Earnings release for the Fiscal Year Ended March 31, 2019 [Under IFRS]

TOKYO, June 28, 2019 (GLOBE NEWSWIRE) --

Company name: Internet Initiative Japan Inc.
Exchange listed: Tokyo Stock Exchange First Section
Stock code number: 3774
URL: https://www.iij.ad.jp/ 
Representative: Eijiro Katsu, President and Representative Director
Contact: Akihisa Watai, Managing Director and CFO
TEL: (03) 5205-6500

(Amounts of less than JPY one million are rounded)

1. Consolidated Financial Results for the Fiscal Year Ended March 31, 2019
(April 1, 2018 to March 31, 2019)

(Reference) Equity in net income (loss) of equity method investees
Fiscal year ended March 31, 2019: JPY(318) million
Fiscal year ended March 31, 2018: JPY135 million

(2) Consolidated Financial Position

(3) Consolidated Cash Flow

2．Dividends

3．Targets of Consolidated Financial Results for the Fiscal Year Ending March 31, 2020
(April 1, 2019 through March 31, 2020)                                                                                                 

(Note 1) The above "Targets of Consolidated Financial Results for the Fiscal Year Ending March 31, 2020" are the same we disclosed on May 14, 2019 in our "Consolidated Financial Results for the Fiscal Year Ended March 31, 2019 [Under accounting principles generally accepted in the United States]." Year over year change (%) have been re-calculated based on IFRS.
(Note 2) As for the details about our financial targets for the fiscal year ending March 31, 2020, please refer to page 9 of our "Consolidated Financial Results for the Fiscal Year Ended March 31, 2019 [Under accounting principles generally accepted in the United States" which was disclosed on May 14, 2019.

* Status of Audit Procedures
This document is not subject to audit procedures by certified public accountant or independent auditor. At the time of release of this document, audit procedures for consolidated financial statements under the Financial Instruments and Exchange Law have been completed.

* Explanation on the Appropriate Use of Future Outlook and other special instructions

Forward-looking statements disclosed in this document are based on IIJ Group's expectation, estimates, and projections based on information available to IIJ Group as of May 14, 2019. As these forward-looking statements are subject to known and unknown risks and uncertainties, actual results may differ from those disclosed due, for example, to but not limited to changes in business climate and/or market trends

[TABLE OF CONTENTS]

1.　Consolidated financial statements
(1) Consolidated statements of financial position

(2) Consolidated statements of profit or loss and Consolidated statements of comprehensive income
(Consolidated statements of profit or loss)

(Consolidated statements of comprehensive income)

(3) Consolidated statements of changes in shareholders' equity
For the year ended March 31, 2018

For the year ended March 31, 2019

(4) Consolidated statements of cash flows

(5) Notes to consolidated financial statements
Note 1．Business segments
Internet Initiative Japan Inc.("IIJ") and its subsidiaries (collectively "the Company") primarily operates its network service and system integration business, which provides a comprehensive range of network solutions to meet its customers' needs by cross-selling a variety of services, including Internet connectivity services, WAN services, outsourcing services, systems integration and sales of network-related equipment, and the ATM operation business. Therefore, the Company defined two reportable segments: "Network service and systems integration business" and "ATM operation business."
Profit from each reporting segment is based on operating profit.

Segment information for the Company is as follows:

For the year ended March 31, 2018

For the year ended March 31, 2019

Intersegment transactions are based on market price. Segment operating profit is the amount of revenue less cost of sales and SG&A expenses plus other operating income and less other operating expenses.
Substantially all revenues are from customers operating in Japan. Geographic information for revenues is not presented due to immateriality of revenue attributable to international operations.
Substantially all non-current assets, excluding financial instruments and deferred tax assets, are located in Japan. Geographic information of non-current assets is not presented due to immateriality of non-current assets attributable to assets located outside Japan.
This information is not presented because no revenue from a single external customer accounts for 10% or more of total revenue of the Company.

Note 2. Earnings per share
Basic earnings per share attributable to owners of the parent and diluted earnings per share attributable to owners of the parent for the years ended March 31, 2018 and 2019 were as follows:

Note 3. Significant subsequent events
Not applicable.

2．IFRS Transition Disclosure

The Company's consolidated financial statements are disclosed in accordance with IFRS from the year ended March 31, 2019. The most recent consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America（"USGAAP"）are for the fiscal year ended March 31, 2018 and the date of transition to IFRS was April 1, 2017.

(1) Exemptions for first-time adoption based on IFRS 1
IFRS principally requires an entity that adopts IFRS for the first time to apply IFRS retrospectively. However, IFRS 1 provides exemptions that allow first-time adopters to voluntarily not to apply certain standards retrospectively. Major exemptions adopted by the Company are as follows:

Business combinations
A first-time adopter may choose not to apply IFRS 3, "Business Combinations" ("IFRS 3") retrospectively to business combinations occurring before the date of transition to IFRS. The Company has applied this exemption and chosen not to apply IFRS 3 retrospectively to business combinations that occurred before the date of transition to IFRS. As a result, the amounts of goodwill from business combinations before the date of transition were recorded at the carrying amount under USGAAP as of the date of transition. Impairment tests on goodwill, whether there is an indication of impairment or not, are conducted as of the date of transition.

Exchange differences on translation of foreign operations
The Company has chosen to deem the cumulative translation differences to be zero as of the date of transition to IFRS.

Specification of financial assets recognized before the date of transition
The Company determined the category of financial assets in accordance with IFRS 9 "Financial instruments," in considering facts and circumstances which existed at the date of transition.

(2) Reconciliation of USGAAP to IFRS
Reconciliation tables required in first-time adoption of IFRS are as follows. "Reclassification" represents adjustments which do not affect retained earnings and comprehensive income and "Recognition and measurement differences" includes adjustments which affect retained earnings and comprehensive income.

Reconciliation of equity as of April 1, 2017, the date of transition to IFRS

Notes to reconciliation of equity as of April 1, 2017, the date of transition to IFRS
Major adjustments as of the date of transition are as follows:

1) Fair value measurement of financial assets

Under the USGAAP, nonmarketable equity securities and certain financial assets are measured based on cost and impairment losses and are recognized when an issuer's financial position deteriorates. Under IFRS, these investments are measured at FVTOCI or FVTPL.

2) Post-employment benefits

Under the USGAAP, a part of the incurred amount of actuarial gain or loss and past service costs arising from defined benefit plans and unfunded severance benefit plans that are not recognized as periodic pension costs during the year is recognized as accumulated other comprehensive income (loss), net of tax. The amount recognized in accumulated other comprehensive income (loss) will be transferred to a component of pension costs in profit or loss over a certain future period.
Under IFRS, actuarial gains and losses are recognized in other comprehensive income on a net-of-tax basis, and past service cost is recognized in net income or loss when incurred. Actuarial gain or loss is directly transferred from other components of equity to retained earnings immediately, and is not recognized as profit or loss.

3) Levies

Under the USGAAP, domestic property taxes are accounted over the fiscal year of payment. Under IFRS, liabilities and expenses are immediately recognized at the point of the event when the liabilities are incurred.

4) Deferred tax assets and liabilities

In relation to changes in temporary differences arising from adjustments of accounts in transition to IFRS, the Company recognized changes in related deferred tax assets or liabilities.

5) Revenues from the contract with the customers

Initial setup fee received from the network services were deferred over the estimated periods of use under USGAAP. According to the adaption of IFRS, the initial setup fee, which does not give the material right related to the decision as to whether the service should be continued over the initial contract period or not to the customers, are deferred over the minimum periods of use.
          
6) Capitalization of contract costs
The Company's existing approach is to recognize sales commissions to agents of mobile telecommunications services contracts as expenses when incurred. As a result of applying IFRS 15, the Company will capitalize the sales commissions that would not have been incurred if the mobile telecommunications service contract had not been obtained and that are expected to be recovered, as the costs to obtain a contract.

7) Exchange differences on translation of foreign operations
Under IFRS 1, as described in (1), a first-time adopter may choose to deem the cumulative translation differences of foreign operations to be zero as of the date of transition to IFRS. The Company has chosen to deem the cumulative translation differences to be zero as of the date of transition to IFRS.

8) Adjustment to unify reporting period
Under the USGAAP, even where the reporting periods of the subsidiaries are different from the Company's reporting period, IIJ used the financial statements of the subsidiaries for consolidation purposes.
Under IFRS, the Company uses financial statements subsidiaries prepare on the unified reporting date or , for subsidiaries that have different fiscal year-ends, the Company uses additional financial information as of the same reporting date as IIJ's, unless it is not practicable to do so after making every reasonable effort. As a result, amounts of each account on the consolidated statements of financial position under IFRS are different from those under the USGAAP.

9) Retained earnings

10) Reclassification
To comply with IFRS, we reclassified some accounts on consolidated statements of financial position. Major reclassifications of consolidated statements of financial position are as follows:
(a) Based on the presentation requirements of IFRS, we separately disclose financial assets and financial liabilities.
(b) While we had disclosed software included in fixed tangible assets on the consolidated balance sheets in accordance with USGAAP, we disclosed all software included in intangible assets on the consolidated statements of financial position in accordance with IFRS.

Reconciliation of equity for the year ended March 31, 2018

Notes to reconciliation of equity for the year ended March 31, 2018
Major adjustments as of the date of transition are as follows:

1) Fair value measurement of financial assets
Under USGAAP, nonmarketable equity securities and certain financial assets are measured based on cost and impairment losses are recognized when issuers' financial positions deteriorate. Under IFRS, these investments are measured at FVTOCI or FVTPL.

2) Post-employment benefits
Under the USGAAP, a part of the incurred amount of actuarial gain or loss and past service costs arising from defined benefit plans and unfunded severance benefit plans that are not recognized as periodic pension costs during the year is recognized as accumulated other comprehensive income (loss), net of tax. The amount recognized in accumulated other comprehensive income (loss) will be transferred to a component of pension costs in profit or loss over a certain future period.
Under IFRS, actuarial gains and losses are recognized in other comprehensive income on a net-of-tax basis, and past service cost is recognized in net income or loss when incurred. Actuarial gain or loss is directly transferred from other components of equity to retained earnings immediately and is not recognized as profit or loss.

3) Levies
Under the USGAAP, domestic property taxes are accounted for the fiscal year of payment. Under IFRS, liabilities and expenses are immediately recognized at the point of the event when the liabilities are incurred.

4) Deferred tax assets and liabilities
In relation to changes in temporary differences arising from adjustments of accounts in transition to IFRS, the Company recognized changes related to deferred tax assets or liabilities.

5) Revenues from the contracts with the customers
Initial setup fee received from the network services were deferred over the estimated periods of use under USGAAP. According to the adaption of IFRS, the initial setup fee, which does not give the material right related to the decision as to whether the service should be continued over the initial contract period or not to the customers, are deferred over the minimum periods of use.

6) Capitalization of contract costs
The Company's existing approach is to recognize sales commissions to agents for mobile telecommunications services contracts as expenses when incurred. As a result of applying IFRS 15, the Company will capitalize the sales commissions that would not have been incurred if the mobile telecommunications service contract had not been obtained and that are expected to be recovered, as the costs to obtain a contract.

7) Exchange differences on translation of foreign operations
Under IFRS 1, as described in (1), a first-time adopter may choose to deem the cumulative translation differences of foreign operations to be zero as of the date of transition to IFRS.  The Company has chosen to deem the cumulative translation differences to be zero as of the date of transition to IFRS.

8) Adjustment to unify reporting period
Under the USGAAP, even where the reporting periods of the subsidiaries are different from the Company's reporting period, IIJ used the financial statements of the subsidiaries for consolidation purposes.

Under IFRS, the Company uses financial statements subsidiaries prepare on the unified reporting date or , for subsidiaries that have different fiscal year-ends, the Company uses additional financial information as of the same reporting date as IIJ's, unless it is not practicable to do so after making every reasonable effort. As a result, amounts of each account on the consolidated statements of financial position under IFRS are different from those under the USGAAP.

9) Retained earnings

10) Reclassification
To comply with IFRS, we reclassified some accounts on the consolidated statements of financial position. Major reclassifications on the consolidated statements of financial position are as follows:
(a) Based on the presentation requirements of IFRS, we separately disclose financial assets and financial liabilities.
(b) While we had disclosed software included in fixed tangible assets on the consolidated balance sheets in accordance with USGAAP, we disclosed all software included in intangible assets on the consolidated statements of financial position in accordance with IFRS.

Reconciliation of profit or loss, and other comprehensive income for the year ended March 31, 2018

Notes to reconciliation of profit or loss, and other comprehensive income for the year ended March 31, 2018
Major adjustments as are as follows:

i) Reclassification of revenue and cost of sales
Under US GAAP, equipment sales revenue of ¥3,470,400 thousand and costs of equipment sales of ¥3,142,262 thousand were shown separately. Under IFRS, they are included in system integration revenues and cost of system integration  sales, respectively.

ii) Fair value measurement of financial assets
Under USGAAP, nonmarketable equity securities are measured based on cost and impairment losses are recognized when issuers' financial positions deteriorate. Under IFRS, these investments are measured at FVTOCI.
Under US GAAP, ¥1,068,303 thousand, which is recorded as gain or loss on sales of other investments, is transferred to retained earnings through other comprehensive income.