Annual Report 2014
Year Ended March 31, 2014

NEC Networks & System Integration Corporation

NEC Networks & System Integration Corporation

ProfileGrowing with evolving communications,
NEC Networks & System Integration Corporation
has celebrated its 60th anniversary.
Since its establishment in 1953, NEC Networks andSystem Integration Corporation (NESIC) has expanded
its businesses from the installation of telecommunications
infrastructure to the SI and maintenance of office networks
and the service businesses, including the operation of
network systems and outsourcing. NESIC offers uniqueservices, including EmpoweredOffice, an office innovation
solution, taking advantage of its ability to provide a broad
range of ICT related services, from system integration to

1973

1988

Sales
¥ 10 bn¥

Sales
100 bnConstruction ofmobile base stations

Construction ofbroadcast automation
systems for NHK

Founded in 1953

Crossbar switchingequipment

Construction of satellite
communication systems
in Switzerland

The Kashima Branchof the Radio ResearchLaboratory of the former
Ministry of Posts andCommunicationsFirst construction of
TV broadcasting systems

1983
Listed on the Tokyo Stock
Exchange Second Section

1953

1980

Nippon Electric Installation
Company founded

The company name changed to
NEC System Integration & Construction, Ltd.

1950

1960

Age ofsupporting the baseof telecommunications

Age ofsupporting global
communications

Age ofresponding to the diversificationof communications

Nippon Electric Installation
Company founded (1953)

Full-scale development of international communications
and satellite communications

Liberalization of telecommunications,the rise of New Common Carriers• Starting with the installationof switching, broadcasting,and radio systems• Building communications infrastructure worldwide• Expanding business for NCCs andthe building of mobile communications
networks• Contributing to the creation ofcommunications infrastructure in
the postwar years of recovery

1

installation and other services for diverse customers in an
integrated manner.
Leveraging the strengths it has developed over 60
years, NESIC aims to grow by revitalizing its customers’communications and adding new value. It has been morethan 30 years since the Company listed its shares. We aim toenhance our enterprise value to become the top brand in theindustry and increase the satisfaction of all stakeholders as anentity that contributes to society in various ways.

Annual Report 20141970

• Expanding the installation of broadcasting systems,
submarine cables, and radio communication systems(satellite communications, microwave communications)1980• Expanding system integration
business for companies

NEC Networks & System Integration Corporation

Contents
Financial Highlights

3

Interview with the President

4Topics7

Business Performance by Segment

9

Corporate Social Responsibility (CSR)

11

Corporate Governance12

Directors and Corporate Auditors

14

Six-Year Summary of Selected Financial Data

15

Consolidated Financial Statements

17

Global Network

53

Investor Information

54

Cautionary Statement with Respect to
Forward-Looking Statements
This annual report contains forward-looking statements
concerning NEC Networks & System Integration
Corporation and its consolidated subsidiaries’ current plans,
projections, strategies and performance. These forwardlooking statements are not historical facts. Rather, they
represent the assumptions and beliefs of the company
management based on information currently available. The
company therefore wishes to caution readers that actual
results may differ materially from expectations, and thatforward-looking statements are subject to a number of risks
or uncertainties.

1996

2014

Sales
200 bn¥¥Sales
270.3 bn
2013

2011

Integrating
intra-office voice
network systems

A corporate message announced as the Company celebrated
its 60th anniversary: “Re-designing your Communication”
Acquired Q&A Corporation
Acquired NEC Magnus Communications., Ltd.

Industry classification on the Tokyo Stock Exchange changed
from Construction to Information & Communication

2010
The head office relocated to Iidabashi
Operation and control of asteroid probe Hayabusa and satellites

1992

Submarine cables /Submarine seismometer systems

Acquired NEC Telenetworks Co., Ltd.

2005

Listed on the Tokyo Stock
Exchange First Section

1990

2006
The company name changed to
NEC Networks & System Integration Corporation

2000

Now

Age ofcreating value
in communications

Age ofdesigning new communications
creating new value

Developing IP and broadband networks• Accelerating the expansion of“EmpoweredOffice”• The solution business expanding• Responding to the digitizationof terrestrial broadcasting andcommunity informatization
Starting “EmpoweredOffice” (2007)• Concept for changing ways ofworking and communication,using ICT and office facility• Promoting measures to enhancing
service businesses• Promoting the digitization offire-fighting and disasterprevention networks, speeding up
mobile networks

Annual Report 20142

NEC Networks & System Integration Corporation

Financial Highlights
Key points of the resultsof the fiscal year under review
1

Orders and net sales were both at record highs.

2

All profit items were at all-time highs.

3

Shareholder return expanded, as NESIC strengthened its earnings power.

Net sales¥270.3 billion

Operating income¥14.4 billion

14.7% increase year on year

204.7
¥ billion

235.7

Net income¥8.3 billion

15.5% increase year on year

270.3
¥ billion¥ billion

12.5
9.7

13.9% increase year on year
14.4
7.2

¥ billion¥ billion

4.5¥ billion¥ billion

8.3¥ billion¥ billion

2012/3

2013/3

2014/3

Orders¥280.1 billion

215.4¥ billion

2013/3

2014/3

Owner’s equity ratio
46.3%

24.1% increase year on year

241.3

2012/34.6 points decrease from the endof the previous fiscal year

280.1
¥ billion¥ billion

2012/3

2013/3

2014/3

Annual dividends¥60 per share¥15 increase year on year

60

53.3
50.9

45

%
%

46.3

28

¥

¥

¥
%

2012/3

2013/3

2014/3

2012/3

2013/3

2014/3

2012/3

2013/3For the latest company news and IR information, please visit our website: http://www.nesic.co.jp/english/ir/index.html

3

Annual Report 20142014/3

NEC Networks & System Integration Corporation

Interview with the President

you as always for your” Thank
continued support.
As part of this Annual Report for
the fiscal year ended March 31,
2014, I would like to take thisopportunity to provide an overview
of our operations and our results.
I hope we can continue to rely on
the support and understanding of allof our shareholders in the future.
Masao Wada
President

Q

How were the company’s results
for the fiscal year ended March 31,
2014?

A

We achieved record results in terms oforders, net sales and income.

We achieved record results in the fiscal year ended March
31, 2014, in terms of orders, net sales and across all income
categories. We performed strongly throughout, including
double-digit growth (year-on-year) for orders and net sales
in all three of our main segments (see p4).
This was due to a number of factors. First, we expanded
our social infrastructure business thanks to an increasein public investment, including the installation of digital
fire-fighting and disaster prevention network systems
operated by the likes of fire-fighting command centersand local authorities. We also expanded operations basedon our office innovation solution EmpoweredOffice(EO), providing total support for our customers’ office
ICT (information and communications technology)
needs. Another key factor was the acquisition of Q&A
Corporation, which is strong in the technical support
area centering on contact centers, and NEC Magnus
Communications Ltd., which has an established customer
base that includes communications carriers and CATV
(cable TV) providers and making them consolidated
subsidiaries.

Annual Report 2014

4

Q

What are you forecasts like for the
fiscal year ending March 31, 2015?

A

We will continue to steadily increase
sales and profits, to achieve further
growth.

Despite concerns regarding the impact of risingconsumption tax rates, amongst other things, I believethat the business environment is holding steady on thewhole, thanks in part to economic measures taken by thegovernment.
Active public investment is set to continue in the social
infrastructure segment, with high hopes for the continued
development of fire-fighting and disaster prevention
network systems, and other infrastructure to ensure public
safety and security. In the enterprises networks segment
too, we expect to see growing demand on the back of newworking practices in offices, ICT-based efficiency drives andmanagement reforms.
In spite of a general air of uncertainty regarding
investment in the carrier networks segment,
communications carriers are expected to maintain arelatively high level of capital investment in order to copewith the increasing volume of traffic as smartphones become
ever more popular. Demand for comprehensive technicalservices meanwhile, including inspection, operations andmaintenance of ICT equipment of overseas vendors, islikely to keep on growing in the future. In the midst of thisenvironment, we are aiming to produce concrete resultsfrom measures carried out this year, including corporate
acquisitions, so that we can break new records once again
for both net sales and income.

Q

Following on from the fiscal year
ended March 31, 2014, are you
planning to increase dividends again
in the fiscal year ending March 31,
2015?

A

We are planning to increase dividends forthe eighth consecutive year.

We operate on the basis of stable dividends. As well asactively investing in growth, we aim to give back more
and more to our shareholders as our income increases. As

5Annual Report 2014a result of this underlying policy, in the fiscal year ended
March 31, 2014 we distributed a year-end dividend of ¥30
per share, as planned. Combined with an interim dividendof ¥30 per share, that makes an annual dividend of ¥60, an
increase of ¥15 year on year.
In the fiscal year ending March 31, 2015, we plan to
pay an interim dividend of ¥32 per share and an annual
dividend of ¥64 per share. That would mean an increase individends for the eighth consecutive year since the fiscal
year ended March 31, 2008. We are committed to achieving
our medium-term business plan and further strengthening
our earning capability, so that we can give something backto our shareholders and live up to their expectations in the
future.

Q

Can you tell us about new targets
under the company’s medium-termbusiness plan (targets for the fiscal
year ending March 31, 2016) andprogress in key businesses?

A

We are aiming to increase sales andprofits for the third consecutive year andachieve record results.

We have revised our medium-term business plan because
we achieved our sales target this year. Our new mediumterm targets are ¥290 billion in net sales and ¥16 billion in
operating income, with an operating margin of 5.5% andROE (return on equity) of 10%. We have slightly lowered
our operating margin target on the basis that margins atcompanies we have acquired are still relatively low. We
nonetheless intend to continue increasing profits andmaking further improvements, and remain determined toachieve a margin of 6% or higher.
I will briefly outline progress with initiatives in key
businesses as follows.
As part of our EmpoweredOffice (EO) business, wehave introduced EO operations at all of our regional
divisions and offices nationwide and are starting see results,
in terms of securing orders for instance. Having introduced
EO operations at our Kansai Regional Division in April thisyear, we have captured customers’ interest through initiatives
such as establishing efficient working practices using thelatest ICT. We intend to keep on expanding our market
nationwide in the future.

In the technical outsourcing business meanwhile, we
opened our Service Delivery Operation Center in June
this year, in order to bring together services from nine
separate locations around Tokyo and integrate supply chain
management capabilities. Using this center we will expand
services for medium-sized and overseas companies, as well as
enhancing cost competitiveness. (See Topics (1))
As part of our infrastructure business, we have reinforced
our nationwide project response capabilities in relation tomobile communications base stations, by focusing on synergy
with operations transferred from NEC Mobiling Ltd. (nowMX Mobiling Ltd.). We are also increasing our share of themarket for fire-fighting and disaster prevention network
systems through collaboration within the NEC Group, andhave achieved results such as equipping fire departmentswith multilingual contact center services for emergency 119
calls. We are continuing to focus on harnessing synergy
through integrated operations and on expanding our share of

Accelerating the growth in Strategic
Business Areas

Revised Medium-Term Target
FY 2016/3
Previous
Medium-Term Target

the market. In terms of renewable smart energy meanwhile,
including promising growth markets such as solar power, we
are working to provide services that make the most of our
superior total capabilities, from system design and installation
through to maintenance. (See Topics (2))
With regard to overseas business, we have secured alarge order from AIS (Advanced Info Service Plc), a major
communications carrier in Thailand, and are expanding ourcommunications infrastructure operations in areas such as rail
communications. We will continue to expand our businessin the future, particularly in Asia, and also intend to step up
support services for Japanese companies moving into overseas
markets.
We are committed to working together as a group in the
future, as we make every effort to achieve our new mediumterm targets.
I hope we can continue to rely on the support of all of ourshareholders, now and in the future.

RevisedMedium-Term Target

EmpoweredOfficeBusiness
Technical Outsourcing
Business

Net Sales¥260 billion¥290 billion

Operating Income¥15.6 billion¥16 billion

Operating Margin

6.0%

5.5%

Overseas
Business

ROE

10%

10%

Other
Businesses

Targets as of May 8, 2014

Infrastructure
Business

Forecast as of April 28, 2014

Billions of Yen
290

280

270.3
67

72

75

28.5

30

35

41
13

40
13.5

42
15

FY 2014/3

FY 2015/3
Forecast

FY 2016/3
TargetAnnual Report 20146NEC Networks & System Integration Corporation

Topics
New initiatives to provide customers withthe highest level of service
We have established Service Delivery Operation Center (sDOC), as the cornerstone of our technicaloutsourcing business.
Our Service Delivery Operation Center, or sDOC
for short, has enabled us to integrate supply chain
management capabilities that were previously based inseparate locations around Tokyo. That covers everythingfrom technical assessment of ICT products through tosystem configuration, repairs, storage of replacement parts,
maintenance and delivery. Operations are now based in
Tatsumi, centrally located in the Tokyo Bay Area forsuperior transport access. This has enabled us to improve
efficiency and has also helped to reduce running costs.
By providing multiple service capabilities from a single
location, we are also planning to work on standardizing
processes so that we can provide the highest quality services
quickly and at a reasonable price.
This facility actually visualizes our wide-ranging service
capabilities in the eyes of our customers, giving them a realappreciation of the extent of our services, and the peace ofmind and reliability to outsource to us. We have also taken
into account business continuity, including choosing alocation that will enable us to continue delivery within thecapital even in the event of a disaster.

A large-scale service facility to enable us toexpand operations
sDOC will enable us to provide customers with greater
support in every respect, including delivery services
supplying replacement parts to all major cities nationwide
within the hour, repair services, preliminary design andmodification services in line with customers’ needs, andsystem configuration, assessment and testing services for arange of ICT systems from all over the world. By expanding
our BPO (Business process outsourcing) business aroundthis new facility, focusing particularly on medium-sized andoverseas companies that don’t have access to such large-scaleservices and facilities in-house, we are aiming to increase
net sales from our technical outsourcing operations to ¥35
billion in the fiscal year ending March 31, 2016.

Integrating multiple services to provide the highest quality services quickly
and at a reasonable price
Repair services
for IT/network equipment

System assessment and testing services

7

Annual Report 2014

Nationwide delivery services forequipment and replacement parts

System configuration services

Initiatives in new areas“Smart energy” is all about harnessing renewable energy and is one of the key growth areas weare focusing on as part of our infrastructure business, in support of people’s everyday lives. With
the government increasingly keen to invest in energy-related projects, we are actively working on
initiatives in this area.
Smart energy initiatives
More and more companies are looking into and installing
solar power facilities and other forms of renewable energy,
as they continue to be thrust into the spotlight. We also
regard this as a promising growth area for the future and are
actively working on a range of measures. In terms of specifics,
we are rolling out energy solutions in areas such as solar
power, storage batteries, EV* charging equipment and energy
management systems. One of our strengths is our ability toprovide total services, covering monitoring and maintenanceas well as system design and installation services based on our
unique technologies and expertise. We offer our customers
optimized solutions that combine three key elements, namelyenergy creation, energy storage and energy conservation.

Providing customers with optimized smart
energy solutions
Energy creation
Solar powersystems

Industrial power
storage systems• Reducing overall
power consumption• Supplying power in an
emergency• Saving energy by
cutting or shifting peakconsumption• Securing power sourcesin an emergency

Energy conservation
Energy management
systems• Visualizing energy
consumption• Ensuring optimum
energy usage* EV: Electric vehicles

Using large projects as a foothold to expand
operations
Within the field of smart energy, one of the areas we are
currently focusing on is mega-solar, large-scale solar technology
capable of producing over one megawatt (1,000 kilowatts) ofpower. We have taken orders for the installation and operationof large-scale solar power systems at large sites that wereformerly factories, quarries and other facilities. In fact, some ofthose systems are already up and running. Making the most of
our superior nationwide 24-7 maintenance infrastructure, we
also offer remote monitoring and maintenance services capableof quickly detecting faults with solar panels in order to maintaingeneration efficiency. We are starting to provide real-timemonitoring systems too, designed to visualize power
consumption on a daily basis so that users can monitor
consumption and take steps to save power.
As well as continuing with large-scale mega-solar
projects, we intend to expand into other types of smart
energy in the future, and develop new markets in areas suchas smart cities*, as we continue to expand our businesses.
* Smart cities:

Towns, cities or regions using ICT, environmental andother cutting-edge technologies to create more efficient,more advanced social infrastructure

Energy storage

Outline of remote monitoring andmaintenance solutions for solar panels
Solar
panel

Junction box
Powerwith built-in
conditioner
monitoring

Transformer
equipment

Power
meter

Power
company

Key point

Real-time
detection of
faults withindividual
panelsData storage
deviceInternet

Monitoring
server

Key point
24/7 monitoring centerfor corporate users

Solar power system installed onsite at a factoryin Tochigi prefecture

Remotemonitoring staff

Junction box with built-in remotemonitoring device (example)

Annual Report 20148

NEC Networks & System Integration Corporation

Business Performance by Segment
Our three core businesses
NESIC provides a range of services fromplanning to system design, maintenance, andoperation in an integrated manner in a variety
of fields ranging from ICT within companies topublic and social infrastructure. NESIC has threecore businesses: the Enterprises Networks
business, Carrier Networks business, and Social
Infrastructure business.
We will help a range of customers enhancetheir value, harnessing our ability to makeproposals from customers’ perspectives and ourexpertise and technological capabilities for all
sorts of networks.

Service integration of ICT solutions, mainly for theenterprises market. Total office solutions based on ICTwith securities or environmental solutions and related
operations, monitoring, and outsourcing services, as well
as cloud-type solutions using our own data centers.
NESIC’s sales focusing on its office innovation solution
EmpoweredOffice* increased further in response tocustomer needs for management innovation. NESIC
also promoted the introduction of EmpoweredOffice toits regional offices and branches and expanded the target
institutions to local companies, public offices, public
facilities and other institutions, without limiting the targets
to general corporate customers in the Tokyo metropolitan
area. In addition, NESIC continued to expand andstrengthen its system for providing comprehensive services
such as cloud computing and BPO, including using outside
resources through partnerships to help customers improvetheir operations and management. As part of this effort,in June 2013 NESIC made Q&A Corporation, which isstrong in the technical support and consulting service field,
a consolidated company to produce moresynergistic effects,
and to enforce contact center business.

9

Annual Report 2014%%
therr 57.5
O
Othe

Enterprises Networks
businessby Business Seg
ales
me
S
t
nt
Ne

SocialInfrastructure
31%
34.1%

Enterprises
Networks
33%
36.3%

Carrier
Networks
29%
24.1%

Sales Trends

2014

Net Sales¥98.2 billion

2013billion85.3

15.1% increase year on year

2012

billion80.7

billion98.2

Years ended March 31* EmpoweredOffice:EmpoweredOffice is our office innovation solution. It combines our strengths in ICT and
facility installation to enable more intellectual and creative styles of work through process
reforms. It also proposes new methods and places of work that enable customers tofulfill their social responsibilities, such as the strengthening of security and environmental
responsiveness.

Carrier Networks
business
Service integration of ICT platforms mainly for telecom
carriers. Systems integration of large-scale, wide-area,
carrier-grade ICT platforms and data centers and related
operations, monitoring services.

Sales Trends

2014

Net Sales¥65.1 billion

2013

19.0% increase year on year

2012

To capture businesses related to investments in network
development by telecommunications carriers in responseto the increase in communications volume in step with
the increasing number of smartphone users, NESIC tookaggressive initiatives, mainly by taking over the SI andservice business related to the base stations from NEC
Mobiling, Ltd. (now MX Mobiling Co., Ltd.). With
the impact of these initiatives, as well as the impact of
the inclusion of NEC Magnus Communications, Ltd.,
which had its unique network technologies and security
technologies in its consolidated subsidiaries in October
2013, net sales rose 19.0% year on year, to ¥65,142 million,
offsetting the impact of the decrease of sales of temporary
large-scale projects with a high equipment ratio and sales ofsubmarine seismometer systems that were recorded in theprevious fiscal year.

Social Infrastructurebusiness
Service integration of ICT infrastructure forgovernments and public utilities (broadcasters, electric
power companies, etc.), such as systems integration,
operation, and monitoring, and the construction of
telecom infrastructure.

billionbillionbillion

65.1

54.7

46.7

Years ended March 31

Sales Trends

2014

Net Sales¥92.2 billion

2013

13.9% increase year on year

2012

billionbillionbillion

92.2

80.9

64.5

Years ended March 31

NESIC improved its ability to implement projects as wellas its price competitiveness. NESIC also increased its
investment in the digitization of fire-fighting anddisaster-prevention systems, which gained momentum,
and investments in the installation of mobile base stations
in response to new frequency ranges. As a result, net sales
increased rose 13.9% year on year, to ¥92,203 million.

Annual Report 201410

NEC Networks & System Integration Corporation

Corporate Social Responsibility (CSR)
CSR Policy
NEC Networks & System Integration Corporation is a
network system integrator that creates new communication.
Harnessing its strengths—technologies and experience
associated with networks—and its expertise in IT, NESIC
engages in a range of services, from planning and design tosystem integration, installation and outsourcing, for systems
that enable diverse forms of communication.
The Company’s corporate message, “Re-designing
your communication,” expresses its aspirations to enhancecommunication through those services and to create anddevelop connections, ties, and links between people, between
people and society, and between people and the earth. In
addition to contributions through our services, we will
engage in a range of activities that help to protect the global
environment and strengthen our connection with the earth.
We will also take steps to enhance customer satisfaction
so that we build trust and strengthen our connection
with our customers. Meanwhile, we will participate inlocal contribution activities to maintain and enhance ourconnection with communities.
The basis of those connections are our human resources,
organization, and activities to ensure compliance, safety andsecurity. We are hiring diverse human resources and offeringsystematic career development. In addition, we are creating
better working environments. We ensure compliance andsecurity while developing and providing secure systems andservices with reliable quality.
Through a range of challenges in society through all
our corporate activities, we are contributing to sustainable
development in society and the world.

Major Themes in CSR
1People’s communication

As a network system integrator, we will fuse our strengths—
technologies and experience associated with networks—and
our IT expertise to provide systems that enable diverse formsof communication. Through these systems, we will enhance
human communication and help to create and develop
connections between people, between people and society, andbetween people and the earth.

2

Connection with the earth

We will offer systems and services that help reduce CO2

11Annual Report 2014

emissions and energy consumption. Meanwhile, we willcontribute to reducing society’s environmental footprint (load)and protecting the global environment through activities inour business that minimize the environmental burden, use
resources effectively, and maintain biological diversity.

3

Connection with customers

As a partner of our customers, we will strive to build trust
by providing systems and services that contribute to ourcustomers’ businesses.

4

Connection with communities

As a good corporate citizen, we will engage in assistance todisaster areas and international cooperation, among otheractivities, in response to demands from society. We willcontribute to communities through communication with
them.

5

Enhancing compliance and achieving
safety and security

We will consistently enhance compliance and pursue
and ensure information security and safe work. We will
deliver systems and services that have reliable quality.

6

Cultivating diversity and creating betterworking environments

We will respect fundamental human rights in all corporate
activities and will hire and cultivate human resources
with diverse individuality. We will take steps to create
better working environments where people can fulfill theirpotential.

Assistance in disaster areas
Volunteer reconstruction assistance in areas affected by theGreat East Japan Earthquake

Contribution to education
for the young
Antarctic Club natural science classes are held in elementary
schools. In the classes, NESIC employees that we havedispatched to the Antarctic each year to join winter groups
there come together for talks.

NEC Networks & System Integration Corporation

Corporate Governance(As of June 26, 2014)

The Company believes that the cornerstone of corporate governance is ensuring managementsoundness and transparency by establishing a management system that enables quick decisionmaking to respond promptly to changes in the operating environment, and by practicing timely,
appropriate disclosure. To that end, the Company has adopted a Board of Corporate Auditors
system and has established a corporate governance system in which the Board of Directors andBoard of Corporate Auditors play key roles.
The Company has also adopted an executive officer system to clearly demarcate the supervisory
function and the business execution function. To enhance management transparency, the Company
has outside directors and outside corporate auditors and seeks to achieve sound management byencouraging cooperation among corporate auditors, the Internal Auditing Division, and independentaccounting auditors.

I. Description of Corporate Organs
1

Board of Directors

The Board of Directors is composed of ten directors,
including four outside directors. In addition to maintaining
the number of directors at an optimum level for quick
decision making, the Company has reduced the terms of
directors to one year in order to clarify the management
responsibility of directors and strengthen its management
structure.

2

Executive Officers, Executive Committee,
and Business Execution Committee

final decisions, and listen to directors and employees on
performance of their duties, thus contributing to a system
for sufficiently scrutinizing directors’ performance of theirduties.

4

Internal Auditing Division

The Internal Auditing Division has been established as aninternal audit unit independent from the business execution
divisions. It examines through internal audits whether
business execution is being conducted legally and properly
according to relevant laws, regulations and Company rules.

5

Accounting Auditors

Based on an executive officer system, the Company also
formed the Executive Committee, to discuss policies
pertaining to key management and operating issues, and theBusiness Execution Committee, to monitor the progressof and report on significant matters concerning businessexecution, consisting of mainly executive officers at senior
vice president level and higher and corporate auditors.

The Company has an audit contract with KPMG AZSA
LLC as its accounting auditors. KPMG AZSA LLC
expresses its views on the financial statements as an auditor
from an independent viewpoint.

3

The Company has established a basic policy for thedevelopment of internal control systems, as shown
below, under Article 362, Paragraph 4, Item 6 of theCompany Law and Article 100, Paragraphs 1 and 3 ofthe Enforcement Regulations of the Company Law. The
Company maintains the appropriate execution of operations
under the basic policy, laws and regulations, and internal
regulations.

Board of Corporate Auditors

The Board of Corporate Auditors consists of five corporate
auditors, including three outside auditors. It decides audit
policies and related matters, and reports on the status ofaudits performed by each auditor. Corporate auditors also
attend Board of Directors meetings and other important
meetings, examine significant documents related toII. Development of Internal Control
Systems

Annual Report 2014

12

The Company’s mechanisms of business execution, management oversight, and internal control

General Meeting of Shareholders
Elect/Dismiss

Elect/Dismiss

Elect/Dismiss

Management/Supervision
Audit

Board of Directors(Directors)

Cooperate

Board of Corporate Auditors(Corporate Auditors)

Supervise
Audit

Business Execution
Executive
Committee

Accounting
Auditors

Cooperate
Business Execution
Committee

Management Quality
Improvement Committee

Cooperate

Internal Auditing
Division(Executive Officers)
Cooperate

Audit

Affiliated Company
Management Office

Corporate Staff / Marketing & Sales and Business
Operations Units and Divisions

Manage / Monitor
Subsidiaries

Internal Reporting and Consultation Office(Corporate Ethics Hotline)

III. Situation of Outside Directors andOutside Corporate Auditors
Of the Company’s ten directors, four are outside directors.
The Company believes this number is appropriate for giving
advice and participating in decision making from fair andobjective standpoints, strengthening the Company’s corporate
governance.
Outside Director Takayuki Matsui is a professor at theGraduate School of Professional Accountancy of Aoyama
Gakuin University. The Company has Mr. Matsui use his
expert knowledge in business administration, includinginternal control, to ensure transparency in the managementof the Company and to strengthen corporate governance. Mr.
Matsui attended all 14 meetings of the Board of Directors
held in the fiscal year ended March 31, 2014. He has been
designated as an independent director defined in Rule 436-2,
Paragraph 1 of the Securities Listing Regulations of theTokyo Stock Exchange.

13

Annual Report 2014

Outside Director Tetsujiro Arano is engaged in the network
solution business of NEC Corporation and uses his extensive
experience and knowledge for the management of theCompany. Mr. Arano attended 12 of 14 meetings of theBoard of Directors held in the fiscal year ended March 31,
2014.
Outside Director Yumiko Ichige is a lawyer at Nozomi
Sogo Attorneys at Law. Using her professional knowledge
and viewpoint about the corporate legal affairs, Ms. Ichige
oversees the business execution of the Company from a fairand objective standpoint of an outsider.Ms. Ichige attended
all 14 meetings of the Board of Directors held in the fiscal
year ended March 31, 2014. She has been designated as anindependent director defined in Rule 436-2, Paragraph 1of the Securities Listing Regulations of the Tokyo Stock
Exchange.
Outside Director Masamitsu Kisaki is engaged in corporate
planning of NEC Corporation and is expected to use hisextensive experience and knowledge for the management of
the Company. Mr. Kisaki became an outside director at theordinary general meeting of shareholders held on June 24,
2014.

The outside corporate auditors cooperate with theindependent auditors, exchanging information andconsulting with them regularly at meetings of the Board of
Corporate Auditors and on other occasions.

Of the Company’s five corporate auditors, three are outside
corporate auditors. We believe this number is appropriate for
auditing the directors’ execution of their duties from fair andobjective standpoints, to strengthen the Company’s corporate
governance.

IV. Internal Audits and Audits by Auditors

Outside Corporate Auditor Junichi Okuyama has been
engaged in monitoring of sales activities and accounting formany years. Taking advantage of his extensive experienceand knowledge relating to internal control, Mr. Okuyama
primarily audits the legality of business execution from afair and objective standpoint. Mr. Okuyama attended all
14 meetings of the Board of Directors and all 13 meetingsof the Board of Corporate Auditors held in the fiscal year
ended March 31, 2014.

The Internal Auditing Division cooperates with thecorporate auditors. The division reports the results of audits
carried out under an audit plan for each fiscal year to thecorporate auditors once a year and exchanges opinions withthem as necessary.
The corporate auditors, the Internal Auditing Division,and the accounting auditors cooperate with each other,exchanging opinions as necessary for statutory audits.

Directors and Corporate Auditors(As of June 24, 2014)

Outside Corporate Auditor Takaaki Yamamoto is engagedin accounting in NEC Corporation. Making full use of his
extensive experience and knowledge relating to internal
control, Mr. Yamamoto chiefly audits the legality ofbusiness execution from a fair and objective standpoint. Mr.
Yamamoto attended all 10 of 11 meetings of the Board of
Directors and all 10 meetings of the Board of Corporate
Auditors held in the fiscal year ended March 31,2014 after
his appointment on June 25, 2013.

Board of Directors

Outside Corporate Auditor Yuji Kikuchi is qualified
as a lawyer and has considerable knowledge in financeand accounting. Using his professional knowledge andviewpoint about the law, Mr. Kikuchi is expected to audit
the directors’ performance of their duties from a fair andobjective standpoint of an outsider. Mr. Kikuchi became an
outside corporate auditor at the ordinary general meeting ofshareholders held on June 24, 2014. Mr. Kikuchi has been
designated as an independent auditor defined in Rule 436-2,
Paragraph 1 of the Securities Listing Regulations of theTokyo Stock Exchange.

Members of the Board

There are no special interests between the Company and its
outside directors or outside corporate auditors.
The outside directors and outside corporate auditors
regularly exchange information and consult with theInternal Auditing Division and staff departments, receiving
reports on business execution at meetings of the Board of
Directors and on other occasions.

President

Masao Wada

Senior Vice Presidents
and Members of the Board

Takahiko Hara
Yoichi Sato
Shougo Minami
Yoshifumi Kodama

Associate Senior Vice President Yushi Ushijima
and Member of the Board
Takayuki Matsui *1, 2
Tetsujiro Arano *1
Yumiko Ichige *1, 2Masamitsu Kisaki *1
Corporate Auditors
Corporate Auditors

Junichi Okuyama (full-time) *3
Akinori Kanehako (full-time)
Hirotaka Akizuki
Takaaki Yamamoto *3
Yuji Kikuchi *3, 4*1

Outside directors as stipulated in Item 15 of Article 2of the Company Law of Japan*2

Independent director stipulated in Rule 436-2, Paragraph 1of the Securities Listing Regulations of the Tokyo Stock Exchange*3

Outside corporate auditors as stipulated in Item 16 of Article 2of the Company Law of Japan*4

Independent auditor stipulated in Rule 436-2, Paragraph 1of the Securities Listing Regulations of the Tokyo Stock Exchange

Annual Report 201414

NEC Networks & System Integration Corporation

Six-Year Summary of Selected Financial Data
NEC Networks & System Integration Corporation and Consolidated Subsidiaries

Thousands of
U.S. dollars 1

Millions of yen

Years ended March 31

2014

2013

2012

2011

2010

2009

280,071 ¥

241,271 ¥

215,373 ¥

212,277 ¥

222,046 ¥245,257 $ 2,695,064

2014

For the year:
Orders¥

Net sales

270,326

235,716

204,658

217,948

217,727

249,070

2,601,289

Selling, general and administrative expenses

30,271

24,69922,332

22,297

23,07024,501

291,291

Operating income

14,41812,483

9,747

10,835

9,867

10,968

138,741

Net income

8,257

7,246

4,474

4,660

5,644

4,995

79,455

Free Cash Flows

17,809-5,152

15,946-3,49914,185

4,760

171,372

Depreciation and amortization

2,565

2,164

1,941

2,151

2,244

2,270

24,682

632

98

92

52

119

290

6,082

Research and development costs
At year-end:

167,472 ¥ 149,130 ¥ 149,464 ¥ 146,543 ¥

147,251 $ 1,819,274

Shareholders’ equity

Total assets¥

189,059 ¥
91,18285,717

80,11576,98673,67069,123

877,425

Total net assets

89,16685,97480,07477,00573,84969,129858,025166.06 ¥145.73 ¥89.98 ¥

93.72 ¥

113.50 ¥100.41 $1,598

Per share of common stock (yen and U.S. dollars) :Net income¥

Net assets (BPS)

1,760.06

1,714.74

1,598.77

1,537.19

1,472.14

1,377.68

16,937

60.00

45.00

28.00

26.00

25.00

22.00

577

Operating income to net sales (%)

5.3

5.3

4.8

5.0

4.5

4.4

Net income to net sales (%)

3.1

3.1

2.2

2.1

2.6

2.0

8.2

7.7

6.3

7.3

6.7

7.3

9.6

8.8

5.7

6.2

8.0

7.5

46.3

50.9

53.3

51.1

50.0

46.5

0.07

0.05

0.05

0.08

0.07

0.07

7,164

6,024

5,936

5,939

5,998

5,906

40,996 ¥39,417 ¥34,469 ¥36,516 ¥36,580 ¥42,493 $394,207

1,252

1,212

754

781

948

852

12,067

Cash dividends applicable to the year
Ratios and return indicators:

Return on assets (ROA) (%)
Return on equity (ROE) (%)

2

3

Owners' equity (Net worth) ratio (%)
Debt to equity ratio (times)

4

Number of employees
Net sales per employee (thousands of yen)

5

Net income per employee (thousands of yen)

¥
6

Notes
1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of

5. Net sales per employee: Net sales / Average number of employees during the term

31, 2014.

6. Net income per employee: Net income / Average number of employees during the term

2. Return on assets: Ordinary income / Average total assets during the term
3. Return on equity: Net income / Average net assets during the term

15

4. Debt to equity ratio: Interest-bearing debt / Net assets¥103.92 = U.S.$1.00, the approximate Tokyo foreign exchange market rate as of MarchAnnual Report 2014

NEC Networks & System Integration Corporation

Operating Income

Net Sales(Millions of yen)

(Millions of yen)

300,000
250,000

270,326
217,727

217,948

14,41815,00012,483

235,716
12,000204,658

200,000

10,835
9,867

9,747

9,000
150,000
6,000

100,000

3,000

50,000

2010

2011

2012

2013

2014

2010

2011

Years ended March 31

Years ended March 31

Total Assets and Total Net Assets

Net Income(Millions of yen)

(Millions of yen)

9,000

Total assets

Total net assets

8,257

8,000

189,059

200,000

7,246

167,472

7,000
6,000

2014

2013

2012

5,644

150,000
4,660

5,000

149,464

146,543

149,130

4,474

4,000

100,000

3,000
2,000

73,84977,00580,07485,974

89,16650,000

1,000

2010

2011

2012

2013

2014

2010

2011

2012

2013

ROE and ROA

Operating Income to Net Sales
and Net Income to Net Sales(%)

Operating income to net sales

2014
As of March 31

Years ended March 31

Net income to net sales(%)

ROE (Return on equity)

ROA (Return on assets)
9.6

6
5.0
5

8.8

10

4.8

8.0

4.5

7.3

8

4
3

5.3

5.3

3.1

3.1

6

2.6
2.1

6.3
6.7

6.2

2.2

8.2

7.7

5.7

4

2
2

1

2010

2011

2012

2013

2014

Years ended March 31

2010

2011

2012

2013

2014

Years ended March 31
Annual Report 201416

Consolidated
Financial
Statements
Contents
Consolidated Balance Sheets

17

Consolidated Statements of Income

19

Consolidated Statement of Comprehensive Income

20

Consolidated Statements of Changes in Net Assets

21

Consolidated Statements of Cash Flows23

Notes to Consolidated Financial Statements

25

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Annual Report 201452

NEC Networks & System Integration Corporation

Global Network(As of July 1, 2014)

Head Office

Certifications

2-6-1 Koraku, Bunkyo-ku, Tokyo 112-8560, Japan
Tel: +81-3-6699-7000
Fax: +81-3-6699-7405

Major Domestic Regional Offices
Higashinihon, Nakanihon, Kansai, Nishinihon, Hokkaido, Tohoku, Koushin-etsu, Kitakanto,
Kanagawa, Chubu, Shizuoka, Hokuriku, Keiji, Kobe, Chugoku, Shikoku, Kyushu

ISO9001: 2008
Certificate No.: JQA-0471
ISO14001: 2004
Certificate No.: JQA-EM0640
ISO/IEC27001: 2013
Certificate No.: JQA-IM0351
Organization:

Service Infrastructure Division(ICT Help Desk Services Department)

Subsidiaries and Affiliates(Remote Operation Services Department)
ISO/IEC27001: 2005

NEC Magnus Communications., Ltd.
Head office:Tokyo, Japan
Established:
November 1985
Capitalization: ¥190 million
Voting rights: 100.0%
Toyo Networks & System Integration
Co., Ltd.
Head office:Kanagawa, Japan
Established:
May 2005
Capitalization: ¥400 million
Voting rights: 100.0%
Subsidiaries:
TOYO ALPHANET CO., LTD.
		
TNSi Europe GmbH
Nichiwa Co.
Head office:Established:
Capitalization:
Voting rights:

Hyogo, Japan
January 1953
¥50 million
100.0%NEC Net Innovation, Ltd.
Head office:Miyagi, Japan
Established:
August 1977
Capitalization: ¥45 million
Voting rights: 100.0%
Q&A Corporation
Head office:Tokyo, Japan
Established:
July 1997
Capitalization: ¥897 million
Voting rights: 55.9%
Subsidiaries:
D-Cubic Corporation
		
HORIZON ARCHITECT
		 Corporation
		 ArkPOWER CO., LTD.
NEC Networks & System Integration
Engineering, Ltd.
Head office:Tokyo, Japan
Established:
October 1992
Capitalization: ¥50 million
Voting rights: 100.0%

53

Annual Report 2014

NEC Networks & System Integration
Services, Ltd.
Head office:Tokyo, Japan
Established:
July 1988
Capitalization: ¥60 million
Voting rights: 100.0%

Certificate No.: JQA-IM0190
Organization:

Office Service Division(SI & Services Operations Unit)(Service Infrastructure Construction
Department)(Network Service & Operation Department)(NEC Platform Service Department“Security Control Center”)

NESIC Ascerent, Ltd.
Head office:Tokyo, Japan
Established:
June 1951
Capitalization: ¥20 million
Voting rights: 100.0%
NESIC BRASIL S/A
Head office:Sao Paulo, Brazil
Established:
November 1976
Voting rights: 87.4%*As of March 31, 2014
Certificate No.: BSKS0027
Organization:

Public Systems Division(Network Infrastructures Operations Unit)*as of March 31, 2014

Certificate No.: JQA-IM1086
Organization:

Fire & Disaster Prevention Systems Division(Network Infrastructures Operations Unit)*as of March 31, 2014

Certificate No.: JQA-IM1013
Organization:

Kansai Solutions Division(Enterprise Solutions Operations Unit)

NESIC (Thailand) Ltd.
Head office:Bangkok, Thailand
Established:
March 1991
Voting rights: 49.0%(1st Solutions Department)(3rd Solutions Department)
Nishinihon Systems Division(Public Infrastructures Solutions
Operations Unit)(Kansai Service Center)

NESIC PHILIPPINES, INC.
Head office:
Manila, The Philippines
Established:
April 1991
Voting rights: 100.0%

ISO/IEC 20000-1: 2011
Certificate No.: JQA-IT0037
Organization:

Office Service Division
Customer Engineering Division
Service Infrastructure Division

NESIC (GUANGZHOU) CO., LTD.
Head office:Guangzhou, China
Established:
August 1998
Voting rights: 100.0%
Networks & System Integration Saudi
Arabia Co. Ltd.
Head office:
Al-Khobar, Saudi Arabia
Established:
April 2006
Voting rights: 95.0%(SI & Services Operations Unit)*as of March 31, 2014
Privacy Mark
Certificate No.: 21000053
ISO 22301: 2012
(Business Continuity Management System)
Certificate No.: BCMS 539922
Certified Organization: 44 departments of		

NEC Group (BCP)

Scope of the Certification of NESIC Group:
Network Operation & Maintenance Bussiness of
Telecom Carrier Business Unit
(Unified Communication Network in Tokyo),
Carrier Operation and Maintenance Business,
CATV BusinessNEC Networks & System Integration Corporation

Investor Information(As of March 31, 2014)

Major Shareholders

Corporate Data
Corparate Name

NEC Networks & System Integration Corporation

Established

December 1, 1953
(registered as a stock company on November 26, 1953)

Number of Employees

4,631 (Non-consolidated)
7,164 (Consolidated)

URL
Listing

Number of
Shares Held(Thousands)

Percentage ofTotal Shares
Outstanding 2

19,10638.43%

6,400

12.87%

http://www.nesic.co.jp/english/

Japan Trustee Services Bank, Ltd.
(Sumitomo Mitsui Trust Bank, Limited beneficiary trust
account, NEC Corporation retirement benefit trust account)

Tokyo Stock Exchange, First Section

Japan Trustee Services Bank, Ltd. (Trust account)

2,341

4.71%

Ticker Code1973

The Master Trust Bank of Japan, Ltd. (Trust account)

1,620

3.26%

Fiscal Year

April 1 - March 31
Annual meeting held in June

Sumitomo Realty & Development Co., Ltd.

1,200

2.41%

CMBL S . A . Re Mutual Funds

999

2.01%

Common Stock Authorized

100,000,000 shares

JP MORGAN CHASE BANK 385166

699

1.41%

Issued49,773,807 shares

1.33%

8,303

Trust & Custody Services Bank, Ltd.
(Pension trust account)662

Number of Shareholders
Transfer Agent

Sumitomo Mitsui Trust Bank, Limited
1-4-1, Marunouchi, Chiyoda-ku, Tokyo 100-8233, Japan

Employees’ Stock Ownership Plan

658

1.33%
1.17%

KPMG AZSA & Co.

The Chase Manhattan Bank , N.A. London Secs Lending
Omnibus Account581

Independent Auditors

Name of Shareholder
NEC Corporation
1

Composition of Shareholders

Notes
1

Shares held by Japan Trustee Services Bank, Ltd. (Sumitomo Mitsui Trust Bank,
Limited beneficiary trust account, NEC Corporation retirement benefit trust

0.96%

8.14%

19.63%

30.13%

account) give NEC Corporation material voting rights because NEC Corporation

41.11%

has contributed shares of the Company to its retirement benefit trust.
The percentage of material voting rights held by NEC Corporation as of March 31,
2014 was 51.42%.
2

Securities
companies

Individuals
and others

Foreigninvestors, etc

Financial
institutions

Other domestic
companies

The percentage of total shares outstanding is calculated based on the number ofshares excluding treasury stock (51,635 shares).

Monthly Stock Price Range
Yen

Blue: Opening Price > Closing PriceWhite: Closing Price > Opening Price
High
Opening
Closing
Low

2,500
2,000
1,500

High
Closing
Opening
Low

1000
500

2008

2009

2010

2011

2012

2013

2014

2010

2011

2012

2013

2014

Monthly Trading Volume
Thousand of shares
5,000
4,000
3,000
2,000
1,000

2008

2009

Annual Report 2014

54