Revenues Up 17 Percent Annually, Driven by Strong Sales in the Small
and Mid-Sized Business Market and Overall US Growth
TOKYO, Feb. 21 /Xinhua-PRNewswire-FirstCall/ -- Trend Micro Incorporated (TSE: 4704, Nasdaq: TMIC), a leader in network antivirus and Internet content security software and services, today announced earnings results for the fourth quarter and consolidated revenue for fiscal year 2006 ended December 31, 2006.
For the fourth quarter, Trend Micro posted a record 23.386 billion Yen ($198.524 million, 117.80JPY=1USD) in net sales, representing 14 percent growth in Yen year-over-year and 11 percent growth over the third quarter in Yen. Operating income for the quarter was 6.705 billion Yen ($56.921 million) and net income was 5.030 billion Yen ($42.697 million).
For 2006, Trend Micro posted record consolidated net sales of 85.614 billion Yen (or U.S. $726.771 million), representing an annual growth rate of 17 percent. The company also reported operating income of 27.076 billion Yen (or U.S. $229.845 million) and net income of 17.236 billion Yen (or US $146.317 million). Revenues from products and services sold to enterprise, mid-sized, and small business customers worldwide comprised 76 percent of 2006 revenues; revenue from consumer products comprised the remaining 24 percent.
Trend Micro continued to experience double digit growth worldwide, most notably in North America where sales grew 25 percent annually while Europe saw a growth of 15 percent year on year. In the Japan and Asia-Pacific regions, annual sales increased 13 and 16 percent, respectively.
"2006 was a healthy year for our company, annual growth remained in double digits and our steadfast focus on delivering new products and services designed specifically to meet the needs of our different-sized customers helped fuel development," said Eva Chen, CEO of Trend Micro. "In the past year, we delivered a number of new security solutions which prevent malicious content and attacks. During 2007, we will continue this momentum by focusing on protection against web-based threats that can result in data leakage and information theft. This approach is helping us to build a strong foundation to position us for the next stage of growth and our continued leadership."
Based on information currently available to the company, consolidated net sales for the first quarter ending March 31, 2007, is expected to be 23.000 billion Yen (or U.S. $194.915 million, based on an exchange rate of 118JPY = 1USD). Operating income and net income are expected to be 5.500 billion Yen (or U.S. $46.610 million) and 2.850 billion Yen (or U.S. $24.153 million), respectively.
Growth rate figures are calculated from Japanese Yen results. Some discrepancy may therefore be noted in US Dollar comparisons owing to fluctuations in currency conversion rates.
2006 Business Highlights
Awards and Recognition
Corporate
-- Trend Micro was listed on the Dow Jones Sustainability Index for the
third consecutive year.
-- Trend Micro placed second in the Ziff Davis CIO Insight 2006 Vendor
Value Study, ahead of all other security vendors. The study
conducted among top IT managers and CIO's ranked 40 of the most
important information technology vendors by value, reliability and
loyalty. Additionally, Trend Micro was the top-scoring Mid-Market
vendor.
-- Dave Rand, CTO for Trend Micro Internet Content Security, addressed
the Messaging Anti-Abuse Working Group General Meeting in June 2006,
where he presented validation that botnets are now the primary source
of spam.
-- In August, Trend Micro was recognized as number 9 on the Cape Horn
Strategies "2006 Software Industry Sustained Success Honor Roll"
having achieved 9 consecutive years of profitable growth.
-- In November 2006, Trend Micro received the Taiwan International
Achievement award at the Fourth Taiwan Business Awards.
-- Independent research firm, Forrester Research acknowledged Trend
Micro as a Leader in Enterprise Anti-Spyware in their report "The
Forrester Wave: Enterprise Antispyware, Q1 2006".
-- In August 2006, U.S. based solution-provider readers of CMP
Technology's VARBusiness magazine recognized Trend Micro in the
Annual Report Card (ARC) award program, for the outstanding
satisfaction levels it provides. Trend Micro received the Product
Innovation award, for the third consecutive year, and the Loyalty
award in the Security Management Software category from the biweekly
magazine that provides strategic insight to technology integrators
Products
-- In March 2006, Trend Micro was named as CRN Channel Champion in both
Client Security Software and Network Security Software Categories by
the US edition of CRN Magazine.
-- Trend Micro Internet Security and Trend Micro AntiVirus plus
AntiSpyware were awarded the Certified for Windows Vista Logo.
-- TechTarget's SearchComputingMagazine.com named Trend Micro Mobile
Security among its "Products of the Year" in January 2006.
-- In early January, TechData's TechSelect Channel Community awarded
Trend Micro's SMB Solutions "Best Solution."
-- During the fourth quarter, the Network VirusWall Enforcer underwent
extensive comparative testing in the Infoworld magazine labs and came
away with the top score. The reviewer noted that the "step-by-step
policy configuration was simple to create thanks to the wizardlike
interface."
Products and Innovation
New products Trend Micro introduced during 2006, included the following:
-- Consumer:
Trend Micro Internet Security, incorporates Trend Micro's well-known PC-cillin(TM) engine and anti-malware protection along with a host of new features addressing rootkits, spyware, phishing, spam, hackers, viruses, WiFi attacks, smartphone threats and the growing number of identity-theft threats. In addition, the Trend Micro Internet Security subscription includes TrendSecure(TM), Trend Micro's new online security services.
-- Small and Mid-sized Businesses.
InterScan Gateway Security Appliance is designed for mid-sized organizations looking for an easy to install, easy to maintain content security solution. While protecting corporate and personal data, the appliance supports employee productivity and it includes an anti-bot functionality to help prevent internal PC's from becoming zombies.
Trend Micro(TM) Email Security Services were developed specifically with the small and medium businesses (SMB) in mind. This service protects their network and infrastructure by stopping threats before they reach the customer's gateway.
-- Enterprise:
InterScan Web Security Appliance is a new gateway-based hardware solution with unique capabilities designed to provide enterprise organizations with comprehensive front-line protection against malware and content security threats including spyware.
Network VirusWall(TM) Enforcer, is a second-generation enterprise-class Network Access Control (NAC) appliance that ensures that all devices -- managed or unmanaged, local or remote -- comply with security policies before they're granted access to corporate networks.
InterScan(TM) Messaging Security Appliance is a comprehensive solution for enterprises to address email-based threats including spam, phishing, bots, spyware, and viruses, as well as content compliance.
Patents
In 2006, Trend Micro was awarded the following patents:
-- U.S. Patent No. 7,099,853, entitled "Configurable Hierarchical
Content Filtering System" covers a content filtering scanning method
that distributes the scanning of incoming data against a knowledge
base to more than one computer. This technology advantageously
allows a complete pattern file to be segmented, with different
computers scanning incoming data using different segments of the
pattern file.
-- U.S. Patent No. 7,062,553, entitled "Virus Epidemic Damage Control
System and Method for Network Environment" covers a method of early
virus detection by analyzing whether identical sections of files have
been modified over a certain time interval. According to a specific
example of the patented technology, a network system finds all files
having been modified within a predetermined time interval and
analyzes the modifications. If the modified sections of the modified
files are identical or similar, the network is alerted of a possible
virus outbreak, allowing early containment and quarantine.
Business Highlights
-- New customers in the fourth quarter included: Nova Information
Systems in the United States and Eastern Norway Regional Health
Authority, Statoil ASA and ISC Central (Dutch Police Force) in EMEA
Notice Regarding Forward-looking StatementsCertain statements that we make in this release are forward-looking statements. These forward-looking statements are based upon management's current assumptions and beliefs in light of the information currently available to it, but involve known and unknown risks and uncertainties. Many important factors could cause our actual results to differ materially from those expressed in our forward-looking statements. These factors include:
-- Difficulties in addressing new virus and other computer security
problems
-- Timing of new product introductions and lack of market acceptance for
our new products
-- The level of continuing demand for, and timing of sales of, our
existing products
-- Rapid technological change within the antivirus software industry
-- Changes in customer needs for antivirus software
-- Existing products and new product introductions by our competitors
and the pricing of those products
-- Declining prices for products and services
-- The effect of future acquisitions on our financial condition and
results of operations
-- The effect of adverse economic trends on our principal markets
-- The effect of foreign exchange fluctuations on our results of
operations
-- An increase in the incidence of product returns
-- The potential lack of attractive investment targets and
-- Difficulties in successfully executing our investment strategy
We assume no obligation to update any forward-looking statements. For more details regarding risk factors relating to our future performance, please refer to our filings with the U.S. Securities and Exchange Commission.
About Trend Micro, Inc.
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, www.trendmicro.com .
Trend Micro and the t-ball logo are trademarks or registered trademarks of Trend Micro Incorporated. TrendLabs is a service mark of Trend Micro Incorporated. All other company or product names may be trademarks or registered trademarks of their owners.
Supplementary Information
(1) CONSOLIDATED BALANCE SHEETS
(Thousands of yen)
December 31, December 31,
Account 2005 2006
Amount % Amount %
< Assets >
Current assets:
Cash and cash equivalents 59,612,577 76,196,954
Time deposits 1,435,293 514,293
Marketable securities 22,395,365 25,958,661
Notes and accounts receivable, trade
-less allowance for doubtful
accounts
(Yen) 282,257 in FY2005 and
(Yen) 514,223 in FY2006,
respectively
-less sales returns
(Yen) 422,453 in FY2005 and
(Yen) 208,275 in FY2006,
respectively 19,198,870 19,923,830
Inventories 359,897 685,952
Deferred income taxes 6,727,229 9,438,457
Prepaid expenses and other current
assets 1,925,791 3,708,789
Total current assets 111,655,022 84.0 136,426,936 81.6
Investments and other assets:
Securities investments 11,159,428 15,681,524
Investment in and advances to
affiliated companies 321,569 254,308
Software development costs 1,174,691 1,167,079
Other intangibles 1,390,434 2,088,618
Goodwill 2,130,179 2,982,963
Deferred income taxes 2,033,488 4,370,672
Other 671,800 792,871
Total investments
and other assets 18,881,589 14.2 27,338,035 16.3
Property and equipment:
Office furniture and equipment 4,468,891 6,542,245
Other properties 1,539,195 2,249,875
6,008,086 8,792,120
Less: Accumulated depreciation (3,609,473) (5,292,452)
Total property and equipment 2,398,613 1.8 3,499,668 2.1
Total assets 132,935,224 100.0 167,264,639 100.0
< Liabilities, minority interest and
shareholders' equity >
Current liabilities:
Notes payable, trade 118,572 143,637
Accounts payable, trade 794,450 1,428,202
Accounts payable, other 3,208,625 3,753,566
Withholding income taxes 1,082,302 1,465,451
Accrued expenses 3,138,674 4,023,464
Accrued income and other taxes 5,476,791 10,100,431
Deferred revenue 31,506,315 45,093,703
Other 895,088 961,342
Total current liabilities 46,220,817 34.8 66,969,796 40.1
Long-term liabilities:
Deferred revenue 3,874,936 7,681,730
Accrued pension and severance costs 889,774 1,149,219
Other 82,056 261,214
Total long-term liabilities 4,846,766 3.6 9,092,163 5.4
Minority interest 4,531 0.0 6,632 0.0
Shareholders' equity:
Common stock
Authorized
-December 31,2005 250,000,000 shares
(no par value)
-December 31,2006 250,000,000 shares
(no par value)
Issued
-December 31,2005 136,603,725 shares 12,484,849
-December 31,2006 137,344,504 shares 13,479,076
Additional paid-in capital 18,572,063 24,755,879
Retained earnings 55,971,955 63,386,138
Accumulated other comprehensive income
Net unrealized gain (loss) on debt and 1,012,828
equity securities 657,885
Cumulative translation adjustments 1,459,600 2,910,707
Unrecognized pension liabilities -- (181,855)
2,117,485 3,741,680
Treasury stock, at cost
-December 31,2005 2,513,231 shares (7,283,242)
-December 31,2006 4,509,612 shares (14,166,725)
Total shareholders' equity 81,863,110 61.6 91,196,048 54.5
Total liabilities, minority 132,935,224 100.0 167,264,639 100.0
interest and shareholders' equity
(2) CONSOLIDATED STATEMENTS OF INCOME
(Thousands of yen)
For the year For the year Increase
Account ended ended
December 31, December 31, (Decrease)
2005 2006
Amount % Amount % %
Net sales 73,029,901 100.0 85,613,662 100.0 17.2 Cost of sales:
Amortization of capitalized 2,598,603 4,138,033
software, and
Material
Maintenance 1,671,320 3,259,764
Customer Support 6,857,901 8,496,171
Total Cost of sales 11,127,824 15.2 15,893,968 18.6 42.8
Operating Expense:
Selling 20,944,484 27,216,279
Research and development 4,395,207 4,719,313
General and administrative 8,990,611 10,708,306
Total operating expenses 34,330,302 47.0 42,643,898 49.8 24.2
Operating income 27,571,775 37.8 27,075,796 31.6 (1.8)
Other incomes (expenses):
Interest income and dividend 1,775,896
received 836,910
Interest expense (3,709) (19,638)
Gain (loss) on sales of
marketable securities 370,326 464,055
Foreign exchange gain (loss),
net 327,257 (37,955)
Other income (expense),
net 5,741 297,686
Total other income 1,536,525 2.1 2,480,044 2.9 61.4 (expense)
Net income before tax 29,108,300 39.9 29,555,840 34.5 1.5
Income taxes:
Current 11,863,127 16,012,347
Deferred (1,358,568) (3,644,302)
10,504,559 14.4 12,368,045 14.4 17.7
Income before minority
interest and equity in 18,603,741 25.5 17,187,795 20.1 (7.6)
earnings of affiliated
companies
Minority interest in income
of consolidated (338) 0.0 (812) 0.0 140.2
subsidiaries
Equity in earnings (losses)
of affiliated companies 66,551 0.1 49,207 0.0 (26.1)
Net income 18,669,954 25.6 17,236,190 20.1 (7.7)
Per share data:
Net income Yen Yen
-Basic 139.85 128.65
-Diluted 137.83 128.11
(3) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands of yen)
For the For the
year year
Account ended ended
December 31, December 31,
2005 2006
Net income 18,669,954 17,236,190
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on debt and equity
securities:
Unrealized holding gains (loss) arising
during period 1,375,136 959,373
Less reclassification adjustment for (gains)
losses included in net income (704,199) (381,360)
670,937 578,013
Foreign currency translation adjustments 2,066,063 1,451,107
Unrecognized pension liabilities;
Pension liability adjustment to
initially apply SFAS No.158 -- (164,786)
Total 2,737,000 1,864,334
Tax effect of other comprehensive income(loss):
Income tax expense related to unrealized
gains (losses) on debt and equity (297,400) (223,070)
securities
Income tax expense related to unrecognized
pension liabilities -- (17,069)
(297,400) (240,139)
Other comprehensive income (loss), net of tax 2,439,600 1,624,195
Comprehensive income 21,109,554 18,860,385
(4) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Thousands of yen)
For the year For the year
Account ended ended
December 31, 2005 December31, 2006
< Common stock >
Balance at beginning of period 11,426,977 12,484,849
Exercise of stock purchase warrants
and stock acquisition rights 1,057,872 994,227
Balance at end of period 12,484,849 13,479,076
< Additional paid-in capital >
Balance at beginning of period 17,359,335 18,572,063
Tax benefit from exercise of
non-qualified stock warrants 155,323 140,089
Tax recognition derived from
elimination of -- (59,091)
reversed warrant related with stock
option plan
Stock option compensation expense -- 5,108,924
Exercise of stock purchase warrants
and stock acquisition rights 1,057,405 993,894
Balance at end of period 18,572,063 24,755,879
< Retained earnings >
Balance at beginning of period
(Previously announced) 42,165,026 55,971,955
Cumulative-effect of the adjustment
by applying SAB No.108 -- (2,251,639)
Balance at beginning of period
(After adjusted) 42,165,026 53,720,316
Net income 18,669,954 17,236,190
Stock issue costs, net of tax (3,519) (3,761)
Cash dividends (4,794,028) (7,509,068)
Loss on sales of treasury stock,
net of tax (65,478) (57,539)
Balance at end of period 55,971,955 63,386,138
< Net realized gain (loss) on debt
and equity securities >
Balance at beginning of period 284,348 657,885
Net change during the period 373,537 354,943
Balance at end of period 657,885 1,012,828
< Cumulative translation adjustments >
Balance at beginning of period (606,463) 1,459,600
Aggregate translation adjustments
for the period 2,066,063 1,451,107
Balance at end of period 1,459,600 2,910,707
< Unrecognized pension cost >
Balance at beginning of period -- --
Accumulated adjustments by applying
SFAS No.158 -- (181,855)
Balance at end of period -- (181,855)
< Treasury stock, at cost >
Balance at beginning of period (7,454,463) (7,283,242)
Purchase of treasury stock (142,062) (7,117,842)
Sales of treasury stock 313,283 234,359
Balance at end of period (7,283,242) (14,166,725)
Total shareholders' equity 81,863,110 91,196,048
(5) CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of yen)
For the For the
year year
Account ended ended
December 31, December 31,
2005 2006
Cash flows from operating activities:
Net income 18,669,954 17,236,190
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 1,878,050 3,466,388
Pension and severance costs, less payments 207,109 248,564
Deferred income taxes (1,358,568) (3,644,302)
(Gain) loss on sales of marketable securities (370,326) (464,055)
Equity in earnings of affiliated companies (66,551) (49,207)
(Gain) loss on sale and disposal of fixed
assets 11,585 3,466
Stock option compensation expense -- 4,971,477
Dividends received from affiliated company -- 28,000
Minority interest 338 812
Changes in assets and liabilities:
Increase (decrease) in deferred revenue 6,209,680 12,960,443
(Increase) decrease in accounts receivable,
net of allowances (3,567,924) (84,956)
(Increase) decrease in inventories (124,971) (303,254)
Increase (decrease) in notes and accounts
payable, trade (526,321) 587,337
Increase (decrease) in accrued income and
other taxes (1,826,959) 4,644,548
(Increase) decrease in other current assets (34,426) (667,417)
Increase (decrease) in accounts payable,
other 381,414 143,162
Increase (decrease) in other current
liabilities 1,336,703 (61,823)
(Increase) decrease in other assets (207,984) (931,569)
Other 34,809 (695,385)
Net cash provided by operating activities 20,645,612 37,388,419
Cash flows from investing activities:
Payments for purchases of property and (1,153,193) (1,942,091)
equipment (1,446,248) (1,456,755)
Software development cost
Payments for purchases of other intangibles (216,107) (1,395,220)
Proceeds from sales of marketable securities 22,079,575 20,648,519
(Payment for)/Proceeds from marketable
securities maturing within three months
or less (net) (189,708) 1,292,234
Payments for purchases of marketable
securities and security investments (28,043,534) (28,355,269)
Payments for business acquisition (2,716,702) (816,655)
(Payments for)/Proceeds from time deposits (1,052,017) 921,000
Net cash used in
investing activities (12,737,934) (11,104,237)
Cash flows from financing activities:
Issuance of common stock pursuant to exercise
of stock purchase warrants and stock
acquisition rights 2,111,758 1,984,360
Proceeds from sales of treasury stock 247,805 176,820
Payment for purchase of treasury stock (142,062) (7,117,842)
Tax benefit from exercise of non-qualified
stock warrants 155,322 140,089
Tax recognition derived from elimination of
reversed warrant related
with stock option plan -- (59,091)
Capital contribution from minority interest 4,193 --
Dividends paid (4,782,764) (7,497,089)
Net cash used in
financing activities (2,405,748) (12,372,753)
Effect of exchange rate changes on cash and
cash equivalents 1,202,290 2,672,948
Net increase (decrease) in cash and cash
equivalents 6,704,220 16,584,377
Cash and cash equivalents at beginning of
period 52,908,357 59,612,577
Cash and cash equivalents at end of period 59,612,577 76,196,954
Supplementary information of cash flow:
Payment for interest expense 3,709 19,638
Payment for income taxes 13,109,985 9,516,032
For additional Information:
Mr. Mahendra Negi
Chief Financial Officer/IR Officer
Phone: +81-3-5334-4899
Fax: +81-3-5334-4874
Email: ir@trendmicro.co.jp
