IIJ Announces 3rd Quarter 2002 Results for the Quarter Ended December 31, 2002; IIJ Continues Pursuit of Broadband Strategies for Further Growth.Business Editors/High Tech Writers TOKYO & NEW YORK--(BUSINESS WIRE)--Feb. 12, 2003 Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the Initiative Japan Inc. (Nasdaq: IIJI IIJI Internet Initiative Japan, Inc. ) ("IIJ IIJ Internet Initiative Japan IIJ Internet Initiative Japan Inc. (Internet Service Provider) IIJ Indo-Iranian Journal IIJ Is It Jazz (Boston band) "), one of Japan's leading Internet access See how to access the Internet. and comprehensive network solutions providers, today announced its financial results for the 3rd quarter of the fiscal year ending March 31, 2003 ("fiscal 2002"). On February February: see month. 13 at 9:00 am (EST EST electroshock therapy. EST abbr. electroshock therapy ), the Company will host a conference call to discuss the results and its outlook. There will be a simultaneous webcast available at www.vcall.com. A replay will also be available at the same URL URL in full Uniform Resource Locator Address of a resource on the Internet. The resource can be any type of file stored on a server, such as a Web page, a text file, a graphics file, or an application program. . The 3rd Quarter of FY2002 Results Summary -- In 3Q02, total revenues totaled to JPY10.6 billion ($89.0 million) despite the prolonged sluggishness of Japan's economy. This represents an increase of 6.3% compared to 3Q01 and no change from 2Q02. -- IIJ reported an operating loss of JPY567 million ($4.8 million) in 3Q02. This represents a decrease from JPY151 million of operating profit in 3Q01, and a decrease from the JPY194 million operating loss in 2Q02. The results reflected IIJ's evolving strategic initiatives in Japan's growing broadband market, which includes reinforcing IIJ's network infrastructure for broadband transmission. -- Adjusted EBITDA(1) was JPY349 million. -- For 4Q02, IIJ expects total revenues to be between JPY12.5 billion ($105.3 million) and JPY13.0 billion ($109.5 million), the highest amount of quarterly revenue in IIJ's history. The revenue growth is expected to be driven by a strong Systems Integration (SI) business. The Company expects its operating profitability to improve in 4Q02. -- For the full 2002 fiscal year, IIJ expects total revenues to grow by approximately 10% compared to fiscal 2001. -- IIJ is currently preparing for a series of improvements to its capital structure, which will be effective by the end of March 2003. (1) Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become represents operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. (loss) plus depreciation and amortization. Adjusted EBITDA is provided because it is a measure commonly used by investors to analyze an·a·lyze v. 1. To examine methodically by separating into parts and studying their interrelations. 2. To separate a chemical substance into its constituent elements to determine their nature or proportions. 3. and compare companies on the basis of operating performance. Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting and should not be construed as a substitute for operating income, net income or cash flows from operating activities for purposes of analyzing our operating performance, financial position and cash flows. Our adjusted EBITDA is not necessarily comparable with similarly titled measures for other companies. Note: Translations of Japanese yen “Yen” redirects here. For the other use, see Yen (disambiguation). “JPY” redirects here. For the Australian singer with the same moniker, see John Paul Young. amounts into US dollars are solely for the convenience of readers outside of Japan and have been made at the rate of JPYX118.75 = US$1, the approximate ap·prox·i·mate v. To bring together, as cut edges of tissue. adj. 1. Relating to the contact surfaces, either proximal or distal, of two adjacent teeth; proximate. 2. Close together. exchange rate on December December: see month. 31, 2002. Overview of 3Q02 Results and Business Outlook Overview "The 3Q02 results demonstrate that our strategic focus on the "broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). " and "enterprise markets" is successfully contributing to our steady growth, despite the prolonged pro·long tr.v. pro·longed, pro·long·ing, pro·longs 1. To lengthen in duration; protract. 2. To lengthen in extent. sluggishness of Japan's economy," said Koichi Koichi is a male Japanese given name. It can also be a surname. People with the given name Koichi
ever faithful to her mistress, especially in sorrow. [Ital. Opera: Puccini, Madama Butterfly, Westerman, 358] See : Loyalty , President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of IIJ. "In the changing environment for IP-based technology, the IIJ Group will continue to strengthen its position as a top IP engineering company, while capitalizing on the demand in the high-end high-end adj. Informal 1. Appealing to sophisticated and discerning customers: a high-end department store; high-end video equipment. 2. corporate market." Recently, IIJ acquired various large-scale large-scale adj. 1. Large in scope or extent. 2. Drawn or made large to show detail. large-scale Adjective 1. wide-ranging or extensive 2. outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. contracts, including contracts with Plala Networks- an affiliate Affiliate Relationship between two companies when one company owns substantial interest, but less than a majority of the voting stock of another company, or when two companies are both subsidiaries of a third company. See: Subsidiaries, parent company. of NTT NTT Nippon Telegraph and Telephone Corporation NTT New Technology Telescope NTT National Technology Transfer, Inc NTT Name That Tune (TV game show) NTT National Tree Trust NTT Number Theoretic Transform East, Panasonic
Operating Profitability Although IIJ expects improvements in its operating profitability in 4Q02, it has posted operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. for the past three consecutive quarters. "For our revenues to grow further in fiscal 2003, we decided to pursue a strategy of strengthening our network infrastructure through the construction of the CDN (Content Delivery Network) A system of distributed content on a large intranet or the public Internet in which copies of content are replicated and cached throughout the network. (Content Delivery Network) platform, which is the primary cause of our increased expenses," said Yasuhiro Nishi Nishi may refer to:
adj. 1. Almost exact or correct: the approximate time of the accident. 2. a six to nine month time-lag time-lag time n → Verzögerung f until such broadband projects becoming profitable. We believe that the current strategy will strengthen our position as a leader in the broadband market in Japan." Capital Improvement Plan IIJ is currently preparing for a series of capital improvements that will secure the financial means to allow IIJ to continue the implementation of its growth strategy, which will be effective by the end of March 2003. Details for the plan will be announced when finalized See finalization. . Discussion with PoweredCom IIJ, its 37.9% affiliate Crosswave Communications ("Crosswave") and PoweredCom, Inc. ("PoweredCom") agreed to extend the period for discussions regarding a possible integration of their businesses until the end of March 2003. Market Prospects Customer Base In 3Q02, revenues from IIJ's top 150 customers accounted for approximately half of total revenues. IIJ has been actively cross-selling Cross-selling is the term used to describe the sale of additional products or services to a customer. Less frequently it is used to describe the sale of services to additional business units at an account or to different geographic units of a customer. its Value-added Services A value-added service (VAS) is a telecommunications industry term for non-core services or, in short, all services beyond standard voice calls and fax transmissions. , SI services and Data Center Services to existing users of its Dedicated Access Services. Cross-selling rates for 3Q02 are detailed in the following table. Going forward, IIJ expects its strategic marketing focus on Data Center Services to further increase the cross-selling rates.
IIJ Approximate Cross-selling rates among Top150 Customers
in 3Q02 (Unit: %)
----------------------------------------------------------------------
Value-added Service SI Data Center Service
======================================================================
Dedicated Access Service 67 53 25
----------------------------------------------------------------------
For example, in 3Q02, 67% of customers who use IIJ's Dedicated
Access Service also signed up for IIJ's Value-added Service.
Broadband Solutions
In the ISP market, IIJ expects to continue acquiring
network-outsourcing contracts from major ISPs and network operators in
Japan. In the CATV market, IIJ expects to continue increasing the
number of its CATV customers. As of December 2002, the number of CATV
operators connected to IIJ was 46, which represents approximately 60%
of Japan's CATV Internet market. In the SME (Small and Medium-sized
Enterprise) market, IIJ expects to increase the number of contracts in
second-tier package services with 10Mbps or 100Mbps access, such as
with IIJ Fiber Access/F service. The number of contracts for 3Q02 is
provided in Table 1 in the financial section.
Number of broadband subscribers in Japan (Unit: Thousand)
----------------------------------------------------------------------
Type of broadband connectivity December 02 September 02 December 01
======================================================================
ADSL (Asymmetric Digital
Subscriber Line) 5,646 4,223 1,525
----------------------------------------------------------------------
CATV Internet 1,954 1,800 1,303
----------------------------------------------------------------------
FTTH (Fiber to The Home ) 206 114 n.a
----------------------------------------------------------------------
Source: Ministry of Public Management, Home Affairs, Posts and
Telecommunications.
WAN Solutions
In response to the growing demand in the enterprise WAN (Wide Area
Network) market, IIJ continues to maintain its marketing focus on IIJ
VPN Standard, a VPN (Virtual Private Network) service for SMEs. At the
same time, IIJ is also focusing on supporting sales activities of
Crosswave's WAN solution, Wide-area Ethernet Standard, which is for
larger-scale customers.
Data Center Solutions
IIJ recently opened two data centers in Yokohama and Saitama. The
Company expects the new data centers to function as the hub for the
IIJ Group's suite of total network solution services, and to help
differentiate the Company from other conventional service providers.
As operations for network applications become more mission-critical,
IIJ expects revenues from its application gateway services that
utilize data center facilities to grow. The IIJ Group's gateway
solutions include IIJ Mail Gateway Service (email virus check, email
audit and email archive), IIJ Web Filtering Service (web access
control) and IIJ ID Gateway Service (remote access to internal
network). In February 2003, the IIJ Group acquired a large-scale
email-outsourcing contract from the Ricoh group.
Systems Integration (SI) Services
Drawing upon its accumulated experience in component-based SI
service offerings, IIJ Technology, IIJ's 64.0% subsidiary specializing
in the SI business, announced the development of a new data center
service called the Resource on Demand Data Center Service (see details
in the "3rd Quarter FY2002 Operating Highlights" section). IIJ is
positioning the new DC service as the key feature for data center
marketing for the IIJ Group.
Forecasted Financial Performance for 4Q02
For 4Q02, IIJ expects total revenues to be between JPY12.5 billion
and JPY13.0 billion, the highest amount of quarterly revenues in IIJ's
history. The revenue growth is expected to be driven by strength in
the SI business. The Company expects operating profitability to
improve in 4Q02. For the full 2002 fiscal year, IIJ expects total
revenues to grow by approximately 10% compared to fiscal 2001.
Status of Overview and Business Outlook
This Overview and Business Outlook contains forward-looking
statements and projections such as statement regarding 4Q02 total
revenues and operating profitability 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 contained in IIJ's filings on Form 20-F and Form
6-K, 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 4Q02 earnings release, presently
scheduled for May 20, 2003. In conjunction with the 3Q02 earnings
announcement, IIJ will hold a webcasted conference made available to
the public at www.vcall.com.
3rd Quarter FY2002 Operating Highlights
Best Service Provider Award
In December 2002, IIJ was named the "best service provider of year
2002" in a major annual survey conducted by Nikkei Communications, a
leading telecom industry trade magazine. According to the survey,
which was based on responses from 856 corporations in Japan, IIJ was
ranked number one in three of the four total qualifying categories,
including "broadband service", "dedicated access service" and "dialup
access service."
Ranking of best service provider survey 2002
----------------------------------------------------------------------
Broadband service Dedicated access service Dialup access service
----------------------------------------------------------------------
1 IIJ IIJ IIJ
----------------------------------------------------------------------
2 Nifty Poweredcom NEC
----------------------------------------------------------------------
3 NTT Communications Jens Nifty
----------------------------------------------------------------------
4 KDDI Cable & Wireless IDC AT&T
----------------------------------------------------------------------
5 Japan Telecom Fujitsu NTT Communications
----------------------------------------------------------------------
Source: Nikkei Communications December 2002
New Service Developments under the Total Network Solutions
Approach
Broadband Solutions
In December 2002, IIJ won an outsourcing contract from Plala
Networks Inc. ("Plala"), one of Japan's leading ISPs (Internet Service
Provider), and an affiliate of NTT East. By utilizing a part of the
CDN platform, IIJ provides network infrastructure and account
management functions for Plala's new service for the retail market.
Revenues from CDN services are recognized as a part of the
"Connectivity and value-added services" and "Systems integration
services" categories in IIJ's financial statements, depending on the
specific service requirements.
WAN Solutions
In November 2002, IIJ launched an Internet-VPN service called "IIJ
VPN Standard", which enables corporate customers to construct private
networks by utilizing inexpensive broadband access lines such as ADSL
and FTTH. Revenues from this service are recognized as Value-added
services in IIJ's financial statements. In addition, IIJ expects
revenues to increase for its Connectivity Services since customers
also need Internet connectivity for their VPN constructions.
Data Center Solutions
In November 2002, IIJ announced that it would begin a new data
center service called "Resource on Demand DC Service" starting
February 2003. The new service will be comprised of various network,
facility and engineering resources that enable customers to utilize
these resources as much as they need, whenever they need. Fees for the
service will depend on customer requirements.
Security Solutions
In December 2002, IIJ started a low-cost managed firewall service
called "IIJ Security Lite" that targets SMEs. Also in December 2002,
IIJ started a free security scanning service called "Network Sweep",
which is a promotional service and is available to all customers of
IIJ's security services at no extra charge. Revenues from IIJ security
solutions are recognized under "Connectivity and Value-added Services"
in IIJ's financial statements.
Router Solutions
In November 2002, IIJ introduced a new router product called
"SEIL/neu ATM", which provides various control functions that are
optimized for high quality ATM (Asynchronous Transfer Mode)-based
networks for enterprises and telecom carriers. Revenue from SEIL/neu
ATM is recognized as a part of the "Equipment Sales" category in IIJ's
financial statements.
Network Infrastructure Development
In 3Q02, IIJ increased the capacity of eleven of its domestic
backbone network lines. IIJ also upgraded its US backbone network that
runs between Los Angeles, California and Ashburn, Virginia.
R&D (IPv6)
With IPv6 multicast streaming technologies, IIJ broadcasted a part
of the Global IPv6 Summit programs in December 2002, which marked the
first time in Japan that the IPv6 multicast streaming technologies
were used nationwide for IPv6 users, including consumer households.
Key Developments of IIJ Group Companies
Asia Internet Holding Co., Ltd., the Company's 26.7% affiliate,
has completed a capacity increase for it's link with Malaysia's Jaring
to 45Mbps. Jaring is one of the largest ISPs in Malaysia.
IIJ America Inc., the Company's 91.3% owned subsidiary, launched a
new security monitoring service called "Security CheckUp" for
companies in the U.S. The new service scans for security holes in
customers' servers and enterprise networks.
IIJ Media Communications, the Company's 50.1% owned subsidiary,
launched "Easy Pack Live", an economical Internet broadcasting
service. Revenues from the IIJ-MC service are recognized as a part of
the "Systems Integration" category in IIJ's income statement.
Internet Multifeed Co., the Company's 26.0% owned affiliate,
announced that it would introduce Japan's first 10Gbps ethernet
interface as a part of its JPNAP Service, Japan's major distributed IX
(Internet exchange) service, starting in January 2003.
3rd Quarter FY2002 Financial Results
Revenues
Revenues in 3Q02 totaled JPY10,564 million, an increase of 6.3%
compared to 3Q01, though flat compared to 2Q02.
Connectivity services and value-added services revenues were
JPY5,561 million in 3Q02, a decrease of 1.0% compared to 3Q01 and a
decrease of 2.4% compared to 2Q02.
Dedicated access services revenues were JPY3,404 million in 3Q02,
a decrease of 3.8% compared to 3Q01 and a decrease of 4.0% compared to
2Q02. IP services, including Data center connectivity services,
decreased 4.1% in 3Q02 compared to 2Q02, due to the cancellation by a
telecom service arm of a regional electric power company. Conventional
second-tier services, IIJ Economy Service (64-128kbps) and IIJ T1
Standard Service (1.5Mbps), also decreased, because customers in the
category have gradually been migrating to new services such as the IIJ
FiberAccess/F service (10-100Mbps) and IIJ DSL/F service (1.5-12Mbps).
Dial-up access service revenues were JPY776 million in 3Q02, a
decrease of 12.2% compared to 3Q01 and a decrease of 2.0% compared to
2Q02. The decline in revenues from Dial-up access services has been
offset by the steady revenue growth of IIJ's various OEM services,
which include NTT's regional L-mode service and other network services
through the CDN platform.
Value-added services revenues increased 12.4% to JPY913 million in
3Q02 compared to 3Q01 and 2.2% compared to 2Q02. These increases were
mainly due to the revenue growth of security related services.
Systems integration services revenues increased 8.6% to JPY3,684
million in 3Q02 compared to 3Q01 and 19.1% compared to 2Q02, as
revenues from customers in the financial service sector continued to
increase steadily.
Equipment sales revenues were JPY1,319 million in 3Q02, an
increase of 42.2% compared to 3Q01 and a decrease of 25.7% compared to
2Q02.
Table 1. Number of Contracts
----------------------------------------------------------------------
Internet Access Services 3Q02 2Q02 3Q01
======================================================================
IP Service 64kbps - 128kbps 130 111 176
----------------------------------------------------------------------
192kbps - 768kbps 37 30 46
----------------------------------------------------------------------
1Mbps - 2Mbps 279 266 269
----------------------------------------------------------------------
3Mbps - 1.2Gbps 212 205 131
----------------------------------------------------------------------
Internet Data Center Connectivity
Services(2) 139 129 100
----------------------------------------------------------------------
Others(3) 3,922 3,568 2,516
======================================================================
Total Dedicated Access Services Contracts 4,719 4,309 3,238
======================================================================
(2) The figures of Internet data center connectivity services do
not include contracts for data center housing services.
(3) Others include, IIJ FiberAccess/F, IIJ Ethernet Standard, IIJ
DSL/F, IIJT1 Standard and IIJ Economy.
----------------------------------------------------------------------
IIJ4U (dialup services for individuals) 82,193 84,432 91,924
----------------------------------------------------------------------
Others 370,543 309,950 114,676
======================================================================
Total Dial-up Access Services Contracts 452,736 394,382 206,600
======================================================================
Table 2. Revenue Breakdown in Dedicated
Access Services (JPY in millions)
----------------------------------------------------------------------
3Q02 2Q02 3Q01
----------------------------------------------------------------------
Total IP Service + DC connectivity 2,548 2,657 2,520
----------------------------------------------------------------------
Others 856 889 1,020
----------------------------------------------------------------------
Table 3. Contracted Bandwidth (Unit: Giga bits per second)
----------------------------------------------------------------------
3Q02 2Q02 3Q01
----------------------------------------------------------------------
Dedicated Access Services 23.3 18.0 7.7
----------------------------------------------------------------------
Internet Data Center Connectivity Service 7.0 4.7 0.7
======================================================================
Total Contracted Bandwidth 30.3 22.7 8.4
======================================================================
Cost and expenses
Cost of total revenues was JPY9,607 million in 3Q02, an increase
of 13.4% compared to 3Q01, and an increase of 2.1% compared to 2Q02.
Backbone Costs
International backbone costs were JPY432 million, a decrease of
19.4% compared to 3Q01 and a decrease of 3.6% compared to 2Q02.
Domestic backbone costs were JPY902 million, an increase of 16.7%
compared to 3Q01 and an increase of 10.7% compared to 2Q02. These
increases were a result of an increase in connection fees with NTT's
regional access networks (Flets), along with the implementation of its
broadband strategy to strengthen its backbone network for providing
various broadband network services and solutions nationwide.
Table 4. Backbone Costs (JPY in millions)
----------------------------------------------------------------------
3Q02 2Q02 3Q01
----------------------------------------------------------------------
International Backbone Costs 432 448 536
----------------------------------------------------------------------
Domestic Backbone Costs 902 815 772
----------------------------------------------------------------------
Cost of SI (Systems Integration) revenues
Cost of SI revenues was JPY3,173 million in 3Q02, an increase of
10.7% compared to 3Q01 and an increase of 18.3% compared to 2Q02. The
gross margin ratio for SI deteriorated to 13.9% in 3Q02 compared to
15.5% in 3Q01, but improved from 13.3% in 2Q02.
Sales and Marketing Expenses
Sales and marketing expenses were JPY894 million in 3Q02, an
increase of 21.7% compared to 3Q01 and an increase of 20.3% compared
to 2Q02. These increases were a result of the increase in promotional
expenses for the CDN platform services and bad debt expenses of JPY50
million for certain customers.
General and administrative expenses
General and administrative expenses were JPY512 million in 3Q02,
an increase of 3.7% compared to 3Q01 but a decrease of 0.5% compared
to 2Q02.
Operating loss
Primarily as a result of the decrease of Dedicated access service
revenues and the increase of domestic backbone costs and sales and
marketing expenses, the operating loss increased to JPY567 million in
3Q02 compared to operating income of JPY151 million in 3Q01 and a loss
of JPY194 million in 2Q02. The operating income (loss)-to-revenue
ratio for 3Q02 was (-)5.4%, compared to 1.5% in 3Q01, and to (-)1.8%
in 2Q02.
Other expenses
Other expenses for 3Q02 were JPY228 million, compared to JPY114
million in 3Q01 and JPY160 million in 2Q02. IIJ recorded a foreign
exchange loss of JPY35 million on dollar denominated monetary assets
due to the appreciation of the Japanese Yen against the U.S. dollar in
3Q02. This compared to exchange gain of JPY379 million in 3Q01 and to
exchange gain of JPY54 million in 2Q02. In 3Q01, IIJ recorded a JPY299
million of impairment loss on marketable equity security investment,
which offset a foreign exchange gain of JPY379 million.
Income tax expense
Income tax expense for 3Q02 was JPY138 million, compared to
benefit of JPY154 million in 3Q01 and an expense of JPY515 million in
2Q02. This is a result of an increase in the valuation allowance for
deferred tax assets attributable primarily to the income tax effect of
decreasing unrealized gains during the quarter on certain
available-for-sale-securities.
Equity in net loss of equity method investees
Equity in net loss of equity method investees amounted to JPY1,375
million in 3Q02, compared to JPY1,218 million in 3Q01, and JPY1,480
million in 2Q02. This is mostly attributed to the equity loss in
Crosswave.
Net loss
Net loss was JPY2,266 million in 3Q02, compared to JPY1,030
million in 3Q01 and JPY2,326 million in 2Q02. Basic net loss per ADS
equivalent was JPY(-)50.40 in 3Q02, compared to JPY(-)22.91 in 3Q01
and JPY(-)51.74 in 2Q02.
Table 5. Other Financial Statistics (JPY in millions)
----------------------------------------------------------------------
3Q02 2Q02 3Q01
----------------------------------------------------------------------
Adjusted EBITDA 349 662 904
----------------------------------------------------------------------
CAPEX, including capitalized leases 1,519 1,504 804
----------------------------------------------------------------------
Depreciation and amortization(4) 943 884 783
----------------------------------------------------------------------
(4) Depreciation and amortization includes amortization of
issuance cost of convertible notes.
Company Information
Founded in 1992, Internet Initiative Japan Inc. (IIJ, NASDAQ:
IIJI) is Japan's leading Internet-access and comprehensive network
solutions provider. 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. Services range from the
delivery of new generation network services over an optical-fiber
infrastructure that is optimized for data communications, to the
construction of pan-Asian IP backbone networks. The company also
offers high-quality systems integration and security services,
internet access, hosting/housing, and content design.
Statements made in this press release regarding IIJ's or
management's intentions, beliefs, expectations, or predictions for the
future are forward-looking statements that are based on IIJ's and
managements' current expectations, assumptions, estimates and
projections about its business and the industry. These forward-looking
statements, such as statements regarding 4Q02 and fiscal year 2002
total revenues and operating 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 expectation that net losses will continue;
IIJ's ability to raise additional capital to cover its accumulated
deficit; IIJ's ability to continue to increase subscribers to its
connectivity services, particularly at higher bandwidths; IIJ's
ability to generate significant revenues from its other services such
as systems integration; the success of IIJ's investments in Crosswave;
the ability to compete in a rapidly evolving and competitive
marketplace; the impact of technological changes in its industry; and
other risks referred to from time to time in IIJ's filings on Form 20F
of its annual report and other filings with the United States
Securities and Exchange Commission.
INTERNET INITIATIVE JAPAN INC. Appendix 1
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
----------------------------------------------------
For the Three Months Ended Dec 31, 2002, Dec 31, 2001
and Sept 30, 2002
(Expressed in Thousands of Japanese Yen (JPY) and U.S.
Dollars (USD) Except for Per Share and ADS Data) (1)
Year-over-year Comparison
Dec 31, 2002
-----------------------------
% of
Total
USD (1) JPY Revenues
-------- ----------- --------
Revenues:
Connectivity and value-added
services:
Dedicated access services(2) 28,665 3,404,016 32.2%
Dial-up access services 6,536 776,173 7.4
Value-added services(2) 7,690 913,152 8.6
Other 3,938 467,629 4.4
-------- ----------- --------
Total connectivity and
value-added services 46,829 5,560,970 52.6
Systems integration revenues 31,023 3,683,978 34.9
Equipment sales 11,104 1,318,630 12.5
-------- ----------- --------
Total revenues 88,956 10,563,578 100.0
-------- ----------- --------
Costs and expenses:
Cost of connectivity and value-added
services 43,620 5,179,920 49.0
Cost of systems integration revenues 26,722 3,173,211 30.0
Cost of equipment sales 10,561 1,254,073 11.9
-------- ----------- --------
Total costs 80,903 9,607,204 90.9
Sales and marketing 7,531 894,340 8.5
General and administrative 4,308 511,604 4.9
Research and development 985 116,950 1.1
-------- ----------- --------
Total costs
and expenses 93,727 11,130,098 105.4
-------- ----------- --------
Operating income (loss) (4,771) (566,520) (5.4)
-------- ----------- --------
Other expenses (1,920) (228,058) (2.1)
-------- ----------- --------
Income(Loss) before income tax
expense(benefit) (6,691) (794,578) (7.5)
-------- ----------- --------
Income tax expense(benefit) 1,161 137,936 1.3
Minority interests in consolidated
subsidiaries 352 41,813 0.4
Equity in net loss of equity method
investees (11,582) (1,375,338) (13.0)
-------- ----------- --------
Net loss (19,082) (2,266,039) (21.4%)
======== =========== ========
Basic Net Loss Per Share (100,802)
Basic Net Loss Per ADS Equivalent (50.40)
Weighted Average Number of Shares 22,480
Weighted Average Number of ADS
Equivalents 44,960,000
Year-over-year Comparison
Dec 31, 2001
------------------------------
% of
Total YOY
JPY Revenues Chg %
----------- -------- ---------
Revenues:
Connectivity and value-added
services:
Dedicated access services(2) 3,539,924 35.6% (3.8%)
Dial-up access services 883,698 8.9 (12.2)
Value-added services(2) 812,157 8.2 12.4
Other 379,188 3.8 23.3
----------- -------- ---------
Total connectivity and
value-added services 5,614,967 56.5 (1.0)
Systems integration revenues 3,391,122 34.2 8.6
Equipment sales 927,545 9.3 42.2
----------- -------- ---------
Total revenues 9,933,634 100.0 6.3
----------- -------- ---------
Costs and expenses:
Cost of connectivity and value-added
services 4,774,788 48.1 8.5
Cost of systems integration revenues 2,865,601 28.8 10.7
Cost of equipment sales 832,972 8.4 50.6
----------- -------- ---------
Total costs 8,473,361 85.3 13.4
Sales and marketing 734,623 7.4 21.7
General and administrative 493,327 5.0 3.7
Research and development 80,946 0.8 44.5
----------- -------- ---------
Total costs and expenses 9,782,257 98.5 13.8
----------- -------- ---------
Operating income (loss) 151,377 1.5 (474.2)
----------- -------- ---------
Other expenses (113,705) (1.1) 100.6
----------- -------- ---------
Income(Loss) before income tax
expense(benefit) 37,672 0.4 (2,209.2)
----------- -------- ---------
Income tax expense(benefit) (154,239) (1.5) (189.4)
Minority interests in consolidated
subsidiaries (3,985) 0.0 (1,149.3)
Equity in net loss of equity method
investees (1,217,755) (12.3) 12.9
----------- -------- ---------
Net loss (1,029,829) (10.4%) 120.0%
=========== ======== =========
Basic Net Loss Per Share (45,811)
Basic Net Loss Per ADS Equivalent (22.91)
Weighted Average Number of Shares 22,480
Weighted Average Number of ADS
Equivalents 44,960,000
Sequential Comparison
Sept 30, 2002
-----------------------------
% of
Total QOQ
JPY Revenues Chg %
----------- -------- --------
Revenues:
Connectivity and value-added
services:
Dedicated access services(2) 3,546,372 33.6% (4.0%)
Dial-up access services 791,738 7.5 (2.0)
Value-added services(2) 893,135 8.4 2.2
Other 467,976 4.4 (0.1)
----------- -------- --------
Total connectivity and
value-added services 5,699,221 53.9 (2.4)
Systems integration revenues 3,094,168 29.3 19.1
Equipment sales 1,774,953 16.8 (25.7)
----------- -------- --------
Total revenues 10,568,342 100.0 0.0
----------- -------- --------
Costs and expenses:
Cost of connectivity and value-added
services 5,081,186 48.1 1.9
Cost of systems integration revenues 2,681,946 25.3 18.3
Cost of equipment sales 1,648,106 15.6 (23.9)
----------- -------- --------
Total costs 9,411,238 89.0 2.1
Sales and marketing 743,230 7.0 20.3
General and administrative 514,082 4.9 (0.5)
Research and development 93,574 0.9 25.0
----------- -------- --------
Total costs and expenses 10,762,124 101.8 3.4
----------- -------- --------
Operating income (loss) (193,782) (1.8) 192.3
----------- -------- --------
Other expenses (160,247) (1.5) 42.3
----------- -------- --------
Income(Loss) before income tax
expense(benefit) (354,029) (3.3) 124.4
----------- -------- --------
Income tax expense(benefit) 514,872 4.9 (73.2)
Minority interests in consolidated
subsidiaries 23,146 0.2 80.6
Equity in net loss of equity method
investees (1,480,411) (14.0) (7.1)
----------- -------- --------
Net loss (2,326,166) (22.0%) (2.6%)
=========== ======== ========
Basic Net Loss Per Share (103,477)
Basic Net Loss Per ADS Equivalent (51.74)
Weighted Average Number of Shares 22,480
Weighted Average Number of ADS
Equivalents 44,960,000
Note (1):The translations of Japanese yen amounts into US
dollar amounts with respect to the three months ended Dec
31, 2002 are included solely for the convenience of
readers outside Japan and have been made at the rate of
JPY 118.75 =$1, the approximate rate of exchange on Dec
31, 2002.
Note (2):IIJ datacenter connectivity services revenues have
been reclassified from value added services revenues into
dedicated access services revenues since the 1st quarter
of FY2002. The 3rd quarter of FY2001 presented has been
reclassified to conform to the current presentation and
such reclassification resulted in an increase of dedicated
access services revenues by Y201,554, as compared to the
previous classification method.
INTERNET INITIATIVE JAPAN INC. Appendix 2
----------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
----------------------------------------------------
For the Nine Months Ended Dec 31, 2002 and Dec 31,
2001
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars
(USD) Except for Per Share and ADS Data) (1)
Year-over-year Comparison
Dec 31, 2002
-----------------------------
% of
Total
USD (1) JPY Revenues
-------- ----------- --------
Revenues:
Connectivity and value-added
services:
Dedicated access services(2) 88,200 10,473,722 33.8%
Dial-up access services 20,128 2,390,179 7.7
Value-added services(2) 22,497 2,671,448 8.6
Other 11,322 1,344,530 4.4
-------- ----------- --------
Total connectivity and value-
added services 142,147 16,879,879 54.5
Systems integration revenues 85,113 10,107,204 32.6
Equipment sales 33,634 3,994,039 12.9
-------- ----------- --------
Total revenues 260,894 30,981,122 100.0
-------- ----------- --------
Costs and expenses:
Cost of connectivity and value-added
services 129,294 15,353,621 49.6
Cost of systems integration revenues 74,463 8,842,530 28.5
Cost of other equipment sales 31,816 3,778,191 12.2
-------- ----------- --------
Total costs 235,573 27,974,342 90.3
Sales and marketing 20,101 2,386,931 7.7
General and administrative 12,994 1,543,002 5.0
Research and development 2,537 301,304 1.0
-------- ----------- --------
Total costs and expenses 271,205 32,205,579 104.0
-------- ----------- --------
Operating loss (10,311) (1,224,457) (4.0)
-------- ----------- --------
Other expenses (7,656) (909,141) (2.9)
-------- ----------- --------
Loss before income tax expense (17,967) (2,133,598) (6.9)
-------- ----------- --------
Income tax expense 6,856 814,109 2.6
Minority interests in consolidated
subsidiaries 1,111 131,909 0.4
Equity in net loss of affiliated
companies (36,812) (4,371,424) (14.1)
-------- ----------- --------
Net loss (60,524) (7,187,222) (23.2%)
======== =========== ========
Basic Net Loss Per Share (319,716)
Basic Net Loss Per ADS Equivalent (159.86)
Weighted Average Number of Shares 22,480
Weighted Average Number of ADS
Equivalents 44,960,000
Year-over-year Comparison
Dec 31, 2001
---------------------------
% of
Total YoY
JPY Revenues Chg %
----------- -------- ------
Revenues:
Connectivity and value-added
services:
Dedicated access services(2) 10,660,201 38.3% (1.7%)
Dial-up access services 2,799,812 10.1 (14.6)
Value-added services(2) 2,276,654 8.2 17.3
Other 1,134,795 4.1 18.5
----------- -------- ------
Total connectivity and value-
added services 16,871,462 60.7 0.0
Systems integration revenues 9,023,339 32.5 12.0
Equipment sales 1,900,038 6.8 110.2
----------- -------- ------
Total revenues 27,794,839 100.0 11.5
----------- -------- ------
Costs and expenses:
Cost of connectivity and value-added
services 14,689,111 52.9 4.5
Cost of systems integration revenues 7,579,795 27.3 16.7
Cost of other equipment sales 1,674,735 6.0 125.6
----------- -------- ------
Total costs 23,943,641 86.2 16.8
Sales and marketing 2,373,208 8.5 0.6
General and administrative 1,359,149 4.9 13.5
Research and development 251,280 0.9 19.9
----------- -------- ------
Total costs and expenses 27,927,278 100.5 15.3
----------- -------- ------
Operating loss (132,439) (0.5) 824.5
----------- -------- ------
Other expenses (605,448) (2.2) 50.2
----------- -------- ------
Loss before income tax expense (737,887) (2.7) 189.1
----------- -------- ------
Income tax expense 1,239,416 4.4 (34.3)
Minority interests in consolidated
subsidiaries 33,316 0.1 295.9
Equity in net loss of affiliated
companies (3,835,479) (13.8) 14.0
----------- -------- ------
Net loss (5,779,466) (20.8%) 24.4%
=========== ======== ======
Basic Net Loss Per Share (257,094)
Basic Net Loss Per ADS Equivalent (128.55)
Weighted Average Number of Shares 22,480
Weighted Average Number of ADS
Equivalents 44,960,000
Note (1):The translations of Japanese yen amounts into US
dollar amounts with respect to the year ended Dec 31, 2002
are included solely for the convenience of readers outside
Japan and have been made at the rate of JPY 118.75 =$1,
the approximate rate of exchange on Dec 31, 2002.
Note (2):IIJ datacenter connectivity services revenues have
been reclassified from value added services revenues into
dedicated access services revenues since the 1st quarter
of FY2002. The 3rd quarter of FY2001 presented has been
reclassified to conform to the current presentation and
such reclassification resulted in an increase of dedicated
access services revenues by Y503,763, as compared to the
previous classification method.
INTERNET INITIATIVE JAPAN INC. Appendix 3
-------------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
---------------------------------------
As of Dec 31, 2002, Dec 31, 2001 and Sept 30, 2002
(Expressed in Thousands of Japanese Yen (JPY) and U.S.
Dollars (USD)) (1)
Dec 31, 2002
-----------------------------
USD (1) JPY %
--------- ------------ ------
ASSETS
--------------------------
Current Assets:
Cash 35,963 4,270,613 11.4%
Accounts receivable, net 61,517 7,305,169 19.5
Inventories 6,854 813,863 2.2
Prepaid expenses 7,434 882,854 2.4
Other current assets 1,144 135,828 0.4
--------- ------------ ------
Total current assets 112,912 13,408,327 35.9
Investments in and Advances to Equity
Method Investees 38,085 4,522,602 12.1
Other Investments 29,151 3,461,695 9.2
Property and Equipment,
net 74,932 8,898,123 23.8
Restricted Cash(2) 42,105 5,000,000 13.4
Guarantee Deposits 11,533 1,369,596 3.7
Other Assets 5,895 699,998 1.9
--------- ------------ ------
Total assets 314,613 37,360,341 100.0%
========= ============ ======
LIABILITIES AND
--------------------------
SHAREHOLDERS' EQUITY
--------------------------
Current Liabilities:
Short-term borrowings 37,979 4,510,000 12.1%
Accounts payable 49,287 5,852,779 15.7
Accrued expenses 3,068 364,366 1.0
Other current liabilities 4,806 570,719 1.5
Long-term borrowings-
current portion 10,105 1,200,000 3.2
Capital lease obligations-
current portion 20,419 2,424,701 6.5
--------- ------------ ------
Total current liabilities 125,664 14,922,565 40.0
Long-term Borrowings 28,631 3,400,000 9.1
Convertible Notes 126,316 15,000,000 40.1
Capital Lease Obligations-
Noncurrent 29,163 3,463,132 9.3
Accrued Retirement and
Pension Costs 632 75,047 0.2
Other Noncurrent
Liabilities 1,557 184,847 0.5
--------- ------------ ------
Total liabilities 311,963 37,045,591 99.2
--------- ------------ ------
Minority Interest 7,586 900,837 2.4
--------- ------------ ------
Shareholders' Equity:
Common stock 59,641 7,082,336 18.9
Additional paid-in capital 143,733 17,068,353 45.7
Accumulated deficit (213,859) (25,395,691) (68.0)
Accumulated other
comprehensive income 5,549 658,915 1.8
--------- ------------ ------
Total shareholders' equity (4,936) (586,087) (1.6)
--------- ------------ ------
Total liabilities
and shareholders' equity 314,613 37,360,341 100.0%
========= ============ ======
Dec 31, 2001
-------------------
JPY %
------------ ------
ASSETS
--------------------------
Current Assets:
Cash 11,166,077 25.9%
Accounts receivable, net 5,830,688 13.5
Inventories 228,063 0.5
Prepaid expenses 806,515 1.9
Other current assets 425,411 1.0
------------ ------
Total current assets 18,456,754 42.8
Investments in and Advances to Equity Method
Investees 10,386,964 24.1
Other Investments 4,814,114 11.1
Property and Equipment,
net 7,609,238 17.6
Restricted Cash(2) 0 0.0
Guarantee Deposits 1,263,819 2.9
Other Assets 638,652 1.5
------------ ------
Total assets 43,169,541 100.0%
============ ======
LIABILITIES AND
--------------------------
SHAREHOLDERS' EQUITY
--------------------------
Current Liabilities:
Short-term borrowings 3,700,214 8.6%
Accounts payable 3,428,098 7.9
Accrued expenses 292,996 0.7
Other current liabilities 696,682 1.6
Long-term borrowings-
current portion 1,200,000 2.8
Capital lease obligations-
current portion 1,928,505 4.5
------------ ------
Total current liabilities 11,246,495 26.1
Long-term Borrowings 3,600,000 8.3
Convertible Notes 15,000,000 34.7
Capital Lease Obligations-
Noncurrent 2,969,253 6.9
Accrued Retirement and
Pension Costs 126,085 0.3
Other Noncurrent
Liabilities 34,238 0.1
------------ ------
Total liabilities 32,976,071 76.4
------------ ------
Minority Interest 1,023,897 2.4
------------ ------
Shareholders' Equity:
Common stock 7,082,336 16.4
Additional paid-in capital 17,068,353 39.5
Accumulated deficit (16,541,800) (38.3)
Accumulated other
comprehensive income 1,560,684 3.6
------------ ------
Total shareholders' equity 9,169,573 21.2
------------ ------
Total liabilities
and shareholders' equity 43,169,541 100.0%
============ ======
Sept 30, 2002
-------------------
JPY %
------------ ------
ASSETS
--------------------------
Current Assets:
Cash 4,772,753 12.2%
Accounts receivable, net 7,844,256 20.1
Inventories 415,771 1.1
Prepaid expenses 498,668 1.3
Other current assets 141,923 0.3
------------ ------
Total current assets 13,673,371 35.0
Investments in and Advances
to Equity Method Investees 5,896,219 15.1
Other Investments 3,751,532 9.6
Property and Equipment,
net 8,617,873 22.1
Restricted Cash(2) 5,000,000 12.8
Guarantee Deposits 1,392,519 3.6
Other Assets 706,828 1.8
------------ ------
Total assets 39,038,342 100.0%
============ ======
LIABILITIES AND
--------------------------
SHAREHOLDERS' EQUITY
--------------------------
Current Liabilities:
Short-term borrowings 4,832,286 12.4%
Accounts payable 5,131,068 13.1
Accrued expenses 271,557 0.7
Other current liabilities 442,564 1.1
Long-term borrowings-
current portion 1,400,000 3.6
Capital lease obligations-
current portion 2,271,145 5.8
------------ ------
Total current liabilities 14,348,620 36.7
Long-term Borrowings 3,400,000 8.7
Convertible Notes 15,000,000 38.4
Capital Lease Obligations-
Noncurrent 3,250,922 8.4
Accrued Retirement and
Pension Costs 83,058 0.2
Other Noncurrent
Liabilities 153,993 0.4
------------ ------
Total liabilities 36,236,593 92.8
------------ ------
Minority Interest 942,650 2.4
------------ ------
Shareholders' Equity:
Common stock 7,082,336 18.1
Additional paid-in capital 17,068,353 43.7
Accumulated deficit (23,129,652) (59.2)
Accumulated other
comprehensive income 838,062 2.2
------------ ------
Total shareholders' equity 1,859,099 4.8
------------ ------
Total liabilities
and shareholders' equity 39,038,342 100.0%
============ ======
Note (1): The translations of Japanese yen amounts into US
dollar amounts with respect to Dec 31, 2002 are
included solely for the convenience of readers outside
Japan and have been made at the rate of JPY118.75 =$1,
the approximate rate of exchange on Dec 31, 2002.
Note (2): At the end of May, 2002, IIJ deposited Y5 billion
into a restricted account with a participating bank
under Cash Deficiency Support Agreement with Crosswave
and four Japanese commercial banks.
INTERNET INITIATIVE JAPAN INC. Appendix 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended Dec 31, 2002, Dec
31, 2001 and Sept 30, 2002
(Expressed in Thousands of Japanese Yen
(JPY) and U.S. Dollars (USD)) (1)
Dec 31, Sept 30,
Dec 31, 2002 2001 2002
-------------------- ----------- -----------
USD (1) JPY JPY JPY
-------- ----------- ----------- -----------
Operating Activities:
Net loss (19,083) (2,266,039) (1,029,829) (2,326,166)
Depreciation and
amortization 7,940 942,854 783,194 883,732
Equity in net loss
of equity method
investees 11,582 1,375,338 1,217,755 1,480,411
Minority interests
in net (loss)
income of
consolidated
subsidiaries (352) (41,813) 3,985 (23,146)
Foreign exchange
losses (gains) 276 32,834 (379,315) (39,060)
Losses on other
investments - - 299,428 13,620
Decrease
(increase) in
accounts
receivable 4,160 493,961 175,291 (972,056)
Increase
(decrease) in
accounts payable 8,707 1,033,939 (1,103,244) 7,462
Decrease
(increase) in
inventories (3,352) (398,092) 784,340 (142,950)
Deferred income
taxes 1,113 132,230 (159,611) 509,228
Other (446) (52,956) (8,113) (8,051)
-------- ----------- ----------- -----------
Net cash provided
by (used in)
operating
activities 10,545 1,252,256 583,881 (616,976)
-------- ----------- ----------- -----------
Investing Activities:
Purchase of
property and
equipment (4,254) (505,169) (162,852) (222,308)
Investments in and
advances to
equity method
investees - - (17,497) -
Purchase of other
investments (239) (28,377) - (33,294)
(Payment) refund
of guarantee
deposits-net 194 22,972 (373,471) (87,518)
Other (257) (30,506) (7,718) 2,953
-------- ----------- ----------- -----------
Net cash used in
investing
activities (4,556) (541,080) (561,538) (340,167)
-------- ----------- ----------- -----------
Financing Activities:
Repayments of
long-term
borrowings (1,684) (200,000) - -
Principal payments
under capital
leases (5,487) (651,546) (530,423) (601,144)
Net increase
(decrease) in
short-term
borrowings (2,714) (322,254) (70,231) 282,164
-------- ----------- ----------- -----------
Net cash used in
financing
activities (9,885) (1,173,800) (600,654) (318,980)
-------- ----------- ----------- -----------
Effect of Exchange Rate
Changes on Cash (333) (39,516) 332,421 34,183
-------- ----------- ----------- -----------
Net Decrease in Cash (4,229) (502,140) (245,890) (1,241,940)
-------- ----------- ----------- -----------
Cash, Beginning of Period 40,192 4,772,753 11,411,967 6,014,693
-------- ----------- ----------- -----------
Cash, End of Period 35,963 4,270,613 11,166,077 4,772,753
======== =========== =========== ===========
Note (1): The translations of Japanese yen amounts into US
dollar amounts with respect to the three months ended Dec
31, 2002 are included solely for the convenience of
readers outside Japan and have been made at the rate of
JPY118.75 =$1, the approximate rate of exchange on Dec 31,
2002.
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