Annual Report 2012
Year Ended March 31, 2012

Profile

NEC Networks & System Integration Corporation (“the Company”) wasestablished in 1953 primarily as a builder of communications infrastructure. Today,
as a top-class system integrator in Japan’s ICT business field, the Company
provides a full range of customer-driven services in ICT with a core of networks
along with total facility management for enterprises, telecom carriers and thegovernment.
Although its business areas are centered on system integration and services suchas BPO, cloud and system operation, theCompany also retain engineering, our corebusiness at the time of our foundation, as anelement differentiating us from other system
integrators. As one of very few comprehensive
system integrators in Japan, it is in a very uniqueposition.

Foundation Era
Installation ofswitching equipment
and its maintenance
Net Sales(Billions of yen)

Growth by Telecommunications
Engineering BusinessTelecommunications Engineering+ Network SI & Maintenance24/7 nationwide maintenance service in Japan
Communications system for telecom carriers
along with telecom liberalization ( switchingsystem, mobile communication base station )Broadcasting system,
submarine cable, radio communication( satellite, microwave communications system )Full-scale overseas operations
Data communications

LAN/WAN business for enterprises
2003

Integrated sales force forbusiness expansion.

250

1996

200

Net sales ¥200 billion.

1992

150
100

Listed on the Tokyo
Stock Exchange, First Section.

1988

1953

Net sales ¥100 billion.

Nippon Electric Installation Company was foundedby spinning off from NEC telecom engineering section.

1983
1980

Listed on the Tokyo Stock Exchange
Second section.

Name changed to NEC
System Integration & Construction, ltd.

50
0

1953

1970

1980

1990

CONTENTS

Development of ICT SI &Service BusinessOutsourcing service using our own data centers
Bolstering the operations business through M&A
2006

Toyo Networks & System Integration Co., Ltd.
became a group company.
*Merged next year

2005

2010

Relocated head officeto Iidabashi (in central Tokyo)
Daiichi Ad System Co.,Ltd.
became a group company.

Name changed to NEC Networks& System Integration Corporation.

2011

Industry classificationon the Tokyo Stock Exchangechanged from “Construction”
to “Information &Communication”

2000

Financial Highlights

2

Interview with the President

4

Business performance by segment

6

Topics8

Corporate Governance11

Directors and Corporate Auditors

14

Corporate Social Responsibility (CSR)

15

Six-Year Summary of Selected Financial Data

16

Consolidated Balance Sheets

18

Consolidated Statements of Income

20

Consolidated Statement of Comprehensive Income

21

Consolidated Statements of Changes in Net Assets

22

Consolidated Statements of Cash Flows24

Notes to Consolidated Financial Statements

26

Independent Auditors’ Report

47

Global Network

48

Investor Information

49

Cautionary Statement with Respect to
Forward-Looking Statements
This annual report contains forward-looking statements
concerning NEC Networks & System Integration Corporationand its consolidated subsidiaries’ current plans, projections,strategies and performance. These forward-looking
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 that forward-looking
statements are subject to a number of risks or uncertainties.

2010
NEC Networks & System Integration Corporation
Annual Report 20121

Financial Highlights
Check Points

1.

Although net sales declined, sales from the growthbusiness areas increased.

2.

The Company made investments in future growth.
Orders recovered, rising 1.5% year on year.

3.

The Company strengthened operations to bolster its
future performance by reforming the Social Infrastructure business.

Net sales

Operating income

Net income¥ 204.7 billion¥ 9.7 billion¥ 4.6 billion(6.1% decrease year on year)(10.0% decrease year on year)(3.2% decrease year on year)

217.9

204.7

¥ billions¥ billions

2012/3

2011/3

220.0

10.8

¥ billions¥ billions

2013/3

2011/3(Forecast)

9.7¥ billions

2012/3

10.5¥ billions

2013/3

4.7

4.6¥ billions¥ billions

2011/3

2012/3(Forecast)

Owner’s equity ratio

Annual dividends¥ 215.4 billion

53.5%¥ 28 per share(1.5% increase year on year)(2.2 points increase from the end of theprevious fiscal year)(¥ 2 increase year on year)

215.4

230.0

¥ billions¥ billions¥ billions

(%)

53.5
51.3

2011/3

2012/3

2013/3(Forecast)

March
2011

March
2012

NEC Networks & System Integration Corporation
Annual Report 20122013/3

38
26

28

¥

¥

2011/3

2012/3* Forecast figures are based on data as of April 27, 2012.
For the latest Company news and IR information, please use its website. (http://www.nesic.co.jp/english/index.html)

02¥ billions(Forecast)

Orders

212.3

6.2

¥

2013/3(Forecast)Q:

Operating results for the fiscal year ended March 2012(¥billion)

Net sales for the fiscal year under review fell 6.1% from the previous
fiscal year.
This decline reflected a significant fall in sales from the Social
Infrastructure business, given the peaking of investments related
to local information networks. However, the Enterprises Networks
business and the Carrier Networks business, both growth areas,
performed solidly with higher sales.
Meanwhile, orders rose 1.5% year on year. This was attributable
to significant growth in the Enterprises Networks business andthe Carrier Networks business, which posted 5.8% and 15.9%
year-on-year increases, respectively. In the Social Infrastructurebusiness, orders declined 10.3%, but showed signs of bottoming
out as domestic orders started to rise in the fourth quarter.
Operating income and ordinary income decreased from theprevious fiscal year, reflecting active investments in growthbusiness areas, in addition to lower net sales. However, theCompany successfully managed to strengthen its operations for
future growth, as it significantly improved its operating
margin to 9.1% in the fourth quarter, thanks to the effects of an
initiative to reform the Social Infrastructure business. Net income
stood at ¥4.6 billion, almost unchanged from the previous fiscal
year,reflecting the absence of an extraordinary loss mainly related
to the relocation of the head office in the previous fiscal year, andthe temporary effects of the reversal of deferred tax assets, which
was the result of the revision of the effective tax rates in the fiscal
year under review.

Q:

212.3
Other

126

Social Infrastructure
Business

78.2

Carrier Networks
Business

43.7

Enterprises Networks
Business

77.8

2011/3

+1.5%

215.4
124

-10.3%+15.9%

+5.8%

70.1

50.6

82.5

2012/3

Initiatives for the next fiscal year

Anticipating a gradual recovery in demand, chiefly on the movement
for the reconstruction from the Great East Japan Earthquake, theCompany will position the next fiscal year (ending March 2013) asa year of “turnaround to re-growth,” and will aim to achieve theresults exceeding the previous fiscal year (ended March 2011).
In the Enterprises Networks business, responding to customer
needs to strengthen their management, the Company will strive tofurther bolster sales of the office innovation solution “Empowered
Office,” and offer comprehensive services such as cloud computing
and BPO, to help customers reinforce management. In the Carrier
Networks business, responding to a rapid increase in network
traffic accompanying the increasing use of smartphones, theCompany will step up efforts to enhance the quality of the networkof telecommunications carriers. In the Social Infrastructurebusiness, while the Company will continue to bolster efforts forthe reconstruction of disaster-afflicted areas, it will also focus on
initiatives to respond to the full-scale investment in the digitalizationof fire-fighting and disaster prevention systems, and an expansion
in the installation of base stations for mobile phones.

With these initiatives, the Company will aim to return tothe ¥220 billion level in net sales, and achieve a record net
income of ¥6.2 billion.
(¥billion)

Consolidated Financial Forecasts for Fiscal Yearending March 31, 2013 *Net Sales

220.0

Operating Income

10.5

Net Income

6.2* Forecast figures are based on data as of April 27, 2012.

NEC Networks & System Integration Corporation
Annual Report 201203

Interview with the President
Boosting Its Presence as a Network
Systems Integrator
Aiming at a new growth trajectory, NEC Networks & System
Integration Corporation has established a new management
structure. We recently spoke with Masao Wada, who became
President in June 2012, about his ambitions.

Q: What can you tell us about your recent
appointment as president?

Stepping up efforts to achieve a steadier growth trajectory
My name is Masao Wada and I was appointed president in June 2012. I hopethat I can count on your continuing support.
President Masao Wada
expresses his views on initiatives to achieve
further growth.

At NEC Corporation, I have a long involvement in the infrastructure-related
system integration (SI) business for central and local governments. As aresult, my experience extends to a wide range of the business fields, such as
television broadcasting transmission equipment field and the integration offire-fighting and transportation infrastructure systems.
While I was engaged in these businesses, I had many occasions to work
together with NEC Networks & System Integration Corporation in areas suchas installation, maintenance, and operation services.
What I have been convinced of once again since my appointment aspresident is the fact that the Company has an extensive range of businessdomains in the information and communication technology (ICT) business.
This gives it strong potential that will only grow in the future. I am determined
to vigorously lead the Company to new growth.

Q: Please tell us about your ambitions.
Aiming to become the top brand in the industry
The Company’s strength lies in its ability to provide turnkey ICT solution, such as system integration, installation, maintenance and services
business, including operation services and outsourcing services. It also
possesses ICT technologies that it has developed over many years, and thebrand strength as a member of the trusted NEC Group.
The Company’s mission is to contribute to customers and society bybringing out the best of these strengths and advantages. I believe that
fulfilling this mission will enable the Company to take a leading brandposition in the industry and enhance its corporate value. I also believe that
it is essential to increase the satisfaction of each and every shareholder
and stakeholder.
NEC Networks & System Integration Corporation will also increasingly show
its individuality while harnessing the advantages it enjoys as a member of
the NEC Group.

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NEC Networks & System Integration Corporation
Annual Report 2012

Q: What do you value most for the

Q: Do you have a message to ourI like to listen carefully to voices from the workplace,which is close to customers.

We will aim to further improve our corporate value.

management?

Given the nature of our businesses, we have many opportunities
to work closely with customers. As a result, knowing thesituation in the workplace is the same as knowing about
customers. Therefore, I believe that it is important to carefully
listen to voices from the workplace.

shareholders?

To meet the expectations of our shareholders, I will aim toachieve sustained growth, and will make the upmost effort tobolster our corporate value.
As we pursue this course, we hope that we can continue tocount on the support and understanding of our shareholders.

In the workplace, we constantly need to deal with issues fromthe perspective of customers while understating their situation.
I think that addressing these issues is the action that will
ultimately contribute to customers.
Let’s make the impossible possible.
One of my favorite expressions is “Let’s make the impossible
possible.” This means striving to achieve something that wehave not able to achieve, even if only partially. I hope that all
employees of the Company will keep this spirit in mind as they
go about their duties.
When each employee changes their thinking in this way, theorganization and the Company will change. I will clearly
indicate the direction for chanes that all the employees will
take, and show leadership in guiding the employees to achieve
our mission.

Q: How will you respond to a rapidlychanging society?

Make environmental changes a business opportunity.
From a macroeconomic perspective, the Japanese economy isrecovering. However, I think that economic developments, suchas the European debt crisis, are risk factors in our businessenvironment.
In this economic environment, in ICT, I believe that needs forcloud computing will increase and demand related to thereconstruction effort from the 3.11 earthquake will grow strongly.
For example, I think the increasing use of smartphones andtablet terminals as a result of growing needs for cloudcomputing will mean that the Company’s Enterprises Networks
business will have more opportunities to propose ICT systems
based on cloud computing for customers. In addition, as aresult of the rapid increase of communication traffic, reflecting
the growing popularity of smartphones and other devices,
telecommunications carriers have been stepping up theirinvestment in infrastructure. Under these conditions, the Carrier
Networks business also has excellent business opportunities.
The Company’s Social Infrastructure business is also expected
to play a more important role across broader businessareas, such as reconstruction projects and the digitalization offire-fighting and disaster prevention systems.
By responding to these changes in the business environment,
I aim to ensure that the Company’s three business segments
grow steadily.

NEC Networks & System Integration Corporation
Annual Report 201205

Business Performance by Segment
Through its three main business pillars,

6.2%

The Company offers support to bolster value for a wide
range of customer by leveraging its customer-driven
proposal capabilities and its comprehensive network
knowhow and technologies.

Sales by Segment
Net

Other

the Enterprises Networks business, the Carrier Networks
business, and the Social Infrastructure business, NEC
Networks & System Integration Corporation provides
comprehensive services to customers, from planning tosystem design, maintenance and operation in a broad
range of areas, including enterprise ICT and public andsocial infrastructure.

SocialInfrastructure
34.4%

Enterprises
Networks
36.2%

Carrier
Networks23.2%

Enterprises Networks
business The Enterprises

Networks businessprovides solutions that use ICT, mainly for theenterprises market. Services include EmpoweredOffice,a comprehensive office innovation solution that achieves
superior office productivity and efficiency together
with energy savings, and related services such as theoperation and monitoring of systems, as well as cloudcomputing services that use the Company’s data centers.
Having recovered from a sharp drop immediately after
the earthquake, net sales rose 3.1% year on year, mainlyreflecting higher sales for manufacturing and service companies and the effects of making Daiichi Ad System Co.,
Ltd. a consolidated subsidiary. Orders staged a further recovery, rising 5.8% from the previous fiscal year.

Sales Trends

2013/3¥ billions

86.0¥ 80.7 billion

2012/3 ¥ billions

80.7

3.1% increase year on year

2011/3 ¥ billions 78.3

(Forecast)

Net Sales* Forecast figure is based on data as of April 27, 2012.

06

NEC Networks & System Integration Corporation
Annual Report 2012

Carrier Networks
business The Carrier Networks business provides Sales Trends
services related to public
telecommunications carriers.

networks,

mainlyfor

It supports telecommunications carriers through acomprehensive structure by offering services thatentail the integration of high quality and highly reliablenetworks, as well as operation and maintenance services
that take advantage of its nationwide support service
network. Through these activities, the Carrier Networks
business supports daily communications including mobile
phones and the internet.

2013/3(Forecast)¥ billions 51.0

Net Sales¥ 46.7 billion

2012/3 ¥ billions

7.8% increase year on year

2011/3 ¥ billions 43.3

46.7

* Forecast figure is based on data as of April 27, 2012.

By responding aggressively to increased investments
in networks by telecommunications
carriers in connection to increases in thenumber of users of smartphones, net
sales rose 7.8% year on year. Orders
achieved higher growth, posting a 15.9%
year-on-year increase.

Social Infrastructurebusiness The Social Infrastructurebusiness
mainly provides services related to the integration,
operation, and monitoring of systems for ICT
infrastructure used by governments and public utilities(including broadcasters and electric power companies).
It develops social infrastructure that enables safe andcomfortable lives, including local information networks
as well as fire-fighting and disaster prevention systems.
It also offers installation of telecommunications
infrastructure, such as mobile phone base stations.
Net sales fell 23.3% year on year, in comparison topeak investments in local information networks in theprevious fiscal year, in relation to the introduction of digitalterrestrial television broadcasting. Although orders also
declined 10.3%, they showed signs of bottoming out asdomestic orders started to grow year on year in the fourth
quarter.

Sales Trends

2013/3(Forecast)¥ billions 70.0

Net Sales¥ 64.5 billion

2012/3 ¥ billions

23.3% decrease year on year

2011/364.5¥ billions 84.1

* Forecast figure is based on data as of April 27, 2012.
NEC Networks & System Integration Corporation
Annual Report 2012

07

Topics NEC Networks & System Integration Corporation: Supporting the Societies (i)Integratinga digital television broadcasting system forTokyo Skytree
Since its opening in May 2012, Tokyo Skytree has attracted a huge
number of visitors. As the world’s tallest free-standing broadcasting
tower, it plans to start broadcasting in 2013.
The Company is integrating digital television broadcasting systems
for three television stations in Tokyo Skytree.

Achieving a reliable viewing environment for televisions
and the One Seg service
Tokyo Skytree is expected to bring many advantages, including
improved viewing of not only television broadcasting, but also thebroadcasting service for smartphones and mobile phones such as
One Seg*.
NEC Networks & System Integration Corporation has long acquired
high-standard technologies and extensive service experiencethrough its operations of integrating, operating and maintaining
digital television broadcasting facilities, relay stations, studioequipment and other facilities essential for transmitting digital
television broadcasting to households.
The Company will continue to contribute to the creation of aconvenient and reliable viewing environment in the future byharnessing its strength in these technologies, while operating andmaintaining systems that have been installed at Tokyo Skytree.
Trademark: Tokyo Skytree is the trademark of Tobu Railway Co.,
Ltd. and Tobu Tower Skytree Co., Ltd.
*One Seg is a digital television broadcasting service for mobile devices. It is broadcasting
using the radio wave of the terrestrial digital television broadcasting, and generates higher
quality images, even outside buildings or while travelling, than existing analog broadcastingfor mobile devices.

Digital television transmission system
Programs produced by television stations are transmitted to each household throughdigital signals via television transmission facilities (parent transmission stations) and local
relay stations.

Television transmission facilities

Airwave

Parent transmission station
Relay station
Airwave

Airwave
Television station/
studioTelevision relay station
Television relay broadcasting facilities
Microwave

Microwave

Each household
Fiber-optic lines

08

NEC Networks & System Integration Corporation
Annual Report 2012

Topics NEC Networks & System Integration Corporation: Supporting the Societies (ii)

Improving

local community services by introducing Life
Communication Service

Making local lives safer and more comfortable
To ensure a safer and more comfortable lifestyle, with thecooperation of NEC Corporation, NEC Networks & System
Integration Corporation introduced Life Communication Service
that used LifeTouch(R), an Android(TM) tablet terminal, toShirakawa-cho, Kamo-gun, Gifu Prefecture (central area ofJapan).
This service contributes to the creation of improved community
service by providing functions such as confirming the safety ofsingle-person households and communication via videophones.

Creating more extensive services by revitalizing
communication
This service enables single-person households and municipalities
to communicate through “LifeTouch(R)” on a daily basis. It

offers a monitoring service that revitalizes mutual communication,
while achieving a reduction in the operating burdens of themunicipalities through functions such as concurrent and repeated
information distribution.
The Company is also planning to gradually launch services,
including the electronics circular service that enables municipal
offices to promptly distribute and circulate information and the
shopping support service.
The Company is committed to continually supporting the safe
and comfortable lifestyles of local community members in the
future by developing and providing a range of services from theperspective of customers and users.
* LifeTouch(R): LifeTouch(R), a cloud computing communicator, is an Android(TM) cloudcomputing terminal that achieves new services through its portable size and user-friendly
operability.

Supporting the creation of a town where the elderly are able to live
comfortably by providing simple and user-friendly services
Monitoring service in Shirakawa-cho (Operation image)Confirming the status of community members via
videophones to follow up replies to the inquiry,
when necessary

Regular distribution of“inquiry greetings”

Town hall / Comprehensive
support center
Safetyconfirmation

Touch

Face-to-facecommunication via
videophones

Community
network

Single-person household(Elderly household)

Simple one-touch reply system

Examples of services to be launched
Prompt information distribution from municipal offices

Easy everyday shopping

Electronics circular service

Shopping support service
Information reaches residents quickly
and easily.
The service is able to distribute a
range of information, for example,
sending messages with a siren soundin emergencies.

Shoppers can place orders
with local shops without goingout, and receive information
about sales and discount sales
times.

Touch

Touch

NEC Networks & System Integration Corporation
Annual Report 201209

Topics NEC Networks & System Integration Corporation: Supporting the Societies (iii)
earthquake and tsunami observation
Constructing undersea
systems
Faster and more accurate earthquake and tsunami warning
In the wake of the Great East Japan Earthquake, demand for faster and moreaccurate earthquake and tsunami detection and warning has been growing.
To respond to such demand, the Japanese government is accelerating thedevelopment of Ocean Bottom Earthquake and Tsunami Observation Systems in the Pacific coastal regions of eastern and western Japan, which arecapable of monitoring earthquakes and tsunami in real time.
In this environment, the Company, in cooperation with NEC Corporation, has been designing and manufacturing systems andequipment for the construction of DONET2 (for the Japan Agency for Marine-Earth Science and Technology) and the Ocean Bottom Earthquake and Tsunami Observation System along the Japan
Trench (for the National Research Institute for Earth Science and Disaster
Prevention).
The construction of these observation systems will make it possible to detect
earthquakes more quickly and predict the arrival time, height and otherinformation of tsunami more accurately than before.
The Company will continue to contribute to building infrastructures where
people live safely and comfortably through supporting construction of
Ocean Bottom Earthquake and Tsunami Observation systems.
DONET: Dense Oceanfloor Network System for Earthquakes
and Tsunamis

Provided by JAMSTEC

A system installed by theJapan Agency for Marine-Earth Science and Technology(JAMSTEC) under the budgetof the Ministry of Education,
Culture, Sports, Science andTechnology to prevent andminimize disasters caused bymassive earthquakes in the
Tokai, Tonankai and Nankai
areas of western Japan

Ocean Bottom Earthquake
and Tsunami Observation
System along the Japan
Trench : Deployment Area

Hypocenter region of the Great
East Japan Earthquake
Estimated hypocenter region and sourceareas of tsunami (in the case of TokaiTonankai-Nankai earthquakes outbreakcarrying out simultaneously)

Tokai
Tonankai

DONET2
Deployment Area

DONET1
Deployment Area

NankaiJapan trench

Sagami trough

Nankai troughOcean Bottom Earthquake and Tsunami Observation System along theJapan Trench
A system installed by the National researchInstitute for Earth Science and Disaster
Prevention (NIED) under the aegis of the
Ministry of Education, Culture, Sports, Scienceand Technology to prevent and minimize
disasters in the Pacific coastal regions ofeastern Japan, which may be caused bya massive tsunami as a result of a major
earthquake, by the means of the early
warning system

Provided by NIED

NEWS! April 2012
NEC Networks & System Integration Corporation forms an alliance with MOSHI MOSHI HOTLINE, Inc.
- Strengthening the ability to support customers’ management innovation Core work /Against a backdrop of sluggish growth rate in the domestic market andStrategic work
escalating competition, reflecting growing globalization, Japanese companies
Other peripheral
have increasing needs to pursue management innovation so that they canworkConcentration • Meeting
concentrate management resources on core work.

To respond to these needs, NEC Networks & System Integration Corporation
strives to streamline customers’ operations and improve creativity byintroducing office innovation and other measures based on ICT. Meanwhile,
while focusing on the contact center outsourcing operation business, the corebusiness, MOSHI MOSHI HOTLINE, Inc. has been bolstering its outsourcing
operatioN service for routine administrative operations, such as administration,
human resources and accounting by using its knowhow in human resources
services.
The alliance is designed to integrate the strengths of the two companies and to
improve their ability to provide a one-stop service in responding to customers’

10

NEC Networks & System Integration Corporation
Annual Report 2012

on core work • Travel time, etc.

More creative

NEC Networks & System Integration
Office innovation solution,“EmpoweredOffice”

More efficientRoutine administrativework
Outsourcing• Paper work
• Telephone
operation, etc.

MOSHI MOSHIHOTLINE BPO*
services+*BPO: Business Process Outsourcing(Outsourcing of part of the company's operations)needs for management innovation. Based on
this alliance, the Company will aim to expand its
operations in the medium- to long-term by offering
the optimal service for helping customers strengthen
their corporate performance.

Corporate Governance
The Company believes that the cornerstone ofcorporate governance is ensuring managementsoundness and transparency by establishing amanagement system that enables quick decision-making
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 establisheda corporate governance system in which the Board of
Directors and Board of Corporate Auditors play key roles.

The Company has also adopted an executive officer
system to clearly demarcate the supervisory function andthe business execution function. To enhance managementtransparency, the Company has outside directors andoutside corporate auditors and seeks to achieve soundmanagement by encouraging cooperation amongcorporate auditors, the Internal Auditing Division, andaccounting auditors.

I. Description of Corporate Organs(1) Board of Directors
The Board of Directors is composed of nine 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 termsof 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
Based on an executive officer system, the Company also formed the Executive Committee, to discuss
policies pertaining to key management and operating issues, and the Business Execution Committee, tomonitor the progress of and report on significant matters concerning business execution, consisting of mainly
executive officers at senior vice president level and higher and corporate auditors.

(3) Board of Corporate Auditors
The Board of Corporate Auditors consists of four corporate auditors, including three outside auditors. It
decides audit policies and related matters, and reports on the status of audits performed by each auditor.
Corporate auditors also attend Board of Directors meetings and other important meetings, examine significant
documents related to final decisions, and listen to directors and employees on performance of their duties,
thus contributing to a system for sufficiently scrutinizing directors’ performance of their duties.

(4) Internal Auditing Division
The Internal Auditing Division has been established as an internal audit unit independent from the businessexecution 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
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.

NEC Networks & System Integration Corporation
Annual Report 201211

II. Development of Internal Control Systems
The Company has established a basic policy for the development of internal control systems, as shown
below, under Article 362, Paragraph 4, Item 6 of the Company Law and Article 100, Paragraphs 1 and 3 ofthe Enforcement Regulations of the Company Law. The Company maintains the appropriate execution ofoperations under the basic policy, laws and regulations, and internal regulations.

The Company’s mechanisms of business execution, management oversight, and internal control
General Meeting of Shareholders
Elect/Dismiss

Elect/Dismiss

Elect/Dismiss

Management/Supervision
Board of Directors(Directors)

Audit

Board of Corporate Auditors(Corporate Auditors)

Supervise

Cooperate

Audit
Cooperate

Business Execution
Executive Committee

Business Execution Committee

Executive Officers

Internal Auditing Division

Accounting
Auditors

Cooperate

Management Quality
Improvement Committee
Audit
Cooperate

Staff, Management Units and Business UnitsGroup Companies

Internal Reporting and Consultation Office(Corporate Ethics Hotline)

III. Situation of Outside Directors and Outside Corporate
Auditors
Of the Company’s nine directors, four are outside directors. The Company believes this number is appropriate
for giving advice and participating in decision making from fair and objective standpoints, strengthening theCompany’s corporate governance.
Outside Director Takayuki Matsui is a professor at the Graduate 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 management of the Company and to strengthen corporate
governance. Mr. Matsui attended all 12 meetings of the Board of Directors held in FY2011 ended March
31, 2012. He has been designated as an independent director defined in Rule 436-2, Paragraph 1 of the
Securities Listing Regulations of the Tokyo Stock Exchange.
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 the Company. He became an outside director at
the ordinary general meeting of shareholders held on June 26, 2012.
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 executionof the Company from a fair and objective standpoint of an outsider. Ms. Ichige became an outside
director at the ordinary general meeting of shareholders held on June 26, 2012. She has been
designated as an independent director defined in Rule 436-2, Paragraph 1 of the Securities Listing
Regulations of the Tokyo Stock Exchange.

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NEC Networks & System Integration Corporation
Annual Report 2012

Outside Director Naoki Hashitani is engaged in the IT Service business of NEC Corporation and uses his
extensive experience and knowledge for the management of the Company. He became an outside director at
the ordinary general meeting of shareholders held on June 26, 2012.
Of the Company’s four corporate auditors, three are outside corporate auditors. We believe this number isappropriate for auditing the directors’ execution of their duties from fair and objective standpoints, to strengthen
the Company’s corporate governance.
Outside Corporate Auditor Junichi Okuyama has been engaged in monitoring of sales activities for many
years. Taking advantage of his extensive experience and knowledge relating to internal control, Mr. Okuyama
primarily audits the legality of business execution from a fair and objective standpoint. He became an outside
auditor at the ordinary general meeting of shareholders held on June 26, 2012.
Outside Corporate Auditor Harutame Umezawa is qualified as a lawyer and has considerable knowledge infinance and accounting. Using his professional knowledge and viewpoint about the law, Mr. Umezawa audits
the directors’ performance of their duties from a fair and objective standpoint of an outsider. He attended all
12 meetings of the Board of Directors and all 13 meetings of the Board of Corporate Auditors held in FY2011.
Mr. Umezawa has been designated as an independent auditor defined in Rule 436-2, Paragraph 1 of the
Securities Listing Regulations of the Tokyo Stock Exchange.
Outside Corporate Auditor Yasuo Totsuka is president at NEC Purchasing Service, Ltd. Making full use of
his extensive experience and knowledge relating to internal control, Mr. Totsuka chiefly audits the legality ofbusiness execution from a fair and objective standpoint. He attended all 12 meetings of the Board of Directors
and all 13 meetings of the Board of Corporate Auditors held in FY2011.
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 theBoard of Directors and on other occasions.
The outside corporate auditors cooperate with the independent auditors, exchanging information andconsulting with them regularly at meetings of the Board of Corporate Auditors and on other occasions.

IV. Internal Audits and Audits by Auditors
The Internal Auditing Division cooperates with the corporate auditors. The division reports the results ofaudits carried out under an audit plan for each fiscal year to the corporate auditors once a year andexchanges opinions with them as necessary.
The corporate auditors, the Internal Auditing Division, and the accounting auditors cooperate with each other,exchanging opinions as necessary for statutory audits.

NEC Networks & System Integration Corporation
Annual Report 201213

Directors andCorporate
Auditors(As of June 26, 2012)(From left)
Mr. Fujita,
Mr. Sato,
Mr. Wada,
Mr. Hara,
Mr. Kanehako

Directors

President:
Masao Wada

Senior Vice Presidents and Members of the Board:
Atsushi Fujita
Akinori Kanehako
Takahiko Hara
Yoichi Sato

Members of the Board:
Takayuki Matsui 1, 3
Tetsujiri Arano 1
Yumiko Ichige 1,3
Naoki Hashitani 1

Corporate
Auditors

Junichi Okuyama (full-time) 2
Hirotaka Akizuki (full-time)
Harutame Umezawa 2, 3
Yasuo Totsuka 2

Notes:
1. Outside directors as stipulated in Item 15 of
Article 2 of the Company Law of Japan
2. Outside corporate auditors as stipulated in Item
16 of Article 2 of the Company Law of Japan
3. Independent directors and an independent
auditor as stipulated in Rule 436-2, Paragraph
1 of the Securities Listing Regulations of theTokyo Stock Exchange

14

NEC Networks & System Integration Corporation
Annual Report 2012

Corporate Social Responsibility (CSR)
CSR Policy
The Company builds trusting relationships with its stakeholders
by putting compliance first, working to solve social issues
through business activities, and soundly improving and returning
profits to society.

Seven CSR Initiatives
We identified the most relevant and significant issues and themes
for stakeholders and society as a whole and selected seven CSR
initiatives.

corporate citizen.” In 1999, the Company received ISO 14001
certification for environmental management. Since then it has
worked to reduce waste disposal volume, achieved 100 percent
use of recycled paper for copy paper in the year ended March
31, 2002, improved the recycling rate, changed to small lots
for lead soldering for on-site use, and introduced low-pollution
vehicles. Moreover, in recent years, the Company has
implemented green procurement to meet chemical substanceregulations (the European RoHS directive and others), andconducted energy conservation and emissions trading aimed atpreventing global warming.

Information Security and Protecting Personal
Information
Establish CSR Platform

Initiatives for Customers

Strengthen Risk Management
and Compliance
Earn Customer Trust
Address Global Warming andEnvironmental Preservation

Include Everyone in Systems
and Services
Build Reliable Information andCommunications Infrastructure
Provide Multifaceted Security

Improve
Working Conditions
andDevelop Human
Resources Globally

Through these initiatives, we will fulfill our responsibilities tosociety, as expected.
Another important social responsibility is accountability, which
the Company fulfills by disclosing the details and results of CSR
initiatives to stakeholders.

Quality Initiatives, Environmental Activities,
Information Security and Protecting
Personal Information Toward Greater
Customer Satisfaction and Sustainable
Development
Quality Initiatives
The Company constantly pursues the highest levels of quality
and safety through measures such as customer satisfaction andquality management activities, including activities based on ISO
9001 certification. The Company provides customers with highquality, safe and secure systems with the latest technology.

Environmental Activities
The Company states in its Charter of Corporate Behavior that
it will “contribute to society as an environment-conscious

The Company has established a personal information protection
policy. Moreover, the Company understands that personal
information is an important information asset, and maintains acompliance program (a personal information management
system) that conforms to JIS Q 15001: 2006. In this way, every
employee works to properly protect personal information. In
addition, the Company established the Basic Policy on
Information Security and the Basic Rules on Information Security,and conducts activities to maintain and enhance information
security. Based on the policy and rules, the Company strengthens
security measures for internal information systems and promotes
educational activities for Group employees and others, while
strictly controlling security at data centers and other locations
that handle important customer information, through operations
based on ISO/IEC 27001, an international standard for information
security systems.
ISO 9001: 2008
Certificate Number: JQA-0471
ISO 14001: 2004
Certificate Number: JQA-EM0640
ISO/IEC 27001: 2005
Certificate Number: IC03J0025
Organization: SI & Services Operations Unit Office Solutions Division
Certificate Number: JQA-IM0190
Organization: SI & Services Operations Unit Outsourcing Service Division
Certificate Number: JQA-IM0351
Organization: SI & Services Operations Unit Service Infrastructure Division
Certificate Number: BSKS0027
Organization: Network Infrastructures Operation Unit
Public Infrastructure System Division
Certificate Number: JQA-IM1013
Organization: Regional Operations Unit Kansai 1st & 2nd Service Center /Kansai SI Department
ISO/IEC20000-1:2005
Certificate Number: JQA-IT0037
Organization: SI & Services Operations Unit Outsourcing Service Division /Customer Engineering Division / Service Infrastructure Division
Privacy Mark
Certificate Number: 21000053
BS25999-2:2007(Business Continuity Management System)
Certificate Number: BCMS539922
Certificated Organization: NEC Group
Scope of the company’s Certification: Operation and Maintenance Business(Unified Communication Network in Tokyo)
Carrier Operation and Maintenance Business

NEC Networks & System Integration Corporation
Annual Report 201215

Six-Year Summary of Selected Financial Data
NEC Networks & System Integration Corporation and Consolidated Subsidiaries Years ended March 31

Thousands of
U.S. dollars 1

Millions of yen
2012

2011

2010

2009

2008

2007

2012

215,373 ¥

212,277 ¥

222,046 ¥245,257 ¥

254,512 ¥

253,577 $2,598,926

Net sales

204,658

217,948

217,727

249,070258,212

254,6412,469,627

Selling, general and administrative expenses

22,332

22,297

23,07024,501

24,82425,413

269,482

Operating income

9,747

10,835

9,867

10,968

10,743

7,849

117,618

Net income

4,593

4,747

5,806

5,154

4,412

3,476

55,424

Free Cash Flows

16,053-3,49914,185

4,778

6,355

5,770

193,713

Capital expenditures

2,533

2,762

1,928

2,529

2,611

2,371

30,566

Depreciation and amortization

1,941

2,151

2,244

2,270

2,130

2,203

23,422

92

52

119

290

419

595

1,110

For the year:
Orders¥Research and development costs
At year-end:

149,707 ¥ 149,923 ¥

146,915 ¥

147,462 ¥

154,171 ¥

148,797 $ 1,806,528

Shareholders’ equity

Total assets¥

80,69277,44574,043

69,33465,251

61,692

973,718

Total net assets

80,651

77,464

74,221

69,34066,132

62,201

973,22392.36 ¥

95.46 ¥

116.74 ¥103.61 ¥88.67 ¥

70.72 $Per share of common stock (yen and U.S. dollars) :Net income¥

Net assets (BPS)

1,115

1,610.38

1,546.42

1,479.62

1,381.92

1,311.71

1,233.52

19,433

28.00

26.00

25.00

22.00

20.00

14.00

338

Operating income to net sales (%)

4.8

5.0

4.5

4.4

4.2

3.1

Net income to net sales (%)

2.2

2.2

2.7

2.1

1.7

1.4

6.4

7.4

6.9

7.4

6.9

5.5

5.9

6.3

8.2

7.7

7.0

6.0

53.5

51.3

50.1

46.6

42.3

41.3

0.05

0.08

0.07

0.07

0.09

0.09

5,934

5,939

5,998

5,906

5,817

6,407

34,475 ¥36,516 ¥36,580 ¥42,493 ¥42,247 ¥45,053 $416,013

774

795

975

879

722

615

9,340

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 ¥82.87 = U.S.$1.00, the approximate Tokyo foreign exchange market rate as ofMarch 31, 2012.
2. Return on assets: Ordinary income / Average total assets during the term
3. Return on equity: Net income / Average net assets during the term
4. Debt to equity ratio: Interest-bearing debt / Net assets
5. Net sales per employee: Net sales / Average number of employees during the term
6. Net income per employee: Net income / Average number of employees during the term

16

NEC Networks & System Integration Corporation
Annual Report 2012

Net Sales

Operating Income( Millions of yen )( Millions of yen )12,000300,000

258,212250,000

249,070
217,727

217,948

150,000

6,000

100,000

4,000

50,000

2,000

2009

2010

2011

( Years ended March )

9,747

204,658
8,000

2008

10,835
9,867

10,000200,000

0

10,968

10,7430

2012

Net Income

2008

2009

2010

2012

2011

( Years ended March )Total Assets and Total Net Assets( Millions of yen )( Millions of yen )

5,806

6,000

200,000

Total assets

Total net assets

147,462

149,923

5,154
5,000

4,749

4,412

4,593

154,171
150,000

146,915

149,707

4,000
100,000

3,000

66,1322,000

69,34077,464

74,22180,65150,000
1,000
0

2008

2009

2010

2011

0

2012

2008

2009

( Years ended March )

2010

2011

2012

( As of March )Operating Income to Net Sales
and Net Income to Net Sales(%)

ROE and ROA(%)

Operating income to net sales

5

4.2

4.4

4.5

ROE (Return on equity)

Net income to net sales

6

5.0

10

4.8
8

4

2.2

2.1
2

6

2.7

3

7.0
6.9

7.7

8.2

7.4

6.4
7.4

6.9

2.2

6.3

5.9

4

1.7

2

1
0

ROA (Return on assets)

2008

2009

2010

2011

( Years ended March )

2012

0

2008

2009

2010

2011

2012

( Years ended March )NEC Networks & System Integration Corporation
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NEC Networks & System Integration Corporation
Annual Report 201247

Global Network(As of March 31, 2012)

Head Office2-6-1 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, Shin-etsu, Kitakanto, Kanagawa, Chubu, Shizuoka,
Hokuriku, Keiji, Kobe, Chugoku, Shikoku, Kyushu

Subsidiaries and Affiliates
Toyo Networks & System Integration
Co., Ltd.
Head office: Kanagawa, Japan
Established: May 2005
Capitalization: ¥400 million
Voting rights: 100.00%

NEC Networks & System Integration
Engineering, Ltd.
Head office: Tokyo, Japan
Established: October 1992
Capitalization: ¥50 million
Voting rights: 100.00%

NEC Networks & System Integration
Services, Ltd.
Head office: Tokyo, Japan
Established: July 1988
Capitalization: ¥60 million
Voting rights: 100.00%

NESIC Ascerent, Ltd.
Head office: Tokyo, Japan
Established: June 1951
Capitalization: ¥20 million
Voting rights: 100.00%

TOYO ALPHANET CO., LTD.

NESIC PHILIPPINES, INC.

Head office: Kanagawa, Japan
Established: April 1981
Capitalization: ¥20 million
Voting rights1 : 100.00% (100.00%)

Head office: Manila, The Philippines
Established: April 1991
Voting rights: 100.00%

Nichiwa Co., Ltd.

Head office: Jakarta, Indonesia
Established: May 1993
Voting rights: 80.00%

Head office: Hyogo, Japan
Established: January 1953
Capitalization: ¥50 million
Voting rights: 100.00%

DAIICHI AD SYSTEM CO., LTD.
Head office: Tokyo, Japan
Established: August 1979
Capitalization: ¥75 million
Voting rights: 78.18%

NESIC BRASIL S/A
Head office: Sao Paulo, Brazil
Established: November 1976
Voting rights: 87.44%

NESIC (Thailand) Ltd.
Head office: Bangkok, Thailand
Established: March 1991
Voting rights: 49.00%

P. T. NESIC BUKAKANESIC (GUANGZHOU) CO., LTD.
Head office: Guangzhou, China
Established: August 1998
Voting rights: 100.00%

Networks & System Integration Saudi
Arabia Co., Ltd.
Head office: Al-Khobar, Saudi Arabia
Established: April 2006
Voting rights: 100.00%

TNSi Europe GmbH
Head office: Koln, Germany
Established: October 2005
Voting rights1 : 100.00% (100.00%)

Note:
1. Figures in parentheses after the percentage ofvoting rights held represent percentages
inclusive of indirectly held shares.

48

NEC Networks & System Integration Corporation
Annual Report 2012Investor Information(As of March 31, 2012)

Corporate Name:
NEC Networks & System Integration Corporation
Established:
November 26, 1953
Number of Employees:
4,393 (Non-consolidated)
5,934 (Consolidated)

Major Shareholders:Number of
Shares Held(Thousands )Percentage ofTotal Shares
Outstanding 2

NEC Corporation

19,10738.39%

Japan Trustee Services Bank, Ltd.1(The Sumitomo Trust and Banking Company, Limited
beneficiary trust account, NEC Corporation retirement
benefit trust account)

6,400

12.86%Name of Shareholder

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

Japan Trustee Services Bank, Ltd. (Trust account)

4,193

8.42%

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

2,599

5.22%

Listing:
Tokyo Stock Exchange, First Section

Sumitomo Realty & Development Co., Ltd.

1,200

2.41%

Japan Trustee Services Bank, Ltd. (Trust account 9 )

940

1.89%

JP Morgan Chase Bank 385166

750

1.51%

Employees’ Stock Ownership Plan

731

1.47%

Mellon Bank, N.A. As Agent For Its Client Mellon Omnibus
US Pension

508

1.14%

The Chase Manhattan Bank, N.A. London Secs Leading
Omnibus Account

548

1.10%

Ticker Code:1973
Fiscal Year:
April 1 - March 31
Annual meeting held in June
Common Stock Authorized:
100,000,000 shares

Notes:
1. Shares held by Japan Trustee Services Bank, Ltd. (The Sumitomo Trust and Banking
Company, Limited beneficiary trust account, NEC Corporation retirement benefit trust
account) give NEC Corporation material voting rights because NEC Corporation has
contributed shares of the Company to its retirement benefit trust. The percentage ofmaterial voting rights held by NEC Corporation as of March 31, 2011 was 51.44%.

Issued:49,773,807 shares
Number of Shareholders:
9,664

2. The percentage of total shares outstanding is calculated based on the number ofshares excluding treasury stock (46,258 shares).

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

Composition of Shareholders:Accounting Auditors:
KPMG AZSA & Co.
0.52%

10.59%

14.20%

Securities
companies

Individuals
and others

Foreign investors,
etc

41.06%

33.54%
Financial institutions

Other domestic companies

Monthly Stock Price Range:
Yen

2,000

High

1,500

Low

Opening
Closing

1,000
High

Closing

500

Opening

Low

0

Blue : Opening Price Closing PriceWhite : Closing Price Opening Price

Monthly Trading Volume:
Thousand of shares

5,000
4,000
3,000
2,000
1,000
0

2008

2009

2010

2011

2012

NEC Networks & System Integration Corporation
Annual Report 201249

CAT.NO.121200302-TA-001
Printed in Japan