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 honoured 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 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 Sales
Growth rate
Operating income
Growth rate
Net income before tax
Growth rate
Millions of yen %
Millions of yen %
Millions of yen %
The first half of FY 2003
22,310
8.8

5,822
(8.3)
5,877 (8.3)
The first half of FY 2002
20,507
58.5
6,350
530.7
6,406 423.5
             
FY 2002 (annual)

42,980 13,866 13,098

 

  Net income Growth rate Net income per share (basic) Net income per share (diluted)
Millions of yen % Yen Yen
The first half of FY 2003 3,308 (9.5) 25.04 -
The first half of FY 2002 3,654 559.8 27.65 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 Millions of yen Millions of yen % Yen
June 30, 2003 73,158 39,636 54.2 302.46
June 30, 2002 68,791 34,742 50.5 262.37
December 31, 2002 73,838 37,144 50.3 282.07

(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 activities Cash flows from investing activities Cash flows from financing activities Ending balance of cash and cash equivalents
As of Millions of yen Millions of yen Millions of yen Millions of yen
June 30, 2003 7,496 (7,114) (6,213) 42,655
June 30, 2002 6,275 (1,416) 1,057 45,991
December 31, 2002 14,743 (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 Operating income Net income
Millions of yen Millions of yen Millions of yen
11,500 3,100 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)

<><>

Account June 30, 2002 December 31, 2002 June 30, 2003
<Assets>
Current assets:   <><> <><>
Cash and cash equivalents 45,990,588 <><>  
Time deposits 64,796 <><> 42,654,956
Marketable securities 2,220,115 <><> 65,895
Notes and accounts receivable, trade 10,740,940 <><> 9,198,296
Allowance for doubtful accounts and sales returns   <><> 9,986,580
Inventories (1,389,080) <><>  
Deferred income taxes   <><> (908,956)
Prepaid expenses and other current assets 371,790 <><>  
Total current assets 3,313,136 47,829,821 143,475
  1,218,177 65,722 4,383,944
  62,530,462 2,747,471 1,097,087
    12,287,078 66,621,277
       
    (962,037)  
       
    363,848  
    4,044,672  
    798,243  
    67,174,818  
 
Investments and other assets:      
Securities investments 1,254,689 690,732 597,564
Investment in and advances to affiliated companies 87,515 96,117 103,872
Software development costs 540,201 936,058 708,208
Other intangibles 393,495 361,028 398,598
Deferred income taxes 1,097,533 1,548,313 1,681,569
Other 940,301 1,086,254 1,130,687
Total investments and other assets 4,313,734 4,718,502 4,620,498
<><>      
Property and equipment: 2,420,444 2,619,820 2,922,056
Office furniture and equipment 1,030,911 1,101,268 1,010,080
Other properties 3,451,355 3,721,088 3,932,136
  (1,504,072) (1,776,409) (2,016,352)
Less: Accumulated depreciation 1,947,283 1,944,679 1,915,784
Total property and equipment      
Total assets 68,791,479 73,837,999 73,157,559

(Thousands of yen)

Account June 30, 2002 December 31, 2002 June 30, 2003
<Liabilities and shareholders' equity>      
Current liabilities:   <><> <><><><> <><> <><>  
Current portion of long-term debt 8,000,000 <><> <><> <><> <><> <><> 6,500,000
Notes payable, trade 388,051 5,000,000 94,611
Accounts payable, trade 918,963 85,035 986,193
Accounts payable, other 1,112,339 1,014,215 1,286,402
Withholding income taxes 171,992 1,201,675 437,663
Accrued expenses 1,873,023 183,663 1,941,800
Accrued income and other taxes 2,131,466 1,807,241 3,232,548
Deferred revenue 11,159,665 4,089,169 15,067,937
Other 466,106 13,484,252 220,188
Total current liabilities 26,221,605 573,068 29,767,342
    27,438,318  
 
Long-term liabilities:      
Long term debt 6,500,000 6,500,000 -
Deferred revenue 857,572 2,188,460 3,061,910
Accrued pension and severance costs 306,631 356,044 437,021
Other 163,180 210,947 255,113
Total long-term liabilities 7,827,383 9,255,451 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   7,257,060 7,257,060
Additional paid-in capital   13,021,554 12,936,584
Retained earnings   18,986,701 22,294,463
Accumulated other comprehensive income      
Net unrealized gain (loss) on debt and equity securities   (83,877) 66,163
Cumulative translation adjustments               7,240,080 285,079 531,776
  13,036,859 201,202 597,939
  14,920,479    
  (396,267)    
  190,795    
  (205,472)    
Treasury stock, at cost <><>    
-June 30,2002 72,654 shares      
-December 31,2002 820,442 shares (249,455) (2,322,287)  
-June 30,2003 1,456,770 shares     (3,449,873)
Total shareholders' equity   37,144,230 39,636,173
  34,742,491    
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 20,507,019 22,309,642 8.8
Cost of sales 1,195,693 1,528,771  
Gross profit 19,311,326 20,780,871 7.6
 
Operating expenses: <><> <><>  
Selling 7,254,125 8,015,856  
Research and development 1,838,592 1,929,219 <><>
Customer support 1,769,002 2,402,122  
General and administrative 2,099,362 2,611,807  
12,961,081 14,959,004    
   
 
Operating income 6,350,245 5,821,867 (8.3)
 
Other incomes (expenses):      
Interest income 185,155
206,035  
Interest expense (157,560) (114,829)  
Loss on sales of marketable securities (58,421) -  
Impairment of securities investments -
(7,360)
 
Foreign exchange (loss) gain, net (95,126) 134,469  
Other income (expense), net 181,563 (162,948)  
55,611 55,367    
 
Income before income taxes and equity in gain of affiliated companies 6,405,856 5,877,234 (8.3)
       
Income taxes:      
Current 2,969,102 3,145,367 <><>
Deferred (215,107) (568,140) <><>
 
2,753,995 2,577,227    
Income from consolidated companies 3,651,861 3,300,007 (9.6)
Equity in gain of affiliated companies 2,587 7,755  
Net income 3,654,448 3,307,762 (9.5)
Per share data: Yen Yen  
(Net income
-Basic 27.65 25.04 (9.4)
-Diluted 27.53 - -

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 6,833,678 7,257,060
Exercise of stock purchase warrants 406,402 -
     
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 13,021,554
  492,028 (84,970)
  (6,466) -
  406,389 -
     
Balance at end of period 13,036,859 12,936,584
<Retained earnings>    
Balance at beginning of period 11,277,576 18,986,701
Net income 3,654,448 3,307,762
Stock issue costs, net of tax (11,545) -
     
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 (310,480) (83,877)
Net change during the period (85,787) 150,040
     
Balance at end of period (396,267) 66,163
    <><>
<Cumulative translation adjustments>    
     
Balance at beginning of period 848,873 285,079
Aggregate translation adjustments for the period (658,078) 246,697
     
Balance at end of period 190,795 531,776
     
<Treasury stock, at cost>    
Balance at beginning of period (28,529) (2,322,287)
Purchase of treasury stock (227,392) (1,127,586)
Sales of treasury stock 6,466 -
     
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 950,428 1,106,517
Pension and severance costs, less payments 31,592 80,842
Deferred income taxes (215,107) (568,140)
Loss on sales of marketable securities 58,421 -
Impairment of securities investments - 7,360
Equity in gain of affiliated companies (2,587) (7,755)
Changes in assets and liabilities:    
Increase in deferred revenue 2,059,265 2,033,045
Decrease in accounts receivable, net of allowances 1,817,470 2,488,094
(Increase) decrease in inventories (141,097) 219,748
Increase (decrease) in notes and accounts payable, trade 585 (32,030)
Decrease in accrued income and other taxes (1,227,563) (856,478)
Decrease (increase) in other current assets 122,017 (67,865)
Decrease in accounts payable, other (341,474) (98,894)
Increase in other current liabilities 151,475 52,313
Increase in other assets (630,586) (280,659)
Other (12,002) 111,933
Net cash provided by operating activities 6,275,285 7,495,793
Cash flows from investing activities:    
Payments for purchases of property and equipment (466,537) (483,462)
Software development cost (263,370) (356,809)
Payments for purchases of other intangibles (162,327) (111,050)
Proceeds from sales of marketable securities 152,316 -
Proceeds from maturities of marketable securities - 1,700,000
Payments for purchases of marketable securities and security investments (681,974) (7,862,856)
Proceeds from / (Payments for) time deposits 5,971 (173)
Net cash used in investing activities (1,415,921) (7,114,350)
Cash flows from financing activities: 801,246  
Issuance of common stock pursuant to exercise of stock warrants 492,028 -
Tax benefit from exercise of non-qualified stock warrants 4,000,000 (84,970)
Proceeds from issuance of bonds (4,008,800) -
Purchase of treasury bonds - -
Redemption of bonds (220,926) (5,000,000)
Purchase of treasury stock, net (6,745) (1,127,586)
Other   -
Net cash provided / (used) by financing activities 1,056,803 (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 5,207,938 (5,174,865)
Cash and cash equivalents at beginning of period 40,782,650 47,829,821
Cash and cash equivalents at end of period 45,990,588 42,654,956
     
Supplementary information of cash flow:    
Payment for interest expense 161,755 117,289
Payment for income taxes 3,624,846 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.