TMIC Trend Micro Incorporated ADS (MM)

TOKYO, June 29 /Xinhua-PRNewswire-FirstCall/ -- Trend Micro (TSE:4704)(NASDAQ:TMIC), a leader in network antivirus and Internet content security software and services, today is restating its Consolidated / Non-consolidated Financial Statements for the first half of the fiscal year ending December 31, 2005, which were previously announced on August 3, 2005. 1. Reasons for Restatement After the discussion with SEC on U.S. GAAP, some costs, which were historically disclosed as part of the operating expenses are included in cost of sales. This change does not affect net sales, operating income, net income before tax and net income. 2. Restatement Refer to the following. Restatement of Consolidated / Non-consolidated Financial Statements for the first half of the fiscal year ending December 31, 2005 Amendments (Revised figures are underlined.) CONSOLIDATED STATEMENTS OF INCOME NOTES TO CONSOLIDATED FINANCIAL STATEMEMENTS (Thousands of yen) For the six For the six Account months ended months ended June 30,2004 June 30,2005 Amount % Amount % Net sales 28,464,157 100.0 34,489,740 100.0 Cost of sales 1,926,769 1,191,244 Gross profit 26,537,388 93.2 33,298,496 96.5 Operating expenses: Selling 7,457,213 10,338,819 Research and development and maintenance 2,278,974 2,891,775 Customer support 2,717,490 3,190,146 General and administrative 2,705,635 4,106,616 Total operating expenses 15,159,312 53.2 20,527,356 59.5 Operating income 11,378,076 40.0 12,771,140 37.0 (Thousands of yen) Account For the year ended December 31,2004 Amount % Net sales 62,049,254 100.0 Cost of sales 3,236,499 Gross profit 58,812,755 94.8 Operating expenses: Selling 16,009,409 Research and development and maintenance 4,858,259 Customer support 5,723,426 General and administrative 6,143,985 Total operating expense 32,735,079 52.8 Operating income 26,077,676 42.0 (Thousands of yen) For the six For the six Account months ended months ended June 30,2004 June 30,2005 Amount % Amount % Net sales 28,464,157 100.0 34,489,740 100.0 Cost of sales Amortization of capitalized software, and Materials 1,926,769 1,191,244 Maintenance 1,051,260 694,846 Customer support 2,717,490 3,190,146 5,695,519 20.0 5,076,236 14.7 Operating expenses: Selling 7,457,213 10,338,819 Research and development 1,227,714 2,196,929 General and administrative 2,705,635 4,106,616 Total operating expenses 11,390,562 40.0 16,642,364 48.3 Operating income 11,378,076 40.0 12,771,140 37.0 (Thousands of yen) Account For the year ended December 31,2004 Amount % Net sales 62,049,254 100.0 Cost of sales Amortization of capitalized software, and Materials 3,236,499 Maintenance 2,260,934 Customer support 5,723,426 11,220,859 18.1 Operating expenses: Selling 16,009,409 Research and development 2,597,325 General and administrative 6,143,985 Total operating expenses 24,750,719 39.9 Operating income 26,077,676 42.0 Summary of significant accounting policies Restatements Maintenance costs, which were historically disclosed as part of the 'Research and development and maintenance' line item within operating expenses in the semi-annual consolidated statements of income, are included in cost of sales and figures for the six months ended June 30, 2004 and 2005 have been restated to reflect such amendment. In addition, customer support expenses, which were disclosed as a part of operating expenses, are also included in cost of sales and figures for the six months ended June 30, 2004 and 2005 have been restated to reflect such amendment. Pro forma stock-based compensation expense has been revised to reflect the corrections in the amortization period, expected life assumptions and volatilities used to determine stock-based compensation expense. This correction impacts the pro forma net income and pro forma net income per share previously disclosed in the footnotes to the consolidated financial statements for the six months ended June 30, 2004 and 2005. As a result, the pro forma net income for the six months ended June 30, 2004 decreased by (Yen) 515,201 thousand and for the six months ended June 30, 2005 increased by (Yen) 104,189 thousand, compared to the amounts previously presented. The pro forma basic net income per share for the six months ended June 30, 2004 decreased by (Yen) 3.88 and for the six months ended June 30, 2005 increased by (Yen) 0.78, compared to the amounts previously presented. The pro forma diluted net income per share for the six months ended June 30, 2004 decreased by (Yen) 3.80 and for the six months ended June 30, 2005 increased by (Yen) 0.76, compared to the amounts previously presented. Stock-based compensation The Company accounts for its stock-based incentive awards in accordance with the intrinsic value method as per APB No. 25, 'Accounting for Stock Issued to Employees' and related interpretations. The Company complies with the disclosure provisions of FAS No. 123, 'Accounting for Stock-Based Compensation', as amended by FAS No. 148. In October 1995, SFAS 123 established a fair value based method of accounting for employee stock based compensation. If compensation cost for the stock options with warrants, and the stock options with Stock acquisition rights been determined based on the fair value at the grant dates, as prescribed by SFAS 123, the Company's pro forma net income and net income per share would have been as follows: Thousands of Yen, except per share data For the year For the six For the six ended months ended months ended December June 30,2004 June 30,2005 31,2004 Net income: As reported 6,969,007 8,490,156 15,874,836 Deduct: Total stock- based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,058,726) (1,758,066) (2,640,021) Pro forma net income 5,910,281 6,732,090 13,234,815 Net income per share: As reported -- Basic (Yen)52.41 (Yen)63.67 (Yen)120.64 Diluted 51.47 62.71 118.59 Pro forma net income -- Basic (Yen)44.45 (Yen)50.49 (Yen)100.58 Diluted 43.65 49.73 98.87 The fair values of the stock options with Stock acquisition rights were estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants during the first six months ended June 30, 2004 and the year ended December 31,2004; expected life of 5.00 years, volatility of 59.570 % and dividend yield of 0.39 % for first half of 2004; expected life of 5.0 years, volatility of 51.710-59.570 % and dividend yield of 0.39-0.43% for 2004; and risk-free interest rates of 0.674 % for options granted during the first half of 2004, and risk-free interest rates of ranging from 0.634 % to 0.674 % for options granted during the year ended December 31, 2004. The fair value per share of options granted above during first half of 2004 and fiscal 2004 were (Yen) 2,235 and (Yen) 2,190 to 2,235, respectively. There was no additional issuance of Stock acquisition rights as stock options during the first six months ended June 30, 2005. Thousands of Yen, except per share data For the year For the six For the six ended months ended months ended December June 30,2004 June 30,2005 31,2004 Net income: As reported 6,969,007 8,490,156 15,874,836 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,573,927) (1,653,877) (3,319,609) Pro forma net income 5,395,080 6,836,279 12,555,227 Net income per share: As reported -- Basic (Yen)52.41 (Yen)63.67 (Yen)120.64 Diluted 51.47 62.71 118.59 Pro forma net income -- Basic (Yen)40.57 (Yen)51.27 (Yen)95.41 Diluted 39.85 50.49 93.79 The fair values of the stock options with Stock acquisition rights were estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants during the first six months ended June 30, 2004 and the year ended December 31,2004; expected life of 3.04 years, volatility of 59.20 % and dividend yield of 0.32 % for first half of 2004; expected life of 3.04-3.08 years, volatility of 52.41-59.20 % and dividend yield of 0.28-0.32% for 2004; and risk-free interest rates of 0.32 % for options granted during the first half of 2004, and risk-free interest rates of ranging from 0.27 % to 0.32 % for options granted during the year ended December 31, 2004. The fair value per share of options granted above during first half of 2004 and fiscal 2004 were (Yen) 1,682 and (Yen) 1,682 to 1,788, respectively. There was no additional issuance of Stock acquisition rights as stock options during the first six months ended June 30, 2005. Research and development and maintenance costs, and software development costs Research and development and maintenance costs in operating expenses are comprised of research and development costs and maintenance costs. Research and development costs incurred up to the point where all substantial testing for the original English version product is complete, are charged to income. Such research and development costs charged to income were (Yen) 1,227,714 thousand and (Yen) 2,196,929 thousand ($19,792 thousands) for the six months ended June 30, 2004 and 2005, respectively. Maintenance costs are fees, which relate to product version updates to enable product to cope with newly prevailing computer viruses and bug fixing. The maintenance costs were (Yen) 1,051,260 thousand and (Yen) 694,846 thousand ($6,260 thousand) for the six months ended June 30,2004 and 2005, respectively. Research and development costs incurred up to the point where all substantial testing for the original English version product is complete, are charged to income as operating expense. Such research and development costs charged to income were (Yen) 1,227,714 thousand and (Yen) 2,196,929 thousand ($19,792 thousands) for the six months ended June 30, 2004 and 2005, respectively. Maintenance costs are fees, which relate to product version updates to enable product to cope with newly prevailing computer viruses and bug fixing, are recorded as cost of sales. The maintenance costs were (Yen) 1,051,260 thousand and (Yen) 694,846 thousand ($6,260 thousand) for the six months ended June 30,2004 and 2005, respectively. (Following footnote below is newly added after 'Status of manufacturing and actual sales') Customer support costs Customer support costs are primarily payroll, related expenses and outsourced customer service fees, which relate to activities such as maintenance of customer's database, education promotions to customers, investigation for appropriate customer support methodologies, responses to customer's questions and sales promotions to customers via telephone. Customer support costs in cost of sales were (Yen) 2,717,490 thousand and (Yen) 3,190,146 thousand ($28,740 thousand) for the six months ended June 30, 2004 and 2005, respectively. Non-consolidated semi-annual income statements (Thousands of yen) Period Account For the first half of For the first half of the previous fiscal year the current fiscal year From January 1, 2004 From January 1, 2005 To June 30, 2004 To June 30, 2005 Amount Percentage Amount Percentage % % Net Sales 18,409,928 100.0 22,421,912 100.0 Cost of sales *6 1,009,709 5.5 632,448 2.8 Gross profit 17,400,219 94.5 21,789,464 97.2 Selling, general and administrative expenses *1,6 8,427,204 45.8 11,430,241 51.0 Operating income 8,973,014 48.7 10,359,222 46.2 (Thousands of yen) Period Account Condensed income statement for the previous fiscal year ( From January 1, 2004 ) To December 31, 2004 Amount Percentage % Net Sales 39,771,157 100.0 Cost of sales *6 1,937,717 4.9 Gross profit 37,833,439 95.1 Selling, general and administrative expenses *1,6 18,506,382 46.5 Operating income 19,327,056 48.6 (Thousands of yen) Period Account For the first half of For the first half of the previous fiscal year the current fiscal year From January 1, 2004 From January 1, 2005 To June 30, 2004 To June 30, 2005 Amount Percentage Amount Percentage % % Net Sales 18,409,928 100.0 22,421,912 100.0 Cost of sales *6 3,415,490 18.6 2,777,909 12.4 Gross profit 14,994,438 81.4 19,644,003 87.6 Selling, general and administrative *1,6 6,021,424 32.7 9,284,780 41.4 expenses Operating income 8,973,014 48.7 10,359,222 46.2 Period Account Condensed income statement for the previous fiscal year ( From January 1, 2004 ) To December 31, 2004 Amount Percentage % Net Sales 39,771,157 100.0 Cost of sales *6 7,143,023 18.0 Gross profit 32,628,133 82.0 Selling, general and administrative expenses *1,6 13,301,077 33.4 Operating income 19,327,056 48.6 Note to Non-consolidated semi-annual income statement (Thousands of yen) For the first half of For the first half of the previous fiscal year the current fiscal year ( From January 1, 2004 ) ( From January 1, 2005 ) To June 30, 2004 To June 30, 2005 *1 Major components of *1 Major components of selling, general and selling, general and administrative expenses administrative expenses are as follows are as follows Sales promotions Sales promotions and Advertising 1,594,464 and Advertising 2,870,044 Salaries and bonuses 1,321,643 Salaries and bonuses 1,400,219 Retirement benefit Retirement benefit costs 90,934 costs 70,085 Depreciation expense 56,981 Depreciation expense 53,732 Outside service fee 1,115,274 Outside service fee 1,215,907 Research and Research and development costs 1,229,277 development costs 1,997,928 Software maintenance fee 1,051,144 Software maintenance fee 694,049 Intercompany charge 625,841 Intercompany charge 1,319,009 (Thousands of yen) For the previous fiscal year ( From January 1, 2004 ) To December 31, 2004 *1 Major components of selling, general and administrative expenses are as follows Sales promotions and Advertising 3,625,288 Salaries and bonuses 2,791,862 Retirement benefit costs 182,812 Depreciation expense 121,073 Outside service fee 2,440,765 Research and development costs 2,600,209 Software maintenance fee 2,260,626 Intercompany charge 1,554,453 (Thousands of yen) For the first half of For the first half of the previous fiscal year the current fiscal year ( From January 1, 2004 ) ( From January 1, 2005 ) To June 30, 2004 To June 30, 2005 *1 Major components of *1 Major components of selling, general and selling, general and administrative expenses administrative expenses are as follows are as follows Sales promotions Sales promotions and Advertising 1,586,871 and Advertising 2,869,619 Salaries and bonuses 1,056,742 Salaries and bonuses 1,172,729 Retirement benefit Retirement benefit costs 72,048 costs 54,909 Depreciation expense 47,281 Depreciation expense 44,497 Outside service fee 449,578 Outside service fee 467,452 Research and Research and development costs 1,229,277 development costs 1,997,928 Intercompany charge 625,841 Intercompany charge 1,319,009 (Thousands of yen) For the previous fiscal year ( From January 1, 2004 ) To December 31, 2004 *1 Major components of selling, general and administrative expenses are as follows Sales promotions and Advertising 3,616,126 Salaries and bonuses 2,237,924 Retirement benefit costs 144,831 Depreciation expense 100,542 Outside service fee 1,005,875 Research and development costs 2,600,209 Intercompany charge 1,554,453 About Trend Micro Trend Micro, Inc. is a leader in network antivirus and Internet content security software and services. The Tokyo-based corporation has business units worldwide. Trend Micro products are sold through corporate and value-added resellers and managed service providers. For additional information and evaluation copies of all Trend Micro products, visit our Web site, http://www.trendmicro.com/ . For additional Information Mr. Mahendra Negi Chief Operating Officer / Chief Financial Officer / IR Officer Tel: +81-3-5334-4899 Fax: +81-3-5334-4874 Email: DATASOURCE: Trend Micro, Inc. CONTACT: Mr. Mahendra Negi of TMIC, +81-3-5334-4899, or fax, +81-3-5334-4874, or Web site: http://www.trendmicro.com/

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