<PAGE>
EXHIBIT 1
Trend Micro Reports of First-Half Results for
Fiscal Year Ended December 31, 2000
(Consolidated and Non-consolidated)
6
<PAGE>
Trend Micro Reports of First-Half Results
for the Fiscal Year Ended December 31, 2000 (Consolidated and Non-consolidated)
We have prepared and filed the following Report of First-Half Results
(Consolidated) for the Fiscal Year Ended December 31, 2000 (the "Consolidated
Report") and Report of First-Half Results (Non-consolidated) for the Fiscal Year
Ended December 31, 2000 (the "Non-consolidated Report") with the Japan
Securities Dealers Association pursuant to the listing requirements of the
Japanese over-the-counter market. All financial information contained in these
reports has been prepared in accordance with generally accepted accounting
principles in Japan. Significant differences between Japanese GAAP and U.S. GAAP
which may affect our net sales and net income are set forth in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Accounting Differences between Japanese GAAP and U.S. GAAP", and the
"Summary of Significant Differences between Generally Accepted Accounting
Principles in Japan and the United States" sections of our annual report on Form
20-F dated May 24, 2000. The report is on file with the U.S. Securities and
Exchange Commission.
The above-described digests contain forward-looking statements within
the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, as
amended. These forward-looking statements, include, but are not limited to, the
information in the tables entitled "Earning projections for the current fiscal
year (January 1, 2000 through December 31, 2000)" in item 2 of the Consolidated
Report and Non-consolidated Report, and the sections entitled "A projection for
the consolidated annual results" and "A projection for the non-consolidated
annual results" in the Attachments to the Consolidated Report and the Non-
consolidated Report, respectively. By their nature, the foregoing projections
are necessarily based on future events and involve significant elements of
subjective judgment and analysis by Trend Micro that may not be correct. As
further described below, Trend Micro's ability to achieve performance results
that meet its projections is subject to significant risks and uncertainties.
Investors should not assume that the projections will be attained. The
projections should not be relied upon as a promise or representation of the
future performance of Trend Micro. We caution you that forward-looking
statements are subject to risks and uncertainties that could cause our actual
results to differ materially from those projected in such forward-looking
statements. These risks and uncertainties include, but are not limited to:
. Difficulties in addressing new virus and other computer security problems;
. Timing of new product introductions and lack of market acceptance for our new
products;
. The level of continuing demand for, and timing of sales of, our existing
products;
. Rapid technological change within the anti-virus software industry and changes
in customer needs for anti-virus software;
. Existing products and new product introductions by our competitors and the
pricing of those products;
. Declining prices for our products and services;
. Difficulties in adapting our products and services to the Internet;
. The effect of an acquisition on our financial condition and results of
operations;
. Adverse economic trends in our principal markets;
7
<PAGE>
. The effect of foreign exchange fluctuations on our results of operations;
. The potential lack of attractive investment targets;
. Difficulties in successfully executing our investment strategy;
and other risks discussed under "Risk Factors" beginning on page 20 of our
above-described annual report. We undertake no obligation to release revisions
to forward-looking statements to reflect subsequent events, changed
circumstances or the occurrence of unanticipated events.
8
<PAGE>
August 10, 2000
Report of First-Half Results (Consolidated)
For Fiscal Year Ending December 31, 2000
Company: Trend Micro Incorporated Japanese over-the-counter market (OTC)
OTC Code: 4704
Address: Odakyu Southern Tower, 10F 2-2-1 Yoyogi Shibuya-ku Tokyo, 151-8583
Japan
Contact: Title Director, Chief Financial Officer
Name Hiroyuki (Phone: 81-3-5334-3600)
Nakanishi
Date of the board of directors meeting
authorizing the first-half results: August 10, 2000
Adoption of semi-annual dividend system: Yes
<TABLE>
<S> <C>
1. Financial Highlights for the first half of FY 2000 (January 1, 2000 through June 30, 2000)
(1) Consolidated Results of Operations
(All figures are rounded down to millions of yen.)
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
(Compared to (Compared to
the same (Compared to the same
period of Operating the same Ordinary period of
Sales the income period of Income the
previous the previous previous
year) year) year)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Millions of yen % Millions of yen % Millions of yen %
The first half of FY 00 9,600 (70.5) 3,016 (66.3) 2,972 (55.1)
The first half of FY 99 5,631 (19.6) 1,813 (80.4) 1,916 (60.5)
------------------------------------------------------------------------------------------------------------------------------------
FY 99 (annual) 13,740 4,253 4,465
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
(Compared to
the same Net income Net income/ Ordinary Ordinary
Net period of Net income per share shareholders' income/total income/sales
income the previous per share (diluted) equity ratio assets ratio ratio
year)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Millions of % yen yen % % %
yen
The first half of FY00 2,474 (160.7) 38.06 36.99 12.4 8.9 31.0
The first half of FY99 949 ( 40.8) 45.19 - 6.3 10.5 34.0
------------------------------------------------------------------------------------------------------------------------------------
FY 99 (annual) 2,466 38.82 37.73 15.1 19.3 32.5
------------------------------------------------------------------------------------------------------------------------------------
(Note) Equity in loss of affiliated companies: (Yen) /\23 million (Nil for the first half of FY 1999,
(Yen) /\2 million in FY 99)
(2) Consolidated Financial Position
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity Shareholders' equity
Total assets Shareholders' equity ratio per share
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As of Millions of yen Millions of yen % yen
June 30, 2000 37,675 21,439 56.9 328.95
June 30, 1999 19,164 15,680 81.8 740.80
------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 28,856 18,475 64.0 284.93
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(3) Basis of consolidation and application of equity method:
The number of consolidated subsidiaries........ 15
The number of unconsolidated subsidiaries...... -
The number of affiliated companies............. 3 (Equity method is applied to these 3 companies.)
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
(4) Change in accounting policy and others:
(1) Change in reporting entity........Refer to page 9 1. and 2. of "Significant accounting policies and
practices for preparing consolidated semi-annual financial statements"
(2) Change in accounting policies.....None
</TABLE>
Basis of Presentation of Consolidated Semi-annual Financial Statements
The accompanying consolidated semi-annual financial statements have been
prepared based on the accounts maintained by Trend Micro Incorporated and
its subsidiaries in conformity with accounting principles and practices
generally accepted in Japan, which are different in certain respects as to
application and disclosure requirements of International Accounting
Standards.
The consolidated semi-annual financial statements are not intended to
present the consolidated financial position as of June 30, 1999 and 2000
and the results of operations for the six-month period then ended in
accordance with accounting principles and practices generally accepted in
countries and jurisdictions other than Japan.
<TABLE>
<CAPTION>
2 Earning projections for the current fiscal year (January 1, 2000 through December 31, 2000)
-------------------------------------------------------------------------------------------------------------------------------
Sales Ordinary income Net income
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Millions of yen Millions of yen Millions of yen
For the year ending
December 31, 2000 20,600 6,300 4,700
-------------------------------------------------------------------------------------------------------------------------------
(Note)
1. Projected consolidated net income per share for the current fiscal year: (Yen) 72.24
Projected non-consolidated net income per share for the current fiscal year: (Yen) 29.20
2. Financial highlights for the non-consolidated financial position and results of operations of Trend Micro Inc. for the first
half of FY 2000 (January 1, 2000 through June 30, 2000) are as follows:
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
(Compared to (Compared to
the same (Compared to the the same
Sales period of the Operating income same period of Ordinary income period of the
previous the previous previous
year) year) year)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Millions of yen % Millions of yen % Millions of yen %
3,950 ( 30.4 ) 487 ( /\60.0 ) 470 ( /\63.4 )
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
(Compared to
the same
Net income period of the Net income per share Total assets Shareholders'
previous equity
year)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Millions of yen % yen Millions of yen Millions of yen
982 ( 45.0 ) 15.12 31,226 17,310
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Forward-Looking Statements
This document includes statements that constitute forward-looking
statements. These statements appear in a number of places in this document, and
include statements regarding the intent, belief or current expectations of Trend
Micro with respect to Trend Micro's business, revenues and results of
operations, and economic and other factors that may have an impact on Trend
Micro's performance. These statements also include the projections of Trend
Micro's financial performance for the 2000 fiscal year contained in this
document. Such forward-looking statements are not guarantees of future
performance, and involve risks and uncertainties, and actual results for the
2000 fiscal year and future fiscal years may differ materially from those in the
forward-looking statements, due to various factors beyond Trend Micro's control.
Such factors include, without limitation, the rate of acceptance of Trend
Micro's 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, difficulties in successfully executing our
investment strategy, adverse economic trends in our principal markets, declining
prices for our products and services and other risks indicated in the Risk
Factors section of our annual report on Form 20-F dated May 24, 2000. The annual
report is on file with the SEC. Trend Micro assumes no obligation to update this
information.
19
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[Information on net income per share and shareholders' equity per share]
For periodic comparison of net income per share and shareholders' equity per
share, restated per share information reflecting the effect of stock split on
November 19, 1999 is as follows:
----------------------------------------------------------------------------
Net income per share Shareholders' equity
per share
----------------------------------------------------------------------------
The first half of FY 00 38.06 328.95
The first half of FY 99 15.06 246.92
----------------------------------------------------------------------------
FY 99(annual) 38.82 284.93
----------------------------------------------------------------------------
11
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Attachment to the Report
1. A review of the consolidated results of operations for the current semi-
annual period and a projection for the annual results
(1) A review of the consolidated results of operations for the current semi-
annual period
In this semi-annual period, the continued good health of the U.S. economy
and expansion of the European economy have supported the world economy. In
Japan, IT investments and active exports to the healthy world economy made
industrial activity go upward. On the other hand, the unemployment rate stayed
high and resulted in a delay in the recovery of consumer spending. In such a
situation, there is no prediction of economic recovery as a whole. In the U.S.,
downward stock prices led to a fear of a depreciation in stock price all over
the world and there was a sign of slowing down in general business condition due
to a rise in the interest rate. However, the U.S. still supported the world
economy. In Europe, in spite of the depreciation of the Euro, each European
country experienced domestic prosperity. In Asia, Taiwan, Korea and Hong Kong
achieved a high economic growth rate and generally good economic conditions in
ASEAN resulted in world economic stabilization.
In the computer security industry, interest in and demand for security
system has been growing due to Y2K problem, illegal intrusions into government
home page by hackers and the appearance of the LOVE virus, which caused
considerable damage, especially in the U.S. and Europe. Japan was less affected
due to the golden week holidays. The LOVE virus had strong power of infection
and destruction, attacked all over the world, and attacked not only many big
companies but also the CIA and the Department of Defense in the U.S. The Love
virus emphasized the importance of security and the updating of vaccine
software.
In this context, Trend Micro Incorporated has endeavored to improve our
product technology, support systems and engaged in energetic research and
development to meet user interests and expectation in the computer security. In
Japan, investment in IT has spread out to smaller companies. Our business
strategy meets this trend by actively by actively acquiring new customers and
selling user-demanded products. In the U.S., the "Interscan series" anti-virus
products for the internet gateway have contributed to the expansion of our
market share since last year, and sold well. In addition, we have had good sales
result in PC client products. In Europe, our UK subsidiary, which was
established in July 1999, has been growing and by working together with our
other European subsidiaries, we have acquired a considerable share in European
market. Further, to promote the anti-virus infrastructure to our outsourcing
business which was offered by ISP (internet service provider) and ASP
(application service provider), we started IOS (internet outsourcing service)
business this year. During this semi-annual period, our IOS business department
completed tie-ins with USWest and Sprint in the U.S., British Telecom in UK,
Telstra in Australia, 13 major internet service providers in Japan and other
companies and started to offer anti-virus service successfully.
In January 2000, a wholly-owned subsidiary of Trend Micro was established
as our first step in the field of UNIX Linux, which is expected to be the main
platform of the internet, and we are confident that we can advance further in
the internet business.
As a result, sales totaled JPY 9,600 millions (up 70.5% compared to the
same period in 1999), ordinary income totaled JPY 2,972 millions (up 55.1%
compared to the same period in 1999), and net income totaled JPY 2,474 millions
(up 160.7% compared to the same period in 1999). Consumption tax is not included
on the above amounts.
12
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(2) A projection for the consolidated annual results
The number of PCs and servers shipped and the number of internet users are
expected to increase worldwide. Also, internet business has spread over to the
household and enterprises in various ways. IT was a major topic at the Okinawa
summit. Under these conditions, it is expected that investments in IT will be
done actively in Japan and advanced countries, where the field of IT is behind
the U.S. And it is thought that active investment in IT will lead to a growing
demand for the anti-virus products, which are our core business.
In addition, as stated before, IOS business with internet service
providers, which we believe is one of our main business strategies, is planning
to start anti-virus service in Japan and Europe. We anticipate this business
field to be growing.
Further, we will endeavor to develop the internet-based technologies with
our subsidiaries and to offer new products and new service.
We can expect to acquire a greater market share in the future by utilizing
our new business strategiesand increasing technological development and know-
how. We estimate annual sales of JPY 20,600 million (up 49.9% compared to fiscal
year 1999), annual ordinary income of JPY 6,300 million (up 41.1% compared to
fiscal year 1999) and net income of JPY 4,700 million (up 90.5 % compared to
fiscal year 1999) for the year ending December 31, 2000.
Forward-Looking Statements
This document includes statements that constitute forward-looking statements.
These statements appear in a number of places in this document, and include
statements regarding the intent, belief or current expectations of Trend Micro
with respect to Trend Micro's business, revenues and results of operations,
and economic and other factors that may have an impact on Trend Micro's
performance. These statements also include the projections of Trend Micro's
financial performance for the 2000 fiscal year contained in this document.
Such forward-looking statements are not guarantees of future performance, and
involve risks and uncertainties, and actual results for the 2000 fiscal year
and future fiscal years may differ materially from those in the forward-
looking statements, due to various factors beyond Trend Micro's control. Such
factors include, without limitation, the rate of acceptance of Trend Micro's
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, difficulties in successfully
executing our investment strategy, adverse economic trends in our principal
markets, declining prices for our products and services and other risks
indicated in the Risk Factors section of Trend Micro's annual report on Form
20-F dated May 24, 2000. The annual report is on file with the SEC. Trend
Micro assumes no obligation to update this information.
13
<PAGE>
<TABLE>
<CAPTION>
2. Consolidated Semi-annual Financial Statements
(1) Consolidated semi-annual balance sheets
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
Condensed balance sheet
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/Period (As of June 30, 2000) (As of June 30, 1999) (As of December 31, 1999)
------------------------------------------------------------------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage
--------------------------------------------------------------------------------------------------
% % %
<S> <C> <C> <C> <C> <C> <C>
(Assets)
I Current assets
1. Cash and bank deposits 20,901,829 2,696,744 15,648,849
2. Notes and accounts
receivable, trade 7,232,046 5,172,255 6,057,171
3. Marketable securities *2 2,324,285 3,576,226 111,506
4. Inventories 101,777 383,076 368,932
5. Deferred tax assets 811,973 447,652 650,131
6. Others 1,761,403 493,468 771,577
7. Allowance for doubtful
accounts /\108,744 /\106,137 /\229,675
--------------- --------------
Total current assets 33,024,571 87.7 12,663,286 66.1 23,378,494 81.0
II Non current assets
1. Property and equipment *1
(1) Building 218,464 103,752 147,133
(2) Furniture and equipment 745,714 468,984 591,304
(3) Others 34,908 4,606 12,139
--------------- -------------- -------------
Total property
and equipment 999,086 2.6 577,343 3.0 750,577 2.6
2. Intangibles
(1) Software copyright 37,251 57,833 41,659
(2) Software 148,762 - -
(3) Software in progress 26,420 - -
(4) Consolidated
goodwill 1,345,528 - -
(5) Others 74,616 108,660 93,695
--------------- -------------- -------------
Total intangibles 1,632,579 4.3 166,494 0.9 135,355 0.5
3. Investments and other
non-current assets
(1) Investments in securities *2 266,622 5,002,686 2,287,744
(2) Investments in capital funds 960,806 - 960,806
(3) Deferred tax assets 298,756 - 216,694
(4) Others 493,445 462,729 461,124
--------------- -------------
Total investments and other
non-current assets 2,019,631 5.4 5,465,415 28.5 3,926,369 13.6
--------------- -------------- -------------
Total non-current assets 4,651,296 12.3 6,209,253 32.4 4,812,302 16.7
--------------- -------------- -------------
III Cumulative translation
adjustments - - 291,506 1.5 665,738 2.3
--------------- -------------- -------------
Total assets 37,675,868 100.0 19,164,045 100.0 28,856,534 100.0
=============== ============== =============
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
(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
the current fiscal year the previous fiscal year previous fiscal year
Account/Period (As of June 30, 2000) (As of June 30, 1999) (As of December 31,1999)
-----------------------------------------------------------------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage
----------------------------------------------------------------------------------------------------
% % %
<S> <C> <C> <C> <C> <C> <C>
(Liabilities)
I Current liabilities
1. Notes and accounts
payable, trade 620,254 440,699 716,135
2. Accrued corporate
taxes and others 880,766 923,221 873,582
3. Deferred revenue 1,590,076 807,485 1,085,923
4. Allowance for
sales return 311,031 103,838 153,297
5. Others 1,612,864 1,086,552 1,379,505
------------------ --------------- --------------
Total current
liabilities 5,014,993 13.3 3,361,797 17.6 4,208,444 14.6
II Long-term liabilities
1. Long-term debt 10,700,000 - 6,000,000
2. Deferred revenue 135,153 - 109,081
3. Accrued pension and
severance costs 78,564 30,213 62,701
4. Consolidated
Goodwill - 1,136 791
5. Others 165,760 90,201 -
------------------ --------------- --------------
Total long-term
liabilities 11,079,477 29.4 121,550 0.6 6,172,574 21.4
------------------ --------------- --------------
Total liabilities 16,094,471 42.7 3,483,347 18.2 10,381,019 36.0
(Minority interests)
Minority interests 141,450 0.4 - - - -
(Shareholders' equity)
I Common stock 5,618,852 14.9 5,223,404 27.3 5,414,660 18.8
II Advance received for
newly issued stock 1,340 0.0 264 0.0 - -
III Additional paid-in capital 9,159,832 24.3 7,347,564 38.3 8,243,727 28.6
IV Consolidated
retained earnings 7,308,909 19.4 3,126,044 16.3 4,834,265 16.7
V Cumulative translation
adjustment /\626,566 /\1.6 - - - -
----------------- -------------- -------------
21,462,367 57.0 15,697,277 81.9 18,492,652 64.1
V Treasury stock /\22,421 /\0.1 /\16,579 /\0.1 /\17,137 /\0.1
----------------- -------------- -------------
Total shareholders'
equity 21,439,946 56.9 15,680,698 81.8 18,475,514 64.0
----------------- -------------- -------------
Total liabilities,
minority interests
and shareholders' equity 37,675,868 100.0 19,164,045 100.0 28,856,534 100.0
================= ============== =============
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
(2)Consolidated semi-annual income statements
------------------------------------------------------------------------------------------------------------------------------------
For the first half of the For the first half of the Consolidated income
current fiscal year previous fiscal year statement for the
Account/Period previous fiscal year
(From January 1, 2000) (From January 1, 1999) (From January 1, 1999)
to June 30. 2000 to June 30. 1999 to December 31. 1999
------------------------------------------------------------------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
I Sales 9,600,341 100.0 5,631,878 100.0 13,740,984 100.0
II Cost of sales 603,879 6.3 210,453 3.7 481,574 3.5
-------------- ------------- ---------------
Gross profit 8,996,462 93.7 5,421,425 96.3 13,259,410 96.5
III Selling, general and
administrative expenses *1 5,979,797 62.3 3,607,802 64.1 9,005,785 65.5
-------------- ------------- ---------------
Operating income 3,016,664 31.4 1,813,622 32.2 4,253,625 31.0
IV Non-operating
income *2 185,318 2.0 262,626 4.7 700,133 5.1
V Non-operating
expense *3 229,762 2.4 159,657 2.8 488,349 3.6
--------------- -------------- ----------------
Ordinary income 2,972,220 31.0 1,916,590 34.1 4,465,409 32.5
VI Unusual gains *4 1,033,129 10.7 7,626 0.1 - -
VII Unusual losses *5 3,429 0.0 - - 1,192 0.0
--------------- -------------- ----------------
Income before taxes 4,001,920 41.7 1,924,216 34.2 4,464,217 32.5
Corporate,inhabitant
and enterprise tax 1,686,077 17.6 1,199,038 21.3 2,637,243 19.2
Income tax-deferred 221,428 2.3 223,949 4.0 639,809 4.7
Minority interests
in subsidiaries 62,627 0.6 - - - -
--------------- -------------- ----------------
Net income 2,474,644 25.8 949,127 16.9 2,466,782 18.0
=============== ============== ================
</TABLE>
<TABLE>
<CAPTION>
(3) Consolidated semi-annual statement of retained earnings
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
Condensed consolidated
For the first half of the For the first half of the statement of retained
current fiscal year previous fiscal year earnings for the
previous year
(From January 1, 2000) (From January 1, 1999) (From January 1, 1999)
Account/Period to June 30, 2000 to June 30, 1999 to December 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
Amounts Amounts Amounts
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
I Beginning balance
of consolidated
retained earnings 4,834,265
1. Beginning balance of
other retained earnings - 2,256,096
2,256,096
2. Beginning balance of
legal reserve - 4,834,265 129,157 2,385,254 129,157 2,385,254
---------- --------- --------
II Increase in
consolidated
retained earnings
1. Adjustment to
appropriation of
retained earnings in
overseas subsidiaries - - - - 190,565 190,565
III Decrease in
consolidated
retained earnings
1. Dividends - - 208,337 208,337 208,337 208,337
---------- --------- --------
IV Net income 2,474,644 949,127 2,466,782
--------- --------- ---------
Ending balance of
V consolidated 7,308,909 3,126,044 4,834,265
retained earnings ========= ========= =========
</TABLE>
16
<PAGE>
Basis of Presentation of Consolidated Semi-annual Financial Statements
The accompanying consolidated semi-annual financial statements have been
prepared based on the accounts maintained by Trend Micro Incorporated and
its subsidiaries in conformity with accounting principles and
practicesgenerally accepted in Japan, which are different in certain
respects as to application and disclosure requirements of International
Accounting Standards.
The consolidated semi-annual financial statements are not intended to
present the consolidated financial position as of June 30, 1999 and 2000 and
the results of operations for the six-month period then ended in accordance
with accounting principles and practices generally accepted in countries and
jurisdictions other than Japan.
Significant accounting policies and practices for preparing consolidated semi-
annual financial statements.
--------------------------------------------------------------------------------
1. Basis of consolidation (1) For the first half of the
current fiscal year All
subsidiaries are consolidated.
The company,s subsidiaries are
the following 15 companies:
Trend Micro Incorporated
(Taiwan), Trend Micro Inc.
(USA),Trend Korea
Inc. (Korea), Trend Micro South
Europe Srl (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 (UK), Trend Micro
Latinoamerica S.A. de C.V.
(Mexico), Wells Antivirus
Research Laboratory,
Inc. (U.S.A.), ip Trend
Incorporated (Japan), Nihon
Unisoft Incorporated (Japan)
(2) For the first half of the
previous fiscal year. All
subsidiaries are consolidated.
The company,s subsidiaries are
the following 10 companies:
Trend Micro Incorporated
(Taiwan), Trend Micro Inc.
(USA),Trend Korea
Inc.(Korea),Trend Micro South
Europe Srl (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) and Trend Micro
Incorporated Sdn.
Bhd.(Malaysia).
--------------------------------------------------------------------------------
2. Basis of applying equity method (1) For the first half of the
current fiscal year As for the
investments in affiliated
companies, equity method is
applied. The company's
affiliated companies are the
following 3 companies.
NTT Data Security Corporation
(Japan) Soft Trend Capital
Corporation (Japan) JCN Co.,
Ltd. (Japan)
The company has no
unconsolidated subsidiaries.
(2) For the first half of the
previous fiscal year. The
company has no unconsolidated
subsidiaries or affiliated
companies.
--------------------------------------------------------------------------------
3. Fiscal year of consolidated subsidiaries Semi-annual closing date of
Nihon Unisoft Incorporated is
April 30. As of the semi-annual
consolidated closing date, it
has prepared semi-annual
financial statements which were
used to make the semi-annual
consolidated financial
statements.
17
<PAGE>
4. Accounting polices and practices (1) Securities:
(1)Valuation of significant assets *Marketable securities -
Lower of moving average cost
or market
*Other securities -
Moving average cost method
(2) Inventories
*Finished goods Raw
materials Supplies -
Moving average cost method
(Lower of cost or market with
the first-in-first-out method
applied in Trend Micro Inc.
(U.S.A.) and Trend Micro
Incorporated (Taiwan)).
(2) Depreciation and amortization (1) Property and equipment
method for fixed assets * Parent company and domestic
consolidated subsidiaries-
Declining-balance method
based on the corporate
income tax law
* Foreign consolidated
subsidiaries -
Straight-line method over the
estimated economic useful
lives of the assets
(2) Intangibles
*Parent company and domestic
consolidated subsidiaries
(Software for 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 based on
the corporate income tax law
(Additional information)
1. Software for mass sale
In the prior fiscal years,
development costs for master
program of software products
for sale had been classified
as "Finished Goods" and
software in progress had been
classified as "Work in
Progress." The capitalized
development costs for master
program of software products
had been amortized over 3years
on a straight-line basis and
charged to income as
includedin "Cost of Sales."
From this fiscal year,
pursuant to "Accounting
Standards for Research and
Development Costs" (Business
Accounting Deliberation
Council, March 13, 1998),
development costs for master
program of software products
havebeen capitalized as
"Software" in intangible
assets and amortized over
estimated useful lives (12
months). The software
inprogress has been
capitalized as "Software in
Progress" in intangible
assets.
In connection with the
adoption of the new accounting
standards, the Company changed
the estimated useful lives of
the capitalized software
development costs to 12 months
based on its investigation of
the useful lives of the
Company's softwareproducts.
The change was made to reflect
shortened life cycles of the
Company's products in the
competitive market caused by
the rapid technological
progress to cope with daily
emerging computer viruses
The change in accounting
standard resulted in
decreasing consolidated gross
profit, operating income,
ordinary income andnet income
before tax for the six-month
period ended June 30, 2000 by
JPY 154,961 thousand,
respectively.
18
<PAGE>
2. Software for internal use
Pursuant to the application of
transition measure of
"Implementation Guidelines to
Accounting for Research and
Development Costs and Software"
(JICPA Accounting Standards
Committee Report No.12, March
31,1998), software costs for
internal use which had been
capitalized as "Others" in the
investments and other assets
section remain to be accounted for
in the previous manner.
However, disclosure of above
software costs changed from
"Others" in the investments and
other assets section (JPY 45,970
thousands for the six-month ended
June 30, 2000) to "Software" in
the intangible assets section.
Such costs are amortized over
their estimated useful lives (5
years) on a straight-line basis.
*Foreign consolidated subsidiaries
Straight-line method over the
estimated economic useful
lives.
(3) Accounting policies for significant (1) Allowance for doubtful accounts
provisions *Parent company and domestic
consolidated subsidiaries-
In order to provide for
expected future losses, an
allowance for doubtful accounts is
provided for the expected
uncollectible amount of individual
receivable balances in addition to
the maximum deductible amount
allowed under the corporate income
tax law.
*Foreign consolidated subsidiaries -
In order to provide for
expected future losses, an
allowance for doubtful accounts is
provided for the expected
uncollectible amount of individual
receivable balances.
(2) Provision for loss on sales
returns
In order to provide for expected
future losses from sales return
subsequent to the semi-annual
consolidated closing date, an
allowance for sales returns is
provided based on the past
experience for the sales returns.
(4) 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.
(5) Other important matters for (1) Consumption tax
preparing consolidated Transactions subject to
semi-annual financial statements consumption tax are stated at
the Amount net of the related
consumption tax.
19
<PAGE>
(2)Accounting treatment for stock warrants
and stock options granted to directors
and certain employees under the
Company's incentive plan
The parent company and its
subsidiaries have adopted Incentive
plans pursuant to which 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, in The previous
fiscal year ended December 31, 1999, 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, were granted to certain
directors andemployees (these two plans
are hereinafter referred to as the
"stock option plan"). The total
compensation cost under the stock option
plan is measured by taking into account
the difference between the quoted market
price of the parent company shares at
the measurement date (the first date on
which both the number of shares that an
individual employee isentitled to
receive and the exercise price are
known: normally the grant date of
warrants or stock options) and the
exercise price of the warrant or option
and is recognized as expense overthe
exercisable period. The warrant portion
of the bonds with detachable warrants
issued under the stock option plan (JPY
640,000 thousands for the first half of
FY 2000) is recorded as "warrant
account" in current liability upon
issuance of the bondsand eliminated upon
repurchasing the warrants.
Formerly, compensation costs had been
recognized by taking into account the
repurchase cost of the warrants when
granted. However, since the previous
fiscal year, the Company has changed the
accounting treatment. The purpose of
this change is more accurate disclosure
reflecting the substance of the
transactions, in response to our U.S.
subsidiary's adoption of theincentive
plan discussed above, whereby the
Company unified the computation method,
measurement date and accounting
treatment relating to its incentive
plans, which may have different schemes
but the same purpose and economic
substance.The accounting for the warrant
portion of the bonds with detachable
warrants was changed as well, which
previously had been recorded as "Stock
warrants" account upon issuance and
transferred to "additional paid-in
capital" upon exercise. This accounting
change was adopted in the second half of
1999, and it has impacted none of semi-
annual ordinary income, semi-annual
income before taxes nor semi-annual
income before taxes in 1999, as there
were no stock option transactions in the
first half of the previous fiscal year.
The revised accounting policy on
compensation costs 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 (Yen)157,668
thousand each, and an increase in net
income after tax of (Yen)91,132
thousand.
(3) Accounting method for significant
deferred assets Common stock issue
costs and bond issues costs are
charged to expense as incurred.
20
<PAGE>
--------------------------------------------------------------------------------
5. Valuation of assets and liabilities Full fair value method
of the consolidated subsidiaries
(Additional information)
As to the subsidiaries which were
newly consolidated from the
current fiscal year, full portion
of the assets and liabilities of
the subsidiaries is marked to fair
value as of the acquisition of the
control.
This resulted in increase of
assets by (Yen) 92,359 thousand
and minority interest (net of tax)
by (Yen) 17, 838 thousand.
--------------------------------------------------------------------------------
6. Amortization of consolidated goodwill Consolidated goodwill is amortized
over 5 years on a straight-line
basis.
--------------------------------------------------------------------------------
7. Appropriation of retained earnings Consolidated statement of retained
earnings is prepared to reflect
the appropriation of retained
earnings which are approved during
the fiscal year.
--------------------------------------------------------------------------------
Changes in presentation
--------------------------------------------------------------------------------
(Consolidated balance sheet)
Pursuant to the revised Ordinance on Consolidated Financial Statements,
"Cumulative translation adjustment", which had been disclosed in the section
of "Assets" previously, is disclosed in the section of "Shareholders' equity"
from the first-half of the current fiscal year.
--------------------------------------------------------------------------------
21
<PAGE>
<TABLE>
<CAPTION>
Notes
(Consolidated semi-annual balance sheets) (Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
At the end of the first half of the current At the end of the first half of the previous At the end of the previous
fiscal year fiscal year fiscal year
(As of June 30, 2000) (As of June 30, 1999) (As of December 31, 1999)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*1 Accumulated depreciation of *1 Accumulated depreciation of *1 Accumulated depreciation of
property and equipment property and equipment property and equipment
667,127 390,256 470,434
------------------------------------------------------------------------------------------------------------------------------------
*2 Additional information ----------------- -----------------
JPY 417,600 thousands of stocks and JPY
1,800,000 thousands of bonds, which had
been recorded as "Investments in securities"
in investments and other non-current
assets, were reclassified to
"Marketable securities" in current
assets in the first-half of current
fiscal year.
------------------------------------------------------------------------------------------------------------------------------------
(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, 2000 ) ( From January 1, 1999 ) ( From January 1, 1999 )
To June 30, 2000 To June 30, 1999 To December 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*1. Major components of selling, *1. Major components of selling, *1. Major components of selling,
general and administrative general and administrative general and administrative
expenses are as follows. expenses are as follows. expenses are as follows.
Advertising and sales Advertising and sales Advertising and sales
promotions 1,068,154 promotions 711,841 promotions 2,164,630
Salaries and bonuses 1,710,926 Salaries and bonuses 1,129,102 Salaries and bonuses 2,795,689
Depreciation expense 107,132 Depreciation expense 76,662 Pension and severance
costs 34,869
Research and Research and Service charge 777,885
Development costs 850,857 Development costs 487,038 Depreciation expense 168,134
Amortization of Research and
consolidated goodwill 95,796 development costs 994,340
------------------------------------------------------------------------------------------------------------------------------------
*2. Major components of *2. Major components of *2. Major components of
non-operating income non-operating income non-operating income
Interest income 76,560 Interest income 76,190 Interest income 148,487
Foreign exchange gain 30,218 Foreign exchange gain 68,093 Gain on sales of
Gain on sales of Gain on sales of marketable securities 280,531
marketable securities 65,376 treasury stocks 50,842 Gain on sales of
Amortization of treasury stocks 145,673
consolidated godwill 344 Amortization of
consolidated goodwill 688
-----------------------------------------------------------------------------------------------------------------------------------
*3. Major components of *3. Major components of *3. Major components of
non-operating expense non-operating expense non-operating expense
Interest expense 85,520 Interest expense 1,389 Interest expense 66,526
Bond issue costs 44,295 Public offering costs 135,153 Foreign exchange loss 174,920
Loss on sales of Public offering costs 154,309
treasury stocks 22,270 Equity in loss of
Loss on sales of affiliated companies 2,355
marketable securities 30,081
Equity in loss of
affiliated companies 23,516
------------------------------------------------------------------------------------------------------------------------------------
*4. Major components of *4. Major components of -----------------
unusual gains unusual gains
Gain from Reversal of allowance for
lawsuit settlement 1,030,785 doubtful accounts 7,626
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*5. Major components of -------------- *5. Major components of
unusual losses unusual losses
Loss on disposal of Loss on sales of
fixed assets 2,739 fixed assets 1,192
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Lease transactions) None
(Significant subsequent events) None
23
<PAGE>
3. Segment Information
1. Industry segment information The company and its subsidiaries operate
principally in two industry segments: "Security software business" and
"Internet-related products/service business". However, industry segment
information is not currently disclosed since more than 90% of sales and
operating income in all segments are from the "security software business".
2. Geographic segment info
<TABLE>
<CAPTION>
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
For the first-half of the current fiscal year ( From January 1, 2000
To June 30, 2000 )
------------------------------------------------------------------------------------------------------------------------------------
Eliminations
Japan North Taiwan Europe Others Total or Consoli-
America Corporate dated
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I Sales and operating
profit/loss
Sales
(1) Sales to 3,655,611 2,778,166 832,227 1,870,516 463,819 9,600,341 - 9,600,341
third parties
(2) Intersegment 885,727 789,235 386,007 4,397 68,903 2,134,272 (2,134,272) -
sales
------------------------------------------------------------------------------------------------------------------------------------
Total 4,541,339 3,567,402 1,218,235 1,874,913 532,722 11,734,613 (2,134,272) 9,600,341
------------------------------------------------------------------------------------------------------------------------------------
Operating expenses 2,089,276 2,259,756 867,277 1,122,346 413,281 6,751,939 (168,262) 6,583,676
------------------------------------------------------------------------------------------------------------------------------------
Operating income(loss) 2,452,062 1,307,645 350,957 752,567 119,441 4,982,674 (1,966,009) 3,016,664
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
For the first-half of the previous fiscal year ( From January 1, 1999
To June 30, 1999 )
------------------------------------------------------------------------------------------------------------------------------------
Eliminations
Japan North Taiwan Europe Others Total or Consoli-
America Corporate dated
------------------------------------------------------------------------------------------------------------------------------------
I Sales and operating
profit/loss
Sales
(1) Sales to 2,558,673 1,465,707 690,176 662,363 254,957 5,631,878 - 5,631,878
third parties
(2) Intersegment 466,261 440,688 183,026 - 93,134 1,183,110 (1,183,110) -
sales
------------------------------------------------------------------------------------------------------------------------------------
Total 3,024,934 1,906,396 873,202 662,363 348,092 6,814,989 (1,183,110) 5,631,878
------------------------------------------------------------------------------------------------------------------------------------
Operating expenses 908,519 1,639,801 770,850 352,561 278,395 3,950,129 (131,872) 3,818,256
------------------------------------------------------------------------------------------------------------------------------------
Operating income(loss) 2,116,414 266,595 102,352 309,801 69,696 2,864,860 (1,051,238) 1,813,622
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
For the previous fiscal year ( From January 1, 1999
To December 31 1999 )
------------------------------------------------------------------------------------------------------------------------------------
Eliminations
Japan North Taiwan Europe Others Total or Consoli-
America Corporate dated
------------------------------------------------------------------------------------------------------------------------------------
I Sales and operating
profit/loss
Sales
(1) Sales to 5,989,037 3,830,589 1,612,515 1,825,699 483,143 13,740,984 - 13,740,984
third parties
(2) Intersegment 1,153,293 1,154,892 479,161 - 202,209 2,989,556 (2,989,556) -
sales
------------------------------------------------------------------------------------------------------------------------------------
Total 7,142,331 4,985,481 2,091,676 1,825,699 685,353 16,730,541 (2,989,556) 13,740,984
------------------------------------------------------------------------------------------------------------------------------------
Operating expenses 2,423,568 3,748,639 1,460,638 1,156,450 620,407 9,409,703 77,655 9,487,359
------------------------------------------------------------------------------------------------------------------------------------
Operating income(loss) 4,718,762 1,236,842 631,037 669,248 64,946 7,320,837 (3,067,212) 4,253,625
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
(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
Others : Korea,Australia,Brazil,Hong Kong,Malaysia,Mexico
3. Unallocable operating expenses for the current semi-annual period in the
operating expense (JPY 2,080,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 1,112 millions) is included in "Eliminatoins 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 3,976 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.
(3) Overseas sales
<TABLE>
<CAPTION>
(Thousands of yen)
------------------------------------------------------------------------------------------------------------------------------------
For the first-half of the ( From January 1, 2000 )
current fiscal year To June 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
North
America Taiwan Europe Others Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
I. Overseas sales 2,778,166 654,515 1,870,516 641,531 5,944,729
II. Consolidated sales 9,600,341
III. Ratio of overseas sales 28.9 % 6.8 % 19.5 % 6.7 % 61.9 %
against consolidated sales
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
For the first-half of the ( From January 1, 1999 )
previous fiscal year To June 30, 1999
------------------------------------------------------------------------------------------------------------------------------------
North Taiwan Europe Others Total
America
------------------------------------------------------------------------------------------------------------------------------------
I. Overseas sales 1,191,277 459,458 928,430 485,676 3,064,843
II. Consolidated sales 5,631,878
III. Ratio of overseas sales 21.2 % 8.1 % 16.5 % 8.6 % 54.4 %
against consolidated sales
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
For the previous fiscal year ( From January 1, 1999 )
To December 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
North Taiwan Europe Others Total
America
------------------------------------------------------------------------------------------------------------------------------------
I. Overseas sales 3,444,037 1,120,453 2,203,888 975,205 7,743,585
II. Consolidated sales 13,740,984
III. Ratio of overseas sales 25.1 % 8.2 % 16.0 % 7.1 % 56.4 %
against consolidated sales
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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
U.S.A. : U.S.A.
Europe : Italy, Germany, France,UK
Others : Korea,Australia, Brazil
Hong Kong, Malaysia, Mexico
25
<PAGE>
August 10, 2000
Report of First-Half Results (Non-consolidated)
For Fiscal Year Ending December 31, 2000
Company: Trend Micro Incorporated Japanese over-the-counter market (OTC)
OTC Code: 4704
Address: Odakyu Southern Tower, 10F 2-2-1 Yoyogi Shibuya-ku Tokyo,
151-8583 Japan
Contact: Title Director, Chief Financial Officer
Name Hiroyuki Nakanishi (Phone: 81-3-5334-3600)
Date of the board of directors meeting
authorizing the first-half results: August 10, 2000
Adoption of semi-annual dividend system: Yes
Starting date of semi-annual dividend payment: No semi-annual dividends
were authorized for this
semi-annual period.
1. Financial Highlights for the first half of FY 2000 (January 1, 2000 through
June 30, 2000)
(1) Results of operations
(All figures are rounded down to millions of yen.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
(Compared to (Compared to (Compared to
the same Operating the same Ordinary the same
Sales period of income period of income period of
the previous the previous the previous
year) year) year)
------------------------------------------------------------------------------------------------------------------------------------
Millions of yen % Millions of yen % Millions of yen %
The first half of FY 00 3,950 ( 30.4 ) 487 ( /\60.0 ) 470 ( /\ 63.4 )
The first half of FY 99 3,029 ( 11.9 ) 1,220 ( 87.7 ) 1,288 ( 79.1 )
------------------------------------------------------------------------------------------------------------------------------------
FY 99 (annual) 7,220 1,995 2,160
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
(Compared to the
same period of Net income Accounting standards applied for preparing
Net income the previous per share semi-annual financial statements
year)
------------------------------------------------------------------------------------------------------------------------------------
Millions of yen % Yen
The first half of FY 00 982 ( 45.0 ) 15.12 The Accounting Standards for Interim Financial
Statements
The first half of FY 99 677 ( 60.0 ) 32.27 The Accounting standards for Interim Financial
Statements
------------------------------------------------------------------------------------------------------------------------------------
FY 99 (annual) 1,125 17.70 -
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Note)
1. Weighted average number of 65,005,579 shares (for the first half of FY 00)
shares outstanding: 21,005,117 shares (for the first half of FY 99)
63,550,165 shares (for FY 99)
2. Change in accounting policies: None
(2) Dividends
---------------------------------------------------------------
Semi-annual Annual
dividends per dividends per
share Share
---------------------------------------------------------------
Yen Yen
The first half of FY 00 0 -
The first half of FY 99 0 -
---------------------------------------------------------------
FY 99 (annual) - 0
---------------------------------------------------------------
26
<PAGE>
<TABLE>
<CAPTION>
(3) Financial Position
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Total assets Shareholders' equity Shareholders' Shareholders' equity
equity ratio per share
------------------------------------------------------------------------------------------------------------------------------------
As of Millions of yen Millions of yen % Yen
June 30, 2000 31,226 17,310 55.4 265.59
June 30, 1999 16,547 14,887 90.0 703.28
------------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 24,436 15,719 64.3 242.43
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(Note)
<S> <C>
1. Shares issued and outstanding at the end of period: 65,172,669 shares as of June 30,2000
(par value stock 500 shares per unit)
21,168,000 shares as of June 30, 1999
64,842,900 shares as of December 31, 1999
(stock split of 1 to 3 was made during FY 1999)
2. Unrealized gain on securities as of June 30, 2000: Yen 940 million
(including of Yen 1 million of unrealized gain on treasury stock)
3. Unrealized gain/loss on derivative financial instruments as at June 30, 2000: Nil
</TABLE>
Basis of Presentation of Non-Consolidated Semi-annual Financial Statements
The accompanying non-consolidated semi-annual financial statements have been
prepared based on the accounts maintained by Trend Micro Incorporated in
accordance with the provisions set forth in the Securities and Exchange Law,
and in conformity with accounting principles and practices generally accepted
in Japan, which are different in certain respects as to application and
disclosure requirements of International Accounting Standards.
The non-consolidated semi-annual financial statements are not intended to
present the non-consolidated financial position as of June 30, 1999 and 2000
and the results of operations for the six-month period then ended in
accordance with accounting principles and practices generally accepted in
countries and jurisdictions other than Japan.
2 Earning projections for the current fiscal year (January 1, 2000
through December 31, 2000)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Sales Ordinary Net income Annual dividend per share
income December 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Millions of yen Millions of yen Millions of yen Yen Yen
For the year ending 9,000 2,400 1,900 0 0
December 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Reference) Estimated net income per share: Yen 29.20
Forward-Looking Statements
This document includes statements that constitute forward-looking statements.
These statements appear in a number of places in this document, and include
statements regarding the intent, belief or current expectations of Trend Micro
with respect to Trend Micro's business, revenues and results of operations, and
economic and other factors that may have an impact on Trend Micro's performance.
These statements also include the projections of Trend Micro's financial
performance for the 2000 fiscal year contained in this document. Such forward-
looking statements are not guarantees of future performance, and involve risks
and uncertainties, and actual results for the 2000 fiscal year and future fiscal
years may differ materially from those in the forward-looking statements, due to
various factors beyond Trend Micro's control. Such factors include, without
limitation, the rate of acceptance of Trend Micro's 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,
difficulties in successfully executing our investment strategy, adverse economic
trends in our principal markets, declining prices for our products and services
and other risks indicated in the Risk Factors section of Trend Micro's annual
report on Form 20-F dated May 24, 2000. The annual report is on file with the
SEC. Trend Micro assumes no obligation to update this information.
27
<PAGE>
[Information on net income per share and shareholders' equity per share]
For periodic comparison of net income per share and shareholders' equity per
share, restated per share information reflecting the effect of stock split on
November 19,1999 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Weighted average Shares issued and
Net income per share Shareholders' equity number of shares outstanding at the
per share outstanding end of period
------------------------------------------------------------------------------------------------------------------------------------
The first half of FY 00 15.12 265.59 65,005,579 65,172,669
The first half of FY 99 10.76 234.43 63,015,351 63,504,000
------------------------------------------------------------------------------------------------------------------------------------
FY 99(annual) 17.70 242.43 63,550,165 64,842,900
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Attachment to the Report
1. A review of the non-consolidated results of operations for the current semi-
annual period and a projection for the annual results.
(1) A review of the non-consolidated results of operations for the current
semi-annual period
In this semi-annual period, the expanding of IT investments to small
companies and active exports supported by the continued good world economy made
industrial activity go upward. On the other hand, the unemployment rate stayed
high and recovery of consumer spending was not seen. In addition, there is a
sign of slowing down of the economy in the U.S.A., which has been in good
condition for long time. In such a situation, there is no prediction of economic
recovery as a whole.
The condition in the computer security industry has generally been favorable.
The interests in and demand for computer security system has been growing due a
number of factors including active investments to IT infrastructure by
enterprises, an increase in numbers of users who are familiar with the internet,
Y2K problem, illegal intrusions into government home page by hackers and the
appearance of the LOVE virus.
In this context, Trend Micro Incorporated has endeavored to improve its
product technology, support systems and engaged in energetic research and
development activities to meet users interest and expectation in computer
security. Capital expenditure for information technology, which had been done
mostly by big companies, has spread out to smaller companies these days and one
survey shows that capital expenditure in smaller companies increased by 20% for
the quarter compared to the previous year. Our business strategy meets this
trend by actively acquiring new customers and selling user-demanded products.
In January 2000, a wholly-owned subsidiary of Trend Micro was established as
our first step in the field of UNIX.Linux, which is expected to be the main
platform of the internet, and we are confident that we can advance further in
the internet business.
As a result, sales totaled JPY 3,950 millions (up 30.4% compared to the same
period in 1999), ordinary income totaled JPY 470 millions (down 63.4% compared
to the same period in 1999), and net income totaled JPY 982 millions (up 45.0%
compared to the same period in 1999). Consumption tax is not included on the
above amount.
(2) A projection for the non-consolidated annual results
In Japan, the number of PCs and servers shipped and the number of internet
users have been increasing. Also, e-business has spread to the household and
enterprises in various ways. IT was a major topic at the Okinawa summit. Under
these conditions, it is expected that the Japanese government will focus on IT
for economic recovery and structural reform. This will cause conditions for
Trend Micro Inc and the computer security industry to be favorable and demand
for anti-virus products is expected to grow.
Furthermore, in the field of internet outsourcing service with internet
service providers, which we believe is one of our main business strategies,
contracts with Japanese providers were made and we have started to offer anti-
virus services. In the near future, we plan to introduce our anti-virus services
to many providers.
We estimate annual sales of JPY 9,000 million (up 24.6% compared to fiscal
year 1999), annual ordinary income of JPY 2,400 million (up 11.1 % compared to
fiscal year 1999) and net income of JPY 1,900 million (up 68.9% compared to
fiscal year 1999) for the year ending December 31, 2000.
29
<PAGE>
Forward-Looking Statements
This document includes statements that constitute forward-looking
statements. These statements appear in a number of places in this document, and
include statements regarding the intent, belief or current expectations of Trend
Micro with respect to Trend Micro's business, revenues and results of
operations, and economic and other factors that may have an impact on Trend
Micro's performance. These statements also include the projections of Trend
Micro's financial performance for the 2000 fiscal year contained in this
document. Such forward-looking statements are not guarantees of future
performance, and involve risks and uncertainties, and actual results for the
2000 fiscal year and future fiscal years may differ materially from those in the
forward-looking statements, due to various factors beyond Trend Micro's control.
Such factors include, without limitation, the rate of acceptance of Trend
Micro's 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, difficulties in successfully executing our
investment strategy, adverse economic trends in our principal markets, declining
prices for our products and services and other risks indicated in the Risk
Factors section of our annual report on Form 20-F dated May 24, 2000. The annual
report is on file with the SEC. Trend Micro assumes no obligation to update this
information.
30
<PAGE>
2. Non-consolidated Semi-annual Financial Statements
(1) Non-consolidated semi-annual balance sheets
<TABLE>
<CAPTION>
(Thousands of yen)
--------------------------------------------------------------------------------------------------------------------------------
Period At the end of the first At the end of the first Condensed balance sheet at
half of the current half of the previous the end of the
fiscal year fiscal year previous fiscal year
Account (As of June 30, 2000) (As of June 30, 1999) (As of December 31, 1999)
------------------------------------------------------------------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage
--------------------------------------------------------------------------------------
% % %
<S> <C> <C> <C> <C> <C> <C> <C>
(Assets)
I Current assets
1. Cash and bank deposits *2 17,512,240 1,543,961 14,054,087
2. Notes receivable, trade 1,058 502 128
3. Accounts receivable, trade *2 3,213,461 2,701,240 3,220,285
4. Marketable securities *2,7 2,242,848 3,529,042 61,659
5. Treasury stock *3 22,421 16,579 17,137
6. Inventories 33,781 349,444 406,482
7. Intercompany loan
receivables *2 387,982 939,838 115,844
8. Other accounts receivable 1,573,185 - 697,648
9. Deferred tax assets 159,194 - -
10. Other current assets *2 155,037 127,209 140,674
11. Allowance for doubtful
accounts /\98,739 /\47,126 /\96,400
--------------- ---------------- ----------------
Total current assets 25,202,472 80.7 9,160,692 55.4 18,617,547 76.2
II Non-current assets
1. Property and equipment *1 238,882 0.8 167,607 1.0 183,342 0.7
2. Intangibles
(1) Software copyright 184,280 322,491 253,385
(2) Software 173,151 - -
(3) Software in progress 30,631 - -
(4) Others 72,120 89,686 80,381
--------------- ---------------- ----------------
Total intangibles 460,183 1.5 412,177 2.5 333,767 1.4
3. Investments and other
non-current assets
(1) Investments in *2,7 - - 2,217,600
securities
(2) Investments in
subsidiaries and *2 3,873,840 1,481,729 1,673,840
affiliates
(3) Investments in bonds
of subsidiaries and
affiliates - 5,002,686 -
(4) Deferred tax assets 79,274 - -
(5) Others *2 1,386,620 337,033 1,425,105
(6) Allowance for doubtful
accounts /\14,960 /\14,616 /\15,027
--------------- ---------------- ---------------
Total investments and other 5,324,775 17.0 6,806,832 41.1 5,301,518 21.7
non-current assets
--------------- ---------------- ---------------
Total non-current assets 6,023,842 19.3 7,386,617 44.6 5,818,628 23.8
--------------- ---------------- ---------------
Total assets 31,226,314 100.0 16,547,310 100.0 24,436,176 100.0
=============== ================ ===============
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
(Thousands of yen)
--------------------------------------------------------------------------------------------------------------------------------
Period At the end of the first At the end of the first Condensed balance sheet at
half of the current half of the previous the end of the
fiscal year fiscal year previous fiscal year
Account (As of June 30, 2000) (As of June 30, 1999) (As of December 31, 1999)
------------------------------------------------------------------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage
--------------------------------------------------------------------------------------
% % %
<S> <C> <C> <C> <C> <C> <C> <C>
(Liabilities)
I Current liabilities
1. Accounts payable, trade 33,993 46,699 39,669
2. Accounts payable, other *2 797,135 576,940 756,987
3. Accrued corporate taxes
and other 489,000 754,078 626,536
4. Allowance for sales return 128,940 12,806 92,203
- 919,587
5. Stock warrants 1,508,667
6. Other current liabilities *4 215,165 246,323 248,135
---------- ---------- ----------
Total current liabilities 3,172,902 10.2 1,636,847 9.9 2,683,118 11.0
II Long-term liabilities
1. Long-term debt 10,700,000 - 6,000,000
2. Accrued pension and
severance costs 43,155 23,092 33,243
---------- ---------- ----------
Total long-term liabilities 10,743,155 34.4 23,092 0.1 6,033,243 24.7
---------- ---------- ----------
Total liabilities 13,916,057 44.6 1,659,939 10.0 8,716,361 35.7
(Shareholders' equity)
I Common stock *5 5,618,852 18.0 5,223,404 31.6 5,414,660 22.1
II Advance received for newly *6 1,340 0.0 264 0.0 - -
issued stock
III Additional paid-in capital 7,385,576 23.6 6,936,597 41.9 7,130,743 29.2
IV Legal reserve 20,833 0.1 20,833 0.1 20,833 0.1
V Retained earnings
1. Unappropriated retained
earnings at the end of the
period 4,283,653 2,706,271 3,153,577
---------- ---------- ----------
Total retained earnings 4,283,653 13.7 2,706,271 16.4 3,153,577 12.9
---------- ---------- ----------
Total shareholders' equity 17,310,256 55.4 14,887,370 90.0 15,719,814 64.3
---------- ---------- ----------
Total liabilities and
shareholders' equity 31,226,314 100.0 16,547,310 100.0 24,436,176 100.0
========== ========== ==========
</TABLE>
32
<PAGE>
(2) Non-consolidated semi-annual income statements
<TABLE>
<CAPTION>
(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, 2000 From January 1, 1999 From January 1, 1999
Account To June 30, 2000 To June 30, 1999 To December 31, 1999
------------------------------------------------------------------------------------------------------------------------------------
Amount Percentage Amount Percentage Amount Percentage
--------------------------------------------------------------------------------------
% % %
<S> <C> <C> <C> <C> <C> <C> <C>
I Sales 3,950,190 100.0 3,029,888 100.0 7,220,414 100.0
II Cost of sales *6 332,167 8.4 151,284 5.0 366,619 5.1
Provision for sales returns 36,737 0.9 - - 78,083 1.1
Reversal of provision for
sales returns - - 1,313 0.0 - -
--------- --------- ----------
Gross profit 3,581,286 90.7 2,879,917 95.0 6,775,711 93.8
III Selling,general and 3,093,378 78.3 1,659,344 54.8 4,780,533 66.2
administrative expenses *1,6
--------- --------- ----------
Operating income 487,907 12.4 1,220,573 40.2 1995,178 27.6
IV Non-operating income *2 139,369 3.5 207,716 6.9 552,136 7.7
V Non-operating expense *3 156,415 4.0 140,090 4.6 387,222 5.4
--------- --------- ----------
Ordinary income 470,861 11.9 1,288,199 42.5 2,160,091 29.9
VI Unusual gains *4 1,030,785 26.1 7,626 0.3 - -
VII Unusual losses *5 2,195 0.0 - - - -
--------- --------- ----------
Income before taxes 1,499,451 38.0 1,295,825 42.8 2,160,091 29.9
Corporate, inhabitant and
enterprise tax 607,845 15.4 618,000 20.4 1,034,960 14.3
Income tax deferred 91,316 2.3 - - - -
--------- --------- ----------
Net income 982,923 24.9 677,825 22.4 1,125,131 15.6
Retained earnings at
the beginning of the year 3,153,577 2,028,445 2,028,445
Cumulative effects of
adopting deferred tax
accounting 147,152 - -
--------- --------- ----------
Unappropriated retained
Earnings at the end of the
period 4,283,653 2,706,271 3,153,577
========= ========= ==========
</TABLE>
33
<PAGE>
Basis of Presentation of Non-Consolidated Semi-annual Financial Statements
The accompanying non-consolidated semi-annual financial statements have been
prepared based on the accounts maintained by Trend Micro Incorporated in
accordance with the provisions set forth in the Securities and Exchange Law, and
in conformity with accounting principles and practices generally accepted in
Japan, which are different in certain respects as to application and disclosure
requirements of International Accounting Standards.
The non-consolidated semi-annual financial statements are not intended to
present the non-consolidated financial position as of June 30, 1999 and 2000 and
the results of operations for the six-month period then ended in accordance with
accounting principles and practices generally accepted in countries and
jurisdictions other than Japan.
Significant accounting policies and practices for preparing non-consolidated
semi-annual financial statements.
<TABLE>
<S> <C>
------------------------------------------------- ------------------------------------------------------------------------------
1. Accounting policies and practices (1) Accounting for depreciation expense
adopted for preparing semi-annual
financial statements which are different With respect to the assets which have been held since beginning of
from those applied for preparing financial the period, a half amount of estimated annual depreciation expenses
statements for a fiscal year are recorded.
With respect to the assets acquired for the semi-annual period, depreciation
expenses corresponding to the period from the acquisition date to the end of
the period are recorded by proportioning the estimated annual depreciation
expenses on a monthly basis.
(2) Accounting for pension and severance costs
A half amount of estimated annual provision, which is computed under the
assumption that all employees at the end of the first half of the fiscal year
would be in service until the end of fiscal year, is recorded.
(3) Accounting for corporate tax, inhabitant tax and enterprise tax
Corporate tax, inhabitant tax and enterprise tax are computed based
on pretax income for the semi-annual period.
------------------------------------------------- --------------------------------------------------------------------------------
2. Valuation of inventories Finished goods.Raw materials.Supplies
Moving average cost method
------------------------------------------------- --------------------------------------------------------------------------------
3. Valuation of assets other than Marketable securities
inventories, evaluated by applying methods
other than cost method Lower of moving average cost or market
------------------------------------------------- -------------------------------------------------------------------------------
4. Depreciation and amortization method for (1) Property and equipment
fixed assets Declining-balance method based on the Corporate income
tax law
(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 based on the Corporate income tax law
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
(Additional information)
1. Software for mass sale
In the prior fiscal years, development costs for master program of software
products for sale had been classified as "Finished Goods" and software in progress
had been classified as "Work in Progress". The capitalized development costs for
master program of software products had been amortized over 3 years on a straight-
line basis and charged to income as included in "Cost of Sales". From this fiscal
year, pursuant to "Accounting Standards for Research and Development Costs"
(Business Accounting Deliberation Council, March 13, 1998), development costs for
master program of software products have been capitalized as "Software" in
intangible assets and amortized over estimated useful lives (12 months). The
software in progress has been capitalized as "Software in Progress" in intangible
assets.
In connection with the adoption of the new accounting standards, the Company
changed the estimated useful lives of the capitalized software development costs
to 12 months based on its investigation of the useful lives of the Company's
software products. The change was made to reflect shortened life cycles of the
Company's products in the competitive market caused by the rapid technological
progress to cope with daily emerging computer viruses.
The change in accounting standard resulted in decreasing consolidated gross
profit, operating income, ordinary income and net income before tax for the six-
month period ended June 30, 2000 by JPY 154,961 thousand, respectively.
2. Software for internal use
Pursuant to the application of transition measure of "Implementation
Guidelines to Accounting for Research and Development Costs and Software" (JICPA
Accounting Standards Committee Report No.12, March 31, 1998), software costs for
internal use which had been capitalized as "Others" in the investments and other
assets section remain to be accounted for in the previous manner.
However, disclosure of above software costs changed from "Others" in the
investments and other assets section (JPY 42,054 thousands for the six-month ended
June 30, 2000) to "Software" in the intangible assets section.
Such costs are amortized over their estimated useful lives (5years) on a
straight-line basis.
------------------------------------------------- ---------------------------------------------------------------------------------
5. 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.
------------------------------------------------- ---------------------------------------------------------------------------------
6. Other important matters for preparing Consumption tax
semi-annual financial statements
Transactions subject to consumption tax are stated at the amount
net of the related consumption tax.
------------------------------------------------- --------------------------------------------------------------------------------
Additional information
--------------------------------------------------------------------------------------------------------------------------------
Pursuant to the revision of the "Accounting Standards for interim financial statements", deferred tax accounting has been
adopted from the current semi-annual period. As a result of adopting deferred tax accounting, net income is increased by JPY
91,316 thousands and unappropriated retained earnings are increased by JPY 238,469 thousands.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
Changes in presentation
--------------------------------------------------------------------------------------------------------------------------------
"Other accounts receivables", which were included in "Others current assets" in the semi-annual balance sheet for the first
half of the previous fiscal year, are disclosed separately because it exceeds 5/100 of total assets. Other receivables as of
the end of the previous semi-annual period was JPY 50,652 thousands.
"Stock warrants", which were included in "other current liability" in the semi-annual balance sheet for the first half of the
previous fiscal year, is disclosed separately due to its materiality. Stock warrants as of the end of the previous semi-annual
period was JPY 8,402 thousands.
--------------------------------------------------------------------------------------------------------------------------------
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, 2000) (As of June 30, 1999) (As of Dec. 31 1999)
------------------------------------------- ----------------------------------------- -----------------------------------------
*1 Accumulated depreciation of *1 Accumulated depreciation of *1 Accumulated depreciation of
property and equipment property and equipment property and equipment
155,696 93,375 123,857
------------------------------------------- ----------------------------------------- -----------------------------------------
*2 Major assets and liabilities *2 Major assets and liabilities *2 Major assets and liabilities
denominated in foreign currencies are denominated in foreign currencies denominated in foreign currencies
as follows. are as follows. are as follows.
Accounts in foreign currency in JPY Accounts in foreign currency in JPY Accounts in foreign currency in JPY
Cash and bank Accounts receivable, Cash and bank deposits
deposits US$ 4,837 510,310 trade US$ 5,914 716,263 US$ 7,898 808,813
Accounts receivable, Marketable securities Accounts receivable,
trade US$ 6,523 688,253 US$ 947 111,888 trade US$ 4,379 448,521
Marketable securities Intercompany loan Marketable securities
US$ 4,255 442,817 receivables US$ 521 61,628
Intercompany loan US$ 7,668 928,680 Intercompany loan
receivables Other current assets receivables
US$ 3,063 323,532 US$ 396 48,063 US$ 868 88,919
AU$ 140 8,869 Investments in AU$ 140 9,331
GBP 106 16,998 subsidiaries GBP 106 17,593
Investments in and affiliates US$ 1,276 146,429 Investments in securities
subsidiaries NT$ 323,999 1,335,300 US$ 4,000 417,600
and affiliates US$ 1,276 146,429 Accounts Investments in
NT$ 353,999 1,434,300 payable, other subsidiaries
GBP 110 20,611 US$ 790 95,771 and affiliates US$ 1,276 146,421
Other (Investments and NT$ 50,083 187,714 NT$ 353,999 434,300
other assets) GBP 110 20,611
US$ 501 52,925 Others (Investments
Accounts and other assets)US$ 501 51,370
payables, other Accounts
US$ 3,511 370,355 payable, other US$ 1,931 197,739
GBP 11 1,859 NT$ 55,729 181,846
DM 632 32,459
------------------------------------------- ----------------------------------------- -----------------------------------------
*3 Number of treasury stocks *3 Number of treasury stocks *3 Number of treasury stocks
1,374 shares 1,100 shares 875 shares
------------------------------------------- ----------------------------------------- -----------------------------------------
*4 Presentation of *4 Presentation of -------------------
consumption tax consumption tax
Net of consumption tax paid and Net of consumption tax paid and
consumption tax received are included in consumption tax received are included
other current liabilities. in other current liabilities.
------------------------------------------- ----------------------------------------- -----------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C>
------------------------------------------- ----------------------------------------- -----------------------------------------
*5 Description of increases in *5 Description of increases in *5 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 (1) Stock split (1:3)
bonds from bonds -Number of shares issued
42,749,400 shares
-Number of shares issued -Number of shares issued -Issue price per share
329,769 shares 332,400 shares (Yen) -
-Issue price per share -Issue price per share -Increase in common stock
(Yen) - (Yen) - (Yen) -
-Increase in common stock -Increase in common stock (2) Exercise of stock warrants
(Yen)204,192 (Yen)142,267 detached
from bonds
-Number of shares issued
1,257,900 shares
-Issue price per share
(Yen) -
-Increase in common stock
(Yen)333,523
------------------------------------------- ----------------------------------------- -----------------------------------------
*6 Advance received for newly *6 Advance received for newly
issued stocks are the paid-in capital issued stocks are the paid-in
proceeds from exercise of stock capital proceeds from exercise of
warrants. On July 3, 2000, stock warrants. Year-end balance of
1,356 stocks were newly issued. JPY 132 thousands is planned to be
JPY 670 thousands were appropriated to appropriated to additional paid-in
common stock and JPY 669 thousands capital.
were appropriated to additional
paid-in capital.
------------------------------------------- ----------------------------------------- -----------------------------------------
*7 Additional information ------------------- ------------------
JPY 417,600 thousands of stocks and JPY
1,800,000 thousands of bonds, which had
been recorded as "Investments in
securities" in non-current assets, were
reclassified to "Marketable securities"
in current assets in the first-half of
current fiscal year.
------------------------------------------- ----------------------------------------- -----------------------------------------
</TABLE>
37
<PAGE>
(Non-consolidated semi-annual income statement)
<TABLE>
<CAPTION>
(Thousands of yen)
------------------------------------------ ------------------------------------------ ------------------------------------------
For the first half of the For the first half of the For the previous
current fiscal year previous fiscal year fiscal year
(From January 1, 2000) (From January 1, 1999) (From January 1, 1999)
( To June 30, 2000 ) ( To June 30, 1999 ) (To December 31 1999)
------------------------------------------ ------------------------------------------ ------------------------------------------
<S> <C> <C>
*1 Major components of selling, *1 Major components of selling, *1 Major components of selling,
general and administrative general and administrative general and administrative
expenses are as follows. expenses are as follows. expenses are as follows.
Advertising and sales Advertising and sales Advertising and sales
promotions 339,247 promotions 187,391 promotions 710,330
Salaries and bonuses 698,684 Salaries and bonuses 379,014 Salaries and bonuses 1,233,841
Pension and severance Depreciation expense 20,948 Pension and severance
costs 12,966 Service charge 163,365 costs 16,335
Depreciation expense 25,623 Research and Depreciation expense 47,387
Service charge 276,447 development costs 487,038 Service charge 437,018
Research and Amortization of Research and development 1,138,367
development costs 880,251 software copyright 69,105 costs
Amortization of Amortization of software
software copyright 69,105 copyright 138,210
------------------------------------------ ------------------------------------------ ------------------------------------------
*2 Major components of *2 Major components of *2 Major components of
non-operating income non-operating income non-operating income
Interest on securities 27,331 Interest on securities 59,050 Interest on securities 92,468
Interest income 15,312 Gain on sales of treasury Gain on sales of securities 280,531
Foreign exchange gain 24,044 stock 50,842 Gain on sales of
Gain on sale of securities 65,376 Foreign exchange gain 80,586 treasury stock 145,673
------------------------------------------ ------------------------------------------ ------------------------------------------
*3 Major components of *3 Major components of *3 Major components of
non-operating expense non-operating expense non-operating expense
Bond interests 77,946 Public offering costs 135,153 Bonds interest expense 64,109
Bond issue cost 44,295 Foreign exchange loss 125,347
Loss on sale of Public offering costs 154,309
treasury stock 22,270
------------------------------------------ ------------------------------------------ ------------------------------------------
*4 Major component of *4 Major component of ---------------
unusual gain unusual gain
Gain from lawsuit settlement Reversal of allowance for doubtful
1,030,785 accounts 7,626
------------------------------------------ ------------------------------------------ ------------------------------------------
*5 Major component of
unusual loss
Loss on disposal of fixed assets
2,195
------------------------------------------ ------------------------------------------ ------------------------------------------
*6 Depreciation and amortization *6 Depreciation and amortization *6 Depreciation and amortization
expense expense expense
Property and equipment 31,839 Property and equipment 25,324 Property and equipment 55,805
Intangible fixed assets 329,669 Intangible fixed assets 78,918 Intangible fixed assets 158,166
------------------------------------------ ------------------------------------------ ------------------------------------------
(Lease transactions)
None
</TABLE>
38
<PAGE>
(Significant subsequent events)
ip Trend Incorporated and Nihon Unisoft Incorporated
(Transfer of business)
On June 30 2000, ip Trend Incorporated, our subsidiary company, concluded an
agreement with respect to transfer its business to Nihon Unisoft Incorporated,
of which Trend Micro have majority of the interests indirectly through ip Trend
Incorporated, and this transfer of business was made on July 1 2000. Summary of
the transfer is as follows.
1. Contents of business transferred
(1) The design, sale and export/import business of computer software and
computer hardware which ip Trend Incorporated operated in its head
office (2-2-1 Yoyogi Shibuya-ku Tokyo).
(2) Trade name of "ip Trend Incorporated", which was registered at the Legal
Affairs Bureau by ip Trend Incorporated.
2. Price of the transfer
Aforementioned business and trade name were transferred to Nihon Unisoft
Incorporated at the price of JPY 45,569 thousands. This amount is
determined based on the net value of operating assets and operating
liabilities.
3. Succession of receivables and payables
All of receivables and payables attributable to ip Trend when the agreement
was concluded, were succeeded to Nihon Unisoft Incorporated.
(Change of company name)
Nihon Unisoft Incorporated changed its name to "ip Trend Incorporated" ("new
ip Trend" thereafter) as from July 1 2000.
(Acquisition of the shares)
On July 13 2000, Trend Micro Incorporated acquired the shares of new ip Trend
from ip Trend Incorporated.
The summary of the acquisition is as follows.
1. Number of shares acquired
1,600 shares of common stock
2. Acquisition price
JPY 1,600,000 thousands
39
<PAGE>
3. Status of actual sales and orders received by Products
(1) Details of sales by products
<TABLE>
<CAPTION>
(Thousands of Yen)
-----------------------------------------------------------------------------------------------------------------------------------
For the first half of For the first half of the For the previous
the current fiscal year previous fiscal year fiscal year
(From January 1, 2000) (From January 1, 1999) (From January 1, 1999)
( To June 30, 2000 ) ( To June 30 1999 ) (To December 31, 1999)
Products Major products --------------------------------------------------------------------------------
Amount Percentage(%) Amount Percentage(%) Amount Percentage(%)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Virus Buster package 632,899 16.0 322,467 10.6 883,763 12.2
PC client ------------------------------------------------------------------------------------------------------------
Virus Buster Site-license 1,397,445 35.4 908,011 30.0 2,132,776 29.5
------------------------------------------------------------------------------------------------------------------------------
LAN server Server Protect series 374,966 9.5 375,652 12.4 732,492 10.2
------------------------------------------------------------------------------------------------------------------------------
Internet Server Inter-Scan series 543,389 13.8 930,712 30.7 2,269,417 31.4
------------------------------------------------------------------------------------------------------------------------------
Other products VSAPI 20,063 0.5 4,322 0.1 6,000 0.1
-----------------------------------------------------------------------------------------------------------------------------------
Total 2,968,764 75.2 2,541,167 83.9 6,024,450 83.4
-----------------------------------------------------------------------------------------------------------------------------------
Service revenue eDoctor 97,554 2.4 25,875 0.8 42,720 0.6
-----------------------------------------------------------------------------------------------------------------------------------
Royalty revenue 883,872 22.4 462,846 15.3 1,153,244 16.0
-----------------------------------------------------------------------------------------------------------------------------------
Total 3,950,190 100.0 3,029,888 100.0 7,220,414 100.0
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Note)
1. Export sales are not presented due to minimal exports.
2. Product name
Computer network are classified into (PC client) (LAN server) (Internet
server). Definition of our products are as follows.
(PC client products)
This is for network terminals or personal computers which are separated from
the network. Installing PC client products into such computers can help to
protect computers from viruses.
(LAN server products)
A local area network (LAN) is a network of computers and peripheral devices
(printers etc) within a limited area. LAN server products help to prevent
viruses from invading LANs through request messages from other computers.
(Internet server products)
By observing FTP, HTTP etc on the internet server, which is connecting point
with internet, these products protect networks from computer viruses which
invade the network through internet.
(Other products)
The anti-virus engine, which was originally installed in the other product,
was modified and reproduced as VSAPI(Virus Scan Application Programming
Interface(API)), that can be installed into other software. Using VSAPI can
help to protect computers against virus infection.
3. Service revenue is from eDoctor service that offers a real-time and
proactive security service between the client and a premium security
partner through Internet.
4. Royalty revenue is from overseas subsidiaries and overseas third parties.
(2) Orders received for the period and backlog for major products
Not applicable to our business
40
<PAGE>
4. Information for fair market value of securities
<TABLE>
<CAPTION>
(Thousands of Yen)
----------------------------------------------------------------------------------------------------------------------------------
Period At the end of the first half At the end of the first half
of the current of the previous At the end of the
fiscal year fiscal year previous fiscal year
Securities (As of June 30, 2000) (As of June 30, 1999) (As of December 31, 1999)
--------------------------------------------------------------------------------------------------
Recorded Fair Recorded Fair Recorded Fair
amount market Gain/Loss amount market amount market
on B/S value on B/S Value Gain/Loss on B/S value Gain/Loss
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities classified within
current assets:
Equity securities 465,238 1,394,774 929,535 128,467 530,733 402,265 78,765 496,595 417,829
(Treasury stock included
in above) (22,421) (24,045) (1,623) (16,579) (22,440) (5,860) (17,137) (22,575) (5,437)
Debt securities 1,800,000 1,811,280 11,280 - - - - - -
Others - - - - - - - - -
----------------------------------------------------------------------------------------------------------------------------------
Total 2,265,238 3,206,054 940,815 128,467 530,733 402,265 78,765 496,595 417,829
----------------------------------------------------------------------------------------------------------------------------------
Securities classified within
non-current assets:
Equity securities - - - - - - - - -
Debt securities - - - 3,400,000 3,393,960 *6,040 1,800,000 1,800,460 460
(Investment in bonds of
subsidiaries and affiliates
included in above) (-) (-) (-) (3,400,000) (3,393,960) (*6,040) (-) (-) (-)
Others - - - - - - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Total - - - 3,400,000 3,393,960 *6,040 1,800,000 1,800,460 460
----------------------------------------------------------------------------------------------------------------------------------
Grand total 2,265,238 3,206,054 940,815 3,528,467 3,924,693 396,225 1,878,765 2,297,055 418,289
-----------------------------------------------------------------------------------------------------------------------------------
* / \
</TABLE>
41
<PAGE>
(Note) 1. Calculation method of fair market value (including equivalent of fair
market value)
<TABLE>
<CAPTION>
--------------------------------------- ------------------------------------- -------------------------------------
At the end of the first half At the end of the first half of the At the end of the previous
of the current fiscal year previous fiscal year fiscal year
(As of June 30, 2000) (As of June 30, 1999) (As of December 31, 1999)
--------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
(1) Securities traded in the (1) Securities traded in the (1) Securities traded in the
overseas over-the-counter market overseas over-the-counter overseas over-the-counter
market market
Based on price quotations in Based on price quotations in Based on price quotations in
NASDAQ. NASDAQ. NASDAQ.
*Warrants were attached to the *Warrants were attached to the
equity securities (excluding equity securities (excluding
treasury stock) on the above table. treasury stock) on the above table.
However,all warrants were However,all warrants were
exercised during the current exercised during the current
fiscal period. fiscal period.
(2) Securities traded in the (2) Securities traded in the (2) Securities traded in the
domestic over-the-counter market domestic over-the-counter market domestic over-the-counter market
Based on price quotations announced Based on price quotations announced Based on price quotations announced
by Japan Securities Association. by Japan securities Association. by Japan securities Association.
(3) Debt securities whose fair (3) Debt securities whose (3) Debt securities whose fair
value are determinable fair value are determinable value are determinable
Based on the standard indication Based on the standard indication Based on the standard indication
price announced by Japan Securities price announced by Japan price announced by Japan
Association. Securities Association. Securities Association.
--------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
2. The amount of securities included in the balance sheets but excluded from
the above table
<TABLE>
<CAPTION>
(Thousands of Yen)
------------------------------------------- ------------------------ ------------------------- -------------------------
At the end of the At the end of the first At the end of the
first half of the half of the previous previous
current fiscal year fiscal year Fiscal year
(As of June 30, 2000) (As of June 30, 1999) (As of December 31, 1999)
------------------------------------------- ------------------------ ------------------------- -------------------------
<S> <C> <C> <C>
Securities classified within current
assets:
Mutual fund that is not affected by
market volatility including medium-term 30 3,417,154 30
JGB fund and MMF
(Medium-term JGB Fund
included in above) (-) ( 1,905,024) (-)
(MMF included in above) (30) ( 1,512,129) (30)
------------------------------------------- ------------------------ ------------------------- -------------------------
Securities classified within
non-current assets:
Non-listed equity securities excluding
equity securities traded in the
over-the-counter market 3,873,840 1,481,729 2,091,440
(Investments in subsidiaries and
affiliates included in above) (3,873,840) (1,481,729) (1,673,840)
Non-listed debt securities due within
one year - 1,602,686 -
(Bonds of subsidiaries and affiliates
included in above) (-) (1,602,686) (-)
------------------------------------------- ------------------------ ------------------------- -------------------------
</TABLE>
42
<PAGE>
5. Contract price, fair market value and unrecognized gain/loss of derivatives
The company does not hold or trade with any derivative financial instruments.
6. Others
None
43
