TOKYO, Feb. 11, 2008 (PRIME NEWSWIRE) -- 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 third quarter of the fiscal year ending March 31, 2008 ("FY2007") (1).
Highlights of Third Quarter FY2007 Results
* Revenue totaled JPY 18,359 million ($ 164.3 million), an increase of
35.1% from 3Q06, mainly due to a steady increase in recurring
revenues from connectivity and value-added services ("VAS") and
systems operation and maintenance, and the completion of a
remarkable large-scale systems construction project.
* Operating income was JPY 1,136 million ($10.2 million), an increase
of 15.2% from 3Q06, mainly due to an increase in gross margin in
connectivity and VAS and systems integration ("SI").
* Net income was JPY 611 million ($5.5 million), a decrease of 56.5%
from 3Q06. The decrease was mainly due to a decrease in other income
by an absence of large capital gains from equity securities and the
affect of income tax accounting.
Financial Targets for FY2007(2)
* We are maintaining our initial targets for the full FY2007 that we
disclosed on May 15, 2007.
Overview of 3rd Quarter FY2007 Financial Results and Business Outlook (2)
"We achieved the highest revenues and operating income for the third quarter of the fiscal year in our history," said Koichi Suzuki, President and CEO of IIJ. "In 3Q07, monthly recurring revenues from connectivity and VAS, and systems operation and maintenance continued to increase steadily and they became the base for our stable growth. Corporate customers are shifting to higher speeds and there are continuing demands for connectivity services over 1Gbps, especially in the telecommunications and Information Technology ("IT") sectors. One-time revenues from systems construction increased significantly, mainly due to the completion of a remarkable large-scale network and application development project in 3Q07. We will continue to take such large-scale SI projects to increase the top line of revenues. Though there are unstable factors in the Japanese economy, corporate IT investments have stably increased through this quarter."
"We continued to be engaged in the development of our middle- and long-term growth," continued Suzuki. "We announced the start of "IIJ Mobile" for corporate customers under a scheme of Mobile Virtual Network Operator ("MVNO"). With this service, our corporate customers can access the Internet and Intranet more flexibly and securely. We plan to establish "IIJ Innovation Institute", a business incubation center for technology development and commercialization of the next generation of the Internet. We continued to provide our content distribution platform to "acTVila", which is promoted by major Japanese TV manufacturers to be a TV portals standard. We have been engaged in a highly reliable e-mail messaging infrastructure through GDX Japan Inc ("GDX"), a 51.0% owned subsidiary. We are being prepared to provide ATM network operations through Trust Networks Inc. ("TN"), a 60.2% owned subsidiary."
"The decrease in net income compared to the previous quarter was mainly due to income tax accounting," said Akihisa Watai, CFO of IIJ. "We had tax operating loss carryforwards of JPY 17,083 million as of March 31, 2007 and we recorded deferred income tax assets which resulted in deferred tax benefit of JPY 2,114 million in 2Q07. In 3Q07, we recorded deferred tax expenses to the contrary caused by the realization of deferred income tax assets as a result of recording taxable income."
3rd Quarter FY2007 Financial Results
Results of Operation
Operating Results Summary (JPY in millions)
---------------------------------------------------------------------
3Q07 3Q06 YoY %
change
---------------------------------------------------------------------
Total Revenues 18,359 13,587 35.1%
---------------------------------------------------------------------
Total Costs 14,851 10,727 38.4%
---------------------------------------------------------------------
SG&A Expenses and R&D 2,372 1,874 26.6%
---------------------------------------------------------------------
Operating Income 1,136 986 15.2%
---------------------------------------------------------------------
Income before Income Tax Expense(3) 1,017 1,603 (36.5%)
---------------------------------------------------------------------
Net Income 611 1,405 (56.5%)
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Revenues
Revenues in 3Q07 totaled JPY 18,359 million, an increase of 35.1% from JPY 13,587 million in 3Q06.
Revenues (JPY in millions)
---------------------------------------------------------------------
3Q07 3Q06 YoY %
change
---------------------------------------------------------------------
Total Revenues: 18,359 13,587 35.1%
---------------------------------------------------------------------
Connectivity and Value-added Services 8,049 6,100 31.9%
---------------------------------------------------------------------
SI 9,911 7,093 39.7%
---------------------------------------------------------------------
Equipment Sales 399 393 1.4%
---------------------------------------------------------------------
Connectivity and Value-added Services ("VAS") revenues were JPY 8,049 million in 3Q07, an increase of 31.9% compared to 3Q06.
Revenues from connectivity services for corporate users were JPY 3,023 million, an increase of 7.5% compared to 3Q06. Revenues from IP Services, the services mainly used by corporate headquarters and data centers, increased by 6.0% compared to 3Q06, mainly due to the acquisition of new contracts and the shift of our corporate customers to higher speeds. Revenues from broadband services increased by 24.3% compared to 3Q06, mainly due to the expansion of broadband utilization in the corporate internal network.
Revenues from connectivity services for home users were JPY 1,513 million in 3Q07, an increase of 206.4% compared to 3Q06. Despite a decrease in revenues from IIJ4U and OEM services, the increase was mainly due to additional revenues of JPY 1,118 million from connectivity services for home users of hi-ho, which we acquired in June 2007.
VAS revenues were JPY 2,479 million in 3Q07, an increase of 33.2% compared to 3Q06. The increase was mainly due to an increase in revenues from e-mail related services and data centers.
Other revenues were JPY 1,033 million in 3Q07, an increase of 10.9% compared to 3Q06.
SI revenues increased 39.7% to JPY 9,911 million in 3Q07 compared to 3Q06. The increase was mainly due to an increase of 64.2% in one-time revenues from systems construction, especially related to the completion of a remarkable large-scale network and application development project in 3Q07, and an increase of 14.4% in monthly recurring revenues from systems operation and maintenance compared to 3Q06.
Equipment sales revenues were JPY 399 million in 3Q07, an increase of 1.4% compared to 3Q06.
Cost and expense
Cost of revenues was JPY 14,851 million in 3Q07, an increase of 38.4% compared to 3Q06.
Cost of Revenues (JPY in millions)
---------------------------------------------------------------------
3Q07 3Q06 YoY %
change
---------------------------------------------------------------------
Cost of Revenues: 14,851 10,727 38.4%
---------------------------------------------------------------------
Connectivity and Value-added Services 6,738 5,073 32.8%
---------------------------------------------------------------------
SI 7,771 5,322 46.0%
---------------------------------------------------------------------
Equipment Sales 342 333 2.7%
---------------------------------------------------------------------
Cost of Connectivity and VAS revenues was JPY 6,738 million in 3Q07, an increase of 32.8% compared to 3Q06, mainly due to an increase in costs of JPY 1,188 million from hi-ho, which we acquired in June 2007, along with additional revenues of JPY 1,350 million. The increase was also due to an increase in circuit and personnel related costs and the initial cost for new business development.
The gross margin for Internet connectivity and value-added services in 3Q07 was JPY 1,311 million, an increase of 27.6% compared to 3Q06. The gross margin ratio in 3Q07 was 16.3%, compared to 16.8% in 3Q06. The decrease in gross margin ratio was mainly due to an increase in the cost of revenues from connectivity and VAS of hi-ho, whose gross margin ratio was relatively lower than that of other connectivity and VAS, and the initial cost for new business development.
Cost of SI revenues was JPY 7,771 million in 3Q07, an increase of 46.0% compared to 3Q06. The increase was mainly due to an increase in purchase, outsourcing costs and personnel related costs along with an increase in revenues from SI projects.
The gross margin for SI in 3Q07 was JPY 2,140 million and the gross margin ratio in 3Q07 was 21.6%, compared to 25.0% in 3Q06. The decrease in the gross margin ratio was mainly due to the completion of a remarkable large-scale network and application development project in 3Q07, which had relatively lower gross margin compared to that of other ordinary projects.
Cost of Equipment Sales revenues was JPY 342 million in 3Q07, an increase of 2.7% compared to 3Q06.
The gross margin ratio for equipment sales in 3Q07 was 14.3%, compared to 15.4% in 3Q06.
Sales and marketing expenses were JPY 1,124 million in 3Q07, an increase of 23.5% compared to 3Q06. The increase was mainly due to an increase in advertising and personnel expenses along with business expansion, as well as the addition of sales and marketing expenses related to hi-ho of JPY 104 million.
General and administrative expenses were JPY 1,185 million in 3Q07, an increase of 28.2% compared to 3Q06. The increase was mainly due to an increase in personnel expenses, outsourcing expenses and initial expenses for new business development.
Research and development expenses were JPY 63 million in 3Q07, an increase of 58.5% compared to 3Q06.
Operating income
Operating income was JPY 1,136 million in 3Q07, an increase of 15.2% compared to 3Q06. The increase was mainly due to the increase of JPY 368 million in gross margin from SI and the increase of JPY 284 million in gross margin from connectivity and VAS, despite the increase in sales and marketing and general and administrative expenses.
Other expenses and others
Other expenses in 3Q07 were JPY 119 million, compared to other income of JPY 617 million in 3Q06. The decrease was mainly due to a significant decrease in gains from the sale of available-for-sale securities. The gains from the sale of available-for-sale securities in 3Q07 were JPY 4 million, compared to JPY 757 million in 3Q06.
Income tax expense in 3Q07 was JPY 392 million, compared to income tax expense of JPY 93 million in 3Q06. The increase was mainly due to deferred income tax expenses of JPY 179 million.
Minority interests in losses of subsidiaries in 3Q07 were JPY 27 million, compared to minority interests in earnings of subsidiaries of JPY 70 million in 3Q06. Minority interests in losses of subsidiaries were mainly related to GDX and the elimination of minority interests related to four consolidated subsidiaries that became wholly owned by us in 2007, because we acquired shares of IIJ Technology Inc. and Net Care, Inc. from their minority shareholders.
Equity in net loss of equity method investees in 3Q07 was JPY 42 million, mainly represented by equity in net loss of Internet Revolution Inc.
Net income was JPY 611 million in 3Q07, a decrease of 56.5% compared to 3Q06.
Financial Condition
Balance Sheets
As of December 31, 2007, total assets increased by JPY 5,304 million from JPY 47,693 million as of March 31, 2007 to JPY 52,997 million. For current assets, accounts receivable increased by JPY 2,125 million which includes accounts receivable of JPY 3,045 million related to a remarkable large-scale network and application development project which was completed in 3Q07; prepaid expenses increased by JPY 1,181 million, mainly for bonus payments to our employees and maintenance expenses related to SI projects; other current assets increased by JPY 1,221 million, mainly due to an increase in current deferred income tax assets (net) resulting from a reduction of the valuation allowance that we made in 2Q07; and cash decreased by JPY 4,340 million, each compared to the respective balance as of March 31, 2007. Property and equipment increased by JPY 1,279 million from the balance as of March 31, 2007, mainly due to our acquisition of hi-ho and an increase in property to provide services to our customers and ourselves. Intangible assets increased by JPY 3,048 million from the balance as of March 31, 2007, mainly due to the recording of non-amortized intangible assets upon our acquisition of interest in consolidated subsidiaries and hi-ho. Other assets increased by JPY 739 million mainly due to an increase in non-current deferred tax assets (net) resulting from the reversal of the valuation allowance. The fair value of available-for-sale securities as of December 31, 2007 decreased by JPY 342 million from the amount as of March 31, 2007 to JPY 967 million.
For current liabilities, short-term borrowings increased by JPY 3,600 million from the balance as of March 31, 2007, due to our acquisition of shares of two consolidated subsidiaries from their minority shareholders, and accounts payable decreased by JPY 1,944 million from the balance as of March 31, 2007.
Total shareholders' equity as of December 31, 2007 was JPY 24,140 million, an increase of JPY 4,028 million from JPY 20,112 million as of March 31, 2007.
Cash Flows
Cash as of December 31, 2007 was JPY 9,214 million.
Net cash provided by operating activities in 3Q07 was JPY 338 million, compared to net cash provided by operating activities of JPY 2,063 million in 3Q06. Operating income increased in 3Q07 compared to 3Q06 because gross margin from connectivity and VAS and SI increased compared to 3Q06. However, net cash provided by operating activities in 3Q07 was due to changes in operating assets and liabilities during 3Q07, mainly resulting from an increase in accounting receivables along with the completion of a remarkable large-scale network and application development project in 3Q07.
Net cash used in investing activities in 3Q07 was JPY 711 million, compared to net cash provided by investing activities of JPY 25 million in 3Q06. We paid JPY 623 million for the purchase of property and equipment and JPY 200 million for the purchase of short-term and other investments. We also recorded JPY 124 million by the acquisition of a newly controlled company, net of cash acquired, resulting from making TN our consolidated subsidiaries in 3Q07. We have invested JPY 500 million in total in TN through 3Q07 for new business development.
Net cash used in financing activities in 3Q07 was JPY 2,061 million, compared to net cash used in financing activities of JPY 996 million in 3Q06. We recorded repayments of short-term borrowings with initial maturities over three months and long-term borrowings of JPY 9,200 million and principal payments under capital leases of JPY 906 million and payment of dividend for the interim period of FY2007 of JPY 155 million. We recorded proceeds of JPY 5,500 million from the issuance of short-term borrowings with initial maturities over three months and a net increase in short-term borrowings with initial maturities less than three months of JPY 2,700 million.
3rd Quarter FY2007 Business Review
Analysis by Service
Connectivity and Value-added Services
For connectivity services for corporate use, customers continued to shift to higher speeds and there was a significant increase in the number of contracts for our broadband services, IIJ FiberAccess/F and IIJ DSL/F for constructing corporate internal networks using Internet VPN. Total contracted bandwidth increased by 86.0 Gbps to 346.0 Gbps compared to 3Q06.
For connectivity services for home use, there were additional revenues of JPY 1,118 million from hi-ho, which we acquired in June 2007. Number of Contracts for Connectivity Services(4)
Number of Contracts for Connectivity Services(4)
---------------------------------------------------------------------
YoY %
3Q07 3Q06 Change
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Connectivity Services
(Corporate Use) 24,877 18,261 6,616
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IP Service (-99Mbps) 805 754 51
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IP Service (100Mbps-999Mbps) 191 153 38
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IP Service (1Gbps-) 61 60 1
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IIJ Data Center
Connectivity Service 293 264 29
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IIJ FiberAccess/F and IIJ
DSL/F 21,573 15,379 6,194
---------------------------------------------------------------------
Others 1,954 1,651 303
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Connectivity Services (Home
Use) 481,352 569,282 (87,930)
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Under IIJ Brand 51,820 57,286 (5,466)
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hi-ho 190,808 -- 190,808
---------------------------------------------------------------------
OEM(5) 238,724 511,996 (273,272)
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Total Contracted Bandwidth 346.0Gbps 260.0Gbps 86.0Gbps
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Connectivity and VAS Revenue Breakdown and Cost(4) (JPY in millions)
---------------------------------------------------------------------
YoY %
3Q07 3Q06 Change
---------------------------------------------------------------=-----
Connectivity Service Revenues
(Corporate Use) 3,023 2,813 7.5%
---------------------------------------------------------------------
IP Service(6) 2,239 2,113 6.0%
---------------------------------------------------------------------
IIJ FiberAccess/F and IIJ
DSL/F 680 547 24.3%
---------------------------------------------------------------------
Others 104 154 (32.3%)
---------------------------------------------------------------------
Connectivity Service Revenues
(Home Use) 1,513 494 206.4%
---------------------------------------------------------------------
Under IIJ Brand 271 294 (7.7%)
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hi-ho 1,118 -- --
---------------------------------------------------------------------
OEM 124 200 (38.0%)
---------------------------------------------------------------------
VAS Revenues 2,479 1,861 33.2%
---------------------------------------------------------------------
Other Revenues 1,033 932 10.9%
---------------------------------------------------------------------
Total Connectivity and
VAS Revenues 8,049 6,100 31.9%
---------------------------------------------------------------------
Cost of Connectivity and VAS 6,738 5,073 32.8%
---------------------------------------------------------------------
Backbone Cost (included in the
cost of Connectivity and
VAS)(7) 905 888 1.9%
---------------------------------------------------------------------
Connectivity and VAS Gross
Margin Ratio 16.3% 16.8% --
---------------------------------------------------------------------
SI
One-time revenues from systems construction in 3Q07 increased by 64.2% compared to 3Q06, mainly due to the completion of a remarkable large-scale network and application development project in 3Q07.
Recurring revenues from systems operation and maintenance in 3Q07 steadily increased by 14.4% compared to 3Q06.
SI Revenue Breakdown and Cost (JPY in millions)
--------------------------------------------------------------------
YoY %
3Q07 3Q06 Change
--------------------------------------------------------------------
SI Revenues 9,911 7,093 39.7%
--------------------------------------------------------------------
Systems Construction 5,920 3,605 64.2%
--------------------------------------------------------------------
Systems Operation and Maintenance 3,991 3,488 14.4%
--------------------------------------------------------------------
Cost of SI 7,771 5,322 46.0%
--------------------------------------------------------------------
SI Gross Margin Ratio 21.6% 25.0% --
--------------------------------------------------------------------
The order backlog for SI and equipment sales as of December 31, 2007 was JPY 16,242 million, an increase of 62.7% from the amount as of December 31, 2006.
SI and Equipment Sales Order Backlog (JPY in millions)
--------------------------------------------------------------------
YoY %
3Q07 3Q06 Change
--------------------------------------------------------------------
SI and Equipment Sales Order Backlog 16,242 9,985 62.7%
--------------------------------------------------------------------
Equipment Sales
Revenues from equipment sales increased by 1.4% compared to 3Q06.
Equipment Sales Revenue and Cost (JPY in millions)
--------------------------------------------------------------------
YoY %
3Q07 3Q06 Change
--------------------------------------------------------------------
Equipment Sales Revenues 399 393 1.4%
--------------------------------------------------------------------
Cost of Equipment Sales 342 333 2.7%
--------------------------------------------------------------------
Equipment Sales Gross Margin Ratio 14.3% 15.4% --
--------------------------------------------------------------------
Other Financial Statistics
Other Financial Statistics (JPY in millions)
--------------------------------------------------------------------
YoY %
3Q07 3Q06 Change
--------------------------------------------------------------------
Adjusted EBITDA(8) 2,379 2,044 16.4%
--------------------------------------------------------------------
CAPEX, including capital leases(9) 1,242 1,250 (0.6%)
--------------------------------------------------------------------
Depreciation and amortization 1,243 1,058 17.4%
--------------------------------------------------------------------
Reconciliation of Non-GAAP Financial Measures
The following table summarizes the reconciliation of adjusted EBITDA to net income in our consolidated statements of income that are prepared in accordance with U.S. GAAP and presented in Appendix 2:
Adjusted EBITDA (JPY in millions)
--------------------------------------------------------------------
3Q07 3Q06
--------------------------------------------------------------------
Adjusted EBITDA 2,379 2,044
--------------------------------------------------------------------
Depreciation and Amortization (1,243) (1,058)
--------------------------------------------------------------------
Operating Income 1,136 986
--------------------------------------------------------------------
Other Income (Expense) (119) 617
--------------------------------------------------------------------
Income Tax Expense 392 93
--------------------------------------------------------------------
Minority Interests in Losses
(Earnings) of Subsidiaries 27 (70)
--------------------------------------------------------------------
Equity in Net Loss of Equity
Method Investees (42) (36)
--------------------------------------------------------------------
Net Income 611 1,405
--------------------------------------------------------------------
The following table summarizes the reconciliation of capital expenditures to the purchase of property and equipment in our consolidated statements of cash flows that are prepared and presented in accordance with U.S. GAAP in Appendix 3:
CAPEX (JPY in millions)
--------------------------------------------------------------------
3Q07 3Q06
--------------------------------------------------------------------
CAPEX, including capital leases 1,242 1,250
--------------------------------------------------------------------
Acquisition of Assets by Entering
into Capital Leases 619 824
--------------------------------------------------------------------
Purchase of Property and Equipment 623 426
--------------------------------------------------------------------
Target
Our targets for the financial results for the full FY2007 are as follows:
(JPY in millions)
---------------------------------------------------------------------
Income before
Income Tax
Operating Expense
Revenues Income (Benefit) Net Income
---------------------------------------------------------------------
Full FY2007 69,000 4,600 5,100 5,600
---------------------------------------------------------------------
We expect to make a cash dividend of JPY 750 per share of common stock for the fiscal year ending March 31, 2008. 400 American Depository Shares represent 1 share of common stock.
Presentation
On February 13, 2008, we will post a presentation of our results on our 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.
The Internet Initiative Japan Inc. logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=4613
Statements made in this press release regarding IIJ's or management's intentions, beliefs, expectations, or predictions for the future are forward-looking statements that are based on IIJ's and managements' 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.
------------------------
(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 3Q07 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 111.71 = 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 our 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. We plan to keep this press release publicly available on our Web site (www.iij.ad.jp), but may discontinue this practice at any time. We intend to publish our next Overview and Business Outlook in our 4Q07 and the full FY2007 earnings release, presently scheduled for release in May 2008.
(3) In this document, income before income tax expense represents income from operations before income tax expense, 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 classifications in the table were 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) IP Service revenues include revenues from the Data Center Connectivity Service.
(7) From the point of comparable disclosure, the backbone cost related to hi-ho is excluded.
(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 December 31, 2007 and March 31, 2007
As of December 31, 2007 As of March 31, 2007
---------------------------------------------------------------------
Thousands Thousands Thousands
of U.S.
Dollars of JPY % of JPY %
---------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash 82,486 9,214,447 13,554,544
Short-term investment 109 12,170 12,093
Accounts receivable,
net of allowance for
doubtful accounts of
JPY 23,842 thousand
and JPY 32,489
thousand at
December 31, 2007
and March 31, 2007,
respectively 105,639 11,800,972 9,675,725
Inventories 9,199 1,027,568 1,111,086
Prepaid expenses 20,002 2,234,473 1,053,270
Other current assets,
net of allowance for
doubtful accounts of
JPY 720 thousand and
JPY 4,570 thousand
at December 31, 2007
and March 31, 2007,
respectively 19,259 2,151,418 930,571
------- ---------- ----------
Total current assets 236,694 26,441,048 49.9 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
December 31, 2007 and
March 31, 2007,
respectively 9,136 1,020,574 1.9 858,490 1.8
OTHER INVESTMENTS 22,608 2,525,546 4.8 2,841,741 6.0
PROPERTY AND
EQUIPMENT--Net 99,467 11,111,429 21.0 9,832,396 20.6
INTANGIBLE ASSETS--Net 53,036 5,924,679 11.2 2,876,894 6.0
GUARANTEE DEPOSITS 17,679 1,974,902 3.7 1,686,141 3.5
OTHER ASSETS, net of
allowance for doubtful
accounts of JPY 66,812
thousand and JPY 69,050
thousand at
December 31, 2007 and
March 31, 2007,
respectively 35,799 3,999,134 7.5 3,260,053 6.9
------- ---------- ----------
TOTAL 474,419 52,997,312 100.0 47,693,004 100.0
------- ---------- ----------
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings 86,384 9,650,000 6,050,000
Long-term borrowings
--current portion -- -- 290,000
Capital lease
obligations--current
portion 29,868 3,336,491 2,953,173
Accounts payable 58,377 6,521,313 8,464,835
Accrued expenses 8,884 992,476 897,355
Other current
liabilities 17,934 2,003,408 2,477,486
------- ---------- ----------
Total current
liabilities 201,447 22,503,688 42.5 21,132,849 44.3
CAPITAL LEASE
OBLIGATIONS
--Noncurrent 40,473 4,521,225 8.5 4,318,309 9.1
ACCRUED RETIREMENT AND
PENSION COSTS 7,865 878,629 1.6 750,042 1.5
OTHER NONCURRENT
LIABILITIES 5,540 618,819 1.2 564,618 1.2
------- ---------- ----------
Total Liabilities 255,325 28,522,361 53.8 26,765,818 56.1
------- ---------- ----------
MINORITY INTEREST 2,998 334,868 0.6 815,182 1.7
------- ---------- ----------
COMMITMENTS AND
CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common-stock 150,693 16,833,847 31.8 16,833,847 35.3
--authorized, 377,600
shares; issued and
outstanding,
206,478 shares at
December 31, 2007
--authorized, 377,600
shares; issued and
outstanding,
204,300 shares at
March 31, 2007
Additional paid-in
capital 247,173 27,611,737 52.1 26,599,217 55.8
Accumulated deficit (184,801)(20,644,087) (39.0)(24,270,769) (50.9)
Accumulated other
comprehensive income 3,031 338,586 0.7 949,709 2.0
------- ---------- ----------
Total shareholders'
equity 216,096 24,140,083 45.6 20,112,004 42.2
------- ---------- ----------
TOTAL 474,419 52,997,312 100.0 47,693,004 100.0
------- ---------- ----------
---------------------------------------------------------------------
(Note)
The U.S. dollar amounts represent translations of yen amounts at the
rate of JPY 111.71, 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
December 31, 2007.
Appendix 2
Internet Initiative Japan Inc.
------------------------------
Quarterly Consolidated Statements of Income (Unaudited)
-------------------------------------------------------
(For the three months ended December 31, 2007 and December 31, 2006)
Three Months Ended
December 31, 2007 December 31, 2006
-----------------------------------------------
Thousands Thousands % of Thousands % of
of U.S. of total of total
Dollars JPY revenues JPY revenues
----------------------------------------------------------------------
REVENUES:
Connectivity and
value-added services:
Connectivity
(corporate use) 27,065 3,023,437 2,813,474
Connectivity
(home use) 13,545 1,513,141 493,879
Value-added services 22,193 2,479,136 1,861,118
Other 9,249 1,033,186 931,872
------- ---------- ----------
Total 72,052 8,048,900 6,100,343
Systems integration 88,724 9,911,309 7,093,326
Equipment sales 3,571 398,953 393,436
------- ---------- ----------
Total revenues 164,347 18,359,162 100.0 13,587,105 100.0
------- ---------- ----------
COST AND EXPENSES:
Cost of connectivity
and value-added
services 60,313 6,737,501 5,072,712
Cost of systems
integration 69,567 7,771,305 5,321,685
Cost of equipment
sales 3,060 341,881 333,035
------- ---------- ----------
Total cost 132,940 14,850,687 80.9 10,727,432 78.9
Sales and marketing 10,065 1,124,352 6.1 910,087 6.7
General and
administrative 10,608 1,184,997 6.5 924,021 6.8
Research and
development 564 63,043 0.3 39,786 0.3
------- ---------- ----------
Total cost and
expenses 154,177 17,223,079 93.8 12,601,326 92.7
------- ---------- ----------
OPERATING INCOME 10,170 1,136,083 6.2 985,779 7.3
------- ---------- ----------
OTHER INCOME (EXPENSES):
Interest income 78 8,689 3,701
Interest expense (1,019) (113,769) (98,861)
Foreign exchange
gain (loss) 13 1,407 (244)
Gain (loss) on other
investments--net (141) (15,795) 756,521
Other--net 6 707 (43,720)
------- ---------- ----------
Other income
(expenses)--net (1,063) (118,761) (0.7) 617,397 4.5
------- ---------- ----------
INCOME FROM OPERATIONS
BEFORE INCOME TAX
EXPENSE, MINORITY
INTERESTS AND EQUITY
IN NET LOSS OF EQUITY
METHOD INVESTEES 9,107 1,017,322 5.5 1,603,176 11.8
INCOME TAX EXPENSE 3,507 391,731 2.1 92,596 0.7
MINORITY INTERESTS IN
(EARNINGS) LOSSES OF
SUBSIDIARIES 245 27,394 0.1 (69,927) (0.5)
EQUITY IN NET LOSS OF
EQUITY METHOD
INVESTEES (379) (42,394) (0.2) (35,724) (0.3)
------- ---------- ----------
NET INCOME 5,466 610,591 3.3 1,404,929 10.3
----------------------------------------------------------------------
BASIC WEIGHTED-AVERAGE
NUMBER OF SHARES 206,478 203,989
DILUTED WEIGHTED-AVERAGE
NUMBER OF SHARES 206,839 204,224
BASIC WEIGHTED-AVERAGE
NUMBER OF ADS
EQUIVALENTS 82,591,200 81,595,600
DILUTED WEIGHTED-AVERAGE
NUMBER OF ADS
EQUIVALENTS 82,735,483 81,689,600
----------------------------------------------------------------------
U.S. Dollars JPY JPY
----------------------------------------------------------------------
BASIC NET INCOME
PER SHARE 26.47 2,957 6,887
DILUTED NET INCOME
PER SHARE 26.43 2,952 6,879
BASIC NET INCOME PER
ADS EQUIVALENT 0.07 7.39 17.22
DILUTED NET INCOME PER
ADS EQUIVALENT 0.07 7.38 17.20
----------------------------------------------------------------------
(Note)
The U.S. dollar amounts represent translations of yen amounts at the
rate of JPY 111.71, 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
December 31, 2007.
Appendix 3
Internet Initiative Japan Inc.
------------------------------
Quarterly Condensed Consolidated Statements of Cash Flows (Unaudited)
---------------------------------------------------------------------
(For the three months ended December 31, 2007 and December 31, 2006)
Three Months Ended
December 31, December 31,
2007 2006
----------------------- -----------
Thousands Thousands Thousands
of U.S. of of
Dollars JPY JPY
----------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income 5,466 610,591 1,404,929
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 11,125 1,242,764 1,058,490
Provision for (reversal of)
doubtful accounts and advances (19) (2,145) 4,471
Loss (gain) on other
investments--net 141 15,795 (756,521)
Foreign exchange loss 5 558 4,321
Equity in net loss of equity
method investees 379 42,394 35,724
Minority interests in earnings
(losses) of subsidiaries (245) (27,394) 69,927
Deferred income tax expense 1,603 179,046 21,871
Others 428 47,806 208,481
Changes in operating assets and
liabilities:
Increase in accounts receivable (24,152) (2,697,964) (283,644)
Decrease (increase) in
inventories, prepaid expenses
and other current and noncurrent
assets 2,577 287,832 (703,233)
Increase in accounts payable 5,001 558,649 832,177
Increase in accrued expenses,
other current and noncurrent
liabilities 715 79,867 166,449
---------------------------------------------------------------------
Net cash provided by operating
activities 3,024 337,799 2,063,442
---------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of property and equipment (5,581) (623,435) (426,499)
Purchase of available-for-sale
securities (30) (3,380) (405,059)
Purchase of short-term and other
investments (1,792) (200,152) (11,984)
Proceeds from available-for-sale
securities 70 7,808 984,867
Proceeds from sales and redemption
of other investments 124 13,828 4,380
Acquisition of a newly controlled
company, net of cash acquired 1,109 123,842 --
Acquisition of businesses -- -- (74,751)
Payment of guarantee deposits--net (151) (16,835) (33,039)
Other (117) (13,025) (12,949)
---------------------------------------------------------------------
Net cash provided by (used in)
investing activities (6,368) (711,349) 24,966
---------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of
short-term borrowings with initial
maturities over three months 49,234 5,500,000 4,150,000
Repayments of short-term
borrowings with initial
maturities over three months and
long-term borrowings (82,356) (9,200,000) (4,410,113)
Proceeds from securities loan
agreement -- -- 80,640
Principal payments under capital
leases (8,112) (906,201) (866,065)
Increase in short-term borrowings
with initial maturities less than
three months -- net 24,170 2,700,000 50,000
Dividends paid (1,386) (154,859) --
---------------------------------------------------------------------
Net cash used in financing
activities (18,450) (2,061,060) (995,538)
---------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH (186) (20,819) 2,495
NET INCREASE (DECREASE) IN CASH (21,980) (2,455,429) 1,095,365
CASH, BEGINNING OF EACH PERIOD 104,466 11,669,876 12,859,745
---------------------------------------------------------------------
CASH, END OF EACH PERIOD 82,486 9,214,447 13,955,110
---------------------------------------------------------------------
(Note)
The U.S. dollar amounts represent translations of yen amounts at the
rate of JPY 111.71, 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
December 31, 2007.
Note: The following information is provided to disclose IIJ's
financial results for the nine months ended December 31, 2007 in the
form defined by the Tokyo Stock Exchange.
Consolidated Financial Results for the Nine Months Ended
December 31, 2007
(Under accounting principles generally accepted in the United States
("U.S. GAAP"))
February 12, 2008
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
(Amounts of less than JPY one million are rounded)
1. Consolidated Financial Results for the Nine Months
Ended December 31, 2007
(April 1, 2007 to December 31, 2007)
(1) Consolidated Results of Operations (% shown is YoY change)
-------------------------------------------------------------------
Total revenues Operating income
-------------------------------------------------------------------
JPY % JPY %
millions millions
Nine months ended
December 31, 2007 48,349 20.8 2,952 25.3
Nine months ended
December 31, 2006 40,031 18.9 2,356 63.1
-------------------------------------------------------------------
Fiscal year ended
March 31, 2007 57,055 3,500
-------------------------------------------------------------------
Income before
income tax Net
benefit income
-------------------------------------------------------------------
JPY % JPY %
millions millions
Nine months ended
December 31, 2007 2,715 (27.6) 4,088 (4.0)
Nine months ended
December 31, 2006 3,748 20.4 4,259 51.4
-------------------------------------------------------------------
Fiscal year ended
March 31, 2007 5,049 5,410
-------------------------------------------------------------------
Basic net Diluted net
income per share income per share
-------------------------------------------------------------------
JPY JPY
Nine months ended
December 31, 2007 19,829 19,803
Nine months ended
December 31, 2006 20,878 20,858
-------------------------------------------------------------------
Fiscal year ended
March 31, 2007 26,519 26,487
-------------------------------------------------------------------
(Note) 1. 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. The weighted average number of shares outstanding was
206,161, 203,989, 203,992 for the nine months ended December
31, 2007, the nine months ended December 31, 2006, and the
fiscal year ended March 31, 2007, respectively.
(2) Consolidated Financial Position
-------------------------------------------------------------------
Shareholders'
equity
as a
percentage
of Shareholders'
Total Shareholders' total equity
assets equity assets per share
-------------------------------------------------------------------
JPY JPY
millions millions % JPY
Nine months ended
December 31, 2007 52,997 24,140 45.6 116,914
Nine months ended
December 31, 2006 45,463 20,273 44.6 99,385
-------------------------------------------------------------------
Fiscal Year ended
March 31, 2007 47,693 20,112 42.2 98,592
-------------------------------------------------------------------
(Note) Shareholders' equity, shareholders' equity as a percen
tage of total assets and shareholders' equity per share are
calculated in accordance with U.S. GAAP.
(3) Consolidated Cash Flows
-------------------------------------------------------------------
Net cash
Net cash Net cash provided by Cash and cash
provided by used in (used in) equivalents,
operating investing financing end of
activities activities activities period
-------------------------------------------------------------------
JPY JPY JPY JPY
millions millions millions millions
Nine months ended
December 31, 2007 455 (5,063) 285 9,214
Nine months ended
December 31, 2006 4,576 (1,097) (3,246) 13,955
-------------------------------------------------------------------
Fiscal Year ended
March 31, 2007 7,402 (3,014) (4,560) 13,555
-------------------------------------------------------------------
2. Dividends
-------------------------------------------------------------------
Dividend per share of common stock
-------------------------------------------------------------------
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
-------------------------------------------------------------------
(Note) IIJ maintains its initial dividend plan for the fiscal
year ending March 31, 2008 that IIJ announced on May 15,
2007.
3. Target of Consolidated Financial Results for the Fiscal Year Ending
March 31, 2008 (Reference)
(April 1, 2007 through March 31, 2008) (% shown is YoY change)
-------------------------------------------------------------------
Total Operating
revenues income
-------------------------------------------------------------------
JPY % JPY %
millions millions
Fiscal year ending
March 31, 2008 69,000 20.9 4,600 31.4
-------------------------------------------------------------------
Income
before income
tax benefit Net income
-------------------------------------------------------------------
JPY % JPY %
millions millions
Fiscal year ending
March 31, 2008 5,100 1.0 5,600 3.5
-------------------------------------------------------------------
Basic net
income
per
share
-------------------------------------------------------------------
JPY
Fiscal year ending
March 31, 2008 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
management's intentions, beliefs, expectations, or
predictions for the future are forward-looking statements
that are based on IIJ's and managements' current
expectations, assumptions, estimates and projections about
its business and the industry. These forward-looking
statements, such as statements regarding 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.
4. Others
(1) Change of Condition in Consolidated Subsidiaries during the Nine
Months Ended December 31, 2007(Change of Condition in Specific
Consolidated Subsidiaries with a Change of Scope of
Consolidation): None
(2) Adoption of Simplified Accounting Method: None
(3) Changes in Accounting and Reporting of Significant Accounting and
Reporting Policies from the Most Recent Fiscal Year: None
Consolidated Financial Statements (Unaudited)
(From April 1, 2007 through December 31, 2007)
(1) Consolidated Balance Sheets
----------------------------------------------------------
As of December 31, As of December 31,
2007 2006
----------------------------------------------------------
Thousands
of
U.S Thousands Thousands
Dollars of JPY % of JPY %
----------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash 82,486 9,214,447 13,955,110
Accounts
receivable,
net of
allowance for
doubtful
accounts of
JPY 23,842
thousand, JPY
24,690
thousand and
JPY 32,489
thousand at
December 31,
2007,
December 31,
2006 and
March 31,
2007,
respectively 105,639 11,800,972 8,169,550
Short-term
investment 109 12,170 11,809
Inventories 9,199 1,027,568 1,088,259
Prepaid
expenses 20,002 2,234,473 1,562,891
Other current
assets, net
of allowance
for doubtful
accounts of
JPY 720
thousand,
JPY 3,850
thousand and
JPY 4,570
thousand at
December 31,
2007,
December 31,
2006 and
March 31,
2007,
respectively 19,259 2,151,418 996,890
------ --------- -------
Total
current
assets 236,694 26,441,048 49.9 25,784,509 56.7
INVESTMENTS IN
AND ADVANCES
TO EQUITY
METHOD
INVESTEES,
net of loan
loss
valuation
allowance of
JPY 16,701 at
December 31,
2007,
December 31,
2006 and
March 31,
2007,
respectively 9,136 1,020,574 1.9 1,008,407 2.2
OTHER
INVESTMENTS 22,608 2,525,546 4.8 5,441,508 12.0
PROPERTY AND
EQUIPMENT-Net 99,467 11,111,429 21.0 9,417,245 20.7
INTANGIBLE
ASSETS--Net 53,036 5,924,679 11.2 671,429 1.5
GUARANTEE
DEPOSITS 17,679 1,974,902 3.7 1,583,128 3.5
OTHER ASSETS,
net of
allowance for
doubtful
accounts of
JPY 66,812
thousand, JPY
66,366
thousand and
JPY 69,050
thousand at
December 31,
2007,
December 31,
2006 and
March 31,
2007,
respectively 35,799 3,999,134 7.5 1,556,832 3.4
------- --------- ----------
TOTAL 474,419 52,997,312 100.0 45,463,058 100.0
------- ---------- ----------
LIABILITIES AND
SHAREHOLDERS'
EQUITY
CURRENT
LIABILITIES:
Short-term
borrowings 86,384 9,650,000 5,600,000
Long-term
borrowings-
current
portion -- -- 1,000,363
Payable
under
securities
loan
agreement -- -- 561,600
Capital-
lease
obligations-
current
portion 29,868 3,336,491 2,848,075
Accounts
payable 58,377 6,521,313 5,808,051
Accrued
expenses 8,884 992,476 665,112
Other current
liabilities 17,934 2,003,408 1,994,410
------- --------- ---------- ---
Total
current
liabil-
ities 201,447 22,503,688 42.5 18,477,611 40.6
CAPITAL LEASE
OBLIGATIONS-
Noncurrent 40,473 4,521,225 8.5 4,295,908 9.5
ACCRUED
RETIREMENT
AND PENSION
COSTS 7,865 878,629 1.6 382,619 0.8
OTHER
NONCURRENT
LIABILITIES 5,540 618,819 1.2 600,167 1.3
------- --------- ----------
Total
Liabil-
ities 255,325 28,522,361 53.8 23,756,305 52.2
------- ---------- ----------
MINORITY
INTEREST 2,998 34,868 0.6 1,433,341 3.2
------- ---------- ----------
COMMITMENTS
AND
CONTINGENCIES
SHAREHOLDERS'
EQUITY:
Common stock-
authorized,
377,600
shares;
issued and
outstanding,
206,478
shares at
December 31,
2007-
authorized,
377,600
shares;
issued and
outstanding,
204,300
shares at
December 31,
2006 and
March 31,
2007 150,693 16,833,847 31.8 16,833,847 37.0
Additional
paid-in
capital 247,173 27,611,737 52.1 26,599,217 58.5
Accumulated
deficit (184,801)(20,644,087)(39.0)(25,421,633)(55.9)
Accumulated
other
comprehensive
income 3,031 338,586 0.7 2,346,219 5.2
Treasury
stock-
777 shares
held by an
equity
method
investee
at December
31, 2006 -- -- -- (84,238) (0.2)
------- --------- ----------
Total
shareholders'
equity 216,096 24,140,083 45.6 20,273,412 44.6
------- --------- ----------
TOTAL 474,419 52,997,312 100.0 45,463,058 100.0
------- --------- ----------
--------------------
As of March 31,
2007
-------------------
Thousands
of JPY %
------------------
ASSETS
CURRENT ASSETS:
Cash 13,554,544
Accounts
receivable,
net of
allowance for
doubtful
accounts of
JPY 23,842
thousand, JPY
24,690
thousand and
JPY 32,489
thousand at
December 31,
2007,
December 31,
2006 and
March 31,
2007,
respectively 9,675,725
Short-term
investment 12,093
Inventories 1,111,086
Prepaid
expenses 1,053,270
Other current
assets, net
of allowance
for doubtful
accounts of
JPY 720
thousand,
JPY 3,850
thousand and
JPY 4,570
thousand at
December 31,
2007,
December 31,
2006 and
March 31,
2007,
respectively 930,571
Total
current
assets 26,337,289 55.2
----------
INVESTMENTS IN
AND ADVANCES
TO EQUITY
METHOD
INVESTEES,
net of loan
loss
valuation
allowance of
JPY 16,701 at
December 31,
2007,
December 31,
2006 and
March 31,
2007,
respectively 858,490 1.8
OTHER
INVESTMENTS 2,841,741 6.0
PROPERTY AND
EQUIPMENT-Net 9,832,396 20.6
INTANGIBLE
ASSETS--Net 2,876,894 6.0
GUARANTEE
DEPOSITS 1,686,141 3.5
OTHER ASSETS,
net of
allowance for
doubtful
accounts of
JPY 66,812
thousand, JPY
66,366
thousand and
JPY 69,050
thousand at
December 31,
2007,
December 31,
2006 and
March 31,
2007,
respectively 3,260,053 6.9
----------
TOTAL 47,693,004 100.0
----------
LIABILITIES AND
SHAREHOLDERS'
EQUITY
CURRENT
LIABILITIES:
Short-term
borrowings 6,050,000
Long-term
borrowings-
current
portion 290,000
Payable
under
securities
loan
agreement --
Capital-
lease
obligations-
current
portion 2,953,173
Accounts
payable 8,464,835
Accrued
expenses 897,355
Other current
liabilities 2,477,486
----------
Total
current
liabil-
ities 21,132,849 44.3
CAPITAL LEASE
OBLIGATIONS-
Noncurrent 4,318,309 9.1
ACCRUED
RETIREMENT
AND PENSION
COSTS 750,042 1.5
OTHER
NONCURRENT
LIABILITIES 564,618 1.2
----------
Total
Liabil-
ities 26,765,818 56.1
----------
MINORITY
INTEREST 815,182 1.7
----------
COMMITMENTS
AND
CONTINGENCIES
SHAREHOLDERS'
EQUITY:
Common stock-
authorized,
377,600
shares;
issued and
outstanding,
206,478
shares at
December 31,
2007-
authorized,
377,600
shares;
issued and
outstanding,
204,300
shares at
December 31,
2006 and
March 31,
2007 16,833,847 35.3
Additional
paid-in
capital 26,599,217 55.8
Accumulated
deficit (24,270,769) (50.9)
Accumulated
other
comprehensive
income 949,709 2.0
Treasury
stock-
777 shares
held by an
equity
method
investee
at December
31, 2006 -- --
----------
Total
shareholders'
equity 20,112,004 42.2
----------
TOTAL 47,693,004 100.0
----------
(Note) The U.S. dollar amounts represent translations of yen amounts
at the rate of JPY 111.71, 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 December 31, 2007.
(2) Consolidated Statements of Income
Nine Months Ended Nine Months Ended
December 31, 2007 December 31, 2006
------------------------------------------------
Thousands Thousands % Thousands %
of U.S. of of total of of total
Dollars JPY revenues JPY revenues
----------------------------------------------------------------------
REVENUES:
Connectivity and
value-added services:
Connectivity
(corporate use) 80,608 9,004,721 8,345,756
Connectivity
(home use) 34,088 3,807,989 1,477,036
Value-added
services 62,337 6,963,603 5,508,337
Other 27,565 3,079,293 2,788,701
--------- --------- ---------
Total 204,598 22,855,606 18,119,830
Systems
integration 216,753 24,213,497 20,347,104
Equipment sales 11,461 1,280,303 1,564,205
--------- --------- ---------
Total revenues 432,812 48,349,406 100.0 40,031,139 100.0
--------- --------- ---------
COST AND EXPENSES:
Cost of
connectivity
and value-added
services 170,130 19,005,171 15,396,845
Cost of systems
integration 166,128 18,558,164 15,513,501
Cost of equipment
sales 9,831 1,098,267 1,399,048
--------- --------- ---------
Total cost 346,089 38,661,602 80.0 32,309,394 80.7
Sales and marketing 28,212 3,151,505 6.5 2,542,815 6.4
General and
administrative 30,477 3,404,620 7.0 2,700,746 6.7
Research and
development 1,607 179,488 0.4 121,977 0.3
--------- --------- ---------
Total cost and
expenses 406,385 45,397,215 93.9 37,674,932 94.1
--------- --------- ---------
OPERATING INCOME 26,427 2,952,191 6.1 2,356,207 5.9
--------- --------- ---------
OTHER INCOME (EXPENSES):
Interest income 360 40,244 11,182
Interest expense (2,946) (329,047) (304,361)
Foreign exchange
gain (loss) 21 2,330 (254)
Gain (loss) on other
investments -net 302 33,679 1,679,356
Other-net 138 15,409 5,377
--------- --------- ---------
Other income
(expenses)-net (2,125) (237,385) (0.5) 1,391,300 3.5
--------- --------- ---------
INCOME FROM OPERATIONS
BEFORE INCOME TAX
BENEFIT, MINORITY
INTERESTS AND
EQUITY IN NET LOSS
OF EQUITY METHOD
INVESTEES 24,302 2,714,806 5.6 3,747,507 9.4
--------- --------- ---------
INCOME TAX BENEFIT (12,650) (1,413,102) (2.9) (867,187) (2.2)
MINORITY INTERESTS
IN (EARNINGS)
LOSSES OF
SUBSIDIARIES 462 51,606 0.1 (195,035) (0.5)
EQUITY IN NET LOSS
OF EQUITY METHOD
INVESTEES (819) (91,523) (0.1) (160,810) (0.4)
--------- --------- ---------
NET INCOME 36,595 4,087,991 8.5 4,258,849 10.7
--------- --------- ---------
Fiscal Year Ended
March 31, 2007
----------------------
Thousands %
of of total
JPY revenues
---------------------------------------------
REVENUES:
Connectivity and
value-added services
Connectivity
(corporate use) 11,239,062
Connectivity
(home use) 1,968,948
Value-added
services 7,415,533
Other 3,729,633
---------
Total 24,353,176
Systems
integration 30,527,081
Equipment sales 2,174,324
---------
Total revenues 57,054,581 100.0
---------
COST AND EXPENSES:
Cost of
connectivity
and value-added
services 20,545,358
Cost of systems
integration 23,529,045
Cost of equipment
sales 1,893,216
---------
Total cost 45,967,619 80.6
Sales and marketing 3,438,725 6.0
General and
administrative 3,970,692 7.0
Research and
development 177,273 0.3
---------
Total cost and
expenses 53,554,309 93.9
---------
OPERATING INCOME 3,500,272 6.1
---------
OTHER INCOME (EXPENSES):
Interest income 23,037
Interest expense (397,439)
Foreign exchange
gain (loss) (297)
Gain (loss) on other
investments -net 1,866,510
Other-net 56,605
---------
Other income
(expenses)-net 1,548,416 2.7
---------
INCOME FROM OPERATIONS
BEFORE INCOME TAX
BENEFIT, MINORITY
INTERESTS AND 5,048,688 8.8
---------
EQUITY IN NET LOSS
OF EQUITY METHOD
INVESTEES
INCOME TAX BENEFIT (803,943) (1.4)
MINORITY INTERESTS
IN (EARNINGS)
LOSSES OF
SUBSIDIARIES (232,719) (0.4)
EQUITY IN NET LOSS
OF EQUITY METHOD
INVESTEES (210,199) (0.3)
---------
NET INCOME 5,409,713 9.5
---------
Nine Months Nine months Fiscal Year
Ended Ended Ended
December 31, December 31, March 31,
2007 2006 2007
-----------------------------------------------
Shares Shares Shares
--------------------------------------------------------------------
BASIC WEIGHTED-
AVERAGE NUMBER
OF SHARES 206,161 203,989 203,992
DILUTED WEIGHTED-
AVERAGE NUMBER
OF SHARES 206,432 204,186 204,244
--------------------------------------------------------------------
U.S.
Dollars JPY JPY JPY
--------------------------------------------------------------------
BASIC NET INCOME
PER SHARE 177.50 19,829 20,878 26,519
DILUTED NET INCOME
PER SHARE 177.27 19,803 20,858 26,487
--------------------------------------------------------------------
(Note) The U.S. dollar amounts represent translations of yen amounts
at the rate of JPY 111.71, 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 December 31, 2007.
(3) Consolidated Statements of Shareholders' Equity
Consolidated statements of shareholders' equity for the nine months
ended December 31, 2007
(Unit: Thousands of JPY)
Shares of
Common
Stock
Outstanding
(Including
Treasury Additional
Stock) Common Paid-in Accumulated
(Shares) Stock Capital Deficit
---------------------------------------------------------------------
BALANCE, APRIL 1,
2007 204,300 16,833,847 26,599,217 (24,270,769)
Net income 4,087,991
Other comprehensive
loss, net of tax
Total comprehensive
income
Payment of dividends (461,309)
Issuance of common
stock related to
share exchanges,
net of issuance
cost 2,178 1,012,520
---------------------------------------------
BALANCE,
DECEMBER 31, 2007 206,478 16,833,847 27,611,737 (20,644,087)
---------------------------------------------
Accumulated
Other
Comprehensive Treasury
Income Stock Total
---------------------------------------------------------------------
BALANCE, APRIL 1,
2007 949,709 -- 20,112,004
Net income 4,087,991
Other comprehensive
loss, net of tax (611,123) (611,123)
---------
Total comprehensive 3,476,868
income
Payment of dividends (461,309)
Issuance of common
stock related to
share exchanges,
net of issuance
cost 1,012,520
------------------------------------
BALANCE,
DECEMBER 31, 2007 338,586 -- 24,140,083
------------------------------------
Consolidated statements of shareholders' equity for the nine months
ended December 31, 2007
(Unit: Thousands of U.S. Dollars)
Shares of
Common
Stock
Outstanding
(Including
Treasury Additional
Stock) Common Paid-in Accumulated
(Shares) Stock Capital Deficit
---------------------------------------------------------------------
BALANCE, APRIL 1,
2007 204,300 150,693 238,109 (217,266)
Net income 36,595
Other comprehensive
loss, net of tax
Total comprehensive
income
Payment of dividends (4,130)
Issuance of common
stock related to
share exchanges,
net of issuance cost 2,178 9,064
BALANCE, DECEMBER
31, 2007 206,478 150,693 247,173 (184,801)
---------------------------------------------------------------------
Accumulated
Other
Comprehensive Treasury
Income Stock Total
---------------------------------------------------------------------
BALANCE, APRIL 1,
2007 8,502 -- 180,038
Net income 36,595
Other comprehensive (5,471) (5,471)
loss, net of tax ----------
Total comprehensive 31,124
income
Payment of dividends (4,130)
Issuance of common
stock related to
share exchanges,
net of issuance cost 9,064
BALANCE, DECEMBER
31, 2007 3,031 -- 216,096
(Note)
The U.S. dollar amounts represent translations of yen amounts at the
rate of JPY 111.71, 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
December 31, 2007.
---------------------------------------------------------------------
Shares of
Common
Stock
Outstanding
(Including
Treasury Additional
Stock) Common Paid-in Accumulated
(Shares) Stock Capital Deficit
---------------------------------------------------------------------
BALANCE, APRIL 1,
2006 204,300 16,833,847 26,599,217 (29,680,482)
Net income 4,258,849
Other comprehensive
loss, net of tax
Total comprehensive
loss
BALANCE, DECEMBER
31, 2006 204,300 16,833,847 26,599,217 (25,421,633)
----------------------------------------------
Accumulated
Other
Comprehensive Treasury
Income Stock Total
BALANCE, APRIL 1,
2006 6,553,594 (84,238) 20,221,938
Net income 4,258,849
Other comprehensive
loss, net of tax (4,207,375) (4,207,375)
Total comprehensive ----------
loss 51,474
BALANCE, DECEMBER
31, 2006 2,346,219 (84,238) 20,273,412
---------------------------------------------
Consolidated statements of shareholders' equity for the fiscal year
ended March 31, 2007
(Unit: Thousands of JPY)
---------------------------------------------------------------------
Shares of
Common
Stock
Outstanding
(Including
Treasury Additional
Stock) Common Paid-in Accumulated
(Shares) Stock Capital Deficit
---------------------------------------------------------------------
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, 2007 204,300 16,833,847 26,599,217 (24,270,769)
----------------------------------------------
Accumulated
Other
Comprehensive Treasury
Income Stock Total
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 (82,441)
loss
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, 2007 949,709 -- 20,112,004
----------------------------------------------
(4) Condensed Consolidated Statements of Cash Flows
---------------------------------------------------------------------
Nine Months Nine Months Fiscal Year
Ended Ended Ended
Dec. 31, Dec. 31, March 31,
2007 2006 2007
---------------------------------------------------------------------
Thousands Thousands Thousands Thousands
of U.S. of of of
Dollars JPY JPY JPY
---------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income 36,595 4,087,991 4,258,849 5,409,713
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and
amortization 31,164 3,481,394 3,234,615 4,228,048
Provision for
(reversal of)
doubtful accounts
and advances (63) (7,069) 25 12,232
Gain on other
investments -- net (301) (33,679) (1,679,356) (1,866,510)
Foreign exchange
loss 35 3,955 1,935 2,226
Equity in net loss
of equity method
investees 819 91,523 160,810 210,199
Minority interests
in earnings (losses)
of subsidiaries (462) (51,606) 195,035 232,719
Deferred income tax
benefit (16,027) (1,790,391) (1,223,275) (1,494,685)
Others 1,290 144,053 297,719 534,035
Changes in operating
assets and
liabilities:
Decrease (increase)
in accounts
receivable (18,991) (2,121,457) 3,864,892 2,376,126
Increase in
inventories,
prepaid expenses
and other current
and noncurrent
assets (12,095) (1,351,187) (610,349) (1,235,003)
Decrease in
accounts payable (14,549) (1,625,227) (4,127,491) (1,872,969)
Increase (decrease)
in accrued
expenses, other
current and
noncurrent
liabilities (3,346) (373,793) 202,463 865,376
---------------------------------------------------------------------
Net cash provided
by operating
activities 4,069 454,507 4,575,872 7,401,507
---------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of
property and
equipment (14,457) (1,614,994) (986,367) (1,287,906)
Purchase of
available-for-sale
securities (4,631) (517,275) (575,623) (802,662)
Purchase of
short-term and
other investments (2,077) (231,974) (1,502,601) (1,794,358)
Investment in an
equity method
investee (2,241) (250,389) -- --
Proceeds from
sales of
investment in an
equity method
investee -- -- -- 185,900
Purchase of
subsidiary stock
from minority
shareholders (17,681) (1,975,123) (27,559) (3,077,764)
Proceeds from sales
of
available-for-sale
securities 5,522 616,920 2,085,241 3,883,915
Proceeds from sales
and redemption of
short-term and
other investments 184 20,579 21,781 110,446
Acquisition of
newly controlled
companies, net of
cash acquired (7,059) (788,608) -- --
Acquisition of
businesses -- -- (74,751) (74,751)
Payment of
guarantee deposits
-- net (2,500) (279,324) (17,396) (118,411)
Other (386) (43,154) (19,743) (38,020)
---------------------------------------------------------------------
Net cash used in
investing
activities (45,326) (5,063,342) (1,097,018) (3,013,611)
---------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from
issuance of
short-term
borrowings with
initial
maturities over
three months 142,333 15,900,000 8,800,000 10,500,000
Repayments of
short-term
borrowings with
initial maturities
over three months (139,110)(15,540,000) (5,629,600) (7,639,963)
Proceeds from
securities loan
agreement -- -- 1,057,680 1,057,680
Repayments of
securities loan
agreement -- -- (1,495,680) (2,057,280)
Principal payments
under capital
leases (22,954) (2,564,142) (2,573,613) (3,259,875)
Increase (decrease)
in short-term
borrowings with
initial maturities
less than three
months -- net 26,408 l2,950,000 (3,405,000) (3,355,000)
Proceeds from
issuance of
subsidiary stock
to minority
shareholders -- -- -- 194,679
Amount of dividend
payment (4,130) (461,309) -- --
---------------------------------------------------------------------
Net cash provided by
(used in) financing
activities 2,547 284,549 (3,246,213) (4,559,759)
---------------------------------------------------------------------
EFFECT OF EXCHANGE
RATE CHANGES ON
CASH (141) (15,811) (4,552) (614)
NET DECREASE IN CASH (38,851) (4,340,097) 228,089 (172,477)
CASH, BEGINNING OF
EACH PERIOD 121,337 13,554,544 13,727,021 13,727,021
---------------------------------------------------------------------
CASH, END OF EACH
PERIOD 82,486 9,214,447 13,955,110 13,554,544
---------------------------------------------------------------------
---------------------------------------------------------------------
ADDITIONAL CASH FLOW
INFORMATION:
Interest paid 2,948 329,316 287,451 383,461
Income taxes paid 8,360 933,930 339,973 347,826
NONCASH INVESTING
AND FINANCING
ACTIVITIES:
Acquisition of
assets by entering
into capital
leases 26,114 2,917,146 1,741,877 2,664,706
Purchase of
minority
interests of
consolidated
subsidiaries
through share
exchanges 9,064 1,012,520 -- --
Acquisition of
business and a
company:
Assets acquired 20,762 2,319,277 236,307 236,307
Cash paid (15,356) (1,715,450) (74,751) (74,751)
Liabilities assumed 3,294 367,989 161,556 161,556
Minority interests
assumed 2,112 235,838 -- --
---------------------------------------------------------------------
(Note)
The U.S. dollar amounts represent translations of yen amounts at the
rate of JPY 111.71, 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
December 31, 2007.