FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934
For November 13, 2007
Commission File Number: 0-30204
Internet Initiative Japan Inc.
(Translation of registrant's name into English)
Jinbocho Mitsui Bldg. 1-105 Kanda Jinbo-cho, Chiyoda-ku, Tokyo 101-0051, Japan
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F:
Form 20-F [ X ] Form 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in
paper as permitted by Regulation S-T Rule 101(b)(1): ____
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a Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in
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registrant foreign private issuer must furnish and make public under the laws of
the jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [ X ]
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-
EXHIBIT INDEX
Exhibit Date Description of Exhibit
------- ---- ----------------------
1 2007/11/12 IIJ Announces Second Quarter Results for the
Fiscal Year Ending March 31, 2008
Exhibit 1
IIJ Announces Second Quarter Results for the
Fiscal Year Ending March 31, 2008
TOKYO--(BUSINESS WIRE)--Nov. 13, 2007--Internet Initiative Japan
Inc. (Nasdaq:IIJI) (Tokyo Stock Exchange First Section: 3774) ("IIJ"),
one of Japan's leading Internet-access and comprehensive network
solutions providers, today announced its financial results for the
second quarter of the fiscal year ending March 31, 2008 ("FY2007")(1).
Highlights of Second Quarter FY2007 Results
-- Revenue totaled JPY 16,294 million ($ 141.7 million), an
increase of 16.3% from 2Q06.
-- Operating income was JPY 1,125 million ($9.8 million), an
increase of 38.6% from 2Q06.
-- Net income was JPY 2,907 million ($25.3 million), an increase
of 37.1% from 2Q06.
-- Today, IIJ's board of directors resolved to pay a cash
dividend of JPY 750 per share of common stock for the interim
period ended September 30, 2007 (400 American Depository
Shares represent 1 share of common stock).
Financial Targets for FY2007(2)
-- We are maintaining our initial targets for the full FY2007
that we disclosed on May 15, 2007.
-- We plan to pay an additional cash dividend of JPY 750 per
share of common stock for FY2007.
Overview of 2nd Quarter FY2007 Financial Results and Business
Outlook(2)
"We continued to record good results in 2Q07," said Koichi Suzuki,
President and CEO of IIJ. "The revenues and operating income have
shown a steady increasing trend supported by the favorable increase in
monthly recurring revenues from our Internet connectivity and
value-added services, or VAS. Revenues from Internet connectivity
services increased continuously in 2Q07 mainly due to the shift by
corporate customers to higher speeds and our business expansion in the
home users market by our acquisition of hi-ho, Inc., or hi-ho.
Corporate customers keep showing strong demands for our outsourcing
services including anti-spam services and data centers to reduce the
risk of interruptions to their businesses and increase security
measures. As a result, the gross margin from connectivity and VAS
increased by 48.4% compared to 2Q06. For systems integration, or SI,
we continued to see strong demands and revenues from SI increased by
10.3% compared to 2Q06. Some projects are becoming larger in scale and
are expected to be completed in the last half of FY2007 and the order
backlog for SI and equipment sales increased by 82.8% compared to
2Q06."
"In 2Q07, we continued to build the basis for further growth in
the middle and long-term," continued Suzuki. "In August 2007, we
announced that we would provide our high-quality content distribution
platform to "acTVila", TV portals established by major home appliance
manufacturers in Japan for digital televisions connected to the
Internet. In September 2007, GDX Japan Inc., or GDX, our consolidated
subsidiary, announced that it will provide "GDX Trusted Platform" to
offer corporate customers a revolutionary and highly reliable e-mail
messaging infrastructure."
2nd Quarter FY2007 Financial Results
Results of Operation
Operating Results Summary (JPY in millions)
2Q07 2Q06 YoY %
change
----------------------------------------------------------------------
Total Revenues 16,294 14,007 16.3%
--------------------------------------------- ------ --------- -------
Total Costs 12,869 11,448 12.4%
--------------------------------------------- ------ --------- -------
SG&A Expenses and R&D 2,301 1,747 31.7%
--------------------------------------------- ------ --------- -------
Operating Income 1,125 811 38.6%
--------------------------------------------- ------ --------- -------
Income before Income Tax Benefit(3) 941 1,145 (17.9%)
--------------------------------------------- ------ --------- -------
Net Income 2,907 2,120 37.1%
--------------------------------------------- ------ --------- -------
Revenues
Revenues in 2Q07 totaled JPY 16,294 million, an increase of 16.3%
from JPY 14,007 million in 2Q06.
(JPY in millions)
Revenues
2Q07 2Q06 YoY %
change
----------------------------------------------------------------------
Total Revenues: 16,294 14,007 16.3%
------------------------------------------- -------- --------- -------
Connectivity and VAS 7,936 6,156 28.9%
------------------------------------------- -------- --------- -------
SI 7,968 7,221 10.3%
------------------------------------------- -------- --------- -------
Equipment Sales 391 630 (37.9%)
------------------------------------------- -------- --------- -------
Connectivity and VAS revenues were JPY 7,936 million in 2Q07, an
increase of 28.9% compared to 2Q06. The increase was mainly due to an
increase in revenues from connectivity services for corporate users,
JPY 1,080 million of revenues from connectivity services for home
users provided by hi-ho, which we acquired on June 1, 2007, and an
increase in revenues from value-added services overall.
SI revenues increased 10.3% to JPY 7,968 million in 2Q07 compared
to 2Q06. The increase was due to an increase in one-time revenues from
systems construction as well as monthly recurring revenues from
systems operation and maintenance.
Equipment sales revenues were JPY 391 million in 2Q07, a decrease
of 37.9% compared to 2Q06.
Cost and expense
Cost of revenues was JPY 12,869 million in 2Q07, an increase of
12.4% compared to 2Q06.
(JPY in millions)
Cost of Revenues
2Q07 2Q06 YoY %
change
----------------------------------------------------------------------
Cost of Revenues: 12,869 11,448 12.4%
------------------------------------------- -------- --------- -------
Connectivity and VAS 6,598 5,254 25.6%
------------------------------------------- -------- --------- -------
SI 5,938 5,611 5.8%
------------------------------------------- -------- --------- -------
Equipment Sales 333 583 (42.9%)
------------------------------------------- -------- --------- -------
Cost of Connectivity and VAS revenues was JPY 6,598 million in
2Q07, an increase of 25.6% compared to 2Q06, mainly due to JPY 1,081
million of costs along with revenues of JPY 1,314 million from hi-ho,
which we acquired on June 1, 2007, and an increase in personnel
related costs and supplies costs. The cost of revenues also included
amortization of intangible assets of JPY 21 million for hi-ho.
Cost of SI revenues was JPY 5,938 million in 2Q07, an increase of
5.8% compared to 2Q06. The increase was mainly due to an increase in
revenues from SI projects and an increase in personnel expenses.
Cost of Equipment Sales revenues was JPY 333 million in 2Q07, a
decrease of 42.9% compared to 2Q06.
Sales and marketing expenses were JPY 1,088 million in 2Q07, an
increase of 29.1% compared to 2Q06. The increase was mainly due to an
increase in personnel related expenses with business expansion and
sales and marketing expenses related to hi-ho of JPY 155 million.
General and administrative expenses were JPY 1,153 million in
2Q07, an increase of 33.7% compared to 2Q06. The increase was mainly
due to an increase in personnel related expenses and an increase in
rent expenses caused by expansion of offices along with the business
growth.
Research and development expenses were JPY 60 million in 2Q07, an
increase of 42.1% compared to 2Q06.
Operating income
Operating income was JPY 1,125 million in 2Q07, an increase of
38.6% compared to 2Q06. The increase was mainly due to an increase in
gross margin from connectivity and VAS of JPY 436 million and gross
margin from SI of JPY 419 million, despite of the increase in sales
and marketing expenses and general and administrative expenses.
Other income (expense) and others
Other expense in 2Q07 was JPY 184 million, compared to other
income of JPY 334 million in 2Q06. The decrease was mainly due to a
decrease in gains from the sale of available-for-sale securities.
Income tax benefit in 2Q07 was JPY 1,980 million, compared to
income tax benefit of JPY 1,109 million in 2Q06. The increase is
mainly due to deferred tax benefits of JPY 2,114 million resulting
from a reduction of the valuation allowance against deferred income
tax assets due to the increasing income trend and the application of
the consolidated tax filing system for IIJ and its wholly owned
subsidiaries.
Minority interests in losses of subsidiaries in 2Q07 was JPY 15
million, an amount which was affected by the elimination of minority
interests related to our 4 consolidated subsidiaries wholly owned by
us, after we made our two subsidiaries, IIJ Technology Inc. and Net
Care, Inc. wholly owned through the share exchanges in May 2007.
Minority interests in losses of subsidiaries were related to GDX.
Equity in net loss of equity method investees in 2Q07 was JPY 29
million, which was mainly due to equity in net loss of Internet
Revolution Inc.
Net income was JPY 2,907 million in 2Q07, an increase of 37.1%
compared to 2Q06.
Financial Condition
Balance Sheets
As of September 30, 2007, total assets increased by JPY 5,545
million from the amount as of March 31, 2007 to JPY 53,238 million.
For current assets, inventories increased by JPY 767 million, related
to on-going SI projects; prepaid expenses increased by JPY 682
million, mainly for maintenance expenses related to SI projects; other
current assets increased by JPY 847 million mainly due to an increase
in current deferred tax assets (net) resulting from a reduction of the
valuation allowance; and cash decreased by JPY 1,885 million, each
from the respective amount as of March 31, 2007. Property and
equipment increased by JPY 1,468 million from the amount as of March
31, 2007 mainly due to our acquisition of hi-ho and an increase in
property for us and to provide services to our customers. Intangible
assets increased by JPY 2,940 million from the amount as of March 31,
2007, mainly due to the recording of intangible assets of JPY 2,302
million upon our acquisition of the minority shares of two
consolidated subsidiaries and of JPY 659 million upon our acquisition
of hi-ho, including amortizable intangible assets of JPY 289 million.
Other assets increased by JPY 1,217 million mainly due to an increase
in non-current deferred tax assets (net) resulting from a revision of
valuation allowance. The fair value of available-for-sale securities
as of September 30, 2007 decreased by JPY 266 million from the amount
of March 31, 2007 to JPY 1,043 million.
For current liabilities, short-term borrowings increased by JPY
4,600 million from the amount as of March 31, 2007, mainly related to
our acquisition of shares of two consolidated subsidiaries from their
respective minority shareholders, and accounts payable decreased by
JPY 2,338 million from the amount as of March 31, 2007.
Total shareholders' equity as of September 30, 2007 was JPY 23,786
million, an increase of JPY 3,674 million from the amount as of March
31, 2007.
Cash Flows
Cash as of September 30, 2007 was JPY 11,670 million, a decrease
of JPY 1,190 million compared to 2Q06.
Net cash provided by operating activities in 2Q07 was JPY 1,444
million, compared to JPY 1,608 million in 2Q06. In 1Q07, we recorded
net cash used in operating activities of JPY 1,328 million mainly due
to changes in operating assets and liabilities resulting from an
increase in inventories and prepaid expenses related to on-going SI
projects, a decrease in accounts payable and payment of income tax.
However in 2Q07, we recorded net cash provided by operating activities
because operating income continued to increase, mainly due to a steady
increase in revenues from connectivity and VAS, and there was less
effect from changes in operating assets and liabilities during this
quarter.
Net cash used in investing activities in 2Q07 was JPY 832 million,
compared to JPY 855 million in 2Q06. We paid JPY 422 million for the
purchase of property and equipment and JPY 250 million for an
investment in an equity method investee.
Net cash used in financing activities in 2Q07 was JPY 1,552
million, compared to JPY 983 million in 2Q06. We recorded a net
increase in short-term borrowings with initial maturities less than
three months of JPY 1,000 million. We also recorded repayments of
short-term borrowings with initial maturities over three months and
long-term borrowings of JPY 1,769 million and principal payments under
capital leases of JPY 883 million.
2nd Quarter FY2007 Business Review
Analysis by Service
Connectivity and VAS
For connectivity services for corporate use, customers continued
to shift to higher speeds. Total contracted bandwidth increased by
81.7 Gbps to 334.9 Gbps compared to 2Q06.
Revenues from connectivity services for corporate users were JPY
3,009 million, an increase of 7.5% compared to 2Q06. Revenues from IP
Services, the services mainly used by corporate headquarters and data
centers, increased by 6.2% compared to 2Q06, primarily due to new
contracts and the shift by our corporate customers to higher speeds.
Revenues from broadband services increased by 22.8% compared to 2Q06,
largely due to the expansion of broadband utilization in the corporate
internal network.
Revenues from connectivity services for home users were JPY 1,489
million in 2Q07, an increase of 201.9% compared to 2Q06. The increase
was mainly due to additional revenues of JPY 1,080 million from hi-ho,
which we acquired on June 1, 2007, partially offset by the decrease in
revenues from services under IIJ Brand and OEM services.
VAS revenues were JPY 2,379 million in 2Q07, an increase of 24.8%
compared to 2Q06. The increase was mainly due to an increase in
revenues from e-mail, security-related services and data centers,
resulting from an increase in demand for outsourcing services by
corporate customers.
Other revenues were JPY 1,059 million in 2Q07, an increase of
10.7% compared to 2Q06.
As a result, revenues from Internet connectivity and VAS in 2Q07
were JPY 7,936 million, an increase of 28.9% compared to 2Q06. The
gross margin for Internet connectivity and VAS in 2Q07 was JPY 1,337
million, an increase of 48.4% compared to 2Q06. The gross margin ratio
in 2Q07 improved to 16.9% compared to 14.6% in 2Q06.
Number of Contracts for Connectivity Services(4)
2Q07 2Q06 YoY
Change
----------------------------------------------------------------------
Connectivity Services (Corporate Use) 22,949 17,739 5,210
---------------------------------------- --------- --------- ---------
IP Service (-99Mbps) 811 752 59
---------------------------------------- --------- --------- ---------
IP Service (100Mbps-999Mbps) 179 143 36
---------------------------------------- --------- --------- ---------
IP Service (1Gbps-) 61 55 6
---------------------------------------- --------- --------- ---------
IIJ Data Center Connectivity
Service 288 266 22
---------------------------------------- --------- --------- ---------
IIJ FiberAccess/F and IIJ DSL/F 19,994 14,830 5,164
---------------------------------------- --------- --------- ---------
Others 1,616 1,693 (77)
---------------------------------------- --------- --------- ---------
Connectivity Services (Home Use) 500,185 583,844 (83,659)
---------------------------------------- --------- --------- ---------
Under IIJ Brand 52,878 58,378 (5,500)
---------------------------------------- --------- --------- ---------
hi-ho 189,872 -- 189,872
---------------------------------------- --------- --------- ---------
OEM(5) 257,435 525,466 (268,031)
---------------------------------------- --------- --------- ---------
Total Contracted Bandwidth 334.9Gbps 253.2Gbps 81.7Gbps
---------------------------------------- --------- --------- ---------
Connectivity and VAS Revenue Breakdown and Cost(6)
(JPY in millions)
2Q07 2Q06 YoY %
Change
----------------------------------------------------------------------
Connectivity Service Revenues (Corporate Use) 3,009 2,799 7.5%
------------------------------------------------ ------ ------ -------
IP Service(7) 2,225 2,094 6.2%
------------------------------------------------ ------ ------ -------
IIJ FiberAccess/F and IIJ DSL/F 664 541 22.8%
------------------------------------------------ ------ ------ -------
Others 119 164 (27.3%)
------------------------------------------------ ------ ------ -------
Connectivity Service Revenues (Home Use) 1,489 493 201.9%
------------------------------------------------ ------ ------ -------
Under IIJ Brand 277 299 (7.3%)
------------------------------------------------ ------ ------ -------
hi-ho 1,080 -- --
------------------------------------------------ ------ ------ -------
OEM 131 194 (32.3%)
------------------------------------------------ ------ ------ -------
VAS Revenues 2,379 1,906 24.8%
------------------------------------------------ ------ ------ -------
Other Revenues 1,059 957 10.7%
------------------------------------------------ ------ ------ -------
Total Connectivity and VAS Revenues 7,936 6,156 28.9%
------------------------------------------------ ------ ------ -------
Cost of Connectivity and VAS 6,598 5,254 25.6%
------------------------------------------------ ------ ------ -------
Backbone Cost (included in the cost
of Connectivity and VAS) 849 876 (3.0%)
------------------------------------------------ ------ ------ -------
Connectivity and VAS Gross Margin Ratio 16.9% 14.6% --
------------------------------------------------ ------ ------ -------
SI
Revenues from SI were JPY 7,968 million in 2Q07, an increase of
10.3% compared to 2Q06. The increase was mainly due to an increase of
13.4% in monthly recurring revenues from systems operation and
maintenance compared to 2Q06 and an increase of 7.7% in one-time
revenues from systems construction compared to 2Q06. The order backlog
for SI and equipment sales at September 30, 2007 was JPY 18,938
million, an increase of 82.8% from the amount as of September 30,
2006. The increase is mainly because some projects are becoming larger
in scale and are expected to be completed in the last half of FY2007.
The gross margin for SI in 2Q07 was JPY 2,030 million and the
gross margin ratio in 2Q07 was 25.5%, compared to 22.3% in 2Q06.
SI Revenue Breakdown and Cost (JPY in millions)
2Q07 2Q06 YoY %
Change
----------------------------------------------------------------------
SI Revenues 7,968 7,221 10.3%
------------------------------------------ --------- ---------- ------
Systems Construction 4,168 3,871 7.7%
------------------------------------------ --------- ---------- ------
Systems Operation and Maintenance 3,799 3,350 13.4%
------------------------------------------ --------- ---------- ------
Cost of SI 5,938 5,611 5.8%
------------------------------------------ --------- ---------- ------
SI Gross Margin Ratio 25.5% 22.3% --
------------------------------------------ --------- ---------- ------
Equipment Sales
Revenue from equipment sales was JPY 391 million in 2Q07. The
gross margin ratio for equipment sales in 2Q07 was 15.0%, compared to
7.5% in 2Q06.
Equipment Sales Revenue and Cost (JPY in millions)
2Q07 2Q06 YoY %
Change
----------------------------------------------------------------------
Equipment Sales Revenues 391 630 (37.9%)
---------------------------------------------- ----- --------- -------
Cost of Equipment Sales 333 583 (42.9%)
---------------------------------------------- ----- --------- -------
Equipment Sales Gross Margin Ratio 15.0% 7.5% --
---------------------------------------------- ----- --------- -------
Other Financial Statistics
Other Financial Statistics (JPY in millions)
2Q07 2Q06 YoY %
change
----------------------------------------------------------------------
Adjusted EBITDA(8) 2,316 1,880 23.1%
---------------------------------------------- ----- ---------- ------
CAPEX, including capital leases(9) 1,058 636 66.2%
---------------------------------------------- ----- ---------- ------
Depreciation and amortization 1,191 1,069 11.4%
---------------------------------------------- ----- ---------- ------
Reconciliation of Non-GAAP Financial Measures
The following table summarizes the reconciliation of adjusted
EBITDA to net income in IIJ's consolidated statements of income that
are prepared in accordance with U.S. GAAP and presented in Appendix 2:
(JPY in millions)
Adjusted EBITDA
2Q07 2Q06
----------------------------------------------------------------------
Adjusted EBITDA 2,316 1,880
------------------------------------------- ------------ -------------
Depreciation and Amortization (1,191) (1,069)
------------------------------------------- ------------ -------------
Operating Income 1,125 811
------------------------------------------- ------------ -------------
Other Income (Expense) (184) 334
------------------------------------------- ------------ -------------
Income Tax Benefit (1,980) (1,109)
------------------------------------------- ------------ -------------
Minority Interests in Losses (Earnings) of
Subsidiaries 15 (82)
------------------------------------------- ------------ -------------
Equity in Net Loss of Equity Method
Investees (29) (52)
------------------------------------------- ------------ -------------
Net Income 2,907 2,120
------------------------------------------- ------------ -------------
The following table summarizes the reconciliation of capital
expenditures to purchase of property and equipment in IIJ's
consolidated statements of cash flows that are prepared and presented
in accordance with U.S. GAAP and presented in Appendix 3:
CAPEX (JPY in millions)
2Q07 2Q06
----------------------------------------------------------------------
CAPEX, including capital leases 1,058 636
-------------------------------------------------- --------- ---------
Acquisition of Assets by Entering into
Capital Leases 636 513
-------------------------------------------------- --------- ---------
Purchase of Property and Equipment 422 123
-------------------------------------------------- --------- ---------
Target
Our targets for the financial results for the full FY2007 are as
follows:
(JPY in millions)
Operating Income before
Revenues Income Income Tax Net Income
Benefit
----------------------------------------------------------------------
Full FY2007 69,000 4,600 5,100 5,600
----------------------------------------------------------------------
On November 12, 2007, our board of directors resolved to pay a
cash dividend of JPY 750 per share of common stock for the interim
period ended September 30, 2007. We plan to pay an additional cash
dividend of JPY 750 per share of common stock for FY2007 (400 American
Depository Shares represent 1 share of common stock).
Presentation
On November 13, 2007, IIJ will post a presentation of its results
on its website. For details, please access the following URL:
http://www.iij.ad.jp/en/IR/
About Internet Initiative Japan Inc.
Founded in 1992, Internet Initiative Japan Inc. (IIJ, NASDAQ:
IIJI, Tokyo Stock Exchange First Section: 3774) is one of Japan's
leading Internet-access and comprehensive network solutions providers.
The company has built one of the largest Internet backbone networks in
Japan, and between Japan and the United States. IIJ and its group of
companies provide total network solutions that mainly cater to
high-end corporate customers. The company's services include
high-quality systems integration and security services, Internet
access, hosting/housing, and content design.
Statements made in this press release regarding IIJ's or its
management's intentions, beliefs, expectations, or predictions for the
future are forward-looking statements that are based on IIJ's and its
management's current expectations, assumptions, estimates and
projections about its business and the industry. These forward-looking
statements, such as statements regarding FY2007 revenues and operating
and net profitability, are subject to various risks, uncertainties and
other factors that could cause IIJ's actual results to differ
materially from those contained in any forward-looking statement.
These risks, uncertainties and other factors include: IIJ's ability to
maintain and increase revenues from higher-margin services such as
systems integration and value-added services; the possibility that
revenues from connectivity services may decline substantially as a
result of competition and other factors; the ability to compete in a
rapidly evolving and competitive marketplace; the impact on IIJ's
profits of fluctuations in costs such as backbone costs and
subcontractor costs; the impact on IIJ's profits of fluctuations in
the price of available-for-sale securities; the impact of
technological changes in its industry; IIJ's ability to raise
additional capital to cover its indebtedness; the possibility that
NTT, IIJ's largest shareholder, may decide to exercise substantial
influence over IIJ; and other risks referred to from time to time in
IIJ's filings on Form 20-F of its annual report and other filings with
the United States Securities and Exchange Commission.
Tables to follow
(1) Unless otherwise stated, all financial figures discussed in
this announcement are prepared in accordance with U.S. GAAP. All
financial figures are unaudited and consolidated. For all 2Q07
results, translations of Japanese yen amounts into U.S. dollars are
solely for the convenience of readers outside of Japan and have been
made at the rate of JPY 114.97 = US$1.00.
(2) This Overview and Business Outlook contains forward-looking
statements and projections such as statements regarding FY2007
revenues and operating and net income that are subject to known and
unknown risks and uncertainties that could cause actual results to
differ materially from those expressed or implied by these statements.
These risks and uncertainties include, but are not limited to, the
factors noted at the end of this release and to the risk factors and
other information included in IIJ's annual report on Form 20-F, filed
with the SEC on July 6, 2007, as well as other filings and documents
furnished to the Securities and Exchange Commission. IIJ plans to keep
this press release publicly available on its Web site (www.iij.ad.jp),
but may discontinue this practice at any time. IIJ intends to publish
its next Overview and Business Outlook in its 3Q07 earnings release,
presently scheduled for release in February 2008.
(3) In this document, income before income tax benefit represents
income from operations before income tax benefit, minority interests
and equity in net loss of equity method investees in our consolidated
financial statements.
(4) As we announced in our 1Q07 earnings release, the
classification in the table was changed from the table used in the
past because of our acquisition of hi-ho, a company engaged mainly in
the Internet business for home use. "Dedicated access services" and
"dial-up access services" were reclassified to "connectivity services
for corporate use" and "connectivity services for home use",
respectively.
(5) OEM services provided to other service providers.
(6) As we announced in our 1Q07 earnings release, the
classification in the table was changed from the table used in the
past because of our acquisition of hi-ho, a company engaged mainly in
the Internet business for home use. "Dedicated access services" and
"dial-up access services" were reclassified to "connectivity services
for corporate use" and "connectivity services for home use",
respectively.
(7) IP Service revenues include revenues from the Data Center
Connectivity Service.
(8) Please refer to the Reconciliation of Non-GAAP Financial
Measures below.
(9) Please refer to the Reconciliation of Non-GAAP Financial
Measures below.
Appendix 1
Internet Initiative Japan Inc.
----------------------------------------------------------------------
Quarterly Consolidated Balance Sheets (Unaudited)
----------------------------------------------------------------------
(As of September 30, 2007 and March 31, 2007)
----------------------------------------------------------------------
As of September 30, 2007 As of March 31, 2007
----------------------------------------------------------------------
Thousands Thousands Thousands
of U.S. of Yen of Yen
Dollars % %
----------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash 101,504 11,669,876 13,554,544
Short-term
investment 112 12,836 12,093
Accounts
receivable,
net of
allowance for
doubtful
accounts of
JPY 31,983
thousand and JPY
32,489 thousand
at September 30,
2007 and March
31, 2007,
respectively 79,215 9,107,377 9,675,725
Inventories 16,334 1,877,963 1,111,086
Prepaid
expenses 15,096 1,735,540 1,053,270
Other current
assets, net of
allowance for
doubtful
accounts of
JPY 719 thousand
and JPY 4,570
thousand at
September
30, 2007 and
March 31, 2007,
respectively 15,462 1,777,657 930,571
--------- ------------ ------------
Total current
assets 227,723 26,181,249 49.2 26,337,289 55.2
INVESTMENTS IN
AND ADVANCES TO
EQUITY METHOD
INVESTEES, net of
loan loss
valuation
allowance of JPY
16,701 thousand at
September 30,
2007 and March
31, 2007,
respectively 9,267 1,065,431 2.0 858,490 1.8
OTHER INVESTMENTS 21,179 2,434,984 4.6 2,841,741 6.0
PROPERTY AND
EQUIPMENT--Net 98,294 11,300,856 21.2 9,832,396 20.6
INTANGIBLE
ASSETS--Net 50,595 5,816,862 10.9 2,876,894 6.0
GUARANTEE
DEPOSITS 17,056 1,960,988 3.7 1,686,141 3.5
OTHER ASSETS, net
of allowance for
doubtful accounts
of JPY 67,027
thousand and
JPY 69,050
thousand at
September 30,
2007 and March
31, 2007,
respectively 38,945 4,477,523 8.4 3,260,053 6.9
--------- ------------ ------------
TOTAL 463,059 53,237,893 100.0 47,693,004 100.0
--------- ------------ ------------
LIABILITIES AND
SHAREHOLDERS'
EQUITY
CURRENT
LIABILITIES:
Short-term
borrowings 92,633 10,650,000 6,050,000
Long-term
borrowings--
current
portion -- -- 290,000
Capital lease
obligations--
current
portion 29,394 3,379,457 2,953,173
Accounts
payable 53,289 6,126,583 8,464,835
Accrued
expenses 8,529 980,609 897,355
Other current
liabilities 15,779 1,814,126 2,477,486
--------- ------------ ------------
Total current
liabilities 199,624 22,950,775 43.1 21,132,849 44.3
CAPITAL LEASE
OBLIGATIONS--
Noncurrent 41,831 4,809,338 9.0 4,318,309 9.1
ACCRUED
RETIREMENT AND
PENSION COSTS 7,263 834,981 1.6 750,042 1.5
OTHER NONCURRENT
LIABILITIES 6,351 730,180 1.4 564,618 1.2
--------- ------------ ------------
Total
Liabilities 255,069 29,325,274 55.1 26,765,818 56.1
--------- ------------ ------------
MINORITY INTEREST 1,100 126,424 0.2 815,182 1.7
--------- ------------ ------------
COMMITMENTS AND
CONTINGENCIES
SHAREHOLDERS'
EQUITY:
Common-stock
--authorized,
377,600 shares;
issued and
outstanding,
206,478 shares at
September 30,
2007
--authorized,
377,600 shares;
issued and
outstanding,
204,300 shares
at March 31,
2007 146,419 16,833,847 31.6 16,833,847 35.3
Additional
paid-in
capital 240,165 27,611,737 51.9 26,599,217 55.8
Accumulated
deficit (183,525) (21,099,819) (39.6) (24,270,769)(50.9)
Accumulated
other
comprehensive
income 3,831 440,430 0.8 949,709 2.0
--------- ------------ ------------
Total
shareholders'
equity 206,890 23,786,195 44.7 20,112,004 42.2
--------- ------------ ------------
TOTAL 463,059 53,237,893 100.0 47,693,004 100.0
--------- ------------ ------------
(Note)
The U.S. dollar amounts represent translations of yen amounts at the
rate of JPY 114.97, which was the noon buying rate in New York City
for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York prevailing as of
September 28, 2007.
Appendix 2
Internet Initiative Japan Inc.
----------------------------------------------------------------------
Quarterly Consolidated Statements of Income (Unaudited)
----------------------------------------------------------------------
(For the three months ended September 30, 2007 and September 30, 2006)
----------------------------------------------------------------------
Three Months Ended September 30, 2007
--------------------------------------
Thousands Thousands % of
of U.S. of Yen total
Dollars revenues
---------------------------------------------------------------------
REVENUES:
Connectivity and value-added
services:
Connectivity (corporate use) 26,168 3,008,512
Connectivity (home use) 12,947 1,488,522
Value-added services 20,695 2,379,359
Other 9,213 1,059,237
--------- -----------
Total 69,023 7,935,630
Systems integration 69,303 7,967,724
Equipment sales 3,402 391,139
--------- -----------
Total revenues 141,728 16,294,493 100.0
--------- -----------
COST AND EXPENSES:
Cost of connectivity and value-
added services 57,390 6,598,148
Cost of systems integration 51,648 5,937,975
Cost of equipment sales 2,893 332,603
--------- -----------
Total cost 111,931 12,868,726 79.0
Sales and marketing 9,464 1,088,023 6.7
General and administrative 10,027 1,152,780 7.1
Research and development 525 60,394 0.3
--------- -----------
Total cost and expenses 131,947 15,169,923 93.1
--------- -----------
OPERATING INCOME 9,781 1,124,570 6.9
--------- -----------
OTHER INCOME (EXPENSES):
Interest income 177 20,343
Interest expense (1,030) (118,370)
Foreign exchange gain (loss) 16 1,849
Gain (loss) on other investments--
net (801) (92,127)
Other--net 39 4,469
--------- -----------
Other income (expenses) -- net (1,599) (183,836) (1.1)
--------- -----------
INCOME FROM OPERATIONS BEFORE INCOME
TAX BENEFIT, MINORITY INTERESTS AND
EQUITY IN NET LOSS OF EQUITY METHOD
INVESTEES 8,182 940,734 5.8
INCOME TAX BENEFIT (17,224) (1,980,199) (12.1)
MINORITY INTERESTS IN (EARNINGS)
LOSSES OF SUBSIDIARIES 131 14,988 0.1
EQUITY IN NET LOSS OF EQUITY METHOD
INVESTEES (255) (29,277) (0.2)
--------- -----------
NET INCOME 25,282 2,906,644 17.8
------------------------------------- --------- ----------- ---------
BASIC WEIGHTED-AVERAGE NUMBER OF
SHARES 206,478
DILUTED WEIGHTED-AVERAGE NUMBER OF
SHARES 206,603
BASIC WEIGHTED-AVERAGE NUMBER OF ADS
EQUIVALENTS 82,591,200
DILUTED WEIGHTED-AVERAGE NUMBER OF
ADS EQUIVALENTS 82,641,071
BASIC NET INCOME PER SHARE 122.44 14,077
DILUTED NET INCOME PER SHARE 122.37 14,069
BASIC NET INCOME PER ADS EQUIVALENT 0.31 35.19
DILUTED NET INCOME PER ADS EQUIVALENT 0.31 35.17
------------------------------------- --------- ----------- ---------
----------------------------------------------------------------------
Three Months Ended
September 30, 2006
---------------------
Thousands % of
of Yen total
revenues
----------------------------------------------------------------------
REVENUES:
Connectivity and value-added services:
Connectivity (corporate use) 2,799,493
Connectivity (home use) 493,061
Value-added services 1,905,901
Other 957,103
-----------
Total 6,155,558
Systems integration 7,220,973
Equipment sales 630,066
-----------
Total revenues 14,006,597 100.0
-----------
COST AND EXPENSES:
Cost of connectivity and value-added services 5,254,403
Cost of systems integration 5,610,503
Cost of equipment sales 582,998
-----------
Total cost 11,447,904 81.7
Sales and marketing 842,796 6.0
General and administrative 862,014 6.2
Research and development 42,507 0.3
-----------
Total cost and expenses 13,195,221 94.2
-----------
OPERATING INCOME 811,376 5.8
-----------
OTHER INCOME (EXPENSES):
Interest income 4,432
Interest expense (98,498)
Foreign exchange gain (loss) (700)
Gain (loss) on other investments--net 444,650
Other--net (16,085)
-----------
Other income (expenses) -- net 333,799 2.4
-----------
INCOME FROM OPERATIONS BEFORE INCOME
TAX BENEFIT, MINORITY INTERESTS AND
EQUITY IN NET LOSS OF EQUITY METHOD
INVESTEES 1,145,175 8.2
INCOME TAX BENEFIT (1,108,657) (7.9)
MINORITY INTERESTS IN (EARNINGS)
LOSSES OF SUBSIDIARIES (81,534) (0.6)
EQUITY IN NET LOSS OF EQUITY METHOD
INVESTEES (52,049) (0.4)
-----------
NET INCOME 2,120,249 15.1
------------------------------------------------------------ ---------
BASIC WEIGHTED-AVERAGE NUMBER OF SHARES 203,989
DILUTED WEIGHTED-AVERAGE NUMBER OF
SHARES 204,104
BASIC WEIGHTED-AVERAGE NUMBER OF ADS
EQUIVALENTS 81,595,702
DILUTED WEIGHTED-AVERAGE NUMBER OF ADS
EQUIVALENTS 81,641,597
BASIC NET INCOME PER SHARE 10,394
DILUTED NET INCOME PER SHARE 10,388
BASIC NET INCOME PER ADS EQUIVALENT 25.98
DILUTED NET INCOME PER ADS EQUIVALENT 25.97
------------------------------------------------------------ ---------
(Note)
The U.S. dollar amounts represent translations of yen amounts at the
rate of JPY 114.97, which was the noon buying rate in New York City
for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York prevailing as of
September 28, 2007.
Appendix 3
Internet Initiative Japan Inc.
----------------------------------------------------------------------
Quarterly Condensed Consolidated Statements of Cash Flows (Unaudited)
----------------------------------------------------------------------
(For the three months ended September 30, 2007 and September 30, 2006)
----------------------------------------------------------------------
Three Months Ended Three
September 30, 2007 Months
Ended
September
30, 2006
---------------------------------
Thousands Thousands Thousands
of U.S. of Yen of Yen
Dollars
----------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income 25,282 2,906,644 2,120,249
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 10,360 1,191,050 1,068,970
Reversal of doubtful accounts
and advances (6) (741) (7,859)
Loss (Gain) on other
investments--net 801 92,127 (444,650)
Foreign exchange loss (gain) 6 711 (5,670)
Equity in net loss of equity
method investees 255 29,277 52,049
Minority interests in earnings
(losses) of subsidiaries (130) (14,988) 81,534
Deferred income tax benefit (18,385) (2,113,684) (1,266,200)
Others 370 42,571 54,939
Changes in operating assets and
liabilities:
Increase in accounts receivable (10,118) (1,163,314) (1,659,286)
Decrease in inventories, prepaid
expenses and other current and
noncurrent assets 7,989 918,460 728,292
Increase in accounts payable 1,076 123,717 1,111,574
Decrease in accrued expenses,
other current and
noncurrent liabilities (4,936) (567,524) (226,196)
------------------------------------ --------- ----------- -----------
Net cash provided by operating
activities 12,562 1,444,306 1,607,746
------------------------------------ --------- ----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (3,670) (421,969) (123,604)
Investment in an equity method
investee (2,178) (250,389) --
Purchase of available-for-sale
securities (1,968) (226,286) (170,564)
Purchase of short-term and other
investments (1) (152) (1,211,387)
Proceeds from available-for-sale
securities 618 71,000 619,568
Proceeds from sales and redemption
of other investments 30 3,441 15,859
Refund of guarantee deposits--net 37 4,277 21,205
Other (107) (12,357) (6,068)
------------------------------------ --------- ----------- -----------
Net cash used in investing
activities (7,240) (832,435) (854,991)
------------------------------------ --------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of short-
term borrowings with initial
maturities over three months
870 100,000 --
Repayments of short-term
borrowings with initial
maturities over three months and
long-term borrowings
(15,387) (1,769,000) (559,866)
Proceeds from securities loan
agreement -- -- 480,960
Repayments of securities loan
agreement -- -- (496,080)
Principal payments under capital
leases (7,681) (883,124) (807,669)
Increase in short-term borrowings
with initial maturities less than
three months -- net 8,698 1,000,000 400,000
------------------------------------ --------- ----------- -----------
Net cash used in financing
activities (13,500) (1,552,124) (982,655)
------------------------------------ --------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH 106 12,181 (1,375)
NET DECREASE IN CASH (8,072) (928,072) (231,275)
CASH, BEGINNING OF EACH PERIOD 109,576 12,597,948 13,091,020
------------------------------------ --------- ----------- -----------
CASH, END OF EACH PERIOD 101,504 11,669,876 12,859,745
------------------------------------ --------- ----------- -----------
(Note)
The U.S. dollar amounts represent translations of yen amounts at the
rate of JPY 114.97, which was the noon buying rate in New York City
for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York prevailing as of
September 28, 2007.
Note: The following information is provided to disclose IIJ's
financial results for the interim period ended September 30, 2007 in
the form defined by the Tokyo Stock Exchange.
Consolidated Financial Results for the Interim Period Ended
September 30, 2007
(Under accounting principles generally accepted in the United
States ("U.S. GAAP"))
November 12, 2007
Company name: Internet Initiative Japan Inc.
Exchange listed: Tokyo Stock Exchange First Section
Stock code number: 3774
URL: http://www.iij.ad.jp/
Representative: Koichi Suzuki, President and Representative Director
Contact: Akihisa Watai, Director and CFO
TEL: (03) 5259-6500
Filing of an interim report (Hanki-hokokusho) with the regulatory
organization in Japan:
Scheduled for December 20, 2007
Payment of dividend: Scheduled to be started on December 4, 2007
(Amounts of less than JPY one million are rounded)
1. Consolidated Financial Results for the Interim Period Ended
September 30, 2007
(April 1, 2007 to September 30, 2007)
(1) Consolidated Results of Operations (% shown is YoY change)
Income
Total Operating before Net income
revenues income income tax
benefit
----------------------------------------------------------------------
JPY % JPY % JPY millions JPY
millions millions millions
Interim period ended
September 30, 2007 29,990 13.4 1,816 32.5 1,697 (20.8) 3,477 21.8
Interim period ended
September 30, 2006 26,444 21.3 1,370 81.8 2,144 20.5 2,854 75.8
----------------------- ------ ---- ----- ---- ----- ------ ----- ----
Fiscal year ended March
31, 2007 57,055 -- 3,500 -- 5,049 -- 5,410 --
----------------------- ------ ---- ----- ---- ----- ------ ----- ----
Basic Net Income Diluted Net Income per
per Share Share
----------------------------------------------------------------------
JPY JPY
Interim period ended
September 30, 2007 16,880 16,862
Interim period ended
September 30, 2006 13,991 13,978
----------------------------- ----------------- ----------------------
Fiscal year ended March 31,
2007 26,519 26,487
----------------------------- ----------------- ----------------------
(Reference) Equity in net loss of equity method investees was JPY
49 million, JPY 125 million and JPY 210 million for the interim period
ended September 30, 2007, the interim period ended September 30, 2006
and the fiscal year ended March 31, 2007, respectively.
(Note) In this document, income before income tax benefit
represents income from operations before income tax benefit, minority
interests and equity in net loss of equity method investees in IIJ's
consolidated financial statements.
(2) Consolidated Financial Position
Shareholders'
Shareholders' equity as a Shareholders'
Total assets equity percentage equity per
of total share
assets
----------------------------------------------------------------------
JPY millions JPY millions % JPY
Interim period
ended
September 30,
2007 53,238 23,786 44.7 115,200
Interim period
ended
September 30,
2006 44,037 19,808 45.0 97,104
--------------- ------------ ------------- ------------- -------------
Fiscal year
ended March
31, 2007 47,693 20,112 42.2 98,592
--------------- ------------ ------------- ------------- -------------
(Note) Shareholders' equity, shareholders' equity as a percentage
of total assets and shareholders' equity per share are calculated in
accordance with U.S. GAAP.
(3) Consolidated Cash Flows
Net cash Net cash
provided Net cash provided Cash and cash
by used in by (used equivalents,
operating investing in) end of
activities activities financing period
activities
----------------------------------------------------------------------
JPY JPY JPY JPY millions
millions millions millions
Interim period ended
September 30, 2007 117 (4,352) 2,346 11,670
Interim period ended
September 30, 2006 2,512 (1,122) (2,251) 12,860
-------------------- ----------- ----------- ----------- -------------
Fiscal year ended
March 31, 2007 7,402 (3,014) (4,560) 13,555
-------------------- ----------- ----------- ----------- -------------
2. Dividends
Dividend per share
-------------------------
Interim Year-end Total
----------------------------------------------------------------------
JPY JPY JPY
Fiscal year ended March 31, 2007 -- 1,500.00 1,500.00
-------------------------------------------- ------- -------- --------
Fiscal year ending March 31, 2008 750.00
-------------------------------------------- ------- --------
Fiscal year ending March 31, 2008 (target) 750.00 1,500.00
-------------------------------------------- ------- -------- --------
3. Target of Consolidated Financial Results for the Fiscal Year Ending
March 31, 2008
(April 1, 2007 through March 31, 2008)
(% shown is YoY change)
Total revenues Operating
income
---------------------------------------------------------------------
JPY JPY
millions % millions %
Fiscal year ending March 31, 2008 69,000 20.9 4,600 31.4
--------------------------------------- --------- ---- --------- ----
Basic
Income before net
income Net income income
tax benefit per
share
----------------------------------------------------------------------
JPY JPY JPY
millions % millions %
Fiscal year ending March 31, 2008 5,100 1.0 5,600 3.5 27,122
-------------------------------------------- --- --------- --- -------
(Note) The number of shares of common stock used to calculate
basic net income per share above is 206,478 shares.
Statements made in this press release regarding IIJ's or its
management's intentions, beliefs, expectations, or predictions for the
future are forward-looking statements that are based on IIJ's and its
management's current expectations, assumptions, estimates and
projections about IIJ's business and the industry. These
forward-looking statements, such as statements regarding revenues and
operating and net profitability above, are subject to various risks,
uncertainties and other factors that could cause IIJ's actual results
to differ materially from those contained in any forward-looking
statement.
4. Others
(1) Change of Condition in Consolidated Subsidiaries during the
Interim Period Ended September 30, 2007 (Change of Condition in
Specific Consolidated Subsidiaries with a Change of Scope of
Consolidation): None
(2) Changes in Significant Accounting and Reporting Policies for
Consolidated Financial Statements
1) Changes caused by revision of accounting standards: Yes
2) Others: None
(3) Number of Shares Outstanding (Shares of Common Stock)
1) The number of shares outstanding (inclusive of treasury stock)
was 206,478, 204,300, and 204,300 at the end of the interim period
ended September 30, 2007, the interim period ended September 30, 2006
and the fiscal year ended March 31, 2007, respectively.
2) The number of treasury stock was 0, 311 and 0 at the end of the
interim period ended September 30, 2007, the interim period ended
September 30, 2006 and the fiscal year ended March 31, 2007,
respectively.
3) The weighted average number of shares outstanding was 206,002,
203,989 and 203,992 at the end of the interim period ended September
30, 2007, the interim period ended September 30, 2006 and the fiscal
year ended March 31, 2007, respectively.
(Note) The number of treasury stock at the end of the interim
period ended September 30, 2006 is the number of shares owned by IIJ's
equity method investee multiplied by IIJ's ownership in the equity
method investee.
[Qualitative Information and Financial Statements]
1. Results of Operations
(1) Analysis of Consolidated Results of Operations
a. Overview of Consolidated Results for the Interim Period Ended September 30,
2007
The Japanese economy for the interim period ended September 30, 2007 seems to
continue to be in a gentle recovery trend mainly resulting from an improving
trend of employment and recovering personal consumptions, as well as
improvements in corporate earnings and an increase of corporate capital
investments, while a trend of the economy in the United States and fluctuation
in crude oil prices must be watched carefully.
For the data communication market which the IIJ Group belongs to, the IIJ
Group continues to see steadily increasing corporate IT investment and
expenditure and corporate customers are shifting to higher speeds for Internet
connectivity and showing the strong demands for outsourcing services to reduce
the risk of interruptions to their businesses and increase security measures.
Under such business environment, for the business results of the IIJ Group in
the interim period ended September 30, 2007, revenues from connectivity services
and value-added services ("VAS") such as anti-spam services and data centers
increased steadily. Gross margin from connectivity and VAS increased by JPY 844
million, 49.8% year-over-year and the structural income increasing trend
continued from the previous quarter. Revenues from systems integration ("SI")
increased by JPY 1,049 million, 7.9% year-over-year. Some projects are becoming
larger in scale and the order backlog for SI and equipment sales increased by
JPY 8,576 million, 82.8% year-over-year.
As for business development, the IIJ Group continued to build the structure
for its further growth in the middle and long-term. The IIJ Group engaged in the
video distribution business such as provision of content distribution platform
to "acTVila", TV portals for digital televisions. IIJ established GDX Japan Inc.
to prepare to introduce message exchange network services. IIJ also acquired
hi-ho, Inc. ("hi-ho"), an Internet Service Provider for home users.
As a result, for the consolidated results of operations for the interim
period ended September 30, 2007, revenues were JPY 29,990 million, an increase
of 13.4% year-over-year. Gross margin was JPY 6,179 million, an increase of
27.1% year-over-year. Operating income was JPY 1,816 million, an increase of
32.5% year-over-year. Income before income tax benefit was JPY 1,697 million, a
decrease of 20.8% year-over-year, mainly due to a decrease in the gains from the
sale of available-for-sale securities. Net income was JPY 3,477 million, an
increase of 21.8% year-over-year, mainly due to the record of deferred tax
benefits of JPY 1,970 million.
b. Analysis of Results of Operations
1) Revenues
Revenues for the interim period ended September 30, 2007 were JPY 29,990
million, an increase of 13.4% year-over-year.
----------------------------------------------------------------------------------------------------------------------
Interim period ended Interim period ended YoY %
September 30, 2007 September 30, 2006 Change
----------------------------------------------------------------------------------------------------------------------
JPY millions JPY millions %
Connectivity and VAS 14,807 12,019 23.2
SI 14,302 13,253 7.9
Equipment sales 881 1,172 (24.8)
----------------------------------------------------------------------------------------------------------------------
Total revenues 29,990 26,444 13.4
----------------------------------------------------------------------------------------------------------------------
Revenues from connectivity and VAS were JPY 14,807 million, an increase of
23.2% year-over-year, mainly due to an increase in revenues from connectivity
services for corporate users, JPY 1,419 million (for four months) of revenues
from connectivity services for home users provided by hi-ho, which IIJ acquired
on June 1, 2007, and an increase in revenues from VAS overall.
SI revenues increased to JPY 14,302 million, an increase of 7.9%
year-over-year, due to an increase in one-revenues from systems construction as
well as monthly recurring revenues from systems operation and maintenance, along
with increasing corporate IT investment and expenditure.
Equipment sales revenues were JPY 881 million, a decrease of 24.8%
year-over-year.
2) Cost of Revenues
Cost of revenues was JPY 23,811 million, an increase of 10.3% year-over-year.
----------------------------------------------------------------------------------------------------------------------
Interim period ended Interim period ended YoY %
September 30, 2007 September 30, 2006 Change
----------------------------------------------------------------------------------------------------------------------
JPY millions JPY millions %
Connectivity and VAS 12,268 10,324 18.8
SI 10,787 10,192 5.8
Equipment sales 756 1,066 (29.0)
----------------------------------------------------------------------------------------------------------------------
Total cost of revenues 23,811 21,582 10.3
----------------------------------------------------------------------------------------------------------------------
The cost of connectivity and VAS revenues, which are mostly fixed-type cost
such as cost for backbone, was JPY 12,268 million, an increase of 18.8%
year-over-year. The increase is mainly due to JPY 1,488 million of costs along
with revenues of JPY 1,748 million from hi-ho, which IIJ acquired on June 1,
2007 (both for four months), and an increase in personnel related costs and
supplies costs. The cost of revenues also included amortization of intangible
assets of JPY 21 million for hi-ho.
The cost of SI revenues, which are mostly variable-type cost such as
outsourcing costs and purchase, was JPY 10,787 million, an increase of 5.8%
year-over-year. The increase was mainly due to an increase in revenues from SI
projects and an increase in personnel expenses.
The cost of equipment sales revenues was JPY 756 million, a decrease of 29.0%
year-over-year, as revenues from equipment sales declined.
3) Sales and Marketing Expenses, General and Administrative Expenses and
Research and Development
Sales and marketing expenses were JPY 2,027 million, an increase of 24.2%
year-over-year. The increase mainly due to an increase in personnel related
expenses and advertising expenses, and sales and marketing expenses related to
hi-ho of JPY 184 million (for four months).
General and administrative expenses were JPY 2,220 million, an increase of
24.9% year-over-year. The increase was mainly due to an increase in personnel
related expenses and an increase in rent expenses caused by expansion of offices
along with the business growth.
Research and development expenses were JPY 116 million, an increase of 41.7%
year-over-year.
5) Operating Income
Operating income was JPY 1,816 million, an increase of 32.5%
year-over-year. The increase was due to an increase in gross margin from
connectivity and VAS of JPY 844 million and gross margin from SI of JPY 454
million, despite of the increase in sales and marketing expenses and general and
administrative expenses.
6) Other Income (Expense)
Other expense was JPY 119 million, compared to other income of JPY 774
million in the interim period ended September 30, 2006. The decrease was mainly
due to a decrease in gains from the sale of available-for-sale securities to JPY
214 million from JPY 925 million in the interim period ended September 30.
7) Income before Income Tax Benefit
Income before income tax benefit was JPY 1,697 million, a decrease of 20.8%
year-over-year. The decrease was because IIJ recorded other expense of JPY 119
million mainly due to the decrease in gains from the sale of available-for-sale
securities.
8) Income Tax Benefit, Minority Interests and Equity in Net Loss of Equity
Method Investees
Income tax benefit was JPY 1,805 million, compared to income tax benefit of
JPY 960 million in the interim period ended September 30, 2006. The increase was
mainly due to deferred tax benefits of JPY 1,970 million resulting from a
reduction of the valuation allowance against deferred income tax assets due to
the increasing income trend and the application of the consolidated tax filing
system for IIJ and its wholly owned subsidiaries.
Minority interests in losses of subsidiaries were JPY 24 million, affected by
the elimination of minority interests related to our 4 consolidated subsidiaries
wholly owned by us, after IIJ made our two subsidiaries, IIJ Technology Inc.
("IIJ-Tech") and Net Care Inc. ("Net Care") wholly owned through the share
exchanges in May 2007. Minority interests in losses of subsidiaries were related
to GDX.
Equity in net loss of equity method investees was JPY 49 million, which was
mainly due to equity in net loss of Internet Revolution Inc.
9) Net Income
Net income was JPY 3,477 million, an increase of 21.8% year-over-year.
c. Analysis by Service
1) Internet Connectivity and VAS
Revenues from connectivity services for corporate use were JPY 5,981 million,
an increase of 8.1% year-over-year. IIJ had new contracts for IP Service and
customers shifted to higher speeds.
Revenues from connectivity services for home use were JPY 2,295 million, an
increase of 133.4% year-over-year. The increase was mainly due to additional
revenues of JPY 1,419 million from hi-ho (for four months), partially offset by
the decrease in revenues from services under IIJ Brand and OEM services.
Revenues from VAS were JPY 4,485 million, an increase of 23.0%
year-over-year. The increase was mainly due to a steady increase in revenues
from network-related outsourcing services such as e-mail, securities-related and
Internet VPN services and data centers affected by an increase in corporate
outsourcing needs.
Other revenues were JPY 2,046 million, an increase of 10.2% year-over-year.
As a result, revenues from connectivity services and VAS totaled JPY 14,807
million, an increase of 23.2% year-over-year. The gross margin was JPY 2,539
million, an increase of 49.8% year-over-year and the gross margin ratio was up
to 17.1% from 14.1% of the interim period ended September 30, 2006.
(Connectivity and VAS Revenues, Cost of Revenues and Gross Margin Ratio)
----------------------------------------------------------------------------------------------------------------------
Interim period ended Interim period ended YoY %
September 30, 2007 September 30, 2006 Change
----------------------------------------------------------------------------------------------------------------------
JPY millions JPY millions %
Connectivity and VAS revenues 14,807 12,019 23.2
----------------------------------------------------------------------------------------------------------------------
Connectivity service revenues 5,981 5,532 8.1
(corporate use)
----------------------------------------------------------------------------------------------------------------------
IP Service (including Data Center 4,443 4,140 7.3
Connectivity Service)
----------------------------------------------------------------------------------------------------------------------
IIJ FiberAccess/F and IIJ DSL/F (broadband 1,280 1,049 22.0
services)
----------------------------------------------------------------------------------------------------------------------
Others 258 343 (24.5)
----------------------------------------------------------------------------------------------------------------------
Connectivity service revenues 2,295 983 133.4
(home use)
----------------------------------------------------------------------------------------------------------------------
Under IIJ brand 560 602 (7.1)
----------------------------------------------------------------------------------------------------------------------
hi-ho 1,419 -- --
----------------------------------------------------------------------------------------------------------------------
OEM 316 381 (17.0)
----------------------------------------------------------------------------------------------------------------------
VAS revenues 4,485 3,647 23.0
----------------------------------------------------------------------------------------------------------------------
Other revenues 2,046 1,857 10.2
----------------------------------------------------------------------------------------------------------------------
Cost of connectivity and VAS 12,268 10,324 18.8
----------------------------------------------------------------------------------------------------------------------
Backbone cost 1,668 1,747 (4.5)
----------------------------------------------------------------------------------------------------------------------
Gross margin ratio 17.1% 14.1% --
----------------------------------------------------------------------------------------------------------------------
(Numbers of Internet Connectivity Contracts and Total Contracted Bandwidth)
----------------------------------------------------------------------------------------------------------------------
Interim period ended Interim period ended YoY Change
September 30, 2007 September 30, 2006
----------------------------------------------------------------------------------------------------------------------
Contracts Contracts Contracts
Connectivity services (corporate use) 22,949 17,739 5,210
----------------------------------------------------------------------------------------------------------------------
IP Service (-99Mbps) 811 752 59
----------------------------------------------------------------------------------------------------------------------
IP Service (100Mbps-999Mbps) 179 143 36
----------------------------------------------------------------------------------------------------------------------
IP Service (1Gbps-) 61 55 6
----------------------------------------------------------------------------------------------------------------------
IIJ Data Center Connectivity Service 288 266 22
----------------------------------------------------------------------------------------------------------------------
IIJ FiberAccess/F and IIJ DSL/F 19,994 14,830 5,164
----------------------------------------------------------------------------------------------------------------------
Others 1,616 1,693 (77)
----------------------------------------------------------------------------------------------------------------------
Connectivity services (home use) 500,185 583,844 (83,659)
----------------------------------------------------------------------------------------------------------------------
Under IIJ brand 52,878 58,378 (5,500)
----------------------------------------------------------------------------------------------------------------------
hi-ho 189,872 -- 189,872
----------------------------------------------------------------------------------------------------------------------
OEM 257,435 525,466 (268,031)
----------------------------------------------------------------------------------------------------------------------
Total contracted bandwidth 334.9 Gbps 253.2 Gbps 81.7 Gbps
----------------------------------------------------------------------------------------------------------------------
2) SI
Revenues from SI were JPY 14,302 million, an increase of 7.9% year-over-year.
One-time revenues from systems construction were JPY 6,721 million, an increase
of 1.1% year-over-year. Recurring revenues from systems operation and
maintenance steadily increased to JPY 7,581 million, an increase of 14.8%
year-over-year. The order backlog for SI and equipment sales at September 30,
2007 was JPY 18,938 million, an increase of 82.8% from the amount as of
September 30, 2006. The increase was mainly because some projects were becoming
larger in scale and were expected to be completed in the last half of FY2007.
The gross margin from SI was JPY 3,515 million, an increase of 14.8%
year-over-year, and the gross margin ratio was 24.6%.
(SI Revenues, Cost of Revenues and Gross Margin Ratio)
---------------------------------------------------------------------------------------------------------------------
Interim period ended Interim period ended YoY %
September 30, 2007 September 30, 2006 Change
---------------------------------------------------------------------------------------------------------------------
JPY millions JPY millions %
SI revenues 14,302 13,253 7.9
---------------------------------------------------------------------------------------------------------------------
Systems construction 6,721 6,649 1.1
---------------------------------------------------------------------------------------------------------------------
Systems operation and maintenance 7,581 6,604 14.8
---------------------------------------------------------------------------------------------------------------------
Cost of SI 10,787 10,192 5.8
---------------------------------------------------------------------------------------------------------------------
SI gross margin ratio 24.6% 23.1% --
---------------------------------------------------------------------------------------------------------------------
3) Equipment sales
Revenues from equipment sales were JPY 881 million. The gross margin for
equipment sales was JPY 125 million and the gross margin ratio was 14.2%.
(Equipment Sales Revenue and Cost)
---------------------------------------------------------------------------------------------------------------------
Interim period ended Interim period ended YoY %
September 30, 2007 September 30, 2006 Change
---------------------------------------------------------------------------------------------------------------------
JPY million JPY million %
Equipment sales revenues 881 1,172 (24.8)
---------------------------------------------------------------------------------------------------------------------
Cost of equipment sales 756 1,066 (29.0)
---------------------------------------------------------------------------------------------------------------------
Equipment sales gross margin ratio 14.2% 9.0% --
---------------------------------------------------------------------------------------------------------------------
d. Target for the fiscal year ending March 31, 2008
The Japanese economy is expected to continue to be in a gentle recovery
trend, while a trend of the economy in the United States and fluctuation in
crude oil prices must be watched carefully.
The business results of the IIJ Group in the interim period ended September
30, 2007 were almost in line with the target for the interim period ended
September 30, 2007 that IIJ disclosed in the press release made on August 13,
2007 (see note).
IIJ does not revise the target for the fiscal year ending March 31, 2008,
that IIJ disclosed in the press release on August 13, 2007. The targets are JPY
69,000 million for total revenues, an increase of 20.9% year-over-year, JPY
4,600 million for operating income, an increase of 31.4% year-over-year, JPY
5,100 million for income before income tax benefit, an increase of 1.0%
year-over-year, and JPY 5,600 million for net income, an increase of 3.5%
year-over-year.
(Note) On August 13, 2007, IIJ only revised its target for net income for the
interim period ended September 30, 2007, because IIJ planed to revise valuation
allowance against deferred income tax assets, related to the increasing income
trend and the application of the consolidated tax payment system for IIJ and its
wholly owned subsidiaries. The revision was related to the timing of the
recording of income tax benefits or expenses within the fiscal year and IIJ did
not revise targets for the financial results for full FY2007.
(2) Analysis for Financial Condition
a. Assets, Liabilities and Total Shareholders' Equity
As of September 30, 2007, total assets increased by JPY 5,545 million from
the amount as of March 31, 2007 to JPY 53,238 million. For current assets,
inventories increased by JPY 767 million, related to on-going SI projects;
prepaid expenses increased by JPY 682 million, mainly for maintenance expenses
related to SI projects; other current assets increased by JPY 847 million mainly
due to an increase in current deferred tax assets (net) resulting from a
reduction of the valuation allowance; and cash decreased by JPY 1,885 million,
each from the respective amount as of March 31, 2007. Property and equipment
increased by JPY 1,468 million from the amount as of March 31, 2007 mainly due
to our acquisition of hi-ho and an increase in property for us and to provide
services to our customers. Intangible assets increased by JPY 2,940 million from
the amount as of March 31, 2007, mainly due to the recording of intangible
assets of JPY 2,302 million upon IIJ's acquisition of the minority shares of two
consolidated subsidiaries, and of JPY 659 million upon IIJ's acquisition of
hi-ho, including amortizable intangible assets of JPY 289 million. Other assets
increased by JPY 1,217 million mainly due to an increase in non-current deferred
tax assets (net) resulting from a revision of valuation allowance. The fair
value of available-for-sale securities as of September 30, 2007 decreased
by JPY 266 million from the amount of March 31, 2007 to JPY 1,043 million.
For current liabilities, short-term borrowings increased by JPY 4,600 million
from the amount as of March 31, 2007, mainly related to IIJ's acquisition of
shares of two consolidated subsidiaries from their respective minority
shareholders, and accounts payable decreased by JPY 2,338 million from the
amount as of March 31, 2007.
Total shareholders' equity as of September 30, 2007 was JPY 23,786 million,
an increase of JPY 3,674 million from the amount as of March 31, 2007.
b. Cash Flows
Cash at the end of the interim period ended September 30, 2007 was JPY 11,670
million, a decrease of JPY 1,885 million compared to the end of the fiscal year
ended March 31, 2007.
(Net cash provided by operating activities)
Net cash provided by operating activities in the interim period ended
September 30, 2007 was JPY 117 million, compared to net cash provided by
operating activities of JPY 2,512 million in the interim period ended September
30, 2006. Operating income increased year-over-year, mainly due to an increase
in gross margin from connectivity and VAS. On the other hand during the interim
period ended September 30, 2007, IIJ recorded an increase in operating assets
such as inventories and prepaid expenses related to on-going systems integration
projects, a decrease in operating liabilities such as accounts payable related
to systems integration projects that were completed in the previous fiscal year,
and payment for income taxes.
(Net cash used in investing activities)
Net cash used in investing activities was JPY 4,352 million in the interim
period ended September 30, 2007, compared to net cash used in investing
activities of JPY 1,122 million in the interim period ended September 30, 2006.
IIJ paid JPY 1,975 million for the purchase of subsidiary stock from minority
shareholders, JPY 992 million for the purchase of property and equipment and JPY
912 million for the acquisition of a newly controlled company (hi-ho).
(Net cash provided by financing activities)
Net cash provided by financing activities was JPY 2,346 million in the
interim period ended September 30, 2007, compared to the net cash used in
financing activities of JPY 2,251 million in the interim period ended September
30, 2006. IIJ recorded proceeds of JPY 4,060 million from net borrowings
(short-term borrowings with initial maturities over three months and long-term
borrowings), including new borrowings, for the acquisition of shares of two
consolidated subsidiaries from their minority shareholders, and proceeds of JPY
250 million from net short-term borrowings (short-term borrowings initial
maturities less than three months). IIJ also recorded principal payments under
capital leases of JPY 1,658 million and payments of dividends of JPY 306
million.
(3) Basic Policy for the Distribution of Profits and Dividends for the Fiscal
Year Ending March 31, 2008
IIJ, while giving full consideration to securing its funds to strengthen its
financial position and to prepare for its operation development, seeks to
achieve continuous and steady dividends to shareholders.
IIJ plans to pay its dividend twice a year, at interim and fiscal year-end
period based on the Company's article of incorporation. The dividends for
interim and fiscal year-end period will be decided at the Company's board of
directors and the general meeting of stockholders, respectively.
As IIJ announced in the press release on May 15, 2007, the total dividend for
the fiscal year ending March 31, 2008 is planned to be JPY 1,500 per share of
common stock (JPY 750 at interim end and JPY 750 at fiscal year-end).
IIJ pays JPY 750 per share of common stock for the interim period ended
September 30, 2007 in consideration of its results of the period.
(4) Risk Factors
The results of operations and financial position of IIJ or the IIJ Group may
be adversely and materially impacted by the following and other factors. IIJ
filed its annual report (Yuka-shoken-hokokusho) for the fiscal year ended March
31, 2007 with the regulatory organization in Japan on June 27, 2007. IIJ
believes that there is no new material risk to be disclosed after the filing
date. The following major factors were quoted from the annual report.
- Risk from effects on the IIJ Group's business developments by a lack of
improvement of Japan's economy, or a change in economic conditions
- Risk from the IIJ Group's dependence on other companies for telecommunication
circuits
- Risk from the IIJ Group's failure to maintain its quality of service and
operate its services properly
- Risk from the possibility of an interruption of services of the IIJ Group
- Risk of the IIJ Group's failure to keep and manage its private customer
information, such as personal information
- Risk due to the IIJ Group's failure to keep up with technological
developments or the necessity of vast financial resources
- Risk associated with the IIJ Group's international business developments
- Risk from the effects on the IIJ Group's results of operations and financial
position by increased price competition
- Risk associated from the fluctuation in backbone circuit costs
- Risk affected by the failure to manage and control outsourcing costs
- Risk of less achievement in business developments than expected, due to the
IIJ Group's failure to differentiate itself from its competitors
- Risk of the IIJ Group's failure to attract and control its human resources
properly
- Risk associated with a reduction of value of investments into the IIJ Group
companies or requirement of additional financial resources
- Risk arising from Nippon Telegraph and Telephone Corporation ("NTT"), our
largest shareholder
- Risk of failing to achieve expected revenues and profits in the future
- Risk from the IIJ Group's results of operations and financial position being
affected by seasonal fluctuations in SI and equipment sales (revenues and
income tend to increase in the fourth quarter of each fiscal year)
- Risk from the impact on the IIJ Group's results of operation by fluctuations
in its net income affected by income tax effects
- Risk from the impact on the IIJ Group's results of operations and financial
position by fluctuations in the stock prices of companies in which it has
invested
- Risk of the IIJ Group's recording impairment losses on its non-amortizable
intangible assets
- Risk associated with regulatory matters and new legislation related to the
telecommunications
- Risk associated with legal regulations regarding the Internet
- Risk of the IIJ Group's violation of intellectual property rights of other
parties
- Risk of being named as defendants in litigation
IIJ filed it annual report on Form 20-F with the United States Securities and
Exchange Commission under the securities laws and regulations in the United
States, in addition to its annual report on a Yuka-shoken-hokokusho, filed with
the regulatory public organization in Japan under the laws and regulations in
Japan. Please refer to these documents for the details of risks regarding IIJ
Group's business.
2. Current Status of IIJ Group
(1) Overview of the IIJ Group
IIJ, which has seven consolidated subsidiaries and five equity method
investees as of the end of the interim period ended September 30, 2007, provides
mainly enterprises and public organizations that use networks for their business
with various reliable and highly value-added network services (Internet
connectivity services, VAS, SI and equipment sales) based on its Internet
technologies comprehensively.
An overview of the businesses of IIJ and its group companies is as follows:
--------------------------------------------- ------------------------------------------------------------------------------
Company name Overview of business
--------------------------------------------- ------------------------------------------------------------------------------
IIJ IIJ mainly provides Internet connectivity services, value-added services
such as security related outsourcing services, outsourcing services of
network and servers and data center services. IIJ also provides design,
consultation and construction of networks and provides equipment for the
construction of networks and its operation and maintenance. IIJ provides
services classified into connectivity and VAS, SI, and equipment sales in
its consolidated financial statements.
--------------------------------------------- ------------------------------------------------------------------------------
Seven consolidated subsidiaries
--------------------------------------------- ------------------------------------------------------------------------------
IIJ Technology Inc. ("IIJ-Tech") IIJ-Tech mainly provides systems design, consultation, development,
construction, operation and maintenance, and supply of equipment and its
operation and maintenance for the construction of systems. IIJ-Tech provides
services classified into SI and equipment sales in IIJ's consolidated
financial statements.
--------------------------------------------- ------------------------------------------------------------------------------
IIJ-FS mainly provides the development, operation and maintenance of systems
IIJ Financial Systems, Inc. ("IIJ-FS") for financial institutions. IIJ-FS provides services classified into SI in
IIJ's consolidated financial statements.
--------------------------------------------- ------------------------------------------------------------------------------
Net Care mainly provides the monitoring and operation of networks and
outsourced customer support and call centers. Net Care provides services
Net Care, Inc. ("Net Care") classified connectivity and VAS and SI in IIJ's consolidated financial
statements.
--------------------------------------------- ------------------------------------------------------------------------------
NCJ mainly provides network construction services, primarily for LANs, such
Net Chart Japan Inc. ("NCJ") as network installation wiring, installation and set-up of equipment,
installation of applications, and operational support.
--------------------------------------------- ------------------------------------------------------------------------------
GDX Japan Inc. ("GDX") GDX mainly provides message exchange network services. GDX provides services
classified into connectivity and VAS in IIJ's consolidated financial
statements.
--------------------------------------------- ------------------------------------------------------------------------------
hi-ho mainly provides Internet services to personal users and Internet
hi-ho Inc. ("hi-ho") solutions to corporate users. hi-ho provides services classified into
connectivity and VAS in IIJ's consolidated financial statements.
--------------------------------------------- ------------------------------------------------------------------------------
IIJ America mainly provides Internet connectivity services in the United
States and constructs and operates an Internet backbone in the United States
IIJ America Inc. ("IIJ America") as the IIJ Group's presence in the United States. IIJ America provides
services classified into connectivity and VAS in IIJ's consolidated financial
statements.
--------------------------------------------- ------------------------------------------------------------------------------
Five equity method investees
--------------------------------------------- ------------------------------------------------------------------------------
Internet Multifeed Co. ("Multifeed") Multifeed was established as a joint venture with the NTT Group and mainly
operates Internet exchange, distributes high-volume Internet content, and
provides housing services.
--------------------------------------------- ------------------------------------------------------------------------------
Internet Revolution Inc. ("i-revo") i-revo is a consolidated subsidiary of Konami Corporation and mainly
operates Internet portals.
--------------------------------------------- ------------------------------------------------------------------------------
TCC is a consolidated subsidiary of Hirata Corporation and develops,
Taihei Computer Co., Ltd. ("TCC") construct, sell and operate customer loyalty reward program systems for
service industry.
--------------------------------------------- ------------------------------------------------------------------------------
Trust Networks Inc. ("TN") TN is a joint venture established in July 2007 and plans to provide
operation of networks for automated teller machines ("ATMs").
--------------------------------------------- ------------------------------------------------------------------------------
i-Heart Inc. ("i-Heart") i-Heart was established as a joint venture with Samsung Corporation in South
Korea and provides data center services in South Korea.
--------------------------------------------- ------------------------------------------------------------------------------
(Note)
TN was IIJ's equity method investee as of the end of the interim period ended
September 30, 2007. As a result of IIJ's additional investment to TN in
October 1007, TN became IIJ's consolidated subsidiary in the third quarter of
the fiscal year ended March 31, 2008.
In addition to the above, NTT is IIJ's other affiliated company (IIJ is NTT's
affiliated company).
(2) Business Diagram
The overview of the IIJ Group's business at the end of the interim period
ended September 30, 2007 is illustrated as follows:
-----------------------------------------------------------------------------------------------------------
| ----------------------------------------------------------------------------------------------------- |
| | Customers | |
| ----------------------------------------------------------------------------------------------------- |
| ^ |
| | Connectivity and VAS, SI and equipment sales |
| ------------------------------------------------------------------------------------------------------- |
| | -------------------------------------------------------------------------------------------------- | |
| | | IIJ | | |
| | -------------------------------------------------------------------------------------------------- | |
| | | ^ ^ | | |
| | Consolidated | . . | Equity Method | |
| | Subsidiaries Purchase | . . | Investees | |
| | ------------ Outsourcing | . . | Selling services ------------- | |
| | ----------------------- ....................... ......................-------------------------- | |
| | | IIJ-Tech | | . | | Multifeed | | |
| | | | <------------------| . |----------------> | | | |
| | ----------------------- Selling services | . | Selling services -------------------------- | |
| | Outsourcing | . | | |
| | | . | -------------------------- | |
| | ----------------------- | . | | i-revo | | |
| | | IIJ-FS | | . |----------------> | | | |
| | | | <------------------| . | Selling services -------------------------- | |
| | ----------------------- Selling services | . | Outsourcing | |
| | | . | -------------------------- | |
| | Outsourcing | . | | TCC | | |
| | ----------------------- ....................... |----------------> | | | |
| | | Net Care | | . | Selling services -------------------------- | |
| | | | <------------------| . | Outsourcing | |
| | ----------------------- Selling services | . | -------------------------- | |
| | Outsourcing | . | | TN | | |
| | | . |----------------> | | | |
| | Outsourcing | . | Selling services -------------------------- | |
| | Network costruction | . | | |
| | ----------------------- ....................... | -------------------------- | |
| | | NCJ | | . | | i-heart | | |
| | | | <------------------| . |----------------> | | | |
| | ----------------------- Selling services | . Advance -------------------------- | |
| | | . | |
| | ----------------------- | . | |
| | | GDX | | . | |
| | | | <------------------| . | |
| | ----------------------- Selling services | . | |
| | Outsourcing | . | |
| | ----------------------- | . | |
| | | hi-ho | | . | |
| | | | <------------------| . | |
| | ----------------------- Outsourcing | . | |
| | | . | |
| | Selling services | . | |
| | Outsourcing | . | |
| | ----------------------- ....................... | |
| | | IIJ America | | | |
| | | | <------------------| | |
| | ----------------------- Selling services | |
| | | |
| | ------------------------------------------------------------------------------------------------ | |
| --| IIJ Group |---- |
| ------------------------------------------------------------------------------------------------ |
| ^ ^ ^ |
| | Purchase of | Outsourcing | Equipment sales, |
| | telecommunications lines | | purchase and lease |
| --------------------------------- ---------------------- ------------------------------- |
| | Telecommunication | | Outside Suppliers | | Telecommunication Equipment | |
| | Carriers and Others | | | | Manufacturers, Vendors and | |
| | | | | | Leasing Companies | |
| --------------------------------- ---------------------- ------------------------------- |
| |
| (Notes) |
| 1. The diagram above illustrates the overview of principal transactions between IIJ and IIJ's |
| affiliated companies. |
| 2. <--- shows transactions from IIJ to each of the IIJ Group companies. <... shows transactions from |
| each of the IIJ Group companies to IIJ. |
| 3. Telecommunications carriers include Nippon Telegraph and Telephone East Corporation ("NTT East"), |
| Nippon Telegraph and Telephone West Corporation ("NTT West") and NTT Communications, Inc. ("NTT |
| Communications"), that are the subsidiaries of NTT, of which IIJ is affiliated company. |
-----------------------------------------------------------------------------------------------------------
3. Management Policies
(1) Basic Management Policies
IIJ aims to contribute in creating a new market and in innovating industries
by leading the information society of Japan with Internet technology. By
practicing its management philosophy, it also continuously seeks to maximize its
corporate value and to fulfill its social responsibility.
(2) Target Management Indicators
In conducting its business activities, the IIJ Group closely considers the
composition of total revenues, profitability, financial position, and other
factors. The IIJ Group is making efforts to enhance its profitability by
increasing revenues and controlling costs, sales and marketing expenses and
general and administrative expenses, while closely watching its revenue growth
ratio, gross margin ratio, operating margin ratio and other figures.
(3) Medium and Long-term Business Strategies
The IIJ Group recognizes that customer needs and demands for the use of
network system will become more advanced and diverse as Internet use in business
and public organizations is increasing due to the expand in broadband network.
The IIJ Group continues to recognize the current market environment to be an
opportunity for its growth, because it expects that corporate customers and
public organizations, its main customers, will increase their needs for reliable
network systems and outsourcing services for their network systems, such as
security measures. On the contrary, the IIJ Group sees that the competition with
competitors for Internet connectivity, VAS and SI will further deepen. While
price competitions for Internet connectivity services are still severe, the IIJ
Group believes that it can be competitive by providing solutions together with
VAS and SI. The IIJ Group believes that it is important for the Group to promote
its research and development for Internet and to continuously provide its
customers with reliable and value-added solutions for the enhancement of the IIJ
Group business.
(4) Issues that Should be Addressed
Although the environment surrounding the IIJ Group is very favorable, it is
important for the IIJ Group to continue to provide reliable and competitive
services at the right timing to capture the needs for network systems of
enterprises and public organizations. For its medium and long term business
expansion, it is also important for the IIJ Group to expand its business field
by M&A and creation of new business and to promote its partnerships with
business partners properly. In the interim period ended September 30, 2007, IIJ
made hi-ho fully owned by acquiring all the shares of hi-ho and established GDX
and TN and invested in TCC. In addition, IIJ believes that it is important for
IIJ to perform its potential more comprehensively as a Group and construct its
Group business structure to promote an effective business. In May 2007, IIJ made
its two subsidiaries, IIJ-Tech and Net Care wholly owned through the share
exchanges. In September 2007, IIJ applied for a consolidated tax payment system
to introduce the system in the fiscal year ended March 31, 2009.
It is important for the IIJ Group to attract and educate excellent personnel
to maintain its growth in the future. The IIJ Group is actively recruiting
mid-carriers including managements and recent graduates on a regular basis. The
number of the employees on the consolidated basis at the end of the interim
period ended September 30, 2007 was 1,327 (including 83 recent graduates joined
the IIJ Group in April 2007), an increase of 172 compared to the end of the
fiscal year ended March 31, 2007.
(5) Other Issues to be Addressed
For the interim period ended September 30, 2007, IIJ provides Internet
connectivity services for the amount of JPY 351 thousand, to Applied Research
Institute, Inc. which Koichi Suzuki, President and CEO of IIJ has 100% voting
right. It is conducted under normal business relationship.
Consolidated Financial Statements (Unaudited)
(From April 1, 2007 through September 30, 2007)
(1) Consolidated Balance Sheets
----------------------------------------------------------------------
As of September 30, 2007
----------------------------------------------------------------------
Thousands Thousands of
of U.S. Yen
Dollars %
----------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash 101,504 11,669,876
Accounts receivable, net of
allowance for doubtful accounts
of JPY 31,983 thousand, JPY
22,198 thousand and JPY
32,489 thousand at September
30, 2007, September 30, 2006
and March 31, 2007,
respectively 79,215 9,107,377
Short-term investment 112 12,836
Inventories 16,334 1,877,963
Prepaid expenses 15,096 1,735,540
Other current assets, net of
allowance for doubtful accounts
of JPY 719 thousand, JPY
3,850 thousand and JPY 4,570
thousand at September 30,
2007, September 30, 2006 and
March 31, 2007, respectively 15,462 1,777,657
--------- ------------
Total current assets 227,723 26,181,249 49.2
INVESTMENTS IN AND ADVANCES TO EQUITY
METHOD INVESTEES, net of loan loss
valuation allowance of JPY 16,701 at
September 30, 2007, September 30, 2006
and March 31, 2007, respectively 9,267 1,065,431 2.0
OTHER INVESTMENTS 21,179 2,434,984 4.6
PROPERTY AND EQUIPMENT--Net 98,294 11,300,856 21.2
INTANGIBLE ASSETS--Net 50,595 5,816,862 10.9
GUARANTEE DEPOSITS 17,056 1,960,988 3.7
OTHER ASSETS, net of allowance
for doubtful accounts of JPY
67,027 thousand, JPY 65,251
thousand and JPY 69,050
thousand at September 30, 2007,
September 30, 2006 and March
31, 2007, respectively 38,945 4,477,523 8.4
--------- ------------
TOTAL 463,059 53,237,893 100.0
--------- ------------
----------------------------------------------------------------------
As of September 30, 2007
----------------------------------------------------------------------
Thousands Thousands of
of U.S. Yen
Dollars %
----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings 92,633 10,650,000
Long-term borrowings--current -- --
portion
Payable under securities loan -- --
agreement
Capital lease obligations--
current portion 29,394 3,379,457
Accounts payable 53,289 6,126,583
Accrued expenses 8,529 980,609
Other current liabilities 15,779 1,814,126
--------- ------------
Total current liabilities 199,624 22,950,775 43.1
CAPITAL LEASE OBLIGATIONS--
Noncurrent 41,831 4,809,338 9.0
ACCRUED RETIREMENT AND
PENSION COSTS 7,263 834,981 1.6
OTHER NONCURRENT
LIABILITIES 6,351 730,180 1.4
--------- ------------
Total Liabilities 255,069 29,325,274 55.1
--------- ------------
MINORITY INTEREST 1,100 126,424 0.2
--------- ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock
--authorized, 377,600 shares;
issued and outstanding,
206,478 shares at
September 30, 2007
--authorized 377,600 shares;
issued and outstanding,
204,300 shares at
September 30, 2006 and
March 31, 2007
146,419 16,833,847 31.6
Additional paid-in capital 240,165 27,611,737 51.9
Accumulated deficit (183,525) (21,099,819) (39.6)
Accumulated other
comprehensive income 3,831 440,430 0.8
Treasury stock--777 shares held -- -- --
by an equity method investee at
September 30, 2006
--------- ------------
Total shareholders' equity 206,890 23,786,195 44.7
--------- ------------
TOTAL 463,059 53,237,893 100.0
--------- ------------
As of September 30, As of March 31,
2006 2007
----------------------------------------------------------------------
Thousands of Thousands of
Yen % Yen %
----------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash 12,859,745 13,554,544
Accounts receivable, net of
allowance for doubtful
accounts of JPY 31,983
thousand, JPY 22,198
thousand and JPY 32,489
thousand at September30,
2007, September 30, 2006
and March 31, 2007,
respectively 7,786,677 9,675,725
Short-term investment -- 12,093
Inventories 593,899 1,111,086
Prepaid expenses 1,329,486 1,053,270
Other current assets, net
of allowance for doubtful
accounts of JPY 719 thousand,
JPY 3,850 thousand and
JPY 4,570 thousand at
September 30, 2007,
September 30, 2006 and
March 31, 2007,
respectively 874,401 930,571
------------ ------------
Total current assets 23,444,208 53.2 26,337,289 55.2
INVESTMENTS IN AND ADVANCES TO
EQUITY METHOD INVESTEES, net
of loan loss valuation
allowance of JPY 16,701 at
September 30, 2007, September
30, 2006 and March 31, 2007,
respectively 1,043,410 2.4 858,490 1.8
OTHER INVESTMENTS 6,217,408 14.1 2,841,741 6.0
PROPERTY AND EQUIPMENT--Net 9,496,329 21.6 9,832,396 20.6
INTANGIBLE ASSETS--Net 635,147 1.4 2,876,894 6.0
GUARANTEE DEPOSITS 1,532,046 3.5 1,686,141 3.5
OTHER ASSETS, net of allowance
for doubtful accounts of JPY
67,027 thousand, JPY 65,251
thousand and JPY 69,050
thousand at September 30, 2007,
September 30, 2006 and March
31, 2007, respectively 1,668,884 3.8 3,260,053 6.9
------------ ------------
TOTAL 44,037,432 100.0 47,693,004 100.0
------------ ------------
----------------------------------------------------------------------
As of September 30, As of March 31,
2006 2007
----------------------------------------------------------------------
Thousands of Thousands of
Yen % Yen %
----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Short-term borrowings 5,750,000 6,050,000
Long-term borrowings--current
portion 1,060,476 290,000
Payable under securities loan
agreement 480,960
Capital lease obligations-- --
current portion 2,800,937 2,953,173
Accounts payable 5,090,316 8,464,835
Accrued expenses 653,789 897,355
Other current liabilities 1,720,181 2,477,486
------------ ------------
Total current liabilities 17,556,659 39.9 21,132,849 44.3
CAPITAL LEASE OBLIGATIONS--
Noncurrent 4,371,896 9.9 4,318,309 9.1
ACCRUED RETIREMENT AND
PENSION COSTS 268,292 0.6 750,042 1.5
OTHER NONCURRENT
LIABILITIES 669,131 1.5 564,618 1.2
------------ ------------
Total Liabilities 22,865,978 51.9 26,765,818 56.1
------------ ------------
MINORITY INTEREST 1,363,362 3.1 815,182 1.7
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock--
--authorized, 377,600 shares;
issued and outstanding,
206,478 shares at
September 30, 2007
--authorized 377,600 shares;
issued and outstanding,
204,300 shares at
September 30, 2006 and
March 31, 2007
16,833,847 38.2 16,833,847 35.3
Additional paid-in capital 26,599,217 60.4 26,599,217 55.8
Accumulated deficit (26,826,562) (60.9) (24,270,769) (50.9)
Accumulated other
comprehensive income 3,285,828 7.5 949,709 2.0
Treasury stock--777 shares -- --
held by an equity method
investee at
September 30, 2006 (84,238) (0.2)
------------ ------------
Total shareholders' equity 19,808,092 45.0 20,112,004 42.2
------------ ------------
TOTAL 44,037,432 100.0 47,693,004 100.0
------------ ------------
(Note)
The U.S. dollar amounts represent translations of yen amounts at the
rate of JPY 114.97, which was the noon buying rate in New York City
for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York prevailing as of
September 28, 2007.
(2) Consolidated Statements of Income
----------------------------------------------------------------------
Interim Period Ended September
30, 2007
-------------------------------
Thousands Thousands % of total
of U.S. of Yen revenues
Dollars
----------------------------------------------------------------------
REVENUES:
Connectivity and value-
added services:
Connectivity (corporate use) 52,025 5,981,284
Connectivity (home use) 19,960 2,294,848
Value-added services 39,005 4,484,467
Other 17,797 2,046,107
--------- -----------
Total 128,787 14,806,706
Systems integration 124,399 14,302,188
Equipment sales 7,666 881,350
--------- -----------
Total revenues 260,852 29,990,244 100.0
--------- -----------
COST AND EXPENSES:
Cost of connectivity and
value-added services 106,703 12,267,670
Cost of systems
integration 93,823 10,786,859
Cost of equipment sales 6,579 756,386
--------- -----------
Total cost 207,105 23,810,915 79.4
Sales and marketing 17,632 2,027,153 6.7
General and
administrative 19,306 2,219,623 7.4
Research and
development 1,013 116,445 0.4
--------- -----------
Total cost and
expenses 245,056 28,174,136 93.9
--------- -----------
OPERATING INCOME 15,796 1,816,108 6.1
--------- -----------
OTHER INCOME:
Interest income 274 31,555
Interest expense (1,872) (215,278)
Foreign exchange gain
(loss) 8 923
Gain (loss) on other investments
--net 430 49,474
Other--net 128 14,702
--------- -----------
Other income (loss) --net
(1,032) (118,624) (0.4)
--------- -----------
INCOME FROM
OPERATIONS BEFORE
INCOME TAX BENEFIT,
MINORITY INTERESTS
AND EQUITY IN NET
LOSS OF EQUITY
METHOD INVESTEES 14,764 1,697,484 5.7
--------- -----------
INCOME TAX BENEFIT (15,698) (1,804,833) (6.0)
MINORITY INTERESTS IN
(EARNINGS) LOSSES OF
SUBSIDIARIES 211 24,212 0.1
EQUITY IN NET LOSS OF
EQUITY METHOD
INVESTEES (427) (49,129) (0.2)
--------- -----------
NET INCOME 30,246 3,477,400 11.6
Interim Period Ended Fiscal Year Ended
September 30, 2006 March 31, 2007
-------------------------------------------
Thousands % of total Thousands % of total
of Yen revenues of Yen revenues
----------------------------------------------------------------------
REVENUES:
Connectivity and value-
added services:
Connectivity
(corporate use) 5,532,282 11,239,062
Connectivity (home
use) 983,157 1,968,948
Value-added services 3,647,219 7,415,533
Other 1,856,829 3,729,633
----------- -----------
Total 12,019,487 24,353,176
Systems integration 13,252,936 30,527,081
Equipment sales 1,171,611 2,174,324
----------- -----------
Total revenues 26,444,034 100.0 57,054,581 100.0
----------- -----------
COST AND EXPENSES:
Cost of connectivity and
value-added services 10,324,133 20,545,358
Cost of systems
integration 10,191,816 23,529,045
Cost of equipment sales 1,066,013 1,893,216
----------- -----------
Total cost 21,581,962 81.6 45,967,619 80.6
Sales and marketing 1,632,728 6.2 3,438,725 6.0
General and
administrative 1,776,725 6.7 3,970,692 7.0
Research and
development 82,191 0.3 177,273 0.3
----------- -----------
Total cost and
expenses 25,073,606 94.8 53,554,309 93.9
----------- -----------
OPERATING INCOME 1,370,428 5.2 3,500,272 6.1
----------- -----------
OTHER INCOME:
Interest income 7,481 23,037
Interest expense (205,500) (397,439)
Foreign exchange gain
(loss) (10) (297)
Gain (loss) on other
investments --net 922,836 1,866,510
Other--net 49,096 56,605
----------- -----------
Other income (loss)
--net
773,903 2.9 1,548,416 2.7
----------- -----------
INCOME FROM
OPERATIONS BEFORE
INCOME TAX BENEFIT,
MINORITY INTERESTS
AND EQUITY IN NET
LOSS OF EQUITY
METHOD INVESTEES 2,144,331 8.1 5,048,688 8.8
----------- -----------
INCOME TAX BENEFIT (959,783) (3.7) (803,943) (1.4)
MINORITY INTERESTS IN
(EARNINGS) LOSSES OF
SUBSIDIARIES (125,108) (0.5) (232,719) (0.4)
EQUITY IN NET LOSS OF
EQUITY METHOD
INVESTEES (125,086) (0.5) (210,199) (0.3)
----------- -----------
NET INCOME 2,853,920 10.8 5,409,713 9.5
----------------------------------------------------------------------
Interim Period Interim Fiscal Year
Ended September Period Ended Ended March
30, 2007 September 31, 2007
30, 2006
----------------------------------------------
U.S. Yen Yen Yen
Dollars
----------------------------------------------------------------------
BASIC WEIGHTED-
AVERAGE NUMBER OF
SHARES 206,002 203,989 203,992
DILUTED WEIGHTED-
AVERAGE NUMBER OF
SHARES 206,228 204,166 204,244
BASIC NET INCOME PER
SHARE 146.82 16,880 13,991 26,519
DILUTED NET INCOME
PER SHARE 146.66 16,862 13,978 26,487
----------------------- ---------- ------- ------------- -------------
(Note)
The U.S. dollar amounts represent translations of yen amounts at the
rate of JPY 114.97, which was the noon buying rate in New York City
for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York prevailing as of
September 28, 2007.
(3) Consolidated Statements of Shareholders' Equity
Consolidated statements of shareholders' equity for the interim period
ended September 30, 2007
(Unit: Thousands of Yen)
----------------------------------------------------------------------
Shares of Common Additional Accumulated
Common Stock Paid-in Deficit
Stock Capital
Outstanding
(Including
Treasury
Stock)
(Shares)
----------------------------------------------------------------------
BALANCE, APRIL 1,
2007 204,300 16,833,847 26,599,217 (24,270,769)
Net income 3,477,400
Other comprehensive
loss, net of tax
Total comprehensive
income
Payment of dividends (306,450)
Issuance of common
stock related to
share exchanges, net
of issuance cost 2,178 1,012,520
------------ ---------- ---------- ------------
BALANCE, SEPTEMBER
30, 2007 206,478 16,833,847 27,611,737 (21,099,819)
------------ ---------- ---------- ------------
Accumulated Treasury Total
Other Stock
Comprehensive
Income
----------------------------------------------------------------------
BALANCE, APRIL 1, 2007 949,709 -- 20,112,004
Net income 3,477,400
Other comprehensive loss, net of
tax (509,279) (509,279)
-----------
Total comprehensive income 2,968,121
Payment of dividends (306,450)
Issuance of common stock related to
share exchanges, net of issuance
cost 1,012,520
-------------- -------- -----------
BALANCE, SEPTEMBER 30, 2007 440,430 -- 23,786,195
-------------- -------- -----------
Consolidated statements of shareholders' equity for the interim period
ended September 30, 2007
(Unit: Thousands of U.S. Dollars)
----------------------------------------------------------------------
Shares of Common Additional Accumulated
Common Stock Paid-in Deficit
Stock Capital
Outstanding
(Including
Treasury
Stock)
(Shares)
----------------------------------------------------------------------
BALANCE, APRIL 1, 2007 204,300 146,419 231,358 (211,105)
Net income 30,246
Other comprehensive loss,
net of tax
Total comprehensive income
Payment of dividends (2,665)
Issuance of common stock
related to share exchanges,
net of issuance cost 2,178 8,807
BALANCE, SEPTEMBER 30,
2007 206,478 146,419 240,165 (183,525)
------------ ------- ---------- -----------
Accumulated Treasury Total
Other Stock
Comprehensive
Income
----------------------------------------------------------------------
BALANCE, APRIL 1, 2007 8,260 -- 174,932
Net income 30,246
Other comprehensive loss, net of tax (4,430) (4,430)
--------
Total comprehensive income 25,816
Payment of dividends (2,665)
Issuance of common stock related to
share exchanges, net of issuance cost 8,807
BALANCE, SEPTEMBER 30, 2007 3,831 -- 206,890
-------------- -------- --------
----------------------------------------------------------------------
(Note)
1) The U.S. dollar amounts represent translations of yen amounts at
the rate of JPY 114.97, which was the noon buying rate in New York
City for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York prevailing
as of September 28, 2007.
Consolidated statements of shareholders' equity for the interim period
ended September 30, 2006
(Unit: Thousands of Yen)
----------------------------------------------------------------------
Shares of Common Additional Accumulated
Common Stock Paid-in Deficit
Stock Capital
Outstanding
(Including
Treasury
Stock)
(Shares)
----------------------------------------------------------------------
BALANCE, APRIL 1,
2006 204,300 16,833,847 26,599,217 (29,680,482)
Net income 2,853,920
Other comprehensive
loss, net of tax
Total comprehensive
loss
BALANCE, SEPTEMBER
30, 2006 204,300 16,833,847 26,599,217 (26,826,562)
------------ ---------- ---------- ------------
Accumulated Treasury Total
Other Stock
Comprehensive
Income
----------------------------------------------------------------------
BALANCE, APRIL 1,
2006 6,553,594 (84,238) 20,221,938
Net income 2,853,920
Other comprehensive
loss, net of tax (3,267,766) (3,267,766)
-----------
Total comprehensive
loss (413,846)
BALANCE, SEPTEMBER
30, 2006 3,285,828 (84,238) 19,808,092
-------------- -------- -----------
Consolidated statements of shareholders' equity for the fiscal year
ended March 31, 2007
(Unit: Thousands of Yen)
----------------------------------------------------------------------
Shares of Common Additional Accumulated
Common Stock Paid-in Deficit
Stock Capital
Outstanding
(Including
Treasury
Stock)
(Shares)
----------------------------------------------------------------------
BALANCE, APRIL 1,
2006 204,300 16,833,847 26,599,217 (29,680,482)
Net income 5,409,713
Other comprehensive
loss, net of tax
Total comprehensive
loss
Adjustment to
initially apply
SFAS158, net of tax
Dissolution of
reciprocal interests
due to sale of
investment in an
equity method
investee
--------------------- ------------ ---------- ---------- ------------
BALANCE, MARCH 31,
2006 204,300 16,833,847 26,599,217 (24,270,769)
------------ ---------- ---------- ------------
Accumulated Treasury Total
Other Stock
Comprehensive
Income
----------------------------------------------------------------------
BALANCE, APRIL 1, 2006 6,553,594 (84,238) 20,221,938
Net income 5,409,713
Other comprehensive loss, net of
tax (5,492,154) (5,492,154)
-----------
Total comprehensive loss (82,441)
Adjustment to initially apply
SFAS158, net of tax (111,731) (111,731)
Dissolution of reciprocal interests
due to sale of investment in an
equity method investee 84,238 84,238
------------------------------------------------- -------- -----------
BALANCE, MARCH 31, 2006 949,709 -- 20,112,004
-------------- -------- -----------
(4) Condensed Consolidated Statements of Cash Flows
----------------------------------------------------------------------
Interim Period Ended
September 30, 2007
----------------------
Thousands Thousands
of U.S. of Yen
Dollars
----------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income 30,246 3,477,400
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 19,471 2,238,630
Provision for (reversal of) doubtful
accounts and advances (43) (4,924)
Gain on other investments--net (430) (49,474)
Foreign exchange loss (gain) 30 3,397
Equity in net loss of equity method
investees 427 49,129
Minority interests in earnings (losses) of
subsidiaries (211) (24,212)
Deferred income tax benefit (17,130) (1,969,437)
Others 837 96,247
Changes in operating assets and liabilities:
Decrease in accounts receivable 5,014 576,507
(Decrease) increase in inventories, prepaid
expenses and other current and noncurrent
assets (14,256) (1,639,019)
Decrease in accounts payable (18,995) (2,183,876)
Increase (decrease) in accrued expenses,
other current and noncurrent liabilities (3,946) (453,660)
----------------------------------------------- --------- -----------
Net cash provided by operating activities 1,015 116,708
----------------------------------------------- --------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (8,625) (991,559)
Purchase of available-for-sale securities (4,470) (513,895)
Purchase of short-term and other investments (277) (31,822)
Investment in an equity method investee (2,178) (250,389)
Proceeds from sales of investment in an -- --
equity method investee
Purchase of subsidiary stock from minority
shareholders (17,179) (1,975,123)
Proceeds from sales of available-for-sale
securities 5,298 609,112
Proceeds from sales and redemption of short-
term and other investments 59 6,751
Acquisition of a newly controlled company,
net of cash acquired (7,936) (912,450)
Acquisition of businesses -- --
Refund (payment) of guarantee deposits--net (2,283) (262,489)
Other (262) (30,129)
----------------------------------------------- --------- -----------
Net cash used in investing activities (37,853) (4,351,993)
----------------------------------------------- --------- -----------
Interim Period Ended
September 30, 2007
----------------------
Thousands Thousands
of U.S. of Yen
Dollars
----------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of short-term
borrowings with initial maturities over
three months and long-term borrowings 90,458 10,400,000
Repayments of short-term borrowings with
initial maturities over three months and
long-term borrowings (55,145) (6,340,000)
Proceeds from securities loan agreement -- --
Repayments of securities loan agreement -- --
Principal payments under capital leases (14,421) (1,657,941)
Increase (decrease) in short-term borrowings
with initial maturities less than three
months--net 2,174 250,000
Proceeds from issuance of subsidiary stock to -- --
minority shareholders
Amount of dividend payment (2,665) (306,450)
----------------------------------------------- --------- -----------
Net cash provided by (used in) financing
activities 20,402 2,345,609
----------------------------------------------- --------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 44 5,008
NET DECREASE IN CASH (16,393) (1,884,668)
CASH, BEGINNING OF EACH PERIOD 117,896 13,554,544
----------------------------------------------- --------- -----------
CASH, END OF EACH PERIOD 101,504 11,669,876
----------------------------------------------- --------- -----------
ADDITIONAL CASH FLOW INFORMATION:
Interest paid 1,887 216,937
Income taxes paid 6,326 727,324
NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of assets by entering into
capital leases 19,989 2,298,102
Purchase of minority interests of
consolidated subsidiaries through
share exchanges 8,807 1,012,520
Acquisition of business and a company:
Assets acquired 13,662 1,570,720
Cash paid (10,702) (1,230,450)
Liabilities assumed 2,960 340,270
----------------------------------------------- --------- -----------
Interim Fiscal Year
Period Ended
Ended March 31,
September 2007
30, 2006
-----------------------
Thousands Thousands
of Yen of Yen
----------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income 2,853,920 5,409,713
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,176,125 4,228,048
Provision for (reversal of) doubtful
accounts and advances (4,446) 12,232
Gain on other investments--net (922,836) (1,866,510)
Foreign exchange loss (gain) (2,386) 2,226
Equity in net loss of equity method
investees 125,086 210,199
Minority interests in earnings (losses) of
subsidiaries 125,108 232,719
Deferred income tax benefit (1,245,146) (1,494,685)
Others 89,239 534,035
Changes in operating assets and liabilities:
Decrease in accounts receivable 4,148,536 2,376,126
(Decrease) increase in inventories, prepaid
expenses and other current and noncurrent
assets 92,884 (1,235,003)
Decrease in accounts payable (4,959,668) (1,872,969)
Increase (decrease) in accrued expenses,
other current and noncurrent liabilities 36,014 865,376
---------------------------------------------------------- -----------
Net cash provided by operating activities 2,512,430 7,401,507
---------------------------------------------------------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (559,868) (1,287,906)
Purchase of available-for-sale securities (170,564) (802,662)
Purchase of short-term and other investments (1,490,617) (1,794,358)
Investment in an equity method investee -- --
Proceeds from sales of investment in an
equity method investee -- 185,900
Purchase of subsidiary stock from minority
shareholders (27,559) (3,077,764)
Proceeds from sales of available-for-sale
securities 1,100,374 3,883,915
Proceeds from sales and redemption of short-
term and other investments 17,401 110,446
Acquisition of a newly controlled company, -- --
net of cash acquired
Acquisition of businesses -- (74,751)
Refund (payment) of guarantee deposits--net 15,643 (118,411)
Other (6,794) (38,020)
---------------------------------------------------------- -----------
Net cash used in investing activities (1,121,984) (3,013,611)
---------------------------------------------------------- -----------
Interim Fiscal Year
Period Ended
Ended March 31,
September 2007
30, 2006
-----------------------
Thousands Thousands
of Yen of Yen
----------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of short-term
borrowings with initial maturities over
three months and long-term borrowings 4,350,000 10,500,000
Repayments of short-term borrowings with
initial maturities over three months and
long-term borrowings (1,219,487) (7,639,963)
Proceeds from securities loan agreement 977,040 1,057,680
Repayments of securities loan agreement (1,495,680) (2,057,280)
Principal payments under capital leases (1,707,548) (3,259,875)
Increase (decrease) in short-term borrowings
with initial maturities less than three
months--net (3,155,000) (3,355,000)
Proceeds from issuance of subsidiary stock to
minority shareholders -- 194,679
Amount of dividend payment -- --
---------------------------------------------------------- -----------
Net cash provided by (used in) financing
activities (2,250,675) (4,559,759)
---------------------------------------------------------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (7,047) (614)
NET DECREASE IN CASH (867,276) (172,477)
CASH, BEGINNING OF EACH PERIOD 13,727,021 13,727,021
---------------------------------------------------------- -----------
CASH, END OF EACH PERIOD 12,859,745 13,554,544
---------------------------------------------------------- -----------
ADDITIONAL CASH FLOW INFORMATION:
Interest paid 193,869 383,461
Income taxes paid 211,428 347,826
NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of assets by entering into
capital leases 918,273 2,664,706
Purchase of minority interests of -- --
consolidated subsidiaries through
share exchanges
Acquisition of business and a company:
Assets acquired -- 236,307
Cash paid -- (74,751)
Liabilities assumed -- 161,556
----------------------------------------------------------------------
(Note)
The U.S. dollar amounts represent translations of yen amounts at the
rate of JPY 114.97, which was the noon buying rate in New York City
for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York prevailing as of
September 28, 2007.
[PG NUMBER]
Principal Standard Items for Preparation of Consolidated Financial Statements
------------------------------------------------------------------------------
for the Interim Period Ended September 30, 2007
-----------------------------------------------
The Terminology, Form, and Preparation Methods for the Consolidated Financial
Statements for the Interim Period Ended September 30, 2007
The consolidated financial statements for the interim period ended September
30, 2007 have been prepared under the accounting principles, procedures and ways
of presentations requested for the issuance of American Depository Receipts
("ADRs") and others (generally accepted accounting principles in the United
States of America ("U.S. GAAP"), including Accounting Research Bulletins
("ARB"), Accounting Principles Board ("APB") Opinions, Statement of Financial
Accounting Standards ("SFAS") and related interpretation guidelines) in
accordance with the provisions of article 87 "provisions for the terminology,
form, and preparation methods for interim consolidated financial statements"
(Ministry of Finance, ordinance No. 24, 1999).
IIJ registered the issuance of ADRs under the United States Securities and
Exchange Commission ("the United States SEC") and listed the ADRs on NASDAQ
market in August 1999. Accordingly, IIJ regularly files its annual report on
Form 20-F in English with the United States SEC, including consolidated
financial statements in English prepared under U.S. GAAP, in accordance with
Rule 13 of the U.S. Securities Exchange Act of 1934, as amended.
Summary of Significant Accounting Policies.
Basis of Presentation
IIJ maintains its record in accordance with generally accepted accounting
principles in Japan. Certain adjustment and reclassifications have been
incorporated in the accompanying consolidated financial statements to conform to
U.S. GAAP. These adjustments were not recorded in the statutory accounts.
In this document, a part of the financial statements for the interim period
ended September 30, 2006 is reclassified in accordance with the representation
of the financial statements for the interim period ended September 30, 2007.
Consolidation
The consolidated financial statements for the interim period ended September
30, 2007 include the accounts of IIJ and all of its subsidiaries, Net Care,
IIJ-Tech, IIJ-FS, NCJ, which was established in August 2006, GDX, in which IIJ
invested in April 2007, hi-ho, which became IIJ's consolidated subsidiary in
June 2007 and IIJ America, which all, except for IIJ America, have interim
periods ending September 30. IIJ America's interim period end is June 30 and
such date was used for purposes of preparing the consolidated financial
statements for the interim period ended September 30, 2007 as it is not
practicable for the subsidiary to report its financial results as of September
30. There were no significant events that occurred during the intervening period
that would require adjustment to or disclosure in the accompanying consolidated
financial statements. Intercompany transactions and balances have been
eliminated in consolidation. Investments in companies over which IIJ has
significant influence but not control are accounted for by the equity method.
For other than a temporary decline in the value of investments in equity method
investees below the carrying amount, the investment is reduced to fair value and
an impairment loss is recognized.
A subsidiary or equity method investee may issue its shares to third parties
at amounts per share in excess of or less than the Company's average per share
carrying value. With respect to such transactions, the resulting gains or losses
arising from the change in ownership are recorded in income for the year in
which such shares are issued.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Significant estimates and assumptions used
are primarily in the areas of evaluation of cost method investments, valuation
allowances for deferred tax assets, allowance for doubtful accounts,
determination of pension benefit costs and obligations, estimated useful lives
of fixed assets and impairment of long-lives assets. Actual results could differ
from those estimates.
Revenue Recognition
Revenues from customer connectivity services consist of Internet connectivity
services for corporate users and Internet connectivity services for home users.
Internet connectivity services for corporate users represent IP services and
broadband services such as IIJ FiberAccess/F Service. Internet connectivity
services for home users are provided under IIJ brand such as IIJ4U and IIJmio,
hi-ho brand and others, and include dial-up services, optical fiber or ADSL
based broadband services. The term of these contracts is one year for Internet
connectivity services for corporate users and generally one month for Internet
connectivity services for home use. All these services are billed and recognized
monthly on a straight-line basis.
VAS revenues consist principally of sales of various Internet access-related
services such as firewall services. VAS also include monthly fees from data
center services such as housing, monitoring, and security services. Other
revenues under connectivity and VAS consist principally of Wide-area Ethernet
services and call-center customer support. The terms of these services are
generally for one year and revenues are recognized on a straight-line basis
during the service period.
Initial set up fees received in connection with connectivity services and VAS
are deferred and recognized over the contract period.
SI revenues consist principally of the development of Internet network
systems and related maintenance, monitoring and other operating services. The
development of the Internet network systems includes planning, systems design,
and construction services, and equipment and software purchased from third
parties. SI service is subject to the Emerging Issues Task Force ("EITF") Issue
No. 00-21, "Revenue Arrangements with Multiple Deliverables". For deliverables
in multiple-element arrangements, the guidance below is applied for separability
and allocation. A multi-element arrangement is separated into more than one unit
of accounting if all of the following criteria are met:
- The delivered item(s) has value to the client on a stand-alone basis;
- There is objective and reliable evidence of the fair value of the undelivered
item(s); and
- If the arrangement includes a general right of return relative to the
delivered item(s), delivery or performance of the undelivered item(s) is
considered probable and substantially in the control of the company.
If these criteria are not met, the arrangement is accounted for as one unit
of accounting which would result in revenue being recognized on a straight-line
basis or being deferred until the earlier of when such criteria are met or when
the last undelivered element is delivered. If these criteria are met for each
element and there is objective and reliable evidence of fair value for all units
of accounting in an arrangement, the arrangement consideration is allocated to
the separate units of accounting based on each unit's relative fair value.
The period for the development of the systems is less than one year and
revenues are recognized when network systems and equipment are delivered and
accepted by the customer. When the equipment or system is delivered prior to
other elements of the arrangement, revenue is deferred until other service
elements are completed and accepted by the customer because the customer may
return all of the equipment or system in the event that the Company does not
complete other service elements. Maintenance, monitoring and operating service
revenues are recognized ratably over the separate contract period, which is
generally for one year.
Equipment sales are reported on a gross or net basis in accordance with EITF
Issue No. 99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent".
Revenues are recognized when equipment is delivered and accepted by the
customer. Title to equipment passes when equipment is accepted by the customer.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is established in amounts considered to be
appropriate based primarily upon the Company's past credit loss experience and
an evaluation of potential losses in the receivables outstanding.
Other Investments
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," the Company classifies its marketable equity securities
as available-for-sale securities, which are accounted for at fair value with
unrealized gains and losses excluded from earnings and reported in accumulated
other comprehensive income (loss). The cost of securities sold is determined
based on average cost.
The Company reviews the fair value of available-for-sale securities on a
regular basis to determine if the fair value of any individual security has
declined below its cost and if such decline is other than temporary. If the
decline in value is judged to be other than temporary, the cost basis of the
investment is written down to fair value. Other than temporary declines in value
are determined taking into consideration the extent of decline in fair value,
the length of time that the decline in fair value below cost has existed and
events that might accelerate the recognition of impairment. The resulting
realized loss is included in the consolidated statements of income in the period
in which the decline is deemed to be other than temporary.
Non-marketable equity securities are carried at cost as fair value is not
readily determinable. If the value of a security is estimated to have declined
and such decline is judged to be other than temporary, the security is written
down to the fair value. Determination of impairment is based on the
consideration of such factors as operating results, business plans and change in
the regulatory, economic or technological environment of the investees. For
purposes of computing an impairment loss, fair value is determined as the
Company's interest in the net assets of investees.
Inventories
Inventories consist mainly of network equipment purchased for resale and
work-in-process for development of Internet network systems. Network equipment
purchased for resale is stated at the lower of cost, which is determined by the
average-cost method, or market. Work-in-process for development of network
systems is stated at the lower of actual production costs, including overhead
cost, or market. Inventories are reviewed periodically and items considered to
be slow-moving or obsolete are written down to their estimated net realizable
value.
Leases
Capital leases, which meet specific criteria noted in SFAS No.13, "Accounting
for Leases", are capitalized at the inception of the lease at the present value
of the minimum lease payments. All other leases are accounted for as operating
leases. Lease payments for capital leases are apportioned to interest expense
and a reduction of the lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability. Operating lease payments are
recognized as an expense on a straight-line basis over the lease term.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization of
property and equipment, including purchased software and capitalized leases, are
computed principally using the straight-line method based on either the
estimated useful lives of assets or the lease period, whichever is shorter.
The useful lives for depreciation and amortization by major asset classes are
as follows:
----------------------------------------------------------------------------------------------------
Range of useful lives
----------------------------------------------------------------------------------------------------
Data communications, office and other equipment 2 to 15 years
Leasehold improvements 3 to 15 years
Purchased software 5 years
Capitalized leases 4 to 7 years
----------------------------------------------------------------------------------------------------
Impairment of Long-lived Assets
Long-lived assets consist principally of property and equipment, including
those items leased under capital leases. The Company evaluates the impairment of
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable in accordance with SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." There
were no impairment losses for long-lived assets for the interim period ended
September 30, 2007.
Goodwill and Intangible Assets
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets,"
goodwill (including equity-method goodwill) and intangible assets that are
deemed to have indefinite useful lives are not amortized, but are subject to
impairment testing. Impairment testing is performed annually or more frequently
if events or changes in circumstances indicate that the asset might be impaired.
The Company performs annual impairment tests on March 31.
Pension and Severance Indemnities Plans
The Company has pensions plans and, or severance indemnities plans. The cost
of the pension plans and severance indemnities plans are accrued based on
amounts determined using actuarial methods.
On September 29, 2006, the FASB issued SFAS No.158, "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
statements No. 87, 88, 106, and 132(R)." ("SFAS No. 158"). SFAS No. 158 requires
an employer that sponsors one or more defined benefit pension plans or other
postretirement plans to 1) recognize the funded status of a plan, measured as
the difference between plan assets at fair value and the benefit obligation, in
balance sheet; 2) recognize in shareholders' equity as a component of
accumulated other comprehensive income, net of tax, the gains or losses and
prior service costs or credits that arise during the period but are not yet
recognized as components of net periodic benefit cost; 3) measure defined
benefit plan assets and obligations as of the date of the employers' fiscal
year-end balance sheet; and 4) disclose in the notes to the financial statements
additional information about the effects on net periodic benefit cost for the
next fiscal year that arise from delayed recognition of the gains or losses,
prior service costs or credits, and transition asset or obligation.
The Company adopted SFAS No. 158 effective March 31, 2007. The adoption of
SFAS No. 158 resulted in a decrease in total shareholders' equity of JPY 111,731
thousand as of March 31, 2007.
Income Taxes
The provision for income taxes is based on earnings before income taxes and
includes the effects of temporary differences between assets and liabilities
recognized for financial reporting purposes and income tax purposes and
operating loss carryforwards. Valuation allowances are provided against deferred
tax assets when it is more likely than not that a tax benefit will not be
realized.
Foreign Currency Transaction
Foreign currency financial statements have been translated in accordance with
SFAS No. 52, "Foreign Currency Translation." Pursuant to this statement, the
assets and liabilities of a foreign subsidiary and an equity method investee are
translated into Japanese yen at the respective period-end exchange rates. All
income and expense accounts are translated at average rates of exchange. The
resulting translation adjustments are included in accumulated other
comprehensive income.
Foreign currency assets and liabilities, which consist substantially of cash
denominated in U.S. dollars, are stated at the amount as computed by using
period-end exchange rates and the resulting transaction gain or loss is
recognized in earnings.
Derivative Financial Instruments
All derivatives are recorded at fair value as either asset or liabilities in
the balance sheet in accordance with SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138 and No. 149
(collectively, "SFAS No. 133"). In accordance with SFAS No. 133, the Company
designated interest swap contracts as a hedge of the variability of cash flows
to be paid related to interest on floating rate borrowings (cash flow hedge) and
the effective portion of the derivative's gain or loss is initially reported as
a component of other comprehensive income and subsequently reclassified into
earnings when the underlying transaction affects earnings. The ineffective
portion of the gain or loss is reported in earnings immediately.
The Company enters into contracts to hedge interest rate risks and does not
enter into contracts or utilize derivatives for trading purposes.
Stock-based Compensation
On April 1, 2006, the Company adopted SFAS No. 123R, "Share-Based Payment"
and the related interpretations, which requires compensation expense for stock
options and other share-based payments to be measured and recorded based on the
instruments' fair value, by using the modified prospective application method.
SFAS No. 123R requires recognizing expenses for share-based payments granted
prior to the adoption date equal to the fair value of unvested amounts over the
remaining requisite service recognized. As all existing granted stock-based
awards of the Company have vested, the adoption of SFAS No.123R did not have any
impact on the Company's consolidated financial position or results of
operations.
Research and Development
Research and development costs are expensed as incurred.
Advertising
Advertising costs are expensed as incurred and are recorded in "Sales and
marketing."
Basic and Diluted Net Income per Common Share
Basic net income per common share is computed by dividing net income by the
weighted-average number of shares of common stock outstanding during the period.
Diluted net income per common share reflects the potential dilutive effect of
stock options and convertible bonds. (See "NET INCOME PER SHARE (Unaudited)" in
the latter part of this document for details.)
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of translation adjustments
resulting from the translation of financial statements of a foreign subsidiary,
unrealized gains or losses on available-for-sale securities and gains or losses
on cash flow hedging derivative instruments.
Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for reporting information about operating
segments. Operating segments are defined as components of an enterprise that
engage in business activities from which it may earn revenues and incur expense
and for which separate financial information is available that is evaluated
regularly by the chief operation decision maker in deciding how to allocate
resources and in assessing performance.
The Company provides a comprehensive range of network solutions to meet its
customers' needs by cross-selling a variety of services, including Internet
connectivity services, VAS, SI and sales of network-related equipment. The
Company's chief operating decision maker, who is the Company's Chief Executive
Officer, regularly reviews the revenue and cost of sales on a consolidated basis
and makes decisions regarding how to allocate resources and assess performance
based on a single operating unit.
New Accounting Standards
In June 2006, the FASB issued FIN No. 48, "Accounting for Uncertainty in
Income Taxes, an interpretation of FASB statement No. 109" ("FIN No. 48") which
clarifies the accounting for uncertainty in income tax recognized in an
enterprise's financial statements in accordance with SFAS No. 109, "Accounting
for Income Taxes." This interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. This
interpretation also provides guidance on derecognition, classification,
interest, and penalties, accounting in interim periods, disclosure, and
transition. The Company adapted FIN No. 48 from the interim period ended
September 30, 2007. The adoption of FIN No. 48 did not have a material effect
upon the Company's financial position or results of operations.
In September 2006, the FASB issued SFAS No.157, "Fair Value Measurements"
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. This Statement applies under other accounting pronouncements
that require or permit fair value measurements and is effective for fiscal years
beginning after November 15, 2007. The Company is currently evaluating the
impact of adopting this Statement.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities," which permits entities to choose to
measure many financial instruments and certain other items at fair value. This
Statement's objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions.
SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.
The Company is currently evaluating the impact of adopting this Statement.
NET INCOME PER SHARE (Unaudited)
--------------------------------
The basic net income per share and diluted net income per share in the
interim period ended September 30, 2007 and 2006 was as follows.
---------------------------------------------------------------------------------------------------------------------
Interim Period Ended Interim Period Ended
September 30, 2007 September 30, 2006
---------------------------------------------------------------------------------------------------------------------
Numerator:
Net income (Thousands of Yen) 3,477,400 2,853,920
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
Denominator:
Basic weighted average number of shares of 206,002 203,989
common stock outstanding
Effect by stock option 226 177
---------------------------------------------------------------------------------------------------------------------
Diluted weighted average number of shares 206,228 204,166
of common stock outstanding
---------------------------------------------------------------------------------------------------------------------
Basic net income per share 16,880 13,991
---------------------------------------------------------------------------------------------------------------------
Diluted net income per share 16,862 13,978
---------------------------------------------------------------------------------------------------------------------
For the interim period ended September 30, 2007 and 2006, the number of the
potentially dilutive shares excluded from the computation of diluted net income
per share because the exercise prices of the options were greater than the
average market price of the common shares was 950 shares.
SUBSEQUENT EVENTS (Unaudited)
-----------------------------
On October 31, 2007, IIJ made an additional investment of JPY 485,000 thousand
to TN (common stock: JPY 22, 500 thousand), its equity method investee. As a
result, TN became IIJ's 66.9% owned consolidated subsidiary.
On November 12, 2007, IIJ's board of directors resolved to pay a cash
dividend of JPY 750 per share of common stock for the interim period ended
September 30, 2007 (record date: September 30, 2007, the total amount of
dividend payments: JPY 154,859 thousand).
OTHERS
------
Notes regarding leases, equity securities, derivatives and stock option plans
are omitted because they do not have enough materiality to be disclosed on the
day of announcement of this document.
(Reference) STATUS OF PRODUCTION, RECEIPT OF ORDER AND SALES ACTIVITIES
(unaudited)
(1) Results of Production
Results of production for the interim period ended September 30, 2007 is as
follows.
--------------------------------------------------------------------------------------------------------------------
Interim period ended September 30, 2007
--------------------------------------------------------------------------------------------------------------------
JPY Thousands YoY Change (%)
--------------------------------------------------------------------------------------------------------------------
SI 11,502,203 +15.1
--------------------------------------------------------------------------------------------------------------------
Total 11,502,203 +15.1
--------------------------------------------------------------------------------------------------------------------
*1 Consumption tax is not included.
*2 The YoY change (%) in this table shows an increase or decrease percentage
compared to the interim period ended September 30, 2006.
*3 Results of production for Internet connectivity services, VAS and equipment
sales are not included, since the Company does not produce for.
(2) Results of Orders
Result of orders for the interim period ended September 30, 2007 is as
follows.
--------------------------------------------------------------------------------------------------------------------
Interim period ended September 30, 2007
--------------------------------------------------------------------------------------------------------------------
Order received YoY Change (%) Order backlog YoY Change (%)
(JPY Thousands) (JPY Thousands)
--------------------------------------------------------------------------------------------------------------------
SI and equipment sales 24,651,143 +33.0 18,938,362 +82.8
--------------------------------------------------------------------------------------------------------------------
Total 24,651,143 +33.0 18,938,362 +82.8
--------------------------------------------------------------------------------------------------------------------
*1 Consumption tax is not included.
*2 The YoY change (%) in this table shows an increase or decrease percentage
compared to the interim period ended September 30, 2006.
*3 Results of receiving orders and order backlog for Internet connectivity
services and VAS are not included, since the Company does not produce for.
*4 SI and equipment sales are totaled, as they cannot be classified properly at
the stage of receiving orders.
(3) Results of Sales
Results of sales for the interim period ended September 30, 2007 is as
follows.
---------------------------------------------------------------------------------------------------------------------
Interim period ended Interim period ended Change
September 30, 2007 September 30, 2006
---------------------------------------------------------------------------------------------------------------------
JPY Thousands JPY Thousands JPY Thousands
---------------------------------------------------------------------------------------------------------------------
Connectivity and VAS: 14,806,706 12,019,487 2,787,219
Connectivity (corporate use) 5,981,284 5,532,282 449,002
Connectivity (home use) 2,294,848 983,157 1,311,691
VAS 4,484,467 3,647,219 837,428
Other 2,046,107 1,856,829 189,278
---------------------------------------------------------------------------------------------------------------------
SI: 14,302,188 13,252,936 1,049,252
Systems construction 6,720,912 6,648,818 72,094
Systems operation and 7,581,276 6,604,118 977,158
maintenance
---------------------------------------------------------------------------------------------------------------------
Equipment sales 881,350 1,171,611 (290,261)
---------------------------------------------------------------------------------------------------------------------
Total 2,990,244 26,444,034 23,546,210
---------------------------------------------------------------------------------------------------------------------
*1 Consumption tax is not included.
*2 Sales from each customer and its ratio to the total sales for the interim
period ended September 2007 and 2006 are omitted as there is no customer the
sales from which is over 10% to the total sales.
CONTACT: Internet Initiative Japan Inc.
Taisuke ONO, +81-3-5259-6500
IIJ Investor Relations Office
ir@iij.ad.jp
http://www.iij.ad.jp/
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Internet Initiative Japan Inc.
Date: November 13, 2007 By: /s/ Koichi Suzuki
--------------------------------------------
Koichi Suzuki
President, Chief Executive Officer and
Representative Director