TOKYO, May 15, 2008 (PRIME NEWSWIRE) -- Internet Initiative Japan Inc. (Nasdaq:IIJI) (Tokyo:3774) ("IIJ"), one of Japan's leading Internet-access and comprehensive network solutions providers, today announced its full year and fourth quarter financial results for the fiscal year ended March 31, 2008 ("FY2007").(1)
Highlights of Full FY2007 Results
* Revenues totaled JPY66,835 million ($669.4 million), an increase
of 17.1% from FY2006. The continuous growth in recurring revenues
(connectivity and value-added services ("VAS") and systems
operation) has led the strong growth in total revenues.
Connectivity grew year-over-year by 33.1%, VAS by 28.7% and
systems operation by 15.3%.
* Operating income was JPY4,759 million ($47.7 million), an
increase of 36.0% from FY2006 led by the increase in gross margin
of both connectivity and VAS and SI. Operating income ratio was
7.1%, an increase of 1.0% from FY2006.
* Net income was JPY5,177 million ($51.8 million), a decrease of
4.3% from FY2006, mainly due to the absence of large capital gains
from the sale of equity securities which were recorded in FY2006.
* FY2007 year-end dividend forecast was revised from JPY750 to
JPY1,000 per share of common stock (FY2007 total dividend of
JPY1,750, up from JPY1,500 as previously planned).
Highlights of Fourth Quarter FY2007 Results
* Revenues totaled JPY18,486 million ($185.1 million), an increase
of 8.6% from 4Q06.
* Operating income was JPY1,807 million ($18.1 million), an
increase of 58.0% from 4Q06.
* Net income was JPY1,089 million ($10.9 million), a decrease of
5.4% from 4Q06.
Financial Targets for FY2008(2)
* IIJ targets revenues of JPY78.5 billion, operating income of
JPY5.2 billion, income before income tax expense (benefit)3 of
JPY4.7 billion and net income of JPY5.2 billion for the fiscal
year ending March 31, 2009 ("FY2008").
* IIJ targets the cash dividend of JPY2,000 per share of common
stock for FY2008.
* For mid-term milestone, IIJ would like to achieve over JPY100
billion in revenues and JPY10 billion in operating income around
FY2010.
Overview of FULL FY2007 and 4th Quarter Financial Results and Business Outlook(2)
"For the past several years, we have been focusing on increasing monthly recurring revenues from connectivity and VAS, and systems operation and maintenance, to strengthen the bases for our stable mid-term growth of revenue and operating income. Our results announced today were satisfying to us showing that this strategy has been going very well and the operating income continuously increased by 36.0% year-over-year to JPY4.8 billion while covering the operating loss of JPY0.3 billion from new business development," said Koichi Suzuki, President and CEO of IIJ. "For FY2007, these recurring revenues showed significant growth of 23.7% from FY2006 as demands from corporate customers for higher bandwidth connectivity and outsourcing services such as email security and data centers remains strong. The number of internet connectivity contracts of over 1Gbps reached 70 contracts, a significant increase compared to the 63 contracts in 4Q06. As for the systems construction of one-time revenue, demands from our clients for network systems construction have been strong and we have had a remarkable large-scaled application development project in 3Q07. However, our systems construction revenue in 4Q07 was slightly weak compared to our expectations due to a lack of engineering resources affected by the unanticipated extra support required for the project that was completed in 3Q07.
"For FY2008, we believe demands for higher bandwidth connectivity and outsourcing services for corporate customers along with the increasing needs for network securities to protect their mission critical systems will continue as it is indispensable for them to reduce their costs by utilizing information technology and outsourcing efficiently, although we should pay attention to the downward trend of the Japanese economy.
"For our mid- to long- term growth, we will continue to focus on increasing monthly recurring revenues and take on new SI projects to strengthen the base for continuous business expansion. We will also focus on enhancing the new businesses that we have seeded in FY2007, although they will have negative impact of approximately JPY0.9 billion against our operating income in FY2008. Adding these new business lines to current business expansion, we would like to achieve revenues of over JPY100 billion and operating income of JPY10 billion around FY2010."
4th Quarter FY2007 Financial Results
Results of Operations
(JPY in millions)
Operating Results Summary
---------------------------------------------------------------------
YoY %
4Q07 4Q06 change
---------------------------------------------------------------------
Total Revenues 18,486 17,023 8.6%
---------------------------------------------------------------------
Total Costs 14,221 13,658 4.1%
---------------------------------------------------------------------
SG&A Expenses and R&D 2,458 2,221 10.6%
---------------------------------------------------------------------
Operating Income 1,807 1,144 58.0%
---------------------------------------------------------------------
Income before Income Tax Expense 1,647 1,301 26.6%
---------------------------------------------------------------------
Net Income 1,089 1,151 (5.4%)
---------------------------------------------------------------------
Revenues
--------
Revenues in 4Q07 totaled JPY18,486 million, an increase of 8.6% from
JPY17,023 million in 4Q06.
(JPY in millions)
Revenues
---------------------------------------------------------------------
YoY %
4Q07 4Q06 change
---------------------------------------------------------------------
Total Revenues: 18,486 17,023 8.6%
---------------------------------------------------------------------
Connectivity and Value-added Services 8,447 6,233 35.5%
---------------------------------------------------------------------
SI 9,805 10,181 (3.7%)
---------------------------------------------------------------------
Equipment Sales 234 609 (61.6%)
---------------------------------------------------------------------
Connectivity and Value-added Services ("VAS") revenues were JPY8,447 million in 4Q07, an increase of 35.5% compared to 4Q06.
Revenues from connectivity services for corporate users were JPY3,144 million, an increase of 8.7% compared to 4Q06. IP services, a dedicated access line service mainly used for corporate headquarters and data centers, increased by 7.5% compared to 4Q06 as the shift in corporate users to higher bandwidth continued. Broadband services have also increased significantly by 23.1% compared to 4Q06 as utilization of broadband in corporate internal networks continued.
Revenues from connectivity services for home users were JPY1,622 million in 4Q07, an increase of 229.7% compared to 4Q06. Additional revenues from hi-ho Inc. ("hi-ho"), which we acquired in June 2007, covered the decrease in IIJ4U and OEM.
VAS revenues were JPY2,583 million in 4Q07, an increase of 35.4% compared to 4Q06. Email related services driven by such needs for anti-spam protection and data center for outsourcing have contributed to the increase in revenues. The numbers of contracted email accounts for email security services at the end of 4Q07 exceeded 700,000 accounts compared to the approximately 200,000 accounts of 4Q06.
Other revenues were JPY1,099 million in 4Q07, an increase of 16.8% compared to 4Q06.
SI revenues decreased by 3.7% to JPY9,805 million in 4Q07 compared to 4Q06 as systems construction decreased by 16.0% compared to 4Q06 because many of our engineering resources had been engaged in the large SI project during the 3rd quarter. However, systems operation and maintenance increased by 17.1% compared to 4Q06 since systems construction projects are followed by systems operation and maintenance which accumulates as recurring revenues.
Equipment sales revenues were JPY234 million in 4Q07, a decrease of 61.6% compared to 4Q06.
Cost and expense
----------------
Cost of revenues was JPY14,221 million in 4Q07, an increase of
4.1% compared to 4Q06.
(JPY in millions)
Cost of Revenues
---------------------------------------------------------------------
4Q07 4Q06 YoY %
change
---------------------------------------------------------------------
Cost of Revenues: 14,221 13,658 4.1%
---------------------------------------------------------------------
Connectivity and Value-added Services 7,034 5,149 36.6%
---------------------------------------------------------------------
SI 6,985 8,016 (12.9%)
---------------------------------------------------------------------
Equipment Sales 202 494 (59.2%)
---------------------------------------------------------------------
Cost of Connectivity and VAS revenues was JPY7,034 million in 4Q07, an increase of 36.6% compared to 4Q06 mainly due to the cost incurred by newly acquired hi-ho which amounted to JPY1,250 million and the increase in network related costs, data centers related costs, personnel related costs and the initial costs for new business development.
The gross margin for Internet connectivity and value-added services in 4Q07 was JPY1,413 million, an increase of 30.2% compared to 4Q06. The gross margin ratio in 4Q07 was 16.7%, compared to 17.4% in 4Q06. This decrease in gross margin ratio was mainly due to the relatively low gross margin of hi-ho and the initial costs for new business development.
Cost of SI revenues was JPY6,985 million in 4Q07, a decrease of 12.9% compared to 4Q06. The decrease was mainly due to the decrease in the purchase of equipment which fluctuates along with the decrease in revenues from systems construction projects.
The gross margin for SI in 4Q07 was JPY2,820 million and the gross margin ratio was 28.8% compared to 21.3 % in 4Q06. This increase in gross margin ratio was led by the increase in systems operation and maintenance revenues which has a relatively higher gross margin compared to systems construction.
Cost of Equipment Sales revenues was JPY202 million in 4Q07, a decrease of 59.2 % compared to 4Q06.
The gross margin ratio for equipment sales in 4Q07 was 14.0 %, compared to 18.9 % in 4Q06.
Sales and marketing expenses were JPY1,177 million in 4Q07, an increase of 31.4 % compared to 4Q06. The increase was mainly due to an increase in advertising expenses, as well as the additional expenses related to hi-ho of JPY136 million.
General and administrative expenses were JPY1,220 million in 4Q07, a decrease of 4.0% in spite of an increase in personnel expenses, outsourcing expenses and initial expenses for new business development. There was a one-time charge for the allowance of retirement benefits for directors of JPY200 million in 4Q06.
Research and development expenses were JPY61 million in 4Q07, an increase of 10.2 % compared to 4Q06.
Operating income
Operating income was JPY1,807 million in 4Q07, an increase of 58.0% compared to 4Q06. The increase was mainly due to an increase in gross margin of JPY654 million for SI and JPY328 million for connectivity and VAS which was partially offset by an increases in sales and marketing expenses and the cost of JPY133 million related to new business development.
Other income (expenses) and others
Other income (expenses) in 4Q07 were a net other expense of JPY160 million mainly due to interest payments of JPY109 million and an impairment loss on equity securities of JPY104 million. In 4Q06 other income (expenses) was a net other income of JPY157 million. This was mainly due to impairment loss on equity securities and net gains from the sale of available-for-sale securities. Impairment loss on equity securities in 4Q07 was JPY104 million compared to JPY1,362 million in 4Q06. Net gains from the sale of available-for-sale securities for 4Q07 was zero compared to JPY1,549 million in 4Q06.
Income tax expense in 4Q07 was JPY552 million, including deferred income tax expenses of JPY137 million. Income tax expense in 4Q06 was JPY63 million.
Minority interests in losses of subsidiaries in 4Q07 were JPY45 million, compared to minority interests in earnings of subsidiaries of JPY38 million in 4Q06. Minority interests in earnings of subsidiaries were mainly related to GDX Japan Inc. and Trust Networks Inc.
Equity in net loss of equity method investees in 4Q07 was JPY52 million, mainly represented by equity in the net loss of Internet Revolution Inc.
Net income was JPY1,089 million in 4Q07, a decrease of 5.4% compared to 4Q06.
Financial Condition
Balance Sheets
As of March 31, 2008, total assets increased by JPY8,010 million from the prior year end to JPY55,703 million.
For current assets, as compared to each of the respective balances as of March 31, 2007, accounts receivable increased by JPY2,579 million along with business growth; prepaid expenses increased by JPY952 million mainly for maintenance expenses related to SI projects; and other current assets increased by JPY627 million mainly due to an increase in current deferred income tax assets (net) resulting from a revaluation of the valuation allowance in 2Q07. Property and equipment increased by JPY1,908 million from the balance as of March 31, 2007, mainly due to our acquisition of hi-ho and an increase in property to our internal services systems. Intangible assets increased by JPY3,030 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 the two consolidated subsidiaries and hi-ho. Other asset increased by JPY917 million mainly due to an increase in non-current deferred tax assets (net) resulting from the reversal of the valuation allowance. Of the intangible assets of JPY5,907 million as of March 31, 2008, for IIJ Technology Inc. was JPY4,341 million (non-amortized) and for hi-ho was JPY606 million (of which amortized intangibles asset were JPY236 million). The fair value of available-for-sale securities as of March 31, 2008 decreased by JPY453 million to JPY857 million compared to March 31, 2007. For current liabilities, short-term borrowings as of March 31, 2008 increased by JPY3,100 million from the balance as of March 31, 2007, due to financing of funds for IIJ's acquisition of shares from minority shareholders and new proceeds for our consolidated subsidiary's working capital, an increase of capital lease obligations (current portion) by JPY503 million from the balance as of March 31, 2007 and a decrease of accounts payable by JPY570 million from the balance as of March 31, 2007. As for accounts payable, there was an account payable of JPY1,065 million at the end of March 31, 2007, relating to a single systems integration project that finished in FY2006, however, balances of accounts payable at the end of March 31, 2008 returned to normal level.
Total shareholders' equity as of March 31, 2008 was JPY24,981 million, an increase of JPY4,869 million from the balance as of March 31, 2007. Shareholders' equity ratio (shareholders' equity/total assets) as of March 31, 2008 was 44.8%, up by 2.6% compared to the one as of March 31, 2007.
Cash Flows
Cash as of March 31, 2008 was JPY11,471 million.
Net cash provided by operating activities in 4Q07 was JPY4,083 million, compared to net cash provided by operating activities of JPY2,826 million in 4Q06. Operating income increased in 4Q07 compared to 4Q06 because gross margin from connectivity and VAS and SI increased compared to 4Q06. Changes in net cash provided by operating activities in 4Q07 were also due to changes in operating assets and liabilities during 4Q07, mainly resulting from increase in accounts receivable and increase in accounts payable.
Net cash used in investing activities in 4Q07 was JPY380 million, compared to net cash used in investing activities of JPY1,917 million in 4Q06, mainly due to payment of JPY241 million for the purchase of property.
Net cash used in financing activities in 4Q07 was JPY1,437 million, compared to net cash used in financing activities of JPY1,314 million in 4Q06. We recorded principal payments under capital leases of JPY943 million, repayments of short-term borrowing with initial maturities over three months and long-term borrowing of JPY400 million and a net decrease in short-term borrowings with initial maturities less than three months of JPY1,725 million. We recorded proceeds of JPY1,625 million from short-term borrowing with initial maturities over three months.
4th Quarter FY2007 Business Review
Analysis by Service
Connectivity and Value-added Services
For connectivity services for corporate use, the shift to higher speeds among our customers and the significant increase in the number of contracts for our broadband services continued. Total contracted bandwidth increased by 68.9Gbps to 392.4Gbps compared to 4Q06.
For connectivity services for home use, there were additional revenues of JPY1,228 million from hi-ho, which we acquired in June 2007. On the other hand, IIJ brand and OEM continued to decrease.
Number of Contracts for Connectivity Services(4)
---------------------------------------------------------------------
YoY
4Q07 4Q06 Change
---------------------------------------------------------------------
Connectivity Services
(Corporate Use) 27,955 19,293 8,662
---------------------------------------------------------------------
IP Service (-99Mbps) 855 751 104
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IP Service (100Mbps-999Mbps) 201 161 40
---------------------------------------------------------------------
IP Service (1Gbps-) 70 63 7
---------------------------------------------------------------------
IIJ Data Center Connectivity
Service 288 282 6
---------------------------------------------------------------------
IIJ FiberAccess/F and IIJ DSL/F 23,539 16,418 7,121
---------------------------------------------------------------------
Others 3,002 1,618 1,384
---------------------------------------------------------------------
Connectivity Services (Home Use) 473,266 532,390 (59,124)
---------------------------------------------------------------------
Under IIJ Brand 51,051 55,907 (4,856)
---------------------------------------------------------------------
hi-ho 189,700 -- 189,700
---------------------------------------------------------------------
OEM(5) 232,515 476,483 (243,968)
---------------------------------------------------------------------
Total Contracted Bandwidth 392.4Gbps 323.5Gbps 68.9Gbps
---------------------------------------------------------------------
(JPY in millions)
Connectivity and VAS Revenue Breakdown and Cost(4)
--------------------------------------------------------------------
YoY %
4Q07 4Q06 Change
--------------------------------------------------------------------
Connectivity Service Revenues
(Corporate Use) 3,144 2,893 8.7%
--------------------------------------------------------------------
IP Service(6) 2,340 2,176 7.5%
--------------------------------------------------------------------
IIJ FiberAccess/F and IIJ DSL/F 704 572 23.1%
--------------------------------------------------------------------
Others 100 145 (31.4)%
--------------------------------------------------------------------
Connectivity Service Revenues
(Home Use) 1,622 492 229.7%
--------------------------------------------------------------------
Under IIJ Brand 268 290 (7.5)%
--------------------------------------------------------------------
hi-ho 1,228 -- --
--------------------------------------------------------------------
OEM 125 202 (37.9)%
--------------------------------------------------------------------
VAS Revenues 2,583 1,907 35.4%
--------------------------------------------------------------------
Other Revenues 1,099 941 16.8%
--------------------------------------------------------------------
Total Connectivity and
VAS Revenues 8,447 6,233 35.5%
--------------------------------------------------------------------
Cost of Connectivity and VAS 7,034 5,149 36.6%
--------------------------------------------------------------------
Backbone Cost (included in the cost
of Connectivity and VAS)(7) 896 880 1.8%
--------------------------------------------------------------------
Connectivity and VAS Gross
Margin Ratio 16.7% 17.4% --
--------------------------------------------------------------------
SI
One-time revenues from systems construction in 4Q07 decreased by 16.0% compared to 4Q06 because many of our engineering resources had been engaged in the large SI project during the 3rd quarter.
Recurring revenues from systems operation and maintenance in 4Q07 increased by 17.1% compared to 4Q06. Part of the operation and maintenance for the remarkable large-scale network and application development project that was completed in 3Q07 began in 4Q07.
(JPY in millions)
SI Revenue Breakdown and Cost
---------------------------------------------------------------------
YoY %
4Q07 4Q06 Change
---------------------------------------------------------------------
SI Revenues 9,805 10,181 (3.7%)
---------------------------------------------------------------------
Systems Construction 5,384 6,406 (16.0%)
---------------------------------------------------------------------
Systems Operation and Maintenance 4,420 3,775 17.1%
---------------------------------------------------------------------
Cost of SI 6,985 8,016 (12.9%)
---------------------------------------------------------------------
SI Gross Margin Ratio 28.8% 21.3% --
---------------------------------------------------------------------
The order backlog for SI and equipment sales as of March 31, 2008 was JPY15,909 million, an increase of 68.0% from the amount as of March 31, 2007. The order backlog for systems construction including equipment sales increased by 35.3% to JPY4,762 million and systems operation and maintenance increased by 87.3% to JPY11,147 million compared to 4Q06 respectively.
(JPY in millions)
SI and Equipment Sales Order Backlog
---------------------------------------------------------------------
YoY %
4Q07 4Q06 Change
---------------------------------------------------------------------
SI and Equipment Sales Order Backlog 15,909 9,471 68.0%
---------------------------------------------------------------------
Equipment Sales
Revenues from equipment sales decreased by 61.6% compared to 4Q06.
(JPY in millions)
Equipment Sales Revenue and Cost
---------------------------------------------------------------------
YoY %
4Q07 4Q06 Change
---------------------------------------------------------------------
Equipment Sales Revenues 234 609 (61.6%)
---------------------------------------------------------------------
Cost of Equipment Sales 202 494 (59.2%)
---------------------------------------------------------------------
Equipment Sales Gross Margin Ratio 14.0% 18.9% --
---------------------------------------------------------------------
Other Financial Statistics
Other Financial Statistics
(JPY in millions)
Other Financial Statistics
---------------------------------------------------------------------
YoY %
4Q07 4Q06 Change
---------------------------------------------------------------------
Adjusted EBITDA(8) 3,101 2,137 45.1%
---------------------------------------------------------------------
CAPEX, including capital leases(9) 1,546 1,224 26.3%
---------------------------------------------------------------------
Depreciation and amortization 1,293 993 30.2%
---------------------------------------------------------------------
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:
(JPY in millions)
Adjusted EBITDA
---------------------------------------------------------------------
4Q07 4Q06
---------------------------------------------------------------------
Adjusted EBITDA 3,101 2,137
---------------------------------------------------------------------
Depreciation and Amortization (1,293) (993)
---------------------------------------------------------------------
Operating Income 1,807 1,144
---------------------------------------------------------------------
Other Income (Expense) (160) 157
---------------------------------------------------------------------
Income Tax Expense 552 63
---------------------------------------------------------------------
Minority Interests in Losses
(Earnings) of Subsidiaries 45 (38)
---------------------------------------------------------------------
Equity in Net Loss of Equity Method Investees (52) (49)
---------------------------------------------------------------------
Net Income 1,089 1,151
---------------------------------------------------------------------
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:
(JPY in millions)
CAPEX
---------------------------------------------------------------------
4Q07 4Q06
---------------------------------------------------------------------
CAPEX, including capital leases 1,546 1,224
---------------------------------------------------------------------
Acquisition of Assets by Entering
into Capital Leases 1,305 923
---------------------------------------------------------------------
Purchase of Property and Equipment 241 302
---------------------------------------------------------------------
Target
Our targets for the financial results for the full FY2008 are as follows:
(JPY in millions)
-------------------------------------------------------------------
Operating Income before Income
Revenues Income Tax Expense (Benefit) Net Income
-------------------------------------------------------------------
Full FY2008 78,500 5,200 4,700 5,200
-------------------------------------------------------------------
IIJ targets revenue of JPY78,500 million (up 17.5% YoY), operating income of JPY5,200 million (up 9.3% YoY), income before income tax expense (benefit) of JPY4,700 million (up 7.8% YoY) and net income of JPY5,200 million (up 0.5% YoY) for the financial results for the full FY2008.
For our revenue target, we believe that recurring revenues from connectivity and VAS and systems operation will continue to increase based on the FY2007 revenue base. As for the target for one-time revenue from systems construction such as system consultation, construction, deployment and equipment sales, we have taken into account the FY2007 results for SI, the amount of revenue growth and the expected number of additional personnel to be hired. For operating income target, we have taken into account the following costs and expenses: costs of connectivity and VAS from network equipment and operation, costs such as purchase of equipment for systems construction and equipment sales, and outsourcing costs that fluctuate by the level of revenues, personnel related costs, advertising costs and other SG&A expenses. In addition, operating loss of approximately JPY0.9 billion for initial loss related to the development of our newly consolidated subsidiaries established in FY2007 is taken into account. For the target for Income before income tax expense (benefit), we have taken into account interest payments and have not taken into account capital gains from available for sale securities. For net income, we have taken into account a deferred tax benefit of approximately JPY0.5 billion. The deferred tax benefit is scheduled to be accounted for in 4Q08 (deferred tax expense is expected to be accounted for in the three other quarters of FY2008), whereas in FY2007 the deferred tax benefit was accounted for in 2Q07. It is expected that the quarter results of net income for FY2008 will be affected by the difference in the timing of accounting the deferred tax benefit.
IIJ targets a cash dividend of JPY2,000 per share of common stock for FY2008. 400 American Depository Shares represent 1 share of common stock.
Presentation
Presentation Materials will be posted on our web site (http://www.iij.ad.jp/en/IR/) on May 15, 2008.
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 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 FY2008 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 full FY2007 and 4Q07 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 99.85 = US$1.00.
(2) This Overview and Business Outlook contains forward-looking statements and projections such as statements regarding FY2008 revenues, operating income, income before income tax expense (benefit) 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. IIJ intends to publish its next Overview and Business Outlook in its 1Q08 earnings release, presently scheduled for release in August 2008.
(3) In this document, income before income tax expense represents income from operations before income tax expense (benefit), minority interests and equity in net loss of equity method investees in our consolidated financial statements.
(4) As 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 March 31, 2008 and March 31, 2007)
As of March 31,
---------------------------------------------------
2008 2007
----------------------------- -------------------
Thousands Thousands Thousands
of of of
US$ JPY % JPY %
------- ----------- ----- ----------- -----
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents 114,882 11,470,980 13,554,544
Short-term
investment 122 12,181 12,093
Accounts receivable,
net of allowance
for doubtful
accounts of JPY
24,677 thousand
and JPY 32,489
thousand at March
31, 2008 and
March 31, 2007,
respectively 122,736 12,255,163 9,675,725
Inventories 11,859 1,184,160 1,111,086
Prepaid expenses 20,083 2,005,274 1,053,270
Other current
assets, net of
allowance for
doubtful accounts
of JPY 7,470 thou-
sand and JPY 4,570
thousand at March
31, 2008 and
March 31, 2007,
respectively 15,602 1,557,869 930,571
------- ----------- -----------
Total current
assets 285,284 28,485,627 51.1 26,337,289 55.2
INVESTMENTS IN AND
ADVANCES TO EQUITY
METHOD INVESTEES,
net of loan loss
valuation allowance
of JPY 16,701 thou-
sand at March 31,
2008 and March 31,
2007,
respectively 9,927 991,237 1.8 858,490 1.8
OTHER INVESTMENTS 23,673 2,363,770 4.2 2,841,741 6.0
PROPERTY AND
EQUIPMENT--Net 117,579 11,740,210 21.1 9,832,396 20.6
INTANGIBLE ASSETS
-- Net 59,163 5,907,375 10.6 2,876,894 6.0
GUARANTEE DEPOSITS 20,402 2,037,165 3.7 1,686,141 3.5
OTHER ASSETS, net
of allowance for
doubtful accounts of
JPY 64,796 thousand
and JPY 69,050
thousand at March
31, 2008 and March
31, 2007,
respectively 41,834 4,177,162 7.5 3,260,053 6.9
------- ----------- -----------
TOTAL 557,862 55,702,546 100.0 47,693,004 100.0
------- ----------- -----------
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term
borrowings 91,637 9,150,000 6,050,000
Long-term borrow-
ings -- current
portion -- -- 290,000
Capital lease
obligations --
current portion 34,611 3,455,948 2,953,173
Accounts payable 79,071 7,895,238 8,464,835
Accrued expenses 9,956 994,138 897,355
Accrued retire-
ment and pension
costs 115 11,436 8,428
Other current
liabilities 25,315 2,527,677 2,469,058
------- ----------- -----------
Total current
liabilities 240,705 24,034,437 43.1 21,132,849 44.3
CAPITAL LEASE
OBLIGATIONS
-- Noncurrent 47,455 4,738,359 8.5 4,318,309 9.1
ACCRUED RETIREMENT
AND PENSION COSTS 11,036 1,101,951 2.0 750,042 1.5
OTHER NONCURRENT
LIABILITIES 5,538 552,984 1.0 564,618 1.2
------- ----------- -----------
Total Liabilities 304,734 30,427,731 54.6 26,765,818 56.1
------- ----------- -----------
MINORITY INTEREST 2,946 294,102 0.6 815,182 1.7
------- ----------- -----------
COMMITMENTS AND
CONTINGENCIES -- -- -- -- --
SHAREHOLDERS' EQUITY:
Common-stock
--authorized,
377,600 shares;
issued and out-
standing, 206,478
shares at March
31, 2008 168,591 16,833,847 30.2 16,833,847 35.3
--authorized,
377,600 shares;
issued and out-
standing, 204,300
shares at March
31, 2007
Additional paid-
in capital 276,532 27,611,737 49.6 26,599,217 55.8
Accumulated
deficit (195,849) (19,555,489) (35.1) (24,270,769) (50.9)
Accumulated other
comprehensive
income 908 90,618 0.1 949,709 2.0
------- ----------- -----------
Total
shareholders'
equity 250,182 24,980,713 44.8 20,112,004 42.2
------- ----------- -----------
TOTAL 557,862 55,702,546 100.0 47,693,004 100.0
------- ----------- -----------
---------------------------------------------------------------------
Note: The U.S. dollar (US$) amounts represent translation of yen
amounts at the rate of JPY 99.85, which was the noon buying rate in
New York City for cable transfers in foreign currencies as certified
for customs purposes by the Federal Reserve Bank of New York prevailing
as of March 31, 2008.
Appendix 2
Internet Initiative Japan Inc.
------------------------------
Quarterly Consolidated Statements of Income (Unaudited)
-------------------------------------------------------
(For the three months ended March 31, 2008 and March 31, 2007)
Three Months Ended March 31,
------------------------------------------------
2008 2007
---------------------------- ------------------
Thousands Thousands % of Thousands % of
of of total of total
US$ JPY revenues JPY revenues
------- ---------- ------ ---------- ------
REVENUES:
Connectivity and
value-added
services:
Connectivity
(corporate use) 31,485 3,143,769 2,893,306
Connectivity
(home use) 16,244 1,621,966 491,912
Value-added
services 25,866 2,582,651 1,907,196
Other 11,003 1,098,671 940,932
------- ---------- ----------
Total 84,598 8,447,057 6,233,346
Systems integra-
tion 98,193 9,804,596 10,180,819
Equipment sales 2,346 234,240 609,277
------- ---------- ----------
Total revenues 185,137 18,485,893 100.0 17,023,442 100.0
------- ---------- ----------
COST AND EXPENSES:
Cost of connectivity
and value-added
services 70,451 7,034,489 5,148,513
Cost of systems
integration 69,955 6,985,004 8,015,544
Cost of equipment
sales 2,018 201,526 494,168
------- ---------- ----------
Total cost 142,424 14,221,019 76.9 13,658,225 80.2
Sales and
marketing 11,789 1,177,093 6.4 895,910 5.3
General and
administrative 12,215 1,219,673 6.6 1,269,946 7.5
Research and
development 610 60,935 0.3 55,296 0.3
------- ---------- ----------
Total cost and
expenses 167,038 16,678,720 90.2 15,879,377 93.3
------- ---------- ----------
OPERATING INCOME 18,099 1,807,173 9.8 1,144,065 6.7
------- ---------- ----------
OTHER INCOME
(EXPENSES):
Interest income 228 22,786 11,855
Interest expense (1,093) (109,116) (93,078)
Foreign exchange
losses (9) (921) (43)
Net gains on
sales of other
investments -- -- 1,549,514
Losses on write-
down of other
investments (1,045) (104,365) (1,362,360)
Other--net 313 31,306 51,228
------- ---------- ----------
Other income
(expenses)--
net (1,606) (160,310) (0.9) 157,116 0.9
------- ---------- ----------
INCOME FROM OPERA-
TIONS BEFORE
INCOME TAX EXPENSE,
MINORITY INTERESTS
AND EQUITY IN NET
LOSS OF EQUITY
METHOD INVESTEES 16,493 1,646,863 8.9 1,301,181 7.6
INCOME TAX EXPENSE 5,525 551,688 3.0 63,244 0.4
MINORITY INTERESTS
IN (EARNINGS)
LOSSES OF
SUBSIDIARIES 452 45,100 0.3 (37,684) (0.2)
EQUITY IN NET LOSS
OF EQUITY METHOD
INVESTEES (518) (51,677) (0.3) (49,389) (0.3)
------- ---------- ----------
NET INCOME 10,902 1,088,598 5.9 1,150,864 6.7
------- ---------- ----------
---------------------------------------------------------------------
Three Months Ended
March 31,
-----------------------
2008 2007
---------- ----------
BASIC WEIGHTED-AVERAGE NUMBER OF SHARES 206,478 204,000
DILUTED WEIGHTED- AVERAGE NUMBER OF SHARES 206,565 204,419
BASIC WEIGHTED-AVERAGE NUMBER OF
ADS EQUIVALENTS 82,591,200 81,600,000
DILUTED WEIGHTED-AVERAGE NUMBER OF
ADS EQUIVALENTS 82,626,000 81,767,600
---------------------------------------------------------------------
---------------------------------------------------------------------
Three Months Ended
March 31,
------------------------
2008 2007
------------- --------
US$ JPY JPY
----- ----- -----
BASIC NET INCOME PER SHARE 52.8 5,272 5,641
DILUTED NET INCOME PER SHARE 52.78 5,270 5,630
BASIC NET INCOME PER ADS EQUIVALENT 0.13 13.18 14.10
DILUTED NET INCOME PER ADS EQUIVALENT 0.13 13.18 14.07
----- ----- -----
Note: The U.S. dollar (US$) amounts represent translation of yen
amounts at the rate of JPY 99.85, which was the noon buying rate in
New York City for cable transfers in foreign currencies as certified
for customs purposes by the Federal Reserve Bank of New York
prevailing as of March 31, 2008.
Appendix 3
Internet Initiative Japan Inc.
------------------------------
Quarterly Condensed Consolidated Statements of Cash Flows
(Unaudited)
----------------------------------------------------------
(For the three months ended March 31, 2008 and March 31, 2007)
Three Months Ended March 31,
---------------------------------------
2008 2007
------------------------- -----------
Thousands Thousands Thousands
of US$ of JPY of JPY
----------- ----------- -----------
OPERATING ACTIVITIES:
Net income 10,902 1,088,598 1,150,864
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 12,954 1,293,410 993,433
Provision for doubtful
accounts and advances 67 6,653 12,207
Net gains on sales of other
investments -- -- (1,549,514)
Losses on write-down of other
investments 1,045 104,365 1,362,360
Foreign exchange losses 65 6,460 291
Equity in net loss of equity
method investees 518 51,677 49,389
Minority interests in earnings
(losses) of subsidiaries (452) (45,100) 37,684
Deferred income tax expense
(benefit) 1,373 137,116 (271,410)
Others 1,193 119,090 236,316
Changes in operating assets
and liabilities:
Increase in accounts
receivable (4,636) (462,870) (1,488,766)
Decrease (Increase) in
inventories, prepaid
expenses and other current
and noncurrent assets 3,563 355,753 (624,654)
Increase in accounts payable 9,582 956,746 2,254,522
Increase in accrued expenses,
other current and noncurrent
liabilities 4,720 471,341 662,913
------- ---------- ----------
Net cash provided by
operating activities 40,894 4,083,239 2,825,635
------- ---------- ----------
INVESTING ACTIVITIES:
Purchase of property and
equipment (2,416) (241,255) (301,539)
Purchase of available-for-sale
securities (927) (92,512) (232,438)
Purchase of short-term and
other investments (1) (148) (286,358)
Proceeds from sales of
available-for-sale securities -- -- 1,798,674
Proceeds from sales and
redemption of short-term and
other investments 492 49,143 88,665
Investment in an equity method
investee (236) (23,520) --
Proceeds from sales of
investment in an equity method
investee 0 -- 185,900
Purchase of subsidiary stock
from minority shareholders 0 -- (3,050,205)
Payment of guarantee deposits
--net (628) (62,740) (101,015)
Other (94) (9,392) (18,277)
------- ---------- ----------
Net cash used in investing
activities (3,810) (380,424) (1,916,593)
------- ---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of
short-term borrowings with
initial maturities over
three months 16,274 1,625,000 1,700,000
Repayments of short-term
borrowings with initial
maturities over three months
and long-term borrowings (4,006) (400,000) (2,010,363)
Repayments of securities
loan agreement -- -- (561,600)
Principal payments under
capital leases (9,441) (942,700) (686,262)
Increase (decrease) in short-
term borrowings with initial
maturities less than three
months--net (17,276) (1,725,000) 50,000
Proceeds from issuance of
subsidiary stock 60 6,000 194,679
------- ---------- ----------
Net cash used in financing
activities (14,389) (1,436,700) (1,313,546)
------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENT (96) (9,582) 3,938
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENT 22,599 2,256,533 (400,566)
CASH AND CASH EQUIVALENT,
BEGINNING OF EACH PERIOD 92,283 9,214,447 13,955,110
------- ---------- ----------
CASH AND CASH EQUIVALENT,
END OF EACH PERIOD 114,882 11,470,980 13,554,544
------- ---------- ----------
Note: The U.S. dollar (US$) amounts represent translation of yen
amounts at the rate of JPY 99.85, 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 March 31, 2008.
Note: The following information is provided to disclose IIJ's
financial results (unaudited) for the fiscal year ended March
31, 2008 in the form defined by the Tokyo Stock Exchange.
Consolidated Financial Results for the Fiscal Year Ended March 31,
2008
(Under accounting principles generally accepted in the United States
("U.S. GAAP"))
May 15, 2008
Company name: Internet Initiative Exchange listed:
Japan Inc. 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
Annual general shareholder's meeting: scheduled on June 27, 2008
Payment of dividend: Scheduled to be started on June 28, 2008
Filing of an annual report (Yuka-shoken-hokokusho) to the regulatory
organization in Japan:
Scheduled on June 28, 2008
(Amounts of less than JPY one million are rounded)
1. Consolidated Financial Results for the Fiscal Year Ended March 31,
2008
(April 1, 2007 to March 31, 2008)
(1) Consolidated Results of Operations (% shown is YoY change)
---------------------------------------------------------------------
Income before
Income
Total Operating Tax Expense
Revenues Income (Benefit) Net Income
---------------------------------------------------------------------
JPY JPY JPY JPY
millions % millions % millions % millions %
Fiscal Year
Ended 66,835 17.1 4,759 36.0 4,362 (13.6) 5,177 (4.3)
March 31, 2008
Fiscal Year
Ended 57,055 14.5 3,500 45.2 5,049 (6.1) 5,410 13.8
March 31, 2007
---------------------------------------------------------------------
---------------------------------------------------------------------
Income
before
Income
Net Income Tax
to Expense
Basic Diluted Net Total (Benefit) Operating
Net Income Income Shareholders' to Total Margin
per Share per Share Equity Assets Ratio
---------------------------------------------------------------------
JPY JPY % % %
Fiscal Year
Ended March 25,100 25,072 23.0 8.4 7.1
31, 2008
Fiscal Year
Ended March 26,519 26,487 26.8 10.3 6.1
31, 2007
---------------------------------------------------------------------
(Reference) Equity in net loss of equity method investees was JPY 143
million and JPY 210 million for the fiscal year ended
March 31, 2008 and the fiscal year ended March 31, 2007,
respectively.
(Note) In this document, income before income tax expense (benefit)
represents income from operations before income tax expense
(benefit), minority interests and equity in net loss of equity
method investees in IIJ's consolidated financial statements.
(2) Consolidated Financial Position
---------------------------------------------------------------------
Shareholders'
Equity as a
Total Shareholders' percentage of Shareholders'
Assets Equity Total Assets Equity per share
---------------------------------------------------------------------
JPY JPY
millions millions % JPY
Fiscal Year
Ended March 55,703 24,981 44.8 120,985
31, 2008
Fiscal Year
Ended March 47,693 20,112 42.2 98,592
31, 2007
---------------------------------------------------------------------
(Note) Shareholders' equity, shareholders' equity as a percentage of
total assets and shareholders' equity per share are calculated
and presented in accordance with U.S. GAAP.
(3) Consolidated Cash Flows
---------------------------------------------------------------------
Net cash
provided Cash
Net cash Net cash by and Cash
provided used in (used in) Equivalents,
by operating investing financing end of
activities activities activities period
---------------------------------------------------------------------
JPY JPY JPY JPY
millions millions millions millions
Fiscal Year Ended
March 31, 2008 4,538 (5,444) (1,152) 11,471
Fiscal Year Ended
March 31, 2007 7,402 (3,014) (4,560) 13,555
---------------------------------------------------------------------
2. Dividends
---------------------------------------------------------------------
Dividend per Share
------------------------
Total Ratio of
cash Dividends to
dividends Shareholder's
for Payout Ratio Equity
Interim Year-end Total the year (consolidated) (consolidated)
---------------------------------------------------------------------
Millions
of
Yen Yen Yen Yen % %
Fiscal
Year
Ended
March
31,
2007 -- 1,500.00 1,500.00 306 5.7 1.5
Fiscal
Year
Ended
March
31,
2008 750.00 1,000.00 1,750.00 361 7.0 1.6
---------------------------------------------------------------------
Fiscal
Year
Ended
March
31,
2009
(Tar-
get) 1,000.00 1,000.00 2,000.00 7.9
---------------------------------------------------------------------
(Note) Please see our press release of "The change in the amount of
year-end dividend plan for the fiscal year ending March 31,
2008", published on May 15, 2008.
3. Target of Consolidated Financial Results for the Fiscal Year
Ending March 31, 2009
(April 1, 2008 through March 31, 2009 (% shown is YoY change)
---------------------------------------------------------------------
Income
before
Income
Tax Basic Net
Total Operating Expense Net Income
Revenues Income (Benefit) Income per share
---------------------------------------------------------------------
JPY % JPY % JPY % JPY % JPY
millions millions millions millions
Interim
Period
Ending
September
30, 2009 34,500 15.0 1,850 1.9 1,650 (2.8) 800 (77.0) 3,875
Fiscal year
ending
March 31,
2009 78,500 17.5 5,200 9.3 4,700 7.8 5,200 0.5 25,184
---------------------------------------------------------------------
(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
Fiscal Year Ended March 31, 2008
(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:
For the Fiscal Year Ended March 31, 2008 206,478 shares
For the Fiscal Year Ended March 31, 2007 204,300 shares
2) The number of treasury stock:
For the Fiscal Year Ended March 31, 2008 0 shares
For the Fiscal Year Ended March 31, 2007 0 shares
3) The weighted average number of shares outstanding:
For the Fiscal Year Ended March 31, 2008 206,240 shares
For the Fiscal Year Ended March 31, 2007 203,992 shares
Consolidated Financial Statements (Unaudited)
(From April 1, 2007 through March 31, 2008)
(1) Consolidated Balance Sheets
---------------------------------------------------------
As of As of
March 31, 2008 March 31, 2007 Change
-------------------------- ----------------- ----------
Thousands Thousands Thousands Thousands
of US$ of JPY % of JPY % of JPY
------- ---------- ----- ---------- ----- ----------
ASSETS
CURRENT ASSETS:
Cash and
cash equi-
valent 114,882 11,470,980 13,554,544 (2,083,564)
Short term
investment 122 12,181 12,093 88
Accounts
receivable,
net of allow-
ance for doubt-
ful accounts of
JPY 24,677
thousand and
JPY 32,489
thousand at
March 31, 2008
and March 31,
2007, respec-
tively 122,736 12,255,163 9,675,725 2,579,438
Inventories 11,859 1,184,160 1,111,086 73,074
Prepaid
expenses 20,083 2,005,274 1,053,270 952,004
Other current
assets, net
of allowance
for doubtful
accounts of
JPY 7,470
thousand and
JPY 4,570
thousand at
March 31, 2008
and March 31,
2007, respec-
tively 15,602 1,557,869 930,571 627,298
------- ---------- ---------- ----------
Total
current
assets 285,284 28,485,627 51.1 26,337,289 55.2 2,148,338
INVESTMENTS IN
AND ADVANCES
TO EQUITY
METHOD
INVESTEES, net
of loan loss
valuation
allowance of
JPY 16,701
thousand at
March 31, 2008
and March 31,
2007 9,927 991,237 1.8 858,490 1.8 132,747
OTHER INVEST-
MENTS 23,673 2,363,770 4.2 2,841,741 6.0 (477,971)
PROPERTY AND
EQUIPMENT--
Net 117,579 11,740,210 21.1 9,832,396 20.6 1,907,814
INTANGIBLE
ASSETS--Net 59,163 5,907,375 10.6 2,876,894 6.0 3,030,481
GUARANTEE
DEPOSITS 20,402 2,037,165 3.7 1,686,141 3.5 351,024
OTHER ASSETS,
net of
allowance for
doubtful
accounts of
JPY 64,796
thousand and
JPY 69,050
thousand at
March 31, 2008
and March 31,
2007, respec-
tively 41,834 4,177,162 7.5 3,260,053 6.9 917,109
------- ---------- ---------- ----------
TOTAL 557,862 55,702,546 100.0 47,693,004 100.0 8,009,542
------- ---------- ---------- ----------
---------------------------------------------------------
As of As of
March 31, 2008 March 31, 2007 Change
-------------------------- ----------------- ----------
Thousands Thousands Thousands Thousands
of US$ of JPY % of JPY % of JPY
------- ---------- ----- ---------- ----- ----------
LIABILITIES
AND SHARE-
HOLDERS'
EQUITY
CURRENT
LIABILITIES:
Short-term
borrowings 91,637 9,150,000 6,050,000 3,100,000
Long-term
borrowings
--current
portion -- -- 290,000 (290,000)
Capital lease
obligations
--current
portion 34,611 3,455,948 2,953,173 502,775
Accounts
payable 79,071 7,895,238 8,464,835 (569,597)
Accrued
expenses 9,956 994,138 897,355 96,783
Accrued re-
tirement
and pension
costs 115 11,436 8,428 11,436
Other current
liabilities 25,315 2,527,677 2,469,058 58,619
------- ---------- ---------- ----------
Total
current
liabil-
ities 240,705 24,034,437 43.1 21,132,849 44.3 2,901,588
CAPITAL LEASE
OBLIGATIONS--
Noncurrent 47,455 4,738,359 8.5 4,318,309 9.1 420,050
ACCRUED RETIRE-
MENT AND
PENSION
COSTS 11,036 1,101,951 2.0 750,042 1.5 351,909
OTHER NON-
CURRENT LIA-
BILITIES 5,538 552,984 1.0 564,618 1.2 (11,634)
------- ---------- ---------- ----------
Total Lia-
bilities 304,734 30,427,731 54.6 26,765,818 56.1 3,661,913
------- ---------- ---------- ----------
MINORITY
INTEREST 2,946 294,102 0.6 815,182 1.7 (521,080)
------- ---------- ---------- ----------
COMMITMENTS
AND CON-
TINGENCIES -- -- -- -- -- --
SHAREHOLDERS' EQUITY:
Common-stock
--authorized,
377,600
shares; issued
and out-
standing,
206,478 shares
at March 31,
2008
--authorized,
377,600
shares; issued
and out-
standing,
204,300 shares
at March 31,
2007 168,591 16,833,847 30.2 16,833,847 35.3 --
Additional
paid-in
capital 276,532 27,611,737 49.6 26,599,217 55.8 1,012,520
Accumulated
deficit (195,849)(19,555,489) (35.1)(24,270,769) (50.9) 4,715,280
Accumulated
other com-
prehensive
income 908 90,618 0.1 949,709 2.0 (859,091)
------- ---------- ---------- ----------
Total share-
holders'
equity 250,182 24,980,713 44.8 20,112,004 42.2 4,868,709
------- ---------- ---------- ----------
TOTAL 557,862 55,702,546 100.0 47,693,004 100.0 8,009,542
------- ---------- ----- ---------- ----- ----------
---------------------------------------------------------------------
Note: The U.S. dollar (US$) amounts represent translation of yen
amounts at the rate of JPY 99.85, which was the noon buying rate in
New York City for cable transfers in foreign currencies as certified
for customs purposes by the Federal Reserve Bank of New York
prevailing as of March 31, 2008.
(2) Consolidated Statements of Income
---------------------------------------------------------------------
Fiscal Year Ended
---------------------------------------------
March 31, 2008 March 31, 2007 Change
---------------------------------------------------------
% of % of
Thousands Thousands total Thousands total Thousands
of US$ of JPY revenues of JPY revenues of JPY
------- ---------- ----- ---------- ----- ----------
REVENUES:
Connectivity
and value-
added services:
Connectivity
(corporate
use) 121,668 12,148,490 11,239,062 909,428
Connectivity
(home
use) 54,381 5,429,955 1,968,948 3,461,007
Value-added
services 95,606 9,546,254 7,415,533 2,130,721
Other 41,842 4,177,964 3,729,633 448,331
------- ---------- ---------- ----------
Total 313,497 31,302,663 24,353,176 6,949,487
Systems in-
tegration 340,692 34,018,093 30,527,081 3,491,012
Equipment
sales 15,168 1,514,543 2,174,324 (659,781)
------- ---------- ---------- ----------
Total
revenues 669,357 66,835,299 100.0 57,054,581 100.0 9,780,718
------- ---------- ---------- ----------
COST AND EXPENSES:
Cost of
connectivity
and value-
added
services 260,788 26,039,660 20,545,358 5,494,302
Cost of
systems in-
tegration 255,815 25,543,168 23,529,045 2,014,123
Cost of
equipment
sales 13,018 1,299,793 1,893,216 (593,423)
------- ---------- ---------- ----------
Total
cost 529,621 52,882,621 79.1 45,967,619 80.6 6,915,002
Sales and
marketing 43,351 4,328,598 6.5 3,438,725 6.0 889,873
General and
administra-
tive 46,312 4,624,293 6.9 3,970,692 7.0 653,601
Research and
development 2,408 240,423 0.4 177,273 0.3 63,150
------- ---------- ---------- ----------
Total cost
and
expenses 621,692 62,075,935 92.9 53,554,309 93.9 8,521,626
------- ---------- ---------- ----------
OPERATING
INCOME 47,665 4,759,364 7.1 3,500,272 6.1 1,259,092
------- ---------- ---------- ----------
OTHER INCOME
(EXPENSES):
Interest
income 631 63,030 23,037 39,993
Interest
expense (4,388) (438,163) (397,439) (40,724)
Foreign
exchange
gains
(losses) 14 1,409 (297) 1,706
Net gains on
sales of
other invest-
ments 2,183 217,957 3,229,899 (3,011,942)
Losses on
write-down
of other
investments (2,891) (288,643) (1,363,389) 1,074,746
Other--net 468 46,715 56,605 (9,890)
------- ---------- ---------- ----------
Other income
--net (3,983) (397,695) (0.6) 1,548,416 2.7 (1,946,111)
------- ---------- ---------- ----------
INCOME FROM
OPERATIONS
BEFORE INCOME
TAX EXPENSE
(BENEFIT),
MINORITY IN-
TERESTS AND
EQUITY IN NET
LOSS OF EQUITY
METHOD
INVESTEES 43,682 4,361,669 6.5 5,048,688 8.8 (687,019)
------- ---------- ---------- ----------
INCOME TAX
EXPENSE
(BENEFIT) (8,627) (861,414) (1.3) (803,943) (1.4) (57,471)
MINORITY
INTERESTS IN
EARNINGS OF
SUBSIDIARIES 969 96,706 0.1 (232,719) (0.4) 329,425
EQUITY IN NET
LOSS OF
EQUITY METHOD
INVESTEES (1,434) (143,200) (0.2) (210,199) (0.3) 66,999
------- ---------- ---------- ----------
NET INCOME 51,844 5,176,589 7.7 5,409,713 9.5 (233,124)
------- ---------- ---------- ----------
---------------------------------------------------------------------
Fiscal Year Ended
------------------------------------------------
March 31, 2008 March 31, 2007
------------------------- ----------------
US$ JPY JPY
---------------------------------------------------------------------
BASIC WEIGHTED-
AVERAGE NUMBER OF
SHARES 206,240 203,992
DILUTED WEIGHTED-
AVERAGE NUMBER OF
SHARES 206,465 204,244
BASIC NET INCOME PER
SHARE 25,138 25,100 26,519
DILUTED NET INCOME
PER SHARE 251.1 25,072 26,487
----------------------------------------------------------------------
Note: The U.S. dollar (US$) amounts represent translation of yen
amounts at the rate of JPY 99.85, 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 March 31, 2008.
(3) Consolidated Statements of Shareholders' Equity
Consolidated statements of shareholders' equity for the fiscal year
ended March 31, 2008
(Unit: Thousands of JPY)
---------------------------------------------------------------------
Shares of
Common Stock Additional
Outstanding 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 5,176,589
Other comprehensive
loss, net of tax
Total comprehensive
loss
Payment of dividends (461,309)
Issuance of common
stock related to share
exchanges, net of
issuance cost 2,178 1,012,520
-----------------------------------------------
BALANCE, MARCH 31,
2008 206,478 16,833,847 27,611,737 (19,555,489)
-----------------------------------------------
---------------------------------------------------------------------
Accumulated Other
Comprehensive Treasury
Income Stock Total
---------------------------------------------------------------------
BALANCE, APRIL 1, 2007 949,709 -- 20,112,004
Net income 5,176,589
Other comprehensive loss,
net of tax (859,091) (859,091)
----------
Total comprehensive loss 4,317,498
Payment of dividends (461,309)
Issuance of common
stock related to
share exchanges,
net of issuance cost 1,012,520
-------------------------------------
BALANCE, MARCH 31, 2008 90,618 -- 24,980,713
-------------------------------------
---------------------------------------------------------------------
Consolidated statements of shareholders' equity for the fiscal year
ended March 31, 2008
(Unit: Thousands of U.S. Dollars)
---------------------------------------------------------------------
Shares of
Common Stock Additional
Outstanding Common Paid-in Accumulated
(Shares) Stock Capital Deficit
---------------------------------------------------------------------
BALANCE, APRIL 1,
2007 204,300 168,591 266,392 (243,072)
Net income 0 0 51,843
Other comprehensive
loss, net of tax 0 0 0
Total comprehensive
loss 0 0 0
Payment of dividends 0 0 (4,620)
Issuance of common
stock related to share
exchanges, net of
issuance cost 2,178 0 10,140 0
BALANCE, MARCH 31,
2008 206,478 168,591 276,532 (195,849)
-----------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Accumulated
Other
Comprehensive Treasury
Income Stock Total
---------------------------------------------------------------------
BALANCE, APRIL 1, 2007 9,511 -- 201,422
Net income 0 0 51,843
Other comprehensive loss,
net of tax (8,603) 0 (8,603)
--------
Total comprehensive loss 0 0 43,240
Payment of dividends 0 0 (4,620)
Issuance of common stock related
to share exchanges, net of
issuance cost 0 0 10,140
BALANCE, MARCH 31, 2008 908 -- 250,182
-------------------------------------
---------------------------------------------------------------------
Note: The U.S. dollar (US$) amounts represent translation of yen
amounts at the rate of JPY 99.85, 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 March 31, 2008.
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
income
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 income (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,
2007 949,709 -- 20,112,004
-------------------------------------
---------------------------------------------------------------------
(4) Condensed Consolidated Statements of Cash Flows
---------------------------------------------------------------------
Fiscal Year Ended March 31,
----------------------------------
2008 2007 Change
--------------------- ---------- ---------
Thousands Thousands Thousands Thousands
of US$ of JPY of JPY of JPY
-------- ---------- ---------- ---------
OPERATING ACTIVITIES:
Net income 51,844 5,176,589 5,409,713 (233,124)
Adjustments to recon-
cile net income to
net cash provided by
operating activities:
Depreciation and
amortization 47,820 4,774,804 4,228,048 546,756
Provision for
(reversal of)
doubtful accounts
and advances (4) (416) 12,232 (12,648)
Net gains on sales
and exchange of
other investments (2,183) (217,957) (3,229,899) 3,011,942
Losses on write-
down of other
investments 2,891 288,643 1,363,389 (1,074,746)
Foreign exchange
losses (gains) 104 10,415 2,226 8,189
Equity in net loss
of equity method
investees 1,434 143,200 210,199 (66,999)
Minority interests
in earnings (losses)
of subsidiaries (969) (96,706) 232,719 (329,425)
Deferred income tax
benefit (16,558) (1,653,275) (1,494,685) (158,590)
Others 2,635 263,143 534,035 (270,892)
Changes in operating
assets and liabilities:
Decrease (increase)
in accounts
receivable (25,882) (2,584,327) 2,376,126 (4,960,453)
Increase in inven-
tories, prepaid
expenses and other
current and non-
current assets (9,969) (995,434) (1,235,003) 239,569
Decrease (increase)
in accounts
payable (6,695) (668,481) (1,872,969) 1,204,488
Increase in accrued
expenses, other
current and non-
current liabilities 977 97,548 865,376 (767,828)
---------------------------------------------------------------------
Net cash provided
by operating
activities 45,446 4,537,746 7,401,507 (2,863,761)
---------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of property
and equipment (18,590) (1,856,249) (1,287,906) (568,343)
Purchase of available-
for-sale securities (6,107) (609,787) (802,662) 192,875
Purchase of short-
term and other
investments (2,325) (232,122) (1,794,358) 1,562,236
Investment in an
equity method
investee -- (273,909) -- (273,909)
Proceeds from sales
of investment in an
equity method investee 0 0 185,900 (185,900)
Purchase of subsidiary
stock from minority
shareholders (19,781) (1,975,123) (3,077,764) 1,102,641
Proceeds from sales
of available-for-sale
securities 698 69,722 3,883,915 (3,266,995)
Proceeds from sales
and redemption of
short-term and other
investments 6,178 616,920 110,446 (40,724)
Acquisition of a
newly controlled
company, net of cash
acquired -- (788,608) 0 (788,608)
Acquisition of
businesses 0 0 (74,751) 74,751
Refund (payment) of
guarantee
deposits--net (3,426) (342,064) (118,411) (223,653)
Other (324) (52,546) (38,020) (14,526)
---------------------------------------------------------------------
Net cash used in
investing
activities (54,519) (5,443,766) (3,013,611) (2,430,155)
---------------------------------------------------------------------
Fiscal Year Ended March 31,
----------------------------------
2008 2007 Change
--------------------- ---------- ---------
Thousands Thousands Thousands Thousands
of US$ of JPY of JPY of JPY
-------- ---------- ---------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance
of short-term borrow-
ings with initial
maturities over three
months and long-term
borrowings 175,513 17,525,000 10,500,000 7,025,000
Repayments of short-
term borrowings with
initial maturities
over three months
and long-term
borrowings (159,639) (15,940,000) (7,639,963) (8,300,037)
Proceeds from
securities loan
agreement 0 0 1,057,680 (1,057,680)
Repayments of
securities loan
agreement 0 0 (2,057,280) 2,057,280
Principal payments
under capital
leases (35,121) (3,506,842) (3,259,875) (246,967)
Increase (decrease)
in short-term borrow-
ings with initial
maturities less than
three months--net (28,538) 1,225,000 (3,355,000) 4,580,000
Proceeds from issuance
of subsidiary stock to
minority shareholders 60 6,000 194,679 (188,679)
Dividends paid -- (461,309) 0 (461,309)
---------------------------------------------------------------------
Net cash used in
financing
activities (38,786) (1,152,151) (4,559,759) 3,407,608
---------------------------------------------------------------------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND
CASH EQUIVALENT (254) (25,393) (614) (24,779)
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENT (20,867) (2,083,564) (172,477) (1,911,087)
CASH AND CASH EQUI-
VALENT, BEGINNING OF
YEAR 135,749 13,554,544 13,727,021 (172,477)
---------------------------------------------------------------------
CASH AND CASH EQUI-
VALENT, END OF YEAR 114,882 11,470,980 13,554,544 (2,083,564)
---------------------------------------------------------------------
---------------------------------------------------------------------
ADDITIONAL CASH FLOW
INFORMATION:
Interest paid 4,395 438,850 383,461 55,389
Income taxes paid 10,850 1,083,341 347,826 735,515
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of assets
by entering into
capital leases 42,281 4,221,807 2,664,706 1,557,101
Purchase of minority
interests of con-
solidated subsidiaries
through share
exchanges 10,140 1,012,520 0 1,012,520
Acquisition of
business and a
company:
Assets acquired 23,228 2,319,277 236,307 2,082,970
Cash paid (17,180) (1,715,450) (74,751) (1,640,699)
Liabilities
assumed 3,685 367,989 161,556 206,433
---------------------------------------------------------------------
Note: The U.S. dollar (US$) amounts represent translation of yen
amounts at the rate of JPY 99.85, 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 March 31, 2008.