chang, Chairman and CEO of Trend Micro. "This quarter, we continued to see revenue growth from large enterprise customers, as well as growth in deferred revenues primarily driven by the U.S. market. We also continue to gain recognition for our Enterprise Protection Strategy (EPS), and remain committed to bringing new products and services to further deliver the value of EPS to our customers.”
Consolidated net sales for the third quarter ending September are expected to be 11.5 billion Yen (or US $96.6 million). Operating income and net income are expected to be 3.1 billion yen (or US $26.1 million) and 1.75 billion Yen (or US $14.7 million), respectively.

Second Quarter Business Highlights
  • Trend Micro Enterprise Protection Strategy received Network Magazine’s 2003 Product of the Year Award in the antivirus category for corporate antivirus software. The company was also honored with e-Pro Magazine’s Apex Award for ScanMail for IBM Lotus Notes. Trend Micro ServerProtect for Linux was rated best performing solution in Virus Bulletin’s Red Hat Linux Comparative Review.
  • Trend Micro earned certification from the National Information Assurance Partnership (NIAP) for InterScan VirusWall 3.5 for NT and InterScan VirusWall 3.6 for Solaris, HP-UX, and Linux. Trend Micro is the only vendor to earn NIAP certification for antivirus products, thereby meeting the rigorous global standards laid down in the new Government Guidelines, which specify that IT products be NIAP-certified for high security installations.
  • In Japan, Trend Micro reached a milestone of 2.5 million users of VirusBuster, Trend Micro’s consumer antivirus solution in Japan. Other major customer additions during the quarter included a 1.1 million-user deal with the U.S. Army Chief Technology Office. Worldwide, new revenues were primarily comprised of customers from the banking, finance, government and healthcare sectors.
  • The company announced that it is expanding its alliance with NetScreen to deliver the industry's first best-of-breed antivirus, firewall, VPN and intrusion prevention appliance designed to help enterprise customers secure remote sites, branch offices and telecommuters.

1 $1 US = 119 Japanese Yen

Notice Regarding Forward Looking Statements
Certain statements that we make in this release are forward-looking statements. These forward-looking statements are based upon management’s current assumptions and beliefs in light of the information currently available to it, but involve known and unknown risks and uncertainties.
Many important factors could cause our actual results to differ materially from those expressed in our forward-looking statements. These factors include:

  • Difficulties in addressing new virus and other computer security problems;
  • Timing of new product introductions and lack of market acceptance for our new products;
  • The level of continuing demand for , and timing of sales of , our existing products;
  • Rapid technological change within the anti-virus software industry;
  • Changes in customer needs for anti-virus software;
  • Existing products and new product introductions by our competitors and the pricing of those products;
  • Declining prices for our products and services;
  • The effect of future acquisitions on our financial condition and results of operations;
  • The effect of adverse economic trends on our principal markets;
  • The effect of foreign exchange fluctuations on our results of operations;
  • An increase in the incidence of product returns;
  • The potential lack of attractive investment targets; and
  • Difficulties in successfully executing our investment strategy.
We assume no obligation to update any forward-looking statements.
For more details regarding risk factors relating to our future performance, please refer to our filings with the SEC.

 Supplementary Information
1. Financial Highlights for the first half of FY 2003 (January 1, 2003 through June 30, 2003)

(1) Consolidated Results of Operations

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

 
Net SalesGrowth rate
Operating
income
Growth rate
Net income before taxGrowth rate

The first half of FY 2003
The first half of FY 2002
Millions of yen %

22,310
8.8

20,507
58.5
Millions of yen %

5,822
(8.3)

6,350
530.7
Millions of yen %

5,877
(8.3)

6,406
423.5
FY 2002 (annual)
42,980
13,866
13,098

 
Net incomeGrowth rate
Net income per share (basic)Net income per share (diluted)

The first half of FY 2003
The first half of FY 2002
Millions of yen %

3,308
(9.5)

3,654
559.8
Yen

25.04

27.65
Yen

-

27.53
FY 2002 (annual)
7,714
58.39 58.22

(Note)

1.Equity in gain of affiliated companies: 8 million yen (3 million yen in the first half of FY 2002, 11 million yen in FY 2002)
2.The company made no changes in accounting principle that had material effects on the financial position, results of operations, and cash flow position, during the period.
3. Weighted average number of shares outstanding: 132,097,979 shares (132,153,432 shares in the first half of FY 2002, 132,111,467 shares in FY 2002)
4. The percentage of net sales, operating income, net income before tax and net income are comparison to the first half of prior fiscal year

(2) Consolidated Financial Position

 Total assets

Shareholders’ equity

Shareholders’ equity ratio

Shareholders’ equity per share

As of
June 30, 2003
June 30, 2002
Millions of yen
73,158
68,791
Millions of yen
39,636
34,742
%
54.2
50.5
Yen
302.46
262.37
December 31, 200273,83837,14450.3282.07

(Note)

Number of shares outstanding :131,046,647 shares
(132,419,856 shares as of June 30, 2002, 131,682,975 shares as of December 31, 2002)

(3) Consolidated Cash Flow Position

 Cash flows from operating activitiesCash flows from investing activitiesCash flows from financing activitiesEnding balance of cash and cash equivalents
As of
June 30, 2003
June 30, 2002
Millions of yen
7,496
6,275
Millions of yen
(7,114)
(1,416)
Millions of yen
(6,213)
1,057
Millions of yen
42,655
45,991
December 31, 200214,743(3,173)(4,007)47,830

(4) Basis of consolidation and application of equity method:
The number of consolidated subsidiaries …………… 17
The number of unconsolidated subsidiaries accounted by equity method …………… 0
The number of affiliated companies …………… 3
(5) Change in the basis of consolidation and application of equity method:
The number of additional consolidated subsidiaries ……………… 2
The number of excluded consolidated subsidiaries ……………… 0
The number of additional consolidated affiliated companies ……… 0
The number of excluded consolidated affiliated companies ……… 1

2. Projected consolidated earnings

Projected earnings for the next quarter (July 1, 2003 through September 30, 2003)

3rd Qtr

Net Sales
Millions of yen
11,500
Operating income
Millions of yen
3,100
Net income
Millions of yen
1,750

(Note)
Since the business environment surrounding Trend Micro Group tends to fluctuate in the short run, it is difficult to make the highly reliable projection figures on a yearly basis. We, therefore, decided to announce the earnings on a quarterly basis in the fiscal year ending in December 2003 as well as earnings projection of the succeeding quarter.
If we found through our calculation conducted from time to time that the net sales fluctuate from the most recent quarterly projection by more than 10%, or operating income or net income fluctuates by more than 30%, we will announce the revision of the earnings projection.

3. CONSOLIDATED BALANCE SHEETS

(Thousands of yen)
<><>



AccountJune 30,
2002
December 31,
2002
June 30,
2003
<Assets>
   
Current assets:

Cash and cash equivalents

Time deposits

Marketable securities

Notes and accounts receivable, trade

Allowance for doubtful accounts and sales returns

Inventories

Deferred income taxes

Prepaid expenses and other current assets

Total current assets

45,990,588
64,796
2,220,115
10,740,940

(1,389,080)


371,790

3,313,136
1,218,177

62,530,462
<><>
<><>
<><>
<><>
<><>
<><>
<><>
<><>
<><>
47,829,821
65,722
2,747,471
12,287,078

(962,037)

363,848
4,044,672
798,243
67,174,818
<><>

42,654,956
65,895
9,198,296
9,986,580

(908,956)


143,475

4,383,944
1,097,087

66,621,277
Investments and other assets:

Securities investments

Investment in and advances to affiliated companies

Software development costs

Other intangibles

Deferred income taxes

Other
Total investments and other assets

1,254,689
87,515

540,201
393,495
1,097,533
940,301
4,313,734

690,732
96,117

936,058
361,028
1,548,313
1,086,254
4,718,502

597,564
103,872

708,208
398,598
1,681,569
1,130,687
4,620,498
<><>
Property and equipment:

Office furniture and equipment

Other properties


Less: Accumulated depreciation
Total property and equipment

2,420,444
1,030,911
3,451,355
(1,504,072)
1,947,283

2,619,820
1,101,268
3,721,088
(1,776,409)
1,944,679

2,922,056
1,010,080
3,932,136
(2,016,352)
1,915,784
Total assets
68,791,479
73,837,999
73,157,559


(Thousands of yen)

AccountJune 30,
2002
December 31,
2002
June 30,
2003
<Liabilities and shareholders' equity>
   
Current liabilities:
Current portion of long-term debt
Notes payable, trade
Accounts payable, trade
Accounts payable, other
Withholding income taxes
Accrued expenses
Accrued income and other taxes
Deferred revenue
Other
Total current liabilities
8,000,000
388,051
918,963
1,112,339
171,992
1,873,023
2,131,466
11,159,665
466,106
26,221,605
<><> <><><><><><><><><><><><><><><><><><>
5,000,000
85,035
1,014,215
1,201,675
183,663
1,807,241
4,089,169
13,484,252
573,068
27,438,318
6,500,000
94,611
986,193
1,286,402
437,663
1,941,800
3,232,548
15,067,937
220,188
29,767,342
Long-term liabilities:

Long term debt

Deferred revenue

Accrued pension and severance costs

Other


Total long-term liabilities

6,500,000
857,572
306,631

163,180
7,827,383

6,500,000
2,188,460
356,044

210,947
9,255,451

-
3,061,910
437,021

255,113
3,754,044
Shareholders' equity:

Common stock


Authorized
-June 30,2002 250,000,000 shares (no par value)
-December 31,2002 250,000,000 shares (no par value)
-June 30,2003 250,000,000 shares (no par value)


Issued
-June 30,2002 132,492,510 shares
-December 31,2002 132,503,417 shares
-June 30,2003 132,503,417 shares

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income


Net unrealized gain (loss) on debt and equity securities


Cumulative translation adjustments


<><>
<><>
<><>
<><>
<><>

<><>


 
 



7,240,080
13,036,859
14,920,479

(396,267)

190,795

(205,472)
<><>



<><>
<><>



7,257,060
13,021,554
18,986,701

(83,877)

285,079

201,202
<><>




<><>



7,257,060
12,936,584
22,294,463

66,163

531,776

597,939

Treasury stock, at cost


-June 30,2002 72,654 shares


-December 31,2002 820,442 shares


-June 30,2003 1,456,770 shares
Total shareholders' equity
<><>

(249,455)




34,742,491

 
(2,322,287)



37,144,230

 


(3,449,873)

39,636,173
Total liabilities and shareholders' equity
68,791,479
73,837,999
73,157,559


4. CONSOLIDATED STATEMENTS OF INCOME

(Thousands of yen)

Account

For the six months ended June 30,2002

For the six months ended June 30,2003

Increase (Decrease) %

Net sales
Cost of sales
20,507,019
1,195,693
22,309,642
1,528,771
8.8

Gross profit19,311,32620,780,8717.6
 
Operating expenses:

Selling

Research and development

Customer support

General and administrative
<><>
7,254,125
1,838,592
1,769,002
2,099,362
<><>
8,015,856
1,929,219
2,402,122
2,611,807
<><>
12,961,08114,959,004

Operating income

6,350,245

5,821,867

(8.3)
 
Other incomes (expenses):

Interest income

Interest expense

Loss on sales of marketable securities

Impairment of securities investments

Foreign exchange (loss) gain, net

Other income (expense), net
 


185,155

(157,560)

(58,421)

-

(95,126)

181,563
 


206,035

(114,829)

-

(7,360)

134,469

(162,948)
55,61155,367
Income before income taxes and equity in gain of affiliated companies6,405,8565,877,234(8.3)
 
Income taxes:

Current

Deferred
 


2,969,102

(215,107)
 


3,145,367

(568,140)
<><>
<><>
 



2,753,9952,577,227

Income from consolidated companies
Equity in gain of affiliated companies

3,651,861
2,587

3,300,007
7,755

(9.6)

Net income3,654,4483,307,762(9.5)

Per share data:
Net income
YenYen

-Basic

-Diluted

27.65

27.53

25.04

-

(9.4)

-

5. CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Thousands of yen)

Account

For the six months ended June 30,2002

For the six months ended June 30,2003

<Common stock>

Balance at beginning of period

Exercise of stock purchase warrants
<><>
6,833,678
406,402
<><>
7,257,060
-

Balance at end of period

7,240,080

7,257,060

<Additional paid-in capital>

Balance at beginning of period

Tax benefit from exercise of non-qualified stock warrants

Loss on sales of treasury stock, net of tax

Exercise of stock purchase warrants
<><>
<><>
<><>
<><>


12,144,908
492,028
(6,466)
406,389
<><>
<><>
<><>
<><>


13,021,554
(84,970)
-
-

Balance at end of period

13,036,859

12,936,584

<Retained earnings>

Balance at beginning of period

Net income

Stock issue costs, net of tax



11,277,576

3,654,448

(11,545)



18,986,701

3,307,762

-

Balance at end of period

14,920,479

22,294,463

<Net realized gain (loss) on debt and equity securities>

Balance at beginning of period

Net change during the period



(310,480)

(85,787)



(83,877)

150,040

Balance at end of period

(396,267)

66,163

<Cumulative translation adjustments>

Balance at beginning of period

Aggregate translation adjustments for the period



848,873

(658,078)
<><>

285,079
246,697

Balance at end of period

190,795

531,776

<Treasury stock, at cost>

Balance at beginning of period

Purchase of treasury stock

Sales of treasury stock


(28,529)
(227,392)
6,466


(2,322,287)
(1,127,586)
-

Balance at end of period

(249,455)

(3,449,873)

Total shareholders’ equity

34,742,491

39,636,173
6. CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of yen)

Account

For the six months ended June 30,2002

For the six months ended June 30,2003


Cash flows from operating activities:


Net income


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

3,654,448


<><>
<><>

3,307,762



Depreciation and amortization

Pension and severance costs, less payments

Deferred income taxes

Loss on sales of marketable securities

Impairment of securities investments

Equity in gain of affiliated companies

Changes in assets and liabilities:

Increase in deferred revenue

Decrease in accounts receivable, net of allowances

(Increase) decrease in inventories

Increase (decrease) in notes and accounts payable, trade

Decrease in accrued income and other taxes

Decrease (increase) in other current assets

Decrease in accounts payable, other

Increase in other current liabilities

Increase in other assets

Other

950,428

31,592

(215,107)

58,421

-

(2,587)

 

2,059,265

1,817,470

(141,097)

585

(1,227,563)

122,017

(341,474)

151,475

(630,586)

(12,002)

1,106,517

80,842

(568,140)

-

7,360

(7,755)

 

2,033,045

2,488,094

219,748

(32,030)

(856,478)

(67,865)

(98,894)

52,313

(280,659)

111,933
Net cash provided by operating activities6,275,2857,495,793
Cash flows from investing activities:

Payments for purchases of property and equipment

Software development cost

Payments for purchases of other intangibles

Proceeds from sales of marketable securities

Proceeds from maturities of marketable securities

Payments for purchases of marketable securities and security investments

Proceeds from / (Payments for) time deposits


(466,537)

(263,370)

(162,327)

152,316

-

(681,974)

5,971


(483,462)

(356,809)

(111,050)

-

1,700,000

(7,862,856)

(173)
Net cash used in investing activities(1,415,921)(7,114,350)
Cash flows from financing activities:

Issuance of common stock pursuant to exercise of stock warrants

Tax benefit from exercise of non-qualified stock warrants

Proceeds from issuance of bonds

Purchase of treasury bonds

Redemption of bonds

Purchase of treasury stock, net

Other
801,246
492,028
4,000,000
(4,008,800)
-
(220,926)
(6,745)
 
-
(84,970)
-
-
(5,000,000)
(1,127,586)
-
Net cash provided / (used) by financing activities1,056,803(6,212,556)
Effect of exchange rate changes on cash and cash equivalents(708,229)656,248
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
5,207,938
40,782,650
(5,174,865)
47,829,821
Cash and cash equivalents at end of period45,990,58842,654,956

Supplementary information of cash flow:

Payment for interest expense

Payment for income taxes
 
161,755
3,624,846
 
117,289
3,935,610

About Trend Micro:

Trend Micro Incorporated (TSE: 4704), a global cloud security leader, creates a world safe for exchanging digital information with its Internet content security and threat management solutions for businesses and consumers. A pioneer in server security with over 20 years' experience, we deliver top-ranked client, server and cloud-based security that fits our customers' and partners' needs, stops new threats faster, and protects data in physical, virtualized and cloud environments. Powered by the Trend Micro™ Smart Protection Network™ cloud security infrastructure, our industry-leading cloud-computing security technology, products and services stop threats where they emerge, on the Internet, and are supported by 1,000+ threat intelligence experts around the globe.

Additional information about Trend Micro Incorporated and the products and services are available at Trend Micro.com This Trend Micro news release and other announcements are available at http://trendmicro.mediaroom.com/ and as part of an RSS feed at www.trendmicro.com/rss Or follow our news on Twitter at @TrendMicro.


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