ANNUAL REPORT1999

Fiscal Year Ended March 31, 1999

COMSYS — For Excellence in
Telecommunications

Profile

Financial Highlights

•
•
•
•
•

Nippon COMSYS Corporation
Years ended March 31, 1998 and 1999•••

Nippon COMSYS Corporation was founded in 1951 to assume the duties of theConstruction Division of Nippon Telegraph and Telephone Public Corporation (NTT).
Since its establishment, the Company has been a leader in the telecommunications
engineering field. A specialist in communications and computer technology,

Thousands of
U.S. dollars

Millions of yen

Contract backlog at beginning of the year
New orders received during the year
Net sales

Change

1998

1999

1999

(%)

¥ 57,684
234,877
224,103¥ 68,458
228,838
219,764$ 570,483
1,906,983
1,831,366

18.7%
–2.6%
–1.9%

68,45877,532646,100

13.3%¥ 7,611
160,561
90,101¥ 5,075
166,002
96,63542,292
1,383,350
805,292–33.3%
3.4%
7.3%

Contract backlog at end of year

COMSYS, is striving to grow its business to meet the 21st century, and to make acontribution to the development of the information-based society. We are fosteringa corporate culture characterized by fresh thinking and open communication, in

Net income
Total assets
Shareholders’ equity

which each employee can take pride, each employee can thrive, and each employee
can give full expression to his talents and capabilities. We are a creative organization,
working toward a better future.

$

Yen

Per share:
Net income
Cash dividends¥ 60.96
14.25

U.S. dollars¥ 38.78
10.00

$

0.32
0.08

–36.4%–29.8%

Note: Yen figures have been converted from U.S. dollars at the rate of ¥120.00=US$1, rounded, for convenience only, from anapproximate exchange rate of ¥120.55 to the dollar on March 31, 1999.

Contents
•
•
•
•
•

34

Corporate Information

35

Corporate Directory36

95 96 97 98 99

234.9

Organization Chart

228.8

19

225.1

Financial Section

186.2

18

143.0

Management

7.6

7
8
10
12
16

5.1

Review of Operations
NTT Construction
Domestic Construction and Engineering
International Operations
Information Systems

6.3

6

New Orders Received(¥ Billions)

3.7

Corporate Citizenship

3.6

4

224.1

Toward the 21st Century—Our Vision of the Future

Net Income(¥ Billions)

Net Sales(¥ Billions)

219.8

2

220.6

Letter from the Management

180.6

1

152.2

Financial Highlights

95 96 97 98 99

1

95 96 97 98 99

Letter from the Management••••

Environment
uring this term, the Japanese govD ernment made strenuous efforts tobring the economy out of recession
through changes in financial policies andstabilization of the financial system.
Despite these measures, the persistentslump in consumer spending and sluggish
capital investment kept the economy inwhat is being called the worst recessionof the post-war era.
The operating environment surrounding the telecommunicationsindustry has been adversely affected bythese economic doldrums, but is forging
ahead with the building of a world-classcommunications network to take us into
the 21st century. At the same time, thissummer’s restructuring of NTT has
altered the nature of competition. Where
before the industry was engaged instraight cost competition, we must now
compete to offer better services and quality. Competition among domestic andinternational telecommunications firms
to win clients has become fiercer yet,while mergers and tie-ups among firms
scrambling for survival are increasing.
Nippon COMSYS Corporation ismeeting the challenges posed by thesedramatic changes in the market, as well
as by the diversification of customer
needs, through strengthening of systems
and organizations, and by requiring eachbranch to achieve ISO certifications. By
meeting global standards, we intend not
only to expand our business with NTT
and the companies of the NTT group, butalso to grow our CC Box, software development, and other lines. In addition,
we have striven to expand our overseas
operations, with particular emphasis on
Southeast Asia.

Enhancing Managerial Efficiency
n an era of dramatic changes such
I as this, a higher level of managerial efficiency is required. In this regard,
COMSYS has recently instituted an annual

Pictured: (left) President Hironobu Takeuchi andChairman Shozo Iwasaki

salary system for upper management, andhas established a stock option system that
extends not only to executives and top
management, but down to the projectmangers who are the on-site core of ourconstruction operations. To strengthen
our ability to arrive at management decisions in a timely fashion, to enhance ourmanagement oversight capabilities, andto reinforce corporate governance, wehave drastically altered the compositionof the Board of Directors, and have established the new position of corporate
executive officer. The Company will continue to seek ways to utilize humanresources at maximum efficiency and to
inject vigor into our organization.

Performancerders from NTT declined by 8.0
O percent during this fiscal year as aresult of the completion of the nationwide
digital network and other factors. Hit by
the Asian economic downturn, orders foroverseas projects plunged 56.8 percent,but strenuous efforts to win both privatesector and public works contracts at homeresulted in a substantial 18.7 percent

2

increase in orders in the Domestic Construction and Engineering sector. This
increase, however, was insufficient toabsorb the declines in the NTT Construction and Overseas Construction sectors,
and total orders received declined 2.6
percent to ¥228.8 billion (US$1,907 million).
Total revenues displayed the same
trends as did orders received: revenues
in the Domestic Construction and Engineering sector showed solid growth, while
the NTT Construction and Overseas Construction sectors were weak. As a result,
total revenues slid 1.9 percent to ¥219.8
billion (US$1,831 million).
The Company’s long-standing
operational-eff iciency enhancement
programs have brought the establishmentof internal systems and controls, reductions in construction project costs, theimplementation and strengthening of a
subcontracting system, the prudent andprofitable investment of the Company’s
funds, and other measures designed toincrease profitability. Despite these efforts,
though, operating income declined 1.3
percent to ¥13.9 billion (US$116 million),and net income dropped 33.3 percent to¥5.1 billion (US$42 million). This decline
in net income was primarily the result of
the Asian economic crisis. There is concern that customers of our overseas
affiliates may default on payments due inconnection with construction orders,
and we are transferring funds to reserves
in anticipation that we will have to makegood the loans that we guaranteed forthem in connection with these construction contracts.

Outlook and Important Issues
TT, which accounts for a large per

N centage of our orders received, canbe expected to make capital investments
in cellular phones and other mobile-communications technologies. However, it isforecast that declines in new telephoneservice subscriptions will preclude

growth in NTT’s total capital investments.
Looking at non-NTT markets, there
is a rush to offer the electronic commerceand graphical services that are projected
to be the wave of the 21st century. These
markets will only grow as we enter themultimedia era. As COMSYS enters new
fields, and as our customer base becomes
more diverse, we will be striving to increase our non-NTT business, by placing
increased emphasis on CC Box, LAN,and other multimedia communications
projects, and through energetic efforts to
win contracts overseas. Of course, themost important issue facing the Company
is to increase total orders received.
To allow the Company to respondin a timely manner to the rapid changes
in today’s markets, COMSYS must further reinforce its marketing capabilities,
its technological expertise, and reduce
expenses in order to bolster its cost-competitiveness.

Dividends
ividend policy is one of the mostD important issues with which any
firm must deal. As the foundation for continued expansion, we are strengthening
our financial structure and improving returnon equity. At the same time, we strive tooffer shareholders the best possible dividends consistent with the Company’s
performance and ability to pay dividends.
Looking at dividends during thecurrent term, in accordance with thepolicy described above, the Company
declared a midterm dividend of ¥5 pershare, and a year-end dividend of another¥5 per share, for a total dividend of ¥10
per share for the term.
This is a payout ratio of 26.0 percent,for return on equity of 5.4 percent and aratio of dividends to shareholders’ equityof 1.4 percent.
To offer a more diverse range ofreturn to our shareholders, through the
midpoint of fiscal 1999 we will be setting
aside a ¥5 per share fund for the purposeof buying back and retiring our issued
stock shares. In the following fiscal year,
we plan to pay dividends of ¥10 per share,
and to set aside a further ¥5 per share forthe retirement of issued shares.
Funds from internal reserves wereused this year to further reinforce ourbusiness base and to expand our training
facilities in furtherance of the growth of
our operations. In addition, we replaced
a number of tools and instruments forpurposes of safety and to remain abreastof technological advances, and madecapital investments in construction bases
for the purpose of improving the work
environment.

Capital Investment and Fund
Acquisition
uring this term, COMSYS executed

D capital investments of ¥5.04 billion(US$42 million). Significant investments
included the purchase of real estate andstructural rights in connection with theHigashi Gotanda Redevelopment Building.
We also acquired land for the constructionof the COMSYS Omiya Building (provisionalname) which will include our Kantonaka
Branch, the Omiya Technostation, and an
Education and Training Center. We also
made investments in the construction of our
Tohoku branch, which commenced in July
1998, and our Tokai branch, which brokeground in January 1999. No bonds or other
instruments were issued during this term.

to new Y2K compliant software by
November 1999. Divisional systems andperipheral equipment will be compliant
by June 1999, and all systems needed for
dealing with clients will be compliant by
July 1999. We have already completed
the inspection of our products (chiefly
software) for Y2K compliance. In addition,
we have established a Contingency Management Plan to handle any unanticipatedproblems.
Since March 31, 1996, the Company has invested a total of ¥650 million(US$5 million) in these Y2K complianceprograms and is scheduled to invest afurther ¥750 million (US$6 million) in
the coming term. This will bring our
total Y2K investments to ¥1.4 billion(US$12 million). The bulk of this amount
was allocated to planned revaluation of
information systems in connection with
the improvement of operational capabilities, so these investments should have nosignificant effect on the Company’s performance or cash flows.
Nippon COMSYS Corporation
will employ its technological capabilities and foresight in identifying andchallenging new fields. We request thecontinued support of the Company’sclients, shareholders, and employees inthis time of troubled economic conditions.

The Y2K Problem
OMSYS considers the millennium

C bug to be the most important management issue facing the Company, andhas established the “Year 2000 Special
Project” to help us rise to this technologicalchallenge. Together with a thorough inspection of all our key systems, divisional
systems, and peripheral equipment todetect and correct Y2K-related problems,
we have checked all our own products(primarily software) for compliance.
We will be shifting our key systems

3

Shozo Iwasaki
Chairman and Representative Director

Hironobu Takeuchi
President and Representative Director

Toward the 21st Century—Our Vision of the Future
Our second Corporate Identity Campaign

The opening of the 21st century will be characterized by explosive growth in multimedia computing and communications, as the world sees the evolution of high order, information-based societies. The Ministry of Posts and Telecommunications has announced theInformation Communications Infrastructure Program, which projects the development of an
optical fiber network serving the entire nation by the year 2010. COMSYS expects to be
deeply involved in the execution of this plan.
To clarify its response to these trends, COMSYS has drafted a medium-term management plan, which it calls the COMSYS ’90s II plan. Goals now include:
Strengthening our NTT construction operations, as well as increasing the earnings ofour domestic and overseas telecommunications construction projects and information
services such as software development. By 2004, we will increase total annual revenues to¥340 billion (US$2,833 million), while bringing the ratio of NTT contracts down from thecurrent 65 percent to approximately 50 percent. Responding to the worsening cost competition in the market with a companywide efficiency enhancement program, which willencompass not only subsidiaries and affiliates, but subcontractor firms as well; andincreasing total profits per employee in our manufacturing division by more than 20
percent, to achieve recurring profits of ¥20 billion (US$167 million).
Strengthening training programs and developing proprietary technology, primarily inthe field of construction, in response to today’s rapid pace of technological innovation.
Continuing to stress mechanization and advanced facilities on our construction sites, for the
purposes of improving the work environment and ensuring worker safety.
The Ministry of Posts and Telecommunications projects that Japan’s information andcommunications market will grow to ¥125 trillion (US$1,042 billion) by the year 2010,
including a telecommunications market of ¥26.8 trillion (US$223 billion), a communications and computer terminal market of ¥26.0 trillion (US$217 billion), and a content(databases, images, video games, software, etc.) market of ¥63.4 trillion (US$528 billion).
Of this, telecommunications and broadcasting industry investment in 2010 is forecast at¥7.2 trillion (US$60 billion).
COMSYS is determined to become the leading firm in the field, to make a contribution
to a higher quality of life, and to enhance the business possibilities represented by these
new telecommunications capabilities.

The year 2001 will be the first of the 21st century, and will also be the 50th anniversaryof this Company’s founding. This fiscal year marks the eleventh since the inauguration of
our first Corporate Identity Campaign, and the ninth since we selected the Company’s
current name.
Following the Company’s establishment in 1951, COMSYS expanded chiefly on thestrength of facilities construction projects for NTT. By the second half of 1970, however,the country’s communications infrastructure was virtually completed. COMSYS, which
generated over 90 percent of its revenues through NTT projects, found itself in gravedifficulty. At that juncture, the Company began planning and preparing for the 21st century,
diversifying into the fields of software development, computer sales, and other areas. Thus,
the Company chose to reduce its reliance on NTT.
The realization of this change in direction required a commitment to the new policies on
the part of each employee, and it was to promote the permeation of these ideas throughout
the Company that we launched our first Corporate Identity Campaign. In addition, to this CI
campaign, the Company has also undertaken programs to reevaluate business practices andprocedures, bolster the Company’s business base, improve its financial condition, and makethe Company’s stock a more attractive investment.
As a result of this program, despite the persistently adverse economic conditions thatcommenced when the economic bubble collapsed, COMSYS was able to achieve continued
growth in revenues and profits. Since adopting our current company name of Nippon
COMSYS Corporation in the fiscal year ended March 31, 1990, and despite growth of only
10 percent in the work force, net revenues have more than doubled, operating profits havequadrupled, net assets have tripled, shareholders’ equity has almost quadrupled, and capitalhas quintupled. Of course, the rapid expansion of demand in connection with new technologies such as cellular telephony, fiber optics, and digital communications played a role inthis, but it also reflects the success of our CI campaign and other management-improvement
measures. The efforts of each employee of the Company are seen in this performance.
However, our efforts to improve did not end there. The issue of improvement andreform is continuously before the Company. In April 1999 we commenced our Second
Corporate Identity Campaign, with the objectives of further reinforcing the permeation of
the corporate philosophy and operations policies established in the first CI campaign, and ofrealizing a fresh and freer corporate atmosphere, of creating a stronger sense of unity
throughout the COMSYS group. We believe this will allow us to lay the cornerstone of ouroperations in the 21st century.
250

125

Nine Years of Growth(¥ Billions)

200

150

Net Sales

ighly
YS is h
COMS
to
d
itte
comm ce safety. Totlaworkp , we conduc
d
n
in
e
g
is
in
th
ain
uled tr safety
sched
ing
b
m
li
c
polels.
er skiland oth

30% Non-NTT
Sources of Construction
Contracts

4¥125trillion (2010)¥16 trillion (1995)

100

Total Assets
50

The Growing
Multimedia Market

16

70% NTT

Shareholders’ Equity
0

Operating Income

1995

2010

90 91 92 93 94 95 96 97 98 99

5

Review of Operations

Corporate Citizenship

COMSYS is taking an active role in thecommunities that host it, fostering environmental
awareness, sponsoring cultural events, andoffering disaster-preparedness training.
Mindful of the environmental effects of paper
consumption, COMSYS has implemented apaperwork reduction program, with the objectiveof reducing the Company’s paper use. Paperwork
reduction will also, of course, result in increased
administrative efficiency, as approximately 40
percent of the forms used by the Company will beabolished.
Demonstrating its commitment to responsible
conservation, COMSYS has published “Global
Environmental Protection Regulations” to govern
all phases of the Company’s operations.
In 1995, the Company spearheaded a drive tocollect contributions to buy artificial limbs
for the disabled victims of Cambodia’s seeminglyinterminable wars. This drive, which broughtin ¥2,750,781, was born of our desire to makeeven a small contribution to rebuilding that
war-torn land, to bring a measure of relief toeven one person.
COMSYS also undertakes projects in which
concern for the environment is a factor. During thisterm we installed a cellular telephone facility inwestern Japan’s Setonaikai National Park. The facility is on the grounds of the Rokkosan Farm,which is operated within the park by the city of Kobe.
To ensure that there was no degradation of the natural beauty of the site, to blend in with nature, and toassure compatibility with the park’s natural atmosphere, we created an artificial Japanese oak tree

•
•
•
•
•

for the antenna pole. The pole is approximately
12 meters tall, and sports an artificial Japanese oakpattern, branches and leaves. Everyone concerned
is very pleased with this non-intrusive facility,
which greatly increases convenience with no degradation of the environment.
COMSYS is also an active participant in theregional community. The Omiya Ardija soccer
team debuted in the J2 soccer league launched last
spring. The team was founded through joint participation by COMSYS, NTT, and 19 othercompanies closely associated with NTT. The Japan
Professional Football League is composed ofregional teams, and develop players at all levels,from youth to professional. Omiya Ardija isintended to support and participate in player
development, as well as being a club that all canenjoy. We are pleased and happy to have theopportunity to contribute to the public in this way.
Another of the Company’s activities is supporting The Tokyo Philharmonic Orchestra, of
which COMSYS is a special member.
In 1984 the Tokyo Philharmonic gave performances in fifty cities in seven European
countries, and in 1989 toured twenty cities in eight
European countries. In 1994, the Philharmonic
performed in fifteen cities, mainly in Germany andEngland. These concerts have earned the Tokyo
Philharmonic a solid international reputation.
COMSYS is proud to be able to contribute inthis way to the culture and society of our hostregions. In this way, we return something to thecommunities that have made our existence andgrowth possible.

•
•
•
•
•

Sales by Business Category

Overseas Construction

Domestic Construction and Engineering

Information Systems

4% 7%

24%

"Outside" Projects

31%"Inside" Projects

34%
1

2

3

4

6

ds
a blenantenn the
is
h
T
h
1.
ctly wits.
in perfe urrounding
s
l
a
r
tu
a
n
irs
y repaergenc2. Em g the Kobe
infollow ke.
uaearthqpports
SYS su cer
M
O
C
oc
3.
ague sthe J le miya Ardija.
O
team,
rPhilhaTokyo
4. The rchestra.
O
monic

NTT Construction

65%

7

NTT Construction

2

1

ady toault re icaable v
n
c
u
A
m
.
1
om
e telec
receiv les.
abtions cm,
π Systeastruc2. The ications infr ry.
n
tu
u
n
comm
1st cer the 2ture fotest ofmance fterr
fore
3. A p ber cable al fi
optica on.
ati
ll
insta
sel
ncy die
merge
e
n
A
4.
.
engine

142.9

3

129.6

159.4

65%
of Total Revenue

150.0 @ISO certification a condition for submitting bids,
but this will not be a problem for COMSYS.
In July 1999, NTT was reorganized into four
different firms: a stock holding company, an eastern Japan company, a western Japan company, anda long-distance and international communications
company. To meet this development, COMSYS has
established a Western Japan Headquarters in
Osaka. The new regional headquarters serves primarily as a liaison with NTT West Japan and withthe long-distance and international communications company’s operations in western Japan. Thisdivision of regional responsibilities will strengthen
our ability to win contracts in eastern and westernJapan alike, give us the strengths of a regional contractor, allow us to reinforce our business base ineach region.
COMSYS has inaugurated the π System, aleading-edge optical fiber construction method, theCompany is engaged in the “Fiber to the Home”
project, bringing optical cable technology to residential areas. The π System involves the installationof a number of π-Optical Network Units, fromwhich metallic cables are run to each residence.
This new π System technology will contribute substantially to NTT’s goal of providing fiber optic
technology to each of Japan’s major cities by theyear 2000, and is expected to be an important element of the 21st century’s communications
infrastructure.
Looking forward to the next fiscal year, theoperating environment for the NTT Construction
sector is forecast to deteriorate further. The reorganization of NTT is imminent. Stiffer competition
among telecommunications firms is forecast, including European and North American companies.
These developments will render even more urgent
the need for cost reductionsin this industry. COMSYS
will meet these adverse circumstances by increasing
project safety and efficiency,
expanding and strengthening
our subcontracting system,
and fostering the techniciansneeded to meet the dawning
multimedia era.
111.1

NTT and the NTT Group, who are our most important clients, face increasingly vigorouscompetition from firms in every area of the communications industry, from telephone services tomultimedia technology. As has been the case for several years now, competition to offer new services
and lower costs is brisk. NTT is making preparations for this summer’s corporate reorganization, andfor dynamic expansion of the industry leading NTT
group in the telecommunications era heralded by
the turn of the millennium.
In response to the full-scale implementationof NTT’s “New Project Management Method” inJanuary of this year, which gives much wider discretion to the contractor who actually performs ajob, this Company’s NTT Construction Sector has
been training and fostering technicians, particularly in the fields of design and digital technology,
and has strengthened its general management capabilities, including design, execution, andsupervision. Meeting NTT’s policy requirements,
the sector conducted a vigorous effort to win more
contracts from NTT and the NTT Group. Despite
an increase in demand for cellular telephones andother mobile communications services, however,capital investments were restrained as a result of
the completion of the nationwide digital networkand declining demand for new telephone subscriptions. As a result, orders received in this sector
declined 8 percent to ¥143.0 billion (US$1,192
million), and construction revenues fell 4.7 percent to ¥142.9 billion (US$1,191 million).
One of this term’s most important events forthis sector was theachieving of ISO 9001
certification. We havebeen now working toachieve certification of
all the Company’s
branches, and completion was reached in
April 1999. In the near
future, NTT will make

•
•
•
•
•

Sales of NTT Construction(¥ Billions)"Inside" Projects"Outside" Projects

4

95 96 97 98 99

89Domestic Construction and Engineering

2

3

ons
unicati insidecommn1. Tele nt installatio wer.
e
To
m
y
ip
it
u
C
eq
ra
yo Opethe Tokyo
on Tokr work
2. Ou y’s AV system hsit
wit
Univer e high-tech
niz
o
m
r
a
h
n.
traditioro WinteNagan .
8991
g
3. The s Aqua Win
ic
Olymp
oli
iki Tiv
Kurash 1997.
e
h
T
.
in
4
d
Opene
Park,

19.4

28.7

37.4

52.4

1925, and its fundamental design made it most
unsuitable for the installation of sound equipment.
In addition, it was essential to avoid damage tothis cultural treasure’s traditional beauty or atmosphere. Leading-edge technology gave COMSYS
the ability to work within these demanding conditions to create a top-flight AV environment.
Last autumn we completed work on contracts
received in connection with ten dry-land stations
for KDD’s “Japan Information Highway” (JIH)
project. This project, unique in the world, involves
laying a loop of high-capacity fiber optic cableson the ocean floor around the entire Japanese archipelago. COMSYS dealt primarily with the
installation of communications equipment.
Also during this term we won a contract fromthe Tokyo Department of Water and Sanitation tolay fiber optic cable inside city drainage mains.
We laid cable between the Tokyo Station North Exitpump station and the Hamamatsucho pump station, a distance of about five kilometers, andbetween the Tsukiji pump station and the Shiodome
pump station. For this project we used a robot thatis capable of laying fiber-optical cable. The robot
was particularly useful in the 2.9 kilometer stretch
in which the mains contract to a diameter thatmakes it difficult for workers to enter.
In the year 2000 the Ministry of Construction
will require ISO 9000 series certification as a condition of bidding on the public works contracts it
controls. This sector cleared this hurdle last August,when it was awarded its ISO 9001 certification.
We are energetically preparing for the expansion of the global multimedia market in the 21st
century. Through capital investments and diversification into new fields of business, we are striving tofurther expand our business.

47.5

The Domestic Construction and Engineering
sector handles in-country telecommunications construction projects for the national government, local
governments, the NCCs, and other private firms—
all domestic clients other than NTT and its groupcompanies. This encompasses a wide range of services, including the construction of electricalfacilities, “CC Box” (multi-use underground cableconduit) and LAN installation, and structural construction.
Despite the recession in the Japanese economy,
the installation of multimedia computing and communications systems and facilities in preparation
for the 21st century has reached a rapid pitch. Telecommunications providers are extending theirfacilities, and government agencies and firms inother industries are moving forward with computerization in the interests of efficiency enhancement.
The environment in this market is undergoing dramatic changes.
COMSYS as a whole is focusing on CC Box,
LANs, and similar operations as strategic fields,
and is pursuing an energetic marketing program
to increase sales and win more construction-related
contracts in these areas. As a result, orders receivedrose 18.7 percent to ¥63.8 billion (US$532 million), and net revenues grew 10.4 percent to ¥52.4
billion (US$437 million).
During this term the Company was supervising contractor for the upgrade of the audio-visualsystem in Tokyo University’s Yasuda Hall, one of
the University’s best-known landmarks. Construction of the hall, which seats 1,700, was finished in

•
•
•
•
•

24%
of Total Revenue
Sales of Domestic Construction
and Engineering (¥ Billions)

95 96 97 98 99
4

10

11

1

International Operations

Our overseas operations suffered significant
adverse effects from the Asian economic crisis thatbegan two years ago. In response, we initiated vigorous marketing programs in Southeast Asia,
particularly in Thailand and the Philippines.
Despite these efforts, orders received were held to¥4.0 billion (US$34 million), a decline of 56.8
percent, and net revenues fell 25.6 percent to ¥7.9
billion (US$65 million).
COMSYS Philippines, Inc. (CPI), a subsidiary,
won ISO 9001 certification in January 1999. In
addition, CPI has established Mindanao offices in
the cities of General Santos and Davao after having won contracts in those areas. Overseas projects
overall are slumping, but CPI alone is turning in asolid performance. It is anticipated that ISO certification will soon become a prerequisite for bidding
on international contracts. However, as our Overseas Division achieved ISO 9001 certification in
December 1997, that will not be a problem for
COMSYS.
The Company is also participating in the AsianMultimedia Forum, a group formed to develop ashared multimedia platform to be used throughout
Asia. Major activities include the trial use of international multimedia systems, joint developmentof multimedia services and applications, bilateralparticipation in other multimedia-related projects
in Asia, sponsorship of seminars, symposia, andexhibitions, and the dissemination of information

•
•
•
•
•

on multimedia-related activities and technologies.
Significant overseas activities during the term
included participation in the SEA-ME-WE3 (South
East Asia, Middle East, and Western Europe)
project, which involves laying 40,000 kilometersof cable in ten segments, to connect some 40 dryland communications stations in 25 countries.
Fujitsu Limited has won a contract for two of theseten segments, and COMSYS will perform factory
testing of Fujitsu’s 20Gb/s WDM submarine line
terminal equipment and conduct the in-station test,
will provide support for laying the main cables,
and will undertake the commissioning and acceptance test.
Together with Sumitomo Corporation,
COMSYS has been awarded a contract from Bayan
Telecommunications, Inc. to build telephone networks totaling 150,000 lines in Mindanao, Visayas,
and the Manila area. In addition to the cities ofGeneral Santos and Davao in Mindanao, construction is scheduled to commence in Novotas, a suburbof Manila, and Manila itself. Within three years,
further construction is scheduled for Koronadal in
Mindanao and Iloilo in Visayas.
In March 1999 CPI signed an agreement withSenTech calling for cable and equipment installation in connection with the construction of“intelligent” buildings. CPI’s first project was on
four large buildings in the Rockwell district, whichis the largest upscale residential development in2

1drgroung undeinllta
1. Insgkok.
in BancablesCCP
aerialtalling gkokn
2. Insin a Ba
cables.
br
subu
aerialtallingin
3. Ins ber cables
l fi
optica .
ok
BangkPrial CCting ae
4. Tes Bang Phli,incables .
d
n
a
il
Tha

7.9

6.7

8.7

8.9

10.5

3

4%
of Total Revenue
Sales of Overseas
Construction(¥ Billions)
95 96 97 98 99
4

12

13

Construction Revenues for Last Three Years

the Philippines. This involved the installation ofelectrical-meter cabling and equipment for 870
residential units. Further projects are in the offing.
In the coming fiscal year, economic conditions
in Southeast Asia are forecast to remain severe.

•
•
•
•
•

Despite this, and while exercising due caution incontrolling credit risks, we will strive to expand
orders in connection not only with telecommunications, but with sewer construction and otherpublic works projects as well.

12Over ¥24,000 million
Over ¥700 million
Over ¥650 million
Over ¥550 million
Over ¥100 million
Less than ¥100 million

3

4Major Overseas Projects Completed
l fiber itching
optica
1. An sion and sw n Vietisbatransm roject in ur
p
m
te
s
y
s
Nam.
ct
t projee plan
id
s
ts
e
u
in '
2. An o the Philipp d
e
u,
b
lo
e
e
C
ev p
in
most dsecond fter Luzon.
aislandct
nt proje
ide pla uala
ts
u
o
3. An
s of K
suburb sia.
yin the
la
a
M
r,
Lumpu
l SDH inopticat
4. An sion projec
is.
transm , Columbia
inMedellct
nt proje
ide pla Tanzania.
ts
u
o
n
,
am
5. A
es-Salain Dar5

Nigeria
Ibadan new local line project
Iraq
Installation of telephone lines for 17 local exchanges
Egypt
Supply and installation of telecommunication cable network in Ismailia and Suez
Thailand Installation of digital exchange equipment
TaiwanInstallation of highway traffic control system
Sri Lanka Installation of local telephone lines in the Badulla and Anuradhapura regions
Nepal
Installation of microwave telecommunications system (inside and remote)Thailand Fifth local cable network installation for TOT in Bangkok and provinces
KuwaitInstallation of digital loop coil system in Farwaniah Exchange
El Salvador Installation of local telephone lines in La Preshita
ZambiaRehabilitation of telephone cable network in Lusaka
Tanzania Rehabilitation of telecommunications network in Dar es Salaam
Thailand Seventh local cable network for TelecomAsia in Bangkok
Thailand Seventh local cable network for TT&T in the provinces
Philippines Supply and installation of local cable network for Majour Telecom Inc. in Mindanao
Philippines Supply and installation of OSP equipment and optical fiber cable for ICC in Manila
Overseas Projects in Progress (As of June, 1999)
Philippines Installation of trunk lines and local cable network for GLOBE Telecom PHASE-2 in Manila and the provinces
Thailand The Telephone Expansion Project to Overcome Short-Term Line Shortage / B. E.1996-1998 for TOT
Philippines Supply and installation of local cable and junction network for GLOBE Telecom PHASE-4 in Manila and the provinces

14

15

Information Systems

1

3

zes
io utili
V stud
1. A T ed electionpehigh-sware
ng soft OMSYS.
ti
r
o
C
rep
y
b
ped
develogvelopinork dewt
A
2.
.
ftwarenew soom
shot frcreen
3. A s .
o
Hi Madtion
pplicar PC a4. Ou , The PERT.
resoftwa

16.6

16.1

2

13.0

15.6

Digital Monitoring System allows video monitoring over existing network systems. The Solution
Package software includes Cable Manager,a resource management system, The Pert, a projectmanagement package for the construction industry,
and CONDUIT-CAD, a full-featured civil-engineering CAD system.
The COMSYS WINE Dream Kit is an intranet
software suite that offers e-mail, BBS, scheduling, remote access, and many other features. The
Voice Over Network uses a router to allow communications between multimedia networks. Thisrouter allows the transmission of voice or digital
data across a WAN or internet connection to andfrom either digital or analog hardware.
Looking at this division’s performance during
the term past, office equipment sales have benefited from the permeation of internet connectivity
throughout the nation, but plunging computer
prices and competition from volume retailers andother discount sales outlets have hurt sales. Conditions in this market continue to grow morecompetitive, but we are fighting hard to expand
sales. The Company has vigorously pursued the
expansion of sales, emphasizing its wide array oftechnological strengths in the fields of communications network construction and systems andsoftware development. This allowed the Information Systems sector to achieve 10.4 percent growthin orders received, which rose to ¥17.9 billion(US$149 million), while net revenues rose 2.9 percent to ¥16.6 billion (US$138 million).
In the coming term we will be further strengthening our software operations, and will bemarketing packages that integrate communications
systems with computer and office equipment
systems. We will be striving for increased revenues
by anticipating customer
needs in the multimedia
era, and tailoring our marketing accordingly.
14.9

The Information Systems sector is engaged insoftware development, sales of computers, servers, and network devices, ATM network
construction, wiring projects, LAN design and installation, installation of business and control
systems, as well as maintenance and repair services. COMSYS offers comprehensive software
solutions, ranging from piecemeal programming
to development of entire software packages.
This sectors products include the Red Brick
DataWarehouse, a quick-loading high-performance online analytical processing tool. This
software allows Y2K compliance without programming. Ease of use means that programmers are notrequired for the development of database applications. Users can increase productivity and cut
related personnel expenses, while meeting reporting requirements in less time.
The Dream Web Server is an “all-in-one
server” that incorporates the router, terminal
adapter, digital service unit, firewall, and switching hub into one PCI card. It offers easy setup andoperation. Just plug in the power and the LAN
cable, press the maintenance switch, and begin.
Absolutely no keyboard or mouse commands are
required.
The Smart Care computer telephone integration (CTI) support system allows even small andmedium-sized businesses to offer increased customer satisfaction, by ensuring that all incoming
communications are handled promptly andefficiently. The CTI + WINE small office CTI
system is a more economical system for improving
customer response andservice. The new BL-3000

•
•
•
•
•

7%
of Total Revenue
Sales of Information
Systems (¥ Billions)4

95 96 97 98 99

16

17

Management

Financial Section

•
•
•
•

•
•
•
•
•

As of June 29, 1999

BOARD OF DIRECTORS

Chairman and Representative Director
Shozo Iwasaki

Senior Managing Director
Kiyoto Kuwabara

Director
Michiaki Ono

Managing Director
Koji Miyata

CORPORATE AUDITORSCORPORATE EXECUTIVE OFFICERS

Standing Auditors
Takashi Kato
Masaharu Ogawa

Senior Vice Presidents
Isao Iijima
Takuo Sue
Takaaki Okayama
Ko Tamai
Masahide Kajiyama
Tatsuya Sato
Masayuki Nose

Auditors
Sadanori Okada
Takashi Kakimi

Senior Executive Vice President
and Director
Koichi Kinoshita

President and Representative Director
Hironobu Takeuchi

Executive Officers
Kensuke Yabuki
Katsuhiko Tanikawa
Tadashi Matsumoto
Kyoichi Suzuki
Syotaro Chikamoto
Yoichi Chiba
Kenji Kondo
Mamoru Komiyama
Kaoru Noda
Suguru Sugiyama
Yoshinobu Tanaka
Yasuhiko Kubota
Etsuo Shibata
Yukuo Asakura
Toyohiro Goto

18

Senior Executive Vice President
and Director
Ryuichi Arano

Director
Yasunobu Sasaki

Financial Review

20

Selected Financial and Operating Dat

23

Non-Consolidated Balance Sheets

24

Non-Consolidated Statements of Income

26

Non-Consolidated Statements of Shareholders’ Equity

27

Non-Consolidated Statements of Cash Flows28

Notes to the Non-Consolidated Financial Statements

29

Report of Independent Certified Public Accountants

32

Summary of Consolidated Performance33

Financial Review
•
•
•
•
•
Information Systems
Overseas Construction

4% 7%
Sales by Business Category

Domestic Construction
and Engineering

Nippon COMSYS Corporation"Outside" Projects

24%

31%

"Inside" Projects

tor grew yet again in the term just past, rising 10.4 percent to¥52,411 million (US$437 million). This is the fourth consecutive year of double-digit sales growth in this sector, anddemonstrates that we are making progress in expanding nonNTT operations. The overseas construction sector saw a 25.6
percent decline in revenues, to ¥7,850 million (US$65 million),primarily as a result of the economic downturn in Asia. The
information systems sector turned in stronger performance again
this term, its second consecutive year of sales growth. Sales inthis sector rose 2.9 percent to ¥16,556 million (US$138 million).

6.0

Operating Income and
Net Income as
Percent of Revenues
(%)

5.0

4.0

3.0

Operating income
2.0

Net income

1.0

34%

Construction Business
NTT Construction¥111,053
Domestic Construction and Engineering
19,392
Overseas Construction
8,729
Other BusinessInformation Systems
13,039¥159,387
37,415
8,925¥149,997
47,476
10,545¥142,947
52,4117,850$1,191,225
436,758
65,416

15,613

14,86316,085

16,556

137,967¥152,213

Total¥180,629¥220,590¥224,103¥219,764$1,831,366

224.1

219.8

Proportion of
Revenues fromNTT Market(¥ Billions, %)

152.2

180.6

220.6

Note: Yen figures have been converted from U.S. dollars at the rate of ¥120.00=US$1, rounded, for convenience only, from anapproximate exchange rate of ¥120.55 to the dollar on March 31, 1999.

75.0
70.0

Net sales

65.0
60.0

Percentage generated by NTT
Construction Projects

95 96 97 98 99

20• Revenues •Despite vigorous government efforts to invigorate theeconomy, the Japanese economy remained weak throughout
fiscal 1998. There was no improvement in the prolonged slump
in consumer spending, private sector capital investment, andother economic indicators. In addition, Japan’s financial industry
is still struggling with the problem of non-performing anddefaulted loans, and the term saw further bank failures. Despite
the relative strength of the telecommunications industry, theeffects of this persistent recession forced a 1.9 percent decline
in the Company’s net sales, to ¥219,764 million (US$1,831
million).
The NTT construction sector saw revenues decline again
this term. After the 4.7 percent drop to ¥142,947 million(US$1,191 million), however, revenues in this sector are still
10.3 percent higher than three years earlier. “Outside” projects
accounted for ¥68,562 million (US$571 million) of the sector’s
total, while “inside” projects accounted for the remaining¥74,385 million (US$620 million).
Revenues in the domestic construction and engineering sec-

60.96

¥129,613
28,706
6,697

Net Income per Share (¥)

38.78

1999

95 96 97 98 99

Total Assets (¥ Billions)

166.0

1999

54.27

1998

160.6

1997

154.2

1996

1995

37.70

Thousands of
U.S. dollars

Millions of yen

32.91(Years ended March 31, 1995, 1996, 1997, 1998 and 1999)

95 96 97 98 99

138.6

65%

• Results of Operations •Cost of sales as a percentage of sales rose to 87.9 percent,and together with the decline in sales resulted in a 4.8 percent
drop in gross profit, to ¥26,491 million (US$221 million).
Selling, general, and administrative expenses declined by
8.4 percent to ¥12,614 million (US$105 million), and as a percentage of gross profit declined to 47.6 percent. However, thisimprovement was due to the transfer of enterprise taxes fromthis accounting category to the category of Income Taxes. When
we allow for the enterprise taxes of ¥1,640 million (US$14
million) that were not posted to this accounting category, we
see that SGA actually rose by 3.5 percent, chiefly as the result ofhigher labor costs. Operating income edged down 1.3 percent to¥13,877 million (US$116 million), but if enterprise taxes had
been posted to SGA, the decline would have been 13.0 percent.
Lower interest and dividend income and higher interest andother expenses contributed to a 9.2 percent fall in income before income taxes, which dropped to ¥12,755 million (US$106
million). Other expenses increased as the result of the establishment of a reserve for losses from overseas investments,
which we based on country risk and the financial condition of
the respective overseas firms. The transfer of enterprise taxes
to income taxes pushed the effective income tax rate to 60.2
percent, which helped push net income down by 33.3 percent
to ¥5,075 million (US$42 million). As a percentage of sales,
net income decreased from 3.4 percent to 2.3 percent, andreturn on equity decreased from 9.8 percent to 5.4 percent. Net
income per share was ¥38.78 (US$0.32), compared to ¥60.96
in the previous fiscal year.
Dividends were reduced from last year’s ¥14.25 to ¥10.00(US$0.08), as we allocated ¥5 per share through the 1999 midterm point to the retirement of the Company’s treasury stock.

116.6

NTT Construction• Financial Position •After 26.9 percent growth in the previous term, cash and time
deposits were reduced by 20.5 percent to ¥21,366 million (US$178
million). Marketable securities investments were also cut, by 30.5
percent to ¥11,886 million (US$99 million). However, notes andaccounts receivable rose 9.6 percent to ¥62,258 million (US$519
million), and the accumulated cost of construction in progress
grew by 22.5 percent to ¥19,235 million (US$160 million). Other

95 96 97 98 99

21

Nippon COMSYS Corporation

Selected Financial and Operating Data

96.6

current assets were also higher, and allowance for doubtful receivables was down. Despite these gains, however, the lower
figures for cash and time deposits and marketable securities
resulted in a 0.8 percent decline in current assets to ¥116,751
million (US$973 million).
Trade payables shot up 22.5 percent during this term, to¥32,939 million (US$274 million), and this was the chief causeof the 11.0 percent rise in current liabilities, to ¥53,010 million(US$442 million). Minor declines in other categories had an
insignificant effect. The current ratio, as a result, fell from 2.5
in the previous term to 2.2.
Investments and other assets grew for the third consecutive
term, rising a further 19.3 percent after increases of 21.5 percent
and 36.2 percent in the previous two fiscal years. At year’s end,
this figure stood at ¥18,468 million (US$154 million), on thestrength of gains in investment securities and long-term loans
receivable. Total property and equipment continues to burgeon,
growing by 13.5 percent to ¥30,783 million (US$257 million),after depreciation. Total assets thus grew 3.4 percent to ¥166,002
million (US$1,383 million).
Shareholders’ equity increased by 7.3 percent to ¥96,635
million (US$805 million), primarily as the result of the growthof retained earnings, and the ratio of shareholders’ equity tototal assets increased from 56.1 percent to 58.2 percent. Basedon the number of shares outstanding at march 31, 1999, shareholders’ equity per share increased to ¥727.44 (US$6.06) fromthe ¥690.67 recorded at the end of the previous fiscal year.

Shareholders’ Equity
and Return on Equity(¥ Billions, %)

65.1

59.3

56.4

90.1

Years ended March 31, 1995, 1996, 1997, 1998 and 1999

10.0

Shareholders’ equity
8.0
6.0

ROE
4.0
2.0

95 96 97 98 99

10.00• Cash Flows •As noted above, net income declined 33.3 percent, and following adjustments and changes in assets and liabilities, net
cash provided by operating activities fell to ¥4,202 million(US$35 million). Net cash used in investing activities recovered somewhat from its 20.4 percent decline in the previous
term, rising 57.6 percent to ¥8,343 million (US$70 million).
Proceeds from the exercise of convertible bonds fell from
¥18,083 million in the previous year to ¥2,770 million (US$23
million), and cash dividends paid were reduced by 29.1 percent
to ¥1,599 million (US$13 million). However, redemption ofnotes with warrants fell 21.4 percent, shrinking from last year’s¥9,867 million to ¥7,755 million (US$65 million), and a negative figure of ¥6,584 million (US$55 million) was posted fornet cash provided by financing activities. As a result, cash andcash equivalents declined 24.4 percent to ¥33,252 million(US$277 million).

8.00

9.75

11.75

14.25

Dividends per Share (¥)

95 96 97 98 99

22

Thousands of
U.S. dollars

Millions of yen
1995

1996

1997

1998

1999

1999

Results of Operations:
Net sales
Operating income
Income before income taxes
Net income¥152,213
7,042
7,127
3,637

¥180,629
8,544
8,092
3,742

¥220,590
13,582
13,397
6,267¥224,103
14,061
14,041
7,611¥219,764
13,877
12,755
5,075$1,831,366
115,642
106,292
42,292Financial Position:
Total assets
Property and equipment
Long-term debt
Shareholders’ equity¥116,617
17,66425,08256,395¥138,610
24,81424,99559,277¥154,246
26,24725,12865,096¥160,561
27,123
16,791
90,101¥166,002
30,783
9,409
96,635$1,383,350
256,525
78,408805,292

Per Share of Common Stock (in yen and dollars):
Net income
Cash dividends
Shareholders’ equity¥ 37.70
8.00
539.08¥ 32.919.75
514.90¥ 54.2711.75
562.23¥ 60.9614.25
690.67¥ 38.7810.00
727.44$

Financial Ratios:
Operating income to net sales
Net income to net sales
Capital ratio
Return on equity
Other Statistics:
New orders received during the year
Contract backlog at end of the year
Common stock price range (in yen):
High
Low

4.63%
2.39
48.4
7.6

4.73%
2.07
42.8
6.5

6.16%
2.84
42.2
10.1

6.27%
3.40
56.1
9.8

0.32
0.08
6.06

6.31%
2.31
58.2
5.4

¥143,034
47,576¥186,180
53,127¥225,147
57,684¥234,877
68,458¥228,838
77,532¥ 1,280
1,180¥ 1,450980¥ 1,560
1,190¥ 2,0201,240¥ 1,710
1,281$1,906,983
646,100

Note: Yen figures have been converted from U.S. dollars at the rate of ¥120.00=US$1, rounded, for convenience only, from an approximate exchange rate of¥120.55 to the dollar on March 31, 1999.

23

Nippon COMSYS Corporation

Non-Consolidated Balance Sheets
As of March 31, 1998 and 1999

Thousands of
U.S. dollars (Note 2)

Millions of yen

ASSETS

1998

Current Assets:
Cash and time deposits
Marketable securities (Note 3)
Notes and accounts receivable-trade
Inventories:
Accumulated cost of construction in progress
Other
Other current assets
Less: Allowance for doubtful receivables
Total current assets
Investments and Other Assets:
Investment securities:
Subsidiaries and affiliates
Other (Note 3)Long-term loans receivable:
Subsidiaries and affiliates
Other
Other assets
Less: Allowance for doubtful receivables
Total investments and other assets
Property and Equipment:
Land
Buildings and structures
Machinery and equipment
Construction in progress
Less: Accumulated depreciation
Total property and equipment
Deferred Charges:
Discount on notes payable
Total deferred charges

1999

Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITY

1999¥ 26,871
17,10656,817¥ 21,366
11,88662,258$ 178,050
99,050518,817

15,707
262
1,025
(128)

19,235
168
1,955
(117)

160,292
1,400
16,291(975)

117,660

116,751

972,925

1,490
6,293

1,906
7,435

15,883
61,959

219
3,032
4,464
(18)

1,606
3,172
4,372
(23)

13,383
26,43336,434(192)

15,48018,468

153,900

16,452
10,554
7,887
1,513(9,283)

17,821
13,275
8,207
1,828(10,348)

148,508
110,625
68,392
15,233(86,233)

27,12330,783

256,525

298

—

—

298

—

—

¥160,561¥166,002$1,383,350

1998

1999

1999

¥ 7,755¥ 7,373$ 61,442

26,898
2,398
3,586
3,535
1,291
2,277

32,939
1,863
4,038
3,748
917
2,132

274,492
15,52533,65031,233
7,641
17,76747,74053,010441,750

Long-Term Liabilities:
Notes (Note 4)
Convertibles bonds (Note 4)
Accrued severance indemnities
Provision for losses from overseas investments
Other long-term liabilities

7,373
9,418
5,876
—
53

—
9,409
5,356
1,592
—

—
78,40844,633
13,267—

Total long-term liabilities

22,72016,357

136,308

26,592—
24,904
1,511
37,094—27,983
26,666
1,686
40,300—233,192
222,217
14,050335,833

90,101

96,635805,292¥160,561¥166,002$1,383,350

Current Liabilities:
Current portion of notes and notes with warrants (Note 4)
Accounts payable:
Trade
Other
Advances received on construction in progress
Income taxes payable
Warrants
Other current liabilities
Total current liabilities

Contingent Liabilities (Note 5)
Shareholders’ Equity (Note 6):
Common stock, par value ¥50 per share:
Authorized— 250,000 thousand shares
Issued— 130,453 thousand shares (31st March, 1998)— 132,841 thousand shares (31st March, 1999)
Additional paid-in capital
Legal reserve
Retained earnings
Total shareholders’ equity

See Notes to the Non-Consolidated Financial Statements.

24

Thousands of
U.S. dollars (Note 2)25

Nippon COMSYS Corporation

Nippon COMSYS Corporation

Non-Consolidated Statements of Income

Non-Consolidated Statements of Shareholders’ Equity

Years ended March 31, 1998 and 1999

Years ended March 31, 1998 and 1999

Millions of yen

Net Sales:
Construction contracts
Other
Cost of Sales:
Construction contracts
Other
Gross profits
Selling, General and Administrative Expenses
Operating income

Thousands of
U.S. dollars (Note 2)

1998

1999

1999

¥208,018
16,085¥203,208
16,556$1,693,400
137,966

224,103219,764

1,831,366

182,819
13,446

179,419
13,854

1,495,158
115,450

196,265

193,273

1,610,608

27,83826,491

220,758

13,777

12,614105,116

14,061

13,877

115,642

Common Stock:
Beginning of period
Add:
Conversion of convertible bonds
Exercise of warrants
End of period
Additional Paid-in Capital:
Beginning of period
Add:
Conversion of convertible bonds
Exercise of warrants
End of period

Other Income (Expenses):
Interest and dividend income
Interest expenses
Other, net (Note 7)
Income before Income Taxes
Income Taxes (Note 8)
Net Income

737
(7)
(750)

631
(11)
(1,742)

5,258(91)(14,517)(20)(1,122)(9,350)14,041
6,430

12,755
7,680

106,292
64,000End of period¥ 7,611¥ 5,075

42,292Retained Earnings:
Beginning of period
Add/(deduct):
Net income
Transfer to legal reserve
Cash dividends
Bonuses to directors

Yen

Per Share:
Net income
Cash dividends¥ 60.96
14.25

See Notes to the Non-Consolidated Financial Statements.

$

U.S. dollars (Note 2)¥ 38.78
10.00

$

0.32
0.08

Legal Reserve:
Beginning of period
Add:
Transfer from retained earnings

End of period
See Notes to the Non-Consolidated Financial Statements.

26

Thousands of
U.S. dollars (Note 2)

Millions of yen

27

1998

1999

1999

¥17,250¥26,592$221,600

291
9,051

4
1,387

33
11,559¥26,592¥27,983$233,192¥14,521¥24,904$207,534

291
10,092

4
1,758

33
14,650¥24,904¥26,666$222,217¥ 1,271¥ 1,511$ 12,592

240

175

1,458

¥ 1,511¥ 1,686$ 14,050¥32,054¥37,094$309,116

7,611
(240)
(2,256)
(75)

5,075
(175)
(1,599)(95)

42,292(1,458)(13,325)(792)¥37,094¥40,300$335,833

Nippon COMSYS Corporation

Nippon COMSYS Corporation

Non-Consolidated Statements of Cash Flows

Notes to the Non-Consolidated Financial Statements

Years ended March 31, 1998 and 1999

Millions of yen

Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Provision for accrued severance indemnities, less payments
Provision for losses from overseas investments
Changes in assets and liabilities
Notes and accounts receivable-trade
Inventories
Other current assets
Accounts payable
Advances received on construction in progress
Income tax payable
Other liabilities
Other, net

Thousands of
U.S. dollars (Note 2)

1. Significant Accounting Policies(a) Basis of presenting non-consolidated financial statements
The accompanying non-consolidated financial statements have been preparedfrom accounts and records maintained in Japanese yen by Nippon COMSYS
Corporation (the “Company”) in accordance with accounting principles andpractices generally accepted in Japan, and from non-consolidated financial
statements filed with the Minister of Finance in Japan. Certain items presented
in the original financial statements have been reclassified, for the convenienceof readers outside Japan. The preparation of non-consolidated statements ofshareholders’ equity and cash flows are not required in Japan. They are, however, presented herein for the reader’s convenience.

1998

1999

1999

¥ 7,611¥ 5,075$ 42,292

2,221
(285)
—

1,854
(520)
1,592

15,450(4,333)
13,267

1,274
2,681
144
(2,040)(786)(2,660)
(550)
(882)

(5,441)(3,434)
(930)
5,506
452
213
(145)
(20)

(45,342)(28,617)(7,750)45,883
3,767
1,775(1,208)
(167)

6,728

4,202

35,017(2,555)(2,738)(5,041)(3,302)(42,008)(27,517)(5,293)(8,343)(69,525)

Net cash provided by operating activities
Cash Flows from Investing Activities:
Expenditure for property and equipment(Increase) decrease in investments and other assets
Net cash used in investing activities
Cash Flows from Financing Activities:
Proceeds from exercise of warrants
Redemption of notes with warrants
Cash dividends paid

18,083(9,867)(2,256)2,770(7,755)(1,599)23,083(64,625)(13,325)

5,960(6,584)(54,867)

Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year

7,395
36,582(10,725)
43,977(89,375)
366,475

Cash and Cash Equivalents at End of Year¥43,977¥33,252$277,100

Net cash provided by financing activities

Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest
Income taxes
Conversion of long-term debt to common stock¥

See Notes to the Non-Consolidated Financial Statements.

485
10,860
582

¥

366
7,425
9

$ 3,050
61,87575(c) Accumulated cost of construction in progress
In connection with (b) above, “accumulated cost of construction in progress”
is stated on an individual project basis.

(h) Accrued severance indemnities
Employees of the Company are usually entitled to lump-sum severance
indemnities determined by reference to their current basic rate of pay, lengthof service and conditions under which the termination occurs.
On 1st February, 1997, the Company established a contributory trusteed
employee pension fund, composed of a portion covering the benefits for theseverance indemnities and another portion covering social security benefits,
to which the Company and employees make contributions.
The Company’s policy for severance indemnities benefits is to contributeand charge to income normal costs as accrued on the basis of an accepted
actuarial method and prior service costs as amortized over 10 years.
The assets of the funds for the severance indemnities benefits at 31st March,
1999 were ¥20,268 million (U.S.$168,900 thousand).
Before the contributory trusteed employee pension fund was established,severance indemnities benefits had been accounted for and reserved as “accrued
severance indemnities” and funded through tax-qualified pension plans. On
its establishment, the all assets of the tax-qualified pension plans were transferred to the contributory trusteed employee pension fund, and the remainingbalance of “accrued severance indemnities” were/would be, amortized in eachyears over 10 years.
As is customary practice in Japan, the Company has unfunded lump-sum
severance indemnities for directors and statutory auditors providing for 100
per cent. of the liability which would accrue if all directors and statutory auditors terminated their services at the balance sheet date.

(d) Marketable securities and investment securities
Marketable securities (current) and investment securities (non-current) listed
on stock exchanges (excluding securities trading on over-the-counter markets)
are stated at the lower of cost or market, cost being determined by the periodic
average method. Other securities without market quotations on stock exchanges
and investments in subsidiaries and affiliates are stated at cost, determined by
the periodic average method.

(i) Warrants and discount on notes payable
The warrants are accounted for separately from the notes and treated as a current liability for the purpose of balance sheets, and discount on notes payablearising from the issuance of notes with warrants is included in deferred charges
for the purpose of balance sheets and is/will be amortized by equal amounts
over the periods up to maturity, in accordance with accounting principle
generally accepted in Japan.

(e) Inventories
Inventories (excluding (c) above) are stated at cost, by the moving averagemethod.

(j) Income taxes
The Company is subject to corporate (national), inhabitants and enterprise(local) taxes based upon taxable income.
For the year ended 31st March, 1998, corporate and inhabitants taxes were
included within “Income taxes” and enterprise taxes was included in “Selling,
general and administrative expenses” in the statements of income, as was common
practice in Japan. Effective from the year ended 31st March, 1999, enterprisetax, amounted to ¥1,640 million (U.S.$13,667 thousand), has been also included
within “Income taxes,” in accordance with accounting principle generally
accepted in Japan.
Deferred income taxes pertaining to timing differences between financial
and tax reporting are not provided for.

(b) Point of sales—construction contracts
Construction contracts of the Company are accounted for by the “completed
contract method” under which “net sales” are recognized when the contracts
are completed. The accumulated cost of uncompleted construction is shown as“accumulated cost of construction in progress” and the related billings(advances received) on uncompleted construction contracts are shown as“advances received on construction in progress” in the accompanying balance
sheets.

(f) Depreciation
Depreciation of property and equipment is computed on the declining balancemethod, as prescribed by Japanese income tax laws, using estimated useful
lives of assets principally as follows:
Buildings and structures
8 to 50 years
Machinery and equipment 3 to 10 years(g) Allowance for doubtful receivables
Allowance for doubtful receivables is provided at the maximum amountpermitted to be charged to income under Japanese income tax laws plus anestimated amount of possible bad debts.

28

29

4. Short-Term Bank Loans and Long-Term Debt:(k) Net income and cash dividends per share
The computations of net income per Share shown in the non-consolidated statements of income are based on the weighted average number of Shares in issueduring the period. The number of Shares used for computing net income per
Share was 124,860 thousand and 130,890 thousand Share for the two years in
the period ended 31st March, 1999, respectively. Cash dividends per Shareare based on the cash dividends paid in respect to the relevant period.

Short-term bank loans are generally represented by 365-day notes with interest
rates principally of 1.375 per cent. at 31st March, 1998.
At 31st March, 1998 and 1999, long-term debt consisted of the following:

31st March

3.750 per cent. U.S. dollar notes due 1999
0.5 per cent. Swiss franc notes due 1999
0.3 per cent. yen unsecured convertible
bonds due 2003(l) Cash flow information
The Company considers marketable securities (current) and all time deposits
with original maturities of one year or less, which can be withdrawn at least at
face amount at any time without any penalties, to be cash equivalents.

Current portion

2. U.S. Dollar Amounts
The accounts of the Company are maintained in Japanese yen. The accompanying
non-consolidated financial statements have been presented in Japanese yen
and have also been presented in U.S. dollars by translating all Japanese yenamounts using the rate of ¥120.00=U.S.$1. The presentation of such dollar amounts
is solely for the convenience of the readers and is not intended to imply thatyen amounts have been or could be converted, realized or settled in dollars atthat or at any other rate.

Thousands of
U.S. dollars
1999
Book
Marketvalue
value

Marketable securities:
Stocks
¥
4 ¥
4 ¥
2 ¥
2 $
16 $
16
Bonds and others 3,000 3,064 2,501
2,537 20,842 21,142
Investment securities:
Stocks
1,530
Bonds
1,629
Others
651

3,841
1,735
603

3,307
1,629
1,055

6,167
1,745
987

27,558
13,575
8,792¥ 7,755 ¥
—
7,373
7,373
9,418

$

—
61,442

9,409

78,408¥24,546 ¥16,782
7,755
7,373

$139,850
61,442¥16,791 ¥ 9,409$ 78,408

Convertible bonds
At 31st March, 1999, unsecured convertible bonds consisted of the following:
The original amount issued at 24th, June, 1996
¥10,000 million
Balance as at 31st March, 1999
¥9,409 million
Interest rate
0.3%
Maturity date
31st March, 2003
Conversion period:
On and after
1st August, 1996
Up to and including
28th March, 2003
Conversion price:
At 31st March, 1999
¥1,435(U.S.$11.96)
The number of shares of common stock required for conversion of theabove unsecured convertible bonds outstanding at 31st March, 1999 at thecurrent conversion price would have been approximately 6,557 thousand.

At 31st March, 1998 and 1999, book value and market value of marketablesecurities and investment securities, as to which market value information isrequired to be disclosed, were as follows:

31st March

Thousands of
U.S. dollars
1999“Other, net” in “Other Income (Expenses)” consisted of the following:

Years ended 31st March

Notes, warrants
At 31st March, 1999, notes consisted of the following:Notes (*1)
SF100,000,000

51,392
14,542
8,225

Date of issue
Interest rate
Maturity date
Warrants exercisable:
On and after
Up to and including
Subscription price:
At 31st March, 1999

¥6,814 ¥9,247 ¥8,494 ¥11,438 $70,783 $95,317

7th September, 1995
0.5%
7th September, 1999
21st September, 1995
31st August, 1999¥(750) ¥(1,742)

Thousands of
U.S. dollars
1999

$

(133)
(2,484)(13,267)
1,367$(14,517)

8. Income Taxes
The Company is subject to several Japanese taxes based on income which, inthe aggregate, resulted in normal statutory tax rates of approximately 52 per
cent. for the year in the period ended 31st March, 1998 and approximately 48
per cent. for the year in the period ended 31st March, 1999.
The effective tax rates in the non-consolidated statements of income differ
from the normal statutory tax rates due to such items as permanently nondeductible expenses and timing differences in recognizing certain income andexpense items for financial and tax reporting purposes.

5. Contingent Liabilities
Millions of yen
1998
1999

31st March

Guarantee of loans borrowed by:Thai COMSYS and Jackson Co.,Ltd.
Thai Telecommunications Engineering
Co.,Ltd.
COMSYS-TTEC J.V.
Jackson-COMSYS J.V.
COMSYS Philippines, Inc.
Other

¥ 3,081
4,082
2,841
1,435
1,357
497
¥13,293

¥

—
3,596
2,748
134
772
968

¥8,218

Thousands of
U.S. dollars
1999

$

—
29,96722,900
1,116
6,433
8,067

9. Subsequent Event
On 29th June, 1999, the shareholders of the Company approved the following
appropriations of retained earnings:$68,483
Cash dividends
Transfer to legal reserve
Bonuses to directors

6. Shareholders’ Equity
The Commercial Code of Japan (the “Commercial Code”) provides that an
amount of not less than 10 per cent. of the amount of cash dividends and bonuses
to directors paid be appropriated as legal reserve until such reserve equals 25
per cent. of common stock. This reserve is not available for dividends but
may, subject to shareholders’ approval, be used to reduce deficits or may becapitalized subject to a resolution of the Board of Directors.
Under the Commercial Code, an amount equivalent to at least one-half ofproceeds from issues of Shares shall be accounted for as an addition to thecommon stock account with the minimum of ¥50 per share. The remaining
portion of the proceeds is accounted for as an addition to “additional paid-in
capital.”¥1,353 .00(U.S.$11.28)

Notes: (*1) See note 1 (i) of the Notes to the non-consolidated financial
statements.

30

Millions of yen
1998
1999

Write-down of investment securities¥ (88) ¥ (16)Amortization of discounts on note premium (599)(298)
Provision for losses from overseas
investments—(1,592)
Other
(63)
164

At 31st March, 1998 and 1999, contingent liabilities consisted of the following:

3. Market Value Information of Securities

Millions of yen
1998
1999
Book Market Book
Market
value
value
value
value

Millions of yen
1998
1999

7. Other Income and Expenses

The number of shares of common stock required for exercising of theabove warrants remaining unexercised at 31st March, 1999 at the current
subscription prices would have been approximately 4,593 thousand.
The conversion price of the above convertible bonds and subscription pricesof the above warrants are subject to adjustment under certain circumstances,including stock splits pursuant to the relevant agreement.
The Company entered into long-term forward foreign exchange contracts
with banks to hedge their payment of the aforementioned U.S. dollar notes andnotes with warrants. Consequently, the notes were translated at the contracted
rate, and the resulting translation gains are deferred as “other long-term liability”,
and amortized and credited to “interest expenses” each year over the period up
to maturity.

31

Millions of yen

Thousands of
U.S. dollars

¥664
80
85

$5,533667
708

Report of Independent Certified Public Accountants

Summary of Consolidated Performance

•
•
•
•
•

Nippon COMSYS Corporation and Consolidated Subsidiaries
Years ended March 31, 1998 and 1999

Millions of yen

Net sales
Operating income
Net income
Total assets
Shareholders’ equity

To the Board of Directors,
Nippon COM SYS Corporation

Change

1998

1999

1999

(%)

¥225,313
14,3488,309
166,067
94,654¥220,522
14,2605,624
171,669
101,721$1,837,683
118,833
46,8671,430,575
847,675

–2.1%
–0.6%
–32.3%
3.4%
7.5%

Yen

Per share:
Net income
Cash dividends

Thousands of
U.S. dollars¥ 66.55
14.25

U.S. dollars¥ 42.97
10.00

$

0.36
0.08

–35.4%–29.8%

Note: Yen figures have been converted from U.S. dollars at the rate of ¥120.00=US$1, rounded, for convenience only, from an approximate exchange rate of¥120.55 to the dollar on March 31, 1999.
We have examined the non-consolidated balance sheets of Nippon
COMSYS Corporation as of 31st March, 1998 and 1999, and the related
non-consolidated statements of income, shareholders’ equity and cash
flows for each of the two years in the period ended 31st March, 1999,
all expressed an Japanese yen. Our examinations were made in accordance w ith auditing standards generally ac cepted in Japan andaccordingly included such tests of the accounting records and such otherauditing procedures as we considered necessary in the circumstances.
In our opinion, the accompanying non-consolidated financial statements present fairly the financial position of Nippon COMSYS Corporation
at 31st March, 1998 and 1999, and the results of its operations and cash
flows for each of the two years in the period ended 31st March, 1999, in
conformity with accounting principles generally accepted in Japanapplied on a consistent basis.

Net Sales(¥ Billions)

8.0

Net Income(¥ Billions)

250

6.0

200

Consolidated

Consolidated
4.0

150

Non-Consolidated

Non-Consolidated
100

2.0

95 96 97 98 99

95 96 97 98 99

Masatoshi Yoshino
80

Eiji Miyashita

Total Assets(¥ Billions)

Net Income per Share
(¥)

160

60
140

Hideo Niwa

Consolidated

Consolidated

Certified Public Accountants
Tokyo, Japan
29th June, 1999

40

120

Non-Consolidated

Non-Consolidated
100

20

95 96 97 98 99

95 96 97 98 99

32

33

Organization Chart

Corporate Information

As of July 1, 1999

As of March 31, 1999

•
•
•
•
•

•
•
•
•
•

Western Japan Headquarters

Head Office:Main Clients:

23-14, Takanawa 3-chome, Minato-ku
Tokyo 108-8610, Japan
Tel: 81 (3) 3448-7031

Nippon Telegraph and Telephone Corporation (NTT)
Nippon Telegraph and Telephone East Corporation (NTT EAST)
Nippon Telegraph and Telephone West Corporation (NTT WEST)NTT Communications Corporation (NTT COMMUNICATIONS)NTT Data Corporation (NTT DATA)NTT Mobile Communications Network, Inc. (NTT DoCoMo)
KDD Corporation
DDI Corporation
Tokyo Telecommunication Network Co., Inc.
Sharp Corporation
Japan Highway Public Corporation
RECRUIT Co., Ltd.
The Tokyo Electric Power Co., Inc.
Fuji Xerox Co., Ltd.
The Furukawa Electric Co., Ltd.
Sumitomo Electric Industries, Ltd.
Fujikura Ltd.
Hitachi Cable, Ltd.
NEC Corporation
Fujitsu Limited
Mitsubishi Corporation
Mitsui & Co., Ltd.
Sumitomo Corporation
Marubeni Corporation
Lucent Technologies
Telephone Organization of Thailand (Thailand)
Ministry of Communications (Kuwait)
TelecomAsia Corporation Public Co., Ltd. (Thailand)
Thai Telephone & Telecommunication Public Co., Ltd. (Thailand)
Philippine Long Distance Telephone Co. (Philippines)
Bayan Telecommunications, Inc. (Philippines)
Globe Telecom Inc. (Philippines)
Smart Communications, Inc. (Philippines)

Overseas Division:

Planning & Business Analysis Division

Tel: 81 (3) 3448-7181
Fax: 81 (3) 3440-5941
General Affairs Department

Branchs:
Senior Management Committee

Hokkaido, Tohoku, Akita, Kantominami, Kantonaka,
Tochigi, Shinetsu, Niigata, Tokai, Hokuriku, Kansai,
Chugoku, Shikoku, Kyushu, Okinawa

Public Relations OfficeFinance & Accounting Department

Overseas Liaison Office:
Board of Directors

Auditing Department

Bangkok, Thailand Tel: 66 (2) 319-5551

Personnel Department

Establishment:
1951

Chairman of the Board

Employee Benefits Department

Paid in Capital:¥27,983 million

Human Resources Department

Stock listings:
President

Common stock-Tokyo, Osaka

Materials Control & Procurement Department

Transfer Agent:

Affiliate Liaison Office

Statutory Auditors

The Mitsubishi Trust and Banking Corporation
Securities Department
4-5, Marunouchi 1-chome
Chiyoda-ku, Tokyo 100-0005

Overseas Division

Employees:

Contracting Division

3,645
Hokkaido

Bank References:

Safety & Quality Control Division

The Bank of Tokyo-Mitsubishi, Ltd.
The Mitsubishi Trust and Banking Corporation
The Dai-Ichi Kangyo Bank, Ltd.
The Fuji Bank, Limited
The Sanwa Bank, Limited
The Sumitomo Bank, Limited
The Industrial Bank of Japan, Limited

Engineering Division
Akita
TohokuNTT Project Division
Niigata
Hokuriku

Shinetsu

Information & Communications System Division

Tochigi
Kantonaka
TOKYO

Kantominami
Kansai Tokai

Chugoku

Research & Development Center

KyushuShikokuHead Office
BranchOkinawa

Bangkok Liaison Office34

35

Corporate Directory
Nippon COMSYS Corporation
As of March 31,1999

Company Name

Principal Business

Paid-in Capital

Percentage Owned (%)

Telecommunications engineeringand electrical engineering¥60 million

96.4 %

Design of telecommunications
facilities and civil engineering projects¥40 million

85.3

Major Non-Consolidated Subsidiaries
COMSYS Tusan Co., Ltd.

Sales of construction materials¥60 million

94

Nippo Kensetsu Kogyo Co., Ltd.

Civil engineering¥50

million55

COMSYS Techno Co., Ltd.

Planning and consultation with regard
to information-processing technology¥50 million

100

COMSYS Business Service Co., Ltd.

Construction of telecommunications
facilities¥304 million

100

Construction of telecommunications
facilities¥54 million

39

Construction of telecommunications
facilities¥60 million

33

Technological consulting
and engineering services

B15,000 thousand

48

Thai COMSYS & Jackson Co., Ltd.

Technological consulting
and engineering services

B2,000 thousand

49

COMSYS Philippines, Inc.

Technological consulting
and engineering services

P12,500 thousand30

CMC Engineering SDN. BHD.

Technological consulting
and engineering services

RM1,053 thousand

56 .57

Consolidated Subsidiaries
Okoshi Denken Co., Ltd.

Tokyo Denwa Shisetsu Co., Ltd.

Major Affiliates
Domestic:
Tokyo Tsuken Co., Ltd.

Nitto Tsuken Co., Ltd.

Overseas:
Thai Telecommunications
Engineering Co., Ltd.

36

*This Company’s financial data is available on the Internet at URL http://www.comsys.co.jp/
Printed on paper certified as recycled by the Eco Mark Officeof the Japan Environment Association.

Nippon COMSYS Corporation
23-14, Takanawa 3-chome, Minato-ku, Tokyo 108-8610, Japan
Telephone: 81 (3) 3448-7031

Printed in Japan