IIJ Announces Second Quarter Results for the Year Ending March 31, 2006; Revenues and Profits Increased Significantly in Favorable Progress towards Our Initial Annual Target.TOKYO & NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- 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 and comprehensive network solutions providers, today announced its financial results for the second quarter of the fiscal year ending March 31, 2006 ("FY2005").(1)
Highlights of Second Quarter FY2005 Results
-- Revenue totaled JPY 11,929 million ($105.3 million), an
increase of 13.5% from 2Q04.
-- Operating income was JPY 507 million ($4.5 million), an
increase of 79.8% from 2Q04.
-- Net income was JPY 1,001 million ($8.8 million), an increase
of 336.6% from 2Q04.
-- Results for the first half of FY2005 were as follows, and
exceeded our initial targets. Revenues: JPY 21,809 million
($192.5 million), an increase of 13.7% compared to 1H04.
Operating income: JPY 754 million ($6.7 million), an increase
of 315.0% compared to 1H04.
Net income: Turned positive to JPY 1,623 million ($14.3
million) from a loss of JPY 9 million in 1H04.
Target for FY2005(2)
-- We maintain the target for FY2005 that we announced on May 27,
2005.
Overview of 2nd Quarter of FY2005 Financial Results and Business
Outlook(2)
----------------------------------------------------------------------
"The favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. trend of increasing revenues and profits continued in 2Q05," 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. "Total revenues jumped 13.5% compared to the same period last year and 20.7% sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen mainly due to continued increases in sales of higher-margin network 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. and systems integration ("SI"). This was largely a reflection of the direction that we see the market and our business heading. Corporate customers are continuously requiring ever higher quality IP engineering skills and resources due to the constantly increasing volume of Internet traffic Internet traffic is the flow of data around the Internet. It includes web traffic, which is the amount of that data that is related to the World Wide Web, along with the traffic from other major uses of the Internet, such as electronic mail and peer-to-peer networks. , escalating network and security threats, and expansion of internal network systems that are integrated with the Internet. In particular, SI in 2Q05 increased significantly because we succeeded in acquiring a number of new systems integration projects, including the connection of customers' sites with 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). lines, the construction and operation of a new mail server to assist customers with their continuously increasing number of e-mails, and the construction and operation of security systems for several customers to bolster This article is about the pillow called a bolster. For other meanings of the word "bolster", see bolster (disambiguation). A bolster (etymology: Middle English, derived from Old English, and before that the Germanic word bulgstraz their efforts at fighting spam E-mail that is not requested. Also known as "unsolicited commercial e-mail" (UCE), "unsolicited bulk e-mail" (UBE), "gray mail" and just plain "junk mail," the term is both a noun (the e-mail message) and a verb (to send it). and external attacks." "We are pleased that we successfully exceeded our initial targets for the first half of the fiscal year," said Akihisa Watai, CFO See Chief Financial Officer. of IIJ. "We maintain our initial targets at this moment since we generally receive the largest portion of our SI revenues in the fourth quarter of our fiscal year." 2nd Quarter FY2005 Financial Results
Operating Result Summary (JPY in millions)
1H05 1H04 YoY % 2Q05
change
----------------------------------------------------------------------
Total Revenues 21,809 19,187 13.7% 11,929
----------------------------------------------------------------------
Total Costs 17,991 16,297 10.4% 9,873
----------------------------------------------------------------------
SG&A Expenses and R&D 3,064 2,708 13.1% 1,549
----------------------------------------------------------------------
Operating Income 754 182 315.0% 507
----------------------------------------------------------------------
Net Income 1,623 (9) (18374.4%) 1,001
----------------------------------------------------------------------
2Q04 YoY % 1Q05 QoQ %
change change
----------------------------------------------------------------------
Total Revenues 10,512 13.5% 9,880 20.7%
----------------------------------------------------------------------
Total Costs 8,854 11.5% 8,118 21.6%
----------------------------------------------------------------------
SG&A Expenses and R&D 1,376 12.5% 1,516 2.2%
----------------------------------------------------------------------
Operating Income 282 79.8% 247 105.7%
----------------------------------------------------------------------
Net Income 229 336.6% 623 60.7%
----------------------------------------------------------------------
Revenues
--------
Revenues in 2Q05 totaled JPY 11,929 million, an increase of 13.5%
from JPY 10,512 million in 2Q04 and an increase of 20.7% from
JPY 9880 million in 1Q05.
Revenues (JPY in millions)
2Q05 2Q04 YoY % 1Q05 QoQ %
change change
----------------------------------------------------------------------
Total Revenues 11,929 10,512 13.5% 9,880 20.7%
----------------------------------------------------------------------
Connectivity & VAS 5,767 5,508 4.7% 5,767 0.0%
----------------------------------------------------------------------
SI 5,162 3,838 34.5% 3,840 34.4%
---------------------------------------------------------------------
Equipment Sales 1,000 1,166 (14.2%) 273 266.0%
----------------------------------------------------------------------
Connectivity A generic term for connecting devices to each other in order to transfer data back and forth. It often refers to network connections, which embraces bridges, routers, switches and gateways as well as backbone networks. and 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. ("VAS vas (vas) pl. va´ sa [L.] vessel.va´sal vas aber´rans 1. a blind tubule sometimes connected with the epididymis; a vestigial mesonephric tubule. 2. ") revenues were JPY JPY In currencies, this is the abbreviation for the Japanese Yen. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 5,767 million in 2Q05, an increase of 4.7 % from JPY 5,508 million in 2Q04 and almost flat compared to JPY 5,767 million in 1Q05. Dedicated access service revenues were JPY 2,695 million in 2Q05, a decrease of 4.8% compared to 2Q04 and a decrease of 1.9% compared to 1Q05. The decrease was mainly due to the failure of an increase in revenues from broadband services See broadband and broadband service provider. to offset a decrease in revenues from T1 Standard or IIJ Economy. Dial-up access hot Dial-up access is a form of Internet access via telephone line. The client uses a modem connected to a computer and a telephone line to dial into an Internet service provider's (ISP) node to establish a modem-to-modem link, which is then routed to the Internet. service revenues were JPY 683 million in 2Q05, a decrease of 7.8% compared to 2Q04 and a decrease of 2.3% compared to 1Q05. The decrease from 2Q04 and 1Q05 is mainly due to the decrease in revenues from IIJ4U and OEM (Original Equipment Manufacturer) The rebranding of equipment and selling it. The term initially referred to the company that made the products (the "original" manufacturer), but eventually became widely used to refer to the organization that buys the products and service revenues. VAS revenues were JPY 1,459 million in 2Q05, an increase of 19.5% compared to 2Q04 and an increase of 5.1% compared to 1Q05. The increase compared to 2Q04 and 1Q05 is mainly due to an increase in revenues from various types of packaged outsource outsource verb To assign specific work to a 3rd party for a specific length of time at an set price and service level Managed care To use outside labor to perform functions–billing and collections, accounting, janitorial services, ER services, such as security, e-mail and web hosting Making a Web site available on the Internet. Many ISPs host a few personal Web pages for an individual at no additional cost above the monthly service fee, but the address is subordinate to the ISP; for example, www.friendlyisp.com/pat_smith. and network services such as managed router router Portable electric power tool used in carpentry and furniture making that consists of an electric motor, a base, two handle knobs, and bits (cutting tools). A router can cut fancy edges for shelving, grooves for storm windows and weather stripping, circles and ovals services. Other revenues were JPY 930 million in 2Q05, an increase of 30.0% compared to 2Q04 and a decrease of 0.3% compared to 1Q05. The increase from 2Q04 is mainly due to an increase in revenues from Wide-area Ethernet Ethernet Telecommunications networking protocol introduced by Xerox Corp. in 1979. It was developed as an inexpensive way of sending information quickly between office machines connected together in a single room or building, but it rapidly became a standard computer Services. SI revenues increased 34.5% to JPY 5,162 million in 2Q05 from JPY 3,838 million in 2Q04 and increased 34.4% from JPY 3,840 million in 1Q05. The increase from 2Q04 is mainly due to additional revenues from the purchase of the security system business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets of Yamatane Co. Ltd. in October October: see month. 2004 and solid growth of revenues from outsourced Outsourced is a modern day comedy of cross-cultural conflict and romance, directed by John Jeffcoat, released in 2007. Synopsis Todd Anderson (Josh Hamilton) spends his days managing a customer call center for American Novelty Products in Seattle, until his job, operations. The increase from 1Q05 is mainly due to the significant increase in revenues from systems development projects and solid increase of revenues from outsourced operations. Equipment sales revenues were JPY 1,000 million in 2Q05, a decrease of 14.2% compared to 2Q04 and an increase of 266.0% compared to 1Q05. The increase from 1Q05 is due to the increase of sales of network equipment related to new system integration projects.
Cost and expense
----------------
Cost of revenues was JPY 9,873 million in 2Q05, an increase of
11.5% compared to 2Q04 and an increase of 21.6% compared to
1Q05.
Cost of Revenues (JPY in millions)
2Q05 2Q04 YoY % 1Q05 QoQ %
change change
----------------------------------------------------------------------
Total Costs: 9,873 8,854 11.5% 8,118 21.6%
----------------------------------------------------------------------
Connectivity & VAS 4,988 4,780 4.3% 4,964 0.5%
----------------------------------------------------------------------
SI 3,919 2,983 31.4% 2,910 34.7%
----------------------------------------------------------------------
Equipment Sales 966 1,091 (11.4%) 244 296.4%
----------------------------------------------------------------------
Cost of Connectivity and VAS revenues was JPY 4,988 million, an increase of 4.3% compared to 2Q04 and almost flat compared to 1Q05. The increase from 2Q04 is mainly due to an increase in personnel expenses and cost for local access lines for Wide-area Ethernet Services. The gross-margin ratio for Connectivity and VAS in 2Q05 was 13.5%, compared to 13.2% in 2Q04 and 13.9% in 1Q05. The improvement from 2Q04 was mainly due to an increase in revenues from higher-margin VAS, and a decrease in backbone backbone: see spinal column. The part of a network that handles the major traffic. It employs the highest-speed transmission paths in the network and may also run the longest distances. costs. Cost of SI revenues was JPY 3,919 million in 2Q05, an increase of 31.4% compared to 2Q04 and an increase of 34.7% compared to 1Q05. The gross margin ratio for SI in 2Q05 was 24.1%, compared to 22.3% in 2Q04 and 24.2% in 1Q05. The improvement in margin compared to 2Q04 was mainly due to the increase in higher-margin systems integration contracts. Sales and marketing expenses were JPY 800 million in 2Q05, an increase of 12.4% compared to 2Q04 and an increase of 4.1% compared to 1Q05. The increase from 2Q04 is mainly due to an increase in advertising and personnel expenses. The increase from 1Q05 is mainly due to an increase in advertising expenses. General and administrative expenses were JPY 699 million in 2Q05, an increase of 14.1% compared to 2Q04 and a decrease of 2.1% compared to 1Q05. The increase from 2Q04 is mainly due to an increase in personnel expenses. Operating income ---------------- 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. was JPY 507 million in 2Q05, compared to JPY 282 million in 2Q04 and JPY 247 million in 1Q05. The increase from 2Q04 and 1Q05 was mainly due to increased gross-margins in Connectivity, VAS and SI. Other income (expenses) in 2Q05 was other income of JPY 590 million, compared to other expenses of JPY 10 million in 2Q04 and other income of JPY 435 million in 1Q05. The increase from 2Q04 and 1Q05 is mainly due to an increase in gain from sale of available-for-sale securities. The differences from 2Q04 also include the absence of interest payments for the convertible notes due March 31, 2005. Income tax expense for 2Q05 was JPY 44 million, compared to JPY 16 million in 2Q04 and JPY 38 million in 1Q05. Equity in net income of equity method investees amounted to JPY 30 million in 2Q05, compared to JPY 16 million in 2Q04 and JPY 3 million in 1Q05. Net income was JPY 1,001 million in 2Q05, compared to JPY 229 million in 2Q04 and JPY 623 million in 1Q05. The increase from 2Q04 and 1Q05 is mainly due to the increase in operating income, and an increase in gain from sale of available-for-sale securities.
2nd Quarter FY2005 Business Review
----------------------------------
Analysis by Service
-------------------
Connectivity and Value-added Services
Number of Contracts for Connectivity Services
2Q05 2Q04 1Q05
------------------------------------------------ --------- ----------
Dedicated Access Service Contracts 12,702 8,880 12,274
------------------------------------------------ --------- ----------
IP Service (Low Bandwidth: 64kbps-
768kbps)(3) 61 71 65
------------------------------------------------ --------- ----------
IP Service (Medium Bandwidth:
1Mbps-99Mbps)(3) 637 597 637
------------------------------------------------ --------- ----------
IP Service (High Bandwidth: 100Mbps-) 143 93 131
------------------------------------------------ --------- ----------
IIJ T1 Standard and IIJ Economy 182 358 208
------------------------------------------------ --------- ----------
IIJ Data Center Connectivity Service 234 225 234
------------------------------------------------ --------- ----------
IIJ FiberAccess/F and IIJ DSL/F
(Broadband Services) 11,445 7,536 10,999
------------------------------------------------ --------- ----------
Dial-up Access Service Contracts 663,527 711,637 677,207
------------------------------------------------ --------- ----------
Dial-up Access Services, under IIJ
Brand 64,810 70,629 66,125
------------------------------------------------ --------- ----------
Dial-up Access Services, OEM(4) 598,717 641,008 611,082
------------------------------------------------ --------- ----------
Total Contracted Bandwidth 151.0Gbps 104.9Gbps 140.9Gbps
------------------------------------------------ --------- ----------
For the total number of contracts for dedicated access services,
we continued a growth trend in 2Q05. In IP Services, which are
mainly used for critical services for corporate customers,
contracts for 100Mbps and higher increased significantly, and
we increased the number of contracts for 1Gbps to 43 in 1Q05,
from 33 in the previous quarter. The number of contracts for
broadband services also continued to increase along with the
increased systems integration projects for site connectivity.
Connectivity and VAS Revenue Breakdown and Cost
(JPY in millions)
2Q05 2Q04 YoY % 1Q05 QoQ %
Change change
--------------------------------------- ------ ------- ------ -------
Connectivity Service Revenues 3,378 3,572 (5.4%) 3,446 (2.0%)
--------------------------------------- ------ ------- ------ -------
Dedicated Access Service
Revenues 2,695 2,832 (4.8%) 2,747 (1.9%)
--------------------------------------- ------ ------- ------ -------
IP Service(5) 2,121 2,222 (4.6%) 2,166 (2.1%)
--------------------------------------- ------ ------- ------ -------
IIJ T1 Standard and IIJ
Economy 113 228 (50.3%) 134 (15.7%)
--------------------------------------- ------ ------- ------ -------
IIJ FiberAccess/F and IIJ
DSL/F (Broadband Services) 461 382 20.7% 447 3.3%
--------------------------------------- ------ ------- ------ -------
Dial-up Access Service Revenues 683 740 (7.8%) 699 (2.3%)
--------------------------------------- ------ ------- ------ -------
Under IIJ Brand 457 501 (8.9%) 466 (2.0%)
--------------------------------------- ------ ------- ------ -------
OEM 226 239 (5.4%) 233 (3.0%)
--------------------------------------- ------ ------- ------ -------
VAS Revenues 1,459 1,220 19.5% 1,388 5.1%
--------------------------------------- ------ ------- ------ -------
Other Revenues 930 716 30.0% 933 (0.3%)
--------------------------------------- ------ ------- ------ -------
Total Connectivity and
VAS Revenues 5,767 5,508 4.7% 5,767 0.0%
--------------------------------------- ------ ------- ------ -------
Cost of Connectivity and VAS 4,988 4,780 4.3% 4,964 0.5%
--------------------------------------- ------ ------- ------ -------
Backbone Cost (included in the
cost of Connectivity and VAS) 846 877 (3.5%) 864 (2.0%)
--------------------------------------- ------ ------- ------ -------
Connectivity and VAS Gross
Margin Ratio 13.5% 13.2% 13.9%
--------------------------------------- ------ ------- ------ -------
VAS revenues increased reflecting an increase in revenues from various types of packaged outsource services. Other revenues also increased steadily, mainly due to an increase in revenue from Wide-area Ethernet services in year-over-year comparison. Backbone costs declined in 2Q05 by 3.5% compared to 2Q04 and by 2.0% compared to 1Q05.
Systems Integration
Systems Integration
Revenue Breakdown and Cost
(JPY in millions)
2Q05 2Q04 YoY % 1Q05 QoQ %
Change change
---------------------------------- ------ ------ ------ ------ ------
Systems Integration Revenues 5,162 3,838 34.5% 3,840 34.4%
---------------------------------- ------ ------ ------ ------ ------
Systems Integration 2,405 2,101 14.5% 1,193 101.5%
---------------------------------- ------ ------ ------ ------ ------
Outsourced Operation 2,757 1,737 58.7% 2,647 4.2%
---------------------------------- ------ ------ ------ ------ ------
Cost of Systems Integration 3,919 2,983 31.4% 2,910 34.7%
---------------------------------- ------ ------ ------ ------ ------
Systems Integration Gross Margin
Ratio 24.1% 22.3% 24.2%
---------------------------------- ------ ------ ------ ------ ------
Our SI projects are becoming bigger in scale as we include the
whole stream of consulting, design, project management,
implementation and operation. In 2Q05, SI revenues increased
significantly due to an increase in SI development, and
revenues from outsourced operations continued to increase
steadily. In addition, the increase from 2Q04 reflected
additional revenues from the purchase of the security system
business operations of Yamatane Co. Ltd. ("Yamatane").
Equipment Sales
Equipment Sales Revenue and Cost
(JPY in millions)
2Q05 2Q04 YoY % 1Q05 QoQ %
change change
---------------------------------- ------ ------ ------- ----- ------
Equipment Sales Revenues 1,000 1,166 (14.2%) 273 266.0%
---------------------------------- ------ ------ ------- ----- ------
Cost of Equipment Sales 966 1,091 (11.4%) 244 296.4%
---------------------------------- ------ ------ ------- ----- ------
Equipment Sales Gross Margin Ratio 3.5% 6.5% 10.9%
---------------------------------- ------ ------ ------- ----- ------
Other Financial Statistics
Other Financial Statistics
(JPY in millions)
2Q05 2Q04 YoY % 1Q05 QoQ %
change Change
--------------------------------- ------ ------ ------- ------ ------
Adjusted EBITDA(6) 1,517 1,275 19.0% 1,261 20.4%
--------------------------------- ------ ------ ------- ------ ------
CAPEX, including capital leases(7) 795 1,345 (40.9%) 533 49.1%
--------------------------------- ------ ------ ------- ------ ------
Depreciation and amortization(8) 1,010 1,012 (0.1%) 1,014 (0.4%)
--------------------------------- ------ ------ ------- ------ ------
Major Topics
------------
ADS ratio change and stock split: On October 11, 2005, IIJ conducted a change in the ratio of its American Depositary Shares American Depositary Share (ADS) Foreign stock issued in the US and registered in the ADR system. ("ADSs") to the shares of common stock of IIJ ("Shares") from 1 ADS = 1 / 2,000 of a Share to 1 ADS = 1 / 400 of a Share. IIJ also conducted a stock split (1 to 5) of Shares on the same day as the payable date. IIJ Group to complete corporate reorganization The process of carrying out, through agreements and legal proceedings, a business plan for winding up the affairs of, or foreclosing a mortgage upon, the property of a corporation that has become insolvent. : In August 2005, IIJ Group announced a corporate reorganization to streamline streamline, path of a fluid flowing steadily and without appreciable turbulence. A body is said to be streamlined if its shape offers the least possible resistance to a current of air, water, or other fluid. its delivery of total network solutions. With the reorganization, IIJ Media Communications Inc. transferred its systems integration business to IIJ Technology Inc ("IIJ-Tech") and integrated its broadcasting business and application hosting business with IIJ through a merger. At the same time, Asia Internet Holding Co., Ltd. merged with IIJ. In October 2005, IIJ Group announced that the reorganization had been completed. Introduction of RFID (Radio Frequency IDentification) A data collection technology that uses electronic tags for storing data. The tag, also known as an "electronic label," "transponder" or "code plate," is made up of an RFID chip attached to an antenna. Solution: In September September: see month. 2005, IIJ announced the October 2005 release of the IIJ EPC (1) (Entertainment PC) See HTPC. (2) (Electronic Product Code) A standard code for RFID tags administered by EPCglobal Inc. (www.epcglobalinc.org). Network Service that is based on the EPCglobal See EPC. Network international standard. Radio Frequency Identification See RFID. ("RFID") is an information exchange technology that uses radio IC tags. It provides the system components necessary to record, reference, and update RFID tag An electronic identification device that is made up of a chip and antenna. For reusable applications, it is typically embedded in a plastic housing, and for tracking shipments, it is usually part of a "smart" packaging label. information over the Internet. IIJ-Tech to make investment in IPMobile incorporated: In September 2005, IIJ announced that the Board of Directors of IIJ-Tech decided to purchase stock from IPMobile Incorporated ("IPMobile") as part of a private placement to third-parties. IIJ-Tech's participation was JPY 50 million, of the total value of the third-party stock allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as by IPMobile of JPY 875 million.
Reconciliation of Non-GAAP Financial Measures
---------------------------------------------
The following table summarizes the reconciliation of adjusted
EBITDA to net income according to the consolidated statements
of operations that are prepared in accordance with accounting
principles generally accepted in the U.S. and presented in
Appendix 1:
Adjusted EBITDA
(JPY in millions)
2Q05 2Q04 1Q05
---------------------------------------------- ------- ------ -------
Adjusted EBITDA 1,517 1,275 1,261
---------------------------------------------- ------- ------ -------
Depreciation and Amortization(9) (1,010) (993) (1,014)
---------------------------------------------- ------- ------ -------
Operating Income 507 282 247
---------------------------------------------- ------- ------ -------
Other Income (Expenses) 590 (10) 435
---------------------------------------------- ------- ------ -------
Income Tax Expense 44 16 38
---------------------------------------------- ------- ------ -------
Minority Interests in (Earnings) Losses of
Subsidiaries (82) (43) (24)
---------------------------------------------- ------- ------ -------
Equity in Net Income (Loss) of Equity Method
Investees 30 16 3
---------------------------------------------- ------- ------ -------
Net Income (Loss) 1,001 229 623
---------------------------------------------- ------- ------ -------
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 accounting
principles generally accepted in the U.S. in Appendix 3:
CAPEX
(JPY in millions)
2Q05 2Q04 1Q05
---------------------------------------------------- ---- ------ ----
Capital Expenditures 795 1,345 533
---------------------------------------------------- ---- ------ ----
Acquisition of Assets by Entering into
Capital Leases 681 1,294 320
---------------------------------------------------- ---- ------ ----
Purchase of Property and Equipment 114 51 213
---------------------------------------------------- ---- ------ ----
Target
------
Our initial target for the interim and annual fiscal year and the
interim results were as follows:
Target
Announced 1H05 Annual
on May 27, Target
2005
------------------------------------------ ---------- ------- -------
Total Revenues 19,980 21,809 46,330
------------------------------------------ ---------- ------- -------
Operating Income 550 754 2,320
------------------------------------------ ---------- ------- -------
Net Income 1,320 1,623 3,700
------------------------------------------ ---------- ------- -------
Since we generally receive the largest portion of our SI revenues in the fourth quarter of our fiscal year, we maintain the initial annual target we announced on May 27, 2005. Presentation ------------ On November November: see month. 9, 2005, IIJ will put a presentation of its results on its website. For details, please access the following 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. : http://www.iij.ad.jp/en/IR/. About Internet Initiative Japan Inc. Founded in 1992, Internet Initiative Japan Inc. (IIJ, NASDAQ: IIJI) is one of Japan's leading Internet-access and comprehensive network solutions providers. The company has built one of the largest Internet backbone (communications, networking) Internet backbone - High-speed networks that carry Internet traffic. These communications networks are provided by companies such as AT&T, GTE, IBM, MCI, Netcom, Sprint, UUNET and consist of high-speed links in the T1, T3, OC1 and OC3 ranges. networks in Japan, and between Japan and the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . IIJ and its group of companies provide total network solutions that mainly cater to high-end high-end adj. Informal 1. Appealing to sophisticated and discerning customers: a high-end department store; high-end video equipment. 2. corporate customers. The company's services include high-quality systems integration and security services Security services are state institutions for the provision of intelligence, primarily of a strategic nature, but also including protective security intelligence. Examples include the Security Service (MI5) and the Secret Intelligence Service (MI6) in the United Kingdom, and the , Internet access See how to access the Internet. , 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 forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 system 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 One who takes a portion of a contract from the principal contractor or from another subcontractor. When an individual or a company is involved in a large-scale project, a contractor is often hired to see that the work is done. 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 INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. ; the possibility that 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 , IIJ's largest shareholder, may decide to exercise substantial influence over IIJ; and other risks referred to from time to time in IIJ's filings on Form 20-F of its annual report and other filings with the United States Securities and Exchange Commission.
(1) Unless otherwise stated, all financial figures discussed in this
announcement are prepared in accordance with U.S. GAAP. All
financial figures are unaudited and consolidated. For all 2Q05 and
1H05 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 113.29 = US$1.00, the
approximate exchange rate on September 30, 2005. 2Q04 and 1H04
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 3Q05 earnings release,
presently scheduled for release in February 2006.
(3) Including IPv6 Services.
(4) OEM indicates Original Equipment Manufacturer.
(5) IP Service revenues includes revenues from Data Center
Connectivity Service.
(6) Please refer to the Reconciliation of Non-GAAP Financial Measures
on the next page.
(7) Please refer to the Reconciliation of Non-GAAP Financial Measures
on the next page.
(8) Depreciation and amortization includes amortization of issuance
cost of convertible notes in 2Q04.
(9) Depreciation and amortization excludes amortization of issuance
cost of convertible notes that was included in other expenses in
2Q04.
INTERNET INITIATIVE JAPAN INC.
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
------------------------------------------------
For the Three Months Ended
Sep 30, 2005, Sep 30, 2004 and June 30, 2005
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)
Except for Per Share and ADS Data)(1)
Year-over-year Comparison
Sep 30, 2005
-----------------------------
% of
Total
USD(1) JPY Revenues
-------- ----------- --------
Revenues:
Connectivity and value-added services:
Dedicated access services 23,791 2,695,325 22.6%
Dial-up access services 6,024 682,439 5.7
Value-added services 12,875 1,458,557 12.2
Other 8,211 930,205 7.8
-------- ----------- --------
Total connectivity and
value-added services 50,901 5,766,526 48.3
Systems integration revenues 45,561 5,161,600 43.3
Equipment sales 8,833 1,000,701 8.4
-------- ----------- --------
Total revenues 105,295 11,928,827 100.0
-------- ----------- --------
Costs and expenses:
Cost of connectivity and value-added
services 44,029 4,987,986 41.8
Cost of systems integration revenues 34,591 3,918,774 32.9
Cost of equipment sales 8,527 966,095 8.1
-------- ----------- --------
Total costs 87,147 9,872,855 82.8
Sales and marketing 7,058 799,562 6.7
General and administrative 6,171 699,166 5.8
Research and development 441 49,947 0.4
-------- ----------- --------
Total costs and expenses 100,817 11,421,530 95.7
-------- ----------- --------
Operating income 4,478 507,297 4.3
-------- ----------- --------
Other income (expenses) 5,204 589,617 4.9
-------- ----------- --------
Income before income tax expense,
minority interests and equity in net
income of equity method investees 9,682 1,096,914 9.2
-------- ----------- --------
Income tax expense 387 43,900 0.4
Minority interests in earnings of
subsidiaries (722) (81,777) (0.7)
Equity in net income of equity method
investees 260 29,403 0.3
-------- ----------- --------
Net income 8,833 1,000,640 8.4%
======== =========== ========
Basic Net Income Per Share 26,128
Diluted Net Income Per Share 26,087
Basic Net Income Per ADS Equivalent 13.06
Diluted Net Income Per ADS Equivalent 13.04
Weighted Average Number of Shares 38,298
Weighted Average Number of Shares
(including potential shares) 38,358
Weighted Average Number of ADS
Equivalents 76,595,702
Weighted Average Number of ADS Equivalents
(including potential shares) 76,715,032
Year-over-year Comparison
Sep 30, 2004
------------------------------
% of
Total YOY
JPY Revenues Chg %
----------- -------- ---------
Revenues:
Connectivity and value-added services:
Dedicated access services 2,832,355 27.0% (4.8%)
Dial-up access services 739,957 7.0 (7.8)
Value-added services 1,220,119 11.6 19.5
Other 715,617 6.8 30.0
----------- -------- ---------
Total connectivity and
value-added services 5,508,048 52.4 4.7
Systems integration revenues 3,837,711 36.5 34.5
Equipment sales 1,166,569 11.1 (14.2)
----------- -------- ---------
Total revenues 10,512,328 100.0 13.5
----------- -------- ---------
Costs and expenses:
Cost of connectivity and value-added
services 4,780,268 45.5 4.3
Cost of systems integration revenues 2,982,577 28.3 31.4
Cost of equipment sales 1,090,870 10.4 (11.4)
----------- -------- ---------
Total costs 8,853,715 84.2 11.5
Sales and marketing 711,661 6.8 12.4
General and administrative 612,526 5.8 14.1
Research and development 52,237 0.5 (4.4)
----------- -------- ---------
Total costs and expenses 10,230,139 97.3 11.6
----------- -------- ---------
Operating income 282,189 2.7 79.8
----------- -------- ---------
Other income (expenses) (10,188) (0.1) (5,887.4)
----------- -------- ---------
Income before income tax expense,
minority interests and equity in
net income of equity method investees 272,001 2.6 303.3
----------- -------- ---------
Income tax expense 15,506 0.1 183.1
Minority interests in earnings of
subsidiaries (42,837) (0.4) 90.9
Equity in net income of equity method
investees 15,548 0.1 89.1
----------- -------- ---------
Net income 229,206 2.2% 336.6%
=========== ======== =========
Basic Net Income Per Share 5,983
Diluted Net Income Per Share
Basic Net Income Per ADS Equivalent 2.99
Diluted Net Income Per ADS Equivalent
Weighted Average Number of Shares 38,312
Weighted Average Number of Shares
(including potential shares)
Weighted Average Number of ADS
Equivalents 76,623,702
Weighted Average Number of ADS
Equivalents (including potential
shares)
Sequential Comparison
June 30, 2005
---------------------------
% of
Total QOQ
JPY Revenues Chg %
----------- -------- ------
Revenues:
Connectivity and value-added services:
Dedicated access services 2,746,900 27.8% (1.9%)
Dial-up access services 698,670 7.1 (2.3)
Value-added services 1,387,893 14.1 5.1
Other 933,120 9.4 (0.3)
----------- -------- ------
Total connectivity and value-
added services 5,766,583 58.4 (0.0)
Systems integration revenues 3,840,075 38.9 34.4
Equipment sales 273,438 2.7 266.0
----------- -------- ------
Total revenues 9,880,096 100.0 20.7
----------- -------- ------
Costs and expenses:
Cost of connectivity and value-added
services 4,963,835 50.2 0.5
Cost of systems integration revenues 2,910,262 29.5 34.7
Cost of equipment sales 243,699 2.5 296.4
----------- -------- ------
Total costs 8,117,796 82.2 21.6
Sales and marketing 767,801 7.8 4.1
General and administrative 713,917 7.2 (2.1)
Research and development 33,904 0.3 47.3
----------- -------- ------
Total costs and expenses 9,633,418 97.5 18.6
----------- -------- ------
Operating income 246,678 2.5 105.7
----------- -------- ------
Other income (expenses) 435,233 4.4 35.5
----------- -------- ------
Income before income tax expense,
minority interests and equity in
net income of equity method investees 681,911 6.9 60.9
----------- -------- ------
Income tax expense 38,111 0.4 15.2
Minority interests in earnings of
subsidiaries (23,855) (0.2) 242.8
Equity in net income of equity method
investees 2,729 0.0 977.4
----------- -------- ------
Net income 622,674 6.3% 60.7%
=========== ======== ======
Basic Net Income Per Share 16,254
Diluted Net Income Per Share
Basic Net Income Per ADS Equivalent 8.13
Diluted Net Income Per ADS Equivalent
Weighted Average Number of Shares 38,309
Weighted Average Number of Shares
(including potential shares)
Weighted Average Number of ADS
Equivalents 76,618,779
Weighted Average Number of ADS
Equivalents (including potential shares)
Note(1):The translations of Japanese yen amounts into US dollar
amounts with respect to the three months ended Sep 30, 2005
are included solely for the convenience of readers outside
Japan and have been made at the rate of JPY 113.29 =$1, the
approximate rate of exchange on Sep 30, 2005.
Appendix 2
INTERNET INITIATIVE JAPAN INC.
---------------------------------
CONSOLIDATED BALANCE
SHEETS(UNAUDITED)
---------------------------------
As of Sep 30, 2005, Sep 30, 2004 and June 30, 2005
(Expressed in Thousands of Japanese Yen (JPY)
and U.S. Dollars (USD)) (1)
Sep 30, 2005
-------------------------------------------
USD (1) JPY %
--------- ------------ --------------------
ASSETS
------
Current Assets:
Cash and cash equivalents 61,378 6,953,496 19.3%
Short-term investments - - -
Accounts receivable, net 59,007 6,684,910 18.5
Inventories 2,527 286,367 0.8
Prepaid expenses 8,737 989,785 2.7
Other current assets 1,282 145,243 0.4
--------- ------------ --------------------
Total current assets 132,931 15,059,801 41.7
Investments in and Advances
to Equity Method Investees 3,996 452,702 1.3
Other Investments 71,044 8,048,512 22.3
Property and Equipment,
net 80,704 9,142,951 25.3
Guarantee Deposits 18,537 2,100,008 5.8
Other Assets 11,621 1,316,561 3.6
--------- ------------ --------------------
Total assets 318,833 36,120,535 100.0%
========= ============ ====================
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Current Liabilities:
Short-term borrowings 43,447 4,922,177 13.6%
Payable under securities
loan agreement 13,403 1,518,400 4.2
Accounts payable 45,953 5,205,982 14.4
Accrued expenses 4,554 515,976 1.5
Other current liabilities 6,975 790,194 2.2
Long-term borrowings-
current portion 22,403 2,537,997 7.0
Convertible notes - - -
Capital lease obligations-
current portion 23,974 2,716,030 7.5
--------- ------------ --------------------
Total current liabilities 160,709 18,206,756 50.4
Long-term Borrowings 9,361 1,060,476 2.9
Capital Lease Obligations-
Noncurrent 34,397 3,896,848 10.8
Accrued Retirement and
Pension Costs 1,600 181,289 0.5
Other Noncurrent
Liabilities 3,418 387,259 1.1
--------- ------------ --------------------
Total liabilities 209,485 23,732,628 65.7
--------- ------------ --------------------
Minority Interest 8,896 1,007,787 2.8
--------- ------------ --------------------
Shareholders' Equity:
Common stock 121,506 13,765,372 38.1
Additional paid-in capital 208,647 23,637,628 65.4
Accumulated deficit (289,617) (32,810,738) (90.8)
Accumulated other
comprehensive income 60,659 6,872,096 19.0
Treasury stock (743) (84,238) (0.2)
--------- ------------ --------------------
Total shareholders'
equity 100,452 11,380,120 31.5
--------- ------------ --------------------
Total liabilities
and shareholders'
equity 318,833 36,120,535 100.0%
========= ============ ====================
Sep 30, 2004 June 30, 2005
------------------- ---------------------
JPY % JPY %
------------ ------ ------------ --------
ASSETS
------
Current Assets:
Cash and cash equivalents 11,802,165 27.4% 5,106,388 15.1%
Short-term investments - - 304,628 0.9
Accounts receivable, net 6,739,000 15.6 5,792,808 17.2
Inventories 262,180 0.6 265,286 0.8
Prepaid expenses 652,061 1.5 1,263,409 3.8
Other current assets 106,364 0.3 80,797 0.2
------------ ------ ------------ --------
Total current assets 19,561,770 45.4 12,813,316 38.0
Investments in and Advances
to Equity Method Investees 783,933 1.8 677,035 2.0
Other Investments 10,657,082 24.7 7,882,229 23.4
Property and Equipment,
net 9,045,349 21.0 9,155,981 27.1
Guarantee Deposits 2,080,345 4.8 2,091,237 6.2
Other Assets 963,895 2.3 1,124,441 3.3
------------ ------ ------------ --------
Total assets 43,092,374 100.0% 33,744,239 100.0%
============ ====== ============ ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Current Liabilities:
Short-term borrowings 5,732,204 13.3% 4,723,387 14.0%
Payable under securities
loan agreement 816,800 1.9 1,530,400 4.5
Accounts payable 4,502,356 10.5 3,665,233 10.9
Accrued expenses 448,585 1.0 523,478 1.6
Other current liabilities 604,868 1.4 918,829 2.7
Long-term borrowings-
current portion 1,650,139 3.8 3,187,023 9.4
Convertible notes 11,088,000 25.7 - -
Capital lease obligations-
current portion 2,491,070 5.8 2,718,759 8.1
------------ ------ ------------ --------
Total current
liabilities 27,334,022 63.4 17,267,109 51.2
Long-term Borrowings 1,732,473 4.0 870,342 2.6
Capital Lease Obligations-
Noncurrent 3,620,613 8.4 3,950,359 11.7
Accrued Retirement and
Pension Costs 102,224 0.3 169,460 0.5
Other Noncurrent
Liabilities 300,190 0.7 246,818 0.7
------------ ------ ------------ --------
Total liabilities 33,089,522 76.8 22,504,088 66.7
------------ ------ ------------ --------
Minority Interest 945,572 2.2 1,053,212 3.1
------------ ------ ------------ --------
Shareholders' Equity:
Common stock 13,765,372 31.9 13,765,372 40.8
Additional paid-in capital 23,637,628 54.9 23,637,628 70.0
Accumulated deficit (37,349,204) (86.7) (33,811,378) (100.2)
Accumulated other
comprehensive income 9,047,484 21.0 6,679,555 19.8
Treasury stock (44,000) (0.1) (84,238) (0.2)
------------ ------ ------------ --------
Total shareholders'
equity 9,057,280 21.0 10,186,939 30.2
------------ ------ ------------ --------
Total liabilities and
shareholders' equity 43,092,374 100.0% 33,744,239 100.0%
============ ====== ============ ========
Note(1):The translations of Japanese yen amounts into US dollar
amounts with respect to Sep 30, 2005 are included solely for
the convenience of readers outside Japan and have been made at
the rate of JPY 113.29 =$1, the approximate rate of exchange
on Sep 30, 2005.
Appendix 3
INTERNET INITIATIVE JAPAN INC.
--------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------
For the Three Months Ended
Sept 30, 2005, Sept 30, 2004 and June 30, 2005
(Expressed in Thousands of Japanese Yen (JPY)
and U.S. Dollars (USD)) (1)
Sept 30, Sept 30, June 30,
2005 2004 2005
-------------------- ----------- -----------
USD (1) JPY JPY JPY
-------- ----------- ----------- -----------
Operating Activities:
Net income 8,832 1,000,640 229,206 622,674
Depreciation and
amortization 8,916 1,010,139 1,011,532 1,013,745
Provision for (reversal
of) doubtful accounts (15) (1,673) 19,968 (5,339)
Equity in net income of
equity method investees (260) (29,403) (15,548) (2,729)
Minority interests in
earnings of
subsidiaries 722 81,777 42,837 23,855
Foreign exchange gains (36) (4,131) (14,152) (6,278)
Net gains on other
investments (5,826) (660,039) (98,103) (488,758)
Decrease (increase) in
accounts receivable (7,033) (796,785) (1,396,506) 1,621,419
Increase (decrease) in
accounts payable 11,228 1,272,038 566,837 (1,132,992)
Decrease (increase) in
inventories (186) (21,081) 149,969 (125,190)
Deferred income taxes (94) (10,681) - 18,343
Other 1,136 128,646 542,953 (511,252)
-------- ----------- ----------- -----------
Net cash provided by
operating activities 17,384 1,969,447 1,038,993 1,027,498
-------- ----------- ----------- -----------
Investing Activities:
Purchase of property
and equipment (1,008) (114,208) (51,435) (213,485)
Purchase of subsidiary
stock (1,696) (192,142) - -
Proceeds from sales and
redemption of short-
term and other
investments 8,663 981,420 125,281 514,460
Acquisition of a newly
controlled company, net
of cash acquired 2,025 229,457 - -
Purchase of short-term
and other investment (7) (844) (3,083) (299,311)
Payment of guarantee
deposits-net (64) (7,256) (19,193) (39,210)
Other (68) (7,655) 904 (5,450)
-------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities 7,845 888,772 52,474 (42,996)
-------- ----------- ----------- -----------
Financing Activities:
Proceeds from long-term
borrowings 8,827 1,000,000 1,000,000 -
Repayments of long-term
borrowings (12,878) (1,458,892) (1,436,943) (208,654)
Proceeds from securities
loan agreement 15,313 1,734,800 816,800 -
Repayments of securities
loan agreement (15,419) (1,746,800) - (199,120)
Principal payments under
capital leases (6,609) (748,762) (688,418) (766,807)
Net increase (decrease)
in short-term
borrowings 1,755 198,790 369,203 (1,246)
-------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities (9,011) (1,020,864) 60,642 (1,175,827)
-------- ----------- ----------- -----------
Effect of Exchange Rate
Changes on Cash 86 9,753 22,853 11,236
-------- ----------- ----------- -----------
Net Increase (Decrease) in
Cash 16,304 1,847,108 1,174,962 (180,089)
-------- ----------- ----------- -----------
Cash , Beginning of Period 45,074 5,106,388 10,627,203 5,286,477
-------- ----------- ----------- -----------
Cash, End of Period 61,378 6,953,496 11,802,165 5,106,388
======== =========== =========== ===========
Note(1): The translations of Japanese yen amounts into US dollar
amounts with respect to the three months ended Sept 30, 2005
are included solely for the convenience of readers outside
Japan and have been made at the rate of JPY113.29 =$1, the
approximate rate of exchange on Sept 30, 2005.
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