IIJ Announces Full Year and Fourth Quarter Financial Results for the Fiscal Year Ended March 31, 2014

By GlobeNewswire,  May 14, 2014, 11:09:00 PM EDT


TOKYO, May 15, 2014 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ") (Nasdaq:IIJI) (TSE:3774) today announced its full year ("FY2013") and 4th quarter ("4Q13") consolidated financial results for the fiscal year ended March 31, 2014 (from April 1, 2013 to March 31, 2014).1

   
 Highlights of Financial Results for FY2013  
     
Revenues  JPY114,272 million (up 7.6% YoY)
Operating Income  JPY5,723 million (down 26.2% YoY)
Net Income attributable to IIJ  JPY4,442 million (down 16.2% YoY)
     
 Financial Targets for FY2014  
Revenues  JPY123,000 million  (up 7.6% YoY)  
Operating Income  JPY7,200 million (up 25.8% YoY)
Net Income attributable to IIJ  JPY4,500 million (up 1.3% YoY)
Annual Cash Dividend JPY22.00 per share 
   

Overview of FY2013 Financial Results and Business Outlook

"Our business bases have been largely strengthened with several unconventional transactions in FY2013, while income results were weak mainly due to certain large customers' revenues leveling off as we reported in 3Q earnings. We've pursued some progressive large-scale projects by leveraging our cloud facilities and services, MVNO (Mobile Virtual Network Operator) infrastructure and system integration features. We strongly believe these projects should surely contribute to our continuous revenue and income growth for the coming few years," said Koichi Suzuki, Founder and CEO of IIJ.

"Our cloud services "IIJ GIO" continued to grow in revenue, the number of customers, and system volume. Same as our prominent connectivity business, we mainly target large institutions with our reliable and value-added cloud service features. As seen in the case of Sompo Japan, one of the largest Japanese insurance companies, extensively adopting IIJ GIO to their IT system platforms, we're starting to see the usage of cloud services by some Japanese blue-chips becoming more advanced and conjugated. We also anticipate that BigData trend should encourage the adoption of cloud services. These recent changes in market momentum are certainly tailwinds for IIJ in the middle term," followed Eijiro Katsu, President and COO of IIJ.

"Triggered by our LTE SIM card offerings to consumers, our MVNO business has largely expanded in FY2013. Consumers can enjoy much cheaper smart-phones connectivity with our SIM card services than mobile carriers' expensive services. These MVNO services are relatively new in the Japanese market and we're anticipating further penetration to continue. We're also receiving increasing requirements from large institutions to act as MVNE (Mobile Virtual Network Enabler), asking us to offer our established large MVNO infrastructure. The demands for M2M (Machine to Machine connection) are also continuously expanding. By grasping these business opportunities for both corporate and consumers, we believe we'll be able to have continuous income increase by improving our network utilization," said Katsu.

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. The translation of Japanese yen into U.S. dollars is solely for the convenience of readers outside of Japan. The rate used for the translation was JPY102.98 per US$1.00, which was the noon buying rate on March 31, 2014.

"As for systems integration, we continued to see great demands supported by overall Japanese economic recovery. We've acquired several flagship projects to which we jointly offer our network services and systems integration. We believe strong demands for network related systems investment and outsourcing from Japanese corporate should continue and our role to offer total network solutions become more important," continued Katsu.

"For FY2014, we shall devote ourselves to return to strong profit growth. We'd like to pursue on selling profitable monthly recurring revenue services more efficiently, increasing the number of large accounts, implementing stricter control on systems integration profitability and so on. At the same time, we will continuously implement our middle- to long- term growth strategies, including continuous recruitment of employees in aiming to dramatically enlarge our business scale. And also, we'd like to keep looking into M&A opportunities," concluded Katsu.

FY2013 Financial Results Summary

Operating Results Summary
  FY2012 FY2013 YoY %
      Change
  JPY millions JPY millions  
Total Revenues 106,248 114,272 7.6
Network Services 65,232 67,286 3.1
Systems Integration (SI) 37,205 42,469 14.1
Equipment Sales 1,491 1,690 13.4
ATM Operation Business 2,320 2,827 21.8
Total Costs 84,394 93,206 10.4
Network Services 50,692 53,046 4.6
Systems Integration (SI) 30,425 36,510 20.0
Equipment Sales 1,318 1,527 15.8
ATM Operation Business 1,959 2,123 8.3
SG&A Expenses and R&D 14,101 15,343 8.8
Operating Income 7,753 5,723 (26.2)
Income before Income Tax Expense 7,757 6,275 (19.1)
Net income attributable to IIJ 5,301 4,442 (16.2)
Segment Results Summary
  FY2012 FY2013
  JPY millions JPY millions
Total Revenues 106,248 114,272
Network services and SI business 104,487 111,901
ATM operation business 2,320 2,827
Elimination 559 456
Operating Income (Loss) 7,753 5,723
Network service and SI business 7,629 5,275
ATM operation business 239 578
Elimination 115 130

We have omitted segment analysis because most of our revenues are dominated by Network services and Systems Integration (SI) business.

FY2013 Results of Operation

Revenues

Total revenues were JPY114,272 million, up 7.6% YoY.

Network Services revenue was JPY67,286 million, up 3.1% YoY.

Revenues for Internet connectivity services for corporate use were JPY16,585 million, up 3.5% YoY. The increase was mainly due to the increasing demands for mobile and broader bandwidth services. However, revenues were weaker than expected as IP service revenues from certain large network carrier with large IP contracts did not increase as much as we initially targeted for FY2013.

Revenues for Internet connectivity services for home use were JPY6,025 million, up 10.2% YoY. The increase in revenues from our low-priced LTE SIM card offerings covered the decrease in both contracts and revenues from our legacy-type home use internet services. Number of contracts for LTE SIM card offerings reached approximately 139,000 contracts as of March 31, 2014 (approximately 50,000 contracts as of March 31, 2013).

WAN services revenues were JPY25,006 million, down 0.6% YoY. The price down pressure by certain large customers had negative impact on revenues and income despite the continuous increase in revenues from other customers.

Outsourcing services revenues were JPY19,670 million, up 5.9% YoY, mainly due to the increase in revenues of "IIJ GIO Hosting Package Services". However, revenues were weaker than expected as cloud and data center revenues from certain large game providers did not increase as much as we initially targeted for FY2013.

Network Services Revenues Breakdown
  FY2012 FY2013 YoY %
      Change
  JPY millions JPY millions  
Internet Connectivity Service (Corporate Use) 16,027 16,585 3.5
IP Service2 10,217 10,357 1.4
IIJ FiberAccess/F and IIJ DSL/F 3,170 3,147 (0.7)
IIJ Mobile Service3 2,401 2,850 18.7
Others 239 231 (3.7)
Internet Connectivity Service (Home Use) 5,466 6,025 10.2
Under IIJ Brand 1,350 2,273 68.3
hi-ho 3,489 3,047 (12.7)
OEM 627 705 12.5
WAN Services 25,168 25,006 (0.6)
Outsourcing Services 18,571 19,670 5.9
Total Network Services 65,232 67,286 3.1

2 IP Service revenues include revenues from the Data Center Connectivity Service.

3 Revenue from mobile data communication service for home use is included in Internet Connectivity service (home use).

Number of Contracts for Connectivity Services
  as of  as of  YoY
  March 31, 2013 March 31, 2014 Change
Internet Connectivity Services (Corporate Use) 114,614 142,655 28,041
IP Service (-99Mbps) 905 847 (58)
IP Service (100Mbps-999Mbps) 401 448 47
IP Service (1Gbps--) 207 271 64
IIJ Data Center Connectivity Service 306 288 (18)
IIJ FiberAccess/F and IIJ DSL/F 48,940 56,384 7,444
IIJ Mobile Service4 62,517 83,124 20,607
Others 1,338 1,293 (45)
Internet Connectivity Services (Home Use)  489,223 625,297 136,074
Under IIJ Brand 102,256 171,968 69,712
hi-ho 149,000 155,177 6,177
OEM 237,967 298,152 60,185
Total Contracted Bandwidth 1,218.7Gbps 1,539.3Gbps 320.6

SI revenues were JPY42,469 million, up 14.1% YoY.

Systems construction revenue, a one-time revenue, was JPY18,673 million, up 18.0% YoY. Both number and scale of systems construction projects increased. Systems operation and maintenance revenue, a recurring revenue, was JPY23,796 million, up 11.3% YoY. The increase was mainly due to the continuous demands on "IIJ GIO Component Services." However, systems operation and maintenance revenues were weaker than expected as systems operation and maintenance revenues from certain large game providers did not increase as much as we initially targeted for FY2013.

The orders received for SI and equipment sales for FY2013 totaled JPY48,387 million, up 15.4% YoY. In the breakdown, the orders received for systems construction and equipment sales was JPY21,763 million, up 26.7% YoY, and the orders received for systems operation and maintenance was JPY26,624 million, up 7.6% YoY.

The order backlog for SI and equipment sales as of March 31, 2014 amounted to JPY24,308 million, up 21.1% YoY. In the breakdown, the order backlog for systems construction and equipment sales was JPY5,102million, up 37.8% YoY, and the order backlog for systems operation and maintenance was JPY19,206 million, up 17.3% YoY.

Equipment sales revenues were JPY1,690 million, up 13.4% YoY.

ATM Operation Business revenues were JPY2,827 million, up 21.8% YoY. The increase was in accordance with the continuous increase in the numbers of newly placed ATMs. As of May 15, 2014, 855 ATMs are placed (625 ATMs as of May 15, 2013).

Cost and expense

Total cost of revenues was JPY93,206 million, up 10.4% YoY.

Cost of Network Services revenue was JPY53,046 million, up 4.6% YoY, The increase was mainly due to the increase in network operation related costs, circuit-related costs and personnel-related costs. Gross margin was JPY14,240 million, down 2.1 % YoY and gross margin ratio was 21.2%.

Cost of SI revenues was JPY36,510 million, up 20.0% YoY. The increase was mainly due to the increase in purchasing costs along with the increase in systems construction revenues as well as outsourcing-related and personnel-related costs. Gross margin was JPY5,959 million, down 12.1% YoY and gross margin ratio was 14.0%.

Cost of Equipment Sales revenues was JPY1,527 million, up 15.8% YoY. Gross margin was JPY164 million, down 5.2% YoY and gross margin ratio was 9.7%.

Cost of ATM Operation Business revenues was JPY2,123 million, up 8.3% YoY in accordance with the number of newly placed ATMs. Gross margin was JPY704 million, up 95.2% YoY and gross margin ratio was 24.9%.

4 Contracts of IIJ Mobile Service are of mobile data communication service for corporate use.

SG&A and R&D Expenses

SG&A and R&D expenses in total were JPY15,343 million, up 8.8% YoY (JPY14,101 million in FY2012).

Sales and marketing expenses were JPY8,548 million, up 6.1% YoY. The increase was mainly due to the increase in personnel-related expenses and sales commission expenses related to Internet connectivity services for home use.

General and administrative expenses were JPY6,374 million, up 13.2% YoY. The increase was mainly due to the increase in personnel-related expenses, rent expenses and depreciation related to asset retirement obligation, and commission expenses related to the procurement of employees.

Research and development expenses were JPY421 million, up 2.8% YoY.

Operating income

Operating income was JPY5,723 million, down 26.2% YoY.

Other income (expenses)

Other income (expenses) was an income of JPY552 million (an income of JPY4 million for FY2012), mainly due to net gain on other investments of JPY313 million, foreign currency gains of JPY219 million (JPY112 million for FY2012), and interest expense of JPY256 million (JPY287million for FY2012).

Income before income tax expenses

Income before income tax expenses was JPY6,275 million, down 19.1% YoY. (JPY7,757 million for FY2012)

Net Income

Income tax expense was JPY1,795 million (JPY2,608 million for FY2012), including deferred income tax benefit of JPY822 million related to Trust Networks Inc., a subsidiary of IIJ.

Equity in net income of equity method investees was JPY204 million (JPY168 million for FY2012) mainly due to net income of Internet Revolution, Inc. and Internet Multifeed Co.

As a result of the above, net income was JPY4,684 million, down 11.9% YoY (JPY5,317 million for FY2012).

Net income attributable to IIJ

Net income attributable to non-controlling interests was JPY242 million mainly related to net income of Trust Networks Inc. (JPY16 million for FY2012).

Net income attributable to IIJ was JPY4,442 million, down 16.2% YoY (JPY5,301 million for FY2012).

FY2013 Financial Condition

Balance Sheets

As of March 31, 2014, the balance of total assets was JPY103,867 million, increased by JPY21,755 million from the balance as of March 31, 2013 (JPY82,111 million as of March 31, 2013).

As for current assets as of March 31, 2014, as compared to the respective balances as of March 31, 2013, cash and cash equivalents increased by JPY10,162 million mainly due to the equity finance in 2Q13, prepaid expense increased by JPY636 million, accounts receivable increased by JPY450 million and inventories increased by JPY369 million. As for noncurrent assets, as compared to the respective balances as of March 31, 2013, other investments increased by JPY2,585 million mainly due to new investments for our business partner and the increase in fair value, and property and equipment increased by JPY3,946 million resulting from the continuous investment mainly for network infrastructure and servers including cloud-related. Guarantee deposits (current and noncurrent) increased by JPY674 million along with our office expansion. As for current liabilities, as compared to the respective balances as of March 31, 2013, accounts payable increased by JPY620 million and income taxes payable decreased by JPY590 million.

As for the balances of capital lease obligations, as compared to the respective balances as of March 31, 2013, capital lease obligations-current portion increased by JPY248 million to JPY3,753 million and capital lease obligations-noncurrent decreased by JPY767 million to JPY4,603 million.

As of March 31, 2014, the balance of other investments was JPY6,356 million. The breakdown of other investments were JPY3,751 million in available-for-sale securities, JPY2,530 million in nonmarketable equity securities and JPY75 million in other.

As of March 31, 2014, the breakdown of major non-amortized intangible assets were JPY5,970 million in goodwill and JPY107 million in trademark. The balance of amortized intangible assets, which was customer relationships, was JPY4,202 million.

Total IIJ shareholders' equity as of March 31, 2014 was JPY59,912 million, increased by JPY22,305 million from the respective balance as of March 31, 2013, mainly due to the equity finance in 2Q13. IIJ shareholders' equity ratio (total IIJ shareholders' equity/total assets) as of March 31, 2014 was 57.7%.

Cash Flows

Cash and cash equivalents as of March 31, 2014 were JPY22,421 million compared to JPY12,259 million as of March 31, 2013.

Net cash provided by operating activities for FY2013 was JPY8,787 million compared to net cash provided by operating activities of JPY9,639 million for FY2012 mainly due to the decrease in net income and increase in depreciation and amortization, while the increase in cash inflow from accounts receivable was smaller than the increase in cash outflow from such as accounts payable.

Net cash used in investing activities for FY2013 was JPY10,203 million compared to net cash used in investing activities of JPY5,946 million for FY2012 mainly due to payments for purchase of property and equipment of JPY9,124 million (JPY5,589 million for FY2012), payments for purchase of other investments of JPY1,186 million (JPY468 million for FY2012) and payments of guarantee deposits of JPY689 million (JPY164 million for FY2012).

Net cash provided by financing activities for FY2013 was JPY11,382 million compared to net cash used in financing activities of JPY4,996 million for FY2012, mainly due to proceeds from issuance of common stock of JPY17,271 million net of issuance cost, principal payments under capital leases of JPY3,969 million (JPY3,679 million for FY2012), net repayment of borrowings of JPY1,010 million (net repayment of JPY610 million for FY2012) and dividends payments for FY2012 year-end and FY2013 interim dividends of JPY911 million (JPY709 million for FY2012).

FY2014 Financial Targets

Our financial targets for FY2014 are as follows:

         (JPY in millions)
         
  Revenues Operating

Income
Income before Income

Tax Expense
Net Income

attributable to IIJ
1H FY2014 Target 57,500 2,800 2,700 1,750
Full FY2014 Target 123,000 7,200 7,000 4,500

With the steady recovery of the Japanese economy, IT investment in Japan is expected to continue during FY2014. In mid- to long-term, the ongoing demands to outsource corporate internal IT systems and network including the full use of cloud services would continue to be a great business opportunity, even with the intense competition in such areas. Under such competitive market, in FY2014, we should continue to make various business developments to strengthen our business and competitiveness. We would also improve gross margin for network service and systems integration by further focusing on increasing our stock revenues.

We target revenue of JPY123 billion, up 7.6% YoY. We expect our monthly recurring revenue services to further accumulate including a significant increase in the revenue for consumer LTE SIM card offering, cloud-related revenues to reach approximately JPY13 billion, systems construction revenues to increase and ATM operation business revenues to continuously increase.

We target operating cost and expenses of JPY115.8 billion, up 6.7% YoY. We expect continuous increase in personnel-related expenses, increase in depreciation of network equipment, additional expenses from the relocation of headquarter in the first half of FY2014 and increase in costs related to purchasing and outsourcing in relation to SI revenue growth.

For operating income, we target JPY7.2 billion, up 25.8% YoY. We expect gross margin and gross margin ratio of recurring network services and systems integration to increase along with recurring revenue growth, as well as the profit contribution from our cloud service "IIJ GIO" and ATM operation business.

We target income before income tax expense (benefit) of JPY7.0 billion, up 11.6% YoY, considering interest expenses and others.

We target net income attributable to IIJ of JPY4.5 billion, up 1.3% YoY, considering taxes calculated by a normal statutory rate and income of equity method investees and non-controlling interests.

FY2014 Dividend Forecast

Our FY2014 dividend forecast is as follows:

       
  Interim Year-end Full Year
FY2014 Dividend (forecast) JPY11.00 (forecast) JP11.00 (forecast) JPY22.00 (forecast)
FY2013 Dividend (scheduled) JPY11.00 (paid) JPY11.00 (scheduled) JPY22.00 (scheduled)

Based on our Company's Article of Incorporation, we plan to pay our dividend twice a year, at interim and at fiscal year-end. The dividends for interim and fiscal year-end are decided at the Company's board of directors and at the general meeting of shareholders, respectively.

Reconciliation of Non-GAAP Financial Measures

The following table summarizes the reconciliation of adjusted EBITDA to net income attributable to IIJ in our consolidated statements of income that are prepared in accordance with U.S. GAAP.

Adjusted EBITDA
  FY2012 FY2013
  JPY millions JPY millions
Adjusted EBITDA 15,309 14,546
Depreciation and Amortization5 (7,508) (8,823)
Impairment loss on other intangible assets (48) --
Operating Income 7,753 5,723
Other Income (Expense) 4 552
Income Tax Expense 2,608 1,795
Equity in Net Income of Equity Method Investees 168 204
Net income 5,317 4,684
Net loss (income) attributable to noncontrolling interests (16) (242)
Net Income attributable to IIJ 5,301 4,442
     
CAPEX
  FY2012 FY2013
  JPY millions JPY millions
CAPEX, including capital leases 10,405 12,560
Acquisition of Assets by Entering into Capital Leases 4,816 3,436
Purchase of Property and Equipment 5,589 9,124

Presentation

Presentation materials will be posted on our web site (http://www.iij.ad.jp/en/ir/) on May 15, 2014.

About Internet Initiative Japan Inc.

Founded in 1992, IIJ is one of Japan's leading Internet-access and comprehensive network solutions providers. IIJ and its group of companies provide total network solutions that mainly cater to high-end corporate customers. IIJ's services include high-quality systems integration and security services, Internet access, and cloud computing. Moreover, IIJ has built one of the largest Internet backbone networks in Japan that is connected to the United States, the United Kingdom and Asia. IIJ listed on the U.S. NASDAQ Stock Market in 1999 and on the First Section of the Tokyo Stock Exchange in 2006.

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 FY2014 revenues and operating and net profitability, are subject to various risks, uncertainties and other factors that could cause IIJ's actual results to differ materially from those contained in any forward-looking statement. These risks, uncertainties and other factors include: IIJ's ability to maintain and increase revenues from higher-margin services such as systems integration and outsourcing services; the possibility that revenues from connectivity services may decline substantially as a result of competition and other factors; the ability to compete in a rapidly evolving and competitive marketplace; the impact on IIJ's profits of fluctuations in costs such as backbone costs and subcontractor costs; the impact on IIJ's profits of fluctuations in the price of available-for-sale securities; the impact of technological changes in its industry; IIJ's ability to raise additional capital to cover its indebtedness; the possibility that NTT, IIJ's largest shareholder, may decide to exercise substantial influence over IIJ; and other risks referred to from time to time in IIJ's filings on Form 20-F of its annual report and other filings with the United States Securities and Exchange Commission.

5 Depreciation and amortization includes impairment loss on other intangible assets. (See IIJ's consolidated financial statements for details).

 
Internet Initiative Japan Inc.
Consolidated Balance Sheets (Unaudited)
(As of March 31, 2013 and March 31, 2014)
       
  As of March 31, 2013 As of March 31, 2014
  Thousands of

JPY
Thousands of

U.S. Dollars
Thousands of

JPY
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents 12,258,872 217,723 22,421,100
Accounts receivable, net of allowance for doubtful

 accounts of JPY93,934 thousand and JPY53,871

 thousand at March 31, 2013 and March 31, 2014,

 respectively
18,764,703 186,582 19,214,248
Inventories 1,301,684 16,219 1,670,258
Prepaid expenses 2,492,164 30,378 3,128,290
Deferred tax assets —current 1,046,828 13,527 1,392,971
Current portion of guarantee deposits 1,200 14,199 1,462,223
Other current assets, net of allowance for

 doubtful accounts of JPY10,732 thousand and

 JPY720 thousand at March 31, 2013 and

 March 31, 2014, respectively
1,575,518 23,416 2,411,376
       
Total current assets 37,440,969 502,044 51,700,466
INVESTMENTS IN EQUITY METHOD INVESTEES 1,681,723 20,253 2,085,689
OTHER INVESTMENTS 3,771,262 61,719 6,355,817
PROPERTY AND EQUIPMENT, net of accumulated

 depreciation and amortization of JPY29,516,394

 thousand and JPY34,725,611 thousand at March

 31, 2013 and March 31, 2014, respectively
23,025,755 261,910 26,971,485
GOODWILL 5,969,951 57,972 5,969,951
OTHER INTANGIBLE ASSETS —Net 4,791,431 42,134 4,338,944
GUARANTEE DEPOSITS 2,051,449 12,278 1,264,535
DEFERRED TAX ASSETS —Noncurrent 163,773 6,184 636,807
NET INVESTMENT IN SALES-TYPE LEASES 

 —Noncurrent
898,040 7,310 752,774
Prepaid expenses —Noncurrent 2,201,108 25,570 2,633,154
OTHER ASSETS, net of allowance for doubtful

 accounts of JPY71,727 thousand and JPY62,800

 thousand at March 31, 2013 and March 31, 2014,

 respectively.
115,805 11,235 1,156,953
       
TOTAL 82,111,266 1,008,609 103,866,575
       
       
  As of March 31, 2013 As of March 31, 2014
  Thousands of

JPY
Thousands of

U.S. Dollars
Thousands of

JPY
LIABILITIES AND SHAREHOLDERS' EQUITY      
CURRENT LIABILITIES:      
Short-term borrowings 9,400,000 91,280 9,400,000
Long-term borrowings —current portion 1,010,000 9,516 980,000
Capital lease obligations —current portion 3,505,471 36,444 3,753,026
Accounts payable —trade 10,973,120 111,591 11,491,666
Accounts payable —other 949,264 10,200 1,050,429
Income taxes payable 1,669,849 10,483 1,079,480
Accrued expenses 2,266,427 19,941 2,053,550
Deferred income —current 1,806,074 15,155 1,560,603
Other current liabilities 803,902 10,664 1,098,173
Total current liabilities 32,384,107 315,274 32,466,927
LONG-TERM BORROWINGS 980,000 -- --
CAPITAL LEASE OBLIGATIONS —Noncurrent 5,370,365 44,701 4,603,322
ACCRUED RETIREMENT AND PENSION COSTS

 -Noncurrent
2,112,085 22,087 2,274,540
DEFERRED TAX LIABILITIES —Noncurrent 412,132 10,613 1,092,863
DEFERRED INCOME —Noncurrent 2,562,208 26,329 2,711,347
OTHER NONCURRENT LIABILITIES 656,191 5,214 536,950
Total Liabilities 44,477,088 424,218 43,685,949
COMMITMENTS AND CONTINGENCIES      
       
SHAREHOLDERS' EQUITY:      
Common-stock

—authorized, 75,520,000 shares;

 issued and outstanding, 41,295,600 shares at

 March 31, 2013
16,833,847 247,592 25,497,022
—authorized, 75,520,000 shares;

 issued and outstanding, 46,697,800 shares at

 March 31, 2014
     
Additional paid-in capital 27,300,325 349,214 35,961,995
Accumulated deficit (6,399,088) (27,846) (2,867,548)
Accumulated other comprehensive loss 263,770 16,632 1,712,786
Treasury stock—758,800 shares and 758,709

shares held by the company at March 31, 2013 and March 31, 2014, respectively
(392,079) (3,807) (392,070)
       
Total Internet Initiative Japan Inc. shareholders' equity 37,606,775 581,785 59,912,185
NONCONTROLLING INTERESTS 27,403 2,606 268,441
Total equity 37,634,178 584,391 60,180,626
TOTAL 82,111,266 1,008,609 103,866,575
       
(Note1) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY102.98 which was the noon buying rate in New

 York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York

 prevailing as of March 31, 2014.
 
Internet Initiative Japan Inc.
Consolidated Statements of Income (Unaudited)
(For the fiscal year ended March 31, 2013 and March 31, 2014)
       
  Fiscal Year Ended

March 31, 2013
Fiscal Year Ended

March 31, 2014
  Thousands of

JPY
Thousands of

U.S. Dollars
Thousands of

JPY
REVENUES:      
Network services:      
Internet connectivity services (corporate use) 16,027,134 161,052 16,585,175
Internet connectivity services (home use) 5,466,198 58,502 6,024,560
WAN services 25,168,425 242,823 25,005,867
Outsourcing services 18,570,641 191,009 19,670,127
Total 65,232,398 653,386 67,285,729
Systems integration:      
Systems construction 15,824,938 181,333 18,673,638
Systems operation and maintenance 21,380,158 231,073 23,795,927
Total 37,205,096 412,406 42,469,565
Equipment sales 1,490,906 16,413 1,690,225
ATM operation business 2,320,086 27,451 2,826,832
Total revenues 106,248,486 1,109,656 114,272,351
COST AND EXPENSES:      
Cost of network services 50,692,190 515,108 53,045,814
Cost of systems integration 30,424,802 354,538 36,510,328
Cost of equipment sales 1,318,344 14,825 1,526,618
Cost of ATM operation business 1,959,597 20,617 2,123,168
Total cost 84,394,933 905,088 93,205,928
Sales and marketing 8,058,481 83,003 8,547,693
General and administrative 5,632,430 61,896 6,374,057
Research and development 410,000 4,092 421,361
Total cost and expenses 98,495,844 1,054,079 108,549,039
OPERATING INCOME 7,752,642 55,577 5,723,312
OTHER INCOME (EXPENSE):      
Dividend income 47,117 495 51,003
Interest income 25,708 260 26,719
Interest expense (287,314) (2,489) (256,371)
Foreign exchange gains 112,136 2,130 219,381
Net gain on sales of other investments 13,565 1,045 107,655
Net gain on other investments -- 3,043 313,393
Losses on write-down of other investments (19,788) -- --
Other -net 112,798 872 89,799
Other income (expense) —net 4,222 5,356 551,579
INCOME FROM OPERATIONS BEFORE INCOME

 TAX EXPENSE AND EQUITY IN NET INCOME

 OF EQUITY METHOD INVESTEES
7,756,864 60,933 6,274,891
INCOME TAX EXPENSE  2,607,582 17,434 1,795,305
EQUITY IN NET INCOME OF EQUITY METHOD

 INVESTEES
168,065 1,982 204,046
       
NET INCOME 5,317,347 45,481 4,683,632
LESS: NET INCOME ATTRIBUTABLE TO

 NONCONTROLLING INTERESTS
(16,693) (2,344) (241,395)
NET INCOME ATTRIBUTABLE TO INTERNET

 INITIATIVE JAPAN INC.
5,300,654 43,137 4,442,237
       
  Fiscal Year Ended

March 31, 2013
Fiscal Year Ended

March 31, 2014
NET INCOME PER SHARE      
BASIC WEIGHTED-AVERAGE NUMBER OF

 SHARES (shares)
40,536,800   44,306,680
DILUTED WEIGHTED-AVERAGE NUMBER

 OF SHARES (shares)
40,572,600   44,361,083
BASIC WEIGHTED-AVERAGE NUMBER OF

 ADS EQUIVALENTS (ADSs)
81,073,600   88,613,360
DILUTED WEIGHTED-AVERAGE NUMBER

 OF ADS EQUIVALENTS (ADSs)
81,145,200   88,722,166
BASIC NET INCOME PER SHARE

 (JPY / U.S. Dollars / JPY)
130.76 0.97 100.26
DILUTED NET INCOME PER SHARE

 (JPY / U.S. Dollars / JPY)
130.65 0.97 100.14
BASIC NET INCOME PER ADS

 EQUIVALENT (JPY / U.S. Dollars / JPY)
65.38 0.49 50.13
DILUTED NET INCOME PER ADS

 EQUIVALENT (JPY / U.S. Dollars / JPY)
65.32 0.49 50.07
       
(Note) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY102.98 which was the noon buying rate in New York

 City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York prevailing

 as of March 31, 2014.
 
Internet Initiative Japan Inc.
Consolidated Statements of Shareholders' Equity (Unaudited)
 (For the fiscal year ended March 31, 2013 and March 31, 2014)                
                 
    Internet Initiative Japan Inc. shareholders' equity  
  Total

equity
Accumulated

deficit
Accumulated

other

comprehensive

income (loss)
Shares of

common

stock

outstanding
Common

stock
Treasury

stock
Additional

paid-in

capital
NON

CONTROLLING

INTERESTS
  Thousands

of JPY
Thousands

of JPY
Thousands

of JPY
Shares Thousands

of JPY
Thousands

of JPY
Thousands

of JPY
Thousands

of JPY
BALANCE, MARCH 31, 2012 32,696,247 (10,990,348) (23,533) 41,295,600 16,833,847 (392,079) 27,260,318 8,042
 Acquisition and establishment of

 new consolidated subsidiaries
2,688             2,688
 Stock-based compensation 40,007           40,007  
 Comprehensive income

 (loss):
               
Net Income 5,317,347 5,300,654           16,693
Other Comprehensive

 income (loss), net of tax
287,283   287,303         (20)
                 
 Total comprehensive income 5,604,630              
 Dividends paid (709,394) (709,394)            
BALANCE, MARCH 31, 2013 37,634,178 (6,399,088) 263,770 41,295,600 16,833,847 (392,079) 27,300,325 27,403
 Acquisition of noncontrolling

 interests in consolidated

 subsidiaries
--   61     53 99 (213)
 Issuance of common stock, net

 of issuance cost
17,271,204     5,400,000 8,661,600   8,609,604  
 Issuance of common stock upon 

 exercise of stock options
3,151     2,200 1,575   1,576  
 Stock-based compensation 50,391           50,391  
 Comprehensive income

 (loss):
               
Net Income 4,683,632 4,442,237           241,395
Other Comprehensive

 income (loss), net of tax
1,448,811   1,448,955         (144)
                 
 Total comprehensive income: 6,132,443              
 Dividends paid (910,697) (910,697)            
 Purchase of treasury stock (44)         (44)    
BALANCE, MARCH 31, 2014 60,180,626 (2,867,548) 1,712,786 46,697,800 25,497,022 (392,070) 35,961,995 268,441
                 
                 
(For the fiscal year ended March 31, 2014 (In USD))
       
    Internet Initiative Japan Inc. shareholders' equity  
  Total

equity
Accumulated

deficit
Accumulated

other

comprehensive

income
Shares of

common

stock

outstanding
Common

stock
Treasury

stock
Additional

paid-in

capital
NON

CONTROLLING

INTERESTS
  Thousands

of USD
Thousands

of USD
Thousands

of USD
Shares Thousands

of USD
Thousands

of USD
Thousands

of USD
Thousands

of USD
BALANCE, MARCH 31, 2013 365,451 (62,139) 2,561 41,295,600 163,467 (3,807) 265,103 266
 Acquisition of noncontrolling

 interests in consolidated

 subsidiaries
--   1     0 2 (3)
 Issuance of common stock, net

 of issuance cost
167,714     5,400,000 84,110   83,604  
 Issuance of common stock upon 

 exercise of stock options
31     2,200 15   16  
 Stock-based compensation 489           489  
 Comprehensive income

 (loss):
               
Net Income 45,481 43,137           2,344
Other Comprehensive

 income (loss), net of tax
14,069   14,070         (1)
                 
 Total comprehensive income: 59,550              
 Dividends paid (8,844) (8,844)            
 Purchase of treasury stock (0)         (0)    
BALANCE, MARCH 31, 2014 584,391 (27,846) 16,632 46,697,800 247,592 (3,807) 349,214 2,606
                 
(Note) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY102.98 which was the noon buying rate in New York City for cable

 transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York prevailing as of March 31, 2014. 
 
Internet Initiative Japan Inc.
Consolidated Statements of Cash Flows (Unaudited)
(For the fiscal year ended March 31, 2013 and March 31, 2014)
       
     
  Fiscal Year Ended

March 31, 2013
Fiscal Year Ended

March 31, 2014
  Thousands of

JPY
Thousands of

U.S. Dollars
Thousands of

JPY
OPERATING ACTIVITIES:      
Net income 5,317,347 45,481 4,683,632
Adjustments to reconcile net income to net cash

 provided by operating activities:
     
Depreciation and amortization 7,507,808 85,677 8,822,981
Impairment loss on intangible assets 48,000 -- --
Provision for retirement and pension costs,

  less payments
213,963 2,200 226,599
Reversal of allowance for doubtful accounts (10,712) (456) (46,935)
Loss on disposal of property and equipment 14,638 811 83,487
Net gain on sales of other investments (13,565) (1,045) (107,655)
Net gain on other investments -- (3,043) (313,393)
Impairment of other investments 19,788 -- --
Foreign exchange gains, net (55,983) (1,262) (129,916)
Equity in net income of equity method investees (168,065) (1,981) (204,046)
Deferred income tax benefit (527,128) (6,796) (699,826)
Others 39,377 694 71,448
Changes in operating assets and liabilities net of effects

 from acquisition of business and a company:
     
Increase in accounts receivable (2,906,215) (3,325) (342,391)
Decrease in net investment in sales-type lease

 ―noncurrent
37,406 1,411 145,266
Increase in inventories (492,022) (3,550) (365,533)
Increase in prepaid expenses  (635,031) (5,951) (612,802)
Increase in other current and noncurrent assets (1,295,279) (17,493) (1,801,403)
Increase in accounts payable 1,881,105 4,631 476,860
Decrease in income taxes payable (545,914) (5,776) (594,782)
Increase in deferred income ―noncurrent 1,015,049 888 91,462
Increase (decrease) in accrued expenses and 

 other current and noncurrent liabilities
194,201 (5,789) (596,174)
Net cash provided by operating activities 9,638,768 85,326 8,786,879
INVESTING ACTIVITIES:      
Purchases of property and equipment (5,588,815) (88,600) (9,123,998)
Proceeds from sales of property and equipment 543,978 4,431 456,330
Purchases of available-for-sale securities (48,903) (1,627) (167,545)
Purchases of other investments (467,622) (11,517) (1,185,985)
Investment in an equity method investee (100,000) (1,941) (199,920)
Proceeds from sales of available-for-sale securities -- 3,805 391,814
Proceeds from sales of other investments 109,944 3,416 351,740
Payments of guarantee deposits (164,417) (6,690) (688,902)
Refund of guarantee deposits 17,349 196 20,233
Payments for refundable insurance policies (737) (182) (18,787)
Refund from insurance policies -- 156 16,026
Acquisition of a newly controlled company,

 net of cash acquired
(229,058) -- --
Other (17,620) (522) (53,766)
Net cash used in investing activities (5,945,901) (99,075) (10,202,760)
     
  Fiscal Year Ended

March 31, 2013
Fiscal Year Ended

March 31, 2014
  Thousands of

JPY
Thousands of

U.S. Dollars
Thousands of

JPY
FINANCING ACTIVITIES:      
Proceeds from issuance of short-term borrowings

 with initial maturities over three months
71,000 2,428 250,000
Repayments of short-term borrowings with initial

 maturities over three months and long-term borrowings
(1,081,000) (12,235) (1,260,000)
Principal payments under capital leases (3,678,940) (38,539) (3,968,724)
Net increase in short-term borrowings with

 initial maturities less than three months
400,000 -- --
Proceeds from issuance of stock to minority shareholders 2,570 -- --
Dividends paid (709,394) (8,844) (910,697)
Proceeds from issuance of common stock, net of issuance cost -- 167,714 17,271,204
Other -- 1 109
Net cash provided by (used in) financing activities (4,995,764) 110,525 11,381,892
       
EFFECT OF EXCHANGE RATE CHANGES ON

 CASH AND CASH EQUIVALENTS
24,945 1,906 196,217
       
NET INCREASE (DECREASE) IN CASH AND

 CASH EQUIVALENTS
(1,277,952) 98,682 10,162,228
CASH AND CASH EQUIVALENTS, BEGINNING OF

 YEAR
13,536,824 119,041 12,258,872
CASH AND CASH EQUIVALENTS, END OF

 YEAR
12,258,872 217,723 22,421,100
       
ADDITIONAL CASH FLOW INFORMATION:      
Interest paid 287,158 2,493 256,722
Income taxes paid 3,527,987 26,294 2,707,784
       
NONCASH INVESTING AND FINANCING ACTIVITIES:      
Acquisition of assets by entering into capital leases 4,816,248 33,368 3,436,245
Facilities purchase liabilities 949,264 10,200 1,050,429
Asset retirement obligation 26,620 1,601 164,833
Acquisition of a company:      
 Assets acquired 404,139 -- --
 Liabilities assumed 104,321 -- --
 Noncontrolling interests 118 -- --
 Cash paid (299,700) -- --
 Cash acquired  70,642 -- --
 Acquisition of a newly controlled company,

 net of cash acquired
(229,058) -- --
       
(Note1) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY102.98 which was the noon buying rate in New

 York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York

 prevailing as of March 31, 2014.

4th Quarter FY2013 Consolidated Financial Results (3 months)

The following tables are highlight data of 4th Quarter FY2013 (3 months) consolidated financial results (unaudited, for the 3 months ended March 31, 2014).

Operating Results Summary
       
  4Q12 4Q13 YoY %

Change
  JPY millions JPY millions  
Total Revenues: 29,558 31,526 6.7
Network Services 16,717 16,984 1.6
Systems Integration (SI) 11,604 13,273 14.4
Equipment Sales 623 512 (17.9)
ATM Operation Business 614 757 23.3
Cost of Revenues: 23,229 25,977 11.8
Network Services 12,720 13,282 4.4
Systems Integration (SI) 9,431 11,684 23.9
Equipment Sales 569 465 (18.3)
ATM Operation Business 509 546 7.3
SG&A Expenses and R&D 3,619 4,036 11.5
Operating Income 2,710 1,513 (44.2)
Income before Income Tax Expense 2,811 1,649 (41.3)
Net Income attributable to IIJ 2,188 1,518 (30.6)
Network Service Revenue Breakdown
  4Q12 4Q13 YoY %

Change
  JPY millions JPY millions  
Internet Connectivity Service (Corporate Use) 4,244 4,085 (3.7)
 IP Service 2,782 2,539 (8.8)
 IIJ FiberAccess/F and IIJ DSL/F 773 779 0.9
 IIJ Mobile Service 629 709 12.8
Others 60 58 (3.0)
Internet Connectivity Service (Home Use) 1,356 1,628 20.1
Under IIJ Brand 382 696 82.2
hi-ho 811 749 (7.7)
OEM 163 183 12.5
WAN Services 6,288 6,220 (1.1)
Outsourcing Services 4,829 5,051 4.6
Network Services Revenues 16,717 16,984 1.6

Reconciliation of Non-GAAP Financial Measures (4th Quarter FY2013 (3 months))

The following table summarizes the reconciliation of adjusted EBITDA to net income in our consolidated statements of income that are prepared in accordance with U.S. GAAP.

Adjusted EBITDA
  4Q12 4Q13
  JPY millions JPY millions
Adjusted EBITDA 4,722 3,832
Depreciation and Amortization (1,964) (2,319)
Impairment loss on other intangible assets (48) --
Operating Income 2,710 1,513
Other Income (Expense) 101 136
Income Tax Expense 653 (47)
Equity in Net Income (loss) of Equity Method Investees 36 13
Net income 2,194 1,709
Net Loss (Income) attributable to non-controlling interests (6) (191)
Net Income attributable to IIJ 2,188 1,518

The following table summarizes the reconciliation of capital expenditures to the purchase of property and equipment in our consolidated statements of cash flows that are prepared and presented in accordance with U.S. GAAP.

CAPEX
  4Q12 4Q13
  JPY millions JPY millions
CAPEX, including capital leases 1,953 2,697
Acquisition of Assets by Entering into Capital Leases 774 801
Purchase of Property and Equipment 1,179 1,896
 
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Income (Unaudited)
(Three Months ended March 31, 2013 and March 31, 2014)
       
  Three Months Ended

March 31, 2013
Three Months Ended

March 31, 2014
  Thousands of

JPY
Thousands of

U.S. Dollars
Thousands of

JPY
REVENUES:      
Network services:      
Internet connectivity services (corporate use) 4,244,105 39,674 4,085,649
Internet connectivity services (home use) 1,355,560 15,807 1,627,764
WAN services 6,288,667 60,399 6,219,920
Outsourcing services 4,829,036 49,048 5,050,931
Total 16,717,368 164,928 16,984,264
Systems integration:      
Systems Construction 6,000,759 68,349 7,038,521
Systems Operation and Maintenance 5,603,166 60,539 6,234,333
Total 11,603,925 128,888 13,272,854
Equipment sales 623,603 4,974 512,236
ATM operation business 613,500 7,346 756,554
Total revenues 29,558,396 306,136 31,525,908
COST AND EXPENSES:      
Cost of network services 12,720,525 128,976 13,281,985
Cost of systems integration 9,431,170 113,461 11,684,188
Cost of equipment sales 568,947 4,511 464,561
Cost of ATM operation business 509,138 5,307 546,532
Total cost 23,229,780 252,255 25,977,266
Sales and marketing 2,027,664 21,383 2,201,980
General and administrative 1,485,233 16,785 1,728,538
Research and development 105,940 1,025 105,561
Total cost and expenses 26,848,617 291,448 30,013,345
OPERATING INCOME 2,709,779 14,688 1,512,563
OTHER INCOME (EXPENSE):      
Dividend income 2,604 27 2,744
Interest income 5,819 78 8,049
Interest expense (69,417) (605) (62,263)
Foreign exchange gains 124,841 163 16,783
Net gain on other investments -- 1,369 140,970
Other—net 37,272 297 30,613
Other expense — net 101,119 1,329 136,896
INCOME FROM OPERATIONS BEFORE INCOME

 TAX EXPENSE AND EQUITY IN NET INCOME

 IN EQUITY METHOD INVESTEES
2,810,898 16,017 1,649,459
INCOME TAX EXPENSE (BENEFIT) 653,414 (450) (46,385)
EQUITY IN NET INCOME OF EQUITY

 METHOD INVESTEES
36,377 125 12,842
       
NET INCOME 2,193,861 16,592 1,708,686
LESS: NET INCOME ATTRIBUTABLE TO

 NONCONTROLLING INTERESTS
(5,492) (1,850) (190,519)
NET INCOME ATTRIBUTABLE TO

 INTERNET INITIATIVE JAPAN INC.
2,188,369 14,742 1,518,167
       
     
  Three Months Ended

March 31, 2013
Three Months Ended

March 31, 2014
NET INCOME PER SHARE      
BASIC WEIGHTED-AVERAGE NUMBER OF

 SHARES
40,536,800   45,939,091
DILUTED WEIGHTED-AVERAGE NUMBER

 OF SHARES
40,583,800   45,998,489
BASIC WEIGHTED-AVERAGE NUMBER OF

 ADS EQUIVALENTS (ADSs)
81,073,600   91,878,182
DILUTED WEIGHTED-AVERAGE NUMBER

 OF ADS EQUIVALENTS (ADSs)
81,167,600   91,996,978
BASIC NET INCOME PER SHARE

 (JPY / U.S. Dollars / JPY)
53.98 0.32 33.05
DILUTED NET INCOME PER SHARE

 (JPY / U.S. Dollars / JPY)
53.92 0.32 33.00
BASIC NET INCOME PER ADS

 EQUIVALENT (JPY / U.S. Dollars / JPY)
26.99 0.16 16.52
DILUTED NET INCOME PER ADS

 EQUIVALENT (JPY / U.S. Dollars / JPY)
26.96 0.16 16.50
       
(Note) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY102.98 which was the noon buying rate in New York

 City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York prevailing

 as of March 31, 2014.
 
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Cash Flows (Unaudited)
(Three Months ended March 31, 2013 and March 31, 2014)
       
  Three Months Ended

March 31, 2013
Three Months Ended

March 31, 2014
  Thousands of

JPY
Thousands of

U.S. Dollars
Thousands of

JPY
OPERATING ACTIVITIES:      
Net income 2,193,861 16,592 1,708,686
Adjustments to reconcile net income to net cash

 provided by operating activities:
     
Depreciation and amortization 1,964,291 22,517 2,318,779
Impairment loss on other intangible assets 48,000 -- --
Provision for retirement and pension

 costs, less payments
48,701 522 53,784
Reversal of allowance for doubtful 

 accounts and advances
(10,570) (11) (1,127)
Loss on disposal of property and equipment 10,045 700 72,044
Net gain on sales of other investments -- (1,369) (140,970)
Foreign exchange losses (gains), net (38,699) 247 25,478
Equity in net income of equity method investees (36,377) (125) (12,842)
Deferred income tax benefit (679,103) (10,588) (1,090,417)
Others 26,224 174 17,881
Changes in operating assets and liabilities net of effects

 from acquisition of business and a company:
     
Increase in accounts receivable (3,341,586) (23,499) (2,419,892)
Decrease (increase) in net investment in sales-type

 lease ―noncurrent
(202,461) 367 37,794
Decrease in inventories 489,685 8,239 848,410
Decrease in prepaid expenses  757,088 8,245 849,097
Increase in other current and noncurrent assets (716,734) (10,090) (1,039,069)
Increase in accounts payable 1,821,357 11,988 1,234,546
Increase in income taxes payable 1,274,354 8,726 898,628
Increase in deferred income ―noncurrent 238,400 970 99,854
Decrease in accrued expenses, other

 current and noncurrent liabilities
(87,505) (3,941) (405,831)
       
Net cash provided by operating activities 3,758,971 29,664 3,054,833
INVESTING ACTIVITIES:      
Purchases of property and equipment (1,178,696) (18,415) (1,896,347)
Proceeds from sales of property and equipment 71,272 2,135 219,831
Purchases of available-for-sale securities (7,653) (670) (69,051)
Purchases of other investments (60,620) (565) (58,154)
Investment in an equity method investee -- (1,941) (199,920)
Proceeds from sales of other investments 17,310 3,221 331,740
Payments of guarantee deposits (77,463) (73) (7,524)
Refund of guarantee deposits 1,986 121 12,415
Payments for refundable insurance policies (183) (137) (14,090)
Other (8,002) (404) (41,557)
Net cash used in financing activities (1,242,049) (16,728) (1,722,657)
     
  Three Months Ended

March 31, 2013
Three Months Ended

March 31, 2014
  Thousands of

JPY
Thousands of

U.S. Dollars
Thousands of

JPY
FINANCING ACTIVITIES:      
Principal payments under capital leases (938,318) (9,970) (1,026,718)
Other -- 1 150
Net cash used in financing activities (938,318) (9,969) (1,026,568)
       
EFFECT OF EXCHANGE RATE CHANGES ON

 CASH AND CASH EQUIVALENTS
31,972 128 13,142
       
NET INCREASE IN CASH AND CASH  

 EQUIVALENTS
1,610,576 3,095 318,750
CASH AND CASH EQUIVALENTS, BEGINNING OF

 THE PERIOD
10,648,296 214,628 22,102,350
CASH AND CASH EQUIVALENTS, END OF

 THE PERIOD
12,258,872 217,723 22,421,100
       
(Note1) The U.S. dollar amounts represent translations of yen amounts at the rate of JPY102.98 which was the noon buying rate in New

 York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York

 prevailing as of March 31, 2014.

Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the fiscal year ended March 31, 2014 ("FY2013") in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Fiscal Year Ended March 31, 2014

[Under accounting principles generally accepted in the United States ("U.S. GAAP")]

    May 15, 2014
Company name: Internet Initiative Japan Inc. Exchange listed: Tokyo Stock Exchange First Section
Stock code number: 3774 URL: http://www.iij.ad.jp/  
Representative: Eijiro Katsu, President and Representative Director    
Contact: Akihisa Watai, Managing Director and CFO TEL: (03) 5259-6500  
Scheduled date for annual general shareholder's meeting: June 25, 2014  
Scheduled date for dividend payment: June 26, 2014    
Scheduled date for filing of annual report (Yuka-shoken-houkokusho) to Japan's regulatory organization: June 27, 2014
Supplemental material on annual results: Yes    
Presentation on annual results: Yes (for institutional investors and analysts)  
   (Amounts of less than JPY one million are rounded)  

1. Consolidated Financial Results for the Fiscal Year Ended March 31, 2014

(April 1, 2013 to March 31, 2014)

(1) Consolidated Results of Operations  (% shown is YoY change)
  Total

Revenues
Operating

Income
Income before Income

Tax Expense
Net Income attributable to

IIJ
  JPY millions % JPY millions % JPY millions % JPY millions %
Fiscal Year Ended March 31, 2014 114,272 7.6 5,723 (26.2) 6,275 (19.1) 4,442 (16.2)
Fiscal Year Ended March 31, 2013 106,248 9.2 7,753 22.0 7,757 29.8 5,301 45.6
       
(Note1) Total comprehensive income attributable to IIJ      Fiscal Year Ended March 31, 2014: JPY5,891 million (up 5.4% YoY)
        Fiscal Year Ended March 31, 2013: JPY5,588 million (up 50.9% YoY)
(Note2) Income before income tax expense represents income from operations before income tax expense and equity in net income in equity method investees, respectively, in IIJ's consolidated financial statements.
           
  Basic Net Income attributable to IIJ

per Share
Diluted Net

Income

attributable to IIJ per Share
Net Income

attributable to IIJ to

Total Shareholders' Equity
Income before

Income Tax

Expense to Total Assets
Total Revenues

Operating Margin

Ratio
  JPY JPY % % %
Fiscal Year Ended March 31, 2014 100.26 100.14 9.1 6.7 5.0
Fiscal Year Ended March 31, 2013 130.76 130.65 15.1 10 7.3
   
(Reference) Equity in net income of equity method investees  Fiscal Year Ended March 31, 2014: JPY204 million
      Fiscal Year Ended March 31, 2013: JPY168 million
(Note) IIJ conducted a 1:200 stock split on common stock with an effective date of October 1, 2012. Accordingly, basic net income attributable to IIJ per share and diluted net income attributable to IIJ per share would have been calculated as if the stock split were conducted at the beginning of the fiscal year ended March 31, 2013.
(2) Consolidated Financial Position
  Total

Assets
Total

Equity
Total IIJ

Shareholders'

Equity
Total IIJ

Shareholders' Equity

to Total Assets
Total IIJ

Shareholders' Equity

per Share
  JPY millions JPY millions JPY millions % JPY
As of March 31, 2014 103,867 60,181 59,912 57.7 1,304.17
As of March 31, 2013 82,111 37,634 37,607 45.8 927.72
           
(3) Consolidated Cash Flow
  Operating Activities Investing Activities Financing Activities Cash and Cash Equivalents

(End of the Period)
  JPY millions JPY millions JPY millions JPY millions
Fiscal year ended March 31, 2014 8,787 (10,203) 11,382 22,421
Fiscal year ended March 31, 2013 9,639 (5,946) (4,996) 12,259
         
 
2. Dividends
  Dividend per Shares      
  1Q-end 2Q-end 3Q-end Year-end Total Total cash

dividends for

the year
Payout Ratio

(consolidated)
Ratio of

Dividends to

Shareholder's

Equity

(consolidated)
  JPY JPY JPY JPY JPY JPY millions % %
Fiscal Year Ended March 31, 2013  -- 1,750 -- 10.00 1,760.00 760 14.3 2.2
Fiscal Year Ended March 31, 2014  -- 11.00 -- 11.00 22.00 1,011 21.9 2.0
Fiscal Year Ending March 31, 2015  (forecast) -- 11.00 -- 11.00 22.00   22.5  
 (Note) IIJ conducted a 1:200 stock split on common stock with an effective date of October 1, 2012. 2Q-end dividend (interim dividend) for the fiscal year ended March 31, 2013 does not take the stock split into consideration. The dividends for 2Q-end and the total dividend for the fiscal year ended March 31, 2013 would have been JPY8.75 and JPY18.75 respectively if the stock split were conducted at the beginning of the fiscal year ended March 31, 2013.
3. Target of Consolidated Financial Results for the Fiscal Year Ending March 31, 2015
(April 1, 2014 through March 31, 2015)   (% shown is YoY change)
  Total

Revenues
Operating 

Income
Income before

Income Tax

Expense (Benefit)
Net Income

attributable to IIJ
Basic Net Income

attributable to IIJ

per Share
  JPY millions % JPY millions % JPY millions % JPY millions % JPY
Interim Period Ending September 30, 2014 57,500 5.7 2,800 (6.9) 2,700 (19.3) 1,750 (20.6) 38.09
Fiscal Year Ending March 31, 2015 123,000 7.6 7,200 25.8 7,000 11.6 4,500 1.3 97.96

 

* Notes  
(1) Changes in Significant Subsidiaries for the Fiscal Year Ended March 31, 2014
 (Changes in significant subsidiaries for the Fiscal Year Ended March 31, 2014 which resulted in changes in scope of consolidation): None
(2) Changes in Significant Accounting and Reporting Policies for the Consolidated Financial Statements
 1) Changes due to the revision of accounting standards: No
 2) Others: No
(3) Number of Shares Outstanding (Shares of Common Stock)
1) The number of shares outstanding (inclusive of treasury stock):
As of March 31, 2014:  46,697,800 shares  
As of March 31, 2013:  41,295,600 shares  
2) The number of treasury stock:  
As of March 31, 2014:  758,709 shares  
As of March 31, 2013: 758,800 shares  
3) The weighted average number of shares outstanding:
For the Fiscal Year Ended March 31, 2014: 44,306,680 shares  
For the Fiscal Year Ended March 31, 2013: 40,536,800 shares  
(Note) IIJ conducted a 1:200 stock split on common stock with an effective date of October 1, 2012. Number of shares outstanding (shares of common stock) in the above would have been calculated as if the stock split were conducted at the beginning of the fiscal year ended March 31, 2013.

[English Translation]

May 15, 2014

Company name: 1-105 Kanda Jimbo-cho, Chiyoda-ku, Tokyo

Internet Initiative Japan Inc.



Company representative: Eijiro Katsu, President and Representative Director

(Stock Code Number: 3774 The First Section of the Tokyo Stock Exchange)

Contact: Akihisa Watai, Managing Director and CFO

TEL: 03-5259-6500

 

Information Pertaining to Our Largest Shareholder

 

1. About Our Largest Shareholder (As of March 31, 2014)
Name Relationship Its Ownership

Percentage (%)
Securities Exchanges where its Shares are Listed
Nippon Telegraph and Telephone Corporation ("NTT") IIJ is NTT's affiliate company 26.4 Tokyo Stock Exchange (First Section)
    (4.4) New York Stock Exchange
 
(Notes) The percentage in parentheses is the indirect ownership by NTT included in the figure above.

 

2. Position of the Listed Company (IIJ) within NTT Group and other relationships
a) Position of the Listed Company (IIJ) within NTT Group
The ownership percentage by NTT, which is IIJ's largest shareholder, was 26.4% as of March 31, 2014, including its indirect ownership. However, IIJ's business activities are not affected by NTT's ownership in IIJ and IIJ is maintaining its management independence.
b) Personal Relationships with NTT Group 
IIJ's board of directors consists of 12 members including 4 outside directors as of May 15, 2014. Takashi Hiroi, an outside director (part-time director) of IIJ, is an employee of NTT (General Manager of Business Planning Division of NTT), and also an outside company auditor of NTT Urban Development Corporation. However, he is monitoring IIJ's business operations as an outside director and does not have any personal relationships, such as family relationships, with IIJ's other directors and auditors. He did not acquire any interest such as capital or business relationships upon becoming an outside director.
3. Business Relationship with NTT Group
IIJ uses services provided by Nippon Telegraph and Telephone East Corporation ("NTT East") and Nippon Telegraph and Telephone West Corporation ("NTT West") for a significant portion of IIJ's access circuits as well as services provided by NTT Communications Corporation ("NTT Communications") for a significant portion of IIJ's domestic and international backbones. The amount paid to NTT East and West, and to NTT Communications for their telecommunication circuits was JPY1,478 million and JPY3,260 million, respectively for the fiscal year ended March 31, 2014.
IIJ leases a part of Internet data center facilities from NTT Group companies to provide Internet data center services to IIJ's customers. The amount paid to NTT Group related to the lease of Internet data center facilities were JPY1,607 million for the fiscal year ended March 31, 2014.
4. Policy Concerning Measures to Protect Minority Shareholders in Transactions with NTT Group
Business transactions with the NTT Group are within the scope of normal business practices and there is no special contract made in relation to the investment by NTT Group.
CONTACT: IIJ Investor Relations
         Tel: +81-3-5259-6500
         E-mail: ir@iij.ad.jp
         URL: http://www.iij.ad.jp/en/ir

Source: Internet Initiative Japan Inc.

This article appears in: News Headlines

Referenced Stocks: IIJI


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