FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934
For February 13, 2006
Commission File Number: 0-30204
Internet Initiative Japan Inc.
(Translation of registrant's name into English)
Jinbocho Mitsui Bldg. 1-105 Kanda Jinbo-cho, Chiyoda-ku, Tokyo 101-0051, Japan
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F: Form
20-F [ X ] Form 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
per-mitted by Regulation S-T Rule 101(b)(1): ____
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a
Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
per-mitted by Regulation S-T Rule 101(b)(7): ____
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a
Form 6-K if submitted to furnish a report or other document that the registrant
foreign private issuer must furnish and make public under the laws of the
jurisdiction in which the reg-istrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
mate-rial event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [ X ]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
----------
EXHIBIT INDEX
Exhibit Date Description of Exhibit
------- ---- ----------------------
1 2006/02/10 IIJ Announces Third Quarter Results for the Year
Ending March 31, 2006
2 2006/02/10 IIJ Announces Revision of Target for the Fiscal
Year Ending March 31, 2006
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Internet Initiative Japan Inc.
Date: February 13, 2006 By:/s/ Koichi Suzuki
-------------------------------------
Koichi Suzuki
President, Chief Executive
Officer and Representative
Director
Exhibit 1
IIJ Announces Third Quarter Results for the Year Ending
March 31, 2006; Steady Expansion of Revenues and Profits
from the Same Quarter Last Year
TOKYO & NEW YORK--(BUSINESS WIRE)--Feb. 10, 2006--Internet
Initiative Japan Inc. (Nasdaq: IIJI, Tokyo Stock Exchange Mothers:
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, 2006 ("FY2005").(1)
Highlights of Third Quarter FY2005 Results
-- Revenue totaled JPY 11,870 million ($100.7 million), an
increase of 15.7% from 3Q04.
-- Operating income was JPY 691 million ($5.9 million), an
increase of 68.4% from 3Q04.
-- Net income was JPY 1,189 million ($10.1 million), an increase
of 80.3% from 3Q04.
Target for FY2005(2)
-- Due to the steady increase in outsourcing and systems
integration ("SI") projects, we revise our revenue and net
income targets for FY2005 that we announced on November 9,
2005. We are increasing our revenue target by 3.6% to JPY 48.0
billion and our net income target by 18.9% to JPY 4.4 billion.
Our target for operating income remains unchanged.
Overview of 3rd Quarter of FY2005 Financial Results and Business
Outlook(2)
"In December 2005, we listed on the Mothers market of the Tokyo
Stock Exchange ("TSE")," said Koichi Suzuki, President and CEO of IIJ.
"Back in August 1999, we became the first Japanese company to list on
NASDAQ without a domestic listing, and now six years later, we are
very pleased to list in the market that also shares our major customer
base. This marks the first quarterly financial results announcement
since our listing in Japan, and we are quite satisfied with the
continued progress that we have been making. For the quarter, we
recorded significantly higher revenue and income compared to the same
period last year. This was mainly due to continued revenue growth from
outsourcing services and systems integration projects, and is largely
a reflection of expanding corporate investment in Japan for
information technology and network systems. We believe that this
positive business climate will continue in the fourth quarter and as a
result, we have raised our guidance accordingly."
"During the quarter, we also experienced several significant
business developments," continued Koichi Suzuki. "From a service
standpoint, we enhanced our security service line-ups that cater to
various corporate customers. In October 2005, we announced our plans
to launch two main services. First, we introduced the "IBPS Database
Security Assessment Service" to evaluate the vulnerability of internal
corporate databases and to prevent the risk of tampering or
information leaks. The second was the "IIJ DDoS Solution Service,"
which protects corporate network systems from large scale external
cyber attacks. In November 2005, we introduced the "IIJ Quarantine
Network Solution" service to check, isolate, treat, disinfect and
delete any computer that is improperly connected to a corporate
network. In addition, our SEIL Management Framework ("SMF"), a
proprietary network management system that controls routers at
customer sites from a central location, was steadily provided to more
vendors, including Oki Electric Industry Co., Ltd. and NTT
Communications Corporation, on an Original Equipment Manufacturing
("OEM") basis. As our progress with these developments demonstrates,
we continue to try to increase revenues from higher-margin outsourcing
services, such as our various value-added services, by adapting new
technologies into products."
"From a business standpoint, we are happy to report that we
established a joint venture with Konami Corporation ("Konami") called
"Internet Revolution Inc." (or "i-revo") that would operate
comprehensive Internet portals. We will provide a safe and secure
networking environment while Konami will use its expertise in digital
entertainment content development to provide customers with what we
believe will be an innovative new online experience."
3rd Quarter FY2005 Financial Results
Operating Result Summary
(JPY in millions)
3Q05 3Q04 YoY %
change
----------------------------------------------------------------------
Total Revenues 11,870 10,261 15.7%
----------------------------------------------------------------------
Total Costs 9,652 8,486 13.7%
----------------------------------------------------------------------
SG&A Expenses and R&D 1,527 1,365 11.9%
----------------------------------------------------------------------
Operating Income 691 410 68.4%
----------------------------------------------------------------------
Income before Income Tax Expense 1,333 743 79.4%
----------------------------------------------------------------------
Net Income 1,189 660 80.3%
----------------------------------------------------------------------
Revenues
Revenues in 3Q05 totaled JPY 11,870 million, an increase of 15.7%
from JPY 10,261 million in 3Q04.
Revenues (JPY in millions)
Revenues
(JPY in millions)
3Q05 3Q04 YoY %
change
----------------------------------------------------------------------
Total Revenues: 11,870 10,261 15.7%
----------------------------------------------------------------------
Connectivity and Value-added Services 5,840 5,666 3.1%
----------------------------------------------------------------------
Systems Integration 5,261 3,970 32.5%
----------------------------------------------------------------------
Equipment Sales 769 625 23.0%
----------------------------------------------------------------------
Connectivity and Value-added Services ("VAS") revenues were JPY
5,840 million in 3Q05, an increase of 3.1 % compared to 3Q04. The
revenues from connectivity services decreased by JPY 234 million as a
result of the reorganization of IIJ's group companies in October 2005.
Asia Internet Holding Co., Ltd. ("AIH"), a former equity method
investee, was merged into IIJ which eliminated the revenues related to
the interconnection of Internet backbones with AIH. However, total
connectivity and VAS revenues increased compared to 3Q04 due to a
steady increase in revenues from value-added services, mainly for data
center services, security services, e-mail solutions such as
anti-spam, and the connection of multiple operational sites.
SI revenues increased 32.5% to JPY 5,261 million in 3Q05 compared
to 3Q04. The increase was mainly due to a steady increase in revenues
from higher-margin outsourced operations, as well as an increase in
revenues from one-time systems integration.
Equipment sales revenues were JPY 769 million in 3Q05, an increase
of 23.0% compared to 3Q04.
Cost and expense
Cost of revenues was JPY 9,652 million in 3Q05, an increase of
13.7% compared to 3Q04.
Cost of Revenues
(JPY in millions)
3Q05 3Q04 YoY %
change
----------------------------------------------------------------------
Cost of Revenues: 9,652 8,486 13.7%
----------------------------------------------------------------------
Connectivity and Value-added Services 5,035 4,874 3.3%
----------------------------------------------------------------------
Systems Integration 3,910 3,031 29.0%
----------------------------------------------------------------------
Equipment Sales 707 581 21.6%
----------------------------------------------------------------------
Cost of Connectivity and VAS revenues was JPY 5,035 million in
3Q05, an increase of 3.3% compared to 3Q04.
Cost of SI revenues was JPY 3,910 million in 3Q05, an increase of
29.0% compared to 3Q04. The increase was mainly due to an increase in
purchase, outsourcing expenses and personnel expenses that were caused
by an increase in systems integration projects.
Cost of Equipment Sales revenues was JPY 707 million in 3Q05, an
increase of 21.6% compared to 3Q04.
Sales and marketing expenses were JPY 755 million in 3Q05, an
increase of 10.4% compared to 3Q04. The increase was mainly due to an
increase in personnel and advertising expenses.
General and administrative expenses were JPY 739 million in 3Q05,
an increase of 16.8% compared to 3Q04. The increase was mainly due to
an increase in personnel expenses.
Operating income
Operating income was JPY 691 million in 3Q05, an increase of 68.4%
compared to 3Q04. The increase was mainly due to the increase of the
gross margin ratio by 1.4 points to 18.7%, reflecting the increase of
revenues from higher-margin value-added services and systems
integration projects.
Other income and others
Other income in 3Q05 was JPY 642 million, an increase from JPY 333
million in 3Q04. The increase was mainly due to an increase in gain
from sale of available-for-sale securities and a decrease in interest
expense caused by the redemption of convertible notes in March 2005.
The income tax expense for 3Q05 was JPY 28 million. Equity in net
income of equity method investees totaled to JPY 21 million in 3Q05.
Net income was JPY 1,189 million in 3Q05, an increase of 80.3%
compared to 3Q04. The increase was mainly due to an increase in
operating income, and an increase in gain from sale of
available-for-sale securities.
3rd Quarter FY2005 Business Review
Analysis by Service
Connectivity and Value-added Services
The number of contracts and contracted bandwidth for dedicated
access services continued to increase steadily. The number of
contracts for dedicated access services increased by 4,297 to 13,724
compared to 3Q04. As a result, the contracted bandwidth increased by
76.0Gbps to 185.5Gbps compared to 3Q04. For IP Service, the number of
contracts for over 100Mbps increased, reflecting that a number of
corporate customers increased their bandwidth.
Dedicated access service revenues were JPY 2,580 million in 3Q05,
a decrease of 7.2% compared to 3Q04, mainly due to a decrease in
revenues by JPY 234 million that was caused by the reorganization of
IIJ's group companies in October 2005 (AIH, a former equity method
investee, was merged into IIJ and it eliminated the revenues related
to the interconnection of Internet backbones with AIH), although the
number of contracts for broadband services increased due to an
increase of multi-site connection projects.
Dial-up access service revenues were JPY 647 million in 3Q05, a
decrease of 10.9% compared to 3Q04, mainly due to the decrease in
revenues from services for individual customers, such as IIJ4U.
VAS revenues were JPY 1,649 million in 3Q05, an increase of 29.2%
compared to 3Q04. The increase was mainly due to a steady increase in
revenues from data center-related services, server outsourcing such as
e-mails, network outsourcing services such as SEIL, SMF for multi-site
connection projects, and overall, was affected by an increase in
corporate demand for outsourced operations.
Other revenues were JPY 964 million in 3Q05, an increase of 9.3%
compared to 3Q04. The increase was mainly due to a steady increase in
revenues from Wide-area Ethernet Services.
As a result, revenues from Internet connectivity and value-added
services in 3Q05 were JPY 5,840 million, an increase of 3.1% compared
to 3Q04. The gross margin of Internet connectivity and value-added
services in 3Q05 was JPY 806 million, an increase of 1.7% compared to
3Q04. The gross margin ratio of Internet connectivity and value-added
services in 3Q05 was 13.8% compared to 14.0% in 3Q04.
Number of Contracts for Connectivity Services
3Q05 3Q04 YoY
Change
----------------------------------------------------------------------
Dedicated Access Service Contracts 13,724 9,427 4,297
----------------------------------------------------------------------
IP Service (Low Bandwidth:
64kbps-768kbps)(3) 51 67 (16)
----------------------------------------------------------------------
IP Service (Medium Bandwidth:
1Mbps-99Mbps)(3) 645 609 36
----------------------------------------------------------------------
IP Service (High Bandwidth:
100Mbps-) 145 103 42
----------------------------------------------------------------------
IIJ T1 Standard and IIJ Economy 154 313 (159)
----------------------------------------------------------------------
IIJ Data Center Connectivity Service 240 228 12
----------------------------------------------------------------------
IIJ FiberAccess/F and IIJ DSL/F
(Broadband Services) 12,489 8,107 4,382
----------------------------------------------------------------------
Dial-up Access Service Contracts 647,464 708,517 (61,053)
----------------------------------------------------------------------
Dial-up Access Services, under IIJ
Brand 61,640 69,260 (7,620)
----------------------------------------------------------------------
Dial-up Access Services, OEM(4) 585,824 639,257 (53,433)
----------------------------------------------------------------------
Total Contracted Bandwidth 185.5Gbps 109.5Gbps 76.0Gbps
----------------------------------------------------------------------
Connectivity and VAS Revenue Breakdown and Cost
(JPY in millions)
3Q05 3Q04 YoY %
Change
----------------------------------------------------------------------
Connectivity Service Revenues 3,227 3,508 (8.0%)
----------------------------------------------------------------------
Dedicated Access Service Revenues 2,580 2,781 (7.2%)
----------------------------------------------------------------------
IP Service (5) 1,987 2,186 (9.1%)
----------------------------------------------------------------------
IIJ T1 Standard and IIJ Economy 98 195 (49.8%)
----------------------------------------------------------------------
IIJ FiberAccess/F and IIJ DSL/F
(Broadband Services) 495 400 23.5%
----------------------------------------------------------------------
Dial-up Access Service Revenues 647 727 (10.9%)
----------------------------------------------------------------------
Under IIJ Brand 421 478 (11.9%)
----------------------------------------------------------------------
OEM 226 249 (8.9%)
----------------------------------------------------------------------
VAS Revenues 1,649 1,276 29.2%
----------------------------------------------------------------------
Other Revenues 964 882 9.3%
----------------------------------------------------------------------
Total Connectivity and VAS Revenues 5,840 5,666 3.1%
----------------------------------------------------------------------
Cost of Connectivity and VAS 5,035 4,874 3.3%
----------------------------------------------------------------------
Backbone Cost (included in the cost of
Connectivity and VAS) 884 858 3.0%
----------------------------------------------------------------------
Connectivity and VAS Gross Margin Ratio 13.8% 14.0% --
----------------------------------------------------------------------
Systems Integration
Revenue from systems integration was JPY 5,261 million in 3Q05, an
increase of 32.5% compared to 3Q04. The increase was mainly due to
increased revenue from outsourced operations of JPY 2,821 million that
will generate steady monthly recurring revenue, as well as an increase
in revenues from one-time systems integration. Revenue from outsourced
operations increased by 22.8% compared to 3Q04. The gross margin ratio
for SI in 3Q05 increased by 2.0 points to 25.7% compared to 3Q04. The
improvement in gross margin was mainly due to the increase in
higher-margin outsourced operations.
Systems Integration Revenue Breakdown and Cost
(JPY in millions)
3Q05 3Q04 YoY %
Change
----------------------------------------------------------------------
Systems Integration Revenues 5,261 3,970 32.5%
----------------------------------------------------------------------
Systems Integration 2,440 1,672 46.0%
----------------------------------------------------------------------
Outsourced Operation 2,821 2,298 22.8%
----------------------------------------------------------------------
Cost of Systems Integration 3,910 3,031 29.0%
----------------------------------------------------------------------
Systems Integration Gross Margin Ratio 25.7% 23.7% --
----------------------------------------------------------------------
Equipment Sales
Revenue from equipment sales was JPY 769 million in 3Q05. The
gross margin ratio for equipment sales in 3Q05 was 8.0%.
Equipment Sales Revenue and Cost
(JPY in millions)
3Q05 3Q04 YoY %
change
----------------------------------------------------------------------
Equipment Sales Revenues 769 625 23.0%
----------------------------------------------------------------------
Cost of Equipment Sales 707 581 21.6%
----------------------------------------------------------------------
Equipment Sales Gross Margin Ratio 8.0% 7.0% --
----------------------------------------------------------------------
Other Financial Statistics
Other Financial Statistics
(JPY in millions)
3Q05 3Q04 YoY %
change
----------------------------------------------------------------------
Adjusted EBITDA(6) 1,751 1,508 16.1%
----------------------------------------------------------------------
CAPEX, including capital leases(7) 1,697 2,017 (15.9%)
----------------------------------------------------------------------
Depreciation and amortization(8) 1,060 1,116 (5.1%)
----------------------------------------------------------------------
Reconciliation of Non-GAAP Financial Measures
The following table summarizes the reconciliation of adjusted
EBITDA to net income according to the consolidated statements of
income that are prepared in accordance with accounting principles
generally accepted in the U.S. ("U.S. GAAP") and presented on page 10:
Adjusted EBITDA
(JPY in millions)
3Q05 3Q04
----------------------------------------------------------------------
Adjusted EBITDA 1,751 1,508
----------------------------------------------------------------------
Depreciation and Amortization(9) (1,060) (1,098)
----------------------------------------------------------------------
Operating Income 691 410
----------------------------------------------------------------------
Other Income (Expenses) 642 333
----------------------------------------------------------------------
Income Tax Expense 28 39
----------------------------------------------------------------------
Minority Interests in Earnings of Subsidiaries (137) (43)
----------------------------------------------------------------------
Equity in Net Income (Loss) of Equity Method
Investees 21 (1)
----------------------------------------------------------------------
Net Income (Loss) 1,189 660
----------------------------------------------------------------------
The following table summarizes the reconciliation of capital
expenditures to the purchase of property and equipment according to
the consolidated statements of cash flows that are prepared and
presented in accordance with U.S. GAAP on page 12:
CAPEX
(JPY in millions)
3Q05 3Q04
----------------------------------------------------------------------
Capital Expenditures 1,697 2,017
----------------------------------------------------------------------
Acquisition of Assets by Entering into
Capital Leases 1,308 1,911
----------------------------------------------------------------------
Purchase of Property and Equipment 389 106
----------------------------------------------------------------------
Target
Our initial target for the annual fiscal year and the revised
target are as follows:
(JPY in millions)
Income from
Operations
before Income
Tax Expense,
Operating Minority Net Income
Revenues Income Interests and
Equity in Net
Income (Loss)
of Equity
Method
Investees
----------------------------------------------------------------------
Target Announced on
November 9, 2005 (A) 46,330 2,320 3,990 3,700
----------------------------------------------------------------------
Target Revised (B) 48,000 2,320 4,800 4,400
----------------------------------------------------------------------
Change (B-A) 1,670 -- 810 700
----------------------------------------------------------------------
Change (%) 3.6% -- 20.3% 18.9%
----------------------------------------------------------------------
(For Reference) Fiscal
Year Ended March 31,
2005 41,703 1,248 3,149 2,906
----------------------------------------------------------------------
The increase in our net income target is mainly due to the
expected sale of available-for-sale securities. The resulting
investment gains will be reflected in our net income.
For the details on the revision of the target, please see the
press release, "IIJ Announces Revision of Target for the Fiscal Year
Ending March 31, 2006" that IIJ announced on February 10, 2006.
Presentation
On February 11, 2005, IIJ will post a presentation of its results
on its website. For details, please access the following URL:
http://www.iij.ad.jp/en/IR/
About Internet Initiative Japan Inc.
Founded in 1992, Internet Initiative Japan Inc. (IIJ, NASDAQ:
IIJI, Tokyo Stock Exchange Mothers: 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.
(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 3Q05 results,
translations of Japanese yen amounts into US dollars are solely for
the convenience of readers outside of Japan and have been made at the
rate of JPY 117.88 = US$1.00, the approximate exchange rate on
December 31, 2005. 3Q04 figures have been restated to reflect the
change in income tax expense (benefit) previously announced by IIJ in
its press release dated April 11, 2005.
(2) This Overview and Business Outlook contains forward-looking
statements and projections such as statements regarding FY2005
revenues and operating and net income that are subject to known and
unknown risks and uncertainties that could cause actual results to
differ materially from those expressed or implied by these statements.
These risks and uncertainties include, but are not limited to, the
factors noted at the end of this release and to the risk factors and
other information included in IIJ's annual report on Form 20-F, filed
with the SEC on August 3, 2005, as well as other filings and documents
furnished to the Securities and Exchange Commission. IIJ plans to keep
this press release publicly available on its Web site (www.iij.ad.jp),
but may discontinue this practice at any time. IIJ intends to publish
its next Overview and Business Outlook in its 4Q05 earnings release,
presently scheduled for release in May 2006.
(3) Including IPv6 Services.
(4) OEM services provided to other service providers.
(5) IP Service revenues includes revenues from Data Center
Connectivity Service.
(6) Please refer to the Reconciliation of Non-GAAP Financial Measures
below.
(7) Please refer to the Reconciliation of Non-GAAP Financial Measures
on the next page.
(8) Depreciation and amortization in 3Q04 includes amortization of
issuance cost of convertible notes.
(9) Depreciation and amortization in 3Q04 excludes amortization of
issuance cost of convertible notes that was included in other
expenses.
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 FY2005 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.
Quarterly Consolidated Financial Statements
(From October 1, 2005 through December 31, 2005)
(1) Quarterly Consolidated Balance Sheets
As of December 31, 2005 As of March 31,
(Unaudited) 2005
-----------------------------------------------------------------------------
Thousands Thousands Thousands
of U.S. of Yen of Yen
Dollars % %
-----------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents 109,607 12,920,492 5,286,477
Accounts receivable,
net of allowance
for doubtful
accounts of JPY
17,268 thousand and
JPY 41,400 thousand
at December 31,
2005 and March 31,
2005, respectively 57,111 6,732,241 7,407,439
Inventories 5,995 706,657 140,096
Prepaid expenses 10,523 1,240,384 604,935
Other current
assets 1,082 127,593 108,228
-----------------------------------------------
Total current
assets 184,318 21,727,367 49.4 13,547,175 36.5
INVESTMENTS IN AND
ADVANCES TO EQUITY
METHOD INVESTEES,
net of loan loss
valuation allowance
of JPY 31,378
thousand and JPY
31,378 thousand at
December 31, 2005
and March 31, 2005,
respectively 4,020 473,954 1.1 713,607 1.9
OTHER INVESTMENTS 74,220 8,749,015 19.9 9,930,781 26.8
PROPERTY AND
EQUIPMENT--Net 81,056 9,554,859 21.7 9,722,366 26.2
INTANGIBLE ASSETS--
Net 5,363 632,224 1.5 561,211 1.5
GUARANTEE DEPOSITS 17,798 2,098,008 4.8 2,050,665 5.5
OTHER ASSETS, net of
allowance for
doubtful accounts of
JPY 40,654 thousand
and JPY 376,092
thousand at December
31, 2005 and March
31, 2005,
respectively 6,080 716,725 1.6 590,666 1.6
-----------------------------------------------
TOTAL 372,855 43,952,152 100.0 37,116,471 100.0
-----------------------------------------------
As of December 31, 2005 As of March 31,
(Unaudited) 2005
--------------------------------------------------------------------------------
Thousands Thousands of Thousands of
of U.S. Yen Yen
Dollars % %
--------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS'
EQUITY
CURRENT
LIABILITIES:
Short-term
borrowings 43,860 5,170,216 4,724,633
Payable under
securities loan
agreement 9,577 1,128,960 1,729,520
Long-term
borrowings--
current portion 20,266 2,388,977 2,736,056
Capital lease
obligations--
current portion 23,973 2,825,959 2,774,974
Accounts payable 34,745 4,095,648 4,860,733
Accrued expenses 5,021 591,887 541,118
Other current
liabilities 13,529 1,594,807 817,517
---------------------------------------------------
Total current
liabilities 150,971 17,796,454 40.5 18,184,551 49.0
LONG-TERM
BORROWINGS 8,487 1,000,363 2.3 1,529,963 4.1
CAPITAL LEASE
OBLIGATIONS
--Noncurrent 36,474 4,299,577 9.8 4,339,028 11.7
ACCRUED RETIREMENT
AND PENSION COSTS 1,722 203,022 0.5 143,346 0.4
OTHER NONCURRENT
LIABILITIES 3,820 450,326 1.0 275,533 0.7
---------------------------------------------------
Total Liabilities 201,474 23,749,742 54.1 24,472,421 65.9
---------------------------------------------------
MINORITY INTEREST 9,776 1,152,396 2.6 1,028,977 2.8
COMMITMENTS AND
CONTINGENCIES -- -- --
SHAREHOLDERS'
EQUITY:
Common-stock--
authorized,
377,600 shares;
issued and
outstanding,
204,300 shares at
December 31,
2005, authorized,
377,600 shares;
issued and
outstanding,
191,800 shares at
March 31, 2005 142,805 16,833,847 38.3 13,765,372 37.1
Additional paid-in
capital 225,647 26,599,217 60.5 23,637,628 63.7
Accumulated
deficit (268,255) (31,621,887) (72.0) (34,434,052) (92.8)
Accumulated other
comprehensive
income 62,123 7,323,075 16.7 8,690,125 23.4
Treasury stock--
777 shares and
602 shares held
by an equity
method investee
at December 31,
2005 and March
31, 2005,
respectively (715) (84,238) (0.2) (44,000) (0.1)
---------------------------------------------------
Total
shareholders'
equity 161,605 19,050,014 43.3 11,615,073 31.3
---------------------------------------------------
TOTAL 372,855 43,952,152 100.0 37,116,471 100.0
---------------------------------------------------
(Note)
1) The translations of Japanese Yen amounts into U.S. dollar amounts
with respect to December 31, 2005 are included solely for the
convenience of readers outside Japan and have been made at the rate of
JPY 117.88=$1, the appropriate rate of exchange on December 31, 2005.
2) IIJ conducted a 1 for 5 stock split effective on October 11, 2005.
The numbers of shares of common stock authorized, and issued and
outstanding, and shares held by an equity method investee in this
table are calculated with the assumption that the stock split was made
at the beginning of FY2004. IIJ issued 12,500 new shares of common
stock for public offering when it listed on the Mothers market of TSE
in December 2005.
(2) Quarterly Consolidated Statements of Income
Three Months Ended
December 31, 2005
(Unaudited)
----------------------------------------------------------------------
Thousands Thousands % of
of U.S. of Yen total
Dollars revenues
----------------------------------------------------------------------
REVENUES:
Connectivity and value-added
services:
Dedicated access 21,884 2,579,659 21.7
Dial-up access 5,494 647,596 5.5
Value-added services 13,988 1,648,893 13.9
Other 8,181 964,417 8.1
-------------------------------
Total 49,547 5,840,565 49.2
Systems integration 44,629 5,260,867 44.3
Equipment sales 6,522 768,794 6.5
-------------------------------
Total revenues 100,698 11,870,226 100.0
-------------------------------
COST AND EXPENSES:
Cost of connectivity and value-added
services 42,713 5,034,990 42.4
Cost of systems integration 33,172 3,910,321 32.9
Cost of equipment sales 5,998 707,030 6.0
-------------------------------
Total cost 81,883 9,652,341 81.3
Sales and marketing 6,404 754,918 6.4
General and administrative 6,269 738,931 6.2
Research and development 283 33,331 0.3
-------------------------------
Total cost and expenses 94,839 11,179,521 94.2
-------------------------------
OPERATING INCOME 5,859 690,705 5.8
-------------------------------
OTHER INCOME (EXPENSES):
Interest income 15 1,795 0.0
Interest expense (918) (108,252) (0.9)
Foreign exchange losses (14) (1,650) (0.0)
Gain on other investments--net 6,246 736,212 6.2
Other--net 116 13,693 0.1
-------------------------------
Other income (expenses)-- net 5,445 641,798 5.4
-------------------------------
INCOME FROM OPERATIONS BEFORE INCOME
TAX EXPENSE, MINORITY INTERESTS AND
EQUITY IN NET INCOME (LOSS) OF
EQUITY METHOD INVESTEES 11,304 1,332,503 11.2
-------------------------------
INCOME TAX EXPENSE 233 27,449 0.2
MINORITY INTERESTS IN (EARNINGS)
LOSSES OF SUBSIDIARIES (1,164) (137,167) (1.2)
EQUITY IN NET INCOME (LOSS) OF EQUITY
METHOD INVESTEES 178 20,964 0.2
-------------------------------
NET INCOME 10,085 1,188,851 10.0
----------------------------------------------------------------------
Three Months Ended
December 31, 2004
(Unaudited)
----------------------------------------------------------------------
Thousands % of YoY
of Yen total %
revenues
----------------------------------------------------------------------
REVENUES:
Connectivity and value-added
services:
Dedicated access 2,780,955 27.1 (7.2)
Dial-up access 726,798 7.1 (10.9)
Value-added services 1,275,958 12.4 29.2
Other 882,466 8.6 9.3
-------------------------------
Total 5,666,177 55.2 3.1
Systems integration 3,969,610 38.7 32.5
Equipment sales 625,196 6.1 23.0
-------------------------------
Total revenues 10,260,983 100.0 15.7
-------------------------------
COST AND EXPENSES:
Cost of connectivity and value-added
services 4,873,759 47.5 3.3
Cost of systems integration 3,030,666 29.5 29.0
Cost of equipment sales 581,368 5.7 21.6
-------------------------------
Total cost 8,485,793 82.7 13.7
Sales and marketing 683,731 6.6 10.4
General and administrative 632,874 6.2 16.8
Research and development 48,406 0.5 (31.1)
-------------------------------
Total cost and expenses 9,850,804 96.0 13.5
-------------------------------
OPERATING INCOME 410,179 4.0 68.4
-------------------------------
OTHER INCOME (EXPENSES):
Interest income 1,942 0.0
Interest expense (174,605) (1.7)
Foreign exchange losses (13,463) (0.1)
Gain on other investments--net 528,766 5.1
Other--net (10,016) (0.1)
-------------------------------
Other income (expenses)-- net 332,623 3.2 93.0
-------------------------------
INCOME FROM OPERATIONS BEFORE INCOME
TAX EXPENSE, MINORITY INTERESTS AND
EQUITY IN NET INCOME (LOSS) OF
EQUITY METHOD INVESTEES 742,802 7.2 79.4
-------------------------------
INCOME TAX EXPENSE 39,436 0.4 (30.4)
MINORITY INTERESTS IN (EARNINGS)
LOSSES OF SUBSIDIARIES (43,040) (0.4) 218.7
EQUITY IN NET INCOME (LOSS) OF EQUITY
METHOD INVESTEES (795) 0.0 (2,737.0)
-------------------------------
NET INCOME 659,531 6.4 80.3
----------------------------------------------------------------------
Three Months Ended Three Months Ended
December 31, 2005 December 31, 2004
(Unaudited) (Unaudited)
----------------------------------------------------------------------
Thousands Thousands % of Thousands % of YoY
of U.S. of Yen total of Yen total %
Dollars revenues revenues
----------------------------------------------------------------------
WEIGHTED-AVERAGE
NUMBER OF
SHARES 195,565 191,559
WEIGHTED-AVERAGE
NUMBER OF
SHARES
(INCLUDING
POTENTIAL
SHARES) 196,132 191,559
WEIGHTED-AVERAGE
NUMBER OF ADS
EQUIVALENTS 78,226,137 76,623,702
WEIGHTED-AVERAGE
NUMBER OF ADS
EQUIVALENTS
(INCLUDING
POTENTIAL
SHARES) 78,452,932 76,623,702
BASIC NET INCOME
PER SHARE 6,079 3,443
DILUTED NET
INCOME PER
SHARE 6,061 3,443
BASIC NET INCOME
PER ADS
EQUIVALENT 15.20 8.61
DILUTED NET
INCOME PER ADS
EQUIVALENT 15.15 8.61
----------------------------------------------------------------------
(Note)
1) The translations of Japanese Yen amounts into U.S. dollar amounts
with respect to the three months ended December 31, 2005 are included
solely for the convenience of readers outside Japan and have been made
at the rate of JPY 117.88=$1, the appropriate rate of exchange on
December 31, 2005.
2) IIJ conducted a 1 for 5 stock split effective on October 11, 2005.
The weighted-average numbers of shares of common stock in this table
are calculated with the assumption that the stock split was made at
the beginning of FY2004. IIJ issued 12,500 new shares of common stock
for public offering when it listed on the Mothers market of TSE in
December 2005. The numbers are calculated with the number of IIJ
shares of common stock outstanding reduced by the number of IIJ's
shares owned by IIJ's equity method investee multiplied by IIJ's
percentage ownership in the equity method investee. All potential
common shares are shares issuable upon exercise of stock options or
conversion of convertible notes. Diluted net income per share are
computed in consideration of a dilutive effect of the potential common
shares.
(3) Quarterly Condensed Consolidated Statements of Cash Flows
Three Months Ended Three Months Ended
December 31, 2005 December 31, 2004
(Unaudited) (Unaudited)
----------------------------------------------------------------------
Thousands of Thousands of Yen Thousands of Yen
U.S. Dollars
----------------------------------------------------------------------
OPERATING
ACTIVITIES:
Net income 10,085 1,188,851 659,531
Adjustments to
reconcile net
income to net
cash provided by
operating
activities:
Depreciation
and
amortization 8,991 1,059,859 1,116,447
Provision for
doubtful
accounts (137) (16,180) (18,455)
Gains on other
investments--
net (6,245) (736,212) (527,300)
Foreign
exchange
losses (gains) (30) (3,495) 14,912
Equity in net
income (loss)
of equity
method
investees (178) (20,964) 795
Minority
interests in
earnings of
subsidiaries 1,164 137,167 43,040
Deferred income
tax expense 95 11,262 633
Others 1 138 53,395
Changes in
operating assets
and liabilities:
Decrease
(increase) in
accounts
receivable (234) (27,566) 582,873
Increase in
inventories (3,565) (420,290) (109,964)
Decrease in
accounts
payable (8,100) (954,857) (985,459)
Others 6,220 733,252 (199,860)
----------------------------------------------------------------------
Net cash
provided by
operating
activities 8,067 950,965 630,588
----------------------------------------------------------------------
INVESTING
ACTIVITIES:
Purchase of
property and
equipment (3,300) (389,008) (105,946)
Purchase of other
investments (2,385) (281,181) (4,854)
Proceeds from
sales of other
investments 6,410 755,583 750,800
Refund of
guarantee
deposits--net 22 2,655 31,162
Acquisition of
business -- -- (371,011)
Other 313 36,943 (1,029)
----------------------------------------------------------------------
Net cash
provided by
investing
activities 1,060 124,992 299,122
----------------------------------------------------------------------
FINANCING
ACTIVITIES:
Proceeds from
issuance of
long-term
borrowings -- -- 1,250,000
Repayments of
long-term
borrowings (1,774) (209,133) (58,179)
Proceeds from
securities loan
agreement 18,346 2,162,640 722,800
Repayments of
securities loan
agreement (21,650) (2,552,080) (816,800)
Principal
payments under
capital leases (6,764) (797,392) (756,982)
Net increase
(decrease) in
short-term
borrowings 2,104 248,039 (906,360)
Proceeds from
issuance of
common stock,
net of issuance
cost 51,154 6,030,064 --
----------------------------------------------------------------------
Net cash
provided by
(used in)
financing
activities 41,416 4,882,138 (565,521)
----------------------------------------------------------------------
EFFECT OF EXCHANGE
RATE CHANGES ON
CASH 76 8,901 (7,564)
NET INCREASE IN
CASH AND CASH
EQUIVALENTS 50,619 5,966,996 356,625
CASH AND CASH
EQUIVALENTS,
BEGINNING OF EACH
PERIOD 58,988 6,953,496 11,802,165
----------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS, END
OF EACH PERIOD 109,607 12,920,492 12,158,790
----------------------------------------------------------------------
(Note)
1) The translations of Japanese Yen amounts into U.S. dollar amounts
with respect to the three months ended December 31, 2005 are included
solely for the convenience of readers outside Japan and have been made
at the rate of JPY 117.88=$1, the appropriate rate of exchange on
December 31, 2005.
Note: The following information is to disclose IIJ's financial results
for the nine months ended December 31, 2005 in the form defined by the
Tokyo Stock Exchange.
Overview of Financial Results for the Nine Months Ended December 31,
2005 (Consolidated)
(Prepared in accordance with Generally Accepted Accounting Principles
in the United States of America ("U.S. GAAP"))
February 10, 2006
Company name Internet Initiative Japan Inc.
("IIJ", stock code number: 3774, the Mothers Market of the Tokyo Stock
Exchange ("TSE"))
(URL http://www.iij.ad.jp/)
Contacts
Company representative:
Koichi Suzuki, President and Representative Director
Person-in-charge: Akihisa Watai, Director and CFO TEL:(03)-5259-6500
1. Items regarding Preparation of Quarterly Consolidated Financial
Results
(1) Standard used for preparation of the quarterly consolidated
financial statements:
Standard for Preparation of Interim Consolidated Financial Statements
(2) Changes in accounting method from the most recent fiscal year: No
(3) Changes in scope of consolidation and equity method: Yes
On October 1, 2005, IIJ Media Communications Inc. ("IIJ-MC"), IIJ's
former consolidated subsidiary, was merged into IIJ after a portion of
IIJ-MC's business was transferred to IIJ Technology Inc., our
consolidated subsidiary, on October 1, 2005. Asia Internet Holding
Co., Ltd., IIJ's former equity method investee, became IIJ's wholly
owned consolidated subsidiary, and was merged into IIJ on October 1,
2005. In each of the mergers, IIJ became the surviving company.
2. Overview of Financial Results for the Nine Months Ended December
31, 2005
(April 1, 2005 through December 31, 2005)
(1) Consolidated Results of Operations
(Amounts less than one million yen are rounded)
Total Revenues Operating Income
----------------------------------------------------------------------
Millions of Yen % Millions of Yen %
Nine months ended December
31, 2005 33,679 14.4 1,445 144.1
Nine months ended December
31, 2004 29,448 -- 592 --
----------------------------------------------------------------------
(For reference) Year ended
March 31, 2005 41,703 1,248
----------------------------------------------------------------------
Income before Income Net Income
Tax Expense
------------------------------------------------- --------------------
Millions of Yen % Millions of Yen %
Nine months ended December
31, 2005 3,111 307.4 2,812 332.2
Nine months ended December
31, 2004 764 -- 651 --
------------------------------------------------- --------------------
(For reference) Year ended
March 31, 2005 3,149 2,906
------------------------------------------------- --------------------
Basic Net Income Diluted Net Income
per Share per Share
----------------------------------------------------------------------
Yen Yen
Nine months ended December 31,
2005 14,580 14,559
Nine months ended December 31,
2004 3,397 3,397
----------------------------------------------------------------------
(For reference) Year ended March
31, 2005 15,172 15,172
----------------------------------------------------------------------
(Notes)
1) Equity in net income (loss) of equity method investees was equity
in net income of JPY 53 million, equity in net income of JPY 4 million
and equity in net loss of JPY 33 million for the nine months ended
December 31, 2005, the nine months ended December 31, 2004 and the
year ended March 31, 2005, respectively.
2) The weighted-average number of shares of common stock outstanding
(consolidated) was 192,872, 191,559 and 191,559 for the nine months
ended December 31, 2005, the nine months ended December 31, 2004 and
the year ended March 31, 2005, respectively. IIJ conducted a 1 for 5
stock split effective on October 11, 2005. The numbers are calculated
with the assumption that the stock spilt was made at the beginning of
the year ended March 31, 2005. IIJ issued 12,500 new shares of common
stock for public offering when it listed on the Mothers market of TSE
in December 2005. The numbers are calculated with the number of IIJ
shares of common stock outstanding deducted by the number of IIJ's
shares owned by IIJ's equity method investee multiplied by IIJ's
ownership in the equity method investee.
3) The percentage figures for the total revenues, operating income and
others for the nine months ended December 31, 2005 show an increase or
decrease compared to the same quarter in the last fiscal year. As IIJ
began to prepare the financial statements as required by TSE for the
nine months ended December 31, 2004, IIJ does not show the percentage
figures for the total revenues, operating income and others for the
nine months ended December 31, 2004.
4) The potential shares did not have a dilutive effect for the nine
months ended December 31, 2004 and the year ended March 31, 2005.
5) In this document, income before income tax expense represents
income from operations before income tax expense, minority interests
and equity in net income (loss) of equity method investees in IIJ's
consolidated financial statements.
(Qualitative Information Regarding Consolidated Results of
Operations)
(1) Overview of Results of Operations
For the nine months ended December 31, 2005, large-sized companies
and public organizations in Japan, which are IIJ Group's principal
customers, increasingly used Internet-related technologies for their
internal corporate networks or business systems. At the same time,
business network traffic has increased and corporate networks have
become increasingly complex. IIJ Group continued to capture the demand
for network outsourcing from these customers and provide highly
reliable total network solutions.
As a result, revenues through the nine months ended December 31,
2005 totaled JPY 33,679 million, an increase of 14.4% compared to the
nine months ended December 31, 2004, operating income totaled JPY
1,445 million, an increase of 144.1% compared to the nine months ended
December 31, 2004, income before income tax expense totaled JPY 3,111
million, an increase of 307.4% compared to the nine months ended
December 31, 2004, and net income totaled JPY 2,812 million, an
increase of 332.2% compared to the nine months ended December 31,
2004.
Results of operations by service are as follows:
a) Internet Connectivity and Value-added Services ("VAS")
Dedicated access service revenues were JPY 8,022 million, a
decrease of 6.0% compared to the nine months ended December 31, 2004.
A number of corporate customers have increased their bandwidth and the
number of contracts of broadband services increased with an increase
of multi-site connection projects. However, the revenues decreased
mainly due to a decrease of JPY 234 million due to the reorganization
of IIJ's group companies in October 2005 (Asia Internet Holding Co.,
Ltd. ("AIH"), a former equity method investee, was merged into IIJ and
it ceased the revenues related to the interconnection of Internet
backbones with AIH), and a decrease of a unit price per connection
speed.
Dial-up access service revenues were JPY 2,029 million, a decrease
of 8.6% compared to the nine months ended December 31, 2004. The
decrease was mainly due to the decreasing trend of revenues from
services for individual customers, such as IIJ4U.
VAS revenues were JPY 4,495 million, an increase of 22.1% compared
to the nine months ended December 31, 2004. The increase was mainly
due to a steady increase in revenues from data center-related
services, e-mail solutions such as anti-spam, network outsourcing
services such as SEIL, SMF for multi-site connection projects, and
overall, was favorably affected by an increase in corporate demand for
outsourced operations.
Other revenues were JPY 2,828 million, an increase of 29.1%
compared to the nine months ended December 31, 2004, due to an
increase in revenues from Wide-area Ethernet Services.
As a result, revenues from Internet connectivity and VAS in the
nine months ended December 31, 2005 were JPY 17,374 million, an
increase of 4.5% compared to the nine months ended December 31, 2004.
The gross margin of Internet connectivity and VAS was JPY 2,387
million, an increase of 10.6% compared to the nine months ended
December 31, 2004 and the gross margin ratio was 13.7%, an improvement
of 0.7 points compared to the nine months ended December 31, 2004,
which was mainly due to an increase in revenues from the higher-margin
VAS and a decrease of backbone costs.
(Connectivity and VAS Revenue Breakdown and Cost)
Nine Months Ended Nine Months Ended YoY %
December 31, 2005 December 31, 2004 Change
----------------------------------------------------------------------
Millions of Yen Millions of Yen %
----------------------------------------------------------------------
Connectivity Service
Revenues 10,051 10,750 (6.5%)
----------------------------------------------------------------------
Dedicated Access
Service Revenues 8,022 8,532 (6.0%)
----------------------------------------------------------------------
IP Service 1) 6,275 6,687 (6.2%)
----------------------------------------------------------------------
IIJ T1 Standard and
IIJ Economy 345 698 (50.5%)
----------------------------------------------------------------------
IIJ FiberAccess/F
and IIJ DSL/F
(Broadband Services) 1,402 1,147 22.2%
----------------------------------------------------------------------
Dial-up Access Service
Revenues 2,029 2,219 (8.6%)
----------------------------------------------------------------------
Under IIJ Brand 2) 1,343 1,488 (9.7%)
----------------------------------------------------------------------
OEM 3) 686 731 (6.2%)
----------------------------------------------------------------------
VAS Revenues 4,495 3,683 22.1%
----------------------------------------------------------------------
Other Revenues 2,828 2,190 29.1%
----------------------------------------------------------------------
Total Connectivity
and VAS Revenues 17,374 16,624 4.5%
----------------------------------------------------------------------
Cost of Connectivity and
VAS 14,987 14,465 3.6%
----------------------------------------------------------------------
Backbone Cost (included
in the cost of
Connectivity and VAS) 2,594 2,720 (4.6%)
----------------------------------------------------------------------
Connectivity and VAS
Gross Margin Ratio 13.7% 13.0% --
----------------------------------------------------------------------
(Notes)
1) IP Service revenues includes revenues from Data Center Connectivity
Service.
2) Dial-up Access Service revenues are the revenues from Dial-up
Access Services for corporate and individual customers, including
customers using the services with ADSL or FTTH for local accesses as
options. Dial-up Access Services for individual customers are mainly
IIJ4U and IIJmio.
3) OEM services are services provided to other service providers.
b) Systems integration ("SI")
Systems integration revenues in the nine months ended December 31,
2005 were JPY 14,263 million, an increase of 35.8% compared to the
nine months ended December 31, 2004. The increase is mainly due to an
increase of 44.6% to JPY 8,225 million in revenues from outsourced
operation that will generate steady monthly recurring revenues
compared to the nine months ended December 31, 2004, as well as an
increase in revenues from one-time systems integration. The gross
margin ratio for SI in the nine months ended December 31, 2005
increased by 2.5 points to 24.7% compared to the nine months ended
December 31, 2004. The improvement in gross margin was mainly due to
the increase in higher-margin outsourced operations.
(Systems Integration Revenue Breakdown and Cost)
Nine Months Ended Nine Months Ended YoY %
December 31, 2005 December 31, 2004 Change
----------------------------------------------------------------------
Millions of Yen Millions of Yen %
----------------------------------------------------------------------
SI Revenues 14,263 10,502 35.8%
----------------------------------------------------------------------
Systems Integration 6,038 4,812 25.5%
----------------------------------------------------------------------
Outsourced Operation 8,225 5,690 44.6%
----------------------------------------------------------------------
Cost of SI 10,739 8,170 31.5%
----------------------------------------------------------------------
SI Gross Margin Ratio 24.7% 22.2% --
----------------------------------------------------------------------
c) Equipment sales
Equipment sales revenues in the nine months ended December 31,
2005 were JPY 2,043 million. The gross margin ratio was 6.2%.
(Equipment Sales Revenue and Cost)
Nine Months Ended Nine Months Ended YoY %
December 31, 2005 December 31, 2004 Change
----------------------------------------------------------------------
Millions of Yen Millions of Yen %
----------------------------------------------------------------------
Equipment Sales Revenues 2,043 2,322 (12.0%)
----------------------------------------------------------------------
Cost of Equipment Sales 1,917 2,148 (10.8%)
----------------------------------------------------------------------
Equipment Sales Gross
Margin Ratio 6.2% 7.5% --
----------------------------------------------------------------------
(2) Changes in Consolidated Financial Position
(Amounts less than one million yen are rounded)
Equity- Shareholders'
Total Assets Shareholders' to- Equity per
Equity Assets Share
Ratio
----------------------------------------------------------------------
Millions of Millions of
Yen Yen % Yen
----------------------------------------------------------------------
As of December 31,
2005 43,952 19,050 43.3 93,387
----------------------------------------------------------------------
As of December 31,
2004 45,259 10,362 22.9 54,094
----------------------------------------------------------------------
(For reference) As
of March 31, 2005 37,116 11,615 31.3 60,634
----------------------------------------------------------------------
(Note)
The number of shares of common stock outstanding (consolidated) was
203,989, 191,559 and 191,559 as of December 31, 2005, December 31,
2004 and March 31, 2005, respectively. IIJ conducted a 1 for 5 stock
split effective on October 11, 2005. The numbers are calculated with
the assumption that the stock spilt had been made at the beginning of
the year ended March 31, 2005. IIJ issued 12,500 new shares of common
stock for public offering when it listed on the Mothers market of TSE
in December 2005. The numbers are calculated with the number of IIJ
shares of common stock outstanding reduced by the number of IIJ's
shares owned by IIJ's equity method investee multiplied by IIJ's
percentage ownership in the equity method investee.
(3) Consolidated Cash Flows
(Amounts less than one million yen are rounded)
Net cash Net cash Net cash Cash and
provided provided provided cash
by by by (used equivalents
operating investing in) at end of
activities activities financing period
activities
----------------------------------------------------------------------
Millions of Millions of Millions of Millions of
Yen Yen Yen Yen
----------------------------------------------------------------------
Nine months ended
December 31, 2005 3,948 971 2,685 12,920
----------------------------------------------------------------------
Nine months ended
December 31, 2004 2,697 127 (2,969) 12,159
----------------------------------------------------------------------
(For reference) Year
ended March 31, 2005 5,238 1,974 (14,213) 5,286
----------------------------------------------------------------------
(Note)
As for the cash flows, the effect of exchange rate changes on cash was
JPY 30 million, JPY 19 million and JPY 2 million for the nine months
ended December 31, 2005, the nine months ended December 31, 2004 and
the year ended March 31, 2005, respectively.
(Qualitative Information Regarding Changes in Consolidated
Financial Position)
The balance of cash and cash equivalents as of December 31, 2005
was JPY 12,920 million.
(Net cash provided by operating activities)
Net cash provided by operating activities increased by JPY 1,250
million to JPY 3,948 million from the nine months ended December 31,
2004. The factors to change the net cash provided by operating
activities were mainly an increase in operating income caused by an
increase in revenues from higher-margin VAS revenues, a decrease in
backbone costs and an increase in revenues from higher-margin
outsourced operations.
(Net cash provided by investing activities)
Net cash provided by investing activities increased by JPY 844
million to JPY 971 million from the nine months ended December 31,
2004. Purchases of property and equipment of JPY 717 million and
short-term and other investments of JPY 581 million partly offset
proceeds of JPY 2,252 million from sales and redemption of short-term
and other investments.
(Net cash provided by (used in) financing activities)
Net cash provided by financing activities increased to JPY 2,685
million from net cash used in financing activities of JPY 2,969
million in the nine months ended December 31, 2004. Repayments of
long-term borrowings of JPY 1,877 million, repayments of securities
loan agreement of JPY 4,498 million and principal payments under
capital leases of JPY 2,313 million partly offset proceeds from
issuance of common stock when IIJ listed on the Mothers market of TSE
of JPY 6,030 million, proceeds from issuance of long-term borrowings
of JPY 1,000 million and proceeds from securities loan agreement of
JPY 3,897 million.
3. Target of Consolidated Financial Results for the Year Ending March
31, 2006
(April 1, 2005 through March 31, 2006)
(Amounts less than one million yen are rounded)
Total Operating Income before
Revenues Income Income Tax Net Income
Expense
----------------------------------------------------------------------
Millions Millions Millions Millions
of Yen of Yen of Yen of Yen
----------------------------------------------------------------------
Year ending March 31,
2006 48,000 2,320 4,800 4,400
----------------------------------------------------------------------
(Reference) Net income per share for the year ending March 31, 2006,
based on the target above: JPY 21,537
(Notes)
1) IIJ conducted a 1 for 5 stock split effective on October 11, 2005.
IIJ issued 12,500 new shares of common stock for public offering when
it listed on the Mothers market of TSE in December 2005. The target
for net income per share above is calculated using the 204,300 shares
outstanding at the end of the nine months ended December 31, 2005.
2) 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 of the year ending March 31, 2006, 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.
(Qualitative Information regarding Targets for Consolidated
Financial Results)
IIJ revised its target for consolidated and non-consolidated
financial results for the year ending March 31, 2006 that we announced
on November 9, 2005, based on the financial results for the nine
months ended December 31, 2005. The revised target for the
consolidated financial results for the year ending March 31, 2006 are
as the above.
Along with a trend of increasing corporate spending related to
information networks reflecting steady corporate earnings and the
recovery of Japan's economy, the total revenues in the consolidated
financial results for the year ending March 31, 2006 are expected to
be higher than the target that we announced in November 2005. The
income before income tax expense and net income in the consolidated
financial results for the year ending March 31, 2006 are expected to
be higher than the target that we announced in November 2005, mainly
due to the expectedly increasing gains from sale of available-for-sale
securities reflected by the recovering securities market.
For details, please see the press release, "IIJ Announces Revision
of Target for the Fiscal Year Ending March 31, 2006" that IIJ
announced on February 10, 2006.
CONTACT: Internet Initiative Japan Inc.
IIJ Corporate Communications
Taisuke ONO or Naoshi YONEYAMA, +81-3-5259-6500
ir@iij.ad.jp
http://www.iij.ad.jp/
4. Quarterly Consolidated Financial Statements
(Unaudited, from April 1, 2005 through December 31, 2005)
(1) Quarterly Consolidated Balance Sheets
As of As of
As of December 31, 2005 December 31, 2004 March 31, 2005
------------------------------------------------------------------------------------------------------------------------------------
Thousands
of U.S. Thousands Thousands Thousands
Note Dollars of Yen % of Yen % of Yen %
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 109,607 12,920,492 12,158,790 5,286,477
Accounts receivable, net of allowance for doubtful
accounts of JPY 17,268 thousand, JPY 20,975
thousand and JPY 41,400 thousand at December 31,
2005, December 31, 2004 and March 31, 2005,
respectively 3 57,111 6,732,241 6,231,361 7,407,439
Inventories 5,995 706,657 372,144 140,096
Prepaid expenses 10,523 1,240,384 989,003 604,935
Other current assets 1,082 127,593 334,169 108,228
------------------------ ------------ ------------
Total current assets 184,318 21,727,367 49.4 20,085,467 44.4 13,547,175 36.5
INVESTMENTS IN AND ADVANCES TO EQUITY METHOD INVESTEES,
net of loan loss valuation allowance of JPY 31,378
thousand, JPY 23,900 thousand and JPY 31,378 thousand
at December 31, 2005, December 31, 2004 and March 31,
2005, respectively 3 4,020 473,954 1.1 759,585 1.7 713,607 1.9
OTHER INVESTMENTS 2, 5 74,220 8,749,015 19.9 11,072,053 24.4 9,930,781 26.8
PROPERTY AND EQUIPMENT --Net 4 81,056 9,554,859 21.7 10,003,936 22.1 9,722,366 26.2
INTANGIBLE ASSETS--Net 5,363 632,224 1.5 576,689 1.3 561,211 1.5
GUARANTEE DEPOSITS 4, 5 17,798 2,098,008 4.8 2,050,305 4.5 2,050,665 5.5
OTHER ASSETS, net of allowance for doubtful accounts
of JPY 40,654 thousand, JPY 320,883 thousand and JPY
376,092 thousand at December 31, 2005, December 31,
2004 and March 31, 2005 respectively 6,080 716,725 1.6 711,335 1.6 590,666 1.6
------------------------------------------------------------------------------------------------------------------------------------
TOTAL 372,855 43,952,152 100.0 45,259,370 100.0 37,116,471 100.0
------------------------------------------------------------------------------------------------------------------------------------
1
As of As of
As of December 31, 2005 December 31, 2004 March 31, 2005
------------------------------------------------------------------------------------------------------------------------------------
Thousands
of U.S. Thousands Thousands Thousands
Note Dollars of Yen % of Yen % of Yen %
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings 5 43,860 5,170,216 4,825,844 4,724,633
Payable under securities loan agreement 5 9,577 1,128,960 722,800 1,729,520
Long-term borrowings --current portion 5 20,266 2,388,977 2,185,094 2,736,056
Convertible notes 5 -- -- 11,088,000 --
Capital lease obligations--current portion 4 23,973 2,825,959 2,784,469 2,774,974
Accounts payable 3 34,745 4,095,648 3,566,158 4,860,733
Accrued expenses 5,021 591,887 665,821 541,118
Other current liabilities 13,529 1,594,807 780,267 817,517
------------------------ ------------ ------------
Total current liabilities 150,971 17,796,454 40.5 26,618,453 58.8 18,184,551 49.0
LONG-TERM BORROWINGS 5 8,487 1,000,363 2.3 2,389,339 5.3 1,529,963 4.1
CAPITAL LEASE OBLIGATIONS --Noncurrent 4 36,474 4,299,577 9.8 4,459,352 9.8 4,339,028 11.7
ACCRUED RETIREMENT AND PENSION COSTS 1,722 203,022 0.5 120,732 0.3 143,346 0.4
OTHER NONCURRENT LIABILITIES 3,820 450,326 1.0 320,393 0.7 275,533 0.7
------------------------ ------------ ------------
Total Liabilities 201,474 23,749,742 54.1 33,908,269 74.9 24,472,421 65.9
------------------------ ------------ ------------
MINORITY INTEREST 9,776 1,152,396 2.6 988,964 2.2 1,028,977 2.8
COMMITMENTS AND CONTINGENCIES 3, 6 -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
2
As of As of
As of December 31, 2005 December 31, 2004 March 31, 2005
------------------------------------------------------------------------------------------------------------------------------------
Thousands
of U.S. Thousands Thousands Thousands
Note Dollars of Yen % of Yen % of Yen %
------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common-stock--
authorized, 377,600 shares; issued and outstanding,
204,300 shares at December 31, 2005, authorized,
377,600 shares; issued and outstanding, 191,800
shares at December 31, 2004 and March 31, 2005 142,805 16,833,847 38.3 13,765,372 30.4 13,765,372 37.1
Additional paid-in capital 225,647 26,599,217 60.5 23,637,628 52.2 23,637,628 63.7
Accumulated deficit (268,255) (31,621,887) (72.0) (36,689,673) (81.0) (34,434,052)(92.8)
Accumulated other comprehensive income 62,123 7,323,075 16.7 9,692,810 21.4 8,690,125 23.4
Treasury stock--777 shares, 602 shares and 602 shares
held by an equity method investee at December 31,
2005, December 31, 2004 and March 31, 2005 (715) (84,238) (0.2) (44,000) (0.1) (44,000) (0.1)
------------------------ ------------ ------------
Total shareholders' equity 161,605 19,050,014 43.3 10,362,137 22.9 11,615,073 31.3
------------------------ ------------ ------------
TOTAL 372,855 43,952,152 100.0 45,259,370 100.0 37,116,471 100.0
------------------------ ------------ ------------
------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements for the nine months ended December 31, 2005.
(Note)
1) The translations of Japanese Yen amounts into U.S. dollar amounts with
respect to December 31, 2005 are included solely for the convenience of
readers outside Japan and have been made at the rate of JPY 117.88=$1, the
appropriate rate of exchange on December 31, 2005.
3
(2) Quarterly Consolidated Statements of Income
---------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended Year Ended
December 31, 2005 December 31, 2004 March 31, 2005
---------------------------------------------------------------------------------------------------------------------------------
Thousands % of % of % of
of U.S. Thousands total Thousands total Thousands total
Note Dollars of Yen revenues of Yen revenues of Yen revenues
---------------------------------------------------------------------------------------------------------------------------------
REVENUES: 3
Connectivity and value-added services:
Dedicated access 68,051 8,021,884 8,531,798 11,372,701
Dial-up access 17,210 2,028,705 2,218,688 2,936,973
Value-added services 38,135 4,495,343 3,682,914 5,004,730
Other 23,988 2,827,742 2,190,473 3,169,413
---------------------- ------------ ------------
Total 147,384 17,373,674 16,623,873 22,483,817
Systems integration 120,992 14,262,542 10,501,959 15,853,824
Equipment sales 17,331 2,042,933 2,322,386 3,364,926
---------------------- ------------ ------------
Total revenues 285,707 33,679,149 100.0 29,448,218 100.0 41,702,567 100.0
---------------------- ------------ ------------
COST AND EXPENSES:
Cost of connectivity and value-added services 3,4 127,136 14,986,811 14,465,368 19,483,890
Cost of systems integration 91,104 10,739,357 8,169,863 12,200,137
Cost of equipment sales 16,261 1,916,824 2,147,704 3,111,369
---------------------- ------------ ------------
Total cost 234,501 27,642,992 82.1 24,782,935 84.2 34,795,396 83.4
Sales and marketing 19,700 2,322,281 6.9 2,058,342 7.0 2,794,561 6.7
General and administrative 18,256 2,152,014 6.4 1,866,051 6.3 2,665,980 6.4
Research and development 994 117,182 0.3 149,011 0.5 198,979 0.5
---------------------- ------------ ------------
Total cost and expenses 273,451 32,234,469 95.7 28,856,339 98.0 40,454,916 97.0
---------------------- ------------ ------------
OPERATING INCOME 12,256 1,444,680 4.3 591,879 2.0 1,247,651 3.0
---------------------- ------------ ------------
OTHER INCOME (EXPENSES):
Interest income 82 9,669 8,655 12,877
Interest expense (2,750) (324,165) (506,163) (685,857)
Foreign exchange gains (losses) 28 3,313 (2,168) 5,958
Gain on other investments--net 2 15,991 1,885,009 596,721 2,439,330
Gain arising from issuance of equity method
investee's share -- -- 25,933 25,933
Other--net 788 92,822 48,757 102,616
---------------------- ------------ ------------
Other income (expenses)--net 14,139 1,666,648 4.9 171,735 0.6 1,900,857 4.6
---------------------- ------------ ------------
---------------------------------------------------------------------------------------------------------------------------------
4
---------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended Year Ended
December 31, 2005 December 31, 2004 March 31, 2005
---------------------------------------------------------------------------------------------------------------------------------
Thousands % of % of % of
of U.S. Thousands total Thousands total Thousands total
Note Dollars of Yen revenues of Yen revenues of Yen revenues
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS BEFORE INCOME TAX
EXPENSE, MINORITY INTERESTS AND EQUITY IN NET
INCOME (LOSS) OF EQUITY METHOD INVESTEES 26,395 3,111,328 9.2 763,614 2.6 3,148,508 7.6
INCOME TAX EXPENSE 929 109,460 0.3 70,031 0.2 99,870 0.2
MINORITY INTERESTS IN EARNINGS OF SUBSIDIARIES (2,060) (242,799) (0.7) (46,693) (0.2) (109,161) (0.3)
EQUITY IN NET INCOME (LOSS) OF EQUITY METHOD
INVESTEES 3 450 53,096 0.1 3,758 0.0 (33,208) (0.1)
---------------------- ------------ ------------
NET INCOME 23,856 2,812,165 8.3 650,648 2.2 2,906,269 7.0
---------------------- ------------ ------------
---------------------- ------------ ------------
BASIC WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 192,872 191,559 191,559
---------------------- ------------ ------------
DILUTED WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 193,161 191,559 191,559
---------------------- ------------ ------------
BASIC NET INCOME PER COMMON SHARE 14,580 3,397 15,172
---------------------- ------------ ------------
DILUTED NET INCOME PER COMMON SHARE 14,559 3,397 15,172
---------------------- ------------ ------------
---------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements for the nine months ended December 31, 2005.
(Note)
1) The translations of Japanese Yen amounts into U.S. dollar amounts with
respect to the nine months ended December 31, 2005 are included solely for
the convenience of readers outside Japan and have been made at the rate of
JPY 117.88=$1, the appropriate rate of exchange on December 31, 2005.
5
3) Quarterly Consolidated Statements of Shareholders' Equity
Consolidated statements of shareholders' equity for the nine months ended December 31, 2005
(in Japanese Yen)
----------------------------------------------------------------------------------------------------------------------
Shares of
Common
Stock
Outstanding Accumulated
(Including Additional Other
Treasury Common Paid-in Accumulated Comprehensive Treasury
Stock) Stock Capital Deficit Income Stock Total
----------------------------------------------------------------------------------------------------------------------
Shares Thousand of Yen
----------------------------------------------------------------------------------------------------------------------
BALANCE, APRIL 1, 2005 38,360 13,765,372 23,637,628 (34,434,052) 8,690,125 (44,000) 11,615,073
Net income 2,812,165 2,812,165
Other comprehensive loss,
net of tax (1,367,050) (1,367,050)
------------
Total comprehensive income 1,445,115
Stock split 153,440
Issuance of common stock 12,500 3,068,475 2,961,589 6,030,064
Purchase of common stock by
an equity method investee (40,238) (40,238)
-----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2005 204,300 16,833,847 26,599,217 (31,621,887) 7,323,075 (84,238) (19,050,014)
-----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Consolidated statements of shareholders' equity for the nine months ended December 31, 2005
(in U.S. dollars)
----------------------------------------------------------------------------------------------------------------------
Shares of
Common
Stock
Outstanding Accumulated
(Including Additional Other
Treasury Common Paid-in Accumulated Comprehensive Treasury
Stock) Stock Capital Deficit Income Stock Total
----------------------------------------------------------------------------------------------------------------------
Shares Thousand of U.S.dollars
----------------------------------------------------------------------------------------------------------------------
BALANCE, APRIL 1, 2005 38,360 116,774 200,523 (292,111) 73,720 (373) 98,533
Net income 23,856 23,856
Other comprehensive loss,
net of tax (11,597) (11,597)
------------
Total comprehensive income 12,259
Stock split 153,440
Issuance of common stock 12,500 26,031 25,124 51,155
Purchase of common stock by
an equity method investee (342) (342)
-----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2005 204,300 142,805 225,647 (268,255) 62,123 (715) (161,605)
-----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
(Note)
1) The translations of Japanese Yen amounts into U.S. dollar amounts with
respect to the nine months ended December 31, 2005 are included solely for
the convenience of readers outside Japan and have been made at the rate of
JPY 117.88=$1, the appropriate rate of exchange on December 31, 2005.
6
Consolidated statements of shareholders' equity for the nine months ended December 31, 2004
----------------------------------------------------------------------------------------------------------------------
Shares of
Common
Stock
Outstanding Accumulated
(Including Additional Other
Treasury Common Paid-in Accumulated Comprehensive Treasury
Stock) Stock Capital Deficit Income Stock Total
----------------------------------------------------------------------------------------------------------------------
Shares Thousand of Yen
----------------------------------------------------------------------------------------------------------------------
BALANCE, APRIL 1, 2004 38,360 13,765,372 23,637,628 (37,340,321) 6,195,449 (44,000) 6,214,128
Net income 650,648 650,648
Other comprehensive income,
net of tax 3,497,361 3,497,361
------------
Total comprehensive income 4,148,009
-----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2004 38,360 13,765,372 23,637,628 (36,689,673) 9,692,810 (44,000) 10,362,137
----------------------------------------------------------------------------------------------------------------------
7
Consolidated statements of shareholders' equity for the year ended March 31, 2005
----------------------------------------------------------------------------------------------------------------------
Shares of
Common
Stock
Outstanding Accumulated
(Including Additional Other
Treasury Common Paid-in Accumulated Comprehensive Treasury
Stock) Stock Capital Deficit Income Stock Total
----------------------------------------------------------------------------------------------------------------------
Shares Thousand of Yen
----------------------------------------------------------------------------------------------------------------------
BALANCE, APRIL 1, 2004 38,360 13,765,372 23,637,628 (37,340,321) 6,195,449 (44,000) 6,214,128
Net income 2,906,269 2,906,269
Other comprehensive income,
net of tax 2,494,676 2,494,676
------------
Total comprehensive income 5,400,945
-----------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2005 38,360 13,765,372 23,637,628 (34,434,052) 8,690,125 (44,000) 11,615,073
----------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements for the nine months ended December 31, 2005.
8
(4) Quarterly Condensed Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------------------------------------------
Nine Months Year
Ended Ended
Nine Months Ended December 31, March 31,
December 31, 2005 2004 2005
--------------------------------------------------------------------------------------------------------------------
Thousands
of U.S. Thousands Thousands Thousands
Note Dollars of Yen of Yen of Yen
--------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income 23,856 2,812,165 650,648 2,906,269
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 26,160 3,083,743 3,132,149 4,193,093
Provision for doubtful accounts and advances (197) (23,192) (11,423) 24,781
Gains on other investments--net (15,991) (1,885,009) (596,721) (2,439,330)
Foreign exchange gains (118) (13,904) (6,825) (15,466)
Loss on retirement of convertible notes -- -- 5,195 5,195
Equity in net income (loss) of equity method investees (450) (53,096) (3,758) 33,208
Minority interests in earnings of subsidiaries 2,060 242,799 46,693 109,161
Deferred income tax expense (benefit) 161 18,924 633 (11,023)
Others 389 45,900 139,140 366,935
Changes in operating assets and liabilities:
Decrease in accounts receivable 6,762 797,068 2,813,766 1,607,692
Decrease (increase) in inventories (4,806) (566,561) 64,963 286,751
Decrease in accounts payable (6,921) (815,811)(3,513,394) (2,307,729)
Others 2,586 304,884 (23,621) 478,960
--------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 33,491 3,947,910 2,697,445 5,238,497
--------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment (6,080) (716,701) (480,591) (577,133)
Purchase of short-term and other investments (4,932) (581,336) (10,227) (12,566)
Purchase of subsidiary stock from minority shareholders (1,630) (192,142) -- (61,680)
Proceeds from sales and redemption of short-term and other
investments 19,101 2,251,661 967,367 2,976,017
Acquisition of a newly controlled company, net of cash
acquired--net 1,947 229,457 -- --
Refund (payment) of guarantee deposits --net (372) (43,811) 26,497 23,167
Acquisition of business -- -- (371,011) (375,123)
Other 201 23,640 (4,976) 1,321
--------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 8,235 970,768 127,059 1,974,003
--------------------------------------------------------------------------------------------------------------------
9
--------------------------------------------------------------------------------------------------------------------
Nine Months Year
Ended Ended
Nine Months Ended December 31, March 31,
December 31, 2005 2004 2005
--------------------------------------------------------------------------------------------------------------------
Thousands
of U.S. Thousands Thousands Thousands
Note Dollars of Yen of Yen of Yen
--------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term borrowings 8,483 1,000,000 2,250,000 2,250,000
Repayments of long-term borrowings (15,920) (1,876,679)(1,531,832) (1,840,246)
Proceeds from securities loan agreement 33,063 3,897,440 1,539,600 2,546,320
Repayments of securities loan agreement (38,157) (4,498,000) (816,800) (816,800)
Principal payments under capital leases (19,622) (2,312,961)(2,114,447) (2,867,625)
Net increase (decrease) in short-term borrowings 3,780 445,583 (1,738,250) (1,839,460)
Repurchase of convertible notes -- -- (745,488) (745,488)
Redemption of convertible notes -- -- -- (11,088,000)
Proceeds from issuance of subsidiary stock to minority
shareholders -- -- 188,632 188,632
Proceeds from issuance of common stock, net of issuance cost 51,154 6,030,064 -- --
--------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 22,781 2,685,447 (2,968,585) (14,212,667)
--------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 254 29,890 18,632 2,405
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 64,761 7,634,015 (125,449) (6,997,762)
CASH AND CASH EQUIVALENTS, BEGINNING OF EACH PERIOD 44,846 5,286,477 12,284,239 12,284,239
--------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF EACH PERIOD 109,607 12,920,492 12,158,790 5,286,477
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
ADDITIONAL CASH FLOW INFORMATION:
Interest paid 2,582 304,367 441,685 613,817
Income taxes paid 1,027 121,038 28,837 29,227
NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of assets by entering into capital leases 19,584 2,308,588 4,181,874 4,433,906
Exchange of common stock investment due to merger:
Market value of common shares acquired -- -- 37,950 37,950
Cost of investment -- -- 2,500 2,500
Acquisition of business:
Capital lease assets 7,155 843,485 -- 1,202,007
Cash paid (6,223) (733,589) -- (375,123)
Liabilities assumed 932 109,896 -- 826,884
--------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements for the nine months ended December 31, 2005.
(Note)
1) The translations of Japanese Yen amounts into U.S. dollar amounts with
respect to the nine months ended December 31, 2005 are included solely for
the convenience of readers outside Japan and have been made at the rate of
JPY 117.88=$1, the appropriate rate of exchange on December 31, 2005.
10
[This is an English Translation of the Original Version in Japanese]
--------------------------------------------------------------------
Standard for Preparation of Consolidated Financial Statements for
-----------------------------------------------------------------
the nine months ended December 31, 2005
---------------------------------------
1. The Terminology, Form, and Preparation Methods for the Consolidated
Financial Statements for the nine months ended December 31, 2005
The financial statements for the nine months ended December 31, 2005
have been prepared under the accounting principles, procedures and ways of
presentations requested for the issuance of American Depository Receipts
("ADRs") and others (generally accepted accounting principles in the United
States of America ("U.S. GAAP"), including Accounting Research Bulletins
("ARB"), Accounting Principles Board ("APB") Opinions, Statement of
Financial Accounting Standards ("SFAS") and related interpretation
guidelines) in accordance with the provisions of article 81 "provisions for
the terminology, form, and preparation methods for interim consolidated
financial statements" (Ministry of Finance, ordinance No. 24, 1999).
IIJ registered issuance of ADRs under the United States Securities and
Exchange Commission ("the United States SEC") and list IIJ's ADRs on NASDAQ
market ("NASDAQ National Market") in August 1999. Accordingly, IIJ
regularly files its annual report on Form 20-F in English with the United
States SEC, including consolidated financial statements in English prepared
under U.S. GAAP, in accordance with Rule 13 of the U.S. Securities Exchange
Act of 1934, as amended.
2. Main Differences in Preparation of Financial Statements in Accordance with
Japan's Provisions and Principles for Interim Consolidated Financial
Statements
The main differences between the consolidated financial statements for
the nine months ended December 31, 2005 prepared under U.S. GAAP and the
consolidated financial statements for the nine months ended December 31,
2005 prepared in accordance with the Japan's provisions and principles for
interim consolidated financial statements and the impact of the financially
material items on income from operations before income tax expense,
minority interests and equity in net income (loss) of equity method
investees ("income before income tax expense") (the impact by an amendment
to the financial statements prepared under U.S. GAAP) are as follows:
(1) Differences in the Composition of the Quarterly Consolidated Financial
Statements
The quarterly consolidated financial statements under U.S. GAAP are
composed of quarterly consolidated balance sheets, quarterly consolidated
statements of income, quarterly consolidated statements of shareholders'
equity and quarterly consolidated statements of cash flows and notes to the
financial statements.
(2) Differences in the Presentation of the Quarterly Consolidated Financial
Statements
Equity in net income (loss) of equity method investees is shown as an
independent item in the quarterly consolidated financial statements after
income before income tax expense.
(3) Differences in Accounting Standards
a. Income tax expense
Income tax expenses are accounted for in accordance with SFAS No. 109.
Changes in the deferred income tax asset valuation allowance that relate to
the tax effect of unrealized gains and losses on available-for-sale
securities have been recorded as a separate component of other
comprehensive income.
b. Lease transactions
The Company accounts for significant lease transaction agreements that
fulfill the requirements for capitalized leases as stipulated by SFAS No.
13, in accordance with SFAS. As a result, finance lease transactions, other
than those that recognize transfer of ownership to the lessee, are treated
as purchased. In the nine months ended December 31, 2005, this accounting
treatment of lease transactions resulted in a JPY 14,738 thousand reduction
in income before income tax expense.
c. Cost of issuance of common stock
The cost of issuing of common stock is accounted for as an expense
related to capital transactions and is deducted from additional paid-in
capital. In the nine months ended December 31, 2005, this accounting
treatment resulted in a JPY 55,158 thousand increase in income before
income tax expense.
d. Retirement benefit accounting
Unfunded retirement benefits and noncontributory defined benefit
pension plans are accounted for in accordance with SFAS No. 87. In the nine
months ended December 31, 2005, this accounting treatment resulted in a JPY
2,098 thousand increase in income before income tax expense.
11
e. Comprehensive income
Comprehensive income is accounted for in accordance with SFAS No. 130,
"reporting comprehensive income." SFAS requires additional disclosure of
information in consolidated financial statements. In the nine months ended
December 31, 2005, this accounting treatment did not result in any change
in income before income tax expense.
(4) Difference in the Way Diluted Net Income per Common Share is accounted for
in the Quarterly Consolidated Financial Statements
Diluted net income per common share is accounted for in accordance
with SFAS No. 128. In accordance with SFAS, the test of potential common
shares that have dilutive effects should be conducted over three months. In
the accounting principles in Japan regarding calculation of net income, the
test should consider the nine month period as one period. As a result,
there might be a difference in the result of the test depending on the
average of the share price during the period.
In the nine months ended December 31, 2005, there is a difference
mentioned above. Under the accounting principles in Japan regarding
calculation of net income, diluted net income per common share for the nine
months ended December 31, 2005 is JPY 14,565.
12
Notes to Quarterly Consolidated Financial Statements
----------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Internet Initiative Japan Inc. ("IIJ"), a Japanese corporation, was founded
in December 1992 to develop and operate Internet access services and other
Internet-related services in Japan and is 29.7 percent owned by Nippon Telegraph
and Telephone Corporation ("NTT") and its subsidiary, NTT Communications
Corporation as of December 31, 2005. IIJ and consolidated subsidiaries
(collectively, the "Company") provide Internet access services throughout Japan
and into the United States of America and into the rest of Asia. The Company
provides Internet-related systems integration, such as systems consultation,
design, development, construction and operations and maintenance. The Company
also provides systems integrations or sell equipment to supply equipment to
construct systems, and provide other miscellaneous Internet access-related
services.
The Company manages its business and measures results based on a single
Internet-related services industry segment. Substantially all revenues are from
customers operating in Japan.
The accompanying quarterly consolidated financial statements have been
prepared on a going-concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. Although
the Company recorded operating income in the nine months ended December 31,
2005, the nine months ended December 31, 2004 and the year ended March 31, 2005,
the Company has incurred operating losses and net losses in each of the past six
fiscal years ended March 31, 2004, with the exception of operating income for
the year ended March 31, 2002.
At December 31, 2005, the Company had indebtedness of JPY 16,814,052
thousand. For the nine months ended December 31, 2005, the Company recorded
operating income of JPY 1,444,680 thousand and net income of JPY 2,812,165
thousand. Although the Company had negative working capital of JPY 4,637,376
thousand as of March 31, 2005, the Company turned it to positive due to
increasing operating income, liquidating some of available-for-sale securities
and proceeds of JPY 6,030,064 thousand (net of issuance cost) that were derived
from the issuance of common stock when IIJ listed on the Mothers market of the
Tokyo Stock Exchange ("TSE") in December 2005.
Certain Significant Risks and Uncertainties
The Company has available-for-sale securities of JPY 7,528,406 thousand at
December 31, 2005, and believes that the fluctuations in stock price of
available-for-sale securities could have a material adverse effect on the
Company's future financial position, results of operations or cash flows.
The Company relies on telecommunications carriers for significant portion
of network backbone, and Nippon Telegraph and Telephone East Corporation ("NTT
East"), Nippon Telegraph and Telephone West Corporation ("NTT West"), electric
power companies and their affiliates for local connections to customers. The
Company believes that its use of multiple carriers and suppliers significantly
mitigates concentrations of credit risk. However, any disruption of
telecommunication services could have an adverse effect on operating results.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash investments, accounts
receivable and guarantee deposits. The Company believes that the risks
associated with accounts receivable is mitigated by the large number of
customers comprising its customer base.
Summary of Significant Accounting Policies
Basis of Presentation
IIJ maintains its record in accordance with generally accepted accounting
principles in Japan. Certain adjustment and reclassifications have been
incorporated in the accompanying consolidated financial statements to conform to
U.S. GAAP. These adjustments were not recorded in the statutory accounts.
Consolidation
The quarterly consolidated financial statements include the accounts of IIJ
and all of its subsidiaries, Net Care, Inc. ("Net Care"), IIJ Technology Inc.
("IIJ Technology"), IIJ Media Communications Inc. ("MC") (merged into IIJ on
October 1, 2005), IIJ Financial Systems Inc. ("IIJ FS"), Asia Internet Holding
Co., Ltd., ("AIH") (merged into IIJ on October 1, 2005) and IIJ America, Inc.
("IIJ America"), which have third quarters ending December 31, except for IIJ
America. IIJ America's third quarter end is September 30 and such date was used
for purposes of preparing the quarterly consolidated financial statements as it
is not practicable for the subsidiary to report its financial results as of
December 31. There were no significant events that occurred during the
intervening period that would require adjustment to or disclosure in the
accompanying quarterly consolidated financial statements. Significant
intercompany transactions and balances have been eliminated in consolidation.
Investments in companies over which IIJ has significant influence but not
control are accounted for by the equity method. For other than a temporary
decline in the value of investments in equity method investees below the
carrying amount, the investment is reduced to fair value and an impairment loss
is recognized.
13
A subsidiary or equity method investee may issue its shares to third
parties at amounts per share in excess of or less than the Company's average per
share carrying value. With respect to such transactions, the resulting gains or
losses arising from the change in ownership are recorded in income for the year
in which such shares are issued.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Significant estimates and assumptions used are primarily in the areas of
impairment loss on advances to equity method investees, valuation allowances for
deferred tax assets, allowance for doubtful accounts, and estimated lives of
fixed assets. Actual results could differ from those estimates.
Revenue Recognition
Revenues from customer connectivity services consist principally of
dedicated Internet access services and dial-up Internet access services.
Dedicated Internet access services represent full-line IP services and
standard-level IP services (T1 Standard and IIJ FiberAccess/F Service). Dial-up
Internet access services are provided to both enterprises and individuals
(IIJ4U). The term of these contracts is one year for dedicated Internet access
services and generally one month for dial-up Internet access services. All these
services are billed and recognized monthly on a straight-line basis.
Value-added service revenues consist principally of sales of various
Internet access-related services such as firewall services. Value-added services
also include monthly fees from data center services such as housing, monitoring,
and security services. Other revenues under connectivity and value-added
services consist principally of call-center customer support and Wide-area
Ethernet services to construct networks that connect multiple operational sites
for customers. The terms of these services are generally for one year and
revenues are recognized on a straight-line basis during the service period.
Initial set up fees received in connection with connectivity services and
value-added services are deferred and recognized over the contract period.
Systems integration revenues consist principally of the consultation of
Internet network systems, design, development or construction and related
maintenance, monitoring and other operating services. The period for the
development of the systems or designs is less than one year and revenues are
recognized when network systems and equipment are delivered and accepted by the
customer under the completed contract method. The development of the Internet
network systems or design includes multiple element arrangements such as
consultation, planning, systems design, and construction services, and equipment
and software purchased from third parties. When the equipment or system is
delivered prior to other elements of the arrangement, revenue is deferred until
other service elements are completed and accepted by the customer. Maintenance,
monitoring, and operating service revenues are recognized ratably over the
separate contract period, which is generally for one year.
Systems integration service is subject to the Emerging Issues Task Force
("EITF") of the Financial Accounting Standards Board ("FASB") Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables" which was adopted as of April
1, 2004.
Equipment sales represent revenues earned in which the Company acts as
principal in the transaction, takes title to the equipment and has risks and
rewards of ownership while in inventory and are reported gross as the indicators
outlined in the provisions of the EITF Issue No. 99-19 "Reporting Revenue Gross
as a Principal versus Net as an Agent" are met.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and readily marketable
securities with original maturities of three months or less.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is established in amounts considered to
be appropriate based primarily upon the Company's past credit loss experience
and an evaluation of potential losses in the receivables outstanding.
14
Other Investments
In accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," all marketable equity securities are classified as
available-for-sale securities, which are accounted for at fair value with
unrealized gains and losses excluded from earnings and reported in accumulated
other comprehensive income (loss). The cost of securities sold is determined
based on average cost.
The Company reviews the fair value of available-for-sale investments on a
regular basis to determine if the fair value of any individual investment has
declined below its cost and if such decline is other than temporary. If the
decline in value is judged to be other than temporary, the cost basis of the
investment is written down to fair value. Other than temporary declines in value
are determined taking into consideration the extent of decline in fair value,
the length of time that the decline in fair value below cost has existed and
events that might accelerate the recognition of impairment. The resulting
realized loss is included in the consolidated statements of operations in the
period in which the decline was deemed to be other than temporary.
Non-marketable equity securities are carried at cost as fair value is not
readily determinable. If the value of a security is estimated to have declined
and such decline is judged to be other than temporary, the security is written
down to the fair value. Determination of impairment is based on the
consideration of such factors as operating results, business plans and change in
the regulatory, economic or technological environment of the investees. Fair
value is determined as the Company's interest in the net assets of investees.
Inventories
Inventories consist mainly of network equipment purchased for resale and
work-in-process for development of Internet network systems. Network equipment
purchased for resale is stated at the lower of cost, which is determined by the
average-cost method, or market. Work-in-process for development of network
systems is stated at the lower of actual production costs, including overhead
cost, or market. Inventories are reviewed periodically and items considered to
be slow-moving or obsolete are written down to their estimated net realizable
value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
of property and equipment, including purchased software and capitalized leases,
are computed principally using the straight-line method based on either the
estimated useful lives of assets or the lease period, whichever is shorter.
The useful lives for depreciation and amortization by major asset classes
are as follows:
--------------------------------------------------------------------------------
Range of useful lives
--------------------------------------------------------------------------------
Data communications, office and other equipment 2 to 15 years
Leasehold improvements 3 to 15 years
Purchased software 5 years
Capitalized leases 4 to 7 years
--------------------------------------------------------------------------------
Impairment of Long-Lived Assets
Long-lived assets consist principally of property and equipment, including
those items leased under capital leases. Under SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144"), the Company
evaluates the impairment of long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. There was no impairment loss for long-lived assets for the nine
months ended December 31, 2005.
Goodwill and Intangible Assets
Under SFAS No. 142, "Goodwill and Other Intangible Assets," ("SFAS No.
142"), goodwill (including equity-method goodwill) and intangible assets that
are deemed to have indefinite useful lives are not amortized, but are subject to
impairment testing. Impairment testing is required to be performed at adoption
and annually or more frequently if events or changes in circumstances indicate
that the asset might be impaired. The Company selected March 31 as its annual
impairment testing date.
Income Taxes
The provision for income taxes is based on earnings before income taxes and
includes the effects of temporary differences between assets and liabilities
recognized for financial reporting purposes and income tax purposes and
operating loss carryforwards. Valuation allowances are provided against assets
that are not likely to be realized.
15
Foreign Currency Transactions
Foreign currency assets and liabilities, which consist substantially of
cash and accounts payable for connectivity leases to international carriers
denominated in U.S. dollars, are stated at the amount as computed by using
quarter-end exchange rates and the resulting transaction gain or loss is
recognized in earnings.
Derivative Financial Instruments
All derivatives are recorded at fair value as either asset or liabilities in
the balance sheet in accordance with SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138 and No. 149
(collectively, "SFAS No. 133"). In accordance with SFAS No. 133, the Company
designated interest swap contracts as a hedge of the variability of cash flows
to be paid related to interest on floating rate borrowings (cash flow hedge) and
an effective portion of the derivative's gain or loss is initially reported as a
component of other comprehensive income and subsequently reclassified into
earnings when the underlying transaction affects earnings. An ineffective
portion of the gain or loss is reported in earnings immediately. The Company
enters into contracts to hedge interest rate risks and does not enter into
contracts or utilize derivatives for trading purposes.
Stock-based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in APB No. 25, "Accounting for Stock Issued to Employees" and
related interpretations. Accordingly, the Companies recognize compensation
expense in an amount equal to the excess of the quoted market price over the
exercise price of the option at the grant date. For options with a vesting
period, the compensation expense is charged to operations ratably over the
vesting period. The Company has not recognized any stock-based compensation
expense for the nine months ended December 31, 2005.
Research and Development and Advertising
Research and development and advertising costs are expensed as incurred.
Stock Sprit
IIJ's board of directors approved a stock split (1 to 5) of IIJ's shares of
common stock on August 4, 2005. The 1 to 5 stock split was made for shareholders
of record listed in the register of shareholders as of the end of business on
August 31, 2005. The stock split was effective on October 11, 2005. Information
on the number of shares of common stock and net income per share are shown in
consideration of the stock price in the financial statements excluding the
statements of shareholders' equity and notes to the financial statements.
Basic and Diluted Net Income per Share
Basic net income per share are computed using the weighted-average number
of shares of common stock outstanding during the quarter. IIJ conducted a 1 for
5 stock split effective on October 11, 2005. The basic and diluted net income
per share are calculated with the assumption that the stock split had been made
at the beginning of the year ended March 31, 2005. All potential common shares
are shares issuable upon exercise of stock options or conversion of convertible
notes. Diluted net income per share are computed in consideration of a dilutive
effect of the potential common shares. (See note 8 - Net income per share)
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of translation adjustments
resulting from the translation of financial statements of a foreign subsidiary,
unrealized gains or losses on available-for-sale securities and gains or losses
on cash flow hedging derivative instruments.
Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for reporting information about operating
segments. Operating segments are defined as components of an enterprise that
engages in business activities from which it may earn revenues and incur expense
and for which separate financial information is available that is evaluated
regularly by the chief operation decision maker in deciding how to allocate
resources and in assessing performance.
The Company provides a comprehensive range of network solutions to meet its
customers' needs by cross-selling a variety of services, including Internet
connectivity services, value-added services, systems integration and sales of
network-related equipment. The Company's chief operating decision maker, who is
IIJ's President and Representative Director, regularly reviews the revenue and
cost of sales on a consolidated basis and makes decisions regarding how to
allocate resources and assess performance based on a single operating unit.
16
New Accounting Standards
In December 2004, the FASB issued revised SFAS No. 123 (Revised 2004),
"Share-Based Payment" ("SFAS No. 123R") which replaces the existing SFAS No. 123
and supersedes APB No. 25. SFAS No. 123R requires compensation expense for stock
options and other share-based payment to be measured and recorded based on the
instruments' fair value. SFAS No. 123R is effective for the fiscal period
beginning after June 15, 2005. The Company will adopt SFAS No. 123R on April 1,
2006 by using modified prospective application, which requires recognizing
expenses for options granted prior to the adoption date equal to the fair value
of unvested amounts over the remaining vesting period. The portion of these
options' fair value attributable to vested awards prior to the adoption of SFAS
No. 123R is never recognized. As all existing granted stock-based awards of the
Company have vested, the adoption of SFAS No. 123R will not have any impact on
the Company's consolidated financial position or results of operations.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs-an
amendment of ARB No. 43, Chapter 4" ("SFAS No. 151") which clarifies the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage) and also requires that the allocation of
fixed production overhead be based on the normal capacity of the production
facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal
years beginning after June 15, 2005. The adoption of SFAS No. 151 will not have
a material impact on the Company's consolidated financial position or results of
operations.
The Company adapts SFAS No. 153, "Exchanges of Nonmonetary Assets-amendment
of APB Opinion No. 29" from the nine months ended December 31, 2005. The
statement addresses the measurement of exchanges of nonmonetary assets and
eliminates the exception from fair value measurement for nonmonetary exchanges
of similar productive assets and replaces it with an exception for exchanges
that do not have commercial substance. The adoption of SFAS No. 153 will not
have a material impact on the Company's consolidated financial position or
results of operations.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3" ("SFAS
No. 154"). The FASB previously required that most voluntary changes in
accounting principle be recognized by including in net income of the period of
the change the cumulative effect of changing to the new accounting principle.
SFAS No. 154 requires retrospective application to prior periods' financial
statements of a voluntary change in accounting principle. SFAS No. 154 also
requires that a change in method of depreciation, amortization, or depletion be
accounted for as a change in accounting estimate that is effected by a change in
accounting principle. The FASB previously required that such a change be
reported as a change in accounting principle. SFAS No. 154 is effective for
accounting changes and error corrections incurred during fiscal years beginning
after December 15, 2005. The adoption of SFAS No. 154 will not have a material
impact on the Company's consolidated financial position or results of
operations.
In November 2005, the FASB issued FASB STAFF POSITION ("FSP") FAS 115-1 and
FAS 124-1, "The Meaning of Other - Than - Temporary Impairment and Its
Application to Certain Investments" based on the EITF Issue No. 03-1, "The
Meaning of Other - Than - Temporary Impairment and Its Application to Certain
Investments" ("FAS 115-1 and FAS 124-1"). This FSP addresses the determination
as to when an investment is considered impaired, whether that impairment is
other than temporary, and the measurement of an impairment loss. This FSP also
includes accounting considerations subsequent to the recognition of an
other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-temporary
impairments. FSP FAS 115-1 and FAS 124-1 are effective from accounting periods
beginning after December 15, 2005. The adoption of FSP FAS 115-1 and FAS 124-1
will not have a material impact on the Company's consolidated financial position
or results of operations.
2. OTHER INVESTMENTS
--------------------
Pursuant to SFAS No. 115, all of the Company's marketable equity
securities, principally marketable shares of common stock of Japanese companies,
were classified as available-for-sale securities. Information regarding the
securities classified as available-for-sale at December 31, 2005, December 31,
2004 and March 31, 2005, is as follows:
17
(Unit: Thousands of Yen)
------------------------------------------------------------------------
As of December 31, 2005
------------------------------------------------
Unrealized Unrealized Fair
Cost gains losses value
------------------------------------------------------------------------
Available-for-sale--
Equity securities 203,177 7,325,344 115 7,528,406
------------------------------------------------------------------------
-----------------------------------------------------------------------
As of December 31, 2004
------------------------------------------------
Unrealized Unrealized Fair
Cost gains losses value
------------------------------------------------------------------------
Available-for-sale--
Equity securities 296,199 9,710,560 78 10,006,681
------------------------------------------------------------------------
------------------------------------------------------------------------
As of March 31, 2005
------------------------------------------------
Unrealized Unrealized Fair
Cost gains losses value
------------------------------------------------------------------------
Available-for-sale--
Equity securities 215,258 8,738,792 5,882 8,948,168
------------------------------------------------------------------------
The following table provides the fair value and gross unrealized losses of
the Company's investments, which have been deemed to be temporarily impaired,
aggregated by investment category and length of time that individual securities
have been in a continuous unrealized loss position, at December 31, 2005,
December 31, 2004 and March 31, 2005:
(Unit: Thousands of Yen)
-----------------------------------------------------------------------------
As of December 31, 2005
---------------------------------------------------------
Less than 12 months 12 months more Total
---------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
value losses value losses value losses
-----------------------------------------------------------------------------
Marketable equity
securities 1,266 115 -- -- 1,266 115
----------------------------------------------------------------------------
-----------------------------------------------------------------------------
As of December 31, 2004
---------------------------------------------------------
Less than 12 months 12 months more Total
---------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
value losses value losses value losses
-----------------------------------------------------------------------------
Marketable equity
securities 1,303 78 -- -- 1,303 78
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
As of March 31, 2005
---------------------------------------------------------
Less than 12 months 12 months more Total
---------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
value losses value losses value losses
-----------------------------------------------------------------------------
Marketable equity
securities 68,742 5,882 -- -- 68,742 5,882
-----------------------------------------------------------------------------
The Company regularly reviews all of the Company's investments to determine
if any are other-than-temporarily impaired. The analysis includes reviewing
industry analyst reports, sector credit ratings and volatility of the security's
market price.
Proceeds from the sale of available-for-sale securities were JPY 1,926,603
thousand, JPY 643,771 thousand and JPY 2,614,768 thousand for the nine months
ended December 31, 2005, the nine months ended December 31, 2004 and the year
ended March 31, 2005, respectively. Gross realized gain of JPY 1,914,521
thousand, JPY 587,449 thousand and JPY 2,477,607 thousand were included in other
income (expense) for the nine months ended December 31, 2005, the nine months
ended December 31, 2004 and the year ended March 31, 2005, respectively.
The aggregate cost of the Company's cost method investments totaled JPY
1,220,609 thousand, JPY 1,065,372 thousand and JPY 982,613 thousand at December
31, 2005, December 31, 2004 and March 31, 2005, respectively.
18
Losses on write-down of investments in certain marketable and nonmarketable
equity securities, included in other income (expense), were recognized to
reflect the decline in value considered to be other than temporary, totaled JPY
34,051 thousand and JPY 70,627 thousand, respectively, for the nine months ended
December 31, 2004 and JPY 34,151 thousand and JPY 118,076 thousand,
respectively, for the year ended March 31, 2005. Losses on write-down of
investments in certain nonmarketable securities, included in other income
(expense) were JPY 29,512 thousand in the nine months ended December 31, 2005.
Gain on exchange of securities of JPY 35,450 thousand, included in other income
(expense), in the nine months ended December 31, 2004 and the year ended March
31, 2005, represented a non-monetary gain upon the exchange of marketable common
shares in a merger transaction.
3. INVESTMENTS IN AND ADVANCES TO EQUITY METHOD INVESTEEES
-------------------------------------------------------
IIJ utilizes various companies in Japan and neighboring countries to form
and operate its Internet business. Businesses operated by its equity method
investees include connectivity services in Asian countries (AIH through
September, 2005), multifeed technology services and location facilities for
connecting high-speed Internet backbones (Internet Multifeed Co., "Multifeed"),
Web page design services (atom Co., Ltd.), and data center services in Asian
countries ( i-Heart Inc., "i-Heart" and Ayalaport Makati Inc., "Ayalaport"
through June, 2004). AIH became IIJ's consolidated subsidiary at the end of
September 2005 and was merged into IIJ on October 1, 2005.
The Company had no guarantees or commitments to equity method investees as
of each of December 31, 2005, December 31, 2004 and March 31, 2005.
The aggregate amounts of balances and transactions of the Company with
these equity method investees as of December 31, 2005 and December 31, 2004 and
March 31, 2005 and for each of the nine months ended December 31, 2005, the nine
months ended December 31, 2004 and the year ended March 31, 2005 were summarized
as follows:
(Unit: Thousands of Yen)
--------------------------------------------------------------------------------
As of As of As of
December 31, 2005 December 31, 2004 March 31, 2005
--------------------------------------------------------------------------------
Accounts receivable 29,382 144,240 118,130
Accounts payable 527 95,485 96,727
--------------------------------------------------------------------------------
From April 1, 2005 From April 1, 2004 From April 1, 2004
to December 31, to December 31, to March 31,
2005 2004 2005
--------------------------------------------------------------------------------
Revenues 685,180 931,160 1,245,361
Cost and expenses 603,938 858,212 1,145,834
--------------------------------------------------------------------------------
During each of the three months ended December 31, 2005 and December 31,
2004 and the year ended March 31, 2005, the Company did not receive any
dividends from its equity method investees.
The Company's investments in and advances to these equity method investees
and respective ownership percentage at December 31, 2005, December 31, 2004 and
March 31, 2005 consisted of the following:
--------------------------------------------------------------------------------
As of December 31, As of December 31, As of March 31,
2005 2004 2005
-------------------------------------------------------------
Ownership Thousands Ownership Thousands Ownership Thousands
(%) of Yen (%) of Yen (%) of Yen
--------------------------------------------------------------------------------
AIH -- -- 26.69 331,180 26.69 275,386
Multifeed 29.44 328,418 28.56 239,446 28.58 242,719
atom 40.00 103,762 40.00 145,344 40.00 155,837
Other 41,774 43,615 39,665
--------------------------------------------------------------------------------
Total 473,954 759,585 713,607
--------------------------------------------------------------------------------
Advances of JPY 19,868 thousand, JPY 27,346 thousand and JPY 19,868
thousand to an equity method investees, net of loan loss valuation allowance was
included in the balances, as of December 31, 2005, December 31, 2004 and March
31, 2005, respectively.
19
4. LEASES
---------
The Company enters into, in the normal course of business, various leases
for domestic and international backbone services, office premises, network
operation centers and data communications and other equipment. Certain leases
that meet one or more of the criteria set forth in the provision of SFAS No. 13,
"Accounting for leases" have been classified as capital leases and the others
have been classified as operating leases.
Operating Leases
The Company has operating lease agreements with telecommunications carriers
and others for the use of connectivity lines, including local access lines that
customers use to connect to IIJ's network. The leases for domestic backbone
connectivity as of December 31, 2005 are generally either non-cancelable for a
minimum one-year lease period or cancelable during a lease period of three
years, with a significant penalty for cancellation (35%). The leases for
international backbone connectivity as of December 31, 2005 are entered into
with carriers for a lease period of one year and are substantially
non-cancelable. The Company also leases its office premises, for which
refundable lease deposits are capitalized as guarantee deposits, and certain
office equipment under non-cancelable operating leases which expire on various
dates through the year 2007 and also leases its network operation centers under
non-cancelable operating leases.
Refundable guarantee deposits as of December 31, 2005, December 31, 2004
and March 31, 2005 consist of as follows:
(Unit: Thousands of Yen)
-----------------------------------------------------------------------------
As of As of As of
December 31, December 31, March 31,
2005 2004 2005
-----------------------------------------------------------------------------
Head Office 1,744,949 1,705,036 1,705,036
Sales and subsidiaries 305,793 299,696 296,971
offices
Other 47,266 45,573 48,658
-----------------------------------------------------------------------------
Total refundable 2,098,008 2,050,305 2,050,665
guarantee deposits
-----------------------------------------------------------------------------
Lease expenses related to backbone lines for the nine months ended December
31, 2005, the nine months ended December 31, 2004 and the year ended March 31,
2005 amounted to JPY 2,593,774 thousand, JPY 2,719,842 thousand and JPY
3,550,885 thousand, respectively. Lease expenses for local access lines for the
nine months ended December 31, 2005, the nine months ended December 31, 2004 and
the year ended March 31, 2005, which are only attributable to dedicated access
revenues, amounted to JPY 3,406,418 thousand, JPY 2,891,741 thousand and JPY
4,040,192 thousand, respectively. Other lease expenses for the three months
ended December 31, 2005, the nine months ended December 31, 2004 and the year
ended March 31, 2005 amounted to JPY 2,629,940 thousand, JPY 2,439,885 thousand
and JPY 3,303,717 thousand, respectively.
The Company has subleased a part of its office premises. Lease expenses
mentioned above have been reduced by sublease revenues totaling JPY 338,791
thousand, JPY 314,432 thousand and JPY 406,451 thousand for the nine months
ended December 31, 2005, the nine months ended December 31, 2004 and the year
ended March 31, 2005, respectively.
Capital Leases
The Company conducts its connectivity and other Internet-related services
by using data communications and other equipment leased under capital lease
arrangements. The fair values of the assets upon execution of the capital lease
agreements and accumulated depreciation amounted to JPY 13,673,548 thousand and
JPY 6,746,831 thousand at December 31, 2005, JPY 12,707,450 thousand and JPY
5,633,547 thousand at December 31, 2004 and JPY 13,251,657 thousand and JPY
6,336,386 thousand at March 31, 2005, respectively.
As of December 31, 2005, future lease payments under non-cancelable
operating leases, including the aforementioned non-cancelable connectivity lease
agreements (but excluding dedicated access lines which the Company charges
outright to customers), and capital leases were as follows:
20
(Unit: Thousands of Yen)
---------------------------------------------------------------------
As of December 31, 2005
-------------------------------------
Connectivity
lines Other
operating operating Capital
leases leases leases
---------------------------------------------------------------------
Through December 31, 2006 101,344 747,444 2,825,959
January 1, 2007 and thereafter -- 512,290 4,299,577
---------------------------------------------------------------------
5. BORROWINGS AND CONVERTIBLE NOTES
-----------------------------------
Short-term borrowings at December 31, 2005, December 31, 2004 and March 31,
2005 consist of bank overdrafts. Short-term borrowings bear fixed-rate interest
and their weighted average rates at December 31, 2005, December 31, 2004 and
March 31, 2005 were 1.375 percent.
Long term borrowings as of December 31, 2005, December 31, 2004 and March
31, 2005 consisted of the following:
(Unit: Thousands of Yen)
--------------------------------------------------------------------------------
As of As of As of
December 31, December 31, March 31,
2005 2004 2005
--------------------------------------------------------------------------------
Unsecured long-term loans payable to
banks, maturing at various dates
through 2007. Weighted average
interest rates were 3.245%, 3.175 %
and 3.255 % at December 31, 2005,
December 31, 2004 and March 31,
2005, respectively. 145,000 229,000 208,000
Secured long-term loans payable to
banks, maturing at various dates
through 2006. Weighted average
interest rates were 1.768%, 1.773 %
and 1.789 % at December 31, 2005,
December 31, 2004 and March 31,
2005, respectively. 1,650,000 2,600,000 2,350,000
Secured long-term loans payable to
banks, maturing at various dates
through 2007. Interest is payable
at a variable rate based on TIBOR.
All of interest is converted to a
fixed interest rate through
interest rate swap contracts.
Weighted average fixed interest
rates were 1.121%, 1.134 % and
1.137 % at December 31, 2005,
December 31, 2004 and March 31,
2005, respectively. 1,400,000 1,400,000 1,400,000
Long-term installments loans payable
at various dates through 2007.
Weighted average interest rates
were 2.55%, 2.55 % and 2.55 % at
December 31, 2005, December 31,
2004 and March 31, 2005,
respectively. 194,340 345,433 308,019
--------------------------------------------------------------------------------
Total 3,389,340 4,574,433 4,266,019
--------------------------------------------------------------------------------
Less current portion (2,388,977) (2,185,094) (2,736,056)
--------------------------------------------------------------------------------
Long-term borrowings -- less
current portion 1,000,363 2,389,339 1,529,963
--------------------------------------------------------------------------------
The Company entered into interest rate swap contracts to manage its
interest rate exposure resulting in a fixed interest rate for a portion of its
long-term debt. The effective weighted average interest rates for JPY 1,4000,000
thousand, JPY 1,400,000 thousand and JPY 1,400,000 thousand of the long-term
loan outstanding at December 31, 2005, December 31, 2004 and March 31, 2005
after giving effect to such swap agreements were 1.761 percent, 1.926 percent
and 1.926 percent per annum, respectively.
21
On March 14, 2003, the Company entered into a long-term installment loan
agreement with a leasing company to finance the payment for rental deposits
given to other lessor for its new head office. The principal of the loan is JPY
194,340 thousand, JPY 345,433 thousand and JPY 308,019 thousand and the loan is
secured by a first priority pledge against a claim for the guarantee deposits of
JPY 1,705,036 thousand at December 31, 2005.
The Company provided banks with collateral for outstanding loans by means
of establishing a second priority pledge against the refundable guarantee
deposits.
The 1.750 percent unsecured yen convertible notes due March 2005 in the
aggregate principal amount of JPY 15,000,000 thousand were issued in April 11,
2000. The notes were convertible at the option of the holders at JPY 19,875
thousand per share at any time on or before March 15, 2005. The notes were
redeemable at the Company's option at any time before March 15, 2005, in whole
or in part, at par with unpaid and accrued interest; provided that the closing
trading price for the Company's shares for a certain period prior to giving
notice of redemption is of at least 140 percent of the conversion price.
In October and November 2003, IIJ repurchased a portion of the yen
convertible notes, with an aggregate face value of JPY 3,168,000 thousand, for
JPY 3,047,460 thousand in the open market.
In June 2004, IIJ repurchased a portion of the convertible notes, with an
aggregate face value of JPY 744,000 thousand, for JPY 745,488 thousand in the
open market, resulting in realized loss of JPY 1,488 thousand. A portion of
deferred issuance cost, amounting to JPY 3,707 thousand, corresponding to the
repurchased convertible notes was charged to loss upon redemption. The net
realized loss on retirement of these convertible notes was presented as other
expense in the nine months ended December 31, 2004.
In March 2005, IIJ redeemed the remainder of the convertible notes
amounting to JPY 11,088,000 thousand.
The Company entered into bank overdraft agreements with certain Japanese
banks for which the unused balance outstanding as of December 31, 2005, December
31, 2004 and March 31, 2005 was JPY 2,694,784 thousand, JPY 1,789,156 thousand
and JPY 1,890,367 thousand.
The Company entered into a securities loan agreement with a certain
Japanese financial institution in August 2004. The Company received JPY
1,128,960 thousand, 722,800 thousand and 1,729,520 thousand of cash in return as
of December 31, 2005, December 31, 2004 and March 31, 2005, respectively. These
transactions were accounted for as secured borrowings and the cash received was
recorded as payables under securities loan agreement. The Company pays the
interest on the payables with a variable rate of LIBOR plus 0.56 percent, or
TIBOR plus 0.40 percent. The interest rate was 0.465 percent, 0.6311 percent and
0.6349 percent as of December 31, 2005, December 31, 2004 and March 31, 2005.
The Company lent JPY 1,590,900 thousand, JPY 989,600 thousand and JPY
2,189,600 thousand of available-for-sale securities to the financial institution
as of December 31, 2005, December 31, 2004 and March 31, 2005, respectively.
6. COMITMENTS AND CONTINGENT LIABILITIES
----------------------------------------
During the year ended March 31, 2003, the Company adopted FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtness of Others" ("FIN 45").
FIN 45 elaborates on the disclosures to be made by a guarantor about its
obligations under certain guarantees. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee.
In December 2001, a class action complaint alleging violations of the
federal securities laws was filed against the Company, naming IIJ, certain of
its officers and directors as defendants, and underwriters of IIJ's initial
public offering. Similar complaints have been filed against over 300 other
issuers that have had initial public offerings since 1998 and such actions have
been included in a single coordinate proceeding in the Southern District of New
York. An amended complaint was filed on April 24, 2002 alleging, among other
things, that the underwriters of IIJ's initial public offering violated the
securities laws (i) by failing to disclose in the offering's registration
statement certain alleged compensation arrangements entered into with the
underwriters' clients, such as undisclosed commissions or tie-in agreements to
purchase stock in the after-market, and (ii) by engaging in manipulative
practices to artificially inflate the price of IIJ's stock in the after-market
subsequent to the initial public offering. On July 15, 2002, the Company joined
in an 'omnibus' motion to dismiss the amended complaint filed by the issuers and
individuals named in the various coordinated cases. In June 2003, the Company
approved a settlement with the plaintiffs in this matter. In June 2004, the
Company along with the plaintiffs, the insurers, and virtually all of the other
solvent issuer companies in the coordinate cases, executed an agreement of
settlement, which has been submitted to the United States District Court for the
Southern District of New York for preliminary approval. The settlement releases
IIJ and the individual defendants for liability for the conduct alleged in the
action. Under the settlement, the Company agreed to assign away, not assert, or
release certain potential claims the Company may have against IIJ's
underwriters. Approximately 260 defendant issuers participated in this
settlement. As to financial impact on the Company, the settlement provides that
the class members will be guaranteed $1 billion in recoveries by the insurers of
the issuers. In addition to IIJ's portion of the proposed settlement, some of
the continuing legal expenses incurred in connection with the partial settlement
would be borne by IIJ's insurer based on the settlement agreement and an
individual agreement between IIJ and IIJ's insurer. Consequently, the Company
believes that there will be no significant financial impact on the Company as a
result of this matter. This settlement requires to be finally approved by the
United States District Court.
22
In addition to the foregoing, the Company is a party to other suits and
claims that arise in the normal course of business.
The negative adverse outcome of such suits and claims would not have a
significant impact on the financial statements.
7. DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS
---------------------------------------------
Interest Rate Swap Agreement
The Company is exposed to changes in interest rates that are associated
with long-term bank borrowings. The Company's policy on managing the interest
rate risk is to hedge the exposure to variability in future cash flows of
floating rate interest payments on the long-term bank borrowings. In order to
reduce cash flow risk exposures on floating rate borrowings, the Company
utilizes interest rate swap agreements to convert a floating rate borrowing to a
fixed rate borrowing.
The Company is also exposed to credit-related losses in the event of
non-performance by counterparties to interest rate swaps, but it is not expected
that any counterparties will fail to meet their obligations, because
counterparties are internationally recognized financial institution.
Changes in fair value of interest rate swaps designated as hedging
instruments are reported in accumulated other comprehensive income during the
nine months ended December 31, 2005, the nine months ended December 31, 2004 and
the year ended March 31, 2005. These amounts subsequently are reclassified into
interest expense as a yield adjustment in the same period in which the hedged
bank borrowings affect earnings. The term, notional amount, and repricing date
of interest rate swaps exactly match those of the long-term borrowings. The swap
terms are "at the market," so they have zero value at inception. Thus, there was
no ineffectiveness recognized in earning for the nine months ended December 31,
2005, the nine months ended December 31, 2004 and the year ended March 31, 2005.
In the nine months ended December 31, 2005 and the nine months ended
December 31, 2004, net derivative loss of JPY 6,361 thousand and JPY 8,169
thousand were reclassified to interest expense, respectively. And for the year
ended March 31, 2005, net derivative loss of JPY 13,010 thousand was
reclassified to interest expense.
8. NET INCOME PER SHARE
-----------------------
The basic net income per share and diluted net income per share in the nine
months ended December 31, 2005 is as follows:
--------------------------------------------------------------------------------
From April 1, 2005 to December 31, 2005
---------------------------------------
Net income Shares Per
(numerator) (denominator) share
--------------------------------------------------------------------------------
Thousand of Shares Yen
Yen
Basic net income per share
Net income 2,812,165 192,872 14,580
Dilutive effect by potential common shares
Stock option -- 289
Diluted net income per share
Net income 2,812,165 193,161 14,559
--------------------------------------------------------------------------------
For the nine months ended December 31, 2004 and the year ended March 31,
2005, all potential common shares, shares issuable upon conversion of
convertible notes, have been excluded from the computation of diluted net income
per share because the effect would be antidilutive. The number of the potential
common shares excluded from the computation was 2,790 at December 31, 2004.
23
For the nine months ended December 31, 2005, the nine months ended December
31, 2004 and the year ended March 31, 2005, the number of the potential common
shares excluded from the computation of diluted net income per share because the
exercise prices of the options were greater than the average market price of the
common shares was 975, 2,725 and 2,725 at December 31, 2005, December 31, 2004
and March 31, 2005, respectively.
9. SUBSEQUENT EVENTS
--------------------
On February 1, 2006, IIJ established a joint venture company with Konami
Corporation (investment ratio: Konami Corporation 70%, IIJ 30%) called "Internet
Revolution Inc." (capital: JPY 1,250 million, total amount of investment: JPY
2,500 million, amount of investment by IIJ: JPY 750 million, head office
location: Minato-ku, Tokyo, main business: operating Internet portal), based on
a resolution by the IIJ's board of directors on January 19, 2006. The company
would become an equity method affiliate of IIJ. IIJ accepted that it would
provide proceeds up to JPY 90 million to the company between November 2006 and
the end of April 2006 for capital investment and working capital in the joint
venture contract.
(5) Others
No applicable item.
24
Exhibit 2
IIJ Announces Revision of Target for the
Fiscal Year Ending March 31, 2006
TOKYO & NEW YORK--(BUSINESS WIRE)--Feb. 10, 2006--Internet
Initiative Japan Inc. ("IIJ") today announced that it revised the
target for the fiscal year ending March 31, 2006 ("FY2005") that it
announced on November 9, 2005, in consideration of the recent trend of
its financial results.
1. Revision of the Target for FY2005 (April 1, 2005 to March 31,
2006)
Consolidated (Under Generally Accepted Accounting Principles in
the United States of America)
(Unit: Millions of Yen)
Income from
Operations
before
Income Tax
Expense,
Minority
Revenues Operating Interests Net
Income and Equity Income
in Net
Income
(Loss) of
Equity
Method
Investees
----------------------------------------------------------------------
Target Announced on
November 9, 2005 (A) 46,330 2,320 3,990 3,700
----------------------------------------------------------------------
Target Revised (B) 48,000 2,320 4,800 4,400
----------------------------------------------------------------------
Change (B-A) 1,670 -- 810 700
----------------------------------------------------------------------
Change (%) 3.6% -- 20.3% 18.9%
----------------------------------------------------------------------
(For Reference) Fiscal
Year Ended March 31,
2005 ("FY2004") 41,703 1,248 3,149 2,906
----------------------------------------------------------------------
Non-consolidated (Under Generally Accepted Accounting Principles
in Japan)
(Unit: Millions of Yen)
Revenues Operating Ordinary Net
Income Income Income
----------------------------------------------------------------------
Target Announced on November
9, 2005 (A) 37,000 1,300 1,260 3,210
----------------------------------------------------------------------
Target Revised (B) 37,000 700 600 3,400
----------------------------------------------------------------------
Change (B-A) -- (600) (660) 190
----------------------------------------------------------------------
Change (%) -- (46.2%) (52.4%) 5.9%
----------------------------------------------------------------------
(For reference) FY2004 33,711 638 428 2,696
----------------------------------------------------------------------
2. Reasons for the Revision
(1) Reason for the Revision of the Target for the Consolidated
Financial Results
As our outsourcing and systems integration ("SI") projects have
steadily increased along with a trend of increasing corporate spending
related to information networks reflecting steady corporate earnings
and the recovery of Japan's economy, our consolidated revenues for
FY2005 are expected to be higher than the target we announced in
November 2005. Our income from operations before income tax expense,
minority interests and equity in net income (loss) of equity method
investees and our consolidated net income for FY2005 are expected to
be higher than the target that we announced in November 2005, mainly
due to higher gains we expect to make from sale of available-for-sale
securities reflecting the recovering securities market.
(2) Reason for the Revision of the Target for the Non-consolidated
Financial Results
Although our outsourcing and SI projects have steadily increased,
the unit price per speed for our Internet connectivity services is
continuing to decline. As a result, the revenues are not expected to
be changed from the target that we announced in November 2005,
however, our operating income and the ordinary income are expected to
be lower than the target that we announced in November 2005. Our net
income is expected to be higher than the target that we announced in
November 2005, mainly due to higher gains we expect to make from sale
of available-for-sale securities reflecting the recovering securities
market.
(Notes)
1) For the financial results for FY2004 represented above, the
amounts less than one million yen are rounded.
2) 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 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.
CONTACT: Internet Initiative Japan Inc.
Koichi Suzuki
1-105 Kanda Jinbo-cho, Chiyoda-ku, Tokyo
Japan
or
Akihisa Watai, 03-5259-6500