FORM 6-K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
Commission File Number: 333-10486
For the Month of August 2002
Trend Micro Incorporated
(Translation of registrant's name into English)
Odakyu Southern Tower, 10th Floor, 2-1, Yoyogi 2-chome,
Shibuya-ku, Tokyo 151-8583, Japan
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
--- ---
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
--- ---
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-
--------------
Information furnished on this form:
Table of Contents
1. Report of July 30, 2002 announcing consolidated and non-consolidated
results for the six months ended June 30, 2002.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Trend Micro Incorporated
Date: August 6, 2002 By: /s/ Mahendra Negi
--------------------
Mahendra Negi
Representative Director;
Chief Financial Officer
and Executive Vice
President
Attachment 1
July 30, 2002
Report of First-Half Results (Consolidated)
For Fiscal Year Ending December 31, 2002
Company: Trend Micro Incorporated Tokyo Stock Exchange 1/st/ Section
Code: 4704 Location : Tokyo
(URL http://www.trendmicro.co.jp/)
Contact: Title Controller, Finance & Accounting Department
Name Ryo Masaki (Phone: 81-3-5334-3600)
Date of the board of directors meeting
authorizing the first-half results: July 30, 2002
US accounting standard is not adopted for preparing the consolidated
financial statements for the first half of current fiscal year.
Notice Regarding Forward Looking Statements
The statements included in this report contain "forward-looking statements"
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include
statements regarding our expectations about our earnings for the third quarter
ending September 30, 2002 and for the 2002 fiscal year. Many important factors
could cause our actual results to differ materially from those expressed in our
forward-looking statements. These factors include:
. Customer acceptance of our new products and services
. The impact of competing products and services
. Difficulties in adapting our products and services to the Internet
. Difficulties in addressing new virus and other computer security problems
. The potential lack of attractive investment targets and difficulties in
successfully executing our investment strategy
. Declining prices for our products and services
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 including our annual report on Form 20-F which was
filed on July 1, 2002.
1. Financial Highlights for the first half of FY 2002 January 1, 2002 through
June 30, 2002
(1) Consolidated Results of Operations
(All figures except for per share information are rounded down to millions of
yen.)
---------------------------------------------------------------------------------------------------------------------
Operating Ordinary
Sales Growth rate income Growth rate income Growth rate
---------------------------------------------------------------------------------------------------------------------
Millions of yen % Millions of yen % Millions of yen %
The first half of FY 2002 20,507 58.5 6,356 119.3 6,271 108.8
The first half of FY 2001 12,939 34.8 2,898 (3.9) 3,004 1.1
---------------------------------------------------------------------------------------------------------------------
FY 2001 (annual) 31,326 9,481 9,549
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Net Net income Net income
income Growth rate per share (basic) per share (diluted)
---------------------------------------------------------------------------------------------------------------------
Millions of yen % yen yen
The first half of FY 2002 3,517 - 26.62 26.50
The first half of FY 2001 (1,376) - (10.48) -
---------------------------------------------------------------------------------------------------------------------
FY 2001 (annual) 2,421 18.40 18.23
---------------------------------------------------------------------------------------------------------------------
(Note)
1. Gain/Loss on investment in affiliated 2 million yen (-104 million yen in
companies: the first half of FY 2001, -129
million yen in FY 2001)
2. The average number of stock: 132,153,432 stocks (131,339,944
stocks in the first half of FY 2001,
131,594,913 stocks in FY 2001)
3. Change in accounting principle: None
4. The percentage of sales, operating income, ordinary income and net income are
comparison to the first half of prior fiscal year.
(2) Consolidated Financial Position
---------------------------------------------------------------------------------------------------------------------
Shareholders' equity Shareholders' equity
Total assets Shareholders' equity ratio per share
---------------------------------------------------------------------------------------------------------------------
As of Millions of yen Millions of yen % Yen
June 30, 2002 69,667 34,729 49.8 262.27
June 30, 2001 53,413 26,914 50.4 204.39
---------------------------------------------------------------------------------------------------------------------
December 31, 2001 65,317 30,901 47.3 234.02
---------------------------------------------------------------------------------------------------------------------
(Note)
Number of the stocks issued : 132,419,856 stocks in the first half of current
fiscal year (131,681,887 stocks in the first half of FY
2001, 132,043,182 stocks in the FY 2001)
1
(3) Consolidated Cash Flow Position
--------------------------------------------------------------------------------------------------------------------------
Cash flows from Cash flows from Cash flows from Ending balance of cash
operating activities investing activities financing activities and cash equivalents
--------------------------------------------------------------------------------------------------------------------------
As of Millions of yen Millions of yen Millions of yen Millions of yen
June 30, 2002 6,787 (1,415) 544 45,990
June 30, 2001 4,650 (1,363) 6,503 34,553
--------------------------------------------------------------------------------------------------------------------------
December 31, 2001 12,563 (2,918) 5,460 40,782
--------------------------------------------------------------------------------------------------------------------------
(4) Basis of consolidation and investments in affiliated companies:
The number of consolidated subsidiaries ............. 15
The number of unconsolidated subsidiaries accounted by
equity method ................ 0
The number of affiliated companies .................. 4
(5) Change in reporting entities:
The number of additional consolidated subsidiaries ............ 0
The number of excluded consolidated subsidiaries .............. 3
The number of additional consolidated affiliated companies .... 0
The number of excluded consolidated affiliated companies ...... 0
Projected consolidated earnings
(1) Earning projections for the current fiscal year January 1, 2002 through
December 31, 2002
--------------------------------------------------------------------------------------------------------------------------
Sales Ordinary income Net income
--------------------------------------------------------------------------------------------------------------------------
Millions of yen Millions of yen Millions of yen
For the year ending
December 31, 2002 42,000 13,000 7,300
--------------------------------------------------------------------------------------------------------------------------
(Note) Projected consolidated net income per share for the current fiscal year
: 55.28 yen
(2) Projected earnings for the next quarter (July 1, 2002 through September
30, 2002)
----------------------------------------------------------------------------------------------------------
Sales Ordinary income Net income
----------------------------------------------------------------------------------------------------------
Millions of yen Millions of yen Millions of yen
3rd Qtr 9,800 to 10,300 2,250 to 2,550 1,250 to 1,450
----------------------------------------------------------------------------------------------------------
(Note) Surrounding environment of Trend Micro Group may change significantly in
a very short period of time. Therefore, the Company has decided to disclose
projected earnings range in a quarterly basis, but the actual earnings may
deviate from the projection.
2
Attachment to the Report
1. Condition of corporate group
Overview of corporate group
Trend Micro Group consists of Trend Micro Inc., and its 15 subsidiaries
which develop and sell anti-virus products and offer other related services
and four affiliated companies are: NTT Data Security Corporation which
offers total network securities, Soft Trend Capital Corporation which
manages capital funds to be invested into Internet-related ventures, Japan
JCN Co., Ltd which develops and offers the security system against unlawful
access and NetSTAR Inc. which develops and offers the products of URL
filtering.
The business related to anti-virus are described below:
The products related to anti-virus:
PC client products Trend Micro Inc develops and sells the products. Some parts of the research and
LAN server products development activities are entrusted to Trend Micro Incorporated (Taiwan), Trend
Internet server products Micro Inc. (U.S.A.), Trend Micro Deutschland GmbH (Germany), and Trend Micro
Other products (Shanghai) Inc. (China). Trend Micro Incorporated (Taiwan) also operates
manufacturing and sales of the products, part of which are purchased by Trend
Micro Inc (Japan), Trend Micro Inc. (U.S.A.), Trend Korea Inc., Trend Micro
Deutschland GmbH (Germany), Trend Micro Italy S.r.l., Trend Micro Australia Pty.
Ltd. (Australia), Trend Micro do Brasil Ltda. (Brazil), Trend Micro France, Trend
Micro Hong Kong Limited, Trend Micro (UK) Limited, Trend Micro Latinoamerica S.A.de
C.V (Mexico), Trend Micro (Shanghai) Inc. (China).
In addition, Trend Micro Inc (Japan) owns software copyrights and receives from
its overseas subsidiaries royalties based on the respective sales of products to
such subsidiaries.
---------------------------------------------------------------------------------------------------------------------------
Customer
---------------------------------------------------------------------------------------------------------------------------
Oversea Domestic
---------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------
Subsidiaries
-----------------------------------------------------
Trend Korea Inc.
-----------------------------------------------------
Trend Micro Italy S.r.l.
-----------------------------------------------------
Trend Micro Australia Pty.Ltd.
-----------------------------------------------------
Trend Micro do Brasil Ltda. (Brazil)
-----------------------------------------------------
Trend Micro France
-----------------------------------------------------
Trend Micro Hong Kong Limited
-----------------------------------------------------
Trend Micro Latinoamerica S.A.de C.V (Mexico)
-----------------------------------------------------
-----------------------------------------
Subsidiary
-----------------------------------------
Trend Micro Deutschland GmbH (Germany)
----------------------------- ------------------------------------ -----------------------------------------
Subsidiary Subsidiary Trend Micro (UK) Limited
----------------------------- ------------------------------------ -----------------------------------------
Trend Micro Inc. (U.S.A) Trend Micro Incorporated (Taiwan) Trend Micro (Shanghai) Inc (China)
----------------------------- ------------------------------------ -----------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Trend Micro (Japan)
Computer Anti-Virus Software related products
-----------------------------------------------------------------------------------------------------------------------------
---------------- Products
................. Royalty
================= Outsourcing, Other
(Note) All subsidiaries are consolidated.
3
2. Management Policy and Business Results
Trend Micro Group's Basic Management Policy
Since its founding, Trend Micro has provided "peace of mind" to all
users of computer networks and the Internet by offering anti-virus and Internet
content security solutions. We currently have the strong impression that needs
of the market to be met by Trend Micro has been changing into larger one in
accordance with development of the Internet followed by rapid growth of the
market scale of business. Such dramatic change tells us that we have to change
our current corporate scheme to sell products through a single sales
organization to new global corporate scheme to provide value-added services
through the Internet and in addition, that even among the corporations to
provide value-added services through the Internet while competing to a greater
extent in the market, we should aim at provision of high value-added products
and services which show high difficulty level for competitors to develop them to
enter the market. In order to contribute to development of information society
not only in Japan, but in the world, we would like to forge a safe and pleasant
network environment by offering solutions to protect company networks and home
PCs from invasion of directly-damaging computer viruses or Malicious Code
(harmful programs created by the languages such as JAVA or Active X) as well as
harmful content such as SPAM mail (unwanted e-mail) or Bad URLs (websites
providing the information that offends public order and morals).
We wish to enhance our enterprise value through these network security
operations, and, as the result, to contribute to all the shareholders in Trend
Micro.
Basic Policy on the Distribution of Profits
Although Trend Micro has steadily increased its profits in the past few
years, we believe that the Internet security market has begun its full-fledged
expansion and that our market share has not stabilized in relation to our U.S.
competitors. Our larger rivals may well concentrate their management resources
to further enlarge their market share. Since our business areas are more
concentrated on anti-virus solutions and Internet content security related
solutions than other competitors with diversified Internet security solutions,
we also face the possibility of larger profit fluctuations in the short term.
In this business environment the most critical management challenges
are to strengthen our financial structure and management foundation and
aggressively develop new business operations in order to maintain our
competitiveness in the market. Our priority, therefore, is to accumulate
reserves, which means withholding dividends for the time being. Regarding our
accumulated reserves, we would like to ask all shareholders to accept our
decision to appropriate them for investment in research and development division
to be further strengthened in the future by Trend Micro and for activities to
improve brand awareness and corporate image.
Basic Policy on the Trading Lots for Shares
We understand that it is our critical task to ensure the liquidity of
the shares in Trend Micro. We do not believe, however, that all the shareholders
in Trend Micro will benefit from the reduction of minimum trading lots for
shares, because the current liquidity of the shares is being maintained
apparently at a reasonable level and the reduction of minimum trading lots
requires considerable expense.
We promise that we continue to review the minimum trading lots from the
viewpoint of shareholders' benefits as well as the liquidity of the shares.
Medium and Long-Term Management Strategy
Impacted by deterioration of corporate sentiment in the U.S. and Europe
and the lingering economic slump in Japan, corporate investment in information
systems has shown signs of a slowdown. We know that the situation, represented
by such reduction in cooperate investment into information systems, will not
allow us to have any optimistic outlook for the business environment surrounding
us.
On the other hand, many corporations are now increasingly reliant on
computer networks represented by mail systems; the monetary damages for the
opportunity losses caused by system down of company networks have come to far
larger than several years ago. It is expected that network security including
anti-virus solutions will take a more important role in the future, and that the
market scale of the network security business will steadily expand in the long
and medium terms. In response to such expansion of the market, we would like to
promote recruiting and securing of the necessary human resources, strengthening
of the management bases and increasing of business efficiency in a more positive
way at Trend Micro and its overseas subsidiaries.
The technological innovations in our industry are constant and fast: as
for the next generation Internet, for example, some people have raised the
possibility that further development of open platforms such as broadband, mobile
telecommunications and Linux may bring sweeping changes to the present network
environment. In order to take and maintain competitive advantage against the
major U.S. competitors, we need to respond to the external environment changes
initiated by the technological
4
innovations on a timely basis.
Outbreak of new types of viruses, such as "NIMDA" of the last year,
gave greater impact on anti-virus solutions. These viruses, which have compound
infection approaches, not only rapidly enlarge the scale of the damages with
their high infectious capacity, but repeat the infection, if even one single PC
of a network remains infected. To respond to such new types of the viruses, we
have to provide the better anti-virus solutions than the conventional ones,
which were just to detect and clean viruses upon receipt of a virus patter file.
In order to protect corporate information assets from mixed-threat
virus, we have set up "TM EPS (Trend Micro Enterprise Protection Strategy)", our
new anti-virus strategy which enables us to reduce infection damages and
anti-virus costs and provide businesses with a flexible architecture of
services, products and centralized management.
Our products compliant with "TM EPS" newly feature a function to
provide preventive measures against virus infection prior to receipt of the
virus pattern file as well as a function to rummage out viruses throughout PCs
and servers of the network once again and prevent reinfection by cleaning any
remaining viruses promptly. These functions allow corporate users to respond to
attacks of new viruses in shorter time than before as well as to cut time and
cost requiring for recovery from the infection damages by rummaging and cleaning
the viruses all at once in the network. Moreover, for enabling the network
administrator to manage and operate these functions in an effective and easy
manner, we will expand functions of the products that integrate and manage the
Trend Micro products deployed in the network.
While network environments and information assets of corporations have
become more significant than before, threats of viruses are rapidly changing. In
such an environment, we would like to develop new ant-virus strategies and
solutions always ahead of our competitors and offer products and services to
meet users' needs, aiming to maintain our current competitive advantage in the
market for corporate customers and to increase the market share further.
Summary of Consolidated Financial Results for the first half of FY2002
The six-months under review saw a slowdown in demand within the IT
industry, primarily the result of declining corporate IT spending in Japan,
Europe and the United States. The corporate spending cuts also put the damper on
demand for network security solutions, which have been positioned as a high
priority in IT investment.
We have no intention, however, to change our outlook showing that our
industry will undergo steady transition in the long and medium terms in spite of
short-term fluctuation, because there still exists an underlying tendency that
many companies continue to expand investments into overhaul of mission-critical
operation systems. Further, since many of recent harmful viruses are strong and
have multiple infection routes, users are requesting vendors of network security
products to provide more effective products and services than ever. The number
of virus damage reports has increased constantly: while we received 25,644
reports of domestic virus damages over the past year, we have already received
28,938 reports over the first half of this year.
During the first half of FY2002, Trend Micro domestic operations
significantly increased contracts for its Virus Buster Corporate Edition (Office
Scan) and "ServerProtect," winning not only large companies but also medium and
small companies. Sales of InterScan, our anti-virus software for Internet
servers, rose steadily, in response to the more frequent virus infections spread
via e-mail. In the retail market, the sales of "Virus Buster 2002" have been
continuously favorable in the current fiscal year in succession to the previous
year. Further, the numbers of customers are also rapidly increasing in the
VirusWall E-Mail Service (formerly the Internet Outsourcing Service (IOS)) to
offer anti-virus solutions in collaboration with ISP (Internet Service
Provider).
In the phase of deployment of our business operations in North America
and Europe, anti-virus products, such as "InterScan" series and "ScanMail"
series, used in higher layers of hierarchy of the network mainly contributed to
the steady growth in sales of the products for relatively large-sized corporate
users. As a highly specialized anti-virus solutions provider, we have pioneered
post-contract support servies, called "Premium Support," introducing them before
our major competitors in the industry. This service is in response to the trend
among large corporate users to select a vendor based not only on the performance
of its anti-virus software but also on the quality of support the vendor offers
during the license period to swiftly alert customers to new viruses.
During the first half of FY2002, Trend Micro posted consolidated sales
of (Yen) 20,507 million, an increase of 58.5 percent over the last year.
Consolidated ordinary income increased 108.8 percent to (Yen) 6,271 million,
while net income resulted (Yen) 3,517 million.
Sales in Japan posted an increase of 68.4 percent to (Yen) 12,696
million, while operating income from these sales rose to (Yen) 9,802 million, up
107.4 percent from the comparable period in FY2001. U.S. sales
5
increased 48.4 percent to (Yen) 7,271 million, with operating income totaling
(Yen) 903 million, a 198.7 percent increase. In Europe, sales increased 67.8
percent to (Yen) 4,707 million, and operating loss resulted (Yen) 60 million.
Asia Pacific sales increased 51.8 percent to (Yen) 3,525 million, and operating
income resulted (Yen) 210 million. Other areas posted combined sales of (Yen)
603 million, a 43.2 percent increase, and operating income of (Yen) 42 million,
down 65.0 percent.
Earning Projections for FY2002
We expect that we will have to face the severe economic environment
continuously in FY 2002, because of the prospected continuing economic
stagnation in Japan, U.S. and Europe, which is to restrain corporate investments
into information systems.
In Japan, as a response to the severe economic environment, we aim to
increase our share in the market for large companies by releasing the products
compliant with "TM EPS" as well as to maintain or improve our growing rate in
the market for medium and small companies, and retails by offering wider ranges
of products and services.
In North America and Europe, we also aim to increase our share in the
market for large companies by releasing the products compliant with "TM EPS".
Moreover, we will conduct marketing activities to enhance our brand recognition,
in order to expand our customer base not only on large companies, but also on
medium and small companies, as well as to enter into the retail market.
Accordingly, we project our consolidated earnings in FY 2002 and in the
3rd Quarter as follows:
Projection for FY 2002 (From Jan. 1 to Dec. 31, 2002)
Consolidate Sales: Yen 42,000 Million, up 34.1% from the same term last year
Consolidated Ordinary Income: Yen 13,000 Million, up 36.1 % from the same term last year
Consolidated Net Income: Yen 7,300 Million, up 201.5 % from the same term last year
Projection for the 3/rd/ Quarter (Jul. 1 to Sep. 30, 2002)
Consolidate Sales: Yen 9,800 Million to Yen 10,300 Million
Consolidated Ordinary Income: Yen 2,250 Million to Yen 2,550 Million
Consolidated Net Income: Yen 1,250 Million to Yen 1,450 Million
Earnings projections are calculated based on estimated major currency
exchange rates of $1 = (Yen) 115 and 1 EUR = (Yen)110.
6
3. Consolidated Semi-annual Financial Statements
(1) Consolidated semi-annual balance sheets
(Thousands of yen)
-----------------------------------------------------------------------------------------------------------------------------------
Condensed balance sheet
Period At the end of the first half of At the end of the first half at the end of the
the current fiscal year of the previous fiscal year previous fiscal year
Account (As of June 30, 2002) (As of June 30, 2001) (As of December 31, 2001)
-----------------------------------------------------------------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage
-----------------------------------------------------------------------------------------------------------------------------------
% % %
(Assets)
Current assets
1. Cash and bank deposits 46,055,383 34,618,745 40,853,417
2. Notes and accounts
receivable,trade 10,740,940 7,667,480 12,280,759
3. Inventories 371,790 206,945 238,881
4. Deferred tax assets 3,313,136 2,798,031 3,209,029
5. Others 1,218,176 994,108 786,996
6. Allowance for bad debt (528,839) (205,200) (206,752)
--------------- -------------- -------------
Total curent assets 61,170,587 87.8 46,080,110 86.3 57,162,330 87.5
Non current assets
1. Property and equipment *1
(1) Building 642,960 372,291 703,877
(2) Furniture and fixture 1,281,594 1,132,468 1,290,269
(3) Others 22,728 13,890 18,727
--------------- -------------- -------------
Total property 1,947,282 2.8 1,518,650 2.8
and equipment 2,012,873 3.1
2. Intangibles
(1) Software *3 892,167 415,635 661,116
(2) Software in progress 3,799 493,220 400,202
(3) Others 37,729 70,671 49,141
--------------- -------------- -------------
Total intangibles 933,695 1.3 979,528 1.8 1,110,461 1.7
3. Investments and other
non-current assets
(1) Investments in securities *2 2,854,930 2,943,721 2,529,142
(2) Investments in capital funds 707,389 928,119 707,389
(3) Deferred tax assets 1,113,576 167,531 926,772
(4) Others 954,918 810,338 882,995
(5) Allowance for bad debt (14,617) (14,617) (14,617)
--------------- -------------- -------------
Total investments and other 5,616,197 8.1 4,835,092 9.1 5,031,681 7.7
non-current assets
--------------- -------------- -------------
Total non-current assets 8,497,175 12.2 7,333,271 13.7 8,155,017 12.5
--------------- -------------- -------------
Total assets 69,667,763 100.0 53,413,382 100.0 65,317,347 100.0
=============== ============== =============
--------------------------------------------------------------------------------
7
(Thousands of yen)
---------------------------------------------------------------------------------------------------------------------------------
Condensed balance sheet
At the end of the first half of At the end of the first half of at the end of the
Period the current fiscal year the previous fiscal year previous fiscal year
Account (As of June 30, 2002) (As of June 30, 2001) (As of December 31,2001)
---------------------------------------------------------------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage
---------------------------------------------------------------------------------------------------
% % %
(Liabilities)
I Current liabilities
1. Notes and accounts
payable, trade 1,307,013 708,687 1,381,995
2. Current portion of *4 8,000,000 - 3,000,000
long-term debt
3. Current portion of *3 - 57,200 -
long-term borrowing
4. Accrued corporate 1,879,067 476,052 3,006,182
taxes and others
5. Deferred revenue 11,159,665 6,311,197 9,342,597
Allowance for
6 sales return 860,240 403,481 643,622
7 Others 3,875,857 2,148,569 4,185,534
------------------ --------------- --------------
Total current
liabilities 27,081,845 38.9 10,105,186 18.9 21,559,933 33.0
II Long-term liabilities
1. Long-term debt *4 6,500,000 15,400,000 11,500,000
2. Long-term borrowing *3 - 71,300 -
3. Deferred revenue 857,571 655,291 916,873
4. Allowance for
retirement benefits 335,956 266,651 313,082
5. Others 163,180 - 126,399
------------------ --------------- --------------
Total long-term
liabilities 7,856,708 11.3 16,393,242 30.7 12,856,355 19.7
------------------ --------------- --------------
Total liabilities 34,938,554 50.2 26,498,429 49.6 34,416,288 52.7
(Minority interests)
Minority interests - - - - - -
(Shareholders' equity)
I Common stock 7,240,079 10.4 6,799,373 12.7 6,833,677 10.5
II Additional paid-in capital - - 11,401,742 21.3 11,236,702 17.2
III Capital surplus 12,135,120 17.4 - - - -
IV Consolidated
retained earnings - - 8,180,496 15.3 11,978,410 18.3
V Accumulated earnings 15,496,223 22.2 - - - -
VI Valuation difference on
other securities (90,051) (0.1) 293,456 0.6 21,735 0.0
VII Cumulative translation
adjustment 197,292 0.3 244,405 0.5 852,595 1.3
------------------ --------------- --------------
34,978,664 50.2 26,919,476 50.4 30,923,122 47.3
Treasury stock (249,454) (0.4) (4,523) (0.0) (22,063) (0.0)
------------------ --------------- --------------
VIII Total shareholders'
equity 34,729,209 49.8 26,914,952 50.4 30,901,059 47.3
------------------ --------------- --------------
Total liabilities,
minority interests
and shareholders'
equity 69,667,763 100.0 53,413,382 100.0 65,317,347 100.0
================== =============== ==============
---------------------------------------------------------------------------------------------------------------------------------
8
(2)Consolidated semi-annual income statements
(Thousands of yen)
---------------------------------------------------------------------------------------------------------------------------------
Period For the first half of the For the first half of the Consolidated income
current fiscal year previous fiscal year statement for the
previous fiscal year
(From January 1, 2002 (From January 1, 2001 (From January 1, 2001
to June 30, 2002) to June 30, 2001) to December 31, 2001)
------------------------------------------------------------------------------------------------
Account Amount Percentage Amount Percentage Amount Percentage
---------------------------------------------------------------------------------------------------------------------------------
I Sales 20,507,019 100.0 12,939,355 100.0 31,326,320 100.0
II Cost of sales 1,195,693 5.8 732,229 5.7 1,898,970 6.1
--------------- -------------- ----------------
Gross profit 19,311,325 94.2 12,207,125 94.3 29,427,350 93.9
III Selling, general and
administrative expenses *1 12,954,810 63.2 9,308,645 71.9 19,946,331 63.6
--------------- -------------- ----------------
Operating income 6,356,514 31.0 2,898,479 22.4 9,481,018 30.3
IV Non-operating
income *2 229,891 1.1 529,037 4.1 1,064,688 3.4
V Non-operating
expenses *3 314,528 1.5 423,369 3.3 996,517 3.2
--------------- -------------- ----------------
Ordinary income 6,271,878 30.6 3,004,147 23.2 9,549,189 30.5
VI Unusual losses *4 11,292 0.1 5,128,883 39.6 5,180,970 16.6
--------------- -------------- ----------------
Income or (losses)
before taxes 6,260,585 30.5 (2,124,735) (16.4) 4,368,218 13.9
Corporate,inhabitant
and enterprise tax 3,010,051 14.6 474,050 3.7 4,205,850 13.4
Income tax-deferred (267,278) (1.3) (1,222,199) (9.5) (2,258,958) (7.2)
--------------- -------------- ----------------
Net income or
(losses) 3,517,812 17.2 (1,376,587) (10.6) 2,421,326 7.7
=============== ============== ================
----------------------------------------------------------------------------------------------------------------------------
(3)Consolidated semi-annual statement of retained earnings
(Thousands of yen)
-----------------------------------------------------------------------------------------------
Period For the first half of the
current fiscal year
(From January 1, 2002
to June 30, 2002)
-------------------------------------
Account Amount
-----------------------------------------------------------------------------------------------
Capital surplus
I Beginning balance of capital surplus 11,236,702
II Increase in capital surplus
Newly issued stock by capital increase 406,110
Others 492,306
III Ending balance of capital surplus 12,135,120
Accumulated earnings
I Beginning balance of accumulated earnings 11,978,410
II Increase in accumulated earnings
Net income 3,517,812
III Ending balance of accumulated earnings 15,496,223
=====================
-----------------------------------------------------------------------------------------------
9
(Thousands of yen)
------------------------------------------------------------------------------------------------------------
Period For the first half of the Condensed consolidated statement of
previous fiscal year retained earnings for the previous year
(From January 1, 2001 (From January 1, 2001
to June 30, 2001) to December 31, 2001)
---------------------------------------------------------------------
Account Amounts Amounts
------------------------------------------------------------------------------------------------------------
I Beginning balance of
consolidated retained earnings 9,557,084 9,557,084
II Net income or (losses) (1,376,587) 2,421,326
------------------------- --------------------------------
III Ending balance of
consolidated retained earnings 8,180,496 11,978,410
========================= ================================
------------------------------------------------------------------------------------------------------------
10
(4) Consolidated semi-annual cash flow statements
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
Period
From January 1, From January 1, From January 1, 2001
Account ( 2002 ) ( 2001 ) ( To December 31, )
To June 30, 2002 To June 30, 2001 2001
-------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
I Cash flows from operating activities
------------------------------------------------------------------------------------------------------------------------------------
1. Income (losses) before tax 6,260,585 (2,124,735) 4,363,218
------------------------------------------------------------------------------------------------------------------------------------
2. Depreciation 950,428 475,025 1,350,782
------------------------------------------------------------------------------------------------------------------------------------
3. Amortization for consolidation goodwill - 2,253,559 2,253,559
------------------------------------------------------------------------------------------------------------------------------------
4. Investment (gain) loss due to equity method accounting (2,586) 104,849 129,543
------------------------------------------------------------------------------------------------------------------------------------
5. Increase in allowance for bad debt 337,490 64,744 62,591
------------------------------------------------------------------------------------------------------------------------------------
6. Decrease in accrued pension and severance costs - (85,896) (85,896)
------------------------------------------------------------------------------------------------------------------------------------
7. Increase in allowance for retirement benefits 25,322 265,508 307,414
------------------------------------------------------------------------------------------------------------------------------------
8. Increase (Decrease) in allowance for sales returns 216,617 (105,687) 134,454
------------------------------------------------------------------------------------------------------------------------------------
9. Interest income and dividends earned (185,155) (202,266) (393,254)
------------------------------------------------------------------------------------------------------------------------------------
10. Interest cost 157,560 135,172 296,625
------------------------------------------------------------------------------------------------------------------------------------
11. Bond-issuing cost - 34,180 108,438
------------------------------------------------------------------------------------------------------------------------------------
12. Loss on evaluation of investment in capital funds - - 220,730
------------------------------------------------------------------------------------------------------------------------------------
13. Loss on disposal inventories - - 150,041
------------------------------------------------------------------------------------------------------------------------------------
14. Loss on repurchased treasury bond 8,800 - 12,000
------------------------------------------------------------------------------------------------------------------------------------
15. Decrease (Increase) in accounts receivables 1,263,362 1,364,910 (2,857,080)
------------------------------------------------------------------------------------------------------------------------------------
16. (Increase) Decrease in inventories (141,097) 113,719 (62,751)
------------------------------------------------------------------------------------------------------------------------------------
17. Increase (Decrease) in account payables 585 (261,766) 360,097
------------------------------------------------------------------------------------------------------------------------------------
18. Increase in deferred revenue 2,059,265 4,228,466 7,168,909
------------------------------------------------------------------------------------------------------------------------------------
19. Increase in other current assets (468,924) (148,294) (41,612)
------------------------------------------------------------------------------------------------------------------------------------
20. (Decrease) Increase in other current liabilities (237,866) - 2,203,488
-----------------------------------------------------------------------------------------------------------------------------------
21. Others 146,974 83,146 (423,541)
------------------------------------------------------------------------------------------------------------------------------------
Sub-total 10,391,362 6,194,634 15,262,757
------------------------------------------------------------------------------------------------------------------------------------
22. Receipts of interest 182,666 197,610 403,050
------------------------------------------------------------------------------------------------------------------------------------
23. Payments for interest (161,754) (122,592) (284,432)
------------------------------------------------------------------------------------------------------------------------------------
24. Payments for corporate taxes (3,624,846) (1,618,951) (2,817,748)
------------------------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 6,787,428 4,650,700 12,563,627
------------------------------------------------------------------------------------------------------------------------------------
II Cash flows from investing activities
------------------------------------------------------------------------------------------------------------------------------------
1. Payments for time-deposit - (65,511) (70,767)
------------------------------------------------------------------------------------------------------------------------------------
2. Proceeds from repayment of time-deposit 5,971 - -
------------------------------------------------------------------------------------------------------------------------------------
3. Payment for acquired tangible and intangible
fixed assets (892,234) (1,228,759) (2,729,595)
------------------------------------------------------------------------------------------------------------------------------------
4. Payments for investment in securities (681,974) (2,680,926) (2,929,926)
------------------------------------------------------------------------------------------------------------------------------------
5. Proceeds from sale of investment in securities 152,316 2,611,426 2,811,974
------------------------------------------------------------------------------------------------------------------------------------
Net cash flow from provided (used) by
investing activities (1,415,921) (1,363,770) (2,918,314)
------------------------------------------------------------------------------------------------------------------------------------
11
---------------------------------------------------------------------------------------------------------------------------------
III Cash flows from financing activities
---------------------------------------------------------------------------------------------------------------------------------
1. Payments for long-term borrowings - (28,600) (157,100)
---------------------------------------------------------------------------------------------------------------------------------
2. Proceeds from bond with detachable warrants 4,000,000 6,500,000 12,500,000
---------------------------------------------------------------------------------------------------------------------------------
3. Payments for bond-issuing cost - (34,180) (108,438)
---------------------------------------------------------------------------------------------------------------------------------
4. Payments for bonds maturing - (800,000) (900,000)
---------------------------------------------------------------------------------------------------------------------------------
5. Payments for repurchasing treasury stock (4,008,800) - (6,812,000)
---------------------------------------------------------------------------------------------------------------------------------
6. Proceeds from marketable securities issuing 812,512 890,508 958,567
---------------------------------------------------------------------------------------------------------------------------------
7. (Payments) proceeds for treasury stocks, net (227,391) 9,524 (13,556)
---------------------------------------------------------------------------------------------------------------------------------
8. Others (31,660) (34,012) (7,068)
---------------------------------------------------------------------------------------------------------------------------------
Net cash flow provided (used) by
financing activities 544,660 6,503,240 5,460,404
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
IV Translation difference with cash and cash equivalent (708,229) 327,561 1,241,430
---------------------------------------------------------------------------------------------------------------------------------
V Increase (Decrease) in cash and cash equivalents 5,207,937 10,117,731 16,347,147
---------------------------------------------------------------------------------------------------------------------------------
VI Beginning balance of cash and cash equivalents 40,782,649 24,435,502 24,435,502
---------------------------------------------------------------------------------------------------------------------------------
VII Ending balance of cash and cash equivalents 45,990,587 34,553,234 40,782,649
---------------------------------------------------------------------------------------------------------------------------------
12
Significant accounting policies and practices for preparing consolidated
semi-annual financial statements.
--------------------------------------------------------------------------------------------------------------------
1. Basis of consolidation All subsidiaries are consolidated.
The subsidiaries are the following 15 companies:
Trend Micro Incorporated (Taiwan)
Trend Micro Inc. (USA)
Trend Korea Inc.(Korea)
Trend Micro Italy S.r.l. (Italy)
Trend Micro Deutschland GmbH(Germany)
Trend Micro Australia Pty.Ltd.(Australia)
Trend Micro do Brasil Ltda. (Brazil)
Trend Micro France (France)
Trend Micro Hong Kong Limited (Hong Kong)
Trend Micro Incorporated Sdn.Bhd.(Malaysia)
Trend Micro (UK) Limited (United Kingdom)
Trend Micro Latinoamerica S.A. de C.V. (Mexico)
Trend Micro (NZ) Limited (Newzealand)
ipTrend Incorporated (Taiwan)
Trend Micro (Shanghai) Inc. (China)
Trend Micro Incorporated Sdn.Bhd.(Malaysia) and ipTrend
Incorporated (Taiwan) are on the process of the liquidation.
--------------------------------------------------------------------------------------------------------------------
2. Basis of applying equity method Equity method is applied to investment in
affiliated companies.
The affiliated companies are the following 4 companies.
NTT Data Security Corporation (Japan)
Soft Trend Capital Corporation (Japan)
JCN Co., Ltd. (Japan)
NetSTAR.Inc. (Japan)
There is no unconsolidated subsidiary and
affiliate, which equity method is not applied.
--------------------------------------------------------------------------------------------------------------------
3. Fiscal year of consolidated All financial statements included in a set of consolidated finan-
subsidiaries cial statements are prepared as of the same date.
--------------------------------------------------------------------------------------------------------------------
4. Accounting policies and practices (1) Securities
(1)Valuation of significant assets Available-for-sale:
Available-for-sale with fair market value:
The securities are stated at the market value method based on
the value at the end of the period (valuated differences are
recognized in equity directly, not to reflect to net earnings and
cost of selling is determined by the weighted average method).
Available-for-sale without a market value:
The securities are stated at the weighted average cost.
(2) The transaction of derivatives
The market value method
--------------------------------------------------------------------------------
13
--------------------------------------------------------------------------------------------------------------------
(3) Inventories
Finished goods Raw materials Supplies
Finished goods, raw materials and supplies are stated at
the weighted average cost.
In Trend Micro Incorporated (Taiwan) and Trend Micro Inc.
(U.S.A), such inventories are stated at the cost being
determined by the first-in-first-out method.
Work in process
Work in process is stated at the cost being determined by
accumulated production and development cost for individual
projects
--------------------------------------------------------------------------------------------------------------------
(2) Depreciation and amortization (1) Property and equipment
method for fixed assets
Parent company -
Depreciation is computed by declining-balance method.
Useful life and salvage value of the fixed assets are
determined using the standard which is regulated by
corporate tax law.
Building (excluding facilities and leasehold improvement)
acquired after April 1, 1998 are depreciated by a straight-
line method.
Foreign consolidated subsidiaries -
Depreciation is computed by a straight-line method.
(2) Intangibles
Parent company
(Software for sale)
Straight-line method over the estimated useful lives.
(mainely, for 12 months)
(Software for internal use)
Straight-line method over the estimated useful lives
(5 years).
(Other intangibles)
Straight-line method
Amortization years are determined using the standard
which is regulated by corporate tax law.
Foreign consolidated subsidiaries
Straight-line method over the estimated economic
useful lives.
(3) Long-term prepaid expense
Amortization is computed by a straight-line method.
Amortization years are determined using the standard
which is regulated by corporate tax law.
--------------------------------------------------------------------------------------------------------------------
(3) Accounting for significant Issuing costs of stocks and bonds are charged to expense when
deferred assets incurred.
--------------------------------------------------------------------------------------------------------------------
(4) Accounting policies for significant (1) Allowance for bad debt
provisions
As contingency against losses from default of note and account
receivable, the allowance for doubtful accounts is provided.
The amount is determined using a percentage based on own
actual doubtful account loss against total of debts and an
amount, which takes into consideration the possibility of
recovering specific liabilities.
--------------------------------------------------------------------------------------------------------------------
14
--------------------------------------------------------------------------------
(2) Allowance for sales return
In order to reserve future losses
from sales return subsequent to
the fiscal year-end, allowance for
sales return is provided based on
the past experience in the sales
return.
(3) Allowance for retirement benefits
In order to reserve future losses
from retirement of employees,
allowance for retirement benefits
are provided based on retirement
benefit liabilities and pension
assets at the end of the period
under reviewing.
Regarding actuarial gain and loss,
they are all expensed in the
following accounting period in
parent company.
In consolidated subsidiaries, they
are amortized by a straight-line
method over the average employee
job life and expensed in the
accouting period of incurrence and
thereafter.
Unrecognized prior service cost is
booked in consolidated
subsidiaries. It is amortized by a
straight-line method over the
average employee job life and
expensed in the accounting period
of incurrence and thereafter.
--------------------------------------------------------------------------------
(5) Translation of major foreign-currency Foreign-currency financial
assets and liabilities into Yen. receivables and liabilities are
translated into yen at the spot
rate effective at the end of the
period. Exchange differential is
treated as a profit/loss.
Foreign-currency assets and
liabilities held by overseas
subsidiaries are translated into
yen at the spot rate effective at
the end of the period. Revenue
and expenses of overseas
subsidiaries are translated into
yen at the average rate during the
period. Exchange differential is
included in "Cumulative
translation adjustment" under
Shareholders' equity.
--------------------------------------------------------------------------------
(6) Accounting for leased assets Finance leases without transfer of
ownership of the leased assets are
accounted for in the same manner
as applied to operating leases.
--------------------------------------------------------------------------------
(7) Consumption tax Transactions subject to
consumption tax are stated at the
amount net of the related
consumption tax.
--------------------------------------------------------------------------------
(8) Accounting treatment for stock The parent company and its
warrants and stock options granted to subsidiaries have adopted
directors and certain employees under incentive plans pursuant to which
the Company's incentive plan warrants to purchase parent
company shares were granted to
directors and certain employees.
Under these plans, the parent
company issued bonds with
detachable warrants and
immediately repurchased all of the
warrants for distribution to
grantees.
In addition, our U.S. subsidiary
adopted an incentive plan in which
parent company shares, that were
transferred to a special purpose
company by certain large
shareholders, and from the
previous fiscal year, based on the
unrevised Japanese Commercial
Code, the compensation plan of
stock option (subscription right
method) for directors and certain
employees of the company and
subsidiaries that is provided as
specific related entrepreneur on
the Industrial Revitalization
Special Measures Law, were granted
to certain directors and employees
(these three plans are hereinafter
referred to as the "stock option
plan").
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The total compensation cost under
the stock option plan is measured
by differences between the quoted
market price of the parent company
shares at the measurement date
(the first date on which both the
number of shares an individual
employee is entitled to receive
and the exercise price are known
(normally the grand date)) and the
exercise price and is recognized
as expense over the exercisable
period.
The warrant portion of the bonds
with detachable warrants issued
under the stock option plan is
recorded as "warrant account" in
current liability upon issuance of
the bonds and eliminated upon
repurchasing the warrants.
The accounting policy on
compensation cost is the same as
that of our U.S. subsidiary. For
the purpose of unification of
accounting policies to disclose
financial position and results of
operation as a group more
accurately, financial statements
before consolidation of parent
company and its subsidiaries
(other than the U.S. subsidiary)
have been adjusted through
consolidation.
The adjustment of the parent
company's financial statements,
which was made on the process of
consolidation, resulted in an
increase in operating income,
ordinary income and income before
taxes of 113,206 thousand yen
each, and an increase in net
income after tax of 65,603
thousand yen. In addition, the
balance of consolidated retained
earnings at the end of first half
of current consolidated fiscal
year is increased by 647,912
thousand yen.
(9) Revenue recognition method for Basically, the product license
Post Contract Customer Support agreement contracted with the
Service (PCS) end-user states the article for
PCS (customer support and
upgrading of products and its
pattern files).
Parent company and its
subsidiaries adopt the following
revenue recognition method for the
portion of PCS. Portion of PCS
revenue is recognized separately
from total revenue and it is
deferred as deferred revenues
under current liabilities and
non-current liabilities based on
contracted period. Deferred
revenue is finally recognized for
the contracted period evenly.
--------------------------------------------------------------------------------
5. Definition of cash and cash Cash and cash equivalents in the
equivalent in the consolidated cash consolidated statement of cash
flow statement for the first half flows are composed of cash in
of current fisical year hand, bank deposits able to be
withdrawn on demand and short-term
investments with an original
maturity of three months or less
and which represent a minor risk
of fluctuations in value.
--------------------------------------------------------------------------------
16
Notes
(Consolidated semi-annual balance sheets) (Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
At the end of the first half of the At the end of the first half of the At the end of the previous
current fiscal year previous fiscal year fiscal year
(As of June 30, 2002) (As of June 30, 2001) (As of December 31, 2001)
------------------------------------------------------------------------------------------------------------------------------------
1 Accumulated depreciation of 1 Accumulated depreciation of 1 Accumulated depreciation of
property and equipment property and equipment property and equipment
1,504,072 999,549 1,308,385
------------------------------------------------------------------------------------------------------------------------------------
2 Major assets owned toward 2 Major assets owned toward 2 Major assets owned toward
affiliates affiliates affiliates
Investments in securities Investments in securities Investments in securities
87,515 109,623 84,928
------------------------------------------------------------------------------------------------------------------------------------
----------------------- 3 Pledged assets and liabilities -----------------------
applied to its assets are as
follows:
[Pledged assets]
Software 21,410
[Liability applied to the above]
Current portion of
Long-term debt 57,200
Long-term
Borrowing 71,300
-----------------------------
Total 128,500
------------------------------------------------------------------------------------------------------------------------------------
*4 Treasury bonds ----------------- *4 Treasury bonds
In order for the warrants to be granted In order for the warrants to be granted
or transferred to the or transferred to the
directors and certain employees directors and certain employees
of the Company and the of the Company and the
directors and certain employees directors and certain employees
of the affiliated company, parent of the affiliated company, parent
company issued unsecured company issued unsecured
bonds with detachable warrants. bonds with detachable warrants.
Undersection 341-8-4 of Japanese Undersection 341-8-4 of Japanese
Commercial Code, the Commercial Code, the
redemption and retirement of redemption and retirement of
these bonds are restricted when these bonds are restricted when
total amount of bonds is less total amount of bonds is less
than the total amount of issue than the total amount of issue
price of the stocks from price of the stocks from
unexecuted warrants. unexecuted warrants.
To reduce interest costs, parent To reduce interest costs, parent
company repurchased a part of company repurchased a part of
the issued bonds after warrants were the issued bonds after warrants were
detached. For this reason,the company detached. For this reason,
intends to hold the treasury bonds the Company intends to hold
until they can be retired legally and the treasury bonds until they can be
it is same as the redemption retired legally and it is same as
substantially. the redemption substantially.
------------------------------------------------------------------------------------------------------------------------------------
17
------------------------------------------------------------------------------------------------------------------------------------
Thus, bonds and treasury bonds Thus, bonds and treasury bonds
are disclosed in net amount in the are disclosed in net amount in the
balance sheet as follows. The balance sheet as follows. The
difference between the repurchased difference between the repurchased
price and book value of the price and book value of the
treasury bonds at the time of treasury bonds at the time of
transaction are booked as loss on transaction are booked as loss on
repurchase of treasury bonds in the repurchase of treasury bonds in the
unusual loss section. unusual loss section.
(Thousands of yen) (Thousands of yen)
Current liability Non-current liability Current liability Non-current liability
Bonds ----------------- --------------------- Bonds ----------------- ---------------------
8,800,000 16,500,000 3,800,000 17,500,000
Treasury Treasury
bonds (800,000) (10,000,000) bonds (800,000) (6,000,000)
---------------- --------------------- ----------------- ---------------------
8,000,000 6,500,000 3,000,000 11,500,000
================= ===================== ================= =====================
------------------------------------------------------------------------------------------------------------------------------------
18
(Consolidated semi-annual income statements)
(Thousands of yen)
----------------------------------------------------------------------------------------------------------------------------------
For the first half of the current fiscal year For the first half of the previous fiscal year For the previous fiscal year
(From January 1, 2002 ) (From January 1, 2001) (From January 1, 2001)
To June 30, 2002 To June 30, 2001 To December 31, 2001
----------------------------------------------------------------------------------------------------------------------------------
1. Major components of selling, general 1. Major components of selling, general and 1. Major components of selling,
and administrative expenses administrative expenses general and administrative
expenses
Advertising and sales Advertising and sales Advertising and sales
promotions 2,511,275 promotions 1,141,450 promotions 2,617,250
Salaries and bonuses 3,118,262 Salaries and bonuses 2,539,854 Salaries and bonuses 5,827,285
Out-side service fee 528,104 Out-side service fee 789,749 Out-side service fee 1,643,626
Depreciation expense 310,716 Depreciation expense 198,818 Depreciation expense 462,450
Research and Development costs 914,720 Research and Development costs 1,246,142 Research and development
Software maintenance fee 924,705 Amortization of consolidated costs 1,901,434
goodwill 252,763 Amortization of
Software maintenance fee 325,115 consolidated goodwill 252,763
Software maintenance fee 853,766
----------------------------------------------------------------------------------------------------------------------------------
2. Major components of 2. Major components of 2. Major components of
non-operating income non-operating income non-operating income
Interest income 185,155 Interest income 202,266 Interest income 393,254
Equity in gain of affiliated Foreign exchange gain 307,532 Foreign exchange gain 567,551
companies 2,586
----------------------------------------------------------------------------------------------------------------------------------
3. Major components of 3. Major components of 3. Major components of
non-operating expense non-operating expense non-operating expense
Interest expense 157,560 Interest expense 135,172 Interet expense 296,625
Foreign exchange loss 98,695 Bond issue costs 34,180 Bond issue cost 108,438
Equity in loss of affiliated companies 104,849 Equity in loss of
Loss on disposal of products 49,328 affiliated companies 129,543
Loss on disposal of
product 150,041
Loss on evaluation of
investment in capital fund 220,730
----------------------------------------------------------------------------------------------------------------------------------
4. Major components of 4. Major components of 4. Major components of
unusual losses unusual losses unusual losses
Loss on disposal of Amortization of Loss on disposal of
fixed assets 2,492 Consolidated Goodwill fixed assets 30,307
Loss on repurchased (the component of Amortization of
treasury bond 8,800 Unusual Losses) 2,000,795 Consolidated Goodwill
Loss on prior year (the component of
adjustment (due to Unusual Losses) 2,000,795
change in revenue Loss on prior year
recognition) 3,009,009 adjustment (due to
Retirement benefit expense 119,077 change in revenue
recognition) 3,009,009
Retirement benefit
expense 119,077
Loss on repurchased
treasury bond 12,000
==================================================================================================================================
19
(Consolidated semi-annual cash flow statement)
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
For the first half of the current fiscal year For the first half of the previous fiscal year For the previous fiscal year
(From January 1, 2002) (From January 1, 2001) (From January 1, 2001)
To June 30, 2002 To June 30, 2001 To December 31, 2001
------------------------------------------------------------------------------------------------------------------------------------
1. The ending balance of cash and 1. The ending balance of cash 1. The ending balance of cash
cash equivalents and accounts in and cash equivalents and and cash equivalents and
the consolidated balance sheet accounts in the consolidated accounts in the consolidated
balance sheet balance sheet
Cash and deposits 46,055,383 Cash and deposits 34,618,745 Cash and deposits 40,853,417
Time deposit matured over Time deposit matured over Time deposit matured over
3 months (excluded from 3 months (excluded from 3 months (excluded from
cash and deposit) (64,795) cash and deposit) (65,511) cash and deposit) (70,767)
---------- ---------- ----------
Cash and Cash and Cash and
cash equivalents 45,990,587 cash equivalents 34,553,234 cash equivalents 40,782,649
====================================================================================================================================
20
4. Segment Information
1. Industry segment information
The company and its subsidiaries had operated principally in two
industry segments: "Security software business" and "Internet
infrastructure-related products/service business". However, ip Trend
Incorporated (Tokyo Shibuya-ku) and ip Trend Incorporated (Tokyo Chuo-ku)
which have operated "Internet-related product/service business" was
liquidated in the previous fiscal year and ip Trend Incorporated (Taiwan)
has been processed to liquidate. Thus, from the current fiscal year, the
company and its subsidiaries are specialized in "Security software
business". Also, industry segment information was not disclosed in the
first-half of the previous fiscal year since more than 90% of sales and
operating income in all segments were from the "security software business"
in accordance with Ordinance on Consolidated Financcial Statements.
2. Geographic segment information
(Thousands of yen)
-----------------------------------------------------------------------------------------------------------------------------------
For the first-half of the current fiscal year (From January 1, 2002
To June 30, 2002)
-------------------------------------------------------------------------------------------------------
Japan North America Europe Asia Pacific Others Total Eliminations Consoli-
or dated
Corporate
-----------------------------------------------------------------------------------------------------------------------------------
Sales and operating
profit/loss
Sales
(1) Sales to 8,570,556 4,667,439 4,681,702 1,984,283 603,037 20,507,019 - 20,507,019
third parties
(2) Intersegment 4,126,129 2,603,594 25,884 1,541,443 - 8,297,051 (8,297,051) -
sales
-----------------------------------------------------------------------------------------------------------------------------------
Total 12,696,685 7,271,033 4,707,586 3,525,727 603,037 28,804,070 (8,297,051) 20,507,019
-----------------------------------------------------------------------------------------------------------------------------------
Operating expenses 2,893,874 6,367,553 4,767,830 3,315,177 560,804 17,905,241 (3,754,737) 14,150,504
-----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 9,802,810 903,480 (60,244) 210,549 42,232 10,898,828 (4,542,313) 6,356,514
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
For the first-half of the previous fiscal year (From January 1, 2001
To June 30, 2001)
--------------------------------------------------------------------------------------------------------
Japan North Taiwan Europe Others Total Eliminations Consoli-
America or dated
Corporate
-----------------------------------------------------------------------------------------------------------------------------------
Sales and operating
profit (loss)
Sales
(1) Sales to 4,487,537 4,017,815 883,543 2,796,599 753,858 12,939,355 - 12,939,355
third parties
(2) Intersegment 3,053,423 881,345 1,080,149 8,105 35,295 5,058,319 (5,058,319) -
sales
-----------------------------------------------------------------------------------------------------------------------------------
Total 7,540,960 4,899,160 1,963,693 2,804,705 789,153 17,997,674 (5,058,319) 12,939,355
-----------------------------------------------------------------------------------------------------------------------------------
Operating expenses 2,815,535 4,596,694 1,991,885 2,851,499 771,900 13,027,514 (2,986,639) 10,040,875
-----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 4,725,425 302,466 (28,192) (46,794) 17,253 4,970,159 (2,071,679) 2,898,479
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
For the previous fiscal year (From January 1, 2001
To December 31 2001)
--------------------------------------------------------------------------------------------------------
Japan North Taiwan Europe Others Total Eliminations Consoli-
America or dated
Corporate
-----------------------------------------------------------------------------------------------------------------------------------
Sales and operating
profit (loss)
Sales
(1) Sales to 12,114,971 8,577,200 1,896,325 6,860,192 1,877,630 31,326,320 - 31,326,320
third parties
(2) Intersegment 6,914,741 2,530,239 2,288,584 21,285 101,687 11,856,537 (11,856,537) -
sales
-----------------------------------------------------------------------------------------------------------------------------------
Total 19,029,713 11,107,439 4,184,909 6,881,478 1,979,317 43,182,858 (11,856,537) 31,326,320
-----------------------------------------------------------------------------------------------------------------------------------
Operating expenses 5,730,025 10,037,183 4,328,060 6,349,022 1,807,521 28,251,812 ( 6,406,510) 21,845,302
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 13,299,688 1,070,256 (143,150) 532,455 171,795 14,931,045 ( 5,450,026) 9,481,018
-----------------------------------------------------------------------------------------------------------------------------------
21
(Notes)
1. Classification of countries and regions is based on geographical proximity.
2. Classification of countries and regions into each geographic segment.
North America : U.S.A.
Europe : Italy, Germany, France, UK
Asia Pacific : Taiwan, Korea, Australia, Hong Kong, Malaysia, New
Zealand, China
Others : Brazil, Mexico
3. Unallocable operating expenses for the current semi-annual period in the
operating expense (JPY 5,531 millions) is included in "Eliminations or
Corporate". Major components are expenses for the administrative department
in parent company and research and development costs for our products.
4. Unallocable operating expenses for the previous semi-annual period in the
operating expense (JPY 2,565 millions) is included in "Eliminations or
Corporate". Major components are expenses for the administrative
department in parent company and research and development costs for our
products.
5. Unallocable operating expenses for the previous annual period in the
operating expense (JPY 6,310 millions) is included in "Eliminations or
Corporate". Major components are expenses for the administrative department
in parent company and research and development costs for our products.
6. Unallocable operating expenses are included in "Elimination or Corporate"
due to the difficulty in recognizing their contribution to each segments'
profit and loss.
7. Taiwan had been disclosed separately. However, the sales volume in Taiwan
have been decreasing and it is expected to decline more. In addition,
strictly considering geographical proximity, it is rational to disclose
Taiwan together with Korea, Australia, Hong Kong, Malaysia, New Zealand and
China. Therefore, from the first half of the current fiscal year, they are
disclosed as "Asia Pacific". Segment information for the first half of the
previous fiscal year and previous fiscal year in the current way of
classification and allocation are as follows.
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
For the first-half of the previous fiscal year (From January 1, 2001
To June 30, 2001)
-------------------------------------------------------------------------------------------------------
Eliminations
North or Consoli-
Japan America Europe Asia Pacific Others Total Corporate dated
------------------------------------------------------------------------------------------------------------------------------------
Sales and operating
profit/loss
Sales
(1) Sales to
third parties 4,487,537 4,017,815 2,796,599 1,216,370 421,031 12,939,355 - 12,939,355
(2) Intersegment sales 3,053,423 881,345 8,105 1,106,732 - 5,049,606 (5,049,606) -
------------------------------------------------------------------------------------------------------------------------------------
Total 7,540,960 4,899,160 2,804,705 2,323,103 421,031 17,988,961 (5,049,606) 12,939,355
------------------------------------------------------------------------------------------------------------------------------------
Operating expenses 2,815,535 4,596,694 2,851,499 2,454,772 300,300 13,018,802 (2,977,926) 10,040,875
------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 4,725,425 302,466 (46,794) (131,669) 120,730 4,970,159 (2,071,679) 2,898,479
------------------------------------------------------------------------------------------------------------------------------------
(From January 1, 2001
For the first-half of the previous fiscal year To December 31, 2001)
-------------------------------------------------------------------------------------------------------
Eliminations
or Consoli-
Japan North America Europe Asia Pacific Others Total Corporate dated
------------------------------------------------------------------------------------------------------------------------------------
Sales and operating
profit/loss
Sales
(1) Sales to
third parties 12,114,971 8,577,200 6,860,192 2,803,818 970,137 31,326,320 - 31,326,320
(2) Intersegment sales 6,914,741 2,530,239 21,285 2,367,299 - 11,833,565 (11,833,565) -
------------------------------------------------------------------------------------------------------------------------------------
Total 19,029,713 11,107,439 6,881,478 5,171,117 970,137 43,159,886 (11,833,565) 31,326,320
------------------------------------------------------------------------------------------------------------------------------------
Operating expenses 5,730,025 10,037,183 6,349,022 5,454,439 658,171 28,228,841 (6,383,539) 21,845,302
------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 13,299,688 1,070,256 532,455 (283,321) 311,966 14,931,045 (5,450,026) 9,481,018
------------------------------------------------------------------------------------------------------------------------------------
22
(3) Overseas sales
(Thousands of yen)
--------------------------------------------------------------------------------------------------------------
(From January 1, 2002
For the first-half of the current fiscal year To June 30, 2002)
----------------------------------------------------------------------------
North
America Europe Asia Pacific Others Total
--------------------------------------------------------------------------------------------------------------
I Overseas sales 4,667,439 4,681,702 1,984,283 603,037 11,936,462
II Consolidated sales 20,507,019
III Ratio of overseas sales
against consolidated sales 22.8% 22.8% 9.7% 2.9% 58.2%
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
(From January 1, 2001
For the first-half of the previous fiscal year To June 30, 2001)
----------------------------------------------------------------------------
North
America Taiwan Europe Others Total
--------------------------------------------------------------------------------------------------------------
I Overseas sales 4,017,815 663,751 2,796,599 982,714 8,460,881
II Consolidated sales 12,939,355
III Ratio of overseas sales
against consolidated sales 31.1% 5.1% 21.6% 7.6% 65.4%
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
(From January 1, 2001
For the previous fiscal year To December 30, 2001)
----------------------------------------------------------------------------
North
America Taiwan Europe Others Total
--------------------------------------------------------------------------------------------------------------
I Overseas sales 8,577,200 1,905,389 6,860,192 1,877,630 19,220,413
II Consolidated sales 31,326,320
III Ratio of overseas sales
against consolidated sales 27.4% 6.1% 21.9% 6.0% 61.4%
--------------------------------------------------------------------------------------------------------------
(Note) 1. Overseas sales are sales to countries/regions other than Japan by
Trend Micro Inc. and its consolidated subsidiaries.
2. Classification of countries/region is based on geographical
proximity.
3. Classification North America : USA
Europe : Italy, Germany, France, UK
Asia Pacific : Taiwan, Korea, Australia, Hong
Kong, Malaysia, New Zealand,
China
Others : Brazil, Mexico
4. Taiwan had been disclosed separately. However, the sales volume in
Taiwan have been decreasing and it is expected to decline more. In
addition, strictly considering geographical proximity, it is rational
to disclose Taiwan together with Korea, Australia, Hong Kong,
Malaysia, New Zealand and China. Therefore, from the current
semi-annual period, they are disclosed as "Asia Pacific". Segment
information for the previous semi-annual period and previous fiscal
year in the current way of classification and allocation are as
follows.
23
(Thousands of yen)
--------------------------------------------------------------------------------------------------------------
(From January 1, 2001
For the first-half of the previous fiscal year To June 30, 2001)
----------------------------------------------------------------------------
North
America Europe Asia Pacific Others Total
--------------------------------------------------------------------------------------------------------------
I Overseas sales 4,017,815 2,796,599 1,225,435 421,031 8,460,881
II Consolidated sales 12,939,355
III Ratio of overseas sales
against consolidated sales 31.1% 21.6% 9.5% 3.3% 65.4%
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
(From January 1, 2001
For the previous fiscal year To December 31, 2001)
----------------------------------------------------------------------------
North
America Europe Asia Pacific Others Total
--------------------------------------------------------------------------------------------------------------
I Overseas sales 8,577,200 6,860,192 2,812,882 970,137 19,220,413
II Consolidated sales 31,326,320
III Ratio of overseas sales
against consolidated sales 27.4% 21.9% 9.0% 3.1% 61.4%
--------------------------------------------------------------------------------------------------------------
5. Lease transactions None
24
6. Fair Market Value of Marketable Securities
(1) Available-for-sale with fair market value
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
Classification At the end of the first half of the At the end of the first half of the At the end of the
current fiscal year previous fiscal year previous fiscal year
As of June 30, 2002
(As of June 30, 2001) (As of December 31, 2001)
------------------------------------------------------------------------------------------------------------------------------------
Recorded Recorded Recorded
Available-for-sale Acquisition amount on Difference Acquisition amount on Difference Acquisition amount on Difference
cost Consolidated cost Consolidated cost Consolidated
BS BS BS
------------------------------------------------------------------------------------------------------------------------------------
1. Equity securities 140,905 82,103 (58,802) 332,475 737,206 404,730 172,475 100,193 (72,282)
2. Debt securities
Government bond/
Municipal bond 277,503 251,069 (26,433)
Corporate bond 1,970,171 1,886,941 (83,229) 1,700,000 1,768,510 68,510 1,700,000 1,746,920 46,920
Others
3. Others 9,995 9,781 (214)
------------------------------------------------------------------------------------------------------------------------------------
Total 2,388,580 2,220,114 (168,465) 2,042,471 2,515,498 473,027 1,872,475 1,847,113 (25,362)
------------------------------------------------------------------------------------------------------------------------------------
(2) Major securities market value non-applicable
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
Classification At the end of the first half of At the end of the first half of At the end of the
the current fiscal year the previous fiscal year previous fiscal year
(As of June 30, 2002) (As of June 30, 2001) (As of December 31, 2001)
------------------------------------------------------------------------------------------------------------------------------------
Available-for-sale Recorded amount on Recorded amount on Recorded amount on
consolidated B/S consolidated B/S consolidated B/S
------------------------------------------------------------------------------------------------------------------------------------
1. Unlisted securities 634,815 428,223 682,028
(excluding OTC transaction securities)
2. Others
------------------------------------------------------------------------------------------------------------------------------------
Total 634,815 428,223 682,028
------------------------------------------------------------------------------------------------------------------------------------
25
7. Contract or Notional amount, FMV and Valuation gain(loss) of Derivatives
Basic policies for derivative transactions
A corporate policy of Trend Micro Group does not engage in derivative
transactions. However, the interest cap trading and the interest rate swap
had been made by ipTrend Incorporated (Tokyo, Chuo-ku, liquidated in the
previous fiscal year), before the company acquisition. (Due to business
transfer to Trend Micro in the previous fiscal year, Trend Micro Inc. has
been transferred the interest cap trading and the interest rate swap.) Trend
Micro Group has no intention of changing, so there will no newly derivative
transactions in future. These transactions had been made to avoid risks for
interest rate fluctuation. The borrowing applied to the hedge was paid
completely, when ipTrend Incorporated became a consolidated subsidiary.
The contractor for the interest cap trading and the interest rate swap is the
financial institution, which is trustworthy institution. No expectation is
required for future losses because of any defaults. In addition, these
transactions have a risk related to rate changing, but there is no
significant effect for the company business.
The contract amount of "Fair market value of the derivative transaction"
doesn't show the amount of risks on the derivative market.
Fair market value of the derivative transaction
Contract or notional amount, fair market value and appraisal gain (loss)
----------------------------------------------------------------------------------------------------------------
At the end of the first half of the At the end of the first half of the
Classification current fiscal year previous fiscal year
As of June 30, 2002 As of June 30, 2001
--------------------------------------------------------------------------
Type Contract amount Contract amount
Fair Fair
------ market Appraisal ------ market Appraisal
Over value gain (loss) Over value gain (loss)
1 year 1 year
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Interest cap
Out-side market
transaction
Buy 100,000 100,000 14 (3,185) 100,000 100,000 111 (3,088)
(Option (3,200) (3,200) (3,200) (3,200)
Premium)
Interest rate
swap
Receive/floating 200,000 200,000 (8,737) (8,737) 200,000 200,000 (10,680) (10,680)
and pay/fixed
----------------------------------------------------------------------------------------------------------------
Total 300,000 300,000 (8,722) (11,922) 300,000 300,000 (10,569) (13,768)
----------------------------------------------------------------------------------------------------------------
(Thousands of yen)
----------------------------------------------------------------------------
At the end of the
Classification previous fiscal year
As of December 31, 2001
---------------------------------------
Type Contract amount
Fair
------ market Appraisal
Over value gain (loss)
1 year
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest cap
Out-side market
transaction
Buy 100,000 100,000 63 (3,136)
(Option (3,200) (3,200)
Premium
Interest rate
swap
Receive/floating 200,000 200,000 (9,773) (9,773)
and pay/fixed
---------------------------------------------------------------------------
Total 300,000 300,000 (9,710) (12,910)
---------------------------------------------------------------------------
(Note) 1. The amount of option premium is stated in ( ) and the fair market
value of it and appraisal gain (loss) are stated on the above.
2. Fair market value is determined based on the price, which is provided
by the contractor of the financial institute.
8. Significant subsequent events
N/A
26
9. Manufacturing and sales result
(1) Manufacturing result
(Thousands of yen)
-------------------------------------------------------------------------------------------------------------------------
Period (From January 1, 2002 (From January 1, 2001 (From January 1, 2001
Products To June 30, 2002) To June 30, 2001) To December 31, 2001)
-------------------------------------------------------------------------------------------------------------------------
PC Client 25,286 4,116 150,846
-------------------------------------------------------------------------------------------------------------------------
LAN Server - 15,735 25,031
-------------------------------------------------------------------------------------------------------------------------
Internet Server 375,008 154,956 570,641
-------------------------------------------------------------------------------------------------------------------------
Other Products 461,952 10,290 205,382
-------------------------------------------------------------------------------------------------------------------------
Internet based products/
service - 356,427 354,040
-------------------------------------------------------------------------------------------------------------------------
Total 862,247 541,525 1,305,942
-------------------------------------------------------------------------------------------------------------------------
(Note) 1. Amount is based on manufacturing expense.
2. Consumption tax is not included in the amount above.
(2) Sales result
(Thousands of yen)
-------------------------------------------------------------------------------------------------------------------------
Period (From January 1, 2002 (From January 1, 2001 (From January 1, 2001
Products To June 30, 2002) To June 30, 2001) To December 31, 2001)
-------------------------------------------------------------------------------------------------------------------------
PC Client 7,231,689 4,320,161 11,283,846
--------------------------------------------------------------------------------------------------------------------------
LAN Server 2,633,354 1,237,716 3,400,685
--------------------------------------------------------------------------------------------------------------------------
Internet Server 6,942,460 4,513,593 10,070,003
--------------------------------------------------------------------------------------------------------------------------
Other Products 528,772 209,099 681,483
--------------------------------------------------------------------------------------------------------------------------
Internet based products/
service - 505,043 574,197
--------------------------------------------------------------------------------------------------------------------------
Sub-total 17,336,276 10,785,615 26,010,216
--------------------------------------------------------------------------------------------------------------------------
Other service 3,170,742 2,153,739 5,316,103
--------------------------------------------------------------------------------------------------------------------------
Total 20,507,019 12,939,355 31,326,320
--------------------------------------------------------------------------------------------------------------------------
(Note) 1. Quantity is omitted due to many types of products included in one
product line.
27
July 30, 2002
Report of First-Half Results (Non-consolidated)
For Fiscal Year Ending December 31, 2002
Company: Trend Micro Incorporated Tokyo Stock Exchange 1/st/ Section
Code: 4704 Location: Tokyo
(URL http://www.trendmicro.co.jp/)
Contact: Title Controller, Financial & Accounting Department
Name Ryo Masaki (Phone: 81-3-5334-3600)
Date of the board of directors meeting
authorizing the first-half results: July 30, 2002
The company can distribute semi-annual cash dividends based on the Article of
corporation. Starting date of semi-annual dividend payment: No semi-annual
dividends were authorized for this semi-annual period.
The company adopts Unit Stock method. (One unit: 500 shares)
1. Financial Highlights for the first half of FY 2002 (January 1, 2002 through
June 30, 2002)
(1) Results of operations
(All figures except for per share information are rounded down to millions of
yen.)
---------------------------------------------------------------------------------------------------------------------------------
Operating Ordinary
Sales Growth rate income Growth rate income Growth rate
---------------------------------------------------------------------------------------------------------------------------------
Millions of yen Millions of yen Millions of yen
The first half of FY 2002 12,696 79.7 4,263 57.9 4,104 47.7
The first half of FY 2001 7,066 78.9 2,699 454.2 2,779 491.3
---------------------------------------------------------------------------------------------------------------------------------
FY 2001 (annual) 18,454 7,579 7,589
---------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
Net income
Net income Growth rate per share
------------------------------------------------------------------------
Millions of yen Yen
The first half of FY 2002 2,251 17.03
The first half of FY 2001 (2,166) (16.49)
------------------------------------------------------------------------
FY 2001 (annual) 393 2.99
------------------------------------------------------------------------
(Note)
1. Weighted average number of shares 132,153,432 shares (for the first
outstanding: half of FY 2002)
131,339,944 shares (for the first
half of FY 2001)
131,594,913 shares (for FY 2001)
2. Change in accounting policies: None
3. The percentage of sales, operating income, ordinary income and net income are
comparison to the first half of prior fiscal year.
(2) Dividends
----------------------------------------------------------------------------
Semi-annual dividends Annual dividends
per share per share
(Yen) (Yen)
---------------------------------------------------------------------------
The first half of FY 02 0 -
The first half of FY 01 0 -
---------------------------------------------------------------------------
FY 01 (annual) - 0
---------------------------------------------------------------------------
28
(3) Financial Position
-------------------------------------------------------------------------------------------------------------------
Shareholders' Shareholders' equity
Total assets Shareholders' equity equity ratio per share
-------------------------------------------------------------------------------------------------------------------
As of Millions of yen Millions of yen Yen
June 30, 2002 54,196 23,985 44.3 181.02
June 30, 2001 41,809 18,803 45.0 142.80
-------------------------------------------------------------------------------------------------------------------
December 31, 2001 49,142 21,139 43.0 160.10
-------------------------------------------------------------------------------------------------------------------
(Note)
1. Number of shares issued at 132,492,510 shares as of June 30, 2002
the end of period: 131,681,887 shares as of June 30, 2001
132,052,284 shares as of December 31, 2001
2. Number of treasury stocks at 72,654 shares as of June 30,2002
the end of period: 916 shares as of June 30, 2001
9,102 shares as of December 31, 2001
29
1. Non-consolidated Semi-annual Financial Statements
(1) Non-consolidated semi-annual balance sheets
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
Period At the end of the first Condensed balance sheet
At the end of the first half half of the previous fiscal at the end of
of the current fiscal year year previous fiscal year
Account (As of June 30, 2002) (As of June 30, 2001) (As of December 31, 2001)
------------------------------------------------------------------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage
% % %
---------------------------------------------------------------------------------------
(Assets)
I Current assets
1. Cash and bank deposits 35,002,683 23,950,538 27,935,721
2. Accounts receivable, trade 6,862,634 4,726,066 9,062,033
3. Treasury stock 2 - 4,523 -
4. Inventories 198,631 32,792 110,253
5. Intercompany loan receivables 91,924 1,349,980 508,266
6. Other accounts receivable 785,462 873,047 553,079
7. Deferred tax assets 2,915,766 1,764,611 2,704,514
8. Others 107,580 228,682 155,031
9. Allowance for bad debt (96,416) (473,275) (127,923)
------------ ---------- ---------
Total current assets 45,868,267 84.6 32,456,969 77.6 40,900,977 83.2
II Non-current assets
1. Property and equipment 1 661,318 1.2 266,152 0.6 676,311 1.4
2. Intangibles
(1) Software copyright - 46,070 -
(2) Software 578,376 148,955 465,072
(3) Software in progress 3,799 493,220 400,202
(4) Others 34,131 52,361 44,411
------------ ---------- ----------
Total intangibles 616,307 1.1 740,608 1.8 909,686 1.9
3. Investments and other non-current
assets
(1) Investments in securities 2,767,414 2,824,316 2,444,213
(2) Investments in subsidiaries and
affiliates 2,183,471 3,894,043 2,255,464
(3) Deferred tax assets 811,734 39,176 584,069
(4) Others 1,303,188 1,603,680 1,387,791
(5) Allowance for bad debts (14,797) (15,477) (15,559)
------------ ---------- ----------
Total investments and other
non-current assets 7,051,013 13.1 8,345,739 20.0 6,655,983 13.5
------------ ---------- ----------
Total non-current assets 8,328,638 15.4 9,352,500 22.4 8,241,981 16.8
------------ ---------- ----------
Total assets 54,196,905 100.0 41,809,470 100.0 49,142,958 100.0
============ ========== ==========
------------------------------------------------------------------------------------------------------------------------------------
30
(Thousands of yen)
-----------------------------------------------------------------------------------------------------------------------------------
Period At the end of the first Condensed balance sheet at
half of the current fiscal At the end of the first half the end of the previous
Account year of the previous fiscal year fiscal year
(As of June 30, 2002) (As of June 30, 2001) (As of December 31, 2001)
-----------------------------------------------------------------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage
-----------------------------------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities
1. Accounts payable, trade 86,934 24,801 231,874
2. Current portion of
long-term debt 5 8,000,000 - 3,000,000
3. Accounts payable, other 3,157,370 1,569,093 1,840,557
4. Accrued corporate taxes
and other 1,591,000 3,756 2,269,000
5. Allowance for sales returns 704,191 179,739 505,309
6. Warrants 3,035,527 1,917,943 2,556,691
7. Deferred revenue 5,666,866 3,011,041 4,619,339
8. Others 3 682,953 367,416 783,885
------------ ------------ -----------
Total current liabilities 22,924,844 42.3 7,073,791 16.9 15,806,660 32.2
Long-term liabilities
1. Long-term debt 5 6,500,000 15,400,000 11,500,000
2. Deferred revenue 515,418 335,737 466,493
3. Allowance for retirement
benefits 271,594 196,423 229,924
------------ ------------ -----------
Total long-term liabilities 7,287,012 13.4 15,932,160 38.1 12,196,418 24.8
------------ ------------ -----------
Total liabilities 30,211,857 55.7 23,005,952 55.0 28,003,079 57.0
Shareholders' equity
Common stock 4 7,240,079 13.4 6,799,373 16.3 6,833,677 13.9
Capital surplus
1. Additional paid-in capital 9,080,043 16.8 8,517,103 20.4 8,553,818 17.4
Accumulated earnings
1. Legal reserve 20,833 0.0 20,833 0.0 20,833 0.0
2. Unappropriated retained
earnings at the end of the
period 7,983,598 14.7 3,172,626 7.6 5,731,876 11.7
Valuation difference on other
securities (90,051) (0.2) 293,580 0.7 21,735 0.0
Treasury stock 2 (249,454) (0.4) - (22,063) 0.0
------------ ------------ -----------
Total shareholders' equity 23,985,048 44.3 18,803,517 45.0 21,139,878 43.0
------------ ------------ -----------
Total liabilities and
shareholders' equity 54,196,905 100.0 41,809,470 100.0 49,142,958 100.0
============ ============ ===========
--------------------------------------------------------------------------------------------------------------------------------
31
(2)Non-consolidated semi-annual income statements
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
Period For the first half of For the first half of Condensed income statement
the current fiscal year the previous fiscal year for the previous fiscal year
From January 1, 2002 From January 1, 2001 From January 1, 2001
To June 30, 2002 To June 30, 2001 To December 31, 2001
------------------------------------------------------------------------------------------------------------------------------------
Account Amount Percentage Amount Percentage Amount Percentage
------------------------------------------------------------------------------------------------------------------------------------
% % %
I Sales 12,696,685 100.0 7,066,538 100.0 18,454,367 100.0
II Cost of sales 5 1,038,961 8.2 320,302 4.5 1,171,372 6.3
----------- ----------- ------------
Gross profit 11,657,724 91.8 6,746,235 95.5 17,282,995 93.7
III Selling,general and
administrative expenses 1,5 7,394,357 58.2 4,046,471 57.3 9,703,516 52.6
----------- ----------- ------------
Operating income 4,263,366 33.6 2,699,764 38.2 7,579,478 41.1
IV Non-operating income 2 120,029 0.9 298,684 4.2 669,696 3.6
V Non-operating expense 3 278,789 2.2 219,152 3.1 659,572 3.6
----------- ----------- ------------
Ordinary income 4,104,606 32.3 2,779,296 39.3 7,589,602 41.1
VI Unusual losses 4 83,285 0.6 6,376,441 90.2 6,607,963 35.8
----------- ----------- ------------
Income (loss) before taxes 4,021,320 31.7 (3,597,145) (50.9) 981,639 5.3
Corporate, inhabitant and
enterprise tax 2,127,399 16.8 3,756 0.1 3,310,828 17.9
Income tax deferred (357,800) (2.8) 1,434,778 20.3 (2,722,317) (14.7)
----------- ----------- ------------
Net income (loss) 2,251,721 17.7 (2,166,122) (30.7) 393,127 2.1
Retained earnings at
the beginning of the year 5,731,876 5,338,749 5,338,749
----------- ----------- ------------
Unappropriated retained
Earnings at the end of the
period 7,983,598 3,172,626 5,731,876
=========== =========== ============
------------------------------------------------------------------------------------------------------------------------------------
32
Significant accounting policies and practices for preparing non-consolidated
semi-annual financial statements.
---------------------------------------------------------------------------------------------------------------------------
1. Accounting for evaluation of securities (1) Securities
Investments in affilates and in subsidiaries
Moving average cost method
Available-for-sale
Available-for-sale with fair market value:
The securities are stated at the market value method
based on the value at the end of the period (valuated
differences are recognized in equity directly, not to
reflect to net earnings and cost of selling is
determined by the weighted average method).
Availalble-for-sale without a market value:
The securities are stated at the weighted average cost.
(2) The transaction of derivatives
The market value method
(3) Inventories
Finished goods Raw materials Supplies
Moving average cost method
Work in process
Work in process is stated at the cost being determined
by accumulated production and development cost for
individual projects.
------------------------------------------------- --------------------------------------------------------------------------
2. Depreciation and amortization method for (1) Property and equipment
fixed assets Declining-balance method
Useful life and salvage value of the fixed assets are
determined using the standard which is regulated by
corporate tax law.
Building (excluding facilities and leasehold
improvement) acquired after April 1, 1998 are
depreciated by a straight-line method.
(2) Intangibles
(Software for mass sale)
Straight-line method over the estimated useful lives
(12 months).
(Software for internal use)
Straight-line method over the estimated useful lives (5 years).
(Other intangibles)
Straight-line method
Depreciation years are determined using the standard
which is regulated by corporate tax law.
(3) Long-term prepaid expense
Amortization is computed by a straight-line method
Amortization years are determined using the standard
which is regulated by corporate tax law.
---------------------------------------------------------------------------------------------------------------------------
3. Accounting for deferred assets Issuing costs of stocks and bonds are charged to expenses when
incurred.
------------------------------------------------- --------------------------------------------------------------------------
33
--------------------------------------------------------------------------------------------------------------------
4. Accounting policies for provisions (1) Allowance for bad debt
As contingency against losses from default of note and
account receivable, the allowance for doubtful accounts
is provided. The amount is determined using a
percentage based on own actual doubtful account loss
against total of debts and an amount, which takes into
consideration the possibility of recovering specific
liabilities.
(2) Allowance for sales return
In order to reserve future losses from sales return
subsequent to the fiscal year end, allowance for sales
return is provided based on the past experience in the
sales return.
(3) Allowance for retirement benefits
In order to reserve future losses arising from
retirement of employees, allowance for retirement
benefits is provided based on retirement benefit
liabilities at the end of the period under reviewing.
Actuarial gain and loss are all expensed in the
following accounting period.
--------------------------------------------------------------------------------------------------------------------
5. Translation of major foreign-currency Foreign-currency financial receivables and liabilities
assets and liabilities into Yen. are translated into yen at the spot rate effective at
the end of the period. Exchange differential is treated
as a profit/loss.
--------------------------------------------------------------------------------------------------------------------
6. Revenue recognition policy Revenue recognition method for Post Contract Customer
Support Service
Basically, the product license agreement contracted
with the end-user states the article for PCS (customer
support and upgrading of products and its pattern
files).
The company adopts the following revenue recognition
method for the portion of PCS. Portion of PCS revenue
is recognized separately from total revenue and it is
deferred as deferred revenues under current liabilities
and non-current liabilities based on contracted period.
Deferred revenue is finally recognized for the
contracted period evenly.
--------------------------------------------------------------------------------------------------------------------
7. Accounting for leased assets Finance leases without transfer of ownership of the
leased assets are accounted for in the same manner as
applied for operating leases.
--------------------------------------------------------------------------------------------------------------------
34
--------------------------------------------------------------------------------
8. Other important matters for (1) Consumption tax
preparing semi-annual
financial statements Transactions subject to consumption tax
are stated at the amount net of the
related consumption tax.
(2) Accounting for stock warrants that was
granted to some officers and employees.
The Company has adopted incentive plans
where warrants to purchase parent
company's shares are granted to
directors and certain employees after
parent company issues bonds with
detachable warrants and immediately
repurchases all of the warrants.
Compensation costs are measured at
repurchase costs of warrant securities
at the point of grant because that is
only one of the compensation scheme
which grants warrants to directors and
employees. Warrant portion of the bonds
is recorded as "warrant account" upon
issuance and then transferred to
"additional paid-in capital" upon
exercise.
--------------------------------------------------------------------------------
Notes
(Non-consolidated semi-annual balance sheets)
(In thousands)
----------------------------------------------------------------------------------------------------------------------------
At the end of the first half At the end of the first half
of the current fiscal year of the previous fiscal year At the end of the previous fiscal year
(As of June 30, 2002) (As of June 30, 2001) (As of Dec. 31, 2001)
----------------------------------------------------------------------------------------------------------------------------
1 Accumulated depreciation of 1 Accumulated depreciation of 1 Accumulated depreciation of
property and equipment property and equipment property and equipment
JPY 372,147 JPY 231,119 JPY 287,601
----------------------------------------------------------------------------------------------------------------------------
2 Number of treasury stocks 2 Number of treasury stocks 2 Number of treasury stocks
72,654 shares 916 shares 9,102 shares
----------------------------------------------------------------------------------------------------------------------------
3 Presentation of consumption tax 3 Presentation of consumption tax 3 Presentation of consumption tax
Net of consumption tax paid and Net of consumption tax paid and Net of consumption tax paid and
consumption tax received are included in consumption tax received are included consumption tax received are included
other current liabilities. in other current liabilities. in other current liabilities.
----------------------------------------------------------------------------------------------------------------------------
4 Description of increases in 4 Description of increases in 4 Description of increases in
the number of shares issued the number of shares issued the number of shares issued
Exercise of stock warrants detached from Exercise of stock warrants detached Exercise of stock warrants detached
bonds from bonds from bonds
-Number of shares issued -Number of shares issued -Number of shares issued
440,226 shares 442,239 shares 812,636 shares
-Issue price per share -Issue price per share -Issue price per share
JPY - JPY - JPY -
-Increase in common stock -Increase in common stock -Increase in common stock
JPY 406,401 JPY 445,635 JPY 479,939
Stock split Stock split
-Number of shares issued -Number of shares issued
65,679,227 shares 65,679,227 shares
-Issue price per share -Issue price per share
JPY - JPY -
-Increase in common stock -Increase in common stock
JPY 170,900 JPY 170,900
----------------------------------------------------------------------------------------------------------------------------
35
------------------------------------------------------------------------------------------------------------------------------------
*5 Treasury bonds *5 Treasury bonds
In order for the warrants to be In order for the warrants to be
granted or transferred to the granted or transferred to the
directors and certain employees directors and certain employees
of the Company and the directors of the Company and the directors and
and certain employees of the certain employees of the affiliated
affiliated company, the Company company, the Company issued unsecured
issued unsecured bonds with bonds with detachable warrants. Under
detachable warrants. Under section section 341-8-4 of Japanese Commercial
341-8-4 of Japanese Commercial Code, the redemption and retirement of
Code, the redemption and retirement these bonds are restricted when total
of these bonds are restricted when amount of bonds is less than the total
total amount of bonds is less than amount of issue price of the stocks
the total amount of issue price of from unexecuted warrants.
the stocks from unexecuted warrants. To reduce interest costs, the Company
To reduce interest costs, the repurchased a part of the issued bonds
Company repurchased a part of the after warrants were detached. This
issued bonds after warrants were repurchase is same as the redemption
detached. This repurchase is same as substantially.
the redemption substantially.
Thus, bonds and treasury bonds are
Thus, bonds and treasury bonds are disclosed in net amount in the balance
disclosed in net amount in the sheet as follows.
balance sheet as follows. The difference between the repurchased
The difference between the price and book value of the treasury
repurchased price and book value of bonds at the time of transaction are
the treasury bonds at the time booked as loss on repurchase of
of transaction are booked as treasury bonds in the unusual loss
loss on repurchase of treasury section.
bonds in the unusual loss
section.
(Thousands of yen) (Thousands of yen)
Current liability Non-current liability Current liability Non-current liability
------------------- ----------------------- ------------------- -----------------------
Bonds 8,800,000 16,500,000 Bonds 3,800,000 17,500,000
Treasury bonds (800,000) (10,000,000) Treasury bonds (800,000) (6,000,000)
------------------- ----------------------- ------------------- -----------------------
8,000,000 6,500,000 3,000,000 11,500,000
=================== ======================= =================== =======================
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36
(Non-consolidated semi-annual income statement)
(Thousands of yen)
--------------------------------------------------------------------------------------------------------------------------------
For the first half of the current fiscal For the first half of the previous For the previous fiscal year
year fiscal year
(From January 1, 2002 (From January 1, 2001 (From January 1, 2001
To June 30, 2002) To June 30, 2001) To December 31, 2001)
--------------------------------------------------------------------------------------------------------------------------------
1 Major components of selling, 1 Major components of selling, 1 Major components of selling,
general and administrative expenses general and administrative expenses general and administrative expenses
Sales promotions 160,171 Sales promotions 135,102 Sales promotions 697,172
Advertising 1,568,298 Advertising 73,041 Advertising 196,930
Salaries and bonuses 1,122,862 Salaries and bonuses 830,865 Salaries and bonuses 2,044,197
Pension and severance Pension and severance Pension and severance
costs 37,485 costs 28,351 costs 96,657
Depreciation expense 65,285 Depreciation expense 30,575 Depreciation expense 82,480
Service charge 464,387 Service charge 489,562 Service charge 897,229
Research and Research and Research and
development costs 903,936 development costs 1,038,519 development costs 1,779,241
Software maintenance fee 924,705 Software maintenance fee 302,088 Software maintenance fee 803,224
Intercompany charge 876,662 Intercompany charge 135,820 Intercompany charge 1,473,367
Amortization of Allowance for bad debt 21,299
software copyright 69,105 Amortization of
software copyright 115,175
--------------------------------------------------------------------------------------------------------------------------------
2 Major components of 2 Major components of 2 Major components of
non-operating income non-operating income non-operating income
Interest on securities 37,138 Interest on securities 36,218 Interest on securities 62,325
Interest income 36,775 Interest income 22,010 Interest income 51,690
Gain from reversing of Foreign exchange gain 227,396 Foreign exchange gain 481,001
allowance for bad debt 32,269 Gain on sales of
securities 19,974
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3 Major components of 3 Major components of 3 Major components of
non-operating expense non-operating expense non-operating expense
Bond interests 149,013 Bond interests 131,755 Bonds interests 290,755
Bond issue cost 11,736 Bond issue cost 34,180 Bond issue cost 108,438
Warrants fees 19,924 Warrants fees 34,012 Loss on sale of
Loss on sales of treasury stock 13,401
marketable securities 13,553 Evaluation loss on
Foreign exchange loss 80,368 investment in capital fund 220,730
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4 Major component of 4 Major component of 4 Major component of
unusual loss unusual loss unusual loss
Loss on disposal of fixed assets Loss on prior year adjustment Loss on prior year adjustment
2,492 (due to change in revenue recognition) (due to change in revenue recognition)
2,800,962 2,800,962
Valuation difference on investments in
subsidiaries and affiliates Allowance for intercompany Loss on liquidation of affiliates
71,993 loans receivable 3,460,700
Loss on repurchased treasury bond 370,000 Loss on revaluation of investments
8,800 Valuation difference on investments in in subsidiaries and affiliates
subsidiaries and affiliates 203,683
3,098,897 Retirement benefit expense
Retirement benefit expense 106,581
106,581 Loss on disposal of fixed assets
24,034
Loss on repurchased treasury bond
12,000
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5 Depreciation and amortization 5 Depreciation and amortization 5 Depreciation and amortization
expense expense expense
Property and equipment 86,473 Property and equipment 38,354 Property and equipment 107,047
Intangible fixed assets 526,079 Intangible fixed assets 207,088 Intangible fixed assets 579,993
--------------------------------------------------------------------------------------------------------------------------------
(Significant subsequent events) N/A
37
2. Lease transactions
None
3. Market value of the marketable securities
"Marketable securities (excluding investments in subsidiaries and affiliates
with fair market value)" for the first half of current fiscal year, and
market value of the marketable securities for the first half of previous
fiscal year are indicated on the explanatory note on consolidated financial
statements.
1. For the first half of current fiscal year (as of June 30, 2002)
None of investments in subsidiaries and affiliates have fair value
2. For the first half of previous fiscal year (as of June 30, 2001)
None of investments in subsidiaries and affiliates have fair value
3. For the previous fiscal year (as of December 31, 2001)
None of investments in subsidiaries and affiliates have fair value.
38
Brief Information For The Interim Consolidated Financial Report
Pro Forma Compensation Cost For The Stock Options (Unaudited)
Our company and subsidiaries have adopted incentive plans for the
directors and employees of our company and subsidiaries: an incentive plan
pursuant to which warrants to purchase parent company shares were granted to
directors and employees (Under this plan, our company issued bond with
detachable warrants and immediately repurchased all of the warrants for
distribution to grantees); and an incentive plan based on the stock option
(subscription right method) in accordance with the Article 280 Section 19-2 of
the former Commercial Code of Japan. In addition, our U.S. subsidiary has
adopted a stock option incentive plan granting our company's shares invested in
kind by major shareholders to a special purpose company.
Regarding to these incentive plans, we have estimated the compensation
cost pursuant to SFAS No. 123 of U.S. Generally Accepted Accounting Principles
for compensation costs on stock options. Each stock option value on the date of
grant is calculated on Black-Scholes option pricing model with assumption
described below. Then the value is prorated over the period of execution to
recognize the cost. The resulting pro forma compensation cost (consolidated,
before tax) for the stock option plans for the first half of FY2002 is 426
million yen.
-----------------------------------------------------------------------------------------------------------------
Estimated Duration Estimated
Volatility of The Option Dividend Risk-free Rate
-----------------------------------------------------------------------------------------------------------------
Incentive Plan for 1999 25.80 % 3 years 0 0.750 %
-----------------------------------------------------------------------------------------------------------------
Incentive Plan for 2000 17.03 % 3 years 0 0.741 %
-----------------------------------------------------------------------------------------------------------------
Incentive Plan for 2001 14.98 - 15.00 % 3 years 0 0.157 - 0.429 %
-----------------------------------------------------------------------------------------------------------------
Incentive Plan for 2002 18.00 % 4 years 0 0.361 %
-----------------------------------------------------------------------------------------------------------------
July 30, 2002
Trend Micro Incorporated
39