ANNUAL REPORT

1998

Fiscal Year Ended March 31, 1998

COMSYS — For Excellence in
Telecommunications

Profile

Financial Highlights

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Nippon COMSYS Corporation
Years ended March 31, 1997 and 1998
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Nippon COMSYS Corporation was founded in 1951 to assume the duties of theConstruction Division of Nippon Telegraph and Telephone Corporation (NTT).

Millions of yen

Since its establishment, the Company has been a leader in the telecommunications

1998

1998

(%)

¥ 53,127
225,147
220,590¥ 57,684
234,877
224,103$ 437,000
1,779,371
1,697,750

8.6%
4.3%
1.6%

518,62118.7%

57,6591,216,371
682,583

21.5%
4.1%
38.4%

COMSYS, is striving to grow its business to meet the 21st century, and to make acontribution to the development of the information-based society. We are fostering

Contract backlog at end of year

57,68468,458Net income
Total assets
Shareholders’ equity¥ 6,267
154,246
65,096¥ 7,611
160,561
90,101a corporate culture characterized by fresh thinking and open communication, in which
each employee can take pride, each employee can thrive, and each employee cangive full expression to his talents and capabilities. We are a creative organization,$

Yenworking toward a better future.
Per share:
Net income
Cash dividends

Contents•••••

Change1997

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

engineering field. A specialist in communications and computer technology,

Thousands of
U.S. dollars¥54.27
11.75

U.S. dollars¥60.96
14.25

$0.46
0.11

12.3%
21.3%

Note: Yen figures have been converted from U.S. dollars at the rate of ¥132.00=US$1, rounded, for convenience only, from anapproximate exchange rate of ¥132.10 to the dollar on March 31, 1998.

34

Corporate Information

35

Corporate Directory36

94 95 96 97 98

94 95 96 97 98

234.9

Organization Chart

225.1

19

186.2

Financial Section

143.0

18

135.8

Board of Directors and Auditors

7.6

7
8
10
12
16

6.3

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

3.7

6

3.6

Corporate Citizenship

2.4

4

New Orders Received(¥ Billions)224.1

Toward the 21st Century-Our Vision of the Future

Net Income(¥ Billions)

Net Sales(¥ Billions)

220.6

2

180.6

Letter from the Management

152.2

1

136.0

Financial Highlights

1

94 95 96 97 98

Letter from the Management

Environment
he Japanese economy was buffeted in fiscal 1997 (ended
T March 31, 1998), by weak consumer spending, Japan’s
troubled financial industry, and the severe problems in other
Asian economies. The lack of confidence resulting from thesedevelopments had an adverse effect on Japanese securities markets. No signs of recovery, therefore, were apparent.
While the business environment overall was characterized by a mood of pessimism, deregulation in thetelecommunications industry
has brought rapid advances ininternational communications,and in the shift to multimedia
computing. As the creation ofa high order, information-basedsociety proceeds on a global
scale, NTT has scheduled its
restructuring for next fiscal year.
This has caused intensificationof competition among telecommunications service providers,
including European and North
American firms, and there havebeen a number of mergers andtie-ups. Business conditions inthis market have changed so
drastically that the telecommunications industry is calling thisa “warring states” era, after the
Warring States period of JapaShozo Iwasaki
nese history.
Chairman of the Board
Nippon COMSYS Corporation has been closely
scrutinizing these rapidlychanging market trends, withan eye to strengthening its marketing capabilities, technological expertise, and costcompetitiveness. As part of our attempt to increase orders from
NTT, our biggest customer, and its subsidiaries and affiliates,
we are engaged in a company-wide effort to strengthen our operations. This will allow us to respond to NTT’s coming,
post-reorganization contracting requirements. Further, we are
expanding our operations in the area of software development,
and are striving to expand orders for all types of telecommuni-

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cations construction at home and overseas, with particular emphasis on Southeast Asia.
Performance
espite the operating environment described above, we were
D able to achieve an increase in total orders received of 4.3
percent, to ¥234.9 billion (US$1,779 million). Total revenuesrose 1.6 percent to ¥224.1 billion (US$1,698 million).
The Company’s comprehensive reevaluation of operations
in all areas continued throughout in this term, setting thestage for the implementationof new systems. Branches werereorganized as profit centersand given responsibility for
their own performance. We
consolidated and strengthened
our subcontracting system, andtook steps to apply funds withgreater eff iciency. These
companywide efforts to improve prof itability showed
their effects in a 3.5 percent increase in operating income,which rose to ¥14.1 billion(US$107 million), and in the21.5 percent jump in net income, which increased to ¥7.6
billion (US$58 million).
Outlook and Important Issues
TT is implementing a
N new system that will allow contractors designated by
NTT to exercise a great dealof discretion in the executionof projects. To ensure that NTT and its group of companies
remain the primary focus of our operations, we are employing
our many years of experience in a radical reevaluation of ourorganization. While COMSYS is already an NTT-certified contractor, offering a full range of services from project planning,
design, and execution to quality control, we must now expand
our operation and strengthen our business base in preparation
for the coming changes in NTT’s system.

2

With the global shift to multimedia computing and communications, the telecommunications market will diversify andcontinue to expand. However, a large portion of the Company’sorders come from NTT and the companies of the NTT Group,
and any forecast of COMSYS’s performance must take this into
account. The telecommunications industry can expect to see
demand for investment in diversification, but with the completion of construction in connection with NTT’s shift to digital
services, growth in investment demand has to fall off.
Thus, the expansion oforders is the most pressing issue facing the Company.
However, growth in non-NTT
projects is forecast to be extremely vigorous, as theCompany moves into newfields and diversifies its customer base. The strategic areasof “CC Box” (multi-use underg round cable conduit)
facilities, cable television operations, LANs, and otherdomestic projects, as well as information services andoverseas projects are targeted
for expansion.
COMSYS will continue
to develop the marketing capabilities, technologicalexpertise, and cost competitiveness needed to respond Hironobu Takeuchi
President
flexibly to today’s changing
conditions.

holders of our fifth issue of notes with warrants. This notwithstanding, performance in this term allowed us to declare a
midterm dividend of ¥7 per share (a ¥3 ordinary dividend anda ¥4 special dividend), as well as an ordinary dividend of ¥3
per share and another special dividend of ¥4.25 per share at
year’s end, for a total dividend of ¥14.25 per share for the term.
In the future, we will continue to place primary emphasison dividends in providing returns to shareholders. However, in
the interest of providing a more diversified return, from next
year forward we will also bebuying back and retiring ourissued stock shares. In accordance with this policy, next
year we will declare dividends
in the amount of ¥10 per share(a ¥5 midterm dividend and a¥5 year-end dividend), and wewill also set aside ¥5 per sharefor the buyback of our stock.
This buyback is scheduled tocontinue until our fiscal 1999
midterm report.
Capital Investment and Fund
Acquisition
apital investments in the
C amount of ¥2.56 billion(US$19 million) were madeduring the fiscal year, primarily for construction of our
new Tohoku and Tokaibranches. In addition, investments were made in thepurchase of land adjoining theShinetsu Branch’s Yanagihara
work site, and in construction
machinery. No bonds or other instruments were issued during
this term.
Nippon COMSYS Corporation requests the continued
support of the company’s friends, clients, and shareholders, as
we confront and overcome the challenges we face.

Dividends
ur fundamental dividend
O policy, which is among the most important issues we face,is to place primary emphasis on shareholder concerns in setting dividends. In preparation for future expansion of operations,
we must strengthen our financial structure and improve our return on equity. We must also consider trends in the Company’s
performance and our ability to set dividends.
In the current term, the Company was faced with the responsibility to meet its obligations with regard to dividends to3

Toward the 21st Century - Our Vision of the Future
Strengthening our NTT construction operations, as well as increasing
the earnings of our domestic and overseas telecommunications construction projects and information services such as software development. By
2002, we will increase total annual revenues to ¥330 billion (US$2,500
million), while bringing the ratio of NTT contracts down from thecurrent 70 percent to approximately 50 percent.
Responding to the intensifying cost competition in the market with acompanywide efficiency enhancement program, which will encompass
not only subsidiaries and affiliates, but subcontractor firms as well; andincreasing total profits per employee in our manufacturing division bymore than 20 percent, to achieve recurring profits of ¥18 billion(US$136 million).
Strengthening training programs and developing proprietary technology, primarily in the field of construction, in response to today’s rapid
pace of technological innovation.
Continuing to stress mechanization and advanced facilities on ourconstruction sites, for the purposes of improving the work environment
and ensuring worker safety. COMSYS projects that Japan’s multimedia
market will grow to ¥123 trillion (US$932 billion), including a video andcomputer software market of ¥29 trillion (US$220 billion), a network
service market of ¥23 trillion (US$174 billion), and a communications
and computer terminal market of ¥34 trillion (US$258 billion). As aresult, demand for optical-fiber related construction projects is forecastat ¥33-53 trillion (US$250-402 billion). COMSYS is determined not justto play a role in the creation of these new and exciting communications
capabilities, but to become the leading firm in the field. In this way,
COMSYS will make a contribution to a higher quality of life, and to theenhanced business possibilities represented by these new telecommunications capabilities.
123

The opening of the 21st century will be characterized by explosive
growth in multimedia computing and communications, as the world sees
the evolution of high order, information-based societies. For thetelecommunications industry, this will mandate development of theability to transmit data in any form, at any time, to any destination. The
Ministry of Posts and Telecommunications has announced the Information Communications Infrastructure Program, which projects thedevelopment of an optical fiber network serving the entire nation by theyear 2010. COMSYS expects to be deeply involved in the execution ofthis plan.
To clarify its response to these trends, COMSYS has drafted a
medium-term management plan, which it calls the COMSYS ’90s II
plan. The plan originally covered the period from 1994 through 1999,
but is reevaluated annually, with particular emphasis on operational
goals. The current reevaluation takes into account the continuing
proliferation of multimedia computing and communications, as well as
trends among telecommunications firms, with a perspective projected to
the year 2002. Goals now include:
Becoming a comprehensive engineering firm operating within theincreasingly advanced, diverse, and expanding telecommunications
market, with communications and computing technology to achieve
improving performance and to make a contribution to the high-orderinformation based society.

28% Non-NTT¥123
trillion (2010)¥16 trillion (1995)

Sources of Construction
Contracts

The Growing
Multimedia Market

16

72% NTT

1995

4

2010

5

Review of Operations

Corporate Citizenship

COMSYS is taking an active role in thecommunities that host it, fostering environmental
awareness, sponsoring cultural events, andoffering disaster-preparedness training.
Mindful of the environmental effects of paper
consumption, COMSYS has implemented a paperwork reduction program, with the objective of reducing the Company’s paper use. Paperwork reduction will also, of course, result in increased
administrative efficiency, as approximately 40 percent of the forms used by the Company will beabolished.
Demonstrating its commitment to responsible
conservation, COMSYS has published “Global
Environmental Protection Regulations” to govern
all phases of the Company’s operations.
In 1995, the Company spearheaded a drive tocollect contributions to buy artificial limbs
for the disabled victims of Cambodia’s seeminglyinterminable wars. This drive, which broughtin ¥2,750,781, was born of our desire to make evena small contribution to rebuilding that
war-torn land, to bring a measure of relief toeven one person.
In December 1994, COMSYS provided support to the Japan Volunteer Center (JVC) for aholiday presentation of Handel’s Messiah at
Tokyo’s Showa Women’s College. JVC is one ofJapan’s premier volunteer organizations, withmembers from eight countries in Asia, Africa, andCentral and South America.

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In September 1996, the Company held adisaster-preparedness day at its headquarters
and Tokyo region branches, the third to concentrate on earthquake response. The primary
theme of this training was preparation for actions
needed on construction sites following a major
earthquake. The Company’s ham radio club wasagain called upon to keep communications open,
as they would be in an actual emergency. Evacuation and fire-fighting drills were held in cooperation with local f ire departments,
and the classroom training was held for key
personnel.
Another of the Company’s activities is supporting The Tokyo Philharmonic Orchestra, of
which COMSYS is a special member.
In 1984 the Tokyo Philharmonic gave performances in f ifty cities in seven European
countries, and in 1989 toured twenty cities in eight
European countries. In 1994, the Philharmonic
performed in fifteen cities, mainly in Germany andEngland. These concerts have earned the Tokyo
Philharmonic a solid international reputation.
COMSYS is proud to be able to contribute inthis way to the culture and society of our host regions. In this way, we return something to the communities that have made our existence and growth
possible.

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Sales by Business Category

Overseas Construction

Domestic Construction and Engineering

Information Systems

5% 7%

21%

"Outside" Projects

34%

2"Inside" Projects
1

33%

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NTT Construction

67%

7

NTT Construction

129.6

111.1

99.3

159.4

stretches for a total of 14 kilometers, from
Chiba Harbor to Yokohama’s Bay Bridge, passing
en route the ultramodern Makuhari Messe
Building and other examples of cutting-edgearchitecture. The panorama of these buildings has
made the Aqua Line a magnet for sightseeing
tourists and local residents, particularly at night.
COMSYS’s NTT Construction sector is
responding to the rapid technological advancesof the multimedia era by striving to achieve thefusion of various technologies and by enhancing
overall technological expertise. We have also
pursued a vigorous effort to increase our contracts
received. However, with a declining trend in new
telephone subscriptions driving down capitalspending in the industry, orders received inthis sector declined 1 percent to ¥155.5
billion (US$1,178 million), while the sector’sconstruction revenues fell 5.9 percent to ¥150.0
billion (US$1,136 million).
During the coming term, we will be faced not
only with the reorganization of NTT, but withworsening competition among telecommunications firms, including European and North
American companies. The need for cost reductions in this industry is forecast to ratchet up
yet another notch. In response, COMSYS will
endeavor to increase its contracts received. To thisend, we will enhance the efficiency of our operations, strengthen our subcontracting
infrastructure, and foster competent technicianswith expertise across a broad spectrum of multimedia technologies.
ady toault re ications
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Our most important customers, NTT and
the NTT Group, continue to face stiffening competition among telecommunications firms in
the arenas of new services and costs. Looking
forward to next year’s reorganization, NTT is moving forward with increases in operational
efficiency and competitiveness, and is making numerous preparations for expansion into a
dynamic group f itted for the coming era ofmultimedia services.
To move forward with ISO 9000 certification,
quality control systems are being assessed, andthe required quality control manuals
prepared. The goal of the NTT Project Division is
to attain certification by September 1998. A goalof January 1999 has been set for certification of
the Kansai, Tohoku, and Tokai branches.
In Kobe, the NTT Construction sector used its
artificial ground-freezing technique to reroute
underground phone lines to make way for the
Kobe Municipal Subway. Operating at twelve
degrees below freezing and twenty meters
below ground level, we utilized the artificial
ground-freezing technique for a total of approximately fifty meters. The scope of this project was
unusually daring, and received a good deal of positive attention throughout the industry.
The Company’s technological expertise also
contributed to the construction of the new Tokyo
Bay Aqua Line expressway in Tokyo, which was
opened in December 1997. COMSYS installedsome 4,420 meters of optical cable for the
expressway’s network facilities. The Aqua Line

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"Inside" Projects"Outside" Projects

67%of Total Revenue
Sales of NTT Construction(¥ Billions)
94 95 96 97 98

89

Domestic Construction and Engineering

godowns that date back to the Edo Period.
COMSYS installed the park’s communications
equipment, and developed themultimedia software for the park’s management
and security computer system. COMSYS will also
provide maintenance for these systems, and is oneof the park’s official sponsors.
Aqua Wing, the Nagano Olympic Ice Hockey
Arena, is a 10,000-square-meter structure, threestories high and with one basement level, featuring a retractable arched roof. The city of Nagano
entered into a comprehensive contract withCOMSYS, and we acted as overall supervisor for
subcontracting through to completion, while installing all communications and computerequipment for the entire facility at the same time.
Since the end of the Olympics, Aqua Wing has beenused as a swimming facility.
The Company has designated CC Box, cableTV, LAN, and similar operations as strategic businesses, and is pursuing an energetic marketing
program centered on these fields. This effort allowed us to post substantial gains in both orders
received and net revenues.

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Park,

20.9

21%
of Total Revenue

19.4

28.7

37.4

47.5

The Domestic Construction and Engineering
sector handles projects for all domestic clients otherthan NTT and its group companies. This includes
the national government, local governments, theNCCs, and other private firms. Operations centeron telecommunications engineering projects, andinclude electrical facilities, structural-construction
related work, “CC Box” (multi-use undergroundcable conduit) facilities, and a wide spectrum ofother construction and engineering activities.
As the conversion to multimedia computing
and communications accelerates, in support of thehigh order, information-based society, telecommunications providers are expanding their facilities,
and government agencies are constructing the required communications infrastructure. This market
is expanding at a precipitous rate.
Noteworthy among projects undertaken by theCompany during this term were the Kurashiki
Tivoli Park and the Nagano Olympic Ice Hockey
Arena projects. Opened in July 1997, the Kurashiki
Tivoli Park is a large theme park modeled after
Denmark’s Tivoli Park. Located in Kurashiki City,
one of western Japan’s premier tourist destinations,
it lies along a canal near a row of warehouses and

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Sales of Domestic Construction
and Engineering (¥ Billions)
94 95 96 97 98

1011

International Operations

timedia city, and Kuala Lumpur’s Petronas Twin
Towers is the showpiece of this movement. CMC
Engineering SDN. BHD., our local subsidiary, installed the intelligent building system (IBS) in theTwin Towers, which are the world’s tallest “intelligent” office buildings.
Despite a vigorous effort to win contracts, theeconomic turmoil in Asia, including Thailand,
Malaysia, and the Philippines, resulted in an 18.4
percent decline in orders received, to ¥9.4 billion(US$71 million). However, net revenues, including revenues from contracts in hand at the beginning of the term, rose 18.1 percent to ¥10.5 billion (US$80 million).
Last December, COMSYS’s Overseas Divisionachieved ISO-9001 certification. The ISO-9000 series is an international standard that certifies the reliability of a firm, and is highly regarded in Japanand throughout the world. With regard to overseas
projects in particular, submission of ISO-9000 documents is a matter of course. In addition to the certification of the Overseas Division, COMSYS has
established a companywide working group centeredon the NTT Project Division and the Information &Communications Systems Division, to facilitate
prompt ISO-9000 certification throughout the company. ISO-9000 certification will enhance theCompany’s reputation with its clients, and win a highlevel of trust. This will contribute to our goal of becoming known as a “leading company.”oundndergrlling u k.
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6.7

8.7

8.9

10.5

COMSYS has engaged in an energetic andtightly directed program of expansion into overseas markets. The Company’s initial overseas
project, a 1964 contract for the laying of telecommunications trunk lines in Bangkok, Thailand, wasonly the first of many overseas projects in over 70
countries throughout Southeast Asia, the Middle
East, Africa, and Latin America, most related tocommunications cables, civil engineering, switching, electric power, radio, and computerization.
COMSYS offers a full range of services, ranging from consulting through planning, project execution, maintenance, and facilities operation. The
Company had major projects under way this termin Thailand, the Philippines, Malaysia, and othercountries throughout Southeast Asia. COMSYS is
pleased and proud in this way to contribute to thedevelopment of the region’s infrastructure.
The Company’s overseas bases include Thai
Telecommunications Engineering Co., Ltd. (established in 1978), Thai COMSYS & Jackson Co.,
Ltd. (established in 1992), COMSYS Philippines,
Incorporated (established in 1994), and CMC Engineering SDN. BHD. (established in 1996) in
Malaysia. In addition, COMSYS has fostered a
network of highly successful associates in various
countries, in cooperation with which it carries out
research, design, project execution, and consulting services.
Malaysia is proceeding at a fevered pace withthe construction of the world’s most advanced mul-

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4.3

5%
of Total Revenue
Sales of Overseas
Construction(¥ Billions)

94 95 96 97 98

1213

Construction Revenues for Last Three Years
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utilizing that sector’s accumulated technologicalexpertise to pursue a full-scale “proposal-driven
marketing” program. This is expected to allow us
to achieve continued expansion of orders.

Next term, poor economic conditions are forecast for Southeast Asia. In response, the local subsidiaries and joint ventures we have establishedthroughout the region will cooperated with theDomestic Construction and Engineering sector,

Over ¥20,000 million
Over ¥500 million
Over ¥300 million
Over ¥100 million
Over ¥50 million

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

14

15

Information Systems

16.1

zes
io utili
V stud
1. A T ed electionpehigh-sware
ng soft OMSYS.
ti
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3. A s .
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resoftwa

11.5

13.0

15.6

This term the sector introduced its WINEDream network kit, which enabled us to expand
our network sales operations nationwide. The
WINE-Dream network kit includes complete LAN
or WAN hardware and software at low cost. Sales
operations are targeted at new customers, chiefly
small and medium-sized firms with 300 or fewer
employees. Nationwide, this group represents a
potential market for six million LAN systems, but
because of costs and lack of trained personnel, thepermeation of LAN or WAN systems is much
lower among this group than among large firms.
WINE is an acronym for Windows ISDN Networki n g . U t i l i z i n g N T T ’s c o m m u n i c a t i o n s
infrastructure, Microsoft’s basic operating system,and network software, the small or medium-sizedcompany can easily build a network. We expectthat this product will allow us to make significant
inroads into this potentially huge market.
We will continue to expand our software development operations in the coming term,
including network systems and office equipment
sales. We will bend all our efforts to increasingorders received, by anticipating multimedia-driven
customer requirements.

14.9

The Information Systems sector offers software development services, and is engaged in thesale of office equipment. Clients include NTT and
NEC, as well as national and local government
agencies.
The office equipment market was hurt by theincrease in the national consumption tax from three
to five percent, which caused sluggish consumer
spending. In addition, competition from volumeretailers and other sales outlets has continued toworsen. In these difficult conditions, the fighting
for market share grows more intense.
In our software development operations weoffer everything from small utilities to total software solutions, depending on the individual
customer’s requirements. Comprehensive systems
integration and network construction are pillars of
the Information Systems sector’s operations. Development of systems and software, underpinned
by wide-ranging technological expertise, form the
backdrop for vigorous marketing programs thathave produced solid performance. As a result, thesector overall turned in stronger results this termthan in the previous fiscal year.

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7%
of Total Revenue
Sales of Information
Systems (¥ Billions)
94 95 96 97 98

16

17

Board of Directors and Auditors

Financial Section

As of June 26, 1998

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•

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•

Chairman of the Board
Shozo Iwasaki

President
Hironobu Takeuchi

Executive Vice President

Executive Vice PresidentManaging Director

Managing Director

Koichi Kinoshita

Ryuichi Arano

Kiyoto Kuwabara

Michiaki Ono

Managing Director

Managing Director

Managing Director

Managing Director

Managing Director

Managing Director

Koji Miyata

Isao Iijima

Takuo Sue

Takaaki Okayama

Yasunobu Sasaki

Ko TamaiDirectors
Masahide Kajiyama
Kensuke Yabuki
Katsuhiko Tanikawa
Tadashi Matsumoto
Tatsuya Sato
Kyoichi Suzuki

Syotaro Chikamoto
Masayuki Nose
Yoichi Chiba
Kenji Kondo

18

Standing Auditors
Takashi Kato
Masaharu Ogawa
Auditors
Yuzo Hashimoto
Sadanori Okada

Financial Review

20

Selected Financial and Operating Data

23

Non-Consolidated Balance Sheets

24

Non-Consolidated Statements of Income

26

Non-Consolidated Statements of Shareholders’ Equity

27

Non-Consolidated Statements of Cash Flows28

Notes to the Non-Consolidated Financial Statements

29

Report of Independent Certified Public Accountants

32

Summary of Consolidated Performance33

Financial Review
•
•
•
•
•

67%

Construction Business
NTT Construction
Domestic Construction Engineering
Overseas Construction
Other BusinessInformation Systems
Total

Thousands of
U.S. dollars

Millions of yen(Years ended March 31, 1994, 1995, 1996, 1997 and 1998)

1994

1995

1996

1997

1998

1998

¥ 99,297
20,9444,274¥111,053
19,3928,729¥129,613
28,706
6,697¥159,387
37,415
8,925¥149,997
47,476
10,545$1,136,341
359,667
79,886

11,522

13,03915,613

14,86316,085

121,856¥136,037¥152,213¥180,629¥220,590¥224,103$1,697,750

224.1

Proportion of
Revenues fromNTT Market(¥ Billions, %)

152.2

136.0

180.6

220.6

Note: Yen figures have been converted from U.S. dollars at the rate of ¥132.00=US$1, rounded, for convenience only, from anapproximate exchange rate of ¥132.10 to the dollar on March 31, 1998.

75.0

Net sales
70.0
65.0

Percentage generated by NTT
Construction Projects

60.0• Revenues •Japan drifted deeper into the economic doldrums in fiscal 1997. Consumer spending remained weak, as did private
sector capital investment. Japan’s troubled financial industry struggled to come to grips with the problem of
non-performing and defaulted loans, precipitated by asset
devaluation. The severe problems in other Asian economies
further complicated matters. Japan’s securities markets, ofcourse, reflected the lack of confidence fostered by these
conditions. In the face of this persistent recession, Nippon
COMSYS was able to achieve 1.6 percent growth in net sales,
which rose to ¥224,103 million (US$1,698 million).
Revenues in the NTT construction sector declined 5.9
percent from last term’s five-year high, to ¥149,997 million(US$1,136 million). This is 67 percent of the Company’s
total revenues, down from 72 percent in the previous term.
“Outside” projects accounted for ¥75,658 million (US$573
million) of this, and “inside” projects for ¥74,339 million(US$563 million).

• Results of Operations •Cost of sales as a percentage of sales edged up slightly
to 87.6 percent, but this slight increase was sufficient to produce a 0.2 percent decrease in gross profit, which slid to¥27,838 million (US$211 million). We achieved a reduction in selling, general, and administrative expenses, whichwere cut 3.7 percent to ¥13,777 million (US$104 million).
As a percentage of gross profit, SGA fell to 49.5 percent,continuing the long-term trend of improvement in this figure. This allowed operating income to rise 3.5 percent to¥14,061 million (US$107 million).
Income before income taxes grew at a similar pace, rising 4.8 percent to percent to ¥14,041 million (US$106
million). This was less than the 65.6 percent jump seen in
the previous term, but in view of economic conditions weregard it as an achievement. The effective income tax rate
was 45.8 percent, down slightly from last term’s 53.2 percent. Thus, net income rose 21.5 percent to ¥7,611 million(US$58 million), and net income per share increased 12.3
percent to ¥60.96 (US$0.46). Dividends were raised fromlast year’s ¥11.75 to ¥14.25 (US$0.11).

94 95 96 97 98

Net Income per Share (¥)

94 95 96 97 98• Financial Position •Cash and time deposits rose by 26.9 percent during thisterm, growing to ¥26,871 million (US$204 million), andmarketable securities investments were increased by 11.0
percent to ¥17,106 million (US$130 million). The accumulated cost of construction in progress shrank 14.5 percent to¥15,707 million (US$119 million). Notes and accounts receivable edged down 2.2 percent to ¥56,817 million (US$430
million). Despite declines in every other category, the increase in cash and time deposits was sufficient to produce
2.9 percent growth in current assets, which rose to ¥117,660
million (US$891 million).
The Company achieved a 16.8 percent reduction in current liabilities, which declined to ¥47,740 million (US$362

Total Assets (¥ Billions)

94 95 96 97 98

94 95 96 97 98

20

60.96

NTT Construction

1.0

Net income

54.27

33%

2.0

160.6

"Inside" Projects

Operating income

154.2

34%

37.69

"Outside" Projects

21%

3.0

32.91

Nippon COMSYS Corporation

138.6

Domestic Construction
and Engineering

4.0

26.62

Sales by Business Category

5.0

116.6

Information Systems

5% 7%

105.5

Overseas Construction

6.0

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

The domestic construction and engineering sector posted
growth in net sales of 26.9 percent to ¥47,476 million(US$360 million). This is the third consecutive year of
double-digit sales growth in this sector, showing the effectiveness of our efforts to expand non-NTT operations. Sales
in the overseas construction sector rose 18.2 percent to¥10,545 million (US$80 million). After a 4.8 percent decline in the previous term, the information systems sector
achieved 8.2 percent sales growth, to ¥16,085 million(US$122 million).

21

Nippon COMSYS Corporation

Selected Financial and Operating Datamillion). This was primarily due to reductions in trade
payables, current portion of notes with warrants, and income
taxes payable, although improvements were recorded in every category. As a result of the foregoing, the current ratiorose from 2.0 in the previous term to 2.5.
On the heels of a 36.2 increase in the previous fiscal
year, this term saw investments and other assets rise a further 21.5 percent to ¥15,480 million (US$117 million). Total
property and equipment again remained on its increasing
trend, rising 3.3 percent to ¥27,123 million (US$205 million), after depreciation. These factors allowed total assets
to grow by 4.1 percent to ¥160,561 million (US$1,216 million). Shareholders’ equity jumped 38.4 percent to ¥90,101
million (US$683 million). This was primarily the result of
the conversion of convertible bonds to common stock, theexercise of warrants issued with notes, and the growth ofretained earnings.

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

65.1

59.3

56.4

90.1

Years ended March 31, 1994, 1995, 1996, 1997 and 1998

10.0

39.8

8.0

Shareholders' equity

6.0

ROE
4.0
2.0

• Cash Flows •Net income grew 21.5 percent, but net cash provided byoperating activities showed disproportionate improvement,
rising from last term’s negative ¥1,832 million to ¥6,728
million (US$51 million). After plunging by more than 50
percent in the previous fiscal year, net cash used in investing
activities dropped a further 20.4 percent to ¥5,293 million(US$40 million).
Proceeds from issuance of convertible bonds fell from
¥10,000 million in the previous year to zero, while proceedsfrom exercise of warrants multiplied five-fold, rising from¥335 million last term to ¥18,083 million (US$137 million)in the current fiscal year. Redemption of notes with warrants, at ¥9,867 million (US$75 million) was 40.6 percent
from the previous year’s total. However, this was not sufficient to offset the increase in proceeds from exercise of
warrants, and net cash provided by financing activities morethan doubled, rising to ¥5,960 million (US$45 million). Cashand cash equivalents increased 20.2 percent to ¥43,977 million (US$333 million).

Dividends per Share (¥)

8.00

7.25

9.75

11.75

14.25

94 95 96 97 98

94 95 96 97 98

22

Thousands of
U.S. dollars

Millions of yen
1994

1995

1996

1997

1998

1998

Results of Operations:
Net sales
Operating income
Income before income taxes
Net income¥136,037
5,698
5,759
2,419

¥152,213
7,042
7,127
3,637

¥180,629
8,544
8,092
3,742

¥220,590
13,582
13,397
6,267¥224,103
14,061
14,041
7,611$1,697,750
106,523
106,371
57,659Financial Position:
Total assets
Property and equipment
Long-term debt
Shareholders’ equity¥105,450
15,866
17,74239,821¥116,617
17,66425,08256,395¥138,610
24,81424,99559,277¥154,246
26,24725,12865,096¥160,561
27,123
16,791
90,101$1,216,371
205,477
127,204
682,583

Per Share of Common Stock (in yen and dollars):
Net income
Cash dividends
Shareholders’ equity¥ 26.627.25
428.19¥ 37.70
8.00
539.08¥ 32.919.75
514.90¥ 54.2711.75
562.23¥ 60.9614.25
690.67$

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

4.19%
1.78
37.8
6.8

4.63%
2.39
48.4
7.6

4.73%
2.07
42.8
6.5

6.16%
2.84
42.2
10.1

0.46
0.11
5.23

6.27%
3.40
56.1
9.8

¥135,762
56,755¥143,034
47,576¥186,180
53,127¥225,147
57,684¥234,877
68,458¥1,570930¥1,2801,180¥1,450980¥1,5601,190¥2,0201,240$1,779,371
518,621

Note: Yen figures have been converted from U.S. dollars at the rate of ¥132.00=US$1, rounded, for convenience only, from an approximate exchange rate of¥132.10 to the dollar on March 31, 1998.

23

Nippon COMSYS Corporation

Non-Consolidated Balance Sheets
As of March 31, 1997 and 1998

Thousands of
U.S. dollars (Note 2)

Millions of yen

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

1997

1998

1998

¥ 21,171
15,41158,091¥ 26,871
17,10656,817$ 203,568
129,591
430,432

18,375
276
1,169
(131)

15,707
262
1,025
(128)

118,992
1,985
7,765
(969)

114,362

117,660

891,364

1,053
4,985

1,490
6,293

11,28847,674

356
2,769
3,597
(20)

219
3,032
4,464
(18)

1,659
22,97033,818(136)

12,740

15,480117,273

16,32010,5237,709
21(8,326)

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

124,636
79,95559,75011,462(70,326)

26,247

27,123

205,477

897

298

2,257

897

298

2,257

¥154,246¥160,561$1,216,371

Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITY

1997

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

¥

1998

¥

—
7,755

1998

$

—
58,75029,108
2,228
4,372
6,195
2,351
2,827

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

203,773
18,167
27,167
26,7809,780
17,250Total current liabilities

57,38847,740361,667

Long-Term Liabilities:
Notes (Note 4)
Convertibles bonds (Note 4)
Accrued severance indemnities
Other long-term liabilities

15,12810,000
6,161
473

7,373
9,418
5,876
53

55,856
71,34844,515402

31,762

22,720172,121

17,250—14,521
1,271
32,054—
26,592
24,904
1,511
37,094—201,454
188,667
11,447
281,015

65,096

90,101

682,583¥154,246¥160,561$1,216,371

Total long-term liabilities
Contingent Liabilities (Note 5)
Shareholders’ Equity (Note 6):
Common stock, par value ¥50 per share:
Authorized— 250,000 thousand shares
Issued— 115,782 thousand shares (31st March, 1997)— 130,453 thousand shares (31st March, 1998)
Additional paid-in capital
Legal reserve
Retained earnings
Total shareholders’ equity

See Notes to the Non-Consolidated Financial Statements.

24

440
9,867

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

Nippon COMSYS Corporation

Nippon COMSYS Corporation

Non-Consolidated Statements of Income

Non-Consolidated Statements of Shareholders’ Equity

Years ended March 31, 1997 and 1998

Years ended March 31, 1997 and 1998

Thousands of
U.S. dollars (Note 2)

Millions of yen

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

1997

1998

1998

¥205,727
14,863¥208,018
16,085$1,575,894
121,856

220,590

224,103

1,697,750

179,917
12,783

182,819
13,446

1,384,992
101,864

192,700

196,265

1,486,856

27,89027,838210,894

14,308

13,777104,371

13,582

14,061

106,523

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

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

541
(7)
(719)

737
(7)
(750)

5,583
(53)
(5,682)

(185)

(20)

(152)

13,3977,130

14,041
6,430

106,371
48,712End of period¥ 6,267¥ 7,61157,659Retained Earnings:
Beginning of period
Add/(deduct):
Net income
Transfer to legal reserve
Cash dividends
Bonuses to directors

Yen

Per Share:
Net income
Cash dividends¥54.27
11.75$

U.S. dollars (Note 2)¥ 60.96
14.25

$0.46
0.11

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

End of period

See Notes to the Non-Consolidated Financial Statements.

See Notes to the Non-Consolidated Financial Statements.

26

Thousands of
U.S. dollars (Note 2)

Millions of yen

27

1997

1998

1998

¥16,895¥17,250$130,682

187
168

291
9,051

2,205
68,568¥17,250¥26,592$201,455¥14,122¥14,521$110,008

187
212

291
10,092

2,205
76,454¥14,521¥24,904$188,667¥ 1,141¥ 1,271$ 9,629

130

240

1,818

¥ 1,271¥ 1,511$ 11,447¥27,119¥32,054$242,833

6,267
(130)
(1,122)
(80)

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

57,659(1,818)(17,091)(568)¥32,054¥37,094$281,015

Nippon COMSYS Corporation

Nippon COMSYS Corporation

Non-Consolidated Statements of Cash Flows

Notes to the Non-Consolidated Financial Statements

Years ended March 31, 1997 and 1998

Millions of yen

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

Thousands of
U.S. dollars (Note 2)

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

1997

1998

1998

¥ 6,267¥ 7,611$ 57,659

2,135
(444)

2,221
(285)

16,826(2,159)(16,420)(1,426)
123
6,887
(885)
2,546
(107)
(508)

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

9,652
20,311
1,091(15,455)(5,955)(20,151)(4,167)(6,682)(1,832)

6,728

50,970(3,246)(3,402)(2,555)(2,738)(19,356)(20,742)

Net cash used in investing activities(6,648)(5,293)(40,098)

Cash Flows from Financing Activities:
Proceeds from issuance of convertible bonds
Proceeds from exercise of warrants
Redemption of notes with warrants
Cash dividends paid

10,000335(7,016)(1,122)—
18,083(9,867)(2,256)—
136,992(74,750)(17,091)

2,197

5,960

45,151Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year

(6,283)42,865

7,395
36,58256,023
277,136

Cash and Cash Equivalents at End of Year¥36,582¥43,977$333,159(e) Inventories
Inventories (excluding (c) above) are stated at cost, by the moving averagemethod.

$ 3,674
82,273
4,409(f) Depreciation
Depreciation of property and equipment is computed on the declining balancemethod, as prescribed by Japanese income tax laws, using estimated useful
lives of assets principally as follows:
Buildings and structures
8 to 65 years
Machinery and equipment 3 to 10 years

Net cash provided by operating activities
Cash Flows from Investing Activities:
Expenditure for property and equipment(Increase) decrease in investments and other assets

Net cash provided by financing activities

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

¥

678
6,526
374

¥

485
10,860582(b) Point of sales—construction contracts
Construction contracts of the Company are accounted for by the “completed
contract method” under which “net sales” are recognized when the contracts
are completed. The accumulated cost of uncompleted construction is shown as“accumulated cost of construction in progress” and the related billings (advances received) on uncompleted construction contracts are shown as “advances received on construction in progress” in the accompanying balance
sheets.
(c) Accumulated cost of construction in progress
In connection with (b) above, “accumulated cost of construction in progress”
is stated on an individual project basis.
(d) Marketable securities and investment securities
Marketable securities (current) and investment securities (non-current) listed
on stock exchanges (excluding securities trading on over-the-counter markets)
are stated at the lower of cost or market, cost being determined by the periodic
average method. Other securities without market quotations on stock exchanges
and investments in subsidiaries and affiliates are stated at cost, determined by
the periodic average method.

See Notes to the Non-Consolidated Financial Statements.

2829(g) Allowance for doubtful receivables
Allowance for doubtful receivables is provided at the maximum amount permitted to be charged to income under Japanese income tax laws plus an estimated amount of possible bad debts.
(h) Accrued severance indemnities
Employees of the Company are usually entitled to lump-sum severance indemnities determined by reference to their current basic rate of pay, length ofservice and conditions under which the termination occurs.
On 1st February, 1997, the Company established a contributory trusteed
employee pension fund, composed of a portion covering the benefits for theseverance indemnities and another portion covering social security benefits,
to which the Company and employees make contributions.
The Company’s policy for severance indemnities benefits is to contributeand charge to income normal costs as accrued on the basis of an accepted
actuarial method and prior service costs as amortized over 20 years.
The assets of the funds for the severance indemnities benefits at 31st March,
1998 were ¥17,653 million (U.S.$133,735 thousand).
Before the contributory trusteed employee pension fund was established,severance indemnities benefits had been accounted for and reserved as “accrued severance indemnities” and funded through tax-qualified pension plans.
On its establishment, the all assets of the tax-qualified pension plans weretransferred to the contributory trusteed employee pension fund, and the remaining balance of “accrued severance indemnities” were/would be, amortized in each years over 20 years.
As is customary practice in Japan, the Company has unfunded lump-sum
severance indemnities for directors and statutory auditors providing for 100
per cent. of the liability which would accrue if all directors and statutory auditors terminated their services at the balance sheet date.
(i) Warrants and discount on notes payable
The warrants are accounted for separately from the notes and treated as a current liability for the purpose of balance sheets, and discount on notes payablearising from the issuance of notes with warrants is included in deferred charges
for the purpose of balance sheets and is/will be amortized by equal amounts
over the periods up to maturity, in accordance with accounting principle generally accepted in Japan.
(j) Income taxes
Income taxes in Japan applicable to the Company are comprised of corporation tax, inhabitants’ taxes and enterprise tax. As is common practice in Japan,
enterprise tax is included under “selling, general, and administrative expenses”
in the statements of income.
Deferred income taxes pertaining to timing differences between financial
and tax reporting are not provided for.

(k) Net income and cash dividends per share
The computations of net income per Share shown in the non-consolidated statements of income are based on the weighted average number of Shares in issueduring the period. The number of Shares used for computing net income per
Share was 115,480 thousand and 124,860 thousand Share for the two years in
the period ended 31st March, 1998, respectively. Cash dividends per Shareare based on the cash dividends paid in respect to the relevant period.
(l) Cash flow information
The Company considers marketable securities (current) and all time deposits
with original maturities of one year or less, which can be withdrawn at least at
face amount at any time without any penalties, to be cash equivalents.

2. U.S. Dollar Amounts
The accounts of the Company are maintained in Japanese yen. The accompanying non-consolidated financial statements have been presented in Japanese
yen and have also been presented in U.S. dollars by translating all Japanese
yen amounts using the rate of ¥132.00=U.S.$1. The presentation of such dollar amounts is solely for the convenience of the readers and is not intended to
imply that yen amounts have been or could be converted, realized or settled indollars at that or at any other rate.

3. Market Value Information of Securities
At 31st March, 1997 and 1998, book value and market value of marketablesecurities and investment securities, as to which market value information isrequired to be disclosed, were as follows:

31st MarchMillions of yen
1997
1998
Book Market Book
Market
value
value
value
value

Thousands of
U.S. dollars
1998
Book
Marketvalue
value

Marketable securities:
Stocks
¥
2 ¥
2 ¥
4 ¥
4 $
30 $
30
Bonds and others 5,500 5,761 3,000 3,064 22,727 23,212

4. Short-Term Bank Loans and Long-Term Debt:
Short-term bank loans are generally represented by 365-day notes with interest rates principally of 1.625 per cent. at 31st March, 1997.
At 31st March, 1997 and 1998, long-term debt consisted of the following:

31st March

1.125 per cent. U.S. dollar notes due 1998
with warrants
3.750 per cent. U.S. dollar notes due 1999
0.5 per cent. Swiss franc notes due 1999
0.3 per cent. yen unsecured convertible
bonds due 2003
Current portion

Millions of yen
1997
1998

¥ 9,867 ¥
—
7,755
7,755
7,373
7,373
10,000Thousands of
U.S. dollars
1998

$

—
58,75055,856

9,418

71,348¥34,995 ¥24,546
9,867
7,755

$185,954
58,750¥25,128 ¥16,791$127,204

Convertible bonds
At 31st March, 1998, unsecured convertible bonds consisted of the following:
The original amount issued at 24th, June, 1996
¥10,000 million
Balance as at 31st March, 1998
¥9,418 million
Interest rate
0.3%
Maturity date
31st March, 2003
Conversion period:
On and after
1st August, 1996
Up to and including
28th March, 2003
Conversion price:
At 31st March, 1998
¥1,435(U.S.$10.87)
The number of shares of common stock required for conversion of theabove unsecured convertible bonds outstanding at 31st March, 1998 at thecurrent conversion price would have been approximately 6,563 thousand.

Date of issue
Interest rate
Maturity date
Warrants exercisable:
On and after
Up to and including
Subscription price:
At 31st March, 1998

Notes(*1)
US$100,000,000

Notes(*1)
SF100,000,000

30th March, 1995
3.750%
30th March, 1999

7th September, 1995
0.5%
7th September, 1999

10th April, 1995
16th March, 1999

21st September, 1995
31st August, 1999

¥1,146.4(U.S.$8.68)¥1,353.00(U.S.$10.25)

3,771
1,184
317

1,530
1,629
651

3,841
1,735
603

11,591
12,341
4,932

5. Contingent Liabilities
At 31st March, 1997 and 1998, contingent liabilities consisted of the following:

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

29,09913,144
4,568¥8,319 ¥11,035 ¥6,814 ¥9,247 $51,621 $70,053

30“Other, net” in “Other Income (Expenses)” consisted of the following:

The number of shares of common stock required for exercising of theabove warrants remaining unexercised at 31st March, 1998 at the current
subscription prices would have been approximately 6,974 thousand.
The conversion price of the above convertible bonds and subscription pricesof the above warrants are subject to adjustment under certain circumstances,including stock splits pursuant to the relevant agreement.
The Company entered into long-term forward foreign exchange contracts
with banks to hedge their payment of the aforementioned U.S. dollar notes andnotes with warrants. Consequently, the notes were translated at the contracted
rate, and the resulting translation gains are deferred as “other long-term liability”, and amortized and credited to “interest expenses” each year over the period
up to maturity.

Millions of yen
1997
1998

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

7. Other Income and Expenses

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

31st March

Investment securities:
Stocks
1,341
Bonds
1,127
Others349

6. Shareholders’ Equity

Notes, warrants
At 31st March, 1998, notes consisted of the following:Thousands of
U.S. dollars
1998

Years ended 31st MarchMillions of yen
1997
1998

Thousands of
U.S. dollars
1998

Write-down of investment securities¥ (19)
Amortization of discounts on note premium (599)
Expenses on issue of unsecured
convertible bonds
(240)
Other
139

¥ (88)(599)$ (667)(4,538)

—
(63)

—
(477)

¥(719)¥(750)$(5,682)

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

9. Subsequent Event¥ 5,252¥ 3,081$ 23,341

4,510
4,595
2,379
1,350
581

4,082
2,841
1,435
1,357
497

30,924
21,523
10,871
10,2803,765¥18,667¥13,293$100,704

On 26th June, 1998, the shareholders of the Company approved the following
appropriations of retained earnings:

Cash dividends
Transfer to legal reserve
Bonuses to directors

31

Millions of yen

Thousands of
U.S. dollars

¥946
110
95

$7,167833
720

Report of Independent Certified Public Accountants

Summary of Consolidated Performance

•
•
•
•
•

Nippon COMSYS Corporation and Consolidated Subsidiaries
Years ended March 31, 1997 and 1998

Millions of yen

Net sales
Operating income
Net income
Total assets
Shareholders’ equity

Thousands of
U.S. dollars

Change

1997

1998

1998

(%)

¥221,636
13,733
6,831
158,839
68,979¥225,313
14,3488,309
166,067
94,654$1,706,917
108,697
62,947
1,258,083
717,076

1.7%
4.5%
21.6%
4.6%
37.2%

8TH FLOOR NO.10 MORI BUILDING
1-18-1 TORANOMON MINATO-KU

YenTOKYO 105-0001 JAPANPer share:
Net income
Cash dividends

To the Board of Directors,
Nippon COMSYS Corporation¥59.15
11.75

U.S. dollars¥66.55
14.25

$0.50
0.11

12.5%
21.3%

Note: Yen figures have been converted from U.S. dollars at the rate of ¥132.00=US$1, rounded, for convenience only, from an approximate exchange rate of¥132.10 to the dollar on March 31, 1998.
We have examined the non-consolidated balance sheets of Nippon
COMSYS Corporation as of 31st March, 1997 and 1998, and the related
non-consolidated statements of income, shareholders’ equity and cash flows
for each of the two years in the period ended 31st March, 1998, allexpressed in Japanese yen. Our examinations were made in accordancewith auditing standards generally accepted in Japan and accordingly included such tests of the accounting records and such other auditing
procedures as we considered necessary in the circumstances.

220

Net Sales(¥ Billions)

8.0

Net Income(¥ Billions)

200

6.0

180

In our opinion, the accompanying non-consolidated financial statements present fairly the financial position of Nippon COMSYS Corporation
at 31st March, 1997 and 1998, and the results of its operations and cash
flows for each of the two years in the period ended 31st March, 1998, inconformity with accounting principles generally accepted in Japan applied on a consistent basis.

160

Consolidated

Consolidated
4.0

140

Non-Consolidated

Non-Consolidated
120

2.0

94 95 96 97 98

94 95 96 97 98

Masatoshi Yoshino

Total Assets(¥ Billions)

Net Income per Share
(¥)

160

60

Eiji Miyashita

50
140
40

Consolidated

Consolidated
120

Hideo Niwa
Tokyo, Japan
26th June, 1998

Certified Public Accountants

30

Non-Consolidated

Non-Consolidated
100

20

94 95 96 97 98

32

94 95 96 97 98

33

Organization Chart

Corporate Information

As of July 1, 1998

As of March 31, 1998

•
•
•
•
•

•
•
•
•
•
Planning & Business Analysis Division

Managing Director’s Meeting
General Affairs Department

Head Office:Main Clients:

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

Nippon Telegraph and Telephone Corporation (NTT)
Kokusai Denshin Denwa Co., Ltd. (KDD)
DDI Corporation
Tokyo Telecommunication Network Co., Inc.
Sharp Corporation
Japan Highway Public Corporation
RECRUIT Co., Ltd.
The Tokyo Electric Power Co., Inc.
Fuji Xerox Co., Ltd.
The Furukawa Electric Co., Ltd.
Sumitomo Electric Industries, Ltd.
Fujikura Ltd.
Hitachi Cable, Ltd.
NEC Corporation
Fujitsu Limited
Mitsubishi Corporation
Marubeni Corporation
Mitsui & Co., Ltd.
Sumitomo Corporation
Lucent Technologies
Telephone Organization of Thailand (Thailand)
Ministry of Communications (Kuwait)
TelecomAsia Corporation Public Co., Ltd. (Thailand)
Thai Telephone & Telecommunication Public Co., Ltd.
(Thailand)
Philippine Long Distance Telephone Co. (Philippines)
International Communications Corp., Inc. (Philippines)
Globe Telecom Inc. (Philippines)
Smart Communications Inc. (Philippines)

Overseas Division:

Board of Directors

Public Relations OfficeTel: 81 (3) 3448-7181
Fax: 81 (3) 3440-5941

Finance & Accounting Department

Branch Offices:
Hokkaido, Tohoku, Akita, Kantominami, Kantonaka,
Kantokita, Shinetsu, Niigata, Tokai, Hokuriku, Kansai,
Chugoku, Shikoku, Kyushu, Okinawa

Auditing Department

Chairman of the Board

Overseas Liaison Office:

Personnel Department

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

Establishment:
1951

President

Human Resources Department

Paid in Capital:¥26,591 million

Materials Control & Procurement Department

Stock listings:
Executive Vice President

Common stock-Tokyo, Osaka
Overseas Division

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

Affiliate Liaison Office

Statutory Auditors

Bank References:

Contracting Division

Employees:

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

3,692
Hokkaido

Safety & Quality Control Division

Engineering Division
Akita
TohokuNTT Project Division
Niigata
Hokuriku

Shinetsu

Information & Communications System Division

Kantokita
Kantonaka
TOKYO

Kantominami
Kansai Tokai

Chugoku
KyushuShikoku

Research & Development Center

Head Office
BranchOkinawa

Bangkok Liaison Office34

35

Corporate Directory
Nippon COMSYS Corporation
As of March 31,1998

Company Name
Consolidated Subsidiaries

Principal BusinessOkoshi Denken Co., Ltd.

Telecommunications engineeringand electrical engineering¥60 million

96.4 %

Tokyo Denwa Shisetsu Co., Ltd.

Design of telecommunications
facilities and civil engineering projects¥40 million

85.3

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

Sales of construction materials¥60 million

94

Nippo Kensetsu Kogyo Co., Ltd.

Civil engineering¥50 million

55

COMSYS Techno Co., Ltd.

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

100

COMSYS Business Service Co., Ltd.

Construction of telecommunications
facilities¥304 million

100

Construction of telecommunications
facilities¥54 million

39

Construction of telecommunications
facilities¥60 million

33

Technological consulting
and engineering services

B15,000 thousand

48

Thai COMSYS & Jackson Co., Ltd.

Technological consulting
and engineering services

B2,000 thousand

49

COMSYS Philippines, Inc.

Technological consulting
and engineering services

P3,125 thousand30

CMC Engineering SDN. BHD.

Technological consulting
and engineering services

RM500 thousand

59.2

Major Affiliates
Domestic:
Tokyo Tsuken Co., Ltd.

Nitto Tsuken Co., Ltd.

Overseas:
Thai Telecommunications
Engineering Co., Ltd.

Paid-in Capital

36

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

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

Printed in Japan